Entrepreneurship in Biotechnology
Appeared in Chemical Weekly of 21st Nov. 2000
All hopes of human being lie in the solutions likely to be provided by Biotechnology to our problems and needs in the coming years. Biotechnology will bring about unprecedented changes in the technological and industrial life of the 21st century. Its impact will almost certainly be greater than that of the information technology revolution. With these expectations and corresponding efforts of rest of the world, India has to think more seriously for the development of Biotechnology sector.
There is no “ideal” entrepreneurial personality – successful entrepreneurs can be analytical or intuitive, risk-averse or thrill seeking, or gregarious and taciturn. And still experts have documented research that indicates that successful small business entrepreneurs do have some common essential characteristics.
As these two thoughts come together to my mind it leads to review the efforts of other countries to cultivate/promote the entrepreneurship in Biotechnology and to think about steps that we should take in this direction. The future of the country’s biotech business cannot only hope for it to happen automatically.
Economics considers the four main resources for production being land, labor, capital and entrepreneurial abilities. Entrepreneurial abilities are the abilities to recognize business opportunities and to combine the three other factors of production in a way that will make money.
Factors that are necessary for entrepreneurship:
Successful entrepreneurs are perceived as engineers of changes, energetic, focused, able and willing to take control of their lives, to survive in uncertainty and act based on limited information; they must be persistent and capable to rebound after failure. The “I can do it” attitude is important. Those who survive through severe selection steps of the business startup process can make it as entrepreneurs. It is also believed that “Entrepreneurs are born, not made.” Genetic factors can be assumed to play an important role. At the same time developmental and environmental factors are important as well. Society may support or punish entrepreneurs, or may be indifferent.
Multiple factors affect creation and survival of new business entities in any country. There are two major reasons that individuals participate in entrepreneurial activities: (a) they perceive a business opportunity (i.e., they elect to start a business as one of several possible career options), or (b) they see entrepreneurship as their last resort (i.e., they feel compelled to start their own business because all other options for work are either absent or unsatisfactory).
The margin between necessity-based entrepreneurship and opportunity-based entrepreneurship is faint. About 12% of India’s labor force is currently pursuing opportunity-based endeavors, 9% in the US, while in Japan only 1% are so engaged. Necessity-based entrepreneurship is about 5 % in India and about 1% in the US. Market maturity and saturation by goods and services may also suppress new opportunity-based entries of entrepreneurs. US has low level of necessity-based entrepreneurship. In developed countries for employed individual “forcing” component seems to be reduced and factors other than financial wealth become increasingly more important. It is difficult to define, assess and quantify Entrepreneurship. However it is an essential factor in the success or failure of any kind of business. It entails the capacity to understand, anticipate, plan, lead, instrumentalise, and make strategic decisions conducive to a company’s prosperity. Entrepreneurship involves good administrative capabilities, effective and efficient analysis; forecast planning, organization, decision-making, coordination and control. In the business world, entrepreneurial success is measured by profitability, but there is more to entrepreneurship than the bottom-line.
Entrepreneurship has a role of developing and managing complex systems of knowledge, information and innovation. Entrepreneurship thus involves the operation of open systems, functioning under constantly changing circumstances, and, in turn, affecting these circumstances. In case of biotechnology, where frontier-knowledge is the essence of business, affecting the circumstances is particularly relevant.
And, are entrepreneurs born with the necessary qualities? May be true, to some extent but entrepreneurship needs to be searched, promoted, and supported.
Nature of Biotechnology Industry
Engineering principles are convincing. Physics and Chemistry basis of technology is considered straightforward and reproducible, but Life Science technology is less understood and is also less trusted. The early stage of life science industry has experienced more problems in repetition of performance; forecasting and that impact have not been fully forgotten. Now with biotechnology developments, uncertainties have considerably reduced.
Irrespective of the country, awareness about the special features of Life Science Industry is important. (i) Strong research base, (ii) rigid government controls on standards for the products, (iii) heavy investments on research, (iv) long period of wait before returns, (v) financial resources with readiness to take risks are typical of it. Most biotech firms do not have substantial revenues, and the industry as a whole reports a net loss. Biotech investors often wait years to receive investment returns since it typically takes over seven years and $200-$350 million to bring a new biotech drug to market. Therefore, the encouragement of risky and long-term capital inflows from investors is important to the continued health of the industry.
Managing a biotechnology start-up is a demanding task. According to one of the UK’s leading biotech entrepreneurs, a good manager must be able to do science in the morning, raise money in the afternoon and finish the paper-work at night.
Bioentrepreneurship belongs to a special category of high-tech ventures. GEM report stated that high potential, innovative ventures based on new technology and having the greatest possibility for having a substantial impact on the economy are relatively rare and represented from 0 to 4% across 37 countries. On the other hand, the correlation with the necessity entrepreneurship is essentially zero. This suggests that high potential ventures represent a distinct facet of entrepreneurial activity. The GEM index for high potential ventures has a relatively low correlation with the overall TEA index. It also has a modest correlation with the TEA opportunity prevalence rate.
Indicators of Entrepreneurship:
Number of companies, revenues, employment, product pipeline, patent position is the different parameters, which may be considered as indicators of entrepreneurship. Substantially higher level of total entrepreneurial activity in the US correlated with and contributed to the fact that for quite a while US had twice more biotechnology companies than EU. According to E&Y US had 1300 companies in 1997, while Europe had about 700.
Only number of companies can be misleading since in mature biotech sector like that of US mergers, acquisitions may affect the total number of companies which is not he case in same developing sectors of some other country.
US biotechnology industry started earlier, produces more than three times the revenues of the European industry, employs many more people (1,62,000 against 61,000), is much more strongly capitalized and in particular has many more products in the pipeline.”
