Traditionally, fundraising for that sector was generated from venture capital, IPOs and secondary public offerings. "Now, we have seen a jump in private equity (PE) firms investing in mid-stage, emerging biopharma companies. Previously, PE would have focused on more mature businesses where there were opportunities to improve operations," said Jim Miller, advisor on bio/pharm manufacturing strategy.
He was participating in a panel discussion - Manufacturing and Outsourcing: CDMO Trends and Outlook – as part of the CPhI Festival of Pharma event, which is being run online from 5-16 October.
“Another recent development linked to PE funding is where a big pharma company no longer wants to invest in its portfolio, in a particular therapeutic area, so it will carve that out and put it into a joint venture that is funded by a PE firm in an effort to advance those candidates into commercialization,” remarked Miller.
A perfect example of that being private equity group, Blackstone, partnering with Novartis last year and creating Anthos Therapeutics to develop a portfolio of Novartis cardiovascular candidates.
PE investment in the biopharma industry (inclusive of both biopharma/pharma companies and CDMOs/CMOs to the biopharma industry) rocketed to US$40.7bn in 2019, two-and-a-half times the US$16.5bn that PE firms invested in the industry in 2018, according to Bain & Company’s Global Healthcare Private Equity and Corporate M&A Report 2020, published in March.
But it was the high levels of venture-capital investment in biopharma in 2018-2019 that created more opportunities for growth equity investments, commented Nirad Jain, a partner and co-head of Bain & Company’s Global Healthcare Private Equity practice.
Halo effect of COVID-19
“There has been a tremendous amount of monies coming from a lot of different directions," said Miller.
Even 2020 is proving a winning year for such financing, despite concerns it would be a negative one for investing because of the impact of COVID-19.
"That is partly the result of all the therapeutics in the pipeline, but also the halo effect of COVID-19,” said the industry expert.
Another factor that is driving PE investment in emerging biotech companies is the fact that the US Federal Reserve and the European Central Bank (ECB) have pushed interest rates down to such a low level, he said.
“Investors are willing to take bigger risks in order to get some kind of long-term return,” commented Miller.
CDMOs should take a bow
“Ultimately, I think this is the area contract development and manufacturing organizations (CDMOs) should get most credit for - it is the CDMOs that have enabled this explosion in emerging biopharma companies, in the explosion in drug discovery and development that we have seen over the past 10 years.
“If it weren’t for CDMOs, if companies had to, like they did 20 years ago, invest in their own facilities, build their own staff, considering the time, the cost, and the risk involved in all that, it would have seriously limited the number of startup companies coming into this space.
“Thanks to CDMOs, companies can get into the clinic quickly and can do so with a relatively small amount of capital and capital risk,” added Miller.
Promising platforms
Emma Dabbs, manager at pharma industry consultants, Novasecta, weighed in on the trend in a piece published last year on MedNous. In recent years, private equity firms looking to acquire minority stakes in biopharma companies have targeted commercial stage enterprises with promising platforms, she noted.
“An example is Novo Holdings A/S’s announcement in May [2019] of plans to buy a 10.1% stake in Oxford Biomedica Plc for £53.5m. Such minority stakes in rapidly growing biopharma companies can yield impressive returns for private equity investors. For example, ChrysCapital earned 10 times its original investment following the sale of a 10% stake in Intas Pharmaceuticals Ltd in 2017. Intas is an India-based pharmaceutical manufacturer.”
