3
Technology Linkages_Scope, Significance, and Trends
THE ACTORS
To understand why technology linkages are being formed, it is important to consider the special characteristics of the major actors_small U.S. biotechnology firms, large established U.S. companies, the federal and state governments in the United States, U.S. universities and research institutions, large Japanese companies, and Japanese government agencies that provide funding for biotechnology R&D. The major impetus for the formation of technological linkages is the development and exploitation of biotechnology. Each of these actors brings different resources to bear in linkages that take many different forms.
Small U.S. biotechnology firms (sometimes called ''dedicated'' or "new" biotechnology companies) are those formed for the sole purpose of commercializing biotechnology. The formation of these small firms was spurred by the development of recombinant DNA and monoclonal antibody technologies in the 1970s. These technologies, which emerged from universities and national research institutes, were public and widely diffused, stimulating the formation of new biotechnology firms by venture capitalists in association with entrepreneurs and university research scientists. In 1981, a peak year for the formation of biotechnology firms, almost 70 new companies were established.18
Such small biotechnology firms continue to generate much of the most promising research in biotechnology. One recent study concluded that small biotechnology firms make unusual contributions to innovation, as measured in patent applications (both product and process). Although they no longer have the overwhelming innovative advantage vis _ vis established U.S. or Japanese companies seen in the early 1980s, the patents they spawn are still cited disproportionately.19 R&D is the lifeblood of biotechnology firms for many U.S. firms whose R&D expenditures well exceed revenues (see Table 1).
In contrast to the small U.S. biotechnology firms that have consistently had a comparative advantage in biotechnology R&D, most large U.S. companies did not have their own in-house biotechnology R&D programs in the early 1980s.20 Instead, they relied on R&D contracted with the small biotechnology firms. Japanese and European companies also lacked in-house biotechnology R&D programs in the early 1980s. Today, some of the large pharmaceutical and other companies are beginning to pursue biotechnology-related R&D_as a complement, rather than a substitute, to their main areas of business activity.
The special strengths of the large companies continue to be in traditional drug discovery, manufacturing, marketing and distribution of products, and their financial strength. In addition, large pharmaceutical firms have much experience with the process of regulatory approval, which can be time consuming and costly in the United States and elsewhere. Large pharmaceutical companies invest considerable resources in drug discovery and development as a prerequisite for manufacturing and marketing.
The large U.S. firms such as Monsanto, Eli Lilly, Schering-Plough, and Merck, which were the first to begin their own in-house biotechnology R&D programs in the early 1980s, also established technology links with the small biotechnology firms. The major motivation for these linkages was to access technology developed in the small biotechnology firms in order to commercialize it and to bring the technology in-house over time.21
Universities and other research institutions continue to be critical actors in biotechnology research. As noted earlier, basic research in biochemistry and molecular biology at universities can lead directly to commercial applications. For example, Centocor pays royalties to universities for 15 products it has developed. Moreover, individual researchers trained at universi-
TABLE 1 Top 10 U.S. Biotechnology Firms in R&D Spending, 1990
|
FY 1990 (millions) |
Revenues (millions) |
Genentech |
$173 |
$447 |
Amgen |
63 |
190 |
Genetics Institute |
61 |
40 |
Cetus |
56 |
39 |
Chiron |
50 |
79 |
Centocor |
46 |
65 |
Biogen |
36 |
50 |
Xoma |
28 |
20 |
Immunex |
19 |
31 |
Genzyme |
19 |
50 |
NOTE: R&D and revenue figures have been rounded to nearest million. SOURCE: PaineWebber, Inc., December 1991. |
ties become not only scientific leaders but also entrepreneurial leaders in the new biotechnology firms. In biotechnology more than in perhaps any other industry, companies see linkages to universities as a fast track to new ideas. There are hundreds of collaborative arrangements between biotechnology companies and U.S. universities (and nonprofit research institutions), many focused on human pharmaceutical applications.
The U.S. government plays a powerful role in the development of biotechnology. Its two principal activities are in research and the regulation of new biotechnology products. The National Institutes of Health (NIH) represents one of the largest biomedical research complexes in the world. NIH and, to a lesser degree, the National Science Foundation (NSF) fund most of the basic biological research at universities and nonprofit research institutes in the United States. Regulatory functions are split among a number of agencies: the U.S. Food and Drug Administration (drugs, food); the U.S. Environmental Protection Agency (environmental regulations); the U.S. Department of Agriculture (plants, animals); and NIH (research guidelines). Although progress has been made toward development of a unified regulatory scheme, there has been considerable criticism of the slow approval process for new products, particularly in medical products. Such delays can only increase the financial burden for the companies involved. For large companies, drug pricing is a major issue.22 Unlike the Japanese government,
the U.S. government has played a limited role in technology development and transfer. Creation of the BioProcessing Center at the Massachusetts Institute of Technology (MIT) and passage of the Technology Transfer and Orphan Drug acts represent infrequent examples of government action that may help speed up the commercialization of research.
State governments have become increasingly involved in biotechnology even though their expenditures are minimal compared to those of the federal government. Their principal effort has been in the creation of state biotechnology centers, many of which carry out basic research in areas that might be relevant to the states' economies. Some states, such as Maryland, Massachusetts, Pennsylvania, and North Carolina, have begun to experiment with new approaches to commercialization, with fostering the creation of new biotechnology companies, and with the promotion of sales of biotechnology products overseas.
In Japan there are virtually no U.S.-style small biotechnology companies. A variety of possible explanations for this can be offered, but the lack of a dynamic venture capital industry, a centralized R&D process in large traditional Japanese firms, and the comparative lack of movement of professionals from company to company are certainly important factors. Japanese companies active in biotechnology are mostly large, well-established pharmaceutical, fermentation, or chemical companies, such as Yamanouchi, Kirin, and Mitsubishi Kasei. In recent years other Japanese companies (even steel and tobacco companies) have entered the biotechnology industry in order to diversify into new businesses.23 In a recent survey of 1,600 CEOs, R&D directors, and business planners in Japan's largest companies, biotechnology was selected as the most important technology for the future.24 Fumio Kodama notes Japan's high expectations for biotechnology in the 5-to 10-year time period.25
The Japanese government is another important actor in the promotion of biotechnology, although Japanese government funding in all areas of R&D (biotechnology included) is dwarfed by the investments made by companies.26 The Japanese government, particularly the Ministry of International Trade and Industry (MITI), nevertheless played a significant role in
stimulating interest in biotechnology in the late 1970s and early 1980s, leading a variety of companies to establish internal goals in this field or to join R&D collaborations with other companies.
