##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
   Form 10-K
   þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    September 30,
    2010ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period fromto   Commission File
    No. 1-15803
  AvanirPharmaceuticals,
    Inc.
 (Exact name of registrant as
    specified in its charter)
   Delaware

33-0314804(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer Identification
    No.)101 Enterprise Suite 300,
    Aliso Viejo, California(Address of principal
    executive offices)

92656(Zip
    Code)   (949) 389-6700
 (Registrants telephone
    number, including area code)
 Securities registered pursuant to Section 12(b) of the
    Act:
   Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $.0001 par value

The NASDAQ Global Market   Securities registered pursuant to Section 12(g) of the
    Act:
  Title of Each Class to be so Registered

Name of Each Exchange on Which Each Class is to be
    RegisteredPreferred Share Purchase Rights

N/A   o þ
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 





Table of
    Contents
   
 PagePART IItem 1.

Business


1Item 1A.

Risk Factors


8Item 1B.

Unresolved Staff Comments


22Item 2.

Properties


22Item 3.

Legal Proceedings


22Item 4.

Removed and Reserved


23PART IIItem 5.

Market For Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


23Item 6.

Selected Financial Data


24Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


26Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


39Item 8.

Financial Statements and Supplementary Data


40Item 9.

Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure


40Item 9A .

Controls and Procedures


40Item 9B.

Other Information


40PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


41Item 11.

Executive Compensation


42Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


42Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


43Item 14.

Principal Accounting Fees and Services


43PART IVItem 15.

Exhibits, Financial Statement Schedules


43SIGNATURES


48EX-10.21EX-10.22EX-10.24EX-10.37EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2EX-99.1




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PART I  Item 1.
    Business  This Annual Report on
    Form 10-K
    contains forward-looking statements concerning future events and
    performance of our Company. When used in this report, the words
    intend, estimate,
    anticipate, believe, plan,
    goal and expect and similar expressions
    as they relate to AVANIR Pharmaceuticals, Inc. are
    included to identify forward-looking statements. These
    forward-looking statements are based on our current expectations
    and assumptions and many factors could cause our actual results
    to differ materially from those indicated in these
    forward-looking statements. Risks that could cause actual
    results to differ significantly from our forward-looking
    statements include, but are not limited to, risks relating to
    our product sales, capital resources, commercial market
    estimates, safety of NUEDEXTA, future development efforts,
    patent protection, effects of healthcare reform, reliance on
    third parties, and other risks set forth below under
    Item 1A, Risk Factors. We disclaim any intent
    to update or announce revisions to any forward-looking
    statements to reflect actual events or developments.
  References in this report to AVANIR, the Company, we, our and
    us refer to AVANIR Pharmaceuticals, Inc. and its subsidiaries,
    on a consolidated basis. AVANIR and
    NUEDEXTA are trademarks of AVANIR Pharmaceuticals,
    Inc. or its subsidiaries in the
    U.S. and/or
    other countries. Other trademarks or service marks appearing in
    this report may be trademarks or service marks of other
    owners.
  Executive
    Overview
  AVANIR tm ),
  ® over-the-counter
  Drug
    Candidates and Marketed Products
  NUEDEXTA
    for the treatment of PBA
  tm and/or
     1




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NUEDEXTA
    safety information
  and/or
        PBA
    indication and market
      inhibitors/serotonin-norepinephrine
  P<0.0001
 2




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NUEDEXTA
    Commercialization Strategy
    AVP-923
    for the Treatment of Neuropathic Pain Indications
  AVP-923
    for the treatment of diabetic neuropathic pain
    AVANIR
     3




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AVP-923
    for the Treatment of MS Pain
  MS. AVP-923 30/10 moderate-to-severe
  Other
    Programs
  Docosanol
    10% Cream  Cold Sore Treatment
  over-the-counter ®
     4




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Xenerex
    Human Antibody Technology  Anthrax/Other Infectious
    Diseases
      Competition
    NUEDEXTA for Pseudobulbar Affect.
  
    Antidepressants, including
    Prozac®,

    Celexa®,

    Zoloft®,

    Paxil®,

    Elavil®

    and
    Pamelor®

    and others;
    Atypical antipsychotic agents, including
    Zyprexa®,

    Risperdal®,

    Seroquel,
    Abilify®,

    Geodon®

    and others; and
    Miscellaneous agents, including
    Symmetrel®,

    Lithium and others.    AVP-923 for DPN pain.
  
    Cymbalta®;
    Lyrica®;
    Narcotic products; and
    Off-label uses of non-narcotic products, such as the
    anticonvulsants phenytoin, carbamazepine and topamax, and the
    antidepressant amitriptyline. 5




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Docosanol 10% cream.
  
    Over-the-counter
    preparations, including
    Carmex®,

    Zilactin®,

    Campho®,

    Orajel®,

    Herpecin®

    and others;
    Zovirax®

    acyclovir (oral and topical) and
    Valtrex®

    valacyclovir (oral) prescription products marketed by Biovail
    Corporation and GSK, respectively; and
    Famvir®

    famciclovir (oral) and
    Denavir®

    penciclovir (topical) prescription products marketed by Novartis.  Manufacturing
    Patents
    and Proprietary Rights
    United States


ForeignDescription

Issued


Expiration


Pending


Issued


Expiration


PendingNUEDEXTA


8



Up to 2026



5



50



Up to 2023



32Other


33







0



45







23Total


41







5



95







55           Government
    Regulations
   6




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
    Animal pharmacology studies to obtain preliminary information on
    the safety and efficacy of a drug; and
    Nonclinical evaluation in vitroand in vivoincluding extensive toxicology studies.      
    Phase I investigations are generally conducted in healthy
    subjects. In certain instances, subjects with a life-threatening
    disease, such as cancer, may participate in Phase I studies that
    determine the maximum tolerated dose and initial safety of the
    product;
    Phase II studies are conducted in limited numbers of
    subjects with the disease or condition to be treated and are
    aimed at determining the most effective dose and schedule of
    administration, evaluating both safety and whether the product
    demonstrates therapeutic effectiveness against the
    disease; and
    Phase III studies involve large, well-controlled
    investigations in diseased subjects and are aimed at verifying
    the safety and effectiveness of the drug.  and/or
        Product
    Liability Insurance
   7




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Executive
    Officers and Key Employees of the Registrant
    Employees
    Financial
    Information about Segments
    General
    Information
  (949) 389-6700 e-mail info@avanir.com www.avanir.com. Form 10-K.
  Form 10-K Form 10-Q Form 8-K 1-800-SEC-0330.
  Item 1A.
    Risk
    Factors  Form 10-K
  Risks
    Relating to Our Business
  Our near-term prospects are dependent on NUEDEXTA. If we are
    unable to successfully commercialize NUEDEXTA, including
    successfully maintaining adequate sales, marketing or
    distribution capabilities or entering into agreements with third
    parties to perform some of these functions, we will not be able
    to commercialize NUEDEXTA effectively and our ability to
    generate significant revenue or achieve profitability will be
    adversely affected.
   8




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
    recruit and retain adequate numbers of effective sales personnel;
    effectively train our sales personnel on NUEDEXTA;
    establish and maintain successful sales and marketing and
    education programs for our targeted physicians;
    manage geographically dispersed sales and marketing
    operations; and
    maintain and defend our patent protection and maintain
    regulatory exclusivity for NUEDEXTA.    We have a history of net losses and an accumulated deficit,
    and we may never generate sufficient revenue to achieve or
    maintain profitability in the future.
      PBA is a new market and estimates vary significantly over the
    potential market size and our anticipated revenues over the near
    and long term.
   9




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We have limited capital resources and may need to raise
    additional funds to support our operations.
      and/or
  Significant safety or drug interaction problems could arise
    with respect to NUEDEXTA, which could result in restrictions in
    NUEDEXTAs label, recalls, withdrawal of NUEDEXTA from the
    market, an adverse impact on potential sales of NUEDEXTA, or
    cause us to alter or terminate current or future NUEDEXTA
    clinical development programs, any of which would adversely
    impact our future business prospects.
     10




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and/or and/or
    We have out-licensed or sold most of our non-core drug
    development programs and related assets and these and other
    possible future dispositions carry certain risks.
  and/or
  
    diversion of managements attention from normal daily
    operations of the business;
    disputes over earn-outs, working capital adjustments or
    contingent payment obligations;
    insufficient proceeds to offset expenses associated with the
    transactions; and
    the potential loss of key employees following such a transaction.    day-to-day
  The FDAs safety concerns regarding our prior
    formulation of AVP-923 for the treatment of PBA extend to other
    clinical indications that we have been pursuing, including DPN
    pain. Due to these concerns, any future development of AVP-923
    for other indications is expected to use an alternative
    lower-dose quinidine formulation, which may negatively affect
    efficacy.
   11




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We rely on market research to evaluate the potential
    commercial acceptance of NUEDEXTA.
    Our issued patents may be challenged and our patent
    applications may be denied. Either result would seriously
    jeopardize our ability to compete in the intended markets for
    our proposed products.
    
