There are several main obstacles that prevent the Italian biotechnology industry from taking off. These hurdles are complex and rooted in cultural, as well as market infrastructural considerations. The “Life Science Innovation—From Vision to Commercialization” meeting held recently in Florence highlighted the realities facing Italian executives and sought to provide them with the fundamental strategies and skills to form, launch, and operate a life science company.
In 2008, the Italian biotechnology industry was composed of 260 companies involved in drug development, diagnostics, medical devices, and agbio. Based on the Blossom & Company-Assobiotec Report (2009), these are mostly small enterprises with less than 50 employees, collectively employing 41,000 people, with gross revenues of €15.3 billion, accounting for over 1% of GDP and 0.2% of overall country employment. This represents a fairly solid corporate base.
A major obstacle is the lack of an established venture capital community. While this is a problem shared by most countries in Europe, it is especially underscored in Italy. Of the €4.5 billion invested yearly (as an average for the period 2006–2008), approximately €70M went to early-stage investments. Looking at the data on private equity deals, only 186 start-ups were able to get funded in the last three years, with an average deal size of €0.5M to €1M (Survey AIFI & PricewaterhouseCoopers 2008). The aforementioned data refers to all industries: biotech and medical companies were able to attract approximately 30% of the total investments.
Early-stage life science companies are typically unable to operate in a self-sustaining mode—their development relies on external funding. Thus, the commercialization of Italian biotechnology depends on the entrepreneur’s ability to raise capital from outside the country’s borders.
The primary challenge is to competitively position Italian entrepreneurs both physically and mentally before international venture capitalists. While less than adequate English-speaking skills and limited mobility have always been an obstacle for many European countries, the Italian mindset also needs to change from the traditional risk-averse mentality to one where an entrepreneurial culture embraces risk and reward.
There are several typical themes that exemplify the traditional business culture in Italy. These cultural themes are not necessarily unique to Italy, but are true for many business cultures that have had to evolve from a conservative, old-world mindset—including many regions of the U.S. beyond Silicon Valley.
- One man only at the helm. People start a company from a strong family business vocation. In Italy the industry-wide reference model is a small-to-medium enterprise (SME) where the founder is supposed to both own and run the business—not just in the early stage, but also later on as the company grows bigger. Having investors on board brings equity; however, the owner expects to also share the right to make crucial decisions. Having board guidance from investors is often perceived as an intrusion.
- Companies are life-long enterprises. The concept of exit-and-serial entrepreneurship are far from the Italian business culture. The “starting up a company, bringing it to a certain level, selling it, and starting a new one” model is not part of the Italian DNA. Selling a company or stepping aside is perceived as a failure rather than a success. The small size of the stock market (the stock market capitalization to GDP ratio is lower than 60%, versus 140% in the U.S. and 170% in the U.K.) and the lack of large companies (in Italy SMEs are 98% of the total) make the exit from investment difficult.
- First get some revenue, and then invest. The business approach in Italy is inspired by gradualism—a one-step-at-a-time approach. Rather than rapid scale-up with risk-driven capital, the money for developing your business idea is supposed to come from customers. This implies longer development cycles and product concepts that are strongly influenced by customer requirements that often drive the business far from its original focus on innovation.
- Think real. Italian entrepreneurs are used to keeping both feet grounded. As a consequence, when they face venture capitalists, their plans sound like micro-initiatives with modest goals that don’t underscore value creation that can be shared with investors.
- Scientists do not speak business. As is the tendency for most academics-turned-entrepreneurs they have crowded into R&D and engineering departments. They typically lack managerial competence in marketing, product management, finance, HR, legal, and so on—which are critical for the funding process and the future growth of the company. Moreover, universities do not offer incentives for lecturers to spin-off business initiatives, and technology transfer units often fail to properly support them.
The scarcity of skilled executives with strong entrepreneurial skills is among the most important hurdles that Italy must overcome in order to be an international biotech leader. “Italy has worldclass science and technology, and a tremendous potential for life science commercialization,” said Stefano Milani, CEO of Blossom & Company, which publishes the annual “Biotechnology in Italy” report. “Communication can be a big issue with SMEs. Young CEOs are often not able to effectively present their business to investors and their business model is not obvious.”
While technology transfer represents one of the most promising areas of opportunity, life science innovators need to better understand the fundamentals of how one transforms science and technology into a defensible and successful business model.
Future leaders will also need strong general management skills, coupled with in-depth understanding of the healthcare sector’s complex business relationships and value chain. The Life Science Innovation Program was designed specifically to address this need through a highly focused series of courses that provide the fundamental business knowledge and skills that Italian entrepreneurs need to be successful in their life science enterprise.
Although a late entrant into the global life science sector, Italian biotech now stands on a par with the leading European countries. Italy is ranked third in the European biotech market with total market spending of more than €780 million. Excluding multinational pharmaceutical firms, Tuscany has 28 biotech companies, generating €1.2 billion in sales and employing about 4,000 people. This is notable, considering that the number of researchers in the country is about half those of its EU competitors.
Italian biotech is driven by an interrelated system of companies, science parks, and research institutes. Four Italian biotech clusters are located in Lombardy, Piedmont, Tuscany, and Friuli Venezia-Giulia. Additionally, technology parks focused on biotechnology are located in Sicily and Sardinia. These clusters have succeeded in weaving an efficient network between SMEs, research organizations, trade associations, and local governments, enabling a favorable milieu for start-ups.
