pharmaceuticals italy 2009 part ii

ItalyPharma reportAugust 2009

AUGUST 2009 FOCUS REPORTS S2

L’uomo Vitruviano by Leonardo Da Vinci

ITALY: Towards Pharmaceutical RenaissancePART TWO

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Clearly, innovation in Italy did not die with Da Vinci. Today, the Italian pharmaceutical industry may lack the large mul-

tinationals of the past—Carlo Erba and Lepetit—but it can still play a signifi cant role in the more innovation-driven markets.

Numbers speak for themselves: 260 biotech companies gen-erating a turnover of € 5.4 million in 2008, accounting for more than 0.6 percent of the Italian turnover, and a 24 percent year-on year growth rate with respect to 2007. A pipeline of 258 products in development, of which 136 have already reached the clinical phase. Italy’s fi rst competitive advantage, extensive tradition of research excellence, is solid enough to navigate the sea change generated by the current economic turmoil.

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Going back in time, the National Research Centre (CNR) has been the main breeding ground of Italian sci-entifi c discoveries since its creation in 1982–an “origina-tor of innovations,” in the words of current president Prof. Luciano Maiani. The last restructuring carried out in 2003 gave birth to “a network of 108 connected institutes spread over the territory, and organized in 11 departments.” CNR currently has 38 spin-offs, three of which in the pharma-ceutical sector. Its role “is to act as a facilitator, connecting public and private and creating bridges between the main stakeholders,” he says, offering a gateway to Italian brains for local and international laboratories.

Multinational corporations (MNCs) themselves are well aware of the opportunities arising from the country’s re-search. French laboratory Servier did not casually choose Rome as home to one of the group’s 19 International Cen-ters for Therapeutic Research (ICTR), instrumental in per-forming clinical research. General Manager Frederic Fasano backs up this choice: not only does the country offer con-siderable market opportunities, but in addition “the weight of the Italian scientifi c community is growing, in terms of research activities, as well as in scientifi c and political infl u-ence,” he explains. “In some specifi c fi elds, the network’s organization and the high frequency of territorial struc-tures enable to perform highly specialized and sometimes lives-saving procedures.” Such a concentration of centers of excellence is a main asset for this medium-size player that proved its ability to compete with giants thanks to a steady and consistent focus on a few therapeutic areas- mostly cardiology, diabetes, hypertension and osteoporosis—and strong partnerships with the scientifi c community.

On the other hand, Fasano deplores the insignifi cance of government incentives to companies promoting and fi nancing research. “As public projects are strongly based on cost-containment ap-proaches and poorly considering innovation, the industry really has to perform research on its own.” For this reason, even though “the attractiveness of Italy is made of its well-trained researchers,” most of them tend to expatriate to more rewarding countries.

Theoretical physicist Prof. Luci-ano Maiani agrees, and points out a challenging recruitment situation. Most Italians are lured by more at-tractive conditions offered in other countries—including less mature markets such as Eastern Europe—and those who come back often do

so only for personal reasons. Combined with declining invest-ment in research, such defi ciency could compromise the future of Italian innovation. “However,” Maiani notes, “efforts are being made from the government’s side: the budget dedicated to research increased to 2.5 percent in 2008, following years of steady decline. Therefore, CNR is able to start new recruit-ment processes and wishes to offer interesting perspectives to young Italians willing to invest in Italy.”

Looking at governmental efforts to conciliate cost-con-tainment and innovation, Director of Farmindustria Enrica Giorgetti identifi es three main measures. “First of all, the implementation of a tax credit for research that can go up to 40 percent for partnerships, with a sealed amount of euros 50 million.” In addition, the “Accordi di program-ma” Plan “with 61 innovative projects in the pipeline for a total amount of over €1 billion.” And the last measure, raising expectations of the whole industry is the Industria 2015 initiative, which plans the allocation of €150 million. Claudio Cavazza, founder and president of Italian labora-tory Sigma Tau, has been appointed general manager of Industria 2015’s dedicated life-sciences program “New Technologies for Life” (“Nuove Tecnologie per la Vita”), and recently declared that the only option to cope with the current healthcare crisis would be to bet on genomics and personalized medicines. However, due to the costs involved by such products “developing innovative medicines now re-quires pan-European research collaboration of public-pri-vate interaction.”

Not only is Italy in constant need for young talent and government incentives, it is also craving to attract more business angels and venture capital, especially to support translational research in the biotech fi eld. Leonardo Vin-

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S3 FOCUS REPORTS AUGUST 2009

LEFT: Luciano Maiani, President of CNR; RIGHT: Leonardo Vingiani, Assobiotec


giani, director of the biotech companies’ association As-sobiotec estimates that “Italy’s fi nancial schemes include some really good investors for traditional technologies, but regarding innovative technologies there has not been an ef-fi cient strategy to foster innovation and get fi nancial capi-

tal.” Thus, many are the opportunities for special-ized investors in well-established markets—namely US, Canada, UK, Germany, and France—currently lacking good projects to fi nance. “The Italian en-vironment offers a very good cost-effectiveness ra-tio,” reminds Vingiani. “Italian researchers earn less than in Northern Europe and US,” which makes Italy a safe, profi table bet.

