Biotechnology Development and the U.S. Economic Hegemony

Abstract

Biotechnology is understood by many to be one of the most promising areas of technological development and among the most probable to bring significant economic and societal gains to the United States in the 21st century. With so much potentially at stake, an international competition has emerged among states and companies to grow and capture the value of biotechnology products.

Competitiveness generally refers to the relative potential of a nation or company to convey goods or services to markets. Evaluations of competitive strength usually rely on indicators such as revenues, market share, and trade. Biotechnology is not a detached industry, but relatively a technology applied across a wide range of products in different industries for which biotechnology products in general account for a small fraction of total sales.

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For this reason, this research reviews national biotechnology research and development (R&D) investments and patents as indicators of current U.S. scientific and technological competitiveness and potential markers of future industrial competitiveness in biotechnology products.

Introduction

Biotechnology is understood by many to be one of the most promising areas of technological development and among the most probable to bring significant economic and societal gains to the United States in the 21st century.1 With so much potentially at stake, an international competition has emerged among states and companies to grow and capture the value of biotechnology products.

Competitiveness generally refers to the relative potential of a nation or company to convey goods or services to markets. Evaluations of competitive strength usually rely on indicators such as revenues, market share, and trade. Biotechnology is not a detached industry, but relatively a technology applied across a wide range of products in different industries for which biotechnology products in general account for a small fraction of total sales.2

For this reason, this research reviews national biotechnology research and development (R&D) investments and patents as indicators of current U.S. scientific and technological competitiveness and potential markers of future industrial competitiveness in biotechnology products.

The competitiveness of U.S. developed biotechnology products and processes may finally depend on broad issues, i.e. fair trade practices, protection of intellectual property, regulatory climate, and tax policies.3 The competitiveness of U.S. innovation, however, could largely depend on the ability of biotechnology companies to remain in business.

Because biotechnology is capital concentrated, staying in business means raising significant amounts of money. Start-up companies’ primary need for cash, together with the desire of venture capitalists in the United States to benefit from the manufacture of high-value-added products (based on innovative technology) have led to the financial community’s substantial involvement in the formation of biotechnology-based firms.4

The United States has led the world in the commercial development of biotechnology because of its strong research base most visibly in biomedical sciences, and the capacity of entrepreneurs to finance their ideas.

During the early 1980s, an amalgamation of large scale Federal funding for basic bio-medical research, publicity surrounding commercial potential, and readily available venture capital funding gave way to the formation of numerous dedicated biotechnology companies (DBCs).5

Dedicated biotechnology companies are almost exclusively a U.S. experience as no other country has a distantly comparable number. Biotechnology companies are created specifically to take advantage of the business potential of biotechnology. These companies generally start as research companies with science and technology but without products.

They do not undertake R&D on practically so wide a scale as established companies. Instead, they focus on definite technologies, particular products, and position markets. The companies must finance the preliminary costs of infrastructure development-including buildings, plants, equipment, and people without the advantage of internally generated revenues. They rely on venture capital, stock offerings, and rapport with established companies for their financing needs.6

Apart from venture capitalists, the federal government has played a vital role in catalyzing U.S. R&D efforts. Indeed, the U.S. is the only country in the world that is known to have an integrated national effort focused on biotechnology.

The biotechnology sector has enjoyed strong, bipartisan support from the executive branch, the House of Representatives, and the Senate. Each year, the President has proposed increased funding for federal biotechnology R&D, and each year Congress has provided supplementary funding.

Over the years, the congress is believed to have utilized a total of $9 billion for biotechnology R&D intended to bolster continued U.S. technological leadership and to sustain the technology’s development, with the long-term objective of creating high-wage jobs, bolstering economic growth, and wealth creation.7

This has also been for the purpose of addressing vital national needs, renewing U.S. manufacturing leadership and advancing health, the environment, and the overall quality of life.8

National R&D investment is an input measure that may give some perspective on how successful a country and the organizations within the nation may become in generating scientific knowledge that can lead to innovative products and processes.

