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BIOTECHNOLOGYIN ITALY 2009 The Financial

perspectiveBlossom & Company - Assobiotec Report

ALL RIGHTS RESERVED BLOSSOM ASSOCIATI S.R.L. (2009)

The Biotechnologies in Italy Report: strategic and financialperspectives is the property of Blossom Associati S.r.l.

Blossom Associati s.r.l. publishes the Biotechnologies in ItalyReport every year, and allows it to be freely downloaded in PDFformat from the websites owned by Blossom Associati S.r.l.www.blossomcompany.com and www.blossomassociati.comfor exclusively informative purposes.

All rights for the divulgation and use of the data, information,translation, electronic storage, reproduction and partialor total adaptation by any means (including microfilm andphotocopies) are reserved.

Blossom Associati S.r.l. reserves the right to authorise thepartial reproduction and divulgation of the contents of thereport upon receipt of a specific written request submittedin advance to [email protected].

The company reserves the right to take action in each andevery court of law with jurisdiction to safeguard its publications.

BIOTECHNOLOGY IN ITALY 2009We would like to thank all theorganisations that cooperated with usin the production of the 2009 report:AIFAAssobiotecBlossom & CompanyBurrill & CompanyCamera di Commercio Svizzera in ItaliaCCIAA VareseCIBIE (Centre for International Businessand the International Economy)CrESITUniversità dell’Insubria di VareseFarmindustriaICEMittel Corporate FinanceSullivan & Worchester LLPTraverso & PartnersUniversità degli Studi di Pavia,Facoltà di EconomiaUniversity of Glasgow

Biotechnology in Italy 2009Strategic and financial perspectivesA Blossom & Company Report - AssobiotecThe report is available online in PDF formatfrom the website of Blossom Associati S.r.l.www.blossomcompany.com

Anna AlbinatiMassimo BorieroMaria Adelaide BottaroFederica BottazziMauro BrunelliSteven BurrillGianluca CarenzoAurora CasaleMaria Grazia ChimentiAlessandra Maria De LucaSergio DompéFerdinando FioreRita Nunzia FucciRoberto GradnikMarian JonesCorrado MaggiKatia MaggiAlessandra ManciaLuca MartignoniAndrea MesuttiStefano MilaniFrancesca MondelloAlberto OnettiAlessandra PiazzinoAlessia PisoniMarco RenoldiDeryck RhodesAlessandro SidoliAndrea StoffellaMarco TalaiaUmberto VattaniLeonardo VingianiAntonella Zucchella

3Blossom & Company 2009

Introduction by Blossom & CompanyDear Friends and Customers,

A strong signal of consolidation and growth by innovative companiesin Italy is emerging in 2009.

It is certainly no accident that Italy is now seen as an area withstrong development potential. The data reveal a situation of growingconsolidation by innovative companies investing in specific nichesin the life, environmental and agro-food sciences.

At the end of last year, 260 companies were investing in biotechnologicalR&D, of which no less than 40 accredited by Blossom & Companyin that year. Their overall turnover was in excess of 15.3 billion euros(an 18% year-on-year increase), of which 5.4 billion generated fromthe sale of innovative products and technologies (a 24% year-on-yeargrowth rate was recorded last year), with 1.5 billion in R&Dbiotechnological investments (+15% in the year in question),and about 41,000 employees recorded overall in Italy by the foregoing260 companies, of whom 8,847 engaged on R&D, which representsa significant year-on-year increase (+36%).

The companies reported a major 33% increase in overall capitalisation,a continually expanding EBIT (an 84% year-on-year increase),accompanied by a considerable increase in financial liabilities(a 30% year-on-year increase) that reached a figure of E 2.6 billion.

These signals reflect the paradox of the Italian biotechnological sector.While, on the one hand, its strong propensity to self financing has,in the past, slowed down the start-up of many companies, on theother, the capital structures that characterise its companies have,today, become one of their strong points, and to such a degree thatthose companies with a solid business model or planning a financiallysustainable business model can, notwithstanding the constraintsgenerated by the very serious international financial crisis, still finda number of opportunities to finance their development.

Stefano MilaniPresident & CEO

Blossom & Company

Italy has always been characterised by a strong concentration ofcompanies with an established tradition in the life sciences.This can be accounted for by the large number of hospital researchcentres where researchers discover and experiment new therapiesand diagnostic methods or improve instruments of analysis.In Italy, there are territorial areas – generally only known to theexperts (for example Trentino) – that are witnessing an importantupsurge in economic activity due to the development of new companiesand the support provided for accessing the seed and preseed financingnecessary for the commencement of new and strongly R&D orientedentrepreneurial activities. Although the data reveal a strongconcentration of factors for the development of the biotechnologicalsystem and life sciences in Italy, the country still reports an inabilityto export examples of success that enjoy worldwide recognition asItalian successes, despite the fact that the international communityrecognises the talents of the exporting companies and the globalvision of the sector for its academic and industrial research.

To demonstrate the foregoing observations, it is sufficient to observethe clinical trial activities conducted in Italy. The National Observatoryon Clinical Trials involving medicinal products (OsSC) found that in2007 the absolute number of trials (750) replicated the levels of2006. Phase I and II studies continue to represent a significant partof total clinical research. In 2007 they accounted for 42.6% of thetotal. At the same time, phase III studies, which in the year underexamination accounted for 44.5% of the total, confirm the trendinitiated in 2005. If we follow the growth trend in the precedingyears, we find that Italy's share of international studies in 2007 roseto 75.3%. The principal therapeutic categories addressed by Italianclinical research refer to antineoplastics and immune modulators(34.1%), followed by drugs for the nervous system (11.7%) andgeneral antimicrobials for systemic use (9.8%). Although 578 promoters(360 profit and 218 non-profit) have been registered in Italy, withat least one approved trial, the top 50 promoters accounted for over60% of clinical trials. The types of structure involved in Italy rangefrom hospitals throughout the whole national territory, with a 78.1%participation in trials, to “Institutes for Treatment and Research”(IRCCS), with a 52.5% participation, universities with a 30%participation and university polyclinics with a 27.9% participation.

Blossom & Company continuously screens international and Europeaninvestors. Over the years, it has found a growing interest in Italy onthe part of banks, venture capital companies, financial institutions,independent investors, private equity funds, funds of funds andnon-profit foundations. 82% of the 166 international investor samplethat invests in innovative sectors, declared a specialisation inbiotechnologies, while 55% was strongly interested in evaluatinginvestment opportunities in the Italian biotech market, despite thefact that still today only a small number of operations have seenthe direct involvement of Italian operators. The nations with thelargest number of investors potentially interested in investmentopportunities in biotech businesses situated in Italy are: the UK(27%), Switzerland and Germany (15%) followed by France (13%),Switzerland Ireland and Holland (7%).

Where are the Italian investors? As regards the private equity andventure capital operations in Italy, it must be confirmed that eventhe leading Italian operators tend to be relatively backward and witha limited international presence, notwithstanding the considerablepotentiality of the sector in question. Therefore, in terms of aninternational comparison, Italy has a limited number of specialisedoperators (and of these most are interested in the later stage operations).

2000

561

2001

2002

2003

2004

2005

2006

2007

Clinical trials by year

Source: AIFA, July 2008

4936

1981

- 19

85

1986

- 19

90

1991

- 19

95

1996

- 20

00

2001

- 20

04

2005

- 20

08

befo

re 1

980

Source: Blossom & Company (2009)

Number of biotech companies in Italy:development over time

4


Breakdown of Italian biotech companiesby application area

Health 73%

Bioinfo 4%

Environmental 9%

Agrifood 14%

71101

140

211

260

611567 579

626659

769 750


As regards such operators, we may mention Principia,a closed-end fund set up under Italian law and runby Quantica SGR, whose mission is to invest inunlisted companies with a high technological contentin their initial life cycle. At present, Quantica hasKee Square, Pharmeste, GreenFluff, Dialectica andNewCorTec in its portfolio.

Another investor is Genextra, a holding that investsin start-ups in pharmaceutical and biotechnologicalresearch for the prevention, diagnosis, therapy andprognosis of diseases associated with the anti-agingsector. At the moment Genextra has DAC, Congenia,Tethis, and Intercept Pharmaceuticals in its portfolio.

Eporgen Venture is a venture capital company setup in 2004 for the declared purpose of investingin fledgling biotech companies. The company wasset up by private investors and includes the followingcompanies in its portfolio: Noto Pharm, Bionucleon,Biopaint, Genovax, Narvalus, Spider Biotech,Target Heart and Apavadis.

Z-Cube, another corporate venture company, is asubsidiary of the Zambon pharmaceutical group andaddresses the life sciences and biopharmeuticals.The company, is specialised in early-stage investments,and has PharmEste s.r.l. in its portfolio as well asSuppreMol GmbH and ProtAffin Biotechnologie AG,which has developed a technology for the productionof anti-inflammatory drugs.

Listed Italian biotech companies (2008)

Information sheet: Blossom & Company (2009)

Company Year of Listing Stock exchangeMolmed 2008 Italy - MTA-Milano

(MLM, Standardsegment, class 1)

Diasorin 2007 Italy - MTA-Milano(DIA, Star)

Cosmo 2007 Switzerland - SWX ZurichBioXell 2006 Switzerland - SWX ZurichNewron 2006 Switzerland - SWX ZurichGentium 2005 USA - Nasdaq

American Stock ExchangeCell 2004 Italy - MTA-MilanoTherapeutics (CTIC, Standard

segment, class 1)USA - NasdaqAmerican Stock Exchange

NicOx 1999 France - Euronext Paris

Alongside these we should also mention some newlyset up specialist operators such as TT Venture, afund dedicated to technological transfer in the fieldsof agro-foodstuffs, the life sciences, new materialsand renewable sources, run by State Street GlobalInvestments, which has collected subscriptionsfor 60 million euros, and intends to reach the figureof 150 million by May 2009. The fund’s operationscover the various phases of technological transfer(seed capital, venture capital, private equity, etc.).

In addition, we should also note the first private-publicventure capital fund, Fondo Next, which is focusedon the promotion of new technological companies anduniversity spin-offs. Next’s financial resources amountto 37 million euros. Despite the backwardness orlimited international scope of Italian venture capitaland private equity operators, the presence of someimportant non-profit operators is worthy of note asthey are promoting research in the biomedical field inItaly such as the Telethon Foundation whose honoraryPresident is Renato Dulbecco, the Nobel Prize winner,AIRC, AISM, Fondazione Giovanni Armenise-Harvard.Another example is the Fondazione Filarete in whichthe University of Milan, the Cariplo Foundation andthe bank Intesa-San Paolo have stakes. Filarete is anaccelerator dedicated to start-ups and spin offs operatingin the field of the biosciences. Then there isToscana Innovazione, which has raised 45 millioneuros, earmarked for projects with high-tech contentand high innovative value that are capable oftranslating themselves into entrepreneurial projects,and subsequently able to attract coinvestments fromlarge international funds or interested companies.Among its capital subscribers there is also the bankfoundation Monte dei Paschi di Siena.

That one of the fundamental problems of companiesin this sector in Italy, and not only in the startupphase but also in their subsequent development,is represented by the difficulty of raising the capitalneeded to sustain the corporate process, iscertainly no novelty. Instead, the novelty found byBlossom & Company is represented by the convictionthat the principles and methods of strategic planningapplied to innovative companies in Italy can enablesuch companies to achieve a better understandingof their financial problems and the long-termsustainability of their business. Therefore, it isnecessary that the system should grow (companies,advisors, investors and institutions) if corporate Italyis really going to be able to leverage its full potential,and proceed beyond the usual self-referential logicand the refusal to accept corporate innovation.

Blossom & Company has demonstrated that itsapproach to strategic planning can help companiesidentify sources of capital that best correspond totheir needs as well as achieving stable relationshipswith financiers, whatever their specific characteristics.Blossom & Company believes that innovative Italiancompanies that invest in R&D and Bio-entrepreneursmust be put in a condition to couch projects in thesame terms and deploy the same criteria as thoseused by the business investors to whom they presenttheir project, so that these companies may clarifythe relationship between scientific and financialsuccess. However, this is neither easy nor self-evident.

6

The latest analyses by Blossom & Company showthat, currently, seven companies are consideringlisting themselves within the next five years.The screening carried out on Italian companies toevaluate the most interesting targets in the sectoronce again demonstrates that, overall, Italy is stillan industry more suited to venture capital than tostock exchange listing, insofar as the companiesmust still grow and consolidate themselves, createa network, develop research and only when theirpipelines have reached a level such as to forecasta two/three year cash flow can they begin to thinkof listing themselves.

In 2009 Italy’s scientific and technological parks,very active in innovative research in the areas of lifescience, and with a strong vocation for developmentand the sustainment of start-ups, constitute animportant social capital of scientific technologicaland organisational skills. The latest analyses byBlossom & Company, show that in Italy there areseven parks that meet our selection and accreditationcriteria, including the Parco Tecnologico Padano(see the detailed information sheet in the 2009Sponsor section), the Area Science Park, the BioindustryPark of Canavese, the Science Park Raf, the TLSScience Park and the Insubrias Biopark of Gerenzano.

The Blossom & Company - Assobiotec Report,therefore, combines economic scientific and financialanalysis on the Italian system with a powerfulqualitative survey conducted on the entire populationof companies operating in Italy, demonstrating thatthe value generated is to be sought in a systemextensively present throughout the entire territory.Although the data demonstrate that there is a strongconcentration of factors for the development of thebiotech and life science system, Italy suffers fromnot having exported examples of success recognisedat a world level as Italian successes, although theindustry is recognised by the international communityfor the talents which it exports and for the qualityof its global research vision.

Blossom & Company is one of the latest and mostprestigious strategic consultancy companies in thefield of healthcare and biotech (healthcare, agro-food,environmental and bioinformatics). We principallyaddress an elite of bio-entrepreneurs and Italianand international companies that invest in research,development and innovation and which intendto base their strategies upon a strong internationalnetwork and a global business vision.

Cast your minds forward 10 years and ask yourselveshow the Italian system in the fields of the life sciences,the environment, agro-food and informationtechnology will be characterised. How will theelite of the leading Italian companies of tomorrowbe organised and managed? What will the managers,researchers and analysts be doing to guaranteethe development of their companies? What will bedifferent in tomorrow’s Italy in the way skills aremanaged, resources allocated, strategies developedand research and value created?

As privileged observers, Blossom & Company believesin the international development and the scientific,capital and financial fundamentals of the elite ofcompanies that invest in R&D in Italy. And it isprecisely for this reason that we have brought togetherthe best national organisations to draw up the annualreport “Biotechnology in Italy - the Financial Perspective”,which is distributed globally and presented on theoccasion of the principle of national and internationalconferences.

Therefore, we would like to address and thank allcompanies of the sector, all the BioEntrepreneursand all the R&D-intense start-up Italian companiesthat approach international markets with a solidstrategic vision, a robust business models and anoptimistic future vision.

Consequently, we would like to thank the shareholders,managers, scientists and all the employees of thecompanies, scientific parks and institutions whowith their support made it possible for us to producethis report. We would also like to thank our customerswith whom much successful business has beenachieved and with whom we shall handle thechallenges of 2009.

And for an evaluation of the principal operationsconducted in the course of the year we refer youto the 2010 Report on Biotechnologies in Italy.


Italian biotech invests and reinforces itself

Vigorous growth, new companies and an excellent innovation capacity. These arethe principal characteristics of Italian biotechnologies, as illustrated in the fifth editionof the Report Blossom & Company - Assobiotec “Biotechnologies in Italy”. In viewof the tender age of this industry such characteristics are, in some respects, verysurprising. However thanks to them, Italy has managed to meet a challenge thatwould have been unthinkable a few years ago: to finally appear on the radars of themajor biopharmaceutical and biotechnological companies and venture capital operators.

However, there are tangible facts behind this phenomenon: new enterprises emergingat a progressively faster rate, companies reaching maturity and consolidatingthemselves, but first and foremost, major R&D investments being made, which thisyear also recorded a very significant growth rate (+15% ). This commitment andthese investments have been translated into a significant pipeline, whose sizeand value surprised even the experts working in the sector. There are no less than209 products under preclinical and clinical development in Italy. Moreover, thetotal number rises to 258 if we take into consideration 49 projects at the discoveryphase, which constitute an interesting promise for the sector in upcoming years.The 209 products in preclinical and clinical development are the result of researchby 48 companies. 73 of these products are in the preclinical development phasewhile 136 have already reached the clinical phase (26, in phase I, 55 in phase II,and 55 in phase III). Moreover, 40 have received “orphan drug designation” (7 fromEMEA, 2 from FDA and 31 from both EMEA and FDA). These are mainly productsfor use in oncological applications that have already reached a very advanced stageof clinical development. Altogether, these investments in research are principallyorientated to areas of antineoplastics and immune modulators, and, to a lesserextent, to the central nervous system, dermatology and cardiovascular areas.

These figures reflect a very surprising feature that practically bucks the trend in theinternational scenario: the last three years, 2006-2008, have been very productivefor the companies in our country insofar as most of their products have reachedthe current phase of development. This development is a strong index of the Italianbiotech industry's capacity for innovation, which even in an international contextcharacterised by shrinking investment and ominous forecasts, has shown itself ableto forge ahead, and confidently project itself towards the future.

It should also be noted that R&D activities in the health area, in addition totherapeutic applications, have also generated a pipeline in diagnostic and technologicalapplications. In point of fact there are 14 diagnostic products under developmentreferring to oncology (71%), haematology (21%), and the genito-urinary systemand sexual hormones (7%). Then there are 63 innovative technologies beingdeveloped that require the use of biotech methodologies in a variety of differentareas of application, but mainly as concerns pharmacological screening applications(35% of cases) and pharmacological preparation improvement (13% of cases).

Therefore, the research commitment is growing and in this scenario agreementsbetween Italian companies and international partners are multiplying. And, inaddition to all of this, the companies have increased their level of capitalisation,which by being closely related to a greater capacity to produce value and investin research, makes Italian companies an even more important market force.And so much so that of the three companies that in 2008 that managed tosuccessfully obtain a listing on international markets, one is wholly Italian: MolMed.

