Strategies and Future Prospects

Transcription

1 REPORT 305/2015 Finnish Biotechnology Industry: Strategies and Future Prospects Martti Kulvik, Tuomo Nikulainen, Ilona Peltonen and Antti Tahvanainen

2 Martti Kulvik, Tuomo Nikulainen, Ilona Peltonen and Antti Tahvanainen Finnish Biotechnology Industry: Strategies and Future Prospects Report Tekes report 305/2015 Helsinki 2015

3 Tekes - the Finnish Funding Agency for Innovation Tekes is the most important publicly funded expert organisation for financing research, development and innovation in Finland. We boost wide-ranging innovation activities in research communities, industry and service sectors. Tekes works with the top innovative companies and research units in Finland. Every year, Tekes finances some 1,500 business research and development projects, and almost 600 public research projects at universities, research institutes and universities of applied sciences. Copyright Tekes All rights reserved. This publication includes materials protected under copyright law, the copyright for which is held by Tekes or a third party. The materials appearing in publications may not be used for commercial purposes. The contents of publications are the opinion of the writers and do not represent the official position of Tekes. Tekes bears no responsibility for any possible damages arising from their use. The original source must be mentioned when quoting from the materials. ISSN ISBN Kannen kuva: Taitto: Mainostoimisto Revolver Oy 3

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5 Foreword In order to ensure that technologically advanced projects reach their economic potential, Tekes has focused on organising strategic programmes with the primary aim of developing specific industrial application areas or processes instead of a sole commitment to a certain technology field. The central issue is to guide the technology development projects to meet the needs of the market place. In future, the biotechnology development should be mirrored and compared against presently dominant technologies in the production and utilisation of the specific application. If and only if a new technology offers clear advantages to the existing technology, the new technology should be strongly [but temporarily] supported. The utilisation of the Finnish population and patient databases would necessitate a strong development of the Finnish bioinformatics research and industrial activities. Furthermore, there are many application areas within plant and industrial biotechnologies. The accumulated competencies in the Finnish information and communication technology (ICT) sector provide a strong resource that could be exploited in the field of biotechnology. The creation of commercial applications in bioinformatics might bridge highly competent business experts of the Finnish ICT sector and venture capitalists to the biotechnology industry. The success of companies and regions depends on their ability to position themselves in global networks and produce more added value than others in the role they have chosen. The functionality of an innovation ecosystem is also essential to investments and growth. During last decades, the foundation for high quality scientific and clinical research has been achieved in Finland with a wide life science research investment where public funding has played a significant role. However, society has not been able to benefit fully enough from these investments to produce economic growth. Finland has a good chance at becoming one of the leading countries in the international competition, if it improves its innovation ecosystem and encourages companies and public organisations for new type of open collaboration in research, development and business. Societal and public interests related to life science field emphasize the role of governments since they have a special role as buyers of health-related innovations as well as regulators of market entry in general. To identify the segments of the innovation ecosystem that could be repaired in order to improve Finland s competitiveness and to establish competitive advantage in the health sector s research and innovation activities, three key ministries have prepared joint strategy and road map. The common will is that Finland is internationally recognized forerunner in health sector research, investments and new businesses that benefit people s health and the wellbeing of the society. The investments made and the knowledge accumulated both in research and companies create a strong base for this goal. August 2015 Minna Hendolin and Raine Hermans Tekes 5

6 Index 1 Introduction Finnish biotechnology: SWOT An innovative sector A quick look at past and present Growth expectations Weaknesses Finland is small, remote and expensive From science to business Wanted: Professional investors Too many sandboxes Strengths Human capital Public support: Tekes and others Upstream in the global value chain Threats Lack of funding Local cooperation vs. global orientation Global competition Attitudes and mental state Opportunities Finland could be a united brand Going global Doing profitable business Commercializing innovations Reaching business goals Realistic expectations Biotechnology and the public sector How global companies see Finnish biotechnology Small and highly specialized partners Why collaborate with Finns? Finnish expertise areas Finnish biotechnology and its competitive advantages IPR High quality Business experience Innovations and SHOK centres Closing words...29 References

