Towards Pharmaceutical Renaissance PART TWO

SPONSORED SUPPLEMENT Italy Report

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L’uomo Vitruviano by Leonardo Da Vinci ITALY: Towards Pharmaceutical Renaissance PART TWO

learly, innovation in Italy did not die with Da Vinci. Today, Cthe Italian pharmaceutical industry may lack the large multinationals of the past—Carlo Erba and Lepetit—but it can still play a signiﬁ cant role in the more innovation-driven markets. This sponsored supplement Numbers speak for themselves: 260 biotech companies gen- was produced by Focus Reports. erating a turnover of € 5.4 million in 2008, accounting for more Project Publisher: Béatrice Collet than 0.6 percent of the Italian turnover, and a 24 percent year- Project Editor: Sophie Thiard Graphic Assistant: Omar Rahli on year growth rate with respect to 2007. A pipeline of 258 products in development, of which 136 have already reached For exclusive interviews and more info, please log onto the clinical phase. Italy’s ﬁ rst competitive advantage, extensive www.pharma.focusreports.net or tradition of research excellence, is solid enough to navigate the write to [email protected] sea change generated by the current economic turmoil.

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Going back in time, the National Research Centre so only for personal reasons. Combined with declining invest- (CNR) has been the main breeding ground of Italian sci- ment in research, such defi ciency could compromise the future entifi c discoveries since its creation in 1982–an “origina- of Italian innovation. “However,” Maiani notes, “efforts are tor of innovations,” in the words of current president Prof. being made from the government’s side: the budget dedicated Luciano Maiani. The last restructuring carried out in 2003 to research increased to 2.5 percent in 2008, following years gave birth to “a network of 108 connected institutes spread of steady decline. Therefore, CNR is able to start new recruit- over the territory, and organized in 11 departments.” CNR ment processes and wishes to offer interesting perspectives to currently has 38 spin-offs, three of which in the pharma- young Italians willing to invest in Italy.” ceutical sector. Its role “is to act as a facilitator, connecting Looking at governmental efforts to conciliate cost-con- public and private and creating bridges between the main tainment and innovation, Director of Farmindustria Enrica stakeholders,” he says, offering a gateway to Italian brains Giorgetti identifi es three main measures. “First of all, the for local and international laboratories. implementation of a tax credit for research that can go up Multinational corporations (MNCs) themselves are well to 40 percent for partnerships, with a sealed amount of aware of the opportunities arising from the country’s re- euros 50 million.” In addition, the “Accordi di program- search. French laboratory Servier did not casually choose ma” Plan “with 61 innovative projects in the pipeline for Rome as home to one of the group’s 19 International Cen- a total amount of over €1 billion.” And the last measure, ters for Therapeutic Research (ICTR), instrumental in per- raising expectations of the whole industry is the Industria forming clinical research. General Manager Frederic Fasano 2015 initiative, which plans the allocation of €150 million. backs up this choice: not only does the country offer con- Claudio Cavazza, founder and president of Italian labora- siderable market opportunities, but in addition “the weight tory Sigma Tau, has been appointed general manager of of the Italian scientifi c community is growing, in terms of Industria 2015’s dedicated life-sciences program “New research activities, as well as in scientifi c and political infl u- Technologies for Life” (“Nuove Tecnologie per la Vita”), ence,” he explains. “In some specifi c fi elds, the network’s and recently declared that the only option to cope with the organization and the high frequency of territorial struc- current healthcare crisis would be to bet on genomics and tures enable to perform highly specialized and sometimes personalized medicines. However, due to the costs involved lives-saving procedures.” Such a concentration of centers of by such products “developing innovative medicines now re- excellence is a main asset for this medium-size player that quires pan-European research collaboration of public-pri- proved its ability to compete with giants thanks to a steady vate interaction.” and consistent focus on a few therapeutic areas- mostly Not only is Italy in constant need for young talent and cardiology, diabetes, hypertension and osteoporosis—and government incentives, it is also craving to attract more strong partnerships with the scientifi c community. business angels and venture capital, especially to support On the other hand, Fasano deplores the insignifi cance of translational research in the biotech fi eld. Leonardo Vin- 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 LEFT: Luciano Maiani, President of CNR; RIGHT: Leonardo Vingiani, Assobiotec

