Seeing an area of unrealized potential, Israeli firms and trade officials are preparing a major push in marketing biotechnology partnerships with American companies. “Israel has tremendous potential in life sciences,” said David Rubin, Israel’s trade envoy to North America at a recent Manhattan conference exploring cooperative ventures. “We have the scientists and the means to do the work. In the next five to 10 years, we can capture a larger share of the international market.”
The biotechnology industry includes such fields as medical research, pharmaceuticals, and environmentally friendly pesticides.
There is a growing recognition in corporate America of the merits of investing in Israel, said Mordechai Soloff of Price Waterhouse, a sponsor of the conference. “Israel is poised for significant development,” he said. “The stability of its financial market is equal to that of the U.S. The government wants investors and they can have great success in the biotech arena.”
But according to Haim Aviv, of the Israeli National Biotech Committee, Israel has underutilized its assets in competing in this growing market.
Those assets include seven universities and technical colleges; 10 specialized research facilities; and advanced biomedical research at its hospitals. Aviv added that 35 percent of the country’s scientists are devoted to the life sciences, and 12 percent of those scientists hold advanced degrees
Israel’s strategy for capturing a larger share of the market, Aviv said, calls for capitalizing on a previously underutilized research base, specializing in invention and development. The goal would be to globalize through partnerships in finance, marketing, and clinical and regulatory development.
“One of the most significant things missing is [domestic] finance companies” to fund research projects which creates opportunity for foreign investment, said Aviv.
“There are plenty of startups, but not enough success.”
But Eli Bismut, director of the U.S.-Israel Biotech Council, which sponsored the conference, said there were a growing number of venture capital opportunities available. “I think we’re seeing a change in the trend of investment, but the major need is strategic alliances. The best thing for small or medium companies to have is a U.S. strategic alliance. When a new technology is discovered, they need to validate it and find an application for it.”
In 1997, around 19 companies generated sales of $336 million, with $311 million in exports. Allowing for new ventures and partnerships, Aviv predicted $790 million in sales by the year 2000, and $1.8 billion in 2003.
To overcome the financing obstacles, Aviv is seeking the establishment of a major venture fund as an “important trigger.” He is hopeful that the government will pick up 20 to 25 percent of the investment, and has received strong signals from Finance Minister Yaacov Neeman. Aviv said he is also seeking to modify some of the existing financing programs while encouraging entrepeneurship and private domestic investment. He also hopes to offer fellowships to young scientists willing to move to managerial positions.
The United States is doing its part to promote partnerships with Israeli firms. In 1993, President Clinton and then Prime Minister Yitzchak Rabin initiated the United States-Israel Science and Technology Commission. The commission has thus far been responsible for some 60 initiatives between American and Israeli firms, according to Kathy Campbell, executive director of the commission in the U.S. The commission also offers American expertise to Israelis.
Campbell said that a number of task forces have been created and that workshops on property rights protection were recently held in Israel. “Biotechnology is a high priority,” said Campbell. “Admittedly, there is not a lot of money we can throw into this particular area. We have decided it’s a good niche to find eligible projects.”
One of the most successful recent U.S.-Israel biotechnology partnerships was the recent acquisition by Johnson and Johnson of Biosense, a Haifa firm founded in 1991 by Dr. Shlomo Ben Haim. Biosense invented and manufactures a diagnostic system that allows doctors to measure heart activity through implanted sensors. Using magnetic fields, the system is similar to the global positioning system used for aircraft or maritime navigation. The $400 million deal was Israel’s largest foreign investment in 1997.
“When clinics become familiar with this software, others will find it important to enter this field, but will have difficulty in doing so,” said Madden.
Madden outlined several reasons why Johnson and Johnson sought a partnership in Israel. They included the high proportion of doctorates in Israel, particularly among Russian immigrants, the large number of start-up companies, and the dedication of employees. “No one has left [Biosense] in the nine months since we acquired the company, and we understand that’s pretty typical,” said Madden.
The executive added, however, that overcoming cultural differences was an important element for collaboration.
One factor that the Americans were not prepared for was the Israeli style of doing business. “Israelis are very much in your face, and they are brutally honest,” said Madden. But he quickly added: “I don’t mind that, because you always know exactly where you stand.”