Overall, be it because the Italian bio-tech seg-ment is still young, with more than 50 percent of companies created in the last 10 years, or because of brain drain and weak state support, Italian en-trepreneurs still fi nd it hard to translate knowledge into business, and convert excellent research into sustainable companies. But even though public-private partnerships (PPPs) are not yet widely rec-ognized as a best practice by Italian healthcare op-erators in order to open a way forward for Italian

research, Giorgetti sees encouraging signs. She has already noticed that “more and more agreements are passed be-tween small companies (mainly specialized in biotech) and public institutions like universities, public research centers, the Superior Institute for Health (ISS), and the CNR.”

CNR is indeed supporting the creation of business proj-ects at regional level. Recently, it signed an agreement with the Lombardia Region, providing €40 million over three years for a myriad of projects, some of them based on nano-technologies. If it proves successful, similar initiatives will follow in Italy’s south, as the country gradually devolves power to regional and local administrations.

FROM RESURGENCE TO DIVERGENCE: ONE COUNTRY, 20 HEALTHCARE CITY-STATES

The Italian Peninsula was unifi ed amidst much strug-gle in the 19th and 20th centuries—in theory putting

an end to the territory’s historical fragmentation and the leadership of local kings on a changing number of inde-pendent and powerful city-states. Nevertheless, it is still suffering from a historical tendency towards competition between small towns and a lack of inter-regional solidar-ity. Italy is now almost a textbook case of the regionaliza-tion process at work all over Europe: the constitutional reform of 2001 and the political trend of administrative federalism gave the peninsula’s 20 regions a signifi cant level of autonomy. As a result, very few investment ini-tiatives are launched at national level, a main point of differentiation of the Italian system.

Local clusters become global players Most federal states claim that a decentralized structure is


NUMBER OF BIOTECH COMPANIES IN ITALY:DEVELOPMENT OVER TIME

BEFORE 1980

1981-1985

1986-1990

1991-1996

1996-2000

2001-2004

2005-2008

3649

71

101

140

211

260


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the best way to create a healthy competition between regions and local incentives for R&D. The structure of Italian science parks proves this point. Whereas it is not the case in most other countries where the national government is strongly involved in such initiatives, all the Italian research clusters are hosted by regional and local structures—the main ones being AREA Sci-ence Park in Trieste (Friuli-Venezia-Giulia), Science Park Raf in Milan (Lombardy, Bioindustry Park Canavese in Torino (Pied-mont) , Parco Tecnologico Padano in Lodi (Lombardy) Toscana Life sciences in Siena (Tuscany), and Sardegna Ricerche in Pula (Sardinia).

For the general manager of Tos-cana Life Sciences (TLS) Germano Carganico “such an unusual structure is a direct consequence of the lack of national policies in Italy, rather than an opportunity.” A bad starting point, however, turned into TLS’ advantage. Since the creation of TLS in 2004, the organization progressively seduced both public and private investors, and for the fi rst time in history managed to put together fi ve academic bodies with local institutions; Siena Province and Siena Municipality, the Tuscany Re-gion and private group Monte Paschi. Building on Tuscany’s long tradition of excellence in the biotech and biomedi-cal sector, TLS Park eventually aggre-gated a number of successful initia-tives and now counts 20 companies; 12 of which are located in the bio-in-cubator launched in 2006. TLS is now widely renowned and recognized, both nationally and internationally, and of-ten seen as a reference in the Italian biotech world.

“By combining its technology trans-fer role at the regional level and its fo-

cus on the specifi c fi eld of orphan diseases, TLS will have the chance to really all the potential of the Tuscany region,” proudly boasts Carganico. Because of its integrated offer to biotech laboratories and its abil-ity to attract investment in Tuscany, the Park has been appointed by the Ministry of Health as responsible for the management of technology transfer projects fi nanced or co-fi nanced by the Tuscany region. There-fore, “the foundation will soon start tak-ing part in the regional fi nancing processes, directly working with the Tuscany authori-

ties—bringing its knowledge to the bureaucrats, and on the other hand taking advantage of this assignment to put in place biomedical projects at the regional level.”

Clearly, constructive dialogue is now the name of the game; a game which MNCs are also playing. Global giant Pfi zer con-verted its former country management structure into a Busi-ness Unit model in 2009, but it is still aiming to act local while keeping an eye on the company’s global strategy—and does so in Italy through a series of innovative PPPs with several Italian regions.


Toscana Life Sciences park in Siena


So far, explains Managing Director Cees Heiman, “Pfi zer Italy has established four regional PPPs all aiming at improv-ing the healthcare system’s quality and effi ciency by combin-ing patients’ needs with the necessity to seek greater economic sustainability.”

The “Leonardo Project” is a partnership with the Puglia Region. Since 2004, it has launched several initiatives like a new telecardiology service, a disease and care management program and a Clinical Governance group for depression. Project “Raffaelo” for Marche and Abruzzo regions has so

far established a disease and care management program, a Hearth failure management program, and individual health economics university courses. The “Michelangelo Project” oversees an investment of €1 million in Lazio in order to sustain cardiovascular prevention initiatives; for instance, the reorganization of the region’s cardiology emergency pro-cesses and its new cardiovascular prevention model. Finally, project “Virgilio” has been developed jointly with the Lom-bardia region to promote and develop public health research through innovative initiatives targeting cardio-cerebrovas-cular pathologies with an aim to improve patient manage-ment, and the CAMUNI database for epidemiological-car-diovascular integration.