However, the long-term value of these investments may be influenced by a range of factors such as: the ability of the scientists carrying out the R&D and the tools available to them; the effectiveness of the system (i.e., businesses, supply chains, infrastructure, innovation, climate and government policies) for interpreting R&D outcomes into commercial products; the fields of biotechnology pursued; the balance in fundamental research, applied research and development efforts.9

The United States has led and continues to lead, all countries in public investments in biotechnology R&D.10 However, the estimated U.S. allocation of global public R&D investments in biotechnology has dropped as other nations have come up with similar programs and increased funding.

In the closing decade of the 20th century, many nations followed the U.S. example and established formal national biotechnology programs in recognition of the potential contributions that biotechnology may offer for economic growth, job creation, and public health and safety.11

Indeed, a recent research estimates that the total 2005 public global R$D investments increased 10% over the 2004 level, reaching $6.4 billion. International investment levels can be contrasted using varying methods, producing significantly different perspectives on leadership.

For example, using a currency exchange rate comparison, the United States ranks ahead of all others, with federal and state investments of $1.78 billion in 2005 (27.8% of global public a R&D investments), followed by Japan ($975 million, 15.2%) and Germany ($563 million, 8.8%).

When national investments are regulated using purchasing power parity (PPP) exchange rates (which seek to balance the purchasing power of currencies in different nations for a given basket of goods and or services), China ranks second in public biotechnology spending in 2005 at $906 million, behind only the united states. Japan drops to third as its PPP-regulated investment drops to $889 million.12 This shows that the United States still maintains the leadership in relation to public investment in biotechnology.

Apart from public investments, private investments in biotechnology development come from two major sources, corporation and venture capital investors. Internationally, organizations invested an estimated $5.3 billion in biotechnology research and development in 2005.13

This figure represents a 19% raise over the 2004 estimate, a growth rate nearly double that of international public research and development. This apparent rise of growth in corporate research and development is undoubtedly an indicator that biotechnology research has attained commercial development.

As with public research and development investments, on a PPP comparison basis, the United States led the rest of the world with a projected $1.9 billion investment. In the second position was Japan with $1.7 billion in private investment in biotechnology R&D. Statistics show that the private investments of companies based in these two countries account for almost three-fourths of private investment in biotechnology R&D in 2005.

Additionally, venture capital investment, which is the primary financier of start-up organizations, provides another possible indicator of U.S. international competitiveness. In 2007, venture capital for biotechnology reached an estimated $702 million internationally of which U.S.-based organizations received $632 million translating to 90% of the total funding.14

Another indicator of gauging a country’s competitive position is in the assessment of the number of patents issued to individuals or institutions of that country.15

According to the U.S. Patent and Trade Office (USPTO), a patent awards ownership rights to a person who “invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” 16 By this definition, patents are undoubtedly an indicator of future value and national might in a technology, product or industry.

By this measure, the United States position seems to be very strong. United States assignees lead all other countries in patents issues by the USPTO.

According to an examination by the USPTO of patents in the United States and in other countries, U.S. origin inventors and owners have the most biotechnology-related U.S. patents by a wide margin and the most biotechnology-related patent publications internationally, but by a slimmer margin. Additionally, the USPTO analysis established that U.S. assignees have the most biotechnology-related inventions that have patent publications in three or more countries.

The figure placed at 31.7% is a strong indication of a more aggressive pursuit of international intellectual property protection and, by supposition, of its professed potential value. By this measurement, the United States is followed by Japan (26.9%), Germany (11.3%), Korea (6.6%), and France (3.6%).17

There has been quick growth in biotechnology patents in the USPTO and European Patent Office (EPO) patent databases. A study conducted in 2007 established that the number of U.S. biotechnology patents in the USPTO and EPO databases grew at a close exponential pace between 1980 and 2004.

The study showed that each year from 1990, U.S. assignees have taken up an approximate of two-thirds of all patents in the USPTO database. In 2004, U.S. assignees took up 66.9% of USPTO biotechnology patents. An earlier examination of USPTO data, covering patents from 1976 to 2002 also indicated U.S. biotechnology patent leadership, with the United States accounting for over 67% of patents, followed by Japan, Germany, France, and Canada.18

Although patents have shortcomings when it comes to assessing future competitiveness in terms of economic gains, there is no doubt that, the United States is leading in this area. If the recent trend is anything to go by, then there is no doubt that the U.S. will maintain its competitive edge in biotechnology development.19

Conclusion

Biotechnology, both as a scientific art and commercial entity is just slightly above two decades old. In that short period, however, it has changed the way scientists perceive living matter and has led to research and development that may lead to commercialization of products that can dramatically bolster human and animal health, the food supply, and the quality of the environment.

