Download commercialization of biopharmaceuticals

LAPPEENRANTA UNIVERSITY OF TECHNOLOGY
Department of Business Administration
International Marketing
JUHA LEMMETYINEN
COMMERCIALIZATION OF BIOPHARMACEUTICALS
Master’s thesis submitted in partial fulfilment of the requirements for the degree
of Master of Science in Economics
Helsinki, 14.12.2000
Juha Lemmetyinen
Address: Esikoisentie 8 P, 00430 Helsinki
Mobile: 050-514 8607
Supervisor: Professor Mika Gabrielsson
ABSTRACT
Author:
Title:
Department:
Year:
Juha Lemmetyinen
Commercialization of Biopharmaceuticals
Department of Business Administration
2001
Master’s Thesis. Lappeenranta University of Technology
100 pages, 3 appendices, 15 figures, 4 tables
Supervisor: Professor Mika Gabrielsson
Key words:
Biopharmaceuticals, commercialization, marketing, partner selection
Abstract:
Biotechnology is regarded as one of the most promising and interesting technologies currently available to the humankind. Especially the development of novel biopharmaceuticals has attracted considerable public interest. The world-wide number of biopharmaceutical drug development companies has grown rapidly in the last decade, but the
results gained thus far indicate that the firms could benefit from the further improvement
of their risk management and commercialization processes.
This thesis focuses on the commercialization phase of biopharmaceuticals, specifically from the perspective of new Finnish biopharmaceutical firms. The thesis is divided
to two parts: first part examines the concept of commercialization and identifies the special nature of the biopharmaceutical business. Second part is dedicated to an empirical
research of commercialization which is conducted as a multiple-case study. The multiplecase study consists of five Finnish new biopharmaceutical firms. The objective was to
identify the means of organising a successful commercialization process for a drug that is
presumed to pass through the risks of the product development phase.
The results centred on four critical success factors that facilitate the successful
commercialization process of the Finnish biopharmaceutical firm. These are 1) product,
2) promotion, 3) credibility, and 4) partner selection. Firstly, the product should be unique
and address a disease with a major socio-economic impact. Secondly, the product must be
promoted to the potential partners who will distribute it globally. Thirdly, the Finnish
biopharmaceutical firm requires credibility to attract multinational pharmaceutical companies as partners. Fourthly, before the actual selection, the capabilities and goals of potential partner must be assessed with the possible means available. Finally, the virtual
nature of today’s biopharmaceutical firms requires good relationship marketing skills
from the part of the management of the biopharmaceutical firm.
TIIVISTELMÄ
Tekijä:
Otsikko:
Osasto:
Vuosi:
Juha Lemmetyinen
Biolääkkeiden kaupallistaminen
Kauppatieteiden osasto
2001
Pro gradu -tutkielma. Lappeenrannan teknillinen korkeakoulu
100 sivua, 3 liitettä, 15 kuvaa, 4 taulukkoa
Tarkastaja: Professori Mika Gabrielsson
Avainsanat:
Biolääkkeet, kaupallistaminen, markkinointi, yhteistyökumppanin valinta
Tiivistelmä:
Biotekniikkaa pidetään yhtenä lupaavimmista nykyään tunnetuista teknologioista.
Biotekniikan alalta erityisesti uusien lääkeaineiden kehittely on saavuttanut huomiota
julkisuudessa. Biotekniikkaa lääkeaineiden kehittämiseen soveltavien yritysten määrä on
kasvanut nopeasti viimeisen vuosikymmenen aikana, mutta tämänhetkiset tulokset osoittavat, että yritykset voisivat hyötyä riskien hallintaan ja kaupallistamiseen liittyvien prosessien kehittämisestä.
Tutkielma keskittyy biolääkkeiden kaupallistamiseen, erityisesti suomalaisten uusien biolääkeyritysten kannalta. Tutkielma jakaantuu kahteen osaan: ensimmäinen osa
tutkii kaupallistamista käsitteenä ja biolääkeliiketoiminnan erityispiirteitä. Toinen osa
keskittyy kaupallistamisen empiiriseen tutkimukseen, joka kattaa viisi suomalaista uutta
biolääkeyritystä. Empiirisen osan tavoitteena oli tunnistaa ne keinot, jotka auttavat menestyksekkään kaupallistamisprosessin luomisessa tuotekehitysvaiheen läpäisseelle lääkeaineelle.
Saavutetut tulokset voidaan tiivistää neljän kriittisen menestystekijän ympärille,
jotka ovat 1) tuote, 2) viestintä, 3) uskottavuus ja 4) yhteistyökumppanin valinta. Ensimmäinen menestystekijä on ainutlaatuinen biolääke, joka parantaa kansantaloudellisesti
merkittäviä tauteja. Toisen menestystekijän avulla yritys viestittää uudesta ainutlaatuisesta tuotteestaan mahdollisille yhteistyökumppaneilleen. Kolmas menestystekijä kohdistuu yrityksen uskottavuuteen uutena korkean teknologian biolääkeaineiden kehittäjänä.
Uskottavuustekijä on erityisen tärkeä suhteiden luomisessa kansainvälisiin lääkeyrityksiin. Neljäs tekijä keskittyy yhteistyökumppanin valintaan, joka alan erityisluonteesta
johtuen on tärkeä uudelle biolääkeyritykselle. Viimeiseksi havaittiin, että uusi biolääkeyritys virtuaalisen rakenteensa vuoksi tarvitsee hyvät johdon suhdemarkkinointikyvyt.
FOREWORD
I would like to thank my cousin Janne Gustafsson for offering me the possibility to conduct this thesis on the subject of biopharmaceuticals. I am also grateful to Professor Ahti Salo of Helsinki University of Technology for allowing me
to participate in this project.
In addition, I am indebted to Janne for giving invaluable advice and support
during the research and writing process of this thesis. He provided me more analytical view to the writing and helped me to see new perspectives concerning the
subject of the thesis.
I would like to express my sincere gratitude to my supervisor Professor
Mika Gabrielsson for his most helpful comments on the manuscript of the thesis. I
am also grateful to the interviewees who had both time and interest in our research.
Finally, I would like to offer my greetings to my parents and closest friends
for their continuous support during the making of this thesis. Without them all this
would have been more complicated.
Helsinki, 31.1.2001
Juha Lemmetyinen
Contents
1
INTRODUCTION................................................................................................................ 1
1.1 BACKGROUND AND CONTEXT OF THESIS ...............................................................................1
1.2 SUBJECT OF RESEARCH.........................................................................................................2
1.3 RESEARCH PROBLEM............................................................................................................3
1.4 THEORETICAL FRAMEWORK .................................................................................................3
1.5 COMMERCIALIZATION IN BIOPHARMACEUTICAL FIRMS – A RESEARCH GAP...........................5
1.6 SCOPE OF THESIS .................................................................................................................7
1.7 DEFINITIONS ........................................................................................................................8
1.8 STRUCTURE OF THESIS ....................................................................................................... 10
2
BIOPHARMACEUTICALS.............................................................................................. 11
2.1 HISTORY OF BIOTECHNOLOGY ............................................................................................ 11
2.2 APPLICATION AREAS OF BIOTECHNOLOGY .......................................................................... 12
2.3 PHARMACEUTICALS ........................................................................................................... 13
2.4 DRUG INNOVATION AND DEVELOPMENT PROCESS ............................................................... 14
2.5 CHARACTERISTICS OF PHARMACEUTICAL INDUSTRY ........................................................... 16
2.6 GLOBAL DEVELOPMENT OF BIOPHARMACEUTICAL SECTOR ................................................. 17
2.7 BIOPHARMACEUTICAL SECTOR IN FINLAND......................................................................... 18
3
PRINCIPLES OF COMMERCIALIZATION.................................................................. 20
3.1 CONCEPT OF COMMERCIALIZATION .................................................................................... 21
3.2 MAIN PHASES OF COMMERCIALIZATION PROCESS ............................................................... 23
3.3 PLANNING OF COMMERCIALIZATION ................................................................................... 25
3.3.1 Market Analysis ........................................................................................................... 25
3.3.2 Competitor Analysis..................................................................................................... 26
3.3.3 Company Analysis........................................................................................................ 27
3.3.4 Environmental Analysis................................................................................................ 27
3.4 STRATEGIC DECISIONS OF COMMERCIALIZATION ................................................................ 28
3.5 COMMERCIALIZATION IN BIOPHARMACEUTICALS ................................................................ 30
3.6 BIOPHARMACEUTICAL PRODUCT DEVELOPMENT AND COMMERCIALIZATION ....................... 30
3.7 DEVELOPMENT OF NBF COMPLEMENTARY CAPABILITIES ................................................... 33
3.8 CRITICAL SUCCESS FACTORS OF BIOPHARMACEUTICAL COMMERCIALIZATION..................... 34
4
MARKETING IN BIOPHARMACEUTICAL BUSINESS............................................... 36
4.1 INTRODUCTION TO MARKETING MIX................................................................................... 37
4.2 CREDIBILITY ...................................................................................................................... 39
4.3 PRODUCT ........................................................................................................................... 40
4.4 PRICE ................................................................................................................................ 42
4.5 PLACE ............................................................................................................................... 44
4.6 PROMOTION ....................................................................................................................... 46
4.7 MANAGEMENT OF RELATIONSHIPS...................................................................................... 48
4.8 PARTNER SELECTION IN BIOPHARMACEUTICAL BUSINESS.................................................... 50
4.9 PARTNERSHIPS IN BIOPHARMACEUTICAL BUSINESS ............................................................. 52
4.10 PARTNER SELECTION PROCESS ........................................................................................... 56
5
EMPIRICAL RESEARCH METHODOLOGY................................................................ 59
5.1 RESEARCH STRATEGY ........................................................................................................ 59
5.1.1 Choosing between Qualitative and Quantitative Analyses ............................................. 59
5.1.2 Multiple-Case Study ..................................................................................................... 60
5.2 DATA COLLECTION AND SELECTION OF CASE FIRMS ........................................................... 62
5.3 QUALITY ASPECTS OF EMPIRICAL PART .............................................................................. 63
5.3.1 Validity of Empirical Part ............................................................................................ 63
5.3.2 Reliability of Empirical Part ........................................................................................ 65
6
COMMERCIALIZATION IN BIOPHARMACEUTICAL FIRMS – MULTIPLE-CASE
STUDY ............................................................................................................................... 66
6.1 OVERVIEW OF FINNISH BIOPHARMACEUTICAL BUSINESS ..................................................... 67
6.1.1 Background of Case Firms ........................................................................................... 68
6.1.2 Summary of Case Firms ............................................................................................... 69
6.2 CASE HORMOS MEDICAL OY LTD....................................................................................... 69
6.2.1 Description .................................................................................................................. 70
6.2.2 Commercialization Activities........................................................................................ 70
6.2.3 Observations................................................................................................................ 71
6.3 CASE JUVANTIA PHARMA OY LTD. ..................................................................................... 72
6.3.1 Description .................................................................................................................. 72
6.3.2 Commercialization Activities........................................................................................ 73
6.3.3 Observations................................................................................................................ 73
6.4 CASE BIOTIE THERAPIES OY LTD. ...................................................................................... 74
6.4.1 Description .................................................................................................................. 74
6.4.2 Commercialization Activities........................................................................................ 75
6.4.3 Observations................................................................................................................ 76
6.5 CASE CONTRAL PHARMA OY LTD....................................................................................... 76
6.5.1 Description .................................................................................................................. 76
6.5.2 Commercialization Activities........................................................................................ 77
6.5.3 Observations................................................................................................................ 77
6.6 CASE FINNISH IMMUNOTECHNOLOGY OY LTD..................................................................... 78
6.6.1 Description .................................................................................................................. 78
6.6.2 Commercialization Activities........................................................................................ 79
ii
6.6.3 Observations................................................................................................................ 80
6.7 CROSS-CASE ANALYSIS...................................................................................................... 80
6.8 DISCUSSION ....................................................................................................................... 84
7
CONCLUSIONS ................................................................................................................ 88
7.1 SUMMARY OF FINDINGS ..................................................................................................... 88
7.2 THEORETICAL IMPLICATIONS OF THESIS.............................................................................. 90
7.3 MANAGERIAL IMPLICATIONS OF THESIS .............................................................................. 91
7.4 SUGGESTIONS FOR FUTURE WORK ...................................................................................... 92
REFERENCES........................................................................................................................... 93
LITERATURE .............................................................................................................................. 93
INTERVIEWS ............................................................................................................................... 99
INTERNET SOURCES.................................................................................................................. 100
APPENDICES
I
ACRONYMS
II
GLOSSARY OF TERMS
III
TEMPLATE OF QUESTIONNAIRE
iii
Figures
1-1. THE THEORETICAL FRAMEWORK OF THE THESIS .....................................................................4
2-2. NEW DRUG DEVELOPMENT PROCESS.................................................................................... 15
3-1. MAIN PHASES OF COMMERCIALIZATION PROCESS................................................................. 24
3-2. THE TYPES OF FUNDAMENTAL ANALYSES ............................................................................ 25
3-3. MACROENVIRONMENTAL INFLUENCES FACED BY THE BUSINESS ORGANISATION ................... 28
3-4. NEW PRODUCT DEVELOPMENT IN A BIOPHARMACEUTICAL FIRM ........................................... 31
3-5. COMMERCIALIZATION PROCESS IN A BIOPHARMACEUTICAL FIRM ......................................... 32
3-6. STRATEGIC CHOICES THE MANAGEMENT OF NBF FACES EVOLVE OVER TIME .......................... 34
4-1. THE MARKETING MIX OF A TYPICAL BIOPHARMACEUTICAL FIRM .......................................... 36
4-2. THE PHARMACEUTICAL VALUE CHAIN FOR NEW INNOVATIONS ............................................. 42
4-3. PROMOTIONAL TOOLS OF A BIOPHARMACEUTICAL FIRM ....................................................... 48
4-4. THE RELATIONSHIP NETWORK OF A TYPICAL FINNISH BIOPHARMACEUTICAL FIRM ................. 50
4-5. THE PARTNER SELECTION PROCESS IN THE BIOPHARMACEUTICAL BUSINESS AS INITIATED BY
THE NBF/DBF .............................................................................................................................. 57
6-1. STRUCTURE OF THE EMPIRICAL PART OF THE THESIS ............................................................ 66
6-2. MEMBER COMPANIES PIPELINE IN SPRING 2000..................................................................... 82
iv
Tables
3-1. THE DECISION FACTORS OF COMMERCIALIZATION................................................................ 23
3-2. EXAMPLES OF QUESTIONS USED TO ASSESS COMPETITOR(S) ................................................. 27
4-1. THE DEFINITIONS OF DIFFERENT STRATEGIC ALLIANCES ....................................................... 51
6-1. SUMMARY OF CASE FIRMS .................................................................................................. 69
v
1
1.1
INTRODUCTION
Background and Context of Thesis
Biotechnology is regarded as one of the most promising and interesting
technologies currently available to the humankind. While biological processes
were used already in the ancient times in the form of brewing, cheese making and
baking, only in the recent past the developments in the field of biotechnology and
its application by industry has raised the expectations for the birth of new business
opportunities (Daly 1985).
In the area of modern biotechnology especially the development of novel
pharmaceuticals or biopharmaceuticals has attracted considerable public interest.
There is a widely held belief that the biopharmaceuticals can make it possible to
cure several incurable diseases such as Parkinson’s disease, Alzheimer’s disease
or even AIDS (Davis 2000).
The possibility of finding a cure to these types of diseases provides hugely
profitable business opportunities, but the commercial success stories of biopharmaceuticals (or modern biotechnology) have been quite few when compared, for
example, to the continuous stream of commercially profitable innovations from
the information technology (IT) and microelectronics. The fewer number of
commercial biopharmaceutical applications can be attributed to two main elements that characterise the biopharmaceutical business.
The first element is the high-risk nature of the drug development process,
which derives from the uncertainty over the efficacy and safety of a developed
compound. For this reason, the pharmaceutical industry in general has to abide by
the rules of strict international regulations that govern the drug development,
manufacture and marketing. As a result, the drug development is a long and arduous process, which can easily take 9 to 12 years without any guarantee of commercial success. For a more detailed description of biopharmaceutical risks, the
reader is encouraged to refer to Gustafsson (2000).
The second element in the biopharmaceutical business is the commercialization of the product. Even though the drug had been developed successfully, the
1
research efforts can be still lost in the commercialization phase. According to our
interviews with representatives of the case firms and industry experts, successful
commercialization depends mainly on 1) credibility of the firm and 2) skills of the
personnel of the company.
The credibility consists of four subfactors: i) pharmaceutical standards, ii)
world-class research reports published by the scientists associated with the firm,
iii) quality of firm’s relationship networks, and iv) pharmaceutical drug development and business traditions of the country. The first three factors can be affected
by the management of the biopharmaceutical firm whereas the tradition aspect is
beyond the firm’s sphere of influence.
In addition, the commercialization phase in biopharmaceuticals requires a
special combination of talent and experience from the employees. Thus, the personal skills of the management team are vitally important for the establishment of
successful commercialization practices. The people in charge of commercialization should possess a unique blend of competence to understand the intricacies of
drug development but also own a strong expertise in the field of business administration.
1.2
Subject of Research
This thesis examines the commercialization process of small Finnish bio-
pharmaceutical firms.
The new biopharmaceutical firms (NBF) in Finland are typically entrepreneurial start-ups formed in the 1990s with the assistance of venture capital. The
dominating feature in these companies is the R&D department, which uses significant portions of capital or turnover to research and development of new products.
While R&D is definitely the most important part of the business of a typical
NBF, the commercialization of a new product after development process presents
a critical moment in the future of an emerging company. The successful commercialization of new product enables a small firm to generate an important source of
revenue and allows it to establish its position in the market. On the other hand,
failure could lead to an end of business. Therefore, it is important for the man-
2
agement of any NBF, which is engaging in a new product development process to
optimise the commercialization process.
1.3
Research Problem
By taking into consideration the importance of the commercialization proc-
ess the focus of the thesis is on exploring: How to successfully manage commercialization in small Finnish biopharmaceutical firms?
In order to answer the primary question the following theoretical and empirical research questions needed clarifying.
Theoretical:
1) What are the specific characteristics of a biopharmaceutical product that
contribute to the formulation of a successful commercialization strategy?
2) What are the capabilities that a small biopharmaceutical firm needs to be in
order to carry out a successful commercialization process?
3) What methods can be used in the selection of commercialization partners?
Empirical:
4) What are the critical success factors that facilitate the commercialization process of a Finnish biopharmaceutical product?
5) What are the organisational structures and resources required for a small
Finnish biopharmaceutical firm to commercialize its products successfully?
6) How small Finnish biopharmaceutical firm selects its commercialization partners?
1.4
Theoretical Framework
On the theoretical side, the focus of this thesis is on the marketing and
commercialization activities relevant to biopharmaceutical firms. Specifically, this
thesis analyses possible forms of relationships between new Finnish biopharmaceutical firms and established multinational pharmaceutical enterprises.
Due to the nature of the biopharmaceutical business, business-to-business
marketing is in a central role in the theoretical part of this thesis. However, it is
noteworthy that marketing activities in biopharmaceuticals are concentrated on
finding a licensing partner rather than identifying a purchasing decision group as
it is commonplace in traditional business-to-business marketing. Hence, the thesis
3
provides an extensive coverage of partnerships and alliances while purchasing
processes are left for lesser attention.
In addition to the business-to-business marketing aspect of biopharmaceuticals, the commercialization of biopharmaceutical products is characterised by the
high technology context in which new drugs are researched and developed. In the
commercialization process of high technology products, the marketer needs to
broaden his/her view over the traditional 4 P thinking. The complexity of the high
technology product usually requires that the biopharmaceutical firm has an intimate understanding of the customer needs and familiarity with the R&D process,
because customers are seldom consumers and the management of risks involved
in R&D demand understanding of the field.
Figure 1-1 illustrates the theoretical framework of the thesis in three temporally parallel columns that depict the participation of stakeholders and product
development and marketing processes of the biopharmaceutical firm. The first
Stakeholders
Investors
- seed financing
- growth financing
- product development
- advice
- relationships
Product Development
Marketing
Basic R & D Process
Commercialization
Process
New Drug
Development Process
Time
Clinical Trials
phases I-III
Personnel
- R&D work contribution
- commercialization
Exit?
Partners
Licensing payments + royalties
Milestone payments
- manufacturing
- marketing
- distribution
- R&D alliances
Relationship marketing
Marketing mix
Launch
End product
End-Users in a Global Scale
Figure 1-1. The theoretical framework of the thesis.
4
End-user needs
column from left represents stakeholders’ contributions to the firm, which can be
either direct (e.g. board members) or indirect (e.g. provision of capital). In addition, the participation varies on time as indicated by three coloured bars on the
right side of the column. The next two columns depict the most important processes of the biopharmaceutical firm, R&D and marketing. Rectangle below the
columns illustrates the end-users globally. The partner of NBF usually handles the
distribution and marketing to end-users but the biopharmaceutical firm has to
maintain the customer orientation approach in its way of doing business (Kohli &
Jaworski 1990). In practice this means that the management of NBF has to interpret correctly the signals received from market to ensure the proper R&D.
