Biotechnology Organization in action: Turning knowledge into Business

214 Pages·2002·4.108 MB·1-235\214

by  Jesper Norus (Eds.)

PREFACE
This book is the result of 31 years of research trying to explain the industrial
development of the new biotechnologies. The book aims at three audiences. First, the
academic community where the dynamic view on the formation of networks and the
perspective on the constitution on technological fields, are still in the founding
stages. Second, graduate students and academics can use the book in areas such as
strategic management, organizational behavior, and management of technology.
"third, the book is aimed at consultants and business observers with a specific
interest in the evolution of the biotechnology industry.
It is not possible to comprehend how a specific technology or a product got its
distinct characteristics without taking the historical, the institutional and the
organizational contexts of the technology in to account. Neither can the study be
isolated from its own historical process and context. Over the years I have researched
in the biotechnology industry from the two perspectives; a political planning
perspective (Knudsen & Norus, 1989; 1990; Agersnap & Foss Hansen, 1990), and a
sociology of organization perspective in my Ph.D. dissertation on how and why
small and medium sized Danish firms engage in the development of biotechnology
in products and processes (Norus, .)5991
Many people have been instrumental in the process of writing this book. First of all
I would like to thank to all the small biotechnology firms that dedicated so much of
their time to answer my questions and to Professor Martin Kenney, University of
California, Davis, who helped me to form the idea back in 1992. I would also like to
thank Professor Nathan Rosenberg, Center of Economic Policy Research, Stanford
University and Professor Kenney who jointly hosted me as a post doc scholar in a
period of 8 months in 1993-1994 while I collected the data for the book. I am thankful
to both of them for giving me this opportunity to make my research in the very
center of the biotechnology heartland, the San Francisco Bay Area. I am also thankful
that Professor Walter Powell, Stanford University and Director of SCANCOR
(Scandinavian Consortium fO Organizational Research) offered me office space and
some very useful comments while I was writing up the final chapter of the book in
August .0002
In addition, I want to thank my colleagues at the Copenhagen Business School,
especially professor Finn Borum, Peter Kamee, Peer Hull Kristensen, Claus Nygaard,
Mette Mensted and Kristian Kreiner who have been very helpful throughout the
process.
Three of my former graduate students Jakob Ravn and Karina Fingeret and Rasmus
Nelund have shared ideas about my book and these discussions have been really
beneficial.
My Swedish-American friends, Maria and Kristian, have always provided me
space, transportation, too much good San Franciscan-food and generally have been
too generous in every meaning of the word every time interviewing, writing and
leisure have drawn me to the yaB Area.
Joyce Kling from the Copenhagen Business School Language Center has turned my
Danish-inspired American language into solid English. I appreciate your patience
and I am aware that it has not always been an easy task. Joan Knudsen has been busy
turning the manuscript into a camera-ready copy for the publisher. This sounds as an
easy, but not with changing the style once or twice.
Finally I would thank my wife Karen, and our three wonderful kids Emilie,
Thomas and Jens Christian for being so patient while I was in the basement or in my
office writing, editing, rewriting .cte
Jesper, December ,4 1002
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Chapter I
From Life Sciences to Organizational Sociology
1.0. WHAT THE BOOK IS NOT ABOUT!
In 1997, the public debate on the application of new biotechnologies intensified
dramatically after having been almost non-existent for years. Not since the
introduction of the genetic engineering technique has the media allocated extensive
attention to biotechnology. Even the White House had Ot respond when Professor
Richard Seede from Chicago proclaimed that in a few months he would be prepared
to clone the first human being (we are still waiting). University professors
throughout the world seemed to be competing to be the first to clone whatever living
creature came across their research labs. Another illustration was when a Swiss
multinational withdrew a large quantity of chocolate when the company could not
guarantee that it was produced without genetically modified soybeans. For the same
reasons an American ship with soybeans was forced to return when Danish
demonstrators blocked the harbor in Aarhus in western Denmark. It was also in 1997
proclaimed that new gene therapies would enable doctors to cure hereditary chronic
diseases and genetic disorders such as cystic fibrosis and Down's syndrome. Gene
therapy was also claimed to be the future tool for fighting certain types of cancer
even before the patient had been subject to any implications.
