How TPG’s decade-long thematic focus lent to the creation Ellodi, a new specialty pharma business

Hoping to develop one of the first approved treatments for a rare disease called Eosinophilic Esophagitis, TPG Capital has created a third growth opportunity out of a thesis (and a team) the firm first got behind a decade ago. 

The private equity firm has formed a new company called Ellodi Pharmaceuticals, whose drug program APT-1011 is in Phase 3 development for the treatment of Eosinophilic Esophagitis, or EoE. EoE is an allergic inflammatory disease that can lead to difficulty in swallowing, narrowing of the esophagus and the risk of food impaction. 

“We view this as a big unmet need and [APT-1011] has really outstanding data so far,” TPG managing partner Todd Sisitsky told PE Hub. “If Phase 3 looks like Phase 2B, we’re going to have something worth a lot.”

Ellodi’s clinical assets were spun out of Adare Pharmaceuticals, following TPG’s sale of Adare’s core operations – the specialty CDMO pharmaceutical technology and microbiome businesses – which were acquired by Thomas H. Lee Partners and Frazier Healthcare Partners.

Selling the core business of Adare was bittersweet, Sisitsky said: “We’re big believers in the business,” he said. “The new owners are looking at the next five, 10 years, and saying ‘there’s a lot to do,’ and frankly, we agree.”

Financial terms of the transaction weren’t disclosed and TPG declined to comment. That said, the deal produced a seemingly handsome return for TPG. Under its ownership, Adare has grown EBITDA at a CAGR over 25 percent, a source told PE Hub. 

TPG, by retaining the clinical EoE assets, will continue to support the development of a drug program in which it originally invested in a decade ago through former portfolio company Aptalis. “When you invest for growth you have the opportunity to create something really valuable, and in this case, we created two things,” Sisitsky explained. 

Aligning with TPG’s long-term thematic approach, “what we saw there was a really big opportunity to get into a disease space that we knew well,” added John Schilling, partner at TPG. Ellodi meshes with the firm’s aim to invest in tech and disease states that have the potential to “fundamentally change the arc of the patients that are treated,” he explained.

TPG in February 2015 bought back Aptalis’ Pharmtech unit from Allergan (then Actavis), renaming the new company Adare. The deal came a year after selling Aptalis in 2014 to Forest Laboratories, which Actavis almost immediately bought. Aptalis was initially formed in February 2011, when TPG bought Eurand Pharmaceuticals and merged it with existing portfolio company Axcan Pharma.

Sisitsky called TPG’s approach to Adare a little different than that of an average PE investor. Rather than lever up and use debt to pay dividends, Adare was an all-equity deal. “[We] plowed more or less every dollar that we generated back into this development project [APT-1011], because we are such believers in how big the unmet need is,” he said. “We think of ourselves as growth investors; we’re not dividend investors.”

TPG on average more than doubles R&D investment in the healthcare product companies it backs, Sisitsky noted.  

While Adare’s cash flows funded the development of APT-1011, it was always the firm’s sense that the ownership of the two entities should be different, Schilling said: “The nature of a CDMO is different from the nature of a clinical asset. We prepared as though that would be likely.”

Broadly, Schilling believes the the drivers of innovation in the pharma industry are here to stay for many years. 

“This is a very unusual period in the history of medicine,” Schilling said. “There is a much broader, deeper understanding of genomics, immunology and an array of different delivery technologies that are allowing people to treat therapeutics that weren’t possible a few years ago. That scientific expansion has underpinned a lot of the growth.” 

Despite massive disruption in the market, 2020 has been a busy period for TPG’s healthcare team as both a buyer and a seller. 

In April, the firm struck a deal for LifeStance Health, valuing the behavioral health giant at approximately $1.2 billion, PE Hub wrote.  

In July, Leonard Green & Partners acquired a stake in TPG Capital’s WellSky in one of the year’s largest healthcare tech deals of the year. The transaction valued the post-acute care software provider just north of $3 billion, sources said. In January, TPG closed its deal for Kelsey-Seybold. 

Action Item: Read more about TPG’s plans to become a larger participant in the European healthcare market with the recent hiring of Karthic Jayaraman.

Correction: This report has been updated with the correct spelling of APT-1011, which was misspelled on certain occasions.