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IATI - Israel Advanced Technology Industries
IATI - Israel Advanced Technology Industries
IATI Resources Industry Reports IATI report: The Israeli Life Science Industry 2001-2010

IATI report: The Israeli Life Science Industry 2001-2010

A Decade Of Growth

The Israeli Life Science Industry is young and growing. Of the currently operating 702 companies, 56% were founded during the last decade. A closer look reveals that a quarter (173 companies) of the Industry was established in the last five years. Figure 1 depicts the trend and growth experienced by the industry in the 2001-2010, period. 306 companies were established prior to 2001, with the oldest one, Teva Pharmaceutical, founded in 1901. From 2001 to 2005, the industry experienced annual growth equaling 12%. In total, the industry grew by an additional 223 companies in the 2001-2005 period. In the past five years, industry growth has remained stable with approximately 40-45 new companies established, annually. Please note (i) that data depicts the number of companies established in the stated year and are currently active, and (ii) the data of 2009/10 is incomplete.
 
The industry's growth has decelerated over the past three years due to the global economic crisis. Our data suggests that approximately 200 companies have ceased their operation due to lack of financing or failure of the business proposition. Furthermore, the largest sector of the Israeli Life Science industry (medical devices) has been negatively affected by the changes in regulatory environment in the USA. Finally, the fear of the unknown embedded in the Healthcare Reform in the US has negatively impacted both corporations and investors, therefore affecting the pace of investment and the number of companies established in the 2008-2010 timeframe, and funds available to follow-on investments.
 

Figure 1 
The Israeli Life Science Industry 
Number of Companies Founded

 

 

COMPANIES' DEVELOPMENT STAGE
 
56% (396) of the 702 companies were created within the last decade. Of those, 27% or 105 companies are revenue generating entities. The remaining 214 revenue generating companies are mature and were created prior to 2001. More impressive is the fact that 25 companies or 8% of all revenue producing companies were established within the last five years. Approximately 16% of the life science industry or 110 companies are at the seed stage, 11% or 74 companies are at the preclinical stage and 146 or 21% of the companies are at the clinical stage.

Figure 2 
Companies Developmental Stage

 

A closer look at pre-clinical and clinical stages reveals that 38, 21 and 11 companies of the medical device, biotechnology and pharmaceutical companies, respectively are currently in the pre-clinical stage. Concurrently, 87, 31 and 22 companies of the medical device, biotechnology and pharmaceutical companies, respectively are currently in the clinical stage.
 
Figure 3 
Companies Pre-Clinical and Clinical Stages
 
The Table 1 below lists the number of BioPharma companies and molecules in clinical trials in the various stages. As depicted in Table 1, 52 BioPharma companies are currently conducting clinical trials for 61 molecules. Of those, 23 are in Phase I, 30 in Phase II and 8 in Phase III.
 
table 1
 
 
An analysis of the Israeli Medical Device sector reveals that close to 90 companies are in the process of conducting clinical trials. Of those, 15-20 are performing PMA studies (for definition see below) and the remaining are following the 510(K) rules which may or may not require human clinical trials to achieve FDA approvals. Concurrently and in light of the ever growing stringent rules of the FDA, a significant number of companies are electing to pursue approvals in territories outside of the USA, primarily a CE Mark in Europe. The latter, is a significantly easier, shorter, and thus less expensive than the USA FDA route. A CE Mark facilitates the approval process in countries like Canada, Australia and others.
 
Within the FDA, Center for Devices and Radiological Health (CDRH) has two primary regulatory pathways that medical devices can take to get to market. The Center uses the premarket approval (PMA) pathway to evaluate and approve technologies that are truly novel and pose a high potential risk to the patients using them. For low to medium risk devices, it employs the premarket notification or 510(k) process. Regardless of whether a device must follow the 510(k) or PMA pathway, the FDA has the ability to request that a company provide clinical data to support clearance or approval. This data often requires an allowance by the FDA to perform clinical trials in the U.S., which is known as an investigational device exemption (IDE).
 
Early in the implementation of section 510(k) of the Medical Device Amendments, it was well recognized that the 510(k) pathway to market could efficiently facilitate the availability of new technologies that have the same intended use as legally marketed devices without creating an undue regulatory burden. This approach was meant to allow companies to build upon established clinical and scientific evidence of safety and effectiveness to more rapidly iterate and improve the innovations available to patients. Not surprisingly, the 510(k) process is more widely used than the PMA pathway. In 2009, for example, CDRH approved just 15 original PMA submissions while it cleared approximately 3,000 products under a 510(k).
 
