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GSK, Avalon Ventures announce $495 million startup deal
CAMBRIDGE, Mass.—GlaxoSmithKline PLC (GSK) and venture capitalist firm Avalon Ventures have announced a multi-million dollar deal for fund the establishment of up to 10 drug discovery firms over the next three years.
Per the terms of the collaboration, Avalon will establish small startups, for which GSK will provide financing and technical support for the exploration of promising drug targets. GSK will sign off on each startup, and if a potential candidate succeeds, GSK has the first rights to purchase the startup. Avalon will be contributing up to $30 million in funding, and GSK could put forth up to $465 million in seed funding and additional payments if development milestones are met.
Jay Lichter, a manager director that heads Avalon's life sciences investing, said that fundraising and profit-taking have become more difficult for venture funds in the life sciences, adding that the "financing risk is greater than the technical risk" in terms of progressing a promising drug target into a successful product. Lichter estimated the cost of developing a drug through human proof-of-concept testing at between $15 million to $50 million, depending on the individual molecule. And given the state of today's economy, and the life-sciences market in particular, the odds of raising that kind of money "are slim to none." Companies' reluctance to commit funds in the current shaky market is noticeable, as Dow Jones VentureSource noted that while $6.2 billion was invested by U.S. venture capitalists in 2007, only $3.6 billion was invested last year.
Each of the companies that result from this agreement will be based in a life-sciences complex and retain only a small number of employees. In addition, each company will focus on a single compound, though the compounds in question could focus on a variety of medical conditions and feature various technologies such as recombinant proteins or small molecules, Lichter noted.
"We are going to immediately own this idea if it is successful, and the level of financial exposure is, frankly, quite small," Moncef Slaoui, head of research and development for GSK, said in a press release regarding the agreement.
The collaboration has its roots based in a decades-long relationship between Lichter and Lon Cardon, a research executive at GSK, which began when the two worked together in the early 90s at Sequana Therapeutics, a San Diego-based biotech company. The idea of the venture partnership first came into being last summer.
SOURCE: Avalon Ventures press release