“Since our announcement in March that we had discontinued strategic merger discussions to develop a plan to maximize the liquidation value of our assets, we have taken significant steps to reduce our operating expenses and other future obligations,” stated Andrew Sauter, Avigen’s chief executive officer, president and chief financial officer. “How we design a plan of dissolution will be highly dependent on whether we sell our AV411 drug development portfolio as an asset and liquidate, or whether we sell the entire company. We are currently engaged in active discussions with potential buyers that could prefer either alternative, and are proceeding as expeditiously as we can in these negotiations.”

Recent Avigen Highlights

Announced board discontinued strategic merger discussions to develop a plan for liquidation (as reported March 26, 2009)

Announced Avigen’s stockholders rejected a proposal to remove the current board of directors at a special meeting of stockholders held on March 27, 2009 (as reported April 1, 2009)

Company took further steps to reduce costs and position its balance sheet for an efficient liquidation of assets through staff reductions announced March 26, 2009 and the full repayment of $7.0 million of outstanding bank debt on March 31, 2009

Completed AV411 non-clinical and clinical studies that enhance the value of the program by enabling dosing at preferred, higher clinical development regimens

Continue to support an ongoing AV411 opioid withdrawal clinical trial funded by the NIDA and in partnership with Columbia University and the New York State Psychiatric Institute

Two preclinical reports published in “Brain Behavior and Immunity,” which support the pharmacological effect of AV411 on enhancing the pain-killing effect of opioids while reducing the addiction properties of commonly used opioids (as reported February 25, 2009)

Financial Results

Research and development expenses for the Q1 2009 and 2008 were $2.8 million and $6.3 million, respectively. This decrease primarily reflects the reduction in costs related to the termination of the company’s clinical development for AV650. This decrease also reflects lower expenses for personnel, overhead and other research and development costs as a result of the corporate restructuring initiated in November 2008 and other efforts to wind down further development activities.

General and administrative expenses for the Q1 2009 and 2008 were $5.0 million and $2.3 million, respectively. The expenses for the 2009 period include a one-time severance charge of approximately $1.6 million in connection with the staff reduction announced during the quarter, and approximately $1.7 million in legal and other professional services expenses, primarily in connection with the proxy fight, that are not expected to continue at these levels in future quarters.

Sublease income rose to $138,000 for the Q1 2009 as a result of entering into a new sublease agreement effective March 1, 2009 that Avigen expects will generate approximately $905,000 in sublease income and recovery of operating costs through November 2010.

Net interest income and other expenses were $424,000 and $810,000 for the Q1 2009 and 2008, respectively. This decrease primarily reflects the lower outstanding balances of interest-bearing cash and securities, as well as a general decline in market interest rates that have led to a lower average yield earned on Avigen’s portfolio. Avigen maintains a portfolio of marketable securities with very conservative investment objectives that focus on preservation of principal, liquidity, and maximum total return. As of March 31, 2009, this portfolio primarily included federal agency obligations, high-quality, short-term asset-backed securities, money market-eligible securities, and approximately 19% in corporate debt securities. Avigen does not invest in auction rate securities. As of March 31, 2009, the portfolio carried an unrealized gain of approximately $181,000.