“Through these initiatives,” Heiman ensures, “Pfi z-er demonstrates its fi rm intention to act as a healthcare company; partnering with regional Governments in a responsible way, managing the system and its challenges hand in hand with them. Overall, we aim to improve local healthcare–beyond the mere production and distribution of drugs.” Such commitment is essential if Pfi zer wants to become the largest company in the country by the end of 2009, once the planned Pfi zer-Wyeth merger is fi nalized. “Our business would become extremely diversifi ed—in-cluding pharma- and biopharmaceuticals, vaccines and nutritional products—and many synergies would be cre-ated between Pfi zer and its new partner.” Building on the group’s strengths applied to the Italian context should en-able the subsidiary to “remain a most important contribu-tor to Pfi zer’s global success,” Heiman concludes.


Cees Heiman, Country Manager of Pfi zer

TREND OF R&D INVESTMENTS IN THE PHARMACEUTICAL SECTORINDEX 2002 = 100, constant growth rate

135

130

125

120

115

110

105

100

SOURCE: FARMINDUSTRIA—ISPAT DATA

2002 2003 2004 2005 2006 2007

PHARMA R&D TURNOVER (RETAIL&HOSPITAL) TOTAL R&D


Devolution vs Evolution Unfortunately, the path towards successful regionalization is also full of hurdles—sometimes easy to leap over, and some-times not. Amongst those is the extensive interpretation of the regions autonomy; especially regarding purchase and provision of health care services.

Indeed, each of the 20 regions can decide the quan-tity and mix of each service to be provided, yet securing the minimum Level of Coverage (LEA) to its population, according to budget constraints. Regional authorities have to contain the pharmaceutical expenditure at a maximum of 13 percent of the total healthcare expenditure, and are free to decide cost containment measures–as co-payments, limitation to hospital setting for some drugs, limitation for sub groups of patients. Pricing and reimbursement is still in theory managed at national level by AIFA, the dedicated regulatory body, guarantor of the Italian healthcare sys-tem’s unity.

But, as general manager of AIFA Guido Rasi deplores, each region autonomously decides the “real” reimburse-ment status of many drugs. Rasi considers “the limitation of access to medicines included in the LEA that has been


Regardless of ever increasing inequalities between regions, the role of intermediate distributors is to ensure the right con-

servation, distribution, and delivery of drugs in a capillary way throughout the territory–and in Italy, this function is executed with cumulative costs amongst the lowest in Europe. Despite the Finan-cial Law of 1997 which set that 26.7 percent of the margins of a drug sale shall be kept by the pharmacist, leaving 6.65 percent to the wholesaler, and the rest to the industry, director of ADF (the Association of Pharmaceutical Distributors) Sergio Sparacio likes to highlight how Italian distribution “really manages to fulfi ll its social function, by ensuring the effi ciency of distribution channels not only in a quick and secure way, but also following cost-rationalization patterns.”

One example: With two warehouses in Naples and Milan, lo-gistics provider Petrone group made the choice to make products available wherever the customer needs them and is “not willing to focus on specifi c regions” remarks its CEO Raffaele Petrone. It is also worth considering that the Southern part of Italy offers a less competitive environment and higher levels of understanding and availability. “Whereas pharmacies in Milan are every laboratory’s targets, a pharmacist in Reggio Calabria has more time to listen and to build long-term business relationships with sales representa-tives,” Petrone points out.

And even through the distributors’ margins have inevitably been eroded over the years, while considerable resources have been devoted to signifi cant technological upgrades, cold chain managements, and rising insurance and transport costs, Italy still counts several wholesalers and pre-wholesalers. However, the president of pre-wholesaling company Ferlito Farmaceutici is convinced that “competition and market conditions will most likely trigger a concentration in the years to come. Such an occurrence will eventually enable the remaining players to reach a more criti-cal mass and achieve additional economies of scale.” Founded by Sicilian entrepreneur Salvino Ferlito in 1948, the company is currently led by his daughter Carmen Ferlito and her two sons, Salvino and Antonio Benanti, and surely on track to achieve such goals. Having brought the nationwide infrastructure to a very high quality level, with three warehouses in the Milan and Rome areas at the cutting edge of technology and safety, Carmen Ferlito’s next goal is “to develop an international network, by cooperating with like-minded peers.” Salvino Benanti reveals the grounds of Ferlito Farmaceutici’s twofold strategy: “At a ‘horizontal’ level we will es-tablish operating ties with international peers in the pre-wholesal-ing arena, whereas at the ‘vertical’ level we will maintain an open dialogue with couriers and wholesalers in order to identify the most suitable way of integrating the services each of us offers.”

DISTRIBUTORS SWITCHING INTO HIGH GEAR


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implemented by some autonomous regions as a grave mistake, creat-ing inequalities related to places of residence, and affecting the right of citizens to have an equal access to health-care.” Rasi believes that regions shall un-derstand that each of AIFA’s negotiations is the conclusion of a long, careful and rigor-ous assessment process conducted in accor-dance with European guidelines and follow-

ing the best professional standards. “It is therefore irrel-evant for regions to try and replicate some of AIFA’s tools and assessment bodies; as these processes are very unlikely to have better outcomes once they are multiplied by 20.”

Such trend also affects the industry’s behavior, as one could be tempted to focus on drugs’ distribution in the regions with

better terms of price and reimbursement, and a higher pur-chasing power.

