The NIS 200-350 million national biotech fund is getting underway. Although the final tender has not yet been published, the Ministry of Finance and the Office of the Chief Scientist today published - a month early - a request for proposals (RFP) outlining the fund's guidelines. The national biotech fund will be leverage to about NIS 1 billion through investment from external financial institutions.
The tender's first binding document will be published in a few months. By September 4, the public can submit responses to the outline guidelines.
When the government announced plans for the national biotech fund, an argument broke out between industry parties over the sharing of the budgetary pie between medical devices and biotechnology. Another argument erupted over which companies would be eligible for funding: early stage start-ups and incubator companies, or mature companies.
The RFP sheds some light on these matters. It states that the fund will allocate 75% of capital to biopharmaceuticals and 25% to medical devices, considerably than medical device entrepreneurs had sought.
The RFP adds that if the biotech fund manager raise more than triple the supplementary government financing from private sources, the fund managers can invest the surplus at their discretion.
The national biotech fund aims to help only Israeli companies in the industry to independently overcome the obstacles in registering drugs and medical products in the market. The vision is for at least one company to become an industry leader alongside Israel's pharmaceutical leader, Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA). Currently, most biotech companies fail, sometimes due to financial reasons, or are sold at an early stage.
Chief Scientist Dr. Eli Opper is leading the initiative for the fund, who launched the idea in 2006. The Ministry of Finance later joined the plan.
The RFP states that the national biotech fund can only invest in companies undertaking human clinical trials of their products, a fairly advanced stage of development. This issue was also a source of disagreement in the industry: commercialization companies, incubators, and early-stage companies had hoped for support for very early-stage start-ups, since Israel has fewer than ten companies currently undertaking Phase IIb or Phase III clinical trials, whereas there are scores of companies preparing for Phase II trials.
Investment in a company is limited to 15% of the fund's cash. Investment can reach 20% with the permission of a joint Ministry of Finance and Ministry of Industry, Trade and Labor committee. If the fund managers succeed in raising two or three times the amount of government support, the maximum investment in a company will be NIS 150 million. This amount is in line with the fund's objective of supporting companies undertaking advanced clinical trials.
Another important question is who will invest in the fund. The RFP implies that Ministry of Finance and the Office of the Chief Scientist want 2-3-fold leverage on the money, in other words, a total of $300 million available for investment.
Market sources believe that this is a very difficult time to find an investment institution willing and able to invest such an amount, even with generous government funding. The RFP states that the fund might be shares between two investors, which would bring the total amount of investment by any single firm to a more reasonable figure.
A final question concerns the fund manager. The RFP states that the manager should be an entity independent of the investors, at least in terms of legal standing. The manager must have expertise in life sciences investment, and preferably with foreign experts on its board. The fund manager must promise to invest 1% of the fund and management fees cannot exceed 1.5%.
Sources inform ''Globes'' that currently no Israeli institutional investor has decided to bid in the tender. Some institutions said that they will not participate because of the terms stated in the RFP. The sources added that foreign investors have expressed an interest in the fund.
Published by Globes [online], Israel business news - www.globes-online.com - on August 20, 2009
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