Biotechnology Industry: Key Players, Funding Sources, And Innovation Partners

1. Describe the biotechnology industry. What are the main activities of the industry? Which sector/segment of the industry is the largest in terms of industry value? Who are the key players?

2. What are the potential sources of external funding for biotechnology start-ups?

3. Why do biotechnology firms collaborate with external partners for innovation?

4. How do biotechnology firms choose their innovation partners?

Overview of Biotechnology Industry

The main objective of biotechnology industry is the development of useful chemicals and products by using living organism. Biotechnology industry targets two main biotech markets- agriculture and medicine (Zidorn and Wagner 2012). United Kingdom has more than 450 companies having manufacturing presence of medicines and R&D department (Eisai.com. 2018). In UK clinical trials, several new drugs are formulated and biotechnology industry accounts for 40% of the total European market share (MarketLine 2016).

Image 1: Leading biotechnology companies in UK in million GBP in 2015

(Source: Statista 2018)

In this essay, a brief description of the biotechnology industry will be given along with the main activities of the industry and key players of this industry. The detail of potential sources of external funding for biotechnology start-ups followed by the reason for biotechnology firms to collaborate with external partners for innovation and the process for choosing innovation partners in biotechnology firms will also be addressed.

Whitehead (2003) stated that the biotechnology industry manipulates living organization and their components to manufacture useful drugs that can cure human disease. The drugs formulated through biotechnology are safer to consume and have a long lasting impact. However, Haeussler et al. (2014) argues that the medicines developed are very expensive and there is additional pressure from governments and insurers. The main activity of the biotechnology industry is to do both primary and secondary research from government and supported organizations. These survey comprised of in-person and telephonic interviews, email questionnaire and from secondary sources. These data are then interpreted within set of processes or technologies, share them with wide range of different sectors and fragmented the obtained data and clouded in secrecy.

In biotechnology industry the largest sub-industries are healthcare, energy & industrial and agriculture. In the year 2016, the biotechnology products obtain 21% of the total $714 billion for prescribing drugs (Curran 2017). It is also estimated that by the year 2018, the size of the prescription drugs market will be $895 billion, which represents the CAGR growth of 3.8% (Curran 2017). Moreover, the share of the healthcare industry in terms of total biotechnological share will grow up to 25% from 21% (Curran 2017) that enhance the CAGR growth to 6.9%. The industry that ranked second is energy and industrial industry and it deals with formulation of base chemicals, enzymes polymers, detergents and industrial catalysts. The third large sector in biotechnology industry is agricultural biotechnology and the main aim is to develop better food that is full of nutrients. Haeussler et al. (2014) also portray that with the help of genetic engineering, the quality of the crops is improved and several fertilizers has been also developed that helped farmers to increase the productivity by lessening the damage of crops. In agricultural technology, molecular diagnostics and vaccines also play a crucial role. The molecular diagnostics detects genes and their respective products and diagnoses livestock and crop disease.

Major Sub-Industries of Biotechnology

The major key players of the biotechnology industry are US, Europe, Canada and Australia. The reason that many biotech industry fails to rank in publicly listed firms, is due ot the due to the highly R&D intensive nature of this industry. According to the revenue and market capitalization, these fur key players have the maximum biotechnology industry both private as well as public.

Image 2: Key players in biotechnology industry

(Source: Whitehead 2003)

Orelli (2012) stated that the potential sources of external funding for biotechnology start-ups are federal and state government, venture philanthropy, regional economic development agencies, university and regional pitch competitions and partnerships with pharma innovation centers and big pharma/large biotechs through licencing. Crowd-funding also helps in raising money for the biotech startup. However, Kolympiris et al. (2014) argued that this source of funding is not fruitful due to difference in knowledge base of the community. Haeussler et al. (2014) stated that it also depends on the development and initiative taken by the nation. Taken for instance, in United States, they have JOBS (Jumpstart Our Business Startups) Act for developing securities regulations. Segers (2013) highlighted that governmental agencies provide the Small Business Innovation Research (SBIR) grants and Small Business Technology Transfer (STTR) grants where no equity is required in exchange. Orelli (2012) on the other hand stated that a biotechnology startup also contact with “disease focused foundations” so that they can develop early-stage drug development and can also take initiatives for future drug development projects. Moroever, Haeussler et al. (2014) depicted that in some nations like Europe and United States, economic development agencies also provide awards and funds to formulate drugs that can make human life easier. Another potential source of external funding is developing contact with universities and regional pitches through which the biotech startup can host their business plan or pitch competitions. Winning these competitions not only the university give cash prizes but also help with the required resources for developing the business to be a success. However, Orelli (2012) stated that most effective partnership with pharma innovation centre as they directly follow pharma partnership models and give leverage for pharma expertise and resources.

