By Rachelle H.B. Fishman

BioWorld International Correspondent

ZICHRON YAAKOV, Israel - Johnson & Johnson said this week it is very attracted to Israeli developments and is looking to invest up to $50 million in Israeli biotechnology and medical equipment start-ups.

J&J became known in Israel for its 1997 $400 million acquisition of Biosense Inc., in a share transaction via its Cordis Corp. group. Biosense is now based in Diamond Bar, Calif., keeping its founding research and development facilities in Haifa, Israel. J&J's lesser-known Israeli interests include NESS. It also sells products in Israel through Janssen-Cilag Health Care Ltd. in Kibbutz Shefayim, a local subsidiary of Johnson & Johnson Medical.

Earlier this year, Ran Cohen, minister of Industry and Trade (MoIT), announced plans to amend the R&D law, regulating government assistance to private companies to give priority to biotechnology, specifically referring to "the special needs for innovation of biotechnology," which has a "far longer incubation time than other high-tech sectors."

More recently, Cohen declared his intention to encourage biotechnological ventures during a press session to coincide with an international investors' conference. MoIT followed this up by announcing the founding of a biotechnological institute next to Ben Gurion University in the Negev, with primary funding by foreign investors.

Biotechnology is taking less than 4 percent (medical equipment less than 12 percent) of annual Israeli VC investments, according to the Money Tree survey published by Kesselman & Kesselman/ PriceWaterhouseCoopers & Lybrand (covering the majority of Israeli venture capital funds), even while 1999 investments amounted to $1 billion, and more than $2 billion over the past three years, Dani Maor, head of the Kesselman's High Tech Group, told BioWorld International.

Not only that, but within the last six months, the Gemini Fund, one of the founding dedicated life sciences funds, publicly exited the biotechnology arena, and the Karen fund declined to raise money for a biotechnology investment fund.

"Israeli biotech companies are just not in any great demand, Joel Bainerman, founder of Israel Technology Partners in Zichron Yaakov, told BioWorld International. "One after another technologically promising company is idling. Many investors are pushing for a sellout and would be happy to get a lot of shares of another company with a much better chance of making it. No one is buying or taking biotech companies public anymore and the future looks grim without a major overhaul and new way to deal with Israeli medical research, which is still world-leading. Despite this superb basis [in academic research], the companies are dismal failures commercially."

Maor said, "About $1 billion was invested in 1999 in start-ups, of the $1.5 billion searching for an investment. That means that $500 million was left idle, rather than take a risk on biotechnology."

This contrasts with Clal Biotechnology in Tel Aviv, which Orna Berry, outgoing chief scientist at MoIT, described as a "more apt business approach and infrastructure model for the field," structured to assist through the long transition from laboratory development to industrial development, while most investors seeks a quick high and fast return on the money - indeed measuring in the tens of millions over months.

Israeli biotechnology sits on the shore while start-up and investment waves crash over the high-tech sectors. Far from the great promise fulfilled eventually in the pioneering Bio-Technology General, which moved its operations to the U.S. but still has its original founding R&D division in Rehovot. Although it took 12 years of technology and patent battles, BTG today trades on Nasdaq at a $700 million market value, marketing its proprietary bioengineered medicines and hormones throughout Europe and the U.S.

Pharmos, Peptor, and D-Pharm are other biotech companies poised for success in business and technology, supporting each other and the academic environs of the Kiryat Weizmann scientific park in Rehovot.

Pharmos, which traded on Wall Street on woefully undervalued prices since 1993 ($140 million valuation), saw its share price shoot up 77 percent over the past two weeks. General Manager Haim Aviv recognizes this as image value, but noted, "since our shares are good merchandise, not just ideas, they will sell," and have an unrealized market of billions of dollars in annual sales. Pharmos has rights to dexanabinol, its cannabinoid derivative being developed to treat head injuries, Alzheimer's disease, stroke and Parkinson's disease.

Berry said foreign money is good, but that the large pharmas have to be stopped from taking advantage of Israel's patent law. They come to Israel, he said, and "extract intellectual property from the universities, pay very low prices to university researchers and take the knowledge abroad for commercial development."

In the bigger picture, Berry leaves for her successor, Carmel Vernia, the challenge of government, saying, "A focused five-year investment plan of $30 million to $50 million per year is needed for developing industrial infrastructure, plus tax breaks and direct involvement of the universities. When government money is invested, private capital follows in its wake."