** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

** **

----

** **

**FORM 10-Q**

** **

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

 

**For the quarterly periodended June 30, 2007**

** **

**OR**

** **

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

 

**Commission filenumber:  0-15006**

** **

**AVANT IMMUNOTHERAPEUTICS, INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**              |   | **No. 13-3191702**               |
|---------------------------|--------|---------------------------------------|
| (State of  Incorporation) |   | (I.R.S. Employer  Identification No.) |

 

**119 Fourth Avenue,Needham, Massachusetts 02494-2725**(Address of principalexecutive offices) (Zip Code)

**(781) 433-0771**(Registrant’s telephonenumber, including area code)

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports) and (2) has been subject to such filing requirements for thepast 90 days.   Yes* *x   No o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act. (Check one):
| Large accelerated filer   o |   | Accelerated filer   x |   | Non-accelerated filer   o |
|---------------------------------------|--------|---------------------------------|--------|-------------------------------------|

 

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

As of August 6,2007, 74,188,066 shares of common stock, $.001 par value per share, wereoutstanding.

 

 

----

**AVANT IMMUNOTHERAPEUTICS, INC.**

**FORM 10-QQuarter Ended June 30, 2007Table of Contents**
| **Part I—Financial  Information**                                                         | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|
|                                                                                                |       |
| Item  1. Unaudited Financial Statements                                                             |       |
|                                                                                                |       |
| Consolidated  Balance Sheets at June 30, 2007 and December 31, 2006                       |       |
|                                                                                                |       |
| Consolidated Statements of Operations for the Three  Months Ended June 30, 2007 and 2006       |       |
|                                                                                                |       |
| Consolidated Statements of Operations for the Six  Months Ended June 30, 2007 and 2006         |       |
|                                                                                                |       |
| Consolidated Statements of Cash Flows for the Six  Months Ended June 30, 2007 and 2006         |       |
|                                                                                                |       |
| 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

----

**PART I—FINANCIALINFORMATION**

**Item 1.   UnauditedFinancial Statements**

**AVANT IMMUNOTHERAPEUTICS, INC.CONSOLIDATED BALANCE SHEETS(Unaudited)**
| ** **                                                                                                                                                                                                     | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                                                     | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Current Assets:                                                                                                                                                                                                |       |                    |       |                        |       |
| Cash and Cash  Equivalents                                                                                                                                                                                     |       | $                       | 25,909,541 |                        | $          | 40,911,539 |   |
| Accounts  Receivable                                                                                                                                                                                           |       | 102,437                 |       | 320,941                     |       |
| Prepaid Expenses  and Other Current Assets                                                                                                                                                                     |       | 1,317,116               |       | 1,171,014                   |       |
|                                                                                                                                                                                                           |       |                    |       |                        |       |
| Total Current  Assets                                                                                                                                                                                          |       | 27,329,094              |       | 42,403,494                  |       |
|                                                                                                                                                                                                           |       |                    |       |                        |       |
| Property and Equipment,  Net                                                                                                                                                                                   |       | 16,555,004              |       | 13,967,800                  |       |
| Investment in Select  Vaccines Ltd.                                                                                                                                                                            |       | 696,951                 |       | —                      |       |
| Intangible and Other  Assets, Net                                                                                                                                                                              |       | 3,591,866               |       | 4,071,963                   |       |
| Goodwill                                                                                                                                                                                                       |       | 1,036,285               |       | 1,036,285                   |       |
| Total Assets                                                                                                                                                                                                   |       | $                       | 49,209,200 |                        | $          | 61,479,542 |   |
| ** **                                                                                                                                                                                                     | ** ** | ** **              | ** ** | ** **                  | ** ** |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                                                 | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Current Liabilities:                                                                                                                                                                                           |       |                    |       |                        |       |
| Accounts Payable                                                                                                                                                                                               |       | $                       | 887,593    |                        | $          | 2,552,089 |   |
| Accrued Expenses                                                                                                                                                                                               |       | 3,215,922               |       | 2,674,544                   |       |
| Current Portion  of Deferred Revenue                                                                                                                                                                           |       | 3,786,108               |       | 4,380,074                   |       |
| Current Portion  of Long-Term Liabilities                                                                                                                                                                      |       | 575,714                 |       | 477,606                     |       |
| Total Current  Liabilities                                                                                                                                                                                     |       | 8,465,337               |       | 10,084,313                  |       |
|                                                                                                                                                                                                           |       |                    |       |                        |       |
| Deferred Revenue                                                                                                                                                                                               |       | 44,759,405              |       | 45,069,123                  |       |
| Other Long-Term  Liabilities                                                                                                                                                                                   |       | 4,815,954               |       | 4,165,126                   |       |
|                                                                                                                                                                                                           |       |                    |       |                        |       |
| Commitments and  Contingent Liabilities (Note 12)                                                                                                                                                              |       |                    |       |                        |       |
|                                                                                                                                                                                                           |       |                    |       |                        |       |
| Stockholders’ Equity  (Deficit):                                                                                                                                                                          |       |                    |       |                        |       |
| Convertible  Preferred Stock, 4,513,102 Shares Authorized; None Issued and Outstanding                                                                                                                         |       | —                  |       | —                      |       |
|                                                                                                                                                                                                           |       |                    |       |                        |       |
| Common Stock,  $.001 Par Value; 100,000,000 Shares Authorized; 74,404,367 Issued and  74,184,048 Outstanding at June 30, 2007 and 74,402,867 Issued and 74,182,548 Outstanding at  December 31, 2006 |       | 74,404                  |       | 74,403                      |       |
| Additional  Paid-In Capital                                                                                                                                                                                    |       | 258,737,723             |       | 258,560,628                 |       |
| Less: 220,319  Common Treasury Shares at Cost                                                                                                                                                                  |       | (227,646                | )          | (227,646                    | )          |
| Accumulated  Other Comprehensive Income: Unrealized Loss                                                                                                                                                       |       | (38,049                 | )          | —                      |       |
| Accumulated  Deficit                                                                                                                                                                                           |       | (267,377,929            | )          | (256,246,405                | )          |
|                                                                                                                                                                                                           |       |                    |       |                        |       |
| Total Stockholders’  Equity (Deficit)                                                                                                                                                                     |       | (8,831,497              | )          | 2,160,980                   |       |
|                                                                                                                                                                                                           |       |                    |       |                        |       |
| Total Liabilities and  Stockholders’ Equity                                                                                                                                                               |       | $                       | 49,209,200 |                        | $          | 61,479,542 |   |

 

*Seeaccompanying notes to unaudited consolidated financial statements*

3

----

 

**AVANT IMMUNOTHERAPEUTICS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)**
| ** **                                                       | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                       | ** ** | **June 30,  2007**          | ** ** | **June 30,  2006** | ** ** |
| **REVENUE:**                                                     | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Product  Development and Licensing Agreements                    |       | $                                | 10,018     |   | $ | 17,446 |   |
| Government  Contracts and Grants                                 |       | 88,999                           |       | 460,523 |   |
| Product  Royalties                                               |       | 910,379                          |       | 27,510 |   |
|                                                             |       |                             |       |   |   |
| Total Revenue                                                    |       | 1,009,396                        |       | 505,479 |   |
| ** **                                                       | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **OPERATING  EXPENSE:**                                          | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Research and  Development                                        |       | 4,967,629                        |       | 4,463,899 |   |
| General and  Administrative                                      |       | 1,671,138                        |       | 2,117,192 |   |
| Amortization of  Acquired Intangible Assets                      |       | 240,048                          |       | 248,778 |   |
|                                                             |       |                             |       |   |   |
| Total Operating  Expense                                         |       | 6,878,815                        |       | 6,829,869 |   |
|                                                             |       |                             |       |   |   |
| Operating Loss                                                   |       | (5,869,419                       | )          | (6,324,390 | ) |
|                                                             |       |                             |       |   |   |
| Investment and  Other Income, Net                                |       | 364,173                          |       | 654,091 |   |
|                                                             |       |                             |       |   |   |
| Net Loss                                                         |       | $                                | (5,505,246 | ) | $ | (5,670,299 | ) |
|                                                             |       |                             |       |   |   |
| Basic and  Diluted Net Loss Per Common Share                     |       | $                                | (0.07      | ) | $ | (0.08 | ) |
|                                                             |       |                             |       |   |   |
| Shares Used in  Calculating Basic and Diluted Net Loss per Share |       | 75,184,048                       |       | 74,174,761 |   |

 

*Seeaccompanying notes to unaudited consolidated financial statements*

4

----

**AVANT IMMUNOTHERAPEUTICS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)**
| ** **                                                      | ** ** | **Six Months Ended** | ** **  |
|-----------------------------------------------------------------|------------|--------------------------------|-------------|
| ** **                                                      | ** ** | **June 30,  2007**        | ** **  | **June 30,  2006** | ** ** |
| **REVENUE:**                                                    | ** ** | ** **                     | ** **  | ** ** | ** ** |
| Product Development and  Licensing Agreements                   |       | $                              | 18,104      |   | $ | 2,637,420 |   |
| Government Contracts  and Grants                                |       | 351,258                        |        | 960,730 |   |
| Product Royalties                                               |       | 1,822,231                      |        | 613,816 |   |
|                                                            |       |                           |        |   |   |
| Total Revenue                                                   |       | 2,191,593                      |        | 4,211,966 |   |
| ** **                                                      | ** ** | ** **                     | ** **  | ** ** | ** ** |
| **OPERATING EXPENSE:**                                          | ** ** | ** **                     | ** **  | ** ** | ** ** |
| Research and  Development                                       |       | 9,926,331                      |        | 8,812,606 |   |
| General and  Administrative                                     |       | 3,723,115                      |        | 4,105,706 |   |
| Amortization of Acquired  Intangible Assets                     |       | 480,096                        |        | 497,556 |   |
|                                                            |       |                           |        |   |   |
| Total Operating Expense                                         |       | 14,129,542                     |        | 13,415,868 |   |
|                                                            |       |                           |        |   |   |
| Operating Loss                                                  |       | (11,937,949                    | )           | (9,203,902 | ) |
|                                                            |       |                           |        |   |   |
| Investment and Other  Income, Net                               |       | 806,424                        |        | 934,612 |   |
|                                                            |       |                           |        |   |   |
| Loss before Provision  for Income Taxes                         |       | (11,131,525                    | )           | (8,269,290 | ) |
|                                                            |       |                           |        |   |   |
| Provision for Income  Taxes                                     |       | —                         |        | 372,000 |   |
|                                                            |       |                           |        |   |   |
| Net Loss                                                        |       | $                              | (11,131,525 | ) | $ | (8,641,290 | ) |
|                                                            |       |                           |        |   |   |
| Basic and Diluted Net  Loss Per Common Share                    |       | $                              | (0.15       | ) | $ | (0.12 | ) |
|                                                            |       |                           |        |   |   |
| Shares Used in Calculating Basic and Diluted Net Loss per Share |       | 75,184,015                     |        | 74,173,668 |   |

 

*Seeaccompanying notes to unaudited consolidated financial statements*

5

----

 

