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 European Industry Strategies in Biotechnology
By
Gérald Assouline
 
Keywords:  Private industry; Policies/Programmes; Europe (West); European Union (EU); Technology transfer.
Correct citation: Assouline, G. (1996), "European Industry Strategies in Biotechnology." Biotechnology and Development Monitor, No. 26, p. 10-12.

The European chemical industry has dominated the global chemical sector this century. Because of this dominant position, there was initially little incentive to refocus R&D towards biotechnology. In the 1980s, the European chemical companies finally enhanced their biotechnology capacity by establishing in-house biotechnology laboratories and by starting R&D collaborations with European and US research institutes.

Several factors have influenced the size and direction of private investments in biotechnology in the different European countries. One factor is the industrial specialization. The Netherlands, France and the UK have a strong basis in agro-food, and the UK, France and Germany have a well developed chemical and pharmaceutical industry. Other factors that can explain investments in European biotechnology are the salary level (low in Ireland); access to the European market (especially good in the Netherlands); the size and direction of governmental stimulation programmes (e.g. the German emphasis on the health sector); access to financial markets and venture capital (better in the UK than in other European countries); and specific know-how and experience (e.g. the large experience with clinical trials in Dutch academic hospitals).
A last factor to be mentioned is the public perception and national regulation of biotechnology in the different European countries. For example, the risk perception of biotechnology applications is quite different among the European countries. The French public has a relatively low risk perception, while in Denmark and Germany it is high. To some extent related to the diversity in public attitude on biotechnology is the variation in national regulation on biosafety. Although a European Directive exists for the introduction of genetically modified organisms (GMOs) into the environment, in the implementation of this Directive into national legislation, national governments have some freedom in adding additional requirements to assess biosafety issues and to meet public concern. Even at a regional level, government authorities sometimes have demanded additional tests or public information campaigns. Thus in Germany, one can find differences among the various Länder (states). While Baden-Württemberg, Berlin, and Hamburg have eased their regulation and planned active support for biotechnology, other Länder like Hessen do not even permit field trials with GMOs. Also the costs of getting approval for field trials are substantially different among the members of the EU; while in Germany and Denmark charges can add up to US$ 20,000, permits can be obtained free of charge in France and the Netherlands.

Structure of biotechnology industry
Europe has a significant number of small biotechnology companies, although far less than the 1300 companies found in the USA. According to a 1995 study of Ernst and Young, there are 485 small biotechnology companies in Europe in 1994, which would mean a 25 per cent increase in comparison with the year before. A large part of the increase, however, results from a wider definition of biotechnology companies, and the inclusion of new EU member states. Of the listed companies, 45 per cent have been created since 1986. The UK accommodates 140 companies, and France and Germany 85 each. Only 20 per cent of the companies develop new therapeutics, the others are active in diagnostics, agrobiotechnology, or they are equipment suppliers. In the USA more than 500 or 38 per cent of the small and medium sized biotechnology companies are developing therapeutics.
The small and medium sized companies form an interface between public research institutions and large companies. Europe has several large companies that invest in biotechnology R&D. Examples are Zeneca, Rhône Poulenc, Gist Brocades, Novo Nordisk, BASF, Bayer, Ciba Geigy, Sandoz, Akzo Nobel and Hoechst. Most of them are multi-activity groups that invest simultaneously in agro-food processing, agrochemicals and pharmaceuticals. The relative importance of their biotechnology R&D depends to a large extent on their core products. For products or processes that can be substituted by biotechnological alternatives in the short or medium term, they invest massively in biotechnology R&D. An example of such a product is insulin produced by Novo Nordisk and Hoechst. The insulin market is under pressure due to a biotechnologically substitute developed by the US company Eli Lilly.
Companies that do not feel the short term pressure of product substitution, however, have a medium or long term strategy towards the adoption of biotechnology to gain competitive advantage. Examples of these companies are the pesticide producing giants like Ciba Geigy, Zeneca, Rhône Poulenc and AgrEvo. These are investing heavily in the development of transgenic crop varieties with enhanced pest resistance, as an alternative to the use of chemical pesticides. Additionally, some of these companies have major investments in transgenic crops resistant to their herbicides. Food processors and their suppliers like Unilever and Gist-brocades are also part of this second category. Some companies, mainly in the pharmaceutical sector, consider biotechnology as a long term strategy for the development of new therapeutic methods (gene therapy) or new medicines for major diseases like cancer and AIDS.

Restructuring process
The European industry involved in biotechnology is undergoing a restructuring process, which is illustrated by the large number of mergers and take-overs in the chemical and pharmaceutical sector. One of the reasons this restructuring is needed, is that the predicted success of biotechnology investments fails to materialize. Some of the acquisitions aim at controlling upstream activities, like the production of generic drugs and pesticides. Others vertically integrate downstream, for instance into the wholesale business.
A phenomenon that occurs simultaneously, however, is the reorganization of large companies into smaller, relatively independent business units. The purpose of this restructuring is to increase flexibility in the decision making process, to decentralize profit responsibilities and to economize on overhead costs. In recent years ICI/Zeneca, Sandoz, Hoechst/Roussel Uclaf have undergone such a change in corporate structure.

