Commercial Biotechnology: An

International Analysis

January 1984

NTIS order #PB84-173608
—

Recommended Citation:

Commercial Biotechnology: An International Analysis (Washington, D. C.: U.S. Congress,

Office of Technology Assessment, OTA-BA-218, January 1984).

Library of Congress Catalog Card Number 84-601000

For sale by the Superintendent of Documents,

U.S. Government Printing Office, Washington, D.C. 20402
—

Foreword

This report assesses the competitive position of the United States with respect to Japan and four

European countries believed to be the major competitors in the commercial development of “new

biotechnology.” This assessment continues a series of OTA studies on the competitiveness of U.S.

industries. It was requested by the House Committee on Science and Technology and the Senate Committee on Commerce, Science, and Transportation. Additionally, a letter of support for this study

was received from the Senate Committee on Labor and Human Resources.

New biotechnology, as defined in this report, focuses on the industrial use of recombinant DNA)

cell fusion, and novel bioprocessing techniques. These techniques will find applications across many

industrial sectors including pharmaceuticals, plant and animal agriculture, specialty chemicals and

food additives, environmental applications, commodity chemicals and energy production, and bioelectronics. Over 100 new firms have been started in the United States in the last several years to capitalize

on the commercial potential of biotechnology. Additionally, throughout the world, many established

companies in a diversity of industrial sectors have invested in this technology.

A well developed life science base, the availability of financing for high-risk ventures, and an entrepreneurial spirit have led the United States to the forefront in the commercialization of biotechnology. But although the United States is currently the world leader in both basic science and commercial development of biotechnology, continuation of the initial preeminence of American companies

in the commercialization of biotechnology is not assured. Japan is likely to be the leading competitor

of the United States, followed by the Federal Republic of Germany, the United Kingdom, Switzerland, and France. In the next decade, competitive advantage in areas related to biotechnology may

depend as much on developments in bioprocess engineering as on innovations in genetics, immunology,

and other areas of basic science. Thus, the United States may compete very favorably with Japan

and the European countries if it can direct more attention to research problems associated with the

scaling-up of bioprocesses for production.

Issues and options developed for Congress include Federal funding for the basic life sciences and

for generic applied research, especially in the areas of bioprocessing engineering and applied microbiology, including the training of personnel in these areas. The United States may also need to be

concerned with the continued availability of finances for new biotechnology firms until they are selfsupporting. Additionally, there are changes in laws and policies that could improve the U.S. competitive position. These changes include clarification and modification of particular aspects of intellectual property law; health, safety, and environmental regulation; antitrust law; and export control laws.

OTA was assisted in the preparation of this study by an advisory panel of individuals representing a wide range of backgrounds, including science, economics, financial analysis, law, labor, and

new and established firms commercializing biotechnology. Additionally, over 250 reviewers from

universities, the private sector, and government agencies, both domestic and foreign, provided helpful

comments on draft reports.

OTA expresses sincere appreciation to each of these individuals. As with all OTA reports, however,

the content is the responsibility of the Office and does not necessarily constitute the consensus or

endorsement of the advisory panel or the Technology Assessment Board.

Director

,.. Ill
Commercial Biotechnology Advisory Panel

Michael Hooker, Chairman

Bennington College

Howard Bremer Robert R, Miller

Wisconsin Alumni Research Federation University of Houston

Robert Fildes Dorothy Nelkin

Cetus Corp. Cornell University

Julian Gresser Norman Oblon

Massachusetts Institute of Technology Oblon, Fisher, Spivak, McClelland, & Maier

Ralph Hardy David Padwa

E. I. du Pent de Nemours & Co., Inc. Agrigenetics Corp.

Zsolt Harsanyi David Parkinson

E. F. Hutton & Co., Inc. Falk Clinic

Peter Hutt Phillip A. Sharp

Covington & Burling Massachusetts Institute of Technology

David Jackson William J. Whelan

Genex Corp. University of Miami

William Maxon John Zysman

Upjohn Co. University of California, Berkeley

Laura Meagher

North Carolina Biotechnology Center
—

OTA Commercial Biotechnology Project Staff

H. David Banta * and Roger Herdman, * * Assistant Director, OTA

Health and Life Sciences Division

Gretchen Schabtach Kolsrud, Program Manager, Biological Applications Program

Project Director through August 1982

Nanette Newell, Project Director from September 1982

OTA Congressional Science Fellow through August 1982

Thomas Bugbee, Research Assistant from February 1983

Susan Clymer, Research Analyst

Geoffrey M. Karny, Legal Analyst

Kerry B. Kemp, Health and Life Sciences Division Editor

Francis A. Packer 111, Research Analyst

Kay Smith, Analyst

James A. Thomas, Research Assistant from January 1983

Louise A. Williams, Senior Analyst

Raymond Zilinskas, Analyst through October 1982

Special Contributor

Robert M. Cook-Deegan, OTA Congressional Science Fellow

Administrative Assistant s

Susan Clymer through April 1982

Ted Wagner from May through August 1982

Fatimah Taylor from September 1982 through August 1983

Elma Rubright from September 1983

OTA publishing Staff

John C. Holmes, Publishing Officer

John Bergling Kathie S. Boss Debra M. Datcher Joe Henson

Glenda Lawing Linda A. Leahy Cheryl J. Manning

“Until August 1983,

* *From Dec. 26, 1983
Major Contractors

Antonelli, Terry, & Wands

Washington, D.C.

L. W. Bergman

Bergman & Co.

Princeton, N.J.

Michael Borrus

University of California

Berkeley, California

Dike, Bronstein, Roberts, Cushman, & Pfund

Boston, Mass.

Foreman & Dyess

Washington, D.C.

Elmer Gaden

University of Virginia

Charlottesville, Va.

Genex Corp.

Gaithersburg, Md.

Sheila Jasanoff

Cornell University

Ithaca, N.Y.

Kaye, Scholer, Fierman, Hays, & Handler

Washington, D.C.

Management Analysis Center

Cambridge, Mass.

James Millstein

New York, N.Y.

Norine Noonan

Georgetown University

Washington, D.C.

William O’Neill

Poly-Planning Services

Los Ahos, Calif.

Amelia Porges

Washington, D.C.

Gary Saxonhouse

University of Michigan

Ann Arbor, Mich.

Schwartz, Jeffery, Schwaab, Mack,

Blumenthal, & Koch, P.C.

Alexandria, Va.

Southern Research Institute

Birmingham, Ala.

Philip Lee

University of California

San Francisco, California

Madeline Vaquin

Paris, France

Virginia Walbot

Stanford University

Stanford, Calif.

Steven Zimmer

Brooklyn, N.Y.

vi
Contents

Chapter 1:

Chapter 2:

Chapter 3:

Page

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Part I: The Technologies

The Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Part II: Firms Commercializing Biotechnology

Firms Commercializing Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Part III: Applications of Biotechnology in Specific Industrial Sectors

Chapter 5: Pharmaceuticals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Chapter 6: Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

Chapter 7: Specialty Chemicals and Food Additives . . . . . . . . . . . . . . . . . . . . . . . . 195

Chapter 8: Environmental Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217

Chapter 9: Commodity Chemicals and Energy Production . . . . . . . . . . . . . . . . . . 237

Chapter 10:

Chapter 11:

Chapter 12:

Chapter 13:

Chapter 14:

Chapter 15:

Chapter 16:

Chapter 17:

Chapter 18:

Chapter 19:

Chapter 20:

Chapter 21:

Appendixes

A.

B.

c.

D,

E,

F.

G.

H.

Bioelectronics, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253

Analysis ofU.S. Competitiveness in Biotechnology

Framework for Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263

Financing and Tax Incentives for Firms. . . . . . . . . . . . . . . . . . . . . . . 269

Government Funding of Basic and Applied Research . . . . . . . . . . . . 307

Personnel Availability and Training . . . . . . . . . . . . . . . . . . . . . . . . . . 331

Health, Safety, and Environmental Regulation. . . . . . . . . . . . . . . . . . 355

Intellectual Property Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383

University/Industry Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411

Antitrust Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 435

International Technology Transfer, Investment, and Trade . . . . . . 453

Targeting Policies in Biotechnology. . . . . . . . . . . . . . . . . . . . . . . . . . . 475

Public Perception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489

Definitions of Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503

Country Summaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505

A Comparison of the U.S. Semiconductor Industry and Biotechnology. . . . 531

Firms in the United States Commercializing Biotechnology . . . . . . . . . . . . . 542

OTA/NAS Survey of Personnnel Needs of Firms in the United States . . . . . 547

Recombinant DNA Research Guidelines, Environmental Laws, and

Regulation of Worker Health and Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55o

Intellectual Property Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 564

Selected Aspects of U.S. University/IndustrV Relationships in Biotechnology 574 . “ . . / ”

1, List of Acronyms and Glossary of Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586

J. Currency Conversion Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 598

K. Other Contractors, Contributors, and Acknowledgments . . . . . . . . . . . . . . . 599

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 605

vii
Chapter 1

Summary

.
.

Contents

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

The Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Industrial Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . s

Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Industrial Applications of Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

The U.S. Competitive Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Analysis of International Competitiveness in Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

The Importance of Established and New Firms in the Commercialization of Biotechnology 11

Factors Potentially Important to International Competitiveness in Biotechnology . . . . . . . . . 12

Other Influences on Competitiveness in Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Issues and Options . . . . . . . . . . . . . . . . . . . . .. .. .. .. ... ... ...~... . . . . . . . . . . . . . . . . . . . . . . 22

Figures

Figure No). Page

l.Major Events in the Commercialization of Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2. The Relative Importance of Factors Affecting the Commercialization of Biotechnology . . . . 10
Chapter 1

Summary

Introduction

In the past 10 years, dramatic new developments in the ability to select and manipulate genetic material have sparked unprecedented interest in the industrial uses of living organisms.

Following the first successful directed insertion

of foreign DNA in a host microorganism in 1973,

scientific researchers in the United States and

other countries began to recognize the potential

for directing the cellular machinery to develop

new and improved products and processes in a

wide diversity of industrial sectors. Potential industrial applications of those novel genetic techniques include the production of new drugs, food,

and chemicals, the degradation of toxic wastes,

and the improvement of agricultural products.

Thus, these new techniques could have a major

economic impact on industries throughout the

world.

Beginning around 1976, many small entrepreneurial firms were formed in the United States

specifically to build on the growing body of fundamental knowledge in molecular biology and to

exploit it to a profitable end. Furthermore, large

established American, Japanese, and European

companies in a spectrum of industrial sectors expanded their research and development (R&D)

programs to include the new genetic techniques.

In the United States, private sector investments

to commercialize these new techniques exceeded

$1 billion in 1983.

This report assesses the competitive position of

the United States with respect to Japan and four

European countries-the Federal Republic of Germany, the United Kingdom, Switzerland, and

France—believed to be the major competitors in

the commercial development of “new biotechnology,” as defined below. Although the United

States is currently the world leader in both

basic science and commercial development of

new biotechnology, continuation of the initial

preeminence of American companies in the

commercialization of new biotechnology is

not assured. Japan and other countries have

identified new biotechnology as a promising area

for economic growth and have therefore invested

quite heavily in R&D in this field, Congressional

policy options for improving U.S. competitiveness

in new biotechnology are identified in this report.

Definitions

Biotechnology, broadly defined, includes any

technique that uses living organisms (or parts of

organisms) to make or modify products, to improve plants or animals, or to develop microorganisms for specific uses. Biological processes and

organisms have been used with great success

throughout history and have become increasingly sophisticated over the years. Since the dawn

of civilization, people have deliberately selected

organisms that improved agriculture, animal husbandry, baking, and brewing. More recently, a

better understanding of genetics has led to more

effective applications of traditional genetics in

such areas as antibiotic and chemical production.

This report focuses on the industrial use of

recombinant DNA (rDNA, cell fusion ~ a n d

novel bioprocessing techniques To differentiate between biotechnology using these novel

techniques and the more traditional forms of biotechnology, this report uses the terms ‘(new biotechnology” and “old biotechnology)” respectively. Thus, for example, traditional wine production is old biotechnology, but the use of yeast

modified with rDNA techniques to produce wine

with a higher alcohol content is new biotechnology. Where no specific distinction is made, the

term biotechnology alone henceforth refers to

new biotechnology.

Biotechnology is the most recent phase in a historical continuum of the use of biological organisms for practical purposes. Furthermore, developments arising from existing technologies are

providing a base from which other technologies

will emerge, and new technologies can make even

3
4 . Commercial Biotechnology: An International Analysis

the most potentially useful current technology obsolete in a short time. Of necessity, this assessment describes the development of biotechnology

at a particular point in time, but it is important

to emphasize that dynamic and progressive

change has characterized biotechnology for the

last decade. Figure 1 shows some prominent

events that illustrate the rapid progress made in

the development of biotechnology over the last

decade. This pace is likely to continue into the

21st century.

The technologies

The novel techniques used in biotechnolo

gy are extremely powerful because they allow

a large amount of control over biological systems Recombinant DNA technology, one of the

new techniques, allows direct manipulation of the

genetic material of individual cells. The ability to

direct which genes are used by cells permits more

control over the production of biological molecules than ever before. Recombinant DNA technology can be used in a wide range of industrial

sectors to develop micro-organisms that produce

new products, existing products more efficiently, or large quantities of otherwise scarce products. This technology can also be used to develop

organisms that themselves are useful, such as

microorganisms that degrade toxic wastes or new

strains of agriculturally important plants.

Cell fusion, the artificial joining of cells, combines the desirable characteristics of different

types of cells into one cell. This technique has

been used recently to incorporate in one cell the

traits for immortality and rapid proliferation from

certain cancer cells and the ability to produce

useful antibodies from specialized cells of the immune system. The cell line resulting from such

Figure 1 .—Major Events in the Commercialization of Biotechnology

1973 First gene cloned.

1974 First expression of a gene cloned from a different species in bacteria.

Recombinant DNA (rDNA) experiments first discussed in a public forum (Gordon Conference).

7975 U.S. guidelines for rDNA research outlined (Asilomar Conference).

First hybridoma created.

T976 First firm to exploit rDNA technology founded in the United States (Genentech).

Genetic Manipulation Advisory Group (U. K.) started in the United Kingdom. —

1980 Diamond v. Chakrabarty— U.S. Supreme Court rules that micro-organisms can be patented under existing law.

Cohen/Boyer patent issued on the technique for the construction of rDNA.

United Kingdom targets biotechnology (Spinks’ report).

Federal Republic of Germany targets biotechnology (Leistungsplan).

Initial public offering by Genentech sets Wall Street record for fastest price per share increase ($35 to $89 in 20

minutes).

T981 First monoclinal antibody diagnostic kits approved for use in the United States.

First automated gene synthesizer marketed.

Japan targets biotechnology (Ministry of International Trade and Technology declares 1981 “The Year of Biotechnology”).

France targets biotechnology (Pelissolo report).

Hoescht/Massachusetts General Hospital agreement.

Initial public offering by Cetus sets Wall Street record for the largest amount of money raised in an initial public

offering ($1 15 million).

