Article | March 28, 2024

A View From The Co-Chair Of Israel's Biopharma Industry Trade Organization

Source: Life Science Leader
Ben Comer_2022_1

By Ben Comer, Chief Editor, Life Science Leader

Yaacov Michlin
Yaacov Michlin

The Israeli biopharmaceutical industry, built on the strength of the country’s high quality research institutions, has remained resilient despite the ongoing “Iron Swords” war, according to Yaacov Michlin, CEO at BioLight Life Sciences, and co-chairman of the Israeli Advanced Technology Industries (IATI), a nonprofit trade organization which includes biopharmaceutical company members.

Private equity funding was down precipitously in the fourth quarter of 2023, ostensibly due to the ongoing war, and the amount of capital raised by Israeli life sciences companies continues to lag in 2024, according to the IATI’s 2023-24 report on Israel’s life sciences industry. However, the Tel Aviv Stock Exchange (TASE), after a sharp decline at the onset of the war last October, has returned to a near all-time high, a fact that underscores future optimism about the biopharmaceuticals sector, says Michlin, as well as optimism about the potential for a resolution “not in two months, but a year from now” in Gaza (regarding Hamas) and along the country’s northern border with Lebanon (regarding Hezbollah).

Michlin, who served as chairman of the MIXii Health-Tech.IL meeting — which brought together Israel’s homegrown life science and health tech companies, as well as speakers from global Big Pharma companies such as Merck, Johnson & Johnson, and AstraZeneca on March 5-6 in Jerusalem — spoke with Life Science Leader about the advantages and disadvantages of Israel’s biopharma industry, the industry impact of the war in Gaza, and the difference between the U.S. and Israel regarding Chinese CDMOs. This interview has been edited and condensed for clarity.

Q: Can you provide a high-level overview of the biopharmaceutical industry in Israel, as well as key takeaways from the recent MIXii Health-Tech.IL meeting?

Yaacov Michlin: Israel has about 1,800 companies that I would consider health tech, and out of those 1,800 companies, about half are related to biopharmaceuticals, or drugs. For a country with eight million people to have 900 companies in the biopharma space is a very nice situation, and I’m not talking about the huge number of high-tech companies we have. The IATI views health tech as the little brother or sister of high tech, but there is obviously a lot of interaction between the two.

One of the sources of strength for Israel’s biopharmaceutical companies is our research institutions. Unlike a high-tech company, which can be started in a garage, or on the beach in California, to produce a new cancer drug, you need long-term research and labs, and it can take years to establish a company. Biopharma companies are usually based on deep tech research in a university or in a hospital. Israeli institutions, including the Weizmann Institute, and the IBOR at Hebrew-Hadassah University, are very strong in this space. And Israel is in the top five in terms of the number of patents granted per capita, compared to the world. That is the secret agent behind the industry.

It is a challenging time for Israel, and to see 1,700 people coming to Jerusalem for the MIXii conference, interacting, meeting investors, researchers, innovators, founders … it was a very important event for the industry. As part of the conference, we had an Ophthalmic Innovation Summit [Michlin leads BioLight Life Sciences, a VC group focused on ophthalmology], in which all 80 Israeli companies in that space participated, and we also had a sub-conference focused on tech transfer. We had some concerns before we launched the conference, but it went way beyond our expectations, with thirty percent more participation compared with the last conference.

Q: What gaps exist in the Israeli biopharma ecosystem, from the tech transfer function coming out of universities and hospitals, to company formation?

YM: You are touching a space that is very close to my heart because I used to be the CEO of the largest technology transfer company in Israel [Yissum] at the Hebrew University. I started that job in 2009. And apart from the research institutions I described, there is an advantage and a disadvantage. The advantage is not only the high level of the university and the worldwide ranking at the level of the professor, but it's also the students. What I mean by that is when you see a Ph.D. student in Israel, usually he or she worked as a commander in the army, so they are much more mature. People say that the reason that the world’s top universities love to get Israeli Ph.D. students for postdoc work is because of the entrepreneurship embedded in their approach. A lot of Ph.D. students from Israel are going to the best universities in the U.S., and they are very successful there, and some of them get offers to stay in the U.S. A lot of the startups I know were initiated by Israeli Ph.D. students during their postdoc terms. The disadvantage is that we cannot compete with the funding that you see in universities in places like Singapore or Dubai … the amounts they spend to get the best equipment they can purchase. The same is true of the professors they bring in from Stanford or from Harvard as lecturers. It’s a tough competition. We compensate for the lack of funding with the quality of the people, that is the tradeoff.

In general, we have a lot of innovation. The problem is that we don't have enough money for investing in the early stages of innovation. A lot of times there is very good innovation at the university stage, but it doesn't go anywhere, because there isn’t an investor that will believe in the project and will help to fund it in the first year. There are a lot more VCs in Boston than in the entirety of Israel. We compensate for that with foreign investment. A lot of VCs, including American VCs, understand the potential in Israel. And we have a supportive government, through the Israeli innovation Authority, which provides funding for every stage of a start-up.

