We'll Raise $100-150M to Invest in Israeli Medical Device Companies

“We'll raise $100-150m to invest in Israeli medical device companies.” The five managing partners of ProMedical Capital Group explain how they plan to raise the fund and why they chose Israel.

Batya Feldman 30 Nov 06 14:30

ProMed Capital Group LLC is set to become the first investment group to focus on Israeli medical device start-ups. ProMed will launch its fund at the beginning of 2007. ProMed’s five managing partners, Dr David Milch, Dr. Steven J. Evans, Dr. John H. Abeles, Prof. Jacob Dagan and C. Leonard Gordon have already invested in three Israeli companies, Althera Medical Ltd., HDH Medical Ltd., and Endogun Medical Systems Ltd.

Last week, the five men were in Israel to meet with local entrepreneurs and companies. In an exclusive interview with “Globes”, they say that the fund will focus on investment in Israeli companies in their early stages. Milch says that they looked for opportunities in both the US and Asia and found that Israel had the most promising opportunities in the medical device field.

“When we decided to join forces in 2005 and start raising a fund, we looked around and saw that it was not easy to take money, invest it, and make a profit,” says Milch. “Putting the money to work is not all that simple. There’s a lot of money in the US market. Company valuations are high there so they’re not worthwhile. In addition, the exits are limited, and to this one must add the Sarbanes Oxley rules which have harmed IPOs. What’s more, the number of large companies in the field is shrinking too. The takeover by Boston Scientific Corp. (NYSE: BSX) of Guidant Corporation reduced even further the number of people in the field that you can work with. Asia is remote and unknown territory for us. Israel was the only opportunity left so we decided to check it out. We didn’t want to rush into an investment without any strategy, even though we’ve got the money we need.”

Globes: And what did you find in Israel?

Dagan: “We found fertile ground in the medical device field. We talked to funds about the possibility for collaboration and we soon found that we could operate even without a local partner. There are some excellent ideas here. We noticed that both in privatized incubators and in the companies themselves people are making amazing progress within a shorter timeline and at lower budgets than in the US. We have seen companies successfully pass the feasibility test stage within 12-18 months, which is amazing. Israel has a strong academic framework, first-rate medical centers, and incubators that help to set up companies worth investing in.”

ProMed Capital’s five partners have pretty good resumes that they can call on when they begin raising the new fund. Dr. Abeles is a leading figure in the global pharmaceutical industry, and was the clinical research executive at Pfizer Inc., and Revlon Healthcare, and worked as a medical securities analyst at Kidder Peabody. He is currently general partner at Northlea Partners Ltd. and president of the consulting company Medvest Inc. Steven J. Evans is a renowned expert in the cardiovascular field, and has worked with a number of healthcare sector companies including Johnson & Johnson, Biosense Webster Inc. (a Johnson & Johnson subsidiary), Medtronic Inc. (NYSE: MDT), Guidant, Impulse Dynamics N.V., and Atricure Inc.

Jacob Dagan founded Bergen Medical Imaging Center (BMI), which was sold in 2001, and Heart Guard Inc. He previously worked as director of research at Laser Industries, and founded the biomedical engineering department at the Sheba Medical Center, Tel-Hashomer which he later headed from 1975 to 1981. He was also a professor at Tel Aviv University.

Dr. David Milch is an investor in public and privately held medical companies. His investments include, among others, Advanced Medicine (later renamed Theravance Inc. and floated in 2005), Minimed Inc., and Advanced Bionics (which was acquired for $2 billion by Boston Scientific and Medtronic). He was previously principal of Bermil Industries, a closely-held family business, which was partially acquired by a public company in 1989. Leonard Gordon has 25 years experience of the life science venture capital industry and previously served as CEO at NMT Medical Inc. He also worked as a lawyer with a number of leading firms, among them Cravath, Swaine & Moore of Chicago.

How did you come to work together? Milch: “We knew each other and occasionally worked together on projects. At a certain point, we began to collaborate and started investing our own money. We will begin raising the fund in 2007. We’re three doctors, a lawyer and a professor. We all have experience of early and later stage involvement in both privately held and public companies. We were involved in aspects of company development, and at all stages, from initial concept to commercial success. We know the medical industry in the US, and we know who to approach. We have the contacts and we understand the job. We are also experienced in making investments and developing contacts with institutional investors.”

The five men did not waste time, and were in Israel to check out possibilities as early as the beginning of 2006. “At the end of March, we saw two excellent opportunities,” says Milch. "We also discovered that there was a shortfall in financing. Many funds say that they invest in young companies but we met quite a few companies that had difficulty approaching funds or securing finance from them. We felt that, at least as far as the companies are concerned, there is a place for a fund that will invest in young companies.”

What are you looking for?

“Companies that have an idea that has reached the feasibility stage and which can be taken forward. Companies where we can help to shorten their time to market, and bring them to the human subject testing stage. We are not afraid to invest in companies that do not appear on the local funds’ radar.”

Who will you raise the fund from? After all, first funds don’t find it easy to raise capital “Firstly, the partners will make investments from their own money. We will also look for institutional investors, as well as Angels, or family funds that are interested in investing in companies in Israel.”

It turns out that ProMed Capital’s five founders don’t just make empty promises. They have already invested in three companies, of which two were given assistance in the form of a bridge loan. One of them is Meytav Technological Enterprises Innovation Center Ltd. incubator graduate, Endogun Medical Systems, which is developing a minimally invasive treatment for pelvic floor reconstruction (pelvic prolapse) in women. ProMed invested in the company together with Teva Pharmaceuticals chairman Eli Hurvitz’s fund, Pontifax Ltd., Biomedix Incubator Ltd. (TASE:BMDX.M), and Poalim IBI Underwriting and Investments (TASE: PIU). “The company was an orphan,” says Milch. “They couldn’t find investors because people felt that it was at too early a stage for them to invest in it.” Dagan adds, “Some people were afraid of getting involved in this field. I think that those funds that refused to invest have missed out.”

The second company, Althera Medical, received $1.5 million in investment. Althera has developed an innovative cancer treatment based on diffusing alpha-emitting radiotherapy. The third company, HDH Medical, has developed a vascular device to enhance the existing treatment of aortic and peripheral aneurysms. “HDH reached the human trials stage quite quickly but they don’t have the necessary experience of regulatory and licensing procedures to be able to move the company forward. This is where we come in,” says Dagan.

The five men claim that another three companies are currently undergoing due diligence reviews. One of them is Nicast Ltd., which is developing a nanofiber stent for treating coronary and peripheral vascular disease. “ Israel Infinity Venture Capital has already invested in the company and we will consider joining them,” says Milch. “If we do, our investment will be larger and at a more advanced stage.”

You know that the Israeli investment market is full of foreign investors on the lookout for good opportunities. What made you come to Israel now of all times? “The prices are still good, compared to the companies, and we believe that we can contribute our knowledge and experience to companies and create real value. In the past, investing in Israel was difficult because you had to deal with the ego of entrepreneurs who couldn’t be told anything, and who thought they could do it all on their own. Things are very different today.”

Will you invest on your own, or together with local partners?

“We will invest in partnerships with local venture capital funds, but we will also invest on our own. There are a number of significant funds over here.” Parallel to the venture capital investments, at the beginning of November, ProMed Capital and the Ministry of Industry, Trade and Labor commercial delegation will hold a joint road show in the US for private companies in the sector, where they will present the companies together with potential investors and strategic partners.