THE BULLETIN - Results...

CRISPR – the future of gene therapy?

MedTechQ&A with Kunal KadiwarUS Healthcare

ISSUE 02

Leading global corporate advisory firm focused on public and private healthcare and life science companies

THE BULLETIN

ALSO IN THIS ISSUE

2

FOREWORD

IN THIS ISSUE...

A warm welcome to this new issue of the Healthcare Bulletin

www.resultshealthcare.com

10 11 11OUR LATEST DEALS MEET THE TEAMHEALTHTECH

Results Healthcare continue to be very active in 2016. So far this year we have acted for STEM Marketing on their acquisition by UDG Healthcare, Choice Healthcare Solutions in their sale to Open Health, Results Healthcare have also closed 3 transactions for UCB, including divesting the rights to several cardiovascular drugs to Merus Labs as well as two separate deals for the Chinese and Russian rights.

We also concluded the sale of UCB’s API manufacturing site in Ireland to Avara Pharmaceutical Services, the sale of Sanofi’s research site in Tucson, Arizona to Icagen Inc. and the sale of AstraZeneca’s API manufacturing site to Avara. Results

Healthcare continue to be busy working on both sell-side and buy-side transactions for multiple clients involving strategic consulting as well as the transaction of both healthcare assets and companies, across the globe. We expect to announce more successful transactions before the end of the year.

We are also pleased to announce several new recruits to the team, Kunal Kadiwar – Director, from the global BD group at Quintiles; Venky Rangachari – Associate Principal, who brings an extensive knowledge of the generic pharmaceuticals industry; Daniel Mekic - Associate Principal who worked for many years at Merck KGaA licensing biologics products, he also has a strong background in traditional business consulting; Tim Sturgeon – Senior Analyst who was previously working in corporate business development at Silence Therapeutics PLC; Achim Newrzella – Analyst who joins us having

completed his PhD in research into aspects of prostate cancer, conducted at UCL and Selina Wang – Analyst who has completed her PhD at Cambridge University.

At Results Healthcare we provide strategic consulting and expert transaction advisory support across: R&D, pharmaceutical manufacturing, pharma services companies (including CROs, CMOs), product divestment and acquisition, compound licensing.

We will be happy to meet to discuss your transaction requirements. We plan to be present at these upcoming meetings in 2016: BioEurope Cologne, Jefferies 2016 Global Healthcare Conference (London) and the JP Morgan Healthcare conference, held in San Francisco in January 2017.

3 5HEALTHCARE M&A

4MEDTECH Q&A WITH

KUNAL KADIWAR

6-7 9CRISPR-THE FUTURE OF GENE THERAPY?

US PERSPECTIVES

8PRIVATE EQUITY INTERVIEW

Kevin BottomleyE [email protected]

Kevin BottomleyPartner

3


HEALTHCARE M&AStill buoyant in 2016

M&A activity in the first half

of 2016 has been significantly

below the levels seen in the

first half of 2015, both in the

total value of acquisitions and

the number of deals struck.

But is this slow down a reason

to be worried or is it rather a

normalisation of deal activity

after the record breaking years

of 2014 and 2015?

Acquisitions in the healthcare sector started

to show a marked slowdown in the 4th

quarter of last year, already hinting at a

slower first half of 2016. Along with a decline

in M&A activity, Pharma and Biotech stocks

have also seen a significant re-rating since

the record highs of July 2015.

Both phenomena can be explained by

a decrease in investor confidence in the

market over the past 12 months after a

long period of bullish sentiment. This has

largely been fuelled by fears over increasing

interest rates and tighter regulation of drug

prices in the US market. Although central

banks have continued with their policy of

fiscal easing so far and kept interest rates

at record lows, the overall sentiment in the

market is that rates will be raised sooner

rather than later, significantly increasing

the cost of capital for investments and

acquisitions. Tighter regulation of drug

prices, has been a major topic during the

US Presidential race, with both candidates

vowing to introduce legislation that would

curb drug prices. How significantly these will

affect the bottom line of drug makers is hard

to say at the moment but the potential risk is

certainly making investors wary.

