Israeli Life-science Firms Seeking Help to Grow Like Teva

There are nearly 1,400 companies in the sector, but until now lack of funding has seen many startups fall prey to larger international players.

Tomer Appelbaum

REUTERS – As Teva Pharmaceuticals, Israel’s biggest company, strives to get even larger by swallowing up rival Mylan for more than $40 billion, further down the food chain a raft of upstart life-science firms are struggling to climb onto the global ladder.

The government is starting to take notice, though, urged on by influential advocates, including Teva Pharmaceuticals’ own boss, who says Israel’s economic future depends on replicating his company’s success.

Israel has a burgeoning life-science industry (the scientific study of living organisms), comprising some 1,380 companies, most of them very small. Some 51 biotech, biopharma and medical device firms are listed on the Tel Aviv Stock Exchange, making it the largest single sector.

But few of them go on to build up their businesses, with most promising ideas snapped up by foreign heavyweights.

Novartis, Johnson & Johnson and Merck Serono have all opened research centers in Israel, usually by acquiring small companies. Merck Serono’s best-selling drug, Rebif, which treats multiple sclerosis (MS), was developed in Israel.

That frustrates many in the Israeli industry, who believe the country is letting wealth and expertise drain overseas.

“Startup nation is not a sustainable model for Israel. What Israel needs is more large companies,” Teva CEO Erez Vigodman said at the launch of a joint venture with Philips to invest in Israeli medical device and digital health startups.

Lack of funding

Teva, the world’s largest generic drugmaker with annual sales of $20 billion, used its fortune from copycat drugs to move into the costlier innovative sector. Today, around half its profit is from one branded drug – the MS treatment Copaxone. But that is not an easy model to replicate.

The biggest problem for Israeli firms, according to Claudio Yarza, head of life sciences at consultants PricewaterhouseCoopers (PwC) Israel, is a lack of funding – from university level to capital markets.

There are some signs, however, that it is starting to change.

Israeli life-science firms raised more than $2 billion from various resources in 2014 – a record year according to the Israel Advanced Technology Industries association.

What’s more, the Israel Venture Capital Research Center says that startups raised $801 million last year, 55 percent on 2013.

That’s almost twice the rate of growth as the United States, although startups there raised a much larger $8.6 billion, according to PwC and the National Venture Capital Association.

Also, of 73 biotech companies that went public on Nasdaq last year, seven were Israeli.

“Maybe now that some companies have raised nice sums on Nasdaq, they will be able to take their drugs all the way,” said PwC Israel’s Yarza.

Israeli firms also complain about red tape and the lack of manufacturing in Israel, which means they have to turn to foreign companies for help developing drugs.

“We don’t have enough drug development and manufacturing experience and infrastructure in Israel,” said Compugen CEO Anat Cohen-Dayag.

Compugen, which discovers drugs mainly in cancer immunotherapy using computational technology, has partnerships with Merck Serono and Bayer.

However, the Israeli government is now helping firms set up their own plants by offering funds for equipment, according to Ora Dar, head of life sciences in the Office of the Chief Scientist.

“We are also talking to CMOs [contract manufacturing organizations] to see what it will take to convince them to build facilities in Israel,” she added.

Dar said the government was tackling another common complaint among life-science executives: a lack of experience taking drugs through the regulatory process all the way to market.

The government is increasing funding for the health regulator to help speed up approval for clinical trials in Israel, she said, but there’s a long way to go.

While individual Israeli companies such as Protalix Biotherapeutics – whose plant-based enzyme was approved to treat Gaucher’s disease – may succeed, “most will either license their products to larger corporations or be acquired,” said IATI cochairman Dr. Benny Zeevi.

But Compugen’s Cohen-Dayag was cautiously optimistic. “A small company that would like to take drugs to market cannot establish the infrastructure in Israel on its own,” she said. “I think the government recognizes this now and is trying to build bridges to address these gaps. But it will take time,” she concluded.