Value added (as a % of total manufacturing) from high tech companies (10%) compared to 15-16% in US and Japan. Ireland – very high (links with the US) (Spain/Italy low)
New companies as a % of existing companies. Fast growth companies as percentage of mid-sized companies.
Entrepreneurship at national level:
The Global Entrepreneurship Monitor (GEM) is an international consortium collecting and analyzing data regarding entrepreneurship around the world. GEM’s Total Entrepreneurial Activity (TEA) index defined as the percent of the labor force that is either actively involved in starting a new venture or the owner/manager of a business that is less than 42 months old. GEM reports rank countries in accordance with TEA index, Thailand (18.9) and India (17.9) were the first in year 2002 and Russia (2.5) and Japan (1.8) were the last. US TEA index was 10.5. TEA index for 39 countries has no visible correlation with level of technological development (Thailand, India, Chile and Korea at the top of the list and France, Belgium, Russia and Japan at the bottom). US TEA is about twice of EU average. TEA index reflects not only the willingness of the population to become entrepreneurs but rather the combination of personal and environmental factors.
According to one belief, Soviet Union collapsed, as it was unable to channel its entrepreneurs, which is partially correct. Immigrant’s society (as observed in US) has higher genetic predisposition towards entrepreneurship, and it is also more supportive for starters.
Entrepreneurship and its success in the US are not completely understood. “Spirit of adventure” is perhaps most responsible factor for US leadership in entrepreneurship in biotechnology. Biotech sector in US is characterized by a new breed of agents, small specialized firms – dedicated biotechnology firms (DBFs) – that have entered the industry with the explicit aim of exploiting the new technologies of life sciences for different industrial purposes. These firms are having a remarkable and radical impact on Pharmaceuticals and agriculture. Bioentrepreneurship and emerging small-specialized biotech companies are recognized as major factors of US biotechnology leadership. US leadership originates essentially in the strength of its DBFs.
Recognizing the importance of bioentrepreneurship, EU made substantial efforts in the mid 90-s to improve bioentrepreneurial activity. These efforts paid of and in 1996 the number of new biotech startups increased by 40% over 1995. In 1997 increase over 1996 level was even larger – 60%, and was followed by a further 8% increase in 1998. As a result the number of biotech companies started in EU in 1998 was up by about 130% over startups/ per year average level of 1993-1995. There are now more dedicated biotechnology companies in Europe (1570), than in the US (1273). This is an encouraging demonstration of entrepreneurial potential in Europe. In 2002 GEM report, however, US is ranked a mere eleventh of 37 countries according to the level of entrepreneurial activity.
Dr. Leonard Mizzi of 1999 in his report on “Entrepreneurship in Europe” has identified following facts regarding business environment in Europe as compared to that in US and Japan.
- Capital markets in Europe are less developed as compared to US.
- Business investment reached 11.3% of GDP in the EU compared with 18% in Japan – on a per capita basis, the level is higher in the US.
- Business R & D – EU – 1% (US – 1.5% and 2% in Japan) – Gap is high in per capita terms.
- Rewarding risk-takers is important factor: Return on equity – 16.5% in US compared to 8% in EU.
- Taxation on the sale of a business are high (18% in EU compared to 10% in the US.
- Excluding investments in management buyouts (MBOs), the stock of venture capital invested in Europe (in per capita terms) is 40% the US level.
- Furthermore, the US venture capital industry invests twice as large a proportion of its funds in high tech companies compared with Europe and three times as large a proportion in the early stage part of the life cycle as in Europe. Most of the investments in Europe are in expansion.
- Equity investment – Regulatory and cultural factors limit investments by financial institutions in private equity and in the venture capital market (25% in EU compared to 36% in US). Best benchmarks in Europe are UK, Ireland and Switzerland but even here less is invested in very risky venture capital funds.
- Significant regulatory problems still exist in the European financial services industry, especially on investments in non-domestic high yield bonds and direct investment in non-domestic collective investment funds.
- Number of patents is low in Europe due to Low level of expenditure on R&D and Low level of co-operation and technology transfer between research institutes and companies. High rates of patent applications in Germany and Sweden; low rates in the Med. Countries and Belgium.
- A well-functioning labour market is a critical condition for successful entrepreneurship. However, problems prevail in Europe vis-à-vis the US:
- High non-wage labour costs (including employer social security contributions, payroll taxes, holiday pay, sick leave and other tax benefits)
- Low labour productivity
- Fewer people with advanced scientific and managerial skills
- Not-so-flexible labour markets
- Weaker incentives to work and improve their skills.
- Non-wage labour costs are 70% higher in the EU so that total hourly labour costs are 10% greater than in the US. High cost countries include Germany, Denmark, Belgium, Sweden and Austria. Labour productivity is lower except in France, Germany, Benelux and the Nordics.
- In Europe, Researchers working in business – low (even Sweden is significantly lower) Managerial skills – low (Concept of entrepreneurship)
- Business environment in Europe does not sufficiently encourage entrepreneurship. Action is needed, at all appropriate levels, to Reduce Excessive Fiscal and Regulatory Burdens on the Private Sector and Increase the Efficiency of Public Sector Activities Enhance openness, flexibility and adaptability of markets Foster the spirit of enterprise (Venture Capital and ICTs) Stronger competitive pressures: WTO, Globalization, Technological Progress (convergence of internet/cable and telephony) – Role of e-commerce (regulatory aspects) Then at an EU level, the challenges are: Completing the Single Market, EU enlargement, Sustainable development – pressures on e-taxes (integration of environment with other policies)
The level of technological development or intellectual property protection is supportive of entrepreneurship development.
The World leaders
Innovation, Imagination and Inspiration are the ideals of American Entrepreneurship.