After a couple of years debate again intensified late July 2001 when the debate on
cloning on stem cells was on the political agenda in the .SU This debate took place
mainly in the ,SU but has major impact throughout the western world since the US in
almost all biotechnological disciplines is the leading nation. The debate on the
cloning of stem cells is very much a discussion onhow we define the concept of life
and birth. The technologies in stem cell research also have some interesting prospects
for example in the treatment of different diseases such as Alzheimer's disease and
diabetes. But the problem in my view is that the debate so strongly was focused
around only a few actors, such as the director of the at the Bahamas located firm,
Clonaid, Brigitte Boisselier, the Chief Andrologist Panayiotis Zavos, University of
Kentucky and the Italian Doctor Severino Antinori as the strong proponents and
Professor Rudolph Jaenish, MIT as the leading opponent.
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It is the brave New World, presented prime time live. The new technologies have
both glorious perspectives and scary unintentional effects on human beings and the
environment. Will it be possible to clone humans? If so, we would be able to breed
humans of certain desired characteristics and thus realize Aldous Huxley's visions of
the future (Huxley, .)8991 Will eating gene spliced food products, such as soybeans,
tomatoes, and oils damage our health? What are the long terms effects on the
environment?
The interesting aspects of the new biotechnologies, aside from being potential
medical cures for certain types of cancer and hereditary diseases, concern the
development of processes and techniques that could alleviate environmental
problems such as wastewater treatment and alternative ways of feeding the Third
World population. It is a fact that a growing number of genetically engineered
products will be available no matter what kind of development in biotechnology we
can image. Some of these biotechnological products and processes will have
structural impacts on existing markets, such as the food industry, the chemical
industry and pharmaceutical industry.
It is beyond the scope of this book to discuss the ethical aspects of the development
of the new biotechnological products implied in the cases presented. Not that I do
not find ethical aspects important, but the focal issue is the development and
formation of strategies and networks in small biotechnology firms. I am convinced
that the new biotechnological disciplines are here to stay, and that the public
regulation of biotechnology can be an effective means to prevent the introduction of
undesired products and inappropriate use of that technology. History of technology
studies have revealed that the organizational and institutional settings for how new
technologies are developed has profound impact on the development of the specific
technology. This argument refers to the current discussions on path dependency in
evolutionary economics and on path creation in economic sociology (Kamoe &
Raghu, 1996, 2001; Norus & Fingeret, .)7991 Existing technologies, firms, institutions,
and individuals are interacting in the initial phase of any new technological field and
leave their permanent mark on how the technology will unfold (Basalla, 1988;
Rosenberg, 1982, 1994). The conceptual framework forms the dominant design
configurations, and problem-solving methods are defined and institutionalized in
this early phase. Organizational developments in new technological fields are
therefore important in that the methods and principles explored by these new
organizations constitute the constraints for future exploitation and development of
the field.
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1.1. AN OVERVIEW OF THE STUDIES OF THE BIOTECHNOLOGY INDUSTRY
Studies of the biotechnology industry and the evolution of new biotechnologies
from a social science approach have concentrated on five major research issues:
)I The emergence of biotechnological development from a political science or political
economy approach
Socioeconomic studies of the societal perspectives and consequences of new
biotechnology have dominated. International organizations, such as the European
Commission, the Office of Technology Assessment (OTA), and the OECD, have been
very active (Bull et al., 1982; OECD, 1988, 1989; OTA, 1984). These studies have
focused on the economic prospects of biotechnology. Political science studies have
also concentrated on the aspect of public policies towards the biotechnology
industry, especially in the area of public regulation and the implementation of
research and industrial policies. These studies have included both local and national
analyses of infrastructures, access to knowledge, and specific resources to attract and
support small biotechnology start-up firms in the initial phase (California State
Assembly, 1984; Kvistgaard, 1986; Hansen et al., 1991). The impact of the emerging
commercial biotechnology is the last area that political science studies have
approached (Yoxen, 1983,1986a,b; Holm & Gravesen, 1990; Jels~e et al., 1990).
