**Table of Contents**

** **

 

** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

** **

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**FORM 10-Q**

** **

| **x**                                                  | ** ** | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE**SECURITIES  |
|--------------------------------------------------------|------------|-----------------------------------------------------------------------------------|
| ** **                                             | ** ** | **EXCHANGE ACT OF 1934**                                                          |
| ** **                                             | ** ** | ** **                                                                        |
| **For the quarterly  period ended June 30, 2008** |
| ** **                                             | ** ** | ** **                                                                        |
| **OR**                                                 |
| ** **                                             | ** ** | ** **                                                                        |
| **o**                                                  | ** ** | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE**SECURITIES |
| ** **                                             | ** ** | **EXCHANGE ACT OF 1934**                                                          |

** **

**Commission file number:  0-15006**

** **

**AVANT IMMUNOTHERAPEUTICS,INC.**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                                             | ** ** | **No. 13-3191702**              |
|----------------------------------------------------------|------------|--------------------------------------|
| (State of Incorporation)                                 |       | (I.R.S. Employer Identification No.) |
|                                                     |       |                                 |
| **119 Fourth Avenue, Needham, Massachusetts 02494-2725** |
| (Address of principal executive offices) (Zip Code)      |

 

**(781) 433-0771**

(Registrant’stelephone number, including area code)

 

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes x  No o

 

Indicate bycheck mark whether the registrant is a large accelerated filer, an acceleratedfiler, a non-accelerated filer, or a smaller reporting company. See the definitionsof “large accelerated filer,” “accelerated filer,” and “smaller reportingcompany” in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large  accelerated filer o                     |   | Accelerated  filer x         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company o |
| (Do  not check if a smaller reporting company) |   |                              |

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act). Yes * *o No x

 

As of August 7, 2008,15,708,244 shares of common stock, $.001 par value per share, were outstanding.

 

 

 

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Table of Contents

 

**AVANT IMMUNOTHERAPEUTICS, INC.**

 

**FORM 10-QQuarter Ended June 30, 2008Table of Contents**

** **
| **Part I—Financial  Information**                                                                                                            |       |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
|                                                                                                                                                   |       |       |
| Item 1.  Unaudited Financial Statements.                                                                                                               |       |       |
|                                                                                                                                                   |       |       |
| Consolidated Balance  Sheets at June 30, 2008 and December 31, 2007                                                                          |       |       |
|                                                                                                                                                   |       |       |
| Consolidated  Statements of Operations for the Three Months Ended June 30, 2008 and  2007                                                         |       |       |
|                                                                                                                                                   |       |       |
| Consolidated  Statements of Operations for the Six Months Ended June 30, 2008 and 2007                                                            |       |       |
|                                                                                                                                                   |       |       |
| Consolidated Statements of Stockholders’ Equity  (Deficit) for the Six Months Ended June 30, 2008 and the Year Ended  December 31, 2007 |       |       |
|                                                                                                                                                   |       |       |
| Consolidated Statements of Cash Flows for the Six  Months Ended June 30, 2008 and 2007                                                            |       |       |
|                                                                                                                                                   |       |       |
| Notes to Unaudited Consolidated Financial Statements                                                                                                   |       |       |
|                                                                                                                                                   |       |       |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations.                                                   |       |       |
|                                                                                                                                                   |       |       |
| Item 3. Quantitative and Qualitative Disclosures About  Market Risk.                                                                                   |       |       |
|                                                                                                                                                   |       |       |
| Item 4. Controls and Procedures.                                                                                                                       |       |       |
| ** **                                                                                                                                             | ** ** | ** ** |
| **Part II  — Other Information**                                                                                                             | ** ** | ** ** |
|                                                                                                                                                   |       |       |
| Item  1. Legal Proceedings.                                                                                                                            |       |       |
|                                                                                                                                                   |       |       |
| Item  1A. Risk Factors.                                                                                                                                |       |       |
|                                                                                                                                                   |       |       |
| Item 6.  Exhibits.                                                                                                                                     |       |       |
|                                                                                                                                                   |       |       |
| Signatures                                                                                                                                             |       |       |
|                                                                                                                                                   |       |       |
| Exhibit Index                                                                                                                                     |       |       |
|                                                                                                                                                   |       |       |
| Certifications                                                                                                                                         |       |       |

 

2

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Table of Contents

 

**PART I—FINANCIAL INFORMATION**

**Item 1. Unaudited Financial Statements**

 

**AVANTIMMUNOTHERAPEUTICS, INC.CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

** **
| ** **                                                                                                                                                                                                                                                                       | ** ** | **June 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                                                                       | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Current Assets:                                                                                                                                                                                                                                                                  |       |                    |       |                        |       |
| Cash and Cash Equivalents                                                                                                                                                                                                                                                        |       | $                       | 52,379,836 |                        | $          | 4,909,530 |   |
| Accounts and Other Receivables                                                                                                                                                                                                                                                   |       | 1,538,044               |       | 132,496                     |       |
| Prepaid Expenses and Other Current Assets                                                                                                                                                                                                                                        |       | 15,107,934              |       | 656,347                     |       |
|                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Total Current Assets                                                                                                                                                                                                                                                             |       | 69,025,814              |       | 5,698,373                   |       |
|                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Property and Equipment, Net                                                                                                                                                                                                                                                      |       | 14,033,088              |       | 1,918,036                   |       |
| Investment in Select Vaccines Ltd                                                                                                                                                                                                                                                |       | 340,580                 |       | —                      |       |
| Intangible Assets, Net                                                                                                                                                                                                                                                           |       | 2,680,388               |       | 1,032,902                   |       |
| Other Assets                                                                                                                                                                                                                                                                     |       | 262,767                 |       | 725,193                     |       |
| Total Assets                                                                                                                                                                                                                                                                     |       | $                       | 86,342,637 |                        | $          | 9,374,504 |   |
| ** **                                                                                                                                                                                                                                                                       | ** ** | ** **              | ** ** | ** **                  | ** ** |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                    | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Current Liabilities:                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Accounts Payable                                                                                                                                                                                                                                                                 |       | $                       | 1,329,434  |                        | $          | 749,865 |   |
| Accrued Expenses                                                                                                                                                                                                                                                                 |       | 10,485,405              |       | 2,519,420                   |       |
| Payable Due Medarex                                                                                                                                                                                                                                                              |       | 2,987,528               |       | 5,835,552                   |       |
| Current Portion of Deferred Revenue                                                                                                                                                                                                                                              |       | 5,132,279               |       | 974,156                     |       |
| Current Portion of Deferred Rent                                                                                                                                                                                                                                                 |       | 57,447                  |       | 57,447                      |       |
| Current Portion of Loans Payable                                                                                                                                                                                                                                                 |       | 163,772                 |       | —                      |       |
| Total Current Liabilities                                                                                                                                                                                                                                                        |       | 20,155,865              |       | 10,136,440                  |       |
|                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Deferred Revenue                                                                                                                                                                                                                                                                 |       | 35,724,564              |       | 219,754                     |       |
| Deferred Rent                                                                                                                                                                                                                                                                    |       | 181,400                 |       | 150,207                     |       |
| Loans Payable                                                                                                                                                                                                                                                                    |       | 847,625                 |       | —                      |       |
|                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Commitments and Contingent Liabilities  (Note 14)                                                                                                                                                                                                                                |       |                    |       |                        |       |
|                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Stockholders’ Equity (Deficit):                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Convertible Preferred Stock, 3,000,000  Shares Authorized; None Issued and Outstanding at June 30, 2008                                                                                                                                                                     |       | —                  |       |                        |       |
| Convertible Preferred Stock, $1.00 Par  Value; 1,000,000 Shares Authorized; None Issued and Outstanding at  December 31, 2007                                                                                                                                               |       |                    |       | —                      |       |
| Common Stock, $.001 Par Value; 300,000,000  Shares Authorized; 15,708,244 Issued and Outstanding at June 30, 2008                                                                                                                                                           |       | 15,708                  |       |                        |       |
| Class A Common Stock, $.01 Par Value;  6,800,000 Shares Authorized, Issued and Outstanding at December 31, 2007  (2,811,147 shares issued and outstanding after adjustments to reflect the  Merger and a reverse stock split of 1-for-12 effective March 7, 2008) |       |                    |       | 68,000                      |       |
| Common Stock, $.01 Par Value; 50,000,000  Shares Authorized; 13,300,000 Issued and Outstanding at December 31,  2007 (5,498,273 shares issued and outstanding after adjustments to reflect  the Merger and a reverse stock split of 1-for-12 effective March 7,  2008) |       | —                  |       | 133,000                     |       |
| Additional Paid-In Capital                                                                                                                                                                                                                                                       |       | 133,101,784             |       | 69,696,514                  |       |
| Accumulated Other Comprehensive Income                                                                                                                                                                                                                                           |       | 2,355,330               |       | 2,619,036                   |       |
| Accumulated Deficit                                                                                                                                                                                                                                                              |       | (106,039,639            | )          | (73,648,447                 | )          |
|                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Total Stockholders’ Equity (Deficit)                                                                                                                                                                                                                                        |       | 29,433,183              |       | (1,131,897                  | )          |
|                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Total Liabilities and Stockholders’ Equity                                                                                                                                                                                                                                  |       | $                       | 86,342,637 |                        | $          | 9,374,504 |   |

 

See accompanying notes to unaudited consolidated financial statements

 

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Table of Contents

 

**AVANTIMMUNOTHERAPEUTICS, INC.****CONSOLIDATED STATEMENTS OF OPERATIONS ANDCOMPREHENSIVE LOSS**

**(Unaudited)**

 
| ** **                                                                         | ** ** | **Three Months Ended** | ** **  |
|------------------------------------------------------------------------------------|------------|----------------------------------|-------------|
| ** **                                                                         | ** ** | **June 30,  2008**          | ** **  | **June 30,  2007** | ** ** |
| **REVENUE:**                                                                       | ** ** | ** **                       | ** **  | ** ** | ** ** |
| Product Development and Licensing  Agreements                                      |       | $                                | 870,504     |   | $ | 116,539 |   |
| Contracts and Grants                                                               |       | 253,985                          |        | 492,645 |   |
| Product Royalties                                                                  |       | 837,122                          |        | — |   |
|                                                                               |       |                             |        |   |   |
| Total Revenue                                                                      |       | 1,961,611                        |        | 609,184 |   |
| ** **                                                                         | ** ** | ** **                       | ** **  | ** ** | ** ** |
| **OPERATING EXPENSE:**                                                             | ** ** | ** **                       | ** **  | ** ** | ** ** |
| Research and Development                                                           |       | 7,611,666                        |        | 2,369,824 |   |
| General and Administrative                                                         |       | 4,605,482                        |        | 1,049,423 |   |
| Amortization of Acquired Intangible Assets                                         |       | 104,164                          |        | 29,233 |   |
|                                                                               |       |                             |        |   |   |
| Total Operating Expense                                                            |       | 12,321,312                       |        | 3,448,480 |   |
|                                                                               |       |                             |        |   |   |
| Operating Loss                                                                     |       | (10,359,701                      | )           | (2,839,296 | ) |
|                                                                               |       |                             |        |   |   |
| Investment and Other Income, Net                                                   |       | 99,191                           |        | 84,159 |   |
|                                                                               |       |                             |        |   |   |
| Net Loss                                                                           |       | $                                | (10,260,510 | ) | $ | (2,755,137 | ) |
|                                                                               |       |                             |        |   |   |
| Basic and Diluted Net Loss Per Common Share  (See Note (3)(R))                     |       | $                                | (0.67       | ) | $ | (0.33 | ) |
|                                                                               |       |                             |        |   |   |
| Shares Used in Calculating Basic and  Diluted Net Loss per Share (See Note (3)(R)) |       | 15,227,475                       |        | 8,309,420 |   |
|                                                                               |       |                             |        |   |   |
| **COMPREHENSIVE LOSS:**                                                            |       |                             |        |   |   |
| Net Loss                                                                           |       | $                                | (10,260,510 | ) | $ | (2,755,137 | ) |
| Unrealized Gain / (Loss) on Foreign  Exchange Translation                          |       | (5,832                           | )           | 185,359 |   |
| Unrealized Gain / (Loss) on Investment in  Select Vaccines Ltd.                    |       | (147,044                         | )           | — |   |
|                                                                               |       |                             |        |   |   |
| Comprehensive Loss                                                                 |       | $                                | (10,413,386 | ) | $ | (2,569,778 | ) |

 

*See accompanying notes tounaudited consolidated financial statements*

 

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**AVANT IMMUNOTHERAPEUTICS, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS**

**(Unaudited)**

 
| ** **                                                                         | ** ** | **Six Months Ended** | ** **  |
|------------------------------------------------------------------------------------|------------|--------------------------------|-------------|
| ** **                                                                         | ** ** | **June 30,  2008**        | ** **  | **June 30,  2007** | ** ** |
| **REVENUE:**                                                                       | ** ** | ** **                     | ** **  | ** ** | ** ** |
| Product Development and Licensing  Agreements                                      |       | $                              | 990,368     |   | $ | 233,078 |   |
| Contracts and Grants                                                               |       | 281,519                        |        | 520,146 |   |
| Product Royalties                                                                  |       | 837,122                        |        | — |   |
|                                                                               |       |                           |        |   |   |
| Total Revenue                                                                      |       | 2,109,009                      |        | 753,224 |   |
| ** **                                                                         | ** ** | ** **                     | ** **  | ** ** | ** ** |
| **OPERATING EXPENSE:**                                                             | ** ** | ** **                     | ** **  | ** ** | ** ** |
| Research and Development                                                           |       | 12,117,294                     |        | 5,159,189 |   |
| General and Administrative                                                         |       | 7,619,386                      |        | 2,578,000 |   |
| Charge for In-Process Research and  Development                                    |       | 14,755,908                     |        | — |   |
| Amortization of Acquired Intangible Assets                                         |       | 153,058                        |        | 58,466 |   |
|                                                                               |       |                           |        |   |   |
| Total Operating Expense                                                            |       | 34,645,646                     |        | 7,795,655 |   |
|                                                                               |       |                           |        |   |   |
| Operating Loss                                                                     |       | (32,536,637                    | )           | (7,042,431 | ) |
|                                                                               |       |                           |        |   |   |
| Investment and Other Income, Net                                                   |       | 145,445                        |        | 254,891 |   |
|                                                                               |       |                           |        |   |   |
| Net Loss                                                                           |       | $                              | (32,391,192 | ) | $ | (6,787,540 | ) |
|                                                                               |       |                           |        |   |   |
| Basic and Diluted Net Loss Per Common Share  (See Note (3)(R))                     |       | $                              | (2.56       | ) | $ | (0.82 | ) |
|                                                                               |       |                           |        |   |   |
| Shares Used in Calculating Basic and  Diluted Net Loss per Share (See Note (3)(R)) |       | 12,677,455                     |        | 8,309,420 |   |
|                                                                               |       |                           |        |   |   |
| **COMPREHENSIVE LOSS:**                                                            |       |                           |        |   |   |
| Net Loss                                                                           |       | $                              | (32,391,192 | ) | $ | (6,787,540 | ) |
| Unrealized Gain/(Loss) on Foreign Exchange  Translation                            |       | (56,258                        | )           | 164,656 |   |
| Unrealized Gain / (Loss) on Investment in  Select Vaccines Ltd.                    |       | (207,448                       | )           | — |   |
|                                                                               |       |                           |        |   |   |
| Comprehensive Loss                                                                 |       | $                              | (32,654,898 | ) | $ | (6,622,884 | ) |

 

*See accompanying notes tounaudited consolidated financial statements*

 

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**AVANT IMMUNOTHERAPEUTICS, INC.**

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)**

**FOR THE SIX MONTHS ENDEDJUNE 30, 2008 AND THE YEAR ENDED DECEMBER 31, 2007**

**(Unaudited)**

 
| ** **                                                     | ** ** | **Common   Stock   Shares(1)** | ** ** | **Common   Stock   Par   Value(1)** | ** ** | **Class A   Common   Stock   Shares(1)** | ** **    | **Class A   Common   Stock Par   Value(1)** | ** ** | **Additional   Paid-In   Capital** | ** ** | **Accumulated   Other   Comprehensive   Income** | ** **      | **Accumulated   Deficit** | ** ** | **Total   Stockholders’   Equity   (Deficit)** | ** ** |
|----------------------------------------------------------------|------------|------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------------------|---------------|----------------------------------------------------------------------|------------|----------------------------------------------|------------|-----------------------------------------------------------------|-----------------|--------------------------------|------------|--------------------------------------------------------------------|------------|
| **Balance  at December 31, 2006**                         | ** ** | **5,498,273**                            | ** ** | **$**                                              | **5,498**  | ** **                                                   | **2,811,147** | ** **                                                           | **$**      | **2,811**                                    | ** ** | **$**                                                           | **71,322,900**  | ** **                     | **$**      | **2,388,196**                                                      | ** ** | **$** | **(58,575,397** | **)** | **$** | **15,144,008** | ** ** |
| Share-Based  Compensation                                      |       | —                                   |       | —                                             |       | —                                                       |          | —                                                               |       | 1,604,922                                    |       | —                                                          |            | —                         |       | 1,604,922                                                          |       |
| Medarex Return of  Capital                                     |       | —                                   |       | —                                             |       | —                                                       |          | —                                                               |       | (3,038,617                                   | )          | —                                                          |            | —                         |       | (3,038,617                                                         | )          |
| Comprehensive  Income (Loss):                                  |       |                                     |       |                                               |       |                                                         |          |                                                                 |       |                                         |       |                                                            |            |                           |       |                                                               |       |
| Net Loss                                                       |       | —                                   |       | —                                             |       | —                                                       |          | —                                                               |       | —                                       |       | —                                                          |            | (15,073,050                    | )          | (15,073,050                                                        |       |
| Other  Comprehensive Income                                    |       | —                                   |       | —                                             |       | —                                                       |          | —                                                               |       | —                                       |       | 230,840                                                         |            | —                         |       | 230,840                                                            |       |
| Total  Comprehensive Loss                                      |       |                                     |       |                                               |       |                                                         |          |                                                                 |       |                                         |       |                                                            |            |                           |       | (14,842,210                                                        | )          |
| **Balance  at December 31, 2007**                         | ** ** | **5,498,273**                            | ** ** | **$**                                              | **5,498**  | ** **                                                   | **2,811,147** | ** **                                                           | **$**      | **2,811**                                    | ** ** | **$**                                                           | **69,889,205**  | ** **                     | **$**      | **2,619,036**                                                      | ** ** | **$** | **(73,648,447** | **)** | **$** | **(1,131,897** | **)** |
| Exchange of  Class A for Common Stock                     |       | 2,811,147                                |       | 2,811                                              |       | (2,811,147                                                   | )             | (2,811                                                               | )          | —                                       |       | —                                                          |            | —                         |       | —                                                             |       |
| Shares Issued to  Medarex in Settlement of a Payable           |       | 351,692                                  |       | 352                                                |       | —                                                       |          | —                                                               |       | 3,038,265                                    |       | —                                                          |            | —                         |       | 3,038,617                                                          |       |
| Shares Received  in Exchange in the Merger                     |       | 6,265,889                                |       | 6,266                                              |       | —                                                       |          | —                                                               |       | 46,869,106                                   |       | —                                                          |            | —                         |       | 46,875,372                                                         |       |
| Cash Paid for  Fractional Shares in Connection with the Merger |       | (7                                       | )          | —                                             |       | —                                                       |          | —                                                               |       | —                                       |       | —                                                          |            | —                         |       | —                                                             |       |
| Shares Issued to  Pfizer as part of CDX-110 Licensing Agrmt.   |       | 781,250                                  |       | 781                                                |       |                                                         |          |                                                                 |       | 10,866,407                                   |       |                                                            |            |                           |       | 10,867,188                                                         |       |
| Share-Based  Compensation                                      |       | —                                   |       | —                                             |       | —                                                       |          | —                                                               |       | 2,438,801                                    |       | —                                                          |            | —                         |       | 2,438,801                                                          |       |
| Comprehensive  Loss:                                           |       |                                     |       |                                               |       |                                                         |          |                                                                 |       |                                         |       |                                                            |            |                           |       |                                                               |       |
| Net Loss                                                       |       | —                                   |       | —                                             |       | —                                                       |          | —                                                               |       | —                                       |       | —                                                          |            | (32,391,192                    | )          | (32,391,192                                                        | )          |
| Other  Comprehensive Loss                                      |       | —                                   |       | —                                             |       | —                                                       |          | —                                                               |       | —                                       |       | (263,706                                                        | )               | —                         |       | (263,706                                                           | )          |
| Total  Comprehensive Loss                                      |       |                                     |       |                                               |       |                                                         |          |                                                                 |       |                                         |       |                                                            |            |                           |       | (32,654,898                                                        | )          |
| **Balance  at June 30, 2008**                             | ** ** | **15,708,244**                           | ** ** | **$**                                              | **15,708** |                                                         | —        | ** **                                                           | **$**      | **—**                                   | ** ** | **$**                                                           | **133,101,784** | ** **                     | **$**      | **2,355,330**                                                      | ** ** | **$** | **(106,039,639** | **)** | **$** | **29,433,183** | ** ** |

 

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(1)                                  Adjusted toreflect the Merger exchange ratio and a reverse stock split of 1-for-12effective March 7, 2008.

