As it prepares for an FDA approval and launch of its second product, Neurodex, Avanir Pharmaceuticals Inc. agreed to buy Alamo Pharmaceuticals LLC for $29 million in up-front costs, as well as a potential $40 million in sales milestone payments.

Alamo is a private specialty pharmaceutical firm based in Los Angeles, but with a facility in Parsippany, N.J., the headquarters of its commercialization efforts for its marketed product FazaClo (clozapine). A team of about 50 sales representatives currently markets FazaClo, an orally disintegrating formulation of clozapine for the management of severely ill schizophrenic patients who fail to respond adequately to standard treatments. The therapy also is indicated for reducing the risk of suicidal behavior in patients with schizophrenic or schizoaffective disorder.

Acquiring Alamo made sense to Avanir because the company needed to build its own sales force for Neurodex, which is under FDA review as a treatment of involuntary emotional expression disorder (IEED), or pseudobulbar affect.

"The major reason we did it was to provide economic leverage with a second product and to have a sales force on the ground, ready to go," said Eric Brandt, president and CEO of San Diego-based Avanir.

The $29 million up-front cost consists of about $4 million in cash and $25 million in notes, which represents three times the current annualized monthly run rate of FazaClo sales. The notes are due in three years, but about $14 million of the total amount is subject to acceleration at the holder's request under certain circumstances. Avanir can repay the accelerated amount in cash or with common stock.

The company also is required to pay up to $40 million in milestone payments, with two such payments coming at a low level of sales and two others payable once FazaClo reaches sales levels north of $40 million, Brandt said.

"My fervent hope is that we pay those milestones," he told BioWorld Today.

Avanir plans to take on all of Alamo's 90 employees - including the 50 sales reps, essentially doubling the size of its organization. It will be a merging of Avanir's research and development team with Alamo's commercial team, which also consists of a FazaClo Patient Registry group composed of health care, registry, call center, administrative support and data management professionals. The Parsippany, N.J., facility will remain in place, but Avanir expects to absorb the Los Angeles office into its Orange County, Calif., site.

Alamo's FazaClo was approved in August 2004 and has sales of about $750,000 a month, or $9 million a year. Brandt said the sales have "been a little flat recently," but he expects "to drive the growth further" by rejuvenating the sales force as they prepare to market Neurodex. The FDA's PDUFA date for deciding on the Neurodex new drug application is scheduled for the end of July.

Avanir originally expected to build a sales force of 60 to 100 people for Neurodex, but with the Alamo acquisition, it plans to have a team of about 125.

"They're bringing us 50 today, but the economic power of FazaClo gives us the ability to fund additional sales people," Brandt said.

FazaClo is marketed to psychiatrists and long-term care physicians, areas of overlap for Neurodex, which also will be targeted to neurologists.

While schizophrenia afflicts 2 million Americans, 20 percent receive little or no benefit from conventional medications. FazaClo tablets use the OraSolv technology licensed from CIMA Labs Inc., of Eden Prairie, Minn., and are designed to disintegrate in the mouth within 30 seconds.

Neurodex is a combination of dextromethorphan and the enzyme inhibitor quinidine and is believed to help regulate excitatory neurotransmission. Avanir filed an NDA for the product in summer 2005, but an FDA decision, expected by the end of that year, was delayed when the agency requested more preclinical data and later found formatting and summarization issues that have since been resolved.

Neurodex also is in a Phase III trial for diabetic neuropathic pain.

Avanir's shares (NASDAQ:AVNR) rose 20 cents Tuesday to close at $8.70.

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