BioLineRx, the central player investing in the Israeli life sciences sector, is on a roll. The drug development company is planning to add six biotechs to its portfolio this year on top of the six it chose in 2004, and it has opened negotiations for project No. 13.

BioLineRx has varied its portfolio, including drugs for neurological diseases, infections, oncology, neurology and metabolism. "BioLine will be actively involved in 12 projects by mid-2005," company CEO Morris Laster told Haaretz.

Laster told of one promising new candidate, a project dealing with developing a drug to treat fatty liver syndrome, a disorder related to diabetes. Laster noted that it is still unclear whether diabetes causes the accumulation of fat or if the fatty liver causes diabetes. However, "evidence exists suggesting that reducing fat in the liver leads to positive results among diabetes patients," he added.

One treatment has already yielded successful results in animals. BioLineRx is negotiating with the company to acquire development and global marketing rights for the drug. BioLineRx is prepared to invest $2 million in the company over the next six months. BioLineRx would likely team up with a multinational pharmaceutical at a later stage to help with financing final stage trials and production. The potential market is said to be $1 billion.

The fatty liver drug project is emerging as BioLineRx's preferred investment model, targeting biotechnology companies that have already registered positive results in animal trials but lack the funds for human clinical trials. "High-tech incubators compete for more preliminary projects. At BioLine we compete for projects that have results with animals. We, for example, take projects from the incubators, when their funding is through," said Laster.

These sentiments contradict the values that were widespread at the company's founding in May 2003, according to which the company would identify promising drug candidates from academic institutions and biotech companies and would implement development plans from feasibility trials all the way through to the drug stage. BioLine is apparently delimiting its investment risk from below, based on Laster's words, to the stage between incubator investors to venture capitalists. In other words, BioLine intends to take projects that have graduated the incubator stage, at a level where VCs hesitate to invest in a company.

Still, BioLine would invest in projects at an earlier stage on condition that development is promising and BioLine determines that the developing company is unable to finance the animal stage of trials.

The Israeli biotech industry regressed last year to the startup level as more veteran companies closed their doors, and others reinvented themselves after their original business model failed. Creativity characterizes biotech activity in Israel, but so does failed management that prevents the establishment of companies that can demonstrate long-term viability.

Laster believes that the failure stems from the lack of an innovative drug company to give direction to the development of young companies. "The Israeli industry has ideas but has no experience in developing innovative drugs," said Laster.

Perhaps because of this, competition over investing in biotechnology is not significant. Laster estimates the figure does not exceed $20-$30 million. VC funds tend to eye more medical equipment companies and fewer biotechnology companies. One major competing investor is Teva Pharmaceuticals, which directly invests in biotechnology companies, but is also one of BioLine's investors. "We at BioLine sometimes step on Teva's toes when we check out potential companies in which to invest," Laster said. "Only five or six Israeli investors and two small American funds are around to invest in biotechnology."

BioLine was set up by Teva, Pitango Venture Capital, Giza Venture Capital, Star Ventures, Hadassah Medical Organization's Hadasit and the Jerusalem Development Authority. The founding partners have sunk $14 million in the company to date.

The company apparently will spend a lot more in 2005, primarily to develop future drugs. BioLine will invest an additional $1,000,000 to establish the incubator, a 500-square-meter lab in Jerusalem. The first three projects for developing treatments for cancer, AIDS and intestinal disease are expected to begin soon at the incubator.