ISRAEL 
HIGH-TECH & INVESTMENT REPORT

from the March 2001 issue


Life Sciences Revisited: increased activity and heightened hopes


Capital in the billions, whose flow continued throughout the decade ending with the arrival of the millennium, positive government support and what in retrospect was propitious timing, driven by an aspiring entrepreneurial class were the mix that propelled Israel into world class status in telecommunications and software. Small companies achieved critical mass size and were integrated into the global economy as founders prefered to abandom corporate empire building and chose to sell out to foreign multi-nationals. It was followed by a period of regenerating of new companies, a process that continues until this day.

In 2000 Israel's industrial exports climbed by 27% to $20.9 billion. Of the total, high-tech industries accounted for 44% of all industrial exports The growth in exports from high-technology industries contributed 75% to the increase in industrial exports, according to the "Summary of Israel's Foreign Trade for 2000" published by the Central Bureau of Statistics.

Pharmaceuticals, by contrast, accounted for only 2.7% of total industrial exports. Teva Pharmaceuticals (TEVI), as one of the world's largest genetic drug manufacturers dwarfed all others. However, the biotechnology group, long promoted as Israel's "next major area of development" has lagged. After years of disappointment is it finally ready to emerge from behind the shadow of the booming telecommunications and software sector?

In May 1998 we focused on this country's biotechnology industry when we heard a bold prediction: "The next big moving sector in your country will be biotechnology," stated Daniel J. Schultz, then Senior Vice President of Lehman Brothers, the prestigious investment bankers, during a visit to Israel.

We had paid so much attention to the development of Internet related firms, (nearly to the exclusion of other technology sectors), that we recalled that it was in November 1994, when the Israel High-Tech & Investment Report acted as a sponsor of the International Cooperation for Development of Biotechnology Conference in Jerusalem. At the time we prematurely believed that the young group of Israeli biotechnology firms were on the threshold of producing a new Chiron or Genetech.

Privately Mr. Schultz confided, that his prediction was based on the millions of dollars being invested by Lehman Brothers and others, into Israeli startups and emerging growth biotech companies. The recently published Ernst & Young report, cited in this issue states that "the biotechnology sector in Israel is in a state of accelerated growth", with nearly 200 startups in 1999-2000. This report summarizes the life sciences and biotechnology sector. It is highly upbeat but we have our reservations. Telecommunications and software which have attracted some of Israel's best human resource are a perfect fit for the Israeli mentality.

The main characteristics include a flexibility, a boundless energy which focuses on a short time frame from startup to the market place. The life sciences require a longer view of minimally four years, and up to ten years in the instance of a major drug development. Capital is available but experienced management is in short supply. Life sciences are in keeping with underlying Israeli ethos of "tikun olam" (improving the world) but as long as they do not add the magic of ample financial return, in relatively short time frames and if not matching but only approaching that of its high-tech brethren they may once again fall short of the mark.


Reprinted from the Israel High-Tech & Investment Report March 2001

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