Up until last May, it was hard to find anyone who would sing Dr. Yaron Daniely’s praises. Daniely is CEO of Alcobra Pharmaceuticals Ltd. (Nasdaq: ADHD). At the time, Daniely was the lone employee of a tiny, anonymous company that was developing a drug for Attention Deficit Hyperactivity Disorder (ADHD) and had no products, no income, no partners and no offices. He decided to offer this attractive package on the Nasdaq, in the hopes of raising tens of millions of dollars. “My friends said: ‘Tell me, are you nuts? You want to go and raise millions on Wall Street? How are you going to do that?’” recounts Daniely in an interview with “Globes” Weekend Magazine “G.” “If I took one step out of my close circle of friends, I could find almost no one who said that what we were doing made sense.”
Sensible or not, it happened: Last May, Alcobra had its IPO on Wall Street and surprised the Israeli market by successfully raising $25 million, with returns of 150% on the stock, which made it one of the most successful Israeli IPOs on Nasdaq last year. Alcobra is effectively the first Israeli company to complete raising capital on Wall Street in 2013, and it did so very impressively, considering that it has no income, and is still only in development stages.
The company seized the momentum and the boom in the American capital markets, and had a secondary offering in October, and raised $38 million. Today, with more than $60 million in the bank and with a market cap of $220 million, Alcobra has become the envy of its neighbors. “Since then, not a week passes without two meetings with Israeli biomed companies that want to know how Alcobra did it. They also want Nasdaq,”says Daniely. “But the fact that Alcobra did it does not mean that any biomed company in development stages can.”
They started with alcohol
A little background: Alcobra came to develop a drug for ADHD completely by accident. The company was founded in 2008 by Dr. Dalia Megiddo and Udi Gilboa (who are currently on the company’s board of directors and among the company’s top shareholders) to work on developing the molecule metadoxine, in order to inhibit the effects of alcohol on the brain. “The goal was to create a pill that would quickly reduce blood alcohol levels, so that people would be able to drive safely,” explains Daniely.
The company performed a small trial at Hadassah Medical Center, which failed. “It turned out the drug had no significant impact on removing alcohol from the blood, but it had a very significant impact on cognitive ability. In driving, memory, and attention tests that were conducted, it was as though those people were not drunk, despite the fact that, in terms of the amount of alcohol in their blood, it was not clear that they would be able to stand on their own two feet. So the idea to treat Attention Deficit Disorder came about.”
A pilot the company conducted in 2010 among 40 adults with ADHD showed “an immediate and significant improvement in attention tests. As a result of this, the company reinvented itself,” says Daniely.
The discovery of metadoxine’s ability to treat ADHD is credited to Dr. Megiddo. With this change in the company’s direction, Daniely, 38, was appointed CEO. Daniely grew up in Tel Aviv, and finished high school and his B.Sc. in Florida. He continued on to the New York University School of Medicine, where he earned a Ph.D. from the Sackler Institute of Graduate Biomedical Sciences. Following his doctoral program, he served as an NIH Visiting Fellow in its Cell Biology section, and as a Postdoctoral Fellow in the Department of Molecular Cell Biology at The Weizmann Institute for Science in Rehovot. He also holds an MBA from the Technion - Israel Institute of Technology.
His business resumé includes VP Business Development at Gamida Cell Ltd., and manager of its joint venture with Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) to develop a cancer drug. Later, he served as CEO of NanoCyte Inc., which specializes in transdermal delivery of medication.
When Daniely joined Alcobra, the company already had a new vision, but its pockets were empty. The first door that he knocked on to ask for money was Teva’s. “Luckily, because of the good relationship that I had with Teva from my work at Gamida Cell, I succeeded in getting an investment of $5 million. That was pretty good,” he laughs.
Teva and Alcobra signed a development agreement that gave Teva shares in the company and the option to increase their holdings, and even to buy the company, if the drug was approved for market. Alcobra went on to multicenter clinical trials (phase IIb), which included 120 adults. In September 2011, Teva reported that the trial was a success, and stated that they were pleased with the partnership with Alcobra.
A midnight breakup with Teva
At the time, it seemed promising: Alcobra fit well into Teva’s business strategy, which was starved for branded drugs and development of new products in its field of expertise - the central nervous system. Alcobra, for its part, eagerly drew from the pharmaceutical giant’s resources. But in November 2011, when, according to the contract, Teva was supposed to decide whether to continue supporting the company or to end the relationship, there was a surprising turn of events. On the date stated in the agreement, Alcobra’s board of directors, which, at the time, included four members, gathered, and waited until midnight for Teva’s decision.
What happened at midnight?
“Teva did not notify Alcobra of a decision, and we did not receive any word from them whatsoever. The board unanimously agreed upon a strategic decision: one minute after the deadline passes, it’s over. In the morning a letter went out to Teva saying that we were cancelling the agreement.”
You weren’t afraid to continue without Teva’s support?
“No. We were very confident in the clinical results. The thought was that instead of remaining in a prolonged state of uncertainty - until a new [Teva] CEO steps up, until he formulates a new strategy - we would be better off leaving.”
