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1

IFISE

Contract Number IPS029032PR






Workpackage 6
-
part B




The Italian potential in the Biotech sector

(Draft)




By: Tobia Fiorilli


CAST Consulting


Milano, November 2001



2

TRENDS OF THE INDUSTRY


Since the XIX Century, pharmaceuticals always repres
ented a stronghold of the European industry.
and it still provides the largest contribution to the European trade balance in high
-
technology, R&D
intensive sectors. However, it is now a diffused perception that the European pharmaceutical
industry is losin
g ground vis
-
à
-
vis the United States.


The Italian pharmaceutical industry ranks fifth in the world in terms of turnover, but it recorded the
worst performance in terms of growth among the top six countries in the pharmaceutical industry
during the last de
cade.




Over the last two decades, the industry has experienced some important structural changes, mainly
driven by technological and institutional shocks that have affected all the stages of its value chain
(advent of the molecular biology which caused
a radical shift in the knowledge base and in research
procedures and methodologies). In turn, this has led to changes in firms’ organisation and in market
structure, within domestic markets, regionally, and globally (patterns of division of innovative
labo
ur within the multinational groups and/or outsourcing of research).


In the 90s the US have continued the development of a research intensive industry in the life
sciences, while Europe has been unable to go ahead with the process of vertical specialisatio
n in the
most innovative areas of the sector (Source: “Global Competitiveness in Pharmaceuticals”
-

DG
Enterprise). The table below highlights the organisational differences between USA
-
based and
Europe
-
based firms. The largest part of pre
-
clinical phase a
greements are carried out by USA
-
based
firms, while Europe
-
based firms are more active in the marketing phase licensing agreements. This
trend is particularly true for Italy, that has a very high propensity to license
-
in in the latter phases of
the R&D cha
in compared to US and other European countries.

1999 US$ bn
National turnover
on total
Increase
1989-1999
USA
128,8
42,23%
125,2%
Japan
47,7
15,63%
31,2%
Germany
18,3
6,00%
23,1%
France
17,8
5,85%
38,6%
Italy
11,2
3,68%
17,7%
UK
11,0
3,62%
74,0%
Source: Farmindustria 2000
TURNOVER PHARMACEUTICAL INDUSTRY

3







The poor level of R&D activities in the Italian Pharmaceutical industry is confirmed by:



a low level of investments (expenditures of total revenues);



a low level of R&D personnel employed.



Pre-clinical
in
300 (62,4%)
132 (27,4%)
49 (10,2%)
out
USA
Europe
Japan
350 (73,4%)
USA
84,30%
50,00%
40,80%
96 (20,1%)
Europe
10,70%
41,70%
6,10%
31 (6,5%)
Japan
2,30%
4,50%
34,60%
Clinical III
in
80 (45,5%)
57 (32,4%)
39 (22,1%)
out
USA
Europe
Japan
98 (55,7%)
USA
67,50%
54,30%
33,30%
52 (29,5%)
Europe
27,50%
38,60%
20,50%
26 (14,8%)
Japan
5,00%
7,10%
42,60%
Marketing
in
478 (29,3%)
820 (50,3%)
331 (20,4%)
out
USA
Europe
Japan
503 (30,9%)
USA
42,30%
23,90%
31,70%
763 (46,8%)
Europe
38,10%
56,10%
36,60%
363 (22,3%)
Japan
19,60%
20,00%
31,70%
Source: Global Competitiveness in Pharmaceuticals - DG Enterprise
LICENSING AGREEMENTS IN R&D
N
L/H
LP/L
L1-2/L
L3/L
LR/L
LM/L
USA
1997
2257
29,5%
47,5%
20,2%
7,8%
9,0%
15,6%
1998
2353
33,6%
48,9%
20,6%
6,9%
8,7%
14,8%
UK
1997
442
20,0%
34,0%
10,0%
9,0%
7,0%
40,0%
1998
468
24,0%
38,0%
9,0%
11,0%
6,0%
35,0%
Germany
1997
476
40,4%
16,7%
6,5%
6,5%
22,6%
47,7%
1998
482
47,8%
19,8%
6,4%
8,3%
21,1%
44,4%
France
1997
281
33,1%
15,7%
4,2%
5,7%
21,4%
53,0%
1998
295
42,5%
28,4%
7,9%
4,5%
17,0%
42,0%
Italy
1997
187
54,5%
6,0%
4,5%
6,0%
19,7%
63,8%
1998
178
60,3%
5,9%
5,9%
5,9%
19,4%
62,9%
N: Number of R&D proj.
LP: Licensed-in in pre-clinical phase
LR: Licensed-in in registration phase
L: Projects licensed-in
L1-2: Licensed-in in Phase 1-2 Clinical
LM: Licensed-in in marketing phase
H: In-house projects
L3: Licensed in in Phase 3 Clinical
Source: Global Competitiveness in Pharmaceuticals - DG Enterprise
PROFILES OF R&D BEHAVIOUR

4



The I
talian pharmaceutical industry is populated by very different firms:



