“There is no doubt that the pendulum has to move back in the direction of medical devices, following a decade in which the sector was starved of financing,” Alon says. “This situation was difficult for the entire medical industry in Israel, because it is the field we specialize in. I don’t know whether Moody’s report presents the signs we have waited for, but there’s no doubt that the financing drought in the field can’t continue forever. A change for the better at some stage is inevitable, although it will probably reach Israel somewhat later.”

The Chinese are no longer investing the way they once did

Alon says that the big question is whether the financially starved sector can hang on until the situation improves. “Will Israel still have an advantage when the money enters the medical devices market? The unavailability of investments means that entrepreneurs are stopping their development of complex trailblazing products, and these are products that the global medical devices community previously knew could be found in Israel. Will they stop coming? Will they stop looking here?

It may be possible to take comfort in the fact that the problem is not confined to Israel. “In the past, development of a medical product was regarded as a development requiring less time and money than a drug. In addition to the risk in drugs, there’s also a marketing risk that usually must be overcome before an exit can be achieved,” Alon says.

According to Alon, what kept this industry going in past years was Chinese investors. “Today, however, it’s more difficult for them to take money out of China. They have also realized that companies in Israel are usually more remote from the market than they previously realized. Israelis set up a company around a product in an early stage. In addition, while Israelis are willing to fail sometimes, this is unacceptable in their culture. After several failures, together with some successes, the money therefore flows less freely. We think that they will take from here what seems interesting to them, and go on from there.”

Despite the concern, there was one very impressive exit in the medical devices field this year – the sale of Valtech Cardio to US firm Edward Lifesciences in a deal of up to $990 million. “Valtech belongs to the valves segment, in which despite everything, the trend was towards acquiring young companies before they had any sales. Israel has established itself as a pioneer in this segment, and has been very successful in it,” Alon explains.

“The Israeli funds are usually not involved in this success, except for Peregrine Ventures, which was the franchise holder for the incubator in which this company matured. Former Boston Scientific senior executive Lawrence Best invested in the company, and introduced it to other US investors, including the OXO fund, NGT, and IFA. The parties involved in the company knew what they were doing, and were familiar with the international market, so the company was well managed from a strategic standpoint,” she added.

Ora Dar: “The pendulum will swing back to medical devices, or it is already doing so. Israeli venture capital funds are realizing this. I believe that they will support enough good companies to keep a medical devices industry here. I still see very interesting products here.”

Alon: “The funds are investing in the later stages. This is a justifiable complaint from the companies’ perspective, but it’s unfair to the funds, because a fund has to sell within a given time after activity begins. If the exit recedes, the fund has to invest too late. We’ll have to find investors for the medium term in order to make sure that the sector survives. In this respect, it is fortunate that the incubators have greatly improved, and are now able to help companies and bring them good managers.”

Zombie companies are a drag on the sector

“Globes”: There are quite a few “zombie companies” and few successes, which makes a bad impression. Too many companies are unsuccessful, which is dragging the industry down.

Dar: “This can be dealt with by consolidating companies, so that each of them improves its situation. This hasn’t been very successful up until now, but the state can provide incentives for such consolidation.”

Alon and Dar stress that despite everything, the situation in the medical field is basically good, and is improving. “The field raises $1.2 billion annually, 20% of the total raised by high tech. In a good year on Wall Street, the amount can even be increased by 50%,” Alon says. “This year, for example, is emerging as a good year. Since last May, $152 million has been raised for three companies, and more are in line. There are always good ventures in the medical devices sector and the pharma sector. There is government money and early stage funds. The companies’ management is improving. The infrastructure surrounding them has greatly improved.”

Dar: “And if not in Israel, overseas infrastructure is accessible. In any case, infrastructure is accessible.”

The problem with digital health

Israel has also put itself in a good position to ride the digital health wave. Alon and Dar are excited to see this sector growing, but warn against investment in it at the expense of regular medical devices.

Dar: “The large amount of information gathered can contribute to the development of new products, and also drugs. Assume that in in the insulin segment, it is possible to inject the drug, measure the result, and correct the dosage for the next injection at the same time.”

