2004/169/EC: Commission Decision of 26 November 2003 on the aid which Italy is planning to implement for Industria Farmaceutica Cesare Serono SpA for the development of new chemical synthesis processes for oral pharmaceutical forms of polypeptides and conjugated substances (notified under document number C(2003) 3519) (Text with EEA relevance)
Date: 2003-11-26
Institutions: European Commission
Subjects: Italy, State aid, control of State aid, pharmaceutical product

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27.2.2004

COMMISSION DECISION

of 26 November 2003

on the aid which Italy is planning to implement for Industria Farmaceutica Cesare Serono SpA for
forms of
the development of new chemical synthesis processes for oral pharmaceutical

polypeptides and conjugated substances

(notified under document number C(2003) 3519)

(Only the Italian text is authentic)

(Text with EEA relevance)

(2004/169/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of Article
88(2) thereof,

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having regard to Council Regulation (EC) No 659/1999 (1),

on

interested

parties

to

submit

their

Having
called
comments (2),

Whereas:

1. PROCEDURE

(1)

(2)

(3)

By letter registered as received by the Commission on
the Italian authorities
27 March 2002 (A/32355),
notified, pursuant
the EC Treaty,
planned aid for the pharmaceutical company Cesare
Serono SpA (IFS).

to Article 88(3) of

By letters D/52251 of 7 May 2002, D/54639 and
D/54654 of 12 August 2002 and D/56044 of 25
October 2002,
the Commission requested additional
information regarding the notified aid.

On 8 August 2002 (letter A/36069), 23 August 2002
(letter A/36253), 7 October 2002 (letter A/37252), 21
October 2002 (letter A/37664) and 26 November 2002
(letter A/38716)
the Italian authorities submitted the
information requested.

(4)

By letter SG(2003) D/228432 dated 7 February 2003,
the Commission informed Italy that it had decided to

(5)

(6)

(7)

(8)

(9)

(10)

initiate the procedure laid down in Article 88(2) of the
EC Treaty (hereinafter
‘the decision to initiate the
procedure') in respect of the proposed measure.

of

Journal

The decision to initiate the procedure was published in
European Union. The
the Official
the
Commission called on interested parties to submit their
comments within the prescribed period (one month),
pursuant
to Article 6(1) of Regulation (EC) No
659/1999.

The Commission received comments from IFS on 13
June 2003.

By letter D/53893 of 17 June 2003, the Commission
forwarded IFS' comments to the Italian Government.

The Republic of Italy has not replied officially to the
Commission
and
17 June 2003.

February

letters

2003

of

7

2. DETAILED DESCRIPTION OF THE AID MEASURE

2.1. Legal basis and object of the measure

The legal basis for the aid is Legislative Decree No 297
of 27 July 1999 (3). This is an existing scheme approved
by the Commission on 26 July 2000 (letter SG(2000)
D/430165, State aid N 173/2000) (4).

the aid consists

in developing new
The object of
chemical synthesis processes for oral pharmaceutical
and conjugated substances
forms of polypeptides
(‘sviluppo di
forme farmaceutiche orali ottenute da
nuove molecole di natura sintetica, polipeptidica e
sostanze coniugate').

(1) OJ L 83, 27.3.1999, p. 1.
(2) OJ C 110, 8.5.2003, p. 2.

(3) And its implementing regulation: Ministerial Decree No 593 of 8

August 2000.

(4) OJ C 310, 28.10.2000, p. 17.

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(11)

This project will enable IFS to strengthen its position in
fertility)
its traditional
while
in
the
therapeutic sectors which are new for the company
(anti-inflammatory, anti-cancer, cardiology).

therapeutic sectors (neurology,
same

time developing initiatives

at

events inside the cell, like a protein, and thus blocking
the oral
the pathology. They are more adapted for
pharmaceutical
in the
gastrointestinal ambient.

form and are better resistant

(12)

The project
is subdivided into a number of detailed
stages or ‘steps' each of which is characterised by a
specific scientific content:

B. Polypeptides

— step 1: definition — at laboratory level — of the
processes of chemical synthesis of small molecules,
polypeptides and conjugated substances
the
ingredients destined for
active
preparation of
preclinical testing,

for

— step 2: development of a production process for the
fractions destined for clinical testing of Phase I,