This particular environment provides plenty of business opportunities for Customer Relationship Management pro-viders (CRM). According to Emilano Gummati, Cegedim Dendrite Italy’s general manager, the importance of key ac-count management is drastically increasing in Italy. “The recent constitutional reform enhanced the power of the re-gions related to market access, and the local authorities are now fully responsible for their healthcare spending—either through directive or liberal interpretations of AIFA’s central directives,” he explains. In this context, traditional drug promotion addressed to GPs is less effective. “It has been statistically proved that out of 100 products prescribed by a doctor, 46 are the direct consequence of specialist’s pre-scriptions, and 12 are dictated by the infl uence of the lo-cal health authority—this 12 percent rate being currently growing at a 40 percent pace per year.” Therefore, GPs are not fully following their own initiative, and are less infl u-enced by promotions. “Laboratories have to take this trend into account,” Gummati says, and “try to enhance their drugs’ access to the local health authorities reimbursement formulary.”

As Italian stakeholders evolve, Cegedim Dendrite is


Emilano Gummati of Cegedim Dendrite



looking to fulfi ll its ambition to further bond with local play-ers. Indeed “Cegedim Dendrite has a strong foot in the multina-tionals world, but there is room for im-provement in the do-mestic environment.” The company would like to expand with new offers, more tai-lored to the needs of local laboratories willing to expand and professionalize

their customer’s relations. In this process of fi nding new clients, Gummati reminds that “the one key database’s international structure is a main competitive advantage, which allowed developing international CRM solutions such as mobile intelligence, a multi-country tool covering every language, and all types of business needs. This makes

Cegedim Dendrite an ideal partner for companies willing to expand abroad.”

And surely, Italy’s dozens of successful local pharma are in need of such support.

GREEN FLAG FOR LOCAL ENTREPRENEURS

“It has always been my dream to become more than a sales representative...and my story showed that sometimes,

dreams can become true. I just hope no one will wake me up.” Sicilian entrepreneur Fabio Scaccia, founder and CEO of Finderm, sums up in a few words the essence of the Italian en-trepreneurial spirit. Having worked as a rep for little less than 10 years, he started his own pharmaceutical adventure when only aged 28, by “launching alone, without a cent, a pharma-ceutical company specialized in gynaecology.” Thirteen years later, Scaccia is head of a consistent reality involving 52 col-laborators with a yearly turnover surpassing €10 millions, that “now claims to have one of the most diversifi ed gynaecologi-cal portfolio—including cosmetics, medical devices, pharma specialties, and integrators, constantly associated together as to create innovative solutions.”

The organization seems to have not missed a good oppor-tunity. After having developed strong manufacturing agreements with third parts, it is now willing to achieve in-ternational expansion through partner-ships in order to “start bringing the Ital-ian gynaecological knowledge to other countries.”

Many other Italian pharma success stories can be found, from Catania to Milan. General Manager of Farmind-ustria Enrica Giorgetti is proud to say that one-third of the pharmaceutical industry’s Association’s members are Italian companies. Some of them are growing multinational, but “the Italian market also expresses its vitality with a lot of smaller companies, important industrial players that work in network with big players and public institutions.” Most are family business, often not list-ed on the stock exchange, yet “fl exible, specialized, and innovative”—a model of micro-companies that is highly repre-sentative of the Italian industry.

Italy, however, has also been the breeding ground of a number of mul-tinationals, like Menarini, Sigma Tau, Chiesi, Recordati, Bracco, Italfarmaco, Alfa Wassermann, Zambon, Dompé,

Givanni Recordati, Chairman and CEO of

Recordati


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Angelini, Rottapharm.

From generation one to generation three According to industry insiders, leadership of the third genera-tion is a decisive turning point for a family company—that de-termines either its immediate failure or its long-term triumph. Although unclear as to why this happens, most agree that the entrepreneurial legacy of the founding grandfathers is either set or lost forever two generations up the family tree.

When reaching this crossroad, Giovanni Recordati chose the way to success. His grandfather Giovanni transformed a small apothecary into a modern drug-based scientifi c busi-ness from 1926 onwards; his father Arrigo took the com-pany towards listing on Milan’s stock exchange in 1984 and realized the fi rst international acquisition in Spain. Build-ing on such heritage, Recordati is now “still betting on a virtuous circle that starts with research activities, directly leading to the development of very profi table proprietary products such as Lercanidipine—successfully exported to foreign markets and therefore generating profi ts to be rein-vested in research.”

Aiming to become a “european specialty pharmaceuti-cal company,” the organization progressively expanded to France, Germany, UK, Greece, Portugal, more recently Turkey, and Czech Republic, following a mixed strategy of acquisitions and start-ups. But growth ambitions in some countries sometimes failed “like in Poland, six years ago,” Recordati recalls showing that entering a new country re-quires caution, cultural, and contextual awareness. “Being competitive in Germany or in the UK implies searching for specialty niches in a generics-dominated market,” whereas “Southern European countries still offer opportunities for co-marketing and primary care,” and “Eastern Europe is still an adequate land to launch branded generics or other products that would be outdated in the western part of the continent,” he says.

Looking at the future, Recordati “does not exclude expan-sion outside Europe, for instance in the US.” But overall, the CEO is convinced that even though it is always safer to depend upon a bigger basket of markets, “success is not about size; it’s about the quality of growth.”

