Thematics: Private equity and biotechnology 

Michael Johnson, group head of institutional services at fund administrator Crestbridge, talks to Funds Europe about the role investors play in the development of the biotech industry.

What due diligence must private equity funds carry out when investing in biotechnology?

With a high degree of interest in biotechnology even before the pandemic hit, private funds have been going in with their eyes wide open. Funds will seek out a product roadmap, check the science behind the potential product, look at preclinical pharmacology and toxicology reviews, investigate chemical manufacturing and supply chains and want to identify what intellectual property rights exist or are likely to in the future.

Can private capital investors play a role in ensuring biotech isn’t used in nefarious ways?

Certainly, especially as there is a heightened awareness around ESG [environmental, social, and governance] principles and impact investing amongst privates, their investors and amongst founders themselves. Many a pitch from a GP to an LP or a founder to a GP will have been rejected for not paying enough attention to ESG or impact principles. Founders often do have ESG or impact values at the core of their business philosophy, and will also be looking for backers who reflect or respect these values.

What could one-off cures mean for investors seeking sustained cashflow?

This is difficult to predict and we don’t yet know whether a possible Covid vaccine, for example, will be a one-off or require everyone to have vaccinations each and every year. However, in this sector very often a company that is able to pioneer a first is able to come out with a second, more profitable product. The first product may not even generate that much of a return but will have succeeded jumping a research or regulatory hurdle of some kind, that enables the firm to bring a second, related product to market much more easily and become more profitable.

What potential do you think biotechnology has for revolutionising healthcare further and, subsequently, how investors approach the market?

I wouldn’t want to make any predictions on the future nature of an industry, but there are many ongoing biotechnology projects specifically looking for the next idea that will revolutionise healthcare, well before Covid hit. For now, there’s certainly a feeling in the private [markets] industry that biotech will never be the same again: never before in human history has a vaccine been this close to being developed this quickly, and that takes a huge amount of resourcefulness and agility.

Read more about the ethical and financial challenges faced by investors in biotechnology here: Private markets: Biotech and healthcare funds point to the future

© 2021 funds europe

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