A biotechnology industry usually develops partnership with four major groups- upstream suppliers, downstream customers, horizontal competitors and research and university institutes (Whitehead 2003). The partnership with the downstream customers are closely related to marketing capability and is mainly involved with involve manufacturing capability. Bstieler et al (2015) on the other hand, the partnership with the upstream suppliers are developed so that they can suggest innovative ways to manufactures the drugs and improvements that can be incorporated in the manufacturing process. Sun (2014) argues that in order to utilize the full potential of the suppliers in terms of their knowledge and ability, a close relation with them is developed. The problem arises when the biotech industry’s ability is impacted when they intends to absorb their knowledge. However, this adversity can be resolved through integrating manufacturing capability. In addition to that, the partnership with research and university institutes is done due to utilize the knowledge base into viable products to formulate new drugs and gain patents that furthermore indicates the dependence on the basic science.

Key Players of Biotechnology Industry

The innovative partners are selected majorly based on two factors- task related factors and partner related factors. Bstieler et al. (2015) however stated that for fulfilling the demands of the projects demands and characteristics task related factors are highlighted more. There are certain factors based on which the determination of their task is identified and these are- innovativeness degree that is how well the partners are developing innovative products and manufacturing technology. Segers (2013) highlight other partner selection criteria are the financial exposure. This is the most important factors as the research and development process need more financial resources. Sun (2014) on the other hand stated that previous experience in alliances is also considered while selecting innovation partners as the organizational goals should have to be aligned with that of the biotech industry. Convergent expectations are the last factor that is considered for selecting the innovative partners. Zidorn and Wagner (2012) stated that this expectation plays a crucial role in initiating a new biotech project and research. The convergent expectations are also related with the sharing objectives expectations, financial investments expectations, market competences expectations and R&D competences expectations. However, Bstieler et al. (2015) argues that in order to share these expectations effectively, communication media should have to be efficient so that the interpersonal relationship among the partners can be developed. In this ways, the organizational culture differences can be overcome. This process is followed by the development of the industrial and governing legislation as the research needs to be approved by federal and governing bodies. This approach is then followed by the documentation of the partnership with all the details mentioned in the file and duly signed by the partners for the agreed on time limit. Thus it can be stated that the entire process is grouped in three phases- formation, negotiation and execution.

Conclusion

Thus, it can be found that the main aim of the biotechnology industry is to develop new technology in medicines and agriculture for improving human life. The essay also illustrates that largest sub-industries in biotechnology industry are healthcare, energy & industrial and agriculture and the major key players are US, Europe, Canada and Australia. It is also found that the federal and state government, venture philanthropy, regional economic development agencies, university and regional pitch competitions and partnerships with pharma innovation centers and big pharma/large biotechs through licensing are the most potential external sources through which funding for biotechnology projects can be accomplished. Moreover, the biotechnology industry usually develops partnership with upstream suppliers, downstream customers, horizontal competitors and research and university institutes. The selected process for choosing innovation partners is analyzing innovativeness degree of partners, their financial exposure, previous experience in alliances and effectiveness of convergent expectations.

Reference List

Bstieler, L., Hemmert, M. and Barczak, G., 2015. Trust formation in university–industry collaborations in the US biotechnology industry: IP policies, shared governance, and champions. Journal of Product Innovation Management, 32(1), pp.111-121.

Curran, J., 2017: IBISWorld Industry Report: Global Biotechnology, IBISWorld Industry Report L6724-GL.

Eisai.com. 2018. Overview: The UK Pharmaceutical and Biotechnology Industry. [online] Available at: https://www.eisai.com/news/epdf200602211 [Accessed 11 Jan. 2018].

Haeussler, C., Harhoff, D. and Mueller, E., 2014. How patenting informs VC investors–The case of biotechnology. Research Policy, 43(8), pp.1286-1298.

Kolympiris, C., Kalaitzandonakes, N. and Miller, D., 2014. Public funds and local biotechnology firm creation. Research Policy, 43(1), pp.121-137.

MarketLine, 2016: MarketLine Industry Profile: Global Biotechnology Nov 2016, MarketLine, London.

Orelli, B., 2012. Biotech crowdfunding paves way for angels.

Segers, J.P., 2013. Strategic Partnerships and Open Innovation in the Biotechnology Industry in Belgium. Technology Innovation Management Review, 3(4), p.23.

Statista., 2018. UK: top pharma & biotech companies 2015 | Statista. [online] Available at: https://www.statista.com/statistics/443037/market-value-leading-pharmaceutical-biotechnology-companies-united-kingdom-uk/ [Accessed 11 Jan. 2018].

Sun, C.C., 2014. A conceptual framework for R&D strategic alliance assessment for Taiwan’s biotechnology industry. Quality & Quantity, pp.1-21.

Whitehead, G., 2003: Early stage and seed financing for biotechnology start-ups: a UK perspective. Journal of Commercial Biotechnology, 9(3), 242–248.

Zidorn, W. and Wagner, M., 2012. The effect of alliances on innovation patterns: an analysis of the biotechnology industry. Industrial and corporate change, 22(6), pp.1497-1524.