From Biotech to Business, Israel and California Spark Growth On Common Ground

While it may not be immediately obvious, Israel and California have been intrinsically linked to each other for years. Environmentally, their shared arid climate and overall landscape, often challenged with droughts, create a natural connection. And while it is clear that Israel’s power in Hollywood and the entertainment business will continue to be strong, many argue that it is the areas of business and technology that provide the greatest promise for the growing connection between these two powerful states.

Excitement surrounding this sector was obvious at the recent Los Angeles “Israel Conference” held in early June 2009 when hundreds came together to explore the wealth of new opportunities.

Kelly Hartog reported for Israel21c.com that, “In addressing the attendees, Los Angeles Israeli Consul General Jacob Dayan noted that the downturn in the economy has actually benefited both Israel and the US, in light of the stimulus packages that are being doled out by the US government.”

Hartog pointed out one recent example: “Together with Utah Governor John Huntsman, Dayan recently returned from a trip to Israel where, as a result of Utah’s $1.5 million stimulus package, Huntsman is now working with Israeli solar company BrightSource on a deal similar to the one struck last month between BrightSource and Pacific Gas & Electric in California.”

With the stimulus packages promoting action and a positive groundswell around Israel as a hotbed for California venture capital, I decided to sit down with Israeli-born Mouli Cohen, philanthropist and entrepreneur, to discuss the current state of relations, emerging markets and his history and connection with both locations.

Cohen’s story provides a unique perspective. Having grown up in Israel, attended school in Tel Aviv and served in the Special Forces in the Israeli Army, Cohen then went on to fund hi-tech companies globally, and has since set up base in California where he has just recently launched private equity innovation fund, Voltage Capital.

INTERVIEWER: Growing up in Israel, often considered a country at the forefront of biotechnology, why did you start your company in America rather then Israel?

MOULI: Well, I moved to the US in mid 80s. At that time the internet was just starting to emerge. I moved because of the huge opportunity in the United States. I found it challenging, but quickly realized that it was the place where I could realize my dreams.

INTERVIEWER: You live in California and grew up in Israel. Why is there such a close connection between these two states?

MOULI: Since California contains one of the leading cities in the United States, it is likely going to have a large and influential population of Jewish people. As the center of the entertainment business and hi-tech, there are many synergies between the two industries, not the least of which is the talent pool. Arguably
in its region, Israel has competitive intellectual capital, so its natural that two regions with such great talent will gravitate toward each other.

At the beginning of the 80s and my time there, the investor money was only beginning to move in. Israel has since developed itself aggressively and has established a trust in the market, the talent and the track record of the entrepreneurs there. As this has occurred, you have seen the similarities with The Valley emerge.

Defense is a great example. The best defense technologies are coming out of Israel right now and will continue to show big returns. The cockpit of every Phantom Fighter plane is equipped with Israeli software, so it provides a great example of the two countries collaborating together.

I think you’ll only see greater growth amongst investments between the two regions.

INTERVIEWER: Do you think your experience in the Israeli Army played into your success?

MOULI: I think the Army helped. It molds you in a certain way when you go through so much training, practice and live war. It teaches you the fundamentals of how to do business: integrity, teamwork and competitiveness. It gives you the discipline you need to succeed in the business world.

INTERVIEWER: There is a Dan Rather report on YouTube that talks about Israel’s hi-tech innovation during the global recession. He spoke to the leader of the Weitzman Institute of Science – its current President – a Belgium born physicist – about the importance of hi-tech research in Israel. His policy is that the research should be driven by what he refers to as “basic research” or curiosity driven research. Trying to understand how nature works. He uses the example of the discovery of the x-ray. Do you see the techniques of basic research being leveraged for your companies like Voltage that you build?

MOULI: Totally. Basic research is important and you want to approach practical paths, but research techniques have become so much more advanced that you want to leverage them as well to deliver greater results on shorter timelines.

INTERVIEWER: What do you think the current strife in the Middle East, specifically in Iran, means for the future of that region’s technology sector? Do you think that has an effect on the investment from global venture capital in the region overall?

MOULI: The Middle East can be converted to be the most advanced center of science development in the world. I have no question that if we were to be able construct peace in this region between Arab states and Israel, then we would be one of the most prosperous regions in the world.

With the use of technology, especially micro-blogging and citizen journalism during this past election, Iran is a good example of how technology will help shape democracy in these regions. When you see the people objecting to the failures of the system and opposing dictatorships, you seen an opportunity to help these people realize their dreams through investments in these regions.

The challenge is, if we see a failure here and in other cases, it may become challenging to establish the infrastructure that will be needed for future advancement to spread.