With such a portfolio of potentiality, Italy is pursuing its own path towards a levelof maturity that will certainly generate further innovation and economic growth,thus reinforcing our role as an international player. We can, therefore, look towardsthe future with confidence. Italian Biotech has finally emerged as a real force tobe reckoned with.

Roberto GradnikPresident Assobiotec

8

The pharmaceutical sector in Italy

Sergio DompéPresident Farmindustria

Years R&D investments R&D employeesMilions % of pharmacy % of total Employees % of total % of totalof euro sales companies employees companies

2002 883 8.0 9.0 5,360 7.4 8.32007 1,170 10.1 10.4 6,250 8.7 8.5% Var +32.5% +16.6%

2007 and 2008 were very turbulent years for the internationaleconomy and, consequently, also for the pharmaceutical sector,which recorded a significant reduction in employment levels.In Italy, on the other hand, the sector, from an industrial pointof view, showed important signs of vitality in 2008 thus confirmingits important role in Europe and the world.

In addition to the well-being of citizens, the pharmaceutical industryhas performed a fundamental role for the industrial sector as alsofor the economic and scientific growth of the country as a whole.Italy is one of the world’s leading manufacturing countries, whichin terms of employees ranks third in Europe (after Germanyand France) and fifth in the world (USA and Japan occupying thefirst two positions).

On the demand side, Italy ranks sixth among the advancedeconomies with a total domestic spending of 16.7 billion euroat ex-factory prices, compared to a world total of 519.5 billion,(corresponding to a 3.2% share).

With 230 companies producing pharmaceutical specialities and100 raw materials, the sector is characterised as follows:> Around 70 thousand employees who are some of the most

qualified in the industrial panorama: over 90% have a degreeor an academic qualification;

> 6,250 R&D employees representing 8.7% of all employees(compared to an industrial average of 1.1%);

> 22.6 billion euros in production, of which 53% earmarkedfor export;

> 11.9 billion euros in total exports, of which 9.5 representedby medicinal products, and thanks to which a positive tradebalance in this sector has been recorded for the past ten years(1,229 million in 2007);

> 1,075 million euros in investments in high-tech plant andequipment;

> 1,170 million euros in R&D spending, representing 14% ofthe manufacturing industry’s total, and, in relation to domesticsales, more than 10 times the corporate average;

> 1 billion euros in three-year research and production investments,already invested by the companies within the frameworkof “Programme Agreements”;

> about 3.5 billion euros in directly generated taxation andsocial contributions, corresponding to over 20% of publicpharmaceutical spending.

R&D activities by the pharmaceutical industry in Italy

Pharmaceutical companies are characterised by their commitmentto research and innovation, the high levels of their material andintangible investments, their high technological level, the qualityof their labour force and their propensity to export.


These are characteristics typical of an advanced sector and thanksto which greater value-added can be created with respect to theindustrial average.

Compared to all the other large industrial sectors, the pharmaceuticalindustry boasts the highest levels of productivity.This characteristic depends upon the drive to innovation, the highlevel of investments in increasingly advanced and efficient plantand equipment but not least upon the quality of its humanresources. This last element represents a competitive advantagefor companies operating in Italy, in consideration of the fact that:> the labour force has a propensity to continuous training that

is about 2.5 times greater than the average, in terms of bothcompanies and the employees involved;

> the recruitment of employees with open ended contracts inthe two-year period 2006/2007 was greater than the averagefor the economy, with ample space given to young people;

> an environment, in terms of safety at work – although suchresults can be never sufficient – in which the number ofaccidents per millions of hours worked in the pharmaceuticalindustry is 64% lower than the industrial average and isstill falling.

Research in Italy

The pharmaceutical industry is founded on and indissolubly boundup with science.It has the highest intensity of research of all the industrial sectorsand its leading industries invest a figure corresponding to morethan 15% of turnover. Among the first 20 companies in termsof research spending in the world, seven are pharmaceuticalcompanies, and together they constitute the most numerous groupamong the different sectors.

The industry’s widespread project capacity, which is also reflectedin the investment plans announced by large, medium-sized andsmall companies, confirms its leadership in the field of research.This and its great productive vocation constitute the characteristicsthat make the pharmaceutical industry not only one of the largestof the “Made in Italy” sectors and one of the most advanced,but also place it at the centre of the knowledge economy.

Since 2000, clinical trials in Italy have risen 33,7%, with agrowing concentration in phases 1 and 2 which, from a figureof 28.6% of all trials in 2000, reached a share of over 40%in 2007. Phase 4 clinical trials have more than doubled: from43 in 2000 to 92 in 2007.

The commitment of pharmaceutical companies regardingrare diseases

The most important contributions for the treatment of diseases(the majority of which are genetic in origin) come frombiotechnological pharmaceutical research and genetic engineering.Furthermore, many orphan drugs are actually biotech drugs.Rate diseases refer to pathologies that affect no more than fivepersons out of 10,000.The World Health Organisation has surveyed over 6000 diseases(of which the greater part refers to children) that altogether afflictmore than 25 million persons in Europe and over 1 million in Italy.

On account of their complexity, which refers to both their therapeutic(on average 3 to 5 years investigations are necessary before reachinga diagnosis) and ethical nature, rare diseases call for a new policythat combines public and private skills in social solidarity arrangementsthat observe the principle of subsidiarity.

This is the direction taken by the “Industrial Innovation Project(Industry 2015)” [Progetto di Innovazione Industriale (Industria2015)] in choosing the area of rare and neglected diseases as anarea for action. The project, promoted by the Ministry of EconomicDevelopment, sets out to stimulate the creation of partnershipsbetween private companies, capital, universities, and research centresin order to implement industrial programmes capable of impactingupon global competitiveness in the field of the new technologiesfor life.

This project comes on the back of other measures, including:programme agreements to promote investment in production, andR&D in Italy; the fund for the promotion of research and advancedtraining in the field of biotechnologies; the increase in the ceiling ontax credits for research, now raised to 50 million euros.

Farmindustria has chosen to participate in the creation of the networkfor rare illnesses and has therefore opted to commit itself to this verydelicate sector. For this reason it signed:> the memorandum of understanding with UNIAMO in order

to promote the adoption in Italy of legislative tools to promotethe development of orphan drugs and improve health careand social assistance for patients suffering from these pathologies;

> an agreement with Telethon to stimulate the cooperationof companies for the clinical development of drugs for rarepathologies, identify effective legislative tools to increaseresearch and innovation in the field of rare diseases (tax relief)and optimise the path from the identification of the therapyto the registration of the treatment with the regulatory authorities.

As regards the creation of an information and training network, theassociation has cooperated with UNIAMO to produce asecond edition of the Associations’ Guide to rare diseases,which represents a source of information for patients, their familiesand health-care operators and helps provide a body of valid knowledgein such a complex and multi-disciplinary area.

In 2008 Farmindustria also decided to support the first EuropeanDay of Rare Illnesses (29 February), which will have its secondedition in 2009.

10


Stefano Milani, Federica BottazziBlossom & Company

2009 is registering clear signs of consolidation and growth byinnovative companies in Italy. At the conclusion of last year,there were 260 companies investing in biotech R&D, of whichno fewer than 40 accredited by Blossom & Company in thecourse of that year. Total sales amounted to over E 15.3 billion(an 18% year-on-year increase), of which 5.4 generated from thesale of innovative products and technologies (a 24% year-on-yeargrowth rate). Investments in biotech R&D amounted to E 1.5billion (a 15% increase on the preceding year).

The total number of employees in Italy of the 260 companiesis 40,956, of whom 8,847 dedicated to R&D, representinga strong increase with respect to the figure recorded theprevious year (+36%). The companies report a 33% growthin overall capitalisation, a continually improving EBIT (an 84%year-on-year increase), together with increased financialrequirements (a 30% year-on-year increase in indebtedness)amounting to E 2.6 billion.

These figures reflect the paradox of the Italian biotech industry:on the one hand, its strong propensity towards self-financinghas slowed down the growth of many startups in the past, buton the other, the capital structures that characterise its companiestoday represent one of their strong points. And so much thatthose companies with a solid business model or which are planningto adopt financially sustainable business models, are able toobtain greater financing opportunities, notwithstanding the majorpressures generated by the current international financial crisis.

Aggregate figures of accredited biotech companies(values in millions of euros, at 31 December 2008)

Biotecnologies in Italy 2009

4936

1981

- 19

85

1986

- 19

90

1991

- 19

95

1996

- 20

00

2001

- 20

04

2005

- 20

08

befo

re 1

980


Number of biotech companies in Italy:temporal growth

71101

140

211

260

Source: Blossom & Company - CrESIT (2009)

% Var.2005 2006 2007 2007/2006 2008 (E)

Revenues 11,975 12,872 15,229 18% 16,370

Biotech sales 4,215 4,328 5,370 24% 6,353

Gross fixedcapital formation 2,573 2,491 2,660 7% 2,575

Biotech R&Dinvestments 1,207 1,310 1,506 15% 1,635

Total export 1,796 2,317 3,046 31% 2,947

Number ofemployees 35,341 37,087 40,956 10% 41,775

R&D employees 6,202 6,487 8,847 36% 9,254

R&D employees /total employees 18% 17% 22% 23% 22%

Fixed capitalinvestments / revenues 21% 19% 17% 16%

R&D biotechinvestments / revenues 10% 10% 10% 10%

Total revenues for the companies in Italy amounted to E 15.3billion; an 18% year-on-year increase. The greatest increasesare found in the area of sales of products, projects and innovativebiotech technologies, which recorded a 24% growth rate(reaching a value of E 5.4 billion), while the 18% growth forecastfor 2008 has been confirmed, despite the brusque slowdownexperienced in the October and November.

Notwithstanding the importance of such data, which today alreadyput Italy among the leading European countries, it should beemphasised that revenue accounts are certainly not the bestindicator to evaluate the development potential and growthopportunities for the industry. An analysis of investments andpipelines enables us to determine the future potentialities ofthe business which, in view of the extreme volatility of the sector,may undergo major variations from one year to another.

Therefore, interesting developments are also to be found inthe area of innovative R&D investments on biotech platforms,amounting to E 1.5 billion (15 % increase with respect to2006 data), and with a further 8.5% growth forecast for 2008.These are signals that reflect the strong propensity towards R&Dby an elite of the companies accredited in our report.

Notwithstanding the severe pressures produced by theinternational financial crisis, the 2009 forecast points to anongoing increase in the investment trend in products, projectsand biotech technologies, given that new investment plansfor a further E 1.7 billion have been recorded.

In order to contextualise the foregoing data, it is worthwhilementioning the overall value of R&D investments in the sector,therefore, without limiting ourselves to biotech operations alone.In 2007 the 260 Blossom & Company accredited companiesmade investments in research, development and trialling forover E 2,659 million. Such data are a significant reflectionof the value of investments made by pharmaceutically derivedcompanies and, in particular, of the 60 local and globalpharmaceutical companies that account for most of the investmentsin clinical trials, including those in Italy.

2007 was also a year that recorded a strong consolidation inoperating income, which at E 1.4 billion represents a 59%year-on-year increase. These results reflect a steady strengtheningand structural maturity of innovative and accredited companies.In the last three years there has been a constant growth in theratio of EBITDA to output value: from 3% in 2005 to 9% in 2007.

12


The 260 accredited companies posted an overall capitalisation ofE 4.5 billion, a significant increase and confirmation of a by-nowconstant trend that underlines the strategic approach adopted forstructural growth (+ 33%) in Italy by innovative companies.

In terms of size, the analysis indicates a strong diversification bybiotech companies in terms of maturity and business sustainability.Thus, if on the one hand the aggregate level of operationalincome would seem to indicate that the industry has grownbeyond the first phase of its development, on the other, weshould make a clear distinction in the course of our analysisas between the three size-related “development models” that,ideally, comprise the entire population of accredited Italianinnovative biotech companies.

The EBIT analysis (earnings after depreciation in respect of allthe investments made by the companies) amounts to more thanE 622 million and breaks down as follows:

> small size companies, against overall investments for E 195million posted a EBIT of E 62 million (in the course of 2006losses amounted to E 69 million);

> medium-sized companies, against overall investments formore than E 1,146 million posted a EBIT of E 71 million(in 2006 losses amounted to E 55 million);

> large sized companies, against overall investments of slightlymore than E 1,380 million posted an EBIT of more thanE 755 million in 2006 this figure was E 474 million).

1.000,00

800,00

600,00

400,00

200,00

– 200,00


Blossom developmental matrix of the Italian biotech system (MdSB) - values in millions of euro

100,00 200,00 300,00 400,00 500,00 600,00 700,00 800,00

E B

I T

R&D INVESTMENTS

Global Companies

Local Companies

Start up

Spin outindustriale

Spin offaccademico

14

It also worth pointing out that 20 subsidiaries of foreign companies(of which six listed in New York and one in Frankfurt) have,altogether, invested more than E 422 million in Italy (20% ofthe overall national value, and greater than the value recordedin 2006) in research and clinical trials regarding projects, productsand biotech-derived innovative technology), and altogetherposted an EBIT of slightly more than E 498 million.

The overall number of employees dedicated to R&D operationsamounts to 8,847 persons, representing 22% of all surveyedemployees.

This figure may be broken down into two subcategories on thebasis of the methodological approach used by this report.

> 67% (5,922 R&D dedicated employees) is employed by60 pharmaceutical and global companies;

> the remaining 33% (2,925 R&D employees) is employedby 200 start-ups, academic and industrial spin-offs.

A more in-depth analysis of the data shows that 70% ofR&D employees are employed by large companies, 15% workby medium-sized companies and 15% by small companies.These figures demonstrate the extreme importance that smalland medium companies attach to the use of R&D personnel.Large companies dedicate 18% of all of their employees to R&Dactivities, but small and medium-sized companies are, instead,much more focused, insofar as they employ 70% of their humanresources in research and development.

If the analysis is extended to all the employees of the 260Blossom & Company accredited companies (of which 60 localand global pharmaceutical companies), we arrive at a figure of40,956 persons, which includes all food biotech (3,7%),environmental biotech (0,5%), bioinformatics (0,1%), andhealthcare biotech companies derived from global and localpharmaceutical companies (84.5% representing over 34,500employees) and healthcare biotech companies, accounted for bystart-ups and spin-offs (11.3% representing over 4,600 employees).

However, the data used (number of employees declared by thecompanies obtained by a qualitative analysis and the scrutinyof their notes to the financial statements) tend to underestimatethe size of the sector, which – it can be assumed – comprises asignificant number of professional persons and external freelancepersonnel, above all as concerns the smaller companies, andwhich altogether represents a significant basin of upstreamancillary services with respect to the biotech industry.

158

2001

2002

2003

2004

2005

2006

2007

Growth of the number of biotech companies(2001-2008)


169189

211225

245 255 260

2008

Small 73%

Large 14%

Medium 13%

Breakdown of Italian biotech companiesby size



Breakdown of Italian biotech companiesby field of application

Health 73%

Bioinfo 4%

Environmental 9%

Agrifood 14%


The biotech sector in Italy is largely a recent development.More than 50% of its 260 companies were set up or establishedin Italy in the last 10 years. The intense development undergoneby the sector, especially from the outset of the new millennium,is reflected in the constant increase in the number of companiesaccredited by Blossom & Company (40 in the course of thepreceding year) deriving from the pharmaceutical, food,environmental and informatics sectors, all of which, and withgrowing intensity, are making investments in projects, products,technology and, more generally, in biotech platforms.

Alongside such companies there are groups of companies witha long history and tradition in R&D. 71 of such companieswere set up before the 1990s, and 36 of these before 1980.Over time such companies have consolidated their positions,mainly on the domestic market, by developing projects productsand technologies that, albeit recognised internationally, are rarelyperceived as Italian successes.

Numerically, the sector in Italy is mainly made up of smallcompanies. No fewer than 190 of the 260 Blossom & Companyaccredited companies (73%) employ fewer than 50 personsand post total sales of less than E 10 million. As concerns theremaining companies, 34 (13%) are medium-sized companies(employing fewer than 250 persons and with an annualturnover of less than E 50 million), and 136 (14%) are largecompanies employing over 250 persons and turning over morethan E 50 million.

No fewer than 190 (73%) of the 260 companies in Italy operatein the field of health care (the so-called healthcare companiesor red biotech companies), 36 operate in the area of biotechtechnology applications in agricultural and technical andveterinary fields (agro-food), 23 operate in the industrial andenvironmental area, (environmental) while 11 are orientatedtowards R&D in a bio-informatics environment.

Furthermore, it should be noted that there is a clear predominanceof start-ups (57% or 147 companies) among the 260 companies,which reflects the strong entrepreneurial culture typical ofItalian productive areas. Alongside these we should mention37 academic spin-offs.

In our capacity as advisers to biotech and pharmaceuticalcompanies, we have noted that it is essential, especially inthis period, to develop competitive business models in relationto the international scenario, based upon three principaldevelopment axes:

> a business concept that places no limits on the potentialityof growth and value creation;

> a strong international network and a global vision;

> strategic exit options that address the financial gains generated.

Health 94,83%

Bioinfo 0,10%

Agrifood 4,79%


Breakdown of revenues by field of application

Agrifood 10,72%

Health 88,04%

Environmental 0,92% Bioinfo 0,32%


Breakdown of R&D investments in biotechactivities by field of application

Environmental 0,29%

Biotech innovationfor healthcare 2009Stefano Milani, Federica BottazziBlossom & Company

Competitive positioningAn overview of the Italian scenario

2008 confirmed the competitive position of theItalian life science industry on the internationalstage and at the same time the chronic weaknessof the small and medium-sized companies interms of their capacity to realise capital gains andattract capital from international investors.