As Table 2 shows, the overall amount of money spent on biotechnology through the general account (government of Japan budget) is less than one-fifth of that spent by the U.S. government, but it is important to look closer to get an accurate picture of Japanese government support.27
In contrast to the emphasis on support for basic research in the United States, the share of Japanese government funding for university research has declined as a part of the national R&D effort in recent years. Still, the Ministry of Education reports that 40 percent of the grants to university researchers under the kagaku kenkyu hi (scientific research fund) go to life sciences and that many of the priority areas selected for preferential treatment in the awards process are in biotechnology.28 At the same time, MITI, the Science and Technology Agency, and other ministries are increasing their funding of biotechnology-related R&D, including $27 million in 1991 for international collaboration in the Human Frontier Science Program.
Table 3 shows that the share of Japanese contributions in life sciences in leading journals has remained steady in recent years. (Japan's overall contribution, however, remains about one-fifth that of the United States.29)
Perhaps the most striking aspect of Japanese government support for biotechnology is its commercial orientation and the number of agencies involved. One example that illustrates both of these aspects of policy is support for research on the role of carbohydrates in cell function. Three Japanese agencies launched projects in this field in March 1991, bringing the total number of agencies involved to five. Three of these projects encompass participation by industry.30 Other institutes in protein engineering and marine sciences also have been formed over the past few years
TABLE 2 Japanese Government's Biotechnology-Related Budget
|
1988 |
1989 |
1990 |
1991 |
1992 (requested) |
Ministry of International Trade and Industry (MITI) |
|||||
General Account (billion yen) |
5.1 |
7.1 |
6.6 |
9.9 |
10.3 |
(million $) |
37.8 |
52.6 |
48.6 |
73.4 |
76.4 |
(Investment Account million $) |
(20.7) |
(15.6) |
(NA) |
(NA) |
(NA) |
Science and Technology Agency (STA) |
|||||
General Account (billion yen) |
13.8 |
18.2 |
17.6 |
20.3 |
22.6 |
(million $) |
102.2 |
134.8 |
130.3 |
150.3 |
167.7 |
(Loan Account million $) |
(50.4) |
(65.9) |
(66.7) |
(44.7) |
(8.0) |
Ministry of Education (Mombusho) |
|||||
Program Funding (billion yen) |
14.0 |
14.5 |
16.1 |
19.8 |
19.3 |
(million $) |
103.7 |
107.4 |
119.3 |
146.7 |
143.0 |
40% of Research Subsidies (billion yen) |
19.6 |
21.0 |
22.3 |
23.6 |
25.8 |
(million $) |
145.2 |
155.6 |
165.3 |
174.8 |
191.4 |
Total General Account (billion yen) |
33.6 |
35.5 |
38.4 |
43.4 |
45.1 |
(million $) |
248.9 |
263.0 |
284.4 |
321.5 |
334.4 |
Ministry of Health and Welfare |
|||||
General Account (billion yen) |
4.8 |
6.0 |
6.6 |
7.4 |
8.5* |
(million $) |
35.6 |
44.4 |
48.9 |
55.0 |
63.1 |
(Investment Account million $) |
(19.3) |
(17.8) |
(17.0) |
(17.0) |
(17.0) |
Environment Agency |
|||||
General Account (billion yen) |
0.34 |
0.34 |
0.3 |
0.34 |
0.45* |
(million $) |
2.5 |
2.5 |
2.2 |
2.5 |
3.4 |
Ministry of Agriculture, Forestry, and Fisheries |
|||||
General Account (billion yen) |
6.6 |
7.5 |
7.9 |
8.3 |
9.1 |
(million $) |
48.9 |
55.6 |
58.5 |
61.7 |
67.7 |
Total General Account (billion yen) |
64.2 |
74.6 |
77.4 |
89.6 |
96.0 |
(million $) |
475.6 |
522.6 |
573.3 |
664.3 |
712.7 |
Change in General Account |
(NA) |
+16% |
+4% |
+16% |
+7% |
(Financing Accounts million $) |
(90.4) |
(99.3) |
(NA) |
(NA) |
(NA) |
NOTE: Conversions at 135 yen per dollar. Items that have an impact on biotechnology but that do not appear in the budget include private sector funding for university research administered by the Ministry of Education, extramural support for Ministry of Health and Welfare research institutes, loans extended through the Japan Development Bank and the Small-and Medium-Sized Business Program, biotechnology-oriented ERATO programs administered by STA, and R&D subsidies given as tax breaks. * In 1992, the Ministry of Health and Welfare and the Environment Agency changed their definitions of biotechnology, making them more inclusive. The figures here are based on the definition used in previous budgets. SOURCE: Compiled by OJA Staff from figures appearing in Baiosaiensu to lndasutori (Bioscience and Industry), January 1990, February 1991 and March 1992; and figures provided by the Ministry of International Trade and Industry. |
TABLE 3 Japanese Papers Published in Leading Journals
|
Japanese Papers Published as a Percentage of Total Papers |
||
|
1980–1984 |
1985–1989 |
|
Biology |
|||
Journal of Biological Chemistry |
5.1 |
7.2 |
|
EMBO Journal |
2.2 |
4.1 |
|
Biochemical Journal |
2.9 |
3.5 |
|
Molecular and Cellular Biology |
2.0 |
2.5 |
|
Cell |
1.6 |
1.6 |
|
Average |
3.9 |
5.2 |
|
Multidisciplinary |
|||
Nature |
1.6 |
1.8 |
|
Science |
0.7 |
0.8 |
|
Average |
1.3 |
14 |
|
SOURCE: Institute for Scientific Information, Science Citation Index, 1980–1989, as related in "Japanese Scientists Increase Their Presence in World-Class Journals," Science Watch, May 1990, p. 7. In the article, John Tooze, editor of EMBO Journal, noted that the Japanese are strongest in biochemistry and fields relevant to the pharmaceuticals industry. He also notes that the Japanese share of papers rose only modestly in Science, Nature, and Cell, "the top three journals in biology." |
under the Key Technology Center program, which features strong industry leadership. The U.S. government could actively participate with industry in the development and exploitation of commercial applications of biotechnology, as discussed in more detail in the conclusions chapter of this report.
In the 1980s Japanese companies began to build competitive strategies featuring expanded participation in the U.S. research community and market. One indicator is the fact that they have filed many pharmaceutical patents in the United States. These patents are cited often, but they are less science intensive than the U.S.-origin patents filed at the same time.31 In terms of new nonbiotechnology drugs introduced into the market, the growing contributions of large Japanese firms are clear. In biotechnology, Japanese companies gradually built strength during the 1980s by perfecting manufacturing technology through automation and other means in areas such as bioprocessing, by commercializing technology and products licensed from U.S. companies, and by deepening their independent R&D capabilities. Suntory
is building a completely automated factory for the production of biotechnology-based drugs.32
Generalizations about the six major groups of actors must be qualified in light of changes now under way. There is evidence to support the thesis that a few U.S. biotechnology firms are today moving toward "forward integration," establishing their own manufacturing, marketing, and sales capabilities (rather than relying on the large farms to manufacture and sell the products they develop or joining them in joint ventures). Forward integration, however, may not be easy for even the most successful biotechnology firms. There is also some evidence that the large U.S. companies are moving to expand their in-house biotechnology R&D. Meanwhile, Japanese companies are expanding their ties to innovative U.S. firms and increasing R&D in more fundamental research areas. A distinguishing characteristic of large Japanese firms, particularly pharmaceutical firms, seems to be their interest in using biotechnology as the driving force in their attempt to become serious global players, rather than as a complement to established business activities.
