[Corrected 11/12/15, 9:30 am. See below.] San Diego’s Avalon Ventures has started a new biotech focused on Lou Gehrig’s disease, the neuro-degenerative disease that claimed the life of the Hall of Fame New York Yankees first baseman, whose endurance gave rise to his nickname as “the Iron Horse.”
With the launch of the aptly named Iron Horse Therapeutics, the seventh biotech founded under Avalon’s collaboration with GlaxoSmithKline, the venture firm says it also is extending its partnership with GSK, after tweaking the terms to increase its potential payout by 20 percent.
“The collaboration we cooked up two-and-a half to three years ago is doing so well, we wanted to expand it,” Avalon partner Jay Lichter said. Under their “build-to-buy” collaboration, Avalon and GSK initially agreed to create and fund 10 biopharma startups through the development of clinical candidates, at which point GSK holds the first option to acquire the startup.
The collaboration, established in April 2013, combines GSK’s resources and R&D expertise with Avalon’s knack for choosing a particular life sciences innovation and starting a new company around the technology. So far, the Avalon-GSK collaboration has resulted in the creation of six biopharma startups in San Diego: Sitari Pharma, Silarus Therapeutics, Thyritope Biosciences, Adrenergics, Cadherx Therapeutics, and Calporta Therapeutics.
None of the six startups have reached an exit yet, so the overall return-on-investment of the Avalon-GSK portfolio remains unknown. But the concept of combining the nimble startup mentality of a VC firm with the scale of big pharma has been serving as a new business model for venture-backed innovation, and Avalon’s Lichter said he’s had numerous conversations with other pharmaceuticals about the collaboration.
Avalon originally pledged $30 million from its tenth fund to the effort ($3 million up front per startup), while GSK agreed to invest $7 million for each startup. Altogether, GSK committed as much as $465 million for seed funding, R&D support, and milestone payments.
Under their revised agreement, Lichter said there is no limit on the number of startups. Avalon and GSK will continue indefinitely to jointly invest $10 million in Series A funding for each new company. Each one will take root at COI Pharmaceuticals, a shared “community of innovation” that Avalon has established in San Diego as a fully equipped R&D facility. Avalon also provides operational support and executive leadership, at least until each startup can validate its technology enough to begin operating more independently.
[Corrects amount of earn-outs] The revisions, though, enable Avalon to earn as much as $50 million in potential milestone payments for each company that brings a new drug to market. Avalon’s potential milestone earn-outs were $40 million under the original terms, Lichter said.
The $10 million joint investment that Avalon and GSK are making in Iron Horse Therapeutics “closes … Next Page »