TEL AVIV - Although significant profits are still elusive, Israel'sbiotechnology industry has enjoyed impressive growth in the pastdecade.

The sector currently includes 64 firms - 90 percent of which wereestablished in the last 10 years. According to the Ministry of Industryand Trade, total sales from biotech products reached $265 millionlast year (up from $15 million in l988) with exports constituting 85percent of the amount.

One leading Israeli firm is Bio-Technology General Corp., ofRehovot. Founded 15 years ago, its shares are traded on NASDAQ(BTGC). The company produces a range of products in thegenetically engineered human health care field, and has raised morethan $166.6 million from public sources. It recently sold 5 millionshares in a private placement worth $9 million to Elliott Associates,of New York, and Grace Brothers Ltd., of Chicago, both currentinstitutional stockholders of Bio-Technology.

After 13 years of consecutive losses, the company finally turned aprofit last year on sales of more than $17 million. It attributes its firstoperational profitability to sales of Bio-Tropin, a human growthhormone for ophthalmic surgery, and Oxadrion for pediatric growthdisorders. Marketing and licensing agreements have been signed withthe Swedish Ferring Group and JCR Pharmaceutical in Japan.

In March l993, South San Francisco-based Genentech Inc. filed acomplaint with the U.S. International Trade Commission (ITC)alleging that Bio-Technology infringed on its patents relating tohuman growth hormone. The allegation was dismissed earlier thisyear and Bio-Technology is now seeking $100 million in damages.

Oded Gal, a financial analyst with Oscar Gruss and Sons' Tel Avivoffice, points out that while Bio-Technology will begin selling Bio-Tropin on a major scale in the second half of l995, it could face aserious lawsuit by Genentech in the federal courts. Nevertheless, Galpredicts that l996 will be a major year for Bio-Technology and thatits stock is undervalued. On Tuesday, shares were up 38 cents, toclose at $3.06 each.

Shlomo Greenberg, of the Tel Aviv office of Josephthal Lyon &Ross, is not as optimistic about the company's long-term profitability.He said that Bio-Technology, which is based in Iselin, N.J., lacks acritical component for success: a major international strategicpartner.

"This is a difficult time to stand alone in the biotech industry," hesaid.

Last year, New York financier David Blech, a principal investor,reduced his 18 percent stake in the company, increasing thecompany's institutional investor base. (For more details, seeBioWorld Today, April 25, 1994, p. 3.)

Another leading firm is InterPharm Laboratories Ltd., of Ness-Ziona,with sales of more than $50 million. Original funding to establish thecompany came from the Swiss pharmaceutical company Ares-SeronoS.A. in l978. Since then, InterPharm has developed products such ascytokines and lymphokines to fight cancer, viral infections andallergies.

The firm's flagship product, called Frone, is licensed worldwide fortreatment of viral infections and oncological diseases such as uterineand breast cancer. It also has a recombinant form of Frone on themarket, as well as several products in various stages of developmentsuch as Interleukin-6 and Tumor Necrosis Factor Binding Protein,both of which came out of research originally done at the WeizmannInstitute of Science - a few miles down the road from the company'splant.

Due to the original investment agreement it signed with Ares-Serono,it is forced to sell Frone at cost-plus to the parent firm.

Last summer, a Tel Aviv District Court issued two injunctions againstAres-Serono, one which forbid the manufacture of beta recombinantinterferon in countries other than Israel, and the other banningregistration of the drug under the name of any manufacturer otherthan InterPharm.

A group of 40 minority shareholders in InterPharm lodged thecomplaint alleging that registration of the drug with the FDA orsimilar authorities under the Ares-Serono name would facilitate thetransfer of manufacturing rights to a third party and deprive them oftheir rightful income. The shareholders have refused a $22 per shareoffer by Ares-Serono for their stock.

Ares-Serono last summer upped its ownership of the company from76 percent to 87.7 percent. (See BioWorld Today, June 22, 1994, p.1.)

Pharmos Hangs Hopes On Corticosteroid

Running just behind InterPharm and Bio-Technology is PharmosCorp., which, after merging with Florida-based Pharmatec in l992,went public on NASDAQ.

The company, also of Rehovot, is hanging its hopes on Lenoxin, apatented, site-active corticosteroid developed to treat ophthalmicinflammations and allergies. Company officials said that the Phase IIItrials of the drug showed that it was effective and safe in use againstgiant papillary and seasonal allergic conjunctivitis.

Pharmos has signed a letter of intent with Bausch & LombPharmaceuticals to cooperate on the further development, productionand distribution of Lenoxin. It has filed for FDA approval and salescould begin by mid-l996. The world market is currently estimated tobe $600 million. Other products in the pipeline include one for thetreatment of glaucoma, and Dexanabinol, a synthetic compound usedin the treatment of stroke, trauma and cardia arrest.

"Pharmos' problem is similar to Bio-Technology General's," saidGreenberg. "It has no `big brother' to lead it through the expensivewaters of drug approvals or to firmly establish a presence in themarket for its products. It is in constant need of new injections ofcash. If they continue to dilute the shares, as they have done in thepast, their stock will pay the ultimate price."

Another innovative company is Zenograft Technologies whosetechnology allows for the creation of chimeric animals withfunctioning human immune systems. These animals can toleratehuman tissue and cellular grafts without rejecting them, making themexcellent models for the development of human monoclonalantibodies and for pharmaceutical research on a broad range ofhuman diseases.

Government Incentives For R&D, Marketing

The government offers an extensive array of incentives to thisburgeoning industry in the form of support for research anddevelopment via the Ministry of Industry and Trade, and to a certainextent, marketing. Additional funding comes from European Unionagreements, The U.S.-Israel Bi-National Science Foundation and theU.S.-Israel Bi-national Research and Development Foundation.

The recently established U.S.-Israel HighTech Commission hasallocated $30 million for the funding of research projects, many ofwhich will be in the biotech arena. According to the NationalSteering Committee for Biotechnology, an industry lobby group,more than $50 million was invested in research and development inbiotechnology projects last year, $20 million of this from governmentsources.

One of the reasons more than 30 biotech start-ups have beenestablished in the past two years is an influx of venture capital intoIsrael from U.S. funds including The Walden Fund, Advent, andFairchild. More than $500 million in venture capital has been madeavailable to Israel's high tech industry since l990 and a significantshare of that is finding its way to funding new biotech advancements.

Despite the presence of these incentives and even though Israel'sbiotech industry is making strides in the development of newproducts, few companies have established strategic partnerships tomarket their products worldwide. Without those alliances, sourcestell BioWorld that, technology and products will likely be sold toindustry leaders closer to major markets and with greater financialresources.

Joel Bainerman is the editor of Tel Aviv Business, a monthly reporton Israeli industry. n

-- Joel Bainerman Special To BioWorld Today

(c) 1997 American Health Consultants. All rights reserved.

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