Table of Contents
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark
One)
x
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2010
OR
o
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period
from to
Commission file number 001-14895
AVI
BIOPHARMA, INC.
(Exact name of registrant as specified in its charter)
Oregon
|
|
93-0797222
|
(State or other jurisdiction of incorporation or
organization)
|
|
(I.R.S. Employer Identification No.)
|
|
|
|
3450 Monte Villa Parkway, Suite 101, Bothell,
Washington
|
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98021
|
(Address of principal executive offices)
|
|
(Zip Code)
|
Registrants telephone number, including area code: (
425) 354-5038
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes
x
No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes
o
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer
o
|
|
Accelerated filer
x
|
|
|
|
Non-accelerated filer
o
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|
Smaller Reporting Company
o
|
(Do not check if a smaller reporting company)
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes
o
No
x
Indicate
the number of shares outstanding of each of the issuers classes of common
stock, as of the latest practicable date.
Common Stock with $0.0001 par value
|
|
112,323,950
|
(Class)
|
|
(Outstanding as of November 4, 2010)
|
Table of Contents
PART I FINANCIAL
INFORMATION
Item 1. Financial Statements.
AVI BIOPHARMA, INC.
(A Development Stage Company)
BALANCE SHEETS
(unaudited)
(in thousands, except per share data)
|
|
September 30,
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December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
35,967
|
|
$
|
48,275
|
|
Accounts receivable
|
|
5,241
|
|
2,085
|
|
Other current assets
|
|
1,106
|
|
950
|
|
Total Current Assets
|
|
42,314
|
|
51,310
|
|
|
|
|
|
|
|
Property held for sale
|
|
1,979
|
|
2,372
|
|
Property and Equipment, net of accumulated depreciation
and amortization of $14,678 and $14,026
|
|
2,155
|
|
2,466
|
|
Patent Costs, net of accumulated amortization of $1,870
and $1,762
|
|
4,301
|
|
3,759
|
|
Other assets
|
|
111
|
|
120
|
|
Total Assets
|
|
$
|
50,860
|
|
$
|
60,027
|
|
|
|
|
|
|
|
Liabilities and Shareholders
Equity
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,945
|
|
$
|
1,381
|
|
Accrued employee compensation
|
|
2,223
|
|
922
|
|
Long-term debt, current portion
|
|
80
|
|
77
|
|
Warrant valuation
|
|
33,118
|
|
27,609
|
|
Deferred revenue
|
|
3,335
|
|
3,428
|
|
Other liabilities
|
|
64
|
|
90
|
|
Total Current Liabilities
|
|
43,765
|
|
33,507
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, non-current portion
|
|
1,863
|
|
1,924
|
|
Other long-term liabilities
|
|
1,069
|
|
966
|
|
|
|
|
|
|
|
Shareholders Equity:
|
|
|
|
|
|
Preferred stock, $.0001 par value, 20,000,000 shares
authorized; none issued and outstanding
|
|
|
|
|
|
Common stock, $.0001 par value, 200,000,000 shares
authorized; 112,323,950 and 110,495,587 issued and outstanding
|
|
11
|
|
11
|
|
Additional paid-in capital
|
|
304,154
|
|
299,088
|
|
Deficit accumulated during the development stage
|
|
(300,002
|
)
|
(275,469
|
)
|
Total Shareholders Equity
|
|
4,163
|
|
23,630
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
50,860
|
|
$
|
60,027
|
|
See accompanying notes to financial statements.
2
Table of Contents
AVI BIOPHARMA, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
July 22, 1980
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
(Inception) through
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from license fees, grants and research
contracts
|
|
$
|
8,702
|
|
$
|
6,353
|
|
$
|
13,903
|
|
$
|
12,448
|
|
$
|
73,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
9,059
|
|
7,473
|
|
22,080
|
|
17,770
|
|
252,512
|
|
General and administrative
|
|
3,440
|
|
1,800
|
|
11,017
|
|
6,226
|
|
85,037
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
|
|
|
29,461
|
|
Operating loss
|
|
(3,797
|
)
|
(2,920
|
)
|
(19,194
|
)
|
(11,548
|
)
|
(293,298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) income and other, net
|
|
82
|
|
(132
|
)
|
170
|
|
(147
|
)
|
8,493
|
|
(Increase) decrease on warrant valuation
|
|
(3,578
|
)
|
(5,038
|
)
|
(5,509
|
)
|
(16,989
|
)
|
(2,059
|
)
|
Realized gain on sale of short-term
securitiesavailable-for-sale
|
|
|
|
|
|
|
|
|
|
3,863
|
|
Write-down of short-term
securitiesavailable-for-sale
|
|
|
|
|
|
|
|
|
|
(17,001
|
)
|
|
|
(3,496
|
)
|
(5,170
|
)
|
(5,339
|
)
|
(17,136
|
)
|
(6,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss
|
|
$
|
(7,293
|
)
|
$
|
(8,090
|
)
|
$
|
(24,533
|
)
|
$
|
(28,684
|
)
|
$
|
(300,002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.07
|
)
|
$
|
(0.08
|
)
|
$
|
(0.22
|
)
|
$
|
(0.33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
for computing basic and diluted loss per share (in thousands)
|
|
111,767
|
|
95,261
|
|
110,863
|
|
87,493
|
|
|
|
See accompanying notes to financial
statements.
3
Table of Contents
AVI BIOPHARMA, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
|
|
|
|
|
|
For the Period
|
|
|
|
|
|
|
|
July 22, 1980
|
|
|
|
Nine months ended September 30,
|
|
(Inception) through
|
|
|
|
2010
|
|
2009
|
|
September 30, 2010
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(24,533
|
)
|
$
|
(28,684
|
)
|
$
|
(300,002
|
)
|
Adjustments to reconcile net loss to net cash
flows used in operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
1,053
|
|
1,080
|
|
18,735
|
|
Loss on disposal of assets
|
|
274
|
|
221
|
|
1,579
|
|
Realized gain on sale of short-term securities available-for-sale
|
|
|
|
|
|
(3,863
|
)
|
Write-down of short-term
securitiesavailable-for-sale
|
|
|
|
|
|
17,001
|
|
Impairment charge on real estate owned
|
|
393
|
|
128
|
|
1,321
|
|
Stock-based compensation
|
|
2,540
|
|
1,592
|
|
25,237
|
|
Conversion of interest accrued to common stock
|
|
|
|
|
|
8
|
|
Acquired in-process research and development
|
|
|
|
|
|
29,461
|
|
Increase (decrease) on warrant valuation
|
|
5,509
|
|
16,989
|
|
2,059
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
Accounts receivable and other current assets
|
|
(3,297
|
)
|
(1,026
|
)
|
(6,197
|
)
|
Net increase in accounts payable, accrued employee
compensation, and other liabilities
|
|
4,740
|
|
1,957
|
|
10,014
|
|
Net cash used in operating activities
|
|
(13,321
|
)
|
(7,743
|
)
|
(204,647
|
)
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
(628
|
)
|
(276
|
)
|
(18,497
|
)
|
Patent costs
|
|
(821
|
)
|
(751
|
)
|
(8,064
|
)
|
Purchase of marketable securities
|
|
(5
|
)
|
113
|
|
(112,991
|
)
|
Sale of marketable securities
|
|
|
|
|
|
117,724
|
|
Acquisition costs
|
|
|
|
|
|
(2,389
|
)
|
Net cash used in investing activities
|
|
(1,454
|
)
|
(914
|
)
|
(24,217
|
)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds from sale of common stock, warrants, and partnership
units, net of offering costs, and exercise of options and warrants
|
|
2,525
|
|
47,782
|
|
265,462
|
|
Repayments of long-term debt
|
|
(58
|
)
|
(49
|
)
|
(245
|
)
|
Buyback of common stock pursuant to rescission
offering
|
|
|
|
|
|
(289
|
)
|
Withdrawal of partnership net assets
|
|
|
|
|
|
(177
|
)
|
Issuance of convertible debt
|
|
|
|
|
|
80
|
|
Net cash provided by (used in) financing
activities
|
|
2,467
|
|
47,733
|
|
264,831
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
(12,308
|
)
|
39,076
|
|
35,967
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
Beginning of period
|
|
48,275
|
|
11,192
|
|
|
|
End of period
|
|
$
|
35,967
|
|
$
|
50,268
|
|
$
|
35,967
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$
|
70
|
|
$
|
65
|
|
$
|
375
|
|
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Short-term securitiesavailable-for-sale received
in connection with the private offering
|
|
$
|
|
|
$
|
|
|
$
|
17,897
|
|
Issuance of common stock and warrants in satisfaction
of liabilities
|
|
$
|
|
|
$
|
|
|
$
|
545
|
|
Issuance of common stock for building purchase
|
|
$
|
|
|
$
|
|
|
$
|
750
|
|
Assumption of long-term debt for building purchase
|
|
$
|
|
|
$
|
|
|
$
|
2,200
|
|
Issuance of common stock for Ercole assets
|
|
$
|
|
|
$
|
|
|
$
|
8,075
|
|
Assumption of liabilities for Ercole assets
|
|
$
|
|
|
$
|
|
|
$
|
2,124
|
|
Issuance of common stock and warrants in
satisfaction of employee bonuses
|
|
$
|
|
|
$
|
239
|
|
$
|
|
|
See accompanying notes to financial statements.
4
Table of Contents
AVI BIOPHARMA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1.
Basis of Presentation
The accompanying unaudited
condensed consolidated financial statements reflect the accounts of AVI
BioPharma, Inc. (the Company) and its consolidated subsidiaries. The
accompanying unaudited condensed consolidated balance sheet data as of
December 31, 2009 was derived from audited financial statements not
included in this report. The accompanying unaudited condensed consolidated
financial statements were prepared in conformity with accounting principles
generally accepted in the United States of America (GAAP) and the
rules and regulations of the U.S. Securities and Exchange Commission (SEC)
pertaining to interim financial statements. Accordingly, they do not include
all of the information and footnotes required by GAAP for complete financial
statements.
Management has determined that the
Company operates one segment: the development of pharmaceutical products on its
own behalf or in collaboration with others.
The accompanying unaudited
condensed consolidated financial statements reflect all adjustments that are,
in the opinion of management, necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods. The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the financial statements and the notes
thereto included in the Companys annual report on Form 10-K for the year
ended December 31, 2009. The results of operations for the interim periods
presented are not necessarily indicative of the results to be expected for the
full year.
Reclassifications
Certain prior year amounts have
been reclassified to conform to current year presentation. These changes did not have a significant
impact on the Companys net loss, assets, liabilities, shareholders equity or
cash flows.
Estimates and Uncertainties
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Commitments and Contingencies
As
of the date of this report, the Company is not a party to any material legal
proceedings with respect to itself, its subsidiaries, or any of its material
properties. In the normal course of business, the Company may from time to time
be named as a party to various legal claims, actions and complaints, including
matters involving employment, intellectual property, effects from the use
of therapeutics utilizing its technology, or others. It is impossible
to predict with certainty whether any resulting liability would have a
material adverse effect on the Companys financial position, results of operations
or cash flows.
Note 2.
Fair Value Measurements
The Company measures at fair value
certain financial assets and liabilities in accordance with a hierarchy of
valuation techniques based on whether the inputs to those valuation techniques
are observable or unobservable. Observable inputs reflect market data obtained
from independent sources, while unobservable inputs reflect the Companys
market assumptions. There are three levels of inputs that may be used to
measure fair-value:
·
Level 1
quoted prices for identical instruments in active markets;
·
Level 2
quoted prices for similar instruments in active markets, quoted prices for
identical or similar instruments in markets that are not active, and
model-derived valuations in which all significant inputs and significant value
drivers are observable in active markets; and
·
Level 3
valuations derived from valuation techniques in which one or more significant
value drivers are unobservable.
5
Table of Contents
The
Companys assets and liabilities measured at fair value on a recurring basis
consisted of the following as of the date indicated:
|
|
Fair Value Measurement as of September 30, 2010
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(in thousands)
|
|
Cash equivalents
|
|
$
|
35,967
|
|
$
|
35,967
|
|
|
|
|
|
Other current assets
|
|
459
|
|
|
|
$
|
459
|
|
|
|
Total assets
|
|
$
|
36,426
|
|
$
|
35,967
|
|
$
|
459
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement as of September 30, 2010
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
$
|
33,118
|
|
|
|
|
|
$
|
33,118
|
|
Total liabilities
|
|
$
|
33,118
|
|
$
|
|
|
$
|
|
|
$
|
33,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement as of December 31, 2009
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(in thousands)
|
|
Cash equivalents
|
|
$
|
48,275
|
|
$
|
48,275
|
|
|
|
|
|
Other current assets
|
|
455
|
|
|
|
$
|
455
|
|
|
|
Total assets
|
|
$
|
48,730
|
|
$
|
48,275
|
|
$
|
455
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement as of December 31, 2009
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(in thousands)
|
|
Warrants
|
|
$
|
27,609
|
|
$
|
|
|
$
|
|
|
$
|
27,609
|
|
Total liabilities
|
|
$
|
27,609
|
|
$
|
|
|
$
|
|
|
$
|
27,609
|
|
A
reconciliation of the change in value of the Companys warrants for the three
months ended September 30, 2010 is as follows:
|
|
Fair Value Measurements Using
|
|
|
|
Significant Unobservable Inputs
|
|
|
|
(Level 3)
|
|
|
|
(in thousands)
|
|
|
|
|
|
Balance at June 30, 2010
|
|
$
|
29,540
|
|
Change in value of warrants
|
|
3,578
|
|
Balance at September 30, 2010
|
|
$
|
33,118
|
|
A
reconciliation of the change in value of the Companys warrants for the nine
months ended September 30, 2010 is as follows:
|
|
Fair Value Measurements Using
|
|
|
|
Significant Unobservable Inputs
|
|
|
|
(Level 3)
|
|
|
|
(in
thousands)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
27,609
|
|
Change in value of warrants
|
|
5,509
|
|
Balance at September 30, 2010
|
|
$
|
33,118
|
|
See Note 6 Warrants for
additional information related to the determination of fair value of the
warrants. The carrying amounts reported in the balance sheets for cash,
accounts receivable, accounts payable, and other current monetary assets and
liabilities approximate fair value because of the immediate or short-term
maturity of these financial instruments.
Note 3.
Property Held for Sale
In
2009, the Company decided to outsource its large scale manufacturing activities
listing for sale the industrial property located in Corvallis, Oregon and
recorded a $0.1 million impairment charge to reduce carrying value to fair
value less estimated costs to sell. The
Company recorded an additional impairment charge of $0.4 million in the quarter
ended September 30, 2010 to reduce its carrying value to the current
appraised value. The Company has used a Level 3 fair value measure with the use
of an independent appraisal to estimate value of this property.
