Read the Conversation
EF: What are your current priorities on the agenda, and what can we expect from Faes Farma in 2024?
GL: Our main goals at Faes Farma are related to R&D. Faes Farma is one of the most innovative pharmaceutical companies in Spain because not many pharma companies in Spain are doing basic research, chemical research, and coming up with new molecules. Several Spanish companies are doing incremental innovation but just a few do new chemical entities (NCEs) research. This is quite risky and bold for a company of our size. This boldness is part of our DNA. We have been pushing our limits for a long time.
R&D is an important department. Last year, we established three new branches within R&D. These were clinical, new molecules research, and incremental innovation. We have a strong team in the innovation branch, and we are very confident that they are going to produce value for our patients, the company, and the future.
Internationalization is another important goal that we are currently chasing. Previously, Alejandro Bonilla mentioned how important Mexico and Latin America were for us. Expansion to these markets is a strategic objective that we have. Ten years ago, our company had an EBITDA value of 30 million euros, and today, we are worth over 120 million euros EBIDTA. This increase in value has been driven by our internationalization. Ten years ago, our international business accounted for about 10 percent of the company's profits. Today, 70 percent of our profits come from international business. Internationalization is radically transforming the company's size. The growth of the company is based on successful innovation in the form of products like bilastine, which is an extremely successful anti-histamine (allergy) product and a market leader sold around the world. The other product is calcifediol, which is a vitamin D derivative that is bringing value to the vitamin D market worldwide. These two innovations have propelled our internationalization goals in two ways: one is licensing.
We are a small company. We gain access to most of the world markets through licensing and partnering business-to-business with other laboratories. However, we are struggling to have a successful business-to-patient or business-to-consumer direct presence. We have selected three regions to help overcome this issue. Latin America, Africa & Middle East (MEA), and Southeast Asia are the regions where we want to develop and have a strong direct presence. We are looking at the future and focusing on the two elements that have been the key parts of our recent success of the last decade, which are innovation and internationalization.
EF: As you continue to grow internationally in Latin America and other regions, how do you assess the continued importance of Spain and the Spanish market to the company?
GL: Spain is extremely important for us. This market plays a huge part in the state of our company, which is based here. We have a strong responsibility here, and we are extremely well known. We are one of the 30 largest laboratories in Spain. Spain has a lot of value that we want to preserve, and if possible, we would like to grow. It is not easy to grow in a mature market. The Spanish pharma market is growing at a rate of one or two percent every year. It is not like the Latin American markets, where you can play with much more ambitious plans in terms of growth. Spain is more difficult in that sense.
Right now, we are growing more than the market. To maintain that level, we are more flexible than in the past in the sense that we are commercializing different groups of products today than we did in the past. Faes has always been an innovative prescription product company. Today, in Spain, we are also marketing OTX products that are promoted at the pharmacy level. We also have pure OTC products, food supplements, and medical devices. We are diversifying to maintain an above-average growth rate in the Spanish market.
Our massive growth in the Spanish market will come in the future from our innovation capacity to bring in new products. This year, we are launching two new products in the form of an ophthalmic version of our bilastine eye drops. The following years are also marketing the ODT for Bilastine. We will also launch a new form that improves the safety and efficacy of Calcifediol. Innovation and flexibility to promote other products are the two key elements that will help us keep growing more than the market here in Spain.
Spain has the power to be an innovation hub. The industrial sector in Spain is quite large, and we have incredible figures in terms of exports. Drugs are the third largest export sector in Spain. In 2022, Spain achieved around 22 billion euros in exports. I think part of that is due to the COVID-19 vaccines because there was an increase of 50 percent compared to the previous year, which is not natural or sustainable. We have a strong industrial muscle, and that allows us to be competitive.
I think there are some challenges, and innovation is one of them. Europe is getting left behind. In the 1990s, Europe accounted for more than 40 percent of all the new products and new molecules in pharma. Today, we account for 19 percent of the new molecules and new drugs that are brought to market. The US and Asia are running ahead of Europe today in terms of R&D and innovation, and that is something that Europe in general and Spain should be thinking about fixing and taking measures on because the level of protectionism in the US and Asia is less than in Europe.
Apart from direct help, innovation in Europe can be assisted in two ways. One of them is to provide companies with a reasonable period to recover their investment, which can take the form of patent protection. There are discussions in Europe to reduce patent protection after commercialization from 10 years to eight years. I do not think that will be a good idea because it is not enough time to recoup the investment. Coming up with one new molecule is very difficult, as seen in the number of projects that have failed along the way. We need a longer investment recovery period.
We also need to give innovation at a fair price. Unlike in America, we sometimes struggle to get a reasonable price for innovation in Europe. Many innovative products do not reach the market because it is not financially beneficial to introduce them. Many of the innovations we have today are not new molecules; they are incremental innovations like new galenical presentations improving safety, compliance, or efficacy. It is very common to find an answer or position from the pricing authority in which you are given the same price as a generic product for the same molecule. That discourages innovative activity. I think it's something we have to face if we want to rebuild the muscle and culture of strong innovation in Europe.
