8-K

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): May 22, 2006

Avanir Pharmaceuticals
__________________________________________
(Exact name of registrant as specified in its charter)

California	001-15803	33-0314804
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)
11388 Sorrento Valley Road, San Diego, California		92121
_________________________________ (Address of principal executive offices)		___________ (Zip Code)

Registrant’s telephone number, including area code: 858-622-5200

Not Applicable
______________________________________________
Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

The disclosure set forth below under Item 2.01 regarding the entry into a definitive agreement to acquire Alamo Pharmaceuticals, LLC ("Alamo") is incorporated herein by reference.

Item 2.01 Completion of Acquisition or Disposition of Assets.

On May 22, 2006, Avanir Pharmaceuticals (the "Company") entered into a Unit Purchase Agreement (the "Agreement") with Alamo and the members of Alamo (the "Selling Holders"), pursuant to which the Company agreed to acquire from the Selling Holders all of the outstanding equity interests in Alamo, subject to the satisfaction of certain closing conditions. On May 24, 2006, the Company completed the transactions contemplated under the Agreement and acquired Alamo as an indirect wholly owned subsidiary. There were no pre-existing relationships between the Company and its affiliates on the one hand and Alamo or the Selling Holders on the other.

Pursuant to the Agreement, the Company paid the Selling Holders cash consideration of $4,040,000 and issued three promissory notes in the respective principal amounts of $14,400,000, $6,675,000 and $4,000,000 (the "First Note," "Second Note" and "Third Note" respectively), representing indebtedness in the aggregate principal amount of $25,075,000 (collectively, th e "Notes"). The Notes bear interest at an average rate equal to the London Inter-Bank Offered Rate, or "LIBOR," plus 1.33%. Interest accruing on the Notes is payable monthly and the principal amount of the Notes matures three years from the date of issuance, provided that (i) the Selling Holders may demand early repayment of the First Note if the closing price of the Company’s Class A common stock ("common stock"), as reported on the Nasdaq National Market, equals or exceeds $15.00 per share for a total of 20 trading days in any 30 consecutive trading-day period (the "Stock Contingency"), and (ii) the Company must apply 20% of its future net offering proceeds from equity offerings to repay the Notes (starting with the First Note), and must repay the Notes in full if the Company has raised more than $100,000,000 in aggregate net equity offering proceeds following the acquisition of Alamo.

If the Selling Holders demand repayment of the First Note following satisfaction of the Stock Contingency, the Company shall repay the note within 180 days from the demand and may repay the note in cash or in shares of common stock. If the Company elects to repay the First Note in shares of common stock, the shares will be valued at 95% of the average closing price of the common stock, as reported on the Nasdaq National Market, for the five trading days prior to repayment, subject to a price floor.

The Company has the right to prepay, in cash or in common stock, the amounts due under the Notes at any time, provided that the Company may only pay the Notes in common stock if the Stock Contingency has occurred prior to the maturity date and if the Company has registered the shares on an effective registration statement filed with the Securities and Exchange Commission. If the Company elects to prepay the Notes with common stock, the shares will be valued at 95% of the average closing price of the common stock, as reported on the Nasdaq National Market, for the five trading days prior to repayment, subjec t to a price floor.

The Company has also agreed to pay up to an additional $39,450,000 in revenue-based earn-out payments, based on future sales of FazaClo (clozapine USP), Alamo’s orally disintegrating drug for the treatment of refractory schizophrenia. These earn-out payments are based on FazaClo sales in the United States from the closing date of the acquisition through December 31, 2018 and are payable as follows:

• Either a promissory note, of like tenor to the Second Note, in the principal amount of $4,000,000 if FazaClo sales, as reported by IMS Health Incorporated, for each of the months of April and May 2006 exceeds $1,266,539, or, if such condition is not satisfied, then (A) a promissory note, of like tenor to the Second Note, in the principal amount of $2,000,000, payable if monthly FazaClo net product sales, as reported by the Company, exceed $1,000,000 for all three months in a given fiscal quarter, and (B) a promissory note, of like tenor to the Second Note, in the principal amount of $2,000,000, payable if monthly FazaClo net product sales, as reported by the Company, exceed $1,500,000 for all three months in a given fiscal quarter (such note(s) being the "Earn-Out Notes");

• Cash payment of $10,450,000 if FazaClo net product sales, as reported by the Company, exceed $40,000,000 over four consecutive fiscal quarters; and

• Cash payment of $25,000,000 if FazaClo net product sales, as reported by the Company, exceed $50,000,000 over four consecutive fiscal quarters.

