The Health Care Investor : Healthcare Lawyers & Attorneys for Life Science Companies & Investors

In Part II of this blog series we look at recent transactions in the arena of contract research organization, with a particular focus on private equity investing in CROs.

In one recent example, prescription drug data-mining company IMS Health acquired TTC, Philadelphia, a drug trials data-analytics company for drug manufacturers and drug contract research organizations (CROs). IMS will reportedly offer TTC’s services via its clinical trial optimization unit, which is part of its healthcare value solutions business. IMS sources state, “IMS will integrate its evidence-based, anonymized patient and treatment outcomes insights with TTC’s comprehensive cost data drawn from organizations that conduct nearly 80% of all commercial clinical studies.” Linda Drumright, general manager Clinical Trial Optimization Solutions at the New Jersey-based company, said, “There is growing demand for more data and analytics to optimize the clinical trial process. Together [with TTC] we can deliver an end-to-end view of trial planning and execution, increasingly critical at a time when the industry faces significant challenges and requires new approaches.”

IMS also recently acquired PharmaDeals, a Web-based subscription database that gathers information about the pharmaceutical industry. IMS is owned in part by TPG Creative Capital, a leading international private equity investor in healthcare, with $51.5 billion of capital currently under management.

Covance and Pharmaceutical Product Development were once again the biggest top-line gainers during the quarter. Pharmaceutical Product Development was taken private as of December 2011, following a $3.9 billion cash purchase by The Carlyle Group  and Hellman & Friedman, as reported in their December 5, 2011 press release. Covance is one of the world’s largest and most comprehensive drug development services companies with over 11,000 employees in 60 countries; they have assisted pharmaceutical and biotech companies develop one-third of all prescription medicines in the market today.

Likewise, Nautic Partners LLC recently invested in Theorem Clinical Research, which partnered with Gallus BioPharmaceuticals in an endeavor to get pharmaceutical companies in emerging markets to enter the U.S. market.

Frontier Capital, which focuses exclusively on partnering with the management teams of high growth business services companies, led an investment deal merging a pair of CROs, Inclinix Inc. and PMG Research Inc.. Current research modalities include asthma, Type II diabetes, influenza vaccines, hypertension and obesity treatments.

Private equity firm, TPG Star Charisma Limited plans to acquire all of the outstanding shares of ShangPharma that they do not currently own. According to their website, the bid values ShangPharma, with Eli Lilly and GlaxoSmithKline (www.gsk.com) among its clients, at between $157.5 million and $176 million.

As discussed in Part I, the CRO industry involves players employing a variety of partnering models; but no matter the approach and niche need the particular CRO intends to serve, CROs have become increasingly more valued and of interest to private equity investors. Additional news on performance of some additional key players in the contract research organization industry is as follows:

• ICON reported 2nd quarter 2012 revenue up 19% to $277 million; income from operations, excluding restructuring and other non-recurring items, was $16.6 million or 6% of revenue, according to their Consolidated Income Statements.
• Chinese CRO WuXi PharmaTech reported another period of double-digit revenue growth during third quarter led by the firm's burgeoning manufacturing services division. WuXi is responsible for manufacturing hepatitis C therapy INCIVEK® for Vertex and Johnson & Johnson (www.jnj.com); the drug's first full quarter of sales since launch was a driver behind this huge jump in manufacturing services revenue compared to the prior year.
• Charles River Laboratories (www.crai.com) turned in positive top-line growth in the third quarter of 2011, largely due to foreign currency gains. Growth was driven by strong demand in the firm's research models and services segment. From a Charles Rivers Associates press release, revenue for Q2 of fiscal 2012 was $67.8 million, compared with $80.6 million for the Q2 of fiscal 2011, quarter ended July 2, 2011. Non-GAAP revenue for the Q2 of fiscal 2012 was $66.3 million, compared with $79.6 million for the Q2 of fiscal 2011. The firm has announced it has significantly expanded a preferred-provider agreement with a leading global pharmaceutical firm and is in the early stages of similar discussions with other large clients.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Contract research organizations (CRO) provide research services support for the biotechnology, medical device and pharmaceutical industries on a contractual basis. They offer such services as preclinical and clinical research, clinical trials management, biopharmaceutical development and pharmacovigilance. CROs run the gamut from international full-service organizations to niche specialty businesses. The emergence of the strategic partnership model, with some of the largest global pharma companies pairing with leading CROs in R & D, has stimulated the industry's growth.

