In September 2001, Given Imaging, (Nasdaq: GIVN) was a promising Israeli start-up company in the last stages before its Nasdaq IPO. 9/11, which shook up the global capital markets cut their dream short, but only for a short time. In October 2001, Given Imaging became a public company - the first company to go public after 9/11. Given Imaging is about to celebrate the tenth anniversary of its IPO, and last week Nasdaq invited senior company executives to close trading as part of the memorial ceremonies. Last week also saw positive movement on Given Imaging's share price, which rose 15%, following a decline of 36% since mid-July. The company's market cap on Nasdaq and TASE is $500 million.
Given Imaging developed a pill with a camera that is used to diagnose the gastrointestinal tract. The first product, PillCam SB, is for small bowel visualization. Since then, they have developed products for colon and gastrointestinal bleeding, as well as other products produced by companies that Given Imaging has acquired. The PillCam enables patients to swallow a pill instead of undergoing an invasive procedure.
The source of Given Imaging's technology is from Rafael Advanced Defense Systems Ltd., which developed a missile with the ability to precisely hit a target. Given Imaging was founded as part of Rafael's RDC, which converts information from military to civilian use, and stills owns 8.8% of Given Imaging. RDC is equally owned by RDC and Elron Electronic Industries Ltd. (Pink Sheets: ELRNF; TASE: ELRN). Elron also directly owns 22.4% of Given Imaging, and Elron's controlling shareholder, Nochi Dankner's Discount Investment Corporation (TASE: DISI), owns 15.6%.
"The statistics speak for themselves: in 2001, Given Imaging had sales of $4.7 million, and our forecast for 2011 is sales of $165-173 million. Then we were losing money, and now we are making money," Given Imaging President and CEO Nachum (Homi) Shamir told "Globes" in an interview. Shamir, who was a senior VP at Kodak, joined Given Imaging in 2006 when he replaced Gavriel Meron, one of the company's founders.
"In 2001, we had only one product, PillCam SB, and today we have a series of products and an amazing technological pipeline, which will help us expand the company significantly," Shamir said. "It took us almost nine years until we sold our millionth pill, and now I assume that it will take us less than four more years until we sell the second millionth pill. This gives is a good base from which to grow into a very successful company. I am sure that within five years we will have larger revenue, more employees, higher profitability and more products."
At its peak, Given Imaging was worth $1.2 billion, but those who bought Given Imaging shares at the IPO and have held onto them until today, have achieved returns of 36%, which is impressive, but not overly impressive for ten years.
Shamir: "I believe that at the end of the day, people will understand Given Imaging's real value. FDA approval of the colon capsule will give us momentum. In the past, the multiples were fantastic - multiplied dreams, and this is the difference between companies that are built on dreams and companies that are just seeking profit."
Hoping to pass the FDA hurdle
Given Imaging's largest shareholder is Nochi Dankner, who throughout the years has been known by his close associates to believe that Given Imaging would reach sales of $1 billion. In an interview with "Globes" in 2007, Shamir himself spoke about a smaller number when he said, "I suggest we check if we can reach sales of $250 million within three years. If we really sell $250-300 million in the upcoming years, we will be able to see that we have potential." This has not yet materialized.
"It has not happened for two reasons," Shamir explained. "The first reason is the market situation. This is what probably caused the share price to decline. All healthcare companies in America are suffering badly, we are not alone. Also, we thought then that we would receive FDA approval for the Colon1 pill, but we were not successful. Now we are bringing a better product to the FDA. My mandate is to build up Given Imaging. Our staff is highly motivated and can see the vision and the future. We are building a company and believe that we will achieve results, even if some quarters are worse than others. Just as we grew from sales of $4 million to $170 million, I believe that we will also reach $300 and $400 million."
When Shamir spoke about a better product that has been filed with the FDA, he is referring to the next generation colon pill. The first generation colon pill was not approved for sales in the US, and the company is currently running clinical trials for the next generation in an effort to receive FDA approval. Sales depend on more than just regulatory permits; the pills need to be covered by insurance repayments, which reduce costs to patients. If and when Given Imaging succeeds in overcoming this hurdle, a much larger market than they have available now will become open to it.
Today, most of Given Imaging's sales are from the PillCam SB, which Shamir describes as, "our bread and butter". He believes that the market share in this field is over 95% and this is also Given Imaging's most profitable department. On the other hand, there has been a drop in sales of workstations for doctors. Given Imaging CFO Yuval Yanai says: "The decline is meaningless because sales are very low. Our model supports lowering the price of the workstation considerably, or even giving it for free with a commitment to purchase pills.
