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BIOTECHNOLOGY The Financial IN ITALY 2009 perspective

Blossom & Company - Assobiotec Report

BIOTECHNOLOGY IN ITALY 2009 ALL RIGHTS RESERVED BLOSSOM ASSOCIATI S.R.L. (2009) The Biotechnologies in Italy Report: strategic and financial perspectives is the property of Blossom Associati S.r.l. Blossom Associati s.r.l. publishes the Biotechnologies in Italy Report every year, and allows it to be freely downloaded in PDF format from the websites owned by Blossom Associati S.r.l. www.blossomcompany.com and www.blossomassociati.com for exclusively informative purposes. All rights for the divulgation and use of the data, information, translation, electronic storage, reproduction and partial or total adaptation by any means (including microfilm and photocopies) are reserved. Blossom Associati S.r.l. reserves the right to authorise the partial reproduction and divulgation of the contents of the report upon receipt of a specific written request submitted in advance to [email protected]. The company reserves the right to take action in each and every court of law with jurisdiction to safeguard its publications.

Anna Albinati Massimo Boriero Maria Adelaide Bottaro Federica Bottazzi Mauro Brunelli Steven Burrill Gianluca Carenzo Aurora Casale Maria Grazia Chimenti Alessandra Maria De Luca Sergio Dompé Ferdinando Fiore Rita Nunzia Fucci Roberto Gradnik Marian Jones Corrado Maggi Katia Maggi Alessandra Mancia Luca Martignoni Andrea Mesutti Stefano Milani Francesca Mondello Alberto Onetti Alessandra Piazzino Alessia Pisoni Marco Renoldi Deryck Rhodes Alessandro Sidoli Andrea Stoffella Marco Talaia Umberto Vattani Leonardo Vingiani Antonella Zucchella

We would like to thank all the organisations that cooperated with us in the production of the 2009 report: AIFA Assobiotec Blossom & Company Burrill & Company Camera di Commercio Svizzera in Italia CCIAA Varese CIBIE (Centre for International Business and the International Economy) CrESIT Università dell’Insubria di Varese Farmindustria ICE Mittel Corporate Finance Sullivan & Worchester LLP Traverso & Partners Università degli Studi di Pavia, Facoltà di Economia University of Glasgow Biotechnology in Italy 2009 Strategic and financial perspectives A Blossom & Company Report - Assobiotec The report is available online in PDF format from the website of Blossom Associati S.r.l. www.blossomcompany.com

Introduction by Blossom & Company Dear Friends and Customers, A strong signal of consolidation and growth by innovative companies in Italy is emerging in 2009. It is certainly no accident that Italy is now seen as an area with strong development potential. The data reveal a situation of growing consolidation by innovative companies investing in specific niches in the life, environmental and agro-food sciences. At the end of last year, 260 companies were investing in biotechnological R&D, of which no less than 40 accredited by Blossom & Company in 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 from the sale of innovative products and technologies (a 24% year-on-year growth rate was recorded last year), with 1.5 billion in R&D biotechnological investments (+15% in the year in question), and about 41,000 employees recorded overall in Italy by the foregoing 260 companies, of whom 8,847 engaged on R&D, which represents a significant year-on-year increase (+36%).

Stefano Milani President & CEO Blossom & Company

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 the other, the capital structures that characterise its companies have, today, become one of their strong points, and to such a degree that those companies with a solid business model or planning a financially sustainable business model can, notwithstanding the constraints generated by the very serious international financial crisis, still find a number of opportunities to finance their development. Blossom & Company

2009

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Breakdown of Italian biotech companies by application area

Italy has always been characterised by a strong concentration of companies with an established tradition in the life sciences. This can be accounted for by the large number of hospital research centres where researchers discover and experiment new therapies and diagnostic methods or improve instruments of analysis. In Italy, there are territorial areas – generally only known to the experts (for example Trentino) – that are witnessing an important upsurge in economic activity due to the development of new companies and the support provided for accessing the seed and preseed financing necessary for the commencement of new and strongly R&D oriented entrepreneurial activities. Although the data reveal a strong concentration of factors for the development of the biotechnological system and life sciences in Italy, the country still reports an inability to export examples of success that enjoy worldwide recognition as Italian successes, despite the fact that the international community recognises the talents of the exporting companies and the global vision of the sector for its academic and industrial research.

Bioinfo 4% Environmental 9%

Agrifood 14%

Health 73%

Source: Blossom & Company (2009)

To demonstrate the foregoing observations, it is sufficient to observe the clinical trial activities conducted in Italy. The National Observatory on Clinical Trials involving medicinal products (OsSC) found that in 2007 the absolute number of trials (750) replicated the levels of 2006. Phase I and II studies continue to represent a significant part of total clinical research. In 2007 they accounted for 42.6% of the total. At the same time, phase III studies, which in the year under examination accounted for 44.5% of the total, confirm the trend initiated in 2005. If we follow the growth trend in the preceding years, we find that Italy's share of international studies in 2007 rose to 75.3%. The principal therapeutic categories addressed by Italian clinical research refer to antineoplastics and immune modulators (34.1%), followed by drugs for the nervous system (11.7%) and general antimicrobials for systemic use (9.8%). Although 578 promoters (360 profit and 218 non-profit) have been registered in Italy, with at least one approved trial, the top 50 promoters accounted for over 60% of clinical trials. The types of structure involved in Italy range from 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.

Number of biotech companies in Italy: development over time 260 211 140

2005 - 2008

2001 - 2004

1996 - 2000

1991 - 1995

71

1986 - 1990

49

1981 - 1985

before 1980

36

101

Source: Blossom & Company (2009)

Clinical trials by year

Source: AIFA, July 2008

4

750

2007

2006

659

2005

626

2004

579

2003

567

2002

611

2001

2000

561

769

Blossom & Company continuously screens international and European investors. Over the years, it has found a growing interest in Italy on the part of banks, venture capital companies, financial institutions, independent investors, private equity funds, funds of funds and non-profit foundations. 82% of the 166 international investor sample that invests in innovative sectors, declared a specialisation in biotechnologies, while 55% was strongly interested in evaluating investment opportunities in the Italian biotech market, despite the fact that still today only a small number of operations have seen the direct involvement of Italian operators. The nations with the largest number of investors potentially interested in investment opportunities 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 and venture capital operations in Italy, it must be confirmed that even the leading Italian operators tend to be relatively backward and with a limited international presence, notwithstanding the considerable potentiality of the sector in question. Therefore, in terms of an international comparison, Italy has a limited number of specialised operators (and of these most are interested in the later stage operations).

As regards such operators, we may mention Principia, a closed-end fund set up under Italian law and run by Quantica SGR, whose mission is to invest in unlisted companies with a high technological content in their initial life cycle. At present, Quantica has Kee Square, Pharmeste, GreenFluff, Dialectica and NewCorTec in its portfolio. Another investor is Genextra, a holding that invests in start-ups in pharmaceutical and biotechnological research for the prevention, diagnosis, therapy and prognosis of diseases associated with the anti-aging sector. At the moment Genextra has DAC, Congenia, Tethis, and Intercept Pharmaceuticals in its portfolio. Eporgen Venture is a venture capital company set up in 2004 for the declared purpose of investing in fledgling biotech companies. The company was set up by private investors and includes the following companies in its portfolio: Noto Pharm, Bionucleon, Biopaint, Genovax, Narvalus, Spider Biotech, Target Heart and Apavadis. Z-Cube, another corporate venture company, is a subsidiary of the Zambon pharmaceutical group and addresses the life sciences and biopharmeuticals. The company, is specialised in early-stage investments, and has PharmEste s.r.l. in its portfolio as well as SuppreMol GmbH and ProtAffin Biotechnologie AG, which has developed a technology for the production of anti-inflammatory drugs. Listed Italian biotech companies (2008) Company Molmed

Year of Listing 2008

Diasorin

2007

Cosmo BioXell Newron Gentium

2007 2006 2006 2005

Cell Therapeutics

2004

NicOx

1999

Stock exchange Italy - MTA-Milano (MLM, Standard segment, class 1) Italy - MTA-Milano (DIA, Star) Switzerland - SWX Zurich Switzerland - SWX Zurich Switzerland - SWX Zurich USA - Nasdaq American Stock Exchange Italy - MTA-Milano (CTIC, Standard segment, class 1) USA - Nasdaq American Stock Exchange France - Euronext Paris

Information sheet: Blossom & Company (2009)

Alongside these we should also mention some newly set up specialist operators such as TT Venture, a fund dedicated to technological transfer in the fields of agro-foodstuffs, the life sciences, new materials and renewable sources, run by State Street Global Investments, which has collected subscriptions for 60 million euros, and intends to reach the figure of 150 million by May 2009. The fund’s operations cover the various phases of technological transfer (seed capital, venture capital, private equity, etc.).

In addition, we should also note the first private-public venture capital fund, Fondo Next, which is focused on the promotion of new technological companies and university spin-offs. Next’s financial resources amount to 37 million euros. Despite the backwardness or limited international scope of Italian venture capital and private equity operators, the presence of some important non-profit operators is worthy of note as they are promoting research in the biomedical field in Italy such as the Telethon Foundation whose honorary President is Renato Dulbecco, the Nobel Prize winner, AIRC, AISM, Fondazione Giovanni Armenise-Harvard. Another example is the Fondazione Filarete in which the University of Milan, the Cariplo Foundation and the bank Intesa-San Paolo have stakes. Filarete is an accelerator dedicated to start-ups and spin offs operating in the field of the biosciences. Then there is Toscana Innovazione, which has raised 45 million euros, earmarked for projects with high-tech content and high innovative value that are capable of translating themselves into entrepreneurial projects, and subsequently able to attract coinvestments from large international funds or interested companies. Among its capital subscribers there is also the bank foundation Monte dei Paschi di Siena. That one of the fundamental problems of companies in this sector in Italy, and not only in the startup phase but also in their subsequent development, is represented by the difficulty of raising the capital needed to sustain the corporate process, is certainly no novelty. Instead, the novelty found by Blossom & Company is represented by the conviction that the principles and methods of strategic planning applied to innovative companies in Italy can enable such companies to achieve a better understanding of their financial problems and the long-term sustainability of their business. Therefore, it is necessary that the system should grow (companies, advisors, investors and institutions) if corporate Italy is really going to be able to leverage its full potential, and proceed beyond the usual self-referential logic and the refusal to accept corporate innovation. Blossom & Company has demonstrated that its approach to strategic planning can help companies identify sources of capital that best correspond to their needs as well as achieving stable relationships with financiers, whatever their specific characteristics. Blossom & Company believes that innovative Italian companies that invest in R&D and Bio-entrepreneurs must be put in a condition to couch projects in the same terms and deploy the same criteria as those used by the business investors to whom they present their project, so that these companies may clarify the relationship between scientific and financial success. However, this is neither easy nor self-evident.

