Third Rock Ventures is known for making big bets on risky science, and over the past decade a number of those gambles have paid off for its shareholders. That success has helped the Boston firm close on a new $616 million fund, its largest ever.
Third Rock is announcing that it’s wrapped up its fourth fund this morning. The firm was aiming for $600 million, but the round was “oversubscribed,” meaning that even with the $16 million surplus there wasn’t enough room to accommodate the investors—endowments, family offices, foundations, pensions, and others, according to partner and CFO Kevin Gillis—that wanted to take part.
With the $616 million haul, Third Rock has now raised a total of $1.9 billion since Millennium Pharmaceuticals veterans Mark Levin, Bob Tepper, and Kevin Starr formed the firm back in 2007. The majority of Third Rock’s existing backers participated in the fund, according to Gillis.
The firm has also made some changes in its ranks. While Starr and Levin remain Third Rock partners, they won’t help launch and build the new companies coming out of Third Rock’s latest fund. Instead they’ll serve as advisers to the Third Rock team running that fund. Abbie Celniker, also a Millennium veteran and former Eleven Biotherapeutics CEO before the company’s recent merger, has joined the firm as a partner (Celniker is the second female partner in Third Rock’s history; Anne-Mari Paster was a partner and CFO at the firm from 2007 to 2008). Portola Pharmaceuticals co-founder and former CEO Charles Homcy, who had been a venture partner at the firm, is now a partner as well.
Former Cubist CEO Mike Bonney—who had joined the firm as a partner in January—is no longer involved with the day-to-day operations with the firm, according to Tepper. “After having the opportunity to get to know many of our portfolio companies, Mike decided that the place where he can contribute the most value is by serving on our boards in a strategic level,” he said.
The $616 million fund eclipses the three other funds Third Rock has raised since its inception: a $378 million fund in 2007, a $426 million fund in 2010, and a $516 million fund in 2013. Third Rock started raising the fund in the late summer and closed this one faster than its previous three. “We found the market to be quite receptive,” Gillis said.
Third Rock formed just before the 2008 financial crisis hit and took interest in risky biotech investing down with it. But the firm doubled down on the field, adopting a strategy involving a hands-on approach. Third Rock creates many of its portfolio companies in house, and has its partners run them initially before recruiting an outside executive team. Third Rock likes to start these companies out with a large Series A round—typically in the $40 million to $50 million range—and is often the sole investor at the start, enabling it to keep a significant stake as these startups grow. The firm owned about 30 percent of Foundation Medicine, for instance, when it went public in September 2013, and nearly 60 percent of Sage Therapeutics at its July 2014 IPO.
Third Rock’s startups are typically built on technology platforms, meaning they’re meant to develop multiple drugs rather than just advance a single asset. These types of companies “offer unique opportunities for growth and value,” said Tepper.
As is always the case with biotech venture investing, some of these companies have struggled or failed altogether. For instance, although Eleven Biotherapeutics—which Third Rock formed in 2010—went public in 2014, its lead drug failed, shares plummeted, and Eleven merged with Canadian cancer drug developer Viventia Bio. Ember Therapeutics was shuttered in 2014, though the startup was revived through a merger with Mariel Therapeutics last year. Zafgen (NASDAQ: [[ticker:ZFGN]]) raised more than $100 million in an IPO in in 2014, but has since had to scrap its lead drug due to safety problems.
Yet Third Rock has seen a number of its investments pay off. Of the roughly 40 companies Third Rock has formed through its three funds, 12 have gone public, and another four have been acquired. Its first fund alone yielded six IPOs and three acquisitions: Alnara Pharmaceuticals ($180 million up front, Eli Lilly in 2010), Afferent Pharmaceuticals ($500 million up front, Merck in June 2016), and a drug developed by Rhythm Pharmaceuticals ($200 million up front, Allergan last week). Through that fund, Third Rock backed Genetix Pharmaceuticals, which was renamed Bluebird Bio (NASDAQ: [[ticker:BLUE]]) and has become one of the key players in gene therapy’s renaissance. The venture firm was also an early investor in Agios Pharmaceuticals (NASDAQ: [[ticker:AGIO]]), which went public in 2013 and could file for approval of its first drug by the end of this year.
Third Rock also had one acquisition (Lotus Tissue Repair, by Shire, $49.3 million up front) and four IPOs (MyoKardia, Sage Therapeutics, Global Blood Therapeutics, and Blueprint Medicines) from its second fund. Voyager Therapeutics and Editas Medicine, which went public in 2015 and 2016 respectively, were both from the firm’s third fund. Third Rock has launched 10 companies from that fund so far.
The firm wouldn’t specify what the returns on its three funds have been so far; head of communications Cynthia Clayton would only say that fund performance so far has been “best in class.”
With its new fund, Third Rock aims to start 10 to 12 companies, or roughly 2 to 3 per year. The fund has a 10-year life cycle and will focus on oncology, immunology, neurological diseases, cardiovascular diseases, and rare genetic diseases.