 

*See accompanying notes tounaudited consolidated financial statements*

 

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**AVANTIMMUNOTHERAPEUTICS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                   | ** ** | **Six Months Ended** | ** **  |
|------------------------------------------------------------------------------|------------|--------------------------------|-------------|
| ** **                                                                   | ** ** | **June 30,  2008**        | ** **  | **June 30,  2007** | ** ** |
| **Cash Flows from Operating Activities:**                                    | ** ** | ** **                     | ** **  | ** ** | ** ** |
| Net Loss                                                                     |       | $                              | (32,391,192 | ) | $ | (6,782,778 | ) |
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating  Activities: |       |                           |        |   |   |
| Depreciation and Amortization                                                |       | 1,061,050                      |        | 379,892 |   |
| Amortization of Intangible Assets                                            |       | 153,058                        |        | 58,467 |   |
| Loss (Gain) on Impairment & Disposal of Assets                      |       | 6,554                          |        | — |   |
| Stock-Based Compensation Expense                                             |       | 2,438,801                      |        | 746,992 |   |
| In-Process Research and Development                                          |       | 14,755,908                     |        | — |   |
| Changes in Operating Assets and Liabilities:                                 |       |                           |        |   |   |
| Accounts and Other Receivables                                               |       | (1,366,959                     | )           | 2,427,153 |   |
| Prepaid and Other Current Assets                                             |       | (4,135,654                     | )           | (478,228 | ) |
| Accounts Payable and Accrued Expenses                                        |       | 5,858,978                      |        | (1,888,537 | ) |
| Deferred Revenue                                                             |       | 39,552,933                     |        | 644,802 |   |
| Deferred Rent                                                                |       | 31,193                         |        | 58,185 |   |
|                                                                         |       |                           |        |   |   |
| Net Cash Provided by (Used in) Operating Activities                          |       | 25,964,670                     |        | (4,834,052 | ) |
| ** **                                                                   | ** ** | ** **                     | ** **  | ** ** | ** ** |
| **Cash Flows from Investing Activities:**                                    | ** ** | ** **                     | ** **  | ** ** | ** ** |
| Cash Acquired in the Acquisition of AVANT, Net of Transaction Costs          |       | 10,750,255                     |        | — |   |
| Restricted Cash Deposits                                                     |       | (1,103                         | )           | (542 | ) |
| Acquisition of Property and Equipment                                        |       | (397,002                       | )           | (71,423 | ) |
| Proceeds from Disposal of Assets                                             |       | 229,500                        |        | — |   |
|                                                                         |       |                           |        |   |   |
| Cash Provided by (Used in) Investing Activities                              |       | 10,581,650                     |        | (71,965 | ) |
| ** **                                                                   | ** ** | ** **                     | ** **  | ** ** | ** ** |
| **Cash Flows from Financing Activities:**                                    | ** ** | ** **                     | ** **  | ** ** | ** ** |
| Net Proceeds from Stock Issuance                                             |       | 10,867,188                     |        | — |   |
| Related Party Loan Due to Medarex                                            |       | 190,593                        |        | 192,133 |   |
| Payments of Loans Payable                                                    |       | (77,537                        | )           | — |   |
|                                                                         |       |                           |        |   |   |
| Net Cash Provided by Financing Activities                                    |       | 10,980,244                     |        | 192,133 |   |
|                                                                         |       |                           |        |   |   |
| Effect of Exchange Rate Changes on Cash and Cash Equivalents                 |       | (56,258                        | )           | 163,460 |   |
|                                                                         |       |                           |        |   |   |
| Net Increase (Decrease) in Cash and Cash Equivalents                         |       | 47,470,306                     |        | (4,550,424 | ) |
|                                                                         |       |                           |        |   |   |
| Cash and Cash Equivalents at Beginning of Period                             |       | 4,909,530                      |        | 14,000,186 |   |
|                                                                         |       |                           |        |   |   |
| Cash and Cash Equivalents at End of Period                                   |       | $                              | 52,379,836  |   | $ | 9,449,762 |   |
|                                                                         |       |                           |        |   |   |
| **Supplemental Disclosure of Non-Cash Flow  Information**                    | ** ** | ** **                     | ** **  | ** ** | ** ** |
| Shares Received in Exchange in the Merger                                    |       | $                              | 46,251,952  |   | $ | — |   |
| Shares Issued to Medarex in Settlement of a Payable                          |       | $                              | 3,038,617   |   | $ | — |   |

 

*See accompanying notes tounaudited consolidated financial statements*

 

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**AVANT IMMUNOTHERAPEUTICS, INC.Notes to Unaudited Consolidated Financial Statements**

**June 30, 2008**

** **

**(1)           Nature of Business and Overview**

 

AVANT Immunotherapeutics, Inc.(the “Company” or “AVANT”) is engaged in the discovery, development andcommercialization of products that harness the human immune system to preventand treat disease. The Company is developing a portfolio of vaccines andtargeted immunotherapeutics addressing a wide range of applications includingoncology, infectious and inflammatory diseases. The portfolio includes apipeline of therapeutic cancer vaccines, monoclonal antibodies, single-dose,oral vaccines aimed at protecting travelers and people in regions where infectiousdiseases are endemic and a treatment to reduce complement-mediated tissuedamage. AVANT is advancing a pipeline of clinical and preclinical productcandidates, the most advanced of which are for treatment of various cancers.AVANT’s lead programs are therapeutic cancer vaccines designed to instruct thepatient’s immune system to recognize and destroy cancer cells. AVANT further leverages the value ofits technology portfolio through corporate, governmental and non-governmentalpartnerships. One successful collaboration resulted in our license of arotavirus strain to GlaxoSmithKline that was used in the development of an oralhuman rotavirus vaccine. Current collaborations encompass the development ofvaccines addressed to cancer therapies, global health, human food safety andanimal health. AVANT’s product candidates address large market opportunitiesfor which the Company believes current therapies are inadequate ornon-existent.

 

*Mergerwith Celldex:*  On October 22,2007, AVANT and Celldex Therapeutics, Inc. (“Celldex”), a privately-heldcompany, announced the signing of a definitive Agreement and Plan of Merger,dated October 19, 2007, by and between AVANT, Callisto Merger Corporation(“Merger Sub”) and Celldex (the “Merger Agreement”). On March 7, 2008,AVANT completed the merger of Merger Sub, a wholly owned subsidiary of AVANT,with and into Celldex (the “Merger”).

 

At the special meeting ofAVANT shareholders held on March 6, 2008 in connection with the Merger,stockholders approved four proposals: (i) the issuance of shares of AVANTcommon stock pursuant to the Merger Agreement in the amount necessary to resultin the Celldex stockholders owning 58% of AVANT common stock on a fully dilutedbasis, (ii) an amendment to AVANT’s Third Restated Certificate ofIncorporation to increase the number of authorized shares to 300,000,000, (iii) anamendment to AVANT’s Third Restated Certificate of Incorporation to effect areverse stock split in a ratio ranging from one-for-twelve to one-for-twenty ofall the issued and outstanding shares of AVANT common stock, the final ratio tobe determined by the AVANT board of directors and (iv) adoption of the2008 Stock Option and Incentive Plan.

 

Also, pursuant to theterms of the Merger Agreement, Celldex shareholders received 4.96 shares ofAVANT common stock in exchange for each share of Celldex common stock and Class Acommon stock they owned at the effective time of the Merger, plus cash in lieuof fractional shares. AVANT stockholders retained 42% of, and the formerCelldex stockholders now own 58% of, the outstanding shares of AVANT’s commonstock on a fully-diluted basis. AVANT also assumed all of Celldex’s stockoptions outstanding at the effective time of the Merger.

 

AVANT’s board ofdirectors approved a 1-for-12 reverse stock split of AVANT’s common stock,which became effective on March 7, 2008. As a result of the reverse stocksplit, each twelve shares of common stock were combined and reclassified intoone share of common stock and the total number of shares outstanding wasreduced from approximately 180 million shares (including the shares issuedto Celldex stockholders in the Merger) to approximately 15 million shares.

 

The Merger was accountedfor using the purchase method of accounting and was treated as an acquisitionby Celldex of AVANT with Celldex being considered the accounting acquirer basedon the application of criteria specified in Statement of Financial AccountingStandards (“SFAS”) No. 141,*BusinessCombination,* (“SFAS 141”), even though AVANT was the issuer ofcommon stock and the surviving legal entity in the transaction. Under thepurchase method of accounting, the deemed purchase price was allocated to AVANT’sunderlying tangible and identifiable intangible assets acquired and liabilitiesassumed based upon the respective fair value of each with any excess deemedpurchase price allocated to goodwill. However, the valuation analysis conductedby AVANT and Celldex determined that the fair value of assets acquired and thefair value of liabilities assumed by Celldex exceeded the estimated purchaseprice for AVANT, resulting in negative goodwill of approximately$6.0 million. In accordance with SFAS 141*,* the negative goodwill has been allocated to all of theacquired assets that are non-financial and non-current assets, includingproperty and equipment, identifiable intangible assets, and in-process researchand development. See Note 16 to the Company’s unaudited consolidated financialstatements for additional information.

 

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Because Celldex wasdetermined to be the acquirer for accounting purposes, the historical financialstatements of Celldex became the historical financial statements of the Companyas of the closing of the Merger. Accordingly, the financial statements of theCompany prior to the Merger reflect the financial position, results ofoperations and cash flows of Celldex, which during the historical periodspresented in the accompanying consolidated financial statements, was thenmajority-owned by Medarex, Inc. (“Medarex”). Following the Merger, thefinancial statements of the current period reflect the financial position,results of operation and cash flows of the Company. The results of operationsof AVANT are included in the results of operations of the Company beginning March 8,2008. Accordingly, except as otherwise discussed below, this report reflectsthe financial condition, results of operations and liquidity of the combinedcompany at June 30, 2008 and historically of Celldex on a stand-alonebasis for all periods prior to March 8, 2008.

 

The Company’s cash andcash equivalents at June 30, 2008 were $52,379,836. Its working capital atJune 30, 2008 was $48,869,949. The Company incurred a loss of $10,260,510and $32,391,192 for the three and six months ended June 30, 2008,respectively. Net cash used in operations for the six months ended June 30,2008 was $25,964,670. The Company believes that cash inflows from existinggrants and collaborations, interest income on invested funds and its currentcash and cash equivalents will be sufficient to meet estimated working capitalrequirements and fund operations beyond June 30, 2009. The working capitalrequirements of the Company are dependent on several factors including, but notlimited to, the costs associated with research and development programs,pre-clinical and clinical studies, manufacture of clinical materials and thescope of collaborative arrangements.

 

On April 16, 2008,the Company and Pfizer Inc. (“Pfizer”) entered into a License and DevelopmentAgreement (the “Pfizer Agreement”) under which Pfizer will be granted anexclusive worldwide license to a therapeutic cancer vaccine candidate, CDX-110,in Phase 2 development for the treatment of glioblastoma multiforme (“GBM”). The Pfizer Agreement also gives Pfizer exclusive rights to the use of EGFRvIIIvaccines in other potential indications. Under the Pfizer Agreement,Pfizer made an upfront payment to the Company of $40 million and made a $10million equity investment in the Company. Pfizer will fund all developmentcosts for these programs. The Company is also eligible to receive milestonepayments exceeding $390 million for the successful development andcommercialization of CDX-110 and additional EGFRvIII vaccine products, as wellas royalties on any product sales.

 

On April 3, 2008,Rotarix® received Food and Drug Administration (“FDA”)market approval for the prevention of rotavirus gastroenteritis in infants. FDAapproval triggered a $1.5 million milestone payment to AVANT fromGlaxoSmithKline plc (“Glaxo”), $750,000 of which the Company has retained underthe Company’s agreement with Paul Royalty Fund (“PRF”). Rotarix® is now licensed in over100 countries worldwide including the U.S. and the European Union. The Companyanticipates receiving a $10 million milestone payment from PRF upon Glaxo’sU.S. launch of Rotarix®, which we expect to receive in thesecond half of 2008. 

 

During the remainder of2008, AVANT may take steps to raise additional capital including, but notlimited to, the licensing of technology programs with existing or newcollaborative partners, possible business combinations, or the issuance ofcommon stock via private placements or public offerings. We believe that ourcurrent cash and cash equivalents are sufficient to fund planned operations forat least the next twelve months. While the Company continues to seek capitalthrough a number of means, there can be no assurance that additional financingwill be available on acceptable terms, if at all, and the Company’s negotiatingposition in capital-raising efforts may worsen as existing resources are used.There is also no assurance that the Company will be able to enter into furthercollaborative relationships. Additional equity financing may be dilutive to theCompany’s stockholders; debt financing, if available, may involve significantcash payment obligations and covenants that restrict the Company’s ability to operateas a business; and licensing or strategic collaborations may result inroyalties or other terms that reduce the Company’s economic potential fromproducts under development.

 

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**(2)          Interim Financial Statements**

 

The accompanyingunaudited consolidated financial statements for the three and six months ended June 30,2008 and 2007 include the consolidated accounts of the Company and itswholly-owned subsidiaries, and have been prepared in accordance withinstructions to Form 10-Q and Article 10 of Regulation S-X. In theopinion of management, the information contained herein reflects alladjustments that are necessary to present fairly the Company’s financialposition at June 30, 2008, results of operations for the three and sixmonths ended June 30, 2008 and 2007. The Company’s financial conditions,results of operations and liquidity for the three- and six-month periods ended June 30,2008 are not necessarily indicative of results for any future interim period orfor the full year.

 

Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with generally accepted accounting principles in the United Statesof America have been omitted, although the Company believes that thedisclosures included, when read in conjunction with AVANT’s Annual Report on Form 10-Kfor the year ended December 31, 2007 are adequate to make the informationpresented not misleading. The accompanying December 31, 2007 ConsolidatedBalance Sheet was derived from audited financial statements of Celldex, butdoes not include all disclosures required by U.S. GAAP.

 

**(3)          Significant Accounting Policies**

 

*(A) Basisof Presentation*

 

The unauditedconsolidated financial statements include the accounts of the Company and itswholly owned subsidiaries, Celldex, Celldex Therapeutics, Ltd. (“Celldex Ltd”)and Megan Health, Inc. (“Megan”). The Company’s operations constitute onebusiness segment. All intercompany transactions have been eliminated uponconsolidation.

 

*(B) Cashand Cash Equivalents*

 

Cash and cash equivalentsconsist of cash and short-term investments with original maturities of threemonths or less. Cash and cash equivalents are stated at cost, whichapproximates fair value. At June 30, 2008, investments were primarily inmoney market mutual funds.

 

AVANT may invest its cashin debt instruments of financial institutions, government entities and corporations,and mutual funds. The Company has established guidelines relative to creditratings, diversification and maturities to mitigate risk and maintainliquidity. Financial instruments, which potentially subject the Company toconcentrations of credit risk, consist principally of cash and cash equivalentsand accounts receivable. Cash and cash equivalents consist of cash and moneymarket funds which are all held with three financial institutions in the U.S.and two financial institutions in the United Kingdom.

 

 

*(C) Investmentin Securities*

 

AVANT has classified itsequity investment in Select Vaccines Limited (“Select Vaccines”) shares asavailable for sale securities under SFAS 115, *Accounting for Certain Investments in Debt and Equity Securities*,(“FAS 115”). In accordance with SFAS 115, all available-for-salesecurities are recorded at fair market value and, to the extent deemedtemporary, unrealized gains and losses are included in accumulated othercomprehensive income (loss) in shareholders’ equity. Realized gains and lossesand declines in value, if any, judged to be other than temporary onavailable-for-sale securities are reported in other income (expense). At June 30,2008, AVANT had an investment with a fair value of $340,580 in the stock ofSelect Vaccines.

 

***(D) Restricted Cash***

** **

Restricted cash of$181,242 and $180,139 at June 30, 2008 and December 31, 2007,respectively, represents security deposits for the Company’s facilities inPhillipsburg, New Jersey, of which the Company took occupancy in 2006.

 

*(E) FairValue of Financial Instruments*

 

AVANT enters into varioustypes of financial instruments in the normal course of business. The carryingamounts of AVANT’s cash and cash equivalents, accounts receivable, accountspayable and accrued expenses approximate their fair values due to theshort-term nature of these financial instruments. Receivables are concentratedin the pharmaceutical industry and from United Kingdom Inland Revenue.Management considers the likelihood of market credit risk to be remote.

 

*(F) Tradeand Other Accounts Receivable*

 

Trade accounts receivableare recorded at the invoiced amount and do not bear interest. The Company hasnot historically experienced credit losses from its accounts receivable andtherefore has not established an allowance for doubtful accounts. The Companydoes not have any off-balance-sheet credit exposure related to its customers.

 

Accounts and otherreceivables consist of the following:

 
| ** ** | ** ** | **June 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|------------|------------|-------------------------|------------|-----------------------------|------------|
| Trade      |       | $                       | 1,373,280  |                        | $          | — |   |
| Other      |       | 164,765                 |       | 132,496                     |       |
|       |       | $                       | 1,538,045  |                        | $          | 132,496 |   |

 

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AtJune 30, 2008, trade receivables of $1,372,454 were due from Pfizer. See Note10(c)(1).

 

Other receivables at June 30,2008 represent primarily money market interest receivable of $44,393, anemployee loan of $26,988 and research and development tax credit receivable of$88,071 from United Kingdom Inland Revenue. Other receivables at December 31,2007 primarily represent an employee loan of $33,580 and research anddevelopment tax credit receivable of $88,155 from United Kingdom InlandRevenue.

 

*(G) Long-LivedAssets:*

 

In the ordinary course ofits business, AVANT incurs substantial costs to construct property andequipment. The treatment of costs to construct these assets depends on thenature of the costs and the stage of construction. Costs incurred in theproject planning and design phase, and in the construction and installationphase, are capitalized as part of the cost of the asset. AVANT stopscapitalizing costs when the asset is substantially complete and ready for itsintended use.

 

For manufacturingproperty and equipment, AVANT also capitalizes the cost of validating theseassets for the underlying manufacturing process. AVANT completes thecapitalization of validation costs when the asset is substantially complete andready for its intended use. Costs capitalized include incremental labor and fringebenefits, and direct consultancy services.

 

Property and equipment isstated at cost and depreciated over the estimated useful lives of the relatedassets using the straight-line method. Laboratory equipment and officefurniture and equipment are depreciated over a five-year period and computerequipment is depreciated over a three-year period. Manufacturing equipment isamortized over a seven- to ten-year period. Leasehold improvements areamortized over the shorter of the estimated useful life or the noncancelableterm of the related lease, including any renewals that are reasonably assuredof occurring. Property and equipment under construction is classified asconstruction in progress and is depreciated or amortized only after the assetis placed in service. Expenditures for maintenance and repairs are charged toexpense whereas the costs of significant improvements which extend the life ofthe underlying asset are capitalized. Upon retirement or sale, the cost ofassets disposed of and the related accumulated depreciation are eliminated andthe related gains or losses are reflected in net income.

 

*(H) Accountingfor the Impairment of Long-Lived Assets:*

 

AVANT periodicallyevaluates its long-lived assets, primarily property and equipment and intangibleassets for potential impairment under SFAS No. 144, *Accountingfor the Impairment of Long-Lived Assets,* (“SFAS No. 144”).AVANT performs these evaluations whenever events or changes in circumstancessuggest that the carrying amount of an asset or group of assets is notrecoverable. Indicators of potential impairment include:

 

·                  a significant change in the manner in whichan asset is used;

 

·                  a significant decrease in the market value ofan asset;

 

·                  a significant adverse change in its businessor the industry in which it is sold; and

 

·                  a current period operating cash flow losscombined with a history of operating or cash flow losses or a projection orforecast that demonstrates continuing losses associated with the asset.

 

If AVANT believes anindicator of potential impairment exists, the carrying values of the assets areevaluated in relation to the operating performance and future undiscounted cashflows of the underlying asset. The net book value of an asset is adjusted tofair value if its expected future undiscounted cash flows are less than itsbook value.  The Company chargesimpairments of the long-lived assets to operations if its evaluations indicatethat the carrying value of these assets is not recoverable. Management hadidentified no indicators of impairment at June 30, 2008.

 

*(I) Accountingfor Patent Costs:*

 

Patent costs are expensedas incurred. Certain patent costs are reimbursed by the Company’s productdevelopment and licensing partners. Any reimbursed patent costs are recorded asproduct development and licensing agreement revenues in the Company’s financialstatements.

 

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*(J) InterestCapitalization*

 

AVANT capitalizesinterest cost as part of the historical cost of acquiring certain assets duringthe period of time required to get the asset ready for its intended use. Theamount of capitalized interest is limited to the amount of interest incurred byAVANT.

 

*(K) OperatingLeases*

 

The Company presently hasthree facilities that are located at Phillipsburg, New Jersey, and Needham andFall River, Massachusetts under non-cancellable operating lease agreements foroffice, laboratory and manufacturing space. The rent payments for the threelocations escalate over the lease term. Rent expense is recorded on astraight-line basis over the terms of the leases, including any renewals thatare reasonably assured of occurring. The difference between rent expense andamounts paid under the lease agreements is recorded as deferred rent in theaccompanying consolidated balance sheets. Tenant improvements paid by thelandlord are capitalized as leasehold improvements and amortized over theshorter of their estimated useful lives or the remaining lease term.

 

*(L) IntangibleAssets*

 

The Company has acquiredintangible assets, which include core technology, developed technology and astrategic partner agreement, through the merger of AVANT and Celldex and theacquisition of Lorantis, Ltd (“Lorantis”). These acquired intangible assets arebeing amortized on a straight-line basis over their estimated lives, whichrange from 4.5 to 11 years. The determination of the amortization periodinvolves estimates and judgments on management’s part. Any significant changesin the Company’s estimates or assumptions could impact the carrying value ofacquired intangible assets. The Company evaluates the recoverability of theseassets when facts and circumstances suggest the asset could be impaired inaccordance with SFAS No. 144.

