Israel: a medtech innovation hub for the world

Chris Lo 19 June 2019 (Last Updated June 19th, 2019 18:34)

Israel has long been renowned as a hub for high-tech innovation, with an active investment scene and spinout-friendly research centres helping to push the country’s medtech sector to new heights. What are the secrets behind the outsized performance of Israeli med tech in recent years?

Israel: a medtech innovation hub for the world
The Tel Aviv skyline by night. Credit: Gilad Avidan

In the late 90s, Toronto native Dr Morry Blumenfeld was mulling the prospect of retirement after 35 illustrious years at GE Medical Systems – now GE Healthcare – during which he had been instrumental in the launch of the company’s computed tomography (CT) and magnetic resonance imaging (MRI) businesses. A well-earned retirement beckoned, but instead Blumenfeld was persuaded to move to Israel and run GE’s operations in the country. What he saw there was a revelation.

“When I came here, I realised I had been in start-ups all my life, and I just didn’t call them start-ups,” he says. “Here, they were definitely called start-ups.”

As early as 1999, during Blumenfeld’s early years in Israel, he was struck by the ambition and entrepreneurial boldness of the ideas he was seeing. He recalls one particularly remarkable project to develop a miniature MRI system that could be placed inside the carotid artery to detect vulnerable atherosclerotic plaques that could lead to cardiac arrest and stroke.

Given that vulnerable plaques had no treatment at the time even if detected, Blumenfeld questioned why they didn’t focus on something like, say, a flashlight-sized imaging system that could inform a surgeon whether or not they had removed the full extent of a tumour.

“Oh, that would be much too easy,” he was told.

“This group of course went bankrupt,” he says now. “But the same guys – and this is characteristic – they said, ‘Okay, we learned something here, now we’re starting something new.’ That’s what happens again and again [in Israel]; we see a lot of people who have brought something to some level, they’re either successful or they failed, and either way they want to start something new.”

Israel’s medtech sector: the innovation nation

Blumenfeld’s early impressions will come as no surprise in the self-styled ‘start-up nation’, more recently rebranded as the ‘innovation nation’. The country ranked fifth in Bloomberg’s 2019 Innovation Index, leapfrogging the likes of Japan, Sweden and the US since last year’s list, while taking the top spot in the category of research and development (R&D) intensity, having spent $12.7bn annually (4.3% of total GDP) on R&D.

The life sciences sector, and medical technology in particular, ranks high on the list of Israel’s most developed and entrepreneurial industries, buoyed by a host of beneficial factors, including proactive and spinout-friendly academic institutions, a prevalent start-up culture and supportive policy from a government that is keen to maintain and build upon the country’s reputation as an innovation and investment nexus to rival Silicon Valley and Europe’s most prestigious tech hubs.

“I think there are about 1,200-1,500 start-ups in the medical field in Israel,” Blumenfeld says. “It’s just amazing.”

The result is an outsized medtech sector that has seen Israel disproportionately represented on the global medical device stage, bringing innovative technologies to the world, from Given Imaging’s PillCam imaging capsule to ReWalk Robotics’ wearable robotic exoskeleton.

Medtech financing in Israel

Israel is also highly fertile ground for medtech financing, with $473m of capital raised by medical device firms in 2017, and another $254m raised in the fields of healthcare IT and diagnostics, according to Israel Advanced Technology Industries’ June 2018 Life Sciences Industry Report.

Global medical firms including GE Healthcare, Philips and Medtronic have been active in Israel for years, offering financing and acquisition opportunities for growing start-ups domestically, not to mention the funding options coming from the country’s many life sciences-focused investment funds and venture capital groups.

As well as serving as president and CEO of medical device consulting company Quescon Consultants and sitting on the boards of numerous medtech firms, Blumenfeld is a medtech venture partner at equity crowdfunding platform OurCrowd, and along with Dr Morris Laster is leading OurCrowd’s newly-launched $50m Medtech Fund.

While OurCrowd is already a prolific medtech investor, with the likes of AlphaTau Medical, Insightec and Zebra Medical Vision on its books, the idea behind the new group is to be able to move quickly to capitalise on medtech opportunities that might be too complex for a crowdfunding model.

