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November 9, 2006 3427 Hillview Avenue Suite 200
Palo Alto, CA 94304

KaloBios Commences Clinical Trial of Novel Antibody Rheumatoid Arthritis Drug Candidate

PALO ALTO, Calif. - November 9, 2006 - KaloBios Pharmaceuticals, Inc., a therapeutic antibody company, announced today that it has begun treating patients in a Phase 1 clinical trial of its experimental rheumatoid arthritis drug, KB002, an engineered human monoclonal antibody. The drug targets and neutralizes the activity of granulocyte macrophage colony-stimulating factor, (GM-CSF), which is an important activator of macrophages. These cells are a major source of inflammatory cytokines and joint-degrading enzymes and are thought to play a key role in the progression of rheumatoid arthritis. KaloBios has initiated the clinical trial of its novel antibody drug candidate in Australia in rheumatoid arthritis patients with active disease.

One percent of the world’s population suffers from rheumatoid arthritis, an autoimmune disease that leads to painful inflammation and ultimately destruction of bone joints. Disease Modifying Anti-arthritis Drugs (DMARDs) are the first line therapeutics for rheumatoid arthritis but patients become unresponsive over time. KB002 was discovered at the Ludwig Institute for Cancer Research of Melbourne, Australia and was licensed to KaloBios in 2004. It is hoped that clinical testing will show that the antibody could be used to treat patients with rheumatoid arthritis who have become resistant to DMARDs and/or anti-TNF drugs.

“This clinical trial represents an important milestone in the early life of KaloBios, advancing us from a research stage firm to a clinical development company,” said David Pritchard, chief executive officer of KaloBios.

“GM-CSF is an exciting target that could make an impact on a number of diseases, and we think that there is still a great need for novel rheumatoid arthritis therapies,” said Geoffrey Yarranton, executive vice president of Research & Development of KaloBios Pharmaceuticals.

The trial is a single-dose, dose-escalating, placebo-controlled, double-blinded trial, which will enroll over thirty rheumatoid arthritis patients at more than five medical centers throughout Australia. Australian patients with rheumatoid arthritis who might be interested in more information about participating should go to the clinical trials section of www.kalobios.com or call 0412 171 010 for information.

About KaloBios
KaloBios Pharmaceuticals is a therapeutic antibody company using its proprietary antibody engineering, humaneering™ and expression technologies for the development of a pipeline of antibody therapeutics. Its two most advanced drug candidates are KB002 and KB001. KB002 is designed for the treatment of rheumatoid arthritis and other autoimmune diseases. KB001 is designed to treat life-threatening Pseudomonas lung infections, a common problem of cystic fibrosis and mechanically ventilated patients. For more information, visit www.kalobios.com.

Contact: Media Contact:
David W. Pritchard
President and CEO
KaloBios Pharmaceuticals, Inc.
(650) 843-1897
Joan E. Kureczka
Kureczka/Martin Associates
(415) 821-2413