Private Equity Firms Set Sights on Distressed Biotech Assets

In a surprising turn of events, private equity (PE) firms are increasingly targeting the biotechnology sector, signaling a shift in investment strategies and potentially reshaping the landscape of pharmaceutical development. This trend, dubbed the "PE-ization of pharma" by industry analysts, is exemplified by recent high-profile deals and could herald a new era of funding and restructuring for cash-strapped biotech companies.

Bluebird Bio Acquisition Sparks Industry Interest

The recent acquisition of bluebird bio by The Carlyle Group and SK Capital Partners for just under $50 million has caught the attention of industry observers. This deal, involving two PE firms with a combined $463 billion under management, represents a significant departure from traditional PE investment patterns in the pharmaceutical sector.

Bluebird bio, once valued at $10 billion and considered a darling of the gene therapy space, now finds itself under PE ownership. The acquisition has raised questions about the future of the company's assets, including its approved therapies Lyfgenia, Skysona, and Zynteglo.

Jason Foster, CEO of Oribiotech, commented on the deal: "The Carlyle purchase of bluebird is super interesting, because you've got a very smart financial sponsor who sees something in that asset. They paid very little for it, and it was a $10 billion asset at one time. . . . But there is obviously a lever or two that they see that they can pull."

The Changing Face of PE in Pharma

Traditionally, PE firms have focused on pharma-adjacent sectors such as contract research organizations, contract manufacturers, and service providers. However, the current market conditions have created opportunities for PE to enter the biotech space directly.

Kazi Helal, Senior Biotech Analyst at PitchBook, explained the shift: "A lot of these folks are seeing opportunity now in biotech and distressed assets, and it's hard to pass off." The brutal market conditions have left many biopharmas struggling to stay afloat, despite promising science or approved therapies.

However, experts warn that the typical PE playbook may not apply to biotech investments. Roel Van den Akker, pharma and life sciences deals leader at PwC, noted that PE firms will need to adjust their expectations due to the longer development timelines in biotech compared to traditional PE investment horizons.

Emerging Trends and Future Outlook

While the bluebird bio deal has garnered significant attention, it is not an isolated incident. Other recent examples of PE involvement in biotech include:

1. Anthos Therapeutics, launched with funding from Blackstone Life Sciences in 2019, was later acquired by Novartis for up to $3.1 billion.
2. Lexeo Therapeutics recently announced $40 million in PE financing to spin out a new entity focused on cardiac genetic diseases.

These deals suggest a growing trend of PE firms participating in "VC-type" deals within the biotech sector. However, industry experts caution against expecting a large-scale "roll up wave" in biotech. Instead, PE firms are likely to take a more targeted and strategic approach to their investments in the sector.

As the pharmaceutical industry continues to evolve, the increased presence of PE firms could bring new opportunities and challenges for biotech companies. The coming months and years will likely reveal whether this "PE-ization of pharma" will lead to increased innovation and success in drug development or if it will reshape the industry in unexpected ways.