6
Table of Contents
Note 4.
U.S. Government Contracts
In
the periods presented, substantially all of the revenue generated by the
Company was derived from research contracts with the U.S. government. We recognize revenues from U.S. government
research contracts during the period in which the related expenditures are
incurred and present these revenues and related expenses gross in the
consolidated financial statements. As of
September 30, 2010, the Company had contracts with the U.S. government
pursuant to which it is entitled to receive up to an aggregate of $157.2
million for development of its product candidates, of which $62.2 million had
been billed to the U.S. government and $95.0 million of which relates to
development that has not yet been completed and has not been billed. The
following is a description of such contracts.
January 2006 Agreements (Ebola and Marburg
Host Factors, Dengue, Anthrax and Ricin)
In
January 2006, the final version of the 2006 defense appropriations act was
enacted, which act included an allocation of $11.0 million to fund the Companys
ongoing defense-related programs under certain executed contracts. Net of
government administrative costs, it is anticipated that the Company will
receive up to $9.8 million under this allocation. The Companys technology is
expected to be used to continue developing RNA-based drugs against Ebola and
Marburg viruses. As of September 30, 2010, the Company has recognized
revenue of $9.8 million with respect to these contracts.
December 2006 Agreement (Ebola, Marburg and
Junín Viruses)
In
December 2006, the Company entered into a two-year research contract with
Defense Threat Reduction Agency (DTRA), an agency of the U.S. Department of
Defense (the DoD), pursuant to which the Company was entitled to $28.0
million to fund its development of antisense therapeutics to treat the effects
of Ebola, Marburg and Junín hemorrhagic fever viruses. In May 2009, this
contract was amended to extend the term of the contract until November 2009
and to increase funding by $5.9 million to an aggregate of $33.9 million. In
June 2009, the contract was amended again to extend the term of the
contract to February 2011 and to increase funding by an additional $11.5
million to an aggregate of $45.4 million. In November 2010, the Company
and DTRA agreed that the key activities under this contract had been completed
and that further activities under this contract would cease and be deemed concluded. As of September 30, 2010, the Company had
recognized revenue of $38.2 million with respect to this contract and does not
expect significant further revenue.
May 2009 Agreement (H1N1/Influenza)
In
May 2009, the Company entered into a contract with DTRA to develop swine
flu drugs. Under this contract, DTRA will pay up to $4.1 million to the Company
for the work involving the application of the Companys proprietary PMO and PMO
plu
s antisense chemistry and the
Company plans to conduct preclinical development of at least one drug candidate
and demonstrate it is effective by testing it on animals. In
March 2010, the contract was amended to include testing against additional
influenza strains including H5N1 (avian flu), Tamiflu®-resistant H1N1 (swine
flu) and H3N2 (seasonal flu) and funding increased by $4.0 million to an
aggregate of $8.1 million. As of September 30, 2010, the Company has
recognized revenue of $4.5 million with respect to this contract.
June 2010 Agreement (H1N1/Influenza)
On
June 4, 2010, the Company entered into a contract with the DTRA to
advance the development of AVI-7100, which was previously designated AVI-7367
and which has been renumbered by the Company, as a medical countermeasure
against the pandemic H1N1 influenza virus in cooperation with the
Transformational Medical Technologies program (TMT) of the DoD. The contract
provides for funding of up to $18 million to advance the development of
AVI-7100, including studies enabling an Investigational New Drug (IND)
application with the U.S. Food and Drug Administration (FDA), the development
of an intranasal delivery formulation, and the funding of a Phase 1 clinical
program to obtain human safety data to support potential use under an Emergency
Use Authorization. As of September 30, 2010, the Company has recognized
revenue of $4.6 million with respect to this contract.
July 2010 Agreement (Ebola and Marburg)
On
July 14, 2010, the Company was awarded a new contract with the DoD
Chemical and Biological Defense Program through the U.S. Army Space and Missile
Defense Command for the advanced development of the Companys hemorrhagic fever
virus therapeutic candidates, AVI-6002 and AVI-6003, for Ebola and Marburg
viruses, respectively. The contract is funded as part of the TMT program,
which was instigated to develop innovative platform-based solutions countering
biological threats. The contract is structured into four segments with
potential funding of up to approximately $291 million. Activity under the
first segment, which began in July 2010, provides for funding to the
Company of up to approximately $80 million.
Activities under the first segment include Phase 1 studies in healthy
volunteers as well as preclinical studies, and are scheduled over an 18-month
period.
7
Table of Contents
After
completion of the first segment, and each successive segment, TMT has the
option to proceed to the next segment for either or both AVI-6002 and AVI-6003.
If TMT exercises its options for all four segments, contract activities would
include all clinical and licensure activities necessary to obtain FDA
regulatory approval of each therapeutic candidate and would provide for a total
funding award to the Company of up to approximately $291 million over a period
of approximately six years. Under an
earlier contract, the Company completed development activities that culminated
in the opening of IND applications for both AVI-6002 and AVI-6003. As of September 30, 2010, the Company
has recognized revenue of $2.7 million with respect to the July 2010
Agreement.
The
following table sets forth the impact on revenue of each of the contracts with
the U.S. government on the Companys results of operations for the three and
nine months ended September 30, 2010 and 2009.
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(in thousands)
|
|
(in thousands)
|
|
January 2006 Agreements
(Ebola and
Marburg host factor, Dengue, Anthrax and Ricin)
|
|
$
|
88
|
|
$
|
285
|
|
$
|
556
|
|
$
|
1,908
|
|
December 2006 Agreement
(Ebola,
Marburg and Junín Viruses)
|
|
345
|
|
4,418
|
|
2,953
|
|
7,483
|
|
May 2009 Agreement
(H1N1)
|
|
1,358
|
|
780
|
|
2,802
|
|
1,136
|
|
June 2010 Agreement
(H1N1)
|
|
4,201
|
|
|
|
4,634
|
|
|
|
July 2010 Agreement
(Ebola and
Marburg)
|
|
2,716
|
|
|
|
2,716
|
|
|
|
Other Agreements
|
|
(6
|
)
|
870
|
|
242
|
|
1,921
|
|
Total
|
|
$
|
8,702
|
|
$
|
6,353
|
|
$
|
13,903
|
|
$
|
12,448
|
|
Note 5.
Stock Compensation
Stock Options
The
Company sponsors a 2002 Equity Incentive Plan (the Plan) pursuant to which it
may issue options to purchase its common stock to the Companys employees,
directors and service providers. In general, stock options granted under the
Plan vest over a three year period, with one-third of the underlying shares
vesting on each anniversary of grant, and have a ten year term. As of September 30,
2010, 1,721,493 shares of common stock remain available for future grant under
the Plan.
A
summary of the Companys stock option compensation activity with respect to the
nine months ended September 30, 2010 follows:
Stock Options
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2009
|
|
8,932,811
|
|
$
|
2.79
|
|
|
|
|
|
Granted
|
|
3,432,865
|
|
1.56
|
|
|
|
|
|
Exercised
|
|
(1,673,128
|
)
|
1.18
|
|
|
|
|
|
Canceled or expired
|
|
(2,287,491
|
)
|
4.49
|
|
|
|
|
|
Outstanding at September 30, 2010
|
|
8,405,057
|
|
2.14
|
|
7.24
|
|
$
|
2,763,892
|
|
|
|
|
|
|
|
|
|
|
|
Vested at September 30, 2010 and expected to
vest
|
|
8,193,961
|
|
2.16
|
|
7.18
|
|
2,679,047
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2010
|
|
3,907,316
|
|
2.93
|
|
5.18
|
|
888,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
weighted-average fair value per share of stock-based awards, including stock
options and restricted stock grants, granted to employees during the nine
months ended September 30, 2010 and 2009 was $1.10 and $1.07,
respectively. During the same periods, the total intrinsic value of stock
options exercised was $955,000 and $24,000, respectively, and the total grant
date fair value of stock
8
Table of Contents
options
that vested was $2,555,000 and $1,450,000, respectively. The total grant date
fair value of stock options vested for the three months ended September 30,
2010 and 2009 was $169,000and $446,000, respectively.
Valuation Assumptions
Stock-based
compensation costs are based on the fair value calculated from the Black-Scholes
option-pricing model on the date of grant for stock options. The fair value of
stock grants is amortized as compensation expense on a straight-line basis over
the vesting period of the grants. Stock options granted to employees are
service-based and typically vest over three years.
The
fair values of stock options granted during the periods presented were measured
on the date of grant using the Black-Scholes option-pricing model, with the
following assumptions:
|
|
Three and Nine Months Ended
September 30,
|
|
|
|
2010
|
|
2009
|
|
Risk-free interest rate
|
|
1.39%-2.37%
|
|
1.2%-1.60%
|
|
Expected dividend yield
|
|
0
|
%
|
0
|
%
|
Expected lives
|
|
5.3-5.5 years
|
|
9.0 years
|
|
Expected volatility
|
|
83.3%-85.2%
|
|
92.0%-94.2%
|
|
The
risk-free interest rate is estimated using an average of treasury bill interest
rates that correlate to the prevailing interest rates at the time of grant. The
expected dividend yield is zero as the Company has not paid any dividends to
date and does not expect to pay dividends in the future. The expected lives are
estimated using expected and historical exercise behavior. The expected
volatility is estimated using historical calculated volatility of the Companys
common stock. The amounts estimated according to the Black-Scholes option
pricing model may not be indicative of the actual values realized upon the
exercise of these options by the holders.
The
Company is required to estimate potential forfeiture of stock grants and adjust
compensation cost recorded accordingly. The estimate of forfeitures is adjusted
over the requisite service period to the extent that actual forfeitures differ,
or are expected to differ, from such estimates. Changes in estimated
forfeitures are recognized through a cumulative catch-up in the period of
change and impact the amount of stock compensation expense to be recognized in
future periods.
Restricted Stock Awards
In
the three months ended June 30, 2010, the Company granted a total of
20,000 shares of restricted stock to members of its Board of Directors. These
shares vest over a period of approximately one year. During the three and
nine month periods ended September 30, 2010, the Company recognized
compensation expense related to these shares of $6,600 and $9,600,
respectively.
In
the three months ended June 30, 2009, the Company granted 25,000 shares of
restricted stock to members of its Board of Directors. These shares vest over a
period of one year. During the three and nine months ended September 30,
2009, the Company recognized compensation expense related to these shares of
$24,000 and $27,000, respectively.
Also
in the three months ended June 30, 2009, the Company granted 100,000
shares of restricted stock to its Chief Business Officer. These shares vest
upon the achievement
of certain performance milestones. No
compensation expense related to these shares has been recognized in 2010 or
2009 as
the
achievement of the performance milestones was not accomplished and the
restricted stock was cancelled.
In
the three months ended March 31, 2009, the Company granted 60,000 shares
of restricted stock to its Chief Medical Officer. These shares vested over a
period of 181 days. During the three and nine months ended September 30,
2009 the Company recognized compensation expense related to these shares of
$11,000 and $82,000, respectively.
In
the three months ended March 31, 2008, the Company granted 333,000 shares
of restricted stock to its former Chief Executive Officer. Of these
shares, 100,000 vested immediately and the remaining 233,000 were scheduled to
vest over a period of four years. In April 2010, the former Chief
Executive Officer tendered his resignation at the request of the Board of
Directors and pursuant to the terms of the related separation agreement,
116,500 shares of previously granted restricted stock immediately became fully
vested and exercisable at the effective date of the separation agreement.
During the three months ended September 30, 2010 and 2009, the Company
recognized compensation expense related to these shares of $0 and $16,000,
respectively. During the nine month periods
9
Table of
Contents
ended
September 30, 2010 and 2009, the Company recognized compensation expense
related to these shares $134,000 and $48,000, respectively.
|
|
Restricted
Stock
Awards
|
|
Weighted-Average
Grant Date Fair
Value
|
|
|
|
(in thousands)
|
|
Balance as of December 31, 2009
|
|
300
|
|
$
|
1.09
|
|
Granted
|
|
20
|
|
1.30
|
|
Vested
|
|
(200
|
)
|
1.09
|
|
Forfeited or canceled
|
|
(100
|
)
|
1.10
|
|
Balance as of September 30, 2010
|
|
20
|
|
$
|
1.30
|
|
The weighted-average grant-date fair value of
restricted stock awards is based on the market price of the Companys common
stock on the date of grant. There were no grants of restricted stock awards in
the three months ended September 30, 2010 and the grant-date fair value of
the restricted stock award made
during the nine months ended
September 30, 2010 was $1.30. The
grant-date fair value of the restricted stock awards made during the three and
nine month periods ended September 30, 2009 was $0 and $1.01,
respectively. The total grant-date fair values of restricted stock awards that
vested during the nine months ended September 30, 2010 and 2009 were
approximately $219,000 and $385,000, respectively.
Stock-based Compensation Expense
The amount of stock-based
compensation expense recognized in the three months ended September 30,
2010 and 2009 related to stock options was $509,000 and $511,000, respectively.
For the nine months ended September 30, 2010 and 2009, stock-based
compensation expense was $2,540,000 and $1,592,000, respectively. A summary of
the stock based compensation expense recognized in the statement of operations
is as follows:
|
|
Three Months Ended
|
|
|
|
September 30, 2010
|
|
September 30, 2009
|
|
|
|
(in thousands)
|
|
Research and development
|
|
$
|
250
|
|
$
|
205
|
|
General and administrative
|
|
259
|
|
306
|
|
Total
|
|
$
|
509
|
|
$
|
511
|
|
The
following are the stock-based compensation expense recognized in the Companys
statements of operations for the nine months ended September 30, 2010 and
2009:
|
|
Nine Months Ended
|
|
|
|
September 30, 2010
|
|
September 30, 2009
|
|
|
|
(in thousands)
|
|
Research and development
|
|
$
|
665
|
|
$
|
826
|
|
General and administrative
|
|
1,875
|
|
766
|
|
Total
|
|
$
|
2,540
|
|
$
|
1,592
|
|
As
of September 30, 2010, there was $3,570,000 of total unrecognized compensation
cost related to non-vested share-based compensation arrangements, including
stock options and restricted stock, granted under the Plan. These costs are
expected to be recognized over a weighted-average period of 1.99 years.
Pursuant to the terms of the
separation agreement between the Companys former Chief Executive Officer and
the Company, unvested options previously granted to Dr. Hudson to purchase
1,166,833 shares of common stock and 116,500 shares of restricted stock
immediately became fully vested and exercisable at the effective date of the
separation agreement. The Company recorded a charge of stock compensation
expense of $1,181,292 as a result of the accelerated vesting of these shares in
the second quarter of 2010.
10
Table of Contents
Note 6.
Warrants
Warrants
issued in connection with the Companys December 2007, January 2009,
and August 2009 financings are classified as liabilities as opposed to
equity due to their settlement terms. These warrants are non-cash liabilities;
the Company is not required to expend any cash to settle these liabilities.
