1

ID Number: 10086908 BMAN31811

Discuss the Technological Issues and Organisational Challenges of Firms in the Biotechnology Sector Introduction

Biotechnology represents a type of technology based on biology; it describes the moment

when researchers apply micro-organisms, animal and plant genetics into products.

Biotechnologies generate many expectations to the extent it aims to improve life and planet

by reducing environmental footprint or manufacturing healthcare product. These expectations

make biotechnology an emerging sector. It is composed of firms developing these biological

substances meant to the discovery of new medicines and diagnostic tools development. Most

of these firms’ revenues come from the sell or the license of these medicines. They can

operate independently or, most of time, profit from external knowledge through alliances and

geographical clusters. Agriculture and health care are the most affected sectors as it has a

wide impact; it comes to tackle real concerns or strive to save lives. However, due to its large

scope of action and the stake of its impacts for society, the biotech sector has changed and is

now facing important challenges.

The change of the biotech sector has been initially mainly driven by innovation and

globalization. Regarding agriculture, biotech has improved both quantities and qualities of

food productions, a crucial modern challenge, especially in developing and emerging

2

countries. Competition brought by innovation has led firms to gather themselves through

collaborations and geographical clusters. However, this means of operating has created

monopolies and raised the entry barriers (New Scientist Job, 2016). Monopolies have allowed

companies to protect themselves from new comers but have also given power to a restricted

number of firms. Nevertheless, those monopolies are still meant to expand progress and

globalization gets it difficult for firms to compete differently. Globalization has actually

brought changes to science and technology related to industries by globalizing many

innovations around the world (Malinowski, 1996). Firms and industries are outsourcing their

production by opening offices abroad in order to compete at the international scale. Regarding

firms, settling down a part of their production in foreign countries allows them to reduce

some financial costs and profiting from foreign knowledge. In that way innovations can have

a wider impact on people. More than 13.3 millions of farmers are now using agricultural

biotechnology to increase yields (Pinstrup-Anderson et al, 2000). However, even if this

process admittedly enables firms to compete internationally, some firms struggle with cultural

differences. This paper aims to wonder about the composition of the current technological

issues met by the sector and their potential implications on firm’s organization. How can

technological challenges slow down biotechnology in its progress? Does its research is

always considered as a progress? In which extent have these technological obstacles and risks

affected the firms’ organization? This paper will address the modern technological challenges

faced by firms before trying to understand how firms dealt with their organisational stakes

through collaborations and network theories. The discussion will address a broad view of

biotechnology analysing impacts on agriculture and pharmaceutical sector.

3

Technological issues: Firms End Up Stuck Between Financial Issues Emphasized by

Uncertainty and External Concerns

Despite of innovation and outsourcing allowed by globalization, firms are facing significant

financial costs especially affected by an important uncertainty, which affects their

technological capacity. Firms need to invest important amounts of money to get a final

operational product due the different stages of the production process that remain very

expensive and take time. One product may be composed of several components whose cost is

mainly due to their scarcity and the workforce cost. Indeed, assembling these components

requires a specific knowledge owned by high-skilled workers who will work on it during

years. Today the cost of bringing the new successful drug to the market can range from $800

million and $1.7 billion (Hopkins et al., 2007). The cost issue is even more important that it is

based on a great uncertainty. Firms don’t have a clear vision of their final product and may

get any successful product after years of development. The first biotechnology product

approved for human health care was synthetic human insulin, which has been developed

through the 1960s and 1970s and finally approved for pharmaceutical use in 1982 (Hopkins et

al., 2007). Almost 30 years separate the development of the product and its final

commercialisation. Consequently, biotech firms are additionally suffering from an important

irregularity regarding investments from companies. Actually, biotechnology is considered as

“one of the strangest, scariest, sexiest and most interesting corners of the stock market”

(Investopedia.com); its uncertainty makes people trust and invest in a product that might

never born. It is highly recommended to firms to make the most of their investments by using

carefully as every dollar matters.

4

Once firms got successful and operational products, they may face other external issues: the

products might counter ethics or the environment protection and become controversial.

