Source: George S. Mack of The Life Sciences Report (4/3/14)
Biotech companies don't come into the world fully formed. Like most fledglings, they need guidance to grow, prosper and eventually thrive in public markets. Venture capitalist Ran Nussbaum of the Pontifax Group nurtures tiny biotech and medtech startups, finding capital for their growth and maturation. In this interview with The Life Sciences Report, Nussbaum discusses exciting private equity holdings that are close to going public, and makes a case for one public company he knows quite well.
The Life Sciences Report: I recently spoke with New York City-based senior biotechnology analyst George Zavoico of H.C. Wainwright & Co., who went to Israel in January. He was extremely impressed and very positive on the business climate in Israel for life sciences entrepreneurs and startup companies. Is there an advantage for a startup biotech or other type of technology company in Israel versus San Diego, San Francisco or Cambridge, Massachusetts?
Ran Nussbaum: There are many things I could mention that are to our advantage here in Israel, and that have given us a wind to our backs when it comes to biotech.
One of the biggest advantages is that the basic science is extremely solid in Israel. You can find serial entrepreneurs who know how to develop and launch drugs. I'll give you some examples-drugs like Copaxone (glatiramer acetate; Teva Pharmaceutical Industries Ltd. [TEVA:NASDAQ]), Rebif (interferon beta-1a; Merck Serono (a unit of Merck KGaA [MKGAY:OTCPK]), Doxil (doxorubicin HCl liposome injection; Janssen Biotech Inc., a unit of Johnson & Johnson [JNJ:NYSE]) and others were discovered by professors from Israeli universities. There is so much talent here.
Also, the entire industry is based within a radius of 25 miles. Tel Aviv is a very small city, and everybody knows everybody. People even talk to each other on the street.
TLSR: Ran, what about financial incentives? How does that work in Israel?
RN: On the financial side, there are two great advantages in Israel. The first is that it is less expensive here than in the rest of the world. For a company to come up with a new compound in the U.S.-a first-in-humans molecule-it could cost $14-15M. In Israel, it costs $4-5M, tops. Second, the government of Israel has come in with a very supportive nondilutive funding program, which companies pay back only if they have an exit. That means it's a success-based loan, which is great for startup biotech companies. They get almost half their research and development expenses from the government. It's a real engine of the industry. You could say that Israel is a startup nation.
TLSR: As a venture capitalist, you don't take all the risk on a given startup company. You need pharmas and others to help you fund the nascent companies in your portfolios. Is there a sufficient quantity of VCs and corporate VCs in your region to sustain an active financing market, or do you have to reach out to the West?
RN: That's a very good question, because it has been very tough for Israeli companies to raise money in the past. But what we've seen happen here in the last three years is amazing. A lot of companies and other investors are now collaborating and operating in Israel.
"Arno Therapeutics Inc.'schairman is one of the best in the world in the urology field, and the company's consortium of investors has given us a lot of validation."
Both the Johnson & Johnson Development Corp. andTakeda Pharmaceutical Co. Ltd. (TKPYY:OTCPK)have opened Israeli incubators. Merck Serono has also opened an incubator to support Israeli programs. Over the last three years Roche Holding AG (RHHBY:OTCQX) has built two companies in Israel-Chiasma Ltd., which is developing oral drugs, and a medical device company called Medingo Ltd. A respected life sciences investor called OrbiMed Advisors LLC (private) has invested in Israel as well. Then there's Edwards Lifesciences Corp. (EW:NYSE), another giant, which is investing in one of our portfolio companies.
TLSR: Biotechs did quite well in the U.S. during 2013. Initial public offerings (IPOs) and secondary offerings are still raising about $1 billion ($1B)/month right now. How has the IPO market been performing in Israel?
RN: We have good IPO activity here, but Israeli companies try to avoid the Israeli market, preferring to go public in the U.S. There are no analysts in the biotech arena in Israel, which makes it hard to get a real valuation from Israeli investors. Israel is out of the equation right now as far as floating IPOs.
