ARTICLE SUMMARY:
Israel has built a global reputation for medical device innovation, which has fueled growth at some of the world’s largest, most successful companies. The weeks-old war with Hamas has slowed financing, deals, and progress, but start-ups are compensating.
Pictured above: Pathologist Abderrahman Najjar, MD, speaking at the recent Machine Learning for Medical Imaging meeting in Tel Aviv.
Israel’s famously entrepreneurial culture has for years exerted an influence on medical device innovation that is disproportionate to its small size. Just witness the long list of successful start-ups in the industry emerging from this narrow strip of land over the past two decades or so. Recent examples abound: Augmedics (augmented reality for spine surgery), Aidoc (artificial intelligence to optimize healthcare systems operating systems), and Premia Spine (motion-preserving implant for lumbar spine surgery), all of which are independent and going strong. Then there’s the wealth of acquisitions that big companies have used to jump-start huge businesses: Given Imaging (Covidien, now Medtronic, acquired it in 2014 for $860 million); Mazor Robotics (Medtronic acquired it in 2018 for about $1.64 billion), and Corindus Vascular Robotics (Siemens acquired it in 2021 for $1.1 billion), and the list goes on.
It is not hard to encounter tangible evidence of an entrepreneurial culture for device innovation when in Israel. An informal after-work meetup of digital pathology entrepreneurs one summer evening this year, held on the balcony of Nvidia’s enormous glass skyscraper in downtown Tel Aviv, underscored Israelis’ enthusiasm for that field’s rapid advances. About 50 people listened to speakers, who included, among others: the co-founder and co-CEO of DeePathology.ai, Chen Sagiv, PhD, Abderrahman Najjar, MD, a medical advisor to DeePathology.ai, Liron Friend Saadon, director, industry relations, Nvidia, and Alexander Sicular, head of digital pathology, Google Cloud Healthcare and Life Sciences, on a visit from his base in the US.
A few weeks before that meeting, Sheba Medical Center held what is now its annual ARC Summit, an ambitious gathering of about 1,000 executives from multinational companies, investors, global healthcare systems, and start-ups to discuss the disruptive potential of high-tech solutions to intractable cost, quality, and clinical care problems. (See “How Data Is Driving Systemic Innovation and Collaboration at Sheba Medical Center,” MedTech Strategist, September 2022.) Sheba is making enormous efforts to expand ARC’s global reach, and in May it signed an agreement with Mayo Clinic to form Mayo Clinic Platform Connect, a first-of-its-kind global data-sharing network that will provide access to de-identified clinical data across three continents.
That said, the medtech investment sector in Israel is still risky. Even before the current war between Israel and Hamas, investment in it had been on a long-term decline due to growing interest in alternatives such as fintech, software, and cybertech, according to the Israel Innovation Authority (IIA). During the first half of this year, however, although other Israeli life sciences subsectors fell due to the global downturn in biotech investing and uncertainty about the tense Israeli political situation, private financing of medical device start-ups increased year over year by more than 50%, to $432 million from $283 million, according to a report published in late September, a week or so before the massacre, by the Israel Advanced Technology Industries (IATI), an umbrella organization of high-tech firms. That study found that in the first half of 2023, Israeli life sciences firms raised $1.4 billion, compared with $2.4 billion during the same period in 2022, and the number of deals dropped 47% to 83, from 158 in the first half of 2022.
Any good news, of course, has come to a stop. The war’s main impact so far on medical device innovation has been to delay progress, as international meetings, fundraising, and decision-making slow down, says an executive at a multinational device company. “Very few people here are two degrees or more away from this tragedy and its follow-on conflict,” he continues, but he does not foresee major multinational companies pulling out of the country. “Many large companies are well entrenched in Israel and see significant promise here, so they are unlikely to reduce their exposure. There's so much positive sentiment within the global ecosystem, as relationships with industry and clinicians are deep-set.”
For the seven-year-old MEDX Xelerator, one of a few early-stage medical device incubators, the challenge has been not to grind entirely to a halt. (See “MEDX Xelerator’s Strategy for Seeding Device Companies: Intensive Collaboration,” MedTech Strategist, September 2022.)
“The whole world changed on October 7,” says Shai Policker, the incubator’s CEO, who on that day was visiting the US with the goal of strengthening MEDX’s network, when Hamas stormed Israeli neighborhoods, massacring 1,400 civilians and taking hostages. “Everyone was in shock, but we had to keep things moving. Keeping our operations going and building medical innovation is our way to battle the destruction and hate imposed on us.”
Its backers include Boston Scientific, which owns approximately a third of the incubator and has the right to invest early in the accelerator’s companies, something it has done for most of the portfolio ventures. Along with Medtronic, it has been among the most active device companies to tap into the region’s burgeoning device innovation ecosystem in recent years. Prior to 2016, Boston Scientific had two employees in Israel, but as of 2023, in addition to its involvement with MEDX and other venture investments, the parent company has two businesses operating in northern Israel, employing more than 300 people. That expansion is the result of two acquisitions: the 2021 purchase of Lumenis, a maker of surgical laser systems, fibers, and accessories for urology and otolaryngology procedures for $1.07 billion, or roughly five times 2021 sales, and the 2019 acquisition for roughly $4.2 billion of the UK company BTG, which had previously bought Israel-based Galil Medical, a maker of cryoablation devices for kidney and other cancers.