If the Second Note has been repaid at the time that the Earn-Out Notes would otherwise have been issued, then the Company will pay these amounts in cash in lieu of issuing the notes. The Company has also agreed to pay the Selling Holders one-half of all net licensing revenues received from licenses of FazaClo outside of the United States.

The Agreement contains customary representations and warranties and indemnification obligations in favor of the Company by the Selling Holders, which obligations are secured by the Third Note. The Agreement also contains a mechanism to adjust the principal amount of the Second Note if FazaClo product returns exceed certain levels in the six months following the closing of the acquisition.

The Company's Board of Directors retained Duff & Phelps to serve as the Board's independent financial advisor on the transaction. Duff & Phelps reviewed the terms of the Agreement and performed certain analyses and provided the Board with a favorable opinion regarding the fairness, from a financial point of view, of the transaction to the public shareholders of the Company (without giving effect to any impacts of the Transaction on any particular shareholder other than in its capacity as a shareholder).


On May 23, 2006, the Company issued a press release announcing the execution of the Agreement. A copy of this press release is filed herewith as Exhibit 99.1.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The disclosure set forth above under Item 2.01 regarding the terms of the Notes issued on May 24, 2006 by the Company to the Selling Holders pursuant to the Agreement is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired. The financial statements of Alamo required to be filed under this Item 9.01(a) will be filed by an amendment to this Form 8 K not later than August 10, 2006 (71 calendar days after the date that this Form 8-K must be filed to report the closing of the acquisition of Alamo).

(b) Pro Forma Financial Information. The pro forma financial statements required to be filed under this Item 9.01(b) will be filed by an amendment to this Form 8-K not later than August 10, 2006 (71 calendar days after the date that this Form 8-K must be filed to report the closing of the acquisition of Alamo).

(c) Shell Company Transactions. Not applicable.

(d) Exhibits. The following exhibits are filed with this Form 8-K.

Exhibit No. Description
99.1 Press release, dated May 23, 2006

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Avanir Pharmaceuticals
May 26, 2006	By:	Michael Puntoriero
		Name: Michael Puntoriero
		Title: Senior Vice President, Finance and CFO

Exhibit Index

Exhibit No.	Description
99.1	Press release, dated May 23, 2006

EX-99.1

Exhibit 99.1

[AVANIR Pharmaceuticals Logo]

AVANIR ANNOUNCES THE INTENDED ACQUISITION OF
A PRIVATE SPECIALTY PHARMACEUTICAL COMPANY

San Diego, May 23, 2006 — Avanir Pharmaceuticals (NASDAQ: AVNR) announced today that it has entered into a definitive agreement with the shareholders of Alamo Pharmaceuticals, LLC (Alamo) to purchase the Company. Closing is subject to the assumption of debt by the principal shareholder and certain other provisions. Alamo is a privately owned specialty pharmaceutical company with a sales force of approximately fifty representatives currently marketing FazaClo^® (clozapine, USP), the only orally-disintegrating formulation of clozapine for the management of severely ill schizophrenic patients who fail to respond adequately to standard schizophrenic drug treatments. FazaClo is also indicated for reducing the risk of suicidal behavior in patients with schizophrenic or schizoaffective disorder.

“FazaClo is an excellent strategic fit for Avanir and acquiring Alamo is an important step forward as we move towards becoming an integrated pharmaceutical company,” said Eric K. Brandt, President and Chief Executive Officer of Avanir. “With this acquisition, we significantly enhance our portfolio by adding a marketed CNS product.  In addition, Alamo’s organization will augment our commercialization capabilities by adding an experienced sales force calling on a base of physicians that overlap with our targeted physicians for Neurodex™, which is under priority review at the U.S. Food and Drug Administration for the treatment of Involuntary Emotional Expression Disorder (IEED). In addition to the attractiveness and potential of FazaClo, the combined organizational capabilities provide a stronger platform for acquiring/licensing other CNS products.”

Immediately upon the close of the transaction, Alamo’s sales force will continue to promote FazaClo and will begin market development activities focused on increasing the awareness of IEED. In addition to Alamo’s sales force, Alamo employs a FazaClo Patient Registry team that is composed of dedicated healthcare, registry, call center, administrative support and data management professionals. These individuals will provide IEED disease state awareness and clinical support of Neurodex.

The upfront acquisition cost of approximately $29 million (excluding transaction costs), consists of approximately $4 million in cash and approximately $25 million in notes. The initial consideration represents approximately three times the current annualized monthly run rate of FazaClo sales. The notes are generally due in three years, with approximately $14 million of the total amount of the notes subject to acceleration at the request of the holder under certain conditions, in which case Avanir may repay accelerated amount in cash or with common stock. In addition, if certain sales milestones are achieved, Avanir will be required to pay up to an additional $40 million.

