U.S. Government Contracts

6 Months Ended

Jun. 30, 2012

Domestic Country Contracts [Abstract]

U.S. Government Contracts

6. U.S. GOVERNMENT CONTRACTS

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. In the periods presented, all of the revenue generated by the Company was derived from research contracts with and grants from the U.S. government. As of June 30, 2012, the Company had completed all of its contracts with the U.S. government except for the July 2010 agreement for the development of therapeutics against Ebola and Marburg.

The following table sets forth the revenue for each of the contracts with the U.S. government for the three months ended June 30, 2012 and 2011.

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(in thousands)				(in thousands)
July 2010 Agreement (Ebola and Marburg)	$	11,171	$	10,585	$	22,334	$	22,490
June 2010 Agreement (H1N1)		—		883		—		3,207
Other Agreements		36		117		85		184
Total	$	11,207	$	11,585	$	22,419	$	25,881

July 2010 Agreement (Ebola and Marburg)

On July 14, 2010, the Company was awarded a contract with the U.S. Department of Defense, or 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, against the Ebola and Marburg viruses, respectively. In February 2012, the Company announced that it received permission from the FDA to proceed with a single oligomer, AVI-7288, as the lead product candidate against the Marburg virus infection. In July 2012, the Company received similar permission to proceed with AVI-7537 as a single oligomer against the Ebola virus infection. 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. Activities under the first segment began in July 2010 and include Phase I studies in healthy volunteers as well as preclinical studies which are scheduled to be completed in mid 2013. The aggregate available funding as of June 30, 2012 for the current segments is approximately $126.5 million of which $75.0 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-7537 and AVI-7288. If DoD exercises its options for all four segments for both AVI-7537 and AVI-7288, contract activities would include all clinical and licensure activities necessary to obtain Food and Drug Administration (FDA) regulatory approval for each therapeutic candidate and would provide for a total funding award to the Company of up to $288.0 million over a period of six years, of which $161.5 million remains to be funded as of June 30, 2012.

In July 2012, the Company submitted a contract modification to the DoD to proceed with single oligomers, AVI-7537 and AVI-7288, as the lead product candidates against the Ebola and Marburg virus infections, respectively. The FDA previously approved the change and if the DoD approves the contract modification, the total funding award and the amount funded for the current segments of the contract will be reduced by $4.5 million.

On August 2, 2012, the Company received a stop-work order from the DoD with respect to AVI-7537, its product candidate for use against the Ebola virus. The stop-work order stated that the action is being taken due to recently imposed funding constraints. The stop-work order does not apply to AVI-7288, the Company’s ongoing effort against the Marburg virus funded under the same contract. The stop-work order will remain in effect until September 1, 2012, at which time the DoD will either: 1) terminate AVI-7537, the Ebola portion of the contract; 2) cancel the stop-work order; or 3) extend the stop-work order period, if necessary. While the final outcome for the AVI-7537 portion of the contract is yet to be determined, if the AVI-7537 portion of the contract is terminated, the funding for the first segment would be reduced from $126.5 million to an estimate of approximately $100 million including the July 2012 contract modification request described above. Additionally, the total funding under the contract of $288 million would be reduced to approximately $183 million.

June 2010 Agreement (H1N1/Influenza)

On June 4, 2010, the Company entered into a contract with the Defense Threat Reduction Agency to advance the development of AVI-7100 as a medical countermeasure against the pandemic H1N1 influenza virus in cooperation with the Transformational Medical Technologies program of DoD. The period of performance for this contract ended on June 3, 2011.