Medical Device Daily Correspondent

ZICHRON YAAKOV, Israel – Looking back over the first two months of 2005, the Israeli medical device sector began the new calendar year at a running start, with innovation being fed by investment funds, growing company activity, sales and distribution.

Israel is the world leader in medical device patents per capita, and fourth in the world in biotechnology patents per capita, behind Japan, Germany and the UK. Medical device companies represent more than half of the 466 Israeli life science companies, 54%, with 21% biotechnology; and 13% pharmaceuticals.

These data were reported at the 2005 kickoff event of Israel Life Sciences Industry (ILSI), by Pitango Venture Capital healthcare ventures managing director Ruth Alon, founding mother of ISLI, which, following the Biblical model, has three eminent founding fathers – Genzyme- Israel General Manager Zeev Zelig, Hadasit president and CEO Raphael Hofstein and Yossi Bornstein, who chairs the Israeli panel on biotechnology for the U.S.-Israel Science and Technology Foundation (USISTF).

ILSI has been gathering data since its founding in May of last year at the annual BioTech Israel conference. Bornstein said, "We hope that 500 Israeli life science companies will join our new association," which aims to represent life science companies at every stage, from research to marketing products.

With Teva Pharmaceutical Industries (Jerusalem) as a member, ISLI already represents some 25,000 employees.

ILSI also reported that of the $800 million invested in life sciences in 2004, about $274.4 million (34.3%) came from companies' own sources, $308 million (38.5%) came from government sources, $200 million (25%) from venture capital funds, and $17.6 million (2%) from foreign support funds.

Alon told Medical Device Daily that she was "very optimistic about this very young industry, where half of the companies were founded during the past five years." Alon is the daughter of Uzia Galil, who fathered the electronics industry in Israel with Elron Electronics Industries (Haifa) in 1962.

Forty years, two dozen second-generation companies (including Elscint and Elbit Medical Imaging), scores of third-generation companies (including InSightec), and tens of billions in income have created a training ground where today there is virtually no med-tech or other high-tech company in Israel that cannot trace at least one of its managers to Elron, Galil told MDD.

Today, half of the Israeli life science companies are less than five years old, yet 41% are revenue-generating, and 20% are already at the clinical stage, Alon said.

Independent reports from the local market pulse-takers show that life sciences companies continue to attract an increasing proportion of capital raised.

In 2004, the money raised by Israeli life science start-ups nearly tripled the proportion of the total raised in 2000. The Israel Venture Capital Research Center (IVC; Tel Aviv) reported that of 428 high-tech Israeli companies that raised $1.46 billion from local and foreign venture investors – 45% more than the $1.01 billion raised in 2003 – life science companies accounted for about 22% of the total compared to 8% in 2000. In the fourth quarter of last year, 35 life sciences companies raised about $130 million, accounting for a third of the total.

The survey was conducted in cooperation with the Israel Venture Association, based on reports from 115 venture investors, including 62 Israeli management companies.

Efrat Zakai, director of research at the IVC Research Center, told MDD that medical devices have taken the majority of investments in the life science, showing data from 1999 when the device sector took 71% of $138 million, or at the pre-intifada peak in 2001, taking 71% of $309 million. And in 2004, med-tech took nearly 60% of the record high of $320 million.

Zeev Holtzman, chairman of IVC Research Center and Giza Venture Capital, saw this as a trend that will continue with the improving political atmosphere, saying, "We anticipate 2004's $1.5 billion investment pace to continue in 2005."

The 2004 report of Ernst and Young and VentureOne, an Israeli unit of DowJones Newswires, also reflected an "optimistic, thriving industry," following three years of decline, both in Israel and in the U.S.

All is not hunky-dorey in the med-tech sector, however. During the first half of February, the promising medical device start-up, MindGuard (Caesaria), began emptying its premises. Less than two-years ago, MindGuard was celebrating a $15 million second financing round led by Medtronic (Minneapolis). A former company officer told MDD, "We just were not in the right place at the right time."

Biosensor developer Nexense doesn't wait for time – it "creates" it. Nexense, another tail-wagging-the-dog Israeli company that moved its headquarters to New York, leaving its R&D facilities in Yavne, Israel, reported at the beginning of March that it has raised more than $3 million in equity funding from a private investment group led by Chicago-based Emmes, to commercialize its vital sign monitoring devices for home use.

Nexense, founded in 1990 as Girad Systems/C-All Technologies, created a biosensor platform in 2002 based on the discovery of Direct Digital Measurement (DDM), which is "a quantum leap from conventional sensor technologies," said CEO Arik Ariav, "able to measure time with molecular precision by increasing sensitivity performance of physical measurements by a factor of 10,000 to 100,000 times compared to the current state-of-the-art sensor technologies, using exciters and receivers no bigger than a grain of rice."

Ariav said Nexense technology "creates a new dimension. Our sensorless sensing, patented 3N technology, is non-intrusive, non-contact and non-radiating, and, unconstrained by the limitations of traditional sensor technologies, dissociates higher precision from higher cost."

He said the technology gives measurements in real-time of parameters such as temperature, acceleration, pressure, distance and weight, as well as pulse and respiratory rates, distinguishing beat-to-beat variability, along with body movements, blood flow and changing densities.

Ariav said the company "is at the final stage of product integration and customization of monitoring applications, moving into the rapidly expanding home health market."