Private equity and venture capital investors have made no secret of their confidence in pharmaceutical companies. In the latest and likely the largest such deal of a growing trend for pharmaceutical companies, Jazz Pharmaceuticals announced last week that it raised $250 million in a Series B round.
New investor Kohlberg Kravis Roberts & Co. (KKR) led the round. Other new investors included Adams Street Partners, Beecken Petty O’Keefe & Co., EGS Healthcare Capital Partners, Golden Gate Capital, Lehman Brothers Healthcare Fund (an affiliate of the Oak Hill investment group) and Thoma Cressey Equity Partners. Previous investors Prospect Venture Partners and Versant Ventures also participated.
Palo Alto, Calif.-based Jazz commercializes and develops previously existing or later-stage pharmaceutical products with a focus on neurology and psychiatry therapies. It plans to use the quarter-of-a-billion-dollars to develop and bring to market new products.
The size of such a round is rare. But Bruce Cozzadd, executive chairman of Jazz, explains that the business model that the company is pursuing is capital intensive.
“To buy an already marketed product with meaningful sales, you’re going to have to spend a meaningful amount of capital,” says Cozzadd, a founding executive of the company and former vice president and COO with ALZA, a pharmaceutical company now owned by Johnson & Johnson.
James Tananbaum, managing director with Prospect, says that the company’s pipeline of upcoming deals convinced investors of the need for the large round of funding.
“They have an incredible pipeline of things,” says Tananbaum, who adds that he expects the company to announce deals regarding product acquisitions within the next quarter.
The round is the largest in a trend of pharmaceutical companies raising funding on business models not based on researching and developing its own products, but taking over late-stage development or bringing to the marketplace pharmaceuticals already developed by others.
In November, Whitney & Co., Oak Investment Partners and Grotech Capital Group together ponied up $153 million in what is expected to be a first and final round of fund-raising for United BioSource Corp., a Washington, D.C.-based rollup that aims to acquire companies in the pharmaceutical and life science sectors. The capital is fully committed, but will be called down in multiple tranches.
In December, Laurel, N.J.-based Reliant Pharmaceuticals, announced that it had raised $137 million in Series E funding, bringing its total venture capital raised to more than $550 million. Reliant focuses on branding and marketing new candidates for other drug makers.
And earlier this month, Victoria, B.C.-based Aspreva Pharmaceuticals raised a $57 million Series A, an impressive showing for a company with only 22 employees. But Aspreva already has a viable pharmaceutical product and the potential to license and acquire more through a risk-averse business model.
Tananbaum says that Aspreva’s model is far different from that of Jazz. Aspreva is dedicated to finding new applications for existing products, Tananbaum says, but Jazz plans to acquire and develop entire product lines.
Cozzadd of Jazz dismisses the notion that his sector of the pharmaceutical market might be overcrowded. He noted that companies like Reliant do not share Jazz Pharmaceutical’s focus on neurology and psychiatry.
“We view competition in terms of product opportunities,” he says.
His company’s investment marks the first time KKR invested in a pharmaceutical company. Also, KKR’s Adam Clammer, Michael Michelson and James Momtazee will join Jazz Pharmaceutical’s board.
KKR, which is primarily a buyout firm, did not return calls for comment, but Michelson stated through a press release that the firm’s investment in Jazz adhered to its core investment philosophy of backing strong industry-savvy managers.
Other new members of the Jazz board include Kenneth Diekroegger, managing director with Golden Gate Capital; David Mayer, a partner with Thoma Cressey; and Kenneth O’Keefe, a managing director with Beecken Petty O’Keefe. They join Samuel Colella of Versant and Tananbaum of Prospect.