**AVANT IMMUNOTHERAPEUTICS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)**
| ** **                                                                   | ** ** | **Six Months Ended** | ** **  |
|------------------------------------------------------------------------------|------------|--------------------------------|-------------|
| ** **                                                                   | ** ** | **June 30,  2007**        | ** **  | **June 30,  2006** | ** ** |
| **Cash  Flows from Operating Activities:**                                   | ** ** | ** **                     | ** **  | ** ** | ** ** |
| Net Loss                                                                     |       | $                              | (11,131,525 | ) | $ | (8,641,290 | ) |
| Adjustments to Reconcile Net Loss to Net Cash Used  in Operating Activities: |       |                           |        |   |   |
| Depreciation and Amortization                                                |       | 1,235,809                      |        | 963,322 |   |
| Loss on Disposal of Assets                                                   |       | 74,148                         |        | — |   |
| Stock-Based Compensation Expense                                             |       | 175,387                        |        | 539,895 |   |
| Changes in Operating Assets and Liabilities:                                 |       |                           |        |   |   |
| Accounts Receivable                                                          |       | 218,504                        |        | (317,291 | ) |
| Prepaid and Other Current Assets                                             |       | (146,102                       | )           | (20,846 | ) |
| Accounts Payable and Accrued Expenses                                        |       | (1,123,117                     | )           | 270,528 |   |
| Deferred Revenue                                                             |       | (903,684                       | )           | 39,449,197 |   |
| Other Long-Term Liabilities                                                  |       | 879,428                        |        | 593,334 |   |
|                                                                         |       |                           |        |   |   |
| Net Cash Provided by (Used in) Operating Activities                          |       | (10,721,152                    | )           | 32,836,849 |   |
| ** **                                                                   | ** ** | ** **                     | ** **  | ** ** | ** ** |
| **Cash  Flows from Investing Activities:**                                   | ** ** | ** **                     | ** **  | ** ** | ** ** |
| Acquisition of Property and Equipment                                        |       | (3,417,064                     | )           | (2,672,598 | ) |
| Investment in Select Vaccines Limited                                        |       | (735,000                       | )           | — |   |
|                                                                         |       |                           |        |   |   |
| Cash Used in Investing Activities                                            |       | (4,152,064                     | )           | (2,672,598 | ) |
| ** **                                                                   | ** ** | ** **                     | ** **  | ** ** | ** ** |
| **Cash  Flows from Financing Activities:**                                   | ** ** | ** **                     | ** **  | ** ** | ** ** |
| Proceeds from Stock Issuance                                                 |       | 1,709                          |        | 6,145 |   |
| Proceeds from Exercise of Stock Options and Warrants                         |       | —                         |        | 4,921 |   |
| Payments of Long-Term Liabilities                                            |       | (130,491                       | )           | (126,035 | ) |
|                                                                         |       |                           |        |   |   |
| Net Cash Used in Financing Activities                                        |       | (128,782                       | )           | (114,969 | ) |
|                                                                         |       |                           |        |   |   |
| Net Increase  (Decrease) in Cash and Cash Equivalents                        |       | (15,001,998                    | )           | 30,049,282 |   |
|                                                                         |       |                           |        |   |   |
| Cash and Cash  Equivalents at Beginning of Period                            |       | 40,911,539                     |        | 23,419,434 |   |
|                                                                         |       |                           |        |   |   |
| Cash and Cash  Equivalents at End of Period                                  |       | $                              | 25,909,541  |   | $ | 53,468,716 |   |
|                                                                         |       |                           |        |   |   |
| **Supplemental  Disclosure of Cash Flow Information**                        | ** ** | ** **                     | ** **  | ** ** | ** ** |
| Cash paid for interest                                                       |       | $                              | 22,930      |   | $ | 61,734 |   |
|                                                                         |       |                           |        |   |   |

 

*Seeaccompanying notes to unaudited consolidated financial statements*

6

----

** **

**AVANT IMMUNOTHERAPEUTICS, INC.**

**Notes to Unaudited Consolidated Financial Statements**

**June 30, 2007**

**(1)           Nature of Business**

AVANTImmunotherapeutics, Inc. (the “Company” or “AVANT”) is engaged in thediscovery, development and commercialization of products that harness the humanimmune system to prevent and treat disease. The Company is developing a broadportfolio of vaccines and therapeutics against infectious diseases. Theportfolio includes a pipeline of preventative, single-dose oral vaccines aimedat protecting travelers and people in regions where infectious diseases areendemic. The portfolio also includes immunotherapeutics for cardiovasculardiseases which are available for partnering, including a treatment to reducecomplement-mediated tissue damage associated with cardiac by-pass surgery andtransplantation and a proprietary vaccine candidate for cholesterol management.In addition, the Company is developing the VitriLifeÒ preservation and lyophilization technologiesfor use in manufacturing AVANT’s oral vaccines and certain other non-injectableapplications. AVANT further leverages the value of its technologyportfolio through corporate, governmental and non-governmental partnerships.One successful collaboration resulted in the development and marketing of anoral human rotavirus vaccine. Current collaborations encompass the developmentof vaccines addressed to global health, human food safety and animal health.

The unauditedconsolidated financial statements include the accounts of AVANT and its whollyowned subsidiary, Megan Health, Inc. (“Megan”). All intercompanytransactions have been eliminated.

**(2)           Interim Financial Statements**

The accompanyingunaudited consolidated financial statements for the three months and six monthsended June 30, 2007 and 2006 include the consolidated accounts of AVANT,and have been prepared in accordance with instructions to Form 10-Qand Article 10 of Regulation S-X. In the opinion of management, theinformation contained herein reflects all adjustments, consisting solely ofnormal recurring adjustments, that are necessary to present fairly the Company’sfinancial position at June 30, 2007, results of operations for the threemonths and six months ended June 30, 2007 and 2006, and cash flows for thesix-month periods ended June 30, 2007 and 2006. The results of operationsfor the six-month period ended June 30, 2007 are not necessarilyindicative of results for any future interim period or for 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 AVANT’s Annual Reporton Form 10-K for the year ended December 31, 2006, are adequateto make the information presented not misleading. The accompanyingDecember 31, 2006 Consolidated Balance Sheet was derived from auditedfinancial statements, but does not include all disclosures required byaccounting principles generally accepted in the United States of America.

**(3)           Recent Accounting Pronouncements**

**SFAS 159:**  In February 2007, the FASB issued SFAS No.159, *The**Fair Value Option forFinancial Assets and Financial Liabilities—including an Amendment of FASBStatement No. 155*(“SFAS 159”), which permits entities to choose tomeasure many financial instruments and certain other items on aninstrument-by-instrument basis under a fair value option. SFAS 159 is effectivefor financial statements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years. AVANT has not yetdetermined the effect if any that adopting SFAS 159 will have on theCompany’s financial statements.

**EITF 07-3:**  In June 2007, the EITF reached consensus onEITF Issue No. 07-3, *Accounting for AdvancePayments for Goods and Services to Be Used in Future Research and DevelopmentActivities* (“EITF 07-3”). EITF 07-3 states that non-refundableadvance payments for future research and development activities should becapitalized until the goods have been delivered or the related services havebeen performed. EITF is effective for fiscal years beginning after December 15,

7

----

 

2007. Entities are to recognize the effects of EITF 07-3prospectively for new contracts entered into after the effective date. Theadoption of EITF 07-3 will not have a material impact on AVANT’s financialposition or results of operations.

**(4)           Stock-Based Compensation**

The Companyadopted SFAS 123(R) beginning January 1, 2006, using the modifiedprospective transition method. In conjunction with the adoption of SFAS 123(R),compensation expense for all stock-based payment awards granted prior toJanuary 1, 2006 will continue to be recognized using the straight-linemethod and compensation expense for all share-based payment awards grantedsubsequent to January 1, 2006 will also be recognized using thestraight-line method. As stock-based compensation expense recognized in theConsolidated Statement of Operations for the first six months of fiscal 2007and 2006 is based on awards ultimately expected to vest, it has been reducedfor estimated forfeitures. SFAS 123(R) requires forfeitures to beestimated at the time of grant and revised, if necessary, in subsequent periodsif actual forfeitures differ from those estimates.

Also, uponadoption of SFAS 123(R), the Company retained its method of valuation forshare-based awards granted using the Black-Scholes option-pricing model (“Black-Scholesmodel”). The Company’s determination of fair value of share-based paymentawards on the date of grant using an option-pricing model is affected by theCompany’s stock price as well as assumptions regarding a number of highlycomplex and subjective variables. These variables include, but are not limitedto, the Company’s expected stock price volatility over the term of the awards,and actual and projected employee stock option exercise behaviors.

As ofJune 30, 2007, the Company had two shareholder approved, share-basedcompensation plans: the 2004 Employee Stock Purchase Plan (the “2004 ESPP Plan”)and the 1999 Stock Option and Incentive Plan (the “1999 Plan”). For a completediscussion of the Company’s share-based plans see Note 5 of the consolidatedfinancial statements included in its annual report on Form 10-K, as previouslyfiled with the Securities and Exchange Commission on March 16, 2007.

**EmployeeStock Benefit Plans**

***Restricted Stock Unit Awards***

In September 2005,November 2004 and September 2003, the Company awarded restricted stock units toDr. Una Ryan, its President and CEO, and determined the value of the restrictedstock unit awards to be $270,000, $832,000 and $1,104,000, respectively, basedon the closing price of AVANT’s common stock on the award date. The value ofthe restricted stock units was amortized over the remaining months until Dr.Ryan attained age 65 in December 2006, and was recorded as compensationexpense. In connection with the awards, the Company has recognized $175,000 and$350,000 as stock-based compensation expense in the statements of operationsduring the three- and six-month periods ended June 30, 2006, respectively.

AVANT has appliedan estimated forfeiture rate of zero to the restricted stock unit awards.

***Employee Stock Purchase Plan***

During the sixmonths ended June 30, 2007 and 2006, the Company issued 1,500 and 5,665shares, respectively, under the 2004 ESPP Plan. At June 30, 2007, 121,239shares were available for issuance under the 2004 ESPP Plan.

The currentpurchase period began on January 1, 2007. The Company has established therisk-free interest rate assumption to be 4.9% using the 6-month rate on atraded zero-coupon U.S. Treasury bond. The Company used its historicalvolatility rate of 46% for the 6-month period preceding the grant date for thecurrent stock purchase period. The Company has concluded that volatility duringthe current purchase period is expected to be consistent with the calculatedhistorical volatility rate. Finally, the Company established the expected termfor the current stock purchase period as six months. Based on theseassumptions, the stock-based compensation expense recorded for the employeestock purchases was not significant.

8

----

 

***Employee Stock Option Plan***

*GeneralOption Information*

Asummary of stock option activity under the 1999 Plan for the six months endedJune 30, 2007 is as follows:
| ** **                     | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price  Per Share** | ** ** | **Weighted  Average  Remaining  Contractual  Term (In Years)** | ** ** |
|--------------------------------|------------|------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| Outstanding at  January 1 |       | 3,281,154  |       | $                                                      | 2.40       |                                                                     | 5.26       |   |
| Granted                        |       | 446,100    |       | 1.29                                                   |       |                                                                     |       |
| Canceled/forfeited             |       | (98,699    | )          | 1.65                                                   |       |                                                                     |       |
| Expired                        |       | (174,113   | )          | 1.70                                                   |       |                                                                     |       |
| Outstanding at  June 30   |       | 3,454,442  |       | $                                                      | 2.32       |                                                                     | 5.21       |   |
|                           |       |       |       |                                                   |       |                                                                     |       |
| At June 30                |       |       |       |                                                   |       |                                                                     |       |
| Options exercisable            |       | 2,542,588  |       | $                                                      | 2.55       |                                                                     |       |   |

 

Theweighted average fair value of options granted during the six-month periodended June 30, 2007 was $0.92.

Theaggregate intrinsic value of options outstanding at June 30, 2007 waszero. All options are at prices higher than the Company’s current stock priceand therefore have no intrinsic value.

*Valuationand Expense Information under SFAS 123(R)*

The followingtable summarizes stock-based compensation expense related to employee andnon-employee director stock options and employee stock purchases under SFAS123(R) for the three and six months ended June 30, 2007 and 2006which was allocated as follows:
| ** **                              | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|-----------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                              | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Research and  development               |       | $                                                   | 32,386     |                                              | $          | 39,733 |   | $ | 73,419 |   | $ | 73,128 |   |
| General and  administrative             |       | 44,103                                              |       | 235,908                                           |       | 101,968 |   | 466,767 |   |
| Total stock-based  compensation expense |       | $                                                   | 76,489     |                                              | $          | 275,641 |   | $ | 175,387 |   | $ | 539,895 |   |

 

Stock-basedcompensation expense related to restricted stock unit awards recognized for thethree and six months ended June 30, 2006 was $175,000 and $350,000,respectively, all of which was allocated to general and administrativeexpenses.