Blossom & Company

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The latest analyses by Blossom & Company show that, currently, seven companies are considering listing themselves within the next five years. The screening carried out on Italian companies to evaluate the most interesting targets in the sector once again demonstrates that, overall, Italy is still an industry more suited to venture capital than to stock exchange listing, insofar as the companies must still grow and consolidate themselves, create a network, develop research and only when their pipelines have reached a level such as to forecast a two/three year cash flow can they begin to think of listing themselves. In 2009 Italy’s scientific and technological parks, very active in innovative research in the areas of life science, and with a strong vocation for development and the sustainment of start-ups, constitute an important social capital of scientific technological and organisational skills. The latest analyses by Blossom & Company, show that in Italy there are seven parks that meet our selection and accreditation criteria, including the Parco Tecnologico Padano (see the detailed information sheet in the 2009 Sponsor section), the Area Science Park, the Bioindustry Park of Canavese, the Science Park Raf, the TLS Science Park and the Insubrias Biopark of Gerenzano. The Blossom & Company - Assobiotec Report, therefore, combines economic scientific and financial analysis on the Italian system with a powerful qualitative survey conducted on the entire population of companies operating in Italy, demonstrating that the value generated is to be sought in a system extensively present throughout the entire territory. Although the data demonstrate that there is a strong concentration of factors for the development of the biotech and life science system, Italy suffers from not having exported examples of success recognised at a world level as Italian successes, although the industry is recognised by the international community for the talents which it exports and for the quality of its global research vision. Blossom & Company is one of the latest and most prestigious strategic consultancy companies in the field of healthcare and biotech (healthcare, agro-food, environmental and bioinformatics). We principally address an elite of bio-entrepreneurs and Italian and international companies that invest in research, development and innovation and which intend to base their strategies upon a strong international network and a global business vision.

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Cast your minds forward 10 years and ask yourselves how the Italian system in the fields of the life sciences, the environment, agro-food and information technology will be characterised. How will the elite of the leading Italian companies of tomorrow be organised and managed? What will the managers, researchers and analysts be doing to guarantee the development of their companies? What will be different in tomorrow’s Italy in the way skills are managed, resources allocated, strategies developed and research and value created? As privileged observers, Blossom & Company believes in the international development and the scientific, capital and financial fundamentals of the elite of companies that invest in R&D in Italy. And it is precisely for this reason that we have brought together the best national organisations to draw up the annual report “Biotechnology in Italy - the Financial Perspective”, which is distributed globally and presented on the occasion of the principle of national and international conferences. Therefore, we would like to address and thank all companies of the sector, all the BioEntrepreneurs and all the R&D-intense start-up Italian companies that approach international markets with a solid strategic vision, a robust business models and an optimistic future vision. Consequently, we would like to thank the shareholders, managers, scientists and all the employees of the companies, scientific parks and institutions who with their support made it possible for us to produce this report. We would also like to thank our customers with whom much successful business has been achieved and with whom we shall handle the challenges of 2009. And for an evaluation of the principal operations conducted in the course of the year we refer you to the 2010 Report on Biotechnologies in Italy.

Italian biotech invests and reinforces itself Vigorous growth, new companies and an excellent innovation capacity. These are the principal characteristics of Italian biotechnologies, as illustrated in the fifth edition of the Report Blossom & Company - Assobiotec “Biotechnologies in Italy”. In view of the tender age of this industry such characteristics are, in some respects, very surprising. However thanks to them, Italy has managed to meet a challenge that would have been unthinkable a few years ago: to finally appear on the radars of the major biopharmaceutical and biotechnological companies and venture capital operators.

Roberto Gradnik President Assobiotec

However, there are tangible facts behind this phenomenon: new enterprises emerging at a progressively faster rate, companies reaching maturity and consolidating themselves, but first and foremost, major R&D investments being made, which this year also recorded a very significant growth rate (+15% ). This commitment and these investments have been translated into a significant pipeline, whose size and value surprised even the experts working in the sector. There are no less than 209 products under preclinical and clinical development in Italy. Moreover, the total number rises to 258 if we take into consideration 49 projects at the discovery phase, which constitute an interesting promise for the sector in upcoming years. The 209 products in preclinical and clinical development are the result of research by 48 companies. 73 of these products are in the preclinical development phase while 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 from EMEA, 2 from FDA and 31 from both EMEA and FDA). These are mainly products for use in oncological applications that have already reached a very advanced stage of clinical development. Altogether, these investments in research are principally orientated to areas of antineoplastics and immune modulators, and, to a lesser extent, to the central nervous system, dermatology and cardiovascular areas. These figures reflect a very surprising feature that practically bucks the trend in the international scenario: the last three years, 2006-2008, have been very productive for the companies in our country insofar as most of their products have reached the current phase of development. This development is a strong index of the Italian biotech industry's capacity for innovation, which even in an international context characterised by shrinking investment and ominous forecasts, has shown itself able to forge ahead, and confidently project itself towards the future. It should also be noted that R&D activities in the health area, in addition to therapeutic applications, have also generated a pipeline in diagnostic and technological applications. In point of fact there are 14 diagnostic products under development referring to oncology (71%), haematology (21%), and the genito-urinary system and sexual hormones (7%). Then there are 63 innovative technologies being developed that require the use of biotech methodologies in a variety of different areas 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 agreements between Italian companies and international partners are multiplying. And, in addition 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 invest in research, makes Italian companies an even more important market force. And so much so that of the three companies that in 2008 that managed to successfully 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 level of maturity that will certainly generate further innovation and economic growth, thus reinforcing our role as an international player. We can, therefore, look towards the future with confidence. Italian Biotech has finally emerged as a real force to be reckoned with.

Blossom & Company

2009

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The pharmaceutical sector in Italy Sergio Dompé President Farmindustria

2007 and 2008 were very turbulent years for the international economy 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 point of view, showed important signs of vitality in 2008 thus confirming its important role in Europe and the world. In addition to the well-being of citizens, the pharmaceutical industry has performed a fundamental role for the industrial sector as also for the economic and scientific growth of the country as a whole. Italy is one of the world’s leading manufacturing countries, which in terms of employees ranks third in Europe (after Germany and France) and fifth in the world (USA and Japan occupying the first two positions). On the demand side, Italy ranks sixth among the advanced economies with a total domestic spending of 16.7 billion euro at ex-factory prices, compared to a world total of 519.5 billion, (corresponding to a 3.2% share). With 230 companies producing pharmaceutical specialities and 100 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 degree or 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% earmarked for export; > 11.9 billion euros in total exports, of which 9.5 represented by medicinal products, and thanks to which a positive trade balance 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 and equipment; > 1,170 million euros in R&D spending, representing 14% of the manufacturing industry’s total, and, in relation to domestic sales, more than 10 times the corporate average; > 1 billion euros in three-year research and production investments, already invested by the companies within the framework of “Programme Agreements”; > about 3.5 billion euros in directly generated taxation and social contributions, corresponding to over 20% of public pharmaceutical spending. R&D activities by the pharmaceutical industry in Italy Years

2002 2007 % Var

R&D investments Milions % of pharmacy % of total of euro sales companies 883 8.0 9.0 1,170 10.1 10.4 +32.5%

R&D employees Employees % of total employees 5,360 7.4 6,250 8.7 +16.6%

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

8

% of total companies 8.3 8.5

These are characteristics typical of an advanced sector and thanks to which greater value-added can be created with respect to the industrial average. Compared to all the other large industrial sectors, the pharmaceutical industry boasts the highest levels of productivity. This characteristic depends upon the drive to innovation, the high level of investments in increasingly advanced and efficient plant and equipment but not least upon the quality of its human resources. This last element represents a competitive advantage for 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 both companies and the employees involved; > the recruitment of employees with open ended contracts in the two-year period 2006/2007 was greater than the average for the economy, with ample space given to young people; > an environment, in terms of safety at work – although such results can be never sufficient – in which the number of accidents per millions of hours worked in the pharmaceutical industry is 64% lower than the industrial average and is still falling. Research in Italy The pharmaceutical industry is founded on and indissolubly bound up with science. It has the highest intensity of research of all the industrial sectors and its leading industries invest a figure corresponding to more than 15% of turnover. Among the first 20 companies in terms of research spending in the world, seven are pharmaceutical companies, and together they constitute the most numerous group among the different sectors. The industry’s widespread project capacity, which is also reflected in the investment plans announced by large, medium-sized and small companies, confirms its leadership in the field of research. This and its great productive vocation constitute the characteristics that make the pharmaceutical industry not only one of the largest of 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 a growing concentration in phases 1 and 2 which, from a figure of 28.6% of all trials in 2000, reached a share of over 40% in 2007. Phase 4 clinical trials have more than doubled: from 43 in 2000 to 92 in 2007. The commitment of pharmaceutical companies regarding rare diseases The most important contributions for the treatment of diseases (the majority of which are genetic in origin) come from biotechnological pharmaceutical research and genetic engineering. Furthermore, many orphan drugs are actually biotech drugs. Rate diseases refer to pathologies that affect no more than five persons out of 10,000. The World Health Organisation has surveyed over 6000 diseases (of which the greater part refers to children) that altogether afflict more than 25 million persons in Europe and over 1 million in Italy. Blossom & Company

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On account of their complexity, which refers to both their therapeutic (on average 3 to 5 years investigations are necessary before reaching a diagnosis) and ethical nature, rare diseases call for a new policy that combines public and private skills in social solidarity arrangements that observe the principle of subsidiarity. This is the direction taken by the “Industrial Innovation Project (Industry 2015)” [Progetto di Innovazione Industriale (Industria 2015)] in choosing the area of rare and neglected diseases as an area for action. The project, promoted by the Ministry of Economic Development, sets out to stimulate the creation of partnerships between private companies, capital, universities, and research centres in order to implement industrial programmes capable of impacting upon global competitiveness in the field of the new technologies for life. This project comes on the back of other measures, including: programme agreements to promote investment in production, and R&D in Italy; the fund for the promotion of research and advanced training in the field of biotechnologies; the increase in the ceiling on tax credits for research, now raised to 50 million euros. Farmindustria has chosen to participate in the creation of the network for rare illnesses and has therefore opted to commit itself to this very delicate sector. For this reason it signed: > the memorandum of understanding with UNIAMO in order to promote the adoption in Italy of legislative tools to promote the development of orphan drugs and improve health care and social assistance for patients suffering from these pathologies; > an agreement with Telethon to stimulate the cooperation of companies for the clinical development of drugs for rare pathologies, identify effective legislative tools to increase research and innovation in the field of rare diseases (tax relief) and optimise the path from the identification of the therapy to the registration of the treatment with the regulatory authorities. As regards the creation of an information and training network, the association has cooperated with UNIAMO to produce a second edition of the Associations’ Guide to rare diseases, which represents a source of information for patients, their families and health-care operators and helps provide a body of valid knowledge in such a complex and multi-disciplinary area. In 2008 Farmindustria also decided to support the first European Day of Rare Illnesses (29 February), which will have its second edition in 2009.

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Biotecnologies in Italy 2009 Stefano Milani, Federica Bottazzi Blossom & Company 2009 is registering clear signs of consolidation and growth by innovative companies in Italy. At the conclusion of last year, there were 260 companies investing in biotech R&D, of which no fewer than 40 accredited by Blossom & Company in the course of that year. Total sales amounted to over E 15.3 billion (an 18% year-on-year increase), of which 5.4 generated from the sale of innovative products and technologies (a 24% year-on-year growth rate). Investments in biotech R&D amounted to E 1.5 billion (a 15% increase on the preceding year).

