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BIOTECHNOLOGY CLUSTERS IN THE UK:
LESSONS FROM LOCALISATION IN
THE COMMERCIALISATION OF SCIENCE
Philip Cooke
December, 1999.
Centre for Advanced Studies (Revised,May,2000).
Cardiff University
44-45 Park Place
Cardiff CF10 3BB
Prepared for conference on ‘Comparing the Development of
Biotechnology Clusters’, Stuttgart, January 27-28, 2000.
Introduction
It is widely thought that the UK is Europe’s leading biotechnology economy despite
lagging the position of the US very markedly. This tends to be argued in terms of UK
ownership of large pharmaceutical companies, the strength of the science base, and
the possession of some 270 specialist biotechnology firms, compared to, say,
Germany’s 220 and France’s 140 (Ernst and Young, 1999). However, if we look at
the position in terms of market penetration of UK originated therapeutic products
derived from biotechnology, the position is little better, and may indeed be worse than
that of Germany. In this paper an effort is made to explain this position but also
explore the rapid, if belated growth of the UK biotechnology sector. It will be shown
that much of the rise in commercialisation of biotechnology is at the hands of small
start-up and spin-out companies originating in the UK science-base. As in the USA
and even more recently in Germany, these firms operate in localised business clusters
(Audretsch, 1998; Audretsch & Feldman, 1996, Jaffe et. al., 1993). This is interesting,
not least due to regulatory variation among these countries. It is argued that
biotechnology is unusual in being heavily dependent everywhere upon major public
funding of basic scientific research, in turn giving rise to spin-out activity in
geographical proximity to universities, research hospitals and public research
laboratories. Europe is beginning to emulate US practice in this respect.
To analyse the gap between US cluster-formation in biotechnology and that in the
UK, as well as the firm-formation which constitutes the clustering phenomenon, we
can see how much US spin-out biotechnology product dominates world markets
(Swann & Prevezer, 1996; Prevezer,1999). Even large pharmaceutical firms are less
innovative than the ‘entrepreneurial’ sector (Ernst & Young, 1999) in this regard, and
this is doubly true for European ‘big pharma’. The slight advantage to Germany over
the UK was that in 1998 it at least had Boehringer Mannheim’s (now Roche, of
Switzerland) Reteplase cardiac drug on the market. Contrariwise it is hard to find a
single UK-originated product derived from recombinant or genetically modified
organisms or cells, despite the presence of 53 distinct products on the UK market.
Even Glaxo’s successful Epivir (HIV) product which is in the world top ten selling
drugs was developed by Montreal-based BioChem Pharma. It can be seen that
basically no UK pharmaceutical firms even market biotechnological products in the
2
UK, that no UK-originated biotechnological drugs are on sale in the UK and that, at
the end of 1999, the UK market was completely foreign-dominated. The key question
addressed is whether this position (replicated now also in Germany) is likely to be
changed in the near future.
Market Penetration in the UK
The data on origination of biotechnology drugs available in the UK market on which
the following text is based are provided through the UK Bioindustry Association by
the UK Department of Health Medicines Control Agency. A great deal of sleuthing
has to be performed with the MCA data since they depend on the data of the European
Agency for the Evaluation of Medical Products who, in granting market
authorisations, do not always provide full details of the manufacturer of the active
substance. Further, they note that details of the manufacturer of the active substance
is also confidential. What is not confidential is the licence holder details, but, that
information is very misleading when seeking the product originator. So, an attempt
has been made to penetrate the veil of confidentiality by reference to consultancy
reports and databases which do note some product originators (e.g. Schitag, Ernst and
Young, 1998; Ernst and Young, 1999; BioCentury, 1998) and biosciences directories
which, in giving local firm profiles sometimes list also the drugs they have originated,
described by brand-name. Of the 53 approved drugs, 48 have been traced. Further
research is then presented on the likelihood of growth in the capability of UK
biotechnology firms to compete with the USA as they develop therapeutic and other
products. Many of these are already in the pipeline. The development of
biotechnology clusters in the UK is central to the strong future prospects for the
biotechnology sector to lessen the product gap with the USA.
In Table 1, twenty-five of the twenty-eight UK-licensed biopharmaceutical products
have been traced to the product originator. Of the remaining three, none are marketed
by UK-owned licence holders; Roche Products, Schering-Plough and Unigene being
the marketers in question. We see that market penetration by non-UK products is
overwhelming and that UK giants like Glaxo, SmithKline Beecham (merged in 2000)
and Zeneca are not marketing them. The industry is, therefore, highly globalised.
3
Moving on to the twenty-five therapeutic products derived from biotechnology that
are sold on the UK market by foreign or UK firms based in a licence holder country
outside the UK (e.g. France, Netherlands, Belgium etc.) we find that origination data
can thus far be
Product Developer Marketer Active
Substance
Marketer
Home Base
Zenapax
Recormon
Recombinate
Neupogen
Gonal F
Vaqta
HIB-Vax
Humulin
Humaject
Liprolog
Insulatard
Penmix
Mixtard
Actrapid
Roferon
Intron-A
Rebif
Immukin
Granocyte
Leucomax
Kogenate
Genotropin
Humatrope
Norditropin
Saizen
ProteinDesignLabs Inc.(CA)
Genetics Inst. (MA)
Genetics Inst. (MA)
Amgen (CA)
Ares-Serono (It./Switz.)
Merck (US)
Connaught Labs (Canada)
Genentech (CA)
Genentech (CA)
Eli Lilly (US)
Novo Nordisk (DK)
Biogen (MA)
Biogen (MA)
Biogen (MA)
Genentech (CA)
Biogen (MA)
Ares-Serono (It./Switz.)
Genentech (CA)
Merrell Dow/Immunex (US)
Genetics Institute (MA)
Miles Labs/Genentech(CA)
Genentech (US)
Genentech (CA)
Genentech (CA)
Serono (It./Switz.)
Roche RegistrationLtd.(UK)
Boehringer M. (UK)
Baxter Healthcare Ltd (UK)
Roche Products Ltd (UK)
Ares-Serono (Europe) Ltd (UK)
Pasteur-Merieux MSD Ltd (UK)
Pasteur-Merieux MSD Ltd (UK)
Lilly Industries Ltd. (UK)
Lilly Industries Ltd. (UK)
Lilly Industries Ltd. (UK)
Novo Nordisk Pharma Ltd (UK)
Novo Nordisk Pharma Ltd (UK)
Novo Nordisk Pharma Ltd (UK)
Novo Nordisk Pharma Ltd (UK)
Roche Products Ltd. (UK)
Schering-Plough Ltd. (UK)
Ares-Serono (Europe) Ltd (UK)
Boehringer Ingelheim Ltd. (UK)
Chugai Pharma (UK) Ltd
Schering-Plough Ltd. (UK)
Bayer plc (UK)
Pharmacia Labs Ltd (UK)
Lilly Industries Ltd (UK)
Novo Nordisk Pharma Ltd (UK)
Serono Laboratories (UK) Ltd.
