AVANIR Pharmaceuticals Reports First Quarter of Fiscal Year 2002 Results

Robust Abreva(TM) Royalties Contribute to Quarterly Revenue Growth of 21% and Net Income of $0.04 Per Diluted Share

SAN DIEGO, Feb 7, 2002 /PRNewswire-FirstCall via COMTEX/ -- AVANIR Pharmaceuticals (Amex: AVN), today reported financial results for the first quarter of fiscal year 2002, representing the three months ended December 31, 2001.

"We are very pleased to report robust financial results for our first fiscal quarter as well as a number of significant strategic achievements," said AVANIR President and Chief Executive Officer Gerald J. Yakatan, Ph.D. "We received our final $5 million milestone payment from GlaxoSmithKline during our first fiscal quarter, as well as our largest royalty income to date on sales of Abreva(TM). We have reported progress with international docosanol licensing initiatives, including research collaborations and licensing agreements established in the People's Republic of China, Egypt, Israel, Korea and Canada."

"We took an important step forward in our IgE research with identification of a small molecule that could serve as an effective regulator in the treatment of allergy and asthma. Our subsidiary, Xenerex Biosciences, advanced to the second stage of its antibody agreements with Eos Biotechnology and Peregrine Pharmaceuticals. Xenerex also established its first large pharma partnership, which was with Schering-Plough's DNAX division," Yakatan added. "Our accomplishments reflect our commitment to increasing the value of our technologies and business platforms."

First fiscal quarter operating performance

Revenues increased to $6.1 million for the first quarter of fiscal year 2002, compared to $5.1 million in the same period a year ago. The 21% increase in revenues was due primarily to royalties earned from sales of Abreva by GlaxoSmithKline. Royalties on sales of Abreva continued to improve with increasing market penetration and seasonally higher demand for cold sore products. In addition to $1.1 million in royalties on product sales, revenues for the first fiscal quarter 2002 included the final $5 million milestone under the license agreement with GlaxoSmithKline, which reached the one-year anniversary of introduction of Abreva. In the first quarter of fiscal year 2001, revenues included a $5 million milestone earned on GlaxoSmithKline's achieving Abreva product launch.

Total operating expenses for the first fiscal quarter 2002 increased to $3.6 million, compared to $2.3 million in the same period a year ago. Expenditures on research and development (R&D) programs accounted for 65% and 57% of total operating expenses for the first fiscal quarters ended December 31, 2001 and 2000, respectively.

AVANIR's increased R&D expenses in the first fiscal quarter 2002 were related to several programs in clinical trials or preclinical development and in the drug discovery phase. A Phase II/III clinical trial of Neurodex (formerly AVP-923) for the treatment of emotional lability in patients with amyotrophic lateral sclerosis (ALS) or Lou Gehrig's disease accounted for 29% of total R&D spending, and was approximately 66% complete at December 31, 2001. The Company also has been preparing for a Phase II clinical trial of Neurodex in the treatment of diabetic neuropathic pain, scheduled for later this calendar year. Toxicology and other preclinical research related to AVANIR's lead compound for the treatment of allergies and allergic asthma accounted for 17% of total R&D spending, and development of human antibody generation technology within the Company's subsidiary, Xenerex Biosciences, accounted for 14% of total R&D spending. The balance of R&D spending was for other programs, including drug discovery programs related to inflammation and cholesterol lowering compounds, and for operating and maintaining the laboratory facilities.

Research and development expenses for the first fiscal quarter 2001 were primarily related to initiating the Phase II/III clinical trial for Neurodex in treating emotional lability and in developing human antibody generation technology. The Phase II/III clinical trial for Neurodex began in November 2000.

Net income attributable to common shareholders for the first fiscal quarter 2002 amounted to $2.8 million, or $0.04 per diluted share, compared with net income of $3.1 million, or $0.05 per diluted share for the same period a year ago.

Balance sheet highlights

As of December 31, 2001, AVANIR had cash and cash equivalents of $12.5 million, short and long-term investments of $11.7 million and a net working capital balance of $12.6 million, compared to cash and cash equivalents of $16.5 million, short and long-term investments of $5.3 million and a net working capital balance of $16.4 million at September 30, 2001. Cash and cash equivalents were lower at December 31, 2001, primarily because the Company shifted interest-bearing accounts into longer-term investments to achieve higher interest rates. Shareholders' equity amounted to $26.8 million at December 31, 2001, representing a 12% improvement over shareholders' equity of $24 million at September 30, 2001.

