How we achieved Israel's biggest-ever pharma exit

Dr. Oron Yacoby-Zeevi Photo: PR
Dr. Oron Yacoby-Zeevi Photo: PR

CSO Dr. Oron Yacoby-Zeevi tells about the day Neuroderm almost closed down, and how Israeli venture capital funds missed the opportunity to invest.

Israeli company NeuroDerm was sold to Mitsubishi Tanabe Pharma for $1.1 billion in the largest-ever Israeli pharma exit. NeuroDerm has two important characteristics that enabled it to become a unicorn - a company with a value of over $1 billion. The first is a smoothly running management team that graduated from the Ofakim incubator in 2006, but which managed NeuroDerm like a large company, even when it had only a few employees.

The second element is the company's technological solution, for which chief science officer Oron Yacoby-Zeevi is responsible. NeuroDerm has developed a liquid formulation of an existing drug for the treatment of Parkinson's Disease. This breakthrough improves the lives of patients with the disease, while at the same time generating revenue for the company. Many companies have tried and failed to develop similar technology.

Yacoby-Zeevi tells "Globes" about the search for this liquid formulation, the unsuccessful trial that almost made the company close down, and the investors in Israel who almost completely missed the boat with NeuroDerm.

Yacoby-Zeevi, originally a veterinarian, has PhDs in microbiology and immunology. Before she was hired by NeuroDerm, she was R&D manager at InSight Biopharmaceuticals, which manufactures drugs, mainly generic ones, and chief scientist at Harlan Biotech, which provides development and pre-clinical trials services for pharma companies. "I came to NeuroDerm in 2008," she says, "after the company finished its period in the Ofakim incubator. I reached a watershed after leaving Harlan. On the one hand, I was contacted by NeuroDerm, while on the other hand, I had an offer to return to InSight. I chose to go back to InSight, but within 10 days, I saw that it was a mistake. I decided to resign and embark on an adventure with NeuroDerm.

"When I got to NeuroDerm, (CEO) Oded (Lieberman, G.W.) explained that the goal was to reach a fixed level of the Levodopa drug in the bloodstream in order to maximize the drug's effectiveness for patients with Parkinson's Disease, with as few side effects as possible, thereby greatly improving the quality of their lives. The patent is a method of administering the drug through the skin. What is involved is not the drug itself; it is a material that breaks down and turns into this drug when it reaches the bloodstream.

"When I arrived, the company had already conducted a small clinical trial that showed that the drug could be administered through the skin. The transition, however, caused real damage to the skin. For months, we developed other materials that break down into Levodopa in the bloodstream. We devised formulations of these materials, and tested their effect on the skin. After months of intensive work, we concluded that it was impossible to administer so much material through the skin without damaging it."

Yacoby-Zeevi presented the situation at a meeting she remembers as being dramatic. "NeuroDerm had 12 employees at that point. Ostensibly, we had a product at the clinical stage (human trials, G.W.), and all of sudden, the product didn't work."

Lieberman instructed Yacoby-Zeevi to try a different approach. In retrospect, she discovered that on that same day, Lieberman had met with the major investors in NeuroDerm, Robert Taub and Uwe Wascher, and told them that the company would have to close down. The investors and the CEO decided that NeuroDerm would become another entry on the list of scientific failures and would be shut down. Since the company still had a small amount of cash, it was decided to briefly delay closing the company down, and give the R&D team a chance to look for a new solution.

Yacoby-Zeevi says that she did not completely realize at the time how grave the situation was. "Oded constantly told me, 'Do what you do best, and I'll take care of the money'," she says. At the same time, both she and the other employees realized that NeuroDerm had turned from a company with one product into a company with no products. "For me, it was never the end of the story," she remembers. "In the R&D team, we said, 'If one way doesn't work, we'll think of another way. That's how we got the idea of delivering the material into the bloodstream using a pump. No company was working on such a product at the time."

"People aren't pigs"

The Levodopa drug was replaced by a drug that delays the breakdown of Levodopa in the body (Carbidopa) administered simultaneously with oral Levodopa. "With this product, we got amazing results without any damage to the skin. It was our first breakthrough," Yacoby-Zeevi says. The effect on animals was stunning, and then human trials began, where the effect was significantly smaller. "It seems that people are not pigs, after all," she says.

At this stage, the company stood at a crossroads. One possibility was to develop the combined product - oral Levodopa and Carbidopa with a pump. This alternative was relatively safe, but the change it could have made in the lives of Parkinson's patients was fairly limited. The second option, which involved a bigger risk, was to develop an integrated product administering both materials through the skin. The question was whether the Levodopa could be administered without causing damage.

