Document:

EX-10.2

Exhibit 10.2

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (the “Agreement”) is made and entered into as of this 24th
day of May, 2007 by and among Avalon Pharmaceuticals, Inc., a Delaware corporation (the “Company”),
and the “Investors” executing this Agreement and named in that certain Purchase Agreement by and
among the Company and the Investors dated the date hereof (the “Purchase Agreement”).

The parties hereby agree as follows:

1. Certain Definitions.

As used in this Agreement, the following terms shall have the following meanings:

“Affiliate” means, with respect to any person, any other person which directly or
indirectly controls, is controlled by, or is under common control with, such person.

“Business Day” means a day, other than a Saturday or Sunday, on which banks in New
York City are open for the general transaction of business.

“Closing Date” has the meaning set forth in the Purchase Agreement.

“Common Stock” means the Company’s common stock, par value $0.01 per share, and any
securities into which such shares may hereinafter be reclassified.

“Effectiveness Deadline” means, with respect to the Initial Registration Statement,
the 120th day following the Closing Date and with respect to any additional Registration
Statements which may be required to be filed after the Initial Registration Statement pursuant to
Section 2(a), the 90th day following the Subsequent Filing Deadline.

“Filing Deadline” means, with respect to the Initial Registration Statement, the
Initial Filing Deadline, and with respect to any additional Registration Statements which may be
required to be filed after the Initial Registration Statement pursuant to Section 2(a), the
Subsequent Filing Deadline.

“Initial Filing Deadline” means the 10th Business Day following the Closing
Date.

“Investors” means the Investors identified in the Purchase Agreement and any Affiliate
or permitted transferee of any Investor who is a subsequent holder of any Registrable Securities.

“Initial Shares” means a number of Registrable Securities equal to the lesser of (i)
the total number of Registrable Securities and (ii) one-third of the number of issued and
outstanding shares of Common Stock that are held by non-affiliates of the Company on the day
immediately prior to the filing date of the Initial Registration Statement minus 3,000,000 shares
of Common Stock registered by the Company for resale by selling stockholders pursuant to a
registration statement on Form S-3 declared effective by the SEC on February 7, 2007.

“Prospectus” means the prospectus included in a Registration Statement, as amended or
supplemented by any prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Securities covered by such Registration Statement and by all other amendments
and supplements to the prospectus, including post-effective amendments and all material
incorporated by reference in such prospectus.

“Register,” “registered” and “registration” refer to a registration
made by preparing and filing a Registration Statement or similar document in compliance with the
1933 Act (as defined below), and the declaration or ordering of effectiveness of such Registration
Statement or document.

“Registrable Securities” means (i) the Shares and the Warrant Shares, and (ii) any
other securities issued or issuable with respect to or in exchange for Registrable Securities;
provided, that, a security shall cease to be a Registrable Security upon (A) sale pursuant to a
Registration Statement or Rule 144, or (B) such security becoming eligible for sale by the
Investors pursuant to Rule 144(k).

“Registration Statement” means any registration statement of the Company filed under
the 1933 Act that covers the resale of any of the Registrable Securities pursuant to the provisions
of this Agreement, amendments and supplements to such Registration Statement(s), including
post-effective amendments, and all exhibits and all material filed and incorporated by reference in
such Registration Statement.

“Required Investors” mean the Investors holding a majority of the Registrable
Securities.

“Rule 144”, “Rule 144(k)”, “Rule 158”, “Rule 172”, “Rule
415”, “Rule 416” and Rule 424(b)(3)” mean Rule 144, Rule 144(k), Rule 158, Rule
172, Rule 415, Rule 416 and Rule 424(b)(3), respectively, each as promulgated by the SEC pursuant
to the 1933 Act, as such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same effect as such Rule.

“SEC” means the U.S. Securities and Exchange Commission. 

“SEC Guidance” means (i) any publicly-available written or oral guidance, comments,
requirements or requests of the SEC staff and (ii) the Securities Act.

“Shares” means the shares of Common Stock issued pursuant to the Purchase Agreement.

“Subsequent Filing Deadline” means with respect to any additional Registration
Statements which may be required to be filed after the Initial Registration Statement pursuant to
Section 2(a), the 10th Business Day following the date on which the Company is permitted
by SEC Guidance to file such additional Registration Statement.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the
warrants issued pursuant to the Purchase Agreement.

“1933 Act” means the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.

“1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

2. Registration.

(a) Registration Statement. On or prior to the Initial Filing Deadline, the Company
shall prepare and file with the SEC a Registration Statement (the “Initial Registration Statement”)
registering the resale of all of the Registrable Securities (or such lesser portion of the
Registrable Securities as permitted by SEC Guidance) on a continuous basis pursuant to Rule 415
(provided that the Company shall use diligent efforts to advocate with the SEC for the registration
of all of the Registrable Securities in accordance with SEC Guidance, including without limitation,
the Manual of Publicly Available Telephone Interpretations D.29). In the event SEC Guidance does
not permit the Initial Registration Statement to register for resale all of the Registrable
Securities, then on or prior to each Subsequent Filing Deadline, the Company shall prepare and file
with the SEC a Registration Statement registering the resale of the balance of the Registrable
Securities (or such lesser portion of the Registrable Securities as permitted by SEC Guidance) on a
continuous basis pursuant to Rule 415. Each Registration Statement shall be on Form S-3 (except if
the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in
which case such registration shall be on another appropriate form) and shall include the plan of
distribution attached hereto as Exhibit A. Such Registration Statement(s) also shall
cover, to the extent allowable under the 1933 Act and the rules promulgated thereunder (including
Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock
splits, stock dividends or similar transactions with respect to the Registrable Securities. Such
Registration Statement(s) shall not include any shares of Common Stock or other securities for the
account of any other holder without the prior written consent of the Required Investors, except for
shares of Common Stock held by the Company’s stockholders having “piggyback” registration rights
expressly set forth in registration rights agreements entered into by the Company prior to the date
hereof. A copy of the initial filing of a Registration Statement (and each pre-effective amendment
thereto) shall be provided to the Investors and their counsel prior to filing.

(b) Effectiveness.

(i) The Company shall use commercially reasonable efforts to have a Registration Statement
declared effective under the 1933 Act as soon as practicable after the filing thereof, but in any
event prior to the applicable Effectiveness Deadline. The Company shall notify the Investors by
facsimile or e-mail as promptly as practicable, and in any event, within twenty-four (24) hours,
after a Registration Statement is declared effective and shall simultaneously provide the Investors
with copies of any related Prospectus to be used in connection with the sale or other disposition
of the securities covered thereby.

(c) Liquidated Damages; Suspension of Use of Prospectus.