Industrial Biotechnology Association founded.

DuPont commits $120 million for life sciences R&D.

Over 80 NBFs had been formed bv the end of the vear.

1982 First rDNA animal vaccine (for colibacillosis) approved for use in Europe.

First rDNA pharmaceutical product (human insulin) approved for use in the United States and the United

Kingdom.

First R&D limited partnership formed for the funding of clinical trials.

3 8 3 First plant gene expressed in a plant of a different species.

$500 million raised in U.S. public markets by NBFs.

SOURCE: Office of Technology Assessment
Ch. l—Summary ● 5

a fusion, known as a hybridoma, produces large

quantities of monoclinal antibodies (MAbs), so

called because they are produced by the progeny,

or clones, of a single hybridoma cell. MAbs can

potentially be used for many purposes, including

the diagnosis and treatment of disease and the

purification of proteins.

The commercial success of specific industrial

applications of rDNA and cell fusion techniques

will hinge on advances in bioprocess engineering.

Bioprocess technology, though not a novel genetic technique, allows the adaptation of biological

methods of production to large-scale industrial

use. Most industrial biological syntheses at present are carried out in single batches, and a small

amount of product is recovered from large quantities of cellular components, nutrients, wastes,

and water. Recent improvements in techniques

for immobilizing cells or enzymes and in bioreactor design, for example, are helping to increase production and facilitate recovery of many

substances. Additionally, new genetic techniques

can aid in the design of more efficient bioreac -

tors, sensors, and recovery systems. In the next

decade, competitive advantage in areas related

to biotechnology may depend as much on developments in bioprocess engineering as on

innovations in genetics, immunology, and

other areas of basic science.

The same technologies that yield commercial

products will also provide new research tools. The

new genetic technologies described above have

ignited an explosion of fundamental knowledge.

The widespread use of rDNA and cell fusion techniques in the investigation of a wide variety of

biological phenomena in plants, animals, microorganisms, and viruses highlights the impact of

these technologies on basic science research and

the advances in fundamental knowledge that they

make possible. This new knowledge, in turn, may

reveal new commercial opportunities.

Industrial development

Biotechnology could potentially affect any current industrial biological process or any process

in which a biological catalyst could replace a

chemical one. As discussed in this report, industrial applications of biotechnology will be

found in several industrial sectors, including

pharmaceuticals, animal and plant agriculture, specialty chemicals and food additives,

environmental areas, commodity chemicals

and energy production, and bioelectronics.

The industrial sector in which the earliest applications of new biotechnology have occurred

is the pharmaceutical sector. Reasons for the

rapid diffusion of the new techniques into the

pharmaceutical sector include the following:

●

●

●

Recombinant DNA and MAb technologies

were developed with public funds directed

toward biomedical research. The first biotechnology products, such as rDNA-produced

human insulin, interferon, and MAb diagnostic kits, are a direct result of the biomedical

nature of the basic research that led to these

new technologies.

Pharmaceutical companies have had years of

experience with biological production methods, and this experience has enabled them

to take advantage of the new technologies.

Pharmaceutical products are high value-

-added and can be priced to recover costs incurred during R&D, so the pharmaceutical

sector is a good place to begin the costly

process of developing a new technology.

Because of the rapid diffusion of the new genetic techniques into pharmaceutical R&D programs, the pharmaceutical sector is currently

most active in commercializing biotechnology. For

this reason, it serves as a model for the industrial

development of biotechnology in much of this report. It is important to recognize, however, that

the development of biotechnology in other industrial sectors will differ from its development in

the pharmaceutical sector. Regulatory and trade

barriers and a marketing and distribution system

unique to the pharmaceutical sector limit its usefulness as a model. Furthermore, the techniques

may not diffuse as rapidly into other industrial

sectors, such as the chemical industry, because

of difficulties companies may have in recovering

investments in R&D and physical plants required

to convert to biological methods of production.
6 ● Commercial Biotechnology: An International Analysis

Findings

Industrial applications of

biotechnology

The earliest industrial applications of biotechnology (i.e., during the next 5 to 10 years) are likely to occur in pharmaceuticals, animal agriculture,

and specialty chemicals. Applications of biotechnology to pharmaceuticals being pursued at

present are in the production of proteins such

as insulin, interferon, and human serum albumin;

antibiotics; MAb diagnostics; and vaccines for

viral, bacterial, and parasitic diseases. As more

is learned about hormone growth factors, immune regulators, and neurological peptides, their

importance in the treatment of disease may increase dramatically. Eventually, the production

of such regulatory proteins may turn out to be

the largest application of biotechnology in the

pharmaceutical industry. U.S. companies pursuing biotechnological applications in pharmaceuticals include many of the established pharmaceutical companies* and a large number of small, entrepreneurial new biotechnology firms (NBFs). * *

Additionally, many established companies in other

sectors are using biotechnology as a way to diversify into pharmaceuticals.

In animal agriculture, biotechnology is being

used to develop products similar to those being

developed in the pharmaceutical industry. However, since animal producers cannot afford to

purchase expensive products made with new

technology, biotechnologically produced products

may initially be limited to products for “high

value” animals such as pets and breeding stock.

The most important products are likely to be vaccines and growth promotants.

Unlike the production of pharmaceuticals, the

production of animal health products using traditional technologies is not dominated by a few

large companies. Additionally, the animal agriculture industry differs from the pharmaceutical in-

*Establisheci companies pursuing applications of biotechnolo~v

are generally processmienkd, multiproduct companies in traditional

industrial sectors such as pharmaceuticals, energy, chemicals, and

food processing.

● *NBFs, as defined in this report, are entrepreneurial ventures

started specifically to pursue applications of biotechnology.

dustry in that the regulatory requirements for

animal health products, especially for vaccines

and diagnostics, are significantly less stringent

than for human health products; markets for animal products are smaller and more accessible; and

the distribution and delivery systems are different. Because of these features, many NBFs are

finding animal agriculture an attractive field for

the application of biotechnology.

The potential applications of biotechnology are

probably more varied for specialty chemicals

(i.e., chemicals costing more than $Iflb) and food

additives* than for any other industrial sector

at the present time. Possible applications include

improvements in existing bioprocesses, such as

in the production of amino acids. Other products,

such as vitamins and steroid compounds, are currently made in multistep production processes involving chemical syntheses. Biotechnology could

provide one or more enzymatic conversion process to increase the specificity of currently used

chemical conversions. Generally, complex products, such as enzymes and some polysaccharides,

can only be made economically using bioprocesses. The production of specialty chemicals represents one of the largest opportunities for the

application of biotechnology because of the diversity of potential applications. Several companies

in the United States are pursuing biological production of specialty chemicals, but most specialty chemicals currently produced biologically are

made almost exclusively in Japan and Europe, and

these countries intend to pursue new applications

for specialty chemical production.

Applications of rDNA technology to plant agri=

culture are proceeding faster than anyone anticipated 3 to 4 years ago. Some important traits of

plants, including stress-, herbicide-, and pestresistances, appear to be rather simple genetically,

and it may be possible to transfer these traits to

important crop species in the next few years.

Other traits, such as increased growth rate, increased photosynthetic ability, and the stimula-

“Fod additives are considered together with specialty chemicals

because many (though not all) food additives are also specialty chemicals, e.g., amino acids and vitamins.
Ch. I—Summary ● 7

tion of nitrogen fixation, are genetically complex,

and it is likely to be several years before plants

with these characteristics developed with rDNA

technology will be ready for field testing. Microorganisms that interact with plants offer possibilities for genetic manipulation that may be more

near-term. For instance, it may be possible to manipulate micro-organisms to produce pesticides

or inhibit frost formation. Companies pursuing

these applications include many NBFs and established companies in agricultural chemicals and

seed production.

Environmental applications of biotechnology

include mineral leaching and metal concentration,

pollution control and toxic waste degradation, and

enhanced oil recovery. These applications may

take longer to reach the market, because little is

known of the genetics of the most potentially

useful micro-organisms. Additionally, regulation

is expected to be a major factor influencing development of this area because these applications

use microorganisms that are deliberately released

into the environment. The nature and extent of

this regulation remains uncertain, and this uncertainty may deter some firms from entering the

field, thus slowing development.

Commodity chemicals, which are now produced from petroleum feedstocks, could be produced biologically from biomass feedstocks such

as cornstarch and lignocellulose. Commodity

chemical production from cornstarch will probably occur before production from lignocellulose

because of the high energy inputs necessary for

the solubilization of lignocellulose. Although the

technology exists now for the cost+ ffective biological production of some commodity chemicals

such as ethanol, the complex infrastructure of the

commodity chemical industry will prevent the replacement of a large amount of commodity chemical production using biotechnology for at least 20

years. This distant time horizon is due more to

the integrated structure of the chemical industry,

its reliance on petroleum feedstocks, and its low

profit margins than to technical problems in the

application of the biotechnology.

In the area of bioelectronics, biotechnology

could be used to develop improved biosensors or

new conducting devices called biochips. Sensors

that use enzymes for detecting specific substances

are available now. However, their use is limited

by the narrow range of substances they detect

and by their temperature instability. Biotechnology could be instrumental in the development of

more versatile sensors that use enzymes or MAbs.

Better sensors would be especially useful in the

control of industrial bioprocesses. Biotechnology

may also make it possible to construct devices that

use proteins as a framework for molecules that

act as semiconductors. The anticipated advantages of these biochips are their small size, reliability, and the potential for self assembly. The production of biochips, however, is one of the most

distant applications of biotechnology.

The U.S. competitive position

A well-developed life science base, the

availability of financing for high-risk ventures, and an entrepreneurial spirit have led

the United States to the forefront in the commercialization of biotechnology. For the most

part, the laws and policies of this country have

made it possible for industrialists and scientists

to capitalize rapidly on the results of basic research in biotechnology conducted in the university system and government laboratories. The relative freedom of U.S. industry to pursue a variety of courses in the development of products has

also given the United States a comparative advantage. The flexibility of the U.S. industrial system

and the plurality of approaches taken by entrepreneurial NBFs and established companies in the

development of products have facilitated the rapid

development of biotechnology in the United States.

Japan is likely to be the leading competitor

of the United States for two reasons. First, Japanese companies in a broad range of industrial

sectors have extensive experience in bioprocess

technology. Japan does not have superior bioproc -

ess technology, but it does have relatively more

industrial experience using old biotechnology,

more established bioprocessing plants, and more

bioprocess engineers than the United States. Second, the Japanese Government has targeted biotechnology as a key technology of the future, is

funding its commercial development, and is

coordinating interactions among representatives
8 ● Commercial Biotechnology: An International Analysis

from industry, universities, and government. The

United States may compete very favorably

with Japan if it can direct more attention to

research problems associated with the scaling-up of bioprocesses for production

The European countries are not moving as

rapidly toward commercialization of biotechnology as either the United States or Japan, in

part because the large established pharmaceutical

and chemical companies in Europe have hesitated

to invest in biotechnology and in part because of

cultural and legal traditions that tend not to promote venture capital formation and, consequently, risk-taking ventures. Nevertheless, several of

the large pharmaceutical and chemical houses in

the United Kingdom, the Federal Republic of

Germany, Switzerland, and France will surely be

competitors in selected product areas in the

future because of their prominent position in

world sales of biologically derived products. Additionally, the increased interest shown recently

by the British Government in biotechnology may

speed its development in the United Kingdom.

The United States could have difficulty

maintaining its competitive position in the

future if several issues are not addressed. If

U.S. Government funding for basic life science

research continues its decline, the science

base, which is the source of innovation in bio

technology as well as in other fields, may be

eroded. U.S. Government funding of generic

applied research, * especially in the areas of

bioprocess engineering and applied micro

biology, is currently insufficient to support

rapid commercialization U.S. Government

funding for personnel training in these areas

may also be insufficient. Additionally, clarification and modification of certain aspects of

U.S. health, safety, and environmental regulation and intellectual property law may be

necessary for the maintenance of a strong U.S.

competitive position in biotechnology.

● Generic applied research, which is nonproprietary and bridges

the gap between basic research and applied research, is aimed at

the solution of generic problems that are associated with the use

of a technology by industry.

Analysis of international competitiveness

in biotechnology

Often international competitiveness is defined

as the relative ability of firms based in one country to develop, produce, and market equivalent

goods or services at lower costs than firms in

other countries. Competitiveness is a matter of

relative prices, and these usually reflect relative

costs of developing, producing, and distributing

goods and services. In the case of biotechnology,

two factors preclude a traditional analysis of international competitiveness. First, standard analyses

of competitiveness examine the marketing of

products, but as of the end of 1983, only a few

products of new biotechnology had reached the

marketplace—notably human insulin, some MAb

diagnostic kits, and some animal vaccines. Most

of these products are substitutes for already existing products, and the markets are well defined

and relatively limited, Furthermore, even the markets for some new animal vaccines are quite small

when compared to potential markets for applications of biotechnology in the production of some

chemicals or new crop plants. Thus, the biotechnology products that have reached the market to

date may be inaccurate indicators of the potential commercial success in world markets of the

much larger number of biotechnology products

and processes still in R&D stages. Which of the

biotechnology products and processes in development are likely to be marketed and when cannot be accurately predicted. Second, even with

many more products on the market, a traditional

competitive analysis might not be appropriate

because an economic analysis of competitiveness

usually addresses a specific industrial sector. The
Ch. l—Summary ● 9

set of techniques that constitute biotechnology,

however, are potentially applicable to many industrial sectors.

Since the technologies are still emerging and

most biotechnology products and processes are

in early development, most of this report focuses

on potential rather than actual products and processes. In the case of biotechnology, knowledge

about market size, distribution systems, customers, production* processes, and learning curve

economies is lacking. Thus, traditional parameters

of competitiveness are difficult or impossible to

estimate. Instead of examining the classical measures of competitiveness, this analysis of international competitiveness in biotechnology examines

the aggregate industrial activity in biotechnology

in both domestic and foreign firms and 10 factors that might be influential in determining the

competitive position of the United States and

other countries with respect to the commercialization of biotechnology.

In investigating competitiveness in biotechnology, this report analyzes the commercialization

efforts of five countries in addition to the United

States: Japan, the Federal Republic of Germany,

the United Kingdom, Switzerland, and France.

Although companies from many countries will

have biotechnology products in world markets,

these five countries were selected because of their

research capabilities in biology and their existing

capabilities in old biotechnology and because, as

a whole, their companies are most likely to reach

world markets first with biotechnology-produced

products. Japan leads the world both in the microbial production of amino acids and in large-scale

plant cell culture, and it has a strong position in

new antibiotic markets. Japan is also the world

leader in traditional bioprocess engineering. Furthermore, the Ministry of International Trade and

Industry (MITI) in Japan has designated biotechnology for industrial development. The European

pharmaceutical houses, notably in the United

Kingdom, France, the Federal Republic of Germany, and Switzerland, lead the world in pharmaceutical sales. Like Japan, three of these European countries, the Federal Republic of Germany,

the United Kingdom, and France, have national

plans for the promotion of biotechnology. The

Federal Republic of Germany and the United Kingdom have good basic biology research and especially good bioprocess engineering research.

