Private equity firms go after covid-19, repurposing portfolio company resources

While many traditional PE shops are busy assessing the potential impacts of covid-19 on their portfolios, a few are turning to their companies to develop vaccines and tests to curb the spread of coronavirus.

As biotech players large and small, academic spin-outs and Indian and Chinese manufacturers race to develop vaccines and tests combating covid-19, portfolio companies of investment firms like Adjuvant Capital and ArchiMed are also stepping up to curb the global health emergency. 

“Rather than be reactive in going out there to hunt for coronavirus-related investment opportunities, we instead looked at [our] existing companies,” said Glenn Rockman, founder and managing partner of Adjuvant Capital. “Three [companies] have technologies that are readily applicable to the coronavirus and are re-purposing resources to go after this.”

Namely, Adjuvant-backed Codagenix, a clinical-stage biotech company, is collaborating with the Serum Institute of India to rapidly co-develop a live-attenuated vaccine against the coronavirus. Codagenix uses software to recode the genomes of viruses for drug development.

“The amazing thing about life sciences in 2020 is we can do so much now with the genomic sequence,” Rockman said. “As soon as the Chinese published a sequence, all three [companies] had what they needed.”

Besides Codagenix, the New York-headquartered firm backs InDevR and Themis, both of which are working on potential covid-19 interventions. 

In large part, the backbone of Adjuvant’s investment thesis has put it in a position to take action. The firm is in the business of investing in late-stage life sciences companies – be it drugs, vaccines, diagnostics or medical device technologies – that traditional investors have shied away from. If everyone is getting into oncology, for example, Rockman said, “we’re running the other way.”

Rockman launched Adjuvant in 2018 as a successor fund to the Global Health Investment Fund (GHIF), a social impact fund sponsored by the Bill & Melinda Gates Foundation and structured by J.P. Morgan’s Social Finance unit. 

Adjuvant is fundraising for its second fund. A recent Form D filing shows the firm has raised $202 million to date. GHIF’s inaugural fund closed on $108 million in 2012.

The Adjuvant playbook largely resembles a scaled out version of the successful strategy proven out at GHIF, Rockman said.

Gates’ theory, he explained, was centered around the idea that many historically overlooked and unpopular areas of investment – public health threats such as malaria – would be the future of healthcare investing: “He had anchored pandemic threats as one of the things he was most worried about,” Rockman said.   

While many private equity firms are busy assessing the potential impacts of covid-19 and market volatility on their portfolios, there has yet to be any indication that the crisis will cause more traditional investors to reevaluate investments in areas such as infectious diseases. 

“I don’t know if the pandemic will shift the tide … People have been burned by SARS and MERS – flashes in the pan,” Rockman said. “You would need to see a real commitment and evidence that in the future, there will be a market for pandemic products.”

Still, Rockman added, he is hopeful that increased public awareness coming out of the crisis will facilitate more R&D around neglected areas: “I hope in a weird way that we can not let a good crisis to go to waste,” he said.

Adjuvant isn’t alone. Other healthcare investors backing companies doing work to bend the coronavirus curb include European healthcare specialist ArchiMed. 

The firm’s portfolio company Diesse Diagnostica Senese announced earlier this week that it is developing a blood test for covid-19 detection. The Siena, Italy, company is poised to distribute its test in late April, the firm said. 

As one of the world’s only blood tests currently capable of tracking covid-19 antibodies, ArchiMed said it will be capable of mapping the spread of the virus. The test will therefore be able to determine the preventative measures applied to asymptomatic, active covid-19 carriers as well as provide analysis of how the infection spreads through populations. 

“Infectious diseases are at the core of our competency area,” Luic Kubitza, a partner at Lyon, France’s ArchiMed, told PE Hub.   

Diesse was previously involved in the Ebola crisis in partnership with the same institute with whom it is working now, the Lazzaro Spallanzani National Institute for Infectious Diseases in Rome, he said. “We’ve therefore been there before in terms of developing a test to help manage the spread of virus.” 

Diesse, a company deeply rooted in Tuscany, plans to initially focus on screening of doctors, nurses and workers in the healthcare system across the Tuscan region, Kubitza said. “As we validate tests and serve these immediate needs,” he said, “[Diesse’s] international dimension will become very important,” he said.

With a current presence in more than 100 countries, Diesse would subsequently examine how to extend its use with other segments of the population and globally, Kubitza said.  

When asked if the firm has any plans to inject additional equity into the company should demand for its services grow, Kubitza commented, “We are open to looking at the capital needs of Diesse for sure … Diesse will be generating good revenues that will allow us to reinvest.” 

While additional M&A is not a necessity, the firm will continue to examine potential acquisition opportunities that would be complementary to Diesse, he added. 

ArchiMed bought Diesse in May 2019 through an existing platform, Duomodiag Sarl. The healthcare specialist invested in Duomodiag through its MED II fund, which closed on 315 million in September 2017. 

Action Item: Check out the World Health Organization’s list of candidate vaccines to treat covid-19 as of March 20