Deerfield Management’s Karen Heidelberger on NYC’s Life Sciences Needs
And on the company's brand-new 345 Park Avenue South
New York City is working overtime to make itself into a major life sciences player, to push its way to the front of the cities that lead in this area, which right now are Boston and San Francisco.
Earlier this month, Mayor Bill de Blasio literally doubled down on city funding to help life sciences grow, adding another $500 million to an earlier $500 million. And CBRE reported that rentals year to date by June of 257,000 square feet had already broken the city’s record for annual leasing, with more than half a year to go.
Deals included the Icahn School of Medicine at Mount Sinai’s 165,000-square-foot, research-focused lease at Georgetown Company’s 787 11th Avenue and C16 Biosciences’ 19,000-square-foot lease at Hudson Research Center at 619 West 54th Street.
The mother of all New York biotech facilities is Alexandria Real Estate Equities’ 1.3 million-square-foot campus by the East River at East 29th Street. Its first of two towers opened in 2010. And the city’s opening of a technology-centered campus on Roosevelt Island, jointly operated by Cornell University and the Technion-Israel Institute of Technology, helped feed the beast.
Even so, Manhattan-based Deerfield Management’s Cure initiative at 345 Park Avenue South is a peculiar and conspicuous life sciences addition. In 2019, the investment management firm paid $345 million for the Art Deco office building, completed in 1913, in the Flatiron District, a block to the east of Madison Square Park. That puts it close to the epicenter of Manhattan’s “Silicon Alley” forward-looking technology and creative ecosystem — one with commercial rents as high as anywhere in Manhattan.
And Deerfield’s not just aiming to provide tenants with lab space at the Cure. It’s aiming to address the whole person, not just the scientist. It will provide an outdoor rooftop terrace, and its snack bar Salt will go by its chemical formula NaCL, as will its gym Sweat, which will be called NaCL+H2O.
Commercial Observer stopped by the building in late June and talked to Karen Heidelberger, a Deerfield partner and its chief partnership and communications officer, who answered a bunch of questions about the Cure initiative, which is still under construction and is not expected to be fully operational until the fall. Here are some of her answers, lightly edited for clarity and brevity.
Commercial Observer: How would you advise New York leaders to make the city into a permanent center for life sciences?
Karen Heidelberger: New York has done a fabulous job with their initiatives to date. They’re thinking about it in a lot of the right ways.
An additional thing they could consider is how to bring more capital to New York City. With more dollars to invest in the companies that are coming out of the academic institutions, there could be more companies that are supported here. The initiatives they have done have been incredibly supportive of the ecosystem. The spark is here. It’s getting closer to the actual engine, and I think it’s going to take off very soon.
You can see it’s already happening. The amount of venture dollars that are coming to the projects here is up from 6 cents (per National Institutes of Health funding dollar) to almost a dollar, which is getting much closer to where Boston and San Francisco are. That’s a phenomenal difference from where it was just a few years ago.
Do you think New York has what it takes to be an important bioscience center compared to Boston and San Francisco?
There’s no doubt. It has all of the science here. It has all of the people here. All it needs is some experience to create the actual ecosystem, so you have a life-cycle generation going on.
Is this somehow an outgrowth of what has been happening on Roosevelt Island?
Phenomenal science going on here in New York. They don’t yet have the tried and true management teams, so that when a company is coming out of an academic institution, you have to go find the management team for that project. The management teams right now are in Boston and in San Francisco, and in different regions in the country. So, it’s easier to take the technology to one of those cities than have it stay here.
Once we have companies stay here, then you have a pool of management teams building experience and already in the region.
We have to recognize the failure rate of at least the drug development companies is something like 95 percent. Those who bring a management team to New York, when you have a failure rate of 95 percent, for them to relocate, you have to have other opportunities in the local area.
The ecosystem of companies that are being created and staying in the area will entice management teams to come — which means you need the dollars invested in those areas to support the companies. You need the dollars, you need the management teams, and you need the technologies.