At the conclusion of the period in question,there were 190 companies investing in biotechR&D that were exclusively concerned with thehealth care sector, of which no fewer than 26were accredited by Blossom & Company last year.They accounted for close to E 14.5 billion inoverall sales (an 18% year-on-year increase),of which more than E 5.1 billion generated fromthe sale of products and innovative technologies(24% year-on-year growth rate), with a confirmed2008 growth provision, despite the sharp downturnexperienced in the last months of the year.They invested E 1.3 billion in biotech R&D(+ 70% in the course of the preceding year),and employed about 41,000, of whom 7,684dedicated to R&D, which on account of the stronggrowth recorded with respect to the precedingyear (+ 26%) is a very significant index.

They recorded a robust 36% increase incapitalisation, a continually growing EBIT(78% year-on-year increase), and a sizeablegrowth in financial borrowing (a 51% increasewith respect to the preceding year) that amountedto almost E 2.6 billion.

On the basis of an analysis of the business modelsof the 190 companies investing in biotech R&Din the life science industry, as accredited byBlossom & Company, we can classify no fewerthan 33 of these companies as global.


2003

Trend in biotech helthcare sales


By and large these are large-scale companies with a strongcommercial orientation towards one of the main world markets,i.e. Italy, which, at the same time, possess an enormous potentialfor research development and clinical trial operations.

We can cite, in this regard, the example of Novartis Vaccines,which was set up in Tuscany following its acquisition by Chiron(formerly Sclavo).

The micro-segment of pharmaceutical companies with a primarilydomestic orientation comprises 26 companies.In accordance with their own strategic plans these companiesare carrying out investments in R&D for the purpose of enhancingtheir pipelines by the addition of innovative products that willallow them, inter-alia, to extend the period of patent coverage.

After these companies we find 21 university spin-offs, and 14industrial spin outs. The latter exhibit a business model stronglyinfluenced by the multinational companies to which their ownershipand management can, in most cases, be traced back.

In conclusion, we should recall 29 start-ups.

The revenue accounts posted in Italy (exclusively for thehealthcare segment) amounted to almost E 14.5 million, whichwas 18 % higher than the figure posted in the preceding year.However, even greater increases were posted for sales of products,projects and innovative biotech technologies which recorded a24% growth (and reached a value of E 5.1 billion).

Broken down into its component parts, 64% of the value of Italianbiotechnological production derives from the activities of 33“multinational” companies, 30% from 26 pharmaceutically derivedcompanies, whose core business is prevalently local, while theremaining 6% of biotechnological revenues is produced by 131companies classified as start-ups, spin-outs (MBO, LBO, MBI)and academic spin-offs.

We believe that it would also be useful to supplement the foregoingdata with information on the size of the financial aggregates ofwhich the foregoing biotech revenues form part. In terms of totalturnover (thus not singling out the component originating frombiotech operations) the 190 companies surveyed posted revenuesin 2007 for over 14.5 billion euros.

until

197

0

27

Number of biotech companiesin Italy: temporal growth


3.67

3.90

5

2004

3.99

9.14

2

2005

3.99

4.93

3

2006

4.13

5.23

2

2007

5.13

7.77

9

1971

- 19

75

28

1976

- 19

80

35

1981

- 19

85

42

1986

- 19

90

61

1991

- 19

9578

1996

- 20

00

106

2001

- 20

04

155

2005

- 20

08

190

18

An historical analysis of sales trends, after a reduction in biotechproduction value in 2005, also reveals a strong consolidationof the subsequent positive trend in 2008, as well as theconsolidation of the strong recovery (+24%) recorded in 2007.

This growth in revenues, deriving from products, projects andbiotech technologies, was mainly driven by 33 “multinational”companies (+24%), followed by the 44 “local” pharmaceuticalcompanies with a 10% growth rate, whose revenuesamounted to almost E 4.4 billion while the startups, spin-outsand academic spin-offs, with a year-on-year growth rate of slightlymore than 10%, produced E 0.9 billion.

The dimensional analysis highlights strong growth last year inthe turnover of the 64 large and medium-sized companies (+19%).Furthermore, after a period of entrenchment in the period2005/2006, last year the 126 small companies recorded a14% growth rate.

Interesting increases were also found as concerns investmentsin R&D technology on biotech platforms for a total of E 1.3billion (+17% with respect to 2006 data) that forecast furthergrowth in 2008. These signals reflect a strong vocation toR&D by the elite of the “Healthcare” companies in Italy accreditedin our report.

It would be appropriate to supplement the foregoing figureswith data on the overall volumes of investments in R&D (andthus not just limited to biotech activities). In 2007 the 190healthcare companies accredited by Blossom & Company madeinvestments in research, development and clinical trialling forover E 2,476 million. However, such data are strongly influencedby the value of investments made by companies with apharmaceutical origin, especially the 60 local and multinationalpharmaceutical companies, which are primarily responsible forclinical trials, including those in Italy (excluding phase 1).

2007 was also a year of strong growth in operating income.The industry posted E 1,349 million, a 60% year-on-yeargrowth. Moreover, these results also reflect a growing structuralmaturity on the part of accredited innovative companies.In the last three years the EBITDA to net sales ratio (profit margin)grew constantly: from 3.3% in 2005 to 9.3% in 2007.

The overall capitalisation of the 260 accredited companiesreached a figure of E 4,129 million. As such it constitutes amajor growth and a demonstration of the constant trend underlyingthe strategic policy that now also drives the structural growthof companies investing in innovative R&D in Italy (+36%).

Distribution of R&D personnelby corporate size


Large 79%

Small6%

Medium 15%

until

194

0

5

Number of large-scale companies accreditedin Italy: temporal growth


1940

- 19

60

11

1960

- 19

70

16

1971

- 19

75

17

1976

- 19

80

18

1981

- 19

85

22

1986

- 19

90

24

1991

- 19

95

28

1996

- 20

00

34

2001

- 20

04

34

2005

- 20

08

34


However, the dimensional analysis highlights considerabledifferences in terms of the maturity and sustainability of thebusiness operations of healthcare companies investing in innovativeR&D in Italy. Thus if, on the one hand, the overall level of operatingincome would seem to indicate that the sector has grown beyondits first development stage, on the other, it indicates that weshould first distinguish between the three size-determined“development models” that ideally comprise the entire sampleof the accredited biotech companies considered in this analysis.

First, we must stress that the EBIT analysis (given that it takesaccount of depreciation charges on investments carried outby companies) yields an overall figure of over E 610 million,which breaks down as follow: while the small and medium-sizedcompanies posted a EBIT of respectively E 57 million andE 72 billion, the large companies accounted for an overall EBITin excess of E 739 million.

The overall number of employees performing R&D and clinicaltrials is 7,684 (19% of all employees surveyed in the frameworkof the healthcare industry).

However, we can break this figure down into twosub-categories on the basis of the methodological approachindicated in this Report:

> 77% (equivalent to 5,914 human resources dedicatedR&D activities) refers to 59 pharmaceutical companies andglobal companies;

> the remaining 33% (equivalent to 1,769 employees) refersto 131 start-ups, academic and industrial spin-offs.

A more in-depth analysis reveals that 79% of the total numberof R&D and clinical trial resources is employed by large companies,15% by 30 medium-sized companies and the remaining 6%by the 126 small companies, which, on the other hand, masksan incidence of specialised R&D personnel that is much higherthan that found in the other two categories (29% of all employeesagainst 19% found in medium-sized and large companies).

If the analysis is extended to cover all employees of the 190Italian companies accredited by Blossom & Company in thisreport (of which 59 local and global pharmaceutical companies)we reach a figure of 39,214 employees.

until

194

0

2

Number of medium-sized companies accreditedin Italy: temporal growth


1940

- 19

60

6

1960

- 19

70

9

1971

- 19

75

9

1976

- 19

80

12

1981

- 19

85

14

1986

- 19

90

17

1991

- 19

95

21

1996

- 20

00

25

2001

- 20

04

29

2005

- 20

08

30

until

194

0

1

Number of small companies accreditedin Italy: temporal growth


1940

- 19

60

2

1960

- 19

70

2

1971

- 19

75

2

1976

- 19

80

5

1981

- 19

85

6

1986

- 19

90

2019

91 -

1995

29

1996

- 20

00

47

2001

- 20

04

92

2005

- 20

08

126

The Italian biotechnological industry is, by and large, a recentdevelopment. Of the 190 companies accredited by Blossom &Company among the elite of the innovative biotech companies,over 44% were constituted or established in Italy in 2000 orlater. The particularly intense development that the biotech industryhas been experiencing since the start of the new millennium isalso reflected in the constant growth in the number of companiesaccredited by Blossom & Company.

However, this growth has roots in the pharmaceutical industry,which, as early as the beginning of the twentieth century,saw the development of companies that are still operating onlocal and international markets.

Moreover, alongside these companies there is a group of companieswith a long R&D history and tradition. 8 companies werefounded prior to beginning of the 1940s, and 46 between the1940s and the 1960s. These are national and multinationalcompanies that were able to consolidate their market positionsby developing projects, products and technologies that,although recognised and appreciated internationally, are rarelyperceived as Italian successes.

20

The art ofbusinessinnovationdiffers fromcountryto country

blossomcompany.com

St rategic Advisor y in Heal thcare & B iotechCorporate Finance

Center for B ioEnt repreneurs

22

Biotech Trials: information sheet

Therapeutic pipelineThe research and development carried out in Italy within theframework of pharmaceutical applications is producing asignificant pipeline of products at various stages of development.

In Italy, there are altogether 209 products at the preclinical andclinical development stage that are the result of research by 48companies. 73 of these products are in the preclinicaldevelopment phase, while 136 are already in their clinical phase(Phases I-II-III). Specifically, 26 are in Phase I, 55 in Phase II, and55 in Phase III.

Moreover, Italian research has more than 49 projects at anadvanced research stage (hereinafter termed discovery), whichconstitute any interesting promise for the sector in upcomingyears. If we take account of the latter, the total number ofproducts and/or projects reaches 258. Most of the foregoingproducts entered the present development phase in the courseof the last three years (2006-2008).

Instead, as concerns the so-called discovery products, mostof these are to be found in the areas of antineoplastics andimmune modulators (31%) central nervous system (18%),followed by the gastrointestinal and skeletal muscle areas(both with 8% of projects).

If we consider all R&D activities, (therefore including moleculesat the discovery phase), our analysis reveals a major orientationof overall investments in the areas of antineoplastics andimmune modulators (36%), central nervous system (14%),dermatology (7%) and cardiovascular (6%).

The foregoing data appear even more significant if accountis taken of the fact that only products and projects producedby Italian R&D were considered. However, the data alsoinclude those produced by the research centres ofmultinational companies operating in our territory if theresearch carried out on the products/projects was principallyconducted in Italy.

Global data illustrate the Italian biotech industry’s investmentcapacity in research, which in recent years has recorded anincreasingly greater capacity to produce value, asdemonstrated by the large number of products underdevelopment (209).

As concerns the classification of the products underdevelopment, these can be divided into 14 therapeutic areas,among which the following areas standout for their criticalmass: antineoplastics and immune modulators (38%), thecentral nervous system (12%), dermatology and cardiovascular(both 7%).

Examining the foregoing products by type, we find a strongpredominance of the so-called small molecule drugs (48%),followed by therapeutic proteins and monoclonal antibodies(both 12%) as well as peptides (7%).

Altogether biotechnological drugs or biopharmaceuticalsrepresent about 30% of the total products under developmentaccording to the definition that includes: therapeuticrecombinant proteins, products based on monoclonalantibodies used “in vivo” for medical purposes, and medicinesbased on nucleic acid and cell therapy technologies.

By combining the analysis of the products by technology andtherapeutic area, we also find a strong deployment of smallmolecules in the oncological (14% of the total) and neurologicalfields (11%), followed by the use of monoclonal antibodies,once again in the oncological field (7%).

Breakdownof the numberof products andprojects bydevelopmentphase

Source:Blossom & CompanyAssobiotec (2009)

Discovery 49Preclinical 73Phase I 26Phase II 55Phase III 55TOTAL 258

Classification of the number of productsand projects by therapeutic areaand development phase (*)

Breakdown of the number of productsand projects by technology

Source: Blossom & Company - Assobiotec (2009)

SmallmoleculesRecombinantproteinsMonoclonalAntibodiesPeptidesNaturalproductsCell TherapyGene TherapyVaccinesOther

48%

12%

12%

7%

5%

3%

11% 1%1%


V

P

R

S

J

H

G

B

M

A

C

D

N

L10 20 30 40 50 60 70 80 90 100

DiscoveryPreclinicClinic


The foregoing products and projects mainly derive from in-house research activities (64%). Cases of in-licensing representa much smaller proportion (15%) as do transfers recorded bythe parent company for co-development agreements (10%).This trend is also confirmed when each of the varioustherapeutic areas is considered singularly.

Diagnostic pipelineThe data collected for 2008 should be regarded as partialinsofar as they are based upon the R&D activities conducted,in our country, by a number of Italian start-ups (5) that answeredour survey.

The overall pipeline obtained refers to 14 diagnostic productsunder development that belong to the oncological (71%),haematological (21%) and genito-urinary system/sexualhormone (7%) areas.

As concerns the technologies used, there is a clearpredominance of the use of peptides (57%) and antibodies(14%), and overall more than 70% of the projects are coveredby at least one patent.

These products mainly originate from in-licensing operations(57%) and in-house research (43%). No co-development projectshave been reported.

Technology pipelineThere are 63 innovative technologies being studied in Italythat require the use of biotech methodologies. They are theoutcome of the activities of 26 companies, which, for the mostpart, are Italian.

The areas of application appear to differ considerably, but theareas of pharmacological screening (35%) and pharmacologicalpreparation improvement (13%) are prevalent.

The technologies being studied mainly derive from in-houseresearch by individual companies (84% of cases) or fromcooperation projects (10%), and only marginally fromin-licensing acquisitions (6%).

Moreover, it appears that close to half of the technologiesunder development have been patented. This is in line withthe growing awareness of the necessity of this instrument byItalian industry if it is to leverage and safeguard the results ofproprietary research.

In absolute terms, the largest number of technological projectswas begun in the last three year period (2005-2008).

A more in-depth analysis allows us to detect a certain cyclicaltrend in the number of projects started every year.

The values associated with the level of innovativeness of theItalian system are very interesting. 76% of the products andprojects examined fall into the “first in the class” category,while 20% of cases are classified as “Me too better”, and theremaining 3% as “Me too”.

40 of the 209 products under development have received“orphan drug designation” (2 from the FDA, 7 from the EMEAand 31 from both the EMEA and the FDA). These are mainlyproducts with therapeutic applications in the oncological fieldand which are already at a very advanced stage of clinicaldevelopment. These products derive from the R&D activitiesof 15 companies, of which one third are Italian-owned.

Overall, 90% of the projects and products being studied inItaly have been granted at least one patent. The highest levelsof patent protection are found in the areas of antiparasitics,respiratory system and sensory organs.

R&D activities in the healthcare field, in addition to the pipelineof therapeutic products, are also generating a pipeline in thediagnostic and technological fields.

(*) Therapeutic Areas

A, Gastroenterology and metabolic diseases; B, Hematology andhemopoietic organs; C, Cardiovascular; D, Dermatology; G, Urologyand reproductive organs and hormones; H, Hormones (sex hormonesexcluded); J, Systemic antimicrobials; L, Antineoplastics andimmunomodulators; M, Bone/Muscles; N, Neurology; P, Antiparasitics;R, Respiratory; S, Sensory organs; V, Others.

Classification of the number of productsand projects by origin and therapeutic area (*)


V

P

R

S

J

H

G

B

M

A

C

D

N

L10 20 30 40 50 60 70 80 90 100

Own researchIn-licensingTransfer fromparent companyCo-development

Classification of the number of new projectsstarted by year


20

15

10

5

<2000 2000 2001 2002 2003 2004 2005 2006 2007 2008

24

The following tables have been taken from the7th National Report on Clinical tests of medicinal productspublished by the Italian Drug Agency in July 2008.The report is available in PDF format from the websiteof the OsSC http://oss-sper-clin.agenziafarmaco.it.The data therein refer to the period 1 January 2000 -31 December 2007. Reformulation and summary byBlossom & Company.

The Osservatorio Nazionale sulle Sperimentazioni Clinichedei medicinali (OsSC), [The National Observatory on ClinicalTrails upon medicines] found that the absolute number ofclinical trials in 2007 amounted to 750. Phase I and II studiesrepresented a significant part of total clinical research: in2007 they accounted for 42.6% of total trials. Similarly, phaseIII studies, which in the preceding year represented 44.5%of the total, continued the trend begun in 2005. Multicentretrials represent 80% of the total.In keeping with the growth trend of the preceding year,Italy’s participatory share in international studies in 2007rose to 75.3%The main therapeutic categories addressed by Italian clinicalresearch concern antineoplastic and immune modulator drugs(34.1%), followed by drugs for the nervous system (11.7%)and general antimicrobial drugs for systemic use (9.8%).In 2007, participation in clinical trials by non-profitindependent promoters without any industrial objectives(hospital trusts, local health authorities, scientific associations,

medical research and treatment institutions (IRCCS),universities, etc.) exceeded 35% of the total.Non-profit research in Italy is heavily concentrated uponantineoplastic and immune modulator drugs, which accountfor over half the deployment of their resources (53.5%).Pharmaceutical companies (profit promoters) show morediversification in their research and are mainly concentratedon the therapeutic groups of antineoplastic and immunemodulator drugs (26.0%) nervous system drugs (13.0%) andgeneral antimicrobial drugs for systemic use (11.1%).Although as many as 578 promoters (360 profit and 218non-profit promoters) are registered in Italy with at leastone approved trial, the first 50 promoters account for over60% of clinical trials.The types of structure in Italy adopted for such researchrefer primarily to hospitals found throughout the nationalterritory, which host 78.1% of studies, followed by IRCCSswith 52.5%, universities with 30% and university polyclinicswith 27.9%Emilia Romagna and Liguria record the highest averagenumber of trials by structure, respectively 52 and 48, althoughLombardy (58.9%) continues to be the region with thehighest absolute number of clinical trials.The structures that are most involved in clinical studies are:Azienda Ospedaliera Universitaria Policlinico S. OrsolaMalpighi of Bologna (16.4%), the San Raffaele Institute ofMilan (14.4%), the polyclinic San Matteo of Pavia (12.2%)and the University Polyclinic Gemelli in Rome (11.6%).