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NUMBER OF BIOTECH COMPANIES IN ITALY: tal.” Thus, many are the opportunities for special- DEVELOPMENT OVER TIME ized investors in well-established markets—namely 260 US, Canada, UK, Germany, and France—currently lacking good projects to fi nance. “The Italian en- 211 vironment offers a very good cost-effectiveness ra- tio,” reminds Vingiani. “Italian researchers earn less than in Northern Europe and US,” which 140 makes Italy a safe, profi table bet. Overall, be it because the Italian bio-tech seg- 101 ment is still young, with more than 50 percent of 71 companies created in the last 10 years, or because 49 of brain drain and weak state support, Italian en- 36 trepreneurs still fi nd it hard to translate knowledge into business, and convert excellent research into BEFORE 1981- 1986- 1991- 1996- 2001- 2005- sustainable companies. But even though public- 1980 1985 1990 1996 2000 2004 2008 private partnerships (PPPs) are not yet widely recognized as a best practice by Italian healthcare op- erators in order to open a way forward for Italian giani, director of the biotech companies’ association As- research, Giorgetti sees encouraging signs. She has already sobiotec estimates that “Italy’s fi nancial schemes include noticed that “more and more agreements are passed be- some really good investors for traditional technologies, but tween small companies (mainly specialized in biotech) and regarding innovative technologies there has not been an ef- public institutions like universities, public research centers, fi cient strategy to foster innovation and get fi nancial capi- the Superior Institute for Health (ISS), and the CNR.” CNR is indeed supporting the creation of business projects 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

he Italian Peninsula was unifi ed amidst much strug- Tgle 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 regionalization 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 initiatives 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

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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 ability 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- Toscana Life Sciences park in Siena ing part in the regional fi nancing processes, directly working with the Tuscany authori- the best way to create a healthy competition between regions ties—bringing its knowledge to the bureaucrats, and on the and local incentives for R&D. The structure of Italian science other hand taking advantage of this assignment to put in parks proves this point. Whereas it is not the case in most other place biomedical projects at the regional level.” countries where the national government is strongly involved Clearly, constructive dialogue is now the name of the game; in such initiatives, all the Italian research clusters are hosted by a game which MNCs are also playing. Global giant Pfi zer con- regional and local structures—the main ones being AREA Sci- verted its former country management structure into a Busi- ence Park in Trieste (Friuli-Venezia-Giulia), Science Park Raf in ness Unit model in 2009, but it is still aiming to act local while Milan (Lombardy, Bioindustry Park Canavese in Torino (Pied- keeping an eye on the company’s global strategy—and does mont) , Parco Tecnologico Padano in Lodi (Lombardy) Toscana so in Italy through a series of innovative PPPs with several Life sciences in Siena (Tuscany), and Sardegna Ricerche in Pula Italian regions. (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 biomedical sector, TLS Park eventually aggre- gated a number of successful initiatives 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 often seen as a reference in the Italian biotech world. “By combining its technology transfer role at the regional level and its fo-

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

135 130 125 120 115 110 105 100 2002 2003 2004 2005 2006 2007

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

SOURCE: FARMINDUSTRIA—ISPAT DATA Cees Heiman, Country Manager of Pﬁ zer

So far, explains Managing Director Cees Heiman, “Pfi zer The “Leonardo Project” is a partnership with the Puglia Italy has established four regional PPPs all aiming at improv- Region. Since 2004, it has launched several initiatives like a ing the healthcare system’s quality and effi ciency by combin- new telecardiology service, a disease and care management ing patients’ needs with the necessity to seek greater economic program and a Clinical Governance group for depression. sustainability.” 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 processes 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 management, and the CAMUNI database for epidemiological-cardiovascular 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—including pharma- and biopharmaceuticals, vaccines and nutritional products—and many synergies would be created between Pfi zer and its new partner.” Building on the group’s strengths applied to the Italian context should enable the subsidiary to “remain a most important contribu- tor to Pfi zer’s global success,” Heiman concludes.

