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Article by DailyStocks_admin    (03-24-08 08:39 AM)

Omrix Biopharmaceuticals Inc. CEO Robert Taub bought 80,000 shares on 3-20-2008 at 12.24

BUSINESS OVERVIEW

Overview
We are a fully integrated biopharmaceutical company that develops and markets innovative biological products. We utilize our proprietary protein purification technology and manufacturing know-how to develop biosurgical and passive immunotherapy products derived from human plasma. Our biosurgical product line includes products and product candidates that are used or are intended to be used for hemostasis and other surgical applications. Our passive immunotherapy product line includes antibody-rich products and product candidates for the treatment of immune deficiencies and infectious diseases, including potential biodefense applications. In each of our product lines, we are developing novel and easy-to-use products that address unmet market needs.
Our core competency is applying our proprietary protein purification technology and our manufacturing know-how to develop, license and commercialize biosurgical and passive immunotherapy protein-based products. We employ our technology on a commercial scale to either isolate proteins of interest or remove unwanted proteins from raw materials such as human plasma or plasma fractions. Our biosurgical and passive immunotherapy products and product candidates are plasma-based products either enriched for, or depleted of, selected proteins.
Biosurgical products and product candidates
Our current biosurgical products are a fibrin sealant used as an adjunct to hemostasis in surgical procedures, marketed as Evicel in the U.S. and as Quixil outside of the U.S., and Evithrom, our thrombin stand-alone product.
Evicel is sold in the U.S. and Quixil is sold in the EU and several other European countries under a distribution and supply agreement we have with Ethicon, a Johnson & Johnson Company. We sell Quixil in several other countries directly or through local distributors.
In January 2008, we were granted marketing approval from the Food and Drug Administration, or FDA, for Evicel as an adjunct to hemostasis for general surgical use. In addition, we are seeking to obtain approval for Evicel as an adjunct to hemostasis for general surgical use in the EU. Evicel is the only fibrin sealant in the U.S. with such a broad indication.
Evithrom, our thrombin stand-alone product, was developed with Ethicon for general surgical use, primarily for use in neurosurgery. Evithrom is a product extension of our fibrin sealant. In August 2007, the FDA approved our Biologics Licensing Application, or BLA, to market Evithrom with a general hemostasis in surgery indication.
For the years ended December 31, 2006 and 2007, we recognized $13.4 million and $19.3 million, respectively, in revenues from our direct commercial sales and sales to Ethicon and our other distributors of Evicel, Quixil and Evithrom, including revenues recognized from upfront fees and milestone payments.
We are also developing the following biosurgical product candidates:
• a Fibrin Patch, comprised of our Evicel components and thrombin embedded in a biodegradable device, designed for the management and rapid control of bleeding, including mild, moderate and severe bleeding, and for use on active bleeding sites in trauma and surgical patients; and

• Adhexil, an adhesion prevention product, delivered in a kit containing a human, fibrin-based, absorbable, adhesion barrier.

In addition, we have entered into agreements with third parties, including Aeris Therepeutics, Inc., to collaborate in the development of product candidates with potential applications in site-specific treatment of tissue and tissue regeneration and lung volume reduction. Further, we intend to develop new biosurgery products based on our fibrin sealant technology outside of the field of hemostasis indication and our relationship with Ethicon. Our anti-adhesion product candidate, as well as products under development with other companies, are part of this strategy.
Passive immunotherapy products and product candidates
We market and supply passive immunotherapy products in selected geographic markets. These products provide passive immunity to patients who lack the ability to generate an effective level of antibodies on their own. Our passive immunotherapy products and product candidates include:
• IVIG, which is primarily used for the treatment of patients with immune deficiencies. IVIG is currently primarily marketed in Israel and a Phase 3 clinical trial has commenced in the U.S.;

• VIG, which is used for the treatment of small pox vaccine-related complications and supplied under government contracts;

• HT-VIG, which is a more concentrated form of VIG for the treatment of smallpox vaccine-related complications and side effects and the prevention of the side effects of vaccination against smallpox;

• HBIG, which is marketed in Israel for the prevention of re-infection of transplanted livers in patients with Hepatitis B, or HBV. In May 2007, we submitted a regulatory filing to the health authorities in Sweden for the approval to sell HBIG in that country;

• Seasonal Influenza, which we are developing for the prevention and treatment of Influenza complications in high risk patients; and

• Avian Influenza IG, which is being developed under a Cooperative Research and Development Agreement, or CRADA, with the NIH.
For the years ended December 31, 2006 and 2007, we recognized $43.3 million and $32.6 million, respectively, in revenues from commercial sales of passive immunotherapy products. VIG sales are non-recurring since, as with most bio-defense products, they are dependent on government contracts. It is therefore difficult to predict if and when a VIG contract will be awarded and the size of such contracts.
Our Protein Purification Technology
Our proprietary protein purification technology includes both chemical and physical processes designed to purify proteins from human plasma or plasma fractions while maintaining their natural structure to preserve their full range of biological activities. This technology is used to manufacture our biosurgical and passive immunotherapy products and product candidates. We can employ this technology on a commercial scale to either isolate proteins of interest or remove unwanted proteins from raw materials such as human plasma or plasma fractions. Both the remaining plasma fractions and the proteins we selectively remove can be used in our products and product candidates. We utilize a multi-step biochemical separation process, which includes binding a synthetic chemical to the protein that is to be separated from the plasma, separating the complex from the plasma and then disbanding the protein from that chemical. This process takes place under highly controlled temperature, pH and manufacturing flow levels, which vary for each of the proteins that we select.

