A Diagnostics & Imaging Week

Commenting on recent awards that went to technology start-ups, Israel's acting prime minister, Ehud Olmert, who also is minister of finance and minister of trade, industry and labor, said, "Young companies should form the basis for the next generation of Israeli companies who will lead the Israeli economy forward."

But the Finance Ministry did not seem to be listening.

The Office of the Chief Scientist (OCS) budgets for R&D have been halved by the Treasury, relative to the allocation for 2001, and despite strongly voiced objections from industry leaders:

Chemi Peres, head of the Israel Venture Association, warned that start-up companies will close as a result, seeds will wither, and R&D in mature companies dry up.

Oded Tyreh, head of the Israel Manufacturers Association, said that the cuts will cost $1.3 billion in lost exports, dry up 250 R&D programs, cause 30 Israeli firms to move overseas, and prevent creation of 5,000 high-wage jobs.

What is remarkable is that the Ministry of Finance, which made the R&D cuts, continues to proclaim that high-tech exports are leading Israel's economic growth and will continue to drive future Israeli economic expansion, and that medical devices are leading the wave. Chief Scientist Eli Opper said that less R&D means fewer high-tech exports two to three years hence.

The good news is that private industry seems to be taking up the slack created by government cuts, although the new focus seems more directed toward investing in products, not the producers – the life scientist entrepreneurs themselves.

According to data released by Rina Pridor, longstanding director of the Technological Incubators Program in the OCS, more than 60% of companies graduated from technology incubators in 2005 raised money from private sources, an increase of 10% over pre-privatization years.

Some 112 incubator graduate companies raised an aggregate $175 million in 2005, with 54 companies raising an aggregate $75 million in first financing rounds. Some 62 ventures were launched; and a few even made it to the stock exchange.

Since the program began in 1991, more than 1,000 ventures have been initiated in the 24 incubators, including the 13 incubators that have been privatized starting in July 2002.

OCS invested NIS 140 million ($30 million) in running the incubators in 2005, of his total budget of NIS 1.2 billion.

These sums are half of the 2001 OCS budget.

The private sector invested about $75 million in the incubators, reflecting the greater commitment in privatization of the technology incubators. Pridor noted that the private sector's willingness to match each dollar of government funding with more than $2.50 of private money proved the effectiveness and success of the Technological Incubator Program.

The medical device sector in particular is showing signs of continued strength, according to a survey conducted by PriceWaterhouseCoopers, with $22 million invested by venture capital in 4Q05 compared with $19 million in the previous question, despite a slowdown in investment in all other areas during that quarter, according to the report.

In fact, Israel is the world leader in medical device patents. Medical device companies represent more than 54% of the country's life science companies, the report said.

Exports of life science products in 2005 totaled $3.3 billion. The main export markets for the life science sector are the U.S. (63%), Europe (27%) and the Far East (7%). In 2005, medical device exports totaled $1.25 billion, representing 14% growth over 2004.

Some $2.2 billion worth of drugs were sold worldwide, a 50% increase from the previous year. Those sales accounted for 13.1% of Israel's industrial exports.

The OCS designated a national biotechnology/biomedical accelerator, BioLine Innovations Jerusalem (BIJ), which is fully owned by BioLineRx. BIJ began operating in January 2005 with a $21 million budget allocated over five years from the OCS, adding to the $14 million put in by private investors.

BIJ is designed on an in-licensing model that grants far less than the 50% equity in the discovery to the entrepreneurs, even lower than the 30% allowable in the privatized incubators. On the other hand, all development is taken over by an internal expert team, leaving the scientist total freedom to remain in academia or work on other discoveries.

Thus far, 10 products are under development, with another two removed from the pipeline following a continuous, intensive due diligence during the entire process, according to CEO Morris Laster, a physician by training and a serial healthcare entrepreneur with more than 14 years of experience in the biopharmaceutical industry.

Is this many eggs in one basket enough? Pridor warned that in the current budget framework, between 30 and 40 projects a year are not being admitted to the incubators, and although they may have real technological innovation, are lost to science and medicine.

Prionics buys Dutch animal diagnostics firm

Prionics (Zurich, Switzerland) has acquired CEDI-Diagnostics, a Dutch firm that is part of Wageningen University and Research Center. Through the purchase, Prionics said it would acquire a number of new products and gain commercialization rights to developments made by the research center.

Terms of the agreement include that Wageningen will acquire a stake in Prionics. Further details were not disclosed.

Prionics and Wageningen also have agreed on a strategic partnership for the development of future farm animal diagnostics products.

The products made by CEDI include tests for the early diagnosis of foot and mouth disease or swine fever. In all, it supplies more than 20 products for the early detection of diseases in farm animals. It has customers in more than 60 countries.

"The CEDI products are excellent tests that make an ideal addition to our existing portfolio of farm animal diagnostics," said Ernst Zollinger, head of marketing and sales at Prionics.

A global leader in the diagnosis of bovine spongiform encephalitis and other prion diseases, Prionics was founded in 1997 as a spin-off from Zurich University. The company focuses primarily on diseases that are transmissible from animals to human beings.