GOI WELCOMES DIALOGUE WITH PHARMA INDUSTRY

UNCLAS SECTION 01 OF 02 ROME 002478

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STATE PASS TO EEB/TPP/IPE URBAN
PASS TO USTR WILSON, YANG
PASS TO DEPT OF COMMERCE MCLAUGHLIN

E.O. 12958: N/A
TAGS: KIPR ECON ETRD IT
SUBJECT: GOI WELCOMES DIALOGUE WITH PHARMA INDUSTRY

REF: SECSTATE 162295

(SBU) 1. SUMMARY: Ministry of Economic Development Director
General for Innovation and Competition Andrea Bianchi
received our demarche on pharmaceutical reimbursements, noted
USG concerns about the GOI's pharmaceutical reimbursement
scheme, and vowed to find a solution to remove the potential
for patent infringements. Bianchi expressed a ready
willingness to meet with pharmaceutical industry
representatives to discuss pricing and related issues
further. In our discussion, he identified the pharmaceutical
industry as a key sector for the Italian economy as it
pursues domestic and foreign investment; innovation and R&D.
To that end, Bianchi outlined new GOI tax incentives to
encourage R&D. END SUMMARY.

(SBU) 2. EmbOffs met Ministry for Economic Development
Director General for Competition Bianchi on December 11. He
was sensitive to USG concerns about the threat the GOI's
pharmaceutical reimbursement scheme poses to innovation
(reftel),but explained that the plan aims to foster
innovation by encouraging new drug entries to market rather
than sustaining drugs nearing the end of their patent life.
He also claimed that the payback scheme is more transparent
than previous efforts to stabilize drug prices. According to
Bianchi, since the reimbursement scheme does not call for
suddenly depressed prices once the GOI's pharmaceutical
spending cap is reached, drug companies will not see a sudden
drop in revenues they would need to report and explain to
their headquarters. Further, he held that (again) since
prices do not drop suddenly, the reimbursement scheme does
not encourage a parallel market in pharmaceutical purchasing
by other EU countries once the GOI's spending cap is reached.


(SBU) 3. When informed about USG concern regarding the
potential for generic drugs to be approved while patents for
a branded drug are still in effect, Bianchi immediately
responded that he was aware of the problem and was working to
address it. He stated that the Italian Patent and Trademark
Office (which reports to Bianchi) was working with AIFA (the
Italian pharmaceutical regulatory agency) to find a solution
that ensured that the approval process for generic drugs
includes a comprehensive review of current drug patents, thus
avoiding the possibility that a generic drug could be
approved while a brand patent is still in effect. He
expected the problem to be resolved soon, possibly "by year's
end."

(SBU) 4. Bianchi expressed a willingness to discuss the
pricing question and other issues with pharma industry
representatives in the future. He emphasized that the
pharmaceutical industry is very important to the Italian
economy. One of GOI's goals is to increase investment in
innovation and R&D in Italy, and they see the pharma industry
as a strong example of an innovative industry.

(U) 5. Bianchi relayed a new GOI plan to provide tax
incentives for investment in R&D, particularly in
private-public sector research partnerships. Both domestic
and foreign companies can claim a 10 percent tax credit for
2007 spending (applicable in 2008) for direct investment in
internal research, plus an additional 15 percent credit for
R&D conducted with public universities or public sector
agencies (external research),up to a total value of Euro 1.5
million per company. In 2008 the external research credit
will increase to 40 percent (internal will remain at 10
percent),with the maximum deduction increased to Euro 5
million per company. The GOI estimates these credits will
cost approximately Euro 600 million. Bianchi said the EU has
recently approved this proposal.

(SBU) 6. COMMENT: Bianchi seems to be among the most
forward-looking officials of the current GOI. The tax
incentives, while mainly directed at small- to medium-sized
Italian enterprises, illustrate his Ministry's intention to
foster economic growth through innovative, research-oriented
sectors, instead of just heavy, labor-intensive industry
(e.g., factories with physical products). His willingness to
engage with the pharma industry bodes well for pharmaceutical
development here.

(SBU) 7. The Ministry of Economic Development's recent
involvement in this issue provides a welcome counterbalance
to the Ministries of Health and Finance, which are concerned

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almost exclusively with cost containment. END COMMENT.
BORG