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The revolution in molecular biology
Henderson, R., Orsenigo, L., Pisano, G.P.
Sara Levy
Susana Beira
science technology and
innovation policy II
Structure
1.
Introduction
2.
Historical Background
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

3.
The revolution in biological sciences
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

4.
United States
Europe and Japan
National systems of innovation


6.
Biotechnology as process technology
Biotechnology as a research tool
The discovery of biotechnology based drugs
Patterns of industry evolution


5.
Early history
The golden age 1950 – 1990
Institutional Environments
The evolution of biotechnology
The use of molecular biology as a research tool
Conclusion
science technology and
innovation policy II
Structure
1.
Introduction
2.
Historical Background



3.
The revolution in biological sciences



4.
United States
Europe and Japan
National systems of innovation


6.
Biotechnology as process technology
Biotechnology as a research tool
The discovery of biotechnology based drugs
Patterns of industry evolution


5.
Early history
The golden age 1950 – 1990
Institutional Environments
The evolution of biotechnology
The use of molecular biology as a research tool
Conclusion
science technology and
innovation policy II
Introduction
 Revolution in biological sciences: effects on the pharmaceutical
industry
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
genetics and genetic engineering
peptide chemistry
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molecular and cell biology
 Schumpeterian event? (Schumpeter Mark I to Schumpeter Mark II)
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radical shifts in the scientific knowledge base of the industry
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incumbents have not been swept away by new entrants
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relationships between incumbents and entrants were not only
competition, but cooperation and complex interactions
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not one, but two innovation trajectories
 The fact that it has produced different industry structures throughout
the world => institutional contex
science technology and
innovation policy II
Structure
1.
Introduction
2.
Historical Background



3.
The revolution in biological sciences



4.
United States
Europe and Japan
National systems of innovation


6.
Biotechnology as process technology
Biotechnology as a research tool
The discovery of biotechnology based drugs
Patterns of industry evolution


5.
Early history 1850 - 1945
The golden age 1950 – 1990
Institutional Environments
The evolution of biotechnology
The use of molecular biology as a research tool
Conclusion
science technology and
innovation policy II
Early history (1850 – 1945)
Before large scale development of penicillin:
 little new drug development, random screening
 Germany had 80% world’s pharmaceutical output (German universities
strengths in organic chemistry, market opportunities in dye industry)
 Germany & Switzerland: large chemical enterprises
 US & UK: specialized producers
With the outbreak of WW II:
 US government invested massively in Research on commercial production
techniques and chemical structure analysis
 Pfizer developed deep-tank fermentation process for producing large
quantities of penicillin
accumulation of organizational capabilities
➲ massive investment in R&D
recognition of profitability
➲ large scale R&D capabilities
science technology and
innovation policy II
The golden age (1950 – 1990)
Whereas before WW II public support for health R&D had been
modest, after it boomed to unprecedented levels
 great prosperity, particularly for major US companies
 Structural factors shaped the industry
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high research opportunities
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but very little knowledge of “mechanism of action”
➲ random screening for potential therapeutic activity
Publicly funded research was important mostly as a source of
knowledge about the cause of the disease
By early seventies, advances in physiology, pharmacology, cell
biology and enzymology led to important progress in understanding
the drug’s mechanism of action
➲ “guided discovery”
science technology and
innovation policy II
The golden age (1950 – 1990)
 Adoption of these techniques by a firm depended on:
 ability to take advantage of publicly generated knowledge
 economies of scope within the firm
smaller firms, those farther away from research centres, and the
most successful in the old techniques were slower
➲ importance of organizational capabilities
 Geographical variation
 large US, UK and Swiss firms were pioneers
 European and Japanese firms were slow
➲ importance of institutional framework
science technology and
innovation policy II
Structure
1.
Introduction
2.
Historical Background



3.
The revolution in biological sciences



4.
United States
Europe and Japan
National systems of innovation


6.
Biotechnology as process technology
Biotechnology as a research tool
The discovery of biotechnology based drugs
Patterns of industry evolution


