Biotechnology in the
U.S. and Israel: An Overview
Modern biotechnology grew out of a series of (largely American) technical advances in the 1970's.
There were two main flurries of activity to capitalize on the new technology: A small, perhaps
prematurely optimistic spurt in 1971-76, which saw the annual formation of 20 or so biotechnology
companies at its peak, and a much larger one in 1980-87, during which the number of yearly startups
reached 100-105. The flow of venture capital to biotechnology also peaked in 1985-90, exceeding
$300 million a year. The field has continued to grow and internationalize, although the need to match
in practice the bright predictions for its rosy future remains a major unresolved strain on the system.
Today, more than 1,300 biotechnology companies (about half the world's total)
are in the United States, employing more than 100,000 people. As in Israel, however, most U.S.
industrial biotechnology R&D takes place in small new companies totally dedicated to biotechnology.
The U.S. has about 675 of them, most with less than 50 employees each. Moreover, despite the hype
surrounding the industry, less then two percent of all biotech companies are profitable.
According to Ernst & Young, quoted in a recent compendium distributed by the National Committee
for Biotechnology (NCB), U.S. biotechnology sales in 1993 were approximately $7-8 billion. This
figure should grow as the 100-150 major biotechnology products that have reportedly reached the
stage of clinical trials in the U.S., and the 20 more awaiting regulatory approval, begin to reach the
market. American biotechnology will then enter a new, mature-market phase, with $50 billion in sales
predicted by the year 2000. By then, according to this upbeat source, over 500,000 Americans are
expected to be employed by the industry. A recent Department of Commerce draft consultant report is
even more optimistic, noting in the last decade the FDA has approved only about 27 biotechnology
products (7 in 1993), but an estimated 600-800 new U.S. biotechnology-derived therapeutics (more
than five times the NCB estimate) are already in clinical trials, and some 2,000 potential therapies are
in earlier R&D phases!
At the 1994 Jerusalem Conference on International Cooperation in Biotechnology, however, one
venture capitalist after another said biotechnology is more risky, volatile and long-term than anyone
had ever dreamed. And no wonder. The U.S. biotechnology industry is in one of its periodic slumps.
True, gross sales in 1993 rose 10 percent (20 percent in America's 250-plus publically-traded
biotechnology companies) and revenues 12 percent, but net losses were up 14 percent (a staggering 40
percent in publically-traded companies). One major cause was more long-term buying of the "future"
through increased R&D, which increase 23 percent (from $3.6 to over $4 billion industry-wide). Such
R&D remains a major, if essential, fraction (about 35-40 percent) of most companies' budgets,
making biotechnology, in the words of the WGB draft report, "one of the most capital-intensive and
research-intensive industries in the history of civilian manufacturing."
Anyway, the honeymoon between the capital markets, which support biotechnology expansion, and
the U.S. biotechnology industry is temporarily over. Soured by the long delays and meager returns
(or sizable losses), capitalization has actually dropped 8-10 percent (to about $41 billion), even as the
number of U.S. biotechnology companies and employees continue to grow slightly. Some
restructuring undoubtedly will occur in the future, but despite the current roller-coaster dip, the long-term trend still seems, as it always has, inevitably upward. The question remains: "How long will it
Israeli Biotechnology: An Overview
Although Israel is much smaller than the U.S., the high quality
of her biotechnology R&D and her rapid rate of growth bear watching. Israel has the world's largest
number of science and engineering graduates per capita, 6.2 per 10,000 (compared to 4.5 in the
U.S.). Israel's rate of overall industrial growth (7 percent in 1993, 5 percent predicted for 1995) is
more comparable to the "tigers" of Southeast Asia (6.8-7.8 percent) than to America (2.8 percent) or
the EC (3.2 percent). Furthermore, according to the NCB's Hamutal Meiri, the growth rate of Israel's
biotechnology industry (14.7 percent) is among the world's highest, comparable to that of the U.S.
and EC (14-15 percent). Although temporarily hampered by an inability to move pharmaceuticals
directly to market (Chapter 21), Israel holds the world's record for developing and moving diagnostic
products to market (Chapter 12). As the genetic origin of wheat, barley and other grains, and the
home to many well-defined human ethnic populations, Israel has both unparalleled natural genetic
resources and a scientific infrastructure that can make full use of them.
