Given Imaging Ltd

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Given Imaging Ltd.

13 Ha'Yetzira Street
Yokneam, 20692
Israel
Telephone: ( + 972-4) 909-7777
Fax: ( + 972-4) 959-2466
Web site: http://www.givenimaging.com

Public Company
Incorporated: 1998
Employees: 339
Sales: $86.8 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: GIVN
NAIC: 423450 Medical, Dental, and Hospital Equipment and Supplies Merchant Wholesalers

Based in Israel, Given Imaging Ltd. is a medical device company that produces PillCam, an ingestible camera capsule that in conjunction with a recorder and computer workstation can take still pictures and videos of a patient's esophagus or small intestine. PillCam has been used to diagnose Crohn's disease and Celiac disease, as well as malignant tumors. The capsule, about the size of a large vitamin, is comprised of a single-use video camera, battery, and wireless transmitter. Illumination is provided by white light-emitting diodes. It can be swallowed with a glass of water by patients who have completed a 12-hour fast. Other than an additional four hours fasting, patients are free to carry on with their daily activities. The recorder and sensors of the Given Diagnostic System along with a battery pack are worn on a belt by patients for eight hours. The recorder is returned to the doctor and the data is retrieved by the systems RAPID (Reporting and Processing of Images and Data) Workstation, which uses proprietary software to produce a video of the small intestine out of the images the capsule has recorded. Physicians are then able to view, edit, and archive the material, and email it to others for consultation. The capsule, in the meantime, works its way through the patient's body and is eliminated within 24 to 36 hours, generally without notice. Some 350,000 patients around the world have used the PillCam, which is marketed in the United States and about 60 other countries. For children, and smaller adults, Given also offers a Pediatric Accessory Kit that includes a smaller recorder belt pack. Given is a public company listed on the NASDAQ.

FOUNDERS IMMIGRATING TO
ISRAEL: 1970

Given was cofounded by its longtime chief executive, Gavriel D. Meron, and chief scientist, Dr. Arkady Glukhovsky. Both men immigrated to Israel in 1970, Meron from South Africa and Glukhovsky from the Soviet Union. Meron earned an undergraduate degree in economics and statistics from Jerusalem's Hebrew University, followed by an M.B.A. from Tel Aviv University. From 1973 to 1983 he served in the Israeli military, involved in overseeing the budgets of military industries. He then worked for a telecommunications and semiconductor manufacturer, a pharmaceutical firm, and a company that developed hardware and software to compress and play digital video. Prior to the launch of Given, he served two years, 1995 to 1997, as the chief executive of an Israeli developer of video camera systems for use in endoscopy. He then became aware of Dr. Glukhovsky's work on a miniature wireless endoscope.

Glukhovsky earned a bachelor of science in engineering and a Ph.D. in biomedical engineering from the Israel Institute of Technology. He too served a stint in the Israeli military, as an officer in the Navy from 1980 to 1985. He was then involved in a number of research projects at the Israel Institute of Technology and other academic and industrial research institutions. Before teaming up with Meron, Glukhovsky was doing work for Rafael Development Corporation, Israel's Armament Development Authority. As the country's defense industry matured, many engineers in Israel began to look for new opportunities and turned to medicine. It was an obvious choice, given the country's robust healthcare industry and its desire to expand into new research areas. Moreover, because it cost far less to develop a medical device than a new drug, start-up medical device companies were able to secure seed money from venture capital firms and the Israeli government, especially the military. Not only was Glukhovsky's team of engineers trained by Rafael, the shape of the camera pill was based on a missile Israel designed during the Persian Gulf War.

Ingestible capsules that transmit information was hardly a new idea, however. For decades, so called Heidelberg capsules had been used to diagnose stomach problems by recording levels of acidity during digestion. It was advances in technology that made a camera pill possible, including the development of CMOS video imaging chips that could combine camera and control circuits on a single bit of silicon. As a result the new camera capsule required less power and could use smaller batteries. Also of importance was the development of white-light emitting diodes to provide illumination.

INCORPORATION OF GIVEN
IMAGING: 1998

In January 1998 in conjunction with Rafael, Meron and Glukhovsky incorporated Given, an acronym for Gastrointestinal Video Endoscopy. Over the next two years the PillCam was developed and by the summer of 2000 it had been tested on ten people, including Meron himself. The company sought approval from the Food and Drug Administration (FDA) in the United States and received clearance in August 2001 for the use of the PillCam Capsule Endoscope as an adjunctive tool for visualizing abnormalities in the small intestine, in particular internal bleeding of unknown origin. Procedures of this type were performed on one million people in the United States each year and three million worldwide.

With FDA approval in hand, Given, which had establish a presence in the United States in Norcross, Georgia, made an initial public offering (IPO) of stock in the first week of October 2001. The IPO, underwritten by Lehman Brothers and Credit Suisse First Boston, was noteworthy because it was the first to come to the market following the terrorist attacks of September 11, 2001, breaking the longest drought in IPOs since the mid-1970s. (The previous IPO had been held on August 14.) There were some doubts about Given's potential, mostly related to the company's ability to convince third-party providers such as Medicare and Medicaid to reimburse doctors and hospitals using PillCam, but the potential of the device outweighed this concern. Whether the economy was strong or weak, people would always have gastrointestinal problems and there was no doubt that patients would rather swallow a small pill with a glass of water than gag on an endoscope forced down their throats. The offering was well received by investors, who paid $12.60 a share, and netted Given $60 million.