    the claims in any pending patent applications will be allowed or
    that patent applications will be granted;
    competitors will not develop similar or superior technologies
    independently, duplicate our technologies, or design around the
    patented aspects of our technologies;
    our technologies will not infringe on other patents or rights
    owned by others, including licenses to other intellectual
    property that may not be available to us;
    any of our issued patents will provide us with significant
    competitive advantages;
    challenges will not be instituted against the validity or
    enforceability of any patent that we own or have licensed, and,
    if challenged, that we will be successful in defending ourselves
    against these challenges; or
    we will be able to secure additional worldwide intellectual
    property protection for our NUEDEXTA patent portfolio.    It is unclear whether we would be eligible for patent-term
    restoration in the U.S. under applicable law and we
    therefore do not know whether our patent-term can be
    extended.
   12




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NUEDEXTA may face competition from lower cost generic or
    follow-on products.
        We may be unable to protect our unpatented proprietary
    technology and information.
   13




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If we fail to obtain regulatory approval in foreign
    jurisdictions, we would not be able to market our products
    abroad and our revenue prospects would be limited.
    We face challenges recruiting and retaining members of
    management and other key personnel.
    Our operations might be interrupted by the occurrence of a
    natural disaster or other catastrophic event.
    Future acquisitions could disrupt our business and harm our
    financial condition.
    
    we may have to issue convertible debt or equity securities to
    complete an acquisition, which would dilute our stockholders and
    could adversely affect the market price of our common stock;
    an acquisition may negatively impact our results of operations
    because it may require us to amortize or write down amounts
    related to goodwill and other intangible assets, or incur or
    assume substantial debt or liabilities, or it may cause adverse
    tax consequences, substantial depreciation or deferred
    compensation charges;
    we may encounter difficulties in assimilating and integrating
    the business, products, technologies, personnel or operations of
    companies that we acquire; 14




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
    certain acquisitions may impact our relationship with existing
    or potential partners who are competitive with the acquired
    business, products or technologies;
    acquisitions may require significant capital infusions and the
    acquired businesses, products or technologies may not generate
    sufficient value to justify acquisition costs;
    an acquisition may disrupt our ongoing business, divert
    resources, increase our expenses and distract our management;
    acquisitions may involve the entry into a geographic or business
    market in which we have little or no prior experience; and
    key personnel of an acquired company may decide not to work for
    us.    Risks
    Relating to Our Industry
  There are a number of difficulties and risks associated with
    clinical trials and our trials may not yield the expected
    results.
      
    the results from earlier clinical trials may not be predictive
    of results that will be obtained from subsequent clinical
    trials, particularly larger trials;
    institutional review boards or regulators, including the FDA,
    may hold, suspend or terminate our clinical research or the
    clinical trials of our product candidates for various reasons,
    including noncompliance with regulatory requirements or if, in
    their opinion, the participating subjects are being exposed to
    unacceptable health risks;
    subjects may drop out of our clinical trials;
    our preclinical studies or clinical trials may produce negative,
    inconsistent or inconclusive results, and we may decide, or
    regulators may require us, to conduct additional preclinical
    studies or clinical trials;
    trial results derived from top-line data, which is based on a
    preliminary analysis of efficacy and safety data related to
    primary and secondary endpoints, may change following a more
    comprehensive review of the complete data set derived from a
    particular clinical trial or may change due to FDA requests to
    analyze the data differently; and
    the cost of our clinical trials may be greater than we currently
    anticipate.  and/or
   15




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
    delays in our ability to submit an NDA;
    the refusal by the FDA to accept for filing any NDA we may
    submit;
    requests for additional studies or data;
    delays in obtaining an approval;
    the rejection of an application; or
    the approval of the drug, but with adverse labeling claims that
    could adversely affect the commercial market.    The pharmaceutical industry is highly competitive and most of
    our competitors have larger operations and have greater
    resources. As a result, we face significant competitive
    hurdles.
      If we fail to comply with regulatory requirements, regulatory
    agencies may take action against us, which could significantly
    harm our business.
     16




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We face uncertainty related to healthcare reform, pricing and
    reimbursement, which could reduce our revenue.
    
    Establish annual, non-deductible fees on any entity that
    manufactures or imports certain branded prescription drugs and
    biologics, beginning 2011;
    Increase minimum Medicaid rebates owed by manufacturers under
    the Medicaid Drug Rebate Program;
    Extend manufacturers Medicaid rebate liability to covered
    drugs dispensed to individuals who are enrolled in Medicaid
    managed care organizations;
    Establish a new Patient-Centered Outcomes Research Institute to
    oversee, identify priorities in and conduct comparative clinical
    effectiveness research;
    Require manufacturers to participate in a coverage gap discount
    program, under which they must agree to offer 50 percent
    point-of-sale
    discounts off negotiated prices of applicable brand drugs to
    eligible beneficiaries during their coverage gap period, as a
    condition for the manufacturers outpatient drugs to be
    covered under Medicare Part D, beginning 2011; and
    Increase the number of entities eligible for discounts under the
    Public Health Service pharmaceutical pricing program, effective
    January 2010.       17




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We rely on insurance companies to mitigate our exposure for
    business activities, including developing and marketing
    pharmaceutical products for human use.
    If we market products in a manner that violates health care
    fraud and abuse laws, we may be subject to civil or criminal
    penalties.
    
    the federal healthcare programs Anti-Kickback Law, which
    prohibits, among other things, persons from knowingly and
    willfully soliciting, receiving, offering or paying
    remuneration, directly or indirectly, in exchange for or to
    induce either the referral of an individual for, or the
    purchase, order or recommendation of, any good or service for
    which payment may be made under federal healthcare programs such
    as the Medicare and Medicaid programs;
    federal false claims laws which prohibit, among other things,
    individuals or entities from knowingly presenting, or causing to
    be presented, claims for payment from Medicare, Medicaid, or
    other third-party payors that are false or fraudulent;
    the federal Health Insurance Portability and Accountability Act
    of 1996, or HIPAA, which created federal criminal laws that
    prohibit executing a scheme to defraud any healthcare benefit
    program or making false statements relating to healthcare
    matters; and
    state law equivalents of each of the above federal laws, such as
    anti-kickback and false claims laws that may apply to items or
    services reimbursed by any third-party payor, including
    commercial insurers.     18




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and/or
    We may incur significant liability if it is determined that
    we are promoting the off-label use of drugs.
    Risks
    Related to Reliance on Third Parties
  We depend on third parties to manufacture, package and
    distribute compounds for our drugs and drug candidates. The
    failure of these third parties to perform successfully could
    harm our business.
   19




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Because we depend on clinical research centers and other
    contractors for clinical testing and for certain research and
    development activities, the results of our clinical trials and
    such research activities are, to a certain extent, beyond our
    control.
    We generally do not control the development of compounds
    licensed to third parties and, as a result, we may not realize a
    significant portion of the potential value of any such license
    arrangements.
    We expect to rely entirely on third parties for international
    registration, sales and marketing efforts.
    Risks
    Relating to Our Stock
  Our stock price has historically been volatile and we expect
    that this volatility will continue for the foreseeable
    future.
    
    comments made by securities analysts, including changes in their
    recommendations;
    short selling activity by certain investors, including any
    failures to timely settle short sale transactions;
    announcements by us of financing transactions
    and/or
    future sales of equity or debt securities; 20




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
    sales of our common stock by our directors, officers or
    significant stockholders, including sales effected pursuant to
    predetermined trading plans adopted under the safe-harbor
    afforded by
    Rule 10b5-1;
    regulatory developments in the U.S. and foreign countries;
    lack of volume of stock trading leading to low
    liquidity; and
    market and economic conditions.        If our internal controls over financial reporting are not
    considered effective, our business and stock price could be
    adversely affected.
  Form 10-K
   21




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Because we do not expect to pay dividends in the foreseeable
    future, you must rely on stock appreciation for any return on
    your investment.
    Our corporate governance documents, rights agreement and
    Delaware law may delay or prevent an acquisition of us that
    stockholders may consider favorable, which could decrease the
    value of our common stock.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties      Item 3.
    Legal
    Proceedings   22




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Item 4.
    Removed
    and Reserved PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    Common Stock PriceFiscal 2010

Fiscal 2009High

Low

High

LowFirst Quarter

$
2.68


$
1.65


$
0.70


$
0.23Second Quarter

$
2.72


$
1.67


$
0.68


$
0.25Third Quarter

$
3.45


$
2.20


$
2.62


$
0.39Fourth Quarter

$
3.73


$
2.63


$
4.09


$
1.75      23




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Information
    About Our Equity Compensation Plans
  Form 10-K.
  Item 6.
    Selected
    Financial Data  Form 10-Q. one-for-four
 24




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Summary
    Financial Information
  Fiscal Years Ended September 30,Statement of Operations Data:

2010

2009

2008

2007

2006Net revenues

$
2,895,474


$
4,176,509


$
6,958,568


$
9,224,561


$
15,185,852Operating expenses

$
29,794,558


$
26,017,815


$
24,709,901


$
33,945,900


$
59,369,701Operating loss

$
(27,096,724
)

$
(21,924,665
)

$
(18,962,458
)

$
(29,368,855
)

$
(51,677,459
)Loss before discontinued operations and cumulative effect of
    change in accounting principle

$
(26,694,148
)

$
(21,996,016
)

$
(15,912,672
)

$
(28,381,724
)

$
(50,234,040
)(Loss) income from discontinued operations

$



$



$
(1,583,067
)