(i) If a Registration Statement is not filed with the SEC on or prior its to its Filing
Deadline, the Company will make pro rata payments to each Investor, as liquidated damages and not
as a penalty, in an amount equal to 1.5% of the aggregate amount invested by such Investor for each
30-day period or pro rata for any portion thereof following the applicable Filing Deadline, up to
but not exceeding a maximum amount of 4.5% of the aggregate amount invested by such Investor.
Additionally, if (A) a Registration Statement registering for resale all of the Initial Shares is
not declared effective by the SEC by the Effectiveness Deadline for the Initial Registration
Statement, (B) all of the Registrable Securities are not registered for resale pursuant to one or
more effective Registration Statements on or before the 180th day after the Closing
Date, or (C) after a Registration Statement has been declared effective by the SEC, sales cannot be
made pursuant to such Registration Statement for any reason (including without limitation by reason
of a stop order, or the Company’s failure to update the Registration Statement), but excluding the
inability of any Investor to sell the Registrable Securities covered thereby due to market
conditions and except as excused pursuant to Section 2(c)(ii) below, then the Company will make pro
rata payments to each Investor, as liquidated damages and not as a penalty, in an amount equal to
1.5% of the aggregate amount invested by such Investor for each 30-day period or pro rata for any
portion thereof following the date by which such Registration Statement should have been effective
or such sales first cannot be made, up to but not exceeding a maximum of 9% of the aggregate amount
invested by such Investor. Such payments shall constitute the Investors’ exclusive monetary remedy
for such events, but shall not affect the right of the Investors to seek injunctive relief. The
amounts payable as liquidated damages pursuant to this Section 2(c)(i) shall be paid monthly within
three Business Days of the last day of each month following the occurrence of (or the continuance
of) the event giving rise to such right of payment. Such payments shall be made to each Investor
in cash. The parties agree that the liquidated damages provided for in this Section 2(c)(i)
represent a reasonable estimate on the part of the parties, as of the date of this Agreement, of
the amount of damages that may be incurred by the Investors as a result of the events specified in
this Section 2(c)(i).

(ii) For not more than 30 consecutive days or for a total of not more than 60 days in any 12
month period, the Company may delay the disclosure of material non-public information concerning
the Company, by suspending the use of any Prospectus included in any Registration Statement
contemplated by this Agreement, if such disclosure at the time is not, in the good faith opinion of
the Company, in the best interests of the Company (an “Allowed Delay”); provided that the Company
shall promptly (a) notify the Investors in writing of the existence of (but in no event, without
the prior written consent of an Investor, shall the Company disclose to such Investor any of the
facts or circumstances regarding) an Allowed Delay, (b) advise the Investors in writing to cease
all sales under the Registration Statement until the end of the Allowed Delay and (c) use
commercially reasonable efforts to terminate an Allowed Delay as promptly as practicable.

(d) Expenses. The Company will pay all expenses incurred by it associated with each
Registration Statement, including filing and printing fees, the Company’s counsel and accounting
fees and expenses, and costs associated with clearing the Registrable Securities for sale under
applicable state securities laws, but the Company shall not be liable for fees and expenses
incurred by the Investors (including any Investors’ counsel fees), or any discounts, commissions,
fees of underwriters, selling brokers, dealer managers or similar securities industry professionals
with respect to the Registrable Securities being offered.

3. Company Obligations. The Company will use commercially reasonable efforts to
effect the registration of the Registrable Securities in accordance with the terms hereof, and
pursuant thereto the Company will, as expeditiously as possible (but subject to Section 2(c)(ii)):

(a) use commercially reasonable efforts to cause each Registration Statement to become
effective and, to remain continuously effective for a period that will terminate upon the earlier
of (i) the date on which all Registrable Securities covered by such Registration Statement as
amended from time to time, have been sold, and (ii) the date on which all Registrable Securities
covered by such Registration Statement may be sold pursuant to Rule 144(k) (the “Effectiveness
Period”) and advise the Investors in writing when the Effectiveness Period has expired;

(b) prepare and file with the SEC such amendments and post-effective amendments to each
Registration Statement and the Prospectus as may be necessary to keep the Registration Statement
effective for the Effectiveness Period and to comply with the provisions of the 1933 Act and the
1934 Act with respect to the distribution of all of the Registrable Securities covered thereby;

(c) use commercially reasonable efforts to (i) prevent the issuance of any stop order or other
suspension of effectiveness and, (ii) if such order is issued, obtain the withdrawal of any such
order at the earliest possible moment;

(d) prior to any public offering of Registrable Securities, use commercially reasonable
efforts to register or qualify or cooperate with the Investors and their counsel in connection with
the registration or qualification of such Registrable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions requested by the Investors and do any and all
other commercially reasonable acts or things necessary or advisable to enable the distribution in
such jurisdictions of the Registrable Securities covered by the Registration Statement; provided,
however, that the Company shall not be required in connection therewith or as a condition thereto
to (i) qualify to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(d), (ii) subject itself to general taxation in any jurisdiction
where it would not otherwise be so subject but for this Section 3(d), or (iii) file a general
consent to service of process in any such jurisdiction;

(e) use commercially reasonable efforts to cause all Registrable Securities covered by a
Registration Statement to be listed on each securities exchange, interdealer quotation system or
other market on which similar securities issued by the Company are then listed;

(f) promptly notify the Investors, at any time when a Prospectus relating to Registrable
Securities is required to be delivered under the 1933 Act (including during any period when the
Company is in compliance with Rule 172), upon discovery that, or upon the happening of any event as
a result of which, the Prospectus included in a Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of the circumstances
then existing, and at the request of any such holder, promptly prepare, file with the SEC pursuant
to Rule 172 and furnish to such holder a supplement to or an amendment of such Prospectus as may be
necessary so that such Prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing; and

(g) otherwise use commercially reasonable efforts to comply with all applicable rules and
regulations of the SEC under the 1933 Act and the 1934 Act, including Rule 172, notify the
Investors promptly if the Company no longer satisfies the conditions of Rule 172 and take such
other actions as may be reasonably necessary to facilitate the registration of the Registrable
Securities hereunder; and make available to its security holders, as soon as reasonably
practicable, but not later than the Availability Date (as defined below), an earning statement
covering a period of at least 12 months, beginning after the effective date of each Registration
Statement, which earning statement shall satisfy the provisions of Section 11(a) of the 1933 Act,
including Rule 158 promulgated thereunder (for the purpose of this Section 3(g), “Availability
Date” means the 45th day following the end of the fourth fiscal quarter that includes the effective
date of such Registration Statement, except that, if such fourth fiscal quarter is the last quarter
of the Company’s fiscal year, “Availability Date” means the 90th day after the end of such fourth
fiscal quarter).