A further blow to M&A activity was dealt

in April this year with the change in US

regulation on tax inversion deals, which

killed the record merger of Pfizer and

Allergan. This change will certainly dampen

the number of cross Atlantic deals going

forward as US corporations will find it harder

to take advantage of lower corporation tax

rates in EU countries such as Ireland. In

Europe at the same time, investors had

been cautious to make major moves ahead

of the Brexit referendum, a status that will

likely remain over the next several months,

as details of the EU exit deal will slowly

surface.

Despite the undoubtedly more challenging

environment the pharma industry finds

itself in this year, M&A activity has far from

collapsed. 2016 is forecast to reach a total

deal value, well above what had been seen

in the years prior to 2014. The continued

relatively strong deal activity in 2016 is

driven by what fundamentally is still a very

healthy sector. Large pharmaceutical are

especially well capitalised thanks to strong

trading since the last financial crisis in 2009

and are under pressure to utilise their cash

to create additional shareholder value and

achieve aggressive growth targets through

acquisitions.

It isn’t just pharma that will continue to invest

heavily. Private Equity funds have plenty of

investor cash they are looking to put to work

and as a result we are likely to continue to

see a lot of competition from PE funds in the

healthcare space as they seek to capitalise

on a more recession proof sector with a

growth rate above global GDP.

Finally, consolidation will be an important

driver of M&A in the future. Services sectors

such as the CMO space are still largely

fragmented and players will seek to gain

additional market share and scale through

inorganic growth.

Thanks to all of these substantial drivers

towards continued M&A activity, this year

will most likely be a normalisation to more

sustainable levels of deal making rather than

anything resembling a crash.

Achim NewrzellaE [email protected]

“ ...Despite the undoubtedly more challenging environment the pharma industry finds itself in this year, M&A activity has far from collapsed.... ”


Daniel MekicE [email protected]

Will the sector live up to its potential?

4

2016 began with Johnson &

Johnson announcing 3,000

job cuts in its medical-devices

division (2.5% reduction in

its worldwide employees), as

part of efforts to improve the

division’s performance.

Since 2015, the business has been buying

and selling assets to reposition its business

(e.g. Cordis). At the time of writing, there

has not been a deal that matched the $50bn

purchase of Covidien by Medtronic, which

made Medtronic the biggest player in the

medical device industry. Given the premium

paid (c.30%), the eyes are on Medtronic’s

ability to integrate; albeit helped by the

deal structure to reduce US income taxes

(dubbed the largest-ever tax “inversion”

deal).

Tax advantages aside, which are receiving

increased scrutiny, M&A is likely to remain a

key instrument for the medtech major players

to redefine their portfolios in response to new

technologies and cost pressures. Changes

are likely to be disruptive, as the industry

has enjoyed stability for decades. Rising or

stable margins are expected to decline until

2020, leading many medtech executives to

look for ways to specialise, capture more of

the value chain or look for other avenues to

maintain margins.

In Q2 2016, a definitive agreement for Abbott

to acquire St. Jude Medical was announced

with a deal value of $25bn (approx. $30bn

with target’s net debt considered), motivated

by the complementary nature of their

businesses. Abbott’s business includes

nutrition and established pharmaceuticals,

as well as medical devices (25%) and

diagnostics (23%). If successful, the eclectic

mix of Abbot’s business areas will be

significantly biased to devices, as the target’s

sales are over a quarter of the acquirer. The

merger is pending antitrust scrutiny and

a second request for information from the

Federal Trade Commission has been made.

In Q3 2016, Abbott announced that it will

sell Abbott Medical Optics, its vision care

business, to Johnson & Johnson for $4bn in

cash.

Medical devices are a mixed bag and reach

the market through varying regulatory

routes, they range from simple and everyday

consumer products such as sticking-plasters

to hip implants, MRI and X-Ray equipment

and pacemakers. The top ten list of

companies in the sector is made up of a mix

of pharma and engineering representatives

as well as the specialists. By no means

is the sector expected to decline in

importance in terms of healthcare spending,

as the segment is expected to growth to

c.$480bn by 2020 at a CAGR of 4.1%. The

expectations are ahead of forecasted global

GDP growth, but below the 4.9% growth

forecasted for prescription pharmaceuticals.

We live in exciting times with medical

technology showing great potential

for helping patients through improved

treatments and organisation of their care.