The
fair value of these warrants was recorded on the balance sheet at issuance and
the warrants are marked to market at each financial reporting period, with
changes in the fair value recorded as a gain or loss in the statement of
operations. The fair value of the warrants is determined using the
Black-Scholes option-pricing model, which requires the use of significant
judgment and estimates for the inputs used in the model. The following reflects
the weighted-average assumptions for each of the periods indicated:
|
|
Three and Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
Risk-free interest rate
|
|
0.1%-2.6%
|
|
0.2%-2.4%
|
|
Expected dividend yield
|
|
0
|
%
|
0
|
%
|
Expected lives
|
|
0.1-4.4 years
|
|
0.1-5.0 years
|
|
Expected volatility
|
|
62.3%-96.68%
|
|
83.2%-140.6%
|
|
Shares underlying warrants classified as
liabilities
|
|
29,409,546
|
|
30,203,446
|
|
|
|
Three and Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
Market value of stock at beginning of year
|
|
$
|
1.58
|
|
$
|
0.66
|
|
Market value of stock at end of period
|
|
1.83
|
|
1.72
|
|
Weighted average exercise price
|
|
1.59
|
|
3.40
|
|
|
|
|
|
|
|
|
|
The
risk-free interest rate is estimated using an average of Treasury bill interest
rates that correlate to the prevailing interest rates at the time of valuation
date. The expected dividend yield is zero as the Company has not paid any
dividends to date and does not expect to pay dividends in the future. The
expected lives are based on the remaining contractual lives of the related
warrants at the valuation date. The expected volatility is estimated using
historical volatility of the Companys common stock, taking into account
factors such as future events or circumstances that could impact volatility.
The amounts estimated according to the Black-Scholes option pricing model may
not be indicative of the actual values realized upon the exercise of these
warrants by the holders.
All
other warrants issued by the Company other than the warrants issued in
connection with its December 2007, January 2009 and
August 2009 financings are classified as permanent equity in accordance
with GAAP; the fair value of the warrants was recorded as additional paid-in
capital and no further adjustments are made. For the three months ended September 30,
2010 and 2009, 255,895 and 2,129,530 shares, respectively, were underlying such
warrants.
A
summary of the Companys warrant activity with respect to the nine months ended
September 30, 2010 is as follows:
Warrants
|
|
Shares
|
|
Weighted
Average
Exercisable
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Outstanding at January 1, 2010
|
|
32,332,996
|
|
$
|
3.40
|
|
|
|
Granted
|
|
|
|
|
|
|
|
Exercised
|
|
(308,000
|
)
|
1.78
|
|
|
|
Canceled or expired
|
|
(2,359,555
|
)
|
26.50
|
|
|
|
Outstanding at September 30, 2010
|
|
29,665,441
|
|
1.59
|
|
3.55
|
|
|
|
|
|
|
|
|
|
|
Note 7.
Earnings Per Share
Basic
net loss per share is computed by dividing net loss by the weighted-average
number of common shares outstanding. Diluted net loss per share is computed by
dividing net loss by the weighted-average number of common shares and dilutive
common stock equivalent shares outstanding. Given that the Company was in a
loss position for each of the periods presented, there is no difference between
basic and diluted net loss per share since the effect of common stock
equivalents would be anti-dilutive and are therefore excluded from the diluted
net loss per share calculation.
11
Table of Contents
|
|
Three Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in thousands, except per-share data)
|
|
Net loss
|
|
$
|
(7,293
|
)
|
$
|
(8,090
|
)
|
Weighted-average number of shares of common stock
and common stock equivalents outstanding:
|
|
|
|
|
|
Weighted-average number of common shares
outstanding for computing basic earnings per share
|
|
111,767
|
|
95,261
|
|
Dilutive effect of warrants and stock options
after application of the treasury stock method
|
|
|
*
|
|
*
|
Weighted-average number of common shares
outstanding for computing diluted earnings per share
|
|
111,767
|
|
95,261
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.07
|
)
|
$
|
(0.08
|
)
|
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in thousands, except per-share data)
|
|
Net loss
|
|
$
|
(24,533
|
)
|
$
|
(28,684
|
)
|
Weighted-average number of shares of common stock
and common stock equivalents outstanding:
|
|
|
|
|
|
Weighted-average number of common shares
outstanding for computing basic earnings per share
|
|
110,863
|
|
87,493
|
|
Dilutive effect of warrants and stock options
after application of the treasury stock method
|
|
|
*
|
|
*
|
Weighted-average number of common shares
outstanding for computing diluted earnings per share
|
|
110,863
|
|
87,493
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.22
|
)
|
$
|
(0.33
|
)
|
*
Warrants and
stock options to purchase 38,070,498 and 41,262,099 shares of common stock as
of September 30, 2010 and 2009, respectively, were excluded from the net
loss per share calculation as their effect would have been anti-dilutive.
Note 8. Liquidity
Since
its inception in 1980 through September 30, 2010 the Company has incurred
losses of approximately $300.0 million, substantially all of which resulted
from expenditures related to research and development, general and
administrative charges and acquired in-process research and development
resulting from two acquisitions. The Company has not generated any material
revenue from product sales to date, and there can be no assurance that revenue
from product sales will be achieved. Moreover, even if the Company does achieve
revenue from product sales, the Company expects to incur operating losses over
the next several years.
At
September 30, 2010, cash, cash equivalents and short-term investments were
$36.4 million, compared to $48.7 million at December 31, 2009. The Companys
principal sources of liquidity have been revenue from its U.S. government
research contracts and equity financings. The Companys principal uses of cash
have been research and development expenses, general and administrative
expenses and other working capital requirements.
In
the periods presented, substantially all of the revenue generated by the
Company was derived from research contracts with the U.S. government. As of September 30,
2010, the Company had contracts with the U.S. government pursuant to which its
is entitled to receive up to an aggregate of $157.2 million for development of
its product candidates, of which $62.2 million had been billed to the U.S.
government and $95.0 million of which relates to development that has not yet
been completed and has not been billed. See Note 4 U.S. Government Contracts
for additional information.
In
January and August 2009, the Company sold shares of its common stock
and also issued warrants to purchase shares of its common stock in offerings
registered under the Securities Act of 1933 (the Securities Act). See Note 9 Equity Financing for more
information.
Note 9. Equity Financing
In
January 2009, the Company sold approximately 14.2 million shares of its
common stock and also issued warrants to purchase approximately 14.2 million
shares of its common stock in an offering registered under the Securities Act.
The offering generated net proceeds of approximately $15.5 million. The
warrants issued to the investors in the offering have an exercise price of
$1.16 per share and are exercisable at any time on or before July 30,
2014. In connection with the offering, the Company also issued to the placement
agent a warrant to purchase approximately 427,000 shares of the Companys
common stock at an exercise price of $1.45 per share. The warrant issued to the
placement agent is exercisable on or before January 30, 2014.
12
Table of Contents
In
August 2009, the Company sold approximately 24.3 million shares of its
common stock and also issued warrants to purchase approximately 9.7 million shares
of its common stock in an offering registered under the Securities Act. The
offering generated net proceeds of approximately $32.3 million. The warrants
issued to the investors in the offering have an exercise price of $1.78 per
share and are exercisable at any time on or before August 25, 2014. The
warrants issued in connection with the January and August 2009
offerings are classified as a liability due to their settlement terms.
Accordingly, the fair value of the warrants is recorded on the consolidated
balance sheet as a liability, and such fair value is adjusted at each financial
reporting period with the adjustment to fair value reflected in the
consolidated statement of operations as described in greater detail in Note 6
Warrants. These warrants are non-cash
liabilities; the Company is not required to expend any cash to settle these
liabilities.
Note
10. Income Taxes
The
Company has not recognized any liability for unrecognized tax benefits. There
are no unrecognized tax benefits included in the balance sheet that would, if
recognized, affect the effective tax rate.
The
Companys policy is to recognize interest and/or penalties related to income
tax matters in income tax expense. The Company had no accrual for interest or
penalties on its balance sheet at September 30, 2010 or December 31,
2009, and has not recognized interest and/or penalties in the statement of
operations for the three and nine months ended September 30, 2010.
At
December 31, 2009, the Company had net deferred tax assets of
approximately $111 million. The deferred tax assets are primarily composed of
U.S. federal and state tax net operating loss carryforwards, U.S. federal and
state research and development credit carryforwards, share-based compensation
expense and intangibles. Due to uncertainties surrounding its ability to
generate future taxable income to realize these assets, a full valuation
allowance has been established to offset its net deferred tax asset.
Additionally, the Internal Revenue Code rules could limit the future use
of its net operating loss and research and development credit carryforwards to
offset future taxable income based on ownership changes and the value of the
Companys stock.
Note 11. Recent Accounting
Pronouncements
In January 2010, the Financial
Accounting Standards Board (FASB), issued guidance to amend the disclosure
requirements related to recurring and nonrecurring fair value measurements. The
guidance requires new disclosures on the transfers of assets and liabilities
between Level 1 (quoted prices in active market for identical assets or
liabilities) and Level 2 (significant other observable inputs) of the fair
value measurement hierarchy, including the reasons and the timing of the
transfers. The guidance became effective for the Company with the reporting
period beginning January 1, 2010, except for the disclosure on the roll
forward activities for Level 3 fair value measurements, which will become
effective for the Company with the reporting period beginning July 1,
2011. Other than requiring additional disclosures, adoption of this new
guidance did not have a material impact on the Companys financial statements.
In
April 2010, the FASB issued guidance on applying the milestone method of
revenue recognition for milestone payments for achieving specific performance
measures when those payments are related to uncertain future events. The scope of this guidance is limited to
transactions involving research or development. Under the guidance, the milestone
method is a valid application of the proportional performance model for revenue
recognition if the milestones are substantive and there is substantive
uncertainty about whether the milestone will be achieved. The guidance is effective on a prospective
basis to milestones achieved in fiscal years, and interim periods within those
years, beginning after June 15, 2010, with early adoption permitted. The
Company, based on its current revenue contracts, does not believe that this
guidance will have a material impact on the Companys financial statements.
Note
12. Subsequent Events
In
October 2010, the Company received notification from the Treasury Department
that they had been awarded grants totaling approximately $1.2 million under the
U.S. Governments Qualifying Therapeutic Discovery Project (QTDP) program. AVI
was awarded grants for each of the five project applications submitted for the companys
Duchenne muscular dystrophy program and four infectious disease programs.
The
QTDP was part of the March 2010 Patient Protection and Affordable Care Act and
provides a tax credit or grant equal to 50 percent of eligible costs and
expenses for tax years 2009 and 2010. Under the program, a total of $1 billion
in grant or tax credits was made available to companies with 250 or fewer
employees. The grant received by AVI for each application was approximately $244,000.
Item 2.
Managements Discussion and Analysis of
Financial Condition and Results of Operations.
This section should be read in conjunction with
our
condensed consolidated financial statements and related notes included in
Part I, Item 1 of this report
and
the section contained in our annual report on Form 10-K for the year ended
December 31, 2009 under the caption Part II-Item 7
Managements
Discussion and Analysis of Financial Condition and Results of Operations. This
discussion contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Exchange Act. Forward-looking statements are identified by such words as
believe, expect, anticipate and words of similar import and
are
based on current expectations that involve risks and uncertainties, such as our
plans, objectives, expectations and intentions
. All
statements other than historical or current facts, including, without
limitation, statements about our business strategy, plans and objectives of
management and our future prospects, are forward-looking statements. Such
forward-looking statements involve risks and uncertainties, including, but not
limited to, expectations regarding future expenses, funding from government and
other sources, the results of research and development efforts, the adequacy of
funds to support or future operations, the results of pre-clinical and clinical
testing, the effect of regulation by FDA and other agencies, the impact of
competitive products,
13
Table of Contents
product
development, commercialization and technological difficulties.
These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those anticipated in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in this report in
Part II, Item 1A Risk Factors, and elsewhere in this report
.
These statements, like all statements in this report,
speak only as of their date, and we undertake no obligation to update or revise
these statements in light of future developments.
In this report, we, our, us, AVI, and Company refers to AVI
BioPharma, Inc.
Overview
We
are a biopharmaceutical company focused on the discovery and development of
novel RNA-based therapeutics for rare and infectious diseases, as well as other
select disease targets. Applying pioneering technologies developed and
optimized by AVI, we are able to target a broad range of diseases and disorders
through distinct RNA-based mechanisms of action. Unlike other RNA-based
approaches, our technologies can be used to directly target both messenger RNA
(mRNA) and precursor messenger RNA (pre-mRNA) to either down-regulate (inhibit)
or up-regulate (promote) the expression of targeted genes or proteins. We
believe that these broad capabilities represent highly competitive RNA-based
technology platforms and a strong intellectual property position, both of which
are the result of advances across several areas of science, including over 20
years of research and development work in chemistry and biology. Our patent
estate includes 205 patents (foreign and domestic) issued to or licensed by us
and 186 patent applications (domestic and foreign).
We
are leveraging our discovery and development capabilities to build a pipeline
of RNA-based therapeutic drug candidates to develop independently and in
collaboration with larger pharmaceutical and biotechnology partners. Current
applications of our RNA technology platform include genetic diseases (Duchenne
Muscular Dystrophy, or DMD), infectious diseases (including Ebola, Marburg and
H1N1 Influenza viruses), and other early discovery targets. Several of
our antiviral programs, including Ebola, Marburg, Junín and H1N1, have been or
are currently funded by the U.S. government as described in greater detail
below. Some of our other programs have received funding from non-government
sources.
On
June 4, 2010, we were awarded a new contract with the U.S. Defense Threat
Reduction Agency, or DTRA, an agency of the U.S. Department of Defense, or DoD,
to advance the development of AVI-7100 as a medical countermeasure against the
pandemic H1N1 influenza virus (swine flu) in cooperation with the
Transformational Medical Technologies program, or TMT, of the DoD. The contract
provides for funding of up to $18 million to advance the development of
AVI-7100, including studies enabling an Investigational New Drug, or IND,
application with the U.S. Food and Drug Administration, or FDA, the development
of an intranasal delivery formulation and the funding of a Phase 1 clinical
program to obtain human safety data to support potential use under an Emergency
Use Authorization.
On
July 14, 2010, we were awarded a new contract with the DoD Chemical and
Biological Defense Program through the U.S. Army Space and Missile Defense
Command for the advanced development of our hemorrhagic fever virus therapeutic
candidates, AVI-6002 and AVI-6003, for Ebola and Marburg viruses, respectively.
