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Introduction

The prevailing view is that the United States is a world leader in biotechnology.1 U.S. researchers excel in basic science, and U.S. industry has moved new ideas to the market by commercializing technology. In fiscal year 1990 alone, the federal government provided more than $3.5 billion in funding for biotechnology R&D and U.S. industry invested approximately $2 billion.2 Approximately 50 to 75 biotechnology companies were formed

1  

See, for example, office of Technology Assessment (OTA), Biotechnology in a Global Economy (Washington, D.C.: U.S. Government Printing Office, October 1991), p. 19, and New Developments in Biotechnology (Washington, D.C.: U.S. Government Printing Office, 1988), p. 3. In the OTA report, biotechnology is broadly defined to include any technique that uses living organisms (or parts of organisms) to make or modify products, to improve plants or animals, or to develop microorganisms for specific use. For general statements on the state of the U.S. biotechnology industry, see also Japanese Technology Evaluation Center (JTEC), "JTEC Panel Report on Biotechnology," June 1985; Ministry of International Trade and Industry (MITI), Sangyo Gijutsu no Doko to Kadai (Trends and Topics in Industrial Technology) (Tokyo: Tsushosangyosho, 1988); George B. Rathmann, "An Industry View of the Public Policy Issues in the Development of Biotechnology," in John R. Fowler III, ed., Application of Biotechnology: Environmental and Policy Issues (Boulder: Westview Press, 1987). See also Mark D. Dibner and R. Steven White, "Biotechnology in the United States and Japan: Who's First?" Biopharm, March 1989.

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The President's Council on Competitiveness, "Report on National Biotechnology Policy," p. 6. G. Steven Burrill and Kenneth B. Lee, Jr. estimate that in 1991, the federal government invested $3.7 billion and industry $3.2 billion in biotechnology-related R&D. See G. Steven Burrill and Kenneth B. Lee, Jr., Biotech 92: Promise to Reality (San Francisco, Ca.: Ernst & Young, 1991).



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U.S.-Japan Technology Linkages in Biotechnology: Challenges for the 1990s 1 Introduction The prevailing view is that the United States is a world leader in biotechnology.1 U.S. researchers excel in basic science, and U.S. industry has moved new ideas to the market by commercializing technology. In fiscal year 1990 alone, the federal government provided more than $3.5 billion in funding for biotechnology R&D and U.S. industry invested approximately $2 billion.2 Approximately 50 to 75 biotechnology companies were formed 1   See, for example, office of Technology Assessment (OTA), Biotechnology in a Global Economy (Washington, D.C.: U.S. Government Printing Office, October 1991), p. 19, and New Developments in Biotechnology (Washington, D.C.: U.S. Government Printing Office, 1988), p. 3. In the OTA report, biotechnology is broadly defined to include any technique that uses living organisms (or parts of organisms) to make or modify products, to improve plants or animals, or to develop microorganisms for specific use. For general statements on the state of the U.S. biotechnology industry, see also Japanese Technology Evaluation Center (JTEC), "JTEC Panel Report on Biotechnology," June 1985; Ministry of International Trade and Industry (MITI), Sangyo Gijutsu no Doko to Kadai (Trends and Topics in Industrial Technology) (Tokyo: Tsushosangyosho, 1988); George B. Rathmann, "An Industry View of the Public Policy Issues in the Development of Biotechnology," in John R. Fowler III, ed., Application of Biotechnology: Environmental and Policy Issues (Boulder: Westview Press, 1987). See also Mark D. Dibner and R. Steven White, "Biotechnology in the United States and Japan: Who's First?" Biopharm, March 1989. 2   The President's Council on Competitiveness, "Report on National Biotechnology Policy," p. 6. G. Steven Burrill and Kenneth B. Lee, Jr. estimate that in 1991, the federal government invested $3.7 billion and industry $3.2 billion in biotechnology-related R&D. See G. Steven Burrill and Kenneth B. Lee, Jr., Biotech 92: Promise to Reality (San Francisco, Ca.: Ernst & Young, 1991).

