Regularly in the news for medical firsts, Hadassah is making headlines with a first of a radically different order. Its medical center in Jerusalem has become the world’s first hospital with its own company–Hadasit Bio-Holdings (HBL)–traded on a national stock exchange, setting a global precedent in financing biotechnology and in facilitating new ways to heal.
“We enable anyone with a bank account to be part of Hadassah’s medical research and growth,” says Ophir Shahaf, CEO of HBL. “These stockholders, in turn, build the financial bridges that take the ingenuity of Hadassah researchers through costly development and trials to industry and, ultimately, into hospitals and pharmacies to heal people worldwide.”
Delegations from China and Sweden are the most recent among many to beat a path to the Hadassah–Hebrew University Medical Center in Jerusalem to study this new way of capitalizing on a hospital’s intellectual property. “There’s global interest in what we’re doing,” says HBL researcher Hillel Galitzer. “Everyone wants to see how we’re bridging biotech’s ‘Valley of Death.'”
This “valley” is the yawning chasm between academe and industry. Academe needs, and usually finds through research and government funds, the $50,000 to $250,000 required to prove a new concept. Developing that concept into a product, however, needs up to $8 million for preclinical (phase I) trials, with phase II and III costs often rocketing to hundreds of millions of dollars.
“There are no shortcuts in biotech, no backyard with two clever friends, a computer and a quick return for investors,” says Shahaf. “Biotech is about creating drugs administered to patients, and they must be tested and retested to meet the rightfully stringent requirements of regulatory bodies, such as the U.S.’s Food and Drug Administration and the European Union’s European Medicines Agency.”
Israel brims with innovative biotech ideas, he says. It has the world’s highest number of life-science patents per capita, more start-ups per capita than any other country, a sophisticated academic research infrastructure and highly developed entrepreneurial know-how. “Around 55 new biotech companies have been set up in Israel every year for the past 10 years,” he says. “Today, they number almost 800, but over half are in the early, preclinical stages–and while their potential profits are enormous, many will never realize them. They won’t find development funding and, without capital, they’ll plunge mid-stage into the Valley of Death–or, at best, sell their concept for relative pennies to big pharma [the politically influential pharmaceutical industry].”
In September 2005, Hadasit, Hadassah’s then-20-year-old technology transfer company, launched its assault on the funding bottleneck. Flooded with innovations but starved of investment capital, Hadasit spun off 8 of its 40 companies to form HBL, a holding entity based on Hadassah’s intellectual property, or IP. The following January, HBL floated these companies on the Tel Aviv Stock Exchange via an Initial Public Offering. “We took Hadassah’s IP and made it an IPO,” smiles Shahaf.
This IP-to-IPO strategy has abundantly paid off. In HBL’s five years’ trading on TASE, Hadasit’s two-thirds ownership of the company has fallen by almost half, replaced by some $30 million from public investors, an amount significantly leveraged by government and research grants. Last October, HBL closed a deal for one of its cluster of eight–Cell Cure Neurosciences–with BioTime, of Alameda, California, and Israeli pharma giant Teva Pharmaceutical Industries, who are investing $7.1 million in developing Cell Cure’s stem cell-based treatment to slow and even reverse blindness caused by age-related macular degeneration. With an estimated 8 million people worldwide suffering this incurable disease, they believe they have a future blockbuster with a market of some $10 billion.
A second HBL company, ProtAb, is developing an antibody to treat rheumatoid arthritis, and anticipates a global market of $30 billion. Earlier this year, it garnered a $4 million investment from Israeli venture capitalists Clal Biotechnology Industries and Pontifax Fund LP, allowing HBL to post a financial profit of over $3 million in its report for 2010’s second quarter.
“As part of Hadassah, HBL has massive advantages over every other company trading on the stock market,” says Galitzer. “Hadassah performs 52 percent of all translational research in Israel, and files for some 50 new patent families every year. In 2010 to 2011, 7 of the 11 Israel Science Foundation grants given to Israeli hospitals were awarded to Hadassah. Further, HBL companies have access to Hadassah’’s prominent medical figures and its infrastructure….”
