NovaQuest launches unusual “pharma” fund targeting $750 mln

NovaQuest Capital Management is back in the market with its fourth fund, seeking $750 million to invest directly in the development of new drugs, according to a person with knowledge of the fundraising.

NovaQuest, which raised about $460 million for a third fund that closed in October 2013, has been officially marketing the fund for more than a month, the person said.

The firm wants to hold a first close on NovaQuest Pharma Opportunities Fund IV on $500 million by year’s end, the person said. Atlantic-Pacific Capital is working as placement agent on the fundraising.

NovaQuest, in an unusual if not unique strategy, provides capital to large, global biopharmaceutical companies that need help developing new drugs. NovaQuest invests directly into the products.

The firm makes its money from getting back its principal plus a profit, along with securing a drug royalty stream, the person said. “There’s a royalty component but returns are not reliant on royalties,” the person said.

“Say you’re Eli Lilly, you have approvals (for a drug), and now you need to launch the product globally. That takes hundreds of millions of dollars. Sometimes this is where NovaQuest steps in and provides that capital,” the person said.

The unlevered strategy offers “significant downside protection” and little or no correlation to the public or private markets, the person said.

Performance information could not be found for past funds sponsored by NovaQuest.

The NovaQuest team began pursuing its strategy in 2000 as an investment group working at Quintiles Transnational Holdings. The firm’s founding partners group is Ron Wooten, managing partner, John Bradley, senior partner, William Robb, partner and Jonathan Tunnicliffe, partner.

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