Biotech sales

Aggregate figures of accredited biotech companies

Source: Blossom & Company (2009)

2005

2006

2007

% Var. 2007/2006

2008 (E)

11,975

12,872

15,229

18%

16,370

4,215

4,328

5,370

24%

6,353

Gross fixed capital formation Biotech R&D investments

2,573

2,491

2,660

7%

2,575

1,207

1,310

1,506

15%

1,635

Total export

1,796

2,317

3,046

31%

2,947

Number of employees

35,341

37,087

40,956

10%

41,775

6,202

6,487

8,847

36%

9,254

18%

17%

22%

23%

22%

21%

19%

17%

16%

10%

10%

10%

10%

R&D employees R&D employees / total employees Fixed capital investments / revenues R&D biotech investments / revenues

260 211

These figures reflect the paradox of the Italian biotech industry: on the one hand, its strong propensity towards self-financing has slowed down the growth of many startups in the past, but on the other, the capital structures that characterise its companies today represent one of their strong points. And so much that those companies with a solid business model or which are planning to adopt financially sustainable business models, are able to obtain greater financing opportunities, notwithstanding the major pressures generated by the current international financial crisis. (values in millions of euros, at 31 December 2008)

Revenues

Number of biotech companies in Italy: temporal growth

before 1980

140

2005 - 2008

1996 - 2000

1991 - 1995

71

1986 - 1990

49

1981 - 1985

36

101

2001 - 2004

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

Source: Blossom & Company - CrESIT (2009)

Blossom & Company

2009

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Total revenues for the companies in Italy amounted to E 15.3 billion; an 18% year-on-year increase. The greatest increases are found in the area of sales of products, projects and innovative biotech technologies, which recorded a 24% growth rate (reaching a value of E 5.4 billion), while the 18% growth forecast for 2008 has been confirmed, despite the brusque slowdown experienced in the October and November. Notwithstanding the importance of such data, which today already put Italy among the leading European countries, it should be emphasised that revenue accounts are certainly not the best indicator to evaluate the development potential and growth opportunities for the industry. An analysis of investments and pipelines enables us to determine the future potentialities of the 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 in the area of innovative R&D investments on biotech platforms, amounting to E 1.5 billion (15 % increase with respect to 2006 data), and with a further 8.5% growth forecast for 2008. These are signals that reflect the strong propensity towards R&D by an elite of the companies accredited in our report. Notwithstanding the severe pressures produced by the international financial crisis, the 2009 forecast points to an ongoing increase in the investment trend in products, projects and biotech technologies, given that new investment plans for a further E 1.7 billion have been recorded. In order to contextualise the foregoing data, it is worthwhile mentioning 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 companies made investments in research, development and trialling for over E 2,659 million. Such data are a significant reflection of the value of investments made by pharmaceutically derived companies and, in particular, of the 60 local and global pharmaceutical companies that account for most of the investments in clinical trials, including those in Italy. 2007 was also a year that recorded a strong consolidation in operating income, which at E 1.4 billion represents a 59% year-on-year increase. These results reflect a steady strengthening and structural maturity of innovative and accredited companies. In the last three years there has been a constant growth in the ratio of EBITDA to output value: from 3% in 2005 to 9% in 2007.

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The 260 accredited companies posted an overall capitalisation of E 4.5 billion, a significant increase and confirmation of a by-now constant trend that underlines the strategic approach adopted for structural growth (+ 33%) in Italy by innovative companies. In terms of size, the analysis indicates a strong diversification by biotech companies in terms of maturity and business sustainability. Thus, if on the one hand the aggregate level of operational income would seem to indicate that the industry has grown beyond the first phase of its development, on the other, we should make a clear distinction in the course of our analysis as between the three size-related “development models” that, ideally, comprise the entire population of accredited Italian innovative biotech companies. The EBIT analysis (earnings after depreciation in respect of all the investments made by the companies) amounts to more than E 622 million and breaks down as follows: > small size companies, against overall investments for E 195 million posted a EBIT of E 62 million (in the course of 2006 losses amounted to E 69 million); > medium-sized companies, against overall investments for more 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 slightly more than E 1,380 million posted an EBIT of more than E 755 million in 2006 this figure was E 474 million). Blossom developmental matrix of the Italian biotech system (MdSB) - values in millions of euro 1.000,00

Global Companies 800,00

Local Companies

EBIT

600,00

400,00

200,00

Start up

Spin off accademico Spin out industriale – 200,00 100,00

200,00

300,00

400,00

500,00

600,00

700,00

800,00

R&D INVESTMENTS Source: Blossom & Company (2009)

Blossom & Company

2009

13

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

211 158

169

225

245

260

255

189

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% of the overall national value, and greater than the value recorded in 2006) in research and clinical trials regarding projects, products and biotech-derived innovative technology), and altogether posted an EBIT of slightly more than E 498 million.

2008

2007

2006

2005

2004

2003

2002

2001

The overall number of employees dedicated to R&D operations amounts to 8,847 persons, representing 22% of all surveyed employees. This figure may be broken down into two subcategories on the basis of the methodological approach used by this report. > 67% (5,922 R&D dedicated employees) is employed by 60 pharmaceutical and global companies;

Source: Blossom & Company (2009)

> the remaining 33% (2,925 R&D employees) is employed by 200 start-ups, academic and industrial spin-offs. Breakdown of Italian biotech companies by size

Large 14%

Medium 13%

If the analysis is extended to all the employees of the 260 Blossom & Company accredited companies (of which 60 local and global pharmaceutical companies), we arrive at a figure of 40,956 persons, which includes all food biotech (3,7%), environmental biotech (0,5%), bioinformatics (0,1%), and healthcare biotech companies derived from global and local pharmaceutical companies (84.5% representing over 34,500 employees) and healthcare biotech companies, accounted for by start-ups and spin-offs (11.3% representing over 4,600 employees).

Small 73%

Source: Blossom & Company (2009)

Breakdown of Italian biotech companies by field of application Bioinfo 4% Environmental 9%

Agrifood 14%

Health 73%

Source: Blossom & Company (2009)

14

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

However, the data used (number of employees declared by the companies obtained by a qualitative analysis and the scrutiny of their notes to the financial statements) tend to underestimate the size of the sector, which – it can be assumed – comprises a significant number of professional persons and external freelance personnel, above all as concerns the smaller companies, and which altogether represents a significant basin of upstream ancillary services with respect to the biotech industry.

The biotech sector in Italy is largely a recent development. More than 50% of its 260 companies were set up or established in Italy in the last 10 years. The intense development undergone by the sector, especially from the outset of the new millennium, is reflected in the constant increase in the number of companies accredited by Blossom & Company (40 in the course of the preceding year) deriving from the pharmaceutical, food, environmental and informatics sectors, all of which, and with growing intensity, are making investments in projects, products, technology and, more generally, in biotech platforms. Alongside such companies there are groups of companies with a long history and tradition in R&D. 71 of such companies were 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 products and technologies that, albeit recognised internationally, are rarely perceived as Italian successes. Numerically, the sector in Italy is mainly made up of small companies. No fewer than 190 of the 260 Blossom & Company accredited companies (73%) employ fewer than 50 persons and post total sales of less than E 10 million. As concerns the remaining companies, 34 (13%) are medium-sized companies (employing fewer than 250 persons and with an annual turnover of less than E 50 million), and 136 (14%) are large companies employing over 250 persons and turning over more than E 50 million.

Breakdown of revenues by field of application Environmental 0,29%

Agrifood 4,79%

Health 94,83%

Source: Blossom & Company - CrESIT (2009)

Breakdown of R&D investments in biotech activities by field of application Environmental 0,92%

Bioinfo 0,32%

Agrifood 10,72%

No fewer than 190 (73%) of the 260 companies in Italy operate in the field of health care (the so-called healthcare companies or red biotech companies), 36 operate in the area of biotech technology applications in agricultural and technical and veterinary fields (agro-food), 23 operate in the industrial and environmental area, (environmental) while 11 are orientated towards R&D in a bio-informatics environment. Furthermore, it should be noted that there is a clear predominance of start-ups (57% or 147 companies) among the 260 companies, which reflects the strong entrepreneurial culture typical of Italian productive areas. Alongside these we should mention 37 academic spin-offs.

Bioinfo 0,10%

Health 88,04%

Source: Blossom & Company - CrESIT (2009)

In our capacity as advisers to biotech and pharmaceutical companies, we have noted that it is essential, especially in this period, to develop competitive business models in relation to the international scenario, based upon three principal development axes: > a business concept that places no limits on the potentiality of growth and value creation; > a strong international network and a global vision; > strategic exit options that address the financial gains generated.

Blossom & Company

2009

15

Biotech innovation for healthcare 2009 Stefano Milani, Federica Bottazzi Blossom & Company Competitive positioning An overview of the Italian scenario 2008 confirmed the competitive position of the Italian life science industry on the international stage and at the same time the chronic weakness of the small and medium-sized companies in terms of their capacity to realise capital gains and attract capital from international investors. At the conclusion of the period in question, there were 190 companies investing in biotech R&D that were exclusively concerned with the health care sector, of which no fewer than 26 were accredited by Blossom & Company last year. They accounted for close to E 14.5 billion in overall sales (an 18% year-on-year increase), of which more than E 5.1 billion generated from the sale of products and innovative technologies (24% year-on-year growth rate), with a confirmed 2008 growth provision, despite the sharp downturn experienced 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 7,684 dedicated to R&D, which on account of the strong growth recorded with respect to the preceding year (+ 26%) is a very significant index. They recorded a robust 36% increase in capitalisation, a continually growing EBIT (78% year-on-year increase), and a sizeable growth in financial borrowing (a 51% increase with respect to the preceding year) that amounted to almost E 2.6 billion. On the basis of an analysis of the business models of the 190 companies investing in biotech R&D in the life science industry, as accredited by Blossom & Company, we can classify no fewer than 33 of these companies as global.

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

2003

2004

2005

5.137.779

4.135.232

3.994.933

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

3.999.142

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

Trend in biotech helthcare sales

3.673.905

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

2006

2007

Source: Blossom & Company - CrESIT (2009)

In conclusion, we should recall 29 start-ups.

Number of biotech companies in Italy: temporal growth

106 78

2005 - 2008

2001 - 2004

1996 - 2000

1991 - 1995

42

1981 - 1985

28

35

1976 - 1980

27

1971 - 1975

61

until 1970

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

190

155

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

1986 - 1990

The revenue accounts posted in Italy (exclusively for the healthcare segment) amounted to almost E 14.5 million, which was 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 a 24% growth (and reached a value of E 5.1 billion).

Source: Blossom & Company - CrESIT (2009)

Blossom & Company

2009

17

Distribution of R&D personnel by corporate size

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

Small 6%

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

Medium 15%

Large 79%

The dimensional analysis highlights strong growth last year in the turnover of the 64 large and medium-sized companies (+19%). Furthermore, after a period of entrenchment in the period 2005/2006, last year the 126 small companies recorded a 14% growth rate.

Source: Blossom & Company - CrESIT (2009)

Number of large-scale companies accredited in Italy: temporal growth 34 34 34 28 22

24

18 16 17 11

Source: Blossom & Company - CrESIT (2009)

2005 - 2008

2001 - 2004

1996 - 2000

1991 - 1995

1986 - 1990

1981 - 1985

1976 - 1980

1971 - 1975

1960 - 1970

until 1940

1940 - 1960

5

Interesting increases were also found as concerns investments in R&D technology on biotech platforms for a total of E 1.3 billion (+17% with respect to 2006 data) that forecast further growth in 2008. These signals reflect a strong vocation to R&D by the elite of the “Healthcare” companies in Italy accredited in our report. It would be appropriate to supplement the foregoing figures with data on the overall volumes of investments in R&D (and thus not just limited to biotech activities). In 2007 the 190 healthcare companies accredited by Blossom & Company made investments in research, development and clinical trialling for over E 2,476 million. However, such data are strongly influenced by the value of investments made by companies with a pharmaceutical origin, especially the 60 local and multinational pharmaceutical companies, which are primarily responsible for clinical 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-year growth. Moreover, these results also reflect a growing structural maturity 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 companies reached a figure of E 4,129 million. As such it constitutes a major growth and a demonstration of the constant trend underlying the strategic policy that now also drives the structural growth of companies investing in innovative R&D in Italy (+36%).

