Elbit Medical announced yesterday that one of the investors in its Insightec subsidiary wished to increase its stake in medical equipment company Insightec by acquiring shares from other shareholders. Insightec, headed by Maurice Ferré, develops and markets a system for incisionless brain surgery using MRI-guided focused ultrasound on brain tissue without opening the skull. The technique is used for treatment of Parkinson's disease, non-Parkinson's tremor, opening brain blockages, etc.
Elbit Medical said that if the deal goes through, it and its parent company, Elbit Imaging, would sell substantial portions of their holdings in Insightec. Elbit Medical holds 18% of Insightec, fully diluted, and Elbit Imaging directly holds 0.2%.
The shares will reportedly be sold at a higher valuation than the $500 million valuation in Insightec's most recent financing round, led by the Koch brothers, who now hold 17% of Insightec.
Insightec CEO Maurice Ferre told "Globes" a year ago that he thought Insightec would have a $30-50 billion exit. Elbit Medical is not waiting; it is taking what it can get now, instead of holding out for a visionary hope.
The investor making the offer is probably one of the two dominant and relatively new investors in Insightec: the Koch brothers and York Capital Management, which invested in Insightec's first two financing rounds, in addition to an indirect holding through Elbit Imaging. York Capital holds 19% of Elbit Imaging, which has a 61.5% stake in Elbit Medical, which as mentioned holds 18% of Insightec. In addition to buying shares from other shareholders, the investor making the offer plans to invest more money in Insightec.
Everyone fell in love with Insightec
Insightec was founded as part of medical devices company Elscint, which was a subsidiary of Elbit Imaging. Late real estate developer Motti Zisser took over Elbit Imaging in order to obtain its cash, and turned it into a real estate company. Elbit Imaging's corporate bylaws contained a poison pill requiring any buyer to maintain Insightec. Zisser did this initially because he had to, but then fell in love with the company and made it one of the leading companies in his portfolio. Following the US housing crisis, Elbit Imaging's real estate activity encountered difficulties. The company reached a debt settlement in which York Capital also invested in the company (Zisser lost his holding in the company). York Capital also fell in love with its new asset, and afterwards invested in it directly.
Earlier, in 2009, Elbit Imaging's medical activity, Insightec and Gamida Cell, were split off from Elbit Imaging to form Elbit Medical. The activity was merged into a stock exchange shell. Last year, Elbit Medical raised NIS 150 million in debt, secured by its holdings in the medical companies, in order to repay owners' loans to Elbit Imaging. Elbit Imaging used the money paid to it in order to redeem bonds.
As of the end of the second quarter of 2019, Elbit Medical's long-term debt was NIS 225 million and Elbit Imaging's debt was NIS 150 million. In its reports to its bondholders, Elbit Imaging estimated the proceeds from the sale of its shares in Elbit Medical at NIS 120 million.
Insightec posted $9 million revenue in the second quarter of 2019 and $15.1 million in the first half of the year, 23% more than in the corresponding period last year. Insightec's gross profit margin was 43% in the second quarter and 40% in the first half, but its operating loss was $12.5 million in the second quarter and $23 million in the first half, more its revenue, due to large R&D expenses. Insightec has $80 million in cash, and its burn rate in the first half of 2019 was $26 million.
Elbit Medical holds 18% of Insightec and 8% of Gamida Cell, which deals in cancer treatment and is listed on Nasdaq at a $107 million market cap.
Published by Globes, Israel business news - en.globes.co.il - on September 16, 2019
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