Daclizumab
Epoetin beta
Factor VIII
Filgrastim
Hormone alpha
Hepatitis A
Hepatitis B
Human Insulin
Human Insulin
Insulin Lispro
Human Insulin
Human Insulin
Human Insulin
Human Insulin
Interferon alpha2a
Interferon alpha2b
Inteferon beta 1a
Interferon
gamma1b
Lenograstim
Molgramostin
Factor VIII
Growth Hormone
Growth Hormone
Growth Hormone
Growth Hormone
Switzerland
Germany
USA
Switzerland
Switzerland *
France
France
USA
USA
USA
Denmark
Denmark
Denmark
Denmark
Switzerland
USA
Switzerland
Germany
Japan
USA
Germany
Sweden/USA
USA
Denmark
Switzerland
Table 1: Approved Biotechnology Drugs in the UK (UK-licensed)
Source: UK Medicines Control Agency
Note: * Serono, Cambridge MA is noted as the originator of this product in
Massachusetts Biotechnology Council (1998).
tracked-down for twenty-three drugs. These are presented in Table 2. Here,
SmithKline Beecham is active as a marketer, but from its Belgium base. From the
analysis the conclusion that no UK-originated, biotechnology-derived therapeutic
product is currently on sale in the UK market is difficult to avoid.
Product Developer Marketer Active
Substance
Licence
Holder
4
Country
Proleukin
Bioclate
Revasc
Neorecormon
Recormon
Puregon
Twinrix
Infanrix
Tritanrix
Primavax
Benefix
Cerezyme
Protophane
Remicade
Humalog
Procomvax
Avonex
Betaferon
Refludan
Rofacto
Helixate
Triacelluvax
Novoseven
Chiron (CA)
Armour Pharma(US)
Ciba (Switz.)
Genetics Inst (MA)
Genetics Inst. (MA)
N.V.Organon(NL)
Chiron (CA)
Chiron (CA)
Chiron (CA)
Pasteur Merieux (F)
Genetics Inst (MA)
Genzyme (MA)
Novo Nordisk (DK)
Centocor Inc (CA)
Genentech (USA)
Pasteur Merieux (F)
Biogen (MA)
Chiron (CA)
Merrel Dow (USA)
Genetics Inst. (MA)
Miles Labs/ Genentech (CA)
Chiron ( CA)
Biogen (MA)
Chiron B.V.
Centeon Pharma GmbH
Rhone-Poulenc-Rorer S.A.
Boehringer Mannheim Gmb H
Boehringer Mannheim Gmb H
N.V.Organon
SK Beecham SA
SK Beecham SA
SK Beecham SA
Pasteur Merieux MSD
Genetics Inst. of Europe B.V.
Genzyme B.V.
Novo Nordisk A/S
Centocor Europe BV
Eli Lilly Nederland BV
Pasteur Merieux MSD
Biogen S.A.
Schering A.G.
Hoechst Marion Roussel
Genetics Inst. Of Europe B.V.
Bayer AG
Chiron s.p.a.
Novo Nordisk A/S
Aldesleukin
Antihaemophilia
Desirudin
Epoetin beta
Epoetin beta
Follitropin beta
Hepatitis B
Hepatitis B
Hepatitis B
Hepatitis B
Factor VIII
Imiglucerase
Human Insulin
Infliximab
Insulin lispro
Hepatitis B
Interferon beta 1a
Interferon beta 1b
Lepirudin
Factor VIII
Factor VIII
Pertussis toxin
Factor VIIA
Netherlands
Germany
France
Germany
Germany
Netherlands
Belgium
Belgium
Belgium
France
Germany
Netherlands
Denmark
Netherlands
Netherlands
France
France
Germany
Germany
Germany
Germany
Italy
Denmark
Table 2: Approved Biotechnology Drugs in the UK (EU country-licensed)
Source: UK Medicines Control Agency.
The Future
If the present reveals the UK market for biotechnology-derived drugs to be dominated
at the end of the twentieth century by products largely originating in US
entrepreneurial biotechnology firms where does the challenge for the next century lie?
If it is to come from Europe, it seems likely that the fledgling UK therapeutic products
industry will have a greater impact in the next few years. Let us look, first, at some of
the key milestones in the development of biotechnology, since these give a hint of the
evolving basic science which is the resource for future commercialisation if
exploitation opportunities can be taken.
Date Innovation Scientists Country
1953
1974
1975
DNA Structure
In vitro recombinant DNA
Monoclonal Antibodies
Watson/Crick
Cohen/Boyer
Milstein/Kohler
UK
US
UK
5
1977
1978
1979
1982
1985
1988
1996
1998
1998
DNA Sequencing
Polymerase chain reaction
p53 Cancer gene
Cascade superfusion bioassay
DNA Profiling
H2 - receptor antagonist
Transgenic sheep
Antibody protein engineering
Nematode worm sequence
Sanger et.al.
Mullis
Lane
Vane
Jeffreys
Black
Wilmut
Winter
Sulston
UK
US
UK
UK
UK
UK
UK
UK
UK
Table 3: Selected Key Biotechnology Innovations
Source: Schitag, Ernst and Young (1998); BioIndustry Association (1999).
It is clear from Table 3 that the UK has been a leading location for many of the main
research breakthroughs in biotechnology in the second half of the twentieth century.
This began with the pioneering work of the UK/US Team of Watson and Crick
working at Cambridge’s Cavendish Laboratory, supported crucially by Rosalind
Franklin’s X-ray diffraction results at Wilkin’s laboratory in Kings College, London.
However, if we look at milestones in commercialisation of biotechnological
knowledge, it is the US that takes the early lead. Thus Genentech was set up by
recombinant DNA technologist Boyer and venture capitalist Swanson (Kleiner,
Perkins, Caulfield & Byers) in 1976. Amgen followed in 1980 and in 1982 Humulin,
the first genetically-produced human insulin, developed by Genentech with Eli Lilly,
was given US Food and Drug Administration approval. The Massachusetts
biotechnology lead-firms were founded as follows: Biogen (1978), Genetics Institute
(1980) and Genzyme (1981). Qiagen Germany’s leading entrepreneurial
biotechnology firm was established in 1984, and the UK’s first firm, Celltech, was
founded with Labour government funding in 1979. Celltech recently merged with
Chiroscience, one of the UK’s leading biotechnology firms. In a possibly significant
reversal of historic practice, the two recently acquired Medeva, a pharmaceuticals
firm.
During the 1990s the commercialisation climate changed in the UK and Germany and
there has been an increase in the number of biotechnology firms, especially in the
health care and biopharmaceuticals sectors, with a slower rate of growth in ag-food
biotechnology and bioenvironmental technology businesses. Growth in the number
and scale of UK biotechnology firms occurred earlier than in Germany, for example.
6
In the latter case, a serious push to break the commercialisation logjam occurred in the
late 1990s in the wake of the federal Ministry of Science, Education, Research and
Technology’s (BMBF) BioRegio competition (Giesecke,1999; Dohse, 1999; 2000) .