"We thought at first that we wouldn't manage to solve the problem of administering Levodopa through the skin, and even if we succeeded, there might be severe side effects in the skin in the area of the infusion, so it was worthwhile to remain with a combination of Carbidopa and oral Levodopa - a bird in the hand. In opposition to the majority opinion in the company, and despite the many resources required, Oded decided to examine both options simultaneously - on the one hand to bring the Carbidopa product to clinical trials as a backup, while on the other hand developing the combined product, and as soon as its feasibility was proven, to abandon the Carbidopa product. That's what eventually happened. We succeeded in developing the combined product that delivers both Carbidopa and Levodopa directly into the bloodstream. The Carbidopa product that depended on giving oral Levodopa was abandoned."

The combined product causes fewer side effects in the skin in the area in which the needle is inserted than a product based solely on Levodopa. "We hypothesize that there will be patients for whom it will be unsuitable, just like any other drug, but we truly believe that for most patients, it will be the solution that they have hoped for and looked forward to - a game-changing solution that will change the way of treating the disease."

"Oded hurried to raise money"

Like most startups, NeuroDerm also suffered from a lack of cash. Yacoby-Zeevi says, "Only later did I learn that the company several times reached a situation in which it was not clear that it would be able to pay salaries. We scientists didn't know about it. Management wanted to protect us and keep us free for our work. We did see, however, that Oded went running all over looking for money every summer, instead of going on vacation."

Most of the investors were from Europe, and most were private investors who heard about the company from Robert Taub and Uwe Wascher, or through the connections with Lieberman, who previously worked in Europe. The sole significant Israeli investor was Prof. Shmuel Cabilly, an angel investor in many biomed companies.

Yacoby-Zeevi says, "Other than Robert Taub, most of our investors are non-Jews having no previous connection with Israel. Today, they say that a miracle happened for them in Israel, because it's one of their best-ever investments. In the financing round before the offering, a South Korean fund came in for which it was the first investment in Israel, and they made back their money six times over in less than two years. We also got support from the Chief Scientist and the Michael J. Fox Foundation for Parkinson's Research. Venture capital funds, on the other hand, didn't want to invest, especially the Israeli ones."

"Globes": What did they say?

Yacoby-Zeevi: "Not long ago, I heard Oded laugh about one of the potential investors telling him that the company had 'no exit strategy'."

"A bad period"

NeuroDerm tried to become a public company in 2010 through an IPO on the Tel Aviv Stock Exchange (TASE). One month before the offering, the company decided to call it off, a decision that in retrospect appears to have been wise. Although investment concerns in Israel did not understand NeuroDerm's potential, Capital Point Ltd. (TASE:CPTP), which became the franchise holder for the Ofakim incubator after NeuroDerm was founded, and obtained the incubator's shares in NeuroDerm, was the second significant Israeli shareholder in NeuroDerm. Since Capital Point is listed on the TASE, the Israeli public was able to invest indirectly in NeuroDerm by investing in Capital Point. Capital Point sold most of its holdings in NeuroDerm in 2016, and therefore did not benefit from the big exit, but nevertheless distributed a substantial dividend to its investors.

Four years after calling off its TASE IPO, NeuroDerm decided to try its luck on Nasdaq. More than 10 Israeli drug development companies held IPOs in 2014. "We came in at the end of that wave. It was a bad time for an offering. There was a problem with our bankers, who left two days before the offering (due to corruption and sex scandals, G.W.), and Israeli companies encountered various difficulties," Yacoby-Zeevi explains. The NeuroDerm IPO was held at a lower price and company value than that sought by the company, and the share lost 50% of its value in the first 45 days, as happened to most of the Israeli companies that held IPOs at the time.

In the final week of 2014, the company benefited from a positive coincidence, luck or good karma. NeuroDerm undertook to publish the results of its first clinical trial by the end of the year, but the results were delayed, and arrived on December 30, in the middle of the holiday season. The bankers funding the company claimed that there was no point in publishing the results - everyone was on vacation, and no one would see them.

Yacoby-Zeevi remembers, "It was important to Oded to keep his promise, so it was decided to publish the results during the vacation. So they were published on a day on which there was very little news, and they attracted a great deal of attention." The company doubled its market cap in a single day on a huge trading volume, and this fact attracted interest from investment concerns on Nasdaq that do not generally invest in small companies or health companies. In a single day, almost by chance, NeuroDerm made it to the big leagues.

The investors exposed to the company realized the product's advantages. On the one hand, the product had less regulatory risk. The drug was known, the trials showed that it could pass through the skin, and the chances of the company's trials being a colossal failure, which could happen with a new drug, were small.

