Israel's biotechnology sector is hurting badly as investment sinks, according to industry sources. Some 15 companies have collapsed in the last year and the same number may be doomed unless investment picks up again.

Investment in Israeli biotech companies fell by 50% in the first half of 2002 compared with the same period of last year, according to Yoram Wilamowski, the partner at Kost Forer & Gabbay (Ernst and Young Israel) who runs the biotech desk.

Biotech firms raised between $50 million to $60 million, compared to $120-$140 million the same time last year, Wilamowski said.

The difficulties caused about 15 companies to shut down over the last year. Barring an upswing, another 10 to 15 companies may collapse by year-end, Wilamowski said.

Tumbling stock markets induced companies to seek more venture support in 2001. This year has been marked by mezzanine financing from existing investors, as opposed to new funds for new companies, Wilamowski noted.

The biggest rounds of investment in Israel in the first half of 2002 included:

• Yedud-based

VisionCare Opthalmic Technologies

, which develops ophthalmic implantable products and raised $17 million;

•

Proneuron Biotechnologies

, which develops therapies for neurological, ophthalmologic and immune-related disorders such as spinal cord injuries, multiple sclerosis, glaucoma, Parkinson's disease and Alzheimer's disease and which raised $10 million from

Teva Pharmaceuticals

(Nasdaq, TASE:TEVA);

• and Ashdod-based

Glycodata

, which raised $14 million. It has developed a multidisciplinary integrated platform combining biology, chemistry, bioinformatics and chip-based technologies to analyze and separate glycomolecules, ultimately for the drug industry. Its investors include Healthcare Technologies, Koor Corporate Venture Capital and Discount Capital Markets and Investments.

Meanwhile, the trend of launching startups outside Israel continued this year, Wilamowski said. In the past the grounds for doing so were tax evasion, but now the main reason is to facilitate fund-raising, based on the assumption that American-based companies will find it easier to secure investments.

"Within three or four years, most of the activity in biotech will have left the country," Wilamowski warns.

Companies will keep their research and development facilities in Israel, while other key operations such as capital raising, alliances and other activities that provide most of jobs and generate most of the turnover will be taken abroad.

Ernst & Young has recently published its biotech review for 2001, covering 622 public corporations and 3,662 private ones. The revenues of the publicly traded corporations totaled $35 billion, with a payroll of 190,000. Fifty-five percent of the public corporations in the field are in the U.S. and 17% are in Europe.

Thirty percent of the private companies are American and 48% are European. About two thirds of the market in the industry is in the U.S., which also employs two thirds of the workers in the business. Israel is eighth in terms of the number of companies.