COMPANY PERSPECTIVES

Given Imaging's mission is to be the global leader in providing patient-friendly solutions for the gastrointestinal community.

At first glance the PillCam system seemed expensive. Each capsule ran $450 and was used just once. The workstation cost $14,500 and the data recorder was priced around $5,500. However, payers would soon conclude, based on the data drawn from the first U.S. clinical trial, that the device was well worth the cost compared to alternative methods. In addition, the quality of life for the patient was greatly improved. Once subjects in the clinical trial exhibited signs of internal bleeding, they incurred more than $33,000 in enteroscopies, radiology exams, and blood transfusions. This amount was a far cry from the total costs a patient generated between emergency room visits, doctor visits, and other costs. PillCam also did a superior job when compared to traditional enteroscopy. Of the 20 patients in the trial, the capsule was able to pinpoint the site of bleeding in 12, compared to just seven patients using enteroscopy. In addition, because the capsule was able to view the entire length of the 22-foot-long small intestine, the negative diagnosis of the eight patients was meaningful to doctors, who were able to eliminate the small intestine as the source of the bleeding. Enteroscopy could only view the first third of the small intestine, making any negative diagnosis of limited use.

In addition to gaining regulatory approval in the United States, PillCam was also found acceptable in Israel, Canada, Australia, and throughout Europe. The device went on sale in 2001 and performed better than expected, leading to revenues of $4.7 million. About half of those sales came in the United States when Given had a group purchasing agreement with Premier Inc., a major healthcare purchasing organization. Sales were so strong that Given expanded its arrangement with Pemstar Inc. a Rochester, Minnesota-based company that manufactured the capsule for Given. A back-up semiautomatic production line was added in Ireland by Pemstar, capable of being ramped up with two months notice. Given also opened a new 18,000-square-foot plant in Israel to serve as its first semiautomatic production line, capable of turning out 10,000 capsules a month.

In the first full year of selling the PillCam system, Given recorded sales of $28.9 million in 2002, helped by an increasing number of public and private insurers electing to reimburse for capsule endoscopy procedures. Of particular importance was Medicare and Medicaid establishing a physician reimbursement schedule for use of the device. The company had offices in Paris, Hamburg, and Sydney, and in 2002 a joint venture was forged in Japan, the world's second largest gastrointestinal diagnostics market, with Marubeni Corporation, a major trading company, and Suzuken Co., Ltd., Japan's largest pharmaceuticals distributor. Given also fleshed out its product line in 2002, adding an Internet-based capsule reorder system, a new version of the RAPID software with Suspected Bleeding Indicator, and Multiview and Localization features.

Sales continued to grow at a strong pace in 2003, aided in large measure by an expansion of the device's FDA approval. No longer was PillCam designated as an "adjunctive tool." It could be marketed as a first-line tool in the diagnosis of small bowel disorders. Moreover, it could now be used on pediatric patients, ranging in age from 10 to 18. Additional insurance carriers also accepted the technology, many of them influenced by the positive results of a 100-patient study released that year. As a result, Given increased revenues to more than $40.5 million and cut its net loss almost in half.

SECOND FDA APPROVAL: 2004

In 2004 the installed base of the Given Diagnostic System grew to 2,290, leading to further improvements in the recurring sales of the PillCam capsules. The company posted sales of $65 million for the year and turned its first profit, $1.4 million. Also of significance, in November 2004 Given gained FDA clearance for a second product, PillCam ESO, for visualizing esophageal mucosa. Now doctors could use the Given System to evaluate diseases of the esophagus, including reflux disease, a pre-cancerous condition called Barrett's esophagus, and esophageal varices caused by portal hypertension. Hence, the need for more of the disposable capsules would be increased, leading to even greater sales in the years to come. This conclusion was not lost on investors, either. In 2004, Given was able to make a secondary stock offering, raising $44.3 million and giving the company more than $80 million in cash and no debt.

Sales increased to $86.8 million in 2005 while Given realized a net profit of $6.3 million. With the future bright for the company that he helped to found, Meron elected in 2006 to resign to pursue other interests. In a statement, he indicated, "The infrastructure is in place to take Given to the next phase." Shortly before his resignation, Meron had been replaced as CEO by Nachum Shamir, a former executive at Eastman Kodak Company. It was unlikely that Given would attempt to make the PillCam any smaller. Rather, it would try to add more capabilities, such as increasing the amount of light the device could emit, especially important for use in the colon. In this way the camera pill would be able to diagnose the entire length of the gastrointestinal tract: the esophagus, stomach, and the colon. It was also possible that the capsule would evolve into a multipurpose device, capable of repairing the damage it observed.

Ed Dinger