Private Equity in Life Sciences: Scientific Diligence Beyond “Is the Science Good?”
Summary
As global private equity (PE) activity rebounds, investors in life sciences face a market where deal volume and exit momentum have improved — yet value creation still hinges on scientific understanding long after venture capital (VC) has exited. Scientific risk does not disappear post-VC; it transforms into structural constraints embedded in manufacturing, scalability, regulatory pathways, and platform dependencies. This article argues that PE investors must evolve scientific diligence from mere validation into strategic risk mapping that directly informs value-creation plans, capital deployment, and exit strategies.
1. Why this matters now: PE activity is resurging but expectations are high
Global healthcare private equity activity has shown a significant rebound in deal value and exit momentum following the 2022–2023 slowdown, with renewed investor confidence across biopharma, MedTech, and healthcare services [1].
At the same time, broader life sciences venture activity remains selective. While funding conditions have stabilised in some subsectors, capital is increasingly concentrated in fewer, later-stage companies rather than broadly distributed early-stage bets [2].
Implication for PE investors:
In a competitive environment characterised by substantial dry powder and improving exit conditions, differentiation increasingly depends on underwriting discipline and realistic value-creation planning rather than financial structuring alone [3].
2. The “de-risked after VC” assumption misses the structural nature of scientific risk
It is common for later-stage investors to assume that scientific risk has been meaningfully resolved during VC rounds. What changes between VC and PE, however, is not the presence of scientific risk — but how that risk manifests:
· From discovery uncertainty → translational robustness
· From small batches → manufacturing and CMC variability
· From a single indication → platform dependency across assets
Scientific risk at this stage is conditional and non-linear — small biological deviations can have outsized impacts on execution, scalability, and portfolio value, particularly in advanced therapeutics and biologics [4].
3. Traditional scientific diligence underwrites “validity” — PE needs strategic mapping
Typical PE diligence often includes scientific validation through expert interviews and historical data review. While this can screen for fundamental flaws, it rarely addresses investment-critical questions:
· Which scientific assumptions underpin value, and how fragile are they at scale?
· Where do biological constraints bind the value-creation plan (VCP)?
· Which risks are correlated across assets or platform strategies?
· What identifiable triggers could materially affect timelines, costs, or exit multiples?
In other words, PE diligence must ask not “Is the science good?” but “Under what conditions does biology break value creation?”
4. Scientific risk becomes structural after VC
a) Translational robustness
A promising early clinical signal may not survive broader, more heterogeneous patient populations, longer observation periods, or expansion into multiple indications — yet these dimensions are central to later-stage value creation. Regulatory and clinical stakeholders increasingly incorporate real-world evidence and longer-term safety signals into approval, label expansion, and lifecycle management decisions, reflecting a broader shift toward lifecycle-based evaluation rather than single-trial validation [5].
b) Manufacturing & CMC realities
Manufacturing scale introduces biological variability that directly affects margins, supply reliability, and regulatory expectations. Decisions around process control, comparability, and CMC strategy frequently become primary drivers of timeline slippage and cost escalation in advanced therapies [4].
c) Platform correlation risk
Platform strategies may appear diversified but often share mechanistic dependencies. A weakened biological hypothesis in one asset can undermine confidence across an entire pipeline, creating correlated downside risk that materially affects valuation assumptions and exit narratives [3].
5. What distinguishes PE-grade scientific diligence
For later-stage life sciences investing, scientific diligence becomes most decision-relevant when it moves beyond validation and explicitly links biology to value creation.
In differentiated transactions, scientific review increasingly focuses on four dimensions:
1. Assumption sensitivity
Identifying scientific assumptions with the greatest economic leverage and stress-testing failure conditions.
2. Science-to-value linkage
Mapping biological risks to financial drivers such as timelines, approval probability, COGS, and margin expansion.
3. Platform dependency analysis
Evaluating whether diversification truly mitigates risk or conceals shared vulnerabilities.
4. Governance architecture
Determining the level of scientific oversight required post-close to preserve optionality and execution discipline.
When structured this way, scientific diligence becomes an underwriting instrument — not a screening checklist.
6. Why deeper scientific diligence differentiates winning PE funds
The rebound in healthcare and life sciences dealmaking, combined with sustained capital availability, has increased competition for high-quality assets [1][3].
Strategic scientific diligence helps investors:
· Improve alignment between biology and financial models
· Anticipate execution risks not visible in standard operational diligence
· Inform more realistic capital deployment plans
· Strengthen exit narratives with clearer evidence of durable performance
As exit markets reopen, underwriting precision increasingly differentiates outcomes [3].
In our experience, many post-close value-creation challenges trace back not to execution failure, but to unexamined scientific assumptions embedded in early underwriting.
7. Practical implications in a competitive market
In this environment, leading investors increasingly:
· Treat scientific risk as structural rather than residual
· Embed biological assumptions directly into value-creation modelling
· Stress-test non-linear risk beyond binary validation
· Align governance mechanisms with scientific inflection points
The shift is subtle but meaningful: from asking whether the science works — to understanding the conditions under which value creation remains intact.
Closing Perspective
Life sciences private equity differs from other sectors because scientific risk does not dissipate with maturity — it becomes embedded in the mechanics of scale. Funds that integrate scientific risk mapping into core underwriting are not merely reducing downside exposure; they are building structurally more resilient value-creation theses.
In a market where capital remains abundant but differentiation is scarce, scientific precision increasingly defines performance.
References
[1] Bain & Company. Global Healthcare Private Equity Report 2026.
https://www.bain.com/insights/healthcare-private-equity-market-2025-global-healthcare-private-equity-report-2026/
[2] PitchBook. 2026 Healthcare Outlook.
https://pitchbook.brightspotcdn.com/68/20/7236f3e64cd58b60099e23c2c24a/2026-healthcare-outlook.pdf
[3] Bain & Company. Global Private Equity Report 2025.
https://www.bain.com/insights/topics/global-private-equity-report/
[4] McKinsey & Company. What to expect in US healthcare in 2026 and beyond.
https://www.mckinsey.com/industries/healthcare/our-insights/what-to-expect-in-us-healthcare
[5] Dang A., et al. Real-World Evidence: A Primer.
https://pmc.ncbi.nlm.nih.gov/articles/PMC9815890/
This article is provided for informational purposes only and does not constitute investment advice or an offer to buy or sell any security.