Avalon Pharmaceuticals Inc. and ChemDiv Inc. are bringing together their drug discovery services in a collaboration to identify and develop small-molecule oncology drugs.

The deal calls for Avalon to use its screening platform to discover active compounds against selected targets and pathways, with San Diego-based ChemDiv providing access to its Discovery OutSource services program, which includes a chemical library and medicinal and synthetic chemistry. Avalon will take the lead on development of any resulting compound, and the companies agreed to split development costs and potential sales revenue for any marketed products on a 50-50 basis. Specific terms were not disclosed.

"For some time, we've been looking for a medicinal chemistry-oriented partner," said Ken Carter, president and CEO of Germantown, Md.-based Avalon. "We think that this takes advantage of the two companies' relative expertise."

As part of the agreement, ChemDiv also granted Avalon the right to select 200,000 compounds from its library.

"We'll be able to use [those] in our in-house screening and development, and in context with other partnerships as well," Carter said.

This is the latest Avalon collaboration involving its AvalonRX approach, which allows researchers to efficiently screen compounds against drug targets and pathways, even those that have not been considered "classically druggable," Carter said, such as "highly hydrophobic proteins, or transcription factors or structural proteins in a cell."

The company signed a deal with Gaithersburg, Md.-based MedImmune Inc. last year to discover small-molecule drugs in the area of inflammation, and previously agreed to collaborate with Basel, Switzerland-based Novartis AG to use its AvalonRX platform against an undisclosed pathway identified by Novartis.

Avalon also used its screening platform to identify targets that are the subject of an antibody development with Medarex Inc., of Princeton, N.J. In that collaboration, Medarex will use its UltiMAb Human Antibody Development System to generate antibodies, with both companies sharing equally the costs of development and commercialization.

With the ability to screen against a broad range of targets and target pathways, the AvalonRx platform could discover "more compounds than we, as a small company, could ever take into development on our own," Carter told BioWorld Today. Partnerships, like the one with ChemDiv "allow us to be much more productive on basically the same dollars over the next few years."

Meanwhile, Avalon is working on advancing its internal pipeline focusing on oncology drugs, leading with AVN944, an oral, small-molecule inhibitor of the enzyme inosine monophosphate dehydrogenase that appears to inhibit cell proliferation. That product is aimed at treating hematological malignancies and is in a Phase I trial of about 36 patients, with results expected by the end of the year, Carter said.

"We're also using our technology to begin comprehensive analyses using biomarkers," he added, "so that, as early as Phase II, we can start looking at drug-drug combinations."

AVN944 was licensed from Cambridge, Mass.-based Vertex Pharmaceuticals Inc. in February 2005 in a potential $73 million deal. (See BioWorld Today, Feb. 16, 2005.)

Behind that product, Avalon is in mid-optimization in two programs: a beta-catenin pathway inhibitor and an Aurora kinase pathway inhibitor.

"The goal is to have at least one of those programs at IND [investigational new drug application]-stage by sometime in 2007," Carter said.

Avalon, which went public last fall through a $28.9 million initial public offering, posted a net loss of $4.6 million, or 51 cents per share, for the first quarter of 2006. As of March 31, the company had cash, cash equivalents and marketable securities totaling $31.4 million.

Its stock (NASDAQ:AVRX) closed at $3.01 Wednesday, up 16 cents.