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Devolution vs Evolution Unfortunately, the path towards successful regionalization is DISTRIBUTORS SWITCHING also full of hurdles—sometimes easy to leap over, and sometimes not. Amongst those is the extensive interpretation of the INTO HIGH GEAR regions autonomy; especially regarding purchase and provision egardless of ever increasing inequalities between regions, of health care services. Rthe role of intermediate distributors is to ensure the right con- Indeed, each of the 20 regions can decide the quan- servation, distribution, and delivery of drugs in a capillary way tity and mix of each service to be provided, yet securing throughout the territory–and in Italy, this function is executed with the minimum Level of Coverage (LEA) to its population, cumulative costs amongst the lowest in Europe. Despite the Finan- according to budget constraints. Regional authorities have cial Law of 1997 which set that 26.7 percent of the margins of a to contain the pharmaceutical expenditure at a maximum drug sale shall be kept by the pharmacist, leaving 6.65 percent to of 13 percent of the total healthcare expenditure, and are the wholesaler, and the rest to the industry, director of ADF (the free to decide cost containment measures–as co-payments, Association of Pharmaceutical Distributors) Sergio Sparacio likes to limitation to hospital setting for some drugs, limitation for highlight how Italian distribution “really manages to fulfi ll its social sub groups of patients. Pricing and reimbursement is still function, by ensuring the effi ciency of distribution channels not only in theory managed at national level by AIFA, the dedicated in a quick and secure way, but also following cost-rationalization regulatory body, guarantor of the Italian healthcare sys- patterns.” tem’s unity. One example: With two warehouses in Naples and Milan, lo- But, as general manager of AIFA Guido Rasi deplores, gistics provider Petrone group made the choice to make products each region autonomously decides the “real” reimburse- available wherever the customer needs them and is “not willing to ment status of many drugs. Rasi considers “the limitation focus on specifi c regions” remarks its CEO Raffaele Petrone. It is of access to medicines included in the LEA that has been 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 critical 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-wholesaling 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.”

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implemented by some better terms of price and reimbursement, and a higher pur- autonomous regions as chasing power. a grave mistake, creat- This particular environment provides plenty of business ing inequalities related opportunities for Customer Relationship Management pro- to places of residence, viders (CRM). According to Emilano Gummati, Cegedim and affecting the right Dendrite Italy’s general manager, the importance of key ac- of citizens to have an count management is drastically increasing in Italy. “The equal access to health- recent constitutional reform enhanced the power of the re- care.” Rasi believes gions related to market access, and the local authorities are that regions shall un- now fully responsible for their healthcare spending—either derstand that each of through directive or liberal interpretations of AIFA’s central AIFA’s negotiations directives,” he explains. In this context, traditional drug is the conclusion of a promotion addressed to GPs is less effective. “It has been long, careful and rigor- statistically proved that out of 100 products prescribed by ous assessment process a doctor, 46 are the direct consequence of specialist’s pre- conducted in accor- scriptions, and 12 are dictated by the infl uence of the lo- Emilano Gummati of Cegedim Dendrite dance with European cal health authority—this 12 percent rate being currently guidelines and follow- growing at a 40 percent pace per year.” Therefore, GPs are ing the best professional standards. “It is therefore irrel- not fully following their own initiative, and are less infl u- evant for regions to try and replicate some of AIFA’s tools enced by promotions. “Laboratories have to take this trend and assessment bodies; as these processes are very unlikely into account,” Gummati says, and “try to enhance their to have better outcomes once they are multiplied by 20.” drugs’ access to the local health authorities reimbursement Such trend also affects the industry’s behavior, as one could formulary.” be tempted to focus on drugs’ distribution in the regions with As Italian stakeholders evolve, Cegedim Dendrite is