$
7,448,271


$
(8,702,716
)Cumulative effect of change in accounting principle

$



$



$



$



$
(3,616,058
)Net loss

$
(26,694,148
)

$
(21,996,016
)

$
(17,495,739
)

$
(20,933,453
)

$
(62,552,814
)Basic and diluted loss per share:Loss before cumulative effect of change in accounting principle
    and discontinued operations

$
(0.30
)

$
(0.28
)

$
(0.27
)

$
(0.72
)

$
(1.64
)(Loss) income from discontinued operations

$



$



$
(0.03
)

$
0.19


$
(0.28
)Cumulative effect of change in accounting principle

$



$



$



$



$
(0.12
)Net loss

$
(0.30
)

$
(0.28
)

$
(0.30
)

$
(0.53
)

$
(2.04
)Basic and diluted weighted average number of shares of common
    stock outstanding


87,614,420



78,844,251



58,901,030



39,643,876



30,634,872Cash dividends declared per share

$



$



$



$



$
   Fiscal Years Ended September 30,Balance Sheet Data:

2010

2009

2008

2007

2006Cash and cash equivalents

$
38,771,469


$
31,486,012


$
41,383,930


$
30,487,962


$
4,898,214Investments in marketable securities

$
601,550


$
468,475


$
856,597


$
3,153,436


$
19,851,859Total cash, cash equivalents and investments in marketable
    securities

$
39,373,019


$
31,954,487


$
42,240,527


$
33,641,398


$
24,750,073Working capital (deficit)

$
32,967,188


$
26,685,567


$
37,171,636


$
29,336,776


$
(6,969,777
)Total assets

$
42,141,198


$
34,068,072


$
45,906,161


$
39,095,893


$
71,462,337Deferred revenues

$
8,476,831


$
9,912,367


$
12,486,032


$
15,320,430


$
19,354,175Notes payable and capital lease obligations

$



$



$
25,744


$
12,024,592


$
14,395,978Total liabilities

$
14,134,642


$
14,126,337


$
16,905,997


$
32,065,659


$
77,136,872Stockholders equity (deficit)

$
28,006,556


$
19,941,735


$
29,000,164


$
7,030,234


$
(5,674,535
)   25




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Quarterly Statement of Operations Data

Fiscal Quarters Endedfor Fiscal 2010 (Unaudited):

December 31, 2009

March 31, 2010

June 30, 2010

September 30, 2010Net revenues

$
1,484,934


$
994,494


$
487,350


$
(71,304
)(1)Operating expenses

$
6,313,368


$
7,438,317


$
6,521,283


$
9,521,590Operating loss

$
(4,828,434
)

$
(6,443,823
)

$
(6,113,933
)

$
(9,710,534
)Gross profit (loss)

$
1,484,934


$
994,494


$
407,350


$
(188,944
)Loss from continuing operations

$
(4,822,957
)

$
(6,440,462
)

$
(5,721,583
)

$
(9,709,146
)Net loss

$
(4,822,957
)

$
(6,440,462
)

$
(5,721,583
)

$
(9,709,146
)Basic and diluted net loss per share

$
(0.06
)

$
(0.08
)

$
(0.06
)

$
(0.10
)Basic and diluted weighted average number of common shares
    outstanding


83,159,376



83,419,640



89,347,783



94,458,530   Quarterly Statement of Operations Data

Fiscal Quarters Endedfor Fiscal 2009 (Unaudited):

December 31, 2008

March 31, 2009

June 30, 2009

September 30, 2009Net revenues

$
1,754,061


$
811,675


$
590,925


$
1,019,848Operating expenses

$
7,039,226


$
5,760,680


$
5,562,822


$
7,655,087Operating loss

$
(5,293,216
)

$
(4,950,700
)

$
(4,971,897
)

$
(6,708,852
)Gross profit

$
1,746,010


$
809,980


$
590,925


$
946,235Loss from continuing operations

$
(5,178,716
)

$
(4,909,971
)

$
(4,955,969
)

$
(6,951,360
)Net loss

$
(5,178,716
)

$
(4,909,971
)

$
(4,955,969
)

$
(6,951,360
)Basic and diluted net loss per share

$
(0.07
)

$
(0.06
)

$
(0.06
)

$
(0.09
)Basic and diluted weighted average number of common shares
    outstanding


78,225,041



78,226,972



78,236,153



80,673,233     (1)
    
    In accordance with Staff Accounting Bulletin 108
    (SAB 108), in the fourth quarter of fiscal
    2010, the Company recorded a cumulative non-cash adjustment to
    correct an immaterial error related to previously recorded
    deferred royalty revenue related to the GSK license agreement.
    The total cumulative non-cash adjustment recorded in the fourth
    quarter was a decrease in revenue of $797,000 which resulted in
    net revenues of ($71,000) in the fourth fiscal quarter of 2010
    and $2.9 million for fiscal 2010.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  This Annual Report on
    Form 10-K
    contains forward-looking statements concerning future events and
    performance of the Company. When used in this report, the words
    intend, estimate,
    anticipate, believe, plan or
    expect and similar expressions are included to
    identify forward-looking statements. These forward-looking
    statements are based on our current expectations and assumptions
    and many factors could cause our actual results to differ
    materially from those indicated in these forward-looking
    statements. You should review carefully the factors identified
    in this report in Item 1A, Risk Factors. We
    disclaim any intent to update or announce revisions to any
    forward-looking statements to reflect actual events or
    developments. Except as otherwise indicated herein, all dates
    referred to in this report represent periods or dates fixed with
    reference to the calendar year, rather than our fiscal year
    ending September 30.
  Executive
    Overview
  ),
 26




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##### Table of Contents



® over-the-counter AVANIR
    
    On February 9, 2010, the United States Patent and Trademark
    Office (USPTO) issued the Company a new patent, U.S. patent
    number 7,659,282 titled Pharmaceutical Compositions
    Comprising Dextromethorphan and Quinidine for the Treatment of
    Neurological Disorders, for its lead drug candidate
    NUEDEXTA (dextromethorphan/quinidine), extending the period of
    patent protection in the United States into late 2025. The new
    patent provided AVANIR with patent protection for low-dose
    quinidine formulations of NUEDEXTA used to treat PBA. On
    October 7, 2010, the USPTO granted our Request for
    Recalculation further extending the period of patent protection
    to 2026.
    On April 13, 2010, the Company announced long-term efficacy
    data from the 12-week double-blind phase and the 12-week
    open-label extension phase of the confirmatory Phase III
    STAR trial evaluating NUEDEXTA in the treatment of PBA in
    patients with underlying multiple sclerosis or amyotrophic
    lateral sclerosis. The detailed efficacy data were presented at
    the American Academy of Neurology (AAN) Annual Meeting in
    Toronto and were selected by the AAN as part of the
    Late-Breaking Science program.
    On April 30, 2010, the Company submitted its Complete
    Response to the October 2006 Approvable Letter issued by the FDA
    for NUEDEXTA for the treatment of PBA.
    On May 6, 2010 the Company announced the pricing of a
    public offering of 10,000,000 shares of its common stock.
    Jefferies & Company, Inc. acted as sole book-running
    manager in this offering. Canaccord Genuity Inc. served as
    co-manager for the offering.
    On October 29, 2010, the Company announced that the FDA
    approved NUEDEXTA capsules as the first treatment for PBA.
    On November 22, 2010, the Company completed an underwritten
    public offering of 20,000,000 shares of its common stock
    offered at a price of $4.40 per share. Gross offering proceeds
    resulting from the offering were approximately $88,000,000,
    before deducting customary underwriting discounts, commissions
    and offering expenses.    Critical
    Accounting Policies and Estimates
   27




---



##### Table of Contents



Share-Based
    Compensation
             28




---



##### Table of Contents



Revenue
    Recognition
  General.
    Revenue Arrangements with Multiple
    Deliverables. and/or
   29




---



##### Table of Contents



License Arrangements. and/or
  and/or
    Royalty Revenues.
    Revenues from Sale of Royalty Rights. units-of-revenue
  Product Sales  Active Pharmaceutical Ingredient
    Docosanol (API Docosanol).
  Cost
    of Revenues
   30




---



##### Table of Contents



Recognition
    of Expenses in Outsourced Contracts
  and/or
  Research
    and Development Expenses
      
    The technology is in the early stage of development and has no
    alternative uses;
    There is substantial uncertainty regarding the future success of
    the technology or product;
    There will be difficulty in completing the remaining
    development; and
    There is substantial cost to complete the work.  Acquired contractual rights.
  Effects
    of Inflation
    Results
    of Operations
       31




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##### Table of Contents



Comparison
    of Fiscal 2010 and 2009
  Revenues
    and Cost of Revenues
  Year Ended September 30,2010


2009


$ Change


% ChangeREVENUES FROM PRODUCT SALESNet revenues

$



$



$




0
%Cost of revenues


197,640



73,135



124,505



170
%Product gross loss


(197,640
)


(73,135
)


(124,505
)


170
%REVENUES AND COST OF RESEARCH SERVICES AND OTHERRevenues:Revenues from royalties and royalty rights


2,895,474



3,642,675



(747,201
)


−21
%Revenues from license agreements






533,834



(533,834
)


