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Apollo, Carlyle, EQT team up with VC firms to tap biotech growth market

The pairings seem to provide a win-win, giving PE firms early access to drug discovery and giving the VC firms capital and access to the PE firms' LPs.

Antoine Papiernik, Sofinnova Partners, biotech, life sciences
Antoine Papiernik, Sofinnova Partners

The covid pandemic underscored the urgent need for expertise and capital to fund the next generation of healthcare and life sciences products and services. To speed up their investments in the sector, private equity firms are quickly teaming up with other investment firms. Partnerships with venture capital firms in Europe are especially attractive to PE firms right now, as recent announcements demonstrate.

In May, Apollo announced it is committing up to €1 billion ($1.04 billion) of managed capital to Sofinnova investment vehicles, including new products the firms will look to co-develop and buying a minority equity stake in Sofinnova Partners, a VC firm based in Paris, London and Milan. In April, Carlyle acquired Abingworth, an investment firm with a local presence across the biotech hubs of London, Boston and the San Francisco Bay Area. And back in November, EQT purchased LSP, an Amsterdam-based VC firm that invests in innovative companies with strong scientific and clinical rationale across several life sciences strategies.

One thing these partnerships have in common is that the PE firms are trying to fill a void in life sciences. The pairings seem to provide a win-win, giving the PE firm early access to drug discovery and giving the VC firm capital and access to the PE firm’s LP base.

What Apollo gains

Apollo was drawn to Sofinnova’s sector expertise. Founded in 1972, the VC firm has backed more than 500 companies over 50 years and has extensive relationships across the life cycle, from very early-stage venture companies all the way through large pharma. Many of the firm’s team are scientists.

“The partnership allows us to bring the scale of our capital and couple that with Sofinnova’s expertise to think about new solutions for the market and new product creation, bringing a much greater scale of institutional capital to life sciences overall,” Neil Mehta, partner and global head of strategy of Apollo, told affiliate publication PE Hub.

“We have been drawn to the life sciences sector overall and we see tremendous secular tailwinds,” said Mehta. “Apollo has been active in life sciences but underrepresented relative to our size. We see a meaningful opportunity for institutional and scale capital in the life sciences sector.”

Mehta added that in order to be a scale player in any industry requires depth of expertise. “In life sciences in particular, given the highly specialized, scientific nature of the sector, partnering with a team that is deeply versed in the science like Sofinnova is critical to meaningfully scale and accelerate our investment activity,” he said.

Since Sofinnova is focused on the venture equity end of the spectrum and Apollo runs the gamut from equity to hybrid to yield capital, the partnership presents an opportunity to provide “a much broader range of capital solutions to bring new therapeutic and biotechnology-based solutions to the market overall,” Mehta said.

The investing environment is filled with macroeconomic challenges, but Mehta said challenges are creating opportunities for stable, long-term investment across the capital spectrum.

“While companies previously had access to a receptive IPO market, today they are instead thinking about hybrid or debt or private equity solutions,” he said. The breadth and flexibility of Apollo’s capital base allows us to be a holistic solution provider in any market.”

What Sofinnova gains

For Sofinnova, Apollo brings growth acceleration.

“We were looking for someone to make an investment in us, and what was very apparent quickly is that Apollo was thinking along the same lines as us, when some of the other asset managers wanted to buy us completely, and we were looking for a partner,” said Antoine Papiernik, chairman and managing partner of Sofinnova. “Apollo was looking for a partner with experience in areas where they were not historically a strong hold in, as they want to learn from us and everything we know about life sciences investing.”

Papiernik said he looks forward to learning from Apollo and vice versa.

“Now that they are bolstering our balance sheet, one of our first initiatives will be to hire more people,” he said. “Hiring talent is the single most important thing we can do.”

Fundraising will also be an important part of the partnership.

“Having a partner that participates in a fund we will be raising in the future is a vote of confidence from them to us, and large LPs – their LPs – will look at this as a positive, so we hope we can get into their LP base,” Papiernik said.

He added that all the big PE players not only want to get into life sciences but also need to get in: “The big guys need to get into this space, you can’t have that little AUM in a field like life sciences that is such an important part of healthcare, when healthcare is so much of GDP.”

But, Papiernik said, “this is not the same as Carlyle’s purchase of Abingworth and EQT’s acquisition of LSP, because ours is a true partnership.”