Biotechnology is the darling of the American public. Americans are proud of it. They love to be the leaders. Biomedical research is considered as one of the most efficient investments this society ever made. Leadership in biotechnology provides the country with non-controversial respect from all over the world. At least 3 major societal factors contributed to enormous success of U.S. biomedical sciences, biotechnology and biotech industry.
1. Orientation towards technological progress. Trust to science and technology, reliance on them 2. Attention to the individual’s interests and needs, with health as main priority 3. Willingness of deeply individualistic, capitalistic and democratic society to provide enormous power to the government for appropriate cause. The United States leads the world in Biotechnology. The growth of America’s biotechnology industry has resulted from a remarkable combination of entrepreneurship, innovative capital markets, and federal research investments. 3000 companies, $20 billion sales and 1,50,000 skilled workers is the statistical picture of United States’ biotechnology progress. The study of Biotechnology-based Industry in United States can be useful to other countries while thinking of growth of biotech industries. In United States each of the twenty states show competition to harness biotechnology.
In this context, study of UK’s initiatives to become leader of European Union in commercialization of biotechnology is also noteworthy. In growing a successful industry getting the right climate in which (Small and Medium Entrepreneurs) SMEs can flourish is of vital importance. The Department of Trade and Industry also has lead responsibility through the Office of Science and Technology. UK has led the way in Europe in developing appropriate regulation and in encouraging the formation of public markets for biotechnology companies. The Department of Trade & Industry, acting as overall sponsors of the UK Biotechnology sector, seeks to raise awareness of biotechnology in industry through the Biotechnology Means Business Initiative. Support to the sector is provided through schemes such as the business innovation SMART scheme, the Biotechnology Finance Advisory Service, the Biotechnology Business Mentoring and Incubator Challenge, the Biotechnology Exploitation Platforms Challenge and EUREKA, through the recently announced `President’s Partnership Prizes’ and in partnership with the “Teaching Company Scheme”. The Office of Science and Technology are contributing to this initiative through a range of specific support mechanisms, for example “LINK”, and including biotechnology specific programmes in Analytical Biotechnology and Applied Biocatalysis and through the Foresight Challenge.
The Biotechnology Young Entrepreneurs Scheme (Biotechnology YES) is an innovative UK-based competition that raises awareness of the commercialization of ideas from the biosciences for postgraduate and postdoctoral scientists. Biotechnology YES will help strengthen the transatlantic bonds between the countries and provide North American students and researchers with no business background an opportunity to learn about entrepreneurship and commercialization in the UK while networking with the UK biotech research community and UK biotech companies. The selected U.S./Canadian teams will participate in workshops held in Oxford and Edinburgh consisting of presentations from leading figures in the UK biotech industry on intellectual property, international funding and investment, financial planning, commercial and marketing strategies and an evaluation of market potential. There also will be mentoring sessions from industry experts to help the teams generate their business plans. Biotechnology YES is managed and organized by the University of Nottingham Institute for Enterprise and Innovation (UNIEI) and the Biotechnology and Biological Sciences Research Council (BBSRC). Biotechnology YES programme helps development of understanding enormously, particularly in exploiting scientific ideas within a commercial setting and bioscience start-up companies. It also helps to obtain invaluable advice and information on biotech business matters from experts.
The emergence of ‘serial entrepreneur’ is a new but successful phenomenon in UK. Here a successful manager who sets up firm after firm, often remaining on the board of directors of each one.
Research innovation, training and entrepreneurship are sponsored directly by the Biotechnology and Biological Sciences Research Council, whose Business and Innovation Unit provides a portfolio of activities, including the Biotechnology Young Entrepreneurs Scheme. The Medical Research Council directly manages the exploitation of the research output of its own research establishments and has driven the creation of a significant number of biotechnology companies in the health sector. The two MRC Collaborative Centres in Mill Hill London and Edinburgh provide incubator facilities; aid the technology transfer process, raise investment fund, UK Medical Venture Fund. The MRC welcomes biotechnology proposals to all its funding schemes, innovation activities.
In the Republic of Korea, the entrepreneurship drive led the biotechnology sector to be organized in 1982 under the Korean Genetic Engineering Research Association (KOGERA). At present more than 20 private companies are participating in this Association. The government provides the members of KOGERA with subsidy as the seed money. In 1980, the public sector provided 70 percent of the R&D support to the biotech industry while in 1986 it provided only 28 percent of the R&D cost whereas the industry provided 72 percent of the cost. This shows the increasing success and confidence of the private sector. The private companies are mostly involved in fermentation and pharmaceutical matters and have very little interest in agricultural biotechnology. Most of the companies are using biotechnology for the production of antibiotics, insulin, new vaccines and interferon.
FRANCE BIOTECH is an association formed to stimulate and encourage the development of the French biotechnology industry. France already has world-class research base. It will be beneficial to foster biotechnology companies in France. FRANCE BIOTECH wants to create favorable environment to create strong biotechnology industry. As a part of their activities, (1) Formulate and put forward proposals to government and regulatory bodies to bring about rapid economic and regulatory changes which will benefit biotechnology companies, (2) Be an example to encourage entrepreneurship and the creation of biotechnology companies by scientists and managers from companies and laboratories in the public and private sectors, (3) Provide a forum for the exchange of ideas among biotechnology entrepreneurs, (4) Be an international point of contact for the exchange of ideas and experience with the international biotechnology community, including industry associations and companies in other countries, (5) Discussions with biotechnology companies, the government and other public sector bodies to propose specific measures, (6) Active promotion of enterprise-creation through seminars and meetings in public and private laboratories, (7) Regular meetings to bring together entrepreneurs, allowing them to share their own experience and benefit from that of others, (8) Representing the French biotechnology industry in international forum, including Germany, Japan, UK and US.