Surely, Elena Zambon won’t contradict such statement. As current President of Zambon group, founded in 1906 by her grandfather Gaetano Zambon, her key to quality growth is the ability to read the past and learn from previous experiences. “Zambon’s third generation has been and will keep building on historical values, adapted to the new business environ-ment,” she says.

In the same way Lucia Aleotti is determined to keep building her Florence-based family company on the same three pillars on which Menarini fi rst successes relied: “re-search, internationalization, and partnerships.” No third

“Most of my life, I worked three shifts: arrived at the offi ce at 8:30am, went back home at 1pm, was back to work at

3pm until 7:30, and then would start again from 10 or 12pm until 3:30 the next morning.”

He certainly inspired following generations of Italian en-trepreneurs. Cavaliere Alberto Aleotti, president of Menarini, might have been awarded entrepreneur of the Year in 2007 by Ernst and Young; but he prefers to look back at his whole career of 67 years dedicated to the pharmaceutical industry (of which 45 at the head of Menarini), with a subtle mixture of pride and humility.

“I consider this ability to work long hours as a critical suc-cess factor in the leadership of Menarini. Having looked at mul-tinationals all my life, I always felt I had to do more than them in order to reach their level. Coming from a very modest fam-

ily, I have been the only one from my school to fi ght and go to a university.” Aleotti s feat is ever so heartening as he had to work during the day at the Farmacie Comunali Riunite di Reggio Emilia, ¨thus only having the night left to study.” Getting an ¨A¨ grade on a university exam for which he did not attend class gave him “enough cour-

age to always give a try to what seems impossible and keep following entrepreneurial ambitions.”

His personal ethic has permeated the company he still leads with an iron hand at 86 years of age. “The constant appraisal of merit, excellence and hard work is part of Menarini’s DNA,” he concludes. “Even though I probably should not, because of my age, I personally examine each new employee of the company.” Indeed, each of them has to be able to support the winning strategy of Menarini: “to focus on overtaking bigger players in terms of quality but also quantity of working hours.”

THE MAN WHO WORKED ROUND-THE-CLOCK

Cavaliere Alberto Aleotti, President of Menarini



generation is involved yet in the leading Italian group, ranked 19th in Europe and 36th worldwide for retail sales in value, as this pharmacy created in 1886 got to his current position under the strong leadership of Alberto Aleotti, who took over the business in 1964.

Aleotti, 86, is still the current presi-dent and CEO, working together with his two children and assistants Lucia and Alberto Aleotti. As explained by Lucia, he has been a precursor in understanding “from the start (the patent introduction in 1978) that research was the key for a sustainable future.” The R&D depart-ment grew from 11 researchers in 1978 to more than 700 now. However, feeding the company’s own R&D required taking “a second step, by developing partnerships with companies sharing similar R&D values, offering a strong knowledge, and excellent compounds in order to learn from their teams much beyond merely mar-keting their products.” At the same time, funding costly re-search required reaching a strong critical mass, well beyond

Italy. Spain, Portugal, and Greece were the fi rst to be conquered, and “more diffi cult countries,” such as France and Germany, came later, followed by the Eastern Euro-pean region (boosted by the acquisition of Berlin-Chemie in 1992), and Central America.

The three strategic lines have therefore been carried hand in hand “such process has been sustained by fully re-invest-ing Menarini’s revenues in the company, a main tool of family companies, which don’t have to deliver dividends to stock-holders on a quarterly base.”

Despite a €2.5 billion turnover in 2008, 37 percent of which was generated by in-

ternational sales, Menarini is far from resting on its laurels. As important patents recently expired in Italy, the labora-tory is betting on biotech processes to launch the future’s key compounds. Amongst the most promising programs are co-development of Ranexa with CV Therapeutics, and the ongoing Mimosa project working towards the develop-ment of bio-tech vaccines for ovarian cancer. The results of

the latter “might give birth to a prod-uct able to save lives, but above all a revolutionary concept,” Lucia Aleotti explains “as this compound would at-tack the tumor cells which cannot be completely eliminated by chemothera-py and surgery.”

New runners in the starting blocks Critics of the world like to claim that Italy’s commercial and industrial en-trepreneurial spirit now belongs to the past- and that the home country of industrial giants such as Fiat and Ben-etton is now left in the hands of petty “political entrepreneurs.”

But young companies like Cosmo Pharmaceuticals are here to prove that entrepreneurship is still alive. Mauro Ajani did not take the reins of an es-tablished laboratory, but built Cosmo himself by purchasing Warner Lam-bert’s Lainate plant to link it to the commercial activities of his own previ-ous OTC Company, Pharmajani. “But the story followed a different path,” he reveals. “I sold Pharmajani fi ve years later and fully focused on Cosmo. From that moment, thanks to the large

Paolo Zambonardi, General Manager of

expertise of the former Warner Lambert employees, Cosmo started in-house drug development and obtained its fi rst patent on the MMX technology.” Leveraging on this pro-prietary technology that enables to “produce formulations delivering the active ingredient in the entire colon,” Cosmo entered the Infl ammatory Bowel Diseases (IBD) area with three main products. Lialda, “the fi rst one-a-day therapy in the IBD fi eld” already on the market and licensed to Shire and Giuliani; Budesonide MMX currently in Phase III and licensed to Ferring and Santarus; and Ryfamycin MMX, in Phase II, licensed to Dr Falke Pharma and Santarus.

