Israeli Biotech Abides Amid Bombings

When Tamir Huberman completed his degree in electrical engineering from the Hebrew University in Jerusalem in 1996, most of his fellow students were seeking work for telecom startups or dot-com firms, both exploding growth areas in Israel. Huberman instead chose to work for Medis Technologies, a small biotech company developing a lab-on-a-chip product. "Most of my friends said I was crazy, that I was missing the new economy," says Huberman, now a vice president of research at Medis. "Now most of them are out of work." Biotechnology is indeed a growth industry in Israel. Thanks to seven world-class universities, a growing venture capital community, and a large pool of scientists and technicians--many of them immigrants from the former Soviet Union--the country is undergoing a mini-boom in biotech. In 2001 160 Israeli companies employing more than 4,000 people produced more than $800 million (US) in revenue, according to the Ministry of Trade and Industry. While the rest of the economy endures severe difficulties due to the two-year-long Intifada, the biotech sector is enjoying something of a golden age. The National Biotechnology Steering Committee, a government agency, estimates that by 2010 there will be between 10,000 and 12,000 people employed by biotech firms--almost triple today's number. Much of that growth will come from the dozens of startups sprouting every year. Israelis have launched an average of 25 new biotechnology companies in each of the past three years, the steering committee reports. These startups involve more than a couple of scientists tinkering with a big dream in the garage. They include companies such as Pharmos, which has produced several US Food and Drug Administration (FDA)-approved drugs and garnered $20 million in revenue in 2002. Other biotech firms, including Collgard Biopharmaceuticals, are emerging as major players in the pharma field, with promising drug candidates in Phase II or III trials or in FDA review. Other companies lead their fields, including Compugen in bioinformatics and Ester Neurosciences in neurology. "There's really a revolution going on in Israel in the biotech sphere," says Ariel Darvasi of IDgene, a large private genomics firm based in Jerusalem that recently identified a key gene linked to schizophrenia. "There's a foundation here for something very special." PUBLIC INVESTMENT Israel's biotech revolution hinges on broad government financing for startups. A longstanding incubator program has spawned more than 700 companies in the last five years, and nearly one-fifth are biotech related. Each startup receives as much as $300,000 from the government for its first two years of operation, in addition to free office and lab space. After the two-year trial ends, the state retains a 10% share in the company's equity, and government officials assist the founder in attracting more private investment. "Much of the success of Israel's biotechnology industry can be laid at the feet of the incubator program," says Arieh Zaritsky, president of Biosan Laboratories, a company that bioengineered Escherichia coli to produce mosquito-killing toxins. "If it weren't for that program, there wouldn't be much of a biotechnology landscape in Israel." Courtesy of Arieh Zaritsky Arieh Zaritsky Zaritsky took a circuitous route to company ownership. Two decades ago a Ben Gurion University colleague identified a new strain of the Bacillus thuringiensis (Bt) bacteria that destroyed mosquito and blackfly larvae. But the university failed to grasp the enormous implications of this discovery and failed to patent subsequent Bt microbial toxins. Now the intellectual property is in the public domain and the Bt toxin is at the heart of a multibillion-dollar biopesticide industry led by companies such as Monsanto and Novartis. The Israeli government and Ben Gurion University launched initiatives to regain the lead in Bt research. Zaritsky did unrelated basic research at the time, but dropped it to become involved in transplanting the toxin-producing gene from Bt into other organisms. He and his colleague, Etan Ben-Dov implanted the gene into E. coli. After three years of developmental work, Zaritsky and Ben-Dov had created a new strain of E. coli that, when sprayed in standing bodies of water, kills all mosquito larvae and then harmlessly die out. Two years ago, he applied for an incubator grant, and Biosan was born. The company perfected the product and developed new strains. Several large chemical companies have tested it, with positive results. Zaritsky is now negotiating with a South African pesticide company for Biosan's first multimillion dollar contract. And just in time: His government funding ran out at the end of November. "If I had one criticism of the incubator program, it would be that two years isn't enough time for most companies to get off the ground," he says. Someone in the Ministry of Industry and Trade must be listening, because that agency recently extended the incubator period from two to four years. ACADEMIC ALCHEMY Not all business paths lead from the incubator program. Another Ben Gurion researcher, Shoshana Arad, oversees a 20-person lab studying applications for products produced by algae. She has already signed a contract with Frutarom, a large Israeli industrial conglomerate, to license a method of growing algae and then extracting glycosaccharides from them. The harvested substances are then sold to cosmetics manufacturers. Arad hasn't started up a company, however. Instead, she plans to invest the tens of thousands of dollars she received in licensing fees back into her lab and continue her research on algae-derived products for uses ranging from nutritional supplements to glow-in-the-dark candy. "I'm not interested in being a business person right now," she says. "I'd rather just do the science." The rest of Israel is getting serious about the business of biotechnology, however. Overcoming awkward stumbles in the past, including the failure to get a patent for the Bt toxin, the country is becoming as savvy in business as it is in biotech science. One sign is the large number of Israeli companies that have moved their headquarters to the United States to lure experienced executives. Collgard Biopharmaceuticals, a private company, is trying to commercialize tempostatin, a compound with multiple potential applications developed by Israeli scientists. Collgard's research and development labs remain in Israel, as do its main clinical testing labs. But its corporate headquarters is in Atlanta, where Bruce Bach serves as CEO. "Collgard is an Israeli-American company," says Bach. "Our organization makes a lot of sense for a lot of different reasons." The main reason is the nature of tempostatin. Its implications range from treating bladder cancer to its use in drug-eluting stents to halt arterial restenosis. Because it can be used for so many different types of treatments its developers have to jump through many FDA hurdles, which makes an executive staff that is experienced in guiding drugs through the FDA system all the more necessary. Bach currently oversees two clinical trials in the United States and one in England, while also supervising research in Israel and negotiating alliances with several US pharmaceutical partners. "This is a truly global company in a very global business," Bach says. More than a dozen other Israeli biotech companies have followed Collgard's lead and established corporate headquarters in the United States. GEOGRAPHICAL GUARD Those moves suggest a necessary pragmatism given the brutality of the second Intifada and an epidemic of terrorist bombings inside Israel. More than 2,000 Israelis and Palestinians have died in the violence and there's little hope of it ending anytime soon. The violence makes working in Israel that much more difficult. And it has made investing in the country that much more risky. Just as debilitating is the economic slump Israel entered in the wake of the dot-com bust. Israel's gross domestic product has declined in the last five quarters, and unemployment has reached the low teens. As a result, venture capital funding, which had been plentiful in the late 1990s, is less readily available. According to Israel Venture Corporation, a market research firm, only $82 million was raised in venture capital in the life sciences field in the last four quarters through the end of September 2002. That's less than half the amount raised by that quarter in the previous year. Probably more damaging, though, is the Intifada's effect on hiring. "[The violence] is something that we as Israelis have become used to," says IDgene's Darvasi. "However, it has affected our ability to recruit people from outside of the country. There are a lot of people we would have liked to hire that won't come in this environment." Sam Jaffe (sam.jaffe@verizon.net) is a freelance writer in Philadelphia.

Israeli Biotech Abides Amid Bombings

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