The first step in the analysis of international

competitiveness in biotechnology was to consider

the aggregate level of industrial activity and the

number and kinds of firms commercializing biotechnology in the competitor countries. OTA’S industrial analysis, presented in Chapter 4: Firms

Commercializing Biotechnolo~, was approached

from three perspectives:

●

●

●

the number and kinds of companies commercializing biotechnology,

the markets targeted by industrial biotechnology R&D, and

the interrelationships among companies applying biotechnology and the overall organization of the commercial effort.

The analysis began with the United States and

comparisons were then made with other countries.

The second step in providing an overall picture

of competitiveness in biotechnology invoIved the

evaluation of the following 10 factors identified

as potentially important in determiningg the future

position of the United States and other countries

in the commercialization of biotechnology:

●

●

●

●

●

●

●

●

●

●

The

financing and tax incentives for firms;

government funding ’of basic and applied research;

personnel availability and training;

health, safety, and environmental regulation;

intellectual property law;

university/industry relationships;

antitrust law;

international technology transfer, investment, and trade;

government targeting policies in biotechnology; and

public perception.

relative importance of each of the factors was

first evaluated-to determine their importance to

competitiveness today (see fig. 2) and which ones

could be important as the technology matures and

more products reach the marketplace. Then, each

of the factors was analyzed for each of the six

competitor countries: the United States, Japan,

the Federal Republic of Germany, the United

25-561 0 - 84 - 2
10 ● Commercial Biotechnology: An International Analysis

Figure 2.—The Relative Importance of Factors Affecting the Commercialization of Biotechnology

[

Commercialization

of

biotechnoloav )

I

I

I

SOURCE Office of Technology Assessment

Kingdom, Switzerland, and France. Since the importance to competitiveness of any given factor

is not necessarily the same for every industrial

sector in which applications are being pursued—

for instance, a country’s intellectual property laws

may protect pharmaceuticals better than plants—

the importance of each factor was evaluated for

different industrial sectors.

Additional considerations taken into account in

the analysis are historical patterns of industrial

commercialization, the lack or abundance of particular natural resources, and the tendency

toward risk taking in each country. These other

considerations were used as modifiers of the

results of the analysis.

OTA’S principal findings with respect to the

types and activities of firms commercializing biotechnology, the factors potentially important to

international competitiveness in biotechnology,

and the other considerations just mentioned are

presented below.
 Ch. l—Summary ● 1 1

The importance of established and

new firms in the commercialization

of biotechnology

U.S. and foreign efforts to develop and commercialize biotechnology differ substantially in character and structure. In the United States, two distinct sets of firms are pursuing commercial applications of biotechnology -NBFs and established

companies. Because NBFs were founded specifically to exploit perceived research advantages,

they are providing the United States with a commercial edge in the current research-intensive

phase of biotechnology’s development. Through

their R&D efforts, NBFs are contributing to innovation, expansion of the U.S. research base,

technology diffusion, and encouragement of technical advances through the increased domestic

competition they create. All of these contributions

provide the United States with a competitive

advantage.

Although NBFs have assumed much of the risk

for biotechnology’s early development in the

United States, established U.S. companies are

making substantial contributions to the U.S. commercialization effort. Through equity investments

and licensing and contract research agreements

with NBFs, established U.S. companies are providing many NBFs with the necessary financial

resources to remain solvent. Through joint development agreements with NBFs, many established companies will also provide the necessary

production and marketing resources to bring

many NBF products to world markets. These resources could help to sustain the rapid pace of

technical advance spurred by NBFs. Recently,

more and more established U.S. companies have

been investing in their own research and production facilities, so the role of established companies

in the U.S. biotechnology effort is expanding.

U.S. efforts to commercialize biotechnology

are currently the strongest in the world. The

strength of U.S. efforts is in part derived from

the unique complementarily and competition that

exists between NBFs and established U.S. companies in developing biotechnology for wider

commercial application. At present, most NBFs are

still specializing in research-oriented phases of development, precisely the commercial stage where

they excel. The established companies, on the

other hand, have assumed a major share of the

responsibility for production and marketing of,

and, when necessary, obtaining regulatory approval for, many of the earliest biotechnology

products— the commercial stages where their resources are strongest. Since established companies control the later stages of commercialization for many new products being developed

through production and marketing agree

ments with NBFs, they will also have considerable control over the pace at which these

new products reach the market. Whether the

dynamism arising fmm the competition and

complementarily between NBFs and estab

lished companies will continue giving the

United States a comparative advantage in the

context of product introduction remains unclear. Some established companies, for example,

might have disincentives to market new products

because the new products might compete with

products they already have on the market.

In Japan, the Federal Republic of Germany, the

United Kingdom, Switzerland, and France, biotechnology is being commercialized almost exclusively by established companies. The Japanese consider biotechnology to be the last major technological revolution of this century,

and the commercialization of biotechnology

is accelerating over a broad range of industries, many of which have extensive bioprocessing experience. The general chemical and

petroleum companies especially are leaning

strongly toward biotechnology, and some of them

are making rapid advances in R&D through their

efforts to make biotechnology a key technology

for the future. In Europe, large pharmaceutical

and chemical companies, many of which already

have significant strength in biologically produced

product markets, are the major developers of

biotechnology. Their inherent financial, production, and marketing strengths will be important

factors as the technology continues to emerge

internationally.

The commercial objectives of biotechnology

R&D vary across national boundaries. In the

United States, commercial research projects appear primarily focused on pharmaceutical and

plant and animal agriculture, and American com-
12 ● Commercial Biotechnology: An International Analysis

petitive vigor in these application areas is correspondingly strong. Much of the investment in

animal agriculture has been made by NBFs

whereas much of the investment in plant agriculture has been made by major U.S. agrichemical

companies.

In Japan, a competitive drive has been launched

to enter international pharmaceutical markets.

Furthermore, Japanese companies are world leaders in large-scale plant tissue culture, and MITI

has identified secondary compound synthesis

from plants as a major area for commercialization. Unlike the United States, Japanese companies

appear to be dedicating a great deal of biotechnology R&D to specialty chemical production, an

area where they are already internationally

prominent.

To the extent that large companies in Europe

began their commercialization efforts later than

U.S. companies and may also lack the dynamism

and flexibility to compete with the combined efforts of NBFs and established companies in the

United States, European companies could initially be at a competitive disadvantage. The United

Kingdom’s major pharmaceutical companies are

among the leading producers of biologically produced products, however, and their expertise in

bioprocessing is impressive. Furthermore, the

United Kingdom possesses some of the strongest

basic research in interdisciplinary plant sciences.

Whether or not the basic research will be commercialized successfully is difficult to predict.

U..S. competitive strength in biotechnology will

be tested when large-scale production begins and

bioprocessing problems are addressed. Pharmaceutical markets will be the first proving ground

for U.S. competitive strength. The Japanese have

extensive experience in bioprocess technology,

and dozens of strong “old biotechnology” companies from several industrial sectors in Japan are

using new biotechnology as a lever to enter profitable and expanding pharmaceutical markets. In

addition to competing against Japanese companies, U.S. pharmaceutical and chemical companies will be competing against pharmaceutical and

chemical companies of Western Europe, all of

whom expect to recover their biotechnology investments through extensive international market

penetration. There seem to be fewer European

companies than Japanese companies strong in biotechnology now, but the competitive strength of

European multinationals such as Hoechst (F. R.G.),

Rhone Poulenc and Elf Aquitaine (France), ICI,

Glaxo, and Wellcome (U.K.), and Hoffmann-La

Roche (Switzerland) in the long run should not

be underestimated.

Factors potentially important to

international competitiveness

in biotechnology

MOST IMPORTANT FACTORS

The three factors most important to the commercial development of biotechnology are financing and tax incentives for firms, government

funding of basic and applied research, and personnel availability and training.

Financing and Tax Incentives for Firms—

The availability of venture capital to start new

firms and tax incentives provided by the U.S.

Government to encourage capital formation

and stimulate R&D in the private sector are

very important to development of biotechnology in the United States. Since 1976, private venture capital in the United States has funded the

startup of more than 100 NBFs. Many of these

firms have already obtained second- and thirdround financing, while others, still seeking additional funds, are relying heavily on the currently strong stock market, R&D limited partnerships,

and private placements to fund research, production scale-up, clinical trials, and early product

development. Between March and July of 1983,

23 NBFs raised about $450 million. R&D limited

partnerships in biotechnology are expected to

total $500 million in 1983 and $1.5 billion by 1984.

Corporate equity investment in NBFs, although

now diminishing, has also been an important

source of financing for the new firms. From 1977

to August 1983, corporate venture capital supplied over $350 million to NBFs in equity investments alone.

Current price/earnings ratios* for NBFs appear

high, because most NBFs still have negative earn-

*A price/earnings ratio (~~&~e;p~cWPL;?&-) reflects the stock market’s anticipation of the company’s future performance based on

the earnings per share.
Ch. I—Summary ● 1 3

ings records. Continued reliance on the stock

market and R&D limited partnerships to raise

funds will place increased pressure on the new

firms to begin showing profits. If NBFs do not

begin showing profits within the time frame expected by investors, additional financing from

public offerings and R&D limited partnerships

may be difficult to obtain.

The future performance of NBFs now extensively using the stock market and R&D limited partnerships for financing may influence the availability of financing for other firms seeking capital

in the future. If some of these companies do not

begin to manufacture soon in order to generate

product revenues, investors may lose confidence

in many of the firms’ ability to commercialize

biotechnology.

In the United States, venture capital is generally more difficult to obtain for later rounds of

financing than for initial rounds, in part because

venture capitalists are more eager to invest in the

earlier rounds to maximize their investment returns. The difficulty in getting subsequent financing for production scale-up may prove to be an

insurmountable problem for some NBFs; the ability to self-finance may still be 5 to 10 years away.

Of all the six competitor countries, the United

States has the most favorable tax environment for

capital formation and financing small firms. Tax

incentives, more than government funding, are

used in the United States to stimulate business

and encourage R&D expenditures. Thus, R&D

limited partnerships, low capital gains tax rates,

R&D tax credits (due to expire in 1985), and subchapter S provisions all benefit small firms.

In Japan and the European competitor countries, venture capital has played a very minor role

in the commercialization of biotechnology, because these countries do not have tax provisions

that promote the formation of venture capita-1 and

investment in high-risk ventures. As a consequence, few NBFs exist outside the United States.

Instead, established foreign companies have

initiated efforts to commercialize biotechnology

because they generally can finance R&D activities

through retained earnings. Established companies

also have access to financing from bank loans. Additionally, the governments of Japan, the United

Kingdom, the Federal Republic of Germany, and

France have provided the private sector with

public funds for biotechnology.

After the United States, Japan has the most

financing available for companies using biotechnology. The Japanese Government has made

the commercialization of biotechnology a national priority and is financing cooperative interindustry biotechnology projects. Most of

the established companies commercializing biotechnology in Japan have at least one bank as a

major shareholder that provides the company

with low-interest loans for R&D. Wealthy individual investors in Japan, although few in number, have also provided some risk capital for new

ventures.

Tax incentives relevant to established companies commercializing biotechnology are those

which stimulate R&D investments and those

which encourage capital formation. Corporate tax

rates are also important. For purposes of international comparisons, the most reliable basis is

the overall effective corporate tax rate. Unlike

statutory rates, the effective rate takes into account different definitions of taxable income and

treatments of depreciation. Available studies suggest that Switzerland, followed by Japan and the

United Kingdom, have the lowest effective corporate tax rates. The effective rates in the United

States, the Federal Republic of Germany, and

France are higher and about equal.

Government Funding of Basic and Applied

Research.-The objective of basic research is to

gain a better understanding of the fundamental

aspects of phenomena without goals toward the

development of specific products or processes.

Such research is critical to maintaining the science

base on which a technology rests and to stimulating advances in a technology. Basic research

is usually conducted by academic researchers

who receive government funds. The objective of

applied research is to gain the knowledge needed

to supply a recognized and specific need, through

a product or process. Such research is usually

funded by industry. Generic applied science can

be viewed as bridging a gap between basic science

done mostly in universities and applied, proprietary science done in industry for the development
— —

14 ● Commercial Biotechnology: An International Analysis

of specific products. Such research is aimed at

the solution of general problems that are associated with the use of a technology by industry.

Generic applied research areas in biotechnology,

for instance, include development of bioreactors,

screening of microorganisms for potential products, and better understanding of the genetics and

biochemistry of industrially important microorganisms. Support of basic science and of generic

applied science is generally viewed as the responsibility of government, because it ultimately contributes to the public good and because it is high

risk and too expensive for individual firms.

Controversy exists over the relative importance

of national support of basic and applied science.

Some argue that since the findings of basic research are readily accessible worldwide because

they are published in journals with international

distribution, strong government support for basic

research is therefore not required for the maintenance of a leading position in the development

of a technology. Others argue that the development of a technology within a country will progress faster if companies have access to local basic

research scientists for consulting and contractual

arrangements. Domestic technology transfer can

help give industry a lead in innovation.

Of the competitor countries, the United

States, both in absolute dollar amounts and in

relative terms, has the largest commitment to

basic research in biological sciences Like the

United States, the Federal Republic of Germany,

the United Kingdom, and Switzerland have a

strong basic science base. On the other hand, the

U.S. Government% commitment to generic ap

plied research in biotechnology is relatively

small The governments of Japan, the Federal

Republic of Germany, and the United Kingdom

fund a significant amount of generic applied

science in biotechnology.

During the past few decades, the U.S. Government increased its commitment to basic biological sciences, although this commitment has decreased in the last few years. While the Government was increasing its commitment to basic

science, there was a concomitant decrease in its

commitment to generic applied fields such as

bioprocess engineering and applied microbiology.

The rationale for this policy has been that most

applied science, regardless how general, is the

responsibility of industry. This policy has contributed to a widening scientific gap between

purely basic research funded by the U.S. Government and short-term, relatively product-specific

applied research funded by private industry.

In fiscal year 1983, the Federal Government

spent $511 million on basic biotechnology re

search ● compared to $6.4 million on generic

applied research in biotechnology. The relatively low level of U.S. Government funding

for generic applied research in biotechnology

may cause a bottleneck in this country’s bio

technology commercialization efforts,

The Japanese Government, in contrast, is devoting proportionately more public funding to the

solution of generic applied science problems than

to basic research, The pattern of funding in Japan

may reflect a policy of placing a greater priority

on generic applied research in lieu of basic research because the Japanese may rely on the

United States and other countries to prove the

early feasibility of new technologies for commercialization. This strategy worked well in the semiconductor industry, and Japan may very well ,

attain a larger market share for biotechnology

products than the United States because of its

ability to rapidly apply results of basic research

available from other countries,

Personnel Availability and Training.—Adequately trained scientific and technical personnel are vital to any country’s industrial competitiveness in biotechnology. For the most part,

countries with good science funding in a field also

have a good supply of well-trained people in that

field.