COMPANY-TO-COMPANY LINKAGES BETWEEN THE UNITED STATES AND JAPAN
Few studies exist that focus explicitly on technology linkages between U.S. and Japanese firms or that document changes over time.33 Since the mid-1980s, however, it has been clear that linkages between U.S. biotechnology firms and foreign companies have been expanding and that linkages with Japanese firms have been significant. The NRC biotechnology working group assembled data on linkages from a number of sources, including the data base developed by the North Carolina Biotechnology Center, Bioscan, reports by Ernst & Young, JETRO, JEI, and other proprietary sources. Together, these sources provide an overview of the various linkage mechanisms. In many instances, however, information in specialized journals and data bases must be augmented with expert knowledge to draw conclusions about the direction of technology transfer and the significance for corporate strategy.
There are many ways to classify technology linkages, but an important distinction can be made, at least in theory, between those that involve the commercialization of technology already in existence and those established
with the purpose of developing new technology. Licensing and marketing agreements, materials supply, and some types of joint ventures not oriented to new technology development are formed to exploit technology already brought through development and manufacturing. Research contracts (which usually include licensing agreements), joint development agreements to produce a new product or process, and equity investments oriented around the development of new technology are examples of linkages aimed at developing new technology. Generally speaking, the first type of technology linkage (designed to transfer established technology) requires less certainty and less tacit knowledge about a particular partner and its R&D process than do technology linkages for the development of new technology, where equity investments are also more common.34
Data collected by the NRC working group show that during the decade of 1981 to 1991 the most common form of technology linkage between U.S. and Japanese firms was of the first type_ a transfer of technology developed in the United States to a Japanese company through a licensing or marketing agreement. About half of the linkages included in the data base involved licensing of rights to manufacture a product (23.8 percent) or licensing of marketing rights (27.3 percent) to a Japanese company (see Table 4). Research contracts, direct acquisitions, and equity investments (for a minority stake in a U.S. company) have been much less prominent.
It is important to emphasize, however, that most alliances are multifaceted. They frequently include a technology license, an R&D collaboration, some marketing, manufacturing and distribution rights, and in some cases an equity investment. Trade press and other published reports, the basis for data compilation, typically report on some new development and often do not include a complete review of all aspects of technology linkage, including those that are ended.
The predominant pattern for U.S.-Japan linkages in biotechnology is a tie-up between a small U.S. biotechnology company and a large Japanese company (see Table 5). Overall, 200 of the 282 cases in the data base involved a linkage between a small U.S. biotechnology firm and a large Japanese company. The overwhelming majority of these linkages (160) were in the health care field; of the remaining 40 cases, more than half were in agriculture and food-related technologies. Table 5 provides a summary of the linkage patterns. Of the 51 linkages between large U.S. companies and large Japanese ones, it should be noted that more than half involve technology transfers in areas other than biotechnology precisely defined (such as traditional pharmaceuticals). While these data make it clear that
TABLE 4 Alliances Between U.S. Biotechnology Firms and Large Japanese Companies, 1981–1991
technology linkages established to date have focused on the health care sector, it is important to remember that linkages in biotechnology applications in agriculture, the environment, and bioelectronics will probably increase in the future.
Although the numbers are small, there is some evidence of an increase in equity investments in recent years. A trend toward increasing numbers of marketing agreements, a type of relationship in which there is often limited technology transfer, is quite clear.
With regard to the direction of technology flow, there is no question that the predominant pattern of technology transfer has been and remains from the United States to Japan. In more than 90 percent of the linkages between small U.S. firms and large Japanese companies where the direction of technology flow could be established, it was from the United States to Japan. When the 231 cases involving small U.S. firms were reviewed, this pattern persisted. In only 11 cases was there clear evidence of technology
TABLE 5 U.S.-Japan Corporate Technology Links in Biotechnology, 1981–1991
transfer from Japan to the United States. In only another eight cases was there clear evidence of a two-way flow of technology.
A recent analysis by Weijan Shan and William Hamilton confirms these trends. Shan, using BioScan data and a very detailed disaggregation of linkage types, found that the majority of U.S.-Japan cases involved technology transfer rather than joint development of new biotechnology products. Shan takes this as evidence that U.S. firms avoid joint development and manufacturing relationships that may provide access to new technology but
are much more willing to transfer technology when they feel more confident in valuing it and protecting intellectual property rights.35
It is important to note that the statistics provide no basis for judging whether the U.S. organization attempted to negotiate an arrangement to acquire technology from the Japanese company. Nor do the data provide a basis to judge technology transfers that often occur at a later stage, after the companies have worked together for some time. The Kirin-Amgen relationship, discussed later, falls into that category. Transfers of process technology and engineering skills are more subtle and difficult to measure than product transfers. These types of transfer occur at a later stage in a relationship and are not necessarily captured in published reports on corporate linkages.
The evidence on technology flows also reflects, to some extent, a life-cycle phenomenon. Biotechnology is a new field, and most of the action is in the area of product development where U.S. firms are strong. Japan's strengths in bioprocessing suggest areas for future cooperation and possible technology transfer from Japan as more products are developed. While the United States also possesses strengths in bioprocessing, this may be an opportunity for ''reverse flow'' of technology from Japan in the future.
Technology linkages between U.S. and Japanese companies increased sharply in 1987 and 1988, probably due to capital market constraints in the United States during that period. During the past three years, U.S.-Japan linkages have decreased in number, due perhaps to some disappointment in Japan that investments in biotechnology will not have near-term payoffs.36
In general, there have been three times as many linkages between Japanese companies and U.S. companies than among Japanese companies or between Japanese companies and firms in Europe or other parts of Asia. Japan clearly continues to look to the United States for products and technology. At the same time, there have been many more linkages among U.S. firms than between U.S. and Japanese firms.37
In joint ventures and joint development projects, there may be opportunities for technology transfer from Japan to the United States. In only a few unusual instances such as the Kirin-Amgen joint venture, however, is there clear evidence of a two-way flow. Kirin reportedly made an important
contribution to Amgen's manufacturing technology.38 In most cases the transfer of technology from Japan has been in traditional pharmaceutical rather than biotechnology-based products. Additional avenues for technology transfer may be opened as Japanese firms deepen their capabilities in fundamental research, as they perfect manufacturing processes through automation and other means, and if U.S. firms negotiate linkages that feature a transfer of manufacturing or other biotechnology know-how from Japan.