A survey by RW Baird analyst Eric Coldwell found that 42% of pharmaceutical companies saw prices increase during the second quarter 2012, up from one-third in the first quarter. The scene is set for a projected 3.6% to 8% growth in R&D budgets among both pharmaceutical and biotech firms. Coldwell speculated, “Looking ahead several years, we have generally concluded that client R&D budgets will be flattish in total, yet the CRO industry secular market move to higher involvement will continue as clients replace less efficient internal functions with more efficient and cost effective external solutions.”

An article in Forbes found that of 388 drugmakers and biotechs that were surveyed reported that CRO clients expect a 9% increase in outsourced R&D budget, with total market penetration by CROs increasing from 35% in 2010 to 38% in 2011. Among large drugmakers, 27% expect to outsource, while 47% of the smallest companies expect to outsource.

The Association of Contract Research Organizations (ACRO) conducted a survey of its own members and examined 11,508 trials carried out by ACRO members; the results showed that each CRO was involved, on average, in over 750 studies. By comparison, ACRO states that approximately nine of its members worked on roughly 400 trials in 2008. They also contributed to 33 of 38 drugs approved in the US and Europe in 2010.

For these reasons, the last 18 months have been a buying spree of CRO’s by private equity funds with the next 12 months looking to be similar.  The ability of CROs to improve performance even when R & D budgets have remained flat has made them a darling of investors.

In Part II of this report we will examine key industry players and the firms that have recognized the growth potential of the segment and invested accordingly.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

During recent months, private equity firms have been actively selling and buying dental practices, which some investors believe is a relatively stable and recession-proof health-care arena. With an aging population requiring more dental work, minimal government intervention and mostly private-pay, investing in dental practice has seen a definite uptick.

Just last month, Great Expressions Dental Services acquired the New York-based dental practice management company, Exceldent, with 19 dental practice locations with New York, New Jersey and Connecticut. With this recent acquisition, Great Expressions controls 170 locations in sixteen states. Great Expressions has, over the past four years, strategically grown by integrating 98 offices through 11 acquisitions, helping land the firm on Inc. Magazine’s list of the 5,000 fastest growing companies in America in each of the past three years.

In October, OMERS Private Equity purchased Great Expressions Dental Services from Audax Group, a private equity and mezzanine investor with over $55 billion in net assets. Its P.E. arm makes equity investments of between $10 million and $100 million; its mezzanine group focuses on financing requiring $10 million to $60 million of capital. OMERS Private Equity makes private equity investments for OMERS, one of Canada’s largest plans with over $50 billion in assets.

JLL Partners, a New York-based private equity firm with approximately $4 billion of capital under management, has recently completed its take-private acquisition of American Dental Partners, Inc., a Massachusetts-based provider of dental practice management services. The company is affiliated with 27 dental group practices, which have 282 dental facilities and approximately 2,404 operatories in 21 states. The deal was valued at approximately $392 million, including $81 million of assumed debt, or $19 per share. Debt financing was provided by Keybank, CIT Healthcare and NXT Capital.

Northeast Dental Management, a private-equity backed dental firm, increased its geographic reach, purchasing the assets of Dental Associates of Northern Virginia that included approximately $61 million in debt from NXT Capital. NXT provides structured financing opportunities to middle-market clients up to $125 million.

The Riverside Company, a global private equity firm that manages over $3 billion in assets and that focuses on acquiring companies valued at up to $200 million, has acquired DentalPlans.com.  DentalPlans.com represents more than 30 of the largest dental savings plan networks that offer 10%-60% off most dental procedures to individuals, businesses and groups across the U.S. This acquisition is Riverside’s 61^st healthcare investment.