The commercial development of biotechnology

will require several specific types of technical personnel. Especially important categories include

specialists in rDNA and MAb technology such as

molecular biologists and immunologists; specialists in scale-up and downstream processing such

as microbiologists, biochemists, and bioprocess

engineers; and specialists for all aspects of biotechnology such as enzymologists and cell culture

● From $20 million to $30 million of the $511 million may actually be generic applied research, because definitions of biotechnology

differ among agencies.
Ch. l—Summary ● 1 5

specialists. Scale-up personnel will become more

important as companies using biotechnology

move into production.

The United States currently has a competitive edge in the supply of molecular biologists

and immunologists able to meet corporate

needs, in part because the U.S. Government

has provided substantial funding since World

War 11 for basic life sciences research in U.S.

universities The supply of Ph. D. plant molecular biologists and scaleup personnel in the

United States, however, may be inadequate.

Like the United States, the United Kingdom and

Switzerland have funded life sciences well and

have a sufficient supply of basic biological scientists. Unlike the United States, Japan, the United

Kingdom, and the Federal Republic of Germany

maintained a steady supply of both industrial and

government funding for generic applied microbiology and bioprocess engineering in the past

few decades and have adequate personnel in

these fields. In Japan and the Federal Republic

of Germany, slight shortages of molecular biologists and immunologists exist; Japanese companies

are seeking to train personnel abroad. France appears to have shortages in all types of personnel.

The training of personnel is important to the

continuing commercialization of biotechnology.

The United States has, for the most part, good

training programs for basic scientists. Specialists

in plant molecular biology may be in short supply now, but training in this discipline can be

readily achieved with interdisciplinary programs

in biology departments in universities. On the

other hand, the United States does not have more

than a handful of training programs for personnel in the more applied aspects of biotechnology,

nor does it have Government programs, such as

training grants, to support training in these fields.

The training of bioprocess engineers and industrial microbiologists will require greater interdisciplinary cooperation between engineering and

biology departments within universities.

The United States promotes and funds the training of foreign nationals in laboratories in the

United States, yet funds very little training of

Americans abroad. Foreign countries have many

significant research programs in biotechnology

that U.S. researchers could be visiting were funding available.

FACTORS OF MODERATE IMPORTANCE

The three factors found to be of moderate

importance to international competitiveness in

biotechnology are health, safety, and environmental regulation; intellectual property law; and

university/industry relationships.

Health, Safety, and Environmental Regulation.—The analysis of the effect of health, safety, and environmental regulation on competitiveness in biotechnology was made by determining how restrictive a country’s laws would be with

respect to marketing biotechnology products and

whether there were any uncertainties about their

application. The analysis focused on the drug laws

for humans and animals and, to a lesser extent,

on laws governing the production of chemicals

and the deliberate release of novel organisms into

the environment. In all the competitor countries, there is some uncertainty as to the environmental regulation governing the deliber

ate release into the environment of genetically

manipulated organisms.

The only government controls directed specifically toward biotechnology are the rDNA guidelines adopted by the six competitor countries.

They are essentially voluntary and directed primarily at research. Their containment and oversight provisions have been substantially relaxed

since they were originally adopted, and this trend

is expected to continue. The United States has the

most liberal guidelines, whereas Japan has the

most stringent.

Since companies generally approach domestic markets first, the countries with the least

stringent regulation may have products on the

market earlier. Japan has the most stringent

health and safety regulation for pharmaceuticals

and animal drugs, followed by the United States.

Switzerland appears to be the most liberal. Thus,

the regulatory environment favors the European companies over those of Japan and the

United States reaching their own domestic

markets sooner for pharmaceuticals and animal drugA In the United States, the Food and
16 ● Commercial Biotechnology: An International Analysis

Drug Administration has taken the position that

rDNA products whose active ingredients are identical to ones already approved or to natural

substances will still need to go through the new

product approval process. However, data requirements may be modified and abbreviated. This appears not to be the situation in the competitor

countries, although there have not been definitive

pronouncements by their regulatory agencies.

Regulation may also influence where companies

locate their production facilities. A country with

liberal regulation may attract production facilities

and, as a consequence, gain access to technology,

Alternatively, companies may set up facilities in

the United States and Japan regardless of regulation because of market size and as a way to avoid

certain nontariff trade barriers on imports. NBFs

may not have the capital to establish foreign subsidiaries in order to avoid regulatory barriers.

Thus, they may beat a competitive disadvantage

with respect to larger firms for entering world

markets.

Countries wishing to market their products

abroad will have to abide by the regulations of

the countries to which they are exporting. Thus,

countries can control access to their domestic

markets by the regulations they impose. This is

a form of nontariff trade barrier. These barriers

are considered further in the discussion of trade

policy.

Intellectual Property Law.—The ability to

secure property interests in or otherwise protect

processes, products, and knowhow will encourage development of biotechnology, because it provides incentives for a private company to invest

the time and money for R&D. Without the ability to prevent competitors from taking the results

of this effort, many new and risky R&D projects

would not be undertaken. Thus, a strong intellectual property law system will enhance a country’s

competitiveness in biotechnology.

The areas of intellectual property law most relevant to biotechnology are those dealing with

patents, trade secrets, and plant breeders’ rights.

These areas work together as a system; an invention may be protected by one or more of them,

and if one has disadvantages, a company can look

to another. Thus, to the extent that a country’s

intellectual property law provides several alternative ways for companies to protect biotechno -

logical inventions, it is more likely to be competitive in biotechnology.

The patent laws of the competitor countries

provide fairly broad protection for biotechnological inventions, but the laws differ to some

degree in the types of inventions that are protected, the effect of publication on patent rights,

and the requirements regarding public disclosure

of the invention, which is the quid pro quo for

the grant of the patent. The United States provides the widest coverage, Patents are available

for living organisms (including plants and possibly

animals), their products, their components, and

methods for making or using all of these. In addition, patents can be granted on therapeutic and

diagnostic methods, In the United Kingdom, the

Federal Republic of Germany, France, Switzerland, and Japan, patent coverage is almost as

broad, but patents are not permitted on plants

and animals nor on therapeutic and diagnostic

methods. In addition, Switzerland does not permit patents on microaganisms. In Japan, the

relatively strict guidelines governing rDNA research also may bar patents on those genetically

manipulated organisms viewed as hazardous.

With regard to the effect of publication on patent rights, the United. States also has a slight advantage over the other countries analyzed here.

The four European countries do not permit a patent to be granted to an inventor who has disclosed

his or her invention in a publication before the

patent application is filed, assuming the disclosure

enables others to make it. This absolute novelty

requirement is viewed as impeding the free exchange of scientific information and possibly providing a disincentive for scientists to seek patent

rights. The United States, on the other hand, provides a l-year grace period between the date that

an inventor publishes an article and the date on

which the patent application must be filed. Japan

provides a 6-month grace period for certain activities, such as presenting scientific papers. The

U.S. advantage is limited, however, because when

U.S. inventors wish to secure patents in other

countries, they must refrain from publication in

order to protect their patent rights in those

countries.
Ch. l—Summary ● 1 7

The patent Iaw requirement that an invention

be described in sufficient detail so that it could

be replicated creates unique problems for biological inventions. Since a living organism generally

cannot be described in writing with sufficient

specificity to allow others to make and use it,

granting of patents on such organisms and methods of using them generally is contingent on their

deposit in a public depository. However, these deposits, in effect, turn over the factory for making a product to one’s competitors, unlike patents

in other technologies. The four European countries, and particularly the Federal Republic of Germany, place restrictions on access to such deposits

that may be advantageous for their inventors.

Most aspects of biotechnology lend themselves

to protection as trade secrets, and owners of such

technology may rely on trade secrets when patent rights are uncertain or when they judge trade

secrecy to be more advantageous. All of the competitor countries protect trade secrets relating to

biotechnology, but the Federal Republic of Germany and, to a lesser extent, Switzerland, provide the greatest degree of protection. Japan appears to provide the least degree of protection.

All of the competitor countries recognize property rights in new varieties of plants, but the

United States provides the greatest degree of protection. Protection in the United States is most

favorable because the plant breeder has the

greatest number of options among which to

choose in securing property rights for a new variety of plant, including pursuing a patent under

the traditional patent laws.

In the final analysis, the U.S. intellectual prop

erty system appears to offer the best protection for biotechnology of any system in the

world, thus providing the United States with a

competitive advantage with regard to this factor.

This advantage results from the fact that the

system provides the widest choice of options for

protecting biotechnological inventions, the broadest scope of coverage, and some of the best procedural safeguards.

University/Industry Relationships.-A factor

that has moderate overall importance is the relationship that exists between universities and industries. Interest in the commercial potential of

biotechnology has dramatically increased university/industry interactions, especially in the United

States. Established U.S. and foreign companies

have invested substantial amounts of money in

U.S. universities doing work in biotechnology in

order to gain a “window on the technology.” Many

university/industry agreements in biotechnology

focus on research directed toward applications

of biotechnology in a specific industrial sector,

whereas other university/industry agreements are

directed at many applications of biotechnology.

The various agreements in the United States

appear to be working well and fears concerning conflict of interest and commingling of

Government and industry funds have diminished.

The increase of industry funding of university

research in the United States in several disciplines

came at a time when Federal funding of science

was decreasing in constant dollars. Although the

infusion of industry funds to the U.S. universities

has been substantial, it accounts for only a small

fraction (less than 10 percent) of the total funding of university research. In some university departments, however, such as electrical engineering, chemistry, and possibly now molecular biology, industrial funding of university research may

exceed 10 percent. Even with the increase in industrial support, industrialists agree that private

funding can never replace Federal funding of

basic science research if past and current levels

of basic research are to continue.

University/industry interactions are a very effective way of transferring technology from a

research laboratory to industry. Such interactions

promote communication between industrialists

and academicians, a two-way interaction that

benefits both sides. Industrial scientists learn the

latest techniques and research results, while academicians gain increased familiarity with challenges of industrial R&D.

Neither Japan nor the European competitor

countries identified in this assessment have as

many or as well-funded university/industry relationships as the United States does, but varying

degrees of cooperation do exist. In Japan, the ties

between university applied research departments

and industry have always been close. Additionally,
18 ● Commercial Biotechnology: An International Analysis

the Japanese Government is implementing new

policies to encourage closer ties between basic

research scientists and industry. In the Federal

Republic of Germany, the Federal Ministry of Science and Technology (BMFT, Bundesministerium

fur Forschung und Technologies) has a history of

promoting close contact between academia and

industry and is cosponsoring with industry many

projects important to biotechnology. Switzerland

encourages communication between individuals

in academia and industry, and relationships are

easy to maintain. The universities in both the

United Kingdom and France have had very few

ties with industry in biotechnology, but the governments of both countries have recently set up

programs designed to encourage university/industry relationships.

Industrial funding for research in American

universities is helping to promote the transfer of

technology. However, the multimillion dollar arrangements that have characterized the initial

relationships in biotechnology are most likely

short term and will probably become less important as the firms develop in-house expertise

and their research becomes more applied. As in

other fields, consulting and contractual research agreements are likely to predominate

in university/industry relationships in bio

technology in the future.

LEAST IMPORTANT FACTORS

The least important of the 10 factors analyzed

were found to be antitrust law; international technology transfer, investment, and trade; government targeting policies in biotechnology; and

public perception. Any of these factors, however,

could become important as the technology develops and products reach the marketplace.

Antitrust Law.—Antitrust laws are based on

the general economic assumption that competition among a country’s industries will result in

greater productivity, innovation, and general consumer benefits than will cooperation. Recently

there has been much public debate about whether US. antitrust laws have, in fact, accomplished

these goals in all cases and whether they place

U.S. companies at a competitive disadvantage in

the international marketplace when foreign companies face allegedly less restrictive antitrust laws.

The antitrust laws of the United States and the

other major competitors in biotechnology are

generally similar in that they prohibit restraint

of trade and monopolization. However, the foreign laws generally provide for exemptions and

vest much discretion with the enforcement authorities, especially in Japan. Thus, in practice,

they are often less restrictive than in the United

States. In addition, countries differ in the consequences to firms for failure to comply with antitrust laws, In the United States, the consequences

of noncompliance can be more severe than in the

competitor countries because private, in addition

to Government, suits can be brought against alleged antitrust violators, and treble damages are

assessed if a violation is found.

U.S. companies commercializing biotechnology face no major antitrust compliance prob

lems, because the lack of concentration and

the absence of measurable markets mean that

most types of joint research arrangements

would not be anticompetitive. Technology

licensing agreements can raise antitrust concerns,

but these generally are not unique to biotechnology. However, there is some degree of uncertainty about the scope and applicability of the antitrust laws to R&D joint ventures and licensing

agreements. This uncertainty, plus the expense

of litigation and the threat of treble damages,

could deter some activities that might lead to innovation in biotechnology, thus limiting the ability

of U.S. companies commercializing biotechnology

to exploit their technology. * For these reasons,

the current U.S. antitrust laws may have some

modest adverse effect on biotechnology.

International Technology Transfer, Investment, and Trade.—Technology transfer across

national boundaries can be promoted or inhibited

by export control laws and by laws governing

international joint ventures and technology

licensing. Most export controls are directed at

overseeing technology transfer for national

security reasons, and the concept of national

security is fairly narrowly interpreted in all of

the competitor countries except the United States.

Therefore export controls may not be very

● In addition, the rigid application of certain “per se rules” in the

area of licensing may actually lead to anticompetitive results.
Ch. 1—summary ● 19

important for the international development of

biotechnology. However, the export controls of

the United States, which are the most restrictive

of the competitor countries, include the control

of pharmaceuticals and of many microorganisms

that potentially could be used in biotechnology

product production. These controls may have

a slightly adverse affect on the competitive

ness of U.S. companies commercializing biotechnology because they could cause delays

that result in sales’ being lost to foreign competitors. U.S. export control laws may need

clarification as biotechnology products proceed

to the marketplace because there is some uncertainty as to what products or data will be restricted. In addition, the current U.S. export control law expired in October 1983. While it is virtually certain that a new law will be passed, the

form that law will take is still unclear.

The U.S. Government has no laws governing international joint ventures and technology licensing among U.S. and foreign companies. As a consequence, technology can be transferred readily

to other countries. The predominance of NBFs in

the United States and their need for capital has

led to the formation of many transnational joint

ventures involving NBFs, Because of this, the

United States appears to be transferring more

technology outside of its national borders than

are other countries at the present time. However,

as biotechnology products reach the market, foreign firms will probably set up subsidiaries in the

United States in order to have access to U.S.

markets. If this happens, the United States could

become a net importer of technology.

In contrast with the United States, France and

Japan have Government programs for the review

of potential transnational agreements, but it is

uncertain whether such programs help or hinder

the transfer of technology into those countries.

As of now, laws governing the transfer of technology are not very important to the U.S. competitive position in biotechnology. However, if

other countries establish themselves more favorably in world markets, the current outward flow

of technology from the United States may hurt

the U.S. competitive position.

