Warburg Closes On Aventis Spinoff –

Warburg Pincus is getting a lot of practice investing in big pharma spinouts, having closed four major health-care deals in as many years. It is also getting smarter as it homes in on investment opportunities that reduce time and risk in the protracted drug development process.

The firm’s latest gambit is in ProSkelia, a spinout from Aventis that focuses on pharmaceutical research and development in the bone disease space. Aventis, the world’s fifth-largest pharmaceuticals company by total sales, is divesting assets to focus exclusively on its core competency, creating buyout opportunities for private equity investors operating in the sector. The buyout transaction included a $59.5 million investment from Warburg Pincus in exchange for a 58% ownership stake.

Nick Lowcock, managing director of Warburg Pincus’ London office, says that the spinoff consumed 15 months and was a “long and complicated process. You have to trust the other side and have the same goals for it to work.”

Warburg was particularly attracted to ProSkelia because the spinout already has three products in clinical development. It might take a startup six years to reach such a milestone. “For most drug development companies, it is a 10 to 15 year process, with a high risk of failure at any point,” Lowcock explains, noting that shorter development times also carry lower risk of failure.

ProSkelia will assume all bone R&D activities of Aventis, plus intellectual property and an 80-person staff. ProSkelia specializes in bone biology, and is making strides in a $5 billion osteoporosis drug market that is growing 16% annually and is expected to rise as the population ages. Lowcock said 28 million Americans either have osteoporosis or are at risk. A 50-year old woman, he adds, would have more than a 40% chance of incurring an osteoporosis fracture in her lifetime. Although not as widely reported, men are also at risk.

Warburg Pincus is expected to follow a similar strategy with ProSkelia as it has with previous investments in big pharma spinouts. The firm typically looks to raise additional funds for its portfolio companies via initial public offerings, although Lowcock concedes that the current market is less likely to provide IPO opportunities.

WP’s prior big pharma transactions include: American Medical Systems from Pfizer in a $130 million buyout in July 1998; buying out Eurand from American Home Products (now Wyeth) for an undisclosed sum in April 1999; and leading a consortium that acquired 35% of ZymoGenetics from Novo Nordisk in a $150 million deal in October 2000.

Warburg Pincus looks to invest between 20% and 25% of its funds in health care, and has pumped approximately $1.5 billion into the sector over the past three years. Its historical health-care investment totals are $3 billion committed to 100 different portfolio companies. Warburg Pincus VIII, which closed at $5.3 billion earlier this year (See Buyouts 4/25/02), provided 50% of the investment, with Warburg Pincus International Partners providing the rest.

Warburg Makes Another Claim

In a separate transaction, Warburg Pincus portfolio company World Network Services (WNS), recently acquired U.K. insurance claims management company Town & Country Assistance (T&C).

Following the acquisition, Ipswich, U.K.-based T&C will continue to operate existing services in the insurance and commercial fleet industries under its present name. T&C’s chief executive officer Theodore Agnew has been appointed to the WNS management committee.

The acquisition is designed to provide T&C with greater resources and investment capital to service enhanced insurance claim outsourcing work and other related business processes from international brokers, insurers and commercial fleet contract hire and leasing companies. T&C will now be able to extend its client base to customers in North America through WNS’ presence in the geography.

“Town & Country brings to WNS an established and compelling business proposition that we will present to potential clients to deliver solutions that comprise real value thereby creating a win-win partnership between WNS and our insurance customers in North America,” said Anish Nanavaty, senior executive vice president of WNS North America, in a prepared statement.

Founded in 1998, T&C specializes in the administration of automobile insurance claims and related services. The company manages more than 250,000 vehicles and handles 120,000 auto-claims each year on behalf of commercial fleet clients, brokers and insurers.

In yet another deal, a week before the Aventis spinout, Warburg committed $38.3 million to Loyalty Management UK, which plans to coordinate a new consumer loyalty program for UK retail brands.