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| Biotherapeutics: Israel's Next Panacea |
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Biotherapeutics is emerging as the country's leading biotechnology sector, with 36 companies generating 67% of Israeli biotech sales. Biotherapeutic products are derived from human proteins, antibodies, enzymes, or carbohydrates. They are believed to be safer and more effective and have far fewer side effects than conventional drugs. What are the challenges facing these biotech companies? And how can the government and private sector effectively support one of its most promising industries? We put these questions to some of the industry's prominent figures. What we discovered is that with all of their promise, biotherapeutics faces some significant obstacles.
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| The Road To Where? |
| Thanks to the progress on the Human Genome Project, understanding the underlying causes of many diseases is now possible. This has paved the way for biotherapeutics. Whereas conventional therapies are based on chemically produced drugs, biotherapeutics research aims straight at the target: a specific disease, thus reducing development costs and making time-to-market much quicker. While the research through commercialization stages for a traditional drug can cost $231 million over a period of 8 to 12 years, biotherapeutics products cost approximately $100 million and the time to clinical trials is often significantly less.
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Israeli biotechnology today is where U.S. biotech was in the 1980s. If Israel intends to follow in America's footsteps to similar success as a global leader in this industry, both government ministries and universities must become strong proactive participants, taking actions that encourage and nurture young entrepreneurial ventures and leverage its reservoir of innovative scientists.
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| From the Lab to the Patient
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For innovative biotechnologies to successfully navigate the transition from pure research to commercial products, they need to be skillfully guided over the "bridging period," a term Pharmos Corporation Chairman and CEO Dr. Haim Aviv defines as the fragile stage in a biotechnology's life cycle when proof-of-concept has been demonstrated but commercial product development not yet begun. "This can be achieved by developing an atmosphere within the university culture that honors and rewards entrepreneurial mentality," says Aviv. It is also important that researchers develop a stronger business and management orientation. Aviv first raised this idea in his 1998 report concerning the advancement of Israel's biotech industry. The report recommended setting up a fellowship program in which senior university researchers took "time off" to learn business and management skills, including hands-on training with veterans in the business sector.
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| A Matter of State
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"The government can best serve the Israeli biotech industry— biotherapeutics in particular — by providing more financial support for research at the university level," according to Prof. Benad Goldwasser, managing director of Biomedical Investments. More intensive university R&D funding would allow projects to remain within the relatively protected confines of university laboratories until they reach a more promising stage, making them more attractive to investors and, therefore, able to realize higher valuations. The additional lab time would enable investors to more easily visualize end-products and receive ROI in the foreseeable future.
"Israel has proven time and again that it has the brainpower, but its reputation for cutting-edge discoveries is being adversely affected by the shortage of state-of-the-art facilities in house," Goldwasser explains. Also, Israeli universities don't receive backing from the major pharmaceutical companies, as is the case in the United States and many EU countries.
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| Money Is Tight
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The country's current political situation cannot be ignored. Goldwasser believes that geopolitical factors are having a negative impact on Israel's biotechnology industry. Since the fourth quarter of 2000 there has been very little investment activity in the country. Some U.S. investors are telling Israeli biotech companies that post September 11, 2001, they are not investing abroad, when this is obviously not true. The underlying reason for declining to invest in Israel-based companies is the ongoing Middle East conflict. There is a real danger that many "good" ventures — those that in better times would have a fighting chance at success—are going to fold.
But it's not all doom and gloom, according to Nir Nimrodi, CEO of Proneuron Biotechnologies, who agrees that raising sufficient funds is a daunting task, especially today, but is still possible if companies knock on the right doors and present their business proposition properly. Companies that do manage to raise funds are finding that their company valuations are unduly low, and that they are not able to raise the full amount they require. Seed investment in Israeli biotherapeutic companies averages between $2 and $3 million, compared to U.S. seed funding, which is typically between $10 and $15 million.
What happens to young biotherapeutic projects that don't receive the required funding? Some promising intellectual property gets tucked away in a drawer and some find a new home abroad, where conditions are more favorable for development.
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| The Buck Stops Here |
Did You Know?
- Israel's share of sales in the global biotechnology market is about 2.5%.
- Israel ranks as a top country for scientific publications per capita; almost 60% of these publications are in biology and related medical and agricultural fields.
- Life sciences represent about 35% of Israel civilian research activities.
