Research Department
Noa Weisberg
noa@ibi.co.il
+972-3-5193443
December 27, 2006
HADASIT
Hadasit – 2007 will be an interesting year
Recommendation:
High Risk BUY
In 2007, we expect that the investments of Hadasit in several companies will
ripen and that we will see progress in the development of companies in its
portfolio.
Previous Rec.:
High Risk BUY
Target Price:
NIS 9.20
Previous Target:
NIS 9.50
Market Price:
NIS 7.10
Sector: Biotech
Symbol: HDST
Traded: TASE
Hadasit holds an interest in nine companies in various stages of
development for different products in a variety of medical fields. Companies
working on inflammatory diseases include ProtAb, KAHR, Verto and Tolarex.
Holdings in oncology companies include TK Signal and InCure while
holdings in tissue treatment include CellCure and Thrombotech. In addition
Hadasit has holdings in publicly traded Ortec (Nasdaq).
An R&D company such as Hadasit is fueled by progress in the clinical trials
of the companies in its portfolio. The companies in which Hadasit has
invested focus on large markets with unmet needs. Each of the companies
has the potential to address a target market in excess of $1B. Each step
forward in its clinical trials increases the probability that product development
will reach a successful conclusion and that the product will be brought to
market.
Verto: This company is developing a treatment for Lupus disease. Present
treatment deals only with symptoms of the disease, focusing on repression
of the immune system as a whole. Insofar as the immune system plays an
important role, its repression results in severe side-effects. Another
procedural approach in use today is plasmapheresis in which the patient's
blood is replaced with blood free of antibodies. Verto is developing an extracorporeal immunoadsorbtion column (the Lupusorb column) to improve the
plasmapheresis procedure. The Lupusorb column uses a peptide called
VRT101 which is thought to tie specifically only to the autoimmune
antibodies produced by the body which cause damage to the kidneys. On
completion of the procedure, the patient's blood, including all vital
components, is returned to his body with the exclusion of the autoimmune
antibodies causing the disease. At the end of October the company
announced approval for a European patent protecting the peptide's structure
and use. Institutional Helsinki approval has been received. We expect the
company to receive Helsinki approval for the start of clinical trials from the
Ministry of Heath within the next few weeks so that Stage I clinical trials may
get underway in the beginning of 2007. The trial will include 10 patients with
results expected four months after the start. Development of the product is
expected to reach completion during the course of 2007 so that Verto will be
able to receive European marketing approval in 1H2008 and FDA approval
in 1H2009.
Thrombotech: This company is developing a treatment for stroke caused
by the formation of blood clots that block the flow of blood to the brain
causing irreversible damage. Treatment available today is tPA which assists
This document was prepared by the Research Department of the I.B.I. Group. It is based on information published by the companies reviewed as well as on
estimates and evaluations that, by the nature of things, may prove to have been outdated or insufficient. For these reasons this document is addressed only to
professional institutional investors as ancillary material and should not serve as the exclusive basis for any investment decisions. This document and the information
therein should not be construed as counsel or an invitation to purchase (or sell) the securities mentioned and is not meant to replace counsel that takes into account
the special characteristics and needs of each individual. The I.B.I. Group bears no responsibility for any damage caused to any party as a result of reliance on this
document. The I.B.I. Group holds some or all of the securities reviewed in this document for itself and for its clients and may, from time to time, act as a purchaser or
seller of each of these securities.
9 Ahad Haam St.. Shalom Tower, 26th Floor, Tel Aviv 65251, Tel: +972-3-519-3411, Fax: +972-3-517-5411, www.ibi.co.il, email: ibi@ibi.co.il
Research Department
in dissolving the clot, however use of this treatment is very low: tPA, which was
approved in 1996, is currently used in only 3-5% of cases. Estimates indicate
that some 400,000 people a year could be candidates for such treatment in the
USA alone. The reason that this treatment is not more widely used is that side
effects include excessive bleeding, damage to the nervous system, etc. Strokes
are the number one cause of various disabilities and the number three cause of
fatalities (after heart disease and cancer).
Research on the peptide developed by Thrombotech appeared in the September
2006 edition of the respected publication, Nature Medicines. The research noted
that in a variety of animal models, use of the tPA together with thrombotech's
peptide showed good results with significantly lower side-effects. A number of
peptides are being developed for administration with tPA but Thrombotech's
peptide is the only one with a proven ability to lower the most significant sideeffect -- excessive bleeding. An article published in Nature Neuroscience
indicated that there is a possibility that in cases where tPA cannot be
administered, Thrombotech's peptide could be able to work independently
(Stand Alone). The company is conducting negotiations relating to entry of a
strategic investor.
Phase I Clinical Trials are expected to get underway during the second half
of 2007.
Tolarex: This Company is developing a device for treating GVHD (Graft vs.
Host Disease) which is the main reason for failure of implants. There is at
present no treatment for this disease. Pre-IND will be presented during the
course of 2Q07. Clinical trials are expected to begin sometime in 2007. We
will be updating our model when trials get underway to reflect the decline
in risk.