 

*(M) RevenueRecognition*

 

The Company accounts forrevenue arrangements that include multiple deliverables in accordance withEmerging Issues Task Force (“EITF”) No. 00-21, *Accounting for Revenue Arrangements with Multiple Arrangements*(“EITF 00-21”). EITF 00-21 addresses how to determine whether an arrangementinvolving multiple deliverables contains more than one unit of accounting. Inapplying the guidance, revenue arrangements with multiple deliverables can onlybe considered as separate units of accounting if (i) the delivered itemhas value to the customer on a standalone basis, (ii) there is objectiveand reliable evidence of the fair value of the undelivered items and (iii) ifthe right of return exists, delivery of the undelivered items is consideredprobable and substantially in the control of the vendor. If these criteria arenot met, the revenue elements must be considered a single unit of accountingfor purposes of revenue recognition.

 

Payments received to fundcertain research activities are recognized as revenue in the period in whichthe research activities are performed. Payments received in advance that arerelated to future performance are deferred and recognized as revenue when theresearch projects are performed.

 

AVANT has entered intovarious license and development agreements with pharmaceutical andbiotechnology companies. The terms of the agreements typically includenon-refundable license fees, funding of research and development, paymentsbased upon achievement of certain milestones and royalties on net productsales. Non-refundable license fees are recognized as contract and license feerevenue when AVANT has a contractual right to receive such payments, providedthat (i) a contractual arrangement exists, (ii) the contract price isfixed or determinable, (iii) the collection of the resulting receivable isreasonably assured and (iv) AVANT has no further performance obligationsunder the license agreement. Upfront non-refundable fees associated withlicense and development agreements where AVANT has continuing performanceobligations under the terms of the agreement are recorded as deferred revenueand recognized as revenue over the estimated service period as AVANT completesits obligations. Where AVANT’s level of effort is relatively constant over theperformance period or no other pattern is estimable, the revenue is recognizedon a straight-line basis. Revenue is limited to the lesser of the cumulativeamount of payments received or the cumulative amount of revenue earned, asdetermined using the straight-line basis, as of the period ending date. If theestimated service period is subsequently modified, the period over which theupfront fee is recognized is modified accordingly on a prospective basis. Thedetermination of the performance period involves judgment on management’s part.Funding of research and development is recognized as revenue over the term ofthe applicable contract as costs are incurred related to that contract.

 

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Milestone payments arerecognized as revenue upon the achievement of mutually agreed milestones,provided that (i) the milestone event is substantive and its achievementis not reasonably assured at the inception of the agreement, and (ii) thereis no continuing performance obligations associated with the milestone payment.Revenues from milestone payments related to arrangements under which theCompany has continuing performance obligations are recognized as revenue uponachievement of the milestone only if all of the following conditions are met: (i) themilestone payments are non-refundable; (ii) achievement of the milestonewas not reasonably assured at the inception of the arrangement; (iii) substantiveeffort is involved in achieving the milestone; and, (iv) the amount of themilestone is reasonable in relation to the effort expended or the riskassociated with achievement of the milestone. If any of these conditions arenot met, the milestone payments are deferred and recognized as revenue over theterm of the arrangement as AVANT completes its performance obligations.

 

Revenue from governmentcontracts and grants, including U.S. government grants under Small BusinessInnovation Research (“SBIR”), is recognized as the services are performed andrecorded as effort is expended on the contracted work and billed to thegovernment. Product royalty revenue consists of payments received fromlicensees for a portion of sales proceeds from products that utilize AVANT’slicensed technologies and are recognized when the amount of and basis for suchroyalty payments are reported to us in accurate and appropriate form and inaccordance with the related license agreement. Payments received in advance ofactivities being performed are recorded as deferred revenue. Any significantchanges in the Company’s estimates or assumptions could impact its revenuerecognition.

 

*(N) Researchand Development Costs*

 

Research and developmentcosts, including internal and contract research costs, are expensed asincurred. Research and development expenses consist mainly of clinical trialcosts, manufacturing of clinical material, toxicology and other studies,salaries, depreciation, technology access fees, royalty fees, including cost ofRotarix® royalty revenues retained by AVANT, and funding of outsideresearch. Costs to acquire technologies that are utilized in research anddevelopment that have no alternative future use are expensed as incurred.

 

***(O) Clinical Trial Accruals***

** **

Most of the Company’sclinical trials are performed by third-party contract research organizations (“CROs”)and clinical supplies are manufactured by contract manufacturing organizations(“CMOs”). Invoicing from these third parties may be monthly based upon servicesperformed or based upon milestones achieved. The Company accrues these expensesbased upon its assessment of the status of each study and the work completed,and upon information obtained from the CROs and CMOs.

 

*(P) Foreign CurrencyTranslation*

 

The financial statementsof Celldex Ltd have been translated into U.S. dollars in accordance with SFAS No. 52,*Foreign Currency Translation*. Allasset and liability accounts have been translated using the exchange rates ineffect at the balance sheet date. Income statement amounts have been translatedusing the average exchange rate for the period. The gains and losses resultingfrom the changes in exchange rate from this period have been reported in othercomprehensive (loss) income. As of June 30, 2008 and December 31,2007, the accumulated unrealized foreign exchange translation (losses) gainsincluded in accumulated other comprehensive income were $2,562,778 and $2,619,036, respectively.

 

***(Q) Income Taxes***

** **

The Company uses the asset and liability method toaccount for income taxes, including the recognition of deferred tax assets anddeferred tax liabilities for the anticipated future tax consequencesattributable to differences between financial statement amounts and theirrespective tax bases. The Company reviews its deferred tax assets for recovery.A valuation allowance is established when the Company believes that it is morelikely than not that its deferred tax assets will not be realized. Changes invaluation allowances from period to period are included in the Company’s taxprovision in the period of change.

 

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*(R) NetLoss Per Share*

 

AVANT computes andreports earnings per share in accordance with the provisions of SFAS No. 128,*Earnings Per Share*. The computations ofbasic and diluted loss per common share are based upon the weighted averagenumber of common shares outstanding and potentially dilutive securities.Potentially dilutive securities include stock options and warrants. Options andwarrants to purchase 1,810,751 and 1,031,374 shares of common stock were notincluded in the June 30, 2008 and 2007 computation of diluted net loss pershare, respectively, because inclusion of such shares would have ananti-dilutive effect on net loss per share. Share amounts shown on theconsolidated balance sheets and share amounts and basic and diluted net lossper share amounts shown on the consolidated statements of operations andcomprehensive loss have been adjusted to reflect the Merger exchange ratio anda reverse stock split of 1-for-12 effective March 7, 2008.

 

*(S) ComprehensiveLoss*

 

Comprehensive loss iscomprised of two components: net loss and other comprehensive income. Duringthe three and six months ended June 30, 2008, AVANT recorded othercomprehensive loss of $147,044 and $207,448 related to unrealized loss in itsinvestment in Select Vaccines and $5,832 and $56,258 related to unrealizedforeign exchange translation losses, respectively. During the three and sixmonths ended June 30, 2007, AVANT recorded other comprehensive income of$185,359 and $164,656 related to unrealized foreign exchange translation gains,respectively.

 

*(T) Stock-BasedCompensation*

 

The Company accounts forstock-based awards under SFAS No. 123 (revised 2004), *Share-BasedPayment*, (“SFAS No. 123(R)”), which requires themeasurement and recognition of compensation expense for all share-based paymentawards made to employees and directors including employee stock options andemployee stock purchases related to the Employee Stock Purchase Plan (“employeestock purchases”) based on estimated grant date fair values.

 

Compensation expense forall share-based payment awards to employees are recognized using thestraight-line method. As stock-based compensation expense recognized in theConsolidated Statement of Operations is based on awards ultimately expected tovest, compensation expense has been reduced for estimated forfeitures.SFAS No. 123(R) requires forfeitures to be estimated at the timeof grant and revised, if necessary, in subsequent periods if actual forfeituresdiffer from those estimates.

 

The Company estimates thefair value of share-based awards granted using the Black-Scholes option-pricingmodel (“Black-Scholes model”). The Company’s determination of fair value ofshare-based payment awards on the date of grant using an option-pricing modelis affected by the Company’s stock price as well as assumptions regarding anumber of highly complex and subjective variables. These variables include, butare not limited to, the Company’s expected stock price volatility over the termof the awards, and actual and projected employee stock option exercisebehaviors.

 

SFAS No. 123(R) doesnot change the accounting guidance for how the Company accounts for optionsissued to nonemployees. The Company accounts for options issued to nonemployeesin accordance with SFAS No. 123(R) and EITF Issue No. 96-18, *Accounting for Equity Instruments That Are Issued to Other ThanEmployees for Acquiring, or in Conjunction with Selling, Goods or Services*.As such, the value of such options is periodically re-measured and income orexpense is recognized during the vesting terms.

 

See Note 5 foradditional information.

 

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*(U) Useof Estimates*

 

The preparation of thefinancial statements in conformity with U.S. generally accepted accountingprinciples requires management to make estimates and assumptions that affectreported amounts and disclosures. Actual results could differ from thoseestimates.

 

*(V) Segments*

 

Management uses consolidatedfinancial information in determining how to allocate resources and assessperformance. For this reason, AVANT has determined that it is engaged in oneindustry segment. Substantially all of AVANT’s revenue since inception has beengenerated in the United States and substantially all of our assets are in theUnited States.

 

*(W) Recent AccountingPronouncements*

 

**SFAS 141(R) andSFAS 160:** In December 2007, the FinancialAccounting Standards Board (“FASB”) issued SFAS No. 141(R), *Business Combinations,* (“SFAS No. 141(R)”),and SFAS No. 160, *NoncontrollingInterests in Consolidated Financial Statements, an amendment of ARB No. 51,*(“SFAS No. 160”), which introduce significant changes in theaccounting for and reporting of business acquisitions and noncontrollinginterests in a subsidiary. SFAS No. 141(R) is to be appliedprospectively to business combinations for which the acquisition date is on orafter the beginning of the first annual reporting period beginning on or after December 15,2008. SFAS No. 160 is effective for fiscal years, and interim periodswithin those fiscal years, beginning on or after December 15, 2008.Earlier adoption of both statements is prohibited. The adoption of SFAS No. 141(R) andSFAS No. 160 will only have an impact on the Company’s financialstatements if it is involved in a business combination that occurs after January 1,2009.

 

**EITF 07-1:**  In December 2007, the EITF reached aconsensus on Issue No. 07-1, *Accounting forCollaborative Arrangements* (“EITF 07-1”).  The EITF concluded on the definition of acollaborative arrangement and that revenues and costs incurred with thirdparties in connection with collaborative arrangements would be presented grossor net based on the criteria in EITF 99-19, *ReportingRevenue Gross as a Principal versus Net as an Agent*, and otheraccounting literature.  Based on thenature of the arrangement, payments to or from collaborators would be evaluatedand its terms, the nature of the entity’s business, and whether those paymentsare within the scope of other accounting literature would be presented.  Companies are also required to disclose thenature and purpose of collaborative arrangements along with the accountingpolicies and the classification and amounts of significant financial statement amountsrelated to the arrangements.  Activitiesin the arrangement conducted in a separate legal entity should be accounted forunder other accounting literature; however, required disclosure under EITF 07-1applies to the entire collaborative agreement.  EITF 07-1 is effective for financialstatements issued for fiscal years beginning after December 15, 2008, andinterim periods within those fiscal years, and is to be applied retrospectivelyto all periods presented for all collaborative arrangements existing as of theeffective date.  The Company is currentlyevaluating the effect that the adoption of EITF 07-01 will have on its resultsof operations and financial condition.

 

**FSP No. FAS 142-3:**In April 2008, the FASB staff issued FASB Staff Position (“FSP”) No. FAS142-3, *Determination of the Useful Life ofIntangible Assets* (“FSP No. FAS 142-3”). FSP No. FAS 142-3amends the factors that should be considered in developing renewal or extensionassumptions used to determine the useful life of a recognized intangible assetunder FASB No. 142. The intent of this FSP is to improve the consistencybetween the useful life of a recognized intangible under Statement 142 and theperiod of expected cash flows used to measure fair value of the asset underFASB No. 141 and other accounting principles generally accepted in theUnited States of America (“U.S.GAAP”). The FSP is effective for financialstatements issued for fiscal years beginning after December 31, 2008, andinterim periods within those fiscal years. Early adoption is prohibited. Theadoption of FSP No. FAS 142-3 is not expected to have a material impact onAVANT’s financial position and results of operations.

 

**SFAS 162:** In May 2008, FASB issued SFAS No. 162, *“The Hierarchy of Generally Accepted AccountingPrinciples”,*or**SFAS162. SFAS 162 identifies the sources of accounting principles and the frameworkfor selecting the principles to be used in the preparation of financialstatements that are presented in conformity with generally accepted accountingprinciples in the United States. SFAS 162 is effective 60 days followingthe SEC’s approval of the Public Company Accounting Oversight Board amendmentsto AU Section 411, *“The Meaning ofPresent Fairly in Conformity with Generally Accepted Accounting Principles.”*The Company does not expect SFAS 162 to have a material impact on its resultsof operations and financial condition.

 

**EITF03-6-1:**  In June 2008, FASB issued FASB StaffPosition No. EITF 03-6-1, *“DeterminingWhether Instruments Granted in Share-Based Payment Transactions AreParticipating Securities”*, or FSP EITF 03-6-1. FSP EITF 03-6-1addresses whether instruments granted in share-based payment transactions areparticipating securities prior to vesting and, therefore, need to be includedin the earnings allocation in computing earnings per share (EPS) under thetwo-class method described in paragraphs 60 and 61 of FASB StatementNo. 128, *“Earnings per Share”*,or SFAS 128. The guidance applies to the calculation of EPS under SFAS 128 forshare-based payment awards with rights to dividends or dividend equivalents.FSP EITF 03-6-1 clarifies that unvested share-based payment awards that containnonforfeitable rights to dividends or dividend equivalents (whether paid orunpaid) are participating securities and shall be included in the computationof EPS pursuant to the two class method. FSP EITF 03-6-1 is effective forfinancial statements issued for fiscal years beginning after December 15,2008, and interim periods within those years. All prior-period EPS datapresented shall be adjusted retrospectively (including interim financialstatements, summaries of earnings and selected financial data) to conform withthe provisions of this FSP. Early adoption is not permitted. The Company iscurrently evaluating the effect that the adoption of FSP EITF 03-6-1 will haveon its results of operations and financial condition.

 

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**(4)          Fair ValueMeasurements**

 

On January 1, 2008,the Company adopted SFAS No. 157, *Fair Value Measurements*,(“SFAS No. 157”), and SFAS No. 159, *The FairValue Option for Financial Assets and Financial Liabilities Including anamendment of FASB Statement No. 115*, (“SFAS No. 159”), forits financial assets and liabilities. The adoption of SFAS No. 157 did nothave a material impact on the Company’s financial position or results ofoperations. As permitted by FASB Staff Position No. FAS 157-2, *Effective Date of FASB Statement No. 157*, the Companyelected to defer the adoption of SFAS No. 157 for all nonfinancial assetsand nonfinancial liabilities, except those that are recognized or disclosed atfair value in the financial statements on a recurring basis, until January 1,2009. SFAS No. 159 permits entities to choose to measure many financialinstruments and certain other items at fair value that are not currentlyrequired to be measured at fair value. The Company did not elect to adopt thefair value option for eligible financial instruments under SFAS No. 159.

 

SFAS No. 157provides a framework for measuring fair value under U.S. GAAP and requiresexpanded disclosures regarding fair value measurements. SFAS No. 157defines fair value as the exchange price that would be received for an asset orpaid to transfer a liability (an exit price) in the principal or mostadvantageous market for the asset or liability in an orderly transactionbetween market participants on the measurement date. Market participants are buyersand sellers in the principal market that are (i) independent, (ii) knowledgeable,(iii) able to transact, and (iv) willing to transact.

 

SFAS No. 157requires the use of valuation techniques that are consistent with the marketapproach, the income approach and/or the cost approach. The market approachuses prices and other relevant information generated by market transactionsinvolving identical or comparable assets and liabilities. The income approachuses valuation techniques to convert future amounts, such as cash flows orearnings, to a single present amount on a discounted basis. The cost approachis based on the amount that currently would be required to replace the servicecapacity of an asset (replacement cost). Valuation techniques should be consistentlyapplied. SFAS No. 157 also establishes a fair value hierarchy which requires anentity to maximize the use of observable inputs, where available, and minimizethe use of unobservable inputs when measuring fair value. The standarddescribes three levels of inputs that may be used to measure fair value:

 

**Level 1**        Quoted prices in activemarkets for identical assets or liabilities. The Company’s Level 1 assetsconsist of cash equivalents and its investment in Select Vaccines. As of June 30,2008, the Company held cash equivalents of $50,823,377 and an investment inSelect Vaccines of $340,580.

 

**Level 2**        Observable inputs other thanLevel 1 prices, such as quoted prices for similar assets or liabilities; quotedprices in markets that are not active; or other inputs that are observable orcan be corroborated by observable market data for substantially the full termof the assets or liabilities. The Company had no Level 2 assets or liabilitiesat June 30, 2008.

 

**Level 3**        Unobservable inputs that aresupported by little or no market activity and that are significant to the fairvalue of the assets or liabilities. The Company had no material Level 3 assetsor liabilities at June 30, 2008.

 

The Company’s financialinstruments consist mainly of cash and cash equivalents, short-term accountsreceivable, common stock in a publicly-traded company, accounts payable anddebt obligations. Short-term accounts receivable and accounts payable arereflected in the accompanying consolidated financial statements at cost, whichapproximates fair value due to the short-term nature of these instruments.

 

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**(5)          Stock-Based Compensation**

 

As of June 30, 2008,the Company had two shareholder approved, share-based compensation plans: the2004 Employee Stock Purchase Plan (the “2004 ESPP Plan”) and the 2008 StockOption and Incentive Plan (the “2008 Plan”).

 

**Employee Stock Benefit Plans**

 

***Employee Stock Purchase Plan***

 

The 2004 ESPP Plan wasadopted on May 13, 2004 and assumed by the Company in connection with theMerger. All full time employees of AVANT are eligible to participate in the2004 ESPP Plan. A total of 12,500 shares of common stock are reserved forissuance under the 2004 ESPP Plan. Under the 2004 ESPP Plan, each participatingemployee may contribute up to 15% of his or her compensation to purchase up to500 shares of common stock per year in any six-month offering period and maywithdraw from the offering at any time before stock is purchased. Participationterminates automatically upon termination of employment. The purchase price pershare of common stock in an offering is 85% of the lower of its fair marketvalue at either the beginning of the offering period or the applicable exercisedate. At June 30, 2008, 9,885 shares were available for issuance under the2004 ESPP Plan.

 

The last purchase periodended on December 31, 2007. As a consequence of the Merger, no currentpurchase period was offered beginning on January 1, 2008.

 

***Employee Stock Option Plan***

 

*Stock Option Plan Description*

 

On March 6, 2008,AVANT’s 2008 Plan was adopted at a special meeting of AVANT shareholders. The2008 Plan replaced the 1999 Stock Option and Incentive Plan (the “1999 Plan”)and the Amended and Restated 1991 Stock Compensation Plan, which was anamendment and restatement of AVANT’s 1985 Incentive Option Plan. The 2008 Planpermits the granting of incentive stock options (intended to qualify as suchunder Section 422A of the Internal Revenue Code of 1986, as amended),non-qualified stock options, stock appreciation rights, performance shareunits, restricted stock and other awards of restricted stock in lieu of cashbonuses to employees, consultants and outside directors.

 

The 2008 Plan allows fora maximum of 1,500,000 shares of common stock to be issued prior to October 19,2017. The board of directors determines the term of each option, option price,and number of shares for which each option is granted and the rate at whicheach option vests. Options generally vest over four years. The term of eachoption cannot exceed ten years (five years for options granted to holders ofmore than 10% of the voting stock of AVANT) and the exercise price of stockoptions cannot be less than the fair market value of the common stock at thedate of grant (110% of fair market value for incentive stock options granted toholders of more than 10% of the voting stock of AVANT). The 2008 Plan alsoprovides for discretionary grants of non-qualified stock options tonon-employee directors. Vesting of all employee and non-employee director stockoption awards is accelerated upon a change in control as defined in the 2008Plan.

 

In connection with theMerger, AVANT assumed the obligations of Celldex under Celldex’s Stock OptionPlan (the “Celldex Plan”) and each outstanding option to purchase Celldexcommon stock (a “Celldex Stock Option”) granted under the Celldex Plan. EachCelldex Stock Option assumed by AVANT is deemed to constitute an option toacquire, on the same terms and conditions as were applicable under the CelldexPlan, shares of AVANT’s common stock that have been adjusted consistent withthe ratio at which AVANT’s common stock was issued in exchange for Celldex’scommon stock in the Merger. As of March 7, 2008, AVANT assumed options toacquire 1,446,913 shares of its common stock at a weighted average exerciseprice of $8.35. The Celldex Stock Options generally vest over a two-tofour-year period and the term of eachoption cannot exceed ten years from the date of grant. No additional awardswill be issued under the Celldex Plan.