18

29 30 25

9

1971 - 1975

6

9

1960 - 1970

21 12

14

17

2005 - 2008

2001 - 2004

1996 - 2000

1991 - 1995

1986 - 1990

1981 - 1985

1976 - 1980

2

1940 - 1960

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

Number of medium-sized companies accredited in Italy: temporal growth

until 1940

However, the dimensional analysis highlights considerable differences in terms of the maturity and sustainability of the business operations of healthcare companies investing in innovative R&D in Italy. Thus if, on the one hand, the overall level of operating income would seem to indicate that the sector has grown beyond its first development stage, on the other, it indicates that we should first distinguish between the three size-determined “development models” that ideally comprise the entire sample of the accredited biotech companies considered in this analysis.

Source: Blossom & Company - CrESIT (2009)

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

Number of small companies accredited in Italy: temporal growth 126

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

2

5

6

1971 - 1975

1976 - 1980

1981 - 1985

1991 - 1995

2

1986 - 1990

2

1960 - 1970

1

1996 - 2000

29

20

1940 - 1960

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

47

until 1940

A more in-depth analysis reveals that 79% of the total number of 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, masks an incidence of specialised R&D personnel that is much higher than that found in the other two categories (29% of all employees against 19% found in medium-sized and large companies).

92

2005 - 2008

> 77% (equivalent to 5,914 human resources dedicated R&D activities) refers to 59 pharmaceutical companies and global companies;

2001 - 2004

However, we can break this figure down into two sub-categories on the basis of the methodological approach indicated in this Report:

Source: Blossom & Company - CrESIT (2009)

Blossom & Company

2009

19

The Italian biotechnological industry is, by and large, a recent development. 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 or later. The particularly intense development that the biotech industry has been experiencing since the start of the new millennium is also reflected in the constant growth in the number of companies accredited 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 on local and international markets. Moreover, alongside these companies there is a group of companies with a long R&D history and tradition. 8 companies were founded prior to beginning of the 1940s, and 46 between the 1940s and the 1960s. These are national and multinational companies that were able to consolidate their market positions by developing projects, products and technologies that, although recognised and appreciated internationally, are rarely perceived as Italian successes.

20

The art of business innovation differs from country to country

Strategic Advis or y in H ealthcare & Biotech C orporate Finance C enter for BioE ntrepreneurs

blossomcompany.com

Biotech Trials: information sheet Therapeutic pipeline The research and development carried out in Italy within the framework of pharmaceutical applications is producing a significant pipeline of products at various stages of development. In Italy, there are altogether 209 products at the preclinical and clinical development stage that are the result of research by 48 companies. 73 of these products are in the preclinical development phase, while 136 are already in their clinical phase (Phases I-II-III). Specifically, 26 are in Phase I, 55 in Phase II, and 55 in Phase III. Moreover, Italian research has more than 49 projects at an advanced research stage (hereinafter termed discovery), which constitute any interesting promise for the sector in upcoming years. If we take account of the latter, the total number of products and/or projects reaches 258. Most of the foregoing products entered the present development phase in the course of the last three years (2006-2008).

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

Classification of the number of products and projects by therapeutic area and development phase (*) V

Discovery Preclinic Clinic

P R S J H G B M

Breakdown of the number of products and projects by development phase

A C D N L 10

20

30

40

50

60

70

80

90

100

Source: Blossom & Company - Assobiotec (2009)

Discovery

49

Preclinical

73

Phase I

26

Phase II

55

Phase III TOTAL

Examining the foregoing products by type, we find a strong predominance of the so-called small molecule drugs (48%), followed by therapeutic proteins and monoclonal antibodies (both 12%) as well as peptides (7%). Source: Blossom & Company Assobiotec (2009)

55 258

If we consider all R&D activities, (therefore including molecules at the discovery phase), our analysis reveals a major orientation of overall investments in the areas of antineoplastics and immune modulators (36%), central nervous system (14%), dermatology (7%) and cardiovascular (6%). The foregoing data appear even more significant if account is taken of the fact that only products and projects produced by Italian R&D were considered. However, the data also include those produced by the research centres of multinational companies operating in our territory if the research carried out on the products/projects was principally conducted in Italy. Global data illustrate the Italian biotech industry’s investment capacity in research, which in recent years has recorded an increasingly greater capacity to produce value, as demonstrated by the large number of products under development (209). As concerns the classification of the products under development, these can be divided into 14 therapeutic areas, among which the following areas standout for their critical mass: antineoplastics and immune modulators (38%), the central nervous system (12%), dermatology and cardiovascular (both 7%).

22

Altogether biotechnological drugs or biopharmaceuticals represent about 30% of the total products under development according to the definition that includes: therapeutic recombinant proteins, products based on monoclonal antibodies used “in vivo” for medical purposes, and medicines based on nucleic acid and cell therapy technologies. By combining the analysis of the products by technology and therapeutic area, we also find a strong deployment of small molecules in the oncological (14% of the total) and neurological fields (11%), followed by the use of monoclonal antibodies, once again in the oncological field (7%).

Breakdown of the number of products and projects by technology 11%

Small molecules Recombinant proteins Monoclonal Antibodies Peptides Natural products Cell Therapy Gene Therapy Vaccines Other

1% 1% 3% 5%

48%

7%

12%

12%

Source: Blossom & Company - Assobiotec (2009)

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

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

Own research In-licensing Transfer from parent company Co-development

P R S J H G

Diagnostic pipeline The data collected for 2008 should be regarded as partial insofar as they are based upon the R&D activities conducted, in our country, by a number of Italian start-ups (5) that answered our survey. The overall pipeline obtained refers to 14 diagnostic products under development that belong to the oncological (71%), haematological (21%) and genito-urinary system/sexual hormone (7%) areas. As concerns the technologies used, there is a clear predominance of the use of peptides (57%) and antibodies (14%), and overall more than 70% of the projects are covered by at least one patent. These products mainly originate from in-licensing operations (57%) and in-house research (43%). No co-development projects have been reported.

B M

Technology pipeline

A C

There are 63 innovative technologies being studied in Italy that require the use of biotech methodologies. They are the outcome of the activities of 26 companies, which, for the most part, are Italian.

D N L 10

20

30

40

50

60

70

80

90

100

Source: Blossom & Company - Assobiotec (2009)

The values associated with the level of innovativeness of the Italian system are very interesting. 76% of the products and projects examined fall into the “first in the class” category, while 20% of cases are classified as “Me too better”, and the remaining 3% as “Me too”. 40 of the 209 products under development have received “orphan drug designation” (2 from the FDA, 7 from the EMEA and 31 from both the EMEA and the FDA). These are mainly products with therapeutic applications in the oncological field and which are already at a very advanced stage of clinical development. These products derive from the R&D activities of 15 companies, of which one third are Italian-owned. Overall, 90% of the projects and products being studied in Italy have been granted at least one patent. The highest levels of 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 pipeline of therapeutic products, are also generating a pipeline in the diagnostic and technological fields.

The areas of application appear to differ considerably, but the areas of pharmacological screening (35%) and pharmacological preparation improvement (13%) are prevalent. The technologies being studied mainly derive from in-house research by individual companies (84% of cases) or from cooperation projects (10%), and only marginally from in-licensing acquisitions (6%). Moreover, it appears that close to half of the technologies under development have been patented. This is in line with the growing awareness of the necessity of this instrument by Italian industry if it is to leverage and safeguard the results of proprietary research. In absolute terms, the largest number of technological projects was begun in the last three year period (2005-2008). A more in-depth analysis allows us to detect a certain cyclical trend in the number of projects started every year.

Classification of the number of new projects started by year 20

15

10

5 (*) Therapeutic Areas A, Gastroenterology and metabolic diseases; B, Hematology and hemopoietic organs; C, Cardiovascular; D, Dermatology; G, Urology and reproductive organs and hormones; H, Hormones (sex hormones excluded); J, Systemic antimicrobials; L, Antineoplastics and immunomodulators; M, Bone/Muscles; N, Neurology; P, Antiparasitics; R, Respiratory; S, Sensory organs; V, Others.

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 with a financial infrastructure able to mobilise important financial private and public resources; > a plentiful supply of qualified human capital and the necessary sector suppliers; > experimentation with innovative institutional solutions through forms of coordination and cooperation between companies and 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, whose benefits include raising funds and attracting foreign companies; > the sharing of a long-term strategic vision and arrangements to pursue it. 36

For all of these reasons, it can be said that Scottish biotechnology constitutes an interesting reference parameter for Italy where regional basins are developing (Lombardy, Tuscany, ...) and being configured as a number of micro clusters. In particular, the interesting Scottish institutional arrangements aimed at promoting the entire system and sustaining it with very incisive actions in terms of territorial marketing and fund raising, represent an important benchmark for the Italian system. On the other hand, the Scottish biotechnology system is looking with great interest at Italy, perceived as an industry of growing importance. For a number of years, the Scottish biotech cluster has been expressing a keen interest in international cooperation, as demonstrated by the recent cases of the Korea Health Industry Development Institute, which invested £ 18 million Glasgow, and the US company Inverness Medical Innovations, which invested £ 6 million in R&D and plans to invest 55 in the Stirling area for production and marketing activities. Similarly, a by-now significant number of Scottish companies operating in the life sciences are carrying out investments abroad.

The Scottish biotech belt: Five cities, 20 scientific parks

Blossom & Company

2009

37

Venture capital, boosts Italian start ups Andrea Mesutti, Sullivan & Worcester LLP - Boston, Massachusetts USA

The Venture Capital was originally founded by George Doriot immediately after the end of World War II, who was a Professor at Harvard Business School. He founded ARDC which invested 70,000 dollars in Digital Equipment Corporation who entered into the stock market in 1968. At that time the shares in Digital in ARDC were valued at over 355 million dollars. The trend of American Venture Capital transactions is currently feeling the effects of the global financial crisis. Nevertheless, the volume of investment and number of deals going through is unprecedented The year 2008 finished up with 3808 concluded transactions and over 28 billion dollars invested. The majority of this took place in Silicon Valley with investments more than 1 billion dollars, representing around 36% of the national total. The East coast of the United States with Massachusetts and, more generally, the regions of New England came a close second, where the Venture Capitalists invested over 700 million dollars for a national market share of around 13.5%. In terms of size of investment, around 29% of the investments carried out at national level were placed in the seed and early stage venture capital, of which almost 50% were located in the aforementioned geographical areas. In terms of the industry, biotechnology and software are practically joint top, with over one billion dollars of investment and with a market share of 19% in each sector. More specifically, the biotechnology market in New England attracted around 23% of investments with over 220 million dollars invested, immediately after Silicon Valley with a share of around 30% of the investments made1. The figures for the American Venture Capital market must not however 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 a Venture Capital transaction is a demanding initiative which require resources, time, energy and especially professionalism in as much as the sector is extremely competitive and these Venture Capitalists are more than just specialists in choosing their investments. So, what does creating a Venture Capital transaction in the United States entail; especially for a foreign company or businessman? First and foremost, it means fully understanding the market in which you will be operating. Once a Venture Capitalist decides to invest, he will issue a Term Sheet to the founding members of the company, this is the document which briefly gives an in-depth summary of the economic and legal extremes of the transaction. Of utmost importance, not only for the imminent admission of the investor, but also for the future development of the company, is the section on the term sheet entitled Capitalization Table (also known as cap table); that is the economic outline (but with substantial legal consequences) which highlights how the share capital of the start-up will be divided up among the founding member(s) and the investor(s).

