Late-stage investor Oak HC/FT undeterred as healthcare, fintech opportunities remain vast

The firm makes a bet in the recession-resilient CDMO space, all while the digital health companies it backs see an acceleration of investor interest.

The healthcare and fintech markets aren’t slowing down, and neither is Oak HC/FT, be it through a new bet in outsourced pharma services or continued momentum behind potential IPO candidates.

“We can move with as much conviction and confidence as we did pre-covid because our markets aren’t slowing down,” said Andrew Adams, who launched the firm, an Oak Investment Partners spin-out, in 2014 alongside Annie Lamont and Patricia Kemp. “Our investment strategy is kind of thriving in this market.” The firm raised $800 million for its third and oversubscribed fund a year ago.

One indicator: the performance of newly-public digital health companies through the downturn. This has only accelerated investor interest in the growth equity model in which the healthcare and fintech specialist plays, the investor said. 

“When you see companies like One Medical succeed as a public company, it adds more public interest [to the space],” Adams said. 

A portfolio company of Oak HC/FT up until recently, One Medical is an operator of membership-based primary care tailored to young, healthy patients.

Shares of One Medical’s parent company, 1Life Healthcare, have more than doubled since pricing at $14 per share in its January IPO. Its market cap has hovered around the $4 billion to $4.5 billion range in recent trading – close to three times One Medical’s $1.5 billion valuation in 2018 when it scored a $350 million capital injection from Carlyle Group.

Elsewhere, Oak HC/FT portfolio company VillageMD scored a $1 billion equity and debt investment from Walgreens Boots Alliance in July. In connection with the partnership, 500 to 700 VillageMD primary care clinics will open within its drug stores in the next five years.

Such developments, Adams said, have “reinforced our strategy of finding high-quality low-cost ways of delivering care.”

On the IPO front, One Medical isn’t alone. Other digital health start-ups such as Livongo Health and Accolade have executed successful public debuts recently. 

As IPOs become a more viable exit path on the table, healthcare, like other industries, also looks like an increasingly attractive segment for SPACs, Adams said.

In his view, more liquidity options can only benefit sellers. “If you have more paths, then you have choice, then potential competition. All of that benefits [a company],” Adams said. “I think we have a number of IPO candidates. We’re excited about that.” 

A strong public market relies heavily on the inclination of management to run a public company, according to Adams. At the same, he added, “you always have to have scale, resilience, predictability and growth.”

August Bioservices

While many of the firm’s investments are situated for widespread adoption of remote patient care and telemedicine – VillageMD, FireFly Health, Galileo and Paladina Health, for instance – Oak HC/FT has also found pockets in which to invest outside of this scope. 

In July, Oak invested in PMI BioPharma Solutions, a contract development and manufacturing organization serving the pharma and biopharma space. The company concurrently rebranded as August Bioservices, naming Jenn Adams, Oak executive in residence, as CEO. 

“If you look at the Oak portfolio, there’s a lot of opportunity for virtual care,” Adams said. “This is an area [sterile injectables manufacturing] where you can’t do this virtually. There’s always going to be a need for capacity. That demand is not subsiding – covid or no covid.” 

When Jenn Adams joined Oak a year ago, the former AmerisourceBergen exec’s goal was to look at various sub-sectors within pharma services. Oak’s relationship with Jenn Adams stems back more than a decade, as she was previously the president of PharMEDium, a former portfolio company of Oak’s predecessor Oak Investment Partners. 

“The increasing presence of biotech companies is fueling a higher mix of biologics in the pipeline and their increasing reliance on outsourced providers,” Jenn Adams said.

The firm ultimately honed in on CDMOs, and after evaluating a variety of specific services, settled on sterile injectables. The general shift to more complex drug products requires more efficient and cost-effective processes such as those offered by August, she said. 

At the same time, there’s a dearth of supply in the market right now. “Quality suppliers of those services offer tremendous value to biotech companies that need these companies for development processes,” Jenn Adams said.

The funding will allow August to consider a number of different growth levers. One priority area: expanding its capability set to include lyophilization for late-stage clinical and commercial work, she said. 

As complex drug products and large molecule formulations become more common, an increasing number of pharmaceutical formulations face stability issues in their liquid or frozen form, the CEO explained. In order to solve this problem, many drug products undergo sterile lyophilization, or freeze-drying, which generates a stable powder for storage and transport, increasing the stability and shelf life of medication, Jenn Adams said.

Elsewhere in pharma services, the virtualization of clinical trials is a trend worth keeping an eye on, Andrew Adams said. Covid-19 has disrupted patients’ ability to go into clinical trial sites, lending to “a real argument for tech-enabled platforms for certain elements of trials.”