 

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*General Option Information*

 

A summary of stock optionactivity under the 2008 Plan for the six months ended June 30, 2008,adjusted to reflect the Merger exchange ratio and a reverse stock split of1-for-12 effective March 7, 2008, is as follows:

 
| ** **                                               | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price  Per Share** | ** ** | **Weighted  Average  Remaining  Contractual  Term (In Years)** | ** ** |
|----------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| Outstanding at January 1                            |       | 787,440    |       | $                                                      | 12.70      |                                                                     | 5.81       |   |
| Granted                                                  |       | 2,466,167  |       | 8.30                                                   |       |                                                                     |       |
| Exercised                                                |       | —     |       | —                                                 |       |                                                                     |       |
| Canceled/forfeited                                       |       | (1,441,606 | )          | 10.64                                                  |       |                                                                     |       |
| Expired                                                  |       | (1,250     | )          | 29.13                                                  |       |                                                                     |       |
|                                                     |       |       |       |                                                   |       |                                                                     |       |
| Outstanding at June 30                              |       | 1,810,751  |       | $                                                      | 8.34       |                                                                     | 9.24       |   |
|                                                     |       |       |       |                                                   |       |                                                                     |       |
| Ending Vested and Expected to Vest at June 30, 2008 |       | 1,617,419  |       | $                                                      | 8.34       |                                                                     | 9.23       |   |
|                                                     |       |       |       |                                                   |       |                                                                     |       |
| At June 30                                          |       |       |       |                                                   |       |                                                                     |       |
| Options exercisable                                      |       | 873,262    |       | $                                                      | 8.39       |                                                                     |       |   |

 

The weighted average fairvalue of options granted during the six-month period ended June 30, 2008was $4.23.

 

*Non-Employee Grants*

 

TheCompany has historically granted stock options to consultants for services.These options were issued at or above their fair market value on the date ofgrant and generally have four-year vesting terms from date of grant. Should theCompany or the consultant terminate the consulting agreements, any unvestedoptions will be cancelled. Options issued to non-employees aremarked-to-market, which means that as the Company’s stock price fluctuates, therelated expense either increases or decreases. The Company recognized expenseof $332,991 and $16,253 related to non-employee stock options for the threemonths ended June 30, 2008 and 2007, and $349,431 and $32,606 for the sixmonths ended June 30, 2008 and 2007, respectively. As of June 30,2008, the Company had total unrecognized compensation costs of $148,329 relatedto unvested non-employee options.

 

*Valuationand Expenses Information*

 

The following tablesummarizes stock-based compensation expense related to employee andnon-employee stock options and employee stock purchases for the three and sixmonths ended June 30, 2008 and 2007, respectively, which was allocated asfollows:

 
| ** **                             | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|----------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                             | ** ** | **2008**                                            | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Research and development               |       | $                                                   | 577,189    |                                              | $          | 177,472 |   | $ | 1,171,565 |   | $ | 376,558 |   |
| General and administrative             |       | 239,232                                             |       | 174,600                                           |       | 1,267,236 |   | 370,434 |   |
| Total stock-based compensation expense |       | $                                                   | 816,421    |                                              | $          | 352,072 |   | $ | 2,438,801 |   | $ | 746,992 |   |

 

During the quarter ended March 31,2008, the Company entered into an Option Cancellation Agreement concurrent withStock Option Grant Agreement with Celldex employees. The Option CancellationAgreement provided for the cancellation of all previously granted options underthe Plan while the Stock Option Grant Agreement provided for the re-grant ofstock options pursuant to the Option Cancellation Agreement.  In addition, at the consumption of the mergerwith AVANT, all options to purchase Celldex common stock then outstanding underthe Celldex 2005 Equity Incentive Plan was assumed by AVANT and converted intooptions to purchase shares of AVANT common stock. The number of shares subjectto the outstanding awards and related exercise price was proportionatelyadjusted by the same exchange ratio as Celldex shareholders received inaccordance with the provisions of the Celldex 2005 Equity Incentive Plan.  The Company considered both the re-grant ofstock options and exchange of Celldex options into options to acquire shares ofAVANT common stock as a modification under the provisions of SFAS 123R. Themodification affected a total of 15 employees, including members of the Celldexboard of directors. The total incremental compensation cost resulting from themodifications amounted to approximately $2.6 million, of which $0.9 million wasrelated to vested awards and was recognized immediately as stock basedcompensation in the quarter ended March 31, 2008.

 

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Based on basic anddiluted weighted average common shares outstanding of 15,227,475 and12,677,455, the effect of stock-based compensation expense recorded for thethree- and six-month periods ended June 30, 2008 had a $0.05 per share and $0.19per share impact on net loss per share, respectively.

 

As of June 30, 2008,total compensation cost related to non-vested employee stock options not yetrecognized was $3,277,319, net of estimated forfeitures, which is expected tobe recognized as expense over a weighted average period of 2.69 yrs. Thetotal fair value of employee stock options vested, including the incrementalfair value for options vested that were modified, during the three and sixmonths ended June 30, 2008 was $217,683 and $1,487,715, respectively

 

The fair values ofemployee and non-employee director stock options granted during the three andsix months ended June 30, 2008 and 2007 were valued using theBlack-Scholes model with the following assumptions:

 
| ** **                                               | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                               | ** ** | **2008**                                            | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Expected stock price volatility (employees)              |       | 60                                                  | %          | 67                                                | %          | 60 | % | 67 | % |
| Expected stock price volatility (non-employee directors) |       | 59                                                  | %          | 67                                                | %          | 59 | % | 67 | % |
| Expected option term (employees)                         |       | 4.75  Years                                         |       | 5.2  Years                                        |       | 3-6  Years |   | 5.2  Years |   |
| Expected option term (non-employee directors)            |       | 4.0  Years                                          |       | 5.2  Years                                        |       | 4-6  Years |   | 5.2  Years |   |
| Risk-free interest rate                                  |       | 3.24                                                | %          | 4.5                                               | %          | 1.75-3.24 | % | 4.5 | % |
| Expected dividend yield                                  |       | None                                                |       | None                                              |       | None |   | None |   |

 

The Company used itsdaily historical stock price volatility consistent with the expected term ofgrant as the basis for its expected volatility assumption in accordance withSFAS No. 123(R) and SAB 107 for its employee and non-employeedirector stock options and employee stock purchases. The Company has concludedthat its historical volatility is representative of expected future stock pricetrends. The expected volatility used by Celldex in 2007 was based on theaverage volatility of a group of companies that Celldex believed would beconsidered a peer group had it been a publicly held company.

 

The risk-free interestrate assumption is based upon observed interest rates appropriate for theexpected term of the Company’s employee and non-employee director stock optionsand employee stock purchases. The dividend yield assumption is based on theCompany’s history of zero dividend payouts and expectation that no dividendswill be paid in the foreseeable future.

 

The expected term ofemployee and non-employee director stock options represents theweighted-average period the stock options are expected to remain outstanding.SAB 107 provides for a simplified method for estimating expected term for “plain-vanilla”options. The simplified method is based on the vesting period and thecontractual term for each grant or for each vesting tranche for awards withgraded vesting. The mid-point between the vesting date and the expiration dateis used as the expected term under this method. In December 2007, theSecurities and Exchange Commission released SAB 110, which extended the use ofthe simplified method if a company met certain criteria. AVANT has concludedthat the Merger represents a significant structural change in its business andin the terms of its share option grants such that AVANT’s historical exercisedata may no longer provide a reasonable basis upon which to estimate expectedterm. The Company has elected to follow the guidance of SAB 107 and SAB 110 andhas adopted the simplified method in determining expected term for all of itsstock option awards.  There were 0 and121,703 stock options granted to non-employee directors during the three andsix months ended June 30, 2008, respectively.

 

Forfeitures wereestimated based on historical experience by applying an eleven and zero percentforfeiture rate to employee and non-employee director stock option awardsgranted during the three and six months ended June 30, 2008, respectively.

 

The Company has notrecognized any tax benefits or deductions related to the tax effects ofemployee stock-based compensation as the Company carries a full deferred taxasset valuation allowance and has significant net operating loss carryforwardsavailable.

 

**(6)          Retirement Savings Plan**

 

The Company’s 401(k) Plan(the “401(k) Plan”) is intended to be a tax-qualified plan coveringsubstantially all employees. Under the terms of the 401(k) Plan, employeesmay elect to contribute up to 15% of their compensation, or the statutoryprescribed limits. The Company may make matching contributions of up to 4% of aparticipant’s annual salary. Benefit expense for the 401(k) Plan wasapproximately $37,055 and $22,282 for the six months ended June 30, 2008and 2007, respectively.

 

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**(7)****          ****Property and Equipment**

 

Property and equipmentincludes the following:

 
| ** **                                     | ** ** | **June 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Laboratory Equipment                           |       | $                       | 5,253,695  |                        | $          | 1,551,896 |   |
| Manufacturing Equipment                        |       | 991,916                 |       | —                      |       |
| Office Furniture and Equipment                 |       | 1,555,962               |       | 405,581                     |       |
| Leasehold Improvements                         |       | 13,863,841              |       | 2,046,663                   |       |
| Assets Held for Sale                           |       | 247,100                 |       | —                      |       |
| Construction in Progress                       |       | 395,817                 |       | —                      |       |
| Total Property and Equipment                   |       | 22,308,331              |       | 4,004,140                   |       |
| Less Accumulated Depreciation and Amortization |       | (8,275,243              | )          | (2,086,104                  | )          |
|                                           |       | $                       | 14,033,088 |                        | $          | 1,918,036 |   |

 

A portion of the purchaseprice in the Merger totaling $15,170,702 has been allocated and recorded toacquired property and equipment above and was then reduced by approximately$2,606,649 of negative goodwill.

 

As a result of theMerger, AVANT is converting its Fall River manufacturing facility to providemammalian cell culture production capabilities and has classified certainmanufacturing-related equipment having a fair value of $451,100 as long-livedassets to be disposed of by sale. The fair value was established based onquoted market prices by an equipment re-seller less estimated costs to removeand sell the equipment. During the quarter ended June 30, 2008, the Companysold one of the long-lived assets held for sale with a recorded value of $204,000for $229,500 and recorded a gain of $25,500 on disposal of assets. In addition,the Company disposed of $161,523 of assets and recorded a loss of $32,054 ondisposal of fixed assets during the six months ended June 30, 2008.

 

Depreciation expense related to equipment andleasehold improvements was $707,915 and $197,523 for the three months ended June 30,2008 and 2007, respectively, and $1,061,050 and $379,892 for the six monthsended June 30, 2008 and 2007, respectively.

 

**(8)****          ****Intangible and Other Assets**

 

Intangible and otherassets include the following:

 
| ** **                  | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|-----------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                  | ** ** | **Estimated  Lives**        | ** ** | **Gross  Intangible  Assets**   | ** ** | **Accumulated  Amortization** | ** ** | **Net  Intangible  Assets** | ** ** | **Gross  Intangible  Assets** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Intangible  Assets** | ** ** |
| Intangible Assets:          |       |                        |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Core Technology             |       | 4.5  - 11 years             |       | $                               | 2,193,249  |   | $ | (380,004 | ) | $ | 1,813,245 |   | $ | 1,296,000 |   | $ | (263,097 | ) | $ | 1,032,902 |   |
| Developed Technology        |       | 8  years                    |       | 273,796                         |       | (10,958 | ) | 262,838 |   | 3⁄4 |   | 3⁄4 |   | 3⁄4 |   |
| Strategic Partner Agreement |       | 8  years                    |       | 629,499                         |       | (25,194 | ) | 604,305 |   | 3⁄4 |   | 3⁄4 |   | 3⁄4 |   |
|                        |       |                        |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Total Intangible Assets     |       |                        |       | $                               | 3,096,544  |   | $ | (416,156 | )  | $ | 2,680,388 |   | $ | 1,296,000 |   | $ | (263,097 | )  | $ | 1,032,902 |   |

 

On March 7, 2008,AVANT completed the Merger with Celldex being considered the accountingacquirer. Under the purchase method of accounting, AVANT determined theidentifiable intangible assets acquired based upon the respective fair valuesof certain technology and intellectual property acquired and license agreementassumed. AVANT has determined that this technology has alternative future usesand will be incorporated into a number of AVANT’s bacterial vaccine programs. Aportion of the purchase price in the transaction totaling $2,174,100 has beenallocated and recorded to acquired intangible assets above and then was reducedby approximately $373,557 of negative goodwill.

 

All of AVANT’s intangibleassets are amortized over their estimated useful lives. Total amortizationexpense for intangible assets was $104,164 and $29,233 for the three-monthperiods ended June 30, 2008 and 2007, respectively, and $153,058 and$58,467 for the six-month periods ended June 30, 2008 and 2007,respectively.

 

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The estimated futureamortization expense of intangible assets as of June 30, 2008 for theremainder of fiscal year 2008 and the five succeeding years is as follows:

 
| **Year ending December 31,** | ** ** | **Estimated  Amortization  Expense** | ** ** |
|---------------------------------------------|------------|--------------------------------------|------------|
| 2008 (remaining six months)                 |       | $                                    | 207,948    |   |
| 2009                                        |       | 415,896                              |       |
| 2010                                        |       | 415,896                              |       |
| 2011                                        |       | 415,896                              |       |
| 2012                                        |       | 340,313                              |       |
| 2013 and thereafter                         |       | 884,441                              |       |
|                                             |            |                                      |            |  |

 

**(9)****           **Income Taxes****

 

On January 1, 2007,the Company adopted FASB Interpretation No. 48, Accounting for Uncertaintyin Income Taxes – an interpretation of FASB Statement 109 (“FIN 48”).  FIN 48 prescribes a comprehensive model forrecognizing, measuring, presenting and disclosing in the financial statementstax positions taken or expected to be taken on a tax return, including adecision whether to file or not to file in a particular jurisdiction.  As a result of the implementation of FIN 48,AVANT recognized no material adjustment in the liability for unrecognizedincome tax benefits.  At adoption dateand at June 30, 2008, AVANT had no material unrecognized income taxbenefits.

 

As of December 31,2007, the Company had federal and state net operating loss (“NOL”)carryforwards and federal and state research and development (“R&D”) creditcarryforwards, which may be available to offset future federal and state incometax liabilities which expire at various dates starting in 2008 and goingthrough 2027.  Utilization of the NOL andR&D credit carryforwards may be subject to substantial annual limitationdue to ownership change limitations that have occurred previously or that couldoccur in the future provided by Section 382 of the Internal Revenue Codeof 1986, as well as similar state provisions. These ownership changes may limit the NOL and R&D creditcarryforwards that can be utilized annually to offset future taxable income andtax, respectively.  In general, anownership change, as defined by Section 382, results from transactionsincreasing the ownership of certain shareholders or public groups in the stockof a corporation by more than 50 percentage points over a three-yearperiod.  Since the Company’s formation,the Company has raised capital through the issuance of capital stock on severaloccasions which, combined with the purchasing shareholders’ subsequentdisposition of those shares, may have resulted in a change of control, asdefined by Section 382, or could result in a change of control in thefuture upon subsequent disposition. AVANT believes its merger with Celldex may have generated an ownershipchange that could further affect the limitation in future years.

 

During the first quarterof 2008 the Company underwent a merger in which AVANT and Celldex became acombined group for tax reporting purposes. The merger was treated as a purchase under SFAS 141 with Celldex beingthe accounting acquirer.  Together theyform a combined group and report income taxes as such with AVANT as the ParentCompany and Celldex as the Subsidiary. As a result of this merger, all of the prior tax attributes of bothAVANT and Celldex will carry forward for potential future use subject topotential limitations.  These taxattributes are included in the Company’s income tax provision.

 

Massachusetts, New Jerseyand Missouri are the three states in which the Company operates or has operatedand has income tax nexus. Open federal and state return years subject toexamination by major tax jurisdictions include the tax years ended December 31,2004, 2005, 2006 and 2007 (which has not yet been filed). Carryforwardattributes that were generated prior to 2004 may still be adjusted uponexamination by the IRS if they either have been or will be used in a futureperiod. The Company is currently not under examination by the Internal RevenueService or any other jurisdictions for any tax years.

 

The Company’s policy isto recognize interest and penalties related to uncertain tax positions inincome tax expense. There have been no interest or penalties recognized in theconsolidated statement of operations and on the consolidated balance sheet as aresult of FIN 48 calculations. The Company has not recorded any interestand penalties on any unrecognized tax benefits since its inception.

 

As required by Statementof Financial Accounting Standards No. 109, management has evaluated thepositive and negative evidence bearing upon the realizability of its netdeferred tax assets, which are comprised principally of NOL, capitalizedR&D expenditures and R&D tax credit carryforwards. Management hasdetermined that it is more likely than not that AVANT will not recognize thebenefits of federal and state deferred tax assets and, as a result, a fullvaluation allowance was maintained at June 30, 2008 and December 31,2007.

 

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**(10)****         **ProductDevelopment and Licensing Agreements****

 

AVANT’s revenue fromproduct development and licensing agreements was received pursuant to contractsand arrangements with different organizations. A summary of these contractsfollows:

 

*(A)**         *GlaxoSmithKline plc (“Glaxo”)and Paul Royalty Fund II, L.P. (“PRF”)**

 

In 1997, AVANT enteredinto an agreement with Glaxo to collaborate on the development andcommercialization of the Company’s oral rotavirus strain and Glaxo assumedresponsibility for all subsequent clinical trials and all other developmentactivities. AVANT licensed-in the rotavirus strain that was used to developGlaxo’s Rotarix® rotavirus vaccine in 1995 and owes a licensefee of 30% to Cincinnati Children’s Hospital Medical Center (“CCH”) on netroyalties received from Glaxo. AVANT is obligated to maintain a license withCCH with respect to the Glaxo agreement. All licensing fees are included inresearch and development expense. The term of the Glaxo agreement is throughthe expiration of the last of the relevant patents covered by the agreement,although Glaxo may terminate the agreement upon 90 days prior written notice.

 

In May 2005, AVANTentered into an agreement whereby an affiliate of PRF purchased an interest inthe******net******royaltiesAVANT will receive on worldwide sales of Rotarix®.Under the PRF agreement, AVANT will retain 50% of future Glaxo milestonepayments beginning on the effective date of the agreement with PRF, with 70% ofthe remaining balance payable to PRF and 30% of the remaining balance payableto CCH, respectively. AVANT’s retained interests in Rotarix® net royalties which were not sold to PRF arerecorded as product royalty revenue and a corresponding amount that is payableto CCH is recorded as royalty expense, which is included in research anddevelopment expense. For the three- and six-month periods ended June 30,2008, AVANT recognized revenue of $766,632 related to its retained interests inRotarix®, which is payableto CCH.

 

On April 3, 2008,Rotarix® received FDA market approval for theprevention of rotavirus gastroenteritis in infants, which triggered a$1.5 million milestone payment to AVANT from Glaxo, $750,000 of whichAVANT has retained under AVANT’s agreement with PRF. In connection with theCompany’s purchase accounting for the Merger, the present value of theCompany’s retained amount, or $742,300, had been recorded as a current asset. Duringthe quarter ended June 30, 2008, AVANT also recorded $225,000 in revenueand an offsetting amount in royalty expense for the payable due to CCH for itsportion of the Glaxo milestone. The market launch of Rotarix® by Glaxo in the U.S. market would result in a$10 million milestone payment to AVANT from PRF, which AVANT expects toreceive in the second half of 2008. In connection with the Merger, AVANTrecorded $9.8 million as an other current asset, which represents the presentvalue of this milestone payment adjusted for probability of success.

 

Royalty rates on Rotarix® escalate from 7%to 10% based on net product sales in countries that have valid patentprotection. These royalty rates are discounted by 30% for “non-patent”countries (primarily international markets). In September 2006, AVANTreceived notice from Glaxo that Glaxo would begin paying royalties on sales ofRotarix® vaccine at the lower of the two royalty ratesunder their 1997 license agreement. Glaxo’s decision to pay the lower royaltyrate (which is 70% of the full rate) is based upon Glaxo’s assertion thatRotarix® isnot covered by the patents Glaxo licensed from AVANT in Australia and certainEuropean countries.

 

If Glaxo’s positionstands, the royalties to which PRF is entitled will no longer be limited by a$27.5 million annual threshold, which AVANT projected may have been reached inlater years as sales of Rotarix® increased. Irrespective of Glaxo’s position,AVANT will still retain the royalties on worldwide sales of Rotarix® once PRF receives2.45 times the aggregate cash payments it makes to AVANT, though the potentialamount of such residual royalties will be lower if Glaxo’s position stands.

 

*(B)**         *Glaxo and CorixaCorporation (“Corixa”)**

 

On December 21,2005, Corixa, a wholly-owned subsidiary of Glaxo, and Celldex Ltd (formerlyLorantis), entered into a termination agreement of their collaboration ofCDX-2101, or HepVax, for the development of a therapeutic vaccine for HepatitisB (the “Termination Agreement”). Under the terms of the Termination Agreement,Glaxo paid the Company the sum of approximately $1,632,000. In addition, andsubject to the terms and conditions of the Termination Agreement, Glaxo grantedto Celldex a worldwide, fully paid up, royalty-free, perpetual, nonexclusivelicense under the Corixa Patent Rights, Corixa Know-How Rights and CorixaLicensed Technology (each as defined in the Termination Agreement): (a) touse RC-529SE in products being developed and/or commercialized by Celldex Ltdor its Permitted Sublicensees in the Lorantis Field; and (b) to make orhave made RC-529SE using RC-529 adjuvant for the limited use permitted by thelicense granted to reformulate Corixa’s proprietary adjuvant.

 

The Company has concludedthat because the original collaboration between Corixa and Lorantis containedmultiple deliverables, EITF 00-21 applies. For the three- and six-month periodsended June 30, 2008 and 2007, the Company recognized $116,538 and$233,076, respectively, of revenue under the Termination Agreement.

