Globes article:
"Biotech: Where Few Dare to Venture
By Michael Eilan
Why hasn't the Weizman Institute done as
much for biotech as the Technion did for the
Israeli electronic and software industries? Why
hasn't the country ever found a way to make use
of the proportionately larger amount of students
and graduates who specialized in life science?
Why are most venture capitalists scared stiff of
biotech?
Yuval Binur of Medica is one of the very few
venture capitalists who is not scared of biotech.
In fact, 10 out of 11 investments made by his
fund were in this field. The lack of the
specialized capital with its associated
management skills and customer networking is
one of the main reasons Israeli biotech has
never really taken off, but that's a kind of
chicken and egg statement that just begs the
question.
Some definition of terms is necessary in the
Israeli context, because the term biotech is
used, incorrectly, both for medical instruments
and agritechnology. Both fields are doing quite
well, unlike the torturous industry of developing
biological agents for therapeutic purposes, used
inside the human body.
Despite capable and even visionary pioneers like
Yoram Karmon from Peptor of Haim Aviv from
Pharmos, very generous government R&D
grants and a great but unfocused interest from
the business community, Israeli biotech has
never crossed the Rubicon of an industry that
makes enough money to attract more
entrepreneurs and capital. Potential is usually
most interesting when it's matched with
experience.
One of the main reasons for the problem is the
lack of enough solid proven business models,
the sort of road maps that you can either use or
discard. Entrepreneurs in electronics and
software have a wealth of models to choose
from: they can try for the Zisapel model of
technology leadership in niches tight enough to
command cheaper marketing by distributors.
They can go for the BRM-Checkpoint model in
which American subsidiaries are just as strong
as the Israeli developers back home. There are
dozens of other models, companies to copy,
people to consult, and friends to help - a whole
pool of knowledge and a network that is an
integral part of the industry.
This is one reason why Binur's fund is
interesting. It's small, with only $15 million,
though Binur says he is now raising a second
fund, but its real importance may not be in the
companies that emerge from the fund, but in the
models to commercialize biotech skills. So far,
Binur has developed three distinctly different
models that have worked well enough for him to
consider a second fund.
The first model is based on the common
characteristics of the biotech entrepreneur.
Biotech entrepreneurs are usually older than
people with the itch for electronics and software,
because it takes such a long time to learn the
various scientific disciplines and develop them to
a point in which the scientist can offer
something that is both new and useful.
With this in mind, Binur picks up what he calls
"projects" from the academic world, funds them
and then forms a company around the expertise.
Binur neither seeks management nor market
skills from entrepreneurs, but needs an
eyeball-to-eyeball gut feeling that the scientist is
committed to commercializing his knowledge.
Then, a manager, invariably from the US is
planted in the company to develop its
commercial thrust. A prime example of this
model is Collguard, which developed a series of
unique therapies with applications for cardiology,
cancer and dermatology based on the properties
of collagen. Collgard has just completed an
apparently successful second round of financing
and is one of Binur's hotter companies.
Binur says of this model: "We could fund the
first work for, say, $1 million, but then would
own 100% of the company." In other words, the
venture capital formula is taken to the extreme
by assuming all the risk and taking all the
potential upside, should the project succeed to
attract another round of financing.
The second model is mergers. Medica became
involved in Orgenics, a company that had
reached sales of $10 million for diagnostic kits it
developed - but then it stopped growing. Medica
arranged a merger with Selfcare, an American
company, to what Binur describes as to the
great benefit of both companies. This model
might be especially useful for those Israeli
biotech companies which attracted financing,
completed their development, but lacked the
various resources needed to introduce the
product into the market.
The third model turns the usual Israeli venture
assumptions upside down. Medica bought into
Neoprobe - an American company that was
hamstrung by the requirements of the American
Environmental Protection Agency (EPA), and
brought it to Israel. Neoprobe had developed
what Binur describes as "brilliant technology" to
help surgeons during operations to remove
cancerous growths. The company developed
radioactive markers that latch onto specific
monoclonal antibodies. Each antibody is
associated with a particular kind of cancer.
When injected into the body prior to surgery, the
surgeon can check thoroughly if he managed to
remove every tiniest part of the cancerous
growth using a tiny Geiger counter, the size of a
pencil, says Binur.
Neoprobe could not manufacture its products
because of extremely stringent safety measures
imposed by the EPA. The same safety
measures were in place at the nuclear reactor in
Dimona. Medica, working with the Astra fund,
brought the company to Dimona. It succeeded,
and the company went public two years ago.
The models are interesting because they are so
difficult. Great ingenuity is needed to overcome
some of the most basic problems that biotech
presents. The first is well known: the much
longer time taken to develop the technology.
Afterwards it must win regulatory approval, first
in the US. Only giant companies have the
resources to bring new pharmaceuticals based
on biotech through Phase III clinical trials --
exhaustive tests on enormous numbers of
people. These companies have become the
portal for biotech companies to reach the world
because they realized they could not develop all
the technology they need.
This inherently different relationship between the
start-up and the market calls for completely
different strategies by the venture capitalist.
Both the financial, management and marketing
strategies have to fit into a pattern in which the
technology itself is usually the product, and the
market is not users or consumers, but
companies with the ability to commercialize the
technology.
The entrepreneurs are also different. Binur's first
requirement from the entrepreneur is not the
intimate knowledge of the market required in
other fields.
"I won't turn down a biotech entrepreneur for lack
of management skills. I will turn down an
entrepreneur who lacks deep scientific
knowledge of his field," he says.
Unless proved otherwise, he assumes he will
have to graft management, usually American,
onto the new company. Another basic
assumption runs contrary to the current trend
among many venture funds. Medica has to
diversify its investments between very early
stage "projects" and late-stage restructuring or
recasting of established companies because of
the long development cycle of biotech products.
In other words, focusing just on the early stage
would require more money, time and risk than
most investors are willing to stomach.
A biotech venture capitalist is also different from
his colleagues in other fields because of the
tremendous amount of background knowledge
needed to weigh investments. "I spend endless
hours just reading," says Binur. Apart from
basic knowledge of the molecular and biological
process, the biotech venture capitalist must
keep on top of vast amounts of research just to
understand what ideas might work a few years
ahead.
The few Israeli venture capitalists who will
undertake biotech investments usually diversify
this risk with more conventional high tech
ventures. Medica turns this model on its head
because the knowledge element is so specific
to the industry. If the models developed at
Medica are good enough to be digested, copied
and altered, it could be a good beginning
towards making the potential a little less
theoretical.
Published by Israel's Business Arena August
18, 1998. "
Link: globes.co.il |