1.5
Commercialization in Biopharmaceutical Firms – A Research Gap
Marketing is an extensive subject covering a wide area of managerial func-
tions and tasks, some of which overlap with other functions such as R&D and
human resource management (HRM). In the marketing, however, one of the basic
processes for any profit-pursuing organisation can be considered to be the act of
commercialization. Commercialization can be shortly defined as being the process
which organisations use to introduce a variety of products into the market in
hopes of achieving commercial success.
Despite the obvious importance of the commercialization process, the basic
marketing textbooks made by numerous authors (e.g. Kotler 1994, Brierty, Eckles
& Reeder 1998, Jobber 1998, Czinkota & Ronkainen 1998) have only short sections for commercialization or it has been left out altogether. Naturally the basic
marketing textbooks have been designed to cover superficially almost every aspect of marketing, and are not suited to highlight various processes in a detailed
presentation. On the other hand, there exists a wide variety of dedicated marketing
literature comprising subjects from, e.g., product (McGrath 1995), high technology (Davidow 1986), concurrent (Cespedes 1995), and relationship marketing
(Ford et al. 1998) but even in the dedicated marketing literature a gap seems to
exist in the case of commercialization.
Controversially the topic of commercialization is very common in the business life as it is in many cases quite directly connected to the earnings principle of
most companies. One author (Rope 1999) to write about the commercialization
5
has suggested that the lack of specific literature in the form of dedicated textbooks
is related to the scope of the subject. Furthermore, Rope points out that in most
instances the commercialization is a unique process which is hard to generalise to
match other cases.
The relatively small number of written evidence about commercialization in
the form of dedicated textbooks is somewhat amended by academic articles. In
these articles the subject of commercialization is often addressed in parallel with
product or technology development in a certain field of business. While it can be
argued that a well-executed product (or technology) development process is crucial for the organisation’s future profit-making capability, the lack of specific
product commercialization articles is still perplexing. The reason for this might be
that to understand commercialization issues one is required to include the preceding R&D phase in the study of commercialization process. Studies conducted
by several authors seem to support this argument (q.v. Nevens, Summe & Uttal
1990; Cooper 1993; Cooper & Kleinschmidt 1996).
Accordingly, it would seem to be appropriate that the chosen field of study
requires both theoretical and empirical evidence for accumulation of commercialization specific knowledge. Moreover, the biopharmaceutical R&D phase should
be depicted to some extent in order to achieve a complete picture of factors influencing commercialization. This deduction is based on the fact that customer/market orientated R&D is a prerequisite for successful commercialization
(see Appiah-Adu & Ranchhod 1998).
Although the biopharmaceutical research is characterised by a high level of
technological know-how, the 1990s have seen an increasing number of new entrants in European biotechnology business environment, in particular (see Senker
et al. 1998). This has accelerated the competition between companies as a result
of which a number of firms is required to focus on to carefully selected niches in
hopes of ensuring success in the long-term. Despite the positive forecasts made
about the demand for biopharmaceuticals in the Western hemisphere (wealthy
aging population), even potentially successful biopharmaceutical products will
require intensive marketing efforts to win market share in the highly competitive
high technology business environment. Therefore it is important to scrutinise the
biopharmaceutical business in such a way that all the pertinent aspects of market-
6
ing are included. Consequently, for the collection of sufficient theoretical evidence the literature can be roughly divided into three categories: i) general marketing textbooks, ii) dedicated marketing textbooks and articles, and iii) field specific literature.
The general marketing textbooks consist, e.g., of the classic Kotler (1994),
and somewhat newer Jobber (1998) and Kotler, Armstrong, Saunders and Wong
(1999). The dedicated marketing books are an essential source of references
alongside the academic articles. The most important sources in this category are
high technology and commercialization specific marketing textbooks and academic articles. The field specific literature includes biotechnology, biopharmaceutical and pharmaceutical publications, which are used to examine business
activities in the industry.
1.6
Scope of Thesis
The focus of this thesis is on the emerging Finnish biopharmaceutical sec-
tor. The purpose is to analyse the commercialization strategies of new Finnish
biopharmaceutical firms. The biopharmaceutical product development as a process is not under analysis in this thesis. However, the basic pharmaceutical product
development process is outlined as a clarification to give a reader an understanding of the costs and risks associated with the process.
Normally a small biopharmaceutical firm cannot complete alone all the required obligatory clinical tests because the testing usually becomes prohibitively
expensive in the last phases. This means that a small firm requires partners to
conclude the remaining phases and approval trials.
The partner selection is an integral part of the modern biopharmaceutical
business and is for that reason included in this thesis. However, since the selection
process of partners is an extensive subject, it is scrutinised only from the perspective of small biopharmaceutical firms. The analysis of goals and strategies of the
multinational pharmaceutical enterprises, the other side of biopharmaceutical
business, is beyond the scope of this thesis.
7
1.7
Definitions
The definition part explains the key terms used in this thesis. This thesis
contains numerous (bio)pharmaceutical terms, and the majority of these terms are
explained in Appendices I-II.
Biopharmaceuticals – biopharmaceuticals can be defined as drugs manufactured by using biotechnological means. Most biopharmaceuticals are based on
large and heavy molecules, often proteins or glycoproteins. The methods used in
identification, development, production, and delivery of biopharmaceuticals differ
often from methods used in traditional pharmacology (Lievonen 1999).
Biotechnology – “Biotechnology is not a single technology but a group of
technologies including existing bioprocessing technology and new technologies
such as recombinant DNA and hybridoma technology. Its applications are multisectoral” (Daly 1985, 2).
Commercialization – Kotler (1994) defines the process of commercialization as being the last part of eight stages of the new-product-development process
model. In this model the new product idea goes through stages as it is examined
by the company whether the idea should be further developed or dropped. In the
commercialization stage the product is ready to enter market. This is where the
management of the company must decide when, where, to whom and how the
product will be introduced.
Commercialization in this thesis is defined to be a process where company
(Finnish biopharmaceutical firm) is introducing either a new or substantially renewed product into the market (market is defined as all potential and actual customers with enough ability and interest to purchase the product) in hopes of pursuing commercial success.
Dedicated biopharmaceutical company (DBC) or firm (DBF) – The dedicated biopharmaceutical companies in this thesis refer to the companies that have
existed over ten years and concentrate on the research and development of biopharmaceutical products. These companies can also market and manufacture of
their own products.
High technology – the definition ‘high technology’ is often controversial.
There seems to be no clear understanding which organisations (commercial or
otherwise) deserve to be called high technology users or manufacturers. On the
8
commercial side one rule is that companies which invest in R&D over 10% of
turnover are high technology organisations.
Licensing process – the process of licensing has been defined in various
ways by different authors. One good definition is the one used by Luostarinen and
Welch (1993, 31-32). They define licensing as “Licensing is a contractual transaction in which the owner of certain knowledge assets – so called ‘intellectual’ or
‘industrial’ property – sells to another organisation or individual the right to use
these assets for a defined purpose. Under the licensing arrangements the licensor
does not give up ownership”.
Marketing – according to Kotler (1994, 6) the concept of marketing can be
defined as “Marketing is a social and managerial process by which individuals
and groups obtain what they need and want through creating, offering, and exchanging products of value with others”.
New biopharmaceutical company (NBC) or firm (NBF) – In this thesis the
abbreviation of NBC is for a company that researches and develops pharmaceutical products using biotechnological techniques. In addition, the term new refers to
the age of the company, meaning that the company in question is either a start-up
or very young. In either event the company has not existed over ten fiscal periods.
The abbreviation NBC can be replaced with abbreviation NBF to present that the
company is a New Finnish Biopharmaceutical Firm. Typically these companies
do not manufacture or participate actively to the marketing of products.
New Product Development Process – The process of developing original
products, product improvements, product modifications and new brands through
the firm’s own R&D efforts (Kotler et al. 1999).
Outsourcing – Refers to buying of products, components, materials, and
services from various manufacturers and producers as opposed to in-house production (Albaum, Duerr & Strandskov 1998).
Partner – In this thesis the term partner usually refers to a recipient of a licensing deal but can be expanded to include entities that co-operate, e.g., in R&D
projects.
Pharmaceuticals – traditional pharmaceuticals are chemically derived
products. Many synthetic drugs are low molecular weight products (Lievonen
1999).
9
Stakeholders – Individuals or groups having a stake in the organisation’s
well being, e.g., shareholders and employees (Jobber 1998).
1.8
Structure of Thesis
The thesis comprises seven chapters. After the first chapter, the remainder
of this thesis is structured as follows. Chapter two starts from the historical development of biotechnology, general biotechnological applications are presented to
clarify the diversity of the biotechnology, continues to biopharmaceuticals, covers
the pharmaceutical business in general, and is followed by application examples
of modern biopharmaceuticals.
By drawing upon the relevant literature Chapter three defines first the concept and introduces the principles of commercialization and then continues to the
commercialization in biopharmaceuticals. Fourth chapter starts by exploring the
marketing practices in biopharmaceuticals and continues to the partner selection.
Several alternatives of co-operative arrangements most often used in the pharmaceutical business are also identified in Chapter four.
Chapter five outlines the methodological choices used in the empirical part
of the thesis. Chapter six comprises the case part of the thesis where the empirical
study and its results are presented. Finally, the results are analysed in Chapter
seven and suggestions for future research will be presented.
10
2
BIOPHARMACEUTICALS
This chapter outlines the history of biotechnology to the modern day bio-
pharmaceuticals. Before entering directly into the details of biopharmaceutical
business some applications of biotechnology are presented for the reader to highlight the varied possibilities of biotechnology. The chapter covers also the field of
traditional pharmaceuticals. The cross section of traditional pharmaceutical functions as a sort of ‘springboard’ to the biopharmaceuticals. The subchapters include
also the characteristics of a modern day pharmaceutical business and an overview
of drug development process.
2.1
History of Biotechnology
The roots of biotechnology can be traced back into antiquity when brewing,
cheese making and baking were discovered. An important step for the humanity
and to the science of biology was the creation of microscope in the 1670s. Antonie Van Leeuwenhoek was the first person to see microbes with his invention.
Other important persons are Edward Jenner who invented smallpox vaccination,
and Louis Pasteur who created the process of controlled heating for the milk, beer
etc. The pasteurization process made possible to destroy bacteria and arrest spoilage without affecting flavour.
The advances in the science of biology in the 18th and 19th centuries allowed
the development of microbial bases for the brewing and baking processes. Several
biotechnology based industries became established after the Second World War.
These industries produced antibiotics, amino acids and enzymes. The post Second
World War period saw the application of pharmaceutical biotechnology and fast
increase of knowledge in the molecular basis of biological systems. This accumulation of knowledge led to the development of new techniques with industrial
applications (Daly 1985).
Two of the most important discoveries were made in the 1970s. These were
recombinant DNA technology (genetic engineering) and hybridoma technology.
The recombinant DNA (rDNA) was discovered in the year of 1970 in the United
States whereas the invention of hybridoma technology which enables the produc-
11
tion of monoclonal antibodies was reported by two British scientists in 1975. The
full commercial potential was first understood in the United States and it has since
become the foremost developer of commercial applications based on these technologies. Later other major industrial countries began to invest into their own
biotechnology projects but United States has retained the leadership in commercialization of new products and in absolute numbers of companies applying biotechnology as their main part of business operations (Ono et al. 1991).
2.2
Application Areas of Biotechnology
The field of biotechnology covers a wide variety of different applications
and processes. The companies that apply biotechnology use modern biotechnological techniques to develop commercially viable products for the human health
care, agriculture, food processing, and for the improvement of environmental
conditions.
The applications in agriculture fall under two areas. First area is connected
with animal health care and reproduction. The recombinant DNA (rDNA) and
hybridoma technologies enable to create new specialised animal health care products. Examples in this field are more efficient vaccines to combat animal diseases.
The other area of biotechnological application to the agriculture consists of plant
protection and production. In this field the micropropagation technology with genetic manipulation of plants makes possible to create plants with ability to resist
herbicides, pests and drought.
The food-processing sector has used the biotechnological techniques for
some time. Industries like baking, dairy and meat producers use enzyme and microbial technology in the manufacturing process. The use of rDNA technology in
these industries will improve the existing processes. In some cases the use of biotechnology will result entirely new food ingredients and foods (Daly 1985, 1415).
Recently, however, the application of biotechnology in the field of agriculture has met some resistance particularly in EU. Several environmentalist pressure
groups have worked to prevent the marketing of genetically engineered or manipulated products. The public campaigns of these activists have successfully
aroused European citizens’ concern about the safety and ethical implications of
12
genetically altered products. The future development of this issue remains to be
seen but for example, in the United States the genetically altered food has been
the part of everyday life for sometime.
The applications of biotechnology in specialty chemicals consists of genetic
engineering to the fermentation production of existing chemicals. Other application area is the use of protein and molecular engineering to the modification of
existing specialty or development of new chemicals with enhanced functional
characteristics (Daly 1985, 12-13).
2.3
Pharmaceuticals
Medicine is one of the most important application areas of modern biotech-
nology. The applications of rDNA and hybridoma techniques combined with
greatly increased understanding of the molecular causes of disease will lead to a
transformation of medicine.
The earliest scientific drug discovery methods focused on evaluating natural
ingredients for pharmaceuticals and the emphasis was on the extracting beneficial
bio-originated ingredients from plants and other sources. Sometime during the
first half of the 20th century, systematic pharmacological evaluations were carried
out. The evaluations concentrated on to both synthetic and natural compounds,
and after the usefulness of the candidate compound was determined, a synthetic
process was developed for its production (Lievonen 1999).
Advances in antibody biology and gene technology placed the drug discovery process on a more rational level in the 1980s. It became possible to design
drugs for specific purpose. In addition, the development of computerised methods
has further increased the opportunities for rational drug design (ibid.).
Increased understanding in biotechnological processes enables scientists to
create more efficient pharmaceuticals, and current ‘traditional’ or synthetic drugs
can be mass produced and new diagnostic tests can be devised. Incurable diseases,
such as various cancers, neural and mental disorders, and parasitic infections will
become more susceptible to therapeutics with biotechnological components. The
applications of biotechnology to the pharmaceutical sector can be divided under
several headings: 1) drugs using rDNA technology, 2) lymphokines (including
13
interferons), 3) drug targeting, vaccines, applications to conventional drug design,
and 4) new diagnostic technologies (Daly 1985).
2.4
Drug Innovation and Development Process
The development of a new pharmaceutical product follows usually stan-
dardised process. This process has been designed mainly by the regulatory
authorities. The process can be divided into steps, where at each step candidate
compounds are tested and screened for particular properties or characteristics. In
the process of finding a new medicine, usually hundreds or thousands of molecules have to be tested, and only a fraction of these are viable enough to be transferred to the next stage (Gambardella 1995).
New drugs have been developed either from organic chemical synthesis or
from the separation of compounds produced by natural micro-organisms. Nowadays biotechnology is rapidly changing these processes. The change is based on
new information on the originating mechanisms of diseases revealed by molecular
medicine, on the potential effects of pharmaceuticals as disclosed by molecular
and cell biology, on new methods of discovering biologically active entities, on
new models for testing and on new dosage technology (Scheinin 1999).
The prerequisite for commercialization and marketing pharmaceutical products is systematic documentation based on the effectiveness and safety of a new
medicine. The development process of a new pharmaceutical is divided into
phases consisting of preclinical research and phases I-III. Preclinical studies consists of laboratory screening of molecules (bioassays and animal tests) to evaluate
their therapeutic potential and toxicity. The intention of these tests is to study the
pharmacological effects of a medicine, to document its desired and undesired actions, and to conduct a safety assessment before it is tested with human beings.
The actual clinical trials comprise three (sometimes four) phases. Going
from phase I to III, a new compound is administered to an increasing number of
patients. The first phase includes a few human test subjects, and the aim is to
gather sufficient information about the tolerability of the medicine and about its
pharmacological effects on a human being. Phases II-III focus on the medicine’s
effectiveness. Normally, phase II and phase III involve a large number of patients,
and the tests take place over a long period. This is needed to prepare an accurate
14
profile of the drug, define its dosage, and evaluate possible side effects. Clinical
studies that are carried out after the medicine enters the market are called phase
IV studies. These can be, for example, multi-centre studies with the aim of clarifying the appearance of rarer adverse reactions. This phase ensures that exact
knowledge of the medicine becomes available. The medicine is kept under surveillance throughout its entire life cycle (Gambardella 1995; Scheinin 1999).
Because of its long-term nature, the pharmaceutical R&D is a costly and
risky venture, but the economic rewards from a successful project usually more
than offset these costs. In the United States, the Office of Technology Assessment
(OTA) estimated in 1993 that for drugs that first entered human testing in the period of 1970-1982 the fully capitalised cost of developing a new pharmaceutical
was $359 million in 1990 dollars. For drugs made available in 1990, the cost was
$500 million. Figure 2-1 shows a new drug development process.
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are shown in colour. Average time from initial synthesis to NDA approval is approximately 100
months (modified from Gambardella 1995).
15
2.5
Characteristics of Pharmaceutical Industry
The leading enterprises in modern day pharmaceutical industry are the
American and European multinationals. The industry is characterised by a globally integrated structure of manufacture, R&D, planning and distribution. The
main target markets for the global pharmaceutical business are the North America,
EU, and Japan. Together these countries are sometimes referred as Triad to symbolise their importance to the world economy.
In these countries, the competition is based on an oligopolistic structure and
the commercial success of an individual company depends on having a few successful products in some market segments. Competition is on the basis of product
differentiation, which in turn depends on the quality and efficiency of R&D. Price
competition is not used in the field of pharmaceuticals unless it is between drugs
coming off patent protection and generic substitutes (Daly 1985).
Effective patent protection is an important factor in the pharmaceutical
business and it ensures that companies receive adequate returns from the massive
R&D investments involved in developing and commercializing a new drug. The
special feature of the pharmaceutical industry is that the patents have to be applied
at the early phases of the drug development process, and because the development
process is a very lengthy procedure, the actual effective patent life from the marketing approval day to the expiration of the patent may be only several years before the drug compound faces generic competition.
The end of the effective patent life does not always mean the end of exclusive marketing for the drug compound, and according to the study of OTA (1993)
some compounds may not have generic competitors for several years after the
patent expires. This could be due to the delays in the approval process for the generic versions or that the potential market is too small for the competitors to enter.
Occasionally the original manufacturer of the drug is able to gain a process patent
after the original patent that will protect the product for some time (OTA 1993).
Nowadays the pharmaceutical industry is going through structural changes.
The costs of drug development have soared and the global competition has intensified. To maintain the level of growth, the global pharmaceutical enterprises are
merging together in hopes of gaining large-scale advantages and achieve savings
in R&D and marketing. Throughout the 90s many famous traditional pharmaceu-
16
tical companies have merged together to form truly giant enterprises. The net result of this merging mania is that the global pharmaceutical enterprises are concentrating more on to the distribution and marketing aspects of pharmaceutical
business. The important pharmaceutical research is being transferred to smaller
dedicated pharmaceutical research companies, which then out-license their products to the established pharmaceutical companies.
2.6
Global Development of Biopharmaceutical Sector
The first wave of biopharmaceuticals began from the United States. This did
happen already in the late 1970s, when several companies started to exploit the
new rDNA and hybridoma technology. The availability of venture capital in the
United States was one of the major elements that so many of the first wave biopharmaceutical companies survived. This combined with several successful initial
public offerings (IPO) helped to get sufficient media coverage, which in turn
aroused the public interest. The inflow of risk-capital made it possible that an entirely new branch of industry began to form in the United States. The availability
of patient risk money in combination with the fact that the United States has often
been referred as an entrepreneurial heaven when compared to other western countries has allowed the biopharmaceutical industry to flourish when comparisons are
made, for example, with Europe.
The strategy of most NBFs in the United States was to transform from research intensive company into fully integrated manufacturing and marketing
companies. This transformation, which is referred as a forward integration, involved the commercialization of R&D, heavy investments in production capability and the financing of entry into product markets (Daly 1985, 17).
After almost two decades it is evident that one of the most important factors
in the evolution of the U.S. biopharmaceutical industry has been the existence of
NBFs. At the beginning these companies had the major role as being the explorers
of new technological opportunities and in generating new innovation. The NBFs
also have been the important bridge-makers between business and university research (Senker et al. 1998).
The United States has been the de facto technological leader in the biotechnology industry and continues to be so in the foreseeable future. Europe has found
17
itself to be a latecomer into the biotechnology market and continues to lag behind
in absolute terms. While Europe is still lagging behind the U.S., in recent years
there have been improvements in several European countries. Particularly United
Kingdom and the Netherlands have had several success stories in the area of biopharmaceuticals.