−100
%Revenue from research services and other


2,895,474



4,176,509



(1,281,035
)


−31
%Costs:Cost of research and development services






10,224



(10,224
)


−100
%Research services and other gross profit


2,895,474



4,166,285



(1,270,811
)


−31
%Total gross profit

$
2,697,834


$
4,093,150


$
(1,395,316
)


−34
%   Revenues
          Cost
    of Revenues
   32




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##### Table of Contents



Operating
    Expenses
  Year Ended September 30,2010


2009


$ Change


% ChangeOPERATING EXPENSESResearch and development

$
13,322,040


$
15,867,049


$
(2,545,009
)


−16
%Selling, general and administrative


16,472,518



10,150,766



6,321,752



62
%Total Operating Expenses

$
29,794,558


$
26,017,815


$
3,776,743



15
%   Research
    and Development Expenses
    Selling,
    General and Administrative Expenses
    Share-Based
    Compensation
      Interest
    Expense and Interest Income
     33




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##### Table of Contents



Other,
    net
    Net
    Loss
    Comparison
    of Fiscal 2009 and 2008
  Revenues
    and Cost of Revenues
  Year Ended September 30,2009


2008


$ Change


% ChangePRODUCT SALESNet revenues

$



$
129,820


$
(129,820
)


−100
%Cost of revenues


73,135



21,714



51,421



237
%Product gross (loss) profit


(73,135
)


108,106



(181,241
)


−168
%REVENUES AND COST OF RESEARCH SERVICES AND OTHERRevenues:Revenue from royalties and royalty rights


3,642,675



3,616,102



26,573



1
%Revenues from license agreements


533,834



2,205,724



(1,671,890
)


−76
%Revenues from government research grant services






1,006,922



(1,006,922
)


−100
%Revenues from research services and other


4,176,509



6,828,748



(2,652,239
)


−39
%Costs:Cost of research and development services


10,224



249,281



(239,057
)


−96
%Cost of government research grant






940,130



(940,130
)


−100
%Costs from research services and grants


10,224



1,189,411



(1,179,187
)


−99
%Research services and other gross margin


4,166,285



5,639,337



(1,473,052
)


−26
%Total gross profit

$
4,093,150


$
5,747,443


$
(1,654,293
)


−29
%   Revenues
     34




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##### Table of Contents



Cost
    of Revenues
      Operating
    Expenses
  Year Ended September 30,2009


2008


$ Change


% ChangeOPERATING EXPENSESResearch and development

$
15,867,049


$
14,110,743


$
1,756,306



12
%General and administrative


10,150,766



10,599,158



(448,392
)


−4
%Total Operating Expenses

$
26,017,815


$
24,709,901


$
1,307,914



5
%   Research
    and Development Expenses
    General
    and Administrative Expenses
    Share-Based
    Compensation
     35




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##### Table of Contents



Interest
    Expense and Interest Income
      Other,
    net
    Loss
    from Discontinued Operations
    Net
    Loss
    Liquidity
    and Capital Resources
   36




---



##### Table of Contents



September 30,

Increase

September 30,

Increase

September 30,2010

During Period

2009

During Period

2008Cash, cash equivalents and investment in marketable securities

$
39,373,019


$
7,418,532


$
31,954,487


$
(10,286,040
)

$
42,240,527Cash and cash equivalents

$
38,771,469


$
7,285,457


$
31,486,012


$
(9,897,918
)

$
41,383,930Net working capital

$
32,967,188


$
6,281,621


$
26,685,567


$
(10,486,069
)

$
37,171,636   Year Ended


Change


Year Ended


Change


Year EndedSeptember 30,


Between


September 30,


Between


September 30,2010


Periods


2009


Periods


2008Net cash used in operating activities

$
(23,799,255
)

$
(3,509,095
)

$
(20,290,160
)

$
(3,611,951
)

$
(16,678,209
)Net cash (used in) provided by investing activities


(346,486
)


(703,848
)


357,362



(671,629
)


1,028,991Net cash provided by financing activities


31,431,198



21,396,318



10,034,880



(16,510,306
)


26,545,186Net increase (decrease) in cash and cash equivalents

$
7,285,457


$
17,183,375


$
(9,897,918
)

$
(20,793,886
)

$
10,895,968   Operating activities.
  Investing activities.
  Financing activities.
  Form S-3
 37




---



##### Table of Contents



Form S-3
    Form S-3
      Payments Due by PeriodLess than








More thanTotal


1 Year


1-3 Years


3-5 Years


5 YearsOperating lease obligations(1)

$
3,071,409


$
1,497,202


$
1,574,207


$



$
Purchase obligations(2)


4,168,552



4,168,552











Total

$
7,239,961


$
5,665,754


$
1,574,207


$



$
     (1)
    
    Operating lease obligations are exclusive of payments we expect
    to receive under sublease agreements.(2)
    
    Purchase obligations consist of the total of trade accounts
    payable and trade related accrued expenses at September 30,
    2010, and a $1.3 million contingent contractual commitment
    for achievement of certain milestones, which approximates our
    contractual commitments for goods and services in the normal
    course of our business.    NUEDEXTA License Milestone Payments.
 38




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##### Table of Contents



Management
    Outlook
      Recent
    Authoritative Guidance
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Interest
    Rate Sensitivity
  held-to-maturity. held-to-maturity
       39




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  page F-1.
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
    Managements
    Report on Internal Control Over Financial Reporting
  Rules 13a-15(f) 15d-15(f). Internal Control 
    Integrated Framework
    Changes
    in Internal Control over Financial Reporting
  Rule 13a-15(f)
  Item 9B.
    Other
    Information   40




---



##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance      Executive
    Officers and Key Employees of the Registrant
    Executive OfficersKeith A. Katkin


39


President and Chief Executive OfficerRandall E. Kaye, M.D.


48


Senior Vice President, Chief Medical OfficerChristine G. Ocampo, CPA


38


Vice President, Finance, SecretaryKey EmployeesEric S. Benevich


45


Vice President, CommunicationsGregory J. Flesher


40


Vice President, Business DevelopmentMichael McFadden


43


Vice President, U.S. Sales and Managed Markets   Executive
    Officers
  Keith Katkin.
  Randall E. Kaye, M.D.
  Christine G. Ocampo, CPA.
 41




---



##### Table of Contents



Key
    Employees
  Eric S. Benevich.
  Gregory J. Flesher.
  Michael McFadden. first-in-class
  Code of
    Ethics
  Form 8-K.
  Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters   42




---



##### Table of Contents



Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence    Item 14.
    Principal
    Accounting Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules    page F-1.
      Exhibit



Incorporated by Reference HereinNumber

Description

Form

Date3.1

Certificate of Incorporation of the Registrant

Current Report on Form 8-K, as Exhibit 3.1

March 25, 20093.2

Bylaws of the Registrant

Current Report on Form 8-K, as Exhibit 3.2

March 25, 20093.3

Certificate of Ownership and Merger merging AVANIR
    Pharmaceuticals, a California corporation, with and into AVANIR
    Pharmaceuticals, Inc., a Delaware corporation

Current Report on Form 8-K, as Exhibit 3.3

March 25, 20093.4

Certificate of Designations of Series A Junior Participating
    Cumulative Preferred Stock

Registration Statement on
    Form 8-A/A
    (File No. 001-15803), as Exhibit 3.3

March 25, 20094.1

Form of Common Stock Certificate

Current Report on Form 8-K, as Exhibit 4.1

March 25, 20094.2

Form of Senior Indenture

Registration Statement on Form S-3 (File No. 333-169175), as
    Exhibit 4.3

September 8, 20094.3

Form of Subordinated Indenture

Registration Statement on Form S-3 (File No. 333-169175), as
    Exhibit 4.4

September 8, 20094.4

Form of Common Stock Warrant, issued in connection with the
    Subscription Agreement dated March 26, 2008

Current Report on Form 8-K, as Exhibit 10.2

March 27, 20084.5

Stockholder Rights Agreement, dated as of March 20, 2009, by and
    between AVANIR Pharmaceuticals, Inc. and American Stock Transfer
    & Trust Company, LLC

Registration Statement on
    Form 8-A/A
    (File No. 001-15803), as Exhibit 4.2

March 25, 20094.6

Form of Rights Certificate with respect to the Stockholder
    Rights Agreement, dated as of March 20, 2009

Registration Statement on
    Form 8-A/A
    (File No. 001-15803), as Exhibit 4.2

March 25, 2009 43




---



##### Table of Contents



Exhibit



Incorporated by Reference HereinNumber

Description

Form

Date10.1

License Agreement, dated as of March 31, 2000, by and between
    AVANIR Pharmaceuticals and SB Pharmco Puerto Rico, a Puerto Rico
    Corporation

Current Report on Form 8-K, as Exhibit 10.1

May 4, 200010.2

License Purchase Agreement, dated as of November 22, 2002, by
    and between AVANIR Pharmaceuticals and Drug Royalty USA, Inc.

