Biotech Firms: UK Biotech's Shot in the Arm - Research Proposal Example

 Biotech Firms: UK Biotech's Shot in the Arm 1.0 Introduction The initial development and success of biotechnology depends on a number of factors that include entrepreneurship, patent protection, and transfer of IP from academia, funding and development of a product pipeline. Entrepreneurial successes in biotechnology require proper planning of the entire life cycle of a firm’s potential product. In this sense, success of an entrepreneurial biotechnology involves proper planning for the initial phase, long-term research, clinical trials and the eventual commercialisation of a product. In addition, an entrepreneurial culture also contributes to the success of a biotechnology company. For instance, developing an entrepreneurial culture enhance proper use of the available resources to exploit and commercialise opportunities. Patent protection on the other hand is necessary because, it helps to sustain the strategic growth of a biotechnology firm. In the biotechnology sector, funding in the early stage is critical because of the significant amounts needed for clinical trials. In this regard, private placement investors or traditional angels may not be the suitable alternative for biotech firms to seek funding. Instead, achieving success in biotechnology require firms to look for strategic investors or venture capitalists who specialises in the biotechnology sectori. Further, success in biotechnology can also be derived from developing a pipeline. In this regard, a biotech firm’s product pipeline is important in determining its investment potentialii. Conversely, initial development and success of biotechnology also depends on the transfer of IP from the academia to the industry. This ensures that biotech firms can secure innovative deals with universities and research institutes. In addition, the transfer of knowledge from the academia to the industry helps to fast track the commercialisation of new discoveries in life sciencesiii. However, in order to maintain the success, biotech firms needs to emphasis efficient management, evolve over time, anticipate the future, select ideal locations and seek more funding for their activities. Skilled and experienced management team is critical for a continued success of a biotech firm. For instance, they have a greater influence on the decision that venture capitalists make regarding investment in a biotech firm. Conversely, a major reason why biotech firms experience failures is because they ignore the importance of adaptability to the market dynamics. For example, a company such as Amgen in the United States is successful because it evolved over time. The company adapted to the changing market forces by shelving its original products and technology and quickly embracing latest technologies. Anticipating the future also contributes to a continued success because, biotech firms are in a position to implement long term plans. An ideal location is also important for continued success because it limits risks for potential investors. For instance, biotech firms should take advantage of clustering as evident, for example, San Francisco’s Bay area or UK's Golden Triangle of Oxford. In addition, because the biotech industry is capital intensive, the continued success of firms depends on adequate financial investmentiv. This essay will describe how these factors have been met in the USA, but not in the UK and will address what role the UK government might play in improving the performance of its biotechnology sector. 2.0 Factors contributing to the lackluster performance of the UK biotech firms A few years back before the economic crisis of 2008, the biotech sector in the UK appeared protected from the financial challenges that are evident at present. However, after the recession, biotech firms were adversely affected because the relied on funding from venture capitalists and investment firms who were ready to invest their money on risky, but highly rewarding life science start-ups. After the recession, venture capitalists became more cautious in terms of investing in risky biotech ventures. As such, the VC’s no longer make huge investments in the sector, and this has contributed to its low performance because of their single reliance on funding from venture capitalists (Rosiello & Parris, 2009). Because of the recession, it is still unclear whether biotech firms in UK will return to normalcy and match the U.S firms. Conversely, while the future remains uncertain for UK biotech sector, it is important for the firms to identify other forms of funding. In addition, optimism is also necessary due to the changing landscape of the biotech sector and the future may offer opportunities for establishing successful biotech firms in the UK (Van Reenen, 2002). While the UK biotechnology sector has established itself as a leader in Europe, it still lags behind the United States, which is the leader in the world in biotechnology at the moment (Hall & Sharmistha, 2001). In addition, while most countries around the world are investing heavily to improve their biotechnology sector, UK appears complacent in terms of increasing funding in its biotechnology sector. The reputation of the country’s biotechnology is dependent on research by universities, research institutes and teaching hospitals. However, this research is threatened because of long-term underinvestment that could see the biotechnology industry in the UK falter compared to competitors such as the United States and Germany (Smith & Bagni-sen, 2006). Most of the firms in the UK rely on the discoveries emanating from academic research and, as a result, the lack of commercial application impedes on efficient technology transfer. Further, efficient technology transfer appears is not embraced countrywide, and this tends to affect the biotech firms in UK. The country also has a shortage of management and intermediate skills in the biotech sector. This is due to a lack of coordination