A La Jolla venture capital firm and the British drug giant GlaxoSmithKline have formed the first of up to 10 San Diego biotech companies under a $495 million alliance announced in April.
Avalon Ventures and GSK have contributed a total of $10 million to establish Sitari Pharmaceuticals, in La Jolla. Sitari is developing treatments for celiac disease, an autoimmune disorder of the small intestine. Avalon has also set up another company, COI Pharmaceuticals, to provide people and infrastructure to support Sitari and other companies.
Glaxo is establishing an office in San Diego for the first time as part of the alliance, said Pearl Huang, Glaxo’s head of discovery partnerships with academia. The office, with about eight to 10 people, will work with Avalon in San Diego and other Glaxo partners on the West Coast.
Avalon and Glaxo are discussing ideas for more companies, Huang said.
“We’re looking forward to getting this one off the ground, but also to the others that are queuing up now,” Huang said. “We’re seeking really high-quality opportunities. Avalon is finding them and bringing them to us.”
COI will provide much of the staffing and executives for Sitari and other companies formed under the alliance, said Jay Lichter, COI’s chief executive and Avalon’s managing director. Executives will work at more than one company, providing stable management. About three people will be hired for each additional company.
There’s no need for a big staff, because the company’s assets are intellectual property, Lichter said.
Sitari was founded on technology from Stanford University, which Huang originally identified for Avalon, Lichter said.
“We felt it was a very exciting new target for the treatment of celiac disease,” Lichter said. There is no treatment for the disease, except for adhering to a gluten-free diet. More than 3 million people have the disease, nearly all of whom don’t know it, according to the Mayo Clinic.
Avalon’s team keeps close to academic scientists, the source of new biotech ideas, and quickly builds companies around those ideas.
The partnership brings a new research model to the troubled world of big pharmaceutical companies. Over the past few years, these companies have been laying off thousands of employees in their own internal research divisions, which have failed to produce the blockbuster drugs the companies want.
“There’s excess laboratory capacity all over the world,” Huang said. “It was time to do something a little bit differently, in part because it was bankrupting the entire industry.
“The whole idea here was to not walk away from innovation, not walk away from potentially transformative medicines … but design an agreement where we could share that risk, and then of course also share the reward if we’re successful.”
Partnering with Avalon serves that purpose, she said. Under the plan, Avalon contributes up to $30 million for all companies formed, with Glaxo paying the remainder of up to $465 million.
While Glaxo is putting up most of the money, Avalon also contributes expertise in generating returns for investors. Its first fund of $400,000 returned $4 million. For its 10th and latest fund, formed in August of last year, investors contributed $200 million.
While the alliance encompasses a maximum of 10 companies, Huang said it might be extended to more.