- The environment in Israel stimulates innovation and risk-taking, and the government, universities and business communities work jointly to encourage start-up companies in biomed-tech.
- Many of Israel's innovators in science and medicine are merger and buyout targets for foreign investors willing to pay premium prices for innovative and marketable products.
- Three issues are identified for investors interested in the relatively new biomed-tech industry before entering the market.
Warren Buffett recommends you invest in products you like. Ketchup, invest in Heinz. Like Coke, buy the stock. Enjoy shopping at Walgreens or CVS, become a stakeholder as well as a satisfied customer. Buffett enjoys hamburgers for lunch, so he bought Dairy Queen… McDonald's wasn't for sale.
Looking for that Fountain of Youth? Fascinated by new discoveries improving health, extending life, meds to make you more youthful, sexy, and attractive? There is a plethora of biomedical companies researching and marketing invasive treatments like Botox to make men and women look younger. There are creams and pills and tech devices. There are companies engaged in cancer and autoimmune disease research and clinical testing.
Biomedical-biotech stock prices are bounding. 61 new companies reportedly raised $13b in 2Q2013, with average ROI of 36% and some as high as 50%. Buying into a sexy industry experiencing the euphoria of early discoveries at penny stock prices is exciting. Long-term investments are great opportunities for growth with aging populations dominating most Western industrialized countries demanding life-extending treatments.
Israel, The Start-Up Nation, is leading the way in science and medicine, and has produced more than its fair share of biomed-tech companies worth considering for investment. Given Imaging, inventor of PillCam, sold in 2013 to Irish medical device maker Covidien PLC (NYSE:COV) for $30 per share totaling $860m. As they say, necessity is the mother of invention. Israel, besieged by enemies on all sides, spawns scientific innovations to care for her own. First Care's Emergency Bandage is one of a host of other products for emergency care, first aid, pre-hospital treatment developed to minimize human damage from terror attacks and wars. First Care was purchased in 2012 by Houston, Tx based PerSys Medical, because their products "became the gold standard for military personnel as well as first responders." The Times of Israel ran a story this month on how "The world wants to invest in Israel."
Omrix, for example, is an innovator in biosurgical and passive immunotherapy products manufacturing and marketing life-saving products derived from human plasma. At its 2006 IPO, Omrix sold for $10 per share and raised $34,375,000. It sold out to Johnson & Johnson (NYSE:JNJ) for $438m. Its founder, Robert Taub has formed Nyxoah that develops treatments for sleep apnea through neurostimulation. Here are several Israel-based investment opportunities:
Nyxoah is not yet traded but is prime to issue an IPO. It is a company to watch filling a need in a very large target market with sleep apnea. They make a tiny device that is easily and rapidly implanted without surgical skills. It provides for maximum sleep time comfort with minimum inconvenience for sleepers who wake 15-30 times an hour. Nyxoah's device is 16 times smaller than other devices currently on the market. The US Patent Office recently issued 11 patents for Nyxoah's technology and clinical studies are underway. Obstructive sleep apnea is a $2b market. Angel investors and other early birds might do well with Nyxoah.
Pluristem Therapeutics (PSTI:NASDAQ). PSTI strives to become a world leader innovating and manufacturing cell therapy products having its initial market position in placenta-based cell science. This vision gives entry into the peripheral vascular, pulmonary, orthopedic, ob-gyn and hematology markets. PSTI controls the entire process from harvesting cells at their source, to delivery to the patient better ensuring the success of a cell therapy product employing 3D technology. PLX-PAD, the first product, is in clinical trials, and the second product is in pre-clinical development for hematological indications and acute radiation exposure.
PSTI currently trades in the range below $4.00 per share. Its 52-week high is $4.63 and a low of $2.47. Annual sales are about half-million dollars per year, but 2014 is seeing a drop in sales of more than five percent with negative net profit margin and -9.17% PE. The market cap is $241.18m. PSTI is rated by analysts as a moderate buy.
In 2013, there were regular acquisitions of big blocks of shares on the Non-Open Market by insiders; insiders bought slightly more shares in the first three months of 2014 than shares sold. It's a good indicator of management confidence in the company's future.
