After raising $100 million, Israeli medical device maker Art Medical turns to court for help
The company received backing from the Bill & Melinda Gates Foundation and the Israel Innovation Authority, but an FDA regulatory setback has left it without the financing needed to continue operating. It is asking the court to appoint a temporary trustee and explore a possible sale.
The Israeli medical device company Art Medical, which has raised approximately $100 million since its founding and received support from the Bill & Melinda Gates Foundation, is facing severe financial difficulties, with liabilities approaching $15 million. The company, which develops systems for managing the nutrition of intensive care patients, filed an urgent motion with the Central District Court on Tuesday, requesting the appointment of a temporary trustee and a stay of proceedings. The move follows the U.S. Food and Drug Administration's (FDA) rejection of a regulatory submission, which prompted investors to halt further funding.
Founded in 2008, Art Medical employs 53 people at its offices and development and manufacturing facility in Netanya. It has developed a technology platform for monitoring and managing the nutrition of mechanically ventilated patients in intensive care. The system combines smart feeding tubes, sensors and algorithms designed to prevent complications including malnutrition, overfeeding, reflux and ventilator-associated pneumonia. The company holds approximately 100 registered patents and has distribution agreements with Teva and Italian company MOSS. Its products have been used at leading hospitals in Israel and abroad, including Beilinson and Hadassah.
Among the company's shareholders was the late businessman Nathan Milikowsky, a cousin of Prime Minister Benjamin Netanyahu, who held a small stake. According to the Registrar of Companies, his wife, Rivka Milikowsky, currently holds less than 1% of the shares, while their daughter, Brina Milikowsky, serves as a director. Liron Elia, one of the company's founders and a shareholder, is also a member of the board. The company has dozens of shareholders in total.
The motion describes how the company ran into difficulties following a regulatory setback. In October, the FDA rejected its application for classification under the De Novo pathway, which is intended to provide a route to market for innovative medical devices for which no legally marketed equivalent exists.
According to the filing, Art Medical has raised approximately $100 million over the course of its operations. Its funding sources included support from the Bill & Melinda Gates Foundation's Grand Challenges program, an investment round of approximately $20 million led by Advanced Medical Technologies LLC, and grants totaling approximately $2.6 million from the Israel Innovation Authority. Following the FDA's decision, however, investors declined to provide additional financing, leaving the company without the cash flow needed to maintain its operations.
The company is asking the court to appoint a temporary trustee who can take immediate steps to preserve its assets, keep its operations running and examine the possibility of selling the business as a going concern. The filing is intended to initiate a rehabilitation process.
The filing details the company's mounting obligations. It owes approximately NIS 1 million to suppliers in Israel, in addition to around $600,000 owed to suppliers overseas. It has also failed to pay October salaries, totaling approximately NIS 870,000, or social benefit contributions of around NIS 460,000. The company further estimates that it owes approximately $1.4 million in employee termination and final settlement payments.
According to the filing, Art Medical had no outstanding debts to government authorities at the time it was submitted. However, unpaid October salaries are expected to generate additional liabilities of approximately NIS 400,000 to the Income Tax Authority, in connection with tax withholdings, and the National Insurance Institute.
The company's largest disclosed obligation is to Avanos Medical, to which it owes approximately $10.6 million, including principal and interest. The debt stems from a $9 million convertible loan extended in the summer of 2024. The loan is due to mature in August 2027 and may be converted into equity under certain conditions. As part of the agreement, Art Medical pledged all of its intellectual property as collateral to Avanos.
Beyond the financial crisis, the filing highlights the need to protect patients who rely on the company's products and ensure continuity of care. It describes Art Medical as an active business with dozens of employees and significant technological assets, including intellectual property, professional expertise, clinical and regulatory documentation, and commercial relationships.
"Beyond the need to safeguard these assets, urgent issues have arisen concerning patient safety and the continuity of care," the filing states. "Under these circumstances, immediate action is required: notifying hospitals and distributors, preventing the connection of new patients to the system, and coordinating the ongoing care of existing patients, or facilitating their transition to a suitable alternative."
