Link to Hebrew article in Globes
Hadasit Bio CEO: "We can take companies through the financial 'valley of death' “
The business model that Hadasit Bio Holdings Ltd. (Hadasit Bio) was established on is no longer valid, and now instead of selling early stage pharmaceutical companies, Hadasit Bio is maintaining its share in them, while turning towards medical devices and looking for additional strategic and financial partners.
When Hadasit Bio was established in 2005, its strategic model was clear - to support pharmaceutical companies with initial animal proof of concept and help them reach clinical trials that show safety and initial efficacy (Phase I / IIa). The next step would be to sell the product to a pharmaceutical company or other entities that will support the final stages of development (Phase III & marketing).
However, in the past few years Pharmaceutical companies have been moving away from early stage acquisitions and moving toward investments with future rights to the products. Additionally, the drug development processes in some of the portfolio companies turned out to be significantly longer than expected with some companies only entering the clinic in the coming year. Despite the innovative and pioneering technologies, the biomed investors in the market expected the quick development they were accustomed to from the hi-tech sector.
In light of the new investment climate Hadasit Bio changed its business model - no longer looking to sell companies after Phase I/II, but rather to maintain significant holdings in the portfolio companies as they bring in external, value adding, investors.
This new model provides the companies with additional financial support as well as external scientific validation of the company’s technology. Although this new approach may be more costly in the short term it can potentially pay off with a larger return upon a successful exit in the future.
"Selective Choice of Companies"
Out of the eight companies initially established with, three have attained external support, in line with the new model, two have attracted external support through a company merger, and a third is awaiting an external partner. Two companies were closed - one failed to scale up its manufacturing processes and maintain efficacy, and the second was developing a product for a rare disease that had no cure till a competing company launched a new drug and cornered the market.
"The statistics of the Israeli biomed companies," says Ophir Shahaf, CEO of Hadasit Bio, "show one major success out of ten, three small successes and closing of the remaining six companies. We can’t afford to aim for a single success out of the ten. I need to achieve 50% success".
- How do you plan on achieving this?
"We are very selective, and together with our partners and government funds (non dilutive grants from the Israeli Office of the Chief Scientist- OCS), complemented by the infrastructure and scientific support from the Hadassah Medical Centers, I believe we can take companies through the financial 'valley of death'. Many biotech companies are failing due to lack of financial support even though their science is very promising. We are not there - we enable our portfolio companies to run more efficiently and cost effectively by utilizing the hospital infrastructure. Our partnerships with large companies also provide stronger financial backing, further increasing our chances of success.”
"In addition, we are working on changing our risk profile by adding medical device companies," he adds, "we intend to add at least one such company in the near future."
According to a Shahaf, Hadasit Bio consulted with an international consulting firm to examine what areas it should focus on, in order to maximize the benefits of its association with Hadassah.
"Some of the recommendations were excellent and acceptable, but not all. We have significant added value in developing pharmaceuticals because of our connection with Hadassah and current activities."
- What good advice did you take?
"To diversify our portfolio; to not only take companies that were founded on the basis of ideas sprouting in Hadassah, as long as they can benefit from the hospital's infrastructure. They have also reinforced our new model adding value to the ability to attract good partners. In this area if you don’t have partners, even the most exciting science and with the most expensive stock will not bring the product to market. "
- A year ago you began trading in the U.S., using ADRs (OTC: HADSY). How do you summarize this decision so far?
"One of the main reasons for listing in the U.S. was the relationship with the Hadassah Women’s Organization who founded the hospital. Their members were interested in investing in a listed company, and they also conduct events that allow us to meet with investors and analysts. The exposure to a market that can appreciate biomed companies was important for us and we have partnerships with financial institutions that specialize in biomed ".
Since the issuance of the ADR shares the stock fell by 50%, but Shahaf says this is not a result of the ADR and that the Israeli capital markets have not been so generous either. He is not sure he would recommend another company of its kind to do the same.
"We have raised 100 million NIS since the IPO in 2006," he says, "but the regulatory requirements have been difficult and investors can be demanding. Because our infrastructure for trade already exists, and we meet all the regulatory conditions, we have no intention to delist and despite inquiries from private funds we will remain public. "