between the government, research institutes and trade organisations in terms of improving training in the biotech sector. Other factors contributing to the lackluster performance of the UK biotech firms include shortage in terms of biomanufacturing (Kettler & Casper, 2001). However, while it does not pose a problem for the sector at the moment, the advancement of biomanufacturing in other countries may provide stiff competition for UK biotech firms in the future. Currently, only a few biotech companies such as Celltech have established their own manufacturing. However, most biomanufacturing in the UK is still done through contracting specialists such as Avecia Biotechnology, for example. The situation at present is different compared to the United States where in-house manufacturing has contributed to significant profits in leading firms such as Amgen and Genentech. Due to lack of in-house biomanufacturing, UK firms stand to lose significant revenues by subcontracted abroad (Cooke, 2003). On the other hand, the decline in performance by UK firms can be associated with the emphasis on product development and the science base instead of focusing on manufacturing. For example, in recent deals that have that were concluded between UK firms and United States firms, the returns generated from licensing were minimal compared to the sales returns expected from blockbuster product. The declining performance of the UK biotech firms also results from high remuneration for the top executives which increases spending on non-productive activities. In addition, the overgenerous remunerations to top executives in the UK biotech sector tend to create constraints on the financial resources of various biotech firms in the country (Rosiello & Parris, 2009). As a result, the constraint on finances hastens the decline in performance and the eventual demise of biotech firms in the UK. The decline in the performance of UK biotech is also associated with the tumbling stock values of the UK biotech industry thus creating challenges in equity fund-raising. At the beginning of 2008, most venture capitalists were discouraged from investing in the UK biotech industry (Rosiello & Parris, 2009). This contributed to most VC’s moving to other alternative low-risk sectors because the UK biotech sector was regarded as unable to generate significant returns. Other than the risks associated with investing in the UK biotech industry as a contributing factor to the lackluster performance, a run of failures in some UK biotech firms also contributes to the lack of interest in the sector by prospective investors. On another note, it appears that UK biotech firms incur huge expenses on other items at the expense of a focus on R&D to improve performance. In this regard, the key stakeholders in the UK biotech industry need to take appropriate measures to ensure the country’s biotech sector is a success (Rosiello & Parris, 2009). 3.0 What needs to be done to improve the situation? 3.1 Corporate strategy to exploit biotechnology: The case of pharmaceuticals in UK In order to improve the performance of UK biotech firms, there is a need to embrace various strategies that can extract value from new technologies and establish a competitive advantage. Because some of the biotech firms in UK are multinationals, there is also the need for such firms to reconsider improving their internal R&D capabilities. Today, a focus on a small scale ventures appears unsustainable due to growing competition from other countries investing heavily in biotechnology (Howseman, 2006). In this regard, improving R&D capabilities of UK biotech firms requires a focus on knowledge exchange between different firms and research institutions specialising in life science. In addition, the pharmaceutical firms cannot explore the existing opportunities without diversifying their internal R&D capabilities and also capture external knowledge. In terms of capturing the external knowledge, UK biotech firms need to capitalise on strategic alliances, mergers and acquisitions, and licensing activities (Wilson et al., 2014). Merger activity, in particular, can play an important role in consolidating the UK biotech sector. For instance, merger is necessary for establishing a stronger product portfolio, thus ensuring that biotech firms can avoid challenges in the late-stages of a product development (Bates, 2014). The small scale firms should merger as a way improving their economies of scale and minimising inefficiency that results from the duplication of research activities. The high costs associated with improving R&D functions also means that the biotech firms in the country can improve their performance through M&A. On another note, it is important for the UK biotech firms to develop market presence in other regions such as the North America. At the moment, the UK firms are faced with a number of challenges that include weaknesses in establishing their product pipeline (Zidorn & Wagner, 2013). As such, a strategy that can help these firms to develop their capacity is necessary. However, there are also concerns regarding merger and acquisition in terms of value and sustainability. As such, it is important for pharmaceuticals interested in further consolidations to rectify internal weaknesses, for instance, the management of various activities necessary to improve efficiency and productivity. Other than larger scale acquisitions, pharmaceuticals in the UK can also acquire small biotech firms to capitalise on their disruptive knowledge, products and technologies. Conversely, strategic alliances and licensing deals are also avenues that pharmaceuticals can exploit to improve their performance. Through strategic alliances, pharmaceuticals in the country are in a vantage point to capture new technologies without necessarily incurring a huge expenditure in acquiring another firm. In addition, strategic alliances enhance learning through a collaborative process, and this helps firms to establish stronger R&D