Water Street targets generic injectables sector with CMO buy
The US private equity fund announced it had “committed equity to both acquire and expand” Carlsbad, California-based Custopharm this week, citing the rapid growth of the generic injectables sector as a driver.
Alan Heller, operating partner at Water Street, praised Custopharm’s sourcing and formulation development offering and said the plan is to invest in these capabilities as part of a wider growth effort.
“We will expand the company’s development capabilities and regulatory consulting services to meet the increasing demand for generic injectable products as more branded drugs come off patent.”
Water Street has hired William Larkins, former general manager of Ben Venue’s injectables arm Bedford Labs, as Custopharm’s new CEO.
A 2013 report by McKinsey & Co predicted that the injectables market will be worth $30bn in 2018, from around $20bn today, with growth being driven by patent losses, the emergence of new formulation techniques and demand in emerging markets.
The analysts suggest “success factors in generic sterile injectables include the nature and degree of portfolio differentiation, the scale and age of manufacturing facilities, the level of manufacturing quality assurance talent and the ability to refine the commercial model in an increasingly competitive market.”
McKinsey’s comments about quality and capacity are understandable. Quality problems suffered by sterile injectables manufacturers – notably Boehringer Ingelheim’s now closed CMO Ben Venue – have resulted in shortages and increased regulatory scrutiny.
This greater regulatory focus has impacted established injectables firms like Teva and Hospira for example. It has also created an opportunity with firms like AMRI, Pfizer, Sun, Hikma, Par, Recipharm and Mylan all investing in capacity in the last two years.
Private equity interest
Water Street is not the only private equity firm to have invested in generic injectables in recent years.
In 2013, Kohlberg Kravis Roberts & Co (KKR) paid $200m for a stake Gland Pharma, which supplies by the US and local markets with injectable products. Similarly, Sun European Partners has owned NextPharma Technologies since 2011 and BC Capital bought Aenova from Bridgepoint in 2012.