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): May 4, 2006

Avanir Pharmaceuticals
__________________________________________
(Exact name of registrant as specified in its charter)

California	001-15803	33-0314804
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)
11388 Sorrento Valley Road, San Diego, California		92121
_________________________________ (Address of principal executive offices)		___________ (Zip Code)

Registrant’s telephone number, including area code: 858-622-5200

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:

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

On May 4, 2006, Avanir Pharmaceuticals (the "Company") entered into an employment agreement with Michael J. Puntoriero. The disclosure set forth below under Item 5.01 relating to this agreement is incorporated herein by reference.

On May 5, 2006, the Company entered into a lease for office space in Orange County, California (the "Lease"). The disclosure set forth below under Item 2.05 relating to the Lease is incorporated herein by reference.

Item 2.02 Results of Operations and Financial Condition.

On May 8, 2006, the Company issued a press release announcing the results of operations for the quarter and six months ended March 31, 2006. A copy of this press release is filed 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 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The disclosure set forth below under Item 2.05 relating to the Lease is incorporated herein by reference.

Item 2.05 Costs Associated with Exit or Disposal Activities.

On May 4, 2006, the Company’s Board of Directors authorized a space restructuring plan and the relocation of the Company’s commercial and general and administrative operations. The Company currently occupies three laboratory buildings in San Diego, California, two of which are substantially underutilized and do not fit the Company’s long-term commercialization plans. In an effort to address this underutilization and to lower the Company’s long-term occupancy costs, the Board of Directors approved a plan to consolidate operations into one building in San Diego, with plans to sublease the two remaining buildings, and to move commercial and general and administrative operations to new office space in Orange County, California.

In connection with the consolidation of operations and relocation activity, the Company expects to record aggregate charges of approximately $2.0 million to $2.5 million through the quarter ending December 31, 2006, which consist of employee-related expenses, costs related to the cease use and subsequent sublease of two laboratory buildings and relocation expense. Due to significantly improved utilization of existing space and sublease of excess space, the Company expects to save approximately $1.0 million in the aggregate in operating activities over a three-year period, net of restructuring costs. Capital expenditures related to purchases of new laboratory equipment and leasehold improvements are projected to amount to approximately $1.5 million.

On May 5, 2006, the Company entered into a lease for the new Orange County facilities, which will consist initially of approximately 11,000 square feet of office space, increasing to 17,000 square feet in the second quarter of 2007, leased for an initial term of five years. The aggregate minimum payments over the initial term of the lease are expected to be approximately $2.8 million.

Item 5.01 Changes in Control of Registrant.

On May 4, 2006, the Board of Directors appointed Michael Puntoriero as the Company’s Senior Vice President, Finance. Prior to joining Avanir, Mr. Puntoriero spent over 20 years with Arthur Andersen LLP, including positions as audit partner, head of the Orange County, California audit practice and later as Managing Partner of the Orange County office. Following Arthur Andersen, Mr. Puntoriero has held senior executive positions with Fleetwood Enterprise, Inc. and has served as Executive Vice President and Chief Financial Officer of First Consulting Group, Inc. Mr. Puntoriero earned his Bachelor of Science degree in Accounting from California State University, Northridge and his Masters of Business Administration from the University of Southern California. Mr. Puntoriero is a licensed certified public accountant in California and has completed the Director Training and Certification Program at the UCLA Anderson School of Management. Effective as of May 15, 2006, Mr. Puntoriero will become the Compan y’s Chief Financial Officer. At that time, Gregory P. Hanson, who is currently the Company’s Vice President and Chief Financial Officer, will assume the new position of Vice President and Chief Accounting Officer.

Pursuant to the employment agreement with Mr. Puntoriero, he will serve in an at-will capacity, with an initial annual base salary of $300,000. Upon the commencement of employment, Mr. Puntoriero was paid a signing bonus of $40,000, which must be repaid in certain circumstances if Mr. Puntoriero does not remain employed by the Company for one year. Mr. Puntoriero is entitled to receive an annual bonus commencing in October 2006 in a target amount equal to 35% of his base salary (pro rated for 2006). The actual amount of Mr. Puntoriero’s annual bonus awards will be determined by the Compensation Committee.

