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Feb 1, 2009 (Vol. 29, No. 3)

Israeli Initiatives Seek to Sidestep Funding Crisis

Dearth of Venture Capital Spawns Innovative Actions to Invigorate Country’s Life Science Industry

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    BioLineRx takes a different approach and in-licenses projects that are developed as independent projects under a single corporate structure.

    Regardless of the ambient economic climate—which is, needless to say at the moment quite chilly—obtaining funding to support a start-up biotech company and to commercialize an early-stage product or technology is difficult. The situation is not very different in Israel, despite an abundance of world-class academic and research institutions to serve as breeding grounds for cutting-edge therapeutic and diagnostic development programs, a history of successful endeavors across the high-tech spectrum, and the presence of pharmaceutical giant Teva Pharmaceuticals.

    The life science sector in Israel must contend with limited venture capital funds available to stimulate the growth of young biopharmaceutical companies. Even as Israel’s economy and the focus of life science research have diversified, most venture capital firms with an interest in the biomedical industry continue to focus on the medical device sector. This dichotomy between an abundance of promising biomedical R&D and a dearth of funding sources has set the stage for some unique government-sponsored initiatives, regional programs, and a corporate-sponsored bioincubator aimed at fostering the expansion and financial success of start-up and existing biotech and biopharma ventures throughout the country.

    For the biotech industry, Israel is a country of opportunity and challenges, of wealth and need. The wealth of knowledge and academic research programs in Israel and the opportunity to commercialize cutting-edge discoveries stems from the country’s “innovative culture,” says Elka Nir, managing director of life sciences at Giza VC.

    She points to the large number of patents that have emerged from basic R&D activities at institutions around the globe (Figure 1). The ongoing need in Israel is for development dollars. Key challenges for biopharma companies include location—far from the largest market in the U.S.—and a limited supply of professionals with management expertise and experience in starting and sustaining a biopharmaceutical company and taking a drug through clinical development and to the market.

    VC firms such as Giza try to fill some of these gaps by offering, not only early-stage financing, but also knowledge and experience, access to advisors, and help with business development and networking. Giza, for example, has an office in Singapore, which can assist young companies access the Asian market. “It is easier if you have a presence in Asia to identify suppliers and help with regulatory issues and due diligence,” says Nir.

    Giza introduced a preseed and seed-stage investment plan called the Ofek Program, a milestone-based plan in which the firm will invest no more than $500,000 in seed funding for early-stage projects being developed into commercial ventures in an incubator setting. As a project matures, if it meets established milestones, then Giza will invest additional funds. If it does not, then Giza can cut its losses. The Ofek Program also includes early investment-round funding to bring experienced entrepreneurs and managers in-house.

    Nir further reports that venture capital activity in the life sciences has been steadily increasing. Giza’s investment in the life sciences is split about 70/30 for medical devices/drug development, which mirrors the overall VC picture in Israel, with approximately 60% of VC investments in the life sciences overall going toward the development of medical devices, according to the Israel Life Science Industry (ILSI), a group founded in 2005 that serves as an umbrella organization for the Israeli biotech industry.

    Currently, about 10 VC funds are active in the Israeli biotech sector. Eli Hazum, partner and chief scientist at Medica Venture Partners, agrees that the two main challenges young biotech companies face are the small amounts of seed funding available and the insufficient numbers of experienced managers and drug development teams, with Teva Pharmaceuticals being the only large company from which to draw seasoned professionals.

    “We have the culture,” says Hazum. “It will take time, but we are on the right track, and the government is contributing.” Hazum points out that Israeli investors in the life science sector are becoming increasingly sophisticated. They are looking for specialized pharma companies with innovative strategies such as novel drug delivery methods.

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    Figure 1

Readers' Comments

Posted 03/01/2009 by Israel Biotech

Good to read.

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