AVIGEN REPORTS 3RD QTR NET LOSS OF $5.7 MILLION.

Avigen, Inc. (Nasdaq:AVGN), Alameda, Calif., has reported financial results for the three and nine months ended September 30, 2006. At September 30, 2006, Avigen had approximately $75 million in financial assets, including cash, cash equivalents, available-for-sale securities and restricted investments, compared with approximately $80 million at June 30, 2006 and $70 million at December 31, 2005. More complete financial results are set out in detail in the financial tables attached.

"We remain focused on the timely execution of our clinical development plans for each of our compounds," said Kenneth G. Chahine, Ph.D., J.D., Avigen's president and CEO. "During the third quarter, we initiated human trials on both AV650, which targets spasticity and neuromuscular spasm, and AV411 for neuropathic pain. Each of these compounds has innovative characteristics we believe will differentiate them from other products and approaches for treating the disorders they target. In particular, AV650 is unique from other treatments for spasticity in that we believe it is non-sedating, and AV411 represents a novel mechanism of action that is focused on the role of glial cell activity in pain regulation.

"We have established a clear clinical development strategy for each of these products and are on track to file additional Investigational New Drug applications and initiate clinical trials with different patient populations over the next six to nine months. Our financial resources remain solid, as we continue to benefit from cost savings stemming from the changes we made last year when we began to shift our focus toward the needs of our current pipeline. This is allowing us to channel more resources directly into the clinical development of these products, which can be seen in our financial statements.

"We believe our current compounds have significant additional clinical utility and differentiate themselves from other products in the market. Avigen continues to focus on ways to enhance the value of these drugs through our execution of effective intellectual property strategies and clinical trial plans."

Business And Financial Highlights

-- Initiated a Phase IIa exploratory therapeutic clinical trial with AV411 at the Royal Adelaide Hospital in Adelaide, Australia for neuropathic pain and remain on-track to file a U.S. Investigational New Drug (IND) within the next three to six months; and

-- Initiated an initial Phase I clinical trial of AV650 to assess the safety, pharmacokinetic profile and lack of sedation in normal volunteers and are in discussion with the FDA on the protocol design for a Phase II clinical trial with spasticity patients that Avigen intends to initiate in early 2007.

Financial Results

Avigen reported a net loss of $5.7 million, or $0.23 per share, for the three months ended September 30, 2006, compared to a net loss of $6.8 million, or $0.32 per share, for the three months ended September 30, 2005. The 2005 period included the impact of $1.6 million of impairment losses related to long-lived assets associated with Avigen's previous gene therapy activities. For the nine months ended September 30, 2006 and 2005, Avigen reported a net loss of $18.5 million, or $0.81 per share, and $21.8 million, or $1.06 per share, respectively. The 2006 nine-month period included $3.0 million of in-license fees related to AV650, and the 2005 nine-month period included total impairment losses of $6.1 million ($1.6 million of which were in the third quarter of 2005).

Third Quarter Results

Research and development expenses for the three months ended September 30, 2006 and 2005 were approximately $4.7 million and $3.6 million, respectively. This increase in 2006 expenses primarily reflects Avigen's initiation of clinical trials during the quarter for both AV650 and AV411, as well as additional preclinical research to support future Investigational New Drug (IND) applications.

General and administrative expenses were approximately $1.9 million for both the three months ended September 30, 2006 and 2005, as reductions during the 2006 quarter for personnel-related costs and legal and professional services fees were offset by the recognition of non-cash expense for share-based compensation.

At September 30, 2005, Avigen determined that long-lived assets, representing leasehold improvements associated with a portion of its facilities under lease through November 2010 at a net carrying value of $1.6 million, were no longer recoverable and were, in fact, impaired. Avigen took steps to seek to sublease these facilities and recorded an impairment loss during the third quarter of 2005 to write down the related carrying value of the leasehold improvements to approximate their estimated fair value.

Net interest income and other expenses were $769,000 for the three months ended September 30, 2006 compared to $334,000 for the same period in 2005. This increase was primarily due to the increase in the amount of Avigen's interest-bearing financial assets and a rise in the average yield earned on Avigen's portfolio.

Nine-Month Results

Revenues for the nine months ended September 30, 2006 and 2005 were $103,000 and $24,000, respectively. 2006 revenue represented income from Avigen's participation with the University of Colorado on a grant that was funded by the National Institutes of Health. 2005 revenue represented license fees associated with intellectual property Avigen has subsequently assigned to Genzyme Corporation.

Research and development expenses for the nine months ended September 30, 2006 and 2005 were $11.3 million and $10.9 million, respectively. This increase reflects approximately $3.0 million in higher expenses for external research and development services associated with Avigen's current clinical trials for AV650 and AV411 and planned IND filings. This increase was partially offset by reduced personnel-related costs, depreciation, and facilities overhead as a result of actions initiated in June 2005 to reduce staff and other costs associated with Avigen's previous gene therapy activities.

General and administrative expenses were $6.6 million and $5.8 million for the nine months ended September 30, 2006 and 2005, respectively. The increase is primarily due to the recognition of approximately $730,000 in non-cash expense for share-based compensation for the 2006 nine-month period and charges for severance recorded during the first quarter of 2006.

In-license fees during the nine months ended September 30, 2006 were $3.0 million and represented a payment in January in connection with Avigen's in-license of the North American development and commercial rights to AV650, compared to no in-license fees in the corresponding period in 2005.

Impairment losses related to long-lived assets during the nine months ended September 30, 2005 were $6.1 million and represented Avigen's determination that the net carrying value of certain leasehold improvements associated with portions of its facilities under lease through May 2008 and November 2010 were no longer recoverable and were, in fact, impaired. Approximately fifty-percent of these facilities was subsequently subleased prior to the beginning of 2006.

Net interest income and other expenses for the nine months ended September 30, 2006 and 2005 were $1.9 million and $965,000, respectively.

Avigen believes its financial resources will be able to fund its planned operating expenses for approximately two to three years. Avigen also believes its current drug candidates have additional clinical and commercial utility and intends to explore the development of these opportunities as its financial resources allow.

About Avigen

Avigen is a biopharmaceutical company focused on unique small molecule therapeutics and biologics to treat serious neurological disorders, including neuropathic pain and neuromuscular spasm and spasticity. Avigen's strategy is to complete the requirements of clinical development for each of the candidates in its product pipeline, and continue to look for opportunities to expand its pipeline through a combination of internal research, acquisitions, and in-licensing, with the goal of becoming a fully integrated commercial biopharmaceutical company that remains committed to its neurology products. The company is currently developing AV650 for spasticity and neuromuscular spasm and AV411 for neuropathic pain. Additionally, the company has in development AV513, a compound for the treatment of hemophilia A and B.

For more information, visit http://www.avigen.com or call 510/748-7372.