A few are the medical device companies that were established in Israel, and independently reached an annual revenue turnover of approximately 100 million dollars. Several of these are sold in the field of aesthetic medicine, and there is the Novokure cancer treatment equipment company – which were issued overseas and gained huge valuations. Other companies in the field reached at most a few tens of millions of dollars in revenue, and then were usually sold. Here too, these are rare cases.
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And here, another company is getting close to breaking this mark, but the celebration is not complete. Insitek from the field of ultrasound equipment published partial financial reports last week, from which it appears that it recorded revenues of 96 million dollars in 2022, reflecting a 30% growth compared to 2021, which was achieved at a time when it is not easy to market medical equipment.
But the rest of the published data actually point to the worse: the company’s losses increased by 37% last year to 86 million dollars; The negative cash flow doubled to $90 million; And Insightek’s equity at the end of the period was reduced by about 70% and was only about 30 million dollars.
Insightec has developed an ultrasound-based system for selective burning of tissues in the body in a minimally invasive manner. About five years ago, in an interview with Globes, the company’s CEO, Morris Pera, said that in his vision Insightec, which developed a breakthrough technology, would one day reach an exit in the amount of 30-50 billion dollars. Pera has been managing Insightec since 2016, after previously founding and leading the company Mako Surgical, which performed surgeries in the orthopedic field and was sold for 1.65 billion dollars.
In the meantime, it seems that the value at which Insightek is priced has “fallen to the ground”. During the spac merger fever on Wall Street in 2021, the company sought to merge into a SPAC company at a value of 1.9 billion dollars, but in early 2022 – after the trend cooled – the move was canceled. Now the company must show – especially to its controlling owners, the American Koch family – that it can not only be a large company, but also one that produces value.
Needs insurance indemnities
The company’s data shows that it has cash in the amount of 109 million dollars, which means that at the current burning rate it has fuel for another year. About two months ago, the company announced that it had signed an agreement to receive a credit line in the amount of 200 million dollars from “factors related to the existing shareholders”. Of this, 100 million have already been realized and another 100 million are available to it until 2024. The lenders received exercisable options for the company’s shares, under the terms of the Koch family’s last investment deal in 2020, according to a value of 1.3 billion dollars.
It also appears from the summary of the reports (published by Elbit Medical, which owns 3% of Insightek shares) that the company’s gross profit is $52 million, a gross profit rate of 54%, which is not considered alarming for a medical device company, and is an erosion compared to 2021 The reasons for this are probably the inflation and transportation costs that have grown in the entire field of medical devices.
Insightc
Field of Activity: An ultrasound-based system for burning tissues deep in the body as an alternative to surgery
history: Established in 1999 by Dr. Kobi Wortman. Received first FDA approval to market its products in the US in 2004
data: Raised over 500 million dollars to date. requested to merge into SPAC at a value of 1.9 billion dollars in 2021, but the merger did not materialize
Insightec is currently in the process of obtaining insurance indemnities for its products from the various insurance companies in the US. Although it has reported some successes in this area, as long as the products are not indemnified for the majority of insurers in the US and its other markets, it is limited in its ability to charge a price that reflects its true costs .
Insightec is also a company that historically invests very large sums in R&D, in order to expand the indications for which the device it developed is used. For example, the company recently began a clinical trial to prove the effectiveness of the device in diagnosing and monitoring brain cancer, by opening the patient’s “blood-brain barrier”, in a way which allows cancer biomarkers to flow into his bloodstream so that they can be collected and a “liquid biopsy” performed to diagnose the cancer.These experiments cost tens of millions of dollars.
The chance of rescuing the company through a purchase deal seems currently low due to the reluctance of the major medical device companies to make such deals at the moment, in a market characterized by uncertainty. It seems that Insightek will continue to depend on the goodwill of the billionaire Koch family, which has already invested hundreds of millions of dollars in it, hoping that it can reach a critical mass of covered labels to change its profitability profile.
From uterine care to brain surgery
Insightek’s story begins in 1999, when the company was born as a spin-off of Elbit Imaging for the medical field, in partnership with the international medical imaging company GE. The company has developed a system that makes it possible to focus ultrasound energy from several points, thus burning a very specific point of tissue inside the body, as a substitute for surgery.
When Elbit Imaging was purchased by the late Moti Zisser, who turned it into a company that invests in real estate abroad, Zisser was forced to continue maintaining Insightek due to a “poison pill” included in Elbit Imaging’s bylaws, but over time he “fell in love” with the company.
At the beginning of its journey, Insightec developed a system for cauterizing fibroids in the uterus, as an alternative to its excision. This product reached revenues of over 10 million dollars, mainly in the American market, in partnership with the GE company. But in the end it failed to establish itself in the market, due to the economic attractiveness of alternative solutions of hysterectomy and laparoscopy, and probably also quality problems.
During this period, Elbit Imaging was the main financier of the company, along with GE and the Meditech Advisors Fund, but towards 2014, with the decline of Elbit Imaging (which was required to settle a huge debt in which Zisser lost control of the company), a liquidity threat began for the company.
Its rescue came thanks to the York Fund, which invested in the debt of Elbit Imaging and became a major shareholder in the company, and even decided to invest in Insightek directly. In the meantime, Insightek has progressed to other applications for its technology, specifically in the field of brain surgery without opening the skull, among others in the field of Parkinson’s and other tremor diseases. She also has permission to treat prostate tumors.
Gradually, it began to dissolve the partnership with GE and work with the companies Philips and Siemens. Today it markets its products in the main markets through an independent sales team. Sales are indeed increasing, but maintaining such an array of over 400 employees is expensive.
The flow remains problematic until a new savior enters. The KDT venture capital fund of the Koch family, which became a shareholder in the company in 2017. The fundraising rounds led by KDT brought in over 300 million dollars to the company, and in total, according to the IVC website, Insightech has raised over half a billion dollars to date.
The Koch family purchased the majority of Elbit Imaging shares in the company, while the York Foundation sold part of its holding in 2021 to a group of investors and remained with approximately 13% of the company.
The company’s highest valuation was in 2020, during a fundraising led by the Koch family, at approximately $1.3 billion. After the intention to merge with Spak failed and in accordance with the market conditions, York’s shares were sold to the Israeli funds at a lower company value of one billion dollars – far from the $30-50 billion to which the CEO Fara aspired.