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Spain: A ‘Patent’ Challenge of Innovation

01.07.2008 / Pharmaboardroom

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Generations of Spaniards over centuries have had many reasons to be proud of their country, from renowned personalities in all artistic fields to world champions in sports like tennis, race-car driving and football (at least in club competitions). More recently, Spaniards like to highlight the collective achievements of a society that has been able to overcome the devastating legacy of a brutal civil war and decades of dictatorship, to become one of the most prosperous democracies in the world. Not to mention the economic and industrial leap taken over the last few decades, allowing Spain not only to cut distances with the most developed countries in the world but to actually surpass European heavyweights like Italy in GDP per capita.

As if all this was not enough, some maintain that Spain has one of the best healthcare systems in the world. “In less than 30 years, we have managed to build up a healthcare system which leaves little room for improvement in terms of universality, cost, and access, with a very high level of satisfaction”, boasts Jose Martinez Olmos, General Secretary of Health of Spain’s Ministry of Health (MOH). He adds that Spaniards “really value and respect our institution, in fact they consider it the second most respectable institution after the Crown”. Indeed, surveys suggest that 80% of Spaniards are satisfied with their healthcare system.

The pillars of this system, defined in the ‘General Health Law’ of 1986 are universal access and gratuity through public financing. Over the last several years, one of the main challenges has been to manage the decentralization of healthcare competences which have been transferred to the 17 Autonomous Communities which make up Spain. In this regard, one of Mr. Olmos’ main tasks during the first government of socialist President Jose Luis Rodriguez Zapatero between 2004 and 2008 was to implement cohesion among the different communities and the federal level, in order to reduce inequalities and ensure the same level of service and quality to Spaniards throughout the country.

A ‘Strategic Plan for Pharmaceutical Policy’ was promulgated in 2004 by the MOH with the main objective to rationalize the growth of public pharmaceutical spending. According to Mr. Olmos, the Plan was necessary because “before this measure was implemented we used to have an annual pharmaceutical expenditure growing at double digits. At that point in time there was a lack of criteria when prices were assigned, meaning that they were not linked to the real value of innovation”.

This governmental strategy resulted in the enactment of the “Law of Guarantees and Rational Use of Medicines and Sanitary Products” in December 2006. It stipulated, among other things, the application of a new Price Reference System (PRS) for those drugs already on the market and off patent, calculated according to the three least expensive equivalent products available in Spain. Likewise, those drugs with more than 10 years in Spain not facing generics competition, but already off patent in the European Union, underwent a 20% price reduction automatically. These price cuts which took effect starting in 2007 followed reductions in 2005 of 4.2% and 2% in 2006.

The numbers suggest that the new legislation has succeeded in its main objective which is to contain the government’s pharmaceutical spending. For the first time in years, the average price per prescription has decreased in Spain. Pharmaceutical expenditures increased only 5.54% in 2007, compared to 11-12% of previous years. Maria Teresa Pages Jimenez, Director of Pharmacy and Sanitary Products at the MOH, was one of the architects of the rationalization policy and does not hide her satisfaction with the results to date. “I am proud to say that the measures implemented have been a total success, in 4 years we have managed to increase the budget of our national healthcare system by an average of 5.22%, a growth that places us in line with other European countries”, she affirms.

In contrast to the authorities’ excitement on the effects of the 2006 Law and the Price Reference System, pharmaceutical companies consider them excessively tough on the industry and are vocal about the negative consequences they are having on their ability to grow. The slowdown in the industry is already evident when comparing the evolution of Spain’s nominal GDP over the last several years to the growth of pharmaceutical sector. While the economy as a whole grew 23% in nominal terms between 2004 and 2007, pharmaceutical turnover only saw a progression of 16%. Eurostat studies comparing pharmaceutical prices across Europe, show that Spain is at the lower end of the spectrum, coming in at 22nd among the EU 25 with price levels 23% below the average.

The price cuts are having a direct impact on the pharmaceutical companies’ bottom line, and many point out that their ability to continue investing in Spain is being negatively affected. This is no small matter considering the weight of the pharmaceutical industry in the country. The sector represents 1.5% of Spain’s GDP and employs approximately 40,000 people directly in 270 companies, and makes the biggest contribution to R&D with 18% (approximately 800 million euros) of all the industries’ investments in innovation.

According to Humbero Arnes, General Director of Farmaindustria (the association of innovative pharmaceutical companies in Spain), the main problem comes from the combined effects of the PRS and the low level of patent protection in the country. In Spain, there is a “grey zone” in terms of patents until 2012, stemming from safeguards requested by Spain when it joined the European Economic Community in 1986. The existence of this grey zone has allowed for generics of certain drugs to make an appearance on the Spanish market several years before other countries, a situation which MNCs are increasingly rebelling against by taking the generics players to local courts. “The aggressive price reduction under the new PRS is having such a negative impact on the innovative companies due to the fact that intellectual property protection is so weak in Spain”, says Arnes. He explains that “innovative companies have had to bring their prices down to the level of the cheapest generics, independently from their market share”.

Facing pressure from the combined effects of the price cuts and patent uncertainty, the innovative pharmaceutical companies are highlighting the important role they play in Spain’s R&D. Since the mid-nineties the pharmaceutical sector in Spain has been one of the main drivers of the private investments in R&D and innovation in the country. During the period 1995-2004, the sector saw an annual growth in R&D investments averaging 12.2%, well above the overall numbers for the Spanish industry. These figures have dramatically dropped since 2006, which saw a mere 3.6% increase in R&D spending, below the economy’s nominal GDP growth.