Foreign exchange and investment control laws

help prevent access to domestic markets and technology by foreign firms. The United States has

the fewest controls, whereas Japan and France

have the most control mechanisms. Japanese controls exist in the form of nontariff barriers such

as ministerial review and screening of foreign investments and licensing agreements with respect

to a number of criteria ranging from national security to competition with other Japanese business. Ministries also have the power to designate

specific companies for special controls on foreign

ownership. In France, the Government has the

ability to object or order alteration of licensing

agreements and foreign investments. Foreign

direct investment in certain domestic industries

is not encouraged. Thus, U.S. markets are the

most accessible to foreign firms and therefore

the most vulnerable to foreign competition,

whereas Japanese and French markets are the

least accessible and the most protected against

foreign competition.

Trade policy was assessed by examining the

competitor countries’ abilities to protect domestic

industries from imports and to control foreign

investment in domestic industries. Trade policy

is not important for the commercialization of

biotechnology today because of the small

number of products that have reached the

market and because trade in biotechnologically produced products is not likely to raise

any unique trade issues. However, trade policy

will become increasingly important as more products reach the marketplace, especially in the area

of pharmaceuticals, where significant nontariff

barriers, such as conforming to country standards with appropriate testing data, quality control standards, and packaging requirements exist. Problems with nontariff barriers are now being negotiated with Japan and other countries

including the European Economic Community,

and it apears as though some trade barriers may

become less stringent.

Government Targeting Policies in Biotechnology.-The governments of four of the competitor countries-Japan, the Federal Re -

public of Germany, the United Kingdom, and

France-have instituted comprehensive pro

grams to help domestic companies develop

certain areas of biotechnology. The targeting

policies are intended to reduce economic risk and
20 ● Commercial Biotechnology: An International Analysis

lessen corporate duplication in biotechnology

R&D. A variety of policy measures are used

within each country. In Japan and West Germany,

the Governments carry out their policies mostly

through projects that combine the resources of

the Government and private companies to meet

specific objectives set by the Government. The

United Kingdom and France have adopted a different approach; they support startup of small

firms, which are expected to commercialize the

results of Government-funded basic and applied

research.

At this early stage, any evaluation of the

eventual success of foreign targeting pro

grams is preliminary. History has shown that

even the best thought-out targeting policies do not

guarantee competitive success. Whether targeting

policies of foreign governments in biotechnology

are superior to the U.S. Government policy of

funding basic research in the life sciences and encouraging R&D in all industries with tax credits

remains to be seen. Though targeting policies are

not of great importance when compared to other

competitive factors, they could tip the balance of

a competitive position in the future.

Public perception. —Public perception of the

risks and benefits of biotechnology is of greater

importance in countries with representative, democratic forms of government than it is in countries with other forms of government, simply

because of the greater attention paid to public

opinion in democracies and the independence of

the media. Therefore, public perception could

influence commercialization of biotechnology

in all of the countries examined here. As a factor influencing competitiveness, however, public

perception is probably of greater importance in

the United States than in the other competitor

countries. Historically, the American public has

been more involved than the public in Japan or

the European countries with issues pertaining to

genetic research and technology (e.g., issues

regarding the safety of rDNA research).

In all countries, the importance of public

perception as a factor influencing competitiveness will be greatly increased in the event

of an accident or perceived negative conse

quence of biotechnology. Particularly in such

a case, the level of scientific and technological

literacy in the various competitor countries becomes important, as judgments must be made

concerning complex issues. In the United States,

survey data show that only a small fraction of the

public is fully informed about genetics in general

and therefore, probably, about biotechnology in

particular. Survey data also suggest that there is

public apprehension concerning applied genetics.

Thus, an accident associated with biotechnology

could arouse strong public reaction in the United

States, a reaction that might be greater than in

the competitor countries.

Given the lack of public knowledge in the

United States, it is particularly important that the

media play a responsible role with respect to biotechnology. The role of the media already extends

beyond mere reporting of the facts, by virtue of

the events and issues the media elect to cover.

At the current time, public perception is not an

important factor in the commercialization of biotechnology. However, the volatility of a potential

public response must be noted. Were thereto be

an accident due to commercial biotechnology, the

public’s reaction could be extremely important

to the future of biotechnology.

Other influences on competitiveness

in biotechnology

Three other considerations that should be noted

in evaluating competitive positions in the commercialization of biotechnology are, for each country, historical patterns of industrial commercialization, the availability of natural resources, and

cultural attitudes toward risk-taking.

Historically, industries in some countries have

moved research results into commercialization

rapidly, while industries in other countries have

moved more slowly. This observation is especially

important in this analysis of biotechnology. For

instance, the United Kingdom has a good science

base, trained personnel, and industries that could

be using these new technologies; however, the

United Kingdom may not be a major contender

in the commercialization of biotechnology mainly

because it does not have a history of rapid commercialization. On the other hand, both the

United States and Japan historically commercialize scientific advances rapidly.
Ch. l—Summary ● 2 1

Another historical consideration is the quantity of sales of specific products in a country. For

example, Japan’s per capita consumption of pharmaceuticals is significantly higher than that of the

other competitor countries; therefore, Japan may

have more interest than other countries have in

applying biotechnology to the production of pharmaceuticals. In other words, cultural differences

will probably play a role in determining the

markets each country will attempt to dominate.

The absence or presence of certain natural resources may also determine how quickly a country moves into the commercialization of biotechnology. For instance, Japan does not have domestic petroleum resources. Because biomass can

potentially replace petroleum as a feedstock in

the chemical industry, Japan may be more interested in applying biotechnology in the chemical

industry than a country, such as the United Kingdom, which has domestic petroleum resources,

The United States, a country that produces excesses of grain each year, may find commercialization of processes that can use grain as a

feedstock particularly attractive. However, it is

too early to predict the degree to which natural

resources will determine the commercial applications of biotechnology a country may undertake.

The United States, as a general rule, is not

averse to risk-taking in business. Risk-taking is a

part of the American lifestyle. European countries

are more risk averse. Since investment in biotechnology is considered risky, countries that are

more risk averse are less likely to move rapidly

to commercialize biotechnology.

Conclusion

The unique complementarities between established and new firms, the well-developed science

base, the availability of finances, and an entrepreneurial spirit have been important in giving

the United States its present competitive advantage in the commercialization of biotechnology.

In order to maintain this advantage, increased

funding of research and training of personnel in

basic and generic applied sciences, especially

bioprocess engineering and industrial microbiology, may be necessary. The United States may

also need to be concerned with the continued

availability of finances for NBFs until they are selfsupporting. on most of the other factors influencing competitiveness, the United States rates

very favorably, although there are changes in

laws and policies that could potentially improve

or help maintain the U.S. competitive position.

These changes include clarification and modification of particular aspects of intellectual property law; health, safety, and environmental regulation; antitrust law; and export control law.

Japan will be the most serious competitor

of the United states in the commercialization

of biotechnology. Japan has a very strong bioprocess technology base on which to build, and

the Japanese Government has specified biotechnology as a national priority. The demonstrated

ability of the Japanese to commercialize rapidly

developments in technology will surely manifest

itself in biotechnology.

The Federal Republic of Germany, the United

Kingdom, Switzerland, and France lag behind the

United States and Japan in the commercialization

of biotechnology. The European countries generally do not promote risk-taking, either industrially or in their government policies. Additionally, they have many fewer companies commercializing biotechnology. Thus, the European

countries are not expected to be as strong

general competitors in biotechnology as the

United States and Japam In markets for specific

products, including some pharmaceuticals, specialty chemicals, and animal agriculture products,

however, some European companies will undoubtedly be strong international competitors.
—

22 . Commercial Biotechnology: An International Analysis

—

Issues and options

Congressional issues and options for improving the competitive position of the United States

in biotechnology are presented at the end of most

of the chapters in part IV. To improve the competitive position of the United States, legislation

could be directed toward any of the 10 factors

OTA identified as influencing competitiveness,

although coordinated legislation directed toward

all of the factors might be more effective in promoting U.S. biotechnology efforts. The chapters

in part IV discuss only those options that are specific to the development of biotechnology. Some

of the options presented in part IV are limited and

straightforward, such as some options concerning health and safety regulation and R&D limited

partnerships. Other options are much broader

with potentially large political, ethical, and financial considerations. Some examples of the latter

include establishing university/industry cooperative research centers, regulating the deliberate

release of genetically manipulated organisms into

the environment, and changing patterns of research funding. Thus, the adoption of some options may occur more rapidly than others.

Policy options in some areas are not specific to

biotechnology but apply to high technology or

industry in general. These options are to:

●

●

●

●

●

improve U.S. science and engineering education and the retraining of industrial personnel,

change U.S. antitrust law to promote more

research collaboration among domestic firms,

regulate imports into the United States to protect domestic industries,

regulate the transfer of technology from the

United States to other countries, and

target specific industries or technologies for

Federal assistance.

There are many arguments for and against

these options that are beyond the scope of this

report. Because of their broad applicability to industry in general, these options are not discussed

in part IV. It is important to note, however, that

legislation in any of these areas could affect the

development of biotechnology and potentially

have a large influence on the U.S. competitive

position.
Chapter 2

Introduction
● ✎

Contents

Page

Impact of Biotechnology on the Research Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

The Multidisciplinary Nature of Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Biotechnology in Developing Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Local Efforts to Promote the Development of Biotechnology in the United States.. . . . . 26

Organization of the Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Chapter preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Chapter 2

Introduction

This report assesses the international competitive position of the United States with respect to

the development and commercialization of industrial applications of new biotechnology. New biotechnology is defined as the use of novel technologies–recombinant DNA (rDNA) technology, monoclinal antibody (MAb) technology, and new techniques used in bioprocess engineering—to develop

commercial products and processes that use living systems.

Despite its rather narrow focus on new biotechnology, this report can be viewed as an introduction to the entire subject of biotechnology, a

field that will become increasingly important in

industrial production during the next few decades. Developments associated with new biotechnology could spur a renaissance in traditional biotechnology. The lure of profitability in new biotechnology,

students to

for instance, will very likely attract

bioprocess engineering, and an increase in the number of engineers will probably

improve bioprocess technologies applicable to the

traditional uses of biotechnology. Another reason

biotechnology may increase in importance is the

movement, albeit not very rapid, toward the use

of renewable resources. Diverse micro-organisms

able to convert biomass into useful chemicals,

some of which are a source of energy, are known,

and these micro-organisms have yet to be exploited to the fullest extent. Furthermore, the

industries that use traditional biotechnology are

showing interest in the novel techniques mentioned above, and many of these industries will

probably be using these techniques, because of

their broad applicability, in some aspect of their

operations in the future.

Impact of biotechnology on the research community

A point to be mentioned that does not relate

directly to this report is the impact of the novel

technologies, especially rDNA technology, on

the biological research community. Recombinant

DNA technology has already allowed a greatly

increased understanding of the basis of life, and

thus, of the genetic basis of disease. Research over

the next 10 years may yield an increased understanding of the mechanism of carcinogenesis,

genetic susceptibility to disease, the functioning

of the immune system, the basis of debilitating

diseases such as diabetes and arthritis, and some

knowledge of brain function. Additionally, gene

transplantation technology may reach a stage

where some genetic diseases could be cured. It

may be that the main benefit of the new biological

technologies will be the advances in fundamental

knowledge that accrue. Thus, even if no commercial products were to result from them, these

technologies would still have a substantial impact

on the quality of life.

The multidisciplinary nature of biotechnology

Biotechnology is unusual among most technol- example, need some knowledge of biochemistry

ogies in that it spans an array of scientific disci - and microbiology as well as knowledge of engiplines. Individuals seeking to be well versed in neering design so that the most efficient combina -

applications of biotechnology must have inter- tion of micro-organism and bioreactor can be dedisciplinary training. Bioprocess engineers, for termined. Similarly, plant molecular biologists

25

25-561 0 - 84 - 3
26 ● Commercial Biotechnology: An International Analysis —————— -—

need to know both plant physiology and molecular genetics. People working in microbial enhanced oil recovery need training in microbiology

as applied to a specific geological environment.

The multidisciplinary nature of biotechnology

has extensive implications for educational and

industrial structures. To excel in biotechnology,

universities will need to draw on the resources

of several departments. Diversified companies

may have an inherent advantage over other companies, because technologies perfected for the

production of one product (e.g., a pharmaceutical

product) can be modified and used for the production of another (e.g., a food additive).

Biotechnology in developing countries .

One area where biotechnology could certainly

have an impact, though not considered extensively in this report, is in developing countries. Plants

that have been genetically manipulated for

growth in tropical and desert climates could improve agricultural production. Vaccines that do

not need refrigeration could have widespread influence on the health of the people and their

livestock. Small local factories that convert

biomass to ethanol could help solve the problem

of costly petroleum imports for energy.

The applications of biotechnology to developing

countries was discussed in a workshop held by

the National Academy of Sciences and the U.S.

Agency for International Development (l). The

proceedings of this workshop include suggested

priorities for research and time frames for

development of various biotechnology products

important to developing countries, Additionally,

the United Nations Industrial Development

organization has proposed the construction of an

international center for biotechnology (2). The

proposed center would have 50 staff scientists,

26 postdoctoral fellows, and 100 visiting scientists;

the annual budget would be $8.6 million; and the

research would concentrate on problems specific

to developing countries.

This report does not cover developing countries

for two reasons. First, developing countries are

not likely to compete with the United States for

market shares in biotechnology in the near future.

Second, all countries in a competitive position

generally have equal access to markets in developing countries, allowing them equal access to international market shares. Some developing countries give preferential treatment to the first

company to market a product in that country, but

all countries have equal access for first introductions.

Local efforts to promote the development of

biotechnology in the United States

Many State governments are actively promoting analyzed in another OTA report, Technology,

the establishment of local high-technology centers Innovation, and Regionnal Economic Development,

to stimulate the local economy, and many of these due to be published in 1984. It is important to

include centers for biotechnology. The oldest and note, though, that it will take several years to

best known of these is the North Carolina Biotech- recoup the costs of initiating one of these centers.

nology Center. This report does not analyze the Local biotechnology centers cannot be viewed as

development of these centers because they are a short-term solution to economic problems.
Ch. 2—introduction ● 2 7

-. — — — --- —. ———.—- . — .

Organization of the report

This report is organized into four parts. Part

I introduces the scientific background of the new

technologies and forms a basis for discussion of

the commercialization of new biotechnology. The

three chapters consider the construction of rDNA,

the formation of MAbs, and the relevant engineering principles for the large-scale growth of microorganisms and the use of immobilized enzymes

to perform specific catalytic functions. Each emphasizes the industrial use of the technologies and

identifies the problems yet to be solved.