7 1 Introduction This overview presents some enlightening findings based on interviews with 72 Finnish biotechnology leaders and experts. The interviews were conducted in 2009, 2010 and The project was financed by Tekes and carried out by Etlatieto Ltd, the project research and information services subsidiary of ETLA (The Research Institute of the Finnish Economy). 1.1 Finnish biotechnology: SWOT To find out about the overall state of the Finnish biotechnology industry, ETLA had interviewed a large number of industry leaders already in Answers were analysed with the following SWOT classification categories: strengths, weaknesses, opportunities and threats (Hussi et al, 2006). The survey was further developed and re-executed during All interviews were conducted face to face and by experienced academic researchers. The interviews included both structured and open parts. The respondents were asked, for example, about their views on future prospects of the industry and whether their company had reached projections made in the 2004 survey. Finally, they were asked if they had any feedback to the public sector supporting the biotechnology industry. In addition, five globally operating companies were asked to give their views on Finnish biotechnology companies as investment targets and business partners. In the structured part the total amount of data entries for each company was as high as 400. The open interview sessions resulted in a total of 231 full pages of raw text. The structured part was analysed quantitatively and the open part qualitatively. Data was comparable with the 2004 survey data and SWOT categories were used in analysing the data. The SWOT classification is an effective means of interpreting short and long term developments in the industry as well as finding out useful future strategies. 1.2 An innovative sector The conclusions of the study offer valuable information for anyone interested in an innovative sector in Finland that has, despite challenges, several strengths and opportunities. To generate growth in this sector and in the Finnish economy in general, Tekes plays a major role as a funder and supporter of biotechnology innovations and R&D. 7

8 2 A quick look at past and present The researchers asked a total of sixty-seven business leaders and experts about the present state of the biotechnology industry as well as about its future prospects. All of the interviewees had a robust experience from the business. Their companies had a lready passed their infant stage. The companies came from all over Finland. A total of 24 companies came from the Helsinki region, 18 came from the Turku region, 11 from Tampere, 7 from Kuopio and 6 from Oulu region. Additionally, one company was located far from any regional centre. The five globally operating companies are not included in these figures. Regional differences were small when it came to business goals achieved after the first ETLA study in The only region that stood out was Kuopio, where only one out of five companies said they had failed achieving their targets. All Kuopio companies also saw the future of the industry as positive. 2.1 Growth expectations Growth expectations between the regions showed some striking differences. Kuopio companies, mostly having reached their earlier targets, had rather low expectations for future. The reason seems to be that they are mostly involved in drug development, which is associated not only with high growth potential but also high risk. Since the companies were doing early phase screening and research, where the possibility of finding real blockbusters is still low, they chose to keep their future sales expectations cautious. Among the Helsinki region companies, however, anticipations for future growth were high. A possible explanation is that several of the companies are at the threshold of commercializing novel products, with a rather low turnover at present. Half of the Helsinki companies had applications within the field of diagnostics, whereas less than 20 percent of them were involved in drug development. 8

9 Figure 1 Figure 2 Figure 3: Anticipated five year growth in sales. Present surve by regions, from 2008 to 2013: Rtla 2004 survey from 2003 to 2008, respectively. 2 9

10 3 Weaknesses During the open part of the interview, the interviewers did not guide the respondents into any specific theme. Following the SWOT categorisation, however, the respondents were asked to identify at least one strength, one weakness, one opportunity and one threat, in case they had not brought them up spontaneously. Comments on the weaknesses of the Finnish biotechnology sector can be divided into four main themes discussed in this chapter. 3.1 Finland is small, remote and expensive Finland s small size and distant location are challenges to European venture capitalists. At the same time, small home market forces Finnish companies to plan and execute their marketing strategies internationally right from the beginning. Lack of investors combined with small home market makes it difficult for the companies to create profit and invest in growth. Interviewees concluded that Finnish companies do not stand out as tempting targets for international venture capitalists. ( ) at least we often came across the answer that our location is too distant for the venture capitalists from Europe as they want a relatively hands-on role; so they wouldn t be able to contribute the way they want to. The size of labour force in Finland was also considered too small both for certain specialisation areas as well as for recruiting top experts. The lack of competent business leaders and international board members was considered as a definite weakness. Finland s distant location and income tax policy make it difficult to attract work force from other countries. Cost-effectiveness in Finland is not optimal. Wages are higher than those of equally competent people in Asia. The expenses of mass production are not internationally competitive. Finally, the interviewees felt that general expectations for the industry were unrealistic or even distorted. This is why financial support is often withdrawn too early. What the industry needs is long-term strategic support that respects the inherent nature of the industry: We talk about a long time span. These things can t happen fast. So we have this thing in Finland that we start to support something and then we conclude that it doesn t work so we move to something else. But biotechnology is not a five year thing or even ten, it is a systematic operation where most of the trials fail; we should have patience to invest [sufficiently] in the [necessary] research and development. 10