Pursuant to the employment agreement, Mr. Puntoriero was also awarded 10,000 shares of restricted Class A common stock (the "Restricted Stock"), which will v est with respect to one-third of the shares on the first anniversary of his employment with the Company and then with respect to one-twelfth of the shares quarterly thereafter, so that the shares will be fully vested upon the third anniversary of Mr. Puntoriero’s employment with the Company. If Mr. Puntoriero’s employment terminates for "Cause," or without "Good Reason" (as such terms are defined in the employment agreement), the Company may reacquire the unvested shares at a nominal purchase price ($0.001 per share).

Additionally, Mr. Puntoriero was awarded an inducement option to purchase up to 100,000 shares of Class A common stock at an exercise price equal to the fair market value of the underlying shares on the date of grant (the "Initial Option"). The Initial Option has a ten-year term and will be subject to a four-year vesting schedule, vesting with respect to 25% of the underlying shares one year after the grant and the with respect to the remaining shares in 12 equal install ments on a quarterly basis thereafter. The Initial Option will be granted as an inducement option outside of the Company’s existing equity incentive plans, but will be subject to the general terms and conditions of the Company’s 2005 Equity Incentive Plan. Commencing in November 2006, Mr. Puntoriero will be eligible to receive an annual target option grant equal to the greater of 25,000 shares of Class A common stock or the amount set for other Senior Vice Presidents of the Company (the "Annual Option"), with an exercise price equal to the fair market value of the underlying shares on the date of grant, subject to a four-year vesting schedule, vesting with respect to 25% of the underlying shares one year after the grant and vesting with respect to the remaining shares in 12 equal installments on a quarterly basis thereafter. Each Annual Option will be subject to the terms and conditions of the Company's equity incentive plans. The size of the option grants shall be established by the Compen sation Committee and may be larger or smaller than the target size, depending on the satisfaction of performance criteria (which may include Company overall performance criteria) established by the President and Chief Executive Officer or Compensation Committee of the Board. The Annual Option granted in November 2006 will be prorated from the Commencement Date.

Mr. Puntoriero will be eligible to participate in Company benefit plans on the same basis and terms as are applicable to other Senior Vice Presidents of the Company and the Company will either provide Mr. Puntoriero with term life insurance in the amount of $2.5 million or reimburse him for the premium costs of such a policy.

If Mr. Puntoriero is terminated without Cause, or if he resigns for Good Reason, then he will be entitled to (i) severance pay in an amount equal to nine months base salary and an amount equal to the greater of (x) 26.25% of the base salary or (y) 75% of the annual last bonus, if any, paid to Mr. Puntoriero, and ( ii) accelerated vesting of the Restricted Stock.

On May 8, 2006, the Company issued a press release announcing the appointment of Mr. Puntoriero. A copy of this press release is filed herewith as Exhibit 99.2 and the text of which is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.

Exhibit Description
99.1 Press release, dated May 8, 2006.
99.2 Press release, dated May 8, 2006.

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.

	Avanir Pharmaceuticals
May 8, 2006	By:	Gregory P. Hanson
		Name: Gregory P. Hanson
		Title: VP, Finance and CFO

Exhibit Index

Exhibit No.	Description
99.1	Press release, dated May 8, 2006
99.2	Press release, dated May 8, 2006

EX-99.1

Exhibit 99.1

[AVANIR PHARMACEUTICALS LOGO]

AVANIR PHARMACEUTICALS REPORTS
SECOND QUARTER OF FISCAL 2006 FINANCIAL RESULTS

San Diego, May 8, 2006 — Avanir Pharmaceuticals (NASDAQ: AVNR) today reported unaudited financial results for the three months ended March 31, 2006, or second quarter of fiscal 2006.

Second Quarter 2006 Results
For the second quarter ended March 31, 2006, Avanir’s net loss was $13.4 million, or $0.43 per share, compared to $14.1 million, or $0.57 per share, for the same period in 2005. Higher overall revenues in the second quarter of fiscal 2006 offset a larger portion of Avanir’s operating expenses in the period, which contributed to the reduction in net loss compared with the same period a year ago. The lower loss per share in the current period was also due to a higher weighted average number of shares outstanding, compared to the same period in the prior year. The second quarter of fiscal 2006 was highlighted by the following activities:

• Completion of the new drug application (NDA) for Neurodex™ in the treatment of Involuntary Emotional Expression Disorder (“IEED”) or pseudobulbar affect;

• Receipt of approximately $4.7 million from the exercise of the Company’s outstanding Class A Warrants that were called by the Company;

• Implementation of a 1-for-4 reverse stock split, resulting in an improved capital structure;

• Execution of a licensing agreement for docosanol 10% cream in Japan;

• Continuation of transforming our business model from a research driven organization to a commercial pharmaceutical company in preparation for the anticipated launch of Neurodex;

• Addition of two additional experienced executives to Avanir’s management team, a vice president of sales and a vice president of medical affairs; and

• Receipt of a $5.0 million milestone (earned in the first fiscal quarter of 2006) from AstraZeneca related to filing an investigational new drug application and the initiation of Phase I safety studies with a small molecule reverse cholesterol compound.

