Yeda earns $50-100m annually

Products developed by the Weizmann Institute have $20 billion in annual sales.

The campus of the Weizmann Institute of Science gives a sense of abundance to those entering its gates. Researchers and employees also report a sense of pampering. There is little talk about the crisis in universities' budgets common at other research universities. The Weizmann Institute's message to its researchers is, "Take what you need; equipment, an office, and peace of mind, and do research."

A substantial part of the Weizmann Institute's NIS 1.b billion budget comes from Yeda R&D Company Ltd., its technology transfer arm, which turns its inventions into patents for which it charges use royalties. The Weizmann Institute reportedly earns $50-100 million year from Yeda, 10-20% of its budget, an exceptional amount by the standards of Israeli and foreign technology transfer companies.

"We're a commercialization company with the highest income per researcher worldwide," says Yeda CEO Amir Naiberg, told "Globes" in a rare interview. "Products based on the Weizmann Institute's technology have $15 billion in annual global sales."

At a conference a year ago, Naiberg estimated patents commercialized from Israel's universities underpinned products with $20 billion in annual global sales.

Naiberg was interviewed after years of quiet by Yeda. The secrecy seems to have been due to a wish to avoid jealousy and envy, and maybe a wish to show governments and potential donors that the Weizmann Institute can get along without them. The modesty about the income from the applied sciences is also in line with the Weizmann Institute's attitude that this income is merely a side benefit, nice but not necessary, of investment in basic science, which is the institute's real purpose.

Whatever the reasons for the long period of quiet, Yeda and Naiberg are now willing to open up, for the first time, although not about finances. But the huge success in the past raises the question whether the Weizmann Institute can keep its global standing. Naiberg admits that it's a challenge. Referring to the innovative method for actively identifying technologies at research institutes, collaborating with the researchers, extensive registering of patents, proactive entrepreneurship, and ties with big companies and start-ups, he says, "Israeli commercialization was once very innovative and a breakthrough, but the whole world has since learned our model. It is now being applied, but with more generous government and budget support. The US is working very hard, and Asia is working very hard, in China, Hong Kong, and Singapore." Therefore, if Israel wants to keep its competitive advantage, it will have to allocate the same level of budgets.

Before looking to the future, the products which brought Yeda fame should be mentioned. First and foremost is Copaxone, the blockbuster treatment for multiple sclerosis produced by Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA). The Weizmann Institute drew up an extraordinary deal in many ways: the agreement was signed relatively late in Copaxone's development process, after it had already passed a human feasibility trial; and the institute kept a substantial part of the pie. Few people know it, but at some point, Teva returned the technology to the Weizmann Institute, which will continue to develop it, and when Teva asks to repurchase the product, the price will go up.

Second, the product is a blockbuster, with more than $20 billion in sales. Third, Copaxone's was Teva's first purchase of a product that was not a generic drug, and for this reason it may have been less tough in the negotiations (the case ended up in arbitration, which the Weizmann Institute won). "I dont think that Teva regrets this deal," says Naiberg dryly about the product which made Teva into the Israeli giant that it is today. Copaxone's patent is due to expire in two years. Yeda reportedly earned 8-9% on Copaxone's sales, amounting to around $2 billion.

Another blockbuster drug was Rebif, also for the treatment of multiple sclerosis, which the Weizmann Institute and Merck Serono SA developed through a joint venture InterPharm (now Inter-Lab Merck Serono's R&D center in Israel). The Weizmann Institute sold its stake in InterPharm for a few tens of millions of dollars, taking royalties on sales instead. Rebif has more than $1 billion in annual sales, and the institute apparently earns 2-3% on sales during the agreement period.

Israel's life sciences industry was disappointed when Serono decided to move InterPharm's plant from Israel and produce Rebif overseas. Serono promised that, in view of the success of its relations with the Weizmann Institute, it would set up new plants on the basis of additional products originating from the institute. The collaboration has not yet yielded another blockbuster drug, but Serono has an R&D center and incubator in Israel - a direct result of the Weizmann Institute connection.

A third product is Erbitux, for the treatment of colorectal cancer. It is somewhat different from Copaxone and Rebif, because Yeda never commercialized it. The drug was wholly developed abroad with the help of a former Weizmann Institute research, Prof. Joseph Schlessinger. Only in retrospect did the Weizmann Institute notice that it owned one of the basic patents for the drug originating from an article by its researchers.

Naiberg, a lawyer by profession led the Weizmann Institute's fight. "This was a dramatic time, a real experience, because patent cases usually do not reach claims in court," he reminisces.

"Globes": Hollywood moments?