11 3.2 From science to business The academic-intensive culture that is seen in Finland as well as in other countries leads to a situation where many very interesting scientific projects never end up in commercialized products and it is either boldness or knowledge that is missing, or the combination of them both. The Finnish biotechnology industry is by tradition academicoriented and technology-intensive. The industry lacks commercial knowledge and grit. Commercialisation strategies are insufficient and not generating cash flows necessary for success. There are several barriers for commercialisation of innovations. The academic world is at times reluctant to turn innovations into successful business. Attitudes toward academic research group spin-offs may be negative. Also there is a lack of incentives to implement scientific innovations, as the patents belong to the university. The interviewees also thought that the university technology transfer offices do not have sufficient business knowledge. Education does not include enough business-oriented courses or guidance towards entrepreneurship. The interviewees called for cross-disciplinary education to improve future researchers understanding of how to enter the market and find customers. The lack of marketing know-how leads to difficulties in finding successful alliances. When the time comes to take the product to the market, the number of interested and knowledgeable distributors is too low. Companies have trouble implementing successful strategies to correct the situation and also to sell their concept to venture capitalists. Some interviewees also said the Finnish national identity is a problem: Maybe it is typical, as it is said, that Finns can t sell or do marketing. It s like we do very well there in the researchers chambers, and it is often said that Swedish do sales better even if the substance is equal, let s say it is in our genes that we can t hype ourselves. When asked which actions would make their companies more attractive to venture capitalists, the interviewees mentioned for example sharper business strategy and better marketing. Technology intensity leads also to another problem. Products are developed too far without contacts to the end-user market and customers. Ideas for developing products and services should not, however, stem primarily from inside the company, but from the needs of environment. So we have this situation that we make an innovation and before we have considered what it actually solves we have developed something in the garage and then nobody wants it. I d suggest you to keep your eyes open and find the problem first and then create the solution and not try the other way around. In recent years the companies have become more and more aware of the significance of marketing. Since 2004 most of the companies have acquired in-house marketing expertise. 3.3 Wanted: Professional investors Companies need more investors who understand the industry. Venture capitalists who do not have enough competence are unwilling to take the necessary risks. ( ) when we talk about the start up research intensive companies where a new molecule is developed, well, the venture capitalists competence to life-science sector financing is more or less non-existing so that there just is not the competence among financiers that should be there. To see the potential success of a biotechnology investment the financiers should not only have better understanding of the industry, but also an interest to invest necessary amounts and the patience to wait for the realisation of success. If the number of Finnish lead investors is low, it is in many occasions hard to attract investors from abroad. Foreign financing is, however, considered necessary due to the small number of Finnish venture capitalists. Public funding in Finland is also seen as insufficient, especially after the companies have passed R&D stage. 11

12 Figure 4: Shape of companies hoping for a stronger input from venture capitalists, by region. The companies hoped for additional financing and support for establishing new business contacts. They would also like to get venture capitalists input on strategic planning and internationalisation. Out of the five main regions, Oulu companies stood out as asking venture capitalists to take a more active role in most areas of their business. Hiding the high knowledge from other companies might lead to loosing some of the potential and getting stuck in small scale. Active interaction and synergy could however lead to enhanced competitiveness. The overall national strategy was also considered as needing more focus. 3.4 Too many sandboxes The interviewees said there is not enough cooperation between Finnish companies. Instead, the companies protect their innovations and compete against each other in getting financing. They also fail to see the benefit of national cooperation, since they are heading to international markets right from the beginning. 12

13 4 Strengths Although some companies said that public support in Finland is inadequate, many also mentioned it was a strength. The support systems provided for example by Tekes, combined with strong human capital in the country, form a major asset for the Finnish biotechnology industry. 4.1 Human capital Finland boasts a vast amount of highly capable researchers and long traditions of knowledge. Finnish science is high in quality and globally competitive. Volumes in the biotechnology industry could be much greater considering the amount and level of knowledge available. Not only basic academic education, but also the entire Finnish education system is respected around the world. People operating in biotechnology are highly and comprehensively educated and committed to staying in the country. The interviewed companies said highly skilled workers and business leaders are available in Finland. Researches were also considered affordable: ( ) it is somehow a pity, but the high level of education compared to the salaries of researchers is very competitive we are this kind of a banana state of experts in Europe, so we do have know-how at competitive prices. Some also stated that the Finnish mentality, while at times seen as a threat to the industry, can also be a positive asset. Tenacity and determination keep the Finns going even when times get rough. 4.2 Public support: Tekes and others Even though there seems to be a shortage of professional investor and venture capital, public sector support, interaction between public and private sectors, and good infrastructure offer valuable support for companies. Bio-centres and clusters add value to the Finnish bio-industry, as do strict rules of regulation that guarantee the quality of products. Networking between companies is easy in a small country, although cooperation needs a lot of developing. The overall attitude towards the branch is positive. There is continuity, ground work is good and traditions established. Consequently there will be more and more competent biobusiness leaders available that have field-specific knowledge needed for commercializing this industry. We have many good things here, this infrastructure and climate and general education level it works as a support for the types of codes of practice that this kind of manufacturing requires. 13