The contract is funded as part of the TMT program, which was established to
develop innovative platform-based solutions countering biological threats. The
contract is structured into four segments with potential funding of up to
approximately $291 million. Activity under the first segment began in July 2010
and provides us funding of up to approximately $80 million. After completion of
the first segment, and each successive segment, TMT has the option to proceed
to the next segment for either or both AVI-6002 and AVI-6003. If TMT exercises
its options for all four segments, contract activities would include all
clinical and licensure activities necessary to obtain FDA regulatory approval
of each therapeutic candidate and would provide for a total funding award to us
of up to approximately $291 million. Under an earlier contract, we completed
development activities that culminated in the opening of IND applications for
both AVI-6002 and AVI-6003.
In
October 2010, we were awarded five cash grants totaling approximately $1.2 million
under the U.S. Governments Qualifying Therapeutic Discovery Project, or QTDP,
program. We were awarded grants for each
of the five project applications submitted for our DMD program and four
infectious disease programs. The QTDP
was part of the March 2010 Patient Protection and Affordable Care Act and
provides a tax credit or grant equal to 50 percent of eligible costs and
expenses for tax years 2009 and 2010.
Under the program, a total of $1 billion in grant or tax credits was
made available to companies with 250 or fewer employees. The grant we received for each application
was approximately $244,000.
On April 20, 2010, our chief
executive officer and president, Leslie Hudson, Ph.D., tendered his resignation
at the request of our Board of Directors. Pursuant to his separation
agreement, Dr. Hudson will receive total cash severance payments of
$1,412,170 (comprised of two times the sum of (i) his annual base salary
in effect as of the Separation Date ($494,400), (ii) the average of his
last two annual bonuses ($188,669), and (iii) the annual cost of Pfizer
retiree healthcare coverage for him and his spouse ($23,016). The
cash severance payments are paid to Dr. Hudson in 24 equal monthly
installments, less required deductions and withholdings following the effective
date of the separation agreement. In addition, as of the effective
date of the separation agreement, unvested options to purchase 1,166,833 shares
of our common stock and 116,500 shares of restricted stock previously granted
to Dr. Hudson became fully vested and exercisable, which resulted in a
charge to stock compensation expense of $1,181,292 in the second quarter of
2010.
As
previously disclosed, on April 20, 2010, we entered into a settlement
agreement with a shareholder group that had sought a special meeting of our
shareholders to replace certain members of our Board of Directors. Pursuant to
such settlement agreement, among other things, (i) our Board of Directors
sought Dr. Hudsons resignation and appointed J. David Boyle II, our Chief
Financial Officer, as interim Chief Executive Officer and President,
(ii) our bylaws were amended to reduce the size of our Board of Directors,
14
Table of
Contents
(iii) Dr. Hudson
and K. Michael Forrest resigned as directors to facilitate the reduction in the
size of the Board of Directors, and (iv) Anthony R. Chase was appointed to
fill the vacancy created by Dr. Hudsons resignation. In addition, for a
period of one year, the shareholder group agreed not to engage in the
solicitation of any proxy relating to the voting of our common stock and not to
take certain actions relating to our Board of Directors or the management of
our company.
At
our 2010 annual meeting of shareholders, Chris Garabedian and Hans Wigzell were
elected to our Board of Directors, replacing Christopher Henney and Michael D.
Casey who did not stand for reelection.
From
our inception in 1980, we have devoted our resources primarily to fund our
research and development efforts. As the
result of new Influenza, Ebola and Marburg U.S. government research contracts,
we expect future revenues and research and development cost to increase. We
have been unprofitable since inception and, other than limited interest,
license fees, grants and research contracts, we have had no material revenue
from the sale of products or other sources, other than from government grants
and research contracts, and we do not expect material revenue for the
foreseeable future. We expect to continue to incur losses for the foreseeable
future as we continue our research and development efforts and seek to enter
additional collaborative efforts. As of September 30, 2010, our
accumulated deficit was $300.0 million.
Government
Contracts
In
the periods presented, substantially all of the revenue generated by our
company was derived from research contracts with the U.S. government. As of September 30,
2010, we had contracts with the U.S. government pursuant to which we are
entitled to receive up to an aggregate of $157.2 million for development of its
product candidates, of which $62.2 million had been billed to the U.S.
government and $95.0 million of which relates to development that has not yet
been completed and has not been billed. The following is a description of such
contracts.
January 2006 Agreement (Ebola and Marburg Host
Factors, Dengue, Anthrax and Ricin)
In
January 2006, the final version of the 2006 defense appropriations act was
enacted, which act included an allocation of $11.0 million to fund our ongoing
defense-related programs under certain executed contracts. Net of government
administrative costs, it is anticipated that we will receive up to $9.8 million
under this allocation. Our technology is expected to be used to continue
developing RNA based drugs against Ebola and Marburg viruses. We have received
signed contracts for all of these projects. As of September 30, 2010, we
have recognized revenue of $9.8 million with respect to these contracts and
expect to receive the remaining funding under these contracts in 2010.
December 2006 Agreement (Ebola, Marburg and
Junín Viruses)
In
December 2006, we entered into a two-year research contract with the DTRA
pursuant to which we were entitled to $28 million to fund development of our
antisense therapeutic candidates Ebola, Marburg and Junín hemorrhagic viruses.
In May 2009, this contract was amended to extend the term of the contract
until November 2009 and to increase funding by $5.9 million to an
aggregate of $33.9 million. In June 2009, the contract was amended again
to extend the term of the contract to February 2011 and to increase
funding by an additional $11.5 million to an aggregate of $45.4 million. In November 2010,
we and DTRA agreed that the key activities under this contract had been
completed and that further activities under this contract would cease and this
contract would be deemed concluded.
As of September 30, 2010, we had recognized revenue of $38.2 million with
respect to this contract and does not expect significant further revenue.
May 2009 Agreement (H1N1/Influenza)
In
May 2009, we entered into a contract with the DTRA to develop swine flu
drugs. Under this contract, DTRA will pay up to $4.1 million to our company for
the work involving the application of our proprietary PMO and PMO
plu
s antisense chemistry and we
plan to conduct preclinical development of at least one drug candidate and
demonstrate it is effective by testing it on animals. In March 2010,
the contract was amended to include testing against additional influenza
strains including H5N1 (avian flu), Tamiflu® resistant H1N1 (swine flu) and
H3N2 (seasonal flu) and funding increased by $4.0 million to an aggregate of
$8.1 million. As of September 30, 2010, we have recognized revenue of $4.5
million with respect to this contract and expect to receive the remaining
funding under this contract in 2010.
15
Table of Contents
June 2010 Agreement (H1N1/Influenza)
On
June 4, 2010, we entered into a contract with the DTRA to advance the
development of AVI-7100, which was previously designated AVI-7367 and which has
been renumbered by us, as a medical countermeasure against the pandemic H1N1
influenza virus in cooperation with the TMT. The contract provides for funding
of up to $18 million to advance the development of AVI-7100, including studies
enabling an IND application with the FDA, the study of an intranasal delivery
formulation, and the funding of a Phase 1 clinical trial to obtain human safety
data to support potential use under an Emergency Use Authorization. As of September 30,
2010, we have recognized revenue of $4.6 million with respect to this contract
and expect to receive the remaining funding under this contract in 2010 and
2011.
July 2010 Agreement (Ebola and Marburg)
On
July 14, 2010, we were awarded a new contract with the DoD Chemical and
Biological Defense Program through the U.S. Army Space and Missile Defense
Command for the advanced development of the our hemorrhagic fever virus
therapeutic candidates, AVI-6002 and AVI-6003, for Ebola and Marburg viruses,
respectively. The contract is funded as part of the TMT program, which
was established to develop innovative platform-based solutions countering
biological threats. The contract is structured into four segments with
potential funding of up to approximately $291 million. Activity under the
first segment began in July 2010and provides for funding to us of up to
approximately $80 million. Activities
under the first segment include Phase 1 studies in healthy volunteers as well
as preclinical studies, and are scheduled over an 18-month period.
After
completion of the first segment, and each successive segment, TMT has the
option to proceed to the next segment for either or both AVI-6002 and AVI-6003.
If TMT exercises its options for all four segments, contract activities would
include all clinical and licensure activities necessary to obtain FDA
regulatory approval of each therapeutic candidate and would provide for a total
funding award to the us of up to approximately $291 million over a period of
approximately six years. Under an
earlier contract, we completed development activities that culminated in the
opening of IND applications for both AVI-6002 and AVI-6003. As of September 30, 2010, we have
recognized revenue of $2.7 million with respect to the July 2010
Agreement.
The
following table sets forth the impact on revenue of each of the contracts with
the U.S. government on our results of operations for the three and nine months
ended September 30, 2010 and 2009.
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(in thousands)
|
|
(in thousands)
|
|
January 2006 Agreements
(Ebola and
Marburg host factor, Dengue, Anthrax and Ricin)
|
|
$
|
88
|
|
$
|
285
|
|
$
|
556
|
|
$
|
1,908
|
|
December 2006 Agreement
(Ebola,
Marburg and Junín Viruses)
|
|
345
|
|
4,418
|
|
2,953
|
|
7,483
|
|
May 2009 Agreement
(H1N1)
|
|
1,358
|
|
780
|
|
2,802
|
|
1,136
|
|
June 2010 Agreement
(H1N1)
|
|
4,201
|
|
|
|
4,634
|
|
|
|
July 2010 Agreement
(Ebola and
Marburg)
|
|
2,716
|
|
|
|
2,716
|
|
|
|
Other Agreements
|
|
(6
|
)
|
870
|
|
242
|
|
1,921
|
|
Total
|
|
$
|
8,702
|
|
$
|
6,353
|
|
$
|
13,903
|
|
$
|
12,448
|
|
Key
Financial Metrics
Revenue
Government Research Contract Revenue.
In
the periods presented, we have generated substantially all of our revenue from
U.S. government research contracts. We recognize revenues from U.S. government
research contracts during the period in which the related expenditures are
incurred and present these revenues and related expenses gross in the
consolidated financial statements.
License
Arrangements.
License
arrangements may consist of non-refundable upfront license fees, data transfer
fees, research reimbursement payments, exclusive licensed rights to patented or
patent pending compounds, technology access fees, various performance or sales
milestones and future product royalty payments. Some of these arrangements are
multiple element arrangements.
We defer recognition of
non-refundable upfront fees if we have continuing performance obligations
without which the technology, right, product or service conveyed in conjunction
with the non-refundable fee has no utility to the licensee that is separate
16
Table of Contents
and independent of our company
performance under the other elements of the arrangement. In addition, if we
have continuing involvement through research and development services that are
required because our know-how and expertise related to the technology is
proprietary to us, or can only be performed by us, then such up-front fees are
deferred and recognized over the period of continuing involvement. As of September 30,
2010, we had deferred revenue of $3.3 million, which represents up-front fees
received from third parties pursuant to certain contractual arrangements and
will be recognized as performance obligations are satisfied.
As the result of recent new
government research contracts for H1N1/Influenza, Ebola and Marburg, we expect
future revenues to increase in the near term.
Expenses
Research and Development
. Research and
development expense consists of costs associated with research activities as
well as costs associated with our product development efforts, conducting
preclinical studies, and clinical trial and manufacturing costs.
Direct research and development
expenses associated with our programs include clinical trial site costs,
clinical manufacturing costs, costs incurred for consultants and other outside
services, such as data management and statistical analysis support, and
materials and supplies used in support of the clinical programs. Indirect costs
of our clinical program include salaries, stock based compensation, and an allocation
of our facility costs. As the result of recent new government research
contracts for H1N1/Influenza, Ebola and Marburg, we expect future research and
development cost to increase.
The
amount and timing of future research and development expense will depend on our
ability to obtain U.S. government awards to fund the advanced development of
our antiviral therapeutic candidates. Without such funding, we would
likely drastically reduce our spending in these areas. Future research
and development expenses may also increase if our internal projects, such as
DMD, enter later stage clinical development. Our research and development
programs are at an early stage and may not result in any approved products.
Product candidates that appear promising at early stages of development may not
reach the market for a variety of reasons. Similarly, any of our product
candidates may be found to be ineffective during clinical trials, may take
longer to complete clinical trials than we have anticipated, may fail to receive
necessary regulatory approvals, and may prove impracticable to manufacture in
commercial quantities at reasonable cost and with acceptable quality.
As
a result of these uncertainties and the other risks inherent in the drug
development process, we cannot determine the duration and completion costs of
current or future clinical stages of any of our product candidates. Similarly,
we cannot determine when, if, or to what extent we may generate revenue from
the commercialization and sale of any product candidate. The timeframe for
development of any product candidate, associated development costs, and the
probability of regulatory and commercial success vary widely.
General and Administrative
. General and
administrative expense consists principally of salaries, benefits, stock-based
compensation expense, and related costs for personnel in our executive,
finance, information technology, business development and human resource
functions. Other general and administrative expenses include an allocation of our
facility costs and professional fees for legal, consulting and accounting
services.
Interest Income (Expense) and Other, Net
. Interest
income and other income or expense, net, consists of interest on our cash, cash
equivalents and short-term investments and rental income and other income. Our
cash equivalents consist of money market investments and our short term
investments consist of certificates of deposit which are included in other
current assets. Interest expense includes interest paid on our mortgage loan
related to the Corvallis property held for sale. Other income includes rental
income on sublease facilities.
Change in Fair Value of Warrants.
Warrants issued
in connection with our December 2007 and January and August 2009
financings are classified as liabilities as opposed to equity due to their
settlement terms. These warrants are
non-cash liabilities; we are not required to expend any cash to settle these
liabilities. The fair market value of these warrants was recorded on the
balance sheet at issuance and the warrants are marked to market each financial
reporting period, with changes in the fair value recorded as a gain or loss in
our statement of operations. The fair
value of the warrants is determined using the Black-Scholes option-pricing model,
which requires the use of significant judgment and estimates for the inputs
used in the model. For more information,
see Note 6Warrants of the unaudited condensed consolidated financial
statements included elsewhere in this report.
Critical Accounting Policies and Estimates
The
discussion and analysis of our financial condition and results of operations
are based upon our condensed consolidated financial statements included
elsewhere in this report. The preparation of our financial statements in
accordance with accounting principles generally accepted in the United States,
or GAAP, requires us to make estimates and judgments that affect the reported
17
Table of Contents
amounts
of assets, liabilities, revenue and expenses and related disclosure of
contingent assets and liabilities for the periods presented. Some of these
judgments can be subjective and complex, and, consequently, actual results may
differ from these estimates. For any given individual estimate or assumption we
make, there may also be other estimates or assumptions that are reasonable. We
believe that the estimates and judgments upon which we rely are reasonable
based upon historical experience and information available to us at the time
that we make these estimates and judgments. To the extent there are material
differences between these estimates and actual results, our consolidated
financial statements will be affected. Although we believe that our judgments
and estimates are appropriate, actual results may differ from these estimates.