We use our purification technology to produce our fibrin sealants. Our Biologically Active Components, BAC (in the case of Quixil) and BAC II (in the case of Evicel) contain naturally occurring clotting-related proteins, including fibrinogen, Factor XIII, Factor VIII, fibronectin and Von Willebrand factor antigen, which we believe play a role in an efficient clotting and healing process. This suite of proteins is not present in other fibrin sealant products because competitors use purified fibrinogen. Moreover, our manufacturing process allows certain proteins to interact before filling into vials, rather than at the later stage of application to the wound when the components are mixed. We believe that this interaction in BAC and BAC II lead to clots forming more effectively when thrombin is added to BAC or BAC II than when thrombin is added to purified fibrinogen. Further, we believe that the resulting clots have greater elasticity and adherence to tissue.
We seek to adapt our purification process to expand the market opportunities for our products. For example, many currently marketed liquid fibrin sealants, including Quixil, contain a stabilizing agent to prevent proteases present in plasma from dissolving the clot. The presence of a stabilizing agent has prevented these fibrin sealants from being used in neurosurgery. We designed a process to remove these proteases from our second generation BAC, so that BAC II, incorporated in Evicel, does not require a stabilizing agent.
In addition, the manufacturing process for our biosurgical and passive immunotherapy products uses multiple steps designed to remove and inactivate pathogenic viruses that may be found in human plasma. We purchase plasma and plasma fractions from U.S. licensed collection centers and companies and Magen David Adom in Israel, which collect plasma from screened donors or manufacture fractions from such plasma. It is, however, possible that viruses could be present in the plasma we use to produce our products. To address this safety issue, the components of our products and product candidates undergo two separate and distinct rigorous viral inactivation process, one of which is known as solvent detergent, or SD, inactivation. SD inactivation destroys major blood-borne viruses such as HIV, HBV and hepatitis C. This step is followed by either pasteurization, in the case of BAC, or a proprietary nano-filtration process, in the case of thrombin, and all of our passive immunotherapy products, to disable or remove viruses. We believe this multi-step process provides a high margin of safety for our products and product candidates.
Our Products
We utilize our proprietary protein purification technology and manufacturing know-how to develop biosurgical and passive immunotherapy products derived from human plasma. Our biosurgical product line includes products and product candidates used or intended to be used for hemostasis and other surgical applications. Our passive immunotherapy product line includes antibody-rich products and product candidates for the treatment of immune deficiencies and infectious diseases, including potential biodefense applications. In each of our product lines, we are developing novel and easy-to-use products that address unmet market needs.
Biosurgical products and product candidates
Our currently marketed biosurgical products are Evicel and Quixil, which are used as adjuncts to hemostasis in surgical procedures, and Evithrom, our thrombin stand-alone product. Evicel and Evithrom are sold in the U.S., and Quixil is sold in the EU and several other European countries under a distribution and supply agreement we have with Ethicon, and in several other countries directly by us or through local distributors. We are developing, in collaboration with Ethicon, several other biosurgical product candidates.

Our fibrin sealant products
Our fibrin sealant products and product candidates are used for hemostasis, or as an adjunct to hemostasis, in surgical procedures.
Quixil contains a stabilizing agent, which resulted in Quixil being contraindicated for neurosurgery. Our second generation fibrin sealant, Evicel, is approved for marketing in the U.S. for an indication in general surgery. Evicel incorporates our second generation BAC, or BAC II, and as a result, does not require a stabilizing agent. Evicel, therefore, unlike Quixil, is not contraindicated for neurosurgery. Currently, Ethicon markets Evicel in the U.S. and it continues to market Quixil outside of the U.S. We market Quixil directly in Israel and through a local distributor in Mexico.

We believe that Evicel and Quixil have several competitive advantages over other liquid fibrin sealants on the market:
• Ease-of-use. Fibrin sealants are used in time-critical situations and therefore must be easy to use and readily available for spraying and dripping. Evicel and Quixil are sold as a frozen liquid and require less than one minute preparation time in the operating room after thawing. In addition, Evicel and Quixil are transparent, making it easy for the surgeon to see the underlying surface after the sealant has been applied to determine whether hemostasis has been achieved.

• Efficacy. The naturally occurring suite of proteins in BAC in Evicel and Quixil results in a clot that has good adherence to tissue and good elasticity.

• Safety. Evicel and Quixil are the first, and currently the only, commercially available liquid fibrin sealant products that do not contain animal-derived components, thereby avoiding the possibility of an adverse reaction associated with exposure to bovine proteins contained in other commercially available fibrin sealants.

• Economy. Evicel and Quixil can be refrigerated in liquid form for up to 30 days after thawing. They come in one, two or five milliliter vials. In addition, these products in unopened vials are stable at room temperature for up to 24 hours. Evicel and Quixil can also be kept frozen for up to two years. This design and packaging allow for tailored application without waste of unused product.
Evicel
Evicel is marketed in the U.S. by Ethicon as an adjunct to hemostasis during general surgery. In addition, we are seeking to obtain approval for Evicel as an adjunct to hemostasis for general surgical use in the EU.
Quixil
Quixil is our fibrin sealant product used for hemostasis, or as an adjunct to hemostasis, in surgical procedures and is marketed outside of the U.S. by Ethicon. Ethicon markets Quixil in the EU and Brazil as an adjunct to hemostasis for general surgical use. In addition, we have been marketing Quixil directly in Israel since 1998 as an adjunct to hemostasis in liver surgery and through local distributors in Mexico since 2000 as an adjunct to hemostasis for general surgical use. In November 2005, we received the last of a number of approvals for Quixil as an adjunct to hemostasis for general surgical use, and regulatory licenses have been issued for this indication by Germany, the United Kingdom, France, Italy, Ireland, Finland, Iceland, Norway, Germany, Sweden, Belgium, Luxembourg, Denmark, Switzerland, Netherlands, Argentina, Israel, Mexico, Portugal, Philippines, Singapore, Brazil and Canada. Quixil is contraindicated for neurosurgery.
Fibrin Patch
We are developing, in collaboration with Ethicon, a novel Fibrin Patch that builds on our Evicel technology. This Fibrin Patch product candidate is designed for the management and rapid control of bleeding, including mild, moderate and severe bleeding, and for use on active bleeding sites. This next generation biosurgical product combines medical device components with biological components.
Severe bleeding is a serious concern in surgical patients. This type of bleeding is difficult to control and is characterized by fast flow and high pressure. There is no surgical sealant currently marketed to induce the rapid formation of a clot at a severe bleeding site because the volume and pressure of the bleeding in these situations displaces the clot formed with traditional sealants.
Our Fibrin Patch product candidate is comprised of our BAC II and thrombin embedded in a biodegradable device. The Fibrin Patch product candidate is designed to combine the functions of mechanical sealing and hemostasis by providing a biodegradable device on which a clot can form and be maintained to stop the bleeding without any other action.

