Biotech Ventures Forth: Third Rock Rolls Out $426M Fund, Relypsa Reloads

It was a good day for biotech venture news, as early-stage investor Third Rock closed its second fund and Relypsa reported a massive $70 million Series B funding to push its potassium binding agent into pivotal trials.

Biotech venture fund Third Rock Ventures closed its second fund with $426 million in commitments, it said Monday, September 13, one of just a handful of life-science investment firms to launch new funds in recent months.

Third Rock of Boston has taken an unusual run at the biotech investment model, looking for rapid returns from novel science, not me-too or repurposed drugs, and often putting its own partners in operating positions for a year or more. Its first fund, which closed in 2007 with $378 million in commitments, has just one exit so far, the sale of Alnara Pharmaceuticals Inc. to Eli Lilly & Co. Inc. in July for $180 million and $200 million in earnouts (Also see "Lilly To Buy Alnara And Its Non-Porcine Pancreatic Enzyme Replacement Therapy" - Pink Sheet, 2 Jul, 2010.). Despite this, limited partners voted on Third Rock's success with their pocketbooks. The second fund attracted more than 20 LPs, a few more than the first. Partner Kevin Starr declined to say how many were returning investors. After LPs hit the firm's $400 million cap, its general partners contributed the final $26 million, Starr said.

The first fund is near its maximum in new-company allocation with 14 portfolio companies, with "maybe one or two more to come," said Starr. TRV II will follow the same formula, with about one-third of portfolio companies requiring what Starr called "heavy lifting" from Third Rock's partners, who often jump into top managerial roles until outsiders can be recruited. Two examples are Agios Pharmaceuticals, which recently entered a long-term licensing partnership with Celgene Corp., and Constellation Pharmaceuticals Inc., an epigenetics firm. About half the portfolio will be platform companies that can produce multiple compounds, the other half split between drug firms focused on specific therapeutic areas, and device and diagnostic firms.

Third Rock has also invested tiny seed amounts in ideas and entrepreneurs that aren't mentioned in the portfolio. Of the roughly 15 of these "on-deck" companies, Third Rock no longer funds half of them, Starr said.

Third Rock also announced Monday it has opened an office with three partners in San Francisco. Headed by former Portola Pharmaceuticals Inc. CEO Charles Homcy, the West Coast team will stick to the same local-only strategy of the Boston-area main office, but it will keep a more modest pace with perhaps one deal a year, said Starr. The Boston team will continue to fund roughly five companies a year.

With many life science venture firms running out of gas, Third Rock has bucked a trend simply by raising a second round . If it can produce more timely exits for its investors and stay focused on early-stage companies, it should have a huge leg up on a third fund because there are relatively few places for traditional LPs to place biotech bets these days. Other firms with successful new funds are OrbiMed Advisors, SV Life Sciences, and 5AM Ventures (Also see "Sidestepping the "Washout," SV Life Sciences Closes $523 Million Fund" - Pink Sheet, 29 Jun, 2010.).

$70 million to market?

In other biotech venture news, Relypsa Inc. said Sept. 13 it has nailed down $70 million in Series B cash. Officials said they're confident the funding will take Relypsa's lead compound, a potassium binding agent that aims to mitigate potentially deadly side effects from low-blood-pressure medicine and other disease conditions, through a pivotal Phase III trial and regulatory approval without the need of a larger partner. Finding a partner would come into play once the drug, RLY-5016, is slated for the market.

Gerrit Klaerner, president and COO, declined to say if the round, one of the largest for a biotech firm this year, was tranched. "It was clearly designed to take us through the next two and a half years," said Klaerner. "We're confident this funding will enable us to do what we need to do."

In the interim, Relypsa needs to convince the Food and Drug Administration to allow it to apply its Phase II data to the design of its Phase III trial, which would reduce the number of patients to be recruited. FDA typically recommends testing an agent such as RLY-5016 in roughly 1500 patients. Currently Relypsa plans to launch its Phase III trial in the first half of 2011.

RLY-5016 is a binding polymer that stays in the gastrointestinal tract and absorbs excess potassium. One patient population Klaerner believes would benefit are people taking blood pressure lowering angiotensin-converting enzyme (ACE) inhibitors and angiotensin receptor blockers (ARBs) who discontinue therapy because of abnormally high levels of potassium in the blood stream. An acute buildup of potassium is called hyperkalemia and can lead to arrythmia or cardiac arrest.

The Series B round was led by new investor OrbiMed and brought back investors from Relypsa's $33 million A round, New Leaf Venture Partners, 5AM, Delphi Ventures, Sprout Group and Mediphase Venture Partners.

Some of the same investors funded Relypsa's predecessor Ilypsa Inc., which Amgen Inc. bought for $420 million in 2007. Amgen only wanted the lead compound, which was aimed at removing excessive phosphate in chronic kidney disease patients. It agreed to spin the rest of Ilypsa's compounds back out to the same management team, and Relypsa was born again (Also see "Amgen’s Phosphate Binder Loss May Be Genzyme’s Gain" - Pink Sheet, 28 Jan, 2009.). Through its venture arm, Amgen took a small slice of equity.

Amgen later shelved the phosphate binder, renamed AMG-223, because of disappointing Phase II efficacy data ('The Pink Sheet' DAILY, January 28, 2009).

-- Alex Lash ([email protected])

-Alex Lash ([email protected])