Technological, Structural, and Strategic Change in the Global Pharmaceutical Industry The Finnish Biotechnology Industry Malin Brännback*), Juha Näsi**) and Maija Renko*) *)

Turku School of Economics and Business Administration/ Innomarket Rehtorinpellonkatu 3, FIN-20500 Turku, Finland E-mail: [email protected]; [email protected] **)

Tampere University of Technology/Industrial Management P.O. Box 541, FIN-33101 Tampere, Finland E-mail: [email protected]

INNOMARKET

INNOMARKET Turku School of Economics and Business Administration Department of Marketing Technical Reports No. 8 February 2001 ISBN 951-738-973-6 ISSN 1456-7598

Abstract This paper reviews the technological, structural, and strategic change within the global pharmaceutical industry, which started in 1973 with the success of recombinant DNA. These changes significantly impact the industry paradigm and the strategy logic of a firm. We then focus on the developments within the Finnish biotechnology industry during the past five years and the future prospects and study how the industry paradigm and the strategy logic have changed and how these changes impact future prospects of the Finnish biotechnology industry. Keywords: pharmaceutical industry, biotechnology industry, industry recipe, company paradigm, strategy logic, strategic change

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1. Introduction The pharmaceutical industry has during the past two decades been dramatically restructured. Biotechnology has emerged as a complement to traditional drug R&D and has formed a new R&D paradigm. Today the pharmaceutical industry is the leading industry in developing biotechnological applications. Turnover created by biotechnologically engineered products is growing rapidly at an annual rate of 25 percent (Nakahara, 1999). Today, the development of biotechnological applications is divided between existing large companies (still the majority) and small, newly established companies (Smith and Fleck, 1988; Corstjens, 1991; Arnst and Carey, 1998), which may also be called new drug discovery companies (DDCs1). Prior to the 1980s, drug discovery was primarily based on organic chemistry for the development of new chemical entities (NCEs). In the pharmaceutical R&D process, extensive amounts of chemical compounds were explored and incremental structural modifications were made on drug prototypes, all this organised around highly structured processes for carrying out mass screening programs. As a result of this paradigm, we only have 500 known targets today, although there are thousands of medicines on the market. With the sequencing of the human genome the number of targets is expected to reach potentially 3000-10,000 (Gambardella et al., 2000, Robbins-Roth, 2000) or even higher (Oliver, 2000). Since the 1980s biologics has evolved as the new dominant logic of drug R&D. The so-called molecular biology revolution, which started in the mid-70s has introduced drastic changes in the pharmaceutical R&D base. This revolution has opened new opportunities for the discovery and production of medicines. Simultaneously, it has brought along a radical shift in the knowledge base and in research procedures that have enabled the transition from more or less random screening to “discovery by design” (Gambardella et al., 2000, Robbins-Roth, 2000). Based on the general technology-driven strategic changes described above, this paper studies the consequences of technological change on structural and strategic change of an industry. We start by looking at the profound global changes and then look at the developments within the Finnish pharmaceutical industry during the past five years. The technological change has not only had consequences on structure and strategy, but also on what we should call the industry. Is it a pharmaceutical one, or is the proper name today biotechnology industry (in short biotech), or are these separate industries, or should they be called life sciences or is that too broad (Enriquez and Goldberg, 2000)? Are other industries members of the pack? Do we see the emergence of a new industry recipe, company paradigm, and strategy logic? In the early 1980s there were thirteen drug companies in Finland. Through mergers and acquisitions the number was reduced to two in ten years. From the mid-1990s small biotechnology companies or so-called DDCs have been established at an accelerating speed. The DDCs focus their business on drug discovery and development up to phase II clinical trials, after which partnerships are sought for with Big Pharma for phase III and commercialisation. The DDCs are small, employing approximately 10 persons and an annual turnover of ¼ PLOOLRQ $ KDQGIXO RI WKHVH 1

In this paper the abbreviation DDC refers to drug discovery companies, although in some other contexts it has been used to refer to drug delivery companies.

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employ approximately 50 persons with an annual turnover not exceeding ¼PLOOLRQ The companies within the Finnish biotechnology industry have formed the Finnish Pharmacluster. However, it is unclear whether the cluster meets the characteristics of a cluster as is the case of more established clusters, e.g. the Finnish forestry cluster (Mäkinen, 1999, Brännback and Mäkinen, 2000). The structure of the paper is the following. In the second section we will discuss three concepts of strategy facilitating a deeper understanding of strategic and structural change. In section three we will describe the technological change brought about advances in biotechnology. In section four we will describe the structural changes in the industry seen from a global perspective. In section five we will focus on the Finnish biotech industry. Finally, we will discuss the implications of technological and structural change on the concepts of industry recipe, company paradigm and strategy logic. Our conclusion is that the changes have been of such magnitude that they pose very real managerial challenges already for existing Big Pharma, and of course, even more so for start-up biotechnology companies. Hence additional research is required and a few potential research questions are presented. 2. Industry Recipe, Company Paradigm, and Strategy Logic in the Context of Change For the past years the concepts of industry, business, and corporate factors and their impact on profitability differences between firms have attracted much attention (Rumelt, 1991, Bowman and Helfat, 2001). The immense interest is due to globalisation of business during the past decades and the convergence of industries. Traditionally, the concept of an industry has been a way of categorising organisations, which compete in similar environments, i.e. they serve the same market by manufacturing similar products (Porter, 1980, Johnson and Scholes, 1988). Barney (1991) argues that firms within an industry are identical in terms of strategically relevant resources they control and the strategies they pursue (Barney, 1991). However, the strategies pursued are not necessarily identical and this is due to differences in managerial decision-making processes due to differences in the cognitive orientation of managers (Finkelstein and Hambrick, 1996), i.e. differences in dominant logic (Prahalad and Bettis, 1986). It is also thought that within an industry there are certain common beliefs and assumptions, which are held as consistent and realistic (Grinyer and Spender, 1979). These are known as industry recipe. Other concepts used by various authors belonging to this same family are e.g. industrial wisdom (Hellgren and Melin, 1993) cognitive maps (Eden et al, 1983, Eden and Radford, 1990, Huff, 1990, Brännback, 1996), dominant logic (Prahalad and Bettis, 1986). A sub-set of an industry recipe is the company paradigm, which is a representation of managerial perceptions and views of how to succeed in their business environment. The starting point here is cognition and personal constructs (Kelly, 1955) or the idea of a status quo (Argyris et al 1985), sometimes also referred to as worldviews (Weick, 1969, Checkland, 1981, Checkland and Scholes, 1998), which develop over time and tend to be persistent (for extensive lists of related concepts see Laine, 2000). Company paradigm can significantly impact the success or failure of an organisation. It can provide means for creating a sustainable competitive advantage (SCA) or it can inhibit necessary change (Johnson and Scholes, 1988). At the core of the company paradigm we find the strategy logic of

