For Mann and mankind
At 82, US billionaire and redoubtable entrepreneur Alfred Mann shows no signs of slowing down. "Globes" heard what makes him tick.
Anyone who has reached a good age like Mann has an arsenal of stories. But not everyone can say that he took an active role in the US space program in its infancy ("I was convinced it would never take off"), and invented devices that have changed the lives and health of millions. This may sound exaggerated, but it's exactly what Mann has been preoccupied with for more than 20 years philanthropy and the promotion of medical technologies that will bring relief to people suffering from a range of diseases and disabilities.
Mann, who tells his story with the utmost modesty, is close to these fields as someone who began his career as a brilliant scientist, and made his way to 140th place on the "Forbes" US rich list. They say he once said, "When my success exceeded my expectations, I began to think of a way to return to society what it has given to me." And so began his philanthropy. Until a few years ago, he kept it within the US, but in recent years he has also become ardent supporter of Israel, and all because of his third wife, Claude, who isn't even Jewish.
There are Jewish billionaires with whom the Israeli public is familiar from their activity in various fields, including politics. Mann is not well known and the proof of this it is hard to find his name in newspaper archives before 2004. That year Mann made a number of fairly significant moves which not only got him into the archives but also made the headlines. He set up a joint venture with NESS-Neuromuscular Electrical Stimulation Systems Ltd., which has developed devices to help paralyzed people move their limbs. The venture, called Bioness, is the company's US marketing arm. At the same time, he donated $100 million to the Technion Entrepreneurial Incubator Co. Ltd. for the commercialization of projects, as part of the $1.2 billion in donations he has made to 12 research institutes and universities. In addition, he also acquired 10% of Teuza - A Fairchild Technology Venture Ltd. (TASE:TUZA). He has been active in Israel ever since, and the peak came in June when Bioness announced it would acquire NESS and later said it would integrate the latter's complementary products with its own.
NESS fitted like glove with Mann's vision of restoring motoric abilities in people suffering from paralysis through a series of advanced medical implants and products for neural stimulation - a vision to which he has dedicated his wealth and his life. He has already helped deaf people hear again through one company, he is working through another company on an implant to restore sight to blind people, so it was only logical that he should also help disabled people walk again - as NESS is now doing. And he will probably still have some money left after all the donations and companies. Nevertheless, he will doubtless want to leave something to his six children (although he said once that he did not think he would leave them all his money - a line of thought that seems to be characteristic of quite a few billionaires, Warren Buffet included).
"Forbes" estimated his fortune at $2.2 billion. Is this figure accurate? "I'll leave all such calculations up to them," he says in a special interview with "Globes." "In any event, I won't hesitate to invest it all, and it won't be the first time I've done this."
Two billion or three, Mann has more money than he can spend, and judging by his stated intentions, we will probably see a lot more of him and his wealth in Israel. First, he will expand the existing activities here; NESS's R&D center in Ra'anana will continue to operate, as well adding new Bioness products to its manufacturing activity, so the workforce there will grow. Second, Mann has not ruled out further investment in production in Israel. And if the products now being incubated in the Technion are successful, he will probably support them as well. To sum it up, a new, significant player has now entered the Israeli biomed industry.
Mann's interest in Israel was originally driven by business considerations, and it was only later that he found himself becoming a Zionist. "There's a lot of technology and talent in Israel, and some very energetic and entrepreneurial people who really want to succeed. The problem is that the companies sell know how and there's no production. So I want to move more production to Israel through NESS," he says. As mentioned earlier, Mann has also invested in Teuza, which was previously NESS's principal shareholder before he became involved with it, but he is not active in the fund and leaves the running of it to its CEO Avi Kerbs and chairman Moshe Arens, who he says, have excited him. "I don't remember how much I invested there. It was probably a few million dollars right?" asks the man for whom a few million dollars is small change. He currently holds 22.6% of Teuza.
Mann is willing to say a lot about some of his projects, and prefers to remain mum about others. He says he is about to become slightly more involved in an additional venture capital project "with someone whom I greatly admire who persuaded me to invest in his fund," but keeps the rest of the cards close to his chest.
Mann's activity lies on the dividing line between philanthropy and investment. Otherwise how would one account for the fact that in return for his donation to the Technion he received first refusal rights on all the projects? "I wasn't the one that got the first refusal rights. They went to the non-profit venture that I created for the commercialization of the Technion's know how and it will earn the profits if there are any," he says by way of self-justification. "Essentially, there is no connection between the companies in my group and my philanthropic activity, but of the four Technion projects I'm supporting, one is highly suitable for collaboration with our cancer therapeutic vaccine company Mannkind. They asked us to make a connection betweeh the two companies and this contact led to a joint project."