Based on basic anddiluted weighted average common shares outstanding of 75,184,048 and75,184,015, the effect of stock-based compensation expense recorded underSFAS 123R for the three-and six-month periods has no significant impact onearnings per share.

As ofJune 30, 2007, total compensation cost related to non-vested stock optionsnot yet recognized was $810,980, net of estimated forfeitures, which isexpected to be recognized as expense over a weighted average period of2.1 years.

9

----

 

Thefair values of employee and non-employee director stock options granted duringthe three and six months ended June 30, 2007 and 2006 were valued usingthe Black-Scholes model with the following assumptions:
| ** **                                                | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Expected stock  price volatility (employees)              |       | 73                                                  | %          | 80                                                | %          | 73 | % | 80 | % |
| Expected stock  price volatility (non-employee directors) |       | 66                                                  | %          | 78                                                | %          | 66 | % | 78 | % |
| Expected option  term (employees)                         |       | 6.25 Years                                          |       | 6.25 Years                                        |       | 6.25 Years |   | 6.25 Years |   |
| Expected option  term (non-employee directors)            |       | 5.5 Years                                           |       | 5.5 Years                                         |       | 5.5 Years |   | 5.5 Years |   |
| Risk-free  interest rate                                  |       | 4.5 - 5.2                                           | %          | 4.8 - 5.2                                         | %          | 4.4 - 5.2 | % | 4.3 - 5.2 | % |
| Expected dividend yield                                   |       | None                                                |       | None                                              |       | None |   | None |   |

 

The Company usedits daily historical stock price volatility consistent with the expected termof grant as the basis for its expected volatility assumption in accordance withSFAS 123(R) and SAB 107 for its employee and non-employee director stockoptions and employee stock purchases. The Company has concluded that itshistorical volatility is representative of expected future stock price trends.

The risk-freeinterest rate assumption is based upon observed interest rates appropriate forthe expected term of the Company’s employee and non-employee director stockoptions and employee stock purchases. The dividend yield assumption is based onthe Company’s history of zero dividend payouts and expectation that no dividendswill be paid in the foreseeable future.

The expected termof employee 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. The Company has elected tofollow the guidance of SAB 107 and adopt this simplified method in determiningexpected term for its stock option awards. There were 75,000 stock optiongrants to non-employee directors during the three months ended June 30,2007.

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 six months ended June 30, 2007, respectively.

The Company hasnot recognized 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.

**(5)           Accounts Receivable**

Accounts 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 receivable consists of the following:

|        | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|--------|------------|-------------------------|------------|-----------------------------|------------|
| Trade  |       | $                       | 36,931     |                        | $          | 183,830 |   |
| Other  |       | 65,506                  |       | 137,111                     |       |
|   |       | $                       | 102,437    |                        | $          | 320,941 |   |

 

Other receivablesat June 30, 2007 and December 31, 2006 represent interest receivablefrom a bank.

10

----

 

**(6)           Property and Equipment**

Property and equipment includes the following:

|                                                 | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Laboratory  Equipment                           |       | $                       | 4,234,713  |                        | $          | 3,631,247 |   |
| Manufacturing  Equipment                        |       | 1,976,795               |       | 1,842,017                   |       |
| Office Furniture  and Equipment                 |       | 1,354,334               |       | 992,076                     |       |
| Leasehold  Improvements                         |       | 9,613,062               |       | 5,202,366                   |       |
| Construction in  Progress                       |       | 5,352,065               |       | 7,668,904                   |       |
| Total Property and Equipment                    |       | 22,530,969              |       | 19,336,610                  |       |
| Less Accumulated  Depreciation and Amortization |       | (5,975,965              | )          | (5,368,810                  | )          |
|                                            |       | $                       | 16,555,004 |                        | $          | 13,967,800 |   |

 

AVANT recorded aloss of $74,148 on disposal of fixed assets during the six months endedJune 30, 2007.

The Company hasrecognized $22,930 and $25,997 of capitalized interest costs incurred infinancing leasehold improvements and laboratory and manufacturing equipment atits Fall River and Needham facilities during the three-month periods endedJune 30, 2007 and 2006, respectively, and $32,003 and $41,972 ofcapitalized interest costs during the six-month periods ended June 30,2007 and 2006, respectively. The total amount of interest expense incurred byAVANT during the three-month periods ended June 30, 2007 and 2006 was$22,930 and $25,997, respectively, and $46,378 and $52,452 during the six-monthperiods ended June 30, 2007 and 2006, respectively.

Depreciation expense related to equipment and leaseholdimprovements was $417,239 and $241,463 for the three months ended June 30,2007 and 2006, respectively, and $755,074 and $487,465 for the six months endedJune 30, 2007 and 2006, respectively.

**(7)           Intangible and Other Assets**

Intangible and other assets include the following:
| ** **                   | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                   | ** ** | **Estimated  Lives**        | ** ** | **Gross  Intangible  Assets**   | ** ** | **Accumulated  Amortization** | ** ** | **Net  Intangible  Assets** | ** ** | **Gross  Intangible  Assets** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Intangible  Assets** | ** ** |
| Intangible  Assets:          |       |                        |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Collaborative  Relationships |       | 5 years                     |       | $                               | 1,090,000  |   | $ | (1,090,000 | ) | $ | 3⁄4 |   | $ | 1,090,000 |   | $ | (1,090,000 | ) | $ | 3⁄4 |   |
| Core Technology              |       | 10 years                    |       | 3,786,900                       |       | (2,076,393 | ) | 1,710,507 |   | 3,786,900 |   | (1,887,046 | ) | 1,899,854 |   |
| Developed  Technology        |       | 7 years                     |       | 3,263,100                       |       | (3,047,740 | ) | 215,360 |   | 3,263,100 |   | (2,832,400 | ) | 430,700 |   |
| Strategic Partner  Agreement |       | 17 years                    |       | 2,563,900                       |       | (992,882 | ) | 1,571,018 |   | 2,563,900 |   | (917,472 | ) | 1,646,428 |   |
|                         |       |                        |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Total Intangible  Assets     |       |                        |       | 10,703,900                      |       | (7,207,015 | ) | 3,496,885 |   | 10,703,900 |   | (6,726,918 | ) | 3,976,982 |   |
|                         |       |                        |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Other Non Current  Assets    |       |                        |       | 94,981                          |       | 3⁄4 |   | 94,981 |   | 94,981 |   | 3⁄4 |   | 94,981 |   |
|                         |       |                        |       | $                               | 10,798,881 |   | $ | (7,207,015 | ) | $ | 3,591,866 |   | $ | 10,798,881 |   | $ | (6,726,918 | ) | $ | 4,071,963 |   |

 

All of AVANT’sintangible assets are amortized over their estimated useful lives. Totalamortization expense for intangible assets was $240,048 and $248,778 for thethree-month periods ended June 30, 2007 and 2006, respectively, and$480,096 and $ 497,556 for the six-month periods ended June 30, 2007 and2006, respectively.

11

----

Theestimated future amortization expense of intangible assets as of June 30,2007 for the remainder of fiscal year 2007 and the five succeeding years is asfollows:

| Year ending December 31, | ** ** | **Estimated  Amortization  Expense** | ** ** |
|-----------------------------------------|------------|--------------------------------------|------------|
| 2007 (remaining six  months)            |       | $                                    | 480,111    |   |
| 2008                                    |       | 529,512                              |       |
| 2009                                    |       | 529,512                              |       |
| 2010                                    |       | 514,622                              |       |
| 2011                                    |       | 350,822                              |       |
| 2012 and thereafter                     |       | 1,092,303                            |       |
|                                         |            |                                      |            |  |

 

**(8)           Loss Per Share**

The Companycomputes and reports earnings per share in accordance with the provisions ofSFAS No. 128, *Earnings Per Share*.The computations of basic and diluted loss per common share are based upon theweighted average number of common shares outstanding and potentially dilutivesecurities. Potentially dilutive securities include stock options, warrants andrestricted stock units. Options and warrants to purchase 3,898,886 and4,033,670 shares of common stock and restricted stock units totaling 0 and1,000,000 shares were not included in the computations of weighted averagecommon shares for the periods ended June 30, 2007 and 2006, respectively,because inclusion of such shares would have an anti-dilutive effect on net lossper share. In 2007, restricted stock units totaling 1,000,000 shares wereincluded in the computation of basic and diluted net loss per share as allnecessary conditions for their issuance had been satisfied and an insignificantamount of cash consideration will be received upon issuance.

**(9)           Income Taxes**

The $40 millionmilestone payment received from Paul Royalty Fund II, L.P. (“PRF”) during thefirst quarter of 2006 resulted in taxable income for the Company. The regulartaxable income generated by this transaction will be fully offset againstavailable federal and state net operating loss carryforwards. The Companyrecorded a provision of $372,000 in the first quarter of 2006 for thealternative minimum tax that was estimated to result from receipt of thismilestone. In the fourth quarter of 2006, the estimated provision was adjustedto $120,000.

On January 1,2007, the Company adopted FASB Interpretation No. 48, *Accounting forUncertainty in Income Taxes—an interpretation of FASB Statement 109*(“FIN 48”). FIN 48 prescribes a comprehensive model for recognizing, measuring,presenting and disclosing in the financial statements tax positions taken orexpected to be taken on a tax return, including a decision whether to file ornot to file in a particular jurisdiction. As a result of the implementation ofFIN 48, AVANT recognized no material adjustment in the liability forunrecognized income tax benefits. At adoption date and at June 30, 2007, AVANThad no material unrecognized income tax benefits.

As ofDecember 31, 2006, the Company had federal and state net operating losses(“NOL”) carryforwards and federal and state research and development credits (“R&D”)credit carryforwards, which may be available to offset future federal and stateincome tax liabilities which expire at various dates starting in 2007 and goingthrough 2026. Utilization of the NOL and R&D credit carryforwards may be subjectto a substantial annual limitation due to ownership change limitations thathave occurred previously or that could occur in the future provided bySection 382 of the Internal Revenue Code of 1986, as well as similar stateprovisions. These ownership changes may limit the amount of NOL and R&Dcredit carryforwards that can be utilized annually to offset future taxableincome and tax, respectively. In general, an ownership change, as defined bySection 382, results from transactions increasing the ownership of certainshareholders or public groups in the stock of a corporation by more than 50percentage points over a three-year period. Since the Company’s formation, theCompany has raised capital through the issuance of capital stock on severaloccasions (both pre and post initial public offering) which, combined with thepurchasing shareholders’ subsequent disposition of those shares, may haveresulted in a change of control, as defined by Section 382, or couldresult in a change of control in the future upon subsequent disposition. TheCompany has completed a study to assess whether changes of control haveoccurred which would limit the Company’s utilization of its NOL or R&Dcredit carryforwards. Based on this study, management has concluded that there areno such limitations. The Company does not expect to have any taxable income forthe foreseeable future.

12

----

 

Massachusetts andMissouri are the two states in which the Company operates and has income taxnexus. Open federal and state return years subject to examination by major taxjurisdictions include the tax years ended December 31, 2003, 2004, 2005 and2006 (which has not yet been filed). Carryforward attributes that weregenerated prior to 2003 may still be adjusted upon examination by the IRS if theyeither have been or will be used in a future period.

The Company’spractice is to recognize interest and penalties related to uncertain taxpositions in income tax expense. There have been no interest or penaltiesrecognized in the consolidated statement of operations and on the consolidatedbalance sheet as a result of FIN 48 calculations. The Company had $0 accruedfor interest and penalties at June 30, 2007.