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the firm (Näsi et al, 1996, Laine, 2000) (see, Figure 1). Strategy logic is defined as follows: “Strategy logic of a firm comprehends a set of core elements in harmony or coordination, steering the whole of a firm towards survival and success. Strategy logic is subjective logic representing the thinking of key person(s) in the firm..” (Näsi et al, 1996, p. 23; italics added by authors)

According to Näsi et al (1996), the strategy logic of a firm dictates what needs to be done. The nature of the strategy logic changes incrementally hosting dominating ideas and principles, which guide decision-making processes concerned with marketing and product decisions, acquisitions and mergers, investments, etc. Thus, the strategic way of thinking by executives is generally very stable (Prahalad and Bettis, 1986, Bettis and Prahalad, von Krogh and Roos, 1994, 1996, Laine, 2000) where the process of retrofitting, i.e. incorporating new insights into established patterns of thought is often nearly overwhelming. This is due to the human nature where people’s fundamental beliefs and values change very slowly – if at all (Schein, 1992). If the firm operates in an industry with a stable industry recipe with a strong company paradigm, there will be considerable difficulties in implementing radical strategic change. Yet, technological change may just require the adoption of a new strategic way of thinking, a new perception of the business per se, provided the company intends to stay in business. And very fast.

The Pharmaceutical Industry

The Agri Industry The Agri Industry TheFood FoodIndustry Industry The

Industry Recipe X

IndustryRecipe RecipeXX Industry ThePharmaceutical Pharmaceutical Industry The Industry Industry Recipe X Industry Recipe X Industry Recipe X Industry Recipe X

Company Paradigm Y

IndustryRecipe RecipeX’’ X’’ The Industry Biotechnology RecipeXIndustry X Industry IndustryRecipe RecipeXX Industry Recipe Industry

Strategy Logic Z

CompanyParadigm ParadigmY’’ Y’’ Industry Recipe X Company Industry Recipe X X’ Industry Recipe StrategyLogic LogicZ’’ Z’’ Strategy Technological Change

Company Paradigm Y’ Strategy Logic Z’

Figure 1: The impact of technological change on industry recipe, company paradigm, and strategy logic. In order to understand the relevance of industry recipe to the strategic management process it is necessary to clarify the relationship. As pointed out by several authors (Johnson and Scholes, 1988, Finkelstein and Hambrick, 1996, Näsi, 1996, Prahalad and Bettis, 1986, von Krogh and Roos, 1994, 1996, Mintzberg et al, 1998, Laine, 2000, to mention a few) strategy is first and foremost the result of a cognitive process, i.e. it is created by people based on their perceptions of environmental forces and organisational capabilities where the former generally are regarded as opportunities and threats and the latter as strengths and weaknesses (Day, 1990). The recipe becomes the backbone of the strategic management process and a formula for how

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things ‘are done around here’. Johnson and Scholes (1988, p. 41) claim that “..it is likely that purely analytical questioning of the recipe not only will be taken as evidence of the analyst’s lack of understanding of the problems of the business but may actually be perceived as an political threat, rather than objective analysis, for it will very likely be perceived as an attack on those most associated with core beliefs..”. Moore (1996) uses a different set of concepts for the purpose of staking out the boundaries of what we used to call industry. According to Moore, there is the core business at the heart of all activities (see, Figure 2). The core business includes the focal firm, but also direct suppliers and distribution channels. The following level is the extended business, which goes further down in the value system including suppliers of direct suppliers, suppliers of complimentary products and services, direct customers and their customers. The final layer Moore calls a business ecosystem or the business system as used by Suoniemi and Brännback (2000) including stakeholders (investors, owners, trade associations, and labour unions), competing organisations having shared product and service attributes and business processes, and government agencies or other semi-governmental regulatory organisations. The model presented by Moore draws on the ideas from stakeholder theory (Näsi, 1995), Porter’s classical 5-forces model (Porter, 1980), the value chain concept (Porter, 1985), and the concept of strategic groups (Porter, 1980, McGee and Thomas, 1986, Cool and Schendel, 1987, Fiegenbaum and Thomas, 1990, 1995, Brännback and Mäkinen, 2000) and captures the consequences of changes in an industry or industries, where the relevant issues subject to strategic decision-making also change. Extended Business •direct customers •customers of my customers •suppliers of complementary products and services •suppliers of my suppliers

Core Business •core contributions •direct suppliers •distributions channels

The The Core Core Business Business

The TheExtended ExtendedBusiness Business

The Business System The Business System

The Business System •stakeholders, including investors, owners, trade associations, labour unions •competing organisations having shared product and service attributes, business processes •government agencies and other semi-governmental regulatory organisations

Figure 2: The business system model (adapted from Moore, 1996, see Suoniemi and Brännback, 2000) The idea of incremental changes in the strategy process rests firmly outside the high technology, high change industry, such as the information and communications technology industry (ICT) and more recently pharmaceuticals or biotechnology industry. In these industries technological change is the major change driver of the

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industry with significant implications on the strategic decision-making process and the success of a firm. The technological change can be such that it changes the R&D paradigm giving rise to changes in how firms compete and contributing to new forms of collaborations within the traditional industry. The technological change may even be such that it impacts several other industries through knowledge spill-over, i.e. the new technology may yield profits or other benefits to parties who are not regarded as the original owner of the technology thus blurring the industry boundaries. In such a case the industry recipe, company paradigm, and the strategy logic will change for a number of industries and the definition of the concept of industry will require retrofitting. Technological change can either lead to process innovation where, e.g. the R&D process is radically changed or it may lead to product innovation or both. The technological change can be incremental at first but have much more dramatic consequences once the technology has won wider acceptance leading to the change of an entire industry. This is called punctuated equilibrium, i.e. strategies develop incrementally with periodic transformational changes (Romanelli and Tushman, 1994, Johnson and Scholes, 1999). As shown in Figure 1 (see, p. 4) the technological change in pharmaceuticals has not only impacted the pharmaceutical industry, but also the food industry and the agricultural industry, to mention a few (see also Rodriguez and Goldberg, 2000). Oliver (2000) adds several other industries, such as the materials industry (both organic and non-organic materials), mining, environmental remediation, forestry, and health services. In fact, Oliver (2000) argues that biotechnology will impact every industry within the next few decades leading to the convergence of industries thus forming new business systems (Figure 2). According to Moore’s rationale the core business can in fact be part of several business systems and the convergence of industries and knowledge spill-over enable an industry to be part of several business systems (Figure 3). The dotted circles in Figure 3 depict this described complexity within which company paradigms, strategy logic are to be formed. Regardless of the number of industries, the key point is that the definition of a business becomes cumbersome, in particular if industry membership is regarded as a central variable. In traditional terms the industry has been regarded as a key element because it defines the competitive scope and scale, it provides insights about the product market, and customer segments, i.e. basic elements in strategic decisionmaking (Porter, 1980). Now the industry as a unit of analysis may prove unsuitable.