— step 3: experimental verification and validation of
the semi-quantitative method and preparation of the
pharmaceutical forms for both the stability test and
clinical testing,

— step 4: definition and development of analytical
methods
for
the
quantitative
the reaction intermediaries, active
definition of
ingredients, degradation products and contaminants,
and of the oral pharmaceutical forms,

qualitative

and

— step 5: preclinical tests on laboratory animals, such
and

(toxicology

dogs

and

as
rodents
pharmacokinetics),

— step 6: clinical tests on healthy patients (Phase I):
evaluation of the effectiveness, collateral effects and
therapeutic properties.

(13) More specifically,

the products that will be studied
throughout the above mentioned ‘steps' fall within three
groups of molecules:

A. Small molecules

to five

From the screening of about 1 million molecules
obtained in its foreign subsidiaries, IFS expects to obtain
lead to the
some 40 000 ‘hits'. These in turn will
identification of
compounds
‘lead'
three
(proteins), or active ingredients for drug applications. A
in Guidonia Montecelio will, by
new laboratory
following both GLP (good laboratory practice) and GMP
(good management practice), develop new methods for
the chemical synthesis of small molecules in order to
obtain active ingredients and finished pharmaceutical
the
quantity
forms
subsequent preclinical and Phase I clinical testing,
i.e.
clinical tests on healthy patients. The target is to obtain
around 12 such molecules per year by the end of the
small
project's
molecules are capable of interfering with intracellular

large molecules,

lifetime. Unlike

in sufficient

(‘kiloscale')

for

Polypeptides are the ‘active' part of the protein which
liaises with the cell receptor. They replace the protein in
is designed to develop their
this link. The project
genetic
as
chemical
manipulation.

alternative

synthesis

an

to

C. Conjugated forms

chemistry (mix of

By exploiting its excellence in the biotech field, IFS will
be able to create synergies with the more ‘classic'
organic
simple molecules with
complex macromolecules). Conjugated forms combine
active ingredients and inert chemical compounds so to
In this
minimise
connection,
the Italian authorities have presented a
detailed training project for specific activities (R & D,
analytical techniques, quality and security standards, and
links with universities).

production of

antibodies.

the

In order to carry out the R & D projects, the company
needs to expand the Guidonia Montecelio site (Rome).
The new building (4 500 m3) will house a staff of 40
(17 researchers, 13 technicians and 10 administrative
personnel). This new laboratory will have the task of
devising procedures for the chemical synthesis of new
molecules, producing active ingredients
in kiloscale
quantities and defining their pharmaceutical forms.

2.2. Form of the aid

(14)

The proposed aid is provided in the form of an outright
grant.

2.3. Aid intensity, recipient and eligible costs

(15)

The aid recipient (IFS) is part of the multinational group
Serono SA, which has its headquarters in Geneva.
Serono SA is the third-largest biotech company in the
world, with a turnover of USD 1,38 billion (2001).

(16)

Eligible costs include personnel, overheads, equipment,
consultancy, materials and buildings.

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(17) All costs related to preclinical and Phase I clinical testing are entered as consultancy costs, as they
will be subcontracted to IFS sites other than Guidonia Montecelio (Colleretto Giacosa, Turin, and
Bourne Hall, Cambridge).

(18)

The following table gives a breakdown of the proposed aid intensities per category of eligible costs.
All amounts are expressed in EUR million.

Categories of eligible costs

Proposed amount

Proposed aid intensity
(excluding regional
bonuses)

Maximum grant in view
of these intensities

1. Personnel

2. Buildings, equipment and instruments

3. Consultancy

(A) Preclinical tests

3. Consultancy

(B) Clinical tests (Phase I)

4. Other operating expenses

5. Overheads

6. Training

10 585

26 905

12 000

8 000

6 351

7 500

1 455

Total

72 766

50 %

50 %

50 %

25 %

50 %

50 %

50 %

5 292

13 452,5

6 000

2 000

3 175,5

3 750

727

34 397

The Italian authorities have proposed the maximum
intensities
and
precompetitive R & D activities.

industrial development

allowed for

(23)

(19)

(20)

