Note: The translations of articles from the Hebrew press are prepared by the Government Press Office as a service to foreign journalists in Israel. They express the views of the authors.
Background: Biotechnology in Israel Slower, Costlier, Riskier
(By Hadar Horesh, David Goldman and Galit Chemi, Yediot Ahronot,
Economics Supplement, 26.1.99, p. 3)
In the past 10-15 years, mathematics, computers, software and the Internet
have driven the natural sciences from public attention. The moment that
investors and venture-capital funds saw high-tech's high return on
investment, they opened the public's awareness to this sector and students
flocked to it.
And, as always, numbers tell the whole story: Between September 1996 and
September 1997, American venture-capital funds invested $760 million in
bio-technology. During the same period, they invested $2.2 billion in
software, and even more in telecommunications -- nearly $3 billion. This
balance is likely to change in the coming millennium.
The field of biotechnology includes a number of sub-fields, which are not
necessarily interrelated: There is biotechnology which deals with people;
animal husbandry biotechnology and agricultural biotechnology.
In contrast to the software industry, where Microsoft has unassailable
control, biotechnology enjoys a range of companies.
Approximately $100 million was invested in Israel in 1997 to develop
biotechnology products. 1997 saw sales of $340 million, 93% of which was
exported. In the third quarter of 1998, venture-capital funds invested
only $6.5 million in biotechnology -- approximately 4% of all third
quarter investments by these funds.
The number of venture-capital funds in Israel specializing in
biotechnology is runs from small to tiny. The companies working in the
field are not always known as young fast-growing high-tech companies. One
of the popular fields is genetic engineering which alters the
characteristics of crops. The Volcani Institute has worked in this field
for over 10 years. Companies like Zera ("Seed"), controlled by Poalim
Investments, and A.B. Zera'im operate on a commercial basis. Other
biotechnology fields produce medicines and diagnose diseases using
biological processes.
Investments in biotechnology are very high risk. The risk is mainly due to
the extended time needed until the investment sees any return. The problem
is mainly seen in medical related biotechnologies. Two years ago, Teva
marketed Copaxone -- a revolutionary medicine to treat cystic fibrosis,
whose development rights the company purchased from the Weizmann
Institute.
The medicine was supposed to turn Teva from a company that specialized in
the production of generic medicines into a company that produces original
medicines whose profitability is particularly high. By the time the
medicine's development was completed and it was marketed, Teva's medicine
faced strong rivals. The medicine is being sold, but its contribution to
Teva's business and profits are far lower than was hoped at the early
stages of its development.
Today, Israel finds itself in second or third place in the world in the
activity of medical start-up companies, behind the United States.
Optimists think that by 2000, the medical instrument industry will claim a
respected place alongside Internet industries.
According to the most recent report by "Money Tree", in cooperation with
the CPA firm of Kelsman and Kelsman, in the third quarter of 1998,
venture-capital funds invested a total of $29 million in medical
instrument companies -- an increase of 66% over the comparable period in
1997, and relatively stable compared to the previous quarter. $77 million
has been invested in the field of medical instruments in the first two
quarters of 1998, compared to $49 million in all of 1997.
Venture-capital funds in Israel invest in the development of medical
products only after they have made certain that the products are expected
to be marketed within a short time. The output of high-tech companies,
which offer high returns and much faster development times than
biotechnology companies, allow the funds to almost totally ignore the
biotechnology industry.
Among the funds showing interest in the field are Zannex Securities' A.G.
Techfund and the Medica Fund, which specialize in investments in the
medical field.
Until the establishment of a new investment company by Klal Investments,
only one company which attempted to specialize in biotechnology
investments operated in Israel -- Biomedical. The company was jointly
founded by Ted Arison, Len Abramson, Teva and Prof. Benad Goldwasser, one
of Medinol's founders. The fund was established with a capital of $15
million, and its founders recently decided to increase its capital by
another $10 million. This is a very small sum when compared to the heavy
and long-term investments of the kind necessary in biotechnology, but the
wealthy partners have announced that they will increase the capital in
accordance with the company's development.
