New York-based Deerfield Management Co. has secured $840 million for a new venture capital fund to support innovations in biotechnology, medical technologies and digital health. James Flynn, managing partner of Deerfield, said roughly half of the fund will focus on early-stage therapeutic R&D, much of that coming from academic partnerships. The remainder will be used to back companies developing novel advances in med-tech interventions, diagnostics and digital health.
“If you look at health care right now, the two really dominant themes are the increased granularity in human biology that’s leading toward a lot more tractable drug targets and then, on the other hand, the ability to reinvent the health care delivery system through digital technologies,” Flynn told BioWorld.
The new Healthcare Innovations Fund II will review about 500 opportunities a year – both companies and collaborations – and fund about 50 of them, he said.
A key feature for Healthcare Innovations Fund II portfolio companies is the med-tech incubator Deerfield is building in New York. The health care investment firm announced last fall that it was investing $635 million to create a life sciences campus, known as the Cure, on a 300-square-foot property at 345 Park Avenue South. Deerfield said it would commit more than $2 billion in research and seed funding to develop new drugs and medical technologies by 2030.
Early-stage companies will have access to the Cure’s wet and dry labs, engineering, computing and shared resource spaces, and there will be space for companies that spin out of the incubator within the building.
The incubator is the second one Deerfield has created in partnership with medical device industry leaders. The firm’s Healthcare Innovations Fund I teamed up with Stan Rowe, a veteran of med-tech innovation efforts at Johnson & Johnson and Edwards Life Sciences, to start Nxt Biomedical, an incubator focused on developing and advancing novel therapeutic devices in diseases with significant unmet needs.
“They have a half dozen different devices for a wide range of cardiovascular and other conditions that we’re advancing,” Flynn said. “Some of these are already in people.”
Deerfield is partnering with another “very prominent innovator” to lead the device effort at 345 Park Avenue South, he said. “Healthcare Innovations Fund II will have the opportunity to invest in Stan’s projects as well, as they emerge from Nxt, but it will have its own incubator independently.”
Deerfield’s portfolio companies have access to a range of services and assistance, from finance and legal, to human resources, IT and business development. There is also the Deerfield Institute, which includes experts in intellectual property, clinical trials and market research and access, and the Deerfield Discovery and Development Corp., which helps startups create and execute on discovery research plans.
$10B in assets
Currently, Deerfield’s assets total about $10 billion, with investments in more than 200 companies at any given time.
Among its initial investments in Healthcare Innovations Fund II are Element Science Inc., of San Francisco, which is developing a wearable defibrillator Flynn said is more comfortable and less-limiting than current external defibrillators. The fund also has invested in New Orleans-based Ready Responders, which provides emergency care at home – a key advantage, Flynn notes, in the context of the current COVID-19 crisis.
Also on the fund’s radar are opportunities in health care infrastructure. To that end, Deerfield has invested in Recovery Centers of America Holdings LLC. Headquartered in King of Prussia, Pa., the company has seven community-based treatment and recovery centers for people suffering from addiction.
Not to be overlooked is the massive impact of the current pandemic. “Any procedure [that] is not essential is being deferred, and so every company with a device, whether it’s a hip or an implant or anything, is being deferred,” Flynn said. “Volumes are down 40%-80% for existing companies, which is obviously challenging their resources. And when your resources are challenged, it’s going to challenge your ability to invest in new products, to acquire new technologies.”
In response to the situation, Deerfield has reserved extra capital to ensure that its existing portfolio companies come through the crisis intact – a choice of holding the fort vs. expanding its catalog, Flynn said. At the same time, discounted valuations of some new technologies are going to be attractive, and Deerfield will pursue that aggressively as well.
“It’s definitely on our radar,” Flynn said. “We’re doing some things within our portfolio and some things potentially incrementally, but it’s not driving the ship.”
Among potential contenders in the coronavirus space are Ablexis LLC, of San Diego, a producer of antibodies that Deerfield acquired in 2018. The company is currently working on potential products to address COVID-19. Deerfield is also in late-stage, preinvestment discussions with two companies that are developing rapid point-of-care diagnostics for the novel coronavirus.
Meanwhile, the Deerfield Foundation also has targeted about 10% of its 2020 fiscal budget for emergency funding for organizations needing urgent resources to fight the pandemic.
To date, the foundation has invested more than $49 million in global entities to improve health care delivery, especially for underserved children, and Flynn said it is considering establishing a nonprofit to develop products that can’t be commercially scaled, such as devices for congenital heart failure in kids.
“We are advancing the idea of creating a not-for-profit that starts to serve a lot of the essential segments that just aren’t profitable enough to attract large players,” he said.