** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

** **

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**FORM 10-Q**

** **

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

** **

**For the quarterly period ended March 31, 2008**

** **

**OR**

** **

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES 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**

(Addressof principal executive offices) (Zip Code)

 

**(781) 433-0771**

(Registrant’stelephone number, including area code)

 

Indicate by checkmark whether the registrant: (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x  No o

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer,” and “smaller reporting company”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 May 16, 2008,14,926,994 shares of common stock, $.001 par value per share, were outstanding.

 

 

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**AVANT IMMUNOTHERAPEUTICS, INC.**

 

**FORM 10-QQuarter Ended March 31, 2008Table of Contents**

 
| **Part I—Financial Information**                                                            |       |       |
|-------------------------------------------------------------------------------------------------------|------------|------------|
|                                                                                                  |       |       |
| Item 1. Unaudited Financial  Statements.                                                              |       |       |
|                                                                                                  |       |       |
| Consolidated Balance Sheets  at March 31, 2008 and December 31, 2007                        |       |       |
|                                                                                                  |       |       |
| Consolidated Statements of  Operations for the Three Months Ended March 31, 2008 and 2007        |       |       |
|                                                                                                  |       |       |
| Consolidated  Statements of Cash Flows for the Three Months Ended March 31, 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 4.  Submission of Matters to a Vote of Security Holders.                                         |       |       |
|                                                                                                  |       |       |
| Item 6. Exhibits.                                                                                     |       |       |
|                                                                                                  |       |       |
| Signatures                                                                                            |       |       |
|                                                                                                  |       |       |
| Exhibit Index                                                                                    |       |       |
|                                                                                                  |       |       |
| Certifications                                                                                        |       |       |

 

2

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**PART I—FINANCIALINFORMATION**

 

**Item 1.Unaudited Financial Statements**

 

**AVANT IMMUNOTHERAPEUTICS, INC.CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

 
| ** **                                                                                                                                                                                                                                                                        | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                                                                        | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Current Assets:                                                                                                                                                                                                                                                                   |       |                     |       |                        |       |
| Cash and Cash  Equivalents                                                                                                                                                                                                                                                        |       | $                        | 11,418,544 |                        | $          | 4,909,530 |   |
| Accounts and  Other Receivables                                                                                                                                                                                                                                                   |       | 176,072                  |       | 132,496                     |       |
| Prepaid Expenses  and Other Current Assets                                                                                                                                                                                                                                        |       | 11,082,306               |       | 656,347                     |       |
|                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Total Current  Assets                                                                                                                                                                                                                                                             |       | 22,676,922               |       | 5,698,373                   |       |
|                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Property and  Equipment, Net                                                                                                                                                                                                                                                      |       | 14,592,563               |       | 1,918,036                   |       |
| Investment in  Select Vaccines Ltd                                                                                                                                                                                                                                                |       | 487,624                  |       | —                      |       |
| Intangible  Assets, Net                                                                                                                                                                                                                                                           |       | 2,784,552                |       | 1,032,902                   |       |
| Other Assets                                                                                                                                                                                                                                                                      |       | 262,099                  |       | 725,193                     |       |
| Total Assets                                                                                                                                                                                                                                                                      |       | $                        | 40,803,760 |                        | $          | 9,374,504 |   |
| ** **                                                                                                                                                                                                                                                                        | ** ** | ** **               | ** ** | ** **                  | ** ** |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                    | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Current  Liabilities:                                                                                                                                                                                                                                                             |       |                     |       |                        |       |
| Accounts Payable                                                                                                                                                                                                                                                                  |       | $                        | 1,880,035  |                        | $          | 749,865 |   |
| Accrued Expenses                                                                                                                                                                                                                                                                  |       | 5,341,231                |       | 2,519,420                   |       |
| Payable Due  Medarex                                                                                                                                                                                                                                                              |       | 2,945,050                |       | 5,835,552                   |       |
| Current Portion  of Deferred Revenue                                                                                                                                                                                                                                              |       | 1,093,324                |       | 974,156                     |       |
| Current Portion  of Deferred Rent                                                                                                                                                                                                                                                 |       | 57,447                   |       | 57,447                      |       |
| Current Portion  of Loans Payable                                                                                                                                                                                                                                                 |       | 161,850                  |       | —                      |       |
| Total Current  Liabilities                                                                                                                                                                                                                                                        |       | 11,478,937               |       | 10,136,440                  |       |
|                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Deferred Revenue                                                                                                                                                                                                                                                                  |       | 103,215                  |       | 219,754                     |       |
| Deferred Rent                                                                                                                                                                                                                                                                     |       | 150,823                  |       | 150,207                     |       |
| Loans Payable                                                                                                                                                                                                                                                                     |       | 907,825                  |       | —                      |       |
|                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Commitments and  Contingent Liabilities (Note 14)                                                                                                                                                                                                                                 |       |                     |       |                        |       |
|                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Stockholders’  Equity (Deficit):                                                                                                                                                                                                                                             |       |                     |       |                        |       |
| Convertible  Preferred Stock, 3,000,000 Shares Authorized; None Issued and Outstanding at  March 31, 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; 14,926,994 Issued and  Outstanding at March 31, 2008                                                                                                                                                          |       | 14,927                   |       |                        |       |
| 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                                                                                                                                                                                                                                                       |       | 121,418,956              |       | 69,696,514                  |       |
| Accumulated  Other Comprehensive Income                                                                                                                                                                                                                                           |       | 2,508,206                |       | 2,619,036                   |       |
| Accumulated  Deficit                                                                                                                                                                                                                                                              |       | (95,779,129              | )          | (73,648,447                 | )          |
|                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Total  Stockholders’ Equity (Deficit)                                                                                                                                                                                                                                        |       | 28,162,960               |       | (1,131,897                  | )          |
|                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Total  Liabilities and Stockholders’ Equity                                                                                                                                                                                                                                  |       | $                        | 40,803,760 |                        | $          | 9,374,504 |   |

 

*Seeaccompanying notes to unaudited consolidated financial statements*

 

3

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**AVANT IMMUNOTHERAPEUTICS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS**

**(Unaudited)**

 
| ** **                                                                         | ** ** | **Three Months Ended** | ** **  |
|------------------------------------------------------------------------------------|------------|----------------------------------|-------------|
| ** **                                                                         | ** ** | **March 31,  2008**         | ** **  | **March 31,  2007** | ** ** |
| **REVENUE:**                                                                       | ** ** | ** **                       | ** **  | ** ** | ** ** |
| Product  Development and Licensing Agreements                                      |       | $                                | 119,864     |   | $ | 116,538 |   |
| Government  Contracts and Grants                                                   |       | 27,534                           |        | 27,502 |   |
|                                                                               |       |                             |        |   |   |
| Total Revenue                                                                      |       | 147,398                          |        | 144,040 |   |
| ** **                                                                         | ** ** | ** **                       | ** **  | ** ** | ** ** |
| **OPERATING  EXPENSE:**                                                            | ** ** | ** **                       | ** **  | ** ** | ** ** |
| Research and  Development                                                          |       | 4,486,774                        |        | 2,789,365 |   |
| General and  Administrative                                                        |       | 3,032,758                        |        | 1,528,577 |   |
| Charge for  In-Process Research and Development                                    |       | 14,755,908                       |        | — |   |
| Amortization of  Acquired Intangible Assets                                        |       | 48,894                           |        | 29,233 |   |
|                                                                               |       |                             |        |   |   |
| Total Operating  Expense                                                           |       | 22,324,334                       |        | 4,347,175 |   |
|                                                                               |       |                             |        |   |   |
| Operating Loss                                                                     |       | (22,176,936                      | )           | (4,203,135 | ) |
|                                                                               |       |                             |        |   |   |
| Investment and  Other Income, Net                                                  |       | 46,254                           |        | 170,732 |   |
|                                                                               |       |                             |        |   |   |
| Net Loss                                                                           |       | $                                | (22,130,682 | ) | $ | (4,032,403 | ) |
|                                                                               |       |                             |        |   |   |
| Basic and  Diluted Net Loss Per Common Share (See Note (3)(R))                     |       | $                                | (2.19       | ) | $ | (0.49 | ) |
|                                                                               |       |                             |        |   |   |
| Shares Used in  Calculating Basic and Diluted Net Loss per Share (See Note (3)(R)) |       | 10,127,435                       |        | 8,309,420 |   |
|                                                                               |       |                             |        |   |   |
| **COMPREHENSIVE  LOSS:**                                                           |       |                             |        |   |   |
| Net Loss                                                                           |       | $                                | (22,130,682 | ) | $ | (4,032,403 | ) |
| Unrealized  Losses on Foreign Exchange Translation                                 |       | (50,426                          | )           | (111,851 | ) |
| Unrealized  Losses on Investment in Select Vaccines Ltd.                           |       | (60,404                          | )           | — |   |
|                                                                               |       |                             |        |   |   |
| Comprehensive  Loss                                                                |       | $                                | (22,241,512 | ) | $ | (4,144,254 | ) |

 

*Seeaccompanying notes to unaudited consolidated financial statements*

 

4

----

 

**AVANT IMMUNOTHERAPEUTICS, INC.**

**CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY (DEFICIT)**

**FOR THE QUARTER ENDED MARCH 31,2008 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                           | )          | —                           |       | —                                     |          | —                                             |       | —                           |       | —                                        |            | —                   |       | —                                           |       |
| Share-Based  Compensation                                      |       | —                       |       | —                           |       | —                                     |          | —                                             |       | 1,622,380                        |       | —                                        |            | —                   |       | 1,622,380                                        |       |
| Comprehensive  Loss:                                           |       |                         |       |                             |       |                                       |          |                                               |       |                             |       |                                          |            |                     |       |                                             |       |
| Net Loss                                                       |       | —                       |       | —                           |       | —                                     |          | —                                             |       | —                           |       | —                                        |            | (22,130,682              | )          | (22,130,682                                      | )          |
| Other  Comprehensive Loss                                      |       | —                       |       | —                           |       | —                                     |          | —                                             |       | —                           |       | (110,830                                      | )               | —                   |       | (110,830                                         | )          |
| Total  Comprehensive Loss                                      |       |                         |       |                             |       |                                       |          |                                               |       |                             |       |                                          |            |                     |       | (22,241,512                                      | )          |
| **Balance  at March 31, 2008**                            | ** ** | **14,926,994**               | ** ** | **$**                            | **14,927** |                                       | —        | ** **                                         | **$**      | **—**                       | ** ** | **$**                                         | **121,418,956** | ** **               | **$**      | **2,508,206**                                    | ** ** | **$** | **(95,779,129** | **)** | **$** | **28,162,960** | ** ** |

 

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(1)                                  Adjusted to reflect the Merger exchangeratio and a reverse stock split of 1-for-12 effective March 7, 2008.