Biotechnology is focusing on drugs development and clinical research that aim at treating

disease and medical conditions but some research are now blamed for going beyond morality.

One of the biggest projects under development is the Human Genome Project, which aims to

“decode” the human genome (Anon, 2002). Firms have discovered new genes that could

provide tools to generate and validate targets for a new generation of drugs (Hopkins et al,

2007) and provide health care benefits (Anon, 2002). However, modifying the human genome

boils down to change the nature of the human being, which can be ethically questionable. As

there is not a real definition for each biotechnological fieldwork, firms have thus to be careful

with their research. Furthermore, the biotech sector is confronted to scarcity of resources and

environmental norms that jeopardize some innovations. According to UNCTAD, genetically

modified crops at least provide a solution to the problem of feeding the growing population

by drastically reducing waste and increasing production. However, there can be potentially

harmful. In the USA, some genetically modified crops would have caused “a 90% reduction

in populations of the Monarch butterfly” (GeneWatch, 2015). These environmentally

unfriendly innovations combined to resources depletion slow down the technological capacity

of firms and so the commercialisation of industrial biotechnologies. It might be recommended

to firms to be more eco-friendly as negative environmental spillovers can affected the

biotechnology sector as aforementioned. Firms must take into account ethics but should be

dragged down by it due to there is not a clear definition of what is ethical or not for all type of

research. Therefore, these financial risks and external impacts related to ethics and the

environment have led firms to rethink their organization and their way of operating.

5

Organizational Challenges: A Balance Between Research Protection And External

Knowledge Opportunities

Before such financial risks and impacts from external events, firms display two behaviours:

they protect their research with patents and licenses and work together through collaborations.

Patents allow firms to protect the intellectual property of their research for a fixed period of

time and avoid copying from competitors. Approximately 8000 patents were registered in

2000 against 21,500 three years later (Hopkins et al., 2007). Innovating organisations argue

that without the limited monopoly rights to profit from their new products and processes that

are conferred by intellectual property tights, there is no incentive to invest in research and

development. Nevertheless, the main advantages of patents represented by innovation

protection constitute its main downsides. It makes ideas or knowledge inoperable for other

firms by preventing copying and duplication whereas some firms or developing countries

have succeeded by copying. Many of patents initiated in the pharmaceutical sector in the

1970s are expiring, which gives way to the development of generic medicines. Unlike patents,

license is a type of contract where a firm sells or leases a certain legally protected knowledge

or entity to another firm. It allows some biotech firms to earn money on it and other firms to

buy a specific knowledge. Biotech licensing has significantly increased over the past few

years and firms tend to rely heavily on licensing as a source of innovative science, especially

regarding research: a 43% of licensing deals in 2013 concerned research against a 30% in

2011 (Life Science Nation - Next Phase, 2016). Some of licenses can encourage innovation;

free licenses allow firms to access knowledge but also to bring it changes. However, it gives a

price of the access to knowledge that some firms or countries cannot afford and it may

decelerate innovation if firms just settle to buy licenses instead of investing in R&D. That is

why it is recommended to firms to manage carefully their intellectual property protection: a

6

protected knowledge is a valuable knowledge but a too great protection could slow down

global innovation process and scare other biotech firms, which may negatively impact

collaboration process.

Surprisingly, biotech firms are rethinking their way of operating by collaborating with other

firms through alliances and open innovation. In a world where science is initially opposed to

business (Pisano, 2006), a certain convergence is observed: doing business to improve

science. Alliances mainly represent formal relationships and their potential value reached

$55.4 billion between 2014 and 2015 (EY, Biotech deals, 2016). Pharmaceutical and

biotechnological firms are driven mutual recognition that some objectives can be achieved by

the combination of resources and that the joint outcome will provide a positive benefit that

exceeds what might be achieved independently. The human therapeutics company Amgen is a

relevant example of alliance. The firm got an extensive R&D collaboration with small biotech

companies whose relationships work on a labour division where the smallest firms are mean

to develop promising technology with Amgen’s financial and scientific resources, and Amgen

will maybe commercialise it (Powell, 1998). Firms can share knowledge and risks and so

getting a higher productivity and less uncertainty. However, this centralization of knowledge

increases the risk of monopolies and creates a dependency between firms. In Amgen case,

companies can work more efficiently by allocating the stages of production process but they

can end up locked into a single competence: “workers” or “decision-makers”. That is why it is

recommended to firms to make relevant and durable alliances. In addition to secure alliances,

firms can collaborate through open innovation. Open innovation can be defined as “a

paradigm that assumes that firms can and should use external ideas as well as internal ideas,

and internal and external paths to market, as the firms look to advance their technology”

