How Do I Invest In The Biopharmaceutical And Drug Discovery Sector? – The bio/pharma industry, both bio/pharma companies and CDMOs/CMOS, are the target of increasing private equity (PE) investment. Bain & Company’s new research looks at funding and investment for PE firms, including how changes in financial markets and the biopharma supply chain as a result of the new coronavirus may affect biopharma PE in the coming years.
Private equity investment in the biopharma industry (including biopharma/pharma companies and biopharma CDMOs/CMOs) fell to $40.7 billion in 2019, two and a half times the dollar private equity investment 16.5 billion. In the industry in 2018 (see Figure 1) according to Bain and Company
How Do I Invest In The Biopharmaceutical And Drug Discovery Sector?
, published in March (March 2020). Bain & Company is an advisory partner to the PE industry and its affiliates and is separate from Bain Capital’s investment practices. PE consulting represents about a quarter of the world’s business.
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Among the 85 biopharma deals completed by PE in 2019 is the $10.1 billion deal for Nestlé’s skin health business through PE firm EQT and the Abu Dhabi Investment Authority. The deal accounted for 25% of all biopharma PE deals in 2019 alone, and is the largest single equity deal in healthcare. The $17.3 billion investment in North American companies represents more than 50% of biopharma investments, excluding the Nestlé deal.
The contractures are good in combination (see figure 2). Cambrix’s $2.4 billion acquisition of Permira was the fifth-largest healthcare deal in 2019, while its acquisition of clinical research services provider Advara was the tenth-largest at $1.5 billion. There are many small businesses in the CDMO space, including alder, CDMO DNA plasmid, protein and mRNA production; Quotient Sciences, a CDMO for specialty brands and early stage opportunities; and Vibologic, a CDMO for therapeutics and immunology and biologics.
In fact, according to the Bain report, biopharma services and information technology that support drug development account for 51% of PE biopharma transactions and 55% of transaction value. Incentives for investing in biopharma services include “expanding leverage” and access to the biopharma sector while avoiding drug price pressures. Investors also see significant advances in new information technologies that can make clinical trials more efficient and have the ability to capture and process real-time data about drug use and outcomes to drive drug development and reward.
The Bain report highlights two key themes for biopharma investing: consumer products and generic products; and initial investment in new product development. PE firms have acquired some prominent names in the mid-market and general industries, including Zentiva (acquired by Advent International from Sanofi in 2018), Recordati (CVC Capital Partner acquired an interest in Recordati in 2018) ; , and Aquino (acquired by Avista Capital and Nordic Capital in 2013), and these companies themselves are acquiring more companies to build their product lines and geographies.
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However, the opportunities are significant and rare, says Nirad Jain, partner and head of Bain & Company’s private global healthcare practice. “‘General’ is a very broad category when looking at what’s going on,” he said. “For example, professional injections face different market groups than oral solutions and therefore different investment opportunities.” Agitate. And the types of non-US products are very different from US solids. We see disruption and fundamental changes in the market environment, which creates opportunities for new market entrants.
Private equity firms also invest directly in companies developing new drugs that have yet to generate commercial revenue. These include emerging biopharmaceutical companies, which are often part of larger companies, and private companies that also work with global biopharmaceutical companies to develop a portfolio of new drug candidates that are prioritized within the company. For example, PE firm Blackstone partnered with Novartis to develop Anthos Therapeutics to build Novartis’ cardiac portfolio. Bain Capital and Pfizer formed Cerevel to develop neuroscience candidates from Pfizer’s portfolio. In both cases, the biopharma company contributed to the candidate, while the PE provided the funds needed to develop the candidate.
Investing in early stages of development is outside the investment philosophy of private equity firms and tends to have a high risk/profile. In fact, according to Jain, Bain’s analysis shows that small biopharma investments (eg, equity investments of less than $75 million) have lower PE returns than traditional options.
According to Jain, there are two forces behind this development. On the other hand, the high level of biopharma investment in 2018-2019 has created more opportunities for growth investments, i.e., investments in companies that have passed the initial stage of maturity and are close to approval.
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The second, according to Jain, is that private companies have invested a lot in recent years, which has led to fierce competition that has led to the valuation of the company. “Dry powder” – or private equity developed/committed but not yet invested – is at a record level, says Jain. they have direct investment experience. “.
Investing in public companies has been a form of private equity investment in recent years. Methods include public-private transactions, such as Permira’s acquisition of Comrex, and private equity investments in public companies (PIPES), such as Leonard Green’s investment in Catalent from Paragon Bio. Jobs, to finance a $1.2 billion CDMO acquisition. Vector development and production services, 2019.
Jain predicted a bright outlook for biopharma investments despite, and even thanks to, the financial crisis caused by the cancer outbreak. He noted that biopharma is the most promising sector for healthcare investment, with the best returns coming from large investments (>$500 million) and small to medium investments ($75-150 million). ).
“The recent deficit in 2008/09 is instructive in many ways,” says Jane. “First, the funds and investments made during the recent recession have provided the best returns among the private sector. Second, during the recent recession, investment Healthcare investments are different from returns in other sectors. So we expect the most experienced and successful investors to ‘double down’. their investment in this environment.”
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Private investors have benefited from several developments in recent years, such as the willingness of investors to value at a given level of interest or cash more than in the past. This growth has often led to good investment results even when the company’s performance has not met expectations, but this may not be the case.
“A large percentage of investments, based on Ben’s rigorous analysis of the transaction representation model, have lost their original title and/or margin growth goals since the PE firm invested. . model) ,” said Jane. “In the larger market, these data are often exaggerated. As we move into recessionary conditions, these weaknesses become apparent.
Note: This article is based on a presentation by Ben & Company as part of the DCAT Week ’20 education program, which will take place March 23-26, 2020 in New York City.
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