Patient Square Capital leads $145m financing in debut deal

Apollo's multi-product therapeutic portfolio is a healthcare model Patient Square execs like and know well, with founder Jim Momtazee having invested behind likeminded playbooks at Jazz Pharmaceuticals and BridgBio during his days at KKR.

Leading a $145 million financing in Apollo Therapeutics, Patient Square Capital plans to replicate the success seen by portfolio-based biopharma companies backed by the firm’s executives in a prior lifetime. 

Marking its debut investment, Patient Square will take a controlling position in the Cambridge, UK-based business. The firm contributed a little more than $100 million in the business alongside investors including Rock Springs Capital, Reimagined Ventures and UCL Technology Fund, managing partner Jim Momtazee told PE Hub

Momtazee launched the healthcare-focused PE firm last year after spending 21 years at KKR, where he helped form the healthcare industry group and spent a decade leading it. The Menlo Park-based firm has since built out an about 20-person bench including some 15 executives with prior experience at firms including KKR, Ares Management and Golden Gate Capital. 

For Patient Square, Apollo will ultimately end up within its debut fund, which has not quite closed, a source told PE Hub. The firm was telling potential investors it could raise around $3 billion for the pool, sources told affiliate publication Buyouts in February

While the healthcare private equity landscape is both competitive and expensive, Momtazee said he’s never been as excited as he is today about the deal pipeline. “You need to zig where others are zagging,” he said. “My prediction – it’s going to be a busy year for us.”

Multi-product thesis

Apollo – with a pipeline of more than 15 therapeutic programs currently in development across oncology, major inflammatory disorders and rare disease – is a healthcare model Patient Square executives know well, and like. 

The company was launched in late 2015 as a joint venture between the University of Cambridge, Imperial College London (then subsequently IP Group Plc), University College London, AstraZeneca, GlaxoSmithKline and Johnson & Johnson Innovation. Despite its UK roots, Apollo is set to expand with US operations out of the Boston area and will have a “transnational presence,” Momtazee said.

Proceeds of the financing are for “pushing the pipeline forward, geographic expansion, and company buildout,” Momtazee said. Apollo expects to roughly triple its headcount in the next year-and-a-half.

The veteran healthcare investor has long been a believer in diversified therapeutic portfolios, involved with KKR’s former investments in Jazz Pharmaceuticals and BridgeBio Pharma. 

“They are all kind of kindred spirits in terms of business model,” he said. 

Apollo, Jazz and BridgeBio share commonalities that Momtazee believes lends to success: a multi-product portfolio of assets, a management-centric investment thesis, and an intent to build a self-sustaining enterprise with multiple therapeutics over time. 

There’s a long list of advantages to that model, Momtazee said, starting with the talent. “You can recruit tremendously talented people initially because they can work on a broad number of products,” he explained.

That’s in part because management isn’t worried about the company being flipped quickly, he said, and therefore can bring a longer-term perspective knowing that the anchor shareholder is willing to put up more capital over time.

Patient Square, in this case, “would love to put in hundreds of millions of dollars over time,” Momtazee noted. 

“If you look at every one of these deals I’ve done, we’ve always put money in more than once. The better things go, the more money you need.” Simply put, the further down the drug development process you get, the more capital a program requires. 

With a diversified portfolio, you can also “make dispassionate decisions,” Momtazee said. That equates to a more capital efficient model, with the pooling of resources across a number of programs resulting in economies of scale.  

“I’m not saying history will repeat itself, but if you take another business I’ve been involved with, BridgeBio has north of 30 programs. If you do this right, you can build a nice, size portfolio.”

More to come 

Apollo is emblematic of the Patient Square model, and you should expect to see more deals in this vein – but the firm is not limiting itself.

“I would bet you we’d do additional deals that fall within this general model of multi-product therapeutic businesses” but Patient Square will also be pursuing “traditional PE transactions,” he said. 

Momtazee declined to comment on fundraising, but between the capital Patient Square will have committed and ample availability of co-investment dollars, that suggests the firm could quite naturally do deals requiring $1 billion-plus in equity. 

The fact that the firm’s first deal landed in the UK was not purposeful, Momtazee said, noting that it was relationships that drew Patient Square to this specific transaction. That said, “you have equally good science and less competitive intensity in the UK,” he noted. 

In this instance, Momtazee had known Apollo’s chief business officer for many years, which eventually led to an introduction with CEO Richard Mason, which started out informal. 

“He did not think we would be in position to invest since we had not launched our fund… and six months later here we are.” 

Correction: This report has been updated to clarify Momtazee was introduced to current CEO Richard Mason, and not former CEO Richard Butt.