As required byStatement of Financial Accounting Standards No. 109, management of theCompany has evaluated the positive and negative evidence bearing upon therealizability of its deferred tax assets, which are comprised principally ofNOLs, capitalized research and development expenditures and R&D credits.Management has determined that it is more likely than not that the Company willnot realize the benefits of federal and state deferred tax assets and, as aresult, a full valuation allowance was maintained at June 30, 2007 andDecember 31, 2006.

The Company is inthe process of restructuring and closing the Company’s Missouri location andtherefore expects that it will not benefit from the Missouri state losscarryforwards. This state net operating loss carryforward totaled approximately$12,043,600 at June 30, 2007.

**(10)         Product Development and LicensingAgreements**

AVANT’s revenuefrom product development and licensing agreements was received pursuant tocontracts with different organizations. A summary of these contracts follows:

*(A)         GlaxoSmithKlineplc (“Glaxo”) and Paul Royalty Fund (“PRF”)*

In 1997, AVANTentered into 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 alicense fee of 30% to Cincinnati Children’s Hospital Medical Center (“CCH”) onnet royalties received from Glaxo. AVANT is obligated to maintain a licensewith CCH with respect to the Glaxo agreement. All licensing fees are includedin research and development expense. The term of the Glaxo agreement is throughthe expiration of the last of the relevant patents covered by the agreement,although Glaxo may terminate the agreement upon 90 days prior written notice.

In May 2005,AVANT entered into an agreement whereby an affiliate of Paul Royalty Fund II,L.P. (“PRF”) purchased an interest in the******net******royalties AVANT will receive onworldwide sales of RotarixÒ.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.

The PRFtransaction qualifies as a sale in accordance with guidance in EITF 88-18,*Sale of Future Revenues*. The upfrontunconditional payment of $10 million and the $40 million milestone payment forlaunch in the European Union were recorded by AVANT as deferred revenue uponreceipt. Any future milestone payments received from PRF will also be recordedas deferred revenue. Revenues are being recognized and calculated based on theratio of total royalties received from Glaxo and remitted to PRF over expectedtotal amounts to be received by PRF and then applying this percentage to thetotal cumulative consideration received from PRF to date. The expected total ofpayments to PRF is an estimate which will be updated for any changes inexpectations of such payments. The impact of any such changes will be appliedprospectively.

InFebruary 2006, the European Commission granted approval of RotarixÒin the European Union, which triggered a $4 million milestone payment fromGlaxo, 50% of which is creditable against future royalties. Revenue of $2.6million was recorded in the first quarter of 2006 as AVANT has no continuingobligations to incur any research and development costs in connection with theGlaxo agreement. Glaxo has agreed to make further payments, which could totalup to $1.5 million, upon achievement of a specific milestone.

13

----

 

AVANT alsorecorded $600,000 in royalty expense payable to Cincinnati Children’s HospitalMedical Center (“CCH”) as a result of this milestone payment. AVANT remittedthe remaining $1.4 million of the Glaxo milestone payment to PRF in accordancewith the PRF agreement. As a result, in the first six months of 2006, AVANTalso recognized $550,803 in product royalty revenue related to PRF’s purchasedinterests in the net royalties that AVANT receives from RotarixÒworldwide net sales. In the first six months of 2007, AVANT recognized$1,754,227 in product royalty revenue consisting of $903,684 related to PRF’spurchased interest in Rotarix® net royalties and $850,543 related to AVANT’sretained interest in Rotarix® net royalties which were not sold to PRF, whichalso corresponds to the amount payable by AVANT to CCH. As such, acorresponding amount is recorded as royalty expense and included in researchand development expense. Based on management’s best estimates of the amount andtiming of Glaxo royalties, the Company has classified $3,786,108 and$44,759,405 of the deferred revenue balance at June 30, 2007 as short-termand long-term, respectively.

In September 2006,AVANT received notice from Glaxo that Glaxo would begin paying royalties onsales of RotarixÒ vaccine at thelower of two royalty rates under their 1997 license agreement. Glaxo’s decisionto pay the lower royalty rate (which is 70% of the full rate) is based uponGlaxo’s assertion that RotarixÒ is not covered bythe patents Glaxo licensed from AVANT in Australia and certain Europeancountries. AVANT is analyzing various options to counter Glaxo’s assertions andprotect AVANT’s rights. AVANT is determined to take all available steps toenforce its rights under its license agreement with Glaxo.

*(B)         PfizerInc (“Pfizer”)*

The Companyentered into a 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 andDevelopment Agreement with Pfizer aimed at the discovery and development ofvaccines to protect animals. The collaboration will employ vaccine technologiesowned by AVANT. Under the agreement, Pfizer and AVANT will conduct a jointresearch program funded by Pfizer to develop prophylactic and therapeuticvaccines. AVANT considers its June 2006 arrangement with Pfizer to be a revenuearrangement with multiple deliverables. AVANT expects to recognize revenue asthe research and development service deliverables are completed and deliveredto Pfizer. AVANT did not recognized any in product development revenue fromPfizer, Inc in the six-month periods ended June 30, 2007 and 2006,respectively.

*(C)         DynPortVaccine Company LLC (“DVC”)*

InJanuary 2003, AVANT was awarded a subcontract by DVC in the amount of $2.5million to develop for the U.S. Department of Defense an oral combinationvaccine against anthrax and plague using AVANT’s proprietary vaccinetechnologies. As of June 30, 2007, AVANT had received a number ofadditional subcontract modifications from DVC to support further developmentand pre-clinical animal testing of vaccine constructs of anthrax and plaguevaccine candidates being developed by AVANT for use in the oral combinationvaccine. Total contract funding awarded by DVC now totals approximately $12million. Payments under the subcontract agreement are made on a time andmaterials basis and receipt of the full amount is conditioned upon the projectbeing fully funded through completion and AVANT performing and continuing todemonstrate that it has the capability to perform the funded work. As a resultof AVANT’s recent restructuring, the Company will no longer invest itsresources in biodefense research and development activities and as a resultlimited contract revenue is expected during the remainder of 2007. For the sixmonths ended June 30, 2007 and 2006, AVANT recognized $232,496 and$870,653, respectively, in government contract revenue from DVC. ThroughJune 30, 2007, AVANT had received approximately $9.6 million in paymentsunder the various subcontract agreements. These agreements expire in 2007,although they may be terminated by DVC at any time upon 30 days written notice.

14

----

 

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

In February 2007,AVANT entered into a research and developmentpartnership with Select Vaccines, a public Australian biotechnology company,focused on the use of Select Vaccines’ virus-like particles (“VLPs”) as aplatform technology for the development of viral vaccines. Research anddevelopment efforts will initially target the development of vaccines againstinfluenza including both epidemic and pandemic forms of vaccine, with theopportunity to expand the collaboration to other disease targets. Under theterms of the agreement, AVANT made an upfront equity investment of $735,000 inSelect Vaccines and will fund influenza vaccine research and development fortwo years, as well as provide payments to Select Vaccines for the achievementof specific preclinical and clinical development milestones. In addition, AVANThas the exclusive right to apply Select Vaccines’ technology to a second targetwithin the first two years of the agreement, and a third target within thefirst three years of the agreement. Select Vaccines would also be eligible toreceive royalties based on net sales of any approved products arising out ofthis collaboration that are successfully marketed. AVANT has classified itsequity investment in Select Vaccines shares as available for sale securitiesunder FAS 115, *Accounting for Certain Investments in Debtand Equity Securities*, (“FAS 115”).

**(11)         Other Long-Term Liabilities**

InDecember 2003, AVANT entered into a Lease Agreement, a Secured PromissoryNote: Equipment Loan and a Security Agreement with the MassachusettsDevelopment Finance Agency (“MassDevelopment”), an economic development entityfor the Commonwealth of Massachusetts, for AVANT to occupy and build-out amanufacturing facility in Fall River, Massachusetts.

*(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. Principal and interestpayments on the loan are due monthly using an amortization period of 15 yearsand an interest rate of 5.5% per annum.

At June 30,2007, AVANT has recorded leasehold improvements of $1,227,800 and currently hasa loan payable of $1,023,166 to MassDevelopment, of which $75,032 is classifiedas current and $948,134 as long-term. AVANT began amortizing the leaseholdimprovements when the Fall River facility became operational. Based on currentmarket interest rates available to AVANT for long-term liabilities with similarterms and maturities, the fair value of the loan is approximately $749,600 atJune 30, 2007.

*(B)         NotePayable*

Under the SecuredPromissory Note: Equipment Loan, AVANT received $903,657 from MassDevelopmentto finance the purchases of manufacturing and laboratory equipment to be placedin its Fall River facility (the “Loan”). The Loan has a term of 84 months at aninterest rate of 5.5% per annum. The Loan is collateralized by all of theequipment purchased with the principal amount. The net book values of thesecollateralized assets at June 30, 2007 and December 31, 2006 was$718,814 and $769,855, respectively.

At June 30,2007, AVANT currently has a note payable of $588,616 to MassDevelopment, ofwhich $135,305 is classified as current and $453,311 as long-term. AVANT begandepreciating the manufacturing and laboratory equipment assets over theestimated economic lives of the assets when the equipment became ready for itsintended use. Based on current market interest rates available to AVANT forlong-term liabilities with similar terms and maturities, the fair value of thenote payable is approximately $528,200 at June 30, 2007.

**(12)         Commitments and Contingencies**

*(A)         Commitmentsfor the Renovations of the Needham Facility and Improvements to the Fall RiverFacility*

In November 2005, AVANT entered into a Lease Amendment with thelandlord which specified terms for the complete renovation of the Company’sNeedham facility. The current projected costs for the tenantimprovements portion of the

15

----

 

renovations project areapproximately $9.4 million. As an incentive for AVANT to enter into the LeaseAmendment, the landlord has agreed to contribute up to $3.6 million towardstenant improvement costs. The Companywill record the full cost of the Needham renovation project as an asset and theamounts of landlord incentive will be recorded as deferred rent (included under“Other Long Term Liabilities” account in the consolidated balance sheets) inaccordance with FASB Technical Bulletin 88-1 “Issues Related to Accounting forLeases.” Amortization of the deferred rent will be recorded as a reduction ofrent expense over the remaining lease term when the renovation project iscomplete and will be classified as an operating activity in the ConsolidatedStatement of Cash Flows. AVANT has recorded a total of $3,600,000 indeferred rent related to the Needham landlord’s tenant incentive allowance. InMay 2007, AVANT began amortizing on a straight-line basis the tenant incentiveallowance over the ten-year lease term and recorded a reduction in rent expenseof $60,000 in the quarter ended June 30, 2007. At June 30, 2007, deferredrent of $3,540,000 related to the Needham landlord’s tenant incentive allowancewas recorded on the Consolidated Balance Sheet of which $360,000 is classifiedas current and $3,180,000 as long-term.

*(B)         PurchaseCommitments for Contract Manufacturing*

InApril 2000, AVANT entered into a Services Agreement (the “Lonza Agreement”)with Lonza Biologics plc (“Lonza”) for process development and manufacture ofits product candidate TP10. AVANT has entered into a number of amendments tothe Lonza Agreement for specific process development and scale-up work andremaining aggregate commitments as of June 30, 2007 total approximately$274,538. The Company has incurred $487,615 and $8,998,925 of expense relatedto the Lonza Agreement in the six-month period ended June 30, 2007 andfrom inception through June 30, 2007, respectively, of which $140,355remained accrued at June 30, 2007.

**(13)         Restructuring**

On April 16, 2007,AVANT initiated planned restructuring activities to reduce ongoing operationalcosts, following an extensive review of its operations and cost structure. Therestructuring aimed to increase the focus of AVANT’s resources upon keyprograms and core operational capabilities and to lower the Company’s overallcost structure. The Company will concentrate its focus on building an enhancedportfolio of viral and bacterial vaccines for global health and travelersaround the Company’s core technologies, as well as its unique development andmanufacturing capabilities. AVANT will no longer invest in biodefense researchand development activities or further invest in clinical trials for its CETiand TP-10 programs.

