Private equity firm plans $1.5 billion drug-deal fund

By Ben Hirschler

LONDON (Reuters) - A private equity group specializing in buying and selling pharmaceutical products aims to raise some $1.5 billion for two funds to exploit the growing demand from "Big Pharma" for biotech drugs, it said on Tuesday.

Celtic Pharma, headed by former Marconi and Zeneca finance chief John Mayo, will launch a U.S.-based fund focused on acquiring mid-stage development projects, and a British-based fund to take controlling stakes in biotech firms.

"It will be $1.5 billion or more," Mayo told Reuters. "These numbers seem quite large but when you look at the scale of the pharmaceutical industry, we are just a drop in the bucket."

The world's leading drugmakers are currently scrambling to snap up promising experimental medicines from biotech companies to help fill a gap in their thinning pipelines. The result has been a quickening pace of deal flow and rising asset prices.

Yet many small biotech companies still lack the finance and management skills to exploit their pipeline assets fully, Mayo believes.

"They don't have the money and they don't have the people. Our job is to support them in handling relations with regulators, designing clinical trials and in sorting out their manufacturing," he said.

Mayo said the goal was to achieve "typical private equity returns", although he declined to give an exact target.

Private equity has traditionally been slow to invest in pharmaceuticals, reflecting wariness of stepping into a sector renowned for its pipeline, patent and product liability risks.

In the past year private equity interest in pharmaceuticals has increased, although prospects for big deals have been knocked back by the credit crunch.

Celtic Pharma intends to work within a niche of mid-stage drug development, typically acquiring products around the Phase I stage of clinical trial development and selling them on at Phase IIb.

Mayo's co-principal Stephen Evans-Freke will run the U.S.-based product fund and Mayo will be in charge of the company-focused fund in London.

Celtic Pharma launched its first $300 million fund in June 2005, when it also acquired British biotech Xenova.

(Editing by Louise Ireland)