from research to global business: lessons learnt from finnish biotechnology...
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From Research to Global
Business: Lessons Learnt
from Finnish Biotechnology
Industry
Juha Tuunainen
University of Helsinki
Contents
• Biotechnology
• Biotechnology in Finland – from basic research to an important pillar of Finnish economy?
• Pharmaceutical industry and drug development process: some characteristics
• Case example 1 – Galilaeus: challenges of developing pharmaceutical industry in Finland
• Case example 2 – Finnzymes: importance of global collaborative networks in successful product development
• Conclusion
Biotechnology
• any technological application that uses
biological systems, living organisms or their
parts to make or modify products or processes
• old biotechnology: use of yeast in baking and
brewing, breeding by selection and crossing
• new biotechnology: use of genetic engineering
technologies in agriculture, medicine,
pharmaceutical industry etc.
Emergence of Knowledge-based
Economy
• the central role of knowledge and know-how in
market economies – why?
1) increasing
complexity of
products:
automobiles, flexible
manufacturing
systems, airliners…
2) from mass production to
customized production: mobile
telephones, sports equipment,
Dunkin’ Donuts…
3) rapid scientific
development & scattered
know-how and resources:
bio- & nanotechnology, ICT
What does this mean?
→ difficulties in mastering the development and
manufacturing of products within a single
organization – networks of different kinds of actors
(firms, hospitals, universities, government
agencies, end-users…) have become important
• biotechnology = a paradigmatic example of
networked business: new, fast-developing field of
technoscience with dispersed, specialized know-
ledge base and lucrative business opportunities
4) from goods to services: e.g.,
co-development and long-term
service contracts in industrial
automation
Public Support of Biotechnology
in Finland
• Many governmental biotechnology research funding programs since the turn of 1980s
• During the 1990s, the R&D funding totalled 400 million euro (Ministry of Education, Academy of Finland, Finnish Funding Agency for Technology and Innovation TEKES)
• Public capital investments totalled 100 million euro (Finnish Innovation Fund SITRA)
• cf. developmental costs of a modern pharmaceutical product are more than 800 million USD
Comparative Perspective:
Public Biotech Funding
Publicly funded biotechnology R&D as a percentage of total publicly funded R&D in 2000. Source: Devlin, 2003. An Overview of Biotechnology
Statistics in Selected Countries. STI Working Papers 13, OECD, Paris.
Comparative Perspective: The
Number of Biotech Companies
The number of biotechnology firms per million inhabitants, 2000
(source: Canadian Trends in Biotechnology, http://www.biostrategy.gc.ca/
StatusreportE/c3_e.html)
Finnish Biotech Companies:
Fields of Business and Personnel
Source: Index of Biotechnology Companies, Finnish Bioindustries, 2003.
Galilaeus
Finnzymes Companies by size
of personnel
Biotech Companies in Finland
• The total number of companies: 218 (2009), app. 150 of these were R&D firms and about 50 were support companies (consultancies etc.)
• 141 companies (app. 75 %) employed less than 50 persons (2007)
• Personnel in biotech R&D firms: 1 735 (2001) → 2 871 (2007)
• Biotech industry in Finland is not yet profitable
• A typical company - a university start-up, closely connected to a university
- focuses on R&D in health care sector (drug discovery, diagnostics)
- does not make profit yet Source: OECD & ETLA
Pharmaceutical Industry: Some
Global Developments...
• Long and steady growth of pharmaceutical market and industry since the WWII, slowing down of the growth in developed countries
• Biomedicals are an important part of the indust-ry: one fourth of all product candidates in phar-ma industry result from biotech R&D
• Increased costs of developing new medicines: development of one drug takes 12 years and circa 800 million USD → high risks
• Heavily concentrated: in 2003, the top ten com-panies had a 44 % market share
• Strong growth of the generic industry
Pharmaceutical Industry in Finland
• Finland is a small market area → part of the global pharma industry
• Many European countries have a strong drug industry but not Finland: in the industrial structu-re pharma sector is small, no major companies in the country (cf. ICT)
• Orion Pharma: 3 176 employees (the global giants > 100 000 employees)
• The venture capital sector is weak
• Life sciences have been one of the high priority areas in innovation policy since the 1980s: attempts to make biotechnology and biopharma an important pillar of the Finnish economy
Production by Industry Sector in
Finland between 1947-2005
Source: Hermans, R. & al. 2005 International Mega-trends and Growth Prospects of the Finnish Biotechnology Industry: Recent Economic Research and Policy
Implications. Journal of Commercial Biotechnology 11, 2, 134-145.
Some Success Stories
Biotie Ltd.: SelincroTM for treat-
ment of alcohol addiction
Juventia Pharma Ltd.:
fipamezole for treat-
ment of Parkinson’s
disease
Hormos Medical Ltd.:
OphenaTM for treatment
of menopausal disorders
The Current Situation
• The hype is over: since 2000, investors have been very cautious in investing new funds into biotechnology industry
• Biotech industry is still a non-established, young
and emerging sector in Finland
• Problem: lack of domestic venture capital invest-ments after SITRA withdrew its seed funding
• Funds available for R&D projects through Tekes
• Only a few companies have gone bankrupt
• Many biotech companies intend to place their products in international markets
• How to develop these companies into profitable businesses?
