The Domestic Sector
Homegrown pharma ready to expand
“The Made in Italy label speaks not just of Ferrari or Gucci,” started Luca Crippa, the CEO of IBSA Farmaceutici. Crippa makes reference to the country’s pharmaceutical industry, which is battling with Germany for the title of EU’s largest producer. When it comes to exports though, Italian pharma is a safe winner as the fifth largest drug exporter in the world. Out of the 200 pharma players active in Italy, almost 60% are foreign-owned. No one company can be said to be dominating the market, but Big Pharma like AbbVie, AstraZeneca, or Bayer all enjoy leading market shares, according to a report by Mordor Intelligence. Next to these companies, Italy has grown its own “Grande Pharma.” Menarini is the largest in the country and 37th biggest pharma company globally by turnover. Angelini, Chiesi, Recordati, Bracco, Alfasigma, Zambon Group and Leadiant Biosciences follow, with turnovers ranging between 500 million and 3.6 billion euros. A typical feature of the Italian market is the enduring family legacy. Italy is one of the countries with the most family-owned businesses, reports the Credit Suisse Family 1000, and pharmaceutical companies make no exception. Also, many of the leading pharma companies today are the result of a century’s development. Menarini was founded in 1886, Zambon in 1906, Angelini in 1919, Recordati in 1926, Bracco in 1927, and Chiesi in 1935. Some of these have belonged to the same family for generations.
With an offer of both small and large molecules, as well as medical devices and med-tech, these MNC-status players typically cover the chronic therapeutic spectrum, from cardiology, respiratory, urology, gynaecology, pain, neurology, but also oncology and rare diseases, the last two sparking considerable interest recently. For example, Menarini is studying precision medicine for cancer treatment, while Chiesi is opening a new rare disease division. By ramping up R&D efforts and eyeing the right partnerships and acquisitions, Italy’s homegrown pharma are looking to climb up the ranks and reach global acclaim. Top five Italian player Alfasigma wants to enter the list of the biggest 100 pharma companies globally; to do so, it will have to jump 18 positions from where it currently sits. The multinational with a 2020 turnover in excess of 1 billion euros and a presence in 70 countries is fiercely investing in innovation and strategic acquisitions: “We are inaugurating a new R&D facility in September 2021, which will help us reaffirm our focus on gastroenterology, vascular diseases and neuroscience as well as expanding our biotech capacity, looking closer at rare diseases,” said Giuseppe Allocca, technical operations executive director. The company also acquired the rights to commercialize bentracimab, a new monoclonal antibody developed by the American company PhaseBio Pharmaceuticals. The molecule will be marketed by Alfasigma in 49 countries. This year, Alfasigma acquired the rights for Lumeblue from Cosmo Pharmaceuticals, an Irish-based company with Italian roots. Lumeblue was recently approved by EMA to be used for the detection of lesions during colonoscopies. M&A activity in the country was complicated – to say the least – by the pandemic, but this has not stopped historic transactions. Menarini made the biggest acquisition in the company’s history, buying Stemline Therapeutics, a clinical-stage biotech player focused on stem cell oncological therapies, for US$677 million. For an even more impressive sum of US$960, Angelini also announced the acquisition of Swiss company Arvelle Therapeutics. One Angelini executive commented that this is one of the company’s most important investments since it was founded in 1919. The buyout will give Angelini the licence to market cenobamate in the EU, the UK and Switzerland, once the drug is approved by EMA. Cenobamate is an oral drug used for epilepsy, already approved by the FDA as an anti-seizure medication. Meanwhile, Chiesi bought US company ApoPharma. Chiesi was already distributing ApoPharma’s Ferriprox (deferiprone), a drug used in the treatment of iron overload in thalassaemia major (a genetic disease also known as Cooley anaemia). By taking full hold of the company, Chiesi expands its presence in rare diseases and enters the Canadian market for the first time. Evident from these acquisitions is that Italy’s biggest pharma companies look for advanced innovations to add to their portfolios, especially in the sphere of biotech. The pandemic might have been the best opportunity to make these investments: Besides the fact that the pharma industry is one of the most resilient during crises, making pharma stocks a safe harbor investment, pharma, and especially biopharma, became uniquely central during the pandemic. The search for a vaccine and the media’s close follow-up on each research development created anticipation and awareness about the significance of discovering life-saving drugs. Public perceptions on pharma improved, while pharma investment became a much more