The term “biomed” has become, over the past two years, a magical word. Dozens of biomed companies have held public offerings on the local capital market, and have allowed Israel’s investing public to take part in the dream of the “next Teva”. Hadasit Bio Holdings Ltd. (TASE:HDST), which became public within moments of being established, allows that same public to take part in that same dream, but in a slightly different way from what it had been used to until now.
The seeds of Hadasit Bio were planted 93 years ago, when the original version of Hadassah Hospital was set up, on Haneviim Street in Jerusalem. With time, the hospital became one of the largest medical institutions in Israel, and one of its leading medical R&D centers. About a quarter-century ago, when the local technology and venture capital industries began to flourish, the hospital decided that the research and development center that it built could generate exits, and set up Hadasit - the Technology Transfer Company of Hadassah Medical Organization , which today is one of the shareholders in Hadasit Bio.
The goal of Hadasit was fairly simple to advance and commercialize the intellectual property and R&D capabilities in the medical and biotech sectors, whose source, whether in part or in whole, was the hospital and its researchers. Commercializing those intellectual property and/or R&D capabilities happened, in most cases, through granting licenses to pharmaceutical or biotech companies to use the intellectual property and capabilities, in return for receiving future royalties.
In order to turn an idea into a commercial product, money lots of it is needed, so six years ago, Hadasit established a subsidiary, Hadasit Bio, took it public on the TASE, and raised $8 million for it. Later, through convertible debt issues, private placements, and rights offerings, Hadasit Bio raised another $19 million, and set off.
Hadasit Bio was intended to provide an answer to an unmet financial need, which is “crossing the valley of death in the drug development process”, as the company describes it. In a first stage, a start-up needs about $50,000-$500,000, in order to conduct first clinical trials, register a patent with the patent office, and other expenses. Sources of capital for that stage are primarily angel investors and academic institutions. In the second and later stages, the start-up needs more than $50 million, in order to conduct clinical trials. Sources of capital for those stages are primarily venture capital funds and pharmaceutical giants.
Between those two stages, there are sub-stages, which need more funding (such as to finance animal trials and applying for FDA approval of human clinical trials), but it is harder to find funding sources. Hence, the valley of death. “This is the stage where we come into play”, explains Hadasit Bio CEO Ophir Shahaf.
Hadasit Bio works for its portfolio companies, which it chooses from those at its parent company, Hadasit. It looks to find financing for first human trials, and immediately afterward (on average, about a year and a half after the start) the company works to find a strategic partner - usually a pharmaceutical company which will bring the portfolio company to the next stage in its life.
Currently, Hadasit Bio’s portfolio consists of 8 companies at various stages of development 4 have begun Phase I/II trials, and the others will begin Phase I/II trials within a year to a year and a half. The eight companies operate in one of the three areas on which Hadasit has decided to focus oncology, auto-immune diseases, and tissue engineering and stem cells.
Hadasit Bio's business model is somewhat unusual from both a local and global perspective. On capital markets, and not just Israel's, there are biomed or biopharma companies, and there are venture capital funds (such as Teuza - A Fairchild Technology Venture Ltd. (TASE:TUZA) and Tamir Fishman Venture Capital (TASE: TFVC)), but there are no holding companies which hold a portfolio of start-ups, backed by a world class research institution such as Hadassah.
Hadasit and venture capital firms are different in several ways. Venture capital funds are limited in their investment horizon, and must produce returns within a preset time frame. They have a wider capital base, which allows them to invest in many companies at the same time, but prevents them from being involved in their day-to-day management.
Hadasit Bio, in contrast, has more stamina - though as a public company it does need to show results for its investors; the ability to be involved in the day-to-day running of its portfolio companies; and no less important - a nearly infinite deal flow of start-ups, as the commercial arm of Hadassah Hospital.
Shahaf explains, "Even the best venture capital fund will always need to work hard in order to convince the most brilliant entrepreneur to allow it to invest in his or her invention. Hadasit Bio doesn't have that problem." In fact, Hadasit Bio has exclusivity on any future development that arises within the hospital's walls, but the company chooses in which developments to invest, according to pre-set criteria.
But the promise inherent in the Hadasit Bio business model does not necessarily come from Hadassah. Global pharmaceutical giants - such as Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) and Pfizer (NYSE: PFE) - have changed their approach in recent years, and instead of acquiring companies after they prove the effectiveness on people of their developments, they buy them or invest in them much before the clinical trial stage, with the goal of widening their product offering and reducing the damage that will hit them in the future as the patents on their innovative drugs expire.
Hadasit Bio CEO Ophir Shahaf does not have a medical degree - he is a lawyer by training. However, his role has given him in-depth knowledge of medical concepts that others have a hard time digesting. Shahaf is the person who decides in which developments at Hadasit (the parent) Hadasit Bio will invest. The decisions are made based on four criteria: The development has a giant target market whose value is at least close to $1 billion The time to clinical trial is between a year and a year and a half The patent needs to be relatively "young", not at a point where it has "burned" most of its years in effect (patents generally are given for twenty years) The development has successfully passed the feasibility stage Shahaf is aware that investors in the capital market are quite impatient, and prefer Hadasit Bio's portfolio companies to be sold, rather than wait for the day when they receive royalties. "I am an equity player", he says, "and so I will always prefer to sell a company - in whole or in part - to a player like Teva."
Whether to sell or not, Hadasit Bio still does not have a sufficient track record, but Shahaf feels comfortable enough with three out of his eight portfolio companies - Enlivex Therapeutics, which is in talks to bring in another investor; Cell Cure, in which Teva invested $1 million; and BioMarCare Technologies, which is also nearing a collaboration with a third party.
Shahaf points out that, in 2011, Hadasit Bio expects to invest in at least one other company out of Hadassah, and the company is considering other possible investments in the medical device sector as well. "Our investment strategy is called 'revolving door'," he says. Shahaf adds that it is likely that Hadasit Bio will take leave of one of its portfolio companies this year ("You also have to know when to turn off the faucet.")
Published by Globes [online], Israel business news - www.globes-online.com - on January 10, 2011
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