In recent months, private equity firm FIMI Opportunity Funds seems to have been investing in everything, including in the Israeli healthcare market. It has acquired control of a pharmaceutical company valued at over NIS 600 million; brought partners into a medical device company that it controls, at a valuation of $140 million; lead the acquisition of a diagnostics company valued at NIS 24 million; and sold shares in another pharmaceutical company for a similar amount.
FIMI's investments in this field are nothing new: as early as 2013, the fund, led by Ishay Davidi, invested in medical logistics company Novolog, later selling it a 3.5-fold return on investment. In the more distant past, it also held medical equipment company Medtechnica. FIMI also invested in Rekah Pharmaceutical Industries several years ago, and so far has benefitted from positive returns from the enhancements it introduced.
In 2019, two companies were added to FIMI's healthcare portfolio: Kamada Pharmaceuticals, which develops biopharmaceuticals, and Simplivia Healthcare(formerly Tevadaptor), which produces drug-delivery solutions that protect the safety of healthcare professionals. Its largest acquisition to date closed on the last day of 2020, when FIMI acquired control of generic pharmaceuticals company Rafa Laboratories for NIS 540 million.
With four portfolio companies in this field, what plans does Israel's largest and most successful private equity fund have, and what does it see in the pharma and medical device market?
In fact, FIMI's outlook is less macro and more micro, meaning, company by company. Even though 2020 was a year where medical matters made headlines - and this will have future implications as well - FIMI's concept is not to look for investments based on industry-wide analysis, but to examine in detail what it can do to improve a specific company.
For example, the Rafa acquisition wasn't due to the conclusion that now was necessarily the time to invest in generics, but because FIMI identified an interesting company where it could invest and improve. Perhaps no less importantly: Rafa's shareholders wanted to sell their holdings (as in the case of the Sackler family, controlling shareholders who sold their stake in Rafa, probably due to the opioid affair in the US).
Rekah: Demand for disinfectants
FIMI's long-standing investment in healthcare is, as mentioned, Rekah, a pharmaceutical company previously controlled by the Elgrably family, who are FIMI's partners today. FIMI invested NIS 80 million in the publicly traded company at a NIS 188 million valuation after the money. Today Rekah has a market cap of NIS 310 million. Last week, the sale of a portion of the shares held by FIMI and the Elgrably family was announced, with FIMI selling about 9% for about NIS 27 million.
In recent years, Rekah has shifted its focus within the pharmaceutical field. In 2018, Rekah made an interesting deal when it acquired Teva's Ashdod-based pharmaceutical disinfectants factory. (Teva planned to sell or close its manufacturing plants). Since the outbreak of the Covid-19 pandemic, Rekah has benefitted from a sharp rise in demand for disinfectants.
At the same time, Rekah is working to expand its operations outside Israel. It reported in the past that it was continuing to seek partners for exports of its products abroad, and that a certain product approved for marketing in the UK will launch in the coming months. The company will likely continue to focus on obtaining additional regulatory approvals abroad, and may even make acquisitions.
Simplivia: Unlocking value - fast
Another case where FIMI took advantage of a latent opportunity in a Teva asset was the acquisition of a Kiryat Shmona-based manufacturer now known as Simplivia, (formerly Tevadaptor). FIMI acquired the factory in 2019 for $47.5 million and brought former Frutarom CEO Ori Yehudai on board to serve as acting chairman.
The company manufactures products that keep healthcare professionals safe from exposure while handling hazardous substances during chemotherapy for cancer patients. When FIMI acquired it, estimates were the Simplivia's growth engines would include expansion into additional geographic markets, alongside expanding operations to other medical fields. And indeed, it was recently reported that Simplivia had acquired control of privately-owned diagnostics company Novamed at a valuation of NIS 24 million. Novamed produces various diagnostic products, including for home diagnostics.
Even before that, FIMI unlocked value in Simplivia, when it sold a third of its shares to The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5) and Leumi Partners at a valuation of $140 million, almost three times the investment price.
Kamada: The turning point
Kamada Ltd. (TASE: KMDA) is a veteran pharmaceutical company, which already by 2010 had achieved something that few Israeli companies in the field have: receiving approval to market an original drug in the US. The company, which operates in a specific niche, has reached what appears to be a turning point: a historic agreement with Takeda Pharmaceutical will enter the next phase at the end of the year. Under the agreement, instead of Takeda marketing Kamada's product, production will be transferred to Takeda and Kamada will receive royalties - which will reduce Kamada's revenue. FIMI invested in the company in 2019-2020 at $6 per share; today the price is higher at $7.06.
Covid-19 has opened up a new opportunity for Kamada, and it is developing a treatment for the virus produced from antibodies extracted from plasma taken from people who have recovered from the disease. A small-scale trial has demonstrated improvement in a clear majority of patients. Kamada already has another antibody product, for the treatment of rabies, and these two products may indicate a possible direction for the company: virology in general. At the same time, it is currently developing a product for the treatment of hereditary emphysema that is administered by inhalation (as opposed to the current intravenous method of administering its flagship product).
Rafa: Exclusive supplier to the Ministry of Defense
Rafa, the latest addition to the portfolio, was founded in 1937. It Israel, it manufactures and markets generic drugs, and also markets drugs from international companies that it represents in Israel. The company had been controlled by the Sackler family, together with the Levin and Reshef families, (including news anchorman Rafi Reshef and his brother, politician Betzalel "Tzali" Reshef).
Recently, FIMI, along with institutional partners that it brought in, bought 88% of the company for NIS 540 million from the Sacklers and Reshefs, leaving the Levin family with 12%. It is likely that Rafa's shareholders would not have sold the company to FIMI had it not been for the opioid affair - in which huge lawsuits were brought against companies marketing opioids, including the Sackler family's Purdue Pharma - but FIMI seized the opportunity.
Rafa focuses on niche market segments such as syringes, and is the exclusive supplier to the Ministry of Defense and other countries of autoinjector syringes for rapid administration of drugs and antidotes for exposure to chemical weapons. It appears that FIMI's plan for Rafa, as with its other portfolio companies, will be to expand operations outside Israel.
What about further healthcare acquisitions? At present, it seems that there is no company "on offer" that meets FIMI's criteria - it does not look at dream companies or start-ups. However, it is quite likely that we will see more acquisitions made by its existing portfolio companies, both in Israel and abroad.
FIMI completes 50% acquisition of Elyakim Ben Ari
The FIMI Fund has entered the infrastructure sector for the first time after completing the purchase of half the shares in industrial and engineering company Elyakim Ben-Ari Ltd. for NIS 135 million, at a NIS 270 million valuation. The shares were purchased, in equal parts, from Danny Ben-Ari, son of the company's founder, and from fuel station magnate Ovadia Koko, who purchased (through his son Tomer) 50% of the company in 2011 at about half the current value.
Elyakim Ben-Ari is involved in civil engineering projects, has industrial plants for producing quarry materials, heavy freight hauling and environmental quality. The company is one of the oldest and most prominent in its fields of activity, both in the quarrying and quarry management and in engineering.
The company has an annual turnover of over NIS 600 million and has about NIS 1 billion in its projects backlog. Under the agreement signed with FIMI, Danny Ben-Ari will continue to serve as CEO and president of the company, and Lilach Asher-Topilsky, a senior partner at FIMI, will be the chairperson of the board.
Published by Globes, Israel business news - en.globes.co.il - on January 19, 2021
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