This building is going to help create the management teams by educating them. You already have the science, and this building also provides some of the capital. You will need a little bit more of the capital to support some of those companies that are coming out, and then you have an ecosystem.
There is capital in New York, but it’s not always focused on New York.
You didn’t start out as a life sciences person; you started out as a financial person. What makes this exciting is building on the financial structure that is here, and applying it to life sciences.
For New York, in particular, obviously, there are many financial institutions that have a lot of dollars. Biotechnology, in particular, the early stages of it is very focused on venture capital. It is a very risky endeavor, and it takes a particular skill set focused on early-stage science. You can’t just look at the big financial institutions and assume they have the skill sets to do it.
So, when I say you need the dollars, I’m thinking more about not just biotech, [but] also about prices and services and digital and all that. They often get left out of the conversation, and they shouldn’t. You need really early-stage dollars.
The conversation has morphed a lot, because those dollars are not yet necessary right now, because IPOs happen a lot earlier now; but those dollars are still critical inside those companies.
Can you talk about some of the partnerships you’ve done?
What’s going on [with the science that is locked up in the academic institutions] is there’s something called the “valley of death.” That’s because funding from the NIH stops when the basic research stops, and basic research is just trying to understand the science. Anything beyond that, where you potentially take the basic science and use it for a commercial application, is called “translational research.” And that translational research requires a different type of dollars; NIH dollars don’t work.
That’s where venture capital comes in. Venture capital at the early stages for a number of years got incredibly hurt and lost all of their money in that area. So, a lot of people stepped away. It’s also a skill set that many scientists don’t understand. It takes a particular skill set and it takes venture capital to understand it.
So, Deerfield created [between 20 and 30] different partnerships, and a number of them are joint partnerships with different academic institutions. And what we do is we create an agreement with the academic institutions, and we work with the scientists on those campuses. They work on the science and we do all the translational work for them. This means the scientists focus on what they’re good at, and we focus on what we’re good at.
That pathway is what we’re hoping to teach some folks — to help get that science out the door to advance health care.
And how is that part of this building [at 345 Park Avenue South]?
It comes down to the programming of trying to help other folks how to do it. By having those partners in the building, and having that science in the building, is really important for the ecosystem. You have some of the thought leaders that will be here, that will be helping educate other folks in the area.
The impression I get walking through the space is it’s sort of like WeWork for bioscience startups.
I think it’s way different from WeWork. With WeWork — although you share a space — it’s a very siloed workflow, where this is almost the opposite. Brew on 2 [the coffee bar on the second floor], is where we would like to bring people together every morning, where they can share ideas — ‘What did you learn last year? What’s one key takeaway you had that helps you innovate better and faster?’ Share that with the community in a five- or 10-minute snippet, so that you can help others. Because we don’t want this to be a siloed workflow.
So, this building is bringing together thought leaders to share knowledge. We have this flexible real estate option with an overlay of programming, and that will create serendipitous conversations on the elevator, or in the hallway, or in the collaboration residencies. With the programming, people will have a reason and a topic, and shared interests and a need to talk — whereas WeWork is ‘come together for cheap real estate and shared services.’ Or, at least, that’s my understanding of WeWork.
We specifically try to make this relationship-building as opposed to transactional. WeWork has very short-term leases — months. We’re shying away from that, and really working hard on creating relationships, and making it so that people want to be here for an extended amount of time.
WeWork is live/work to a certain degree. Here, it will be live, work, play and learn. This is very mission purpose-focused on advancing health care.
What are the competitive advantages of this area versus a Boston or a San Francisco?
Boston and San Francisco have been worked really, really hard. There are a lot of fresh opportunities here, and fresh thoughts and innovative ways, and we can almost rethink how the model is done. Whereas, Boston and San Francisco are really set in their ways and aren’t interested in doing things in a new way.
