Government to subsidize biotech funds

Local biotechnology industry is advanced but stymied by too few investors.

By SHARON WROBEL
March 25, 2010 22:29
2 minute read.
Finance Minister Yuval Steinitz.

steinitz 311. (photo credit: Ariel Jerozolimski)

 
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The government will support the establishment and operation of four biotechnology funds in an effort to build a thriving local biotechnology industry and attract investments in Israel, the Finance Ministry announced Thursday.

The pre-qualification process for participation in the government-backed biotechnology fund tender has been completed, it said in a statement.

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The public-private program is a joint initiative by the Finance Ministry, the Industry, Trade and Labor Ministry and the Chief Scientist’s Office.

The tender committee has allowed four funds that have met the threshold conditions to take part, instead of the three originally planned, the statement said.

Some of the funds have international experience and are familiar with the local market, the Finance Ministry said. The funds taking part in the government-supported initiative are expected to create new partnerships between local industry and US industry, it said.

According to reports in the Hebrew press, US health-care investment firm Orbimed Advisors LLC and Medica Venture Partners, a globally operating health-care and life-sciences venture-capital fund that invests in Israel, Europe and the US, are two of the funds.

Israeli expertise in biotechnology is among the highest in the world. However, in industrial terms, local biotech companies have not matured to the point of becoming an industry.



Due to the relatively long life cycle of biotechnology investments and the “high-risk/high-reward” nature of these investments, local venture-capital funds, institutional investors and other local investors have largely refrained from making investments in this area.

This problem has grown more severe because of the global financial crisis, as investment funds invest in more-mature companies for shorter periods, so that biotech companies – which tend to require long-term investments – have a hard time finding sources of financing from these funds.


In order to close this funding gap, which has stymied the growth of the local biotechnology industry, the government has decided to subsidize funding efforts and thereby encourage Israeli biomedical companies to stay in the country, rather than being sold at an early stage to foreign companies.

Under the terms of the tender, the government will provide the four funds in the pre-qualification process with $24 million each, on the condition that they each raise $76m. in financing.

The decision to extend the tender to four funds increases the government’s commitment to nearly $100m., from the originally planned $80m., and will leverage the program’s total funding to $400m. In addition, the government will award the fund that raises the most financing with an additional bonus of $8m.

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