Prospects for the emergence of independent biotechnology firms are explored below,
but for the moment, given the future perspective in this section, the focus is on
developments in the pipeline regarding firms and therapeutic products in Europe as a
whole. This inevitably draws particular attention to the UK, as Europe’s leading
biotechnology product development economy. There are a number of ways of
engaging in such a prospective look at the sector. We can look first at firm-specific
information in terms of market capitalization, turnover, profit and loss, R and D
expenditure and employees. We can
Company Market
Capitalisation
($m)
Turnover Profit
/Loss
R and D
Costs
Employees
Qiagen (G)
Shire Pharma (UK)
Innogenetics (NL)
Powderject (UK)
Genset (F)
Celltech (UK)
Chiroscience (UK)
Neurosearch (DK)
Oxford Asymmetry (UK)
British Biotech (UK)
959
844
737
540
522
480
437
387
338
334
103
75
46
48
29
18
40
8
23
1
12
6
-14
-7
-16
-17
-36
-6
4
-70
12
9
20
11
37
33
56
16
2
66
785
426
630
87
479
218
302
113
219
445
Table 4: Top Ten European Biotechnology Pharmaceutical Firms, 1998 ($million).
Source: BioCentury (1998); Ernst and Young (1999).
then look at therapeutic products by stage in the pipeline regarding clinical trials and,
as appropriate, cross-reference the two sets of indicators. In Table 4 statistics are
provided on Europe’s top ten performing ‘entrepreneurial’ biotechnology
(pharmaceutical) firms. Three things are of immediate interest. First is the
predominance of UK firms (60%) in the listing, with only one from each of four other
European countries entering the rankings. Second, for all of them, the striking
difference between their valuation, in terms of market capitalisation, and their much
lower turnover is testimony to the speculative confidence of stock market investors in
the industry. Third, biotechnology has high-value lead firms, the overwhelming
7
majority of whom are making losses not profits. A further feature probably worth
noting about these knowledge-intensive businesses is the often high R & D costs per
employee ratio most display. Hence, what are such investor expectations based upon?
Table 5 lists the new products in the pipeline and, while some of the firms featuring in
Company Product Indication Trials
status
British Biotech (UK)
Cantab Pharma.(UK)
Celltech (UK)
Chiroscience (UK)
Cortecs (UK)
Flamel (Fr.)
IDM (Fr.)
Innogenetics (NL)
Peptide Therapeutics (UK)
Phytopharm (UK)
Powderject (UK)
Neurosearch (NL)
Scotia Holdings (UK)
Shire Pharma. (UK)
Transgène (Fr.)
Vanguard Medica (UK)
BB-10153
BB-3644
TAGW
DISC HSV
CDP 571
CDP 870
D2163
Dermal Powderject
Ulsastat
Cellcom
Asacard
Basulin
MAK
MSC-DC
Toleri Mab
Tolerizing peptide
HSP immunotherapeutic
P54
Alprodastil
PJ2204
NS 2710
NS 2330
Epakex
Meglumine-GLA
TriClimactol
Galantamine
Adenovirus-CFTR
Adenovirus-IFN
VML 530
VML 600
Cardiovascular
Cancer treatment
Genital warts
Genital herpes
Crohn’s disease
Rheumatoid arthritis
Cancer inhibitor
Anaesthetic
Ulcer Immunity stimulator
Cancer treatment
Cardiovascular
Diabetes
Ovarian bladder cancer
Cancer vaccine
Prevent organ rejection
Hay fever
Rheumatoid arthritis
Colonic cancer treatment
Erectile dysfunction
Acute migraine
Anxiety disorders
Dementia
Cancer treatment
Bladder cancer
Hormone replacement therapy
Chronic fatigue syndrome
Cystic fibrosis
Immune enhancement
Asthma
Hepatitis C
Phase 1
Preclinical
Phase 2
Phase 1
Phase 2b
Phase 2
Phase 1/2
Phase 2
Preclinical
Preclinical
Phase 2
Preclinical
Phase 2
Preclinical
Preclinical
Phase 2
Preclinical
Phase 2a
Phase 1
Preclinical
Phase 2
Phase 2
Phase 2
Phase 1
Phase 3
Phase 2
Phase 1
Preclinical
Phase 1
Preclinical
Table 5: Pipeline Products from European Biotechnology Companies, 1998
Source: BioCentury (1998); Ernst & Young, 1999.
Table 4 are the origin of these products-in-trial, other, smaller firms also enter the
scene.
Once again, and bearing in mind these are selected therapeutic products in trial, the
dominance of UK companies at the various trial stages from pre-clinical to phase 3,
8
which is close to market, is most striking. Eleven of the sixteen firms and nineteen of
the thirty products are UK-originated in Ernst and Young’s latest list of innovative
products expected from European biotechnology-specialist firms. These therapeutic
products are subject to exacting preclinical and clinical trails (Phases 1, 2 etc.) and it
is this testing process which explains the high level of R&D investment noted in
Table 4 since this is the stage at which the cash ‘burn rate’ is high, venture capital has
accordingly had to be accessed and firms are seeking to enter public markets to
recoup the finance invested. Moreover, many such firms have already entered
partnership agreements with big pharma companies for licensing of technologies
which, when granted approval, are marketed and distributed by the multinationals, as
we have seen. For example, Cantab Pharmaceutical’s two therapeutic vaccines noted
in Table 8 have been licensed to Glaxo Wellcome and Smith Kline Beecham, while
Transgène licensed its two gene delivery systems to Schering-Plough. Companies
such as Cantab Pharmaceuticals, Transgène and the German firm MediGene are
thought to be capable of head-to-head competition with US firms in the field of
therapeutic vaccines because there is no dominant company globally in this field
which seeks to stimulate immune responses to genetic diseases. MediGene has a
development partnership with Germany’s leading big pharma firm Hoechst Marion
Roussel, to advance its tumour vaccination technologies.
If therapeutic vaccines are a relative European strength, the other future growth sector
of biochips is primarily led by US diagnostics firms. Biochips aim to miniaturise
biological assay processes so that the whole genetic make-up of a particular human
being can be analysed simultaneously by the family doctor. Firms such as Affymetrix
and Hyseq lead the field although Amersham (UK) acquired Molecular Dynamics of
the US giving them a globally competitive market position. Biochips link to
functional genomics, a growth field dealing with the relationships between gene
functions and the diagnosis and eventual treatment of human diseases. In 1998
Affymetrix entered partnerships with twelve firms, including bioMérieux (France),
Gemini Research (UK), Glaxo (UK) and Roche (Switzerland) to develop biochips.
Gemini is the UK’s first clinical genomics firm. Amersham’s purchase of Molecular
Dynamics also means that it has access to the Genetic Analysis Technology
Consortium involving leading biochip firm Affymetrix. Hence, the technological lead
of the US in biochips is likely to narrow considerably with European firms more
9
actively involved. From the point of view of these two leading technology areas of
the future, it seems likely that Europe, and most particularly the UK, shows
significant signs of levelling-up compared to the position in the 1980s from when US
firms dominated biotechnology applications and products.
This is underlined by the emergence of many new spin-out firms from leading UK
research centres. In Cambridge, Pharmagene and Hexagen are both involved in
functional genomics, seeking therapeutic treatments from genomics information.
