Third Rock’s Bet on Lotus Tissue Repair Generates Big Return

2/27/13Follow @xconomy

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conservative in hopes of eking out some short-term returns, Third Rock has bet on long-term fields of science, like tumor metabolism, gene therapy, and epigenetics. Sometimes, like in the case of Lotus, it decided to take the risky route of being the sole investor, rather than build a broader syndicate of venture investors that could help mitigate the downside.

Although some of these early portfolio companies have shown signs of promise, like Agios Pharmaceuticals, Foundation Medicine, and Constellation Pharmaceuticals, many of Third Rock’s investments, by their nature, will take years to achieve the scientific validation they need to generate liquid returns.

Only one member of Third Rock’s original portfolio of more than 30 companies had delivered a liquid return before Lotus. That was Cambridge, MA-based Alnara Pharmaceuticals, which was acquired by Eli Lilly for $180 million up front in July 2010. That return, however, wasn’t as meaningful to Third Rock, because it was one of five venture firms in the deal, and it didn’t start the company.

Lotus, which we profiled at its start back in June 2011, was founded by Third Rock to treat a rare genetic disease called dystrophic epidermolysis bullosa (DEB).

Only about 300 people in the U.S. are thought to have this condition, which causes painful skin blisters that can result in fingers and toes getting fused together. Sometimes the blisters migrate internally, to the esophagus, the mouth, the gastrointestinal tract and the upper airways, causing all kinds of pain and suffering. Victims are also at high risk of developing squamous cell carcinoma, a deadly skin cancer. There is currently no FDA-approved treatment for the disease.

The technology for the startup came from Mei Chen and David Woodley, a pair of dermatology professors at the University of Southern California. They performed animal studies with a protein replacement treatment that is supposed to migrate to the wounded skin, and heal it. Mark de Souza, formerly of Dyax, was the founding CEO, and served as a co-founder with Philip Reilly, a venture partner at Third Rock.

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