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TheFood FoodIndustry Industry The

The Health Care Service Industry

TheAgri AgriIndustry Industry The

IndustryRecipe RecipeXX Industry

IndustryRecipe RecipeXX Industry

CompanyParadigm ParadigmYY Company Industry Recipe X

StrategyLogic LogicZZ Strategy

Company Paradigm Y Strategy Logic Z

CompanyParadigm ParadigmYY Company Strategy Logic Z Strategy Logic Z The Pharmaceutical Industry

The Biotechnology Industry Industry Recipe X’’

TheMaterials MaterialsIndustry Industry The Industry Recipe X’

Company Paradigm Y’’

IndustryRecipe RecipeXX Industry

Company Paradigm Y’

Strategy Logic Z’’

CompanyParadigm ParadigmYY Company

Strategy Logic Z’

StrategyLogic LogicZZ Strategy

Figure 3: The formation of multiple business systems from the convergence of industries, where firms in one industry can be part of several business systems. The industries shown are not conclusive, only illustrative.

3. Technological change - The Biotech Revolution Biotech’s genesis goes back to the farmers some 5000 years B.C. who noticed that certain varieties of crops grew better in some conditions than others. A follow-up to the success of hybrid plants took place 1000 B.C. when farmers cross-bred the best of two breeds – the female horse and the male donkey - creating an entirely new animal, the mule. Hence the mule became the first genetically engineered species. Ever since, advances in biotechnology have continued (http://biotechbasics.com/timeline.html). The developments relevant in this context are more recent starting with the unravelling of the structure of DNA some 45 years ago. However, the start of the technological change, which is changing numerous industries took place in 1973 when Herbert Boyer and Stanley Cohen successfully recombined DNA from one organism with that of another. The first biotech companies started to emerge. In 1978, the first of them, Genentech, struck a deal with Eli Lilly to develop genetically engineered insulin. In 1982 Eli Lilly acquired FDA approval for human insulin, which was the first gene-spliced product to reach the market. On October 14, 1980 the first biotech initial public offering (IPO) took place, i.e. Genentech went public starting with a $35 per share that within less than an hour of listing went up to $88. For nearly two decades the entire development took place in the US. It is only recently in the second half of 1990s that the rest of the world has caught on, Europe in particular.

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Therefore, most data we have at hands is US-based, but that is also why we need to look closer at the US biotech industry in analysing this field. However, technology as such is not necessarily an indicator of that something radically new is under development. Moreover, the notion of high technology has tended to be ascribed to information systems technology alone. Pharmaceuticals and biotech are high technology but it is worth stressing that advances in biotechnology is currently turning traditional low tech (such as food industry) into high tech, a change which certainly creates managerial challenges for that particular industry. There are two indicators, which define an industry as high technology: R&D spending and patent approvals. Biotechnology is by far the most R&D intensive of all major non-defence industries. On average, biotechnology companies (the data presented here concerns primarily the US, but there is no reason to believe the figures to be any smaller in other parts of the world) spent $69,000 per employee on R&D in 1995, compared to $7651 for all corporations. Top five biotech companies in the world spent an average of nearly $121 400 per employee per year, whereas top pharmaceutical spent $40,000 per employee per year. Expressed in total operating cost (on average) for biotech firms, R&D account for an astronomical 36 percent whereas the corresponding figures for original equipment manufacturers (OEM) is 5 percent and 10-15 percent for ICT industries. The largest markets currently for biotechnology products and processes are pharmaceutical products, agriculture, and environmental remediation. Market activity is highly concentrated in medical application, which accounts for over 90 percent of current sales. Ten-year projections suggests that the market for biotech products will more than triple in real terms and that medical markets will continue to account for nearly 90 percent of sales. Other sectors will be impacted by the biotech revolution, the major ones being health care, chemicals, agriculture, mining and environmental remediation. Together these account for almost 15 percent of the US GDP. The primary criteria for patent approvals are: (i) commercial potential of the innovation and (ii) uniqueness of the innovation. The number of patent approvals is a reasonably good quantitative indicator of the increase in commercially useful knowledge. Patents represent just a proxy for new knowledge, but the best one available. The US Patent and Trademark Office publishes data on the number of patent approvals for over 250 technology categories. The number of patents in the four most basic biotechnology areas are shown below in Table 1 and Figure 4. Table 1: The number of patent approvals during the period 1977-1997 (Oliver, 2000). Year

Drugs

Microbiology

Multicellular organisms

1977 1982 1987 1992 1997

660 730 958 1691 3372

591 711 1099 1965 4178

0 1 19 52 318

Recombinant DNA 14 111 204 356 506

Total

7411

8544

390

1191

9

9000 8000 7000 6000 5000 4000 3000 2000 1000 0 1977

1982

1987

1992

Drugs

Microbiology

Multicellular organisms

Recombinant DNA

1997

Total

Figure 4: Growth of biotech patents approval From 1986 to 1988 the FDA approved only 10 new bio-engineered drugs. Although the number is perhaps low they set the pattern for future. Despite the stock crash in 1987 the industry survived and entered the next decade with a growing number of companies reaching clinical trial stage each month. Companies raised a record $2 billion in the first half of 1991. Actual sales reached nearly $6 billion. In 1993 SmithKline Beecham and Human Genome Sciences made an alliance which changed the outlook for the entire industry. In 1995 16 bio-engineered drugs were approved and 20 the following year. The number of IPOs increased 537 percent in 1997, market capitalisation increased 60 percent. Globally 1200 antibodies are either on the market or in development. The deal between Genentech and Eli Lilly took place in 1978. In 1998 Bayer made a deal with Millennium worth $456 million. For a 14 percent stake in Millennium, Bayer has the future rights to 256 drug targets. Guilford and Amgen made another deal for $466 million. Market capitalisation for Biogen in 1999 was more than $3.4 billion and Amgen $8 billion. The alliances between Big Pharma and biotech had become the spine of the industry (see section 4 for more). Pharmaceutical applications are expected to dominate sales of biotech products for at least the next decade. In Table 2 some estimates of global biotech sales and US biotech sales are shown. Other industries likely to be affected by the developments in the biotechnology industries are health care, chemicals and allied products, environmental services, agriculture and forestry, and mining. Over the next few years pharmaceutical research is expected to increase drug target areas to record 25 000 (currently less than 500). This exploding increase will come from new research methods and from the identification of the human genetic code. Even if only 25 percent of these new targets show genuine potential it will mean a 14fold improvement.

