Navigating the FDA with a Reliable Equity Partner
Employee to Entrepreneur
In 1996, Matt Halvorsen founded Lyophilization of New England (“LSNE” or the “Company”) while working at a bladder cancer diagnostic company that outsourced its lyophilization (freeze drying) needs. He held a 75% ownership stake in the business, while the remaining 25% was owned by his father. The Company initially experienced growth at its Manchester location by offering non-sterile lyophilization services to medical device manufacturers (100% non-sterile). However, Matt recognized that sterile facilities could command higher margins and in 2005, opened a sterile facility to address that market. Prior to partnering with Clairvest, LSNE had already doubled its customer base and tripled its revenue, all of this achieved without a direct salesforce.
Matt was looking for an aligned equity partner to support the Company’s next phase of growth. The growth strategy primarily focused on opening another sterile facility, expanding LSNE’s lyophilization capacity and solidifying its market position. Matt deeply believed in the potential of LSNE. While the use of proceeds on entry was to provide secondary capital to Matt and his father, Clairvest and Matt were 50%/50% owners from closing through our eventual exit together, allowing Matt to have a huge share of the growth after our entry. Taking some chips off the table at our entry allowed Matt to get more aggressive (without being reckless) with the business post-closing and pursue enhanced ambitions for his platform.
Navigating the FDA
Transitioning from a short-run clinical contract manufacturing organization to long-run commercial manufacturing facility was not an easy feat. The pivotal factor in this investment was obtaining and upholding sterile FDA approval, which entailed passing unscheduled facility inspections every two years.
About halfway through the LSNE partnership, there was an exogenous issue (related to the supply chain specified by LSNE’s customer) that affected the Company for about 24 months. LSNE was the party that identified and promptly reported the issue to the FDA, fully aware it could suspend operations. This decision ultimately enhanced LSNE’s reputation with the FDA. Throughout this challenging period, Clairvest consistently stood by Matt, providing the Company with non-dilutive capital to fund operating cash flow deficiencies.
Furthermore, LSNE kept their essential employees on payroll, recognizing the difficulty of recruiting, training and retaining the necessary caliber of staff for their sterile facility. Had this not been the case, it would have taken 12-18 months to bring on new employees when the facility received FDA approval again. Despite the extended time horizon, LSNE successfully transitioned to sterile commercial production, operating two sterile facilities and one non-sterile facility, all FDA-approved, and significantly expanded its manufacturing capacity.
Trusted and reliable partner in good times and bad times
Clairvest did the right thing and supported LSNE during a period of reduced earnings. Additionally, the core investment objectives were achieved despite the massive interruption at the manufacturing facility.
“I could not have selected a better partner to assist in LSNE’s development. Despite some challenges along the way, Clairvest’s team were true partners to me and remained supportive of and contributed to our growth plan.” Matt Halvorsen, CEO of LSNE
In 2017, Clairvest and CEP III successfully exited the investment to Permira, a UK-based private equity firm, earning a 2.9x multiple of capital. Throughout the investment period, Clairvest made substantial contributions to LSNE’s success. This included thoughtful assistance in financing the facility expansion and addressing cash flow needs, offering strategic advice, providing support in financial modeling, facilitating the introduction of the CFO to the business, and playing a pivotal role in positioning the business for exit.