The restructuringresulted in a workforce reduction of approximately 30%. AVANT is also exitingfrom its St. Louis-based research facility by September 30, 2007 when the leaseterm expires and is moving all essential research activities to its Needham, MAheadquarters. The restructuring charges consist of severance, payroll tax andextended benefits costs for terminated employees, as well as, salarycontinuation and retention bonus costs for certain St. Louis employees retainedduring the transition and closing process for the St. Louis facility. Duringthe quarter ended June 30, 2007, restructuring charges of $723,785 wererecorded, of which $713,458 were recorded as research and development and$10,327 were recorded as general and administrative expense. Of therestructuring charge, $342,697 related to St. Louis benefit arrangements and$381,088 related to Needham and Fall River benefit arrangements. During thethree months ended June 30, 2007, $217,798 of restructuring costs were paid outand a balance of $505,987 of accrued restructuring costs remained at June 30,2007.

16

----

***Safe Harbor Statement under the Private SecuritiesLitigation Reform Act of 1995:****  This quarterly report onForm 10-Q includes forward-looking statements**that are subject to a variety ofrisks and uncertainties andreflect AVANT’s current views with respect to future events and financialperformance. There are a numberof important factors that could cause the actual results to differ materiallyfrom those expressed in any forward-looking statements made by AVANT. Thesefactors include, but are not limited to: (1) the integration of multiple technologies and programs; (2) theability to adapt AVANT’s vectoring systems to develop new, safe and effectiveorally administered vaccines against pandemic diseases or other disease causingagents; (3) the ability to successfully complete product research and furtherdevelopment, including animal, pre-clinical and clinical studies andcommercialization of CholeraGarde® (Peru-15), Ty800, ETEC E. coli, VLPs andother products and AVANT’s expectations regarding market growth; (4) the cost,timing, scope and results of ongoing safety and efficacy trials ofCholeraGarde® (Peru-15), Ty800, ETEC E. coli and other preclinical and clinicaltesting; (5) the ability to negotiate strategic partnerships or otherdisposition transactions for AVANT’s cardiovascular programs, including TP10and CETi; (6) the ability of AVANT to manage multiple clinical trials for avariety of product candidates; (7) the volume and profitability of productsales of Megan®Vac 1, Megan®Egg and other future products; (8) the process ofobtaining regulatory approval for the sale of Rotarix**Ò in major commercial markets, as well as thetiming and success of worldwide commercialization of Rotarix**Ò by our partner, Glaxo; (9) Glaxo’s strategy andbusiness plans to launch and supply Rotarix**Ò worldwide, including in the U.S. and other majormarkets and its payment of royalties to AVANT; (10) changes in existing andpotential relationships with corporate collaborators and partners; (11) theavailability, cost, delivery and quality of clinical and commercial gradematerials produced at AVANT’s own manufacturing facility or supplied bycontract manufacturers; (12) the timing, cost and uncertainty of obtainingregulatory approvals to use CholeraGarde® (Peru-15) and Ty800, ETEC E. coli,among other purposes, to protect travelers and people in endemic regions fromdiarrhea causing diseases, respectively; (13) the ability to obtain substantialadditional funding; (14) the ability to develop and commercialize productsbefore competitors that are superior to the alternatives developed bycompetitors; (15) the ability to retain certain members of management;(16)AVANT’s expectations regarding research and development expenses and generaland administrative expenses and restructuring costs; (17) AVANT’s expectationsregarding CETP’s ability to improve cholesterol levels and AVANT’s ability tofind a partner todevelop and commercialize CETP; (18) AVANT’s expectationsregarding cash balances, capital requirements, anticipated royalty payments(including those from Paul Royalty Fund), revenues and expenses, includinginfrastructure expenses;(19) our belief regarding the validity of our patentsand potential litigation; and (20) other factors detailed from time to time infilings with the Securities and Exchange Commission. You should carefully review all of these factors, and you should be aware**that there may be other factors that could cause 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.*

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

AVANT’s principal activity since our inception has been research andproduct development conducted on its own behalf, as well as through jointdevelopment programs with several pharmaceutical companies and other collaborators.AVANT was incorporated in the State of Delaware in December 1983.

## **CRITICALACCOUNTING POLICIES**

The Company’scritical accounting policies are set forth under the heading “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” inItem 7 to our 2006 Form 10-K. Other than the adoption of the FASBissued Interpretation No. 48, *Accounting for Uncertaintyin Income Taxes,* (“FIN 48”), there have been no changes to thesepolicies since December 31, 2006. Readers are encouraged to review thesecritical accounting policies in conjunction with the review of thisForm 10-Q.

## **OVERVIEW**

AVANT’s is engagedin the discovery, development and commercialization of products that harnessthe human immune system to prevent and treat disease. The Company has assembleda broad portfolio of technologies and intellectual property that gives it acompetitive position in vaccines and immunotherapeutics. These include an oralhuman rotavirus vaccine, which has gained marketing approval in over 90countries worldwide and is being commercialized by Glaxo. Three of AVANT’sproducts are in clinical development. The Company has actively developed andacquired innovative

17

----

 

technologies — especially novel approaches to vaccinecreation. The marriage of innovative bacterial vector delivery technologieswith unique manufacturing processes offer the potential for a new generation ofvaccines. The Company’s goal is to become a leading developer of innovativevaccines and immunotherapeutics that address health care needs on a globalbasis.

AVANT is targetingits efforts where it can add the greatest value to the development of itsproducts and technologies. Its goal is to demonstrate clinical proof-of-conceptfor each product, and then seek excellent partners to help see those productsthrough to commercialization. This approach allows AVANT to maximize theoverall value of its technology and product portfolio while best ensuring theexpeditious development of each individual product.

## **RESEARCHAND DEVELOPMENT ACTIVITIES**

AVANT is currentlyfocused on the development of a number of immunotherapeutic and vaccine productcandidates which are in various stages of clinical trials. AVANT expects that alarge percentage of its research and development expenses will be incurred insupport of its current and future clinical trial programs.

Duringthe past five years through the end of 2006, AVANT incurred an aggregate of$71 million in research and development costs. During the six months endedJune 30, 2007, AVANT incurred an aggregate of $9.9 million inresearch and development costs. The following table indicates the amountincurred for each of AVANT’s material research programs and for otheridentified research and development activities during the two years ended December 31,2006 and 2005 and the six-month periods ended June 30, 2007 and 2006. Theamounts disclosed in the following table and in “Program Developments” belowreflect direct research and development costs, license fees associated with theunderlying technology and an allocation of indirect research and developmentcosts to each program.
| ** **                                        | ** ** | **Six Months Ended June 30,** | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------|------------|---------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                        | ** ** | **2007**                                          | ** ** | **2006**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| *Bacterial  Vaccines:*                            | * *   | * *                                          | * *   | * *                                   | * *   | * * | * * | * * | * * |
| CholeraGardeÒ                                |       | $                                                 | 1,540,100  |                                       | $          | 1,626,100 |   | $ | 5,427,800 |   | $ | 1,257,200 |   |
| Ty800                                             |       | 2,591,800                                         |       | 325,500                                    |       | 1,402,300 |   | 404,500 |   |
| Other                                             |       | 2,680,100                                         |       | 770,400                                    |       | 1,873,600 |   | 528,900 |   |
| *Viral  Vaccines:*                                | * *   | * *                                          | * *   | * *                                   | * *   | * * | * * | * * | * * |
| RotarixÒ  Vaccine                            |       | 850,500                                           |       | 648,600                                    |       | 648,600 |   | — |   |
| Avian and Human Influenza                         |       | 419,600                                           |       | 339,400                                    |       | 711,600 |   | 3⁄4 |   |
| *BioDefense  Vaccines:*                           |       | 177,300                                           |       | 1,112,200                                  |       | 1,558,600 |   | 2,470,700 |   |
| *Cholesterol  Management Vaccine:*                | * *   | * *                                          | * *   | * *                                   | * *   | * * | * * | * * | * * |
| CETi-1                                            |       | 269,000                                           |       | 666,100                                    |       | 922,700 |   | 650,800 |   |
| *Complement  Inhibitors:*                         | * *   | * *                                          | * *   | * *                                   | * *   | * * | * * | * * | * * |
| TP10/TP20                                         |       | 1,204,700                                         |       | 2,669,200                                  |       | 4,466,400 |   | 8,327,200 |   |
| *Food  Safety & Animal Health Vaccines:* |       | 3⁄4                                            |       | 5,700                                      |       | 6,700 |   | 9,900 |   |
| *Other  Programs:*                                |       | 193,200                                           |       | 649,400                                    |       | 1,048,200 |   | 414,100 |   |
|                                              |       |                                              |       |                                       |       |   |   |   |   |
| *Total R&D Expense*                           |       | $                                                 | 9,926,300  |                                       | $          | 8,812,600 |   | $ | 18,066,500 |   | $ | 14,063,300 |   |

 

**PROGRAMDEVELOPMENTS**

*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 RotarixÒin Mexico in July 2004, which represented the first in an expected seriesof worldwide approvals and commercial launches for the product. Glaxo haslaunched in additional Latin American and Asian Pacific countries during 2005 —2007. Additionally, Glaxo filed for market approval with the Europeanregulatory authorities in late 2004, which triggered a $2 million milestonepayment to AVANT. In February 2006, the European Commission grantedapproval of RotarixÒ in the EuropeanUnion, which triggered a $4 million milestone payment from Glaxo. Glaxo hasagreed to make an additional payment of $1.5 million upon achievement of marketapproval in the United States. AVANT licensed-in the Rotarix® technology in1995 and owes a license fee of 30% to Cincinnati Children’s Hospital MedicalCenter 

18

----

 

(“CCH”) on net royalties received from Glaxo. InMay 2005, AVANT entered into an agreement whereby an affiliate of PaulRoyalty Fund (“PRF”) purchased an interest in the net royalties AVANT willreceive on worldwide sales of RotarixÒ(see Note 3 of our unaudited consolidated financial statements). Under the PRFagreement, AVANT will retain 50% of future Glaxo milestone payments, with thebalance payable to PRF and CCH.

On March 14,2006, AVANT amended its agreement with PRF to accelerate the $40 millionmilestone payment, which was received on March 17, 2006.

In September 2006,AVANT received notice from Glaxo that Glaxo would begin paying royalties onsales of RotarixÒ vaccine at thelower of two royalty rates under their 1997 license agreement. Glaxo’s decisionto pay the lower royalty rate (which is 70% of the full rate) is based uponGlaxo’s assertion that RotarixÒ is not covered bythe patents Glaxo licensed from AVANT in Australia and certain Europeancountries. AVANT is analyzing various options to counter Glaxo’s assertions andprotect AVANT’s rights. AVANT is determined to take all available steps toenforce its rights under its license agreement with Glaxo.

If Glaxo’sposition stands, the royalties to which PRF is entitled will no longer belimited by a $27.5 million annual threshold, which AVANT projected may havebeen reached in later years as sales of RotarixÒincreased. Irrespective of Glaxo’s position, AVANT will still retain theroyalties on worldwide sales of RotarixÒonce PRF receives 2.45 times the aggregate cash payments it makes to AVANT,though the potential amount of such residual royalties will be lower if Glaxo’sposition stands.

*BacterialVaccines:*  AVANT’s goalis to become a leading developer of innovative vaccines that address healthcare needs on a global basis. Utilizing its *Cholera*-and *Salmonella*-vectoreddelivery technologies together with its drying and preservation technologies,the Company can now develop a new generation of vaccines that have an idealproduct profile: safe, effective, oral, single-dose, rapidly protective andincreased thermostability.

Development of asafe, 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 resultsshowed the vaccine to be well tolerated and immunogenic against the choleraorganism in the adult portion of this trial.

In August 2006,IVI received $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 Phase2 clinical trials of CholeraGarde® in Bangladesh and India beginning aroundyear-end 2007 followed by Phase 3 field studies. IVI will be purchasingclinical materials produced at AVANT’s Fall River, MA manufacturing facilityfor the trials.