(h) With a view to making available to the Investors the benefits of Rule 144 (or its
successor rule) and any other rule or regulation of the SEC that may at any time permit the
Investors to sell shares of Common Stock to the public without registration, the Company covenants
and agrees to: (i) make and keep public information available, as those terms are understood and
defined in Rule 144, until the earlier of (A) six months after such date as all of the Registrable
Securities may be resold pursuant to Rule 144(k) or any other rule of similar effect or (B) such
date as all of the Registrable Securities shall have been resold; (ii) file with the SEC in a
timely manner all reports and other documents required of the Company under the 1934 Act; and (iii)
furnish to each Investor upon request, as long as such Investor owns any Registrable Securities,
(A) a written statement by the Company that it has complied with the reporting requirements of the
1934 Act, and (B) such other information as may be reasonably requested in order to avail such
Investor of any rule or regulation of the SEC that permits the selling of any such Registrable
Securities without registration.

4. Due Diligence Review; Information. Upon reasonable prior notice, the Company shall
make available, during normal business hours, for inspection and review by the Investors, advisors
to and representatives of the Investors (who may or may not be affiliated with the Investors and
who are reasonably acceptable to the Company) and to any underwriters in connection with an
offering of Registrable Securities under a Registration Statement, all financial and other records,
all SEC Filings (as defined in the Purchase Agreement) and other filings with the SEC, and all
other corporate documents and properties of the Company as may be reasonably requested by such
persons, and shall cause the Company’s officers, directors and employees, within a reasonable time
period, to supply all such information reasonably requested by such persons (including, without
limitation, in response to all questions and other inquiries reasonably made or submitted by any of
them), prior to and from time to time after the filing and effectiveness of the Registration
Statement, for the sole purpose of enabling the Investors and such representatives, advisors and
underwriters and their respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of any Registration Statement.

The Company shall not disclose material nonpublic information to the Investors, or to advisors
to or representatives of the Investors, unless prior to disclosure of such information the Company
identifies such information as being material nonpublic information and provides the Investors,
such advisors and representatives with the opportunity to accept or refuse to accept such material
nonpublic information for review and any Investor wishing to obtain such information enters into an
appropriate confidentiality agreement with the Company with respect thereto.

5. Obligations of the Investors.

(a) Each Investor shall promptly furnish in writing to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of disposition of the
Registrable Securities held by it, as shall be reasonably required to effect the registration of
such Registrable Securities and shall execute such documents in connection with such registration
as the Company may reasonably request. At least seven Business Days prior to the first anticipated
filing date of a Registration Statement, the Company shall notify each Investor of the information
the Company requires from such Investor if such Investor elects to have any of the Registrable
Securities included in the Registration Statement. An Investor shall provide such information to
the Company at least three Business Days prior to the first anticipated filing date of such
Registration Statement if such Investor elects to have any of the Registrable Securities included
in the Registration Statement.

(b) Each Investor, by its acceptance of the Registrable Securities agrees to cooperate with
the Company as reasonably requested by the Company in connection with the preparation and filing of
a Registration Statement hereunder, unless such Investor has notified the Company in writing of its
election to exclude all of its Registrable Securities from such Registration Statement.

(c) Each Investor agrees that, upon receipt of any notice from the Company of either (i) the
commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the happening of an event
pursuant to Section 3(f) hereof, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such Registrable Securities,
until the Investor is advised by the Company that a supplemented or amended prospectus has been
filed with the SEC and until any related post-effective amendment is declared effective and, if so
directed by the Company, the Investor shall deliver to the Company or destroy (and deliver to the
Company a certificate of destruction) all copies in the Investor’s possession of the Prospectus
covering the Registrable Securities current at the time of receipt of such notice.

6. Indemnification.

(a) Indemnification by the Company. The Company will indemnify and hold harmless each
Investor and its officers, directors, members, employees, attorneys and agents, successors and
assigns, and each other person, if any, who controls such Investor within the meaning of the 1933
Act, against any losses, claims, damages or liabilities, joint or several, to which they may become
subject under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of any material fact contained in a Registration Statement, Prospectus or
preliminary prospectus, or any amendment or supplement thereof; (ii) any blue sky application or
other document executed by the Company specifically for that purpose or based upon written
information furnished by the Company filed in any state or other jurisdiction in order to qualify
any or all of the Registrable Securities under the securities laws thereof (any such application,
document or information herein called a “Blue Sky Application”); (iii) the omission or alleged
omission to state therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; (iv) any violation by the Company or its agents of any rule or
regulation promulgated under the 1933 Act applicable to the Company or its agents and relating to
action or inaction required of the Company in connection with such registration; or (v) any failure
to register or qualify the Registrable Securities included in any such Registration Statement in
any state where the Company or its agents has affirmatively undertaken or agreed in writing that
the Company will undertake such registration or qualification on an Investor’s behalf and will
reimburse such Investor, and each such officer, director or member and each such controlling person
for any legal or other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case if and to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information furnished by such
Investor or any such controlling person in writing specifically for use in such Registration
Statement or Prospectus.

(b) Indemnification by the Investors. Each Investor agrees, severally but not
jointly, to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its
directors, officers, employees, stockholders and each person who controls the Company (within the
meaning of the 1933 Act) against any losses, claims, damages, liabilities and expense (including
reasonable attorney fees) resulting from any untrue statement of a material fact or any omission of
a material fact required to be stated in a Registration Statement, Prospectus or preliminary
prospectus or amendment or supplement thereto or necessary to make the statements therein not
misleading, to the extent, but only to the extent that such untrue statement or omission is
contained in any information furnished in writing by such Investor to the Company specifically for
inclusion in such Registration Statement, Prospectus or preliminary prospectus or amendment or
supplement thereto. In no event shall the liability of an Investor be greater in amount than the
dollar amount of the proceeds (net of all expense paid by such Investor in connection with any
claim relating to this Section 6 and the amount of any damages such Investor has otherwise been
required to pay by reason of such untrue statement or omission) received by such Investor upon the
sale of the Registrable Securities included in the Registration Statement giving rise to such
indemnification obligation.

(c) Conduct of Indemnification Proceedings. Any person entitled to indemnification
hereunder shall (i) give prompt notice to the indemnifying party of any claim with respect to which
it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such
claim with counsel reasonably satisfactory to the indemnified party; provided that any
person entitled to indemnification hereunder shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such counsel shall be at the
expense of such person unless (a) the indemnifying party has agreed to pay such fees or expenses,
or (b) the indemnifying party shall have failed to assume the defense of such claim and employ
counsel reasonably satisfactory to such person or (c) in the reasonable judgment of any such
person, based upon written advice of its counsel, a conflict of interest exists between such person
and the indemnifying party with respect to such claims (in which case, if the person notifies the
indemnifying party in writing that such person elects to employ separate counsel at the expense of
the indemnifying party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such person); and provided, further, that the failure of
any indemnified party to give notice as provided herein shall not relieve the indemnifying party of
its obligations hereunder, except to the extent that such failure to give notice shall materially
adversely affect the indemnifying party in the defense of any such claim or litigation. It is
understood that the indemnifying party shall not, in connection with any proceeding in the same
jurisdiction, be liable for fees or expenses of more than one separate firm of attorneys at any
time for all such indemnified parties. No indemnifying party will, except with the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or litigation.

