BioWorld International Correspondent

ZICHRON YA'AKOV, Israel - The Israeli Ministry of Industry, Trade and Labor will have to make do with a 44 million-shekel (US$11 million) budget cut, reducing its annual operating funds from about NIS130 million to NIS85 million.

"This [cut] is putting the technology incubator program at risk of shutting down," said Rina Pridor, director of the incubator program.

The cuts directly contradict the privatization agreements signed with the franchise owners of the 12 technology incubators. More than half of the incubator projects are dedicated to life sciences: biotechnology (18 percent), medical devices (29 percent), and environment and public health (7 percent).

A cohort of franchise owners warned that they are "considering legal action, if the state breaks the three-year agreement."

The agreement states that five new companies would be supported annually, but now only one new company could be supported, and not at the 85 percent subsidy that had been agreed.

In a letter to all incubator managers, Pridor predicted that as many as 17 of the 24 incubators might shut down, and that the 85 projects under way could be slashed to 26.

Lior Shahory, business development manager of the incubator program, agreed, saying only seven of the original 24 incubators could be supported. She admitted that if no compromise is found, then the loss would damage technology, infrastructure and development in Israel, especially biotechnology.

What cuts to be made will be decided by a steering committee - including senior government officials - and four representatives of the private sector.

Further, the economic downturn is threatening some 17.8 percent of Israeli companies, which are in danger of collapse by the end of 2003, according to a survey done by Dun & Bradstreet in September, which involved a total of about 47,500 companies across all sectors. On the upside, 40,000 new business start-ups are anticipated, similar to 2002.

Minister of Industry, Trade, and Labor Ehud Olmert and Minister of Finance Binyamin Netanyahu have forwarded a new suggestion to try to offset some debt. They would issue designated bonds to the public based on the Office of the Chief Scientist (OCS)-supported research and development budget, rather than on specific projects.

Olmert said that the estimate from the OCS is that profits could attain one-fifteenth of the amount invested, based on royalties currently paid by companies receiving R&D grants.

All agree that R&D is good business with excellent returns, but it might be too little too late for those sectors in immediate need, including the young biotechnology industry. Worse, the limitation is that any company that succeeds needs only return up to the total amount invested, so there is no excess profit to be had from investing in the awards.