EF: Faes has a portfolio of APIs. How do you assess the importance of producing APIs locally in Spain?
GL: I think local production of APIs is important. This is something that we should be encouraging at the State level. It is not healthy to be 100 percent dependent on countries like India and China for all the APIs. Certain APIs are critical and could potentially cause problems in the supply chain. There are many APIs that any laboratory could tell you are at risk or are extremely vulnerable in terms of supply chain, and we cannot manufacture them in Spain and Europe.
We need to work to determine which APIs would be most strategic to Spain, and there should be a plan at the European level to enable us to be self-sufficient in supplying this knowledge. Faes is relatively small in the API market. We manufacture three APIs, and one of the most relevant is Bilastine; we invested 12 million euros in the manufacturing plant. Our main skills are not related to chemistry or API manufacturing. We are more on the pharma manufacturing side. We do what we can here, but our API business is more of a defensive position.
EF: Could you tell us a little bit about the manufacturing plant?
GL: Our plant is incredible. I love going there and bringing visitors there because they love it the minute they enter the manufacturing plant. Our plant was a good investment in promotion. I am starting to think that we did not invest in this plant for industrial purposes but for promotional purposes because it is so effective. It is a very large plant. I think it is one of the three largest Spanish pharma manufacturing plants in terms of capacity. It has the capability of manufacturing 120 million finished products, or box units. The plant is state-of-the-art in terms of automation and robotization. The technology is outstanding and incredible.
We invested 170 million euros, which is almost 17 percent of the capitalization of Faes Pharma. We made a very big bet, and this bet comes from our internationalization projects, mostly because we strongly believe in the success of our projects in Latin America, the Middle East, and Africa. Our output in terms of volume and units is growing at a rate of 13 percent a year. We needed this capacity to serve the international markets.
Our employee headcount has grown over the years. Today, we are a company of 1800 employees. Ten years ago, we had 700 employees. Many of them are in Mexico & Central & South America. We have 800 employees there. We are creating additional industrial muscle, giving jobs to the people, and positively contributing to the economy here in Spain and abroad.
EF: Where is the plant going to be located?
GL: The plant has already been built, and it is working. It will take until mid-2024 to be inspected and approved by the relevant authority. It is located in the Parque Empresarial de Derio, very close to Bilbao, and it is just 10 kilometers away from our former offices. It is a beautiful place and a very sophisticated technological park. It is a great environment.
EF: You are part of the Basque Health Cluster. What value does this association have for Faes, and how are you leveraging these common spaces to collaborate and promote the industry?
GL: These relationships are very important. Our main relationship with public institutions is with the state (Ministry of Health). There are many initiatives at the state level. The Basque Country has a friendly business environment and attitude that is traditional, and that has always been the case in the Basque Country. They nurture and take care of the company's business. That is one of the best things about them.
We are the only pharmaceutical company in the Basque country. They appreciate the industrial contribution we have made as a business and the potential we have for the future. In terms of financial support, we don't see that very often. Collaboration is critically important in all aspects related to approvals, licenses, and permissions that we may need. We can do it very fast and effectively. Basque Country is agile and effective, and they assisted us in building the new plant within the proposed timelines. We achieved the impossible. They are very helpful in any way that they reasonably can.
EF: What are the three main pillars that a system should have, especially in Spain, to become sustainable?
GL: The first pillar is to recognize the value of innovation. You also need to have a reasonable policy regarding access to drugs. We also need to have a stable legal environment. This could be the most important thing. We need a stable legal and pricing environment; otherwise, we may find that 15 years later, after we have invested 100 million euros in a project, its value may have dramatically declined. Stability and predictability from the normative point of view are critical for a company that has such a long period of investment and doing things.
People with limited resources must have access to drugs. It is important to have a healthy and strong generic industry. The generic industry sometimes complains about its limited market shares. Still, I do not agree with that statement because once a generic comes to market, the prices get discounted by 40 to 45 percent immediately. All products, including the original ones, have the price reduced to the same level. All products compete at the generic level. The generic market is no longer strictly generic. It now includes the branded market at the generic price level. Pharmacy drug expenses should be contained to a reasonable level, and it is better to spend the money on innovation that needs that money to pay off the investment than on something that a generic company can do to be reasonably competitive. We should continue promoting access to competitive drugs and low-priced drugs for the general population. The state should open its pockets a little bit more for innovation.
EF: Is there any final message as CEO that you would like to share?
GL: I would like to say, as a Spanish pharma company, that we should not forget about our interest in the Latin American market. It is a great market with great potential. It is a welcoming market for good-quality products, and I strongly recommend any pharma company consider investing in this great region.
