Last week was not a successful one, to say the least, for Elbit Medical Technologies (TASE: EMTC). Two notifications to the Tel Aviv Stock Exchange revealed the plight of two companies that it holds that were once the great hopes of Israel’s healthcare sector. The first stated that focused ultrasound company InSightec (in which Elbit Medical Technologies has a 3.1% stake) had a going concern qualification attached to its latest financial statements, while the second stated that stem cell company Gamida-Cell (Nasdaq: GMDA) had entered into a debt settlement in which it was valued at almost zero. In the settlement, Elbit Medical Technologies parted from its 1.6% holding in the company.
These two companies were the only holdings of Elbit Medical Technologies. The company’s share price has fallen 75% in the past year, giving it a market cap of a mere NIS 13 million. In 2010, it sought to float its shares on the Tel Aviv Stock Exchange at a valuation of $250 million. The offering failed, and in the end the company was merged into a stock market shell company that same year. Since then, it has lost 97% of its value.
At the time of the attempted flotation, Elbit Medical was the main shareholder in both InSightec and Gamida-Cell, which had been part of the portfolio of its parent company, Elbit Imaging, since the 1990s. They continued to be so after control of Elbit Imaging passed to the late Motti Zisser, who used its cash for his real estate businesses in Eastern Europe. Contrary to expectations, Zisser fell in love with the two biomedical companies, and saw in them the pride of Elbit Imaging.
In 2010, however, when Elbit Imaging’s real estate business got into difficulties (in the end it made a huge debt settlement), it was decided to spin off the company’s medical activity and float it on the stock exchange. The move was a resounding failure, and the company’s entry into the stock exchange by the back door also caused its investors heavy losses.
InSightec - Dramatic decline in value
InSightec, Elbit Medical Technologies’ sole remaining holding, developed an extraordinary technology for burning tissue within the body by means of focused ultrasound energy, as an alternative to surgery to remove it. Close to $500 million have been invested in the company to date by leading investors such as York Capital, Koch Disruptive Technologies (a subsidiary of Koch Industries), and GE Healthcare, which in the past was InSightec strategic and marketing partner.
InSightec’s first product was launched in the early 2000s. In an interview with "Globes" in 2018, InSightec’s CEO Maurice Ferré, a leading expert in robotics, predicted that the company would be sold at a valuation in the tens of billions of dollars. The investors are still waiting.
Two and a half years ago, at the height of the boom in technology shares on Wall Street, InSightec announced that it was in talks on a merger into a SPAC at a valuation of $1.9 billion. A few months later, however, it was reported that, in the light of market conditions, which had cooled, the merger would take place at a lower valuation, if at all. In the end, it didn’t happen, and in the 2023 financials it is valued at just $211 million, with Elbit Medical Technologies’ own holding valued at $5 million.
InSightec’s challenge is the complexity of its products, which affects the cost to hospitals of using them, their implementation, and the rate of adoption of the technology. The company has almost always been loss-making, even when it had annual revenue in the tens of millions of dollars. In 2023, its revenue was $87 million, down from $96 million the previous year, and its loss widened by 16.5% to $101 million. The going concern qualification mentioned the company’s low cash balance, which Is not enough for the next twelve months, the growth in its liabilities, and the fear that it will not meet the terms of its loans.
InSightec’s great dream today is the focused treatment that opens the blood-brain barrier to enable drugs to be administered easily to the brain, and that can be used as a treatment in itself for wasting diseases of the brain such as Alzheimer’s. Initial trials of this technology seem very promising, but again, we are talking about a distant dream, and the company is starting to find it difficult to raise more finance for dreams like these.
Incidentally, Elbit Mdial Technologies managed to realize InSightec shares to the tune of $100 million in the funding round in which the Koch family became the controlling shareholder in the company a few years ago. It used the cash to repay a bond it issued and to buy back its own shares. One shareholder, Exigent Management, did not accept the offer to purchase, and is now the main shareholder (66%) in Elbit Medical Technologies.
Gamida-Cell
Elbit Medical Technologies other holding until recently was Gamida-Cell, which was founded in the 1990s in Jerusalem and has developed technology that is still considered groundbreaking. It facilitates the enhancement and expansion of stem cells without losing their density. This capability is very important to the absorption of stem cells, for example for patients undergoing treatment for blood cancer, and it could be significant in the treatment of other types of cancer.
The company went through difficult times, when it almost reached the finishing line with a first product developed in collaboration with Teva, and then the US Food and Drug Administration (FDA) demanded an additional trial, which rendered the development not worthwhile. Instead, the company decided to focus on a new product, this time without Teva, and this year finally succeeded in bringing it to the market after many postponements.
Elbit Medical Technologes and Clal Biotechnology Industries, which were the main shareholders in the company, led Gamida-Cell’s flotation on Nasdaq in 2018, at a post-money valuation of $215 million. Since then, the company has lost 99% of its value. The final blow landed last week with the announcement of the debt settlement., following which the share price plunged 80% in a single session. Gamida-Cell is currently traded at a market cap of $6 million, after raising $325 million over the years.
Gamida-Cell’s product for improving transplants of umbilical cord blood was approved by the FDA in April 2023. The company said that it was capable of marketing it independently, but at that stage it did not have the cash to do so successfully, and it failed to meet the terms of a loan from US investment firm Highbridge Capital Management, which meant that the firm could demand immediate repayment. Gamida-Cell sought a commercial partnership and a way of raising further substantial capital, while trying to build a marketing network, which weighed on the product launch.
The debt settlement with Highbridge will turn Gamida-Cell into a privately-held company owned by the firm. Its debt of $80 million will be waived, and a further $10 million will be injected into the company. The existing shareholders may see some upside in the future, if the company meets certain milestones.
Published by Globes, Israel business news - en.globes.co.il - on April 4, 2024.
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