capabilities (Lloyd-Evans et al., 2010). On the other hand, strategic alliances will ensure that large pharmaceutical firms embrace a flexible strategy. This is because in the event of technological uncertainty, a focus on the strategic alliance can help pharmaceuticals in the UK to diversify their strategic options. Similarly, licensing is also critical in terms of balancing the product portfolios of various pharmaceuticals in the UK. In over a decade, licensing has played an important role in growth strategy for pharmaceuticals around the world, and some leading pharmaceuticals have made licensing part of their core business development strategy. However, while embracing a licensing strategy to fill a portfolio gap, it is important for pharmaceuticals to improve its internal expertise necessary for evaluating a product’s potential. Further, the UK pharmaceuticals also need to adapt to changes in the business environment (Zidorn & Wagner, 2013). There is a continuous technological advancement related to life sciences. As such, firms need to establish a strategy that can ensure the coordination of a wide range of capabilities to minimise risks and improve profits. With regard to larger firms, their success will also require sourcing knowledge and technology from the smaller firms and establishing a stronger in-house capacity (Aldrige, 2012). In addition, large pharmaceuticals need to take advantage of the competitive edge to get the best deals in terms of the strategic alliance and licensing. In essence, as competition increases in the global pharmaceuticals, it is important for the UK pharmaceuticals to diversify in terms of R&D capabilities and core business strategy. For instance, Vectura needs to capitalise on its strategy that involves a focus on developing innovative and effective medicines (Aldrige, 2012). This will help the firm to establish a differentiation strategy in the pharmaceutical market and gain a competitive edge over rival firms in the United States. In addition, Vectura is also in the final processes of transforming its business into a prof-making and self-sustaining pharmaceutical company. On the other hand, Phoqus needs to take advantage of the partnership with Cardinal Health considered to be the world’s leading supplier of services needed in the healthcare sector. The partnership is important for Phoqus in terms of expanding the market for its product portfolio (Kasabov & Delbridge, 2008). 3.2 Financing biotech and medical technology firms In order to improve the performance of UK biotech and medical technology firms, there is need to improve funding in this sector. This funding is necessary to improve research in early-stage biotech and medical technology companies (Whitehead, 2003). The country has world leading research and infrastructure, but still lack financial assistance provided to biotech and medical technology firms in the United States. With more funding channelled to improve life sciences, the country will be in a position to establish critical masses of a new and a highly performing biotech and medical technology firms (Beaven et al. 2002). In this regard, the country needs to attract seasoned investors to help turn things around in the biotech and medical technology sector. Financial support is also necessary to improve R&D capabilities of UK biotech and medical technology firms to rival those in the United States. Currently, the challenge for realising a sustainable growth in UK’s biotech and medical technology firms is the lack of funding. As such, funding is necessary for the biotech sector to encourage growth and reduce the equity gap facing young biotech firms in the country (Hopkins et al. 2013). On the other hand, the government also needs to introduce various incentives to help bridge the equity gap. Funding from charities and research council is necessary to support innovation in biotech and medical technology firms. On the other hand, strategic alliance also provides significant funding sources and biotech firms can use this avenue to seek start-ups for new technology platforms. Further, it is important for the biotech start up to capitalise on the support structures in the country that include university technology transfer and the equity market in Europe (Baines & Wooder, 2014). 3.3 Government policies to promote biotechnology in UK In order to improve the performance of the UK biotech firms, the government should strongly support life sciences research by implementing competitive funding policies. It is important for the government to establish various schemes that biotech firms in UK can access in terms of financial support (Cooke, 2003). Conversely, since venture capital in the country does not support smaller firms, the government needs to allocated funds to be used for seed and early stage funding using schemes such as the University Challenge Fund (Smith & Bagni-sen, 2006). R&D tax credits implemented by the government are also important in improving innovation. In essence, the existence of R&D tax credits is necessary to improve R&D countrywide. However, while tax credits may not seem beneficial to companies that do not have taxable profits, such firms can still seek for cash grants against R&D spending which is equally useful for biotech firms. Other than R&D tax credits, the government can promote the biotech sector by making it easier for clusters to be established in regions where expansion is not possible because of scarcity of land (Zechendorf, 2004). In terms of corporate venturing, the government should implement policies that make it easier for large firms to invest in smaller companies. Subsidies are also essential in terms of facilitating the development of clusters in areas such as Cambridge, for instance (Hendry & Brown, 2006). The government also needs to implement policies that encourage universities to commercialise their research; however, such policies should also ensure that universities engage in appropriate practices in pioneering research. Overall, it is important for the UK government to implement lasting policies that can propel the country’s biotechnology sector to greater heights. As such, it is necessary for policymakers to ensure that the biotech sector combines successful academic research and efficient public and private funding to develop successful clusters (Sainsbury, 2003). 