- In 2001, Israeli life science companies accounted for 16% of the total capital raised, doubling its share over the previous year.
- 103 Israeli life science companies raised $310 million, compared with 75 firms that raised $238 million in 2000.
- There are 160 industrial enterprises active in various biotechnology sectors.
- There are 4,000 Israelis working in the biotechnology field today as compared to 400 in 1988.
- 75% of Israeli biotech companies are start-ups with fewer than 20 employees. A dozen of these companies represent 80% of the market value, employ 50% of the human resources, and generate two-thirds of the sales.
- There are 36 companies in therapeutic pharmaceuticals in Israel and they generate 67% of the Israeli biotech product sales. Diagnostics account for 4% of biotech sales and agro-bio and veterinary products amount to 23% of sales.
- In 2001, sales of products by Israeli biotech companies reached more than $1.0 billion, up from $15 million in 1988.
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Another factor hindering biotherapeutics in Israel is the scarcity of qualified top-level executives with hands-on experience in the biotechnology industry. Nimrodi argues that this is true but only because the Israeli biotechnology industry is relatively young and in early stages of development. Goldwasser agrees, mentioning the acute the lack of expert managers, marketers, and product development professionals.
Importing talent from abroad doesn't seem to be the answer either. In the current geopolitical crisis, it is nearly impossible to recruit top management positions from the United States. Those that have come in the past have suffered from cultural incompatibilities, making it difficult for them to function effectively in homogenous Israeli start-ups.
"Israel direly lacks qualified managers that can make informed business decisions," notes Dr. Shai Yarkoni, CTO of Collgard Biopharmaceuticals. He believes that unlike other industries, biotechnology executives must have a background in one of the life sciences. "They need to possess a thorough understanding of basic biotech concepts and speak the industry's language in order to proficiently assess all possible business alternatives."
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| Squeezing through the Bottleneck |
One of the industry's most immediate problems is the lack of infrastructure resources required to service the biotech industry. These services include laboratories, animal test facilities, and good manufacturing practice (GMP) production facilities (for clinical trial product batches). It is small consolation that the scarcity of infrastructure facilities has become a global bottleneck. Because Israeli companies go abroad for these services, they must wait in line at already overtaxed facilities, adding additional time-to-market as well as enormous costs.
A solution is on the horizon. The U.S.-Israel Commission for Science and Technology in cooperation with the Office of the Chief Scientist is currently evaluating the feasibility of constructing a $60 million development and manufacturing facility that will answer Israel's immediate and mid-term needs. The facility could be operational by 2005.
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| Bio's Recipe for Success
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So what does it take for an Israeli biotherapeutic start-up to at least make it to the starting line? There are no secrets here. "The technology must have great market potential, which usually comes from a broad, generic platform. In truth, this can be said of any new technology, no matter what industry it addresses," Goldwasser remarks. The much-vaunted "killer application" or first-mover advantage can also improve the odds, according to Nimrodi.
Dr. Aviv has found that a "two-leg" company model works well for his biotech ventures. He recommends establishing the company abroad, preferably the United States, and creating a subsidiary in Israel. Although this model is not ideal, if senior management positions are filled with qualified, team-dedicated personalities, the potential for success is great. "Biotechnology companies must have a balanced portfolio of products in the pipeline—a task not easy to achieve," comments Aviv, explaining that even a veteran company like Pharmos has difficulty maintaining feasible projects in each of the pre-clinical and clinical trial stages.
According to Nimrodi, a major factor for success is identifying and adopting the correct marketing strategy for each product in the company's product line. A product with a relatively niche-type user base, such as his company's therapy for acute complete spinal cord injury (now in Phase I clinical trials), will probably be marketed by the company itself, as the user base is extremely small, well defined, and easily reached. On the other hand, another product for treating multiple acute and chronic neurological diseases has much wider applications and can be commercialized more quickly and effectively through alliances with a big pharmaceutical company, in this case, Teva Pharmaceuticals.
There is no doubt that discoveries in biotherapeutics are already changing the way we perceive the role of medications and drug therapies in curing what ails us. There is also no doubt that Israel has the brainpower to become a world leader in this field. But the question remains: Will the Israeli biotech industry receive the support it deserves from both government and private sector to help it overcome the many obstacles currently blocking its road to success?
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The Trendletter team welcomes your comments.
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Kippy Flur
Consultant
The Trendlines Group
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