The
policies that we believe are the most critical to aid the understanding of our
financial results include:
·
revenue recognition;
·
impairment of long-lived
assets;
·
stock-based compensation; and
·
accounting for and valuation
of warrants classified as liabilities.
Our
critical accounting policies and significant estimates are detailed in our
annual report on Form 10-K filed with the Securities and Exchange
Commission, or SEC, on March 16, 2010 and Quarterly Report on Form 10-Q
for the quarter ended June 30, 2010 and filed with the SEC on August 9,
2010.
Warrant Liability
In
December 2007 and January and August of 2009, we issued warrants
to purchase an aggregate of 29.7 million shares of our common stock in
connection with a registered direct offering of our common stock and warrants.
These warrants are classified as a liability due to their settlement terms. These warrants are non-cash liabilities; we
are not required to expend any cash to settle these liabilities.
The
fair value of the warrants is recorded on our consolidated balance sheet as a
liability, and such fair value is adjusted at each financial reporting period
with the adjustment to fair value reflected in our consolidated statement of
operations. The fair value of the warrants is determined using the
Black-Scholes option pricing model. Fluctuations in the assumptions and factors
used in the Black-Scholes model can result in adjustments to the fair value of
the warrants reflected on our balance sheet and, therefore, our statement of
operations. If, for example, the market value of our common stock or its
volatility at December 31, 2009 were 10% higher or lower than used in the
valuation of such warrants, our valuation of the warrants would have increased
by up to $4.4 million or decreased up to $4.3 million, respectively,
with such difference reflected in our statement of operations.
Results of Operations for the Three and Nine Months Ended September 30,
2010 and 2009
The
following table sets forth selected consolidated statements of operations data
for each of the periods indicated:
|
|
Three Months Ended
September 30,
|
|
%
|
|
Nine Months Ended
September 30,
|
|
%
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
2010
|
|
2009
|
|
Change
|
|
|
|
(In thousands, except per
share amounts)
|
|
|
|
(In thousands, except per
share amounts)
|
|
|
|
Revenue:
|
|
$
|
8,702
|
|
$
|
6,353
|
|
37
|
%
|
$
|
13,903
|
|
$
|
12,448
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
9,059
|
|
7,473
|
|
21
|
%
|
22,080
|
|
17,770
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
3,440
|
|
1,800
|
|
91
|
%
|
11,017
|
|
6,226
|
|
77
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
(3,797
|
)
|
(2,920
|
)
|
|
|
(19,194
|
)
|
(11,548
|
)
|
|
|
Other income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest(expense) income and other, net
|
|
82
|
|
(132
|
)
|
|
+
|
170
|
|
(147
|
)
|
|
+
|
(Increase) decrease on warrant valuation
|
|
(3,578
|
)
|
(5,038
|
)
|
|
+
|
(5,509
|
)
|
(16,989
|
)
|
|
+
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,293
|
)
|
$
|
(8,090
|
)
|
|
|
$
|
(24,533
|
)
|
$
|
(28,684
|
)
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.07
|
)
|
$
|
(0.08
|
)
|
|
|
$
|
(0.22
|
)
|
$
|
(0.33
|
)
|
|
|
+
Not meaningful
18
Table of Contents
Revenue
Revenue for the three months ended September 30, 2010 increased by
$2.3 million, or 37%, compared to the three months ended September 30,
2009 due to a $3.3 million increase in revenue from U.S. government research
contracts offset, in part, from lower revenue associated with the Childrens
National Medical Center contract related to DMD.
Revenue for the nine months ended September 30, 2010 increased by
$1.4 million, or 12%, compared to the nine months ended September 30, 2009
due to a $3.2 million increase in government research contracts as detailed in
the table above, partially offset by a $1.7 million decrease in revenue from
the Childrens National Medical Center.
Research and Development Expenses
Research and development expenses for the three months ended September 30,
2010 increased by $1.6 million, or 21%, compared to the three months ended September 30,
2009 due primarily to $1.1 million for upfront payments to a contract research
organization primarily related to our H1N1 program and $0.5 million in
increased salaries and employee costs from new staff additions.
Research and development expenses for the nine months ended September 30,
2010 increased by $4.3 million, or 24%, compared to the nine months ended September 30,
2009 due primarily to $1.4 million in costs for active investigational
therapeutic components, $1.1 million for contract research organizations costs
for the H1N1 program, $1.1 million for toxicology studies for the Junin and
H1N1 programs and $0.9 million in increased salaries and employee costs from
the addition of new staff.
General and Administrative Expenses
General
and administrative expenses for the three months ended September 30, 2010
increased by $1.6 million, or 91%, compared to the three months ended September 30,
2009. The significant increase in the three months ended September 30,
2010 is primarily due to $0.5 million in salaries related to increased staff
and $0.5 million increase in professional consulting and legal costs. In addition, there was a $0.4 million
reduction in the fair value of property held for sale in Corvallis, Oregon, investor
relations costs increased by $0.2 million and technology costs increased $0.1
million.
General
and administrative expenses for the nine months ended September, 2010 increased
by $4.8 million, or 77%, compared to the nine months ended September 30,
2009 primarily due to $2.6 million in severance costs and stock compensation
related to the departure, in April 2010, of our former chief executive
officer. Other increases include legal costs of $0.6, salary costs related to
additional staff of $0.5 million, rent expense of $0.4 million for the addition
of our new Bothell, Washington facility, $0.4 million impairment charge for
property held for sale in Corvallis, Oregon, $0.2 million of investor relations
costs and $0.1 million for technology costs.
Interest Income (Expense) and Other, Net
The increase in interest income (expense) and other, net for the three
and nine months ended September 30, 2010 compared to the three and nine
months ended September 30, 2009 was attributable to increased rental
income from the sublease of excess space in our Corvallis, Oregon facility.
Change in Fair Value of Warrant
Liability
The
significant changes in fair value of warrant liability for the three and nine
months ended September 30, 2010 compared to the three month and nine month
periods ended September 30, 2009 was attributable to changes in our stock
price. See Key Financial
MetricsChange in Fair Value of Warrants, Critical Accounting
PoliciesWarrant Liability, and Note 6 to the financial statements included
elsewhere in this report.
Net loss
The
decrease in net loss of $0.8 million for the three months ended September 30,
2010 compared to the prior year period was attributable primarily to the change
in warrant liability. The decrease in net loss of $4.2 million for the nine
months ended September 30, 2010 compared to the prior year period was
primarily attributable to a decrease in warrant liability partially offset by
an increase in operating expenses.
19
Table
of Contents
Liquidity and Capital Resources
At
September 30, 2010, cash, cash equivalents and short-term investments were
$36.4 million, compared to $48.7 million at December 31, 2009. Our
principal sources of liquidity are revenue from our U.S. government research
contracts and equity financings. Our principal uses of cash are research and
development expenses, general and administrative expenses and other working capital
requirements. Based on the factors described below, we believe that our
currently available cash, cash equivalents and short-term investments,
exclusive of receipt of future proceeds pursuant to our contracts with the U.S.
government, are sufficient to finance our operations for at least the next
12 months
Sources of Funds
Our
primary source of revenue is from development of product candidates pursuant to
our contracts with the U.S. government.
Government funding is subject to the U.S. governments appropriations
process and the U.S. government has the right under our contracts with them to
terminate such contracts for convenience. If U.S. government funding is not
received or is delayed, our results of operations could be materially and
adversely affected and we may need to seek additional sources of capital. We do
not generate any revenue from non-government, commercial sale of our
pharmaceutical product candidates.
In
January 2009, we sold approximately 14.2 million shares of our common
stock and also issued warrants to purchase approximately 14.2 million shares of
our common stock in an offering registered under the Securities Act of 1933, or
the Securities Act. The offering generated net proceeds of approximately $15.5
million. The warrants issued to the investors in the offering have an exercise
price of $1.16 per share and are exercisable at any time on or before
July 30, 2014. In connection with the offering, we also issued to the
placement agent a warrant to purchase approximately 427,000 shares of our
common stock at an exercise price of $1.45 per share. The warrant issued to the
placement agent is exercisable on or before January 30, 2014.
In
August 2009, we sold approximately 24.3 million shares of our common stock
and also issued warrants to purchase approximately 9.7 million shares of our
common stock in an offering registered under the Securities Act. The offering
generated net proceeds of approximately $32.3 million. The warrants issued to
the investors in the offering have an exercise price of $1.78 per share and are
exercisable at any time on or before August 25, 2014.
We
will require additional capital from time to time in the future in order to
continue the development of products and to expand our product portfolio. We
expect to seek additional financing primarily from, but not limited to, the
sale and issuance of equity or debt securities. We cannot assure you that
financing will be available when and as needed or that, if available, the
financings will be on favorable or acceptable terms. If we are unable to obtain
additional financing when and if we require, it would have a material adverse
effect on our business and results of operations. To the extent we issue
additional equity securities, our existing shareholders could experience substantial
dilution.
We
have never generated material commercial revenue from the sale of our
non-governmental products and cannot offer any assurances that we will be able
to do so in the future.
Uses of Funds
From
inception in 1980 through the date of this report, our accumulated deficit is
$300.0 million. Our principal uses of cash have been research and development
expenses, general and administrative expenses, costs associated with the
acquisition of in-process research and development and other working capital
requirements.
Historical Trends
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in thousands)
|
|
Cash provided by (used in):
|
|
|
|
|
|
Operating activities
|
|
$
|
(13,321
|
)
|
$
|
(7,743
|
)
|
Investing activities
|
|
(1,454
|
)
|
(914
|
)
|
Financing activities
|
|
2,467
|
|
47,733
|
|
Increase (decrease) in cash and equivalents
|
|
$
|
(12,308
|
)
|
$
|
39,076
|
|
20
Table
of Contents
Operating Activities
. We used $13.3 million
of cash in operating activities for the nine months ended September 30,
2010, an increase of $5.6 million compared to $7.7 million of cash
used in operating activities for the nine months ended September 30, 2009.
The increase net cash used in operating activities during the comparative
periods was primarily attributable to increased research and development costs,
higher general and administrative expenses and the increase in accounts
receivable.
Investing Activities
. We used $1.5 million of cash in
investing activities for the nine months ended September 30, 2010, an
increase of $0.6 million compared to $0.9 million of cash used in
investing activities for the nine months ended September 30, 2009. The
increase of cash used for investing activities was attributable to increased
spending on patents and fixed assets, and no liquidation of certificate of
deposit in 2010 as occurred in 2009.
Financing Activities
. We had financing activities of $2.5 million that
consisted of stock option and warrant exercises and debt repayment for the nine
months ended September 30, 2010. The $47.7 million of cash generated by
financing activities for the nine months ended September 30, 2009 was
attributable to our January and August 2009 equity financings.
Our
future expenditures and capital requirements depend on numerous factors, most
of which are difficult to project beyond the short term. These requirements
include our ability to meet the requirements of our U.S. government research
projects, the progress of our research and development programs and our
pre-clinical and clinical trials, the time and costs involved in obtaining
regulatory approvals, the cost of filing, prosecuting, defending and enforcing
any patent claims and other intellectual property rights, competing
technological and market developments, our ability to establish collaborative
arrangements and the terms of any such arrangements, and the costs associated
with commercialization of our products. Our cash requirements are expected to
continue to increase as we advance our research, development and
commercialization programs.
Contractual Obligations and Contingencies
In
our continuing operations, we have entered into long-term contractual
arrangements from time to time for our facilities, the provision of goods and
services, and acquisition of technology access rights, among others. The following table presents contractual
obligations arising from these arrangements as of September 30, 2010:
|
|
Payments Due by Period
|
|
|
|
Total
|
|
Less than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More than
5 Years
|
|
|
|
(in thousands)
|
|
Operating leases premises
|
|
$
|
17,304
|
|
$
|
1,881
|
|
$
|
3,922
|
|
$
|
3,545
|
|
$
|
7,956
|
|
Royalty payments
|
|
634
|
|
80
|
|
160
|
|
160
|
|
234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off Balance Sheet Arrangements
During
the periods presented, we did not have any relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements or
for another contractually narrow or limited purpose.
Recent Accounting Pronouncements
See Note 11 to the unaudited condensed consolidated
financial statements contained in Part I, Item 1 of this report.
Item 3. Quantitative and
Qualitative Disclosures about Market Risk.
Interest Rate Sensitivity
We
had cash, cash equivalents, and short-term investments of $36.4 million
and $48.7 million at September 30, 2010 and December 31, 2009,
respectively. We do not enter into investments for trading or speculative
purposes; our cash equivalents are invested in money market accounts and our
short-term investments consisted of short-term certificates of deposit. We
believe that we do not have any material exposure to changes in the fair value
of these assets in the near term due to extremely low rates of investment
interest and to the short term nature of our cash, cash equivalents, and
short-term investments. Future declines in interest rates, however, would
reduce investment income, but are not likely to be a material source of revenue
to our company in the foreseeable future.
21
Table of
Contents
Item 4.
Controls
and Procedures.
Evaluation of
Disclosure Controls and
Procedures
We carried out an evaluation as of
the end of period covered by this report, under the supervision and with the
participation of our management, including our interim chief executive officer
and our chief accounting officer, of our disclosure controls and procedures as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended, or the Exchange Act. The purpose of this
evaluation was to determine whether as of the evaluation date our disclosure
controls and procedures were effective to provide reasonable assurance that the
information we are required to disclose in our filings with the Securities and
Exchange Commission, or SEC, under the Exchange Act (i) is recorded,
processed, summarized and reported within the time periods specified in the SECs
rules and forms and (ii) accumulated and communicated to our
management, including our interim chief executive officer and principal
financial and accounting officer, as appropriate to allow timely decisions
regarding required disclosure. Based on that evaluation, management has
concluded that as of September 30, 2010, our disclosure controls and
procedures were effective.
Changes in Internal Control Over
Financial Reporting
There have been no changes in our
internal control over financial reporting during the quarter ended September 30,
2010 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
As
of the date of this report, we are not a party to any material legal
proceedings with respect to us, our subsidiaries, or any of our material
properties. In the normal course of business, we may from time to time be named
as a party to various legal claims, actions and complaints, including matters
involving employment, intellectual property, effects from the use
of drugs utilizing our technology, or others. It is impossible to
predict with certainty whether any resulting liability would have a
material adverse effect on our financial position, results of operations or
cash flows.
Item 1A.
Risk Factors
.
Set forth
below and elsewhere in this report and in other documents we file with the SEC
are descriptions of risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking
statements contained in this report. Because of the following factors, as well
as other variables affecting our operating results, past financial performance
should not be considered a reliable indicator of future performance and
investors should not use historical trends to anticipate results or trends in
future periods. The risks and uncertainties described below are not the only
ones facing us. Other events that we do not currently anticipate or that we
currently deem immaterial also affect our results of operations and financial
condition.
