Israel's biotech opportunity

The global drugs development market is now undergoing dramatic change. This change could open an outstanding window of opportunity for Israel's life sciences market. The big drug companies are restructuring their ethical drug development operations. The development of an ethical drug costs around $1 billion, but even with higher investment in R&D, not enough molecules are coming onto the market. A decade ago, drug companies spent $25 billion on the development of new molecules in North America alone, and by 2006 this figure had more than doubled to $55 billion. Surprisingly, in 1996 the US Food and Drug Administration (FDA) approved 53 molecules compared with 22 in 2006. Because of this anomaly, the rate of growth in ethical molecules now stands at just 2% a year.

At the same time, clinical trials have become more costly. Insurance providers and the large drug buyers are bringing pressure on companies to lower prices, while on the other hand, generics manufacturers are breathing down their necks. These elements are driving the big companies to make small acquisitions, not just of later-stage companies, but mostly technology platforms. This enables them to keep own costly in-house R&D activity down to a minimum.

The big drug companies will be looking, principally, to acquire the following types of company:

1. Companies which have early-stage molecules (such as the potential million dollar deals between Israeli company QBI Enterprises and Pfizer, and the semi-Israeli Epix Pharmaceuticals, and Amgen, and GSK).

   Technology platforms for the production of therapeutic products (such as Protalix).

2. Proven drug development methodology, that will enable a drug's success to be predicted before clinical trials (such as NST-Neurosurvival Technologies).
3. Markers and genetic disease diagnosis methods for the customizing of individual treatment programs, and making the right choice of patients for trials.
4. Generic biological, or bio-similar drugs. The desire to replicate biotech drugs so as to circumvent patents (in instances where the patent is based on a chemical principle) is a top priority for leading generics companies.
5. The immunotherapy market. This field is growing by 11-14% a year. Preventative vaccines have always been a priority for classic drug companies, and now immunotherapy vaccines are as well.

   This is where the Israeli sector will have an opportunity. The next two years, 2008 and 2009, will see a quantum leap in global awareness of activity in Israel. Over the next two years, VBL-Vascular Biogenics, Omri, NST, Gamida Cell, Insightec, DeepBreeze, and D-Pharm will become familiar names worldwide, alongside Protalix, Omrix, Keryx, and even Rosetta Genomics.

   The entry of these companies to the international arena will bring about the realization that Israel is fertile ground for advanced science, and as a natural outcome of this, funds and pharmaceutical companies will come shopping for Israeli technology. This process will bring a lot of money into Israel. Even more important is the fact that this is smart money. The process has already begun. Classic pharmaceutical companies such as Roche, Lundbeck, and Merck already have units in Israel looking for ventures to acquire, principally in biotech.

   Since the fourth quarter of 2006, there has been a string of mergers and acquisitions in the pharma-biotech sector. Some of the acquisitions were made at values of more than $1 billion. If we look at the amount of cash the giant companies have on hand, it is clear than they have plenty of money, and with buy backs or the distribution of dividends no longer an option for raising market cap, at multiples of 12, companies like these are a potential takeover target, and will be not on terra firma unless they have a multiple of 20.

   These companies will go on the hunt for innovative technologies, and I believe that I will not be wrong if I say that leading Israeli companies are definite acquisition candidates.

   The revolution is here. Those Israeli companies that find smart financing and plan their moves wisely will make the breakthrough. What they will need to do is to make sure they have enough funds to reach a relatively advanced stage under their own steam. This is not just worthwhile; this is a growth engine that Israel cannot forego.

   Minister of Industry, Trade, and Labor Eli Yishai recently called on innovative pharmaceutical companies to come to Israel. He was wrong to do so. Nor should he have attempted to entice them with promises; this was a mistake. These companies will come here, once the field and the independent companies take off.

   The writer is managing partner of Pontifax Ltd. and CEO of Biomedix Incubator Ltd

   Published by Globes [online], Israel business news - www.globes.co.il - on December 11, 2007

   © Copyright of Globes Publisher Itonut (1983) Ltd. 2007