14 Figure 5 Figure 6 14

15 Figure 7 Company leaders were asked to assess and grade the impact of support organizations at different stages of their company s life cycle. Figure 18 describes the importance of funding received by companies on a scale from 1 to 4 at various stages. Figure 19 shows the relative importance of the supporting entity by integrating into the scale the probability of receiving funding from that entity. Tekes shows rather high impacts throughout the life cycle of the companies. It has a major role in the Finnish innovation policy. According to the companies, Tekes impact on biotechnology business is beyond any other entity in Finland. EU financing is rather scarce, but when received it has a clear positive impact. 4.3 Upstream in the global value chain Finland s neutral geo-political location offers an advantage. The country has functioning networks and solid relations to other countries and a positive attitude to multinational operations. Finns have also established academic contacts with researchers globally. Finland exhibits world-class science in certain areas of biotechnology research and business. Special assets are innovation potential and ability to generate ideas, which is why the successful location within the global value chain is upstream. It is based namely on this know-how, not so much on that we would be able to produce something, but we can operate in the value chain upstream, creating innovations, value, employing highly educated people so that we don t have to compete with these cheap labour countries. Based on the interviews, Finnish companies are all positioned rather upstream in the global value chain. Most of them focus on R&D along with manufacturing and marketing. The Turku region focused strongly upstream in the value chain, while Tampere showed a strategy of being present throughout the chain. Many Finnish biotechnology companies have adopted several simultaneous business models. For most it is a clear strategic choice, perhaps reflecting a vested experience within companies and their leaders. 15

16 5 Threats 5.1 Lack of funding There are plenty of promising innovations in the Finnish biotechnology branch, but due to lack of financial resources their commercial potential cannot always be explored. The global R&D intensity percentage in 2008 was 16.1 in the pharmaceutical and biotechnology sector. Also the Finnish biotechnology and life science industry is research-intensive. However, Finnish companies expected R&D intensity to decrease between 2008 and It implies that their strategy was to have products on the market and main focus removed from R&D. The recession caused problems in getting funding. Another hindrance was the fragmentation of public funding. The companies say that the public sector should preferably focus on larger sums of money in more selective areas. Small companies say they lack support from public financing and programmes. They also hope that large Finnish companies like Orion, Valio and UPM-Kymmene start investing money on the smaller ones. Lack of funding leads to experts being attracted abroad. Similarly, if companies are forced to accept mainly foreign investments or forced to sell themselves abroad, knowledge and innovations will drain out of Finland. This will endanger sustainability in the industry, since companies stated that skilful people are at the core of competitiveness. So far shortage of competent people has not been a major problem in Finland, except for experienced company leaders. 5.2 Local cooperation vs. global orientation National cooperation and networking are important when creating alliances and heading to the global market. It is inefficient that companies concentrate on identical tasks simultaneously but separately. Guarding one s patents jealously may prevent success. many have this mine field strategy, a patenting strategy in which the basic principle is that no one is allowed to enter our territory or even come close to it, which then of course and this kind of strategy is in fact even promoted by risk investors, but commercially this is of course a failure, because if it is a product that is even at some level revolutionary, then very seldom can one player grab a 100% market share. 5.3 Global competition There is a threat of Asia taking over Europe s market share in life science technology. Asia s fast learning span and commercialisation pace stem from Asia s ability to adapt and copy what has been created elsewhere. Asia s competitiveness is further supported by less strict regulation, the opposite of which costs time for European competitors. 16

