Breakthrough Dividend: Chapter 20

Connections Needed

In Chapter 6 and Figure 1 we introduced the idea of a research continuum. In Israel, the first three steps -- basic research, applied research and commercialization -- usually take place in academia. The university's research authority helps attract funds for the first two steps, the university's commercialization unit (CU) for the third one. The next step should see the new discovery or invention being picked up by industry, perhaps through a CU-licensee or CU-partner joint venture.

Assuming for a moment this "happy ending," what kind of U.S. companies form strategic partnerships with Israeli universities? According to YISSUM's Managing Director, Uri Litvin, there are two main types. Small U.S. companies often have some Jewish or Israeli connection and directly target working with Israel. Large U.S. companies usually are not looking at Israel per se. They have made a general corporate decision to seek out special targets of opportunity abroad, and Israel happened to come out on top. Israel's main selling points are its American approach and linkages, R&D quality and originality, her highly-trained and motivated workforce and her reputation for getting things to market (Chapter 4). The somewhat lower cost of doing R&D in Israel is a relatively minor consideration (except the smallest companies).

YISSUM has (or has had) marketing agreements with a variety of U.S. and international pharmaceutical and chemical companies, including: Ciba-Geigy, American Cyanamid, Sandoz, Schering, Merck, Bristol-Myers Squibb, Pfizer and Johnson & Johnson. While open to all comers, YISSUM has clearly targeted the U.S. market. "We have a lot less trouble negotiating with them," says Litvin, "although we have to find just the right opportunity first." European companies have comparatively less experience and interest in working with universities.

According to YISSUM's Marketing Manager, Reuven Alster, the large size and dynamic nature of the American R&D establishment insures Israel can't maintain its technical advantage for a long time over a broad area. Israeli scientists can, and do make specific advances first, but once R&D groups in the U.S. and other large countries become interested, they throw huge amounts of manpower and money at them, and Israel can only remain "good," not first. An important Israeli basic researcher, who did much of the groundbreaking initial work on the p53 gene (now known to be responsible for over half of all human cancers), estimates their group has only a 6-month lead time and "window of exploitation" for their discoveries. After that, "it's like trying to chase after a bus on a bicycle." YISSUM cites similar examples from industry. Trickle-drip irrigation and long-shelf-life tomatoes were originally Israeli specialties, now increasingly dominated by U.S. (especially Californian) firms.

YISSUM's commercialization strategy reflects this reality. Since it cannot count on maintaining a long-term advantage in any one area, YISSUM concentrates on a continuing stream of new ideas from a specific researcher or research group, looking for comparatively short-term "windows" for development.

All this is fine in theory, but even Israel's best commercialization unit's often have trouble making the right connections. How does YISSUM, for example, reach its target audience? Initially, it sent monthly press releases to a mailing list of 2,000 companies worldwide. The idea was to raise public consciousness and put YISSUM "on the map." Results were mixed. Now, a much smaller, more selective mailing is sent every two-three months. YISSUM also has an excellent library of abstracts, describing current opportunities. These are combined in folders to create customized responses to enquiries. This is standard practice in all Israeli commercialization units.

Other than publishing and disseminating abstracts of its projects, YISSUM does not proactively pursue joint ventures. Most initial contacts are made by the university's well-traveled scientists. This is sufficient to generate over 100 signed agreements a year, although about one-half of these are relatively small ($10-50,000) research contracts. In contrast, YISSUM's experience with international trade-fairs and exhibitions has not been productive.

According to Litvin, YISSUM's main problem is not in delivering a good product or negotiating. On a technical level, Israeli academic research is an amazing success. The Hebrew University's record for filing patents, would put it among the top 10 universities in the United States -- along with M.I.T., Stanford, Harvard and Yale. In chemistry citations, Israel's TAU and Weizmann Institute place #1 and #3 respectively among non-U.S. institutions (Germany's prestigious Fritz Haber Institute is #2). Still, Israel is not sufficiently "on the spot" in the U.S., except as individual scientists at international conferences. The importance of the latter should not, however, be underestimated. YISSUM's previous relationships with Merck, for example, grew out of precisely such "chance" scientist contacts. In contrast, YISSUM's more enduring relationships with Bristol-Meyers and others arose from the American companies' proactive interest in foreign cooperation.

Much business in the U.S. is on a "first-name," personal contact basis, and personal connections and introductions are important. The Israel Trade Mission in New York can provide little help to biotechnology-oriented commercialization unit projects in this regard; it is too general in scope. More hopeful is a perceived recent shift in the emphasis of the National Committee for Biotechnology (NCB, Chapter 8), which originally specialized in coordination, evaluation, lobbying and information exchange. In the last few months, however, it has taken a more proactive interest in commercialization, a move welcomed by YISSUM, which feels the NCB's Coordinator, Dr. Hamutal Meiri, now "really understands YISSUM's needs, even more than MATIMOP." The NCB's lead role in holding the October Conference on "International Cooperation in Biotechnology," which had a heavy biotechnology industry-orientation, is also viewed as a positive step. The Ministry of Industry and Trades' Office of the Chief Scientist (MIT/OCS, Chapter 7) provides some general R&D support, but it is also not in much of a position to help, and MATIMOP's help to universities is mostly limited to some general publicity for specific projects (Chapter 8). Their main relationships are with a relatively small group of companies, mostly outside biotechnology.