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Table 2: Biotech Global Product Sales and Forecast (2000, 2005, and 2010) in USD billion and US sales (1996 and 2006)2. Key Sectors Human Terapeutics Human Diagnostics Agriculture Specialities Non-Medical Diagn. Total World Total

1996 Actual 7.6 1.8 0.3 0.3 0.2 10.2 NA

2000

2005

2006

2010

‘00-’10 Growth ppa

11.7 2.5 0.78 0.55 0.32 15.85 25.00

20.6 3.7 1.95 1.17 0.48 27.9 35.00

24.5 4.1 1.7 1.6 0.5 32.4 NA

36.3 5.4 4.2 2.4 0.7 49.00 85.00

12 8 18 16 8 12

We have thusfar focused on the developments in the U.S., but this is only natural, as the global biotechnology industry is lead by the U.S. biotech industry. Although Europe is showing strong development the lead is a fact. For example, Gordon Binder, CEO of Amgen (see Chart 1 on Amgen) stated “..Amgen raised $400 million before it sold anything at all,..That combined with the university research base, is why America leads and will continue to lead the world in biotechnology.” (Oliver, 2000, p. 151). Chart 1: Amgen in short (Oliver, 2000). Amgen was founded in 1980 as AMGen, short for Applied Molecular Genetics, by a small group of scientist and venture capitalists with an initial investment of a humble $80,000. Amgen raised funds through three public offerings (1983, 1986, and 1987). On June 1, 1989 Amgens first product, the genetically engineered Epogen, received FDA approval. Epogen revolutionised the treatment of anaemia associated with chronic renal failure. By the end of 1989 the sales accounted for $96 million – by 1998 the corresponding figures were $1.4 billion. Their second product, Neupogen, received FDA approval in February 1991 with annual sales accounting for $1.1 billion by 1998. In October 1997 their third product, Infergen acquired FDA marketing approval. Between 1989 and 1997 these two products were the only ones on the market. Between 1986 and 1996 the average annual return to investors was 67.8 percent compared with the runner-up Oracle’s 53.5 percent for the same period. Amgen’s revenue growth was 108.1 percent with the runner-up Sunamerica’s 60.9 percent. Amgen invested $663 million in R&D in 1998 alone and had research collaborations with 200 colleges and universities. Amgen is the only biotech company that has been able to develop two or more commercially successful products (Oliver, 2000).

With the complete mapping of the human genome and biotechnology as the new emerging research paradigm, we are in many respects witnessing the emergence of the Biotech Age. Leading economic indicators support such a conclusion. First, there are some 2000 biotechnology organisations in the US, more than 1000 in the EU and another 1000 around the world. With a year-over-year revenue increase of approximately 45 percent in 1996 biotech is the fastest growing business segment in the EU. Second, market capitalisation of the US biotechnology industry increased 12 percent in 1997 from $83 billion to $93 billion. Nearly $500 million of private capital was invested in EU companies in 1997 and $30 billion in US pharmaceutical biotechnology firms alone. Third, over 200 million people world-wide have been helped by the more than 90 biotechnology drug products and vaccines. Fourth, the US biotech industry currently employs more than 153 000 people in high-wage, high2

This table is based on data from two sources. The figures for 1996 and 2006 are taken from Oliver, 2000 and the other figures are based on data from Consulting Resources Corporation. The idea with combining the sources has been to show the magnitude of the US market in comparison with the rest of the world as well as to show that the forecasts are similar in size.

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value jobs, approximately 1/3 of biotech companies employ less than 50 persons, 2/3 employ less than 135 persons. Biotechnology has not only moved drug R&D from chemistry-based to biologybased, it is also changing the way the industry values blockbuster drug development. Traditionally, the industry has focused on developing blockbuster drugs. However, this is now, due to advances in pharmacogenomics, changing towards developing more segmented groups of drugs. Thus instead of one class of hypertension drugs, there could be several classes, enabling genetically targeted drugs. Precise drugs can be configured for distinct gene types, potentially leading to more effective and efficient treatments. Currently, $8 billion worth of prescribed medicines do not work in the expected way and treatment has to be discontinued. In Finland only 30 percent of prescribed treatment is carried out as prescribed. The rest is discontinued either by orders of the physician or by the fact that the patient does not comply to the prescription for numerous reasons (Vainio, 1989). Nevertheless the drug industry is moving towards personalisation, i.e. to treat the person not the disease. The biotech industry is, as we have argued, an extremely high-risk industry, with estimates of only 1 out of every 10 biotech firm succeeding in bringing a product to market. Nevertheless, new firms are constantly entering the field and vast amounts of research funding are provided each week. The reason for this are the potentially astronomical rewards. For example, 60 percent of the drug targets of Bristol-Myers Squibb come from contracted biotechnology laboratories. Big Pharma needs biotech’s speed and intelligence and biotech needs Big Pharma’s funding. Those traditional pharmaceutical companies that are not investing in genomics are not expected to survive very long. Biotech’s weakness has often been thought to be size, but as the example of Amgen shows it can also be its strength in intensified research efforts. Biotech firms have an increased possibility to focus on orphan drug3 development, which Big Pharma might not find attractive. Moreover, the operating costs are much lower for biotechs as their infrastructure is much smaller. 4. Structural change - Marriage of Convenience Although the (pharmaceutical and biotechnology) industry has experienced exceptionally high annual growth for several consecutive years there are only a few biotechnology companies with net profits. In 1994 there were four companies in the world showing net profits – Amgen, Chiron, Genentech, and Genzyme. The number has steadily risen and by the end of 2000 the number was projected to be 22. Nevertheless, the entire biotechnology industry is still unprofitable (Amdjadi et al, 2000). The traditional pharmaceutical industry is however, highly profitable. The high annual growth is projected to slow down, because of a large number of drugs are due to go off patent in a few years and because of fewer candidates in the pipeline. Consequently, in the search for growth the industry is expected to concentrate even further. The number of Big Pharma companies are currently less than 15 (Oliver, 2000) and the number is expected to decrease even further (Amdjani et al, 2000) in a few years 3

Orphan drugs are drugs developed for illnesses, which do not affect large percentages of the population, and would therefore not be regarded as profitable or worthwhile. The illnesses are however generally severe and therefore regarded as important.

