Israeli biomed is enjoying one of its best periods in its history. Israel Advanced Technology Industries (IATI), the umbrella organization of the Israeli high-tech industry, published a comprehensive report in advance of the IATI Biomed 2015 conference, which is being held in Tel Aviv this week. The conference is being co-chaired by Ruth Alon and Dr. Benny Zeevi.
The life-sciences figures are impressive. There are 1,380 companies active in Israel today, an all-time record - 53% are medical devices companies, 23% are pharmaceutical companies, and 20% are digital or mobile healthcare companies. Investment in medical devices in 2014 accounted for 54% of total biomed investment, slightly less than the 61% that the industry saw in 2005-2010. This decrease reflects the difficulty the medical devices industry has been facing globally in raising funds. On the other hand, pharmaceuticals had a 79% increase in investment relative to 2013.
Total investment in pharmaceuticals last year was low relative to medical devices ($286 million, compared with $410 million), but the gap has narrowed relative to past years. In the last five years, the digital healthcare sector has grown, and from 2009 until today a total of roughly $400 million has been invested, $200 million of it in the past two years.
There are 280 R&D centers operating in Israel for foreign companies, some of them in healthcare. In most cases, the development centers were established following the acquisition of a local company, as was the case for Johnson & Johnson, Philips, General Electric, Merck Serono, Abbott, Foson Pharmaceutical, Covidien (Medtronics), and others.
Start-up Nation is becoming more and more interesting to foreign investment groups - a number of corporations are busy looking for start-ups to invest in. Novartis scouts with the help of Israel’s BioLineRx; Roche invests in seed-stage companies with Pontifax; Merck Serono set up an independent incubator at an investment of €10 million, and Samsung has established an innovation-seeking center in Israel, which is focused on digital healthcare, among other things. These centers’ operations are testaments to the high regard foreign companies have for Israeli innovation.
Though not mentioned in the report, this phenomenon stems in part from the strategic decision made by Israeli generics giant Teva to reduce its investments in start-ups. In the past, it was said that Teva buys any worthwhile start-up in Israel, but after the changes the Israeli drug giant has been through, the playing field has been cleared for some of its major competitors to begin participating in the start-up scene in earlier stages.
$801 million in 2014
The report points to the fact that venture capital investment in biomed is finally recovering from the global financial crisis of 2008/9. According to IVC data that were analyzed for the report, life-sciences companies raised $801 million from venture capital firms in 2014 - 24% of all VC investments. Last decade, the average was 22%. In 2014, 55% growth was recorded compared with 2013, and 64% compared with 2012. This achievement is even more impressive in light of the fact that the average annual VC biotech investment in 2005-2011 was $371 million.
The growing interest in Israeli biomed has been primarily on the part of foreign entities. Israeli venture capital firms invested only 13% of their funds in 2014, down 20% compared with 2013 and 24% compared with 2012. Thus, the source of the increase in total investment is primarily from foreign funds.
The report points to the fact that venture capital firms prefer to invest in relatively mature companies, and invest larger sums, $10 million or more, in them. This tendency reflects the fact that leading entities are wary of the risk associated with young companies, but also that the industry as a whole is “growing up,” and there are more veteran companies. Generally speaking, the Israeli industry is young relative to the rest of the world, but this situation is improving.
The most active investors in the life-sciences industry over the past five years were Pontifax and Orbimed, which focus on pharmaceuticals. In third place is a new group, OurCrowd, a crowd-funding community of angel investors. Another notable investor in 2014 was Shavit Capital, a fund that invests a significant portion of its resources in financing companies in pre-IPO stages.
Most of the money coming into life-sciences companies actually came through the Nasdaq. In 2013-2014, 11 life-sciences companies raised $761 million. The average IPO raised $49.65 million, and some of the companies that held IPOs also held secondary offerings, shortly after the initial listing. This trend has continued into 2015, alongside companies already traded on the Tel Aviv Stock Exchange (TASE) listing on the Nasdaq as well. 12 out of 51 life-sciences companies that are traded on the TASE are traded also on the Nasdaq.
Most of the companies that held IPOs are trading below their IPO price, but ReWalk, Foamix, Neuroderm, and BiolineRx are trading higher.
In contrast to their success on the Nasdaq, Israeli biomed companies had difficulty with IPOs on the local exchange - just two companies did so, by buying stock-market shells. Despite this, already publicly traded companies succeeded in raising $39 million. In 2013, the situation was better, and companies raised $69 million, such that the TASE did contribute, albeit only slightly, to the biomed sector.
The total capital raised for life science from all sources (including government funding) in 2014 reached an all-time record of $2 billion.
IATI Biomed 2015 co-chair Dr. Benny Zeevi said: “What we can see from the report is that the companies are much more mature, and some are in advanced trial stages. The large amount of funds raised in the sector - almost as much as was raised by the entire high-tech sector in Israel - also stands out. Many players who invested this year are new to investing in Israel, be they venture capital firms, or new corporate funds, or investors from China and India (whose entry explains most of the rise in investment in private companies).
“And still, and perhaps because of the potential for prosperity- the field needs very serious support, in every respect - support from academia, in technology transfer, in seed stages, and in commercial stages.”
The TASE biomed index yields have seen ups and downs in recent years, and the index is currently at a relative low. Over the course of 2014, the index lost 37% of its value (though it has recovered slightly since). It has risen 34% since it was launched in early 2010.
Acquisitions totaling $2.9 billion
In addition to the fundraising, there were quite a few acquisitions. In 2013-2014, Israeli companies were acquired for a total of $2.9 billion - much more than the average over the last decade (during which there was an annual average of $850 million).
Most of the companies were acquired when they were already in sales stages, and half were already established in the market. Another third of the companies were acquired while still in R&D stages. 70% were medical devices companies. In the US too, where the medical devices industry has had funding difficulties in recent years, there was actually considerable mergers and acquisitions activity.
There were also many mergers and acquisitions in pharmaceuticals, which generated a great deal of value for the acquired companies. $200 billion changed hands in 2014 in global pharmaceuticals acquisitions, even without the “mega-mergers” between the giants that took place in recent years.
Success is rooted in the academic research
The success of Israel’s biomed industry is dependent upon the success of the academic research in the field. The 2013 joint Technion Samuel Neaman Institute and Ministry of Science report, which is quoted in the IATI report, states that 45% of the patents registered by Israeli researchers in 2007-2011 were in life sciences.
As for the next generation, 46% of PhD students in Israel are pursuing studies in the various life-sciences disciplines. According to the report, the number of patents registered by the universities and hospitals based on researchers’ inventions increased by 24% between 2008 and 2013, with life-sciences patents leading the trend.
Israeli commercialization (technology transfer) companies have a combined 1,966 active commercialization agreements, 71% of which are with Israeli companies, and 17% of which are with US companies. Commercialization company revenue reached $1.9 billion in 2012, an increase of 11.9% compared with 2011. 94% of royalties were from pharmaceuticals.
Published by Globes [online], Israel business news - www.globes-online.com - on May 11, 2015
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