In previous cycles of interest in the Israeli medical environment, investing in a venture capital vehicle might have been considered the only means to encounter Israeli technologies for financial and perhaps strategic players. That approach has been broadened with many new financial, strategic collaboration approaches available for the world's biomedical-field players to interact and commit to Israel. Venture capitalists from all over the world have come to recognize the value of Israel innovations in the health care sector, and are flocking to invest there.
U.S. LINKS TO THE ISRAELI SCENE
While there is often a period when funds are being nurtured in relative silence, the Israeli business papers have been rife with news of new U.S. funds in process.
Orbimed Israel Advisers, based in Herzliya, is the Israeli branch of Orbimed Advisers in New York, which won an Israeli Government tender to create a $200 million government-sponsored biomedical fund about five years ago. The Orbimed Israel I fund has already invested in more than 10 portfolio companies across the biopharma, device and digital health spaces. Two of the most noteworthy investments to date include Nes Ziona-based Futurx, a government-partnered biopharma Incubator in collaboration with pharma giants Takeda Pharmaceutical Co. Ltd., of Tokyo, and Johnson & Johnson, of New Brunswick, N.J.; and Ccam Biotherapeutics Ltd., of Misgav, a 5-year old immunotherapy start-up snagged by Merck & Co. Inc. in July for up to $600 million, after an initial investment of under $10 million. (See BioWorld Today, July 29, 2015.)
Based on preliminary SEC documentation, Orbimed Israel is now in the process of raising its next fund, again in the $200 million to $300 million range. Sources close to the group said they believe the Orbimed Israel II Fund will close in the first half of 2016, and will aim to invest in 10 to 15 start-ups across the range of investment stages. As in its previous Israel investments, it is likely to leverage both its close relationship with foreign institutions, as well as Orbimed Advisers' extensive financial resources, in order to enable larger syndicated deals in the Israeli health care environment.
Another top U.S.-based group with great interest and history of involvement in the Israeli start-up ecosystem is US Venture Partners (USVP), of Menlo Park, Calif. USVP has many investments in Israel, and the fund is now planning to further expand its activity. The recently closed $300 million USVP XI Fund will be managed from Silicon Valley, but it may invest – even as lead investor - in Israeli start-ups in areas including health care.
"We do not have a formal allocation, but we imagine that this fund will invest 20 percent to 30 percent of its resources in health care," Jacques Benkoski, partner at USVP, told BioWorld Today. "We have not invested in Israeli health care companies recently, but that could certainly change, given the right opportunity," Benkoski said.
"While we do not currently plan to develop an Israeli presence," Jonathan Root, general partner at USVP, added, "we plan to expand our investments in Israel's quality teams and companies. Our value-added is when the company is beginning to advance to the U.S., and we tend to invest together with Israel-based partners whom we know well and trust.
"Our philosophy in the U.S. is generally to be series A investors, but in Israeli health care, we probably add greater value at the next stage of investment."
Another exciting angle is a newly formed early stage life sciences fund being established by a group of "second-generation entrepreneurs," among them Yuval Cabilly, an expert in neurodegenerative disease and the son of Shmuel Cabilly, of the famed Cabilly patents held by Roche AG unit Genentech Inc. The other co-founders are David Sidransky, a serial entrepreneur who served as vice chairman at Imclone Systems Inc. until its acquisition by Eli Lilly and Co., and Ido Zairi, whose CV includes investment banking, with a stint at Jefferies & Co., where he handled risk management for more than $15 billion in assets.
The fund also has recruited more than 20 experienced executives from the pharma world, including Jeffrey Kinder, former chairman and CEO of Pfizer Inc., and Sol Barer, former chairman and CEO of Celgene Corp., to further enhance the fund's strategy and overall attractiveness.
Based on SEC applications, the team plans to complete a $50 million to $100 million fund by the end of the third quarter. Among those expected to invest include biotech powerhouse Biogen Inc., of Cambridge, Mass. An additional undisclosed strategic player has also made a commitment.
NEW CHINESE MODEL HITTING ISRAELI SHORES
Another approach to venture investing is arriving from China, where investors are creating a new model of interaction with Israeli companies. "It's not a traditional VC, nor is it standard growth capital," explained former Israeli Chief Scientist of the Economy Ministry Yehoshua Gleitman, who has established a China-Israel Investment vehicle.
The Guangzhou-Israel Bio Fund (GIBF), of Guangzhou, China, and Tel Aviv, is a $100 million capitalized fund consisting of 100 percent Chinese capital; it has allocations from two state government entities and three biomedical/pharma giants, all from the Guangzhou City, the capital of the Guangdong region of Southeast China.
Gleitman is no newcomer to the Asian market, having spent almost 10 years since his chief scientist post in China, Korea and Taiwan. "Entry into the Chinese medical market is tough for players of all sizes," Gleitman explained to BioWorld Today, "but the Israeli small or medium enterprises [SMEs] will find it particularly difficult."
Conversely, China's public markets value international technology companies as high-quality growth stocks. In China, the owner of the market channel of a Western medical product benefits from the upside potential and an inflated public market valuation. Yet the SME entering China without a presence on the ground often misses out on that high-valuation opportunity, Gleitman explained.
When, for example, the SME utilizes a distribution partner, the distributor's local market value increases greatly and it can benefit by raising Chinese capital locally after an initial distribution contract; the SME, however, is unable to leverage the positive market sentiment.
The realization of that imbalance led Gleitman to create the Chinese-focused fund. GIBF aims to invest in Israeli SMEs that have already shown promise in sales in the medical field in the developed world, in order to develop a Chinese partnership that is jointly owned by the fund and the Israeli company.
"We benefit from our local Chinese expertise in terms of know-how, regulations, marketing channels and possible exit routes," explained Gleitman, "without having the SME be concerned with our involvement in other [not China-related] company business activities."
GIBF said that pilot fund should be able to invest its focused growth capital in eight to 10 SMEs. "With China now being the third largest consumer of medical technology in the world, and the expectation that it will reach number one within a decade," Gleitman explained, "it is of primary importance that our smaller companies can benefit from the giant state's growth trajectory. This fund offers the opportunity – packaged with our binational team's expertise – exclusively to the Israeli biomed community."