Marking China as second largest market
Other than the colon pill, what are Given Imaging's other growth engines?
Shamir: "Colon 2 will begin influencing sales within a few years. The company has grown with the help of acquisitions that have not diluted Given Imaging's shares, since they were paid for with cash from company sales. Today, 60% of our sales are from outside the US. Our sales in the US are not growing because of the economic situation. Fewer people are going to doctors, and we hope that we will continue to grow once the economy recovers. We have received FDA approval to use the pill to diagnose Crohn's disease, and this could help us. It won't dramatically double sales within a day, but just as we built the PillCam step by step, we will also succeed with this product."
You spoke in the past about China becoming a target country for growth.
"We have a new agent in China who is doing good work, and we can see results. It's a market that we believe in, and want to concentrate on. The goal is for China to be the second largest sales target after the US, but it is too early to know if this will happen."
Given Imaging acquired two companies over the last three years: the Bravo line of products for diagnosing chronic reflux from Medtronic for $20 million, and Sierra, which specializes in GI diagnostics for $35 million. These acquisitions have helped Given Imaging to grow despite the weak economy in the US - its dominant market - these last few quarters.
"These acquisitions have been extremely successful, and were acquired at fantastic prices," Shamir said. "They have both grown more than 20% a year since we acquired them, and we have improved profitability immensely, in part by moving production to Israel. To be a company that is starting to acquire others, is to show that the company is maturing. We had many other offers that we turned down, and this also attests to our maturity."
Recently, there are feelers out in the IDB Holding Corp. Ltd. (TASE:IDBH) companies: Makhteshim Agan Industries Ltd. (TASE: MAIN) and Fundtech Ltd. (Nasdaq: FNDT; TASE: FNDT) were sold, a portion of Cellcom Israel Ltd.'s (NYSE:CEL; TASE:CEL) shares were distributed. Is there a chance that Given Imaging is the next in line to sit on the shelf?
"I do not want to go into this - ask the shareholders. I can just say that I know Nochi strongly believes in Given Imaging's bright future, and that he is patient."
There is no shortcut in the medical device sector
Given Imaging is one of the most prominent and successful medical device companies in Israel; it has come all the way from the development stage, through the regulatory approval stage, and finally to sales and growth. "Given Imaging has been around now for 13 years, and we have achieved what few other companies have," said CFO Yuval Yanai. "Given Imaging has become quite successful for the Israeli market. We have created something new, a new technology. Now the company is moving forward. It has already crossed some hurdles along the way, as well as the glass ceiling of Israeli companies, some of which have closed down or been sold."
What is your recommendation to entrepreneurs or young companies in the medical device field?
Shamir: "It is not easy to build a company, and therefore most companies are sold or closed. There are no shortcuts. You need to take one step at a time to build a medical device company."
Currently, there are three Israeli companies in the field that have sales of more than $150 million: Syneron, Lumenis, and Given Imaging. The Israeli high-tech industry has not succeeded in creating medical device companies, and I think the reason is because it is a very complex market. You can't just create a technology and start to sell it. Today, it takes a lot of money and time to receive FDA approval. Then, you have to convince the doctors to use your product, as well as the insurance companies, which are actually the end user in the US. When you convince a doctor or patient to use your product, that is great, but if the government doesn't cover it, then I won't receive any money."
Shamir also emphasized the subject of quality. "We are dealing with people's lives. The smallest mistake can lead to the FDA putting an immediate stop to production. We have a lot of people and resources involved in quality assurance, and Israelis are not always used to this."
Pill for the future
What will Given Imaging's next generation pill look like? Its description might sound like science fiction, but until 20 years ago, no one thought that you would be able to swallow a pill that would take a picture of your digestive system from inside. Given Imaging is working on a pill that would be controlled from outside the body. The current pill is passive and is moved along by the body's muscles. The goal for the future is that the doctor will be able to control the pill that is swallowed, and to perform procedures like releasing substances according to need, and maybe even to perform a biopsy.
"We are working on this, but not speaking about it too much," Shamir said. "We are building technologies that will change the world in this field. We are cooperating with Israeli start-ups in the field," he revealed, but would not provide any more details.
Published by Globes [online], Israel business news - www.globes-online.com - on September 21, 2011
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