Having seen many other mid-size players emerge then fail, Ajani evaluates the keys of Cosmo’s growth. Not only has the laboratory completed a successful IPO in the Swiss Stock Exchange (SWX) in March 2007. Its main assets are a consistent B-to-B strategy and a relentless focus on a niche therapeutic area “that has tremendously progressed in the last 10 years.” Last but not least “whereas other Italian laboratories in the IBD niche cover the entire value chain and are mainly present in the domestic market, Cosmo fo-

cuses on research and development in a global market.” Similar open-mindedness allowed domestic biotech play-

ers to attract global partners. Many MNCs now understand the need to go scouting for biotech in Italy, and companies like Molmed, Axxam, Genextra and Gentium, led by ambi-tious entrepreneurs, are clearly building a bright future for Italy’s international presence on the global bio-pharmaceu-tical scene.

Less obvious are the benefi ts that the Italian talent for innovation and risk-responsibility brings to the MNCs. However, the case of Ferring perfectly embodies such a par-adigm. Indeed, as Country Manager Italy of this Swiss lab-oratory, Paolo Zambonardi enthusiastically explains how, after having spent his “learning years” in MNCs, joining family-owned Rottapharm leaded by Prof. Luigi Rovati—“one of the most brilliants Italian researchers”—strongly impacted his future career.“ Indeed, both types of compa-nies follow very different mindsets; whereas multinationals seem to grow by themselves, family-owned laboratories are more demanding towards their collaborators, asking them to work in a much more concrete and detailed way.” En-riched by this experience, he was then able to become “fully responsible for a company,” and “eventually found in Fer-ring the perfect compromise between entrepreneurial spirit and multinational scope.”

Zambonardi is now proud to be living—together with his collaborators—the dream of any pharmaceutical execu-tive and representative: “To be part of a research company able to discover new drugs, and offer doctors a lifesaving product.” Indeed, Ferring will soon be ready to launch Fir-magon, an innovative prostate cancer drug “really able to increase the patients’ chances of survival—which is not that



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LEFT: Fabio Scaccia, CEO of Finderm; RIGHT: CEO of SIFI, Cavaliere Giuseppe

Benanti

Sicily plays a major role in a plethora of gangster stories, wheth-er real or fi ctional; the initiated also know that it is the land of

incredibly well preserved Greco-Roman sights and excellent food and wine. Fewer, however, are aware that the Italian island more recently gave birth to outstanding pharmaceutical entrepreneurs. Indeed, not only are Sicilian executives at the head of many suc-cessful MNCs affi liates, headquartered in Milan or Roma, such as Maurizio Castorina of Takeda and Silvio Gherardi of Baxterbut, some also produced remarkable local success stories.

Amongst those is ophthalmology-focused SIFI, created by An-tonino Benanti in 1936 and now led by his son Cavaliere Giuseppe Benanti whose own offspring–Salvino and Antonino–are sharing their time between SIFI and Ferlito, the two family businesses. In the words of Cavaliere Benanti, “Sicily offers many opportunities to inves-tors willing to take advantage of its privileged geographic position and unique climate proper for agriculture and tourism.” However, “it is not the same situation for pharmaceutical companies since it lacks proper infrastructure and is far away from the main markets.”

Compatriot Fabio Scaccia of Finderm agrees. “Sicily seems to offer a challenging business environment, especially for small and me-dium-sized companies.” But on a more positive notes he remarks that “this context also offers considerable opportunities for bigger players, and especially multinationals with the adequate strength and power to bet on the region and revitalize the Catania area. Indeed, Catania is home to highly skilled professionals and has all the potential to become the ‘pharmaceutical engine’ of Southern Italy.”

FROM GODFATHERS TO DRUGMAKERS


CHARACTERISTICS OF THE INDUSTRY BY COMPANY’S SIZEDistribution of employment by number of employees (percent of total)


frequent in today’s pharmaceutical market.”

THE RISING GLORY OF “MADE IN ITALY”

The Italian fashion industry recently asked for governmen-tal assistance to protect the “Made in Italy” standards dur-

ing recession. Surely, Milan’s golden triangle concentrating the most exclusive fashion windows has been severely hit by the economic crisis, but it is far from being the case when it comes to pharmaceutical production.

According to President of Aschimfarma, the Italian Asso-ciation of Active Pharmaceutical Ingredients (API) produc-ers, Italy’s industrial manufacturing base is more dynamic

than ever. Big pharma are coming back to the country with specifi c targets such as custom synthesis and toll manufac-turing. “Most of them have invested a lot of time and mon-ey in Asia where prices are surely extremely competitive, but the low level of services stopped them from reaching fully satisfying results,” Gian Mario Baccalini explains. As a long experienced chemist, he doesn’t deny that manufac-turing costs in India and China are lower, but believes that “the differentiation point of Italy is technology.” Indeed, even in the mist of delocalization trends, “companies who have different facilities around the world don’t have a clear will to shut down Italian plants, which are generally of-fering a high level of skills, expertise and competitive new techniques” that they might not fi nd in the far East.

