Five questions with Blackstone Life Sciences’ Nicholas Galakatos

The newly formed investment arm leveraged the full power of Blackstone for its $4.6bn fundraise, and continues to do so as it deploys the fund.

Blackstone held a final close on its inaugural life sciences fund, Blackstone Life Sciences V, on $4.6 billion in early July, around a year after the firm began marketing for the vehicle.

Blackstone launched its life sciences platform in October 2018 with the acquisition of global life sciences investment firm Clarus. This followed an investor day presentation at which the firm’s executive vice-chairman Tony James spoke of a “mushrooming funding gap” in the space as large pharmaceutical companies increasingly focused on short-term profits, thereby squeezing budgets for research and development.

Nicholas Galakatos Blackstone
Nicholas Galakatos

The vehicle has already made some sizeable transactions, committing nearly $1 billion over the past three months. These include a $337 million strategic collaboration with Medtronic on its diabetes management products and a $2 billion strategic collaboration with biotechnology company Alnylam.

We caught up with Nicholas Galakatos, global head of Blackstone Life Sciences, to find out more about the firm’s plans for the vehicle.

Today’s market environment is very different to when you began fundraising for BXLS V. What are some of the opportunities and challenges that have arisen?

In many ways there has not been a dramatic difference in the opportunities we’re investing in, and there are several reasons for that. We look to find and advance late-stage products in either the pharmaceutical industry or the medical technology industry to approval and to the patients, so it’s late-stage development. Late-stage drug development doesn’t really change in a pre-covid-19 situation versus a post-covid-19 situation. The demand for capital is just as high for these very expensive late-stage development programmes.

The current situation has added an additional layer of uncertainty, and CEOs of the companies that we’ve partnered with all see that. They want to manage the uncertainty by teaming up with organisations that have depth, breadth and financial resources.

We made two announcements in June that are good examples of this. First, we led a $350 million investment in Reata Pharmaceuticals to fund the FDA submission, commercialization, and further development of bardoxolone for chronic kidney disease in Alport syndrome. We also announced a $337 million product investment agreement with Medtronic to advance next generation products to help patients around the world manage diabetes. These transactions demonstrate how we are working with promising and established companies to help advance new medicines and therapies to patients where there are high unmet needs. These are good examples of something that started pre-covid because the need was there, and it continued to be there throughout.

Are you looking at any investment opportunities related to covid-19 vaccines or treatments?

We are not currently looking at investment opportunities related to covid-19 since we invest in the development of later-stage therapies. However, some of the companies we have invested in previously are doing work in the covid-19 area. For example, Alnylam has a product in development, an antiviral for the covid-19 virus in collaboration with Vir. So even though we’re not creating new companies in that area for covid-19, our existing companies are participating in several aspects of that – either on the antiviral side, as with Alnylam, or in thrombolytics, because it’s been well documented that covid-19-infected patients can develop thrombus and they need blood thinners to resolve them.

We’re not active on the vaccine side. That’s a massive multi-billion effort on multiple continents that typically requires the resources of a very large pharmaceutical company.

Healthcare is seen as a bright spot at the moment in a challenging private equity environment. Do you anticipate more competition from other PE funds?

The fundamental problem that we’re trying to solve is there are many more products in late-stage development than there is capital available to fund them. The late-stage development of a product is the most expensive part of development – phase III clinical trials require anywhere from $100 million to $500 million each. So, in order to be a player in that area you need two things: you need to be an expert in that area, in terms of deeply understanding drug development; and you need to have capital at scale to fund to completion a very large and very expensive clinical trial. It is very hard to have both.

Our group collectively over the years has been involved in taking to approval and into development over 80 medicines. That is an unparalleled record of achievement in terms of expertise and success through the clinical development process. And, as far as scale capital, this is the largest life sciences private fund raised to date.

Clarus was acquired by Blackstone in 2018. What was the fundraising and now the deployment experience like as part of a large organization?

The last Clarus fund we raised, in 2017, was $910 million, which is five times less than what we closed now. At the time it was still one of the largest funds in the sector, but what was very apparent as we became more and more active in partnering with large pharmaceutical companies was that a $910 million fund was barely enough to do two or three of these major transactions.

In late 2017 we were approached by Blackstone saying, “we’ve been following your success and we’d like to figure out a way to partner with you.” It was a call at the right time for us, as we could clearly see the value we were bringing to the drug development process and ultimately to the patients. We had the expertise and the experience and the specific industry relations, and Blackstone brought in the tremendous brand and the fundraising resources and overall reach. It was highly synergistic, exactly what we had hoped, and I believe also what the Blackstone management wanted to see.

Are there any plans to collaborate with other Blackstone investment arms?

That’s part of the power of the integrated organisation of Blackstone. Alnylam is a good example. Earlier this year, we agreed to a strategic collaboration where we will provide up to $2 billion to support Alnylam’s advancement of innovative RNA interference medicines that have the potential to transform the lives of patients suffering from a range of debilitating diseases. This included a $1 billion purchase of a portion of a royalty interest in a product that Alnylam has rights to from Novartis, the world’s fourth largest pharmaceutical company. If approved, that product, inclisiran, is expected to help patients lower LDL cholesterol, which is a major risk factor for cardiovascular disease, the leading cause of mortality in the US and globally.

We signed a term sheet for a risk-sharing partnership with Alnylam on earlier-stage assets and purchased a little bit of equity. Finally, the credit group at Blackstone, GSO, completed a $750 million debt financing with Alnylam.

In addition, BioMed Realty, which is a portfolio company of our real estate colleagues, is the landlord of Alnylam. When we commit this capital allowing Alnylam to grow, they will need more space. So, the real estate team is very active in our dialogue, since they are already the company’s landlords. So, it was a team effort with a very exciting, rapidly moving company.