In general, commercialization of agricultural biotechnology is far behind the application of biotechnology in human health and medicine. In the developed countries, especially in Japan, the private sector plays a major role in the generation, development and commercialization of biotechnology products and techniques. Because of commercial considerations, concentration has been mainly on diagnostics, vaccines, pharmaceuticals and other health-related products. Moreover, because of the eminent involvement of the private sector, marketability of the products and potential return on investment are crucial factors in deciding which products are to be developed and commercialized.
The Biotechnology and Finance Forum is the result of close cooperation between the European Association of Securities Dealers (EASD) and the European Commission since 1997. It aims to encourage the creation and development of young, innovative, biotechnology companies with the objective of encouraging job creation, integration of quality research with economic use of the results and the stimulation of investments. These high tech SMEs often created by entrepreneurial researchers, are important partners to larger industrial firms. The EASD – the “Second Market”, and the European Commission held the 2nd Conference of the Biotechnology and Finance Forum on March 26-29, 1999 in Lyons, France. The principal objective was to encourage a sense of entrepreneurship amongst those working in the scientific sector, to make it aware of the sources of finance it can draw on, improve the legal and regulatory environment in which they work, and to highlight the successes they have had. This second Conference brought together more than 200 professionals, including scientists, biotechnology company directors, investors etc. to look into the five principal topics on the agenda: the Scientist as a Manager; From Seed Capital to stock market quotation; Creating a suitable legal environment; From business creation to business development; and Establishing “Bio Valleys” in Europe.
The latest conference highlighted a number of results achieved. (1) Those involved in research, industry and finance are networking to achieve a precise objective, namely to promote the establishment and development of small and medium-sized biotechnology companies. (2) The Forum can be said to be a tangible result of these efforts, and has started interaction and discussion, which has not existed hitherto. (3) The National and regional initiatives were stressed upon and linked. The Cell Factory key action programme with budget of Euro 15 billion for 1999-2003, (whose main objectives are strengthening European industrial competitiveness by improving the potential for creating small research-based biotechnology firms and entrepreneurial initiatives) was kept as a target. The challenge to set up a nurturing environment or the development of established bio-industries and a new generation of European entrepreneurs to start up and flourish is accepted. The projects to be supported must address the link between the ability to discover and the ability to exploit, through focusing on the mobilisation of players from research, industry, and finance sectors. (4) The Forum has also contributed to gathering and focalizing initiatives of the European Commission in this direction. In the field of biotechnology, the European Union has considerable research potential. The Fifth Framework Programme, in particular the Cell Factory key action, is a working tool to be used by researchers, entrepreneurs, industrialists, and financiers.
Entrepreneurship: Networking of biovalleys in Europe
The biovalleys in Europe and the Cell Factory key action of the 5th EC Framework Programme share the objective of providing tools, enabling technologies and financial instruments, in short, to set up a nurturing environment for a new generation of European entrepreneurs to start up and flourish. These knowledge-based new biotech industries correspond to a reservoir of industrial competitiveness, scientific and technological innovation, opportunities for investors, and jobs creation, which is still under exploited in Europe.
Biotech start-ups rapidly develop needs of a human, scientific and financial nature requiring the European level. But at the same time, the creation and development of these start-ups is anchored in the local reality of a region, an enterprise incubator or a biovalley. Thus, these novel innovative firms have a double dimension, both local and global. The exchange of information and communication between the local and global levels appears therefore to be all the more important.
The Workshop discussions clearly identified a need for networking of biovalleys across Europe, if successful entrepreneurship in biotechnology is to be promoted rapidly and efficiently. Putative proposals for networking could be submitted to the existing Cell Factory key action, since biovalleys and their role in promoting entrepreneurship already form a major objective of the Key Action.
The Workshop was important in defining the ways in which networking would provide very considerable added-value to existing biovalleys as well as those that are in the process of current development. This added-value arises through exchange of information; complementarity; critical mass.
The study of efforts for biotechnology’s progress initiated in United States, UK, Europe and Japan can provide us some clues.
What is needed?
For promoting the entrepreneurship in biotechnology efforts are required from different sections –
- Role of Government – Tracing and attacking bottlenecks in material and non-material facilities, To develop common platform for interaction, Initiative in technology transfer, Promotional concessions, To identify areas for entrepreneurship promotion
- Role of Industry – To understand the trends, Willingness to diversify
- Role of scientific community – To develop dialogue with industry, To sell the technology in market, Stimulation for commercial development of semi academic know how, awareness about regulatory affairs, patents etc.
- Role of academics – Nurture entrepreneurship through various programmes, Entrepreneurial training, Information on bioscience careers, Presentations by successful biotechnology entrepreneurs, Case studies, Project-plan preparation training, Self assessment activities,
The Role of Science parks/Incubators
Biotechnology Center (handles technology transfer and business development), Incubators/Research Parks, Buyer-Supplier Guide, BioScience Cluster: (Building a critical mass of BioScience companies), Biotechnology Network are the various forms in which initiatives are taken by states of USA. ‘Incubator’ projects also provide management assistance. They are supposed to provide lab space for the start up companies as having individual labs is quite expensive. The Incubator will provide small entrepreneurial bioscience companies with affordable office and wet lab space, flexible leases, educational programs and assistance and support in business development, strategic planning, financing, regulatory assistance and product commercialization. It facilitates research and development, provides instrumentation resources, and helps faculty development, technology transfer, public policy and communications. The incubator also offers ‘mentoring service’ – business training, interim management, and introduction to accountants, solicitors and other professionals at very low cost. Companies are required to leave incubator as soon as they are financially better established. The success rate of incubators is 93%.