 

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*(C)**         *Pfizer Inc (“Pfizer”)**

 

*(1) Pfizer License and Development Agreement*

 

On April 16, 2008,AVANT and Pfizer entered into a License and Development Agreement (the “PfizerAgreement”) under which Pfizer was granted an exclusive worldwide license to atherapeutic cancer vaccine candidate, CDX-110, in Phase 2 development for thetreatment of glioblastoma multiforme. ThePfizer Agreement also gives Pfizer exclusive rights to the use of EGFRvIIIvaccines in other potential indications. Under the Pfizer Agreement,Pfizer made an upfront payment to AVANT of $40 million and made a $10 millionequity investment in AVANT. Pfizer will fund all development costs for theseprograms. AVANT is also eligible to receive milestone payments exceeding $390million for the successful development and commercialization of CDX-110 andadditional EGFRvIII vaccine products, as well as royalties on any productsales. The Pfizer Agreement received clearance under the Hart-Scott-RodinoAntitrust Improvements Act of 1976 (as amended) on May 19, 2008, the effectivedate.

 

On May 27,2008, AVANT received $10 million from Pfizer in exchange for 781,250 shares ofAVANT’s common stock having a fair value of $10,867,188, or $13.91 per share,on that date.  The $867,188 over theamount received from Pfizer was recorded as a reduction to deferred revenue of the$40 million upfront payment received from Pfizer on June 18, 2008.

 

The Company has applied the provisions ofEmerging Issues Task Force (EITF) Issue No. 00-21 (“EITF 00-21”)*, Accounting for Revenue Arrangements with MultipleDeliverables,* and determined that its performance obligations underthis collaboration should be accounted for as a single unit of accounting.  The Company’s deliverables under thiscollaboration primarily include an exclusive license to its CDX-110 productcandidate and its EGFRvIII technologies, research and development services asrequired under the collaboration and participation in the joint clinicaldevelopment committee. The Company has estimated that its performance periodunder the collaboration will be 9.5 years based on an assessment of the periodover which the Company will have met its performance obligations under thecollaboration.  Revenueis being recognized on a straight-line basis over this period using theContingency Adjusted Performance Model (“CAPM”).  The $40,000,000up-front payment was recorded as deferred revenue and this amount, less the$867,188 in excess fair value for AVANT’s common stock discussed above, isbeing amortized over the 9.5-year performance period at a rate of $1,029,811per quarter.

 

The agreement also provides for reimbursementby Pfizer of all costs incurred by AVANT in connection with the collaborationsince the effective date.  The Companywill invoice Pfizer monthly for its reimbursable costs and record the invoicedamount as deferred revenue.  Thesedeferred revenue amounts will be amortized to revenue over the expected9.5-year performance period on a straight-line basis using the CAPM model.  For the three-month period endedJune 30, 2008, AVANT had incurred and invoiced Pfizer $1,372,454 inreimbursable costs related to the Pfizer collaboration.

 

The Company recorded revenue under thiscollaboration of $516,995 during the three-month period ended June 30,2008 which is included in “Product Development and Licensing Agreements” withinthe Revenue section of the Consolidated Statements of Operations for the three-and six-month periods ended June 30, 2008.  Of this amount, $492,020 was attributed to theamortization of the upfront payment and $24,975 was attributed to theamortization of expenses incurred by the Company for which Pfizer is obligatedto reimburse the Company.

 

In connection with the initialdeliverables under Pfizer Agreement as discussed further in Notes 11(C) and11(D), the Company is obligated to pay a sublicense fee of $2,365,174 to eachof two research universities, Duke University (“Duke”) and Thomas JeffersonUniversity (“TJU”), and to pay TJU an additional license fee of $500,000.  The Company has recognized $492,020 of thesecosts as royalty expense at June 30, 2008 and recorded the remaining costs of $4,738,329as deferred costs in the “Prepaid Expenses and Other Current Assets” line itemin the Consolidated Balance Sheet at June 30, 2008.

 

*(2) Pfizer Animal Health Agreement*

 

The Company entered intoa licensing agreement in December 2000 with Pfizer’s Animal Health Divisionwhereby Pfizer has licensed Megan’s technology for the development of animalhealth and food safety vaccines. Under the agreement, AVANT may receiveadditional milestone payments of up to $3 million based upon attainment ofspecified milestones. AVANT may receive royalty payments on eventual productsales. The term of this agreement is through the expiration of the last of thepatents covered by the agreement. AVANT has no obligation to incur any researchand development costs in connection with this agreement.

 

As of June 1, 2006,AVANT entered into a Collaborative Research and Development Agreement withPfizer aimed at the discovery and development of vaccines to protect animals.In 2007, further funded work at AVANT on the joint research program was terminatedby Pfizer after AVANT provided two of four deliverables to Pfizer.

 

*(D)**         *Rockefeller University (“Rockefeller”) andGates Grand Challenge Award**

 

AVANT is developing avaccine, CDX-2401, aimed at providing protection from infection with HIV, the virusknown to cause AIDS. This program is in a Bill & Melinda GatesFoundation funded partnership with collaborators at Rockefeller and the AaronDiamond AIDS Research Center, who have shown in model systems that protectiveimmunity can be induced with such a vaccine. Preclinical studies andmanufacturing development are in progress and payments to AVANT are made on atime and materials basis. For the three- and six-month periods ended June 30,2008 and 2007, AVANT recognized grant revenue from Rockefeller of $208,928 and$460,189, respectively.

 

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**(11)**         Collaboration Agreements

 

***(A)****         **Rockefeller University*

On November 1, 2005, the Company and RockefellerUniversity (“Rockefeller”) entered into a license agreement for the exclusiveworldwide rights to human DEC-205 receptor, with the right to sublicense thetechnology. The license grant is exclusive except that Rockefeller may use andpermit other nonprofit organizations to use the human DEC-205 receptor patentrights for educational and research purposes. In addition, the Companyacknowledges that Rockefeller has granted Howard Hughes Medical Institute (“HHMI”)a paid-up, nonexclusive, irrevocable license to use the patent rights,biological materials, and technical information for HHMI’s research purposes,but with no right to sublicense. The Company may also be required to payroyalties on any product sales. The royalties will be payable on acountry-by-country and licensed product-by-licensed product basis until thedate which is the later of (i) the expiration of the last to expire of thepatents covering the licensed product in such country or (ii) ten yearsfollowing the first commercial sale of a licensed product in such country.

The Company may be required to pay license fees andmilestone payments to Rockefeller with respect to development of the humanDEC-205 receptor. These fees and milestones may total up to $2 million to$4 million per product candidate that receives approval from the FDA andequivalent foreign agencies.

***(B)****         **Duke University Brain Tumor Cancer Center*

On September 1, 2006, the Company and DukeUniversity Brain Tumor Cancer Center of Duke University (“Duke”) entered into alicense agreement that gave the Company access and reference to the clinicaldata generated by Duke and its collaborators in order for the Company togenerate its own filing with the FDA relating to its CDX-110 product.

In exchange for referencing all the Duke data, theCompany paid Duke a one-time upfront payment of $175,000 and issued to Duke100,000 shares of the Company’s common stock, which the Company recorded in2006 as a licensing expense in research and development. The estimatedaggregate fair value of the common shares issued was $330,000.

The Company may be required to pay license fees andmilestone payments to Duke with respect to development of the CDX-110 product.These fees and milestones may total up to $1.2 million if CDX-110 receivesapproval from the FDA and equivalent foreign agencies. The Company may also berequired to pay royalties upon approval of CDX-110. The royalties will bepayable on a country-by-country and licensed product-by-licensed product basisuntil the date of the expiration of the last to expire of the patents coveringthe licensed product in such country.

In connection with the Pfizer Agreement discussed inNote 10(C)(1), AVANT determined that $2,365,174 is payable to Duke as asublicense fee.  At AVANT’s option, up to50% of this amount can be paid to Duke using the Company’s common stock.  At June 30, 2008, the Company had recorded anaccrual for the full amount.

***(C)****         **Ludwig Institute for Cancer Research*

On October 20, 2006, the Company and LudwigInstitute for Cancer Research (“Ludwig”) entered into an agreement for thenonexclusive rights to six cancer tumor targets for use in combination with theCompany’s APC Targeting Technology. The term of the agreement is for tenyears.  As consideration for thenonexclusive license, the Company agreed to pay an annual license fee of $7,500and $2,500 for each full-length antigen and partial-length antigen,respectively, until such antigens enter a randomized Phase 1 clinical trial.

In consideration for the nonexclusive license, theCompany may be required to pay license fees and milestone payments to Ludwigfor the use of the cancer targets in combination with the Company’s technology.The fees and milestones may total up to $1.5 million to $2.5 million on aproduct candidate that receives approval from the FDA and equivalent foreignagencies. The Company may also be required to pay royalties upon approval ofany product candidate. The royalties will be payable on a country-by-countryand licensed product-by-licensed product basis until the date of the expirationof the last to expire of the patents covering the licensed product in suchcountry.

*(D)          ThomasJefferson University*

                In February2003, the Company entered into three exclusive license agreements with ThomasJefferson University (“TJU”).  Under thelicense agreements, TJU has granted a worldwide fee-and royalty-bearingexclusive license.  Under these licenses,the Company will be obligated to pay TJU milestone payments which may total upto $1.4 million for the first two licensed products developed during the termof the license agreements, an annual license fee of $45,000, patent and otherexpenses associated with licenses, as well as royalties on net sales oflicensed products during the term of the license agreements.  The Company also issued 100,000 shares of itscommon stock to TJU.  In the event thatTJU provides notice of default and the default is not cured within 60 days ofsuch notice, TJU may terminate the license agreements. In connection with thePfizer Agreement, the Company amended its licenses with TJU to add additionalsublicensing rights and made a $500,000 one-time license payment to TJU in June2008.

As discussed in Note 10(C)(1), AVANT determined that $2,365,174 ispayable to TJU as a sublicense fee.  AtJune 30, 2008, the Company had recorded an accrual for the full amount.

***(E)****         **SelectVaccines Limited (“Select Vaccines”)*

In February 2007,AVANT entered into a research and development partnership with Select Vaccines,a public Australian biotechnology company, focused on the use of SelectVaccines’ virus-like particles (“VLPs”) as a platform technology for thedevelopment of viral vaccines. Under the terms of the agreement, AVANT made anupfront equity investment of $735,000 in Select Vaccines and would fundinfluenza vaccine research and development for two years, as well as providepayments to Select Vaccines for the achievement of specific preclinical andclinical development milestones. On November 1, 2007, AVANT notifiedSelect Vaccines that, effective December 31, 2007, AVANT was exercisingits rights to terminate its Collaboration and License Agreement withSelect Vaccines for strategic reasons.

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AVANT has classified itsequity investment in Select Vaccines shares as available for sale securitiesunder SFAS 115, *Accounting for CertainInvestments in Debt and Equity Securities*, (“SFAS 115”). Inaccordance with SFAS 115, all available-for-sale securities are recordedat fair market value and, to the extent deemed temporary, unrealized gains andlosses are included in accumulated other comprehensive income (loss) inshareholders’ equity. Realized gains and losses and declines in value, if any,judged to be other than temporary on available-for-sale securities are reportedin other income (expense).

 

During the three and sixmonths ended June 30, 2008, AVANT recorded other comprehensive loss of $147,043and $207,447, respectively, related to unrealized losses in its investment inSelect Vaccines.  The Companyconsiders this a temporary decline.

 

***(F)****         **3MCompany (“3M Company”)*

** **

On June 11, 2008,AVANT and 3M Company entered into a license agreement for the exclusiveworldwide rights to access 3M Company’s proprietary Immune Response ModifierResiquimodTM (and additional Toll-LikeReceptor 7/8 agonists (“TLR”)) for clinical study with Celldex’sproprietary APC Targeting Technology,for use as vaccine adjuvants, with the right to sublicense thetechnology.

 

AVANT paid 3M Company aone-time upfront license fee which was charged to research and developmentexpense in the three months ended June 30, 2008. The Company may berequired to pay annual license fees and milestone payments to 3M Company withrespect to development of ResiquimodTM.The Company may also be required to pay royalties upon approval of any productcandidate. The royalties will be payable on a country-by-country and licensedproduct-by-licensed product basis until the date of the expiration of the lastto expire of the patents covering the licensed product in such country.

 

**(12)**         **RelatedParty Transactions**

 

The Company and Medarexhave entered into the following agreements, each of which was approved by amajority of its independent directors who did not have an interest in thetransaction. These agreements include:

 

·      An Assignment and License Agreement that providesfor the assignment of certain patent and other intellectual property rights anda license to certain Medarex technology;

 

·      A Research and Commercialization Agreement whichprovides us with certain rights to obtain exclusive commercial licenses toproprietary monoclonal antibodies raised against certain antigens;

 

·      An Affiliation Agreement, which, among otherthings, details Medarex’s obligation to elect independent directors to theCompany’s board of directors and contains certain restrictions, effective for aperiod of 36 months from April 6, 2004, on Medarex’s ability to acquireadditional shares of the Company’s common stock and to sell shares of theCompany’s common stock;

 

·      A Master Services Agreement, which sets forthMedarex’s agreement to provide us with certain services to be mutually agreedupon, which may include, among others, clinical and regulatory assistance.

 

The Company may berequired to pay license fees and milestone payments to Medarex with respect toany antibodies developed using its HuMab-Mouse technology. These fees andmilestones may total up to $7 million to $10 million per antibodythat receives approval from the FDA and equivalent foreign agencies.

 

The Company may also berequired to pay royalties on any product sales. The royalties will be payableon a country-by-country and licensed product-by-licensed product basis untilthe date which is the later of (i) the expiration of the last to expire ofthe patents covering the licensed product in such country or (ii) tenyears following the first commercial sale of a licensed product in suchcountry.

 

Celldex and Medarexentered into a settlement and mutual release agreement on October 19,2007, whereby the parties agreed to a settlement with respect to a disputedreturn of capital related to certain unsuccessful initial public offering coststhat were funded by Medarex on behalf of Celldex in prior years. Celldex agreedto issue to Medarex 351,691 AVANT shares equal in value to $3,038,617, based onthe per share price of $8.64 set on the second trading day prior to the closingdate of the Merger. Medarex has agreed to amend certain terms of the existingResearch and Commercialization Agreement and Assignment and License Agreement.Both parties have agreed to mutual releases under the settlement and mutualrelease agreement.

 

**(13)****         **LoansPayable****

 

In December 2003,AVANT entered into a Lease Agreement (the “Lease Agreement”), a SecuredPromissory Note: Equipment Loan (the “Secured Promissory Note”) and a SecurityAgreement with the Massachusetts Development Finance Agency (“MassDevelopment”),an economic development entity for the Commonwealth of Massachusetts, for AVANTto occupy and build-out a manufacturing facility in Fall River, Massachusetts.

 

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*(A)**         *Loan Payable**

 

Under the LeaseAgreement, AVANT received a Specialized Tenant Improvement Loan of $1,227,800to finance the build-out of its Fall River facility which was recorded asleasehold improvements. AVANT is amortizing the leasehold improvements over theremaining expected lease term. Principal and interest payments on the loan aredue monthly using an amortization period of 15 years and an interest rate of5.5% per annum.

 

In connection with theMerger, AVANT recorded $722,683 as the fair value of the loan payable based oncurrent market interest rates available to AVANT for long-term liabilities withsimilar terms and maturities. At June 30, 2008, AVANT has recorded a loanpayable of $695,399 to MassDevelopment, of which $55,982 is classified ascurrent and $639,417 as long-term.

 

*(B)**         *Note Payable**

 

Under the Secured PromissoryNote, AVANT received $903,657 from MassDevelopment to finance the purchases ofmanufacturing and laboratory equipment to be placed in its Fall River facility(the “Loan”). The Loan has a term of 84 months and an interest rate of 5.5% perannum. The Loan is collateralized by all of the equipment purchased with theprincipal amount. The net book values of these collateralized assets at June 30,2008 were $253,308.

 

In connection with theMerger, AVANT recorded $366,251 as the fair value of the note payable based oncurrent market interest rates available to AVANT for long-term liabilities withsimilar terms and maturities. At June 30, 2008, the balance of the notepayable to MassDevelopment was $315,998, of which $107,790 is classified ascurrent and $208,208 as long-term.

 

The following tablesummarizes the Company’s approximate contractual obligations to MassDevelopmentwith respect to the loan and note payable:

 
| ** **                  | ** ** | **Loan Payable** | ** ** | **Note Payable** | ** ** |
|-----------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                  | ** ** | **Principal**         | ** ** | **Interest**          | ** ** | **Total** | ** ** | **Principal** | ** ** | **Interest** | ** ** | **Total** | ** ** |
| 2008 (remaining six months) |       | $                     | 34,100     |                  | $          | 21,700 |   | $ | 55,800 |   | $ | 64,100 |   | $ | 9,700 |   | $ | 73,800 |   |
| 2009                        |       | 81,900                |       | 48,500                |       | 130,400 |   | 160,200 |   | 16,900 |   | 177,100 |   |
| 2010                        |       | 81,900                |       | 43,900                |       | 125,800 |   | 169,400 |   | 7,800 |   | 177,200 |   |
| 2011                        |       | 81,900                |       | 39,400                |       | 121,300 |   | 46,900 |   | 500 |   | 47,400 |   |
| 2012                        |       | 81,900                |       | 34,900                |       | 116,800 |   | — |   | — |   | — |   |
| Thereafter                  |       | 579,600               |       | 115,800               |       | 695,400 |   | — |   | — |   | — |   |
| Total Obligation            |       | $                     | 941,300    |                  | $          | 304,200 |   | $ | 1,245,500 |   | $ | 440,600 |   | $ | 34,900 |   | $ | 475,500 |   |
|                        |       |                  |       |                  |       |   |   |   |   |   |   |   |   |
| Less: Current Portion       |       | 75,000                |       |                  |       |   |   | 143,100 |   |   |   |   |   |
|                        |       |                  |       |                  |       |   |   |   |   |   |   |   |   |
| Total Long-Term Portion     |       | $                     | 866,300    |                  |       |   |   |   | $ | 297,500 |   |   |   |   |   |

 

**(14)****         **Commitmentsand Contingencies****

 

*(A)**         *Commitments for the Needham, MassachusettsFacility**

 

In November 2005,AVANT entered into a lease amendment that extended its lease of laboratory andoffice space in Needham, Massachusetts through April, 2017 and reduced AVANT’sleased space to approximately 35,200 square feet. As of June 30, 2008,AVANT’s share of tenant improvements costs of $334,800 for the Needham facilityrenovations project remains unpaid. Under this lease amendment, AVANT isobligated to pay an escalating base annual rent ranging from $879,700 to$1,161,200 during the remaining lease term.

 

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*(B*)*         Commitmentsfor the Fall River, Massachusetts Facility*

 

In 2003, AVANT reachedagreement with MassDevelopment, an economic development entity for theCommonwealth of Massachusetts, to occupy and build-out an 11,800 square footmanufacturing facility in Fall River, Massachusetts. The lease has an initialseven-year term that expires in December 2010 and two renewal options offive years each. Management has determined that it is reasonably assured thatAVANT will exercise one five-year renewal option. Therefore, AVANT isamortizing leasehold improvements made to the Fall River facility over theremaining original lease term plus one five-year renewal term. In November 2005and December 2006, AVANT amended the MassDevelopment lease to increase therentable space to approximately 14,300 and 16,200 square feet, respectively, atthe Fall River facility.

 

*(C)         Commitments for thePhilipsburg, New Jersey Facility*

 

AVANT leasesapproximately 20,000 square feet of office and laboratory space inPhillipsburg, New Jersey. The lease has an initial five-year term which expiresin August 2011. Under the lease agreement, AVANT is obligated to pay anannual rent of approximately $347,700 plus certain common area maintenancecosts. Aggregate rental payments including common area maintenance costs were$173,826 for the six-month periods ended June 30, 2008 and 2007.

 

As an incentive to enterinto a lease agreement with the Phillipsburg landlord, the Company receivedfour months of rent-free occupancy of the facilities, and the Company isamortizing this over the original five-year term of the lease. In addition, thelandlord provided the Company an allowance on future rent payments towardstenant improvements that the Company made to the facilities and that credit isalso included in deferred rent and is being amortized over the lease term.Construction of the tenant improvements was completed in August 2006.

 

The Company entered intoa letter of credit facility with a national U.S. financial institution for$177,000, which is collateralized by a security deposit for the leased facilityin Phillipsburg, New Jersey. The total amount of the security deposit isrecorded as other assets on the Company’s consolidated balance sheets.

 

*(D)         *Commitments***to Licensors under CertainIntellectual Property License Agreements*

 

The Company has certainobligations to pay licensors based on payments received by the Company from itslicensees.  The Company believes that it has in the past, and iscontinuing to satisfy its payment obligations to its licensors based on theCompany's interpretation of its license agreements with those licensors. If a licensor was to disagree with the calculation of payments made by theCompany pursuant to the license agreements, then the Company may be required tomake additional license payments to one or more licensors.  Although nodisagreements have arisen, there can be no assurances that a licensor will notdispute the Company's interpretation of those license agreements or theCompany's calculation of payments due.  Accordingly, the Company may havea contingent liability, in an amount which it cannot determine with precision,based on the risk that such additional payments may have to be made.

 

*(E)         Commitments for theOperating Leases*

 

Obligations for base rentand common area maintenance costs (CAM) under these and other non-cancelableoperating leases as of June 30, 2008 are approximately as follows:

 
| **Year ending December 31,** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2008 (remaining six months)                 |       | $          | 1,019,500  |   |
| 2009                                        |       | 2,458,400  |       |
| 2010                                        |       | 2,531,600  |       |
| 2011                                        |       | 2,450,600  |       |
| 2012                                        |       | 2,159,900  |       |
| 2013 and thereafter                         |       | 9,692,200  |       |
| Total minimum lease payments                |       | $          | 20,312,200 |   |

 

The Company’s total rentand CAM for all operating leases was approximately $580,900 and $128,900 forthe three- month periods and $1,137,400 and $257,800 for the six-month periodsended June 30, 2008 and 2007, respectively.