Mann was born in Portland, Oregon to a Jewish family of average means. As a child, he helped his family survive the great depression by selling lemonade and distributing newspapers, which is how his talent for business developed. Despite the runaway success in selling soft drinks, Mann opted for a career in science and attended the University of California in Los Angeles, where he received bachelors and masters degrees in physics. He later turned to business, founding two companies, one called Spectrolab, which focused on aeronautics, and Heliotek, which focused on semiconductors. Not a word about biotech back then.
Heliotek, developed, among other things, the solar paneling used on the US's spacecraft in the 1950s. Mann also actively participated in the first space research, at a time when the space race was considered a key front in the war for the free world. In the 1960s, he sold his two companies as one unit under the name of Spectrolab to Textron (now a subsidiary of Boeing Satellite Systems), but continued to managed them until 1972. At the same time, he looked for other channels to invest his money and skills in, and decided to enter the medical field with his next company, Pacesetter Systems.
To his surprise, he found the medical device world even more challenging than aerospace. Like space, the body is a strange environment about which not everything is known, and the devices have to be designed to survive in an unknown world where any failure could become life-threatening. The body, however, is a hostile environment and the immune system fights very hard to rid itself of any component perceived as an unfamiliar intruder. There are also other differences, despite the points of similarity. While the size of a spacecraft depends on the quantity of fuel needed to power it, a medical implant must be small enough to be inserted into the body without disturbing it. Its energy source should be small enough for an implant while lasting long enough to avoid the need for repeated surgical procedures.
Mann is no stranger to miniaturization. So far the batteries, chips and coils made by his companies are among the smallest and most efficient of their kind in the world. The Mann Group includes a company named Quallion LLC, which produces extremely small and exceptionally efficient batteries for his companies. It does not sell them to competitors, and other industries have no need a level of miniaturization and capacity as a high as this.
Capabilities like these also lay behind the success of Pacesetter, which extended the life of cardiac pacemakers from a year and a half to 3-4 years and longer. The company was eventually sold to Siemens AG (NYSE: SI; XETRA: SIE), and later merged with St. Jude Medical, one the global leaders in cardiovascular technology.
Here's a story that demonstrates Mann's business and entrepreneurial acumen. Pacesetter had an insulin pump division that Siemens wasn't interested in, and Mann wanted to continue developing it. Siemens had no objection, and so MiniMed was founded, a company which went on to become a giant in insulin pump production and a market leader, which it remains to this day. The unit that Siemens once considered surplus to its requirements was eventually sold to Medtronic Inc. (NYSE: MDT) for a whopping $3.7 billion. This story would subsequently be repeated a number of times - only the names and amounts would change. Mann is clearly someone who likes building offshoots within his established companies and then spinning them off as independent entities, usually successful ones.
He could have retired comfortably after MiniMed, and his heirs could have lounged about on California's beaches, but he chose to press forward with the same intensity. His motive is clear: the sweet taste of previous successes. "The moment I saw how beneficial a device like this could be to people, I realized I had to invest all my energy and all my capital in it, in my lifetime and in the future," he explains.
Luckily for Mann, and the patients that have been treated with his devices, he experienced success with the very first company he founded, and has apparently been convinced ever since that he has a kind of Midas touch, that whatever he touches turns to gold - a self-fulfilling prophesy perhaps, and not that far removed from reality. This is a very different experience from the one that most investors have in the medical device field, which has been riddled with failures, or regrettably, very few successes. This was what motivated him to invest in projects that most investment institutions would consider too risky, and wait patiently for them to deliver revenue, out of an interest that is beyond financial considerations.
The sale to Medtronic lined his pockets but left bad feelings. This was because when the medical equipment giant acquired MiniMed, it did not need Mann, who offered to stay on and help but was turned down. Today, his associates recall gleefully how Medtronic tried to impose a foreign culture on the company, as a result of which the original employees left in droves to join Mann's new ventures. Medtronic doubtless has a different version of events, but today it is clearly making attempts to make amends to Mann, and give him a role in the company.
"I never initiated a company sale, but I always sold when I got offers," says Mann. "Unless I get offers I can't refuse, I prefer to go for offerings, because I've had such a bad experience with the two mergers I carried out in recent years." The first bad merger was with Medtronic, and it ended in reconciliation. The second, with Boston Scientific Corp. (NYSE: BSX), is about to end in divorce. That's right: Israeli medical device company Medinol, managed by Dr. Judith and Koby Richter, is not the only one to find itself in court in a dispute with Boston Scientific over joint ventures.
Boston acquired Advanced Bionics from Mann. Advanced Bionics was founded on the basis of another part of MiniMed, which Medtronic was not in a hurry to buy. Following all this is a bit difficult, but this is precisely how MiniMed itself was formed. In any case, Advanced Bionics developed an implant for deaf people which restores at least part of their hearing. It is suitable for patients who have an area in their brain that processes sounds, but who have ears where the part that processes sound (chiefly the neural systems known as the auditory canals) have never developed or have become impaired over the years. The implant receives sounds and converts them into electrical signals.
