Biotech's trials and tribulations
- The great success of Israeli high-tech in the U.S., at least in the
beginning, was due in no small part to the Israelis living in the U.S.
and working at the centers of power: at the investment houses on Wall
Street, the big American high-tech companies, the venture capital
funds and the major law firms. An examination of most of the
high-tech-related deals made there - whether stock issues, sales,
acquisitions or product promotions - will usually reveal the
involvement of an Israeli living in the U.S.
A similar phenomenon is currently evident in the
biotechnology industry, in which Israel is considered a relative
newcomer: Israelis residing in the U.S. who are experts in this field
are trying to promote a connection with their homeland. One such expat
is Ranan Lachman, co-founder of 2Value Management Consulting, a
company that introduces developing technologies from around the world
to pharmaceutical and biotechnology companies, generally small- to
"I attended the Biotech 2004 conference in Israel. I met several
people there whom I introduced to an American company, and a deal is
apparently forming for the sale of Israeli technology in the near
future," says Lachman, who is familiar with the complexities of
Israel's biotech industry.
"Biotechnology professionals show a great appreciation for basic life
sciences research in Israel, but this research needs to be viewed in
the proper perspective," he explains. "It requires a tremendous amount
of money and patience to develop a new drug and bring it to the market
- an average of 8 years and $800 million. The U.S. administration's
budget for developing drugs is $30 billion a year, whereas the Israeli
chief scientist's annual budget for biotech totals only $400 million.
A biotech company has to start out with $3-$5 million to cover its
first two years."
One problem is that Israeli companies start out with an average of
just $600,000. Without significant connections abroad and with limited
possibilities of raising private funding in Israel (there are only
five local VC funds that specialize in biotech) - this sum clearly is
not enough for setting up clinical trials, even on animals.
Israeli biotech startups manage to reach the development stage so
early that they are unable to arouse interest among American or
Israeli VC funds, and certainly not among the big drug companies. For
this reason, about half of the 100 or so companies that sprout every
year close down.
What can be done about this? Lachman quotes the prevailing feeling
among many professionals that Israel's chief scientist is scattering
the investments among too many nascent companies.
"These professionals," says Lachman, "also recognize the fact that
there is no choice but to make the painful decision to stop supporting
about one-third of the companies - which will lead to their
dissolution - and to use the resources to finance the clinical
activities required by more promising companies."
Lachman notes that the problem in Israel goes even deeper: "There is
insufficient infrastructure in Israel for clinical human trials.
Israel has only two laboratories that are approved by the U.S. Food
and Drug Administration (FDA). It is very expensive to build such labs
- at least a few tens of millions of dollars. The result is that
Israeli companies outsource to Europe, which is a shame. When such
work is outsourced, it means that you are also not developing
knowledge in conducting clinical trials."
Lachman spares no criticism of the manner in which the Israeli biotech
industry is being managed for presentation to key forces in the world
"Even when a marketing package has to be created for a product there
are problems. The Israelis usually prepare a product portfolio that
displays insufficient respect and a lack of professionalism. When a
drug company or a foreign VC fund receives such a portfolio, they have
no great enthusiasm for dealing with it."