The Yano Report, a Japanese publication, provides another set of data points. The report shows that during the 1987–1989 period Japanese pharmaceutical firms increasingly obtained products from new U.S. partners. This report indicates an upswing in codevelopment ventures with non-Japanese firms and a definite decline in cross-licensing. During the 3-year period, new licensing from foreign firms and codevelopment with non-Japanese firms made up 22 and 38 percent, respectively, of the total 226 cases.39 It may be that Japanese pharmaceutical companies are becoming more interested in codevelopment with foreign partners, but there is no way to determine whether the major activity is in biotechnology.
How can the pattern of continuing technology transfers from the United States to Japan be explained? Will it continue in the 1990s, and what are the implications for the United States? To answer the first question, it is important to understand the strategies of corporate leaders in the United States and Japan. The other two questions will be addressed in later sections of this report.
CORPORATE STRATEGIES IN THE UNITED STATES AND JAPAN
Because the overwhelming majority of U.S.-Japan biotechnology linkages are in the health care field, the working group focused on corporate strategies in this area. The perspectives of CEOs in small U.S. biotechnology companies, and in large U.S. or Japanese companies using biotechnology for health care, provide sharp contrasts that help to explain the pattern of technology linkages noted above (see Table 6).
Consider, first, the importance of biotechnology to various types of companies. For the small U.S. biotechnology firm (SBF), biotechnology is the reason for existence, and the focus of corporate strategy is on new technology development. For large U.S. companies (LUCs) using biotech-
38 |
Amgen uses roller bottles to swish nutrients over the gene-spliced cells that produce EPO. Kirin provided an automated roller bottle handling machine. See "Can Amgen Follow Its Own Tough Act?" Business Week, March 11, 1991, p. 95. For more details, see Case Study III in Appendix A of this report. |
39 |
See SCRIP, No. 1516, May 23, 1990, p. 25. |
TABLE 6 CEO Perspectives on the Role of Biotechnology in Health Care
|
Company |
||
Important Factors |
Small Biotechnology Firm (SBF) |
Large U.S. Company (LUC) |
Large Japanese Company (LJC) |
Biotechnology importance |
A Justifies existence and technical focus |
C Enabling technology and toolbox; some new products |
B New products critically important |
Importance of company-company linkages |
A Must make alliances with Japanese companies to have access to capital and Japanese market |
C Develop own Japanese subsidiary with R&D, manufacturing, and marketing strategy to strengthen distribution |
B Must introduce newly developed product and enter European and U.S. markets |
Global presence |
C Objective is to become self-financing and market products first in U.S. and then Europe; financial constraint to introduce new products in Japan |
A Global orientation critical for long-term competition and financial return |
B Global strategy to enter U.S. and Europe through alliances |
Domestic government role |
A Very important for patents, approval, pricing, and "help" for innovators |
C Important for pricing and tax considerations |
B Introduction of new technology; protect Japanese market through regulated processes, pricing, patents |
Academe (U.S. and Japan) |
A Products produced in U.S. academe critically important; little interaction with Japanese universities |
C Provide researchers, test own ideas, do R&D in-house, NIH, beginning interactions with Japanese universities |
B Cherry pick in U.S. universities and monitor access to Japanese universities and R&D |
Capital |
A A must |
B Earnings per share pressure |
C Long-term perspective |
nology for health care, biotechnology is part of a toolbox of enabling technologies for drug discovery and development. For large Japanese companies (LJCs) using biotechnology for health care, biotechnology is critically important to generate new products and in some cases to diversify into completely new business areas.
CEOs of LUCs and LJCs understand that a global orientation is essential to ensure long-term competitiveness and financial returns. The United States is the world's largest pharmaceuticals market; as such, LJCs need to penetrate it.40 Another factor that is just as important in stimulating linkages between LJCs and SBFs is a desire to access products and technology developed in the United States. From the perspective of an SBF, linkages are essential under current conditions in order to obtain capital needed to support R&D-intensive operations and gain access to the Japanese market. Meanwhile, LUCs are developing strategies that are more narrowly focused from a technical perspective. LUCs, seen by some as less successful than SBFs in developing their own technology and less adept than LJCs in obtaining
technology developed by others, may seek to develop their own Japanese subsidiaries in order to strengthen their distribution and marketing capabilities in Japan and, over the long term, to improve access to Japanese technology.
In considering the driving forces behind linkages between LJCs and SBFs, capital requirements deserve special attention. For SBFs, infusion of capital is a matter of survival. LUCs, driven by pressures to produce earnings per share, tend to focus on defensive strategies_mergers and linkages for diversification into new markets and support of existing areas. LJCs, in contrast, have the capital resources needed by SBFs and the drive and long-term focus to establish linkages to complement plans for expansion through new technology and products.41
Technology linkages provide SBFs with a means of survival through capital infusions. For LJCs, technology linkages with SBFs are an important component of a global growth strategy. LUCs, in contrast, take a more defensive approach to technology linkages, particularly with Japanese firms. As U.S. SBFs turn to Japanese capital, the LJCs gain access to U.S. technologies. The LJCs are well equipped to exploit the products and technologies developed in the United States. One possible approach to address this issue would be for the U.S. government to establish incentives to reward SBFs that bring new technology to the commercialization stage, or work with other U.S. companies to do so.
In addition, differences in patent systems may encourage these trends.42 The first-to-invent system used in the United States gives stronger protection to the inventor than does the first-to-file system used in Japan and most other countries. While the United States maintains strong intellectual property protection for biotechnology, obtaining patent protection is a time-consuming and uncertain process. U.S. researchers in SBFs, universities, and research institutes may be ready to discuss their work at an early stage, before patent protection is granted, with individuals from LJCs who shop the world for new technologies and who have the option of applying for patent rights in Japan based on knowledge of work done elsewhere.43 SBFs have limited resources for R&D; they cannot pursue all new developments in research, and the "overflow" presents opportunities for LJCs and LUCs.
While LUCs with operations in Japan have a thorough understanding of the regulatory and health care environment there, SBFs often lack understanding of these factors. Another factor influencing the nature of relationships between SBFs and LJCs is the fact that SBFs must disclose their technology, publicly or to their potential partners, in order to obtain capital investments.
The internal focus of LUCs on U.S. technology, the pressure to perform in the short term in order to achieve high stock valuations, the large domestic market, and the U.S. regulatory process have made it difficult for them to take advantage of opportunities for accessing technology developed in other parts of the world. Although some U.S. pharmaceutical companies have established R&D facilities in Japan, much of the work carried out there is development rather than research.44 The NRC working group is aware of only a small number of U.S. pharmaceutical licensing executives stationed in Japan to look for licensing opportunities from Japanese companies.
LJCs, in contrast, invest considerable resources in following the world scientific literature, specialized conferences, and research around the world. Due to the comparative weakness of Japanese basic research in universities and the limited numbers of Ph.D.'s produced, Japanese corporate scientists rely heavily on the work of scientists from the United States to elucidate fundamental theories as a basis for more applied research.