On the other hand, the product was very promising - perhaps not as much as a completely new drug, but the company's formulation was patent-protected, just like a drug. The company had a real technological risk at the beginning, when the product did not work at all, but by the time it reached Nasdaq, the risk had been substantially reduced. In addition, during the time following the IPO, a surgical procedure was introduced designed to put Levodopa directly into the bloodstream - a treatment not linked to the company.

When the market discovered that NeuroDerm could replace an operation with a non-invasive pump, the share climbed again. "Some of the patients will be able to postpone the procedure for several years, while others will not need it at all," Yacoby-Zeevi says. NeuroDerm is currently conducting one trial in the US and another in Europe, so its product is not risk-free, but the investors in the company will soon receive the acquisition proceeds, and their exit is already guaranteed.

Did the IPO change NeuroDerm's organizational culture? All of a sudden, you had money.

"The company grew from 18 to 80 employees, and we moved to new offices, but we remained - I won't say modest, but we didn't start excessive spending. We did have expensive clinical trials facing us. My feeling is that despite the big changes, we preserved the organizational culture."

From 2008 until just before the IPO in 2014, a dozen employees worked at the company with almost no change. Yacoby-Zeevi managed half of them, and the rest worked in management, including Lieberman, COO Alon Yaar (Tami Yardeni currently fills this position), chemistry, manufacturing, and controls head Dr. Sharon Cohen-Vered, and CMO Dr. Sheila Oren.

"All of these people joined after the company had conducted only one small clinical trial. Most companies do not recruit managers in these areas at those stages, but already at that stage, Oded regarded NeuroDerm not as a startup, but as a small pharma company. He used to say that companies that do not take production, quality, and clinical trials into account at the R&D stage pay a heavy price later on. He also hired only people with experience," Yacoby-Zeevi says.

Explaining the importance of an experienced team at the company's initial stages, Yacoby-Zeevi says, "Because we had an experienced production manager (Cohen-Vered) already at the formulation development stage, there was no problem in replacing an element in the formulation with a better-known element. That saved us a lot of work.

"The company actually worked according to the book from the first day, both when we were in a state of economic strangulation and when things were less acute. The trials were well-ordered, with no shortcuts. Documentation was precise, production was at the best sites, and all communications were in English."

What are you doing now? Your important job ostensibly ended after you prepared the formulation.

"We went on improving the formulation between the trials. There were several changes along the way that made it exceptionally stable, and also made patent protection longer. The patents were all ours - NeuroDerm homemade. Today, we provide support for production and the integration between the formulation and the pump."

The IPO and the acquisition are amazing events, but this is also the end of NeuroDerm in its familiar format. Realizing a dream ends it.

"NeuroDerm brought me to completely new places. Inventing ideas, solving chemical problems, and writing patents is what I know, but bringing something to market that's real and useful to patients is the first time for me, and that's very exciting. I have many more ideas on paper. I only wish that the same thing happens with them.

"My hope for the company was for it to be acquired, mainly for the product, because an international marketer is the right entity to bring this product to the market in a way that maximizes its success potential. There's no doubt that the company has topnotch personnel able to operate well as a team. This is now one of the biggest and best budgeted groups around, and certainly the most experienced, working on Parkinson's Disease. Even in giant corporations, the group working on Parkinson's Disease is not necessarily larger. We don't know what will happen now."

The employee who joined at age 70 and died before the exit

One of the factors that contributed to NeuroDerm's success was the decision to look for experienced employees. One of the employees hired was Mara Nemas, who was 70 years old at the time.

Nemas worked many years at the company, and died a few months before the exit. "Mara was one of the most amazing chemists I have ever met," Yacoby-Zeevi says. "This formulation wouldn't have existed without her.

"When Mara arrived, she was working here part-time, then full-time. Then she got cancer, and when she recovered, she went back to work here two days a week, but even on this limited schedule, she contributed so much to us. Even when the cancer recurred, and up until the very final stage, including in her final weeks, she constantly read and thought and advised us. She was there in order to help us."

Yacoby-Zeevi adds, "We all shared a great love for Mara. She always thought about everyone, with something small and personal to give them. She was always smiling and enthusiastic about work, although she didn't have an easy life.

"She loved to do things with her own hands. She didn't give things to other people to do; she wanted to feel the work."

Published by Globes [online], Israel Business News - - on August 7, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

Dr. Oron Yacoby-Zeevi Photo: PR
Dr. Oron Yacoby-Zeevi Photo: PR
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