INTERVIEWER: Malcom Gladwell said that great leaders in their fields have to spend 10,000 hours on a certain study or act before they are truly great at it. What have you spent 10,000 hours doing and what do you see yourself concentrating your time on in the future?

MOULI: I feel you need to have around 10 years of experience in your field to achieve expertise, which often leads to success. That being said, real success is irrelevant and it’s not just in achieving wealth. I enjoy what I’m doing on a day-to-day basis, team myself with the best people and celebrate small and big wins over time.

INTERVIEWER: Having a history of picking winners throughout your career, what are the companies you see right now that are on the rise?

MOULI: I never like to single out companies, but I see the great innovation coming out of the green technology sector in Israel and that’s where many of the smartest people are moving. The challenge is the amount of capital these new companies need to be acquired by companies like Exxon.

Tech Investment Trends: Private Equity Bullish on Biotech, Clean Tech and Social Media

Venture funding has slowed considerably over the past year, but there are still opportunities for emerging technology companies to secure funding. While VCs are unquestionably more selective and doing far fewer deals, they will soon be ready to get off the sidelines to support companies in promising sectors.

So what sectors are stingy venture investors putting their money in? Biotech, which encompasses pharmaceuticals, diagnostics, medical devises, and clean tech were hot sectors that slumped in the first quarter of 2009, yet many still view it as a bastion of investment opportunity.

According to FierceBiotech.com, an online news site that follows the industry, biotech funding in 2009 has already surpassed the total raised for all of 2008, fueled by a surge of deals in Q2.

“Biotech is a sector that we remain very excited about,” said Mouli Cohen, entrepreneur and founder of innovation fund Voltage Capital. “This is an incredible time of new discovery in life sciences and the next decade should bring about unprecedented advances in diagnostics and therapeutics.”

The clean tech sector rode of wave of venture investment in 2008, raking in nearly 80 percent of all venture capital dollars. The sector has received a cold shoulder from VCs so far in 2009, but according to a National Venture Capital Association survey, more than 60 percent of VCs surveyed said they expect to increase their investments in clean tech in the next three years.

“[Cleantech] is faring better than the rest of the venture capital sectors — that’s driven by the sense that the government policy thinking has changed radically with the new administration,” said David Prend, a NVCA director and managing general partner at the venture capital firm RockPort Capital Partners, in an interview with the New York Times.

New media and social networking plays continue to grow in favor. The social networking phenomenon has generated a new market for services and applications designed to interface with Twitter, Facebook, MySpace, LinkedIn, YouTube and other sites.

Most recently, Twitter, the microblogging service, has spawned a host of VC-backed related services including search engines, URL shortening services and micropayment platforms, which have been increased as these networks become more ubiquitous on smart phones the popularity of mobile applications explodes.

Facebook is fast approaching 200 million members worldwide and has become a favorite platform for media sharing. It’s not surprising that VCs view Facebook as a potentially game changing global marketplace, and are moving rapidly to fund developers and entrepreneurs who can take advantage of this new frontier.

Biotech Companies Warming to Social Media

Recently, Oprah Winfrey came under fire from Newsweek magazine in an article ironically titled “Live Your Best Life Ever!” Authors Weston Kosova and Pat Wingert took on the one of the most powerful people in media by saying that Winfrey, on her show and through her ever growing online social network, often promotes unproven health “cures” to her throngs of fans. 

Doctors and readers reacted in droves, many agreeing with the authors’ stance on Winfrey’s championing of misinformation. While the Newsweek story was certainly in the spotlight, it proves that everyone needs to be exceedingly careful in the medical advice they give through the media, whether something as powerful as The Oprah Winfrey Show or as small as a Twitter feed. 

While most businesses are racing to explore how to leverage the social media phenomenon to their advantage — Facebook pages, RSS feeds, YouTube and even Twitter are increasingly in the marketing and PR mix for consumer-facing companies — biotech firms have been slow to test the social media waters. The regulatory environment and risk aversion are legitimate concerns.  But many close to the industry believe that biotech, among the most technology-oriented of all industries, needs to be more aggressive in its approach.

“Social networks hold tremendous promise and opportunity for biotech companies to enhance their consumer marketing,” said Mouli Cohen, Ecast and Voltage Capital founder, who heads a venture firm that invests in biotech startups.  “The Internet is the primary way consumers search for and find information on health issues and treatment options, but how reliable are the sources of all that information?  Social media is a logical extension of a company’s online presence, and one that provides new opportunities to engage consumers and make sure the information they receive about drugs or medical devices is accurate.”

Pushing information out to consumers is only one facet of the power of social networks.  Social networks are about making connections, and life science companies can harness blogs and networks like Facebook to facilitate interactions among consumers who share common health conditions and concerns. 