17 Figure 8: Percentage of company leaders mentioning at lesast once a topic within the five thematic top-categories of threats. 4 Neither salary level of skilled labour force nor production costs will offer any competitive advantage for Finnish companies. Also the legal requirements and public support restrictions for small R&D intensive companies and start-ups are too heavy in Finland. In general, increasing global competition is forcing companies to look at even more specialized and untouched niches to stay in business. There is also fear that the remaining competitive advantage of knowledge-intensive R&D operations will be lost abroad. One thing that worries me sometimes is globalization in the wide sense, as now that we have seen the transferring of manufacturing abroad, we need to stay alert so that Finnish knowledge stays on such a level that we don t come to witness transferring the R&D abroad as well. We need to take care of our knowledge base. 5.4 Attitudes and mental state Finnish biotechnology industry needs more success stories. It lacks trust for better times as well as positive publicity. This holds Finland back and prevents the creation of virtuous circle. Functional business strategies and fostering innovations and patents would be crucial for sustainability. ( ) and then there is this other thing that when there has been plenty of putting down biotechnology [companies and projects] incorrectly, maybe some kinds of locks have been created that can be hard to open, it might cause some problems in the mental area. Strategies were said to lack continuity and clarity. Some companies seem to quickly change focus based just on trends in the market and what other companies are doing. 17

18 6 Opportunities 6.1 Finland could be a united brand Finnish companies and universities should focus on certain fields and specific market shares. In Finland we have so many good products and innovations. We have chances for anything. I see, as what we are meant to do is we create a brand of Finland, a portfolio that we take further. And as our reputation is very good, Finns in general, all this high-tech and everything, everyone knows it, thanks to Nokia, yes, this has done a very good job for all of us to bring this up and so we have every opportunity as long as we all work together and pack it well. Combining forces is a competitive advantage for a small country. Partnerships, common projects, sharing resources and appreciating Finnish companies as prior partners are central for future success. New business models that support sharing of innovations and knowledge are needed. In a way a small country can also be an opportunity. The small circles here offer easy networking possibilities, and this could especially mean cross-disciplinary interaction. Shared vision has positive effects on the mental state in the industry. There is a genuine wish for others to succeed because success will generate more success. Since 2004 cooperation seems to have intensified significantly. Companies worked in close cooperation especially with universities. Helsinki and Tampere companies had close collaboration also with other companies. 6.2 Going global Orientating internationally is both a pre-requisite and an opportunity for success. International funds and cooperation as well as international scientific and business experience are all extremely important for the Finnish biotechnology industry. The next generation of companies and individuals will be more internationally oriented and used to interact with other companies and investors globally. we should have cooperation with large international companies at an earlier stage, there is nothing to be afraid of ( ) that if you get 100% of a smaller sum or 20% of a significantly larger sum; I think the cooperation is extremely important, cooperation on many levels, we should use international consultants, use rather much international patenting offices, use international CRO-firms, and like initiate cooperation with medium-sized biotechnology companies. One specific future prospect is to establish one or more Finnish lead investors that would specialize in the bio-business. This is seen crucial for attracting foreign venture capitalists. 18

19 Figure 9: The share of export of the total sales for Helsinki region companies showed a clear trend of international orientation (Figure 23). s with other regions, one single success product can radically change the situation, which is reflected in the companies expected share of export for Figure 10: 19

20 All of the interviewed companies are export-oriented and indicated a strong wish to get support for internationalisation from venture capitalists. 6.3 Doing profitable business Finnish companies need to implement new business strategies in future. Globally their strengths and competitive advantage lie in innovations and R&D know-how. Moving upstream in the value chain could therefore be a solution. Finnish companies could own technologies used by others. Finland s advantage could be found in their ability to operate in extremely complicated, multidisciplinary R&D fields. ( ) Finnish biotechnology industry the business model could be that we in fact operate with certain global operators as their outsourced R&D because I don t see, it is that important who and where it is produced, but of course profit margin is always profit margin but it is nothing compared to the value that can be created here by intangible human capital and manufacturing rights. Small companies should also operate in close interaction with the big industrial operators in Finland. Larger companies should be building up their bio-strategy simultaneously. A functional network between the industry, public sector and research institutes is essential. My bottom line is that biotechnology can be applied in so many different fields, as mentioned, in forest industry, food industry, medical industry these companies need to be taken along and to understand the meaning of R&D in their future business strategies development. This is the only way to create sustainable commercial competence. Companies should acquire more business and commercialisation knowledge. Competent business leaders and board members should be invited from the outside if necessary Commercializing innovations One possible business model for Finnish biotechnology companies in future is to operate as an international coordinator or middle-man offering services to the operators in the global value chain. Commercial potential should also be assessed and targeted straight to international markets. Cooperation with foreign companies should be built into the business strategy from early on. A new approach to commercialisation is needed both in education and within the companies. Commercial innovations are answers to certain problems. Products and services should be developed in close interaction with customers. A multidisciplinary orientation combining technology and marketing knowledge is needed. Another possibility is that investors take a more active role in assessing the commercial potential of innovations by for example screening patents and contacting the researchers directly. It is also seen important that R&D stays long enough in the academic world to prevent business ventures that are not ready to survive. Orientating commercially is something that should be supported in the academic world both by tangible and intangible incentives. New financing opportunities are needed. They could be Finnish pension funds or a combination of public and private instances. Guarantees for long-term financing as well as field specific investors would also help build the future of the Finnish biotechnology industry. The Finnish patient register data is a valuable asset and should be exploited more effectively. The unique Finnish population for genetic research was also mentioned as a future opportunity. or then kind of combine these separate technological innovations to a more comprehensive health care concept and thereby create a key export product; Finland is an excellent showroom and test laboratory for creating such a concept. Innovation processes would also benefit from exploiting the tradition of clinical research: As we have a high-quality general healthcare system, and there is a good tradition of clinical research in which Finnish people are willing and honest to participate, I think this we should consider, too. 20