Naiberg: "The end was pure Hollywood by every measure. They appealed after we won in the first trial, while opening negotiations on a settlement at the same time. During the two days before the start of appeals trial, we slept at the institute. We had a court date for the appeal and we wanted to close the settlement beforehand. The moment came when we begged for the court date to be moved. We were told, 'This is an appeals court, we dont do that.' In the end, we succeeded in postponing the hearing by two hours, and as we were on the court steps, the story was over."

You did not invest in developing the drug, but the Weizmann Institute has nonetheless made a lot of money. Is that fair?

"Let's say that in this trial, luck was with the good guys."

Two of the researchers who developed Erbitux's antibody that was patented, Professor Michael Sela and Dr. Esther Aboud-Pirak, (Dr. Esther Hurwitz is the third researcher), told "Globes" in the past that the patent had been "stolen" from the Weizmann Institute. Naiberg meticulously uses legal language, saying, "We did not contend in the trial that the patent was taken from us illegally. There was negligence in the source of discovery documentation, and it was corrected. Relations with Schlessinger are now correct."

Could there be more drugs mistakenly developed on the basis of discoveries at the Weizmann Institute, which have the potential of a bonanza through a lawsuit?

"That's hard for me to believe. The patent law is now different, and there is more transparency in drug development. It's important for me to state that when the court validated that we owned the basic patent to the product, we realized that it could be the basis for other products as well, and we took the conscious decision not to go hunting and prevent other products from reaching market. We therefore awarded a backdated license for Amgen Inc.'s (Nasdaq: AMGN) Vectibix (also for the treatment of colorectal cancer), which has tens of millions of dollars in annual sales, and they pay us royalties. Few know that this product has Weizmann Institute technology."

Two other blockbuster products that are based on Weizmann Institute technology are Amgen's Enbrel for the treatment of rheumatoid arthritis, which was developed on the basis of discoveries by team headed by Prof. David Wallach, and has $4 billion in annual sales; and an encryption method developed by Prof. Adi Shamir, which underpins the technology of NDS (which Cisco Systems Inc. (Nasdaq: CSCO) acquired for $5 billion).

One researcher whose discoveries have not generated huge income is Prof. Ada Yonath, the Weizmann Institute's only Nobel Prize Laureate so far. Naiberg told "Globes" that when she won the prize, the institute took the ethical decision not to commercialize the know-how to a single pharmaceutical company, but to offer it at a fair price to every company.

Royalties only

"The nice thing about Yeda is that we have consistently had the same formula for years," says Naiberg. He is referring to the fact that Yeda does not own shares in companies, but only requests royalties. If products succeed, Yeda's portion is guaranteed, and is not diluted over the years. If the products do not succeed, Yeda will still get something, but this fits in well with the Weizmann Institute's philosophy: basic science will ultimately win.

This does not mean that the Weizmann Institute does not maintain continuous and permanent relations with companies. "We havent been tempted by alternative models, such as raising a venture capital fund to support our ventures in-house, or to set up a group of companies and float them on the Tel Aviv Stock Exchange (TASE)," The reference is to Yissum Technology Transfer Company of the Hebrew University of Jerusalem and Hadasit - the Technology Transfer Company of Hadassah Medical Organization , respectively.

Some will claim that Yeda is "pampered" in this regard, since it is currently difficult to commercialize early-stage products to big pharma companies or even to start-ups. The decision not to promote products through independent investment means that many good inventions will never be commercialized at all.

Naiberg is aware of the problem. "Even though we have excellent ties with all the multinationals, we now need to make a greater effort than before to grab their attention, because they are flooded with good ventures from all over the world," he says. Nonetheless, he sticks with his royalties-only approach. "The stage at which we commercialize our products, it's hard for us to bet which of them will make money for us. It's really a matter of luck, of the huge range of factors that are not under our control. That is why we don't want to bet and invest our money, or what we raised, in a limited number of companies," he says.

This does not mean that Yeda does not seek creating methods. For example, it established a venture with Clal Biotechnology Industries Ltd. (TASE: CBI), under which it will get direct access to Weizmann Institute scientists and decides which ventures might suit it. To date, the collaboration has not resulted in the founding of a company. "This is apparently because of their internal and strategic changes," says Naiberg. "However, we may do things together later on. we have a similar agreement with AbbVie Pharmaceuticals Inc. (Nasdaq: ABBV), which was spun off from Abbot Laboratories Inc. (NYSE: ABT). Work has begun, but there are not yet any products under development."

The Weizmann Institute also has a cooperation agreement with Serono SA.