A great part of Aschimfarma’s work is to internally promote investments in innovative manufacturing pro-cesses, while “not many efforts are made in this direc-tion from the Government’s side.” But as Baccalini points out, “Italy showed its ability to sustain innovation even in most diffi cult times.” Looking forward, “a push from the industry compensating the lack of governmental ini-tiatives” makes him confi dent that “Italy will soon reach extremely good results.”

Manufacturing moving back West A few scandals made the industry realize that too high a fo-cus on prices can seriously affect the quality and reliability of drugs. As a logic consequence of the counterfeit Heparin affair of 2004, Baxter is now more than ever committed to

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Pharmaceutical Sector Manufacturing Sector

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Baxter CEO, Silvio Gherardi



“deliver the best quality, but not necessarily at a higher price than its counterparts”—in the words of Italian affi liate’s CEO Silvio Gherardi.

He likes to use a striking comparison when describing his headquarters’ investment policy: “When buying a house in the US, it is often said that the choice should be based on three main criteria: location, location, and location. And in the same way, manufacturing investment strategies should be driven by ‘quality, quality, and quality.’” In this context, no surprise that Italy became strategically important for Baxter’s activi-

ties. “The Rieti facilities, fully dedicated to plasma fractionations, are currently receiving major invest-ments in terms of fi nancial means, but also human capital and technology,” Gherardi explains. The goal is to double the plant’s capacity from 600,000 to 1.2 million liters of plasma, and expand the headcount from 130 to 250 employees. Such investments will surely enable Baxter to keep building on its leader-ship among the top three plasma companies in Italy.

But its CEO is even prouder to point out that the levels of quality delivered by the Italian fa-cilities are at least equal to the US and Canadian standards. In addition, “investing in an existing plant is less costly than building a new one, even in

countries that are considered more cost-effective.” Overall, while a wave of enthusiasm is currently addressed to emerg-ing markets, there is no doubt that “in 10 years time, these less developed countries will offer the same price levels and the same amount of obstacles than the mature ones.” For these reasons, Rieti is due to become “the unique produc-tion center for all Baxter’s gamma-globulins, exporting worldwide including to the US and Canada, as FDA autho-rization has just been received.”

In the same way, pain management and gynaecology-focused Grunenthal recently chose its Italian plant as one of the group’s manufacturing centres of excellence. Back in 2005, Managing Director Alberto Grua recalls, “the opportunity was offered to a few affi liates to become in charge of Tapentadol’s production,” which account for more than half a million units a year. “Winning this in-ternal competition allowed the Italian site to attract ad-ditional investments—as more than €20 million has been invested in Origgio since then.” As a result, not only has the capacity doubled in terms of production and volumes, but also a very strict cost-control policy enabled to reduce the cost per unit produced by 40 percent.

The Italian manufacture is therefore “the most competi-tive among Grunenthal Group itself, but also to the eyes of the industry, with some players now willing to outsource part of their production to Origgio.” As soon as the moderniza-tion of infrastructures is fully achieved by mid-2009, the site shall start betting on third-part manufacturing, which makes Grua confi dent that “in little more than 18 month, the Ital-ian subsidiary should become a center of profi ts rather than a center of costs.”

Even the bigger multinational giants take the small pen-insula’s potential into careful consideration. German group Boehringer Ingelheim might rely on fi ve pharma chemical production sites in the world; it is investing €60 million per year in Bidachem, the division of the Italian subsidiary dedi-cated to chemical production for both the group and third parties.

Gian Mario Baccalini, President of Aschimfarma; Grunenthal plant.


Italy Report


This site is one of the main producers of generic Keto-profen worldwide and its capacity is being doubled in or-der to produce API for global distribution of Dabigatran. “Construction started two years ago,” explains Country Manager Sergio Daniotti, “and the new production site will be inaugurated and operative by mid-2009. It is a classical chemical plant, but much more automated and multi-pur-posed than it used to be. Seventy additional employees will join the current teams, allowing the workforce on site to grow from 110 to 180.”

As third-part business represents about 10 percent of Boehringer Ingelheim’s sales in Italy, such upgrading process will allow the company to keep a strong toll manufactur-ing segment. Of course, producing for third parts involves adapting one’s mindset. In other words, “when a client asks for an offer Boehringer Ingelheim cannot take two weeks to make a cost calculation—it has to provide an answer in 24 hours, otherwise there is the risk to lose the customer to the benefi t of a competitor.” But it is on the other hand a crucial asset for Daniotti, who is convinced that “this busi-ness can be seen as opportunistic as it is aimed at covering fi xed costs fi lling the plant’s extra capacity, but it is above all a profi table business that allows the company to survive

and make the difference in a competitive environment.” Indeed, this trained doctor is keen on reminding the scien-

tifi c community that whereas “the industry is aimed at cur-ing people, saving lives, and improving the quality of life, the companies’ fi rst social responsibility is to make profi ts.” Fol-lowing its manager’s strong convictions, Boehringer Ingelheim Italy experienced a 9 percent growth in 2008 and expects to continue doing so this year.

APIs or the Admirable Performance of Italians Boehringer Ingelheim’s experience shows that it still makes sense to produce APIs in Italy, “because of the country’s com-petitiveness price-wise in relation with the quality requested,” according to Daniotti. “Getting API’s from Asia is always cheaper, but with time it can create problems in terms of purity, and having to re-work a powder involves high costs and strong economic damage.”