Already, laparoscopy or keyhole surgery

has minimised the size of incisions, so on

average minimising scarring and recovery

times. Many of the disruptive technologies

highlighted by the 2013 McKinsey Global

Institute report, commonly cited for

anticipated technology disruptions, have

direct impacts on the sector. Technologies

related to data can feed into the payers

and providers thirst for evidence-based

healthcare. Privacy and the role of big data

in medicine is not a new topic for 2016;

however, the year witnessed scrutiny over

data sharing between Google and the NHS.

Robotics has the potential to help doctors

treat patients and can drive changes in

surgery if cost concerns can be addressed.

In 2016, the results of a study published in

the Lancet found no statistical difference in

quality of life outcomes when using robots

in keyhole surgery for prostate cancer,

casting some doubt on the benefits of the

current robot generation. Medtech needs to

consider new healthcare delivery models,

such as the shift of care out of hospitals to

cheaper alternatives, where new user groups

and available infrastructure need to be

considered. The sector can be an enabler for

better care in the new settings.

The industry will have to prepare for new

medical device regulations in the EU, which

are expected to be formally published

by 2016/17. The new legislation impacts

device classifications, the extent of products

covered, post market surveillance, and

traceability. Overall, it is seen as a tightening

of the reigns on the industry to control for

safety; historically, the region was seen

to be more lightly regulated that the USA.

Comments on the impact of Brexit are

speculative, but there could be impacts from

the UK’s legislative and R&D funding stance.

(Sources: ATKearney, EvaluatePharma,

SP Capital IQ. Results analysis)

MEDTECH


Kunal KadiwarE [email protected]

Kunal Kadiwar joins Results Healthcare

Q&A

You joined Results Healthcare from Quintiles where you worked as a Director in the Corporate Development team, tell us about that?

Quintiles was my first experience working for

a corporate, prior to this I had worked mainly

within financial services. I joined Quintiles’

corporate development team to enable me

to gain further experience in the pharma

services industry and work in a role where

I would have the opportunity to help shape

corporate strategy and learn from exposure

to partnership transactions.

What specifically attracted you to Results?

Two primary reasons - the people and the

client base. I have not been with Results

for long, although the dynamic culture is

very evident, the company is built on putting

clients at the forefront of everything and

working cohesively as a single team.

Secondly, Results has a very diverse client

base ranging from large cap institutions

through to owner-manager companies, both

naturally at different stages in their life cycle.

I wanted to have the opportunity to work with

a diverse range of clients.

In the past you worked for an investment bank in the Middle East, what are the important differences in deal making in that region compared with Western Europe or the US?

What struck me most when I started working

in the Middle East is the high level of

transaction risk that is often prevalent when

executing transactions. Factors such as

political influence, information transparency,

cultural differences, are often significant

bottlenecks in completion of a deal. This is

not to say that we don’t come across these

issues when completing deals in the Western

markets, although to a much lesser degree

than in other parts of the world.

What are the key industry trends that are currently driving healthcare M&A in your view?

I think you can place the factors driving

activity into two buckets. There are those

factors which relate to companies taking

advantage of recent economic conditions

whether it be the low interest rate

environment which has helped increased

investment returns and investor risk appetite

or economic opportunities such as tax

inversion.

Then there are those factors which are

driven by the changing industry dynamics.

This may include the evolving business

models of pharma which in some cases

involve a diversification into new therapy

areas or a divestment of non-core assets.

It includes the poor drug development

pipelines and the maturing of the biotech

sector which presents acquisition

candidates. It also includes the sluggish

financial results and the desire for a short

term boost to earnings.

What is the future of the CRO industry and how do you see this developing over the next 10 years?

Although the CRO industry has had some

consolidation, I think it’s fair to say that

there has been much less than most people

expected. My sense is that there will be

further consolidation in the years to come,

especially amongst the larger CROs as they

begin to feel the effects of commoditisation

and the resultant pricing pressure.

On another level, we have already seen

the role that strategic transactions have

in shaping the pharma outsourcing

industry over the past five years. This is

effectively where pharma outsources its

entire development pipeline to one or two

CROs. I think that this trend is only going

to accelerate over the coming years. Some

of the larger CROs, especially those that

are publically listed, have increasing market

pressure to move their business model from

a tactical to strategic client relationship in an

effort to reduce earnings volatility.

