First published in our Biotech Review of the year – issue 9

What was notable about the Bain Capital deal was not simply the sheer amount of money raised, sizeable though it was, but who had raised it. After all, the fund represented only Bain’s third foray into life science fundraising, a market that had hitherto largely been the preserve of specialist investors and an area in which private equity had at times feared to tread. The fund was no anomaly, however. Rather it reflects a new trend in the last few years: the entry of private equity, and other non-traditional investors, into the life sciences market.

The sound of trumpets

In truth, “entry” perhaps belies the new-found enthusiasm of private equity for the life sciences. Such has been the level of activity this year – £2.39bn having been raised in the first half of 2021, against £2.81bn for all of 2020 – that Private Equity Wire has gone so far as to talk of a “Golden Age” for the life sciences. Whether or not this claim is hyperbolic, it certainly reflects a sharp increase in activity.

Significant sums have been spent, particularly on medical devices, genomics, drug development and, perhaps unsurprisingly, personal protection equipment (PPE). A prime example of this substantial appetite for the life sciences amongst PE came with Blackstone recently laying down a $250m investment into Autolus Therapeutics[1], the largest investment into a UK biotech company from a single source so far. Auctions, too, are increasingly frequent – also serving to drive up valuations – whilst life science froth is strongly reminiscent of that which existed across the wider economy in 2006 and 2007, described at that time by The Economist as a “rampage” enacted on public markets by private equity.

In fact, there has even been a notable increase in secondary deals, that is private equity houses selling assets to each other, a development typified by Crescent Capital’s recent agreement to sell Nucleus Network to Blackstone Group. Private equity has arrived, and with a bang.

Behind the headlines

It’s not simply the case, though, that private equity is now more willing to invest in the sector; but that it is more willing to invest in companies at an earlier stage in their evolution. Bain Capital Life Sciences, for instance, reportedly reviews close to 1,000 early-stage companies each year for opportunities to invest. The result is not just that we are seeing more deals, but an increasing number of smaller deals, too. In fact, if one industry commentator is to be believed, PE has “VC envy”.

But what underpins this development? After all, for years, certain parts of the life science market were seen as being too risky, and taking too long to generate returns: say 12 years for a new medicine to go from research stage to commercialisation. Instead, private equity houses typically sought assets that could quickly pay down leveraged debt, hence historic interest in hospitals and certain less risky medical devices. After all, Bain and KKR hit the headlines in 2006 when they led on the buyout of hospital operator HCA for $33bn.

The apparent sea change is, in part, a result of the sector, and its innovations, having matured and demonstrated their ability to fulfill a market need (and thereby generate returns). And though private equity is yet to involve itself in vaccines to any great extent, it is possible the events of the last 18 months have further piqued interests in biotech (and certainly explains the significant investment in PPE).

And then, of course, there is the fact that private equity has amassed significant capital reserves. As the Financial Times recently reported, private equity is sat on $2.5tn of unspent cash. Simply put, this money needs to be deployed, and the life sciences – increasingly shorn of the risky image by years of successful development and marketisation – are the recipient.

Swelling seas of success?

If money greases the wheels of innovation, then the arrival of private equity should certainly keep them rotating. Private equity provides innovators and earlier stage investors with more routes to exit and an additional means to turn ideas into profit. Inevitably, this should incentivise efforts to move ideas from the lab floor to the marketplace. A rising tide, if the saying is to be believed, lifts all ships – and private equity has certainly caused a splash.

For how long this trend will continue is, of course, a key question – and a difficult one at that. Private equity is acute to market trends, and it could be that its gaze lingers only until another sector, or asset class, looms into view. But whilst it is difficult to predict exactly how long the enthusiasm will last, it is likely that PE houses will keep a close eye on digital health innovations – be it apps or new AI platforms or genomics – for some time yet.

And thereby hangs the tale: whether we’re in a golden age or golden moment, only time will tell.

[1] For full disclosure, Bristows acted for UCLB on the spin-out of Autolus in 2014