AVANT has decided to focus only on the fully-funded opportunity forCholeraGarde® in the developing world. AVANT has determinedthat the high clinical costs of our own Phase 3 clinical trials in the UnitedStates and the investment in a commercial manufacturing facility are notjustified by the limited market opportunities for a cholera vaccine indeveloped countries at this time. This decision frees up both financial andmanufacturing resources for our Ty800 and ETEC programs, as well as our newinfluenza vaccine program.

During the periodJanuary 1, 2002 through December 31, 2006, AVANT incurredapproximately $13.5 million in research, development and clinical costs onits CholeraGarde® program. During the six months ended June 30, 2007,AVANT incurred approximately $1.5 million in research, development,manufacturing and clinical costs on its CholeraGarde® program.

AVANT is alsodeveloping an oral typhoid fever vaccine, Ty800, for the travelers’ market andglobal health needs. The National Institute of Allergy and Infectious Disease (“NIAID”)of the National Institutes of Health (“NIH”) and AVANT agreed for the NIAID toconduct a Phase 1/2 in-patient dose-ranging clinical trial aimed atdemonstrating the safety and immunogenicity of the Ty800 vaccine. NIAID hasfunded the production of Ty800 vaccine for clinical testing and completed the Phase1/2 trial at a NIH-funded clinical site. Results showed the single-dose, oralvaccine to be well tolerated and 

19

----

 

immunogenic, with over 90% of vaccinated subjectsgenerating immune responses. AVANT initiated its own sponsored Phase 2 trial ofTy800 in July 2007. During the period January 1, 2002 throughDecember 31, 2006, AVANT incurred approximately $4.9 million inresearch, development, contract manufacturing and clinical costs on its Ty800program. During the six months ended June 30, 2007, AVANT incurredapproximately $2.6 million in research, development and clinical costs on itsTy800 program.

Finally, AVANT isdeveloping additional bacterial vaccines against enterotoxigenic *E. coli*(“ETEC”), *Salmonellaparatyphi* and *Shigella*,—all important causes of seriousdiarrheal diseases and enteric fevers worldwide. These programs are inpre-clinical development. In the secondhalf of 2007, AVANT expects to initiate a Phase 1 trial of its ETEC vaccinecandidate. AVANT’s long-term goal is to develop a combination vaccinecontaining Cholera, Ty800, ETEC and *S. paratyphi* asa “super enteric vaccine” to address the travelers’ market. During theperiod January 1, 2002 through December 31, 2006, AVANT incurredapproximately $3.1 million in research, development, contractmanufacturing and clinical costs on these pre-clinical programs. During the sixmonths ended June 30, 2007, AVANT incurred approximately $2.7 million inresearch, development and clinical costs on these pre-clinical programs.

*BioDefenseVaccines:*  Theattenuated live bacteria used to create AVANT’s single-dose oral vaccines canalso serve as vectors for the development of vaccines against other bacterialand viral diseases. In January 2003, AVANT was awarded a subcontract by DVC inthe amount of $2.5 million to develop for the U.S. Department of Defense anoral combination vaccine against anthrax and plague using AVANT’s proprietaryvaccine technologies. AVANT has received a number of additional subcontractmodifications from DVC to support further development and pre-clinical animaltesting of vaccine constructs of anthrax and plague vaccine candidates.Payments under the subcontract agreement are made on a time and materials basisand receipt of the full amount is conditioned upon the project being fullyfunded through completion and AVANT performing and continuing to demonstratethat it has the capability to perform the funded work. As a result of AVANT’srecent restructuring, the Company will no longer invest its resources inbiodefense research and development activities. For the six months endedJune 30, 2007 and 2006, AVANT recognized $232,496 and $870,653,respectively, in government contract revenue from DVC. Through June 30,2007, AVANT had received approximately $9.6 million in payments under thesubcontract agreements. These agreements expire in 2007, although they may beterminated by DVC at any time upon 30 days notice.

During the periodJanuary 1, 2002 through December 31, 2006, AVANT incurredapproximately $10.9 million in research and development costs on itsbiodefense vaccine program. During the six months ended June 30, 2007,AVANT incurred approximately $177,300 in research and development costs on itsbiodefense vaccine program.

*FoodSafety and Animal Health Vaccines:*  AVANT has partnered with Pfizer Inc. (“Pfizer”),who will apply AVANT’s vaccine technologies to animal health and human foodsafety markets. As of June 1, 2006, AVANT entered into a Collaborative Researchand Development Agreement with Pfizer aimed at the discovery and development ofvaccines to protect animals. Under the agreement, Pfizer and AVANT will conducta joint research program funded by Pfizer. AVANT expects to recognize revenueas the research and development service deliverables are completed anddelivered to Pfizer. During the period January 1, 2002 through December 31,2006, AVANT incurred approximately $0.5 million in research anddevelopment costs on its food safety and animal health vaccines program. Duringthe six months ended June 30, 2007, AVANT incurred no research anddevelopment costs on its food safety and animal health vaccines program.

*ComplementInhibitors:*  InFebruary 2006, AVANT reported that the Phase 2b females-only study did not meetits primary endpoint, thus confirming the results for female subjects in theprevious TP10 Phase 2 trial. AVANT iscurrently spending limited resources on this program and is seeking a corporatepartner to complete the development and commercialization of TP10.

During the periodJanuary 1, 2002 through December 31, 2006, AVANT incurredapproximately $23.9 million in research, development, contractmanufacturing and clinical costs associated with its complement inhibitorprogram. During the six months ended June 30, 2007, the Company incurredapproximately $1.2 million in research, development, contract manufacturing andclinical costs associated with its complement inhibitor program.

*Cholesterol Management Vaccine:*  AVANT has been developing animmunotherapeutic vaccine against endogenous cholesteryl ester transfer protein(“CETP”), which may be useful in reducing risks associated withatherosclerosis. CETP is a key intermediary in the balance of HDL (high-densitylipoprotein) and LDL (low-density 

20

----

 

lipoprotein). The vaccine stimulates an immuneresponse against CETP, which may improve the ratio of HDL to LDL cholesteroland reduce the progression of atherosclerosis, which often leads to heartattack.

During the period January 1, 2002 throughDecember 31, 2006, AVANT incurred approximately $9.0 million inresearch, development and clinical costs associated with the CETP program.During the six months ended June 30, 2007, AVANT incurred approximately$269,000 in research and development costs associated with the CETP program.AVANT is no longer expending its own resources on this program and is seeking acorporate partner to complete development and to commercialize the CETPvaccine.

## **TECHNOLOGYLICENSING**

AVANT has adopteda business 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 also signed anagreement with Pfizer to leverage the value of Megan’s oral vaccine technologyin a significant market opportunity (animal health and human food safety)outside of AVANT’s own focus on human health care.

**RESULTSOF OPERATIONS**

**Three-Month Period Ended****June 30****, 2007 as Compared****with the Three-Month Period Ended June**** 30, 2006**

AVANT reportedconsolidated net loss of $5,505,246, or $.07 per share, for the second quarterended June 30, 2007, compared with a net loss of $5,670,299, or $.08 pershare, for the second quarter ended June 30, 2006. The weighted average common shares outstanding used to calculate net lossper common share was 75,184,048 in 2007 and 74,174,761 in 2006.

*Revenue:*  Total revenue increased $503,917 to$1,009,396 for the second quarter of 2007 compared to $505,479 for the secondquarter of 2006.

Product development and licensing revenue decreased to $10,018 in 2007from $17,446 in 2006 due to a decrease in reimbursed patent expense by AVANT’spartner, Pfizer.

In the secondquarter of 2007, AVANT recognized $875,018 in product royalty revenue consistingof $478,528 related to PRF’s purchased interest in Rotarix® net royalties and$396,490 related to AVANT’s retained interests in Rotarix® net royalties whichwere not sold to PRF and which amount is also payable to CCH. As such, acorresponding amount is recorded as royalty expense and included in researchand development expense. In the second quarter of 2006, no product royaltyrevenue related to net royalties from RotarixÒworldwide netsales was recognized. AVANT expects the amount of product royalty revenue toincrease during the remainder of 2007 as Glaxo continues the globalcommercialization of Rotarix®.

AVANT has receiveda number of subcontracts from its partner, DVC, to develop anthrax and plaguevaccines for the U.S. Department of Defense. AVANT will be reimbursed by DVC ona time and materials basis for vaccine development research work performed byAVANT. Under these agreements and several SBIR grants, AVANT recognized $88,999and $460,523 in government contract and grant revenue during the secondquarters of 2007 and 2006, respectively, for work performed. The decrease inrevenue in 2007 compared to 2006 primarily reflects reduced levels of vaccinedevelopment work billable to DVC in 2007 as the Company closes down itsbiodefense development activities.

Marketing and distribution of the Megan poultry product line is performedby AVANT’s partner, Lohmann Animal Health International (“LAHI”), and AVANTreceives a royalty percentage of all Megan®Vac 1 and Megan®Egg product sales.Royalty payments received during the second quarters of 2007 and 2006 totaled$35,360 and $27,510, respectively.

*OperatingExpense:*  Total operating expense increased $48,946 to$6,878,815 for the second quarter of 2007 compared to $6,829,869 for the secondquarter of 2006.

21

----

 

Research and development expense increased $503,730, or 11.3%, to$4,967,629 from $4,463,899 in2006. The increase in 2007 compared to 2006 is primarily due to increasesin research and development personnel and related costs of $496,161, offset inpart by a reduction in non-personnnel expenses of $388,918, primarily relatedto restructuring activity and an increase of $396,490 in royalty expense due primarily to higher sales of Rotarix®.Research and development expense includes $850,543 and $600,000 of royaltyexpense payable to CCH at June 30, 2007 and 2006, respectively. AVANT expectsresearch and development expense to decrease during the remainder of 2007 as aresult of AVANT’s restructuring activities initiated in April 2007.

General and administrative expense decreased $446,054, or 21.1%, to$1,671,138 in 2007 compared to $2,117,192 in 2006 and is primarily attributedto decreases in consulting expenses of $116,099 and legal and otherprofessional fees of $149,611, together with lower personnel and related costsof $230,500. AVANT expects general and administrative expense to decreaseduring the remainder of 2007 due to the Company’s restructuring activities.

Amortization expense of acquired intangible assets was $240,048 and$248,778 in 2007 and 2006, respectively.

*Investmentand Other Income, Net:* Interest and other income decreased $289,918 to $364,173 for the secondquarter of 2007 compared to $654,091 for the second quarter of 2006. Thedecrease is primarily due to lower average cash balances, offset in part byslightly higher interest rates during the second quarter of 2007 compared tothe second quarter of 2006. During the second quarters of 2007 and 2006, theaverage month-end cash balances were $27,578,656 and $56,270,211, respectively.The effective interest rates during the second quarters of 2007 and 2006 were5.17% and 4.68%, respectively.

**Six-Month Period Ended June 30, 2007 as Compared**** withthe Six-Month Period Ended June 30, 2006**

AVANT reportedconsolidated net loss of $11,131,525, or $.15 per share, for the six monthsended June 30, 2007, compared with a net loss of $8,641,290, or $.12 pershare, for the six months ended June 30, 2006. The weighted average common shares outstanding used to calculate net lossper common share was 75,184,015 in 2007 and 74,173,668 in 2006.

*Revenue:*  Total revenue decreased $2,020,373 to$2,191,593 for the first six months of 2007 compared to $4,211,966 for thefirst six months of 2006.

Product development and licensing revenue decreased $2,619,316to $18,104 in 2007 from $2,637,420 in 2006. In February 2006, the EuropeanCommission granted approval of RotarixÒin the European Union, which triggered a one-time $4 million milestone paymentfrom Glaxo, 50% of which was creditable against future royalties. Product development and licensing revenueof $2.6 million was recorded in the first quarter of 2006 and the remaining$1.4 million was remitted to PRF in accordance with the PRF agreement. AVANTrecorded $600,000 in royalty expense payable to CCH as a result of thismilestone payment.

