02 September 2023

Increasing the attraction of foreign investment for the competitiveness of Italy. What strategy for the pharmaceutical industry

In 2022, Italy was the world’s 18th largest destination for foreign capital with 20 billion dollars, compared to Spain’s 35 billion dollars and France’s 36 billion dollars. To consolidate the country’s economic recovery in the medium- and long-term, a marked improvement in Italy’s ability to attract foreign investment is essential, especially in those key strategic sectors with high R&D intensity, significant multipliers of economic activity, skilled employment, and that produce goods and services with positive spillover effects on citizens’ quality of life, such as the pharmaceutical sector.

A study on this topic has been presented today during the 49th Cernobbio Forum: the White Book "Increasing the attraction of foreign investment for the competitiveness of Italy. What strategy for the pharmaceutical industry" was elaborated by The European House - Ambrosetti with the support of IAPG  (Italian American Pharmaceutical Group) and EUNIPHARMA  (European and Japanese Pharmaceutical Group Farmindustria) to measure, for the first time, the value generated by foreign-capital pharmaceutical companies for the socio-economic system.

“In all developed countries, the health sector is among the most important and dynamic. It is undergoing a significant wave of innovation in therapies and treatment methods. Italy must define a medium to long-term strategy aimed at providing high-quality services to users and positioning research and the industrial chain at the forefront of international standards,” says Daniele Franco, former Minister of Economy and Finance in the Draghi Government and spokesperson for the research. “Improving the regulatory framework is crucial to facilitating innovation in healthcare, enhancing research, attracting foreign investments, and supporting the growth processes of Italian businesses.”

In 2022, Italy achieved a pharmaceutical production value of more than 49 billion euros, a direct Value Added of 10.7 billion euros, rising to 34.4 considering the activated supplies and induced consumption, and total investment of 3.3 billion euros (1.4 in production facilities and 1.9 for R&D). Further distinguishing feature is the highly skilled workforce, with 54% of the employed holding a university degree (compared to 21% in the manufacturing industry) and female employment higher than other sectors, standing at 44%, compared to the 29% of the manufacturing average, and reaching 53% in R&D.

The sector, which already accounts for 2% of Italy's GDP, could generate further wealth and economic growth if a more favorable environment was created to increase foreign investment and support research and innovation in the sector. Among the manufacturing sectors, the pharmaceutical industry is the leading sector in terms of the weight of multinationals over the total companies considering Value Added (49.3%), exports (74.4%) and employment (50.4%). The pharmaceutical industry also holds leadership in terms of productivity (value added per employee is 145,000 euros) and wages (labor cost per employee is 79,000 euros).

Foreign-capital companies not only represent an important “window” of our country to the world considering international R&D, but also present some distinctive traits that make them a driving force and a strong stimulus for innovation, growth and competitiveness of the entire sector. With an incidence in terms of value of production of more than 60% and a high propensity to develop cutting-edge and transformative therapies for some of the most impactful diseases, the companies invest more than 90% of the country’s total investments in clinical research.

Specifically, the analysis of the White Paper shows that the pharmaceutical companies of the IAPG and EUNIPHARMA's network generate a significant value of production, amounting to 29.3 billion euros in 2022 (60% of the entire sector), growing at a faster pace with respect to benchmarks. Companies’ activities contribute to the country’s economic growth not only in a direct way but also by activating numerous economic value chains, through the purchase of goods and services – amounting to 5.7 billion in 2022 – from suppliers located in the national territory, in a setting of collaboration and mutual enhancement. In the past year, the total contribution (direct, indirect, and induced) of these companies to the country’s GDP was equal to 19.8 billion euros, which is more than 1% of the entire national GDP. The contribution also comes through investments – 2.1 billion in 2022 in total with investments in production and research alone accounting for about 61% of the total sector’s investments – preponderant in R&D, but also growing sharply in the environmental field.

In Italy, these 47 companies employ more than 31,400 people (46% of the entire pharmaceutical sector), contributing to combating some of the country’s main employment imbalances, including unstable contracts and the low presence and valorization of the female component. In addition, these companies show a particular focus on gender equity (48.4% of women employed), youth employment (7.8% of the total) and wages (1.3 times higher than the market average). As well as at the economic level, the positive impacts are not limited to the direct contribution but also affect the indirect and induced components: for every person directly employed by foreign-capital companies in Italy, an additional 5.4 jobs are activated in the entire economy, for a total that exceeds 200,000 people employed.

The contribution of foreign-capital companies also concerns the prevention and treatment of some of the most impactful diseases in terms of mortality, quality of life, and costs for the health and welfare system. Foreign-capital companies of the considered cluster have substantially developed all the approved innovative drugs in 2020-2022, which, according to EMA, represent significant progress in the relevant therapeutic area and in 2022 have involved more than 62,000 patients in the clinical trials, generating about 2.2 billion euros in expected benefits for the National Health Service, thanks to a leverage effect of 2.95.

Against a backdrop of general distress in terms of available resources, foreign-capital companies have for years been called upon to contribute directly to the sustainability of the healthcare system through the payment of the pharmaceutical clawback (established many years ago) to make up for the overrun of the hospital spending cap – with a negative effect on attractiveness and an increasingly important disincentive for pharmaceutical companies, especially innovative ones. Approximately 98% of the pharmaceutical clawback is paid by foreign-owned companies, as suppliers of the most innovative drugs that fall under the hospital spending cap. Without urgent action on the pharmaceutical governance, the amount paid by companies, that today already accounts for a significant percentage of revenues (12.5% in 2022), is set to grow to 18.2% in 2026, with extremely negative effects on the sector.

The recommendations for Italy are divided into three lines of action and two-time horizons (short- and medium-term):

  • strengthening the National Health Service to meet the health needs of an ageing population and the evolution of treatments and technologies
  • defining a strategy for the pharmaceutical sector that aims to strengthen Italy’s role as a production and research hub at the center of the great wave of innovation affecting the sector globally
  • adopting an Italian Life Sciences strategy starting with the establishment of a coordinating body and the elaboration of a National Life Sciences Plan.

Download the study "Increasing the attraction of foreign investment for the competitiveness of Italy. What strategy for the pharmaceutical industry" (in Italian)

Download the Executive Summary (in English)

Download the infographic