ISRAEL 
HIGH-TECH & INVESTMENT REPORT

from the May 2012 issue


Bayer exec eager to conduct R&D in Israel

"We collaborate with several Israeli companies," Bayer SVP and head of global clinical development said Jorge Muller "For example, with Medgenics Ltd. (AIM:MEDG; AMEX: MDGN) and Omri Laboratories, founded by Robert Taub. We have a hemophilia product that is one of the leaders in this field, and we continue to seek ways to improve its delivery. Medgenics is developing technology that enables patients to produce, within their bodies and on a long-term basis, their own natural human protein therapy for the treatment of chronic diseases, which we are studying. Omri has developed a method for extending a substance's life so it can be injected less frequently. But a trial we conducted failed to show sufficient efficacy, so we decided to discontinue with them."

Bayer AG (DAX: BAYN) is the world's 13th largest pharmaceutical company, with a market cap of ?43 billion. The company's healthcare division invested $3.5 billion in R&D in 2011 and it specializes in prescription and non-prescription drugs, medical equipment and radiology, veterinary medicine, composite materials and seeds (where it has a cooperation agreement with Evogene Ltd. (TASE:EVGN).

Cooperation agreements with big pharma companies are an important source of revenue for Israeli drug development start ups, and acquisitions by these companies are the main type of exit for them. Nasdaq IPOs are increasingly rare, and mergers and acquisitions are usually preceded by cooperation agreements. Hence the importance for start ups in attracting the attention of big pharma, and most start ups consult with big pharma from the earliest stages, and adjust their products to the big companies' portfolios.

Muller mentioned several drugs that Bayer considers as its growth engines in the coming years. One is Nexavar, a treatment for kidney and liver cancer. "This is the only product that extends the lifespan of liver cancer patients, and we're now studying it for other cancers, such as breast cancer and thyroid cancer," he says. "Last year, we completed three trials for regorafenib for the treatment of colon cancer in patients who failed to respond to other therapies. Our treatment improves their condition."

"An even more innovative product in this field is a radium molecule that emits alpha particles that kill targeted metastasized tumors in the bones of prostate cancer patients. Radium, which is structured like calcium, is absorbed by the bone instead of calcium, especially in locations where there is high calcium replacement, where the metastasis is. The drug releases the alpha particles in this location."

Muller adds, "Another approach is the use of antibodies that can identify cancer cells. These antibodies carry a toxin and bring it to the tumor. When the antibody comes into contact with the tumor, it releases the toxin. Bayer has a product like this under development. Biocancell Therapeutics Ltd. (TASE:BICL) definitely has a similar product."

Bayer's prognosis for oncology?
Muller: "Since 2000, we've seen development in targeted treatment, and even at the level of tissue targeting. The advantage of such treatment is it can be taken every day for life, in the hope of turning cancer into a chronic disease rather than a lethal one. In future, within ten years, tissue samples will be taken from a patient for so that drug cocktail best suited for that tumor, that patient, and that tissue will be prescribed."

This resembles the method developed by Champions Oncology Inc. (Bulleting Board: CSCR), which has operations in Israel, to infect mice with the tumor of a specific patient in order to decide on the therapy.

"That's an interesting model, but the tumor changes and what works on a tumor today will not necessary work a month from now. That is why a fast and cheap method is needed for selecting the drug cocktail for a tumor at a given moment. By the way, there are new studies that show that even one tumor of one patient is not uniform throughout."

"We're committed to rare diseases"
Another important field for Bayer is stroke prevention. "Xarelto, a drug for stroke prevention was our biggest ever drug development program, costing $2.5 billion. The clinical trials included 75,000 patients from all over the world, and the drug is now approved for marketing in 110 countries for the treatment of strokes and cardiac arrhythmia, as well as for the prevention of embolisms in patients undergoing orthopedic surgery."

