(8)    Share-based Compensation

On November 10, 2016, our stockholders approved the 2016 Equity Incentive Plan (“2016 Equity Plan”), under which a total of 4,794,137 shares may be available for issuance.  The 2016 Equity Plan replaced and superseded our amended 2007 Omnibus Equity and Incentive Plan (“Prior Plan”). In addition, under the 2016 Equity Plan all outstanding awards under the Prior Plan will become available for issuance under the 2016 Equity Plan if such awards are forfeited or otherwise terminate.   

For the three month period ended December 31, 2016 and 2015, the Company recorded share-based compensation expense related to grants from equity incentive plans of $0.5 million and $0.6 million, respectively. For the six month period ended December 31, 2016 and 2015, the Company recorded share-based compensation expense related to grants from equity incentive plans of $0.9 million and $1.2 million, respectively. No income tax benefit was recognized in the statements of operations and no share-based compensation expense was capitalized as part of any assets for the three month and six month periods ended December 31, 2016 and 2015.

ITEM 2:  Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In most cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “forecast,” “potential,” “likely” or “possible”, as well as the negative of such expressions, and similar expressions intended to identify forward-looking statements. These forward-looking statements include, without limitation, statements relating to: 

Various important factors could cause actual results, performance, events or achievements to materially differ from those expressed or implied by forward-looking statements, including the U.S. Food and Drug Administration (“FDA”(“FDA”) or a similar regulatory body in another country, a data safety monitoring board, or an institutional review board delaying, limiting, suspending or terminating any of the Company’s clinical development programs at any time for a lack of safety, efficacy, tolerability, anti-viral activity, commercial viability, regulatory or manufacturing issues, or any other reason whatsoever; the Company's ability to secure, manage and retain qualified third-party clinical research, preclinical research, data management and contract manufacturing organizations upon which it relies to assist in the design, development, implementation and execution of the clinical and preclinical development of all its product candidates; and these third-party organizations fulfilling their contractual obligations on a timely and satisfactory basis; the safety or efficacy data from planned or ongoing future preclinical and clinical studies of any of its product candidates not supporting the clinical development of that product candidate; the successful enrollment of the requisite number of study participants on a timely basis; the Company’s ability to comply with applicable government regulations in various countries and regions in which we are conducting, or expect to conduct, clinical trials; the Company’s ability to retain and recruit sufficient staff, including key executiveexecutive management and employees, to manage our business; the Company’s ability to maintain, protect or defend its proprietary rights from unauthorized use by others, or not infringe on the intellectual property rights of others; our ability to successfully manage our expenses, operating results and financial position in line with our plans and expectations; the condition of the financial equity and debt markets and our ability to raise sufficient funding in such markets; changes in the general economic business or competitive conditions in the industry or with respect to our product candidates; potential employee resignations on short notice; provisions in certificate of incorporation, bylaws and laws of Delaware containing provisions that could delay or discourage a change in control of the Company; the Company’s obtaining the requisite stockholder approval and other conditions to the Merger being satisfied; and other cautionary statements contained elsewhere in this Quarterly Report on Form10-QForm10-Q and in the Company’s Annual Report on Form 10-K for the year ended June 30, 20162017, as filed with the U.S. Securities and Exchange Commission on September 1,3, 2016 2017.

There may be events in the future that we are unable to predict accurately, or over which we have no control. You should completely read this Form 10-Q and the documents that we reference herein that have been filed or incorporated by reference as exhibits and with the understanding that our actual future results may be materially different from what we expect. Our business, financial condition, results of operations, and prospects may change. We may not update these forward-looking statements, even though our situation may change in the future, unless we have an obligation under the federal securities laws to update and disclose material developments related to previously disclosed information. We qualify all of the information presented in this Form 10-Q, and particularly our forward-looking statements, by these cautionary statements.

Aviragen is a registered trademark of Aviragen Therapeutics Inc. Inc., Relenza^® is a registered trademark of GlaxoSmithKline plc, and Inavir^® is a registered trademark of Daiichi Sankyo Company, Ltd.

References to “we,” “us,” and “our” refer to Aviragen Therapeutics,, Inc. and its subsidiaries.

