1162192--3/30/2007--AVALON_PHARMACEUTICALS

related topics

{product, candidate, development}

{property, intellectual, protect}

{product, liability, claim}

{stock, price, operating}

{acquisition, growth, future}

{personnel, key, retain}

{cost, regulation, environmental}

{control, financial, internal}

{loan, real, estate}

{provision, law, control}

{financial, litigation, operation}

We will need substantial additional funding, which may not be available to us on acceptable terms, or at all. We have a history of losses, we expect to continue to incur losses for the foreseeable future, and we may never achieve or sustain profitability. We have no products approved for commercial sale and do not expect to have any products approved for commercial sale for the next several years; our lead drug candidate, AVN944, is at an early stage of development, and we may not successfully develop it or any other future drug candidate into a commercial product. The drug discovery methods we employ through AvalonRx are new and unproven and may not lead to the development of commercially viable drugs. We may be unable to accelerate the drug discovery process. Preclinical and clinical testing are time consuming, expensive, and uncertain processes. If we fail to enter into new strategic collaborations, or if existing collaborations are terminated, we will not grow our revenue and our ability to exploit AvalonRx to discover drugs for diseases other than cancer will be limited. We intend to rely on third parties to conduct clinical trials for our drug candidates and those third parties may not perform satisfactorily. We do not have any manufacturing capabilities for any of our drug candidates. We have no sales, marketing or distribution experience. Our chemical library may be insufficient to meet our needs. We face intense competition in the development and commercialization of our drug candidates. We may not be able to recruit and retain the experienced scientists and managers we need to compete in the drug research and development industry. We may face liability claims related to the use or misuse of our drug candidates in clinical trials. If our insurance coverage is not sufficient, a product liability claim against us could adversely affect our business. If we are not able to successfully manage our growth, our business could be materially harmed. Our operating results may vary significantly from period to period, which may result in a decrease in the price of our common stock. Our agreements with the Maryland Industrial Development Financing Authority, or MIDFA, and Manufacturers and Traders Trust Company, or M T Bank, for the financing of our corporate office and research facility contain restrictions on our operations that could inhibit our ability to grow our business and generate revenues, and any default under these agreements could materially harm our business. Risks Related to Our Intellectual Property If we are unable to obtain and enforce patent protection for our drug candidates, our business could be materially harmed. Third parties may challenge the validity of our potential patents or other intellectual property rights and could deprive us of valuable rights. If we infringe patents or other proprietary rights of third parties, we could incur substantial liability. Our drug discovery technology is not patented, and the value of our technology and drug candidates could be adversely affected if we are unable to protect the confidentiality of our proprietary information, know-how and trade secrets. We license patent rights from a third party, Vertex Pharmaceuticals Incorporated. If Vertex does not properly maintain or enforce the patents underlying such licenses, our competitive position and business prospects will be harmed. Risks Related to Regulatory Matters Because we must obtain regulatory approval to market our drug candidates in the United States and foreign jurisdictions, we cannot predict whether or when we will be permitted to commercialize our drug candidates. Even if our drug candidates obtain regulatory approval, we will be subject to ongoing government regulation. We have only limited experience in regulatory affairs which may affect our ability or the time we require to obtain necessary regulatory approvals. Third parties engaged to produce our drug candidates for clinical use may fail to comply with regulatory requirements, which could delay clinical trials. Healthcare reform and cost control initiatives by third-party payors could reduce the prices that can be charged for drugs, which could limit the commercial success of our drug candidates. We or our future collaborators may not obtain favorable reimbursement rates for our drug candidates. Our operations involve hazardous materials and medical waste and are subject to environmental, health and safety controls and regulations. Any claim relating to our improper handing, storage or disposal of biological and hazardous materials could be time-consuming and costly, and may exceed our resources. Our business involves animal testing and changes in laws, regulations or accepted clinical procedures or social pressures could restrict our use of animals in testing and adversely affect our research and development efforts. Risks Related to Our Common Stock and Organizational Structure Our stock price is volatile.

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1162192--3/30/2007--AVALON_PHARMACEUTICALS_INC