Alon: “But not everything in digital health can be considered a medical device. A medical device, even if it has software, and even if it has information in it, is a product that must be adapted to a specific tube in the body, a specific size, and a specific level of sterility. The medical devices sector needs its budget, and you can’t foster the digital health sector at its expense. There are digital health products that improve the patients’ situation, but not all of them, and you have to be careful about where the money from the government and the funds is going.”

Dar: “The big problem with digital health products aimed more at prevention and improving the quality of life for healthy people, rather than curing sick people, is that it isn’t clear how they can be marketed.”

Alon: “There’s no doubt that information has to be gathered and analyzed, because doctors are now facing an abundance of information, and have no idea what to do with it. Nevertheless, the fact that you have gathered information doesn’t necessarily mean that you can improve a clinical process.”

When a company presents an algorithm for analyzing data, to what extent is it unique and protective against competition for exactly the same segment?

Alon: “Not all information analysis companies were born equal. There are major differences in the quality of the information on which the algorithm is based and is validated. There are differences in the quality of the algorithm developers, and there are differences in understanding of the clinical situation for which a solution must be devised. Even when all of this is present, it is not always possible to obtain a patent for a process.”

If the data is good, can any reasonable algorithm developer can get good answers from it, or only a very special one?

Dar: “No, any excellent algorithm developer can do it. To our good fortune, we have both unique information and excellent algorithm developers. Investors should look at the company team – some have already proven themselves in other fields.”

Alon: “When you process big data properly, it also costs quite a bit of money. You have to invest in obtaining the information and creating cooperation. It’s not easy.”

What is the risk that the money will be put into companies that are not necessarily doing what needs to be done, at the expense of more successful companies?

Alon: “You said it.

Dar: “Following its acquisition of many companies in Israel, Medtronic has now also joined an incubator. Today, they’re interested in digital health, image processing, and of course the medical information in Israel. Many companies come to Israel for the unique information here.”

Is the medical information in Israel as unique as people say?

Dar: “98% of people in Israel have completely digitalized medical records, and the proportion overseas is significantly less. In the case of Clalit Health Services, the health fund’s records are connected to most of the hospitals’ records. However, we are gradually losing our uniqueness. As other countries computerize their medical records and consolidate the information at various medical bodies, we have to move quickly in order to avoid losing our relative advantage. For example, if we want to begin analyzing the clinical data together with the imaging data, we need to open the doors to companies to do this.”

From ophthalmological diseases to nano-medicine – the hot topics of the MIXiii-BIOMED 2018 annual Conference and Exhibition

Like last year, the MIXiii-BIOMED Conference, which will take place in Tel Aviv in mid-May, will be conducted in nine tracks indicating the hot topics.

Ophthalmology and metabolic diseases: The conference organizers believe that these sectors are growing, and that exciting and intriguing Israel companies are operating in them with relatively mature products.

Neurology and oncology: These are the liveliest sectors in the pharma field today.

Digital health: According to the report by PwC and Start-Up Nation, this is one of the most active sectors in Israel.

Personalized diagnosis and treatment based on biomarkers: Among other things, this track deals with access to these tests and treatments (whether only hospitals will benefit from them, or also pharmacies and homes), and with the ethical consequences of very early diagnosis.

Nano-medicine: This is a new topic for the conference. “I believe in this sector, and especially in the change that it is likely to bring to the drug delivery segment,” says Dar. “Many products in this sector are still at the research stage. Our feeling is that there is a gap between the research stage and the development stage, perhaps greater than with conventional drugs, and it’s therefore very important to connect the researchers and entrepreneurs of young companies in this sector with the industry, especially international companies dealing in the sector.”

New technologies in planning clinical trials and the connection between institutions of higher learning and the industry: “The US Food and Drug Administration (FDA) is trying under its new head, Dr. Scott Gottlieb, to shorten the path of drugs to marketing by reducing its oversight and offering a variety of shortened tracks,” Alon says. “There is a lot of innovation in the types of trial that can be proposed to the FDA, and tracks also facilitate oversight when the product is already in the market.

“We are therefore seeing that breakthrough products that are very important for medicine can reach a pivotal clinical trial (one that can be the final trial before marketing) within two or three years. This could be what swings the pendulum back in the direction of investment in medical devices.”

Published by Globes [online], Israel Business News – www.globes-online.com – on March 22, 2018

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