Strong Margins and Recession Resistant: The Allure of Pharma Services

The Capital Corner

On this episode of The Capital Corner, McGuireWoods' Geoff Cockrell sits down with Dr. Bijan Salehizadeh, Managing Director at NaviMed Capital, to discuss what is happening in the pharma services space within healthcare private equity.

The pharmaceutical services industry has piqued the interest of private equity investors over the last five to ten years as more drugs move into development and high quality science continues to grow. An impressive 500 IPOs were filed from biotech companies last year alone.

So what attracts private equity firms to invest in pharma services? And what can we expect in 2022?

“The benefit of pharmacy services is you're not subject to government reimbursement. And Pharma is a good payer and a fast payer. You also have pretty good pricing power,” explains Bijan in relation to what attracts investors to pharmaceutical services.

Despite a turbulent start to 2022, Bijan doesn’t see the interest in pharma services slowing down. In fact, he describes the industry as being “recession resistant” compared to many other areas of healthcare.

Featured Guest

Name: Bijan Salehizadeh

What he does: Bijan has over 20 years of healthcare operating and investment experience. At NaviMed, he sits on the firm’s Investment Committee and is responsible for leading investments and overseeing portfolio companies with a particular focus on healthcare providers and pharmaceutical services. Prior to co-founding NaviMed Capital, he was a General Partner at Highland Capital Partners, where he focused on growth stage healthcare investments.

Organization: NaviMed Capital

Connect: LinkedIn

Notes From the Capital Corner

Top takeaways from this episode

★ Structural change is driving growth in pharma services. Over the past 5-10 years there has been a lot of growth in pharma services within the healthcare private equity space. Structural changes have driven a lot of this growth, including having more drugs in development and a growing need to outsource the commercialization of drugs to third-party companies.

★ Private equity firms see the appeal in backing pharmacy services. Despite the risks of the FDA stopping a trial or discovering that the science didn’t work, pharma services remains an attractive investment for private equity groups. Investors appreciate not being subject to government reimbursement and the strong gross margins present in the industry.

★ Niche companies are especially attractive. Strategies for attractive deals within the pharma services space can include working with very specialized companies who have found success in their specific niche — including finding sales synergies and cross selling opportunities to help these smaller companies grow. These once niche companies then grow to a size that other companies and investors begin to pay more attention to.

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