 

**(15)****         **SeveranceArrangements****

 

In May 2008,Dr. Una S. Ryan, who had been the Chief Executive Officer and President of theCompany, informed the Company’s Board of her intention to depart from theCompany pending negotiation of the terms of her separation.  The Company and Dr. Ryan executed aseparation agreement effective July 16, 2008 (the “Separation Agreement”)setting forth such terms regarding Dr. Ryan's separation from the Company.  The Separation Agreement provides, amongother things, for: (i) a lump sum cash payment of $1,323,203, plus interest inthe amount of $10,784, which is payable on November 8, 2008; (ii) a mutualgeneral release; (iii) payment of insurance premiums under COBRA for 18 months;(iv) reimbursement of attorneys' fees up to $30,000 and (v) vesting of optionsto purchase 153,125 shares of Company common stock (of the options to purchase612,500 shares of Company common stock which had been granted to Dr. Ryan onMarch 7, 2008).  The remainder of Dr.Ryan’s options terminated as of July 16, 2008. The Separation Agreement also provided for Dr. Ryan's resignation,effective July 16, 2008, from her position as a director of the Company andeach of its subsidiaries in connection with the execution of the Separation Agreement.  At June 30, 2008, the Company accruedthe full amount of Dr. Ryan’s lump sum severance payment of $1,323,203, whichwas consistent with the terms of her existing employment agreement, a prorateproportion of the interest payable, the present value of the expected COBRAbenefits totaling $31,485, and reimbursable attorney fees of $30,000 as theseexpenses were determinable and probable at June 30, 2008.  

 

With respectto Dr. Ryan’s options, the Company concluded that stock-based compensationexpense for the fully vested options to be granted to Dr. Ryan in connectionwith the Separation Agreement was appropriately recorded in July 2008 when thecriteria for establishing a grant date under SFAS 123(R) were met.

 

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**The Company and Dr. RobertF. Burns, formerly the President and Chief Executive Officer of Celldex,entered into a separation and mutual release agreement dated as of October 19,2007, under which Dr. Burns’ employment was terminated, effective as of February 15,2008. Until such date, Dr. Burns had no obligation to render services toCelldex, although he was to hold himself available to consult with Celldex bytelephone at reasonable times. As severance, Celldex was obligated to pay to Dr. Burnsthe sum of £33,333 for nine consecutive months, commencing with the firstpayment on March 15, 2008, and a payment of £100,000 on December 15,2008, in each case less applicable withholdings and other customary payrolldeductions. Dr. Burns is also entitled to the continuation of benefitsuntil February 15, 2010. A portion of Dr. Burns’ stock options becamefully vested and exercisable on February 15, 2008, and he may exercisethem for up to three years following that date. Dr. Burns and Celldexprovided one another with mutual releases under such separation and mutualrelease agreement.**

 

As Dr. Burns has notprovided substantive service to the Company since October 19, 2007, theseseverance benefits, which in the aggregate equal $1,014,017, havebeen accrued in the consolidated financial statements as of December 31,2007. In addition, stock-based compensation has been adjusted for themodification of Dr. Burns’ stock option awards in accordance with SFAS No.123(R).

 

The following table setsforth an analysis of the severance costs, which are included in accruedliabilities in the consolidated balance sheet as of June 30, 2008 and December 31,2007:

 
| ** **             | ** ** | **Balance at  December 31,** | ** ** | ** **  | ** ** | ** **         | ** ** | **Balance at  June 30,** | ** ** |
|------------------------|------------|----------------------------------------|------------|-------------|------------|--------------------|------------|------------------------------------|------------|
| ** **             | ** ** | **2007**                               | ** ** | **Charges** | ** ** | **Paid Cash** | ** ** | **2008**                           | ** ** |
|                   |       |                                   |       |        |       |               |       |                               |       |
| Severance and benefits |       | $                                      | 1,014,017  |        | $          | 1,377,022          |       | $                                  | (404,180   | ) | $ | 1,986,859 |   |
|                        |            |                                        |            |             |            |                    |            |                                    |            |  |  |  |  |

 

**(16)****         **Merger ofAVANT and Celldex****

 

On March 7, 2008,AVANT completed the Merger with Celldex with Celldex considered the accountingacquirer, even though AVANT issued common stock and was the surviving legalentity in the transaction. AVANT issued 8,309,420 shares of AVANT’s commonstock in exchange for all of the outstanding capital stock of Celldex, on thebasis of 4.65 shares of AVANT common stock for each share of Celldex commonstock such that Celldex shareholders owned 58% of AVANT common stock on a fullydiluted basis and AVANT shareholders retained 42%. AVANT also issued 351,692shares having a value of $3,038,617 in settlement of a payable due Medarex. Thepurchase price of $47,570,867 and represents the shares attributable to AVANTshareholders and consisted of (i) the 6,265,889 shares outstanding ofAVANT common stock on the effective date of the Merger valued at $46,875,372and (ii) estimated transaction costs totaling $695,495.

 

The acquisition has beenaccounted for as a purchase with Celldex the accounting acquirer. Consequently,the operating results of AVANT since March 7, 2008 have been included inthe consolidated results of operations. The purchase price was allocated to theacquired tangible and identifiable intangible assets and assumed liabilities,based upon their fair value at the date of acquisition, as follows:

 
| Tangible assets acquired                                     |   | $          | 34,959,482 |   |
|--------------------------------------------------------------|--------|------------|------------|--------|
| Less: Liabilities assumed                                    |   | (3,945,067 | )          |
| Net tangible assets acquired                                 |   | $          | 31,014,415 |   |
| Intangible assets acquired:                                  |   |       |       |
| Core Technology                                              |   | 897,249    |       |
| Developed Technology                                         |   | 273,796    |       |
| Strategic Partner Agreement                                  |   | 629,499    |       |
| In-Process Research and Development  (“IPR&D”) |   | 14,755,908 |       |
| Total                                                        |   | $          | 47,570,867 |   |

 

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The values assigned tothe intangible assets acquired, including the IPR&D, were determined basedon fair market value using a risk adjusted discounted cash flow approach. Fairvalues were then reduced by $6,041,597 of negative goodwill. AVANT is abiotechnology enterprise and its resources are substantially devoted toresearch and development at the date of the Merger. Management is responsiblefor determining the fair value of the acquired IPR&D.

 

Each of AVANT’s threesignificant research and development projects in-process were valued throughdetailed analysis of product development data concerning the stage ofdevelopment, time and resources needed to complete the project, expectedincome-generating ability and associated risks. The value of IPR&D wasdetermined by estimating the costs to develop the purchased in-processtechnology into commercially viable products, estimating the net cash flowsfrom such projects and discounting the net cash flows back to their presentvalues. The probability of success and discount rates used for each projecttake into account the uncertainty surrounding the successful development andcommercialization of the purchased in-process technology. The resulting netcash flows for these projects were based on management’s best estimates ofrevenue, cost of sales, research and development costs, selling, general andadministrative costs, and income taxes for each project and the net cash flowsreflect assumptions that would be used by market participants.

 

The significantassumptions underlying the valuations included potential revenues, costs ofcompletion, the timing of product approvals and the selection of appropriateprobability of success and discount rates. None of AVANT’s IPR&D projectshave reached technological feasibility nor do they have any alternative futureuse. Consequently, in accordance with U.S. GAAP, the fair value allocated toIPR&D was charged as an expense in the Company’s consolidated financialstatements as of the date of acquisition. The remaining acquired intangibleassets arising from the acquisition are being amortized on a straight linebasis over their estimated lives, which range from 4.5 to 8 years.

 

As of June 30, 2008,the technological feasibility of the projects had not yet been reached and nosignificant departures from the assumptions included in the valuation analysishad occurred. Substantial additional research and development will be requiredprior to reaching technological feasibility. In addition, each product needs tosuccessfully complete a series of clinical trials and to receive FDA or otherregulatory approval prior to commercialization. The Company is also dependentupon the activities of its collaborators in developing, manufacturing andmarketing its products. There can be no assurance that these projects will everreach feasibility or develop into products that can be marketed profitably, norcan there be assurance that AVANT and its collaborators will be able todevelop, manufacture and commercialize these products before AVANT’scompetitors. If these products are not successfully developed and do not becomecommercially viable, the Company’s financial condition and results ofoperations could be materially affected.

 

The following unauditedpro forma financial summary is presented as if the operations of AVANT andCelldex were combined as of the beginning of the periods being reported on. Theunaudited pro forma combined results are not necessarily indicative of theactual results that would have occurred had the acquisition been consummated atthat date or of the future operations of the combined entities. The followingpro forma financial summary includes charges for in-process research anddevelopment of $14,755,908 and $14,440,009 for 2008 and 2007, respectively,which are material non-recurring charges.

 
| **Six Months Ended June 30,** | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|---------------------------------------------------|------------|-------------|------------|-------------|------------|
| Revenue                                           |       | $           | 3,669,867  |        | $          | 2,041,133 |   |
| Net loss                                          |       | (37,418,099 | )          | (31,914,887 | )          |
| Basic and diluted net loss per share              |       | (2.50       | )          | (2.15       | )          |
|                                                   |            |             |            |             |            |  |  |

 

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***Safe HarborStatement under the Private Securities Litigation Reform Act of 1995:****  This quarterly report on Form 10-Qcontains forward-looking statements within the meaning of the federalsecurities laws. You can identify forward-looking statements by the use of the words“believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “will,” “should,”“may,” “plan,” “intend,” “assume” and other expressions which predict orindicate future events and trends to and which do not relate to historicalmatters. You should not rely on forward-looking statements, because theyinvolve known and unknown risks, uncertainties and other factors, some of whichare beyond the control of AVANT. These risks, uncertainties and other factorsmay cause the actual results, performance or achievements of AVANT to bematerially different from the anticipated future results, performance orachievements expressed or implied by the forward-looking statements.*

 

*There are a number of important factors that couldcause the actual results to differ materially from those expressed in anyforward-looking statements made by AVANT. These factors include, but are notlimited to: (1) the successful post-merger integration of the business,multiple technologies and programs; (2) the ability to adapt AVANT’s APCTargeting Technology*TM* to develop new, safe and effective vaccinesagainst oncology and infectious disease indications; (3) the ability toadapt AVANT’s vectoring systems to develop new, safe and effective orallyadministered vaccines against disease causing agents; (4) the ability tosuccessfully complete product research and further development, includinganimal, pre-clinical and clinical studies, and commercialization of CDX-110,CDX-1307, CholeraGarde*®* (Peru-15), Ty800, ETEC E. coli vaccine, andother products and AVANT’s expectations regarding market growth; (5) thecost, timing, scope and results of ongoing safety and efficacy trials ofCDX-110, CDX-1307, CholeraGarde*®* (Peru-15), Ty800, ETEC E. coli vaccine andother preclinical and clinical testing; (6) the ability to negotiatestrategic partnerships or other disposition transactions for AVANT’scardiovascular programs, including TP10 and CETi; (7) the ability of AVANTto manage multiple clinical trials for a variety of product candidates; (8) thevolume and profitability of product sales of Megan*® *Vac 1, Megan*® *Egg and other future products; (9) Glaxo’sprocess of obtaining regulatory approval for the sale of Rotarix*®* in major commercial markets, aswell as the timing and success of worldwide commercialization of Rotarix*®* or Glaxo, which is not withinour control, (10) Glaxo’s strategy and business plans to launch and supplyRotarix*®* worldwide, including in the U.S. and othermajor markets, which is not within our control, and its payment of royalties toAVANT; (11) Pfizer’s and our strategy and business plans concerning thecontinued development and commercialization of CDX-110; (12) AVANT’sexpectations regarding its technological capabilities and expanding its focusto broader markets for vaccines; (13) changes in existing and potentialrelationships with corporate collaborators; (14) the availability, cost,delivery and quality of clinical and commercial grade materials produced atAVANT’s own manufacturing facility or supplied by contract manufacturers andpartners; (15) the timing, cost and uncertainty of obtaining regulatoryapprovals; (16) AVANT’s ability to develop and commercialize products beforecompetitors that are superior to the alternatives developed by suchcompetitors; (17) AVANT’s ability to retain certain members of management;(18)AVANT’s expectations regarding research and development expenses and generaland administrative expenses; (19) AVANT’s expectations regarding cash balances,capital requirements, anticipated royalty payments (including those from PaulRoyalty Fund), revenues and expenses, including infrastructure expenses;(20) the ability to obtain substantial additional funding; (21) AVANT’sbelief regarding the validity of its patents and potential litigation; and (22)certain other factors that might cause AVANT’s actual results to differmaterially from those in the forward-looking statements including those setforth under the headings “Business,” “Risk Factors” and Management’s Discussionand Analysis of Financial Condition and Results of Operations” in AVANT’sannual report on Form 10-K for the year ended December 31, 2007 andother reports that Avant files with the Securities and ExchangeCommission.  You should carefully reviewall of these factors, and you should be aware that there may be other factorsthat could cause these differences. These forward-looking statements were basedon information, plans and estimates at the date of this report, and we do notpromise to update any forward-looking statements to reflect changes inunderlying assumptions or factors, new information, future events or otherchanges.*

 

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**Item 2.****Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

As used herein, the terms“we,” “us,” “our,” the “Company”, or “AVANT” refer to AVANT Immunotherapeutics, Inc.,a Delaware corporation organized in 1983 and its subsidiaries: CelldexTherapeutics, Inc. (“Celldex”), Celldex Therapeutics, Ltd. (“Celldex Ltd”)and Megan Health, Inc. (“Megan”). AVANT’sprincipal activity since our inception has been research and productdevelopment conducted on our own behalf, as well as through joint developmentprograms with several pharmaceutical companies and other collaborators.

 

## **CRITICAL ACCOUNTING POLICIES**

##  

The Company’s accountingpolicies are set forth in Note 3 to these unaudited consolidated financialstatements. The Company considers its most critical accounting policies includerevenue recognition for agreements entered into with various collaborators, theamortization policy for acquired intangible assets and the estimates of costsincurred and assumptions made in recording accrued clinical research andcontract manufacturing costs and assumptions made in calculating the fair valueof stock-based compensation expense.

 

## **OVERVIEW**

##  

We are abiopharmaceutical company that uses novel applications of immunology to developproducts for the prevention and treatment of diseases. We are developing abroad portfolio of vaccines and targeted immunotherapeutics addressing a widerange of applications including oncology, infectious and inflammatory diseases.These include therapeutic cancer vaccines, monoclonal antibodies, single-dose,oral vaccines that protect against important disease-causing infectious agentsand a treatment to reduce complement-mediated tissue damage. We are advancing arobust pipeline of clinical and preclinical product candidates, the mostadvanced of which are for treatment of various cancers. Our lead programs aretherapeutic cancer vaccines designed to instruct the patient’s immune system torecognize and destroy cancer cells.

 

Our strategy is todemonstrate proof-of-concept for our product candidates before leveraging theirvalue through partnerships or, in appropriate situations, continuing late stagedevelopment ourselves. Demonstrating proof-of-concept for a product candidategenerally involves bringing it through Phase 1 clinical trials and one ormore Phase 2 clinical trials so that we are able to demonstrate, based onhuman trials, good safety data for the product candidate and some dataindicating its effectiveness. Our current collaborations encompass thecommercialization of an oral human rotavirus vaccine, the development of oralcholera, typhoid fever, ETEC and HIV vaccines, and vaccines addressed to humanfood safety and animal health. Our product candidates address large marketopportunities for which we believe current therapies are inadequate ornon-existent.

 

We are targeting itsefforts where it can add the greatest value to the development of its productsand technologies. Its goal is to demonstrate clinical proof-of-concept for eachproduct, and then seek excellent partners to help see those products through tocommercialization. We thus leverage the value of its technology portfoliothrough corporate, governmental and non-governmental partnerships. Thisapproach allows us to maximize the overall value of its technology and productportfolio while best ensuring the expeditious development of each individualproduct.

 

On March 7, 2008, weclosed the merger (the” Merger”) contemplated by the Agreement and Plan ofMerger dated October 19, 2007 by and among AVANT, Callisto MergerCorporation (“Merger Sub”), a wholly owned subsidiary of AVANT, and Celldex(the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, MergerSub merged with and into Celldex, with Celldex as the surviving company and awholly-owned subsidiary of AVANT. The total value of the transaction wasapproximately $75 million. Approximately 8.7 million shares were issued to theformer Celldex shareholders in connection with the Merger. The Merger created aNASDAQ-listed, fully-integrated and diversified biopharmaceutical company witha deep pipeline of product candidates addressing high-value indicationsincluding oncology, infectious and inflammatory diseases. Celldex and AVANTshareholders own 58% and 42% of the combined company on a fully diluted basis,respectively.

 

Our board of directorsapproved a 1-for-12 reverse stock split of AVANT’s common stock, which becameeffective on March 7, 2008. As a result of the reverse stock split, eachtwelve shares of common stock were combined and reclassified into one share ofcommon stock and the total number of shares outstanding was reduced fromapproximately 180 million shares (including the shares issued to Celldexstockholders in the Merger) to approximately 15 million shares.

 

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The Merger was accountedfor using the purchase method of accounting and was treated as an acquisitionby Celldex of AVANT with Celldex being considered the accounting acquirer basedon the application of criteria specified in Statement of Financial AccountingStandards “SFAS” No. 141,*Business Combinations,* (“SFAS 141”), even though AVANT wasthe issuer of common stock and the surviving legal entity in the transaction.Under the purchase method of accounting, the deemed purchase price wasallocated to AVANT’s underlying tangible and identifiable intangible assetsacquired and liabilities assumed based upon their respective fair values withany excess deemed purchase price allocated to goodwill. However, the valuationanalysis conducted by the Company determined that the fair value of assetsacquired and the fair value of liabilities assumed by Celldex exceeded theestimated purchase price for AVANT, resulting in negative goodwill ofapproximately $6.0 million. In accordance with SFAS 141*,* thenegative goodwill has been allocated to all of the acquired assets which arenon-financial and non-current assets, including property and equipment,identifiable intangible assets, and in-process research and development. SeeNote 16 to the Company’s consolidated financial statements for additionalinformation.

 

Because Celldex wasdetermined to be the acquirer for accounting purposes, the historical financialstatements of Celldex became the historical financial statements of theCompany. Accordingly, the financial statements of the Company prior to theMerger reflect the financial position, results of operations and cash flows ofCelldex, which, during the historical periods presented in the accompanyingconsolidated financial statements, was majority-owned by Medarex, Inc. (“Medarex”).Following the Merger, the financial statements of the current period reflectthe financial position, results of operation and cash flows of the Company. Theresults of operations of AVANT are included in the results of operations of theCompany beginning March 8, 2008. Accordingly, except as otherwisediscussed below, this report reflects the financial condition, results ofoperations and liquidity of the Company at June 30, 2008 and historically ofCelldex on a stand-alone basis for all periods prior to March 8, 2008. Thefinancial condition, results of operations and liquidity of the Company as ofthe three- and six-month periods ended June 30, 2008 and 2007 may not beindicative of the Company’s future performance or reflect what the Company’sfinancial conditions, results of operations and liquidity would have been hadthe Merger been consummated as of January 1 of each respective year or hadthe Company operated as a separate, stand-alone entity during the periodspresented.

 

## **RESEARCH AND DEVELOPMENT ACTIVITIES**

##  

Our products are derivedfrom a broad set of complementary technologies which have the ability toutilize the human immune system and enable the creation of preventative andtherapeutic agents. We are using these technologies to develop vaccines andtargeted immunotherapeutics that prevent or treat cancer and disease caused byinfectious organisms, and treatment vaccines that modify undesirable activityby the body’s own proteins or cells. A number of our immunotherapeutic andvaccine product candidates are in various stages of clinical trials. We expectthat a large percentage of our research and development expenses will beincurred in support of our current and future clinical trial programs. Below isa table of our currently active programs:

 

**CURRENT PROGRAMS AND PARTNERSHIPS**

 
| **Technology**              | ** ** | **Product**                                   | ** ** | **Indication/Field**                                                                               | ** ** | **Partner**                       | ** ** | **Status**                   |
|-----------------------------|------------|-----------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|------------------------------|
|                        |       |                                          |       |                                                                                               |       |                              |       |                         |
| **ONCOLOGY**                |       | CDX-110                                       |       | Glioblastoma Multiforme                                                                            |       | Pfizer                            |       | Phase 2b/3                   |
|                        |       | CDX-1307                                      |       | Colorectal, Bladder, Pancreas, Ovarian and Breast Tumors                                           |       | —                            |       | Phase 1                      |
|                        |       | CDX-1401                                      |       | Solid Tumors                                                                                       |       | —                            |       | Pre-clinical                 |
| ** **                  | ** ** | ** **                                    | ** ** | ** **                                                                                         | ** ** | ** **                        | ** ** | ** **                   |
| **INFECTIOUS DISEASE**      |       | CholeraGarde®Ty800                       |       | Cholera  Typhoid fever                                                                             |       | IVI  NIH                          |       | Phase 2b  Phase 2  |
|                        |       | ETEC  Paratyphoid                             |       | Enterotoxigenic *E coli*  infectionParatyphoid fever                                               |       | NIH  —                       |       | Phase 1  Pre-clinical        |
|                        |       | CDX-2401                                      |       | HIV                                                                                                |       | Rockefeller University            |       | Pre-clinical                 |
|                        |       |                                          |       |                                                                                               |       |                              |       |                         |
| **INFLAMMATORY****DISEASE** |       | TP10                                          |       | Transplantation  AMD                                                                               |       | —  —                    |       | Phase 2  Pre-clinical   |
| ** **                  |       |                                          |       |                                                                                               |       |                              |       |                         |
| MARKETED PRODUCTS           |       | Rotarix®Megan®Vac 1  Megan®Egg |       | Rotavirus  infection Salmonella infection in chicken  Salmonella infection in laying hens and eggs |       | GlaxoSmithKline  Lohmann  Lohmann |       | Marketed  Marketed  Marketed |

 

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**PROGRAM DEVELOPMENTS**

 

**A.****                                   CancerVaccine Development Programs**

 

*CDX-110:*  Our lead clinical development program,CDX-110, is a peptide-based immunotherapy that targets the tumor specificmolecule called EGFRvIII, a functional variant of the naturally expressedepidermal growth factor receptor (“EGFR”), a protein which has been wellvalidated as a target for cancer therapy. Unlike EGFR, EGFRvIII is not presentin normal tissues, and has been shown to be a transforming oncogene that candirectly contribute to the cancer cell growth.