“There was one company that we wanted to invest in, and it took us well over five or six months to raise capital,” Blumenfeld says. “By the time the capital was raised, the company didn’t want us anymore. At that time it was a $20m company, and about two years later it was a couple of billion dollars. That hurt! So we were saying we want to be able to do both – to make sure we can rapidly make decisions and get funding for companies, and that we can also invest in things that are probably much too difficult for the average investor.”

The perfect storm for medtech start-ups

But what are the components that have facilitated the flurry of innovation and financing opportunities that exists in Israel today? The origin of this wave of tech development may have its earliest roots in the early 1990s and the collapse of the former Soviet Union, which drove a mass migration of Russian scientists and academics to Israel. Today, there are around 1.5 million Russian-speaking Israelis, of a total population of around nine million.

“The Chief Scientist’s Office [now the Israel Innovation Authority] decided that they would give [Russian immigrants] funding for ideas, and do that for two or three years,” Blumenfeld says. “Then some people started some funds, and to my mind that’s what started the whole thing going.”

In fact, Blumenfeld partly attributes Israel’s striking entrepreneurial streak to its history of immigration. He recalls being asked by a senior executive of the University of Toronto about the key to Israel’s vibrant medtech eco-system, and how it might be replicated in the Canadian city.

“My answer to him was that the people you have to really involve are the new immigrants,” he says. “At that time, about 50% of the people that lived in Toronto were new immigrants to Canada. Those were the people who were ready to make a big change, as opposed to sitting back.”

Today, there are many factors supporting Israel’s hyper-productive medical technology scene. The concentration of world-class academic institutions (Weizmann Institute of Science, the Technion, Tel Aviv University) and medical centres (Hadassah Hospital, Ichilov Hospital, Chaim Sheba Medical Center) in a relatively small area provides many opportunities for collaboration.

Dedicated technology transfer offices at universities and hospitals work to commercialise the ideas and inventions that come out of these institutions. Even the Israeli military has been a rich source of medical innovation; for example, VRHealth, which develops virtual reality tech for recovery and rehabilitation, was founded by a former pilot in the Israeli Air Force.

As well as an active venture capital eco-system and the presence of global medical device players, the Israeli government also runs multiple innovation incentive and incubation programmes, mainly through the Israel Innovation Authority. These have included MAGNET to support consortia between academics and industry, as well as the NOFAR and KAMIN programmes, which provide grants for applied academic research.

Bringing medical innovation to the world stage

As Israel’s domestic market is small, the country has always styled itself as an innovation hub for the world. This, of course, brings challenges for small Israeli companies looking to secure regulatory approval from multiple authorities globally and compete against much larger international rivals.

Given the level of competition, Blumenfeld believes a common failing across the medtech industry in Israel is that companies’ capacity to sell their inventions doesn’t do justice to the technologies themselves.

“Where they’re lacking is in what I would call upstream marketing,” he says. “That’s a GE term. In other words, I’ve got a thing, how do I now market it in such a way that people become interested in it? That’s something that they’re not learning. They still lean towards saying let me just figure out the technology for this, and then I’m going to go on and do something else. That’s a lack. It’s one of the things I’m hoping we’ll be able to help a lot with OurCrowd and with the fund.”

But Israel’s global reputation is paying dividends on the financing side, with opportunities coming from Europe and the US, and Asia – China in particular – becoming an increasingly lucrative source of foreign investment.

“At OurCrowd, we see at least one or two major groups coming in from South-East Asia, mostly China, every week,” Blumenfeld says. “Dr Lotan [Chaim] is part of our group in this new fund; he’s the head of cardiology at Hadassah Hospital. He is one of the people who have started this meeting called ICI – Innovations in Cardiac Interventions. In the last two years, they’ve had huge groups from China coming in, and he has been spending a lot of time going back and forth to China. He tells me that the Chinese absolutely believe that there are three important countries in the world: China, the US and Israel. And when they get to Israel they’re amazed by how small it is. They say, ‘This is less than we have in one of our cities!’”

It’s a shock that many investors have reported when visiting Israel, a country that over the last three decades has developed an outsized medtech sector that packs in more innovation and enterprise per square kilometre than almost anywhere else in the world. Bright ideas are in abundance and global players are paying close attention; if Israeli start-ups can sell their ideas as enthusiastically as they come up with them, the next three decades could be poised for even greater success.