The Biotechnology Paradigm. Challenges and Opportunities in Latin American Countries Graciela E. Gutman CEUR-CONICET Summer School The Role of Social Science

The Biotechnology Paradigm. Challenges and

Opportunities in Latin American Countries

Graciela E. GutmanCEUR-CONICET

Summer School ”The Role of Social Science in the Construction of Knowledge-based societies: Latin American

and European perspectives”

FLACSO-MEXICO, EULAKS August 17 to 30 2009

Graciela Gutman FLACSO-México, EULAKS , August 17-30 2009

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Agenda

• The New Biotech Paradigm• Market Structure, Competitive

Strategies. • Innovative Trajectories in Health and

in Agri-Food Systems (AFS)• Main countries and firms. MNF

strategies


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The New Biotech Paradigm: a new Science based Regime

• Strong interplay between basic science and technology; • Convergence and synergies with other key technologies

(information technology, nanotechnology);• Generic and transversal character, reaching different productive

sectors and services (diversification strategies of large incumbents, the “life science industries)

• Various degrees of complementary aspects and ruptures with existing sectoral technologies (i.e., bioprocesses, conventional breeding)– MB plays different roles: core technology, key functions, support

technology– Until now, human health has been the most important sector of

application, followed by agriculture and food industries– Private investments in R&D explains the disparities observed in the

different sectors of application – Strategic alliances, networks


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Biotech investments in R&D and sales in OECD countries, 2003

Biotech R&D investment Biotech sales Sector

millions of USD PPP Share millions of USD

PPP Share Health 20,740 87% 65,985 80% Agri-Food 1,027 4% 5,231 6% Industrial 456 2% 4,566 6% Others 1,626 7% 7,072 9% Total 23,850 100% 82,853 100% Source: Van Beuzekom, B. and A. Arundel, (2006)


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Global USA Europe CanadaAsia-

PacificRevenues, (US$m) 84.782 66.175 12.945 2.692 3.970R&D expense (US$m) 31.806 25.836 4.567 915 488R&D expense/revenue 37% 40% 38% 34% 12%Number of employees 204.930 134.600 47.720 7.330 15.280Number of companiesPublic companies 798 386 181 82 149Public and private companies 4.414 1.502 1.744 404 764(1) figures only for biotech specialized firmsSource: Ernst & Young (2008).

Global Biotechnology in 2007 (1)


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Costs and time for biotech commercial developments

• Different, complex and highly expensive stages: – From Science to Technology– From Technology to Innovation– From innovation to production and commercialization

• Times and costs:– In the health sector (institutional markets): 10 to 12 years for the

different phases (identification and validation of the objective, preclinical developments, human clinical trails – 3 phases- and regulatory approval); 400 to 800 million dollars; only five in 5000 compounds tested in the preclinical development, arrive to the clinical phases and only one is finally approved)

– for a GM crop development, 8 to 10 years for the development, and 100 million dollars; regulatory cost represent almost 30% of total costs


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Cost and time for GM Crop Developments

0 1 2 3 4 5 6 7 8 9 10

Years

Co

st(%

of

succ

es)

• Exploration of high yield

• Models test

• Genetic Optimization• Crop transformations

• Trait developments• Pre-regulatory data•Large-scale transformation

• Trait integration• Filed Test• Regulatory information

• Regulatory proposal • Crop strengthening • Pre-marketing

$ 2-5 M(5%)

$ 5-10 M(25%)

$ 10-15 M(50%)

$ 15-30 M(75%)

$ 20-40 M(90%)

On average

8-10 years for commercializationTotal Investment: + o - $ 100 M

Phase IV Regulatory Proposal

Phase III Late Development

Phase II Early Development

Phase I Conceptual test

Discovery Genetic identification / Traits

Notes: in Million US$ and percentages

Surce Europe Bio, 2005

Biotechnology in the Health Sector


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Innovative trajectories in the US biopharmaceutical industry The Know-How Market. The monetization of intellectual property

Public Research Organizations

(Universities, laboratories,

institutes)(Knowledge base)

Public Research Organizations

(Universities, laboratories,

institutes)(Knowledge base)

Pharmacy Multinationals(incumbents)

Pharmacy Multinationals(incumbents)

Dedicated Biotechnological Firms

DBFs

Dedicated Biotechnological Firms

DBFs

Institutional Context:IPRsRegulationsVenture capitals, public investorsGovernment Financing Complementary

Assets(Productive,commercial,

financial)


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Main actors in the US know how markets

• Public Research Organizations (PROs), such as universities and public technology centers, blurring the distinction between basic and applied science

• Dedicated Biotechnological Firms (DBFs), universitiy spin-off, which explore new scientific opportunities for drug discovery, translate basic knowledge into technological knowledge (and sometimes if they are successful into commercial knowledge), and offer specialized technological services to large firms (incumbents).