The ability to monitor what consumers are saying is equally valuable. Twitter has spawned a host of online applications, such as Tweetscan and Twist, that allow companies to monitor and analyze what people are tweeting about specific topics. “Think of how useful that is in a crisis situation,” wrote Mark Senak of Fleishman-Hillard in his EyeOnFDA blog. “You can monitor what people are saying about your crisis, discern the messaging, develop your own response document and send it out directly to those who have been talking about it via Twitter.”

Life science companies are watching for signals from the Food and Drug Administration on how the use of social media might be regulated. The FDA, which carefully monitors the pharmaceutical industry in its messaging to consumers, recently admonished a pharmaceutical company for posting a video on YouTube. The regulators took exception to certain claims made in the video as well as important information that the FDA said was left out.  The use of YouTube as a communications vehicle, however, was not addressed – a fact that was duly noted and widely reported by bloggers. “It’s not the medium, it’s the message,” Dr. Jean Ah Kang of the FDA’s Division for Drug Marketing, Advertising and Communications, told Senak in a recent interview.

Pharmaceutical companies are well aware that direct-to-consumer advertising is likely to be under review by the Obama Administration as part of the broader health care reform initiative.  While new guidelines may be created, it’s likely that “the message, not the medium” will continue to be the overarching policy, and social media won’t specifically be restricted.

“The Obama administration is extremely Internet savvy and its ability to harness social media played a big role in the election, so I expect them to have an informed and sophisticated position in terms of how they regulate the use of social media by business,” said Cohen.

Be that as it may, most pundits expect biotech and pharma companies to continue to proceed with caution.  Cohen, however, thinks they should forge ahead.  “There is too much upside and opportunity that social media offers.  The challenge is to utilize social media in the way it’s meant to be used – as an engagement tool that facilitates two-way communication and adds real value for consumers. The companies that harness the power of social media will gain a competitive advantage and enhance their reputations in the process.”

On the Brink of Generic Biotech Drugs, What’s the Cost to Innovation?

In a recently published report, the Federal Trade Commission suggested that the current allotment of a 12- to 14-year regulatory exclusivity period for product innovation to develop products at biotech companies is“too long to promote innovation.”

The same report, published June 4, also indicated that developing generic biotech drugs would help bring down the cost of U.S. health care. These less expensive versions are expected have prices discounts that are “between 10 and 30 percent of the pioneer products’ price,” the FTC said in its report, available here.

Shortly after report’s publication, President Barack Obama mentioned in a speech to the American Medical Association that creating a pathway at the FDA for approving generic biotech drugs would save the United States “billions of dollars.” But, as Arlene Weintraub was quick to point out in BusinessWeek, “How many billions? And how fast would those savings be achieved?”

With the advent of biotech generics, or follow-on biologics (FOBs), an impact on the economy is guaranteed, albeit unquantifiable. Industry insiders highlight that the biotech sector also stands to undergo some immeasurable changes itself.

“I am worried that the generic biotech companies make it less attractive to innovate,” said Mouli Cohen, entrepreneur and founder of Voltage Capital, a private equity innovation fund. Cohen’s firm invests in biotech startups and added, “Innovation and the ability to drive the process towards quantifiable outcomes is the hallmark of business in the U.S. Cannibalizing this process could reduce us to a mediocre player.”

Indeed, as PharmaTimes noted in reporting on the June 11 hearing by the House Energy and Commerce Subcommittee on Health, concerns have risen as to whether or not innovator biotech companies will be able to recoup their Research and Development investments, were FOBs were permitted to “come speedily to market.”

“R&D is increasingly expensive,” Cohen said. “The major pharmaceutical companies have reduced their efforts. This shifts the burden onto biotech and academia. In the end, someone or some entity has to sponsor the work. The cost will shift, but just like the medical system, the industry will break down if the compensation and the regulatory constraints become increasingly unfavorable.”

This means that biotech, although recently predicted by EvaluatePharma to achieve the largest growth of the any drug industry over the next five years, faces some massive obstacles in terms of funding.

“Two thirds of the future clinical pipeline for patients resides in small biotech companies – companies without profits, companies relying heavily on private investment to fuel R&D, companies that are particularly susceptible to negative changes in investment incentives,” said Jeff Joseph, VP of communications at the Biotechnology Industry Association.

“The report appears to minimize greatly the impact on innovation that would occur under a new paradigm in which biosimilar competitors would be able to take a free ride off the massive R&D investment made by the initial innovators,” Joseph said.

The reaction to the FTC’s report shows there is considerable room for growth in understanding about biotech and FOBs.

“The success of biotech in terms of the numbers of new ideas and products is still solid, but the industry will likely change rapidly with these new regulations” Cohen said, so one should “carefully weigh the consequences.”