(d) Contribution. If for any reason the indemnification provided for in the preceding
paragraphs (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless,
other than as expressly specified therein, then the indemnifying party shall contribute to the
amount paid or payable by the indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of the indemnified
party and the indemnifying party, as well as any other relevant equitable considerations. No
person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the 1933 Act
shall be entitled to contribution from any person not guilty of such fraudulent misrepresentation.
In no event shall the contribution obligation of a holder of Registrable Securities be greater in
amount than the dollar amount of the proceeds (net of all expenses paid by such holder in
connection with any claim relating to this Section 6 and the amount of any damages such holder has
otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission) received by it upon the sale of the Registrable Securities giving rise to such
contribution obligation.

7. Miscellaneous.

(a) Amendments and Waivers. This Agreement may be amended, modified or waived only by
a writing signed by the Company and the Required Investors; provided that if any such
amendment, modification or waiver would adversely affect in any material respect any Investor or
group of Investors who have comparable rights under this Agreement disproportionately to the other
Investors having such comparable rights, such amendment, modification, or waiver shall also require
the written consent of the Investor(s) so adversely affected.

(b) Notices. All notices and other communications provided for or permitted hereunder
shall be made as set forth in Section 9.4 of the Purchase Agreement.

(c) Assignments and Transfers by Investors. The provisions of this Agreement shall be
binding upon and inure to the benefit of the Investors and their respective successors and assigns.
An Investor may transfer or assign, in whole or from time to time in part, to one or more persons
its rights hereunder in connection with the transfer of Registrable Securities by such Investor to
such person, provided that (i) such Investor complies with all laws applicable thereto and provides
written notice of assignment to the Company promptly after such assignment is effected and (ii) the
transferee agrees in writing to be bound by this Agreement as if it were a party hereto.

(d) Assignments and Transfers by the Company. This Agreement may not be assigned by
the Company (whether by operation of law or otherwise) without the prior written consent of the
Required Investors, provided, however, that the Company may assign its rights and delegate its
duties hereunder to any surviving or successor corporation in connection with a merger or
consolidation of the Company with another corporation, or a sale, transfer or other disposition of
all or substantially all of the Company’s assets to another corporation, without the prior written
consent of the Required Investors, after notice duly given by the Company to each Investor.

(e) Benefits of the Agreement. The terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the respective permitted successors and assigns of the
parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as expressly provided in
this Agreement.

(f) Counterparts; Faxes. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall constitute one and the
same instrument. This Agreement may also be executed via facsimile, which shall be deemed an
original.

(g) Titles and Subtitles. The titles and subtitles used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting this Agreement.

(h) Severability. Any provision of this Agreement that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions hereof but shall be
interpreted as if it were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which renders any
provisions hereof prohibited or unenforceable in any respect.

(i) Further Assurances. The parties shall execute and deliver all such further
instruments and documents and take all such other actions as may reasonably be required to carry
out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein
contained.

(j) Entire Agreement. This Agreement is intended by the parties as a final expression
of their agreement and intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings between the parties with respect to
such subject matter.

(k) Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Agreement
shall be governed by, and construed in accordance with, the internal laws of the State of New York
without regard to the choice of law principles thereof. Each of the parties hereto irrevocably
submits to the exclusive jurisdiction of the courts of the State of New York located in New York
County and the United States District Court for the Southern District of New York for the purpose
of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the
transactions contemplated hereby. Service of process in connection with any such suit, action or
proceeding may be served on each party hereto anywhere in the world by the same methods as are
specified for the giving of notices under this Agreement. Each of the parties hereto irrevocably
consents to the jurisdiction of any such court in any such suit, action or proceeding and to the
laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of
venue of any such suit, action or proceeding brought in such courts and irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED
SPECIFICALLY AS TO THIS WAIVER.

(l) Obligations of Investors. The Company acknowledges that the obligations of each
Investor under this Agreement are several and not joint with the obligations of any other Investor,
and no Investor shall be responsible in any way for the performance of the obligations of any other
Investor under this Agreement. The decision of each Investor to enter into to this Agreement has
been made by such Investor independently of any other Investor. The Company further acknowledges
that nothing contained in this Agreement, and no action taken by any Investor pursuant hereto,
shall be deemed to constitute the Investors as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Investors are in any way acting in
concert or as a group with respect to such obligations or the transactions contemplated hereby.
Each Investor shall be entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement, and it shall not be necessary for any other
Investor to be joined as an additional party in any proceeding for such purpose.

Each Investor has been represented by its own separate legal counsel in their review and
negotiation of this Agreement and with respect to the transactions contemplated hereby. The Company
has elected to provide all Investors with the same terms and Agreement for the convenience of the
Company and not because it was required or requested to do so by the Investors. The Company
acknowledges that such procedure with respect to this Agreement in no way creates a presumption
that the Investors are in any way acting in concert or as a group with respect to this Agreement or
the transactions contemplated hereby or thereby.

[Signature pages follow]

1

IN WITNESS WHEREOF, the parties have executed this Agreement or caused their duly
authorized officers to execute this Agreement as of the date first above written.

	 	 	 	 	 	 	 
	The Company:

	 	 	 	AVALON PHARMACEUTICALS, INC.
	 	

	 
	 	 	 	 	 	 
	
 
	 	By:
	 	/s/ Kenneth C. Carter
	 	

	 	 	 	 	 

	
 
	 	Name:
	 	Kenneth C. Carter
	 	

	 	 	Title:	 	President and Chief Executive Officer

	 
	 	 	 	 	 	 

2

	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Investor:

	 	 	 	Cranshire Capital, L.P.
	 	

	 
	 	 	 	 	 	 
	
 
	 	 	 	By:
	 	/s/ Mitchell P. Kopin
	
 
	 	 	 	 	 	 
	
 
	 	 	 	Name:

Title:
	 	Mitchell P. Kopin

President

Downstream Capital, Inc.

