Israel National Lifescience Fund

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Israel National Life Sciences Fund

Michael Kaufer, MBA, MSRehovot, Israel

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Outline

Background Stimulating jobs – can the life

sciences do this? The Players Spending NIS 400m

Education & Training National Standards Leveraging National Assets

Conclusions

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Background

900+ Life Science companies in Israel: 55% Medical devices 21% Biotechnology 12% Pharmaceutical 4% Medical IT 3% Agrotech 5% Other

Can be a key economic driver in the future Employment Positive balance of trade Tax revenues

Life science industries have social implications: Cures or treatments for

diseases, increasing individual quality of life and productivity

Opportunities for those with advanced education

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Background

Israel has a a comparative advantage in the life science industries due to many factors This advantage needs government

support in order to be sustained! This advantage is eroding!

China, India and Korea investing heavily in life science industries.

Focus of these countries is two-fold:1) Service their domestic markets2) Replace Western companies in supply chain

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Background

Early 2000: Misrad HaTasuka & the office of the Chief Scientist established “Israel Bio Plan 2000 – 2010. Its focus was: Establishing two world-class biotech incubators Establishing physical infrastructure Providing seed money = $100m.

Plan was partial success

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Background

December 2008: Ministry of Finance (MoF) asks for additional funding to continue concentrating fund’s investment in biotechnology. This is a mistake. There are more “concepts” in

incubators than available funds. New fund cannot develop all.

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Background

MoF allocated an extra NIS 200,000 to the Chief Scientist’s Office in the previous stimulus plan, approved in Dec. 2008.

In February 2009 MoF announced intention to allocate additional NIS 150m in 1Q09. 1Q09 no longer realistic target!

MoF wants to add NIS 250 million for a fund specializing in biotechnology investments. The fund will be leveraged with private equity Will reach a total of between NIS 750m and NIS1b Concentrating the fund and private equity in one sector will

distort its economics and result in lost opportunities in other sectors!

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Biotechnology is unlike agriculture, construction, defense and “smoke stack” industries. Uses relatively higher numbers of scientists. Higher pay scale – workers’ average salary is around NIS

16000/month. Uses relatively lower level of unskilled and semi-skilled labor.

Products subject to extensive regulatory review in EU, US & Japan.

Products have 8 - 12 year development time line, from discovery to commercialization. Biotechnology manufacturing is a slow process. Establishing a single cell line can take between 90 and 150

days alone. This is just one step!

Stimulating Jobs – can biotech do this?


10,000compounds

6.5 YEARS

Stage 1:Drug Discovery

Stage 2:Pre-Clinical

IND

Submitted 6 YEARS

Stage 3:Clinical Trials

Phase 1:20 -100

volunteers

Phase 2:100 - 500

volunteers

250compounds

Phase 3:1000 - 5000volunteers

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NDA

Submitted

Only 5 compoundsremain from original

10,000!

1.5YEARS

Source: www.innovation.org

1product

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Conventional wisdom states that Israel has: Basic R&D advantage Cooperation between government, private

industry & universities Education system

20% of workforce has a university degree! Entrepreneurial Spirit Strong technology incubator program Relatively lower labor costs

Sr. Research Scientist in US earns $90,000 - $120,000/yr Sr. Research Scientist in Israel earns $42,000 - $50,000/yr

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Reality: This is a highly competitive set of industries! R&D occurs globally now, companies form teams

that operate in multiple countries! Other countries, notably China, India and Korea

are imitating Israel’s model: Close cooperation between government, private industry

& universities Technology incubator programs Government investments

China, India and Korea have even lower labor costs!

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The Players - Government

Government: Cooperation between government

ministries is essential! Other assistance:

Consider lowering capital gains tax. Consider lowering or waiving value added

tax (VAT or MAM) on purchase of certain asset classes.

Consider lowering or waiving fees.

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The Players - Government

Government: Cooperation between government ministries is

essential! Set-up task force of agencies responsible for:

Drafting administrative framework Administering program Training bureaucrats in local offices Resolving disputes quickly

Set-up “super offices” for handling individual needs: Customs Misrad Ta’asuka Bituach Leumi

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The Players - Universities

Universities Traditionally provided advanced education. Today, they have new roles:

Perform basic research; Provide socioeconomic opportunities to society.

If Israel is to maintain & extend its competitive edge, they must accept new tasks and be flexible in performing old tasks: Allow greater government and industry participation in

academic advisory boards, Provide expertise to life science companies receiving

funding, Rationalize universities’ life science academic programs, Rationalize universities’ life science incubator programs.

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The Players – Private Sector

Private Sector Only one global life science company: Teva. Few large domestic companies: Dexcel, Rafa Laboratories &

Taro. Taro trying to sell itself to an Indian form for the last

several months! Several investment funds like Clal Biotech. Many small companies with less than 50 employees. Close to 100 incubator companies with less than 20

employees! Various suppliers of goods and services. Private sector is highly interdependent (see next page).

