The trending topic among biotech people and the people who fund them these days is that it is almost impossible to scrounge up financing for startups in the earliest stages of drug development. As Xconomy’s Luke Timmermanwrote in July, the amount of money invested in first-round biotech financings fell by 60 percent in the first quarter of this year. It doesn’t look like 2013 will be any better—a survey of 600 venture capitalists and startup CEOs released this week by the National Venture Capital Association revealed that 49 percent think investments in biopharmaceuticals will be even lower next year, and only 13 percent expect an increase. Only 10 percent of respondents were willing to take the optimist’s view and predict that the sector will be overfunded, while 46 percent foresee underfunding.
So where does the scientist with a great commercial idea go? There is still Third Rock Ventures, the prolific Boston VC shop, focused exclusively on healthcare. The firm, which started in 2007, is working through its $426 million second fund, raised in 2010, and currently has some 30 firms in its investment portfolio, about half of them in early-stage development.
As Xconomist and Third Rock partner Alexis Borisy told me, “We invest early and in a big way.” But he also knows “there are fewer and fewer players doing this.” Third Rock prides itself in seeking groundbreaking, disruptive technologies and drugs, but it is also pretty innovative when it comes to financing. Its latest strategy is to offload some of the financial risk of early stage development onto Big Pharma—without giving up any control.
Borisy, pictured at top right, explained the strategy to me in his office in a charming old townhouse in Boston’s historic Back Bay that belies the cutting-edge science he’s backing. (Borisy says he does keep a second office across the river in Cambridge’s biotech-packed Kendall Square.) Borisy’s newest venture