Subsequent to the close of the quarter, Avanir:

• Received notice of acceptance with Priority Review on the Neurodex NDA from the FDA; and

• Commenced trading on the NASDAQ^® National Market under the stock symbol AVNR.

Revenues for the second quarter ended March 31, 2006 were $2.5 million, compared to $645,000 for the same period a year ago. The increase in revenues is primarily due to revenues from research and development services being provided by Avanir in connection with license agreements with AstraZeneca and Novartis.

Operating expenses for the second quarter ended March 31, 2006 were $16.4 million, compared with $14.8 million for the same period a year ago. The operating expenses for the second quarter ended March 31, 2006 included incremental share-based compensation expense of $758,000, or $0.02 per share, resulting from the adoption of Statement of Financial Accounting Standards No. 123® (“FAS 123R”), Share-Based Payment, in the beginning of our fiscal 2006. Research and development (“R&D”) expenses for the second quarter of fiscal 2006 amounted to $7.9 million, compared to $11.4 million for the same period a year ago, as the Company continued to advance its R&D programs. The second quarter ended March 31, 2005 included a $7.2 million charge related to the acquisition of additional contractual rights to Neurodex. Selling, general and administrative expenses for the second quarter of fiscal 2006 increased to $8.5 million, compared to $3.4 million for the same period a year ago. The increase is primarily due to the Company’s expansion of awareness programs and market research for IEED, medical education, filling key management positions, and recognition of share-based compensation expense.

As of March 31, 2006, Avanir had cash, cash equivalents, and investments in securities totaling $53.0 million, compared to $27.5 million as of September 30, 2005. The higher overall level of cash and equivalents was primarily due to financing activities by the Company, the call of warrants, and exercises of stock options. Net working capital was $38.6 million, deferred revenue was $19.0 million and shareholders’ equity was $35.5 million as of March 31, 2006.

Fiscal Year-to-date Results
Net loss for the six months ended March 31, 2006 was $19.1 million, or $0.64 per share, compared to a net loss of $21.1 million, or $0.87 per share, for the same period a year ago. Revenues of $10.6 million for the first half of fiscal 2006 included the $5.0 million milestone from AstraZeneca, $4.4 million in research and services revenues, $1.0 million in revenues that the Company recognized from the sale of abreva® royalty rights, and $161,000 from government research grants. Revenues in the first half of fiscal 2005 amounted to $1.5 million, which included $928,000 in revenues recognized from the sale of abreva royalty rights, $300,000 in revenues relating to achievement of milestones under a license agreement for docosanol 10% cream, and $286,000 from government research grants.

Total operating expenses for the first half of fiscal 2006 were $30.5 million, compared to $22.8 million in the same period a year ago. The operating expenses for the first half of fiscal 2006 included incremental share-based compensation expense of $1.2 million, or $0.04 per share, resulting from the adoption of FAS 123R in the beginning of our fiscal 2006. R&D expenses for the first half of fiscal 2006 amounted to $17.3 million, compared to $16.5 million for the same period a year ago. Selling, general and administrative expenses for the first half of fiscal 2006 increased to $13.3 million, compared to $6.3 million for the same period a year ago.

Subsequent Event
The Company also announced today that it would undergo a consolidation of its three leased office and lab-based facilities in San Diego. By consolidating the Company’s research and development operations into one of the existing San Diego facilities, relocating office support and commercial employees to more suitable office space in Orange County, reducing utilized facility square footage by over 20%, and subleasing excess space, the Company expects to save approximately $1.0 million in the aggregate in operating activities over a three-year period, net of restructuring charges.  In connection with the consolidation, the Company expects to incur approximately $2.0-$2.5 million in restructuring charges over the next twelve months.  The Company expects the facilities realignment to be completed over the next 6-12 months.

