From the perspective of a govern-ment, or for that matter an indi-vidual taxpayer with only a pass-ing interest in or knowledge ofbiotechnology, the biotech sectorseems an unpromising area forinvestment. Biotech as an indus-try is barely breaking even. Thevast majority of biotech compa-nies each employ at most a fewdozen people, and the successrate in terms of getting new prod-ucts to market is not particularlygood. A huge financial invest-ment is required to fund a firm’sexistence for years just to deter-mine if the firm is on the righttrack to success.

Indeed, with capital resources forbiotech seemingly more constrained thanever, it would seem that there are too manybiotechnology companies in existence.Certainly, from a North American perspec-tive, it is easy to argue that enough compa-nies exist to take forward a substantial per-centage of the most promising technologies.Europeans might argue that the US lead inbiotech is insurmountable; to invest inbiotech now would be a case of too little, toolate.

Why more companies?However, there is one simple reason why theworld needs more biotechnology compa-nies: Biotechs are still a critically importantvehicle through which to exploit basic scienceand technological innovation. Among EUcountries, there are over 200 universities andresearch institutes with major research pro-grams in life sciences, as well as a substantialnumber of institutions whose work impactson life sciences. This represents a vast pool oftechnology and expertise, the majority ofwhich is at least partly supported by publicresearch funds. Having funded this research, it

is in the taxpayer’s interest to ensure that it hasthe best possible chance of successful exploita-tion. After all, if the 200 largest institutions inEurope generate an average of ten patentableideas per year, the pool of intellectual propertygenerated would far exceed the technologyportfolio of all but perhaps a few of the world’smajor pharmaceutical companies.

The challenge for companies and investorsalike is to ensure that leading-edge sciencegenerates leading-edge products. Over thepast decade, changes in both university andgovernment policies in the US have created asystem that encourages and rewards those inacademia who take steps to see that importantbasic research has the opportunity, at least, tohave a commercial impact. In Europe howev-er, the academic reward system and prevail-ing attitudes among researchers still promotethe idea that exploitation of technology issomehow of lower value than fundamentalresearch. There are encouraging signs,though, that the European scientific commu-nity is recognizing that the ultimate achieve-ment is seeing a scientific breakthroughtranslated into a therapeutic or environmen-tal benefit—and that to achieve this, thecommercialization process must beembraced.

The biotech argumentFor an individual scientist, as for an institu-tion, a variety of potential routes are avail-

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able to enhance the likelihood ofsuccessful commercialization ofa new technology or key scien-tific discovery. The preferredoption of many research institu-tions when faced with a poten-tially valuable piece of intellec-tual property in the life sciencesarea is to license it to a largepharmaceutical company. In thebest case, this can be the fastestroute to commercialization, andmay be the most likely to gener-ate substantial financial returnfor the institutes and individualsconcerned. But it is also possiblethat turning to an existing smallbiotech, or creating a new ven-

ture to commercialize new technology, maymore likely achieve the optimum result.

Certainly, licensing a promising technol-ogy to a biotech company, whether existingor new, is neither easy nor low-risk, but itcan prove to be a more efficient means tocommercialize the technology, and ulti-mately to maximize returns.Pharmaceutical companies have beenknown to undervalue intellectual property,particularly when it comes from an academ-ic institution or when it relates to researchthat is slightly off the mainstream of inter-nal research programs. Thus, a universitydoes not always obtain the best value for itsintellectual property by licensing it to alarger, rather than smaller, company.

Conversely, it is almost invariably thecase that the less technology a companyowns, the more important any new technol-ogy becomes to the future of the company.Equally important is the perception of fun-ders, whether venture capital or the publicequity markets: a single patent may not per-ceptibly affect the stock price of GlaxoWellcome, for example, but the same patentcould easily account for a doubling in valueof an early-stage biotech company. As aresult, intellectual property owners, i.e.,academics and their universities, should beable to negotiate better terms, particularlyover the long term, from biotechnologycompanies than from large pharmaceutical

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Not enough biotechs, and whatgovernment can do about itWhile financial markets may believe there are too many biotechnology companies in the world, research suggests that the opposite is true.

Kevin Bazley

Kevin Bazley is development manager for thebiotechnology group at Scottish Enterprise,120 Bothwell Street,Glasgow G2 7JP, UK(kevin.bazley@scotent.co.uk).

Europeans might argue that the USlead in biotech is insurmountable;to invest in biotech nowwould be a case oftoo little, too late.

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companies. As a corollary, because a smallbiotech company relies on a smaller tech-nology portfolio, it is likely to be morefocused on developing the technologyquickly, in some cases even being desperateto do so.

Pharmaceutical companies are alsolooking at biotechnology companies as animportant source of innovation, and per-haps even as a cost-effective intermediaryin developing new technology into leading-edge products. Often, as a relatively smallinitial investment, a pharmaceutical com-pany can get an early assessment of a tech-nology’s value without having to make along-term commitment in terms of inter-nal staff resources. Contracts laden withmilestones put much of the risk of earlytechnology development on the shouldersof the biotech company, though conversely,the rewards for the biotech company canoften be larger in the long run as a result ofbearing a disproportionate share of theearly risk. Nonetheless, this equation offersbenefits for all three parties—the universi-ty, the biotech firm, and the pharmaceuti-cal company.