I also think that New York specifically has a lot of different types of technologies here that they don’t have there. We also have the Financial District here. So, although we don’t have the venture capital focused on biotech, we do have Wall Street sitting right here, which means that when companies are ready to IPO, we have a whole different set of dollars.
And I also think that New York, in a very special way, is creating a lot of digital biotech companies that those other regions don’t. We’re integrating, because we’re in such a small little area, with Silicon Alley right down the road. There are a lot of neat companies coming out of New York, and you’re not seeing that in other areas.
Why here? Why this building? And Deerfield actually bought this building, which suggests a level of commitment that you wouldn’t have had if you merely rented the space.
We are committed. That is for damn sure.
The location was the No. 1 priority. For us, it’s incredibly important to be centrally located. When management teams go on a road show, they aren’t going out to Long Island City. You have to be centrally located. When dealing with Wall Street, those companies are on a very strict time schedule — they’re not going to commute an hour outside. So, being centrally located to all the academic institutions, so we can bring together all the different thought leaders, was incredibly important.
The goal is to have this building be the central hub for all of New York to come together. It would be really difficult to bring together all the people we want to if we were in a different part of the city. Even two avenues over would be incredibly difficult.
The facility I think of, in terms of bioscience in New York, is the Alexandria Center [for Life Science], which you’re actually not too far from. How do you see this interacting with them?
The Alexandria Center is great. They have a lot of wonderful advantages.
We think about this differently than the Alexandria Center. It’s a wonderful offering for companies that are interested in operating their own independent lab facilities. This is more about collaboration and coming together, and working as part of a community and being part of an ecosystem, and learning together and sharing. It’s more about being part of a shared experience, and talking to people on the elevators and being part of programming. For that, you need to be centrally located.
345 Park Avenue South is being repositioned — it’s an old building.
It’s no longer an old building. There’s nothing old about this building, except maybe the cement in the floor, which is fine.
Every single window is brand-new. The air intake system is completely new. The electric system is brand-new. It is a brand-new building.
The air handling in this building beats all of the COVID air-handling requirements that came out from the city. Our system that we put in was done even before the COVID standards came out. Six air changes an hour; normally, I think it’s two or three for a regular office building. We have the ability to do up to six. And we have a three-filter filtration system. We made every single floor lab-enabled.
We don’t know where health care is going to go, and we want to make sure this building can handle everything for the future. Drug development and the digital wave is really converging very quickly, and we want to make sure the building can handle it.
How much is being spent to Cure-enable the building?
The numbers that are out there are $635 million [which includes both the acquisition cost and the engineering to reposition it].
To build a lab is well over $350 a square foot. And that’s not including the numbers for the core. That doesn’t include any of the air handling or anything.
Your job description says you are responsible for ‘activation of the ecosystem.’ What does that mean?
Working on all of the programming for the building — understanding what all the stakeholders in the health care ecosystem need and developing it. We are starting slow, with a ramp up into next year for the programming of the building.
Currently, we offer a lecture series, every Wednesday from 3:30 to 4:30. And we’ll grow that out to every day, determining what those lectures should be, what our audience is, what the audience wants to hear about, finding the experts and delivering those lectures to the audiences. That’s one example of it.
And you don’t even have to come here. You can join us through virtual means.
What do you think COVID has taught your industry, and how will it be applied going forward?
There’s a million different ways to answer that question. On a very, very high level: COVID has taught our industry how to collaborate and how to think together. It taught us how to think faster, how to think more flexibly, how to innovate more efficiently. But, overall, we had to work together to come up with a solution.
How does your background in finance and communications and hotel administration help you at Deerfield?
My job is about thinking creatively, and understanding what people need and delivering it, with an understanding of the health care ecosystem. I’ve been with Deerfield for almost 20 years, so the understanding of the health care ecosystem is something that I’ve been immersed in for a lot of years. I came into this with skill sets that enabled me to have flexible thinking.
So, just joking, could you fill those little vaccine bottles?
No, but I’ve had enough medical meetings that I know how they do it.