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Michael J. Kuchenreuther, PhD, is a research analyst at Numerof& Associates, Inc., St. Louis, MO, www.nai-consulting.com.
Jill E. Sackman, PhD, is a senior consultant at Numerof & Associates, Inc. (NAI), St. Louis, MO, www.nai-consulting.com.
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.
Israel has become an increasingly significant location for international companies conducting multinational pharmaceutical clinical trials. One important factor has been the fact that the entire Israeli population belongs to one of four health funds, which maintain a full history of each member’s health. The system facilitates locating patients and allows for good follow-up over time. Israel also has the type of population frequently required for multinational studies, offering more ethnic diversity than many other countries. In addition, Israel was one of the first countries to accept the International Conference on Harmonization (ICH) guidelines for good clinical practice (GCP), allowing for unified standards between the European Union, Japan, and the US, facilitating mutual acceptance of clinical trial data by regulatory authorities.
Other healthcare access considerations include pharmacovigilance (PV) and inclusion in the “health basket.” The need for improved PV in Israel has been underscored in recent years by several high-profile cases in which pharmaceutical products have reached Israeli consumers with adverse side effects caused by formulation changes. In response to these developments, a branch of the International Society of Pharmacovigilance (ISoP) is being founded in Israel with the goal of increasing awareness about PV throughout the region. Furthermore, the Israeli Ministry of Health recently mandated that all prescription products must have multilingual labels in Hebrew, English, Arabic, and Russian.
Historically, the high price of drugs has not been part of the public debate in Israel, and the government has rarely used price controls as is the case in other countries. However, recent economic stress in the form of rising military and defense costs coupled with a slowdown in the global economy has led the government to search for budgets to cut and taxes to raise. As such, the Israeli Ministry of Health is now placing new and existing products under greater scrutiny to limit spending. For instance, only 77 new medications and medical devices were added to the basket of reimbursed products in 2012. This number was significantly lower than the approximate 200 new drugs and technologies that were included in each of the previous two years (8). Inclusion of drugs and technologies in the National Health Basket is crucial for organizations seeking marketing success in Israel. Here, manufacturers will require data on clinical, epidemiological, and economic characteristics, including its predicted impact on the available budget.
Successful market entry and in-region partnering
Israel is home to one of the world’s largest generic-drug makers, Teva Pharmaceuticals, yet despite its presence, the Israeli pharmaceutical market remains in favor of patented medicines. In 2010, it was reported that patented drugs accounted for more than 50% of all pharmaceutical sales in the country and approximately 70% of the prescription drug market (9). Moreover, according to Benny Zeevi, co-chairman of the Israel Advanced Technology Industries (IATI), Israel’s flourishing biotechnology industry is transitioning from a period of incubation to one of maturity. The number of biotech companies has nearly tripled since 2003, and the number of registered clinical trials is continuing to rise (10).
The government recently established a new biotech incubator that joins more than 20 other incubators or accelerators to help attract large, international pharmaceutical companies to Israel. Although some large pharmaceutical companies may be turned off by Israel’s moderate population size or by the perception of a volatile political environment, other large global organizations recognize the market opportunities that exist in this country. In 2009, Pfizer partnered with Protalix Biotherapeutics and together developed the first approved plant-based biologic for treating type 1 Gaucher’s disease (11). In 2011, Merck KGaA’s subsidiary Merck Serono invested US$13 million in a new drug development incubator with the goal of having at least six startups working on new medications or technologies by 2018.
Israel’s dynamic venture capital market has delivered a stream of substantial investments in R&D. With increasing awareness of chronic diseases and a highly skilled workforce, Israel’s pharmaceutical and diagnostic markets are expected to grow even stronger. Taken together, Israel seems like a great place to turn to for future investment opportunities.
Moving forward in Israel
Israel has a long history of biotechnology innovation and growth and with an educated and diverse population, high-quality healthcare system, and resilience to global financial stress it remains a strong partner for R&D, clinical research and market growth. Additionally, Israel is a popular destination for medical tourism. As of 2010, up to 30,000 foreigners come to Israel every year for treatment, mostly from Russia (12). Israel, like the US, is also a frequent “first adopter” of new technology and medical innovation. Manufacturers, however, need to be aware that the Israeli government’s fiscal austerity and sick funds traditionally have kept the most expensive branded drugs and treatments unavailable. Cheaper generics and low physician and healthcare provider salaries have been used to control overall costs.
1. “Israel ranks 4th globally in health care efficiency,” Times of Israel (August 2013).
2. OECD Health Data (2013).
3. OECD Reviews of Health Care Quality: Israel (2012).
4. The World Bank, Research and development expenditure (% of GDP) (2013).
5. M. Scudellari, The Scientist (July 2013).
6. Meidata, Israel Medical Devices Industry-Market Overview 2012.
7. Global Data, Research and Markets: Healthcare, Regulatory and Reimbursement Landscape--Israel (2012).
8. Scripp Business Insights, The Pharmaceutical Market in Israel (2012).
9. Industry Trend Analysis, Investment In Innovation Necessary (2010).
10. N. Elis, The Jerusalem Post (April 25, 2013).
11. J. Fox, Nature Biotechnology (June 2012).
12. “Health Ministry to probe Israel medical tourism industry following Haaretz exposé,” haaretz.com (November 2010).
—Jill E. Sackman, D.V.M., PhD, is a senior consultant and Michael Kuchenreuther, PhD, is a research analyst, both at Numerof & Associates, Inc.