8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): August 3, 2007

Avanir Pharmaceuticals

(Exact name of registrant as specified in its charter)

California	001-15803	33-0314804
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

101 Enterprise, Suite 300, Aliso Viejo, California	92656
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (949) 389-6700

Not Applicable

Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.01 Completion of Acquisition or Disposition of Assets.

     On August 3, 2007 (the “Closing Date”), Avanir Pharmaceuticals (the “Company”) completed its previously announced sale of its rights to the FazaClo product (clozapine, USP) and the Company’s related assets (collectively, the “FazaClo Assets”) to Azur Pharma Inc. (“Azur Inc.”) and Azur Pharma International III Limited (“Azur Limited” and, together with Azur Inc., “Azur”) pursuant to that certain asset purchase agreement (the “Agreement”) entered into by and among the Company, Alamo Pharmaceuticals, LLC, a wholly owned subsidiary of the Company (“Alamo”), and Azur on July 2, 2007. On the Closing Date, the Company received initial consideration of approximately $42,000,000, plus an additional $1,900,000 in working capital adjustments. Pursuant to the terms of the Agreement, the Company also has the right to receive additional payments of $4,000,000 and $6,000,000 on May 1, 2009 and December 31, 2009, respectively, if certain regulatory conditions are met. Additionally, the Company has the right to receive up to $2,000,000 in total royalty payments, payable at a rate of 3% of Azur’s annualized net sales of FazaClo in excess of $17,000,000. The payment obligations have been guaranteed by Azur Limited.

     On August 8, 2007, as a result of the sale of the FazaClo Assets, the Company paid $11,000,000 of the outstanding principal and interest owed under certain promissory notes (the “Notes”) held by Neal R. Cutler. The Notes were issued by the Company in connection with the Company’s acquisition of Alamo in May 2006, and, as part of an agreement with Mr. Cutler, the Company was required to make the $11,000,000 payment on the Notes upon the sale of the FazaClo Assets. Upon making this payment to Mr. Cutler, the Company is no longer required to make any further payments on the Notes in connection with equity financings until the aggregate proceeds of future equity financings received by the Company exceed $55,000,000, after which time the Company’s payment obligations under the Notes will resume.

Item 2.02 Results of Operations and Financial Condition.

     On August 8, 2007, the Company issued a press release announcing its financial results for the quarter ended June 30, 2007 (the “Press Release”). A copy of the Press Release is furnished herewith as Exhibit 99.1.

     The information set forth under Item 2.02 and in Exhibit 99.1 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

     On August 8, 2007, the Company announced the resignation of Jonathan T. Silverstein as a member of the Board of Directors, effective as of August 10, 2007. There were no disagreements between Mr. Silverstein and the Company.

Item 9.01 Financial Statements and Exhibits.

(b) Unaudited Pro Forma Financial Information

     Exhibit 99.2, incorporated by reference herein, provides unaudited pro forma condensed consolidated statements of operations for the fiscal year ended September 30, 2006 and the six months ended March 31, 2007 and an unaudited pro forma condensed consolidated balance sheet as of March 31, 2007, in each case giving pro forma effect to the disposition of the FazaClo assets.

2

     The unaudited pro forma condensed consolidated balance sheet of the Company as of March 31, 2007 has been prepared as if the Company’s sale had been consummated on March 31, 2007. The unaudited pro forma condensed consolidated statements of operations of the Company for the year ended September 30, 2006 and the six months ended March 31, 2007 are presented as if the sale had occurred on May 24, 2006, the date the Company acquired the FazaClo assets through the acquisition of Alamo, and the effect was carried forward through September 30, 2006 and March 31, 2007, respectively.

     The unaudited pro forma condensed consolidated financial statements presented below are based upon available information and certain assumptions considered reasonable by management. The unaudited pro forma condensed consolidated financial statements may be subject to adjustment based on the actual carrying value of net assets sold at the date of closing, among other considerations. The unaudited pro forma condensed consolidated financial statements do not project the Company’s financial position or results of operations at any future date or for any future period.