The Carlyle perspective

The Abingworth acquisition expands Carlyle’s healthcare investment franchise across the full spectrum of life sciences and healthcare investing, from venture capital to buyouts. The acquisition “continues our longstanding efforts to be part of the solution in healthcare,” said Steve Wise, Carlyle’s global head of healthcare.

“Carlyle and Abingworth have deep expertise investing behind the biopharma revolution – Carlyle has significant experience in the pharma services and pharma tech through investments like PPD, TriNetX, Curia, Orsini and Saama, while Abingworth adds the necessary scientific and clinical knowledge to invest in the early- and late-stage biopharma,” Wise said. “We are excited about the positive momentum in the industry and the opportunity to invest in transformative businesses across the life sciences landscape.”

Steve Wise, Carlyle

Wise noted that the rapid advancements in science and technology are creating “unprecedented innovation in the biopharma industry.”

“A majority of late-stage pipeline drugs are developed by biotechs, but those companies need significant capital to fund clinical trials, expertise to design and run clinical trials, and resources to navigate the complex regulatory and commercial landscape,” he said. “We believe that we have a solution to these problems through Launch Therapeutics, led by an experienced team that can eliminate inefficiencies in clinical development and accelerate the path to market.”

EQT’s POV

Like Apollo, EQT is partnering with life sciences VC firms in Europe, which begs the question: why is Europe central to these partnerships?

“Life sciences companies in Europe have matured impressively over the past couple of decades, and we now have repeat entrepreneurs, which is really elevating the professionalism of the industry,” said René Kuijten, partner and head of EQT Life Sciences. “There are now the same number of high-quality opportunities from a life sciences venture capital perspective here as there are in the US, but there’s significantly less capital available. Europe is the growth market for biotech.”

Cementing leadership in healthcare investing was an important driver for EQT.

Kuijten noted that EQT and LSP are complementary. “EQT is the top healthcare investor in Europe and top five in the US, and LSP is the top healthcare venture capital firm in Europe,” he said.

“EQT has large-scale buyout experience, and LSP brings early-stage healthcare expertise, expanding EQT’s ability to support companies at the forefront of innovation in the sector,” he continued. “LSP also enhances EQT’s ability to drive positive social impact in the healthcare industry and future-proof companies that can advance life science research through cutting-edge technology.”

The combined platform is now “much stronger” and allows EQT “to be one of the only firms that invests across the healthcare spectrum, from venture to late stage,” Kuijten said.

He added that commercialization is a critical stage for biotech and medtech and that these types of companies must consider the end market even when they’re in the development phase.

“EQT has been doing large-scale healthcare buyouts for decades and has the expertise and vast advisory network to optimize the market and everything else that comes with commercialization,” he said. “Meanwhile, LSP has 19 in-house PhDs and a network of scientific experts around the world. They offer critical expertise for larger companies with an early-stage pipeline. This exemplifies the complementarity of the two firms, now offered through the EQT Life Sciences platform.”

Looking ahead

Jonathan Norris, managing director for business development in Silicon Valley Bank’s healthcare practice, said he wouldn’t be surprised to see more partnerships between PE and VC firms focused on life sciences.

“One of the main reasons for these collaborations is the amount of sheer capital that is needed for these companies,” Norris said. “For most venture firms that are investing in biopharma, the question is ‘do we push them to go public quickly?’ Because that is where you can raise the most capital and get potential liquidity.”

“If you are partnering with bigger PE firms that have a lot more capital to put to work, you can fund these deals as private companies a little further and get pivotal data read-outs that could make these companies a lot more valuable over time,” Norris said. “Leveraging additional pools of PE capital could be an interesting way to limit dilution by not going public too early. Access to this capital allows you to support and get through some of the bigger clinical trials in larger disease areas as a private company, creating the opportunity for outsized returns.”

Norris noted that in some areas, when a pivotal trial is reached, the capital required is so huge, a public offering may be the only option.

Jonathan Norris, Silicon Valley Bank

“Partnering or collaborating with a PE firm with lots of capital provides the opportunity to support both the capital to fund critical value-creating trials but also the know-how around creating a large potential stand-alone operating company,” he said.

Norris added that this also gives the PE side a reach into exciting early-stage companies.

“You wonder if it’s sort of like the minor leagues for PE, where they can look at a bunch of rising-star portfolio companies affiliated with a venture firm and then can pick and choose the brightest prospects they want to double and triple down on with a large pool of capital,” he said.

This story first appeared in affiliate publication PE Hub