The late 1990s have seen the second coming of biotechnology at least in
Europe, where the investments have multiplied, and the expectations have been
rising after several new and successful IPOs. However, biotechnology is a science-based technology, where technological uncertainty and proprietary technology are factors which benefit the first-mover significantly and where the latecomers could have problems of catching up. Of course, it does not mean that being a late means being out, so European NBF can be a successful if the market is
selected carefully and all the other aspects of business are properly managed.
According to Ernst & Young (1998) report the biotechnology has succeeded
in creating real value. The biopharmaceutical industry has provided over 65 biotechnology-based drugs on the market, and the industry is significantly improving
the quality of life for many. Moreover, the estimations place that several hundred
drugs, vaccines and diagnostics are in human clinical trials and in preclinical development. The accelerating pace of discovery, and the rapidly aging population
with its associated healthcare requirements, will ensure that biotechnology will be
a leading industry in the next century. Based on this information even small
countries such as Finland can benefit from the founding and supporting of their
own biotechnology industry.
2.7
Biopharmaceutical Sector in Finland
The biopharmaceutical sector of Finland has developed strongly only in the
1990s. Several new pharmaceutical research companies have been formed with
the help of venture capital. These pharmaceutical R&D start-up firms are usually
situated in the various Biocentres in the cities of Helsinki, Oulu and Turku. In
addition, several other Finnish cities such as Kuopio have provided office and
laboratory space with easy terms for the start-up pharmaceutical research companies.
18
The recent mega-class mergers among agricultural, pharmaceutical, and
chemical enterprises to take advantage of common research and to contain the
rising costs of R&D provide opportunities for the existing and emerging biotechnology companies. It has been estimated that approximately one half of new
pharmaceutical compounds originate from relatively small companies specialising
in pharmaceutical R&D. These companies are usually either spin-offs or new
ventures formed to exploit new pharmaceutical inventions. In Finland the number
of small Finnish companies participating in pharmaceutical R&D has been steadily increasing and was in 1999 fifteen. It remains to be seen how the Finnish
pharmaceutical companies fare on the long run against international competition
but the future of these companies looks promising.
Finland has only two large established traditional manufacturers of pharmaceuticals, which are Orion and Leiras-Schering. Orion is a Finnish owned pharmaceutical manufacturer with long traditions. Leiras, which originally started as a
part of Huhtamäki Corporation, is today an affiliate of Germany-based multinational pharmaceutical company Schering AG. However, both Orion and LeirasSchering are small local players from the viewpoint of the biopharmaceutical research company intending to out-license its products (Ahola & Kuisma 1998;
Lievonen 1999).
Further description of small Finnish biopharmaceutical firms is given in
Chapter 6 in conjunction with multiple-case study.
19
3
PRINCIPLES OF COMMERCIALIZATION
The purpose of this chapter is to define the concept and process of commer-
cialization. The commercialization process is examined from the start of new
product development to the launch of product. The commercialization process can
be divided in two phases which are: 1) planning and 2) implementation.
Before actually entering into the new product development process, every
company should prepare a strategic plan. In new companies, this could be included in the business plan, which is often requested by the investors and venture
capitalists. In many new companies, managers are sometimes too occupied for
planning, the strategic plan, however, is an important tool that should not be bypassed. It encourages systematic thinking and sets the stage for the eventual marketing plan. Many managers might see the planning process too slow for the fast
changing marketplace, but according to Wong and Saunders (1993) some of the
best performing companies plan without losing their entrepreneurial style.
The strategic plan, after mission statement, is divided into the analysis of
external and internal environment. The auditing of company’s value chain, its
competitors, its market, and the general business environment leads to a SWOT
analysis. SWOT draws a summary of the strengths and weaknesses of the company with the opportunities and threats it faces. The SWOT analysis shows the
critical factors from the internal and external audit that the management must take
into account when making important decisions (Kotler et al. 1999).
In the smaller companies, and in particular with start-ups, the results of the
SWOT can be used when determining decisions concerning the product development and marketing. While the needs of customers play a key role in the majority
of businesses and the aim of marketing is to satisfy these needs, in the biopharmaceutical business the small research intensive firms prefer to place the product
development and commercialization at the heart of their business. The objective
of a small biopharmaceutical firm, for example, could be the finding of a cure to
an incurable disease but because of the nature of business the end-user of the
product will not be the main concern of the firm. Instead, the biopharmaceutical
20
firm has to focus its marketing strategies towards established pharmaceutical
companies.
In the long run this does not mean that the biopharmaceutical firm forgets
the end-user, rather the management of the biopharmaceutical firm has to aim in
satisfying the needs of both target markets. The subject of commercialization in
biopharmaceutical business is addressed in more detail in the latter part of this
Chapter, beginning from section 3.5 whereas Chapter 4 is dedicated to the examination of specific marketing practices which should facilitate the commercialization process of a biopharmaceutical firm.
3.1
Concept of Commercialization
Commercialization can be defined as a process of introducing a new or re-
newed product into the business or consumer markets with the interest of pursuing
commercial success. The object of commercialization, the product, can be marketed to customers. The product can be tangible or intangible, service, ideology
etc., and it can be completely new or it might have been only superficially renewed. In addition, an old product can be commercialized into new markets (Rope
1999).
Basically the commercialization is used by the companies in two different
situations and these are: 1) start-up commercialization and 2) commercialization
as a part of business operation.
1. Start-up commercialization. It is a situation, where a new company is founded
around the commercialization of new product or service. The success in commercialization process is especially important if the company is not part of
some larger enterprise, and cannot expect financial backing in time of crisis.
2. Commercialization as a part of business. This is a commercialization process
which is done as part of business operation. The companies have usually a
stabilised customer base in the chosen market segment in a selected market
area (ibid.).
In the marketing textbooks, the commercialization process is often depicted
being as the last part of the product development process, and according to Kotler
(1994) the commercialization process comes after market testing of the product.
Market testing is used to evaluate the product in a realistic market setting. It is
21
regarded as a stage of new-product-development process and it supposedly gives
enough information for the management to approve the launch of the product.
Market testing is widely used in the consumer goods market, although it benefits
business goods as well. If the market testing results look promising the company
usually begins the commercialization in full-scale.
At the beginning of commercialization, the management of a company has
to decide: 1) when, 2) where, 3) to whom, and 4) how the product will be commercialized (Kotler 1994).
1. When. In the commercialization process the management has to decide a timing for the entry. In the case of competition the correct timing of entry can be
a critical issue.
2. Where. Next phase for the management is the selection of geographical strategy. The company must determine whether the marketing strategy for the
product includes regional, national or international market.
3. To Whom. The company must select the best target market prospects according to its line of business.
4. How. This factor presents the development of the action plan phase for introducing the product into the markets.
Today the new communication and information technology combined with
the availability of efficient means of conveyance have effectively shrunk the
world by reducing the time delay needed to reach distant places. This allows firms
to commercialize their products world-wide almost simultaneously. Although the
logistical costs have decreased, only a select few companies are able or have the
confidence to commercialize new products globally solely on their own. More
likely option is to partner with other companies sharing similar interests. This
means that in addition to the four mentioned factors the management must pay
attention to a fifth question, which is with whom the commercialization process is
organised. This is especially important for many high technology firms which face
shorter product life cycles and greater technological uncertainties than businesses
normally. The partnering and various co-operative arrangements can also be used
to maintain the inventiveness and novelty of the small high technology firms. Table 3-1 presents the four basic and one optional decision factors of commercialization that the firms face.
22
Table 3-1. The decision factors of commercialization (modified from Kotler 1994).
WHEN
(Timing)
WHERE
(Geographical strategy)
TO WHOM
(Target-market prospects)
First entry
Parallel entry
Late entry
Regional
strategy
National
strategy
International
strategy
Consumer
market
HOW
(Introductory market strategy)
WITH WHOM
(Optional strategy)
Business to business
market
Marketing mix
Partnering and co-operative arrangements
However, the commercialization as a last part of new-product-development
process presents too narrow view on the issue. This kind of thinking means that
the commercialization is basically considered to be a natural extension of the
R&D process and which always culminates to the market launch. The problem in
this approach is the fact that it lacks comprehensiveness. For this reason the commercialization should be examined in a broader perspective. The following sections describe the commercialization as an ongoing process with R&D process.
3.2
Main Phases of Commercialization Process
The commercialization process determines the product’s market-entry suc-
cess. Although the product could fulfil the technical expectations, there can be a
failure in the commercialization process. Systematic planning of the commercialization process and professionalism in the execution phase are prerequisites for a
successful commercialization. While the commercialization phase is a separate
process from the new product development process, these two processes are not
mutually exclusive.
It is highly recommended that the planning of commercialization should be
started already in the innovation phase of the product. Depending on the nature of
the product, preliminary marketing plans can be made when either a prototype of
the product or sufficient documentation exists. The commercialization process
itself starts after the development phase and when the product is market tested.
Commercialization typically ends when the product reaches a growth stage.
23
Rope (1999, 19-20) argues that the duration of commercialization can differ
considerably between various products, and it depends on, for instance, 1) the line
of business, 2) the nature of product and the degree of newness, 3) the customer
group, 4) the market situation, 5) the resources of the company, and 6) the strategy of commercialization.
The commercialization is often viewed as a linear process, which is not surprising given the fact that during new product development and subsequent commercialization many people from different company functions (depending on the
size of company) participate in the planning and execution of both processes. In
the companies where the commercialization is perceived as a linear process, the
R&D function frequently dominates the planning of business. These companies
have been said to be strong in developing new technology but are often weak in
commercialization. This is a serious deficiency in a company, if it cannot develop
marketable products its position in the market will be compromised sooner or
later. On the other hand, the companies with strong commercialization capabilities
see the process of new product development as a series of overlapping phases that
involve many business functions simultaneously. These companies use the R&D
as a core competence, and make the commercialization process as a priority, and
set hard but attainable goals (see Davidow 1986; Nevens et al. 1990).
Figure 3-1 shows the main phases of commercialization process, and how
the process culminates to the tracking of actual launch.
ONGOING R&D PROCESS
Start of
commercialization
process
When?, Where?, To
Whom?, and How?
External and internal
audit
Strategic decisions of
commercialization
Marketing
fundamentals
Market, Company,
Competitor, and
Environmental analysis
The competitive strategy
and strategic goals
and objectives
The development of
marketing mix
LAUNCH DECISION
Objectives of launch
Launch plan
Implementation of
launch
Figure 3-1. Main phases of commercialization process.
24
Tracking the launch
3.3
Planning of Commercialization
Today’s competitive world forces companies to analyse both the external
and internal fundamentals affecting their activities. While the monitoring should
be performed continuously to some degree at all times, the new product development process and the subsequent commercialization require even more meticulous
analysis of the external and internal factors. The fundamentals that are analysed
are shown in Figure 3-2, and consist of the company, competitors, business environment, and of the market situation. The company planning to do the commercialization process must analyse all the four factors to some extent because this
will generate information which the management uses to create an all-inclusive
plan for commercialization.
Company
Analysis
Competitor
Analysis
Market Analysis
Environment Analysis
Figure 3-2. The types of fundamental analyses (modified from Rope 1999).
3.3.1 Market Analysis
Market analysis defines the potential market for the new product. It is also
used to estimate the development of market structure in the future. An important
aspect of market analysis is the examination of customer base.
The company’s line of business specifies the focus of market analysis. If the
company operates in the consumer goods business, it has to clarify numerous details that affect the buying behaviour of the potential customers. The customers
25
are typically grouped with the use of geographic (countries, regions, cities),
demographic (sex, age, income, education), psychographic (social classes, lifestyles) and behavioural (purchase occasions, usage rates) factors. These factors
give basic knowledge for the management to analyse the differences between target customer groups. In addition, this information is used for the segmentation of
the markets (Solomon, Bamossy & Askegaard 1998).
The business markets have some similarities to consumer markets. There are
always people who do the buying and make the decisions to satisfy the needs. On
the other hand, the differences of the business markets are in market structure and
demand, in the nature of the buying unit, and in the types of decision process involved (Kotler et al. 1999).
In the business-to-business markets, where the customer is either a company
or an organisation, it is important to understand the customer’s buying process.
The marketing company has to know the customer’s key decision making unit in
the buying process. The knowledge of key decision makers allows the company to
focus its marketing mix on the right personnel in the customer’s organisation.
3.3.2 Competitor Analysis
Today the companies have to understand both customers and competitors.
The planning of effective marketing strategies requires, of course, deep understanding of firm’s internal functions but also of the competition situation currently
in the target market.
The competition can vary in intensity: it may be strong, mild or even nonexistent. Any form of competition can be harmful to the company, but the lack of
competition in the long run could lead to the same kind of results as if the company was facing intense competition. There are many examples of past companies
who based their competitive advantage solely onto the proprietary base of technology and found out that after the expiration of patent protection, the seemingly
sudden appearance of competition made them extinct.
26
After the identification of the primary competitors, the company needs to
assess the competitors’ strengths and weaknesses and collect information about
their general strategies and objectives. Table 3-2 presents an assortment of questions regarding the competitor(s). The companies should strive to develop personalised questions that help them in the assessment of competitors.
Table 3-2. Examples of questions used to assess competitor(s) (modified from Kotler 1999).
Goals and Objectives
What are the goals and objectives of the competitors? How important to the competitor is profitability, growth of market share, or technological leadership.
Strategies
What is the strategy of the competitor? Is the strategy based on cost-leadership, differentiation,
or is there some combination of strategy.
Strengths and weaknesses
Does the competitor possess any incomparable strengths?
Are there any important weaknesses that can be used against the competitor?
Reactions
What are the reactions of the competitor, if prices are lowered or raised?
What are the reactions of the competitor, if sales promotion budget is raised or if the number of
sales persons is raised?
3.3.3 Company Analysis
Commercialization of a new product affects always company’s long and
short-term cost-effectiveness. There will be a drain of resources until the new
product achieves a break-even point and begins generating cash-flow. In the company analysis the key points to be clarified are: 1) resources of company (finance,
personnel, production capacity etc.), 2) current products (if any) and their position
on the market after the launch, and 3) the company and the product image (Rope
1999).
3.3.4 Environmental Analysis
The company operates in a larger macroenvironment that is affected by a
range of various actors. Every company needs information from this environment
to support their strategic planning and decision making. Some of the issues that
the environmental analysis deals are very hard to accurately predict and many of
the monitored things are beyond company’s own sphere of influence. These prediction difficulties have made the environmental analysis as one of the under utilised of the fundamental analyses.
27
The challenge for the companies is the accelerating pace of changes that occur in the macroenvironment. The business organisations must learn to cope in the
middle of this turbulent environment that often poses threats, but occasionally
produces business opportunities as well. The macroenvironmental influences and
the interaction between these forces is shown in Figure 3-3.
Economic
Forces
Ecological
Forces
Company and
Physical Environment
Cultural
Forces
Technology
Forces
Figure 3-3. Macroenvironmental influences faced by the business organisation (modified from
Brierty, Eckles & Reeder 1998).
3.4
Strategic Decisions of Commercialization
When commercializing new products the most likely situation is that the
company faces competition at some time. According to Porter (1980) the companies are better prepared to face competition, if they pursue a clear strategy. He
proposed the three winning strategies and one losing strategy. The three winning
strategies are: 1) overall cost leadership, 2) differentiation, and 3) focus. The
companies that do not have a clear strategy are in danger of becoming stuck-inthe-middle as described by Porter. These companies do not have the lowest costs,
or cannot offer the highest value as perceived by the customers, or cannot excel in
service in any segments (Porter 1980).
Another key issue to the management in the commercialization process is to
understand the value that the firm’s product offers for the customer. To maintain
28
the competitive position in the long run the company should strive to deliver superior customer value.
Treacy and Wiersema (1993) suggested three new competitive marketing
strategies that enable the companies to gain leadership positions in their own area
of specialty by delivering superior customer value. They call their competitive
marketing strategies as value disciplines and these are: 1) operational excellence,
2) customer intimacy, and 3) product leadership.
1. Operational excellence. The companies that are industry leaders through competitive pricing and customer convenience practice the operational excellence.
These companies are constantly seeking ways to reduce costs and improve the
customer service.
2. Customer intimacy. These companies provide superior value with pinpoint
segmentation of the markets and then serving the customers with tailored
products and services. The products and services are designed to satisfy the
unique needs of customers and the companies are striving to build long-term
and intimate customer relationships.
3. Product leadership. The product leadership companies develop continuously
new innovative, often state-of-the-art products or services, that are delivered
into the marketplace with the speed that makes their own as well as competitors’ products obsolete.
Treacy and Wiersema (1993) point out that only select few companies are
able to pursue more than one value discipline successfully at the same time. Most
of the time the leading companies are focusing at a single value discipline, while
performing adequately in the other two. This has the same purpose of avoiding the
situation of trying to be good at everything and ending up being best at none. The
message in these classifications of competitive strategies seems to be the fact that
management needs to realise the strengths and weaknesses of the company and to
maintain the focus on the chosen path.
In addition to the selection of basic competitive strategy the management
usually sets strategic goals for the commercialization. These goals usually differ
between companies and products but share one common feature of being a guiding framework for the management responsible of the commercialization process.
29
Rope (1999) has identified several general strategic goals of commercialization: 1) to maintain market-share, 2) to strengthen market-position, 3) to win
new markets, 4) to achieve/maintain innovator status, and 5) to control the competition/keep the competition out. Typically these strategies are more suitable for
the companies which commercialize the products as part of business operation. In
the start-up businesses, however, the priorities for commercialization are usually
considered to be somewhat different. The management in the start-up commercialization is more likely concerned with increasing the product awareness and
ensuring the profitability of business. On the other hand, the status of innovator
can be the strategic objective for the start-ups, too.
3.5
Commercialization in Biopharmaceuticals
At the beginning of next section, the aspects of commercialization charac-
teristic to biopharmaceuticals are described. The biopharmaceutical R&D process
is at first illustrated in a sequential model, and then it is expanded to include the
commercialization phase. After the presentation of the model, the commercialization is examined through the evolution of firm capabilities. Particularly, the evolution of complementary capabilities of marketing and manufacturing are under
interest in the following sections. Finally, four important factors that affect the
commercialization of biopharmaceuticals are identified.
3.6
Biopharmaceutical Product Development and Commercialization
Due to the small size of Finnish NBFs a successful R&D process is a critical
step for these companies. The outcome of a successful R&D effort is a functional
and marketable product. Although there should be already some preliminary plans
made for commercialization at the beginning of the new-product-development
process, the commercialization starts at full effect only after the developed product is tested and completed. Furthermore, only the commercialization phase determines if the developed product will ever be a commercial success. Even if the
new-product-development process and commercialization are two separate
phases, it is important to understand that these are interconnected and failure in
one or the other process will usually result an under performing product despite
any possible correction activity.
30
OPPORTUNITY IDENTIFICATION
Market Definition
Idea Generation
No
Go
DESIGN
Customer Measurement
Product Positioning
Forecasting Sales Potential
Product Engineering and
Marketing Mix
No
Go
TESTING
Test Marketing
Obligatory Testing Phase
Phases I-III
No
Go
INTRODUCTION
Launch Planning
Selection of Partners
Tracking the Launch
No
Go
PROFIT MANAGEMENT
Decision Support System
Market Response Analysis
Innovation at Maturity
Product Portfolio Management
Reposition
Harvest
Figure 3-4. New Product Development Process in a biopharmaceutical firm (modified from
Urban & Howser 1980).
Figure 3-4 depicts a new-product-development process in a biopharmaceutical firm. The pharmaceutical product development is done under strict internationally accepted regulations, and where the testing phases of the product last
longer when compared with almost any other business.
As Figure 3-4 indicates the biopharmaceutical product development can be
described as a sequential process. The first phase, the opportunity identification,
defines the best market and the ideas that could be used as a starting point for the
new product development process. In the biopharmaceutical business this phase
31
represents the innovation based on the knowledge of the company’s scientists or it
exists only as an idea in the possession of an entrepreneur. The design phase includes converting the ideas into a physical and psychological entity. This is the
start of the actual new-product-development process in the biopharmaceutical
business. It includes, for instance, the basic research phase, and the screening of
possible suitable pharmaceutical compounds.
After a successful screening process, the biopharmaceutical firm has found a
suitable candidate for testing. The testing is the most important part of the biopharmaceutical research since it is the phase where the functionality of the product is determined. This phase lasts typically over 10 years until all the obligatory
clinical studies have been completed. It is important to note that the product can
fail expectations anytime during the testing period, and the project could face termination without any commercial results. After the testing phase, and if the biopharmaceutical product candidate has been tested successfully without any occurrence of adverse reactions, the biopharmaceutical firm is ready for commercialization. The commercialization process of the biopharmaceutical product is depicted in Figure 3-5.
PRODUCT DEVELOPMENT PROCESS
Finished and Tested Product
COMMERCIALIZATION PROCESS
External and Internal Audit
Timing of Commercialization
Budgeting of Commercialization
MARKETING MIX
Elements of the Mix
Testing of the Elements
PARTNER SELECTION
OPERATIVE FACTORS OF
COMMERCIALIZATION
Objectives
Plan
Implementation
Monitoring
Figure 3-5. Commercialization process in a biopharmaceutical firm (modified from Rope 1999).