Because MNCs are aware of this, there are opportunities to seize for local API producers. More and more of them “are starting to promote different and more advanced tech-nologies such as micro-reactors, unlike in India or China where only traditional processes can be found,” remarks Baccalini of Aschimfarma. This is why Italy is still consid-



ered as the fi rst API producer in the world—despite fi erce competition from India—mainly exporting to regulated markets such as the US, Europe and Japan. “New markets are now only accounting for 3 percent,” Baccalini evalu-ates, “but this number is aimed at increasing. Indeed, Italy is betting on its technological competitiveness to export to countries like India some very specifi c products requiring top-level sophisticated processes, for instance in the fi eld of injectables.”

Asian markets have already long been considered a main focus for Euticals. Since he took the reins in 2002, President and CEO Maurizio Silvestri developed dozens of contacts with Indian partners and customers. But more recently, this group of four entities (Euticals, Ambrosia, Prochisa, and Pro.Bio.Sint) took a determining step by selling the majority of its stock to the Italo-Chinese private equity fund Mandarin Capital Partners.

Both Euticals and Mandarin share “a proactive analysis of the opportunities for synergies worldwide with a special attention to China in term of end market, source of tech-nologies and low cost manufacturing capabilities,” Silvestri says. Indeed, Euticals has been present with its products in China for many years. “Building on this solid base, further

strategic decisions will be oriented towards re-enforcement in the Chinese market,” Silvestri forecasts. “In addition, ap-propriate combinations will certainly contribute to develop Euticals as a more important global player in the chemical pharmaceutical context. Euticals is constantly looking at new international opportunities, such as in Eastern Europe and Russia where several products have been registered thanks to short approval processes.”

These countries have an interest in relying on Italian pro-ducers such as Euticals because “Italy knows the business,” states Silvestri. “The country’s long tradition of knowledge in the API fi eld enables producers to know exactly how and when things should be done, and to anticipate market trends in order to offer the customers the possibility to be the fi rst entrants in the market.”

INFA Group is the living proof that Italian API’s dyna-mism has been maintained throughout the years. From the foundation of Labochim in 1966 by Ruggero Cardoso, the organization was converted 42 years later into a European group consisting of four manufacturing sites (Labochim and Sivafi tor in Italy; Derivados Quimicos and Kylolab in Spain), supported by Italian private equity fund Investitori Associati and led by the founder’s son Daniel Cardoso.

INFA strives to continuously im-prove the documen-tation’s quality, the level of expertise and the sophistica-tion of technologi-cal processes, Car-doso points, but aside from these aspects, he reveals that the old recipe to succeed did not change over the past 40 years. “The industry has to be

dynamic, not afraid to invest, and have an aggressive ap-proach towards R&D.” He is personally convinced that “the tougher times are, the more the industry has to invest. Companies have to be brave enough to invest in the storm, without waiting until it becomes too late.” These strong convictions enabled Infa group to develop its commercial presence. Cardoso boasts that he could not think of a mar-ket where INFA is not present, and ensures that the group will keep its eyes wide open to new opportunities.

Looking at the potential threat from more cost-effective producers, he cheerfully compares it to the dichotomy be-tween low cost and regular airlines: “Overall, everything depends on the strategic choice made by customers. It is not a matter of country-some extremely good Indian and Chinese producers can be found, as well as some very poor European ones, but some companies are competing at the expense of quality and the amount of risk seems to be high-er in some geographical areas.”

However, there are also some “real” challenges. Even though API manufacturing has been one of the very fi rst global industries, all fi rms are still not playing by the same rules.

Indeed, Baccalini explains that “Italy’s fi rst export mar-ket being the US, the country’s API industry had to develop from the very beginning a high level of excellence in quality control.” For this reason, “inspections are more developed in Italy than in the rest of Europe, being similar and some-times even stricter than the FDA inspections.”

The scarce uniformity at European level is restricting Italy’s worldwide competitiveness, and “the lack of a European equiv-alent of the American FDA stops the system from being clear and transparent enough from a regulatory point of view.” For this reason, Aschimfarma is currently working at the EU level to promote the idea that more traceability standards should be applied to drugs. As Baccalini reveals, 79 percent of API that can be found in Europe are coming from Asia, which is far too

much, as they are not submitted to inspections of any kind. And as Italy submits all its API production to both FDA and local inspections in order to ensure the compliance with Good Man-ufacturing Practice (GMP), Aschimfarma has been suggesting for years the implementation of similar controls at European level. The association is still struggling at the moment to change the mentality. A fi rst written declaration was approved by the European Parliament in 2006, and a second proposal is cur-rently being discussed by the European Commission. Both As-chimfarma and the industry believe that only then, barriers will be at the same level for everyone and competition will be fair.

Even if regulatory issues come as compromising draw-backs, Italian optimism seems invulnerable. Insiders do not doubt that Italian creativity and natural resourcefulness will enable the country’s industry to make it happen.

The Italian for “we have to make it” is “dobbiamo farcela.” A simple yet striking motto,which inspired Marco Falciani. Co-founder and current CEO of ACS Dobfar, Italy’s fi rst API pro-ducer ranking amongst the world’s top fi ve, believes that “with-out inspiration, even the synthetic chemical Industry would fail. The only survivors will be those who are able to combine detailed fi nancial and business strategies with both artistic brilliance and an insatiable enthusiasm for creativity and aesthetics.”



Marco Falciani, President of ACS Dobfar

email: [email protected]

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