“There are actions that would allow the government to control expenditures without harming innovation, such as a better protecting patents and creating price reference systems that take into account the efforts and investment put into developing new drugs for patients”, states Arnes. Accounting for nearly 20% of the country’s investments in innovation, the pharmaceutical industry is a strategic player in the government’s aim towards increasing overall R&D expenditures to 2% of GDP in the coming years, as outlined in the ‘Plan Ingenio 2010’.

 

Indeed, the focus on innovation was one of the main novelties when Zapatero announced the composition of his new government after winning is re-election bid in April 2008. He created for the first time in Spain a Ministry of Science and Innovation, and named Cristina Garmendia – founder and hitherto president of local biotech company Genetrix – at the head. Needless to say, the innovative pharmaceutical and biotech companies were pleased with the news and are putting high hopes on the new Ministry to implement a policy which promotes and supports R&D efforts in Spain.

Though still lagging behind in terms of major investments in basic pharmaceutical R&D, Spain has been one of the most dynamic countries in terms of clinical trials for many of the world’s MNCs. Fernando Martin Delgado, Managing Director in Spain for the world’s leading CRO (Contract Research Organization) Quintiles, considers that the country remains attractive “thanks to the quality of the scientists, physicians and the hospital system. Spain has opinion makers in key areas such as oncology and CNS, and is also a major pharmaceutical market it itself, which is why it plays an important role in terms of clinical trials in Europe”.

 

Saying adiós

As Phillipa Rodriguez takes a look back at her two years at the head of AstraZeneca in Spain, the land of her ancestors, the nostalgia is palpable but also the satisfaction of a mission accomplished. Indeed, her management of the restructuring process in Spain in the midst of a challenging moment for the industry earned her the position of General Director of AstraZeneca in her home country, the United Kingdom, starting June 2008. “In Spain we have achieved a more performance-oriented culture, with a customer-centric mindset and clearer accountability at all levels”, says Rodriguez.

The restructuring process included employee reduction; a decision which Rodriguez admits is difficult to make understand, particularly in a context of positive growth for the company. AstraZeneca Spain has been performing very well when compared to subsidiaries in other developed countries, and was also one of the fastest growing MNCs in Spain in 2007. But according to Rodriguez, the restructuring was “ultimately necessary for AstraZeneca’s sustainability in the long term. We can never stop embracing external change and one has to decide whether to shape the future or be a victim of it”, she adds.

As she prepares to leave for a new challenge in the UK, Rodriguez warns about the main weakness in her view of Spain’s pharmaceutical sector: the patent issue. “We would like to see the commitment to R&D investments be recognized through better intellectual property protection, aligned to the TRIPS agreement. It is true that we have seen recent and positive court resolutions regarding patent protection, for example Lilly´s olanzapine case, but such decisions are not yet reflected in the Spanish authorities’ will to adapt legislation in this regard”, she says.

Despite the effects of early generics competition and the price cuts introduced by the new price reference system, Rodriguez remains optimistic about the possibilities of AstraZeneca’s future investments in R&D in Spain. “In Spain, AstraZeneca is already involved in 68 clinical trials in collaboration with over 570 centers and 3700 patients. We are hopeful that there will be new R&D investments in all phases of clinical trials, with increasing interest in basic research and translational science”.

 

MNCs: patent concern but still many bright spots

Janssen-Cilag is one of those rare MNCs which have been investing in Spain not only to be a player in the 7th largest pharmaceutical market in the world – 5th in Europe – but also to discover and develop new drugs. Since the start of its Spanish operations in 1985, Janssen-Cilag established a Basic Research Center in Toledo focused on drug discovery in CNS (depression, schizophrenia), one of only five such centers for Johnson & Johnson Pharmaceutical R&D worldwide. It is also one of the few basic research centers set up by MNCs in Spain, most of which limit their R&D activities to the development of clinical trials in the country. Janssen-Cilag also established a Clinical Research Center in Madrid, which is a part of the company’s Global Clinical Operations Group.

Spain’s differential in terms of intellectual property is of particular concern for Janssen-Cilag, as some of the company’s drugs in the country are facing generics competition several years before other European countries. Martin Selles, Managing Director for Janssen-Cilag Spain and Portugal, affirms that, “what we ask the authorities is simply to offer us the same level of protection as in the rest of Europe… This is a very crucial issue because it is becoming increasingly difficult to convince our HQ to continue betting on R&D in Spain if the local environment does not appropriately support innovation”.

Janssen-Cilag Spain currently has more than 90 people devoted to R&D, which is a very significant part of our headcount”, boasts Selles. In total, Janssen-Cilag employs over 500 people in Spain, including a manufacturing centre in Alcalá de Henares dedicated to the production of some of Johnson & Johnson’s flagship OTC brands for all of Europe. From a commercial perspective, Janssen-Cilag has been one of the fastest growing international pharmaceutical companies in Spain. “The company has gone from being #45 in terms of sales with 40 million euros ten years ago to #7 currently with approximately 450 million euros. This has also meant going from having less than 1% market share to 3.5%”, highlights Selles. Despite this strong performance, fueled by the launch of innovative products, the last couple of years for Janssen-Cilag in Spain have seen more modest growth as the overall market slows down.