3.4 Intellectual property rights and biotechnology Intellectual property rights that include trade secrets and patents are critical for firms venturing into the biotech sector. This is because the role that intellectual property rights play in a research-intensive and a high-risk industry is crucial. However, while the association of intellectual property rights with biotech innovation is raising ethical questions, IP rights are needed to protect innovations. In addition, it provides innovators with an incentive in terms of investing in research and developing new products (Williams, 2013). On the other hand, patenting is now predominant in the knowledge base sector compared to the traditional manufacturing. In addition, there is an increase in biotechnology patent applications to protect intellectual property assets. In the UK, investors are focused patents, and biotech firms need to establish a sound IP strategy to attract investors. The biotech firms in UK should take advantage of the “patent box” which is a tax incentive established to encourage firms to generate profits from their patents. Since scientific breakthroughs continue to open up new areas of research in the biotech sector, the protection of IP asset is necessary for a competitive global biotechnology market (Williams, 2013). 3.5 Public attitudes to biotechnology Since its outset, biotechnology has generated both health and safety concerns from the public who often demand a clarification of potential risks. On the other hand, while the public is aware of the economic potential of biotechnology some new discoveries in the field are still raising concerns, for instance, gene technology. As such, there is a need for the biotech sector to engage, educate and inform the public on various scientific matters (McMeekin & Green, 2002). A knowledgeable citizenry in this regard is in a position to support various scientific projects initiated by biotechnology firms in the UK. In a study conducted in the UK indicated that citizens are enthusiastic about scientific development; however, they suggested lack of information as an impediment for supporting new discoveries in the biotech sector. A positive attitude from the public towards the biotech sector is important in terms of minimising the interruption of activities in the biotech sector. Public attitude also influences the decision taken by investors in the biotech industry. As such, positive attitude from the public towards the sector is important in attracting more venture capitalists (McMeekin & Green, 2002). 3.6 Government regulation of biotechnology The government supports efficient and effective regulation of biotechnology and genetic engineering products. In addition, the government is tasked with implementing regulations that shape technology development in terms of influencing investment decisions, costs and market structure. The regulations in the biotechnology sector by the government are necessary to improve safe and proper application of biotechnology products (Smith, 2005). The government has also adopted certain ethical positions regarding research and taxation measures that promote scientific development in biotechnology. While government regulation is critical in ensuring that biotechnology products are safe, there is also the need to allow the public to present their views regarding the improvement of regulations in the biotechnology sector (Smith, 2005). 3.7 Biotechnology and international development In terms of international development, biotechnology is important for improving economic growth and human health throughout the world. The trade in biotechnology products is on the rise globally, and the sector is expected to be a major contributor to the global trade (Bayer, 2014). Globally, the improvement of life sciences is necessary to tackle various challenges to human health and food security. Due to the expansion of biotechnology around the globe, partnership with other world leading biotechnology firms is critical to improving research and new discoveries (Walsh, 2002). 4.0 Conclusion A number of factors have contributed to the declining performance of the UK biotech firms compared to biotech firms in the United States. For instance, the economic recession in 2008 contributed to venture capitalists moving to other sectors. This played a role in limiting the sector’s chances of attracting funding for start-ups. In addition, biotech firms are channelling their resources to non-productive activities such as overgenerous remuneration for top executives, and this tends to create financial constraints for biotech firms in the UK. In addition, incurring expenses on other items also affects the development R&D capabilities that are necessary to support innovation in the sector. On another note, the failure to produce successful biotech firms to rival those in the United States is as a result of the country relying on discoveries from academic research. Because of the lack of commercial application tends to affect efficient technology transfer. In order for biotech firms in the country to improve and rival those in the United States, there is a need for the government to increase funding to the sector. With more funds allocated to improve life science, firms in UK will be in a position to establish critical masses of new and better performing biotech firms. References Aldrige, S., 2012. UK biotech's shot in the arm. Nature Biotechnology, 30(5), 378. Bains, W., & Wooder, Stella. 2014. Funding biotech start-ups in a post-VC world. Journal of Commercial Biotec.hnology, 20(1), 10-27. Bates, S., 2014. 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