Although some states are cautious of the “corporate model” of practicing dentistry, the trend of private equity investing in the area of dental healthcare is one continuing of sustained interest.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Dental practice management companies have been an increasing focus of private equity firms throughout the United States and Canada. As the cost of healthcare increases, small dental practices, like private medical practices, will soon be an anomaly. Thus, it is becoming increasingly apparent that the recent trend of dental practice management companies acquiring and running solo groups should continue. A growing trend is toward corporately owned or managed group dental practices. The factors driving this trend are increasing costs for dental education and enormous dental student debt. The cost for setting up and managing a dental practice and the expertise needed to negotiate dental insurance contracts has led many dentists to seek employment or affiliation with a corporate dental practice management company.

American Capital, a publicly-held private equity firm and global asset manager invests from $10 million to $300 million per company in the U.S. and €5 million to €25 million per company in Europe, has invested in Dental Practice Management Company.  Arcapita Bank, a principal investing firm specializing in venture capital transactions that focuses on healthcare, information technology and industrial technology sectors has acquired FORBA, also known as Sanus Holdings, a leading dental practice management company that focuses on providing dental care to underprivileged children in the U.S. Freeman Spogli a private investment firm dedicated exclusively to investing alongside management in retail, direct marketing and distribution companies positioned for growth, has recently acquired a majority interest in Bring Now! Dental.  Coast Dental Services has acquired SmileCare which is backed by Liberty Partners, a venture capital management firm that specializes in healthcare, IT, business processing outsourcing as well as internet technologies and services.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As we round out our series on private equity investing in dialysis, we note an emergence in overseas dialysis investing by U.S. investors.   Our blog typically focuses on U.S. investing but can’t help but note the interest in overseas activity.  In particular, dialysis centers look to be the next focus of private equity investing in the Indian healthcare market.

NephroLife Care (India) Pvt Ltd, a renal disease management chain founded in 2009 by Shiram Vijayakumar, has raised $25 million from New Enterprise Associates (NEA) and DaVita, Inc., one of the largest kidney health care companies in the United States. During the initial stage, the company raised $3 million from ROI Capital, a family business run by former Barclays Capital Dev Kumar Roy. This deal closely followed Bessemer Venture Partners backing of Nephroplus, a dialysis chain with plans to open 100 treatment centers. DaVita showed revenues of $6.47 billion, with a net income of $406 million in 2010.

Alliance Medicorp India is a joint venture between Apollo Hospitals and GSK Velu’s Trivitron, which runs both dialysis and dental centers. Alliance is seeking Rs 60 crore (about $13 million USD) in private equity funding. Fortis Healthcare has also announced plans to open 50 dialysis clinics by investing more than Rs 30 crore (about $6.5 million USD).

In an article on www.vccircle.com, Shiraz Bugwadia, managing director at the investment banking firm o3 Capital, states, “’Nephrology is clearly one of the single specialty themes and an attractive sub-segment in the healthcare chain. Scale and margins are good and you can cater to a large demography.’”

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Part II of our series on private equity investing in dialysis discusses other dialysis companies backed by private equity and highlights some key considerations for investors and companies.

Funded in 2000, U.S. Renal Care (USRC), is another dialysis company (generally considered an “MDO” or mid-sized dialysis organization) that involves private equity investors.   URSC comprises a network of 85 dialysis centers as well as home and specialty hospital dialysis programs, with facilities in Arkansas, Georgia, Maryland, New Jersey, Ohio, Oklahoma, Pennsylvania, South Carolina, Texas and Virginia.   Like many other SDOs, MDOs and LDOs, the company also manages a number of acute-setting dialysis programs in conjunction with community hospitals.  USRC includes among its financial partners Cressey & Company, SV Life Sciences, Salix Ventures and Select Capital Ventures. 

Chicago-based Cressey & Company is a private investment firm focused on the healthcare industry, whose principals have been healthcare investors for nearly three decades.  They have recently completed transactions in such other healthcare-related companies as Innerchange, Homecare Homebase and Regency Hospital. 

SV Life Sciences, previously Schroder Ventures LifeSciences, is a venture capital adviser and manager for companies requiring funding within the human life sciences sector, including biotechnology and pharmaceuticals, medical devices and instruments, healthcare IT and services.  The company, established in 1993, advises or manages four funds with total capital of approximately $900 million.