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time. Projections suggest that more than 80 percent of the global drug market will be controlled by less than ten companies. Big Pharma companies are engaged in strong global competition. Within biotech similar rivalry has not been found because there are still so many unmade discoveries. On the other hand, the year 2000 was the first year when the biotechnology industry became truly borderless. These companies are not only going global by setting up foreign subsidiaries to manage their clinical trials and marketing activities. These companies are creating entirely new companies that are the synthesis of skills and expertise from many different areas transcending both time and distance. This borderlessness applies to mergers and acquisitions, alliances, spin-offs as well as subsidiaries. In fact, the trend today is for companies to go public on two different continents through dual listings. For example, a London-based firm listed its shares on the London Stock Exchange and the Singapore exchange, and a Danish company listed not only locally but also on Germany’s Neuer Markt (Van Brunt, 2001). Nevertheless trans-border activity focuses on mergers and acquisitions (M&A). M&A used to be the type of activity carried out by Big Pharma. Biotech companies have intensified their actions on this front during the entire year 2000. The biotech companies accounted for almost 130 deals between January and November 2000. In most cases a U.S.-based biotech company is the acquirer. The major driver is cash. In Table 3 we show the number of M&A, their value expressed in billions of USD during 1994-1999. The changes seen within the pharmaceutical industry have essentially been driven by technological change, a decreasing number of new block-buster drugs, i.e. a decrease in R&D throughput, soaring health care expenditures due to an ageing population leading to tightening price regulations, globalisation of markets, and increasing competition. Firms have therefore in seeking new sources of growth been forced to restructure. A common recipe has thus been an M&A in order to gain access to technological advancement or for the purpose of gaining market access. Table 3: The number of mergers and acquisitions and their value in billions of USD during 1994-1999 (Amdjadi et al, 2000) YEAR

NUMBER OF DEALS

TOTAL VALUE

1994 1995 1996 1997 1998 1999

45 55 63 73 87 73

$ 3.0 $ 2.0 $ 4.6 $ 2.3 $ 5.9 $19.1

Mergers and acquisitions (M&A) have certainly proved their right with respect to gaining access to global markets and distribution channels. However, whether M&A have been successful in securing increased R&D productivity is largely doubted. For example, quantitative evidence of firm size and the impact on R&D activity is mixed and limited (Henderson and Cockburn, 1996). Henderson and Cockburn (1996) suggest that there are significant returns to size in pharmaceutical research, but that only a small portion of these returns are derived from economies of scale. Jaffe (1986) argues that the R&D of technological neighbours increase R&D productivity. Graves and Langowitz (1993) again, have found evidence for decreasing returns to scale in R&D. Pavitt et al (1987) suggest that both very small firms and very large firms were proportionately more innovative than more moderate-sized firms. Controversially,

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mergers and acquisitions are often motivated by the desire to spread R&D costs over a wider base and to gain control of R&D in competitive firms (Freeman and Soete, 1999), rather than to improve the firm’s R&D performance. Production, distribution and promotion performance is often largely dependent upon sufficient firm size and scale economies. Size also gives access advantages to information from the benefits of experience and access to markets from mechanisms such as reputation and relations (the ability to work with regulatory authorities, for example) (Yeoh and Roth, 1999). Collaboration in high technology markets can take many forms. Alliances, partnerships, and joint ventures were already mentioned. In the context of high technology innovations Hamel (2000) uses the metaphorically ‘Silicon Valley’ to describe science parks. Although Silicon Valley geographically exists, Hamel uses this expression to describe areas where a high knowledge concentration and high innovativeness exists often so that business and university-based research communities work closely together, as indicated earlier by the CEO of Amgen (p. 9). Amgen’s CEO, as well as Jaffe (1986), Henderson and Cockburn (1996), Yeoh and Roth (1999), and Oliver (2000) refer to the impact of the knowledge spill-over effect, and how knowledge can be leveraged and stretched across company boundaries. Table 4: Top ten acquisitions and mergers, their leading market segments, and value in millions USD (Amdjadi et al, 2000). ACQUIRING FIRM

ACQUIRED FIRM

Johnson & Johnson Warner-Lambert (Pfizer)

Centocor

Celltech Pharmacia & Upjohn (Pharmacia) Millenium Pharmaceuticals Gilead Sciences Alza Corporation MedImmune Corixa Corporation V.I. Technologies

TOTAL VALUE 4,900

Agouron Pharmaceuticals Inc. Chirosciences

2,100

SUGEN

650

LeukoSite

635

NeXstar Pharmaceuticals SEQUS Pharmaceuticals U.S. Bioscience Ribi ImmunoChem Research Pentose Pharmaceuticals

550

1,447

LEADING MARKET SEGMENT Mab technology, Chron’s disease, angioplasty, transplantation HIV, solid tumors, macular degeneration, common cold Mab technology, leukemia, pain, asthma, rheumatoid arthritis Small molecule inhibitors, cancer, angiogenesis inhibitors

580

Mab technology, leukemia, Chron’s disease, stroke Liposomal drug delivery, antifungal, flu, Kaposi’s sarcoma, Cytomegalovirus, retinitis Mechanical drug delivery, urology, ADD, ADHD

440 58.5

Mab technology, colorectal cancer, transplantation Adjuvants, melanoma and breast cancer vaccines

41

Treatment of blood products for viral inactivation

In Table 4 we show top ten M&A, their value expressed in millions of USD and their leading market segments. As can be seen from the tables the dollar values are huge, however, it is doubted whether M&A will contribute to R&D productivity positively. The real value appears to be much more successfully captured through collaborations, i.e. alliances, partnerships, and joint ventures. Although the number of collaborations has grown tremendously they have not been able to raise similar amounts of capital,

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which may be due to the fact that they are early-stage deals (Table 5.). These generally do not raise vast amounts of money (Robbins-Roth, 2000). Table 5: Number of biotechnology collaborations and their value in billions of USD (Amdjadi et al, 2000). YEAR 1994 1995 1996 1997 1998 1999

