Floated in late September on Nasdaq's Global Select Market at a value of $300 million, Enzymotec is an Israeli biomed success story with operations extending to the jungles of Brazil and the ice floes of the Arctic Circle.
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But the story starts at company headquarters - in the Sagi 2000 industrial zone, outside Migdal Ha’emek, in the Jezreel Valley - and 45 kilometers to the southwest, in Kibbutz Ma’anit, near Pardes Hannah.
The big winners from the initial public offering are the 180 kibbutz members, who collectively own 31% of Enzymotec. Each now has shares in the company that are now worth about NIS 2.5 million.
One afternoon we asked parents buying Popsicles with their children at the kibbutz store to weigh in on the amazing exit, and were surprised to discover that many weren't even aware of it.
“I don’t know,” one woman says, “I didn’t hear anything.” A man asks, “How many millions did they make?, adding, ”They’re all retirees already, anyway.” A second woman declares, “This kibbutz is so loaded with money anyhow, it makes no difference.”
The IPO doesn't affect most of Ma'anit's 700 residents, only 180 of whom are members. The rest just rent homes on the kibbutz, which has been financially strong for many years and isn’t keen on admitting new members who will claim their share.
Eventually we found a young woman who belongs to the kibbutz. “Should I tell you we woke up millionaires?” she asks, adding, “It’s not true. We know it’s only on paper and that’s good. Ma’anit is in good shape regardless. Still, it was a tremendous achievement and we celebrated until the middle of the night.”
As in many kibbutzim, success or failure hinges on the fortunes of a single individual. For Ma’anit, the individual is Yossi Peled, CEO of Galam Group, the kibbutz-owned holding company through which it invested in Enzymotec.
“This is a great achievement for Yossi,” the kibbutznik says. “For the kibbutz, putting $25 million in a startup is a very big risk. But Yossi had vision. He insisted on making the investment and worked to convince people. I’m happy he got the go-ahead.”
Asked whether there are plans to sell off the shares, Peled notes that about 70% of Galam shares are held by kibbutz members. “Once we were informed about the IPO I sent a letter to members explaining that it would take time until we see the money. Our holdings in Enzymotec are currently worth $120 million. I am going to propose to members that every year they sell several percent of the company and profit from its rising value.”
Enzymotec was founded in 1998 by scientist Sobhi Basheer, a serial entrepreneur and proud Muslim Arab from the Galilean town of Sakhnin. Galam began investing in the company two years later. Ariel Katz, a mathematician with a gruff manner more befitting a farmer who has been the company's president and CEO since signing on, in 2001.
The company's ingredients are sold throughout the world for use in food additives and nutritional supplements.
Even in Israel, the company is distant from the financial and business center in Tel Aviv, Nevertheless, its business was intriguing enough to draw executives from the likes of Bank of America and Jefferies Investment Banking to northern Israel.
Ahead of the IPO, the company played host to some 20 underwriters, lawyers and investment bankers as well as 15 equity analysts. They came to gain an understanding of the company’s operations, a difficult task given that Enzymotec’s unique technology is extremely complex.
Lipids, or fats, are one of the five basic building blocks of the human body, along with proteins, sugars, vitamins and minerals. The average person has 60,000 different fatty molecules, and 60% of the dry material making up the brain is composed of lipids. The central nervous system, cell membranes and the fats in our bodies are all composed of lipids.
Enzymotec’s food additives are based on these lipids. “Our advantage is that research on lipids in this field is still limited,” says Katz.
How many companies in the world specialize in lipids?
“Not counting companies producing Omega 3, which is one specific area of lipids, fewer than 10, and to the best of my knowledge none has our entire basket of technologies. We have competitors in certain segments but none has the entire package. We are the only company in the world dealing with the U.S. Food and Drug Administration in the morning over the licensing process for our products and in the evening with the fishing boats we operate in Antarctica.”
What are you looking for in Antarctica?
“One of our company’s principles is that we don’t create new organic entities. We deal only with molecules that are already in the food chain or the body. This is part of our uniqueness. No company in the field of pharma set itself a rule of dealing strictly with molecules familiar to the human body. We therefore need to use natural raw materials in our production process, and we procure them from every possible source - fish, vegetation - in soybeans - or fats from cow’s milk.
“But it’s not as simple as it sounds. For instance, in the case of vegetation it is important if we’re after a year of rain or drought. Where we bring the product from is very significant. The soybeans, for example, we bring from Brazil since only there are we assured that the crops aren’t genetically engineered.
“Likewise, we know exactly where to go fishing for the materials we need. The role of Omega 3 in nature is to prevent freezing, so the richest sources are found in the coldest and deepest waters. The quantity in fish from the Mediterranean Sea is negligible.”
I assume the lipids you need are abundant in seals.
“Everything is heavily supervised,” Katz insists. “We don’t touch seals. We have strict rules over what’s allowed and what’s forbidden.”
In for the long haul
“What’s special about us is that we’re industrialists,” says Katz. “We didn’t come to generate exits but raised money to build another plant. It’s true we depend on technology and 60% of our workforce has advanced degrees, but we are still an industrial company.”
Have you had takeover offers?
“There’s been talk since the beginning, but we didn’t build a business to have it sold but to make money from what we produce. We won’t compromise about someone giving us a large check and sending us home.”
Why is it so important to say you’re industrialists? What’s wrong with being a biotech startup?
“Industrialists invest in the long term and that’s what we do. We aren’t creating something that didn’t exist beforehand to try to sell it.”
Why do you think you were granted a $300 million value on Nasdaq?
“Beyond the technological uniqueness, I actually think the cultural level is more important. There’s a story that the late businessman Aharon Dovrat was once asked: ‘What is needed to build successful startups?’ and he replied: ‘Bring three things: money, managers, and technology. If one must be left out then leave out technology.’ We have unique technologies and we alone in the world in many fields, but only when the right organizational culture meets up with the technology does the right thing come about.”
Are you careful about hiring different populations? Northern residents? Arab Israelis?
“We don’t pay attention to it, but circumstances have led to 50% of our managerial staff being women even if we never chose anyone for a job based on gender. We have employees who are new immigrants, veteran immigrants and many sabras – Arabs and Jews alike. We reflect the population of Israel. I have never checked the distribution of workers because that’s something I don’t look at, but I presume 20% of the employees here are Arab Israelis, and most of our workers live in the area.”
Enzymotec still has much to prove. Last year’s results, on which the share offering was based, were the first to ever show a profit. The $350 million value at which its shares are now trading isn’t based on its $5 million in net profit but on the fact that the company has been growing 40% a year for the past three years. Investors have strong expectations but the next few years will attest to whether its organizational culture and technology are really special enough to turn it into a continuing success.