• Venture capitals specializing in providing financial and managerial support to DBFs in their early stages, and other financial resources such as the National Health Institute (NHI).

• Incumbents, large companies specializing totally or partially in MB, with complementary manufacturing and regulatory capabilities, R&D investments in biotechnology and associated technologies, but with limited capabilities in faced with the growing complexity of the new paradigm.


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Main Institutional changes in the US

• The Diamond vs. Chakrabarty court ruling (1980), which extended intellectual property rights (IPR) to areas that were previously excluded (life forms) to uphold a patent on a GM bacteria

• The Bayh-Dole Act (1980) permitting universities to file patents with the results of publicly funded research , and to transfer these patents to firms (priority US firms) in the form of exclusive licenses, or the creation of joint ventures with these firms; (lead to an explosion of biotech patenting, and the creation of DBF, limiting the scope of “open science”)

• The Stevenson-Wylder Technology Innovation Act (1980) making technology transfer a priority at the federal laboratories (permitting R&D arrangements with industry)

• the complementary creation of new financial markets specializing in the commoditization of IPR, with the change in NASDAQ regulations that authorizes the market entry and listing of firms operating at deficit on the condition that they have considerable intangible capital (patents), which lead to the monetization of IPR and the creation of secondary markets of S and T

(Orsi and Coriat, 2006, Arundel et al., 2006, Malerba and Orsenigo, 2002; Orsenigo, 1999; Pisano, 2006, Cimoli and Primi, 2007.


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Trends in the health sector

• New drugs associated with the high speed of scientific developments (pharma-genomics, IVD, gene therapies)

• Strengthening of the regulatory contexts• Big pharma-s patents expiration• Personalized medicine (shift from eficacy

to eficiency; scale economies less important)

• Globalization

Biotechnology in Agri-food Systems


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Agricultural Production Food Industries Quality and Control Systems

Biotechnology (First Generation)

Food Ingredients Kits for Diagnosis

Agricultural (herbicide and insects resistence)

EnzymesPCR (Polymerase Chain

Reaction)

Livestock (vaccines, hormones) Ferments, Cultures and StartersRAPD (Random amplified

polymorphic DNA)Biotechnology (Second

Generation) Functional foods

Kits: ELISA (Enzyme-linked immunosorbent assay)

Agricultural (modified seeds -in proteins, lipids and other

components-, according to their ulterior industrial uses)

Nutraceuticals

Biotechnology in Agro-Food Systems

Source: Gutman, Lavarello, Cajal Grossi (2006) in Bisang et al. (2006).


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Innovative trajectories in Agri-Food Systems

• Greatly based on previous researches in the pharma-chemical industry (enabling technologies)

• High Importance of complementary assets• Industrial Organization

– In agriculture• DBF, large pharma-chemical firms (life-science firms), seed industries; • Concentration and centralization in the input markets: diffusion of a

“technological package” ; • Coexistence of different Intellectual Property Right Systems (patents,

breeder’s rights, trade secrets, others)

– In food industries• High barriers to entry for DBFs; important presence of large food MNF; • Strategic role of food ingredient firms for MB diffusion• Development of new products and enabling technologies since late 90’s


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Table 2: Main MNFs in Agri-food Systems in 2006

Industrial

Sector

Multinational Firm

(MNF)*

Sales

(million USD)

R&D as

% of Sales

(1)

Investment in Fixed Assets as

% of sales (2)

Complemen-tary Fixed

Assets Index ** (2/1)

Syngenta (Pharma) 8,582 10.1 2.2 0.2 Bayer (Chemical) 2,356 6.9 4.7 0.7

DuPont (Chemical) 1,415 5.0 5.0 1.0 BASF (Chemical) 1,357 2.5 5.2 2.1 Dow Chemical (Chemical) 1,136 2.3 3.5 1.5

Agrochemicals, seeds

Monsanto (Chemical) 6,665 9.3 4.5 0.5 Novozymes (Pharma) 1,053 12.6 5.7 0.5 Chr_Hansen (Food) 735 10.1 8.1 0.8

Danisco (Food) 3,502 4.5 5.2 1.2 DSM (Chemical) 10,238 3.5 4.7 1.3

Food Ingredients

Ajinomoto (Food) 9,627 2.7 4.9 1.8 Nestle 73,185 1.6 3.8 2.4 Unilever 49,560 2.4 2.4 1.0 Danone 16,544 0.9 4.6 5.1 Cadbury_Schweppes 13,013 0.8 4.1 5.1

General_Mills 12,327 1.5 3.1 2.1

Food Industries

Kellogg 10,778 1.8 3.7 2.1


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Modern Biotechnology Techniques for plant breeding

• Actual – molecular markers; – GM crops: input traits, first and second generation;

stacked genes; output traits); – plant micro-propagation– seed inoculants

• Future developments (depending on regulatory frameworks, societal acceptance; evolution of commodity prices; MNF strategies) – new generation of GM crops, nutraceuticals;

(second and third generation of GMO) – biomass for industrial uses


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Market Structure, Competitive Strategies

Developments driven by a small number of mega firms (MNF), in few countries, with strong public support and specific regulatory and institutional contexts;

Firms of different size and technological bases: Large agrochemical and pharma firms, DBF, seed industries.