 

*See accompanying notes to unaudited consolidatedfinancial statements*

 

5

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**AVANT IMMUNOTHERAPEUTICS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                   | ** ** | **Three Months Ended** | ** **  |
|------------------------------------------------------------------------------|------------|----------------------------------|-------------|
| ** **                                                                   | ** ** | **March 31,  2008**         | ** **  | **March 31,  2007** | ** ** |
| **Cash  Flows from Operating Activities:**                                   | ** ** | ** **                       | ** **  | ** ** | ** ** |
| Net Loss                                                                     |       | $                                | (22,130,682 | ) | $ | (4,032,402 | ) |
| Adjustments to  Reconcile Net Loss to Net Cash Used in Operating Activities: |       |                             |        |   |   |
| Depreciation and  Amortization                                               |       | 353,126                          |        | 179,893 |   |
| Amortization of  Intangible Assets                                           |       | 48,894                           |        | 29,233 |   |
| Stock-Based  Compensation Expense                                            |       | 1,622,380                        |        | 403,394 |   |
| In-Process Research  and Development                                         |       | 14,755,908                       |        | — |   |
| Changes in  Operating Assets and Liabilities:                                |       |                             |        |   |   |
| Accounts and  Other Receivables                                              |       | (4,987                           | )           | 2,923,618 |   |
| Prepaid and  Other Current Assets                                            |       | (110,026                         | )           | (587,864 | ) |
| Accounts Payable  and Accrued Expenses                                       |       | 1,285,405                        |        | (1,312,437 | ) |
| Deferred Revenue                                                             |       | (107,372                         | )           | (116,539 | ) |
| Deferred Rent                                                                |       | 616                              |        | 43,578 |   |
|                                                                         |       |                             |        |   |   |
| Net Cash Used in  Operating Activities                                       |       | (4,306,738                       | )           | (2,469,525 | ) |
| ** **                                                                   | ** ** | ** **                       | ** **  | ** ** | ** ** |
| **Cash  Flows from Investing Activities:**                                   | ** ** | ** **                       | ** **  | ** ** | ** ** |
| Cash Acquired in  the Acquisition of AVANT, Net of Transaction Costs         |       | 10,750,255                       |        | — |   |
| Restricted Cash  Deposits                                                    |       | (435                             | )           | (542 | ) |
| Acquisition of  Property and Equipment                                       |       | (12,498                          | )           | (57,975 | ) |
|                                                                         |       |                             |        |   |   |
| Cash Provided by  (Used in) Investing Activities                             |       | 10,737,322                       |        | (58,517 | ) |
| ** **                                                                   | ** ** | ** **                       | ** **  | ** ** | ** ** |
| **Cash  Flows from Financing Activities:**                                   | ** ** | ** **                       | ** **  | ** ** | ** ** |
| Related Party  Loan Due to Medarex                                           |       | 148,115                          |        | 71,489 |   |
| Payments of Loans  Payable                                                   |       | (19,259                          | )           | — |   |
|                                                                         |       |                             |        |   |   |
| Net Cash  Provided by Financing Activities                                   |       | 128,856                          |        | 71,489 |   |
|                                                                         |       |                             |        |   |   |
| Effect of  Exchange Rate Changes on Cash and Cash Equivalents                |       | (50,426                          | )           | (113,047 | ) |
|                                                                         |       |                             |        |   |   |
| Net Increase  (Decrease) in Cash and Cash Equivalents                        |       | 6,509,014                        |        | (2,569,600 | ) |
|                                                                         |       |                             |        |   |   |
| Cash and Cash  Equivalents at Beginning of Period                            |       | 4,909,530                        |        | 14,000,186 |   |
|                                                                         |       |                             |        |   |   |
| Cash and Cash  Equivalents at End of Period                                  |       | $                                | 11,418,544  |   | $ | 11,430,586 |   |
|                                                                         |       |                             |        |   |   |
| **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   |   | $ | — |   |
| Unpaid  Capitalized Merger Costs                                             |       | $                                | 150,441     |   | $ | — |   |

 

*Seeaccompanying notes to unaudited consolidated financial statements*

** **

**6**

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** **

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

**March 31, 2008**

** **

**(1)          Natureof 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 therapeuticcancer vaccines, monoclonal antibodies, single-dose, oral vaccines aimed at protectingtravelers and people in regions where infectious diseases are endemic and atreatment to reduce complement-mediated tissue damage. AVANT is advancing apipeline of clinical and preclinical product candidates, the most advanced ofwhich are for treatment of various cancers. AVANT’s lead programs aretherapeutic cancer vaccines designed to instruct the patient’s immune system torecognize and destroy cancer cells. AVANTfurther leverages the value of its technology portfolio through corporate,governmental and non-governmental partnerships. One successful collaborationresulted in the development and marketing of an oral human rotavirus vaccine.Current collaborations encompass the development of vaccines addressed toglobal health, human food safety and animal health. AVANT’s product candidatesaddress large market opportunities for which the Company believes currenttherapies are inadequate or non-existent.

 

*Mergerwith Celldex:*  On October 22, 2007, AVANT and CelldexTherapeutics, Inc. (“Celldex”), a privately-held company, announced thesigning of a definitive Agreement and Plan of Merger, dated October 19,2007, by and between AVANT, Callisto Merger Corporation (“Merger Sub”) andCelldex (the “Merger Agrrement”). On March 7, 2008, AVANT completed themerger of Merger Sub, a wholly owned subsidiary of AVANT, with and into Celldex(the “Merger”).

 

At the specialmeeting of AVANT shareholders held on March 6, 2008 in connection with theMerger, stockholders approved four proposals: (i) the issuance of sharesof AVANT common stock pursuant to the Merger Agreement in the amount necessaryto result in the Celldex stockholders owning 58% of AVANT common stock on afully diluted basis, (ii) an amendment to AVANT’s Third RestatedCertificate of Incorporation to increase the number of authorized shares to300,000,000, (iii) an amendment to AVANT’s Third Restated Certificate ofIncorporation to effect a reverse stock split in a ratio ranging fromone-for-twelve to one-for-twenty of all the issued and outstanding shares ofAVANT common stock, the final ratio to be determined by the AVANT board ofdirectors and (iv) adoption of the 2008 Stock Option and Incentive Plan.

 

Also, pursuant tothe terms 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 the acquired assets that 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 unaudited consolidated financial statements foradditional 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 March 31, 2008 and historically of Celldex on a stand-alonebasis for all periods prior to March 8, 2008. 

 

The Company’s cashand cash equivalents at March 31, 2008 were $11,418,544. Its workingcapital at March 31, 2008 was $11,197,985. The Company incurred a loss of$22,130,682 and net cash used in operations of $4,516,738 for the three monthsended March 31, 2008. 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 March 31, 2009 and upfrontpayments expected from Pfizer upon closing of the Pfizer License andDevelopment Agreement (the “Pfizer Agreement”). 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 andDevelopment Agreement (the “Pfizer Agreement”) under which Pfizer will begranted an exclusive worldwide license to a therapeutic cancer vaccinecandidate, CDX-110, in Phase 2 development for the treatment of glioblastomamultiforme (“GBM”). The Pfizer Agreementalso gives Pfizer exclusiverights to the use of EGFRvIII vaccines in other potential indications. Underthe Pfizer Agreement, Pfizer will make an upfront payment to the Company of $40million and will make a $10 million equity investment in the Company. Pfizerwill fund all development costs for these programs. The Company is alsoeligible to receive milestone payments exceeding $390 million for thesuccessful development and commercialization of CDX-110 and additional EGFRvIIIvaccine products, as well as royalties on any product sales. The Pfizer Agreementis subject to approval under the Hart-Scott-Rodino Antitrust Improvements Actof 1976 (as amended) and is expected to close in the second quarter of 2008.

 

On April 3,2008, Rotarix® received Foodand Drug Administration (“FDA”) market approval for the prevention of rotavirusgastroenteritis in infants that triggered a $1.5 million milestone paymentto AVANT from GlaxoSmithKline plc (“Glaxo”), $750,000 of which the Company hasretained under the Company’s agreement with Paul Royalty Fund (“PRF”). Rotarix® is now licensed in over 100 countriesworldwide including the U.S. and the European Union. The market launch ofRotarix® by Glaxo in theU.S. market would result in a $10 million milestone payment to AVANT fromPRF, which the Company expects to receive in the second half of 2008.

 

During theremainder of 2008, AVANT may take steps to raise additional capital including,but not limited 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. If the Company doesnot raise additional funds, the Company may take one or more cost reducingmeasures, including further delays in some of the preclinical and clinicalresearch and development programs and reduced investment in property andequipment. While the Company continues to seek capital through a number ofmeans, there can be no assurance that additional financing will be available onacceptable terms, if at all, and the Company’s negotiating position incapital-raising efforts may worsen as existing resources are used. There isalso 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 tooperate as 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)          InterimFinancial Statements**

 

Theaccompanying unaudited consolidated financial statements for the three monthsended March 31, 2008 and 2007 include the consolidated accounts of the Companyand its wholly-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 March 31, 2008, results of operations for the three monthsended March 31, 2008 and 2007. The Companys’s financial conditions,results of operations and liquidity for the three-month period ended March 31,2008 are not necessarily indicative of results for any future interim period orfor the full year.

 

Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with generally accepted accounting principles in theUnited States of America have been omitted, although the Company believes thatthe disclosures included, when read in conjunction with the Company’s AnnualReport on Form 10-K for the year ended December 31, 2007 are adequateto make the information presented not misleading. The accompanying December 31,2007 Consolidated Balance Sheet was derived from audited financial statementsof Celldex, but does not include all disclosures required by U.S. GAAP.

 

**(3)          SignificantAccounting Policies**

 

*(A) Basis of 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) Cash and Cash Equivalents*

 

Cash and cashequivalents consist of cash and short-term investments with original maturitiesof three months or less. Cash and cash equivalents are stated at cost, whichapproximates fair value. At March 31, 2008, investments were primarily inmoney market mutual funds.

 

AVANT may investits cash in debt instruments of financial institutions, government entities andcorporations, and mutual funds. The Company has established guidelines relativeto credit ratings, diversification and maturities to mitigate risk and maintainliquidity.

 

*(C) Investment in Securities*

 

AVANT hasclassified its equity investment in Select Vaccines Limited (“Select Vaccines”)shares as available for sale securities under SFAS 115, *Accounting for Certain Investments in Debt and EquitySecurities*, (“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 March 31,2008, AVANT had an investment with a fair value of $487,624 in the stock ofSelect Vaccines.

 

***(D) Restricted Cash***

** **

Restricted cash of$180,574 and $180,139 at March 31, 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) Fair Value of Financial Instruments*

 

AVANT enters intovarious types of financial instruments in the normal course of business. Thecarrying amounts of AVANT’s cash and cash equivalents, accounts receivable,accounts payable 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. Theestimated fair value of long-term liabilities is discussed in Note 13.

 

*(F) Trade and Other AccountsReceivable*

 

Tradeaccounts receivable are recorded at the invoiced amount and do not bearinterest. The Company has not historically experienced credit losses from itsaccounts receivable and therefore has not established an allowance for doubtfulaccounts. The Company does not have any off-balance-sheet credit exposurerelated to its customers.

 

Accounts and other receivables consist of thefollowing:

 
| ** ** | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|------------|------------|--------------------------|------------|-----------------------------|------------|
| Trade      |       | $                        | 38,975     |                        | $          | — |   |
| Other      |       | 137,097                  |       | 132,496                     |       |
|       |       | $                        | 176,072    |                        | $          | 132,496 |   |

 

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Other receivables at March 31,2008 represent primarily an employee loan of $27,845 and research anddevelopment tax credit receivable of $88,058 from United Kingdom InlandRevenue. Other receivables at December 31, 2007 primarily represent anemployee loan of $33,580 and research and development tax credit receivable of$88,155 from United Kingdom Inland Revenue.

 

*(G) Long-Lived Assets:*

 

In the ordinarycourse of its business, AVANT incurs substantial costs to construct propertyand equipment. 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 andfringe benefits, and direct consultancy services.

 

Property andequipment is stated at cost and depreciated over the estimated useful lives ofthe related assets using the straight-line method. Laboratory equipment andoffice furniture and equipment are depreciated over a five-year period andcomputer equipment is depreciated over a three-year period. Manufacturingequipment is amortized over a seven- to ten-year period. Leasehold improvementsare amortized over the shorter of the estimated useful life or thenoncancelable term of the related lease, including any renewals that arereasonably assured of occurring. Property and equipment under construction isclassified as construction in progress and is depreciated or amortized onlyafter the asset is placed in service. Expenditures for maintenance and repairsare charged to expense whereas the costs of significant improvements whichextend the life of the underlying asset are capitalized. Upon retirement orsale, the cost of assets disposed of and the related accumulated depreciationare eliminated and the related gains or losses are reflected in net income.