5.
Early history 1850 - 1945
The golden age 1950 – 1990
Institutional Environments
The evolution of biotechnology
The use of molecular biology as a research tool
Conclusion
science technology and
innovation policy II
Organizational capabilities
 random screening was nothing but random
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tacit knowledge
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internal organizational capabilities
➲ high appropriability
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economies of scale (massive screening)
➲ no new entry
 guided discovery
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increased importance of publicly generated knowledge, decreased
importance of scale
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but increased returns to scope
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competencies in the management of large scale clinical trials,
process of regulatory approval, marketing and distribuition
➲ powerful barriers to entry
science technology and
innovation policy II
Institutional factors (1990 on)
Public support for health research
 US: second largest area of public R&D investment; rate of
increase of federal spending is slowing, but it is still 50% of total
 Europe: public spending on health R&D has also increased after
WW II, but total spending did not approach US level
 UK did not invest as much as Germany or France
➲ what other factors?
 integration of science in medical practice
 funding: medical schools (UK) vs research centres (Fr & G)
 importance of Science in the medical carrier: research (UK,
US) vs practice (F & G); training & education;
 independence between schools and hospitals: schools can
give clear priority to research goals (UK & US)
science technology and
innovation policy II
Institutional factors (1990 on)
Intellectual property protection
historically, pharmaceutical industry has been one of the few in which
patents provide solid protection
scope and efficacy of patent varies across countries
 US and Europe: strong patent protection
 Japan and Italy: patents protect processes not products
➲ tend to invest more in finding new processes for making existing
molecules
science technology and
innovation policy II
Institutional factors (1990 on)
Procedures for product approval
 have an impact on costs
have an impact on firms’ ability to sustain market positions
Procedures for approval vary across countries:
US and UK, Switzerland, Scandinavia: stringent procedures
Germany, France, Japan and Italy: less demanding
the effects of more stringent regulations
➲ increased R&D costs and gestation times
➲ isolating mechanism for innovative rents
smaller firms exit the market, stronger firms shift their activity
toward the development of more ambitious, global products
US FDA has shifted from an evaluator to an active participant
science technology and
innovation policy II
Institutional factors (1990 on)
Structure of health care system
 US: drug prices are unregulated by government intervention;
drugs are marketed directly to physicians; pharmaceutical
companies are afforded a relatively high degree of price flexibility
 UK: profit margin is negotiated between the firm and the
government; this margin was set higher for export oriented firms
➲ this scheme favoured R&D intensive firms, and penalized weak
imitative firms as well as foreign competitors trying to enter the UK’s
market
 Japan: the government sets the prices; once fixed, the price
doesn’t change
➲ old drugs offer the highest profit margins, curtailing product
innovation and exporting incentives
science technology and
innovation policy II
Structure
1.
Introduction
2.
Historical Background



3.
The revolution in biological sciences



4.
United States
Europe and Japan
National systems of innovation


6.
Biotechnology as process technology
Biotechnology as a research tool
The discovery of biotechnology based drugs
Patterns of industry evolution


5.
Early history 1850 - 1945
The golden age 1950 – 1990
Institutional Environments
The evolution of biotechnology
The use of molecular biology as a research tool
Conclusion
science technology and
innovation policy II
The revolution in biological sciences
Revolution in genetics and molecular biology
 structure of DNA (Watson and Crick, 1953)
 genetic engineering techniques (Cohen and Boyer)
➲ genetic manipulation of cells so as to produce a specific protein
 two different trajectories:
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
Biotechnology as process technology
Biotechnology as a research tool
this two trajectories have recently converged
 the two require different organizational competencies
 have had implications for industry structure and competition
around the world
science technology and
innovation policy II
The revolution in biological sciences
Biotechnology as process technology
 genetic engineering opened an entirely new domain of new drugs
 however, first firms chose to explore the production of known
proteins, for which the therapeutical effect was understood
➲ critical organizational capabilities were those of
manufacturing and process development
 biotechnology was at its infancy, and basic research was oriented
towards product discovery, and not manufacture
 no theory to guide them; it was doubtful if prior knowledge from
chemical processes could be applied (scale-up)
➲ learning by doing, since learning before doing was impossible
➲ the process was competence destroying for incumbent firms
science technology and
innovation policy II