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Avalon and GSK Launch Three More Biotech Companies

Avalon Ventures announced the launch of three new biotech companies formed through its collaboration with British drugmaker GlaxoSmithKline. The partnership will funnel $495 million into 10 local biotech startups by 2016.

Adrenergics Inc., CadheRx Therapeutics Inc. and Calporta Therapeutics Inc. will each receive up to $10 million in Series A financing — $3 million from Avalon and the remaining $7 million by GSK.

All three companies will be housed at COI Pharmaceuticals Inc. in San Diego — a space owned and shared by Avalon, in an effort to share resources such as lab equipment, office space and human resources.

Avalon’s approach to building startups, combined with the expertise and resources of a pharma giant such as GSK, is a new model for driving early stage drug discovery, said Jay Lichter, managing director of Avalon.

Risk Avoidance Hurts

Venture capitalists have veered away from early stage biotechs in recent years due to the risk associated with “discovery-stage” science.

Investor money is increasingly moving toward more developed “late-stage” life science ventures, according to data from industry consultants. After all, a late-stage product will not only make money faster, but is less likely to fail — especially if it has already gained FDA approval.

Avalon has taken a strategic approach to funding discovery-stage science that keeps the venture firm’s risk low while continuing to invest in innovative ideas.

“If no one funds early discovery, eventually the mid- and late-stage opportunities are mined out, and you end up with a major bottle neck in the pipeline of our industry,” Lichter said. “That’s what happened a few years ago as a result of many investors pulling out of early-stage funding. VCs only wanted to invest in de-risked mid- and late-stage programs, and in the end, there was a huge wasteland of ideas that were preclinical.”

Lichter says the shared space at COI Pharmaceuticals develops a community of innovation in which young life science companies can bounce ideas off one another, share resources, talent and experienced management.

‘Adult Supervision’

Based on the terms of the Avalon and GSK collaboration established in April of last year, Avalon will provide Adrenergics, CadheRx and Calporta with executive leadership and operational management.

Lichter will be assuming the responsibilities of a traditional CEO for all three companies.

“Typically, you hire a CEO for fundraising, which is a full-time job,”Lichter said in an interview earlier this year. “With this model, I don’t need to raise money and I don’t need a partner because I already have one. The burden on me is adult supervision, and I have two scientific officers and other senior management who can guide day-to-day research.”

GSK’s cut in the deal involves alleviated risk and less grunt work in addition to its share of the profits.

“This whole business is full of risk,” said Damien McDevitt, GSK vice president and head of the company’s research and development satellite office in San Diego. “Avalon brings their best ideas forward, which helps us alleviate risk because it’s not just our idea.”

Rights of First Purchase

Once the young life science startups are developed enough to be considered by pharmaceutical companies for purchase, GSK also gets the rights of first purchase for all 10 companies seeded by the partnership.

Including the latest round, Avalon has funded a total of six startups through its collaboration with GSK. Previously announced companies include Sitari Pharmaceuticals Inc.,

Silarus Therapeutics Inc. and Thyritope Biosciences Inc.

“These newly created companies bear the hallmarks of the type of projects we are looking for: novel targets with an established mechanism of action, a clear clinical path in a defined patient population and potential to expand into other indications,” Lichter said.

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