 

*(H) Accounting for theImpairment of Long-Lived Assets:*

 

AVANT periodicallyevaluates its long-lived assets, primarily property and equipment andintangible assets for potential impairment under SFAS No. 144, *Accounting for 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 which an asset is used;

 

·                  a significant decrease in the market value of an asset;

 

·                  a significant adverse change in its business or the industry in whichit is sold; and

 

·                  a current period operating cash flow loss combined with a history ofoperating or cash flow losses or a projection or forecast that demonstratescontinuing losses associated with the asset.

 

If AVANT believesan indicator of potential impairment exists, the carrying values of the assetsare evaluated in relation to the operating performance and future undiscountedcash flows of the underlying asset. The net book value of an asset is adjustedto fair value if its expected future undiscounted cash flows are less than itsbook value.  The Company charges impairmentsof the long-lived assets to operations if its evaluations indicate that thecarrying value of these assets is not recoverable. Management had identified noindicators of impairment at March 31, 2008.

 

*(I) Accounting for PatentCosts:*

 

Patent costs areexpensed as incurred. Certain patent costs are reimbursed by the Company’sproduct development and licensing partners. Any reimbursed patent costs arerecorded as product development and licensing agreement revenues in theCompany’s financial statements.

 

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*(J) Interest Capitalization*

 

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) Operating Leases*

 

The Companypresently has three facilities that are located at Phillipsburg, New Jersey,Needham and Fall River, Massachusetts under non-cancellable operating leaseagreements for office, laboratory and manufacturing space. The rent paymentsfor the three locations escalate over the lease term. Rent expense is recordedon a straight-line basis over the terms of the leases, including any renewalsthat are reasonably assured of occurring. The difference between rent expenseand amounts 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) Intangible Assets*

 

The Company hasacquired intangible assets, which include core technology, developed technologyand a strategic partner agreement, through the merger of AVANT and Celldex andthe acquisition of Lorantis, Ltd (“Lorantis”). These acquired intangible assetsare being 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) Revenue Recognition*

 

The Company accounts forrevenue arrangements that include multiple deliverables in accordance with EmergingIssues Task Force (“EITF”) No. 00-21, *Accountingfor Revenue Arrangements with Multiple Arrangements* (“EITF 00-21”).EITF 00-21 addresses how to determine whether an arrangement involving multipledeliverables contains more than one unit of accounting. In applying theguidance, revenue arrangements with multiple deliverables can only beconsidered as separate units of accounting if (i) the delivered item hasvalue to the customer on a standalone basis, (ii) there is objective andreliable 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. Upfront non-refundable fees associated withlicense and development agreements where the Company has continuing involvementin the agreement are recorded as deferred revenue and recognized over theestimated service period. If the estimated service period is subsequentlymodified, the period over which the upfront fee is recognized is modifiedaccordingly on a prospective basis.

 

AVANT has enteredinto various 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. When AVANT has performance obligations under theterms of a contract, non-refundable fees are recognized as revenue as AVANTcompletes its obligations. Where AVANT’s level of effort is relatively constantover the performance period, the revenue is recognized on a straight-linebasis. Revenue is limited to the lesser of the cumulative amount of paymentsreceived or the cumulative amount of revenue earned, as determined using thestraight-line basis, as of the period ending date. The determination of theperformance period involves judgment on management’s part. Funding of researchand development is recognized over the term of the applicable contract as costsare 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) thereare no continuing performance obligations associated with the milestonepayment. 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:the milestone payments are non-refundable; achievement of the milestone was notreasonably assured at the inception of the arrangement; substantive effort isinvolved in achieving the milestone; and, the amount of the milestone isreasonable in relation to the effort expended or the risk associated withachievement of the milestone. If any of these conditions are not met, themilestone payments are deferred and recognized as revenue over the term of thearrangement as AVANT completes its performance obligations. At March 31, 2008,the Company had not recorded any revenue for milestone payments.

 

Revenue fromgovernment contracts and grants, including U.S. government grants under SmallBusiness Innovation Research (“SBIR”), is recognized as the services areperformed and recorded as effort is expended on the contracted work and billedto the government. 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) Research and DevelopmentCosts*

 

Research anddevelopment costs, including internal and contract research costs, are expensedas incurred. Research and development expenses consist mainly of clinical trialcosts, manufacturing of clinical material, toxicology and other studies,salaries, depreciation, technology access fees, royalty fees and funding ofoutside research. Costs to acquire technologies that are utilized in researchand development 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) ForeignCurrency Translation*

 

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 March 31, 2008 and December 31,2007, the accumulated unrealized foreign exchange translation (losses) gainsincluded in accumulated other comprehensive income were $2,508,206 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) Net Loss 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 2,463,579 and 1,024,759 shares of common stock were notincluded in the March 31, 2008, 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) Comprehensive Loss*

 

Comprehensive lossis comprised of two components: net loss and other comprehensive income. Duringthe quarter ended March 31, 2008, AVANT recorded other comprehensive lossof $60,404 related to unrealized gains in its investment in Select Vaccines and$50,426 related to unrealized foreign exchange translation losses. During thequarter ended March 31, 2007, AVANT recorded other comprehensive loss of$21,889 related to unrealized foreign exchange translation gains.

 

*(T) Stock-Based Compensation*

 

The Companyaccounts for stock-based awards under SFAS No. 123 (revised 2004), *Share-Based Payment*, (“SFAS No. 123(R)”), whichrequires the measurement and recognition of compensation expense for allshare-based payment awards made to employees and directors including employeestock options and employee stock purchases related to the Employee StockPurchase Plan (“employee stock purchases”) based on estimated grant date fairvalues.

 

Compensationexpense for all share-based payment awards are recognized using thestraight-line method. As stock-based compensation expense recognized in theConsolidated Statement of Operations are 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 Companyestimates the fair value of share-based awards granted using the Black-Scholesoption-pricing model (“Black-Scholes model”). The Company’s determination offair value of share-based payment awards on the date of grant using anoption-pricing model is affected by the Company’s stock price as well asassumptions regarding a number of highly complex and subjective variables.These variables include, but are not limited to, the Company’s expected stockprice volatility over the term of the awards, and actual and projected employeestock option exercise behaviors.

 

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 5for additional information.

 

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*(U) Use of Estimates*

 

The preparation ofthe financial 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 usesconsolidated financial information in determining how to allocate resources andassess performance. For this reason, AVANT has determined that it is engaged inone industry segment. Substantially all of AVANT’s revenue since inception hasbeen generated in the United States and all of our assets are in the UnitedStates.

 

*(W) RecentAccounting Pronouncements*

 

**SFAS 141(R) andSFAS 160:** InDecember 2007, the Financial Accounting Standards Board (“FASB”) issuedSFAS No. 141(R), *Business Combinations,*(“SFAS No. 141(R)”), and SFAS No. 160, *Noncontrolling Interests in Consolidated FinancialStatements, an amendment of ARB No. 51,* (“SFAS No. 160”),which introduce significant changes in the accounting for and reporting ofbusiness acquisitions and noncontrolling interests in a subsidiary. SFAS No. 141(R) isto be applied prospectively to business combinations for which the acquisitiondate is on or after the beginning of the first annual reporting periodbeginning on or after December 15, 2008. SFAS No. 160 iseffective for fiscal years, and interim periods within those fiscal years,beginning on or after December 15, 2008. Earlier adoption of bothstatements 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.

 

**EITF07-1:**  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 statementamounts related to the arrangements. Activities in the arrangement conducted in a separate legal entityshould be accounted for under other accounting literature; however, requireddisclosure under EITF 07-1 applies 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 requirements of EITF 07-1; however, it does not believe that itsadoption will have a significant impact on its consolidated financialstatements.

 

**FSP No. FAS142-3:** In April 2008,the FASB staff issued FASB Staff Position (“FSP”) No. FAS 142-3, *Determination of the Useful Life of Intangible Assets*(“FSP No. FAS 142-3”). FSP No. FAS 142-3 amends the factors thatshould be considered in developing renewal or extension assumptions used todetermine the useful life of a recognized intangible asset under FASB No. 142.The intent of this FSP is to improve the consistency between the useful life ofa recognized intangible under Statement 142 and the period of expected cash flowsused to measure fair value of the asset under FASB No. 141 and other accountingprinciples generally accepted in the United States of America (“U.S.GAAP”). TheFSP is effective for financial statements issued for fiscal years beginningafter December 31, 2008, and interim periods within those fiscal years.Early adoption is prohibited. The adoption of FSP No. FAS 142-3 is notexpected to have a material impact on AVANT’s financial position and results ofoperations.

 

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**(4)          Fair Value Measurements**

 

On January 1, 2008,the Company adopted SFAS No. 157,*FairValue 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”), for its financialassets and liabilities. The adoption of SFAS No. 157 did not have amaterial impact on the Company’s financial position or results of operations.As permitted by FASB Staff Position No. FAS 157-2,*Effective Date of FASB Statement No. 157*,the Company elected to defer the adoption of SFAS No. 157 for allnonfinancial assets and nonfinancial liabilities, except those that arerecognized or disclosed at fair value in the financial statements on a recurringbasis, until January 1, 2009. SFAS No. 159 permits entities to chooseto measure many financial instruments and certain other items at fair valuethat are not currently required to be measured at fair value. The Company didnot elect to adopt the fair value option for eligible financial instrumentsunder 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 arebuyers and 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 beconsistently applied. SFAS No. 157 also establishes a fair value hierarchywhich requires an entity to maximize the use of observable inputs, whereavailable, and minimize the use of unobservable inputs when measuring fairvalue. The standard describes three levels of inputs that may be used tomeasure fair value:

 

**Level 1**     Quoted prices in active markets for identical assetsor liabilities. The Company’s Level 1 assets consist of cash and cashequivalents and its investment in Select Vaccines. As of March 31, 2008,the Company held cash and cash equivalents of $11,418,544 and an investment inSelect Vaccines of $487,624.

 

**Level 2**     Observable inputs other than Level 1 prices, such asquoted prices for similar assets or liabilities; quoted prices in markets thatare not active; or other inputs that are observable or can be corroborated byobservable market data for substantially the full term of the assets orliabilities. The Company had no Level 2 assets or liabilities at March 31,2008.

 

**Level 3**     Unobservable inputs that are supported by little or nomarket activity and that are significant to the fair value of the assets orliabilities. The Company had no material Level 3 assets or liabilities atMarch 31, 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-BasedCompensation**

 

As of March 31,2008, the Company had two shareholder approved, share-based compensation plans:the 2004 Employee Stock Purchase Plan (the “2004 ESPP Plan”) and the 2008 StockOption and Incentive Plan (the “2008 Plan”).

 

**EmployeeStock 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 March 31, 2008, 9,885 shares were available for issuance underthe 2004 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***

 

*StockOption Plan Description*

 

On March 6,2008, AVANT’s 2008 Plan was adopted at a special meeting of AVANT shareholders.The 2008 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 Planallows for a 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. The board of directors has granted employee stock optionawards with four-year vesting periods. The term of each option cannot exceedten years (five years for options granted to holders of more than 10% of thevoting stock of AVANT) and the exercise price of stock options cannot be lessthan the fair market value of the common stock at the date of grant (110% offair market value for incentive stock options granted to holders of more than10% of the voting stock of AVANT). The 2008 Plan also provides for discretionarygrants of non-qualified stock options to non-employee directors. Vesting of allemployee and non-employee director stock option awards is accelerated upon achange in control as defined in the 2008 Plan.