The multinational companies, which cover between 70% of the Italian national market (Source:
Farmindustria 2000). Although they do keep a good share of activities and sales in their own
d
omestic, or at least continental markets, these companies operate across national or even
continental borders, and they set divisions and activities in other countries and regions as well.
Often, their property is spread across different countries, particu
larly Europe and the US. These
are highly R&D
-
intensive companies with large sunk costs

both in R&D and in marketing and
distribution assets. (Bayer, GlaxoSmithKline, Schering Plough,…)



The smaller companies which are specialised in the sales of non R&D
-
in
tensive drugs. They
conduct mainly manufacturing and commercialisation activities, and do not invest in radical
R&D. These are typically national companies which operate almost exclusively in their own
markets. (Sofar, Lilly, Salf,…)



The New Biotechnology
Firms (NBFs). Since the past twenty years or so, another set of
companies have populated this industry, mainly the research intensive companies that have
sprung off from the new opportunities opened up by the life sciences. These companies are
specialised
in the new biotechnologies, and their activities range from the discovery and
development of new drug compounds to the development of new drug screening or research
tools and technologies in fields like genomics, bioinformatics, etc. These areas of activit
y are to
be considered when looking at Potential entrepreneurs in the high
-
tech pharmaceutical industry.

(Novuspharma, Antibioticos, Biosearch,…)


The life sciences have transformed the prospects and the processes of drug discovery and
development. The

tra
ditional process of discovery involving few targets and some number of
chemical structures against which the targets were screened has proved inadequate in terms of
generating the quality and quantity of compounds that have the potential of becoming
Italy
France
Germany
UK
US
Japan
R&D/Turnover Ratio
6,02%
12,33%
10,72%
19,97%
15,91%
20,04%
Source: Farmindustria 2000
Italy
France
Germany
UK
US
Japan
R&D personnel
5.024


15.200


15.000


20.900


51.000


34.437


% of R&D personnel
on total personnel
7,18%
16,87%
12,99%
28,25%
19,62%
28,24%
Sorce: Farmindustria 2000
R&D INVESTMENTS
R&D PERSONNEL

5

intere
sting drugs. The pharmaceutical industry has begun to adopt different technologies to
achieve better, faster, and cheaper routes of drug discovery and development.


Biotechnologies are based on the development taking place in the biological sciences and i
n the
techniques connected to them and offer great potential for innovation in the realisation of totally
new products. This industry will probably represent in the next future a more and more
important supplier for the pharmaceutical community, providing
new technologies that can be
implemented by bigger drug companies. In this manner, the two industries have a symbiotic
existence.

Hereafter their main characteristics:

-

their activity has a high technical and scientific content;

-

they have close relations wi
th the basic research done in universities and research institutes;

-

they display a willingness to have flexible relations with integrated companies (joint
ventures, commissioned research, etc.)

-

they are marked by an aptitude for the discovery of new produc
ts and new processes;

-

they are active in transferring basic research to large corporations;

-

they represent investment opportunities for venture capitalists, investment banks and large
corporations


Increasingly stringent requirements for the approval of ne
w drugs, together with the orientation of
research towards increasingly complex pathologies, have implied
larger, more costly and
internationally based clinical trials. Nowadays, an R&D project for a new drug is likely to last 8
-
12
years, with a cost in th
e range of US$ 350
-
650 millions (Source: Robertson Stephens


2001)

.
While cost can be reduced to some extent by the use of more efficient, hightroughput drug
screening technologies at the pre
-
clinical stage of development, the time lines are unlikely to

diminish significantly over the coming decade as the majority of the time is taken up by animal
testing and clinical trials, which are not subject to acceleration by any technological improvement.


As can be seen from the figure, drug development is highl
y risky. The probability of a success of a
product in Phase I clinical trials reaching the market is only 20%. This improves to 30% in Phase II
and 70% in Phase III.





6


THE DRUG DEVELOPMENT PROCESS




Clinical Development




Lead
Discovery

Pre
-
Clinical
Development

Phase I

Phase II

Phase III

Regulatory
Review

Phase IV

Purpose

Identification
of candidate
drug
molecules for
pre
-
clinical
development

Determination of
toxicity and
pharmacokinetics
in animals

Determination of
safety, tolerability
and
pharmaco
kinetics

Determinati
on of
posology
and
efficacy

Determination
of absolute
efficacy
according to
statistical
significance

Data package
is submitted to
EMEA

To provide
additional
evidence of
efficacy
(market)

Description








N° of patients

NA

NA

10 to 5
0 healthy
humans

20 to 200
patients

100 to 5.000
patients

NA


Duration

NA

NA

12 months

18 months

36/48 months

12 months

6/24 months

Probability of
Approval

NA

NA

20%

30%

70%

80%

90%

Source: Robertson Stephens
-

2001


Developments in legislation and in c
ourts’ interpretation of issues concerning intellectual property
rights, have led to a redefinition of the nature and the complementarities between the fundamental
economic actors in the industry, namely companies with R&D and innovative competencies or
ma
rketing and distribution capabilities, and other research organisations like universities and public
and private research centres


The huge amount of money and time needed to develop a product from A to Z (research,
development and industrial production),
the explosion of technological opportunities and the
relevance of pure scientific, academic research for innovative activities associated with the advent
of molecular biology, has meant that no individual firm can now be able to master internally all the
k
nowledge required to discover and develop a new drug. Coupled with the establishment of
property rights on such knowledge, all this has allowed the emergence and development of an
important market for technology and a real business opportunity for SMEs in
this industry (mostly
biotech companies).


