L1 Health: developing industry leading platforms that transform healthcare
Update on L1 Health Operating Platforms
Our pet health business and health venture investment platform have both performed very well during COVID and have come out of the pandemic with robust growth. Our newly acquired operating platforms Remedica and Sun Wave Pharma have also weathered the pandemic well and are off to strong starts under our ownership.
Destination Pet, headquartered in Highlands Ranch, Colorado, came out of COVID with even stronger customer loyalty, now regularly scoring a net promoter score of 8 or higher across our establishments. Because our pet centres were recognised by state authorities as essential businesses and stayed open even during lockdowns, we were able to reinforce our bonds with pet parents as an important part of the care solution for their pet. Coming out of COVID-restrictions in the spring of 2021, we invested heavily in staffing, training and infrastructure to support record demand for our veterinary and pet care services that built over the course of the year. We also continued our M&A investment and added 30 new locations to our group in 2021.
Our animal health platform ended the year with 99 locations and a revenue run-rate of $142mn. Most importantly, we showed robust same store sales growth of 5% from 2019 pre-COVID comparisons. Also, four-wall EBITDA margins continued to build throughout the year, ending in the high teens with continued upwards trajectory.
Most inspiring and a testament to the culture of Destination Pet was our response to the devastating fires that hit Colorado in the final days of 2021. The Marshall fire started in the afternoon of 30 December 2021 in Boulder, Colorado and fanned by dry winds quickly affected several communities. Ultimately, over 1,000 homes were lost. Three of our centres were also threatened. Our field and corporate teams quickly rallied to the rescue and safely evacuated over 90 animals boarded there over the holiday weekend.
The team managed to distribute the pets between our other pet care centres and our staff’s homes until the owners were able to pick up their family members.
L1 Health’s venture investment platform, headquartered in Boston and New York, continued to expand rapidly in 2021 with six new investments, committing an additional $160mn to science and healthcare innovation. This brought our total commitment at the end of 2021 to $645mn across 18 companies (net of exits), covering drug discovery and development, Agritech innovation, digital healthcare services, and medical devices. K2 finished the year with total assets under management (AUM) of $371mn.
All of our portfolio companies have continued to meet development, commercial and financial milestones and 10 companies have completed follow-on financings despite market turbulence.
Based on K2 HealthVentures’ strong performance, L1 Health agreed to double its investment by an additional $400mn. This, together with retained earnings, gives K2 HealthVentures a strong capital base to continue disciplined investment and take advantage of the macro environment.
Remedica and Sun Wave Pharma
Remedica and Sun Wave Pharma were acquired in October 2021 as part of a complex debt restructuring programme by the South-African conglomerate Ascendis Health. Remedica is a leading branded generic CDMO located in Cyprus, and Sun Wave Pharma is a fast-growing Eastern European consumer health business headquartered in Romania.
In 2020, L1 Health became interested in Remedica as a unique player in the fast-evolving CDMO sector. Remedica’s ability to invest and grow was significantly constrained by the debt burden of its parent company Ascendis. It was clear that the company could benefit from standalone ownership with the vision and capital base to support its growth. L1 Health saw an opportunity to unlock value through a debt restructuring and partnered with Blantyre Capital, a London-based special situation fund.
Over the course of 10 months, L1 Health and Blantyre Capital took control of Ascendis’ debt, supported the conglomerate in the sale of 5 assets, and guided a debt restructuring that led to a debt-for-equity swap. As a result, the consortium of L1 Health and Blantyre Capital became the owners of Remedica and Sun Wave Pharma.
We see both companies playing important long-term roles in the L1 Health portfolio.
Remedica aligns well with generic market trends and benefits from its unique set up with strong sales channels both into generic pharma as well as emerging markets. The consortium is looking to further strengthen investment in R&D and commercial capabilities. Sun Wave Pharma also has a unique positioning in the fast-growing consumer health space with an innovative go-to-market model that focuses on promoting nutraceutical products complementary to prescription drug therapy to medical professionals. The consortium will continue investment in new product launches and geographic expansion.