In October 2007, we announced the results of our Phase 1 clinical trial with our Fibrin Patch as an adjunct to hemostasis in 10 patients in Israel. In November 2007, we submitted an IND to commence a pivotal study in the U.S. for mild, moderate and severe bleeding. We have received approval from the FDA and will commence a Phase 2 clinical study for mild and moderate bleeding in the second quarter of 2008. We have not yet received approval for and are continuing discussions with the FDA in response to their comments regarding severe bleeding. We believe that we will reach an agreement with the FDA regarding the proposed study for severe bleeding, however, as with any request to commence a clinical study, there can be no assurance that we will receive the required regulatory approvals.
Evithrom
Evithrom, our thrombin stand-alone product, is marketed by Ethicon for general surgical use, primarily for use in neurosurgery. Consistent with our strategy of developing product extension candidates to address market demand, Evithrom is a product extension of our fibrin sealant. It is intended for cases, such as certain types of neurosurgery, where the physician desires a more gradual onset of clotting than that provided by standard fibrin sealants. Evithrom is a liquid that is poured directly on the site or on to a gelatin-based device. Other currently available thrombin stand-alone products use bovine or recombinant thrombin. Evithrom, which is derived from human plasma, is designed to provide effective hemostasis without the risk of adverse reactions associated with bovine thrombin. In August 2007, the FDA approved our BLA to market Evithrom with a general hemostasis in surgery indication.
Non-Hemostasis Products
We seek to expand the commercial application of our protein purification technology and our manufacturing know-how for fibrin sealants by developing our own as well as supporting the development of selected company’s products that incorporate or facilitate the use of fibrin sealant. Products that are currently under development include products for the site-specific treatment of tissue, tissue regeneration and anti-adhesion. The focus of these primarily non-hemostasis product candidates is the development of products that combine our fibrin sealant with other components and that are designed to be introduced through minimally invasive procedures.
Passive immunotherapy products and product candidates
We produce and sell three passive immunotherapy products. We supply VIG under government contracts for the treatment of smallpox vaccine-related complications. We primarily market IVIG in Israel primarily for the treatment of patients with immune deficiency. We also market HBIG for the prevention of re-infection of transplanted livers with HBV (Hepatitis B Virus). In addition, we are developing several other passive immunotherapy product candidates.

VIG
VIG is a product that contains antibodies specific to vaccinia. It is designed to treat smallpox vaccine-related complications. These complications may range from localized adverse reactions to inflammation of the brain.
We supply VIG to government organizations. To date, we have sold VIG to several governments, including to the United Kingdom Department of Health under a contract we were awarded by the United Kingdom in December 2005. VIG sales are non-recurring since, as with all bio-defense products, they are dependent on government contracts. It is therefore difficult to predict if and when a VIG contract will be awarded and the size of such contract.
HT-VIG
HT-VIG is a more concentrated form of VIG and can be used in smaller volumes for the same indication, and we believe it can also be used for the treatment of side effects and the prevention of the side effects of vaccination against smallpox. VIG must be dispensed intravenously due to the large volume of VIG that is required for effective treatment. As a result, it must be administered in a clinic only by specialized personnel and can take up to an hour. In addition to intravenous administration, the smaller volume of HT-VIG that we believe is needed for effective treatment, can be administered in a single injection intramuscularly, allowing non-specialized medical personnel to treat more patients in urgent situations.
We produce HT-VIG using our proprietary HT technology. In 2006, we tested our HT-VIG in animals to confirm the comparability and efficacy of HT-VIG to our VIG. Although we will not perform human clinical trials for HT-VIG, we intend to make certain regulatory filings with the FDA in the event that governments request additional tests in connection with their bid requests.
IVIG
IVIG is a product that contains the spectrum of antibodies normally present in healthy adult human plasma. It is primarily used to provide ongoing treatment for primary immune deficiencies by providing a broad selection of antibodies that mimic a healthy immune system.
We primarily market IVIG in Israel for immune deficiency indications. For the years ended December 31, 2006 and 2007, we recognized $18.8 million and $29.4 million in revenues, respectively, from sales of IVIG. Under our agreement with FFF, in August 2006, FFF began a multi-center Phase 3 trial with IVIG for treatment of immune deficiency in 50 patients in the U.S.
HBIG
HBIG is a product that contains antibodies specific to HBV. HBV can cause lifelong infection, scarring of the liver, liver cancer, liver failure and death. Many patients with chronic HBV infection require a liver transplant. Because HBV can reside in tissue other than the liver, there is a high risk that the liver of these transplant patients will be re-infected with HBV, which can destroy the transplanted liver. To prevent re-infection, these patients require lifelong treatment for HBV. HBIG is one of the treatments used to prevent re-infection of the transplanted liver.
We market HBIG for the prevention of re-infection of transplanted livers with HBV. For the years ended December 31, 2006 and 2007, we recognized $3.2 million and $3.2 million in revenues, respectively, from sales of HBIG. In 2007, we filed with the health authorities in Sweden for the approval to sell HBIG in that country.
Avian Influenza
In October 2006, we signed a Cooperative Research and Development Agreement, or CRADA, with the NIAID, part of the NIH, whereby the parties will perform collaborative research to develop new antibody-based therapeutics for the treatment of avian influenza. The collaborative research will combine the NIAID’s scientific and clinical expertise in influenza and vaccines with our proprietary manufacturing and expertise in development of antibody-based therapeutics.
Research and Development
We conduct research and development in our biosurgical product line, focusing on developing products with characteristics that satisfy surgeons’ unmet needs. In our passive immunotherapy product line, we are directing our efforts to developing products that address immune deficiencies and existing and emerging infectious diseases, including potential bioterrorism threats. We have 38 employees directly involved in research and development in Israel.
Our research and development activities and the clinical trials for our product candidates are funded by operations as well as financial support from our collaborators, which include commercial and government entities. Our research and development, clinical and regulatory expenses together with the cost incurred in connection with funded research and development were $6.8 million, $8.5 million and $10.4 million for the years ended December 31, 2005, 2006 and 2007, respectively.
As of December 31, 2007, we had received a grant from the NIH in connection with the development of our HT-VIG product candidates. Generally we have the right to patent any technologies developed from government grants, subject to the U.S. government’s right to receive a royalty-free license for federal government use and to require licensing to others in certain circumstances.
Sales and Marketing
Evicel is currently marketed and distributed in the U.S. and Quixil is currently marketed and distributed in the EU and certain other European countries through Ethicon, our exclusive distributor in those territories. In addition, Quixil is currently directly marketed by us in Israel and through a local distributor in Mexico. Other products being developed under the development agreement with Ethicon, such as the Fibrin Patch, will also be exclusively distributed by Ethicon in those territories for their respective indications. In addition, we intend to expand our sales and marketing efforts in the Far East. Further, we plan to collaborate with Ethicon to promote the usage and acceptance of our fibrin sealants.
We market our immunotherapy products directly or through local distributors, depending on the country.