Case Example 1: Galilaeus 1994-2007
• Business area: development of anti-cancer drugs
and their production technologies (based on
knowledge on streptomyces bacterium)
• A typical company in the Finnish biopharma in-
dustry: small (20-40 employees), young (est.
1994), R&D oriented, unprofitable
• Active period started in 1998 as the company got
the first major capital investment from the Finnish
Innovation Fund SITRA
• Later: much funding from SITRA (12 million euro)
and the Finnish Funding Agency for Technology
and Innovation TEKES (figures not published)
Doxorubicin produced by chemical synthesis from daunorubicin.
Pilot scale fermentat-
ion facility for anti-
cancer drug product-
ion. Antibiotic mole-
cules (daunorubicin)
extracted from Strep-
tomyces bacteria.
Galilaeus’ Early Product Ideas
Final daunorubicin and
doxorubicin products for
therapeutic use.
Streptomyces
bacteria
Daunorubicin.
Company’s Developmental Trajectory
Three major phases in the company’s career:
gradual down-scaling of an ambitious business
plan
1) development of production technologies for anti-
cancer drugs and establishment of drug factory in
Finland (1998-2002)
2) continuation of drug development through a
company merger (2002-04)
3) contract manufacturing and development of
production technologies for industrial and
pharmaceutical ingredients (2004-)
Major Developmental Challenges
Firm level challenges • incomplete drug production technology
• lack of quality assurance system and licence for drug production
• lack of business management skills and knowledge of the business area
National innovation system level challenges • insufficient amount of venture capital funds
• expanding market but increasing competition in production with low cost countries → lack of competitiveness in terms of production costs
Supranational level challenges • difficulties in creating collaborative projects with
companies operating in emerging third world countries
Case Example 2: Finnzymes
• private research intensive
firm 1986-2011
• now part of Thermo
Fisher Scientific
• main products: reagents,
enzymes and machines
used in polymerase chain
reaction (PCR)
• import business: agent for
30 principals (1986-)
• own product development
(1991-), diagnostics
(1999-)
• turnover: ≈ € 13 million
• profit: ≈ € 900 000
• annual change in
turnover: + 17-20 %
Company’s Developmental Trajectory
Five developmental phases of the firm: expanding
activities from import business to reagent and
instrument development
1) import business: agent for 30 principals (1986-)
2) own product development: enzymes (1991-)
3) diagnostic kits and services (1999-)
4) an instrument developer and manufacturer (2007-)
5) a part of a large US healthcare equipment company,
Thermo Fisher Scientific (2011-)
Finnzymes’s Products
Piko PCR machine
DNA Polymerase
enzymes
Piko PCR plates
Instruments
for PCR
Diagnostic
kits
Restriction enzyme PmlI
(New England Biolabs)
Major Developmental Advantages
Firm level advantages • acquiring early income through import business
• reasonable product development costs when compared with pharmaceutical sector
• continual success in networking: from initial learning trips to major product development collaborations
• good business management skills and knowledge of the business area – ability to see lucrative business opportunities
National innovation system level advantages • getting initial venture capital, no additional funds needed
Supranational level advantages • expanding field of business with no competitors
operating in low-cost countries
Finnzymes’ Product Development
Entity/Competence Products Partners
1) Bacteria strains /
Enzyme purification, quality
control of enzyme products
Restriction enzymes used
in gene transfer (1985–
89)
New England Biolabs
Inc., USA
2) DNA polymerase used in
PCR / Methods of purifying
DNA polymerases
Dynazyme DNA
polymerases for PCR
(1989–91)
IceTec – Technological
Institute of Iceland
3) Engineered polymerases /
Methods of fusing a protein
with polymerases,
optimization of reaction
conditions
Phusion & DyNAmo DNA
polymerases (2000–03)
MJ Bioworks Inc., USA
4) PCR & enzymes for
diagnos-tics / Optimization of
PCR for various diagnostic
purposes
Diagnostic kits for animal
parentage and plant
diseases (1995–1999)
Fabalab, Finland
EmTran Inc., USA
5) New heath pump & ultra-
thin-walled plastic tubes /
PCR machine design
Piko PCR machine
(2005–07)
Partnertech, Ltd., Finland
Bridge Bioscience
Corporation, USA
Conclusion 1/2
• Despite significant public investment, biotech / biopharma is not a major industry in Finland, its development into such will take decades
• Long way from research to profitable business at the company level, esp. in biopharmaceuticals
• Special challenges in Finland: 1) lack of venture capital funds, 2) lack of major pharmaceutical company and 3) high production costs
• A need to adopt business model, which makes it possible to get cash-flow at an early stage (Galilaeus vs. Finnzymes)
Conclusion 2/2
• Importance of networking on a global level: 1) venture capital, 2) product development and 3) commercialization of products
• Policy implications: measures needed to support 1) firms’ access to global markets 2) development of international networks, business
management skills and venture capital funding 3) development of capabilities in evaluating when
an innovation is mature enough for commercialization
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