British pharmaceutical giant GlaxoSmithKline PLC is expanding its West Coast presence with several key moves in San Diego — and its unique partnership with La Jolla-based Avalon Ventures is front and center.
The world’s fourth-largest drugmaker, which is opening its first office in San Diego, recently launched a startup with Avalon Ventures called Sitari Pharmaceuticals Inc. The new company, which aims to develop a therapy for celiac disease, is the first to stem from a joint Avalon-GSK venture announced in April that could funnel up to $495 million into 10 new biotech companies over three years.
“No one in the industry has done anything remotely similar,” Lichter said. “This is a new way to try and get big pharma and venture capital to work together, rather than work at odds as it has been.”
The Avalon-GSK alliance is indicative of the sea change occurring in big pharma, which is contracting across the board and generally looking to outsource innovation to smaller startups.
Besides Sitari, four more biotech startups “are in the hopper,” said Jay Lichter, a managing partner at Avalon Ventures. Sitari has received $10 million in series A funding and in-kind support from Avalon and GSK.
GSK Contributing Science
Avalon is fronting the seed cash for Sitari and the forthcoming companies, and GSK is providing the in-kind piece — research-and-development know-how and access to its vast chemical library and technology.
“It’s a bit ironic. Everyone thinks big pharma is bringing the cash,” said Pearl Huang, global head of discovery partnerships with academia at GSK. “But the in-kind piece is something you can’t buy anywhere. The depth and scope of knowledge we have is not for sale.”
GSK (NYSE: GSK) will open its new San Diego office at the start of the 2014, employing “a core starting group of eight to 10 people” who will support the company’s relationship with Avalon, as well as help search for emerging technologies in the pharmaceutical sphere, Huang said. GSK already has partnerships with West Coast companies that it would like to manage more closely, and it is looking for other companies.
“We’ve been scouting on the West Coast without an office on the West Coast,” Huang said.
Scientists are often drawn to smaller companies because they have the chance to hold a greater equity stake than they might if employed by a large company, Lichter said. And there are potential payoffs for the pharma giants to get involved with startups from the onset, Huang said.
“There are huge advantages to being big — expertise, resources, depth and scope of knowledge,” she said. “But nobody can do everything in-house. And when it comes to bringing in high-risk ideas and making decisions quickly and flexibly, there’s an advantage to being small.”
Cost-Effective Scientists
To support the rapid ramp-up of several new companies, Avalon is establishing COI Pharmaceuticals — short for community of innovation — which is a center that will support the companies developed in conjunction with GSK. The COI will employ 25 scientists to concurrently work for several of the newly launched companies. Lichter said that by having a core group of seasoned scientists spread their time among several companies, a small startup can leverage their scientific acumen for a lower cost.
“There are some very expensive senior scientists. We need their judgment, but only a day or two a week at this stage of the company,” Lichter said. “We get good capital efficiency as well as a good scientific environment — not just a company with three people in semivirtual mode.”
Avalon already has been working within this structure, as five of its startups are occupying the center’s labs. Sitari is the sixth, and all 10 of the new Avalon-GSK companies will be housed there, Lichter said. Huang said GSK would be open to funding deals beyond the slated 10 in the Avalon-GSK partnership.
GSK will move the initial batch of scientists from within the company to its new San Diego office, Huang said, but the question remains as to whether it plans to expand further.
“Anything’s possible,” Huang said.