from the December 2009 issue

Local VCs cut investment in start-ups

Investment in Israeli high-tech companies by local venture-capital funds plunged to a six-year low in the third quarter, but total investment rose thanks to foreign funds, according to a report published by Kesselman & Kesselman PricewaterhouseCoopers MoneyTree .

"From the current survey we can draw the conclusion that the present crisis in the hi-tech sector is far from being behind us," Roby Suleiman said in the report. "The level of investment during the quarter was one of the lowest for the decade.

"In addition, a profound analysis of the data found that investment by Israeli venture-capital funds dropped to $70 million in the third quarter - the lowest amount since the low point in the first quarter of 2003."

Israeli high-tech companies raised more money in the third quarter compared with the second quarter, but compared with the same quarter last year, investment levels were down by more than half, the report said.

VC-backed high-tech companies raised $178 million during the third quarter, up 10% compared with the previous quarter ($162m.) and down 55% compared with the same quarter last year ($393m.).

"The increase in investment in the third quarter was entirely due to investment by foreign funds," Suleiman said. Domestic VC funds invested $70m. or 39%, of total investment for the third quarter, compared with $77m., or 48%, of total investment in the previous quarter and $181m., or 46%, in the same quarter last year. In the third quarter, 55 Israeli hi-tech companies raised capital, down from 61 in the second quarter and 78 in the same quarter last year. The average investment per company in the third quarter was $3.2m. "Another interesting figure is the immunity of the life-sciences sector in general, and of medical devices in particular, which raised the most capital during the quarter," Suleiman said. "This figure, combined with the fact that this sector had the largest exits over the past year, demonstrates the great strength and importance of the sector in Israel and the industry even in hard times." Investment in companies in the software sector plunged to a 10-year low in the third quarter. Nine companies raised a total of $5m. compared with $47m. invested in 19 companies in the second quarter and $123m. invested in 28 companies in the same quarter last year. Investment in life-sciences start-ups reached its second-highest level in the past four years. Eight companies raised a total of $65m., compared with $32m. invested in 13 companies in the second quarter and $28m. invested in 11 companies in the same quarter last year. Clean-tech start-ups raised $27m. Aqwise, provider of advanced water and wastewater treatment solutions, was ranked first at the "Deloitte Technology Fast 50" competition for Israel 2009. The Fast 50 program, ranking the 50 fastest growing Israeli technology companies over a period of five years, is one of the leading ranking programs in the world, and was held by Deloitte Brightman, Almagor, Zohar in Israel for the tenth year in a row. Aqwise, which demonstrated impressive growing rates during the past five years, is the only cleantech company on the winners list, and the first cleantech company ever to win the first place. This achievement comes alongside with the company's international expansion into new markets in Asia and South and Central America, as well as its continued efforts in developing new technological solutions for the global water and wastewater industry. Chinese company to fund D-Pharm Phase III trial D-Pharm Ltd. (TASE: DPRM), which is developing a stroke treatment drug, has signed a partial licensing agreement for its product with Chinese company Wanbang Biopharmaceuticals, a subsidiary of Fosun International Ltd. (HKSE: 656), one of China's largest pharmaceutical companies. Under the terms of the agreement, Wanbang will receive an exclusive license for development, conducting trials, manufacturing pharmaceuticals from active agents, registration, sales and distribution in China of DP-b99, D-Pharm's lead product for treating strokes. In return Wanbang will finance D-Pharm's Phase III trial in China and in addition will pay milestone payments of up to $25.5 million with the first payment due in the coming days. If and when the product is marketed in China, D-Pharm will be eligible for significant royalty payments on sales of the product. The Phase III trial, which will include 450 patients, will be supervised by the US Food and Drug Administration (FDA). D-Pharm will be able to use the results as part of its multi-center FDA trial - the final trial required by the FDA before marketing approval is considered. D-Pharm's main shareholders are Clal Biotechnology Industries Ltd. (TASE: CBI) (46.5%), Care Capital (8.4%), Israel Health Care Ventures (7.45%), and Pitango (7.45%). D-Pharm's shares have a market cap of NIS 590 million, compared with NIS 120 million before money three months ago during its IPO. Israeli scientists look to 'smell therapy' to treat trauma The aroma of Grandmother's fresh-baked cookies etch themselves into the brain's emotional memory, but so does a whiff of rotten fish, Israeli scientists said in a finding that might help in treating trauma patients. They said bad smells make the biggest first impression - which is likely an evolutionary defense mechanism - but early pleasant scents also make an imprint on the brain. "We found that the first pairing or association between an object and a smell had a distinct signature in the brain," even in adults, Yaara Yeshurun of the Weizmann Institute of Science in Israel, whose study appears in the journal Current Biology, said. "This 'etching' of initial odor memories in the brain was equal for good and bad smells, yet was unique to odor." To test smell-related memories, the researchers presented a group of volunteers with a set of objects, and then associated each with a smell and a sound. Some of the smells and sounds were pleasant, such as a pear or a guitar, and others were unpleasant, such as a dead fish or the screech of a power drill. A week later, they asked people to recall the objects and found people tended to remember the unpleasant associations best, whether they were smells or sounds. Next, they did similar experiments while people's brains were being scanned using functional magnetic resonance imaging or fMRI. In these experiments, they noticed that a part of the hippocampus and amygdala lit up when smells were first associated with a new object, but not sounds. Much more study is needed, but they said the findings could lead to better ways to help improve memories, or even offer better ways to help erase early, traumatic memories.

Reprinted from the Israel High-Tech & Investment Report December 2009

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