UPDATE 4-Avanir drug meets main study goal; stock soars

* Cuts emotional outbursts tied to neurological disorder

* Avanir to submit FDA response in first half of 2010

* Stock rockets up 55 percent

(Adds analyst comment)

By Lewis Krauskopf

NEW YORK, Aug 11 (Reuters) - Avanir Pharmaceuticals Inc (AVNR.O) said on Tuesday a reformulated version of its Zenvia drug reduced emotional outbursts tied to a neurological disorder, meeting the main goal of a late-stage study and nearly doubling the tiny company's stock price.

The results in the STAR clinical trial come nearly three years after the U.S. Food and Drug Administration dealt Avanir a blow by expressing safety concerns and asked the company to perform new trials with a reformulated version of Zenvia.

The drug treats pseudobulbar affect (PBA), a condition in which patients cannot control outbursts of crying or laughing. It affects an estimated 2 million Americans with multiple sclerosis, Lou Gehrig's disease (ALS), stroke and other neurological diseases or trauma that can cause brain lesions.

In the STAR trial, the drug cut emotional outbursts -- crying or laughing episodes -- by 47.2 percent compared to a placebo. The goal of the trial was a 36 percent improvement.

Zenvia, a pill, also reached secondary effectiveness goals in the study.

"It was all that we had hoped for and more," Avanir Chief Executive Officer Keith Katkin said in an interview. "It really exceeded our expectations from an efficacy perspective."

The Southern California-based company said the new data should be enough to satisfy the FDA and plans to submit a response to the agency in the first half of 2010.

Katkin said he would expect the agency would be on track to approve the drug in the second half of next year, with Avanir to launch three to six months after approval.

The drug could bring in $500 million in annual U.S. sales by 2015, said Summer Street Research analyst Carol Werther.

"They've got a much safer drug that looks efficacious in a condition that has basically nothing," Werther said. "It bodes very well for approval."

Avanir shares jumped 55 percent to $3.40 in Nasdaq trading, after rising as high as $4.09. Its market value rose to about $310 million.

The positive clinical trial may not be good news for all investors. Short interest representing bearish bets against Avanir soared last month, rising more than 7 times to 2.39 million shares between June 30 and July 15. That represented about 2.6 percent of Avanir's outstanding shares.

Meanwhile, Avanir has drawn scant Wall Street attention, with no analysts covering the company until one started coverage earlier this month, Katkin said.

Zenvia showed powerful effectiveness in the initial late-stage data, but the FDA was uneasy about the heart rhythm impact of quinidine, a component of the drug used to increase the amount of the active ingredient, dextromethorphan, in the body.

The agency asked Avanir to go back and perform new trials with only a third as much quinidine -- 10 milligrams instead of 30 milligrams.

Two-thirds of the 326 patients in the latest study were on versions of Zenvia. No new cardiovascular safety signals emerged, the company said.

The drug was generally well tolerated, with dizziness, nausea and diarrhea being the most commonly reported adverse events that appeared to be more frequent than placebo.

There were seven deaths in the study, all with patients who had ALS, a degenerative disease that is fatal. One of the deaths in the Zenvia group was deemed to be possibly treatment-related. It occurred five days after the drug had been discontinued.

Katkin said it was early to draw conclusions regarding the deaths, with full data expected to be presented at a future scientific meeting, but "in looking at the detailed narratives that go along with the deaths, there's nothing to lead us to believe that any of the deaths were drug-related."

Katkin said the company could sell Zenvia itself in the United States, although it would not rule out a global partnership for commercializing the drug if such an alliance would help develop the drug for other conditions, such as pain associated with multiple sclerosis.

"We were ready to launch back in October of 2006, so we really just need to refresh all of our commercial materials and we'll be ready to go," Katkin said. (Additional reporting by Bill Berkrot; Editing by Derek Caney and Robert MacMillan)