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Breakthrough Dividend: Chapter 10 - Industry


Although Israel started with a largely agricultural economy, far-sighted investments in R&D throughout the 1960's and 1970's by the Ministry of Industry and Trade (MIT) and others promoted the rapid expansion of high-tech industries. Between 1969 and 1985, civilian R&D expenditures rose 300 percent and the number of scientists and engineers engaged in industrial R&D increased 500 percent. Most of that growth was in electronics, electro-optics and computers, areas that continue to grow 10 percent or so a year. Little of this expansion involved the life sciences or biotechnology.

Israel's highly trained workforce and advanced technology soon helped innovative Israeli products penetrate international markets. Israel's high-tech exports leaped from 15 percent of its Gross Industrial Product in 1960 to over 54 percent in 1989. Israel's R&D-based exports jumped from $2.5 to $4 billion in 1987-89 alone. Will Israel's growth continue to be in these "first-wave" fields, or will biotechnology ultimately fuel a second wave of growth? Opinions differ, but few expect a quick change.

Mirroring today's corporate world, Israel's business relationships are often quite complex. For example, although Elscint is Israel's 20th largest company ($221 million annual sales), it is 62 percent owned by Elbit Computers ($483 million sales), which is 55 percent owned by Elron Electronics Industries Ltd. Elscint itself is traded on the New York Stock Exchange and has subsidiaries in 13 countries. In Israel's mixed economy, industrial relationships can also involve the government or public institutions. For example, the Koor Industries conglomerate ($2.7 billion annual sales), which accounts for 10 percent of Israel's total industrial capacity, is owned by the Histadrut labor federation.

Israeli industry benefits by its interaction with a variety of academic, government and industry-support organizations, most of which were introduced in Chapters 6-9. One of the main theses of this report is that Israel's emerging biotechnology industry benefits not only from the existence of these other partners, but also through their synergy.

Consider the case of Ecogen (Israel), which makes biocontrol agents (a "biotechnology-associated" field in our nomenclature). Hebrew University's YISSUM founded the FRM-Agricultural Sciences Partnership to promote its biocontrol advances research efforts in 1987. When it failed to find partners in Israel, FRM began looking abroad. An American Company, Ecogen (Pennsylvania), expressed interest, provided funds and bought FRM outright in 1992, renaming it Ecogen Israel Partnership (EIP). Ecogen and its own EIP subsidiary then applied to BIRD (Chapter 9) for joint funding as a binational consortium. In practice, setting up an Israeli R&D subsidiary is a fairly common strategy for American companies interested in benefitting from MIT/OCS or BIRD support, or other Israeli Government incentives.

BIRD was impressed by the Ecogen-EIP proposal to develop the fungus Ampelomyus quisqualis, a natural parasite of the powdery mildew parasite, as a biocontrol agent to protect grapes, grains and other agricultural products. In 1991, BIRD agreed to put up half of the total $1.5 million R&D budget for the project, subject to repayment if successful. EIP significantly cut its salary costs by hiring a sizable number (half its total staff) of recent, technically-trained immigrants from the former Soviet Union. Israel's Ministry of Absorption agreed to pay half their first 1-3 years salary (also standard). If EIP's production facilities are built in Jerusalem, it could further benefit from Government tax-breaks and subsidies. "Playing the game" to maximize subsidies can thus be an important part of U.S.-Israeli profitability. It may somewhat distort free-market capitalism, but it certainly encourages foreign (largely American) investment and startups.

The following Chapters (12-19) provide brief profiles and descriptions of individual Israeli biotechnology companies, their activities and products in the course of examining each of the major fields of Israeli biotechnology. This information is usually at the end of each chapter (with occasional success stories at the beginning). All currently available YISSUM (Hebrew University) biotech projects in each field are also discussed, without pre-selection, to give a more objective (if limited) view of Israel's state-of-the-art in the field, and the direction of her emerging university-inspired technologies. This approach presents Israel's biotechnology companies within the context of the research advances from which they flow, i.e., within the research continuum (Chapters 1 and 6 and Figure 1) that characterizes each field.

To provide an overview, we include a comprehensive three-page listing of Israeli institutions with interests in biotechnology (very broadly defined), taken from the NCB's 1994 Directory of Israel Biotechnologists. An index of Israeli biotech firms (more narrowly defined) discussed in this report will is found in Appendix C.

Table 10. Israel Biotechnology Firms