 

In connection withthe Merger, AVANT assumed the obligations of Celldex under Celldex’s StockOption Plan (the “Celldex Plan”) and each outstanding option to purchaseCelldex common stock (a “Celldex Stock Option”) granted under the Celldex Plan.Each Celldex 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’s commonstock in the Merger. As of March 7, 2008, AVANT assumed options to acquire1,446,913 shares of its common stock at a weighted average exercise price of $8.35.The Celldex Stock Options generally vest over a two-to four-year period and the term of each option cannot exceed tenyears from the date of grant. No additional awards will be issued under theCelldex Plan.

 

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*GeneralOption Information*

 

Asummary of stock option activity under the 2008 Plan for the three months endedMarch 31, 2008, adjusted to reflect the Merger exchange ratio and areverse stock split of 1-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                                                    |       | 2,463,579  |       | 8.18                                                   |       |                                                                         |       |
| Exercised                                                  |       | —     |       | —                                                 |       |                                                                         |       |
| Canceled/forfeited                                         |       | (787,440   | )          | 12.70                                                  |       |                                                                         |       |
| Expired                                                    |       | —     |       | —                                                 |       |                                                                         |       |
|                                                       |       |       |       |                                                   |       |                                                                         |       |
| Outstanding at  March 31                              |       | 2,463,579  |       | $                                                      | 8.18       |                                                                         | 8.94       |   |
|                                                       |       |       |       |                                                   |       |                                                                         |       |
| Ending Vested  and Expected to Vest at March 31, 2008 |       | 739,406    |       | $                                                      | 8.23       |                                                                         | 9.93       |   |
|                                                       |       |       |       |                                                   |       |                                                                         |       |
| At March 31                                           |       |       |       |                                                   |       |                                                                         |       |
| Options  exercisable                                       |       | 739,406    |       | $                                                      | 8.23       |                                                                         |       |   |

 

Theweighted average fair value of options granted during the three-month periodended March 31, 2008 was $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 $16,440 and $16,253 related to non-employee stock options for the quarterended March 31, 2008 and 2007, respectively. As of March 31, 2008,the Company had total unrecognized compensation costs of $216,864 related tounvested non-employee options.

 

*Valuationand Expense Information under SFAS No. 123(R)*

 

The following tablesummarizes stock-based compensation expense related to employee andnon-employee director stock options and employee stock purchases under SFAS No. 123(R) forthe three months ended March 31, 2008 and 2007, respectively, which wasallocated as follows:

 
| ** **                              | ** ** | **Three months ended  March 31,** | ** ** |
|-----------------------------------------|------------|--------------------------------------------------|------------|
| ** **                              | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| Research and  development               |       | $                                                | 594,376    |   | $ | 199,086 |   |
| General and  administrative             |       | 1,028,004                                        |       | 195,834 |   |
| Total  stock-based compensation expense |       | $                                                | 1,622,380  |   | $ | 394,920 |   |

 

During the quarter endedMarch 31, 2008, the Company entered into an Option Cancellation Agreementconcurrent with Stock Option Grant Agreement with Celldex employees. The OptionCancellation Agreement provided for the cancellation of all previously grantedoptions under the Plan while the Stock Option Grant Agreement provided for there-grant of stock 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 modificationunder the provisions of SFAS 123R. The modification affected a total of 15employees, including members of the Celldex board of directors. The totalincremental compensation cost resulting from the modifications amounted toapproximately $2.6 million, of which $0.9 million was related to vested awardsand was recognized immediately as stock based compensation in the quarter endedMarch 31, 2008.

 

Based on basic anddiluted weighted average common shares outstanding of 10,127,435, the effect ofstock-based compensation expense recorded under SFAS No. 123R for thethree-month period had a $0.16 per share impact on net loss per share.

 

As of March 31,2008, total compensation cost related to non-vested stock options not yetrecognized was $5,681,503, net of estimated forfeitures, which is expected tobe recognized as expense over a weighted average period of 2.71 yrs. Thetotal fair value of stock options vested, including the incremental fair valuefor options vested that were modified during the quarter, during the quarterended March 31, 2008 was $1,366,155

 

17

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Thefair values of employee and non-employee director stock options granted duringthe three months ended March 31, 2008 and 2007 were valued using theBlack-Scholes model with the following assumptions:

 
| ** **                                                | ** ** | **Three months ended  March 31,** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| Expected stock  price volatility (employees)              |       | 55-67                                            | %          | 67 | % |
| Expected stock  price volatility (non-employee directors) |       | 57-67                                            | %          | 67 | % |
| Expected option  term (employees)                         |       | 3-6 Years                                        |       | 5.2 Years |   |
| Expected option  term (non-employee directors)            |       | 4-6 Years                                        |       | 5.2 Years |   |
| Risk-free  interest rate                                  |       | 1.5-3.5                                          | %          | 4.5 | % |
| Expected  dividend yield                                  |       | 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 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 adopt the simplified method in determining expected term for all of itsstock option awards.  There were 121,703stock options granted to non-employee directors during the three months ended March 31,2008.

 

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 months ended March 31, 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)          RetirementSavings Plan**

 

TheCompany’s 401(k) Plan (the “401(k) Plan”) is intended to be atax-qualified plan covering substantially all employees. Under the terms of the401(k) Plan, employees may elect to contribute up to 15% of theircompensation, or the statutory prescribed limits. The Company may make matchingcontributions of up to 4% of a participant’s annual salary. Benefit expense forthe 401(k) Plan was approximately $27,715 and $9,942 for the quartersended March 31, 2008 and 2007, respectively.

 

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**(7)****                                 Propertyand Equipment**

 

Property and equipment includes the following:

 
| ** **                                      | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Laboratory  Equipment                           |       | $                        | 5,303,692  |                        | $          | 1,551,896 |   |
| Manufacturing  Equipment                        |       | 987,225                  |       | —                      |       |
| Office Furniture  and Equipment                 |       | 1,535,569                |       | 405,581                     |       |
| Leasehold  Improvements                         |       | 13,897,387               |       | 2,046,663                   |       |
| Assets Held for  Sale                           |       | 451,100                  |       | —                      |       |
| Construction in  Progress                       |       | 114,377                  |       | —                      |       |
| Total Property  and Equipment                   |       | 22,289,350               |       | 4,004,140                   |       |
| Less Accumulated  Depreciation and Amortization |       | (7,696,787               | )          | (2,086,104                  | )          |
|                                            |       | $                        | 14,592,563 |                        | $          | 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 $2,606,649of 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.

 

Depreciation expense related to equipment andleasehold improvements was $353,126 and $179,893 for the three months ended March 31,2008 and 2007, respectively.

 

**(8)****                                 Intangibleand Other Assets**

 

Intangibleand other assets include the following:

 
| ** **                   | ** ** | **March 31, 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  |   | $ | (304,500 | ) | $ | 1,888,749 |   | $ | 1,296,000 |   | $ | (263,097 | ) | $ | 1,032,903 |   |
| Developed  Technology        |       | 8 years                      |       | 273,796                         |       | (2,271 | ) | 271,525 |   | 3⁄4 |   | 3⁄4 |   | 3⁄4 |   |
| Strategic  Partner Agreement |       | 8 years                      |       | 629,499                         |       | (5,221 | ) | 624,278 |   | 3⁄4 |   | 3⁄4 |   | 3⁄4 |   |
|                         |       |                         |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Total Intangible  Assets     |       |                         |       | $                               | 3,096,544  |   | $ | (311,992 | ) | $ | 2,784,552 |   | $ | 1,296,000 |   | $ | (263,097 | ) | $ | 1,032,903 |   |

 

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 $48,894 and $29,233 for the three-monthperiods ended March 31, 2008 and 2007, respectively.

 

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Theestimated future amortization expense of intangible assets as of March 31,2008 for the remainder of fiscal year 2008 and the five succeeding years is asfollows:

 
| **Year ending December 31,** | ** ** | **Estimated  Amortization  Expense** | ** ** |
|---------------------------------------------|------------|--------------------------------------|------------|
| 2008 (remaining  nine months)               |       | $                                    | 312,112    |   |
| 2009                                        |       | 415,896                              |       |
| 2010                                        |       | 415,896                              |       |
| 2011                                        |       | 415,896                              |       |
| 2012                                        |       | 340,313                              |       |
| 2013 and  thereafter                        |       | 884,442                              |       |
|                                             |            |                                      |            |  |

 

**(9)****                                 IncomeTaxes**

 

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 March 31, 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’ subsequent dispositionof those shares, may have resulted in a change of control, as defined by Section 382,or could result in a change of control in the future upon subsequentdisposition.  AVANT believes its mergerwith Celldex may have generated an ownership change that could further affectthe limitation in future years.

 

During the firstquarter of 2008 the Company underwent a merger in which AVANT and Celldexbecame a combined group for tax reporting purposes.  The merger was treated as a purchase underSFAS 141 with Celldex being the accounting acquirer.  For U.S. federal income tax purposes, AVANTis the acquirer and Celldex is the wholly owned subsidiary of AVANT.  Together they form a combined group andreport income taxes as such with AVANT as the Parent Company and Celldex as theSubsidiary.  As a result of this merger,all of the prior tax attributes of both AVANT and Celldex will carry forwardfor potential future use.  These taxattributes are included in the Company’s income tax provision.

 

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Massachusetts, NewJersey and Missouri are the three states in which the Company operates or hasoperated and has income tax nexus. Open federal and state return years subjectto examination 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’spolicy is to recognize interest and penalties related to uncertain taxpositions in income tax expense. There have been no interest or penalties recognizedin the consolidated statement of operations and on the consolidated balancesheet as a result of FIN 48 calculations. The Company has not recorded anyinterest and 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 March 31, 2008 and December 31,2007.

 

**(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)**                           GlaxoSmithKlineplc (“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 vaccine and Glaxo assumedresponsibility for all subsequent clinical trials and all other developmentactivities. AVANT licensed-in the Rotarix® technology in 1995 and owes a license fee of30% to Cincinnati Children’s Hospital Medical Center (“CCH”) on net royaltiesreceived from Glaxo. AVANT is obligated to maintain a license with CCH withrespect to the Glaxo agreement. All licensing fees are included in research anddevelopment expense. The term of the Glaxo agreement is through the expirationof the last of the relevant patents covered by the agreement, although Glaxomay 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 royaltieswhich were not sold to PRF are recorded as product royalty revenue and acorresponding amount that is payable to CCH is recorded as royalty expense,which is included in research and development expense.

 

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. The market launch ofRotarix® byGlaxo in the U.S. market would result in a $10 million milestone paymentto AVANT from PRF, which AVANT expects to receive in the second half of 2008. Inconnection with the Merger, AVANT recorded $9.8 million as an other current asset,which represents the present value of this milestone payment adjusted forprobability of success.

 

Royalty rates on Rotarix® escalate from 7% to 10% based on net productsales in countries that have valid patent protection. These royalty rates arediscounted by 30% for “non-patent” countries (primarily international markets).In September 2006, AVANT received notice from Glaxo that Glaxo would beginpaying royalties on sales of Rotarix® 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® is not covered by the patents Glaxo licensedfrom AVANT in Australia and certain European 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 receives 2.45 times the aggregatecash payments it makes to AVANT, though the potential amount of such residualroyalties will be lower if Glaxo’s position stands. 

 

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*(B)**                           Glaxoand Corixa Corporation (“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 Hepatitis B(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-month periods ended March 31,2008 and 2007, the Company recognized $116,538 of revenue under the TerminationAgreement.

 

*(C)**                          PfizerInc (“Pfizer”)*

 

The Company entered intoa licensing agreement in December 2000 with Pfizer’s Animal HealthDivision whereby Pfizer has licensed Megan’s technology for the development ofanimal health 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 wasterminated by Pfizer after AVANT provided two of four deliverables to Pfizer.

