Category: Private Equity

The pharma outsourcing market is expected to grow steadily over the coming years, driven by continued biopharma R&D investment, macro healthcare trends, and the emergence of new technologies, such as cell and gene therapy. Biopharma will continue to seek specialized providers of services and manufacturing, particularly for emerging, complex manufacturing technologies. There is a growing opportunity for contract service providers that are properly prepared and positioned to maximize their growth. This can be significantly enhanced by partnering with the right investment team that provides deep experience in the sector. 

Compounding Outsourcing Market Growth

There are two key pharma industry trends that are creating compounding growth effects:

1. Expansion of biopharmaceutical R&D budgets
2. Increasing demand for outsourcing services

Biopharma companies continue to access specialized technologies and capabilities from third-party providers. As technologies and end products become increasingly complex, there is a continued demand for outsourced services.

Important Investor Attributes

Having the right investment partner can help biopharma service providers build market-leading outsourcing organizations. Access to capital is only one part of the equation — experience, networks, and sector knowledge are all critical value-adds that an investor should contribute to the partnership. There is a record amount of dry powder in the investment community, but the right partner needs to bring more than just dollars to the table. Investment firms with direct experience in the service provider’s subsector will understand the nuances of the business and provide valuable networks of potential executives and board members with direct, relevant experience.

For example, the investor must understand the need for ongoing investment in capacity and capital expenditure (CapEx) requirements (e.g., establishing facilities, building teams, buying equipment and getting quality systems up to speed). As capacity and access to new technologies and processes is critical for an outsourced service provider’s success, there should be a deep understanding of the details and costs involved. It is best practice to partner with an investment team that has been through the process before and has the wherewithal to follow through in order to minimize risk. 

Experience and knowledge must be combined with a practical, hands-on partnership approach. The best investor becomes a true partner with the management team, bringing expertise, capital and a collaborative attitude. Partnering with an investor involves a multi-year commitment; therefore, a solid working relationship is a must if the business is going to be a success.

More Than a Funding Source

Investment firms create value, specifically for lower-middle-market providers, by first applying basic business principles: operating systems and controls, financial rigor and compliance, regulatory and quality commitments, addressing corporate governance and preparing the business for growth.

Regarding growth, the focus is on helping management teams understand the contributions of different products and services to the business, which is essential to making the right decisions. Monthly and quarterly financial targets help the team track both top- and bottom-line results and enable the investor to work with management to stay on target and on budget. In addition, the investor and management team should be in sync regarding organic and inorganic growth opportunities (e.g., driving margin expansion while looking for add-on opportunities to accelerate growth).

Meet Ampersand Capital Partners

Ampersand Capital Partners is focused on the healthcare space, particularly pharma outsourcing, with approximately 25 years of experience partnering with service providers and contract manufacturers producing medical devices, blood products, small and large molecules and cell/gene therapies. We have helped these firms grow, through both organic and inorganic approaches, into businesses attractive to large strategic acquirers. Ampersand brings significant sector experience to CDMO investments, having been involved with a number of the leading players in the space – Avista Pharma, Brammer Bio and Lake Pharma, to name the most recent ones. This history and experience is a significant value-add for the next companies we invest in.

When Ampersand partners with entrepreneurs, we bring our team to the table, as well as a broader team of experienced operating partners and current and former CEOs and CFOs. We seek to partner with companies that are willing to accept funding in addition to ongoing guidance and advice. Our focus is on growth and companies operating in markets with strong underlying fundamentals, companies that are differentiated in their particular niches and management teams that are open-minded and looking for a partner that offers more than just capital.

Ampersand Capital Partners (“Ampersand”) has a 25+ year history of partnering with companies that provide tools and services used in drug discovery and development. Choosing an investment partner is one of the most important decisions faced by founders and management teams, and Ampersand believes that sector experience is a critical requirement that founders should consider in this decision. Ampersand generally seeks to invest in service providers that offer a wide array of technology platforms to a broad spectrum of clients, whether used for drug discovery services or within contract development and manufacturing organizations (CDMOs). These companies often play a vital role in helping important drugs and therapies advance through preclinical and clinical development to eventually become the treatments and cures of tomorrow.

The Intersection of Industrial Manufacturing and Healthcare

Ampersand has invested at the intersection of the industrial and healthcare markets for over 25 years, with a focus on companies that produce components, active ingredients, and formulated products and/or provide discovery, development, analytical, and other services to the biopharmaceutical and medical device industries. These companies referred to as the “picks and shovels” in the healthcare market have been a long-term focus at Ampersand.