As the General Partner
	 
	 	 	 	 	 	 

3

Investor:

Royter & Co. fbo Passport Global Master Fund SPC Ltd.
for and on behalf of Portfolio A – Global Strategy

	 	 	 
	
 
	 	By:/s/ Joanne Cormican
	
 
	 	 
	
 
	 	Name:Joanne Cormican

Title:Chief Financial Officer
	 
	 	 

4

	 	 	 
	 
	 	 
	Investor:

	 	American Skandia Trust, Federated Aggressive Growth

Portfolio
	 
	 	 
	
 
	 	By:/s/ Aash Shah
	
 
	 	 
	
 
	 	Name:Aash Shah

Title:Vice President, Federated Global Investment

Management Corp., as attorney-in-fact for American Skandia

Trust, Federated Aggressive Growth Portfolio
	 
	 	 

5

	 	 	 
	 
	 	 
	Investor:

	 	Federated Kaufmann Fund II, a portfolio of Federated

Insurance Series
	 
	 	 
	
 
	 	By:/s/ Aash Shah
	
 
	 	 
	
 
	 	Name:Aash Shah

Title:Vice President, Federated Global Investment

Management Corp., as attorney-in-fact for Federated

Kaufmann Fund II, a portfolio of Federated Insurance

Series
	 
	 	 

6

	 	 	 
	 
	 	 
	Investor:

	 	Federated Kaufmann Small Cap Fund, a portfolio of

Federated Equity Funds
	 
	 	 
	
 
	 	By:/s/ Aash Shah
	
 
	 	 
	
 
	 	Name:Aash Shah

Title:Vice President, Federated Global Investment

Management Corp., as attorney-in-fact for Federated

Kaufmann Small Cap Fund, a portfolio of Federated Equity

Funds
	 
	 	 

7

	 	 	 
	 
	 	 
	Investor:

	 	Federated Kaufmann Fund, a portfolio of Federated Equity

Funds
	 
	 	 
	
 
	 	By:/s/ Hans P. Utsch
	
 
	 	 
	
 
	 	Name:Hans P. Utsch

Title:Vice President, Federated Global Investment

Management Corp., as attorney-in-fact for Federated

Kaufmann Fund, a portfolio of Federated Equity Funds
	 
	 	 

8

	 	 	 
	 
	 	 
	Investor:

	 	Nexus Gemini, LP
	 
	 	 
	
 
	 	By:/s/ Normal Schleifer
	
 
	 	 
	
 
	 	Name:Norman Schleifer

Title:Chief Financial Officer
	 
	 	 

9

	 	 	 
	 
	 	 
	Investor:

	 	Biotechnology Value Fund, L.P.
	 
	 	 
	
 
	 	By:/s/ Mark Lampert
	
 
	 	 
	
 
	 	Name:Mark Lampert

Title:President of BVF, Inc.

As General Partner of BVF Partners L.P.

As General Partner of Biotechnology Value Fund
	 
	 	 

10

	 	 	 
	 
	 	 
	Investor:

	 	Investment 10, LLC
	 
	 	 
	
 
	 	By:/s/ Mark Lampert
	
 
	 	 
	
 
	 	Name:Mark Lampert

Title:President of BVF, Inc.

As General Partner of BVF Partners L.P.

Attorney-in-Fact for Investment 10, LLC
	 
	 	 

11

	 	 	 
	 
	 	 
	Investor:

	 	Biotechnology Value Fund II, L.P.
	 
	 	 
	
 
	 	By:/s/ Mark Lampert
	
 
	 	 
	
 
	 	Name:Mark Lampert

Title:President of BVF, Inc.

As General Partner of BVF Partners L.P.

As General Partner of Biotechnology Value Fund, II,

L.P.
	 
	 	 

12

	 	 	 
	 
	 	 
	Investor:

	 	BVF Investments, LLC
	 
	 	 
	
 
	 	By:/s/ Mark Lampert
	
 
	 	 
	
 
	 	Name:Mark Lampert

Title:President of BVF, Inc.

As General Partner of BVF Partners L.P.

As Manager of BVF Investments, LLC
	 
	 	 

13

	 	 	 
	 
	 	 
	Investor:

	 	Special Situations Life Sciences Fund L.P.
	 
	 	 
	
 
	 	By:/s/ David Greenhose
	
 
	 	 
	
 
	 	Name:David Greenhose

Title:Managing Partner
	 
	 	 

14

	 	 	 
	 
	 	 
	Investor:

	 	Biomedical Value Fund, L.P.
	 
	 	 
	
 
	 	By:/s/ David P. Gerber
	
 
	 	 
	
 
	 	Name:David P. Gerber

Title:Chief Financial Officer
	 
	 	 

15

	 	 	 
	 
	 	 
	Investor:

	 	Biomedical Offshore Value Fund, Ltd.
	 
	 	 
	
 
	 	By:/s/ David P. Gerber
	
 
	 	 
	
 
	 	Name:David P. Gerber

Title:Chief Financial Officer
	 
	 	 

16

	 	 	 
	 
	 	 
	Investor:

	 	DAFNA LifeScience Ltd.
	 
	 	 
	
 
	 	By:/s/ Mandana Hedayat
	
 
	 	 
	
 
	 	Name:Mandana Hedayat, CFA

Title:Chief Compliance Officer of Investment

Manager, DAFNA Capital Management, LLC on behalf of DAFNA

LifeScience Ltd.
	 
	 	 

17

	 	 	 
	 
	 	 
	Investor:

	 	DAFNA LifeScience Market Neutral Ltd.
	 
	 	 
	
 
	 	By:/s/ Mandana Hedayat
	
 
	 	 
	
 
	 	Name:Mandana Hedayat, CFA

Title:Chief Compliance Officer of Investment

Manager, DAFNA Capital Management, LLC on behalf of DAFNA

LifeScience Market Neutral Ltd.
	 
	 	 

18

	 	 	 
	 
	 	 
	Investor:

	 	DAFNA LifeScience Select Ltd.
	 
	 	 
	
 
	 	By:/s/ Mandana Hedayat
	
 
	 	 
	
 
	 	Name:Mandana Hedayat, CFA

Title:Chief Compliance Officer of Investment

Manager, DAFNA Capital Management, LLC on behalf of DAFNA

LifeScience Select Ltd.
	 
	 	 

19

	 	 	 
	 
	 	 
	Investor:

	 	

	 
	 	 
	
 
	 	By:/s/ Noam J. Rubinstein
	
 
	 	 
	
 
	 	Name:Noam J. Rubinstein
	 
	 	 

20

	 	 	 
	 
	 	 
	Investor:

	 	Hunt-BioVentures, L.P.

By:HBV GP, L.L.C., its General Partner
	 
	 	 
	
 
	 	By:/s/ Fulton Murray III
	
 
	 	 
	
 
	 	Name:Fulton Murray III

Title:Manager
	 
	 	 

21

	 	 	 
	 
	 	 
	Investor:

	 	Quantitative BioEquities (BVI) Fund, Ltd.