CEO BACKGROUND

Fredric D. Price has served as chairman of our Board since January 2005. He has been the chairman of the board of Glycadia Pharmaceuticals since January 2007, a member of the board of directors of Enobia Pharma since May 2006, and a member of the board of directors of Pharmasset since March 2007. From October 2000 to August 2004, he was chairman of the board of directors and chief executive officer of BioMarin Pharmaceutical Inc. From 1994 to 2000, he was president, chief executive officer and director of Applied Microbiology, a biotechnology and nutrition company. His prior experience includes having been vice president of finance and administration and chief financial officer of Regeneron Pharmaceuticals, Inc., a founder of the strategy consulting firm RxFDP, and a vice president of Pfizer Pharmaceuticals with both line and staff responsibilities. Mr. Price is a co-inventor of 12 issued U.S. patents and one U.S. patent application. He received a B.A. from Dartmouth College and an M.B.A. from the Wharton School of the University of Pennsylvania.

Robert Taub has served as our president, chief executive officer and a member of our Board since the founding of Omrix in 1995. Prior to establishing Omrix, Mr. Taub was the co-founder of Octapharma A.G., a Swiss plasma fractionation and pharmaceutical company, which successfully introduced innovative plasma derivative products to the market. During his time at Octapharma, from 1983 to 1995, the company underwent a successful transformation from a start-up operation to an integrated manufacturing enterprise. He also founded a research and development group in Israel and initiated and directed the management of a biological fibrin sealant development project. Prior to Octapharma, Mr. Taub held various general management and sales and marketing positions with Armour Pharmaceutical, Revlon Health Care Group, Baxter Travenol Laboratories, Inc., now Baxter International Inc., and Monsanto Company. He has a B.A. in languages from the University of Antwerp and an M.B.A. from INSEAD (the European Institute of Business Administration) in Fontainebleau, France.

Larry Ellberger has served as a member of our Board since August 2006. Mr. Ellberger is a founding partner of HVA, Inc., a healthcare products consulting firm. From October 2005 to May 2006, he was the interim chief executive officer of PDI, Inc., a provider of sales and marketing services to the pharmaceutical industry. Previously, he was a director of PDI and chair of the audit committee. From May 2000 to July 2003, Mr. Ellberger was a director and senior vice president, corporate development of Powderject PLC, a U.K. vaccine company. From 1995 to 1999, he was with W.R.Grace & Co., serving as chief financial officer and senior vice president, strategic planning and development, and acting chief executive officer. Previously, Mr. Ellberger worked for American Cyanamid for 19 years, a diversified life sciences company, where he was vice president, corporate planning and development. He is a board member of Avant Immunotherapeutics, Inc. and Transpharma Medical Ltd.

Bernard Horowitz, Ph.D. has served as a member of our Board since February 2006. Since January 2000, he has been a principal of Horowitz Consultants, LLC, a company providing assistance in strategic planning, process development, viral safety, clinical trial design and new product regulatory compliance. From 1995 to 1999, Dr. Horowitz served as chief scientific officer, executive vice president and director of V.I. Technologies, Inc., now Panacos Pharmaceuticals, Inc., a now publicly held company he helped found as a spin-out from the New York Blood Center. Dr. Horowitz has served as a scientific consultant to the National Institutes of Health, the Food and Drug Administration, the National Hemophilia Foundation, the International Association of Biological Standardization, and the World Health Organization. Dr. Horowitz is a co-inventor of over 25 issued U.S. patents. Dr. Horowitz received his B.S. in biology from the University of Chicago and his Ph.D. in biochemistry from Cornell University Medical College. He is a director of Protein Therapeutics, Inc.

Kevin Rakin has served as a member of our Board since January 2007. Mr. Rakin has been an executive-in-residence at Canaan Partners since January 2006. Since February 2007, Mr. Rakin has been chairman and chief executive officer of Advanced BioHealing, Inc., a Canaan portfolio company, and from January 2006 to February 2007 he had served as interim chief executive officer. Mr. Rakin co-founded Genaissance Pharmaceuticals, Inc. and served as its president and chief executive officer from August 2002 until its merger with Clinical Data, Inc., in October 2005. He also served as Genaissance’s president and chief financial officer from October 2000 to August 2002 and prior to that as its executive vice president & chief financial officer. From 1990 to December 1997, Mr. Rakin served as a principal at the Stevenson Group, a consulting firm, where he provided financial and strategic planning services to high-growth technology companies and venture capital firms. From 1982 to 1990, Mr. Rakin was a manager with the entrepreneurial services group of Ernst & Young LLP. Mr. Rakin holds a B.S. in business and a M.S. in finance from the University of Cape Town and a M.B.A. from Columbia University. He is a director of Clinical Data, Inc. and Vion Pharmaceuticals, Inc.