One key to Israel's high-tech success has been her unparalleled human resources and emphasis on
education. Although Israel's total gross domestic R&D expenditure (GERD) of $1.1 billion in 1990
was only a small fraction of America's $154.3 billion, some 36 percent was spent in institutes of
higher education, more than twice the U.S. average (16 percent). An impressive 30 percent of all
Israeli scientists are in the life sciences and an additional 40,000-60,000 technically-trained
immigrants from the former Soviet Union have a potential to contribute, sometimes uniquely, to the
Israel's biotechnology sales (as defined by the NCB) were about $265 million in 1993, and should
reach $650 million over the next seven years. Reflecting Israel's small domestic market, more than
two-thirds of current sales are exports. Predictably, about two-thirds of all Israeli biotechnology
companies are in health care (44 in all) and they account for about 42 percent of all sales. The
comparatively large percentage of agriculture-related biotechnology sales -- 57 percent compared to
less than 5 percent in America -- partially reflects the NCB's inclusion of hybrid seed sales and
partially indicates the difficulty of developing and testing new pharmaceuticals in Israel. It also
reveals, however, a unique core of Israeli expertise in this area.
In absolute terms, Israel resembles an individual American state more than the U.S. as a whole.
Biotechnology-related employment, according to NCB Chairman Max Herzberg, currently accounts
for over 2,900 Israeli jobs, and this is expected to increase to 4,500 by the end of the decade. Startup
formation is exceptionally robust, but only five Israeli biotechnology companies have over 100
According to Hamutal Meiri, Israel's biotechnology R&D community has several unique features.
Half its 300 plus senior researchers are located in academia, with about a quarter each in government
and industry. Dividing Israel's 894 biotechnology students by its 224 laboratory heads, suggests that
academic research groups are exceptionally small (4 students each), and could benefit from linking
into larger units. Almost half of all Israeli collaborative projects include foreign partners (52 percent
U.S., 44 percent Europe, 4 percent everywhere else).
Foreign interest in Israel is high, but professional visits are usually in the other direction, Israelis
visiting the U.S. At the 1994 Jerusalem Conference on International Cooperation in Biotechnology,
for example, almost half of the 482 registrants were from abroad, and over 2,000 matching program
interviews were arranged. Still, for a surprising 85 percent of the foreign participants, this was their
first visit to Israel.
Given the current emphasis on long-distance contact (via phone, e-mail, fax, etc.), the new Israel
Biotechnology Database, which was also demonstrated at the conference, is particularly welcome.
Jointly sponsored by the National Committee for Biotechnology (NCB), RASHI Foundation and the
Ministries of Science (MOSA) and Industry (MIT), the new system will eventually have complete,
easily-retrievable information on all Israeli biotechnologists and their R&D projects on-line.
Finally, no matter how different conditions are in Israel, Israeli biotechnology companies will
inevitably be affected by what happens in the larger U.S. capital, industrial and consumer markets. In
particular, through no fault of their own, Israeli biotechnology companies, especially startups, must
cope with the short-term slump in confidence and interest in biotechnology in America.
On Doctors and Farmers
If we were to ask an American market analyst "What is biotechnology?"
he might answer "human health and not much else!" The supporting figures for recent U.S.
biotechnology sales, based on 1992 data included in the NCB's 1994 compendium, The Case for
Israel's Biotechnology Industry, look something like this:
Together human diagnostics and therapeutics account for almost 95 percent of all U.S. biotechnology
sales. The corresponding figures for 1994, while doubled, show a similar distribution. Despite
expected rapid growth rates in the three smaller areas (two-three times that of health-related biotech),
the situation is unlikely to change in the next decade. According to NCB figures, sales of human
therapeutics (60 percent) and human diagnostics (15 percent) should still exceed 75 percent. In Israel,
the figures are more balanced, but human applications still predominate.