One of Biomedical's key investments is in Shiluv, a diagnostic company,
which last month announced difficulties in marketing the product it has
developed. Biomedical also invested in Mindsense, a diagnostic company
which is developing a screening method for mental illnesses, as well as in
four other biotechnology companies.
In the global capital markets, especially in the United States, every few
years a sentiment to invest in biotechnology develops, usually when the
stock exchange rises and high stock prices cause investors to search for
new investment opportunities.
During these bull market periods, Prof. Haim Aviv, a pioneer in the
founding of biotechnology companies in Israel, succeeds in raising a
little capital for them. In the early 1980s, Prof. Aviv founded General
Biotechnology and Pharmos. Three years ago, the largest investor in
biotechnology companies in Israel and the United States, David Blech, went
bankrupt, and since then several sources of funding have dried up.
"The establishment of funds like Klal and companies like Biomedical is
good news. The recent growth in venture- capital funds enables them to
re-examine investments in biotechnology, something which was not seen
earlier," says Prof. Aviv. "But, the main interest of companies and funds
is not in the field of biotechnology, but in the field of medical
instruments. They also tend to invest in the later stages of a company's
development, rather than in the earlier stages when the money is needed to
start development and the risks are more dangerous."
Dov Hershberg, Director-General of Israel-America Binational Fund, says,
"Klal's decision shows that the field of biotechnology is beginning to win
a worthy place in the State of Israel; indeed, this is the field that will
bring investors many opportunities. This investment will generate great
momentum for the economy."
Yoav Millet, Director-General of the venture-capital fund A.G. Tech, part
of Nassua-Zannex, which specializes in biotechnology investments, says
that Klal's fund expresses a general global trend in which biotechnology
is becoming a hot field that will draw more and more investors. Millet
believes that there is also a place for limited capital venture-capital
funds (less than $1 billion). "Until a year or two ago, most investors
thought that only corporations and giant companies could invest in
biotechnology. But biotechnology is a wide field. In all matters
concerning medical research, the investment is indeed long-term, sometimes
10 to 20 years until a return on the investment is seen," Millet says.
"The field is still only appropriate for giant companies. But agricultural
biotechnology, for example, does not require a lot of money. This is a
great and hungry market, and I expect that more and more venture-capital
funds will invest in agricultural biotechnology."
Ze'ev Holtzman, one of owners of the consultancy firm Giza, sees a problem
in the Israeli character: "Israeli investors are not characterized by the
required patience. This is one of the reasons why this industry has not
developed here like other high-tech industries. If the government would
decide to create business model like "Yozma", which would be dedicated
solely to biotechnology, a revolution could occur here."
LEADING BIOTECHNOLOGY FIRMS IN ISRAEL
| Company | Activity |
| Zera Eichut | Developing new strains of crops via genetic
engineering |
| Interpharm | Developing medicines to treat infectious diseases |
| CBD | Developing genetic methods to enhance crop growth |
| General Biotechnologies | Developing hormonal preparations |
| Pharmos | Medicines to treat head injuries |
| XTL | Developing antibodies to treat infectious
diseases |
| D. Pharm | Developing medicines to treat brain injuries |
| CDB | Developing components to direct medicines'
actions in the body |
| Mindsense | Developing a kit to diagnose schizophrenia |
| Modus | Developing a pill to ease tobacco, drug and
alcohol withdrawal |
| Compugen | Genetic engineering software |
INVESTMENT IN BIOTECHNOLOGY
IN ISRAEL BY QUARTER
(in millions of Dollars)
| 1997 | First quarter | 6.2 |
| Second quarter | 19.0 |
| Third quarter | 5.5 |
| Fourth quarter | 13.7 |
| 1998 | First quarter | 14.5 |
| Second quarter | 2.9 |
| Third quarter | 6.5 |