Current Report on Form 8-K, as Exhibit 99.1

January 7, 200310.3

Standard Industrial Net Lease by and between AVANIR
    Pharmaceuticals and BC Sorrento, LLC, effective as of September
    1, 2000

Quarterly Report on Form 10-Q for the quarter ended June 30,
    2000, as Exhibit 10.1

August 14, 200010.4

Standard Industrial Net Lease by and between AVANIR
    Pharmaceuticals and Sorrento Plaza, effective as of May 20, 2002

Quarterly Report on Form 10-Q for the quarter ended June 30,
    2002, as Exhibit 10.1

August 13, 200210.5

Office lease agreement, dated as of April 28, 2006, by and
    between RREEF America REIT II Corp. FFF and AVANIR
    Pharmaceuticals

Annual Report on Form 10-K for the fiscal year ended September
    30, 2006, as Exhibit 10.7

December 18, 200610.6

License Agreement, dated as of August 1, 2000, by and between
    AVANIR Pharmaceuticals and IriSys Research & Development,
    LLC*

Quarterly Report on Form 10-Q for the quarter ended June 30,
    2000, as Exhibit 10.2

August 14, 200010.7

Exclusive Patent License Agreement, dated as of April 2, 1997,
    by and between IriSys Research & Development, LLC and the
    Center for Neurologic Study

Quarterly Report on Form 10-Q for the quarter ended March 31,
    2005, as Exhibit 10.1

May 13, 200510.8

Amendment to Exclusive Patent License Agreement, dated as of
    April 11, 2000, by and between IriSys Research &
    Development, LLC and the Center for Neurologic Study

Quarterly Report on Form 10-Q for the quarter ended March 31,
    2005, as Exhibit 10.2

May 13, 200510.9

Manufacturing Services Agreement, dated as of January 4, 2006,
    by and between Patheon Inc. and AVANIR Pharmaceuticals*

Quarterly Report on Form 10-Q for the quarter ended March 31,
    2006, as Exhibit 10.1

May 10, 200610.10

Amended and Restated 1998 Stock Option Plan

Annual Report on Form 10-K for the fiscal year ended September
    30, 2001, as Exhibit 10.2

December 21, 200110.11

Amended and Restated 1994 Stock Option Plan

Annual Report on Form 10-K for the fiscal year ended September
    30, 2001, as Exhibit 10.4

December 21, 200110.12

Amended and Restated 2000 Stock Option Plan

Quarterly Report on Form 10-Q for the quarter ended March 31,
    2003, as Exhibit 10.1

May 14, 200310.13

Form of Restricted Stock Grant Notice for use with Amended and
    Restated 2000 Stock Option Plan

Quarterly Report on Form 10-Q for the quarter ended March 31,
    2003, as Exhibit 10.2

May 14, 2003 44




---



##### Table of Contents



Exhibit



Incorporated by Reference HereinNumber

Description

Form

Date10.14

2003 Equity Incentive Plan

Quarterly Report on Form 10-Q for the quarter ended March 31,
    2003, as Exhibit 10.3

May 14, 200310.15

Form of Non-Qualified Stock Option Award Notice for use with
    2003 Equity Incentive Plan

Quarterly Report on Form 10-Q for the quarter ended March 31,
    2003, as Exhibit 10.4

May 14, 200310.16

Form of Restricted Stock Grant for use with 2003 Equity
    Incentive Plan

Quarterly Report on Form 10-Q for the quarter ended March 31,
    2003, as Exhibit 10.5

May 14, 200310.17

Form of Restricted Stock Grant Notice (cash consideration) for
    use with 2003 Equity Incentive Plan

Quarterly Report on Form 10-Q for the quarter ended March 31,
    2003, as Exhibit 10.6

May 14, 200310.18

Form of Indemnification Agreement with certain Directors and
    Executive Officers of the Registrant

Quarterly Report on Form 10-Q for the quarter ended June 30,
    2009, as Exhibit 10.1

July 30, 200910.19

2005 Equity Incentive Plan

Annual Report on Form 10-K for the fiscal year ended September
    30, 2005, as Exhibit 10.21

December 14, 200510.20

Form of Stock Option Agreement for use with 2005 Equity
    Incentive Plan

Current Report on Form 8-K, as Exhibit 10.1

March 23, 200510.21

Form of Restricted Stock Unit Grant Agreement for use with 2005
    Equity Incentive Plan and 2003 Equity Incentive Plan

Filed herewith10.22

Form of Restricted Stock Unit Director Grant Agreement for use
    with 2005 Equity Incentive Plan and 2003 Equity Incentive Plan

Filed herewith10.23

Form of Restricted Stock Purchase Agreement for use with 2005
    Equity Incentive Plan

Annual Report on Form 10-K for the fiscal year ended September
    30, 2006, as Exhibit 10.35

December 18, 200610.24

Form of Change of Control Agreement

Filed herewith10.25

Employment Agreement with Randall Kaye, dated as of
    December 23, 2005

Quarterly Report on Form 10-Q for the quarter ended December 31,
    2005, as Exhibit 10.1

February 9, 200610.26

Employment Agreement with Keith Katkin, dated as of March
    13, 2007

Annual Report on Form 10-K for the fiscal year ended September
    30, 2007, as Exhibit 10.44

December 21, 200710.27

Bonus Agreement, dated as of September 10, 2007, by and between
    AVANIR Pharmaceuticals and Keith Katkin

Current Report on Form 8-K, as Exhibit 10.1

December 10, 200710.28

Sublease Agreement, dated as of July 2, 2007, by and
    between AVANIR Pharmaceuticals and Halozyme, Inc. (11388
    Sorrento Valley Rd., San Diego, CA)

Annual Report on Form 10-K for the fiscal year ended September
    30, 2007, as Exhibit 10.51

December 21, 2007 45




---



##### Table of Contents



Exhibit



Incorporated by Reference HereinNumber

Description

Form

Date10.29

Sublease Agreement, dated as of July 2, 2007, by and
    between AVANIR Pharmaceuticals and Halozyme, Inc. (11404
    Sorrento Valley Rd., San Diego, CA)

Annual Report on Form 10-K for the fiscal year ended September
    30, 2007, as Exhibit 10.52

December 21, 200710.30

Third Amendment to Lease, dated as of July 19, 2007, by and
    between AVANIR Pharmaceuticals and RREEF America REIT II Corp.
    FFF

Annual Report on Form 10-K for the fiscal year ended September
    30, 2007, as Exhibit 10.53

December 21, 200710.31

Asset Purchase and License Agreement, dated as of March 6, 2008,
    by and among AVANIR Pharmaceuticals, Xenerex Biosciences and
    Emergent Biosolutions, Inc.*

Quarterly Report on Form 10-Q for the quarter ended March 31,
    2008, as Exhibit 10.1

May 14, 200810.32

Sublease Agreement, dated as of April 21, 2009, by and between
    AVANIR Pharmaceuticals, Inc. and Halozyme, Inc.

Quarterly Report on Form 10-Q for the quarter ended March 31,
    2009, as Exhibit 10.1

May 8, 200910.33

Controlled Equity
Offeringsm

Sales Agreement, dated as of July 30, 2009, by and between
AVANIR Pharmaceuticals, Inc. and Cantor Fitzgerald & Co.

Quarterly Report on Form 10-Q for the quarter ended June 30,
    2009, as Exhibit 10.2

July 30, 200910.34

Amendment #1 to Manufacturing Services Agreement, dated as of
    January 19, 2010, by and between AVANIR Pharmaceuticals, Inc.
    and Patheon Inc.

Quarterly Report on Form 10-Q for the quarter ended March 31,
    2010, as Exhibit 10.1

May 3, 201010.35

Quality Agreement, dated as of January 19, 2010, by and between
    AVANIR Pharmaceuticals, Inc. and Patheon Inc.*

Quarterly Report on Form 10-Q for the quarter ended March 31,
    2010, as Exhibit 10.2

May 3, 201010.36

Underwriting Agreement, dated as of May 6, 2010, by and between
    AVANIR Pharmaceuticals, Inc. and Jefferies & Company, Inc.

Current Report on Form 8-K, as Exhibit 1.1

May 6, 201010.37

First Amendment to Offer of Employment, dated as of
    December 31, 2008, by and between Keith A. Katkin and
    AVANIR Pharmaceuticals, Inc.

Filed herewith21.1

List of Subsidiaries

Filed herewith23.1

Consent of Independent Registered Public Accounting Firm

Filed herewith31.1

Certification of Chief Executive Officer pursuant to Section 302
    of Sarbanes-Oxley Act of 2002

Filed herewith31.2

Certification of Chief Financial Officer pursuant to Section 302
    of Sarbanes-Oxley Act of 2002

Filed herewith 46




---



##### Table of Contents



Exhibit



Incorporated by Reference HereinNumber

Description

Form

Date32.1

Certification of Chief Executive Officer pursuant to Section 906
    of Sarbanes-Oxley Act of 2002

Filed herewith32.2

Certification of Chief Financial Officer pursuant to Section 906
    of Sarbanes-Oxley Act of 2002

Filed herewith99.1

FDA Action Letter received on October 29, 2010

Filed herewith     *
    
    Confidential treatment has been granted with respect to portions
    of this exhibit pursuant to an application requesting
    confidential treatment under
    Rule 24b-2
    of the Securities Exchange Act of 1934. A complete copy of this
    exhibit, including the redacted terms, has been separately filed
    with the Securities and Exchange Commission. 47




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##### Table of Contents



SIGNATURES    Avanir Pharmaceuticals,
    INC.
  By:
    /s/  Keith
    A. Katkin   President and Chief Executive Officer
      Signature

Title

Date/s/  Keith
    A. KatkinKeith
    A. Katkin

President and Chief Executive Officer (Principal Executive
    Officer)

December 7, 2010/s/  Christine
    G. Ocampo, CPAChristine
    G. Ocampo, CPA

Vice President, Finance
    (Principal Financial and Accounting Officer)

December 7, 2010/s/  Craig
    A. WheelerCraig
    A. Wheeler

Director, Chairman of the Board

December 7, 2010/s/  Stephen
    G. Austin, CPAStephen
    G. Austin, CPA

Director

December 7, 2010/s/  Charles
    A. MathewsCharles
    A. Mathews

Director

December 7, 2010/s/  David
    J. Mazzo, Ph.D.David
    J. Mazzo, Ph.D.

