Inflexion’s Ben Long on the attraction of US healthcare expansion

‘You're selling a very different story. You’ve got to burn a lot of capital to get there, but if you can do it, it's a huge value driver,’ said Long.

Expanding healthcare companies to the US requires a heavy dose of capital and a long prescription list of regulatory requirements, but private equity firms willing to take the medicine are likely to find their investments in rude health, Ben Long, partner and head of the healthcare sector at Inflexion, told PE Hub Europe.

London-headquartered mid-market private equity firm Inflexion has assets under management of £8 billion ($10.0 billion; €9.2 billion) and invests in sizes of £10 million to £400 million. Its 11-strong healthcare team focuses on pharma, med tech, animal health, and pharma services, as well as software platforms serving those other four.

“The difference between good returns and great returns in healthcare is your network and your domain expertise,” said Long. “It takes a long time to build. So we pick sectors where there’s a 20-year runway of deals that we can do.”

High margins and international potential are other factors Inflexion looks for, Long said. The ability to expand European companies, particularly into the US, is a highly attractive proposition, not just in terms of growing revenues but positioning for exits.

“You’re selling a very different story,” he said. “You’ve got to burn a lot of capital to get there, but if you can do it, it’s a huge value driver.”

Inflexion’s minority investment in January in Proteros Biostructure, a founder-led contract research organisation that focuses on early-stage drug discovery, was to support the firm’s growth in the US, for instance.

The strength of the dollar over the last year has also made European businesses look cheap to US buyers, while the healthcare market typically prices in dollars, giving an extra boost to revenues.

US private equity interest in Europe has been tipped to grow. “The much-heralded wave is coming,” said Chris Field, co-head of legal firm Dechert’s global private equity practice, at a breakfast meeting in London a few weeks ago.

Regulatory burden

With a high regulatory bar, Inflexion has developed its product strategy around what will work in the US market. Long cited portfolio firm Rosemont Pharmaceuticals, which makes liquid, orally ingested versions of generic medicines that it sells in its home UK market as well as the US, continental Europe and the Middle East. It is using US 505(b)(2) applications, which are for new dosage forms of existing products.

“It’s a bit more expensive, it’s a bit more cumbersome, but you get three to five years’ market exclusivity,” said Long. By contrast, the UK has a more straightforward approach to launching such products, he added.

Gaining market exclusivity via regulation is not the preserve of the US, however.

In the European Union, the Medical Device Regulation (MDR) has aimed to bring greater harmonisation to that sector. While some, such as Sun European Partners managing director Mark Braganza, have told PE Hub Europe that the regulation increases cross-border opportunities, others, like Alexis Saada, head of growth and managing director at Ardian, have said it creates barriers that bolster national markets.

Inflexion’s Long said: “MDR is good for the industry as a whole because it brings the level of regulation in Europe up to the same level as it is in the US. It’s good from a business perspective. It raises the barriers to entry really quite a lot. The ability for low-cost producers to come in and compete away margin is being reduced. But that’s probably right in a sector where lives depend on it.”