Israel must undertake a four-pronged strategic approach if the so-called Startup Nation wants to retain its technological edge, according to the new 2018 annual report by the Israel Innovation Authority, in charge of setting out the nation’s policies for the tech sector.

The “four pillars” Israel should focus on, Israel Innovation Authority CEO Aharon Aharon outlined in a phone interview with the release of the report, are: artificial intelligence (AI); personalized medicine; bringing Israel’s tech prowess to the nation’s geographic periphery, and making sure all the nation’s communities and genders are included in the tech boom.

In 2018 Israel’s tech ecosystem grew, with total annual capital raised coming in at $6 billion, compared to $5.3 billion in 2017, according to IVC Research Center and attorneys ZAG-S&W’s 2018 Israel Tech Funding Report. Most of the increase in capital raising in recent years is attributed to startup companies in the growth stages.

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“The year was another good year for Israeli high tech,” Aharon said. But what he wanted to talk about, and what the report focused on, was how Israel can break out of the boundaries that constrain its tech ecosystem.

Artificial intelligence

The nation is “falling behind in the race for AI-based technological dominance,” the Israel Innovation Authority warned, and urgently requires the allocation of appropriate resources and tools. The authority called on the government, academia and industry to join forces to set up a national strategy for AI (see link to separate story).

Artificial intelligence is the field that gives computers the ability to learn.

Personalized medicine

Innovations in biology and genetics and developments in artificial intelligence and big data are together changing the process of drug development through the growing field of personalized medicine.

This field, in which drugs can be tailor-made to suit the specific needs of patients, is blurring the lines between the classic biopharma industry and the AI and IT industry, creating an opportunity that Israel can capitalize on, Aharon said.

The chances of Israel becoming a power in biotech “has never been as big,” he said. “We have a once-in-a-lifetime opportunity…to take control of this field and develop an added ecosystem” that has the potential to become as big as the current information communication technologies ecosystem.

“Over the years, Israel’s biopharma industry has not been meeting its extraordinary scientific potential,” the Innovation Authority’s 2018 report lamented. “Most drugs discovered in Israel have been developed overseas by foreign companies” with the exception of Copaxone, the multiple sclerosis drug developed by Israel’s Teva Pharmaceutical Industries Ltd.

This has caused the economy to lose “lucrative business and high-quality jobs” over the years. Indeed, Kite Pharma’s massive exit in 2017, valued at some $12 billion, is a case in point. The US firm’s products are based on scientific developments at the Weizmann Institute, and the company was founded by a former Israeli; however, its operations are located solely in the US.

Also, while a number of Israeli biopharma startups in the past couple of decades have reached advanced development phases, “most have yet to achieve considerable sales,” the report said.

Israel’s biopharma industry currently comprises some 200 companies, according to IVC Research Center data, which tracks the industry, and investments in the field have seen a significant increase in recent years.

The industry benefits from the nation’s scientific prominence, especially in cancer research, immunology, and the research of degenerative diseases. These fields are at the moment “a focal point for the development of personalized medical therapies,” the report said.

Indeed, developments that have emerged from Israeli academia are responsible for eight innovative drugs that were sold for a total of roughly $40 billion, as of 2014 figures, the report said.

But the country has not managed to transform its academic achievements and scientific developments into a thriving industry, Aharon said, with most of its IP getting snapped up and commercialized by foreign firms. To capitalize on its advantages, Israel must identify and remove the obstacles that are impeding the success of its biopharma companies, he said.

By means of financial and tax incentives, the authority is seeking to lure foreign experts and foreign corporations who will help commercialize local discoveries, he said, and will be launching a plan to do so within six months, he said.

“We want to grow an industry in Israel and leverage players into the game to promote this industry,” he said.

Innovation in traditional industries

To translate high tech success into financial growth it is not sufficient to develop innovative technologies, the report said. It needs to be implemented in all sectors of the economy and in all areas of life.

“We have wonderful innovation, but in our daily experiences there is a big gap between this innovation and the reality in which we live,” said Aharon.

Significant sectors in Israel, such as transportation, commerce, construction, education, and public services, still lag behind other Western countries and are still in the previous generation, said Aharon. “So how do we inject innovation in all of the other things we witness every day?”

“We believe that increasing the penetration of advanced technologies into day-to-day life in Israel is critical for economic prosperity and for improved quality of life,” the report said. “If Israeli innovation doesn’t break through the confines of the high-tech industry, this innovation will only be accessible to small, distinct segments of the population.”

“To this end, Israel must progress from a startup nation to a smartup nation – a smart and technological economy that excels both in developing innovative technologies and in implementing them in all aspects of life.”

To do this, the government should encourage collaborations between high-tech companies and organizations in the business and public sectors — by enabling the tech companies to try out their technologies within these organizations. The move “would benefit both sides: local organizations would be exposed to innovative technologies and would assimilate such technologies,” while high-tech companies would be able to refine their technology while it is being used, the report said.

In 2018 the Innovation Authority launched a track to provide funding and regulatory support to technology pilots conducted primarily at Israeli sites.

Making the periphery more central

More than 60 percent of all high tech jobs in Israel are located in Tel Aviv and the central region of the country and some 77% of companies operate in these areas, in a trend that has intensified in recent years.

Thus, the Innovation Authority has set out a strategy to create “an innovation-inclined economy in the periphery areas” that can be “beneficial, both for the local economy in the periphery and the innovation system as a whole.”

The program envisages providing increased grants and perks to companies operating in these geographic areas, mainly in the north and south of the country; encouraging local entrepreneurship through incubators; and creating connections between human capital in the periphery and leading high-tech companies.

The authority is also seeking to boost the tech ecosystems of large cities like Haifa, Jerusalem and Beersheba, all of which have universities and research hospitals, entrepreneurs and R&D centers of large multinational corporations, “yet their full potential has not been realized.”

To help these cities develop their own high-tech ecosystem so they can become employment centers for the peripheral areas, the Innovation Authority is setting up programs to promote technological entrepreneurship; bolster cooperation between players from academia, army technology units and industry; and develop a suitable R&D infrastructure in collaboration with the three municipalities, the report said.