| RE: | Avanir Pharmaceuticals Form 10-K for the fiscal year ended September 30, 2006 File No. 001-15803 |
| 1. | We are confirming that the board of directors of Avanir approved the acquisition of Alamo on May 12, 2006. We have enclosed a copy of the materials provided to the board related to the valuation of this acquisition. |
| 2. | We are also providing the following rationale behind the utilization of the “Relief from Royalty” method we used in valuing In-Process R&D. | |
| As of the acquisition date, Alamo possessed the proprietary formulation, FazaClo-OraSolv/PakSolv. The formulation included the FDA approval of generic clozapine combined with the licensed orally dissolving tablet technology from CIMA Labs. We determined the fair value of the technology using a relief from royalty approach. This method is based on the theory that the owner of the intangible asset would be willing to pay a reasonable royalty for the use of the intangible asset if he or she did not own it. This approach — often used in the valuation of patents or un-patented technology — merges the market approach and the income approach because it considers the rate at which comparable intangibles (e.g., patents) have been licensed. Effective royalty rates that would be charged by a market participant in licensing its technology to a third party are based upon an analysis of the critical factors which traditionally influence royalty rates on technology, including: |
| • | relative profitability of the technology to industry competitors, | ||
| • | market position of the technology, |
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| • | the level of improvement offered by the technology over that of competing products, and | ||
| • | the importance of the technology in the marketplace. |
| • | the Company is responsible for the adequacy and accuracy of the disclosure in the filing; | ||
| • | Staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and | ||
| • | the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
| cc: | Vanessa Roberston, Staff Accountant (via facsimile 202-551-3649 Lisa Vanjoske, Assistant Chief Accountant (via facsimile 202-551-3649) Michael J. Puntoriero, Sr. VP and Chief Financial Officer Stephen G. Austin, Chairman of Avanir Pharmaceuticals Audit Committee |
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