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Interdependency in the Israeli Life Science Industry

Strategic Rights

Andromeda VBL

Proteologics

NST

Curetech Gamida-Cell

Direct / Indirect Equity in Companies

MediWoundD-Pharm

IDM

Compugen

Biocontrol

XTL

Vaccinex

Cellcure

BiolineBMI

CBI

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Interdependency in the Israeli Life Science Industry

ClalBiotechnology

Inc.

AndromedaBiotech,

Ltd.95%

MediWoundLtd.

55.5%

CureTech, Ltd.

45%

Polyheal,Ltd.35%

Compugen11%

NST5%

BiokineTherapeutics

24%

D Pharm,Ltd.41%

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The Players - Associations

Professional organizations Typically under funded & understaffed. Potential to play vital role in developing human

& organizational potential. Must become more professional and more

responsive to members needs. Professional organizations that might play a

role: Israel Life Science Industries Israel Society for Quality PDA Israel

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Spending NIS 400m

Target late 3Q09. Must allocate funds from state budget Must develop administrative framework

Must involve all the “players” In order to alleviate current crisis, funding must

target investments that will have an immediate impact: Training National Standards Studies beyond “Proof of Concept” stage National Centers of Excellence Companies in danger of bankruptcy

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Spending NIS 400m

Fund must leverage the unique capabilities of each of player to its fullest: Use entrepreneurial spirit to find unique solutions to

scientific and operational problems! Don’t let bureaucracy slow down decisions!

Each player may have to re-prioritize their objectives to participate fully in the Fund: “Blue & White” investments; Support full employment strategies; Develop local partners & suppliers; Investment swaps.

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Education & Training

NIS 10m annually for three years Avg course = NIS 4000 NIS 10m provides for 2500 people/year = 7500 people

Office of Chief Scientist Must certify institutions offering course Institutions exempted from value added tax?

Misrad Ta’asuka L’Akadamain Must certify those attending courses

100% tuition for first course 50% tuition for second course with individual participating from

keren hishtalmut

Misrad HaKlita must certify Toshvim Hozrim & Olim Olim & Toshvim Hozrim limited to one course 100% tuition for course (currently only 80%)

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Education & Training

Priority given to: Individuals out of work the longest. Compatible with education & training schedule of

participating institutions. Ezrachim = 1500 professionals

Must be currently unemployed. Must complete within 6 mo. Related to academic degree / work experience

Toshvim Hozrim = 500 professionals One technology course

Must complete within 6 months of return. Must be related to academic degree / work experience.

Olim = 500 professionals receive Ulpan Hemshech Must complete ulpan alef!

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National Standards

Standards tell world what we expect and how we work! Sets an internal standard driving excellence

Set, update & communicate national standards What is Israel’s policy on:

Biosimilar biological drug products? Blood and plasma products? Homeopathic medicines? Human clinical trials? Quality by Design? Quality Systems Management? Risk Management?

Are standards easily available in multiple languages?

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National Standards

NIS 5m annually for three years : Translation of standards into Hebrew Annual conference for life sciences:

National regulatory developments International regulatory developments Presentation of scientific and technical papers Reports on business developments in Israeli firms:

Pre-clinical work GLP studies Phase I – III clinical studies

Exhibits from national & international life science companies and suppliers

Internet site

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Added benefits of annual conference:increased tourism & positive image of

Israel!

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Studies beyond“Proof-of-Concept” Phase

Fund must develop proven concepts, not more incubators and more concepts!

“Proof-of-Concept” development is role of incubators. New technological concepts attract limited amounts

of venture capital, on the scale of $1.5m - $5m. This amount sufficient only for creating about 10

jobs, plus covering development costs of the concept.

Only good for 2 -3 years, and has a limited success rate!

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National Centers of Excellence (NCEs)

A “National Center of Excellence” has four main goals: Establishes the performance standards for a

given technology or group of technology. Allows firms to “test drive” new technology

before investing in it. Serves as a training center for individuals and

firms who might not be able to afford this level of integration.

Attracts researches and industrial development.

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Combination of: Establishes performance standards, Test driving new technology, and Training

Has the potential of speeding up the progression along the Learning Curve.

Many such centers are developed by a consortium of government, universities, hospitals, private companies and charitable funds.

