Arsenal acquires drug development software company; add-ons ahead

Firm: Arsenal Capital

Target: Certara

Seller: Vector Capital

Price: Undisclosed

“It’s a really big deal,” said James Rothman, an Arsenal operating partner, referring to the impact the company’s products are having on the health care market. “We’re talking about a technology that is central to the…problems that the biopharmaceutical industry is facing and adds value in a very direct and measurable way.”

And more big deals may be ahead: Stephen McLean, a partner and co-head of the healthcare group at Arsenal Capital, said the company would likely acquire complementary technologies through acquisitions.

Founded in 2008, the 215-employee company has grown through a series of acquisitions under the ownership of tech-focused buyout shop Vector Capital of San Francisco. The St. Louis-based company counts many of the country’s biggest biopharmaceutical and drug companies as customers, including Abbott, Baxter, Eli Lilly, Gilead Sciences and Pfizer.

Rothman, who helped evaluate the company and who will be joining Certara’s board, told Buyouts in an interview that Certara’s products help reduce the cost of developing and bringing drugs to market. That cost, which can run from $1 billion to $2 billion, including the indirect cost of “hundreds and hundreds” of failed tries, has gone up exponentially over the last 20 years — “way beyond inflation,” said Rothman, a recipient of the 2013 Nobel Prize in Physiology or Medicine for his work revealing how molecules are transported from one place to another within cells.

Using Certara’s software and services, biopharmaceutical companies can take out some of the guesswork, and thus some of the cost, at each major stage in the drug development process, said Rothman. Which molecules are most likely to be effective against a certain disease? What is the best way to design those chemicals to ensure they will reach the bloodstream and get carried to the intended target? Which patients will be most likely to respond favorably to a particular drug in clinical trials? How will newly developed drugs interact with established medications inside the body? Those are the questions biopharmaceutical companies use Certara tools to answer.

It’s all about realizing the vision of “precision medicine,” or “personalized medicine,” said Rothman, who eventually sees doctors and insurance companies routinely using Certara tools to map the most effective treatments for individual patients, while minimizing cost. “That’s an area we’re all very excited about,” he said.

Arsenal Capital closed its third fund at $875 million earlier this year, dropping its focus on financial services to concentrate on health care and specialty industrial companies. Rothman, who joined the firm in 2010, also has worked closely with portfolio companies TractManager, a provider of compliance software to hospitals, and WIRB-Copernicus Group, which reviews research protocols to help protect the rights of people who participate in clinical trials. He is a professor and chairman of the department of cell biology at Yale University.