Israel’s biotechnology incubators were born in an item in the report of the Monitor committee set up to determine and realize the country’s biotechnology potential. Submitted to the Ministries of Finance and Industry and Trade in February 2001, it recommended measures to streamline biotechnology transfer from the universities to the world of commerce. The committee found that the state’s traditional incubator program was inadequate to preserve Israel’s relative advantage in the field,. A new private sector incubator model was required that would meet the demands of efficient, profitable activity.
As a result, in December 2001, the Office of the Chief Scientist at the Ministry of Industry and Trade published a tender to operate two biotechnology incubators. A month ago, in the wake of the storm over the results of that tender, the ministry published another tender to operate a third incubator in Israel’s outlying areas. The winners of the first tender, Ofer Brothers and the Zisapel brothers, announced they would establish their incubators in Rehovot and Jerusalem, respectively.
The Rad Bioscience consortium, headed by Yehuda and Zohar Zisapel, includes German pharmaceutical giant Merck KgaA (XETRA:MRCG), venture capital firms Star Ventures and TechnoVentures Management (TVM), investment banks US Bancorp Piper Jaffray and CE Unterberg Towbin, and Scientia Health Group Ltd. The Rad-Ramot Biomedical incubator, which currently operates in Tel Hashomer in collaboration with Tel Aviv University, will move to Jerusalem.
Although they head the consortium, the Zisapel brothers will apparently let the experts manage the business. Zohar Zisapel earlier told “Globes” the degree to which he would be personally involved in the incubator’s managerial decision, “A board of directors will manage the incubator, and it will make the decisions. Personally, I’ll be a little less involved. We don’t understand this field very well. We understand start-ups, but I can’t claim that I understand the life sciences like I understand communications and computers. Our academic committee has 27 advisors, including Nobel Prize laureates. It will be necessary to synergetically combine all their knowledge.”
From what is known about Rad-Bioscience’s plans, tone can conclude that the emphasis of the incubator will be, as always, biomedicine. Rad-Ramot CEO Dr. Vicki Rabenou, who will manage Rad-Bioscience, earlier told “Globes” that four companies would be chosen to set themselves up in the incubator in addition to the companies already based at Rad-Ramot. The new companies will all deal in drug discovery and development technologies. Rad-Bioscience VP business development Dr. Uri Elmaliah confirms that medical biotechnology applications will set the tone: drug development, new molecule discoveries, drug industry infrastructure development, etc.
Will all the current companies transfer from Tel Hashomer to the new infrastructure in Jerusalem? “No decision has yet been made about the existing companies,” says Elmaliah. “This is not because of the companies – we have good companies. It is a question of what can be transferred and what cannot. In Jerusalem, we’ll an infrastructure to run eight companies.”
The riddle is therefore still unanswered. What is certain is that, according to Elmaliah, the transfer to a larger operation will require hiring more managers. “The present team is the cadre, but obviously there will be a need to hire more people.”
As for Rad-Bioscience’s working relationship with international groups, Elmaliah prefers not to provide details at this time. Nor does he care to discuss other aspects of the incubator’s future work. “We are establishing an biotechnology incubator as promised in the plan submitted to the Ministry of Industry and Trade. In the context of this plan, our preparations are unceasing, but I don’t want to discuss our chickens before they’re hatched. The moment we get the green light, and when we sign the contracts with the state, we’ll hit the road and put the plan into operation.”
One of the reasons the green light has not yet been given is an appeal filed by the Israel Biodiscovery Fund after it was notified that it lost the first tender. Elmaliah says the appeal is pending, affecting all the other winners. “Nothing has begun openly. The appeal ostensibly does not affect us, because we won the first tender by a wide margin, but it does have an impact. In any event, all the plans are ready, and we know what we want to do.” he says.
With all the goodwill in the world, the Ministry of Industry and Trade’s wheels turn very slowly. The signs can also be seen with the tender’s other winner, the Einav group. Einav comprises Ofer Brothers Hi-Tech and the Yozma Fund, headed by Yigal Erlich. Until now, Ofer Brothers Hi-Tech was involved in incubators through its Ashkelon-based Naiot Technological Center. Naiot will continue business as usual, possibly affiliated with Einav. Other partners in Einav are Bio-Technology General (Nasdaq: BTGC), Genzyme (Nasdaq:GENZ) of the US; US venture capital company MPM Capital, which specializes in biotechnology and biopharmaceutical companies in the US and Europe; Eqity4Life; Harlan Biotech Israel, which supplies research materials and animals for preclinical trials; IMI (TAMI) Institute for R&D of the ICL Group; and The Frankel Group, a US consultancy firm specializing in biotechnology and pharmaceutical health services.