Conference Call and Webcast
Management will host a conference call with simultaneous webcast on May 8^th at 1:30 p.m. Pacific/ 4:30 p.m. Eastern to discuss second quarter and year-to-date fiscal 2006 operating performance. The webcast can be accessed on Avanir’s web site at www.avanir.com. For those who cannot listen to the live broadcast, the online replay will be available for 30 days, and a phone replay will be available through May 15, 2006, by dialing (800) 642-1687 for domestic callers and (706) 645-9291 for international callers and entering the passcode 8238299.

About AVANIR
Avanir Pharmaceuticals is focused on developing, acquiring, and commercializing novel therapeutic products for the treatment of chronic diseases. Avanir’s product candidates address therapeutic markets that include central nervous system and cardiovascular disorders, inflammation, and infectious diseases. Avanir previously announced and published positive results from the two required Phase III clinical trials for Neurodex™, an investigational new drug for the treatment of involuntary emotional expression disorder currently under priority review with the FDA. Additionally, Avanir has initiated a Phase III clinical trial for Neurodex as a potential treatment in patients with diabetic neuropathic pain, a second indication for Neurodex. Avanir has active collaborations with two international pharmaceutical companies: Novartis International Pharmaceutical Ltd. for the treatment of inflammatory disease and AstraZeneca for the treatment of cardiovascular disease.  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.

Forward Looking Statements
The information contained in this press release, including any forward-looking statements contained herein, should be reviewed in conjunction with the company’s most recent Annual Report on Form 10-K and quarterly report on Form 10-Q and other publicly available information regarding the Company. Copies of such information are available from the company upon request. Such publicly available information sets forth many risks and uncertainties related to the company’s business and technology. Forward-looking statements often contain such words like “estimate,” “anticipate,” “believe,” “plan” or “expect”. Avanir disclaims any intent or obligation to update these forward-looking statements.

Avanir Pharmaceuticals Contacts:
Patrick O’Brien 858-622-5216 pobrien@avanir.com	Patrice Saxon 858-622-5202 psaxon@avanir.com

- Tables to follow –

AVANIR Pharmaceuticals
Summary Consolidated Financial Information
(Unaudited)

	Quarters ended March 31,						Six months ended March 31,
Statement of operations data:	2006			2005			2006			2005
Revenues	$	2,469,028		$	644,733		$	10,613,916		$	1,533,098
Expenses
Research and development		7,919,847			11,428,170			17,283,249			16,482,411
Selling, general and administrative		8,492,115			3,372,183			13,260,858			6,323,186
Cost of sales		—			—			—			3,102
Total operating expenses		16,411,962			14,800,353			30,544,107			22,808,699
Loss from operations		(13,942,934	)		(14,155,620	)		(19,930,191	)		(21,275,601	)
Interest income		564,422			125,147			892,588			246,979
Other income (expense)		(5,492	)		4,850			5,020			(62,071	)
Interest expense		(21,403	)		(25,324	)		(44,841	)		(46,945	)
Loss before income taxes		(13,405,407	)		(14,050,947	)		(19,077,424	)		(21,137,638	)
Income tax benefit (provision)		(4	)		—			(2,421	)		(1,898	)
Net loss	$	(13,405,411	)	$	(14,050,947	)	$	(19,079,845	)	$	(21,139,536	)
Net loss per share:
Basic and diluted	$	(0.43	)	$	(0.57	)	$	(0.64	)	$	(0.87	)
Weighted average number of common shares:
Basic and diluted		31,086,874			24,565,682			29,819,338			24,261,024

	March 31, 2006		September 30, 2005
Balance sheet data:
Cash and cash equivalents	$	10,912,580	$	8,620,143
Short-term, long-term and restricted investments in securities		42,041,676		18,917,443
Total cash and investments in securities	$	52,954,256	$	27,537,586
Net working capital	$	38,602,472	$	11,969,450
Total assets	$	66,985,222	$	41,401,990
Deferred revenue	$	18,999,961	$	19,158,210
Total liabilities	$	31,519,800	$	32,267,111
Shareholders’ equity	$	35,465,422	$	9,134,879

####

Exhibit 99.2

[AVANIR PHARMACEUTICALS LOGO]

AVANIR PHARMACEUTICALS HIRES

MICHAEL J. PUNTORIERO TO SERVE AS SENIOR VICE PRESIDENT OF FINANCE

AND CHIEF FINANCIAL OFFICER

San Diego, May 8, 2006 — Avanir Pharmaceuticals (NASDAQ: AVNR) announced today that Michael J. Puntoriero has joined the Company as Senior Vice President of Finance and, effective May 15, 2006, will be appointed Chief Financial Officer. As a key member of the senior executive team, Mr. Puntoriero will be responsible for the areas of finance, treasury, business planning, investor relations, information technology, and corporate development.