In this new industrial environment, new firms, mainly specialised suppliers of specific techniques
and intermediate products to larger companies, are playing a more and more important role.
Established corporation
s are experiencing complex processes of adaptation, absorbing new
competencies and adopting new forms of organisation of research, which rely crucially on the
development of networks of collaboration with universities, public and private research centres a
nd
other companies, especially New Biotechnology Firms (NBFs).


In the last decade, Europe has not really given rise to an industry of innovation specialist companies
and technology suppliers like in the US. Evidence shows that the European drug multinatio
nals

7

have increasingly relied on sources of research capabilities and innovation located in the US,
relocating their most important R&D centres in the US, underlining the lack of a European industry
of technology suppliers
.



8


ITALIAN GEOGRAPHIC AREAS ACTI
VE IN THE SECTOR


Following is a table reporting the regional localisation of production and R&D units of pharmaceutical companies in Italy, wi
th relative employees
in the areas of activity.





Main industrial poles for the pharmaceutical industry are Mi
lan (Lombardia), Rome (Lazio) and Florence (Toscana) and to a certain extent, Verona
(Veneto). This concentration is confirmed also by the maps hereafter concerning both the distribution of inventors and patent
s filed per Local
Labour System.

Region
Local units
Administrative
units
Research
centres
Production units of
raw materials
Production
units of drugs
Employees
Employees in
R&D activities
Abruzzo
6


1


2


6


917


43


Basilicata
1


1


429


Calabria
Campania
5


1


2


3


1.316


32


Emilia Romagna
12


5


7


3


7


1.894


252


Friuli Venmezia Giulia
2


1


2


1


2


227


8


Lazio
64


43


18


13


23


13.179


827


Liguria
7


5


3


1


6


438


27


Lombardia
121


77


38


12


51


31.145


2.963


Marche
2


1


1


2


671


48


Molise
Piemonte
16


6


2


4


9


2.568


191


Puglia
4


2


2


1


99


3


Sardegna
Sicilia
3


2


2


2


1.233


32


Toscana
31


21


13


3


21


5.991


419


Trentino Alto Adige
Umbria
Valle d'Aosta
Veneto
11


8


4


3


7


2.984


521


TOTAL
285


173


92


44


141


63.091


5.366


Source: Farmindustria 2000

9







#
R
O
M
A
#
M
I
L
A
N
O
S
l
l
9
1
.
s
h
p
S
l
l
9
1
.
s
h
p
1

-

3
4

-

7
8

-

1
5
1
6

-

2
7
2
8

-

8
5
8
6

-

2
2
4

Number of inventors

Total inventors in pharmaceuticals (years 1995
-
2000):
705

Inventors in pharmaceuticals per Local Labour System

k
M
I
L
A
N
O
k
R
O
M
A
S
l
l
9
1
.
s
h
p
S
l
l
9
1
.
s
h
p
0
.
1
4

-

1
.
2
4
1
.
2
4

-

3
.
5
9
3
.
5
9

-

7
.
5
7
.
5

-

1
8
.
3
1
8
.
3

-

5
8
.
1
3
5
8
.
1
3

-

1
0
7
.
6
7

Number of patents

Total patents in pharmaceuticals (y
ears 1995
-
2000):
335

Patent applications in pharmaceuticals per Local
Labour System


10

Milan are
a

Greater Milan area has been awarded the title of region of excellence for innovative start
-
ups from
the European Commission (CE, 2000). There is scarcely any doubts that the Milan area is the most
innovative in Italy and one of the few that include all i
ngredients required for a fertile high
-
tech
industry growth such as sound industrial basis, many research institutes and innovation
-
related
finance. The Milan area produces 20% of the total Italian GDP and 3,3% of EU GDP. 1,5 million
people out of 3,7 are
employed, 24% of these are self
-
employed. Unemployment is usually lower
than national average (6,6% as opposed to 11,8% in 1998).


On a population of only 3,7 million, the greater Milan area has 7 universities and 24 research
centres. In the pharmaceutical

and pharmaceutical
-
related industry, a few centres can be considered
international centres of excellence: the San Raffaele hospital, the University of Milan and the CNR
Cellular and Molecular Pharmacology Research Center.


Venture capital funds which have

blossomed in Italy during the last five years and Italian and
international financial institution are mostly located in Milan.


The province of Milan is one of the 100 European areas that, thanks to the EU support, has created
and promoted a framework on
innovation policies and technology transfer, mainly for the benefit of
SMEs (RITTS
-

Regional Innovation and Technology Transfer Strategies and Infrastructures), co
-
financed by the DGXIII and the Provincia di Milano.


The RITT project carried a survey on t
he innovation potential of the province of Milan which
highlighted the following peculiarities and trends:



the local system of SMEs strongly focuses on innovation;



innovation is driven in an autonomous way from within the enterprise



SMEs tend to individual
ly run the innovation process;



little co
-
operation exists among companies, because they fear know
-
how lose;



potential demand for support services concerns mainly the management of the innovation
process;



focus lies more on information about innovation than

on technological assistance



there is great demand for marketing services and finance for innovation;



SMEs have insufficient financial resources and lack skilled personnel;


11



SMEs rarely outsource services and there is little information about available serv
ices in the
province of Milan.