Improvement of innovation capacity
The European biotechnology sector is regarded as lagging behind the USA in terms of research and innovation capacity. EU companies involved in biotechnology R&D use several strategies in attempting to bridge this gap. One strategy is to set up R&D collaborations with national or European universities, research centres, and small specialized biotechnology companies. This contracting out of biotechnology R&D is probably less expensive than setting up biotechnology labs in-house, while the company maintains its flexibility with respect to the long term R&D goals. On the other hand, the company has less control over its R&D suppliers, and there may be transaction costs involved.
Another strategy to improve their access to biotechnology is to set up laboratories or strategic R&D alliances in the USA, or taking over (small) US biotechnology firms. Biotechnology laboratories in the USA are often established by European companies, in order to give the parent company an R&D foothold in the USA, especially in medicines. Plant and animal agriculture, chemicals and equipment follow in decreasing order.
The US R&D laboratories of European companies collaborate more frequently with US universities than with US companies. Collaboration with US companies is mainly restricted to the European parent company. This entails potential positive implications for the transfer of technology back to the European base. The number of US-European licensing, marketing and R&D agreements between firms in biotechnology has grown from 12 per year in 1982, to 30 in 1987, and 50 per year at the end of the 1980s. In more than 70 per cent of the US-European alliances, the flow of technology is from the USA to Europe, in 25 per cent it is the other way around.
In an analysis of 215 strategic alliances between US biotechnology companies and established EU pharmaceutical companies, the consultancy firm KPMG Peat Marwick concludes that money is the main driving force for the US biotechnology companies: more than 30 per cent of the US partners cited access to capital as their primary reason for partnering. Other reasons include access to European markets, partner’s clinical skills and validation of technology. Examples of strategic alliances between European large companies and US biotechnology firms illustrate the complementarity and convergence of interests between the two parties.

Collaboration with academic research in Europe
EU biotechnology companies are not only seeking collaboration with US partners. Small and large companies have also intensified their relations with university and academic research in their home countries and Europe in general. In the 1980s, the main focus of collaborative agreements was to give companies access to fundamental research, to re-orient in-house R&D programmes and to allow technology transfer from public research to private companies. In the 1990s, government funding for biotechnology research puts more emphasis on industrial innovation, market oriented and applied research, and on joint research programmes between academic institutions and industry. For most companies, collaborations in home countries continue to be more important than collaborations in other European countries.

Consolidation of local innovation systems
In several European countries, ‘science parks’ or thematic technopoles have been created to stimulate technology transfer between the public and the private sector. In these locations, research capacity, training, education and biotechnology industry are concentrated. Examples are found in Compiègne and Strasbourg in France, Groningen and Leiden in the Netherlands, and Heidelberg in Germany. More spontaneously formed networks of research institutions and industry are found around the public research in Cambridge (UK) and Toulouse (France), which are attractive enough to facilitate biotechnology start-up companies.

National biotechnology programmes
National strategic programmes involving industrial parties have been established in many countries. A major example in size is the French life sciences research programme BioAvenir. This five year programme started in 1991 and has US$ 280 million to spend. The French government supports 38 per cent of the programme, and 62 per cent is funded by Rhône Poulenc. This funding structure illustrates the central role which Rhône Poulenc has been given by the French government in the development of biotechnology.
BioAvenir embodies the cooperation between Rhône Poulenc and the most important French public research institutes: Institut Pasteur, Centre National de la Recherche Scientifique (CNRS), Institut National de la Recherche Agronomique (INRA), INSERM, and Centre de l’Energie Atomique (CEA). About half of the funds is spent on pharmaceutical basic research, on which Rhône Poulenc will build its more applied and developmental research. According to a spokesman of Rhône Poulenc in the journal Bio/Technology "the initial results are (...) extremely positive and even better than originally expected, notably regarding the rapidity with which they have been obtained."
In a different scheme, ICI and Zeneca play a formative role in the development of biotechnology in the UK. In their biotechnology R&D strategy, they give priority to participation in and management of national research programmes such as LINK, and have intensive relations with the most important research centres in the UK, such as at the universities of Leicester and Cambridge.

Industrial pressure on EU policies
The main objectives of the biotechnology industry in its lobby to influence EU biotechnology policy, are harmonization of the regulatory framework in EU and the removal of market barriers. The establishment of the European Medicinal Evaluation Agency (EMEA), located in London, is an example of EU harmonization in the field procedures for drug approval. The EMEA has been highly welcomed by the European pharmaceutical industry, and is presented by US industry as an example for a reform of the US Food and Drug Administration (FDA).
In the case of agrobiotechnology, the Senior Advisory Group on Biotechnology (SAGB), a Brussels based lobby group of European biotechnology companies in the chemical, pharmaceutical and food industry, and the European Commission have set up a working group to study the possibilities to harmonize European and American regulatory systems. SAGB aims at the harmonization of biosafety regulation since they consider existing differences as one of the reasons for European companies lagging behind in competitiveness in biotechnology compared to their US colleagues.
Gérald Assouline

Consultant, QAP Decision, 7 rue Farconnet, 38000 Grenoble, France. Phone (+33) 76 54 74 16; Fax (+33) 76 63 15 02; E-mail assoulin@grenet.fr

Sources
Gérald Assouline and Joanna Chataway (1995), Global Industrial Competition and European Biotechnology Research and Innovation Policy. Grenoble: QAP Decision.

Gérald Assouline, Joanna Chataway and Emma Watson (1995), Biotechnology Development and Strategic Issues in Europe: A comparison of the British, Dutch and German cases. Grenoble: QAP Decision.

Ernst and Young (1995), European Biotech 95: Gathering momentum. Brussels: Ernst and Young.

Several issues of Bio/Technology.



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