Dr. Gavriel Meron, the president and CEO of Given Imaging (Nasdaq:GIVN) encapsulates the company's business model in a single statement. "What many recently fouded Isareli startups did was to develop a technology pre-designated for many markets, for many uses. We are going in the other direction: the market of cardiovascular diagnostics may be a sexy one, but we decided to focus on solutions for digestive disorder diagnosis, a sleepy niche of sorts, though one with a relatively big clientele."
In other words, where there's a heart, there are also a stomach and a small intestine, and that's just where Given wants to be.
Judging by the direction the Given share has been headed in the last few months, it seems investors are also beginning to think of the small intestine as "sexy". Given was launched on the Nasdaq early last October, winning the title "the first share issued on Wall Street after the September 11 events."
The $12 per share issue yielded Given $60 million. Considering the green shoe given to the underwriters, headed by Lehman Brothers (NYSE:LEH), the yield was actually a higher $64 million. In its first week on the market the share dropped to $7.5, but has since then achieved an ongoing climbing pattern reaching close to $18 today.
"We haven't provided any forecasts so far, and when we are asked about a switch to profitability, we refer the inquirers to analysts that cover the share," says Meron. The investment banks estimate Given, which posted a loss of 19 cents per share in Q3 2001, will not be profitable before 2003, but their estimate hasn¿t stopped the share from leaping 50% since its issue.
The final issue price of the share was in the underwriters' low $12 to $14 dollar range, but even now, as its self-imposed "silent period" is over, Meron is saying he doesn't have any regrets regarding either the timing of the issue or the company's valuation for the issue.
Medical startup launched in missile plant
Given's origins may be traced to the missile plants of Rafael, an Armament Development Authority that operates under the auspices of the Defense Ministry. "In 1997 I began writing a business plan for the development of a diagnostic tool for digestive system disorders. Dr. Gavriel Idan, now the company's VP of technology, was working for Rafael at the time, and he patented an ingestible capsule that reports back from the digestion system," Meron recounts.
"We realized there were a number of ways to diagnose disorders of the digestive system in general, and in the small intestine in particular. One of these ways is coloscopy, or the insertion of a tube with a camera at its end through the large intestines to the small intestine. Another method is gastroscopy, or the insertion of a tube through the gullet. Both methods are painful to the patient, and unsatisfactory to the physicians, since they can't map out the entire small intestine, whose average length is 7 meters. We discovered there was no one competing in the field of diagnostics of this part of the body," said Meron.
Given Imaging, officially founded in January of 1998, is the fruit of the connection between the two, in partnership with the Rafael development Corporation (RDC), a subsidiary of Rafael, Elron Electronic Industries (Nasdaq:ELRN) and the Discount Investment Corporation. Of all the non-public shareholders in the company, RDC still has the biggest stake in Given, 26.7%.
A telltale capsule you just have to swallow
Current estimates are every year 19 million people in the U.S. suffer from digestion system disorders ranging from hemorrhages to chronic infections. Of the 19 million, about 1.5 million undergo this or the other procedure in an attempt to diagnose the problem. Other diagnostic procedures available are x rays and MRI, but they can't identify tissue, and are therefore less accurate.
At this stage of the interview, Meron rushes to summon the company's chief scientist Dr. Arkady Glukhovsky, into the room. He comes in carrying a big metal case out of which he pulls what Meron calls "flexible endoscopy unchanged since the 1970s". Endoscopy is a general name for invasive diagnostics, and we have to admit that upon seeing Glukhovsky waving that meters-long tube, one wonders if there can't be better ways to detect digestive system disorders.
Given happens to think there is. They call it A2M, a capsule of their making -- all you have to do is swallow. The capsule includes a video camera, batteries and a transmitter that sends data to a system in the physician's office. At his leisure the physician checks the "footage" of the capsules journey, and makes his recommendations accordingly.
Given sells these systems for $30,000 per unit, and the one-trip capsules go for $450 a pop. The company received FDA approval in August, which means the Q4 results will be a test of how well U.S. sales of the product have gone.
Meron doesn't conceal his hopes for the future. He says "the company hopes every gastro oncologist will have a Given system eventually," adding that "we could cover most of the market." At any rate, Given doesn't think the price of the capsules will go down when it is mass produced.
The company's management is sure competition in the field will grow, and in order to beat it in advance the company has already registered four different patents. One is the general patent by Dr. Idan from back in 1993, and another is the general American patent that limits the marketing of every "ingested capsule which can send video transmissions from the digestion system." Given had also applied to register its patent in 40 countries around the world.
Meron believes "there will be development work done in the market, now that we have awakened it and educated it. But even if in four or five years someone manages to surpass the limitations of development and patenting, we will already have a captive market, with a big no entry sign attached."
Eyes on the future
Given has no plans to get stuck in a rut. "The same doctors we worked with from the outset have committed to send us all the images their tests produce, making our data pool the biggest in the world, with data gathered on 2,000 patients. We use this pool to develop algorithms that will assist physicians in their diagnosis. We intend to develop a tool that will automatically detect areas suspected to be hemorrhaging within the digestion system. Another system we are working on will show the changing speed of the capsule in its route," says Meron.
The company plans its first conference to be held in Rome next March. Given Imaging plans to invite all the leading physicians in the field and to update them on its systems and future developments. "We feel a new branch of medicine is evolving," says the company.