This article is a continuation of our efforts to analyse the factors determining US biotech superiority. This part will discuss entrepreneurship in biotech and its contribution to US biotech success. Economics considers the four main resources for production being land, labor, capital and entrepreneurial abilities. Entrepreneurial abilities are the abilities to recognize business opportunities and to combine the three other factors of production in a way that will make money.
Bioentrepreneurship and emerging small specialized biotech companies are recognized as major factors of US biotechnology leadership. For example, Life sciences and biotechnology report prepared for European Commission in 2002 stated: "The sector is characterised by a new breed of agents, small specialized firms - dedicated biotechnology firms (DBFs) - that have entered the industry with the explicit aim of exploiting the new technologies of life sciences for different industrial purposes. These firms are having a remarkable and radical impact on Pharmaceuticals and agriculture. Patent and collaborative R&D projects data indicate that the US has accumulated and maintains a dominant advantage in innovative activities in Biotechnology compared to Europe. Europe in fact lags significantly behind the US in all facets of the commercial development of biotechnology. There is now agreement that this leadership originates essentially in the strength of its DBFs."
US leading position in bioentrepreneurship and its importance for biotechnology progress were recognized well before the 2002 Report came out. For example, in 1998 Aris Persidis in his article "Bioentrepreneurship around the world" in Nature Biotechnology wrote: "Bio-entrepreneurship occurs mostly in the United States, with Europe significantly behind but closing the gap, and Japan a very distant third." Article cited Ernst &Young 1997 data for total numbers of biotech companies in the US and Europe, 1300 and 700 respectively.
Recognizing the importance of bioentrepreneurship EU made substantial efforts in the mid 90-s to improve bioentrepreneurial activity. These efforts paid of and in 1996 the number of new biotech startups increased by 40% over 1995. In 1997 increase over 1996 level was even larger - 60%, and was followed by a further 8% increase in 1998. As a result the number of biotech companies started in EU in 1998 was up by about 130% over startups/ per year average level of 1993-1995. (Based on Biotech Industry Database, University of Siena). In fact the 2002 EU report stated "…We have seen a rapid expansion of the small companies sector in Europe in the recent past. There are now more dedicated biotechnology companies in Europe (1570), than in the US (1273). This is an encouraging demonstration of entrepreneurial potential in Europe".
At the same time EU 2002 report stated that European new biotech enterprises "are relatively small companies, whereas the US biotechnology industry started earlier, produces more than three times the revenues of the European industry, employs many more people (162.000 against 61.000), is much more strongly capitalised and in particular has many more products in the pipeline."
Number of companies as an indicator of biotech strength should not be misinterpreted. Massive entry of European biotech enterprises occurred at the moment when maturing US biotechnology industry reached consolidation stage. Comparing numbers of companies or startups between industries at different level of maturity may be quite misleading. For example, active acquisitions and mergers actually reduce the number of companies in maturing industry, whereas presence of established enterprises reduce new entries seeking to exploit similar opportunities.
At this stage attention shall be rather concentrated on revenues, employment, product pipeline, patent position and, of course, bottom line. And in these regards earlier start, especially in high-tech area, provides enormous benefits.
Why was the US more than a decade ahead in bioentrepreneurial activity? Indeed multiple factors affect creation and survival of new business entities, but are there any special characteristics and qualities of the US population that contributed significantly to the higher entrepreneurial activity in general and to bioentrepreneurship in particular?
Let's look at the factors that are necessary for entrepreneurship. Successful entrepreneurs are perceived as engineers of changes, energetic, focussed, able and willing to take control of their lives, to survive in uncertainty and act based on limited information; they must be persistent and capable to rebound after failure. Indeed, the same factors were necessary for immigrants who came to America for centuries.
Even today, when you can cross the Atlantic in hours and end up in a comfortable hotel with artificial climate, the decision to move from familiar environment to life-long efforts to establish oneself in completely new circumstances are not for everyone. Imagine how it was to cross Atlantic couple of centuries ago and start completely from scratch. Whereas the Ocean put substantial selective pressure on genetic material transferred, survival after arrival provided another level of selection. The "I can do it" attitude had to be proved by practice. Whoever could not adapt either returned or else… Whoever came and survived passed through severe selection processes with steps and criteria quite similar to the business startup process.
