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Israel National Life Sciences Fund
        Michael Kaufer, MBA, MS
             Rehovot, Israel

                         ...
Outline

 Background
 Stimulating jobs – can the life
  sciences do this?
 The Players
 Spending NIS 400m
   Educatio...
Background
   900+ Life Science                  Life science industries
    companies in Israel:                have so...
Background
   Israel has a a comparative advantage in the
    life science industries due to many factors
     This adva...
Background
   Early 2000: Misrad HaTasuka & the office
    of the Chief Scientist established “Israel Bio
    Plan 2000 –...
Background
   December 2008: Ministry of Finance (MoF)
    asks for additional funding to continue
    concentrating fund...
Background
   MoF allocated an extra NIS 200,000 to the Chief Scientist’s
    Office in the previous stimulus plan, appro...
Stimulating Jobs – can
                     biotech do this?
   Biotechnology is unlike agriculture, construction, defens...
Stimulating Jobs – can
                           biotech do this?
                                                       ...
Stimulating Jobs – can
                   biotech do this?
Conventional wisdom states that Israel has:
 Basic R&D advanta...
Stimulating Jobs – can
                   biotech do this?
Reality:
 This is a highly competitive set of industries!
 R&...
The Players - Government

Government:
 Cooperation between government
  ministries is essential!
 Other assistance:
   ...
The Players - Government

Government:
 Cooperation between government ministries is
  essential!
 Set-up task force of a...
The Players - Universities

Universities
 Traditionally provided advanced education.
 Today, they have new roles:
     ...
The Players – Private Sector

Private Sector
 Only one global life science company: Teva.
 Few large domestic companies:...
Interdependency in the Israeli Life
             Science Industry

            Direct / Indirect Equity in Companies

    ...
Interdependency in the Israeli
                   Life Science Industry
                                NST
              ...
The Players - Associations

Professional organizations
 Typically under funded & understaffed.
 Potential to play vital ...
Spending NIS 400m

   Target late 3Q09.
       Must allocate funds from state budget
       Must develop administrative...
Spending NIS 400m

   Fund must leverage the unique capabilities of
    each of player to its fullest:
       Use entrep...
Education & Training

   NIS 10m annually for three years
       Avg course = NIS 4000
       NIS 10m provides for 2500...
Education & Training

   Priority given to:
       Individuals out of work the longest.
       Compatible with educatio...
National Standards

   Standards tell world what we expect and how we work!
       Sets an internal standard driving exc...
National Standards

   NIS 5m annually for three years :
       Translation of standards into Hebrew
       Annual conf...
Added benefits of annual conference:
increased tourism & positive image of Israel!




                                   ...
Studies beyond
             “Proof-of-Concept” Phase
   Fund must develop proven concepts, not more
    incubators and mo...
National Centers of Excellence
                   (NCEs)
   A “National Center of Excellence” has four
    main goals:
  ...
National Centers of Excellence
                   (NCEs)
   Combination of:
     Establishes performance standards,
    ...
National Centers of
                 Excellence (NCEs)
         Example: Delaware Biotechnology Institute

   Established...
National Centers of
                       Excellence (NCEs)
     Example: Delaware Biotechnology Institute, continued
  ...
Saving Companies from
                  Bankruptcy
   Biotech firms in the US are closing rapidly
       Technology is o...
Leveraging Existing Assets
   NIS 400m = $100m
     NIS 355m or $88.75m, after training &
      standards
     $35m/yea...
Leveraging Existing Assets
 Conclusion:
 Financing
          Phase III clinical trials is
 too expensive for the propose...
Leveraging Existing Assets
   Fund should target Phase I & Phase II studies
       Phase I (Human Pharmacology).
      ...
Leveraging Existing Assets

Example of a good investment:
 Biokine Therapeutics, Ltd. received a $1.2
  million research ...
Leveraging Existing Assets

Why is this good?
 Phase I/II studies generate more jobs
  (production of clinical materials,...
Leveraging Existing Assets
   NIS 355m = $88.75m
       NIS 60m. = $15m/year for three years for Phase I/II drug
       ...
Leveraging Existing Assets