Brax, Gemini and Chiroscience are also operating in fields using genomics data, the
last-named having acquired Darwin Molecular of Seattle to boost its genomics
capabilities. Hexagen was also acquired in 1998 by US genomics specialist Incyte
Pharmaceuticals, joining Incyte’s new pharmacogenetics division Incyte Genetics. As
well as these Cambridge-focused firms, there are important growth firms evolving
from genomics research in Oxford, such as Oxagen, Oxford Glycosciences, Oxford
Molecular and Oxford Asymmetry. Firms such as Oxford Asymmetry and Oxford
Glycosciences possess bioinformatics libraries that are of major value to large
pharmaceutical firms. Thus Bayer and Dow AgroSciences both signed deals with
Oxford Asymmetry to access drug discovery information from its libraries, while
Oxford Glycosciences contracted similarly for access to its proteomics library.
The existence of such firms, formed to take advantage commercially of the major
public and charitable investments that have been placed in genomics research both at
Oxford and, especially, Cambridge, remind us of the highly localised but also
simultaneously globalised relationships among firms that characterise the cutting edge
of biotechnology research and commercialisation. According to Mihell et.al. (1997)
Cambridge has some seventy-six biotechnology firms and research organizations
while Oxford has forty companies directly involved in biotechnology. Another
agglomeration, of some thirty-seven firms, is centred upon Surrey, to the south of
London, with yet another concentration of over fifty in Scotland. However, research
conducted by the UK Department of Trade and Industry (DTI, 1999a) differentiated
Surrey from Cambridge and Oxford. The last two displayed the characteristics of
clusters, whereas Surrey and Scotland did not and Scotland was seen as a latent
cluster. The main rationale for this judgement about Surrey (but not Scotland) was
the relative absence of local linkage to the science base and systematic start-up and
10
spin-out activity centred on established, university-based technology-licensing,
transfer and enterprise support within science park and incubator settings. Both
Cambridge and Oxford display these specialist characteristics in close proximity to
the science base, something Prevezer (1995) highlights as the key characteristic also
defining successful US biotechnology clusters.
Globalization and Clustering: the New Balance of Power
We have seen how smaller new firms from the US, expert in applications of basic
science findings often discovered elsewhere, notably the UK, became dominant
sources of commercialisation of biotechnology. They remain dependent upon big
pharma companies for the finance to produce, market and distribute the drug
treatments eventually emanating from the lengthy gestation process typical of many
biotechnology products Powell et. al., 1996). The ‘absorptive capacity’ of big pharma
regarding this new industry was insufficient to enable it to displace the Genentechs
and Amgens from their position of primary innovator, though many have retained
sufficient of this capability to understand the meaning of cutting edge research if not
to replicate it (Cohen & Levinthal, 1990). The reason for this is that the core
knowledge was and has remained produced in university and other public research
laboratories more than in the R&D labs of big pharma itself. Such was the relative
strength of public labs over private in this respect that the initial strategies of firms
such as those noted as early-movers in California and Massachusetts were to become
Fully Integrated Pharmaceutical Companies (FIPCOs) and thus to challenge the
predominant pharmaceutical firms, rather as has occurred with Intel and Microsoft in
relation to IBM and others in IT. However, today this is not the case for a number of
reasons. First, firms attempting the FIPCO strategy failed to achieve it because
barriers to entry were relatively low for competitors focusing more on a stage or
stages in the development of a particular drug. Second, the cost of drug development
in biotechnology is extremely high. Third, the time taken through the research and
trialling until final approval stages of a new drug is enormously long. Fourth, the risk
that a trialled drug will not in fact prove itself workable or effective is very high,
perhaps only one in ten proving successful. Finally, the industry is turbulent, with
many emerging technologies and a reasonably supportive environment for new, niche
strategies by emergent small firms.
11
While globalisation and local clustering are key characteristics of biotechnology, a
question arises as to whether the fact that clustering developed quickly in the USA,
followed a decade later in the UK, but being induced only with the subsidies of
federal and regional governments in, for example Germany, signifies crucial
competitive advantage for the first two from distinctive national business and
regulatory systems. This is a large question, demanding full-length analysis and
interpretation. An initial effort to start such analysis is that of Casper et. al. (1999),
comparing US and German systems for software and biotechnology. It is hard to
disagree with their view that on three key counts the US has the more liberal business
environment. In Germany scientific labour is regulated in ways that hinder mobility,
corporate governance rules made stock-options illegal until 1998, and banks dominate
a (conservative) investment environment. So private venture capital has been
traditionally under-represented, spin-off firms hard to launch and entrepreneurship not
a highly-valued career option. The last sentence could almost describe the UK up to
perhaps a decade ago. Stock-options, while not illegal, are only in 2000 seeing tax
thresholds lowered, a government inquiry into the low amounts of venture capital
invested by pension funds was launched in the same year and entrepreneurship
initiatives comparable to those already launched in Germany have been part of official
policy, particularly under Labour since 1997. Nevertheless, the general business
climate in the UK seems to be becoming more favourable to the commercialisation of
science (DTI, 1999b) The processes involved are also more market-led, albeit often
with government urging, than public-sector led with banking (including venture
capital) and big pharma co-funding, which is the current German model. Despite this,
clusters have begun to form in a number of German regions, and judgement as to their
future robustness in competitive world markets is awaited with interest.
Thus, current and past industry dynamics point strongly to a continuation of the
importance of a cluster model of business co-ordination. Opportunities associated
with commercialisation of genomics information have strengthened rather than
weakened the salience of this model by adding new phases to the drug discovery
process, into which specific niche-oriented firms can fit. Hence, firms focus on
developing ‘platform technologies’, which accelerate the prospects of drug discovery.
In biopharmaceuticals, these link core genomics technologies such as genome
12
analysis, bioinformatics, protein analysis and functional genomics to diagnostics and
therapeutic products via such technologies as biosensors, DNA arrays, biochips,
monoclonal antibodies and polymerase chain reaction, amongst others. The largest of
these companies are US in origin, such as Millennium, Myriad Genetics, Axys,
Incyte, Genome Therapeutics and Human Genome Sciences. Millennium and
Monsanto have formed a partnership, as even more so did Hexagen (UK) acquired by
Incyte (US). German firms like MophoSys (Pharmacia-Upjohn, Swedish/US) and
Evotec Biosystems (Novartis of Switzerland and SmithKline Beecham of the UK)
have also become involved in partnerships with foreign big pharma. Thus we see that
entrepreneurial biotechnology firms are, if anything, strengthening their control over
the product development process while courting big pharma for licensing and
downstream marketing and distribution. Proximity to the science base and capability
rapidly to transform into potential knowledge into products remain defining
characteristics of biotechnology. The clustering model which predominated early in
the USA, has developed more recently in the UK, notably at Cambridge and Oxford.
Cambridge, Oxford and Surrey
UK commercial biotechnology effectively started with the establishment of Celltech
in 1979. High-level concern at the failure of the Medical Research Council’s
Molecular Biology Laboratory to patent their discovery of monoclonal antibodies, and
efforts by the Callaghan government to try to remedy the UK’s lagging position in
new, high technology markets led to the National Enterprise Board and MRC
supporting the formation of a state-funded firm. Intended to be set up in Cambridge
in proximity to the science base, property availability resulted in Celltech setting up in
Slough, west London where it remains. In 1999 it merged with Chiroscience, one unit
of the merger to be known as Celsis. Subsequently Celltech-Chiroscience acquired
pharmaceuticals firm Medeva, the first such purchase by a biotechnology company,
and a variation upon the FIPCO ambition.
