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Sagard’s healthcare royalty fund, led by CPPIB alumnus, closes at $725m

The pandemic might have had a beneficial effect on fundraising by “highlighting how impactful healthcare innovation can be,” Sagard's David MacNaughtan told Buyouts.

Sagard Holdings, the private investment arm of Power Corp, completed fundraising for a debut healthcare royalty offering, securing $725 million.

Sagard Healthcare Royalty Partners, unveiled in 2019, wrapped up this month 21 percent above a $600 million target, partner and head David MacNaughtan told Buyouts. The fund collected $475 million in a first close held last year.

Ten institutions, including a sovereign wealth fund and several pension systems, formed the nucleus of a global limited partner base, MacNaughtan said. Park Hill Group was the placement agent. The fund early on received a $75 million commitment from Sagard. Power Corp, a holding company, is controlled by Canada’s billionaire Desmarais family.

MacNaughtan said fundraising was not impaired by the outbreak of covid-19: “We were able to both raise money and invest money throughout the health crisis.” He attributes this to growing LP appreciation of healthcare royalty opportunities and their low correlation to business cycles and capital markets.

In fact, MacNaughtan said, the pandemic might have had a beneficial effect on Sagard’s activity by “highlighting how impactful healthcare innovation can be.”

How Sagard invests

Sagard’s healthcare royalty platform was established by MacNaughtan, who joined in 2018 from Canada Pension Plan Investment Board. He worked with CPPIB Credit Investments for more than seven years, leading a team focused on buying or securitizing royalty streams underpinned by intellectual property.

MacNaughtan designed a comparable strategy for Sagard, focused on making royalty or credit-like investments protected by IP in the global life sciences sector. Unlike CPPIB, which favors large-cap deals, Sagard targets small and mid-sized transactions, usually investing $25 million to $100 million. For bigger deals, it draws on the co-investment capital of LPs.

Sagard’s goal for the debut fund is to build a portfolio of about a dozen investments, diversified according to two key opportunity sets, MacNaughtan said.

The first involves acquisitions of patent royalty entitlements from inventors, research institutions and businesses, such as medical drug and device makers, helping them monetize royalties generated on sales of approved products. The second involves financings of biopharmaceutical companies looking to commercialize products.

Deal flow in both categories is ample due to new product approvals, which are happening at an increasing rate, MacNaughtan said.

Another impetus is “unprecedented new discoveries and developments” in diagnostics, therapeutics and vaccines intended to address covid-19, MacNaughtan said. This has reshaped the deal environment for Sagard’s platform and other investors, he said, giving more emphasis to “medically-necessary products.”

Inaugural deals

The fund, expected to do three to four deals per year, has so far made two investments. Prior to the launch, Sagard used its balance sheet to acquire a portion of a royalty interest in Rubraca, an ovarian cancer drug, for $31 million. The seller was Britain’s University of Newcastle upon Tyne.

In addition, Sagard last year provided $50 million in revenue-interest financing to Athenex, an oncology-focused biopharmaceutical company. The firm and co-investors also acquired $50 million of loans and commitments from Oaktree Capital Management, becoming lenders under Athenex’s debt facility.

Sagard’s healthcare royalty team includes partners Ali Alagheband and Raja Manchanda, who both came onboard in 2019 from DRI Capital. They have since been joined by associates William McIsaac and Savneet Uppal, from DRI and RBC Capital Markets, respectively.

Sagard, which oversees nearly $5 billion in assets, operates from offices in New York, Toronto, Montreal and Paris. Its private credit platform, led by managing partner and CIO Adam Vigna, in December secured an initial $650 million for a second offering, Buyouts reported.