After the collapse of the Pfizer and Allergan ‘$160bn’ deal, do you think this spells the end for such mega deals?

The Pfizer/Allergan deal fell apart primarily

due to the closure of the inversion tax rule,

which allowed acquiring companies to

accrue the benefits of being domiciled in low

tax regions. We know that many of the deals

done over the past few years have been

fuelled by this opportunity.

I don’t believe that the closing of this

loophole is necessarily going to spell an end

to M&A activity in the pharma sector. We

know that there is a bucket of large pharma

that are struggling with their pipeline and

failing to meet the expectations set by the

market. Growth in the medium term for them

is going to be spurned by an acquisitive

model which for some is going to involve

diversifying their operations and for others

returning to their core.

The recent correction in the markets

presents an opportunity for many large

pharma companies to utilise their large cash

pile and seize on valuations which have

suddenly become more attractive.

5

Kunal KadiwarDirector

6

CRISPR

CRISPR is the hottest new gene editing technique in the science community and promises to provide the tool to rapidly further our understanding of the regulation of gene expression, the impact of genetic mutations and enhance drug discovery and gene therapy programmes. Consequently startups developing CRISPR based therapies have received considerable interest and investment from venture capital as well as established pharma and biotech. Investments made in the last two years are well in excess of half a billion dollars with one company, CRISPR Therapeutics, alone attracting over $250m in funding.

What is CRISPR?

CRISPR (clustered regularly interspaced

short palindromic repeats) were first

discovered in the genome of prokaryotes

in 1987 and in 2007 confirmed to be part

of a mechanism to protect bacteria against

viruses and foreign plasmids by guiding

their destruction. In bacteria CRISPR

genes are transcribed into RNA strands

that recognise and bind to foreign DNA.

They then recruit nucleases such as Cas9

(CRISPR associated protein 9) to cleave

and inactivate the foreign DNA and so are

capable of preventing viral infection.

In 2012, a study published by Jennifer

Doudna and Emmanuelle Charpentier in

Science showed that the CRISPR/Cas9

system can be modified to target and cleave

any DNA sequence. This was achieved by

simply changing the RNA sequence that

bacteria use to target viral DNA, to target

other DNA sequences. It was subsequently

shown by a group led by Feng Zhang at the

Broad Institute of MIT and Harvard that this

method can be used to target any desired

DNA sequence and several sequences

simultaneously in mouse and human cells.

The CRISPR/Cas9 systems works in two

steps to target and cut a specific DNA

sequence. Firstly, a guide RNA (gRNA)

element with a specific target sequence of

approx. 20 base pairs is designed. Whilst

the target sequence is responsible for

targeting the system to the correct part of

the genome, the rest of the gRNA is used

to recruit and bind to the Cas9 protein to

form the active RNA/protein complex. Once

bound together, the complex binds to the

DNA strand and the nuclease activity of

Cas9 cuts both strands to cause a complete

break. Once the DNA strand has been

broken, it can be left to the cellular repair

mechanism to re-join the ends or a new

DNA sequence (such as a new gene) can be

inserted at the break site.

The cellular repair mechanism is error

prone and will often cause changes in the

genetic code at the break site. Using the

CRISPR/Cas9 system to induce such a

change (mutation) within a gene, will often

lead to disabling of the gene altogether. This

ability can be used to study the function of

individual genes or disable faulty or disease-

causing genes for therapeutic purposes.

The insertion of new genetic material at the

break site is an equally useful tool, which

can be used to study the regulation of gene

expression, to insert a healthy gene into

an organism as part of gene therapy or to

create new pest resistant crops.

CRISPR is a disruptive technology

Having been discovered only 4 years ago,

CRISPR is already drastically accelerating

the rate at which the function of genes can

be studied. CRISPR has several advantages

over older gene editing techniques with

regard to the speed, ease and cost at which

it can be performed. Compared to more

established techniques such as ZFN (zinc

finger nucleases) or TALEN (TAL effector

nucleases), CRISPR is up to 100x cheaper

and can be performed much quicker, as

only the gRNA element of the process has

to be adjusted to target different genes.

