Third Rock Stocks Up With $516M New Fund, Looks to Start 16 Cos

3/25/13Follow @xconomy

Third Rock Ventures has spent the last six years betting big on early stage biotech investing when most other VC firms have been hunkering down or getting out of healthcare investing altogether. Now Third Rock has been rewarded with another $516 million to keep doing what it’s been doing.

The Boston and San Francisco-based firm, founded in 2007, said today it has raised its third fund, bringing its total assets under management to about $1.3 billion. The firm said this round was “oversubscribed” meaning that there wasn’t enough room to accommodate all the limited partners such as endowments and pensions who wanted a piece of the new fund.

Third Rock has used its first two funds—worth $386 million in 2007 and $426 million in 2010—to start or support 31 new life sciences companies. It said it plans to keep going on its current pace, financing as many as 16 companies out of the new fund.

“We are grateful for the strong support for our model and significant interest from our existing and new investors,” Third Rock partner Kevin Starr (pictured above) said in a statement. “Since 2007, it has been our mission to be the preferred partner for entrepreneurs, investors, employees and industry to build great companies that discover and develop breakthrough products that make a difference for patients.”

Third Rock raised the new money—at a time when many biotech VC firms have struggled to collect new funds—partly because it has established itself as one of the few venture firms still active in early stage biotech investing. The firm has been able to aggressively move into the startup game, and prosper, partly because it has some well-known partners willing to take risks, and because of timing.

Third Rock came along to invest in startups right before the financial crisis of 2008, which caused many older VC firms to concentrate on propping up their wounded portfolio companies, and weakened their ability to make new investments. By being the new team on the block, Third Rock can still point to its strategy, and the promise in its existing portfolio, rather than be judged entirely on the harsh financial return math that comes after a firm has been in business for more than 10 years and is expected to start showing big, positive returns.

Although being new has its advantages, Third Rock has also distinguished itself because of its high risk/high reward strategy. The firm is known for corralling teams of world-class scientific advisors to find opportunity, and then using its partners to get directly involved in building startups from scratch to deliver on the concept.

Most of Third Rock’s investments are still too young to judge as successes, but it has generated liquid returns with one of its early investments in Cambridge, MA-based Alnara Pharmaceuticals, and more recently with its investment in Cambridge, MA-based Lotus Tissue Repair. That company, which Third Rock started and guided through its first 18 months, was sold to Shire earlier this year for an upfront payment that delivered a three-fold return on investment to Third Rock, and could generate as much as a 20-fold return if it hits certain goals over time.

Clearly, the latest batch of investors in Third Rock III are betting that the firm will find many more companies like Lotus, and others that appear to be on their way with lucrative pharmaceutical industry partnerships:

—Cambridge, MA-based Agios Pharmaceuticals is an early leader in fighting cancer by blocking overactive metabolic pathways.

bluebird bio is a new gene therapy company.

Foundation Medicine is using genomic tools to identify specific mutations in a patient’s tumor sample that might be driving a given patient’s cancer.

Constellation Pharmaceuticals is developing cancer drugs based on epigenetic pathways.

Warp Drive Bio is using genomics technology to discover new drugs.

Those companies have been supported by a growing network of partners that includes Celgene, Novartis, Sanofi, and Genentech, among others.

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