II) The biotechnology industry as a matter of networks
Research on the evolution of the biotechnology industry and the behavior of small
biotechnology firms has emphasized that the salient characteristic of this infant
industry is its ability to organize network activities. Strong attention has been
allocated to specific types of small biotechnology firm network activities such as
organizational competence building and technological learning and diffusion
(Kreiner & Schultz, 1993; Powell et al., 1994, 1996; Norus, 1998d), and the
establishment of strategic alliances and joint ventures (Cullen & Dibner, 1990;
Sapienza & Stork, 2001). Other studies have focused on specific types of networks
that have proven important for the development of small biotechnology firms, such
as relations between universities and small biotechnology firms (Kenney, 1986) or
relations between venture capital firms and biotechnology firms (Sjegren & T0ft,
1998). Collaborative arrangements between university and industry have been fO
significant importance because the vast majority of new biotechnology firms are
spin-offs from universities with strong competencies in molecular biology and
biochemistry. This has led to some criticism of the changing role of universities as
knowledge generators and frameworks for free exchange of information (Kenney,
;6891 Kreiner & Schultz, .)3991
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III) The impact of the biotechnology industry on existing industries
Certain studies have discussed the evolving biotechnology industry but not
included special cases as in this book. Instead these studies have addressed special
products or industrial areas and segments, such as the pharmaceutical industry and
the food industry in which the new biotechnologies have important applications
(Daly, 1985; Angold et al., 1989; Oakey et al., 1990). The newer books on the
biotechnology industry in this area include discussions on the changing patterns of
innovation, especially in the pharmaceutical industry (Jungrnittag et al., 2000).
IV) The impact of the new biotechnological firms
In business studies, especially the strategic behavior of biotechnological firms has
attracted attention (Dodgson, 1991; McKelvey, 1996). In my Ph.D. dissertation
(Norus, 1995) I concentrated on how three types of firms built up technological
competencies. The objective was to explain how and why (and why not) certain
Danish small and medium sized enterprises (SMEs) have implemented new
biotechnology. In Cynthia Robbins-Roth's book From Alchemy ot IPO - The Business of
Biotechnology (2000) she gives an insiders story of the evolution and the prospects of
the biotechnology industry. At the same time Robbins-Roth demonstrates the
dynamics of the industry and the importance of personal networks to attract
investors when posing for an IPO (Initial Public Offering) (Robbins-Roth, 2000). This
is an aspect that is not widely covered in this book, but really adds to my overall
conclusion.
)V History of technology studies
Robert Bud's book (1993) on biotechnology is an excellent study of the evolution of
biotechnology industries. Bud explains the diffusion of the concept of biotechnology
from the perspective of the history of technology. He demonstrates how
biotechnology as a concept can be traced back to the eighteenth century and research
on enzymes done by researchers at the Carlsberg Laboratory in Denmark (Bud, 1993,
1994). Also the studies of Yoxen and Kenney of the earliest phase of the
biotechnology era can be seen as history of technology studies (Yoxen, 1981; Kenney,
1986). Moreover, the autobiographies of the researcher and Nobel Prize winners in
the realm of molecular biology are historical accounts of how new technologies have
emerged (Watson, 1970, 2000; Crick, 1988). However, as historical evidence these
autobiographies give a glorified picture and for obvious reasons also lack theoretical
perspectives. In 2001 Belinda Martineau published a documentary book on the
development of the first biotechnology food, the Flavr Savr tomato. Martineau's
TM
book will be used widely in Chapter 8 where Calgene, the firm that develop this
tomato, is one of two cases following the vertical integration strategy.
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The present study takes as its point of departure the studies of the biotechnology
industry conducted by Kenney (1986), Daly (1985)and Powell et .la (1994, .)6991
These studies will be cited throughout the book. The following is a brief outline of
these studies and their contribution to the understanding of the biotechnology field.
The earliest studies of the evolution of the biotechnology industry done by Daly
)5891( and by Kenney (1986) represent two types of approaches to the study of the
technological development and strategic choice of small biotechnology firms. Both
studies acknowledge the strong influence of network activities as a means of getting
access to "the state of the art knowledge" and overcoming entry barriers in
biotechnological business. The two studies were carried out at a time when it was
strongly believed that the most successful small biotechnological companies would
turn out to be vertically integrated companies, as their portfolios of products would
generate stable incomes. This prophecy has yet to be fulfilled. Fourteen years after
the studies were concluded nothing seems to indicate that small biotechnology
companies will end up as vertically integrated companies. Therefore, both studies
lack a long-term perspective on how strategies and types of network activities have
evolved over the years.
Daly is inspired by Michael Porter ,0891( 1983), and concentrates on three types of
strategies undertaken by small biotechnology firms: focused, broad-based, and early-
based. From a Porterian point of view these strategies differ widely (Daly, 1985: pp.