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looking to fulfi ll its Cegedim Dendrite an ideal partner for companies willing ambition to further to expand abroad.” bond with local play- And surely, Italy’s dozens of successful local pharma are in ers. Indeed “Cegedim need of such support. Dendrite has a strong foot in the multina- GREEN FLAG FOR LOCAL ENTREPRENEURS tionals world, but there is room for im- t has always been my dream to become more than a sales provement in the do- “Irepresentative...and my story showed that sometimes, mestic environment.” dreams can become true. I just hope no one will wake me The company would up.” Sicilian entrepreneur Fabio Scaccia, founder and CEO of like to expand with Finderm, sums up in a few words the essence of the Italian en- new offers, more tai- trepreneurial spirit. Having worked as a rep for little less than lored to the needs 10 years, he started his own pharmaceutical adventure when of local laboratories only aged 28, by “launching alone, without a cent, a pharma- Givanni Recordati, Chairman and CEO of willing to expand ceutical company specialized in gynaecology.” Thirteen years Recordati and professionalize later, Scaccia is head of a consistent reality involving 52 col- their customer’s relations. In this process of fi nding new laborators with a yearly turnover surpassing €10 millions, that clients, Gummati reminds that “the one key database’s “now claims to have one of the most diversifi ed gynaecologi- international structure is a main competitive advantage, cal portfolio—including cosmetics, medical devices, pharma which allowed developing international CRM solutions specialties, and integrators, constantly associated together as such as mobile intelligence, a multi-country tool covering to create innovative solutions.” every language, and all types of business needs. This makes The organization seems to have not missed a good opportunity. After having developed strong manufacturing agreements with third parts, it is now willing to achieve international expansion through partnerships 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 representative of the Italian industry. Italy, however, has also been the breeding ground of a number of multinationals, like Menarini, Sigma Tau, Chiesi, Recordati, Bracco, Italfarmaco, Alfa Wassermann, Zambon, Dompé,

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Angelini, Rottapharm.

