The Israeli life sciences industry will remember 2017 mainly for the extensive layoffs at Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA). This process was traumatic for the entire industry; the sector's (more or less) only stable employer collapsed in a short two-year span. A report prepared in advance of the MIXiii Biomed 2018 conference starting in Tel Aviv on Tuesday by Israel Advanced Technology Industries (IATI) and consultants PwC Israel, however, shows that beyond Teva's problems lies a lively and prosperous sector in terms of the number of employees and companies, volume of investments, average financing round size, government support, and even the number of students studying the subject.
The life sciences sector, including Teva, employs 85,000 people, 2% of all employees in Israel, and is on a growth trend. Salaries are not as high as in high tech, but even junior employees earn more than the minimum. Furthermore, since this sector employs many workers with a high level of scientific education, it is likely that these companies' contribution to total wages in Israel is higher than their share of the total number of employed people in the country. The number of employees grew by 10,000 in 2017, among other things because digital health was added to the life sciences and some agricultural and functional food companies were counted as healthcare companies.
Life sciences industry
"As I see it, the number of those employed in the industry, published here for the first time, is the most dramatic thing about the report," says IATI co-chairperson and life sciences head Yaky Yanay. "For the sake of comparison, 200,000 people are employed in high tech. Salaries in health companies are not yet on the same level as in high tech, but on the other hand, the industry is more dispersed around the country and naturally employs people from more socioeconomic strata, so it is very significant for the economy."
The IATI report is the most comprehensive regularly published report about the industry. According to its figures, Israel currently has 1,450 active life sciences companies, a large increase over the 800-900 companies registered in Israel five years ago. 1,370 companies were founded over the past decade, and about half of them are still active.
40% rise in investments
The growth in this industry has been matched by growth in investments. A record $1.2 billion was raised for the industry in 2017 from local funds, foreign funds, public offerings (mainly on Nasdaq), investments by private equity funds (mainly Chinese), support from the Israel Innovation Authority, etc. Investment in the industry was 40% higher than in 2016 (when there was little activity on Nasdaq) and 400% higher than a decade ago. These figures show that the industry has finally outgrown the infancy in which it remained for decades; it has now earned a place of honor among the leading Israeli industries.
Financing rounds by Israeli companies
Another trend that continued in 2017 was growth in the amount of capital raised. According to the report, $656 million was raised in rounds of over $20 million last year, compared with $452 million in 2016. This increase was significant, because large financing rounds enable drug companies and companies developing complex medical devices to conduct proper advanced clinical trials, and companies developing less complex medical devices to build substantial marketing apparatuses.
The average amount raised per round by companies peaked at $8.86 million in 2017, the culmination of a trend that has been consistent since 2009. For the first time, however, the average amount raised increased at all stages, not just at the advanced stages. The average amount raised by companies in the R&D and initial revenue stages reached its highest point for the past decade. The industry has seen large fluctuations in the annual amount raised in recent years, primarily due to changes in the amounts raised on Nasdaq. In years in which the offerings window on Nasdaq was open, Israeli companies were able to raise hundreds of millions of dollars per year just from this instrument.
In the past decade, Israeli life sciences companies raised over $3.7 billion on Nasdaq, with $2.3 billion of this amount being raised in 2014, 2015, and 2017. 12 of the 36 Israeli life sciences companies listed on Nasdaq raised $673 million in IPOs and follow-up rounds, significantly more than in the preceding year. It appears that 2017's success is being repeated in 2018, with financing rounds by companies such as Sol-Gel and Motus GI Holdings, plus a second offering by Eloxx Pharmaceuticals. Several companies are waiting in line for issues, including Exalenz Bioscience and Gamida Cell.
On the other hand, Tel Aviv Stock Exchange (TASE) investors are still being cautious: only three life sciences companies held financing rounds on the TASE in 2017, raising a total of $17 million.
"Investment institutions are starting to arrive"
The feeling in recent years is that Israeli venture capital funds, which previously dominated the life sciences industry, have lost some of that dominance. The report says that Israeli investors in general are a significant factor, accounting for 40% of the investments in life sciences companies, a substantial increase in comparison with local investments in the sector in previous years. Local funds, however, were not responsible for most of those investments - they accounted for $141 million in investments, 12% of all investments in these companies in Israel. The Israelis investing in life sciences companies are private investors, investment institutions, and Innovation Authority grants. Yanay says, "A year ago, we stood up at the MIXiii-BIOMED Conference and called on investment institutions to come and invest. It appears that gradually, thanks to the work of various parties throughout the economy and your efforts in the media, this message has gotten through, and institutions are starting to arrive."
The leading Israeli fund in the number of life sciences investments in 2017 was aMoon Fund, a new fund, whose anchor investor is Check Point founder Marius Nacht. aMoon made no fewer than 11 new investments in 2017.
The TASE is a sore point for Israeli life sciences companies. 49 life sciences companies were listed on the TASE in 2017, 10% of all its companies. According to the report, however, only $17 million was raised on the TASE, and not because the companies did not need it. The medical index has underperformed in recent years in comparison with the general TASE index, mainly because the fiasco of US companies: Mankind, Celsion, nVidia, and Mylan Pharmaceuticals registered for trading on the TASE and their share prices plunged - some more, some less.
As for acquisitions, three of the largest high-tech acquisition deals in Israel in 2017 were of life sciences companies NeuroDerm, Syneron Medical, and Vatech. The $1.1 billion NeuroDerm acquisition was the second largest acquisition in Israel in 2017.
"There is no doubt that the life sciences industry in Israel is in a state of accelerated development and constitutes a significant element of the Israeli economy," says IATI co-chairperson Karin Mayer Rubinstein. "The government decision last March to set up a national program for promoting digital health is a welcome measure likely to enhance this trend. No less important is the vote of confidence in the industry by local investors, who accounted for 40% of all investments in the life sciences industry.
"At the same time, we face a major national challenge of bringing multinational life sciences companies to Israel. As the industry's roof organization, we are acting in cooperation with the government to bring life sciences companies in general, especially pharma companies."
Publication of academic papers bucks global trend by increasing
The number of new life sciences students in universities and colleges also grew in the 2016-2017 academic year, reaching 17,240, 6% more than in the preceding year. The increase is the biggest in these subjects in the past decade.
At the same time, the life sciences industry and institutions of higher education are still having a very difficult time absorbing all the students being awarded degrees in these subjects.
According to the report, there is also a rising trend in the number of academic papers published. While the number of scientific papers published, including in medicine, fell worldwide, the number of papers grew by 8% in Israel.
As for activity by technology transfer companies, many of whose patents originate in academic institutions, the report states that a total of 6,425 patent applications were filed in 2016, compared with 6,904 in 2015, a 7% fall. In the life sciences, however, the number of applications rose 17%. The main areas in which new patent applications were filed are life sciences (43%), chemistry and metallurgy (27%), and physics (12%).
Published by Globes [online], Israel business news - www.globes-online.com - on May 14, 2018
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