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September 18, 2014 / 23 Elul, 5774
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The Israeli Dash to the NASDAQ

Shmuel Zysman

Shmuel Zysman
Photo Credit: Ranit Nachum-Halevi

Israeli biomedical firms look back on a successful year on Wall Street. Are we bearing witness to “the new tech”? Will the net worth of these companies continue to climb in 2014? And how much clout do Israeli biomed companies listed on the NASDAQ wield compared to foreign companies?

Shmuel Zysman, an attorney who heads the world-renowned law firm of Zysman, Aharoni, and Gayer, which has been responsible for overseeing many of the Israeli IPOs on NASDAQ, says: “These companies epitomize risk versus opportunity, but there is certainly a good chance that this is the next big thing.”

While hi-tech companies are still trying to position themselves favorably in the new global economy that has taken root since the crisis of 2008, cleantech seems to be the field of choice for investors. Judging by the vast sums of fundraising on Wall Street, it seems that cleantech is ahead of its time. Its tremendous success has become a self-fulfilling prophecy.

Amidst the financial uncertainty worldwide, 2013 will be remembered as the golden age for Israeli biomed firms listed on the NASDAQ. Kamada, Oramed, Alcobra, and Mazor Robotics are just some of the Israeli companies that have expanded globally and achieved success by taking advantage of the window of opportunity afforded them by the American market. In total, they raised $287.3 million in capital. As of this writing, a number of companies are waiting for their IPOs, among them Galmed, which is seeking $35 million; Bioblast, which is aiming for $38 million; and Mediwound, which is enlisting $75 million.

In the American capital market, biomed companies are referred to as “bio-tech.” Irrespective of the nomenclature, these companies are primarily involved with developing drugs that can diagnose illness or aid in agricultural production.

Judging by the number of IPOs on the NASDAQ by companies involved in the field over the course of 2013, it’s safe to say that biomed is the new “tech.” According to figures published last year, there were nearly 50 IPOs by biomed companies who raised an aggregate total of $3 billion. With 2014 upon us, there have already been 18 IPOs who have raised an additional $1.2 billion. In the last year, the NASDAQ index measuring the performance of these companies has jumped by 77 percent, an impressive result compared to “just” 33 percent for the NASDAQ Composite.

Oded Har-Even

Oded Har-Even

“Last year was a very successful year for biomed companies listed on the NASDAQ, among them the well-known Israeli companies which we had the privilege of representing,” said Oded Har-Even, a lawyer with Sullivan & Worcester who is also a corporate partner with the firm that owns it, Zysman, Aharoni, and Gayer. Har-Even is ZAG’s point man in New York, managing all of its activities there.

“These companies continue to create value for investors,” he said. “In my estimation, judging by the first quarter of 2014, this trend is likely to continue and receive a very positive boost in markets this coming year.”

Har-Even knows what he is talking about. This year, as part of his duties at ZAG-S&W in New York, he has had a first-hand look at the IPOs, whether representing the companies themselves or representing the investment bank Aegis, which has become the dominant player in the biomed IPO market in the United States.

Among the companies that ZAG-S&W has assisted are Oramed, Alcobra, Mazor Robotics, SuperCom, and Micronet. For all intents and purposes, the firm has handled the lion’s share of all IPOs of Israeli and American companies in the U.S. capital market. In 2012, the firm also handled the fundraising efforts of Pluristem Therapeutics, enlisting $32 million. It also represented Aegis Capital Group, which served as the exclusive underwriter of Rosetta Genomics, the company whose IPO was worth $40 million.

“The Jewish brain continues to invent new things like it always did,” said Shmuel Zysman, the founder of ZAG-S&W, who was asked to explain the rousing success of Israeli biomed firms listed on the NASDAQ. “There’s tremendous productivity, extraordinary innovation, technological creativity, leadership and management structures that instituted a global vision from day one,” he said. “These are the ingredients for success that we have noticed among our clients.”

“This hasn’t changed, and we always discover a new dimension,” he said. “We saw this in the hi-tech field, and today it’s biotech. There’s no reason to be surprised. There’s something very bold, innovative, and creative in the Israeli mind, and today Israeli biomed is what is happening when it comes to IPOs. There’s no doubt that we are seeing a wonderful year. The numbers are tremendous and they speak for themselves.”

The law firm of ZAG-S&W serves as the model template for a powerhouse Israeli-American firm, with branches in New York, Boston, Washington, Beijing, Shanghai, and Shenzhen. It also has desks in India and Europe. The firm’s clients worldwide receive legal and commercial service 24 hours a day, seven days a week thanks to its team of Israeli, American, and Chinese attorneys. In the U.S. alone, the firm handles over 15 Israeli companies whose shares are traded on the NASDAQ.