NUMBER OF DEALS 117 165 180 226 221 477

TOTAL VALUE 1.9 3.2 2.8 4.5 3.7 3.8

Established pharmaceutical companies have experienced complex processes of adaptation to new, academic-like organisation methods in their R&D. Overall, the importance of publicly generated scientific knowledge for industrial innovation has increased not only in the pharmaceutical but also in a number of other knowledge intensive industries. Research networks and virtual R&D organisations have been developed to enable collaboration between universities, public and private research centres and both established and new biotechnology and pharmaceutical firms. Despite the lack of empirical evidence, it is possible that M&A of companies proves to be a feasible strategy in the long run as the new “general purpose” research technologies of combinatorial chemistry, high throughput screening and genomics increase firm-specific economies of scope that relate to knowledge spillovers across projects and departments (Gambardella et al. 2000). Science parks show promise because academic and firm collaboration are key drivers of these formations proving effective and efficient platforms for networking and shared knowledge creation. Hence, today’s feasible strategies cover the formation of strategic alliances for enhancing R&D productivity as well as gaining access to global marketing and distribution channels necessary for the commercialisation of a new drug. These alliances have the potential for solving the major macro-level problem evident in the industry today; established companies need access to R&D resources of the smaller, specialised companies, while research units and biotechnology companies need access to commercialisation knowledge. In addition to strategic R&D alliances we have seen the formation of networks and clusters all aiming at developing virtual corporate constellations enhancing collaboration (Mäkinen, 1999, Brännback and Mäkinen, 2000). Indeed, the M&A activity and collaborations between Big Pharma and biotech firms are marriages of convenience, where both parties stand to gain. Pharmaceutical R&D today requires fusion of multiple technological disciplines of which a profound knowledge is required. The exponential growth in the amount of biological information available to biotechnological research is generating an industry that can be characterised as “high clock-speed” where the ability to create networks in which resources, knowledge and information circulate rapidly and at a low cost is becoming a critical success factor (Chiesa & Manzini, 1997, Campbell, 1998, David and Grindley, 1998).

15

In the era of the old R&D paradigm, pharmaceutical R&D processes (see, Figure 5) involved large laboratories and disciplined internal organisational procedures, which became the sources of competitive advantage generally in the form of economies of scale. As the industry evolved, these economies of scale along with additional organisational capabilities to manage the processes of pharmaceutical R&D and delivery acted as powerful barriers to entry in the industry (Suoniemi and Brännback, 2000). A number of pharmaceutical companies in the past succeeded through imitation and generic competition after patent expirations, as well as through concentration on local markets and product niches. The molecular biology revolution has introduced major changes in the processes of discovery and in the organisation of research. It has also provided a wealth of business opportunities as each stage in the R&D process (see, Figure 5) contains a number of sub-sets and technologies that serve as a potential base for establishing a business. Today we have companies whose sole business idea rests on R&D within the preclinical stage, where Phase I or any other simply is outside of their business idea. We also have a number of tool-box organisations whose business idea is to provide technological solutions or services within one particular phase – only. This is radically different from the previous strategy logic, where the entire R&D process was seen as proprietary unique knowledge that needed to be managed in-house and carefully protected from competitors (Bogner and Thomas, 1994). The new situation requires novel technological and organisational capabilities for creation of sustainable competitive advantages. New technological opportunities have freed the entry of new firms – suppliers of specific technological solutions and intermediate products to larger companies - to this industry. (Gambardella et al. 2000; Robbins-Roth 2000) Discovery (2-10 years)

P r e cl inical

Preclinical Testing Laboratory and animal testing Phase I 20-80 healthy volunteers used to determine safety and dosage Phase II 100-300 patients used to look for efficacy and side effects

Phase III 1000-5000 patiens used to monitor adverse reactions to long-term use

Cl ini cal

Regulatory Review/Approval Additional Postmarketing Testing

Years 0

2

4

6

8

10

12

Figure 5: The drug development process 5. The Finnish Biotech Industry The current Finnish pharmaceutical industry is dramatically different from what it used to be little over a decade ago. The industry was from the WWII all the way to the 1990s primarily focused on serving the domestic market. Product patent was enforced

16

in 1988 with a seven-year transition period when both product patent and process patent formed the basis of uniqueness. Prior to 1988 when product patent was enforced, uniqueness was based on process patent. In the middle of the 1970’s, the first steps towards developing original drugs – new chemical entities (NCEs) –were taken. Finnish Bioindustries (http://www.finbio.net) currently lists 110 companies (incl. 3 Big Pharma companies) (See, Table 6). The list includes DDCs (16), companies in the diagnostics (29), biomaterials (8), food and feed (17), industrial enzymes (3), agro (7), service sectors (19), and other related fields (8). The total number of 110 companies employ 8, 200 persons half of which are employed by Big Pharma. The total annual turnover for the Finnish biotech industry accounted for ¼ 1,342 million half of which is generated by Big Pharma. Hence the Finnish industry is currently split in two halves, where the traditional Big Pharma represents one half and the rest covers for the other half. The key question is for how long? Table 6: Biotechnology industry in Finland in 1999 (Finnish Bioindustries, www.finbio.net) SECTOR

NUMBER OF COMPANIES

ANNUAL TURNOVER (¼0,//,21

PERSONNEL

DDCs

16

16

220

BIG PHARMA

3

640

4210

DIAGNOSTICS

29

300

2050

BIOMATERIAL

8

20

90

FOOD AND FEED

17

260

1050

INDUSRTIAL ENZYMES

3

68

270

AGRO

7

14

130

SERVICE COMPANIES

19

12

110

OTHERS

8

12

70

TOTAL

110

1342

8200

TOTAL EXCL. BIG PHARMA

107

702

3990

When product patent became the only basis for uniqueness in 1995, which also coincided with Finland becoming a member of the EU, a wealth of new companies have been established in the industry (Figure 6). The reasons for this ”boom” are multiple, but can mainly be summarised into two categories. Firstly, the global molecular biology revolution, and secondly, the changes in the national macroeconomic environment and the restructuring of the established domestic pharmaceutical companies have contributed to the accelerating speed of new company establishment. The number of established drug companies in Finland, which in the early 1980s totalled thirteen, was reduced to two in ten year’s time. As the remaining

