Recently, we visited The Trendlines Group in Israel. This is our second report (our first was TRENDLINES GROUP: Insights from our visit to Israel).

Medical Galilee1.16Trendlines Group Co-Chairman and Co-CEO Steve Rhodes showing us around the Trendlines Medical facility which houses its medical start-ups.
Photo by Leong Chan Teik

The key to appreciating The Trendlines Group's business is to know the innovations that its portfolio companies are developing with a stated goal to help "improve the human condition".

ApiFix system1.16The ApiFix system has received CE approval for sale in Europe starting end-2012. It has virtually none of the drawbacks (such as the fusion of 10 vertebrae using 20 screws) of the current mainstream method. It is seeking FDA approval for sale in the US. 
Photo by Leong Chan Teik.
We feature here one of its star start-ups, ApiFix, which was named “Best Start-Up 2012” by the Office of the Chief Scientist in Israel (which provides grants of about US$600,000 per qualifying start-up but does not take any equity stake nor lay claim to the intellectual property).

ApiFix has developed a game-changer solution for remedying idiopathic scoliosis, a condition where the spine is severely curved. It mainly afflicts adolescent girls.

An expandable titanium ratchet is implanted through a small incision in the patient’s back and secured with two screws.

At about 10 cm, the incision is a fraction of the 45 cm (about the entire length of the back) required in conventional surgery.

And the 1-hour duration of the procedure is significantly shorter (compared to 4-6 hours), reducing blood loss, cost, risk and recuperation period.

Over three months after surgery, the patient performs prescribed exercises at home to enable the ratchet mechanism to correct the spinal curve.

If the description sounds too technical, check out the video below. ApiFix's product could muscle into the mainstream market for 80,000 spinal surgeries globally every year. 


 


AF UriArnin1.16ApiFix CEO and co-founder Uri Arnin presenting to Singapore visitors. He is an engineer specializing in spinal medical devices. The co-founder is Prof Yizhar Floman, Director of the Israel Spine Center at Assuta Hospital, and past president of the Israeli Spine Society. Photo by Leong Chan TeikGetting a fix on the valuation of ApiFix

In 2011, at the founding of ApiFix, Trendlines made its initial investment for a stake of about 50%.

With a number of clinical trials successfully executed, ApiFix attracted follow-on capital of "several million dollars", resulting in Trendlines' stake being diluted to 29.42% now.


Trendlines does not release detailed information about the individual valuations of its portfolio companies as this "could be commercially damaging when negotiating investments or exits".

Instead, as we learnt, ApiFix is among its 10 most valuable portfolio companies. Trendlines' equity stake in these 10 companies is valued at a total of about US$59 million, or an average of US$6 million each.

"There are a number of potential acquirers who are very interested in our system as it is minimally invasive, cost-saving and innovative," ApiFix CEO Uri Arnin told us at a presentation.

The potential value of  ApiFix is eye-popping if one were to consider the US$380 million cash that NuVasive announced in Jan 2016 that it would acquire Ellipse Technology of the US for.

Ellipse has a new solution that addresses a section of the scoliosis market while ApiFix's solution potentially covers the entire market, including adult scoliosis. 

Value & risks

This story on ApiFix underlines the intrinsic and growing value of Trendlines' portfolio companies which, arguably, the current stock price of Trendlines does not reflect.

The stock recently traded at 16.7 cents for a market cap of S$85 million. That's about half of its IPO price of 33 cents and market cap, respectively, upon listing on the Singapore Exchange in Nov 2015. 

What could cause the stock to be re-rated? Among other things, an exit (or, better still, two or more exits) from a start-up which represents a handsome return on investment for Trendlines.  

That may well happen in the near future as three portfolio companies have signed engagement letters with investment banks for M&A action.

The risks? While successful exits can be expected, the risks are real that a handful of start-ups don't succeed in developing promising technologies.

In its 8-year history,Trendlines has written off 16 start-ups out of the 62 which it has incubated.

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