CHICAGO — A prominent San Diego venture capital firm is teaming up with drug giant GlaxoSmithKline in an ambitious deal to create as many as 10 life sciences companies in the region.

The agreement, announced Tuesday at the annual Biotechnology Industry Organization convention in Chicago, could be worth almost $500 million.

Avalon Ventures, legendary for generating excellent returns for investors in the risky life science industry, will find the technology, provide management and make sure the fledgling companies meet their milestones. GlaxoSmithKline will provide expertise in drug development and clinical testing.

London-based GlaxoSmithKline will provide up to $465 million to finance the companies and will have the option to purchase any that succeed. Avalon will provide up to $30 million in funding.

The deal takes advantage of San Diego’s expertise at nurturing young life science companies, which often grow to a point where larger companies such as GlaxoSmithKline buy them.

It also marks a new chapter in the often-contentious relationship between big pharmaceutical companies and biotechs. The so-called big pharmas increasingly believe that biotech companies, not their own internal research, have the potential to supply the drugs of the future.

Under the deal, Avalon will identify promising new technologies for drug development. A joint committee of GlaxoSmithKline and Avalon will then decide whether to establish a company based on the technology. Both Avalon and GlaxoSmithKline will fund the companies; GlaxoSmithKline’s contributions will be linked to milestones.

Avalon, founded in 1983, started with a $400,000 fund that returned 10 times its investment. Avalon’s newest fund, which raised $200 million, is the firm’s 10th. It was formed last August.

Avalon’s specialty is getting close to innovation at its source, the academic professors who develop scientific advances. That’s a dangerous strategy financially but potentially very profitable.

Kevin Kinsella, Avalon’s founder, pioneered the company’s approach. Intellectually restless, Kinsella has said he tried retirement and found it boring. While traditional strategies would advise waiting to reduce the risks, Kinsella has shown that early-stage investments can produce high rewards.

Meanwhile, biotechs have experienced a relative financial drought. Their historic strategy of raising money through public offerings has faded, because the stocks of many public biotechs have languished. And big pharma partnerships have proved troublesome. To a large drug company, ending a deal is a minor matter. To a biotech, the end of an alliance can endanger its existence.

In response, some biotechs have resorted to a “virtual” model that outsources everything possible, reducing their fixed costs. The Avalon deal envisions following that course, said Jay Lichter, Avalon’s managing director, and Lon Cardon, GlaxoSmithKline’s senior vice president for alternative discovery and development and R&D. Licther and Cardon were interviewed at the BIO convention.

Avalon has about 20 employees working for six companies, Lichter said. Avalon will add about three to four employees with each new company formed, and GlaxoSmithKline will “mirror” that approach. Functions that don’t require employees will be contracted out.

The deal is an example of the creative ways big pharma companies are seeking to get access to early-stage research, said John Mendlein, chief executive of San Diego-based aTyr Pharma.

“One of those ways is to start to invest early, in innovative ideas and people,” Mendlein said in an interview. “One avenue to do that is through a good venture group like Avalon Ventures.”

Biotechnology and big pharma have a lot of “symbiotic” relationships, Mendlein said.

“If you look at the industry’s pipeline, about half the drugs are from in-licensed programs, many of which came from (biotech) collaborations,” Mendlein said.

Of course, sometimes these projects fall through, because drug development has a fairly high failure rate, he said.

San Diego’s importance as an incubator of innovative startups is reflected in the deal, said Joe Panetta, CEO of Biocom, the San Diego-based life science trade group.

“Avalon has always had a tremendous level of confidence in San Diego,” said Panetta, also interviewed at the BIO convention.

Lichter said Avalon has invested in 40 to 50 companies in San Diego.

“I’m very active,” he said. “I’m the CEO of several companies, I’ve been in on some of the patents, and basically run a very lean organization on a day-to-day basis. I think that was something interesting for Glaxo, to have a very entrepreneurial, focused group, hands-on management by us. We have our money at stake.”

Cardon said San Diego is an attractive place for the alliance, both from personal ties to Avalon and because of San Diego’s expertise with early-stage companies.

“I’ve known Jay for 20 years, I knew Kevin (Kinsella), and I’ve seen what they’ve done in the interim,” Cardon said. “There’s an early-stage piece that Avalon is unique on, and San Diego’s particularly good at. And we don’t have any presence there.”

San Diego’s relative lack of big pharma compared with rivals such as Boston is an advantage, Cardon said.

“Every big pharma’s moving into Boston,” Cardon said. “Maybe we’re early adopters (of San Diego).” This will be the first time the company will have a research presence in San Diego, he said.

Last November, Kinsella said that a deal like this was in the works, although it ultimately turned out to be far larger than he indicated.

In a discussion on the origins of biotech, Kinsella said the days of big pharma’s “predatory” relationship to biotech was coming to an end.

After starving biotechs of cash, the big pharmas belatedly realized that their own internal research efforts were failures, so they began laying off employees en masse, Kinsella said in a discussion at UC San Diego.

“So basically, they’re saying, we’ve got a real problem, because now we’ve driven biotechs out of business, the venture capital backers, because the returns are so poor, they’ve been driven out of business,” Kinsella said, exaggerating a bit to make his point. “The only alternative, if the last surviving venture capitalist in biotech dies, we’ll have to go back and recreate everything that was a failure on our end, internal research.”

“Avalon is in discussion with five major pharmaceutical companies, where we have said, game over, the way it was done,” Kinsella said. “So you have to put up, basically, 90 percent of the money, in advance. We’ll put up — and I’m talking say maybe $50 million, and we’ll put up 2 to 5 (million), and we will do what we always do …”

Kinsella then reeled off a list of Avalon’s functions, including finding talent from academia, getting a management team, and paying them to encourage results. But for all that, he said, big pharma will have to bear the brunt of the expenses.

“You’re going to be the ultimate beneficiary of this,” Kinsella said. “You can take us out at any point, and it’s either a 3X, a 5X, a 10X or a 20X (return on investment), depending on when that is, so we can get venture returns, but the bulk of the expenditure and risk is on you. And they are lining up.”