Outside the Israeli markets, IPOs are happening. On March 20, Jefferies and Credit Suisse tookMediWound Ltd. (MDWD:NASDAQ) public. It was an extremely nice IPO. The company has kept its head above water on the market, and has a very respectable $210M market valuation. MediWound is addressing burns and hard-to-heal wounds. Before that, Galmed Pharmaceuticals Ltd. (GLMD:NASDAQ), which is developing drugs for nonalcoholic steatohepatitis (NYSEARCA:NASH), went public. Other good companies, such as Foamix Ltd., which is developing topically applied drugs, MacroCure, a cell therapy company, and VBL Therapeutics, which is developing cancer drugs, are all trying to go public as we speak.
TLSR: Ran, can you talk about MacroCure, one of the still-private companies?
RN: MacroCure is a very unique situation, developing a cell therapy product for hard-to-heal wounds. The product is called CureXcell (a suspension of white blood cells separated from blood donated by healthy volunteers age 18-40 and activated via hypo-osmotic shock). CureXcell is applied to the wound and creates a natural balance that helps healing. It's an approved product in Israel and has a track record, with more than 5,000 patients treated.
TLSR: Do you see this as a classic exit strategy period, where companies can go public or be acquired? Is this a good time for Israeli companies like MacroCure, for example?
RN: MacroCure is unique because it's not a question of whether this product will work. It's just a question of when it will be approved outside Israel. If MacroCure decides to go public and the product is approved in other countries, then it's a $1B company.
CureXcell is in a double-blind, Phase 3 trial now, with more than 200 patients at 35 centers in the U.S., Canada and Israel. It is being tested for chronic ulcers of the feet in diabetes patients. This Phase 3 trial should be complete by August 2015. The biology will talk, and at the end of the day we will see if the company will fly or not.
TLSR: Can you talk about some of your other portfolio companies?
RN: We have several companies aiming for IPOs. BioBlast Pharma Ltd. is one of them, and will be the first to go public. The company has a cluster of clinical assets in the rare disease arena. A very strong team is leading this company: The go-to guy is Fred Price, the ex-CEO of BioMarin Pharmaceuticals Inc. (BMRN:NASDAQ), who is now the executive chairman of BioBlast.
"You could say that Israel is a startup nation."
An Israeli newspaper published a piece saying that another company of ours, Argo Medical Technologies Inc., is going public. This company has an exoskeleton technology that presents a unique opportunity for people who have been hurt in car accidents, or perhaps in the wars in Afghanistan or Iraq, enabling them to walk again. If you take a look at rewalk.com, you will understand how valuable this technology is. President Obama saw the technology when he visited Israel six months ago. We brought in an injured Afghanistan veteran, and she used the exoskeleton to walk to President Obama. We saw a tear on his cheek. The technology is a real breakthrough. Argo Medical is a great company, and we think it's a great opportunity for the public market in the States. We are exploring this opportunity.
Alcobra Ltd. (ADHD:NASDAQ), which is in Phase 3 with metadoxine extended release for attention deficit hyperactivity disorder (NASDAQ:ADHD), went public last year. This is not one of our companies, but we know Alcobra well. Two of the founders of Alcobra are part of the BioBlast team as well. We think it's a winning team.
TLSR: When we spoke last, you talked about Arno Therapeutics Inc. (ARNI:OTC.MKTS). What did you find in the company that got your attention?
RN: Arno Therapeutics is out of the ordinary for us because it's a New Jersey company, and we mainly invest in Israel. Arno was a unique situation, in which we saw a champion in the company's chairman, Arie Belldegrun, from UCLA. He's one of the best in the world in the urology field, and for that reason we followed up with him. He's also the founder of another of our portfolio companies, Kite Pharma Inc. (private; also based in the U.S.). We think a lot of Dr. Belldegrun.
TLSR: Arno has moved into the clinic with onapristone. It was still preclinical when we spoke back in August 2013. Tell me about it.
RN: On Jan. 2 we enrolled the first patient, testing onapristone in post-menopausal women with progesterone receptor (PR)-positive tumors-breast and endometrial cancers. This drug could also be used in castrate-resistant prostate cancers. The company aims to have good results for the American Society of Clinical Oncology (OTC:ASCO) meeting in Chicago at the end of May.
TLSR: You have a stellar group of investors in Arno. Could you talk about that?