From a government’s economic devel-opment perspective, one can list other ben-efits. For example, on a relative basis,biotech companies grow fast and have sub-stantial long-term potential to add value tothe economy. Cumulatively, the impact of alocal biotech industry can be significant,certainly in terms of growing gross domes-tic product, if not in absolute employment.Experience from a number of regions sug-gest that entrepreneurial biotech compa-nies are a factor in attracting ventureinvestment, sucking in funding from out-side the region that may ultimately broadento support other sectors. Even small num-bers of such companies can quickly influ-ence how regions are viewed by outsideinvestors, as demonstrated by the fastgrowing biotech sectors in Finland,Scotland, and a number of Germanregions.

The necessity for biotech companies tothink and act globally almost from the dayof inception can also have a positive effecton the surrounding area: serving a globalmarket seems less daunting if the companynext door is already doing so, and for mostbiotech companies, anything less than aglobal approach may significantly reducegrowth potential. The experience of com-panies such as Quantase, in Perth,Scotland, whose neonatal diagnostic prod-ucts are being sold in 12 countries less thana year after startup, are more common inbiotech than in almost any other industry .

The role of governmentIf the premise that emerging biotech com-

panies are a positive force for the develop-ment of economies is accepted, then whatshould be the role of governments andtheir agencies in facilitating such startups?The immediate issues to be addressedinclude whether a short-term or long-termview is most appropriate, whether govern-ment actions should be hands-on or hands-off, and whether the role should be restrict-ed to facilitation or should extend to proac-tively working to start companies. Theoften-expressed view that entrepreneursstart companies, while governments get inthe way, should always be kept in mind.

A clear lesson can be learned from thedevelopment of biotech clusters in a num-ber of areas; government interventioncan—and does—fuel growth in thebiotechnology sector, but only if other fac-tors are in place. These factors vary, butmight typically include the availability of

support mechanisms, venture capital, andprofessional advice, as well as a positive atti-tude to both technology and entrepreneurship.

Research Triangle Park in NorthCarolina is a good example of patient inter-vention over a long period leading to theestablishment of a self-sustaining cluster ofbiotechnology companies. Even San Diegowould not have developed so far so fastwithout the impetus provided by govern-ment intervention to counter the effects ofdeclining defense contracting. Perhaps theclearest example of successful governmentintervention is Saskatoon, Canada, where adecision by the Provincial Government tobuild an agricultural biotechnology clusterhas led, over a decade of development, to avibrant industry employing several thou-sand scientists and support staff and a rep-utation as one of the capitals of the agricul-tural biotechnology world.

The most appropriate form of govern-ment intervention is a matter for continu-ing debate, though it seems clear thatsteady support for high-quality basicresearch remains critical to long-termdevelopment. Other key interventionsinclude identifying and alleviating con-straints on the development of startups,whether related to availability of funding orskills, infrastructure issues, or technologytransfer mechanisms. Actions to mitigate

risk for both entrepreneurs and funders arealso appropriate.

Biotech in ScotlandSome possible approaches are well illus-trated in the Scottish model. The biotechindustry in Scotland is growing steadily,with around 50 biotech companiesemploying 3,600 individuals, a similarnumber of supply or support companies,and around 15 research institutions withsignificant life sciences programs. The vastmajority of activity is highly geographicallyconcentrated in the Dundee/Edinburgh/Glasgow triangle.

Scottish Enterprise, the government’seconomic development agency, established abiotechnology team in 1994, and has pur-sued a focused policy of developing thebiotech cluster on a number of fronts. TheScottish Enterprise model has involved sup-porting research institutions in their effortsto attract commercial research and to famil-iarize academic researchers with the require-ments and rewards of working with companyfunding as opposed to government funding.In addition, Scottish Enterprise supports thetechnology transfer infrastructure by identi-fying promising technologies within the aca-demic institutions and developing exploita-tion routes for these technologies.

In terms of supporting startups them-selves, the agency has helped provide infra-structure, both in terms of property andnetworking and mentoring support.Perhaps most importantly, it has helpedmitigate risk through such strategies as car-rying out market research both before andafter company formation; by reviewingbusiness plans at an early stage and contin-uously thereafter until the company isestablished; and in some cases by investingalongside the private sector as a means ofsharing investment risk. Provision of finan-cial guarantees to landlords or leasing com-panies is also starting to occur as a cost-effective means of helping early-stage com-panies with no track record. This approachis starting to pay off, as demonstrated bythe sustained growth occurring today in theScottish biotech cluster. We expect our rateof success to accelerate as the benefits ofvarious programs feed through.

ConclusionsClearly, Scottish Enterprise and similaragencies in a number of countries have rec-ognized that startup biotech companieshave a great deal to offer both in economicgrowth potential and in facilitating theexploitation of research. Such recognitionis a prerequisite, but positive action to facil-itate development and, even more, theremoval of obstacles to growth, can havesubstantial benefits in the long term. ///

Government interventioncan—and does—fuelgrowth in the biotechnologysector, but only if otherfactors are in place.

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