Goldwasser: Israel is cutting itself off at the knees

Prof. Benad Goldwasser is one of Israels veteran investors in the life sciences. He believes that the state is wasting the countrys advantage in biotechnology: It is inconceivable that the life science research budgets of all of Israels universities combined do not equal the budget of a single English university.

After many years of shunning the media, Prof. Benad Goldwasser granted a first interview to Globes. That the Medinol affair took away his appetite for conversations with journalists is understandable. From his perspective, the subject is over and done with, and he doesnt want to talk about it any more. Readers can do their own archival research about the director of Tel Hashomer Hospitals head of urology who joined the stent manufacturer in 1992 and left in 1996, following a noisy head-to-head confrontation with the companys short-tempered founders, after which he sold his stake in Medinol to Boston Scientific (NYSE:BSX) for $23 million.

It is hard to believe, but during these battles, Goldwasser found time to help found two other companies: VidaMed in the US and Optonol in Israel. VidaMed developed a minimally invasive treatment for enlarged prostates (BPH). VidaMed was acquired by Medtronic (Nasdaq:MDT) in December 2001 for $326 million. Optonol, founded in 1996 as a spin-off from Medinol, developed a miniature glaucoma implant that significantly reduces intra-ocular pressure.

This pleasant gentlemans current activities are much less turbulent. We are in a state of regular maintenance, he says, referring to Biomedical Investments, a veteran life sciences investment company. After investing $25 million, the company has $6 million left for follow-up investment in its portfolio companies. While it is still looking at new things (There are good investment opportunities in Israel, says Goldwasser), most activity is with its current portfolio.

However modest in size, Biomedical Investments has quite a promising portfolio. It has already one exit, XTL Biopharmaceuticals (LSE:XTL), in which it has a 4.7% stake following a mezzanine investment. Sources say that other advanced stage companies, such as Remon Medical Technologies and Colbar, could yield handsome returns.

Ted Arison founded Biomedical Investments in 1997, in order to invest in Israeli biomedical research. He was joined by then Teva CEO Eli Hurvitz and Bank Hapoalim shareholder and US Healthcare founder Leonard Abramson. Goldwasser was appointed general manager. Biomedical Investments invests in the pre-seed through mezzanine stages.

If it now hard to raise money for venture capital, especially in the life sciences, in 1997 it was barely imaginable. Goldwasser says, Five years ago, funds invested in medical device companies, but not in biotechnology. Returns were so high in IT that no one wanted to wait five to seven years. In fact, we had our first exit in two to three years, and had cash in hand. At that time, we were a very strange bird. Our friends saw our internal rate of return (IRR) of 50-100%, and some companies failed. Naturally, not everything succeeded. But no one was looking to make huge profits; the goal was to support this young industry. On the other hand, it is unpleasant to see portfolio companies fail.

Things are different now. IT no longer offers high returns. At time of insecurity like now, people want tangible assets. Software is intangible, whereas medical devices solve real problems. This back-to-basics is characteristic of periods of uncertainty. Furthermore, the market value of medical companies didnt fall on the stock exchanges like other companies. People who waited, profited.

What's bothering Goldwasser now isn't Medinol. He looks at the situation of Israeli life sciences around him, and senses that not enough is being done to convert science into products, or to promote the sector. First, he notes the budgetary problems that kept Israel out of the genome research after an early flowering in the 1980s.

While we had a advantage in IT, reaching second place after Silicon Valley, as a nation all we have now is human capital. We talk about the large number of patents relative to the population, but the fields of those patents is also important, and whether they are at the cutting edge of current research.

In the genome effort, Israel invested little effort compared with other countries. Consequently, there are problems in genome-derived fields such as protein research. Until recently, there was only one DNA sequencer in all of Israel, and that's an ordinary device found in every university overseas.

Israel has cut itself off at the knees. Relative to the size of our population, were OK. But if we want to be a great power, it wont happen. Instead of achieving an advantage, we are marching in place. The budgets of academic research institutes are much smaller than those of their US counterparts. The universities budgets for life science research is miniscule: $30 million at Tel Aviv University; and $60 million each at Hebrew University of Jerusalem and the Weizmann Institute of Science. For the sake of comparison, Cambridge and Oxford Universities have life science research budgets of $350 million each. It is inconceivable that the life science research budgets of all of Israels universities combined do not equal the budget of a single English university.

Because Israels research institutes are financially strapped, they tend to launch start-ups on the market too soon, rather than accepting government financing until it comes time to raise capital. This delays time to market and lowers the funds returns. Alternatively, entrepreneurs raise money from angel investors, in which case the first financing round is $2-3 million. In the US, companies raise $10-15 million in their first financing round. That is why Israeli companies are limping along, and find themselves financially strapped and with management problems from which there is no recourse.

Moreover, there is no differentiation between research and development. We have amazing research scientists, but few people experienced in developing a concept into a product. We lack experienced manpower, because Israel doesnt have a tradition of large biotechnology and pharmaceutical companies. Teva (Nasdaq: TEVA) is the only one. Under these circumstances, it is the advanced stage start-ups and young public companies that create reservoir of manpower. Even so, we still have a problem of talent.

