A recently-announced major investment into the UK's life sciences sector by a Middle East sovereign wealth fund made headlines. But family offices have been quietly working in the space for years. And the latest developments show how important these custodians of "patient capital" are.
Alastair Graham is founder of Highworth Research, the database of single family offices with which this news service is exclusive media partner. Last year we broke ground with the story of the family office linked to the BionTech/Pfizer vaccine breakthrough. Recent moves by sovereign wealth funds have caught headlines but, as Graham notes, family offices have been involved in the space for years. (See a previous example of his writing on the topic.)
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On 24 March the UK government and an Abu Dhabi sovereign wealth fund, Mubadala Investment Company, announced a “sovereign investment partnership” in life sciences with the UK, with an initial capital contribution from Mubadala of £800 million ($1.1 billion) and with a further £200 million coming from the UK.
The investment by two state-owned institutions is potentially high risk but there are mitigating factors, not the least being the interest by government in sponsoring the life science sector for public health reasons. Additionally, there is an encouraging commercial background. According to EY, the biotech industry has a predicted growth rate of 15-20 per cent per year. More than 700 biotech companies are listed on stock markets internationally, so exit routes are available.
Moreover, when a patent expires on a conventional pharmaceutical drug, generic copies can be produced at massive price discounts. This is not the case with biotech drugs. When a biotech drug goes off-patent, it is much more complex to produce what is known as a “bio-similar”, and in the US, the manufacturer has to put any “bio-similar” through clinical trials. This is of great interest to an investor because it means that the commercial life of a successful biotech drug could be much longer than that of a conventional pharma drug.
Mubadala and the UK government may be newcomers to the biotech investment party but single family offices have been investing in the sector for years. As many as 151 out of 860 or 17.5 per cent of all single family offices in Europe invest in healthcare, according to the Single Family Offices Database from Highworth Research, and 54 [family offices] or 6 per cent invest in biotech.
The rewards, although rarely gained, can be enormous. Dievini Hopp Biotech, the family office of Dietmar Hopp, a co-founder of the software multinational SAP, has been funding the German biotech company Curevac since 2010. On 29 March, Curevac’s market cap was $16.09 billion, valuing Hopp’s stake at $7.88 billion. Curevac is a leading contender in the coronavirus vaccine market.
The same applies to Athos Service, the family office of the German Strüngmann brothers. Athos has been a major investor in BionTech, the developer of the Covid vaccine now marketed by Pfizer, for years. On 29 March, BionTech’s market cap was $23.05 billion, valuing the Athos stake at $10.96 billion.
Not only patience counts in investment in biotech. Access to knowledgeable advisors is also a basic prerequisite. The Mubadala and UK government £1 billion fund will, without doubt, benefit from partnerships and co-investment opportunities with family offices; FOs have been investing in the healthcare and the biotech sectors in some cases for two or more generations.
Of the 54 single family offices in Europe on Highworth’s Single Family Offices Database which are investors in the biotech sector, 16 or 30 per cent were established by families whose original source of wealth was a pharmaceutical or biotechnology company. These families have had skin in the game for years.
The Strüngmann family, with their multi-billion dollar BionTech holding, have been owners of pharmaceutical companies for two generations. The Bagger Sorensen family have owned a pharmaceutical company for over 100 years. The French Mérieux family, whose family office is Compagnie Mérieux Alliance, are third generation investors in the pharma and biotech sectors. Waypoint Capital Holdings, the Swiss family office of Ernesto and Donatella Bertarelli, having sold their family biotech company Serono for $20.2 billion to Merck in 2007, is now a major investor in the biotech sector.
A further Swiss family office of the Mauvernay family, Après-demain SA, has been investing in the pharmaceutical sector for two generations and owes its unusual name to a recognition that patient capital is indeed a prerequisite for supporting early stage healthcare companies. The family office’s principal, Thierry Mauvernay, comments: “As my father used to say, in the research field we do not work for tomorrow but for 'après-demain'.” He adds that long-term investments in healthcare, sometimes with a venture philanthropy or impact influence, are best suited to family-run enterprises. “These types of decisions should not be based on the expectations of investors and non-family shareholders.”
It appears that co-investment partnerships with family offices with long experience in investing in healthcare could be a wise early decision for the new £1 billion fund from Mubadala and the UK government.