Director

December 7, 2010/s/  Dennis
    G. PodlesakDennis
    G. Podlesak

Director

December 7, 2010/s/  Scott
    M. Whitcup, M.D.Scott
    M. Whitcup, M.D.

Director

December 7, 2010  48




---



##### Table of Contents



AvanirPharmaceuticals,
    Inc.
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  PageReport of Independent Registered Public
    Accounting Firm


F-2Report of Independent Registered Public
    Accounting Firm on Internal Control Over Financial Reporting


F-3Financial Statements:Consolidated Balance Sheets


F-4Consolidated Statements of Operations


F-5Consolidated Statements of Stockholders
    Equity And Comprehensive Loss


F-6Consolidated Statements of Cash Flows


F-7Notes to Consolidated Financial Statements


F-8Financial Statement Schedules:Financial statement schedules have been omitted for the reason
    that the required information is presented in the consolidated
    financial statements or notes thereto, the amounts involved are
    not significant or the schedules are not applicable.  F-1




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   Avanir
  Avanir
    Avanir
  Internal Control  Integrated Framework
  Corbin &
    Company LLP
    F-2




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    ON INTERNAL CONTROL OVER FINANCIAL REPORTING   Avanir
  Avanir Internal Control  Integrated Framework
        Avanir Internal Control  Integrated
    Framework
  Avanir
  Corbin &
    Company LLP
    F-3




---



##### Table of Contents



AvanirPharmaceuticals, Inc.CONSOLIDATED BALANCE SHEETS
  September 30,


September 30,2010


2009ASSETSCurrent assets:Cash and cash equivalents

$
38,771,469


$
31,486,012Stock subscriptions receivable


580,910



Inventories


652,628



114,098Prepaid expenses


432,705



397,100Other current assets


52,867



331,717Current portion of restricted investments in marketable
    securities


200,000



200,775Total current assets


40,690,579



32,529,702Restricted investments in marketable securities, net of current
    portion


401,550



267,700Property and equipment, net


449,712



310,677Non-current inventories


228,207



710,531Other assets


371,150



249,462TOTAL ASSETS

$
42,141,198


$
34,068,072LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
2,106,110


$
1,214,117Accrued expenses and other liabilities


1,070,061



1,001,599Accrued compensation and payroll taxes


2,147,371



1,345,859Current portion of deferred revenues


2,399,849



2,282,560Total current liabilities


7,723,391



5,844,135Accrued expenses and other liabilities, net of current portion


334,269



652,395Deferred revenues, net of current portion


6,076,982



7,629,807Total liabilities


14,134,642



14,126,337Commitments and contingenciesStockholders equity:Preferred stock  $0.0001 par value,
    10,000,000 shares authorized, no shares issued or
    outstanding as of September 30, 2010 and 2009






Common stock  $0.0001 par value,
    200,000,000 shares authorized; 95,965,572 and
    83,084,182 shares issued and outstanding as of
    September 30, 2010 and 2009, respectively


9,597



8,308Common stock subscribed but unissued


580,910



Additional paid-in capital


332,100,685



297,923,915Accumulated deficit


(304,684,636
)


(277,990,488
)Total stockholders equity


28,006,556



19,941,735TOTAL LIABILITIES AND STOCKHOLDERS EQUITY

$
42,141,198


$
34,068,072    F-4




---



##### Table of Contents



AvanirPharmaceuticals,
    Inc.
  CONSOLIDATED STATEMENTS OF
    OPERATIONS
  Years Ended September 30,2010


2009


2008REVENUES FROM PRODUCT SALESNet revenues

$



$



$
129,820Cost of revenues


197,640



73,135



21,714Product gross (loss) profit


(197,640
)


(73,135
)


108,106REVENUES AND COST OF RESEARCH SERVICES AND OTHERRevenues from royalties and royalty rights


2,895,474



3,642,675



3,616,102Revenues from license agreements






533,834



2,205,724Revenues from government research grant services










1,006,922Revenue from research services and other


2,895,474



4,176,509



6,828,748Cost of research and development services






10,224



249,281Cost of government research grant










940,130Research services and other gross profit


2,895,474



4,166,285



5,639,337Total gross profit


2,697,834



4,093,150



5,747,443OPERATING EXPENSESResearch and development


13,322,040



15,867,049



14,110,743Selling, general and administrative


16,472,518



10,150,766



10,599,158Total operating expenses


29,794,558



26,017,815



24,709,901Loss from operations


(27,096,724
)


(21,924,665
)


(18,962,458
)OTHER INCOME(EXPENSES)Interest income


15,021



204,190



1,283,302Interest expense






(517
)


(540,618
)Gain on early extinguishment of debt










967,547Gain on sale of Xenerex antibodies










120,274Other, net


390,755



(271,824
)


1,222,481Loss before provision for income taxes


(26,690,948
)


(21,992,816
)


(15,909,472
)Provision for income taxes


3,200



3,200



3,200Loss from continuing operations


(26,694,148
)


(21,996,016
)


(15,912,672
)DISCONTINUED OPERATIONSLoss from discontinued operations










(231,848
)Loss on sale of discontinued operations










(1,351,219
)Loss from discontinued operations










(1,583,067
)Net loss

$
(26,694,148
)

$
(21,996,016
)

$
(17,495,739
)BASIC AND DILUTED NET LOSS PER SHARE:Loss from continuing operations

$
(0.30
)

$
(0.28
)

$
(0.27
)Loss from discontinued operations










(0.03
)Net loss per share

$
(0.30
)

$
(0.28
)

$
(0.30
)Basic and diluted weighted average number of common shares
    outstanding


87,614,420



78,844,251



58,901,030    F-5




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  CONSOLIDATED STATEMENTS OF STOCKHOLDERS
    EQUITY AND COMPREHENSIVE LOSS
  Common Stock








AccumulatedSubscribed but


Additional





Other


TotalCommon Stock


Unissued


Paid-in


Accumulated


Comprehensive


Stockholders


ComprehensiveShares


Amount


Shares


Amount


Capital


Deficit


Income (Loss)


Equity


LossBALANCE, OCTOBER 1, 2007


43,117,358


$
4,312






$



$
245,527,400


$
(238,498,733
)

$
(2,745
)

$
7,030,234Net loss






















(17,495,739
)






(17,495,739
)

$
(17,495,739
)Issuance of common stock in connection with:Sale of stock, net of offering costs


35,007,246



3,500











37,835,342











37,838,842Vesting of restricted stock units and awards


113,361



11











260











271Common stock surrendered


(21,979
)


(2
)










(29,848
)










(29,850
)Forfeiture of restricted awards


(2,000
)


























Share-based compensation expense


















1,653,661











1,653,661Reclassification adjustment for unrealized gains on investments
    in marketable securities


























2,745



2,745



2,745BALANCE, SEPTEMBER 30, 2008


78,213,986



7,821











284,986,815



(255,994,472
)






29,000,164


$
(17,492,994
)Net loss






















(21,996,016
)






(21,996,016
)

$
(21,996,016
)Issuance of common stock in connection with:Sale of stock, net of offering costs


4,613,350



461











10,246,419











10,246,880Vesting of restricted stock units


346,294



35











(35
)










Common stock surrendered


(89,448
)


(9
)










(186,247
)










(186,256
)Share-based compensation expense


















2,876,963











2,876,963BALANCE, SEPTEMBER 30, 2009


83,084,182



8,308











297,923,915



(277,990,488
)






19,941,735


$
(21,996,016
)Net loss






















(26,694,148
)






(26,694,148
)

$
(26,694,148
)Issuance of common stock in connection with:Exercise of stock options


55,836



5











45,471











45,476Sale of stock, net of offering costs


11,746,160



1,175



180,000



580,910



31,597,209











32,179,294Vesting of restricted stock units


1,185,258



119











(119
)










Common stock surrendered


(105,864
)


(10
)










(212,652
)










(212,662
)Share-based compensation expense


















2,746,861











2,746,861BALANCE, SEPTEMBER 30, 2010


95,965,572


$
9,597



180,000


$
580,910


$
332,100,685


$
(304,684,636
)

$



$
28,006,556


$
(26,694,148
)    F-6




---



##### Table of Contents



AvanirPharmaceuticals, Inc.CONSOLIDATED STATEMENTS OF CASH FLOWS
  Years Ended September 30,2010


2009


2008OPERATING ACTIVITIES:Net loss

$
(26,694,148
)