     These unaudited pro forma condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended September 30, 2006, as filed with the Securities and Exchange Commission.

(d) Exhibits

Exhibit No.	Description
99.1	Press release, dated August 8, 2007.
99.2	Unaudited pro forma condensed consolidated balance sheet as of March 31, 2007 and unaudited pro forma condensed consolidated statements of operations for the year ended September 30, 2006 and the six months ended March 31, 2007.

3

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 hereunto duly authorized.

August 8, 2007	Avanir Pharmaceuticals
	By:	/s/ Martin J. Sturgeon
		Martin J. Sturgeon
		Vice President and Interim Chief Financial Officer

4

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press release, dated August 8, 2007.
99.2	Unaudited pro forma condensed consolidated balance sheet as of March 31, 2007 and unaudited pro forma condensed consolidated statements of operations for the year ended September 30, 2006 and the six months ended March 31, 2007.

EX-99.1

Exhibit 99.1

AVANIR Reports Third Quarter Fiscal 2007 Financial Results

Announces Progress on Zenvia Clinical Programs

ALISO VIEJO, Calif., August 8, 2007 — Avanir Pharmaceuticals (NASDAQ:AVNR) today reported financial results for the three and nine months ended June 30, 2007.

For the third fiscal quarter of 2007, Avanir reported a net loss of $9.2 million, or $0.23 per share, compared with a net loss of $17.6 million, or $0.56 per share, for the comparable quarter in 2006. Revenues for the third quarter of fiscal 2007 were $7.1 million, compared with $2.4 million for the third quarter of fiscal 2006. Revenues in the third quarter of fiscal 2007 included FazaClo^® net revenues of $4.9 million. Gross margins for the third quarter of fiscal 2007 were $4.2 million, compared with $568,000 in the same period a year ago. Total operating expenses were $14.6 million in the third quarter of fiscal 2007, compared with $18.5 million in the same period in fiscal 2006.

“We have made considerable progress toward our objective of transforming Avanir into a CNS-focused specialty pharmaceutical company,” said Keith Katkin, Avanir’s President and CEO. “We have gained additional clarity on the regulatory path forward for our core CNS asset Zenvia™, secured non-dilutive operating capital by divesting FazaClo, a non-core asset, and taken significant steps to lower our net cash burn rate. Our resources are now squarely aligned around the clinical development of our late-stage drug candidate Zenvia for the treatment of pseudobulbar affect (PBA), also known as involuntary emotional expression disorder, and diabetic peripheral neuropathic (DPN) pain — both indications are significant unmet medical needs and represent large market opportunities.”

“Through our ongoing dialog with the U.S. Food and Drug Administration (FDA), we have developed a protocol for a confirmatory Phase III clinical study of Zenvia in PBA that we believe addresses the issues raised by the FDA in its October 2006 approvable letter. We look forward to sharing details of this study design later in the year and expect to enroll the first PBA patient by the end of this calendar year,” stated Randall Kaye, MD, Chief Medical Officer of Avanir.

2007 FISCAL THIRD QUARTER — RECENT HIGHLIGHTS AND UPCOMING MILESTONES:

CLINICAL PROGRAMS AND PIPELINE

	Zenvia in Pseudobulbar Affect (PBA)/Involuntary Emotional Expression Disorder (IEED)
•	Engaged in discussions with the FDA’s Center for Drug Evaluation and Research, Division of Neurology Products and developed a PBA study protocol intended to address the issues raised by the FDA in its approvable letter of October 2006.
•	Expect to enroll the first PBA patient into the confirmatory Phase III clinical study by the end of the calendar year.

