With operator mindset With over $3bn in evergreen capital at its disposal, L1 Health has the ability to underwrite hold periods longer than a typical private equity fund. This allows it to focus on platforms that take time to build and to invest throughout economic cycles.
In October 2019, L1 Health acquired Destination Pet and launched a new animal health and wellness platform in the US and Europe. Destination Pet is a leader in pet healthcare services and a trusted high-quality pet care and vet services provider.
No bark and all bite – rapid growth of Destination Pet
During 2020, our vet and pet care platform Destination Pet emerged as one of the leading animal health platforms in the US. Acquired in October 2019, Destination Pet represents a new breed of integrated pet care solutions to expand the lives of pets. It offers pet families a full range of vet and pet care services digitally integrated and delivered through local brands tailored to their communities.
Our chain of innovative vet and pet care centres more than doubled in size, greatly strengthening our footprint in our core regions of Texas and Arizona and entering new target markets in Arizona, Arkansas, California, North Carolina, Illinois, and New Mexico. Key was the integration and turnaround of VitalPet, a chain acquired out of bankruptcy at the end of March 2020 when uncertainty created by the COVID-19 pandemic was at its climax.
While other pet care locations across the country were shutting down, we followed our conviction in the sector’s positive long-term trends. During the lockdown period, all of our centres were designated as essential service providers and remained open. We introduced new handling and cleaning procedures to give pet families confidence and attracted record numbers of new customers, growing our customer base by 7%. Our multi line business offering allowed us to emphasise new services, such as grooming, where we doubled the number of groomers working with us, and despite the crisis grew average spend per customer by 14%. This allowed us to maintain centre profitability throughout the crisis.
In parallel, we invested heavily in digital capabilities. We acquired digital assets to communicate more seamlessly with pet families and launched telemedicine as a new care option, as well as for connecting with pet families pre and post in-person consultations.
L1 Health has committed $450m to build this animal health platform and expects to continue Destination Pet’s expansion of locations and offerings.
Climbing to new highs – K2 HealthVentures (K2HV) scales up
Formed in 2019 as a start-up venture, K2HV provides life sciences companies at the venture and growth stages with innovative financing solutions.
Increasingly, companies at this stage of development recognise the benefits of debt financing to decrease their average cost of capital and extend their runway to hit milestones that allow more favourable conditions for fundraising. K2HV brings deep scientific, commercial, and financing expertise to underwrite investments in innovative companies with breakthrough solutions, even if they are pre-revenue.
In 2020, K2HV committed $235m in new financing across eight deals, expanding a diversified portfolio across biotech, ag biotech, medical devices, healthcare IT, and consumer health. K2HV’s focus on breakthrough innovation has led to investments in next-generation immunotoxins, vaccine development, gene-edited crops, skincare, evidence based care for kidney disease, and digital therapeutic solutions for neurobehavioural health.
K2HV’s existing book has performed well, with its portfolio companies continuing to progress on clinical and financial milestones. Many have secured additional financing to strengthen their capital position. For K2HV, the combination of debt financing and equity rights has led to attractive returns. The acquisition of portfolio company Companion Medical by Medtronic in September 2020 marked an early gain from this strategy. K2HV’s charter commits it to spend a portion of its investment profits to fund globally underserved and underinvested areas in healthcare. With growing profitability, 2021 will be the first year in which K2HV will make charitable contributions and/or social venture investments in an area of need.
The macro challenges of 2020 have validated our approach of investing in long-term trends and transformative platforms.
Bringing medicines to the world – new investment in CDMO platform In 2020, L1 Health’s flexible investment strategy allowed us to close out the year withm an initial investment in the senior debt of South African conglomerate Ascendis Health. Ascendis is a JSE listed company with healthcare assets in South Africa and Europe. One of its operating companies is Cyprus-based Remedica, which develops, manufacturers, and markets high quality generics. Its low cost, yet flexible manufacturing capabilities and broad distribution network in emerging markets, provides it with a unique advantage to feed the growing appetite for low-cost, high-quality medicines globally. With an improved capital structure and increased liquidity, Remedica will be able to invest in R&D, capacity, and marketing to expand its business.
K2HV commits $30m in debt financing to Rgenix
Rgenix is a privately held clinical-stage biopharmaceutical company focused on oncology. Leveraging a discovery platform developed by Rgenix’s founding scientists at Rockefeller University, the company has multiple first-in-class drugs in development that target key pathways in cancer progression. This proprietary RNA based target discovery platform can identify novel targets that are largely invisible to DNA sequencing technology. The identified cancer targets regulate key components of the tumour micro-environment, including immune cells and cancer metabolism pathways. K2HV’s commitment supports Rgenix’s investment in the clinical development of its pipeline product.
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