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Published at Haaretz, December 13th, 2004
Biotech's trials and tribulations
By Haim Handwerker

NEW YORK - The great success of Israeli high-tech in the U.S., at least in the beginning, was due in no small part to the Israelis living in the U.S. and working at the centers of power: at the investment houses on Wall Street, the big American high-tech companies, the venture capital funds and the major law firms. An examination of most of the high-tech-related deals made there - whether stock issues, sales, acquisitions or product promotions - will usually reveal the involvement of an Israeli living in the U.S.

A similar phenomenon is currently evident in the biotechnology industry, in which Israel is considered a relative newcomer: Israelis residing in the U.S. who are experts in this field are trying to promote a connection with their homeland. One such expat is Ranan Lachman, co-founder of 2Value Management Consulting, a company that introduces developing technologies from around the world to pharmaceutical and biotechnology companies, generally small- to medium-sized ones.

"I attended the Biotech 2004 conference in Israel. I met several people there whom I introduced to an American company, and a deal is apparently forming for the sale of Israeli technology in the near future," says Lachman, who is familiar with the complexities of Israel's biotech industry.

"Biotechnology professionals show a great appreciation for basic life sciences research in Israel, but this research needs to be viewed in the proper perspective," he explains. "It requires a tremendous amount of money and patience to develop a new drug and bring it to the market - an average of 8 years and $800 million. The U.S. administration's budget for developing drugs is $30 billion a year, whereas the Israeli chief scientist's annual budget for biotech totals only $400 million. A biotech company has to start out with $3-$5 million to cover its first two years."

One problem is that Israeli companies start out with an average of just $600,000. Without significant connections abroad and with limited possibilities of raising private funding in Israel (there are only five local VC funds that specialize in biotech) - this sum clearly is not enough for setting up clinical trials, even on animals.

Israeli biotech startups manage to reach the development stage so early that they are unable to arouse interest among American or Israeli VC funds, and certainly not among the big drug companies. For this reason, about half of the 100 or so companies that sprout every year close down.

What can be done about this? Lachman quotes the prevailing feeling among many professionals that Israel's chief scientist is scattering the investments among too many nascent companies.

"These professionals," says Lachman, "also recognize the fact that there is no choice but to make the painful decision to stop supporting about one-third of the companies - which will lead to their dissolution - and to use the resources to finance the clinical activities required by more promising companies."

Lachman notes that the problem in Israel goes even deeper: "There is insufficient infrastructure in Israel for clinical human trials. Israel has only two laboratories that are approved by the U.S. Food and Drug Administration (FDA). It is very expensive to build such labs - at least a few tens of millions of dollars. The result is that Israeli companies outsource to Europe, which is a shame. When such work is outsourced, it means that you are also not developing knowledge in conducting clinical trials."

Lachman spares no criticism of the manner in which the Israeli biotech industry is being managed for presentation to key forces in the world industry.

"Even when a marketing package has to be created for a product there are problems. The Israelis usually prepare a product portfolio that displays insufficient respect and a lack of professionalism. When a drug company or a foreign VC fund receives such a portfolio, they have no great enthusiasm for dealing with it."
Ranan Lachman

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