Catalio betting big on biomedical tech with fourth fund

Catalio Capital Management, a multistrategy life sciences investment firm seeded by legendary investors Stanley Druckenmiller and Alan Howard, among others, is launching its fourth private equity fund with a fundraising target of $500 million from institutional investors, according to a pitch book obtained by Pensions & Investments.

Catalio, which is focused on breakthrough biomedical technology and innovative health-care companies worldwide, will target 25 to 35 biomedical technology companies for the new portfolio, Catalio Nexus Fund IV. Catalio's third venture fund, Catalio Nexus Fund III, with more than $381 million in total capital commitments, exceeded its original $300 million target. The fund received significant backing from current Catalio investors and new, global institutional investors, foundations and endowments.

Catalio, co-founded by George Petrocheilos and Jacob Vogelstein, with $1 billion in assets under management, collaborates with 40 venture partners including scientists, investors and entrepreneurs.

"Catalio's robust scientific expertise allows us to select companies with the most compelling underlying value propositions and generate value in a diverse array of market conditions," according to Catalio's pitch book.

Deal flows have been profitable. In June, Quest Diagnostics closed a deal to acquire Haystack Oncology, a cancer-focused blood test startup co-founded and sponsored by Catalio. The deal included $300 million in upfront cash, plus an additional $150 million should Haystack's tests achieve certain performance milestones. The acquisition netted Catalio investors $100 million.

Established in 2021, Haystack provides a minimal residual disease testing solution to support the early and precise detection of residual or recurring cancer.

Also in 2021, Catalio invested alongside Philippe Laffont's Coatue, a leading technology investment firm, in a Series A financing round for Entos Inc., the creator of a cutting-edge platform combining AI-driven technology and automated synthetic development to design small-molecule therapeutics. The funding round, which included participation from OrbiMed and Sequoia Capital as well as existing investors Nexus Ventures and Freeflow, totaled $53 million.

According to Bain & Co.'s "Healthcare Private Equity Outlook: 2023 and Beyond" report, the firm said despite the slowdown in health-care private equity deal flow in the second half of 2022, firms continued to create health-care-focused funds and raise near-record levels of capital in 2022.

"Data from Preqin suggests that firms raised more than $15 billion in new buyout capital for funds where healthcare is the exclusive or core focus, which has happened in only two other years in the last two decades — 2019 and 2021," the report noted.