Impact Investment: The key to a thriving Israeli life science industry

This model offers a creative way to meaningfully support Israel by investing in the country's vast biotech potential.

By DR. TAMAR RAZ

OCTOBER 25, 2016 11:15

Top Israeli tech executives talk (photo credit: Courtesy) — Top Israeli tech executives talk

(photo credit: Courtesy)

Life Science and biotechnology is one of the world's fastest growing industries, and here in Israel, things are no different. Many of the world's most innovative and promising technologies come straight out of Israel's universities and hospitals. With a steady increase in the number of patents filed and the number of start-ups in this industry, Israeli biotech is riding the crest of the wave of the future. In fact, Israel leads OECD countries in this area, ranking 10th in the number of biotechnology-based companies and 2nd in the number of biotech patents per product dollar.

The importance of biotech as an industry extends well beyond its enormous, and currently untapped, economic potential. At its best, biotech is about saving lives, enriching humanity, and improving the world.

The dry statistics indicate that biotech and life science researchers in Israel enjoy high prospects for success. But life on the ground (or in the research facility, if you will) tells a different story: the biotech market is not realizing its full potential. The reason for this has to do with the complexity of the industry itself, the long technology maturation process, and the high risk return on investment, particularly during the early development stages.

In order to maximize the potential in life sciences and biotechnology and achieve real success, new funding mechanisms need to be developed, particularly during the early development stages – mechanisms that are based on philanthropy, yet offer the philanthropist an opportunity to profit from their investment if the technology matures successfully.

The birth of innovation, the road from the lab to the marketplace, is a long and often windy one characterized by stops and starts, successes and failures. A particular technology or discovery may be lauded by scientists the world over and its merits touted in the most prestigious scientific journals. But this doesn't mean that the technology is ready for industry; scientific success does not immediately translate into market success. Before an innovation can be brought to the marketplace there is an intermediate stage, a maturation or incubation stage during which ideas are cultivated and technologies are developed toward commercial products.

This intermediate maturation stage between basic research and commercial product development is needed to facilitate the jump from academy to industry, from the lab to the marketplace. There's no getting around this stage. It won't be rushed, and it's critical to success. And it's here that researchers face an enormous obstacle – funding.

While the research stage is funded by academic research grants and the industrial development stage is funded by companies and businesses, this intermediate stage lacks any kind of structured funding mechanisms. It's difficult to convince businesses and venture capitalists to fund this stage. At issue are the early stages of high-risk technologies without business models. Support offered through the government of Israel is insufficient and has been cut even further in recent years.

And so, researchers and technology commercialization companies that reach this intermediate stage struggle to find funding. Many fail in their attempts to promote their idea or technology to the development stage, no matter how brilliant or innovative it may be.

In professional lingo, we call this the "Valley of Death." In layman's terms, it's the place where great ideas go to die. It's that space, the unfunded and under-funded chasm between academy and industry, where potential remains unfulfilled.

If we want Israeli biotech to thrive, if we are committed to Israel as an innovation nation, we must find a way to bridge this chasm. We must find new ways of financing this intermediate stage which is so crucial for success.

The answer lies in Impact Investment - a new model of funding that is based in philanthropy while also offering the opportunity for significant profit. Based on an initial philanthropic contribution, this model offers a creative way to meaningfully support Israel by investing in the country's vast biotech potential.

Following this model, we are working towards the establishment of a designated fund with the goal of raising $5 million in contributions in its initial phase. This money – donated by philanthropists, business people, and others – will fund the intermediate stage for some of Israel's most fascinating and promising projects in the medical field.

Projects supported by the fund will be meticulously selected with a work plan, budget and clearly defined milestones. Technologies that successfully move to the next stages of founding start-ups will be presented to early-stage contributors as a business investment opportunity.

Contributors will benefit from insider access to cutting-edge Israeli medical innovations and will be presented with exclusive business opportunities before they are opened to competitors and the general public.

This idea is what we call double bottom line impact investment. Although there is opportunity for profit, it's about much more than the bottom line. It's about supporting Israeli innovation and resilience. It's about investing in the State of Israel and her future. And it's about positively impacting the world through life-saving technologies. This is how we can be a light unto the nations in the 21st century.

Tamar Raz, PhD, is the CEO of Hadasit, the Technology Transfer Company of Hadassah University Hospitals. Hadasit is a member of IATI (Israel Advanced Technology Industries).