PRINT THIS PAGE Israel's life sciences sector is coming of age
05/09/2007. Source:IVCJ (Israel Venture Capital Journal). Zeev Holtzman
Israel's life sciences sector is coming of age, and venture capitalists are taking notice. In this IVCJ article, Zeev Holtzman, founder and chairman of Giza Venture Capital, describes the developing interest in Israel's life sciences industry, which has the potential to emerge as an important global factor. In the past, a discussion of Israel's high technology successes usually focused on the fields of communications, software and semiconductors. The life sciences? If life science companies were included at all, they were an afterthought, ranking well below the other areas. Today, this is no longer the case. Israel has already achieved recognition in the life sciences with the phenomenal success of companies such as Given Imaging and Syneron, the awarding of Nobel prizes to Technion scientists Ciechanover and Hershko, and the emergence of Teva Pharmaceutical as the world's number one generic drug company, and, which I hasten to add, is also making a name for itself in proprietary drugs. There is no question that the Israeli life sciences sector is now on the proverbial map and, in my opinion, is going to be even more prominent globally in the future.
Venture support for the life sciences is beginning to emerge in a major way. Whereas at the beginning of this decade, Israeli life science firms accounted for about 11 percent of venture capital investments, today the life sciences are accounting for over 20 percent. And, for the first time in a meaningful way in Israel, there is the phenomenon of specialized life science funds.
Dedicated life science funds such as Medica Poalim III and IHCV II have raised well in excess of $100 million, and two other specialized funds are in the process of raising funds of $100 million or more as well. In the early years of Israel's venture industry, specialized life science funds such as Medica, Innomed, Denali and Vitalife were considerably smaller, which meant their impact and level of support were less significant as well.
There are large, non-specialized funds such as Giza, Pitango and Evergreen that are allocating substantial portions of their funds to investment in the life sciences. All things considered, the amount of capital available for investment in the life sciences has grown substantially.
Significant exits encourage VCs
In the past year, several of Israel's venturebacked life science companies have seen substantial exits that may be the forerunner of more lucrative exits in the future. Colbar, a maker of products for reconstructive surgery, was snapped up by Johnson & Johnson for $159 million in cash, and Stryker Corp. paid $150 million for Sightline and its endoscopic system for gastroenterology. One of the biggest success stories of the past year was Predix Pharmaceuticals, which opted to skip its own IPO, merging instead into NASDAQ-traded Epix Pharmaceuticals in a $90 million plus deal. Predix, now Epix, is a developer of small molecule drugs that target G-Protein Coupled Receptors. It quickly caught the eye of Glaxo, which inked a drug development deal that could be worth as much as $1.2 billion. Protalix took a back door route to going public by merging into a publicly traded shell company trading on the OTC. It plans to apply for listing on a major exchange in the near future. And pending is the $220 million acquisition of the assets of orthopedics implant firm Disc-O-Tech by Kyphon Inc.
TASE filling a need for now
An interesting phenomenon is that the Tel Aviv Stock Exchange is serving as a popular source for life science companies to raise equity capital. In 2006, eight life science companies raised a total of $46 million, not an earth-shattering amount, but significant in providing these developing companies with sorely needed funding. Most of the companies were not ready for NASDAQ and regarded the move to the TASE as an intermediate step in their corporate development. While the TASE doesn't have the liquidity or depth of NASDAQ, it will continue to fill a need until the companies reach a more advanced stage. Then they will look to US exchanges with their more robust valuations and liquidity. Somewhat interestingly, Israeli investors - not traditionally fond of high-tech biomed firms on the local market - have taken well to the life science companies at their initial offerings.
Intensified interest by major firms
Johnson & Johnson, Boston Scientific, Philips, Siemens and other major companies all have operations in Israel and are looking to expand their activities by acquisition or internal expansion. On the biotech/drug side, the interest of big pharma is still weak, partly reflecting a shortage in Israel of experienced management talent in the area.
It should be noted that Teva Pharmaceutical, the world's largest generic drug firm, is an active local investor and licensee of technologies. It would be beneficial to the industry, though, if the major global firms were more active investors, thereby increasing competitiveness.
Foreign investor interest is accelerating
On the investment side, we see more foreign life science VCs, such as Orbimed and MPM, making investments while others are beginning to examine what the fuss is all about. With an increasing number of start-ups on the horizon and more of the academic-affiliated technology transfer companies forming start-ups, rather than seeking licensing agreements, foreign VC interest is expected to intensify. With a shorter product time-to- market, most of that interest is expected to be focused on medical devices and technology as opposed to biotech. All factors considered, the life sciences could account for 30 percent or more of Israeli high-tech investment and exits in the near to intermediate future.
This article appeared in the Israel Venture Capital & Private Equity Journal (IVCJ). IVC Research Center publishes the Israel Venture Capital & Private Equity Journal, 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 www.ivc-online.com
|