 

*(D)**                          RockefellerUniversity(“Rockefeller”) and Gates Grand Challenge Award*

 

AVANT isdeveloping a vaccine, CDX-2401, aimed at providing protection from infectionwith HIV, the virus known to cause AIDS. This program is in a Bill &Melinda Gates Foundation funded partnership with collaborators at Rockefellerand the Aaron Diamond AIDS Research Center, who have shown in model systemsthat protective immunity can be induced with such a vaccine. Preclinicalstudies and manufacturing development are in progress and payments to AVANT aremade on a time and materials basis. For the three-month periods ended March 31,2008 and 2007, AVANT did not recognize any grant revenue from Rockefeller.

 

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** **

**(11)**                          Collaboration Agreements

** **

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

** **

On November 1, 2005,the Company and Rockefeller University (“Rockefeller”) entered into a licenseagreement for the exclusive worldwide rights to human DEC-205 receptor, withthe right to sublicense the technology. The license grant is exclusive exceptthat Rockefeller may use and permit other nonprofit organizations to use thehuman DEC-205 receptor patent rights for educational and research purposes. Inaddition, the Company acknowledges that Rockefeller has granted Howard HughesMedical Institute (“HHMI”) a paid-up, nonexclusive, irrevocable license to usethe patent rights, biological materials, and technical information for HHMI’sresearch purposes, but with no right to sublicense. 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.

 

The Company may berequired to pay license fees and milestone payments to Rockefeller with respectto development of the human DEC-205 receptor. These fees and milestones maytotal up to $2 million to $4 million per product candidate thatreceives approval from the FDA and equivalent foreign agencies.

 

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

** **

On September 1,2006, the Company and Duke University Brain Tumor Cancer Center of DukeUniversity (“Duke”) entered into a license agreement that gave the Companyaccess and reference to the clinical data generated by Duke and itscollaborators in order for the Company to generate its own filing with the FDArelating to its CDX-110 product.

 

In exchange forreferencing all the Duke data, the Company paid Duke a one-time upfront paymentof $175,000 and issued to Duke 100,000 shares of the Company’s common stock,which the Company recorded in 2006 as a licensing expense in research anddevelopment. The estimated aggregate fair value of the common shares issued was$330,000.

 

The Company may berequired to pay license fees and milestone payments to Duke with respect todevelopment of the CDX-110 product. These fees and milestones may total up to$1.2 million if CDX-110 receives approval from the FDA and equivalentforeign agencies. The Company may also be required to pay royalties uponapproval of CDX-110. The royalties will be payable on a country-by-country andlicensed product-by-licensed product basis until the date of the expiration ofthe last to expire of the patents covering the licensed product in suchcountry.

 

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

** **

On October 20, 2006,the Company and Ludwig Institute for Cancer Research (“Ludwig”) entered into anagreement for the nonexclusive rights to six cancer tumor targets for use incombination with the Company’s APC Targeting Technology. The term of theagreement is for ten years.  As considerationfor the nonexclusive license, the Company agreed to pay an annual license feeof $7,500 and $2,500 for each full-length antigen and partial-length antigen,respectively, until such antigens enter a randomized Phase 1 clinical trial.

 

***(D)****                            **Select Vaccines Limited (“Select Vaccines”)*

 

In February 2007,AVANT entered into a research anddevelopment partnership with Select Vaccines, a public Australian biotechnologycompany, focused on the use of Select Vaccines’ virus-like particles (“VLPs”)as a platform technology for the development of viral vaccines. Underthe terms of the agreement, AVANT made an upfront equity investment of $735,000in Select Vaccines and would fund influenza vaccine research and developmentfor two years, as well as provide payments to Select Vaccines for theachievement of specific preclinical and clinical development milestones. On November 1,2007, AVANT notified Select Vaccines that, effective December 31, 2007,AVANT was exercising its rights to terminate its Collaboration and LicenseAgreement with Select Vaccines for strategic reasons.

 

AVANT hasclassified its equity investment in Select Vaccines shares as available forsale securities under SFAS 115, *Accountingfor Certain Investments in Debt and Equity Securities*, (“SFAS 115”).In accordance with SFAS 115, all available-for-sale securities arerecorded at fair market value and, to the extent deemed temporary, unrealizedgains and losses are included in accumulated other comprehensive income (loss)in shareholders’ equity. Realized gains and losses and declines in value, ifany, judged to be other than temporary on available-for-sale securities arereported in other income (expense).

 

During the quarter ended March 31, 2008, AVANTrecorded other comprehensive loss of $60,404 related to unrealized losses inits investment in Select Vaccines.

 

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In consideration for thenonexclusive license, the Company may be required to pay license fees andmilestone payments to Ludwig for the use of the cancer targets in combinationwith the Company’s technology. The fees and milestones may total up to $1.5million to $2.5 million on a product candidate that receives approval from theFDA and equivalent foreign agencies. The Company may also be required to payroyalties upon approval of any product candidate. The royalties will be payableon a country-by-country and licensed product-by-licensed product basis untilthe date of the expiration of the last to expire of the patents covering the licensedproduct 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. The Company believes that each of its agreements with Medarex ison terms as favorable to the Company as it could have obtained on an arm’s-lengthbasis from unaffiliated third parties. These agreements include:

 

·                  An Assignment and License Agreement that provides for the assignment ofcertain patent and other intellectual property rights and a license to certainMedarex technology;

 

·                  A Research and Commercialization Agreement which provides us withcertain rights to obtain exclusive commercial licenses to proprietarymonoclonal antibodies raised against certain antigens;

 

·                  An Affiliation Agreement, which, among other things, details Medarex’sobligation to elect independent directors to the Company’s board of directorsand contains certain restrictions, effective for a period of 36 months from April 6,2004, on Medarex’s ability to acquire additional shares of the Company’s commonstock and to sell shares of the Company’s common stock;

 

·                  A Master Services Agreement, which sets forth Medarex’s agreement to provideus with certain services to be mutually agreed upon, which may include, amongothers, 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.

 

Celldexand Medarex entered 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)**                           LoanPayable*

 

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 March 31, 2008, AVANT has recorded a loanpayable of $715,862 to MassDevelopment, of which $55,982 is classified ascurrent and $659,880 as long-term.

 

*(B)**                           NotePayable*

 

Under the SecuredPromissory Note, AVANT received $903,657 from MassDevelopment to finance thepurchases of manufacturing and laboratory equipment to be placed in its FallRiver facility (the “Loan”). The Loan has a term of 84 months and an interestrate of 5.5% per annum. The Loan is collateralized by all of the equipmentpurchased with the principal amount. The net book values of thesecollateralized assets at March 31, 2008 were $460,643.

 

In connection withthe Merger, AVANT recorded $366,251 as the fair value of the note payable basedon current market interest rates available to AVANT for long-term liabilitieswith similar terms and maturities. At March 31, 2008, the balance of thenote payable to MassDevelopment was $353,813, of which $105,868 is classifiedas current and $247,945 as long-term.

 

The followingtable summarizes the Company’s approximate contractual obligations toMassDevelopment with respect to the loan and note payable:

 
| ** **                    | ** ** | **Loan Payable** | ** ** | **Note Payable** | ** ** |
|-------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **Principal**         | ** ** | **Interest**          | ** ** | **Total** | ** ** | **Principal** | ** ** | **Interest** | ** ** | **Total** | ** ** |
| 2008 (remaining  nine months) |       | $                     | 54,600     |                  | $          | 35,000 |   | $ | 89,600 |   | $ | 101,900 |   | $ | 16,200 |   | $ | 118,100 |   |
| 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              |       | $                     | 961,800    |                  | $          | 317,500 |   | $ | 1,279,300 |   | $ | 478,400 |   | $ | 41,400 |   | $ | 519,800 |   |
|                          |       |                  |       |                  |       |   |   |   |   |   |   |   |   |
| Less: Current  Portion        |       | 75,000                |       |                  |       |   |   | 141,200 |   |   |   |   |   |
|                          |       |                  |       |                  |       |   |   |   |   |   |   |   |   |
| Total Long-Term  Portion      |       | $                     | 886,800    |                  |       |   |   |   | $ | 337,200 |   |   |   |   |   |

 

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

 

*(A)**                           Commitmentsfor the Needham, Massachusetts Facility*

 

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 March 31, 2008,AVANT’s share of tenant improvements costs of $401,804 for the Needham facilityrenovations project remain 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) Commitments for the FallRiver, Massachusetts Facility*

 

In 2003, theCompany reached agreement with MassDevelopment, an economic development entityfor the Commonwealth of Massachusetts, for AVANT to occupy and build-out an11,800 square foot manufacturing facility in Fall River, Massachusetts. Thelease has an initial seven-year term that expires in December 2010 and tworenewal options of five years each. Management has determined that it isreasonably assured that AVANT will exercise one five-year renewal option.Therefore, AVANT is amortizing leasehold improvements made to the Fall Riverfacility over the remaining original lease term plus one five-year renewalterm. In November 2005 and December 2006, AVANT amended theMassDevelopment lease to increase the rentable space to approximately 14,300and 16,200 square feet, respectively, at the 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 an annualrent of approximately $347,700 plus certain common area maintenance costs.Aggregate rental payments including common area maintenance costs were $86,913 forthe three-month periods ended March 31, 2008 and 2007.

 

As an incentive toenter into a lease agreement with the Phillipsburg landlord, the Companyreceived four months of rent-free occupancy of the facilities, and the Companyis amortizing this over the original five-year term of the lease. In addition,the landlord 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 Companyentered into a letter of credit facility with a national U.S. financialinstitution for $177,000, which is collateralized by a security deposit for theleased facility in Phillipsburg, New Jersey. The total amount of the securitydeposit is recorded as restricted cash on the Company’s consolidated balancesheets.

 

*(D) Commitments for theOperating Leases*

 

Obligations forbase rent under these and other non-cancelable operating leases as of March 31,2008 are approximately as follows:

 
| **Year ending December 31,** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2008 (remaining  nine months)               |       | $          | 1,567,072  |   |
| 2009                                        |       | 2,326,435  |       |
| 2010                                        |       | 2,388,235  |       |
| 2011                                        |       | 2,333,957  |       |
| 2012                                        |       | 2,159,947  |       |
| 2013 and  thereafter                        |       | 9,692,192  |       |
| Total minimum  lease payments               |       | $          | 20,467,838 |   |

 

The Company’stotal rent for all operating leases was approximately $86,913 for thethree-month periods ended March 31, 2008 and 2007.

 

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

 

Una S. Ryan, Ph. D.entered into an employment agreement with AVANT (the “Ryan Agreement”), whichwas amended and restated as of August 20, 1998, amended as of December 23,2002, September 18, 2003 and again as of October 19, 2007. The termof the Agreement is for 13 months from the effective date of a merger, withrolling automatic one-year extensions. Further, if Dr. Ryan resigns, AVANTwill pay Dr. Ryan a special retirement payment of $1,323,203. At March 31,2008, AVANT had accrued $87,005 of Dr. Ryan’s special retirement payment,and expects to record a charge for the remainder in the second quarter of 2008as a result of her departure. Please see Note 17(B) for information aboutDr. Ryan’s departure. 

