AVANIR Pharmaceuticals Reports Third Quarter Fiscal 2005 Financial Results

AVANIR Pharmaceuticals (AMEX:AVN) today reported a net
loss for the third quarter of fiscal 2005 of $8.2 million, or $0.08
per share, compared with a net loss of $6.6 million, or $0.08 per
share, for the same period a year ago.
   Research and development (R&D) expenses in the third fiscal
quarter of 2005 were $6.5 million, compared to $5.1 million in the
same period a year ago. R&D program highlights for the third quarter
were:

   --  Submitting the final reviewable unit of our new drug
        application (NDA) to the U.S. Food and Drug Administration
        (FDA) for Neurodex in the treatment of pseudobulbar affect,
        including the payment of a $672,000 filing fee;

   --  Initiating a Phase 3 clinical trial of Neurodex for the
        treatment of neuropathic pain in patients with diabetes. The
        trial has a Special Protocol Assessment (SPA) from the FDA,
        which establishes agreement on the protocol under which AVANIR
        will conduct the study and analyze the data;

   --  Entering into a multi-million research, development and
        commercialization agreement with Novartis to develop
        treatments for inflammatory diseases by targeting macrophage
        migration inhibitory factor (MIF).

   A comparison of R&D spending by program is shown in the table that
follows.
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              RESEARCH AND DEVELOPMENT PROGRAM EXPENSES
----------------------------------------------------------------------
                                         Third Fiscal Quarter Ended
                                        June 30, 2005   June 30, 2004
                                       Amount  Percent Amount  Percent
                                       (Mils.)         (Mils.)
                                       ------- ------- ------- -------
Neurodex for the treatment of PBA        $1.9      29%   $2.1      41%
Neurodex for neuropathic pain             1.3      20%    0.5      10%
Allergy and asthma (IgE regulator)
 program                                  1.0      15%    1.0      20%
Atherosclerosis research program          1.3      20%    0.3       6%
Other preclinical research, including
 potential treatments for inflammation
 and infectious diseases                  1.0      16%    1.2      23%
                                       ------- ------- ------- -------
    Total                                $6.5     100%   $5.1     100%
                                       ======= ======= ======= =======
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   Revenues for the third quarter of fiscal 2005 were $3.3 million,
compared to $591,000 in the same period a year ago. Revenues in the
third quarter of fiscal 2005 included $2.8 million in connection with
the Novartis collaboration, $456,000 that the Company recognized from
the sale of Abreva(R) royalty rights to Drug Royalty USA and $115,000
from government research grants. Revenues in the third quarter of
fiscal 2004 included $351,000 recognized from the sale of Abreva
royalty rights and $222,000 from government research grants.
   Total operating expenses were $11.7 million in the third fiscal
quarter of 2005, compared to $7.3 million in the same period in fiscal
2004. In addition to increases in R&D expenditures, general and
administrative expenses increased by $1.6 million, largely due to
expenses associated with the departure of the previous CEO and the
costs of compliance with the Sarbanes Oxley Act of 2002. Sales and
marketing expenses increased by $1.5 million incurred in connection
with preparation for the potential launch of our lead product
candidate, Neurodex(TM).

   Balance Sheet Highlights

   As of June 30, 2005, we had cash and investments in securities
totaling $26.5 million, including cash and cash equivalents of $3.6
million, short and long-term investments in securities of $22.0
million and restricted investments in securities of $857,000.
   Subsequent to the close of the quarter, we received a $10 million
payment from AstraZeneca related to our preclinical atherosclerosis
research program, which is not included in the cash and investments in
securities as of June 30, 2005.

   Fiscal Year-to-Date Results

   The net loss for the first nine months of fiscal 2005 was $29.3
million, compared to $19.6 million for the same period a year ago. The
basic and diluted net loss per share was $0.29 for the first nine
months of fiscal 2005, compared to $0.27 for the same period a year
ago.
   Total operating expenses were $34.5 million in the first nine
months of fiscal 2005 compared to $22.7 million in the same period in
fiscal 2004. R&D expenses were $23.0 million in the first nine months
of fiscal 2005, compared to $15.8 million in the same period a year
ago. R&D programs accounted for 66% and 70% of total operating
expenses for the first nine months of fiscal 2005 and 2004,
respectively. A breakdown of major R&D spending for the nine-month
periods ended June 30, 2005 and 2004 is as follows:
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              RESEARCH AND DEVELOPMENT PROGRAM EXPENSES
----------------------------------------------------------------------
                                              Nine Months Ended
                                        June 30, 2005   June 30, 2004
                                       Amount  Percent Amount  Percent
                                       (Mils.)         (Mils.)
                                       ------- ------- ------- -------
Neurodex(TM) for the treatment of PBA   $11.6      50%   $6.3      40%
Neurodex for neuropathic pain             3.3      14%    1.6      10%
Allergy and asthma (IgE regulator)
 program                                  2.1       9%    3.0      19%
Atherosclerosis research program          3.1      14%    0.8       5%
Other preclinical research, including
 potential treatments for inflammation
 and infectious diseases                  2.9      13%    4.1      26%
                                       ------- ------- ------- -------
    Total                               $23.0     100%  $15.8     100%
                                       ======= ======= ======= =======
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   In addition to R&D expenditures, sales and marketing expenses
increased by $2.4 million due to costs incurred in connection with
preparation for the potential launch of Neurodex(TM). Administrative
expenses increased by $2.5 million, largely due to expenses associated
with the departure of the previous CEO and the costs of compliance
with the Sarbanes-Oxley Act of 2002.
   Revenues for the first nine months of fiscal 2005 amounted to $4.9
million, compared to $3.0 million for the same period last year.
Revenues for the first nine months of fiscal year 2005 included $2.8
million in connection with the Novartis collaboration, $1.4 million
that the Company recognized from the sale of Abreva(R) royalty rights,
$400,000 from government research grants and $300,000 from research
contracts and licenses. Revenues for the first nine months of fiscal
2004 included $1.2 million from the sale of Abreva royalty rights,
$787,000 in sales of the raw material docosanol, $662,000 from
government research grants and $271,000 from research contracts and
licenses.

