With massive layoffs hitting Israeli high-tech hard in recent months, it was heartening to get an upbeat report on the health of its life sciences sector at the MIXiii Health-Tech.IL conference in Jerusalem. November 10.
Conference organizer Israel Advanced Technology Industries (IATI) shared the findings of its 2021 report with approximately 1,000 conference attendees from 30 countries. (“MIXiii” stands for the blend of health and technology, combined with Israel, international and innovation.)
Highlights were presented by the report’s lead author, Omer Gavish, a partner at PwC Israel and head of its Pharmaceuticals & Life Sciences division.
Gavish said there are about 1,800 active life sciences companies in Israel, 80% of which were founded in the past decade.
“That’s a huge number, and it’s about the same in 2022,” he said. “The majority, more than 60%, are in the early stages.”
About $3.8 billion in investments flowed into private Israeli life sciences companies in 2021, with $1.5 billion of that invested in the last quarter alone. Digital health companies received $1.5 billion of the total, a 300% increase from 2020.
Foreign investment is on the rise
Gavish noted that $1 billion came from local investors, while foreign investors doubled their investments from 2020. This trend of foreign investment continued in the first nine months of 2022.
Among listed Israeli life sciences companies, 2021 marked the first year in which they surpassed $1 billion raised on the various US exchanges.
“US stock markets were, and remain, an important source of funding for life science companies in Israel,” Gavish said.
“Over the past decade, 21 Israeli life sciences companies have raised more than $6 billion on US stock markets, primarily on NASDAQ. More than 50% of this amount has been collected in the last four years”, although the trend has slowed down in 2022.
Nine life science companies raised $209 million on the Tel Aviv Stock Exchange (TASE) in 2021, a record for the past decade.
Record year for life sciences
The approximately $5 billion invested in private and public Israeli life sciences companies represents a 44% increase from 2020.
“It was another banner year for the industry,” Gavish said. “This is the first year that total investment has crossed the $5 billion mark, more than double what we had in 2019, which in itself was a great year.”
Average deal size also set a record high of $13.7 million per deal. TASE-listed life sciences companies closed an average deal of around $23 million, the highest in the past decade.
“As we predicted last year, the increase in investment – which started with the period of the Covid-19 pandemic and continued through most of 2021 – was mainly in the sub-sectors digital health and medical devices,” he said.
Gavish said about $1.7 billion was invested in life science companies in the first nine months of 2022.
“This amount is higher than most years of the past decade despite a decrease from the corresponding period in 2021.”
However, he added, “At the end of 2021, we experienced a decline in capital markets. This trend continues in 2022 and has affected not only the number of public investments, but also the total investments in life sciences companies.
Exports of Israeli life science products are booming, Gavish reported. These products are mainly medical devices and pharmaceuticals.
Total pharmaceutical exports in 2021 amounted to $2.1 billion, an increase of 23% compared to 2020. Total medical device exports reached $3.1 billion in 2021, approximately 20% of more than in 2020.
According to the figures for the first half of 2022, it seems that the rise will continue.
Pharmaceutical exports during this first half totaled $1.5 billion, an increase of 50% compared to the corresponding period in 2021; and medical device exports totaled $1.6 billion, up from $1.5 billion in the corresponding six months of 2021.
Keep an eye on digital health
While the majority of Israeli life science companies over the past decade have been in medical devices, Gavish noted that “over the past two or three years, we see a steady decline in the number of these companies, or at least from them.”
Digital health is the fastest growing sector.
“This is the third year that we have seen an increase in the number of digital health companies, especially due to Covid-19. And you see this trend continuing this year for established companies and seed companies,” said said Gavish.
The digital health boom is also affecting the geographic distribution of Israeli life sciences companies.
Appliance and pharmaceutical companies tend to be located in Jerusalem, Rehovot, Ness Tziona and Haifa, close to hospitals, universities and research institutes such as the Weizmann Institute and the Technion.
But digital health companies choose the general high-tech hub of Tel Aviv.
Gavish explained that digital health companies are less connected to research institutes and hospitals; these are tech companies looking to compete outside of the traditional life science sphere.
Increased focus on wellness
In addition to digital health, the IATI report identifies four niche sectors with high growth potential in the coming years: wellness, food technology, climate technology and artificial intelligence (AI).
These sectors stood out for their innovation, rapid growth and attractiveness to investors.
“I think what’s interesting from a qualitative, not necessarily quantitative, perspective is that wellness and food technology are increasing,” Gavish said.
“Both are related to quality of life, to a more preventative approach and not just not finding solutions to care for patients after they get sick.”
What is the forecast?
“Even though we see the market is not doing well in 2022, even though the funding is not doing as well, there is substance in this industry and the future is looking good,” Gavish said.
Data for the first half of 2022 for the Israeli life sciences sector, he added, “is much better than the first half of 2021, even if the markets are not [doing] as well.”
IITA CEO and President Karin Mayer Rubinstein summed up: “In recent years, the life science and health technology industries have emerged as major growth engines for the Israeli economy. Our latest research highlights the need for additional support and investment so Israeli businesses can continue to create meaningful social impact.