 

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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, have been accruedin the consolidated financial statements as of December 31, 2007 inaccordance with SFAS No. 146, *Accountingfor Costs Associated with Exit or Disposal Activities*. In addition,stock-based compensation has been adjusted for the modification 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 March 31, 2008 and December 31,2007:

 
| ** **              | ** ** | **Balance at  December 31,** | ** ** | ** **  | ** ** | ** **         | ** ** | **Balance at  March 31,** | ** ** |
|-------------------------|------------|----------------------------------------|------------|-------------|------------|--------------------|------------|-------------------------------------|------------|
| ** **              | ** ** | **2007**                               | ** ** | **Charges** | ** ** | **Paid Cash** | ** ** | **2008**                            | ** ** |
|                    |       |                                   |       |        |       |               |       |                                |       |
| Severance and  benefits |       | $                                      | 1,014,017  |        | $          | 87,005             |       | $                                   | (212,290   | ) | $ | 888,732 |   |
|                         |            |                                        |            |             |            |                    |            |                                     |            |  |  |  |  |

 

**(16)****                          Mergerof AVANT 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. AVANT also issued 351,692 shares having a value of $3,038,617 insettlement of a payable due Medarex. The purchase price of $47,570,867 andrepresents the shares attributable to AVANT shareholders and consisted of (i) the 6,265,889shares outstanding of AVANT common stock on the effective date of the Merger valuedat $46,875,372 and (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 of development,time and resources needed to complete the project, expected income-generatingability and associated risks. The value of IPR&D was determined byestimating the costs to develop the purchased in-process technology intocommercially viable products, estimating the net cash flows from such projectsand discounting the net cash flows back to their present values. Theprobability of success and discount rates used for each project take intoaccount the uncertainty surrounding the successful development and commercializationof the purchased in-process technology. The resulting net cash flows for theseprojects were based on management’s best estimates of revenue, cost of sales,research and development costs, selling, general and administrative costs, andincome taxes for each project, and the net cash flows reflect assumptions thatwould 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 amount allocated toIPR&D was charged as an expense in the Company’s consolidated financialstatements for the quarter ended March 31, 2008. The remaining acquiredintangible assets arising from the acquisition are being amortized on astraight line basis over their estimated lives which range from 4.5 to 8 years.

 

As of March 31,2008, the technological feasibility of the projects had not yet been reachedand no significant departures from the assumptions included in the valuationanalysis had occurred. Substantial additional research and development will berequired prior to reaching technological feasibility. In addition, each productneeds to successfully complete a series of clinical trials and to receive FDAor other regulatory approval prior to commercialization. The Company is alsodependent upon the activities of its collaborators in developing, manufacturingand marketing its products. There can be no assurance that these projects willever reach feasibility or develop into products that can be marketed profitably,nor can 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 January 1, 2007. The unaudited pro formacombined results are not necessarily indicative of the actual results thatwould have occurred had the acquisition been consummated at that date or of thefuture operations of the combined entities. The following pro forma financialsummary includes the charge for in-process research and development, which is amaterial non recurring charge.

 
| **Three Months Ended March 31,** | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|------------------------------------------------------|------------|-------------|------------|-------------|------------|
| Revenue                                              |       | $           | 1,642,765  |        | $          | 901,081 |   |
| Net loss                                             |       | (23,971,415 | )          | (23,780,126 | )          |
| Basic and  diluted net loss per share                |       | (1.61       | )          | (1.60       | )          |
|                                                      |            |             |            |             |            |  |  |

 

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**(17)****                          SubsequentEvents**

 

*(A) PfizerLicense and Development Agreement*

 

On April 16, 2008,AVANT and Pfizer entered into a License and Development Agreement (the “Pfizer Agreement”)under which Pfizer will be 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 will make an upfront payment to AVANT of $40 million and will make a $10million equity investment in AVANT. Pfizer will fund all development costs forthese programs. AVANT is also eligible to receive milestone payments exceeding$390 million for the successful development and commercialization of CDX-110and additional EGFRvIII vaccine products, as well as royalties on any productsales. The Pfizer Agreement is subject to approval under the Hart-Scott-RodinoAntitrust Improvements Act of 1976 (as amended) and is expected to close in thesecond quarter of 2008.

 

*(B) Resignationof Dr. Una S. Ryan, Ph.D.*

 

On May 14, 2008,AVANT announced the departure of Una S. Ryan, Ph.D, President and CEO,effective immediately thereafter. Anthony S. Marucci, then the Executive VicePresident of the Company, became interim CEO and will serve until a permanentsuccessor is announced. The nominating and corporate governance committee ofthe Company’s board of directors will commence a search process which willinclude a review of internal and external candidates.

 

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***Safe Harbor Statement under the Private SecuritiesLitigation 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 thewords “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “will,”“should,” “may,” “plan,” “intend,” “assume” and other expressions which predictor indicate 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.*

 

*Thereare a number of important factors that could cause the actual results to differmaterially from those expressed in any forward-looking statements made byAVANT.**These factors include, butare not limited to: (1) the successful post-merger integration of thebusiness, multiple technologies and programs; (2) the ability to adaptAVANT’s APC Targeting 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) the volume and profitability ofproduct sales of Megan**® Vac 1, Megan**® Egg and other future products; (9) theprocess of obtaining regulatory approval for the sale of Rotarix**® in major commercial markets, as well as thetiming and success of worldwide commercialization of Rotarix**® by our partner, GlaxoSmithKline or Glaxo; (10) Glaxo’sstrategy and business plans to launch and supply Rotarix**® worldwide, including in the U.S. and othermajor markets and its payment of royalties to AVANT; (11) AVANT’sexpectations regarding its technological capabilities and expanding its focusto broader markets for vaccines; (12) changes in existing and potentialrelationships with corporate collaborators; (13) the availability, cost,delivery and quality of clinical and commercial grade materials produced atAVANT’s own manufacturing facility or supplied by contract manufacturers andpartners; (14) the timing, cost and uncertainty of obtaining regulatoryapprovals; (15) AVANT’s ability to develop and commercialize products beforecompetitors that are superior to the alternatives developed by suchcompetitors; (16) AVANT’s ability to retain certain members of management;(17)AVANT’s expectations regarding research and development expenses and generaland administrative expenses; (18) AVANT’s expectations regarding cash balances,capital requirements, anticipated royalty payments (including those from PaulRoyalty Fund), revenues and expenses, including infrastructure expenses; (19) the ability to obtain substantial additionalfunding; (20) AVANT’s belief regarding the validity of its patents andpotential litigation; (21) Pfizer’s and AVANT’s strategy and business plansconcerning the continued development and commercialization of CDX-110; 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 and otherreports that Avant files with the Securities and Exchange Commission.  You should carefully review all of thesefactors, and you should be aware that there may be other factors that couldcause these differences. Theseforward-looking statements were based on information, plans and estimates atthe date of this report, and we do not promise to update any forward-lookingstatements to reflect changes in underlying assumptions or factors, newinformation, future events or other changes.*

 

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**Item 2. Management’s Discussion and Analysis ofFinancial 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 criticalaccounting policies are set forth in Note 2 to these unaudited consolidatedfinancial statements and under the heading “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” in Item 7 to our2007 Form 10-K. There have been no changes in these policies since December 31,2007.

 

## **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 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.

 

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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 Accounting Standards“SFAS” No. 141,*Business Combinations,*(“SFAS 141”), even though AVANT was the issuer of common stock and thesurviving legal entity in the transaction. Under the purchase method ofaccounting, the deemed purchase price was allocated to AVANT’s underlyingtangible and identifiable intangible assets acquired and liabilities assumedbased upon their respective fair values with any excess deemed purchase priceallocated to goodwill. However, the valuation analysis conducted by the Companydetermined that the fair value of assets acquired and the fair value ofliabilities assumed by Celldex exceeded the estimated purchase price for AVANT,resulting in negative goodwill of approximately $6.0 million. Inaccordance with SFAS 141*,*the negative goodwill has been allocated to all of the acquired assets whichare non-financial and non-current assets, including property and equipment,identifiable intangible assets, and in-process research and development. SeeNote 17 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 March 31, 2008 and historicallyof Celldex on a stand-alone basis for all periods prior to March 8, 2008.The financial condition, results of operations and liquidity of the Company asof the quarters ended March 31, 2008 and 2007 may not be indicative of theCompany’s future performance or reflect what the Company’s financial conditions,results of operations and liquidity would have been had the Merger beenconsummated as of January 1 of each respective year or had the Companyoperated as a separate, stand-alone entity during the periods presented.

 

## **RESEARCH AND DEVELOPMENT ACTIVITIES**

##  

Our products arederived from a broad set of complementary technologies which have the abilityto utilize 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 disease caused by infectiousorganisms, and treatment vaccines that modify undesirable activity by the body’sown proteins or cells. A number of our immunotherapeutic and vaccine productcandidates are in various stages of clinical trials. We expect that a largepercentage of our research and development expenses will be incurred in supportof our current and future clinical trial programs. Below is a table of ourcurrently 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*  infection   Paratyphoid fever   |       | NIH

—            |       | Pre-clinical

 

Pre-clinical |
|                        |       | CDX-2401                  |       | HIV                                                       |       | Rockefeller University |       | Pre-clinical                       |
|                        |       |                      |       |                                                      |       |                   |       |                               |
| **INFLAMMATORY****DISEASE** |       | TP10                      |       | Transplantation  AMD                                      |       | —   —        |       | Phase 2  Pre-clinical         |

 

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| **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 |
|-----------------------|--------|-------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|--------------------------------------|

 

**PROGRAMDEVELOPMENTS**

 

**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 cancers. We arecurrently pursuing the development of CDX-110 for GBM therapy, and plan toexpand the clinical development into other cancers through additional clinicalstudies.

 

Initial clinicaldevelopment of EGFRvIII immunotherapy was led by collaborating investigators atthe Brain Tumor Center at the Duke Comprehensive Cancer Center and at the M.D.Anderson Cancer Center in Houston, Texas. The results from Phase 1 andPhase 2a studies, 16 and 23 patients, respectively, have demonstrated asignificant increase in the time to disease progression (greater than 113%) inthe patients who were vaccinated, and also in overall survival rates (greaterthan 100%), both relative to appropriately matched historical controls. AVANTbelieves that the therapy has been well tolerated, and significant immuneresponses to EGFRvIII were generated in many patients. An extension of thePhase 2a program at the same two institutions has enrolled 18 additionalGBM patients treated with standard of care. The preliminary data support theobservations from the previous studies. Independently, active immunotherapy forEGFRvIII in prostate and ovarian cancer patients has been conducted in aPhase 1 trial at the University of Washington.

 

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 will be granted anexclusive worldwide 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 will make an upfront payment to AVANT of $40 million and will make a $10million equity investment in AVANT. Pfizer will fund all development costs forthese programs. AVANT is also eligible to receive milestone payments exceeding$390 million for the successful development and commercialization of CDX-110and additional EGFRvIII vaccine products, as well as royalties on any productsales. The Pfizer Agreement is subject to approval under the Hart-Scott-RodinoAntitrust Improvements Act of 1976 (as amended) and is expected to close in thesecond quarter of 2008.

 

*CDX-1307:*  AVANT has developed an APC TargetingTechnologyTM that utilizes fully human monoclonalantibodies to directly target specialized types of immune system cells, knownas antigen presenting cells. AVANT is advancing several clinical andpreclinical product candidates that use APC Targeting TechnologyTM to manipulate critical types of antigenpresenting cells, known as dendritic cells and macrophages, which are key cellswithin the immune system. Because these cells are largely responsible forinitiating the immune system’s disease-fighting mechanisms, AVANT believes thatproduct candidates using AVANT’s technology will create more potent immuneresponses 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 foundin epithelial tumors. The presence of hCG-b in thesecancers correlates with a poor clinical outcome, suggesting that this moleculemay contribute to tumor growth. Normal adult tissues have minimal expression ofhCG-b; therefore, targeted immune responses are not expectedto 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 DukeComprehensive Cancer Center were awarded a two year $500,000 grant from theAvon Foundation and the National Cancer Institute to support Phase 1 workin breast cancer. The safety of CDX-1307 in combination with defined immunestimulators will next be evaluated with intent to enter Phase 2 researchin 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**

 

AVANT’s goal is to becomea leading developer of innovative vaccines that address health care needs on aglobal basis. Utilizing its *Cholera*-and *Salmonella*-vectored deliverytechnologies together with its drying and preservation technologies, theCompany can now develop a new generation of vaccines that have an ideal productprofile: safe, effective, oral, single-dose, rapidly protective and increasedthermostability.

