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For Israeli University Tech-Transfer Office, Raising Cash for Spinouts Meant Going Public


Rafi Hofstein
President and CEO
Hadasit Ltd.
NAME: Rafi Hofstein
POSITION: President and CEO, Hadasit Ltd.
BACKGROUND: President, Mindsense Biosystems; business unit director and scientific director, Ecogen; postdoc, biological chemistry and neurobiology, Harvard Medical School; PhD and MS, life sciences and chemistry, Weizmann Institute of Science
In the US, university technology-transfer offices have become more business savvy over the last decade, and universities are exploring myriad new ways to raise the cash needed to move innovations from the bench to the marketplace.
These strategies include creating internal seed funds, providing support to university spinout companies, and even acting as venture capitalists themselves by taking equity stakes in spinout companies.
The next step might be something resembling a recent initiative at Israel’s Hadassah University Medical Organization. In 2005, Hadasit, the tech-transfer arm of Hadassah, founded Hadasit Bio-Holdings to own and manage the spinout companies that the medical center was spawning.
In January 2006, HBL went public on the Tel-Aviv Stock Exchange and became the first holding company in the country, and possibly the world, to raise capital in the public markets. HBL currently comprises ten companies in the fields of oncology, autoimmune disorders, and cell/tissue based therapies, and is 33 percent owned by the public, with Hadasit owning the remainder.
Rafi Hofstein, president and CEO of HBL, took a few moments this week to discuss with BTW the development of HBL, how it is speeding technology transfer at Hadassah, and how the company might be able to serve as an example for commercializing university biomedical innovations in the US.