We are not going to get involved in lengthy arguments on statements like ``Entrepreneurs are born, not made." We will assume that genetic factors do play an important role. At the same time developmental and environmental factors are important as well. Society may support or punish entrepreneurs, or may be indifferent. One of our American friends noticed that the Soviet Union collapsed, as it was unable to channel its entrepreneurs. Actually, he was only partially right. Soviet Union was perfectly capable to channel them …directly into prison. Entrepreneurial genetic components could hardly provide any advantage in such circumstances. It may be assumed that not only immigrant's society has higher genetic predisposition towards entrepreneurship, but it is also more supportive for starters. This logic seems to correspond well with the reality.
Entrepreneurship and its success in the US are not completely understood. As The National Commission on Entrepreneurship stated in 2001 "In the absence of rigorous and systematic academic study, the past and present success of entrepreneurship in the United States is often attributed to ill-defined virtues such as the American "spirit of adventure." No matter how you call or explain it, US are perceived around the world as an exceptionally entrepreneurial nation. In 2002 GEM report, however, US is ranked a mere eleventh of 37 countries according to the level of entrepreneurial activity.
The Global Entrepreneurship Monitor (GEM) is an international consortium collecting and analyzing data regarding entrepreneurship around the world. GEM's Total Entrepreneurial Activity (TEA) index defined as the percent of the labor force that is either actively involved in starting a new venture or the owner/manager of a business that is less than 42 months old. GEM reports rank countries in accordance with TEA index, Thailand (18.9) and India (17.9) were the first in year 2002 and Russia (2.5) and Japan (1.8) were the last. US TEA index was 10.5.
These numbers may require some explanations, though. There are two major reasons that individuals participate in entrepreneurial activities: (a) they perceive a business opportunity (i.e., they elect to start a business as one of several possible career options), or (b) they see entrepreneurship as their last resort (i.e., they feel compelled to start their own business because all other options for work are either absent or unsatisfactory). About 12% of India's labor force is currently pursuing opportunity-based endeavors, 9% in the US, while in Japan only 1% are so engaged. Of note, for opportunity-based employment US ranked fourth. Necessity-based entrepreneurship is about 5 % in India and about 1% in the US. It shall be emphasized that TEA index reflects not only the willingness of the population to become entrepreneurs but rather the combination of personal and environmental factors.
In the US and other developed countries it is possible to survive with wages and employment is reasonably available. Unemployment in the US during the last decade stayed somewhere around 5-6 %, which, according to some economists, represents full employment for the real world. Of note, labor market was referred to as very tight during the late 90-s (businesses couldn't find employees and wages were rising). That explains the low level of necessity-based entrepreneurship in the US. On the other side, market maturity and saturation by goods and services may also suppress new opportunity-based entries. Finally, the border between necessity-based and opportunity based entrepreneurship is quite fuzzy and for many entrepreneurs pull and push factors may coexist. In developed countries for employed individual "forcing" component seems to be reduced and factors other than financial wealth become increasingly more important.
What is the correlation between total entrepreneurial activity and bioentrepreneurship? Bioentrepreneurship belongs to a special category of high-tech ventures. GEM report stated that high potential, innovative ventures based on new technology and having the greatest possibility for having a substantial impact on the economy are relatively rare and represented from 0 to 4% across 37 countries. The GEM index for high potential ventures has a relatively low correlation with the overall TEA index. It also has a modest correlation with the TEA opportunity prevalence rate. On the other hand, the correlation with the necessity entrepreneurship is essentially zero. This suggests that high potential ventures represent a distinct facet of entrepreneurial activity.
Indeed, TEA index for 39 countries has no visible correlation with level of technological development (Thailand, India, Chile and Korea at the top of the list and France, Belgium, Russia and Japan at the bottom). Other factors than entrepreneurial activity have dramatic impact over high-technology ventures birth and survival. For example, the level of technological development or intellectual property protection may be prohibitively insufficient. When developed countries are involved it may be logical to assume that high level of total entrepreneurial activity may correlate with numbers of high-tech start-ups. US TEA is about twice of EU average. It seems to be tempting to conclude that substantially higher level of total entrepreneurial activity in the US correlated with and contributed to the fact that for quite a wile US had twice more biotechnology companies than EU. According to E&Y there were 1231 Biotech companies in the US in 1992. US had 1300 companies in 1997, while Europe still had about 700.
Based on the facts provided above it seems to be clear that if there are any obstacles or deficiencies that would interfere with Indian biotech development it would not be a lack of entrepreneurial abilities. India ranks second globally and actually the difference between India and the leading nation, Thailand is marginal. In the next part we will discuss success/failure statistics in the US as well as measures taken by the governments at different levels to encourage and support bioentrepreneurship.
-- The authors are research scientists based in the United States