“There are a few reasons at the root of the interest in Israeli companies,” Zysman said. “As an international law firm, our investors are usually foreigners as well as people who have a unique familiarity with the field in which they invest. They know exactly what the risk is, and what the reward is, and they wait for Israeli companies to offer their wares.”

“Compared to other foreign biomed companies, the Israeli companies come with a lower price tag,” he said. “If an Israeli company and an American company offered the same product, the American brand would be much more expensive. That is why some of the speculative investors see Israeli firms as having far more potential because the upside is much bigger. Also, Israeli companies have a good reputation. The investors realize this, and they carefully consider every Israeli company that comes in.”

For years now, Israel has become a center for biomed companies. It has enjoyed the benefits of foreign investors who have been attracted by the potential the country offers. Israel has numerous biomed and biotech hubs nestled in industrial parks in Rehovot, Caesarea, Haifa, and Yokneam. Within the next few years, Be’er Sheva is expected to turn into a technological greenhouse in the wake of the ribbon-cutting of the Bionegev Innovation Cluster.

The Israeli biomed community is gradually gaining a reputation worldwide, and it is expected to become a model for others to emulate, just like hi-tech. The success of Israeli companies in the American biomed market stems from all the changes that took shape in the health field in the United States last year. Nonetheless, most of these changes pose new challenges to Israeli firms, requiring them to adjust themselves accordingly with the latest developments.

This will not be an easy undertaking. That is why there are those who believe that the success we have seen recently is indicative of a bubble. To buttress their argument, they point to the triple- and quadruple-digit returns. Ultimately, however, not all of these IPOs will pan out.

“I’m aware of how some analysts are talking in terms of this being a bubble,” Zysman said. “These companies are capable of making tenfold profits of any other company. That is why there is an element of risk versus reward because there is a certain risk that some of these IPOs will ultimately not lead to the desired result, which is an effective, safe drug or a life-saving medical device.”

“Nonetheless, people need to remember that investors are aware of all of these preliminary stages, and they set an investment goal which is right for them, especially when it comes to Israeli companies,” he said. “As I mentioned before, this is due to the relatively low price in which they offer their initial stock. On the one hand, the investors understand the risks that are on the table. On the other hand, they are aware that if the company’s IPO is valued at between $100-200 million, and if they develop a successful drug that is approved by the Food and Drug Administration, it will be worth billions of dollars, perhaps more.”

“For the investor, that means a potential profit of ten times the investment, perhaps more,” he said. “That is why he takes the risk. The stock markets of the world offer assistance to high-risk companies, and if the company comes fraught with risk, my opinion is that it is preferable if that company deals in bio-tech because it’s a win-win situation. Everybody gains. If these companies succeed, the entire globe would benefit, with the development of a product and from a financial standpoint, with investors and the stock market benefiting. If the company fails, at least science will take a step forward, and there’s no doubt that mistakes are to be learned from. In my view, this is also a gain from a social standpoint.”

What is the rate of success for Israeli biomed companies as opposed to foreign biomed companies?

“When you look at the statistics of success, you need to look at two main things: Do the Israeli companies produce a product that competes with other companies or not? I don’t know of such a statistic, but from this standpoint I don’t believe there’s much of a gap. Another marker that defines success is the profit made by the investors. At least in the first wave of IPOs, it was easy to notice that the price of Israeli companies was climbing higher, which is something that was perceived as an economic success and which produced great returns for investors. Once money comes into the coffers of a company and it could continue to develop its product, there’s no doubt that it makes the value of the company higher.”

What considerations come into play when choosing the investors and the backers? Does it have anything to do with being on the NASDAQ? Is it any different than the IPO in London? Do the funds come from private investors and funds?

“The world of biotech needs a lot of money. The capital market in every country needs a tremendous amount of money in order to try and help. In the last 10 years, the amount of institutional money and funding from risk-management funds has dropped significantly. This is a worrying fact that should be a warning sign over the state of the market, and this could endanger scientific development. The repercussions of this are global. So all of the critics who are complaining that the biomed companies are “rushing to get their shares traded on the stock exchange” are expressing criticism that is unfounded, because the capital market is one of the few existing solutions today for these companies, enabling them to continue with research and development. It’s not a question of being an alternative. Today, it’s the only alternative. As for stock markets, the best stock market is the NASDAQ. The market there is big, the big money is there, and if a company wants to succeed, that’s the place to do it.”

Do you believe that the biomed field could be the next big thing in the years to come?

“I was once a young boy, and I grew old. Trends come and go. In the short and medium term, we have certainly come across an untapped reservoir of Israeli ideas and a group of Israelis who are creating value for investors, and there is a chance that this is the current big thing, although it’s difficult to say where the next big thing will come from.”

About the Author: Ranit Nachum-Halevi is a consultant to real estate companies, and former senior real estate correspondent for The Marker, Haaretz's daily financial supplement. She has been working in Israel's media for more than 15 years. You can reach her at ranit.nh@gmail.com.


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