This marks a resurgence of confidence in the sector following three years of low
stock-market expectations, largely contingent on the slump in fortunes of British
Biotech (see below). Added to this, public concern about the possible health effects of
Genetically Modified Organisms and opposition to secretive governmental processes
13
of regulating trials by industry leaders like Monsanto reinforced investor reluctance.
However, between mid-1999 and first-quarter 2000 the UK biotechnology sector grew
nearly four times faster than the Financial Times Stock Exchange (FTSE) all-share
index, echoing a fivefold increase in the equivalent Standard & Poor composite index
in the US. In the UK Cambridge Antibody Technology (see below) and industry
‘lighthouse’ company saw its share price rise from 165 pence to £42 and a value of
£100 ($160) million. Celltech-Chiroscience-Medeva had a second quarter 2000
capitalisation of £2.8 billion, two strong drug prospects in Humicade (antibody for
Crohn’s disease) and CDP 870 (rheumatoid arthritis), and two more in development.
Crucially for a biotechnology firm, it is in sustained profit and capitalised as one of
the UK’s top 100 (FTSE index) companies. Though not in the same league as
Californian pioneer biotechnology firm Amgen, which, at $70 billion became, in early
2000, worth more than Eli Lilly, Schering-Plough and (before merger with Glaxo)
SmithKline Beecham, nevertheless UK firms are beginning to develop scale and
recover investor confidence as therapeutic products get closer to the market. In the
following sections accounts are provided of the clustering characteristics that
underpin the resurgent UK biotechnology sector.
Oxford
The UK’s most notorious indigenous biotechnology firm, British Biotechnology was
a spinout from the American firm Searle (part of Monsanto) of High Wycombe (near
Oxford), when the latter closed UK operations in 1985. Two research directors
established British Biotech and by 1992 it had become the UK’s first publicly floated
biotechnology company. Its site at Cowley is close to other Oxford-based
biotechnology ventures such as Oxford Glycosciences, Oxford Molecular and
Xenova. In 1997 British Biotech was Europe’s largest biotechnology company in
terms of market capitalisation and R&D costs, and second to Qiagen of Germany in
employment, with 454 employees. Then the company suffered a $2 million stock-
market decline because of delays in gaining approval for its two leading products.
Confidence was badly hit everywhere in Europe by this setback to its leading
company. Subsequent disclosures of potentially fraudulent practices in stoking-up the
stock-market price did not help. Celltech also received a big setback with Bayer’s
announcement of withdrawal from support for its septic shock treatment, leading to a
14
48% price drop. Investor confidence was further damaged by poor drug trial results
from Scotia Holdings and Stanford Rook. The British Biotech clinical trials head,
who was fired for questioning the effectiveness of the firm’s cancer treatment in
public, moved to Oxford Gene Technology (OGT) Operations, a commercial offshoot
of Oxford University biochemist Ed Southern’s pioneering research in DNA biochip
technology. OGT was, in 1999 in legal dispute with Affymetrix over the invention of
the DNA biochip, which the American firm has patented. OGT is a spinout from
Oxford University which retains a 10% stake in the firm, set up in 1995 to manage
income from Southern’s DNA microarray patents.
Other Oxford firms of significance in biotechnology include Oxford University spin-
out Oxford GlycoSciences, the world’s leading proteomics firm, now partnered with
Incyte Pharmaceuticals of California, Oxagen (functional genomics) based in nearby
Abingdon, and therapeutics company Oxford Molecular. Other firms in the extended
Oxford cluster, which is aligned down the A34 highway corridor, are near Abingdon
and Didcot on the Milton Science Park and include Prolifix, a cell cycle control
therapeutics firm, Oxford Asymmetry in bioinformatics and Cozart BioSciences
(immunodiagnostics). A number of newer firms are located at Oxford Science Park,
including Progenica (diagnostics), Oxford Therapeutics (drug development), Oxford
BioResearch, Kymed (biopharmaceuticals) and Evolutec (drug discovery). Other
centres such as the Medawar Centre and Abingdon Science Park also house
biotechnology firms.
The Institute of Molecular Medicine at the John Radcliffe Hospital, Oxford (part of
Oxford University’s Clinical School) is a leading research institute which spins-out
new firms, notably specialising in oncology and AIDS/hepatitis vaccines, in
partnership with Isis, the Oxford University technology licensing and spin-out support
organization, private investors and venture capitalists. Oxagen, in Abingdon, is a
recent spin-out from the Wellcome Trust Centre for Human Genetics in Oxford, and
Prolifix was spun out from the Medical Research Councils’ National Institute for
Medical Research in London. Yamanouchi Research Institute is the first privately-
funded biotechnology research institute to be established in the area (1990). In 1999,
Oxfordshire BioScience, a network association for the industry was established.
Oxford has some 50 biotechnology firms and 200 supply, service or intermediary
15
firms and organizations. It has most of the features of a cluster, though still relatively
small, including rising costs of industrial and domestic property, congestion and
shortages of venture or other kinds of investment capital (partly caused by the
negative British Biotech effect upon investor confidence). In a study by Mihell et.al.
(1997) it is shown that of 40 biotechnology firms identified in 1995 (50 in 1999), nine
out of twelve interviewed were spun-out from the university or other public research
base, and all firms interviewed had grown swiftly in employment and revenues in the
previous five years. Collaboration among local firms and with both the local science
base and more distant big pharma are central to firm strategy, though local networking
between firms was not as developed as the other links, signifying the comparative
immaturity of the cluster. At the time of the survey, in 1996, 2,200 were employed in
the 40 firms identified, and new firms were forming at a rate of three to four per year.
Cambridge
Cambridge’s core biotechnology industry consists of no less than fifty firms and the
broader cluster (venture capitalists, patent lawyers etc.) probably consists of not much
more than 200 firms, including the core biotechnology firms. The growth in number
of biopharmaceutical firms was from one to twenty-three over the 1984-1997 period,
an average of just under two per year, but the rate was four per year in the last two
years of that period. Equipment firms grew from four to twelve 1984-97, and
diagnostics firms from two to eight. Table 6 (a) shows the breakdown of technology-
based companies in Cambridgeshire, while Table 6 (b) shows that for support
services. Key firms include Cambridge Antibody Technologies, one of twelve
spinouts from the Molecular Biology Laboratory, Chiroscience, a start-up originally
based at the Babraham incubator (see below), Cantab Pharmaceutical, Brax
6a Biotechnology Firm Distribution 6b Biotechnology Services Distribution
Biopharmaceuticals
Instrumentation
Ag-food Bio
Diagnostics
Reagents/Chemicals
Energy
41%
20%
17%
11%
7%
4%
Sales & Marketing
Management Consulting
Corporate Accounting
Venture Capital
Legal & Patents
Business Incubation
29%
23%
15%
15%
8%
10%
Table 6: Shares of Biotechnology and Services Functions
16
Source: ERBI (1999).
Genomics, Churchill Applied Biotechnology and American offshoots Chiron and
Amgen. Many of the UK firms originated in Cambridge research laboratories and
retain close links with them.
