December 31, 2013

Biotechnology Innovation and Growth in Israel

Israel's diverse population, high-quality healthcare system, and resilience to global financial stress make it a strong partner for R&D, clinical research, and market growth.

Israel is a developed, industrialized nation that, despite ongoing conflict with neighboring Arab countries, remains committed to making technological and medical advances through education and high R&D expenditures. Over recent decades, much of Israel’s economic growth and export performance has been reliant on research-intensive industries. Its dense population and focus on innovation positions Israel well to drive a significant amount of growth for pharmaceutical and medical-device manufacturers.

The infrastructure of Israel’s healthcare system has come under scrutiny in recent years as the Israeli government continues to rein in its healthcare expenditures. Even though Israel’s economy has recovered from the global financial crisis of 2008-09 better than most advanced, comparably sized economies, constraints are still being placed on the Ministry of Health’s annual budget. In recent years, the Ministry of Health has developed strong capabilities in the areas of health technology assessment (HTA), new technology prioritization, and quality monitoring for community-based care to focus more on value and minimize inefficient spending. Despite these changes, however, the Israeli pharmaceutical market is still expected to grow.

In 1995, Israel enacted a National Health Insurance Act, granting basic health insurance to all Israeli residents, covering a “Health Basket” that includes both medical services and specific medical products. The treatments and products included on this list are set by the state on an annual basis. Residents must pay a certain percentage of income (approximately 5%) to belong to one of the four non-government providers called “sick funds” (“kupat cholim”); in certain cases they are required to make a co-payment for treatment.

While strained political relationships and terrorism remain real threats to Israel’s economy, including its healthcare market, the Israeli health system continues to provide a high standard of care to the population as a whole. According to global data compiled by Bloomberg, Israel ranked fourth in healthcare efficiency (1). This ranking is particularly impressive considering the relatively moderate level of resources allocated to healthcare. Even though Israel, which joined the Organization for Economic Co-operation and Development (OECD) in 2010, has seen accelerated health spending since 2009, national expenditures on health remain lower than for other OECD member nations. Health spending accounted for 7.7% of gross domestic product (GDP) in Israel in 2011, below the average of 9.3% in OECD countries (2).

With approximately 7.4 million people at the last census in 2008 and 311 people per km², Israel’s population density is among the highest in the Western world. More than 60% of the population is concentrated in the narrow strip along the Mediterranean Sea. Israel’s high total fertility rate has given rise to a relatively young society with 28% of the population younger than 15 years and only 10% older than 64 years of age (3). For pharmaceutical companies looking to expand in the region, this young society provides a skilled workforce, ranking it amongst the world’s leading countries in terms of high-tech start-ups per capita as well as R&D spending per capita (4.40% of GDP) (4).

The environment of innovation and entrepreneurship in Israel has resulted in substantial growth in the number of life-science companies from 186 in 1996 to more than 1100 in 2012 (5). Medical-device companies make up approximately 50% of that pool. The production revenue (export and local sales) of the Israeli medical devices industry in 2011 was US$1.8 billion (6). Israel is also ranked second to the United States in biopharmaceutical patents per capita, and its pharmaceutical market was estimated at US$1.78 billion in 2010 and is expected to reach US$2.3 billion by 2020 (7).

Key regulatory considerations
New drugs registered in Israel, including biologics, must meet European Union (EU) standard GMPs in terms of quality and efficacy to ensure public safety. In addition, medical products that have been manufactured, registered, or marketed in other major pharmaceutical markets are eligible to be registered in Israel. This eligibility encourages growth in the market by allowing drugs to be shared relatively easily between Israel and other countries.