CHARLOTTE – It’s been half a century since London native Dennis Gillings took a job as a biostatistics professor at UNC Chapel Hill, and more than 40 since he launched a five-employee company that became Quintiles and later, Iqvia, which is now valued at $35 billion.
While no longer active in North Carolina, Gillings’ vision of making drug development a more statistics-oriented and efficient process keeps paying big dividends for the state. That includes a burgeoning private-equity investment company, of which he remains an investor.
QHP Capital’s roots date to 2015 when Jeff Edwards joined NovaQuest, the Raleigh-based company spun out of Quintiles in 2010 by Gillings and other former Quintiles managers. NovaQuest’s main focus is providing financing for late-stage clinical research trials, a sometimes complex process that didn’t fit conventional bank lending strategies. NovaQuest has raised $2.5 billion and managed $3.6 billion in assets.
Beyond project financing, Gillings also saw an opportunity to tap his team’s industry expertise and contacts to start a private-equity business. To lead the charge, he tapped Edwards, a PE executive at the Texas Teacher Retirement System in Austin, who joined in August 2015. A year later, Michael Sorensen joined from PE giant BlackRock.
Eight years since inception, QHP Capital has about $2.5 billion of assets under management after making 10 investments in “picks and shovels” companies that are part
of the medical services and technology. It has made 12 add-on acquisitions. The firm has raised $875 million in two funds.
The PE firm targets companies with values of $50 million to several hundred million dollars. Its most recent purchase, which occurred last year, was Maitland, Florida-based Copilot, which sells technology related to medical payments, patient assistance and education programs and other services.
QHP appears poised for further growth in a fairly recession-resistant business, given that demand for treatments of chronic disease doesn’t fade during downturns. Bringing a new drug to market in the United States costs an average of more than $2.5 billion over many years. That frustrates many consumers and policymakers looking for quicker fixes.
The process, though, creates countless opportunities for entrepreneurs that assist the large pharmaceutical companies launching those drugs, QHP officials note.
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Added resources enabled QHP to add three partners with lengthy experience in the Triangle business community: Vern Davenport in 2017, Ashton Poole in 2019 and Matt Jenkins, last year.
“The Research Triangle area is one of the top five biotech hubs in the United States and we’re not aware of any PE firm in North Carolina that is purposely built around life sciences,” says Poole, a former Wall Street executive and ex-CEO of Raleigh-based Triangle Capital. “We’re working hard as a partnership with a goal of building the best private-equity healthcare firm in the world.”
Steve Malik, a veteran Triangle tech executive, expects QHP Capital to thrive. “What they are good at is being operationally oriented. I’ve lived it with Vern, driving (key performance indicators) and dashboards and knowing what to focus on. The whole deal is trying to grow some good companies.” Davenport was CEO at Medfusion, a Cary-based company founded by Malik and acquired by NextGen Healthcare for $43 million in 2019.
The region’s draw as an attractive, livable location is an asset, Poole and others say. Davenport worked in several major markets before returning in 2007. After 13 career moves, “I’m done moving,” he says.
Befitting North Carolina’s strong economy, private equity is an expanding business in the state. The largest firms include Charlotte’s Ridgemont Equity Partners and Pamlico Capital, which were spun off in 2010 from Bank of America and Wachovia amid changing regulations of bank ownership of PE groups. Ridgemont raised a record $2.3 billion last October and manages assets topping $8.5 billion spanning a variety of industries.
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Charlotte-based Falfurrias Capital Partners has also attracted much attention, raising $850 million in 2021, marking its fifth fund. It manages $1.9 billion in several different sectors. In Raleigh, Plexus Capital has made more than 140 investments and has raised $1.7 billion, focusing on deals with middle-market companies.
QHP is taking a more surgical approach by acquiring majority stakes in specialty healthcare companies led by founders. In most cases, the companies have reached inflection points where they need more money or new strategies, says Davenport. While many PE companies can provide capital, the QHP partners say few have comparable experience of operating and investing in healthcare technology businesses. The goal is to boost growth rates and expand employment at the companies, a contrast to the popular image of private-equity investments that lead to downsizing and executive-level turnover.
A success story is Boston-based Azurity Pharmaceuticals, which adapts medicines to make them easier to consume by patients who struggle with conventional dosages. Since QHP invested in 2018, Azurity’s staff has grown from 50 to about 325. In 2021, it bought a related company from PE giant KKR. Azurity is QHP’s only investment in a business that sells directly to consumers; the others are business-to-business enterprises.
QHP partners’ “deep knowledge of the healthcare system, resources and operational knowledge have been invaluable to us over the past several years,” says Azurity CEO Richard Blackburn.
Another winner has been Wilmington’s Catalyst Clinical Research, which provides trial support for oncology biotechs and outsourced services for other companies. Since QHP bought a majority stake in Catalyst in 2018, staffing has jumped from 13 to more than 400 full-time employees, and the number of testing projects has jumped from zero to more than 50, says Chief Financial Officer Patti McNamara.
“QHP gets involved when they need to be involved, but they stay home when they should,” she says on a video on the firm’s website. “They give us the tools and the intent and then we figure out what to do with it.”
Four QHP portfolio companies are based in North Carolina, including one that moved here after the group took majority control.
Building the right culture at QHP, which employs 22, is a priority, Poole says. “We have a lot of pride in this organization, but there are no egos. We always work as a team.”
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