Immunoassays, a non-therapeutic application of antibodies, have been a mainstay of diagnosis and research since the 1950s. Victor Chua, senior partner, and Will Johnson, associate, at Mansfield Advisors, discuss trends in the non-therapeutic antibodies market and identify how investors can create value.
Antibodies are a critical component of immunoassays that may take the form of a CE-marked commercialised test used to diagnose medical conditions or infection, or as a laboratory test as part of fundamental research toward discovering the next generation of drugs. The lateral-flow test is an example of an immunoassay that we are now all very familiar with following the Covid-19 pandemic.
Given their technical and highly specific nature, antibody development and manufacture is still a relatively fragmented industry, but there has been increasing consolidation over the past five years from investor-backed life science platforms such as Medix Biochemica (DevCo), BBI Solutions (Novo Holdings), Absolute Biotech (Thompson Street Capital Partners), and Biosynth (KKR); as well as from large, listed firms such as ThermoFisher and Abcam.
Non-therapeutic antibodies are a highly attractive proposition for investors thanks to a combination of naturally global customer markets (research and IVD) with growth drivers, a fragmented manufacturing base ripe for consolidation, and the promise of exits to large strategic life science players.
Activity in the antibodies space has been increasing year-on-year since 2018, primarily in the form of bolt-on acquisitions to existing platforms but also as larger buyouts (see Table One). A noteworthy recent example is ThermoFisher’s acquisition of The Binding Site Group, a vertically integrated IVD, from Nordic Capital and Five Arrows in 2022 for c.US$2.3bn.
Investors have already played a significant role in this attractive sector in recent years, and the opportunities for future investment remain.
Differentiation based on specialisation
Antibodies are the key reagents in a diagnostic or research immunoassay as the component responsible for specific detection of the target compound or biomarker being tested for. This means unique antibodies must be developed for any given test based on the investigated target (see Figure One).
Development and manufacture is technical and builds on biochemistry expertise, but the level of expertise required varies across three broad categories of antibody, each with slightly different practical traits but addressing the same customer groups.
Monoclonal antibodies are the purist and are generally the most desirable for customers looking for tests to be as accurate and repeatable as possible. They are, however, more technically difficult to develop and produce than polyclonal alternatives, which are typically more variable. There is also a smaller but growing cohort of recombinant monoclonal antibodies made entirely in vitro without any need for live animals in manufacturing – these are the most difficult and costly to develop but are considered the ‘gold standard’, providing the greatest predictability and control over both the manufacturing process and functionality of the antibody itself.
The main criteria for customers purchasing antibodies, either as part of a complete testing kit or as a reagent to use in kits they themselves manufacture, is usually quality. This is due to the antibody’s specificity for its target, and the consistency by which it detects it, being one of the most important determinants of the final immunoassay’s accuracy.
A skilled developer can therefore strongly differentiate itself from the competition and occupy a niche in the market by positioning itself as the provider of the best antibodies for tests targeting ‘X’ biomarkers. Good developers have strong pricing power and can be highly profitable. Developers can further protect their commercial position further by developing ‘antibody pairs’ or complete testing kits to sell OEM, both of which can be protected by patents. Indeed it was IP protection that proved the attraction for investors in Hytest (previously Summa Equity) during its 2021 sales process.
The focus on quality also means that firms of any size can succeed in this market, and smaller players with a good product in a particular niche can compete with large-scale life science generalists like Meridian Bioscience and ThermoFisher – as long as they supply excellent unique products.
IVD and research markets naturally global
The market for non-therapeutic antibodies as reagents in IVD or research totals c.US$6bn depending on exact definitions. While this is orders of magnitude smaller than the market for pharmaceutical biologics/therapeutic antibodies, it is still large enough to support numerous global players. Companies with antibody expertise can also ascend value chains by expanding capabilities to develop and commercialise complete immunoassay testing kits and the instruments to read test results (see Figure One).
The market for complete diagnostic (IVD) immunoassays and instruments is much larger than the antibodies-as-reagents market at c.US$30bn.
For example, in the early-2000s The Binding Site Group developed a widely accepted polyclonal assay (Freelite), where much of the work validating Freelite as an assay was carried out by academia (notably the Mayo Clinic) rather than the company itself. It supplied assays to studies at no cost.