Clinical trials in Italy

Trials by year and phase - Total CTs: 5,122

Phase I Phase II Phase III Phase IV Bioeq/Biod TotalYear

SC % SC % SC % SC % SC % SC %

2000 5 0.9 156 27.8 345 61.5 43 7.7 12 2.1 561 100.02001 5 0.8 203 33.2 329 53.8 55 9.0 19 3.1 611 100.02002 11 1.9 214 37.7 290 51.1 40 7.1 12 2.1 567 100.02003 11 1.9 202 34.9 312 53.9 47 8.1 7 1.2 579 100.02004 10 1.6 222 35.5 327 52.2 55 8.8 12 1.9 626 100.02005 21 3.2 230 34.9 325 49.3 76 11.5 7 1.1 659 100.02006 28 3.6 297 38.6 351 45.6 76 9.9 17 2.2 769 100.02007 32 4.3 287 38.3 334 44.5 92 12.3 5 0.7 750 100.0Total 123 2.4 1,811 35.4 2,613 51.0 484 9.4 91 1.8 5,122 100.0

Trials by type of participating structure and phaseTotal CTs: 4,999 (excluding Phase I)

%Type CT

Phase II Phase III Phase IV Bioeq/Biod Total

Hospitalfacility 3,905 32.8 57.6 9.0 0.6 100.0

Public or privateresearch/treatment 2,675 35.8 54.9 8.5 0.9 100.0

University 1,501 25.4 63.4 9.8 1.4 100.0

Universitypolyclinic 1,396 25.5 63.9 9.6 1.0 100.0

LHO (localhealth office) 1,003 25.9 65.0 8.3 0.8 100.0

Private clinic 245 27.8 66.5 4.1 1.6 100.0

Other* 48 27.1 60.4 12.5 0.0 100.0

* Research bodies, military hospital

Trials by therapeutic area

OncologyCardiology / Vascular diseases

Immunology and Infect. dis.Neurology

GastroenterologyEndocrinology

Diseases of respiratory apparat.Haematology

Nefrology / UrologyPsychiatry / Psycology

OphtalmologyDiseas. of skeletal muscle appar.

Dermatology / Plastic surgeryRheumatology

Gynaecology & obstetricsAnaesthesiology

Genito-urinary systemOthers

CT

1.389

551

470

426

329

279

217

192

184

133

133

132

116

110

82

73

72

111

In this section we set out to provide an overviewof the biotech industry in Italy. In addressing themorphology of the biotech industry, this analysishighlights its unique features in terms of itsdimensions, models of governance and capitalstructures. In addition, we have reintroduced theanalysis introduced in the preceding report onthe development trends in the turnover ofcompanies in the industry on the basis of adynamic developmental matrix.

This tool will allow us to identify the short andlong-term developmental lines of the industry andtherefore, supplement the interpretation of the dataset forth in the introductory section of the report.

The dimensional profile of biotech companies

The biotech industry is principally made up ofsmall-scale companies. 73% of the sample(190 companies out of 260) is made up of smallcompanies, characterised by a turnover of lessthan E 10 million and a workforce of fewer than50 workers. Medium-sized companies constituteabout 13% of the sample (34/260). Largecompanies (over 250 workers and turning overmore than E 50 million), on the other hand,number 36 and constitute 14% of the population.It is important to specify that these totals include38 subsidiaries of foreign multinationals operatingwithin the Italian territory, and that these areprincipally large companies. In point of fact, 53%are large companies and 29% medium-sizedcompanies. Only 18% are small companies.

In analysing sales distribution by size, it canbe noted that almost 90% of overall biotech salesin 2007 was generated by the foregoing 36large companies, which also account for over80% of all workers in the industry.

Medium-sized companies account for 11% ofboth biotech turnover and employees, while smallcompanies generate only 2% of overall biotechsales and employ 5% of all workers.


These data, as mentioned earlier, also includethe subsidiaries of multinational companies, whichgenerate almost 80% of total sales and employ45% of all workers in the industry.

Biotech companies in Italy: characteristics,structure and developmental dynamicsAlberto Onetti, Alessia Pisoni, Marco TalaiaCrESIT – University Insubria, Varese

START UP SMALL MEDIUM- SUBSIDIARIES LARGESIZEDBiotechsales 0.55 0.70 17.2 110.8 129.2(min of euros)Employees 14 10 130 467 960Years <5 5<y<20 10<y<50 2<y<100 5<y<100

Biotech companies in Italy: Averange values by company type (2007)

Source: Blossom & Company - CrESIT 2009

Moving on to analyse the characteristics of thecompanies comprising the Italian biotechindustry, we shall commence with an interestinganalysis of recently set up companies (start-upsand spin-offs).

Newly set up companies have an averageturnover of E 45,000, as against about E 70,000invoiced, on average, by small companies of lessrecent constitution. As concerns their payrolls,start-ups on average, employ 40% more workersthan small companies. Such data indicatean important propensity towards investment bystart-up companies.

Furthermore, the data reveals that medium-sizedcompanies have, on average, a turnover (17.2million) 30 times greater than that of the smallcompanies and, that, on average, they employ130 workers. In terms of the operational maturityof medium-size companies, their average agevaries from 10 to 50 years. The large companieshave, on average, sales of E 130 million andemploy almost 1000 workers. It should alsobe noticed that the large companies with thelargest number of workers are big pharma.Over 60% of all employees of large companieswork for pharmaceutical enterprises.

26

As concerns the subsidiaries of multinational companies (a groupcomprising 38 companies), this group is mainly made up oflarge companies: 20 large, 11 medium-sized and seven smallcompanies. This explains the high average sales (E 111 million)of this category as also the relatively high number of workers(467 employees per company). In addition, it is necessary tospecify that almost all of the subsidiaries (35/38 subsidiariesworking in biotech) are red biotech companies.

Size profile of red biotech companies

In our analysis of red companies we found three idea-type profilesof the companies in this sector based upon the business modeladopted, which allows us to distinguish initially between purebiotech and pharma biotech companies, and subsequently breakthe latter down into biotech and pharma orientated companies.The red companies in Italy number 190, of which 138 arepure biotech, while 52 are pharma biotech (of which 27 biotechorientated and 27 pharma oriented).

The date set forth in the table show that the average turnoverand the average number of employees varies significantlyaccording to the business model characterising the variouscompanies belonging to the red sector.

PURE BIOTECH PHARMABIOTECH ORIENTED ORIENTED

Overall sales(min of euros) 15.0 124.1 315.0

Biotech sales(min of euros) 10.0 87.5 57.8

Employees 65 147 863Years 2<y<20 5<y<20 8<y<100

Differences between the business models of red biotech companies (2007)

Source: Blossom & Company – CrESIT 2009

The data on average turnover returns very variable results,especially when we consider the data on overall sales. Withreference to pure biotech companies, these in general are recentlyinstituted companies, (with a large start-up component) thatbelong to the small to medium-sized company type. On averagethese companies employ 65 workers and generate sales of between10 and 20 million. They are strongly focused upon biotech, whichon average accounts for 75% of their sales).

Moving on to analyse pharma biotech, the profile changes considerablydepending on whether we are concerned with biotech-orientated orpharma oriented companies. The former are medium-sized to largecompanies that have been operating on the market from 5 to 15years. On average such companies employ 150 workers and generateover E 120 million in sales, while their primary focus is on biotech(from which an average 70% of their revenues are generated).

On the other hand, pharma-oriented companies are largepharmaceutical companies, often belonging to international groups,characterised by large sales volumes and large workforces (on averagethey employ almost 900 workers). Biotech is not the core businessof these companies as it only represents 15 to 20% of total sales.

Size profile of Italian biotechcompanies

190 73%

LargeMediumSmall


36 14%

34 13%

Size profile of the subsidiaries operatingin Italy


7 18%

LargeMediumSmall

20 53%

11 29%


Spin offs

An important perspective for evaluating the development and thedynamics of the biotech industry is the creation of new spin-offs.In point of fact, spin-offs favour the transfer of knowledge fromuniversities to the entrepreneurial world, regardless of the fact thatthey may or may not be accompanied by an exodus of academicpersonnel. The spin-offs surveyed this year amounted to 44, ofwhich 7 have a corporate and 37 a university origin. In the precedingyear there were 26. The fact that many spin-offs originate fromuniversities testifies to the scientific excellence of the latter,insofar as they are capable of training high-level researchersable to undertake entrepreneurial projects on their own.

If we analyse the average biotech turnover of the spin-offs, wefind this is higher than that reported, on average, by start-upsand small companies. Spin-offs have sales deriving from biotechactivities and processes that amount to E 800,000, which isabout 14% higher than the sales of small companies and about45% higher than those of start-ups.

The average number of employees is also higher, becausespin-offs are, on average, made up of 21 workers against 14for start-ups and 10 for small companies. However the dataare significantly influenced by the presence of 7 corporatespin-offs in the population, which have a greater average sizethan the university spin-offs. If we consider the academicspin-offs alone, the average sales amount to E 245,000 whilethe number of employees falls to 5.

Incubated companies

95 of the 260 companies of the population are situated insideparks or incubators, which are often sponsored or promoted byterritorial authorities. As regards these companies, 86 are small,7 average-sized and 2 large companies. 50% of the spin-offsmentioned earlier are situated within technological parks orincubators. The following table represents the positioning ofcompanies within the principal parks. 66% of the incubatedcompanies are situated in the first 6 parks surveyed (BioIndustryPark Canavese, Science Park Area Trieste, Parco Scientifico andTecnologico della Sardegna, Parco Tecnologico Padano, ParcoScientifico Biomedico San Raffaele and Insubrias BioPark).

BioIndustry Park Canavese 18%Area Science Park Trieste 16%Scientific and technological park of Sardegna Polaris 15%Parco Tecnologico Padano 7%Parco Scientifico Biomedico San Raffaele 6%Insubrias BioPark 4%Environment Park Torino 3%Polo Scientifico di Sesto Fiorentino 3%Toscana Life Sciences 3%Parco Scientifico e Tecnologico di Venezia VEGA 3%Incubatore dell’Università di Torino 3%Incubatore Firenze Ovest 3%Bresso Bioscience Park 2%IFOM-IEO 2%Tecnopolis Valenzano 2%Others 8%

Incubated companies in Italy (2008)

Source: Blossom & Company – CrESIT 2009


Breakdown in biotech tornover by companytype (in millions of euro)

133 2%

LargeMediumSmall

4.651 87%

587 11%


Breakdown of total employees bycompany type

1,960 5%

LargeMediumSmall

34,582 84%

4,414 11%

28

The capital structure of biotech companies

The following section is concerned with the analysis of the capitalstructure of Italian biotech companies.The objective of the analysis is to provide some indications on thedegree of capitalisation, the level of indebtedness and the type ofinvestments performed. The analysis was conducted by takingaccount of the size profiles of the companies in the industry, and,as regards the red biotech segment, of the business model adopted.

Our findings confirm a satisfactory level of capitalisation (32%),which is one of the industry’s characterising features, although3 percentage points lower than the preceding year. The overallindebtedness of the industry is amply sustainable insofar asthe net gearing ratio remains well below 1 (0.6). As concernsassets, an increase in fixed assets was found, which brings thefixed-assets-to equity ratio down from the figure of 1.2 in thepreceding year to 0.88. Working capital continues to representthe predominant part of companies’ asset structure (57%).

We shall now determine if there are differences in the capitalstructures that correlate with to the different size categories ofthe companies that constitute the industry.

As concerns large companies, the capital profile does not exhibitnotable differences with respect to the preceding year (2006).The most important data refer to an increase in fixed assets,which rose from 28% to 37%. As regards liabilities, the structureremains more or less unchanged, with only a small 4% reductionin short-term liabilities. The debt/equity ratio stands at 0.6,and therefore constitutes a limited financial exposure, while thefixed-assets-to-equity ratio is slightly below 1.

The medium-sized companies are alone in not exhibiting anincrease in fixed assets.

Their fixed assets fell 4%, from 34% in 2008 to 30% in 2009,with a clear predominance of working capital (70%).Medium-sized companies have a 30% capitalisation ratio witha debt to equity ratio of 0.7 which denotes a limited financialexposure for this group too. A fixed-assets-to-equity ratio of 1,can be easily noted by observing the chart.

Small companies posted the most significant increase in fixedassets, which rose from 30% in 2008 to 47% in 2009.The increase may also be due to a more correct measurementof intangible assets in companies’ financial statements, which,in the past, may have led to an under estimate of their fixedasset values. As regards liabilities, there is a clear prevalenceof medium to long-term liabilities with respect to short term(47% against 14%). The fixed-assets-to-equity ratio (at 0.9)is slightly below 1, while net gearing (at 0.4) is the lowest ofall three groups, although this is also a reflection of the higherlevel of capitalisation of this category of companies (equityratio equal to 43%).


Biotech spin-offs in ItalySpin off corporate University spin off

37

7

SPIN

OFF

0.80

Averange sales by category


0.55

0.70

STAR

T UP

SMAL

L

SPIN

OFF

21

Averange number of employees


14

10

STAR

T UP

SMAL

L


This year’s analysis shows an image of an industry with goodlevels of capitalisation and a modest financial exposure.We believe that these two requisites are fundamental for thefuture development of the sector insofar as they representindispensable conditions for access to the private equity market.In a sector in which important investment in R&D and a mediumto long-term temporal horizon determine highly volatile returns,it is indispensable that financial risk remains under control, sothat investments may be attracted and any economic financialdifficulties may be dealt with even on the basis of leveraged capital.

The development trends in the Italian biotech industry

This year we have repeated our analysis on the developmenttrends in the industry. Our analysis has been enriched by makinga comparison between the positioning of companies recordedin 2007 with that recorded in 2008. This enables us to identifythe most recent developments in the industry as well as itsstructural developmental axes.

Such data are very important for new and emerging sectors,such as biotech, characterised by very strong rates of growthand extremely volatile developmental dynamics.

The analytic tool deployed is the developmental growth matrix.This compares the development rates of biotech companies onboth an annual and a three-yearly basis. The matrix summarisesthe development dynamics of sales in the life science sector.Specifically, the historical development trends of companies inthe industry are traced out from two temporal perspectives:

> the short-term, represented by sales variations recordedlast year;

> the medium term, characterised by the average growth ratein sales in the three-year period 2007-2004.

Every company in the industry is identified by one point onthe matrix, which represents the intersection between averagesales growth in the three-year period and last year’s growth.The matrix is made up of four quadrants into which the entireItalian biotech universe can ideally be broken down.

> Quadrant A: the companies positioned here are those thatexhibited a positive growth trend both last year and in thethree-year period in question. Such companies demonstratea constant growth trend and represent the backbone of thebiotech industry.

> Quadrant B: the companies situated here were able to growin the three-year period but exhibited a contraction last year.This falloff in sales may be attributed to market factors(and in this case we should expect a shift upwards in itsposition over time) or it may signal a possible crisis.In this case, there will be a movement towards quadrant C.

> Quadrant C: the companies situated here exhibited not onlydeclining sales last year but also in the three-year periodunder examination. It is difficult to imagine a change in thefortunes of these companies unless their business modelsundergo major overhaul.

37%

63%

32%

42%

26%

MLT LiabilitiesST LiabilitiesWorking capitalShareholders’ equityFixed asset

The capital structure of large biotechcompanies


30%

70%

30%

44%

26%

The capital structure of medium-sizedbiotech companies


47%

53%

43%

43%

14%

The capital structure of small biotechcompanies




Sales growth trends (2008)


> Quadrant D: here the companies exhibiteda growth in sales last year after a negative3-year period. As with the companies situatedin quadrant B, it is necessary to understandif this growth is a result of a structuralphenomenon (and in this case one determininga progressive movement towards quadrant A)or a situation that cannot be sustained inthe long term (and consequently a movementtowards quadrant C).

The average growth values for the industry arerepresented within the matrix by two broken lines.The sales recorded by biotech companies in thethree-year period 2007-2008 grew on averageby 10.45%, while in 2007 (the last yearexamined) it grew, on average, by 15.08%.By using these proxy values we can determinesituations of over and under-performance.

Therefore, following the classification introducedin the 2008 report, the companies situated tothe right and above the broken lines can bedefined as overperformers as, on average, theygrew more than the sector average on both ahistorical and an annual basis. The companiessituated to the left and below the broken linesare, instead, defined as underperformers as theyclearly exhibit significant underperformance withrespect to the average of the companies in thesample. The degree to which this definition appliesis given by the distance between these companiesand the Cartesian axes.

Companies close to the intersection point of thetwo broken lines are, on the other hand, definedas neutral as their performance is in line withthe industry average.

The matrix analysis tells us, first and foremost, thatthe developmental growth pattern of the Italian biotechindustry is more or less identical to that describedlast year. Therefore, this year, it is also possible toobserve a significant dispersion of companies overthe 4 quadrants, which is typical all of emergingsectors with a high innovation rate. In particular:

> The majority of biotech companies clusteraround the industry average, and thereforearound the two segments formed from theintersection of the axes and the two brokenlines expressing average sales growth on anannual and three-year basis. These companiescan be defined as “stayers”, and demonstrategrowth dynamics in accordance with theindustry average.

> In the top part of quadrant A – above and tothe right of the broken lines – can be foundover performing companies, with respect tothe industry average. These companies,which we can define as “rumping up” havean above-average growth trend.

> The companies found in quadrant B, whichare almost all are concentrated near to theaxes, recorded a positive growth trend in thethree-year period 2007-2004, and a salesdownturn last year. We refer to these companiesas “slowing down” in order to signal theslowdown taking place. A qualitative analysiscan help us understand if the sales reductionreflects external market factors or whether,on the other hand, it is the onset of a crisis ofa more structural nature.

> Quadrant C represents the position of companiesregistering a negative growth trend in both thethree-year period and in 2007. In this casewe must distinguish between companiesrepresented by points close to the axes andthose at some distance from them in the lowerleft hand corner. Given that the former haveonly posted limited sales reductions, they stillhave room for recovery. The latter – identifiedas “tumbling down” – are, in our opinion,destined to depart the industry because theyare characterised by significant trends in saleslosses.

