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Private equity: Healthcare and biotech investment

Investment SmallPrivate equity has funded the growth of biotech and healthcare at the early stages where much of the experimental innovation can be found, playing an important role in the scaling up of businesses – but due diligence is key when entering the sector. 

While investors in biotech and healthcare through public equities such as healthcare ETFs expect companies to have satisfied a plethora of rules and regulations pertaining to safety and ethics, due diligence for venture and private investment is an onerous process – ensuring biotechnology isn’t used in nefarious ways and that the underlying science is ethically sound, for example. 

According to geneticist and microbiologist Andrew Hessel, the core of the technology is human intention so “there’s always the potential for harm.”

Speaking in Funds Europe’s December issue, Hessel predicts that changes throughout the course of this century are going to be more dramatic and fast-paced than the last. Technology is advancing at an unprecedented rate, with different disciplines – including biotechnology, artificial intelligence, and robotics – coming together.

“How do we take this forward as the technology evolves?” asks Ian Connatty, managing director of British Patient Capital, a UK-government backed investment vehicle that invests in venture and growth capital funds. “Now is a very crucial time to make sure there are certain safety protocols.

Staying one step ahead of the game with safeguards in check is “the only way around” the risks, says Nina Deka, senior research analyst at Robo Global. “Either that, or we don’t progress.” 

Private funds are going into this area “with their eyes open”, according to Michael Johnson, group head of institutional services at corporate services firm Crestbridge. At least, if they apply a product roadmap correctly. 

Johnson says this includes checking the science behind the potential product, as well as looking at pre-clinical pharmacology and toxicology reviews. Due diligence also means investigating chemical manufacturing and supply chains. More broadly, it’s about identifying which intellectual property rights exist or are likely to in the future. 

As with all developing technologies, there are new and evolving risks to contend with. Indeed, Polar Capital’s David Pinniger says investors need to make sure everything is “nailed down”, adding: “They’re putting capital into quite early-stage companies in situations where the biology is still sometimes unclear or unknown.”

More on biotechnology and healthcare investment in our December issue: Private markets: Biotech and healthcare funds point to the future

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