Offering custom antibody development services for IVD and research customers adds an additional c.US$500m to the global market, providing an additional revenue option for skilled antibody developers.
Research antibodies is the fastest-growing non-therapeutic antibodies market and is expected to continue growing at over 5% per year for the next five years.
The other significant end-user market, diagnostic immunoassays, is expected to grow at a more modest 3‒4% per year. While relatively slow compared to newer diagnostic technologies such as genomics/molecular biology, it contains high-growth segments such as point-of-care lateral flow tests (forecast at over 7% annual growth).
As a whole, demand in the diagnostic market is being driven by the overarching trend towards more personalised medicine in healthcare – something that will become increasingly dependent on specific ‘companion’ diagnostic tests to check patient eligibility for increasingly specific treatments. A significant number of these will be immunoassays built using antibodies. Serology testing used in clinical trials for new vaccines, a high-growth segment in pharmaceuticals, also utilises immunoassays. Overall, both non-therapeutic antibody markets are attractive to investors with robust and dependable end-user market drivers.
Antibody development competencies can underpin a positioning across many parts on the IVD and research industry verticals. The Binding Site and BBI Solutions are two examples of players in this field building out from antibody development expertise (see Figure Two).
The Binding Site Group
Built upon expertise developing anti-sera and polyclonal antibodies detecting myeloma biomarkers. It launched its own diagnostic tests under the Freelite brand in the 2000s, becoming an IVD company. At the same time it offered to sell its antibodies alongside custom development services for other IVD customers. Under Nordic Capital and Five Arrows its range of diagnostic testing kits expanded significantly, and its footprint grew globally. The group recently discontinued selling antibodies as reagents to competitors, locking-in its position as a true IVD. Keeping its antibodies in-house also prevents competitors using them to develop diagnostic tests to rival its own. It was sold to ThermoFisher in 2022 at a valuation over US$2.5bn.
BBI has taken a different path. Originally experts in assay-agnostic reagents, the group gained antibody development capabilities by acquiring Maine Biotechnology Services in 2018 with financial backing from Exponent. The acquisition made BBI a one-stop-shop reagents provider for IVD customers, offering all immunoassay components from assay-agnostic markers to test-specific antibodies. Additional acquisitions of Diarect (2020), Biotiz and SBA (both 2022 under Novo Holdings ownership) in Germany expanded the group’s expertise further up the value chain to enable complete immunoassay kit development. It now offers a suite of immunoassay reagents, OEM test kits, and contract development services for both, to IVD customers. However, since BBI does not market any testing kits directly to end-users itself, this keeps it distinct from IVD companies like The Binding Site Group. The group has, instead, decided to focus efforts on bringing value to IVD customers, rather than attempt to commercialise assays, something that would require a completely new skillset.
A company at an earlier stage in its journey (based on revenue) is Mabtech (IK Investment Partners). As the original experts in commercialising ELISpot immunoassays, offering ready-to-use kits as products as well as custom assay development services, Mabtech has a strong in-house portfolio of antibodies as well as expertise in developing them. The question the company faces – as will their next investor – is where to go from here. Options include (1) pushing global sales of existing products to expand its already strong position in the research customer segment; (2) a strategic move into supplying reagents or custom immunoassay development services to IVD; or (3) expansion of its product range into adjacent biochemical technologies like genomics. The route taken will ultimately depend on management’s vision and the expertise of its next investor – be it technical, geographical, or operational (particularly important if an IVD play is considered).
These examples illustrate investors adding value by helping companies to build into a specific niche, all based on the same core competency of antibody development expertise. In the case of The Binding Site Group, this value was clearly recognised by ThermoFisher being willing to pay c.25x EBITDA in the recent process.
Fragmented but consolidating
A key feature of both non-therapeutic antibody industries is the fragmentation of both manufacturing and development. This can partly be explained by customers’ focus on quality. A smaller lab can often make the best antibody for a given biomarker based on specific in-house knowledge, so customers seeking the best antibodies will pick the smaller lab’s product regardless of existing relationships or the stronger marketing efforts of bigger players.
Specific expertise for antibodies for certain biomarkers in a specific disease grants a lab the ‘right to exist’ regardless of scale.
The consolidation process has begun to accelerate, and synergies are being realised by several investors with life science platforms.