What is Einav planning to do? As with Rad-Bioscience, it is hard to get answers from Nurit Eyal, who will manage Einav jointly with Naiot CEO Lihu Avitov. Cutting through the government bureaucracy is slow going. In the meantime, Eyal says that the participating start-ups have not yet been chosen, although she knows that suitable candidates must be companies with rich technology pipelines. “They might be pharmaceuticals, tissue engineering, or drug delivery, but also bionanotechnology, stem cells or something else,” she says.
Under the tender terms, three companies a year will be chosen for each incubator, which will provide a base of 18 companies after six years.
Einav’s workforce will grow in accordance with projects and needs. “Our plans are to finally begin working. We are making preparations to set up the incubator in Rehovot in accordance with the rules, and to begin looking for projects. However, we’re working on a very low burner. We’re mainly waiting to sign the contract with the Chief Scientist and begin working,” Eyal says.
Einav has already begun working with the international partners in the Ofer Brothers consortium. “For example, we’ve been working with Genzyme on a daily basis from the beginning. Even though the incubator hasn’t yet been established, when I see projects that might interest them, I send them over, and vice versa,” says Eyal.
Genzyme, like all the pharmaceutical companies involved in the incubator, will have to keep to the well-established rule of the Chief scientist: aid in the due diligence stages, without a commitment to invest. Eyal stresses that the decisions about which companies to bring in to the incubator will be taken by the incubator’s investment committee, not by the consortium’s partners. Each partner will have the right to be involved in the initial process and have the option of a joint investment, “but they cannot prevent us from having relationships with any other investor,” says Eyal.
Nevertheless, what will be Einav’s criteria for investment decisions? “Eyal muses out loud, “Preliminary investments might be made through the existing Naiot incubator, and Einav will bring in later stage companies with proven feasibility.”
Beyond the specific projects of each group, there is a single purpose: to create a new, updated image of Israel as a biotechnology power. In contrast to the older high-tech incubators, the biotechnology incubators will be more businesslike, market-oriented, and responsive to market needs. Each project will be based in the incubator for no more than three years, before leaving to prove itself on its own. Each start-up will receive maximum financing of $1.8 million. The state will provide a loan for 85% of financing in the first year, which will be reduced to 65% by the third.
Even without knowing how many blockbuster drugs (i.e. drugs with sales of $1 billion a year) will result from Israeli initiatives, their prospects will now be greatly enhanced. By the end of 2005, the current incubator start-ups are due to graduate and enter the world at large, although this date may be pushed back, due to the recent delays. The presence of international pharmaceutical companies in the incubators’ management promises the budding Israeli companies better access to company senior executives, while the pharmaceutical giants will get preferential investment opportunities in the Israeli companies in exchange.
The presence of venture capital funds in the incubators’ management will enable the start-ups to develop more sophisticated strategies, and learn how to play in the major leagues from the outset.
The tender for third biotechnology incubator to be established in Israel’s outlying areas is in the preparation stage as these line are being written. Since the only consortium presently participating in the tender is the Israel Biodiscovery Fund, which intends to establish the incubator in the Omer industrial park outside Beer Sheva, it seem that the Negev will be chosen. Prof. Max Herzberg, one of Israel’s veteran biotechnology entrepreneurs, and Edmond de Rothschild Venture Capital Management president and CEO Joel Warschawski will head Biodiscovery. Other partners in the consortium include businessmen Stef Wertheimer and Morris Kahn, the Institut Pasteur, and European pharmaceutical companies Aventis, Sanofi, and Bio-Rad Laboratories, and clinical research group Quintiles Transnational Corp. Ben Gurion University of the Negev and Soroka Hospital will place their infrastructures at the incubator’s disposal.
The losers also have plans. The fourth participant in the first tender, Lapid Biotechnology, recently announced that it would direct its efforts to setting up a $16 million fund. The consortium’s partners include Pitango Venture Capital, Giza Venture Capital, Teva (Nasdaq: TEVA), Johnson & Johnson (NYSE:JNJ), and Yissum Research and Development Company of the Hebrew University of Jerusalem. It will operate as a venture capital fund. This is good news; indeed, the past six months has been full of such good tidings. We now must wait for the incubators to begin operating and hope the results will show improvement in the state’s handling of biotechnology.
Published by Globes [online] - www.globes.co.il - on September 5, 2002