Switzerland’s Serono Closes InterPharm, 200 Israelis Lose Jobs
IPL has been one of Israel`s flagship companies, having developed and produced one of the world`s leading drugs, beta-interferon for the treatment of multiple sclerosis.
Since it was founded 25 years ago, the company has been a showpiece example of academia, government and industry working together to create a multinational success story.
Beta-interferon was conceived as a drug by Prof. Michel Revel of the Weizmann Institute; its development was accelerated by a $14 million Israeli government grant and its marketing was implemented by Geneva-based Serono.
Until now all three parties were winners: The Weizmann Institute received royalties, the Israeli government, which gambled on an unproven molecule, parented a prestigious industrial plant that employed more than 300 workers, many of them holders of advanced life sciences degrees; and Serono, on the strength of selling close to $1 billion worth of the drug in 2003, advanced to become the third largest biotechnology company in the world.
For many years, IPL was the sole production site for Serono`s beta-interferon. After the 1991 Gulf War, Serono`s CEO, the late Fabio Bertarelli, requested permission from Chief Scientist Shuky Gleitman to transfer part of the production to Switzerland . In 1994, Gleitman agreed to do so, with the understanding that at least half of the production would continue to be carried out in Israel. Israeli engineers and scientists played a key role in building and servicing Serono`s bioreactors in Switzerland.
The Israeli experts brought with them many unique production technologies developed at IPL.
In 1996, with Fabio Bertarelli in ill health, his son, Ernesto became CEO. After taking office, Ernesto promised to carry out the commitments made by his father, among them plans to produce drugs other than beta-interferon in Israel.
But none of those proposed projects ever came about, even if they did surface again earlier this year, when Bertarelli announced the dismissal of 80 IPL workers.
Then came last month`s bombshell in which a Serono press release indicated that the IPL production facility which had been repeatedly referred to in previous Serono press releases as ``a state-of-the-art biotechnology facility`` would be closed because the facility had suddenly become ``outdated``. There was no mention of any new Israeli plant in the works.
The closure cost 170 workers their jobs, in addition to the 80 dismissed previously and not counting about 50 workers who temporarily remain on the payroll but can be expected to be fired once the severance process is complete.
Several hundred of IPL`s Israeli sub-contractors, heavily dependent on work carried out for IPL, also were severely affected.
The blow could be felt far and wide across the entire life sciences industry. It was as though a national treasure had been whisked out of the country and was now being put on permanent display in a Swiss museum.
Prof. Michel Revel, the inventor of the technology called for the Weizmann Institute to sue Serono. Speaking to the Israeli press, Revel said:
``We have the right to demand that Serono carry out the production of Rebif in Israel. It was our condition in selling the intellectual property. The Weizmann Institute is the owner of the IP.``
Shuki Gleitman was equally incensed. Speaking to Yediot Aharonot, Gleitman said:
``In moral terms Serono`s decision to close InterPharm is unacceptable. What is involved here is support that was given over many years to the company from the government of Israel , assistance that represents no small part of the reasons that led to the company`s successs. Serono has a market value of $9.6 billion , with fifty percent of that based on know-how that was obtained from the Weizmann Instintute and from support that it received from the government of Israel. The assistance was given to the company out of the understanding that Serono would keep the production in reasonable proportions in Israel``.
In a statement released by Serono`s spokesman the company indicated that according to an agreement signed in 1997 with Orna Berry who was Chief Scientist at the time, Serono was entitled to remove production once it had completed paying royalties. But in an interview with Globes, Berry hotly disputed this:
``The assertions by Serono are incorrect. They were never given permission to remove intellectual property from Israel. The agreement stipulated that after they complete payment of royalties on the R&D grants they received, they would be entitled to move over 50% of Rebif production overseas, but only if they did other things in Israel.
``The Encouragement of Industrial Research and Development Law (1984) includes no time limitation for the ban on taking know-how out of the country. Taking out intellectual property is permanently forbidden,`` Berry said.