Several innovation support structures are active in the Milan area, but, as far as innovation is
concerned, no strategic plan at provincial level exists. Following is a list of main innovation support
structures in the Milan

area.







RESEARCH INSTITUTIONS

University of Milan
.

San Raffaele hos
pital
.

CNR
-
Cellular and Molecular Pharmacology Center
.

Politecnico of Milan

Istituto Mario Negri

TECHNOLOGY TRANSFER INSTITUTIONS

Biopolo

San Raffaele Science Park


AGENCIES FOR THE DEVELOPMENT OF ENTREPRENEURSHIP

BIC La Fucina.

Incubatore Tecnologico la

Bottega di Leonardo

Euroimpresa Legnano


12

FIELD SURVEY


Methodology

The data presented in the previous section highlights a net predominance of the Milan area in the
pharmaceutical industry, both in terms of companies located in the area and in terms of R&D
activity (number of pat
ents filed and of employees in R&D centres). For this reason the field
research focussed on the Milan area following the steps hereafter.


Long list creation

The original database of inventors counted 224 contacts. We tried to contact them through the
comp
any they patented their invention for. Effective first connections from this list were 140.


The result was not satisfactory as most of them never thought to exploit their invention creating
their own company. Therefore, the original database has been enr
iched with further contacts.
Personal contacts were utilised and relevant innovation centres and technology transfer centres were
contacted: incubators, research centres of universities and hospitals in the greater Milan area
(Biopolo, San Raffaele Science

Park, Pharmacology Department of the Milan University,
Pharmaceutics Sciences Institute of the Milan University, Consiglio Nazionale delle Ricerche
(CNR), Mario Negri Institute).


Short list creation

After a first screening via telephone or e
-
mail, some 6
0 managers/experts/researchers in the
pharmaceutical industry were interviewed. Though not all of these persons could be considered
potential entrepreneurs or start
-
up managers, they contributed to our understanding of the sector.

17 out of these 60 person
s could be considered potential entrepreneurs and were interviewed
following the questionnaire as guideline, while 4 of them represented start
-
up companies.




P
OTENTIAL ENTREPRENEU
RS


Potential entrepreneurs interviewed can be regrouped in 2 main categori
es:



People working in research groups of large pharmaceutical companies (from the database of
inventors).



People working in research centres of universities or hospitals (from other sources).



13

There are some general considerations that are valid for the 2
groups:



Cultural barrier. Researchers usually “love” research and a big company or a university centre is
a privileged place to do it, as they have the necessary budget and structures and they find
themselves in optimum working conditions. If we look at re
search departments in US academic
institutions, we can see they have a well
-
established entrepreneurial culture. Researchers are
ready to attempt to commercialise their biotechnology discoveries, and many investors and
entrepreneurs are willing to help the
m. Universities themselves foster the commercialisation of
discoveries made in their laboratories. By contrast, Europe and Italy in particular is
characterised by a relative shortage of entrepreneurial spirit and a scarce propensity to risk
within the phar
maceutical industry.

Top executives at start
-
up firms typically come from large pharmaceutical companies or
University research laboratories. To this extent it must be said that the flexibility of the
American academic system and, in general, the high mobi
lity of the scientific labour market,
make less risky for a researcher in the university environment or in a company, to decide to
leave the position and create his own business. These scientists/managers would hesitate in
moving to a start
-
up if the caree
r risk of doing so were large. Furthermore, in Italy, the tradition
of academic elitism, which tends to discourage commercial involvement in academic science,
persists.




Scarce perception of the market. They usually can hardly make estimations about the va
lue of
their potential idea, and of what kind of agreements could be possible with other companies.
Italian companies have been more sluggish in adopting molecular biology and bioinformatics as
compared to their American competitors.




. The Italian firms
have remained for a longer time more closely linked to the “chemistry”
research. Given the delay in the adoption of molecular biology by the large companies, start
-
ups
lacked an essential source of business opportunities. Moreover, according to the informa
tion
collected with the interviews during the catching
-
up process the large European companies
turned to the American companies and established agreements with US companies rather than
Italian
.

All in all these dynamics have further kept away from the mark
et the Italian scientific
community.




Lack of resources associating economic and scientific skills. To this extent the relevance of the
research
-
teaching nexus is very important. The diffusion of molecular biology into general

14

training in Italy is a relati
vely recent phenomenon as compared to the USA. Research has tended
to be confined into highly specialised laboratories in universities and in public research centres,
with little interaction with teaching and industrial research. Vice
-
versa in Italy it is
difficult to
find researchers undertaking economic studies (i.e. MBA) in order to complete their education.




Huge time and investment needs and low rate of success. As stated earlier it is currently
estimated to cost between US$350 and US$650 millions to t
ake a drug from initial concept to
market. The probability of a product in Phase I clinical trials reaching the market is only 20%.
This improves to 30% in Phase II and to 70% in Phase III. There is a component of this risk that
can be contained by a metic
ulous design and management of trials, but much of the risk is due
to biology, and no matter how good are the pre
-
clinical data, its effectiveness is never clear until
the clinical trial process is complete.


