Introduction to Italian Life Sciences

Italian healthcare’s urgent response to the pandemic

Italy was the first European country to institute a national lockdown on account of the Covid pandemic. Italy’s healthcare system showcased the heroism of its front-line workers, the massive mobilization of bed and personnel capacity, and the rapid response of its regulatory bodies to give a green light to Covid therapies. At the same time, many structural issues came to light. Out of more than 4 million Corona virus cases, Italy registered a 2.8% mortality rate, higher than in other countries due to the high death rate amongst older people, who constitute a larger part of Italy’s population. For people aged under 65, the death toll was under 1%, in line with other developed countries with an efficient health system at work. Italy made exceptional efforts to manage the high number of hospital admissions, the entire health service being overhauled and its resources reallocated: Healthcare personnel were re-distributed across regions, retired doctors and nurses rejoined the hospitals, while recruitment tracks for medical professionals were sped up. The country almost doubled the number of ICU beds to respond to a peak of 34,000 Covid-patients hospitalized at the same time. More than 50,000 elective surgeries were canceled every week for a 12-week timeframe. Altogether, 75% of elective surgeries were suspended, according to a Nomisma report.

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“The pandemic was an eye-opener for the system, a system that was left on the back burner for decades. Structural problems like the insufficient number of nurses and doctors or outdated digitalization were brought to the surface.”

Rodrigue G. Schübelin, Partner, PwC Italy Pharma & Life Sciences

Background image courtesy of Pexels, Arthouse Studio

Today, 32 million Italians are vaccinated, and hospitals are slowly seeing the “return to care,” a phenomenon that is again problematic for health providers who need to catch up with the backlog of procedures and visits, as it is for pharmaceutical companies seeking to rebalance their stocks. Giovanni Sala, the general manager of Medac Pharma, observed the demand fluctuations for the hospital market, which is the company’s primary focus: “The pandemic has significantly impacted the normal course of therapies, and consequently, we have seen reductions in sales volumes. Patients were either not able to or not willing to go to hospitals, delaying their examination and treatment. In particular, we observed a slowdown of treatments in the urology segment and bladder cancer.” According to data from the German multinational, the number of surgeries performed since the pandemic declined by around 30%. For Baxter (NYSE: BAX), the high number of Covid hospitalizations led instead to a growth in demand for products related to acute kidney injuries, with a quarter of ICU Covid patients developing this complication. Almost every pharmaceutical provider, in either the hospital or retail market, has experienced different combinations of low and high demand for some product classes in their portfolios. Even though demand is starting to stabilize as people return to their regular therapies, Sala reminds us that the pandemic has an “inertia effect,” so the impact of the slowdown in some products may still be delayed.

Investing in healthcare

In the aftermath of the storm, healthcare undoubtedly became a key political and policy question. The pandemic exposed wide-ranging unpreparedness in dealing with the public health crisis in a continent where universal access to health is a central pillar of its society. Italy’s healthcare system reflects, to a great extent, the typical European model: free, universal, and arguably underfunded. In the EU’s fourth-largest economy, health spending is lower than the bloc’s average, according to WHO data: Italy spent 8.8% of its GDP on healthcare in 2017, against an EU average of 9.8%. The Servizio Sanitario Nazionale (SSN) or National Health Service (NHS) has seen various spending caps in the last two decades, mostly as austerity measures responding to the 2009 financial crisis. Despite consistent year-on-year budgetary increases, the overall healthcare spending trend has been conservative, aligned with a broader EU pattern. That trend of moderate spending seems to be ending if we judge by recent developments: The European Commission approved EU’s largest ever stimulus package known as NextGenerationEU (NGEU) – a mega-fund of 750 billion euros. Disbursed as the Recovery and Resilience Facility (RRF) mechanism, the program is aimed at building a post-Covid Europe by tackling investments in digital and green transitions, economic and social resilience (including health), and cohesion within the Single Market.

As part of the National Recovery and Resilience Plan (PNRR), Italy is one of the biggest recipients of the RRF among member states, cashing in a total of 68.9 billion euros in grants and 122.6 billion euros in loans. Out of this 200 plus billion euros bill, about 20 billion euros is allocated to healthcare reforms, said Andrea Fortuna, partner at PwC Italy Pharma & Life Sciences: “The healthcare fund is made of two main pillars. The first is directed at improving proximity networks, facilities and telemedicine for territorial healthcare assistance, while the second one, worth 11 billion euros, is dedicated to innovation, research, and digitalization within the NHS,” he explained.

While NGEU is a short-term, high-impact instrument that encompasses healthcare in a more holistic way, the EU also launched a specific healthcare program that seeks to strengthen crisis preparedness and resilience. The EU4Health 2021-2027 vision is a fund to help Europe cope better with future shocks. The investment is directed to national stockpiling, building medical and healthcare reserves, as well as strengthening health data and communications amongst different national health systems.

Needless to say, Italy should benefit considerably from these funds which give public healthcare a chance to reform, modernize and democratize health provision across the width and length of Italy. The Italian life sciences industry - and especially its pharma and biopharma sector - is also presented with a great opportunity brought about by the rollout of these two programs, both directly and indirectly.

