Article:

what happens to Israeli start-ups when they reach the US market

29 July 2019

Tomer Nitzan , Presiding Officer, US-Israel Desk |
Doron Arami , Head of the Medical Cannabis Sector |

BDO Israel promotes Israeli medtech and cannabis start-ups. In a session BDO held as part of Tech Week, experts discussed what happens to Israeli start-ups when they reach the US market. During the session, barriers and solutions for Israeli start-ups were mentioned, with a focus on those working in the cannabis industry, for integrating and thriving in the U.S. health care system

Tomer Nitzan, Presiding Officer, BDO US-Israel Desk opened the session, and addressed the main issue with which Israeli medical technology companies grapple, “The global health care and medical market is experiencing constant growth and is searching for the next big thing. We can feel a real sense of pride that Israel has earned a reputation in the field, which promises good conditions for the local industry to thrive. However, the small size of the local market means that it cannot be considered a target market, and this makes exports an unavoidable stage for most of the companies active in this field. Working with foreign markets, and specifically the U.S. market, can be very challenging and, at times, even a tangible threat to the company, regardless of the quality of the product it wants to develop and promote. The advantage the BDO US-Israel Desk offers is in its ability to provide the right support to clients in both places. Our joint activity with our partners and experts in various fields within BDO enables us to provide the optimal solutions in both Israel and the United States.”

 

“The large U.S. empire is expected to collapse in the coming decade due to the failure of the health care system.”

Dr. Eyal Zimlichman, Chief Medical Officer and Chief Innovation Officer at Sheba Medical Center, related to the crisis in which the U.S. health care system is enmired. “In order to succeed in the US market, you first have to become familiar with the market and the challenges it is facing. Simply put, the large U.S. empire is expected to collapse in the coming decade due to the failure of the health care system, which simply does not work and is not delivering what it is supposed to.” The United States is facing financial bankruptcy by 2030 - the entire federal budget will not cover the health care system, which will have greater needs than the entire budget. This system needs to be redesigned, not through solutions, but by being taken down and rebuilt from scratch.”

In a conversation with Adv. Oded Kadosh, a senior partner with the law firm of Pearl Cohen’s Boston office, the two discussed several possible courses of action for Israeli technology companies, given the picture outlined by Dr. Zimlichman:

  1. Seeking out the problem and finding a solution for it and not the other way around. Many start-ups that operate the other way around frequently encounter a market that is not ready to accept the solution.
  2. To divide the activity such that R&D remains in Israel, allowing the local ecosystem, talent and relatively low cost of employment to be leveraged, while the sales and marketing units move to the United States, to ensure in-depth familiarity with the local market.
  3. A greater investment in the marketing components of the product, given the gap between quality of the product or the offer and how that is translated or perceived in foreign markets, and specifically the US market.

 

The cannabis industry is perhaps the most exciting there is. Success in the industry can be fast, but the uncertainty surrounding it means that companies must excel in developing and adapting the product to the market, branding and marketing.”

Doron Arami, Head of the Medical Cannabis Sector at BDO Israel, on the panel dedicated to the cannabis industry, noted the contribution of cannabis production in Israel to the global market. “Given that the size of the market is determined by the number of consumers, in Israel the market size is 19 tons annually, or approximately $70 million. However, the inherent potential of the global market is unlimited, and we estimate that Israeli companies will begin exporting flowers and oil extract in the first quarter of 2020.

Europe is actually the main target for the local market, specifically Germany, which is a gateway to the rest of the continent. When relating to the European market, it is important to recognize the differences between medical cannabis standards in Israel and Europe, both in terms of the active component and in the production requirements. This must have a decisive impact on the strategy of Israeli cannabis companies and on their ability to keep pace with the rapid pace of change. As far as they are concerned, the focus needs to be on the transition from production of flowers and extract oil to premium products through R&D and conducting clinical trials.”

 

During the panel, the partnership between BDO Israel and Expert DOJO, an accelerator located in Los Angeles and dedicated to providing 360° support for Israeli start-ups in their initial stages in the US market. This support includes consulting and professional mentoring, as well as financing of up to $100,000.

One of the panelists was Brian Mac Mahon, founder of Expert DOJO. He said, “The cannabis industry is perhaps the most exciting there is. Success in the industry can be a quick-to-market solution, but there is a great deal of uncertainty, due to, among other things, a limited ability to predict what innovations are just around the corner, the type that will turn the industry on end. This is compounded by a government that is making things difficult in terms of regulation and cruel taxation.  The message to those involved in the field is that they must excel down the R&D chain, adaptation of the product to the market, the right branding and marketing. The right way to do this is by investing in the human factor, the ability to create a winning team of marketing professionals, technology managers, innovation managers and to surround yourself by people who are the very best.”

 

The medtech market in Israel in numbers:

80 new companies engaged in the life sciences enter the market every year, joining the 1,500 that are already active.

In 2017 alone, Israel medtech exports reached $8.5 billion, led by medical devices and digital products.