With development costs of $100 million to $1 billion per product, Israeli biotech companies are constantly seeking overseas investor capital.Nano-sized chips that will be able to detect chemical warfare toxins, artificial muscles that can move a human limb, DNA analysis that will enable doctors to better treat AIDS patients, and a breakthrough in schizophrenia drug research.

These were just a few of the new technologies introduced at the Bio-Tech Israel 2002 Conference, a three-day exhibition held in Tel Aviv in March that brought together leading life-science companies with investors, venture capitalists and international biotech concerns from around the world.

The conference was an international showcase for Israel’s hottest biotech companies. Sponsored by Israel’s Ministry of Trade, the Israel Export Institute, MATIMOP (Israeli Industry Center for Research & Development) and the National Biotechnology Committee, it also offers a chance for local players to get to know one another.

Until recently, biotech was considered the ugly stepsister of Israel’s high-powered high-tech industry, taking a backseat to the country’s flood of dotcoms, kid millionaires, and front page IPOs.

But that ended with the global telecom washout. Biotech, the once underrated underling, is now one of the fastest growing sectors worldwide, and has since taken over as the Cinderella of Israel’s brain-powered economy.

“In life sciences, Israel plays a leading role in the world,” said Rainier Wollman, a trade specialist from the New Mexico Economic Development Department, who attended the conference.

Wollman’s associate director, Seth Vogelman, agrees. “New Mexico recognizes that Israel is a biotech center. Despite the situation, not only did New Mexico want to take part in the event, but to have a separate booth as well. It’s a recognition of the important role Israel is playing in the industry.”

“It’s amazing, a conference like this,” said Bernard Dichek, publisher of BioIsrael.com, an online magazine about Israel’s life sciences. “There are 160 biotech companies in Israel now. Ten years ago, there were 20 or 30, so it’s phenomenal growth. There are more biotech startups in Israel per capita than any other country in the world. Unlike high-tech, it’s not like the Roman Empire where everything collapsed. It’s slow, steady growth.”

One of the key personalities at the conference was Dr. Ansbert Gadicke, founding partner of MPM Capital, a multi-national venture capital fund focusing on biotechnology. With more than $1 billion of committed capital and an average investment of about $20 million, it is one of the leading funds of its kind in the world.

Gadicke believes that despite the world economic downturn, the biotech industry is ready to ascend “the steep curve of the hockey stick” and that now is the right time to invest. MPM already supports two Israeli biotech firms and Gadicke held meetings with several others during the conference to identify additional opportunities.

There was, however, some disappointment over the last-minute cancellation of several key players from abroad, such as the French VC fund Sofinnova. Of the dozens of foreign representatives expected to turn out, only around 25 arrived, mostly due to security concerns. Still, others were not so easily discouraged.

“It’s a known risk that’s perfectly manageable,” said Myra Waiman of Romney Consultants, the British VC management and technology transfer firm. “And I know that Israeli biotech is so strong that it’s too good an opportunity to miss.”

For most Israeli participants, the exposure to international investors was crucial. Since biotech generally requires long-term investments, research costs can be extremely high, reaching anywhere from $100 million to a billion dollars per product in an industry where only 10 percent of products make it to market. That’s why most local companies need the financial backing and access to distant markets that overseas firms offer.

So far, many Israeli biotech companies have been successful in wooing overseas investors. According to analysts at Ernst & Young Israel, the consulting firm which co-sponsored the event, VC investment in the Israeli life science industry increased by 40 percent from 2000 to 2001, while other Israeli companies raised $260 million on U.S. stock exchanges in 2001. Still, there is plenty of room for growth.

Ernst & Young’s Yaffa Beck agrees. “Our message in the biotech industry is ‘come here, partner with us.’ The state of the life-science industry in Israel is good. We need partnerships to make it great.”

Analysts attribute Israel’s growing success in biotechnology to several factors. First, there is the country’s abundance of leading research facilities and universities. Then, there is its strong medical tradition and prominent research hospitals. There is its long history of agricultural innovation. And there is Israel’s entrepreneurial spirit, known locally as “chutzpah.” It also doesn’t hurt that Israel has the largest number of scientists per capita in the world.

“The amount of scientific research published by Israeli scientists, and the achievements in education and scientific research, along with our achievements in the high-tech industry, have given us a great advantage and an opportunity as a country to become a strong player in the life science industry,” said Ernst & Young’s chairman Itshak Forer.

“It’s the only place in the world you can find this kind of concentration of biotech, high-tech and life-science companies. And there’s a growth potential factor of two or three times what you see today,” said Sherman Pomerantz, director of a consortium representing ten U.S. states at the conference, including Pennsylvania, California and Illinois. “You have a small population, highly trained, an enormous number of post-doctoral people, and a motivation for development that can’t be equaled in any community this size worldwide.”

Since its inception over a decade ago, Israeli biotechnology has made a name for itself for its leading work in the fields of agricultural biotechnology, immunology, nano-technology, diagnostics and bio-therapeutics.

But the broad range of Israeli companies at the conference went far beyond those traditional fields.

These include large, publicly traded organizations such as Pharmos, which develops therapeutics to treat neurological disorders such as strokes and Parkinson’s disease, and Compugen, a pioneer in merging computer technology with biology to enhance drug discovery.

Then were also smaller firms in attendance, from research-oriented startups to well-established firms with industry-leading products. Among the companies represented at the conference were:

IDgene Pharmaceuticals, a company that utilizes the high level of homogeneity among Ashkenazi Jews in Israel to identify the genetic basis for diseases such as asthma, diabetes, and schizophrenia. These kinds of rare homogenous populations exist only in such places as Israel, Iceland, Sardinia, and Finland.

Enzymotec, a company developing platforms that improve health and beauty products. Enzymotec also prides itself on being a model of Israeli coexistence, with management and employees representing a cross-section of Israel’s Arab and Jewish sectors.

Cell-Cure Ltd., an Israeli subsidiary of ESI, one of just ten companies in the world to get approval from the Bush Administration for funding for embryonic stem cell research. The related research may produce applications for curing Parkinson’s disease, Alzheimer’s and even repairing spinal cord injuries.

Cell-Cure Chief Operating Officer Dr. Charles Irving explained his motivation for exhibiting at the conference. “My primary aim was to put this new company on the map, to let our Israeli colleagues from the scientific and investment community know that we have a local subsidiary of ESI, and that they’ll be hearing from us in the future.”

But the real measure of the conference’s success will be the strategic partnerships that are forged here. Ernst & Young’s Itshak Forer is confident that Bio-Tech Israel 2002 is just the beginning. “I think that this is a place that has a great competitive advantage. This is going to be one of the more interesting centers in the world. Outside of the U.S. and England, we are one of the most important centers of life science in the world.”