Israeli life sciences firms’ capital-raising slows 40% in first half of 2023

Local life sciences companies turn to US stock markets for funding; private foreign investors’ activity more than halves, data by Israel Advanced Technology Industries (IATI) shows

Sharon Wrobel is a tech reporter for The Times of Israel.

Illustrative. Digital health technology. (chombosan; iStock by Getty Images)
Illustrative. Digital health technology. (chombosan; iStock by Getty Images)

As the funds pouring into Israeli tech firms slowed down rapidly amid rising interest rates, high company valuations and heightened local political uncertainty, investment in local life sciences and health tech-focused startups slumped about 40 percent in the first six months of year, according to a report by the Israel Advanced Technology Industries (IATI), an umbrella organization of high-tech firms operating in Israel.

In the first half of this year, Israeli life sciences firms raised $1.4 billion compared with $2.4 billion during the same period last year and $3.4 billion during 2022, the data showed. The number of deals dropped 47% to 83 from 158 in first half of 2022.

The life sciences and health tech industry is generally divided into four major subsectors – digital health, medical devices, biotechnology and pharmaceutical therapeutics.

The large drop in fundraising, and decreased activity of venture capital and other investors, are all a result of global and local factors such as increased inflation, interest rates, and uncertainty in the markets, it was noted in the report. The share of capital raised by foreign investors in the first half of the year amounted to about $700 million, an almost 60% drop versus the $1.6 billion raised during the same period last year. The share of funds raised by Israeli investors increased to 25%, compared to 22% during the first half of last year.

In an already challenging macroeconomic environment with tech executives in Israel and abroad bracing for a slowdown in revenue growth this year, local health tech leaders earlier this year warned about the dangers the government’s proposed changes to weaken the judicial system could pose on the industry. The main concern among many tech founders and entrepreneurs is that the judicial overhaul will erode democracy and weaken checks and balances, which in turn will make venture capitalists and other money makers leery of investing their money in the country.

“The first half of 2023 continued the trend we saw in 2022, and especially at the end of it,” said Omer Gavish, Partner in the Pharmaceuticals & Life Sciences division at PwC Israel, who led the writing of the report. “The decrease in investment activity in life science companies in Israel is not materially different from the global trend, and was influenced by global and local factors.”

Illustrative. A doctor with digital icons. (chaiyapruek2520, iStock by Getty Images)

Meanwhile, average funding per deal amounted to $17.2 million, an increase of 15% compared to the first six months of 2022, and the highest figure in the past five years, according to the report.

In the first half of the year, Israeli life science companies increasingly turned to US stock markets to raise capital. Local life sciences firms raised about $500 million through 12 public offerings on US stock markets, mostly on Nasdaq, compared with about $100 million via seven offerings during the same period in 2022. The amount is 150% higher than the total raised on US stock markets during the full year of 2022.

“Israeli companies have taken advantage of the increase in activity on stock exchanges in the US to carry out mainly follow-on offerings, in more significant volumes than the previous year,” Gavish said.

Sector by sector analysis showed that in the first half of 2023, funds raised by biotechnology and digital health firms plunged by more than 75% compared to the same period last year. Against this, funding in medical device companies, which accounted for 45% of total private funding raised during the first six months, increased by more than 50% compared to the first half of 2022.

The Israeli high-tech sector, including life sciences firms, is dependent on foreign investment, skilled personnel, and top academic talent.

“We work to improve the taxation and regulatory policy to improve business certainty and create a comfortable business environment for venture capital and investment funds, institutional investors, and private investors,” said IATI CEO Karin Mayer Rubinstein. “The last year had a great impact on investors, entrepreneurs, and employees in the entire high-tech industry, including the Israeli life sciences industry, which is extremely important to the continued development of the Israeli economy and society.”

“We will do everything in our power to ensure that this invaluable industry in Israel grows,” Rubinstein added.

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