InSightec, a pioneer in the use of image-guided treatment, announced this week the signing of preliminary contracts with two medical centers for the establishment of dedicated research centers for the non-invasive treatment of tumors. The institutes are to be established at the Sheba Medical Center in Tel Hashomer, Tel Aviv and Brigham Women's Hospital in Boston, and will treat tumors with the high-intensity focused ultrasound technology developed by InSightec.

The agreements essentially mark the beginning of InSightec's commercial operations, and embrace both of its business models. InSightec will receive payment from Sheba Hospital for each treatment to be carried out with the new system, while Brigham Women's Hospital will purchase the entire system outright. The payments are conditional upon the approval of the United States' Food and Drug Administration (FDA). The company estimates this approval will be received by the end of 2002.

The purchase cost of the InSightec system, which can be used in tandem with a General Electric Magnetic Resonance Imaging (MRI) device, is estimated at between $1 million and $1.5 million. Based on the second business model, InSightec will install the system at its own expense at the hospital, and charge about NIS 10,000 per treatment. Each treatment takes three hours, with plans calling for approximately five treatments per day, or about 1,000 per year. Based on this second business model, InSightec's annual revenues have the potential to reach NIS 10 million.

Brigham Women's Hospital is one of America's leading medical centers in the field of gynecology, and has pioneered use of image-guided treatment techniques for various clinical procedures, including the treatment of brain tumors. It serves as a teaching hospital for Harvard University Medical School. Establishment of the unique treatment centers is the product of extensive scientific and research collaboration between InSightec and 10 leading medical centers in the United States, Europe and Israel, including Sheba Hospital at Tel Hashomer.

About $40 million has been invested to date in InSightec. The latest capitalization round, in December 2001, was held according to a company value of $85 million (after the money). Elbit Imaging, which holds approximately 61 percent in InSightec, has invested $25 million; General Electric invested $11 million in exchange for 17 percent of shares; and an additional $4 million was added by the chief scientist of the Industry and Trade Ministry.

Company CEO Kobi Vortman says InSightec needs another $30 million until the cash flow can be tapped for the funding of continued R&D. He said Elbit Imaging is not committed to invest additional capital in InSightec, which means Vortman now faces several capitalization options, including raising the money from his existing shareholders, new investors, or through bank loans. The next capitalization round - of about $10 million - will be held by the end of 2002, apparently according to a company value of $100 million (before the money).

InSightec technology has been implemented so far - in research settings - in the treatment of uterine fibroids and fibroadenomas (the most common benign solid growths, usually found in the breast). The technology is expected to be implemented for treatment of breast cancers, and at a later stage, for the treatment of brain tumors. The system is now in its final stages of approval by the FDA as well as various other licensing authorities in Europe and Israel. It should begin commercial use in 2003, but the establishment of the two research centers actually spells the start of business activity.

The technology involves a focused beam of sound waves that penetrates the skin, with full control and supervision offered by the General Electric MRI device. It is projected that the treatment being developed by InSightec can in some instances replace the need for hysterectomies or removal of fibroadenomas.

Vortman said the idea of completely non-invasive treatment, with a real-time guiding and tracking capacity, will someday make it possible to replace some common operations with treatment that does not require surgery and hospitalization. He claims once insurance companies and health maintenance organizations realize the treatment has proved itself and reduces hospital stays and recovery periods, they will be interested in funding it.

In Vortman's estimation, the company will sign contracts totaling $10 million or so during the first year after its approval by the health authorities, with more accelerated growth in ensuing years, of tens of millions of dollars annually. Vortman says the systems are manufactured at Elscint's factory in Ma'alot, which also manufactures components for General Electric CT and MRI devices. The factory is definitely able to step up the pace of production if and when the need arises, he says.

Director of the general hospital at the Sheba Medical Center, Dr. Ze'ev Rothstein, said the establishment of the research center in collaboration with InSightec places the hospital at the technological and clinical forefront, together with other leading medical centers around the world. In the course of the research, which extended over a year or so, about 40 women underwent treatment at Tel Hashomer. Some of them had been diagnosed with benign uterine tumors. Rothstein termed the results highly encouraging, saying they show it will be possible to adopt the innovative treatment as an alternative to removal of tumors or hysterectomies, as is current practice.

Chairman of Elbit Imaging and chairman of InSightec, Motti Zisser, said the two agreements demonstrate recognition of the importance and need for the technology developed by InSightec. He said the crowning achievement of the technology would be its clinical application in brain surgery.