$
(21,996,016
)

$
(17,495,739
)Loss from discontinued operations










1,583,067Adjustments to reconcile net loss from continuing operations to
    net cash used in operating activities:Depreciation and amortization


204,998



260,780



445,980Share-based compensation expense


2,746,861



2,876,963



1,639,756Amortization of debt discount










232,776Gain on extinguishment of debt










(967,547
)Gain on sale of Xenerex antibodies










(120,274
)Loss on impairment of assets










41,048Loss on disposal of assets






266,212



26,852Changes in operating assets and liabilities:Receivables










72,000Inventories


(56,206
)


508,648



21,714Prepaid expenses and other assets


121,557



547,169



1,220,915Accounts payable


761,371



762,271



144,146Accrued expenses and other liabilities


(249,664
)


(1,095,924
)


(471,342
)Accrued compensation and payroll taxes


801,512



153,402



780Deferred revenues


(1,435,536
)


(2,573,665
)


(2,834,398
)Net cash used in operating activities of continuing operations


(23,799,255
)


(20,290,160
)


(16,460,266
)Net cash used in operating activities of discontinued operations










(217,943
)Net cash used in operating activities


(23,799,255
)


(20,290,160
)


(16,678,209
)INVESTING ACTIVITIES:Purchase of investments in securities


(200,000
)






(527
)Proceeds from sales and maturities of investments in securities


66,925



388,122



2,300,111Purchase of property and equipment


(213,411
)


(33,010
)


(134,374
)Proceeds from sale of Xenerex antibodies










210,000Proceeds from disposal of assets






2,250



5,000Net cash (used in) provided by investing activities of
    continuing operations


(346,486
)


357,362



2,380,210Net cash used in investing activities of discontinued operations










(1,351,219
)Net cash (used in) provided by investing activities


(346,486
)


357,362



1,028,991FINANCING ACTIVITIES:Proceeds from issuances of common stock and warrants, net of
    commissions and offering costs


31,598,384



10,246,880



37,838,842Proceeds from exercise of stock options


45,476







Tax withholding payments reimbursed by surrender of restricted
    stock


(212,662
)


(186,256
)


(29,579
)Payments on notes and capital lease obligations






(25,744
)


(11,264,077
)Net cash provided by financing activities


31,431,198



10,034,880



26,545,186Net increase (decrease) in cash and cash equivalents


7,285,457



(9,897,918
)


10,895,968Cash and cash equivalents at beginning of year


31,486,012



41,383,930



30,487,962Cash and cash equivalents at end of year

$
38,771,469


$
31,486,012


$
41,383,930SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Interest paid

$



$
517


$
447,508Income taxes paid

$
4,539


$
6,427


$
51,108SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
    ACTIVITIES:Sale of common stock, net of offering costs, for stock
    subscriptions receivable

$
580,910


$



$
Purchase of property and equipment in accounts payable

$
130,622


$



$
    F-7




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Description
    of Business  AVANIR AVANIR ),
  ® over-the-counter
    Avanir
  2.
    Summary
    of Significant Accounting Policies  Basis
    of presentation
  Avanir
  Form 10-K,
  Avanir Avanir Avanir Avanir Avanir Avanir Avanir Avanir Avanir
 F-8




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Avanir Avanir
  Management
    estimates
    Cash
    and cash equivalents
    Restricted
    investments in marketable securities
  held-to-maturity
  Concentrations
        Inventories
  first-in,
 F-9




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Property
    and equipment
    Capitalization
    and Valuation of Long-Lived Assets
    
    A significant underperformance relative to expected historical
    or projected future operating results;
    A significant change in the manner of our use of the acquired
    asset or the strategy for our overall business; and/or
    A significant negative industry or economic trend.    Deferred
    rent
    Fair
    value of financial instruments
   F-10




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Revenue
    recognition
      Product Sales  Active Pharmaceutical Ingredient
    Docosanol (Docosanol).
  Multiple Element Arrangements. and/or
   F-11




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  License Arrangements.
  and/or
    Royalty Arrangements.
    ® units-of-revenue
  Cost
    of revenues
    Recognition
    of expenses in outsourced contracts
  and/or
 F-12




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Research
    and development expenses
      
    The technology is in the early stage of development and has no
    alternative uses;
    There is substantial uncertainty regarding the future success of
    the technology or product;
    There will be difficulty in completing the remaining
    development; and
    There is substantial cost to complete the work.  Acquired contractual rights.
  Share-Based
    Compensation
       F-13




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Fiscal 2010


Fiscal 2009


Fiscal 2008Share-based compensation classified as:Selling, general and administrative expense

$
2,168,795


$
2,213,242


$
1,149,018Research and development expense


578,066



663,721



490,738Share-based compensation expense related to continuing operations


2,746,861



2,876,963



1,639,756From discontinued operations










13,905Total

$
2,746,861


$
2,876,963


$
1,653,661   Fiscal 2010


Fiscal 2009


Fiscal 2008Share-based compensation expense from:Stock options

$
1,265,945


$
919,478


$
666,129Restricted stock units


1,480,916



1,957,485



848,535Restricted stock awards










138,997Total

$
2,746,861


$
2,876,963


$
1,653,661     Restructuring
    expense
    Advertising
    expenses
   F-14




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Income
    taxes
        and/or
        Comprehensive
    Loss
    Computation
    of net loss per common share
   F-15




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fiscal 2010


Fiscal 2009


Fiscal 2008Stock options


6,364,265



4,217,156



2,672,227Stock warrants


12,240,437



12,240,437



12,509,742Restricted stock units(1)


1,679,341



2,505,434



2,432,416     (1)
    
    Includes 1,158,138, 692,448, and 173,374 shares of
    restricted stock in fiscal 2010, 2009, and 2008, respectively,
    awarded to directors that have vested but are still restricted
    until the directors resign.  Recent
    authoritative guidance
  Milestone Method of Revenue Recognition.
  Multiple-Deliverable Revenue Arrangements.
  Determining Whether an Instrument (or an Embedded Feature) is
    Indexed to an Entitys Own Stock.
  Noncontrolling Interests in Consolidated Financial
    Statements.
  Fair Value Measurements.
 F-16




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    3.
    Sale of
    FazaClo        Fiscal 2008OPERATING AND OTHER EXPENSESGeneral and administrative expenses

$
231,848Loss on sale of FazaClo


1,351,219NET LOSS

$
1,583,067      F-17




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    4.
    Fair
    Value of Financial Instruments    
    Level 1-Quoted
    prices in active markets for identical assets and liabilities.
    Level 2-Inputs
    other than Level 1 that are observable, either directly or
    indirectly, such as quoted prices for similar assets and
    liabilities, quoted prices in the markets that are not active;
    or other inputs that are observable or can be corroborated by
    observable market data for substantially the full term of the
    assets or liabilities.
    Level 3-Unobservable
    inputs that are supported by little or no market activity and
    that are significant to the fair value of the assets or
    liabilities.    5.
    Restricted
    Investments in Marketable Securities  held-to-maturity.
  6.
    Inventories   F-18




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    September 30,


September 30,2010


2009Raw materials

$
554,465


$
824,629Work in progress


326,370



Total inventory


880,835



824,629Less: current portion


(652,628
)


(114,098
)Non-current portion

$
228,207


$
710,531         Balance at





Balance atSeptember 30,


Additional


September 30,2009


Reserves


2010Reserve for excess and obsolete inventoryReserve for docosanol

$
118,760


$
197,640


$
316,400Reserve for DM and Q


383,000







383,000Total

$
501,760


$
197,640


$
699,400   Balance at





Balance atSeptember 30,


Additional


September 30,2008


Reserves


2009Reserve for excess and obsolete inventoryReserve for docosanol

$
50,000


$
68,760


$
118,760Reserve for DM and Q






383,000



383,000Total

$
50,000


$
451,760


$
501,760    F-19




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  7.
    Property
    and Equipment    September 30, 2010


September 30, 2009Gross








GrossCarrying


Accumulated





Carrying


AccumulatedValue


Depreciation


Net


Value


Depreciation


NetComputer equipment and related software

$
1,659,196


$
(1,291,068
)

$
368,128


$
1,330,223


$
(1,211,096
)

$
119,127Leasehold improvements


37,790



(26,470
)


11,320



37,790



(18,916
)


18,874Office equipment furniture and fixtures


756,672



(686,408
)


70,264



756,672



(583,996
)


172,676Total property and equipment

$
2,453,658


$
(2,003,946
)

$
449,712


$
2,124,685


$
(1,814,008
)

$
310,677     8.
    Accrued
    Expenses and Other Liabilities    September 30,


September 30,2010


2009Accrued research and development expenses

$
221,956


$
372,494Accrued selling, general and administrative expenses


537,347



270,401Deferred rent


12,148



19,516Lease restructuring liability(1)


632,879



991,583Total accrued expenses and other liabilities


1,404,330



1,653,994Less: Current portion


(1,070,061
)


(1,001,599
)Total non-current total accrued expenses and other liabilities

$
334,269


$
652,395     (1)
    
