#MIGlobal Market failure *Includes $21B/yr from NIH academic grants (2011) and $1.3B/yr from medical research foundations (2009). **Includes $584M/yr from NIH SBIR (2011), $400M/yr from angel investors (2011), and $6B from VCs (2011). Source: ‡ SOURCE: S.M. Paul, et al., Nature Review Drug Discovery (2010) 9:203 SOURCES: RESEARCH!AMERICA, NATIONAL INSTITUTES OF HEALTH, CB INSIGHTS, NATIONAL VENTURE CAPITAL ASSOCIATION, CENTER FOR VENTURE RESEARCH. . Preclinical Submission To Launch Lead Optimization Target-to -hit Clinical I II III Hit-to-Lead Translation Gap – the “Valley of Death” Cost/ Launch ‡ $1MM $32.5MM $230MM Annual Funding $22-23B* $7-8B ** $125B 24.3 1.1
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#MIGlobal
Market failure
*Includes $21B/yr from NIH academic grants (2011) and $1.3B/yr from medical research foundations (2009). **Includes $584M/yr from NIH SBIR (2011), $400M/yr from angel investors (2011), and $6B from VCs (2011).
Source: ‡ SOURCE: S.M. Paul, et al., Nature Review Drug Discovery (2010) 9:203
SOURCES: RESEARCH!AMERICA, NATIONAL INSTITUTES OF HEALTH, CB INSIGHTS, NATIONAL VENTURE CAPITAL ASSOCIATION, CENTER FOR VENTURE RESEARCH. .
PreclinicalSubmissionTo Launch
LeadOptimization
Target-to-hit
Clinical
I II III
Hit-to-Lead
Translation Gap – the “Valley of Death”
Cost/Launch
‡ $1MM $32.5MM $230MM
AnnualFunding
$22-23B* $7-8B ** $125B
24.3 1.1
#MIGlobal
Two-pronged approach
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A portfolio of ‘Orphan’ drugs could generate attractive financial returns
Source: Fagnan, et al., Sci. Transl. Med. 7, 276ps3 (2015).
Simulation Results of NCATS Orphan
Drug Portfolio
All equity
(similar equity)RBO
RBO with guarantee
(no mezzanine)
Number of compounds
Preclinical or IND-enabling 9 16 16
Liabilities
Capital ($ millions) 230 420 420
Senior tranche ($ millions) — 105 189
Junior tranche ($ millions) — 84 —
Equity tranche ($ millions) 230 231 231
Guarantee ($ millions) — — 100
Equity tranche performance
Equity tranche performance 3.25 5.14 5.32
Average IRR 26.7% N/A N/A
Average MIRR (0% financing) 18.3% 21.6% 22.7%
Average annualized ROE 11.6% 14.7% 15.4%
Probability (return on equity > 25%) 2.2% 10.4% 11.0%
Debt tranches performance
Senior tranche: default prob., expected loss (bp) — 0.1, <0.1 <0.1, <0.1
Junior tranche: default prob., expected loss (bp) — 50, 15 —
Guarantee performance
Prob. (cost of guarantee >0) — — 0.3%
Expected cost, 2% discount ($) — — 65,000
No-arbitrage cost of guarantee ($) — — 110,000
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Investing in Translational Medicine: Asset class
Imperfect knowledge of human biology
Probability
Distribution
Standard
Deviation
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Israel’s Advantage
Israel’s Defense Expenditure Is 3-4x Higher In GDP Terms Than That Of Other Western Countries
Source: The Israeli economy: Opportunities and challenges. Psagot, November 2014
Defense Expenditure As A % Of GDP
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Pillars of National Advantage
Source: . Porter, M.E. (1990) "The Competitive Advantage of Nations", Free Press, New York.
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Policies
• Encouraging High Risk R&D
• The Israel-US Binational Industrial Research & Development (BIRD) Foundation
• The Technological Incubators Program
• The Yozma Program
• The Magnet Program
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Israel-US Traditional Division of Labor
Source: Drucker PF. 1954. The Practice of Management. p. 32.
MarketingR&D
THE TWO ENTREPRENEURIAL FUNCTIONS
“Because it is its purpose to create a customer, any business enterprise has two – and only these two – basic functions: marketing and innovation.
They are the entrepreneurial functions.”
#MIGlobal
The Way ForwardGrowth in Capabilities & Geography
• From R&D Specialization To Complete Value Chain
“The 18 IPOs totaling $9.8 billion this year (compared to just $1.2 billion in 2013) show even to the most skeptic that Israelis want and can build large multi-nationals” (the PwC Israel 2014 High-Tech Exit Report).
