AVANIR Pharmaceuticals Reports Results for Second Quarter of Fiscal 2002

SAN DIEGO, May 13, 2002 /PRNewswire-FirstCall via COMTEX/ --

Drug Development Strategy Is Focused on Large Market Therapeutic Areas With Significant Partnering and Licensing Potential

AVANIR Pharmaceuticals (Amex: AVN) today reported financial results for the second fiscal quarter ended March 31, 2002, and provided a progress report on its drug development strategy, which is focused on large market therapeutic areas with significant partnering and licensing potential.

"Large pharmaceutical and biotech companies look to smaller companies for novel new products and technology platforms. AVANIR is fortunate to have a number of development programs in large market therapeutic areas that are at or near the stage where they are attractive candidates for partnering or licensing," said AVANIR President and Chief Executive Officer Gerald J. Yakatan, Ph.D. "Our strategy is to increase the value of our drug development pipeline by steadily moving forward those programs that are in the clinical or preclinical development process."

"Consistent with our strategy, we made important progress toward our key goals for fiscal 2002 during the second quarter," Yakatan said. Areas of major progress include:

  • Completion of patient enrollment in a Phase II/III clinical trial that examines the efficacy and safety of Neurodex in the treatment of emotional lability in patients with Lou Gehrig's disease;
  • Research on potential new topical formulations of docosanol for the treatment of genital herpes, funded by $1.2 million in total federal and state government grant awards;
  • Toxicology testing on AVANIR 's lead compound for the treatment of allergy and asthma, which will be submitted to the FDA as part of an investigational new drug application and allow for Phase I testing of this compound to begin before the end of calendar year 2002;
  • Expansion of the Company's research in anti-inflammation, including identifying and validating several potential small molecule leads directed at macrophage migration inhibitory factor (MIF);
  • Entry into a research collaboration with Schering Plough's subsidiary, DNAX Research, Inc., which makes the third research collaboration for antibody generation services at Xenerex."

Second Fiscal Quarter Operating Performance

Revenue for the second quarter of fiscal 2002, was $738,000, compared to revenue of $1.3 million for the same period last year. Revenue in both periods consisted primarily of royalties on sales of Abreva(TM) from GlaxoSmithKline. Royalties in the prior year included payments from initial Abreva sales to fill the product distribution pipeline by stocking the shelves in wholesale and retail outlets during product launch. Retail sales of Abreva for the second quarter of fiscal 2002 increased by 60% from the same period a year ago. Retail sales are not the basis for calculating Abreva royalties, as our royalties are based on wholesale sales, but we believe retail sales represent a good indicator of Abreva product performance. The Company reached completion of its milestone payments from GlaxoSmithKline during the first quarter of fiscal 2002.

Total operating expenses amounted to $4.6 million for the second quarter of 2002, compared to $4.3 million for the same period of fiscal 2001. Research and development (R&D) expenses increased 28% to $3.2 million for the second quarter of fiscal 2002, compared to $2.5 million for the same period a year ago. The growth in R&D expenses reflected the Company's expanded product development pipeline and advances in clinical and preclinical development, including accelerated patient enrollments in the Phase II/III clinical trial for Neurodex (formerly AVP-923) for the treatment of emotional lability. Also during fiscal 2002, AVANIR initiated toxicology work on its novel lead compound for treating allergy and asthma.

Total R&D spending by major program for the second quarter of fiscal 2002 included Neurodex clinical development (29%), allergy and asthma research (23%), Xenerex' antibody generation research (12%) and other preclinical research related to anti-inflammation and cholesterol reduction (19%). The balance of R&D spending was primarily for routine costs associated with operation and maintenance of laboratory facilities. In the second quarter of fiscal 2001, R&D expenses were related primarily to the early stages of enrollment in the Neurodex Phase II/III clinical trial and in the development of the antibody generation technology.

"We plan to continue increasing our spending on established R&D programs in the product development pipeline. We intend to expand our clinical development programs for Neurodex through the next several quarters. This expansion will include both a Phase II clinical trial for the treatment of neuropathic pain and a Phase III clinical trial of emotional lability in patients with multiple sclerosis. We also intend to continue toxicology work and other advanced preclinical research on our lead compound for treating allergy and allergic asthma and other preclinical research in the areas of anti-inflammation, cholesterol reduction and drug discovery through antibody generation research," Yakatan said.

For the second quarter of fiscal 2002, AVANIR's net loss attributable to common shareholders was $3.7 million, compared to a net loss of $2.7 million for the same period a year ago. Basic and diluted net loss per share was $0.06, compared to a basic and diluted net loss per share of $0.05 for the same period a year ago.

Fiscal Year-to-Date Results

Revenue for the first six months of fiscal 2002 amounted to $6.9 million, compared to $6.3 million for the same period a year ago. The 8% increase in revenue was due primarily to increased royalties earned by AVANIR from sales of Abreva(TM) generated by GlaxoSmithKline, reflecting increased market penetration since product launch began in October 2000. Revenue for the first six months of fiscal 2002 included a $5 million milestone when Abreva reached the one-year anniversary after product launch and $1.8 million in royalties on Abreva product sales. Revenue for the first six months of fiscal 2001 included a $5 million milestone earned on the Abreva product launch and $1.3 million in royalties on Abreva product sales.

Yakatan said that AVANIR's revenues for the next several quarters will depend primarily on the amount of royalties earned from Abreva product sales, the amount of potential license fees, royalties and milestone payments from international licensees of docosanol 10% cream, and the achievement of milestones in providing human antibodies at Xenerex.