Furthermore, CRISPR has been shown

to work in a wide range of organisms

without significant modification. This will

allow for faster and cheaper generation of

disease models in model organisms such

as mice, which will considerably better our

understanding of disease mechanisms and

so aid drug discovery programs.

Beyond using CRISPR as a tool to study

genetic mechanisms and in drug discovery

programs, there is also a drive to utilise

CRISPR for gene therapy. The vision is to

disable faulty and disease causing genes

and eventually to replace them with healthy

versions altogether to cure diseases such as

cystic fibrosis, AIDS and cancers.

This versatility means the technique is likely

to become part of the essential tool kit for

research, drug discovery and possibly gene

therapy applications.

Pharma and investors have recognised the opportunity

Undeterred from potential challenges around

efficacy and safety, already identified in early

studies, several companies are seeking to

commercialise CRISPR and develop gene

therapies based on the technology. Big

pharma have been quick to recognise the

opportunity and have invested heavily in

CRISPR start-ups. Currently four companies

are leading the segment with investment

from pharma and venture capital firms

totalling several hundred million dollars.

Editas Medicine (NasdaqGS:EDIT), the

company of current CRISPR patent holder

Feng Zheng, received $43m in Series

A funding and a further $120m from a

consortium of 19 investors, including


The future of gene therapy?

7

investment firm bng0 which is backed

by Bill Gates among others. Editas has

also entered a collaboration with Juno

Therapeutics worth $25m in upfront

payments and $22m in research support to

develop cell-based immunotherapies against

cancer using CRISPR technology. The

companies own projects which are likely to

see in-patient trials in the next few years are

aiming to cure Leber’s congenital amaurosis

type 10, a genetic form of blindness. The

oldest company in this quartet was founded

in 2007 by scientists from Berkeley, including

Jennifer Doudna, to exploit the potential of

CRISPR. The company has now received

$33m in funding from venture capital and

pharma since 2014.

Caribou is collaborating with Novartis

through its subsidiary Intellia Therapeutics

and with DuPont to further develop

the technology. Intellia Therapeutics

(NasdaqGM:NTLA), which was co-

founded by Jennifer Doudna and Caribou

Therapeutics as the vehicle to develop

human gene therapies, has so far raised

$140m in three funding rounds. Importantly

two major investors are Regeneron and

Novartis. The Swiss drug maker is now

working with Intellia to utilise CRISPR to

engineer chimeric antigen receptor T-cells

(CARTs) and hematopoietic stem cells

(HSCs) ex vivo. Novartis had invested $15m

in the Series A funding round and is now

paying Intellia an undisclosed amount for the

five year research collaboration. Although,

insider sources say the sum is substantial

to the point where Intellia will not require

further external funding for the next 5 years.

In addition to the ex vivo work, Intellia is

also developing in vivo CRISPR based gene

therapies.

The projects target transthyretin amyloidosis

(collaboration with Regeneron), antitrypsin

deficiency, Hepatitis B and inborn errors

of metabolism (all proprietary), using lipid

nanoparticles (LNP) to deliver the CRISPR/

Cas9 complex to the liver.

Swiss based CRISPR Therapeutics is

another startup that has attracted high profile

investment. The company was co-founded

by CRISPR co-inventor Emmanuelle

Charpentier and has so far attracted $263m

in investments. Vertex Pharmaceuticals

signed an extensive four year collaboration

agreement in October 2015, which included

$105m of up-front payments. During the

collaboration the companies will initially

focus on cystic fibrosis therapies and

additionally develop CRISPR based gene

therapies for haemoglobinopathies. Vertex

has the option to exclusively license up

to six treatments from the collaboration

with milestone and royalty payments of

up to $420m per license due to be paid to

CRISPR Therapeutics. That means the

Vertex collaboration could potentially be

worth up to $2.6bn to the young company.

The other high profile collaboration was

agreed at the end of 2015 with Bayer, which

has committed $30m of upfront investment

as well as $300m in R&D support payments

over five years. The joint-venture is set up

to find therapies against blood disorders,

blindness and congenital heart disease.

All companies are working on ex vivo

(outside the body) and in vivo (inside the

body) applications of CRISPR therapies.