21 7 Reaching business goals The companies mentioned several reasons for achieving their business goals Companies involved in drug development estimated that goals were achieved thanks to proper and realistic planning as well as patience taking one year at the time. Stable growth was key to success. ( ) and why it happened was, I guess it was thanks to the sufficient time we took for preparations before we started operations. We did the planning carefully, protected IPR, created research plans, got a partner in the manufacturing and thanks to that actually had to have proper plans and they have been amazingly correct. In diagnostics, similar elements flexible and modest growth expectations and careful planning were considered important in meeting the targets. If business plans failed, it was due to problems in the research and development phase. There were also difficulties in entering the market and finding global commercialisation models. I would say that the visions that have been embedded in the diagnostics sector during the past ten years haven t been realized. And that is because introducing a new innovation and establishing a product to the market takes a really long time in diagnostics. Also in the research and development field achieving goals was linked to steady growth and modest business plans. If plans were revised, it was because of problems with timing or unexpected issues in technology development. Those drug companies that failed to reach their targets reported problems with financing, inability to find investors and lack of capital. The time required for product development or commercialisation had also been underestimated, and goals were not reached within the set timeframe. Another strategic miscalculation was an over-optimistic assessment of the market s preparedness for the product, or at times even the existence of a target market at all. 7.1 Realistic expectations When divided by business model, companies gave rather uniform reasons for achieving or failing their goals. Companies that identified themselves as R&D, manufacturing and marketing operators said their goals were achieved by steady growth and humble expectations. If goals remained unmet, it was caused by product development that had taken longer than anticipated. Commercialisation was also considered challenging, and so were global recession and financial climate. 21

22 22 Companies that identified as R&D and manufacturing operators had met their goals by investing successfully in partnerships and human capital. If goals were not met, it was due to problems with financing or product development, lack of crucial resources or over-optimistic planning. Difficulties with establishing functioning partnerships, especially in sales, were also reported

23 8 Biotechnology and the public sector During the interviews companies were asked to give feedback to the public sector operators in Finland. All in all, representatives from all selected business fields (biomaterials, diagnostics, CRO and drug development) emphasized the significant role of Tekes. Diagnostics companies said public sector support in general adds value to the Finnish biotechnology industry and creates a competitive advantage with regard to countries that do not have such operators: Well yes, all the institutions that operate on this field, Tekes, ELY-centres etc. they have good intentions and very good, knowledgeable people. I would say that Tekes s role as a financer is highly important. Biomaterial sector thanked Tekes for its support in networking and product development. Drug development companies also stressed the importance of Tekes and said the financing and support received from the public sector in general was important: In my opinion for example this Tekes financing program called new innovative companies is an excellent thing and will positively influence several companies in the early stage of their internationalization and growth, so I d say it is a good instrument. Tekes has to be thanked hugely. Even if we haven t been able to get so much financing, so far it is looking good. In this early stage their financing has actually been crucial. I also send thanks to Finnvera now. These are important public operators, without whom it would be impossible to believe that anyone would start any kind of a technology company in Finland. The CRO companies were content with the public sector s knowledge, general competence and increasing tendency towards customer orientation. In that sense the co-operation between these instances, ELYcentre, Tekes, Finnvera and others, they have teamed up and they approach us companies and offer advice. However, all sectors felt that the public sector lacks hands-on business experience as well as insight into the particularities of the biotechnology industry, which leads to impatience in financing. Additionally, support is needed for internationalisation and finding foreign financers. I m just asking if Tekes and the public sector in general have the patience to understand that it takes decades to establish a new industry; it took thirty years in the forest industry and thirty years it will take until bio is in the state where it can generate remarkable profits. 23