SPECIAL CHARACTERISTICS OF JAPANESE INVESTMENT IN THE U.S. BIOTECHNOLOGY INDUSTRY
As noted above, large Japanese pharmaceutical companies along with chemical and food companies have been the major investors from the Japanese side in the U.S. biotechnology industry. In addition, a greater proportion of nonpharmaceutical Japanese, as compared to U.S., companies are attempting to diversify into health care. The traditional impetus for international market expansion by the Japanese pharmaceutical companies has been augmented by conditions specific to their domestic market_fierce competition and government-imposed drug pricing. Acquisition of large U.S. pharmaceutical firms is beyond the capabilities of most of even the largest Japanese pharmaceutical companies. Their general unfamiliarity with the U.S. regulatory process and their lack of managers experienced with international operations also are limiting factors to their penetration of the U.S. Market.
As a result, Japanese pharmaceutical companies are following long-term incremental strategies in their investments in the U.S. biotechnology industry. Threefold objectives_namely, (1) acquisition of limited product rights to strengthen the company's position in the home market, (2) acquisition of technology to strengthen the company's technology base, and (3) initiation of a relationship with a U.S. biotechnology firm as part of a long-term education process_also represent steps in a sequence.45
The acquisition of Gen-Probe, Inc. by Chugai Pharmaceutical Company illustrates this process. The relationship formally began in April 1988 through a $15.5 million transaction involving Asian distribution rights and technology and product development. Approximately 18 months later, Chugai took another step by acquiring Gen-Probe. This provided Chugai with a platform to expand its U.S. presence, consistent with the establishment of several licensing agreements and a joint marketing venture with Upjohn.
Fujisawa Pharmaceutical Company has followed a similar strategy. After an initial investment for a 30 percent stake in Lyphomed in 1984, Fujisawa completed the acquisition in late 1989. Although Lyphomed is a generic drug company rather than a biotechnology company, its dominant presence in the hospital-based market for injectables and its access to certain novel products make it a unique and attractive company. Fujisawa has also forged several technology linkages and product relationships in biotechnology and in late 1987 bought out its joint effort with SmithKline, Fujisawa SmithKline.
Yamanouchi Pharmaceutical Ltd. has made an unusual entry into the U.S. market. Following an apparent takeover attempt of Shaklee Corporation by Irwin Jacobs, Yamanouchi moved expeditiously in March 1989 to acquire the company for $395 million, presumably to protect the 78 percent interest in Shaklee Japan KK, which it had acquired the previous month. Although the Shaklee acquisition is outside the pharmaceuticals sector, it demonstrates that Japanese pharmaceutical companies can act quickly when necessary to shore up their strategies. Yamanouchi's strategy appears to be broader; the company is planning a new research center in the United States and also has joint development efforts with several biotechnology companies, including Genetics Institute and Alteon.
Kirin represents an example of investment motivated by a desire for diversification into new product areas. Kirin's long-term vision of 1980 contemplated diversification into drugs. It reckoned that biotechnology
provided a special entree, due to the conservatism of the large Japanese pharmaceutical firms. Over the past decade, Kirin has nurtured relationships with Amgen to develop EPO and has established the La Jolla Institute for Allergy and Immunology. Kirin can afford to look far into the future, plotting a strategy to achieve technological interdependence.46
In all cases, acquisitions require the building of personal relationships. These are usually solidified in the early stages of a business relationship that may involve simple technology licensing from a U.S. firm.
Large Japanese firms see penetration of European markets as a basis for further expansion. Such investments could also provide a foundation for the future acquisition of U.S. firms. A good example of Japanese expansion in Europe is Yamanouchi. In September 1990, Yamanouchi opened a cell biology research unit outside Oxford in the United Kingdom. This is Yamanouchi's first international research center and was designed to serve as a bridge between academia and industry. Yamanouchi already operates a manufacturing facility in Ireland and has a presence in most European countries. In addition, it completed the takeover of Gist-Brocades' pharmaceuticals division in February 1991, further strengthening its European presence.
Takeda, the leading Japanese pharmaceuticals company, has a long history in Europe. Takeda has established a series of joint ventures with many European companies. In 1978 it formed a French joint venture with Roussel UCLAF, another in 1981 with Grunenthal, and in 1982 yet another joint venture with Cyanamid Italia. In 1988 Takeda established an R&D center in Frankfurt. There were reports in mid-1991 that it was one of several Japanese companies interested in equity investment in Gedeon Richter, a premier Hungarian pharmaceuticals company.
The privatization effort under way in Hungary has attracted a lot of attention and illustrates Japanese interest in acquiring a stake in Eastern Europe. Nomura Securities is advising the State Property Agency of Hungary in the privatization of Richter, assisting in the search for an equity investor. As of June 1991, seven Japanese companies, including Takeda, Fujisawa, and Sankyo, were reportedly exploring investments in Richter, in addition to European and U.S. companies. Another of Hungary's premier pharmaceutical companies, Egis Pharmaceuticals, signed a funding and cooperation agreement with Japan Tobacco in May 1991. This comes on the heels of several investments by Japan Tobacco in U.S. biotechnology companies (e.g., Mycogen, Isis Pharmaceuticals, Cell Genesys) and is part of a global expansion and diversification strategy in pharmaceuticals and agribusiness.
Aside from strategic investments, the interest of financially motivated Japanese institutional investors in U.S. biotechnology stocks has been limited. There are good reasons why this is the case. Japanese institutional investors as a group are risk averse and interested primarily in financial instruments with yield, such as bonds and dividend-paying stocks. This investment philosophy is consistent with the fact that the performance of portfolio managers is typically based on their ability to generate current income while preserving the principal, rather than taking risks that may result in capital appreciation. This investment philosophy bias toward current income explains the reported practice of Japanese portfolio managers to buy stocks immediately prior to dividend distribution and sell them shortly thereafter.
There are other reasons that argue against widespread ownership of U.S. biotechnology stocks by Japanese institutional investors. Investing in U.S. equities is a relatively recent phenomenon for Japanese institutions, which have traditionally invested in U.S. government obligations and investment-grade corporate bonds. Most Japanese portfolio managers responsible for investing in U.S. equities are relatively junior and regard that position as a stepping stone to more significant fund management assignments or other positions in the organization. Such short-term assignments do not permit the acquisition of necessary experience in the unique world of biotechnology stocks. In addition, the relative lack of liquidity of the stocks of most small biotechnology companies makes them unsuitable for the large funds typically managed by Japanese institutions.
Venture capital is increasingly talked about in Japan, but a significant domestic venture capital industry has yet to emerge. For several years some Japanese corporations have made investments in U.S.-based venture capital funds, aiming at both significant returns and a window on technology.47 Japan Tobacco and Snow Brands are such examples of Japanese companies involved in U.S. venture firms. By contrast, there has been little interest by Japanese institutional investors in this area. It seems likely that there will be efforts to establish Japanese-managed or partnered venture funds for the purpose of investing in U.S. biotechnology companies. JAFCO, a division of Nomura Securities, has been the most notable participant in this area.