Concerning the alleged permit in the agreement with Serono and InterPharm to completely relocate production from Israel after 2001, Berry commented, ``The R&D Law contains no such clause.. Serono`s statements misrepresented the situation. We didn`t agree to the removal of know-how; we agreed to the increasing of production overseas, in exchange for alternative production in Israel. ``
The dispute between Israel`s biotech industry and Bertarelli is strongly reminiscent of another dispute involving Bertarelli that came to light earlier this year. A sailing enthusiast, Bertarelli invested close to $100 million in building a yacht and assembling a team in order to win the 2003 America`s Cup sailing championship for landlocked Switzerland. A key factor in the success was Betrarelli`s controversial luring away of New Zealander Russel Coutts to skipper the team (and beat Coutts` native New Zealand team in the final).
In July of this year, Coutts, a 3-time America`s Cup winner was surprised to find out that Bertarelli had fired him. In a bitter response, Coutts stated:
`` I was surprised that Ernesto Bertarelli repeatedly made it clear he wanted to depart from our previously agreed commitments…This and other issues were clear breaches of the contract I had entered into with him… I have been surprised by the way he has first insisted on a rule change and then by his decision to issue my dismissal.``
Regardless of how members of the Israeli biotech industry view Serono`s tactics, the furor surrounding the IPL closure has once again raised several important questions:
Will large biopharmaceutical companies ever come to Israel?
One reason why the Israeli government was so generous in its support for Serono (the company received tax exemptions in addition to cash assistance) was because of an on-going attempt to attract major biotechnology and pharmaceutical companies to set up production and R&D facilities in Israel. Unlike the high-tech industry where Israel has managed to attract companies like IBM and Intel, none of the world`s leading biopharma companies have set up shop in Israel. Serono was the one exception and now there is no cornerstone to build on.
How can the government best support the development of the biotech industry?
All Western countries offer incentives to attract foreign investment and encourage the establishment of local industry. In Israel that support is largely expressed through grants given by the Office of the Chief Scientist whereby the government gives assistance to high-risk startups and emerging companies; in return, if the technologies eventually become marketable, the companies are obligated to pay royalties and maintain production in Israel.
Many of the Chief Scientist`s grants are never repaid as companies often don`t get a product to market; yet when a company does succeed – and does so big-time as was the case with IPL—is it sufficient for the government to have its grant repaid? Is it unrealistic for the government to insist that production be carried out in Israel?
While industry and government figures examine these questions, it`s probably also worthwhile for Ernesto Bertarelli to consider the merit of his hit-and-run policy.
The biotechnology industry moves at a different tempo than sailing competitions, with the fruits of labor only harvested after lengthy periods of time.
Bertarelli`s father, Fabio, was well-aware that Serono`s rise to global success was inextricably linked to its collaboration with Israeli scientists. Prior to the development of beta-interferon, Serono`s successful growth over a period of more than 20 years was largely based on know-how dating back to the sixties made by Bruno Lunenfeld, Aliza Eshkol and other fertility drug experts from the Sheba Mecical Center in Tel Hashomer. One Serono product that derived from that research, Gonal-F, still generates 26 percent of Serono`s revenues.
When Fabio Bertarelli set up IPL adjacent to the Weizmann Insitute in 1978, he was not yet aware of beta-interferon. But he decided to start an Israeli subsidiary hoping to gain access to the new discoveries coming out of Israeli academic institutions.
Bertarelli Sr. was proven correct when Michel Revel successfully isolated beta-inteferon, and he found his company to be in the right place at the right time.
Bertarelli Jr. has already demonstrated one bad judgment by allowing another Weizmann Institute discovery to slip out of Serono`s hands.
Intellectual property for Enbrel, the blockbuster drug for rheumatoid arthritis marketed by Amgen was originally developed by Prof. David Wallach of the Weizmann Institute and licensed by Serono. Rather than produce the TNF-inhibitor in Israel, Serono sold its stake to Immunex which was purchased by Amgen in 2001 for $16 billion. Enbrel continues to generate billions in revenues.
Paradoxically, the Serono – InterPharm episode serves as proof that foreign investors can make money by investing in Israel and that Israeli biotechnologists have a great deal to offer the world life sciences industry.
But if the local industry fails to share in the profits and jobs generated by success, how long can the industry sustain itself?
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Copyright 2006 by BioIsrael Communications Ltd.
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