Q: On government funding sources for the biopharma industry, how has that funding been impacted by the ongoing war?

YM: On the one hand, we have budget issues at the national level, because we are spending a lot of money due to the war. It follows that there would be less money to invest in innovation. However, last year, the Israeli government invested in innovation at a higher level because they understood that innovation in Israel is key for the long term. It's a balance. Before that, investment levels had gone down; there was an [industry-wide] slowdown. The government, in response, decided to spend another one billion shekels to cover [the funding gap]. You wouldn’t expect that to happen in a normal budgeting process, but that is what happened.

Q: I’ve read that 15% to 20% of the high-tech workforce in Israel is now serving as reserve soldiers. In your role as co-chair of the IATI, have you dealt with any concerns or problems that member company CEOs are facing with respect to the workforce?

YM: It's a strange situation where on the one hand, you have 15% to 20% going in to the army, but the other workers compensate for the absence. We have a slogan that we say during the war: ‘We deliver no matter what." And that is real. I didn’t hear about a single situation in which a company didn’t believe it could deliver what it was supposed to deliver on time. There are things that were impacted, perhaps recruitment for clinical studies was slower, things did happen. But I can give you an example of what I mean. One of our portfolio companies is working with a manufacturing facility that is literally on the fence of the border with Lebanon, the center of the trouble that we have in the north with Hezbollah. Workers at that manufacturing facility were part of the 100,000 people that were evacuated from the northern border area. But even with ongoing attacks, they continue to manufacture in that facility, regardless of the situation. For someone that doesn’t live here, it’s hard even to explain it. People are saying, I don’t want to lose my clients, and if I don’t deliver now during the war, I will lose my clients for after the war. So they deliver.

Q: What outcome in Gaza do you think is both achievable and desirable for the Israeli biotech industry and for Israelis in general?

YM: I'm not a politician. I have a degree in economics, and a Master of Business Administration. It’s kind of like the security markets, in that when the expectation of something bad is coming, it is sometimes worse than the actual thing that is happening; buy the rumor, sell the news, and the opposite way around. We have issues in Gaza and in the north, and we knew what we were facing. There was always a fear that something could happen, there is an embedded risk for someone that invests in Israel. There are a lot of advantages, but it's a fragile area. If we look forward one year, I think the Israeli economy will hit its stride. Why? Because in one way or another way, the situation with Gaza will be resolved. I don't know if it will be an international force coming into Gaza, the United Arab Emirates, Quatar, the U.S., the U.N., I don't know, but something will happen there, I think about a year from now. Not two months, but in a year from now, there will be something that will happen in Gaza and I will not have to worry again about the Gaza border. And then the Israeli market will be in a much better situation. When the war started, there was a drop in the share price of the Tel Aviv stock exchange. A month later, I bought Israeli shares. I sold my S&P 500 shares, and my NASDAQ shares, and I bought Israeli shares, and it was a great investment. Israeli shares [on the Tel Aviv stock exchange] are now even higher than before they war, because people are already looking forward to the year that is going to come. I have a lot of friends that lost their sons in the war and it's terrible. All of us know people who lost a child, including good friends of mine. The war is terrible. But from an economic perspective, in a year from now, I think we will be in a better situation. We won't have issues in Gaza, and maybe we'll also have an arrangement in the north. I think the market will become safer and more stable than before, and I think we will see more investment rather than less investment.

Q: In the U.S., the BIO trade organization recently expelled WuXi AppTec from its membership in support of the proposed BIOSECURE Act. You are the co-chair of IATI, and Wuxi is a member organization. Have you considered taking a similar position, or have you had conversations with the membership about it?

YM: A good friend of mine heads WuXi in Israel, so I don't want to speak specifically about WuXi. I don't know what the status is. But in general, you have to understand that Israel politically is in a strange situation. Our best friend is the U.S. But we still do business with China. We are a startup nation, and most of our biopharma companies are in the R&D stages. If you go to the hospital in Israel, or you go to your doctor, you will not see any Chinese products. We collaborate with China, we buy some ingredients, we buy things for the lab, but it's not an important source of supply, unlike in the textile industry, for example. Or the automotive industry, a lot of people are buying Chinese electric cars. In the biopharma sector, yes, some people use the services of WuXi. But they could switch to another CDMO, or CMO, or CRO. It's not a big issue for the biopharma companies in Israel. The bigger issue is what is happening with Chinese investment. About five years ago, there was a trend of a lot of Chinese VC groups investing in Israeli biotech companies. Even in our portfolio, we have some companies that raise money from Chinese groups. But something happened in China, and the capability of VCs in China to invest outside of China dramatically dropped. That is an issue we have been encountering for a while. I am not familiar with the details of the [proposed] BIOSECURE Act, but I don’t think it will have a real impact on Israeli biopharma.