 

EGFRvIII is commonlypresent in glioblastoma multiforme, or GBM, the most common and aggressive formof brain cancer, and has also been observed in various other cancers such asbreast, ovarian, prostate, colorectal, and head & neck cancer. Withour partner Pfizer, we are currently pursuing the development of CDX-110 forGBM therapy, and plan to expand the clinical development into other cancersthrough additional clinical studies.

 

Initial clinicaldevelopment of EGFRvIII immunotherapy was lead by collaborating investigatorsat the Brain Center at Duke Comprehensive Cancer Center and at M.D. AndersonCancer Center in Houston, Texas. The results from the Phase 1 (VICTORI) andPhase 2a (ACTIVATE) studies, which enrolled 16 and 21 patients, respectively, havedemonstrated a significant increase in the time to disease progression (greaterthan 113%) in the patients who were vaccinated, and also in overall survivalrates (greater than 100%), both relative to appropriately matched historicalcontrols. An extension of the Phase 2a program (ACT II) at the same twoinstitutions has enrolled 23 additional GBM patients treated in combinationwith temozolomide (the current standard of care). Preliminary results from thisstudy (ACT II) currently estimates median overall survival to be 33.1 months,although the median has not yet been reached. The survival of a matchedhistorical control group was 14.3 months and a subgroup treated withtemozolomide (TMZ) of 15.2 months, with a p value = 0.0078. Overall time toprogression for CDX-110 was 16.6 months compared with 6.4 months for thehistorical control group.

 

We initiated aPhase 2b/3 randomized study of CDX-110 combined with standard of care,temozolomide,versus standard of care alone in patients with GBM in May 2007. We intendto open a total of 29 sites in the United States and Canada during 2008. TheFDA has granted orphan drug designation for CDX-110 for the treatment ofEGFRvIII expressing GBM as well as fast track designation.

 

On April 16, 2008,AVANT and Pfizer, Inc. (“Pfizer”) entered into a License and DevelopmentAgreement (the “Pfizer Agreement”) under which Pfizer was granted an exclusiveworldwide license to CDX-110.  The Pfizer Agreement also gives Pfizer exclusive rights to the use of EGFRvIIIvaccines in other potential indications. Under the Pfizer Agreement,Pfizer made an upfront payment to AVANT of $40 million and made a $10 millionequity investment in AVANT. Pfizer will fund all development costs for theseprograms. AVANT is also eligible to receive milestone payments exceeding $390million for the successful development and commercialization of CDX-110 andadditional EGFRvIII vaccine products, as well as royalties on any productsales. The Pfizer Agreement received clearance under the Hart-Scott-RodinoAntitrust Improvements Act of 1976 (as amended) in the second quarter of 2008.

 

*CDX-1307:*  AVANT has developed an APC TargetingTechnologyTM thatutilizes fully human monoclonal antibodies to directly target specialized typesof immune system cells, known as antigen presenting cells. AVANT is advancingseveral clinical and preclinical product candidates that use APC TargetingTechnologyTM to manipulatecritical types of antigen presenting cells, known as dendritic cells andmacrophages, which are key cells within the immune system. Because these cellsare largely responsible for initiating the immune system’s disease-fightingmechanisms, AVANT believes that product candidates using AVANT’s technologywill create more potent immune responses than standard vaccination strategies.

 

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AVANT’s lead APCTargeting TechnologyTM product candidate, CDX-1307, is in developmentfor the treatment of epithelial tumors such as colorectal, pancreatic, bladder,ovarian and breast cancers. CDX-1307 targets the beta chain of human chorionicgonadotropin, known as hCG-B, which is an antigen often found in epithelialtumors. The presence of hCG-B in these cancers correlates with a poor clinicaloutcome, suggesting that this molecule may contribute to tumor growth. Normaladult tissues have minimal expression of hCG-B; therefore, targeted immuneresponses are not expected to generate significant side effects.

 

Thirty-five(35) patients with epithelial cancers have been treated in Phase 1clinical trials of CDX-1307 at the Duke Comprehensive Cancer Center. Theimmunotherapy has been well tolerated, and one patient with pancreatic cancerdemonstrated a reduction in tumor burden, with only minor adverse eventsobserved (reddening at the injection site). The investigators at the Duke ComprehensiveCancer Center were awarded a two year $500,000 grant from the Avon Foundationand the National Cancer Institute to support Phase 1 work in breastcancer. The safety of CDX-1307 in combination with defined immune stimulatorswill next be evaluated with intent to enter Phase 2 research in 2009.

 

*CDX-1401:*  AVANT is developing CDX-1401, anotherAPC-Targeting vaccine, for treatment of malignant melanoma and a variety ofsolid tumors which express the proprietary cancer antigen NY-ESO-1, which AVANTlicensed from the Ludwig Institute for Cancer Research in 2006. AVANT believesthat preclinical studies have shown that CDX-1401 is effective for activationof human T-cell responses against NY-ESO-1. Further preclinical studies andmanufacturing process optimization are in progress, with an IND filing plannedfor the fourth quarter of 2008.

 

**B.****                                   InfectiousDisease Development Programs**

 

Utilizing its *Cholera*- and*Salmonella*-vectoreddelivery technologies together with its drying and preservation technologies, AVANThas been developing a new generation of vaccines that have an ideal productprofile: safe, effective, oral, single-dose, rapidly protective and increasedthermostability.

 

*CholeraGarde® Vaccine:*  CholeraGarde® represents AVANT’s mostadvanced bacterial vaccine program designed to be a safe, effectivesingle-dose, oral vaccine. In December 2002, the International VaccineInstitute (“IVI”) initiated a Phase 2 study of CholeraGarde® inBangladesh, where cholera is endemic. In July 2005, Bangladesh studyresults in children and infants showed CholeraGarde® to be well tolerated andhighly immunogenic, with 77% of children aged 9 months to 5 years generatingprotective immune responses.  Previouslypublished results showed the vaccine to be well tolerated and immunogenicagainst the cholera organism in the adult portion of this trial.

 

In August 2006, IVIreceived $21 million in funding from the Bill & Melinda GatesFoundation for a Cholera Vaccine Initiative (“CHOVI”), which will includeconducting further clinical trials of CholeraGarde®.  IVI plans to conduct Phase 2 clinical trialsof CholeraGarde® in Bangladesh, India and Thailand beginning in the second halfof 2008 followed by Phase 3 field studies. IVI will be purchasing clinicalmaterials produced at AVANT’s Fall River, MA manufacturing facility for thetrials.

 

AVANT has decided tofocus only on the fully-funded opportunity for CholeraGarde® in the developing world. AVANT has determinedthat the high clinical costs of its own Phase 3 clinical trials in the UnitedStates and the investment in a commercial manufacturing facility are notjustified by the limited market opportunities for a cholera vaccine indeveloped countries at this time.

 

*Ty800 Typhoid Fever Vaccine:*  AVANT has developed an oral vaccine to offerrapid, single-dose protection against *Salmonella typhi*, the cause oftyphoid fever. Ty800 is targeted for both the travelers’ market and globalhealth needs. In 2006, the National Institute of Allergy and Infectious Disease(“NIAID”) of the National Institutes of Health (“NIH”) initiated aPhase 1/2 in-patient dose-ranging clinical trial aimed at demonstratingthe safety and immunogenicity of the Ty800 typhoid fever vaccine. NIAID fundedthe production of Ty800 vaccine for clinical testing and completed thePhase 1/2 trial at a NIH-funded clinical site in 2007. Results showed thesingle-dose, oral vaccine to be well tolerated and immunogenic, with over 90%of vaccinated subjects generating immune responses. AVANT initiated its ownsponsored Phase 2 trial of Ty800 in July 2007. Preliminary resultsreported in April 2008 from the study showed that the single-dose, oralvaccine was well tolerated and immunogenic, demonstrating that the desiredimmune response was achieved. Incidence of reactogenicity symptoms and adverseevents post-vaccination were similar to placebo. Importantly, immunogenicresponse was dose-dependent. Positive immune response or seroconversion(prospectively defined as a 4-fold increase in anti-LPS titers over pre-doselevel) rates were 65.5% (36/55) and 80% (44/55) in the low and high dosegroups, respectively, and was significantly (p<0.001) higher than placebo.

 

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*Travelers’Vaccines:*  AVANT hasseveral travelers’ vaccine programs in pre-clinical development—all addressingimportant causes of serious diarrheal diseases worldwide. In November 2007,AVANT entered into an agreement with the Division of Microbiology andInfectious Diseases of the NIAID, whereby NIAID will sponsor a Phase 1study of AVANT’s investigational single-dose, oral vaccine designed to offercombined protection against both enterotoxigenic *Escherichia coli* (ETEC) and cholera. In June 2008,NIAID initiated a Phase 1 trial of the ETEC vaccine candidate atCincinnati Children’s Hospital Medical Center. AVANT’s long-term goal is todevelop a combination vaccine containing Cholera, Ty800, *S. paratyphi* and ETEC as a “super entericvaccine” to address the travelers’ market.

 

*CDX-2401:*  AVANT is also using its APC TargetingTechnologyTM to develop vaccines against infectious disease.  The lead program is CDX-2401, anAPC-Targeting prophylactic vaccine, aimed at providing protection frominfection with HIV, the virus known to cause AIDS. This program is in a Bill &Melinda Gates Foundation funded partnership with collaborators at RockefellerUniversity in New York City, who have shown in model systems that protectiveimmunity can be induced with such a vaccine. Preclinical studies and manufacturingdevelopment are in progress and AVANT, with its collaborators, plans toinitiate Phase 1 clinical studies in the first half of 2009.

 

**C.****                                   InflammatoryDisease Programs**

 

*TP10:*  We have been developing immunotherapeuticsthat inhibit a part of the immune system called the complement system. Thecomplement system is a series of proteins that are important initiators of thebody’s acute inflammatory response against disease, infection and injury.Excessive complement activation also plays a role in some persistentinflammatory conditions. Our lead compound, TP10, a soluble form of naturallyoccurring Complement Receptor 1, has effectively shown to inhibit theactivation of the complement cascade in animal models and in human clinicaltrials. We believe that regulating the complement system could have therapeuticand prophylactic applications in several acute and chronic conditions,including reperfusion injury from surgery or ischemic disease, organtransplant, multiple sclerosis, rheumatoid arthritis, age-related maculardegeneration (“AMD”), and myasthenia gravis. AVANT is currently defining the most appropriate clinical developmentpath for TP10.

 

**D.****                                   MarketedProducts**

 

*RotavirusVaccine:*  Rotavirus isa major cause of diarrhea and vomiting in infants and children. In 1997, AVANTlicensed its oral rotavirus strain to Glaxo. All of the ongoing development forthis program is being conducted and funded by Glaxo. Glaxo gained approval forits rotavirus vaccine, Rotarix®, in Mexico in July 2004,which represented the first in a series of worldwide approvals and commerciallaunches for the product. Glaxo subsequently launched Rotarix® in additional LatinAmerican and Asian Pacific countries during 2005 – 2007. Additionally, Glaxofiled for market approval with the European regulatory authorities in late2004, which triggered a $2 million milestone payment to AVANT. In February 2006,the European Commission granted approval of Rotarix® in the European Union, which triggered a $4million milestone payment from Glaxo. On April 3, 2008, Rotarix® received approval fromthe FDA for the prevention of rotavirus gastroenteritis in infants. FDAapproval triggered a $1.5 million milestone payment from Glaxo, of which$750,000 was retained by AVANT. AVANT licensed-in the rotavirus strain in 1995and owes a license fee of 30% to Cincinnati Children’s Hospital Medical Center(“CCH”) on net royalties received from Glaxo. In May 2005, AVANT enteredinto an agreement whereby an affiliate of Paul Royalty Fund (“PRF”) purchasedan interest in the net royalties AVANT will receive on worldwide sales ofRotarix® (see Note10(A) of our unaudited consolidated financial statements). To date, AVANThas received $50 million in milestone payments under the PRF agreement. The PRFagreement provides for a $10 million milestone payment to AVANT if Rotarix® is launched in the UnitedStates in 2008. AVANT expects to achieve this milestone in the second half of2008. Also under the PRF agreement, AVANT has retained 50% of any Glaxomilestone payments received beginning on the effective date of the agreementwith PRF, with 70% of the remaining balance payable to PRF and 30% of theremaining balance payable to CCH, respectively.

 

In September 2006,AVANT received notice from Glaxo that Glaxo would begin paying royalties onsales of Rotarix® vaccine at the lower of two royalty ratesunder their 1997 license agreement. Glaxo’s decision to pay the lower royaltyrate (which is 70% of the full rate) is based upon Glaxo’s assertion thatRotarix® is notcovered by the patents Glaxo licensed from AVANT in Australia and certainEuropean countries. AVANT is analyzing various options to counter Glaxo’sassertions and protect AVANT’s rights.

 

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If Glaxo’s position stands, the royalties to which PRFis entitled will no longer be limited by a $27.5 million annual threshold,which AVANT projected may have been reached in later years as sales of Rotarix® increased. Irrespective of Glaxo’s position,AVANT will still retain the royalties on worldwide sales of Rotarix® once PRF receives 2.45 times the aggregatecash payments it makes to AVANT, though the potential amount of such residual royaltieswill be lower if Glaxo’s position stands.

 

*Megan*®*Vac***1**and**Megan**®*Egg***Vaccines:** On December 1, 2000, AVANT acquired all of the outstanding capitalstock of Megan. Megan has commercialized three veterinary vaccines; ArgusTM SC,licensed by the United States Department of Agriculture (“USDA”) in March 1998and marketed by Intervet, Inc., and Megan®Vac 1 andMegan®Egg, licensed by the USDA in November 1998 and2003, respectively, and marketed by Lohmann Animal Health International (“LAHI”).Because AVANT’s focus is on human health care, in September 2002, weappointed LAHI as the exclusive distributor of our Megan Health poultryvaccines in North America. LAHI performs all marketing and distributionactivities of Megan’s marketed products for the commercial poultry market andpays us product royalties.

 

## **TECHNOLOGY LICENSING**

##  

AVANT has adopted abusiness strategy of out-licensing technology that does not match itsdevelopment focus or where it lacks sufficient resources for the technology’sefficient development or where certain uses of the technology are outside ofAVANT’s focus. For example, when AVANT acquired Megan, it entered into alicensing agreement in December 2000 with Pfizer’s Animal Health Divisionto leverage the value of Megan’s oral vaccine technology in a significantmarket opportunity (animal health and human food safety) outside of AVANT’s ownfocus on human health care. Under this Pfizer agreement, AVANT may receiveadditional milestone payments of up to $3 million based upon attainment ofspecified milestones. AVANT may receive royalty payments on eventual productsales. The term of this agreement is through the expiration of the last of thepatents covered by the agreement.

 

**RESULTS OF OPERATIONS**

 

**Three-MonthPeriod Ended****June 30****, 2008 as Compared****with the Three-Month Period Ended June 30****, 2007**

 

AVANT reported aconsolidated net loss of $10,260,510, or $0.67 per share, for the secondquarter ended June 30, 2008, compared with a net loss of $2,755,137, or$0.33 per share, for the second quarter ended June 30, 2007. The weighted average common sharesoutstanding used to calculate net loss per common share was 15,227,475 in 2008and 8,309,420 in 2007.

 

*Revenue:*  Total revenue increased to $1,961,611 for thesecond quarter of 2008 compared to $609,184 for the second quarter of 2007.

 

Product development andlicensing revenue increased to $870,504 in 2008 from $116,539 in 2007 primarilydue to the recognition of $516,995 of Pfizer deferred revenue and $225,000 ofGlaxo milestone revenue payable to CCH. For the three months ended June 30,2008 and 2007, the Company recognized $116,539 of revenue under the Corixatermination agreement.

 

Product royalty revenuewas $837,122 in 2008, consisting of $766,632 related to AVANT’s retainedinterests in Rotarix® net royalties which were not sold to PRF and which isequal to the amount payable to CCH by AVANT and $70,490 related to royalties onMegan®Vac 1 and Megan®Egg product sales. There was no product royalty revenue in 2007.

 

Contract and grantrevenue decreased by $238,660 to $253,985 for work performed in 2008 from$492,645 in 2007 primarily due to lower levels of vaccine development workbillable to Rockefeller in 2008.

 

*OperatingExpense:*  Total operating expense increased to$12,321,312 for the second quarter of 2008 compared to $3,448,480 for thesecond quarter of 2007.

 

Research and developmentexpense increased $5,241,842 to $7,611,666 from $2,369,824 in 2007. Theincrease in the second quarter of 2008 compared to the second quarter of 2007was primarily due to increases in personnel expenses of $1,408,655,license/royalty fees of $1,753,651, including $766,632 of expense associatedwith Rotarix® royalty revenue, clinical trial costs of $801,211, facility rentof $523,342, and depreciation expense of $494,568.

 

General andadministrative expense increased $3,556,059 to $4,605,482 in the second quarterof 2008 compared to $1,049,423 in the second quarter of 2007 and was primarilyattributed to increases in personnel costs of $1,677,017, professional servicesof $1,264,658, allocation of operating expenses of $352,849, and insuranceexpense of $81,884.

 

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Amortization expense ofacquired intangible assets was $104,164 and $29,233 in 2008 and 2007,respectively.

 

*Investment and Other Income, Net:*  Interest and other income increased $15,032to $99,191 for the second quarter of 2008 compared to $84,159 for the secondquarter of 2007. The increase was due to higher average cash balances offset inpart by lower interest rates during the second quarter of 2008 compared to thesecond quarter of 2007.

 

**Six-MonthPeriod Ended****June 30****, 2008 as Compared****with the Six-Month Period Ended June 30****, 2007**

 

AVANT reported aconsolidated net loss of $32,391,192, or $2.56 per share, for the six monthsended June 30, 2008, compared with a net loss of $6,787,540, or $0.82 pershare, for the six months ended June 30, 2007. The net loss for the sixmonths ended June 30, 2008 includes a one-time non-cash charge of$14,755,908 for purchased in-process research and development related to theMerger which closed in March 2008. Theweighted average common shares outstanding used to calculate net loss percommon share was 12,677,455 in 2008 and 8,309,420 in 2007.

 

*Revenue:*  Total revenue increased to $2,109,009 for thefirst six months of 2008 compared to $753,224 for the first six months of 2007.

 

Product development andlicensing revenue increased to $990,368 in 2008 from $233,078 in 2007 primarilydue to the recognition of $516,995 of Pfizer deferred revenue and $225,000 ofGlaxo milestone revenue payable to CCH. For the six months ended June 30,2008 and 2007,  the Company recognized$233,078 of revenue under the Corixa termination agreement.

 

Product royalty revenuewas $837,122 in 2008, consisting of $766,632 related to AVANT’s retainedinterests in Rotarix® net royalties which were not sold to PRF and which isequal to the amount payable to CCH by AVANT and $70,490 related to royalties onMegan®Vac 1 and Megan®Egg product sales. There was no product royalty revenue in 2007.

 

Contract and grantrevenue decreased by $238,627 to $281,519 for work performed in 2008 from$520,146 in 2007 primarily due to lower levels of vaccine development workbillable to Rockefeller in 2008.

 

*OperatingExpense:*  Total operating expense increased to$34,645,646 for the first six months of 2008 compared to $7,795,655 for the sixmonths of 2007. Operating expense for 2008 includes a one-time non-cash chargeof $14,755,908 for purchased in-process research and development related to theMerger in March 2008.

 

Research and developmentexpense increased $6,958,105 to $12,117,294 from $5,159,189 in 2007. Theincrease in the first six months of 2008 compared to the first six months of2007 was primarily due to increases in personnel expenses of $2,514,158,clinical trial costs of $1,724,236, license/royalty fees of $1,760,318, and$686,680 of depreciation expenses. AVANT expects research and developmentexpense to increase during the remainder of 2008 as a result of the Merger withCelldex.

 

General andadministrative expense increased $5,041,386 to $7,619,386 in the first sixmonths of 2008 compared to $2,578,000 in the first six months of 2007 and wasprimarily attributed to increases in personnel costs of $2,031,962,professional services costs of $1,701,974 primarily related to the Celldexmerger transaction and increases in consulting expenses of $430,403, and insuranceexpenses of $330,666. AVANT expects general and administrative expense toincrease during the remainder of 2008 as a result of the Merger with Celldex.

 

Amortization expense ofacquired intangible assets was $153,058 and $58,466 in 2008 and 2007, respectively.

 

*Investment and Other Income, Net:*  Interest and other income decreased $109,446to $145,445 for the first six months of 2008 compared to $254,891 for the firstsix months of 2007. The decrease was primarily due interest expense of $29,813in 2008 compared to none in 2007 and lower interest rates, offset in part byhigher average cash balances during the first six months of 2008 compared tothe first six months of 2007.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

At June 30, 2008,AVANT’s principal sources of liquidity consisted of cash and cash equivalentsof $52,379,836. AVANT’s cash and cash equivalents are highly liquid investmentswith a maturity of three months or less at the date of purchase and consist oftime deposits and investments in money market mutual funds with commercialbanks and financial institutions. Also, the Company maintains cash balanceswith financial institutions in excess of insured limits. AVANT does notanticipate any losses with respect to such cash balances.