.)711-101 However, one common trait is the criterion of success: Small biotechnology
firmsultimately become independent and vertically integrated companies. Thus the
three strategic options adopted by small biotechnology firms are solely related to
whether the firms aim at a short-term or a long-term product strategy in developing
product po~folios. The current study will challenge this assertion and I find the
aspirations and goals of SBFs to be much more diverse and multifaceted. There is
much more to the story than the dream of becoming vertically integrated.
Kenney approaches the biotechnological field from the history of technology
perspective, analyzing the important dynamics of the technology between science
and industry. Since biotechnology is spun off from university labs, Kenney argues
that small biotechnology firms must orient themselves towards basic research
institutions in order to get access to the state of the art knowledge that derive from
the universities. We must therefore expect small biotechnological firms to be strongly
dependent on collaborative interaction with universities. Kenney argues that the
traditions of universities as knowledge generators will undergo dramatic changes
with the diffusion of new biotechnology. Kenney observes that basic research
projects of specific departments are sponsored or directly funded by business firms
based on contracts that include clauses on disclosure and publication of new research
results. Not only would these projects tend to be judged by their economic prospects
rather than the scientific norms usually governing the academic sphere, but also the
forms of communication will change. sA shall be clear from the following, the
response of all universities with strong biotechnological competencies has been to
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build up licensing or liaison offices to make sure that the university can profit from
its research activities. One could say that universities as institutions have changed
from knowledge generators to "scientific supermarkets". From the perspective of
small biotechnology firms, the effect is that scientific entrepreneurs must pay
universities for the results they have created themselves. In some cases we can
imagine that scientific entrepreneurs have to compete with other interested
companies to get access to the outcome of their work.
In line with Kenney's study of the relations between universities and industries,
Kreiner and Schultz (1993) have studied network relations between university and
industry in Denmark. In contrast, Kreiner and Schultz point to the informal aspects
of network alliances between university and industry. The nature of these
collaborative networks is characterized as a kind of barter economy that developed
among former students. The discussion of relations between universities and small
biotechnology firms will be less extensive in this book for two reasons. First, the role
of universities is no longer as important as in the mid-1980s. Second, a variety of
small biotechnology firms are spin offs from large pharmaceutical or chemical firms,
which means that the role of the university is not a universal characteristic of any
biotechnology company. The case of Incyte Pharmaceuticals in Chapter 8 illustrates a
company that is a research spin off from the agro-chemical firm Monsanto.
Powell et al. (1994) changed the research agenda when they began to focus on the
variety of activities and functions that small biotechnology firms tend to solve
through network alliances by listing them in order of their institutional origin. The
interesting contribution of Powell and colleagues is that they clarify the variation in
both numbers and types of networks that the small biotechnology firm has to
establish in order to become recognized as a legitimate partner. However, the narrow
focus on network relationships oriented towards certain unidimensional approaches
of the biotechnology industry has given the concept of networks a somewhat static
connotation. Even though Powell et al. recognize the variety of activities that small
biotechnology firms solve through network activities, their view is static due to the
quantitative orientation of their research methods and methods for data generation.
Furthermore, the study neglects the importance of network formation in a process
perspective, a problem that the authors themselves are aware :fo
"Consequently, our analysis of formal ties is a very strict test of our learning argument
because the data base does not include less formal relationships that promote eht transfer of
knowledge. Moreover, in eht following analyses we od not focus on year-to-year changes in
agreements, thus the many instances in which relationships era deepened and become
"thicker" with the passage of time era not analyzed. In this sense, we omit both embeddedness
and historaj- two cornerstones of most network arguments".
Powell et al. :4991( p. )11
From the perspective of this study they simply ignore certain important questions,
such as why biotechnology firms engage in collaborative arrangements. Also
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questions concerning the selection processes among partners, the nature of
established networks, and how networks evolve over time are missing. Hence the
research by Powell et al. is very difficult to relate to, especially when the purpose is
to merge the aspect of networks with strategic behavior, which requires transforming
the concept of network from a static concept to a processual and dynamic concept.
