"When we bought companies in Israel, we usually had more success in retaining employees than we did with the companies we acquired in the US. I don't know why that is the case. Perhaps it's because Israeli companies which are acquired by large institutions continue to maintain more independence simply because they're further away from the group headquarters," says Charles Dennis, VP for business development at the cardiac rhythm management division at US medical device giant Medtronic Inc. (NYSE: MDT).
Dennis's division has a turnover of $5 billion. This is the man you need to talk to if you want to interest Medtronic in acquiring a cardiac technology company or suggest a collaboration. Medtronic has acquired a number of Israeli companies so far, among them InsStent Ltd., founded by entrepreneur Shlomo Ben-Haim, and Odin Medical Technologies Ltd. It has also invested in Itamar Medical Ltd. (TASE:ITMR), Mindguard Medical Devices, and Carmel BioSensors.
Dennis knows the Israeli market well and has a high regard for it. "The activity here in my field amounts to 10-20% of that of the US, which, relative to the size of the population here, is unbelievable."
But if asked, he also has a few criticisms as well.
Globes: What sort of mistakes do Israeli CEOs make when making a pitch to Medtronic?
Dennis: "Not a lot. One thing I can think of is that they come to us with the same presentation that they would make to a financial partner. That is to say, they include a good deal more information about the market, which Medtronic most likely knows a lot better than they do. Not that this is embarrassing or annoying, but it's simply wasting time that could be better spent convincing us that the product can actually reach the market. We want to know whether you know who your buyers and physicians are, whether you're clear about what it is you're giving them, and how you plan to go about securing insurance coverage."
Israelis say - If Medtronic buys us, it will see to the licensing and marketing.
"That's true, but we want to see whether they've given these matters some thought."
What are the less obvious considerations that guide you when choosing companies for collaboration and investment?
"We ask if it's in a discipline where Medtronic is already serving the same physician group. For us to build a new sales network is fine, but then, of course, the product should be much more attractive. Another consideration is the business model. While pharmaceutical companies want their products to be taken by patients daily for the rest of their lives, we, as specialists in implants, prefer a product that is administered on a one-time basis, with the minimum maintenance and follow-up afterwards."
It is usually accepted that large companies like working with products that include a disposable component, so as to provide a steady revenue stream.
"Disposables are important when it comes to equipment with a heavy capital investments and then you want to set the initial product price lower, and make up the difference from the disposables. In smaller, cheaper products, a disposable component is nice but not critical.
"Our collaborations span all stages, but even we only buy technology from universities if it is ideally suited to our core businesses. We won't buy at any price but we do buy. As investors, we're interested in products at preclinical to early clinical stages, but when it comes to acquisitions, we will usually go for a company that already has marketing approval and even sales, so as not to erode our bottom line.
"We always examine the intellectual property. Some companies don't want to show us their patents, and I say to them 'but that's what I'm buying!' That includes the company's intellectuals themselves, although I have no guarantee that they'll stay on."
What are Israeli developers' strong points?
"I've seen some impressive things in ultra sound, and in guided invasive device navigation. I understand that a large number of these technologies were previously used by the military. I think this is a tremendous advantage for Israelis. There is a special advantage in inventing something on the basis of a technology which isn't new but has been taken from another field - a kind of intimate familiarity with its capabilities.
"Israelis have become quite adept in choosing the applications for their technologies. When I see a product with its designated application, I usually say that the choice of application is logical and reasonable, but that there are better applications, generally ones that can be reached by combining the product with existing products of big companies. When building a start-up you have to base it on an in-house product, but at the same time not to neglect products that can be developed with the right collaborations."
You originally specialized in patents. How do you feel Israeli companies have been faring here?
"Israelis are good at writing patents, quite like the Americans. One interesting thing I've come across, not especially in Israel, is the tendency to inflate the number of patents artificially, in the belief that venture capital funds look for companies with "lots of patents." It's a waste of time and it also portrays you as someone who assumes the funds are pretty stupid. There are no longer any unprofessional funds like these around, and even if there were - who would want one as a partner?"
The advantage of implants
Medtronic focuses principally on implants. What are the advantages of this field?
"It’s true that most of us would rather not have implants, but today, in many cases it is the best possible treatment. It has an advantage over the external products that often have to be inserted into the body - less risk of infection. There's also another major advantage in many cases it rectifies the problem completely, rather than just controlling the results like a drug would.
"Implants have another potentially phenomenal use; the monitoring of body activity and the relay of information. They can enable the continuous monitoring of blood pressure, heartbeat, glucose, and, in fact, any body chemical. The main problem is that the implant is covered in cells. If we can find a way through this cover to measure chemicals in the blood behind it, we'll have solved the monitoring problem.
"At a later stage, they'll develop algorithms that will combine all the measurements and tell people when to go to hospital, so that they avoid reaching states of emergency. For example, people experiencing heart failure that today turn up at hospitals once or twice a year with fluid in the lungs, will receive advance warning and have their dosage changed, thereby making a tremendous saving costs and improving quality of life."
As Rimon Medical, which you once worked with and which was recently acquired by your competitor Boston Scientific, has been doing?
"Yes, Rimon Medical is also doing something similar, and this is another example of what can be done within a single parameter."
Published by Globes [online], Israel business news - www.globes.co.il - on January 6, 2008
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