SFW Capital Partners sees a big opportunity to address the growing demands of big pharma with Pion, whose tools help to simulate how drugs react in the body, facilitating the development of effective and safe formulations.
SFW, a growth-oriented private equity firm, has taken a majority stake in Pion through an equity and debt recapitalization, while owners Mike and Sharon Kelly have retained significant minority positions and are reinvesting.
SFW declined to comment on value, but confirmed Pion sits within the firm’s typical $10 million to $50 million target revenue range. The Billerica, Massachusetts-based company has witnessed a more than 10 percent revenue CAGR over the last five years, with EBITDA margins north of 20 percent, Ahmad Sheikh, partner at Rye, New York’s SFW, told PE Hub.
Founded in 1996, Pion is best known for providing instrumentation, software, reagents and services to enable pharmaceutical scientists to develop medications that are safe and effective. Whether it’s in support of extended-release medications, injectables, generic pharmaceuticals or vaccines, Pion’s customer base includes many of the world’s largest pharma companies.
In connection with the deal, Mike Kelly will transition from CEO to chairman of the board, while seasoned life sciences tools executive Brian Dutko has been recruited to take on the CEO post.
Sheikh has known Dutko for many years, with the executive having spent 23 years on the senior leadership team at Malvern Instruments: “Pion was a little too small for him, but he saw the opportunity to build something from an acquisition point of view.”
While Pion hopes to execute on at least one acquisition by year-end, more imminently, Sheikh said its biggest needs are on the marketing front. The firm will prioritize building out Pion’s sales team, which includes only four people today – two in the US and two in Europe, the investor said.
From a product development standpoint, Sheikh added, “a lot of products are in the design phase or conceptual phase that we want to bring to market.”
Pharma tailwinds strong
Pion, in Sheikh’s view, is helping address demands stemming from three major trends in drug development: the call for more biosimulation capabilities, the reformulation of drugs to extend drug patent life, and lastly, the movement towards more large molecule injectable therapeutics.
From a biosimulation perspective, Pion, with its fiber-optics technology, can deliver real-time outcomes. “In life sciences, people want to see how a drug acts when it’s in the body, not several days later.”
Pion actually mimics what happens in the body, simulating real-life circumstances, the investor explained. “What you can create with this are 3D models of how the body acts and reacts,” he said. If a drug is ultimately going to be ineffective, “Pion can help you figure that out much quicker than anyone else can,” versus going through the work of testing on animals or humans, only to fail.
Second of all, Pion is helping meet demand from pharmaceutical companies to extend the life of their patents and protect brands, Shiekh said. This comes through the altering of drug formulations, with a big emphasis around extended release medications – which ultimately boost patient compliance. (Patients are more likely to take medication once a day, versus three times a day.)
“All doctors want that and all the drug companies want that,” Shiekh said. “[Pion] will continue to ride that trend for a long period of time.”
Finally, Pion is supporting the growth of injectable drugs, which is often the most effective way to administer large molecule drugs. “How the injection gets absorbed into the body is very critical,” and Pion can help with that, Sheikh explained.
SFW’s modus operandi
SFW, with deep experience supporting the growth and development of leading providers of laboratory instrumentation and equipment, was able to move quickly to transact on Pion when the opportunity emerged.
Having met Pion’s owners a couple years back, SFW had already done its diligence on the company when the opportunity became available for investment. In fact, the firm went into exclusivity on a Thursday night, signing a letter of intent just a day after indications of interest were due, Sheikh said.
“Because we’re so focused and specialized, we have a network [through which] we can test really quickly if it’s real, or not,” he said, speaking to the efficacy of technologies like Pion’s.
For SFW, the investment follows its January recapitalization of Caron Products and Services, whose products ensure that vaccines and medications maintain a proper shelf life, as well as optimize the environment for cell and gene therapy development.
Pion marks its ninth Fund II investment, which closed on $345 million in commitments in 2015. The firm more broadly invests across the information, software, industrial and healthcare technology sectors.