Medical Device Daily Correspondent

ZICHRON YAAKOV, Israel #150; Channukah and Christmas saw some new lights going on in the Israeli medical technology sector #150; and also heard the ring of cash registers.

The semi-privatized incubator, Misgav Technology Center (MTC) and two of its portfolio companies attracted $1.1 million.

Startup OrthoMechanics raised $330,000 in first-round funding, mostly from the company's CEO Nimrod Meller, with founder Misgav Regional Council and incubator co-owner Trendlines International.

OrthoMechanics, which expects to launch its first product in late 2006, is developing novel orthopedic implants that offer the potential to radically simplify and improve the world of fracture treatment.

Another MTC portfolio company, medical device start-up EnzySurge, completed second-round funding of $750,000, raised mainly from previous investors at a company value of $3 million after the money. The funds will go for ongoing product development.

The round was managed by accountant Eli Gilboa of the Gilboa & Licht Investment House.

EnzySurge was founded in 2001 by Ramot #150; University Authority for Applied Research & Industrial Development of Tel Aviv University and VC fund Israel Technology Partners (Hempstead, New York).

EnzySurge is developing new treatments for management of diabetic ulcers and pressure ulcers based on continuous irrigation of the wound with active biological solutions to significantly accelerate the healing process.

Allon Leibovitz, CEO of EnzySurge, said that these advanced medical device/biotech products are the main growth engine in the chronic wound market, one of the world's most widespread and hardest-to-treat medical problems impacting more than 15 million patients annually, more than half in the U.S. and Europe, translating into a $4 billion market.

The company recently completed successful preclinical tests of its first product, DermaStream, showing that it removes necrosis and infective agents from the wound effectively and quickly. The product is poised to begin multicenter clinical trials in Israel. This will be followed by EnzyStream, shown to be feasible and safe for debriding chronic wounds.

Also in the holiday season, the Zitelman Group (Baltimore) invested $150,000 in MTC incubator and investment center itself, becoming a strategic partner in Trendlines. Rafael - Israel Armaments Development Authority and Misgav founded MTC in 1992 in the Western Galilee. The incubator was partly privatized when Trendlines invested $2 million about two years ago. Nine of MTC's 16 start-ups are in medical devices.

Mayan buys into Diagnostics Ltd.

In other start-up funding news, Maayan Ventures (Beer Sheva), just three weeks after its initial public offering, reported an investment in its first portfolio addition as a public company of NIS 5 million (about $1.1 million) in Diagnostics Ltd., thus its first portfolio addition as a public company.

Diagnostics is developing a computer-assisted X-ray reader to detect malignant tumors invisible to the naked eye. Besides improving the accuracy of X-ray diagnosis, the device could replace, in some cases, the more expensive imaging such as computed tomography (CT) and MRI, according to Shmuel Dekel, an orthopedic surgeon at Tel Aviv Sourasky Medical Center. Dekel founded Diagnostics with Oren Drori and Ram Nethaniel.

Maayan Ventures, founded in 1990 as a government-funded incubator, the Initiative Center of the Negev, was privatized in 2003.

In November 2005, Diagnostics raised about $3.5 million from founders and owners, including the Israel Infinity Fund, Israel Yovel, Partners500, Leon Recanati's GlenRock Group, and E&M Computing, and raised just over its target of NIS 24 million ($5.2 million) in the IPO with Clal Finance Underwriting as the lead underwriter.

One of its 17 portfolio companies #150; nine of them medical devices #150; OphthoCare, just completed a $1.5 million financing round at a company value of $6 million, before money, from Swiss company AZAD Pharma.

OphthoCare produces electronic eyeglasses to treat amblyopia (lazy eye syndrome) in children. The product has FDA approval, and the current financing round will finance production and marketing. The Israeli Office of the Chief Scientist financed OphthoCare's seed round with NIS 2 million ($450,000) in 2003.

Three other start-ups have just entered the incubator said Maayan Ventures chairman, Infinity Fund managing partner Amir Gal-Or, while AppliSonix, developing an ultrasound-based permanent hair-removal device, and ReDent, developing a device for root canal treatments, are in line for exits. Gal-Or sees two to three exits a year if all goes well, he said, referring to political stability as well as economics.

Maayan Ventures CEO Tsvika Ben-Porat, founder and former chief technology officer of Ness Technologies, said in a Globes online press conference that the incubator management had decided on an IPO, rather than raising more money from private investors, for marketing reasons.

"We regard ourselves as a leader," he said, "and we have taken large measures to achieve a strong market position, to become a strong entrepreneurial partner, which we believe will enable us to recruit more interesting projects and associations. We see this in a long-term view, as an entity with complete transparency, aimed at raising substantial sums, for greater goals that merely to fill our cashbox now."

But the personal rewards are not insignificant for a young enterprise still running in the red before breakeven. Local press reports that both CEO Ben-Porat and Maayan Ventures' chairman Amir Gal-Or, co-founder of Partners500, will receive through management companies that they own, about 420,000 four-year options from the IPO, exercisable at NIS 0.16 per share. Each share is priced at NIS 1.36, or a personal benefit of about $120,000 (NIS 550,000). Ben-Porat will also receive a $22,000 bonus following the issue, while his management company is being paid $12,000 (NIS 53,600) per month, with a possibility to obtain an annual bonus amounting to six times his monthly salary.

New imaging from Philips

In other medical imaging news, at the opening of 2006, the local Israeli press reported an announcement from Philips Medical Systems (Haifa, Israel) of the first clinical trial of Royal Philips Electronics' computer imaged X-ray technology, developed in Israel. Because the new technology allows energy receivers to operate at several levels simultaneously, the system is lower in radiation over a larger body area, more effective and more efficient.

The first clinical trial of the new system is taking place at a major Israeli medical center, according to Shlomo Catran, vice president of Phillips' global CT supply chain and general manager of Philip's Haifa operation.

Catran, an electrical engineer, attributed Israel's successes in medical equipment development to Elscint and all its iterations since 1979, which served as an incubator for the medical equipment industry in Israel, and the country's high concentration of engineers: 135 per 10,000 of the working population, compared with 70 in the U.S. and 62 in Japan.

The Philips presence in Israel is also a tribute to Elscint, said Catran. "Picker International, based in Cleveland, bought the company's CT division around the same time GE acquired its ultrasound and nuclear medicine pieces," he told Medical Device Daily. "Picker eventually changed its name to Marconi Medical, which Philips purchased in 2002."

"Philips' accumulated know-how in CT systems is being translated into technological innovation at the level of computer-facilitated X-ray data reception, transmission, and processing. The Haifa development center is leading this effort, and Israel's medical system has the privilege of being the first in the world to be exposed to the new technology," he said. <