As it prepares to move forward on a confirmatory Phase III study of Zenvia, an approvable product for involuntary emotional expression disorder, Avanir Pharmaceuticals Inc. has embarked on efforts to trim its cash burn.

While cost-cutting moves largely will affect research operations, including a departure from its San Diego research facility, the company has not yet disclosed how many employees might be affected. Staff not associated with research will move to Avanir's headquarters in Aliso Viejo, Calif. The company expects those steps to reduce its annual operation costs to $20 million, and hopes to add enough cash to sustain two years of operations, including the upcoming Zenvia Phase III study.

As of Dec. 31, Avanir had cash and investments totaling $17.6 million.

The restructuring comes just as Avanir concludes two research collaborations, one with Novartis AG and the other with AstraZeneca plc. "Both of those came to an end - though very different ends - and that allowed us to restructure the company and get our cash burn in line," said Keith Katkin, who served for nearly two years as Avanir's senior vice president in sales and marketing before taking over as CEO earlier this month.

Its two-year research collaboration with Basel, Switzerland-based Novartis was signed in April 2005 and aimed at developing small-molecule inhibitors of macrophage migration inhibitor factor (MIF) for inflammatory diseases. Since then, the companies have identified a lead compound, AVP-28225, and Novartis opted to assume further development activities. Under the terms, total payments to Avanir could reach $210 million in up-front, milestone and research payments. (See BioWorld Today, April 29, 2005.)

While that program is moving forward, Avanir's collaboration with London-based AstraZeneca is not. The companies "mutually agreed" to terminate the research and license agreement on the reverse cholesterol transport (RCT) enhancing compounds, with the lead molecule returning to Avanir, Katkin told BioWorld Today. "We're still evaluating options with that research," he added, though the company's cuts to its research division means that those options likely would have to involve partnership or licensing arrangements.

Shares of Avanir (NASDAQ:AVNR) dropped 22 cents, or 15.5 percent, Thursday to close at $1.20.

In addition to reducing expenses, Avanir also plans to evaluate other strategic options, such as the possible sale of certain assets. The company said it has received "expressions of interest" in some of its investigational candidates, as well as FazaClo, an orally disintegrating clozapine formulation marketed in schizophrenia. Avanir gained rights to FazaClo, along with its 50-person sales team, through its May 2006 acquisition of Los Angeles-based Alamo Pharmaceuticals LLC. That deal, which called for a $29 million up-front payment and $40 million in milestones related to FazaClo sales, was intended to precipitate Zenvia's anticipated market launch by providing Avanir with a ready-made sales force in the neurological disorder space. (See BioWorld Today, May 24, 2006.)

But an approvable letter in late October delayed the potential launch of Zenvia, and the company, instead, found itself in the position of having to fund a new trial in involuntary emotional expression disorder (IEEED). Avanir disclosed last month it obtained "a clear direction forward from the FDA," Katkin said, and plans to get the required confirmatory study "up and running as soon as possible." (See BioWorld Today, Nov. 1, 2006.)

The trial's cost has not been disclosed and the company still is working to determine the number of patients needed to power the study for statistical significance, but Katkin said it's likely the study will evaluate the drug in patients with several underlying neurological disorders, including amyotrophic lateral sclerosis, multiple sclerosis, stroke and dementia. IEEED, which is characterized by involuntary laughing or crying, is believed to affect about five percent of patients with those types of disorders. Zenvia is a combination of dextromethorphan and the enzyme inhibitor quinidine and aims to alleviate IEEED by regulating excitatory neurotransmission.

Pending positive results from the confirmatory study, Avanir anticipates refiling for approval in about two years.

Beyond IEEED, the company is testing Zenvia in a Phase III study in diabetic neuropathy, with data from that trial expected this spring. If results are positive, Katkin said, it's likely a second trial would be needed before filing a new drug application. He added that the company always planned to conduct two trials in that indication, but opted to run them consecutively rather than concurrently to conserve cash.

Avanir holds all rights to Zenvia, and Katkin said it still hopes to commercialize the product on its own in IEEED. In diabetic neuropathy, however, "we're open to partnerships."

The company will update investors at its next earnings call in May. For its fiscal year 2006, which ended Sept. 30, Avanir reported a net loss of $62.6 million, or $2.04 per share. Operating expenses for the year totaled $75 million.