The infrastructure support for biotechnology in and around Cambridge is impressive,
much of it deriving from the university and hospital research facilities. The
Laboratory of Molecular Biology at Addenbrookes Hospital, funded by the Medical
Research Council; Cambridge University’s Institute of Biotechnology, Department of
Genetics and Centre for Protein Engineering; the Babraham Institute and Sanger
Institute with their emphasis on functional genomics research and the Babraham and
St. John’s incubators for biotechnology start-ups and commercialisation, are all
globally-recognised facilities, particularly in biopharmaceuticals. However, in the
Eastern region are also located important research institutes in the ‘green bio’ field of
agricultural and food biotechnology, such as the Institute for Food Research, John
Innes Centre, Institute of Arable Crop Research and National Institute of Arable
Botany. Thus in research and commercialisation terms, Cambridge is well-placed in
biopharmacuticals; and with respect to basic and applied research, but perhaps less so
commercialisation, ag-food biotechnology also.
Within a 25-mile radius of Cambridgeshire are found many of the specialist
biopharmaceutical firms with which commercialisation development by smaller start-
ups and R&D by research institutes must be co-financed. Firms like Glaxo
Wellcome, SmithKline Beecham, Merck, Rhone-Poulenc Rorer, Hoechst
Pharmaceuticals in the ‘big pharma’ category are represented, and in the specialist
biopharmaceutical sector: Amgen, Napp, Genzyme and Bioglan inter alia. Thus on
another of the criteria for successful cluster development, namely access within
reasonable proximity to large customer and funding partner firms, Cambridge is,
again, fortuitously positioned.
Finally, with respect to ‘ag-food bio’, Rhone-Poulenc, Agrevo, Dupont, Unilever and
Ciba are situated in reasonably close proximity to Cambridge. Hence the prospects
for linkage, though more occluded by public concerns about Genetically Modified
17
Organisms than in the case of health-related biotechnology, are nevertheless
propitious in locational terms.
Cambridge is relatively well-blessed with science and technology parks, though the
demand for further space is significant. At least eight of the aforementioned
‘biopharmaceuticals including vaccines’ firms are located on Cambridge Science Park
itself. St. John’s Innovation Centre, Babraham Bioincubator, Granta Park, the
Bioscience Innovation Centre and Hinxton Science Park are all recently completed,
under construction, or under planning review. Most of the newer developments are
taking place within short commuting distance of Cambridge itself, on or near main
road axes like the M11, A11, A10 and A14. This is evidence of the importance of
access for research-applications firms to centres of basic research, reinforcing also the
point that not everything concerning biotechnology must occur ‘on the head of a pin’
in Cambridge city itself.
The final, important, feature of the biotechnology landscape in Cambridge and the
surrounding Eastern Region is the presence of both informal and formal networking
between firms and research or service organizations and amongst firms themselves.
Cambridge Network Ltd was set up in March 1998 to formalise linkages between
business and the research community, connecting both from local to global networks
in a systematic way. It is mostly IT-focused, though some of this spills over into
biotechnology, given its demand for IT equipment and opportunities for IT delivered
patient and clinician services through, for example, telemedicine. Of more direct
relevance to the biotechnology community are the activities of the Eastern Region
Biotechnology Initiative (ERBI). This biotechnology association is the main regional
network with formal responsibilities for; newsletter, organizing network meetings,
running an international conference, website, sourcebook and database on the
bioscience industry, providing aftercare services for bio-businesses, making intra- and
inter-national links (e.g. Oxford, Cambridge, MA., San Diego), organizing common
purchasing, business planning seminars, and government and grant-related
interactions for firms.
Surrey
18
Moving to Surrey, this county contains an agglomeration of some 37 biotechnology
firms, according to Mihell et.al. (1997), but differs from Cambridge and Oxford in
having a great variety of types of firm and relatively few biotechnology research
centres. Moreover, there is little interaction between firms in the locale, despite the
existence of Southern BioScience, a regional industry association. In 1995 there were
some thirty-seven ‘entrepreneurial’ biotechnology firms and related organizations in
Surrey. Unpublished figures from the UK Department of Trade and Industry note
some 120 of all sizes between Surrey and Kent in 1998. Pharmaceutical firms of
multinational status such as Pfizer, Rhône Poulenc Rorer and Eli Lilly are found
across the two counties, but most firms are SMEs. Despite this, start-up activity has
been less noticeable than at Cambridge or Oxford, partly because, despite there being
a large number of universities in the wider regional setting, few if any have cutting-
edge biotechnological research or pronounced commercialisation strategies. Southern
Bioscience, the regional industry association, had assisted eleven new enterprises in
biotechnology by 1999. One bioincubator only exists in the region, at Sittingbourne
in Kent where there is a Research Centre on a former Shell plc property. Surrey
Research Park has no dedicated ‘wet lab’ space available. Poor availability of
suitable premises was cited as a growth barrier in a Southern Bioscience study of the
local industry. Other barriers noted were, funding gaps, skills weaknesses and poor
communication between industry and academia. Moreover, strong networking has
been directed outside rather than inside the region, and the regional industry
association itself recognises the absence of cluster-like characteristics such as those
enjoyed in Oxford and Cambridge.
An exemplar of that firm-type is Vanguard Medica, a leading drug development firm
originating in Surrey, accessing early stage compounds and commercialising them.
Frovatriptan is one of Vanguard’s successful products for treating acute migraine.
Partnerships with academia are directed towards London, Scotland, Europe and the
US, and collaborating companies include Abbott, Roche and 3M Pharmaceutical.
Biocompatibles is a user of biotechnology in its core products, ranging from contact
lenses to ‘stents’ (biomedical devices) using polymer synthesis to prevent protein
build-up. The company, in interview, said that the Surrey biotechnology industry did
not constitute a cluster because of poor linkage with local universities, absence of
firms for local outsourcing and testing and the fact that firms have little in common
19
around which to build partnerships. Microgen is a diagnostics firm which conducts
environmental and food health monitoring, but has scarcely any local inter-firm links,
sources technology from the USA, where it was once acquired by Centocor, the US
biopharmaceuticals firm, before being spun back out into private ownership in 1994.
The view in the firm was that it was not part of a cluster, and in this respect there was
remarkable unanimity with the other two firms profiled here. Hence, without further
labouring the point, the key absence of strong local linkages to knowledge centres,
supply chains or horizontally to other biotechnology firms, despite the presence of a
regional industry association, points to the absence of clustering despite the presence
of considerable industry agglomeration. Nevertheless, biotechnology firms in this
area have prospered, demonstrating the importance of global networking even in the
absence of the proximate hard and soft infrastructures of the localised, systemic
innovation capabilities offered by clusters (Porter, 1998).
Scotland
As in Wales, the approach to encouraging cluster growth in biotechnology involves
the public funding bodies more centrally than in the market-driven clusters of
Cambridge and Oxford or even the agglomeration of biotechnology firms in Surrey.
However, while Wales has some fifteen biotechnology firms in mini-agglomerations
in Cardiff and Swansea, Scotland has over fifty biotechnology firms. The biggest
geographical concentration is in Glasgow but there is strong science and spin-out
firms also in Dundee and Edinburgh as well as near Aberdeen. The sector is thus seen
as occupying a ‘biotechnology triangle’ between Dundee, Edinburgh and Glasgow at
its heart.