Yeda expects to establish a biotechnology incubator, which will foster ventures emerging from universities and research institutes. "I regret that Israel has never had a genuine government-backed hook-up for all stages of activity," says Naiberg. "There was the Hurvitz fund to support applied research, which collapsed in the wake of the Madoff scandal, and years passed until the Kamin Program for applied research arrived, and the government-backed venture capital fund, OrbiMed Israel was established. But there is a gap between research and a project that is suitable for Orbimed. The government is now establishing a biotech incubator, but it takes time. Greater coordination is needed for all the parties to work together."

Aren't companies supposed to get along alone at some point?

"So they say, but they have no chance. The competition for venture capital money, including for corporate funds, is intense."

Yeda is known for playing legal hardball. Some even claim that its extensive legal activity harms its business. Naiberg says, "I am familiar with the argument that we're tough. I dont think it's true. Our work is based on the management of patents so there a legal aspect. But everything has a business perspective; there is no rule by lawyers here. On the contrary, our strength is that our lawyers understand science and business."

The patents on your leading products - Copaxone, Rebif, and Erbitux - have expired, or will expire within a few years. Which products will your future be based in the coming years?

"The diabetes drug of Clal Biotechnology Industries Ltd. (TASE: CBI) portfolio company Andromeda Biotech Ltd., which originated in research by Prof. Yaron Cohen, is undergoing a Phase III clinical trial. Steba Biotech has developed a prostate cancer treatment that is also undergoing a Phase III clinical trial. In green energy, which is likely to become a very interesting field for us in the future, Israel Corporation (TASE: ILCO) unit HelioFocus is succeeding nicely. It has secured investment from a Chinese consortium, and it will begin deployment of its systems in China in a few years."

Interestingly, the Weizmann Institute is pinning its hopes on Israeli companies, but without government support, this will be difficult.

Flu, microscopes and artificial photosynthesis

Israeli companies on which Naiberg is pinning Yeda's future include the following:

NewCO2Fuels Ltd. is developing a way to use artificial photosynthesis to convert carbon dioxide into energy. For humans, there is a surplus of carbon dioxide, which cannot be scrubbed except by burying, which makes it liable to be released by earthquakes. "When the ratio of carbon dioxide to oxygen is too high, life is asphyxiated," says NewCO2Fuels CEO David Banitt. He says that, in the past five years, Western countries have invested $25 billion in carbon dioxide scrubbing. "40% of solar energy is converted into fuel. There are other companies that are trying to convert carbon dioxide into fuel, but their utilization rate is far less than ours," he says.

Banitt says that NewCO2Fuels says that the company acquired the technology after its feasibility had been demonstrated at the Weizmann Institute. The company's offices are close to the institute, and Prof. Jacob Karni is a senior adviser. Banitt makes sure to meet Naiberg and his team at least once every three months to update them on developments. "A start-up is a fragile thing, with limited ability to absorb breakdowns, and surprises from your partners should be avoided," he says. The company, which is developing an industrial scale version of its product, has raised $9 million to date.

Idea Bio-Medical Ltd. was founded in 2007 on the basis of a license from Yeda to develop a high-definition, ultra-fast biological cell-imaging electro-optical system for the viewing and automated manipulation of laboratory samples. "We are in constant contact with Naiberg to ask him for the know-how we need," said Idea Bio-Medical CEO Shlomo Turgeman. "The Weizmann Institute also encourages us to apply for EU Framework Program research grants, and we've obtained 2 million."

BiondVax Pharmaceuticals Ltd. (TASE:BNDX) is developing a universal flu vaccine on the basis of research by Prof. Ruth Arnon, who invented Copaxone. The company could become another winner for the Weizmann Institute, if the product reaches market. BiondVax CSO Dr. Tamar Ben-Yedidia completed her doctorate on a flu vaccine under Arnon's supervision. "Ruth does not work here, but this is still in many ways her baby," she says.

BiondVax founder and CEO Ron Babecoff came to the Weizmann Institute in 2002 as a penny-less but highly motivated entrepreneur looking for outstanding technologies which could serve as the basis for a company. "The Weizmann Institute opened its doors and patiently showed me various technologies. I was treated like a big pharma company. They even agreed to carry out small studies at their expense, which I saw as the difference between the technology's status and when it would be ready to turn into a company," he says.

Babecoff adds, "When the opportunity arose to raise capital, Yeda was willing to be flexible vis-à-vis investors. Not all the demands were accepted, but everyone emerged satisfied. We looked for more technologies from other sources, and the experience with other research organizations, especially overseas, was different. Other universities wanted payment in advance, and all kinds of conditions, which increased the risk, but not the chances of seeing future royalties."

Published by Globes [online], Israel business news - www.globes-online.com - on July 28, 2013

Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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