A far as the researchers working in large compa
nies are concerned, we had some difficulties in
identifying some real potential entrepreneurs (researchers that have a concrete idea and that have
thought about creating their own firm). The main reasons are:




main large companies in Italy do not carry out

“innovative research”, but they are specialised in
“incremental research”. These impressions that we got from interviews are confirmed by
statistics: we can see that the share of patent citations, which provide a better measure of the
technological and ec
onomic potential value of innovative activities than patent counts as they
can be considered key inventions on which further patent must refer to, is higher than the share
of patent counts, which suggests that on average US patents are relatively more impo
rtant.
Furthermore evidence shows that US firms have consistently over time the highest propensity to
collaborate in the pre
-
clinical phase, while collaboration in marketing (i.e. distribution) remain
significant in Europe and particularly in Italy. Moreov
er, US firms are more frequently the
originators of new R&D projects, while other European countries are typically developers
(licensees). Italy has a high propensity to license
-
in in the latter phases of the R&D chain, from
US, UK and Swiss firms.


15







t
he property rights of whatever research activity carried out within a company belong to the
company the researchers that have developed it are working for. It is not possible to exploit any
result of this activities without the authorisation of the company

(controls are very strict). As we
have seen earlier in this report, in this industry several years of research are needed before
identifying some molecules that could be potentially interesting, and even when a molecule is
potentially interesting its poss
ibility to actually become a drug is very low. During the phase
that has been defined “Lead Discovery”, which is necessary to pass from an “idea” to the pre
-
clinical development, some 5.000/10.000 molecules are analysed and it is hardly conceivable to
carr
y out this research in parallel with ones own work in the laboratories of a company.


In the group composed by people working in research centres of universities or hospitals, potential
entrepreneurs are more frequent. The peculiarities of this group is th
at usually these persons are
Country
1978-1987
1988-1997
Total
1978-1987
1988-1997
Total
Canada
0,98
1,54
1,4
0,97
1,93
1,67
Switzerland
4,08
2,94
3,23
3,61
3,79
3,74
Germany
18,22
12,8
14,17
13,03
10,03
10,85
Denmark
0,59
0,8
0,75
1,43
2,35
2,1
Spain
0,18
0,45
0,38
0,14
0,4
0,32
France
7,38
9,69
9,11
7,18
6,98
7,04
Italy
2,85
3,24
3,14
1,06
1,75
1,56
Japan
15,02
13,64
13,99
22,21
17,06
18,47
Sweden
2,02
2,18
2,14
2,07
1,07
1,34
UK
8,59
7,73
7,95
7,12
7,85
7,65
USA
40,09
44,99
43,74
41,18
46,79
45,26
Total
100
100
100
100
100
100
Source: European Patent Office
Pharma %
Biotech %
Shares in terms of number of patents by location of inventors
Country
1978-1987
1988-1997
Total
1978-1987
1988-1997
Total
Canada
1,21
1,55
1,45
0,83
1,65
1,32
Denmark
0,91
0,87
0,88
1,45
2,73
2,21
France
5,48
6,85
6,44
4,77
5,18
5,01
Germany
12,86
8,59
9,85
7,58
6,87
7,16
Italy
1,81
2,7
2,43
0,57
1,17
0,92
Japan
17,37
12,36
13,84
16,56
11,77
13,72
Spain
0,11
0,23
0,19
0,2
0,14
0,16
Sweden
2,42
1,88
2,04
1,63
1,21
1,38
Switzerland
4,02
2,98
3,29
4,17
5,12
4,73
UK
9,48
10,98
10,54
8,08
8,57
8,37
USA
44,33
51,01
49,05
54,16
55,59
55,02
Total
100
100
100
100
100
100
Source: CESPRI database on European Patent Office
Pharma %
Biotech %
Shares in terms of patent citations by nationality of assignee

16

freer to carry out independently their own research using the infrastructures of the university or the
hospital. In this case the researcher should not start its entrepreneurial activity from scratch, but he
could take his prel
iminary results (identification/characterisation or beginning of the pre
-
clinical
phase) and go ahead from this point (even if there are still some legal problems).


General data

All the interviewees live and work in the greater Milan Area.

They work eithe
r in the academy (8/17) or in the R&D departments of high technology companies
(9/17).

Most of them have a degree in Life Sciences (12/17), three of them have a degree in Chemistry
(3/17), two in Electronic Engineering (2/17).

2 of them have, in addition t
o their science/technology degree, a master degree in management
(2/17).

3 of them completed their education with a PhD in Life Sciences abroad (USA and Switzerland).


Characteristics of the would
-
be entrepreneurial venture

None of the potential entreprene
urs had a previous entrepreneurial experience.

9 of them intend to create their own firm, while the 8 remaining got discouraged by the practical
difficulties.

15 of them intend to provide products to other companies (new molecules), while the other 2 inten
d
to offer some services to other companies (laboratories with innovative instruments and/or
processes).

8 of these projects were developed in an academic context, while the 9 remaining were
developed in high technology companies (1 in a 20
-
49 employees co
mpany, 8 in a >49 employees
company).

The interviewees coming from the University context actually intended to create their own
company.

