Israeli billionaire Nacht bets big money on another Teva in healthcare

After helping turn computer security provider Check Point Software Technologies (CHKP.O) into Israel's biggest technology company, billionaire Marius Nacht is seeking to do the same in life sciences and betting big money he'll succeed.

Nacht, who co-founded Check Point with Gil Shwed and Shlomo Kramer in 1993 and serves as its chairman, is raising a healthcare-focused fund of more than $100 million after investing tens of millions of dollars of his own fortune in a dozen such startups.

Israel has developed a reputation for churning out startups, but most are snatched up in early stages and very few have gone on to become industry leaders like Check Point or Teva Pharmaceutical Industries (TEVA.N), Israel's biggest company.

Nacht wants to change that by providing late-stage funds to start-ups. This approach means "taking higher risk for higher returns", but will allow entrepreneurs to grow large companies, said the Romanian-born 54-year-old, who immigrated to Israel at the age of three.

"I’m wishing for the creation of another Teva or another Check Point in healthcare," he told Reuters. "We are not here to sell out, we are really here to try and create a big company, create a financial ecosystem for healthcare companies in Israel."

Israeli life science start-ups raised $975 million in 2015, accounting for 22 percent of technology fundraising, and $680 million in the first nine months of 2016, according to the Israel Venture Capital Research Center. The biggest investors are U.S.-based OrbiMed, which has over $500 million under management in Israel, and Israel's Pontifax Venture Capital with more than $350 million.

Nacht, whose 12.1 percent stake in Check Point is worth $1.8 billion, said many venture capitalist firms are reluctant to invest in healthcare, often perceived as riskier than other sectors because of the time it takes to bring products to market.

Moreover, most funds putting money in healthcare are American "and they like to invest in American companies," Nacht said.

Meanwhile, foreign drugmakers are acquiring Israeli start-ups or licensing drugs.

SHORTAGE OF MONEY

Nissim Darvish, senior managing director of OrbiMed in Israel, said five funds invest in life sciences in Israel with about $1 billion to put in, combined.

"This is not enough. If you take a company in Phase III trials and the cost of a trial is $50-$100 million, $1 billion is enough to support 10-20 companies," he said.

Israel has more than 1,000 life science companies and most investment goes to early-stage start-ups, Darvish said. Late- stage investment is certainly needed, though a $100 million fund would only be able to help 3-5 companies, he added.

Darvish agrees that much of Israel's drug technology is being bought up by big pharma in early stages, preventing the establishment of large companies. In 2014, revenue from bio pharma intellectual property originating in Israel reached $41 billion, he said.

Nacht, whose interest in healthcare began when his late father was diagnosed with cancer, plans to focus on personalized bio-pharma and big data.

He co-founded and directly invested several million dollars in Day Two, which determines how a person's blood glucose will react to various foods by analyzing intestinal bacteria. The reaction varies from person to person and Day Two aims to help pre-diabetics control blood sugar levels by telling them what foods to eat.

He also invested several million dollars in Regenera Pharma, chaired by Teva Chairman Yitzhak Peterburg, which will soon start Phase III trials of a treatment for optical nerve damage.

This year Nacht ventured into a new sector, investing $5 million in start-up Aquarius Engines. Nacht, who wrote his thesis for his undergraduate degree in physics on engines, owns 21 percent of Aquarius.

French carmaker PSA Group (PEUP.PA) is preparing to test Aquarius' single-piston generator aboard electric car prototypes.

Nissan (7201.T) this month announced a gasoline-electric hybrid subcompact car that uses a small conventional engine.

"For me this is validation that in terms of the auto industry we are on the right track and are ahead of the curve," Nacht said of the competition.