   NIS 355m = $88.75m
       $15m/year = NIS 60m. for three years for
        NCEs:
        ...
Conclusions

1.   Gov’t funding is critical to sustaining development of the life
     science industries during this rece...
Who is Michael Kaufer?
   Currently Quality Assurance Specialist at Foamix, Ltd. In Rehovot, (2009).
   Founder and owne...
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Israel National Lifescience Fund

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Back in December \'08, the outgoing gov\'t in Israel proposed a number of stimulus packages for biotech in Israel. Their emphasis was all wrong. The current gov\'t hasn\'t done anything yet. Here\'s my plan!

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Israel National Lifescience Fund

  1. 1. Israel National Life Sciences Fund Michael Kaufer, MBA, MS Rehovot, Israel 1
  2. 2. Outline  Background  Stimulating jobs – can the life sciences do this?  The Players  Spending NIS 400m  Education & Training  National Standards  Leveraging National Assets  Conclusions 2
  3. 3. Background  900+ Life Science  Life science industries companies in Israel: have social implications:  55% Medical devices  Cures or treatments for  21% Biotechnology diseases, increasing individual quality of life  12% Pharmaceutical and productivity  4% Medical IT  Opportunities for those  3% Agrotech with advanced education  5% Other  Can be a key economic driver in the future  Employment  Positive balance of trade  Tax revenues 3
  4. 4. Background  Israel has a a comparative advantage in the life science industries due to many factors  This advantage needs government support in order to be sustained!  This advantage is eroding!  China, India and Korea investing heavily in life science industries.  Focus of these countries is two-fold: 1) Service their domestic markets 2) Replace Western companies in supply chain 4
  5. 5. Background  Early 2000: Misrad HaTasuka & the office of the Chief Scientist established “Israel Bio Plan 2000 – 2010. Its focus was:  Establishing two world-class biotech incubators  Establishing physical infrastructure  Providing seed money = $100m.  Plan was partial success 5
  6. 6. Background  December 2008: Ministry of Finance (MoF) asks for additional funding to continue concentrating fund’s investment in biotechnology.  This is a mistake.  There are more “concepts” in incubators than available funds.  New fund cannot develop all. 6
  7. 7. Background  MoF allocated an extra NIS 200,000 to the Chief Scientist’s Office in the previous stimulus plan, approved in Dec. 2008.  In February 2009 MoF announced intention to allocate additional NIS 150m in 1Q09.  1Q09 no longer realistic target!  MoF wants to add NIS 250 million for a fund specializing in biotechnology investments.  The fund will be leveraged with private equity  Will reach a total of between NIS 750m and NIS1b  Concentrating the fund and private equity in one sector will distort its economics and result in lost opportunities in other sectors! 7
  8. 8. Stimulating Jobs – can biotech do this?  Biotechnology is unlike agriculture, construction, defense and “smoke stack” industries.  Uses relatively higher numbers of scientists.  Higher pay scale – workers’ average salary is around NIS 16000/month.  Uses relatively lower level of unskilled and semi-skilled labor.  Products subject to extensive regulatory review in EU, US & Japan.  Products have 8 - 12 year development time line, from discovery to commercialization.  Biotechnology manufacturing is a slow process.  Establishing a single cell line can take between 90 and 150 days alone. This is just one step! 8
  9. 9. Stimulating Jobs – can biotech do this? Only 5 compounds remain from original 10,000! Stage 1: Stage 2: I Stage 3: N Drug Discovery Pre-Clinical Clinical Trials N D D Phase 1: Phase 3: A 20 -100 1000 - 5000 volunteers volunteers S S 1 0 ,0 0 0 u u co m po un d s 20 5 co p u d mo n s b 5 b 1 m m p roduct i Phase 2: i t 100 - 500 t volunteers t t e e 6.5 YEARS d 6 YEARS d 1.5 YEARS Source: www.innovation.org 7
  10. 10. Stimulating Jobs – can biotech do this? Conventional wisdom states that Israel has:  Basic R&D advantage  Cooperation between government, private industry & universities  Education system  20% of workforce has a university degree!  Entrepreneurial Spirit  Strong technology incubator program  Relatively lower labor costs  Sr. Research Scientist in US earns $90,000 - $120,000/yr  Sr. Research Scientist in Israel earns $42,000 - $50,000/yr 10
