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Meeting the challenges of Israeli biotechnology03/08/2005. Source: Israel Venture Capital Journal. Dr. Avi Molcho
 In the Israel Venture Capital & Private Equity Journal, Dr. Avi Molcho, Managing Director at Giza Venture Capital, discusses the drug development company model as key to building a successful biotech industry in Israel.
Israel is among the world leaders in many fields of technology. It is a hub for innovative technologies in communications, semiconductors, information technology and medical devices - innovation that has been translated into commercial success. While the same, if not greater, degree of innovation is found in Israeli life sciences research, this has yet to be transformed into a more mature biotechnology start-up industry.
The gap between academic research awnd commercialisation
In 2001, Israel's Office of the Chief Scientist (OCS) issued a tender for two world-class biotech incubators. This initiative was one of the major recommendations of the Monitor Report that in 2000 surveyed the Israeli opportunity in biotechnology and highlighted the gap between the enormous potential in Israeli academic life sciences research and the relatively low success rate in transforming research into a vibrant biotechnology industry.
Israeli academia is among the world leaders in life sciences research, especially in therapeutic drugs for cancer, autoimmune disorders and disorders of the central nervous system. In spite of this rich scientific infrastructure, relatively few drug development programs have matured through start-up biotech companies. While prominent drugs, such as Copaxone, Rebif and Exelon, originated in Israeli academic research, all were developed by big pharmaceutical companies - not by small biotech start-ups.
Incubator program fizzles out
In an effort to boost Israel's biotech start-up industry, the OCS initiated a biotech incubator program. The incubators were to operate as classic incubators that would bring in multiple projects. Each project/company was to operate as a distinct initiative with its own team until sufficiently mature to leave the incubator and operate independently.
The innovation in the program was the significantly increased financial support secured by the OCS. Many were surprised and disappointed when the two groups that won the tender withdrew from the program before it ever got underway. This should not have come as a surprise, since the format of the classic incubator is incompatible with the challenges faced by Israeli biotech.
Challenges of Israeli biotechnology
While rich and high quality scientific infrastructure, as is found in Israel, is a must for a science-intense biotechnology industry, it is not sufficient. Other components are crucial as well. Experienced biotech managers and professional drug development teams are a prerequisite for any biopharmaceutical start-up industry. However, Israel lacks human resources in this area. There are simply not enough pharmaceutical companies that develop ethical drugs and could grow these teams in Israel.
There are about 160 biotech companies in Israel. This fertile activity is an indicator of a high level of creativity. However, it only intensifies the shortage of experienced and trained management and drug development teams. We have too many ships with too few skippers.
Not only do we have many ships, most of them are too small to sail the high seas. Most Israeli biotech companies have a relatively narrow scope. They are centered on one molecule or on a narrow drug target/platform, lacking the critical mass to become drug discovery and development companies. The narrow scope of companies is dictated by a shortage of funds that, if available, would allow for multiple expensive drug discovery and development projects in an early stage biotech company. The Israeli biotech industry is an early stage game, very much like the rest of the Israeli start-up industry.
These challenges were not met by the classic incubator model suggested by the OCS. The old model mostly does more of the same.
The drug development company model makes more sense
In 2003, BiolineRx was founded as a drug development company with a mission to bridge the gap between Israeli academic research and commercial drug development. The company was founded by Teva, the Israel-based, multinational pharmaceutical company; Hadassit, the technology transfer company of Jerusalem's Hadassah Medical Center; and two Israeli venture capital funds - Giza Venture Capital and Pitango Venture Capital.
The business model of BiolineRx is based on licensing-in molecules from Israeli academic institutions after pre-clinical proof of concept, generally in animal models, and taking them through the first proof-of-concept in humans, namely Phase IIa. At this stage, a product can be commercialized with the major pharmaceutical companies. This part of the drug development cycle carries the highest ratio of value increase to investment and can be executed within five years.
Multiple products provide development risk hedging. One experienced, professional team could operate the entire multiple-drug development program.
BiolineRx, which focuses on drug development, does not have a technology platform. This saves time that would otherwise be needed for the development of a platform. Additionally, it allows all resources to be invested in product development, which carries most of the value.
This model offers solutions to some of the aforementioned challenges. Instead of looking for multiple managers and drug development teams for several one-molecule companies, a single strong team can develop a rich pipeline of products.
Assembling a complete team for BiolineRx, led by an experienced serial entrepreneur, took close to a year. This exemplifies the challenge of finding teams for multiple biotech companies. A focus on the development stage allows for a viable business model for a company that starts early at the preclinical stage. This period of development can take up to five years, which is compatible with the venture financing model. The mix of partners brings in strong financial support and a multidisciplinary perspective of research, drug development and financing.
In 2004, the OCS acknowledged BiolineRx as the equivalent of one of its planned world-class biotech incubators and granted it special financial support. Currently, BiolineRx is the only biotech initiative that resulted from the OCS biotech incubator program. The company's pipeline for 2005 will include a wide variety of promising drug candidates. BioLineRx intends to have between 12 projects under development in various stages of pre-clinical work by the end of the first quarter of 2005, about 1 1/2 years after its establishment. The projects span the spectrum of indications, including CNS, oncology, inflammation, cardiovascular and infectious diseases, as well as a wide array of technologies such as small molecules, proteins, DNA-based medicines and antibodies.
Biotechnology is a risky business and establishing a successful, vibrant industry in Israel is unquestionably a Herculean task. The establishment of BioLineRx has, in my opinion, been a quantum leap in the right direction.
This article first appeared in the Israel Venture Capital & Private Equity Journal. IVC Research Center publishes the Israel Venture Capital & Private Equity Journal (IVCJ), a quarterly review of trends and developments in the Israeli-related venture capital industry. IVCJ, distributed worldwide, is dedicated to provide wide-range coverage of Israel's venture capital industry. For more information please visit http://www.ivc-online.com
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