Aside from eliminating duplicated back-end operations and economies of scale in procurement, there are also significant cost savings to be made by combining R&D. Highly skilled staff may not be fully utilised at a single lab with a small range of products. The same can be said to lab equipment and bioreactors. A broader product portfolio, larger customer base, larger order volumes, and more frequent custom development requests – all possible outcomes from a merger – can maximise utilisation of R&D departments. Benefits can also be realised by combining highly skilled teams with complementary expertise across different physiological areas.
Revenue uplift comes from the high potential for cross-selling, helping labs access a new customer list in their own market or a new geography. Having a broader product range also brings a competitive advantage with customers preferring to buy a variety of antibodies or assays from a single supplier (assuming quality still trumps the competition).
The first major player to start realising these synergies was Abcam. The firm was initially founded in 1998 with the aim to provide researchers a single contact point from which to source high quality antibodies, and help developers reach more customers.
Initially acting as a distributor only, Abcam has vertically integrated over the years through acquisitions of antibody developers and now offers an in-house product portfolio as well as custom antibody development services. Its most recent substantial add-on was the US$300m acquisition of BioVision in 2021 [Table one]. BioVision was previously a partner for which it distributed products. While there has been a lively discussion around the company’s management and strategy, it remains one of the largest antibodies platforms with over US$450m revenue in 2022.
Several investor-backed roll-ups have been active over the last five years [Figure three]. Some of these are pure antibodies or proteomics-focussed platforms, while others are built from larger generalist life science companies.
Of the proteomics-focussed players, Absolute Biotech (Thompson Street Capital Partners) has been one of the most active – a platform originally built from LifeSpan BioSciences in the US, most recently acquiring Absolute Antibody in the UK. Medix Biochemica is a larger player focussed on supplying IVD reagents. Medix Biochemica originally pursued organic growth but has recently made several acquisitions around the world backed by DevCo. Similarly, BBI Solutions (Novo Holdings) has also expanded its antibody and services portfolio through the Diarect, Biotez and SBA acquisitions.
Broader life science reagent companies actively acquiring small antibody developers include Biosynth (KKR) and LGC (Cinven; Astorg; ADIA). LGC initially operated in controls and standards, then expanded to genomics reagents, and moved into proteomics by acquiring The Native Antigen Company in 2020. Smaller life science generalists acquiring antibody developers include Fortis Life Sciences (Summit Partners), Calibre Scientific (StoneCalibre) and mAbexperts (Biotech Investissement Group). Nordic Biosite (Adelis) is a platform pursuing a different model, acquiring regional distributors rather than manufacturers to build a pan-European distributor.
One reason behind the recent wave of consolidation could be the preponderance of small-scale antibody developers founded in the 2000s or early 2010s – many with a single/limited range of products – and only now reaching the scale to interest lower/mid-market investors.
It may also be due to increased interest from private capital across the whole life sciences sector over the last five years, and a new appreciation of the importance of research and diagnostics given the role both industries played in response to the Covid crisis. Recent private equity-driven consolidation success in other healthcare sectors – creating value through revenue/cost synergies and multiple-arbitrage – has also alerted investors to the potential gains to be realised in antibodies.
Regardless of the cause, the ‘wave of consolidation’ is progressing. The emergence of US$25-100m revenue platforms, many of which are reaching a 4–6-year hold period with their original backers, should be of interest to mid-market investors. These platforms are not yet of scale to attract the interest of large trade buyers like ThermoFisher; they can be viewed as subsequent exit opportunities (see Figure Three).
Attractive with value-add opportunities
Non-therapeutic antibodies represent an attractive opportunity for investors over the next five-to-ten years. End-user markets are resilient and contain high-growth segments, players can differentiate themselves using specific expertise to develop niche quality products, and there are consolidation synergies that have not yet been fully realised.
Investors have multiple options when acquiring a platform in this space. A roll-up play is possible, as recent activity demonstrates, based around the thesis of value creation by realising consolidation synergies and potential multiple arbitrages on exit. Building out capabilities from a base competency in antibody development to ascend industry value chains is another option, as demonstrated by BBI Solutions and The Binding Site Group. There is also scope to take a proteomics platform into adjacent technologies like genomics.
The evolving life sciences landscape will be an exciting area over the coming decade for investors seeking to make an impact on global research and diagnostics.