 

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The use of AVANT’s cashflows for operations has primarily consisted of salaries and wages for itsemployees, facility and facility-related costs for its offices, laboratoriesand manufacturing facility, fees paid in connection with preclinical studies,clinical studies, contract manufacturing, laboratory supplies and services,consulting fees, and legal fees. To date, the primary sources of cash flowsfrom operations have been payments received from the Company’s collaborativepartners and from government entities. In general, AVANT’s sources of cashflows from operations for the foreseeable future will be upfront licensepayments, payments for the achievement of milestones, product royalty payments,payments under government contracts and grants and funded research anddevelopment under collaboration agreements that AVANT may receive. The timingof any new collaboration agreements, government contracts or grants and anypayments under these agreements, contracts or grants cannot be easily predictedand may vary significantly from quarter to quarter.

 

Net cash provided inoperating activities was $25,964,670 for the first six months of 2008 comparedto cash used of $4,834,052 for the first six months of 2007. The increase innet cash provided in operating activities was primarily attributed to Pfizer’supfront payment to AVANT of $40 million and an increase in accounts payable andaccrued expense, partially offset by an increase in accounts and otherreceivables, prepaids and other assets. AVANT expects that cash used in operations will increase in theremainder of 2008.

 

Cash provided byinvesting activities was $10,581,650 for the first six months of 2008 compared to cash used in investing activitiesof $71,965 for the first six monthsof 2007. The change in amounts betweenyears primarily reflects the impact of the Merger.

 

Net cash provided byfinancing activities was $10,980,244 for the first six months of 2008 compared to $192,133 for the first six months of 2007. The increase innet cash provided in financing activities was primarily due to the Pfizer’s $10million equity investment in AVANT, offset in part by increases in the relatedparty loan due to Medarex and payments of long-term liabilities.

 

On April 16, 2008,AVANT and Pfizer entered into an agreement under which Pfizer was granted anexclusive worldwide license to a therapeutic cancer vaccine candidate, CDX-110,in Phase 2 development for the treatment of glioblastoma multiforme.  Theagreement also gives Pfizerexclusive rights to the use of EGFRvIII vaccines in other potentialindications. Under the licensing and development agreement, Pfizer madean upfront payment to AVANT of $40 million and made a $10 million equityinvestment in AVANT. Pfizer will fund all development costs for these programs.AVANT is also eligible to receive milestone payments exceeding $390 million forthe successful development and commercialization of CDX-110 and additionalEGFRvIII vaccine products, as well as royalties on any product sales. ThePfizer Agreement received clearance under the Hart-Scott-Rodino AntitrustImprovements Act of 1976 (as amended) in the second quarter of 2008.

 

On April 3, 2008,Rotarix® received FDA market approval for theprevention of rotavirus gastroenteritis in infants which triggered a$1.5 million milestone payment to AVANT from Glaxo, $750,000 of whichAVANT has retained under AVANT’s agreement with PRF. Rotarix® is now licensed in over100 countries worldwide including the U.S. and the European Union. The marketlaunch of Rotarix® by Glaxo in the U.S. market would result in a$10 million milestone payment to AVANT from PRF, which AVANT expects inthe second half of 2008.

 

During 2008, AVANT maytake steps to raise additional capital including, but not limited to, thelicensing of technology programs with existing or new collaborative partners,possible business combinations, or the issuance of common stock via privateplacements or public offerings. We believe that our current cash and cashequivalents are sufficient to fund planned operations for at least the nexttwelve months. While we may continue to seek capital through a number of means,there can be no assurance that additional financing will be available onacceptable terms, if at all, and AVANT’s negotiating position in capital-raisingefforts may worsen as existing resources are used. There is also no assurancethat AVANT will be able to enter into further collaborative relationships.Additional equity financing may be dilutive to AVANT’s stockholders; debtfinancing, if available, may involve significant cash payment obligations andcovenants that restrict AVANT’s ability to operate as a business; and licensingor strategic collaborations may result in royalties or other terms which reduceAVANT’s economic potential from products under development.

 

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**AGGREGATE CONTRACTUAL OBLIGATIONS**

 

The following tablesummarizes AVANT’s contractual obligations at June 30, 2008 and the effectsuch obligations and commercial commitments are expected to have on itsliquidity and cash flow in future years. These obligations, commitments andsupporting arrangements represent payments based on current operatingforecasts, which are subject to change:

 
| ** **                     | ** ** | **Total** | ** ** | **2008**  | ** ** | **2009-2011** | ** ** | **2012-2013** | ** ** | **Thereafter** | ** ** |
|--------------------------------|------------|-----------|------------|-----------|------------|---------------|------------|---------------|------------|----------------|------------|
| Contractual  obligations:      |       |      |       |      |       |          |       |          |       |           |       |
| Operating lease  obligations   |       | $         | 20,444,700 |      | $          | 1,045,900     |       | $             | 7,546,700  |           | $          | 4,414,200 |   | $ | 7,437,900 |   |
| Loan Payable*                  |       | 1,245,500 |       | 55,800    |       | 377,500       |       | 228,900       |       | 583,300        |       |
| Note Payable*                  |       | 475,500   |       | 73,800    |       | 401,700       |       | —        |       | 3⁄4         |       |
| Licensing obligations          |       | 2,630,000 |       | 100,000   |       | 1,080,000     |       | 805,000       |       | 645,000        |       |
| R&D obligations            |       | —    |       | —    |       | —        |       | —        |       | 3⁄4         |       |
| Restructuring costs            |       | —    |       | —    |       | —        |       | —        |       | 3⁄4         |       |
| Severance obligations          |       | 2,120,100 |       | 2,033,900 |       | 86,200        |       | —        |       | 3⁄4         |       |
| Construction contract          |       | 334,800   |       | 334,800   |       | —        |       | —        |       | 3⁄4         |       |
| Total  contractual obligations |       | $         | 27,250,600 |      | $          | 3,644,200     |       | $             | 9,492,100  |           | $          | 5,448,100 |   | $ | 8,666,200 |   |
|                           |       |      |       |      |       |          |       |          |       |           |       |
| Commercial commitments:        |       |      |       |      |       |          |       |          |       |           |       |
| Clinical development           |       | $         | 10,135,300 |      | $          | 4,790,200     |       | $             | 5,345,100  |           | $          | — |   | $ | — |   |
| Total  commercial commitments  |       | $         | 10,135,300 |      | $          | 4,790,200     |       | $             | 5,345,100  |           | $          | — |   | $ | — |   |

 

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*                                         includesinterest obligations

 

In the future, we may oweroyalties and other contingent payments to our licensors based on the achievementof developmental milestones, product sales and specified other objectives.These potential future obligations are not included in the above table.

 

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**Item 3.        ****Quantitativeand Qualitative Disclosures about Market Risk**

 

AVANT owns financial instruments that aresensitive to market risk as part of its investment portfolio. AVANT’sinvestment portfolio is used to preserve its capital until it is used to fundoperations, including its research and development activities. None of thesemarket-risk sensitive instruments are held for trading purposes. AVANT investsits cash primarily in money market mutual funds. These investments areevaluated quarterly to determine the fair value of the portfolio. AVANT’sinvestment portfolio includes only marketable securities with active secondaryor resale markets to help insure liquidity. AVANT has implemented investmentpolicies regarding the amount and credit ratings of investments. Because of theshort-term nature of these investments, AVANT does not believe it has materialexposure due to market risk. The impact to AVANT’s financial position andresults of operations from likely changes in interest rates is not material.

 

AVANT does not utilize derivative financialinstruments. The carrying amounts reflected in the consolidated balance sheetof cash and cash equivalents, accounts receivables and accounts payableapproximates fair value at June 30, 2008 due to the short-term maturitiesof these instruments.

 

**Item 4.****         Controlsand Procedures**

 

*Evaluation ofDisclosure Controls and Procedures*

 

AVANT, the registrant,maintains disclosure controls and procedures that are designed to providereasonable assurance that information required to be disclosed by AVANT in itsreports that it files and submits under the Securities Exchange Act of 1934, asamended (the “Exchange Act”), is recorded, processed, summarized, and reportedwithin time periods specified by the SEC’s rules and forms, and that suchinformation is accumulated and communicated to its management, including itsinterim Chief Executive Officer and Chief Financial Officer, as appropriate toallow timely decisions regarding required disclosure.

 

As required by Rule 13a15 under the Exchange Act, as of June 30, 2008, we carried out an evaluationunder the supervision and with the participation of our management, includingour interim Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures as of the quarter ended June 30, 2008. In designing and evaluatingour disclosure controls and procedures, we and our management recognize thatany controls and procedures, no matter how well designed and operated, canprovide only reasonable assurance of achieving the desired control objectives,and our management necessarily was required to apply its judgment in evaluatingand implementing possible controls and procedures.

 

Based upon thatevaluation, our interim Chief Executive Officer and our Chief Financial Officerhave concluded that as of June 30, 2008, as a result of the materialweaknesses discussed below, our disclosure controls and procedures were noteffective.

 

*Changes inInternal Control Over Financial Reporting.*

 

On October 22, 2007,AVANT and Celldex Therapeutics, Inc. (“Celldex”), a privately-heldcompany, announced the signing of a definitive Agreement and Plan of Merger,dated October 19, 2007, by and between AVANT, Callisto Merger Corporation(“Merger Sub”) and Celldex (the “Merger Agreement”). On March 7, 2008,AVANT completed the merger of Merger Sub, a wholly owned subsidiary of AVANT,with and into Celldex (the “Merger”). The Merger with Celldex was accounted forusing the purchase method of accounting and was treated for accounting purposesas an acquisition by Celldex of AVANT with Celldex being considered the “accountingacquirer” based on the application of criteria specified in Statement ofFinancial Accounting Standards “SFAS” No. 141, Business Combination, (“SFAS 141”),even though AVANT was the issuer of common stock and the surviving legal entityand registrant in the transaction. Because Celldex was determined to be theacquirer for accounting purposes, the historical financial statements ofCelldex, which had prior to the Merger been a privately-held company, becamethe historical financial statements of the Company. Accordingly, the financialstatements of the Company prior to the Merger reflect the financial position,results of operations and cash flows of Celldex only, which during thehistorical periods presented in the accompanying consolidated financialstatements, was then a privately-held company which was majority-owned byMedarex, Inc. (“Medarex”). Following the Merger, the financial statementsof the current period reflect the financial position, results of operation andcash flows of the Company. The results of operations of AVANT are included inthe results of operations of the Company beginning March 8, 2008.

 

The Merger with Celldex andthe integration of the operations and the finance functions have resulted inchanges that have materially affected, or are reasonably likely to materiallyaffect, the combined Company’s internal control over financial reporting (asdefined in Rules 13a 15(f) and 15d 15(f) under the Exchange Act)during the quarter ended June 30, 2008.

 

A material weakness is adeficiency, or a combination of deficiencies, in internal control over financialreporting, such that there is a reasonable possibility that a materialmisstatement of the Company’s annual or interim financial statements will notbe

 

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prevented or detected on a timely basis.  Management identified the following materialweaknesses in the Company’s internal control over financial reporting duringits first quarter and has determined that such material weaknesses have not yetbeen fully remediated and therefore are continuing as of June 30, 2008.

 

·                       Celldexdid not maintain an effective segregation of duties.  Specifically, certain authority andresponsibility were not appropriately assigned and delegated to employeeswithin the organization.

 

·                       Celldexdid not maintain an effective control over financial statement closingprocess.  Specifically, Celldex did notmaintain formal, written policies and procedures governing the financial closeand reporting process to ensure an accurate and timely financial statementclosing process.  This control deficiencyresulted in misstatements to employee benefit expense, research and developmentexpense, stock-based compensation expense and accrued liability accounts andrelated financial disclosures.

 

Additionally, the above materialweaknesses could result in misstatements of financial statement accounts anddisclosures related to the Celldex business that would results in a materialmisstatement of the consolidated financial statements that would not beprevented or detected.

 

*Remediation ofMaterial Weakness*

 

Management is in theprocess of reviewing and, as necessary, revising its assignment of authorityand responsibility as well as its policies and procedures with respect to itscontrols over the financial statement closing process to ensure that allreasonable steps will be taken to correct this material weakness. As part ofthis process, management expects the Merger with AVANT to facilitate the remediationof material weaknesses and enhancement of internal controls as the accountingfunction for Celldex has now been assumed by AVANT, which has a largeraccounting staff and experience in the requirements applicable topublicly-traded companies. The material weaknesses will not be consideredremediated until the AVANT internal controls are operational for a sufficientperiod of time and are tested, and management has concluded that the controlsare designed and operating effectively.

 

**PART II — OTHER INFORMATION**

 

## **Item1.         Legal Proceedings**

##  

None.

 

## **Item1A.      Risk Factors**

##  

In addition to the otherinformation set forth in this report, you should carefully consider the factorsdiscussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-Kfor the year ended December 31, 2007, which could materially affect ourbusiness, financial condition or future results. The risks described in ourAnnual Report on Form 10-K may not be the only risks facing the Company.Additional risks and uncertainties not currently known to the Company or thatthe Company currently deems to be immaterial also may materially adverselyaffect the Company’s business, financial condition and/or operating results.

 

There were no materialchanges to the risk factors previously disclosed in our Annual Report on Form10-K filed with the Securities and Exchange Commission on March 18, 2008.

 

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## **Item6.         Exhibits**

 
| 3.1                    |   | Third  Restated Certificate of Incorporation of AVANT, incorporated by reference to  Exhibit 3.1 of AVANT’s Registration Statement on Form S-4 (Reg.  No. 333-59215), filed July 16, 1998 with the Securities and  Exchange Commission.                                                                                                                           |
|------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2                    |   | Certificate  of Amendment of Third Restated Certificate of Incorporation of AVANT,  incorporated by reference to Exhibit 3.1 of AVANT’s Registration  Statement on Form S-4 (Reg. No. 333-59215), filed July 16,  1998 with the Securities and Exchange Commission.                                                                                               |
| 3.3                    |   | Second  Certificate of Amendment of Third Restated Certificate of Incorporation of  AVANT, incorporated by reference to Exhibit 3.2 of AVANT’s Registration  Statement on Form S-4 (Reg. No. 333-59215), filed July 16,  1998 with the Securities and Exchange Commission.                                                                                        |
| 3.4                    |   | Third  Certificate of Amendment of Third Restated Certificate of Incorporation of  AVANT, incorporated by reference to Exhibit 3.1 of AVANT’s Quarterly  Report on Form 10-Q, filed May 10, 2002 with the Securities and  Exchange Commission.                                                                                                                         |
| 3.5                    |   | Fourth  Certificate of Amendment of Third Restated Certificate of Incorporation  of AVANT, incorporated by reference to Exhibit 3.1 of AVANT’s  Current Report on Form 8-K, filed on March 11, 2008 with the  Securities and Exchange Commission.                                                                                                                 |
| 3.6                    |   | Fifth Certificate  of Amendment of Third Restated Certificate of Incorporation of AVANT,  incorporated by reference to Exhibit 3.2 of AVANT’s Current Report on  Form 8-K, filed on March 11, 2008 with the Securities and Exchange  Commission.                                                                                                                  |
| 4.3                    |   | Amendment  No. 2 to Shareholder Rights Agreement dated November 5, 2004,  between AVANT and Computershare Trust Company, N.A. (formerly EquiServe Trust  Company, N.A.), as Rights Agent, incorporated by reference to  Exhibit 10.1 of AVANT’s Registration Statement on Form 8-A1G/A, filed  on March 7, 2008 with the Securities and Exchange Commission. |
|    10.1 |   | License and  Development Agreement, dated as of April 16, 2008, between Celldex  Therapeutics, Inc. and Pfizer Vaccines LLC, incorporated by reference to  Exhibit 10.1 of AVANT’s quarterly report on Form 10-Q filed on May 19,  2008 with the Securities and Exchange Commission.*                                                                                  |
| **10.2                 |   | Common Stock  Purchase Agreement dated May 27, 2008 between AVANT Immunotherapeutics, Inc.  and Pfizer Vaccines.*                                                                                                                                                                                                                                                                          |
| **31.1                 |   | Certification  of President and Chief Executive Officer                                                                                                                                                                                                                                                                                                                                    |
| **31.2                 |   | Certification  of Senior Vice President and Chief Financial Officer                                                                                                                                                                                                                                                                                                                        |
| ***32.1                |   | Section 1350  Certifications                                                                                                                                                                                                                                                                                                                                                          |

 

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|   | *   | Portions of  this document have been omitted and filed separately with the Securities and  Exchange Commission pursuant to a request for confidential treatment in  accordance with Rule 24b-2 of the Securities Exchange Act of 1934 as  amended. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **  | Filed  herewith.                                                                                                                                                                                                                                        |
|   | *** | Furnished  herewith.                                                                                                                                                                                                                                    |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                         |   |   |   | **AVANT  IMMUNOTHERAPEUTICS, INC.** |
|------------------------------|--------|--------|--------|-------------------------------------|
|                         |   |   |   |                                |   |
|                         |   |   |   | BY:                                 |   |
|                         |   |   |   |                                |   |
|                         |   |   |   |                                | /s/ ANTHONY  S. MARUCCI |
| Dated:  August 11, 2008 |   |   |   |                                | Anthony S.  Marucci |
|                         |   |   |   |                                | President  and Chief Executive Officer |
|                         |   |   |   |                                | (Principal  Executive Officer) |
|                         |   |   |   |                                |   |
|                         |   |   |   |                                | /s/ AVERY W.  CATLIN |
| Dated:  August 11, 2008 |   |   |   |                                | Avery W.  Catlin |
|                         |   |   |   |                                | Senior Vice  President, Treasurer |
|                         |   |   |   |                                | and Chief  Financial Officer |
|                         |   |   |   |                                | (Principal  Financial and |
|                         |   |   |   |                                | Accounting  Officer) |

 

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Table of Contents

 

**EXHIBIT INDEX**

 
| **Exhibit  No.**       | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                  |
|------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                    |       | Third  Restated Certificate of Incorporation of AVANT, incorporated by reference to  Exhibit 3.1 of AVANT’s Registration Statement on Form S-4 (Reg.  No. 333-59215), filed July 16, 1998 with the Securities and  Exchange Commission.                                                                                                                                 |
| 3.2                    |       | Certificate  of Amendment of Third Restated Certificate of Incorporation of AVANT,  incorporated by reference to Exhibit 3.1 of AVANT’s Registration  Statement on Form S-4 (Reg. No. 333-59215), filed July 16,  1998 with the Securities and Exchange Commission.                                                                                                     |
| 3.3                    |       | Second  Certificate of Amendment of Third Restated Certificate of Incorporation of  AVANT, incorporated by reference to Exhibit 3.2 of AVANT’s Registration  Statement on Form S-4 (Reg. No. 333-59215), filed July 16,  1998 with the Securities and Exchange Commission.                                                                                              |
| 3.4                    |       | Third  Certificate of Amendment of Third Restated Certificate of Incorporation of  AVANT, incorporated by reference to Exhibit 3.1 of AVANT’s Quarterly  Report on Form 10-Q, filed May 10, 2002 with the Securities and  Exchange Commission.                                                                                                                               |
| 3.5                    |       | Fourth  Certificate of Amendment of Third Restated Certificate of Incorporation of  AVANT, incorporated by reference to Exhibit 3.1 of AVANT’s Current  Report on Form 8-K, filed on March 11, 2008 with the Securities and  Exchange Commission.                                                                                                                            |
| 3.6                    |       | Fifth  Certificate of Amendment of Third Restated Certificate of Incorporation of  AVANT, incorporated by reference to Exhibit 3.2 of AVANT’s Current  Report on Form 8-K, filed on March 11, 2008 with the Securities and  Exchange Commission.                                                                                                                             |
| 4.3                    |       | Amendment  No. 2 to Shareholders Rights Agreement dated November 5, 2004  between AVANT and Computer share Trust Company, N.A. (formerly EquiServe  Trust Company, N.A.) as Rights Agent, incorporated by reference  to Exhibit 10.1 of AVANT’s Registration Statement on  Form 8-A1G/A, filed on March 7, 2008 with the Securities and  Exchange Commission. |
|    10.1 |       | License and  Development Agreement, dated as of April 16, 2008, between Celldex  Therapeutics, Inc. and Pfizer Vaccines LLC, incorporated by reference to  Exhibit 10.1 of AVANT’s quarterly report on Form 10-Q filed on May 19,  2008 with the Securities and Exchange Commission.*                                                                                        |
| **10.2                 |       | Common Stock  Purchase Agreement dated May 27, 2008 between AVANT Immunotherapeutics, Inc.  and Pfizer Vaccines.*                                                                                                                                                                                                                                                                                |
| **31.1                 |       | Certification  of Interim President and Chief Executive Officer                                                                                                                                                                                                                                                                                                                                  |
| **31.2                 |       | Certification  of Senior Vice President and Chief Financial Officer                                                                                                                                                                                                                                                                                                                              |
| ***32.1                |       | Section 1350  Certifications                                                                                                                                                                                                                                                                                                                                                                |

 

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|   | *   | Portions of this  document have been omitted and filed separately with the securities and  Exchange Commission pursuant to a request for confidential treatment in  accordance with Rule 24b-2 of the securities Exchange Act of 1934 as  amended. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **  | Filed herewith.                                                                                                                                                                                                                                         |
|   | *** | Furnished herewith.                                                                                                                                                                                                                                     |

 

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