“Being in the medical center is like being a kid in a candy store,” says Shahaf. “There are so many good things to choose from, there’s a danger of losing focus. So HBL began by selecting three areas of Hadassah excellence on which to focus: oncology, regenerative medicine (stem cell therapy) and inflammatory/autoimmune disease. Within these areas, we select companies that employ groundbreaking biotechnology to improve and lengthen life, and that address blockbuster markets with potential profits of hundreds of millions of dollars.”
HBL shepherds its portfolio companies through phase I trials and prepares them for phase II. “Success at either of these stages multiplies the value of a company up to 10 times,” says Galitzer. “This helps bring in external investment from big pharma that not only helps get technologies to market, but is also a significant public vote of confidence in HBL’s companies and business model.”
Attracting pharmaceutical conglomerates at so early a stage in the development of a drug, procedure or medical device has, in the past, been notoriously difficult, says Shahaf. “Big pharma is famously risk averse. The established pharmaceuticals shy away from early-stage technologies, preferring to pay more, later down the line, for less risk–which, of course, is a major contribution to the Valley of Death. Our business model reduces much of the risk.”
To reduce the risk, HBL has diversified products and technologies (eight companies, many products and technological platforms); a clear focus on phase I trials, when a company’s value first soars; its Hadassah leverage (access to the best manpower, infrastructure and future investment opportunities); its defined focus (oncology, stem cell therapy and autoimmune disease), where Hadassah has proven excellence; and its orientation toward markets where there is no adequate solution. A further attraction is that HBL exits long before a company becomes commercial. Its self-appointed role is detecting markets and helping companies to the point where they attract public investors and bring in partners–at which stage HBL bows out, and takes other companies into its portfolio from Hadasit’s pool of innovation.
“De-risking and attractive investment opportunities are the ‘pull’ side,” says Shahaf. “Fortunately, there’s also a hefty ‘push’’ from our customers, the big pharma companies.” Biotechnology emerged–and began issuing patents–in the mid-1980s, he explains. With the average patent running 20 years, two in every five patents are about to expire. “This means that the big pharma companies are scrambling to identify tomorrow’s blockbusters. They’re bargain-hunting with companies like HBL, willing to license more products at a preclinical stage than ever before, and paying up to two-thirds more for them than they did a year ago.”
The Cell Cure agreement with Teva and BioTime reflects this trend. During the coming 18 months, the remaining HBL companies are expected to begin clinical trials and, hopefully, attract licensing deals. Deals usually comprise a down payment of $10 to 30 million, followed by milestone-based payments of $30 million to $50 million, along with 5 to 10 percent royalties on future sales generated by the partner.
Shahaf and Galitzer are confident that other HBL companies will prove as attractive to investors as Cell Cure and ProtAb. BioMarCare Technologies, for example, signed a memorandum of understanding last August with New York’s Ludwig Institute for Cancer Research for exclusive global license to develop and commercialize its blood test for early detection, prognosis and monitoring of breast and colon cancers.
ThromboTech is negotiating with two prominent investors about its treatment for stroke, hypertension, myocardial infarction and chronic lung disease. Enlivex Therapeutics sees a $20 billion global market for its method of inducing immune tolerance for bone marrow transplantation; almost a third of the 30,000 patients worldwide who receive such transplants develop deadly graft-vs.-host disease. KAHR Medical will soon begin clinical trials of the protein it has created to treat cancer and autoimmune disease. Its estimated market is an annual $80 billion. In 2011, Conjugate Ltd. begins phase I trials of its drug to treat invasive fungal infections in immunocompromised patients. And a recently completed phase 1/2 trial has proven the safety and efficacy of Verto’s protein-coated membrane that filters damaging antibodies in lupus patients.
Innovation and fundraising are central strands of Hadassah’’s history and its soul. In HBL, they have been brought together in a totally new way to turn excellent science into revenue-generating business. This synthesis will ideally open paths for scientists not only at Hadassah but across the globe to bring new, healing biotechnologies into hospitals.
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