Philippe Romagnoli has served as a member of our Board since January 2007. From April 2004 to January 2007, he had been our vice president and secretary and from September 2002 to April 2004, he was our interim chief financial officer and a member of our board of directors. Prior to joining Omrix, from 1998 to 2002, he was the chairman of the board of Artesia Bank and from 1992 until 1998, the chief executive officer of Banque Paribas Belgium. Mr. Romagnoli holds an engineering degree with a specialty in physics from the University of Liège Belgium.

Steven St. Peter, M.D. has served as a member of our Board since February 2004. He joined MPM Capital L.P. as a principal in 2004 and became a general partner in 2005. Prior to joining MPM, from 2001 to 2003, he was a principal at Apax Partners and from 1999 to 2001, he was a senior associate at The Carlyle Group. His investment scope has included both venture and buyout transactions across the medical technology and biopharmaceutical industries. Dr. St. Peter is board certified in internal medicine and was previously an assistant clinical professor of Medicine at Columbia University. He completed his Doctor of Medicine at Washington University. Prior to his medical training, he was an investment banker at Merrill Lynch. He also holds an M.B.A. from the Wharton School of the University of Pennsylvania and a B.A. in Chemistry from the University of Kansas. He is a director of Helicos BioSciences Corporation, PharmAthene, Inc. and Xanodyne Pharmaceuticals Inc.

COMPENSATION

Base Salary

Executive officer base salaries are set at the discretion of the Committee based on job responsibilities and individual contributions and are further evaluated with reference to the base salary levels of executives in competitor companies. Base salaries for individual executive officers are evaluated against those of competitor companies in the biotechnology industry by reference to an industry compensation survey conducted by an independent consulting firm. In general, we target base salaries for our executive officers, including our CEO, at the 50 th percentile of base salaries paid by the biotechnology survey group. The biotechnology survey group consists of 534 companies whose businesses and executive positions are comparable to those of Omrix.

In April, 2006, we set our CEO’s base salary at $400,000 (an increase of $50,000, or 14.3%, from $350,000) without yet having the results of the 2006 biotechnology industry compensation survey. This new base salary level was based on the successful initial public offering (the “IPO”) that we had just completed, Mr. Taub’s contribution to that success (both running the business and contributing to the IPO) and recognition of the increased responsibility associated with the position of chief executive officer of a public company.

2007 Action — Effective January 1, 2007, we set the CEO’s base salary at $460,000 (an increase of $60,000, or 15%, from $400,000). This new base salary was based on the Committee’s review of Mr. Taub’s performance and the results of the 2006 biotechnology industry compensation survey. Under Mr. Taub’s leadership, our post-IPO performance has been outstanding. We achieved 2006 total revenues and net profit of $64 million and $23 million, respectively, exceeding substantially the Board-approved budget for the year. Mr. Taub’s new base salary places him at approximately 98% of the 50th percentile of the biotechnology survey group.

In the course of reviewing Mr. Taub’s performance for the first time since becoming a public company, the Committee also created guidelines for it to refer to in reviewing CEO performance. The guidelines are as follows:

Basis for CEO Performance Evaluation

CEO performance in 2006, in large part, equates to our performance for the year. Key measures to be examined include:

Creation of Stockholder Value:


• Increase in valuation above IPO price on an absolute basis; and

• Increase in valuation above IPO price on a relative (to similar companies) basis.

Financial Comparisons to Budget:


• Revenues; and

• Earnings (whether measured as net operating profit, net income or earnings per share).

These measures of performance are examined in an absolute sense, but take on greater meaning when examined in relation to peer companies, and/or in relation to original expectations (goals), as set by the Board of Directors.

In addition, CEO performance includes achievement or progress toward both tactical and strategic objectives. Often these objectives are multi-year in nature. Sometimes progress toward long-range objectives has a negative impact on current year financial results (e.g., current research and development spending.) Key parameters to be analyzed include:


• Progress against product development timetables;

• Product development outcomes;

• Meeting or exceeding facility expansion timetables and remaining within budget;

• Progress in generating awareness of and liquidity in the stock; and

• Meeting or exceeding product quality objectives and complying with all product and facility regulatory requirements

Furthermore, CEO performance must take into consideration what are best characterized as “soft” or intangible issues that deal with interactions and leadership skills. Examples of such items include:


• Hiring of new members of senior management who ‘hit the ground running’;

• Retaining key employees;

• Promoting an exciting environment for employees;

• Supplying timely information to the Board and responding professionally to inquiries;

• Generating new ideas for organizational growth and increased productivity;

• Gaining respect from partners and suppliers; and • Promoting the highest ethical standards throughout our company.

Other Executive Officers

The Committee also reviews base salaries for other executive officers, in consultation with the CEO. Factors used in determining base salaries for other executive officers include:


• Evaluation of individual performance and expected future contributions;

• Evaluation of our company’s performance;

• A review of compensation survey data to understand competitive compensation against the external market;

• Comparison of the base salaries of the executive officers to consider internal equity; and

• Pay differentials between the United States, Israel, Europe and Asia.

In 2006, our Executive Vice President and Chief Operating Officer, Mr. Mashiach, received a U.S. equivalent base salary of $194,645.

In 2006, our Executive Vice President and Chief Financial Officer, Mr. Burshtine, received a U.S. equivalent base salary of $180,000.

In March, 2006, we hired our new Vice President, Business Development, Dr. Safferstein, at a base salary of $210,000.

In August, 2006, we hired our new Vice President, General Counsel and Secretary, Ms. Prado, at a base salary of $210,000.

