Make a high wave

The biomed industry is breaking free from stagnation and starting to make waves. Certainly, it was hard to miss the headlines in recent months. Something is happening here. Now it just needs to continue

By: Nahum Donitza*

April 2012 and the months preceding it will be remembered for a long time to come and will be a landmark, whenever someone sits down to talk or analyze what happened in the Israeli life sciences industry. "Biomed celebration", they defined the situation in the popular daily press and competed among themselves for the size of the headlines, when in the field, a wave of positive messages from the biomed companies boosted their shares by tens of percent: here is Brainsway succeeding in an experiment in the treatment of depression and here is Pluristem moving up a step in the race after FDA approval, Redhill Successfully completing a clinical trial in the treatment of nausea in cancer patients, ITGI completed increases of 200% in a week (from a value of approximately NIS 8 million to NIS 24 million) after receiving approval for the European marketing of a neurological stent, Prolor, announced the success of a pre-clinical trial, Photomedics, which is controlled by the cosmetics giant Radiance, which operates in the field of skin aesthetics and dermatology, and is traded on Nasdaq at a value of 250 million dollars, announced that it is considering listing its shares on the Tel Aviv Stock Exchange, and Glycomeydans, which deals in the field of blood tests for serious diseases, rose due to receiving a million shekels from the chief scientist to support the program A new development in the field of identifying and predicting infectious diseases in patients with immune system problems. And we didn't yet know the expected noise in the system ahead of the festive opening of the 2012 Biomed Israel week that will be held in Tel Aviv between May 21-23. In short, happy.

And speaking of records, one name in particular has been associated with the Israeli biomed industry in recent months: Kovidian. The company broke an Israeli record (and perhaps also a world record) with the purchase of two companies - Oridion and Superdimension - for almost 700 million - less than a month apart and was honored with the title of "the largest purchaser of medical device companies in Israel since the early 90s".

Oridion of Jerusalem (which manufactures systems that measure concentrations of carbon dioxide in patients under anesthesia to help examine the quality of their breathing) was sold for 346 million in cash (according to a value almost double its stock market value) and Superdimension (which developed a device that allows a catheter to be guided deep into the lungs, to locate a tumor or tissue there suspected of being a tumor and to sample a biopsy from it), for 350 million dollars. According to Jonathan Silverstein, who led the investment in Superdimension on behalf of Orbimed, this is probably one of the largest purchases of a medical device company in Israel. He estimated that it is placed among the 20 largest acquisitions of medical device companies ever.

Looking for biomed investments

To the overall hype atmosphere, delegations of distinguished guests from abroad who arrive in Israel add to the morning news, equipped with deep pockets and the desire to find the next hot thing in the Israeli life sciences industry.

One such delegation, which included senior officials from leading corporations in the field of life sciences, including the heads of the scientific research center of the Boston Scientific Medical Devices Corporation, the head of diagnostics at the General Electric Corporation, the vice president of R&D at the pharmaceutical company Medimmune, the head of the emerging markets at the pharmaceutical company Merck, and Vice President for Life Sciences and Health at the software company Oracle, came to Israel following the plan to encourage the Israeli biomed industry through a package of incentives for multinational companies that invest in the field in Israel. The plan, which was recently published by the Office of the Chief Scientist of the Ministry of Science and Technology, includes incentives for global companies that will open development centers in Israel as well as for companies that will invest in Israeli start-ups.

Gili Ovadia, who is responsible for North America at the Ministry of Tourism, said in interviews that accompanied the visit that the intention was to bring in international companies in order to nurture the industry. "The initiative came from the Americans who wanted to come into contact with the Israeli life sciences community. The big companies have already realized that they need to open up and work more outwardly."

According to Myron Brilliant, vice president of the American Chamber of Commerce, for years Israel has been an innovation center for huge American companies and now, one of the most promising industries for future growth in trade relations between the countries is the field of life sciences. He pointed out that already today two American companies have significant development centers in Israel that employ hundreds of workers - General Electric and Johnson & Johnson.