Role of Universities
It is possible to develop Entrepreneurial Culture by the appropriate efforts by Universities and Research Institutions. They can play a role to improve commercial awareness and entrepreneurship among researchers. Young researchers often lack opportunities to build the skills needed for commercializing research. Business competitions can be crucial to foster entrepreneurship among young researchers. Many universities have introduced a course on entrepreneurship and business management as a part of the curriculum at M. Sc. Level along with the core subject biotechnology. Students are also encouraged to take up projects under the supervision of university faculty in collaboration with industries. Entrepreneurial training may include information on bioscience careers, presentations by successful biotechnology entrepreneurs, case studies, project-plan preparation training, and self-assessment activities.
US takes significant lead in ensuring universities’ role in the development of biotech industry. This is in regards to public investment in R & D, public/private collaboration, and technology transfer. Universities have an important role to play in the development of Europe’s biotech industry, similar to that in US. But staff from European universities is reluctant get involved in commercial activities. They are worried about overuse of resources, undue involvement in company activities, and also possible influence of companies on research choices. Hardly 10% of the European university staff are interested in supporting company formation and within that only some possess the necessary entrepreneurial qualities that the industry requires.
In UK, poor salaries to academics and less hope in career path are perhaps encouraging the Britain’s entrepreneurial vigour. In Sweden universities and science parks have given birth to a number of small companies. In Sweden, the usual pattern of commercialization is for a university researcher to set up a company using public money. The funding often comes from an innovative government scheme called ‘lontagerfunden’ (Wage earners fund). In Switzerland, many biotech companies are spin-offs from universities while some have their origins in the pharmaceutical companies.
Availability of finance
Biotechnology companies are often dependent on the financial community to support them for long periods of time. A problem at the national level is a growing shortfall in the amount of equity finance available for biotechnology companies. In Germany the increase in equity finance has been achieved in through enhanced incentives. Improving incentives for private investment is the most effective way to increase equity finance in biotechnology companies. In Sweden, non-socialist government abolished the electorally unpopular tax and transferred the funds to a foundation to finance biotechnology start-ups, among other things. Also big pharmaceuticals are investing heavily in biotech start-ups and venture capital funds so as to derive biotech interests.
Importance of Venture Capital
Venture capital is vital to the biotechnology industry. This is because in early years it needs strong research and development activity. And this is capital-intensive process. Biotech industry is often described as cash-hungry. UK and USA share one important thing, and that is the business mentality. Both have very strongly developed venture capital businesses. They have strongly developed venture capital mentality. U.S. venture capital investment has surged in the past three years from $7.4 billion in 1995 to $25.3 billion in 1998, according to the National Venture Capital Association (NVCA). According to NVCA statistics, since 1990, venture capitalists have invested over $5.8 billion into over 550 biotechnology companies. The agricultural biotechnology field is already hot in U.S. where it attracts more than 10% of all venture capital finances to startups.
While venture capital assists young biotech firms, initial public equity offerings (IPOs) on NASDAQ have allowed biotech firms to raise substantial amounts of funds for rapid and open-ended future growth. IPOs have raised billions of dollars for U.S. biotech firms, and the high volume of U.S. IPOs has led to increased venture capital funding in anticipation of the future benefits of going public. A Washington Post technology columnist recently noted: “to a large extent, the biotech industry is the legacy of NASDAQ.
Small firms are helped by Sweden’s relative abundance of venture capital. Finance is almost as easy to obtain in Sweden as it is in the UK. According to European Venture Capital Association, in Europe, Finland has highest number of biotech and health related investments. Sitra Bio Fund is Finland’s only dedicated bioscience venture fund. Venture capital is almost as readily available in Netherlands as in UK. Nowhere else in Europe there is a well-developed venture capital market. In Germany, there is pressure to build biotech industry, but venture capital is not readily available. The Germans are very much risk averse. The French also do not have venture capital mentality. Even Holland, Belgium and Italian industries do not enjoy venture capital availability. Most venture capitalists renew their investment portfolios every four to six years, with flotation the preferred way of disposing of assets. Biotech firms can now float earlier, encouraging venture capitalists to invest in biotech start-ups. Several venture capitalists help to bridge the management gap as they provide interim management as well as cash.
Two important changes in rules of stock exchange of UK have helped in increasing the financial community’s understanding of the biotech industry and proving that there are investment opportunities in this sector. One, earlier a company needed a three-year profitable trading record to be eligible for stock market flotation – difficult for biotech start-ups who are in the research and development phase. Now with the revised law research-based firms need to have two products in clinical trials and should prove that they are ‘significantly’ financed. This resulted in increase in listing of biotech companies on stock exchange. In second revolutionary change, alternative investment market (AIM) was introduced as a mini stock exchange that allows small, young firms to raise public funds. So right from the stage of ‘idea’ when only interesting technology and business plan is in hand one can look for public finance. This also has shown positive effects.
Role of Government
All the states of USA have one or other kind of facility to attract biotech start-ups to their areas. This competition indirectly helps the flourishing of entrepreneurship in biotechnology in USA. Overall nature of concessions can be seen from the following list
(1) A 15-years to 20-years Net Operating Loss (NOL) carry forward provision for biomedical companies. Some give 50% Net Operating Loss (NOL) credit but 100% NOLs on new businesses with less than $1 million in receipts for up to 8 year carry forward.
(2) 20% tax credit on qualified R&D expenses;
(3) 30% tax credit on the cost of cooperative research with state universities;
(4) 30% tax credit on the cost of training necessary to prepare employees to work in biotech.
(5) 30% state income tax credit on the costs of building, equipment, higher education partnerships and intellectual property associated with the production of advanced biofuels; and
(6) 5% income tax credit on the costs of construction, expansion, renovation or purchase, of biotechnology facilities and equipment, exclusive of undeveloped land.
(7) Applied research grants to match funds for industry-sponsored projects, an R&D tax credit, technology transfer assistance grants, and a seed capital investment program to leverage private sector investment in early-stage
(8) Exempts biotechnology and other qualified companies from the sales tax
(9) In addition, companies may carry forward investment tax credits for 10 years.
