The idea to set up a national biotech fund has been around for a while. It first arose in a report submitted in 2001 by US consultancy firm Monitor. At a biomed conference in 2006, Chief Scientist Dr. Eli Opper announced his intention to launch a $300 million fund, and since then he has repeated the idea annually.
Two years ago, Leon Recanati set up a private think tank to review saving the biotech industry, which suggested setting up a similarly-sized national fund. The idea gathered momentum with Michael Milken's think tank that he set up for president Shimon Peres, around Peres's 2008 Presidential Conference. Milken's group included Ministry of Finance officials.
Nonetheless, as time dragged on it became increasingly unclear if the idea would ever get off the ground.
This week, as part of the government's process of opening its wallet to support sectors of the economy which are in crisis, a biotech support fund was officially announced. While its budget won't approach $300 million, and most of the companies which would have been helped by the original Monitor report are no longer around, at the end of the day this is good news. It represents new money for the industry. That may not be great for the money, but it is definitely not bad for the industry.
The Ministry of Finance will allocate NIS 125 million for biomed, and the Chief Scientist set aside NIS 125 million of his budget. The goal is to leverage these sums through private investment institutions such as private equity funds and insurance companies, primarily from Israel.
It is still not fully clear how the fund will be managed, and how the budget will be allocated. The Ministry of Finance is currently developing the tender for the company which will manage the fund, with the goal being to include a leading professional player, apparently a venture capital fund or foreign investment fund which specializes in biomed.
Chief Scientist Dr. Eli Opper says, "This is, in fact, the fund which I announced. After leveraging, it can reach the $300 million we spoke about, through a tender. The idea was accepted with amazing enthusiasm at the Ministry of Finance. They very quickly understood the problem and the nature of the solution that we proposed. It is still not clear who will receive the funds, but there will be more support for early stage firms."
The Yozma Venture Capital fund is essentially the model for Israel's venture capital sector. Its founder and managing partner Yigal Erlich was involved in the current process as well. Erlich says that the fund will look to large and small biotech and medical device firms, with a goal of involving new parties in the field.
Erlich says, "The state invests today in education and research, and does not get a return proportional to its investment. The goal is to realize more from this investment." Erlich claims there is already some interest from institutional investors.
Former Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) president and CEO Israel Makov, who currently is establishing a private biomed investment fund of his own, as well as serving as Given Imaging Ltd. (Nasdaq: GIVN; TASE: GIVN) chairman, says that one of the most important things about the fund is the extent to which the Ministry of Finance will be able to leverage it.
Makov says, "When it gets to NIS 1 billion, it will be possible to run the fund as one fund or as two funds an investment fund and a venture capital fund. I believe that biotech is too narrow a focus and it is necessary as well to allocate some of the funding to medical devices, and even to agriculture."
Dr. Rafi Hofstein , chairman of Hadasit Bio Holdings Ltd. (TASE:HDST) which participated in the fund's planning says that while there are still numerous open questions, the final decision will apparently be to allocate significant sums to relatively late-stage firms. "This fund needs to help bring the advanced molecules to clear the final hurdle, where the success of a few will enable the entire market to survive."
Ruben Krupik, president and CEO of ARTE, which manages investment firm Clal Biotechnologies, says that all new funds flowing into the sector are good, and that one can hope that the fund will be structured and managed, and funds allocated, in such a way as to allow firms to advance to later stages on their own merits, and to retain more activities in Israel.
Yet at first the idea of the fund met with some resistance. Teva chairman Eli Hurvitz said that as long as the fund was allocated to existing firms, without initiating significant changes, it would not help matters. Hurvitz also criticized the fact that the Ministry of Finance did not consult with the industry.
Former Amgen executive Dr. Effi Cohen-Arazi, a senior figure in Israel's biotech industry, believes that the fund is too small, and he too is troubled by the lack of consultation with industry. "I am still willing to sit and talk about it with anyone who wants, even as a volunteer", he says.
Cohen-Arazi believes that the resources should be allocated not just at late stages but also at the stage between when a company leaves an incubator and when it is ready for a venture capital fund to invest in it. "The Yozma model was very successful, and it also helped promote the life sciences industry. It's certainly possible to learn from it," he adds.
Adv. Yuval Horn, who has been involved in many deals in the industry, says that preference should be given t companies at more advanced stages, and, like Krupik, he believes that "support for such companies will be an alternative to them approaching the big pharma companies." He sees no objection to allocating the money directly to funds that specialize in the field and leaving investment choices up to them. He adds that no advantage is necessarily to be gained from bringing experts from overseas. "The management team must certainly be Israeli," he says.
Do you see this fund as a kind of last chance for the sector, with no more government initiatives if it fails?
Erlich: "To some extent, that's right. It's not that the sector will disappear if the fund doesn't succeed, but it looks as though it will continue treading water like today, and the chance of Israel becoming a leader in the field will be lost."
Published by Globes [online], Israel business news - www.globes.co.il - on February 4, 2009
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