(Chesbourgh et al. 2006, p.1). Open innovation can be implemented in research between

7

small biotech firms and universities. Management schools are highly active in research and

often ranked regarding it. Establishing partnerships with companies enables them to take

advantage of their reputation and enable these companies to enjoy free additional research in

their field. The concept can also be implemented in development with the collaboration of

SMEs and pharmaceutical firms. Open innovation allows firms to exchange their knowledge,

database, skills and resources but it mainly enables firms to share R&D knowledge exploiting

new emerging technological opportunities (Powell, 1998). Through this process, firms access

a broader database, so their innovative capacity is drastically improved, which avoids a kind

of fierce competition and then creates a smarter and quality-oriented innovation. Another

positive spillover is related to network share. Firms share their clientele and contacts involved

in the production process (customers but also providers, distributors) and create a portfolio of

ties to specific partners for certain activities (Powell, 1998), which is a good way to better

target their market research. However, given its broad scope of action, it is possible to find

open innovation in all sectors, which increases the complexity of innovation. Cohen and

Levinthal (1990) argue that the ability of firms to recognize the value of an external

knowledge and then exploit this knowledge in an effective way deeply depends on their

innovative capacities. Firms must then develop dynamic capacities (Teece et Al, 1997) to

adapt to new processes and learn from competitors in this complex environment. They must

be able to share knowledge without revealing information that might be a threat to their

competitive advantage.

8

Conclusion

1.1. Overall Conclusion

The biotechnology sector is facing substantial issues affected by the financial cost necessary

to develop a product. The financial risks are explained by the high cost of the production

process and the uncertainty of getting an operational product. In addition, as a consequence to

live in a globalized world in permanent evolution, firms have to face new obstacles involving

the environment and ethics. Resources scarcity and new environmental norms set up by

governments and recent scandals involving the biotech sector integrity in terms of ethics are

slowing down firms’ innovation. These challenges have deeply transformed the firms’ way of

operation now defined by intellectual property rights and collaborations. It has to be

recognized the improvements made by biotechnology in daily life, especially in the health

sector, even if the commercialization of industrial biotechnology is not as fast as the common

belief. The different ways to protect researches are modernizing and it is interesting to see

firms opening themselves and using their competitors as a way to thrive.

1.2. Trends and Predictions

The influence of globalization is likely to modify the biotech landscape in the future; new

type of alliances or ways of working will emerge. The patents issue is likely to become an

even more important obstacle to innovation in the future; that’s why we might wonder about

the potential actions of governments to reform. Regarding the global labour market and the

current situation of the world resources, the most important challenges for firms will remain

the learning process and the environmental issue. Learning from the others and adapting

9

depends on the ability of firms to develop dynamic capabilities in a globalized world. The

increasing scarcity of the earth resources is also a crucial issue that will definitely impact the

biotechnology sector over the long term. The ethical concern isn’t an issue of prime concern

to the extent that society is getting open-minded day after day; scientific progress is likely to

overcome potential new ethical challenges.