Part II is an overview of the companies using

biotechnology in the United States and its five

major competitors in biotechnology: Japan, the

Federal Republic of Germany, the United Kingdom, Switzerland, and France. The discussion

considers the relative importance of and level of

collaboration between established companies and

new biotechnology firms in determining a competitive advantage. This part also includes a

discussion of the firms producing the necessary

reagents and equipment for the commercial use

of biotechnology. Joint ventures among firms,

both foreign and domestic, are analyzed.

How specific industrial sectors are applying biotechnology is the subject of the several chapters

in Part III. The sectors discussed are pharmaceuticals, agriculture, specialty chemicals and

food additives, environmental applications, commodity chemicals and energy, and bioelectronics.

The order of the chapters corresponds to the

approximate time frames for the development of

products and processes in the various sectors–

beginning with the sectors in which developments

Chapter 2 references

are likely to occur first. Priorities for future

research to promote the development of biotechnology in each of the specific industrial sectors

are outlined at the end of each chapter.

Part IV is an analysis of specific factors believed

to influence a country’s competitiveness in biotechnology. It considers only those factors that

government policies could potentially affect. The

first chapter of Part IV describes the framework

used for the analysis. Subsequent chapters analyze specific factors, more or less in order of their

importance: private sector financing and tax incentives, government funding of basic and applied

research, personnel availability and training,

health, safety, and environmental regulation, intellectual property law, university/industry relationships, antitrust law, international technology

transfer and trade policy, targeting policies in biotechnology, and public perception. The analysis

of the relative importance of each factor in determining a country’s competitive position in biotechnology and where the United States stands

is presented in Chapter 1.- Executive Summary.

Throughout Part IV, issues of congressional interest and a range of policy options are examined

with respect to improving the U.S. competitive

position in biotechnology.

This report is a follow-on study to OTA’S April

1981 report entitled Impacts of Applied Genetics:

Micro~rganisms, Plants, and Animals (3). Much

useful information is contained in that report and

is not repeated here. The reader is advised to read

the earlier report for more information on the

biological technologies and market forecasts.

1. Board on Science and Technology for International 2. Newmark, P., “International Biotechnology: U.N.

Development, Office of International Affairs, Na- Center To Be Based in India,” Nature 302:100, 1983.

tional Research Council, Priorities in Biotechnology 3. US. Congress, Office of Technology Assessment, ImResearch for International Development: Proceed- paets of Applied Genetics: Microorganisms, Plants,

ings of a Workshop (Washington, D. C.: National and Animals, OTA-HR-132, Washington, D. C., April

Academy Press, 1982). 1981.
PART I

The Technologies
Chapter 3

The Technologies
Contents

Page

Introduction . . . . . . . . . . . . . . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recombinant DNA Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Structure and Function of DNA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Preparing Recombinant DNA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recombinant DNA Technology in Industrial Processes . . . . . . . . . . . . . . . . . . . . . . . . . . .

Monoclinal Antibody Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Preparing Monoclonal Antibodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Monoclinal Antibodies and Recombinant DNA Technology . . . . . . . . . . . . . . . . . . . . . . .

Large-Scale Production of Monoclinal Antibodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Industrial Uses for Monoclinal Antibodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bioprocess Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bioprocess Essentials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Processing Modes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Raw Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Biocatalyst . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bioprocess Monitoring and Associated Instrumentation . . . . . . . . . . . . . . . . . . ~ . . . . . . .

Separation and Purification of Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Culture of Higher Eukaryotic Cells . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Priorities for Future Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 3 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . ~ . . . . . . . . . . . . . . . . . . . . . . . . . . .

33

33

33

36

37

38

40

42

42

43

43

44

46

47

51

51

52

54

55

56

57

Tables

Table No. Page

l. Volume and Value of Biotechnology Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

2. Situations Potentially Requiring Large-Scale Eukaryotic Cell Culture . . . . . . . . . . . . . . . 55

3.Comparison of Microbial and Mammalian Cells . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Figures

Figure No. Page

3.The Structure of DNA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

4.The Replication of DNA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

5.Mechanism of Gene Expression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

6. Recombinant DNA: The Technique of Recombining Genes From One Species

With Those of Another . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

7. Structure of an Antibody Molecule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

8. Preparation of Monoclinal Antibodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

9. Steps in Bioprocessing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Introduction —

Chapter 3

The Technologies

This chapter reviews the scientific bases for the

technologies discussed in this assessment. The

most publicized and broadly applicable of these

technologies is recombinant DNA (rDNA) technology, which includes gene cloning, and is

explained first. The second technology discussed

is monoclinal antibody (MAb), or hybridoma,

technology. This technology, used to prepare

complex molecules known as MAbs which can be

used to recognize or bind a large variety of

molecules, has an expanding number of applications. The last technology discussed, bioprocess

technology, allows the scaling-up of a biological

production process so that large quantities of a

product can be made. Bioprocess technology is, in

many respects, the most difficult and least understood of the technologies, so it receives a more

intensive discussion in this chapter. Because of

the lack in the United States of broadly applicable

knowledge in bioprocess engineering, the section

on bioprocess technology also ends with priorities

for future research, giving a focus to where

Federal research funds might best be spent.

Recombinant DNA technology

The development of rDNA technology-the joining of DNA from different organisms for a specific

purpose—has allowed a greatly increased understanding of the genetic and molecular basis of life.

This technology has also led to the founding of

many industrial ventures that are addressing the

production of numerous compounds ranging

from pharmaceuticals to commodity chemicals.

This section introduces some aspects of the scientific basis of rDNA technology, discusses methods

that are used to construct rDNA, and notes several additional features of the commercial use of

rDNA technology.

Structure and function of DNA

Throughout the spectrum of life, the traits

characteristic of a given species are maintained

and passed on to future generations, preserved

simply and elegantly by the information system

contained within DNA. DNA can be thought of

as a library that contains the complete plan for

an organism. If the plan were for a human, the

library would contain 3,000 volumes of 1,000

pages each. Each page would represent one gene,

or a unit of heredity, and be specified by 1,000

letters. As shown in figure 3, DNA, a doublePhoto credit: Science Photo Llbraty and Porton/LH International

The DNA of the bacterium Escherichia co/i

stranded, helical molecule, is composed, in part,

of four nucleotide bases—adenine (A), cwytosine (C),

guanine (G), and thymine (T)-which are the letters of the chemical language. A gene is an

ordered sequence of these letters, and each gene

contains the information for the composition of

a particular protein and the necessary signals for

the production of that protein.

33
—

34 ● Commercial Biotechnology: An International Analysis

The mechanism by which DNA replicates is inherent in the structure of DNA itself. As can be

seen from figure 3, the nucleotide bases are

paired to form the rungs of the twisted DNA ladder. This pairing is absolutely specific: A always

pairs with T and C always pairs with G. The pairing is accurate, but not very strong. Thus, in cell

division, the DNA can “unzip” down the middle,

leaving a series of unpaired bases on each chain.

Each free chain can serve as a template for making a complementary chain, resulting in two identical DNA molecules, each a precise copy of the

original molecule. Figure 4 illustrates the replication of DNA.

The DNA present in every cell of every living

organism has the capacity to direct the functions

of that cell, Gene expression, shown in figure 5,

is the mechanism whereby the genetic directions

in any particular cell are decoded and processed

into the final functioning product, usually a protein. In the first step, called transcription, the DNA

double helix is locally unzipped near the gene of

interest, and an intermediate product, messenger

RNA (mRNA), a single-stranded, linear sequence of

nucleotide bases chemically very similar to DNA,

is synthesized. The transcription process dictates

the synthesis of mRNA that is complementary to

the section of unzipped DNA in a manner that

is somewhat similar to the replication of DNA. In

the second step of gene expression, translation,

the mRNA, after release from the DNA, becomes

associated with the protein-synthesizing machinery of the cell, and the sequence of nucleotide

bases in the mRNA is decoded and translated into

a protein. The protein goes on to perform its particular function, and when the protein is no

longer needed, the protein and the mRNA coding

for that protein are degraded. This mechanism

allows a cell to “fine tune” the quantity of its proteins while keeping its DNA in a very stable and

intact form.

Proteins perform most of the necessary functions of a cell. By far the most diverse group of

proteins is the enzymes, which are the proteins

t Figure 3.–The Structure of DNA

Base pairs

lgar-phosphate

ckbone

A schematic diagram of the DNA double helix. A thr~dimensionai representation of the DNA doubie helix.

The DNA molecule is a doubie helix composed of two chains. The sugar-phosphate backbones twist around the outside, with the paired bases on the inside serving to hold the chains together.

SOURCE: Office of Technology Assessment.
Ch. 3—The Technologies ● 3 5

Figure 4.–The Replication of DNA

When DNA replicates, the original strands unwind and serve

as templates for the building of new complementary strands.

The daughter molecules are exact copies of the parent,

with each having one of the parent strands

that catalyze biological reactions. Another group

is the structural proteins, which are found, for

instance, in cell membranes. Other proteins have

regulatory functions; these include some hormones. Still others have highly specialized functions (hemoglobin, for example, carries oxygen

from the lungs to the rest of the tissues).

The code by which genetic information is translated into proteins is the same for all organisms.

Thus, because all organisms contain DNA and all

Figure 5.—Mechanism of Gene Expression

I Transcription

mRNA released and

transported to proteinsynthesizing machinery

Translation

+

Protein

~ ~~~ ~

SOURCE: Office of Technology Assessment.

organisms interpret that DNA in the same manner, all organisms, in essence, are related. It is

this concept that forms the basis for the industrial

use of DNA. In nearly every instance, a production process using rDNA technology depends on

the expression of DNA from one species in

another species. Only a universal genetic code

would allow DNA to be used in this manner.

Despite the existence of a universal genetic

code, regulatory signals indicating starts and stops

of genes are known to vary among species. Thus,

a gene removed from one organism and placed
36 . Commercial Biotechnology: An International Analysis

in another will code for the same protein as it did

in its native system, but its synthesis needs to be

induced by the proper host signal. one of the

great challenges of rDNA technology is to construct DNA molecules with signals that optimally control the expression of the gene in the new

host .

Preparing recombinant DNA

The amount of DNA present in each cell of a

human (or most higher animals) is approximately

3 billion base pairs (2), and an average gene is

about 1,000 base pairs, or about one millionth of

the DNA. It is extremely difficult to study one gene

in a million. Therefore, powerful tools have been

developed to isolate genes of interest, place them

in a foreign, simpler system, and replicate them

many times to give a large amount of a single

gene. The isolation of genes from higher

organisms and their recombination in simple cells

has already yielded a wealth of information, including insight into how genes determine the

differences between different types of cells, how

gene expression is regulated, and how genes may

have evolved. For industrial uses, however, not

only must the gene be cloned (reproduced), but

that gene must also be expressed (the protein

based on the gene be produced).

The basic technique of preparing rDNA is

shown in figure 6. Preparations of restriction enzymes (enzymes that are made in certain bacteria

and cut DNA at specific sites) are used to cut

donor DNA (usually from a higher organism) into

fragments, one of which contains the gene of interest, The resulting DNA fragments are then inserted into a DNA “vector,” which is most often

a plasmid. ” Each plasmid vector will contain a different donor DNA fragment. These rDNA plasmids are introduced into host cells in a process

called ‘(transformation.” Once inside the host cells,

the rDNA plasmids replicate many times, thus

providing many copies of each donor DNA fragment. of the many bacteria transformed by plas -

mids containing donor DNA, only a few will contain the DNA fragment of interest. The desired

“A plasmid is a circular, double-stranded piece of DNA which

replicates in cells apart from the chromosome.

Figure 6.-Recombinant DNA: The Technique of

Recombining Genes From One Species

With Those of Another .

+ +

Donor DNA

SOURCE Off Ice of Technology Assessment
Ch. 3—The Technologies ● 3 7

Photo credit: Science Photo Service and Po170rVLH International

Molecular biologist in laboratory

gene is located among the vast number of bacteria containing plasmids with a suitable probe. *

Vectors other than plasmids can be used for cloning DNA. One method uses the DNA of viruses,

and another uses cosmids, artificially constructed

hybrids of plasmids and viruses. Another method

uses transposable elements, fragments of DNA

that can insert themselves into the host cell’s chromosomes.

All rDNA methods require the following:

●

●

●

a suitable vector that is taken up by the host,

is capable of autonomous replication, and,

during the process, replicates the segment of

donor DNA faithfully;

an adequate selection system for distinguishing among cells that have, or have not,

received rDNA; and

an appropriate probe for detecting the particular DNA sequence in question.

The most difficult part of the cloning process

is isolating an appropriate probe. The genes that

were first cloned were those that, in certain cells,

produced large quantities of relatively pure

mRNA. Since the mRNA was complementary to

the gene of interest, the mRNA could be used as

a probe. This method severely limited the number

of genes that could be cloned, however, because

● ,4 probe is a sequence of DNA that has the same sequence as

the desired gene and has been prepared in such a waj’ that it can

be identified after it base pairs with that gene,

most genes do not produce large amounts of

mRNA. More recently, a different technique has

been used that allows a much greater diversity

of genes to be cloned. If the amino acid sequence

of a protein is known, then, working backwards

through the gene expression scheme, the nucleo -

tide base sequence can be determined. Because

of the advent of automated DNA synthesizers, a

portion of DNA can be synthesized that is complementary to the gene. This piece of DNA can

then be used as a probe. Thus, if enough of a particular protein can be isolated and sequenced, its

corresponding gene can be cloned.

At present, rDNA is grown principally in simple

micro-organisms such as bacteria and yeast.

Yeasts, in addition to bacteria, are being used as

hosts for rDNA cloning because they more closely

resemble cells of higher organisms. Yeasts perform functions similar to those of higher eukaryotic cells. These functions include adding sugar

groups to some proteins. For the function of many

proteins, these sugar groups are essential. Recently, scientists have learned how to introduce novel

genetic material into higher plants and animals.

The special techniques that pertain to cloning

DNA in plants are discussed in Chapter 6: Agriculture.

Recombinant DNA technology in

industrial processes

The commercial use of rDNA technology has

several features in addition to those just discussed.

In order to produce a product or improve a process, the cloned gene must be expressed to give

a functional product. Since the signaIs that

regulate gene expression vary from species to

species, achieving the expression of a gene in a

foreign cell may be difficult. The commercial

development of biotechnology is highly dependent on the ability to achieve gene expression, for

it is proteins (or their metabolizes) that either are

the marketable products themselves or establish

the cellular environment necessary for performing such practical tasks as degrading toxic wastes

or increasing the efficiency of photosynthesis. To

a large extent, the problem of gene expression

has been addressed through the manipulation of

the adjacent vector DNA so that it contains the

host regulatory sequences. The cloned gene can
38 ● Commercial Biotechnology: An International Anaiysis

then be “switched on” by using host-regulated

controls (l). Moreover, it is possible to alter

specifically the regulatory sequences so that the

gene is expressed at higher levels or so that its

expression is more readily controllable in an

industrial situation (3).

The purification of a protein from an industrial

bioprocess is greatly simplified if the protein is

secreted from the cell into the growth medium.