2007 Actions

Effective January 1, 2007, we set Mr. Mashiach’s base salary at a U.S. equivalent of $225,929 (an increase of 10% from $200,260, before changes in the currency exchange rate). In addition, Mr. Mashiach was promoted to the newly created position of Executive Vice President and Chief Operating Officer in January, 2007. In this capacity, he will be responsible for directing our company and its subsidiaries and for participating with the CEO in formulating current and long-range plans, objectives and policies. Effective January 1, 2007, we set Mr. Burshtine’s base salary at a U.S. equivalent of $212,000 (an increase of $42,000, or 17.7%, from $180,000 In addition, Mr. Burshtine was promoted to Executive Vice President and Chief Financial Officer in January, 2007, with the additional responsibility for spearheading our efforts to identify potential acquisitions of technologies, products and businesses. Effective January 1, 2007, we set Dr. Safferstein’s base salary at $225,000 and Ms. Prado’s base salary at $211,000. A substantial portion of the changes in base salary replaces other cash payments or reimbursements that these executive officers had been receiving, which are now eliminated.

Annual Cash Bonus Awards

Executive officer annual cash bonuses are awarded at the discretion of the Committee based on job responsibilities and individual contribution and are further evaluated with reference to the bonus levels of executives in competitor companies. Annual cash bonus awards for individual executive officers are evaluated against those of competitor companies in the biotechnology industry by reference to an industry compensation survey conducted by an independent consulting firm. In general, we target annual cash bonus awards for our executive officers, including our CEO, at the 50 th percentile of bonuses paid by the biotechnology survey group.

We set the CEO’s bonus for 2006 performance at $200,000 (50% of base salary), to be paid early in 2007, based on the superior results we and Mr. Taub achieved in 2006, in both an absolute sense and in relation to the CEO’s 2006 goals, and referring again to the measures described above in “Basis for CEO Performance Evaluation.”

We set the four other named executive officers’ bonuses for 2006 performance at a grand total of $210,030, to be paid early in 2007, in accordance with results they achieved in 2006 and adjusted, in some individual cases, by reference to the number of months in 2006 that they were employed by us. The bonuses paid to our named executive officers in respect of 2006 are shown in the bonus column of the Summary Compensation Table on page 19.

Special Cash Bonus Awards

Two of our executive officers received special discretionary cash bonuses in recognition of exceptional, non-recurring achievements in 2006, to be paid in early 2007.

Our CEO, Mr. Taub, was awarded $75,000 in recognition of his contributions towards and leadership in connection with our IPO.

Our CFO, Mr. Burshtine, was awarded $40,000 in recognition of his contributions towards our IPO.

Long-Term Incentives

Stock Awards. Long-term incentive awards in the form of stock and restricted stock are made to the executive officers at the discretion of the Committee and were awarded in recognition of exceptional, non-recurring achievements in 2006.

Mr. Taub, our CEO, was awarded 36,364 shares in recognition of his contributions to the successful completion of our IPO and the additional responsibilities he incurred in connection with operating a public company in the United States. These shares were fully vested based on the completion of our IPO.

In January, 2007, our CFO, Mr. Burshtine, was awarded 5,000 shares of restricted stock in recognition of his contribution to our successful IPO and his promotion to Executive Vice President and Chief Financial Officer. This award vests on the third anniversary of the date of grant.

In January, 2007, Mr. Mashiach was awarded 5,000 shares of restricted stock in recognition of his promotion to Executive Vice President and Chief Operating Officer. This award vests on the third anniversary of the date of grant.

Stock Option Grants. Long-term incentive awards in the form of stock options are made to the executive officers at the discretion of the Committee, based on job responsibilities and individual contribution to our financial performance and are further evaluated with reference to the stock option levels of executives in competitor companies, as measured by the biotechnology survey group. Stock option grants for individual executive officers are evaluated against those of competitor companies in the biotechnology industry by reference to an industry compensation survey conducted by an independent consulting firm. In general, we target stock option grants for our executive officers, including our CEO, at the 75 th percentile of stock option grants awarded by the biotechnology survey group. Because a financial gain from stock options is only possible after the price of Omrix common stock has increased, we believe grants encourage executives and other employees to focus on behaviors and initiatives that should lead to a sustained increase in the price of Omrix common stock, thereby aligning the interests of executives with those of all Omrix stockholders.

Grants were made in 2006 to the named executive officers, other than the CEO, as shown in the Grants of Plan-Based Awards Table on page 23. Effective November 30, 2006, we set the CEO’s stock option grant for 2006 contributions at 40,000 shares, based on the superior results we and Mr. Taub achieved in 2006, in both an absolute sense and in relation to his 2006 goals, and referring again to the measures described above in “Basis for CEO Performance Evaluation.”

2007 Actions — Effective January 16, 2007, we set the four other executive officers’ stock option grants for 2006 contributions at a total of 45,000 shares, in accordance with the results they achieved in 2006 and adjusted, in some individual cases, by reference to the number of months in 2006 that they were employed by us.

Grant Practices. Stock options provide potential financial gain to executive officers from the potential appreciation in stock price from the date the option is granted until the date that the option is exercised. In accordance with the terms of Omrix’ equity incentive plan, the exercise price may not be less than the fair market value of a share of Omrix common stock on the date of grant. The exercise price of stock option grants has been set at fair market value, defined as the mean between the highest and lowest reported sales price per share of our common stock on the national securities exchange on which our stock is principally traded, for the last preceding date on which there was a sale of such stock on the exchange. This policy regarding fair market value pricing takes into account the fact that our Board and/or Compensation Committee meetings, at which stock option grants are approved, may occur in Europe or Israel (or by telephone conference with directors calling in from various parts of the world), so that a Thursday Board meeting in Israel, for example, may be Wednesday in the United States.

We have not granted stock options at a discount to fair market value or reduced the exercise price of outstanding stock options except in the case of adjustments to reflect a stock split or other similar event. We have not granted stock options with a so-called “reload” feature, nor do we loan funds to employees to enable them to exercise stock options. In addition, we do not plan to coordinate grants of options so that they are made before announcement of favorable information, or after announcement of unfavorable information. Omrix’ options are granted at fair market value under the method described above on a fixed date or event (such as an employee’s hire date or our January meeting of the Board and or Compensation Committee); with all required approvals obtained in advance of or on the actual grant date. All grants to executive officers require the approval of the Compensation Committee. Our general policy is to grant options only on the annual grant date or as soon as practical upon a new employee’s employment date, although there may be special circumstances when grants will be made on other dates.