Risks Relating to Our Business
Our product candidates are
at an early stage of development, and it is possible that none of our product
candidates will ever become commercial products.
Our product candidates are in
relatively early stages of development. These product candidates will require
significant further development, financial resources and personnel to obtain
regulatory approval and develop into commercially viable products, if at all.
Currently, AVI-4658 is in clinical trials, we have open INDs for AVI-6002 in
Ebola and AVI-6003 in Marburg, and the rest of our product candidates are in
preclinical development. We expect that much of our effort and many of our
expenditures over the next few years will be devoted to development activities
associated with AVI-4658 in Duchenne Muscular Dystrophy, or DMD, AVI-6002 in
Ebola, AVI-6003 in Marburg and AVI-7100 in influenza. With current resources,
we may be restricted or delayed in our ability to develop other clinical and
preclinical product candidates.
Our ability to commercialize any of
our product candidates, including AVI-4658, depends on first receiving required
regulatory approvals, and it is possible that we may never receive regulatory
approval for any of our product candidates. However, in July 2010 we
received notification from the U.S. Food and Drug Administration, or FDA, that
our Investigational New Drug, or IND, application, required to start clinical
testing in the United States, had been allowed. Even if a product candidate
receives regulatory approval, the resulting product may not gain market
acceptance among physicians, patients, healthcare payers and the medical
22
Table of Contents
community. Assuming that any of our
product candidates receives the required regulatory approvals, commercial
success will depend on a number of factors, including:
·
establishment and
demonstration of clinical efficacy and safety;
·
cost-effectiveness
of the product;
·
the products
potential advantage over alternative treatment methods;
·
whether the
product can be produced in commercial quantities at acceptable costs; and
·
marketing and
distribution support for the product.
If we are unable to develop and
commercialize any of our product candidates, if development is delayed or if
sales revenue from any product candidate that receives marketing approval is
insufficient, we may never reach sustained profitability.
If we are not able to
obtain or maintain required regulatory approvals, we will not be able to
commercialize our product candidates, our ability to generate revenue will be
materially impaired and our business will not be successful.
The research, testing,
manufacturing, labeling, approval, selling, marketing and distribution of drug
products are subject to extensive regulation by the FDA in the United States,
and other regulatory authorities in other countries, which regulations differ
from country to country. Marketing of our product candidates in the United States
or foreign countries is not permitted until we obtain marketing approval from
the FDA or other foreign regulatory authorities, and we may never receive
regulatory approval for the commercial sale of any of our product candidates.
Obtaining marketing approval is a lengthy, expensive and uncertain process and
approval is never assured. We have no
experience in preparing and filing the applications necessary to gain
regulatory approvals. Further, the FDA and other foreign regulatory agencies
have substantial discretion in the approval process, and determining when or
whether regulatory approval will be obtained for any product candidate we
develop. In this regard, even if we believe the data collected from clinical
trials of our product candidates are promising, such data may not be sufficient
to support approval by the FDA or any other foreign regulatory authority. In
addition, the FDA or their advisors may disagree with our interpretations of
data from preclinical studies and clinical trials. Regulatory agencies may
approve a product candidate for fewer conditions than requested or may grant
approval subject to the performance of post-approval studies for a product
candidate. Similarly, regulatory agencies may not approve the labeling claims
that are necessary or desirable for the successful commercialization of our
product candidates.
In addition, changes in regulatory
requirements and guidance may occur and we may need to amend clinical trial
protocols to reflect these changes. Amendments may require us to resubmit our
clinical trial protocols to institutional review boards, or IRBs, for
reexamination, which may impact the costs, timing or successful completion of a
clinical trial. Due to these and other factors, our current product candidates
or any of our other future product candidates could take a significantly longer
time to gain regulatory approval than we expect or may never gain regulatory
approval, which could delay or eliminate any potential product revenue by
delaying or terminating the potential commercialization of our product
candidates.
If we receive regulatory approval
for our product candidates, we will also be subject to ongoing FDA obligations
and oversight, including adverse event reporting requirements, marketing
restrictions and potential other post-marketing obligations, all of which may
result in significant expense and limit our ability to commercialize such
products. The FDAs policies may also change and additional government
regulations may be enacted that could prevent or delay regulatory approval of
our product candidates or further restrict or regulate post-approval
activities. We cannot predict the likelihood, nature or extent of adverse
government regulation that may arise from future legislation or administrative
action, either in the United States, or abroad. If we are not able to maintain
regulatory compliance, we may be subject to civil and criminal penalties, we
may not be permitted to market our products and our business could suffer. Any
delay in, or failure to, receive or maintain regulatory approval for any of our
product candidates could harm our business and prevent us from ever generating
meaningful revenues or achieving profitability. We will need to obtain
regulatory approval from authorities in foreign countries to market our product
candidates in those countries. We have not filed for regulatory approval to
market our product candidates in any foreign jurisdiction. Approval by one
regulatory authority does not ensure approval by regulatory authorities in
other jurisdictions. If we fail to obtain approvals from foreign jurisdictions,
the geographic market for our product candidates would be limited.
Our clinical trials may
fail to demonstrate acceptable levels of safety and efficacy of our product
candidates, which could prevent or significantly delay their regulatory
approval
.
To obtain the requisite regulatory
approvals to market and sell any of our product candidates, we must
demonstrate, through extensive preclinical and clinical studies; that the
product candidate is safe and effective in humans. Ongoing and future clinical
trials
23
Table of Contents
of our product candidates may not
show sufficient safety or efficacy to obtain regulatory approvals. We expect to
develop the therapeutic product candidates to treat Ebola and Marburg viruses
under defined regulatory pathways using the Animal Rule mechanism. This mechanism has become available only
relatively recently and has been infrequently used. This process has yet to be
well tested and is currently under evaluation by the FDA. This may present challenges for gaining final
regulatory approval for these product candidates.
Phase 1 clinical trials generally
are not designed to test the efficacy of a product candidate but rather are
designed to test safety, to study pharmacokinetics and pharmacodynamics and to
understand the product candidates side effects at various doses and dosing
schedules in healthy volunteers. Delays
in establishing the appropriate dosage levels can lead to delays in the overall
clinical development of a product candidate.
As of the date of this report, we do not believe that we have identified
a consistently effective dose in DMD patients for AVI-4658. We are
expeditiously moving to start a U.S.-based clinical trial for AVI-4658 at
higher doses to further explore and identify a more consistently effective dose
that may be more appropriate for future clinical trials and that can serve as a
basis for approval by governmental regulatory authorities; however, we can not
assure you that these efforts will be successful. If a consistently effective dose is found in
the U.S. based clinical trial we will expect to engage in discussions with
regulatory authorities about the design and subsequent execution of any further
studies required. This might include an
open label extension study for all patients who have previously received
AVI-4658, as well as other patients (e.g., non-ambulant patients) and any
additional placebo-controlled pivotal study or studies.
Furthermore, success in preclinical
and early clinical trials does not ensure that later large-scale trials will be
successful nor does it predict final results. Acceptable results in early
trials may not be reproduced in later trials.
For example, pivotal trials for AVI-4658 and AVI-7100 will likely
involve a larger number of patients to achieve statistical significance, will be
expensive and will take a substantial amount of time to complete. As a result, we may conduct lengthy and
expensive clinical trials of our product candidates, only to learn that the
product candidate is not an effective treatment or is not superior to existing
approved therapies, or has an unacceptable safety profile, which could prevent
or significantly delay regulatory approval for such product candidate.
We rely on U.S. government
contracts to support several important research and development programs and
substantially all of our revenue. If the U.S. government fails to fund such
programs on a timely basis or at all, or such contracts are terminated, the
results of our operations would be materially and adversely affected.
We rely on U.S. government
contracts and awards to fund several of our development programs, including
those for the Ebola, Marburg, Junín and H1N1 viruses and for all of our current
revenue.
The funding of U.S. government
programs is subject to Congressional appropriations. Congress generally
appropriates funds on a fiscal year basis even though a program may extend over
several fiscal years. Consequently, programs are often only partially funded
initially and additional funds are committed only as Congress makes further
appropriations. If appropriations for one of our programs become unavailable,
or are reduced or delayed our contracts may be terminated or adjusted by the
government, which could have a negative impact on our future revenue under such
a contract or subcontract. From time to time, when a formal appropriation bill
has not been signed into law before the end of the U.S. governments fiscal
year, Congress may pass a continuing resolution that authorizes agencies of the
U.S. government to continue to operate, generally at the same funding levels
from the prior year, but does not authorize new spending initiatives, during a
certain period. During such a period, or until the regular appropriation bills
are passed, delays can occur in government procurement due to lack of funding
and such delays can affect our operations during the period of delay.
In addition, U.S. government
contracts generally also permit the government to terminate the contract, in
whole or in part, without prior notice, at the governments convenience or for
default based on performance. If one of our contracts is terminated for
convenience, we would generally be entitled to payments for our allowable costs
and would receive some allowance for profit on the work performed. If one of
our contracts is terminated for default, we would generally be entitled to
payments for our work that has been completed to that point. A termination
arising out of our default could expose us to liability and have a negative
impact on our ability to obtain future contracts.
The termination of one or more of
these contracts, whether due to lack of funding, for convenience, or otherwise,
or the occurrence of delays or product failures in connection with one or more
of these contracts, could negatively impact our financial condition.
Furthermore, we can give no assurance that we would be able to procure new U.S.
government contracts to offset the revenue lost as a result of termination of
any of our contracts.
24
Table of Contents
Our
U.S. government contracts may be terminated and we may be liable for penalties
under a variety of procurement rules and regulations and changes in
government regulations or practices could adversely affect our profitability,
cash balances or growth prospects.
We must comply with laws and
regulations relating to the formation, administration and performance of U.S.
government contracts, which affect how we do business with our customers. Such
laws and regulations may potentially impose added costs on our business and our
failure to comply with them may lead to penalties and the termination of our
U.S. government contracts. Some significant regulations that affect us include:
·
the Federal Acquisition Regulation and supplements, which
regulate the formation, administration and performance of U.S. Government
contracts;
·
the Truth in Negotiations Act, which requires certification
and disclosure of cost and pricing data in connection with contract
negotiations; and
·
the Cost Accounting Standards, which impose accounting
requirements that govern our right to reimbursement under certain cost-based
government contracts.
Our
contracts with the U.S. government are subject to periodic review and
investigation. If such a review or investigation identifies improper or illegal
activities, we may be subject to civil or criminal penalties or administrative
sanctions, including the termination of contracts, forfeiture of profits, the
triggering of price reduction clauses, suspension of payments, fines and
suspension or debarment from doing business with U.S. government agencies. We
could also suffer harm to our reputation if allegations of impropriety were
made against us, which would impair our ability to win awards of contracts in
the future or receive renewals of existing contracts.
In addition, U.S. government
agencies routinely audit and review their contractors performance on
contracts, cost structure, pricing practices and compliance with applicable
laws, regulations and standards. They also review the adequacy of, and a
contractors compliance with, its internal control systems and policies,
including the contractors purchasing, property, estimating, compensation and
management information systems. Such audits may result in adjustments to our
contract costs, and any costs found to be improperly allocated will not be
reimbursed. We have recorded contract revenues for the periods presented in
this report based upon costs we expect to realize upon final audit; however, we
do not know the outcome of any future audits and adjustments and, if future
audit adjustments exceed our estimates, our results of operations could be
adversely affected. Additionally, we may
be required to enter into agreements and subcontracts with third parties,
including suppliers, consultants and other third party contractors in order to
satisfy our contractual obligations pursuant to our agreements with the U.S.
government. Negotiating and entering
into such arrangements can be time-consuming and we may not be able to reach
agreement. Any such agreement also has
to be compliant with the terms of our government grants. Any delay or inability to enter into such
arrangements or entering into such arrangements in a manner that is
non-compliant with the terms of our grants, may result in violations of our
contracts with the U.S. government.
Clinical trials for our
product candidates are expensive and time consuming, may take longer than we
expect or may not be completed at all, and their outcome is uncertain
.
We recently completed a Phase1b/2
clinical trial for AVI-4658 in the UK and are currently completing the analysis
and reporting of data from this study. We expect to commence additional trials
of AVI-4658 and other product candidates in the future. Each of our clinical
trials requires the investment of substantial expense and time and the timing
of the commencement, continuation and completion of these clinical trials may
be subject to significant delays relating to various causes, including
scheduling conflicts with participating clinicians and clinical institutions,
difficulties in identifying and enrolling patients who meet trial eligibility
criteria, failure of patients to complete the clinical trial, delay or failure
to obtain IRB approval to conduct a clinical trial at a prospective site,
unexpected adverse events and shortages of available drug supply. Patient
enrollment is a function of many factors, including the size of the patient
population, the proximity of patients to clinical sites, the eligibility
criteria for the trial, the existence of competing clinical trials and the
availability of alternative or new treatments.
We depend on medical institutions and clinical research organizations,
or CROs, to conduct our clinical trials in compliance with Good Clinical
Practice, or GCP, and to the extent they fail to enroll patients for our
clinical trials, fail to conduct the study to GCP standards or are delayed for
a significant time in the execution of our trials, including achieving full
enrollment, we may be affected by increased costs, program delays or both,
which may harm our business. In addition, we conduct clinical trials in foreign
countries which may subject us to further delays and expenses as a result of
increased drug shipment costs, additional regulatory requirements and the
engagement of foreign CROs, as well as expose us to risks associated with less
experienced clinical investigators who are unknown to the FDA, and different
standards of medical care. Foreign
currency transactions insofar as changes in the relative value of the U.S.
dollar to the foreign currency where the trial is being conducted may impact
our actual costs. In addition, for some programs (e.g., DMD and, Ebola and
Marburg infections) there are currently no approved drugs to compare against and
an agreement about how to measure efficacy has yet to be reached with the FDA
and then demonstrated.