  11. 11. Stimulating Jobs – can biotech do this? Reality:  This is a highly competitive set of industries!  R&D occurs globally now, companies form teams that operate in multiple countries!  Other countries, notably China, India and Korea are imitating Israel’s model:  Close cooperation between government, private industry & universities  Technology incubator programs  Government investments  China, India and Korea have even lower labor costs! 11
  12. 12. The Players - Government Government:  Cooperation between government ministries is essential!  Other assistance:  Consider lowering capital gains tax.  Consider lowering or waiving value added tax (VAT or MAM) on purchase of certain asset classes.  Consider lowering or waiving fees. 12
  13. 13. The Players - Government Government:  Cooperation between government ministries is essential!  Set-up task force of agencies responsible for:  Drafting administrative framework  Administering program  Training bureaucrats in local offices  Resolving disputes quickly  Set-up “super offices” for handling individual needs:  Customs  Misrad Ta’asuka  Bituach Leumi 13
  14. 14. The Players - Universities Universities  Traditionally provided advanced education.  Today, they have new roles:  Perform basic research;  Provide socioeconomic opportunities to society.  If Israel is to maintain & extend its competitive edge, they must accept new tasks and be flexible in performing old tasks:  Allow greater government and industry participation in academic advisory boards,  Provide expertise to life science companies receiving funding,  Rationalize universities’ life science academic programs,  Rationalize universities’ life science incubator programs. 14
  15. 15. The Players – Private Sector Private Sector  Only one global life science company: Teva.  Few large domestic companies: Dexcel, Rafa Laboratories & Taro.  Taro trying to sell itself to an Indian form for the last several months!  Several investment funds like Clal Biotech.  Many small companies with less than 50 employees.  Close to 100 incubator companies with less than 20 employees!  Various suppliers of goods and services.  Private sector is highly interdependent (see next page). 15
  16. 16. Interdependency in the Israeli Life Science Industry Direct / Indirect Equity in Companies Strategic Rights BMI Curetech Gamida-Cell Bioline MediWound Cellcure D-Pharm Proteologics Vaccinex IDM Biocontrol Compugen Andromeda CBI NST VBL XTL 16
  17. 17. Interdependency in the Israeli Life Science Industry NST 5% Andromeda Compugen Biotech, 11% Ltd. 95% Biokine Clal MediWound Therapeutics Biotechnology Ltd. 24% 55.5% Inc. Polyheal, Cure Ltd. Tech, Ltd. 35% 45% D Pharm, Ltd. 41% 17
  18. 18. The Players - Associations Professional organizations  Typically under funded & understaffed.  Potential to play vital role in developing human & organizational potential.  Must become more professional and more responsive to members needs.  Professional organizations that might play a role:  Israel Life Science Industries  Israel Society for Quality  PDA Israel 18
  19. 19. Spending NIS 400m  Target late 3Q09.  Must allocate funds from state budget  Must develop administrative framework  Must involve all the “players”  In order to alleviate current crisis, funding must target investments that will have an immediate impact:  Training  National Standards  Studies beyond “Proof of Concept” stage  National Centers of Excellence  Companies in danger of bankruptcy 19
  20. 20. Spending NIS 400m  Fund must leverage the unique capabilities of each of player to its fullest:  Use entrepreneurial spirit to find unique solutions to scientific and operational problems!  Don’t let bureaucracy slow down decisions!  Each player may have to re-prioritize their objectives to participate fully in the Fund:  “Blue & White” investments;  Support full employment strategies;  Develop local partners & suppliers;  Investment swaps. 20
  21. 21. Education & Training  NIS 10m annually for three years  Avg course = NIS 4000  NIS 10m provides for 2500 people/year = 7500 people  Office of Chief Scientist  Must certify institutions offering course  Institutions exempted from value added tax?  Misrad Ta’asuka L’Akadamain  Must certify those attending courses  100% tuition for first course  50% tuition for second course with individual participating from keren hishtalmut  Misrad HaKlita must certify Toshvim Hozrim & Olim  Olim & Toshvim Hozrim limited to one course  100% tuition for course (currently only 80%) 21