Italian biotech has been able to accelerate its global scientific position, thanks to the high quality of its research and a growing capacity to open up channels between academia, the pharmaceutical industry, and regional and national government. Moreover, Italy remains a favorable location for its renowned tradition in clinical studies and a regulatory framework that is aligning with the EU.
In response to the global financial crisis, Assobiotec—the national trade group representing biotechnology companies and science and technology parks—is focusing on the need for the Italian government to develop stronger fiscal and financial policies that help support the Italian biotech sector.
According to Roberto Gradnik, president of Assobiotec, the group is calling for the continuation of the 10% tax credit for in-house R&D that was implemented for the 2007 to 2009 period. The group would like to see that number eventually increase to 50%.
The demand for financing and investment partnerships remains strong in Italy. While the Italian venture capital industry is largely absent for seed and early-stage financing, there are signs that this is slowly changing. Several relatively new firms that focus on early-stage investment have emerged.
Sviluppo Imprese Centro Italia is a newly formed €60 million equity fund investing in Tuscany’s growing life science sector. Other VCs include Principia, Genextra, Eporgen Venture, and Z-Cube. Run by Street Global Investments, TT Venture is a bank-owned fund dedicated to technology transfer in the fields of agro-foodstuffs, the life sciences, new materials and renewable resources. Of note is the country’s first private-public venture capital fund, Fondo Next, focused on the promotion of new technological companies and university spin-offs.
Additionally, Italy supports a number of business incubators (10 in the Tuscany region alone) and several technology parks, notably the Toscana Life Sciences Foundation Science Park, which employs more than 350 people.
Rather than attempt to duplicate commercialization models from the U.K., France, or Silicon Valley, the key to realizing the Italian vision for biotechnology global leadership is in developing an innovative ecosystem that’s uniquely Italian—one that coordinates the strengths of its universities, regional governments, and national initiatives.
Financed by the Italy’s Ministry of Productive Activities, the Italian Foreign Trade Commission is entrusted with driving this mission. Toscana Promozione (the regional agency that promotes the competitiveness of Tuscan companies) is a model of how regional and national governments together foster entrepreneurial development and innovation.
There are many Italian life science firms that are creatively overcoming the challenges of venture finance unavailability, the propensity for founders to retain ownership, the need to amend the national framework for intellectual property rights, and limited access to experienced executives. According to the National Observatory on Clinical Trials, some 750 Phase I and II clinical studies were under way in Italy in 2007. Although a number of these studies were of non-Italian sourced drugs, this indicates an increasing transition of research concepts from preclinical into clinical development.
ProteoGen Bio was founded through friends and family funding in 2004, then received seed financing from the Pisa Chamber of Commerce. Initially, it was a developer of bioinformatics, but later changed its focus to protease-conjugated consumables for research, clinical laboratories, and proteomics groups. It will soon have five protease-based products—proteases conjugated to dispensing tips for digesting proteins.
ProteoGen Bio is seeking additional funding and international partners, but the founders seek to maintain ownership and control over the direction of the company. Funding within Italy is difficult, since the nascent Italian venture capital industry largely funds mezzanine-level companies with product sales, and few early-stage companies.
ProtEra is a 2003 University of Florence spin-off transitioning from R&D into a commercial orientation. The company is seeking funds for preclinical studies of its product and to expand access to university technologies for its pipeline. ProtEra relies on retired pharmaceutical consultants for expertise; in Italy, retirees with pensions commonly work as consultants with early-stage, high-risk companies. Many of ProtEra’s young employees accept lower salaries for the opportunity to learn by doing under the guidance of these knowledgeable retirees.
Abiogen Pharma is an early Italian biomedical success story in that the original 80-year old family-owned company, Istituto Gentili, developed the osteoporosis drug Fosomax, licensed it to Merck, which then bought the company, and let the founders spin off other drug projects, facilities, and employees into Abiogen Pharma in 1997. Today, the company sells drugs on the Italian market and receives licensing revenues from sales in EU markets totaling €170M.
Abiogen, which grooms middle and senior management from within its cadre of young managers, also relies on retired pharma consultants to provide strategy and experience.
Although mid- to large-size Italian pharmaceutical spin-offs enjoy the senior management garnered from their multinational parent, smaller academic start-ups can find it difficult to hire full-time, experienced managers. For this reason, Italian companies may experience a more arduous learning curve to develop experienced senior and middle management. This situation must be remedied in order for Italian biotech to grow into broad-based industry. At this time, each Italian province must develop its own experienced management from the ground up, whereas in other EU countries and the U.S., there is movement of experienced management from one high-risk venture to another, driven by competitive salaries and opportunities for stock ownership.
Kedrion, which employs more than 1,000 people, specializes in the development, production, and distribution of plasma-derived products. With 60% of the Italian market, the company is now moving rapidly into international opportunities. It recently purchased facilities in Hungary, Germany, and the U.S. to expand plasma collection and fractionation.
Opportunities and challenges abound for the Italian biomedical and biotechnology industry as it attempts to have a greater economic impact and global market presence.