Blackstone likes life sciences. And now it’s diving in deep.
The private equity giant has completed a deal to buy Clarus, a busy life sciences investor with an extensive history of gambling on late-stage drug development.
With $2.6 billion under management, Clarus is a peanut on Blackstone’s $440 billion plate. But with $19 billion in healthcare deals completed and a vast portfolio of biotech facility space on its books, Blackstone has the resources to go much bigger in a field that has been exploding with new activity over the last few years.
Clarus managing director and co-founder Nick Galakatos will now become head of Blackstone Life Sciences, bringing his portfolio of 50 life sciences companies with him.
Clarus has been a keen player in late-stage rounds, a highly competitive field where investors like to scale down risk as much as possible. That strategy was on display just days ago, when Clarus spearheaded a $150 million raise for Galera so it could complete a pivotal Phase III study on GC4419, which targets the toxic effect of radiation therapy as superoxide swiftly builds up in patients, afflicting the sensitive tissue in their mouths.
The big opportunity for Blackstone, though, is to do more of the specialty Phase III deals that Clarus has been inking with Big Pharma and Big Biotech, funding Phase III studies that can’t fit into their budgets or the bandwidth of their R&D groups — taking the risk and getting a payback through a mix of cash milestones and royalty streams.
These are deals you rarely hear about in detail.
“We think there’s a significant unmet need on the part of Big Pharma… to develop more of their R&D pipeline,” says Joe Baratta, head of private equity at Blackstone.
Clarus raised a $910 million fund for this niche last fall, and Blackstone has the assets necessary to go deeper.
“For the most part the R&D budget of the major pharma companies is constrained,” Galakatos told me last fall. “They have a very exciting pipeline and frankly they cannot fund their existing budget.”
In a call with reporters today, Galakatos says they’ve done a string of a dozen deals like this ranging from $50 million to $300 million, noting that late-stage development costs have doubled in the past 10 years.
Their arrival comes as the industry is undergoing a transformation. Instead of being picked off one by one by Big Pharma, more companies — like Alnylam or Agios — are pursuing a future in which they remain independent companies with commercial operations. As these companies grow into mid-cap companies, they’ll need significant amounts of money to make the changeover, more likely to see an advantage in doing development deals the new Blackstone operation has in mind.
Blackstone evidently plans to be ready to work for that business.
“This is a unique moment where rapid advancements in science and technology are creating unprecedented innovation and unparalleled impact on human health,” noted Jon Gray, Blackstone’s CEO. “Private capital can play an important role in accelerating the lengthy clinical development process to help bring vital, but underfunded, drugs to market. Building on the foundation of the world-class Clarus team, Blackstone Life Sciences is uniquely suited to provide much needed capital and expertise to this sector.”
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