One of the most popular speakers at the conference Apax Partners Investment Fund organized a month ago in Israel, was Dr. Ron James, president of PPL Therapeutics, which cloned Dolly, the world’s most famous sheep.
At the conference, there was a gut feeling of opportunity and prospects for the birth of a new high-tech industry in Israel. "When we organized it, we expected a maximum of fifty people," explained Hanoch Bareket, manager of Apax Leumi, the Israeli arm of Apax Partners. "We were amazed when two hundred people arrived at the conference".
Does Israel have the potential to repeat its high-tech success in biotech? The manager of Lehman Bros. England’s medical division believes that it is possible to build a significant industry in Israel within five to ten years, through existing state financing programs.
However, at the moment, the infrastructure is relatively modest. According to
The US-Israel Biotech Council, fifty companies in Israel operate in the biotech industry, employing only 3,000 workers. Israel’s big advantage lies in the scientific infrastructure created in its academic institutions, which devote more resources to life sciences than the norm.
Apax also believes in Israel’s prospects. Two days before the conference, twelve of the company’s international partners met in Israel to discuss the fund’s future strategy, and one of their first decisions was to increase investments in Israel by $120 million (in addition to the existing base fund of $40 million). $20 million will be allotted for relatively small investments, and the remainder for strategic investments of $10 million and more in each company.
Apax Partners Fund chairman Ronald Cohen told "Globes" that, to date, Apax has invested in eleven Israeli high-tech companies, only two which, Dpharm and Compugen ($1.5 million each), are engaged in biotechnology. According to Cohen, it is still difficult to assess Israel’s biotech and medical industrial potential, but there has recently been an increase in local activity. "We are starting to "smell oil", and are interested in examining possibilities of investing further in Israel. We estimate that there are at least several hundred opportunities in Israel with economic potential".
Surprisingly, analysis of the world’s biotech sector shows that, from a financial perspective aspect, Israeli companies are not in a much inferior position to their global competitors, since "out of 7,000 American manufacturers in the sector, almost 85% are small companies employing less than 100 workers, 15% have not yet started selling, and only 3% of the companies have sales of more than $100 million per annum," explains US investment bank Robertson Stephens representative Jeffrey Barnes.
At the same time, Israeli companies that start operating in the sector must be aware of what Nomura Securities defines as "merger mania". According to them, the most prominent factor in the sector is the fierce competition among the major drug manufacturers. They search for the same drugs and the same technologies, the result of which is often a window of opportunity of only six weeks. They are therefore interested in purchasing small biotech companies that will provide them with a competitive edge and save them time.
It is easier to regard the biotech industry as one with the future ahead of it rather than as a mature industry. In all events, stock exchanges around the world have been far from enthusiastic during the past two years. In the US and Britain, biotech shares regularly lag behind the general index, not to mention the technology index. For example, the number of issuances in Britain shrunk to half , and only seventeen biotech companies issued throughout 1997, compared to thirty-one companies in 1996.
Simultaneously, characteristics of the merger deals also changed substantially. In 1997 there were forty-six mergers and acquisitions, for an average $47 million, a rather miserable amount, compared to the 1996 average of $80 million per deal.
Is it worthwhile investing in biotech companies if the market situation is so severe? "Certainly," says Ronald Cohen, referring to Israel’s industry as well as Europe’s and the US. Cohen points to the fact that most investment companies in the world invest 20% of their capital in biotech companies, regardless of the stock market.
"The market may be weak, yet we want to invest when the market falls. We intend to retain our share of biotech companies, in which we will also invest after they issue. Apax manages over $3 billion, we have already witnessed cycles, and in our opinion this is an excellent time to invest in biotechnology".
Published by Israel's Business Arena March 10, 1998