GSK, Avalon Ventures announce $495 million startup deal

Partners will establish up to 10 new drug discovery companies over the next three years

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CAMBRIDGE, Mass.—GlaxoSmithKline PLC (GSK) and venturecapitalist firm Avalon Ventures have announced a multi-million dollar deal forfund the establishment of up to 10 drug discovery firms over the next threeyears.
Per the terms of the collaboration, Avalon will establishsmall startups, for which GSK will provide financing and technical support forthe 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 thestartup. Avalon will be contributing up to $30 million in funding, and GSKcould put forth up to $465 million in seed funding and additional payments ifdevelopment milestones are met.
Jay Lichter, a manager director that heads Avalon's lifesciences investing, said that fundraising and profit-taking have become moredifficult for venture funds in the life sciences, adding that the "financingrisk is greater than the technical risk" in terms of progressing a promisingdrug target into a successful product. Lichter estimated the cost of developinga drug through human proof-of-concept testing at between $15 million to $50million, depending on the individual molecule. And given the state of today'seconomy, and the life-sciences market in particular, the odds of raising thatkind of money "are slim to none." Companies' reluctance to commit funds in thecurrent shaky market is noticeable, as Dow Jones VentureSource noted that while$6.2 billion was invested by U.S. venture capitalists in 2007, only $3.6billion was invested last year.
Each of the companies that result from this agreement willbe based in a life-sciences complex and retain only a small number ofemployees. In addition, each company will focus on a single compound, thoughthe compounds in question could focus on a variety of medical conditions andfeature various technologies such as recombinant proteins or small molecules,Lichter noted.
"We are going to immediately own this idea if it issuccessful, and the level of financial exposure is, frankly, quite small,"Moncef Slaoui, head of research and development for GSK, said in a pressrelease regarding the agreement.
The collaboration has its roots based in a decades-longrelationship between Lichter and Lon Cardon, a research executive at GSK, whichbegan when the two worked together in the early 90s at Sequana Therapeutics, aSan Diego-based biotech company. The idea of the venture partnership first cameinto being last summer.
SOURCE: Avalon Ventures press release

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