	 	 	 
	 	 	By:	 	 	/s/ Michael van Loon
	 	 	Name:	 	 	Michael van Loon
	 	 	Title:

22

Exhibit A

Plan of Distribution

The selling stockholders, which as used herein includes donees, pledgees, transferees or other
successors-in-interest selling shares of common stock or interests in shares of common stock
received after the date of this prospectus from a selling stockholder as a gift, pledge,
partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise
dispose of any or all of their shares of common stock or interests in shares of common stock on any
stock exchange, market or trading facility on which the shares are traded or in private
transactions. These dispositions may be at fixed prices, at prevailing market prices at the time
of sale, at prices related to the prevailing market price, at varying prices determined at the time
of sale, or at negotiated prices.

The selling stockholders may use any one or more of the following methods when disposing of
shares or interests therein:

• ordinary brokerage transactions and transactions in which the broker-dealer solicits
purchasers;

• block trades in which the broker-dealer will attempt to sell the shares as agent, but may
position and resell a portion of the block as principal to facilitate the transaction;

• purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

• an exchange distribution in accordance with the rules of the applicable exchange;

• privately negotiated transactions;

• short sales effected after the date the registration statement of which this Prospectus is a
part is declared effective by the SEC;

• through the writing or settlement of options or other hedging transactions, whether through
an options exchange or otherwise;

• broker-dealers may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share; and

• a combination of any such methods of sale.

The selling stockholders may, from time to time, pledge or grant a security interest in some
or all of the shares of common stock owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the shares of common stock,
from time to time, under this prospectus, or under an amendment or supplement to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of
selling stockholders to include the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus. The selling stockholders also may transfer the shares of
common stock in other circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.

In connection with the sale of our common stock or interests therein, the selling stockholders
may enter into hedging transactions with broker-dealers or other financial institutions, which may
in turn engage in short sales of the common stock in the course of hedging the positions they
assume. The selling stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common stock to broker-dealers
that in turn may sell these securities. The selling stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions or the creation of one or
more derivative securities which require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect
such transaction).

The aggregate proceeds to the selling stockholders from the sale of the common stock offered
by them will be the purchase price of the common stock less discounts or commissions, if any. Each
of the selling stockholders reserves the right to accept and, together with their agents from time
to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly
or through agents. We will not receive any of the proceeds from this offering.

The selling stockholders also may resell all or a portion of the shares in open market
transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that they meet
the criteria and conform to the requirements of that rule.

The selling stockholders and any underwriters, broker-dealers or agents that participate in
the sale of the common stock or interests therein may be “underwriters” within the meaning of
Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn
on any resale of the shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities
Act will be subject to the prospectus delivery requirements of the Securities Act.

To the extent required, the shares of our common stock to be sold, the names of the selling
stockholders, the respective purchase prices and public offering prices, the names of any agents,
dealer or underwriter, any applicable commissions or discounts with respect to a particular offer
will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.

In order to comply with the securities laws of some states, if applicable, the common stock
may be sold in these jurisdictions only through registered or licensed brokers or dealers. In
addition, in some states the common stock may not be sold unless it has been registered or
qualified for sale or an exemption from registration or qualification requirements is available and
is complied with.

We have advised the selling stockholders that the anti-manipulation rules of Regulation M
under the Exchange Act may apply to sales of shares in the market and to the activities of the
selling stockholders and their affiliates. In addition, we will make copies of this prospectus (as
it may be supplemented or amended from time to time) available to the selling stockholders for the
purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling
stockholders may indemnify any broker-dealer that participates in transactions involving the sale
of the shares against certain liabilities, including liabilities arising under the Securities Act.

We have agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to the registration of the
shares offered by this prospectus.

We have agreed with the selling stockholders to keep the registration statement of which this
prospectus constitutes a part effective until the earlier of (1) such time as all of the shares
covered by this prospectus have been disposed of pursuant to and in accordance with the
registration statement or (2) the date on which the shares may be sold pursuant to Rule 144(k) of
the Securities Act.

23EX-10.3

Exhibit 10.3

THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE BEEN
REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, (II) SUCH SECURITIES MAY BE
SOLD PURSUANT TO RULE 144(K), OR (III) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.

AVALON PHARMACEUTICALS, INC.

WARRANT

Warrant No. [ ] Dated: May 25, 2007

AVALON PHARMACEUTICALS, INC., a Delaware corporation (the “Company”), hereby certifies that,
for value received, [Name of Investor] or its registered assigns (the “Holder”), is entitled to
purchase from the Company up to a total of [ ] shares of common stock, $0.01 par value per
share (the “Common Stock”), of the Company (each such share, a “Warrant Share” and all such shares,
the “Warrant Shares”) at an exercise price equal to $6.00 per share (as adjusted from time to time
as provided in Section 9, the “Exercise Price”), at any time and from time to time from and
after the date hereof and through and including the date that is five years from the date of
issuance hereof (the “Expiration Date”), and subject to the following terms and conditions. This
Warrant (this “Warrant”) is one of a series of similar warrants issued pursuant to that certain
Purchase Agreement, dated as of May 24, 2007 by and among the Company and the Investors identified
therein (the “Purchase Agreement”). All such warrants are referred to herein, collectively, as the
“Warrants.”

1. Definitions. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein have the meanings given to such terms in
the Purchase Agreement.

2. Registration of Warrant. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record
Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to
the Holder, and for all other purposes, absent actual notice to the contrary.

3. Registration of Transfers. This Warrant and all rights hereunder are transferable
in whole or in part upon the books of the Company by the Holder hereof; provided, however, that the
transferee shall agree in writing to be bound by the terms and subject to the conditions of this
Warrant and the Purchase Agreement. The Company shall register the transfer of any portion of this
Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment
attached hereto duly completed and signed, to the Transfer Agent or to the Company at its address
specified herein. Upon any such registration or transfer, a new warrant to purchase Common Stock,
in substantially the form of this Warrant (any such new warrant, a “New Warrant”), evidencing the
portion of this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the
transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed
the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant.

4. Exercise and Duration of Warrants.

(a) This Warrant shall be exercisable by the registered Holder at any time and from time to
time on or after the date hereof to and including the Expiration Date. At 6:30 P.M., New York City
time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and
become void and of no value.

(b) A Holder may exercise this Warrant by delivering to the Company (i) this Warrant, (ii) an
exercise notice, in the form attached hereto (the “Exercise Notice”), appropriately completed and
duly signed, and (iii) payment of the Exercise Price for the number of Warrant Shares as to which
this Warrant is being exercised (which may take the form of a “cashless exercise” if so indicated
in the Exercise Notice), and the date such items are delivered to the Company (as determined in
accordance with the notice provisions hereof) is an “Exercise Date.”

