Investors Warming Up to AVNR Print E-mail
By Patrick Crutcher   
Wednesday, 07 July 2010 07:30

Recently, the investment community has really been warming up to Avanir Pharmaceuticals (NASDAQ:AVNR). A recent upgrade from Jeffries to "BUY" has helped fuel the recent price action.

As a matter of fact, during the past 3 months, four firms (Jeffires, Wedbush, Cantor Fitzgerald, and Cannacord Adams) gave the stock price targets of $10, $9, $8 and $6-- all of which represent more than 2 times the current price. More analyst upgrades are expected. Even at it's current market cap, investors should be able to see 100% returns before the company's FDA decision on October 30th for Zenvia.

AVNR’s lead product candidate, Zenvia, has completed three Phase III clinical trials for the treatment of pseudobulbar affect (PBA) and has completed a Phase III trial for the treatment of patients with diabetic peripheral neuropathic pain (DPN pain). AVNR was given an approvable letter back in 2006 for Zenvia. After this, a confirmatory Phase III trial under an SPA (Special Protocol Assessment) was started. This trial was designed to address issues raised in FDA approvable letter, Avanir agreed to reformulate and test lower doses of Zenvia.

The SPA for their Phase 3 trial certainly helps their case, followed by compelling safety and efficacy data for their lower dose in the STAR trial. In all three Phase III studies, Zenvia was generally safe and well tolerated. Zenvia met its endpoints demonstrating statistically significant efficacy by reducing PBA episodes, as well as other secondary endpoints. They also had statistically significant higher remission rates. Safety and efficacy data at the American Academy of Neurology (AAN) Annual Meeting in May 2010.(Both of which garnered late-breaking status at the conference.) With improved efficacy and safety, AVNR has built a great case for approval of Zenvia. The slides below are from the June 2010 Investor presentation.

A look at indications and potential market for Zenvia reveals the following:

Pseudobulbar affect (PBA) is a neurologic condition characterized by involuntary, sudden, and frequent episodes of laughing and/or crying in patients with underlying neurologic disease or injury for which there is no FDA approved therapies. It is estimated to affect approximately 2 million patients in the U.S. with moderate to severe PBA. PBA is estimated to occur in 49% of patients with ALS, in 10% of patients with MS, in 11% of patients 1 year after suffering a stroke, and in 11% of patients after a traumatic brain injury. There are currently no FDA approved treatments for PBA; Zenvia is serving an unmet medical condition.

It is important to note that AVNR will be seeking a fairly broad label use for Zenvia. Per CEO Keith Kaitlin," as has been the agreement all along with the FDA, if we study Zenvia in two separate neurologic populations, like we did in the STAR trial, then that should be sufficient for a broad label for all patients that have PBA." Zenvia would also be prescribed indefinitely, which adds considerable value to future revenue.

Zenvia has patent protection for 15 years(until late 2025) which will be essential to AVNR's future. More importantly, they are going to be marketing and selling Zenvia themselves. This translates into considerably more potential future revenue and higher price estimates. The management seems pretty confident that they will get Zenvia through the FDA. So confident, that they're currently looking to hire 60+ new employees in Sales & Marketing. By essentially tripling their current work force, they will have adequate sales staffing levels for the launch of Zenvia. The sales team is being lead by Michael McFadden, who has a stellar track record with over 20 years of pharmaceutical commercialization experience, most recently at Amylin Pharmaceuticals. During his tenure, Amylin’s Managed Markets team was consistently recognized as one of the leading managed markets teams in the industry.

AVNR has a strong balance sheet and recently raised $26 million back in May, which should quell fears of dilution. They should have roughly $40 million in cash, with little long-term debt. With considerable insider and institutional holdings, the Street has taken notice and will ride this out for the profit. Management has successfully obtained regulatory approval in the past(Abreva) and the future seems even brighter with Zenvia.


Disclosure: Long AVNR

Patrick Crutcher is the managing editor of the biotech stock blog

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