• From Start-Up City To True Start-Up Nation!
Source::/www.tel-aviv.gov.il/TheCity/Documents/Tel%20Aviv%20Startup%20City%20Work%20Plan%202013-2014.pdf/
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The growth needs
Source: .
InnovationStartUpRevenuesGrowth
What’s Next?
In Israel: only 20% of investments
in Late-stage*
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Small industrial sector
Israel
Britain AustraliaFrance Belgium ItalyGermanyEU Avg.Greece Denmark Ireland
AustriaFinland EstoniaSwedenPortugal Iceland S. Africa
SloveniaSpain Turkey
ChileS. KoreaMexicoCzech Rep.
SlovakiaPolandJapan Russia
0
10
20
30
40
5 10 15 20 25 30 35
Added value of financial, real estate & service sectors vs. industry In Israel & OECD countries, 2012
Share of industry in economy
Emerging Economies
Developed Economies
Stagnating Economies
Israel’s industrial sector fell from 24% in 1990s to 20% a decade ago to 15% today
Share of financial, real
estate & service
sectors in economy
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Did they pick the right path?
M&A deals by deal size (2005-2014)
Deal Amount -$mNumber of dealsDeal size Range Below $10m
, $10m-$50m
, $50m-$100m
$100m-$500m
, $500m and above
Total
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California Water Supply
#MIGlobal
Water and Energy Are Inextricably Linked
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Saline Water Resources in California
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Augmenting Centralized Water Infrastructure with Distributed Water Systems
Source: World Bank.
A Shift in Water Resources & Management Paradigm
Challenges• Challenging water of varying
quality• Need for operational flexibility• Advanced local and remote
control/monitoring• Lower O&M and capital costs• Distributed systems• Need to establish sustained
field performance
#MIGlobal
Water Supply & Quality Issues in California
Source: World Bank.
Water Importation
Increased water salinity in the San Joaquin valley
Source waters are spatially distributed over varying distances, with varying levels of water quality
• Imbalance of water supply relative to water needs
~2,600 community water systems in California rely on groundwater as a primary source of drinking water
• ~700 Community water systems with one or more contaminants detected above the MCL; Contamination detected in ~1,700 active wells
#MIGlobal
Water Supply & Future Technologies• Smart meters• Water quality monitoring• Water use efficiency
• Smart irrigation; Efficient water use in appliances; Efficient indoor water use
• Greywater reclamation/recycling/reuse• Wastewater reuse• Leak detection in water delivery systems• Reduction of water evaporation in
conveyance systems• Seawater & brackish groundwater
desalination• Water supply storage & forecasting• Renewable energy sources for water
conveyance and treatment
Major question: How quickly will technological advances occur
and be commercialized, and will those options be more attractive
relative to presently available water sources?
Advances in technology are highly likely to reduce the costs
of desalination, recycling, groundwater storage,
and other options.
#MIGlobal
Water Networks & Energy
#MIGlobal
Examples of areas for Targeted Commercial Developments/Investments in Water Treatment and Desalination
• High recovery inland water desalination• Concentrate management (particularly for inland water desalination) and salt
harvesting• Robust chemical-free disinfection (both small and large scale systems)• Treatment/desalination processes that minimize onsite chemical use• Advanced real-time sensors/monitoring of water quality (e.g., emerging
contaminants)• Systems and processes of reduced energy footprint with potential for integration
with renewable energy resources• Distributed water treatment/desalination (produced water & remote communities)• Urban water use efficiency• Water reclamation and reuse
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Milken Innovation Center
Based at the Jerusalem Institute for Israel Studies, we are a financial R&D center that focuses on building financial solutions to enable Israel to move from the “start-up nation” to the “scale-up nation.”
Fellows
ProjectsFinancial
Innovations Labs
We build practical, market-based, data-driven solutions that achieve results…
#MIGlobal
#MIGlobal
Specifics
Fellows
ProjectsFinancial
Innovations Labs
• Towards Affordable Housing in Israel
• Capital Access in Israel’s Underserved
Markets
• (Re)Investing Israel’s Capital Markets
• Building a Social Capital Market in Israel
• New Techniques for Financing
Biomedical Technologies
• Financing Solid Waste Treatment in Israel
• Cultural Heritage as an Economic
Development Resource
• National Economic Council
• Tax Authority
• Ministry of Finance
• Ministry of Economy
• Office of the Chief Scientist
• Ministry of Environmental Protection
• Bank of Israel
• Office of Fuel Alternatives
• Strengthening Israel’s Regions
• Financing the Infrastructure for the
Kidron Valley
• Financial Inclusion Tools and Policies
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