What is the difference between Hadasit and Hadasit Bio-Holdings?
Through the end of the 1980s, all tech-transfer offices had to do was identify promising ideas and patentable opportunities; to make sure these opportunities were well-protected by patents; and to seek collaborations or outlicensing opportunities.
Into the 1990s, which is when I joined Hadasit, there was a change in the environment in that the big players in pharma and medical devices started to do it themselves. They felt they could do a better job of developing new technologies. And the first thing they did was pretty much to turn around and ignore [university tech-transfer offices]. When I joined Hadasit, I felt that rather than waiting for the environment to change again in a positive direction, we should take the initiative of advancing the technologies to more meaningful milestones, so the big players – the Medtronics and Pfizers of the world – wouldn’t reject us anymore.
The best way to do that – especially in Israel, but not only here – was to create startup companies around different projects, which allowed us to attract financial support to the projects. After a while we ended up owning more than three dozen companies covering the spectrum of drug development – mainly in oncology, inflammatory diseases, autoimmune disease, neurology, etc.; as well as medical devices with an emphasis on cardiovascular disorders and orthopedic surgery.
Starting these companies up went really well – we had access to angel clubs and early-stage venture capital funds. We had funding that covered the companies’ needs for the first two or three years. In retrospect, I can say that in two to three years’ time, and with the amount of funding we raised – which was on average $1.5 million – we were able to get each project from the patent stage to beyond animal models.
At that stage, we thought we had accomplished quite a bit, only to discover that the big players now were telling us that they were really looking for a minimal amount of human data. Everybody in tech transfer nowadays talks about the [development] gap or chasm, or the ‘valley of death,’ which is really between in vivo in animals, and first data from human trials. This translates into something between $5 million and $10 million. That, of course, is a formidable challenge if you own several dozen companies. So we decided to look back and select the projects/companies that were in a more advanced stage, and that had a chance, with the right amount of funding, to move into clinical trials in a reasonable period of time. At the beginning we selected nine companies, which has since grown to ten, and we went through a very sophisticated process to choose the companies because we wanted to make sure that it was all done at an arm’s length approach.
We clustered the companies together and put them under the umbrella of the company we call Hadasit Bio-Holdings Ltd. We took HBL public in Tel-Aviv, and raised money through the company so that we had sufficient funding to get those companies into clinical trials. So at the beginning, HBL was fully owned by Hadasit, but later on, because of the fact that the public in Tel-Aviv became partners, half of it went to the public and half remained with Hadasit.
This was the first time [this has been done] worldwide. Interestingly enough, I just came back from California, and met with three prominent groups, all of whom told me that they learned about this mechanism and are analyzing it to see if they can duplicate it. Many people recognize that going public is an approach that tech transfer could adopt to overcome the valley of death.
Do you think this approach might be more accepted in Israel or other countries than in the US?
Generally, I will say that we belong to an international club of tech-transfer offices that struggle quite seriously for funding. The common denominator between all of us is that the projects are at an early stage; and [industrial partners], pretty much across the board, refuse to take a chance at such a risky stage. So we have to deal with it. I don’t think it is more amenable in Israel. In fact, I can give you one example, which is the tech-transfer company [Imperial Innovations] of the Imperial College London, which actually did the same thing [as us], and even more aggressively. A business group that participated in our IPO had an association with Imperial College, and educated them to the extent that they decided to take their whole IP estate public – the whole tech-transfer office – on the AIM in London.
In the US, the only issue is that at least NASDAQ is somewhat reluctant to invest in a cluster like this. Even though we have tried to educate the world that this is advantageous, because it is a nice way to mitigate risk, NASDAQ is still a little conservative. They want to invest in singular entities rather than clusters. But gradually, people will come to realize that this makes sense, and I’m sure we will see duplication in the US in the next few years.
Based on our accomplishments over the past few years, we have been approached by colleagues of ours from prominent universities in North America such as the University of Montreal, McGill University, Harvard University, and University of Pennsylvania, all of whom are talking with us about collaborative efforts, which will probably involve co-ownership of startup companies.
Is Hadassah Medical Organization a research hospital only, or an academic institution, as well?
First of all, Hadassah Medical Organization belongs to a women’s organization in the US called the Hadassah Zionistic Women’s Organization of America. It is a very prolific and active Jewish organization in North America. For the last 100 years they have owned the hospital in Israel. And from the earliest days, there has been an agreement between the Hadassah Medical Organization and the Hebrew University that calls for co-ownership over the medical school that resides in Jerusalem. So the hospital and Hebrew University are co-owners of that school.
Does that mean they co-own any intellectual property that comes out of research at the hospital?
No. There is a long standing agreement between Hadassah and the university that says that IP goes according to who pays your salary. That is to say, if you are a scientist or physician whose salary comes from Hebrew University, you will have to report your IP to a sister company of Hadasit. And Hadasit will accept IP from those whose salaries are paid by Hadassah.
Is all IP generated by researchers at Israeli universities owned by the universities, as it is in the US?
Unfortunately, no. This issue has been resolved in the US by the Bayh-Dole legislation. But in Israel, we haven’t gotten there yet. This means that other than Hadassah, which is privately owned, everything else belongs to the government, and the government is still struggling with the need to arrange an Israeli version of Bayh-Dole. But I believe it will be another three to four years before this law is passed in our parliament.
It seems like the government has done a good job moving Israeli academic innovations to the marketplace. Do you think a Bayh-Dole framework would work better?
Absolutely. What you have seen is based on the fact that each hospital is associated with an academic institution, and since many of the physicians have a co-position at the university and the hospital, they find a way to solve the problem. But this is not an ideal arrangement. The ideal arrangement ought to be one that resembles the one we have at Hadassah. In that regard, we are really privileged.
Is Hadasit Bio-Holdings only responsible for startup companies, or does it also handle the licensing of innovations to larger, existing companies?
That is done through Hadasit, which is the ‘owner’ of all IP that comes out of the hospital. Hadasit will decide which goes to the HBL entitiy, or which goes out for alternative licensing arrangements, which is the most classical way. I will say, however, that in the area of medical devices – which is new for us, but is an area in which we are becoming more aggressive – I believe that will more typically go through the classical tech-transfer method.
Do you think the Hadasit Bio-Holdings structure is more necessary or amenable to life sciences innovations as opposed to engineering, IT, etc.?
Yes – for a very simple reason: The timeframe for developing life sciences innovations to a more meaningful milestone takes much longer. If you approach a VC for funding, they will tell you that the lifespan of the fund is around seven years. In that time frame, it becomes difficult to justify what they would call an exit. So we view the public outlet as one that is very useful for the life sciences.
A large benefit of university-based startup companies is that they can feed regional economic development. Does Hadasit or HBL have anything in place to keep its spinout companies in the region? Have previous startups stayed in the region?
Not only have they stayed, but the fact that they grew out of the hospital allowed us to use the infrastructure of the hospital, which made things economical. To give you an example, we developed a company called Verto to develop a treatment for lupus (see BTW, 7/23/2008). Verto’s solution for lupus is based on a combination of a drug and a device. When you deal with something like this, the approach is to have an early-stage visibility study, and if that is successful, you move to the next stage, which is the pivotal study. You don’t have Phase I, II, and III as in the US. At Hadassah, we were able to finish the feasibility study, which was first in man and similar to Phase I or IIa, in less than two years, and for less than $2 million. If we were to do the same in a more classical way, especially in the US, the same studies would have cost us $20 million. The beauty of having a cluster on the premises of the hospital is that it allows us to do things very cost-effectively.
However, I also need to add to this that recently, because of the number of companies and the fact that we became too crowded, we took the initiative of building a new facility on campus called the Hadassah Biotech Park. Companies will be moving to that facility sometime in the next two months.
What have been some of the challenges of this tech-transfer/university startup structure, and what needs to be done to address those?
The main challenge is still financial restriction. During the incorporation of HBL, we raised close to $30 million, only to discover that we need probably another $30 million to give a fair chance to each of the ten companies. And we also have others that don’t yet belong to HBL that will need to be supported.
Secondly, in Israel, it is a challenge to find trained management. In the ICT area, which is a more traditional area in Israel, this was taken care of in the 1990s. So now in the life sciences, we need to address this, and address it quickly. I think we are now coming up with good solutions, in conjunction with a number of business schools in the country that will take responsibility for training these managers.

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