Also well aware of the harm the patent situation in Spain has on innovative companies, Schering Plough’s President and General Director Angel Fernández García is cautiously optimistic by recent rulings in Spanish courtrooms which have granted certain drugs protection from early generics competition. “Finally, our opinions and ideas are receiving the judges’ endorsement and the courts are recognizing our rights to intellectual property protection on the same level as in other countries”, Fernandez Garcia says. Though the government still falls short of implementing policies in the same direction, he sees some positive signs coming from the MOH.

Fernandez Garcia is living proof that fidelity can still exist between top executives and the pharmaceutical companies that employ them. Over thirty years have passed since joining Schering Plough in Spain, a career which began in the customer service department but eventually took him to management positions in countries such as the United States, Mexico, Argentina and Switzerland. Since 2004 he is back in his native country as President and General Director of Schering Plough Spain. In his own words, “Personally, I have been with the company since 1976 because it has continued providing me with professional opportunities and challenges”.

Schering Plough’s numbers in Spain paint a pretty nice picture in terms of sales. In 2007 Schering Plough grew at a rate between 10-11% according to IMS, several points higher than the market, thanks to the good performance of all its main lines: OTC, ambulatory and hospital products. According to Fernandez Garcia, “the key to this growth has been our commitment to innovation and the trust we have gained from our stakeholders in Spain. This is all the more remarkable considering the challenging environment the pharmaceutical industry has been dealing with”.

Schering Plough’s acquisition of biotech company Organon BioSciences, finalized in late 2007, is only likely to broaden the growth perspectives over the coming years. “Thanks to this strategic acquisition, Schering-Plough has one of the most impressive pipelines on the market, focusing on several key therapeutic areas such as cardiovascular, CNS, woman’s health, oncology, allergies and infectious diseases”, states Fernandez Garcia. According to the company’s estimations, based on IMS information, Schering-Plough will become one of the top 10 pharmaceutical players in Spain in 2008.

In terms of Schering Plough’s non-commercial activities in Spain, the company was moved up to the “Good” category in the 2007 Plan Profarma ranking, an initiative from the Ministry of Industry which rates pharmaceutical companies according to their local investments in R&D. “Although our company does not have any basic R&D facilities in Spain, we are very active in Phase II and Phase III clinical development of our drugs in the country. The main reason for this is Schering-Plough’s firm belief in the quality of Spanish researchers and in our subsidiary’s ability to absorb new investments which will go towards the development of products for the entire Group”, says Fernandez Garcia. He underlines, however, the need to improve the procedures for clinical trials implemented by Spain’s 17 different autonomous regions. “The different levels of government in Spain should realize that they are competing with many other countries for the allocation of R&D investments and simplify the approval procedures”.

 

When two heads are better than one…

Seeing a big pharmaceutical company such as Otsuka create a joint-managing directorship – in this case for Spain through Imma Barber and Manel Lopez – is quite a rare occurrence, just about as unusual as seeing a Japanese pharmaceutical company grow at double digits in Europe. The Spanish duo of Mrs. Barber and Mr. Lopez were named joint-managers in early 2008, and are firmly committed to continue with Spain’s outstanding performance which earned it “Best Otsuka Affilliate in Europe” award in 2005. It was a landmark year for Otsuka Spain, particularly thanks to the launch of the company’s star schizophrenia drug Abilify.

Since then, as Barber points out, Otsuka has been consolidating its leadership in its different development areas such as medical devices, in vivo diagnosis, and in pharmaceuticals with a new indication of Abilify for bipolar disorders. “Otsuka is also preparing launches in the cardiovascular field, a new focus area for the company towards the future”, states Barber.

 

Although Otsuka Spain was officially created only in 1998, its presence in the country dates back to 1979 when it acquired a local company. “This was a good starting point for the launch of Otsuka’s strategy in Spain”, says Lopez, since “Otsuka did not have to begin from scratch in the country, and could already count on production facilities, quality control, laboratories, and a sales force organized in specific areas”. This has helped Spain become a first-line country for Otsuka in Europe, spearheading the commercialization of a whole portfolio of products in the region. “We are actually responsible for developing the Southern European region for the company, including countries like Portugal, Greece and Italy”, he adds.

 

The intricate art of managing transformation

Leading an integration process is never an easy task, even less so when you come from the smaller of the two companies involved. This is precisely the mission Lide Verdugo was given as Managing Director of Nycomed Spain when the company acquired Altana Pharma AG in 2006. In Spain, Altana with 250 employees was much larger than Nycomed which had 50. Conscious of the tricky task laying ahead, Verdugo planned everything out meticulously. “I elaborated a very simple road map in order to be sharp and quick so that the business would not suffer in the process. Spain was actually one of the first countries in the Group to finalize the integration in all the logistic, administrative and commercial aspects”, she says.

The year 2007 was all the more challenging – or as she would say, interesting – for Verdugo and the new Nycomed Pharma Spain team since there were two important launches in the middle of the year to carry out successfully. “Perhaps the most satisfying part of the integration process is that we were able to deliver the sales and EBIT objectives in 2007. At the end, we jumped to a turnover of 160 million euros with over 80 million euros of EBIT. I am extremely proud of the team here which achieved extraordinary performance, even surpassing the plans”, Verdugo affirms.

