LONDON– GlaxoSmithKline PLC has extended a partnership with California venture-capital group Avalon Ventures that gives the drug maker rights to promising early-stage drug candidates.
The U.K.-based pharmaceutical giant has increased the maximum amount of money it would pay to Avalon should it acquire any of the startups established under the partnership.
Glaxo and Avalon have already established seven startups under the original deal, signed 2 1/2 years ago. The most recent, announced Monday, is focused on developing a drug for the muscle-wasting disease amyotrophic lateral sclerosis, or ALS.
The partnership involves Glaxo and Avalon jointly investing up to $10 million, the majority of which comes from the drug maker, to establish each startup. Glaxo later has first rights to buy any of these startups. Under the original agreement, Glaxo said it would pay up to $40 million to Avalon, spread over development milestones, per company it acquired. On Monday, Glaxo increased the total potential milestone payments to $50 million per company.
“A lot of people thought we’d fail,” said Jay Lichter, managing director of Avalon. But “the economics are fair for both us and for Glaxo.”
He said the deal allowed Avalon to invest in a project three to four years earlier than it otherwise would. Normally, venture-capital funds don’t invest in a project “from the eureka scientific discovery moment,” since the returns don’t justify the $10 million to $15 million it would cost to develop the idea into a drug ready for human testing.
“We can only do that when some R&D dollars used during discovery are from Glaxo. They don’t need a venture return,” said Dr. Lichter. “That’s what makes it work.”
For Glaxo, the main benefit is access to La Jolla, Calif.-based Avalon’s “really strong network” on the U.S. West Coast, according to Damien McDevitt, head of the pharmaceutical company’s new San Diego site, which forges partnerships with academic research and small biotech companies. “GSK has now been able to tap into that network and gain access to compelling early-stage discoveries,” he said. “That’s a big advantage.”
Most of the startups established under the deal are based on discoveries made in West Coast universities, though some have come from further afield, including the University of Michigan and Stony Brook University in New York.
Large pharmaceutical companies are increasingly looking beyond their own laboratories to replenish their pipelines, fueling a wave of acquisitions and licensing deals with small biotech companies. Many have also set up sites in prominent clusters of life-science research, such as Boston, San Diego and Cambridge, England, to forge stronger links with the universities there.
The Glaxo and Avalon startups are all housed in a science park in La Jolla, where they keep costs down by sharing back-office functions and some equipment. The seven existing companies target a wide range of disease areas, including thyroid disorders, cancer, and gluten intolerance, though each startup focuses on just one compound.