> In the final quadrant are found those companieswe define as “improving”. These are companieswhich despite having recorded negative salesgrowth in the three-year period, exhibited salesgrowth in 2007. This positive developmentcould be a harbinger of recovery and progressivemovement towards quadrant A.

30

Ave

ran

ge

turn

ove

r g

row

th r

ace

(200

7-20

06)

Variations in turnover (2007-2004)


As concerns the temporal development of sales, we are also ina position to make a positive judgement by asserting – on thebasis of hard data – that the industry shows signs of improvement.

However, it must be pointed out that the developmental growthmatrix was constructed by excluding start-up companies from thesample. There are two basic reasons for this decision. In the firstplace, sales of recently set up companies tend to be an insignificantvariable, especially in sectors of highly intense innovation andinvestment such as the biotech industry, where the introductoryphase may be very prolonged. Furthermore, it is normal forcompanies going through this early stage to manifest highlyvolatile results, and this prevents us from conducting an analysisbased upon sales variations. As these companies are of greatimportance for understanding the development prospects of theindustry, we have decided to dedicate an analysis on the industry’snew entrants and leavers in the following paragraph.

The other limitation from which the matrix analysis suffers refersto the fact that it is based upon sales and not upon investmentsand pipelines. The peculiarity of the companies belonging tothis industry is that they carry out significant investments in theinitial phases of activities or studies/trials on a new product.Rarely can such investments have an immediate return in termsof sales. Consequently, an analysis, essentially based upon salesgrowth may underestimate the developmental potentiality of theindustry and fail to measure the real development dynamics ofa sector with only a short history and a previously defined pipeline.

Changes in the reference population: new entrants and leavers

We shall now analyse the growth dynamics of the Italian biotechpopulation. In the two-year period 2007-2008, i.e. followingthe collection of the data contained in the 2008 report, 12 newcompanies were set up, of which one half were university spin-offs.Another important factor to note is that no less than four of the12 newly constituted companies are located in a technologicalpark. In terms of their specialisation, eight of the foregoingcompanies operate in the red field, two in the green field and twoin the grey/white field. The following table sets forth these data.

This year, the region with the highest number of newly constitutedcompanies is Lombardy (7), followed by Tuscany (2), Piedmont,Lazio and Friuli Venezia Giulia (1).

On the other hand, there are 2 outgoing companies, and bothare being wound up. These companies were start-ups that failedto survive the initial period. Biotech is a sector that calls for majorinvestments. Cash flows are only generated over time (the pipelineof biotech products is, generally speaking, between 11 to 13years) and therefore, in these cases, were insufficient to covershort-term corporate costs.

Breakdown by business model of newlyset up companies


RedGreenGrey/Green

8

2

2

Why biotechnologiesare important

One of the greatest difficulties I encounterwhenever speaking about biotechnologies is howto convey the idea of their importance in Italytoday, and just how important they are for ourcountry’s long-term development.

This difficulty is essentially attributable to tworeasons.

In the first place, biotechnologies representan emergent industry and, as such, are not“registered” in the most commonly used databases,namely those classified on the basis of traditionalproduct categories. If you asked a bank to indicatethe number of biotech companies in its customerportfolio or a chamber of commerce how manybiotech companies operate in its territory, youwould not receive any clear answer, unless theofficer in question had personal knowledge oftheir existence.

This represents a serious obstacle insofar as itprevents the sector’s importance from being“quantified” in the various discussion forums.Consequently, the Blossom &Company - Assobiotecreport, which annually surveys the biotechnologicalindustry, is of particular importance. The certifiedlist of biotech companies provided by the reportcan constitute the basis for a “sector code” forbiotechnologies and, as such, can be implementedby the leading databanks. This would constitutean important step forward in recognising theimportance of an industry that at presentrepresents over 1% of GDP and 0.2% of allemployment, as well as one with an enormousgrowth potential.

The second difficulty represented bycommunicating the importance of biotechnologyis the fact that biotechnology does not constitutean industry in the traditional sense of the termbut rather a “technological platform”, applied ina variety of sectors. It is no accident that wespeak of red, green, grey or white biotech, andbioinformatics to indicate the various sectorialramifications in which biotechnologies operate.

This dispersion over a number of sectors representsone of the basic difficulties in viewing biotech asa unitary whole. In other studies (Onetti e Zucchella2008, Cotta Ramusino e Onetti 2007) we adoptedthe term "meta-sector" to underscore the factthat biotechnologies constituted an industry that,in part, overlaps with various other importantindustrial fields (health care, pharmaceuticals,chemicals, agriculture, software, environmentalsafeguards and clean technologies, etc.) and withwhich it has close and strong relations.

Alberto Onetti, Director CrESIT


The fact of its being at the point of intersectionwith such different sectors exposes the industry toan element of risk represented by the circumstancethat this technology appears to be “swallowed up”by its respective fields of application. From thisstandpoint, green biotech may appear to beabsorbed by agriculture and animal husbandry,and red biotech by healthcare and pharmaceuticals.Such potential fragmentation, apart from thestatistical problems of classifying the sector, isdamaging for biotechnologies as a whole, becausethese companies – above and beyond the variousindustrial areas of application of the technologies– share problems and unique managerial andoperating characteristics that are peculiar to theirnature as high tech biotech companies and whichrequire handling in shared professional manner.

The attraction they may exercise in their variousfields of operations, helps neither the latter northe biotech companies themselves. Biotechcompanies face complex issues concerning thetechnologies to be adopted, the investmentsneeded and, not least, managerial problems callingfor specific types of action and intervention, andall such issues can be more effectively handledas a distinct business sector (i.e. the biotechindustry) rather than by applying differentapproaches drawn from its various sectors ofapplication, as the latter address broader anddifferent problems.

The importance of the biotech industry for ourcountry goes beyond the numbers that it representstoday, albeit such numbers are anything butnegligible. I believe this message merits furtherconsideration.

On the one hand, biotech is important becauseit is an emerging industry. Unlike many industrialfields in Italy, biotech presents importantdevelopment prospects.

Therefore, the figures referring to biotech inItaly (the 260 companies, the 39,000 employees,the E 15 billion in revenues) are values that aredestined to grow.

And it is perfectly self-evident that in terms ofnational industrial policy, investment should beearmarked to sectors with development prospectsrather than to declining industries.

On the other hand, the relevance of biotech goesbeyond the dimensions it represents today or whichit may have tomorrow. It would be a mistake tothink of biotech is something limited to 1% of GDP.

Precisely on account of its characteristic as atechnological platform or a meta-sector, biotechrepresents a motor of innovation and reconversionfor all other sectors and industries in which it maybe applied. We are speaking here not only of thosesectors that are fundamental and traditional for ourcountry (such as health, pharmaceuticals, chemicalsand agriculture), which collectively make animportant contribution towards the gross domesticproduct (about 16%) and overall employment(beyond 9%), but also of emergent sectors (suchas software, IT, environmental protection and theso-called clean or green technologies) whichconstitute new areas in which the prospects ofeconomic growth and new jobs are concentrated.

Biotechnology provides such sectors withtechnological solutions that the offer opportunitiesfor reconversion and new development (in thecase of the traditional sectors) or opportunitiesfor growth and work (for the emergent sectors).

Therefore, biotech represents a tool or a driverfor innovation and economic development in thehands of corporate Italy, whose benefits can spreadacross many important sectors. If we fail to availourselves of such a tool to produce value wewould deprive ourselves of a unique opportunity.

Biotech as a “meta-sector”: industries affected by its spin-off

Biotech 1% Pil

Health7% Pil

Pharma2% Pil Chemistry

4% Pil

Agriculture3% Pil

Software/IT1% Pil

Clean/GreenTech

Source: CrESIT 2009

34

The co-operation between the Italian Institutefor Foreign Trade - ICE and Blossom Associati,Assobiotec, Farmindustria and CrEESIT has startedin 2007 and has given the opportunity, for thethird year in a row, to realize the BiotechnologiesReport in Italy 2009, a fundamental readingfor those wishing to gain a comprehensive viewof the Italian biotechnology industry.

The interaction among the local institutions,chambers of commerce, business associations, aswell as the research activity carried out by universities,scientific parks and incubators, have contributedto consolidate this interesting sector, driven bya constant growth over the past recent years.

Italian biotechnology, therefore, should beconsidered a real example of best practice, ableto create specialized and competitive bio-clustersat international level – such as those located inLombardy, Piedmont and Sardinia regions – eventhough the size can not be compared to theAmerican and North European super-clusters.

These areas of excellence represent an essentialdriver for the internationalization of the Italianhi-tech companies, particularly in the actualframework of international economic and financialnegative trend. Consequently, the promotion ofsectors like biotechnology, which innovate andcontribute to the success of Made in Italy allover the world, becomes even more important.

AmbassadorUmberto VattaniICE

Over the past decade, the Italian Institute forForeign Trade - ICE has committed itself inenhancing the strengths of Italian biotech sector,supporting companies in every step of theirexpansion abroad: from the analysis to the accessand the consolidation of their position on theinternational market.

Activities are planned in conjunction with Italy’sNational Association of biotechnology companies,Assobiotec, and with the Members of theBiotechnology, Biosafety and Life SciencesCommittee, in order to establish common strategies.

The Action Plan, based on the guidelines of theMinistry of Economic Development, offers a widerange of information for those companies interestedin business partnership and strategic collaborations.Moreover, ICE provides a specific support inthe field of intellectual property rights, through14 desks operating in countries such as China,India, United Arab Emirates, Brazil, United States,South Korea and Turkey.

As a result, the ICE promotional activities encouragethe creation of an international technologytransfer network between research centres andcompanies, aimed at the creation of innovativeproducts and services, while competitiveness cansatisfy even social needs.

The international role of the Italian Institute for Foreign Tradein promoting the biotech sector,as a key for innovation and competitiveness

The international role of the Italian Institute for Foreign Tradein promoting the biotech sector,as a key for innovation and competitiveness


Antonella Zucchella, CIBIE, Pavia University

Marian Jones, CIER, Glasgow University

The Scottish biotech systemlooks to Italy

This is the first of the annual reports that CIBIE, the Centrefor International Business and the International Economy atPavia University, within the framework of the Blossom & Companyreport, will be providing on the most interesting internationalbiotech clusters.

This year the choice fell upon Scotland, not so much for thesize of the industry as for for the extreme interest with whichthe Scottish biotech system is looking at Italy. Our country isperceived as possessing an industry of growing importance;a fact that also emerged on the occasion of the annual meetingon Biotech Business Models that took place last year in Varese.

For a number of years Great Britain has represented one of themost important biotech clusters in the world.

A survey undertaken in 2007 by UK Life Sciences MarketingStrategy showed that the British biotech industry was valuedat over $ 130 million (corporate assets) and that it had beengrowing at about 13% per year since 2001. In comparison,the pharma sector amounted to $643 billion, and was growingat an annual rate of 7% which, although very respectable, wasonly about half that recorded by the biotech industry.

Biotechnology is principally concentrated in the areas of Cambridgeand Oxford, close to major research centres of international fame.The Scottish cluster is a more recent development but in recentyears it too has experienced some very significant growth rates.The largest science industries, altogether, comprise about 600institutions (public and private of which about 10% academic)and over 30,000 employees. 20 new biotech companies wereset up in Scotland in 2007, and the considerable incidenceof spin outs demonstrates a sound and growing maturity amongthe existing companies.

There are many reasons for our interest in the Scottish system.From the Italian standpoint, the Scottish case illustrates thefeasibility and the sustainability of a European biotech developmentmodel, even in disadvantaged regions that lack a consolidatedtradition for such companies.

However, the Scottish model is not only made up of numbersand research environments. There are also interesting institutionalarrangements for the long-term development of the cluster.The Scottish Life Sciences Association has shown itself to beparticularly proactive and ready to experiment with new modelsto sustain the sector.

36

Thus, in 2005 an ambitious plan which introduced whichcomprises the following initiatives:> the promotion of the Life Sciences Scotland brand;> the setting up of the Life Sciences Alliance (LSA), a forum made

up of companies, and public and financial institutions operatingin the sector in Scotland. The key objectives of the LSA arethe monitoring of trends and development opportunities, togetherwith the vigorous promotion of cooperation between companiesand between companies and institutions;

> the LSA is to work alongside the Industry Advisory Group (IAG)made up of representatives of companies from the industry;

> the preparation of a strategic document “Achieving critical mass:2020 vision” designed to represent the long-term roadmapfor the industry in Scotland.

The Scottish cluster, as shown in other successful casesthroughout the world, while exhibiting a regional concentrationis distributed over a number of local platforms, each close tothe principle Scottish cities and research centres (Edinburgh,Glasgow and Dundee).

This structure gives rise to the balanced growth of this variegatedcluster, with various research specialisations and a number ofpublic and private institutions supporting it. Furthermore, theplentiful supply of qualified personnel, thanks to the degree andPhD courses of Scottish universities, is recognised as one of theprincipal strong points of the Scottish system. In addition, theScottish research system, represented by 57 universities andresearch centres with about 17,000 researchers, receives around£ 410 million per year in public and private financing to maintainthe research activities in the institutions’ laboratories.

Private equity is also well developed and capable of sustainingcorporate growth paths in the various phases of a company’s life.In 2005, 20% of all European IPO operations were carried outin Scotland. Some of the well-known cases are ProStrakan, IDMoSand Optos. Cyclacel, set up in 1996 is the first, and at presentthe only, spin out operation to have raised over $ 100 million.

In short, therefore, the Scottish model may be considered an importantreference point for Europe on account of the following features:> the development of a multi-point and multi-specialised platform> the presence of an important supporting infrastructure made

up of no less than 20 scientific parks to develop R&D activities,localise spin-offs and incubate new companies together witha financial infrastructure able to mobilise important financialprivate and public resources;

> a plentiful supply of qualified human capital and the necessarysector suppliers;

> experimentation with innovative institutional solutions throughforms of coordination and cooperation between companiesand between companies and public and private institutions,both “real” and financial;

> the integrated promotion of a Life Science Scotland brand,which has acquired a strong international visibility, whosebenefits include raising funds and attracting foreign companies;

> the sharing of a long-term strategic vision and arrangementsto pursue it.


For all of these reasons, it can be said that Scottish biotechnologyconstitutes an interesting reference parameter for Italy whereregional basins are developing (Lombardy, Tuscany, ...) and beingconfigured as a number of micro clusters. In particular, theinteresting Scottish institutional arrangements aimed at promotingthe entire system and sustaining it with very incisive actions interms of territorial marketing and fund raising, represent animportant benchmark for the Italian system.

On the other hand, the Scottish biotechnology system is lookingwith great interest at Italy, perceived as an industry of growingimportance.

For a number of years, the Scottish biotech cluster has beenexpressing a keen interest in international cooperation, asdemonstrated by the recent cases of the Korea Health IndustryDevelopment Institute, which invested £ 18 million Glasgow,and the US company Inverness Medical Innovations, whichinvested £ 6 million in R&D and plans to invest 55 in the Stirlingarea for production and marketing activities. Similarly, a by-nowsignificant number of Scottish companies operating in the lifesciences are carrying out investments abroad.

The Scottish biotech belt: Five cities, 20 scientific parks

38

Venture capital, boosts Italian start ups

Andrea Mesutti, Sullivan & Worcester LLP - Boston, Massachusetts USA

The Venture Capital was originally founded by George Doriotimmediately after the end of World War II, who was a Professorat Harvard Business School. He founded ARDC which invested70,000 dollars in Digital Equipment Corporation who enteredinto the stock market in 1968. At that time the shares in Digitalin ARDC were valued at over 355 million dollars.

The trend of American Venture Capital transactions is currentlyfeeling the effects of the global financial crisis. Nevertheless,the volume of investment and number of deals going through isunprecedented The year 2008 finished up with 3808 concludedtransactions and over 28 billion dollars invested. The majority ofthis took place in Silicon Valley with investments more than 1 billiondollars, representing around 36% of the national total. The Eastcoast of the United States with Massachusetts and, more generally,the regions of New England came a close second, where the VentureCapitalists invested over 700 million dollars for a national marketshare of around 13.5%. In terms of size of investment, around29% of the investments carried out at national level were placedin the seed and early stage venture capital, of which almost50% were located in the aforementioned geographical areas.

In terms of the industry, biotechnology and software are practicallyjoint top, with over one billion dollars of investment and with amarket share of 19% in each sector. More specifically, the biotechnologymarket in New England attracted around 23% of investments withover 220 million dollars invested, immediately after Silicon Valleywith a share of around 30% of the investments made1.

The figures for the American Venture Capital market must nothowever lead us to believe that the United States is the “Eldorado”of Venture Capital or even the haven for start-up companies.Despite these figures, which are certainly significant, organising aVenture Capital transaction is a demanding initiative which requireresources, time, energy and especially professionalism in as muchas the sector is extremely competitive and these Venture Capitalistsare more than just specialists in choosing their investments.So, what does creating a Venture Capital transaction in the UnitedStates entail; especially for a foreign company or businessman?

First and foremost, it means fully understanding the marketin which you will be operating. Once a Venture Capitalist decidesto invest, he will issue a Term Sheet to the founding membersof the company, this is the document which briefly gives anin-depth summary of the economic and legal extremes of thetransaction. Of utmost importance, not only for the imminentadmission of the investor, but also for the future developmentof the company, is the section on the term sheet entitledCapitalization Table (also known as cap table); that is the economicoutline (but with substantial legal consequences) which highlightshow the share capital of the start-up will be divided up amongthe founding member(s) and the investor(s).

1 The information above has been provided by PriceWaterHouse Cooper andNVCA (National Venture Capital Association) and can be accessed by logging on to:https://www.pwcmoneytree.com/MTPublic/ns/index.jsp


Venture Capitalists rarely support common stocks in investments.They generally subscribe to preferred stock which characterisetheir own advantages among which, liquidation preference rights,specific voting rights in meetings or rather within the Board ofDirectors, rights to share in the most advantageous profits comparedto those responsible for the founding members or rather the rightsto favour other partners in reimbursing the capital invested intothe company if it fails. Generally in Venture Capital transactions,the option pool is always for management (around 15%).

