U.S. GOVERNMENT CONTRACTS

12 Months Ended

Dec. 31, 2012

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 present these revenues and related expenses gross in the consolidated financial statements. 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 December 31, 2012, the Company had completed all of its contracts with the U.S. government except for the Marburg portion of the July 2010 agreement for the development of therapeutics against Ebola and Marburg viruses and the August 2012 contract for intramuscular administration of AVI-7288, the Company’s candidate against the Marburg virus.

The following table sets forth the revenue from each of the Company’s contracts with the U.S. government and other revenue for the years ended December 31, 2012, 2011 and 2010.

	Year Ended December 31,
	2012		2011		2010
	(in thousands)
July 2010 Agreement (Ebola and Marburg)	$	36,557	$	42,875	$	9,822
August 2012 Agreement (Intramuscular)		673		0		0
June 2010 Agreement (H1N1)		0		3,490		8,809
May 2009 Agreement (H1N1)		0		516		5,171
November 2006 Agreement (Ebola, Marburg and Junín Viruses)		0		0		3,204
Grants		0		0		1,622
Other Agreements		99		109		792
Total	$	37,329	$	46,990	$	29,420

The following is a description of contracts with the US government contracts and grants:

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, we announced that we received permission from the FDA to proceed with a single oligomer from AVI-6003, AVI-7288, as the lead product candidate against Marburg virus infection.

On August 2, 2012, the Company received a stop-work order related to the Ebola virus portion of the contract and, on October 2, 2012, the U.S. government terminated the Ebola portion of the contract for the convenience of the government due to government funding constraints.

The remaining Marburg portion of the contract is structured into four segments and has an aggregate remaining period of performance spanning approximately four 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. The first segment is scheduled to be completed in the first half of 2014 subject to agreement with DoD. As a result of the amendment, the remaining funding for the current Marburg segment is approximately $15.9 million.

After completion of the first segment, and each successive segment, DoD has the option to proceed to the next segment. If DoD exercises its options for segments II, III and IV, our contract activities would include all clinical and licensure activities necessary to obtain FDA regulatory approval for the therapeutic candidate against the Marburg virus. The funding for segments II, III and IV of the Marburg virus portion of the contract is estimated to be approximately $84.4 million.

August 2012 Agreement (Intramuscular administration)

On August 29, 2012, the Company was awarded a contract from the U.S. Department of Defense’s Joint Project Manager Transformational Medical Technologies (“JPM-TMT”) program, a component of the U.S. Department of Defense’s Joint Program Executive Office for Chemical and Biological Defense. The contract is for approximately $3.9 million to evaluate the feasibility of an intramuscular (IM) route of administration using AVI-7288, the Company’s candidate for treatment of Marburg virus. The period of performance of this contract is scheduled to conclude in the second half of 2013. Under the July 2010 Agreement (Ebola and Marburg) described above, the Company is developing AVI-7288 as an intravenous formulation.

June 2010 Agreement (H1N1/Influenza)

On June 4, 2010, the Company entered into a contract with the Defense Threat Reduction Agency (“DTRA”) 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.

May 2009 Agreement (H1N1/Influenza)

In May 2009, the Company entered into a contract with DTRA to develop swine flu drugs using the Company’s proprietary PMO and PMOplus^® antisense chemistry. In March 2010, the contract was amended to include testing against additional influenza strains. The Company and DTRA have agreed that key activities under this contract had been completed in 2011.

November 2006 Agreement (Ebola, Marburg and Junín Viruses)

In November 2006, the Company entered into a research contract with DTRA, to fund development of the Company’s antisense therapeutic candidates against Ebola, Marburg and Junín hemorrhagic viruses. In November 2010, the Company and DTRA agreed that the key activities under this contract had been completed.

2010 Qualifying Therapeutic Discovery Project

In October 2010, the Company was awarded five cash grants for its DMD program and infectious disease programs totaling approximately $1.2 million under the U.S. government’s Qualifying Therapeutic Discovery Project (“QTDP”) and recognized the entire amount as revenue in 2010. The Company will not receive any further funding under the QTDP grants.