The Life Sciences team of Edmond de Rothschild Investment Partners (EdRIP) has invested in over 50 companies, of which 11 have exited via public offerings and 10 have been acquired through trade sales since its inception in 2000. With close to ‚Ç¨450m under management EdRIP Life Science invests in companies based mainly in Europe, and is active in therapeutic products, medical devices and molecular diagnostics. EdRIP‚Äôs latest life science fund, Biodiscovery 4, is a ‚Ç¨192m 2013 vintage fund.¬† ¬†
Rapha√´l ¬†is a Partner of the Life Science team at EdRIP. Prior to EdRIP, Rapha√´l was a Partner with Goldman Sachs and Citigroup CIB and served as an Associate at G√©n√©rale de Sant√© SA and at Compagnie G√©n√©rale de Sante. Rapha√´l holds a degree in Business from HEC Paris and a Master‚Äôs degree in Economics and Finance from IEP Paris. He also studied at Ecole des Hautes Etudes Commerciales in Montreal. In his tenure at EdRIP, Rapha√´l has served on the board of 15 portfolio companies of whom two were acquired and six exited through public offerings.
Kreos and EdRIP have had a long-standing relationship over many years. Investments we have worked on together recently include:
¬®¬†Implanet ‚Äì Kreos provided ‚Ç¨5m of pre-IPO financing in a single tranche to this French medical device company to supply its geographic expansion.
¬®¬†Noxxon ‚Äì Kreos provided ‚Ç¨7m of growth financing in two tranches to this Berlin-based drug development company to reach significant clinical milestones.
¬®¬†Poxel ‚Äì ¬†Kreos provided ‚Ç¨8m of growth financing in two tranches to this Lyon based drug development company active in the diabetic space to reach clinical milestones.
Let‚Äôs talk about some of the deals we have done together, and what you see as their characteristics.
We have worked with Kreos on several occasions with some of our life science and medical technology companies as well as web-services companies. The French orthopaedic company Implanet is a good recent example, which went public in November 2013. The company is generating strong revenues and needed further funds to commercialise their new spinal implant, notably in the US.
Kreos provided a loan in mid-July 2013 which with the contribution of the existing investors supported the company until the IPO was completed. We have been working with Kreos on a few life science companies where Kreos provided loans on top of existing investors to reach further funding or clinical milestones. Kreos is also able to operate in certain geographies in Europe ¬†where other growth debt providers may not focus on.
Are there some general themes about the way we work together?
Kreos maintains a constant relationship with the industry and the investor community through regular contacts and conference attendance such that there is a constant dialogue as the opportunities emerge. We work on several themes with Kreos:
¬®¬†short term financings before an IPO, which enable existing equity investors to maintain their reserves to support the IPO
¬®¬†topping up an internal or external private round to reduce the amount of equity and therefore the dilution to management and existing investors
¬®¬†milestone linked financings which enable companies to achieve clinical milestones without equity dilution
What are your views on the current conditions for high-growth companies in Europe?
We have seen company formations¬†continue at a fast pace, as there is significant financing and resources to develop earlier- stage companies. However, there continue to be¬† relatively fewer growth equity investors¬† which creates a bit of a financing shortage for fast-growing companies and can create some complexities for growth financings and syndicate building.
Investors are asking companies to do more with fewer resources and tranched financings.¬† In general, management teams are responding well to the challenges. More recently the IPO market has revived particularly on Euronext where biotech and med-tech companies have been able to raise funds to pursue their development and commercialisation.
What areas do you see opportunities for your future deal-flow?
With our Biodiscovery 4 fund of ‚Ç¨192m raised in 2013, we are very visible and active in continental Europe and therefore we will continue to expand our activities to areas such as Scandinavia and the UK. We are also selectively active in the US. In line with our consistent investment policy two thirds of our deal-flow is made up of biotechnology companies with opportunities in oncology and inflammation and the rest of medical technology companies (areas like cardiology, neurostimulation etc.).
Are you still seeing a financing gap where European SMEs are finding it hard to get debt financing?
Even for med-tech companies¬† generating significant revenues, securing traditional debt financings from banks (such as receivable loans) is not an easy task. This is quite understandable as some of these companies are not yet profitable, which do not make them ideal candidates with banks and lower generally mid-market private debt funds, which are generally not equipped to evaluate high growth med-tech companies.
How can Growth Debt financing fill this financing gap?
The growth debt market can fill that gap quite ably as the growth debt funds are much more flexible than banks and can provide customised solutions while requiring less rigid criteria. As you know, the European growth debt market has fewer players than the US, where it is widely used by high growth companies. This is due to a lack of established lenders in this market segment in Europe. Accordingly,¬† there are sometimes misconceptions as to the relatively low cost of growth debt when comparing to an equity investment. We have typically found that the cost of capital for a growth debt round is 20-25% whereas, an equity round will typically drive 35%-40% dilution, so there are certain advantages to growth debt for investors in companies that are not a fit for bank financing. Of course,¬† there is a need for detailed due diligence¬† as to the ability for the companies to repay the loan at its term and therefore the capacity for companies to generate enough free cash flow and raise additional equity¬† in order to be able to support taking on growth debt. As you know,¬†¬† the loan providers look to the quality and financial strength of the equity providers supporting the company and this is an important consideration for which companies may realistically be able to attract debt financing as well.
All in all we see a bright future for growth debt financing funds in Europe as the banks continue to pull out of the market and high growth companies emerge out of Europe looking to grow globally or make acquisitions.