32
The selection of partners is an integral part of the biopharmaceutical business because small firms with heavy R&D spending are not capable of creating
their own global marketing networks. Usually the biopharmaceutical start-up
firms enter into licensing agreements and select partners who have strong market
positions and overlapping interests in the same therapeutic groups of pharmaceuticals. After signing the contract, the biopharmaceutical firm will have to monitor
that the selected partner is investing into the marketing of the product because the
development of future turnover usually depends on received royalties.
3.7
Development of NBF Complementary Capabilities
The marketing between biopharmaceutical firm and established pharmaceu-
tical enterprises can be considered to be business-to-business marketing with a
high technology aspect. The function of marketing in the typical high technology
firm is the same as in any other company – to advance the firm towards its objectives through the use of marketing tools. The biopharmaceutical business is not an
exception to this rule but as in many other research intensive businesses the role
of R&D is often emphasised at the cost of other functions.
Especially in the small biopharmaceutical and start-up firms where the
founders often have to perform multiple duties and depending on their educational
background, the development of firm’s complementary capabilities can happen
haphazardly over time. At the beginning the emerging firm concentrates typically
in building the R&D function because it is needed to establish a strong technological leadership position on the market. However, to realise the potential economic returns of the new innovation and the results of the development process,
the NBF needs to expand its initial capabilities. This usually requires the complementary capabilities of marketing and production. As the innovation cycle proceeds and the firm requires more downstream capabilities, it must increase both
its size and commercial orientation to succeed in the competitive markets (Hamilton & Singh 1992).
In the commercialization phase the management of an emerging firm has to
decide how long it will be using the assistance of external agents in the exploiting
of new technological innovations. If a firm outsources production and/or marketing services, it reduces the need for internal marketing capabilities. This arrange-
33
ment typically lets the firm to focus its limited availability of funds on research
(ibid.).
It can be argued, however, that the management of NBF should shift the
priorities somewhat toward establishing a marketing function with main focus on
commercialization activities. The development of successful commercialization
practices allows the NBF to further develop its organisation and lets the management to consider a broader range of commercial options. Figure 3-6 illustrates the
evolution of strategic choices the management faces over time.
Technological
and Market
Uncertainty HIGH
Time
LOW
Initiation
Strategy
Options
Strategy
Positioning
Strategy
Focus of Innovation
Research
Development
Commercialization
Nature of Commitment
Low, Expansion
Moderate, selective
High, focused
Degree of externalisation
High
Moderate
Low
Figure 3-6. Strategic choices the management of NBF faces evolve over time (modified from
Hamilton & Singh 1992).
3.8
Critical Success Factors of Biopharmaceutical Commercialization
The marketing effort in the biopharmaceutical business is centred on com-
mercialization of products. The successful commercialization of biopharmaceuticals depends primarily on four factors: 1) product, 2) promotion, 3) credibility,
and 4) partner selection.
34
1) Product. The most important part of biopharmaceutical business is the offered
product. The customers in biopharmaceutical business are more easily attracted by the promise of high-quality or unique product.
2) Promotion. The promotion is used to deliver information about the product to
the potential customers. Through promotion the biopharmaceutical firm has to
communicate its unique selling proposition (USP) to attract customers.
3) Credibility. Most of the start-ups or new firms have to deal with the credibility
problems when facing competition from the established companies in the
business or when confronted by the customer. Due to the nature of the business the credibility has even greater importance in the biopharmaceuticals. By
means of promotion the NBF/DBF has to assure its prospective customers that
the firm has followed the standards and practices related to the industry. The
information about the preclinical and clinical trials must conform to the standards of good clinical practices (GCP), good laboratory practices (GLP), and
possibly good manufacturing practices (GMP).
4) Partner. The selection of licensee is usually the last part of the commercialization process in the biopharmaceutical business. After evaluation of potential
candidates, usually one partner is selected from the potential customers to
handle the global marketing and distribution. This is handled usually through
various licensing agreements but other co-operative arrangements are possible.
These factors fall under the influence of the biopharmaceutical firm. After
the partner selection and licensing agreement, the biopharmaceutical firm is only
able to affect the partner according to the clauses in the contract. The other important factors that affect the commercialization process are the timing of entry,
competitor actions, and market strategy but these are not under discussion in this
thesis.
The four factors (product, promotion, credibility and partner selection) of
biopharmaceutical commercialization are addressed in the next chapter.
35
4
MARKETING IN BIOPHARMACEUTICAL BUSINESS
This chapter examines the marketing and partner selection viewpoints of
biopharmaceutical business. Chapter three identified the critical success factors of
biopharmaceutical business. Two of these (product and promotion) are part of a
mix of decision variables more commonly known in the marketing as the 4 Ps of
the marketing mix. The third factor, the credibility, is a new aspect and it functions as a basis for customer confidence.
The decision variables of marketing mix are tools that can be utilised to
make it possible for the company to reach its objective(s), whereas the credibility
is used to assure customers of the product quality and expertise of the organisation. In addition to the marketing mix and credibility, the marketing in biopharmaceutical business requires an intimate understanding of stakeholder relationships. By means of these relationships the company is able to complement the
marketing mix. Figure 4-1 describes how the marketing mix can be used in the
biopharmaceutical business.
MARKETING MIX
CREDIBILITY
Product
Place
Quality
Degree of uniqueness
Quality of facilities
Availability of
outsourcing services
TARGET
CUSTOMER
Price
Promotion
Initial price
Milestone payments
Down payment +
royalties
Personal selling
Sales promotion
Publicity
Figure 4-1. The marketing mix of a typical biopharmaceutical firm (modified from Kotler 1994).
36
4.1
Introduction to Marketing Mix
The marketing mix is one of the dominant theories of modern marketing. It
can be defined as being the set of controllable tactical marketing tools – product,
price, place and promotion (4 P) – that the firm applies to produce the response it
wants in the target market. The marketing mix consists of numerous variables that
are grouped under the ‘4 Ps’ (Kotler et al. 1999, 109).
When the new product development process is near to its completion, the
management has to begin planning the details of the marketing mix. While some
preliminary plans should have been made already at the start of the new product
development process based on the overall marketing strategy, the long-term duration of some projects makes it more suitable to leave the accurate planning to
closer the time when the functionality of the product has been ensured.
The mix of 4 Ps are usually linked to the consumer goods business, where
company operates in mass markets, often with standardised products and uses
product or market management structure when implementing marketing. Through
the use of marketing mix the company tries to create a demand for its product and
achieve a sustainable competitive advantage in its chosen product or market segment. Although the 4 Ps and the variables under the tools are grouped separately,
it is important to understand their strong interdependence. Usually a decision concerning one tool affects other and so on.
The 4 Ps can be utilised in the business markets also but the emphasis is
other in all the four factors. The differences between business and consumer markets concentrate usually around the product and the size of market. The consumer
markets of some corporation might literally constitute of millions of customers,
while some business markets could include only several firms. On the other hand,
business customers often buy larger quantities and these purchases are usually
repeated on a regular basis. In addition, from the sellers point of view the marketed products are often technologically complex and customised for the use of
customer, which adds value to the product, and guarantees higher price (Brierty et
al. 1998).
However, it can be argued that both the business and consumer markets are
manufacturer centred if the marketing is inspected through the utilisation of marketing mix in isolation from any other companies. In this kind of marketing, cus-
37
tomers are seen as passive and the manufacturer represents the active party in the
process. Naturally, in both markets the truth is different, and the majority of marketers have to operate in a more vivid world where interaction and relationships
with customers and competitors are part of everyday life (Ford et al. 1998).
The relationship and interaction aspect of marketing is especially valid with
the small companies that manufacture and market technologically complex products. These companies are also concerned with 4 Ps, but the marketing tasks and
responsibilities are more varied and intensive, and cover areas that are usually
considered to be outside the influence of marketing. For this reason, the inadequacy of 4 Ps in the high technology marketing has increased the criticism against
one of the dominant theories of modern marketing. Many of the high technology
products differ, often dramatically, from the so-called regular or standardised
products, and companies operating in the high technology sector face technological uncertainties, rapid fluctuations of demand, and products with short life cycles.
Consequently, the marketing operations in the high technology sector must be
concluded in a short time period, and with the use of massive resources early in a
product’s life cycle. Finally, there are examples that in some cases even the role of
marketing has been questioned in several high technology companies under the
argument that marketing is a secondary function supporting the product development and sales (see Shanklin & Ryans 1987; Pento 1990a, 1990b; Rajala 1997).
Despite the previous argument against the capability of marketing function,
the high technology products are not forcing aside the theory of 4 Ps, but rather
improving it to include some flexible aspects over the more traditional decision
variables. Because the marketing of technologically complex products to the customer requires intimate knowledge of both user needs and technological skills, the
relationship to customers can be a very intensive. Consequently, the research of
several authors on the subject of industrial business relationships and networks
seem to indicate that the role of marketing itself is shifting to more of a management of crucial customer relationships (see Håkansson & Snehota 1995; Möller &
Wilson 1995).
The special features of biopharmaceutical business seem to support these
statements. As the biopharmaceutical business is characterised by uncertainty and
considerable risks during the development process, the marketing firm has to
38
strive to optimise all the factors that fall under its own sphere of influence. The
most important of these factors are: 1) product, 2) promotion, 3) credibility, and 4)
selection of partner. The successful marketing and commercialization of a biopharmaceutical product is associated with the credibility of the developing firm.
The credibility that convinces the customers furthers the building of a strong corporate image. In addition, the quality and intensity of firm’s contacts to both customers and partners is critical to the commercialization and long-term business
relationships.
4.2
Credibility
The high technology products are often associated with uncertainty, and
marketing firms are required to demonstrate their reliability and trustworthiness in
the eyes of customers more often than is usually the case. For this reason the
creation or improvement of trust should be one of the main objectives of the high
technology companies. The major component in the creation of trust is credibility.
The credibility is said to be one of the keys to the commercial success of high
technology products and should be the guiding factor of high technology marketing strategy (cf. McKenna 1985).
According to Meldrum (1995) the credibility has two aspects: the credibility
of the technology forming the focus for product evaluation and the credibility of
the organisation. The credibility for a technology or product is developed through
the satisfaction of customer whereas the satisfaction is gained from the performance and promises kept. Organisational credibility is usually linked to the size or
reputation (Meldrum 1995).
Credibility in Finnish Biopharmaceutical Business
The pharmaceutical R&D, manufacture and marketing is globally under the
regulation of national authorities. When documenting a new drug, the pharmaceutical companies have to follow the guidelines, instructions and recommendations
set down by the authorities. The study and development of new drugs must conform to good research practices in accordance to principles of good laboratory
practices (GLP) and good clinical practices (GCP). Even the manufacture of
39
drugs is governed under the principle of good manufacturing practices (GMP)
(Scheinin 1999).
Especially new and small high technology companies such as Finnish biopharmaceutical drug development firms have to adhere strictly to these practices
to earn the credibility of their prospective customers. In addition, the personal
skills of the entrepreneur-manager and the reputation of firm’s own or associated
scientists play a major part in the establishment of firm specific credibility base.
The building of credibility in the eyes of customers and to the lesser extent with
the general public is a long-term objective for the biopharmaceutical firm. The
strong credibility base enhances the firm’s negotiation power in the future projects
and allows it to withstand negative publicity to some extent in case of setbacks.
4.3
Product
The result of successful R&D effort is a product that can be offered to a se-
lected market for attention, acquisition, use or consumption. The product concept
includes physical objects, services, persons, places, organisations, and ideas. The
product is a basis for any marketing actions, and it is the starting point for the use
of other tools of the marketing mix. Basically products are divided to the business
and consumer goods but some products can be marketed to both markets (Kotler
et al. 1999, 110).
The products purchased in the business markets are not intended for personal use, although some products might be viewed as such. Examples of these
products could be personal computers and cellular phones used by the sales representatives. In the business markets the buyers are professionally trained, and generally their buying decisions are based heavily to specifications, cost-effectiveness
and supplier reliability. Since many business purchasing decisions concern technologically complex products, require large financial commitments, and comprise
of considerable risk and uncertainty, the final decision is usually made by multiple
individuals, or a special buying centre dedicated for the job (Brierty et al. 1998).
Product in Finnish Biopharmaceutical Business
At the beginning the product in the biopharmaceutical business is rarely a
tangible good. The core biopharmaceutical product is the result of years long de-
40
velopment process and consists of documentation and test results that show the
product’s capabilities.
Furthermore, the commercialization of biopharmaceutical product is different than many other product launches in other industries. The biopharmaceutical
product even differs from the other high technology products because many of the
new biopharmaceutical products are based on the heavily defended base of intellectual property, which leads to the fact that many of the new products have to be
aimed at specialised niches in the marketplace.
In the launch phase the product’s degree of uniqueness should be assessed
by the company. If the product is unique and presents a possibility for the company to be a first-entrant in the market, this should encourage the management to
create new business functions to support the launch. On the other hand, products
with only incremental improvements over the existing products in the marketplace
should be assessed carefully and estimations of the potential returns be analysed
(Ernst & Young 1998).
In addition to the degree of uniqueness, the quality of the product is the
other important variable under the product factor of the marketing mix. Customers
are rarely interested in mediocre and much less of low quality products. The quality aspect of the product is especially important in the biopharmaceutical business
because the end-product is usually meant for the human subjects. Although the
biopharmaceutical product is intensely scrutinised by the authorities in the form of
clinical trials during its development process, there can be problems in the socalled phase IV or post-marketing surveillance period.
Any reporting of adverse reactions are reflected negatively in the sales and
the worst scenario could mean the end of the drug’s life cycle. In any event, the
image of the marketing company can suffer serious backlashes. While the global
marketing and distribution is usually handled by the partner according to the cooperation or licensing agreement, the repercussions of negative publicity are
likely to lead down to the original development firm. For a small firm any accumulation of negative publicity could hinder the future projects and cause serious
problems in the attraction of partners.
41
4.4
Price
The amount of money charged for a product or service, or the sum of the
values that consumers exchange for the benefits of having or using the product or
service (Kotler et al. 1999, 110).
In the business markets the price is not deemed to be as important factor as
it is in the consumer goods market. Business buyers usually look into other factors
first, and after thorough perusal of the offers, and if there are no differences between possible suppliers, they will also buy on the basis of price.
Price in Finnish Biopharmaceutical Business
In the biopharmaceutical business, where transactions are based on the results achieved in the long-term product development process, the importance of
the initial price can be very high for the selling company. The price and pricing is
even more emphasised if the firm is completing its first product (start-up business
commercialization) development process. The price is usually based on the future
sales volume forecasting made by the biopharmaceutical firm. Also the degree of
uniqueness and the test results of the already completed phases play a major role
in the pricing decisions of the marketing firm. If the marketing firm believes that
they hold a cure for a common disease which is still incurable, the initial threshold
price asked can easily escalate into hundreds of millions of dollars. The subsequent royalties received according to the agreement can also have a profound effect to the long-term solidity of small biopharmaceutical firm.
The pharmaceutical value chain for new innovations is depicted in Figure 42. The value chain is divided into five parts that show the percentage of the value
Proportion of the final value of the drug belonging to the stakeholder
Basic
Research
R&D
1-3%
20-30%
Manufacturing
5-10%
Marketing
Delivery to
Customer
50-70%
(100%)
Figure 4-2. The pharmaceutical value chain for new innovations (modified from the source provided by Hormos Medical).
42
added during the process of new drug development. According to Figure 4-2 the
major part of value is added during the R&D process and marketing stage whereas
the manufacturing accounts significantly less, only 5-10% of final value. The
value chain model can be used as a guideline when making pricing decisions or
long range strategic investment decisions.
It should be noted that during the sales negotiations there is always the
temptation of pushing too far. If the terms are perceived to be too high, the potential customer may decide to drop out or, if the agreement is reached, the customer
may be inclined to find ways around the conditions of payment. In general, an
ideal situation for the both parties would be that the seller receives a reasonable
compensation and the signing of agreement does not become a burden for the recipient long before there is an opportunity to exploit the object of sale
(Luostarinen & Welch 1993).
The biopharmaceutical business deals are usually licensing agreements in
which the licensor has a vested interest in seeing the licensee succeed in financial
and marketing sense. As to the terms of payment itself there are no internationally
unified systems in existence. Even the terminology used is different depending not
only on the country in question but also on the nature of the business deal. However, one can distinguish between the four most usual payment methods which
are: 1) preliminary or initial payment, 2) down payment and annual royalty, 3)
annual royalty, and 4) milestone payments.
1. Preliminary or initial payment. Preliminary payments are compensations
made before signing of the agreement for the costs caused by, for example, a
feasibility study, documentation or the development of the licensing offer.
2. Down payment and annual royalty. In this payment method, the licensor
wishes to gain a sum of money in advance, and an annual royalty based on
some clause, e.g., level of sales or period of time. The larger the initial down
payment, the smaller the on-going royalty rate.
3. Annual royalty. This is merely an annual royalty payment without an initial
down payment (ibid.).
4. Milestone payment. This is not exactly a payment term used in the licensing
agreements but rather an investment to a project, which is done by someone
else. For example, an established pharmaceutical enterprise could finance the
43
drug research process of a biopharmaceutical firm under the agreement that
the resulting product is licensed to the established pharmaceutical enterprise.
4.5
Place
The place of 4 Ps is well described by Kotler et al. (1999, 110) as “… the
company activities that make the product or service available to target customers”. This statement indicates that in many industries the place has an essential
meaning in the commercialization of new products. The delivery of products to
the customers both in the consumer and business markets can make the difference
between competitors. Also the speed and reliability of distribution is an important
part of the quality of product in many industries.
Place in Finnish Biopharmaceutical Business
From the viewpoint of the small biopharmaceutical firm the place (i.e.,
availability or distribution) factor of the 4 Ps is perhaps the least significant marketing tool. The first and foremost reason is the fact that the NBF/DBF is primarily concerned of the R&D process and the marketing and distribution is left for the
global partner.
The pharmaceutical value chain already depicted (Figure 4-2) illustrates
how the R&D effort accounts 20-30% of final value of the product and is second
only to the marketing phase. In addition, Figure 4-2 indicates that manufacturing
of drugs adds only 5-10% of final value which would seem to support the profitable existence of NBFs. While focusing mainly on the R&D process with well
maintained product pipeline the NBF is able to achieve a profitability and develop
its business in the long-term.
The second reason is that the pharmaceutical industry is consolidating. The
driving forces behind this development are: 1) cost-containment pressures of the
larger companies, 2) increasing complexity of the clinical trials, and 3) versatility
of outsourcing services.
1. Cost-containment pressures. Particularly the larger pharmaceutical companies
are facing growing costs from research & development and marketing. Furthermore, the global competition between traditional pharmaceutical compa-
44
nies is accelerated by the changing economical realities of the healthcare systems world-wide.
2. Complexity of clinical trials. The clinical trials are becoming increasingly difficult to manage. The existence of global pharmaceutical giants demands simultaneous clinical trials in a number of countries. This in turn requires qualified personnel with abilities to organise the regulatory procedures and the development and maintenance of complicated information technology systems.
Such an extensive infrastructure will result in high fixed costs that works
against the cost-containment strategy. This has opened new possibilities for
the dedicated outsourcing services.
3. Versatility of outsourcing services. In the modern pharmaceutical business the
areas most often outsourced are: 1) R&D, 2) clinical trials, 3) manufacturing
and packaging, 4) marketing, 5) distribution, and 6) expert services (knowhow). The quality and availability of outsourcing services is important for the
NBF/DBFs as most of these companies either are not capable nor willing to
build and maintain all the required facilities of pharmaceutical product development and manufacture. For example, in the United States many of the small
biotechnology firms have the facilities and expertise to produce gram amounts
of biopharmaceuticals, but in the clinical trials the needed amount grows to
kilogram range. This requires special manufacturing plants that meet the strict
FDA requirements. The cost of building multipurpose GMP facility is $25 to
$50 million, and many biotechnology firms, with the risk of their new product
not getting market approval are reluctant to finance a facility but rather are
willing to outsource their production to contract manufacturers who are either
dedicated service companies or firms selling excess capacity (Mitzen 1999;
Rautiainen 1999).
While the place is not the main factor in the marketing and commercialization process of biopharmaceuticals, the availability of top-level outsourcing services enables the new biopharmaceutical firms to concentrate into their core competence of R&D and purchase the additional services from the other professional
providers. If these kinds of services are available at the country of NBF, it certainly increases the credibility of the whole industry sector.
45
4.6
Promotion
The promotion mix (also called marketing communications mix) consists of
five major tools: 1) advertising, 2) direct marketing, 3) sales promotion, 4) public
relations and publicity and 5) personal selling. Numerous specific tools can be
listed under the five headings, but the communication includes other aspects as
well. For example, in the consumer goods the product’s styling and the colour of
package communicate various messages to buyers whereas the salesperson’s dress
and manner are important in the business-to-business marketing (Kotler 1994).