In an ex vivo treatment regime cells are

removed from the patient, treated in the lab

and then returned to the patient, making

it particularly useful for the treatment of

blood disorders. Being able to administer

treatment outside the body also means that

ex vivo treatments are somewhat easier to

develop than in vivo therapies. Administering

gene therapy agents in vivo to the correct

cells currently relies on viral vectors (safety

concerns) or nanoparticles (novel and not

well developed technology), which are

expensive and time consuming to develop.

It thus makes a lot of sense for the CRISPR

startups to initially pursue ex vivo therapies,

which are likely to be easier to develop,

have fewer regulatory hurdles with regards

to safety to overcome and should as a result

offer a faster route to market.

Is CRISPR already over-hyped?

Intellia and Editas both went public at the

start of 2016 and temporarily achieved

market caps of around $1bn. This is despite

both companies reporting only nominal

seven figure revenues and substantial

losses, a situation that is unlikely to change

for the next five or so years until the first

products reach the market. It is common

practice to value pre-revenue biotechs

based on the potential future earnings of

the therapies they are developing rather

than their current financial performance

but CRISPR is still in its infancy and

unproven in the clinic. Although CRISPR

has shown great promise in the lab, there

is no guarantee that this will translate into

clinical success. Other technologies such

as RNA interference, that were hailed as

the next great thing and received billions

in funding, have failed to deliver on such

promises. CRISPR is currently at least two

years away from clinical trials and then a

further 3-5 years before approval. Apart from

efficacy, CRISPR therapies will also have

to extensively demonstrate their safety as

gene editing at un-desired sites can have

very serious side effects. A quicker source

of revenue may come from the agricultural

industry, where regulation of genetically

modified plants in the US is not well defined

and many crops generated by gene editing

are not subject to regulation at all. CRISPR

has the potential to cheaply and quickly

develop pest and pesticide resistant crops,

thus allowing biotechs to achieve revenue

streams much more quickly than is possible

through therapeutic applications.

Considering the already fairly punchy

valuation of CRISPR biotechs and the

long and very difficult road to market for

therapies currently in development, investing

at this early stage is reserved for the more

adventurous investor. This is especially true,

if one considers that no gene therapy has

ever been granted FDA approval for human

use. Should CRISPR break this record,

the pay-off for any early investor would of

course be great.

But the story does not end here! An

intellectual property dispute that is likely to

last many years is about to enter its crucial

phase.

Continue reading the full story at:

www.resultshealthcare.com/insight/

CRISPR


Achim NewrzellaE [email protected]

The future of gene therapy?

www.resultshealthcare.com/insight/CRISPR

Interview with Dan Adler, Investment Partner, Lyceum Capital

LYCEUM CAPITAL Q&A


Anthony HarringtonE [email protected]

support of the initial platform investments.

We are a team of over 30 highly experienced

professionals, with a large network of

external partners and contacts – this

includes a dedicated in-house Operations

Team which works in partnership with

management teams across our portfolio.

So there is a huge degree of know-how and

expertise in the firm, and we are typically

able to advise and support our partners

through any of the challenges they might

encounter.

What is your interest in the

healthcare sector?

We like to invest in B2B service businesses with a particular focus on outsourcing, information & technology. That obviously captures a large number of firms in the healthcare sector, in areas such as pharma communication services, contract outsourcing and other sub-sectors. In the past we have made a number of very successful investments in healthcare – in companies like Carewatch, Clinova and Synexus, which we exited just last year. We continue to feel that the healthcare market benefits from a number of longer-term trends, such as increasing use of evidence / data and an increased propensity to outsource, which will drive growth into the

future, so it is a core area of focus for us.

Has your investment outlook for

UK SME businesses changed in

the wake of Brexit?

No – we remain very confident in the outlook

for the sectors on which we focus. We

identify and support strong, dynamic UK-

based management teams with the vision

to become leaders in their market. Once

we’ve identified the teams we want to work

with, we take a long term strategic approach

towards working with them that trumps one-

off events like Brexit.

Lyceum is one of the most

established UK Private Equity

investors – what’s your role at the

firm?

I joined Lyceum in 2003 after qualifying as

an accountant and gaining experience in the

investment industry. My current role is as

an investment partner as well as managing

Lyceum Capital’s Origination Team, which

sources and executes our investments.