Clinical trials must be conducted
in accordance with FDA or other applicable foreign government guidelines and
are subject to oversight by the FDA, other foreign governmental agencies and
IRBs at the medical institutions where the clinical trials are
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conducted. In addition, clinical
trials must be conducted with supplies of our product candidates produced under
GMP and other requirements in foreign countries, and may require large numbers
of test patients. We, the FDA or other foreign governmental agencies could
delay, suspend or halt our clinical trials of a product candidate for numerous
reasons, including:
·
deficiencies in the conduct of the clinical trial,
including failure to conduct the clinical trial in accordance with regulatory
requirements or clinical protocols;
·
deficiencies in the clinical trial operations or trial
sites resulting in the imposition of a clinical hold;
·
the product candidate may have unforeseen adverse side
effects, including fatalities, or a determination may be made that a clinical
trial presents unacceptable health risks;
·
the time required to determine whether the product candidate
is effective may be longer than expected;
·
fatalities or other adverse events arising during a
clinical trial that may not be related to clinical trial treatments;
·
the product candidate may appear to be no more effective
than current therapies;
·
the quality or stability of the product candidate may fall
below acceptable standards;
·
our inability to produce or obtain sufficient quantities of
the product candidate to complete the trials;
·
our inability to reach agreement on acceptable terms with
prospective CROs and trial sites, the terms of which can be subject to
extensive negotiation and may vary significantly among different CROs and trial
sites;
·
our inability to obtain IRB approval to conduct a clinical
trial at a prospective site;
·
lack of adequate funding to continue the clinical trial,
including the occurrence of unforeseen costs due to enrollment delays,
requirements to conduct additional trials and studies and increased expenses
associated with the services of our CROs and other third parties;
·
our inability to recruit and enroll patients to participate
in clinical trials for reasons including competition from other clinical trial
programs for the same or similar indications; or
·
our inability to retain patients who have initiated a
clinical trial but may be prone to withdraw due to side effects from the
therapy, lack of efficacy or personal issues, or who are lost to further
follow-up.
In addition, we may experience
significant setbacks in advanced clinical trials, even after promising results
in earlier trials, such as unexpected adverse events that occur when our
product candidates are combined with other therapies, which often occur in
later-stage clinical trials. In addition, clinical results are frequently
susceptible to varying interpretations that may delay, limit or prevent
regulatory approvals. Also, patient advocacy groups may demand additional
clinical trials even if our interpretation of clinical results received thus
far leads us to determine that additional clinical trials are unwarranted. Any disagreement with patient advocacy groups
may require managements time and attention and may result in legal proceedings
being instituted against us, which could be expensive, time-consuming and
distracting. Negative or inconclusive
results or adverse medical events, including patient fatalities that may be
attributable to our product candidates, during a clinical trial may necessitate
it to be redesigned, repeated or terminated. Further, some of our clinical
trials may be overseen by an independent data safety monitoring board, (DSMB),
and the DSMB may determine to delay or suspend one or more of these trials due
to safety or futility findings based on events occurring during a clinical
trial.
We have incurred net losses
since our inception and we may not achieve or sustain profitability.
We incurred a net loss of $24.5 million
for the nine months ended September 30, 2010 and $25.2 million for the
year ended December 31, 2009. As of
September 30, 2010, our accumulated deficit was $300.0 million. Our losses
have resulted principally from expenses incurred in research and development of
our technology and products and from general and administrative expenses that
we have incurred while building our business infrastructure. We expect to
continue to incur significant operating losses in the future as we continue our
research and development efforts and seek to obtain regulatory approval of our
products. Our ability to achieve profitability depends on our ability to raise
additional capital, partner one or more programs, complete development of our
products, obtain regulatory approvals and market our products. It is uncertain
when, if ever, we will become profitable.
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We will need additional
funds to conduct our planned research and development efforts. If we fail to
continue to attract significant capital or fail to enter into strategic
relationships, we may be unable to continue to develop our product candidates.
We expect that we will require
additional capital from time to time in the future in order to continue the
development of product candidates in our pipeline and to expand our product
portfolio. The actual amount of funds that we will need will be determined by
many factors, some of which are beyond our control. These factors include the
success of our research and development efforts, the status of our pre-clinical
and clinical testing, costs relating to securing regulatory approvals and the
costs and timing of obtaining new patent rights, regulatory changes,
competitive and technological developments in the market. An unforeseen change
in these factors, or others, might increase our need for additional capital. We
may need funds sooner than currently anticipated.
We would expect to seek additional
financing from the sale and issuance of equity or debt securities or the entry
into strategic relationships, and we cannot predict that financing will be
available when and as we need financing or that, if available, the financing
terms will be commercially reasonable. If we are unable to obtain additional
financing when and if we require, or on commercially reasonable terms, it would
have a material adverse effect on our business and results of operations. To
the extent we issue additional equity securities, our existing shareholders
could experience substantial dilution.
Further, we plan to enter into
relationships with pharmaceutical or biotechnology companies to conduct
clinical trials and to market our products.
We currently do not have a strategic relationship with a third party to
assist us in funding the continued development and commercialization of
AVI-4658. If we are unable to enter into
partnerships or strategic relationships with respect to AVI-4658 or our other
product candidates on favorable terms it may impede our ability to develop and
commercialize our product candidates.
We currently rely
on third-party manufacturers and other third parties for production of our drug
products and our dependence on these manufacturers may impair the development
of our product candidates.
We do not currently have the internal ability to
manufacture the drug products that we need to conduct our clinical trials and
we rely upon a limited number of manufacturers to supply our drug products. In
addition, we rely on other third parties to perform additional steps in the
manufacturing process, including filling and labeling of vials and storage of
our product candidates. For the foreseeable future, we expect to continue to
rely on contract manufacturers and other third parties to produce, fill vials
and store sufficient quantities of our product candidates for use in our
clinical trials. If our contract manufacturers or other third parties fail to
deliver our product candidates for clinical use on a timely basis, with
sufficient quality, and at commercially reasonable prices, and we fail to find
replacement manufacturers or to develop our own manufacturing capabilities, we
may be required to delay or suspend clinical trials or otherwise discontinue
development and production of our product candidates. In addition, we depend on
outside vendors for the supply of raw materials used to produce our product
candidates. If the third-party suppliers were to cease production or otherwise
fail to supply us with quality raw materials and we are unable to contract on
acceptable terms for these raw materials with alternative suppliers, our
ability to have our product candidates manufactured and to conduct preclinical
testing and clinical trials of our product candidates would be adversely
affected.
We do not yet have all of the agreements necessary for
the supply of our product candidates in quantities sufficient for commercial
sale and we may not be able to establish or maintain sufficient commercial
manufacturing arrangements on commercially reasonable terms. Securing
commercial quantities of our product candidates from contract manufacturers
will require us to commit significant capital and resources. We may also be
required to enter into long-term manufacturing agreements that contain
exclusivity provisions and/or substantial termination penalties. In addition,
contract manufacturers have a limited number of facilities in which our product
candidates can be produced and any interruption of the operation of those
facilities due to events such as equipment malfunction or failure or damage to
the facility by natural disasters could result in the cancellation of
shipments, loss of product in the manufacturing process or a shortfall in
available product candidates.
Our contract manufacturers are required to produce our
clinical product candidates under current Good Manufacturing Practice, or cGMP,
conditions in order to meet acceptable standards for our clinical trials. If
such standards change, the ability of contract manufacturers to produce our
product candidates on the schedule we require for our clinical trials may be
affected. In addition, contract manufacturers may not perform their obligations
under their agreements with us or may discontinue their business before the
time required by us to successfully produce and market our product candidates.
We and our contract manufacturers are subject to periodic unannounced
inspection by the FDA and corresponding state and foreign authorities to ensure
strict compliance with GMP and other applicable government regulations and
corresponding foreign standards. We do not have control over a third-party
manufacturers compliance with these regulations and standards. Any
difficulties or delays in our contractors manufacturing and supply of product
candidates or any failure of our contractors to maintain compliance with the
applicable regulations and standards could increase our costs, cause us to lose
revenue, make us postpone or cancel clinical trials, prevent or delay
regulatory approval by the FDA and corresponding state and foreign authorities,
prevent the import and/or export of our product candidates, or cause our
products to be recalled or withdrawn.
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We rely on third
parties to provide services in connection with our preclinical and clinical
development programs. The inadequate performance by or loss of any of these
service providers could affect our product candidate development.
Several third
parties provide services in connection with our preclinical and clinical development
programs, including
in vitro
and
in vivo
studies, assay and reagent
development, immunohistochemistry, toxicology, pharmacokinetics, clinical
assessments, data monitoring and management and statistical analysis and other
outsourced activities. If these service providers do not adequately perform the
services for which we have contracted or cease to continue operations and we
are not able to quickly find a replacement provider or we lose information or
items associated with our product candidates, our development programs may be
delayed.
Our RNA-based, or
antisense, technology has not been incorporated into a commercial product and
is still at a relatively early stage of development.
Our RNA-based platform, utilizing proprietary
antisense technology, has not been incorporated into a commercial product and
is still at a relatively early stage of development. This antisense technology is used in all of
our therapeutic candidates, including AVI-4658. We are conducting toxicology,
pharmacology, pharmacokinetics and other preclinical studies and, although we
have initiated clinical trials for AVI-4658, additional preclinical studies may
be required for AVI-4658 and before other product candidates enter human
clinical trials. For example, we noted unexpected toxicology findings in the
kidney as part of our series of preclinical studies for AVI-5038, our
preclinical PPMO drug candidate for DMD that is based on a different chemistry,
derived from the PMO chemistry used in AVI-4658. Based on those findings, we are conducting
additional preclinical work to help clarify the therapeutic index of AVI-5038,
which will guide decision making on continued development of this
candidate. In addition, preclinical
models to study patient toxicity and activity of compounds are not necessarily
predictive of toxicity or efficacy of these compounds in the treatment of human
disease and there may be substantially different results in clinical trials
from the results obtained in preclinical studies. Any failures or setbacks utilizing
our antisense technology, including adverse effects resulting from the use of
this technology in humans, could have a detrimental impact on our internal
product candidate pipeline and our ability to maintain and/or enter into new
corporate collaborations regarding these technologies, which would negatively
affect our business and financial position.
We intend to increase the size of our
workforce and if we fail to manage our growth effectively, our growth prospects
and operating results could be adversely affected.
Our
ability to perform our U.S. government contracts, growth prospects and
operating results depend on highly-skilled personnel to conduct product
development and we intend to recruit, hire and retain significant numbers of
additional personnel in the near term.
Competition for qualified personnel in our industry, particularly those
with experience with the infectious diseases we are target, is intense. In
addition, we expect to meet some of our short-term personnel needs by engaging
contractors who may be difficult to retain if they are offered permanent
positions with other companies that guarantee a wider range of employee
benefits not typically offered to contractors.
If we are unable to attract, assimilate or retain such personnel or
manage our growth effectively, our continued growth, expansion and ability to
perform our U.S. government contracts would be adversely affected.
We rely on highly skilled personnel, and if
we are unable to retain or motivate key personnel or hire qualified personnel,
our operations may be adversely affected.
Our operations and our ability to
execute our business strategy are highly dependent on the efforts of our
executive management team. In April 2010, our chief executive officer and
president resigned in connection with the settlement with a group of our
shareholders. Following his departure, our board of directors appointed J.
David Boyle II, our chief financial officer, to serve as interim chief
executive officer and president, and we have hired an executive to assist
Mr. Boyle with his responsibilities as chief financial officer. We are
conducting a nationwide search for a new chief executive officer, but the
departure of our chief executive officer and president and the circumstances
surrounding his departure could have a disruptive effect on our ability to
attract and retain qualified team members and execute our strategic plan. An
extended period of time without a permanent chief executive officer could
materially and adversely affect our business, financial condition or operating
results. In the event we are unable to effect a smooth transition from our
interim chief executive officer to a permanent chief executive officer, or if a
new chief executive officer should unexpectedly prove to be unsuitable, the
resulting disruption could negatively affect our operations and impede our
ability to execute our strategic plan. In addition, although the members of our
senior management team have employment agreements with us, these agreements may
not provide sufficient incentives for these officers to continue employment
with us. The loss of one or more of the members of our senior management team
could adversely affect our operations.
Recent changes in our
executive leadership and board of directors and any similar changes in the
future my serve as a significant distraction for our management
.
As previously disclosed on
April 20, 2010, we entered into a settlement agreement with a shareholder
group that had sought a special meeting of our shareholders to replace certain
members of our board of directors. In connection with such settlement
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agreement, among other things, we
experienced the change in our executive leadership described above and our
board of directors underwent significant change. Such changes may disrupt our
operations as our company adjusts to the reallocation of responsibilities and
assimilate new leadership and, potentially, differing perspectives on our
strategic direction. The dispute with the shareholder group required the
expenditure of significant time and resources by us and if we are involved in a
similar dispute in the future, we may incur significant additional expenditures
and it may be a significant distraction for our management and employees.
Asserting,
defending and maintaining our intellectual property rights could be challenging
and costly, and our failure to do so could harm our ability to compete and
impair the outcome of our operations. The pharmaceutical, biotechnology
and academic environments are highly competitive and competing intellectual
property could limit our ability to protect our products.
Our success will depend in significant
part on our existing patents and licenses 205 patents (domestic and foreign)
issued or licensed to us and 186 (domestic and foreign) pending patent
applications) and our ability to obtain additional patents in the future. We
license patents from other parties for certain complementary technologies.
We
cannot be certain that pending patent applications will result in patents being
issued in the United States or foreign countries. In addition, the patents that
have been or will be issued may not afford meaningful protection for our
technology and products. Competitors may develop products similar to ours that
do not conflict with our patents. Pharmaceutical research and development is
highly competitive; others may file patents first that cover our products or
technology. We are aware of a European patent to which Prosensa has
rights that may provide the basis for Prosensa or other parties that have
rights to patent to assert that our drug AVI-4658 infringes on such
patent. We are currently opposing this patent in the Opposition Division
of the European Patent Office and believe that we may be able to invalidate
some or all of the claims covered by this patent and non-U.S. foreign
equivalents. Final resolution of this opposition proceeding may take a
number of years. In any case, we have freedom to operate with respect to our
ongoing clinical trials for this drug candidate.
Our success will also depend partly
on our ability to operate without infringing upon the proprietary rights of
others as well as our ability to prevent others from infringing on our
proprietary rights. We may be required at times to take legal action to protect
our proprietary rights and, despite our best efforts, we may be sued for
infringing on the patent rights of others. We have not received any
communications or other indications from owners of related patents or others
that such persons believe our products or technology may infringe on their
patents. Patent litigation is costly and, even if we prevail, the cost of such litigation
could adversely affect our financial condition. If we do not prevail, in
addition to any damages we might have to pay, we could be required to stop the
infringing activity or obtain a license. If any patent related to our products
or technology issues, and if our activities are determined to be covered by
such a patent, we cannot assure you that we will be able to obtain or maintain
a license, which could have a material adverse effect on our business,
financial condition, operating results and ability to obtain and/or maintain
our strategic business relationships.
Others may challenge our patents
and, as a result, our patents could be narrowed or invalidated. The patent
position of pharmaceutical and biotechnology firms, as well as academia, is generally
highly uncertain, involves complex legal and factual questions, and has
recently been the subject of much litigation. No consistent policy has emerged
from the U.S. Patent and Trademark Office, or USPTO, or the courts regarding
the breadth of claims allowed or the degree of protection afforded under
biotechnology patents. In addition, there is a substantial backlog of
pharmaceutical and biotechnology patent applications at the USPTO and the
approval or rejection of patents may take several years.