	Zenvia in DPN Pain
•	Announced top-line results of a multi-center, 3-month, double-blind Phase III trial, where active treatment with Zenvia 45/30 mg dosed twice daily (DM/Q 45) and 30/30 mg DM/Q dosed twice daily (DM/Q 30) over a three month period, was compared to placebo. Both doses of Zenvia met the primary endpoint of statistically significant improvements versus placebo as recorded in daily patient diary entries using the Pain Rating Scale, as defined in the Special Protocol Assessment (SPA) with the FDA.
•	Presented primary and secondary endpoints of a Phase III study for Zenvia in DPN pain at the International Congress on Neuropathic Pain in Berlin in June. Results indicated that both doses of Zenvia demonstrated significantly superior reduction of pain compared with placebo in patients with DPN pain. Additionally, Zenvia was generally safe and well tolerated, and safety data were consistent with previous clinical studies with no new safety signals noted. Furthermore, treatment with Zenvia provided significantly greater improvements compared with placebo in pain-related outcomes in patients with DPN pain, including pain relief, activity and sleep.
•	Requested a meeting with the FDA’s Center for Drug Evaluation and Research, Division of Analgesics, Anesthetics, and Rheumatology Products to discuss the protocol for a Phase III study with Zenvia for the treatment of DPN pain. The FDA informed the Company that no meeting would be necessary and encouraged Avanir to proceed directly with the development of a Phase III DPN pain study protocol as well as any questions related to the clinical development program for Zenvia.
•	Expect to share details of the DPN pain development plan later in the year.

COMPANY OPERATIONS

• Completed in August 2007 the previously announced sale of FazaClo^® (clozapine, USP) to Azur Pharma Inc. and received an upfront payment of $42 million, plus an additional $1.9 million in working capital adjustments. Under the terms of the agreement, Avanir could receive up to an additional $10 million in payments in 2009 contingent upon certain regulatory conditions, and up to $2 million in royalties, based on 3% of annualized net product revenues in excess of $17 million. Avanir has allocated $11 million in proceeds to pay down a portion of its outstanding debt, which will be reflected on the Company’s balance sheet for the year ending September 30, 2007. The Company believes that the net proceeds from the sale of FazaClo, plus the cash, cash equivalents and unrestricted investments in securities at June 30, 2007 will be sufficient to finance operating expenses through the end of the next fiscal year, including the planned initiation of the confirmatory Phase III clinical trial of Zenvia in patients with PBA/IEED.

• Completed the previously announced closure of the San Diego research facility with associated reduction in headcount and payroll-related expenses. The Company also announced the signing of a sublease for that facility.

• Earned in August 2007 a $1.5 million milestone payment from Healthcare Brands International (HBI) for the first European regulatory approval of docosanol for marketing in Poland. The payment is expected to be received in the fiscal fourth quarter.

• Announced that the Company is considering a reduction in the size of its Board of Directors to further reduce operating expenses and to bring the board size in line with the Company’s smaller size. As part of this reduction, Jonathan Silverstein will resign from the Board of Directors effective August 10, 2007.

BALANCE SHEET HIGHLIGHTS

As of June 30, 2007, we had cash and investments in securities totaling $10.9 million, including cash and cash equivalents of $7.5 million, short and long-term investments in securities of $2.2 million and restricted investments in securities of $1.2 million. After the end of the quarter, the Company raised additional proceeds of approximately $31 million from the sale of FazaClo, net of $11 million in debt pay-down related to the 2006 Alamo acquisition.

The Company is targeting an average annual net cash burn rate of approximately $20 million over the next two fiscal years, inclusive of the projected costs for our planned confirmatory Phase III trial of Zenvia in IEED, but excluding any costs associated with a second Phase III Zenvia trial in DPN pain.

MID-TERM LETTER TO STOCKHOLDERS

Avanir announced that a mid-term Letter to Stockholders is available on the “Investors” section of the Company website at www.avanir.com. An electronic or hard copy of the Letter to Stockholders is also available upon request by contacting Brandi Floberg at Lippert/Heilshorn & Associates at (310) 691-1700.

