Italian biotech steps onto a larger stage

Italy: real growth prospects for small companies.

Investment in biotech R&D totalled €1.3 billion, a 9 per cent year-on-year increase. Of total staff levels of 26,000 more than 6,600 are in R&D.

Overall, equity capital rose 56 per cent, while at 213 per cent the sector posted a particularly strong EBIT growth. Debt levels fell 30 per cent to €1.6 billion.

All these indicators point to there being real growth prospects for small companies, which account for 75 per cent of the sector, according to Stefano Milani, CEO of Blossom Associati, an author of the Assobiotec 2008 report on the state of the sector, published last week.

For now, however, the sector is dominated by medium-sized and large companies, which generate 97 per cent of sector’s sales and are responsible for 84 per cent of R&D. Like their counterparts across Europe, the small technology companies need careful nurturing.

Breaking the IPO duck

For eight long years no Italian biotech company joined the stock exchange in Milan. Instead, companies including Cosmo Pharmaceuticals, BioXell and Newron Pharmaceuticals chose to join the Swiss Stock Exchange in Zurich. That tide was turned earlier this year when MolMed SpA joined the Borsa Italiana, raising €50 million.

MolMed had planned to follow its peers to Zurich. One factor influencing the change of heart was the Italian Exchange’s ability to dispel its image for being slow and bureaucratic; another was the acquisition of the exchange by the London Stock Exchange in June 2007. And of course, listing in Milan provides easier access for the retail investors who own 20 per cent of the shares.

But whatever the business case, MolMed’s CEO Claudio Bordignon hopes that listing in Milan will increase the visibility of the country’s biotech sector as a whole. “Biotech in Italy is strong, but it is rooted in academia.” Now, he believes, the sector needs fiscal and regulatory support to help it grow.

Role of big pharma

Biotech may still be clinging to its academic roots, but Italy has the pharmaceutical industry infrastructure that has been so critical to the development of the sector elsewhere, in particular providing skilled managers.

The country has the third largest pharmaceuticals market in Europe after Germany and France and the fifth largest in the world. Almost 600 clinical studies of biotech drugs were conducted in Italy between 2001 and 2007.

Venture capital is lagging

The report says that venture capital support remains behind Europe’s leading sectors in France, Germany, Denmark, Switzerland and the UK, though this is in part compensated for by bank-owned funds such as TT Venture and Toscana Innovazione. The first has the objective of raising €150 million for technology transfer, which the report says is the weakest link in the value-creation chain of the Italian economy.

The second fund has €45 million of its own funds and is focusing on biotechnologies for the development of innovative start-ups.

Alongside these two is the Fondo Next, set up with the support of Finlombarda and the Lombardy Region. The fund has raised €37 million and invested in three biotechnology companies.

International deal-making

The growing strength of the sector is shown also by a number of international deals, including a €316 million agreement between Nerviano Medical Sciences and leading US biotech Genentech, the acquisition of the UK privately owned neurodegenerative disease specialist Hunter-Fleming Ltd by Newron in an all-share deal valued at up to €25 million, and the merger in November 2007 of US biotech Amgen’s Italian interests with its Italian marketing partner Dompé Biotec.

Overall, says the report the industry is developing well as the growth of companies, employees and sales testifies, and sector has acquired the characteristics of a mature industry. Italy’s biotech sector is now characterised by the ongoing growth of new corporate ventures but also, and more importantly, by the consolidation of established companies, and the elimination of the weakest.

This maturity is also demonstrated other factors. First the sector’s capacity to produce value has been reinforced, as testified by its sizeable pipeline, with steady growth in the number of products in clinical development, all of which are the result of Italian research.

The number of such products has almost tripled in the past two years, rising from 30 in March 2006 to 84 in March 2008. Of the 84 biotech products undergoing clinical development, 33 are in Phase I, 35 in Phase II, and 16 in Phase III. Eight have received orphan drug designation, (3 from EMEA and 5 from EMEA and the FDA). A further 63 products are in pre-clinical development and 99 molecules in discovery, creating a solid foundation for the sector in the coming years.

The financial strength of companies is growing and investment in R&D is increasing.

The report singles out MolMed's listing as a key milestone of Italian biotech, but adds, “The path is still long: Major investment in biotechnology, which has shown itself capable of generating wealth, jobs and wellbeing, is still necessary.”

In terms of the national economy the challenge is to sustain and realise the potential of the Italian sector through appropriate industrial policy. In particular it is necessary to improve the country’s capacity to attract investment, by ensuring that the Finance Act fully implements all the EU’s tax concessions for New Innovative Companies” and increases tax credits on corporate R&D expenditure from 10 to 20 per cent.