appealing option. In investment terms, these positive appreciations are reflected in stock performance. The Dow Jones US Pharma Index (DJUSPR) saw a 19.29% year growth. Listed on the Italian Stock Exchange (Borsa Italiana), many Italian companies saw their share prices grow over the past year. Urology and rare diseases player Recordati (BIT: REC) had a one-year performance of +20.47%, for example. In the medical equipment and technology space, laser solutions supplier El.En saw a +117.39% one-year appreciation. Nutraceuticals and naturally derived products were also well-valued by investors: PharmaNutra (BIT: PHN) graduated to the STAR-MTA of the Borsa Italiana, only three years after joining the AIM. STAR is the segment of the Italian Stock Exchange for companies with a market capitalization of between 40 million and one billion. “Liquidity is certainly in the market,” said Rodrigue Schübelin, partner of PwC Italy Pharma and Life Sciences. The challenge is, he continued, to find a good target: “Innovative biotech, cell and gene therapy, oncology, and rare diseases are attracting the most interest and are seeing extremely high valuations when considering EBITDA multiples.” As big players fight to stay on top of a competitive, ever-more-complex industry by looking at collaborations with R&D centers, distribution partnerships and acquisitions of high-tech assets, Italy’s native biotech sector as well as its supportive CMO sector should also benefit. Aside from getting hold of next-generation innovations, the other driver of M&A is international growth.
Background image courtesy of Cambrex
Italian Pharma Wears Export Labels
The Italian pharmaceutical market is poised for modest growth of CAGR 3.5% between 2019 to 2022, according to Statista, much slower compared to a high global growth of 11.3%, driven especially by North America and Asia, based on GrandViewResearch. Italy’s slow growth is suggestive of a mature and competitive market and is closer to Europe’s projected 4.5% CAGR to 2022, as reported by Evaluate Group. While overall growth in the industry is more stifled compared to the rest of the world, exports have been the real growth story: Italian pharma exports have been growing exponentially for decades: between 2010 and 2017, pharma exports grew at 26% every year, while the European average stayed constant at 1%. Farmindustria estimates that over 80% of Italy’s total manufacturing value comes from exports. This brings the total revenue generated by foreign sales at 70%, informs Eurostat. Italy is Europe’s fifth-largest pharma exporter, after Germany, Switzerland, Belgium, and France, together with whom it makes Europe the strongest pharma exporter in the world, followed by the US. Exports are Italy’s strongest advantage, a testimony of the quality and appreciation Italian-made products receive on the globe, but also a very strategic advantage for the country’s trade balance. On the ground, the focus on exports is easy to note. Almost every company with a good grip of the Italian market will look over borders to grow its business. Europe, the US, Japan, Korea, but also Russia are some of the usual suspect export destinations. In 2019, the US was the leading export destination, followed by Belgium. “The life sciences industry is moving at two speeds: the US and the rest of the world,” said Gilda D’Incerti, CEO and founder of PQE Group, a Florence-based consultancy with over 20 offices globally. “The pandemic truly showcased the strength of the US industrial machine, the US industry responding much faster compared to Europe.” The huge market and attractive prices make the US the preferred export destination for EU pharmaceuticals, but market preferences vary depending on many factors, and some players will even stay away from crowded markets. Mar-Farma, an Italian player selling food supplements and medical devices primarily in women’s health, has a very clear international focus, 80% of its sales coming from foreign markets, specifically the Middle East and Africa. “We are present in many countries where other Italian players do not venture to, such as Yemen, or in countries where companies do not sell their products due to political reasons, such as Iran. Mar-Farma’s priority is to take care of the wellbeing of people, independently of the political context,” said Roberto Ricatti, the CEO. For Harmonium Pharma, another Italian OTC supplier, choosing the target markets comes with different considerations: because its products are out-of-pocket premium solutions, Harmonium Pharma places its Diabetic Corner offer in countries with the right socio-economic demographics. “From a consumer perspective, our target markets are countries that meet the right balance between a large diabetes population and a high cost-of-living index,” said Ugo Cosentino, president and founder. Moreover, Ugo looks at diabetes incidence, which is highest in the Middle East where up to 30% of the population suffers from the condition. China, the US, Mexico and Brazil also meet those large-scale considerations. Similarly, Italian company Nerviano Medical Sciences (NMS) Group, a leader in kinase inhibitors used in cancer treatments, has even more sophisticated, genetic models to understand and tailor to market needs, for instance by studying the incidence and typology of cancers in some regions of the world such as China: “Taking note of interethnic genetic differences, we started to focus on cancers that are more common in Asia, such as lung, liver, and stomach cancers,” said CEO Nanding Zhao. (not approved) Other times, finding a spot in the global market is mostly about creating a niche. Founded in 1882, Candioli is one of the oldest Italian pharma companies. 