Total operating expenses amounted to $8.2 million for the first six months of fiscal 2002, compared to $6.6 million for the same period of fiscal 2001. The 25% increase in operating expenses was primarily due to a $1.7 million or 46% increase in spending on R&D programs, including increases associated with allergy and asthma research, clinical trials of Neurodex, and the addition of MIF research. Expenditures on R&D programs accounted for 67% and 57% of total operating expenses for the first six months of fiscal 2002 and 2001, respectively.

Total R&D expenses amounted to $5.5 million for the first six months of fiscal 2002, compared to $3.8 million for the same period a year ago. A breakdown of major R&D spending for the first six months of the current fiscal year included Neurodex research (29%), allergy and asthma research (22%), antibody generation research within Xenerex (13%) and other preclinical research related to inflammation and cholesterol reduction (17%). The balance of R&D spending primarily reflected routine costs associated with operation and maintenance of laboratory facilities.

The net loss attributable to common shareholders for the first six-months of fiscal 2002 was $956,000, compared to net income attributable to common shareholders of $396,000 for the same period a year ago. Basic and diluted net loss per share was $0.02 for the first six months of fiscal 2002, compared to basic and diluted net income per share of $0.01 for the same period a year ago.

Balance Sheet Highlights

At March 31, 2002, AVANIR had cash and investments of $21.4 million and a net working capital balance of $7.8 million. This compares to cash and investments of $21.9 million and a net working capital balance of $16 million at September 30, 2001. The decline in net working capital was primarily due to a $7.1 million net increase in investments in securities with maturities in excess of one year. Net working capital and investments with maturities in excess of one year totaled $20.2 million and $21.3 million at March 31, 2002 and September 30, 2001, respectively. Shareholders' equity at March 31, 2002 was $23.2 million, compared to shareholders' equity at September 30, 2001 of $24 million.

Conference Call and Webcast

Management will host a conference call with a simultaneous webcast on May 13, 2002, at 1:30 p.m. Pacific/ 4:30 p.m. Eastern Standard Time, to discuss second 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 May 20, 2002, by dialing 888-266-2086 or 703-925-2435 and entering the passcode 5989450.

AVANIR Pharmaceuticals, based in San Diego, is a biopharmaceutical drug discovery and development company with an FDA-approved product. AVANIR is engaged in research, discovery, development and licensing of innovative drug products and, through its subsidiary Xenerex Biosciences, antibody generation services and antibody product development. The Company's website is http://www.avanir.com .

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 most recent 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.

For further information please contact: General Information, Kristen McNally, +1-310-407-6548, kmcnally@webershandwick.com, or Analysts/Investors, Tricia Ross, +1-310-407-6540, tross@webershandwick.com, or Media, Tim Grace, +1-312-640-6667, tgrace@webershandwick.com, all of FRB|Weber Shandwick; or Patrice Saxon, Investor Relations of AVANIR Pharmaceuticals, +1-858-622-5202, psaxon@avanir.com

                            AVANIR PHARMACEUTICALS
            Summary Consolidated Financial Information (Unaudited)

    Consolidated
     Statement of        Quarters ended March 31,  Six months ended March 31,
     Operations Data:         2002         2001        2002            2001

    Revenues               $738,378    $1,272,204   $6,868,593    $6,337,936
    Expenses
      Product launch
       expense                   --       492,229           --       492,229
      Research and
       development        3,164,908     2,462,965    5,511,767     3,771,090
      General and
       administrative     1,078,971     1,048,916    2,033,039     1,821,611
      Sales and marketing   360,765       291,975      680,797       506,294
        Total operating
         expenses         4,604,644     4,296,085    8,225,603     6,591,224
    Income from
     operations        $(3,866,266)  $(3,023,881) $(1,357,010)    $(253,288)
      Interest income       180,911       340,129      368,826       673,899
      Other income            4,008            --       86,948         1,600
      Interest expense     (18,241)       (1,579)     (32,843)       (4,438)
    Net income         $(3,699,588)  $(2,685,331)   $(934,079)      $417,773
    Net income
     attributable to
     common
     shareholders      $(3,710,347)  $(2,695,954)   $(955,697)      $396,190
    Net income
     per share:
      Basic                 $(0.06)       $(0.05)      $(0.02)         $0.01
      Diluted               $(0.06)       $(0.05)      $(0.02)         $0.01
    Weighted average
     number of common
     shares outstanding:
      Basic              58,240,466    57,346,992   58,133,775    57,281,146
      Diluted            58,240,466    57,346,992   58,133,775    61,262,875



    Consolidated Balance Sheet Data:    March 31, 2002   September 30, 2001

    Cash and cash equivalents             $8,850,681         $16,542,545
    Short and long-term investments       12,516,422           5,308,691
    Total cash and investments            21,367,103          21,851,236
    Net working capital                    7,772,004          16,027,577
    Total assets                          27,038,863          27,053,953
    Total liabilities                      3,373,031           2,592,490
    Convertible preferred stock              512,021             502,903
    Shareholders' equity                  23,153,811          23,958,560
SOURCE AVANIR Pharmaceuticals

CONTACT:
General Information, Kristen McNally, +1-310-407-6548,
kmcnally@webershandwick.com, or Analysts/Investors, Tricia Ross,
+1-310-407-6540, tross@webershandwick.com, or Media, Tim Grace,
+1-312-640-6667, tgrace@webershandwick.com, all of FRB|Weber Shandwick; or
Patrice Saxon, Investor Relations of AVANIR Pharmaceuticals, +1-858-622-5202,
psaxon@avanir.com
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