into a strategic alliance (to obtain additional research dollars) with a large pharmaceutical company, or license the product to a large pharmaceutical firm. It commercialize the product on the world market. Perhaps the early-stage R&D firm will obtain some royalty stream from the development.
This choice of a “standard” or “typical” biotechnology business model that investors seem to be happy to finance creates a number of issues. Drug discovery and development has become a longer and more expensive process. As companies reposition their business, the need for capital has increased considerably. There are significant risks involved, but many management teams see having product candidates in the development pipeline as the only option in the current climate to create a more sustainable long-term business (Chaya 2005). When business models are determined by investors’ preferences, and not by the actual fit between a firm’s resources and market needs, many potentially good firms fail. Failures cannot always be attributed to technology defects, or the lack of understanding of customers’ needs. Many of the failures of new biotechnology firms result from a mismatch between the optimal business model that could fit the company’s technology with market needs, and the actual business model required by venture capitalists for the firm to gain financing.
A proactive market management approach is not always at odds with fulfilment of short-term goals of a biotechnology firm, namely, finding access to funding. If venture capitalists place high value on market aspects in their investment decision- making, then these requirements are directly reflected on the potential investment targets. In the venture capitalists’ view, the expectation of high financial returns from a biotechnology investment is mainly correlated with the size and growth of markets targeted by the firm, and the radical nature of its innovations (Tyebjee and Bruno 1984). A firm’s market orientation should have a positive effect on external investors’ willingness to invest in the firm. A consistent finding from previous research is that venture capitalists and business angels place importance on the abilities and characteristic of firm management when making investment decisions (Shepherd and Zacharakis 1999; Muzyka et al. 1996). Additional criteria in investment decision-making include product characteristics (proprietary features, competitive advantage, potential to achieve strong market position), market characteristics (size, growth, limited competition), and returns (potential for high returns, clear exit opportunity) (Fried and Hisrich 1994; Sweeting 1991). A market-oriented firm should be knowledgeable of its market characteristics. By providing good communication of positive market characteristics the new firm can have a positive effect on investors’ willingness to invest in the firm (Renko 2006).
insights but also on our extensive combined experiences in researching and consulting early-stage biotechnology firms.
To summarize, three categories of topics have been discussed here. First, the history of the field of biotechnology and the traditional business models that have been used by companies and funded by investors have a bearing on the strategic options available for firms today. Second, we have reflected the field of biotech- nology entrepreneurship through the lenses provided in contemporary strategy- and entrepreneurship research. Especially, the strategic fit between the firm’s environment and its resources is important for the early-stage biotechnology firms.
Third, and most important, this chapter has introduced multiple concepts to highlight the importance of the technology–market balance in biotechnology start- ups. We complemented the traditional Schumpeterian view of entrepreneurship and innovation with the Kirznerian view, which emphasizes the role of market knowledge in discovering business opportunities and acting upon them. We also employed the concept of market orientation from the marketing literature to illustrate the importance of learning about markets. Finally, the general terms of
“proactiveness” and “reactiveness” were used throughout the chapter to emphasize not only the role of technological foresight but also market foresight in successful biotechnology strategies.
We are not alone with our argument that even the early-stage, science-driven biotechnology firms should strive for a balance between technological knowledge and market knowledge. As mentioned earlier, biotechnology entrepreneurship is typically viewed through a Schumpeterian (1934) perspective where the entre- preneur revolutionizes the marketplace with a technology-based innovation. The keys to this revolution are typically technological knowledge because of its
“valuable, rare, and imperfectly imitable” characteristics (Wernerfelt 1984;
Barney 1991). This resource-based view of the firm (Wernerfelt 1984; Barney 1991) and that of the dynamic capabilities approach (Teece et al. 1997), and the knowledge-based view (Kogut and Zander 1992) all explicitly state, or imply, that a firm’s technological capability can be a source of competitive advantage and above-normal performance (Coombs and Bierly 2001). However, evidence from the new product development (NPD) literature suggests that the process of NPD should not be characterized as being a dichotomy between a technology-led or customer-led. Rather, successful new innovations result from the interplay between actors, typically technology developers (or manufacturers) and customers (Slater and Narver 1995; Gatignon and Xuereb 1995, 1997). Integration of customers’ needs to product development has been studied extensively in NPD literature, and extant research in NPD supports the claim that NPD projects, which rely on carefully defined customer needs, are more likely to succeed than those that are “only” based on new technological opportunities (Holt et al. 1984).
Adopting a resource-based view, Hult and Ketchen (2001) have actually proposed that market orientation, entrepreneurship, innovation, and organizational learning do not constitute unique resources independently, but rather that they can collectively contribute to the creation of a unique resource. We believe that those biotechnology entrepreneurs who are best able to balance between adopting a
simultaneous market orientation and technology orientation are the ones with best chances to create sustainable competitive advantages in the marketplace.
A sustainable competitive advantage in entrepreneurial biotechnology firms is not an outcome of some secret formula. Neither is the field that different from other fields of economic activity, even though practitioners in biotechnology often want to describe biotechnology entrepreneurship as something fundamentally different from entrepreneurship in other fields. Differences in firms’ competitive advantages and performance can be explained in terms of their distinctive resource sets (Wernerfelt 1984). In the resource-based view valuable, rare, and imperfectly imitable resources form the basis for competitive advantage and may thus lead to positive abnormal returns (Barney 1991). We hope that this chapter has served as a reminder that even if biotechnology is a science-driven field, market orientation is the other key resource that should be fostered (Renko 2006; Hunt and Lambe 2000; Hult and Ketchen 2001). Finding a strategic fit between a firm’s resources and the business environment is critical for sustainable competitive advantage in biotechnology as it is in any other business sector.
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Biotechnology: An Assessment and Review
Maxim Sytch1 and Philipp Bubenzer2
1Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Leverone 395, Evanston, IL 60201, USA
2WHU – Otto Beisheim School of Management, Burgplatz 2, 56179 Vallendar, Germany