Avalon Pharmaceuticals Inc. signed to collaborate with Novartis AG on small-molecule therapeutic compounds targeted against a pathway selected by Novartis.

Novartis, of Basel, Switzerland, will be responsible for lead optimization, preclinical and clinical testing of any product candidates and all future sales and marketing.

Avalon, of Germantown, Md., will receive an up-front payment, research support and could receive milestone payments. The company declined to comment through its public relations agency, Euro RSCG in New York, due to SEC-imposed quiet period rules related to Avalon's filing in May for an initial public offering.

It anticipates raising $26.6 million in the IPO through the sale of about 2.75 million shares, although that would rise to $30.9 million if the underwriters' overallotment option is exercised in full. The amount is based on an assumed offering price of $11 per share, the mid-point of its most recent suggested price range of $10 to $12.

Since its founding in 1999, privately held Avalon has raised about $80 million through private placement of equity securities. It has focused on developing AvalonRx, its drug discovery platform for large-scale gene-expression analysis. AvalonRx deploys software and hardware with robotics, microfluidics and bioinformatics, and has been used to identify a series of compounds impacting the beta-catenin regulatory pathway.

Through licensing agreements Avalon has expanded its product pipeline. Some of the proceeds from the IPO would be used to develop AVN944, licensed earlier this year from Vertex Pharmaceuticals Inc., of Cambridge, Mass. AVN944 is an oncology compound ready for Phase I trials in leukemia and lymphoma indications.

Avalon began a collaboration with MedImmune Inc., of Gaithersburg, Md., in June to discover and develop small-molecule compounds related to inflammatory disease. MedImmune will be responsible for further development and marketing. Avalon stands to receive an up-front payment, as well as research and development support, milestone payments and royalties in that deal. MedImmune has the option of adding two more collaborations with Avalon under similar terms.

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