Medical Device Daily Contributing Writer

ZICHRON YAAKOV – It has been pretty much business as usual for the Israeli med-tech sector as the country's conflict with Hezbollah continues, but the longer the situation goes on, the more dicey the ongoing scenarios for investors.

A report on the Israeli market in light of the conflict, written by Merrill Lynch analyst Haim Israel last month, summed up the situation for investors: “For now, at least, we believe that Israel's market fundamentals remain intact and should not be overlooked. While a short-term conflict creates fertile ground for profit-taking, long-term military engagement would lead to a fragile market, prompting investors to see opportunities elsewhere.”

Dun & Bradstreet (D&B) recently published a report in which it kept its credit rating for maintaining trade with Israeli companies, although it recommended that businesses with exposure to Israel should maintain a watchful eye on the rating. D&B kept its DB3a rating (slight risk) for Israel, as well as its 4.5% growth forecast.

D&B saw no change in the Israeli market, and recommended continuing to do business with Israeli companies using documentary credit (commercial letters of credit), which assumes a stable and credible business environment.

D&B noted that, before the fighting in the north broke out, the payment ethic of Israeli companies toward foreign companies had steadily improved by more than 10% since the start of rapid growth in Israel in 2004.

In July,Maayan Ventures (Omer) reported the privatization and acquisition of technological incubator Advanced Technologies Center (ATC), located in Rotem Industrial Park and Ben Gurion University of the Negev (Mishor Yemin), where it will remain, but as a branch of nearby Maayan. ATC will merge with Maayan's operations, with Maayan taking 80% ownership and Rotem Industries the remaining 20%.

ATC's 16 start-up companies, over half of them in medical devices, some still developing within the incubator, will nearly double Maayan's portfolio. State funding will increase after ATC's privatization, which is normal procedure.

Under the deal, Maayan will support 15% of these companies' budgets, with the government providing the remaining 85% as a grant if the company fails or a loan if it succeeds, in which case Maayan also would pay royalties from future exits to the state and to ATC's previous management, in an undisclosed amount.

After merging with ATC, Maayan will be the first company allowed to hold twice as many incubator companies as the usual privatized incubator.

Maayan's management pledged to provide technological and business development assistance to ATC's portfolio companies in the same way as its own, making available its extensive network of contacts, especially to help raise post-incubation capital.

Also last month, NESS (Neuromuscular Electrical Stimulation Systems; Ra'anana), reported that it has started talks with U.S. HMOs and insurance providers for reimbursement agreements covering its NESS L300 device.

NESS received FDA approval in July for U.S. marketing of its NESS L300 advanced neuroprosthetic device designed to improve gait in patients with drop foot resulting from central nervous system injury or disease.

CEO Shmuel Shany said the company has a unique solution and anticipates several million dollars in sales in the next few years within a U.S. market estimated at more than $2 billion.

NESS – Hebrew for “miracle” – is selling the L300 at $6,000 per unit, aiming at the 2,000 to 3,000 rehabilitation centers for patients with head injuries, as well as direct sales to private patients for use in their own homes.

Teuza (Haifa), a Fairchild Technology venture, holds about one-third of NESS with about $3 million invested. In April, Alfred Mann, a longstanding supporter of NESS, put another $3 million into Teuza.

The L300 will be distributed in the U.S. through a joint NESS-Alfred Mann subsidiary.

Given Imaging , Lumenis (Yokneam), Medigus (Omer) and Bio-Light Life Sciences Investments (Ramat-Gan) joined with academic institutions including Ben Gurion University of the Negev (Beersheva), Hadassah Medical Organization (Jerusalem), Sheba Medical Center (Tel Hashomer) and Tel Aviv University to form a medical imaging consortium with an estimated budget of $10 million over five years. Two-thirds of the financing will come from the Ministry of Industry, Trade and Labor , and the remainder from the participating medical device companies.

The intent is to combine to make advances that may not be possible by any single member alone.

TransPharma Medical (Tel Aviv), a device-based transdermal drug delivery company, reported that it had secured $18 million in third round financing led by new investors Argonaut Private Equity (Tulsa, Oklahoma) and Teva Pharmaceutical Industries (Jerusalem), and previous investors Biomedical Investments (Ramat Gan); BioMedical Innovations Management (BMI) (Tel Aviv); Evergreen Venture Partners (Tel Aviv); Pitango Venture Capital (Herzliya); SFKT (Shrem, Fudim, Kelner–Technologies; Tel Aviv), one of Israel's leading venture capital management companies; Vitalife Life Sciences Venture (Savyon); T2C2/Bio (Montreal, Quebec) and TIF Ventures Pte (Singapore), a government-owned fund-of-funds management company.

TransPharma raised $15.5 million in two previous rounds to develop the ViaDerm, a combination device that includes a pen-sized, handheld, battery-operated electronic control unit delivering its radio frequency MicroChannel Technology, able to open microchannels in the skin for 24 hours for the delivery of drugs; a disposable microelectrode array and patch containing uniquely formulated drugs for transdermal uptake, in personalized dosages to be applied immediately after the pulse is administered.

A licensing deal with Teva is financing development of five molecules for use with TransPharma's ViaDerm delivery system. The first payment from Teva was received several months ago when TransPharma demonstrated that it could effectively deliver bioactive human Parathyroid Hormone 1-34 fragment (hPTH 1-34) for the treatment and prevention of osteoporosis at doses comparable to subcutaneous injection.

The company is aiming for a 2010 launch date.