The complexity of developing strategy for biotechnology firms is best understood by starting with a brief review of the early days of the modern biotechnology industry. Although the first genetic engineering project might well have been the mule whose commercial value is recognizable, it is commonly agreed that the modern industry started in November 1973, when an article by Stanley Cohen and Herbert Boyer was published. This article reported on the scientific breakthrough of recombinant DNA. Scientific advances in biotechnology in the 1970s led not only to the emergence of a new scientific and technological paradigm (Dosi 1988) but also to structural and strategic changes most visible in intensive new business
development activities beginning in the USA in the early 1980s (Zucker and Darby 1997; Zucker et al. 1998, 2002; Deeds and Hill 1996, 1998; Robbins-Roth 2000; Deeds 2001; Oliver 2000; Murray 2002). The commercial break-through followed on October 14, 1980, when Genentech went public and listed their stock on the US stock exchange. The firm, which had been founded a few years earlier, had gone from small-scale protein production for R&D purposes to large-scale production for commercial purposes. What happened that day in 1980 nobody had anticipated. Genentech was going to sell 1 million shares for $35 a piece, an outrageous idea in itself, since the company did not anticipate having a product before 1984; that is, they were selling hope. Hope did sell well. Within 20 min the stock sold at $89, and ended at $70. In 24 h the market capitalization of the firm had doubled (Robbins-Roth 2000).
This was certainly an auspicious start to a new industrial sector and many since have thought this could be replicated provided the right environmental forces and internal resources were combined correctly. However, the biotechnology industry went through at least two setbacks before 1995, when the industry started booming once again, this time all over the world. Now Amgen had become the role model. In 1994 there were only 4 profitable biotechnology firms worldwide;
in 1999 there were 17 and in 2000 there were 22 out of a total of less than 5,000 firms worldwide (Amdjadi et al. 2000; Brännback et al. 2001a). The situation has not improved since then, but rather the opposite (Pisano 2006).
Biotechnology business is a cluster of interrelated industries, building upon knowledge-intensive scientific (often basic) research, which is growing because of the dynamic interplay of a wide variety of traditional disciplines and newly emerging ones (Renko 2006). The field of biotechnology is indeed complex and vast. It is a multidisciplinary set of industrial sectors with a variety of distinct industry recipes, company paradigms, and strategy logic. Some sectors of modern biotechnology operate at the intersection of several industries, making it increasingly complex to define markets and identify competitors. In Fig. 5.1, which is a simplified picture of the biotechnology field, these intersections are depicted as circles.
An industry recipe is the common beliefs and assumptions, which are held as consistent and realistic within an industry (Grinyer and Spender 1979; Spender 1989). A company business model or paradigm is how the firm operates and interacts within the industry (Johnson and Scholes 1988). It is obvious from Fig.
5.1 that the choice of appropriate strategies within biotechnology is anything but simple or direct. Strategy logic within a biotechnology firm represents the subjective thinking of key persons in a firm (Näsi et al. 1996). These concepts prove instrumental when comparing performance and creation of firms that operate in the same industry. One would anticipate very different strategies in firms in different groupings, as described in Fig. 5.1.
Fig. 5.1. The complex business arena of biotechnology (Brännback et al. 2001a)
This diversity of the biotechnology field is also reflected by Wolff (2001), who lists over 30 of the most promising business areas within biotechnology, all of which constitute their own sector, which often is dependent on other sectors.1 Moreover, those who invest in these fields classify firms not only by the technology the firms are attempting to commercialize, but also by their size and risk profile. Wolff (2001) classifies biotechnology firms in four tiers. Tier 1 firms are those that have established records of earnings and have market evaluations challenge and that have succeeded in implementing their strategy. Second tier are those firms that have not yet established a meaningful revenue stream, yet have begun to sell to the marketplace, and have a market capitalization of more than million or more, but have yet to sell commercially. Firms in this tier have a
1 E.g. therapeutic proteins, monoclonal antibodies, immune system modulators, gene therapy, angiogenesis, anti-angiogenesis, tissue regeneration, armed viruses, stem cell therapy, drug delivery mechanisms, drug delivery systems, curative vaccines, signal transduction, photodynamic therapy, pharmaco-genomics, telomeres, genomics, proteomics, combinatorial and ADMET chemistry, assay development, computer modeling, bio- informatics, gene shuffling, high throughput machinery, biochips, cardiovascular devices, nutraceuticals, biometrics, microrobotics, nanoparticles, biocomputing, and biomedical engineering.
US $2 billion. Third tier are those firms that have a market value of US $800 greater than US $5 billion. Clearly these are firms that have met the market
promising near-term pipeline and/or a credible R&D effort for treatment develop- ment. Most, if not all of these firms, are publicly traded firms with all of the reporting mechanisms that this status entails. The fourth tier consists of firms with that appear to function, but that are likely to face considerable strategic challenges.
As mentioned earlier, these firms have been the subject of the bulk of existing academic studies as data concerning these firms are more readily available from public sources.
We focus this chapter on what we call the fifth tier. Thus, we expand beyond Wolff’s focus on larger and more easily studied larger firms. For example, there are some 130 biotechnology firms in Finland – all sectors accounted for – of which only two are publicly traded on the Helsinki Stock Exchange, and two on the London Stock Exchange. Here we have a population of firms that never appears in easily available samples, yet the firms are in business and actually reflect the majority of biotechnology companies in Finland. Many of these firms different from the prior four tiers of firms is their lack of readily identifiable market, lack of sales revenues, and a leadership team often bereft of management, finance, and strategic planning skills. However, it is this particular tier of biotechnology entrepreneurs that are the most likely to think that the process of success is merely one of technology. Marketing and market orientation are something only large health-care conglomerates such as Johnson & Johnson (J&J) need worry about as these new ventures do not sell band-aids or established cardiovascular devices as J&J firms do.
The above-mentioned historical description and review of the industry prompts a set of fundamental questions:
• What kind of strategy supports the kind of market and commercial success described earlier?
• Are there really technology-based strategies, or is it “research hunting for money?”, and
• What is a sustainable competitive advantage for an early-stage biotechnology firm?
To be blunt, the only sustainable competitive advantage is constant innovation and even that does not guarantee a success, since it occurs everywhere in the world. Moreover, through the entire history, luck and serendipity have been a major success factors in the pharmaceutical and biotechnology sectors, starting with penicillin (Robbins-Roth 2000; Oliver 2000; Wolff 2001; Pisano 2006).