Training is considered to be general training within the
meaning of Article 2 of Commission Regulation (EC) No
68/2001 of 12 January 2001 on the application of
Articles 87 and 88 of the EC Treaty to training aid (5),
as the qualifications and skills acquired in the new
laboratory are transferable to other R & D fields. The
allowed intensity is 50 % in line with Article 4(3) of the
Regulation.

its

classification as

Its doubts originated with the preclinical testing ‘step'
(see point 12, fifth indent, and the above table at 3(A))
since
research and,
indirectly, the granting of an aid intensity of 50 % gge
were not sufficiently justified. The classification of such
tests as research, the eligible costs and the incentive
effect of the aid were not questioned in the decision
initiating the procedure.

industrial

2.4. Budget and duration

(21)

The R & D project will cost EUR 72 991 000.
It is
expected to last seven years (two years for the expansion
of the laboratory and then five years for the R & D
activities).

3. GROUNDS FOR INITIATING THE PROCEDURE

(24)

Preclinical tests precede the Phase I clinical tests. They
consist in testing active principles on various animal
species increasingly closely related to man.

(25) On the one hand, the preclinical test protocols are based
on a series of experiments on a number of different
animal species the results of which are collected and
critically analysed to check whether Phase I tests can be
launched. This could be viewed as planned research and
investigation, which would then qualify as
critical
industrial research.

(22)

In its decision to initiate the procedure, the Commission
approved the aid measure as notified by the Italian
Government, except for one aspect.

(5) OJ L 10, 13.1.2001, p. 20.

(26) On the other hand, preclinical tests, like Phase I clinical
tests, are based on ‘prototype' versions of the product,
albeit very crude ones. In this respect, they could, like
tests, be regarded as precompetitive
Phase I clinical

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development activities (since they precede Phase I tests
and are conducted with less mature products, they are
clearly not closer to the market than Phase I tests are).

could

(27) Accordingly, the Commission was unable to rule out the
test
least some of
possibility that at
closer-to-market
activities
classified
be
precompetitive development. Therefore,
it could not
authorise prima facie the 50 % aid intensity (in gge)
proposed by the Italian authorities, rather than the 25 %
intensity (in gge) provided for by the R & D framework
for precompetitive development.

the preclinical
as

4. COMMENTS FROM INTERESTED PARTIES

(28) On 13 June 2003 IFS submitted comments pursuant to
Article 6(1) of Regulation (EC) No 659/1999. It argues
that preclinical testing is industrial research within the
meaning of the R & D framework. The central argument
is that activities carried out under this ‘step' do not
necessarily reach the
the
chemical synthesis of an active principle is hardly ever
optimised and its expected toxicological effects are not
yet known, as is evidenced by the following:

subsequent

‘step',

since

775 million, without
industrial research or precompetitive development.

stating whether

it

ranks as

5. ASSESSMENT

5.1. Legality of the aid

(32)

The Italian authorities have fulfilled their obligation
pursuant to Article 88(3) of the Treaty by notifying the
scheme to the Commission before it came to effect.

5.2. Existence of aid within the meaning of Article
87(1) of the Treaty

(33) Article 87(1) states that ‘any aid granted by a Member
State or through State resources in any form whatsoever
which distorts or threatens to distort competition by
favouring certain undertakings or the production of
certain goods shall, insofar as it affects trade between
Member States, be incompatible with the common
market.'

— Around 60 to 70 % of the molecules are eliminated
as they do not survive one or more stages of the
toxicological preclinical tests,

(34)

— Around 20 to 30 % of the total are sent to the
laboratory to be
medicinal chemistry (discovery)
subjected to a ‘lead optimistion' process during
which the chemical
the protein is
modified in order to minimize the undesirable toxic
effects of the product,

structure of

The measure favours through State resources (outright
grant) an undertaking which is a large multinational
(IFS, head of the multinational group Serono SA). The
measure is therefore selective in scope. Having regard to
the economic activity carried out by the recipient
enterprise, the aid potentially has a distortionary effect
on the conditions of competition that may affect trade
between Member States within the meaning of Article
87(1).

— A mere 10 % of the molecules reach the subsequent

‘step', namely Phase I clinical testing.

5.3. Assessment of the aid in the light of Article
87(2) and (3) of the Treaty

(29)

Furthermore,
tests conducted on laboratory animals
have very little in common with applications on healthy
human patients in Phase I.

