Expert: Medical devices hugely profitable ‘dark horse’ of Israeli high-tech

While Israeli technology successes in networking, security, and software applications garner the most attention in the local and international press, the medical device industry is sort of a “dark horse,” said one expert, D. Todd Dollinger, chairman and CEO of the Trendlines Group. That industry attracts less attention in the media, Dollinger said, but even so, it’s a very successful and profitable dark horse.

Trendlines is an investment group based in northern Israel that runs the Misgav Venture Accelerator, which concentrates on developing medical device, pharma, and biotech start-ups, and as head of Trendlines, Dollinger has worked with dozens of Israeli medical device start-ups. “Medical devices are among the most important of Israeli high-tech products, as far as the rest of the world is concerned,” Dollinger told The Times of Israel. “Major players in the field are literally rushing to get involved in the Israeli market, and those that have not done so yet are busy formulating their ‘Israel strategy,’ seeking ways to partner with Israeli makers of medical devices.”

The news for Israeli medical device makers is indeed good; over just the past week, there were three major events and announcements involving Israeli companies and multinationals. GE Healthcare, which has been working for years in Israel developing devices with local entrepreneurs, announced that it was opening, together with processor giant Intel, an evaluation lab in northern Israel which will optimize integration of GE Healthcare products with Intel processors. Many of the products that will be optimized were developed in Israel by GE Healthcare, in partnership with Israeli start-ups. Sony, the consumer electronics behemoth, announced that it, too, was looking to buy Israeli medical device start-ups, and had allocated a budget of hundreds of millions of dollars to acquire them.

And, in a huge deal, US-based medical device giant Covidien is spending $300 million to acquire superDimension, which makes a system that enables doctors to diagnose and treat lesions in the lung and lymph nodes using minimally invasive surgical techniques.

“I remember once reading an article in Medical Device Daily, the bible of the industry, that claimed that more than half of medical devices on the market had their origins in Israeli technology,” said Dollinger. “At first I didn’t believe it, but after discussing it with my partner Steve Rhodes and doing an in-depth analysis, we realized they were probably right.”

How did Israel become such an important world center for medical devices? Besides the “Start-Up Nation”-style entrepreneurial spirit, said Dollinger, there were two other factors: The many Israelis and immigrants involved in the medical profession, and the country’s expertise in imaging systems developed for military purposes. “Israel is an acknowledged world leader in imaging, which is used for so many purposes, from satellite technology to security. But it is also the basis of many medical devices, which use various imaging techniques to diagnose and treat patients without the need for surgery.” Many Israeli medical professionals have spent time abroad and have a keen sense of the needs of the market, so when they get home they seek out technology experts who can help them develop the products they’ve envisioned. The result? “Israel has everything needed to create a ‘perfect storm’ of creativity in the medical device area.”

Next week, Dollinger will be leading 14 Israeli start-ups — most of them medical device and pharma start-ups — on Trendlines’ annual US “Road Show” investor event. The companies will be traveling to five cities (Chicago, Atlanta, Houston, Baltimore, and New York) in as many days, with companies presenting their products and technology to pre-qualified investors in just eight minutes. The investors get an initial introduction to the company and the technology, and afterwards meet with the start-ups that they are interested in following up with. “Like in any area, there are better medical device ideas and technologies, and worse ones,” said Dollinger. “We perform the due diligence on the companies we represent to ensure that they are the best bets for investors, so they have a better chance of investing in a winning idea.” In the five or so years Dollinger has been taking companies to the States, he has had several successes – including one surgical tool company that netted a return of 40 times for Trendlines investors on their original investments, he said.

While the US is still the largest market for Israeli medical devices, that could be changing because of regulatory problems in the US, said Dollinger. “The FDA’s rules are very unclear, and in my opinion they are going beyond their purview.” Instead of investigating devices to ensure that they are safe, the FDA also requires “proof of efficacy” — how effective a device is, which Dollinger said is “very much open to interpretation. As a result, more and more Israeli companies are introducing their products in Europe first, where the authorities are much more straightforward in their requirements. The EU’s equivalent to FDA approval, the CE label, is awarded on the basis of safety, which makes much more sense. If a product is ineffective, the market will winnow it out, so the FDA’s requirement for proof of efficacy is unnecessary, it seems to me.”

But while the FDA requirements are bad news for American health care, said Dollinger, they actually work in Israel’s favor. “Israeli companies have a reputation for being very flexible, and for being able to bring products to market cheaper and faster. The regulatory issues are the same for everyone, but Israeli companies can make the necessary adjustments much more efficiently — meaning that even in the difficult regulatory environment, Israeli start-ups still have a leg up on the competition.”