Kicking the habit from within

For only $5 million, start-up Modus developed a treatment for quitting smoking.

Modus Biological Membranes hopes to make initial sales of its product, Libertal, in 2006. The product is designed to treat the physical symptoms of withdrawal from smoking, although it is not exactly a drug. It is expected to be included in a fairly new US Food and Drug Administration category -- neutraceuticals.

Libertal is not foreign to the human body, but in large quantities, or taken in a certain way, it has a uniquely desirable effect, equivalent to that of a drug. Pharmaceutical and biopharmaceutical products are usually artificial chemicals, or biological byproducts that have altered to make them a substance with which the human body is not familiar. Some of the most common drugs are actually neutraceuticals, but were registered before the category was created.

Moduss decision to register the product as a neutraceutical, instead of a drug, has far reaching economic consequences. Developing a drug up to the sales stage usually requires an investment of $50-100 million. When people hear how much Modus has invested in developing Libertal, they think they have heard it wrong. The company has raised a total of $7 million to date, and has $2 million in cash, meaning that it finished its clinical trials at a cost of only $5 million.

Dr. Avner Shenfeld founded Modus. Freddy Shaviv, a former manager at Chemagis and Agis Industries (TASE: AGIS), and a former R&D manager at Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA), is CEO. Dan Gilat, CEO of Alon Technology Venture Fund, a subsidiary of Jupiter International Group of the UK, is chairman. Shenfeld and Gilat give Shaviv credit for managing and operating the company economically.

Investors in Modus include Sami Shamoon, Jupiter, and insurance company Menorah Holdings (TASE: MORA1;MORA5). It can be assumed that the helping people give up smoking can save Menorah quite a bit in health insurance costs.

Modus is about to raise NIS 30-40 million on the Tel Aviv Stock Exchange (TASE) at a company value of NIS 80 million, before money, according to the draft prospectus that the company submitted to the Israel Securities Authority. Poalim IBI Underwriting and Investments (TASE: PIU) will be the leading underwriter. Gilat says that the issue is aimed at developing the companys other products, and supporting business development.

"Globes": Why the TASE?

Gilat: Its important for us to develop the new products, so that we can raise more money later, when we have a product that already has sales, and a product pipeline in the advanced trial phases.

An important part of Moduss strategy is its choice of the neutraceutical category, which greatly shortens safety trials required by the FDA and the regulatory authorities in the European Union responsible for CE Mark certification. Even more importantly, the choice also allows substantially shorter Phase III (general effectiveness) trials. These trials are unusually notorious for their high cost and the long time it takes to complete them.

Neutraceutical materials are not food additives, which are medical products with no supervision of their precise composition. Neutraceutical products must have a fixed, known concentration of their active ingredient, and can include only materials related to the drug delivery mechanism (the materials in the capsule). Development and manufacturing procedures are the same as for drugs; only the system of trials is different. In Israel, incidentally, this distinction does not exist. Products can be sold only as drugs or food additives, and the Ministry of Health is not responsible for the effectiveness of food additives.

Modus says that the classifying of its product as neutraceutical is not the only reason for its ridiculously low cash burn rate. Weve always been lean and mean, and even today, we have only ten full-time employees, all of whom are managers, Gilat says. Our cash burn rate is about $1 million a year. Companies that raise tens of millions of dollars start building labs, and employ scientists at high salaries, while we did most of our development work and trials by outsourcing.

Work around the protein

Membranes, and proteins on or within membranes, are involved in 85% of the biochemical processes in cells, Shenfeld says. As of now, Modus is the only company in the world that aims most of its efforts at intervention in cell membrane infrastructure that proteins operate in. In order for these proteins to operate properly, the membrane must keep them in an environment that is in exactly the right state -- like pudding: not too hard, and not too liquid. If the environment is too hard, the proteins cant move, which prevents critical processes. If its too liquid, the proteins float from side to side, which also disrupts the process.

What happens with addiction is that the addicting substances make brain nerve cells too flexible. The proteins move too freely in the membrane, and change their position, which disrupts communication between the nerve cell and brain activity. In order to correct this situation, the nerve cells toughen their membranes, thereby enabling the brain to function, even in the presence of addictive substances. At the stage of breaking an addiction, however, in which the addictive substance is not in the body, the balance is again disturbed. The body has not yet learned to adapt itself to the new conditions, and the result is that the membrane is too hard. The nerve cells must return the liquid membranes to their previous state, which takes time, and is accompanied by severe withdrawal symptoms. Libertal speeds up this process, and substantially reduces withdrawal symptoms.

Are physical symptoms the main problem for people trying to end their addiction? Many of those who stop smoking go back to it after the physical symptoms have ended.

Shenfeld: We cant help people who dont want to get rid of their addiction. All addictions, including smoking, have a psychological aspect. Nevertheless, the market for products for giving up smoking totals $1.8 billion, and 25% of the drug treatments are successful, compared with only 5% of those who try to give up smoking by themselves. We help those giving up smoking avoid dizziness, nausea, sleeplessness, loss of concentration, and increased appetite, which is very important. Many smokers fear giving up the habit because of the tendency to gain weight during the period they stop smoking. We help a significant number of people avoid gaining weight, thereby increasing our market by removing this barrier.

Next stage: Asthma and hot flashes

Because the product is classified as neutraceutical, it will be stocked on shelves at pharmacies and natural products stores, not sold by pharmacists. Is there a risk that doctors and patients wont take it seriously, and that insurance companies will refrain from paying for its because their attitude is that food additives should be bought privately?

Gilat: For Modus, the market will focus on doctors. We want them to prescribe the product just like a drug. Our advantage is that the main competing products supply nicotine delivery alternatives. Our products will be sold next to them, on the same shelf, and will therefore be exposed in any case to the relevant consumers.

The company plans to sell Libertal for 150 for the withdrawal period, similar to the price of a treatment with the drug Zyban, and a little higher than treatment with a nicotine delivery alternative. Were negotiating with two potential partners to market the product under their brand name, Gilat says. The product is undergoing advanced registration procedures in Europe, and has already been approved for use in Belgium. From there, well move into other European countries, while completing registration in the US at the same time.

Modus also has a range of other products, which also operate by making cell membranes more flexible. Initially, it plans to develop various products for getting rid of addiction, as well as a product for treating menopause symptoms, especially hot flashes. Another product, designed to treat asthma, will probably be developed as a drug in cooperation with the University of Wisconsin. This product is based on the same principle. It seems that increased hardening of cell membranes also plays a role in asthma, through the immune system.

It sounds like a wonder drug operating on all the bodys cells. Isnt it liable to make the cell membranes that it is designed to treat too liquid?

Shenfeld: In this case, the body preserves itself. Theres a control system for cells that keeps them from getting too liquid, at least in the long term. This is in contrast to excessive rigidity, which definitely occurs, and which we treat. Its definitely correct to assume that all the cells in the body that have been hardened, and in which proteins were not in the right place, will return to their natural state, following the use of this product, but that will be only an advantage. The substance can be effective simultaneously in several places, but it cant hurt.

A drug company that has completed Phase II trials is already a hot commodity in the market. Youre closer than that to market. Have you received an acquisition offer?

Gilat: Weve had offers, but were working according to a different business model. We dont want to transfer the know-how. Since were a company that makes products by itself, and can also reach the market by itself, were in a strong position vis-à-vis the large companies. We dont have to accept their acquisition offers in order to get ahead. With our asthma drug, since its a market for a true medical illness, our approach may be different, and we might sell know-how.

Published by Globes [online] - - on December 19, 2005

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