Last year, the report on Israeli biotech prepared by consultancy Monitor was submitted, several committees were established and biotechnology was declared a national project. Goldwasser: The Monitor report was the best of them. It is welcome, but it is only a first step, which must have follow-up steps. The biotechnology industry is paralyzed, because it prefers to accept less than is offered it. This is not how infrastructure is built.

This is not a binary situation of yes or no. The question is whether we want to be number two in the world, and were not working towards this. The budgets now allocated may improve Israels situation, relative to its size and standing as a Western country. Something on the scale of the Netherlands in terms of research, but not Britain or Germany. Instead of marching forward and we' re lagging behind compared to where we were in the 1980s were reverting to our previous position, after having retreated in the 1990s. The question is whether that is the objective, or whether we want to create an advantage.

Biomedicals promising portfolio

A glance at Biomedical Investments portfolio shows some worthy companies. First is Remon Medical Technologies. This company has developed a miniaturized chip designed to monitor physiological processes (blood pressure and circulation, temperature, cardiovascular performance, glucose levels, etc.) that is planted inside the body and transmits the data to a monitor. The implant converts acoustic waves into electrical energy via a proprietary energy exchanger.

Officially, the company will have two products by 2004-05: one to monitor the hemodynamic status of patients with congestive heart failure (CHF); and the other to monitor pressure, following an endograft procedure in abdominal aortic aneurysm (AAA) patients. The second device is being developed jointly with Guidant Corp.(NYSE; PCX:GDT).

Remon raised $10 million last year from Polaris Venture Partners of the US, in its first investment in Israel, Concord Ventures and Biomedical Investments, at a company value of $25 million.

Next is Colbar, which already has sales, and hopes to post a profit in the second half of 2003. Colbar designs collagen protein-based guided tissue regeneration products for long-term medical and cosmetic treatments. The companys Dental Membrane encourages bone growth for dental implants is marketed in the US and will sold in Europe, Canada and Brazil as well.

First stage clinical trials of Colbars second product have already begun. The product is a collagen injection as a long-term cosmetic treatment for facial wrinkles and scars. Two other products in the advanced development stage are treatments for heartburn and incontinence. Colbar raised $9 million in late 2000 from Biomedical Investments, Pitango Venture Capital and Evergreen Partners.

Third is Gamida-Cell, which not only has interesting science, but a business model as well. Gamida-Cell uses stem cell expansion technology that enables multi-fold expansion of hematopoietic stem cells with minimal differentiation The technology substantially lowers the cost and increases the availability of bone marrow transplants, the companys first product line. Goldwasser says the current transplant for cancer patients costs $30,000.

Stem cell transplants should also reduce tissue rejection, because the cells are viewed by the bodys immune system as invaders. Gamida-Cell hopes to begin clinical trials by the middle of the year, and launch a product by the end of 2005.

Gamida-Cell is currently establishing a fetal stem cell bank, financed by Elscint Biomedical. The aim is to cut the long lines for bone marrow transplants. Gamida-Cell raised $9.75 million at a company value of $30 million in October 2001 from Elscint Biomedical, Clal Biotechnology, Biomedical Investments, Denali Ventures and Europes Auriga Ventures. At that time, there was talk of raising an additional $6 million.

MindSense Biosystems is developing a diagnosis kit for mental disorders using blood biomarkers. The frequency of certain genetic markers in the blood increases in cases of clinical depression and other disorders. MindSense is currently focusing on a clinical depression diagnosis, in partnership with Ciphergen Biosystems of France. They hope to have the first product in 2003.

MindSense raised $2 million last year from Germanys Future Capital. Previous investors, besides Biomedical Investments, were Shamrock Holdings, Comsor Investment Fund (a joint fund of Comverse Technology (Nasdaq: CMVT) and George Soros), AG-Tech VC Fund and NICE-Systems (Nasdaq: NICE) founders Benjamin Levin, David Arzi and Michael Golan.

Transpharma is developing a transdermal and pulmonary drug delivery system. The aim is to offer an alternative to current injection deliveries. Possible treatments include insulin, vaccines and growth hormones. If it succeeds, life will be sweet indeed for Transpharma. Having completed safety trials, the company is now conducting first stage live animal trials. Transpharma raised $6.5 million in July 2001 from Biomedical Investments, Pitango Venture Capital and Discount Capital Markets and Investments.

Two more unknown portfolio companies are BioControl Medical and CBD Technologies. BioControl is developing active implantable neurological and muscle stimulators to treat a spectrum of neurological disorders including incontinence, pain, limb control and other applications. CBD uses cellulose binding domain (CBD) technology to genetically engineer enhanced plant growth. The first target market is the paper industry, by developing fast growth trees. Dow Chemical Co. (NYSE:DOW) s became a strategic partner in the company in 1998.

Published by Israel's Business Arena on 14 March 2002

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