 

*CholeraGarde®Vaccine:*  Developmentof a safe, effective cholera vaccine is the first step in establishing AVANT’ssingle-dose, oral bacterial vaccine franchise. In December 2002, theInternational Vaccine Institute (“IVI”) initiated a Phase 2 study ofCholeraGarde® in Bangladesh, where cholera is endemic. In July 2005,Bangladesh study results in children and infants showed CholeraGarde® to bewell tolerated and highly immunogenic, with 77% of children aged 9 months to 5years generating protective immune responses. Previously published results showed the vaccine to be well tolerated andimmunogenic against 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.

 

AVANThas decided to focus only on the fully-funded opportunity for CholeraGarde®in the developing world. AVANT has determined that the high clinical costs ofits own Phase 3 clinical trials in the United States and the investment in acommercial manufacturing facility are not justified by the limited marketopportunities for a cholera vaccine in developed countries at this time.

 

*Ty800Typhoid Fever Vaccine:* AVANT has developed an oral vaccine to offer rapid, single-doseprotection against *Salmonella typhi*,the cause of typhoid fever. Ty800 is targeted for both the travelers’ marketand global health needs. In 2006, the National Institute of Allergy andInfectious Disease (“NIAID”) of the National Institutes of Health (“NIH”)initiated a Phase 1/2 in-patient dose-ranging clinical trial aimed atdemonstrating the safety and immunogenicity of the Ty800 typhoid fever vaccine.NIAID funded the production of Ty800 vaccine for clinical testing and completedthe Phase 1/2 trial at a NIH-funded clinical site in 2007. Results showedthe single-dose, oral vaccine to be well tolerated and immunogenic, with over90% 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 

 

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pre-dose level) rateswere 65.5% (36/55) and 80% (44/55) in the low and high dose groups,respectively, and was significantly (p<0.001) higher than placebo.

 

*Travelers’ Vaccines:*  AVANT has several travelers’ vaccine programsin pre-clinical development—all addressing important causes of seriousdiarrheal diseases worldwide. In November 2007, AVANT entered into anagreement with the Division of Microbiology and Infectious Diseases of theNIAID, whereby NIAID will sponsor a Phase 1 study of AVANT’sinvestigational single-dose, oral vaccine designed to offer combined protectionagainst both enterotoxigenic *Escherichiacoli* (ETEC) and cholera. AVANT expects NIAID to initiate thePhase 1 trial of its ETEC vaccine candidate in the first half of 2008.AVANT’s long-term goal is to develop a combination vaccine containing Cholera,Ty800, *S. paratyphi* and ETEC as a“super enteric vaccine” 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 andmanufacturing development are in progress and AVANT, with its collaborators,plans to initiate Phase 1 clinical studies in the first half of 2009.

 

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

 

*TP10:*  We have been developing a new class ofimmunotherapeutics that inhibit a part of the immune system called thecomplement system. The complement system is a series of proteins that areimportant initiators of the body’s acute inflammatory response against disease,infection and injury. Excessive complement activation also plays a role in somepersistent inflammatory conditions. Our lead compound, TP10, a soluble form ofnaturally occurring 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 spending limited resources on this program and isseeking a corporate partner to complete the development and commercializationof TP10.

 

**D.****                                    MarketedProducts**

 

*Rotavirus Vaccine:*  Rotavirus is a major cause of diarrhea andvomiting in infants and children. In 1997, AVANT licensed its oral rotavirusvaccine to Glaxo. All of the ongoing development for this program is beingconducted and funded by Glaxo. Glaxo gained approval for Rotarix® in Mexico in July 2004, which representedthe first in an expected series of worldwide approvals and commercial launchesfor the product. Glaxo was subsequently launched in additional Latin Americanand Asian Pacific countries during 2005 – 2007. Additionally, Glaxo filed formarket approval with the European regulatory authorities in late 2004, whichtriggered a $2 million milestone payment to AVANT. In February 2006, theEuropean Commission granted approval of Rotarix® in the European Union, which triggered a $4million milestone payment from Glaxo. On April 3, 2008, Rotarix® received approvalfrom the FDA for the prevention of rotavirus gastroenteritis in infants. FDAapproval triggered a $1.5 million milestone payment from Glaxo. AVANTlicensed-in the Rotarix® technology in 1995 and owes a license fee of30% to Cincinnati Children’s Hospital Medical Center (“CCH”) on net royaltiesreceived from Glaxo. In May 2005, AVANT entered into an agreement wherebyan affiliate of Paul Royalty Fund (“PRF”) purchased an interest in the netroyalties AVANT will receive on worldwide sales of Rotarix® (see Note 10(A) of our unaudited consolidatedfinancial statements). To date, AVANT has received $50 million in milestonepayments under the PRF agreement. The PRF agreement provides for a$10 million milestone payment to AVANT if Rotarix® is launched in the United States in 2008.AVANT expects to achieve this milestone in the second half of 2008. Also underthe PRF agreement, AVANT has retained 50% of any Glaxo milestone paymentsreceived 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.

 

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® isnot covered by the patents Glaxo licensed from AVANT in Australia and certainEuropean countries. AVANT is analyzing various options to counter Glaxo’s 

 

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assertions and protectAVANT’s rights. AVANT is determined to take all available steps to enforce itsrights under its license agreement with Glaxo.

 

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.

 

*Megan**®Vac**1**and**Megan**®Egg**Vaccines:*  OnDecember1,2000,AVANTacquiredalloftheoutstandingcapitalstockofMegan.Meganhascommercializedthreeveterinaryvaccines;ArgusTMSC,licensedbytheUnitedStatesDepartmentofAgriculture(“USDA”)inMarch1998andmarketedbyIntervet,Inc.,andMegan®Vac1andMegan®Egg,licensedbytheUSDAinNovember1998and2003,respectively,andmarketedbyLohmannAnimalHealthInternational(“LAHI”).BecauseAVANT’sfocusisonhumanhealthcare,inSeptember2002,weappointedLAHIastheexclusivedistributorofourMeganHealthpoultryvaccinesinNorthAmerica.LAHIperformsallmarketinganddistributionactivitiesofMegan’smarketedproductsforthecommercialpoultrymarketandpaysusproductroyalties.

 

## **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 the 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-Month Period Ended****March 31****, 2008 as Compared****with the Three-Month Period Ended March 31****, 2007**

 

AVANT reported aconsolidated net loss of $22,130,602, or $2.19 per share, for the first quarterended March 31, 2008, compared with a net loss of $4,032,403, or $0.49 pershare, for the first quarter ended March 31, 2007. The net loss for thequarter ended March 31, 2008 includes a one-time non-cash charge of $14,755,908for purchased in-process research and development related to the Merger whichclosed in March 2008. The weightedaverage common shares outstanding used to calculate net loss per common sharewas 10,127,435 in 2008 and 8,309,420 in 2007.

 

*Revenue:*  Total revenue increased to $147,398 for thefirst quarter of 2008 compared to $144,040 for the first quarter of 2007.

 

Productdevelopment and licensing revenue increased to $119,864 in 2008 from $116,538in 2007 due to the receipt of reimbursed patent expense by AVANT’s partner,Pfizer. For the three months ended March 31, 2008 and 2007, the Companyrecognized $116,538 of revenue under the Corixa termination agreement.

 

Under an SBIR grant,AVANT recognized $27,534 in government contract and grant revenue during thefirst quarter of 2008 for work performed. AVANT received SBIR grant revenuefrom Medarex of $27,502 in the first quarter of 2007.

 

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*OperatingExpense:*  Total operating expense increased to $22,324,334for the first quarter of 2008 compared to $4,347,175 for the first quarter of2007. Operating expense for 2008 includes a one-time non-cash charge charge of$14,755,908 for purchased in-process research and development related to the Mergerin March 2008.

 

Researchand development expense increased $1,697,409 to $4,486,774 from $2,789,365 in 2007. The increase in the first quarterof 2008 compared to the first quarter of 2007 was primarily due to increasesin clinical trial costs of $921,025 and stock-based compensation of $781,371.AVANT expects research and development expense to increase during the remainderof 2008 as a result of the Merger with Celldex.

 

Generaland administrative expense increased $1,504,181 to $3,032,758 in the firstquarter of 2008 compared to $1,528,577 in the first quarter of 2007 and wasprimarily attributed to increases in professional services costs of $213,542primarily related to the Celldex merger transaction and increases in consultingexpenses of $477,732, offset by lower personnel and related costs of $322,834.AVANT expects general and administrative expense to increase during theremainder of 2008 as a result of the Merger with Celldex.

 

Amortizationexpense of acquired intangible assets was $48,894 and $29,233 in 2008 and 2007,respectively.

 

*Investmentand Other Income, Net:* Interest and other income decreased $124,479 to $46,254 for the firstquarter of 2008 compared to $170,733 for the first quarter of 2007. Thedecrease was due to lower average cash balances and lower interest rates duringthe first quarter of 2008 compared to the first quarter of 2007. 

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

At March 31, 2008,AVANT’s principal sources of liquidity consisted of cash and cash equivalentsof $11,418,544. 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 not anticipateany losses with respect to such cash balances.

 

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 used inoperating activities was $4,516,738 for the first three months of 2008 comparedto $2,469,525 for the first three months of 2007. The increase in net cash usedin operating activities was primarily attributed to the increase in net lossincurred as a result of the Company’s Merger with Celldex in the first quarter of 2008 compared to the first quarter of 2007, partiallyoffset by a non-cash charge for acquired in-process research and development of$14.8 million (see Note 16).  AVANTexpects that cash used in operations will increase in the remainder of 2008.

 

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Cash provided byinvesting activities was $10,947,322 for the first three months of 2008compared to cash used in investing activities of $58,517 for the first threemonths of 2007. The change in amountsbetween years primarily reflects the impact of the Merger.

 

Net cash provided by financingactivities was $128,856 for the first three months of 2008 compared to $71,489for the first three months of 2007. The increase in net cash used in financingactivities was primarily due to increases in the related party loan due toMedarex and payments of long-term liabilities.

 

On April 16,2008, AVANT and Pfizer entered into an agreement under which Pfizer will begranted an exclusive worldwide license to a therapeutic cancer vaccinecandidate, CDX-110, in Phase 2 development for the treatment of glioblastomamultiforme.  The agreement also gives Pfizer exclusive rights to the use of EGFRvIII vaccines in other potentialindications. Under the licensing and development agreement, Pfizer willmake an upfront payment to AVANT of $40 million and will make 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 agreement is subject to approval under the Hart-Scott-RodinoAntitrust Improvements Act of 1976 (as amended) and is expected to close in thesecond 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 over 100 countriesworldwide including the U.S. and the European Union. The market launch ofRotarix® byGlaxo in the U.S. market would result in a $10 million milestone paymentto AVANT from PRF, which AVANT expects in the second half of 2008.

 

During 2008, AVANTmay take 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 private placementsor public offerings. If AVANT does not raise additional funds in 2008, AVANTmay take one or more cost reducing measures, including further delays in someof the preclinical and clinical research and development programs and reducedinvestment in property and equipment. While we continue to seek capital througha number of means, there can be no assurance that additional financing will beavailable on acceptable terms, if at all, and AVANT’s negotiating position incapital-raising efforts may worsen as existing resources are used. There isalso no assurance that AVANT will be able to enter into further collaborativerelationships. Additional equity financing may be dilutive to AVANT’sstockholders; debt financing, if available, may involve significant cashpayment obligations and covenants that restrict AVANT’s ability to operate as abusiness; and licensing or strategic collaborations may result in royalties orother terms which reduce AVANT’s economic potential from products underdevelopment.