All the interviewees coming from the Industry context but one stated that they were discouraged by
the practical diffic
ulties


The main competitive advantages of the project identified by the potential entrepreneurs concern
the fact that they intend to create radical innovative products rather than marginally improving
existing ones or production processes. Hereafter is a
list of perceived advantages of the projects:



New need (8)



First Mover (6)


17



Sector knowledge (6)



Technical knowledge (5)



Service (5)



Personal contacts (3)



Price (3)



Process innovation (1)


Most interviewees (14/17) attributed to the location of the new firm

a great importance. The most
frequently indicated factors in determining the importance of the location are the presence of
adequate infrastructures and services. Hereafter are the characteristics they attach more importance
to:



Infrastructures (10)



Avail
ability of services (8)



Availability of qualified human resources (4)



Proximity of other companies of the same industry (2)



Availability of suppliers (1)



Financing

It has already been mentioned that a R&D project for a new drug can cost in the range of U
S$ 350
-
650 millions. The organisation of the industry is experiencing an extensive vertical specialisation, in
order to exploit the respective comparative advantages of larger and smaller firms. Larger
companies rely more and more on SMEs specialised in th
e exploration of new technologies and
innovation opportunities, while they are specialising in their exploitation,.

Given this general framework, it follows that potential entrepreneurs will focus on a particular part
of the drug development process, most
likely the Lead Discovery, Pre
-
Clinical Development and
Phase I of Clinical Development.


As far as the financing needs are concerned it is difficult to give some general figures as it depends
on the phases the potential entrepreneur is willing to carry ou
t, the product that is going to be sold
and the kind of structures that are needed (different "safety" degree are needed depending on the
products developed and the costs differ hugely).



18

Potential entrepreneurs usually know the existence of structures or
measures aimed at financing
and/or helping start
-
ups, while they do not prove to know their actual functioning and procedures.

Only three of them (3/17) have applied to public incubators, while other 3 (3/17) consulted Venture
Capitalists.


Main perceived
problems associated with applying to this kind of structures and measures are:



Revealing confidential information (Incubators (8/17) and VCs (7/17))



Bureaucracy (Incubators (8/17)


Hereafter is an average of marks associated to the perceived difficulty rel
ated to the particular areas
of activities for the setting
-
up of a new firm:



Fund raising: 4,5



Intellectual property rights: 3,75



Strategic plans: 3,75



Marketing: 3,4



Management: 3



Development of contacts (2,75)



Market trends: 2,75



Consulting and legal asp
ects: 2,75



Human resources: 2,5



Technical information: 1,25

The most difficult activity perceived is fund raising. This is not surprising if we consider the low
probability of success and the high financing needs of the projects. Another point that needs t
o be
mentioned is that most potential entrepreneurs are not willing to invest their own money in the
project. This probably another aspect of the cultural barrier that have already been mentioned but
also a response to the high risk intrinsic to most of th
e R&D projects in the pharmaceutical industry.



Personal characteristics and perceived difficulties

Potential entrepreneurs’ main concerns are:



They have difficult access to seed capital.



The venture capital funds are not considered an interesting way as
in the majority of cases they
do not have concrete results to negotiate with VC (the project has still a low value). When the
VC is disposed to enter at this stage it wants a large part of the company (75
-
80 % or even

19

more). The researcher would prefer to
find some seed capital to bring the project to a further
stage (for example to complete the pre
-
clinical stage as a successful project after the pre
-
clinical
phase increase dramatically its value).



The law that banned university researcher from working in
private firms (with the new law
probably things will be easier).



Researchers usually have an extreme risk aversion and are not willing to leave their academic
tranquillity for an erratic but potentially successful future.


Hereafter is an average of marks
associated to the perceived advantages and disadvantages related
to becoming an entrepreneur:

Disadvantages



Should leave an assured job: 2,6



Legislation too harsh in case of failures: 2,2



Would lose peacefulness: 1,8



Would have less leisure time: 1,4



Shoul
d change place of residence: 1,0


Advantages



Personal fulfilment: 3,9



Higher reward: 3,4



Higher flexibility: 2,5


These results confirm the scarce propension to risk of the potential entrepreneurs, while they seem
not to be afraid of working more intensive
ly. As far as the advantages are concerned, personal
fulfilment and the possibility of getting an higher reward are perceived as the most interesting.



S
TART
-
UPS


Technology transfer offices in the Milan area in the field of pharmaceuticals

In the Milan
area there are some institutions created within universities or hospital research centres
which main aim is to create a link between the business world and the academic research in the
biotech field (Biopolo, San Raffaele Science Park). These centres seem
to play a key role in the
creation of start
-
ups in the pharmaceutical industry, but are still functioning at low speed probably

20

due to the fact that they have still some difficulties in identifying some potential entrepreneurs
ready to start their business
. This seem to be mainly due to the legal barriers which make it still
difficult to be an «entrepreneur» and a university professor at the same time, though things are
expected to change with the introduction of the new law.


Biopolo

Biopolo is a non
-
profi
t consortium founded in January 1995 by Pharmacia & UpJohn, Lepetit
Group, Zambon Group S.p.A., Primm and Hydra to promote ideas and initiatives in the biotech
industry.

Current shareholders include: Biosearch Italia S.p.A., Zambon Group S.p.A., Primm and
Hydra.