At the same time, a Sony delegation also visited Israel, looking for investments in the medical field in Israel. Six months ago, the company acquired the American Micronics, which specializes in the development of mobile devices that perform blood tests, and on that occasion, Sony executives said that they are "testing devices that can perform tests on patients without having to transport them to the clinics, and are opening a new activity of selling products directly to the consumer."

There are currently quite a few companies in Israel that could be of interest to Sony, including companies in the field of photography and imaging, companies for the automation of laboratory tests, companies in the field of molecular testing, in the field of cell phone diabetes monitoring, in the field of cognitive training, companies in the field of monitoring and simulation and training companies.

Average of 3.42 million

A joint survey by the research company IVC and the accounting firm KPMG Somach Chaikin, on capital raisings by companies in the field of life sciences in Israel, conducted especially for Biomed week, found that in the first quarter of 2012, the life sciences sector, similar to the corresponding quarter last year, led the raisings with 130 One million dollars - 27 percent of the total funding - the highest amount for the sector in the last two years. The average fundraising round in the life sciences in the first quarter of 2012 was $3.42 million, compared to an average of $3.26 million in the fourth quarter of 2011 and $3.97 million in the corresponding quarter last year.

38 life sciences companies raised $130 million in the first quarter of this year, compared to 23 companies with $75 million in the fourth quarter of 2011 (13 percent of the total high-tech fundraising in the quarter), and compared to 32 companies with $127 million (27 percent), raised in the first quarter of 2011. The amount raised in the first quarter of this year represents a significant increase of 73 percent from the amount raised by companies in the previous quarter, and almost the same as the amount raised by companies in the first quarter of 2011, with an increase of 2 percent. In the first quarter of 2012, three life sciences companies raised between $5 million and $10 million each. Four companies raised between $10 million and $15 million, and one life sciences company raised $15 million this quarter.

The medical devices sub-sector led the investments in life sciences with 71 million dollars, 55 percent of the total amount invested in the field, and 15 percent of the total recruitments in all fields in the quarter. The amount raised in the field of medical devices in the first quarter of 2012 represents an increase of almost 30 percent from the average of $55 million in 2011. The field of drug development attracted $54 million, which is 42 percent of the amount raised in the life sciences sector, and 11 percent of the capital raised in all areas The high-tech in the first quarter of 2012.

According to the survey by the research company IVC, life science companies attracted the largest share of investments in the research and development stage (Early Stage) with 45 percent of all investments at this stage among Israeli hi-tech companies. In the late stage of sales (Late-Stage), life sciences companies came in second place with 23 percent of the total investments at this stage in the first quarter of 2012. Also, in 2011 several new funds dedicated to investments in the field of life sciences were established, the largest of which is Orbimed ($220 million ) and Pontifex ($88 million).

Kobi Shimana, CEO of IVC, noted that "even in 2011, the field of life sciences stood out among all the other fields in the high-tech industry in Israel. I am sure that the list of exits in the field in 2011, the agreements and achievements reached by the companies in 2011, will provide a boost to the field this year as well."

Looking for mature technologies

A similar analysis is provided by CPA firm BDO Ziv Haft, who confirms in an independent study done for "Calcalist" that companies are currently looking to acquire mature technologies that are in advanced stages of development. From the analysis of the biomed and technology companies, which are traded in the Tel Tech index, it was even revealed that in the last four years there has been an increase in research and development expenses. The data shows that the 20 biomed companies included in the Tel Tech index registered a cumulative increase of 33% in four years in research and development expenditures, and they amounted to 202 million dollars in 2011 compared to 152 million dollars in 2008. "There is a clear match between the breakthrough of companies that invested in research and development and companies that did not invest and actually stopped," said the firm.

According to the reports, the biomed companies examined in the analysis registered an increase of 58% in the annual turnover of 812 million dollars compared to 515 million dollars in 2008. Among the technology companies there was an increase of about 20% (from an activity turnover of 6.03 billion dollars in 2008 to 7.29 billion dollars in 2011). The firm even noted that more international bodies in the world recognize potential in the biomed field in Israel, such as the German company Merck, which inaugurated a development center in Yavne. "Today, companies are looking for mature technologies that are at least in stage 2, then they will transfer them to stage 3 or to companies that are already in the initial stages of revenue, and the buyers will transfer them to sales of hundreds of millions of dollars," the agency says.