Outlook

"Other than royalty revenues from sales of Abreva(TM), our ability to predict the amounts and timing of other revenues will be less certain during the next few quarters due to a number of variables," stated Gregory P. Hanson, Vice President and Chief Financial Officer of AVANIR. "We expect that sales of Abreva will generate royalties in the range of $3.3 million to $4.5 million during fiscal 2002, depending on GlaxoSmithKline's level of product promotion and the timing of regulatory approval for marketing the product in Canada. The amounts and timing of revenues from other sources will depend on such factors as progress made by our international licensees of docosanol 10% cream in reaching milestones, the number of research collaborations established by Xenerex and progress in generating human antibodies to viable targets, and progress made by Xenerex' partners in evaluating, selecting and advancing our antibodies through the development pipeline."

Hanson continued, "We plan to continue our aggressive R&D efforts on established programs in the pipeline. Also, we expect that marketing, sales and general and administrative expenses will continue to grow at modest rates to support operations. Given the uncertainty of the amounts and timing of revenues, we expect that we will incur operating losses through at least the next two quarters."

AVANIR Pharmaceuticals, based in San Diego, is a diversified biopharmaceutical company engaged in research, development, commercialization, licensing and sales of innovative drug products and antibody generation services. The Company's website is http://www.avanir.com .

Conference Call and Webcast

Management will host a conference call with a simultaneous webcast today at 1:30 p.m. Pacific/ 4:30 p.m. Eastern Standard Time, to discuss first fiscal quarter 2002 operating performance and outlook. The call/webcast will feature President and Chief Executive Officer Gerald J. Yakatan, Ph.D., Vice President and Chief Financial Officer Gregory Hanson, and J. David Hansen, President and Chief Operating Officer of Xenerex Biosciences. The webcast will be available live via the Internet by accessing AVANIR's web site at www.avanir.com or CCBN's www.companyboardroom.com . Please go to either web site at least ten minutes early to register, download and install any necessary audio software. Replays of the webcast will be available for 90 days, or a phone replay will be available through February 14, 2002, by dialing 888-266-2086 or 703-925-2435 and entering the passcode 5824309.

Except for the historical information presented herein, matters discussed in this press release contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. Statements that are not historical facts, including statements that are preceded by, followed by, or that include such words like "estimate," "anticipate," "believe," "intend," "plan," or "expect" or similar statements are forward-looking statements. In regard to financial projections, risks and uncertainties include risks associated with royalties earned on product sales of Abreva(TM) by GlaxoSmithKline, and results of clinical trials or product development efforts, as well as risks shown in AVANIR's annual report on Form 10-K and quarterly report on Form 10-Q and from time-to-time in other publicly available information regarding the company. Copies of such information are available from AVANIR upon request. Such publicly available information sets forth many risks and uncertainties related to AVANIR's business and technology. The company disclaims any intent or obligation to update these forward-looking statements.

                              AVANIR PHARMACEUTICALS
              Summary Consolidated Financial Information (Unaudited)

    Consolidated Statement                      Quarters ended December 31,
    of Operations Data:                           2001              2000

    Revenues                                   $6,130,215        $5,065,732

    Expenses
      Research and development                  2,346,859         1,308,125
      General and administrative                  954,068           772,695
      Sales and marketing                         320,032           214,319
        Total operating expenses                3,620,959         2,295,139

    Income from operations                     $2,509,256        $2,770,593
      Interest income                             187,915           335,370
      Other income                                 82,940                --
      Interest expense                            (14,602)           (2,859)

    Net income                                 $2,765,509        $3,103,104

    Net income attributable
     to common shareholders                    $2,754,650        $3,092,144

    Net income per share:
        Basic                                       $0.05             $0.05
        Diluted
                                                    $0.04             $0.05
    Weighted average number of
     common shares outstanding:
        Basic                                  58,029,403        57,216,732
        Diluted
                                               61,455,499        65,516,875


    Consolidated Balance Sheet Data:          December 31,     September 30,
                                                  2001             2001

    Cash and cash equivalents                 $12,546,173       $16,542,545
    Short and long-term investments            11,709,478         5,308,691
    Net working capital                        12,587,458        16,415,699
    Total assets                               29,930,874        27,053,953
    Total liabilities                           2,670,050         2,592,490
    Convertible preferred stock                   507,512           502,903
    Shareholders' equity                       26,753,312        23,958,560


SOURCE AVANIR Pharmaceuticals

CONTACT:
General Information, Kristen McNally,
+1-310-407-6548, kmcnally@webershandwick.com,
Analyst/Investors, Tricia Ross, +1-310-407-6540,
tross@webershandwick.com,
or Media, Al Orendorff, +1-312-640-6775,
aorendorff@webershandwick.com,
all of FRB|Weber Shandwick, for AVANIR Pharmaceuticals;

or Patrice Saxon, Investor Relations of AVANIR Pharmaceuticals, +1-858-622-5202, psaxon@avanir.com
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