Biopolo was formed following "Biopolo Milan" feasibility study conducted at the beginning of the
1990s by a promoters' committee co
-
ordinated by the Metropolitan Interests Association. The
following bodies participated in the project:



Lombardy Regio
nal Council,



Assolombarda,



Milan Provincial Council,



Milan Municipal Council,



Università degli Studi, Milan

By virtue of its statute, the consortium is open to new members
-

both public and private.


Biopolo occupies 350 square metres of laboratories and

offices situated in the Centre of Excellence
in Industrial Biotechnology of Milano
-
Bicocca complex, at the Department of Biotech and
Biosciences.


Biopolo is active in the promotion of biotech in Italy, dealing with the technological transfer of
universit
y research results to industry and commercial enterprise. Its aim is to:


Maximise scientific research in order to



Increase research institution visibility;



Improve Italy’s scientific heritage;



Stimulate the competitiveness of SMEs (small and medium
-
size
d enterprises).



Create a fully equipped research centre


21



To house pilot studies capable of identifying, developing, distributing and transferring new
technologies.


Promote the transfer of new technologies



By developing basic research applications;



By
providing back
-
up to the creation of start
-
ups and spin
-
offs.


Generate financial backing for research by investing applied research proceeds to



Enable researchers to access avant
-
garde equipment and laboratories;



Provide back
-
up, even in financial terms
, for the creation of start
-
ups and spin
-
offs.


The operating tools used by Biopolo to achieve set objectives include:



Framework Conventions with Università degli Studi, Milano (1996) and Università degli Studi,
Milano
-
Bicocca (1999), through which the p
arties set up and administer the implementation of
scientific and technological research portfolios, even on behalf of third parties.



A flexible and fast
-
developing infrastructure, comprising various scientific and industrial
entities in the Lombardy area

in order to integrate University, Regional administration and
Company skills.


Biopolo not only conducts in
-
house research ideas but also research on behalf of third parties
(contracts with national and multinational chemical and pharmaceutical companies)
. The key to the
success of this portfolio is cooperation, governed by the requisite Framework Conventions, with
Università degli Studi, Milano and Università degli Studi, Milano
-
Bicocca.


Biopolo carries out specific feasibility studies prior to the devel
opment of new enterprise initiatives
including MBOs

and/or Spin
-
offs

in the pharmaceuticals field, Biotech Science Park Projects, and
Centres of Excellence for research and technological transfer.


Biopolo promotes the creation of new companies in the bio
tech industry and supports their
development by providing services including: business plan assistance, identification of financing
options, assistance in the definition of intellectual property and patenting aspects, leasing of suitably
equipped areas for

laboratory and office use, search for technological partners, administrative
outsourcing packages, finance, management control, office purchase assistance and human resource
consultancy.


22


San Raffaele Science Park

The San Raffaele Foundation is a non
-
pro
fit private entity established in 1970 with the aim of
creating hospital structures to give highly qualified medical care.

In the last decades the Foundation has been very active in funding and supporting Research &
Development.


Science Park Raf Spa is a
private company owned by the Foundation, and it is responsible for the
management of the research activities of the San Raffaele Biomedical Science Park. The San
Raffaele Biomedical Science Park is the largest facility of its kind in Italy. It was created
in 1993 to
provide technological support for research and project development.

This has been achieved by offering a wide range of scientific services across various areas of basic
and clinical science.

The park comprises 1.6 million square meters of fully
equipped space with about 4000 people
working on its premises.

Already present on the site, in addition to the
San Raffaele Hospital
and the Department of
Biological and Technological Research (
DIBIT
), are several groups of initiatives such as:
-

Research institutes of pharmaceutical and diagnostic companies
-

Research laboratories of
biotechnology enterprises and other initiatives
-

Initiatives of other foundations li
ke Cystic Fibrosis
Association and Telethon.


The company is empowered to implement the following activities:



R&D management



to ensure third
-
party access to the large
-
scale scientific equipment and research support
structures present on site;



to supply m
anagement and logistic services;



to assist in the preparation of industrial R&D projects and in the presentation of such projects to
national and international governing and financing bodies;



to promote and manage research and development projects;



to o
rganise training activities by means of specific courses, seminars and congresses, through its
Congress Center.


The Biotechnology Transfer Office was created in 1995 within Science Park Raf Spa, with the aim
of managing all the Science Park's technology t
ransfer activities related to biotechnology, such as:


23



technology innovation and transfer



licensing in/out



patent policy



creation of biotechnology start
-
up companies and joint
-
ventures



definition of research and development contracts and project manage
ment



promotion of biotechnology transfer from basic research to private companies or directly to the
market



assistance in the marketing and commercialisation of products and activities generated by the
various research projects in the Science Park

In th
e period 1995
-
2000 The Biotechnology Transfer office Filed 40 patents applications, signed
141 R&D contracts with 50 external pharmaceutical companies, and created 3 spin
-
offs companies.


Start
-
ups

The start
-
ups interviewed in the pharmaceutical industry a
re New Biotech Firms created with the
support of big pharmaceutical companies and/or technology transfer offices.


Typically we will find:



MBOs carried out by the managers of research centres of big pharmaceutical company which
decided to stop activities i
n a particular area or as the result of M&A in the industry.



Spin
-
offs of research groups of universities or hospitals with the help of technology transfer
offices


MBOs usually represent the result of strategic choices of the large companies to externali
se some
research activities (MBO by a research group).