(10) Reimbursement and/or substantial assistance for technical job training to biotechnology firms locating in the state.
(11) California will often provide new biotechnology construction a 5% exemption on its sales and use tax for their first three years. This program recently saved a biotechnology company that built a new facility in the state $1 million.
(12) Legislation to exempt biotechnology R&D purchases from the state tax.
(13) R & D tax credits (non-incremental) was increased to 6%
(14) Sales & Use Tax exemption on machinery, equipment, tools, materials, supplies and fuel used in the biotechnology industry. Property Tax exemption on new machinery and equipment used in the biotechnology industry. 15-year carryover of unused R&D Tax Credits.
(15) Georgia offers job training assistance of $500 to $2,500 per new job.
(16) Low cost financing available for land acquisition and construction costs. Industrial Revenue Bonds to help finance projects
(17) State investment funds available over the next four years to increase the amount of venture capital available for biotechnology driven life sciences
(18) Property Tax Exemption
(19) No Sales & Use Tax on Machinery & Equipment & Computers, No Property Tax on Machinery & Equipment & Computers
(20) Unique programs available to provide assistance in road construction and other improvements for new biotechnology facility construction
(21) Investment Pools are available to invest in biotechnology companies.
Netherlands Industrial and Agricultural Biotechnology Association (NABIA) which is a biotech trade body has started ‘Biobusiness Study Cycle’ which will visit research schools on a yearly basis to encourage students and young researchers to become managers and bio-entrepreneurs. The government is also planning strategies to stimulate entrepreneurship. In Netherlands, ‘Busines Technology Collaboration’ scheme aims to bring university scientists and companies together, particularly in life sciences, and provides subsidies for industrial research and feasibility studies.
Like many other industrialized countries Switzerland has a national biotech strategy, the Priority Programme Biotechnology (SPP BioTech) launched in 1992. It places considerable emphasis on applied research. Funding, education to young academics, communication, dialogue with public, technology transfer, encouraging co-operation between universities and industries is looked after by them. Another government initiative is the ‘Start-up programme’ of the Federal Office of Education and Technology’s Commission of Technology and Innovation (KTI). It gives new entrepreneurs financial support and advice in the early business stage, with grants of up to 50% of the investment.
Even in Australia, government has taken initiative by working a strategy in co-ordination with industry and academic experts to generate environment and culture for development of biotechnology sector. Adding value to research discoveries through product development, enhancement of commercialization and business development skills, nurturing new businesses based on intellectual properties developed in institutes, enhancing entrepreneurship within scientific community are initiated by Australian government.
In the government’s role one important feature is to prepare ‘people power’ or ‘public support’ to projects and plans particularly for use of genetically engineered organisms, transgenic animals, genetically engineered food, patenting of life forms, gene therapy etc. so that research undertaken and the outcome of that can be successfully implemented on commercial scale. This developing of opinion also helps to get indirect consent to funding of research projects in universities and other research institutes. Such clarity in policies is important for biotech industries also while deciding on areas of fundamental research. The uncertainty otherwise can dampen the progress of research and commercialization of biotech products.
Bioentrepreneurship in India (Efforts in India)
The concept of bioentrepreneurship is still new in India.
In developing countries, the role of the private sector in modern biotechnology has been rather limited. This is attributed partly to (i) vague government policies regarding the private sector; (ii) unclear policies or no policies/views on patents and intellectual property rights; (iii) poor links between public and private sectors; (iv) low purchasing power for new products that are usually highly priced and are out of reach of the majority of resource-poor farmers and low-income consumers; and (v) inadequate local expertise and infrastructure and R&D support to new biotechnology.
In India, many biotechnological concepts/solutions/techniques remain on the laboratory shelf without entering the market place because the inventors have limited scale-up capabilities and resources for commercial realisation. The mission of a biotech incubator is to develop and commercialise bioprocesses and products by serving as a centre for entrepreneurship through development of partnerships with innovators from universities, national R&D institutions, academic institutions and industry. The Union Department of Biotechnology and Government of Andhra Pradesh are setting up a Biotechnology Incubation Centre at Shapoorji Pallonji Biotech Park (SPBP), Hyderabad. Indian Institute of Chemical Technology is designing the incubation centre and providing the scientific and technical inputs needed.
The Biotechnology Incubation Centre (BTIC) assists entrepreneurs and their new biotech enterprises to get financial support from venture capital, financial, banking and government agencies. – To provide business expertise to entrepreneurs by experts and well established financial and management companies through consultancy assignments.
It is only recently, that biotechnology industries have been growing in the private sector in India. These have considerable in-house R&D bases active in the application of new technology to agribusiness, enzyme technology for high-value chemicals and quality edible oil by using genetically modified bacteria; protoplast fusion in yeast for efficient fermentation and production of edible oil from biomass; tissue culture (about 50 private sector companies) of plantation and ornamental crops, bio-insecticides; plant growth promoters; biomass processing for animal feeds; and hybrid seeds. Some small and medium-size companies are also initiating biotechnology activities but, with less R&D capacity, are more wary of what they consider to be a higher-risk technology.
The recent liberalization of trade, including that of certified seed, coupled with the greater priority given to science and technology and the promotion of private sector and public-private sector links, should encourage increased participation of the industry in agricultural biotechnology R&D. Financial incentives are available for supporting the growth of indigenous biotech industries. However, venture capital is still lacking. Several multinationals, e.g. Seedtec International, Cargil Inc., Dehlgien Inc., Northrup King and Sandoz (through their local subsidiaries) have been shortlisted by the Indian Government for production of
Hybrid seeds, which may involve biotechnologically, produced seeds in collaboration with Indian companies. To take advantage of the availability of expert personnel in biotechnology at relatively low costs, a few multinational companies like Astra AB (Sweden) are setting up a biotechnology R&D centre in India. Partnering with, collaborating with High Biotech companies abroad is growing. Recently, Pro-Agro, an Indian seed company, established links with Plant Genetic Systems, a leading Belgium-based plant biotechnology company, for the production and distribution of hybrid seeds.