Developed mainly in U.S. laboratories, many applications of biotechnology are now viewed by companies and governments throughout the world as essential for economic growth in several, seemingly different industries.

Since its development, the U.S. has maintained its competitiveness in this crucial sector of the economy. With other nations emerging as serious competitors in this field, the question of whether the U.S. can maintain its competitiveness has remained a question among many people. However, if the available statistics are anything to go by, then there is no doubt that the U.S. will continue holding on to its current position as a world leader in the biotechnology industry.

Notes

1. Rohini Acharya, The Emergence and Growth of Biotechnology (Cheltenham: Edward Elgar, 1994), 60.

2. Andrew Hacking, The Economic Aspects of Biotechnology (Cambridge: Cambridge University Press, 1986) 79-86.

3. Ibid.

4. Saskia Sassen, The Global City: New York, London, Tokyo (Princeton: Princeton University Press, 2001) 47-50.

5. Angus Maddison, Monitoring the World Economy, 1820-1992 (Paris: Organization for Economic Cooperation and Development, 1995) 5-10.

6. Ibid, 7.

7. Ibid, 10.

8. Peter Taylor, The Way the Modern World Works: World Hegemony to World Impasse (New York: Wiley, 1996) 81-90.

9. Ibid, 84.

10. Giovanni Arrighi and Silver Beverly, Chaos and Governance in the Modern World-System: Comparing Hegemonic Transitions (Minneapolis: University of Minnesota Press, 1999) 72.

11. Ibid.

12. Albert Bergesen and Sonnett John, “The Global 500: Mapping the World Economy at Century’s End.” American Behavioral Scientist 44 (2001): 1602-1615.

13. Xin Li and Yiling Lin, “Worldwide Biotechnology Development: A Comparative Study of USPTO, EPO, and JPO Patents-1976-2004.” Journal of Biotech Research 9, (December 2007): 231-240.

14. Ibid, 232.

15. Ibid, 233.

16. Terrence Kealey, The Economic Laws of Scientific Research (New York: St. Martin’s Press, 1996) 12-20.

17. Li and Lin, Journal of Biotech Research, 236

18. Ibid, 239.

19. Walter Powell, “Inter-organizational Collaboration in the Biotechnology Industry” Journal of Institutional and Theoretical Economics 120 (1996):197-215.

Bibliography

Acharya, Rohini. The Emergence and Growth of Biotechnology. Cheltenham: Edward Elgar, 1994.

Arrighi, Giovanni and Beverly Silver. Chaos and Governance in the Modern World-System: Comparing Hegemonic Transitions. Minneapolis: University of Minnesota Press, 1999.

Bergesen, Albert and John Sonnett. “The Global 500: Mapping the World Economy at Century’s End.” American Behavioral Scientist 44 (2001):1602-1615.

Hacking, Andrew. The Economic Aspects of Biotechnology. Cambridge: Cambridge University Press, 1986.

Kealey, Terrence. The Economic Laws of Scientific Research. New York: St. Martin’s Press, 1996.

Li, Xin and Lin Yiling. “Worldwide Biotechnology Development: A Comparative Study of USPTO, EPO, and JPO Patents-1976-2004.” Journal of Biotech Research 9, (December 2007): 231-240.

Maddison, Angus. Monitoring the World Economy, 1820-1992. Paris: Organization for Economic Cooperation and Development, 1995.

Powell, Walter. “Inter-organizational Collaboration in the Biotechnology Industry.” Journal of Institutional and Theoretical Economics 120 (1996):197-215.

Sassen, Saskia. The Global City: New York, London, Tokyo (Princeton: Princeton University Press, 2001) 26-31.

Taylor, Peter. The Way the Modern World Works: World Hegemony to World Impasse. New York: Wiley, 1996.