15 delegations

Official delegations from 15 countries, among others looking for the same technologies, have already announced their intention to come to Israel to take part in the conference. The delegations, which will arrive as guests of the Ministry of Tourism, will include senior managers from a variety of government bodies, recognized academic researchers and senior industrialists from the fields of life sciences in their countries. The delegations that confirmed their arrival are from the countries: Germany, Great Britain, Italy, Denmark, Korea, Switzerland, Spain, China, Poland, Czech Republic, Singapore, Canada and France. Delegations from Chicago and New York will also arrive.

According to Oded Distel, Director of the Headquarters for Investment Promotion, from the Ministry of Trade and Industry: "The Ministry of Trade and Industry sees great importance in promoting the biomed industry in Israel and therefore sponsored the event. The headquarters for the promotion of investments works to bring relevant parties in the industry to know the sector in Israel. Most of the members of the delegations, who will take an active part during the week at the conference, already have a busy schedule of meetings with Israeli biomed companies to examine possible collaborations.

Gabi Bar, director of the Biomed project in the Department of Foreign Trade, at TMT, added that "the director of foreign trade in the ministry mobilized the commercial annexes in all the target countries in order to locate companies and entities that have an interest and potential for cooperation in Israel. Recruiting the delegations, bringing them to Israel accompanied by representatives of the ministry and coordinating the meetings are the result of hard work by the annexes and the administrative headquarters in Israel."

The Director of Foreign Trade at TMT operates 38 branches around the world that deal with the promotion of exports and economic and industrial cooperation in the countries of their mandate.

According to the data in their possession, the life sciences industry in Israel has a turnover of approximately 8 billion dollars and encompasses over 1000 companies in the various fields of the industry.

118 projects in the field of life sciences

Summaries prepared by the Chief Scientist's office, prior to the conference, show that during January-April 2012, 118 projects in the field of life sciences were approved in the R&D Fund (with a total approved research and development budget of 405 million NIS), when the R&D grants for these projects totaled at 174 m NIS. These data indicate an increase of about 22% compared to the corresponding period last year.

During the year 2011, the Scientist Chamber approved support grants totaling 352 million NIS in all its tracks for projects in the field of life sciences. These data indicate a decrease of 18% in reference to the grants given in 2010, when in the field of life sciences grants totaling NIS 430 million were approved due to a decrease in the total budget of the Office of the Chief Scientist in 2011. However, in the biotechnology sector there was an increase of about 3% In relation to the grants given to companies in this industry in 2010.

In the field of pharmaceuticals, grants totaling NIS 28 million were approved; In the field of biotechnology - 172 million NIS, and in the field of medical equipment, grants amounting to 152 million NIS were approved.

In the course of the R&D Fund, 2011 projects submitted by 235 companies were discussed in 152, of which 187 projects were approved (with a total approved research and development budget amounting to 590 million NIS), while the R&D grants for these projects amounted to 242 million NIS.

According to the data, the rate of support in recent years in the field of life sciences maintains a share that varies between 30% (in 2007) and 26% (in 2011), compared to 14% in 2000 and 22% in 2003.

In addition to the R&D fund track, in 2011 the Office of the Chief Scientist supported the biomed industry through additional tools. Among other things, it is possible to mention:

- Closure of the Orbimed fund for the investment of 220 million dollars in Israeli companies in the field of biomed.
- Launching a Kamin program to support applied research. In this framework, support has been approved so far for about 100 projects in the field of life sciences, which is about 45% of the total number of approved projects. Scope of support of about NIS 38 million.
- The establishment of a tissue bank in the amount of NIS 35 million over 5 years was approved.
- We are in the process of launching a program to support the establishment of R&D centers of multinational companies in the biomed field. An RFI has been published on the matter.
- TCM program to assist in the purchase of dedicated equipment for R&D in the field of life sciences.