I also sit on the Boards of several of

the firms in which we have invested. In

addition to this, I am a member of Lyceum’s

Management Board and Investment

Committee.

What have been the biggest

changes to how Lyceum

operates over the years?

Our investment approach has been

consistent – we have raised over £800m of

capital across three funds, all focused on

supporting rapidly-growing mid-sized UK

businesses. As Lyceum has grown we’ve

added to the experience and expertise that

we can bring to the management teams with

which we partner, if they need it. An example

of that is the dedicated support available

from our Operations Team, which includes

four Lyceum Partners and a wide number

of specialist experts and industry veterans

who are available to share insights and

past learnings with our portfolio companies.

To support our operational expertise, we

have recently launched a fantastic online

resource tool, the Lyceum Best Practice

Centre, giving our portfolio businesses

instant access to over 300 templates, report

examples, plans, best practice examples

and industry contacts.

Do the companies you back

tend to face similar challenges?

We tend to partner with successful, fast

growing companies so they can face a lot of

similar challenges. Fast growth can mean

rapidly expanding corporate functions like

sales, finance, HR as well as expanding the

firm’s operations and offering, all of which

brings structural and cultural challenges to a

company.

Our management teams are often interested

in international expansion, which challenges

businesses to learn about new markets, new

legal systems and develop a new network

of clients and other relationships all at the

same time.

Our job is to support management teams

as they overcome these challenges, without

interfering in what makes their business

special in the first place.

How can/has Lyceum help them

overcome these challenges?

We are very ‘demand-led’: our management

teams get as much support as they need

but no unwanted interference. Typically

we provide the benefit of our experience,

applied to the individual challenges faced by

each of our partners. In the past 15 years

Lyceum has invested in over 125 businesses

and made over 100 additional acquisitions in

8

www.resultsig.com

LYCEUM CAPITAL Q&A

Ever since it became law in 2010, the Patient Protection and Affordable Care Act (ACA or Obamacare) has been a polarising issue in American politics. Republican politicians have vowed to repeal the law since the day it passed.

Earlier this year they were finally able to pass a resolution through both houses of Congress to effectively repeal the law. Naturally, President Obama vetoed that resolution. But come January 2017, Obama will no longer be around to defend his famous law. The fate of the ACA may well depend on the results of the November elections.

What has Obamacare done for its country? Its major accomplishment is enabling millions of Americans to obtain health insurance who previously were without it due to costs or pre-existing conditions. In Q1 2016 the adult uninsured rate stood at 11%. That’s 6.1% lower than Q4 2013, the quarter before the law was implemented. What has it not done? It has not controlled costs. The US is still projected to spend over 17% of its GDP on healthcare. Nearly all experts agree that these costs are unsustainable, and that left unchecked they could bankrupt the nation in little more than a generations’ time. This is the real problem with the US healthcare system, but it is one that is in nobody’s favour to discuss, because no one has a politically palatable solution.

Meanwhile, neither Trump’s nor Clinton’s stance on Obamacare is attracting much attention in the media, probably because both candidates’ positions are so clear. A Clinton victory will ensure the continued existence of the law – and probably mean the demise of the Republican dream to repeal it, so firmly entrenched would it become after four and especially eight more years. Clinton has signalled her intent to improve and enhance the law with measures such as (i) new incentives for states to expand Medicaid (19 states chose not to do this, which has created a coverage gap for about 3 million Americans – too wealthy for Medicaid in its current form, but too poor for Obamacare), and (ii) a sharpened focus on controlling pharmaceutical costs. Clinton has also pledged renewed consideration for the so-called ‘Public Option,’ which would create state run health insurance agencies that would compete with private insurers in offering healthcare plans, especially in states where private insurers are limiting their offerings or exiting completely.