A survey conducted in the USA of approximately 200 medical device companies revealed that the average total cost for participants to bring a 510(k) product from concept to clearance was approximately $31 million, with $24 million spent on FDA dependent and/or related activities. For a PMA, the average total cost from concept to approval was $94 million, with $75 million spent on stages linked to the FDA. (Note that these estimates do not include the cost of obtaining reimbursement approval or any sales/marketing-related activities.)
 
While the cost of conducting PMA clinical trials is estimated between $80 million to $100 million regardless of whether the company is Israeli, European or American, the estimated cost for a 510(K) process is varied due to the fact that some products require no clinical trials while other may require the company to conduct human clinicals. However, it is important to note that 510(K) clinical trials under the FDA regulation are significantly less expensive and as stated above could reach approximately $30 million.
 
ISRAEL LIFE SCIENCE INDUSTRY SECTORS
 
The Israeli Life Science Industry is heavily biased towards the medical device sector, with 401 companies or 57% of the total. Biotech is the second largest sector with 130 companies or 18% and Pharmaceutical is the third with 76 companies or 11% of all life science companies operated in Israel (see Figure 4). Presently, medical IT represents 8% with 53 companies and AG-biotech, which is poorly represented in the database, has only 13 companies or 2% of the total.
 
 
Figure 4 
Israel's Life Sciences Industry - Sectors 
 
Medical Device 
The largest sub sector in the medical device arena is the one containing therapeutic devices, both implantable and disposable. The latter comprises 41% of the total medical device body of companies, followed by medical equipment, diagnostic, imaging and monitoring companies contributing 18%, 13%, 11% and 6%, respectively (see Figure 5).
 
Figure 5 
Israel's Medical Device Companies - Subsectors
 
Biotechnology 
 
The biotechnology sector is the second largest with 130 companies. The sector is fluid with new companies being established and old one being abandoned. Of the universe of 130, 47 companies, or 36% of total are revenue generating. It is interesting to note that most are selling diagnostic kits or research equipment. 31 companies or 24% are in the seed stage, 21 companies in preclinical stage (16%) and 31 companies in clinical stage (24%).
 
Figure 6 depicts Israel's biotech companies categorized by sub sectors. Diagnostic kits, Biopharma compounds and Tissue Engineering & Cell Therapy are the largest subsectors with 20 companies or 15% of the total biotech sector each.
 
Figure 6 
Israel's Biotech Companies - Subsectors
 
Pharmaceutical Sector 
Pharmaceutical is the third sector with 76 companies. Although smaller in number of companies, it is by far the largest and most established sector in the Israeli Life sciences industry. It is the largest revenue producer with 27 companies such as Teva, Taro and Dexcel Pharma, which are also the largest employers in the Israeli industry. These companies are generally mature and focus their business on generic drugs. Concurrently, 49 pharmaceutical companies are younger and small with less than 10 employees. 
Although Israel's Pharma companies are well known for their generic drug emphasis, 22% are involved in drug discovery, 17% in drug delivery and 14% of the sector is involved in the development of New Chemical Entity (NCE). Several others are focusing on the development of new drugs using natural materials (see Figure 7).
 
Figure 7 
Israel's Pharma Companies - Subsectors
 
 
AgBiotech 
Israel's agriculture research is a major success story dating to 1909 when Aaron Aaronson discovered the wild ancestor of domestic wheat. Agriculture and scientific developments have produced increasingly sophisticated and efficient agriculture systems with considerable economic impacts. Israel began with an agriculture dominated economy largely based on citrus exports. Today, Israel's agriculture biotech related products and research fall into the following categories:
 
- Replacing usage of toxic pesticides that endanger both man and the environment by biological control
 
- Developing plants with desired characteristics based on molecular genetic technology
 
- Developing poultry and farm animals vaccines
 
As mentioned earlier this description is incomplete due to the small and potentially non-representative database of 13 companies.
 
INDUSTRY'S FOCUS AREAS
 
The Israeli industry focus is on unique opportunities of major diseases for which existing therapies are largely ineffective or non-existent. Thus, many Israeli companies are working on treatments for cardiovascular and peripheral vascular disease (109 companies), oncology (57), neurodegenerative disease (44), and other age related diseases such as ophthalmic (28) and orthopedic (37) (see Figure 4a).
 
Figure 4a 
Main Medical Fields - All Companies
 
Figures 8, 9 and 10 depict the focus on the various medical fields in the Medical Device (Figure 8), Biotechnology (Figure 9) and Pharma (Figure 10) sectors. It is interesting to note that the cardiovascular (including peripheral) medical field is a major area of investment across all sectors.
 