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Established in 1999 Dedicated April 2001 72,000 square feet 25 Dedicated Research

Laboratories 10 Common Research

Laboratories Over 20 Resident Faculty

Research Groups 120 Student Researchers

Core Instrumentation Centers: Bioimaging Bioinformatics Microarray Protein Production &

Analysis Cellular Proteomics Nuclear Magnetic

Resonance Mass Spectroscopy Plant Growth Chambers

Example: Delaware Biotechnology Institute

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Statewide Collaboration University of Delaware Delaware State University Delaware Technical &

Community College Wesley College Christiana Care Health

System Helen F. Graham Cancer

Center Alfred I duPont Hospital for

Children Nemours Biomedical

Research Over 110 Affiliated Faculty

Members 23 Departments at 6

Delaware Institutions

Funding Sources and Agencies State of Delaware National Institutes of Health National Science Foundation US Department of Agriculture US Department of Energy AstraZeneca E.I. duPont de Nemours Hercules Crystal Trust Kresge Foundation

Example: Delaware Biotechnology Institute, continued

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Saving Companies from Bankruptcy

Biotech firms in the US are closing rapidly Technology is often “lost” as other companies

will not purchase it. When companies close:

Unemployment statistic rises, eroding confidence in the economy.

More people making claims for unemployment insurance and not paying taxes, putting pressure on national budget.

Market is temporarily flooded with skilled employees, driving down wages.

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Leveraging Existing Assets

NIS 400m = $100m NIS 355m or $88.75m, after training &

standards $35m/year is the average burn rate

for a small biotech company in the US! Even considering lower labor costs

and entrepreneurial success, this amount would only support 2 -3 Israeli firms.

It takes on average 8 – 12 years and $800m to develop a new drug!

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Conclusion: Financing Phase III clinical trials is

too expensive for the proposed fund!

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Fund should target Phase I & Phase II studies Phase I (Human Pharmacology). Phase II (Therapeutic Exploration).

Firms will complete studies in Israel. Firms will be expected to achieve employment &

employee compensation levels at specified intervals.

Fund will target therapies with significant markets. Fund will receive equity stake:

Gov’t equity should be sold after 3 - 5 years to provide next generation of funding.

Sale to proceed in stages. Sale may be restricted to Israeli firms or firms committing to

commercialization in Israel.

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Example of a good investment: Biokine Therapeutics, Ltd. received a $1.2

million research grant from the Office of the Chief Scientist (March 2009) The funding will support a Phase I/IIa clinical

study to test the safety and the efficacy of the company’s flagship product, cancer drug BKT140.

A treatment for myeloma. BioKine announced the initiation of the study at

Sheba Medical Center.

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Why is this good? Phase I/II studies generate more jobs

(production of clinical materials, regulatory specialists, doctors & nurses tending clinical patients, etc.)

Product under investigation has implications for millions of patients worldwide.

Study being done in Israel, i.e., it’s “Blue & White!”

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NIS 355m = $88.75m NIS 60m. = $15m/year for three years for Phase I/II drug

clinical trials. Enough to support 6 – 8 companies each performing one

clinical trial!

Open mutual fund for individual investors to reach parity with government’s investment This doubles the amount available = 12 – 16 companies!

Successful Phase I and Phase II clinical studies usually result in an increase in the stock’s value Fund can sell government shares to raise additional capital!

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NIS 355m = $88.75m $15m/year = NIS 60m. for three years for

NCEs: Universities to match government investment in

return for access rights for their researchers & incubators.

Existing university NCEs may be absorbed. Provide access-for-fee arrangement for

incubators and private industry. Fees reinvested into development of the NCEs.

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Conclusions

1. Gov’t funding is critical to sustaining development of the life science industries during this recession.

a) Fund should not be limited to any one sector within the life sciences!b) Fund must be in addition to existing incubator programs!

2. Fund must take into account social objectives:a) Educationb) Employmentc) Immigrant absorption

3. Fund must leverage existing national assets and create new assets for future.

4. Fund must concentrate effort on high-volume therapeutic areas.

5. Investing does not guarantee success. Not investing guarantees that Israel will lose its competitive advantage and will lose future opportunities.

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Who is Michael Kaufer?

Currently Quality Assurance Specialist at Foamix, Ltd. In Rehovot, (2009). Founder and owner of CGMP Solutions, a focused consulting firm specializing in

the development of Phase III biotechnology, medical device and pharmaceutical products (2004 -2008).

Temple University, Philadelphia, Pennsylvania (2001 -2008): Assistant professor of Quality Assurance, School of Pharmacy. Assistant professor of Operations Management, Fox School of Business.

Held positions of increasing leadership and responsibility at Johnson & Johnson, Merck, Watson Laboratories and Wyeth Laboratories (1990 – 2004).

Worked on the development of diagnostic devices for cancer; devices for inhaled insulin; various biotechnology projects and OTC technical transfer.

Israel Defense Forces (1989 – 1990). Academic credentials:

MS QARA, Temple University, 2002. MBA - Operations Management, Temple University, 1998. BA Political Science, Hebrew University, Jerusalem, 1988.

Documents

Israel National Lifescience Fund