Everything which has just been pointed out (preferred stock,option pool, investors rights, percentages of reimbursement ofthe capital for the investor in the event of exit etc.) is explainedand summarised in the sections of the Cap Table. In other words,a check and balance system between the founder, the VentureCapitalist and management. The importance of understandingthe value and how the Cap Table is used right from the outsethas a direct link to the success of the business of a company andof the entrepreneur himself.

The thought processes and negotiations that go into the Cap Tableare however based on the valuation of the company. The VentureCapitalists invest in companies which generally do not haverevenues (or very small revenues). Venture Capitalists invest inideas which may be patented. So, when an investor says he hasbought shares for a value of 2 million dollars equal to 33% ofthe company, what does it mean?

Pre-money valuation. In other words, what would the companybe worth without financial intervention. How can the value of acompany be calculated pre-financing? The Capitalization Tableand value of a company before and after financing are some, butnot the only important aspects of a Venture Capital transaction.In fact, these concepts must be coordinated with an efficientsystem of corporate governance which, on the one hand, leavesthe entrepreneur free to run his business but on the other hand,allows the Venture Capitalist to monitor the investment.

The various exit strategies which the Venture Capitalist intendsto use when his investment matures must be forecast.Everything indicated above is wrapped up in the investmentpackage which over and above the term sheet, is made up of theStock Purchase Agreement, from the Certificate of Incorporation,the Investor Right Agreement, the Right of First Refusal and Co-sale Agreement and finally the Voting Agreement (in the UnitedStates the norm is to divide up what could be included in ashareholders’ agreement voting pact and investment agreementinto several documents). Other than the legal and business aspects,the tax elements of the transaction are also checked, especiallyif the founders are not American citizens or permanent residentsin the United States, or if an industrial patent needs to betransferred from an individual to a company. The figures quotedat the beginning of the document give an idea of the sheer sizeof the American Venture Capital market, despite the current dipcaused by the international economic boom. Nevertheless, thefact remains that the transactions in this field have specific legal,tax, economic and strategic characteristics which make themdifficult to manage and succeed without a specialist team whichsupports the founders through all stages: from researching a“good” venture capitalist, to structuring the economic aspects,to preparing the necessary legal documentation, right up to theresources and implementing the possible development scenariosfor the post-financing company and post-venture capitalist.

40

Biotech faces a challenging year

The Burrill Small Cap Biotech Index and theBurrill Mid Cap Biotech Index dropped 29 percent(down 43 percent in 2008) and 22 percent(down 31 percent in 2008) respectively in thefinal quarter of the year. These dramatic dropsin value came even after factoring in what wasa relatively strong performance for these companiesin the final month of the year, with the BurrillSmall Cap Biotech Index gaining almost 8 percentand the Burrill Mid Cap Biotech Index gaining1.6 percent.

The more mature and blue chip biotech companieshave so far weathered the period quite well andwill continue to do so going forward since theyhave plenty of cash, product revenue streams,strong pipelines and big pharma partners. Investorshave viewed these large cap companies as safehavens, which is why the 10 percent drop in theBurrill Biotech Select Index, during 2008 canbe viewed in a positive light when set in contextof the Dow falling 35 percent and the NASDAQfalling 42 percent in the same 12 month period.

The performance of the various biotech indicesreflect the realities that investors still have faithin the blue-chip biotechs but are staying well awayfrom the more risky emerging biotech companies[see Table 1]. Big pharma companies weretraditionally seen as safe havens in periods ofuncertainty and recession but stricter regulation,impending patent expirations of blockbuster drugswith no new ones in the pipeline, increasedpressure to lower prices and more intense genericcompetition caused investors to move into biotechs.Reflecting this changing sentiment was the factthat the Amex Pharmaceutical Index fell almost20 percent in 2008.

The worldwide financing environment in 2009will be extremely challenging. Capital marketsaround the world will certainly remain turbulentduring the first half of 2009 although there willbe an “uptick” in biotech’s fortunes around theJP Morgan Healthcare Conference in early January.

G. Steven Burrill, CEO, Burrill & Company - San Francisco, California USA

A sea change has occurred in the industry.After having 40-plus years of relatively easyaccess to cheap capital, the “rules of the game”changed with the permanent restructuringof the capital markets making access to capitalmore difficult and expensive.

The biotech industry closed its books on a yearthat saw the Burrill Biotech Select Index, apriceweighted index tracking 20 of biotech’s“blue chip” companies, drop 9.4 percent in value.In normal times this would be seen as a poorperformance but the events in the financial marketsduring the last four months of 2008 made itanything but “business as usual”. The year willbe remembered for a very long time not only forthe wild swings in the Dow and other major globalfinancial indices – the industry has experiencedseveral market meltdowns in the past and livedto tell the tale – but also for how it has and willcontinue to impact for the foreseeable future theflow of much needed capital into the sector.

Finance has been the industry’s umbilical cordfor the past forty-plus years… the implosionof financial institutions severed this cord and,as a result, it has left many emerging private andpublic global biotech companies on “life support”.There was a clear pattern evolving for thesecompanies in the final quarter of the year.In response to the economic conditions companiesbegan to shrink to conserve cash and extendtheir runway - unfortunately, headcount remainedtheir biggest expenditure, and as a result of thenegative capital markets, many programs havebeen put “in the refrigerator” until marketconditions improve, and key management,scientific and sales staff have been laid off.

Even more dramatic evidence of the industry’sresponse to the financial crisis has been the factthat among the 600 global publicly-listedbiotechnology companies tracked by the BurrillReport2 almost 60 percent saw their marketcap fall to well below $100 million. In addition,The Burrill Report identified over 100 NorthAmerican public and private biotech/lifesciences/pharma companies, that announced acorporate restructuring in Q4 ’08.

2 The Burrill Report, a subscription-based bi-monthly magazine, provides detailed market intelligence on the latest global developmentsand trends in the life sciences industry. It also includes monthly industry statistical updates and comprehensive financials and venturefunding transactions.


In the second half of the year the capital marketswill stabilize and biotech will benefit from this.Biotech’s elite companies will continue to maintaintheir momentum with financial returns meeting

analysts’ expectations. By year end, the BurrillBiotech Select Index will again outperform thegeneral markets and the DJIA and Nasdaq.

12/31 9/30 11/28 12/31 % change % change % change Index 2007 2008 2008 2008 Month Qtr YearBurrill Biotech Select 331.52 331.93 274.83 300.33 9.28% – 9.52% – 9.41%Burrill Large Cap Biotech 437.71 437.48 350.70 379.70 8.27% – 13.21% – 13.25%Burrill Mid-Cap 201.89 178.93 137.20 139.39 1.60% – 22.10% – 30.96%Burrill Small Cap 137.6 110.29 72.61 78.35 7.91% – 28.96% – 43.06%Burrill Genomics 104.29 84.99 57.29 59.69 4.19% – 29.77% – 42.77%Burrill AgBio 198.83 154.12 134.73 127.72 – 5.20% – 17.13% – 35.76%Burrill Industrial 158.66 139.88 110.26 106.12 – 3.75% – 24.13% – 33.11%Burrill Diagnostic 159.43 171.38 129.83 138.30 6.52% – 19.30% – 13.25%Burrill Nutraceutical 593.04 503.82 337.29 369.24 9.47% – 26.71% – 37.74%NASDAQ 2652.28 2082.33 1535.57 1577.03 2.70% – 24.27% – 40.54%DJIA 13264.82 10850.74 8829.04 8776.39 – 0.60% – 19.12% – 33.84%Russell 2000 766.03 679.58 473.14 499.95 5.67% – 26.43% – 34.73%Amex Biotech 786.5 784.06 595.98 647.15 8.59% – 17.46% – 17.72%Amex Pharma 338.52 292.48 254.95 272.84 7.02% – 6.71% – 19.40%

Table 1: US Biotech Indices

Biotech financing

Financings and partnering deals collectivelybrought in $30 billion for US companies in 2008with over $10 billion through financings and $20billion in partnering capital. The 32 percent dropin funds raised in 2008 compared to 2007 wascertainly reflective of the market conditions andthe lower valuations of public companies in generaland you have to go back to 1998 to find a smallerfinancing amount raised by the industry.

In terms of biotech IPOs, 2008 was one ofbiotech’s worst in history with only one completed- Bioheart - raising about $6 million. Except forventure capital deals, which remained healthyfor the year, generating $1 billion each quarter,all other forms of financing fell compared to thecomparative 2007 figures. [see Table 2]

Partnering on a tear in Q4

Balancing out the low financings total was thewhopping $10 billion total in partnership dealsin Q4’08. Contributing to this total were twopotential billion dollar deals in the quarter includinga potential $1.4 billion worldwide strategic alliance

between Archemix Corp. and GlaxoSmithKlinecovering aptamer therapeutics to treatinflammatory diseases, such as rheumatoidarthritis and inflammatory bowel disease.

Archemix will receive $27.5 million in upfrontpayments from GSK, including a $6.5 millionequity investment. Archemix could also be eligibleto receive up to $200 million in development,regulatory and sales milestone payments for eachof the seven aptamer therapeutics, which may bediscovered and developed as part of the alliance.Osiris Therapeutics could potentially receive upto $1.25 billion under a stem cell treatmentdevelopment and sales deal with Genzyme Corp.

Under the deal, Genzyme made an upfront$130 million payment to Osiris for rights tothe company’s developing Prochymal andChondrogen treatments. Prochymal is currentlyin a late-stage study as a possible treatmentfor graft vs. host disease, a side effect of abone marrow transplant. It is also in late-stagedevelopment for Crohn’s Disease.

What’s ahead for the industry?

The large universe of small public companies, andprivate companies in the US and Europe lookingfor new capital to fund their operations will facean extremely challenging 12 months as they try tofind ways to extend their runway and stretch outthe funds that they have remaining. Many will beforced to combine for survival and focus on theone key program between them that has the greatestopportunity for value creation and funding.In this respect, it will not be a 1+1=2 (combination)or 1+1=3 (synergy) but a 1+1=0.5.

There will be reverse mergers, many of these willbe into public shells or ‘burnout’ companies, thathave seen their product fail, but still with cashin which the mergee believes that this vehiclewill increase their funding options and provide apathway to liquidity for their venture capital/privateequity investors.

If not restructuring, biotech companies will beacquired at bargain basement prices. Big pharmaand big biotech will certainly take full advantageof the fragile global economy to buy assets at adiscount. These companies will have the luxuryof sitting back and waiting for the right opportunityand then acquire biotech companies at whatrepresents 1990 prices.

When the markets do return in early 2010 wewill see a very different industry than exists today.The industry will consolidate in 2009 and thenumber of functioning public companies will bereduced through mergers and acquisitions andbankruptcies. There will be also be severalmarquee acquisitions of biotech companies bybig pharma with Roche finally consummating itsacquisition of Genentech.

Both big pharma and big biotech will continueto compete for companies with advanced productpipelines, as well as important land grabs oftechnology. There will also be new playerscompeting for technologies – such as majormedical devices and instrumentation companies.

Other significant events that we see on thehorizon are:> Partnering deal making will remain robust,

although expect to see more spin-outs and“newcos” build around technology platformsand product franchises rather than the usualmodel of “upfront” and milestone payments.The emphasis will be towards later stageproduct partnerships.

> There will be a clean tech boom in non-foodcrops. In 2009, President Obama will encouragemajor investments in solar power, wind power,and next generation biofuels. Clean technologycompanies will attract financing in record amounts.

> Ag/Animal Health will also see an increase in interestand funding - driven by the world food crisis.

> Internationally, China, India and other economieswill continue to finance biotech companies.The global nature of biotech will put pressureon the US to maintain its dominance and wewill see increasing evidence of other jurisdictionstaking the lead in some technologies andbusiness sectors.

> Biotech clusters will be redefined away fromgeography to more virtual build globally arounddiseases, pathways, markets, and uniqueindustry segments. In response, businessmodels will continue to evolve more virtually.

Overall, it will be a very tough year for the industry.Companies will be restructuring and refocusingas they try to come to terms with the sea changethat is occurring in the industry.

[A detailed analysis and perspectives on the performance of the industry in 2008 and projections for 2009and beyond are published in Biotech 2009-Life Sciences: Navigating the Sea Change - the 23rd annual reporton the life sciences industry, available in January. Details: www.burrillandco.com/resources]

Table 2: US Biotech Financings 2008

2005 2006 2007 Q1 ’08 Q2 ’08 Q3 ’08 Q4 ’08 Total PUBLICIPO $ 819 $ 920 $ 2,041 $ 6 $ 0 $ 0 $ 0 $ 6Followons $ 4,194 $ 5,766 $ 6,311 $ 701 $ 312 $ 693 $ 20 $ 1726PIPEs $ 2,376 $ 2,027 $ 1,618 $ 370 $ 203 $ 308 $ 197 $ 1078Debt $ 5,565 $ 13,978 $ 6,749 $ 1,622 $ 360 $ 408 $ 434 $ 2824 PRIVATEVC $ 3,518 $ 4,236 $ 4,425 $ 837 $ 1,007 $ 1085 $ 1246 $ 4175Other $ 1,114 $ 425 $ 611 $ 20 $ 226 $ 20 $ 28 $ 294

Total Financing $ 17,586 $ 27,352 $ 21,975 $ 3,556 $ 2,108 $ 2,514 $ 1,925 $ 10,103Partnering $ 17,268 $ 19,796 $ 22,365 $ 3,091 $ 4,141 $ 2,962 $ 9,829 $ 20,023Total $ 34,854 $ 47,148 $ 44,340 $ 6,647 $ 6,249 $ 5,476 $ 11,754 $ 30,126

42


Italy, according to the latest report by the EuropeanPrivate Equity and Venture Capital Association(EVCA), is a “fading country”.

EVCA’s report, drawn up in cooperation withKPMG, is a comparative analysis of thedifferent tax and legal frameworks in leadingEuropean countries.

The clusters identified range from such “leader”countries as France, Ireland, Belgium and GreatBritain, to successful reformer countries suchas Greece, Spain and Portugal and Central andEast European countries, where institutionalinvestors are practically non-existent, with theexception of Hungary and Poland where effectivepolicies offering incentives to new entrepreneurialinitiatives have been adopted.

In the latest classification, whose first editiongoes back to 2003, Italy dropped from the 5thposition assigned to it 4 years ago to 18th.In actual fact, our country has never been aterritory very favourable to institutional investorson account of the many constraints and limitationof its fiscal and company-law systems. Our legalframework has often discouraged the influx ofcapital from abroad, but, more importantly, it haspenalised small and medium-sized companies,especially vis à vis countries regarded as leaders.With respect to such countries, Italy has no taxincentive scheme to sustain fledgling, innovativecompanies, and absolutely no specific tax rate toassist small and medium-sized enterprises ingeneral. Furthermore, as concerns research,and notwithstanding some significant steps madein the adoption of tax concessions for companiesinvesting in R&D, especially those cooperatingwith universities and public research organisations,no facilities or incentives are provided for theso-called “technology transfers” or for new,innovative spin-outs.

Most of Europe, instead, not only adopts decidedlymore interesting tax incentives than our ownbut also, as in the case of France, Ireland andGreat Britain, goes one step further in attemptingto help develop companies by teaching newentrepreneurs how “to do business”.

In the course of its development, a company afterbeing set up, develops, grows, and maybe alsobecomes international but in every step on itslife-cycle it has to familiarise itself with different“travelling companions”. In their first years of lifethe Business Angels and the universities enablean entrepreneurial idea to take flesh.

Someone’s sitting in the shade today because someone planted a tree a long time ago (Warren Buffett)

Someone’s sitting in the shade today because someone planted a tree a long time ago (Warren Buffett)

Mauro Brunelli, Andrea StoffellaMittel Corporate Finance

44

Enterprise Ireland, the government agencyresponsible for the development of newentrepreneurial initiatives, is the main bodyresponsible for supporting all those entrepreneursdeemed to be high potential start Ups (“HPSU”)and providing them with a team of persons.

If entrepreneurs do not meet the criteria laid downby Enterprise Ireland, they can, instead, turn tothe support centres (County Enterprise Board –“CEBs”) set up by the Irish county councils, inassociation with the IDA, for all small and medium-sized innovating companies.

While Ireland is, possibly, the most prestigiouscase of support for innovating companies it is notalone. Great Britain has the Greater LondonEnterprise (“GLE”), a company formed by 33municipalities in the London area for the purposeof supporting innovative companies that areenlarging their horizons beyond national borders.In France we can cite the case of the associationset up around the École Central de Paris: a vaguelylobby-like organisation insofar as reserved toex-students of the school but, nevertheless,effective in promoting new companies.

The models of the so-called investment readinessmay, therefore, differ considerably within andbetween countries. In Spain, for example, thereis the initiative of the Catalonia DevelopmentAgency while in Germany schemes are centredon the BANDacademy (Business Angels NetzwerkDeutschland).

Although Italy has not adopted any of these models,considerable effort has been made in terms ofproviding funds thanks to various “early stage”initiatives provided in some regions such asPiedmont, Emilia-Romagna, Tuscany and Sardiniaor through bank foundations. The first three ofthe foregoing regions, in 2007, set a reciprocalcooperation project in motion for research andtechnological transfer.

In conclusion, the president of AIFI, the ItalianPrivate Equity Venture Capital Association, hasrecently suggested that a national hi-tech fundshould be instituted for the entire nation, alongthe lines of the high tech fund model for theSouth of Italy3, in order to promote investmentsthroughout the entire national territory. And if thisfund of funds has the power to impose a modelof investment readiness to be coordinated at anational level, Italy might be able to re-align itselfwith the rest of the developed Europe.

However, before these initiatives reach a dimensionthat may be deemed interesting for the moretraditional investors (such as private equity funds)our innovative company must pass through whatis called the “Valley of Death”, which hinders theso-called technological transfer, or more simply,prevents a good entrepreneurial idea fromdeveloping into a real business venture.