(30)

Therefore, IFS considers that preclinical studies indeed
constitute ‘critical investigation aimed at the acquisition
such
of new knowledge,
knowledge may be useful in developing new products,
processes or services'.

the objective being that

(31) On top of

this,

a more precise
IFS proposes
quantification of consultancy costs (preclinical and Phase
I clinical testing). The total investment costs should be
amended accordingly. On the other hand, IFS proposes
to add a new cost item ‘University' amounting to EUR

(35) Article 87(3)(c) of the Treaty states that ‘[…] may be
considered to be compatible with the common market
[…]
certain
[…], where such aid does not
economic activities
adversely affect trading conditions to an extent contrary
to the common interest'.

the development of

aid to facilitate

(36)

The doubts expressed by the Commission concern R &
D aid and the assessment must therefore be made in the
light of the Community framework for State aid for
research and development (6).

(37)

The second indent in Annex I to the framework defines
‘planned research of critical
industrial

research as

(6) OJ C 45, 17.2.1996, p. 6.

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at

the

aimed

new
investigation
knowledge,
the objective being that such knowledge
may be useful in developing new products, processes or
services or in bringing about a significant improvement
in existing products, processes or services.'

acquisition

of

(38)

of

results

into a

research

industrial

services, whether

The third indent in Annex I to the framework defines
precompetitive development activity as ‘the shaping of
the
plan,
arrangement of design for new, altered or improved
products, processes or
they are
intended to be sold or used, including the creation of an
initial prototype which could not be used commercially.
This may also include the conceptual formulation and
design of other products, processes or services and
initial demonstration projects or pilot projects, provided
that such projects cannot be converted or used for
industrial applications or commercial exploitation.
It
does not include the routine or periodic changes made
to products, production lines, manufacturing processes,
existing services and other operations in progress, even
if such changes may represent improvements.'

(39) On the basis of the evidence provided by IFS and in
view of the very high rate of unsuccessful tests (60 to
70 %) during the development phase of preclinical
testing, the Commission is of the opinion that such an
activity cannot be considered as technical certification
or prototype validation, i.e. the conceptual formulation
of other products or processes or initial demonstration
projects or pilot projects within the meaning of the
third indent in Annex I to the framework.

(40)

that

contrast,

the Commission considers

By
the
preclinical testing carried out by the company is aimed
more at acquiring new knowledge which might prove
essential only at a later stage of development. The
success rate of 10 % appears to be in line with the
average in the sector and proves
the results
obtained in this drug development phase are still a very
long way from both the production of a particular drug
and its marketing. The Commission has also taken into
account the high costs of these tests.

that

(42) With regard to the recalculation of eligible costs (new
quantification of consultancy costs and addition of a
take these
new cost
factors into consideration in the present decision.
It
notes that the Italian authorities have not notified any
change to the measures and that they are the only ones
allowed to do so pursuant to Article 88(3) of the Treaty.

the Commission cannot

item),

6. CONCLUSION

(43)

the

light of

foregoing observations,

In the
the
Commission takes the view that the preclinical testing
‘step' of the measures notified as N 213/2002, complies
with the provisions
laid down in the Community
framework for State aid for research and development,
and in particular the second indent (industrial research),
and may consequently benefit from a derogation under
Article 87(3)(c) of the Treaty to the extent of 50 % gge
according to point 5.3 of the Framework,

HAS ADOPTED THIS DECISION:

Article 1

Italy for

processes

testing ‘step' of

the project notified by the
The preclinical
the development of new chemical
Republic of
synthesis
of
oral
polypeptides and conjugated substances constitutes industrial
research within the meaning of the Community framework for
State aid for research and development and may, therefore, be
funded to the extent of 50 % gross grant equivalent.

pharmaceutical

forms

for

The aid not exceeding this intensity is, therefore, compatible
with the common market pursuant to Article 87(3)(c) of the
EC Treaty.

Article 2

This Decision is addressed to the Republic of Italy.

Done at Brussels, 26 November 2003.

(41)

In the present case, preclinical testing may, therefore, be
considered as industrial research within the meaning of
the R & D framework.

For the Commission

Mario MONTI

Member of the Commission