BioLineRx (BLRX:NASDAQ) is a clinical stage biopharmaceutical development company. Its focus is on therapies for central nervous system diseases, infectious diseases, and cardiovascular and autoimmune diseases.
BLRX reported financial results on March 2014, with net operating income for 2013 of $1.2m compared to $1.1m for 2012. The company lost $17.7m in 2013 down from a loss of $22m in 2012. The narrowing of losses might be attributed to the company spending $5.8m less last year on research and development costs primarily due to the termination of a major clinical trial.
Speaking about accomplishments in 2013, the CEO points to increased emphasis on clinical-stage programs for leukemia (AML) and treatment of celiac. "We have a strong balance sheet with enough cash to support our activities over the next three years…"
A new US patent was issued in immunotherapy for acute myeloid leukemia in Phase 2 trials. The stock price touched $3.80 per share in 2013, then sank to about $1.60. BLRX currently ranges between $2.15 and $3.00. About 230,000 shares are traded daily. The market cap is $52m. Community sentiment seems to be bullish. Powerhouse TEVA Pharmaceutical Industries Ltd. (NYSE:TEVA) helped found BLRX, and four funds hold together less than one-percent in BLRX. There is currently no insider trading filings.
Can-Fite Biopharma Ltd. (CANF: NYSEMKT) is an Israeli biopharmaceutical company already conducting Phase 2 and 3 clinical trials in autoimmune-inflammatory and cancer diseases. Rheumatoid arthritis and psoriasis research and trials point to positive efficacy of their treatments. One product has been granted Orphan Drug Status by the US FDA for certain cancer treatments. CANF has 14 patent families including 74 international patents. Its well-founded science appears in 48 peer-reviewed journals. The company recently completed a $5m private placement, and Israel approved the Phase 2 study protocol to treat patients with advanced liver cancer using a CANF product.
The stock ranged from a low of $4.69 in the past 52 weeks to $9.46. It currently trades about $6.00 per share. There is not any recent insider trading. Their products are not yet marketed, so there are no sales. An investor is betting on their potential. CANF's income is -$29m. The market cap is about $48m. There are 7.85m shares outstanding. IBF Global reportedly holds a 0.12% position in CANF. Only one analyst rates CANF and that's at a Strong Buy.
I recommend investors in biomed-tech stocks consider three issues. First, investment strategies are changing. Risk averse pension funds and endowments financing VCs make them more selective since 2008. Returns on investments in the field are shrinking from the high cost of R&D and stress on liquidity. Venture Capital dollars were down 19 percent in the first three quarters of 2012, and 12 percent in deals. "The long time horizon often required for a liquidity event, regulatory challenges, and large amounts of capital often needed to fund life science companies likely contributed to this sector's investment decline…" says Tracy Lefteroff, Global Managing Partner of the Venture Capital practice at PwC U.S.
Second, how deep is the national commitment to the industry where the biomed-tech companies call home? Technical analysis does not tell the full story in biomed-tech investing. Fundamental analysis is a critical consideration. Israel aggressively encourages growth of the health sciences through partnerships and collaborations with its universities giving their companies some advantage. Israel 21c, a site for innovative and advancing Israeli companies, identified The Top 12 Most Amazing Israeli Medical Advances in 2013, and reports, "About 1,000 Israeli companies are in healthcare or life-science products, including 700 in medical devices. Approximately half are already generating revenue." Israel promotes joint scientific investigations, student and faculty exchanges with programs around the world, institutional collaborative ventures and technology commercialization.
The national commitment to invest in the industry reduced Israel's trade deficit to $2.3b at the end of 2013 from $8.5b a year earlier. Tech exports rose accounting for 81% of industrial exports.
Third, the science might be great, but how sophisticated is the corporate management? Investing in the Israeli Life Sciences Industry 2012 report on government- business collaboration in biomedicine and life sciences cautions that despite impressive results, "Most life science start-ups are spun out of universities by researchers (with an) apparent lack of managerial expertise in early stage ventures."
Biomed-tech holds out the promise of being the fountain of youth, and able to cure orphan diseases. The Dr. Seuss book, You're Only Old Once, released on his 82nd birthday, offers a safe investment strategy: a good laugh. Be careful investing in biomed-tech and not to let the laugh be on you.
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