Without labs
After the departure from Teva, Daniely was forced to seek new sources of funding for the drug that was being developed, MG01CI (its temporary name). The drug is based on the chemical compound metadoxine, which, according to Daniely, has been approved for some 40 years for treatment of liver disease in countries such as India, China, Russia, and Thailand. This substance is not marketed at all as a drug in the US, Europe, or Japan, and these are the primary markets that the company is targeting. Alcobra’s discovery is essentially a new application for an existing molecule. The company has registered a patent for the use of metadoxine for neurological conditions, through a timed-release of the substance, so its effect on the patient lasts a few hours.
Alcobra has no labs, its raw materials are manufactured by a third party in Germany, and the pills themselves are manufactured in the US. The company believes that the drug combines the benefits of the two existing classes of ADHD drugs - the stimulants, such as Ritalin and Concerta, and the non-stimulant drugs, such as Strattera - and claims that it does not have their drawbacks.
According to the company, the results of the clinical trials showed that the drug, which is not a stimulant, and is therefore not addictive, worked faster and was twice as effective as the existing non-stimulant drugs, and had a similar effect to that of the stimulants. It primarily affects cognitive ability, less so hyperactivity. The company states that its safety profile is better than those of the existing drugs on the market. According to Daniely, the known side effects of the other drugs on the market include sleep disturbances, diminished appetite, depression, and more. These side effects were not seen in the clinical trials for the new drug. Some participants complained of nausea, but it “passed on its own after a day or two.”
Armed with these data, Daniely started looking for a new source of funding. “We conducted three parallel procedures: strategic negotiations with other pharma companies, venture capital funds, and public options,” he recounts. “As time passed, and the US capital markets heated up, we met with advisors, and the feedback was very clear: Alcobra’s story was a fit for the US stock market.”
American style
Daniely divides Alcobra’s story into four elements that facilitated the successful IPO. “The first element was quality, and a refusal to compromise,” he says. “Alcobra, from day one, tried to be different from other companies. We have an almost pedantic stubbornness not to do things too small or too short, but rather to do the things the way we would if we were a company in Silicon Valley. Therefore, our Phase II trial didn’t include 20 people over two weeks, instead, it included 120 people, with a placebo control, over the course of six weeks, using the exact same measures that all the ADHD drugs in the world are measured by. Many companies understand too late that they are conducting poorer trials without the appropriate controls.”
The second element, according to Daniely, is the company’s target market. “There’s nothing like ADHD,” he says. “First of all, people understand the market; there are drugs, it is known how much each company is selling and why, there are patients, there is a market that turns over $4 billion each year in the US. Also, people think they understand what ADHD is. It affects almost everyone, their kid, or their nephew.”
A third element is the pace of development: “With ADHD, unlike rare cancers, participants for clinical trials are incredibly easy to find. So our time to market and our ability to build our development process are such that almost every month we have good news for shareholders. The phase III trial will include 300 patients, in 20 medical centers, over the course of six months.”
What is the fourth element?
I don’t want to sound boastful, but there something to be said for international management, which has studied at the relevant institutions. I walk into a meeting at a road show, and I tell them that I grew up in Florida, and I’m a NYU graduate, and I speak English in their accent. I was at a road show with Prof. Lenard Adler, a researcher from NYU, and an expert in ADHD drug development, who serves as head of the clinical committee that advises the company. When someone like him sits next to you and says: ‘I conducted the trial and I stand behind the results,’ they can’t blow you off. Israeli entrepreneurs need to understand this and bring these people to their companies, so they can bridge the gap.”
Did you consider an IPO in Israel?
“No. It is not simple to raise the kind of money Alcobra raised in Israel. The ADHD market is primarily a US market, and it was pretty obvious that we would have our offering there.”
Economic security
Less than six months later, Alcobra had a second offering, in which it raised $38 million. In between the two offerings, the company brought people like Jonathan Rubin on board, who had served as the Medical Director at Shire Pharmaceuticals, one of the notable competitors in the field, and hired him as the Chief Medical Officer at Alcobra.
Why did you decide to hold a second offering for Alcobra?
“Many things happened at the company, and our ability to implement plans grew. We had a tremendous opportunity to treat fragile X syndrome, which is associated with autism. It is a very common condition, which is very difficult for many who suffer from it, and there is no treatment. In a trial we conducted on animals with a kind of fragile X, we came up with outstanding results. It completely normalized learning, memory, social behavior, and communication. In parallel, the market in the US was still on fire, and said, ‘go, secure the investment, and bring in more cash.’”
You announced the second offering and the stock started to tank
“As soon as you announce that you are raising more money, people start to get ideas. At the IPO, the stock was at $8; before the second round, it was at $21, and in the second round, it sold for $16.5. We were mentally prepared for this, but it’s never pleasant.”
The funds that Alcobra raised guarantee that the company will have full funding until it is approved as a drug for adult ADHD, which, according to Daniely, is expected to reach market in late 2015 or early 2013, and for children (“which will happen soon afterwards”). The money will also fund the fragile X trial, and will basically afford the company financial security for a good few years. “It’s really great,” says Daniely.
Published by Globes [online], Israel business news - www.globes-online.com - on December 2, 2013
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