TECHNOLOGY LINKAGES BETWEEN JAPANESE COMPANIES AND U.S. UNIVERSITIES AND NONPROFIT RESEARCH INSTITUTIONS
While company-to-company linkages provide the most direct mechanism for transferring technology for the purposes of commercialization, there is good reason to examine the growing linkages between Japanese firms and U.S. universities and nonprofit research institutions. The NRC biotechnology working group concluded that Japanese funding of research at U.S. universities and contract research with U.S. university professors together are the second most important vehicle (in terms of potential future impact on the industry) for technology transfer. These linkages take a variety of forms_including funding for departments or chairs, participation in corporate liaison programs, licensing from university technology transfer offices, contract research by individual professors, and training of Japanese researchers in scientific disciplines associated with biotechnology at major U.S. research institutions.
There is no comprehensive data base to measure these interactions, and in many cases there is only anecdoctal evidence of an apparent trend toward rapidly expanding linkages.48 In the mid-1980s the General Accounting Office found that U.S. universities received $16.4 million from foreign sources, of which $2.6 million was contributed to biology departments and $8.4 million to departments of medicine.49 There is evidence of a significant increase in such funding in the recent past, illustrated by Shiseido's $85 million investment in Massachusetts General Hospital. Appendix B provides a summary of major technology linkages between Japanese companies and U.S. universities. These investments likely reached the level of $50 million in 1989 and are increasing at a rate of 25 percent per year.
One Japanese expert estimated that 10 years from now, Japanese companies will be spending $3 billion annually in U.S. universities.50 In 1990 the Japan Productivity Center sponsored a survey of how Japanese firms are using foreign universities and research centers. The most important relationship,
according to the respondents, was the use of a university as a subcontractor for basic and pioneering R&D (39 percent), followed by joint partnership with a university for such projects (30 percent). The survey confirmed that Japanese companies, like their U.S. counterparts, are seeking to establish linkages with universities that will benefit their own businesses.51
The list of technology linkages between Japanese companies and U.S. universities in Appendix B confirms that the focus has been on new technology development. A prominent example, mentioned above, is the investment of $85 million by Shiseido to establish the world's first comprehensive cutaneous biology center at Massachusetts General Hospital, Harvard University's largest teaching hospital. In this case a sponsored research agreement was negotiated that outlines patent protection, salaries, direct and indirect costs, and relationships with other sources of funding. According to individuals at Massachusetts General Hospital, a sponsored research agreement provides more insurance for the U.S. organization than would be the case if a ''gift'' were made by a Japanese company to an individual professor. Gifts, often not covered by university policies, are sometimes made directly to an individual professor who is part of a publicly funded research program. Whether the funding comes from a U.S. or Japanese company, the company is always interested in gaining intellectual property rights. Often this is accomplished by filing a patent application prior to publication of research results, so that the corporate sponsor's intellectual property rights are protected.
Technology linkages between Japanese companies and U.S. research institutions must be seen in a larger context_that of the relative comparative advantages of the two countries. In the past few years concerns have been raised about declining award rates by the NIH and NSF to U.S. researchers. Both agencies have concluded that there is much potentially valuable science represented in the applications that have gone unfunded. In addition to advocacy for continued support for basic research, a number of U.S. science policy leaders have begun to call for an increase in nondefense R&D, with an eye toward strengthening the competitiveness of U.S. industry. Steps have also been taken to improve technology transfer from the national laboratories to industry, and an effort has been made to provide a preference for transfers of technology to U.S. firms.
In a period when research funds in the United States are constrained and priorities are under discussion, the number of foreign researchers in U.S. university and nonprofit research laboratories is growing. In 1988, according to statistics prepared by Japan's Ministry of Justice, 52,224 Japanese researchers went to the United States, while 4,468 U.S. Researchers
visited Japan.52 A number of studies have explored the growing importance of foreign-born scientists and engineers to R&D in the United States. The excellent and open laboratories in the United States attract researchers from around the world.53
This is certainly true with respect to the exchange of Japanese and U.S. researchers in biotechnology. While only comparatively small numbers of U.S. researchers are going to work in Japanese laboratories, about 30 percent of the U.S. individual researchers who spent at least two months in Japanese government-supported programs in Japan identified themselves as working in the field of life sciences. Almost two-thirds of the Japanese researchers who spent more than 1 month at U.S. national research institutes in 1988 were reportedly carrying out research in biotechnology.54 It is estimated that there are 450 researchers from Japan at NIH, out of a total of 1,800 foreign researchers.55 While data are inadequate to provide an accurate estimate of the exchange of U.S. and Japanese researchers in biotechnology, it appears that biotechnology is a significant area of mutual interest.56
There is no easy way to calculate the gains or losses to the United States. Close interaction with a senior scientist represents access to years of funding and a network of researchers. Foreign researchers contribute to the work of the laboratories they visit. But the full costs of training are not covered by stipends or salary support. Japanese researchers, particularly those from private companies, usually return to their home country laboratories. In a few cases, however, talented young Japanese scientists have said that they would be unable to pursue creative research in Japan.57
Steps can be taken to expand the number of U.S.-born students, including women and minorities, who pursue careers in science. Programs of Japanese-language training for technical personnel and expanded fellowship opportunities may, over time, increase the number of U.S. researchers who
study and work in Japanese laboratories. Until the quality of Japanese basic research in the life sciences improves, however, incentives for U.S. scientists to work in Japanese universities and national research laboratories will remain limited. For that reason, meaningful access to Japanese biotechnology R&D must include opportunities to interact with corporate laboratories and industry-led R&D consortia.58
The 1988 umbrella agreement between Japan and the United States for cooperation in science and technology states that increased cooperation is a goal. Cooperation in life sciences, including biotechnology, has been identified as a priority area. Experience over the past few years would lead one to question whether the umbrella agreement is a potent instrument for fostering research exchange in biotechnology.59 A team of U.S. experts traveled to Japan in 1991 to assess the status of Japanese bioprocessing; their visits focused primarily on R&D facilities.60 The major impetus for expanding collaborative R&D efforts has come rather from individual agencies, such as the agreement between NSF and the Ministry of Education to promote bilateral seminars in biotechnology and other fields.61 The Science and Technology Agency of Japan began a cooperative research project with the U.S. National Science Foundation in biotechnology.62
For universities and national laboratories supported with public funds, important questions have been raised concerning reciprocity. Recent public debates have focused on industrial liaison programs that include large numbers of foreign companies, research sponsored by foreign companies at U.S. universities, and the growing number of Japanese researchers in the nation's premier public sector biotechnology laboratories. These debates have drawn attention to the question of whether the end result will be to build a formidable competitor in Japan's biotechnology industry. It is not surprising that
Japanese companies are building strategies to access basic research in U.S. universities, in view of the significant costs that would have to be incurred to establish comparable programs in-house and the relative weakness of Japan's own university labs.
