A record nine (and a half) Israeli biomed companies held IPOs on Nasdaq in 2014, showing the US capital market's extraordinary enthusiasm about young Israeli companies in the industry.
The nine companies raised a total of $472 million (not including semi-Israeli company Kite Pharma, a story in itself), a very large sum for financing Israeli science and innovation. The effect went beyond the offerings themselves; there was no Israeli pharmaceutical company in 2014 that did not consider, at least internally or informally, the possibility of greener grass on the other side of the ocean.
Looking ahead, five more Israeli companies have announced that they are considering a possible 2015 IPO, including Check-Cap, EndoChoice, TheraCoat, and perhaps also two companies that did not manage to hold IPOs in 2015: PolyPid and Mapi Pharma. As of now, there are no signs that the Wall Street window of opportunity is about to close, although it appears that the year will be less lively than 2014.
The average return for the companies that held offerings last year was minus 10.4%. At year-end, these companies were showing mostly unimpressive returns following their IPOs. Nevertheless, all of these companies raised enough capital to reach significant milestones. Almost all of them have critical events on the horizon, and 2015 will determine their fates for the coming years.
The four Israeli biomed companies that held IPOs in 2013 also posted negative returns in 2014, with an average of minus 68%, in contrast with the Nasdaq biomed index, which recorded a positive 34% return. At the same time, most of the small biomed companies on Nasdaq had negative returns in 2014, not only the Israeli ones; the overall positive trend is attributable to the medium and large-size companies.
106 biomed companies held issues in the US in 2014, which shows that the Israeli companies played a significant role in the trend, albeit not a leading one. Biomed offerings accounted for 40% of all the offerings, although only 10% of the money raised.
The excitement in the US about the biomed companies is a result of real scientific breakthroughs in medicine, combined with some degree of easing in the regulatory requirements for drug companies with truly new products, new regulations accommodating IPOs by small companies, and money made available by the low interest rates.
Seven companies listed on the Tel Aviv Stock Exchange (TASE) have announced that they plan to be listed in the US as well, after seeing the valuations and amount of money obtained by the companies holding offerings there. Only one company, Bio-Light Israeli Life Sciences Investments Ltd. (TASE:BOLT; Bulletin Board: BLGTY), has actually done so. The companies considering dual listing overseas include strong ones like Intec Pharma Ltd. (TASE: INTP) and Medigus Ltd. (TASE:MDGS), medium-sized companies like BiondVax Pharmaceuticals Ltd. (TASE:BNDX), and several very small companies, such as Kitov Pharmaceutical Holdings Ltd. (TASE: KTOV), Therapix Biosciences Ltd. (TASE: TRPH) (formerly NasVax), and Kadimastem Ltd. (TASE: KDST). Given the recent vigorous activity in the market, these companies may provide a surprise.
A Nasdaq-listed biomedical company can experience an overnight 70% plunge in value if a clinical trial is unsuccessful (and the company insists on telling the market that it was successful, even though everyone can see the figures).
The story of Israeli company Alcobra Pharmaceuticals Ltd. (Nasdaq: ADHD) is one of several dramas that took place this year in the local biomedical industry, which have made 2014 a year to be remembered as one without a single dull moment. VBL Therapeutics held an IPO, and canceled it after its shares were already listed for trading. Employees of Andromeda Biotech, a Clal Biotechnology Industries Ltd. (TASE: CBI) subsidiary sold to US company Hyperion, were accused of fraud in managing the clinical trial.
Is this a purely Israeli phenomenon? Not at all. VBL had a US investor who undertook to put money into the company, and then evaded his commitment in an unprecedented fashion, while causing enormous damage to the Israeli company. The company that acquired Andromeda is now looking at the alleged fraud in a different light, and there is no doubt that the US company also acted hastily in leveling accusations before the matter was made clear.
After recovering from the initial shock, the handling by management of all the crises experienced by the Israeli companies was impressive. Nevertheless, these events brought out the skepticism about foreign companies, especially Israeli ones, on the part of US investors. Israelis in the US capital market assert that there is now an unconcealed reluctance to work with Israeli companies. This reluctance will not automatically rule out an Israeli company, but it will hamper its progress.
The average return on the TASE biomedical index in 2014 was negative 37%, at a time when the TASE companies' counterparts were making hay on Nasdaq. The 2013 return on the TASE biomed index was positive 28%. The trend in early 2014 was positive, with several small shares doubling their prices or more, following enthusiasm about overseas possibilities and trends. Following the lack of success in Kamada Ltd.'s (Nasdaq: KMDA); TASE: KMDA) clinical trial and disappointing sales by some of the promising companies, however, the market became frustrated with the biomedical shares, and interest in them waned.
Israeli investment entities put NIS 40 million in each of the following companies: Brainsway Ltd. (TASE:BRIN), Itamar Medical Ltd. (TASE:ITMR), and RedHill Biopharma Ltd. (Nasdaq: RDHL); TASE: RDHL). Combined with additional investments in smaller companies in the sector, this marks the first time that the local investment institutions have allocated significant amounts to TASE-listed biomedical companies.
Most of these investments were already made by mid-year, while the biomedical index was still climbing. As of now, the return on most of them is negative, and in some cases, the investments by the institutions have lost a sizeable proportion of their value. Unless this trend improves, there will probably be no such wave in 2015.
There were only two exits (other than through an IPO) in the private market in 2014: Simbionix and Green Smoke, which raised $120 million and $110 million, respectively. The venture capital funds operating in the medical devices sector are having a hard time raising money, and several of the funds involved are gradually abandoning the field. One sub-sector bucking this trend is the digital health segment.
This problem raises the question of where the investors to take part in the next biomedical craze, perhaps 10-15 years from now, will come from. The probable answer: from China. The leading trend in private companies was the entry of investors from China, which have made several large investments here, mainly in medical device companies and cooperative ventures with academic institutions. The skepticism about investors from China vanished when it turned out that they were almost the only current source of available capital for a private biomedical company.
Published by Globes [online], Israel business news - www.globes-online.com - on January 4, 2015
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