The revolution in molecular biology

1. The revolution in molecular biology Henderson, R., Orsenigo, L., Pisano, G.P. Sara Levy Susana Beira science technology and innovation policy II

2. Structure • Introduction • Historical Background • Early history • The golden age 1950 – 1990 • Institutional Environments 3. The revolution in biological sciences • Biotechnology as process technology • Biotechnology as a research tool • The discovery of biotechnology based drugs 4. Patterns of industry evolution • United States • Europe and Japan 5. National systems of innovation • The evolution of biotechnology • The use of molecular biology as a research tool 6. Conclusion science technology and innovation policy II

3. Structure • Introduction • Historical Background • Early history • The golden age 1950 – 1990 • Institutional Environments 3. The revolution in biological sciences • Biotechnology as process technology • Biotechnology as a research tool • The discovery of biotechnology based drugs 4. Patterns of industry evolution • United States • Europe and Japan 5. National systems of innovation • The evolution of biotechnology • The use of molecular biology as a research tool 6. Conclusion science technology and innovation policy II

4. Introduction • Revolution in biological sciences: effects on the pharmaceutical industry • genetics and genetic engineering • peptide chemistry • molecular and cell biology • Schumpeterian event? (Schumpeter Mark I to Schumpeter Mark II) • radical shifts in the scientific knowledge base of the industry • incumbents have not been swept away by new entrants • relationships between incumbents and entrants were not only competition, but cooperation and complex interactions • 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

5. Structure • Introduction • Historical Background • Early history 1850 - 1945 • The golden age 1950 – 1990 • Institutional Environments 3. The revolution in biological sciences • Biotechnology as process technology • Biotechnology as a research tool • The discovery of biotechnology based drugs 4. Patterns of industry evolution • United States • Europe and Japan 5. National systems of innovation • The evolution of biotechnology • The use of molecular biology as a research tool 6. Conclusion science technology and innovation policy II

6. 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

7. 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 • high research opportunities • 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

8. 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

9. Structure • Introduction • Historical Background • Early history 1850 - 1945 • The golden age 1950 – 1990 • Institutional Environments 3. The revolution in biological sciences • Biotechnology as process technology • Biotechnology as a research tool • The discovery of biotechnology based drugs 4. Patterns of industry evolution • United States • Europe and Japan 5. National systems of innovation • The evolution of biotechnology • The use of molecular biology as a research tool 6. Conclusion science technology and innovation policy II

10. Organizational capabilities • random screening was nothing but random • tacit knowledge • internal organizational capabilities ➲ high appropriability • economies of scale (massive screening) ➲ no new entry • guided discovery • increased importance of publicly generated knowledge, decreased importance of scale • but increased returns to scope • 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

11. 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

12. 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

13. 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

14. 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

15. Structure • Introduction • Historical Background • Early history 1850 - 1945 • The golden age 1950 – 1990 • Institutional Environments 3. The revolution in biological sciences • Biotechnology as process technology • Biotechnology as a research tool • The discovery of biotechnology based drugs 4. Patterns of industry evolution • United States • Europe and Japan 5. National systems of innovation • The evolution of biotechnology • The use of molecular biology as a research tool 6. Conclusion science technology and innovation policy II

16. 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: • 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

17. 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