Prior to joining Avanir, Mr. Puntoriero spent over 20 years with Arthur Andersen LLP, including positions as audit partner, head of the Orange County, California audit practice and ultimately as Managing Partner of the Orange County, California office. Most recently, Mr. Puntoriero held senior executive positions with Fleetwood Enterprise, Inc. (NYSE: FLE) and as Executive Vice President and Chief Financial Officer of First Consulting Group, Inc. (NASDAQ: FCG). In addition, Mr. Puntoriero is an independent director of Oakley, Inc. (NYSE: OO), chair of the audit committee and member of the nominating and corporate governance committee. He earned his Bachelor of Science degree in Accounting from California State University, Northridge and his Masters of Business Administration from the University of Southern California. Mr. Puntoriero is a licensed certified public accountant in California and has completed the Director Training and Certification Program at the UCLA Anderson School of Management.

“Mike brings to Avanir a solid career of demonstrated success and leadership in diverse executive roles including financial accounting, senior financial management, general management and broad business leadership,” said Eric Brandt, President and Chief Executive Officer of Avanir. “Mike’s diversified experience and strong leadership makes him a welcome addition to the senior executive team; helping Avanir navigate its transition from a biotechnology platform company to a fully integrated biopharmaceutical company.”

Greg Hanson, the Company’s Chief Financial Officer for the last seven years, will continue with the Company in the role of Chief Accounting Officer, Compliance Officer, and Secretary. “Eric and I personally want to thank Greg for his seven years of service as the Company’s Chief Financial Officer. His tireless dedication to every responsibility he has been asked to achieve will continue to be a real asset to Avanir in his new role,” said Charles Mathews, Chairman of the Board of Avanir.

About AVANIR
Avanir Pharmaceuticals is focused on developing and commercializing novel therapeutic products for the treatment of chronic diseases. Avanir’s product candidates address therapeutic markets that include central nervous system and cardiovascular disorders, inflammation, and infectious diseases. Avanir previously announced and published positive results from the two required Phase III clinical trials for Neurodex™, an investigational new drug for the treatment of involuntary emotional expression disorder currently under priority review with the FDA. Additionally, Avanir has initiated a Phase III clinical trial for Neurodex as a potential treatment in patients with diabetic neuropathic pain, a second indication for Neurodex. Avanir has active collaborations with two international pharmaceutical companies: Novartis International Pharmaceutical Ltd. for the treatment of inflammatory disease and AstraZeneca for the treatment of cardiovascular disease.  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.

Forward Looking Statement
The information contained in this press release, including any forward-looking statements contained herein, should be reviewed in conjunction with the Company’s most recent Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q and other publicly available information regarding the Company. Copies of such information are available from the company upon request. Such publicly available information sets forth many risks and uncertainties related to the company’s business and technology. Forward-looking statements often contain such words like “estimate,” “anticipate,” “believe,” “plan” or “expect”. Avanir disclaims any intent or obligation to update these forward-looking statements.

NASDAQ Notice

Pursuant to Mr. Puntoriero’s employment agreement, the Compensation Committee of the Company’s Board of Directors approved an inducement grant to Mr. Puntoriero of a non-qualified stock option to purchase 100,000 shares of Avanir’s Class A common stock. This option award was granted without stockholder approval pursuant to NASDAQ Marketplace Rule 4350(i)(1)(A)(iv) and with the following material terms: (a) an exercise price of $10.70, which is equal to the fair market value of Avanir’s common stock on the grant date (May 4, 2006), (b) a term of 10 years, and (c) a vesting schedule providing that the option is exercisable as to one-quarter of the underlying shares on the first anniversary of employment, and then vesting on a quarterly basis thereafter for the next three years.

Avanir Pharmaceuticals Contacts:
Patrick O’Brien 858-622-5216 pobrien@avanir.com	Patrice Saxon 858-622-5202 psaxon@avanir.com