Israeli biotech survives Nasdaq shakeout

JERUSALEM, May 14 (JTA) – Morris Laster, a nice Jewish boy from Brooklyn, became a doctor.

Instead of treating patients, though, Laster got caught up in examining kinases, proteins that transmit information about cells.

Now Laster is running his second biotechnology company in Israel, Keryx Biopharmaceuticals, a drug discovery company that uses mathematical equations called algorithms to identify the specific kinases involved in various diseases.

By bridging the gap between biological knowledge – aided immensely by advancements in mapping the human genome – and drug development, the company’s 45 scientists discover and produce drugs to treat a wide range of illnesses, from diabetes, cardiovascular disease and brain cancer to prostate cancer, breast cancer and septic shock.

This is an Israeli company “with extremely exciting opportunities,” according to WestLB Panmure, a London-based investment bank.

That’s high praise, considering the economic slump and dot-com shakeout that has ravaged Israel’s technology industry during the last eight months.

During that time, the Nasdaq has been in free fall, and Internet companies around the world have been devastated, including those in the Silicon Wadi, as Israel’s high-tech haven is called.

Yet one sector that hasn’t felt the downsizing or venture capital crunch is Israel’s biotechnology and life sciences sector, which draws on a pool of outstanding scientists coming out of the Weizmann Institute of Science, Technion-Israel Institute of Technology and other Israeli universities.

According to an Israeli biotechnology report compiled by consulting firm Ernst & Young, the number of Israeli biotech companies that went public on foreign stock exchanges rose from three in 1999 to seven in 2000.

Life sciences companies raised more than $500 million from venture capital funds and initial offerings, while the average investment per company increased from $2.5 million to $5.5 million.

“Biotech hasn’t been affected directly by the shifts on Nasdaq,” said Bernard Dichek, the founder of www.bioisrael.com, a Web site dedicated to Israel’s biotech industry.

“Everybody’s coming to us, all the refugees from the” information technology “industry who are trying to find out how to get into biotech.”

Unlike the Internet industry, which seems to move at the speed of light, the biotech sector progresses at a far slower pace.

It can take four years or more before a new drug is approved by the U.S. Federal Drug Administration, which is crucial for the drugs’ marketing. Until that time, a company needs to generate a lot of cash to keep research flowing steadily.

This kind of timeline can make it difficult to finance these long-term ventures.

But if a company has investors who understand the industry and are willing to invest $5 million to $10 million, the company can work on research and development and forging strategic relationships.

Consider Keryx, which raised $12 million in two rounds of financing and another $52 million when it went public on the Nasdaq and the London Stock Exchange’s Alternative Investment Market last July.

While Keryx is one of some 400 biotech companies on the Nasdaq, its AIM listing gives it added exposure to European investors.

“The Europeans are solid stock holders,” said Ron Bentsur, who handles investor relations for Keryx. “They’re loyal and supportive, and they get us” before analysts do.

The Americans, however, “will throw us out depending on the market conditions,” he said.

The real test, however, is in Keryx’s laboratories, where 13 drugs are being developed. Six of them are in later stages of development and clinical trials.

KRX-101, a drug to treat diabetic kidney disease, is in the third phase of clinical trials and has received FDA approval. The drug was used in Europe for 20 years before being acquired by Keryx, which believes there is a $1 billion market for treating complications relating to kidney disease in diabetic patients.

Yet kinases, the information-transmitting proteins, are the real opportunity for this firm, which is based in Har Hotzvim, a technology park just northwest of Jerusalem.

As the genome project – which has mapped humans’ genetic makeup – has discovered specific kinases and their functions in the body, a Hebrew University scientist, Professor Shmuel Ben-Sasson, created an algorithm to identify a specific region on the kinase sequence, a sort of “docking site” for identifying and modifying the kinases involved in a disease.

That region is nicknamed the H-J Loop, for Ben-Sasson’s research labs in Jerusalem and at Harvard University.

The kinase-based algorithm for discovering drugs is called KinAce, and allows researchers to move from analyzing a mapped kinase to discovering a drug compound in less than four months.

That’s light years for the biotech industry.

“We can cut the discovery process by three to four years,” Bentsur said.

With one patent and four pending, the grand plan for Keryx is to sign licensing deals with large pharmaceutical companies. Until then, it can bank on KRX-101 to bring in some money.

“Biotech makes sense,” said Laster, 36. “I kept on looking around at the software and Internet companies, and I just didn’t get it. Biotech’s business potential has proven itself, and as an industry, nothing is bigger or better than biotech.”

Anyone looking at last year’s Israeli biotech initial public offerings might reach a similar conclusion.

In addition to Keryx, four other Israeli companies issued stocks, including Visionics, Compugen, XTL Biopharmaceuticals and Shahal Medical Services Ltd.

The Israeli biotech industry has finally come to fruition because investors “realized there’s substance here,” said Haim Aviv, the chairman of Pharmos Corp., a Nasdaq-listed drug development company based in Rehovot. “You’ve got innovative technology and companies based on strong academic backgrounds.”

Aviv should know. A former professor at the Weizmann Institute, he also founded Biotechnology General, another Nasdaq-listed Israeli biotech company based in Rehovot, a center for many of Israel’s life sciences companies.

Pharmos is currently developing drugs primarily for brain injuries and strokes. The company is in the midst of an international trial for dexanabinol, a drug for traumatic brain injuries. The drug is expected to help the company’s weak share price.

For Aviv, the biotech veteran, the sector’s increasing popularity makes sense.

“Demographically, there’s an increased need for better drugs as more people are growing older,” Aviv pointed out.

“It’s a very fundamental need. You can skip some toy for the Internet, but you can’t afford to skip developing drugs.”

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