1.2. THE CONSTITUTION OF A NEW TECHNOLOGICAL FIELD
Having mapped out previous studies on the biotechnology L industry, the question
is how to classify the present study. The question is obvious since I will not engage in
the interesting public debates concerning biotechnology. I attempt to neglect the
ethical aspects of the new biotechnologies and I criticize both newer and earliest
studies of the field for being too general. What are the intentions of yet another book
on biotechnology? As the title indicates my approach to the biotechnology industry is
from an economic sociology perspective. I wish to analyze the dynamics and
interactive processes among actors (individuals, institutions, and organizations) that
have constituted and legitimized the development of the field. The unit of analysis is
small entrepreneurial firms developing biotechnological products and processes.
Investigate the types of Strategies small biotechnology entrepreneurs pursue in order
to create markets for their new products and processes, and how have specifi c
strategies emerged. The latter is crucial since the technologies that these firms are
exploring have new and unknown perspectives and consequences. The involved
actors have only vague i.deas about the technical possibilities, environmental
consequences and economic prospects of the technologies in question. The processes
are evolutionary and not governed by any consensus. The new biotechnology can be
used unrestricted if no consistent role models and routinized forms exist. Even
norms of accepted behavior in the field are lacking. My primary interest is the
processe s through which the technological field and the development of institutions
and routines co-evolve. The fiel d of biOtechnology is a unique object to study if one is
interested in how new technological fields are perceived as games of interaction. It is
my insights into these games that I wish to convey to the reader.
However, yet another critical question must be raised. What will be the scientific
contribution of this book since there is nothing new in carrying out research on
technological fields, especially if we consider all the studies done within the field?
What will be the theoretical and empirical contributions of this book?
The theoretical contribution lies primarily in the development of the concept of
networks. From being regarded as a relative static concept, I seek to transform the
concept into a dynamic concept of networking. The dynamic perspective on the
creation and development of technologies through networks is tied to the concept :fo
strategy that is used throughout the book. Hence the strategies are developed along
with the creation of the technological knowledge, and the diffusion of this
knowledge will bring new actors into the field. Traditionally, strategy formation has
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been treated as a rational choice situation aiming to position the firm in a given
market. In relation to the biotechnology industry, there are no markets for the
majority of the products that small biotechnology firms come up with. Therefore,
these firms must create the market themselves and disseminate knowledge of the
practical applications to industries that the firms aspire to become part of
simultaneously with having to invest their efforts in developing the
technologies/products. Moreover small biotechnology firms have neither the
resources nor the competencies that allow them to control the development phase
from research project to production and marketing. Therefore, the small
entrepreneurs must mobilize both financial resources and knowledge from the
context in which they are embedded. This could be research parks, universities, large
pharmaceutical and chemical firms, venture capital firms and public institutions. The
ability to engage in networks is therefore crucial for search and learning processes,
both in relation to building up the internal company skill base and to attract the
necessary financial resources. Networking arrangements are also used to find
potential users or customers for future products. Hence network arrangements are
multiple practice grounds where future markets are built up through trial-and-error
processes. Network arrangements thus have a dual purpose. They are the means to
develop strategies and the arena from which competencies can evolve. The
discussion on the existence or lack of an overlying technological system in the
biotechnology industry differs from previous research and reaches beyond
traditional studies on the constitution of new technologies.
The empirical contribution concentrates on how firms utilize their local context to
create a platform for their existence. However, the most important empirical
contribution is the fact that it is impossible to conceive small biotechnology firms as
stabile units and therefore regard them as well-defined jurisdictional units. Instead, it
will be fruitful to view small biotechnology firms as overlapping combinations of
people and projects where firms are seen as temporary fora carrying out portfolios of
related projects subject to continuous development or divestment. Surviving as an
entity is not a goal in itself, but rather to carry out viable research projects that can be
commercialized and sold in their technical context. In relation to these observations,
Chapter 9 introduces the notion that the development of new biotechnologies has
reintroduced the Schumpeterian entrepreneur.
The theoretical explanations and the empirical observations will be linked through
two basic assumptions. First, the assumption that actors generate conceptions about
the existence of an encompassing biotechnological community, a common
denominator, to which all the actors subscribe and ascribe identity. Conceptions of
the nature and existence of this encompassing field assume almost mythological
character and are used by the involved actors as ways of phrasing their activities in
order to obtain legitimacy. Consequently, the field ends up being the language,
identity or culture of distinct uniqueness that the actors use to distinguish their firms
from other related firms.