On top of being one of Nycomed’s five most important markets, Spain also contributes to the Group through a young and energetic team, not afraid to challenge the traditional way of doing things. Led by the dynamic Verdugo, Nycomed Spain has become a reference point in terms of successful new launches. “In today’s pharmaceutical sector, it is very important to be creative and able to think outside of the box. You need to anticipate the changes and be quick to be the first in initiatives and seize opportunities… Drugs such as Tachosil and Preotact have achieved extraordinary performance in Spain thanks to creativity, and despite being one of the last countries to launch”, she states.

Although Verdugo recognizes the challenges with regard to patents and low prices in Spain, she is less preoccupied about them then most of her peers. “Despite all the imperfections of its system, Spain’s pharmaceutical sector is doing better than any of the other big countries in the European Union. And this is not only in volume, but also value. When I hear some of my colleagues from other companies complain, I remind them to look beyond the Pyrenees to see what is happening there”.

Nycomed Pharma Spain aspires to enter the top 20 ranking over the coming years – currently it is 23rd – based on its new products and pipeline, but also sees growth opportunities in the OTC segment and in further developing in and out licensing agreements with other companies. As for Verdugo, with a strong background and belief in research, another priority will remain to bring as many R&D projects to Spain as possible.

Another of Spain’s few but prominent women in top management positions in the pharmaceutical industry, Laura González-Molero, faced a challenge of her own in 2007 when she was in charge of building the new face of Merck in Spain, as it simultaneously integrated the biotech firm Serono and divested the generics business. “This transformation has been an incredible opportunity because it means a unique chance to be a part of the design and shaping of a new company. I feel very fortunate to have this experience, as it is not an opportunity that comes by often”, she affirms.

As head of Serono – previous to its acquisition by Merck – her Spanish team received that company’s “Best Affiliate” worldwide distinction in 2005. Not much later, and already in her role as Director of Merck, she was awarded the 2007 ‘Executive of the Year’ award by the Chamber of Commerce of Madrid, becoming the first woman ever to achieve this. “The key to turn any project into a success is to firmly believe it and to be fully committed. Of course, it is also necessary to put in a lot of hard work and effort, and to count on an equally motivated team” says Gonzalez-Molero, adding that throughout her professional career she has always tried to challenge the status quo, “in order to encourage innovation, because often people are very conservative and unwilling to take risks and make tough decisions. Avoiding risk is not a winning strategy; you have to be up to the challenge”.

Gonzalez-Molero is quick to highlight that Merck Spain’s performance in 2007 was very positive in terms of growth and higher that the Group’s overall rate. “Despite all the time and effort devoted to the restructuring, Merck Spain was able to reach the commercial and financial targets forecasted before the news of Serono’s integration and the divestment of the generics division. I am very proud of the team which was able to deliver results”, she states. As for Merck’s challenge for 2008, it is mainly to consolidate the company which has a new organization, culture and processes. “Merck’s ambition and my own are to be the best. This means continuously improving and leading the rest based on innovation, which is the cornerstone of the company”, adds Gonzalez-Molero.

Despite the recent relocation of the oncology preclinical research following Merck’s strategic decision to focus these activities in Boston and Darmstadt, which resulted in the company falling from “Excellent” to “Very Good” in the Plan Profarma ranking, Gonzalez-Molero highlights the importance of Spain in terms of clinical trials. “We participate in the majority of the Group’s clinical trials from the very early stages of R&D. Spain is recognized on a European level for the quality of its scientists and is a reference point in several pathologies. There is a clear view that Spanish hospitals can provide added value to our operations”, she says. Not least significant is Merck’s commitment to maintain a considerable manufacturing presence in Spain, at times when relocation of production is the norm in the industry.

 

Innovative locals charging ahead

Talk to analysts and different personalities about Spain’s pharmaceutical industry, and you are likely to hear – off the record – that what the country is missing in order to become a top-tier player on the global scene is a truly multinational Spanish company. If the country’s pharmaceutical industry aspires to be in the same league as France, Switzerland, Germany, etc, it will have to produce a company akin to Sanofi-Aventis, Novartis or Bayer, for example.

For Antoni Esteve, President of Spain’s number two pharmaceutical company Esteve and also President of Farmaindustria, the road for both local and international players is no other than innovation. “Now that Spain is considered an attractive country to develop business and industrial activity, we should be intelligent enough to understand that what it needs in order to remain competitive in the future is R&D”, he says. None of Spain’s emerging local companies have the capacity to rival with the major MNCs internationally yet, but there are signs that the leading Spanish players are finally ready to take on the world’s pharmaceutical market with aims to become a global force to reckon with.

One such player is Barcelona-based Ferrer, which is among Spain’s top 3 pharmaceutical companies with 630 million euros turnover in 2007, a 15% increase over the previous year. Already 51% of the company’s business is generated outside of Spain, with a large presence in South America and subsidiaries in Germany and China. Jordi Ramentol, CEO of Ferrer, explains that “the company’s strategy is to enter foreign countries through partnerships in order to have the best possible market understanding and share potential risk”.

Ferrer bases its development on a strong commitment to R&D and innovation, as its ‘Excellent’ ranking in the Plan Profarma attests. “The pharmaceutical industry is a very competitive sector and if you want to survive you have to constantly reinvent yourself. From the beginning of our history, we realized that the only way to successfully operate was to be flexible and innovative, focusing on unspoiled market niches and developing our own products to promote our company’s image internationally”, says Ramentol. Ferrer is also betting on the biotech sector through its ‘inCode’ project for personalized medicine. “From the important investments undertaken in recent years, we expect 15 high quality products to come through the pipeline, mainly in the oncology and cardiovascular areas, which will enable us to enter the US market”, he adds.