17

companies introduced more focused strategies than before they had to abandon some of the research areas from their wide portfolios. The researchers involved in these areas were made obsolete. Some became founders of new independent biotech startup firms. Other start-up firms grew out of university scientists entering the business arena. In other words, the development in Finland followed the same pattern as the US biotech industry experienced in the late 1970s and early 1980s. There were other reasons for the emergence of the current Finnish biotech industry. Over the past decade external funding of the universities had grown steadily partly due to a decrease in governmental base funding to universities. Especially the research intensive Finnish DDCs are dependent on research in universities; they participate actively in academic research projects and capitalise on them. The cooperation between industry and universities has traditionally been strong in the technical fields and this co-operation was further intensified during the overall recession in the 1990s. For example science parks in nearly every city with universities have been established during the 1990s, i.e. Helsinki, Turku, Tampere, Kuopio, and Oulu. The driver in these science parks has been the ICT industry but the biotech field has followed, and today these two fields both reside within these science parks. The US and Finland have been found to be among the most effective nations in terms of university-industry collaboration (Kankaala and Lampola, 1998). The growth of the industry and the establishment of start up companies have been boosted by the increasing availability of venture funding, both private and public. Although the early stage development of innovations still largely depends on the availability of public funding, the private venture capital industry is an increasingly important source of finance. The Finnish private equity and venture capital industry was practically non-existent till the beginning of the 1990’s, but today it is comparable to most other European countries. When the amount of investments made by private equity and venture capital companies is compared to the GNP, Finland ranks third in Europe, after the UK and the Netherlands. (Finnish Venture Capital Association 2000) All these changes in the macroenvironment have promoted the development illustrated by Figure 6. It is obvious that the developments within the overall biotech industry are technologydriven. However, those days are far behind when scientific excellence alone ensured global business success. For example, after the stock crash in 1987 venture capitalists had learned their lesson and started to ask for experienced executive management expertise in addition to scientific excellence. These kinds of managers were only found in Big Pharma and some executives left Big Pharma to head small start-up biotechnology companies. Given the increasing number of these companies there has for some time been a global shortage of executive management expertise. This same shortage applies to Finland as well. For Finland the situation is even more complicated as there is a very limited number of executives and opinion leaders from the field per se, due to the small size of the country on the one hand and the past structure of the industry on the other. Moreover, the industry has mainly been a domestic market fairly protected from foreign competition leaving it with a managerial pool lacking experience in global business management. The lack of global executive management competencies is a very real threat to future business success based on the high quality scientific research available.

18

Figure 6: Biotechnology industry in Finland, number of companies founded per year (Finnish Bioindustries 2000) In attempting to envision the boundaries of a new industry recipe, within which a potential company paradigm could evolve, which in turn would form the basis of a company strategy, we considered a necessary starting point to study the strengths and weaknesses on the one hand and opportunities and threats on the other of the industry as perceived by the actors within this industry. The strengths, weaknesses, opportunities and threats are basic elements in an company paradigm (Johnson and Scholes, 1988, 1999). Hence we start with a study of the collective strengths, weaknesses, opportunities, and threats (SWOTs) of the Finnish biotech industry. The presented SWOTs are based on interviews made with 31 executives and university representatives within the field between December 1999 and August 2000. Additional information was collected through a mail survey sent to 100 representatives of Finnish Big Pharma, DDCs, service companies, universities’ pharmaceutical research, technology companies, national agencies and associations, and venture capitalists. The presented items in each category can be grouped into four major issues: technological competencies, collaborative abilities, availability of necessary human and financial resources, and business management knowledge, i.e. market access competencies. The primary strengths of the industry clearly lie in the technological and scientific expertise and know-how, which is proven through strong patent positions and market leadership in a few targeted segments. Even small market segments in the biotechnology markets can be profitable customer bases for companies with a low level of fixed costs and products tailored especially to the needs of the specific segments. The number of new patents held by Finnish companies is expected to significantly increase with up to 43% by the year 2003. Secondly, additional strengths are generated by strong traditions in industry and university collaboration, and an

19

ability to stretch and leverage high quality R&D expertise through knowledge spillover effects. Finally, due to the small size of the companies and the small number of companies, the industry can draw on a unique characteristic – good networking between companies. Virtually all top executives and senior managers, including leading scientists know one another, through past joint attendance to same university studies or joint pasts in the same companies. The weaknesses are concentrated around lack of business knowledge and lack of adequate funding. The deficiencies in business knowledge are most present in the lack of marketing knowledge, both theoretical and practical, and a small domestic market, which does not give the companies the possibility to ‘practice’ in small scale before up-scaling operations for global business. Porter (1990) argues that the competitive nature and the size of the domestic market is significant in importance to a firm’s ability to operate on the international arena. Similarly, in the Finnish forestry industry one senior vice president stated that the strong concentration of the world’s leading industry in the Nordic countries has allowed the companies to rehearse at home, thus making them better prepared for the challenges on the global business arena. There is no reason to believe that this would not apply to the biotechnology industry as well. Moreover, it has been perceived that the small company size is also a weakness. However, in a global comparison this does not seem to be a real weakness. For example, one third of the US biotech companies employ less than 50 persons and two thirds less than 135 persons. Thus, small size measured in terms of the number of personnel is a general characteristic throughout the industry. In the case where most biotech companies lack cash flow in the beginning, the size of the personnel is a critical cost factor where management has to weigh between increasing personnel costs and the availability of necessary funding for R&D. Many considered the fact that most of these organisations are less than five years old a weakness. Finally, although it was considered a strength that the employees that are available are highly experienced it was at the same time pointed out that there are not enough of these. In other words, the industry is growing faster than the availability of properly skilled personnel, especially since there is a growing need for cross-scientific skills. Hence the strengths rest on strong technical and scientific expertise and networking and collaborative abilities and skills. Weaknesses are focused around lack of business knowledge and adequate funding. The opportunities for the industry come from major and constant advances in biotechnology and increasing as well as internationalising demands for products and services, which originate out of huge unmet medical needs and an ageing population in all Western countries. The fact that the numbers of biotech companies are constantly growing is generating new possibilities for alliances, partnerships and joint ventures on a global scale. Major threats are (i) the intense international competition, which reflects the stated weakness in global business knowledge, (ii) the potential future lack of qualified personnel as there is a growing concern over the fact that the number of persons leaving for retirement is exceeding the number of young people coming on the job market, (iii) the possible future lack of funding, and (iv) the uncertainty in legislative and governmental actions.