ProtAB: is developing treatments for autoimmune diseases such as rheumatoid
arthritis and Type I diabetes. The former disease is characterized by activation
of the body's immune system against itself causing damage to joint tissue. In
ordinary cases of inflammation, there is a balance between signals encouraging
the inflammatory process and those suppressing it. Presently available
treatments focus on suppressing the inflammatory process while ProtAB is
developing a treatment that will support an anti-inflammatory process. ProtAB
is expected to begin phase I Clinical Trials in July 2007. There is a chance
that, due to the high cost of development, the treatment will be developed in
conjunction with a strategic partner. Candidates for this role, which requires
experience in the field of monoclonal antibodies, include: Talecris, Kamada,
Omrix and Baxter.
KAHR: is developing a protein (PP14) which can regulate the immune system
when it attacks itself, as in the case of autoimmune diseases. Development of
the process for producing the material has been completed. The first step will be
development of a treatment for Multiple Sclerosis followed by an examination of
treatment for Psoriasis. Like ProtAB, KAHR is working on a drug with a high
cost of development. phase I Clinical Trials are scheduled to start towards
the end of 2007.
Hadasit Bio Holdings
2
Research Department
CellCure: This Company has been valued in our model on the basis of
Hadasit's investment. In order to be eligible for an exclusive license for other
indications in addition to Parkinson's disease, the company must raise $3M in
capital before March 2008 (non-dilutive sources). To date, CellCure has risen
approximately $2M and expects to be able to raise the full sum. The company
received ca. $750K from the Michael J. Fox Fund which focuses on Parkinson's
disease and $200K from the ALS Fund as well as a commitment for $300K from
the Genesis Consortium.
The investment of the MJF Fund represents a validation of the potential of this
treatment as well as appreciation of the company's capabilities. Additionally,
CellCure has begun to examine the possibility of developing a stem-cell based
product for treating Age-Related Macular Degeneration. The model looks
relatively simple and regulatory considerations are likely to be easier.
Hapto: The company was acquired by Ortec (OTCI) whose share price has
declined by 50% over the past three months. Following a change of
management the company is seeking to raise capital. Ortec expects to file a
product for FDA approval at the end of December but its future depends on
raising capital. Ortec recently received a Letter of Approval from the FDA, a
precondition for receipt of marketing approval for its leading product.
InCure: Development work is proceeding. phase I Clinical Trials, which were
expected to get underway in 1Q07, have been postponed until the second
quarter. Hadasit has invested $100,000 as a loan which can be converted into
equity until July 1, 2008. Conversion will be at a valuation of $250,000 for
Incure. The delay of clinical trials is attributed to an extension of R&D.
TK Signal: This Company is developing markers (the leading marker is called
F-TKS040) which facilitate PET scans for identification of cancer. The marker
ties to EGFR receptors which are essentially the "gas pedal" fueling cell division
that allows cancerous growths to develop. Due to its ability to tie to the receptor,
the marker can and exclusively to cancer cells. Development costs for TK Signal
are significantly lower than for competitors thanks to the presence of a cyclotron
device in the Hadassah Hospital that is available to the company. During the
past quarter the company completed a private placement that raised $2M in
capital. Clinical trials are expected to get underway during the second
quarter of 2007.
Hadasit Bio Holdings
3
Research Department
NAV
Total
Value
($ M)
TK Signal
Verto
CellCure
Thrombot
ech
Incure
Tolarex
Hapto
ProtAB
KAHR
13.21
8.23
Share of
Hadassit
(%)
25.10%
74.60%
$M
NIS M
3.31
6.14
3.31
14.00
25.95
14.00
13.77
16.04
4.75
29.80%
66.60%
93.50%
4.10
10.68
4.45
17.33
45.14
18.78
4.89
1.30
3.25
4.25%
100.00%
80.00%
0.21
1.30
2.60
0.88
5.51
10.98
$36.11
NIS152.57
Total
Market Cap (NIS M)
Value per Share (NIS)
Estimated Value (NIS M)
Target Share Price (NIS)
Discount
Value Potential at the end of 2007 (NIS M)
Representing a potential target share price:
Valuation
Method
DCF
DCF
Cap Rate
20%
20%
6.63
6.14
3.31
22%
20%
20%
7.18
16.03
8.89
30%
30%
0.21
2.61
2.60
Investment
DCF
DCF
DCF
Value of
OTCI.OB
DCF
DCF
Value after
Progress
in 2007
($M)
$53.59
114.90
6.95
152.57
9.23
32.79%
226.43
NIS 13.70
Summary
We estimate that at least 5 of the nine companies held by Hadassit will
begin clinical Trials in 2007. Beyond procedural progress, the importance
of reaching the clinical trial stage lies in the fact that the regulatory
authorities will examine results and provide external verification first for the
product . Fulfillment of clinical development targets will facilitate financing
for the portfolio companies (funds raised through the issue of convertible
bonds will be released on achievement of milestones). This will allow more
aggressive support in moving the remaining companies towards more
advanced stages of clinical testing and lowering the risk involved. All of the
companies are developing products aimed at fulfilling unmet medical needs
targeted at markets in excess of $1B. For the reasons stated above, we
believe that an investment in this company could generate a superior
reward in 2007. Note, however, that an investment in companies in early
stages of clinical trials does entail risk.
Hadasit Bio Holdings
4
Research Department
Hadasit Bio Holdings
5