The last few years have been excellent for venture capital funds, and especially for biomed funds. The funds enjoyed a positive feed cycle, with 111 issues of biotech companies on the Nasdaq and dozens of other mergers with SPAC filling the pockets of the young companies and the funds that invested in them. For the first time in a long time,The issuance activity owes beyond the pharmaceutical companies to the fields of digital health and medical devices.
● Collaborations instead of acquisitions: S&P forecast for pharma companies
In the field of digital healthcare, there has been a real leap forward in investment. According to Rock Health, investment in the US alone has almost doubled – from $ 14 billion in 2020 to $ 29 billion in 2021, partly due to the enthusiasm aroused by the corona plague. And the big investments are creating a new reality in the medical field. Funds that recognized the potential early on have seen a significant increase in investment value. In terms of medical devices, this was a record period for mergers and acquisitions. With 288 transactions in 2021, This trend has also filled the pockets of funds and made them very attractive to investors.
From an Israeli point of view, it can be said that the venture capital funds in the medical field benefited from this period of prosperity even more than the companies themselves. The biotech and medical device companies have not had this extraordinary time (though the digital healthcare companies certainly have), but many funds have been able to raise follow-up funds on an impressive scale. For example, aMoon raised $ 750 million, Axelmed – $ 400 million, Pitango Healther – $ 150 million and Arkin Bio – $ 140 million.
The one that managed to get in through this window just before it was about to close is probably the Alive Fund, which was launched in 2020 and has now finished raising $ 110 million. The foundation was established by Prof. Ari Schmiss and Dudi Klein when they served as CEO of Assuta and VP of Innovation at Assuta respectively, as part of the process of building innovation capabilities at the Medical Center. The fund is also established and managed by Michel Habib, who has extensive experience as an investor and partner in venture capital funds in the field of biomed, and Prof. Rafi Biar, who retired from managing Rambam Hospital and was an entrepreneur of several successful medical devices companies, including Corinesud, which sold more than $ 1 billion. Has an impressive entrepreneurial record in the field of Medtech.
What has changed in the ability to raise funds in recent months? What is the difference between the questions that fund investors asked until a few months ago, and what they are asking today?
Habib: “The atmosphere has undoubtedly changed in recent months, there is a disillusionment with the high-tech euphoria that has prevailed in the markets over the past two years, and funds will find it more difficult to attract investors unless they present exit receipts and generate returns for investors.
“The numbers will speak, not the stories. Investors will now not be content with rosy predictions about issues and spikes at values detached from reality, but will zoom in on business models, projections and established business results, and in-depth examination of health economics and market investment strategies.”
Although the young Alive has not yet reached the stage of exits and returns, Habib believes that the fund is already “adapted to the new reality.”
ALIVE Foundation Directors, from right to left: Dudi Klein, Prof. Rafi Biar, Michelle Habib and Prof. Ari Shamis / Photo: Kobi Mahager
Close collaboration with the hospital
To date, the fund has made 7 investments. “One of our companies split up, so we have 8 companies and we are aiming for 12-15,” says Habib. “Ideally, we lead rounds of $ 20-40 million, and alongside fund investments, our investors also invest in companies directly and are sometimes responsible for a significant portion of the fundraising round. So you could say we’re a total of $ 200-250 million.”
Schmiss: “When I was planning to set up the foundation, I sat and thought with my founding partners how to build a model that is unique to us and increases the chances of success. Other hospitals collaborate with foundations, but there is no other foundation that has such an organic combination The companies’ access to information and in terms of the ability to try the product in the hospital when it is ready.The information the companies receive is not only medical information but also business information, which is perhaps the most significant thing.The companies can understand exactly how their product affected the hospital’s cash flow.
“We also included the Krillion hospital chain from Virginia, according to the same model, and the Maccabi HMO, which can be our partner in products that are not intended for use in hospitals. Performing the treatment. “
Biar: “We have strategically decided not to enter the field of pharma, where our relationship with hospitals does not have the same added value. However, in the field of medical and digital equipment, there are quite a few companies in Israel that have reached a stage where they have something to do with our capabilities and money.”