Conscious of the need to better interact with the different stakeholders in the Spanish healthcare sector, Ferrer is one of the most active companies in establishing public-private partnerships. “A few years ago, collaboration between the public and private worlds was problematic due to cultural reasons, but this is changing. Spain has leading research centers producing valuable knowledge which should be shared with the private sector, in order to be able to transform it into effective improvements for society”, affirms Ramentol. Ferrer is also a clear example of Spanish companies getting serious about CSR, as any other MNC in the world. “We want to become a world reference in terms of sustainability, and the company has already achieved several acknowledgements in this regard, such as the AAALAC for animal treatment in clinical trials and the LEED platinum recognition concerning ecology for our new state-of-the-art R&D facilities”, he says.

In another shift towards global business standards, family-owned pharmaceutical companies are starting to shake off their reluctance to cede some control to the stock markets. The trend was set by Spain’s largest pharmaceutical player, Almirall, when it went public in 2007. The move was soon followed by Rovi, a medium-sized local player which went through with its own IPO in December 2007. “This IPO was necessary in order to access the liquidity in the stock market and to gain the necessary visibility on the international arena as we grow out of Spain’s borders”, says Juan Lopez-Belmonte, CEO of Rovi.

 

In its first few months on the stock market, the company has not faced a very favorable financial environment, but as Lopez-Belmonte points out, “Rovi has been successful thanks to our ability to maintain sustainable growth with a relatively low risk profile, a complete and relatively young product portfolio, and a leading position in the contract manufacturing field. All of these strengths have earned Rovi the market’s recognition and trust which has allowed us to weather quite well the storm affecting the entire world”.

Rovi’s growth strategy is based on three main drivers. The first is the company’s vision to become the leading Spanish company in the specialty segment, a field in which Rovi is experiencing a tremendous growth having launched seven new compounds in the last three years. The second growth driver, in which Rovi is already a major worldwide player, is contract manufacturing in the very specific area of pre-filled syringes. The third driver, which represents the company’s bet on the future, is the R&D pipeline in which Rovi has been heavily investing for several years and today counts with over 15 ongoing projects.

“Rovi changed its business model in the early 1990s, as the management realized that developing proprietary compounds was the only way to gain a sustainable competitive advantage over the competitors in the long run. Therefore, the company launched a series of new investment in R&D pipeline. Rovi’s first success in developing proprietary compounds was Bemiparin, the only second generation low molecular weight heparin. Today the product is marketed in more than 40 countries worldwide, representing the most important milestone in Rovi’s history”, says Lopez-Belmonte.

Another milestone is expected to come in 2009 as Rovi finalizes clinical trials for Bemiparin in diabetic foot ulcer, which should take it to important new markets such as the United States.Rovi’s international business is just recently starting to take off, and 2008 should see a significant growth in overseas sales of over 30% compared to 2007. According to Lopez-Belmonte, “we expect that in 4 to 5 years time international business will account for an important percentage of our total sales, with a strong focus on the European and US markets”.

Rovi’s ranking in the top category – “Excellent” – of the Ministry of Industry’s Plan Profarma illustrates the company’s commitment to innovation. Rovi has is running extensive clinical trials in heparin derivatives and different indications of Bemiparin. Likewise, the company is investing in new proprietary delivery technologies such as OCAP for oral compounds, and ISM which is a sustained release injectable technology. Rovi is not going at it alone, and is in fact one of the most dynamic companies in terms of working with other stakeholders in the Spanish pharmaceutical sector, as their 20 million euros investment in new facilities in Granada demonstrates. “Establishing successful public-private partnerships (PPP) is one of the toughest challenges Spain has to face in its quest for innovation. Rovi aims to work with public institutions such as universities all over Spain, in order to transfer the academic knowledge to the industrial setting, where the know-how can find practical applications”, states Lopez-Belmonte.

Not to be overlooked are Rovi’s contract manufacturing and licensing agreements, which account for over 50% of the company’s revenues. The company is a global leader in the pre-filled syringes contract manufacturing business, which represents one of the fastest growing segments in the pharmaceutical industry. Rovi is one of the few companies capable of processing a wide array of syringe devices, and is therefore a key supplier to major pharmaceutical companies in the world.

Laboratorios LETI is another example of a Spanish company attaining leading positions in specialized market segments. LETI’s origins date back to 1919 when it was established as a vaccine producer, but in the mid 1980s the company decided to change focus and concentrate on specialist areas in which it could aim to become an important industry player. “Allergy immunotherapy was the first area that we chose, based on the company’s know-how, managerial capabilities and the segment’s characteristics”, says LETI’s President, Jaime Grego.

He adds that, “we developed an excellent R&D department and built a new state-of-the-art manufacturing plant. When the company was granted the patent for Depigoid, our star product in immunotherapy, we entered Germany, the largest and most challenging market in this field”. Besides Germany, LETI has established a subsidiary in Portugal and long term distribution agreements in other countries in Europe, Latin America, Asia and Africa. According to Grego, “having proprietary technology and products, internationalization is now a priority. We are beginning to build business activities in the United States”.