5. Delivery of Warrant Shares.

(a) Upon exercise of this Warrant, the Company shall promptly (but in no event later than
three Business Days after the Exercise Date) issue or cause to be issued and cause to be delivered
to or upon the written order of the Holder and in such name or names as the Holder may designate, a
certificate for the Warrant Shares issuable upon such exercise. The Holder, or any Person so
designated by the Holder to receive Warrant Shares, shall be deemed to have become holder of record
of such Warrant Shares as of the Exercise Date.

(b) This Warrant is exercisable, either in its entirety or, from time to time, for a portion
of the number of Warrant Shares. Upon surrender of this Warrant following one or more partial
exercises, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing
the right to purchase the remaining number of Warrant Shares.

(c) Each certificate for Warrant Shares shall bear a restrictive legend to the extent and as
provided in the Purchase Agreement and any certificate issued at any time in exchange or
substitution for any certificate bearing such legend shall also bear such legend, unless, in the
opinion of counsel for the Holder thereof (which opinion shall be reasonably satisfactory to
counsel for the Company), the securities represented thereby are not, at such time, required by law
to bear such legend.

6. Charges, Taxes and Expenses. Issuance and delivery of certificates for shares of
Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue
or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect
of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company;
provided, however, that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any certificates for Warrant Shares or
Warrants in a name other than that of the Holder or an Affiliate thereof. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or transferring this
Warrant or receiving Warrant Shares upon exercise hereof.

7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for and upon
cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and procedures and pay such
other reasonable third-party costs as the Company may prescribe.

8. Reservation of Warrant Shares. The Company covenants that it will at all times
reserve and keep available out of the aggregate of its authorized but unissued and otherwise
unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable
and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other
contingent purchase rights of persons other than the Holder (taking into account the adjustments
and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable
and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.
The Company will take all such action as may be necessary to assure that such shares of Common
Stock may be issued as provided herein without violation of any applicable law or regulation, or of
any requirements of any securities exchange or automated quotation system upon which the Common
Stock may be listed.

9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon
exercise of this Warrant are subject to adjustment from time to time as set forth in this
Section 9.

(a) Stock Dividends and Splits. If the Company, at any time while this Warrant is
outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any
class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding
shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of
Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of Common Stock
outstanding immediately before such event and of which the denominator shall be the number of
shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution, and any adjustment
pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the
effective date of such subdivision or combination.

(b) Other Distributions. In the event the Company at any time or from time to time
sets a record date for the determination of holders of Common Stock entitled to receive any
distribution payable in securities or assets of the Company other than shares of Common Stock or
cash dividends paid or payable solely out of retained earnings, then and in such event provision
shall be made so that the Holder shall receive upon conversion of this Warrant, in addition to the
number of shares of Common Stock receivable thereupon, the amount of securities or assets of the
Company which it would have received had this Warrant been converted into Common Stock on the date
of such event and had it thereafter, during the period from the date of such event to and including
the date of conversion, retained such securities or assets receivable by it as aforesaid during
such period, subject to all other adjustment called for during such period as provided in this
Warrant.

(c) Reclassification, Reorganization or Merger. If, at any time while this Warrant is
outstanding, (i) the Company effects any merger or consolidation of the Company with or into
another Person, (ii) any tender offer or exchange offer (whether by the Company or another Person)
is completed pursuant to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (iii) the Company effects any reclassification of
the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (other than as a result of a
subdivision or combination of shares of Common Stock covered by Section 9(a) above) (in any
such case, a “Fundamental Transaction”), then the Holder shall have the right thereafter to
receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as
it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it
had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant
Shares then issuable upon exercise in full of this Warrant (the “Alternate Consideration”). The
aggregate Exercise Price for this Warrant will not be affected by any such Fundamental Transaction,
but the Company shall apportion such aggregate Exercise Price among the Alternate Consideration in
a reasonable manner reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any exercise of this Warrant following
such Fundamental Transaction.

(d) Subsequent Equity Sales. If the Company at any time while this Warrant is
outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or
otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or
other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire
shares of Common Stock, at an effective price per share less than the then Exercise Price (such
lower price, the “Base Share Price” and such issuances collectively, a “Dilutive
Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at
any time, whether by operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per
share which are issued in connection with such issuance, be entitled to receive shares of Common
Stock at an effective price per share which is less than the Exercise Price, such issuance shall be
deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance),
then the Exercise Price shall be reduced and only reduced by multiplying the Exercise Price by a
fraction, the numerator of which is the number of shares of Common Stock issued and outstanding
immediately prior to the Dilutive Issuance plus the number of shares of Common Stock which the
offering price for such Dilutive Issuance would purchase at the then Exercise Price, and the
denominator of which shall be the sum of the number of shares of Common Stock issued and
outstanding immediately prior to the Dilutive Issuance plus the number of shares of Common Stock so
issued or issuable in connection with the Dilutive Issuance. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing,
no adjustments shall be made under this Section 3(d) in respect of an Exempt Issuance and
no adjustments shall be made under this Section 3(d) to the extent such adjustment would
result in the Base Share Price being less than Closing Price on May 24, 2007 (subject to
appropriate adjustment for any stock splits, stock dividends, combinations, subdivisions,
recapitalizations and the like with respect to the Common Stock).

(e) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise
Price pursuant to paragraphs (a) or (b) of this Section, the number of Warrant Shares that may be
purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that
after such adjustment the aggregate Exercise Price payable hereunder for the increased or decreased
number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately
prior to such adjustment.

(f) Calculations. All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered an issue or sale of Common
Stock.

(g) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this
Section 9, the Company at its expense will promptly compute such adjustment in accordance
with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a
statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing the transactions
giving rise to such adjustments and showing in detail the facts upon which such adjustment is
based. Upon written request, the Company will promptly deliver a copy of each such certificate to
the Holder and to the Company’s Transfer Agent.

(h) Notice of Corporate Events. If the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Common Stock, including
without limitation any granting of rights or warrants to subscribe for or purchase any capital
stock of the Company or any Subsidiary, (ii) authorizes or approves, or enters into any agreement
contemplating or solicits stockholder approval for a Fundamental Transaction or (iii) authorizes
the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the
Company shall deliver to the Holder a notice describing the material terms and conditions of such
transaction, at least 10 calendar days prior to the applicable record or effective date on which a
Person would need to hold Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order to insure that the
Holder is given the practical opportunity to exercise this Warrant prior to such time so as to
participate in or vote with respect to such transaction; provided, however, that the failure to
deliver such notice or any defect therein shall not affect the validity of the corporate action
required to be described in such notice.