Conference Call and Webcast In formation
Avanir will host a conference call and webcast on Tuesday May 23 at 4:30 P.M. ET to discuss the details of the transaction. It is recommended that you go to Avanir’s website at least 10 minutes in advance of the webcast to download any applicable software. For those who cannot listen to the live broadcast, an online replay will be available for 30 days, and a phone replay will be available through May 30, 2006, by dialing 800-642-1687 (domestic) and 706-645-9291 (international) and entering the pass-code 9646497.

About FazaClo
Of the two million Americans who suffer from schizophrenia, approximately 20% are termed treatment-refractory because they derive little or no benefit from conventional antipsychotic medications. FazaClo^® (clozapine, USP), is indicated for the management of severely ill schizophrenic patients who fail to respond adequately to standard drug treatment for schizophrenia and is indicated for reducing the risk of recurrent suicidal behavior in patients with schizophrenia or schizoaffective disorder who are judged to be at chronic risk for re-experiencing suicidal behavior, based on history and recent clinical state FazaClo is an innovative tablet that uses the proprietary OraSolv^® technology licensed from CIMA LABS INC. FazaClo is designed to disintegrate in the mouth in about 15 to 30 seconds with a pleasant mint flavor and is then swallowed reflexively in saliva. This advantage may be important in treating a disease such as schizophrenia since any barrier may present significant impedance for the patient. Because of the risk of agranulocytosis and granulocytopenia associated with the use of clozapine, Alamo Pharmaceuticals has developed the FazaClo Patient Registry. Prescribing health care practitioners, dispensing pharmacists and FazaClo patients must be registered in the FazaClo Patient Registry, which will compare patient information against the National Non-Rechallenge Masterfile and maintain a continuing record of total white blood cell (WBC) counts and absolute neutrophil count (ANC) values and related information for all patients who receive the FazaClo brand of clozapine. Please see full Prescribing Information including BOXED WARNINGS regarding agranulocytosis, seizures, myocarditis, dementia-related psychosis in elderly patients, and other adverse cardiovascular and respiratory effects.

About Neurodex
Neurodex™ is a combination of two well-characterized compounds, the active ingredient dextromethorphan, and the enzyme inhibitor quinidine, which serves to increase the bioavailability of dextromethorphan. The first-in-class drug candidate is believed to help regulate excitatory neurotransmission in two ways, through presynaptic inhibition of glutamate release via sigma-1 receptor agonist activity, and through postsynaptic glutamate response modulation via uncompetitive, low-affinity NMDA antagonist activity.

About AVANIR
Avanir Pharmaceuticals is focused on developing and commercializing novel therapeutic products for the treatment of chronic diseases. Avanir’s product candidates address therapeutic markets that include central nervous system and cardiovascular disorders, inflammation, and infectious diseases. Avanir previously announced and published positive results from the two required Phase III clinical trials for Neurodex™, an investigational new drug for the treatment of involuntary emotional expression disorder currently under priority review with the FDA. Additionally, Avanir has initiated a Phase III clinical trial for Neurodex as a potential treatment in patients with diabetic neuropathic pain, a second indication for Neurodex. Avanir has active collaborations with two international pharmaceutical companies: Novartis International Pharmaceutical Ltd. for the treatment of inflammatory disease and AstraZeneca for the treatment of cardiovascular disease.  The Company’s first commercialized product, abreva^®, is marketed in North America by GlaxoSmithKline Consumer Healthcare and is the leading over-the-counter product for the treatment of cold sores. Further information about Avanir can be found at www.avanir.com.

About Alamo
AlamoPharmaceuticals, LLC is a privately held specialty pharmaceutical company headquartered in California with operations in New Jersey.

Forward Looking Statements
Statements in this press release that are not historical facts, including statements that are preceded by, followed by, or that include such words as “estimate”, “anticipate”, “believe”, “plan”, or “expect”, or similar statements, are forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from the future results expressed or implied by such statements.  There can be no assurance that Neurodex will receive FDA regulatory approval or that even if such regulatory approval is received, Avanir will be able to market Neurodex successfully.  Final review decisions made by the FDA and other regulatory agencies concerning clinical trial results are often unpredictable and outside the influence and/or control of the company.  Risks and uncertainties also include risks relating to future FazaClo sales, as well as the risks set forth in Avanir‘s most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q and from time-to-time in other publicly available information regarding the Company.  Copies of this information are available from Avanir upon request.  Avanir disclaims any intent or obligation to update these forward-looking statements.

Avanir Pharmaceuticals Contacts:
Patrick O’Brien 858-622-5216 pobrien@avanir.com	Patrice Saxon 858-622-5202 psaxon@avanir.com