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

38

Venture Capitalists rarely support common stocks in investments. They generally subscribe to preferred stock which characterise their own advantages among which, liquidation preference rights, specific voting rights in meetings or rather within the Board of Directors, rights to share in the most advantageous profits compared to those responsible for the founding members or rather the rights to favour other partners in reimbursing the capital invested into the 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 of the capital for the investor in the event of exit etc.) is explained and summarised in the sections of the Cap Table. In other words, a check and balance system between the founder, the Venture Capitalist and management. The importance of understanding the value and how the Cap Table is used right from the outset has a direct link to the success of the business of a company and of the entrepreneur himself. The thought processes and negotiations that go into the Cap Table are however based on the valuation of the company. The Venture Capitalists invest in companies which generally do not have revenues (or very small revenues). Venture Capitalists invest in ideas which may be patented. So, when an investor says he has bought shares for a value of 2 million dollars equal to 33% of the company, what does it mean? Pre-money valuation. In other words, what would the company be worth without financial intervention. How can the value of a company be calculated pre-financing? The Capitalization Table and value of a company before and after financing are some, but not the only important aspects of a Venture Capital transaction. In fact, these concepts must be coordinated with an efficient system of corporate governance which, on the one hand, leaves the 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 intends to use when his investment matures must be forecast. Everything indicated above is wrapped up in the investment package which over and above the term sheet, is made up of the Stock Purchase Agreement, from the Certificate of Incorporation, the Investor Right Agreement, the Right of First Refusal and Cosale Agreement and finally the Voting Agreement (in the United States the norm is to divide up what could be included in a shareholders’ agreement voting pact and investment agreement into several documents). Other than the legal and business aspects, the tax elements of the transaction are also checked, especially if the founders are not American citizens or permanent residents in the United States, or if an industrial patent needs to be transferred from an individual to a company. The figures quoted at the beginning of the document give an idea of the sheer size of the American Venture Capital market, despite the current dip caused by the international economic boom. Nevertheless, the fact remains that the transactions in this field have specific legal, tax, economic and strategic characteristics which make them difficult to manage and succeed without a specialist team which supports 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 the resources and implementing the possible development scenarios for the post-financing company and post-venture capitalist. Blossom & Company

2009

39

Biotech faces a challenging year 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 easy access to cheap capital, the “rules of the game” changed with the permanent restructuring of the capital markets making access to capital more difficult and expensive. The biotech industry closed its books on a year that saw the Burrill Biotech Select Index, a priceweighted index tracking 20 of biotech’s “blue chip” companies, drop 9.4 percent in value. In normal times this would be seen as a poor performance but the events in the financial markets during the last four months of 2008 made it anything but “business as usual”. The year will be remembered for a very long time not only for the wild swings in the Dow and other major global financial indices – the industry has experienced several market meltdowns in the past and lived to tell the tale – but also for how it has and will continue to impact for the foreseeable future the flow of much needed capital into the sector. Finance has been the industry’s umbilical cord for the past forty-plus years… the implosion of financial institutions severed this cord and, as a result, it has left many emerging private and public global biotech companies on “life support”. There was a clear pattern evolving for these companies in the final quarter of the year. In response to the economic conditions companies began to shrink to conserve cash and extend their runway - unfortunately, headcount remained their biggest expenditure, and as a result of the negative capital markets, many programs have been put “in the refrigerator” until market conditions improve, and key management, scientific and sales staff have been laid off. Even more dramatic evidence of the industry’s response to the financial crisis has been the fact that among the 600 global publicly-listed biotechnology companies tracked by the Burrill Report2 almost 60 percent saw their market cap fall to well below $100 million. In addition, The Burrill Report identified over 100 North American public and private biotech/life sciences/pharma companies, that announced a corporate restructuring in Q4 ’08.

The Burrill Small Cap Biotech Index and the Burrill Mid Cap Biotech Index dropped 29 percent (down 43 percent in 2008) and 22 percent (down 31 percent in 2008) respectively in the final quarter of the year. These dramatic drops in value came even after factoring in what was a relatively strong performance for these companies in the final month of the year, with the Burrill Small Cap Biotech Index gaining almost 8 percent and the Burrill Mid Cap Biotech Index gaining 1.6 percent. The more mature and blue chip biotech companies have so far weathered the period quite well and will continue to do so going forward since they have plenty of cash, product revenue streams, strong pipelines and big pharma partners. Investors have viewed these large cap companies as safe havens, which is why the 10 percent drop in the Burrill Biotech Select Index, during 2008 can be viewed in a positive light when set in context of the Dow falling 35 percent and the NASDAQ falling 42 percent in the same 12 month period. The performance of the various biotech indices reflect the realities that investors still have faith in the blue-chip biotechs but are staying well away from the more risky emerging biotech companies [see Table 1]. Big pharma companies were traditionally seen as safe havens in periods of uncertainty and recession but stricter regulation, impending patent expirations of blockbuster drugs with no new ones in the pipeline, increased pressure to lower prices and more intense generic competition caused investors to move into biotechs. Reflecting this changing sentiment was the fact that the Amex Pharmaceutical Index fell almost 20 percent in 2008. The worldwide financing environment in 2009 will be extremely challenging. Capital markets around the world will certainly remain turbulent during the first half of 2009 although there will be an “uptick” in biotech’s fortunes around the JP Morgan Healthcare Conference in early January.

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

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

analysts’ expectations. By year end, the Burrill Biotech Select Index will again outperform the general markets and the DJIA and Nasdaq.

Table 1: US Biotech Indices Index Burrill Biotech Select Burrill Large Cap Biotech Burrill Mid-Cap Burrill Small Cap Burrill Genomics Burrill AgBio Burrill Industrial Burrill Diagnostic Burrill Nutraceutical NASDAQ DJIA Russell 2000 Amex Biotech Amex Pharma

12/31 2007 331.52 437.71 201.89 137.6 104.29 198.83 158.66 159.43 593.04 2652.28 13264.82 766.03 786.5 338.52

9/30 2008 331.93 437.48 178.93 110.29 84.99 154.12 139.88 171.38 503.82 2082.33 10850.74 679.58 784.06 292.48

Biotech financing Financings and partnering deals collectively brought in $30 billion for US companies in 2008 with over $10 billion through financings and $20 billion in partnering capital. The 32 percent drop in funds raised in 2008 compared to 2007 was certainly reflective of the market conditions and the lower valuations of public companies in general and you have to go back to 1998 to find a smaller financing amount raised by the industry. In terms of biotech IPOs, 2008 was one of biotech’s worst in history with only one completed - Bioheart - raising about $6 million. Except for venture capital deals, which remained healthy for the year, generating $1 billion each quarter, all other forms of financing fell compared to the comparative 2007 figures. [see Table 2] Partnering on a tear in Q4 Balancing out the low financings total was the whopping $10 billion total in partnership deals in Q4’08. Contributing to this total were two potential billion dollar deals in the quarter including a potential $1.4 billion worldwide strategic alliance

11/28 2008 274.83 350.70 137.20 72.61 57.29 134.73 110.26 129.83 337.29 1535.57 8829.04 473.14 595.98 254.95

12/31 2008 300.33 379.70 139.39 78.35 59.69 127.72 106.12 138.30 369.24 1577.03 8776.39 499.95 647.15 272.84

% change Month 9.28% 8.27% 1.60% 7.91% 4.19% – 5.20% – 3.75% 6.52% 9.47% 2.70% – 0.60% 5.67% 8.59% 7.02%

% change Qtr – 9.52% – 13.21% – 22.10% – 28.96% – 29.77% – 17.13% – 24.13% – 19.30% – 26.71% – 24.27% – 19.12% – 26.43% – 17.46% – 6.71%

% change Year – 9.41% – 13.25% – 30.96% – 43.06% – 42.77% – 35.76% – 33.11% – 13.25% – 37.74% – 40.54% – 33.84% – 34.73% – 17.72% – 19.40%

between Archemix Corp. and GlaxoSmithKline covering aptamer therapeutics to treat inflammatory diseases, such as rheumatoid arthritis and inflammatory bowel disease. Archemix will receive $27.5 million in upfront payments from GSK, including a $6.5 million equity investment. Archemix could also be eligible to receive up to $200 million in development, regulatory and sales milestone payments for each of the seven aptamer therapeutics, which may be discovered and developed as part of the alliance. Osiris Therapeutics could potentially receive up to $1.25 billion under a stem cell treatment development and sales deal with Genzyme Corp. Under the deal, Genzyme made an upfront $130 million payment to Osiris for rights to the company’s developing Prochymal and Chondrogen treatments. Prochymal is currently in a late-stage study as a possible treatment for graft vs. host disease, a side effect of a bone marrow transplant. It is also in late-stage development for Crohn’s Disease.

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Table 2: US Biotech Financings 2008 PUBLIC IPO Followons PIPEs Debt PRIVATE VC Other Total Financing Partnering Total

2005

2006

2007

Q1 ’08

Q2 ’08

Q3 ’08

Q4 ’08

Total

$ 819 $ 4,194 $ 2,376 $ 5,565

$ 920 $ 5,766 $ 2,027 $ 13,978

2,041 6,311 1,618 6,749

$6 $ 701 $ 370 $ 1,622

$0 $ 312 $ 203 $ 360

$0 $ 693 $ 308 $ 408

$0 $ 20 $ 197 $ 434

$6 $ 1726 $ 1078 $ 2824

$ 3,518 $ 1,114

$ 4,236 $ 425

$ 4,425 $ 611

$ 837 $ 20

$ 1,007 $ 226

$ 1085 $ 20

$ 1246 $ 28

$ 4175 $ 294

$ 17,586 $ 17,268 $ 34,854

$ 27,352 $ 19,796 $ 47,148

$ 21,975 $ 22,365 $ 44,340

$ 3,556 $ 3,091 $ 6,647

$ 2,108 $ 4,141 $ 6,249

$ 2,514 $ 2,962 $ 5,476

$ 1,925 $ 9,829 $ 11,754

$ 10,103 $ 20,023 $ 30,126

$ $ $ $

What’s ahead for the industry? The large universe of small public companies, and private companies in the US and Europe looking for new capital to fund their operations will face an extremely challenging 12 months as they try to find ways to extend their runway and stretch out the funds that they have remaining. Many will be forced to combine for survival and focus on the one key program between them that has the greatest opportunity 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 will be into public shells or ‘burnout’ companies, that have seen their product fail, but still with cash in which the mergee believes that this vehicle will increase their funding options and provide a pathway to liquidity for their venture capital/private equity investors. If not restructuring, biotech companies will be acquired at bargain basement prices. Big pharma and big biotech will certainly take full advantage of the fragile global economy to buy assets at a discount. These companies will have the luxury of sitting back and waiting for the right opportunity and then acquire biotech companies at what represents 1990 prices. When the markets do return in early 2010 we will see a very different industry than exists today. The industry will consolidate in 2009 and the number of functioning public companies will be reduced through mergers and acquisitions and bankruptcies. There will be also be several marquee acquisitions of biotech companies by big pharma with Roche finally consummating its acquisition of Genentech.

