Clinical Data to acquire Avalon Pharmaceuticals

Additionally, as part of the merger, Clinical Data will issue contingent value rights to Avalon stockholders, payable for up to $2.5 million of additional shares of Clinical Data’s common stock, upon the receipt of certain milestone payments that Avalon may receive under its collaboration agreements with Merck & Co and Novartis Institute for Biomedical Research prior to June 30, 2010. The merger agreement is subject to various closing conditions, including approval by Avalon stockholders.

Clinical Data has also completed a private placement of 3.4 million shares of Avalon’s common stock, equivalent to 19.9% of Avalon’s issued and outstanding shares. In addition, Clinical Data was issued warrants to purchase up to an additional 1.7 million shares of Avalon’s common stock at an exercise price of $0.86 per share (equal to the book value per share).

In addition, Clinical Data has provided a $3 million term loan to Avalon, secured by a first priority lien on all of Avalon’s intellectual property. The loan bears interest at 7% and all principal and accrued interest will be due to Clinical Data in full on March 31, 2009.

The company has also provided an upfront cash payment of $1 million to Avalon in exchange for a royalty-free, exclusive worldwide license to Avalon’s proprietary drug and biomarker discovery platform, AvalonRx, with carve-outs for existing Avalon compounds and programs.

The combined company will have an expanded oncology business with a pipeline of promising oncology biomarkers and compounds, and a biomarker discovery platform to identify additional therapeutic and diagnostic candidates.

Drew Fromkin, Clinical Data’s president and CEO, said: “The acquisition of Avalon is aligned with our core strategy of identifying proprietary biomarkers that correlate with safety and efficacy in the development of targeted therapeutics and genetic tests used to diagnose disease and guide treatment decisions.”