The following is a discussion and analysis of the major factors contributing to our results of operations for the three months ended and sixmonths ended December 31September 30, 2016,2017, and our financial condition at that date, and should be read in conjunction with the financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Company Overview

We are focused on the discovery and development of direct-acting antivirals to treat infections that have limited therapeutic options and affect a significant number of patients globally. The Company has fourthree Phase 2 clinical programs: vapendavir,stage compounds: BTA074 (teslexivir), an oralantiviral treatment for condyloma caused by human papillomavirus types 6 & 11; vapendavir, a capsid inhibitor for the prevention or treatment of rhinovirus (RV)(“RV”) upper respiratory infections in moderate-to-severe asthmatics; vapendavir, for the treatment of RV infections in hematopoietic stem cell transplant patients;infections; and BTA585 an oral(enzaplatovir), a fusion protein inhibitor in development for the treatment of respiratory syncytial virus infections; and BTA074, a topical antiviral treatment for condyloma caused by human papillomavirus types 6 & 11. We also have preclinical RSV non-fusion inhibitor program that we believe complements our F-protein inhibitor BTA585.infections.

Although several of our influenza product candidates have been successfully developed and commercialized to date by other larger pharmaceutical companies under license, collaboration or commercialization agreements with us, we have not independently developed or received regulatory approval for any product candidate, and we do not currently have any sales, marketing or commercial capabilities. Therefore, it is possible that we may not derive any significant product revenues from any product candidates that we are developing now, or may develop in the future. We expect to incur losses for the foreseeable future as we intend to support the clinical and preclinical development of our product candidates.

We plan to continue to finance our operations with (i) our existing cash, cash equivalents, and investments (ii) proceeds from existing or potential future royalty-bearing licenses, collaborative research and development arrangements, (iii) future equity and/or forms of asset and debt financing or (iv) other financing arrangements. Our ability to continue to support our operations is dependent, in the near-term, upon our successful management of our cash resources, our continuing to receive royalty revenue under our existing licenses, our ability to enter into future collaboration, license or commercialization agreements, the successful development of our product candidates, our ability to execute future financings, if needed, and ultimately, upon the approval of our products for sale and achievement of positive cash flows from operations on a consistent basis. There can be no assurance that additional capital or funds will be available on terms acceptable to us, if at all, or that we will be able to enter into collaboration, license or commercialization agreements in the future, or that we will ever generate significant product revenue and become operationally profitable on a consistent basis. 

Recent Clinical Highlights and Updates

Reported Data from the Phase 2a RSV Challenge Study of BTA585. On February 1,October 30, 2017, the Company announced top-line datathat it had entered into the Merger Agreement pursuant to which Vaxart., a privately-held clinical-stage company focused on developing oral recombinant vaccines from its double-blind, placebo-controlled Phase 2a studyproprietary delivery platform, would become a wholly-owned subsidiary of BTA585 in adults challenged intranasally with respiratory syncytial virus (RSV). The data indicated there was not a significant reduction in the primary endpoint,Company. This transaction marks the culmination of the Company’s Strategic Review process which was initiated in April. The Merger will result in a combined company focused on developing orally-delivered vaccines and therapeutics to address a variety of viral load. The data suggested biological activity on several of the endpoints, however, the considerable variability in viral load among the cohorts and the small number of subjects that became infected with RSV likely impacted the ability to detect a significant difference between the groups. The safety profile of BTA585 was favorable and consistent across treatment groups. These safety results, together with the other clinical data and the recently completed non-clinical studies, will form the basis for the Company’s interaction with the FDA to discuss lifting the clinical hold on BTA585’s Investigational New Drug application.infections.

Data Readout from Phase 2b SPIRITUS Trial. In FebruaryThe exchange ratio in the Company expectsmerger agreement was determined by Vaxart assigning $60,000,000 in value to report results fromAviragen for its financial and clinical assets, and $90,000,000 in value for its own assets. On a pro forma basis after giving effect to the Phase 2b SPIRITUS trialnumber of vapendavirshares of Aviragen common stock that will be issued to Vaxart security holders in the Merger and assuming no adjustments for cash balances as provided for in the treatment of rhinovirus (RV). The primary endpoint of this multi-center, randomized, double-blind, placebo-controlled dose-ranging study is the change from baseline to study day 14 measured by an asthma control questionnaire (ACQ)-6 total score. The secondary endpoints are focused on safety and tolerability, lung function assessments such as forced expiratory volume in one second (FEV1), incidence of asthma exacerbations, assessmentsMerger Agreement, current Vaxart security holders will own approximately 60% of the severitycombined company and durationcurrent Aviragen security holders will own approximately 40% of cold symptoms measuredthe combined company. The transaction has been approved by the Wisconsin Upper Respiratory Symptom Survey-21 (WURSS-21) and virological assessments.boards of directors of both companies. The Merger is expected to close in the first quarter of 2018, subject to the approval of the stockholders of each company as well as other customary conditions.

