Breakthrough Dividend
Chapter 7: Government

From its inception in 1948, the Israeli Government recognized the importance of scientific research to national development. Israel's initial Science Council was replaced by a broader-based National Council for Research and Development (NCRD) 10 years later. In 1966, Prof. Ephraim Katzir, later President of the State, chaired a high-level committee that created the current decentralized structure in which the Chief Scientists of each Ministry are responsible for R&D in their own area. This brings the academic "developers" and government "consumers" of new technology into direct contact, facilitating the use of their research results. It also assures that government ministers fight for, rather than against, research budgets in their specific area.

Responsibility for specific government laboratories was similarly decentralized. For example, the 1,200-employee Israel Agricultural Organization, which includes the well-known Volcani Agricultural Research Center, was transferred to the Ministry of Agriculture. Except the Volcani Center, all government research laboratories are small. In particular, the Ministry of Health (MOH) does not have any NIH-type facilities. The Israel Institute for Biological Research, for historical reasons, is attached to the Prime Minister's Office (as is the Atomic Energy Commission).

The centrifugal tendency of this decentralized Israeli S&T system was counterbalanced by a variety of coordinating structures, including the NCRD, which evolved into a Ministry of Science and Development (now called MOSA) in 1982. For example, the Minister of Science chairs both the Ministerial Committee for Science and Technology and the Chief Scientists' Forum. This system has worked remarkably well for the last two-and-a-half decades. In the following chapter we will emphasize MOSA and the Ministry of Industry and Trade (MIT), which have active interests in promoting biotechnology.

The Ministry of Science and the Arts (MOSA)

MOSA defines its niche as promoting "strategic research," applied research in the critical gap between basic research and commercialization. Until recently, however, MOSA's research budget — about $10 million a year (not counting the Israel Space Agency) — has been unequal to the task. It recently won a vital, and long-delayed, $20 million budget increase that should improve its effectiveness. Despite past constraints, MOSA and its predecessors have successfully acted as catalysts for many of Israel's international relationships, including those in biotechnology.

Thanks to such efforts, Israel has been the only non-European national member of the European Molecular Biology Laboratory (EMBL), since its founding in 1973. MOSA also sponsors Israel's participation as a National Node in the European Molecular Biology Data Network (EMB-Net), giving Israeli scientists on-line access to genetic sequencing data and other databases worldwide. MOSA has also sponsored a series of binational workshops and symposia, including the October 1994 "International Conference on International Cooperation in Biotechnology."

MOSA has taken the lead in absorbing 9,000 scientists who emigrated from the former Soviet Union, part of the 450,000-person mass exodus that arrived in 1989-93. These highly-trained scientists have opened the possibility of Israel producing a synergistic synthesis of Eastern and Western expertise in many fields, including biotechnology.

The Ministry of Industry and Trade (MIT)

Few institutions have had, and continue to have, a bigger impact on Israeli industrial R&D, including biotechnology R&D, than the MIT. The Office of the Chief Scientist in the Ministry (MIT/OCS) has played a rapidly increasing role in promoting Israel's industrial R&D, and hence her R&D-based high-tech exports. Its 1993 budget of $230 million is more than twice its 1990 budget (and over 20 times the MOSA's non-space research budget). It now funds industrial R&D at over 700 companies, again twice as many as in 1990; over 150 (20 percent) of these were new startups.

Funded projects must be innovative, export-oriented and include appropriate management, production and marketing capabilities. Annual grant repayments do not exceed 2 percent of royalties a year ($30 million was received in 1993). Regular projects receive up to 50 percent of R&D costs. Those involving 50 percent new employees or strategic partnerships between two companies may qualify for 60 percent support up to $150,000, and 50 percent thereafter. Larger companies who "adopt" a smaller one can qualify for incubator grants up to $250,000. In contrast, product and process improvement (and defense-related) grants are limited to 30 percent MIT/OCS participation.

Other programs promote product commercialization (30-50 percent of prototype and licensing costs) and R&D subcontracts from foreign firms (20 percent support). There are also small grants for academic preindustrial R&D and for feasibility studies. The exceptional benefits and financial incentives that the MIT, other ministries and BIRD (Chapter 9) offer U.S. companies, is one reason so many of them find Israeli partners for their R&D program or open R&D subsidiaries in Israel. Computer software (21 percent) and (mostly conventional) chemicals and pharmaceuticals (20 percent) are the major MIT/OCS recipients, but that largely reflects the comparatively small number of Israeli biotech companies, and past and present applications. Interest in, and cash flows to, biotechnology can be expected to increase as U.S. and European biotechnology companies and investors "discover" Israel. Meanwhile, although biotechnology currently gets only about six percent of the pie, it is still six percent of a very big pie.

The MIT also sponsors over 30 highly successful Technology Incubators (TI) aimed at producing R&D-based, export-oriented enterprises, which can attract outside investment within two years. The TI help start new businesses based on immigrant technical innovation. They provide administrative and technical assistance, low-cost facilities, business guidance and help in locating strategic partners and outside capital. As of 1993, most TI projects involved computer sciences (26 percent) or electronics/electro-optics (18 percent); only about 5-10 percent were in biotechnology. A useful snapshot of the program as of February 1993 is provided by the MIT's 190-page publication, Technological Incubators in Israel.

In 1992, as part of its efforts to promote Israeli excellence in specific generic technologies, the MIT established a "MAGNET Program for the Development of R&D Infrastructure in Biotechnology." This MIT program selects, with the advice of the NSCB, priority research targets, solicits and evaluates research proposals, and funds and monitors project progress. Since one main goal is to link Israel's academic and industrial sectors, facilitating the flow of ideas, information and benefits between them, each project must be submitted by a consortium of (at least) one IHE and two industries. This MAGNET Program's first three R&D consortia involve:

• Receptor-ligand R&D for advanced vaccines and viral diagnostics;

• Hybrid seeds: male sterility and blossom control; and

• Algal, high-value added products.

