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

Biotechnology Hype of the 1990s

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

Source: The Finnish Venture Capital Association

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

Drug Development Process

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