All this doesn't surprise NCB Coordinator Dr. Hamutal Meiri. Medical products have succeeded, she
feels, because they produce unique, essential new products. When a life is at stake, and no acceptable
alternatives exist, price is no object. Since the high costs of research-intensive health products are
often paid by a third party (insurance, health plans, government), especially in Israel, and since health
care decisions are often made by a (nonpaying) professional, relative insensitivity to price pervades
the health care industry. Far from widespread resistance, the public as a whole -- ever aware it could
be the next victim of disease X -- eagerly awaits the next medical "miracle." Unfortunately, Israel has
had a hard time entering this lucrative market (see Chapter 21), except diagnostics.
More specifically, according to the U.S.-Israel Science and Technology Commission's Working
Group on Biotechnology (WGB, Chapter 4), the U.S. therapeutic focus is on unique opportunities for
major diseases for which existing therapies are largely ineffective. Thus, many U.S. companies are
working on treatments for cancer (about 80 companies), AIDS (70), Alzheimer's disease (25), other
age-related diseases and woman-intensive diseases, such as osteoporosis, breast and ovarian cancer
(60). Israeli scientists have also made considerable, exciting progress in these areas (Chapters 11-16),
although their ability to field marketable products without the help of foreign strategic partners and
licensees is more limited. Conversely, U.S. biotechnology companies in these areas should see if
strategic partnerships with Israeli scientists could shorten their product development time and boost
their own competitiveness.
In the United States, the rosy picture for biotech therapeutics contrasts with the situation in
agriculture. Dr. Meiri points out that agricultural biotech products (improved seeds, animal vaccines,
biopesticides) usually represent only marginal improvements on the existing technology. No one cares
if 500 tomato plants die; the question is whether the farmer earns more by saving or abandoning
them. The issue is no longer 1 versus 0, but only 1.98 versus 1.75. Convincing growers, who often
have many other (often cheaper) alternatives, to introduce new biotech methods requires finding an
appropriate niche carefully, identifying unique benefits and marketing them aggressively.
The challenge is magnified by public fears that agricultural biotechnology, especially recombinant
DNA-derived edibles, represents an unknown health risk, not a sure health benefit. Thus, the future
of Calgene's long-shelf-life Flavr-Savr tomatoes -- a technical marvel based on recombinant and
"anti-sense" technologies -- is anything but certain. This is despite the fact that Calgene applied for
and received (completely non-required) FDA approval and certification that these tomatoes "are as
safe as tomatoes bred by conventional means." Similarly, Monsanto's bovine somatotropin (BST)
hormone to boost milk production continues to face public opposition in the U.S., and has been
banned in the European Union. In contrast, enzymes from recombinant bacteria designed for use in
laundry detergents spark little resistance. It's the "food" label that does it. Even if current resistance is
just a relatively short-lived fear, typical of any new technology, most investors, while maintaining a
low-level "insurance" position, won't invest major amounts until the current climate changes.
Write off agricultural technology then? Not at all. What is needed in the short-term is a market where
the demand already exists and is growing, and where biotechnology can make a unique contribution,
preferably without leaving recombinant DNA in the final product. Dr. Meiri favors aquaculture,
which can provide nutritious food with a positive appeal to the health lobby. Others promote biotech-guided breeding, biotech-derived vaccines veterinary treatments and "pharming."
In summary, the biotechnology market in the U.S. today is health-based, and will remain so for the
forseeable future. Although growth in agricultural biotechnology will be particularly rapid, providing
good opportunities for new initiatives, health applications will continue to dominate the overall
In Israel, health and agricultural applications are far more balanced. This partially reflects the
difficulty of Israeli firms meeting the FDA's Good Clinical Practices (GCP) regulations and raising
the large amounts of capital required for drug tests and certification. It is also a function of Israel's
unique agricultural biotech expertise and the existence of supportive agricultural research institutions.
While subsequent chapters will illustrate how Israeli innovations can benefit America in the health
field in more limited areas, Israel's unique expertise and genetic resources could play a significant
role in fueling the expected rapid rise in American agricultural biotechnology applications.
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