RN: We have gotten a lot of attention by having brilliant investors at the table, like the Soros Fund; David Bonderman, chairman of Texas Pacific Group, as well as OPKO Health Inc. (OPK:NYSE) and its chairman, Phillip Frost. All in all, this consortium of investors has given us a lot of validation. I believe Arno has a real drug, and if we get good validation during the Phase 2 proof-of-concept phase, Arno will be sold.
TLSR: You mentioned Phillip Frost. Is that a personal investment from him, or is it an OPKO investment?
RN: OPKO invested in the company side-by-side with its chairman.
TLSR: You mentioned Arno Therapeutics' Arie Belldegrun, who is also on the board of directors of Kite Pharma. Would you speak about Kite for a moment?
RN: Kite is exploring every opportunity to bring shareholder value, and is probably the most exciting company that we've ever been involved in.
Everybody is talking about immunomodulation and the upcoming launch of the programmed cell death (PD-1) receptor-targeting antibody, nivolumab, from Bristol-Myers Squibb Co. (BMY:NYSE). Everybody is also talking about Incyte Corp.'s (INCY:NASDAQ) indoleamine 2,3-dioxygenase (IDO) inhibitor in phase 2, as well as other immune checkpoint targets. These are all amazing, but we think the chimeric antigen receptor (NASDAQ:CAR) technology that Kite is working on is worth a lot. This is a potential blockbuster. The compound is very effective, and the disease indication, diffuse B-cell lymphoma, is right. We licensed an anti-CD19 CAR agent, and the company aims to start a pivotal trial within 12 months-maybe even sooner.
TLSR: How many funds do you currently manage?
RN: All in all, we have more than $220 million ($220M) in three different funds, and 30 portfolio companies. Eventually we will have 16-18 companies in our third fund, and in the next year, we will set up a fourth fund.
TLSR: When we spoke six months ago, you told me that Pontifax, based in Herzliya, Israel, was a simple venture capital (NYSE:VC) operation. Are you strictly life sciences?
RN: Yes. We only do biotech, biopharma and medical devices, and we have worked with many pharma companies in true collaborations. We have a strategic alliance with Roche, and are coming up with good targets working together side-by-side. We've sat in deals with Pfizer Inc. (PFE:NYSE), AstraZeneca Plc (AZN:NYSE) and Novartis AG (NVS:NYSE). In the medical device arena, we have an informal collaboration with GE Healthcare Worldwide (a unit of General Electric Co. [GE:NYSE]), to invest side-by-side in Israeli medical device companies.
TLSR: I'd like to get some clarification on Pontifax's Roche collaboration. Are you collaborating on projects directly with Roche, or are you trying to find a suitable development partner for the company?
RN: We have Roche's wish list, and are trying to bring the company a breakthrough technology with worldwide applications. The collaboration could be for a small-interfering RNA (siRNA) molecule, an antibody or an agent to target an immune checkpoint in oncology. We come up with new programs and if they're a go, we establish a new company.
TLSR: Ran, thanks for taking the time today.
RN: It was my pleasure.
Ran Nussbaum is a managing partner and cofounder of the Pontifax Group, which has established three funds with more than $200M under management and more than 30 portfolio companies. Over the past eight years, Nussbaum has managed the group's activity, alongside Tomer Kariv. He also served as CEO of Biomedix and was NasVax Ltd.'s chairman of the board. Prior to joining Pontifax, he was a partner at Israel's largest business intelligence and strategic consulting firm. Nussbaum's work revolves around constant and active involvement in companies, providing them with strategic and business development oversight. Nussbaum serves as a board member of many of the Pontifax Group's portfolio companies, including Kite Pharma, TheraCoat, Collplant Ltd., cCAM Biotherapeutics Ltd., Quiet Therapeutics, Fusimab Ltd. and as OCON Medical Ltd., where he is currently chairman of the board.
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1) George S. Mack conducted this interview for Streetwise Reports LLC, publisher of The Gold Report,The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Arno Therapeutics Inc., OPKO Health Inc. Streetwise Reports does not accept stock in exchange for its services.
3) Ran Nussbaum: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: All private companies mentioned in this interview are in the Pontifax Group portfolio. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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