  22. 22. Education & Training  Priority given to:  Individuals out of work the longest.  Compatible with education & training schedule of participating institutions.  Ezrachim = 1500 professionals  Must be currently unemployed.  Must complete within 6 mo.  Related to academic degree / work experience  Toshvim Hozrim = 500 professionals  One technology course  Must complete within 6 months of return.  Must be related to academic degree / work experience.  Olim = 500 professionals receive Ulpan Hemshech  Must complete ulpan alef! 22
  23. 23. National Standards  Standards tell world what we expect and how we work!  Sets an internal standard driving excellence  Set, update & communicate national standards  What is Israel’s policy on:  Biosimilar biological drug products?  Blood and plasma products?  Homeopathic medicines?  Human clinical trials?  Quality by Design?  Quality Systems Management?  Risk Management?  Are standards easily available in multiple languages? 23
  24. 24. National Standards  NIS 5m annually for three years :  Translation of standards into Hebrew  Annual conference for life sciences:  National regulatory developments  International regulatory developments  Presentation of scientific and technical papers  Reports on business developments in Israeli firms:  Pre-clinical work  GLP studies  Phase I – III clinical studies  Exhibits from national & international life science companies and suppliers  Internet site 24
  25. 25. Added benefits of annual conference: increased tourism & positive image of Israel! 25
  26. 26. Studies beyond “Proof-of-Concept” Phase  Fund must develop proven concepts, not more incubators and more concepts!  “Proof-of-Concept” development is role of incubators.  New technological concepts attract limited amounts of venture capital, on the scale of $1.5m - $5m.  This amount sufficient only for creating about 10 jobs, plus covering development costs of the concept.  Only good for 2 -3 years, and has a limited success rate! 26
  27. 27. National Centers of Excellence (NCEs)  A “National Center of Excellence” has four main goals:  Establishes the performance standards for a given technology or group of technology.  Allows firms to “test drive” new technology before investing in it.  Serves as a training center for individuals and firms who might not be able to afford this level of integration.  Attracts researches and industrial development. 27
  28. 28. National Centers of Excellence (NCEs)  Combination of:  Establishes performance standards,  Test driving new technology, and  Training  Has the potential of speeding up the progression along the Learning Curve.  Many such centers are developed by a consortium of government, universities, hospitals, private companies and charitable funds. 28
  29. 29. National Centers of Excellence (NCEs) Example: Delaware Biotechnology Institute  Established in 1999  Core Instrumentation  Dedicated April 2001 Centers:  Bioimaging  72,000 square feet  Bioinformatics  25 Dedicated Research  Microarray Laboratories  Protein Production &  10 Common Research Analysis Laboratories  Cellular Proteomics  Over 20 Resident Faculty  Nuclear Magnetic Research Groups Resonance  Mass Spectroscopy  120 Student Researchers  Plant Growth Chambers 29
  30. 30. National Centers of Excellence (NCEs) Example: Delaware Biotechnology Institute, continued  Statewide Collaboration  Funding Sources and  University of Delaware Agencies  Delaware State University  State of Delaware  Delaware Technical &  National Institutes of Health Community College  National Science Foundation  Wesley College  US Department of Agriculture  Christiana Care Health  US Department of Energy System  AstraZeneca  Helen F. Graham Cancer Center  E.I. duPont de Nemours  Alfred I duPont Hospital for  Hercules Children  Crystal Trust  Nemours Biomedical  Kresge Foundation Research  Over 110 Affiliated Faculty Members  23 Departments at 6 Delaware Institutions 30
  31. 31. Saving Companies from Bankruptcy  Biotech firms in the US are closing rapidly  Technology is often “lost” as other companies will not purchase it.  When companies close:  Unemployment statistic rises, eroding confidence in the economy.  More people making claims for unemployment insurance and not paying taxes, putting pressure on national budget.  Market is temporarily flooded with skilled employees, driving down wages. 31