THE MAN WHO WORKED From generation one to generation three According to industry insiders, leadership of the third genera- ROUND-THE-CLOCK tion is a decisive turning point for a family company—that de- termines either its immediate failure or its long-term triumph. ost of my life, I worked three shifts: arrived at the offi ce at Although unclear as to why this happens, most agree that the 8:30am, went back home at 1pm, was back to work at “M entrepreneurial legacy of the founding grandfathers is either 3pm until 7:30, and then would start again from 10 or 12pm until set or lost forever two generations up the family tree. 3:30 the next morning.” When reaching this crossroad, Giovanni Recordati chose He certainly inspired following generations of Italian en- the way to success. His grandfather Giovanni transformed a trepreneurs. Cavaliere Alberto Aleotti, president of Menarini, small apothecary into a modern drug-based scientifi c busi- might have been awarded entrepreneur of the Year in 2007 ness from 1926 onwards; his father Arrigo took the com- by Ernst and Young; but he prefers to look back at his whole pany towards listing on Milan’s stock exchange in 1984 and career of 67 years dedicated to the pharmaceutical industry realized the fi rst international acquisition in Spain. Build- (of which 45 at the head of Menarini), with a subtle mixture of ing on such heritage, Recordati is now “still betting on a pride and humility. virtuous circle that starts with research activities, directly “I consider this ability to work long hours as a critical suc- leading to the development of very profi table proprietary cess factor in the leadership of Menarini. Having looked at mul- products such as Lercanidipine—successfully exported to tinationals all my life, I always felt I had to do more than them foreign markets and therefore generating profi ts to be rein- in order to reach their level. Coming from a very modest fam- vested in research.” ily, I have been the Aiming to become a “european specialty pharmaceuti- only one from my cal company,” the organization progressively expanded school to fi ght and to France, Germany, UK, Greece, Portugal, more recently go to a university.” Turkey, and Czech Republic, following a mixed strategy of Aleotti´s feat is acquisitions and start-ups. But growth ambitions in some ever so heartening countries sometimes failed “like in Poland, six years ago,” as he had to work Recordati recalls showing that entering a new country re- during the day quires caution, cultural, and contextual awareness. “Being at the Farmacie competitive in Germany or in the UK implies searching for Comunali Riunite specialty niches in a generics-dominated market,” whereas di Reggio Emilia, “Southern European countries still offer opportunities for ¨thus only having co-marketing and primary care,” and “Eastern Europe is the night left to still an adequate land to launch branded generics or other study.” Getting an products that would be outdated in the western part of the Ä¨ grade on a continent,” he says. university exam for Looking at the future, Recordati “does not exclude expan- which he did not sion outside Europe, for instance in the US.” But overall, the Cavaliere Alberto Aleotti, President of Menarini attend class gave CEO is convinced that even though it is always safer to depend him “enough cour- upon a bigger basket of markets, “success is not about size; it’s age to always give a try to what seems impossible and keep about the quality of growth.” following entrepreneurial ambitions.” Surely, Elena Zambon won’t contradict such statement. As His personal ethic has permeated the company he still leads current President of Zambon group, founded in 1906 by her with an iron hand at 86 years of age. “The constant appraisal of grandfather Gaetano Zambon, her key to quality growth is the merit, excellence and hard work is part of Menarini’s DNA,” he ability to read the past and learn from previous experiences. concludes. “Even though I probably should not, because of my “Zambon’s third generation has been and will keep building age, I personally examine each new employee of the company.” on historical values, adapted to the new business environ- Indeed, each of them has to be able to support the winning ment,” she says. strategy of Menarini: “to focus on overtaking bigger players in In the same way Lucia Aleotti is determined to keep terms of quality but also quantity of working hours.” building her Florence-based family company on the same three pillars on which Menarini fi rst successes relied: “research, internationalization, and partnerships.” No third

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generation is involved yet in the leading Italy. Spain, Portugal, and Greece were the Italian group, ranked 19th in Europe and fi rst to be conquered, and “more diffi cult 36th worldwide for retail sales in value, countries,” such as France and Germany, as this pharmacy created in 1886 got came later, followed by the Eastern Euro- to his current position under the strong pean region (boosted by the acquisition leadership of Alberto Aleotti, who took of Berlin-Chemie in 1992), and Central over the business in 1964. America. Aleotti, 86, is still the current presi- The three strategic lines have therefore dent and CEO, working together with been carried hand in hand “such process his two children and assistants Lucia and has been sustained by fully re-invest- Alberto Aleotti. As explained by Lucia, ing Menarini’s revenues in the company, he has been a precursor in understanding a main tool of family companies, which “from the start (the patent introduction don’t have to deliver dividends to stock- in 1978) that research was the key for a holders on a quarterly base.” sustainable future.” The R&D depart- Paolo Zambonardi, General Manager of Despite a €2.5 billion turnover in 2008, ment grew from 11 researchers in 1978 37 percent of which was generated by in- to more than 700 now. However, feeding the company’s ternational sales, Menarini is far from resting on its laurels. own R&D required taking “a second step, by developing As important patents recently expired in Italy, the labora- partnerships with companies sharing similar R&D values, tory is betting on biotech processes to launch the future’s offering a strong knowledge, and excellent compounds in key compounds. Amongst the most promising programs order to learn from their teams much beyond merely mar- are co-development of Ranexa with CV Therapeutics, and keting their products.” At the same time, funding costly re- the ongoing Mimosa project working towards the develop- search required reaching a strong critical mass, well beyond ment of bio-tech vaccines for ovarian cancer. The results of the latter “might give birth to a product 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 entrepreneurial 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 established laboratory, but built Cosmo himself by purchasing Warner Lam- bert’s Lainate plant to link it to the commercial activities of his own previous 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