Trump of course has promised to repeal Obamacare immediately if he becomes President, though he will need sufficient votes in Congress. If Democrats are able to regain control of the Senate (they need to win five seats), they would stymy any attempt to repeal the law. But even with Congressional support, Trump would likely find a wholesale repeal of Obamacare problematic, as it would result in millions of Americans losing their healthcare insurance overnight. Even Obamacare-hating Republicans won’t want to cause

that sort of chaos. It’s likely that a ‘repeal’ would eliminate some aspects of the law (the ‘individual mandate’, which make purchasing health insurance a requirement for most Americans) and retaining others (Trump has previously advocated continuing to require insurance companies to cover individuals with pre-existing conditions). And change will likely be gradual, both because the US insurance industry will need time to adjust, and something will have to be found to replace the ACA. Trump has promised to replace Obamacare with ‘something great’. His publicised positions on healthcare reflect standard Republican ideology, such as interstate sale of insurance, full tax deductions for insurance costs and health savings accounts. How it would all fit together is unclear.

So the upshot is this: A Democrat win, in either the presidential election or in control of the Senate, should result in the ACA remaining intact. But if Trump becomes president and Republicans maintain control of Congress, then changes to the ACA are a near certainty. These changes will likely be marketed to the public as a wholesale repeal of Obamacare, but practical considerations will compel a partial and gradual pace of change.

Either way, you can count on Americans spending way too much money on healthcare, with no one talking about it, at least for a while longer.

Obamacare, the 2016 elections and the real problem with the US healthcare system

Jason FossE [email protected]

OBAMACARE & US HEALTHCARE9

HEALTHTECHThe ongoing digital transformation

Sam Dunford-BakerE [email protected]

Healthcare continues to lag behind other industries in digital transformation due to historical barriers to adoption, such as expense and lack of interoperability. This in spite of the fact that digitisation offers a compelling solution to the ongoing challenges of meeting the increasing demand for healthcare while reducing the

cost of delivery.

Nevertheless, in recent years, the healthcare

industry has started to catch up and realise

the transformative potential of technology

through the use of data & analytics and

other solutions to improve patient outcomes

whilst maximising cost efficiencies. This shift

in the perception of healthtech has attracted

new and emerging buyers, including national

telcos and diversified software vendors

whose origins are not in healthcare, to play

in the space.

For national telcos such as Telstra

(Australia), Telus (Canada) and Swisscom

(Switzerland), the rationale is simple: with

connectivity reaching saturation, traditional

revenue growth is increasingly tied to that of

the population and developing new revenue

streams is a strategic imperative. For Telus

(five acquisitions in the last two years)

and Telstra (four acquisitions in the last

two years, including UK-based healthcare

performance analytics vendor, Dr Foster),

these strategies began in 2007 and 2014

respectively. For both, aspirations are

the same – to create national healthtech

ecosystems which improve outcomes and

efficiency – as is the commercial rationale:

demand is strong and yet to peak, while

investment risk is low relative to potential

future earnings.

For diversified software vendors the

business case is the same, but acquisition

strategies are slightly different: a) building

out a healthtech business with technology

complementary to existing offerings; or

b) expanding current business with new

capabilities or by consolidating existing

ones. Recent examples of the former include

Lexmark, Fujifilm and Konica Minolta, which

had one medical information and image

management acquisition apiece in 2015.

Roper Technologies on the other hand has

acquired eight healthtech companies since

2014 across new and existing capabilities,

including building on their existing laboratory

information management offering through

the acquisition of UK-based Clinisys, for

c.$260m.

Nowhere has the focus on data been more

apparent than with IBM’s establishment of

its health data analytics unit, IBM Watson

Health, after acquiring US-based data

analytics companies, Explorys and Phytel,

in April 2015. Combined with its subsequent

acquisitions of Merge Healthcare and

Truven Analytics totalling approximately

$3.6bn, Watson is intending to improve care

coordination and outcomes by providing

professionals with data-driven insights at the

point of care.

What Watson’s insights will look like as a

usable product is not yet certain, but with

partners including Medtronic, Apple and

Johnson & Johnson, there is no doubt that

large bets are being made on the next

generation of healthtech, bets that are

translating into deal activity. In the first three

quarters of 2016, tracked activity has totalled

206 deals across a range of buyers seeking

to be part of the digitisation catch-up or next

revolution in healthtech, putting 2016 on

track to top the 253 deals completed

in 2015.

10


“ ...digitisation offers a compelling solution to the ongoing challenges of meeting the

increasing demand for healthcare... ”

HEALTHTECH

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