Conference Call and Webcast

Management will host a conference call with a simultaneous webcast today beginning at 8:00 a.m. Pacific time/11:00 a.m. Eastern time to discuss business developments in the third quarter of fiscal 2007. The call/webcast will feature Keith Katkin, President and Chief Executive Officer; Martin Sturgeon, Vice President and Interim Chief Financial Officer; and Randall Kaye, M.D., Senior Vice President and Chief Medical Officer. Investors are invited to listen to the live webcast by visiting Avanir’s corporate website at www.avanir.com. To listen to the live call, please go to Avanir’s website prior to the start of the call to register, download and install the necessary audio software.

A webcast will be available on Avanir’s website for 30 days, and a telephone replay will be available through August 12, 2007, by dialing (800) 642-1687 (domestic) or (706) 645-9291 (international) and entering the conference ID number 7373288.

About Avanir
Avanir Pharmaceuticals is focused on developing, acquiring and commercializing novel therapeutic products for the treatment of chronic diseases. Avanir’s products and product candidates address therapeutic markets that include the central nervous system (CNS), inflammation and infectious diseases. Avanir’s lead product candidate Zenvia is being developed

for the treatment of pseudobulbar affect (PBA), also known as involuntary emotional expression disorder, and is the subject of an approvable letter from the FDA for that indication. Additionally, Avanir announced meeting all primary endpoints in a recently completed Phase III clinical trial with Zenvia in patients with diabetic peripheral neuropathic (DPN) pain. Avanir has also licensed a compound to Novartis International Pharmaceutical Ltd. for the treatment of inflammatory disease. Avanir’s infectious disease drug candidate, AVP-21D9, is a human monoclonal antibody in pre-clinical development for the treatment of anthrax with funding to date from an NIH/NIAID grant. The Company’s first commercialized product, Abreva^®, is marketed in North America by GlaxoSmithKline Consumer Healthcare and is the leading over-the-counter product for the treatment of cold sores. Further information about Avanir can be found at www.avanir.com.

About Zenvia
Zenvia is a combination of two well-characterized compounds, the therapeutically active ingredient dextromethorphan, and the enzyme inhibitor quinidine, which serves to increase the bioavailability of dextromethorphan. This first-in-class drug candidate is believed to help regulate excitatory neurotransmission in two ways, through pre-synaptic inhibition of glutamate release via sigma-1 receptor agonist activity, and through postsynaptic glutamate response modulation via uncompetitive, low-affinity NMDA antagonist activity. Zenvia is currently in development for the treatment of pseudobulbar affect (PBA), also known as involuntary emotional expression disorder, and diabetic peripheral neuropathic (DPN) pain.

In October 2006, the Company received an approvable letter for the treatment of Zenvia in PBA. To address safety concerns raised in the FDA’s approvable letter for Zenvia in the treatment of PBA, the Company intends to initiate a confirmatory Phase III study with a new lower quinidine dose formulation of Zenvia. In April 2007 Avanir completed the first of two planned Phase III studies in DPN pain where all primary endpoints were successfully met. The Company is considering the future development plan for Zenvia in this indication.

Forward Looking Statements
Statements in this press release that are not historical facts, including statements that are preceded by, followed by, or that include such words as “estimate,” “intend,” “anticipate,” “believe,” “plan,” “goal,” “expect,” or similar statements, are forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from the future results expressed or implied by such statements. There can be no assurance that the proceeds received by the Company from the sale of the Company’s FazaClo operations, together with the Company’s other available funds, will be sufficient to fund the Company’s operations as currently anticipated, or that the Company will be able to commence and complete planned clinical trials within the projected time periods. Risks and uncertainties affecting the Company’s financial condition and operations also include the risks set forth in Avanir’s most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, and from time-to-time in other publicly available information regarding the Company. Copies of this information are available from Avanir upon request. Avanir disclaims any intent to update these forward-looking statements.

