Avanir Pharmaceuticals Inc. expects to pull in up to $54 million from the sale of antipsychotic drug FazaClo, a year after acquiring the drug in anticipation of an FDA nod for Zenvia in involuntary emotional expression disorder, to move Zenvia toward the finish line in IEED and diabetic neuropathy.

The Aliso Viejo, Calif.-based firm initially gained rights to FazaClo (clozapine), which is indicated to manage severely ill schizophrenic patients, along with a sales force, through its May 2006 purchase of Alamo Pharmaceuticals LLC, of Beverly Hills, Calif., for $29 million, plus $4 million in contingent run rate notes. That acquisition was intended to provide Avanir with an instant sales team that could also market Zenvia, but the plan hit a snag when the FDA requested additional safety and efficacy data in its October approvable letter for Zenvia in IEED. The boost of non-dilutive funding from the FazaClo sale should help fund the upcoming confirmatory Phase III study in IEED, slated to start later this year. (See BioWorld Today, May 24, 2006, and Nov. 1, 2006.)

The transaction "puts us on good footing" to begin that trial, as well as a planned confirmatory Phase III study of Zenvia in diabetic neuropathy, said Keith Katkin, Avanir's president and CEO.

Shares of Avanir (NASDAQ:AVNR) gained 33 cents, or 13.9 percent, Tuesday to close at $2.70.

Terms of the deal call for Avanir to sell rights to FazaClo, which include a new 12.5 mg dosage and formulation approved in May, to Azur Pharma, an Irish specialty pharmaceutical company, in exchange for $42 million at the close of the transaction, expected by early August.

That's a healthy boost for the company's cash position, which totaled about $8.7 million as of March 31. A common stock offering of 2.2 million shares later added about $7.2 million.

After using $11 million to pay a portion of the company's debt, the remainder of the $42 million should be enough to fund operating costs for "at least a year," Katkin said. Avanir's projected cash burn is anticipated to be about $20 million for the entire year, or about $5 million per quarter.

The company also could get up to an additional $10 million from Azur in contingent payments in 2009, and would receive up to $2 million in royalties based on 3 percent of annual net product revenues in excess of $17 million. FazaClo net revenues totaled about $3.8 million for the first three months of 2007. Azur also picks up the FazaClo sales force, though Avanir doesn't expect much in the way of cost savings associated with that divestiture. Katkin told BioWorld Today the company had anticipated that the sales force and FazaClo revenue would be "margin neutral" by the end of 2007.

Over the past year, most of Avanir's focus has been on Zenvia, a combination of dextromethorphan and the enzyme inhibitor quinidine, in IEED, a condition characterized by uncontrollable laughing or crying in patients suffering from neurological diseases or brain injury. Disorders such as multiple sclerosis, Parkinson's disease, Alzheimer's disease and traumatic brain injury affect about 18 million to 20 million in the U.S., and about 5 percent of those are believed to suffer from IEED severe enough to warrant treatment. Pending positive results from the final Phase III study, Zenvia could be the first drug on the market in that indication.

Avanir also has been studying Zenvia in diabetic peripheral neuropathic pain, with promising results so far. Positive top-line results from the first Phase III study reported in April sent the company's shares shooting 300 percent to close at $5.19. Those data showed that the drug met its primary endpoint of pain reduction according to the Pain Rating Scale, and also showed statistically significant improvements over placebo in secondary endpoint data. (See BioWorld Today, April 19, 2007.)

Through its partner, Basel, Switzerland-based Novartis AG, Avanir continues to advance AVP-28225, an oral, small molecule targeting macrophage migration inhibitor factor (MIF) for inflammatory disease. Novartis is responsible for ongoing research and development activities, with Avanir entitled to milestone payments and potential royalties on product sales. The company also continues to investigate its Xenerex monoclonal antibody platform with funding from the National Institutes of Health.

Earlier this year, Avanir ended a research collaboration with London-based AstraZeneca plc involving reverse cholesterol transport (RCT) enhancing compounds, with the lead molecule returning to Avanir. "We are still evaluating that program," Katkin said. He added that the company has put on hold another program, an early clinical-stage candidate for lupus, though it might consider potential licensing or partnership deals to move that forward.