To help protect our proprietary
rights in unpatented trade secrets, we require our employees, consultants and
advisors to execute confidentiality agreements and invention assignment
agreements. However, such agreements may not provide us with adequate
protection if confidential information is used or disclosed improperly. In
addition, in some situations these agreements may conflict with, or be subject
to, the rights of third parties with whom our employees, consultants or
advisors have prior employment or consulting relationships. Further, others may
independently develop substantially equivalent proprietary information and
techniques, or otherwise gain access to our trade secrets.
Our research collaborators may
publish data and information to which we have rights. If we cannot maintain the
confidentiality of our technology and other confidential information in
connection with our collaborations, then our ability to receive patent
protection or protect our proprietary information may be impaired.
We face intense competition and rapid technological change, which may
result in others discovering, developing or commercializing competing products
before or more successfully than we do.
The
biotechnology and pharmaceutical industries are highly competitive and subject
to significant and rapid technological change. We are aware of many
pharmaceutical and biotechnology companies that are actively engaged in
research and development in areas related to antisense technology or that are
developing alternative approaches to or therapeutics for the disease
indications on which we are focused. Some of these competitors are developing
or testing product candidates that do now, or may in the future, compete
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directly
with our product candidates. For example, we believe that companies including
Alnylam Pharmaceuticals, Isis Pharmaceuticals, and Santaris share a focus
on RNA-based drug discovery and development.
Competitors with respect to our exon skipping DMD program, or AVI-4658,
include Prosensa and GlaxoSmithKline, or GSK, and other companies such as
BioMarin Pharmaceuticals and Acceleron have also been working on DMD programs.
A European based clinical trial evaluating the systemic administration of the
Prosensa/GSK lead DMD drug candidate started several months before the start of
our similar clinical trial, although the full biological results from this
trial have yet to be made publically available. The Prosensa/GSK drug candidate
may, or may not, prove to be safer or more efficacious than our product
candidate and it could gain marketing approval before our product candidate.
This might affect our ability to successfully complete a clinical development
program or market for AVI-4658 once approved.
This competition may also extend to other exon skipping drugs for DMD
limiting our ability to gain market share. We also face significant competition
with respect to our influenza program from many different companies, including
large biopharmaceutical companies that have both marketed products like
Tamiflu® and other products in various stages of development.
Other
potential competitors include large, fully integrated pharmaceutical companies
and more established biotechnology companies that have significant greater
resources and expertise in research and development, manufacturing, testing,
obtaining regulatory approvals and marketing. Also, academic institutions, government
agencies and other public and private research organizations conduct research,
seek patent protection and establish collaborative arrangements for research,
development, manufacturing and marketing. It is possible that these competitors
will succeed in developing technologies that are more effective than our
product candidates or that would render our technology obsolete or
noncompetitive. Our competitors may, among other things:
·
develop
safer
or more effective products;
·
implement
more effective
approaches to sales and marketing;
·
develop less costly
products;
·
obtain
quicker
regulatory approval;
·
have
access
to more manufacturing capacity;
·
develop products that are
more convenient and easier to administer;
·
form
more
advantageous strategic alliances; or
·
establish superior
proprietary positions.
We may be subject to
clinical trial claims and our insurance may not be adequate to cover damages.
We currently have no products that
have been approved for commercial sale; however, the current and future use of
our product candidates by us and our corporate collaborators in clinical
trials, and the sale of any approved products in the future, may expose us to
liability claims. These claims might be made directly by consumers or healthcare
providers or indirectly by pharmaceutical companies, our corporate
collaborators or others selling such products. We may experience financial
losses in the future due to product liability claims. We have obtained limited
general commercial liability insurance coverage for our clinical trials. We
intend to expand our insurance coverage to include the sale of commercial
products if we obtain marketing approval for any of our product candidates.
However, we may not be able to maintain insurance coverage at a reasonable cost
or in sufficient amounts to protect us against all losses. If a successful
product liability claim or series of claims is brought against us for uninsured
liabilities or in excess of insured liabilities, our assets may not be
sufficient to cover such claims and our business operations could be impaired.
Our
operations involve the use of hazardous materials, and we must comply with
environmental laws, which can be expensive, and may affect our business and
operating results.
Our research and development
activities involve the use of hazardous materials, including organic and
inorganic solvents and reagents. Accordingly, we are subject to federal,
state, and local laws and regulations governing the use, storage, handling,
manufacturing, exposure to, and disposal of these hazardous materials. In
addition, we are subject to environmental, health and workplace safety laws and
regulations, including those governing laboratory procedures, exposure to
blood-borne pathogens, and the handling of biohazardous materials. Although we
believe that our activities conform in all material respects with such
environmental laws, there can be no assurance that violations of these laws
will not occur in the future as a result of human error, accident, equipment
failure, or other causes. Liability under environmental, health and
safety laws can be joint and several and without regard to fault or negligence.
The failure to comply with past, present, or future laws could result in the
imposition of substantial fines and penalties,
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remediation costs, property damage
and personal injury claims, loss of permits or a cessation of operations, and
any of these events could harm our business and financial conditions. We
expect that our operations will be affected by other new environmental and
health and workplace safety laws on an ongoing basis, and although we cannot
predict the ultimate impact of any such new laws, they may impose greater
compliance costs or result in increased risks or penalties, which could harm
our business.
Risks Related to Our Common Stock
Provisions
of our articles of incorporation, bylaws and Oregon corporate law might deter
acquisition bids for us that might be considered favorable
and prevent or frustrate any attempt to
replace or remove the then current management and board of directors
.
Certain provisions of our articles
of incorporation and bylaws may make it more difficult for a third party to
acquire control of us or effect a change in our board of directors and
management. These provisions include:
·
classification of our board of directors
into two classes, with one class elected each year;
·
prohibit cumulative voting of shares in the
election of directors;
·
prohibit shareholder actions by less than
unanimous written consent;
·
provide that the board of directors is
expressly authorized to make, alter or repeal our bylaws;
·
establish advance notice requirements for nominations for
election to our board or for proposing matters that can be acted upon by
shareholders at shareholder meetings; and
·
the ability of our board of directors to authorize the
issuance of undesignated preferred stock, the terms and rights of which may be
established and shares of which may be issued without shareholder approval,
including rights superior to the rights of the holders of common stock.
In addition, the Oregon Control
Share Act and Business Combination Act may limit parties that acquire a
significant amount of voting shares from exercising control over us for
specific periods of time. These provisions could discourage, delay or prevent a
transaction involving a change of control, even if doing so would benefit our
shareholders. These provisions also could discourage proxy contests and make it
more difficult for shareholders to elect directors of their choosing or cause
us to take other corporate actions, such as replacing or removing management or
members of our board of directors.
Our stock price is
volatile and may fluctuate due to factors beyond our control.
The market prices for, and trading
volumes of, securities of biotechnology companies, including our securities,
have been historically volatile. The market has from time to time experienced
significant price and volume fluctuations unrelated to the operating
performance of particular companies. The market price of our common stock may
fluctuate significantly due to a variety of factors, including:
·
positive or negative results of testing and
clinical trials by ourselves, strategic partners, or competitors;
·
delays in entering into strategic relationships with
respect to development and/or commercialization of our product candidates or
entry into strategic relationships on terms that are not deemed to be favorable
to our company;
·
technological innovations or commercial
product introductions by ourselves or competitors;
·
changes in government regulations;
·
developments concerning proprietary rights,
including patents and litigation matters;
·
public concern relating to the commercial
value or safety of any of our products;
·
financing or other corporate transactions;
·
comments by securities analysts;
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·
the perception that shares of our common
stock may be delisted from The NASDAQ Stock Market; or
·
general market conditions in our industry
or in the economy as a whole.
In addition, the stock market has
recently experienced extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of individual
companies. Broad market and industry factors may seriously affect the market
price of companies stock, including ours, regardless of actual operating
performance. In addition, in the past, following periods of volatility in the
overall market and the market price of a particular companys securities,
securities class action litigation has often been instigated against these
companies. This litigation, if instigated against us, could result in
substantial costs and a diversion of our managements attention and resources.
Our common
stock is listed on The NASDAQ Global Market and we may not be able to maintain
that listing, which may make it more difficult for investors to sell shares of
our common stock.
Our common stock is listed
on The NASDAQ Global Market. The NASDAQ Global Market has several quantitative
and qualitative requirements with which companies must comply in order to
maintain this listing, including a $1.00 minimum bid price per share and $50
million minimum value of listed securities. In the past our stock price has
traded near, and at times below, the $1.00 minimum bid price required for
continued listing on NASDAQ. For example, the trading price for our common
stock was $0.99 as recently as May 11, 2009. Although NASDAQ in the past
has provided relief from the $1.00 minimum bid price requirement as a result of
the recent weakness in the stock market, it may not do so in the future. If we
fail to maintain compliance with NASDAQs listing standards, and our common
stock becomes ineligible for listing on The NASDAQ Stock Market the liquidity
and price of our common stock would be adversely affected.
If our common stock was
delisted, the price of our stock and the ability of our shareholders to trade
in our stock would be adversely affected. In addition, we would be subject to a
number of restrictions regarding the registration of our stock under U.S.
federal securities laws, and we would not be able to allow our employees to
exercise their outstanding options, which could adversely affect our business
and results of operations. If we are delisted in the future from The NASDAQ
Global Market, there may be other negative implications, including the
potential loss of confidence by actual or potential collaboration partners,
suppliers and employees and the loss of institutional investor interest in our
company.
We expect that we will seek to raise
additional capital in the future; however, such capital may not be available to
us on reasonable terms, if at all, when or as we require additional funding. If
we issue additional shares of our common stock or other securities that may be
convertible into, or exercisable or exchangeable for, our common stock, our
existing shareholders would experience further dilution.
We
expect that we will seek to raise additional capital from time to time in the
future. For example, in connection with our December 2007,
January 2009 and August 2009 financings, we sold an aggregate of 29.7
million shares of our common stock and issued warrants to purchase an
additional 29.7 million shares of our common stock. Future financings may
involve the issuance of debt, equity and/or securities convertible into or
exercisable or exchangeable for our equity securities. These financings may not
be available to us on reasonable terms or at all when and as we require
funding. If we are able to consummate such financings, the trading price of our
common stock could be adversely affected and/or the terms of such financings
may adversely affect the interests of our existing shareholders. Any failure to
obtain additional working capital when required would have a material adverse
effect on our business and financial condition and would be expected to result
in a decline in our stock price. Any issuances of our common stock, preferred
stock, or securities such as warrants or notes that are convertible into,
exercisable or exchangeable for, our capital stock, would have a dilutive
effect on the voting and economic interest of our existing shareholders.
We expect our quarterly operating results
to fluctuate in future periods, which may cause our stock price to fluctuate or
decline.
Our
quarterly operating results have fluctuated in the past, and we believe they
will continue to do so in the future. Some of these fluctuations may be more
pronounced than they were in the past as a result of the issuance of warrants
to purchase 29.7 million shares of our common stock by us in December 2007
and January and August 2009. Each of these warrants is classified as
a derivative liability. Accordingly, the fair value of the warrants is recorded
on our consolidated balance sheet as a liability, and such fair value is
adjusted at each financial reporting date with the adjustment to fair value
reflected in our consolidated statement of operations. The fair value of the
warrants is determined using the Black-Scholes option valuation model.
Fluctuations in the assumptions and factors used in the Black-Scholes model can
result in adjustments to the fair value of the warrants reflected on our
balance sheet and, therefore, our statement of operations. Due to the classification
of such warrants and other factors, quarterly results of operations are
difficult to forecast, and period-to-period comparisons of our operating
results may not be predictive of future performance. In one or more future
quarters, our results of operations may fall below the expectations of
securities analysts and investors. In that event, the
32
Table of
Contents
market
price of our common stock could decline. In addition, the market price of our
common stock may fluctuate or decline regardless of our operating performance.
Item 2. Unregistered Sales of
Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior
Securities.
None.
Item 4. (Removed and Reserved).
Item 5. Other Information.
None.
Item 6. Exhibits.
|
|
|
|
Incorporated by Reference to Filings Indicated
|
Exhibit No
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing
Date
|
|
Filed
Herewith
|
10.85
|
|
AVI
BioPharma, Inc. Non-Employee Director Compensation Policy
|
|
8-K
|
|
1-14895
|
|
10.85
|
|
10/1/10
|
|
|
10.86*
|
|
Contract
Number W9113M-10-C-0056 between U.S. Army Space and Missile Defense Command
and the Company dated July 14, 2010
|
|
|
|
|
|
|
|
|
|
X
|
31.1
|
|
Certification
of the Companys Interim President and Chief Executive Officer and Chief
Financial Officer, J. David Boyle II, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
31.2
|
|
Certification
of the Companys Controller and Chief Accounting Officer, Melinda K. Miles,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
32.1
|
|
Certification
of the Companys Interim President and Chief Executive Officer, and Senior
Vice President and Chief Financial Officer, J. David Boyle II, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
*
Confidential treatment has been requested for portions of this exhibit. These
portions are omitted from this Quarterly Report on Form 10-Q and have been
filed separately with the Securities and Exchange Commission.
33
Table of
Contents
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 thereunto
duly authorized.
Date:
November 9, 2010
|
AVI
BIOPHARMA, INC.
|
|
|
|
|
|
|
|
|
By:
|
/s/
J. DAVID BOYLE II
|
|
|
J.
David Boyle II
|
|
|
Interim
President and Chief Executive Officer, and Senior Vice President and Chief
Financial Officer
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
By:
|
/s/
MELINDA K. MILES
|
|
|
Melinda
K. Miles
|
|
|
Chief
Accounting Officer
|
|
|
|
|
|
(Principal
Accounting Officer)
|
34
Table of
Contents
EXHIBIT INDEX
|
|
|
|
Incorporated by Reference to Filings Indicated
|
Exhibit No
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing
Date
|
|
Filed
Herewith
|
10.85
|
|
AVI
BioPharma, Inc. Non-Employee Director Compensation Policy
|
|
8-K
|
|
1-14895
|
|
10.85
|
|
10/1/10
|
|
|
10.86*
|
|
Contract
Number W9113M-10-C-0056 between U.S. Army Space and Missile Defense Command
and the Company dated July 14, 2010
|
|
|
|
|
|
|
|
|
|
X
|
31.1
|
|
Certification
of the Companys Interim President and Chief Executive Officer and Chief
Financial Officer, J. David Boyle II, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
31.2
|
|
Certification
of the Companys Controller and Chief Accounting Officer, Melinda K. Miles,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
32.1
|
|
Certification
of the Companys Interim President and Chief Executive Officer, and Senior
Vice President and Chief Financial Officer, J. David Boyle II, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
*
Confidential treatment has been requested for portions of this exhibit. These
portions are omitted from this Quarterly Report on Form 10-Q and have been
filed separately with the Securities and Exchange Commission.
35
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