To be included on Avanir’s e-mail alert list; click on the link below or visit Avanir’s website: http://www.b2i.us/irpass.asp?BzID=958&to=ea&s=0

AVANIR PHARMACEUTICALS
CONSOLIDATED STATEMENTS OF OPERATIONS
June 30, 2007
(Unaudited)

	Three Months ended June 30						Nine Months ended June 30
	2007			2006			2007			2006
REVENUES FROM PRODUCT SALES
Net revenues	$	4,938,708		$	—		$	15,038,523		$	—
Cost of revenues		1,535,535			260,164			4,190,975			260,164
Product gross margin		3,403,173			(260,164	)		10,847,548			(260,164	)
REVENUES AND COST OF RESEARCH SERVICES AND OTHER
Revenues from research services		181,692			1,746,581			2,372,384			6,181,164
Cost of research services		(1,202,476	)		(1,488,363	)		(2,973,715	)		(5,302,796	)
Revenues from government research grant services		122,398			47,345			475,474			208,032
Cost of government research grant services		(201,178	)		(46,402	)		(666,166	)		(214,491	)
Revenues from license agreements		1,443,543			104,174			1,556,827			5,113,516
Revenue from royalties and royalty rights		453,091			465,147			1,955,804			1,474,451
Research services and other gross margin		797,070			828,482			2,720,608			7,459,876
Total gross margin		4,200,243			568,318			13,568,156			7,199,712
OPERATING EXPENSES
Research and development		3,906,024			8,426,870			16,057,310			21,788,150
Selling, general and administrative		10,647,281			10,105,474			29,223,620			23,366,332
Loss from operations	$	(10,353,062	)	$	(17,964,026	)	$	(31,712,774	)	$	(37,954,770	)
OTHER INCOME (EXPENSES)
Interest expense		(415,861	)		(191,302	)		(1,334,399	)		(236,143	)
Interest income		88,916			551,948			425,254			1,444,536
Other		1,537,725			(15,029	)		1,968,004			(10,009	)
Loss before income taxes	$	(9,142,282	)	$	(17,618,409	)	$	(30,653,915	)	$	(36,756,386	)
Provision for income taxes		(8,097	)		(809	)		(21,501	)		(3,230	)
Net loss before cumulative effect of change in acctg principle	$	(9,150,379	)	$	(17,619,218	)	$	(30,675,416	)	$	(36,759,616	)
Cumulative effect of change in acctg principle		—			—			—			(3,616,058	)
NET LOSS	$	(9,150,379	)	$	(17,619,218	)	$	(30,675,416	)	$	(40,375,674	)
BASIC AND DILUTED NET LOSS PER SHARE:	$	(0.23	)	$	(0.56	)	$	(0.86	)	$	(1.33	)
Weighted average shares outstanding		40,580,326			31,419,394			35,546,976			30,352,690

AVANIR PHARMACEUTICALS
SELECTED BALANCE SHEET DATA
June 30, 2007
(Unaudited)

	June 30,			September 30,
	2007			2006
Cash and cash equivalents	$	7,538,570		$	4,898,214
Investments and restricted cash	$	3,385,604		$	19,851,859
Receivables, net	$	3,356,157		$	3,042,468
Inventories	$	2,561,555		$	2,835,203
Accounts payable and other current liabilities	$	14,208,490		$	27,808,787
Deferred revenues	$	18,078,292		$	23,309,325
Total debt	$	22,884,396		$	25,788,310
Total shareholders equity	$	(5,724,955	)	$	(5,674,535	)

AVANIR PHARMACEUTICALS
SELECTED CASH FLOW DATA
June 30, 2007
(Unaudited)

	Nine Months Ended
	June 30, 2007
Net loss	$	(30,675,416	)
Depreciation and amortization		4,902,631
Share-based compensation expense (income)		(287,227	)
Gain on disposal of assets		(229,829	)
Net change in operating assets and liabilities		(11,904,847	)
Net cash used for operating activities		(38,194,688	)
Net cash provided by investing activities		16,875,256
Net cash provided by financing activities		23,959,788
Net increase in cash and cash equivalents		2,640,356
Cash and cash equivalents at beginning of period		4,898,214
Cash and cash equivalents at end of period	$	7,538,570
Investments and restricted cash		3,385,604
Total cash and investments at end of period	$	10,924,174