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U.S.-Japan Technology Linkages in Biotechnology: Challenges for the 1990s each year during the decade of the 1980s, over 1,000 in the last 20 years. The biotechnology and pharmaceutical industries have been rated as second only to the computer software and services sector in terms of total value creation among U.S. high-technology companies founded since 1965.3 Is this rosy view of U.S. preeminence_across the board from basic to applied biotechnology R&D, to commercialization and global market competitiveness_accurate and will it persist? 4 Another, perhaps better, way to pose the question is to ask whether the United States will remain competitive and reap a "fair share" of future profits from the significant investments made in biotechnology. These broad questions set the context for this report, which assesses technology linkages between the United States and Japan. The purpose of this study is not only to examine the scope and nature of technology linkages between the United States and Japan but also to consider the forces behind these linkages as well as the future impact on competitiveness for the organizations involved and for the United States as a country. To summarize some of the major themes, the study suggests that there are a number of powerful forces driving an expansion of technological linkages of many types between the United States and Japan. We are moving toward a global economy, and the desires of large Japanese companies, both pharmaceutical companies and ones doing business in unrelated fields, to access technology developed in the United States and to compete globally are important contributing factors. Japanese firms see biotechnology as a way to use scarce resources to improve their productivity and international competitiveness. For nonpharmaceutical companies, biotechnology is a technological tool allowing diversification into new, higher value-added product areas. From the U.S. perspective, a driving force for small innovative biotechnology firms is the need for capital to fuel their R&D, thus stimulating relationships of various kinds with large capital-rich Japanese companies. Another stimulus is the desire of large U.S. pharmaceutical companies and biotechnology firms to access the Japanese market. Increased cooperation between the United States and Japan is desirable and inevitable as biotechnology becomes part of an increasingly global economy and technology base. In this context of increasing cooperation, the question is whether the U.S. biotechnology industry will continue to compete effectively. To do so, it will be necessary to structure technology linkages with Japan to ensure that U.S. participants gain clear benefits. This study documents a prevailing pattern of transfer of biotechnology developed in the United States to Japan during the past two decades. The analysis in this report suggests that the linkages formed so far serve as 3   See Arthur D. Little and HOLT Value Associates, "The Upside 100," Upside, December 1990, p. 25. Value creation was measured in a number of ways, including shareholder value, for each firm since its establishment. 4   For a more sober view, see President's Council on Competitiveness, op. cit.

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U.S.-Japan Technology Linkages in Biotechnology: Challenges for the 1990s mechanisms primarily for technology transfer from the United States to Japan. Looking at past patterns, some wonder whether the technology has been sold too cheaply and whether U.S. firms can develop effective strategies for making technology linkages with Japan work to their advantage in the future. There are new trends, such as the establishment of Japanese ''offshore'' R&D facilities in the United States and growing investments by Japan in basic research, that hold a potential for learning from Japan. Increasingly, Japanese companies are building ties to American universities through training, research grants, and endowed chairs. Japan's strength in areas such as bioprocessing technologies suggests potential areas for future technology transfer from Japan to U.S. biotechnology firms. From the perspective of individual U.S. biotechnology firms or larger companies, it may be possible or even necessary to ensure corporate growth (and possibly survival) by linking up with Japanese companies in joint ventures or other agreements that give the Japanese partners rights to license and market technologies and products that were developed in the United States. Over time, however, the result may be to create a significant competitive challenge in both the U.S. market and global competition unless these alliances are developed such that the U.S. firms benefit through the development of improved manufacturing and marketing capabilities. The implications for the United States as a country must also be considered. Researchers from around the world are drawn to the open and excellent biotechnology research laboratories of U.S. universities and research institutions_organizations financed with taxpayer funds. Being first in basic science, however, in no way ensures that U.S. companies will compete effectively at home and around the world. Japan, a country where the primary emphasis has been on technology commercialization, benefits greatly from access to fundamental research carried out in the United States. Given the considerable investments that the United States has made in supporting biotechnology R&D, it may be appropriate to consider new policy approaches that ensure that the United States maintains its lead in global competition. Government and industry in Japan have identified biotechnology as a key technology for future industrial growth and are working together to increase R&D investments in this field.5 Should we do likewise? 5   Estimates of expenditures by the government of Japan for biotechnology-related R&D vary, for reasons that will be outlined in detail later. According to research by the NRC working group, in 1991 expenditures increased approximately 16 percent over the previous year to a total of 89.6 billion yen. According to estimates by the U.S. Department of State (unclassified cable of July 1990), Japanese public and private spending on rDNA totaled 57 billion yen, and total R&D on biotechnology-related work for all Japan Bioindustry Association (JBA) members totaled 276 billion yen. See Heisei Yonnendo Kaku Shocho Baiteku Kanren Yosan Seifu Genan (Japan Fiscal Year 1992 Biotech-Related Budged Proposal), in Biosaiensu to Indasutori (Bioscience and Industry), March 1992, pp. 277–285. See Table 2 for more detail.

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U.S.-Japan Technology Linkages in Biotechnology: Challenges for the 1990s This report was prepared by a working group of experts, as part of a project initiated by the National Research Council's Committee on Japan to examine technology linkages between Japan and the United States. Co-chaired by Hubert Schoemaker of Centocor and G. Steven Burrill of Ernst & Young, the working group was formed in the fall of 1990 and met a number of times in 1991 to deliberate and confer on the data collection process. A workshop on U.S.-Japan Technology Linkages in Biotechnology was convened in June 1991 to gain additional insights from other experts in the United States and Japan. The staff of the National Research Council's Office of Japan Affairs, which also serves as the staff for the Committee on Japan, assisted the working group in data collection, and analysis and compilation of results.