The importance of promotional tools varies between consumer and business
(industrial) markets. Typically consumer-goods companies rate advertising as the
foremost promotional tool whereas the industrial marketers favour personal selling over the other tools. In general, personal selling is more heavily used with
complex, expensive, and risky goods and in markets with fewer and larger sellers
(ibid.).
In many new products and industries special promotion campaigns are
needed to ensure the important initial acceptance. For the industrial products, the
special promotion campaigns could be, e.g., special introductory prices or special
deals where the buyer receives free service for a specified period of time (Urban
& Howser 1980).
The utilisation of promotion tool in the high technology business can be
used to differentiate the image of the firm from competitors. For this reason, the
managers of high technology businesses are often required to tailor special promotional campaigns to inform customers of the technological superiority of their
firm. For example, Dutta, Narasimhan and Rajiv (1999) suggest a tactic such as
the hiring of star scientists or engineers that can be used to attract positive publicity and get media space. Naturally the promotion tactic in question has often only
short-term effect on media but it could have powerful impact on potential customers. This kind of tactic as part of the overall promotion strategy can be used also
by the new Finnish biopharmaceutical firms, if and when they are able to hire
world-renowned scientists.
46
Promotion in Finnish Biopharmaceutical Business
Based on the interviews, the most important promotional tools for the small
biopharmaceutical firm appeared to be 1) personal selling, 2) public relations and
publicity, 3) sales promotion, and 4) advertising. The exact order of preference
varies between companies but typically personal selling is the most important tool
due to the nature of business.
1. Personal selling. Personal selling is most effectively used in the biopharmaceutical business in the later stages of buying process, especially when building up buyer’s preference, conviction, and action. Personal selling has three
distinctive qualities that make it more suitable for the use of the biopharmaceutical firm and these are personal confrontation, cultivation of relationships,
and response from the side of buyers.
2. Public relations and publicity. Publicity and public relations can be used by
the biopharmaceutical firm in its later stage of company life cycle when it is
for example a public company. These tools can be used to build investor
goodwill and increase firm’s general awareness.
3. Sales promotion. The term sales promotion (SP) covers an extensive area of
functions and is typically linked to the consumer-goods business. However,
the pharmaceutical business in general employs a multitude of channels to
communicate the new product offers to the users which are more often physicians than end-users. These include sponsored group lunches and dinners, conferences, and seminars. In the biopharmaceutical business the SP tool can be
used to court the attentions of the representatives of multinational pharmaceutical enterprises. This is possible in the increasingly common dating rounds,
where new and dedicated biopharmaceutical firms are searching partners or
sponsors for future projects (Kotler et al. 1999).
4. Advertising. Advertisement is generally used in the business markets when
companies wish to increase the awareness of their products or services. In the
long-term it can be used to build the corporate image.
Figure 4-3 illustrates the promotional tools that a typical new biopharmaceutical firm can utilise to communicate and influence its customers of the developed products.
47
Product
Personal
selling
Public relations
and publicity
Sales
promotion
Advertising
Customer
Figure 4-3. Promotional tools of a biopharmaceutical firm.
4.7
Management of Relationships
Increasingly, the companies are concerned over the important relationships
in the business. The competitive business environment forces the companies to
seek continuity in relationships with suppliers, distributors, and other business
partners. Therefore, most of the companies have been compelled to examine their
overall company functions in hopes of improving these to survive in the modern
business environment (Jackson 1985).
The management of relationships encompasses all the aspects from the
management of customer relationships to the strategic alliances with potential
competitors. All of the company relationships can be considered to be assets but
the challenge for the management is to find out which are the most critical in the
long-term (Ford et al. 1998).
Management of Relationships in Finnish Biopharmaceutical Business
Typically a small Finnish biopharmaceutical firm has to manage a multitude
of relationships. These include 1) investor, 2) personnel, 3) customer/partner, and
4) supplier relations.
48
1. Investor relations. The biopharmaceutical drug development process is a risky
and expensive process. Therefore, it is important that the management of a
biopharmaceutical firm realises the importance of the investor relations and
establishes functional channels of communication between the investors and
company. In the long-term the accumulated experience can benefit the company if it intends to aim at IPO.
2. Personnel relations. While the internal marketing is an important part of the
marketing of any company, it is typically used extensively only by larger corporations. Nevertheless, in knowledge-intensive businesses such as biopharmaceuticals, the demand for qualified personnel is especially high and thus requires the establishment of various incentive and employee rewarding systems. Furthermore, a rewarding system can be utilised in recruitment of new
key employees.
3. Customer relations. In the biopharmaceutical business the customers are often
multinational pharmaceutical enterprises. At the beginning the first deals are
usually licensing agreements through which the NBF seeks a steady royalty
income. Later the biopharmaceutical firm can enter into other types of cooperative agreements, such as research and development limited partnerships
(see Section 4.8), to improve its position (cf. De Meyer 1999).
4. Supplier relations. Supplier relationships in the biopharmaceutical business
are centred on the outsourcing. This typically comprises such activities as
buying the latter part of clinical trials from dedicated organisations or inlicensing research results from company associated scientists for further development.
Figure 4-4 illustrates how the management of a Finnish biopharmaceutical
firm faces a complex world of relationships, where a vast range of actions are
possible but at the same time a large number of restricting factors can hinder the
decision making process. The management has to learn to maintain, improve, and
in some cases to end any of the current relationships without compromising the
future of the firm. In the middle of these relationships, the management has to
take care of the business operation, and advance the firm towards its goals.
49
Stakeholders
Personnel
Partners
Investors
Incentives
Information
Internal
Communication
Customers
Outsourcing
Marketing
Management of
Investor Relationships
Relationship Marketing
Marketing Mix
Management of
Management of
Customer Relationships
Outsourcing Relationships
Management of Finnish
biopharmaceutical firm
Figure 4-4. The relationship network of a typical Finnish biopharmaceutical firm.
4.8
Partner Selection in Biopharmaceutical Business
The importance of partner selection for many companies has increased in
the last decade. The costs of the necessary internationalization process are usually
too high for many organisations, and this is especially true for small research intensive firms throughout the world. These firms either choose or are forced to
enter into some kind of co-operative agreement with other companies. Rare few
companies can attract enough risk-capital to complete the product development
and organise the marketing alone in a global scale. Although the co-operative arrangements are seen as necessities of modern business for the small firms, the
teaming up with competent partners can actually have unforeseeable advantages
in the long run.
Today the partnering is seen as a strategic choice where both parties benefit
each other. For a small firm the partnership deal with a larger established company could give an access to its distribution channels, and for the larger company
the deal could allow it to maintain the growth. In addition to the distribution deals,
50
there can be a virtually any number of reasons which might prompt organisations
to seek possible partners to join into some form of co-operative arrangement. This
has led to a situation that there exist a number of terms that have been used to describe the collaborative arrangements between two or more organisations. In the
last two decades the terms “strategic alliance”, “strategic partnership”, “collaborative arrangement”, and “co-operative agreement” have gained some prominence
in the academic literature and in business life (cf. Harrigan 1986; Doz & Hamel
1998).
Forrest and Martin (1992) have identified a range of different types of strategic partnerships which the companies can exploit in linking with each other.
These are presented in Table 4-1.
Table 4-1. The definitions of different strategic alliances and partnerships (Forrest & Martin
1992).
Operating Joint Venture
An independent third enterprise formed by the company with another firm. Assets are contributed by
both parties, who also share risks.
Equity Investment
An investment by a large established company in the
firm.
Client Sponsored Research Contract
The small company is paid to conduct research on
particular products or processes for another organisation.
Marketing/Distribution Agreement
Agreements whereby another company will market
and distribute the product(s) of the firm.
Manufacturing Agreement
An agreement whereby another company agrees to
manufacture products for firms.
University Agreement
An agreement with a university whereby the firm
pays the university to conduct research on its behalf.
Research Institute Agreement
Similar to the above but with a research institute.
Collaborative R&D
An agreement between the firm and another company to collaborate on the development of specific
products or processes.
Research and Development Limited
Partnership (RDLP)
A tax advantaged investment vehicle which provides
funding for new product R&D at no cost to the company.
Technology Licensing (Inward)
A contractual arrangement by which the firm is
granted access to another company’s patents or
technology for a fee.
Technology Licensing (Outward)
The reverse of the above. In this case the firm receives the fee.
51
They have further divided these into three groups:
Technology Development Alliances are designed to expand the R&D knowhow and know-what of the firm to ensure that it keeps abreast of the state-of-theart in the rapidly evolving field of knowledge relevant to its technological focus.
Commercialization Alliances are designed to provide the firm with and/or
expand its manufacturing and marketing capabilities. These can include, for example, advanced development/clinical testing and production scale-up skills, together with those needed to steer a proposed new product or process through the
regulative system.
Financial Alliances are designed to provide the firm with the money
needed to support its technology acquisition and commercialization strategies.
Forrest and Martin (1992) point out that the groups are not mutually exclusive and some of the collaborative agreements could have similar functions and
resemble each other. For example, Client Sponsored Research alliances should
provide financial as well as technology development support, and Operating Joint
Ventures could provide support in all three areas.
4.9
Partnerships in Biopharmaceutical Business
The various co-operative arrangements between established pharmaceutical
companies and the new biopharmaceutical firms have become an industry norm in
the biopharmaceutical business. The strategy of creating links with larger corporations started in the United States already at the early 80s. The dedicated new
biotechnology firms sought to compensate their underdeveloped company structures by entering into a partnership deals with other companies. These links involved joint development projects, licensing of products for manufacture, marketing agreements, and other joint ventures. The common strategic goal for these
first wave new biotechnology firms was to achieve the status of a fully integrated
pharmaceutical company (FIPCO) with own manufacturing and distribution capabilities. The expansion of business was planned to do with the use of normal
growth strategies so that in time a dedicated biotechnology firm gained greater
independence and payback from the transactions with other companies.
Daly (1985) has identified three common stages in the evolution of NBF.
These are 1) contract R&D, 2) distribution by other companies of products manu-
52
factured in-house, and 3) own manufacture and marketing. The third and the final
stage in the evolution of the NBF/DBF represents the greatest and the most critical obstacle the small research-intensive firm faces. In the United States the attainment of full forward integration was perceived as a normal strategic goal
amongst the NBFs. This step required significant amounts of working capital to
complete, and after two decades it is evident that only rare few of the original
start-ups of the late 70s and early 80s succeeded in this endeavour.
When the first new biotechnology firms emerged in the latter part of the 70s
the established American and European pharmaceutical enterprises found out that
they had no in-house expertise in areas of genetic engineering or hybridoma technology. After the initial confusion was over, the established companies responded
with a variety of ways. The forms of participation included: 1) equity investments
in NBFs, 2) joint ventures and licensing with NBFs, 3) in-house R&D investment,
and 4) participation in the projects of academic institutions. The most favoured
forms were the equity investments and the buying of licensing rights from the
NBFs (Daly 1985).
Over the past two decades the interaction between established pharmaceutical companies and biopharmaceutical research companies has evolved from acquiring and equity investments to strategic alliances and project partnerships. The
reasons for the development which led to the increase of strategic alliances and
partnerships in biopharmaceutical business resulted partly from the first unsuccessful co-operative modes and partly from the world-wide recession of the late
80s. The competitive pressures and the continually rising costs of R&D accompanied by the ever shortening technology/product life cycles further facilitated the
companies to seek more flexible forms of co-operative agreements (Ono et al.
1991; Duysters, Kok & Vaandrager 1999).
In today’s biopharmaceutical business, the alliances and strategic partnering
have a central focus in the strategies of large pharmaceutical enterprises. Many of
the established companies are building alliance networks that include wide range
of actors from the pharmaceutical business. These include but are not limited to
universities, research institutes, contract research services, and biopharmaceutical
firms. Most often the main purpose of these linkages is to maintain the growth of
the pharmaceutical company as their own research pipelines are unable to produce
53
sufficiently significant products to meet the growth requirements. Especially the
competition between the various established companies has opened possibilities
for the smaller and more research-intensive firms. The established companies
have discovered also that the acquirement of small firm is a less effective strategy
when compared to the variety of co-operation arrangements because the intellectual know-how has a tendency to vanish if the working conditions change radically.
Nowadays the strongest characteristic of the biopharmaceutical business is
perhaps the virtual structure of many drug development companies. Virtual firm
can be defined as being an enterprise that is able to use more resources than it
currently possesses. It accomplishes this through collaborations with partners and
outsourcing services. Virtually structured biopharmaceutical company or VIPCO
(Virtually Integrated Pharmaceutical Company) is the result of an evolution in the
pharmaceutical business. The modern day pharmaceutical industry has fragmented into a variety of specialist service sectors that can perform many of the
pharmaceutical development processes. Due to its light organisational structure
VIPCO is able to take advantage of these specialist companies and outsource
many of the services required in the lengthy drug development process (Charlish
1999).
A virtual company in its purest form owns the intellectual property and exploits outside resources and capacities to complete its projects. This kind of operation method is very flexible and can react quickly to the information received
from the various project results, and new projects can be terminated or started
rapidly. The capital requirements and organisational costs are low in the virtual
structure, and the company can access wide range of technical expertise. The aim
of VIPCO is to base its competitive advantage to a particular area of expertise,
which can range from delivery processes to specific therapeutic applications. The
core staff has to create and maintain relationship networks towards pharmaceutical industry and academic world, and is required to possess strong intellectual
property management and commercialization skills. The inherent danger of pure
virtual structure organisation is the lack of basic R&D and manufacturing skills
and the strong dependence of its subcontractors (Gubser & Hiscocks 1999).
54
According to Love (1998) the pure VIPCO organisations are rare and it
seems that the most favoured strategy of today’s biopharmaceutical business is
somewhere between the integrated pharmaceutical company and VIPCO structure.
Burrill (1998) and Ernst & Young (1998) have identified several business modes
in the biotechnology business. Some of the companies have consciously selected
the operation mode whereas others were forced because of the market pressures or
features in the product. Several examples of companies are presented herein with
the choice of business mode and the co-operation arrangement. Most of the companies are originally from the United States and many of them have numerous cooperative arrangements with a variety of organisations. Majority of the companies
operates in the biopharmaceutical sector but some of them have projects concerning other biotechnological applications:
•
Downsized company: failure in clinical trials causes the company to narrow
its focus to other technology in the pipeline. Many of the earliest biopharmaceutical companies had to revise their plans and to select a focus area after
several failures in clinical trials. One example is Centocor, one of the oldest
biopharmaceutical companies, though the firm has since been acquired by
Johnson & Johnson company (see homepage of Centocor Inc.).
•
Hyperpartnered company: this kind of company finances its operations
through strategic partnering (Ligand) (see homepage of Ligand Inc.).
•
Service providers: basically a company that provides services with prices
that are lower than the customers’ own operations (Quintiles) (see homepage
of Quintiles Inc.).
•
Niche marketing company: in-licences niche products from other companies, and sells these products through own sales network. These companies
have strong marketing capability (Questcor) (see homepage of Questcor Inc.).
•
Toolbox company: provides “enabling technology” like combinatorial
chemistry to other biotechnology or biopharmaceutical R&D companies
(Millennium) (see homepage of Millennium Inc.).
•
Virtual company: in the purest form the virtual company uses contract research organisations (CROs) to carry out all activities except project management. Actually there are as many business models as there are companies
but the characteristics of virtual company can be said to include small number
55
of employees which all are highly trained professionals and the capability to
rapidly shift resources to new techniques as they emerge or evaluate the efficacy, safety or synthesis of new compounds (Vanguard Medica is an example
of a virtual biopharmaceutical drug development firm although it has since
changed its name to Vernalis) (see homepage of Vernalis Ltd.).
•
Established pharmaceutical company: global markets, extensive product
line, numerous customer segments (Merck & Co) (see homepage of Merck &
Co.).
4.10 Partner Selection Process
The important decision of the partner selection comes after the new product
development process is nearing to its completion. The biopharmaceutical firm that
is commercializing its first product, needs to assess the strengths and weaknesses
of its prospective partners. Supposedly there are many ways to evaluate the financial position of the possible partner company, but estimating its technological,
marketing and logistical capacities is more challenging. Also if the prospecting
partner is a larger company, as is the case in many collaborative agreements in the
biopharmaceutical business, the assessment of the partner’s true strategic intentions is a truly difficult undertaking.
However, from the viewpoint of a NBF/DBF this evaluation is a vital part of
the partner selection process although the international and domestic collaborative
agreements are today integral features of many businesses, there is also widespread agreement that a very high percentage of the co-operative ventures fail to
satisfy the expectations. Particularly the small biopharmaceutical firms which are
commercializing the very first products are highly dependable from large multinational partners. Unless NBF possesses a unique product (such as therapeutic
agent for an incurable disease) with the potential of giving relatively high returns,
the company should be prepared to face many hard negotiating rounds with the
potential partners.
Partner selection based solely on the size and financial contribution of a
company to the strategic alliance is not the most functioning strategy and in the
long run could result in the termination of the alliance. In the worst scenario the
possible biopharmaceutical alliance could be the result of the larger party’s inter-
56
est of buying out the competition if the smaller firm is researching new innovative
technology to the therapeutic segment where the buying side has an existing incumbent technology. According to Håkanson (1993) the basis of review of the
alliance candidates should always include an examination of skills, technologies
and markets. However, often this analysis is completed with inadequate preparation and/or understanding of partner’s needs, and many companies enter into alliances due to competitive pressures.
The first alliance agreements for the beginning biopharmaceutical firms are
usually either commercialization or technology development alliances. While
commercialization alliance agreement could be limited to the selling of licensing
rights to the selected partner(s), it is important to note from the side of the licensor
that the performance of the licensee should be constantly assessed. However, this
monitoring could be a difficult process for a small firm but could be organised
through good interpersonal communication skills, and whenever possible with
close interaction with the licensee. Other way is to compare the constant inflow of
royalties against the predicted sum.
Having decided to enter into alliance agreement, and after a thorough
screening of potential partners, one suitable candidate is singled out (double coincidence of wants) for a longer evaluation period. Based on this longer evaluation
period, the alliance will usually either end or be taken to a higher level in which
the partners agree to continue, and to deepen their relationship according to the
type of the alliance. Figure 4-5 presents partner selection process from the perspective of NBF/DBF.
Fail to get deal
Take to
higher level
Negotiate deal
Evaluate alliance
Continue at
high level
Evaluate again
Decide to partner
End
alliance
Search for partner
End
alliance
Decide not
to partner
Figure 4-5. The partner selection process in the biopharmaceutical business as initiated by the
NBF / DBF (modified from Callahan & MacKenzie 1999).
57
The licensing deals are the most often used way of co-operation modes in
the biopharmaceutical business. This has resulted because of the world-wide
fragmentation of the pharmaceutical industry and the birth of new breed of biopharmaceutical companies. These firms often lack the financial resources to participate in the marketing of their own products, and thus have to enter into alliances with large established pharmaceutical companies. In addition, several of the
new biopharmaceutical firms want to stick to their knitting and concentrate on the
R&D aspect of the pharmaceutical business and are not interested in creating their
own marketing networks. On the other hand, many of the older dedicated biopharmaceutical companies have integrated forwardly, and in many ways it seems
in some cases to result automatically (cf. Fitzgerald 1992; Mothe & Quelin 1999).
58
5
EMPIRICAL RESEARCH METHODOLOGY
This chapter presents the empirical research strategy and the methodological
choices used in the empirical part of the thesis, which is conducted as a multiplecase study. When carrying out this kind of a study, there are several issues particularly concerned in collection and analysis of the qualitative data that need to
be addressed. In the following, the term “phenomenon” is used to refer to the
subject under study, i.e. the commercialization process (q.v. Yin 1994).
5.1
Research Strategy
The empirical part of the thesis is designed to give a general picture of
commercialization practices in Finnish biopharmaceutical firms. In addition, the
intention is to discover the main factors which contribute to successful commercialization.
By means of the literature analysis in the theoretical part of the thesis, the
commercialization phenomenon in the high technology and biopharmaceutical
context was described. In addition, the theoretical part sought to establish a pattern for the commercialization process which can be used in the case part of the
thesis.
5.1.1 Choosing between Qualitative and Quantitative Analyses
There are primarily two alternative methods with which empirical studies
are basically carried out. These are either qualitative or quantitative methods of
collecting and analysing data. Often the basic assumption is that, e.g., case studies
are associated with qualitative data whereas surveys are carried out with quantitative methods. However, the qualitative and quantitative methods are not mutually
exclusive, and it is possible to quantify qualitative data in a case research. The
differentiating factor can be said to be in the emphasis and objectives of the study
(see Yin 1994; Ghauri, Grønhaug & Kristianslund 1995).