Lippert/Heilshorn & Associates, Inc.
Jody Cain (jcain@lhai.com)
Brandi Floberg (bfloberg@lhai.com)
310-691-7100

EX-99.2

EXHIBIT 99.2

AVANIR PHARMACEUTICALS
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2007
(Dollars in thousands)

				Adjustment for
	As Reported			Disposition			Pro Forma
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	5,286,799		$	31,662,166	(a)	$	36,948,965
Short term investments		1,979,305						1,979,305
Account Receivable, Net		3,410,745			(2,343,024	)(b)		1,067,721
Inventory		3,019,237			(1,420,115	)(b)		1,599,122
Prepaid		1,306,092			(87,038	)(b)		1,219,054
TOTAL CURRENT ASSETS		15,002,178			27,811,988			(12,809,810	)
Property & Equipment, net		4,355,454			(1,016,967	)(b)		3,338,487
Intangible assets, net		9,244,151			(9,244,151	)(b)		—
Goodwill		20,042,439			(20,042,439	)(b)		—
Long-Term Investment		246,178						246,178
Restricted Trust Fund		1,156,597						1,156,597
Other Assets		472,481			(37,344	)(b)		435,137
TOTAL ASSETS	$	50,519,478		$	(2,528,912	)	$	53,048,390
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	2,344,285		$	(270,656	)(b)	$	2,073,629
Accrued expenses		9,337,793			(114,514	)(b)		9,223,279
Accrued compensation and payroll taxes		1,745,153			—			1,745,153
Current portion of note payable		489,398						489,398
Current portion of deferred revenue		5,404,921			(1,527,048	)(b)		3,877,873
Current portion of capital lease obligation		166,494						166,494
TOTAL CURRENT LIABILITIES		19,488,044			(1,912,218	)		21,400,262
Contingent liability of entity acquired		—						—
Other long-term liability		208,676						208,676
Capital lease obligation, net of current		117,150						117,150
Note payable, net of current		22,292,851			(11,000,000	)(c)		11,292,851
Deferred revenue, net of current		14,261,512						14,261,512
TOTAL LIABILITIES		56,368,233			(12,912,218	)		69,280,451
STOCKHOLDERS’ EQUITY:
Common stock — no par value:
Class A Common Stock		233,264,767			—			233,264,767
Accumulated Deficit		(239,090,317	)					(239,090,317	)
Current year net loss		—			10,383,306			(10,383,306	)
Accumulated Other Comprehensive Loss		(23,205	)					(23,205	)
TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY		(5,848,755	)		10,383,306			(16,232,061	)
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	50,519,478		$	(2,528,912	)	$	53,048,390

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

AVANIR PHARMACEUTICALS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED 9/30/06
(Dollars in thousands, except per share amounts)

				Adjustment for
	As Reported			Disposition			Pro Forma
REVENUES FROM PRODUCT SALES
Net revenues	$	18,270					$	18,270
Cost of revenues		415,045			411,943	(d)		3,102
Product gross margin		(396,775	)		(411,943	)		15,168
REVENUES AND COST OF RESEARCH SERVICES AND OTHER
Revenues from research services		7,837,788						7,837,788
Cost of research services		(7,198,397	)					(7,198,397	)
Revenues from government research grant services		236,882						236,882
Cost of government research grant services		(292,111	)					(292,111	)
Revenues from license agreements		5,154,709						5,154,709
Revenue from royalties and royalty rights		1,938,203						1,938,203
Research services and other gross margin		7,677,074						7,677,074
Total gross margin		7,280,299			(411,943	)		7,692,242
OPERATING EXPENSES
Research and development		29,222,089			2,227,754	(d)		26,994,335
Selling, general and administrative		38,054,219			5,801,701	(d)		32,252,518
Loss from Operations		(59,996,009	)		(8,441,398	)		(51,554,611	)
OTHER INCOME (EXPENSES)
Interest expense		(765,871	)		(251,521	)(e)		(514,350	)
Interest income		1,794,049						1,794,049
Other		33,505						33,505
Loss before income taxes		(58,934,326	)		(8,692,919	)		(50,241,407	)
Provision for income taxes		2,430						2,430
NET LOSS before cumulative effect of change in acctg principal		(58,936,756	)		(8,692,919	)		(50,243,837	)
Cumulative effect of change in acctg principal		(3,616,058	)					(3,616,058	)
NET LOSS	$	(62,552,814	)	$	(8,692,919	)	$	(53,859,895	)
BASIC AND DILUTED NET LOSS PER SHARE:	$	(2.04	)				$	(1.76	)
Weighted average shares outstanding		30,634,872						30,634,872