These are not typical start
-
ups as the MBO transaction usually grants these companies with a
support by the large company which can be represented by:



the possibility to use the results of the research

carried out within the large company



the guarantee of a market outlet during the first years of activity



the use of operating facilities, plants, services and equipment.


Spin
-
offs of academic research programs created through the transfer of know
-
how, te
chnology and
intellectual property.

The Universities or hospitals play an important role in the first years of activity:



They can provide facilities and necessary infrastructures.


24



They can provide a market outlet for the new established firm.



They represen
t a quality guarantee vis
-
à
-
vis the potential investors (first screeners of the
projects).


In the field of biotechnologies, it clearly appears that most research is developed within, or in
collaboration with, the university context. In foreign countries (
USA, Germany, UK), universities
play an important role in the production of knowledge which is subsequently transferred to the
business world and a large number of biotechnological industries are concentrated in the area
around famous university centres.


Usually the transfer of basic research results, new products and economically viable procedures
requires the active participation of several actors. At this concern, an important role is certainly
played by structures capable of providing technology trans
fer services. Given the continually
increasing costs involved in conducting research within the biotechnologies sector and the
uncertainties related to the existence of government funds, it is through these units that universities
manage to create an alter
native method of financing their own internal activities. Thus, to all effects
and purposes, universities become economic agents. Not only they promote collaboration with the
industrial world but also create hi
-
tech businesses and encourage their researche
rs to have a "two
-
way" career.


Start
-
ups interviewed were 5



Biosearch: established in 1996 following a management
-
buy
-
out of the Lepetit Research Center
from Hoechst Marion Roussel (after the acquisition of Marion
-
Merrel
-
Dow by Hoechst).



Novuspharma: esta
blished in 1998 following acquisition of the Boehringer Mannheim Group by
Hoffman
-
La Roche.



Molmed: created in 1996 as spin
-
off of the San Raffaele Science Park in collaboration with
Roche in the molecular medecine sector. The main client of its company is

the San Raffaele
hospital itself



Primm:
founded in 1990, initially as a provider of synthetic oligonucleotides. Since 1995, its
main facility is located at the San Raffaele Biomedical Science Park and it started providing
several core services to the loca
l scientific community and developing stable scientific
interactions. Then Primm started to invest in proprietary R&D projects based on its know
-
how,
becoming a fully technology
-
based company. In 1998, the company expanded its activities
through the acquis
ition of both laboratories and a top
-
class animal facility located in the area of

25

Treviso (Italy). During its first ten years of life, Primm has become the leading Italian company
in the area of biotechnology services.



GenEra: created in 1998 as spin
-
off o
f the San Raffaele Science Park as a strategic choice of the
San Raffaele Science Park itself. In 1989 the San Raffaele hospital created its first gene therapy
programme which was very successful. In 1998 the foundation realised that a more “industrial”
to
ol was necessary in order to keep the project running and decided to give all its gene therapy
programme results to the newco Genera created together with some external partners.


26

Conclusions




Geographical areas where potential entrepreneurs are located ar
e Milan, Rome, Florence.



The set of rules in Italy concerning R&D in the pharmaceutical industry is complex and
fragmented and do not encourage investments.



There is a low level of privately financed R&D activities in the pharmaceutical industry in Italy.



Multinational companies prefer to carry out the R&D activities abroad instead of Italy and
usually limit their Italian activities to the production, marketing and commercialisation of
products conceived abroad;



Researchers in the private sector are unlikel
y to exploit their ideas creating their own enterprise
because of property rights issues (research carried out within a company is property of the
company itself).



Researchers coming from the public sector (universities or hospital research centres) have l
ess
difficulties in carrying out their own research in parallel with their institutional activities, but
usually are not disposed to leave their job. To that extent, the position of the universities vis
-
à
-
vis the researchers they employ should be clarified

as soon as possible.



Fund raising, the definition of strategic plans and issues concerning property rights seem to be
the main problems when starting a new company.



Potential entrepreneurs are scarcely disposed to finance a part of the project with their
own
funds, they claim that the investment in terms of their time spent in research before the effective
starting of the business is already an important investment from their side;



Technology transfer offices play a key role in the creation of new enterpri
ses in the
pharmaceutical sector.



There is a lack of resources combining scientific skills and managerial skills.



Usually the projects which are still in the pre
-
clinical phase are not considered interesting by
private investors.



An incubator offering some

seed grants in order to finance the pre
-
clinical phase and,
eventually, the necessary infrastructure would stimulate potential entrepreneurship. The
incubators, together with the technology transfer offices could be considered good screening
tools by the
potential private investors (VC funds or big pharmaceutical companies).


27

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Annual Report Farmindustria 2000



Global Competitiveness in pharmaceuticals


A European Perspective.
Alfonso
Gambardella, Luigi Orsenigo, Fabio Pammolli


2000



Pharma 200
5


An Industrial Revolution in R&D


PriceWaterhouseCoopers
-

2000



Strategic Programme for the Development and the Support of Innovation in the Province of
Milan
-

2000



The Biotechnology Industry


European Biotechnology Research


2001



The Small Biotech
Companies in Italy: their technologies, products, services.
Osservatorio
per il Settore Chimico


2000