Initiation of Phase 2 Trial of Vapendavir for Treatment of RV Infections in Hematopoietic Stem Cell Transplant (HSCT) Patients. In the third quarter of fiscal 2017, the Company expects to initiate a Phase 2 trial of vapendavir for the treatment of RV infections in HSCT patients. The primary endpoint of the trial will be time-weighted average change from baseline to end of treatment visit in RV viral load. Secondary endpoints will include mortality, rate of progression of RV in upper respiratory tract infection to lower respiratory tract infection, duration of RV shedding in HSCT subjects, and proportion with hospitalization and hospitalization time.

CRITICAL

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Results of Operations discusses our financial results, which (except to the extent described in the Notes thereto) have been presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

We base our estimates and judgments on historical experience, current economic and industry conditions, and various other factors that we believe to be reasonable under the circumstances. This forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe therethere have been no changes to our critical accounting policies that require significant judgment and estimates as discussed in detail in our 20162017 annual 10-K filing:

For a description of recent accounting policies and the impact on our financial statements, refer to Note 2 in the condensed consolidated financial statements.

Results of Operations for the Three months ended December 31September 30, 20162017 and December 31September 30, 20152016

Summary. For the three months ended December 31, 2016,September 30, 2017, we reported a net loss of $9.1$5.3 million, as compared to a net loss of $6.5$10.0 million in the same period of the prior fiscal year. Basic and diluted net loss per share was $0.24$0.14 for the three month period ended December 31, 2016,September 30, 2017, as compared to a basic and diluted net loss per share of $0.17$0.26 in the same period of 2015.2016. The following commentary provides details underlying changes from last year in the major line items of our statement of operations:

Revenue. Revenue increased to $3.8remained the same at $0.1 million for the three month periodperiods ended December 31, 2016 from $1.7 million in the same period in 2015 mainly due to the recognition in the 2016 period of non-cash royalty revenue related to the sale of certain royalty rights for Inavir® in Japan to HealthCare Royalty Partners III, L.P. in AprilSeptember 30, 2017 and 2016. The following table summarizes the key components of our revenue for the three months ended December 31, 2016September 30, 2017 and 2015:2016:   

Research and Development Expense. Research and development expense increaseddecreased to $10.2$2.8 million for the three months ended December 31, 2016September 30, 2017 from $6.3$7.6 million for the same period in 2015.2016. The following table summarizes the components of our research and development expense for the three months ended December 31, 2016September 30, 2017 and 2015.2016.

Direct preclinical, clinical and product development expense increaseddecreased largely due to reduced clinical trial activity and manufacturing costs, associated with the Phase 2a challenge trial for BTA585, continuing costs for the Phase 2b SPIRITUS clinical trial for vapendavir, and clinical and chemistry expenses for BTA074 for theas two of our three Phase 2 clinical trial that was initiatedtrials came to a close in February 2016.the end of the prior fiscal year. Salaries, benefits and share-based compensation expenses decrease due to a reduction in headcount during the fourth quarter of fiscal 2017.

General and Administrative Expense. General and administrative expense was $2.1increased to $2.3 million for both the three months ended December 31, 2016 andSeptember 30, 2017 from $2.2 million for the same period in 2015.2016. The following table summarizes the components of our general and administrative expense for the three months ended December 31, 2016September 30, 2017 and 2015.2016. 

Foreign Exchange Loss (Gain), net. The impact of foreign exchange changed from a gain of $0.2$0.1 million in December 31, 2015 to a loss of $0.1 million forthe three months ended December 31, 2016.September 30, 2016 to no gain or loss for the three months ended September 30, 2017. The negative impact on foreign exchange on our statement of operations was due to fluctuations in foreign currency exchange rates versus the U.S. dollar, largely related to the British Pound and Australian dollar. The vast majority of our cash holdings are held in the U.S. dollar. We re-measure all of our foreign assets and liabilities at the period-end exchange rate and the net effect of these translation adjustments is shown as a foreign currency loss or gain.

Results of Operations for the Six months ended December 31, 2016and December 31, 2015

Summary. For the six months ended December 31, 2016, we reported a net loss of $19.1 million, as compared to a net loss of $13.2 million in the same period of the prior fiscal year. Basic and diluted net loss per share was $0.49 for the six month period ended December 31, 2016, as compared to a basic and diluted net loss per share of $0.34 in the same period of 2015. The following commentary provides details underlying changes from last year in the major line items of our statement of operations:

Revenue. Revenue increased to $3.9 million for the three month period ended December 31, 2016 from $3.4 million in the same period in 2015 mainly due to the recognition in the 2016 period of non-cash royalty revenue related to the sale of certain royalty rights for Inavir® in Japan to HealthCare Royalty Partners III, L.P. in April 2016. The following table summarizes the key components of our revenue for the six months ended December 31, 2016 and 2015.