Pharmaceuticals and Biotechnology

The business model of the large pharmaceutical companies is under pressure. The flow of ‘blockbuster’ drugs has slowed to a trickle and the investment required to produce them looks unworkable going forward. The result is that ‘Big Pharma’ has begun to experiment with new corporate structures in the hope of unblocking the streams of innovation. Private equity investors are increasingly interested in the role they can play in helping to unlock some of the value that sits within these big pharmaceutical businesses. In turn this will provide opportunities for entrepreneurially-minded managers to help determine the future shape of the industry.

Outside of Big Pharma there has been continuous growth in the generics sector as governments look to manage healthcare expenditure better.  Though there has a been a wave of consolidation in the generic sectors, driven primarily by corporates as they seek to benefit from economies scale, private equity investors have been active in this area with considerable success (Terapia, Betapharm).

There is an increasing interest in the area of specialty pharmaceuticals, where companies acquire drug or molecule assets from other companies and seek to commercialize them in new markets. The growth in this area is again driven by the increased cost and declining returns of the blockbuster model. Private equity investors have already invested in this area (Warner Chilcott, Viatris) and going forward it is expected to be a major source of investment within the pharmaceuticals sector.

Biotechnology is one of the most exciting areas in the healthcare space. Companies are engaged in cutting-edge research and development that offers the promise of drugs designed to specific and even individual needs. Traditionally this has been an area for early-stage investors, such as venture or growth capital funds as opposed to the traditional leveraged buyouts undertaken by private equity investors.