In an effort to learn more about the linkages between U.S. universities and Japanese corporations, the NRC working group conducted a pilot survey in the spring of 1991. The survey was sent to 23 of the largest university biotechnology centers. Responses from 18 of the centers indicated that the value of research contracts with Japanese companies is small and that little technology is licensed to Japanese companies but that the number of Japanese visitors and researchers is significant. Confuming previously mentioned trends, there is no case in which the number of researchers from the U.S. university biotechnology centers going to Japan approaches the number of visitors from Japan. It should be noted, however, that most respondents indicated that they did not have complete information about linkages developing across their university.
The issue of Japanese participation in research at U.S. universities is complex. U.S. university officials say that participation by Japanese companies often comes after U.S. companies have declined to get involved. In view of the federal budget crisis and the exponential growth in R&D in the life sciences, it seems likely that Japanese involvement will increase in the years ahead. While some believe that restrictions are needed to protect U.S. competitiveness, a more viable approach may be for universities themselves to build more coherent strategies. In view of the growing public concern, it may be appropriate for U.S. institutions to develop guidelines that permit the continuation of foreign participation while ensuring academic freedom and timely dissemination of research results.
Questions of reciprocity also arise in the context of participation in international conferences and dissemination of research results through professional journals and data bases. There is no satisfactory way to judge the numbers of Japanese researchers attending conferences in the United States or other locations or to draw firm conclusions about their contributions to professional organizations as paper presenters and program organizers (as contrasted to registrants who come to listen). Some large organizations, such as the Federation of American Societies for Experimental Biology (FASEB), whose annual meetings draw 15,000 to 20,000, would find it difficult to make statements about participation by individuals from Japan. FASEB collects data on the number of "registrants from abroad" (only about 50 from Japan in 1990), but there is no way to know how many of the Japanese researchers currently working in the United States might register using their current institutional affiliation.63 In the cases of the Association
of Biotechnology Companies (ABC), there were eight Japanese attendees at the 1989 annual meeting (out of a total of 475) and five Japanese attendees at the 1990 meeting (which was attended by 500 individuals).64 Some U.S. professional organizations have few conferences or events that involve foreign participation.65
On the other hand, there is good reason to believe that professional conferences and meetings with a more specialized focus in some subfields of biotechnology, particularly those held in the Pacific region by international unions, attract good participation from Japan. For example, the major interaction of the American Chemical Society (ACS) with Japan is not in its annual meeting but in the International Chemical Congress of Pacific Basin Societies, which the society cosponsors. Of the 6,000 registrants at the 1989 congress in Honolulu, Hawaii, more than 3,400 were Japanese chemists.66 Likewise, Japanese attendance at smaller biotechnology-related meetings organized by FASEB may well be much stronger than at the association's annual meeting. One can find evidence to support this perspective by observing the strong participation of Japanese chemical engineers in conferences that feature new research on safety-related areas.67
The best example of a U.S. professional organization involved in biotechnology where there is significant foreign participation is the American Society for Microbiology (ASM), which also collects the most relevant data.68 More than 25 percent of ASM's members come from abroad, and they are seen as making substantial contributions to the organization. Statistics from the ASM are especially relevant, since members must have at least a bachelor's degree in microbiology. Of its almost 35,000 full members, about 1,000 are Japanese. The areas of expertise most frequently cited by the Japanese members are molecular biology and fermentation. Nonmember subscriptions to journals are unusually high for the Asian region, and Japanese members' comparatively high subscription rates to the journal Clinical Microbiology reflect their strong interest in pharmaceutical-related applications. Foreign authors are significant contributors to ASM's more than 10 journals. ASM is a good example of an American professional association that is consciously charting an international course. Japanese scientists, from industry as well as academe, participate significantly not only in attending meetings but also in conference planning, authoring papers, and subscribing to publications (see Tables 7a, 7b, and 8).
To better understand the internationalization of biotechnology, it would
TABLE 7a ASM Full Membership by Region
|
1985 |
1986 |
1987 |
1988 |
1989 |
1990 |
U.S. full members |
22,842 81.01% |
23,510 80.47% |
24,103 79.82% |
25,100 78.95% |
26,203 78.09% |
26,725 77.29% |
Asia full members |
1,288 4.57% |
1,382 4.73% |
1,458 4.83% |
1,573 4.95% |
1,748 5.21% |
1,906 5.51% |
Total full members |
28,184 |
29,216 |
30,197 |
31,792 |
33,556 |
34,578 |
▪ Japanese full members constitute approximately 50% of the Asia region. (Currently, there are 1,000 Japanese full members out of a total of 35,000.) ▪ Full members hold at least a B.S. in a microbiology or a related science. SOURCE: ASM, Washington, D.C. |
TABLE 7b 1990 ASM Full Members by Self-Identified Divisions
|
No. in U.S. |
No. in Asia |
Total No. in Division from Entire Membership |
Molecular biology |
3,218 79.54% |
243 6.01% |
4,046 11.70% |
Fermentation |
810 76.13% |
83 7.80% |
1,064 3.08% |
Clinical microbiology |
4,626 78.83% |
241 4.11% |
5,868 16.97% |
Medical microbiology |
1,032 74.46% |
88 6.35% |
1,386 4.01% |
▪ Percentages are based on total number of members in each division. ▪ Divisions here are those in which the greatest number of Japanese members identified themselves. SOURCE: ASM, Washington, D.C. |
TABLE 8 ASM Journal Subscriptions and Publication Acceptances for 1990
|
U.S. Full-Member Subscription |
Asia Full-Member Subscription |
U.S. Nonmember Subscription |
Asia Nonmember Subscription |
U.S. % Accepted in Journal |
Asia % Accepted in Journal |
Medical Microbiology |
3,947 |
342 |
945 |
351 |
56.43 |
7.68 |
Applied & Environ. Microbiology |
4,331 |
388 |
1,056 |
710 |
55.34 |
9.32 |
Molecular & Cell Biology |
3,724 |
289 |
818 |
268 |
78.41 |
4.15 |
Clinical Microbiology (review) |
5,479 |
452 |
249 |
90 |
80.95 |
0.00 |
Infection and Immunity |
3,549 |
374 |
771 |
414 |
61.81 |
9.05 |
Systematic Bacteriology |
494 |
213 |
311 |
178 |
39.54 |
19.77 |
Journal of Bacteriology |
3,390 |
489 |
1,354 |
751 |
62.18 |
8.61 |
Clinical Microbiology (diagnostic) |
8,354 |
621 |
1,138 |
405 |
55.54 |
8.99 |
Journal of Virology |
2,677 |
248 |
808 |
374 |
67.71 |
5.28 |
General Microbiology (review) |
6,778 |
618 |
1,313 |
503 |
66.67 |
8.33 |
▪ Number of Japanese authors contributing from the Asia category is high. ▪ Percentage of foreign contributions to ASM journals during 1986–1990 was steady (38%) but increased in Applied and Environmental Microbiology, Systematic Bacteriology, and Journal of Clinical Microbiology. ▪ Most subscriptions in the Asia category are from Japan. Interest of Japanese scientists in identifying new microorganisms is very high. This is reflected in the high subscription rate for Systematic Bacteriology, which focuses on nomenclature. ▪ ASM is increasing the number of foreign scientists on its editorial and advisory boards. SOURCE: ASM, Washington, D.C. |
be useful to gather more comprehensive statistics on participation by foreign1 scientists and engineers in conferences, as organizers and panelists as well as attendees, and in specialized journals. Comparisons to conferences held in Japan and to Japanese-language publications would provide a basis for drawing conclusions about reciprocity. Unless universities and professional associations carry out such studies and cooperatively analyze data gathered by different institutions, the policy debate will be influenced by anecdoctal evidence and inadequate statistics.
