New Mountain, VCs team up on drug play

In a deal valued at about $670 million and which took almost a year to finalize, New York-based buyout shop New Mountain Capital, together with a group of venture capital and strategic investors, plans to acquire two critical-care pharmaceutical companies—Ikaria Inc. and INO Therapeutics—and merge them into a new entity called Ikaria Holdings.

Ikaria Inc. is a Seattle-based biotech company focused on developing critical-care products. Funded mostly by venture firms ARCH Venture Partners and Venrock Associates, the company conducts research on therapeutic gases that induce metabolic depression (which slows down the speed at which the body uses energy). The company develops products that could be used to treat conditions resulting from stroke, cardiac arrest or trauma. But Ikaria is “quite a few years away from commercialization” of its products and does not have a revenue stream, says New Mountain Managing Director Alok Singh.

INO is a specialty pharmaceutical company that produces nitric oxide, which it markets under the brand INOmax. Nitric oxide is used to regulate blood pressure and fight infection. Unlike Ikaria Inc., INO is a profitable business that generates about $160 million in sales a year. It is owned by German industrial gas and engineering company The Linde Group.

The merger—expected to close by April—includes a $300 million equity component, of which $200 million is coming from New Mountain Capital in return for a more than 50% stake in Ikaria Holdings. The Linde Group will maintain a 17% stake in the combined company, while ARCH and Venrock will each hold 10% stakes.

The remainder of the combined company will be held by venture firms 5AM Ventures, Alexandria Equities, Altitude Life Science Ventures and Black Point Group, as well as by the Fred Hutchinson Cancer Research Center and the Washington Research Foundation.

Singh negotiated the transaction over the last 11 months. “This is the longest, most complex investment, quite frankly, that I’ve ever been associated with,” he says.

The deal illustrates a recent trend of buyout firms hooking up with venture capitalists. Earlier this year, Francisco Partners, a tech-focused LBO shop, teamed up with VC firm Sequoia Capital to provide a $40 million Series A round of financing to Barracuda Networks Inc., a provider of anti-spam software. And toward the end of last year, buyout firm Lightyear Capital teamed with Insight Venture Partners to acquire Circle Software Inc., a developer of software for real estate development and investment professionals.

Ikaria Holdings company will be led by New Mountain Senior Advisor David Shaw, who is the chairman of Ikaria Inc.