In addition to immunology, LETI is also specialized in other areas such as the Dermatology and Personal Care (DPC) segment. “We have followed a strategy of innovation by combining our own research with in-licensed products in specialized areas in vaccines, diagnostics, reagents for research and assisted reproduction technologies”, states Grego. In diagnostics, LETI has introduced the rapid test concept for respoiratory infectious diseases in the Iberian Peninsula and is also introducing point of care diagnostics in other areas such as for HIV in oral fluids. In the booming field of assisted reproduction, LETI introduced the culture media in specialist clinics across Spain and Portugal, a technology developed by Danish company Medicult of which LETI is the largest industrial shareholder.

For Greto, LETI’s success is based on the three pillars of “specialization, innovation and a strong customer orientation, which reflect our commitment to more rational and sustainable healthcare through self-care, prevention and early diagnostics”. He adds that the company’s target is to double its size given the products and technology LETI has on hand and its innovative pipeline.

The local pharmaceutical and biotech industries are not the only ones to conquer new horizons with the ‘made in Spain’ trademark. After only 10 years since its creation, Antares Consulting has managed not only to consolidate itself as the sole company in Spain offering services to the entire chain of the health sector, but also to create a name for itself in neighboring markets.

Pharmaceutical companies constitute Antares Consulting’s second business area in terms of turnover with 30%, after hospital clients. Lluis Triquell, Partner & Director of Bioindustries and Pharmacy at Antares Consulting, created the division from scratch in 2000. “We have gone from being completely unknown within the industry to working with some of the biggest Spanish and international names in the business”, says Triquell. Antares Consulting’s goal is for the pharmaceutical sector to represent over 50% of the company’s turnover in the future.

 

“Our competitive advantage is without a doubt our profound knowledge of the entire Spanish healthcare system. By choosing us, clients do not have to spend time and money explaining to other consultants the basics of the sector, because we know it by heart.”, affirms Triquell. Antares Consulting works with pharmaceutical companies mainly in the areas of strategic marketing and organization, including the development of commercial plans and the creation of new business units. Supported by its Social Services area, Anatares Consulting also designs comprehensive or specific CSR plans for pharmaceutical companies, offering its expertise in the strategic, operational and development phases of a project.

As Antares Consulting grows in terms of size, clients and turnover, it also aims to become a reference in the health sector at an international level. After testing the waters in Latin America early on, the company has decided to focus its expansion closer to home. “We have direct presence in Portugal, Switzerland, France and Belgium; all countries where we feel very comfortable to develop our value-added consulting business. The health authorities there truly appreciate our specialized approach. Contrary to other consulting companies we speak in their language”, adds Triquell. Antares Consulting has started working with hospitals in those markets, but as it consolidates its position the pharmaceutical industry should also start knocking on their door, as in Spain.

 

Booming biotech

After decades of watching from the sidelines as other countries rode the biotech waves during the 1980s and 1990s, Spain is finally catching up with other OECD nations, and now has over 250 companies dedicated exclusively to this sector and several hundred more with some degree of biotech activity. Luckily for Spaniards, in contrast to the recent slowdown of one of the country’s main growth drivers – construction – there is a booming local biotechnology sector progressing consistently at over 25% per year, one of the highest rates among the developed economies.

Jorge Barrero, General Secretary of ASEBIO (Association of Spanish Biotech Companies) at the time of the interview and now Cabinet Chief at the new Ministry of Science and Innovation exudes optimism. “The cultural barrier Spain had with regards to biotechnology has been eroding, start-ups are proliferating and capital is becoming more available”, he says, adding that “in Spain we are still behind other developed countries, but at least people have started to believe that the country has a role to play in the international biotech arena”. Spain’s biotechnology sector still has many obstacles to overcome, such as the access to financing, a lingering mentality hostile to research-based profits, and inadequate public incentives to innovation. “We should learn more from the American experience which shows that sometimes more subtle tools of financing innovation, such as directly creating business relations with the biotech companies, can have a big impact”, states Barrero.

According to Barrero, one of the main challenges is to transform the image Spain itself has on the global arena. “Spain is a country which internationally is associated with many positive things, thanks to its culture, way of life, nice weather, cuisine, etc., but not really seen as a scientific place. This is not a fair assessment, given that Spain is responsible for 4% of the world’s R&D and has dynamic industries. We need to work on changing the perception of the ‘Spain’ brand in the world”, he says. In this regard, ASEBIO is organizing ‘BioSpain 2008’, to be held in Granada in September, with the aim to showcase to the world Spain’s booming biotech sector and the investment opportunities.

One Spanish biotech company which leaped ahead of the rest is Pharmamar, part of the Zeltia Group, which was founded by Jose Maria Fernandez-Souza in 1986 with a unique business model. “The idea was to look at the ocean for marine organisms which could give us medicines. Nature has already given us many treatments of biological origin; there was no reason to believe that marine organisms could not hold the same potential, especially considering that 75% of the species on earth live in the oceans”, he says.

With over 60,000 marine organisms in its collection, 17,000 patent applications and constant new discoveries, Pharmamar’s niche approach has turned it into the world leader in research and development of marine-based drugs. The company’s strategic decision to focus on oncology led it to a major achievement in 2007, when it was able to get its first drug – Yondelis – out on the market. “Yondelis is a big milestone for the company, but also for Spain because it is the first time EMEA approves a compound from a Spanish company”, affirms Fernandez-Souza.