The entrepreneurial idea that manages to overcomethe obstacles of the start-up phase will thenfind itself with growing financial needs but thefunds that could meet such needs are characterisedby investment-selection criteria that are financialnot technological. If a new investor attemptingto profit from his investment is not convincedthat the initiative could grow and generate returns,he will not commit any of his resources to it.

In order to assure a real capital supply marketfor new companies, it is also necessary to developthe demand side of funding and help newcompanies attract investors. In other words, newcompanies must develop “investment readiness”.

For an entrepreneur looking for new sources offinance and/or risk capital, negotiating with aninvestor means having the capacity to understandthe latter’s specific needs, being able to satisfythese needs by introducing an appropriate structureand supplying the relevant information that cantransmit the necessary credibility and trust.

Some European countries have started specific“institutional” programmes to train newentrepreneurs in activities that are often consideredsecondary but which, instead, can be of vitalimportance for an investment decision by investors.By way of example, the drawing up of a businessplan or the manner in which available informationis presented constitutes activities that candetermine the continuation of a company or,if conducted unprofessionally, its demise.

In Ireland, the Ireland Development Agency (“IDA”)is specifically organised to provide tutoring tosmall and medium-sized companies, to whichit assigns a “development adviser” who willwork alongside them until their strategic objectivesare reached. Other specialists are appointed tohelp companies produce business plans, buildup teams and lay down rules for selecting andhiring personnel.

3 The high tech fund for the South promoted by the Ministry for Innovation and Technologies, the Ministry of the Economy and Financeand the Ministry for Development and Social Cohesion.


Federica BottazziManaging Director Blossom & Company

Blossom VentureCapital Screening 2009

The advisory work undertaken by Blossom & Company on behalfof an elite of innovative companies in Italy, together with our analysesof the industry, has brought to light features that underline theparadox of the Italian biotech industry. If, on the one hand, its strongpropensity to self financing has slowed down the start-up of manycompanies, on the other hand, the capital structures that characteriseits companies have today become one of their strong points, andto such a degree that companies with a solid business model orwith important plans for the sustainable financing of their models,notwithstanding the constraints generated by the very seriousinternational financial crisis, can still find a number of opportunitiesto finance their development. Blossom & company found that,currently, there are seven Italian companies that could be listedin the next five years. This number reflects the ferment in the Italianindustry notwithstanding the world’s very serious financial crisis.

The most common forms of financing, for all companies in Italy,namely major capital contributions from shareholders, applyto almost all the companies in our survey (81% of companies).In 32% of the cases, banks will intervene in the operations(but almost exclusively in the interest of medium and large-sizedcompanies). Another central role is played by programmesco-financed by the public sector (mainly functioning as seed andpre-seed money, otherwise virtually absent from the nationalfinancial market). 53% of the operations support smaller companiesmore exposed to enterprise risk and mainly take place throughnational and regional financial schemes. Community programmes,on the other hand, only offer marginal assistance. Venture capital,mainly originating outside Italy, accounted for 13% of the capitalisationoperations of accredited companies, which also confirms thatindigenous operators play a practically non-existant role in thedomestic market. According to last year’s data, VC operatorswere found in 20% of cases. In conclusion, we also found thatBusiness Angels were more or less absent from the national market.Our analysis shows they only intervened in 3% of cases.However this fact is unsurprising for analysts who are fully awarethat such operators are totally absent from the Italian market.

Shareholders’ capital contributions 81%Programmes co-financed by the pubblic sector 53%Banks 32%Venture Capital / Private Equity 13%Business Angels 3%

Sources of finance of biotech companies in Italy(percentage data based on the biotech population)

Source: Blossom & Company 2009

Capital, whether originating from venture capital operations,public funds, private equity, nonprofit foundations or fromcash flows generated by a sustainable business model, is andremains the real resource sustaining research and information.Access to capital can, in fact, develop or destroy a project, atechnology or a company.

46

In the absence of Italian venture capital, but more in generalof high risk capital, the keys to the takeoff of biotechnologies inItaly are represented not only by public funding and a growingwillingness to cooperate with international operators, but also bypartnerships between start-ups and pharmaceutical companies.

The latter, as also venture capital firms, are taking advantageof stock exchange depreciation, and looking for solid businessmodels that would be listable in two/ three years, as well as listedbiotech companies with P/E ratios below those of many start-ups.

The screening carried out on the Italian companies to evaluatethe most interesting targets in the sector, once again confirms thatItaly is a more venture capital and private equity industry than astock exchange industry insofar as companies must first grow,structure and consolidate their own business models, create aninternational network and a global vision, develop research, and onlywhen their pipelines have reached a level able to forecast a two/threeyear cash flow can they begin to think about a public listing.

Types of interventation examined within the framework of Blossom & Company advisory activities

Early stage financing Early-stage company financing can be broken up into:> seed financing, when the phase of trialling an innovative idea

is involved, and the technical validity of the product/servicemust be demonstrated.

> start up financing, obtained at the commencement phasesof operations when the commercial validity of the product/serviceis still unknown.

Expansion financing or Investment aimed at sustaining the development and growth ofdevelopment capital a company; the development of a business activity can be pursued

through diversification (internal growth), the acquisition of companiesor business units (external growth), or through cooperation withother companies (networking and clustering).

Bridge financing Bridge financing refers to an advanced stage in a company’sdevelopment. It is characterised by the consolidation of the majorityshareholders who acquire the minority stakes of shareholdersintending to disinvest, and may also lead to public listing

Replacement capital An investment aimed at reorganising the shareholding structure,whereby an institutional investor replaces one or more shareholderswishing to disinvest.

Cluster venture Investment operations designed to group a number of independentcompanies together.

Turnaround Investment for the restructuring of lame-duck companies.MBO, LBO, MBI Operations designed to replace all the shareholders of the company

by internal managers (Management buy-out), external managers(Management buy-in) or leveraged acquisition (leveraged buy-out)

Information sheet: Blossom & Company (2009)

That one of the fundamental problems of companies in this sectorin Italy, and not only in the startup phase but also in their subsequentdevelopment, is represented by the difficulty of raising the capitalneeded to sustain the corporate process, is certainly not a novelty.Instead, the novelty in the eyes of Blossom & Company is basedupon the conviction that the principles and methods of strategicplanning applied to innovative companies in Italy can enable suchcompanies to achieve a better understanding of their financialproblems and the long-term sustainability of their business.


Blossom & Company considers that if companiescan develop their own approach to strategicplanning, they can more easily identify thosesources of financing that meet their needs bestand reach stable relationships with financiers,whatever their specific characteristics.

Blossom & Company believes that innovativeItalian companies that invest in R&D andBio-entrepreneurs must be put in a conditionto present their projects in a way such thatthey can adopt the same criteria of potentialinvestors and in this manner clarify the relationshipbetween scientific and financial success.However, this is by no means easy.

In this context, the preliminary advisory activitiesand the successive acquisition of financial resourcesthrough merchant banks, venture capital or privateequity companies, as an intermediate stage towardspublic listing, are certainly an essential step toachieve the necessary acceleration. In this sectormore than in any other, venture capital companiesand specialised advisors are needed, because theyare the only entities with the know-how appropriatefor the management of risk and the managerialcapacity to guide companies forward. On the otherhand, a biotech company with a mainly phase 1or 2 pipeline, without access to capital injections,know-how or the network or alternatively withits shares already quoted on the stock exchangewould be too great a risk for any operator.

Venture capitalist investments enable companiesto survive for a period of between 18 to 24months prior to reaching a well-defined milestonethat will successively enable another round ofinvestments to be made and thereby guaranteecapital gains for the investor. And the investmentsin question, albeit relatively modest, will berepeated over time. However, the high riskcharacterising the sector and the high failure rateof projects make it difficult to plan returns oninvestments. This, consequently, gives rise to theneed to parcel investments out.

The ideal solution for many innovative Italiancompanies with an excellent pipeline, althoughstill in a preliminary phase, would be to find aspecialised venture capital network, advisorand specialised investors who believe in and canassist the develop of the project by providingthe skills, networking and capital flows necessaryfor accelerating the pipeline’s development.

In our advisory capacity on behalf of an elite ofinnovative companies together with our in-depthknowledge of the industry's dynamics, we canconfirm that the best innovative companies go outof their way to bring distinct internal skills into linewith the external competitive environment, in termsof the unexpressed needs in various markets(nice-to-have, need-to-have, essential-tosurvive).

Geographical distribution of Specialised European Investors


Austria1%

Denmark1%

United Kingdom27%

Switzerland15%

Sweden7%

Germany15%

Netherlands7%

Ireland7%

France13%

Belgium7%

Type of Financing - Specialised European Investors


Shareholders loans17%

Investment inThird party found

4%

Minority Equity42%

Debt6%

Majority Equity15%

Mezzanine12%

Other4%

48

The empirical evaluations made on a large international samplenevertheless allow us to confirm that the credo commonlyexpressed by the scientific community is not always reflected inthe criteria used by potential investors in evaluating the profitability,sustainability and risk profiles of the various opportunities presentedto them: “Innovation by itself, is, rarely a source of sustainablecompetitive advantage”.

Blossom & Company are constantly screening Europeaninternational investors and, in the course of recent years, hasfound a growing interest in Italy as regards possible operationsby banks, corporate ventures, financial institutions, independentinvestors on equities, funds of funds and nonprofit foundations.82% of the sample of 166 chosen investors declared themselvesto be specialised in biotechnologies and 55% were very interestedin evaluating investment opportunities in the Italian biotechmarket. Although the data reveal a strong concentration of factorsfor the development of the biotechnological system and lifesciences in Italy, the country is still unable to export examplesof success that enjoy worldwide recognition as Italian successes,despite the fact that the international community recognises thetalents of the exporting companies and the global vision of thesector for its academic and industrial research.

The nations with the highest presence of investors potentiallyinterested in investment opportunities in biotech companiessituated in Italy are the UK (27%), Switzerland and Germany(15%) followed by France (15%), Switzerland and Ireland andHolland (7%).

The classic form of investment, despite recording a strong declinein the course of the preceding year, remains equity capital financing(57%) with a clear preference for a minority shareholding (42%),possibly in a syndicate with other local institutional investors.Other VC firms are ready to provide other forms of financingincluding long-term loans (6%), shareholders’ loans (17%) andmezzanine loans (12%), although the latter is usually seen aspre-IPO bridge financing.

43% of the sample of 166 selected investors also declaredthemselves specialised in nanotechnologies, and 58% of thesewere strongly interested in evaluating investment opportunitiesin the Italian market. 53% of the 40% of the sample interestedin the agro-food sector was interested in evaluating investmentopportunities in the Italian market. 63% of the 46% of the sampleinterested in the environmental sector, was interested in evaluatinginvestment opportunities in the Italian market and 59% of the76% of the sample interested in the energy sector was interestedin evaluating investment opportunities in the Italian market.

The medical section was also a source of great attention on thepart of 90% of potential investors in this area, of which 45%were interested in evaluating in investment opportunities withinthe Italian market.


Methodological Notes

The 2009 analysis of the structure of the biotechnology sector for health care(Red Biotech), as in previous reports, classified Red Biotech companies accordingto the analysis of the corporate models adopted:> “Born Biotech” or “Core Biotech”: companies whose core business is mainly

oriented to research and development activities. The marketing of biologicalproducts and the technologies used to develop them is only a marginal activity.“Born Biotech” companies can be differentiated in terms of their product, drugagent and biotech platform but they all have one trait in common: the percentageof investments on projects, products, and biotechnological platforms or technologies(InvB) with respect to total investments (Inv) exceeds 70% (InvB/Inv>70%);

> “Pharma Biotech” or “Biotech Product” companies are those companies operatingover the entire value chain of the pharmaceutical sector - R&D and the productionand marketing of biotechnological and traditional products. Their reference isthe end user, and hence they cover both the primary care4 and secondary caresegments5. These companies have demonstrated their ability to utilise the returnson the sale of exploitation rights of their findings order to integrate themselvesvertically. This gives them the ability to reach the enduser market directly, anindispensable strategy if the stable cash flow necessary to sustain R&D processesis to be guaranteed.

A further segmentation applied to pharma biotech companies, is based on the ratioof investments in platforms or biotech technology (InvB) to total investments (Inv).In detail, if the ratio InvB/Inv is greater than 40% of the investments, the companyis “biotech oriented”, while if the ratio InvB/Inv ranges from 2% to 40% the companyis pharma oriented.

Therefore, not only companies that conduct R&D based on traditional technologiesbut also companies whose core business is geared towards the production ormarketing of biotechnological products have been excluded from the list of companiesprepared according to Blossom & Company methodology. As already mentioned,this research does not intend to survey companies engaged on services, regulatory,legal and financial consultancy and generic biomedical production.

Some additional considerations may help to qualify the methodology applied.

Scientific parks and incubators. In this edition we have introduced a significantnovelty by choosing some science and technology parks that, on the basis of aselective and independent criterion, meet the following pre-requisites:> a strong propensity to support start-ups by sustaining not only managerial

development but also the development of technical, scientific and regulatoryknow-how of international importance;

> a strong propensity to sustain, manage and promote technological transferinternationally;

> a strong propensity to sustain and promote ties with Big Pharma, biotech companies,professional and managerial service companies investors, universities, researchcentres, hospitals and clinics orientated to research and experimentation at anational and international level;

> the presence of structures, technologies and highly qualified researchers and personnel.

Universities. We have identified and analysed the main universities exhibiting astrong propensity towards the leveraging of their know-how and which over timehave been able to sustain and successfully bring about the spin-off of at least oneor more of the biotech companies that meet the foregoing requisites and in whichthey have shareholdings.

4 This segment of the pharmaceutical market concerns products that patients can purchase and use directly.It covers the most common drugs such as pills, oral solutions, etc.5 This is the pharmaceutical market segment that comprises products whose administration requires hospitalsand specialised medical personnel.

50

Clinical research. For purposes of identifying research centres and structures,account was taken of the data and information drawn up by AIFA.

Service companies: The 2008 report does not cover complementary product/servicesuppliers that offer products and services with marginal added-value and whichcan be broken down into companies offering biotech services and biotech commodities.Biotech service companies make ICT skills available and provide assistance for theactivities of biotech companies involved in R&D processes.Their principal services refer to the gathering of information from public or privatedatabases, the implementation of IT systems for data management and supportfor laboratory and marketing activities. Biotech commodity companies are involvedin the production and sale of the products used in R&D processes. As concernstheir positioning in the value chain, both cover the entire range of activities, andadopt business models with a low yield/risk profile and a limited contribution interms of innovation and value creation. This model is profoundly different from thebusiness model typical of the biotech companies analysed within the frameworkof the Blossom & Company report.

The use of this methodology does not allow us to estimate the aggregate valueof all activities correlated to the industry, which is – as may be imaged – muchgreater than that of the biotech system itself.

Data and criteria for size segmentation

The selection of the companies was based on 2008 data.

The data and analyses contained in the Report referred to the year indicated in theassociated tables.

For the classification by size of the companies, reference was made to the Communitydefinition of the company, which came into force on January 1st, 2005. It wasintroduced by recommendation 361 of 2003, and replaced 96/280/EC with anupdated text. In this regard, the following definitions are used:> small company, refers to a company with fewer than 50 employees and an

annual turnover or budget of no more than 10 million euros (the higher of thetwo figures is used);

> medium-sized company refers to a company with fewer than 250 employeesand an annual turnover of no more than 50 million euros or an annual budgetof no more than 43 million euros;

> large company refers to company with more than 250 employees and an annualturnover of over 50 million euros or annual budget of more than 43 million euros(the lesser of the two figures is used).

The research areas: segmentation criteria

The companies analysed in this report were classified in terms of their operating area:

Healthcare, in which the new technologies are adapted to medical-pharmaceuticalcontexts such as:> Diagnostic instruments that by acting at a genetic and proteic level can verify

the origin of a possible pathology with extreme precision and celerity. Not onlyare the techniques of diagnosis modified but also the process itself, and this,by being simplified, enables the tests to be carried out by anybody at any time.

> Therapeutic products that not only improve today’s treatment but also developtreatment that otherwise would not be available.

> Regenerative medicines that use the natural capacity of the human body tomaintain and repair itself. Stem cells are an outstanding example.

> Vaccines, in other words, organic substances that allow the organism to identifyand subsequently fight infective diseases.


Environmental biotech companies (in some cases the term white biotech is stillused) are concerned with the application of industrial processes and the safeguardingof the environment, which today are fast growing areas of activity. The biotechnologiesare used to reduce the environmental impact of certain products and processes,monitor environmental pollution and identify polluting elements.

Agro-food biotechnology (in some cases the term green biotech is still used) inthe agricultural field, is used to modify the genetic characteristics of vegetablesin order to obtain products with specific characteristics such as tolerance to herbicides,protection from insects or bacteria and protection from adverse environmentalconditions. In the field of food production, they can increase the quality and nutritionalvalue of agricultural and animal products and improve the processing of foodstuffs.A further area of application at present undergoing development refers to theimprovement in the safety level of foodstuffs in order to overcome the highlyimportant problem of microbial contamination. Biotechnologies fight infectionsthroughout the productive process in order to reduce the possibility of allergicreactions and identify possible dangerous microorganisms, toxins or pathogens.

Biotech platforms refer to companies concerned with the development and marketingof hardware and software technologies to support R&D. Such technologies may bebroken down into product and process technologies.Product technology platforms impact directly upon the intrinsic characteristics ofa drug, such as its efficacy and safety, and upon its extrinsic characteristics, i.e.drug formulation and means of administration. The companies that providetechnologies of this type break down into:> x-omics platform, which develop and market technological instruments to support

basic research;> bioinformatics, which implement hardware and software systems for the generation,

integration and management of data produced in the course of drug discoveryprocesses.

In general, the time to market that characterises the different platforms is considerablydifferent from that typical of companies oriented to the development of newdrugs, i.e. born biotech or pharma biotech. Thus, in the case of these biotechcompanies not only is time to market lower but also their failure rate.In actual fact, the risk/yield profile is much more similar to those of ICT.

