"The offering didn't start with a road show," says Dov Tamarkin, CEO of foam-based drug company Foamix Pharmaceuticals Ltd. (Nasdaq: FOMX), currently traded on Nasdaq at a market cap of $314 million, after raising $100 million over six months. "The idea sprouted when we saw the clinical results for our two leading products. We understood that these products should stay in our hands, and that we would bring them to market. So we realized that we couldn't remain a small company from a small country, but that we had to become an international company."
With interesting timing, something else happened then that enabled the company to make a quantum leap. A listed US-based dermatological company that had collaborated with Foamix in the past, called Warner Chilcott, was sold to Actavis, and Warner Chilcott's senior team - its marketing, regulation, and development managers - wanted to set up a new company in dermatology. They met Foamix to examine the possibility of buying projects from it, and Foamix suggested "why don't you set up Foamix US for us?"
The barrier of lack of experience in the US market is one of the main limitations of Israeli companies, particularly those that want to reach the marketing stage by themselves and that operate in competitive markets. But hiring an American CEO for an Israeli company that grew up from the ground and survived twenty years of financial starvation was liable to be a death blow to its enterprise culture. Bringing in the Warner Chilcott team solved this problem for Foamix, at least in part, as the management remains in the hands of founders Tamarkin and Meir Eini (Chief Innovation Officer), while the team at Foamix Pharmaceuticals Inc. are salaried employees of the company.
"Their presence helped us a great deal during the offering," says Tamarkin, "We're fine with our Israeli accents, but just as we chose to speak to the FDA in its own language, vis-a-vis Wall Street too, our American experts were a wonderful asset. We don't, heaven forbid, hide our Israeli management, but we don't hide the senior people we recruited either."
"If you make another offering, call us
Anyone who knows Foamix from the past remembers a small company, very modest in its expenditure, inching forward, and financing its new products through collaboration agreements on established ones. In this sense, the company was very Israeli, living from one moment to the next, certainly with a long-term vision, but almost always without enough finance to realize it properly. "Our lives have very much changed for the better. At last, we are not battling for our day-to-day existence," Tamarkin says.
In your IPO, you had to compromise on the size of the offering and the valuation, but in the secondary offering, after eighteen months, you closed the gap and then some. What changed?
Tamarkin: "We were an Israeli company unknown in the US, with no US institutional investors, and no Israeli investors supporting the offering with large amounts of money. But in the IPO, entities like Baker Bros., JP Morgan, Prudential Jenisson and others came in as investors. We kept in touch with them and updated them with our steady progress, which was always in step with the plan. These entities started to hint to us that 'if you make another offering, call us'.
"The secondary offering was 5-6 times oversubscribed, and we had to give everyone their proportionate share. Funds like Visium and Franklin came in, as well as the investors from the IPO. There was demand of $30 million from Israeli investors, through Rosario, and we took care that they should receive more than their proportional weight."
Companies usually make a gesture to the big overseas institutions, the friends of the underwriters.
Eini: "It was war."
Tamarkin: "It wasn't war, but a clear stance. We wanted to send the Israelis a message of seriousness towards them."
The money should be enough for your clinical trials program. What about marketing?
Tamarkin: "For dermatology, you need a sales team of 50-70. That's not beyond us if the products succeed. If advertising to the consumer is required, it can be done in a focused way and not expensively. We feel that we can finance it if we want. The market admires us for our desire to build a company."
A new acne product
Foamix's lead product is an antibiotic for acne, currently taken orally, which Foamix's foam renders stable on the skin. The market for similar products is an estimated $1 billion annually. Phase III clinical trials will begin in the second quarter of the year, and will be in two stages, each with 500 patients. Results are expected in mid-2016. The comparison in the trial will be with a control group, but success in the market will be obtained if the side effects are significantly lighter than the pills taken orally.
In the Phase II trials, by the company, it was found that the effect begins to appear after three weeks, compared with 12 weeks in the orally administered drugs), and the change is extremely significant after six weeks (a p-value of 0.007), compared with the control group. Indemnification of $1,000 per patient is currently granted in the USD for orally administered antibiotic drugs. In lotion form, the product is sold for $350, and Foamix will be between these two prices.
In its product for treatment of the Impetigo skin disease transmitted between children, Foamix uses the same antibiotic in a slightly different dosage. Phase II trials ended with a complete cure in 100% of cases within 14 days, and the next stage is a meeting with the US Food and Drug Administration (FDA) infectious diseases department in order to formulate a protocol for a Phase III trial.
A product for treatment of Rosacea, for which the market totals $1.2 billion, is due to begin Phase II trials soon, and another product designed to treat the dermatological side effects of a cancer medicine is in Phase II clinical trials. Results are expected early in the fourth quarter of the year.
"Globes": You also work in cooperation with large companies. Have you ever thought that your products in the pipeline are not progressing as they should be, and you should therefore work alone?
Tamarkin: "Not at all. Most of our agreements are progressing well. The leading one is an agreement with Bayer AG for a Rosacea product, based on a different drug than the product we are developing by ourselves. Sales of Bayer's current product for Rosacea are $150 million a year, and the patent for it will expire in two years. With our foam, we'll be its next generation. We estimate that from the launch date, we'll be able to get $10 million a year in royalties, straight to our net profit.
"There are other products in Phase II or III. They are a wonderful bonus for our activity, but the company's value won't come from them."
Tamarkin and Eini founded Foamix after working at Clilco, a company founded by Eini that marketed a lice repellent, in 1987-1991. "We met again in 2002, and decided to found a dermatological company. Our investors were all private. We raised $50,000 in our first investment, followed by several million. From a very early stage, we began to get revenue from cooperative projects - $18 million so far."
Investors in the company include Eri Steimatzky, businessman Benny Shabtai, and diamond merchant Chaim Chzic. "We didn't go to the venture capital funds. They would have given a lot of money at the beginning, but we would have paid for it later."
Eini: "We were always thought of as a strange phenomenon, but we knew exactly where we wanted to go. We're succeeding now only because we plotted out our future path."
Published by Globes [online], Israel business news - www.globes-online.com - on May 5, 2015
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