Figure 8 
Medical Devices - Medical Field Focus
 
 
Figure 9 
Biotechnology - Medical Field Focus
 
 
Figure 10 
Pharmaceuticals - Medical Field Focus

 

EMPLOYMENT

Table 2 
Number of Companies and Employees per Sector

 
Figure 11 
Number of Companies and their Respective Size
 
 
PATENTS
 
Israel's patent position is very strong and impressive:
 
Israel's total number of granted patents in the medical device area positions it in first place, worldwide in patents per capita (see Figure 12); and number four in absolute number of patents.
 
Israel's total number of granted patents in the biopharma field puts it in second place worldwide in patents per capita (see Figure 13) and number 8 in absolute number of biopharma patents
 
Israel's total number of Life Science patents as percent of total patents written by Israeli inventors, places the country in first place worldwide (see Figure 14)
 
Figure 12
 
Figure 13
 
 
Figure 14
 
 
FINANCING
 
Financing of Israel's Life Sciences Activities 
There are several sources of funding for the Israeli Life Sciences research and developmental activities. Exact figures are hard to come by, however, it is reasonable to assume that the local industry and academia spent approximately $800 million to $1.0 billion in 2009. The funding comes primarily from five sources:
 
Table 3 
Financing Sources
 
 
Venture Capital 
Venture investments in Israeli Life Sciences have ranged from a high of $287 million in 2004 to a low of less than $100 million in the 2009 and 2010 time frame (see Figure 16). The decline is directly related to the global economic crisis. In addition, one cannot ignore the impact of the uncertainty related to what has become to be known as the Obama Healthcare Reform and the negative effects of the regulatory changes at the FDA.
 
Figure 16 
Venture Capital Investments in Israel 
(Mill $)

Source: PWC Kesselman & Kesselman

 

Figure 17

 

 
As seen in Figure 17 above, the majority of funds invested by Venture capital in Israel are directed towards medical devices. This is a trend that begun in the 1990s due to the assumptions that investment in the medical devices requires less funds, is for a shorter period and better matches the human resources and infrastructure in Israel. This is in direct opposite to what one sees in Europe and the USA where approximately 70% of the funds are invested in BioPharma and 30% in the Mediacl Device sector.
 
It is often that one hears about investments in life sciences as being highly risky, time consuming and money guzzlers. A quick look at the graph below indicates that since 1997 until 2008 approximately $2.1 billion were invested by venture capital funds in the Israeli life sciences sector. Of those, 63% in Medical Devices and 37% in BioPharma - a reversal of the U.S. investment split.
 
Upon analysis of data from 1997-Present we see that 20 companies were acquired for sums larger than $50 million each, whereby the aggregate sum of these acquisitions was $3.3 billion excluding milestones and royalties (see Table 4). A closer look at the 2003-Present period, suggests that 17 companies were acquired for a total sum of $2.6 billion. It is our assumption that 1997-2003 were years of investments of approximately $1.0 billion, therefore the $2.6 billion return is remarkable as it represents only 17 (7%) companies while the investment was made in at least 250 companies.
 
One can hypothesize and assume that if only an additional small fraction of 5% (13 companies) would be acquired for $100 - $150 million per company, than the overall sum would be $1.3 billion to $2.0 billion, bringing the total return to $3.9 billion to $4.6 billion or a respectable multiple of 3.9X - 4.6X.
 
Table 4 
Acquired Israeli Life Sciences Companies 
1996 - 2010
 
 
HUMAN RESOURCES
 
Israeli universities are staffed with leading academic researchers, thus offering excellent curricula in engineering and basic sciences. Many students pursue advanced degrees and form the backbone of R&D in Israeli companies. As seen in Table 5, approximately 3,800 students have received academic degrees in life sciences related fields. Of those, 58% earned their Bachelor degree, 31.5% a MSc. degree and 10% their M.D. /PhD degrees. It is worthwhile noting that of those earning their Doctoral degree, 26% were graduates of life sciences disciplines. Despite this highly educated group, the local industry suffers from a lack of large corporations that typically would nurture management talent and serve as a conduit for personal and professional growth of industry leaders.
 
Table 5 
Israeli Recipients of Academic Degrees in Life Sciences 2007/08
 
Over the years, a large number of Israelis found their way into the large-scale US an European corporations, thus gaining considerable operational and business expertise. Since the medical device sector in Israel has been booming, especially in the last few years, a growing number of these Israelis returned to Israel and today occupy key positions in the industry. Unfortunately, the local biopharmaceutical sector has not witnessed the same phenomenon, primarily because there are fewer opportunities in this field in Israel.
 
 
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