Sovereign Wealth Funds and Public Pensions Grow Cautious on Biotech as Exit Opportunities Dry Up

Posted on 05/16/2023

Direct investments by sovereign wealth funds in the industries of pharma and biotechnology have shifted toward newer companies versus mature investments like Pfizer Inc., Novartis, and Bayer. Sovereign wealth funds and public pension funds have opted for lower-ticket entry points into emerging companies that have embraced new therapies. Biotech startups have high growth potential due to their ability to develop groundbreaking medical treatments. Unfortunately for the industry, the overall transaction value has shrunk from the higher years of 2016 and 2017. The 2010s were about large pharmaceutical companies focusing on mergers, tax arbitrages in Ireland, lowering risk, and motivating their extensive sales and marketing armies. Biotech investing is well-known for its high-risk, high-reward mantra.

In a previous story, SWFI research included “Life Science Tools” as an industry. In this analysis, SWFI decided to focus purely on biotech and medicines, while not lumping in healthcare testing equipment and infrastructure. Next, this analysis excludes government transfers and fund commitments.

In 2022, sovereign wealth funds and public pensions invested -35.24% less directly compared to 2021. Like other industries, the U.S. stock market experienced tremendous volatility as the Federal Reserve raised interest rates which channeled out large segments of speculative capital. A drubbing of U.S. biotech stock performance in 2022 and a lackluster IPO market has an impact on biotech valuations. A growing number of SPAC-originated companies started to fail financially in early 2023. From the small biotech angle, big pharma may be more hesitant to acquire riskier startups as they develop their own pipelines.

One major advantage of biotech companies is their ability to form patents and consolidate access to drugs. This is typically bad for consumers of the drugs, but great for shareholders of such companies. In May 2023, the Federal Trade Commission (FTC) sued to block California-based Amgen’s US$ 27.8 billion acquisition of Horizon Therapeutics. The FTC contends that the proposed deal would inhibit drug competition in the U.S. pharmaceutical industry. The FTC said that the deal would allow Amgen to “entrench the monopoly positions” of two of Horizon’s fast-growing medications: the thyroid eye disease treatment Tepezza, and Krystexxa, which is a gout medicine. The FTC believes that Amgen has a track record of leveraging its drug portfolio to gain advantages over potential rivals. Amgen and Horizon in separate statements said that they believe they will be able to complete the deal by the middle of December 2023 after responding to the lawsuit in court.

Sovereign wealth funds have favored mature investments in testing companies and healthcare infrastructure when it comes to making large investments. For example, in 2019, London-based Cinven (Cinven 7th Fund), Paris-based Astorg, and the Abu Dhabi Investment Authority (ADIA) acquired U.K.-based testing company LGC Group. Mubadala Investment Company, Qatar Investment Authority, Singapore’s Temasek Holdings, and Singapore’s GIC Private Limited continue to invest directly into biotech startups. Other sovereign funds have a preference toward fund vehicles including Public Investment Fund of Saudi Arabia and the Ireland Strategic Investment Fund (ISIF). Sovereign wealth funds like Mubadala have hired PhDs in microbiology and biochemistry as well as medical doctors to oversee potential investments. It used to cost a billion dollars to sequence the genes of one individual in the late 1990s. In the 2020s, companies can sequence the genome for a thousand U.S. dollars per individual.

10 Years – Direct Investment Activity of Sovereign and Public Investors – Pharma and Biotech Industries

Source: Excludes intra-government transfers and fund commitments.
Replicate now on – SWFI Filters: BuyerType: Sovereign Wealth Fund, Public Pension. Type: Deal, New Security Issue, Open Market. Industries: Pharmaceuticals, Biotechnology.

Family Offices
SWFI also tracks family offices and their investments. While SWFs and public pension plans grow wary on direct biotech investments, family offices remain a core component of funding such relatively risky ventures. Many billionaires and wealthy families are keen on longevity medicines. The vast majority of those family offices are investing in healthcare are in North America and Europe.

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