Biotechnology in Israel – History

במסגרת כנס Biotech Israel 2004, הוטל עלי לסקור בקצרה את תולדות תעשיית הביוטכנולוגיה המקומית. הנה הטקסט שהוצג בכנס.
שימו לב שהטקסט מעודכן ל-2004 ועובדות רבות בו, המתייחסות ל"הווה", כבר אינן נכונות היום.

Note: The following text was last updated in 2004. Most of the "current" facts mentioned in it are no longer valid today. Please double check.

Somewhere in the early Eighties, a group from SmithKline French (today merged into GlaxoSmithKline) visited Israel in order to negotiate and sign an agreement with the Israeli company Bio-technology General (BTG, today Savient). The talks took place in BTG's building in the Weizmann science park, that back then held two buildings only. At some point the hosts took their American visitors outside for a short break, and Standing there they witnessed a much symbolic site – four Bedouins passing by, leading their camels behind them.

This moment might represent the essence of Israeli Biotech and its first entrepreneurs – certainly in its early years. Working their way as pioneers would, learning as they go along, in the middle of what used to be a desert back then. Today the same science park holds tens of companies.

Of course, there were some biotechnological developments in Israel before the Eighties, but those were mostly specific governmental and agricultural projects. Few generic companies were active – Teva, Dexon, Agis and later also Taro. And still, the knowledge was accumulating in the universities and research centers – till today, Life Sciences take as much as 35% of Israel's university based R&D. Teva is of course responsible to a major innovative pharmaceutical activity, including the Copaxon, Rasagiline and other drugs in the pipeline, and this might be the place to mention Prof. Michael Sela from the Weizmann Institute, who was active in developing the Copaxone.

The idea of establishing the first Israeli Biotech company came to be in 1978, when the Swiss company Serono decided to deepen its contact with Israeli academy – till then, Serono was successfully cooperating with scientists from the Weizmann Institute, developing a fertility treatment. That year, the world had known only two Biotech companis – Cetus (est. 1971) and Genentech (est. 1976). Amgen didn't follow till 1980.

Not many people are aware of the fact that the Weizmann Institute itself had tried back then to establish a Biotech fund, based on knowledge of a group of scientists led by Prof. Michel Revel, together with the American bank EF Hutton, but the Arab ban on companies involved in business in Israel stood in the way. Left with their presentations and plans, the Institute accepted Serono's offer and the two became partners in InterPharm, a subsidiary of Serono. The company manufactures to this day biological pharmaceuticals, mainly recombinant human interferon-beta, that is formulated and marketed by Serono. In the early Eighties InterPharm went public in Nasdaq, to raise 6.5 M $, but returned later into Serono's arms and turned private again.

Today, InterPharm is a good example for a successful model in Biotech, in which local Israeli scientific knowledge is being supported and leveraged by an international corporate. However, though the Israeli communications and software sectors are well accustomed to this model, no other large international Bio-Pharma corporation have ever taken this path here.

(An update of Serono's Israeli connection)

In 1980, BTG was the second company based on the research from the Weizmnn Institute, but this time the model of action was different. The entrepreneurs, Dr. Haim Aviv and Dr. Marian Goretzky, with the support of the American venture capitalist Mr. Fred Adler, decided to do it themselves, without the support of an international corporation, and set up the Israeli and American operations of BTG simultaneously. This was indeed the first Biotech initiative based on the classic academy-industry connection, and soon there were more to follow.

BTG started as an agro-bio company, producing bovine growth hormone. As the years went by, the agricultural projects were abandoned, and today, the primary focus is manufacturing of genetically engineered, human health care products, mainly a recombinant human growth hormone. BTG was the first Israeli company to receive an FDA approval for a therapeutic product, and in 1983 it managed to complete an IPO in Nasdaq, being the 7th Biotech company to get there.

But in the late Eighties, the company found itself in financial difficulties. Since it was the only independent Biotech company, all eyes turned to watch whether BTG can handle the crisis. The company did some cutbacks, amended the business model and turned to big Israeli companies for help. Two companies refused to help BTG in its struggle, claiming they didn't believe Biotech could thrive, surely not in Israel – Teva and Israel Chamicals. In 1994, BTG turned its first profit, and found itself in the exclusive list of 6 Biotech companies, the rest of them American, who showed profit that year.