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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 proprietary 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 LEFT: Fabio Scaccia, CEO of Finderm; RIGHT: CEO of SIFI, Cavaliere Giuseppe and are mainly present in the domestic market, Cosmo fo- Benanti cuses on research and development in a global market.” Similar open-mindedness allowed domestic biotech players to attract global partners. Many MNCs now understand FROM GODFATHERS the need to go scouting for biotech in Italy, and companies TO DRUGMAKERS like Molmed, Axxam, Genextra and Gentium, led by ambi- tious entrepreneurs, are clearly building a bright future for icily plays a major role in a plethora of gangster stories, wheth- Italy’s international presence on the global bio-pharmaceu- Ser real or ﬁ ctional; the initiated also know that it is the land of tical scene. incredibly well preserved Greco-Roman sights and excellent food Less obvious are the benefi ts that the Italian talent for and wine. Fewer, however, are aware that the Italian island more innovation and risk-responsibility brings to the MNCs. recently gave birth to outstanding pharmaceutical entrepreneurs. However, the case of Ferring perfectly embodies such a par- Indeed, not only are Sicilian executives at the head of many suc- adigm. Indeed, as Country Manager Italy of this Swiss lab- cessful MNCs afﬁ liates, headquartered in Milan or Roma, such as oratory, Paolo Zambonardi enthusiastically explains how, Maurizio Castorina of Takeda and Silvio Gherardi of Baxterbut, after having spent his “learning years” in MNCs, joining some also produced remarkable local success stories. family-owned Rottapharm leaded by Prof. Luigi Rovati— Amongst those is ophthalmology-focused SIFI, created by An- “one of the most brilliants Italian researchers”—strongly tonino Benanti in 1936 and now led by his son Cavaliere Giuseppe impacted his future career.“ Indeed, both types of compa- Benanti whose own offspring–Salvino and Antonino–are sharing nies follow very different mindsets; whereas multinationals their time between SIFI and Ferlito, the two family businesses. In the seem to grow by themselves, family-owned laboratories are words of Cavaliere Benanti, “Sicily offers many opportunities to inves- more demanding towards their collaborators, asking them tors willing to take advantage of its privileged geographic position to work in a much more concrete and detailed way.” En- and unique climate proper for agriculture and tourism.” However, “it riched by this experience, he was then able to become “fully is not the same situation for pharmaceutical companies since it lacks responsible for a company,” and “eventually found in Fer- proper infrastructure and is far away from the main markets.” ring the perfect compromise between entrepreneurial spirit Compatriot Fabio Scaccia of Finderm agrees. “Sicily seems to and multinational scope.” offer a challenging business environment, especially for small and me- Zambonardi is now proud to be living—together with dium-sized companies.” But on a more positive notes he remarks that his collaborators—the dream of any pharmaceutical execu- “this context also offers considerable opportunities for bigger players, tive and representative: “To be part of a research company and especially multinationals with the adequate strength and power able to discover new drugs, and offer doctors a lifesaving to bet on the region and revitalize the Catania area. Indeed, Catania product.” Indeed, Ferring will soon be ready to launch Fir- is home to highly skilled professionals and has all the potential to magon, an innovative prostate cancer drug “really able to become the ‘pharmaceutical engine’ of Southern Italy.” increase the patients’ chances of survival—which is not that

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CHARACTERISTICS OF THE INDUSTRY BY COMPANY’S SIZE Distribution of employment by number of employees (percent of total) Pharmaceutical Sector Manufacturing Sector 6.2 15.7

