Israeli Government Moves to Capture R&D Investment Share

Israeli lawmakers and officials continue to debate mechanisms for regulating the export of R&D expertise and manufacturing technologies developed in the country under government sponsorship. With a significant portion of discovery work in Israel carried out by state-funded research institutions, the government naturally remains keen to maximise its share of potential earnings from new technologies.

Israel's legislature is currently debating an amendment to the 1984 Encouragement of Industrial Research and Development Law, first submitted more than two years ago. The measure proposes to establish reimbursement of government R&D expenses as a precondition for export licences, with full compensation payable over the first three years and a 14% annual depreciation in such payments for a further seven years.

A significant element in the new proposals is that government royalties will apply if a company's transfer of production abroad is greater than 10% of the value of a drug's overall production. The measure could have a number of important consequences for the local sector, which is export-driven but dominated by the production of generics.

Nevertheless, many Israeli drug companies previously focused on generics are moving into R&D to remain internationally competitive, and the proposals could provide significant incentives for local firms to concentrate their activities within Israel. Notably, however, this assumes that the current deadlock in international negotiations on Israel's intellectual property regime can be resolved.