The US capital market has not smiled on life sciences companies in the past couple of months, and Omrix Biopharmaceuticals Ltd. (Nasdaq:OMRI) is no exception. The company was twice forced to cut the size of the planned offering before it was finally able to hold its IPO. The company first slashed the offering from $80 million, at a company value of $300-350 million, to $55 million, at a value of $230 million, and then cut the offering again to $34 million, at a value of $134 million.
Omrix shot up 40% immediately after its IPO, however. It then corrected downwards slightly, and is now traded at around $12.50 per share, compared with the IPO price of $10.
Omrix is used to such volatility. Until about 1998, it was one of the most promising biotechnology companies on the Israeli scene, but a delay in obtaining certification from the US Food and Drug Administration (FDA) turned the company into a promise that was waiting to happen. In the meantime, the company slowly consolidated and began to record sales. From time to time rumors would crop up about a pending sale or flotation, until, finally in April 2006, the company held its IPO.
The IPO might be the end of the saga for some of Omrix’s investors, but for Omrix CEO Robert Traub, the Israeli-Belgian entrepreneur who founded the company in the mid-1990s, the IPO is just the beginning. In his first interview since the flotation, he says, “I don’t think I’ll rush to sell, because I believe in Omrix’s future.” Taub owns 24.4% of the company.
Among longstanding Omrix investors waiting for the lock-up period after the IPO to end so they can finally make a return on their investment there are few Israelis. Catalyst Venture Partners is the only one, and its investment was through a buy-out of the assets of a foreign fund. Taub was once accused of neglecting Israeli venture capital funds when he started out, but he now says that this was not the case. “I personally invested heavily in the company at the outset. When I sought to raise capital, I mostly contacted funds and investment groups I knew from companies I previously managed in Belgium, and US funds that they knew. That’s how we obtained our first investment from BRM Capital of Boston in 1998, which naturally led to more US funds.”
Easier than for others
Except for the market climate, Omrix was readier than ever for an IPO this time. The company posted $33 million in sales for the first quarter of 2006. It posted its first profit in the fourth quarter of 2005, and was also profitable in the first quarter.
“Globes”: Biomedical companies like yours usually face the decision whether to go public or merge. Did you face this dilemma?
Taub: “We have received all kinds of offers over the years, which I cannot comment about now. The company also went through hard times, especially while it was waiting for a visit from the FDA, which did not happen because of the intifada, and we didn’t always have the luxury of choosing. In the end, independence was the only road left open.
“I can tell you that at the moment there’s nothing like that on the agenda. There are no merger talks. We strongly believe in Omrix’s future, and in its chance of becoming a leader in its field. We want to build a large independent company based in Israel.”
If you do become a leading international company, can we be sure that your center and operations will stay in Israel?
Omrix SVP and CFO Michael Burshtine: “Omrix is registered as a US company and also has offices in Belgium, a factory in Kiryat Ono, and a development center in Rehovot. An Israeli development center is something a lot of companies would like to have, and fortunately, we have one. We’re now setting up another plant in Jerusalem, which demonstrates our commitment.”
Taub: “We don’t rule out expanding to other places later, but we believe that the Jerusalem plant will meet our needs for the coming years.”
To what extent was the decision to establish a plant in Jerusalem driven by Zionist ideology, and to what extent was it an economic decision?
Taub: “If it was initially possible to talk about the influence of Zionism at Omrix, there are now so many factors and so many economic interests involved in decisions that any single factor being dominant is unlikely. The decision to establish the plant in Jerusalem was taken on the basis of the high quality personnel relative to their price, because plants in Israel meet international quality standards, because of the tax laws, and because we already had one plant in the country.”
How does it feel to be listed on Nasdaq?
Taub: “It’s very hard work to meet all the requirements for trading, but we get a lot of visibility in exchange. We haven’t yet felt that it’s easier to win customers, but immediately after the IPO, we saw an unexpected flow of proposals for cooperation from small and mid-sized companies. Nothing’s on the agenda now, but we’re examining the companies, and we’re seeing a lot of interesting things.”
Burshtine: “Following the IPO, it became much easier to recruit talented and skilled personnel, for whom working for a Nasdaq company has value.”
The primary market has not been particularly favorable for biotechnology companies. You certainly felt that during your IPO.
Taub: “The market was easier for us than for others. We’re different from other biotechnology companies because we already have sales, which are expected to be stable over the coming years. The dream we’re offering is on top off our existing activity that formed the basis of our flotation.”
When do you expect your great breakthrough, the one indicating that your dream is about to be realized?
“The word ‘dream’ is misleading. We believe that the market is beginning to tire of promises of blockbuster drugs that require an all-or-nothing gamble under conditions of uncertainty. We’re offering to launch another $100-200 million product, followed by another, each of which carries less risk. In this way, in a few years we’ll reach the level of sales blockbuster drug makers promise.
“That’s why we don’t believe that we’ll show a sales graph that looks like a hockey stick - stable with a sudden jump. The jumps will be gradual, with the first probably occurring when we obtain approval for our biological surgical sealant for additional fields (it is currently only allowed for liver surgery), and especially when it is approved for all surgeries, which we expect to obtain in 2007. After that, we expect another breakthrough when we launch our biological hemostatic dressing, which has no competitor on the market.”
Burshtine: “Each immunological product approved for marketing will naturally create another breakthrough for us.”
You posted a profit for the preceding quarter. Was this a temporary peak, or are you now on the path of sustained profitability?
Burshtine: “We’ll provide guidance in August. We can’t talk about this now, but you ought to note that we’ve been profitable for two consecutive quarters.”
Your work doesn’t end with IPO, of course. Now you have to induce analysts to cover the company, and to do so favorably. How will you do that?
“Three analysts already cover us: John P. Calcagnini of CIBC World Markets Inc.; Bruce Cranna of Leerink Swann and Co. Inc.; and Charles Olsziewski of Oppenheimer and Co. Inc. They are analysts from the companies that were also our underwriters. That’s how we wanted it. We strongly believe in them. It definitely wasn’t easy. We discovered that the Chinese walls between the companies’ underwriting and research departments were impenetrable, as mandated by law. At best, your underwriter can ensure that someone will pick up the telephone when you call, but not much else.”
Why do you think analysts choose to cover one company rather than another?
“I believe that analysts don’t necessarily look for the largest or fastest growing companies, but for companies that the market is likely to find interesting; companies that will make a difference. They also prefer companies they understand. We believe that at least one more analyst will cover us by year-end.”
Does Omrix meet all these criteria? Your story is interesting, but it can’t be called simple. By the time we understand biological sealants, immunology suddenly pops up.
Taub: “The story is that we’re a company with an existing, strong business, that collaborates with one of the giants in the field - Johnson & Johnson Inc. (NYSE:JNJ) - which basically tied its future in the surgical field to ours, and with a varied and impressive pipeline that guarantees us growth in the coming years.
“What we’re doing is quite straightforward. People are made up almost entirely of liquids. Wherever there are liquids inside a container, there’s a risk of leakage, and blood, the commonest liquid in the body, is most at risk. We block the leaks.”
Published by Globes [online], Israel business news - www.globes.co.il - on June 21, 2006
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