23.8 6.3

57.0 58.5 21.0 11.5

1-49 50-249 250-499 500 or greater Baxter CEO, Silvio Gherardi SOURCE: FARMINDUSTRIA

frequent in today’s pharmaceutical market.” 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 THE RISING GLORY OF “MADE IN ITALY” to pharmaceutical production. According to President of Aschimfarma, the Italian Asso- he Italian fashion industry recently asked for governmen- ciation of Active Pharmaceutical Ingredients (API) produc- Ttal assistance to protect the “Made in Italy” standards dur- 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 manufacturing. “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 manufacturing 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 offering 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 processes, 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 initiatives” 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 focus 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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SPONSORED SUPPLEMENT Italy Report

ties. “The Rieti facilities, fully dedicated to plasma fractionations, are currently receiving major investments 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 leadership 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- Gian Mario Baccalini, President of Aschimfarma; Grunenthal plant. cilities are at least equal to the US and Canadian standards. In addition, “investing in an existing “deliver the best quality, but not necessarily at a higher price plant is less costly than building a new one, even in than its counterparts”—in the words of Italian affi liate’s CEO countries that are considered more cost-effective.” Overall, Silvio Gherardi. while a wave of enthusiasm is currently addressed to emerg- He likes to use a striking comparison when describing his ing markets, there is no doubt that “in 10 years time, these headquarters’ investment policy: “When buying a house in the less developed countries will offer the same price levels and US, it is often said that the choice should be based on three the same amount of obstacles than the mature ones.” For main criteria: location, location, and location. And in the same these reasons, Rieti is due to become “the unique produc- way, manufacturing investment strategies should be driven by tion center for all Baxter’s gamma-globulins, exporting ‘quality, quality, and quality.’” In this context, no surprise worldwide including to the US and Canada, as FDA autho- that Italy became strategically important for Baxter’s activi- 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 additional 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 competitive 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 peninsula’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 dedicated to chemical production for both the group and third parties.

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This site is one of the main producers of generic Keto- and make the difference in a competitive environment.” profen worldwide and its capacity is being doubled in or- Indeed, this trained doctor is keen on reminding the scien- der to produce API for global distribution of Dabigatran. tifi c community that whereas “the industry is aimed at cur- “Construction started two years ago,” explains Country ing people, saving lives, and improving the quality of life, the Manager Sergio Daniotti, “and the new production site will companies’ fi rst social responsibility is to make profi ts.” Fol- be inaugurated and operative by mid-2009. It is a classical lowing its manager’s strong convictions, Boehringer Ingelheim chemical plant, but much more automated and multi-pur- Italy experienced a 9 percent growth in 2008 and expects to posed than it used to be. Seventy additional employees will continue doing so this year. join the current teams, allowing the workforce on site to grow from 110 to 180.” APIs or the Admirable Performance of Italians As third-part business represents about 10 percent of Boehringer Ingelheim’s experience shows that it still makes Boehringer Ingelheim’s sales in Italy, such upgrading process sense to produce APIs in Italy, “because of the country’s com- will allow the company to keep a strong toll manufactur- petitiveness price-wise in relation with the quality requested,” ing segment. Of course, producing for third parts involves according to Daniotti. “Getting API’s from Asia is always adapting one’s mindset. In other words, “when a client asks cheaper, but with time it can create problems in terms of purity, for an offer Boehringer Ingelheim cannot take two weeks and having to re-work a powder involves high costs and strong to make a cost calculation—it has to provide an answer in economic damage.” 24 hours, otherwise there is the risk to lose the customer to Because MNCs are aware of this, there are opportunities the benefi t of a competitor.” But it is on the other hand a to seize for local API producers. More and more of them crucial asset for Daniotti, who is convinced that “this busi- “are starting to promote different and more advanced tech- ness can be seen as opportunistic as it is aimed at covering nologies such as micro-reactors, unlike in India or China fi xed costs filling the plant’s extra capacity, but it is above where only traditional processes can be found,” remarks all a profi table business that allows the company to survive Baccalini of Aschimfarma. This is why Italy is still consid-