Establishment of Department of Biotechnology (DBT) by Government of India made first efforts in the direction of “Promoting Entrepreneurial Initiatives in Biotechnology”, in India. It has been playing a significant role in bringing about interaction between academics, research institutes, companies, and international authorities. Technology promotions, technology import, technology transfer for commercialization, care of biosafety are the various aspects dealt by DBT. Sharing Information and Coordination of National Initiatives, which aims to promote synergy and complementarities between concerned bodies is primarily achieved to some extent. However, due to its role as government body, isolated efforts and biotechnology’s status otherwise in infant’s stage, the result is slow progress of Life Science industry in our country.
Biotech Consortium India Limited is a company set up by Department of Biotechnology (DBT), Govt. of India and All India Financial Institutions (such as IDBI, ICICI etc.) with an objective to accelerate commercialization of biotechnology in India.
In India, The Technology Development Board (TDB) will partner with the Unit Trust of India (UTI) to float an information technology venture fund aimed at promoting entrepreneurship, in biotechnology and other technology-related areas. With a proposed size of Rs 200 crore, the venture fund will receive an investment of up to Rs 8 crore annually. The TDB would have a decisive role in choosing the proposals for funding entrepreneurial ventures. It is essential for the corporate sector to encourage entrepreneurship by creating foundations that could stimulate budding enthusiasts and for which the government will provide an enabling environment. IDBI played a key role in promoting the Biotech Consortium of India Limited, in collaboration with other all-India financial institutions, to aid in the commercialization of indigenously developed processes and products in biotechnology.
KPMG Corporate Finance (Banglore) is a leading worldwide consulting organization providing advice related to Mergers and Acquisitions, Divestments, Private equity and strategic alliances. They are interested in providing financial assistance to some small start-up biotech companies (with sound management capabilities) who may be in bioinformatics, contract research etc. They can help them to grow with the assistance of funding from strong private equity funds.
In Pune, Maharshtra the project ‘cradle’ has been introduced as a result of the joint partnership between 15 entrepreneurs, consultants and marketing agencies in the field and the Microbiology Department of the Pune-based Abasaheb Garware College. The project aims to give birth to innovative ideas and nurture entrepreneurship in the field of biotechnology. Cradle will develop new products, make quality improvement in existing products, provide laboratory and field trials, trouble shooting and process optimization facilities for entrepreneurs. The manpower inputs for the project will come from the college, with students and staff forming the core while the infrastructure for laboratory and testing equipment will come from the entrepreneurs. Advantage to the participating entrepreneurs is that they will get practically trained manpower, R & D base for which otherwise they can not invest (though they need research inputs desperately), and research projects of interest to industry will be taken up. This platform will work as the consortium of likeminded people upgrading technology and serving mutual interests.
The growing interest and planning of projects on the biotechnology industry sector has become a very common feature with students of MBA (Management) courses run by many reputed institutions in India. I have received many letters in this regard to get more information from our concern ‘Biotech Support Services’. This shows the growing awareness about the subject in the managers to be. This is interesting because it will help in decision making in favor of biotechnology when these graduates will hold key positions in different corporations. The growth of biotechnology industry depends on corporations/industries accepting it as a promising and profitable sector and seeing future in it.
Efforts and a competition to promote biotechnology at state level similar to as what it is seen in USA is likely to start in India too.
Punjab Government is proceeding practically fast on its decision to set the project of Biotechnology Center at SAS Nagar from the state’s Rural Development Fund. The total project cost, including land, is estimated at Rs 61 crore. While the project envisages nearly 200 acres, for the time being around 18 acres of land are available. The aim of setting up the autonomous institution is to promote application of biotechnology in three specific areas: agriculture, health care and environment, involving research, demonstration, commercialisation of the technology and a biotechnology park.
Punjab State Council of Science and Technology, had organized a three-day conference on “Biotechnological strategies in agro-processing” with two thrust themes: emerging biotechnologies in agriculture (including crop improvement, production and protection besides agro-industrial products); and emerging biotechnologies in agro-processing, including cereal and cereal products, fruits and vegetables, dairy and meat. As a part of the conference a special session on “Financial back-up for entrepreneurship development in agro-processing” has also been planned. The three-day conference was intended to bring about an interface between the scientists and industrialists and tell the nation where Punjab stands and leads in biotechnology application and research.
The Gujarat Government would now lay emphasis on promotion of biotechnology in agriculture, which can earn valuable foreign exchange for the country. It is now well-understood fact that adding value to the agricultural products at the post harvest phase is necessary for India to get proper returns. Biotechnology applications, especially in the fields of tissue culture, micro-propagation and plant genetics, can effect immense value addition to agricultural, floricultural and horticultural products destined for the export market. On the lines of Infocity (for INFOTECH) coming up in Gujarat State, is an agri-biotech park for transferring the benefits of biotech revolution from the laboratories to the grassroots level in agriculture. Further in its efforts to give boost to biotechnology industry, Gujarat will launch Rs. 25 crores Biotech Venture Fund.
The Tamil Nadu government has proposed the setting up of four biotechnology parks across the state. Apart from the Rs 6.2 crore Women’s Biotech Park at Kelambakkam near Chennai, which will commence operations shortly, the remaining three parks have been tentatively suggested at Mandapam (Marine Biotech Park), Madurai-Nilgiris (Hills Biotech Park) and Chennai (Biotech Incubator Park). According to the draft report, the HPC (chaired by Dr M S Swaminathan, eminent academician and bio-technologist) , are planning for concerted effort between the research institutes, the industry and the government and professional approach. Cornell University has evinced keen interest in setting up and managing these parks. The projects should be economically and commercially feasible with a a strong networking of state and global research institutions as to cross-utilize the facilities and to avoid “re-inventing the wheel” in a capital and knowledge intensive field like biotechnology. Also proposed is a state venture fund for biotech with an initial corpus of Rs 30 crore.