To summarize, Israel's main problem, according to YISSUM, is not in getting a handout, but in getting a hearing. YISSUM does have a small informal network of friends abroad, but much more could be done by a more formal American organization with wider contacts and support in industry. A group of 20 or so American industrialists who would agree to consider Israeli biotechnology advances and opportunities and forward them, on a personal basis, could be one way to break the logjam, but historically such "single-shot" relationships have not had a particularly good track record.

Litvin prefers trying to convince U.S. companies to take a broader interest in Israeli developments, to send teams to Israel to look around and investigate Israel's entire "critical mass" of new, commercializable ideas in a specific area. That way, if one idea doesn't click, another might. One way to facilitate such visits is to make sure Israeli government trade officials in the United States work with groups planning trade missions and encourage them to include representatives of biotech-related companies. Increasingly, these trade missions are being led by state governors who are interested, for their own political and commercial purposes, in seeing deals consummated.

Even more essential, is to convince U.S. companies (especially large pharmaceutical firms) to appoint specific, open-minded U.S. contacts, who can interact with Israeli commercialization units and others, and pass along worthy, Israeli proposals. At present, many such contacts are more "door guards," who prevent rather than promote dialogue and cooperation. (Several Israeli industry contacts I spoke to did not find this as much of a problem.)

A potentially important new initiative in this area is the recent establishment of a U.S.-Israel Biotechnology Council (Chapter 4). The Council includes a wide range of participants and is beginning to attract more large corporate participants. Baxter was an early supporter, Bristol-Meyers was another early member and SmithKlein-Beecham is reportedly interested in participating.

Green Apples

Another major problem concerns selling Israeli innovations "before their time," with a substantially reduced portion of potential profits. This, in turn, partly rests on a problem already noted during the 1988 visit of the CSBI (Chapter 7), Israel's relative lack of process engineering and technology. Although the Hebrew University has made some encouraging progress in this direction (see below), Reuven Alster notes that most YISSUM discoveries are still licensed at an early stage, at which Hebrew University's ability to participate in future developments and profits is limited. YISSUM has recently become more serious about trying to set up joint partnerships, especially with smaller companies, but they have insufficient leverage to convince larger ones. A related problem is the lack of funds to support further early development prior to commercialization.

This policy of early licensing is a hotly debated issue, especially in biotechnology, where development costs are high and development times long. According to Alster, the Israeli Government does not always understand that universities need to market Israeli knowledge and discoveries as licenses abroad. "They want us to set up companies and joint ventures here, but this just isn't feasible most of the time. The R&D and clinical testing required to commercialize just one drug can easily reach $80-100 million. So what's the alternative? To leave all this brainpower idle?" Instead, he argues, knowledge should be treated like any other tradable commodity, especially in fields such as biotechnology, which need a strong domestic market to get started (a domestic market Israel is too small to provide). The worst alternative would be a brain-drain of the scientists themselves, rather than their licenses, something no one wants. Instead, the foreign income from licenses, Alster argues, could be reinvested in Israel, in further Israeli R&D or in other goods.

Still, even the most enthusiastic early-licensers see this only as a matter of necessity, not optimal choice. Looking at biotechnology as an 8-10 year continuum ranging from laboratory to market, Israel generally is getting only the comparatively small rewards available after the first one-three years. In terms of the marginal value of investment, Israel could reap the highest returns by putting in another two-three years' worth of investment and then selling its greatly increased "intellectual equity" at a much higher price. That is, some of the greatest rewards (and risks) come just before the single-product industrial partnerships funded by BIRD and commercial venture capitalists. Conversely, it is difficult to find strategic partners without having put in those two-three years, and having reduced those risks.

Consider, for example, a new potential anticancer drug that shows activity in vitro. The perceived risk of failure can be greatly lowered by doing a successful set of animal tests, say in mice. The perceived risk drops again with additional tests in other species, especially primates or man. The further back in the R&D chain, the greater the perceived risk, and the greater incremental value of even small additional R&D investments (if successful). Literature, patent and personal-contact searches to determine who else is working on similar products and where they stand also contribute. Obviously a biotechnology product shown to be unique to Israel, or on which Israeli R&D is far ahead, becomes thereby more valuable.

According to both Litvin and Alster, limited "seed capital" ($10,000-$100,000) for additional incubation R&D prior to licensing would have tremendous marginal value, giving maximal long-term return for minimal investment. Although MOSA and MIT both theoretically agree on the pivotal importance of this "missing link," no effective, well-funded mechanism exists to fill the gap. Something new is needed.

Dr. Shabtay Dover, Director of the Hebrew University's (HU) Authority for R&D, suggests that special on-campus Precompetitive Industrial Research Centers (PIRC) may be one key to further progress. He points to Dr. Sergei Braun's Biotechnology and Fermentation Laboratory (BFL) as one step in this direction. Located at the HU's science-oriented Givat Ram Campus, the BFL specializes in problems of fermentation scaleup, and in interacting directly with Israel's smaller biotechnology industries, which lack full-scale feasibility-testing facilities of their own. These partnerships not only provide this HU laboratory considerable contract research, it also provides the laboratory's scientists and students insight into what's new in industry and industry's "real-life" problems. This, in turn, greatly increases their effectiveness. The laboratory's students do their theses in industry, and are in great demand. They have zero unemployment and -- for those concerned about "brain drain" -- can and are making their careers in Israel. Such PIRC facilities are still small and few and, according to Dover, need increased funding, priority and prestige. Here too, some new organizational framework may be needed.