Avalon Pharmaceuticals Closes $20 Million in Private Placement of Common Stock and Warrants to Institutional Investors

GERMANTOWN, Md., May 29  /PRNewswire-FirstCall/ -- Avalon Pharmaceuticals, Inc. (NASDAQ:AVRX), today announced that it closed the sale of common stock and common stock warrants to institutional investors that was previously announced on May 25, 2007. The Company sold 3,838,772 shares of its common stock at $5.21 per share. The investors will also receive warrants to purchase up to 959,694 shares of Avalon's common stock at an exercise price of $6.00 per share. The warrants will expire in five years. Gross proceeds of the sale were $20 million.  Participants in the transaction included Passport Management LLC, Federated Kaufmann Fund, Merlin Nexus, Hunt BioVentures, Special Situations Life Sciences Fund, Biotechnology Value Fund and other select institutional investors.

Proceeds will be used to fund further development of Avalon's lead oncology drug, AVN944, and the continued advancement of its Beta catenin, Aurora pathway, Survivin and Myc inhibitor programs.

"We are pleased to have attracted such a high quality group of investors in this offering," said Kenneth C. Carter, Ph.D., President and CEO of Avalon. "This financing provides Avalon with the resources for the next two years, during which time we expect to reach several key milestones in the development of our pipeline.  Of particular note, AVN944 should move into Phase II clinical trials for the treatment of solid and liquid tumors in the second half of 2007, our Beta catenin inhibitor program is expected to progress through pre-clinical studies and enter the clinic in 2008 and our Aurora Pathway inhibitor program should follow it by 6-8 months."

Rodman & Renshaw, LLC served as lead placement agent for the transaction. Trout Capital LLC acted as co-placement agent for the transaction.

The shares were issued in a private placement under Regulation D of the Securities Act of 1933, as amended. The shares therefore have not been registered under the Act or any state securities law or regulation and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

About Avalon Pharmaceuticals

Avalon Pharmaceuticals is a biopharmaceutical company using its proprietary technology, AvalonRx(R), to discover and develop cancer therapeutics.  Avalon has a lead product in Phase I clinical development (AVN944 - IMPDH inhibitor), as well as preclinical programs to discover inhibitors for the beta-catenin and aurora pathways now in late stage lead candidate optimization. Avalon also has discovery programs on modulators of survivin function and a drug discovery program targeting the MYC oncoprotein, one of the most important and previously intractable cancer targets. The company has value generating partnerships with Merck, MedImmune, Medarex, and Novartis. Avalon Pharmaceuticals was established in 1999 and is headquartered in Germantown, Md.

About AVN944

AVN944 is an oral small molecule drug candidate that inhibits inosine monophospate dehydrogenase (IMPDH), an enzyme that is critical for cells to be able to synthesize guanosine triphosphate (GTP), a molecule required for DNA synthesis and cellular signaling. Avalon filed an IND with the FDA in August 2005 and initiated U.S. Phase I clinical trials in January 2006 for use of AVN944 for the treatment of hematological cancers. Interim data from the study, announced in December 2006, indicate that AVN944 is well tolerated, has dose-dependent pharmacokinetics, induces biomarkers of programmed cell death in cancer cells from patients, and has resulted in stabilized disease after a one-month treatment cycle in half of the patients that have been treated thus far.  Comprehensive data on the biological and clinical activity of AVN944 from the Phase I study and the initiation of multiple Phase II studies are expected by midyear 2007.

About AvalonRx(R)

AvalonRx(R) is a comprehensive, innovative and proprietary suite of technologies based upon large-scale gene expression analysis. This platform facilitates drug discovery by expanding the range of therapeutic targets for drug intervention, including targets and target pathways frequently considered intractable using conventional HTS approaches. It allows more informed decisions about which compounds to advance towards clinical trials, and facilitates drug development through identification of biomarkers of efficacy. The analysis of the selected biomarkers can aid in the stratification of patients or provide early indicators of response.

Safe Harbor Statement

This announcement contains, in addition to historical information, certain forward-looking statements that involve risks and uncertainties.  Such forward-looking statements include, among others, statements regarding (i) the use of the proceeds of the offering in the further development of AVN944 and in the continued development of additional pipeline programs), (ii) the potential to advance Avalon's preclinical programs and (iii) the potential to advance AVN944 in clinical trials, including the anticipated timing of the commencement of Phase II clinical trials.    Such statements reflect the current views of Avalon management and are based on certain assumptions. Actual results could differ materially from those currently anticipated as a result of a number of factors, risks and uncertainties, including the risk that our discover programs may not be successful, the risk that AVN944 will not progress successfully in its clinical trials, and other risks described in our filings with the SEC.

  Contacts:
  Avalon Pharmaceuticals, Inc.         Russo Partners, LLC
  Gary Lessing                         Wendy Lau (Media)
  Executive Vice President & CFO       Tel: [phone]
  Tel: [phone]
  Fax: [phone]                  The Trout Group LLC
  Email:              Chad Rubin (Investors)
                                       Tel: [phone] ext. 47


DATASOURCE: Avalon Pharmaceuticals, Inc.



CONTACT:  Gary Lessing, Executive Vice President & CFO of Avalon

Pharmaceuticals, Inc., [phone], Fax: [phone],

; or Media, Wendy Lau of Russo Partners, LLC,

[phone], or Investors, Chad Rubin of The Trout Group LLC,

[phone] ext. 47, both for Avalon Pharmaceuticals, Inc.

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