InnoMed: “We want to be an information-clearing house”

Here is a fund whose cash box is practically full. InnoMed, a venture capital fund from the Jerusalem Global Ventures group, has invested only 20% of the capital it raised since it was founded in mid-1999.

In eighteen months, InnoMed has acquired only three and a half portfolio companies. Managing partner Dalia Megiddo, however, is completely unconcerned. In addition to the fact that the fund needs to reserve money for its portfolio companies’ upcoming financing rounds, the fund’s target is three to four investments per year. A full cashbox, she explains is always a good thing: “In this respect, we are in the best situation for the state of the funds market, because cash is king at the moment, and we have a lot of cash.”

Megiddo will attend Ernst & Young’s life sciences conference next Monday. She will sit on a panel that will discuss turning points in the life cycle of a start-up. As befits a partner in a fund that invests in seed companies, she will focus on the choice of investors in the early stages.

Megiddo says that the idea behind founding InnoMed “was that seed-stage companies need more than just money. They need to develop a concept, create an application, and promote marketing. It is very important to bring these matters to developing start-ups in the medical community, because in the life sciences sector, theses aspects are more critical, if only because of the need to gain US Food and Drug Administration (FDA) approval.

”The idea that every company should pay its dues and learn the hard way seems to me a waste. We want to be an information-clearing house. Instead of a one-year old company having one year of information, we can give it four years of information.”

”Globes”: How does that differ from what other funds are doing?

Megiddo: ”It differs in intensity. We sit with the company, help it to write a business plan, recruit a CEO, find the best consultant, and accompany it to the FDA. Some companies need all of that, while others need less. Everyone, however, has to do things for the first time. It’s like building a house. The second start-up is always better.”

Megiddo, who holds an MD, was on the staff of Hadassah Hospital and later switched to business. She founded two companies for continuing medical education for doctors: Academia Medica and Journal Club. In the Academia Medica venture, she met Shlomo Kalish for the first time, which eventually led to the founding of InnoMed and the raising of $36 million.

InnoMed has invested in “three and a half companies” to date, meaning that three investments have already been signed and concluded, while one is being signed right now. Concerning the half-completed deal, Megiddo is only willing to say that the company operates in the ophthalmology field, since “the documents are not yet closed and signed.” The signing of a another investment is expected during the current quarter.

The companies that have already received a check from InnoMed are:

• Inventis, which deals with devices for treating impotency problems. InnoMed committed to $2.6 million in November 2000, subject to progress in development. The fund has already paid about $500,000.

• Glucon, which developed technology for non-invasive blood tests, designed principally for diabetes patients. InnoMed invested in July 2000. “This is the most essential product, with the largest market, for measuring blood sugar,” Megiddo says. Glucon has so far received about $600,000 of the planned $3.6 million investment.

• Barnev, whose ultrasound-based product automatically monitors births. InnoMed invested $1.5 million in August 2000, with another $1 million expected in the future. Megiddo explains the need for Barnev’s technology in rather colorful language: “Instead of a doctor inserting two fingers to locate the unborn child, the device performs an automatic examination, which reduces the risk of potential infections to the unborn child.”

  Investors in InnoMed to date include Africa Israel, Wertheimer’s investment group; Bank Hapoalim, and Poalim Investments. International concerns have also joined: Bausch and Lomb, China Development Industrial Bank (CDB) of Taiwan, Bank of America, and Tyco. Megiddo says that the greatest stumbling block for Israeli companies is the link to the market, and leading companies can bring this market closer. It could be said that the best name for this purpose is Bausch and Lomb, the leading company for ophthalmology products.

  If you will very soon have a company in the ophthalmology field, cooperation looks very near.

  ”We don’t require it. We give our companies absolute freedom of action. They owe nothing to Bausch and Lomb, but it is very interesting to hear from Bausch and Lomb what is attractive in the market.”

  And what do you regard as attractive? Medical equipment and biotechnology are big fields.

  ”It is very easy to pick out fields to focus on in medical equipment. You look at the patients and you know what the problems are. Cardiology, ophthalmology, neurology…it is easy to decide, because you only have to compare the frequency of the diseases and their costs. In biotechnology, you have to take into account Israel’s fields of expertise. Here we have two approaches. One says that drug development is the most expensive part, for which Israel lacks sufficient money, so it is better to go where we are strong, and develop bioinforamtics, biological chips, biological sensors, etc. I can definitely find reasons to support this approach.

  The other approach says that in principle, the companies that create real value are the pharmaceutical companies. It is difficult, however, to find this approach in Israel. Each company must be examined individually on its own merits to see whether it has a drug that is a really significant breakthrough. If it does, the risk is worthwhile, even if you bring in strategic partners.

  ”The most important thing is to look around at any given moment and see where Israel has a relative advantage. That has still not been fully defined. We can’t be only as good as everyone else; we have to be much better, because of the difficulty of reaching the market. This happens in software, electro-optics, and electronics, for example, an important field for biological chips. Until the relative advantage is defined, you have to examine each company individually.”

  You invest at the seed stage. How long will you wait for an exit?

  ”An exit is not necessarily when the product reaches the store shelves. An exit is when a large company comes and buys a small company. Many large exits were acquisitions, for example Biosense (acquired by Johnson & Johnson in 1997 for $400 million in shares, A.M.). This is not confined to Israel – there aren’t so many IPOs around the world in the life sciences that are not biotechnology. A company doesn’t require a completely mature product for an acquisition.”

  So you are counting on preparing companies for acquisition.

  ”No. A company with a valuable product is a candidate for acquisition. If it is not acquired, it will continue onward. We build them with an extremely conservative approach, so they will be ready to continue indefinitely. Companies that plan ahead without stopping for acquisition have managed to create the highest value. From there, you can only be pleasantly surprised.

  ”We are also benefiting from the surge in the field. There are many more companies than cited in official estimates. At one time, it was estimated that there were 200 new companies being founded every year in the life sciences field. We see something like 300, and many projects are very fine, indeed. There is a lot of creativity.”

  Fund name: InnoMed Date founded: Mid-1999 Portfolio companies: Inventis, Glucon, Barnev Investors: Clal; Africa Israel, Wertheimer’s investment group; Bank Hapoalim; Poalim Investments; Bausch and Lomb; CDB; Bank of America; Tycon Investment fields: medical equipment and biotechnology (mostly bioinformatics, biological chips, and biological sensors) Capital managed: $36 million

  Published by Israel's Business Arena on February 14, 2001