Select Capital Ventures is a private equity investment firm focused on the healthcare industry. The company has invested in more than 30 healthcare companies, many of which have completed public offerings. Members of their investment team have personally led four companies to IPO’s, including two NYSE traded companies that achieved revenues in excess of $1 billion.

Salix Ventures is a Nashville-based venture fund founded in 1997 to pursue high growth investment opportunities in health care services companies (including health care information technology).   In 2011, Salix exited several investments, including surgery center company Titan Health (sold to United Surgical Partners International) and Pathology Partners (sold to Caris Diagnostics).

Investors in the dialysis industry should understand the key regulatory issues and reimbursement pressures facing the dialysis industry, from transition to the Medicare bundled payment system (now thirteen months “old”), to the role of nephrologists and dialysis programs in integrated delivery systems such as ACOs, to physician compensation and other regulatory risk issues.   We have addressed many of these issues in more detail in prior blog posts.  

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Private equity investors have been active in the dialysis sector for decades.   In Part I of this series on dialysis investments, we describe the recent emergence of three companies with private equity backing.

First,  in 2010 Bain Capital Ventures and KRG Capital invested in Liberty Dialysis, which in 2011 then acquired Welsh Carson-backed Renal Advantage and sold the entire combined company to Fresenius.   As with other consolidations, that three-party merger will also result in the divestiture of approximately 50 dialysis clinics nationwide due to FTC demands.  The resulting buyer could be one of a variety of players in the market.

Bain Capital Ventures was formed as a separate arm of Bain Capital to focus exclusively on growth investments. Their investments range from several hundred thousand dollars up to $100 million and focus on companies in the business services, consumer, healthcare, internet & mobile, and software sectors.

KRG Capital is a private equity investment firm specializing in acquiring controlling interests in middle-market companies and growing them into significantly larger enterprises through the combination of internal growth and selective strategic add-on acquisitions. They invest in companies with a history of operating profitability and strong growth prospects in specialty or "niche" manufacturing, distribution or service industries.

Getting confused yet?  Don’t be. Consolidation in the dialysis industry has been common for many years, with multiple waves of consolidation of some of the largest companies into “supercompanies” (and, in some cases, resulting in forced divestiture of clinics following a FTC antitrust analysis).

Second,  in 2011, Frazier Healthcare Ventures and NEA invested in DSI to purchase 30 dialysis clinics divested following the 2011 DaVita-DSI Renal merger.

Frazier Healthcare Ventures, founded in 1991, provides venture and growth equity capital to emerging healthcare companies.  Since its founding 30 years ago, NEA has backed over 165 companies that have gone public and invested in more than 255 companies that have been successfully merged or acquired more liquidity events than any other venture capital firm.   With offices in the U.S., India and China, NEA specializes in the information, technology, energy technology and healthcare sectors, with $11 billion in committed capital.

DSI Renal (a separate company from DSI but involving much of the same management team) was formed in 2006 with backing by private equity fund Centre Partners to purchase clinics at that time divested pursuant to the Fresenius-Renal Care Group merger. 

Third, 2011 also saw American Dialysis Corporation partnering with Jefferies Capital Partners to acquire and build dialysis centers across the United States.  American Dialysis Corporation, headed by Thomas K. Langbein, who had served as Chairman of Dialysis Corporation of America (DCAI) until selling the company to US Renal in 2010. Jefferies Capital Partners, a private equity firm that manages more than $1.6 billion in equity funds, centers its investment activities in later-stage growth companies and management buyouts in support of corporate expansion and industry consolidation. Their areas of focus include consumer, energy, financial services, healthcare, manufacturing and distribution, media, telecommunications and transportation.

U.S. Renal Care (USRC) itself and other small-to-mid-sized dialysis organizations (SDOs and MDOs, respectively) are also backed by private equity. In Part II of this series on private equity investment in dialysis, we will describe additional companies and their investors.

• Email This
• Print
• Comments
• Trackbacks
• Share Link