20 years ago, it reinvented itself by transitioning from human health to animal health, where it found an underexplored and rich market. Luca Candioli, the fourth-generation owner, believes the veterinary space has incomparable growth potential: “There is no other sector with the same level of demand. Buying a puppy of the desired breed today can come with a one to two years waiting list in some countries,” he said. As a market leader in Italy, Candioli is already achieving maximum growth domestically, so to double its size in the next five years as it plans to do, the company checks international markets. A few years back Candioli bought UK company Vetark, setting up its first international affiliate and combining the two portfolios. The company is looking to make another acquisition in Europe and repeat the Vetark experience.
“The next step in our internationalization process is to strengthen our commercial agreement with countries that value specialty care. Meanwhile, through our group company, Quotalia Science, headquartered in Serbia, we will facilitate penetration in emerging markets.”
Paolo Gobbi, Founder and CEO, Haemopharm Healthcare
Well-established players with a widespread international presence and a good understanding of the different markets can already look at establishing a direct presence in key markets. San Marino-based company Erbozeta distributes its food supplements and medical devices portfolio in about 70 countries, and it recently opened a third international office, this time in Portugal. While its Austrian office helps with market access in the EU, and its Hong Kong office is a hub for the Asian markets, Portuguese Erbozeta Iberica acts as a bridge across the Atlantic, dealing with patent registration and protection for its Latin American markets. This strategic mapping allows the firm to regionalize its reach and have not one, but multiple international strategies. Nevertheless, even for those with a wide international footprint and numerous subsidiaries, distributors are the key to successful and extended market penetration. Even though IBSA’s network covers up to 80 countries, not all of its 200 generic products enjoy this widespread footprint: “IBSA has a much broader basket with a local footprint and we’d like to launch these products in new markets. For instance, we only export our diclofenac produced in ODFs - patch, soft gel, and capsule – to a few markets,” explained Luca Crippa, IBSA Farmaceutici’s CEO.
The company is actively searching for distributors to licence its products to in both Southeast Asian countries such as Thailand or Vietnam, and in Latin American ones like Brazil or Argentina. IBSA projects double-digit growth in 2021. Finding the right partner or distributor is even more challenging for more niche companies like Diatheva: “The expansion strategy starts with understanding the challenge. Our kits are very niche and specialized, so we need to screen the different distributors and market agents to identify the right partners for each technology,” said Cosimo Lenti, business director of Diatheva. Working with distributors creates an intermediate cost but covers more geography, factors that need to be balanced. For instance, PharmaNutra estimates that about 65% of its output by unit volume goes into export markets, but because of costs associated with distribution, the value of its exports comes down to represent a third of total revenues. In the future, PharmaNutra plans to maintain its distribution model in smaller markets, but establish subsidiaries in important ones through acquisitions: “The potential of PharmaNutra is gigantic. If we look at our performance in our top 10 markets, it is not a dream to think we can multiply the success in big markets like the US,” said Andrea Lacorte, founder and president at PharmaNutra Group. Many Italian companies have crossed the exports chasm and today their export markets account for more than the domestic ones. Others are at the beginning of this journey. Mastelli, a 70-years old company based in Sanremo, is already present in Eastern Europe, the Gulf countries and Asia, and is now signing new distribution agreements with Germany, France and Spain: “We are proud to be an Italian company, but we believe the future of Mastelli will be not only inside the Italian borders but also in Europe and Asia,” said Fabio Fiscaletti, CEO at Mastelli.