52

Accrediting biotechnological companies

Blossom & Company 2009 accreditation

Our method is essentially to consistently apply asingle definition to the “Biotechnological Sector”throughout the entire study. Hence, Blossom &Company, in agreement with the ResearchCentre for Economy, Health, Innovation andthe Territory (CrESIT) of Insubria Universitydecided to adopt a single methodology in orderto guarantee valid comparisons betweennational and international findings.

An analysis of the main national and internationalstudies showed that the different methods usedoften produce mutually incompatible and sometimesmisleading analyses on account of the differentobjectives they pursue. Therefore, for the purposeof minimising the differences encountered, wededicated our attention to the main methodologiesused by the various international studies in orderto extrapolate the best from each.

Thanks to this work of analysis and cooperation,Blossom & Company is, today, a national andinternational reference point. The company canprovide and present all the key data of the Italiansector according to specific requirements.Whenever it is necessary to modify some criteriaof analysis, or enlarge or modify the objectivesof our analysis, it can reclassify and re-analysethe data by providing the key data on the nationalsector while remaining faithful to the underlyingprinciple based on the adoption of a single, reliableand accredited database.

Consequently, in order to determine the sampleof accredited Italian biotechnological companiesBlossom & Company adopted an analytic selectioncriterion that lays down the following prerequisitesfor each company:

> the legal body in question must be a companyset up to create value and generate profit;

> it must undertake research and developmentwithin the territory of Italy (albeit not on anexclusive or prevalent basis).

> Its R&D activities must concern innovativetechnologies and products based onbiotechnological type platforms, bearingmind that we have adopted the definitionof biotechnology proposed by the Conventionon Biological Diversity.

In order to guarantee that the analysis is fullycomprehensive and thus able to include themaximum possible number of companies thatmeet the foregoing requisites, a far-reachingand in-depth analysis was conducted throughoutthe national territory based upon the followingapproach:

a) company identification.An initial identification of the set of companiescomplying with the minimum requisites wasconducted, based upon a thoroughgoing,company-by-company analysis. Information wasdirectly acquired on the companies within theambit of official national / regional databank,ministerial web sites, agencies, universities,incubators, science parks, companies, etc.Subsequently, the research was supplementedby an analysis of chamber of commerce recordsand financial statements. And, in conclusion, afinal verification was conducted based on directcontacts with companies.


b) company selection.The selection of the companies was the mostcomplex phase as it called for special attentionin assessing whether companies met themethodological requisites Blossom & Companyhad formulated. An initial selection of thecompanies was made by gathering informationfrom the financial statements of the individualcompanies, acquiring supplementary data oneach single firm through qualitative questionnairesand then entering essential information on adatabase designed by Blossom & Company.Each company was later analysed for initialinclusion or exclusion according to its compliancewith the requisites defined by a scientificcommittee made up of Blossom & Company andits partners. In order to guarantee the totalindependence and professionalism of our work,the final selection for definitive approval remainedthe prerogative of Blossom & Company, which,on the basis of all the information acquired,certified the companies that were to be includedin the sector.

c) data collection.The collection of the data on the financialstatements was prepared by CrESIT on the basisof indications agreed upon with Blossom &Company. The data was collected by acquiringannual accounts and chamber of commercerecords on the companies chosen and of all theprincipal documents referring to the industry, inline with the methodology of analysis proposed.The numerical evidence set forth in the Reportis the product of statistical analyses by Blossom& Company and CrESIT on data and informationfrom the following sources:

> financial statements and notes to the financialstatements filed with chambers of commerce,for the years 2007, 2006, 2005, 2004, 2003and 2002;

> chamber of commerce records (both ordinaryrecords and records on shareholding structure)produced in the period November - January 2007.

Blossom & Company, Assobiotec andFarmindustria collected qualitative informationfrom companies using a specially preparedquestionnaire.

The companies responded to the questionnairesin an exhaustive manner. In actual fact, the replyrate was well above the 10% figure obtained bythe best international surveys (Harzing, 1997).In point of fact, the reply rate was around 65%.

The data collection process was concludedon December 31st, 2008

The rigorous application of the methodologydeveloped, and the independence andprofessionalism of Blossom & Company in theirevaluation of individual cases, led to the exclusionof many companies, entities and actors that, inmany cases, are included in several other studiesand databases. However, in view of the importanceof the work we cannot, a priori, exclude thepossibility that companies or parks may havebeen overlooked that should have been includedin the list of recognised companies.

All companies that believe they meet the requisitesindicated are requested to furnish all pertinentinformation for the forthcoming 2010 editionby requesting Blossom & [email protected] to issue themwith the necessary form.

Those companies, vice-versa, that are includedamong the recognised companies but considerthey do not meet the requisites defined in themethodology may request removal from the listif they provide Blossom & Company with pertinentreasons and data.

The 2010 accreditation processwill begin on 1 September 2009 andterminate on 30 November 2009.

For 2009 accreditation, please requesta form from Blossom & Company and return it,duly filly out, to the following address:[email protected]

54

BIOTECHCOMPANIESMEETING THEBLOSSOM &COMPANY’S (2009)ACCREDITATIONREQUISITES

72 BRISTOL MYERS SQUIBB73 BSA AMBIENTE74 CAGE CHEMICALS75 CBM76 CCS AOSTA77 CEINGE BIOTECHNOLOGIES AVANZATE78 CELGENE79 CELL THERAPEUTICS EUROPE INC.80 CENTRO BIOTECNOLOGIE AVANZATE81 CHARLES RIVER LABORATORIES82 CHIESI FARMACEUTICI83 CLONIT84 COGEP85 COLOSSEUM COMBINATORIAL CHEMISTRY

CENTER FOR TECHNOLOGY86 CONGENIA87 COSMO88 COSTANTINO89 CREABILIS THERAPEUTICS90 CTG PHARMA91 CUTECH92 CYANINE TECHNOLOGIES93 DAC94 DALTON BIOTECNOLOGIE95 DEGENE96 DEGUSSA TEXTURANT SYSTEMS ITALIA97 DIASORIN98 DIATECH99 DIATHEVA

100 DIESSE DIAGNOSTICA SENESE101 DOMPE' FARMACEUTICI102 ECOBIOSERVICES AND RESEARCHES103 ECOTECHSYSTEMS104 ELI LILLY ITALIA105 EOS106 EPPENDORF107 ERATECH108 ESAOTE109 ESPIKEM110 ETNA BIOTECH111 EURAND112 EUROCLONE113 EUROSPITAL114 EXENIA GROUP115 EXPERTEAM DI DE BORTOLI116 EXPLORA117 EXTERNAUTICS118 FATRO119 FERTIREV120 FIDIA ADVANCED BIOPOLYMERS121 FLAMMA122 FOTOSINTETICA & MICROBIOLOGICA123 GENALTA124 GENEDIA125 GENESPIN126 GENEXTRA127 GENOVAX128 GENTIUM129 GENZYME130 GILEAD SCIENCES ITALIA131 GIO.ECO132 GNOSIS133 GREENLAB134 GRIFOLS ITALIA135 GUYA BIOSCIENCE136 HMG BIOTECH137 HO.p.e.138 IDRABEL139 IM3D140 INBIOS141 INCURA

1 AB ANALITICA2 ABBOTT3 ABICH4 ABIOGEN PHARMA5 ACTYGEA6 ADALTIS ITALIA7 ADAMANTIO8 ADIENNE PHARMA&BIOTECH9 ADRIACELL

10 ADVANCED ANALYTICAL TECHNOLOGIES11 AETHIA12 AGRIFUTUR13 AGRITEST14 AGROBIOS15 AGROLABO16 ALFA WASSERMANN17 ALIFAX18 ALPHAGENICS DIACO BIOTECHNOLOGIES19 ALSO BIOTECH20 AMBIOTEC21 AMGEN DOMPE'22 ANALISI & CONTROLLI23 ANALLERGO24 ANIDRAL25 APAVADIS BIOTECHNOLOGIES26 APULIABIOTECH27 ARETA INTERNATIONAL28 ASTRA ZENECA29 AVANTGARDE30 AXXAM31 BCS BIOTECH32 BGT ITALIA33 BIO & GEO34 BIO DEC35 BIO FLAG36 BIO HI-TECH37 BIO3 RESEARCH38 BIOAESIS39 BIOALLERGY INTERNATIONAL40 BIOANALISI CENTRO SUD41 BIOANALISI TRENTINA42 BIOANSWERS43 BIODIVERSITY44 BIOFARMA45 BIOFIN LABORATORIES46 BIOFUTURA47 BIOGEN-DOMPE'48 BIOGENETICS49 BIO-KER50 BIOMAN51 BIOMAT52 BIONUCLEON53 BIOPAINT54 BIO-RAD LABORATORIES55 BIOREP56 BIOSEARCH AMBIENTE57 BIOSENSOR TECHNOLOGIES58 BIOSILAB59 BIOSISTEMA60 BIOSPHERE61 BIOSTRANDS62 BIOSYNTH RESEARCH LABORATORIES63 BIOTECGEN64 BIOTECK65 BIOTEST ITALIA66 BIOTRACK67 BIOXELL68 BMR GENOMICS69 BOEHRINGER INGELHEIM ITALIA70 BOUTY71 BRACCO IMAGING


Blossom & Company’s (2009) accreditation requisites> the legal body in question must be a company set up

to create value and generate profit;> the companies analysed must undertake research

and development within the territory of Italy (albeitnot on an exclusive or prevalent basis).

> the R&D activities must concern innovative technologiesand products based on biotechnological typeplatforms, bearing mind that we have adopted thedefinition of biotechnology proposed by the Conventionon Biological Diversity:

Although extreme care was taken in the compilation ofthe foregoing list, it should be noted that it is notcomprehensive and may contain omissions and errors,for which no liability can be accepted. Please notifyBlossom & Company at [email protected] any requests for amendments, supplementaryinformation or cancellation, so that the most appropriateinitiatives may be taken.

142 INDENA143 INNOVATE BIOTECHNOLOGY144 INVENTO145 INVITROGEN146 IPSEN147 IRBM P.ANGELETTI148 ISAGRO149 ISB150 ISTA151 ISTITUTO DI RICERCHE BIOMEDICHE

ANTOINE MARXER RBM152 ISTITUTO GANASSINI153 ITALFARMACO154 JANSSEN CILAG155 KEDRION156 KERYOS157 L MOLTENI & C DEI F.LLI ALITTI158 LAY LINE GENOMICS159 LEA BIOTECH160 LEAF BIOSCIENCE161 LIFELINELAB162 LORENZ BIOTECH163 MAC PHARMA164 MASTELLI165 MAVI SUD166 MBS167 MEDESTEA BIOTECH168 MEDITEKNOLOGY169 MENARINI BIOTECH170 MERCK SERONO171 MERISTEMA172 MILLIPORE173 MOLECULAR BIOTECHNOLOGY174 MOLECULAR STAMPING175 MOLMED176 N.T.I. (NATURAL TECHNOLOGIES ITALIA)177 NANOVECTOR178 NARVALUS179 NAXOSPHARMA180 NEED PHARMACEUTICALS181 NEMO LAB182 NERVIANO MEDICAL SCIENCES183 NEUROSCIENZE PHARMANESS184 NEURO-ZONE185 NEWRON PHARMACEUTICALS186 NEXA187 NEXTERA188 NGB GENETICS189 NICOX RESEARCH INSTITUTE190 NIKEM RESEARCH191 NOBIL BIO RICERCHE192 NOTOPHARM193 NOVARTIS FARMA194 NOVO NORDISK FARMACEUTICI195 NURAGING BIOTECH196 NUTRISEARCH197 NYCOMED ITALIA198 OFFICINA ERBORISTICA ANTICO MULINO

DELL’ABBAZIA DI CHIARAVALLE199 PHARMESTE200 PHILOGEN201 PHYTOENGINEERING ITALIA202 PHYTOREMEDIAL203 PIONEER HI-BRED ITALIA204 PLANTECHNO205 POLIMED206 POLYMEKON207 PORTO CONTE RICERCHE208 PRIGEN209 PRIMM210 PRION DIAGNOSTICA

211 PROBIOTICAL212 PROGETTO NATURA213 PROTEIOS214 PROTEOGEN BIO215 PROTEOTECH216 PROTERA217 QUARTA & PARTNERS218 RE.D.D.219 RECORDATI INDUSTRIA CHIMICA E FARMACEUTICA220 ROCHE221 ROTTAPHARM222 S.A.F.AN. BIOINFORMATICS223 SACACE BIOTECHNOLOGIES224 SANOFI PASTEUR MSD225 SB TECHNOLOGY226 SCHERING-PLOUGH227 SEKMED228 SERVIER ITALIA229 SHAR.DNA230 SIENABIOTECH231 SIGEA232 SIGMA TAU233 SILICON BIOSYSTEMS234 SORIN235 SPA - SOCIETA' PRODOTTI ANTIBIOTICI236 SPIDER BIOTECH237 STEMGEN238 STILMAS239 SYNBIOTEC240 TAKEDA ITALIA FARMACEUTICI241 TALENT242 TARGET HEART BIOTEC243 TECAN ITALIA244 TECHNOBIOCHIP245 TECNA246 TECNOBIOMEDICA247 TECNOGEN248 TECTRONIK249 TIB MOLBIOL250 TISSUELAB251 TOP (TRANSGENIC OPERATIVE PRODUCTS)252 TOSCANA BIOMARKERS253 TRANSACTIVA254 UFPEPTIDES255 VETOGENE256 VIVABIOCELL257 WETWARE CONCEPTS258 WEZEN BIOPHARMACEUTICALS259 WYETH LEDERLE260 XEPTAGEN

The art ofmanagementinnovationdiffers fromindustryto industry

blossomcompany.com



BIOTECHNOLOGYIN ITALY 2009

Sponsors

Welcome to the section dedicated to the leadingcompanies that carry out investments in order to bolstertheir global vision and presence.

As from 2009 we intend to introduce a section addressedto a few qualified companies, institutions, advisors andinvestors that believe in the potential represented byR&D in the health care and biotech operations beingconducted in Italy and which are qualified to fulfil suchan active role for the development of the industry.

We are speaking about leading companies such asAmgen Dompé and Genzyme. Next to this page appearsthe main Italian technological park in the agro-foodenvironment, the Parco Tecnologico Padano, withthe Alimenta incubator, which, on an ongoing basis,chooses and supports innovative companies interestedin establishing themselves on the national andinternational stage, and with which we have reachedan agreement for the provision of professional services.

We also refer to such important institutions as theSwiss Chamber of Commerce in Italy with whichwe have reached an agreement for the provision ofprofessional services for Swiss companies interestedin operating in the Italian market and the CommercialOffice of the Israeli Embassy with which we haveconducted intense promotional work for cooperationbetween Italian and Israeli companies.

Last, but not least, we would like to welcomeTraverso & Partners chartered accountants and auditorsas well as Mittel Corporate Finance with whichBlossom & Company has reached a cooperationagreement for advisory and fund raising activitiesin the life science sector.

Federica BottazziManaging Director

[email protected]

The Swiss Chamber of Commerce in Italy monitorswith interest and attention the Biotech sector,which is gaining an increasing importance in Italyand Switzerland.The Biotech companies’ funding strategies havebeen the subject focus of a Conference organisedby the Swiss Chamber of Commerce in Italy – SwissBusiness Hub Italy about one year ago, incooperation with the Italian association Assobiotecand the Swiss Biotech Association. The initiativeexamined the biotechnologies sector taking intoaccount the Swiss and the Italian situation, andfocused on investment attraction and fundingstrategies, with the contribution of Italian andSwiss well-known speakers, both companies andfinancial experts such as the Italian and theSwiss Exchange. The event had an audience ofmore than 150 Italian and Swiss entrepreneurs.

Biotech means sectors where research is the keyword,strategic positioning at world level and strong growthtrends, job opportunities for young researchers,high potentialities of synergy between innovativefinancial facilities and advanced technologies,cooperation opportunities between small companiesand large groups.

At the Swiss Chamber of Commerce in Italy weshare this vision and we are very glad that theItalian Biotech Annual Report presentation will beheld here at the Swiss Centre in Milan. We hopethat this initiative will enhance the cooperationbetween the two countries.

ALESSANDRA MODENESE KAUFFMANNSecretary general

The Swiss Chamber of Commerce in Italyand the Biotech sector

The ChamberFounded in 1919, the Swiss Chamber of Commerce in Italy(CCSI) is active in the promotion of the development oftrade and industrial relations between Switzerland and Italy,particularly focusing on Small and Medium sized Enterprises.CCSI has an extensive network of relations with majorinstitutions and actors in the Italian and Swiss businessand economic arena, such as Trade Associations, Chambersof Commerce, Consortia, Universities, Ministries andDiplomatic representatives.CCSI is recognised by both Italian and Swiss authorities.It obtained the TQM (Total Quality Management certification)from SECO (Secretary of State of the Economy). Furthermore,CCSI is highly integrated in the Italian system and officiallyrecognised by the Ministero dello Sviluppo Economico(Italian Ministry of trade and industry).

The CommunityEvents and seminars, business lunches, meetings withimportant representatives of the economic and financialworld are some of the opportunities available to Members,with flexibility and attention to companies’ needs.

The Services• Legal advice• Arbitration• Credit Recovery• Credit reports• VAT Recovery• Administrative and tax services• Information and ad hoc advice:

> Assistance in company set-up and development in Italy and Switzerland> Financial and industrial investors scouting

• Meeting facilities

For further information: www.ccsi.it [email protected]

St rategic Advisor y in Heal thcare & B iotechCorporate FinanceCenter for B ioEnt repreneurs

Foro Buonaparte 46 | Mi lan - I ta ly | +39 02 80 50 50 11

[email protected]

Center for BioEntrepreneurs

Join us !

Foro Buonaparte 46 Mi lan - I ta ly +39 02 80 50 50 11www.blossomcompany.com



Foro Buonapar te 46 | Mi lan - I ta ly | +39 02 80 50 50 11

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