New Health Capital builds royalties fund

The New York-based private equity firm has collected $150m for investments in pharmaceutical products and medical device companies that will employ strategies like royalty monetisation.

New Health Capital Partners has secured a $150 million anchor capital commitment from ORIX USA Asset Management for its debut fund targeting pharmaceutical royalties.

The firm is seeking additional capital from outside investors for the fund, sources told Private Equity International.

The New York-based firm has already begun investing committed capital, co-founder Aron Dantzig said in a recent interview.

New Health Capital Partners Fund I will invest in pharmaceutical products and medical device companies through a variety of investment strategies, including senior royalty monetisations, secured loans, control equity investments and other structured financings.

Royalty
Monetisation

Royalty monetisations refer to the strategy in which a firm pays upfront cash for the revenues created by an individual product. The strategy is particularly popular in the pharmaceutical sector, which is characterised by longer product life cycles, according to Dantzig.

New Health’s approach will going beyond just investments in drug royalties, Dantzig said.

“Royalty funds are a little monolithic, and have a single approach to the way they invest,” Dantzig said. “Most royalty guys only tend to buy royalty streams on pharmaceuticals because of the product life cycle – they tend to have longer product lives. But if you’re a medical device company, obviously those companies need financing as well. We provide senior secured loans for those companies. We provide a very novel, and very flexible, form of non-traditional capital.”

The firm would only be investing in products that have already been approved by the US Food and Drug Administration, he added.

Over the past decade, several firms have invested heavily in medical and pharmaceutical royalties. DRI Capital, a Toronto-based firm that specialises in the strategy, is in the process of launching its third Drug Royalty fund, a source with knowledge of the firm said. Its second fund, which raised $701 million last year, has generated a 0.95x return multiple to date, according to Preqin

Secondaries firm Paul Capital’s drug royalty business has raised two funds for the sector. Paul Capital Royalty Acquisition Fund I, which has deployed 99 percent of its capital since its 2000 inception, has generated a 1.52x return multiple and net internal rate of return of 11 percent. Its sequel, raised in 2003, has generated a 1.2x multiple and 10.5 percent IRR, according to Preqin.