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

AVANIR PHARMACEUTICALS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED 3/31/07
(Dollars in thousands, except per share amounts)

				Adjustment for
	As Reported			Disposition			Pro Forma
REVENUES FROM PRODUCT SALES
Net revenues	$	10,099,815		$	10,099,815	(d)	$	—
Cost of revenues		2,655,440			2,395,058	(d)		260,382
Product gross margin		7,444,375			7,704,757			(260,382	)
REVENUES AND COST OF RESEARCH SERVICES AND OTHER
Revenues from research services		2,190,692						2,190,692
Cost of research services		(1,771,239	)					(1,771,239	)
Revenues from government research grant services		353,076						353,076
Cost of government research grant services		(464,988	)					(464,988	)
Revenues from license agreements		113,284						113,284
Revenue from royalities and royalty rights		1,502,713						1,502,713
Research services and other gross margin		1,923,538			—			1,923,538
Total gross margin		9,367,913			7,704,757			1,663,156
OPERATING EXPENSES
Research and development		12,151,286			1,614,059	(d)		10,537,227
Selling, general and administrative		18,576,339			9,615,481	(d)		8,960,858
Loss from Operations		(21,359,712	)		(3,524,783	)		(17,834,929	)
OTHER INCOME (EXPENSES)
Interest expense		(918,538	)		(340,933)	(e)		(577,605	)
Interest income		336,338						336,338
Other		430,279						430,279
Loss before income taxes		(21,511,633	)		(3,865,716	)		(17,645,917	)
Provision for inome taxes		(13,404	)					(13,404	)
NET LOSS before cumulative effect of change in acctg principal		(21,525,037	)		(3,865,716	)		(17,659,321	)
Cumulative effect of change in acctg principal		—						—
NET LOSS	$	(21,525,037	)	$	(3,865,716	)	$	(17,659,321	)
BASIC AND DILUTED NET LOSS PER SHARE:	$	(0.58	)				$	(0.48	)
Weighted average shares outstanding		36,797,202						36,797,202

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

BALANCE SHEET

(a) To reflect net cash proceeds from the sale of FazaClo assets. The net cash proceeds include the $42,000,000 purchase price, plus an additional $3,502,351 for a working capital adjustment based upon the working capital balances related to FazaClo at March 31, 2007. (Note: The actual working capital adjustment on the August 3, 2007 closing date was $1,884,226, which was based upon certain working capital balances related to FazaClo as of that date). Additionally, the adjustment to net proceeds has been reduced by estimated transaction costs of $2,840,185, and by the $11,000,000 payment described in (d) below.

(b) To adjust the assets and liabilities of the disposed business that were either sold or written off in connection with the transaction.

(c) To reflect the estimated after-tax gain on sale of net assets of FazaClo.

(d) To reflect $11,000,000 payment to a note holder. As part of an agreement with the note holder, the Company was obligated to make an $11,000,000 payment to the note holder upon the sale of the FazaClo assets.

STATEMENTS OF OPERATIONS

(e) To eliminate historical revenues, cost of revenues, and operating expenses related to FazaClo.

(f) To eliminate interest expense related to $11,000,000 existing notes payable related to the sale of the FazaClo assets.