All through the Eighties, only 2 other Biotech companies were established in Israel, both focusing on Diagnostics – Orgenics, which was founded in 1983 by Prof. Max Hertzberg, is developing and marketing diagnostic testing systems for human infectious diseases, cancer markers and genetic disorders. The company was sold (for some 2 M$) in 1996 to the American company SelfCare (today Inverness Medical).

The fourth member of the pioneers generation is Savyon Diagnostics, established in 1984 – a subsidiary of Healthcare Technologies, a public company that develops, manifactures and markets clinical diagnostic test kits. HealtCare itself turned profit this year.

Following BTG's recovery, and with some help from government initiatives, the Second generation of Israeli Biotech started showing up in the early Nineties. Pharmos (1990), set by Dr. Haim Aviv, and D-Pharm (1993) are both considered part of this emerging industry, even though they walk more on the pharmaceutical side with their small molecules. After Pharmos went public in 1997 (raised 52 M$, market valuation 215 M $), no other Israeli company in the sector managed to find a window of opportunity for an IPO till 2000. Among the companies that were hoping to go public but finally didn't are D-Pharm and Peptor (1993, another Aviv's company). Peptor was merged earlier this year with the German company DeveloGen and moved its center to Germany.

One company who did manage to get into Nasdaq is Compugen (1993, IPO in 2000, raised 50 M$ at a company value of 277M $). Compugen is now traded at a valuation of 180 M $.

The IPO wave of 2000-2001 helped XTL (1993, IPO in London Stock Exchange in 2000, raised 44 M$ at a company value of 228M$) and Keryx (1998, IPO in 2001, raised 46 M$ at company value of 207M $) as well. Keryx is valued currently at 310 M $. XTL – at 31 M $.

Other names from the Nineties are QBI (1993), Insight BioPharmaceuticals (1995), Omrix (1995), Proneuron (1996), and Prochon (1997). So that second generation populates in all about 10 companies. By 1996 there were around 90 biotech companies, according to governmental sources
, in the governmental incubators program and outside of it.

One might find that with few exceptions, most of the second generation companies are still trying out their way, trying to create a "story" – a model that will take them forward, that would keep the share holders satisfied.

The 2000-2001 wave encouraged more companies to form. In the year 2002 there were 150 Biotech companies in Israel – some were shut down since then, other ones were set up in the meantime, so we can assume that the number is still somewhere around 150 companies. According to the Israeli Central bureau of statistics, around 120(!) of those companies are startups, most of them haven't reached the market as yet. 3,400 employees worked in the Biotech sector in 2002, and the industry gained revenues of 1,270 M NIS (250 M $).

The strong connection between the academy and the industry has paid itself off in the form of novel "Israeli" drugs, that originated in the Israeli academy. These drugs were developed by local companies (i.e Teva) or licensed out to international corporations. and are now block-busters:

Rebif (Weizmann-Serono) – annual sales $550M 
GonalF (Weizmann-Serono) – $450M
Doxil (Hadsit/Hebrew U.- J&J) – $350M
Copaxone (Weizmann-Teva) – $540M
Exelon (Hebrew University-Novartis) – $340M

All those years, the Israeli government was trying to find new ways to support the sector. Three reports were written, surveying the potential of the local industry, the challenges and the opportunities for governmental investments. These were the Katzir report (1988), the Aviv report (1998), and the Monitor report (2001). Based on recommendations of the Monitor report, the Ministry of Trade and Industry has decided to launch 3 Biotech incubators, a plan that didn't go through.

Traditionally, the governmental aid is limited to seed companies mainly, and big foreign investors are not a common site in this sector. Currently, the result is that the younger companies find themselves relying on local VC funds, who in their turn find it a too big a task to support the typical bio-pharma company with tens of millions. In 2003, the average deal size for an Israeli bio-pharma company was 1.5 M $, and in the peak year of 2000 it was 2.6 M $, while in the USA it is much higher.

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