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ered as the fi rst API producer in the world—despite fierce strategic decisions will be oriented towards re-enforcement competition from India—mainly exporting to regulated in the Chinese market,” Silvestri forecasts. “In addition, ap- markets such as the US, Europe and Japan. “New markets propriate combinations will certainly contribute to develop are now only accounting for 3 percent,” Baccalini evalu- Euticals as a more important global player in the chemical ates, “but this number is aimed at increasing. Indeed, Italy pharmaceutical context. Euticals is constantly looking at is betting on its technological competitiveness to export to new international opportunities, such as in Eastern Europe countries like India some very specifi c products requiring and Russia where several products have been registered top-level sophisticated processes, for instance in the fi eld thanks to short approval processes.” of injectables.” These countries have an interest in relying on Italian pro- Asian markets have already long been considered a main ducers such as Euticals because “Italy knows the business,” focus for Euticals. Since he took the reins in 2002, President states Silvestri. “The country’s long tradition of knowledge and CEO Maurizio Silvestri developed dozens of contacts in the API fi eld enables producers to know exactly how with Indian partners and customers. But more recently, this and when things should be done, and to anticipate market group of four entities (Euticals, Ambrosia, Prochisa, and Pro. trends in order to offer the customers the possibility to be Bio.Sint) took a determining step by selling the majority of the fi rst entrants in the market.” its stock to the Italo-Chinese private equity fund Mandarin INFA Group is the living proof that Italian API’s dyna- Capital Partners. mism has been maintained throughout the years. From the Both Euticals and Mandarin share “a proactive analysis foundation of Labochim in 1966 by Ruggero Cardoso, the of the opportunities for synergies worldwide with a special organization was converted 42 years later into a European attention to China in term of end market, source of tech- group consisting of four manufacturing sites (Labochim nologies and low cost manufacturing capabilities,” Silvestri and Sivafi tor in Italy; Derivados Quimicos and Kylolab in says. Indeed, Euticals has been present with its products in Spain), supported by Italian private equity fund Investitori China for many years. “Building on this solid base, further Associati and led by the founder’s son Daniel Cardoso.

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INFA strives to much, as they are not submitted to inspections of any kind. And continuously im- as Italy submits all its API production to both FDA and local prove the documen- inspections in order to ensure the compliance with Good Man- tation’s quality, the ufacturing Practice (GMP), Aschimfarma has been suggesting level of expertise for years the implementation of similar controls at European and the sophistica- level. The association is still struggling at the moment to change tion of technologi- the mentality. A fi rst written declaration was approved by the cal processes, Car- European Parliament in 2006, and a second proposal is cur- doso points, but rently being discussed by the European Commission. Both As- aside from these chimfarma and the industry believe that only then, barriers will aspects, he reveals be at the same level for everyone and competition will be fair. that the old recipe Even if regulatory issues come as compromising draw- to succeed did not backs, Italian optimism seems invulnerable. Insiders do not change over the doubt that Italian creativity and natural resourcefulness Marco Falciani, President of ACS Dobfar past 40 years. “The will enable the country’s industry to make it happen. industry has to be The Italian for “we have to make it” is “dobbiamo farcela.” dynamic, not afraid to invest, and have an aggressive ap- A simple yet striking motto,which inspired Marco Falciani. Co- proach towards R&D.” He is personally convinced that founder and current CEO of ACS Dobfar, Italy’s fi rst API pro- “the tougher times are, the more the industry has to invest. ducer ranking amongst the world’s top fi ve, believes that “with- Companies have to be brave enough to invest in the storm, out inspiration, even the synthetic chemical Industry would fail. without waiting until it becomes too late.” These strong The only survivors will be those who are able to combine detailed convictions enabled Infa group to develop its commercial fi nancial and business strategies with both artistic brilliance and presence. Cardoso boasts that he could not think of a mar- an insatiable enthusiasm for creativity and aesthetics.” 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 between 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 higher 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 market 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 sometimes 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

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