The company deciphered on its own, largely through a process of trial and error, the electrical signals that the brain produces in response to different sounds, after academic research on the subject could not come up with an answer. This is not science fiction - dozens of people have had the implant fitted, and Advanced Bionics now has turnover of $200 million (although it has competitors and it is not a clear market leader as MiniMed was).
The company has also launched initial activity in neural stimulation for pain relief, and is also in the advanced stages of the development of a therapy for treating urine leakage by stimulating the bladder. These were the fields that interested Boston Scientific, which acquired Advanced Bionics in 2004 for $742 million, most of which went into Alfred Mann's pocket.
It was at this point that matters became complicated. In addition to the money, Mann insisted on staying on at the company and managing it as an independent unit. After a brief period lasting less than two years, it became clear that Mann and Boston Scientific weren't getting along. There were many reasons for this, one of which was probably that Mann manages his companies very independently, focusing on goals related to the product's success, but not necessarily for the benefit of Boston Scientific's bottom line.
According to Advance Bionics' current president and joint CEO Jeff Greiner, considered a loyal member of the Mann Group, Boston Scientific acquired Guidant Corp. and suddenly no longer had any need for growth businesses such as Advanced Bionics, but profitable cash cows. As a result, its investment in the company was different from that in the original plan, and its original employees did not get the remuneration they were expecting, which was to have been based on the success of future projects. According to this version of events, Mann fought for his team (although it should be remembered that he himself was entitled to 80% of the remuneration package).
Boston Scientific claims that Mann was simply a bad manager and because of this the company did not reach profitability as quickly as was expected, but instead hemorrhaged losses at the rate of $20 million a year. Either way, in 2006 Boston Scientific asked Mann to step down, but he refused to leave the company (even though he had several other active companies at this stage), and filed suit against Boston Scientific on behalf of the employees for robbing them of the remuneration they were entitled to. "The judge in the case was the same as in the Medinol case," Greiner takes pleasure in pointing out," and he didn't like Boston Scientific that much."
After a period in which the two sides tried to manage the company together under a court order, they gave up and decided to unwind the arrangement. Mann's demands? The return by Boston Scientific of the hearing implants and new drug inhaler businesses in exchange for $150 million. As mentioned earlier, this activity is now recording revenue of $200 million, so the revenue multiple is just 0.75. At the same time, it was also ruled that the shareholders (chiefly Mann) would receive at least $1.5 billion in compensation in the coming years, on account of the milestone payments that Boston Scientific had undertaken to pay. Medinol, it should be noted, received exactly half that amount.
"Boston Scientific arrived too soon," says Mann about the affair. "Then they did a bad deal with Guidant and this created a conflict of interest in the management of the company. We took it to court and we won everything. We gave them the part of business they were interested in, and we got our own share plus money. So it was a clean break for both companies. Now they're terrified that their people will move to us, so they're rewarding them hysterically."
Mann has emerged from the story as someone who fought tooth and nail both for his own honor and the right to lead any venture he created, according to his way of thinking, even if he has resort to fairly cunning tactics to realize his goals. It turns out that he has another character trait that is likely to endear him to Israelis. He absolutely refuses to be ripped off, and will always go to great lengths to buy cheaply, even if only a few dollars are involved. This is not penny pinching but a way of life that goes back to the days of the depression.
Mann fights all these battles as if he were a novice entrepreneur. His age has not slowed him down noticeably, and he works at least 80 hours a week. "When I'm not traveling," he says. "I get up at around six. I usually hold a morning meeting and then I head for the office. Yesterday I worked until seven in the evening, and then picked up my wife Claude (who works in his philanthropic ventures) for dinner. I got back home and worked until one in the morning. A regular day. The truth is that I haven't had any free time over the last six months, and I'd like to change that a bit. I closed five major deals, so it was necessary."
Globes: What is it that makes you a winner?
Mann: "I think its my ability to recognize good people and give them freedom. I didn't force them to be successful 100% of the time, after all I make mistakes too, so why can't other people make mistakes as well? But I imbue them with excitement about my vision. So if they make the right choice of application that is to say invent a certain technology for a suitable goal, pick the right people, and set the right goal, the money will follow. So we have the patience needed to invest in companies over time.
"Another character trait that helped me succeed is my respect for all people. I see executives around me who are tremendously snobbish towards their team and it always makes no sense to me. I once took a guy like this to our production facility and I showed him the employees assembling the hearing implant. It's such delicate work and their hands are so steady he and I could never do it, and this is what determines a company's success."
The writer was a guest of Bioness in Los Angeles.
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