CDMOs are key players in this space. They generate significant efficiencies and offer specialized expertise and thus serve as an important engine for innovation and growth in the biopharmaceutical and medical device sector.

Participation in the Healthcare Market through CDMOs 

Ampersand believes that investing in CDMOs provides exposure to several exciting growth segments within healthcare. CDMOs are frequently used by innovative biopharmaceutical companies working with emerging production technologies and therapeutic areas because they provide a range of services to customers and are agnostic to technology platforms so that they can remain flexible to different client demands. The companies Ampersand is particularly interested in apply highly differentiated technical know-how to the manufacturing process of complex medical devices, pharmaceuticals, and biologic drug products. 

CDMOs work on projects from emerging biotech to big pharma companies, including, for example, gene-related enzyme replacement therapies, viral vectors, and oncolytic viruses, using production technologies ranging from cell stacks to single-use bioreactors. They offer access to multiple technology platforms and, crucially, the expertise to optimize these complex systems and processes for each client application.

Teams and Facilities Matter Most

When evaluating CDMOs, it typically starts with the team. Ampersand starts by evaluating the scientific expertise of the technical team and the ability of management to effectively execute the business plan. These teams must have access to a facility that has been properly designed for the task at hand, and that also has the necessary equipment and capacity to enable growth.

The financial state of the business is important, but it is equally important to understand how these three aspects — the ability of the management team, the facility, and the finances — fit together.  Ampersand partners with founders and management teams to accelerate growth within their businesses. As such, the team at Ampersand works side by side with the management team in an effort to help guide and develop a robust business plan that is designed to deploy capital in the most productive manner possible. A founder or management team that is open to this input and help is usually one that is ultimately successful. 

Companies Seeking Growth

Ampersand is a growth-oriented investor dedicated to helping companies achieve revenue and EBITDA growth. The firm provides expertise to help drive that growth by recruiting qualified talent, designing sales and marketing plans, achieving operational efficiencies for improved facility throughput and capacity utilization, expanding the market outreach and customer base, and executing add-on acquisitions.

Breadth of Experience

Ampersand has invested in numerous types of CDMOs across the entire development cycle. They have experience with small molecule and biologic manufacturers, virus and blood product producers, medical device companies, and firms that provide services (laboratory, fill-finish, packaging, etc.) to other contract manufacturers. Over the past 25+ years, Ampersand has seen many recurring problems that CDMOs face, from quality and supply issues to customer mergers, to lack of available talent, and more. Ampersand’s team includes investment professionals, biopharmaceutical industry executives, and scientists with many years of hands-on operational experience to help address these recurring challenges. 

Because of this depth and experience in the biopharmaceutical CDMO space, Ampersand does not require education on the technologies, the market dynamics, the value proposition, etc. Ampersand is ready from the start to collaborate closely with founders and management teams to accelerate growth.

A CDMO Portfolio Sampling

Florida Biologix was an investment that started with a world-class scientific team within the University of Florida focused on viral vector process development and small-scale manufacturing. Ampersand addressed gaps on the business management side through a merger with Brammer Bio, which was led by experienced industry executive Mark Bamforth, within six months of the initial spinout from the University. Under this new leadership, the company expanded the manufacturing facility in Florida and developed large-scale production capabilities in Massachusetts. Brammer Bio rapidly became a leading viral vector CDMO and in May 2019 was acquired by Thermo Fisher Scientific. 

Avista Pharma Solutions was established by carving out two captive biomanufacturing facilities from biopharma and combining them under an experienced management team possessing a deep track record in the small molecule development and manufacturing space. Ampersand made the necessary investments that transformed these underutilized assets into highly utilized specialized facilities. Avista was acquired by Cambrex Corporation in early January 2019. 

Tripharm Services was also formed by carving out a parenteral manufacturing facility from a biopharmaceutical company. The prior owner had invested a significant amount of money in the plant but concluded that the site was no longer needed. Ampersand and the former Avista management team completed the build-out and validation of the world-class fill-finish facility and elicited client interest in this significantly underserved market. Tripharm was acquired by Alcami in January 2020 to gain needed sterile fill-finish manufacturing capacity. Ampersand remains an investor and is now partnering with the management team and majority owner at Alcami in the effort to take this business to the next level.

Finally, Medpharm is a leading contract provider of topical and transdermal product design and formulation development services. The company has a world-class scientific team in the UK and a fully certified GMP manufacturing facility. Ampersand has invested in expanding those capabilities while also increasing capacity at the firm’s facility in North Carolina. The company is now planning to broaden its services into later-stage development and commercial manufacturing.