Israel's MCS Medical Compression Systems (DBN) Ltd. (TASE:MDCL) developed a product from the prevention of embolisms during surgery, which it says is better than medication.

"I am unfamiliar with MCS, but I know most of the medical devices produced for compressing the limbs to prevent embolisms. They do not approach the efficacy of Xarelto."MCS says that it has tested its product against drugs, and found it equally effective and safer.

"Did they show this on 75,000 patients? Xarelto is the only drug that reduces cases of death from blood clots. I am unaware of any medical device that can do this."

Muller also sees ophthalmology as source of growth, and Bayer has a new development for the treatment of age-related blindness. "Today, the disease is mainly treated with a drug which prevents deterioration, but requires an injection into the eye. Our product reduces the number of injections. I believe that most of the improvement in this area will be in the convenience of treatment, not in efficacy."

"Another product that I am enthusiastic about is a treatment for pulmonary blood pressure, which is undergoing a Phase III clinical trial. This is a disease that mostly affects young women and greatly shortens their life expectancy. We're also examining this product's potential on patients who had blocked pulmonary blood vessels." This is a rare disease that already has several drugs. Is this development worthwhile?

"We're also committed to rare diseases. Even through drugs exist, these patients suffer from shortened life expectancy. This is a field that needs more treatments."

Other fields where Bayer is active are fertility, especially uterine fibroids, and menopause-related problems such as endometriosis (in which uterine lining cells grow in other areas of the body); and cardiology, especially arrhythmia; kidney diseases and diabetes.

"Israelis keep their promises"
Bayer recently decided to reduce the number of countries with which it conducts clinical trials and R&D.

"Israel remains one of the 41 countries where we still operate because we're very pleased with it compared with other countries. Israel has excellent academic and medical institutions, high public interest in science and technology, and a diversified community in terms of genetics and life styles. In addition, Israelis are reliable and meet their timetables.

Are you sure you're talking about Israelis?
"Absolutely. Israelis keep their promises. Clinical trial sites in Israel always met their patient recruitment targets, and these centers are often at the top of our list in terms of number of patients recruited."

Israel's MCS Medical Compression Systems (DBN) Ltd. (TASE:MDCL) developed a product from the prevention of embolisms during surgery, which it says is better than medication.

"I am unfamiliar with MCS, but I know most of the medical devices produced for compressing the limbs to prevent embolisms. They do not approach the efficacy of Xarelto."

MCS says that it has tested its product against drugs, and found it equally effective and safer.

"Did they show this on 75,000 patients? Xarelto is the only drug that reduces cases of death from blood clots. I am unaware of any medical device that can do this."

Muller also sees ophthalmology as source of growth, and Bayer has a new development for the treatment of age-related blindness. "Today, the disease is mainly treated with a drug which prevents deterioration, but requires an injection into the eye. Our product reduces the number of injections. I believe that most of the improvement in this area will be in the convenience of treatment, not in efficacy."

"Another product that I am enthusiastic about is a treatment for pulmonary blood pressure, which is undergoing a Phase III clinical trial. This is a disease that mostly affects young women and greatly shortens their life expectancy. We're also examining this product's potential on patients who had blocked pulmonary blood vessels."

This is a rare disease that already has several drugs. Is this development worthwhile?

"We're also committed to rare diseases. Even through drugs exist; these patients suffer from shortened life expectancy. This is a field that needs more treatments."

Other fields where Bayer is active are fertility, especially uterine fibroids, and menopause-related problems such as endometriosis (in which uterine lining cells grow in other areas of the body); and cardiology, especially arrhythmia; kidney diseases and diabetes. of patients recruited."

So Mr. Abramowitz, who had spent six months at Ketura in the early 1980s as part of a Young Judaea program, quickly abandoned his plans to spend a quiet family sabbatical with his wife and children in southern Israel. Instead, he went into partnership with Ed Hofland, a businessman from the kibbutz, and David Rosenblatt, an investor and strategist from New Jersey, to found the Arava Power Company, now the leading commercial developer of solar power in Israel.