Government Policy Initiatives

The decentralization of Israeli science mitigates strong centralized science planning. The MOSA and the MIT have, however, been instrumental in establishing National Steering Committees and catalyzing national interest in a few, select priority fields, such as high temperature superconductivity and biotechnology. They have also tried to develop a national masterplan for the advancement of Israeli biotechnology per se. The first steps in this process were the comprehensive 1983 Survey of Biotechnology Research in Israel and the establishment, the very next year, of a high-level 19-person committee, chaired by Prof. Ephraim Katzir, to identify high-priority targets for Israeli biotechnology and to formulate a comprehensive plan to meet those goals. The Katzir Committee undertook wide consultations with scientific, industrial and government leaders in biotechnology, in Israel and abroad, submitting their report five years later (1989).

Besides their own extensive investigations, the Committee also invited and cooperated with other enquiries. For example, a U.S.-dominated international "Committee Surveying Biotechnology in Israel (CSBI)" visited Israel in early 1988. Its members included experts from the Massachusetts Institute of Technology, Harvard Medical School and Cetus Corporation. The CSBI was impressed by Israel's high level of basic biotechnology research, especially in agriculture where Israel "should attempt to become a world leader." They also noted that Israel's medical biotechnology companies perform well and "can turn out pure recombinant proteins at acceptable costs."

The CSBI noted that payback from biotechnology is slow (10-20 years) but steady. In the absence of capital-rich "megaindustries," Israeli biotechnology clearly requires government support at the initial stages. The CSBI expressed surprise that "compared to international investment in Israeli biotechnology companies, the commitment of national resources is astonishingly small." They were "quite amazed and disappointed" that the Government Committee on Budgeting and Planning had recently ruled that biotechnology was not of the highest priority to Israel, noting that "this could be suicidal for any country which intends to be in the forefront of Science and Technology in the year 2000." The CSBI expressed concern over the prevailing over-reliance on foreign investments and ownership. For short-term economic reasons, such investors emphasize medical products, where Israel is merely competitive (but profitable), and ignore agricultural applications where Israel is unique.

The CSBI called for increased Government support, better communication between the Government and the biotechnology community and a less conservative, more long-term approach by industry. They noted an immediate need for training more fermentation and cell-culture specialists, and more experts in protein engineering, industrial scale-up and downstream processing -- in short, more biochemical engineers. They also suggested that universities "consult with industry on setting up and updating new curricula" to meet such needs. Finally, they recommended setting up an Israel Industrial Biotechnology Association and a Government-funded National Life Science and Technology Foundation to support more risky projects and to commercialize their results. Many of their comments and conclusions found their way into the Katzir Report. They are raised here because, although biotechnology is now of higher priority, most are still major problems today.

The final Katzir Committee Report was submitted in 1989. It provided a detailed, integrated plan for promoting Israeli research, training and industrial development in biotechnology.

In brief, the Katzir Report designated biotechnology a national priority and called for a crash program to develop annual sales of $200 million during the early 1990's, rising to $1 billion by the year 2000. This would correspond to one percent of the predicted world market. The Committee estimated that, to achieve these goals, 5-10 percent of the target sales figures must be spent on biotechnology R&D over the same period.

In particular, the report advocated an increase in MIT support for industrial biotechnology R&D to $8 million — to be matched by equal industry investments — and to increase this level 20 percent annually. MOSA should increase its support for applied biotechnology research to $4 million a year. The report also recommended the establishment of a broad-based National Steering Committee for Biotechnology (this was done) to oversee implementation of the overall plan, and the creation of Centers of Excellence in the Ministry of Agriculture and academia in areas such as gene-transplantation techniques, transgenic organisms and biotech-engineering (this was not done). The report also called on the Council for Higher Education's Planning and Grants Committee (VATAT) to allocate $1 million a year to train more teachers in priority areas. The report gave highest priority to setting up biochemical engineering laboratories at the Technion and Ben-Gurion University.

One crucial recommendation was that Israel's academic institutions set up special applied research units to demonstrate and improve the industrial feasibility of applied biotechnology projects (Chapter 20), as a crucial intermediate step toward later commercialization. They could also serve as contract consultation centers for industry. Several other innovations would promote cooperation between industry and academia, including joint industrial-academic appointments and incentives for academic researchers to do research in industry, and vice versa. Finally, the Committee noted the need for special sources of financing (venture capital) to help new biotechnology companies get started.

In all, the Katzir Committee Report was an ambitious, but feasible, long-term plan for developing Israeli biotechnology. Its many pieces fit carefully together and depended on each other for synergy. Unfortunately, although it was widely praised, the report has only been partially implemented, despite the arrival of thousands of highly-trained immigrants from the Soviet Union who desperately needed an integrated national plan to help speed their transition from academic research into a greatly expanded, new industrial sector. The main problem was the lack of Treasury support to carry out the plan's recommendations. For example, since MOSA's entire research budget for all fields (excluding the Israel Space Agency) is only about $10 million a year, it clearly could not provide $4 million in R&D grants and $6 million for Centers of Excellence for biotechnology (as the Report recommended) without supplemental funding.

One bright spot has been the establishment of the National Steering Committee for Biotechnology, which has been an effective catalyst for biotechnology information, lobbying and R&D activities (Chapter 8). Another is the VATAT's recent decision to substantially boost funding of the Israel National Science Foundation (Chapter 6), one major sponsor of Israeli basic research related to biotechnology.