24 One problem is also that there are numerous different public sector actors that are dispersed both geographically and by functions. The companies hoped for more inter-unit communication and coordination. ( ) because there are so many instances in this public sector and they are all over there is Sitra, Tekes, ELY-centre and all that the palette is so wide and spread that it is very confusing for a company to see how the entity works. R&D focused companies stressed that it would be important to have companies participate in the formulation of public sector strategies. Since then, this has partly become reality through the signal sessions organized first by Tekes and from the beginning of 2011 by Finpro. We here in the organisations do not necessarily know the tools there actually might be that we could benefit from. 24

25 9 How global companies see Finnish biotechnology Increasing the amount of foreign investments in Finland has been one of the main strategic goals of the Finnish government. Finland has been top-ranked in the Global Competitiveness Index for several years, holding a 3rd position in (WEF 2012). However, the country has had a poor record of attracting foreign investments. To get a preliminary insight into foreign investment potential in Finnish biotechnology, four globally operating companies using biotechnology in their R&D were interviewed*. They were asked to give their views on Finnish biotechnology companies both as investment targets and business partners. The companies expect the role of biotechnology to increase in the near future, in spite of the prevailing poor image of biotechnology in Finland. According to the interviewees, big companies like Kemira, UPM and Stora Enso could induce a significant positive effect on the whole sector by increasing the share of biotechnology in their R&D. This would bring appreciation and novel venture capital to Finland, sustainability to domestic projects, increase in turnover, and new expertise. The level of outsourcing in the interviewed companies varied. Services were the most common form of outsourcing. They were used for improving the manufacturing process and use of raw materials, in conducting clinical trials, and in analytical and diagnostic tasks (DNA sequencing, for example). 9.1 Small and highly specialized partners Only one out of four companies outsourced 70 % of its R&D to Finnish companies. The other three did not collaborate to any significant extent with Finnish biotech SMEs. Within these companies, collaboration in Finland was mainly limited to early-phase research conducted as joint research programs funded by Tekes, or to separate contract research projects. However, companies did collaborate with public research institutes, and especially in the pharmaceutical sector indicated interest in academic projects. Small and highly specialized companies were considered as having fundamental knowledge that is cheaper to buy from outside the company than to develop in-house. In addition, collaboration with biotech companies was seen as a good and cheap means to become familiar with new, potential technologies in which the company hesitated to get more deeply involved. Outsourcing certain operations was considered faster than doing the same in-house. 25

26 9.2 Why collaborate with Finns? Collaboration with Finnish companies was found to be advantageous in several ways: 1. Finnish companies were perceived reliable and able to stick to what is agreed. Since the country is small, people operating in biotechnology know each other and references and testimonials are easy to find. 2. Finnish companies also bond with end users, yielding valuable insight into the way customers create their value. 3. Collaboration with companies nearby lessens the need of travelling. 4. Tekes funding was seen as a good motivator for domestic cooperation. Finnish origin as such was not the determining factor in choosing collaborators. The most important factor was quality, rendered even more important than price. However, Finnish SMEs were considered small and underfinanced. Their capacity to fulfil the needs of a global company is too small and their long-term existence cannot be trusted. Finnish companies also lack visibility. The corporations indicated that it is easier to find a partner abroad than similar expertise in Finland. Companies as well as academia are not efficiently offering their expertise to global companies. Finnish firms marketing processes are typically not designed to provide global companies with necessary information and tackle a process where even a truly interesting proposal needs to pass several steps before it is accepted. If Finnish companies and research institutes are to become potential collaborators for globally operating enterprises, they need bigger commercialisation units and financial security. Academic research should be capable of establishing clear links to companies, university researchers need to have incentives if innovations are subjected to product development, and research topics with clear business potential should be identified already early in the R&D process. Project funding and SHOK model (Strategic Centres for Science, Technology and Innovation) provided by Tekes are appreciated, although more international players could be linked to them. Similar programmes increasing collaboration within the sector are warmly welcomed. 9.3 Finnish expertise areas In future the role of biotechnology in various sectors is expected to increase. The interviewees showed a strong interest in promoting especially and particularly domestic companies, whenever the companies fulfilled corporate requirements. However, high-risk biotechnology enterprises typically require specialized cooperators, who prefer to operate at arm s length from their investees. Finnish subsidiaries of large international corporations must typically show projects that suggest a 10 15% higher net present value than projects that are closer to the parent company. The interviewed companies listed several topics where Finnish expertise is high and potential of creating successful business is evident. These include various combinations of bio-, nano- and information and communication technologies, companion diagnostics, diagnostics in industry and in infectious diseases, forest industry, food technology, viral and gene therapies, in vitro technologies in R&D, cancer research, diabetes research, and bio- and cell-banking. Biotechnology offers solutions to problems that are international, and opportunistic globally operating companies are willing to find those solutions in any country including Finland. *This was a case-based and very limited study. The interviewees included both domestic and foreign companies operating in pharmaceuticals, food, and brewery industry. The share of biotechnology in their R&D budgets varied between 5 and 30 percent, used mainly to develop novel bioactive molecules, enzymes, and technological solutions. 26