  32. 32. Leveraging Existing Assets  NIS 400m = $100m  NIS 355m or $88.75m, after training & standards  $35m/year is the average burn rate for a small biotech company in the US!  Even considering lower labor costs and entrepreneurial success, this amount would only support 2 -3 Israeli firms.  It takes on average 8 – 12 years and $800m to develop a new drug! 32
  33. 33. Leveraging Existing Assets  Conclusion:  Financing Phase III clinical trials is too expensive for the proposed fund! 33
  34. 34. Leveraging Existing Assets  Fund should target Phase I & Phase II studies  Phase I (Human Pharmacology).  Phase II (Therapeutic Exploration).  Firms will complete studies in Israel.  Firms will be expected to achieve employment & employee compensation levels at specified intervals.  Fund will target therapies with significant markets.  Fund will receive equity stake:  Gov’t equity should be sold after 3 - 5 years to provide next generation of funding.  Sale to proceed in stages.  Sale may be restricted to Israeli firms or firms committing to commercialization in Israel. 34
  35. 35. Leveraging Existing Assets Example of a good investment:  Biokine Therapeutics, Ltd. received a $1.2 million research grant from the Office of the Chief Scientist (March 2009)  The funding will support a Phase I/IIa clinical study to test the safety and the efficacy of the company’s flagship product, cancer drug BKT140.  A treatment for myeloma.  BioKine announced the initiation of the study at Sheba Medical Center. 35
  36. 36. Leveraging Existing Assets Why is this good?  Phase I/II studies generate more jobs (production of clinical materials, regulatory specialists, doctors & nurses tending clinical patients, etc.)  Product under investigation has implications for millions of patients worldwide.  Study being done in Israel, i.e., it’s “Blue & White!” 36
  37. 37. Leveraging Existing Assets  NIS 355m = $88.75m  NIS 60m. = $15m/year for three years for Phase I/II drug clinical trials.  Enough to support 6 – 8 companies each performing one clinical trial!  Open mutual fund for individual investors to reach parity with government’s investment  This doubles the amount available = 12 – 16 companies!  Successful Phase I and Phase II clinical studies usually result in an increase in the stock’s value  Fund can sell government shares to raise additional capital! 37
  38. 38. Leveraging Existing Assets  NIS 355m = $88.75m  $15m/year = NIS 60m. for three years for NCEs:  Universities to match government investment in return for access rights for their researchers & incubators.  Existing university NCEs may be absorbed.  Provide access-for-fee arrangement for incubators and private industry.  Fees reinvested into development of the NCEs. 38
  39. 39. Conclusions 1. Gov’t funding is critical to sustaining development of the life science industries during this recession. a) Fund should not be limited to any one sector within the life sciences! b) Fund must be in addition to existing incubator programs! 2. Fund must take into account social objectives: a) Education b) Employment c) Immigrant absorption  Fund must leverage existing national assets and create new assets for future.  Fund must concentrate effort on high-volume therapeutic areas.  Investing does not guarantee success. Not investing guarantees that Israel will lose its competitive advantage and will lose future opportunities. 39
  40. 40. Who is Michael Kaufer?  Currently Quality Assurance Specialist at Foamix, Ltd. In Rehovot, (2009).  Founder and owner of CGMP Solutions, a focused consulting firm specializing in the development of Phase III biotechnology, medical device and pharmaceutical products (2004 -2008).  Temple University, Philadelphia, Pennsylvania (2001 -2008):  Assistant professor of Quality Assurance, School of Pharmacy.  Assistant professor of Operations Management, Fox School of Business.  Held positions of increasing leadership and responsibility at Johnson & Johnson, Merck, Watson Laboratories and Wyeth Laboratories (1990 – 2004).  Worked on the development of diagnostic devices for cancer; devices for inhaled insulin; various biotechnology projects and OTC technical transfer.  Israel Defense Forces (1989 – 1990).  Academic credentials:  MS QARA, Temple University, 2002.  MBA - Operations Management, Temple University, 1998.  BA Political Science, Hebrew University, Jerusalem, 1988. 40

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