While the qualitative and quantitative methods can be combined and used in
the same study, there are some main differences. Firstly, in the empirical study
59
which uses quantitative data the emphasis is usually on testing and verification of
results whereas study based on the qualitative data is focused more on understanding. Secondly, the use of qualitative method in research is process oriented
and not result centred, which is often the case in quantitative research. Finally,
through the use of qualitative type of data the researcher aims at more holistic
perspective whereas the quantitative data is used to gain more particularistic and
analytical view of the phenomenon under study (Ghauri et al. 1995; Strauss &
Corbin 1998).
To achieve the holistic perspective in a qualitative case study the researcher
is required to take all the pertinent aspects and elements of the phenomenon under
consideration. According to Patton (1990) the use of qualitative data in a case
study is considered to be an appropriate method when the available knowledge of
phenomenon is scarce, or when new perspectives are searched. If the phenomenon
is scrutinised from different angles and with the use of multiple sources of data,
the researcher is able to study the selected issues in depth and detail (Patton
1990).
For the empirical part of this thesis the selection of a multiple-case study as
a research method of choice was based on two deciding factors. First, in order to
develop a general picture of commercialization in biopharmaceuticals it is important to select a method which speaks in favour of choosing several firms instead of
a single one. Although concentration on a single firm allows to conduct a deeper
and more detailed case study, the multiple-case method offers a more holistic
view, which makes it possible to distinguish general patterns of the phenomenon
of commercialization in the sector. The second factor concerned the method of
analysis in which the researcher chose the qualitative analysis over quantitative.
This was based on two sub-factors: i) there are relatively few biopharmaceutical
firms nearing the commercialization phase thus allowing the researcher visit the
companies in person, and ii) scarcity of available knowledge of the phenomenon.
5.1.2 Multiple-Case Study
According to Yin (1994) the multiple-case study may consist of either an
embedded or a holistic view of the phenomenon. The difference between these
two designs is closely related to the type of phenomenon under study but basically
60
a holistic multiple-case study uses only one unit of analysis per case and an embedded multiple-case uses two or more units of analysis per case.
The empirical part of this thesis is a multiple-case study which consists of
multiple holistic cases. Since the target firms are small and have existed only 2-5
years, we were able to collect the firm specific data only from one source within
the companies. However, the focus in each firm was the Chief Executive Officer
(CEO) / entrepreneur, who was expected to give the most relevant and valid information concerning the firm specific commercialization practices.
Since there were time constraints for the important CEO interviews the researcher needed to consider all the options available for concluding this study.
Consequently the use of multiple-case study in the empirical part was deemed to
provide a necessary insight into the commercialization practices of Finnish biopharmaceutical firms and therefore was determined to be the preferred method for
this thesis. It is expected here that the multiple-case design offers enough latitude
for the researcher when examining such complicated issue as commercialization
in biopharmaceuticals.
However, while multiple-case study offers a certain degree of freedom for
the researcher, there exists a risk for the level of validity of the empirical study.
Especially the external validity has been the concern of cases and for example,
criticism has been presented about that the case studies offer a poor basis for generalisation (Yin 1994).
This can be avoided in a multiple-case design by following a replication and
choosing cases carefully. By means of replication design the selected cases should
either produce: 1) similar results (a literal replication) or 2) contrasting results but
for predictable reasons (a theoretical replication). In addition to the replication
procedures, the researcher is required to develop a rich theoretical framework that
explains the conditions under which a particular phenomenon is likely to be found
or not. Furthermore, a strong argument in favour of selecting the multiple-case
method is that the researcher is able to increase the understanding of phenomenon
by comparing the individual cases as the knowledge accumulates case by case
basis (Miles & Huberman 1994; Yin 1994).
61
5.2
Data Collection and Selection of Case Firms
Before the actual data collection on the subject, the researcher had to get
familiar with the topic. This was done mainly by reading literature and articles
concerning the pharmaceutical and biopharmaceutical industry. An important part
of the reading process was the understanding of the purposes of biotechnological
terminology used extensively in the business.
Next step was the collection and analysis of the literature related to the
business aspects of the thesis. The obtained literature material comprised of high
technology marketing, information about biotechnology and pharmaceutical business, and commercialization related activities, and included dissertations, articles
and books. After the familiarisation of the field under study, the researcher began
preparations for the interviewing of industry experts and entrepreneurs.
The interviews were carried out in collaboration with Janne Gustafsson
(Helsinki University of Technology) who was conducting his own master’s thesis
on the subject of risk management in Finnish biopharmaceutical firms. The first
two interviews were conducted in the latter part of year 1999 and the rest were
concluded during the spring 2000.
The first interviewees were selected on the basis of recommendations given
by Hannele Kuusi (Chemical Industry Federation of Finland) and Professor Ahti
Salo (Helsinki University of Technology). At the end of each interview the interviewees were asked whether they knew people who would either possess a valuable knowledge of commercialization practices in the biopharmaceutical business
or who would be interested in the issue under study.
The interviewed subjects were in order of interview: 1) Hannu Hanhijärvi
(Director of Sitra), 2) Christopher Palmberg (Researcher of VTT), 3) Risto Lammintausta (CEO of Hormos Medical), 4) Juha-Matti Savola (CEO of Juvantia
Pharma), 5) Markku Jalkanen (CEO of BioTie Therapies), 6) Kauko Kurkela
(CEO of Contral Pharma), 7) Kalevi Kurkijärvi (Senior Partner, Chairman of the
Board of Bio Fund), 8) Hannu Sundqvist (President of Innomedica), and 9) Pekka
Sillanaukee (CEO of Finnish Immunotechnology).
The aim of the expert and entrepreneur interviews was to find answers for
the questions concerning the commercialization of biopharmaceuticals and the
state of practice in the Finnish firms. Each of the interviewed subjects received a
62
set of questions (see Appendix III) sent in advance before the actual meeting
commenced. The questions were modified case by case basis depending on the
background of the interviewed subject but the main theme and the structure was
retained unchanged from the first interview to the last. Interview sessions lasted
from 45 minutes to 3 hours, and an average interview time was one hour and half.
Every interview session was recorded and researcher made notes during the interviews. In addition to the written notes, a laptop computer was available and it was
used to revise the notes after the interview was over. A complete list of interviewees and a date of interview is presented under references subsection of interviews.
5.3
Quality Aspects of Empirical Part
This section describes the quality of the empirical part of thesis. Four tests
are commonly used to test the quality of empirical case research. These are: 1)
construct validity, 2) internal validity, 3) external validity, and 4) reliability (cf.
Yin 1994).
5.3.1 Validity of Empirical Part
Basically the validity of the case study is subject to three tests of construct
validity, internal and external validity. The construct validity is concerned in developing a correct set of operational measures. Yin (1994) argues that to increase
construct validity the researcher can use three tactics which are multiple sources
of evidence, establishing a chain of evidence, and having the draft version of the
case study reviewed by key informants.
The second validity aspect is that of the internal validity. According to Yin
(1994) the internal validity is a concern mainly for causal or explanatory case
studies. However, the issue of internal validity can be extended to include the
problem of making inferences. A researcher has to consider all the inferences
made during the case study and analyse the source which the ‘inference’ was
based on.
The third validity test of a case study deals with the generalisation of the research findings. The test of external validity is said to be the critical test for the
case studies in general. Particularly single cases have suffered criticism under the
argument of offering a poor base for generalisation. However, this criticism stems
63
inevitably from the situation where a case study is contrasted to survey research.
This approach is not plausible because survey research relies on statistical generalisation whereas case studies rely on analytical generalisation. In analytical generalisation, the researcher is striving to generalise a particular set of results to
some broader theory (ibid.).
At the beginning of this study it seemed that there were no sufficient amount
of written or documentary data on the subject available. However, after a thorough literature investigation period and several inquiries later the researcher began uncovering material concerning the chosen field of study. Although the material did not exactly correspond to the commercialization in biopharmaceuticals
subject, there were enough convergent articles (both academic and press based),
research studies, and company brochures available for utilisation in the case
study. In addition to the written data, the use of carefully selected interviewees
recommended by other experts (as discussed earlier) was used to enhance the construct validity of the empirical part of the thesis. On the other hand, it needs to be
remarked that researcher is fully aware that due to the time and logistical constraints the subjects were interviewed only once and they alone represented their
companies in the sessions. Despite this fact, it is believed here that the interviewees were in position of authority due to their work experience and education to
highlight the unique aspects of the biopharmaceutical business in a detailed and
orderly fashion.
The test of internal validity is usually concerned with explanatory or causal
case studies. One way to address internal validity is pattern-matching. This analytic tactic can be used in a case analysis to enhance the internal validity (see Yin
1994 for more). In the empirical part of this thesis, the researcher aims to maintain
internal validity especially in the problematic area of making inferences. As is
typical to case studies in general, a researcher has to make inferences every time
an event cannot be directly observed whereby an inference is based on interview
or some other documentary evidence collected as part of the case study.
Finally, the third test of a case study is concerned of external validity. The
external validity refers to the generalisations of the case study findings. In the case
study the researcher has to try to generalise the results into a theory or broader
context. Thus, the analytical generalisations of this study are based on: 1) the the-
64
ory of relationship marketing, 2) new product development process and commercialization, and 3) marketing mix. The selected case firms have been deemed to
offer an adequate picture of biopharmaceutical business in Finland. Due to the
newness of the sector the practices of commercialization in the selected representative Finnish biopharmaceutical firms are believed to be applicable in most of the
biopharmaceutical industry sector.
5.3.2 Reliability of Empirical Part
The term reliability refers to a test where another researcher is able to arrive
at the same results by following exactly the same procedures set down by the earlier researcher. The reliability of the case study can be improved through the use
of a case study protocol and by developing a case study database (Yin 1994).
In order to achieve a certain level of reliability in this case study, the researcher used the same type of questionnaires in all the interviews. The questions
for the case company interviews were considered as carefully as possible in advance so that the researcher would be able to get the most important topics covered during the session. In addition, the questions were modified to suit the specifics of each particular company in every interview session but the main theme
was retained. The interview sessions were recorded in every instances, and the
field notes were clean copied after the interviews.
The cases in the empirical part of the thesis are based on the transcriptions
made from the interview sessions and other documentary material received during
the research process (e.g. articles, press releases, and previous studies). In addition, the case compositions were perused by a colleague who then evaluated the
achieved results. No significant discrepancies were detected in the cases.
65
6
COMMERCIALIZATION
IN
BIOPHARMACEUTICAL
FIRMS – MULTIPLE-CASE STUDY
This chapter presents a short overview of Finnish biopharmaceutical business followed by five individual case studies. The purpose of the cases is to describe how selected case firms strive to organise and manage the process of commercialization of a biopharmaceutical product. In addition, the cases illustrate the
historical development and the current state of the firms. The case studies are presented in the order of data collection, and the findings of the previous cases are
taken into account in the consecutive cases. After the individual case studies, a
cross-case analysis is drawn across the five cases and, finally, the results are discussed. Figure 6-1 presents the outline of empirical part of the thesis.
OVERVIEW OF FINNISH BIOPHARMACEUTICAL BUSINESS
Case 1 Description: Hormos Medical
Case 2 Description: Juvantia Pharma
Case 3 Description: BioTie Therapies
Case 4 Description: Contral Pharma
Case 5 Description: Finnish Immunotechnology
CROSS-CASE ANALYSIS: CASES 1, 2, 3, 4 and 5
DISCUSSION
Figure 6-1. Structure of the empirical part of the thesis.
66
6.1
Overview of Finnish Biopharmaceutical Business
The long-term economical development of Finnish life sciences sector
seems to be promising, and especially the biopharmaceuticals and the pharmaceutical service providers are expected to multiply their annual turnovers in the near
future (see e.g. Ahola & Kuisma 1998). While the biopharmaceutical business is
relatively young in Finland, the global re-organisation of pharmaceutical sector
opens possibilities for a wide variety of small companies. To maintain the growth
requirements the multinational pharmaceutical enterprises are increasingly concentrating on the marketing aspects of pharmaceutical business and delegating the
R&D to the smaller and more flexible organisations. In addition, the various dedicated pharmaceutical service providers such as clinical trials service providers
benefit from this development as well.
When compared to many other Western European countries (e.g. Germany,
France, U. K., Netherlands, and Sweden), the biopharmaceutical business in Finland is still at the emerging stages of business development whereas several European based companies rival already their much older American based counterparts
in stock market-valuation (see e.g. Tekniikka & Talous 1999). Most of the Finnish
firms are still entrepreneurial start-ups formed in the 1990s with the assistance of
venture capital. The estimation of the exact number of operative firms in this kind
of business presents difficulties due to the corporate secrecy requirements in some
cases and due to the fact that some of the firms are yet at the start-up phase. Despite these factors, the approximate number of Finnish biopharmaceutical firms or
companies that have drug development as major part of their business activity, is
near to twenty excluding the larger established enterprises (cf. Halme 1994, 1996;
Ahola & Kuisma 1998; Helsingin Sanomat 2000).
In Finland the word established refers to the Finnish owned pharmaceutical
company Orion and to Leiras which is a subsidiary of a larger German corporation – Schering AG. In addition, numerous multinational pharmaceutical enterprises have subsidiaries in Finland. The majority of these subsidiaries function
only as marketing offices for the company’s products but few are using the Finnish pharmaceutical service providers in the corporate drug development processes.
67
6.1.1 Background of Case Firms
Many of the selected case firms share a similar background. For example,
all of the case firms are concentrating on the research and development of drugs
for human subjects which is one of the most difficult fields of biotechnology but
potentially most lucrative, too. In addition, the firms have been activated if not
established in the latter part of 90s and in all cases Sitra (Finnish National Fund
for Research and Development) has provided seed financing for the target firms
(see Sitra 1999).
The existence of patient risk-money from Sitra, a government controlled
agency, has enabled the Finnish firms in some cases to take the drug development
process far longer in clinical phases than normally would have been possible in
other countries. Furthermore, Tekes, another government controlled institution
has been participating in the development of Finnish life sciences sector. The role
of Tekes constitutes funding for new drug development process in a firm based
level and organisation and execution of nation-wide technology programs with the
major objectives of promoting networking between companies in the field of
business and advance the utilisation of a particular technology (in this case biotechnology). Moreover, the loans granted by Tekes for companies developing
products with the use of advanced technologies can be considered to be so-called
soft-money which has recipient-friendly interest rates and long refunding times.
Additionally, the founders of case biopharmaceutical firms share similar
backgrounds. They have strong links to the academic as well business world, and
except for two firms, the founder(s) has assumed the mantle of CEO. The academic links are typically personal relationships to university researchers and scientists whereas the business connections are the result from a long career in the
service of established pharmaceutical corporations. It should be pointed out that
the service means here either a direct employment or contract based research work
taken for the established pharmaceutical corporation.
Despite the common factors, some differences between firms do exist. For
instance, the core competence of each case firm is centred on different base of
biopharmaceutical technology, and as a result the firms are not competing against
each other in the therapeutic product segment. On the long run there can be com-
68
petition on the availability of risk money, however, if the rest of the case firms
intend to launch IPOs in the relatively small Finnish financial market.
6.1.2 Summary of Case Firms
The selected case firms present an adequate picture of the current status of
Finnish biopharmaceutical industry and Table 6-1 summarises the characteristics
of case firms of the empirical part of the thesis.
Table 6-1. Summary of case firms (based on interviews conducted during 1999-2000, Internet
sources, and press references).
BioTie
Hormos
Juvantia
FIT
Contral
Therapies
Medical
Pharma
Pharma
Year of
founding
1996
1997
1997
Personnel**
53
31
Core
Anti-inflammatory Cell biology of
competence drugs, non-animal steroid
horheparin
mones
Business
Inflammation,
Hormonal
area
blood coagulation, therapies
thrombosis
and cancer
3
5
20
G-protein
coupled
receptors
Parkinson’s,
and vascular
diseases,
treatment of
depression
3
Yes
(IPO on 12.6.2000)
No
No
Products in
pipeline**
Public
company
N/A
35
MAbs
1998
11
Opioid
receptors
HIV, cancer, Treatment of
and immune addictions
diseases
and compulsive disorders
*
1
No
No
Explanation of symbols used in Table 8-1:
N/A: Not available
* Unknown due to corporate secrecy
** As in spring of 2000
6.2
Case Hormos Medical Oy Ltd.
Hormos Medical Oy Ltd. is located in Turku Finland. It has been estab-
lished since 1997. It is a privately held biopharmaceutical firm engaged in drug
discovery and development of compounds used in hormonal therapies. It currently
employs 31 people (in spring 2000) working in two locations in Finland, Turku
and Oulu, in close collaboration with the academic community (see homepage of
Hormos Medical).
69
6.2.1 Description
The core competence of Hormos Medical is related to understanding the cell
biology of steroid hormones. Tissue specific distribution of the estrogen receptor
subtypes, tissue specific regulation of the genomic steroid effects and tissue specific enzymes in steroid metabolism are examples of the new discoveries. Hormos
Medical aims to focus on the development of therapeutical compounds which enable elderly people to improve quality of life. In spring 2000, the staff of Hormos
Medical was working on four projects each of which concentrates on a specific
class of compounds. The aromatose inhibitor MPV-2213ad for treatment of urinary symptoms in men is the first compound in the pipeline and novel SERM
(selective estrogen receptor modulators) for osteoporosis is the second.
The financial situation of Hormos Medical looks promising as the firm has
already completed the second funding round in winter 1998 which made possible
Hormos to raise 50 million Finnish marks worth of capital and strengthen the
ownership base with ten new investors. In addition to the old owners Sitra and Bio
Fund, the new owners are primarily insurance company controlled risk-funds.
According to Chief Executive Officer (CEO) Risto Lammintausta Hormos
Medical intends to launch IPO in two to three years when the first product’s safety
and efficacy are proved. The listing will be commenced at the Helsinki Exchange
(HEX) or alternatively at Stockholm’s marketplace.
6.2.2 Commercialization Activities
According to our interview with Dr. Risto Lammintausta, the CEO and the
founding member of Hormos Medical, the business operation mode of Hormos
Medical is going to be a virtually integrated pharmaceutical company. The firm’s
strategy is to develop drugs from discovery phase to early clinical development
phase. During clinical trials phase II/III Hormos Medical is going to seek partners
to participate in the late clinical phase and subsequent marketing of the new product innovations. The preferred partners would be the large established pharmaceutical companies capable of marketing and distributing drugs in the United
States and Europe.
At the beginning Hormos Medical is to develop novel drug substances
through the first two clinical phases which substantially lowers the risk of adverse
70
reaction occurrence subsequently making the drug more tempting object for licensing to multinational pharmaceutical enterprises. After the first successful licensing deal with a large established pharmaceutical company, Hormos expects to
gain enough money in the form of down payments and annual royalties that will
facilitate the development of other substances in the pipeline. The revenue is also
used to recruit new professionals and to finance new basic research projects with
the firm’s associated scientists.
In addition, Hormos Medical has made a deal with Innomedica Ltd., a
pharmaceutical service provider based in Turku to find a possible marketing/licensing partner company in Japan. In other markets Hormos Medical intends
to follow the future licensing strategies in a case-by-case basis. Based on the results achieved in the clinical trials and negotiation power received from results of
early clinical trials, the firm either seeks one global partner or tries to find two
large pharmaceutical companies with suitable product portfolios representing
Europe and United States respectively.
6.2.3 Observations
Hormos Medical is personified to the CEO Risto Lammintausta who has a
high profile within the new biopharmaceutical industry in Finland. He possesses
an extensive experience in pharmaceutical industry and has succeeded in recruiting other professionals to the firm. During an interview session with Dr. Risto
Lammintausta, he expressed an interest to maintain the VIPCO structure in the
future and maintain the focus on the research and development aspect of the
pharmaceutical business. He is confident that the current ongoing restructuring in
the pharmaceutical industry opens up new avenues for the smaller dedicated
pharmaceutical companies. By maintaining a VIPCO structure Hormos Medical
intends to achieve a necessary degree of flexibility due to the light organisation
structure and is capable of participating in the new projects or dropping out from
profitless endeavours quickly without serious repercussions. At the same time the
co-operative arrangement with Innomedica Ltd. enables personnel of Hormos
Medical to concentrate on the R&D while service providing firm seeks potential
partners in Japan, which is considered to be the third important market in the
global market.
71
6.3
Case Juvantia Pharma Oy Ltd.
Juvantia Pharma Oy Ltd. is located in Turku Finland. This biopharmaceuti-
cal firm was founded in 1997. Juvantia’s business idea is to bridge the basic research innovations to technologically advanced and applied product patents. The
firm is developing a system based on a proprietary technology that enables it to
operate with a high degree of efficiency and exploit innovations related to therapeutic uses of drugs acting on receptors belonging to the superfamily of G-Protein
Coupled Receptors (see homepage of Juvantia Pharma).