10. Payment of Exercise Price. The Holder, at its election, may either pay the
Exercise Price in immediately available funds, or satisfy its obligation to pay the Exercise Price
through a “cashless exercise,” in which event the Company shall issue to the Holder the number of
Warrant Shares determined as follows:

	 	 	 
	
 
	 	X = Y [(A-B)/A]
	 
	 	 
	 
	 	 
	 
	 	 
	where:

	 	

	 
	 	 
	
 
	 	X = the number of Warrant Shares to

be issued to the Holder.
	 
	 	 
	
 
	 	Y = the number of Warrant Shares

with respect to which this Warrant

is being exercised.
	 
	 	 
	
 
	 	A = the Current Market Price (as of

the date of such calculation) of one

share of Common Stock .
	 
	 	 
	
 
	 	B = the Exercise Price (as adjusted

to the date of such calculation).

For purposes of this Warrant, the “Current Market Price” of one share of the Company’s Common
Stock as of a particular date shall be determined as follows: (a) if traded on a national
securities exchange or through the Nasdaq, the Current Market Price shall be deemed to be the
arithmetic average of the VWAPs for the five consecutive trading days immediately preceding the
applicable date; (b) if traded over-the-counter but not on the Nasdaq, the Current Market Price
shall be deemed to be the average of the closing bid and asked prices as of five business days
immediately prior to the date of exercise indicated in the Notice of Exercise; and (c) if there is
no active public market, the Current Market Price shall be the fair market value of the Common
Stock as of the date of exercise, as determined by an independent appraiser selected in good faith
by the Company.

“VWAP” means, for any date, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the principal market on which the Common Stock is then
listed or quoted for trading as reported by Bloomberg L.P.

For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and
acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to
have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to
have commenced, on the date this Warrant was originally issued pursuant to the Purchase Agreement.

11. Fractional Shares. The Company shall not be required to issue or cause to be
issued fractional Warrant Shares on the exercise of this Warrant. If any fraction of a Warrant
Share would, except for the provisions of this Section, be issuable upon exercise of this Warrant,
the number of Warrant Shares to be issued will be rounded up to the nearest whole share or right to
purchase the nearest whole share, as the case may be.

12. Notices. Any and all notices or other communications or deliveries hereunder
(including without limitation any Exercise Notice) shall be in writing and shall be deemed given
and effective on the earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New
York City time) on a Business Day, (ii) the next Business Day after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number specified in this
Section on a day that is not a Business Day or later than 6:30 p.m. (New York City time) on any
Business Day, (iii) the Business Day following the date of mailing, if sent by a nationally
recognized overnight courier service specifying next Business Day delivery, or (iv) upon actual
receipt by the party to whom such notice is required to be given, if by hand delivery. The address
and facsimile number of a party for such notices or communications shall be as set forth in the
Purchase Agreement, unless changed by such party by two Business Days’ prior notice to the other
party in accordance with this Section 12.

13. Miscellaneous.

(a) Subject to the restrictions on transfer set forth on the first page hereof and in
Section 3, this Warrant may be assigned by the Holder. This Warrant may not be assigned by
the Company except to a successor in the event of a Fundamental Transaction or with the prior
written consent of the Holder. This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns. Subject to the preceding sentence,
nothing in this Warrant shall be construed to give to any Person other than the Company and the
Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant,
together with the other Transaction Documents, constitutes the entire agreement of the parties with
respect to the subject matter hereof. This Warrant may be amended only in writing signed by the
Company and the Holder and their successors and assigns.

(b) This Warrant shall be governed by, and construed in accordance with, the internal laws
of the State of New York without regard to the choice of law principles thereof. Each of the
parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of New
York located in New York County and the United States District Court for the Southern District of
New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of
this Warrant and the transactions contemplated hereby. Service of process in connection with any
such suit, action or proceeding may be served on each party hereto anywhere in the world by the
same methods as are specified for the giving of notices under this Warrant. Each of the parties
hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or
proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any
objection to the laying of venue of any such suit, action or proceeding brought in such courts and
irrevocably waives any claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A
TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN
CONSULTED SPECIFICALLY AS TO THIS WAIVER.

(c) The headings herein are for convenience only, do not constitute a part of this Warrant and
shall not be deemed to limit or affect any of the provisions hereof.

(d) In case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be a commercially
reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision
in this Warrant.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized
officer as of the date first indicated above.

	 
	 

	AVALON PHARMACEUTICALS, INC.

	 

	 

	 

	By:

	Name: Kenneth C. Carter, Ph.D.

	Title: President and Chief Executive Officer

1

FORM OF EXERCISE NOTICE

(To be executed by the Holder to exercise the right to purchase shares of Common Stock under the
foregoing Warrant)

To: AVALON PHARMACEUTICALS, INC.

The undersigned is the Holder of Warrant No.      (the “Warrant”) issued by AVALON
PHARMACEUTICALS, INC., a Delaware corporation (the “Company”). Capitalized terms used herein and
not otherwise defined have the respective meanings set forth in the Warrant.

	 	1.	 	The Warrant is currently exercisable to purchase a total of      Warrant
Shares.

	 	2.	 	The undersigned Holder hereby exercises its right to purchase      Warrant
Shares pursuant to the Warrant.

	 	3.	 	The Holder intends that payment of the Exercise Price shall be made as (check one):

	 	 	 
	     

     

	 	“Cash Exercise” under Section 10

“Cashless Exercise” under Section 10

	 	4.	 	If the Holder has elected a Cash Exercise, the Holder shall pay the sum of
$     to the Company in accordance with the terms of the Warrant.

	 	5.	 	Pursuant to this exercise, the Company shall deliver to the Holder      
Warrant Shares in accordance with the terms of the Warrant.

	 	6.	 	Following this exercise, the Warrant shall be exercisable to purchase a total of
     Warrant Shares.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

2

IN WITNESS WHEREOF, the undersigned has caused this Exercise Notice to be duly executed as
of the date indicated below.

	 	 	 
	Dated: ,

	 	Name of Holder:
	 
	 	 
	
 
	 	(Print)
	 
	 	 
	
 
	 	By:
	
 
	 	Name:
	
 
	 	Title:
	 
	 	 
	
 
	 	(Signature must conform in all respects to name of holder

as specified on the face of the Warrant)

FORM OF ASSIGNMENT

[To be completed and signed only upon transfer of Warrant]

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
     the right represented by the within Warrant to purchase
     shares of Common Stock of AVALON PHARMACEUTICALS, INC. to which the within Warrant
relates and appoints      attorney to transfer said right on the books of AVALON
PHARMACEUTICALS, INC. with full power of substitution in the premises.

	 	 	 
	Dated: ,

	 	

	 
	 	 
	
 
	 	(Signature must conform in all respects to name

of holder as specified on the face of the

Warrant)
	 
	 	 
	
 
	 	Address of Transferee
	 
	 	 
	 
	 	 
	 
	 	 
	In the presence of:

	 	

	 
	 	 

3

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