Importance of previous technological capacities Expansion through M&A, globalization;

asymmetric alliances with other firms, public and private institutions

Strong barriers to entry: high R&D investments; strategic complementary assets; management of IPR; regulatory costs and times


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The importance of Complementary Assets in Agri-food Systems

• Upstream: problem definition and solution– Scientific and Technology Base– Knowledge Market– R&D financing

• Downstream: production and marketing– Traditional fermentation or breeding

capabilities – Distribution networks– Regulatory capability and lobbying


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MNF strategies. Different phases

Two phases with important restructuring processes:• From the mid-1980s to the mid-1990s: strategic alliances between

agrochemical firms, DBFs, and pharma-chemical multinationals to develop GM seeds

• From the mid-1990s to the present: consolidation; absorption of complementary assets, search for complementarities between seeds industries and agrochemicals; R&D planning for the construction of new biotech platforms

Three main strategies:• High number of Acquisitions (Monsanto, Dupont/Pioneer)• Investment in the new technologies (Zeneca, Novartis)• Based in the agrochemical business (Basf, Bayer)(Chateway et al 2003)


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Global Area of Biotech Crops in 2008, by Main Countries (Million hectares)

CountriesArea (million

hectares)Area

(percentage) Main Biotech Crops

USA 62.5 50% soybean, maize, cotton, canolaArgentina 21.0 17% soybean, maize, cottonBrazil 15.8 13% soybean, maize, cottonCanada 7.6 6% canola, maize, soybean, sugarbeetIndia 7.6 6% cottonChina 3.8 3% cotton, tomato, poplarParaguay 2.7 2% soybeanSouth Africa 1.8 1,4% maize, soybean, cottonUruguay 0.7 0,6% soybean, maizeBolivia 0.6 0,5% soybean

Total Area (15 developed countries and 10 industrial countries)

125.2 100,0%

Source: CliveJames, 2008Total Area in 1996: 2.8 million hectares; in 2000: 44 million; in 2003: 68 million


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Otros paísesSud AfricaParaguay

ChinaCanada

IndiaBrasil

ArgentinaEstados Unidos

Source:CliveJames,2008

Global Area of Biotech Crops, main countries 1996-2008, million hectares

0

20

40

60

80

100

120

140

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Paraguay

China

India

Canada

Brasil

Argentina

Estados Unidos

0%

20%

40%

60%

80%

100%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008


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Sales of Selected Multinational Firms (MNF) in the Global Seed Industry (miillons US$)

MNF 2008 2007 2006 2005 2004 2003

Syngenta (Pharma) 11624 9240 8046 8104 7269 6525Bayer CropScience (Chemical)

9398 7988 7161 7340 7396 6917

Dupont/Pioneer (Chemical)

7952 6842 6008 6090 6247 5470Monsanto (Chemical)

7636 8563 7344 6294 54234924

Dow Agroscience (Chemical)

4535 3779 3399 3364 3368 3008

Total 41145 36412 31958 31192 29703 26844

(percentages) 2008 2007 2003

Syngenta 28% 25% 25%

Bayer CropScience 23% 22% 25%

Dupont/Pioneer 19% 19% 21%

Monsanto 19% 24% 19%

Dow Agroscience 11% 10% 11%

Total 100% 100% 100%

Source: Own estimate, based on firm data


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Seed Sales on Total Sales. Selected MNF(percentages)

MNF 2008 2003 Main Seeds

Syngenta 27% 20% corn, soybean

Bayer CropScience 8% 10%cotton, soybean, canola

Dupont/Pioneer 60% 50% corn, soybean

Monsanto 50% 35% soybean, corn

Dow Agrosciencen.a. n.a. corn, cotton, soybean

R&D Expense as % of Sales Selected MNF

MNF 2008

Syngenta 8%

Bayer CropScience 10%

Dupont/Pioneer 9%

Monsanto 13%Dow Agroscience n.a.Average selected firms 10%

Source: Own estimate, based on firm data

Documents

The Biotechnology Paradigm. Challenges and Opportunities in Latin American Countries Graciela E. Gutman CEUR-CONICET Summer School The Role of Social Science