Other backers of MEDX are the UK investment firm Consensus Business Group (CBG); as well as MEDX Partners, the venture firm that started the incubator; Sheba Medical Center at Tel Hashomer; and Intellectual Ventures, a US firm that collects and sells or licenses technology patents. Sheba provides access to clinical data and MEDX Partners and Consensus provide funds.
The incubator is distinguished by a strong global network and a strong emphasis on large industry players and hospitals providing specific opportunities around which the MEDX’s team and its networks can build and fund technological solutions with its entrepreneurs in residence. A much smaller percentage of opportunities that it accepts comes from pitches by entrepreneurs.
Along those lines, only a few weeks before the massacre, Policker had signed a “venture creation” partnership agreement with Weill Cornell Medicine in New York City aimed at combining MEDX expertise in product development and company formation with WCM’s world-class faculty and facilities.He had also been meeting with investors to urge them to participate in a new $60 million Edge Medical Ventures fund, the MEDX team’s next fund, which would support the accelerator’s expansion beyond pre-seed and early-seed companies to those further along, as well as global partnerships, like the one with WCM. A first tranche aimed at raising $15 million to $20 million is slated to close by year-end.
Progress Slows, But MEDX Team Steps In
Because the MEDX Xelerator portfolio consists of such early-stage companies—currently it has 14 pre-seed and seed-stage start-ups in its remit—the founders and their teams tend to fall within the mandatory draft age, which is between 18 and 45, Policker says. As a result, more than 20% of portfolio employees, including two CEOs, were drafted immediately when war broke out, and beyond that everyone involved with MEDX is personally affected by the war, as is true for most of Israel.
The 10-person incubator staff is older, above the draft limit, and therefore is stepping in and taking on specific responsibilities inside the portfolio companies to fill in gaps left by draftees, he says. While Israel prior to the attack was wracked by political tensions related to the current government’s proposed judicial reforms, the nation is now coalescing and organizing, including by the assumption of responsibilities to keep organizations like MEDX on track, Policker says
Contingency Planning
Some of the MEDX companies have been more affected than others, says Policker, whose priority is to ensure that the existing portfolio continues to advance with minimal setbacks. This means less time for new investments. Term sheets for new companies that were already under review, however, will continue to be vetted.
PatenSee, for example, founded in 2019, is developing a contactless monitoring system for detecting asymptomatic vascular stenosis in hemodialysis patients. It has postponed moving the device into clinical pilot trials because dialysis centers in Israel are in emergency mode and can’t start new trials. As a result, the company will move those clinical trials to the US, causing a delay of several months.
Erez Shor, PhD, the CEO of Exero Medical, a five-year-old portfolio company, has been drafted, leaving the MEDX team to step in and support the company’s Series A financing, which is underway, as well as the planning of a multicenter clinical trial in the US. (See “Exero Medical: Detecting Surgical Complications Before They Turn Lethal,” MedTech Strategist, July 2023.) Shor has been able to come into the office a few times in between periods of service and connects with his team and the incubator as often as possible, sometimes in unusual situations from the field, says Policker. The company provides proprietary implantable sensors aimed at early detection of anastomotic leakage following gastrointestinal surgery, a potentially life-threatening condition.
In normal times, Policker says, MEDX typically commits to between two and four new companies a year, and it has made several investments within the past year, all focusing on unmet needs presented by its strategic partners. The newest portfolio companies have been impacted less by the war in part because they are so small, with less demand for resources. Two portfolio companies, NovaPulse (vascular) and Trilio-Medical (a transcatheter implant for tricuspid valve repair), are roughly a year old and in the R&D phase. They are well funded, so the war’s impact on them has been minimal, Policker states.
One of the newest companies, Pylon Medical, founded in January to develop a percutaneous transcarotid stenting device, is moving forward with minimal impact, as its founding team is not on reservist duty. It has brought in entrepreneurs who are undertaking ideation and developed the new IP, which the company now owns. All the incubator partners and the IIA invested in the $1.2 million seed round.
MEDX also is moving forward with its few-months-old innovation center, which has a staff of four, in the Arab city of Sakhnin, north of Tel Aviv. That initiative, backed by a five-year, $7 million dedicated budget, facilitates innovation by the area’s healthcare systems and physicians. In August, SwiftDuct became the first company to emerge from this collaboration, with an innovative device for bile duct access that is safe and effective.
Typically, the MEDX team and its advisors select a few of six to eight ideas for unsolved clinical needs brought to it by its strategic partners. The team makes choices based on whether it can realistically solve the problem and that the solution has “a good product-market fit,” explains Policker. Lack of the latter—for example, if the solution does not have a clear long-lasting competitive edge or strong patents—not technology hurdles, is the major reason for rejection. This is a particular barrier for AI-driven innovation because protecting the intellectual property of AI algorithms is difficult unless the company owns the data source itself through a proprietary sensor, as is the case with Exero and PatenSee, he notes.