 

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**AGGREGATE CONTRACTUAL OBLIGATIONS**

 

The following table summarizes AVANT’s contractualobligations at March 31, 2008 and the effect such obligations andcommercial commitments are expected to have on its liquidity and cash flow infuture years. These obligations, commitments and supporting arrangementsrepresent payments based on current operating forecasts, which are subject tochange:

 
| ** **                     | ** ** | **Total** | ** ** | **2008**  | ** ** | **2009-2011** | ** ** | **2012-2013** | ** ** | **Thereafter** | ** ** |
|--------------------------------|------------|-----------|------------|-----------|------------|---------------|------------|---------------|------------|----------------|------------|
| Contractual  obligations:      |       |      |       |      |       |          |       |          |       |           |       |
| Operating  lease obligations   |       | $         | 20,467,800 |      | $          | 1,567,100     |       | $             | 7,048,600  |           | $          | 4,414,200 |   | $ | 7,437,900 |   |
| Loan  Payable*                 |       | 1,279,300 |       | 89,600    |       | 377,500       |       | 228,900       |       | 583,300        |       |
| Note  Payable*                 |       | 519,800   |       | 118,100   |       | 401,700       |       | 3⁄4        |       | 3⁄4         |       |
| Licensing  obligations         |       | 1,330,000 |       | 75,000    |       | 465,000       |       | 310,000       |       | 480,000        |       |
| R&D  obligations           |       | 74,100    |       | 74,100    |       | 3⁄4        |       | 3⁄4        |       | 3⁄4         |       |
| Restructuring  costs           |       | 58,200    |       | 58,200    |       | 3⁄4        |       | 3⁄4        |       | 3⁄4         |       |
| Severance  obligations         |       | 2,310,000 |       | 2,246,700 |       | 63,300        |       | 3⁄4        |       | 3⁄4         |       |
| Construction  contract         |       | 401,800   |       | 401,800   |       | 3⁄4        |       | 3⁄4        |       | 3⁄4         |       |
| Total  contractual obligations |       | $         | 26,441,000 |      | $          | 4,630,600     |       | $             | 8,356,100  |           | $          | 4,953,100 |   | $ | 8,501,200 |   |
|                           |       |      |       |      |       |          |       |          |       |           |       |
| Commercial  commitments:       |       |      |       |      |       |          |       |          |       |           |       |
| Clinical  development          |       | $         | 10,452,300 |      | $          | 5,445,500     |       | $             | 5,006,800  |           | $          | — |   | $ | — |   |
| Total  commercial commitments  |       | $         | 10,452,300 |      | $          | 5,445,500     |       | $             | 5,006,800  |           | $          | — |   | $ | — |   |

 

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*              includesinterest obligations

 

In the future, we may oweroyalties and other Contingent payments to our licensors based on theachievement of developmental milestones, product sales and specified otherobjectives. These potential future obligations are not included in the abovetable.

 

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

 

AVANTowns financial instruments that are sensitive to market risk as part of itsinvestment portfolio. AVANT’s investment portfolio is used to preserve itscapital until it is used to fund operations, including its research anddevelopment activities. None of these market-risk sensitive instruments areheld for trading purposes. AVANT invests its cash primarily in money marketmutual funds. These investments are evaluated quarterly to determine the fairvalue of the portfolio. AVANT’s investment portfolio includes only marketablesecurities with active secondary or resale markets to help insure liquidity.AVANT has implemented investment policies regarding the amount and creditratings of investments. Because of the short-term nature of these investments,AVANT does not believe it has material exposure due to market risk. The impactto AVANT’s financial position and results of operations from likely changes ininterest rates is not material.

 

AVANTdoes not utilize derivative financial instruments. The carrying amountsreflected in the consolidated balance sheet of cash and cash equivalents,accounts receivables and accounts payable approximates fair value at March 31, 2008 due to the short-term maturities of theseinstruments.

 

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

 

*Evaluation of Disclosure Controls and Procedures*

* *

AVANT, the registrant, maintains disclosure controlsand procedures that are designed to provide reasonable assurance thatinformation required to be disclosed by AVANT in its reports that it files andsubmits under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), is recorded, processed, summarized, and reported within time periodsspecified by the SEC's rules and forms, and that such information isaccumulated and communicated to its management, including its interim ChiefExecutive Officer and Chief Financial Officer, as appropriate to allow timelydecisions regarding required disclosure. 

 

As required by Rule 13a 15 under the SecuritiesExchange Act of 1934 (the “Exchange Act”), as of March 31, 2008, we carried outan evaluation under the supervision and with the participation of ourmanagement, including our interim Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of our disclosure controlsand procedures as of the quarter ended March 31, 2008. In designing andevaluating our disclosure controls and procedures, we and our managementrecognize that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desiredcontrol objectives, and our management necessarily was required to apply itsjudgment in evaluating and implementing possible controls and procedures.

 

Based upon that evaluation, our interim ChiefExecutive Officer and Chief Financial Officer have concluded that as of March31, 2008, as a result of the material weaknesses discussed below, ourdisclosure controls and procedures were not effective

 

*Changes in Internal Control Over FinancialReporting.*

 

On October 22, 2007, AVANT and Celldex Therapeutics,Inc. (“Celldex”), a privately-held company, announced the signing of adefinitive Agreement and Plan of Merger, dated October 19, 2007, by and betweenAVANT, Callisto Merger Corporation (“Merger Sub”) and Celldex (the “MergerAgreement”). On March 7, 2008, AVANT completed the merger of Merger Sub, awholly owned subsidiary of AVANT, with and into Celldex (the “Merger”). TheMerger with Celldex was accounted for using the purchase method of accountingand was treated for accounting purposes as an acquisition by Celldex of AVANTwith Celldex being considered the “accounting acquirer” based on theapplication of criteria specified in Statement of Financial AccountingStandards “SFAS” No. 141, Business Combination, (“SFAS 141”), even though AVANTwas the issuer of common stock and the surviving legal entity and registrant inthe transaction. Because Celldex was determined to be the acquirer foraccounting purposes, the historical financial statements of Celldex, which hadprior to the Merger been a privately-held company, became the historicalfinancial statements of the Company. Accordingly, the financial statements ofthe Company prior to the Merger reflect the financial position, results ofoperations and cash flows of Celldex only, which during the historical periodspresented in the accompanying consolidated financial statements, was then aprivately-held company which 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.

 

The Merger with Celldex resulted in a change that hasmaterially affected, or is reasonably likely to materially affect, the combinedCompany’s internal control over financial reporting (as defined in Rules 13a15(f) and 15d 15(f) under the Exchange Act) during the period covered by this QuarterlyReport on Form 10 Q. 

 

A material weakness is a deficiency, or a combinationof deficiencies, in internal control over financial reporting, such that thereis a reasonable possibility that a material misstatement of the Company'sannual or interim financial statements will not be prevented or detected on atimely basis.  As of March 31, 2008,

 

40

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management has identified the following material weaknesses in theCompany's internal control over financial reporting:

 

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

 

·                       Celldex didnot 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 and accrued liability accounts and related financial disclosures.

 

Additionally, the above control deficiencies couldresult in misstatements of financial statement accounts and disclosures thatwould results in a material misstatement of the consolidated financialstatements that would not be prevented or detected.

 

*Remediation of Material Weakness*

 

Management is in the process of reviewing and, as necessary,revising its assignment of authority and responsibility as well as its policiesand procedures with respect to its controls over the financial statementclosing process to ensure that all reasonable steps will be taken to correctthis material weakness. As part of this process, management expects the Mergerwith AVANT to facilitate the remediation of material weaknesses and enhancementof internal controls as the accounting function for Celldex has now beenassumed by AVANT, which has a larger accounting staff and experience in therequirements applicable to publicly-traded companies. The deficiencies will notbe considered remediated until the AVANT internal controls are operational fora sufficient period of time and are tested, and management has concluded thatthe controls are designed and operating effectively. 

 

41

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**PART II— OTHER INFORMATION**

 

## **Item 1.****                           LegalProceedings**

##  

None.

 

## **Item 1A.****                  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 are not the only risks facing the Company.Additional risks and uncertainties not currently known to the Company or thatthe 

 

42

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Company currently deemsto be immaterial also may materially adversely affect the Company’s business,financial condition and/or operating results.

 

## **Item 4.****                           Submissionof Matters to a Vote of Security Holders**

##  

On March 6, 2008,AVANT held a Special Meeting of Stockholders at which the stockholders approvedfour proposals: (i) the issuance of shares of AVANT common stock pursuantto the Merger Agreement in the amount necessary to result in the Celldexstockholders owning 58% of AVANT common stock on a fully diluted basis, (ii) anamendment to AVANT’s Third Restated Certificate of Incorporation to increasethe number of authorized shares to 300,000,000, (iii) an amendment toAVANT’s Third Restated Certificate of Incorporation to effect a reverse stocksplit in a ratio ranging from one-for-twelve to one-for-twenty of all theissued and outstanding shares of AVANT common stock, the final ratio to bedetermined within the discretion of the AVANT board of directors and (iv) adoptionof the 2008 Stock Option and Incentive Plan.

 

At the Special Meeting ofStockholders, the following votes were tabulated for the proposal before AVANT’sStockholders:

 

PROPOSAL I

 

Toissue shares of AVANT common stock pursuant to the Merger Agreement inthe amount necessary to result in the Celldex stockholders owning 58% of AVANTcommon stock on a fully diluted basis.

 
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|------------|------------|-------------|------------|-------------|------------|
| 37,356,519 |       | 1,695,943   |       | 133,474     |       |

 

PROPOSAL II

 

To amend AVANT’s Third Restated Certificateof Incorporation to increase the number of authorized shares to 300,000,000.

 
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|------------|------------|-------------|------------|-------------|------------|
| 59,288,137 |       | 4,376,122   |       | 452,541     |       |

 

PROPOSAL III

 

To amend AVANT’s Third Restated Certificateof Incorporation to effect a reverse stock split in a ratio ranging fromone-for-twelve to one-for-twenty of all the issued and outstanding shares ofAVANT common stock, the final ratio to be determined within the discretion ofthe AVANT board of directors.

 
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|------------|------------|-------------|------------|-------------|------------|
| 58,934,582 |       | 4,833,582   |       | 348,636     |       |

 

PROPOSAL IV

 

To approve the 2008 Stock Option andIncentive Plan.

 
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|------------|------------|-------------|------------|-------------|------------|
| 31,606,375 |       | 7,229,463   |       | 350,096     |       |

 

**The number of shares issued,outstanding and eligible to vote as of the record date of Janaury 17, 2008 was74,190,677.  A quorum was present at theSpecial Meeting of Stockholders with 64,116,800 shares represented by proxiesor 86.42% of the eligible voting shares.**

** **

**43**

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## **Item 6.****                           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.*                                                                                                                                                                                                                                                         |
|   *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.                                                                                                                                                                                                                              |

 

44

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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: May 19,  2008 |       |       |       |                                | Anthony S.  Marucci |
|                      |       |       |       |                                | Interim  President and Chief Executive Officer |
|                      |       |       |       |                                | (Principal  Executive Officer) |
|                      |       |       |       |                                |   |
|                      |       |       |       |                                | /s/ AVERY W.  CATLIN |
| Dated: May 19,  2008 |       |       |       |                                | Avery W. Catlin |
|                      |       |       |       |                                | Senior Vice  President, Treasurer |
|                      |       |       |       |                                | and Chief  Financial Officer |
|                      |       |       |       |                                | (Principal  Financial and |
|                      |       |       |       |                                | Accounting  Officer) |

 

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**EXHIBITINDEX**

 
| 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 audex  therapeuties, Inc. and Pfizer Vaccines LLC.*                                                                                                                                                                                                                                                 |
| *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 pursuan 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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