In the first six months of 2007, AVANT recognized$1,754,227 in product royalty revenue consisting of $903,684 related to PRF’spurchased interest in Rotarix® net royalties and $850,543 related to AVANT’sretained interests in Rotarix® net royalties which were not sold to PRF andwhich amount is also payable to CCH. As such, a corresponding amount isrecorded as royalty expense and included in research and development expense.In the first six months of 2006, AVANT recognized $550,803 in product royaltyrevenue related to PRF’s purchased interests in the net royalties from RotarixÒworldwide netsales. AVANT expects the amount of product royalty revenue to increase duringthe remainder of 2007 as Glaxo continues the global commercialization ofRotarix®.

AVANT has receiveda number of subcontracts from its partner, DVC, to develop anthrax and plaguevaccines for the U.S. Department of Defense. AVANT will be reimbursed by DVC ona time and materials basis for vaccine development research work performed byAVANT. Under these agreements and several SBIR grants, AVANT recognized$342,408 and $960,730 in government contract and grant revenue during the firstsix months of 2007 and 2006, respectively, for work performed. The decrease inrevenue in 2007 compared to 2006 primarily reflects reduced levels of vaccinedevelopment work billable to DVC in 2007 as the Company closes down itsbiodefense development activities, and as a result limited contract revenue isexpected during the remainder of 2007.

22

----

 

Marketing and distribution of the Megan poultry product line is performedby AVANT’s partner, Lohmann Animal Health International (“LAHI”), and AVANTreceives a royalty percentage of all Megan®Vac 1 and Megan®Egg product sales. Royaltypayments received during the first six months of 2007 and 2006 totaled $53,780and $63,013, respectively. AVANT expects royalty payments from LAHI to beapproximately consistent in the second half of 2007 compared to 2006.

*OperatingExpense:*  Total operating expense increased $713,674,or 5.3%, to $14,129,542 for the first six months of 2007 compared to$13,415,868 for the first six months of 2006.

Research and development expense increased $1,113,725, or 12.6%, to$9,926,331 from $8,812,606 for the first six months of 2006. The increase in 2007 compared to 2006 isprimarily due to increases in research and development personnel andrelated costs of $792,502, and non-personnel operating and facility-relatedcosts of $753,702 associated with operations of the Needham and Fall Riverfacilities, offset by lower contract manufacturing costs of $415,773. These increases were coupled by aincrease in royalty expense of$250,543 in 2007 due primarily to higher sales of Rotarix®. Research anddevelopment expense includes $850,543 and $600,000 of royalty expense payableto CCH at June 30, 2007 and 2006, respectively. AVANT expects research anddevelopment expense to decrease during the remainder of 2007 as a result ofAVANT’s restructuring activities initiated in April 2007.

General and administrative expense decreased $382,591, or 9.3%, to$3,723,115 in 2007 compared to $4,105,706 for the first six months of 2006 andis primarily attributed to lower legal and other professional fees of $63,050and personnel and related costs of $399,381, offset in part by an increase inconsulting of $22,977. AVANT expects general and administrative expense todecrease during the remainder of 2007 due to the Company’s restructuringactivities.

Amortization expense of acquired intangible assets was $480,096 and$497,556 in the first six months of 2007 and 2006, respectively.

*Investmentand Other Income, Net:* Interest and other income decreased $128,188 to $806,424 for the firstsix months of 2007 compared to $934,612 for the first six months of 2006. Thedecrease is primarily due to lower average cash balances, offset in part byslightly higher interest rates during the first six months of 2007 compared tothe first six months of 2006. During the first six months of 2007 and 2006, theaverage month-end cash balances were $31,283,115 and $44,973,422, respectively.The effective interest rates during the first six months of 2007 and 2006 were5.18% and 4.48%, respectively.

*Provisionfor Income Taxes:*  The$40 million milestone payment received from PRF during the first quarter of2006 resulted in taxable income for the Company. The regular taxable incomegenerated by this transaction has been fully offset with available federal andstate net operating loss carryforwards. The Company recorded a provision of$372,000 in the first quarter of 2006 for the alternative minimum tax that wasestimated to result from receipt of this milestone. In the fourth quarter of2006, the estimated provision was adjusted to $120,000.

**LIQUIDITYAND CAPITAL RESOURCES**

At June 30,2007, AVANT’s principal sources of liquidity consisted of cash and cashequivalents of $25,909,541. AVANT’s cash and cash equivalents are highly liquidinvestments with a maturity of three months or less at the date of purchase andconsist of time deposits and investments in money market mutual funds withcommercial banks and financial institutions. Also, the Company maintains cashbalances with financial institutions in excess of insured limits. AVANT doesnot anticipate any losses with respect to such cash balances.

The use of AVANT’scash flows 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.

23

----

 

Net cash used inoperating activities was $10,721,152 for the first six months of 2007 comparedto net cash provided by operating activities of $32,836,849 for the first six monthsof 2006. The decrease in net cash provided by operating activities is primarilyattributed to the increase in net loss incurred in 2007 compared to 2006, thedecrease in accounts payable and accrued expenses in 2007 and the$40 million PRF milestone payment received in the first quarter of 2006.AVANT expects that cash used in operations will decline in the second half of2007 as a result of the Company’s restructuring activities initiated in April2007.

Cash used ininvesting activities increased to $4,152,064 for the first six months of 2007compared to $2,672,598 for the first six months of 2006. The increase is due to increased investmentin property and equipment in 2007 primarily towards the renovations of theNeedham facility compared to 2006. AVANT expects it will continue to usecash in its investing activities as the Company completes the full-scalerenovations of its Needham facility.

Net cash used infinancing activities was $128,782 for the first six months of 2007 compared to$114,969 for the first six months of 2006. The increase in net cash used infinancing activities is primarily due to increases in payments of long-termliabilities.

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. Research anddevelopment efforts will initially target the development of vaccines againstinfluenza including both epidemic and pandemic forms of vaccine, with theopportunity to expand the collaboration to other disease targets. Under theterms of the agreement, AVANTmade an upfront equity investment of $735,000 inSelect Vaccines and will fund influenza vaccine research and development fortwo years, as well as provide payments to Select Vaccines for the achievementof specific preclinical and clinical development milestones. In addition, AVANThas the exclusive right to apply Select Vaccines’ technology to a second targetwithin the first two years of the agreement, and a third target within thefirst three years of the agreement. Select Vaccines would also be eligible toreceive royalties based on net sales of any approved products arising out ofthis collaboration that are successfully marketed.

On April 16, 2007,AVANT initiated planned restructuring activities to reduce ongoing operationalcosts, following an extensive review of its operations and cost structure. Therestructuring aimed to increase the focus of AVANT’s resources upon keyprograms and core operational capabilities and to lower the Company’s overallcost structure. The Company will concentrate its focus on building an enhancedportfolio of viral and bacterial vaccines for global health and travelersaround the Company’s core technologies, as well as its unique development andmanufacturing capabilities. AVANT will no longer invest in biodefense researchand development activities or further invest in clinical trials for its CETiand TP-10 programs.

The restructuringresulted in a workforce reduction of approximately 30%. AVANT is also exitingfrom its St. Louis-based research facility by September 30, 2007 when the leaseterm expires and is moving all essential research activities to its Needham, MAheadquarters. Restructuring charges are expected to total approximately$950,000, the cash impact of which will primarily be reflected during thebalance of 2007. The restructuring charges consist of severance, payroll taxand extended benefits costs for terminated employees, as well as, salarycontinuation and retention bonus costs for certain St. Louis employees retainedduring the transition and closing process for the St. Louis facility. Duringthe quarter ended June 30, 2007, restructuring charges of $723,785 wererecorded, of which $713,458 were recorded as research and development and$10,327 were recorded as general and administrative expense. Of therestructuring charge, $342,697 related to St. Louis benefit arrangements and$381,088 related to Needham and Fall River benefit arrangements. During thethree months ended June 30, 2007, $217,798 of restructuring costs were paid outand a balance of $505,987 of accrued restructuring costs remained at June 30,2007.

On June 27, 2007,AVANT reported that its partner, Glaxo, had filed a marketing application forthe Rotarix® vaccine with the United States Food and DrugAdministration (FDA) during the second quarter of 2007. The terms of AVANT’sagreement with PRF include a $10 million milestone payment on product launch inthe United States, which AVANT now expects to receive in 2008 based on Glaxo’srecent filing. During 2007, AVANT may take steps to raise additional capitalincluding, but not limited to, the licensing of technology programs withexisting or new collaborative partners, possible business combinations, or theissuance of common stock via private placement and public offering. There canbe no assurance that such efforts will be successful.

24

----

 

On July 6, 2007,AVANT received a letter from the Listing Qualifications Department of TheNASDAQ Stock Market indicating that the we are not in compliance with NASDAQMarketplace Rule 4450(a)(5) because the closing bid price per share for ourcommon stock had been below $1.00 per share for 30 consecutive business days.See Part II, “Item 1A: Risk Factors” in this Form 10-Q for additional details.

**AGGREGATE CONTRACTUAL OBLIGATIONS**

The following table summarizesAVANT’s contractual obligations at June 30, 2007 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** | ** ** | **2007**  | ** ** | **2008-2010** | ** ** | **2011-2012** | ** ** | **Thereafter** | ** ** |
|------------------------------------|------------|-----------|------------|-----------|------------|---------------|------------|---------------|------------|----------------|------------|
| Contractual  obligations:          |       |      |       |      |       |          |       |          |       |           |       |
| Operating lease  obligations       |       | $         | 20,830,100 |      | $          | 877,800       |       | $             | 5,921,900  |           | $          | 4,281,000 |   | $ | 9,749,400 |   |
| Loan Payable*                      |       | 1,382,500 |       | 57,700    |       | 391,200       |       | 238,000       |       | 695,600        |       |
| Note Payable*                      |       | 652,700   |       | 73,800    |       | 531,500       |       | 47,400        |       | 3⁄4         |       |
| Licensing and R&D  obligations |       | 1,537,500 |       | 292,500   |       | 655,000       |       | 170,000       |       | 420,000        |       |
| Construction contracts             |       | 1,608,000 |       | 1,608,000 |       | 3⁄4        |       | 3⁄4        |       | 3⁄4         |       |
| Restructuring Costs                |       | 547,400   |       | 403,100   |       | 144,300       |       | 3⁄4        |       | 3⁄4         |       |
| Total  contractual obligations     |       | $         | 26,558,200 |      | $          | 3,312,900     |       | $             | 7,643,900  |           | $          | 4,736,400 |   | $ | 10,865,000 |   |
|                               |       |      |       |      |       |          |       |          |       |           |       |
| Commercial commitments:            |       |      |       |      |       |          |       |          |       |           |       |
| Clinical development               |       | $         | 1,481,300  |      | $          | 1,127,500     |       | $             | 353,800    |           | $          | — |   | $ | — |   |
| Manufacturing  development         |       | 274,500   |       | 274,500   |       | —        |       | —        |       | —         |       |
| Total commercial  commitments      |       | $         | 1,755,800  |      | $          | 1,402,000     |       | $             | 353,800    |           | $          | — |   | $ | — |   |

----

*                    includesinterest obligations

25

----

 

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

AVANT owns financial instruments that are sensitive to market risk aspart of its investment portfolio. AVANT’s investment portfolio is used topreserve its capital until it is used to fund operations, including itsresearch and development activities. None of these market-risk sensitiveinstruments are held for trading purposes. AVANT invests its cash primarily inmoney market mutual funds. These investments are evaluated quarterly todetermine the fair value of the portfolio. AVANT’s investment portfolioincludes only marketable securities with active secondary or resale markets tohelp insure liquidity. AVANT has implemented investment policies regarding theamount and credit ratings of investments. Because of the short-term nature ofthese investments, AVANT does not believe it has material exposure due tomarket risk. The impact to AVANT’s financial position and results of operationsfrom likely changes in interest rates is not material.

