On a visit to some of the industrial parks in Malta, one of the most noticeable things is an abundance of pharmaceutical companies. Dino Mangion, plant manager at Spanish pharma firm Medichem, is happy to explain the simple reason why, but perhaps less excited about what it might mean for the future of his company’s activities in the island nation.

Headquartered in Barcelona, Spain, Medichem opened its plant in Malta in 2005 – its first foreign venture. The firm was established in the 1970s and is specialised in the development and manufacturing of active pharmaceutical ingredients. Not a drug maker per se, it is more involved with providing the industry with the ingredients it needs to make the final products.

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Patent-free zone

Prior to joining the EU in 2004, Malta was known as a 'patent-free' zone, and technically still is. This meant that pharmaceutical companies could come to Malta and make generic copies of existing and patented drugs without infringing copyright laws. While they cannot sell their products to countries where patents are in place, they can offer clients the possibility to hit the ground running and sell the drugs as soon as the patents run out. These patents tend to last 20 years. Innovators of new drugs could have potentially taken their creation to the patent office in Malta, but for whatever reason most failed to do so.

However, with the entrance into the EU and the signing of the 2007 Lisbon Treaty, Malta will lose this status, and the game will change significantly for Medichem and other firms with operations in the country. Under the new rules, all patents filed in Europe will be filed in Malta as well. Yet patents filed before the treaty remain fair game in Malta, so the advantage is still there for the time being.

Clock ticking

Mr Mangion says: “We are still benefiting from the past 20 years where there were no or few patents filed in Malta. But the clock is ticking and every day that passes means one less day for us. So in theory we have about 18 years left, but the truth is by the 17th year, we will have very little advantage left.”

So what are these companies to do? Mr Mangion says matter of factly that in the next 15 years they will have to become more competitive as they will face new challenges from Europe and also Asia, which has seen its pharma industry grow exponentially in recent years. For the next 15 years, however, they will exploit the patent loophole to the fullest and in the meantime hope the Maltese government can come to their aid.

He says: “As a Maltese citizen of course this concerns me. But over the next 15 years we will have to find a way to put some added value into our business. The country is generating a lot of scientists so in the next 15 years that means we will have a lot of experienced people in the industry. And this will have to be a trump card to keep the pharmaceutical industry here.”

But there is a good chance that the powers controlling these companies could look for another patent-free zone, such as Puerto Rico, and pack up and leave. Mr Mangion is hopeful that companies will establish roots in Malta, so by the time the patent advantage runs out, they will be comfortable there and want to stay in the country.

Diversifying the client base

Medichem itself is growing at a decent rate and Mr Mangion says it is trying to diversify its client base. Traditionally about 70% of its clients were US-based, but today there is a growing list of clients from emerging markets where demand for medications, especially generics, is growing rapidly.

He says: “It’s amazing. Nowadays we have clients in the weirdest places. Clients in Saudi Arabia, South America and even in Iran. Iran is buying medicine from us. Of course the big markets remain what they are, but it is wrong to say that since you have always been working with US customers, the rest is peanuts. That’s not true. Countries such as Iran will pay just like a customer in the US would pay.”

Another main challenge for the company, and that of the wider industry, will be the growing costs of the chemicals and materials to develop their products. Costs across the board are increasing, underpinned by higher oil prices. Add increased levels of competition that force them to charge less for their products and it is certainly an industry that is getting squeezed. But Medichem is continuing to invest. It intends to spend another €500,000 on its plant in Malta and add more staff in the coming year to its existing team of 30 employees.

While he has concerns about the future, Mr Mangion points out that pharmaceutical companies are still coming to Malta, even in just the last year. He says that the advantages of being in the country are still there and are important enough that companies will open plants there even with the knowledge that the situation will change in the short term.

He says: “The added benefits, apart from being patent-free, are an educated workforce, proximity to Europe and EU regulation, which can actually hinder some businesses, but these and things such as lifestyle and culture are all still here.”