Four reasons why investors should remain interested in Life Sciences and Pharmaceutical Services

We have fuel prices feeding inflation, supply chain issues interrupting the free flow of goods, a war on the borders of Europe and a general feeling of unrest. None of this is good for investment. Unsurprisingly, we have seen the shine come off stock markets and public to private transactions have come back into popularity.

We might have expected a greater correction. However, as the latest PCPI data for Q1 shows, things are holding up. This may be due to indomitable nature of global capital or just blind faith. It is hard to believe that markets will remain buoyant indefinitely and it is likely that investors of all types will be rethinking their strategies in much the way they were forced to with the onset of the global pandemic.

This is good for tech and life sciences. Valuations are already high in life sciences with a lot of investment pouring in during the pandemic. What is more exciting is the macro trends that will continue to drive value; people are living longer and delivering healthcare is inherently costly.

Innovation

Innovation is the name of the game in life sciences whether that is digitisation or outsourcing, which is well established now and going through at least its second iteration. Digitalisation is still in its infancy compared with other sectors.

We have recently seen a very strong run of deals in pharma services. Big CROs are still deal hungry as they look to add innovative services. Mid-tier CROs are looking to do the same as well as building their presence in interesting therapeutic areas, in rare diseases or entering new territories.

Ergomed plc’s recent acquisition of Adamas Consulting is an example of the first. This deal is looking to further drive the competitive advantage that Ergomed has in its excellent pharmacovigilance business, Prime Vigilance. It also adds capability in the under-developed and the up-and-coming area of outsourced GXP auditing.

Marketing services

Beyond the CROs, a wonderful array of platforms is looking to roll up in commercialisation services, mainly but not exclusively medical communications. Pharma products and medical devices providers require increasingly sophisticated tools and solutions to get their messages into the market while navigating the complex and varied regulations across different territories. Private Equity, in particular, have identified this need and are investing accordingly.

We can point to OPEN Health, Fishawack, Prime Global, Lumanity, Huntsworth all founded in the UK and Lockwood, Fingerpaint and BGB Group which are all more US-orientated. The market is growing quickly as pharmaceutical companies adopt offerings that effectively communicate complex information to healthcare professionals but also to patients.

The holy grail in this area is solutions that can do this as well as generate the invaluable banks of patient data. This can improve a product’s commercial success and lead to improved outcomes and therefore better healthcare. We have been deeply involved in this area having completed 15 deals in recent years in the UK alone. A recent example of this is the buy-out of Prime Global by LLCP and the subsequent bolt-on acquisition of HCD.

Digital discovery and personalised medicine

Innovation is also coming in the form of digital transformation, where life sciences converges into tech. For instance, we have seen the emergence of digital discovery services. These businesses use the ability to screen vast amounts of data to match drug candidates to disease states using deep learning and artificial intelligence. This is particularly valuable as it reduces the cost and shortens timeframes for creating new therapies.

This approach has excellent long-term prospects as genotyping is opening a new front in healthcare, personalised medicine. Many diseases could be designated as rare or orphan diseases where fewer than 1 in 10,000* patients present. People do not all have the same cancer; each type of cancer is probably ‘rare’ and may therefore require a specific pharmaceutical and/or therapeutic solution. Digital discovery is the technology that makes this more focused and tailored treatment possible.

Again, this is an area where we have been active recently. We helped Kester invest in a fantastic business called Optibrium. We really feel that this is an exciting and highly investable part of the future of healthcare.

Neuro-degenerative diseases

There are other areas that require more innovation and more investment. If the 1930s & 40s was the era of anti-microbials, the 1950s, 60s & 70s was the time when healthcare turned to the heart and last four decades have been about tackling cancer, we are now seeing a much-needed swing to neuro-degenerative diseases where treatments are emerging.

The life sciences sector is sometimes seen as a little conservative and behind others in terms of embracing the digital age. However, the pandemic has really changed things; remote working has really helped the sector, investment money has poured in, and the sector has performed incredible feats of ingenuity in devising, developing, registering, manufacturing and distributing new vaccines in unprecedented timeframes in a very public spotlight.

We passionately believe there are lots of excellent reasons to seriously consider investing in life sciences and the supporting pharmaceutical services.

*other definitions exist