The role of the public sector has been important in Scottish biotechnology in three
ways. First, as elsewhere, the finance for basic scientific research in the universities is
mainly provided by UK Research Councils and, to a lesser extent and influenced by
the measures of scientific legitimacy conferred by the high public ranking of
biosciences schools, university hospitals and the like, this also attracts private sector
funding from big pharma or charitable trusts. Second, the sector has benefited from
the adoption of a cluster strategy by Scottish Enterprise, the development agency for
Scotland. Scottish Enterprise commissioned Michael Porters’ consultancy, Monitor,
20
to conduct a scoping exercise and provide intensive, back-up training for developing
four pilot clusters, one of which was biotechnology. This has now begun in earnest
and the 1). It is noteworthy that this methodology, the whole cost to Scottish
methodology by means of which cluster-building is taking place is established (see
Fig.1)
21
Stakeholders: industry, academia, education, research, government and other
institutions
Fig. 1: The Scottish Enterprise Cluster Approach in Biotechnology
Enterprise for which was $2 million, is unlike what might be termed a more normal
planning and programming approach. Instead, it places great emphasis on the
processes of scoping, picturing and resourcing a ‘vision’ of the cluster. Then, armed
with the cluster-vision, stakeholders and leaders willing to show strong commitment,
bring together key actors and engage in interactive learning are assembled. Only then,
at the third stage, does data-gathering, benchmarking and scenario-building begin.
This leads to action planning based on consensus and concrete agreements followed
by implementation guided by cluster pictures, leaders, expenditures and evaluation.
This is a market-influenced model of public enterprise based on the ideas of ‘picture,
manage and monitor’, rather than ‘survey, analysis and plan’.
The third way in which public intervention has a generic impact on biotechnology in
Scotland flows from the consensus agreement on the cluster strategy at Scotland-wide
level, and the collaboration by governance bodies to pool funding to assist in the
process of supporting, in this case, the biotechnology sector (see Scottish Office,
1999). Thus, Scottish Enterprise, the Scotland Office and the Scottish Higher
Education Funding Council created a fund of some £11 million to enable all clusters
to develop by innovative means. As an example, funding is being made available to
22
Learning and Leadership
Gathering Data
-Benchmarking
-Global Trends
-Scenarios
Scoping Engaging
Stakeholders
Initiating Picture the
Cluster
Assemble
Resources
Collaborating
with
Stakeholders
Action
Planning Implement
Pictures
Leaders
Resources
Assessments
Supporting Dialogue and
Networking
‘buy-out’ or ‘free-up’ the time of bioscientists and biotechnologists to concentrate on
research and commercialisation activities instead of teaching and administration. This
is administered with local knowledge and sensitivity through the decentralised
Scottish Local Enterprise Companies with whom candidate academics discuss their
prospects for receiving funding.
Despite this excellent public support, the existence of biotechnology as one of the
cluster-building projects is testimony to the fact that, although having considerable
potential, the biotechnology sector does not yet constitute a cluster in the way that
Cambridge, Massachusetts or Cambridge, England (at a smaller scale) does. This is
partly because spinout activity is relatively recent, partly also due to the limitations of
the local, private venture capital industry and the relatively late recognition by public
bodies of the rôle they, together and in partnership, can make to assisting the
commercialisation of, often excellent, basic science. Scotland is globally known as
the home of the first transgenic animal, Dolly the sheep, developed at the Roslin
Institute near Aberbeen. Other specialities include drug discovery, evaluation and
clinical trial management in cancer research, cystic fibrosis, Alzheimer’s and
Parkinson’s diseases. Scottish biotechnology also has a significant presence in ag-
biotech, with animal health and breeding, veterinary medicine, crop yields and pest
control. Firms deploying environmental biotechnologies are also present. In all,
Scottish Enterprise claim a ‘cluster’ of some 180 core and supply or service firms
engaged to some degree in the ‘cluster’. In truth, the core is some 40-50 firms and
they are quite geographically dispersed and focused mainly on their scientific home
bases.
The industry in Scotland is made up broadly as follows (Table 7). It is clear that
biopharmaceuticals is the strong, core part of the industry in Scotland, with a
23
Activity Number of Firms
(Core Activity)
Biopharmaceutical Therapeutics
“ Diagnostics
“ Clinical Trials
“ Contract R&D
Bioprocessing
Environmental Bioremediation
“ Diagnostics
“ Waste Treatment
Ag-Food Therapeutics
“ Plant Breeding
“ Diagnostics
“ Contract R&D
Supplies
Support Services
24
18
10
14
17
3
7
5
1
2
4
2
23
26
Table 7: Composition of Biotechnology Sector in Scotland
Source: Biotechnology Scotland Source Book, 1999
substantial number of firms in therapeutic product development, fewer in diagnostics,
research and clinical trials (many of the contract R&D entries are universities, some
with firms attached, others not). There is also a reasonably well-endowed supplies
(reagents, chemicals etc.) and support services (legal, consultancy etc.) infrastructure.
Hence, as a whole, Scotland has a robust basis for future growth in biotechnology, but
it may lack, at present, the interactive capacities and sophisticated support
arrangements found more extensively in Cambridge and Oxford. Having said that, it
is undoubtedly closer in type to those university-based clusters and quite unlike the
rather amorphous agglomeration found in Surrey. In Dundee, there are a number of
highly-rated bioscience departments in the university, and a new Wellcome Trust-
funded biotechnology institute. Cyclacel, which will be described below, and Shield
Diagnostics, a manufacturer of immunoassays in cardiovascular diseases, are
spinouts, the first located on the nearby innovation park of Dundee University, the
second having graduated beyond it as it has grown in size. The Ninewells Hospital
Medical School has some 250 bioscience researchers to contribute to the total of 1000
life scientists in Dundee. Of these 170 are in the Wellcome Trust Institute (which
opened in 1997) rising eventually to 240.
24
Dundee thus has the science base for possible future cluster development but as yet
lacks critical mass of firms. Cyclacel is a contract R&D spinout specialised in drug
discovery for cancer genomics, the key connection is with the Ninewells Medical
School, headed by David Lane (co-owner of Cyclacel) who discovered the p53 anti-
cancer gene. Venture capital of £2.5 million was accessed from London-based Merlin
Ventures, headed by biotechnologist Chris Evans, who founded Chiroscience, one of
the UK’s leading biotechnology firms. Chiroscience, it will be recalled, recently
merged with the UK’s first biotechnology firm Celltech, subsequently acquirers of
pharmaceutical firm, Medeva.
Cyclacel contracts-in research from American head-quartered Quintiles, one of the
world’s leading biotechnology contract research firms from Boston, this subsidiary
based in Edinburgh. Quintiles entered Scotland by acquiring Innovex, an upstream
biosciences spinout from academia. Another firm, now located in Perth, called
Quantase is present near Dundee because of Shield Diagnostics based on the
Technology Park at Dundee. Quantase conducts neonatal screening and was acquired
by Shield in 1994. Shield specialises in cardiovascular neonatal diagnostics. In
September 1997, however, Quantase was subject to a management buy-out, employs
eight people, of whom three are research scientists and has won government
innovation awards (SMART, SPUR) to support development of its PJU Screening
Home Test. Expansion has been funded by venture capital from UK firm 3i and bank
loans. Quantase, like Cyclacel and Quintiles, find the environment in Perth highly
suitable for their business activities. Linkages between firms are regular and
established even though geographical co-location is not considered a pre-requisite.