“Over the coming years Pharmamar should be in positive figures, thanks to the sales of Yondelis and its second indication for ovarian cancer which is slated for launch in 2009”, states Ferndandez-Souza, pointing out that it is only the tip of the iceberg. Indeed, in addition to Pharmamar’s ongoing efforts to generate solutions for different kinds of cancer, Zeltia Group created Neuropharma in 2000 which is concentrating on finding marine organisms with properties to treat Alzheimer’s and other neurodegenerative diseases.

Aiming to help more companies achieve Zeltia’s success in mixing research with entrepreneurship, The Genoma España Foundation was created in 2002. Its mission is to promote the biotechnology sector and act as a link between research groups, capital investors, biotech companies, and society. According to Jose Luis Jorcano, Genoma’s General Director, the Foundation offers a link for building successful pubic private partnerships in Spain. “The current necessity to transfer academic knowledge to the industrial sector, in order to make these findings and discoveries really useful for the public, requires enhancing the level of cooperation among the different sectors. Genoma was a pioneer in perceiving this necessity and is one of the leading players in establishing agreements between the public and private stakeholders”, Jorcano says.

Spain’s up-and-coming biotechs can also look for inspiration from the multinational biopharmaceutical companies, which are growing at important rates and increasingly active on the Spanish market. The California-based Gilead Sciences attained a growth rate of 33% in 2007 in Spain, an impressive performance which Roberto Urbez Plasencia, General Director since early 2008, is looking to maintain. “This is a fantastic number for a large and mature market like Spain”, boasts Urbez, adding that “Gilead Sciences is leader in the key HIV area, where we have 26% market share in Spain”. Spain is already Gilead Sciences’ 3rd most important market in terms of pharmaceutical sales in the world, only behind the US and France.

According to Urbez, “the plan is to consolidate our leadership in HIV treatment and further our development of Hepatitis drugs. Gilead Sciences’ expertise in these life-threatening diseases will surely become a model to help us develop new drugs in other key areas”. Gilead Sciences will be launching a new drug for Hepatitis in 2008, as well as a Atripla, a novel HIV treatment together with BMS. The expansion into new areas, following the acquisition of Myogen in 2006, is mainly concentrated on treatments for cardiovascular and respiratory diseases.

In terms of R&D, Urbez notes that “Spain is a very attractive country in which to carry out clinical trials thanks to the excellent standards of the hospitals and the quality of physicians” Looking into the future of Gilead Science Spain, he reveals that while at the end of 2007 Gilead was the 7th company in terms of revenue in the hospital market in Spain, the objective is to become one of the top 3 players in within this segment. “In 5 years’ time, our ambition is to become the number one biotech company in the Spanish market”.

 

Generically speaking

“Generic products have saved the national healthcare system approximately 8 billion euros over the last 10 years”, says Angel Luis Rodriguez de la Cuerda, General Director of AESEG (Association of Spanish Generics Pharmaceuticals Producers). A powerful statement, in a context in which governments over the world make efforts to contain exploding healthcare expenses. “For patients, generic drugs mean greater access to medicines they need. For the government, which in Spain ultimately pays the near totality of the pharmaceutical bill, generics play a key role in the sustainability of the healthcare system”, adds Rodriguez de la Cuerda.

The authorities have gotten the message and been supporting the development of generic drugs in Spain, at least in principle. Rodriguez de la Cuerda explains that “though there is a lot of talk about the need to support generics, the actions do not follow in the speed and scope we expect. The main problem is that the authorities’ policy has been exclusively focused on stimulating the generics consumption from the offer-side of the equation, particularly through price cuts. This may have generated an increase in generics consumption in terms of units, but in value we are still at very low levels”.

Another big concern for the generics industry are recent court decisions ruling in favor of branded drug companies on patents for product and not only procedure. “All that the generics industry is asking for is for the 1986 framework to be maintained and enforced”, says Rodriguez de la Cuerda, adding that, “companies have made business plans based on the legislation in effect… Not recognizing this right changes the rules of the game for the industry, and creates a high degree of legal uncertainty”. According to AESEG’s estimations, preventing generic versions of drugs which would normally get off patent between 2008 and 2012 (25 blockbuster products) would mean an additional cost of at least 2 billion euros for the healthcare system.

Despite the price cuts and the uncertainty surrounding the patent situation in Spain, the generics market has been expanding at around 20% over the last several years, and considering the low penetration of generics in Spain (7%) when compared to the European average (30%), the room for growth is still immense. For Raul Diaz Varela, President of AESEG and also President & CEO of Kern Pharma, “It is true that if we do not manage to change the patent scenario resulting from the recent court decisions there will be delays and slower growth than previously expected. However, there are still many molecules not affected by the TRIPS agreement which offer opportunities”.

Kern Pharma began as a contract manufacturing company when the Indukern Group acquired a Roche plant in 1999, but as the years passed it started developing its own generics business and is already one of the top ten companies in the Spanish market. Diaz Varela explains that part of the success is due to Kern’s “relatively early entrance in the generics business, which allowed us to establish the company and be well prepared for the subsequent arrival of many international companies. Now there it is a very competitive market with Spanish and many international players”.