Both big pharma and big biotech will continue to compete for companies with advanced product pipelines, as well as important land grabs of technology. There will also be new players competing for technologies – such as major medical devices and instrumentation companies. Other significant events that we see on the horizon are: > Partnering deal making will remain robust, although expect to see more spin-outs and “newcos” build around technology platforms and product franchises rather than the usual model of “upfront” and milestone payments. The emphasis will be towards later stage product partnerships. > There will be a clean tech boom in non-food crops. In 2009, President Obama will encourage major investments in solar power, wind power, and next generation biofuels. Clean technology companies will attract financing in record amounts. > Ag/Animal Health will also see an increase in interest and funding - driven by the world food crisis. > Internationally, China, India and other economies will continue to finance biotech companies. The global nature of biotech will put pressure on the US to maintain its dominance and we will see increasing evidence of other jurisdictions taking the lead in some technologies and business sectors. > Biotech clusters will be redefined away from geography to more virtual build globally around diseases, pathways, markets, and unique industry segments. In response, business models will continue to evolve more virtually. Overall, it will be a very tough year for the industry. Companies will be restructuring and refocusing as they try to come to terms with the sea change that is occurring in the industry.

[A detailed analysis and perspectives on the performance of the industry in 2008 and projections for 2009 and beyond are published in Biotech 2009-Life Sciences: Navigating the Sea Change - the 23rd annual report on the life sciences industry, available in January. Details: www.burrillandco.com/resources] 42

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

Mauro Brunelli, Andrea Stoffella Mittel Corporate Finance

Italy, according to the latest report by the European Private Equity and Venture Capital Association (EVCA), is a “fading country”. EVCA’s report, drawn up in cooperation with KPMG, is a comparative analysis of the different tax and legal frameworks in leading European countries. The clusters identified range from such “leader” countries as France, Ireland, Belgium and Great Britain, to successful reformer countries such as Greece, Spain and Portugal and Central and East European countries, where institutional investors are practically non-existent, with the exception of Hungary and Poland where effective policies offering incentives to new entrepreneurial initiatives have been adopted. In the latest classification, whose first edition goes back to 2003, Italy dropped from the 5th position assigned to it 4 years ago to 18th. In actual fact, our country has never been a territory very favourable to institutional investors on account of the many constraints and limitation of its fiscal and company-law systems. Our legal framework has often discouraged the influx of capital from abroad, but, more importantly, it has penalised small and medium-sized companies, especially vis à vis countries regarded as leaders. With respect to such countries, Italy has no tax incentive scheme to sustain fledgling, innovative companies, and absolutely no specific tax rate to assist small and medium-sized enterprises in general. Furthermore, as concerns research, and notwithstanding some significant steps made in the adoption of tax concessions for companies investing in R&D, especially those cooperating with universities and public research organisations, no facilities or incentives are provided for the so-called “technology transfers” or for new, innovative spin-outs. Most of Europe, instead, not only adopts decidedly more interesting tax incentives than our own but also, as in the case of France, Ireland and Great Britain, goes one step further in attempting to help develop companies by teaching new entrepreneurs how “to do business”. In the course of its development, a company after being set up, develops, grows, and maybe also becomes international but in every step on its life-cycle it has to familiarise itself with different “travelling companions”. In their first years of life the Business Angels and the universities enable an entrepreneurial idea to take flesh.

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However, before these initiatives reach a dimension that may be deemed interesting for the more traditional investors (such as private equity funds) our innovative company must pass through what is called the “Valley of Death”, which hinders the so-called technological transfer, or more simply, prevents a good entrepreneurial idea from developing into a real business venture. The entrepreneurial idea that manages to overcome the obstacles of the start-up phase will then find itself with growing financial needs but the funds that could meet such needs are characterised by investment-selection criteria that are financial not technological. If a new investor attempting to profit from his investment is not convinced that 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 market for new companies, it is also necessary to develop the demand side of funding and help new companies attract investors. In other words, new companies must develop “investment readiness”. For an entrepreneur looking for new sources of finance and/or risk capital, negotiating with an investor means having the capacity to understand the latter’s specific needs, being able to satisfy these needs by introducing an appropriate structure and supplying the relevant information that can transmit the necessary credibility and trust. Some European countries have started specific “institutional” programmes to train new entrepreneurs in activities that are often considered secondary but which, instead, can be of vital importance for an investment decision by investors. By way of example, the drawing up of a business plan or the manner in which available information is presented constitutes activities that can determine the continuation of a company or, if conducted unprofessionally, its demise. In Ireland, the Ireland Development Agency (“IDA”) is specifically organised to provide tutoring to small and medium-sized companies, to which it assigns a “development adviser” who will work alongside them until their strategic objectives are reached. Other specialists are appointed to help companies produce business plans, build up teams and lay down rules for selecting and hiring personnel.

Enterprise Ireland, the government agency responsible for the development of new entrepreneurial initiatives, is the main body responsible for supporting all those entrepreneurs deemed to be high potential start Ups (“HPSU”) and providing them with a team of persons. If entrepreneurs do not meet the criteria laid down by Enterprise Ireland, they can, instead, turn to the support centres (County Enterprise Board – “CEBs”) set up by the Irish county councils, in association with the IDA, for all small and mediumsized innovating companies. While Ireland is, possibly, the most prestigious case of support for innovating companies it is not alone. Great Britain has the Greater London Enterprise (“GLE”), a company formed by 33 municipalities in the London area for the purpose of supporting innovative companies that are enlarging their horizons beyond national borders. In France we can cite the case of the association set up around the École Central de Paris: a vaguely lobby-like organisation insofar as reserved to ex-students of the school but, nevertheless, effective in promoting new companies. The models of the so-called investment readiness may, therefore, differ considerably within and between countries. In Spain, for example, there is the initiative of the Catalonia Development Agency while in Germany schemes are centred on the BANDacademy (Business Angels Netzwerk Deutschland). Although Italy has not adopted any of these models, considerable effort has been made in terms of providing funds thanks to various “early stage” initiatives provided in some regions such as Piedmont, Emilia-Romagna, Tuscany and Sardinia or through bank foundations. The first three of the foregoing regions, in 2007, set a reciprocal cooperation project in motion for research and technological transfer. In conclusion, the president of AIFI, the Italian Private Equity Venture Capital Association, has recently suggested that a national hi-tech fund should be instituted for the entire nation, along the lines of the high tech fund model for the South of Italy3, in order to promote investments throughout the entire national territory. And if this fund of funds has the power to impose a model of investment readiness to be coordinated at a national level, Italy might be able to re-align itself with the rest of the developed Europe.

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

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Blossom Venture Capital Screening 2009 Federica Bottazzi Managing Director Blossom & Company

The advisory work undertaken by Blossom & Company on behalf of an elite of innovative companies in Italy, together with our analyses of the industry, has brought to light features that underline the paradox of the Italian biotech industry. If, on the one hand, its strong propensity to self financing has slowed down the start-up of many companies, on the other hand, the capital structures that characterise its companies have today become one of their strong points, and to such a degree that companies with a solid business model or with important plans for the sustainable financing of their models, notwithstanding the constraints generated by the very serious international financial crisis, can still find a number of opportunities to finance their development. Blossom & company found that, currently, there are seven Italian companies that could be listed in the next five years. This number reflects the ferment in the Italian industry 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, apply to 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-sized companies). Another central role is played by programmes co-financed by the public sector (mainly functioning as seed and pre-seed money, otherwise virtually absent from the national financial market). 53% of the operations support smaller companies more exposed to enterprise risk and mainly take place through national 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 capitalisation operations of accredited companies, which also confirms that indigenous operators play a practically non-existant role in the domestic market. According to last year’s data, VC operators were found in 20% of cases. In conclusion, we also found that Business 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 aware that such operators are totally absent from the Italian market. Sources of finance of biotech companies in Italy (percentage data based on the biotech population) Shareholders’ capital contributions Programmes co-financed by the pubblic sector Banks Venture Capital / Private Equity Business Angels

81% 53% 32% 13% 3%

Source: Blossom & Company 2009

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

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In the absence of Italian venture capital, but more in general of high risk capital, the keys to the takeoff of biotechnologies in Italy are represented not only by public funding and a growing willingness to cooperate with international operators, but also by partnerships between start-ups and pharmaceutical companies. The latter, as also venture capital firms, are taking advantage of stock exchange depreciation, and looking for solid business models that would be listable in two/ three years, as well as listed biotech companies with P/E ratios below those of many start-ups. The screening carried out on the Italian companies to evaluate the most interesting targets in the sector, once again confirms that Italy is a more venture capital and private equity industry than a stock exchange industry insofar as companies must first grow, structure and consolidate their own business models, create an international network and a global vision, develop research, and only when their pipelines have reached a level able to forecast a two/three year 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

Expansion financing or development capital

Bridge financing

Replacement capital Cluster venture Turnaround MBO, LBO, MBI

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/service must be demonstrated. > start up financing, obtained at the commencement phases of operations when the commercial validity of the product/service is still unknown. Investment aimed at sustaining the development and growth of a company; the development of a business activity can be pursued through diversification (internal growth), the acquisition of companies or business units (external growth), or through cooperation with other companies (networking and clustering). Bridge financing refers to an advanced stage in a company’s development. It is characterised by the consolidation of the majority shareholders who acquire the minority stakes of shareholders intending to disinvest, and may also lead to public listing An investment aimed at reorganising the shareholding structure, whereby an institutional investor replaces one or more shareholders wishing to disinvest. Investment operations designed to group a number of independent companies together. Investment for the restructuring of lame-duck companies. 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 sector in Italy, and not only in the startup phase but also in their subsequent development, is represented by the difficulty of raising the capital needed to sustain the corporate process, is certainly not a novelty. Instead, the novelty in the eyes of Blossom & Company is based upon the conviction that the principles and methods of strategic planning applied to innovative companies in Italy can enable such companies to achieve a better understanding of their financial problems and the long-term sustainability of their business.

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Blossom & Company considers that if companies can develop their own approach to strategic planning, they can more easily identify those sources of financing that meet their needs best and reach stable relationships with financiers, whatever their specific characteristics. Blossom & Company believes that innovative Italian companies that invest in R&D and Bio-entrepreneurs must be put in a condition to present their projects in a way such that they can adopt the same criteria of potential investors and in this manner clarify the relationship between scientific and financial success. However, this is by no means easy. In this context, the preliminary advisory activities and the successive acquisition of financial resources through merchant banks, venture capital or private equity companies, as an intermediate stage towards public listing, are certainly an essential step to achieve the necessary acceleration. In this sector more than in any other, venture capital companies and specialised advisors are needed, because they are the only entities with the know-how appropriate for the management of risk and the managerial capacity to guide companies forward. On the other hand, a biotech company with a mainly phase 1 or 2 pipeline, without access to capital injections, know-how or the network or alternatively with its shares already quoted on the stock exchange would be too great a risk for any operator. Venture capitalist investments enable companies to survive for a period of between 18 to 24 months prior to reaching a well-defined milestone that will successively enable another round of investments to be made and thereby guarantee capital gains for the investor. And the investments in question, albeit relatively modest, will be repeated over time. However, the high risk characterising the sector and the high failure rate of projects make it difficult to plan returns on investments. This, consequently, gives rise to the need to parcel investments out. The ideal solution for many innovative Italian companies with an excellent pipeline, although still in a preliminary phase, would be to find a specialised venture capital network, advisor and specialised investors who believe in and can assist the develop of the project by providing the skills, networking and capital flows necessary for accelerating the pipeline’s development. In our advisory capacity on behalf of an elite of innovative companies together with our in-depth knowledge of the industry's dynamics, we can confirm that the best innovative companies go out of their way to bring distinct internal skills into line with the external competitive environment, in terms of the unexpressed needs in various markets (nice-to-have, need-to-have, essential-tosurvive).