6.3.1 Description
Juvantia Pharma’s strategic goal is to become one of the leading biopharmaceutical research firms in Europe. Juvantia Pharma’s drug discovery activities are
based on proprietary innovations on mechanisms of actions of certain G-protein
coupled receptors in the treatment of neurodegenerative diseases, mental illness
and vascular wall disease. Juvantia’s new drug candidate identification is based
upon Targeted High-Throughput Drug Discovery, which integrates target site
modelling, combinatorial chemistry, and high throughput screening. According to
the interview with the CEO Juha-Matti Savola, Juvantia’s strategic focus will be
on the life quality improving drugs for the elderly people. The market for these
drugs is expected to multiply in several years as the so-called baby-boomer generation is coming to a retirement age. Particularly in the Western countries the
population pyramid is very favourable to the drug development firms whose
therapeutic specialty lies in the researching of drugs for wealthy elderly people.
Juvantia’s personnel focus on collecting drug-specific information from the
chosen substances up to the phase I and in this way add value to the development
process. According to the CEO Juha-Matti Savola, the phase I is a critical stage in
the drug development process because once passed the risks begin to decrease and
projects start to attract more attention from the global pharmaceutical players. In
addition to researching own compounds, Juvantia Pharma intends to offer contract
R&D services for innovating new pharmaceutical substances. This function is
marketed in the future mainly to the large pharmaceutical companies who are able
to afford such specialist services to complement their own in-house R&D.
72
6.3.2 Commercialization Activities
Juvantia Pharma has outlined a clear strategy for commercialization activities. At the beginning the main commercialization strategy of Juvantia Pharma,
according to CEO, after providing Proof of Concept, and demonstrating the safety
and efficacy of the substance in human clinical tests, is to seek a partner who will
carry the last tests and marketing in a global scale. Licensing agreements are possible in any phases, and it mainly depends on the innovation’s degree of uniqueness.
During the interview, Dr. Juha-Matti Savola stressed the importance of networking principle and VIPCO structure of the modern drug development firm. His
opinion was that with light organisation structure and good networking the firm is
able to succeed in the competitive market.
Dr. Savola has set his sights for the year of 2004 whereby Juvantia should
have agreements with few multinational pharmaceutical enterprises, and several
projects are already generating revenues. Additionally, somewhere between 2004
and 2006 the listing of Juvantia Pharma will become more actual.
The current forecast places the arrival of the first product concept to the
market sometime during the year of 2006 if all the trials and testing go smoothly.
This product is a novel treatment for Parkinson’s disease. Juvantia Pharma has
also two product concepts for vascular diseases. Moreover, Juvantia Pharma has
entered into alliance with Innomedica Oy. Innomedica is to assist in finding future
commercialization partners for Juvantia’s first product concepts.
6.3.3 Observations
Juvantia Pharma is one of three Turku BioCity technology development
centre based drug development firms (others being Hormos Medical and BioTie
Therapies). Juvantia is currently heavily spending capital on clinical trials for the
testing of first product concepts. From the investor’s point of view this phase demands patience because clinical trials are time consuming and costly. In addition,
such a process always includes substantial uncertainty for the product concept’s
ability to enter the final phases of testing without any occurrence of adverse reactions. In the positive side Juvantia has more than one product concept soon to enter clinical testing which means that Juvantia can weather the possible worst case
73
scenario of adverse reaction occurrence from the first concept. On the other hand,
Juvantia seems to have included quite an extensive therapeutic sector in their area
of research specialty covering from vascular diseases to schizophrenia when compared to the current number of employed specialists of the firm (17) (as in spring
2000). In the future this could cause some problems in the form of planning the
financing of the R&D projects in such a wide scale.
Furthermore, the difficulty of attracting highly educated professionals to the
firm in the long run can manifest a serious bottle-neck to the growth. However, as
some industry experts have pointed out, this is not solely the problem of Juvantia
but the whole Finnish biopharmaceutical sector. According to the CEO Savola,
Juvantia Pharma is trying to cope with this problem by extending its recruitment
efforts to Sweden.
6.4
Case BioTie Therapies Oy Ltd.
BioTie Therapies Oy Ltd. is located in Turku Finland. The firm started its
operation in the year of 1996. BioTie’s mission is to convert high impact scientific
discoveries to pharmaceutical success stories. It develops novel and patented biopharmaceutical drugs/pharmaceuticals for global markets with unmet medical
needs. BioTie is focused on finding remedies for inflammation, blood coagulation, thrombosis and cancer (see homepage of BioTie Therapies).
6.4.1 Description
BioTie Therapies was already registered in the year 1992 by the founder and
Chief Executive Officer Markku Jalkanen to administrate the substantial patent
portfolio in his possession. This patent portfolio has since become the cornerstone
of the firm, and it mainly consists of the results achieved by various teams of scientists in which the CEO of BioTie has either been a leading member or contributing associate. Patent portfolio is now a property of BioTie Therapies under a
royalty agreements with the participating scientists. The royalties are between 0,12 percent depending whether the drugs successfully penetrate the market.
BioTie’s own in-house R&D efforts are strongly focused on developing
non-animal heparin (BTT-1501) and new anti-inflammatory drugs. Additionally,
BioTie has integrated its expertise in biological research with advanced capabili-
74
ties located also in Turku BioCity for the discovery of small molecule drugs,
which will be the next generation of BioTie’s future therapeutic compounds.
BioTie can be considered to be one of the pioneering new biopharmaceutical firms in Finland and as such has enjoyed some first-mover advantages in the
risk-financing sector. At the beginning BioTie received seed funding approximately 18 million Finnish marks to organise the start-up process of the firm. The
second financing round was held as a private placement in the year of 1998 and
resulted over fifty million marks for the firm. The successful acquisition of venture capital has enabled the firm to concentrate on the R&D process, which in turn
has presumably led to favourable results in the drug development process. For this
reason, coupled with the personal charisma of the CEO, BioTie Therapies became
the first new biopharmaceutical firm in the HEX New Market list one to two years
ahead of the original schedule.
6.4.2 Commercialization Activities
The first commercialization deals BioTie intends to do with the same general pattern as the other two previous firms. The goal of BioTie is to outlicense the
developed drugs to large established pharmaceutical companies, which will handle the marketing, distribution, and in some cases the manufacturing too. The future cash flows will be generated from down payments of partnership deals, milestone-payments, and annual royalties. However, CEO Markku Jalkanen expressed
his interest to carry out the future clinical trials as far as possible before outlicensing the research results to a multinational pharmaceutical enterprise. He emphasised that potential blockbuster-level drugs should be developed in-house as
long as possible, perhaps including the manufacturing also. The main argument
speaking in favour of own production is that the average royalty income from
marketing partner is approximately 25-30% from the realised sales of the wholesale cost (non-taxed). If the partner handles the manufacturing, the royalties received by the NBF are approximately 5-15% from the non-taxed wholesale price.
NBFs wishing to extend the clinical trial testing to the phase III often require their own manufacturing plant for producing drug substances in sufficient
amounts because the continuous outsourcing of the manufacturing services will
become expensive in the long run. In addition, while the investment to the GMP
75
manufacturing plant is a risky and requires a considerable sum of capital to complete, the quality of produced substance, however, is under the personal supervision of the firm.
6.4.3 Observations
As in the case of Hormos Medical, BioTie is strongly personified to the
founder and CEO Markku Jalkanen. In addition, with the successful IPO on
12.6.2000 the firm has received a strong publicity boost from financial press,
which is typically positive for a young company. BioTie seems to be enjoying a
positive current right now. The company has expanded its personnel to 53 (in
spring 2000) and according to the interview with Dr. Markku Jalkanen the interest
to the company activities has been strong in these past two years. This is reflected
with the fact that when the firm was seeking a new Chief Financial Officer (CFO),
the firm received total of 43 applications and many of them from abroad.
6.5
Case Contral Pharma Oy Ltd.
Contral Pharma Oy Ltd. is a biopharmaceutical firm specialising in treat-
ment of addictions. The firm is headquartered in Espoo and has a clinical research
office in Turku. The goal of the firm is to become the leader in developing pharmacotherapies and services for the alcohol abuse and other urge disorders with
unmet medical needs. The firm was incorporated in April 1998 and employed 11
persons in autumn 2000 (see homepage of Contral Pharma).
6.5.1 Description
Contral Pharma is developing new pharmacotherapies for treating obsessive
compulsive behaviours. The core technology relates to opioid receptors. Opioid
antagonists offer new effective tools for the treatment of alcoholism and other
types of compulsive behaviours. The firm’s primary project is entering phase III
clinical studies in Europe and the United States. According to the interview with
the CEO of the firm, Kauko Kurkela, there are two other companies in addition to
Contral Pharma in the world which are developing therapeutical substances for
treating alcoholism.
76
Seven institutional investors have invested in the firm during 1998 and
1999, with the third private placement in autumn 2000. The initial public offering
will be expected at the earliest of 2002 or 2003.
6.5.2 Commercialization Activities
Commercialization activities in Contral Pharma are characterised by the
special nature of the firm. Contral Pharma will be a single product firm for a long
time, which implies that the progress of its only product in the clinical trials is
vitally important for this firm. The organisation of the firm highlights this special
one product, one technology arrangement - Contral Pharma has a light organisational structure, currently employing only 11 professionals. Somewhat exceptional
is also the fact that the target market for Contral Pharma is the whole world
whereas many other biopharmaceutical drug development firms concentrate only
on the richest part of the world – mainly Europe, Northern America and Japan.
The firm operates through networking principle in multiple areas of new
drug development process. The most important outsourcing activities will be centred on manufacturing whereas Contral Pharma aims to develop its products even
through Phase III, but it is presently looking for clinical development and commercial partnerships especially in Japan.
According to Dr. Kauko Kurkela, the eventual commercialization strategy
will be determined by the financial resources of the firm. That is, although Contral
Pharma is planning to carry out the Phase III trials, it is a financial reality that – in
absence of sufficient capital – most of the small drug development companies
have to seek partners at the beginning of phase III clinical trials. However, at present the firm aims to attract enough risk-capital for concluding phase III and find
partners for marketing after market approval is received in the United States.
In addition to the main product, Contral Pharma is developing several other
products but at the time (in spring 2000) these are still at the discovery phase.
6.5.3 Observations
As it was already previously mentioned, Contral Pharma is still basically
one product, one technology company. This is the firm’s strength and weakness at
the same time. The firm’s researchers and employees are able to maintain focus
77
on the main product and carefully design marketing strategies around the future
drug substance. The most serious threat for Contral Pharma is the failure of the
main product concept in the later clinical trials. However, the main product is already entering at clinical phase III studies thus reducing substantially the risk of
adverse reaction occurrence and as Dr. Kurkela pointed out approximately 80% of
risks are behind.
Even though the product passed the phase III as planned, Contral Pharma
might still face problems with the approval procedures of the FDA. According to
many industry experts, the FDA is nowadays considered to be as the foremost
authority in setting down the approval procedures for new food and drug substances although it’s concern is mainly for the markets in the United States. In
particular, the FDA requires that drug candidates must be shown to be effective as
well as safe before they can be approved for marketing. In addition, Dr. Kurkela
implied that Contral Pharma’s novel drug could meet prejudice and resistance on
the part of authorities because the commonly known ways of treating alcoholism
have consisted of various psychotherapeutic sessions which mainly aim to increase the patient’s will power to resist the continuous overuse of alcoholic beverages. According to Dr. Kurkela Contral Pharma is prepared to launch promotion
campaigns to inform authorities of the product’s positive impact on the abusive
users of alcohol.
6.6
Case Finnish Immunotechnology Oy Ltd.
Finnish Immunotechnology (FIT) Oy Ltd. is located in Tampere Finland.
FIT is a firm that specialises in selected areas of immunology and medical technology. The firm concentrates on developing products that will improve the possibilities of medical treatment in the battle against incurable diseases. This firm
employs 35 professionals, and as is typical to these companies, most of the employees hold either masters or doctoral degrees (see homepage of Finnish Immunotechnology).
6.6.1 Description
Finnish Immunotechnology (FIT) is Tampere based biopharmaceutical firm.
FIT was established by professors Kai Krohn and Annamari Ranki to commer-
78
cialize research findings. The firm’s headquarters, research and development laboratories, and sterile pilot scale production facility are located in Tampere. In addition, a substantial part of research work is done through interactive network with
global partners and top level scientists in USA, Sweden, Germany, Switzerland,
Japan, Estonia and Finland.
FIT deviates from the other four firms in that it concentrates mainly on the
applications of monoclonal antibody (MAb) technology. The strategic focus of
FIT is on selected areas of immunology and medical technology. The novel product ideas are developed to pharmaceuticals, diagnostics, and For Investigational
Uses Only (FIUO) products in close collaboration with the partners. FIT intends
to base their success to the unique gene delivery vehicle and the use of recombinant proteins. The first product concepts are aimed at vaccination and diagnostics
sector.
6.6.2 Commercialization Activities
Finnish Immunotechnology (FIT) seeks to offer product licenses and
outsourcing research partnership arrangements to multinational pharmaceutical
enterprises. According to CEO Pekka Sillanaukee, the degree of quality and
uniqueness is the main contributing factor for successful commercialization. In
addition, FIT has organised a special commercialization team to handle the outlicensing negotiations with large pharmaceutical companies.
Dr. Pekka Sillanaukee highlighted specific risks in the commercialization
phase typical to the pharmaceutical business: i) failure to correctly estimate the
attractiveness of the product, ii) the insufficient coverage of patent protection, iii)
negotiation and contract techniques (especially legal aspects with the U.S. based
pharmaceutical companies), and iv) the identification of decision makers of the
opposing side.
FIT intends to finance its operations through the normal way - gaining down
payments from projects and annual royalties from licensed products. In the future,
the firm is ready to sell research services too.
79
6.6.3 Observations
Finnish Immunotechnology’s (FIT) primary difference from the other case
firms is the focus on monoclonal antibody (MAb) technology. While monoclonal
antibodies were invented already at the 70s, it has taken more than twenty years of
research work to achieve successful biopharmaceutical drugs based on monoclonal antibody technology. The first monoclonal antibodies were produced in
mice because the easiness of the process but such drugs often triggered rejection
in human subjects. The second development phase for the MAbs was a replacement at least half of mouse DNA with human DNA. The first successful so-called
“humanised antibodies” reached market in 1994 and since then the percentage of
mouse DNA has decreased dramatically making drugs based on MAbs even more
efficient and safe. Based on projections of the industry experts the future of
monoclonal antibodies looks promising and within a decade there can be more
than one hundred monoclonals on the marketplace with estimated revenues starting at $50 billion (see Business Week 2000).
Against this background information FIT seems to have decent possibilities
to succeed in finding and researching a unique product which arouses interest in
the various multinational pharmaceutical enterprises. However, it needs to be
pointed out that the U.S. based biopharmaceutical firms are leaders in the development of monoclonal based drugs and the availability and sums of venture capital for NBFs in the United States are entirely from another plane than in Finland.
For example, Abgenix Inc. U.S. based biopharmaceutical firm raised $630 million
in its secondary stock offering (ibid.).
6.7
Cross-Case Analysis
For the reasons mentioned in Section 2.5, the commercialization activities in
biopharmaceuticals are generally characterised by the licensing agreements between NBFs and established pharmaceutical enterprises. This is the case with the
majority of the selected case firms, too. As the Finnish firms are all in the product
development phases there are no substantial evidence concerning commercialization available yet. While licensing will be the main tool for every Finnish firm in
the short-term, Contral Pharma seemed to deviate somewhat from the mainstream.
80
According to CEO Kurkela, Contral Pharma intends to handle the clinical
phase III all by itself in the United States and Europe, and depending on the reaction of authorities in the approval phase, the firm might opt to use different strategy in the commercialization of its main product. Dr. Kurkela suggested that because alcoholics, the main target market of the end-product, are treated mainly in
the clinics, the firm might seek to arrange a franchising deals around the world.
The marketing could be arranged together with the selected clinics. In addition,
during the interview Dr. Kurkela expressed his interest to include the so-called
third world countries as a target market area for Contral Pharma’s product. This
kind of approach clearly differs from the designs of the other four case firms. The
rest of the firms are mainly targeting the markets of EU, North America and Japan. All of the case firms except FIT employ a marketing service provider company, Innomedica Ltd., based in Turku that promotes the products of the firms in
the three largest markets.
In spring 2000, the case firms were in fairly similar business development
phases. However, BioTie Therapies has since launched its IPO on 12.6.2000 at
Helsinki Exchange. The similar phase refers here that all of the firms are spending
risk-capital for developing products to the markets and are waiting results from
clinical trials.
Figure 6-2 illustrates the new drug development processes in spring 2000 in
four of the five case firms. The upper part of Figure 6-2 has been divided into
seven sections. The first from left depicts the drug compounds, and next five
phases are research phases. The last phase represents the New Drug Application
process, which every drug substance has to pass before gaining market approval
from the supervising authorities in a particular market area. The horizontal green
bars indicate the research phase of a given compound. Similar information about
FIT’s product portfolio was not available at the time of research. Figure 6-2 reveals that Hormos Medical and Contral Pharma are at a relatively advanced state
of research while BioTie Therapies is still struggling at preclinical phase and
clinical phase I. This is especially surprising in view of financial situations of
these firms.
81
Research Preclinical
Phase I
Phase II
Phase III
NDA
BTT-1001 (BioTie)
Conventional antibody
for acute inflammatory
conditions
BTT-1002 (BioTie)
Humanised antibody for
chronic inflammatory
conditions
BTT-2001-7 (BioTie)
Small molecule inhibitor
of VAP-1 receptor
BTT-1501 (BioTie)
Semisynthetic heparin
and LMWH
MPV-2213 (Hormos)
Urinary dysfunction in men
FC-1271 (Hormos)
HRT & Osteoporosis
SERM-2 (Hormos)
Cardiovascular compound
HSD-Inhibitor (Hormos)
Breast cancer compound
Hydroxymatairesinol
(Hormos)
A plant compound for
health food
JP-1730 (Juvantia)
Parkinson’s disease
Somatostatin subtype
selective agonists
(Juvantia)
Vascular re-stenosis in
coronaries
CPH-101 (Contral)
Alcoholism
Figure 6-2. Member companies pipeline in spring 2000 (source provided by Innomedica Oy Ltd.).
Interesting times lie ahead for the case the firms, if and when they intend to
launch their own IPOs. Especially an issue of importance is the selection of the
stock exchange at which the IPO will be launched. On one hand, it can be argued
that Helsinki Exchange with its strong emphasis on high technology and new
economy firms is an interesting marketplace for a biopharmaceutical firm. On the
other hand, the recent world-wide financial turbulence indicates that it hits harder
on the periphery stock markets such as HEX causing powerful volatility in the
shares of the smaller firms whose value consists mainly of the expectations in the
future. In addition, Finnish stock market capacity is quite small making it entirely
82
possible that only few biopharmaceutical firms are able to successfully list and
attract enough capital for their own purposes. It remains to be seen what the rest
of the four will do in the next few years but for example, CEO Juha-Matti Savola
said that NASDAQ is not excluded as an option for Juvantia Pharma whereas Dr.
Risto Lammintausta of Hormos Medical hinted at Neuer Markt of Germany or
OMX at Stockholm.
One of the competitive advantages of the smaller drug development firms is
the virtual structure of the company. All of the interviewed CEOs were favourably
inclined to the modern development of pharmaceutical business that among other
things makes possible the existence of the smaller firms. The mutually shared vision of the entrepreneurs is that established pharmaceutical companies have older
technology and their business culture is not encouraging for gifted scientists.
However, when the discussion was directed to the future development of a given
case firm some differences of opinion became evident. For example, CEO
Markku Jalkanen did not reject the idea of forward integration as long as it does
not jeopardise the flexibility of the firm. In fact one of the main objectives of the
BioTie Therapies is to build a GMP standard fulfilling production plant which
enables the firm to produce their own drug substances. In addition, while Dr.
Kurkela pointed out that Contral Pharma will remain a pure virtual structure company, he added that all the successful drug development firms are always more or
less forward integrated. The rest of the CEOs - Lammintausta, Savola, and Sillanaukee shared the opinion of maintaining the virtual structure far into the future
and expressed their interest to maintain and building a strong network of contributing scientists and suppliers.
When the selected case firms’ product portfolios are compared, it can be
noted that every single firm is concentrating on the specific therapeutic sector
according to their areas of specialty and no significant overlapping in R&D activity was detected. This can be considered to be a positive factor if the onlooker
maintains perspective in Finland. However, if the perspective is extended to
abroad first to Europe, particularly to Britain and Germany which are European
leaders in biotechnology, competitors are sure to appear. Additionally, one has to
bear in mind that Europe is a latecomer to the biotechnology business (with the
possible exception of one company in Great Britain – Celltech which was founded
83
already in the year of 1980 and was then involved in MAb-based diagnostics and
molecular biology) whereas the United States is the undisputed leader of the business. Moreover, European based high technology start-ups have long suffered
from the underdeveloped venture capital market when compared to U.S. firms and
while situation has since been improved, one interviewed industry expert said that
U.S. based companies have already been circling European countries and buying
patents when the original holders lacked capital to further develop the R&D results.
