Some firms are pushing deeper into life sciences and drug development investments, betting on strategies that mitigate some of the typical risks associated with biotech.
Blackstone Life Sciences’ (BXLS) latest $1.6 billion Yield fund is putting cash to work through a hybrid model focused on post-approval, commercial-stage products with structured credit investments and royalty monetization.
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BXLS’ flagship fund provides more traditional equity-based financing but invests only in products (vs. companies) and targets late-stage opportunities they feel have already been de-risked. The firm estimates that 85 percent of its Phase III investments have been approved, compared to an industry average of 51 percent for the same time period.
Carlyle is similarly building on its 2020 acquisition of Abingworth, a life sciences specialist whose prior investments include 73 IPOs and home runs like Galapagos and Alnylam Pharmaceuticals.
Last week, the firm launched its latest $1.5 billion dedicated clinical trials fund that will finance up to eight late-stage trials.
Like recent deals with Gilead and Teva, the investments will be structured as partnerships with the pharma sponsor. Abingworth will provide up-front development funding in exchange for milestone payments and royalty rights on the back end.
Both Blackstone and Carlyle have carved out something of a middle ground between higher-risk venture and traditional late-stage private equity.
They’re also operating across the full opportunity set. In Blackstone’s case, the firm has actively pursued more bespoke arrangements for mature commercial-stage pharma. Take their deal with Alnylam Pharmaceuticals: Blackstone Life Sciences partnered with the firm’s credit platform to provide a $2 billion financing that included $1 billion for royalty monetization, up to $750 million in senior secured debt, and $150 million for specific R&D programs.
In many ways, such strategies can be more predictable than other asset classes. Rather than rely on traditional exit avenues, cash is returned through royalties, milestone payments, and structured payouts tied to commercial success.
Commercial adoption of a new therapeutic is always a risk, but other parts of the equation can be relatively high-visibility. The probability of approval across a portfolio, more grounded market sizing, and greater competitive transparency (sales data on approved drugs and the status of development-stage assets) all mean that much less is left to chance than one might assume for ‘risky’ biotech investments.
Another part of the draw is the market gap. Over the past decade, demand for R&D capital has increased 2.5 times against supply growth of only 1.5 times, according to Evaluate Pharma.
That’s especially true for Phase III development, which accounts for half of the $170 billion annual funding gap. As buyout and credit become more crowded, pharma and biotech financing might prove an attractive option.