Stock options awarded in 2006 and 2007, as described above, are exercisable in equal installments on the first, second, third and fourth anniversaries of the date of grant and expire ten years from the grant date.

Benefits

In general, the named executive officers are not provided with employee benefit programs that are different than those that would apply generally to other employees of Omrix. In some cases, employment contracts have provided for payments or reimbursements to certain executive officers for costs associated with acquiring their own employee benefits coverage. As of January, 2007, we have eliminated most of these special arrangements in conjunction with base salary increases that were effective January 1, 2007.

MANAGEMENT DISCUSSION FROM LATEST 10K

GENERAL
Omrix Biopharmaceuticals, Inc. is a fully integrated biopharmaceutical company that develops, manufactures and markets protein-based biosurgery and passive immunotherapy products. We are headquartered in New York, New York. Our Israeli subsidiary, Omrix Ltd., performs most of our research and development as well as manufacturing activities. Our European activities are managed primarily from our Belgian subsidiary, Omrix Biopharmaceuticals S.A..
Our biosurgery product line includes products and product candidates that are used for the control of bleeding, or hemostasis, and other surgical applications. Our passive immunotherapy product line includes antibody-rich products and products for the treatment of immune deficiencies, infectious diseases and potential biodefense applications, such as our VIG, which is designed to treat complications related to the smallpox vaccination. Our revenues are derived from product sales, upfront fees, milestone payments, development revenues and grant revenues from both our biosurgery and immunotherapy product lines. Sales of bio-defense products, such as VIG, are dependent on government biodefense policies thus the tender and award of such contracts can fluctuate considerably.
In April 2006, we consummated an initial public offering, or IPO. Net proceeds to us from the IPO, including the sale of additional shares to the underwriters, net of commission and expenses, were $34.1 million. In December 2006, we consummated a follow-on offering and, in January 2007, the underwriters exercised their option to purchase additional shares of our common stock. Net proceeds to us from the follow-on offering, including the sale of additional shares to the underwriters, net of commission and expenses, were $51.4 million.

The following discussion summarizes the significant factors affecting our operating results, financial condition and liquidity for the three-year period ended December 31, 2007. This discussion should be read in conjunction with Item 8, Financial Statements and Supplementary Data.
EXECUTIVE OVERVIEW
During 2007, we focused on increasing our revenues from our biosurgery products. We were granted marketing approval from the FDA for Evicel, our second generation fibrin sealant, as an adjunct to hemostasis in vascular surgery in May 2007 and for general surgical use in January 2008. In August 2007, the FDA approved our BLA to market Evithrom, a thrombin stand-alone product with a general hemostasis in surgery indication. Our biosurgery revenues grew over 47% from $19.1 million in 2006 to $28.1 million in 2007 and our passive immunotherapy revenues, other than VIG, grew over 47% from $22.1 million in 2006 to $32.6 million in 2007. There were no VIG sales in 2007.
We are committed to remaining innovative, and, in 2007, we increased our research, development, clinical and regulatory expenses by over 32% to $4.5 million from $3.4 million in 2006. The increase is mainly related to the development of Adhexil, our adhesion prevention product.
Selling, marketing, general and administrative expenses increased by 37% in 2007, primarily as a result of our decision to go public and increased presence in the United States.
We have been profitable since and including 2006.

RESULTS OF OPERATIONS

Revenues

Total revenues decreased by $2.1 million, or 3%, in 2007 as compared to 2006, primarily due to $21.2 million of VIG sale in 2006. In 2006, total revenues increased by $36.3 million, or 132% for the same reason. Product sales decreased by $5 million, or 9%, in 2007 as there were no VIG sales in 2007. Product sales increased $34.4 million, or 153%, in 2006 due to such VIG sales. Product sales, other than VIG, increased by 45% in 2007 when compared to $35.7 million in 2006 as shown below. Year-over-year development revenues and grants increased 42% in 2007 and 38% in 2006.

Biosurgical products
Biosurgical product sales increased by $5.9 million, or 44%, in 2007 and $6.4 million, or 91%, in 2006. The increase in 2007 and 2006 is mainly due to increased sales of our fibrin sealants in the U.S, plus Evithrom sales in 2007. Up-front and milestone payments of $1 million in 2005, $1.3 million in 2006 and $1.5 million in 2007 are included in product sales.
Biosurgical development revenues increased by $3.1 million, or 54%, in 2007 and $1.7 million, or 42%, in 2006, primarily due to development work related to the Fibrin Patch.
Passive immunotherapy products
Passive immunotherapy product sales, other than VIG, increased by $10.5 million, or 48%, in 2007 and $9.3 million, or 73%, in 2006, primarily due to increased units and price per unit in Israel and $3.5 million of non-recurring sales to a county in Europe. There were no VIG sales in 2007, $21.2 million of VIG revenues in 2006 and $1.4 million in 2005. Grants recognized in 2005, 2006 and 2007 are related to a $4.0 million of development funding received from the NIH .
Other products
There were no sales of other plasma-derived products such as Factor VIII and albumin in 2007, reflecting our decision to exit these markets due to price erosion.
Cost of revenues and gross profit

