Does anyone even remember Clal Biotechnology Industries Ltd. (CBI)? The market apparently forgot about it. Founded in 1998 to invest in biotechnology, CBI made 12 investments by 2003 for a total of $100 million. One might have expected it to make rather more noise. With the backing of Clal Industries and Investments Ltd. (TASE:CII) and a portfolio of promising companies, beginning with D-Pharm Ltd., one might have presumed that CBI would attend biotechnology conferences and talk about its plans.
But CBI’s managers kept quiet, apparently deliberately. Clal Industries also apparently ran out of excuses and explanations for the loss of approximately NIS 1 billion on the investments. To investors’ regrets, CBI strongly affected Clal Industries’ bottom line but mainly in the form of losses.
Three years ago, then-CEO Meir Shannie declared that Clal Industries would quit biotechnology and halt investment in the sector. “It’s not a core business,” he said. There was an impression that CBI might put up for sale or liquidated somehow, in the same way that Orckit Communications Ltd. (Nasdaq:ORCT; TASE:ORCT), Mivtach Shamir Holdings Ltd. (TASE:MISH) were declared as non-core businesses.
But then Nochi Dankner acquired control of Clal Industries’ parent company, IDB Holding Corp. Ltd. (TASE:IDBH), and he reviewed Clal Industries’ portfolio. After a lengthy period without any interesting developments at CBI, externally at any rate, Israeli generic giant Teva Pharmaceutical Industries Ltd. (Nasdaq:TEVA; TASE:TEVA) has announced that it is investing in the company.
At the dedication ceremony of Teva’s new pharmaceutical plant in Jerusalem on Monday, Teva president and CEO Israel Makov announced that the company would invest $36 million in four life sciences companies. Most of this investment was for the acquisition of 19% of CBI for $19 million, reflecting a company value of $81 million, before money. Market sources say Teva and CBI negotiated for year, and CBI’s value was much lower when the talks began.
Teva and Clal Industries pledged to invest an additional $31 million in CBI, proportional to their stakes in the company: Clal Industries will invest $25 million (81%), and Teva $6 million (19%). Most of this money is slated for new investment in the life sciences.
The transaction is subject to Teva’s due diligence in CBI. It will transfer $8.5 million of the $19 million when the deal is closed, and the balance under terms to be set by the two companies concerning CBI’s needs. The companies’ press release naturally did not append the contract, but the press release did include the rather opaque sentence, “CBI will act to the best of its ability to obtain for Teva certain strategic rights regarding CBI’s portfolio companies.” This presumably means that Teva will get preferential rights over these companies’ other investors.
Although it suspended new investment, CBI is one of Israel’s largest investors in the life sciences, including pharmaceuticals, biotechnology, and medical devices. Since abolishing its headquarters, CBI has functioned as an investment company with an operating infrastructure, including a R&D and production facility in Yavne.
CBI’s portfolio includes an 11% stake in Compugen Ltd. (Nasdaq: CGEN; TASE:CGEN); a 4% stake in IDM Pharma Inc. (Nasdaq:IDMI), and a 33% stake in D-Pharm. CBI planned to float D-Pharm on London’s Alternative Investment Market (AIM), but the terrorist attacks in London in July, when the company was making its presentation to investors caused a postponement. The IPO will reportedly take place toward the end of the year.
CureTech has a safe cancer immunotherapy
Teva also announced an investment in CureTech Ltd. in which CBI owns 54%; the second deal in Teva’s $36 million investment program. CureTech is developing immunotherapies for cancer.
In a press release, Clal Industries co-CEO and Clal Biotechnologies chairman Avi Fisher said, “After many years of intense activity, we’re beginning to reap the fruits of our large investments in our portfolio biotechnology companies. We believe that these are only the first sprigs in the realization of the great potential in Clal Industries’ biotechnology companies, and we’re pleased that our partner in realizing CureTech’s potential is Teva.”
Teva invested $6 million in CureTech, at a company value of $40 million, before money. Teva is likely to invest several million dollars more in the company, in exchange for increasing its stake in it. Teva has an option in inject $19 million in CureTech, increasing its holding to 25%. This investment might be raised to $22 million, if Teva decides to proportionally increase its stake in the company.
The rather complex structure of the CureTech deal gives Teva a Call option to buy out CureTech’s other shareholders for $110 million, and an option to invest an additional $50 million when the company obtains marketing licenses for its treatment, or in 2018, whichever comes first. If Teva exercises both options for $160 million altogether, Clal Industries will get $65-95 million.
CBI is managed by ARTE Arison Technologies Ltd., run by president and CEO Ruben Krupik, who also serves as chairman of CureTech. He said, “Teva’s investment in CureTech is a vote of confidence in the great potential of the company’s products. We believe that Teva will greatly contribute to CureTech’s development.”
CureTech is considered promising; founded in 1995, it is also quite old. The company is developing immunotherapies for various cancers. Its lead product, CT-011, a fully humanized monoclonal antibody for treating tumors, has completed Phase I clinical trials on patients with hematological malignancies. CT-011 was shown to be safe, and CBI says preliminary indications showed that it was effective.
This success presumably boosted CureTech’s value from the $4.6 million company value for a financing round in 2003. CureTech’s CEO is Dr. Michael Schickler; the company’s technology is based on research by Dr. Britta Hardy and Prof. Abraham Novogrodsky, the head of Immunology of Cancer Laboratory at The Felsenstein Medical Resarch Center at Tel Aviv University. Teva’s $6 million investment in CureTech should be enough to complete development of CT-011 and register it in the US and Europe. This is small change for Teva if the gamble pays off.
What’s next? What about new investment? CBI will probably continue investment in early-stage companies. What is certain is that Teva’s entry and investment will cause many companies to offer their wares to CBI.
Teva and Hurvitz together and apart
An interesting item about Teva’s investments concerns its chairman, Eli Hurvitz. He manages Pontifax Ltd. which has invested in Protalix Biotherapeutics Ltd. (formerly Metabogal), NasVax Ltd., and NeuroSurvival Technologies Ltd. (NST), in which CBI has a 5% stake). Pontifax acts like charm in biotechnology because of its famous investors, and every Israeli company in the sector would be proud to list it as an investor.
Here and there, Teva made investments in biotechnology, such as in Proteologics Ltd., which is conducting research on proteins. The investments in CBI and CureTech are Teva’s first large-scale investments in biotechnology, which is moving from the margins to the center of Teva’s strategy.
The question is now whether Hurvitz will wear two hats: Teva chairman, and Pontifax manager. If a promising company asks him for an investment, and he believes that it is worthwhile, will he recommend that Teva carry it out, or will he handle it personally, through Pontifax? Or both, if the company in question promises to be a dream come true? Since Hurvitz has excellent relations with Teva’s management, they all have probably considered these scenarios.
Published by Globes [online], Israel business news - www.globes.co.il - on September 14, 2005