Hedge fund giant KKR sees opportunity in a new investment approach to the medical device space. Alongside life science private equity player Aisling Capital, KKR has created Ajax Health to enable it to provide financial and operational support to medical device companies.

MED-TECH OPPORTUNITY

It aims to opportunistically invest in roughly seven to 10 device companies that have only one or two significant remaining risks until they reach a major inflection point. Roughly $15 million to $30 million will be invested in total for each company.

The first Ajax company is Advanced Cardiac Therapeutics Inc. (ACT), a next-gen cardiac ablation Santa Clara, Calif.-based start up for which it led a $45 million financing. Ajax and ACT are both headed by Duke Rohlen, who previously led Foxhollow Technologies and CV Ingenuity; each of these were acquired for a combined more than $1 billion.

The idea is to both catch a medical device start up at a crucial point in development – and to reduce its expenses by housing it under the Ajax umbrella in order to share leadership and other resources.

"There's an opportunity to provide desperately needed funding to technologies and companies that need to go further in order to penetrate markets or to get to approval to start commercializing or to get regulatory approval. There's been an advancement of these technologies to a certain point, and then there's this barren desert that they have to cross before they can start commercializing," Rohlen told Medical Device Daily.

"And so what we're doing is putting our financial and human resource capital behind that opportunity to take technologies that are just short of realizing their full potential and get them to full potential." Rohlen continued, "KKR recognized there's an opportunity to leverage one of the big infrastructure costs which is human resources across multiple technologies to try and avoid some of the redundant infrastructure that can be very, very costly."

KKR has a similar venture in biotech known as Bridgebio Inc. The Palo Alto, Calif.-based group aggregates a range of compounds and clinical programs under a single CEO. It is a company that invests in and creates other companies; well-regarded life science hedge fund Perceptive Advisors is also an investor.

GETTING ACT TOGETHER

Ajax Health led the ACT funding round for the company alongside existing investor NEA and new investor Questa Capital Management.

Questa is a new health care investment firm that disclosed last fall it was raising a $250 million fund; it is led by Ryan Drant, who previously led NEA's healthcare group. Rohlen helped to recapitalize ACT alongside NEA's Justin Klein four years ago.

ACT has next-gen ablation catheter tech to treat cardiac arrhythmia including atrial fibrillation. It's expected to be the first system to enable more precise ablation, as well as monitoring of the effects during the procedure, via temperature control, contact sensing and high resolution electrogram recording.

The financing is aimed at supporting clinical testing, as well to enable ACT to obtain a PMA approval in the U.S. and CE mark in Europe. ACT is working on securing an IDE for a pivotal U.S. trial, which it hopes to start in about six months.

"So, the standard of care right now in this space is force contact to apply a certain amount of force to a lesion for a certain amount of time and hope that the lesion becomes transmural. We believe the market is growing is towards more specific lesion feedback," said Rohlen.

The technology has been tested in 36 patients and, thus far, he noted that they've seen more than a 60 percent reduction in procedure time with top-tier safety and efficacy profiles. More precise ablation could also help reduce the need for repeat procedures, which are common.

KKR, AISLING IN MED TECH

KKR has long invested in medical technology, alongside biotech, but without a dedicated vehicle to do so. Ajax Health will be financed from its first health care growth equity fund, which last month had an initial close of almost $600 million but reportedly is aiming for up to $800 million.

Early this year, KKR led a $38 million series B round for insomnia device company Cerêve Inc. The firm also led a $66 million financing last fall for ophthalmic medical device company Acufocus Inc.

Nasal obstruction device company Spirox Inc. raised a $44 million series C round last spring that was led by KKR; Rohlen remains the CEO of Spirox, however, Spirox is not part of Ajax. That role was how he and KKR initially came together.

"He has a fantastic track record of identifying and growing companies through his strategic thinking and the recruitment of strong management talent," said Jim Momtazee, a member of KKR and head of its health care team.

Ajax is also counting on Aisling for its industry acumen – specifically, its skill with finding and vetting interesting potential portfolio companies.

"Aisling is a group that I've worked with extensively; they are a minority investor in Ajax. They bring a lot of horse power to the table in terms of opportunity assessment and diligence," said Rohlen.

Aisling is also an investor in Rohlen's Spirox. The firm's medical device portfolio includes hearing aid company EarLens Corp.; public ear, nose and throat implant maker Intersect ENT Inc., and ophthalmology star tup Powervision Inc.

KKR and Aisling are betting that with their deep pockets and analytical chops, they can rationalize medical device investing by focusing on a couple of targeted goals per company, minimizing expenditures and maximizing returns in technologies that could improve health care.

"The returns haven't been there. A lot of funds are invested in various stages of technologies; those have taken longer to get to real inflection points and by the time we get there the returns that would be associated with the takeout are low," concluded Rohlen on the perils of medical device venture investing. "We are looking for companies that have stalled out either because they don't have capital or because they don't have other resources like human capital."