Stay away from the big values
According to Habib Habib: “We invest in relatively mature companies, where the risk is mainly not technological but business and strategic. And since we have business partners, there is a real chance that we will reduce this risk. The challenge for the next step is to show our investors that there are enough companies in Israel.” This, and also that their pricing is such that allows the fund to make a profit in an exit situation. “
This is an interesting point, because in the last year or two valuations have, as a rule, been very high, and now the trend has reversed. Is it still possible to profit from investments made during this period?
Shamis: “We avoided the companies that reached the highest valuations. The values jumped mainly in the next phase after we chose to invest. We focus on companies that have completed the feasibility study or are close to a regulatory approval track and are about to storm the market. The big rounds were from companies that were perceived as candidates for an IPO or merger to SPAC (a trading company empty of activity established for the purpose of acquiring an existing activity), and they are already recording sales.
“But in the near future, the rapid exit opportunities of these companies will pretty much disappear. The market is going down, inflation is weighing on the profitability of acquiring companies. We are still encountering companies seeking unfounded value, but for most companies this is history. “Biomed, and for our investors, this is a positive trend.”
Habib: “In the last decade, the players of IPOs and mergers to listed companies have been more from the pharma and biotech field than from the medical and digital instrumentation field. And his bottom.In the last two years it has changed, the exit channels have become diverse, but in my opinion now they are back to the classic exit models, and the whole way of looking at funds and private investors is also returning to this channel.It is important to understand that Strive for certain goals that create exit opportunities. “
Klein: “Compared to medical device companies, digital companies target sales and market penetration, and can hold their own. Revenues across the field double or more each year. Companies with a good business model can reach large revenue scales. So they can wait patiently. Until the markets return, there is an option to be acquired by a strategic entity, and it can be either a technology company that wants to enter the medical field, or a pharma company that wants to combine capabilities in the digital field, or even an insurance company. “.
The appetite for purchases is not over
Which companies are suitable for purchase now?
Schmiss: “Large companies will buy a company with a product that they can sell to the hospital, which means a product with good indemnity that does not micromanage the entire service that the hospital provides, as some advanced robotics systems do, whose results are excellent but sometimes their operation costs more than indemnification. The one between our insurance companies, hospitals and strategic purchasers operates a bit detached from the situation in the markets. “
Habib: “Appetite for purchases was and will be. The focus today is on medical device systems with artificial intelligence or anything that adds information to the medical device. A second trend is anything that reduces costs, and a third is custom medicine. To optimize the health care system and the results of treating patients. “
Schmiss: “We are also looking in the direction of technologies that support the medical device world with data, such as cyber protection technologies. Recently there has been a case of hacking for ransom, resulting in a fetal monitoring device disconnected, fetal distress not recorded and the fetus dead. Sinario is our company in this area , With hospital – specific cyber protection. They are already recording sales in the US and Europe.
Klein points out that in parallel with the activity of Israeli funds, some of which have grown to the point where they do not find sufficient investment opportunities in Israel and also turn abroad, there is still activity of international funds, mainly American, in the Israeli market. We competed for the investment in them against Sanofi. Thanks to our capabilities and proximity to the company, we were able to produce a lead of the round and then we brought Sanofi to invest with us. Sanofi is a significant customer of MedSafe, which is well acquainted with the market of companies like it, which are the target audience. On the other hand, Sanofi recognizes that we are an Israeli investor, who knows the existing investor environment in the company, the entrepreneurs and the activity, knows how to bring in the intelligence from within and also the culture. Sanofi asks me: What do you think about this foundation, about this company. We are here in the swamp, and it has value. “
Prominent companies in the Alive Fund’s portfolio
Beyeonics
Spin-off of Elbit Systems. Based on the helmet technology of F-35 pilots, the company has developed an augmented reality-based system that provides surgeons with information and decision-making support. Its Beyeonics Vision system has already been approved by the FDA, and a strategic distribution deal has been signed in the US
Magenta
Has developed a pump to support the heart in cases of severe heart failure or during complex catheterization. The product has been successfully tested in several patients and the next step is a human trial in the US and progress on the path to FDA approval
Medisafe
Has developed a system for managing the relationship between the patient and the pharmaceutical company, including reminders for taking medications, renewing a prescription, making quick contact with a professional in the event of a side effect and more. According to fund managers, the company is already recording revenue of tens of millions of dollars
Oncohost
Predict a response to cancer drug treatment through a blood test. The company plans to enter U.S. marketing in the coming quarter through a lab it has set up