Q&A With Bob Tepper on What’s Next for Third Rock Ventures

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the Third Rock partners are, right?

RT: Exactly. I don’t think we have any specific plans to expand geographically. We’re still working on the San Francisco office. Mark (Goldsmith) was recently promoted there. We’re doing a few more companies out there than the first year we were operational out there. I think it will be Boston and San Francisco. Keeping it geographically tied to where we are is really what we think of as one of our key strengths. It really does allow us to play a much more significant role in the companies. Not only at the beginning when we take on the interim operating roles, but to help the companies a little bit more than we might otherwise if we were just coming in for board meetings. We spend a fair amount of time with companies working with them on strategy, and helping them with pharma partners. Introducing them to some of the experts we know, etc.

X: Third Rock has done some medical device investing as well. Do you plan to continue doing that?

RT: It is an area we plan to continue working on, and looking at. It’s a challenging area in some respects, in terms of the deals you can do early on versus later on. Also, there’s the expertise. We have some expertise in that area, but we really like to focus on areas where we have expertise. One area in particular, in cardiovascular medical devices, it’s one area where we’ve done a couple of companies. We have some good expertise there, and that’s an area we’ll continue to look at. There are a lot of opportunities there. We won’t exclude other opportunities in devices, but we’ll proceed in a focused way.

On the diagnostics side, companies like Foundation Medicine and Nine Point Medical, we’re excited about. On the device side, DC Devices was one cardiovascular device companies that we started early on, and we’re in the clinic there. We’re encouraged by that company as well. We’re going to continue to play to our strengths.

X: Any plans to invest in health IT or further branch out from your base in biopharma and devices?

RT: Healthcare IT is an area we’re looking at a lot. We’re intrigued by it. It’s a really important area, but I’d say to be fair, we still have to learn a bit more about the right strategies there, and how it’s going to evolve. The role of the government in the whole healthcare revamping will impact things significantly in that space. I’d say we’re going to do a little more homework in that area and get more expertise, but I certainly think it’s a possibility for the future.

X: I wrote a little something earlier today about syndication in venture capital, and how we’re seeing less of it. We’re seeing more venture firms who are going it alone in the early days, when companies are getting started. Third Rock is clearly one of the firms that has done this. Can you talk about your thoughts on venture syndication and when it makes sense to do it?

RT: It’s an important part of our strategy as well as other folks. You’re right, we have decided in a lot of cases to start a Series A with our own [money], if you will. But most of those Series A deals are tranched, and we certainly look at syndicating either later in the Series A, or obviously in later rounds. Syndicating is still important. It requires significant capital to really bring multiple products into the clinic. We do prefer companies with multiple product opportunities, and really a new product engine. We have enjoyed excellent syndication partners, for the most part, and we’ll continue to do that. But because of our model, in which we do so much of the heavy lifting early on, it does make sense for us to have high ownership in the Series A, because we’re doing a lot of the operational work as well as setting up the company. It’s a balance.

X: How has life changed there at Third Rock the past couple years? There are a couple of macro forces I see that I’d imagine have some effect on you. One, there’s a lack of people still doing early-stage biotech investing, so there are few places entrepreneurs can turn to that are like Third Rock. And also, Third Rock’s profile has been rising with so many portfolio companies hitting milestones and doing well. Are you getting a lot more inbound pitches, seeing higher quality ideas? How have these forces affected you?

RT: I think the answer to both of those points is yes. We’re certainly seeing a lot more pitches. The quality, I think, is really good. People have learned what we’re interested in investing in and how we operate. It becomes an iterative process. When people come to us, they usually know we’re interested in areas of science that could provide breakthroughs for medicine of the future. We don’t see a lot of plans. We tend to be pretty selective there, because we always want to bring together the best people in a field. Sometimes a plan will have brought those folks together, but we sometimes view plans as starting points, and not end points. Most of the ideas we fund are ones where we bring together the folks. It may not be reacting to an external plan. We discover efforts internally. We spend a lot of time bringing people in and brainstorming about exciting new areas of science and medicine. Sometimes we’ll do it for a year, or a year and a half or more, before we decide to launch something in an area.

But to your original question, we’re seeing lots of stuff come in and lots of great stuff, too. You have to be very selective.

X: What’s the biggest limitation or challenge facing the firm?

RT: If you think of an average fund, or … Next Page »

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