Word count: 2,737 words

10

References

Amgen.com (2016). Amgen And Advaxis Enter Global Cancer Immunotherapies Collaboration. Retrieved from: http://www.amgen.com/media/news- releases/2016/08/amgen-and-advaxis-enter-global-cancer-immunotherapies- collaboration/ UNCTAD (2002). Key issues in biotechnology. United Nations Publishing. Bio.org. (2016). What is Biotechnology? Bio. Retrieved from: http://www.bio.org/what- biotechnology. Boccanfuso, A. (2016). Why University-Industry Collaborations In Biotechnology Matter. Forbes. Retrieved from: http://www.forbes.com/sites/gmoanswers/2016/01/19/university-industry- collaboration/#3dd4f54c5edf. Chen, G. (2016). New challenges and opportunities for industrial biotechnology. Biomed Central Search Publisher. Retrieved from: https://microbialcellfactories.biomedcentral.com/articles/10.1186/1475-2859-11-111 DrugWatch. (December 4, 2015). GlaxoSmithKline—Drug Manufacturer History & Products. Retrieved from: https://www.drugwatch.com/manufacturer/glaxosmithkline/ Financial Times (2016). Pollution puts pharmaceutical supply chains under the spotlight. Retrieved from: https://www.ft.com/content/8a7ed3a6-7128-11e6-a0c9-1365ce54b926 Hopkins, M., Martin, P., Nightingale, P., Kraft, A. and Mahdi, S. (2007). The myth of the biotech revolution: An assessment of technological, clinical and organisational change, Research Policy, 36(4): 566-589.* Iphandbook.org. (2016). Licensing Biotechnology Inventions. Retrieved from: http://www.iphandbook.org/handbook/ch11/p01/ Rodriguez Fernandez. C. (November 11, 2016). Pharma is Keeping 45% of Clinical Trial Results Secret. Labiotech. Retrieved from: http://labiotech.eu/trialstracker-clinical- trials/ Lewis, T. (June 20, 2013), 5 Amazing Technologies That Are Revolutionizing Biotech, Livescience.com. Retrieved from: http://www.livescience.com/37590-5-crazy- biotechnologies.html Malinowski, M. J. (1996) Globalization of Biotechnology and the Public Health Challenges Accompanying It. Louisiana State University Law Centre. Journal Articles. NEXT PHASE. (2016). LSN Deals Database Spotlight: Biotech Licensing Trends in 2014. Blog.lifesciencenation.com. Retrieved from:

11

https://blog.lifesciencenation.com/2014/01/30/lsn-deals-database-spotlight-biotech- licensing-trends-in- 2014/ New Scientist Jobs. (June 20, 2016). Innovation a key driver for top pharma, biotech and medical devices talent. Jobs.newscientist.com. Retrieved from: https://jobs.newscientist.com/en-gb/article/innovation-a-key-driver-for-top-pharma- biotech-and-medical-devices-talent-/ Niosi, J. and Banik, M. (2005) The evolution and performance of biotechnology regional systems of innovation, Cambridge Journal of Economics, 29 (3), 343-357 Pinstrup-Anderson, P. and Cohen, M. J. (2000) Modern Biotechnology for Food and Agriculture: Risks and Opportunities for the poor. Pisano, G. P. (2010) The evolution of science based business: innovating how we innovate, Industrial and Corporate Change, 19 (2), 465-482. Powell, W.W. (1998) Learning from collaboration: knowledge and networks in the biotechnology and pharmaceutical industry, California Management Review, 40 (3), 228-240. Seattleorganicrestaurants.com. (2016). Monsanto and DuPont's GMO War and biotech Monopoly. Retrieved from: http://www.seattleorganicrestaurants.com/vegan-whole- food/Monsanto-DuPont-GMO-war-monopoly.php Segers, J. (2013). Strategic Partnerships and Open Innovation in the Biotechnology Industry in Belgium. Timreview.ca. Retrieved from: http://timreview.ca/article/676 SILVERMAN, E. (2016). The 5 Most Pressing Ethical Issues in Biotech Medicine. PubMed Central (PMC). Retrieved from: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3570985/ Slideshare.net. (2016). Ethical issues in biotechnology. Retrieved from: http://www.slideshare.net/snjogdand/ethical-issues-in-biotechnology-and-related-areas Special issue of Research Policy 2007, vol. 34 no. 4 W.M.Cohen; D.A. Levinthal (March 1990). Absorptive capacity: A New Perspective On Learning and Innovation. Administrative Science Quarterly, Vol.35, No. 1, Special Issue: Technology, Organizations, and Innovation, pp. 128-152