What is it that makes Israel’s medical device industry so successful?The PillCam SB Capsule Endoscope, used to diagnose gastrointestinal diseases, was recently cleared for marketing in Japan. Developed by Israel’s Given Imaging, the truly novel device is fast on its way to becoming a diagnostic standard around the world, and grew out of a medical device industry that some consider to be the most sophisticated in the world.

In 2004, according to the Israel Life Science Industry, medical devices were Israel’s largest life sciences subsector, with its approximately 250 companies representing 54% of the total. Exports from the medical devices reached $1.09 billion in 2004. According to Israel’s Ministry of Industry, Trade & Labor, the country leads the world in patents per capita for medical devices. Subsectors of the industry consist of therapeutic devices; medical equipment; diagnostics, monitoring, and imaging; and drug delivery. Major markets served are North America, the EU, and Asia.

Support for medical device development comes from both government and private investments. In 2003, 21% of the companies receiving grants from the Office of the Chief Scientist were in the medical device field. Last year, medical device companies raised more money from venture capitalists than any other health care industry segment – investments totaling nearly $180 million.

What is it that makes Israel’s medical device industry so successful? Unlike some other markets, the medical device market seeks major changes or paradigm shifts in an area (or issue) that requires a solution. And Israeli entrepreneurs and manufacturers have found that their technologies meet the needs of the market… in a major way.

According to David Grey, CEO of Truphatek & Veinomed, Israel’s strength in development comes from its “ability to mix and match various engineering and medical science disciplines to produce ‘uniquely clever ideas.'” Netanya-based Truphatek manufactures a range of laryngoscopes and other airway management and emergency medical devices.

Noam Hadas, CEO of SLP Ltd., concurs: “The Israeli advantage is ‘thinking out of the box.’ We are less exposed to ‘that’s what everybody is doing’ and more likely to come up with new solutions and fresh ideas.” SLP manufactures advanced sensors used to diagnose sleep disorders. The company is based in Tel Aviv.

Hadas emphasizes that because Israel is a “dynamic society,” it can transform “ideas into products very quickly” and “improvise” to develop creative solutions.

The country’s size also gives it an advantage. On the one hand, a diverse population in a relatively small space gives developers opportunities for testing in different areas in a relatively short time without incurring significant travel costs. The country’s small population, on the other hand, means that the local market is “tiny,” to quote Truphatek’s Grey. Therefore, home-grown companies are “98% export-oriented.”

Local companies have to work with U.S. (or other) manufacturers and distributors to form “symbiotic relationships” between the Israeli company and leading global players.

While size has its benefits, both Hadas and Grey agree that even though Israel understands the development process extremely well, the country fails at marketing because it doesn’t understand the market, or the needs of the market. “Being far from the market,” Hadas observes, “creates a huge gap in understanding the true needs of the customers.” So, the country develops “interesting” concepts scientifically, but “they are unrelated to the needs of the physicians or the medical industry outside Israel.”

This “lack of understanding,” in Hadas’s view, “leads to big errors in marketing and support of the product after it is launched.” Grey thinks we “fall down at marketing simply because it is very hard for us to understand the American, European, or Japanese medical device consumer.”

As for the future, Hadas believes that “small companies with good ideas and developments will be taken over by large multinationals and lose their Israeli identity,” a phenomenon that has occurred in the country’s telecom industry. Grey sees things similarly. The local market will remain small, “but global device manufacturers will set up local subsidiaries.”

These subsidiaries, in Grey’s opinion, will run the development/technical side in Israel and use our ‘entrepreneurial talent’ “to create products for their own [the global manufacturers] needs.”

(Reprinted with permission of the Trendlines Group and the Federation of Israeli Chambers of Commerce.)