Gross profit decreased 30% to $24.0 million in 2007 and increased 460% to $34.2 million in 2006 mainly due to significant VIG sales to the U.K. in 2006. The decline in the value of the U.S. dollar against the new Israeli shekel also negatively impacted gross profit in 2007.
Cost of development revenues and grants includes cost of products, research, development, clinical and regulatory trial expenses incurred in connection with projects under research and development. These costs increased by 17% to $6.0 million in 2007 as compared to a 43% increase in revenues, and by 29% to $5.1 million in 2006 as compared to a 36% increase in revenues.
Research and development, clinical and regulatory expenses, net
Research and development, clinical and regulatory expenses increased by 32% to $4.5 million in 2007 and 20% to $3.4 million in 2006 as a reflection of our commitment to remaining innovative. These expenses include costs associated with the development of products not developed in collaboration with third parties, in particular Adhexil, our adhesion prevention product. We expect research and development, clinical and regulatory expenses to increase as we increases our development of non-partnered products.
Selling, marketing, general and administrative expenses
Selling, marketing, general and administrative expenses increased by 37% to $13.6 million in 2007 and by 80% to $9.9 million in 2006. In 2007, the increase is due to our growing presence in the United States, hiring of key personnel, stock based compensation expenses and compliance expenses related to being a public company. We do not anticipate that all of these expenses will be recurring. In 2006, the increase is due to insurance, legal and accounting expenses related to our IPO and compensation expenses related to the acceleration of stock options vesting.

Financial income (expenses), net
Financial income or expenses, net include interest income or expense, fees payable on outstanding loans from banks and other financial institutions and income and expenses generated by exchange rate fluctuations. In 2005, our financial expenses, net were $25.5 million and included a non-cash charge of $20.9 million related to our recapitalization prior to the IPO, $3.1 million due to foreign exchange losses and $1.6 million of interest expense. In 2006, financial expenses of $1.6 million were incurred in connection with the redemption of convertible promissory notes and foreign exchange gains were $2.4 million. In 2007, financial income includes interest income of $4.4 million and foreign exchange gains of $0.8 million.
Other income (expense), net
Under the terms of the termination of an agreement with the American Red Cross, we received raw material valued at $0.8 million in 2006 and $0.9 million in 2007 free of charge. The amounts are shown under other income.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

RESULTS OF OPERATIONS
Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006
Revenues

Total revenues for the three months ended September 30, 2007 decreased by $2.5 million or 13.7% from the comparable period in 2006. The fluctuation in revenues is due to a decrease of $6.6 million in our passive immunotherapy line of business, partly offset by an increase of $4.1 million in our biosurgical product line of business.

Biosurgical
Product Sales
Revenues from our biosurgical product line for the three months ended September 30, 2007 increased from the comparable period in 2006 by $4.1 million primarily due to higher sales of our commercial products sold under this line of business, including a small amount of Evithrom to our partner, Ethicon. As previously noted, in August of 2007, we received approval from the FDA to market our thrombin stand alone product under the name Evithrom, with a general hemostasis in surgery indication. In addition, in the second quarter of 2007, we were not able to sell approximately $1 million of Evicel batches manufactured using Talecris cryoprecipitate (“cryo”) since we did not obtain approval from the FDA for using this product in our manufacturing process. We obtained approval from the FDA in July 2007, and therefore, this quarter also contains the $1 million sale delayed from the previous quarter.
Development Revenues
Biosurgical development revenues increased by approximately $800 for the three months ended September 30, 2007 compared to the third quarter of 2006 mainly due to additional projects related to the development of our fibrin patch product candidate.
Passive immunotherapy Product Sales
Passive immunotherapy product sales revenues for the three months ended September 30, 2007 decreased by $6.5 million or 47.5% from the comparable period in 2006. This decrease is primarily due to $8 million of VIG sales we recognized in the three months ended September 30, 2006 while no VIG sales were recorded this quarter, partly offset by an increase in IVIG sales of approximately $1 million.
Grants
Passive immunotherapy grants revenues are recognized in connection with grants from the NIH in connection with the development of our HT-VIG and WNIG product candidates. There was no significant fluctuation in this category.
Cost of Revenues
Cost of Product Sales and Gross Margin
Gross margin on product sales for the three months ended September 30, 2007 were 41.3% compared to 61.4% in the comparable period of 2006. The decrease in gross margins is due to the product mix between quarters and the fact that in the third quarter of 2006 we sold $8 million of VIG , which has relatively high gross margins. We had no sales of VIG in the third quarter of 2007.
Cost of Development Revenues and Grants
Gross margin on development revenues and grants in the third quarter of 2007 amounted to 26% as compared to 27% in the comparable quarter of 2006. This category reflects costs associated with product development for which we receive reimbursement for the majority of the costs incurred. Fluctuations in this category are contingent on the types of expenses incurred and whether they are reimbursable based on our contractual agreement with our partner, Ethicon.
Research and Development, Clinical and Regulatory Expenses
Research and development, clinical and regulatory expenses in the third quarter of 2007 amounted to $916,000 which is consistent with expenses incurred in the comparable quarter of 2006 of $1 million. This category reflects expenses associated with development of our product candidates that are not developed in collaboration with third parties, in particular Adhexil. The majority of the costs in this category consist of salaries and employee benefits.
Selling, Marketing, General and Administrative Expenses
Selling, marketing, general and administrative expenses in the third quarter of 2007 amounted to $3 million, an increase from the comparable quarter of 2006 of approximately $600,000 or 25%. This increase is primarily due to an increase in stock option expense of approximately $290,000, an increase in salaries and benefits of approximately $300,000 and an increase in professional services, including legal and accounting costs, of approximately $150,000. We are currently in the process of implementing Section 404 of the Sarbanes-Oxley Act and therefore, we are incurring incremental expenses for accounting and consulting services related to this project. These increases were partially offset by decreases in consulting expenses incurred in the comparable period of 2006 associated with the Company’s initial public offering.
Financial Income, Net
Financial income for the three months ended September 30, 2007 includes interest income of approximately $1.1 million, interest expense of approximately $30,000 and currency exchange income of approximately $360,000. Financial income in the three months ended September 30, 2006 includes interest income of approximately $450,000, interest expense of approximately $70,000 and currency exchange income of approximately $250,000.

Net Income
In the third quarter of 2007, we generated net income of $3.7 million and $0.21 per diluted common share, compared with net income of $8.1 million and $0.53 per diluted common share for the comparable period in 2006. The fluctuation in results is due to the factors noted above.



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