Third Rock remains undaunted by early-stage med tech investing

We all know that venture capitalists continue turning away from early-stage med tech companies and are focusing more on those much closer to commercialization. But even as the venture-capital industry has shifted its priorities to safer bets, VCs like Bob Tepper continue to keep early-stage investment prospects very much in mind.

Tepper, a former vice president of R&D at Millennium Pharmaceuticals, is a partner at Third Rock Ventures, which this week debuted a $516 million fund--its third since launching in 2007. Like the other two, this new fund will focus on drug developers, diagnostics and medical device companies, and early-stage operations are most definitely part of the picture.

Tepper tells FierceMedicalDevices that early-stage VC investment is still a vital part of Third Rock's business plan because it reflects a crucial focus: patients and medical need. One example he noted where this approach is at play: cardiovascular research.

Bob Tepper, partner--Courtesy of Third Rock

"In the cardiovascular area, if you look at diseases like congestive heart failure, approaches involving drugs have been quite disappointing over the last 20 years. There have been lots of failed attempts," Tepper said. "There are reasons to believe that for certain aspects of cardiovascular disease, devices may end up being a better approach. We believe value will be there if you come up with an important medical solution for the patient, but you have to look at all of these on an individual basis."

But the key to successful early-stage investment in the current environment is that the technology must go well beyond incremental improvements to existing standards of care, Tepper argues. He said he sees that wrinkle as being a big factor behind the shift away from early-stage venture commitments to devices and diagnostics.

"You want to be sure when you undertake a diagnostic or device [investment] you have an important breakthrough solution and not just an incremental type of" product, Tepper said, noting that it can be a challenge to easily get there in the device and diagnostic spaces.

Tepper said that Third Rock, which focuses on investing in startups right from the beginning, has already accomplished this in the med tech space with portfolio companies such as 2012 Fierce 15 winner NinePoint Medical (developer of an ultra-high-resolution organ imaging device) and Foundation Medicine, which is attempting to move personalized medicine forward with a high-quality diagnostic designed to evaluate solid tumors and their mutations and then match the best possible treatment to the situation.

Tepper said he sees personalized medicine as eventually making the notion of investing separately in diagnostics, devices or drugs largely outdated. In the future, he said, patient care will be a primary driver behind the launch of startups that include some combination of all of those elements.

"We are seeing a convergence in personalized medicine drug therapies," Tepper said. "Drug therapies, medical device therapies, IT and diagnostics--it is all coming together … That is not here yet but it is coming quickly."

-- Mark Hollmer (email | Twitter)

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