20

The opportunities and threats can again be grouped so that the opportunities stem from technological advances and collaborative abilities to which is added the business dimension in terms of growth in demand and growth of markets. The threats again are derived out of business knowledge to which is added a stakeholder management dimension, lack of financial and human resources. A general conclusion is that the technological and scientific competencies are remarkable but there is real threat in the ability to capitalise on these competencies due to significant lack in business management competencies. Our survey also revealed that the quality and performance of domestic industry actors in areas related to pharmaceutical science and research rank remarkably better than quality and performance of domestic actors in the fields related to marketing, commercialisation, and production. This is proof of the fact that the changes in the field have been technology-driven but at the same time the markets have become global requiring significant theoretical and practical business knowledge in terms of abilities to manage major business changes and abilities to create new business strategies, which are challenging even for experienced executives. Hence there have been changes in two key areas: technology and business. We have a situation where the strategy logic is cognitively residing in the old paradigm, where markets were fairly protected, competition modest and business operations focused on growing market shares or at a minimum keeping the current market share. The new situation does not only require fast learning of basic business skill, but also skills that provide proper guidance within a new strategy logic of which very little documentation exists, and ultimately even with those newly acquired skills possess the ability to create a new strategy logic. A strategy logic of which no previous experience exists against which to benchmark performance. 6. Discussion and conclusions In the previous section we concluded that there is a real lack of business management competencies, which may threaten the ability to capitalise on the scientific and technological competencies. In this paper we are not discussing which specific skills or competencies are lacking, but leave it for a later sermon. The focus of this paper has been to understand the strategic changes brought about profound technological changes. We have claimed that a new industry recipe, company paradigm, and strategy logic is evolving. In section two, Figure 3 we indicated that a company can, as a result of the convergence of industries find itself as part of multiple business systems. This implies for example, that previously when one industry recipe would apply in this new situation we find a multi-dimensional reality where managerial decision-making processes are transposed into a multi-recipe context (see Figure 7). A multi-recipe context means that the traditional industry boundaries are challenged and that the potential served market extends far beyond previous markets, and that the numbers of competitors and stakeholders increase. In such a situation the definition of a business becomes crucial. Such a definition can, however, take many forms, due to the various numbers of logics within strategic thinking (Brännback and Näsi, 2001).

21

For example Normann (1977) claims that a description of a business idea involves the description of (i) the niche in the environment dominated by the company, in other words the company’s territory, (ii) the product system in the system that are supplied to the territory, (iii) the resources and internal conditions in the company by the means of which dominance is acquired. Obviously this definition applies in a singlerecipe industry, but it conveys the firm belief in some existing industry boundaries, which now are coming tumbling down.

,QGXVWU\ 5HFLSH

[\Q



&RPSD Q\3DUD GLJP[ \Q 6WUDWH J\/R JLF[ 

\Q

Figure 7: Multi-dimensional recipes, company paradigms, and logics of strategy Abell (1980) claims that an individual business definition determines market boundary definition. The business definition and its importance to the company is further confirmed by the claim that a strategic plan comprises three classes of decisions i) the definitions of the business (related diversified strategy, product/market strategy, segmentation and positioning strategy), ii) objectives (corporate portfolio, product portfolio, budget allocation), and iii) functional strategy decisions. This again rests on the same kind of logic as the idea in this paper, where strategy logic is a sub-group to the company paradigms, which in turn is a sub-unit to industry recipe. Karpik (1981, p. 396) argues that any classification of strategies must satisfy three requirements: (i) comparison of all actions which, directly or indirectly deliberately or unconsciously, impinge upon the economic system, regardless of the social actors concerned: firms, banks, research centres, etc., (ii) the study of relations between organisations’ choices and the groups which compose them, and (iii) the study of discrepancies between meanings experienced and actual behaviour, which involve social orientations, forms of organisation and power relationships. These form, according to Karpik, a logic of action. It is in particular the second and the third requirement, which are relevant for our discussion. The second requirement is concerned with the organisations, which contribute to the formation of an industry recipe or recipes. The third requirement points at the strategy logic of the firm.

22

How does this rationale translate into the context of the Finnish biotech industry? As pointed out previously, the Finnish pharmaceutical industry has been subject to dramatic changes since the early 1980s. Changes, which are due to changes in the business environment as well as technologies used in R&D and production. In the early 1980s there were a dozen drug companies whose business was based on manufacturing and marketing of me-too drugs. None of the Finnish drug companies had generated their own NCE before 1980. The first Finnish original drug was commercialised in the early 1980s. Product patent became efficient in 1988, but during a seven-year transition period both product and process patents were sources of uniqueness. During the entire 1980s a massive restructuring took place through numerous acquisitions reducing the number of companies to two. The biotechnology boom, which started in the late 1970s early 1980s in the US reached Finland during the 1990s and the new generation of the Finnish pharmaceutical industry started to emerge from the mid-1990s. Along this profound change in the industry structure came the biotechnology revolution, which resulted in the emergence of entirely new industry, the biotechnology industry, which enabled a number of related industries to converge, and the formation of the life science industry was taking place (Enriquez and Goldberg, 2000, Oliver, 2000). From a strategy point of view and in particular one concerned with managerial capabilities, the Finnish pharmaceutical industry had been a highly domestic market, where market share had been the key focus of managerial decision-making. The industry prior to 1980 and during the 1980s did not prepare the companies or the managers for the massive globalisation of the entire industry in the 1990s. Likewise, since R&D activities primarily were concerned with developing me-too products, which are by far much less expensive to develop, it did not prompt the industry to prepare itself for a massive shift in the R&D base. Needless to say, the acquisitions, which took place during the 1980s made a number of persons obsolete. Some people were made to leave the companies, others left more or less voluntarily because the new corporate culture prompted such events. A number of those who left became the new generation of entrepreneurs in the biotechnology industry. The experiences of these entrepreneurs were rooted in the old industry recipe and the old logic of action, which was a single industry recipe and very much of domestic character. The new business environment was to be global and a multi-recipe industry. Alike the biotechnology start-ups in the US during the 1980s, the new Finnish companies were founded by persons primarily with a scientific background, with very little hands-on business management experience and in particular global business management experience. Some of these entrepreneurs come out of the academic research community with no business experience what so ever. Hence a number of questions emerge, which serve as a fruitful basis for future research, both from a theoretical and an empirical perspective. The primary questions are: • Based on what kind of key assumptions are strategy logics formed in this new situation, logics of strategy, which form the basis of corporate success? • What are the key characteristics of a multi recipe strategy logic? • What kind of company paradigm emerges? • What are the key characteristics of a multi recipe company paradigm?

23

In this paper we have analysed the developments within the biotech industry and shown the huge consequences for the industry structure due to technological change. The other theme has been the implications on strategy, which the changes in structure and technology have. The managerial challenge is there for existing pharmaceutical industry, but even more so also for these new biotechnology companies. We claim that the new strategy logic is still emerging within the entire multi-recipe industry. Because the industry is in the middle of transition it is obvious that very little documentation of actual success exist, what is more there is a lack of theoretical guidance as well. However, as becomes evident, at this point we can only indicate what kind of strategic changes lie ahead on an industry level, a company level, and on the individual managerial level. It is obvious that additional research is required and the four research questions mentioned above provide a good starting. References: 1. 2. 3.

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