After more than five years of political and regulatory battles with the Israeli authorities, the company has transformed 20 acres of a sand-colored field on the edge of the communal farm. It now glistens with neat rows of photovoltaic panels from China - 18,600 in all - that harness the sun. There is no smoke, only a slight buzz in the spotless rooms where the panels' current is turned into electricity that can be fed into the electrical grid. Small openings in the perimeter fence allow animals to cross the field.

Depending on the time of year and rate of energy consumption, this field provides power for as many as five communities.

Siemens, the German conglomerate, was brought in as a partner and invested $15 million, and its Israeli branch built the field. The Jewish National Fund, a century-old Zionist group most associated with planting trees in Israel, made an unusual strategic investment of $3 million in a twist on the early national ideal of trying to make the desert bloom.

In forging a path for commercial solar energy, Mr. Abramowitz said he endured regulatory battles involving two dozen agencies as big as the Israeli Agriculture Ministry and as small as the local planning agency on issues like zoning changes and renewable energy quotas.

Along the way, Mr. Abramowitz - who left the kibbutz for Jerusalem in 2009 but still visits often - became known in Ketura as Captain Sunshine. "He got his nickname, first, because of his sunny personality," said Elaine Solowey, a member of the kibbutz, "and, second, because anyone who beats the government bureaucracy is a superhero."

Arava Power's pioneering work has not gone unnoticed. Other communal farms and communities in the arid reaches of southern Israel are rapidly turning to renewable energy: solar energy is a harvest that does not require irrigation.

Last month, Israel's Public Utility Authority issued licenses for nine larger solar fields, including a 150-acre site at Ketura that will eventually meet one-third of the peak daytime energy needs in the nearby city of Eilat.

Ketura's new solar field will be built across the road from the kibbutz in a rift valley between two mountain ranges. The near-constant breeze from the north will naturally cool the backs of the panels, which will face south. With up to 14 hours of sunlight in the summer, an average of only 15 cloudy days a year and access to the national electricity grid nearby, the area has conditions that are perfect for producing solar energy, Mr. Abramowitz said.

"God could not have invented a better place to do solar power," he said during a recent tour.

Arava Power has entered deals to lease land from numerous farms and communities in southern Israel. It has also teamed up with Bedouins in the Negev Desert: the tribes will lease their lands to Arava Power for solar installations, and the company will provide jobs for the clans. In February, the regulatory authorities granted the first license for an installation on Bedouin-owned land belonging to the Tarabin tribe. Financing for the Bedouin fields is coming from the United States government's Overseas Private Investment Corporation.

Arava Power expects to grow into a $2 billion enterprise. That is quite a change for a small kibbutz that has mainly lived off its date palms, dairy shed and the salaries of members who work outside the farm.

Ketura was founded in 1973 by 25 idealists, graduates of the Young Judea Zionist movement, and is known for its socialist values and simple, communal lifestyle. Though the kibbutz has a stake in Arava Power, Mr. Hofland, the company chairman, will not make any personal profit.

The kibbutz is also known for environmental innovation. It operates a high-tech algae farm and is home to the Arava Institute, where Israelis, Palestinians, Jordanians, Americans and others study the environment. The kibbutz's appreciation for education has resulted in what its secretary general, Sara Cohen, calls "knowledge-based ventures."

In one such effort, Dr. Solowey domesticates rare plants, including species with medicinal properties, and works on finding new crops for arid and saline lands.

As yet, the prospect of solar power riches has not gone to the heads of the practical farmers who live in Ketura.

"It means having our future accounted for, when we cannot work in the date fields anymore," Ms. Cohen said. "And our children's education will be secured."

Still, she added, "We are not eating filet mignon in the kibbutz dining room yet."



Reprinted from the Israel High-Tech & Investment Report May 2012

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