Since the finding of a totally unique concept can be difficult, if not impossible, Finnish biopharmaceutical firms have to rely also on other factors than finding a blockbuster drug of their own. An industry expert suggested that Finnish
biopharmaceutical firms can succeed in the competitive business environment by
focusing on their special fields combined with hard work and with the backing of
patient risk-capital. In addition, the same expert added that the Finnish NBFs
should focus on producing drug substances to diseases with major socio-economic
impact which ensures demand to more products thus benefiting possible latemovers.
It is probable that the product concept owned by Contral Pharma and currently under development is close to the unique status, and according to the information given by Dr. Kurkela, there are perhaps only two other firms currently
interested or focusing on urge disorders. Against this information Contral Pharma
might succeed in finding a breakthrough concept. However, it needs to be pointed
out that Contral Pharma, despite passing successfully through the clinical trials
and gaining a market approval for the product in the future, can face unexpected
problems from the direction of the target market.
6.8
Discussion
Commercialization in biopharmaceuticals is generally a more complex pro-
cess than in other fields of high technology. While the primary concerns of typical
high-technology companies are 1) competitors and 2) fast product life cycles, the
management team of the biopharmaceutical firm has also to i) understand the
needs of the end-user (not just those of licensing partners), ii) be able to monitor
possible changes in the technological environment, iii) cope with the regulations
84
set down by the authorities, and iv) finally develop mutually profitable relationships with established pharmaceutical companies which handle marketing and
distribution.
Furthermore, despite the diversity of aforementioned tasks, costcontainment pressures make it necessary for the NBF to cope with a minimal organisation. This requirement tests the personal skills of the core management
team, which has to consist of a professionals with a deep understanding of both
the R&D and business aspects of the field.
Planning of Commercialization
One of the basic prerequisites for successful commercialization is the analysis of external and internal fundamentals affecting the company activities. The
fundamentals that are commonly analysed are i) company, ii) competitor, iii) environment, and iv) market situation.
At the beginning the most important fundamental for the Finnish biopharmaceutical firms is the market situation, on which the estimate of the market potential of the drugs are based. As the firm capabilities evolve the rest of the fundamentals typically gain more prominence.
According to the interviews, the management teams of the case firms have
made a market analysis for their products. In addition, it became obvious during
the interviews that the CEOs were familiar with the other analyses and that they
monitor the business environment for possible changes or opportunities.
Marketing Mix
The product tool of the marketing mix plays a central role in the marketing
strategies of the Finnish biopharmaceutical firms. As it was stated already in Section 4.3 the management bases its future marketing strategy decisions on the degree of uniqueness of the drug. After the product, the price and promotion tools
are next important for the management team of a Finnish NBF whereas the place
(distribution) does not hold strategic value due to the nature of the business. An
interesting finding centred around the concept of credibility which is a crucial
factor in the biopharmaceutical business, because potential partners demand a
high level of credibility from the part of new biopharmaceutical firms. The high
85
level credibility along with well-managed relationship network of stakeholders
appears to be one of the guiding principles of the marketing in the case firms.
Critical Success Factors
One of the empirical goals was to find the critical success factors that contribute to the commercialization process of a Finnish biopharmaceutical product.
According to the results gained from the interviews the single most important
contributing factor is the uniqueness of the product. The product’s uniqueness
consists of two parts: 1) the product concept and 2) the disease it addresses.
Firstly, product concept can be a new way to cure disease, pill instead of a
vaccine etc., or secondly, product is targeted against previously incurable disease
making it a pioneering product. In addition, the developing firm has to be able to
prove that it is strictly adhering to all pharmaceutical standards in the product development process thus ensuring the smooth passing of the approval procedures.
Other, less important success factors are, as identified from the interviews, promotion, credibility, and partner. These are discussed in more detail in Section 3.8
and Chapter 4.
Required Resources
The second empirical research question focused on finding out the sufficient
resources, both material and intellectual, that Finnish NBF requires for successful
commercialization. One of the main findings was the importance of the composition of the management team of drug development firm. In the optimal situation,
the team members should augment each other in different fields of business.
Moreover, for the start-up firm developing its first product concept the importance
of the financial resources cannot be underestimated. It is worth noting, that all of
the interviewed CEOs confirmed that if the financial issues are properly handled
(enough capital), it facilitates the management of the core business (R&D) thus
enabling the team members to plan future strategies.
86
Partner Selection
Finally, the last question concerned partner selection. The empirical findings
implicated that the partner should have a non-conflicting portfolio and possibly a
clear focus on the therapeutic sector under the interest of NBF. Furthermore, the
strength of the distribution network of the partner in target continents plays an
important role in partner selection. It is also possible that different partners are
selected for different markets. Many Finnish biopharmaceutical firms also employ
a marketing partner to promote their products to possible licensing partners.
87
7
CONCLUSIONS
The primary purpose of this thesis was to increase the understanding of the
management of commercialization in the Finnish biopharmaceutical firms. To
achieve this goal a literature review and a multiple-case study were carried out.
The literature review revealed that there are surprisingly few studies concerning
commercialization in the marketing literature. The multiple-case study provided,
in turn, valuable insights into the commercialization practices of Finnish NBFs.
However, it should be pointed out that the case firms are still at a relatively early
stage of their product development cycle and hence possibilities for far reaching
inferences are limited.
7.1
Summary of Findings
The theoretical part of the thesis was based on the literature review. Based
on theories concerning commercialization and high technology business-tobusiness marketing a framework for biopharmaceutical commercialization was
developed. The purpose of the framework was to find the elements that contribute
to and assist in creating successful commercialization strategies for Finnish biopharmaceutical firms.
The main findings centred on four factors which were identified as being
critical to success in biopharmaceutical commercialization. These are: 1) product,
2) promotion, 3) credibility, and 4) partner selection.
1) Product. The biopharmaceutical product is the single most important contributing factor in the successful biopharmaceutical commercialization. The successful biopharmaceutical product needs to be unique. The concept of uniqueness can be further divided in two factors: i) the product concept and ii) the
disease it addresses. Furthermore, the biopharmaceutical product is concerned
with quality. The quality aspect in biopharmaceuticals means both the satisfaction of customer (licensing partner) and consumer (end-user). While consumers rarely consider the quality-level of the medicines ordered to them by
their personal doctors, the final quality in biopharmaceuticals is tested in the
88
market approval procedures where authorities demand documented results to
prove the drug’s safety and effectiveness to human subjects.
2) Promotion. By means of promotion the Finnish NBFs aim to deliver information about the product to potential customers. Through promotion mix the
NBF communicates its unique selling proposition to arouse interest among
prospecting customers. The promotional tools commonly used by the NBF
are: i) personal selling, ii) public relations and publicity, iii) sales promotion,
and iv) advertising.
3) Credibility. Credibility is the factor on which the Finnish NBF has to base its
commercialization and overall business strategies. Credibility consists of four
factors: i) adherence to pharmaceutical standards, ii) reputation of the scientists associated with the firm, and iii) the quality of the firm’s relationship
networks, and iv) pharmaceutical drug development and business traditions of
the country. The first three factors are under direct control of the management
of the NBF whereas the fourth factor is beyond the firm’s sphere of influence.
4) Partner selection. Perhaps the most difficult part, after the creation of a unique
product, is the selection of partner. The partner selection process depends on
multiple factors but basically the management of NBF is required to carry out
a thorough analysis of potential partners.
The empirical part of the thesis was carried out as a multiple-case study that
included five Finnish biopharmaceutical firms: 1) Hormos Medical Oy Ltd., 2)
Juvantia Pharma Oy Ltd., 3) BioTie Therapies Oy Ltd., 4) Contral Pharma Oy
Ltd., and 5) Finnish Immunotechnology Oy Ltd. It needs to be pointed out that the
case firms are still developing their first major products and planning the eventual
commercialization. Therefore, the deeper study of the individual case firm’s
commercialization procedures and organisational structures was not yet possible.
Quite surprisingly, while BioTie Therapies is the only firm to have launched
its IPO, Hormos Medical and Contral Pharma seem to be closest to the commercialization phase in view of their product portfolios. If all goes as planned, BioTie
Therapies and Contral Pharma can be ready in one to two years to start extensive
promotion campaigns for their first products out of pipeline, whereas Hormos
appears to be ready for licensing its product FC-1271. The rest of the firms have
89
to participate in clinical trials little longer to receive a confirmation that no adverse reactions are reported.
Based on empirical findings and interviews it was concluded that the studied
case firms had adopted the market oriented way of doing business. It is worth
mentioning here that the managers of case firms were paying a particular attention
for the observation of primary markets. They were ready to adjust firm strategies
based on information received from the markets which implied that they had developed contingencies. These actions undertaken by the case firms, despite the
obvious limitations of resources both financial and personnel, indicate that CEOs
of the firms have realised the importance of market orientation in the biopharmaceuticals.
7.2
Theoretical Implications of Thesis
One of the main theoretical findings is in some cases the overlapping use of
the terms of commercialization and launching in the marketing textbooks and
previous studies. Traditionally thinking commercialization is seen as a last stage
of new product development process and in many cases it is often regarded as an
extension of R&D process (see, e.g., Kotler 1994; Jobber 1998).
For example, Kotler (1994) uses both terms in his books. The concept of
commercialization is used to describe the last stage of the traditional new-productdevelopment decision model whereas launch refers to the actual event of introducing the product to target markets. While this arrangement seems to indicate
that commercialization is a larger phenomenon when compared to the launch, the
relation between concepts, however, is not clearly defined. For instance, the terms
are used quite interchangeably on numerous occasions.
Some other sources add to the confusion, and use mainly the concept of
launch instead of commercialization to describe the culmination of new product
development process (cf. Booz, Allen & Hamilton 1982). The variability in the
use of the terminology can mean that the concepts have been utilised for some
time and have become established both in the academic and business life as interchangeable concepts.
To clarify the use of the concepts, we propose that commercialization is
thought as a comprehensive process parallel to the new product development pro-
90
cess that encompasses the launch stage, which introduces the product to the market.
Another interesting issue is that in the businesses where R&D dominates the
firm’s operations, the commercialization cannot be analysed without R&D function taken into account. As the R&D often plays the central role in the smaller
high technology firms, the marketing has to take care that R&D is managed in a
customer driven way of thinking.
7.3
Managerial Implications of Thesis
Empirical results indicate that there are ways to improve the effectiveness of
the commercialization process in the Finnish biopharmaceutical firms. If not already founded, it would be recommendable for the case firms to begin establishing a special licensing teams at the earliest phases of the company life cycle. The
professional and dedicated licensing team can benefit a given firm at the later
stages of company life cycle when the firm has actually established itself in the
competitive biopharmaceutical business field. Although the establishment of the
team comprising of highly educated professionals is an expensive venture for a
firm without constant revenues it is of strategic importance in the long-term for
NBFs. The value of licensing team for NBF increases once the firm begins to
generate more products out of the pipeline. These teams would be handling the
future out-licensing negotiations with the prospecting partners, thus allowing the
top executives to handle the strategic planning.
Another interesting issue from the marketing point of view is the special
nature of the biopharmaceutical business. On one hand it seemed that new Finnish
biopharmaceutical firms needed only to concentrate on out-licensing the results of
R&D and securing the important licensing deals with lucrative terms thus making
the business mainly product-oriented. On the other hand it soon became evident
during the research process that the biopharmaceutical marketing domain was
more complicated and included other aspects as well. The main finding was that
NBF has to understand intimately the needs and wants of the end-user before entering into the lengthy R&D process. As a consequence this has the effect of
making the biopharmaceutical business customer or market oriented. While the
customer or market orientation should be a normal way of doing business in many
91
businesses, it is often not the case in the highly competitive high technology industry (see, e.g., Rajala 1997; Dutta et al. 1999).
In particular, the thesis shows that marketing capability is vitally important
to the small high technology start-ups in terms of future profitability. It was determined to be especially strategic for businesses consisting of long development
times and a substantial technology risks. Since biopharmaceuticals matches with
previous two factors the importance of marketing seems to be especially valid in
this area of business.
7.4
Suggestions for Future Work
The empirical results gained from the multiple-case study show that the se-
lected case firms despite being founded in the late 1990s have already stabilised
their business operations. The next few years reveal how successful in terms of
financial return the case firms are going to be. Nevertheless, to understand better
the commercialization activities in the Finnish biopharmaceutical firms there remains some future research to be done.
For instance, a new multiple-case study with more personnel in the interview sessions could be conducted. As it was mentioned earlier in this thesis, many
of the founders had been originally researchers before they started an entrepreneurial career. After the business operations had stabilised many of them hired personnel more experienced in business development matters. For this reason, the
interviewing could be focused around them or alternatively centred on a possible
commercialization team, if the firm in question has one. This would give more
insights to the general marketing actions and commercialization activities. In addition, the research could concentrate more on to the special virtual characteristics
of the firms and to the partner relationships.
Another interesting aspect of biopharmaceutical business study could be the
comparisons between foreign and Finnish firms. For example, if the researcher
could gain access to a data concerning possible successes/failures of projects in
the foreign firms this would give valuable information for the future business development of the younger firms.
92
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Interviews
Hannu Hanhijärvi, Director, Sitra, Helsinki, 11.10.1999
Markku Jalkanen, CEO, BioTie Therapies, Turku, 14.1.2000
Kauko Kurkela, CEO, Contral Pharma, Espoo, 26.1.2000
Kalevi Kurkijärvi, Senior Partner, Chairman, Bio Fund, Helsinki, 22.2.2000
Risto Lammintausta, CEO, Hormos Medical, Turku, 10.11.1999
Christopher Palmberg, Researcher, VTT, Espoo, 6.10.1999
Juha-Matti Savola, CEO, Juvantia Pharma, Turku, 5.1.2000
Pekka Sillanaukee, CEO, Finnish Immunotechnology Ltd., Tampere, 13.3.2000
Hannu Sundqvist, President, Innomedica, Turku, 27.1.2000
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Internet Sources
http://www.biofund.fi/
http://www.biotie.com/
http://www.centocor.com/
http://www.contralpharma.com/
http://www.ey.com/
http://www.fda.gov/
http://www.finnish-immunotech.com/
http://www.hormos-med.com/
http://www.juvantia.com/
http://www.laaketietokeskus.fi/
http://www.leiras.fi/
http://www.ligand.com/
http://www.merck.com/
http://www.millennium.com/
http://www.orion.fi/
http://www.quintiles.com/
http://www.sitra.fi/
http://www.tekes.fi/
http://www.vernalis.com/
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APPENDIX I
Acronyms
AIDS. Acquired Immunodeficiency Syndrome.
CEO. Chief Executive Officer.
DNA. Deoxyribonucleic Acid.
rDNA. Recombinant Deoxyribonucleic Acid
DBC. Dedicated Biotechnology Company.
FIPCO. Fully Integrated Pharmaceutical Company.
FDA. Food and Drug Administration.
GCP. Good Clinical Practices.
GLP. Good Laboratory Practices.
GMP. Good Manufacturing Practices.
HEX. Helsinki Stock Exchange.
IND. Investigational New Drug.
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INDe. Investigational New Drug Exemption.
IPO. Initial Public Offering.
IT. Information Technology.
NAS. New Active Substance.
NASDAQ. National Association of Securities Dealers Automated Quotations
System.
NBF. New Biotechnology Firm
NCE. New Chemical Entity.
NDA. New Drug Application.
OTA. Office of Technology Assessment (U.S. Congress).
R&D. Research and Development.
Sitra. Finnish National Fund for Research and Development.
SWOT. Strengths, Weaknesses, Opportunities, and Threats.
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Tekes. The Technology Development Agency of Finland.
USP. Unique Selling Proposition.
VIPCO. Virtually Integrated Pharmaceutical Company.
VTT. Technical Research Centre of Finland.
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APPENDIX II
Glossary of Terms
DBC. Dedicated biotechnology company. This term is usually used when referred
to the US based company which operates strictly in the biotechnology business.
Development research. Technical activities concerned with non-routine problems
which are encountered in translating research findings or other general scientific knowledge into products or processes, i.e., proving whether an invention has clinical utility. These include pharmaceutical and chemical development, toxicology and kinetic studies in animals, clinical evaluation
(volunteer studies, pre- and post-marketing) regulatory affairs activities and
patent costs.
Discovery research. This includes both basic research for the advancement of
scientific knowledge which may not have specific commercial objectives,
together with investigations (chemical, biological and pharmaceutical) directed towards the discovery of new scientific knowledge which have specific commercial objectives with respect to a new product (i.e., identification of new chemical entities) or processes. Discovery research activity includes synthesis, extraction, biological screening and pharmacological testing.
Drug candidate. An NCE selected for development from a group of screened
compounds, which possesses promising biological activity and the potential
of patent protection.
Ethical pharmaceuticals. Any medicinal chemicals, biologicals, products of biotechnology or in vivo diagnostics which are used for the cure, alleviation,
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treatment, prevention or diagnosis of diseases of humans and are available
as ‘Prescription Only Medicines’.
FDA. Food and Drug Administration is a government institution responsible for
the controlling the drug trade in the United States.
INDe. Investigational new drug exemption. US based practice, in which the US
based firms or firms intending to do research in the USA have to apply from
FDA an IND. The FDA can reject IND applications if there is insufficient
evidence that the new compounds can be safely tested in human beings.
NBF. New biotechnology firm refers to the recently founded or a very young firm
that is part of the biopharmaceutical industry. This term is usually associated with the European companies while in the United States the term DBF
refers to the dedicated biotechnology firm which is part of the established
US biotechnology industry.
NCE. A new chemical entity or biological compound or a product of biotechnology (excluding new salts or esters unless they confer some additional therapeutic advantage over and above the parent compound) which has not been
previously available for therapeutic use in human and is to be made available as a Prescription Only Medicine and to be used for the cure alleviation,
treatment, prevention or in vivo diagnosis of disease of disease in human.
NDA. New drug application. In the U.S., once a new compound has passed the
clinical tests, companies have to present formal request to FDA to market
the drug. FDA can accept or reject the application, alternatively, require that
the new medicine undergo further testing to assess more carefully its safety
and effectiveness.
2
Pre-clinical trials. Pre-clinical research consists of laboratory screening of molecules (bioassays and animal tests) to evaluate their therapeutic potential and
toxicity.
Phase I clinical trials. Studies usually conducted in a small number of healthy
volunteers. They aim to establish safety at a given dose level and information regarding absorption, distribution, metabolism, excretion, including
bioavailability and the pharmacological aspects of the drug’s action. For
some conditions (e.g. cancer) Phase I trials will be carried out only in patients with the target disease.
Phase II clinical trials. Studies conducted in a limited number of patients suffering from the target disease. These may initially be open studies providing
evidence of general activity and efficacy, establishment of an effective dose
range and frequency of administration. Patients will be carefully monitored
for all possible side effects. Later Phase II studies will use larger numbers of
patients and will generally be double-blind studies making comparisons wit
a placebo.
Phase III clinical trials. Studies involving large numbers (several hundred to several thousand) of patients with the target disease and often a long period of
administration. There will be comparisons with established medicines for
the target disorder. Such studies will provide further documentation of any
side effects, toxicity and general safety of the medicine and may be used to
check for interactions with any other medications patients are likely to receive concurrently.
‘Phase IV’. Post-marketing surveillance scrutinising new drug usage and clinical
trials carried out after marketing. These studies aim to determine whether
previously unrecognised adverse effects or abuses occur, or whether there is
a change in the occurrence of known adverse effects. Such work may also
3
reveal if there are differences in effectiveness of the medicine for labelled
indications under circumstances of widespread usage or if new therapeutic
indications of the medicine can be recognised. The definition excludes
studies in support of marketing.
Product candidate. An NCE which, subject to satisfactory completion of later
clinical trials, is marketable product.
Screening. Testing for specific activity in a (usually biological) model.
Synthesis. Refers to directed and deliberate first chemical synthesis or extraction
of an NCE.
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APPENDIX III
A template of questionnaire sent to a firm.
COMPANY X
Company Specific General Information
A) Vision and Strategy – What is the vision and the strategy of the firm?
B) Project Portfolio – What kind of a project portfolio the firm possesses?
C) Personnel Resources – What is the number of employees? What are their areas
of speciality? What is the future requirement of personnel?
D) Financial Situation – What is the current and expected future financial situation of the firm?
Commercialization Practices
A) Important Problems and Risks – What are the most important risks and problems at getting the product from laboratory to market?
B) Strategy Options at the Different Cycles and Phases – What are the different
commercialization options for NBF at the different company lifecycles?
C) Commercialization at Different Phases of Project – In what phases biopharmaceuticals are normally commercialized? What are the affecting factors?
What are the available options? What are the strengths and weaknesses of
the commercialization options?
D) Licensing Deals – What is the validity of the licensing deals? What are the
possible other options? When the other options become valid?
E) Outsourcing Activities – What is the availability of outsourcing services in
Finland?
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F) Critical Success Factors of Commercialization – What are the critical success
factors of commercialization? What are the possible pitfalls in the commercialization process?
Information Sources
A) Interviews – Recommendations of persons to be interviewed.
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