Healthcare specialist Signet leverages sector expertise in value creation

Sector expertise is “critical” in being an effective private equity investor, said Ashley Friedman, managing director, Signet Healthcare Partners. As part of our ongoing series profiling private equity firms that invest in healthcare, PE Hub interviewed Friedman about the firm’s strategy for investing in the sector.

Signet has completed more than a dozen investments in contract development and manufacturing organizations, or CDMOs, over the last decade.

“Our domain experience was critical in value creation,” Friedman told PE Hub. “Given our significant repeat investing experience, we can hit the ground running day one through implementing lessons learned and bringing to bear a network and connectivity that can greatly benefit the business.

“Our sector expertise is even more critical given the stage that we are investing in,” Friedman explained. “Our target businesses are typically emerging commercial companies that are growing rapidly and would highly benefit from having a specialized and experienced partner.”

Investment focus

Signet invests in three healthcare subsectors: pharmaceutical products, pharmaceutical services and medical devices.

“Each of these three sectors represents large multibillion dollar markets with significant potential for growth, which provides us with attractive investment opportunities,” said Friedman.

By virtue of remaining focused on these three core areas, Signet sees significant repeat investment experience.

“We are perceived as collaborative and value-added partners, beyond just capital providers,” he said. “Given our durability in these sectors, partnering with Signet provides access to our network of operating partners and a synergistic ecosystem of portfolio companies to collaborate with and potentially accelerate growth. There is really a lot more than just the investment that’s coming with our capital, which tends to be valued by management companies and partners.”

Covid amplified many of the macroeconomic tailwinds that Signet has been investing behind and has fueled business activity at many of the firm’s portfolio companies.

“Signet is focused on rapidly growing, innovative businesses that optimize healthcare value by offering enhanced outcomes at similar costs, equivalent outcomes at lower costs, or transformative innovations,” Friedman said.

Economic challenges

“I believe our investment focus areas are insulated but not immune from macroeconomic headwinds,” he said. “That being said, we are optimistic of the growth prospects within our investment focus areas.”

For example, the firm continues to see substantial demand for specialized research, manufacturing and supply chain services in pharma and biotech, given the growth in advanced therapies, such as cell and gene therapies, he says.

“Despite the tight capital funding environment that we’re currently in, we expect to see outsourcing of those specialized services to continue because it makes sense to do so when there’s less access to capital.”

Dealflow

“We are seeing a consistent cadence of dealflow in our corner of the market,” said Friedman. “It is always difficult to predict how dealflow may evolve through the remainder of the year, but we currently see a strong pipeline that is consistent with what we’ve seen over the last four to six quarters.”

When asked about today’s high valuations, Friedman said, “While we understand the general concern regarding elevated valuations, most of our deals are proprietarily sourced with customized and structured deal terms, which help mitigate the risk of fluctuating market valuations. We feel optimistic about our current portfolio and future business prospects.”

Exit approach

“We have been fortunate to have had a strong exit track record, particularly over the last 18 months,” Friedman said.

“If you look at the exits in our portfolio over the last several years, and throughout the firm’s history, there’s been a heavy weighting towards exit via trade sale versus IPO,” he said. “This is a reflection of the types of businesses that we are investing in. Our investments lend themselves to acquisition more so than IPO. For example, of the four exits we’ve had over the last 18 months, two were sold to strategic acquirers and two were sold to large financial sponsors. Our exit approach could certainly evolve over time, but we expect that our exit path will continue to be heavily weighted towards sale going forward.”

Elevator pitch

“We are growth equity healthcare investors, so we primarily take minority positions in innovative healthcare companies,” said Friedman. “We are actively engaged minority investors, meaning that we partner with founders, entrepreneurs, and management teams. I believe a big point that resonates with our portfolio companies is that we are a knowledgeable partner that brings value beyond capital.

“The sectors we’re investing in are highly dynamic and fragmented,” he continued. “As a result, it pays to be both disciplined and sector specialized. Over the last few years, we all have certainly seen lofty entry multiples, however it appears that those multiples are compressing. So, we may be headed into more of a buyer’s market.”

Firm facts

Founded in 1999 and based in New York, Signet invests in growth-oriented middle-market healthcare companies, having invested in more than 55 private or closely-held businesses over the last 24 years. The firm has raised funds with aggregate capital commitments in excess of $500 million. Signet is currently making new investments out of its fifth fund. The Fund V team is led by three senior investment professionals and a network of venture partners and operating advisers.

Recent exits

Signet exited GI Supply in 2022 after an initial investment in 2020, as it was sold to PE-backed Laborie Medical Technologies.

The firm exited Advantice Health in 2022 after an initial investment in 2019, being that it was sold to a financial sponsor.

Signet exited Vigene in 2021 after an initial investment in 2019, as it was sold to a publicly traded company called Charles River Laboratories.

The firm exited CoreRx in 2021 after an initial investment in 2015, as it was sold to a financial sponsor.

Recent investments

Signet invested in Toronto-based Juno Pharmaceuticals in 2022. Signet invested in Laval, Canada-based Alta Sciences and North Brunswick, New Jersey-based Ascendia Pharma in 2021. Prior to that, Signet invested in Mechanicsburg, Pennsylvania-based GI Supply in 2020.

Signet’s healthcare portfolio highlights

(Dates refer to initial investment)

Alta Sciences: A fully integrated CRO/CDMO platform, providing pharma and biotech a single outsourced partner from lead candidate selection to clinical proof-of-concept. (2021)

Ascendia Pharma: A specialty CDMO dedicated to developing and manufacturing enhanced formulations for pre-clinical, clinical stage drug candidates, and marketed drug products. (2021)

Chr. Oleson: A manufacturer of complex active pharmaceutical ingredients. (2015)

Fluxion: A developer of instruments for cell-based and cell-free assays. (2011)

Goodwin Biotechnology: A specialty CDMO that provides a range of mammalian cell culture development and manufacturing services for biologics. (2019)

Juno Pharmaceuticals: A specialty pharmaceutical company with a focus on injectable generic drugs sold through hospital channels. (2022)

Leading Pharma: A generic pharmaceutical company that manufactures, markets, and distributes products to drug chains, wholesalers, and other channels. (2017)

Pii: A specialty CDMO with both solid-oral and aseptic capabilities. (2016)

RK Pharma: A fully integrated generic pharmaceutical company that develops complex API and injectable finished dosage products. (2019)

Smart Medical: A manufacturer and developer of innovative gastro-intestinal endoscopy products. (2018)