If the protein is secreted, it does not have to be

purified away from all the other cellular components. It is possible to attach additional regulatory

signals to the vector DNA that direct the cell to

secrete the protein and, thus, simplify its purification. The successful development of methods to

enhance gene expression and product function

and secretion will undoubtedly enhance the commercial applicability of rDNA technology.

The computer-aided design of proteins is

another technology that will expand the use of

rDNA molecules industrially. In the past, enzymes

were modified by mutagenizing the host cell and

then selecting or screening for mutants that contained an altered enzyme. Now, through use of

the techniques of X-ray crystallography, protein

sequencing, and computer modeling, the amino

acid sequence and three-dimensional structure of

the protein can be determined and amino acid

changes that should bring about altered enzyme

properties can be selected. The DNA sequence of

the cloned gene for an enzyme can then be modified to incorporate the amino acid changes.

Specific gene modification is made possible because of technical advances resulting in rapid and

inexpensive synthesis of small DNA segments that

can be used to change specific base pairs in a DNA

sequence. Near-term protein modification experiments could result in enzymes with increased

temperature and pH stability. Longer term experiments could define the structure of active sites

of enzymes to be used for specific catalytic

functions.

Monoclinal antibody technology

The production of antibodies in higher animals

is one aspect of a complex series of events called

the immune response. Specialized cells called B

lymphocytes, present in the spleen, lymph nodes,

and blood, recognize substances foreign to the

body, or antigens, and respond by producing antibodies that specifically recognize and bind to

those antigens. Any given B lymphocyte can

recognize only one antigen. Thus, when a B lymphocyte meets and recognizes an antigen for the

first time, the B lymphocyte is stimulated and

becomes committed to producing a single type of

antibody for the duration of its life. The end result

of this aspect of an immune response is the antigen’s removal from the body.

Antibodies bind to antigens and carry out their

functions by virtue of the antibody’s unique structure. All antibodies are comprised of four protein

chains in a precise orientation, as shown in figure

7. One end of the antibody (the constant, or effecter region) is nearly identical among antibodies.

This effecter region is associated with functions

such as the secretion of antibodies from the B lymphocyte and “signaling” to the immune system

after the antibody binds with the target antigen.

The other end of the antibody, the variable region, contains the site that recognizes and binds

to a particular antigen, and the structure of this

end varies greatly from antibody to antibody to

accommodate a wide range of antigens.

Apart from their natural functions in the

protection of organisms via the immune response,

antibodies have long been important tools for

researchers and clinicians, who use an antibody’s

specificity to identify particular molecules or cells

and to separate them from mixtures. Antibodies

also have a major role in diagnosis of a wide

variety of diseases. Antibodies that recognize

known antigens are used to detect the presence

and level of drugs, bacterial and viral products,

hormones, and even other antibodies in sensitive

assays of blood samples.
Ch. 3—The Technologies 39

Figure 7.—Structure of an Antibody Molecule ing and expensive, have not prevented the effec -

Effecter

functions

Constant

region

SOURCE Off Ice of Technology Assessment.

The conventional method of producing antibodies for diagnostic, therapeutic, and investigational purposes is to inject an antigen into a

laboratory animal and, after evoking an immune

response, to collect antiserum (blood serum containing antibodies) from the animal. Although this

method has been and continues to be widely used,

there are several problems associated with conventional antibody technology, These include:

 minor contamination of the injected antigen

with other molecules, so that the antiserum

collected from the animal contains a mixture

of antibodies against both the target antigen

and the contaminating molecules;

● heterogeneous populations of antibodies with

concomitant differences in activity, affinity

for the antigen, and biological functions, especially when a number of different animals

are used to prepare the antiserum; and

● the limited supply of quality antisera for any

given purpose (10,28,32).

Since these difficulties are almost unavoidable

in standard antibody preparations, the standardization of immunoassay and the accumulation of

large amounts of reference antisera have been

difficult. Such problems, although time-consummethods for continual production of large

amounts of pure antibodies has continued.

By what Cesar Milstein calls a “lucky circumstance,” he and Georges Kohler began experimenting with the well-established technique of cell

fusion in myeloma (antibody-producing tumor)

cells adapted for cell culture. Milstein and Kohler

fused myeloma cells with antibody-producing

spleen B lymphocytes from mice that had been

immunized with sheep red blood cells (SRBCS),

and they found that some of the resulting hybrid

cells, called hybridomas, secreted large amounts

of homogeneous (monoclinal) antibodies directed

against SRBCS (20)21). The myeloma parent cell

conferred on the hybridoma the ability to grow

permanently in cell culture and thus to support

almost unlimited antibody production, while the

B lymphocyte parent contributed the genes

coding for the specific antibody against an SRBC

antigen.

Photo credit: Scisnce Photo Service and PortodLH lnte?natlonal

Dr. Cesar Milstein, discoverer of monoclinal antibodies
40 ● Commercial Biotechnology: An lnternational Analysis

By using the method of hybridoma, or MAb,

technology, it is now possible to “immortalize” individual antibody-producing cells by fusion with

tissue culture-adapted myeloma tumor cells in the

laboratory (4,5,8,13,22,25).

Preparing monoclinal antibodies

The method used to prepare MAbs is summarized in figure 8. The purified antigen of choice

is injected into a mouse, and a few weeks later,

the spleen of the mouse is removed, The B lymphocytes (antibody-producing cells) are isolated

from the spleen and fused with myeloma cells.

The resulting cells are placed in a cell culture

medium that allows only the hybridomas to grow.

The many hybridomas that result are cloned, and

each clone is tested for the production of the

antibody desired. A particular hybridoma clone

either may be established in an in vitro culture

system or may be injected into mice, where the

hybridoma grows in abdominal cavity fluid

(ascites) from which the antibodies are readily

collected.

This method allows the preparation of large

quantities of highly specific MAbs against almost

any available antigen. The antibodies produced

by MAb technology are homogeneous, and their

production is predictable and repeatable, as compared to polyclonal antibodies produced with conventional immunological methods.

Figure 8.—Preparation of Monoclinal Antibodies

Mveloma cells

1

ar~ mixed and

fused with

B lymphocytes

Mouse myeloma

(tumor) cells

are removed

and placed in

tissue culture

Cells divide in

liquid medium

The products of this

fusion are grown in a

selective medium. Only

those fusion products

which are both “immortal” and contain genes

from the antibody producing cells survive.

These are called

“hybridomas.”

Hybridomas are cloned

and the resulting cells

are screened for antibody production.

Those few cells that

produce the antibodies

being sought are grown

in large quantities for

production of

monoclinal antibodies.

SOURCE: Off Ice of Technology Assessment, adapted from Y. Baakln, “In Search of the Magic Bullet,” Technology f7ev/ew, pp. 19-23.
Ch. 3—The Technologies ● 41

Photo credit: Sctence Photo Service and Por@n/LH international

Scanning electron micrograph of human hybridoma cells

Despite the great promise of MAbs, there are

several persistent technical problems to be

considered:

●

●

●

●

obtaining MAbs against certain weak antigens

(antigens that do not produce a large immune

response) remains difficult (11,24);

homogeneous antibodies cannot perform

some functions such as forming a precipitate

with other antigen-antibody complexes, a

necessary function for some diagnostic assays;

low frequency of fusion is a continuing prob1em in the preparation of hybridomas, as is

the stability of the hybridomas and antibodies

(14); and

some MAbs are sensitive to small changes in

pH, temperature, freezing and thawing, and

can be inactivated during purification.

Many of these problems are being alleviated or

solved as research with MAbs progresses.

Photo credit: Science Photo Library and PortmlLH International

One step in the isolation of hybridomas

Another problem being addressed is the development of hybridomas for specific species. Some

suitable myeloma cell lines exist for mice, rats,

and humans (12,20,27), but a wider variety of

human cell lines and cell lines for other species

are needed if wider applications of MAb technology are to be made. Hybridomas are often

made with cells from two different species, but

these fusions regularly result in the preferential

loss of the spleen B lymphocyte chromosomes,

resulting in an absence of antibody production

(24). For therapeutic applications, it is desirable

to treat people with human antibodies to avoid

allergic reactions and other problems of antibody

cross-reactivity. Thus, MAbs from a human

myeloma/human spleen cell fusion are needed.

Several investigators have reported the development of human myelomas that are suitable for

25-561 0 - 84 - 4
42 ● Commercial Biotechnology: An International Analysis

Photo credit: Science Photo L/brary and PortonlLH International

In vitro identification of specific cells using fluorescently

labeled monoclinal antibodies

hybridoma preparation (9,17,23,27). Successful

fusions apparently result from using these cell

lines (6).

Monoclinal antibodies and

recombinant DNA technology

The combination of MAb technology and rDNA

technology offers intriguing possibilities for further technological exploration. Recombinant DNA

techniques could be used to produce portions of

antibody molecules in bacteria to circumvent

some of the problems (e.g., hybridoma instability)

associated with MAb production in mice or tissue

culture. Additionally, these MAbs would be free

of impurities, such as viruses, found in animal

cells and possibly could be produced in large

amounts with a concurrent savings in cost.

The first cloning and expression of a complete

antibody molecule in a bacterial system was

announced recently by the U.S. firm Genentech

and the City of Hope Medical Center and Research

Institute (19). The protein chains were expressed

separately in bacteria and reconstituted by the

researchers. The pharmaceutical applications of

bacterially produced antibody genes will be

limited. Antibody molecules must be modified by

the cell to function in most diagnostic and

therapeutic applications. Bacteria do not perform

the modifications necessary for proper function.

However, it maybe possible to clone the antibody

genes in a cellular system such as yeast where

the proper modifications can be made.

The production of MAbs in rDNA systems may

prove useful for making reagents used in industrial applications where only the antigen-binding

function may be necessary. With genes cloned for

the antigen-binding regions of the antibody, portions of MAbs may be produced more economically in bacterial rDNA systems than in a large-scale

mouse ascites or cell culture protocols.

Large-scale production of

monoclinal antibodies

Although MAbs can be produced by several

methods, manufacturers primarily use mouse

ascites to produce the modest amounts of MAbs

needed to service current diagnostic and research

markets. As applications for MAbs to human

therapy are developed, the need for larger quantities of MAbs (free from mousederived contaminants that might cause allergic reactions) may .

encourage a switch to the use of large-scale cell

culture to produce MAbs. If MAbs are to be used

in industrial applications (e.g., in the purification

of proteins), production methods will be needed

to produce even larger quantities of antibodies,

In these cases, efficient cell culture or microbial

bioprocess techniques will probably be necessary

to provide enough antibodies to fill these needs.

Improved, more controllable cell culture

systems will be needed for the production of

MAbs in the future. A crucial need for large-scale

cell culture is either the isolation of hybridoma

cell lines that attach to surfaces or the use of techniques for immobilizing cells on a solid matrix.
Ch. 3—The Technologies ● 4 3

Immobilized cells could be grown in large quantities in culture; the MAbs secreted from the cells

could then be routinely collected from the

medium. Immobilized cell methods may prove

valuable for large-scale MAb production. Such

methods are already used industrially, for example, in growing cells that produce polio virus for

subsequent vaccine production (26,31).

Damon Biotech Corp. (U. S.) has recently introduced the technique of microencapsulation to

MAb technology (7). This method uses a porous

carbohydrate capsule to surround the hybridoma

cells and to retain the antibodies while allowing

the circulation of nutrients and metabolic wastes.

After several days in culture, the encapsulated

colonies are harvested and washed to remove the

growth medium, the capsules are opened, and the

antibodies are separated from the cells. According to Damon Biotech, 40 to 50 percent (by weight)

of the harvested medium is made up of MAbs.

The company claims the microencapsulation

method for producing MAbs is significantly less

expensive than the ascites method, provides a

high concentration of antibodies, and does not

require the maintenance of animals (18).

Industrial uses for monoclinal

antibodies

Because of their unique properties of homogeneity, specificity, and affinity, MAbs can be used

effectively in downstream purification systems

for molecules, especially proteins, A MAb purification system relies on the binding of a target

molecule to a MAb immobilized on a solid support

such as a bead, The beads are packed in a column,

and a mixture containing the target molecule is

passed through the column. The MAb binds the

molecule while the impurities wash through the

column. Then the binding is reversed, and the

target molecule is released and collected from the

column.

Before MAb-based purification systems can be

used in large-scale, several practical and technical

factors must be optimized. These include cost,

purification of the antibody itself, and elution of

the desired product after purification by the antibody. Elution requires the use of an antibody of

somewhat lower affinity than one would use for

diagnostic or therapeutic applications so that the

binding can be reversed easily.

Various important proteins, including alphafetoprotein and leukocyte interferon, are now

purified using MAbs (29,30). MAb purification

systems may be used in the future to purify a vast

number of compounds, particularly substances

present in small amounts.

A simple extension of the procedure just described involves using MAbs to bind unique surface proteins and, with them, the cells to which

they are attached. This permits separation of cells

with surface proteins of interest and is carried

out by passing the cells over a suitable matrix to

which the antibodies have been bound. In another

procedure, fluorescence-activated cell sorting,

cells are mixed with fluorescently labeled MAbs,

and the mixture is passed through a special instrument called a flow cytometer, which responds to

the fluorescent marker and sorts the cells into

labeled populations at rates of 50,000 cells per

minute (15,16). So far, fluorescence-activated cell

sorting has been used mostly for research purposes, but as the method is improved, it may be

employed in a range of clinical applications.

Conclusion

Many fields of biological research are being

affected by MAb technology. Researchers now

use MAbs to study problems in endocrinology,

biochemistry, cell biology, physiology, parasitology, and many other fields, because the products of MAb technology are easily standardized

and reproduced. Furthermore, many diagnostic,

therapeutic, and industrial uses for MAbs are

becoming apparent, and, as outlined in subsequent chapters of this report, several U.S. and

foreign firms are developing these applications.

Industrial purification applications of MAbs and

the widespread advantages of MAb technology

in preparing pure and easily standardized antibodies offer substantial benefits in industrial,

research, and clinical laboratories. Recombinant

DNA and MAb technologies can complement each

other, because rDNA technology can lead to the

production of new compounds, and MAbs can aid

in their identification and purification.
——

44 . Commercial Biotechnology: An International Analysis

Bioprocess technology*

Bioprocesses are systems in which complete

living cells or their components (e.g., enzymes,

chloroplasts, etc.) are used to effect desired

physical or chemical changes.** Since the dawn

of civilization, bioprocesses have been used to produce alcoholic beverages and fermented foods.

Until the 19th century, alcoholic fermentation and

baker’s yeast production were carried out in the

home or as local cottage industries. As industrialization occurred, both these bioprocesses moved

into factories.

Although other minor products made with

bioprocesses were added over the years, bioprocesses did not become significant in the overall

spectrum of chemical technology in the United

States until the introduction of commercial

acetone and butanol production during and after

World War I. Somewhat later, large-scale microbial production of citric acid was introduced, and

by the beginning of World War II, the U.S. bioprocess industry was thriving, with solvent alcohols and related low molecular weight compounds

comprising the bulk of bioprocess production,

The rapid growth of the petrochemical industry

during World War H caused the displacement of

microbial production of industrial solvents,

however, and by 1950, microbial production of

such solvents (including nonbeverage alcohol) had

virtually disappeared in the United States.

