Sagard Holdings, the alternative asset manager arm of Power Corporation, has announced the final close of Sagard Healthcare Royalty Partners, LP (SHRP), pulling in $725 million USD.
With a focus on investing in approved and commercialized biopharmaceutical products and diagnostics, SHRP also provides financing for medical devices in the sector.
“SHRP is a key pillar in our portfolio of investment businesses.”
The globally-focused fund also provides financing to commercial-stage biopharmaceutical companies and seeks investment opportunities in assets protected by intellectual property.
SHRP was launched by Sagard in 2019. The $725 million exceeds Sagard’s original target for the fund of $600 million; in its first close SHRP pulled in $475 million.
Sagard did not disclose the limited partners (LPs) in the fund, noting only that it included new LPs as well as strategic anchor investors that participated in the fund’s first close. The fund is headed up by David MacNaughtan, a partner at Sagard.
“In two years, David MacNaughtan and his colleagues have raised $725 million and assembled an enviable group of well-regarded investors,” said Adam Vigna, managing partner and chief investment officer at Sagard. “Royalty monetization is an attractive asset class for Sagard, particularly given the growth of the global pharmaceuticals market and lack of correlation with the broader capital markets. SHRP is a key pillar in our portfolio of investment businesses.”
SHRP acquires royalty streams from companies, research institutes, universities, and inventors that have licensed patents for biopharmaceutical products. It also provides capital to emerging biopharmaceutical companies to help them commercialize products, and in return, SHRP receives a royalty on their direct sales. SHRP expects to make between 10 to 12 investments over the next few years, averaging $75 million per investment, with a range of $25 million to $125 million.
Royalty monetization is when a firm acquires royalty interests in already developed products, in exchange for payments. Through a royalty monetization, an institution is typically able to sell part or all of the future cash flow payments of the royalty contract in exchange for a lump sum or milestone payments.
Royalty payments, generally, are an essential component of most pharmaceutical deals.
“[Royalty monetization] accelerates the returns on healthcare innovation, enabling the reinvestment of the proceeds into new discoveries and development, rather than waiting years for royalties to trickle in,” MacNaughtan said in a statement to BetaKit. “For companies, it is non-dilutive capital with variable repayment terms tied to sales. For not-for-profits, it is a means of transferring the risks associated with a single pharmaceutical product to a financial investor. For investors, it is a way to participate in the top-line of the biopharmaceutical industry without associated R&D risk, in investments that are not correlated with the broader capital markets.”
This type of financing is behind the billionaire dollar success of companies like Royalty Pharma, which went public last year and is owned and operated by Pablo Legorreta, a billionaire in his own right.
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In Canada, pharmaceutical firm DRI Capital, controlled by one of the country’s richest families, the Khosrowshahis, operates as a royalty company and is also looking to go public. Last month, DRI Capital hired investment bankers to launch an IPO on the Toronto Stock Exchange for a spinoff fund, DRI Healthcare Trust.
Sagard is itself controlled by the wealthy Canadian family, the Desmarais. The SHRP fund pits two of the country’s most wealthy families against each other.
Sagard is one aspect of the massive organizational structure of the Desmarais family’s Power Corp. The organization spans many types of investment firms and strategies, including venture capital where Sagard operates Portag3 Ventures and various Power organizations hold a major stake in FinTech startup Wealthsimple – part of a broader play to create challengers to the traditional financial institutions in Canada.
In January, Sagard Holdings also launched a new private equity (PE) business, marking its first foray into the PE space in Canada.
SHRP represents a key pillar in Sagard’s portfolio of investment businesses.
“The current global pandemic certainly highlights the importance and benefits of innovation in the biopharmaceutical industry,” said MacNaughtan. “We are seeing more and more interest in alternative financing solutions for pharmaceutical companies and research institutes and we believe SHRP is now very well placed to take advantage of the opportunities we are seeing.”
UPDATE 18/02/2021: This article has been updated with comment from Sagard.
Photo by Louis Reed on Unsplash