Avalon Pharmaceuticals, Inc. (AVRX)

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Avalon Pharmaceuticals Reports Second Quarter 2008 Results
Wednesday August 13, 10:00 am ET
Company also announces that it is restructuring operations

GERMANTOWN, Md.--(BUSINESS WIRE)--Avalon Pharmaceuticals, Inc. (Nasdaq:AVRX - News), a clinical-stage biopharmaceutical company focused on the discovery and development of novel cancer therapeutics, today announced financial and operational results for the second quarter of 2008. For the three months ended June 30, 2008, net loss was $5.6 million, compared with $5.8 million in the second quarter of 2007. As of June 30, 2008, cash, cash equivalents and marketable securities totaled $16.7 million. The Company also announced today that it is restructuring its operations and reducing its workforce by approximately one-third.

“In the second quarter of 2008, we reached an important milestone for Avalon in naming AVN316 as the lead clinical candidate for our Beta-catenin Pathway Inhibitor program,” stated Kenneth C. Carter, Ph.D., President and CEO. “This compound, which is a potent inhibitor of the intractable Beta-catenin pathway, is the first compound to be named as a clinical candidate from our unique drug discovery platform, AvalonRx®. We believe this nomination provides validation for our unique drug discovery approach and we expect additional first-in-class compounds will be identified using AvalonRx in the future.”

“Given the difficult current funding environment, we have decided to restructure our operations in order to narrow our focus to those product development programs with the greatest potential value,” continued Dr. Carter. “We believe the operational changes we are making will allow us to advance our key programs as we continue seeking additional sources of capital and will position us well for success after we have raised additional funds.”

Conference Call & Webcast Information

Avalon Pharmaceuticals’ senior management will host a conference call at 1:00 p.m. Eastern Daylight Time today, to discuss the quarterly results and recent business developments. Live audio of the conference call will be available to investors, members of the news media and the general public by dialing 877-548-7913 (in the U.S.) and 719-325-4932 (internationally), and providing the participant pass code, 3593548. To access the call by live webcast, please visit the Investor Relations section of our website at http://www.Avalonrx.com. An archived version of the webcast will also be available for seven (7) days on Avalon's website.

Recent Developments

* AVN316 was nominated as the lead clinical candidate in the Company’s Beta-catenin Pathway Inhibitor program.
* The Company identified small molecule allosteric inhibitors of the Aurora/Centrosome pathway and identified the target in the pathway as the Polo-Like Kinase 3 (PLK3) protein.
* During the quarter, AVN944 advanced to treatment at 400 mg twice a day in both the Phase I hematological and the Phase IIa pancreatic clinical trials. Two patients at the 400 mg dose level experienced elevated bilirubin. The Company has suspended treatment at the 400 mg dose level but is continuing dosing patients who are at lower dose levels while reviewing all relevant data to determine whether a maximum tolerated dose has been reached.
* The Company announced steps to restructure its operations and reduce its future cash burn rate.

Financial Results and Condition

Net loss was $5.6 million for the three months ended June 30, 2008, compared with $5.8 million in the second quarter of 2007. The lower loss in 2008 was principally due to lower operating expenses and higher revenues in the 2008 period. Revenues for the second quarter of 2008 were $137,000, compared with $78,000 for the same period of 2007. Revenues in both periods were from the Company’s collaboration with Novartis Institutes for Biomedical Research.

Total costs and expenses from operations were $5.8 million in the second quarter of 2008, compared with the $6.1 million reported for the second quarter of 2007. General and administrative expenses decreased in the 2008 period principally due to lower stock compensation expense and other costs related to personnel and consultants. Research and development expenses increased in the 2008 period due to higher clinical trial costs related to AVN944.

As of June 30, 2008, the Company had $16.7 million in cash, cash equivalents and marketable securities. Of that amount, $4.5 million was held in a restricted account to serve as collateral for long-term debt.

The Company estimates that its existing capital resources will not be sufficient to fund its planned operations significantly beyond December 31, 2008. Management continues to pursue additional funding sources; however, there is no assurance that the Company will raise capital sufficient to enable it to continue its operations past year end. A failure to raise additional funds in the near term would require Avalon to reduce its operating and capital expenditures, scale back or eliminate some or all of its research and development programs or license to third parties products or technologies that it would otherwise seek to develop itself. There is no assurance that the Company could continue as a going concern if this were the case.

Restructuring

Avalon today announced plans to restructure its operations to focus primarily on its existing collaborations and on the pre-clinical and clinical development of its Beta-catenin inhibitor program. As a part of its restructuring plans, the Company is limiting its investment in the development of AVN944 as it seeks to identify development partners for this program. In connection with the restructuring of its operations, the Company is implementing across-the-board workforce reductions to lower the Company’s headcount by about one third to approximately 35 employees going forward. The Company expects to take restructuring charges related to this workforce reduction and the restructuring of its operations of between $0.9 million and $1.1 million for severance and related costs.