    In fiscal 2006, the Company relocated all operations other than
    research and development from San Diego, California to
    Aliso Viejo, California. In fiscal 2007, the Company subleased a
    total of approximately 49,000 square feet of laboratory and
    office space in San Diego and relocated remaining personnel
    and clinical trial support functions to the Companys
    offices in Aliso Viejo, California. Restructuring expenses
    included recognition of the estimated loss due to the exit of
    the Companys leases of approximately $2.1 million. No
    further costs were incurred related to these restructuring
    events in fiscal 2008. In April 2009, the Company entered into a
    sublease for office space in San Diego, California.
    Sublease rental payments commenced in September 2009 pursuant to
    this sublease. In September 2009, the Company recognized a loss
    of approximately $172,000 related to a lease restructuring
    liability resulting from a sublease entered into in April 2009
    for office buildings subleased in San Diego, California.
    The lease restructuring loss is included in rent expense in
    fiscal 2009. F-20




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Balance at





Balance atSeptember 30,


Payments/


September 30,2009


Reductions


2010Accrued RestructuringTotal lease restructuring liability

$
991,583


$
(358,704
)

$
632,879Less current portion


(358,704
)






(298,610
)Non-current portion

$
632,879






$
334,269     Balance at





Balance atSeptember 30,


Payments/


September 30,2008


Reductions


2009Accrued RestructuringLease restructuring liability

$
1,135,965


$
(144,382
)

$
991,583Less current portion


(316,086
)






(358,704
)Total

$
819,879






$
632,879   9.
    Deferred
    Revenues/Sale of Licenses  ®
  Net deferred revenues as of October 1, 2009

$
9,912,367Changes during the period:Recognized as revenues during period


(1,435,536
)Net deferred revenues as of September 30, 2010

$
8,476,831Classified and reported as:Current portion of deferred revenues

$
2,399,849Deferred revenues, net of current portion


6,076,982Total deferred revenues

$
8,476,831Net deferred revenues as of October 1, 2008

$
12,486,032Changes during the period:Recognized as revenues during period


(2,573,665
)Net deferred revenues as of September 30, 2009

$
9,912,367Classified and reported as:Current portion of deferred revenues

$
2,282,560Deferred revenues, net of current portion


7,629,807Total deferred revenues

$
9,912,367   Drug Royalty Agreement
 F-21




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      units-of-revenue
  Kobayashi Docosanol License Agreement
      HBI Docosanol License Agreement
   F-22




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Emergent Biosolutions License Agreement
    10.
    Commitments
    and Contingencies  Operating lease commitments.
      Less Payments to beMinimum


Received fromYear Ending September 30,

Payments


Subleases


Net Payments2011

$
1,497,202


$
961,425


$
535,7772012


1,222,548



997,422



225,1262013


351,659



281,801



69,858Total

$
3,071,409


$
2,240,648


$
830,761   Legal contingencies.
 F-23




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Guarantees and Indemnities.
    Center for Neurologic Study (CNS) 
  11.
    Stockholders
    Equity  Preferred
    Stock
   F-24




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Common
    stock
  Fiscal 2010.
        Fiscal 2009.
 F-25




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fiscal 2008. 5-year
          Common Stock Issued and



Common Stock


Gross Amount


Average PriceStock Options Exercised

Date

Shares


Received(1)


per Share(2)Fiscal year ended September 30, 2010:Registered offering of common stock

May-10


10,000,000


$
27,500,000


$
2.75Registered offering of common stock

Various


1,746,160



5,188,704


$
2.97Restricted stock units

Various


1,185,258






$
Stock option exercises

Various


55,836



45,476


$
0.81Total




12,987,254


$
32,734,180Fiscal year ended September 30, 2009:Registered offering of common stock

Aug-09


4,613,350


$
10,787,907


$
2.34Restricted stock units

Various


346,294






$
Total




4,959,644


$
10,787,907Fiscal year ended September 30, 2008:Registered offering of common stock

Apr-08


34,972,678


$
40,000,000


$
1.14Private placement of common stock

Jan-08


34,568



44,200


$
1.28Restricted stock awards and restricted stock units

Various


113,361






$
Total




35,120,607


$
40,044,200     (1)
    
    Amount received represents the amount before the cost of
    financing and after underwriters discount, if any.(2)
    
    Average price per share has been rounded to two decimal places. F-26




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Warrants
  5-year
  Employee
    Equity Incentive Plans
      2005 Equity Incentive Plan.
  2003 Equity Incentive Plan.
 F-27




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Stock Options. 10-year
          Performance Stock Options.
    Weighted AverageWeighted Average


Remaining


AggregateNumber of


Exercise Price per


Contractual Term


IntrinsicShares


Share


(In Years)


ValueOutstanding September 30, 2009


4,217,156


$
1.55Granted


2,228,250


$
1.96Exercised


(55,836
)

$
0.81Forfeited


(22,805
)

$
1.48Expired


(2,500
)

$
11.62Outstanding September 30, 2010


6,364,265


$
1.69



8.2


$
11,915,254Vested and expected to vest in the future,September 30, 2010


5,638,634


$
1.73



8.2


$
10,634,442Exercisable, September 30, 2010


1,949,755


$
2.47



7.3


$
3,794,197    F-28




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2010

2009

2008Expected volatility

104.6%  105.3%

100.8%  101.3%

95.8%  99.3%Weighted-average volatility

105.0%

100.8%

98.9%Average expected term in years

5.6

5.0

5.0 - 6.3Risk-free interest rate (zero coupon U.S. Treasury Note)

1.7%  2.7%

1.6%  2.3%

2.9%  3.5%Expected dividend yield

0%

0%

0%   :
  Options OutstandingWeighted





Options ExercisableAverage


Weighted





WeightedRemaining


Average





AverageNumber


Contractual


Exercise


Number


ExerciseRange of Exercise Prices

Outstanding


Life in Years


Price


Exercisable


Price$0.47-$0.79


1,573,010



8.2


$
0.53



664,466


$
0.53$0.88


2,007,677



7.8


$
0.88



728,173


$
0.88$1.20-$1.74


1,700,810



9.0


$
1.70



132,210


$
1.29$1.80-$3.30


777,081



9.2


$
2.46



120,781


$
2.41$4.60-$19.38


305,687



4.8


$
11.00



304,125


$
11.026,364,265



8.2


$
1.69



1,949,755


$
2.47   Restricted stock units (RSU).
  Weighted AverageGrant DateNumber of Shares


Fair ValueUnvested, October 1, 2009


1,812,986


$
1.83Granted


480,000


$
2.00Vested


(1,650,964
)

$
1.34Forfeited


(120,819
)

$
2.08Unvested, September 30, 2010


521,203


$
3.46    F-29




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          (12/4/2007 12/4/2007 12/4/2007 12/4/2007
  (3/21/2007 3/21/2007 3/21/2007 3/21/2007
  Restricted stock awards.
   F-30




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  12.
    Research,
    License, Supply and other Agreements  Center for Neurologic Study (CNS) 
  HBI Docosanol License Agreement country-by-country
  Kobayashi Docosanol License Agreement
      GlaxoSmithKline Subsidiary, SB Pharmco Puerto Rico, Inc.
    (GSK). over-the-counter
 F-31




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    P.N. Gerolymatos SA.
    (Gerolymatos).
  ACO HUD.
    Emergent Biosolutions. NIH/NIAID
  Non-anthrax related antibodies.
  Government research grants.
 F-32




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    13.
    Income
    Taxes    2010


2009


2008Current:State and foreign

$
3,200


$
3,200


$
3,200Deferred:Federal


(4,744,247
)


(5,948,313
)


(5,147,297
)State and foreign


(1,703,786
)


(1,026,174
)


(1,115,570
)(6,448,033
)


(6,974,487
)


(6,262,867
)Increase in deferred income tax asset valuation allowance


6,448,033



6,974,487



6,262,867Total income tax provision

$
3,200


$
3,200


$
3,200     September 30,2010


2009


2008Net operating loss carryforwards

$
97,127,486


$
90,497,829


$
83,265,183Deferred revenue


3,336,963



3,920,337



4,943,699Research credit carryforwards


11,283,223



11,295,872



10,964,507Capitalized research and development costs


714,010



986,955



1,263,921Capitalized license fees and patents


2,744,311



3,075,544



3,411,306Share-based compensation and options


4,514,473



3,449,222



2,584,645Foreign tax credits


595,912



595,912



595,912Other


703,544



750,675



622,961Deferred income tax assets


121,019,922



114,572,346



107,652,134Deferred tax liabilities:Other


(2
)


(459
)


(54,734
)Deferred tax liabilities


(2
)


(459
)


(54,734
)Less valuation allowance for net deferred income tax assets


(121,019,920
)


(114,571,887
)


(107,597,400
)Net deferred tax assets/(liabilities)

$



$



$
    F-33




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2010


2009


2008Federal statutory rate


(34
)%


(34
)%


(34
)%Increase in deferred income tax asset valuation allowance


24



32



36State income taxes, net of federal effect


(5
)


(6
)


(6
)Research and development credits


0



(1
)


(4
)Expired net operating loss and other credits


15



8



7Other


0



1



1Effective income tax rate


0
%


0
%


0
%   14.
    Employee
    Savings Plan    15.
    Segment
    Information        16.
    Subsequent
    Events    at-the-market
 F-34




---



##### Table of Contents



AvanirPharmaceuticals, Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         F-35