Geographical distribution of Specialised European Investors Austria

1%

Denmark

1%

Belgium

7%

France

United Kingdom

13%

27%

Germany

15%

Switzerland

15%

Ireland Sweden

7%

7%

Netherlands

7%

Source: Blossom & Company (2009)

Type of Financing - Specialised European Investors

Shareholders loans Other

4%

17%

Debt

Investment in Third party found

6%

4%

Majority Equity

15%

Minority Equity

42%

Mezzanine

12%

Source: Blossom & Company (2009)

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The empirical evaluations made on a large international sample nevertheless allow us to confirm that the credo commonly expressed by the scientific community is not always reflected in the criteria used by potential investors in evaluating the profitability, sustainability and risk profiles of the various opportunities presented to them: “Innovation by itself, is, rarely a source of sustainable competitive advantage”. Blossom & Company are constantly screening European international investors and, in the course of recent years, has found a growing interest in Italy as regards possible operations by banks, corporate ventures, financial institutions, independent investors on equities, funds of funds and nonprofit foundations. 82% of the sample of 166 chosen investors declared themselves to be specialised in biotechnologies and 55% were very interested in evaluating investment opportunities in the Italian biotech market. Although the data reveal a strong concentration of factors for the development of the biotechnological system and life sciences in Italy, the country is still unable to export examples of success that enjoy worldwide recognition as Italian successes, despite the fact that the international community recognises the talents of the exporting companies and the global vision of the sector for its academic and industrial research. The nations with the highest presence of investors potentially interested in investment opportunities in biotech companies situated in Italy are the UK (27%), Switzerland and Germany (15%) followed by France (15%), Switzerland and Ireland and Holland (7%). The classic form of investment, despite recording a strong decline in 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 financing including long-term loans (6%), shareholders’ loans (17%) and mezzanine loans (12%), although the latter is usually seen as pre-IPO bridge financing. 43% of the sample of 166 selected investors also declared themselves specialised in nanotechnologies, and 58% of these were strongly interested in evaluating investment opportunities in the Italian market. 53% of the 40% of the sample interested in the agro-food sector was interested in evaluating investment opportunities in the Italian market. 63% of the 46% of the sample interested in the environmental sector, was interested in evaluating investment opportunities in the Italian market and 59% of the 76% of the sample interested in the energy sector was interested in evaluating investment opportunities in the Italian market. The medical section was also a source of great attention on the part of 90% of potential investors in this area, of which 45% were interested in evaluating in investment opportunities within the Italian market.

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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 according to 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 biological products and the technologies used to develop them is only a marginal activity. “Born Biotech” companies can be differentiated in terms of their product, drug agent and biotech platform but they all have one trait in common: the percentage of 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 operating over the entire value chain of the pharmaceutical sector - R&D and the production and marketing of biotechnological and traditional products. Their reference is the end user, and hence they cover both the primary care4 and secondary care segments5. These companies have demonstrated their ability to utilise the returns on the sale of exploitation rights of their findings order to integrate themselves vertically. This gives them the ability to reach the enduser market directly, an indispensable strategy if the stable cash flow necessary to sustain R&D processes is to be guaranteed. A further segmentation applied to pharma biotech companies, is based on the ratio of 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 company is “biotech oriented”, while if the ratio InvB/Inv ranges from 2% to 40% the company is pharma oriented. Therefore, not only companies that conduct R&D based on traditional technologies but also companies whose core business is geared towards the production or marketing of biotechnological products have been excluded from the list of companies prepared 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 significant novelty by choosing some science and technology parks that, on the basis of a selective 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 regulatory know-how of international importance; > a strong propensity to sustain, manage and promote technological transfer internationally; > a strong propensity to sustain and promote ties with Big Pharma, biotech companies, professional and managerial service companies investors, universities, research centres, hospitals and clinics orientated to research and experimentation at a national and international level; > the presence of structures, technologies and highly qualified researchers and personnel. Universities. We have identified and analysed the main universities exhibiting a strong propensity towards the leveraging of their know-how and which over time have been able to sustain and successfully bring about the spin-off of at least one or more of the biotech companies that meet the foregoing requisites and in which they have shareholdings.

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. 4

This is the pharmaceutical market segment that comprises products whose administration requires hospitals and specialised medical personnel. 5

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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/service suppliers that offer products and services with marginal added-value and which can be broken down into companies offering biotech services and biotech commodities. Biotech service companies make ICT skills available and provide assistance for the activities of biotech companies involved in R&D processes. Their principal services refer to the gathering of information from public or private databases, the implementation of IT systems for data management and support for laboratory and marketing activities. Biotech commodity companies are involved in the production and sale of the products used in R&D processes. As concerns their positioning in the value chain, both cover the entire range of activities, and adopt business models with a low yield/risk profile and a limited contribution in terms of innovation and value creation. This model is profoundly different from the business model typical of the biotech companies analysed within the framework of the Blossom & Company report. The use of this methodology does not allow us to estimate the aggregate value of all activities correlated to the industry, which is – as may be imaged – much greater 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 the associated tables. For the classification by size of the companies, reference was made to the Community definition of the company, which came into force on January 1st, 2005. It was introduced by recommendation 361 of 2003, and replaced 96/280/EC with an updated 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 the two figures is used); > medium-sized company refers to a company with fewer than 250 employees and an annual turnover of no more than 50 million euros or an annual budget of no more than 43 million euros; > large company refers to company with more than 250 employees and an annual turnover 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-pharmaceutical contexts 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 only are 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 develop treatment that otherwise would not be available. > Regenerative medicines that use the natural capacity of the human body to maintain and repair itself. Stem cells are an outstanding example. > Vaccines, in other words, organic substances that allow the organism to identify and subsequently fight infective diseases. 50

Environmental biotech companies (in some cases the term white biotech is still used) are concerned with the application of industrial processes and the safeguarding of the environment, which today are fast growing areas of activity. The biotechnologies are 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) in the agricultural field, is used to modify the genetic characteristics of vegetables in order to obtain products with specific characteristics such as tolerance to herbicides, protection from insects or bacteria and protection from adverse environmental conditions. In the field of food production, they can increase the quality and nutritional value of agricultural and animal products and improve the processing of foodstuffs. A further area of application at present undergoing development refers to the improvement in the safety level of foodstuffs in order to overcome the highly important problem of microbial contamination. Biotechnologies fight infections throughout the productive process in order to reduce the possibility of allergic reactions and identify possible dangerous microorganisms, toxins or pathogens. Biotech platforms refer to companies concerned with the development and marketing of hardware and software technologies to support R&D. Such technologies may be broken down into product and process technologies. Product technology platforms impact directly upon the intrinsic characteristics of a drug, such as its efficacy and safety, and upon its extrinsic characteristics, i.e. drug formulation and means of administration. The companies that provide technologies 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 discovery processes. In general, the time to market that characterises the different platforms is considerably different from that typical of companies oriented to the development of new drugs, i.e. born biotech or pharma biotech. Thus, in the case of these biotech companies 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.

Blossom & Company

2009

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Accrediting biotechnological companies Blossom & Company 2009 accreditation

Our method is essentially to consistently apply a single definition to the “Biotechnological Sector” throughout the entire study. Hence, Blossom & Company, in agreement with the Research Centre for Economy, Health, Innovation and the Territory (CrESIT) of Insubria University decided to adopt a single methodology in order to guarantee valid comparisons between national and international findings. An analysis of the main national and international studies showed that the different methods used often produce mutually incompatible and sometimes misleading analyses on account of the different objectives they pursue. Therefore, for the purpose of minimising the differences encountered, we dedicated our attention to the main methodologies used by the various international studies in order to extrapolate the best from each. Thanks to this work of analysis and cooperation, Blossom & Company is, today, a national and international reference point. The company can provide and present all the key data of the Italian sector according to specific requirements. Whenever it is necessary to modify some criteria of analysis, or enlarge or modify the objectives of our analysis, it can reclassify and re-analyse the data by providing the key data on the national sector while remaining faithful to the underlying principle based on the adoption of a single, reliable and accredited database.

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Consequently, in order to determine the sample of accredited Italian biotechnological companies Blossom & Company adopted an analytic selection criterion that lays down the following prerequisites for each company: > the legal body in question must be a company set up to create value and generate profit; > it must undertake research and development within the territory of Italy (albeit not on an exclusive or prevalent basis). > Its R&D activities must concern innovative technologies and products based on biotechnological type platforms, bearing mind that we have adopted the definition of biotechnology proposed by the Convention on Biological Diversity. In order to guarantee that the analysis is fully comprehensive and thus able to include the maximum possible number of companies that meet the foregoing requisites, a far-reaching and in-depth analysis was conducted throughout the national territory based upon the following approach: a) company identification. An initial identification of the set of companies complying with the minimum requisites was conducted, based upon a thoroughgoing, company-by-company analysis. Information was directly acquired on the companies within the ambit of official national / regional databank, ministerial web sites, agencies, universities, incubators, science parks, companies, etc. Subsequently, the research was supplemented by an analysis of chamber of commerce records and financial statements. And, in conclusion, a final verification was conducted based on direct contacts with companies.

b) company selection. The selection of the companies was the most complex phase as it called for special attention in assessing whether companies met the methodological requisites Blossom & Company had formulated. An initial selection of the companies was made by gathering information from the financial statements of the individual companies, acquiring supplementary data on each single firm through qualitative questionnaires and then entering essential information on a database designed by Blossom & Company. Each company was later analysed for initial inclusion or exclusion according to its compliance with the requisites defined by a scientific committee made up of Blossom & Company and its partners. In order to guarantee the total independence and professionalism of our work, the final selection for definitive approval remained the prerogative of Blossom & Company, which, on the basis of all the information acquired, certified the companies that were to be included in the sector. c) data collection. The collection of the data on the financial statements was prepared by CrESIT on the basis of indications agreed upon with Blossom & Company. The data was collected by acquiring annual accounts and chamber of commerce records on the companies chosen and of all the principal documents referring to the industry, in line with the methodology of analysis proposed. The numerical evidence set forth in the Report is the product of statistical analyses by Blossom & Company and CrESIT on data and information from the following sources:

The data collection process was concluded on December 31st, 2008 The rigorous application of the methodology developed, and the independence and professionalism of Blossom & Company in their evaluation of individual cases, led to the exclusion of many companies, entities and actors that, in many cases, are included in several other studies and databases. However, in view of the importance of the work we cannot, a priori, exclude the possibility that companies or parks may have been overlooked that should have been included in the list of recognised companies. All companies that believe they meet the requisites indicated are requested to furnish all pertinent information for the forthcoming 2010 edition by requesting Blossom & Company [email protected] to issue them with the necessary form. Those companies, vice-versa, that are included among the recognised companies but consider they do not meet the requisites defined in the methodology may request removal from the list if they provide Blossom & Company with pertinent reasons and data. The 2010 accreditation process will begin on 1 September 2009 and terminate on 30 November 2009. For 2009 accreditation, please request a form from Blossom & Company and return it, duly filly out, to the following address: [email protected]

> financial statements and notes to the financial statements filed with chambers of commerce, for the years 2007, 2006, 2005, 2004, 2003 and 2002; > chamber of commerce records (both ordinary records and records on shareholding structure) produced in the period November - January 2007. Blossom & Company, Assobiotec and Farmindustria collected qualitative information from companies using a specially prepared questionnaire. The companies responded to the questionnaires in an exhaustive manner. In actual fact, the reply rate was well above the 10% figure obtained by the best international surveys (Harzing, 1997). In point of fact, the reply rate was around 65%.

