LLR Partners, Quaker Carve Out Medmark –

As the lines between venture capital and buyouts continue to blur, LLR Partners and Quaker BioVentures agreed to partner up in the acquisition of specialty pharmaceutical company Medmark. The team paid $28 million to grab a control stake in the business from healthcare insurer Highmark, which launched the business with the acquisition of Fisher’s Specialized Pharmacy Services in October last year.

While the buyout community tends to keep its distance from biotech deals and VC shies away from larger control investments, the pairing of LLR and Quaker to buy Medmark fits well for both camps. “We look at Medmark as more of a value-added services business,” LLR Vice President Scott Perricelli said. “We’re a private equity firm and we really understand how to grow niche services businesses, while Quaker has a much better understanding of the drug development pipeline… Plus, Quaker is almost a sister fund to us. We both share office space and talk almost daily.”

Quaker’s Sherrill Neff, a managing partner at the firm, added, “Strategically, this gives us a tremendous opportunity to participate in major biotechnology industry developments in product pricing and reimbursement issues, and a great vantage point from which to view the emerging biopharmaceutical product pipeline.”

Medmark’s business revolves around easing the high costs and the artifice involved in distributing specialty pharmaceuticals for healthcare companies. It provides care planning, patient management and distribution services associated with administering specialty pharmaceuticals, which are used in treating chronic illnesses such as Cancer, Hepatitis C and HIV.

These aren’t the “take two of these and call me in the morning” treatments, and instead require a much more byzantine administration. “It is much more complex,” Perricelli affirmed “Most of the drugs are administered intravenously, and typically these treatments need to be kept cold. You can’t just store these behind a pharmacist’s counter.” He added that because of the complexity, “There’s rampant misuse of these drugs and they are very expensive, with a typical dose costing between $5,000 and $10,000.”

When Highmark first acquired Medmark last year, the company did so with the intention of managing the high costs of specialty pharmaceuticals, while improving care and service for its customers. However, while the acquisition helped give Highmark more exposure to chronic-care patients, there was speculation that as a subsidiary of Highmark, Medmark itself would be hard-pressed to get other payor contracts from Highmark’s competitors.

With the sale to LLR and Quaker, though, expanding beyond its relationship with Highmark is on the top of the company’s priority list. “We’re currently talking to a lot of other large health plans and we’re looking to take this business to a national scale,” Perricelli said.

Medmark has seen remarkable growth already in the one year since Highmark acquired the business, shooting up from $45 million in revenues in 2002, to “approximately more than three times that number,” according to Perricelli. Through this investment, he noted, “We intentionally over-equitized the business. The growth has been explosive, and we’ll talk to some lenders to help finance it, but we won’t take any money off the table right away.”

In the investment, LLR contributed $20 million, while Quaker put in $8 million. The investment gives the pairing a roughly 50% stake in the business, with Highmark holding the balance. LLR used its $260 million LLR Equity Partners fund, which at this point is almost fully committed. The firm is in the process of raising its second fund, and expects to close on more $300 million sometime in late spring to early summer of this year.

Snap Shot

Buyers: LLR Partners, Quaker BioVentures

Target: Medmark

Seller: Highmark

Purchase Price: $28M

Legal Counsel: LLR: Morgan Lewis Brockius