AVANT does not utilize derivative financial instruments. The carryingamounts reflected in the consolidated balance sheet of cash and cashequivalents, accounts receivables and accounts payable approximates fair valueat June 30, 2007 due to theshort-term maturities of these instruments.

**Item 4.  Controls andProcedures**

*Evaluation of disclosure controls and procedures*.

As required by Rule 13a-15 under the Securities Exchange Actof 1934 (the “Exchange Act”), as of June 30, 2007, AVANT carried out an evaluation under the supervision and withthe participation of its management, including its Chief Executive Officer andChief Financial Officer, of the effectiveness of the design and operation ofits disclosure controls and procedures as of the period covered by this report.In designing and evaluating AVANT’s disclosure controls and procedures, AVANTand its management recognize that any controls and procedures, no matter howwell designed and operated, can provide only reasonable assurance of achievingthe desired control objectives, and AVANT’s management necessarily was requiredto apply its judgment in evaluating and implementing possible controls andprocedures. Based upon that evaluation, AVANT’s Chief Executive Officer andChief Financial Officer have concluded that as of June 30, 2007, AVANT’s disclosure controls andprocedures were reasonably effective to ensure that information required to bedisclosed by AVANT in the reports it files or submits under the Exchange Act isrecorded, processed, summarized, accumulated, communicated and reported, withinthe time periods specified in the Securities and Exchange Commission’s rulesand forms. AVANT will continue to review and document its disclosure controlsand procedures on an ongoing basis, and may from time to time make changesaimed at enhancing their effectiveness and to ensure that its disclosurecontrols and procedures evolve with its business.

*Changes inInternal Control Over Financial Reporting.*

There was no change in our internal control overfinancial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) that occurred during the period covered by this Quarterly Reporton Form 10-Q that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

**PART II— OTHER INFORMATION**

## **Item 1.         LegalProceedings**

None.

## **Item 1A.      RiskFactors**

In addition to theother information set forth in this report, you should carefully consider thefactors discussed in Part I, “Item 1A. Risk Factors” in our Annual Reporton Form 10-K for the year ended December 31, 2006, which couldmaterially affect our business, financial condition or future results. Therisks described in our Annual Report on Form 10-K are not the onlyrisks facing the Company. Additional risks and uncertainties not currentlyknown to the Company or that the 

26

----

 

Company currently deems to be immaterial also maymaterially adversely affect the Company’s business, financial condition and/oroperating results.

The risk factor below has been added to provideadditional information related to our stock price:

***We could lose our listing on the NasdaqGlobal Market if our stock price falls below $1.00 for 30 consecutive businessdays, and the loss of the listing would make our stock significantly lessliquid and would affect its value.***

On July 6, 2007, we received a letter from the ListingQualifications Department of The NASDAQ Stock Market indicating that the we arenot in compliance with NASDAQ Marketplace Rule 4450(a)(5) because the closingbid price per share for our common stock had been below $1.00 per share for 30consecutive business days. Our common stock is listed on the NASDAQ GlobalMarket and had a closing price of $0.58 at the close of the market on August 7,2007. We have been afforded a 180-day compliance period, or until January 2,2008, to regain compliance in accordance with Marketplace Rule 4450(e)(2). Wewill seek to regain compliance within the 180-day cure period and areconsidering alternatives to address compliance with the continued listingstandards of The NASDAQ Stock Market. If our stock fails to maintain a minimumbid price of $1.00 for 10 consecutive business days during the 180-daycompliance period on the NASDAQ Global Market, we could receive a delistingnotice from the NASDAQ Global Market, and, under certain circumstances, even ifour stock maintains a minimum bid price of $1.00 for 10 consecutive businessdays, we may receive a delisting notice from the NASDAQ Global Market. If wefail to comply with the continued listing requirements of the NASDAQ GlobalMarket, including the minimum bid price per share requirement and the minimumstockholders equity requirement prior to the expiration of the 180-daycompliance period, we may be able to transfer to the NASDAQ Capital Market, soas to take advantage of an additional compliance period offered on that market,provided we meet all requirements for initial listing on the NASDAQ CapitalMarket, except for the bid price requirement. Upon delisting from the NASDAQGlobal Market or the NASDAQ Capital Market, our stock would be tradedover-the-counter, more commonly known as OTC. OTC transactions involve risks inaddition to those associated with transactions in securities traded on theNASDAQ Global Market. Many OTC stocks trade less frequently and in smallervolumes than securities traded on the NASDAQ Global Market. Accordingly, ourstock would be less liquid than it would otherwise be, and the value of ourstock could decrease. There is no guarantee that an active trading market forour common stock will be maintained on the NASDAQ Global Market. You may not beable to sell your shares of our stock quickly, at the market price or at all,if trading in our stock is not active.

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

On May 17, 2007, AVANT held its Annual Meeting ofStockholders at which the stockholders elected seven directors to our Board ofDirectors.

At the AnnualMeeting of Stockholders, the following votes were tabulated for the proposalbefore AVANT’s Stockholders:

PROPOSAL I

Election of Directors:

|                               | ** ** | **Number of Shares/Votes** | ** ** |
|-------------------------------|------------|--------------------------------------|------------|
| ** **                    | ** ** | **For**                              | ** ** | **Authority Withheld** | ** ** |
| Una S. Ryan,  Ph.D.           |       | 60,184,712                           |       | 3,901,928 |   |
| Harry H. Penner,  Jr.         |       | 60,736,660                           |       | 3,349,980 |   |
| Peter A. Sears                |       | 60,632,453                           |       | 3,454,187 |   |
| Karen Shoos  Lipton           |       | 60,741,530                           |       | 3,345,110 |   |
| Larry Ellberger               |       | 60,741,240                           |       | 3,345,400 |   |
| Alf A. Lindberg,  M.D., Ph.D. |       | 60,730,247                           |       | 3,356,393 |   |
| Francis R. Cano, Ph.D.        |       | 60,737,172                           |       | 3,349,468 |   |

 

**The number of shares issued,outstanding and eligible to vote as of the record date of April 6, 2007 was74,184,048. A quorum was present with 64,086,640 shares represented by proxiesor 86.38% of the eligible voting shares.**

27

----

** **

## **Item 6.         Exhibits**

| 2.1          |   | Agreement and Plan of Merger, dated as of November  20, 2000, by and among AVANT, AVANT Acquisition Corp., and Megan Health, Inc.,  incorporated by reference to Exhibit 2.1 of AVANT’s Current Report on Form 8-K,  filed December 12, 2000 with the Securities and Exchange Commission.                                                                                    |
|--------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.2          |   | First Amendment to Agreement and Plan of Merger,  dated as of November 20, 2000, by and among AVANT, AVANT Acquisition Corp.,  and Megan Health, Inc., incorporated by reference to Exhibit 2.2 of AVANT’s  Current Report on Form 8-K, filed December 12, 2000 with the Securities and  Exchange Commission.                                                                     |
| 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          |   | Amended and Restated By-Laws of AVANT as of November  10, 1994, incorporated by reference to Exhibit 3.3 of AVANT’s Registration  Statement on Form S-4 (Reg. No. 333-59215), filed July 16, 1998 with the  Securities and Exchange Commission.                                                                                                                                   |
| 3.5          |   | 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.                                                                                                                                     |
| 3.6          |   | Certificate of Elimination of Series C-1 Junior  Participating Cumulative Preferred Stock, incorporated by reference to  Exhibit 3.6 of AVANT’s Annual Report on Form 10-K, filed March 16, 2005 with  the Securities and Exchange Commission.                                                                                                                                    |
| 3.7          |   | Certificate of Designations, Preferences and Rights  of a Series of Preferred Stock of AVANT Immunotherapeutics, Inc. classifying  and designating the Series C-1 Junior Participating Cumulative Preferred  Stock, incorporated by reference to Exhibit 3.1 of AVANT’s Registration  Statement on Form 8-A, filed November 8, 2004 with the Securities and Exchange  Commission. |
| 4.1          |   | Shareholder Rights Agreement dated November 5, 2004  between AVANT and EquiServe Trust Company, N.A. as Rights Agent, incorporated  by reference to Exhibit 3.1 of AVANT’s Registration Statement on Form 8-A,  filed November 8, 2004 with the Securities and Exchange Commission.                                                                                               |
|   *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                                                                                                                                                                                                                                                                                                                                                       |

----

*                    Filedherewith.

**             Furnishedherewith.

28

----

** **

**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                            | ** ** | **AVANT IMMUNOTHERAPEUTICS, INC.**    | ** ** | ** ** |
|----------------------------|------------|---------------------------------------|------------|------------|
| ** **                 | ** ** | ** **                            | ** ** | ** ** |
|                       |       | BY:                                   |       |       |
|                       |       |                                  |       |       |
|                       |       | /s/ UNA S. RYAN                       |       |       |
| Dated: August 8, 2007 |       | Una S. Ryan, Ph. D.                   |       |       |
|                       |       | President and Chief Executive Officer |       |       |
|                       |       | (Principal Executive Officer)         |       |       |
|                       |       |                                  |       |       |
|                       |       | /s/ AVERY W. CATLIN                   |       |       |
| Dated: August 8, 2007 |       | Avery W. Catlin                       |       |       |
|                       |       | Senior Vice President, Treasurer      |       |       |
|                       |       | and Chief Financial Officer           |       |       |
|                       |       | (Principal Financial and              |       |       |
|                       |       | Accounting Officer)                   |       |       |

 

29

----

** **

**EXHIBIT INDEX**
| Exhibit  No. | ** **   | **Description** |
|--------------|--------------|-----------------|
|         | 2.1          |            |   | Agreement and Plan of Merger, dated as of November  20, 2000, by and among AVANT, AVANT Acquisition Corp., and Megan Health,  Inc., incorporated by reference to Exhibit 2.1 of AVANT’s Current Report on  Form 8-K, filed December 12, 2000 with the Securities and Exchange  Commission. |
|         | 2.2          |            |   | First Amendment to Agreement and Plan of Merger,  dated as of November 20, 2000, by and among AVANT, AVANT Acquisition Corp.,  and Megan Health, Inc., incorporated by reference to Exhibit 2.2 of AVANT’s  Current Report on Form 8-K, filed December 12, 2000 with the Securities and  Exchange Commission. |
|         | 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          |            |   | Amended and Restated By-Laws of AVANT as of November  10, 1994, incorporated by reference to Exhibit 3.3 of AVANT’s Registration  Statement on Form S-4 (Reg. No. 333-59215), filed July 16, 1998 with the  Securities and Exchange Commission. |
|         | 3.5          |            |   | 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. |
|         | 3.6          |            |   | Certificate of Elimination of Series C-1 Junior  Participating Cumulative Preferred Stock, incorporated by reference to  Exhibit 3.6 of AVANT’s Annual Report on Form 10-K, filed March 16, 2005 with  the Securities and Exchange Commission. |
|         | 3.7          |            |   | Certificate of Designations, Preferences and Rights  of a Series of Preferred Stock of AVANT Immunotherapeutics, Inc. classifying  and designating the Series C-1 Junior Participating Cumulative Preferred  Stock, incorporated by reference to Exhibit 3.1 of AVANT’s Registration Statement  on Form 8-A, filed November 8, 2004 with the Securities and Exchange  Commission. |
|         | 4.1          |            |   | Shareholder Rights Agreement dated November 5, 2004  between AVANT and EquiServe Trust Company, N.A. as Rights Agent, incorporated  by reference to Exhibit 3.1 of AVANT’s Registration Statement on Form 8-A,  filed November 8, 2004 with the Securities and Exchange Commission. |
|         |   *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 |

----

*                    Filedherewith.

**             Furnishedherewith.

30

----