Blossom & Company

2009

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BIOTECH COMPANIES MEETING THE BLOSSOM & COMPANY’S (2009) ACCREDITATION REQUISITES

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71

AB ANALITICA ABBOTT ABICH ABIOGEN PHARMA ACTYGEA ADALTIS ITALIA ADAMANTIO ADIENNE PHARMA&BIOTECH ADRIACELL ADVANCED ANALYTICAL TECHNOLOGIES AETHIA AGRIFUTUR AGRITEST AGROBIOS AGROLABO ALFA WASSERMANN ALIFAX ALPHAGENICS DIACO BIOTECHNOLOGIES ALSO BIOTECH AMBIOTEC AMGEN DOMPE' ANALISI & CONTROLLI ANALLERGO ANIDRAL APAVADIS BIOTECHNOLOGIES APULIABIOTECH ARETA INTERNATIONAL ASTRA ZENECA AVANTGARDE AXXAM BCS BIOTECH BGT ITALIA BIO & GEO BIO DEC BIO FLAG BIO HI-TECH BIO3 RESEARCH BIOAESIS BIOALLERGY INTERNATIONAL BIOANALISI CENTRO SUD BIOANALISI TRENTINA BIOANSWERS BIODIVERSITY BIOFARMA BIOFIN LABORATORIES BIOFUTURA BIOGEN-DOMPE' BIOGENETICS BIO-KER BIOMAN BIOMAT BIONUCLEON BIOPAINT BIO-RAD LABORATORIES BIOREP BIOSEARCH AMBIENTE BIOSENSOR TECHNOLOGIES BIOSILAB BIOSISTEMA BIOSPHERE BIOSTRANDS BIOSYNTH RESEARCH LABORATORIES BIOTECGEN BIOTECK BIOTEST ITALIA BIOTRACK BIOXELL BMR GENOMICS BOEHRINGER INGELHEIM ITALIA BOUTY BRACCO IMAGING

72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141

BRISTOL MYERS SQUIBB BSA AMBIENTE CAGE CHEMICALS CBM CCS AOSTA CEINGE BIOTECHNOLOGIES AVANZATE CELGENE CELL THERAPEUTICS EUROPE INC. CENTRO BIOTECNOLOGIE AVANZATE CHARLES RIVER LABORATORIES CHIESI FARMACEUTICI CLONIT COGEP COLOSSEUM COMBINATORIAL CHEMISTRY CENTER FOR TECHNOLOGY CONGENIA COSMO COSTANTINO CREABILIS THERAPEUTICS CTG PHARMA CUTECH CYANINE TECHNOLOGIES DAC DALTON BIOTECNOLOGIE DEGENE DEGUSSA TEXTURANT SYSTEMS ITALIA DIASORIN DIATECH DIATHEVA DIESSE DIAGNOSTICA SENESE DOMPE' FARMACEUTICI ECOBIOSERVICES AND RESEARCHES ECOTECHSYSTEMS ELI LILLY ITALIA EOS EPPENDORF ERATECH ESAOTE ESPIKEM ETNA BIOTECH EURAND EUROCLONE EUROSPITAL EXENIA GROUP EXPERTEAM DI DE BORTOLI EXPLORA EXTERNAUTICS FATRO FERTIREV FIDIA ADVANCED BIOPOLYMERS FLAMMA FOTOSINTETICA & MICROBIOLOGICA GENALTA GENEDIA GENESPIN GENEXTRA GENOVAX GENTIUM GENZYME GILEAD SCIENCES ITALIA GIO.ECO GNOSIS GREENLAB GRIFOLS ITALIA GUYA BIOSCIENCE HMG BIOTECH HO.p.e. IDRABEL IM3D INBIOS INCURA

142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210

INDENA INNOVATE BIOTECHNOLOGY INVENTO INVITROGEN IPSEN IRBM P.ANGELETTI ISAGRO ISB ISTA ISTITUTO DI RICERCHE BIOMEDICHE ANTOINE MARXER RBM ISTITUTO GANASSINI ITALFARMACO JANSSEN CILAG KEDRION KERYOS L MOLTENI & C DEI F.LLI ALITTI LAY LINE GENOMICS LEA BIOTECH LEAF BIOSCIENCE LIFELINELAB LORENZ BIOTECH MAC PHARMA MASTELLI MAVI SUD MBS MEDESTEA BIOTECH MEDITEKNOLOGY MENARINI BIOTECH MERCK SERONO MERISTEMA MILLIPORE MOLECULAR BIOTECHNOLOGY MOLECULAR STAMPING MOLMED N.T.I. (NATURAL TECHNOLOGIES ITALIA) NANOVECTOR NARVALUS NAXOSPHARMA NEED PHARMACEUTICALS NEMO LAB NERVIANO MEDICAL SCIENCES NEUROSCIENZE PHARMANESS NEURO-ZONE NEWRON PHARMACEUTICALS NEXA NEXTERA NGB GENETICS NICOX RESEARCH INSTITUTE NIKEM RESEARCH NOBIL BIO RICERCHE NOTOPHARM NOVARTIS FARMA NOVO NORDISK FARMACEUTICI NURAGING BIOTECH NUTRISEARCH NYCOMED ITALIA OFFICINA ERBORISTICA ANTICO MULINO DELL’ABBAZIA DI CHIARAVALLE PHARMESTE PHILOGEN PHYTOENGINEERING ITALIA PHYTOREMEDIAL PIONEER HI-BRED ITALIA PLANTECHNO POLIMED POLYMEKON PORTO CONTE RICERCHE PRIGEN PRIMM PRION DIAGNOSTICA

211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260

PROBIOTICAL PROGETTO NATURA PROTEIOS PROTEOGEN BIO PROTEOTECH PROTERA QUARTA & PARTNERS RE.D.D. RECORDATI INDUSTRIA CHIMICA E FARMACEUTICA ROCHE ROTTAPHARM S.A.F.AN. BIOINFORMATICS SACACE BIOTECHNOLOGIES SANOFI PASTEUR MSD SB TECHNOLOGY SCHERING-PLOUGH SEKMED SERVIER ITALIA SHAR.DNA SIENABIOTECH SIGEA SIGMA TAU SILICON BIOSYSTEMS SORIN SPA - SOCIETA' PRODOTTI ANTIBIOTICI SPIDER BIOTECH STEMGEN STILMAS SYNBIOTEC TAKEDA ITALIA FARMACEUTICI TALENT TARGET HEART BIOTEC TECAN ITALIA TECHNOBIOCHIP TECNA TECNOBIOMEDICA TECNOGEN TECTRONIK TIB MOLBIOL TISSUELAB TOP (TRANSGENIC OPERATIVE PRODUCTS) TOSCANA BIOMARKERS TRANSACTIVA UFPEPTIDES VETOGENE VIVABIOCELL WETWARE CONCEPTS WEZEN BIOPHARMACEUTICALS WYETH LEDERLE XEPTAGEN

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 (albeit not on an exclusive or prevalent basis). > the R&D activities must concern innovative technologies and products based on biotechnological type platforms, bearing mind that we have adopted the definition of biotechnology proposed by the Convention on Biological Diversity: Although extreme care was taken in the compilation of the foregoing list, it should be noted that it is not comprehensive and may contain omissions and errors, for which no liability can be accepted. Please notify Blossom & Company at [email protected] of any requests for amendments, supplementary information or cancellation, so that the most appropriate initiatives may be taken. Blossom & Company

2009

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The art of management innovation differs from industry to industry

Strategic Advis or y in H ealthcare & Biotech C orporate Finance C enter for BioE ntrepreneurs

blossomcompany.com

BIOTECHNOLOGY IN ITALY 2009 Sponsors

Welcome to the section dedicated to the leading companies that carry out investments in order to bolster their global vision and presence. As from 2009 we intend to introduce a section addressed to a few qualified companies, institutions, advisors and investors that believe in the potential represented by R&D in the health care and biotech operations being conducted in Italy and which are qualified to fulfil such an active role for the development of the industry. We are speaking about leading companies such as Amgen Dompé and Genzyme. Next to this page appears the main Italian technological park in the agro-food environment, the Parco Tecnologico Padano, with the Alimenta incubator, which, on an ongoing basis, chooses and supports innovative companies interested in establishing themselves on the national and international stage, and with which we have reached an agreement for the provision of professional services. We also refer to such important institutions as the Swiss Chamber of Commerce in Italy with which we have reached an agreement for the provision of professional services for Swiss companies interested in operating in the Italian market and the Commercial Office of the Israeli Embassy with which we have conducted intense promotional work for cooperation between Italian and Israeli companies. Last, but not least, we would like to welcome Traverso & Partners chartered accountants and auditors as well as Mittel Corporate Finance with which Blossom & Company has reached a cooperation agreement for advisory and fund raising activities in the life science sector.

Federica Bottazzi Managing Director [email protected]

The Swiss Chamber of Commerce in Italy and the Biotech sector

The Swiss Chamber of Commerce in Italy monitors with interest and attention the Biotech sector, which is gaining an increasing importance in Italy and Switzerland. The Biotech companies’ funding strategies have been the subject focus of a Conference organised by the Swiss Chamber of Commerce in Italy – Swiss Business Hub Italy about one year ago, in cooperation with the Italian association Assobiotec and the Swiss Biotech Association. The initiative examined the biotechnologies sector taking into account the Swiss and the Italian situation, and focused on investment attraction and funding strategies, with the contribution of Italian and Swiss well-known speakers, both companies and financial experts such as the Italian and the Swiss Exchange. The event had an audience of more than 150 Italian and Swiss entrepreneurs. Biotech means sectors where research is the keyword, strategic positioning at world level and strong growth trends, job opportunities for young researchers, high potentialities of synergy between innovative financial facilities and advanced technologies, cooperation opportunities between small companies and large groups. At the Swiss Chamber of Commerce in Italy we share this vision and we are very glad that the Italian Biotech Annual Report presentation will be held here at the Swiss Centre in Milan. We hope that this initiative will enhance the cooperation between the two countries. ALESSANDRA MODENESE KAUFFMANN Secretary general

The Chamber Founded in 1919, the Swiss Chamber of Commerce in Italy (CCSI) is active in the promotion of the development of trade and industrial relations between Switzerland and Italy, particularly focusing on Small and Medium sized Enterprises. CCSI has an extensive network of relations with major institutions and actors in the Italian and Swiss business and economic arena, such as Trade Associations, Chambers of Commerce, Consortia, Universities, Ministries and Diplomatic 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 officially recognised by the Ministero dello Sviluppo Economico (Italian Ministry of trade and industry). The Community Events and seminars, business lunches, meetings with important representatives of the economic and financial world 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]

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