27 10 Finnish biotechnology and its competitive advantages 10.1 IPR Biotechnology is a global business where increase in Intellectual Property Rights is crucial for growth. Without IPRs a company cannot secure a competitive advantage over other companies. Protecting IPR is necessary for the sector, where product development and market entry may take years and be extremely expensive. In addition to securing the potential incomes from products and technologies, patents also attract partners and investors, and encourage novel entrepreneurs to enter the field. The amount of biotech patent applications filed to European Patent Office during the last decade has, indeed, grown 14.3 % annually, as compared to 8.3 % for all patents (Maxmen 2012). Finnish companies tend to patent their biotechnology innovations well (Nikulainen et al 2012, Tähtinen et al 2013), whereas Finnish universities lack both resources, knowledge and strategy to patent findings made in academic research (Tahvanainen and Nikulainen 2011). This leads to a situation where Finnish state-of-the-art research is exploited by global companies that are increasingly interested in finding novel innovations directly from academic organizations High quality IPR is not however the only concept where Finnish expertise has value. As both the interviewed companies and recent studies suggest (Hernesniemi et al. 2012, Tähtinen et al. 2013), knowledge in regulatory issues and quality assurance are assets highly appreciated by business partners in emerging markets. This also relates to the high quality and purity of Finnish products Business experience Business intelligence and strategic planning have been inadequate in the Finnish biotechnology sector in the past. Many companies have been managed by researchers that have limited experience in entrepreneurship. However, during the maturation of the sector, more and more emphasis has been laid on business experience. Management is also one of the most crucial evaluation criteria for Tekes and other investors (Tähtinen et al. 2013). Bio business courses are now organized in various universities, an MBA certificate has been granted to a growing number of life scientists, and a project aiming at getting PhDs employed in companies has been funded by the Ministry of Employment and the Economy. 27

28 10.4 Innovations and SHOK centres Finland s strengths are an excellent research and education system, close collaboration between industry and academic research institutes, and a stable and well-functioning infrastructure. Biotechnological and medical innovations are facilitated by accurate patient records and sample archives, available on specific request and in the near future through bio-banks. In addition, Finland is world-renowned for its well-structured innovation system as well as innovation environment, where the gross domestic expenditure on R&D (GERD) at 3.9% (2010) is the second highest among OECD countries. In 2011, the total R&D expenditure was 7.2 billion euros; approximately 70 percent from the private sector, 10 percent from the public sector and 20 percent from the higher education sector (Finnish science and innovation information service 2013). Tekes has strongly influenced the collaboration between the Finnish industry and academic research for example through specific programmes and SHOK centres (the Strategic Centres for Science, Technology and Innovation), which are public-private partnerships speeding up innovation processes. Linking of enterprises and research institutes in this way has been appreciated also abroad. 28

29 11 Closing words All the interviewed companies had been operational for a rather long time and possessed a significant amount of vested knowledge and experience. Most biotechnology company leaders had a rather solid confidence in the future of the biotechnology industry and said Finland has a place in the unbundled global value chain, thanks especially to the Finnish education and know-how. Within this survey all identifiable Finnish biotechnology companies were assessed. The entire list included 393 potential biotechnology companies, out of which 168 dedicated SME biotechnology companies were identified. In 2004 a total of 99 companies were active, with the number having increased to 107. However, 43 companies have merged, been sold abroad, gone into bankruptcy or exited in other ways, and 51 companies have entered the field. Half of the present companies are hence new, reflecting the strong dynamics of the industry. Oulu seems to have remained smaller than the other centres, but it is not the full picture. Oulu has produced several both scientifically and commercially successful companies, which, however, have been discovered and bought by international companies. Within a few years these acquisitions have been moved abroad. Finnish scientific, technological and business excellence has already produced success stories in the biotechnology sector. Tekes has played a strong role in supporting companies and their projects in all regions. Turku and Helsinki are strong in biotechnology, with companies from several applications sectors. Tampere is focused on biomaterials and Kuopio on drug discovery. Both regions have been hardly hit by external factors, especially in financing. 29