EXAMPLES OF TECHNOLOGY LINKAGES_MULTIPLE PURPOSES AND MECHANISMS
To better understand the multiple mechanisms that typically make up U.S.-Japan linkages in biotechnology, it is important to look beyond aggregate data to specific examples. Four examples of U.S.-Japan technology linkages have been examined for this report, and full case studies are included in Appendix A. The cases are Kirin's operating joint venture with Calgene in seed potatoes, Monotech's licensing and marketing relationship with Showa-Toyo Diagnostics (STD) in cancer diagnostics,69 Kirin and Amgen's joint venture to develop and market EPO and granulocyte colony-stimulating factor (G-CSF), and the lease-swap agreement that allowed Hitachi Chemical's U.S. subsidiary to build an R&D lab on the campus of the University of California at Irvine in return for use of space in the building by the University's Department of Biological Chemistry. These examples illustrate much of the range of technologies, linkage mechanisms, partners, and markets that currently make up U.S.-Japan biotechnology linkages.
The studies reinforce the inference drawn from aggregate statistics and anecdotal evidence that the objectives for Japanese partners are largely technological and that the U.S. partners are typically motivated by financial considerations.
In addition to illustrating the motivations of the partners, the cases also detail the process of forming and managing biotechnology linkages. Each case is unique, but some common themes come into focus, including the gradual process of building relationships over time and the use of multiple channels to establish linkages.
Some emerging questions are also discernable. For example, under what circumstances do linkages_even those that have benefited both sides_have a continuing rationale beyond the success of the first products in the market? U.S. biotechnology firms experiencing success may have greater bargaining power than in the past relative to larger corporate partners_
Japanese and otherwise. The question is whether the structure of linkages can be modified to reflect changes in the circumstances and interests of the partners. Another important question concerns the long-term significance for U.S. academic research and for U.S. competitiveness of new efforts on the part of large Japanese companies to establish closer relationships with the U.S. biomedical research community in universities and other academic settings.
What conclusions can be drawn about the impacts on the partners, both short and long term? Of the four cases presented here, two were launched fairly recently, which makes it difficult to assess even short-term impacts. In the other two cases the positive short-term impacts on both sides have been obvious and substantial.
The short-term benefits to Japanese partners have centered on products. Japanese companies have been able to gain a foothold in commercial biotechnology by licensing products and technology developed in the United States. It is important to remember that, because of the time required for approval of pharmaceutical products, "short-term" benefits may take a number of years to materialize.
In several of the cases the Japanese partner also focuses on expected longer-term benefits, such as diversification or a migration to more innovation-intensive strategies in existing businesses, in some instances by building research capability in biotechnology. In some cases the stated aim of many of the Japanese companies locating R&D facilities in the United States is to eventually conduct independent advanced biotechnology R&D in the United States. In a general sense, Japanese partners are motivated by the desire to establish a stronger global presence, although the cases studied here are unlikely to result directly in increased sales of products developed in Japan. As the two cases involving Kirin Brewery show, the pursuit of shorter-and longer-term benefits is by no means mutually exclusive, and perhaps linkages that bring both sorts of benefits are ideal from the standpoint of Japanese companies. But the greater product focus of Monotech-STD and the greater capability-building emphasis of the Hitachi Chemical/UC Irvine relationship may illustrate general differences between alliances forged with U.S. firms and with American research institutions.
Clearly, Japanese companies have been able to use linkages with U.S. institutions to build technological and marketing capabilities in commercial biotechnology_regardless of whether particular linkages are maintained or dissolved. However, the eventual payoff of these capabilities and the extent of long-term benefits to the Japanese partners remain to be seen.
From a U.S. perspective, a common thread in the calculations of companies_particularly small biotechnology firms_as well as universities is the need for capital to support a world-class R&D effort. In an environment
of constrained federal R&D budgets and impatient investors in large U.S. corporations, the prospect of investment from Japan and Europe presents an opportunity that U.S. institutions will consider seriously. The case studies show that under certain circumstances U.S. partners have been able to utilize linkages with Japan as part of an overall strategy for growth. Linkages have contributed critical financial resources to some U.S. firms. It appears that the quality of the American partner's technology is crucial in determining the potential of linkages to bring substantial benefits in the short term and that superior technology must be combined with clear strategic vision on both sides to realize its commercial potential. U.S. partners have also realized technological benefits from linkages with Japanese companies, though these are seldom consciously pursued.
Market access also is an issue for American partners. For the stronger biotechnology firms, the development of linkages with Japanese companies has opened opportunities in the Japanese market for expanded sales, mostly licensed sales.
Over the longer term, and parallel to the expectations of Japanese firms setting up R&D facilities in the United States, there is also a prospect that the linkages will serve to improve access to biotechnology developed in Japan. A handful of U.S. biotechnology companies are now monitoring Japanese technology, funding research, and conducting clinical trials in Japan. It is important to note that Japanese companies are strongly oriented toward technology development rather than fundamental science. This asymmetry in the biotechnology R&D systems of the two countries will make it necessary for the U.S. partners to consciously develop strategies to access the applied technology, particularly production technology, developed in Japan.
Building the capability to enhance the long-term benefits of linkages with Japan has been vigorously pursued by some U.S. partners but doing so is often difficult. This is understandable given the financial and human resource constraints that have characterized most U.S. biotechnology companies. Yet devoting resources and attention to leveraging linkages with Japan to obtain technology and a foothold in the Japanese market may be an important focus for long-term growth and survival.
Readers should keep in mind that detailed studies often touch on sensitive issues that parties connected with linkages are reluctant to discuss, particularly when real names are used. It is difficult to elicit information about cases that are clearly unsuccessful, or where there are hard feelings, under any circumstances. Further, although the cases contain examples of U.S.-Japan linkages in biotechnology aimed at human therapeutics, diagnostics, and agricultural biotechnology as well as a range of institutions as partners, none involve one of the major Japanese or American pharmaceutical companies. There have been few acquisitions of U.S. biotechnology
firms by Japanese companies, and it was not possible for the NRC working group to prepare a study on that particular technology transfer mechanism. Thus, these cases are not ideally representative, nor do they comprehensively illustrate the factors that can lead to asymmetrical benefits or outright failure. Still, care has been taken to explore cases in which a range of business and technical issues arise.