Almost inadvertently, Kern Pharma has ended up specializing in bringing low-price / high-volume generics to the market, which international companies often leave aside. “This strength in volume has allowed us to introduce our brand to the market, to the point that today it is well recognized by both doctors and pharmacists, and Kern products are found in any pharmacy in Spain. Most other companies can only aspire to achieve this after making massive investments in marketing”, states Diaz Varela.

Although in 2007 the company’s contract manufacturing business still accounts for roughly half of the total turnover, Diaz Varela’s vision is to consolidate Kern Pharma as a pharmaceutical lab specialized in generics. “Kern Pharma believes in having a strong portfolio, excellent sales force, increased R&D, and our own products which give us the opportunity to enter licensing agreements abroad as well”, he says. In fact, Kern Pharma already has a subsidiary in Portugal, a distribution company in Venezuela, and licensing agreements for over 20 countries. “Soon we expect around 20% of Kern Pharma’s turnover to come from the licenses for export markets”, affirms Diaz Varela, who is particularly interested in South America and European markets such as Italy, Turkey and Poland. These overseas markets will surely be key to achieving the mandate Kern Pharma has given itself to double turnover in 5 years.

While ambitious Spanish companies are increasingly looking outwards, the world’s leading generics players have been busy establishing their presence in Spain over the last several years. Some of the industries’ biggest names like Teva, Dr. Reddy’s, Ranbaxy and Actavis are making inroads in Spain’s competitive generics market. Dr. Reddy’s arrived in 2005 through a local acquisition, and has had to endure a particularly tough environment characterized by price reductions and low margins. However, the General Director of Reddy Pharma Iberia, Jose Mosquera, sees an upturn in the next few years. “Our situation will considerably improve as we are able to expand our portfolio through the company’s own pipeline from India, which in terms of costs is very competitive”, he says.

One of Mosquera’s main concerns regards the effects of the new Price Reference System, which has resulted in a discount war among generics players which is narrowing margins. In this context, Mosquera is proposing a different approach in order to succeed in the Spanish generics market. He explains that it means “going directly to the patients or end users of the drug. We have to communicate to the people, and show them that generics are just as good as the branded drugs and that we also offer them something more”.

“Spain has the potential to be a huge generics market for Dr. Reddy’s. Over the next 5 years Spain could become a very important subsidiary, possibly the third largest in Europe (not counting Russia), after Germany and the UK”, adds Mosquera, who believes that Reddy Pharma also has what it takes to be among the top five generics players in Spain a few years down the road.

 

Franco-American mano a mano in CRM

The M&A frenzy of the last several years has spread to the industry’s service providers, as illustrated by Cegedim’s acquisition of Dentrite in 2007. The outcome of the Franco-American integration has created Cegedim Dentrite, global leader in CRM and database solutions for the pharmaceutical sector. In Spain, Dentrite was four times larger than Cegedim in revenues and it was Ignacio Huergo, formerly head of Dentrite, who was named General Manager of the new integrated company in the country.

Building on the strengths of Cegedim and Dentrite, the new organization has a broader portfolio of products and services to offer the market, and today counts with 58 clients in the Spanish market. Spain is the 5th largest market for Cegedim Dentrite in terms of revenue, but Huergo points out that the country is also important to the company for other reasons.

“We are a key subsidiary because our team has proven its ability to be a pioneer in implementing the company’s new solutions. Concretely, Spain is the most active country in introducing Cegedim Dentrite’s mobile intelligence solutions. Being the first in new territories brings its challenges, but it is also extremely rewarding to be developing innovative solutions and contributing to Cegedim Dentrite globally”, he affirms.

After surpassing its objectives in 2007, Cegedim Dentrite is experiencing a 2008 is a year of ongoing projects. “The main challenge is to continue maximizing synergies within the new organization, leveraging the best of both worlds: people, solutions, experience, and positioning. In addition, Cegedim Dentrite is following the two-year roadmap for the migration to one unique .net CRM platform, integrating different applications such as multimedia, key account and opinion leader management. The plan is to have all of the functionalities on the market in 2009”, affirms Huergo.

 

When Two Heads are Better Than One

Seeing a big pharmaceutical company such as Otsuka create a joint-managing directorship – in this case for Spain through Imma Barber and Manel Lopez – is quite a rare occurrence, just about as unusual as seeing a Japanese pharmaceutical company grow at double digits in Europe. The Spanish duo of Mrs. Barber and Mr. Lopez were named joint-managers in early 2008, and are firmly committed to continue with Spain’s outstanding performance which earned it “Best Otsuka Affilliate in Europe” award in 2005. It was a landmark year for Otsuka Spain, particularly thanks to the launch of the company’s star schizophrenia drug Abilify.

 

Since then, as Barber points out, Otsuka has been consolidating its leadership in its different development areas such as medical devices, in vivo diagnosis, and in pharmaceuticals with a new indication of Abilify for bipolar disorders. “Otsuka is also preparing launches in the cardiovascular field, a new focus area for the company towards the future”, states Barber.

 

Although Otsuka Spain was officially created only in 1998, its presence in the country dates back to 1979 when it acquired a local company. “This was a good starting point for the launch of Otsuka’s strategy in Spain”, says Lopez, since “Otsuka did not have to begin from scratch in the country, and could already count on production facilities, quality control, laboratories, and a sales force organized in specific areas”. This has helped Spain become a first-line country for Otsuka in Europe, spearheading the commercialization of a whole portfolio of products in the region. “We are actually responsible for developing the Southern Euro

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