   Conference Call and Webcast

   Management will host a conference call with a simultaneous webcast
on Thursday, August 18, 2005 at 1:30 pm Pacific/4:30 pm Eastern to
discuss third quarter of fiscal 2005 operating performance. The
call/webcast will feature Chairman of the Board Charles Mathews, and
Vice President and Chief Financial Officer Gregory P. Hanson, CMA and
other members of management. The webcast will be available live via
the Internet by accessing AVANIR's website at www.avanir.com. Replays
of the webcast will be available for 90 days, and a phone replay will
be available through August 23, 2005 by dialing 888-203-1112
(domestic) and 719-457-0820 (international) and entering the passcode
6398574.

   About the Company

   AVANIR Pharmaceuticals is focused on developing and
commercializing novel therapeutic products for the treatment of
chronic diseases. AVANIR's product candidates address therapeutic
markets that include central nervous system and cardiovascular
disorders, inflammation, and infectious disease. AVANIR recently
submitted to the FDA the final reviewable unit of its "rolling" New
Drug Application for Neurodex(TM) for the treatment of pseudobulbar
affect. Additionally, AVANIR has initiated a Phase 3 clinical trial of
Neurodex for the treatment of diabetic neuropathic pain. AVANIR has
active collaborations with two international pharmaceutical companies,
Novartis for the treatment of inflammatory disease, and AstraZeneca
for the treatment of cardiovascular disease. The Company's first
commercialized product, Abreva(R), is marketed in North America by
GlaxoSmithKline Consumer Healthcare and is the leading
over-the-counter product for the treatment of cold sores. Further
information about AVANIR can be found at www.avanir.com.

   Except for the historical information presented herein, matters
discussed in this press release contain forward-looking statements
that are subject to certain risks and uncertainties that could cause
actual results to differ materially from any future results,
performance or achievements expressed or implied by such statements.
Statements that are not historical facts, including statements that
are preceded by, followed by, or that include such words like
"estimate," "anticipate," "believe," "intend," "plan," or "expect" or
similar statements are forward-looking statements. In regard to
financial projections, risks and uncertainties include risks
associated with royalties earned on product sales of docosanol, and
results of clinical trials or product development efforts, as well as
risks shown in AVANIR's most recent Annual Report on Form 10-K and
Quarterly Report on Form 10-Q and from time-to-time in other publicly
available information regarding the company. Copies of such
information are available from AVANIR upon request. Such publicly
available information sets forth many risks and uncertainties related
to AVANIR's business and technology. The company disclaims any intent
or obligation to update these forward-looking statements.
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                        AVANIR PHARMACEUTICALS
        Summary Consolidated Financial Information (Unaudited)

                    Three months ended         Nine months ended
                         June 30,                   June 30,
                 ------------------------- ---------------------------
Consolidated
 Statement of
 Operations
 Data:              2005         2004          2005          2004
---------------- ------------ ------------ ------------- -------------
Revenues          $3,333,838     $591,354    $4,866,936    $2,956,835
                 ------------ ------------ ------------- -------------
Operating
 expenses:
 Research and
  development      6,470,317    5,096,979    22,952,728    15,839,108
 General and
  administrative   2,824,498    1,232,151     6,650,465     4,144,574
 Sales and
  marketing        2,414,578      936,802     4,911,797     2,517,399
 Cost of product
  sales                 ----        3,102         3,102       213,192
                 ------------ ------------ ------------- -------------
   Total
    operating
    expenses      11,709,393    7,269,034    34,518,092    22,714,273
                 ------------ ------------ ------------- -------------

Loss from
 operations       (8,375,555)  (6,677,680)  (29,651,156)  (19,757,438)
 Interest income     179,042       57,201       426,021       169,469
 Other income         11,496       11,116       (50,575)       30,485
 Interest
  expense            (22,513)      (7,706)      (69,458)      (28,233)
                 ------------ ------------ ------------- -------------
Net loss before
 income tax       (8,207,530)  (6,617,069)  (29,345,168)  (19,585,717)
 Provision for
  income taxes           (14)        (424)       (1,912)       (2,544)
                 ------------ ------------ ------------- -------------
Net loss         $(8,207,544) $(6,617,493) $(29,347,080) $(19,588,261)
                 ============ ============ ============= =============

Net loss per
 share:
   Basic and
    diluted           $(0.08)      $(0.08)       $(0.29)       $(0.27)
                 ============ ============ ============= =============
Basic and
 diluted
 weighted
 average number
 of common
 shares
 outstanding     107,367,798   78,256,417   100,485,329    73,740,318
                 ============ ============ ============= =============


Consolidated Balance Sheet Data:             June 30,    September 30,
                                               2005           2004
------------------------------------------ ------------- -------------
Cash and cash equivalents                    $3,576,849   $13,494,083
Short and long-term investments in
 securities                                  22,032,820    11,555,849
Restricted investments in securities            856,872       856,597
                                           ------------- -------------
  Total cash, cash equivalents and
   investments in securities                $26,466,541   $25,906,529
Net working capital                         $13,742,330   $16,653,621
Total assets                                $38,663,866   $37,403,953
Deferred revenue                            $19,525,064   $21,009,115
Total liabilities                           $28,297,043   $27,206,694
Shareholders' equity                        $10,366,823   $10,197,259
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