Communication links between Dundee and Edinburgh, particularly, are extremely
easy and swift. Moreover, Glasgow is well-linked to both by high grade
transportation links.
This small snapshot of biotechnology in Scotland shows that the sector has the
characteristics of close inter-firm interaction often found in clusters, and taking the
form of network linkages. In Scotland as a whole, there are largely adequate business
infrastructures to sustain a successful biotechnology sector. Private capital for
biotechnology investment is not abundant in Scotland, but this is partly compensated
by the presence of public sector support in this well-networked, latent cluster.
25
Concluding Remarks
This paper began with a commentary on how dependent big pharma has become upon
significantly smaller technology-driven start-up and spin-off firms. This was
demonstrated in detailed analyses of biotechnologically-derived therapeutic
treatments manufactured, marketed or distributed by the multinational pharmaceutical
companies. Whichever way diverse data sources are analysed, big pharma is
overwhelmingly dependent for drug-origination upon independent, lesser-scale,
biotechnology firms. Of course, the latter are dependent on the former to at least as
great an extent for the large cash-investments required to test and trial potential
products over lengthy time-periods and at high-risk. Big pharma is cash-rich enough
to continue this asymmetrical power-game for as long as biotechnology firms fail to
make the scale breakthrough to become fully-integrated pharmaceutical companies or
FIPCOs. This kind of relationship of double, but asymmetrical, dependence is
probably unique in the business world, though it has a resonance with the way the IT
industry operated in its earlier days, when electronics multinationals quarried Silicon
Valley for technologically-sophisticated start-ups. By the end of the millennium, of
course, some of the bright start-ups of the 1970s and 1980s had themselves outgrown
or displaced the larger predators, as the histories of Microsoft and Intel exemplify.
The paper is unable to say that a comparable process of independent, technology-
focused firm growth from start-up to market leader will happen in biotechnology as it
has, to a growing extent, in IT. This is not ruled out, but what can be stated with
confidence is that the model of venture capital-driven, start-up and spinout growth,
usually in business clusters, has now spread from the USA to Europe, particularly in
the UK, and that, if anything, big pharma shows less signs of being at the research
cutting-edge of biotechnology in the era of the human genome than it did in the days
of monoclonal antibodies and recombitant DNA. Moreover, a first case of
biotechnology acquiring pharmaceuticals occurred with the Chiroscience-Celltech
purchase of Medeva in November 1999 in the UK. There has also been some
equalisation of the technological lead in product commercialisation between the USA
and Europe as the climate for academic entrepreneurship has improved in the latter.
26
There are even some signs in the USA that the biotechnology firm formation rate has
declined, with merger and acquisition practices among biotechnology specialist firms.
This may signify a new stage in the industry’s slower evolution towards a less
bifurcated structure than hitherto. Peak years for new firms in Massachusetts, for
example, were 1991-93, with annual start-up rates of 15, 21 and 15. Between 1996
and 1998 seven Massachusetts firms merged or were acquired by others
(Massachusetts Biotechnology Council, 1998). Alternatively, it may be a lull before
the storm of potential new firm formation associated with functional genomics as
gene-sequencing, bioinformatics and a host of other commercial applications of
human genome science are explored. More of this kind of activity is likely to occur in
the UK, as well as elsewhere in Europe, than happened in the first wave of
biotechnology applications growth in the 1980s when key discoveries remained
unpatented in UK laboratories, leaving US technologists a clear field for early
adoption and application. Despite its European lead in biotechnology product-
potential the UK is, in 1999, as dependent on the US for biotechnological therapeutic
products, marketed and distributed by big pharma in the UK, as Germany. However,
UK independent biotechnology firms dominate the European pipeline for future
biopharmaceutical products, and many of these involve alliances, as with UK
pharmaceutical firms. Cantab Pharmaceutical’s vaccine partnerships with Glaxo and
SKB, Powderject’s with Glaxo, and Peptide Therapeutics with SKB which are
illustrative of this tendency. But UK alliances with non-UK pharma, like Cambridge
Antibody Technology’s with Eli Lilly, Chiroscience’s with Schering-Plough, Bristol
Myers Squibb and AstraZeneca, and Scotia Holdings with Boehringer Ingelheim are
noteworthy and show that the levelling-up between US and European entrepreneurial
firms is now a reality in prospect rather than mere hype.
The final inference to be drawn from this analysis of global-local power dependencies
and asymmetries is two-pronged. First, ‘strength-in-numbers’ characterises the
practices of the small-firm ecosystem defining the originators of potential
biopharmaceutical products and platform technologies. The cluster is the definitive
organizational mode of the creative community of firms that risk oblivion to pursue
discovery and commercialisation. Investment is tight, so situations that can lower
transaction costs or remove them via trustful exchange, reputational trading and
collective learning in localised knowledge networks is of key importance. And the
27
prospects of long-term profit continue to attract the complementary business, legal
and financial services companies into the cluster alongside the research laboratories,
incubators and start-up firms. This is an ‘extended campus’ milieu rather than the
‘extended workbench’ metaphor applied to clusters in more traditional industries such
as those of northern and central Italy. But this also highlights the second feature of
the ‘triple-helix’ relationship between industry, university and government (Etkowitz
and Leydesdorff, 1997), which is that big pharma and the entrepreneurial
biotechnology firms are inordinately dependent also upon the public purse. For
example, some $770 million of public research funding flows through the Boston
biotechnology community per year, and it is at least $1 billion each in San Francisco
and San Diego. The US biotechnology funding agencies had at their disposal $20
billion of public money in 1999, more than twice as much as the business R&D
budget of $9 billion. This is by no means only an innovation process involving
venture capital, management support and start-ups to transfer research results from
laboratory to market. It is fundamentally fuelled by public research budgets.
Estimates of the value of the market at $70 billion in 2000 give an indication of the
public : market value ratio. Keep in mind also that UK government annual
expenditure on bioscience research is some £1 billion and Germany’s a further $1
billion if the large public element in biotechnology venture capital is included, and we
see something of the scale of modern public investment in this industry of the future
(Cooke, 1999; DTI, 1999a). In conclusion, the globalisation of bioscience and its
commercialisation in biotechnology is a study in variable geometry between
multinationals and entrepreneurial start-ups, competition and collaboration, public
subsidy and private profitability, or as some might also say, the devil and the deep
blue sea.
Acknowledgements
Thanks to the Centre for Technology Assessment, Baden Württemberg for inviting
this paper. The content arose partly from research conducted as a task force member
the UK Minister of Science’s inquiry into biotechnology clusters. All matters of fact
or opinion are those of the author alone. I am grateful to the UK BioIndustry
Association for data on drug origination, in particular Samuel Ogunsalu whose
assistance was invaluable.
28
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