The Karnataka State will create a biotechnology corridor in the 10 km stretch from Mekhri Circle to Gandhi Krishi Vidyalaya Kendra in Bangalore. The need is felt to intensify the use of biotechnology in the field of agriculture; horticulture and sericulture to increase yield as the state was lagging behind in this area. The state has set up an advisory network called K-Ganga (Karnataka Global Advisory Networking Group on Agriculture) to co-ordinate with the Agriculture Commission for mobilizing science and technology for development of agriculture in Karnataka. K-Ganga will comprise of leading agriculture scientists from Karnataka, who are presently working in the US.
The group will lend its expertise to the Agriculture Commission and the two agriculture universities in Bangalore and Dharwad. This group of scientists, which will meet periodically in the state and US, will help develop new crop varieties with the aid of biotechnology and genetic engineering. The farmers in the state should derive the benefits of biotechnology in enhancing their output and also contribute to the economic development of the state.
Small Industries Development Bank of India (Sidbi) is all set to float an international venture capital fund worth $50 million shortly. The target segment would be growing companies related to all industries including the infotech, biotech and agriculture. Sidbi was also planning to pick up a substantial stake in the state’s Rs 20 crore biotech venture capital fund. The proposed biotech venture fund would be region-based and it would be unveiled in four regions. South region would be covered by Karnataka, taking the lead in its biotech industries. The southern region would comprise all four southern states including Tamil Nadu, Kerala, Andhra Pradesh and Karnataka.
The recent decisions of Central Government to promote the entrepreneurship in biotechnology are also indicative of right moves. The finance minister’s move to grant a 10-year tax holiday to research and development companies would lead to setting up new subsidiaries by pharmaceutical and biotechnology companies. These companies would be encouraged to set up independent companies for R&D activities and create a world-class infrastructure for both basic research as well as clinical research. The R&D subsidiaries would also enjoy the exemption on income arising from research in the form of royalty, licensing and technology fee for 10 years.
This will encourage increased foreign investment into research and development activity in India. According to industry sources, R&D companies are expected to receive more business in the form of contract manufacturing. With low R&D costs, more foreign companies are expected to shift their research and development centers to India.
News about, Reliance planning biotech R&D unit in Mumbai is encouraging in a way to indicate that established industrial groups are also taking interest in the biotechnology field. The global biotech sector boasts of a market capitalization of over $60 billion in less than two decades. Indian biotech sector is viewed as a dormant volcano. The Indian biotech market is expected to be worth $2.5 billion by 2001. (Though Immunex alone had a market cap of $18 billion) for India the Reliance group is a big name and has a market cap of $15 billion or Rs 65,000 crore. Reliance’s sheer financial muscle may change the market dynamics in this sector in India. Reliance has said that the new centre would focus on research in the areas of industrial, agricultural and medical biotechnology. Reliance, in the ‘Nature’ advertisement, offers employment opportunities for young scientists, PhDs and postdoctoral fellows with over three years of industrial or research experience. The Reliance group had earlier reportedly initiated discussions with the Hyderabad-based Center for Cellular and Molecular Biology (CCMB) for a possible tie-up.
Bharat Biotech, works with collaborators such as Centers for Disease Control, Atlanta (USA), National Institute of Health, Washington DC (USA), All India Institute of Medical Sciences, New Delhi (India), Department of Science and Technology, GoI and a host of others in its quest for path-breaking technologies in the field of healthcare.
Varaprasad Reddy of Shantha Biotech, Hyderabad (turnover of Rs.32 crores in just 7 years from establishment), is a unique example to learn as to what it takes for someone to be a successful entrepreneur in relatively new field of biotechnology and odd (not so conducive) situations like that in India. It was enormous courage, his personal skills of leading a group of scientists, his innovative marketing strategies, his capacities to implement the projects, practicing the idea of establishing University-Industry working relationship and most importantly a positive approach to work towards objectives even while rage against multinationals, slow-moving bureaucracy, corrupt officials, developed countries (who looked down upon India’s capacities) is high.
Tips for Bioentrepreneur: If you are not a born entrepreneur then –
- Every bioentrepreneur must thoroughly understand the basics of biotechnology sector such as research, collaboration, infrastructure, technology and commercialization capital and come up with an alternative business model to achieve success.
- Vision is important and so also the belief in the concept.
- Working with others in different fields will answer difficult questions and provide insights into new ones.
- Work closely with Financial Institutions (FI)/Venture Capitalists (VC), the marketing team and the research team to develop a workable model.
- After basic planning, device a phased plan of investment
- Align with a partner to enhance core potential. Collaborations, partnerships, networking with research institutes, universities is useful.
- For a successful entrepreneur, especially scientists and academicians should understand that adaptability, emotional intelligence, confidence, ambition, persistence, risk-taking, humility, flexibility and patience are some of the many attributes essential for coping in highly complex, ambiguous situations. Along with scientific/research idea, skills in obtaining funding, developing a prototype and marketing the final product are important.
- Good communication skills, lasting relationships are required along with self-confidence.
- Take regulatory framework into consideration
- Enter into proper legal documentation before commencing the work
- Be prepared to adapt changed strategy while during the development process
Thus the recipe for development of entrepreneurship in biotechnology is efforts by Government, Industries, Universities, and Scientific communities in research institutes. If each one of them plays its role enough intensely, India can see good industrial growth in Biotechnology. Biotechnology being the watchword in the new millennium our domination in this field (similar to that in information technology) will make us a real superpower.