.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 10px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 10px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 10px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} Dear Mr. Berko:

Dear R.S.:

According to legend, King Arthur (whose family name was Pendragon) was taken on a boat by his half-sister Morgan le Fay to be buried on the Isle of Avalon. And he sleeps there, to be awakened at some appointed time in the future. The legend of King Arthur has survived for nearly 1,500 years, exciting mythologists as well as forensic historians. Perhaps Avalon Pharmaceuticals Inc. (AVRX-$4.81), which has been in business only eight years, would like to be a reincarnation of that legend.

This little-known biopharma company focuses on small-molecule therapeutics that could have legendary consequences in fighting various cancers. AVRX’s Excalibur is a special drug discovery system (AvalonRX) to screen compounds that identify inhibitors against various targets that are essential to the development of cancer. Merck & Co. Inc. (MRK-$50.31) is so enthusiastic about the “AvalonRx” screening system that it recently inked an agreement to become a laboratory partner. Avalon will begin screening compounds from Merck’s proprietary compound base to identify hits on various cancers previously considered intractable because MRK previously was unable to identify specific cancer inhibitors.

AVRX, with only $3 million in 2006 revenues, could receive more than $200 million in various milestone payments as well as royalties. Avalon also has recent agreements with Novartis AG and MedImmune Inc., and one other world-class drug company is expected to add its name and prestige to the AVRX blue-chip list of signatories.

AVRX also produces several drugs, and its AVN944 in Phase 1 trials seems to have compelling successes inhibiting tumor cells in the colon and lungs, and myelomas. A doc I know at one of the large cancer research centers says, “I get butterflies in my stomach when I contemplate AVN944.” Though I consider his enthusiasm too sanguine and too overwhelming, I’m impressed by his credentials and past successes.

AVRX has a high cash burn rate and recently had to sell new stock and warrants to raise additional cash, which now stands at some $20 million. Its balance sheet is a disaster and leaks like a wet burlap sack riddled with .50-caliber machine gun bullets. However, I’m impressed that insiders own about 40 percent of the stock, a large portion of which was purchased at much higher prices.

The stock has a five-star ranking by WR Hambrecht & Co., and Rodman & Renshaw rates AVRX as “outperform.” Meanwhile Zacks, Standard & Poor’s and Value Engine have worthwhile reports on this stock. There are 8 million shares outstanding, which have traded between $6.25 and $2.50 in the past 12 months. So yes, I’d buy 1,000 shares but only as an aggressive speculation. With a little more good news from the Food and Drug Administration and additional recognition from other members of the Big Pharma Club plus some dragon’s breath and a sprinkling of pixie dust, I think AVRX could run to the $10-$12 level in the coming 12 months. So when you waken in the morning and remove the protein granules from the nose corner of your eyes, call the new lad who recommended AVRX and give him an order to buy the stock. Don’t ask him for a commission discount, because I think he deserves the whole enchilada.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@comcast.net.

© Copley News Service