U.S. Government Contracts

9 Months Ended

Sep. 30, 2011

U.S. Government Contracts [Abstract]

U.S. Government Contracts

Note 5. 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. The Company recognizes revenues from U.S. government research contracts during the period in which the related expenditures are incurred and presents these revenues and related expenses gross in the consolidated financial statements. As of September 30, 2011, the Company had contracts with the U.S. government pursuant to which it is entitled to receive up to an aggregate of $198.5 million for development of its product candidates, of which $109.5 million had been billed or recognized as revenue and $89.0 million of which relates to development that has not yet been completed and has not been billed. The Company is potentially eligible for up to an additional $161.5 million if the U.S. government exercises its options for the Company to conduct additional activities under such contracts. 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 Company's ongoing defense-related programs under four different contracts, all of which were executed in 2007, and the last of which expired in October 2010. Net of government administrative costs, it was anticipated that the Company would receive up to $9.8 million under this allocation. The Company's technology is expected to be used to continue developing RNA-based drugs against Ebola and Marburg viruses. As of September 30, 2011, the Company had recognized revenue of $9.7 million with respect to these contracts and the Company does not expect to receive any additional significant funds under these contracts.

November 2006 Agreement (Ebola, Marburg and Junín Viruses)

In November 2006, the Company entered into a two-year research contract with the U.S. Defense Threat Reduction Agency ("DTRA") pursuant to which the Company was entitled to $28.0 million to fund development of the Company's antisense therapeutic candidates for 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 September 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 this contract would be deemed concluded. As of September 30, 2011, the Company had recognized revenue of $38.4 million with respect to this contract and the Company does not expect further significant 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, the Company was entitled to receive up to $4.1 million for work involving the application of the Company's proprietary PMO and PMOplus^® antisense chemistry. The Company used the funds from this contract to conduct preclinical development activities, including animal testing. 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, 2011, the Company had recognized revenue of $7.0 million with respect to this contract and does not expect to receive additional significant revenue.

June 2010 Agreement (H1N1/Influenza)

On June 4, 2010, the Company entered into a contract with 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 U.S. Department of Defense ("DoD"). The contract originally provided for funding of up to $18.0 million (which was reduced to $17.7 million in March 2011 when the contract was definitized) 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 the entry into a Phase I clinical trial to obtain human safety data to support potential use under an Emergency Use Authorization. In April 2011, the contract was amended to remove clinical studies from the scope of work and to add in vitro broad spectrum strain investigation, additional formulation work related to intranasal delivery and an intravenous compatibility study. As a result of this amendment, the amount of funding under the contract decreased to an aggregate of $13.1 million. The period of performance for this contract ended on June 3, 2011 and as of September 30, 2011, the Company had recognized revenue of $12.2 million with respect to this contract and does not expect to receive additional significant revenue.

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 Company's 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 for each therapeutic candidate and has an aggregate period of performance spanning approximately six years if DoD exercises its options for all segments. Activity under the first segment began in July 2010 and includes Phase I studies in healthy volunteers as well as preclinical studies. In September 2011, the contract was amended to shift activities originally scheduled to occur during the second segment for each therapeutic candidate to the current funding period, which was extended by approximately 13 months to the second quarter of 2013. These activities include non-human primate studies to evaluate the typical viral time course of infection and the optimal doses, timing and pharmacokinetics and pharmacodynamics of each therapeutic candidate, as well as human safety studies of multiple ascending doses of AVI-6002 and AVI-6003. As a result of the amendment, the aggregate available funding for the current segments is approximately $126.5 million of which $39.6 million has been recognized to date.

After completion of the first segment, and each successive segment, DoD has the option to proceed to the next segment for either or both AVI-6002 and AVI-6003. If DoD 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 which could include aggregate potential funding up to approximately $288.0 million over six years, of which $161.5 million remains to be funded.

The following table sets forth the revenue for each of the contracts with the U.S. government for the three and nine months ended September 30, 2011 and 2010.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2011		2010			2011		2010
	(in thousands)					(in thousands)
January 2006 Agreements (Ebola and Marburg host factor, Dengue, Anthrax and Ricin)	$	9	$	88		$	9	$	556
November 2006 Agreement (Ebola, Marburg and Junín Viruses)		—		345			—		2,953
May 2009 Agreement (H1N1)		—		1,358			134		2,802
June 2010 Agreement (H1N1)		183		4,201			3,390		4,634
July 2010 Agreement (Ebola and Marburg)		7,290		2,716			29,780		2,716
Other Agreements		42		(6	)		92		242
Total	$	7,524	$	8,702		$	33,405	$	13,903