If you want damage based on the hero, give the hero a second attack with weapon type missile(splash) and enable it when the ability is used. You could also transform the hero to another unit with splash weapon type.
For lifesteal on more than one unit use vampiric potion.
I dont like most systems and therefore dont know the best one to use here, you will have to wait for someone else ..
A testmap says more than 1000 words:
Ok, use this testmap, its the awesomeness. The item is really passive.
i put the bear form to a spell book, so that it wont appear on my hero skills?
Ah no that was another mistake. Redownload the map now its fixed, srry^^