“The National Recovery and Resilience Plan (NRRP) fund is an intervention that aims to repair the economic and social damage caused by the pandemic, addressing the structural weaknesses of the Italian economy, and leading the country along a path of green and digital transition.”

Paolo Barbanti, CEO, Pharma and Biotech Advisors Srl

Time to shine

The Italian pharmaceuticals industry ranks in the top 10 pharma sectors in the world by value and is the EU’s second-largest producer after Germany. According to Farmindustria’s figures, Italy’s total production value stood at 34 billion euros in 2019. However, Italian pharma players may not ring a bell as loudly as Germany’s Bayer, Switzerland’s Roche, France’s Sanofi, or the American Pfizer or Merck. Italy’s big names are of more modest market caps, including Menarini, Chiesi, Angelini and Recordati. But more importantly, Italy has a broad confluence of SMEs, both domestic players and foreign subsidiaries, which together make a dynamic ecosystem.

Starting with the PNRR, direct government funding in digitalization and innovation unlocks many opportunities for modern healthcare provision, including digital health apps or digital therapeutics. More significantly, the fund marks a change in attitude in favor of healthcare investment and, by extension, pharmaceutical investment, sending the message that life sciences is a backed-up, highly valuable, hugely impactful investment option. The unprecedented amount of funding in innovation will boost Italy’s nascent biotech sector after vaccines stole all the attention in 2020-2021. Biotechnologies, advanced therapeutics including gene and cell therapies, but also support services like CROs and digital and sustainability actors will also be in the limelight of investors. Innovators across these segments are presented with the perfect momentum to raise money and channel the general attention towards specific projects after the world has attuned to the jargons of drug development, clinical studies and regulatory approvals.

Secondly, the EU4Health is premised on resilience-building, a fear-induced paradigm that has become incredibly powerful since the pandemic and that is shaking established principles on global order and the organization of trade. Reconsiderations over supplier origin and supply chain volatility put Italy in a favorable spot: Italy is the biggest API and CMO producer in Europe, the biggest part of its output being exported to Europe and the US. Italy could assert itself as a leading partner for Western producers and deepen its presence in the EU’s high-value pharmaceutical chains. To Europe, Italy is a reliable and high-quality manufacturer that plays by the same rules, while producing at a lower cost compared to Western Europe. “Pharmaceuticals are one of Italy’s key specialties and accounted for over 4 billion euros in positive trade balance in 2020,” said Massimo Scaccabarozzi, the president of Farmindustria, Italy’s main industry association.

By making itself even more indispensable to European pharma, Italy could accelerate the growth of its domestic pharma industry and support national economic growth. The country is on track to see GDP growth at 4.4% in 2022. “Rather than being seen as a cost burden, healthcare is now a strategic asset,” started Andrea Fortuna, partner, PwC Italy Pharma & Life Sciences. “Every country in the world has learned that they must improve their preparedness and response to a health crisis like that of Covid-19. The Italian NHS continues to be recognized throughout the world as one of the most effective and efficient universalistic systems, but the Covid-19 emergency has shown the need to strengthen some key elements, also in consideration of demographic and epidemiological trends,” he continued. Fortuna’s colleague, Rodrigue Schübelin, also partner at PwC Italy Pharma and Life Sciences, believes the way to correct what wasn’t done well before the pandemic is by practicing long-term thinking in both corporate and political settings. Pharma companies are too much focused on short-term gains, while governments are too attached to yearly budget planning and tax collection. Social and climate governance should come first, he said. While optimistic about the funding put in place to revitalize Italy’s economy, Schübelin warns about the increasing public debt, on its path to reach 160% of GDP by the end of 2021, and the signals this sends to investors and the industry: “There is a fear on the industry’s side that the public money spent today will be collected back through taxes,” he said.

“We need a new model, one no longer simply focused on containing costs, but oriented towards access to all available therapies. If we are to meet the shared health and growth goals, public health policies must be coordinated with industrial policy.”

Massimo Scaccabarozzi, President, Farmindustria

Political considerations

Italy’s big recovery fund is much attributed to newly sworn-in-office Prime Minister Mario Draghi, a technocrat with eight years of experience leading the European Central Bank (ECB). The deployment and timely loan re-payment of these funds have wide consequences at both a national and European level because Italy is the eurozone’s largest and possibly riskiest government bond market. Draghi has built a reputation at the ECB for steering the eurozone through difficult times after the financial crisis; his monetary policy reined in borrowing costs for eurozone governments and maintained low and even negative interest rates, sometimes controversially. Italy’s tumultuous recent political past, spanning four Prime Ministers over the last 5 years, has only exacerbated economic, social and administrative issues, including a development gap between north and south, a broadly inefficient and bureaucratic public administration, compounded at times by cronyism, as well as high levels of public debt – the highest in the EU after Greece. Shifting away from his predecessor’s inclination towards China and Russia, Draghi’s agenda is more centered on multilateralism and is looking West, towards transatlantic and Franco-German alliances. Italy’s Europeanism and Atlanticism should serve the country’s economic and trade relations, since Germany, France and the US are Italy’s top export destinations.