According to Avi Hasson, the Chief Scientist, the Office of the Chief Scientist is committed to continuing to support and assist the life sciences sector, at all stages of development. "Thanks to this support, more companies have reached advanced stages of clinical development in recent years. The support of the chief scientist is done at all stages of the knowledge. We want to make sure that the innovation and excellence in the Israeli academy translates into success in industry as well, and that's why we launched the Kamin program, which is designed to help turn applied research into industrial products. This support is especially critical in the knowledge-intensive field of biomed. In addition, we also take care of the other needs of this industry, including encouraging investments and financing."

Looking with restraint at the market

On the other side of the arena, in front of those who attack the biomed stocks flying up and look with concern at the cuts in the scientist's budgets, sit some who understand that the road to success is still just beginning and that we must keep pushing the cart up the mountain. A new forum for life science companies that was established not long ago, in cooperation with the association of high-tech companies IATI and an association of over 40 leading biomed companies, has already announced that it will fight against the ongoing cut of over 50% in the budgets of the chief scientist by the Ministry of Finance.

According to Yaki Yanai, VP of the life sciences company "Pluristem", "the Ministry of Finance is destroying the biomed industry in Israel. "Just in the last decade, the budget of the chief scientist was cut by the Ministry of Finance from 2.2 billion in 2002 to 1.16 billion in 2012. This, despite the fact that in the rest of the Western world there is an opposite trend and all countries are only doubling and tripling their budgets for research and development." As an example, Yanai gave the NIH institution, the equivalent of the chief scientist in the USA, which this year raised the budget for research and development support to over 30 billion dollars compared to 5 billion dollars in 2005. Yanai also says that the European Union also increased the support for research and development by 43% to about 80 billion dollars through a program called "2020. "Only with us everything is going backwards", he claims.

According to Yanai, paradoxically, the Ministry of Finance is cutting the chief scientist's budget, even though this is against the ministry's own long-term interest, since the investment always pays for itself. "The figures from the Ministry of Finance show that every investment in R&D (research and development) in Israel has a return of 5 to 10 times to the economy. Despite this, in the last decade the Ministry of Finance has only been cutting the chief scientist's budget. In fact, the Ministry of Finance is destroying the biomed industry with its own hands, which could be the engine that will lead the economy in the next decade. The recent successes we see in the field are due to the large investments made a decade ago, but if the State of Israel does not know how to continue investing in the field, in another 10 years we will have nothing to sell. There are 700 young biotechnology companies that will not receive grants due to the cut and now they will either close or grow very slowly."

The market is ripe

According to Ruthi Alon, senior partner in the Pitango venture capital fund and Dr. Benny Zaevi, managing partner, DFJ Tel Aviv Venture Partners, the co-chairs of the "ILSI-Biomed Israel 2012" conference, and those who closely accompany the Israeli life sciences industry from this years, the decade between 2000 and 2010 was the "incubation of the industry" phase. This is definitely a young industry, but, in the next decade, they estimate, we will see more companies that begin to reach maturity, advanced development, clinical trials, agreements with international companies, or we will meet them as objects that are about to be purchased by international companies.

"Life science companies must adapt to a new reality," says Alon. "But, in any reality, the good companies in Israel continue to operate and I believe that good companies will always find money to continue working. The Israeli life sciences industry has quite a few capabilities and has demonstrated throughout the years - even the most difficult - an enviable flexibility. The crisis and the economic slowdown only taught the people to think differently..."

"Israelis definitely do different things and in a different way," agrees Zeevi. "We have a big advantage in the way we take an idea and develop it. Israeli innovation, which many in the world look upon with great appreciation, is seen not only in the development of new devices and medicines, but in a different perspective, such as the way in which the patient receives the medical service in the place and availability that is convenient for him. Israel can have a great advantage as someone who is involved in many intersections of the IT world." The two agree that Israel's biggest disadvantage is actually its biggest advantage: the size of the local market, or actually the fact that there isn't that much of a local market. "Every Israeli company in our field is a global company from the start, simply because there is no other way to grow."

"The journey of the Israeli life sciences industry is just at the beginning", say Alon and Ze'evi. "So far we have laid the foundations, paved the infrastructure. We have a lot to be proud of, we have a lot to offer the world."

* The author is the CEO of "Donitza Communications", a public relations office specializing in biotechnology and medical devices www.donitza.co.il