The pharma services market has been experiencing ideal conditions lately, with long-term trends making these businesses fundamentally more attractive, and capital demand dynamics driving investments into the sector, according to Tom Cowap, managing director at financial services company Baird’s European healthcare investment banking team.
Ranging from contract research organisations, medical brands and API manufacturers, we have reported 11 deals in the subsector since May.
Contract research organisations (CROs) is one area doing well, Cowap told PE Hub Europe. They used to be “simple capacity outsource plays for big pharma”, he added. “When big pharma had more work than it had capacity for, it placed this with CROs, and as demand dropped it took this work back in-house – [so it used to be] a lower-value business model with poor quality of earnings and poor forward visibility of revenue.”
But now, with biotech increasingly becoming a key source of the global drug pipeline – thanks to being leaner, and in some cases “entirely virtual” – the CRO sector has evolved.
Biotechs use the outsourced sector, such as CROs, “to fully support their drug development programmes and engage with CROs as strategic partners, which in turn has led to the CRO sector changing in nature”.
PE is also increasingly concerned about macroeconomic pressures and the threat of recession, which is making “defensive” healthcare-related sectors like pharma services more attractive.
Cowap noted that the rising level of consolidation in small molecule discovery CRO is a trend to look out for, as there has been an uptick in PE money into the sector and more consolidators than ever before.
“This is still a nascent sector with a number of very small players supporting a large market and room for differentiated providers to post strong growth both organically and acquisitively,” he said. PE’s expansion into the sector will drive consolidation, particularly in Europe, he added.
Another trend Cowap highlights is the increasing level of private equity investment in the large molecule CRO and contract development and manufacturing organisation (CDMO) sector as more businesses start to scale and shift from the earlier riskier phase of life into the more mature stage of development that attracts private equity investment.
Here are the deals announced in the sector that caught our attention (in reverse chronological order):
1. NorthEdge injects capital into Anitbody Analytics
NorthEdge completed its investment in Antibody Analytics – a CRO and immunology research service provider to an international client base – in early November.
Antibody is based in Motherwell, Scotland.
2. KKR, Flerie to invest in Coriolis Pharma
KKR and Flerie formed Frontier Biosolutions in mid-October to invest in Coriolis Pharma, a globally operating contract research and development organisation.
Munich-based Coriolis Pharma provides formulation research and development, analytical services and non-GMP manufacturing of biologics and cell and gene therapy products.
3. Triton-backed Pharmanovia buys CNS portfolio from Sanofi
In mid-September, Pharmanovia, a portfolio company of Triton Partners, acquired a portfolio of 11 central nervous system medical brands from Sanofi.
The acquired brands include Frisium, Sentil, Urbanyl, Urbanil, Urbanol, Urbadan, Noiafren and Castilium.
4. Bain Capital to buy Fabbrica Italiana Sintetici
Bain Capital Private Equity in mid-July agreed to buy Fabbrica Italiana Sintetici (FIS) – a developer and manufacturer of small molecule active pharmaceutical ingredients and intermediates – from Nine Trees Group.
FIS is based in Vicenza, Italy, and was founded by the Ferrari family.
5. Inflexion-backed Rosemont picks up Lucis Pharma
Inflexion portfolio company Rosemont Pharmaceuticals announced in mid-June the acquisition of Lucis Pharma, a specialist pharmaceutical business.
Headquartered in Gloucestershire, England, Lucis Pharma provides development and licensing of novel and exclusive medicines.
6. EdgeCap Partners picks up majority stake in Comac Medical
EdgeCap Partners in early June acquired a majority equity interest in Comac Medical, a full-service CRO in Southeast Europe.
Comac is headquartered in Sofia, Bulgaria. It provides a range of early- to late-phase drug development services to the global pharmaceutical and biotech industries across a variety of therapeutic areas.
7. Temasek leads €255m investment round for ITM
ITM Isotope Technologies Munich in early June secured an equity investment of €255 million led by Temasek with participation from BlackRock Alternatives, Qatar Investment Authority, Nextech, ATHOS and Carbyne.
ITM is a radiopharmaceutical biotech company headquartered in Munich, Germany.
8. GHO Capital, Partners Group invest in Sterling Pharma Solutions
GHO Capital Partners and Partners Group invested in Sterling Pharma Solutions, a CDMO, in late May.
Sterling is based in Northumberland, England.
9. Sagard Healthcare, HCRx to buy royalty interest in Hemgenix
Sagard Healthcare and HealthCare Royalty Partners in mid-May agreed to buy a royalty interest in Hemgenix from uniQure, an Amsterdam-based gene therapy company.
UniQure will sell a portion of the royalty rights due to it from CSL Behring from the net sales of Hemgenix, a gene therapy that reduces the rate of abnormal bleeding in people with haemophilia B.
10. Kartesia exits stake in ADL Biopharma
Kartesia sold ADL Biopharma, a Spanish bioingredients company, to Wacker Chemie in early May.
ADL is headquartered in León, Spain. The firm is a European CDMO in the field of precision fermentation, providing scale-up and manufacturing services for a number of end markets.
11. TA Associates to make growth investment in Diatech Pharmacogenetics
TA Associates in late April signed an agreement to make a growth investment in Diatech Pharmacogenetics, a pharmacogenetics and cancer precision medicine diagnostics company.
Diatech is based in Ancona, Italy.
PE Hub Europe expects to see more deals in the pharma services sector in the coming months. But there are some potential headwinds.
Cowap said the impact of the Inflation Reduction Act in the US is a key concern. “It’s very hard to predict what impact this will have on Big Pharma. Anecdotally, we are already hearing that it has led to changing behaviours in Big Pharma, with an increasing focus on cost base and as a result procurement departments playing a larger role and negotiation of contract renewals being scrutinised more carefully.”
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