This contraction of bioprocess manufacturing

might have been the death-knell for old biotechnology had it not been for the introduction of,

and the proliferation of markets for, antibiotics

during the 1940’s. The unique qualifications of

biological processes for the synthesis of complex

molecules such as antibiotics rapidly became

apparent. Microbial production of a number of

● This section is based largely on a contract report prepared for

the Office of Technolo~ Assessment by Elmer Gaden, University

of Virginia. The information in that report was extensively reviewed

and added to by James Bailey, California Institute of Technology;

Harvey Blanch, University of California, Berkeley; and Charles

Cooney, Massachusetts Institute of Technology.

● *The term bioprocess is used here in preference to the more

familiar term “fermentation” because it more correctly identifies

the broad range of techniques discussed. A fermentation process,

though often used to denote any biopmcess, strictly speaking refers

only to an anaerobic bioprocess.

vitamins and enzymes was initiated at about this

time, although only on a small scale. Thus, in the

decade from 1940 to 1950, there occurred a complete transformation of industrial bioprocesses.

Production of high-volume, low-value-added industrial chemicals (e.g., acetone, butanol) by

anaerobic processes employing primarily yeasts

and bacteria was largely replaced by more modest-scale production of high-value-added products

(e.g., pharmaceuticals, vitamins, enzymes) made

by highly aerobic processes in a variety of less

familiar bacteria (e.g., the actinomycetes) and

some fungi (see table 1). These aerobic processes

are generally quite vulnerable to contamination

by other micro-organisms and require much

closer control of process conditions. Such aerobic

processes continue to be used in industry today.

The advent of new biotechnology has sparked

renewed interest in the industrial use of bioprocesses. The discussion that follows examines the

dependence of new biotechnology, including

rDNA and MAb technology, upon bioprocess technologies. Two aspects of the interrelationship between new genetic technologies and bioprocess

technologies are emphasized:

● the engineering problems unique to genetically modified organisms, and

● the ways in which genetically modified

organisms or parts of organisms maybe used

to enhance the efficiency and usefulness of

bioprocesses.

In order to be viable in any specific industrial

context, bioprocesses must offer advantages over

Table I.-Volume and Value of Biotechnology

Products

Category Examples

High volume, low value . . . Methane, ethanol, animal

feed, waste treatment

High volume, intermediate

value . . . . . . . . . . . . . . . . . . . Amino and organic acids,

food products, polymers

Low volume, high value . . . Pharmaceuticals, enzymes,

vitamins

SOURCE: Off Ice of Technology Assessment, adapted from A. T. Bull, G. HoIt,

and M. D. Lilly, B/otechno/ogy: International Trends and Perspectives

(Paris: Organisation for Economic CoOperation and Development,

19s2).
Ch. 3—The Technologies 45

competing methods of production. In most cases,

bioprocesses will be used industrially because

they are the only practical way in which a desired

product can be formed. Biological processes may

be desirable:

. in the formation of complex molecular structures such as antibiotics and proteins where

there is no practical alternative,

. in the exclusive production of one specific

form of an isomeric compound,

● because microa-ganisms may efficiently execute many sequential reactions, and

● because bioconversions may give high yields.

Examples of the categories of current uses of

bioprocesses are the folIowing:

production of cell matter ((’biomass” itself)

(e.g., baker’s yeast, single-cell protein);

production of celI components (e.g., enzymes,

nucleic acids);

production of metabolizes (chemical products

of metabolic activity), including both primary

metabolizes (e.g., ethanol, lactic acid) and

secondary metabolizes (e.g., antibiotics);

catalysis of specific, single-substrate conversions (e.g., glucose to fructose, penicillin to

6-aminopenicillanic acid); and

catalysis of multiple-substrate conversions

(e.g., biological waste treatment).

Bioprocesses may offer the following advantages over conventional chemical processes:

●

●

●

●

●

●

●

●

milder reaction conditions (temperature,

pressure, and pH);

use of renewable (biomass) resources as raw

materials for organic chemical manufacture,

providing both the carbon skeletons and the

energy required for synthesis;

less hazardous operation and reduced environmental impact;

greater specificity of catalytic reaction;

less expensive or more readily available raw

materials;

less complex manufacturing facilities, requiring smaller capital investments;

improved process efficiencies (e.g., higher

yields, reduced energy consumption); and

the use of rDNA technology to develop new

processes.

Some of the conceivable disadvantages of

bioprocesses, on the other hand, are the

following:

●

●

●

●

●

the generation of complex product mixtures

requiring extensive separation and purification, especially when using complex substrates as raw materials (e.g., lignocellulose);

problems arising from the relatively dilute

aqueous environments in which bioprocesses

function [e.g., the problem of low reactant

concentrations and, hence, low reaction

rates; * the need to provide and handle large

volumes of process water and to dispose of

equivalent volumes of high biological oxygen

demand wastes; complex and frequently

energy intensive recovery methods for

removing small amounts of products from

large volumes of water);

the susceptibility of most bioprocess systems

to contamination by foreign organisms, and,

in some cases, the need to contain the

primary organism so as not to contaminate

the surroundings;

an inherent variability of biological processes

due to such factors as genetic instability and

raw material variability; and

for rDNA systems, the need to contain the

organisms and sterilize the waste streams, an

energy-intensive process.

Solutions to some of these problems through

the use of biotechnology may make bioprocesses

more competitive with conventional chemical syntheses. Genetic intervention may be used in some

instances to modify micro~rganisms so that they

produce larger amounts of a product, grow in

more concentrated media, have enzymes with

increased specific activity, or grow at higher

temperatures to help prevent contamination.

Recombinant DNA technology may lead to the

development of completely new products or

modification of important existing ones. In the

past, some potentially useful bioprocesses have

● It is often said that biochemical catalysis is many times more effective than conventional chemical catalysis. ‘1’his contention is based

on the very high specific activities observed for individual enzymes

in vitro. Such rates are seldom encountered under large-scale conditions. In general, bioprocesses are extremely slow in comparison

with conventional chemical processes.
46 ● Commercial Biotechnology: An International Analysis

not been economical. Now, however, a combination of improved engineering design and procedures and rDNA technology may yield bioprocesses that are more efficient than they have been

in the past and therefore more competitive.

Bioprocess essentials*

The steps in bioprocessing are presented schematically in figure 9. The substrate and nutrients

are prepared in a sterile medium and are put into

the process system with some form of biocatalyst–free or immobilized cells or enzymes. Under

controlled conditions, the substrate is converted

to the product and, when the desired degree of

conversion has been achieved, byproducts and

wastes are separated.

Water is the dominant component of the

medium for virtually all current bioprocesses.

Even when micro-organisms are grown on solid

materials, an unusual processing mode, the

substrate must be dampened in order to permit

microbial growth and enzyme action. Products

must usually be purified from dilute, aqueous

solutions.

● The bioprocesses discussed here exclude uncontrolled environmental applications.

Figure 9.—Steps in Bioprocessing

SOURCE: Office of Technology Assessment.

Bioprocesses require a closely controlled environment, and this necessity markedly influences

their design. Biocatalyst generally exhibit great

sensitivity to changes in temperature, pH, and

even concentrations of certain nutrients or metal

ions. The success of a bioprocess depends on the

extent to which these factors are controlled in

the medium where interaction between biocatalyst and substrate takes place.

SUPPLY OF NUTRIENTS

In addition to establishing a suitable environment, the medium must provide for the nutritional needs of living cells. A primary requirement

is a source of carbon, In addition to supplying the

energy needed for metabolism and protein synthesis, carbon sources contribute structural

elements required for the formation of complex

compounds. Often, the carbon source may itself

be the substrate for the catalyzed reaction, as in

the fermentation of sugar to ethanol. Sugars,

starches, and triglycerides, and, to a lesser extent,

petroleum fractions, serve as carbon sources.

Other important nutrients required by living

cells are nitrogen, phosphorus, and sometimes oxygen. Nitrogen and phosphorus are incorporated

into structural and functional molecules of a cell

and may also become pafi of product molecules.

Most of the microorganisms currently used by

industry are highly aerobic and require an adequate supply of oxygen, but others are strictly

anaerobic and must be protected from oxygen.

A number of other nutrients, such as vitamins

and metal ions, though required only in very small

amounts, are nevertheless essential. Some of these

nutrients, especially metals, may appear in the

product.

In order to make the substrate and nutrients

accessible to the biocatalyst, the medium must be

thoroughly mixed. Most bacteria and some yeasts

used in bioprocesses commonly grow as individual cells or as aggregates of a few cells suspended

in the medium, whereas fungi and actinomycetes

grow in long strands. As they grow, all these types

of cells increase the viscosity of the fluid in which

they are growing in a batch process, making the

fluid more difficult to mix, and thus more difficult

for nutrients to reach them.
Ch. 3—The Technologies ● 47

Since most of the micro~rganisms currently

used by industry perform their conversions

aerobically, they demand a constant supply of

oxygen. Oxygen’s low volubility in water represents a significant stumbling block to efficient

bioprocessing. Since oxygen is depleted during

conversion, the medium must be constantly aerated; the more viscous the medium, however, the

more difficult it becomes to supply oxygen. Approaches to maintaining an adequate oxygen supply

●

●

●

include:

increasing reactor pressure to increase oxygen volubility,

the use of oxygen-rich gas for aeration, and

changes in process design and operation.

PURE CULTURES AND STERILIZATION

Most of the products of bioprocesses are

formed through the action of a single biocatalyst,

either a microorganism or an enzyme. * If foreign

organisms contaminate the process system, they

may disrupt its operation in a variety of ways.

They can directly inhibit or interfere with the

biocatalyst, whether it is a single enzyme or a

complete cell, and they may even destroy the

biocatalyst completely. Alternatively, contaminating organisms may leave the catalyst unaffected, but modify or destroy the product.

Foreign organisms can also generate undesirable

substances that are difficult to separate from the

primary product. In the manufacture of pharmaceutical products, the risk of toxic impurities is

of particular concern.

To avoid or minimize contamination, most current bioprocess technologies employ pure culture

techniques. The medium and its container are

sterilized, and a pure culture consisting of a

population of a particular species is introduced.

In order to avoid subsequent contamination, all

materials entering the system, including the large

amounts of air required for aerobic processes, are

sterilized. The apparatus must be designed and

operated so that opportunities for invasion by

unwanted organisms are minimized.

*A significant exception to this generalization is the broad group

of biological waste treatment processes. These processes use mixed

and varied populations of microorganisms developed naturally and

adapted to the waste stream being treated.

Processing modes

Bioprocesses may, in principle, use any of the

operating modes employed by conventional chemical technology. These modes range from batch

processing to continuous steady-state processing.

In batch processing, the reaction vessel is filled

with the medium containing the substrate and

nutrients, the medium is sterilized, the biocatalyst is added, and conversion takes place over a

period ranging from a few hours to several days.

During this period, nutrients, substrates, agents

for pH control, and air are supplied to, and product gases are removed from, the reaction vessel.

When conversion is complete, the reaction vessel

is emptied, and the purification process begins.

Turnover time between batches can account for

a significant portion of total processing time.

In continuous steady-state processing, which

lies at the other end of the operational spectrum

from batch processing, raw materials are supplied

to, and spent medium and product are withdrawn

from, the reaction vessel continuously and at

volumetrically equal rates. Potential advantages

offered by continuous processing over batch

processing include significantly higher productivity, greater ease of product recovery due to the

lack of contaminating biocatalyst, and lower cost

due to reuse of biocatalyst.

The simplest approach to the implementation

of a continuous processing system is to modify

a batch reactor so that fresh substrate and

nutrients can continually be added while a

product stream is removed. This simple arrangement has one serious drawback: the biocatalyst

leaves the reactor continuously with the outlet

stream and must be separated from the product.

Several techniques, all of which involve fixing the

biocatalyst in some reamer

) have been developed

to avoid the biocatalyst’s escape with the reaction

mixture and allow its repeated use. The development of techniques for the immobilization of

biocatalyst has greatly expanded the possibilities

for continuous bioprocesses. Although still not

widely employed for large-scale bioprocesses, the

biocatalyst immobilization techniques now available offer a diversity of new opportunities for

more effective bioprocessing (see Box A.-Continuous Bioprocessing).

Ch. 3—The Technologies . 49

Figure BXA-1 .—Techniques for Immobilizing Enzymes and Whole Cells

Enzymes can be immobilized by adsorption or chemical bonding (a), by entrapment in a polymer matrix (b), or by microencapsulation (c).

Carrier

SOURCE Adapted from E Gaden, “Production Methods in Industrial Microbiology)” Scientific American, September 1981, p. 182,

Lattice Membrane

Table BXA”l.—Characteristics of Immobilization Methods for Enzymes and Cells

Immobilization method

Physical Chemical Entrapment;

Characteristic adsorption bonding encapsulation

Preparation . . . . . . . . . . . . . . . . Easy Difficult Moderate

Activity . . . . . . . . . . . . . . . . . . . . Low High High

Specificity . . . . . . . . . . . . . . . . . Unchanged Changeable Unchanged

Binding force (retention) . . . . . Weak Strong Strong

Regeneration . . . . . . . . . . . . ., . Possible Impossible Impossible

cost . . . . . . . . . . . . . . . . . . . . . . Low High Low

SOURCE Gaden, personal communication, 1983

● Biological. BiocataIwvst stability may be difficult to maintain for long periods of continuous operation.

The phenomenon of “culture degeneration,” reported in many instances, deserves careful study.

The results of such studies will surely be case-specific and may simply reflect inadequacies in the

lmoivledge of nutrient requirements necessary to sustain long-term productivity. As the use of rDNA

organisms grows, this matter will require close attention because of concerns over the stability of

these types of organisms.

 (Operationaf. The primary technical factors acting to limit continuous bioprocessing in the past have

been difficulties in maintaining sterile conditions and in handling biocatalytic suspensions, especially

those of filamentous fungi or large cell clumps. The perplexing contamination problem has focused

improvement efforts on the deficiencies of equipment (mainly pumps) for moving liquids and slurries

and on valves and transfer lines. Many specific difficulties have already been overcome in connection

with batch operations, and improved equipment design and more rigorous operating procedures

may result in successful continuous processes.
— —

50 ● Commercial Biotechnology: An International Analysis

Figure BXA.2.– Packed-Bed and Fluidized-Bed Reactors

Packed-bed reactor

Fresh medium

Fluidized-bed reactor

Settling region

r

Outlet

,.:”~” f

stream

u

Packed bed u

i t

Spent medium and product Fresh medium

SOURCE: Adapted from E. Gaden, “ProductIon Methods in Industrial Microbiology,” Sckwrtlfk Arnerlcan, September 19S1, p. 19S.

Batch operation currently dominates specialty

chemical and pharmaceutical bioprocesses and is

likely to continue to do so in the near future, In

addition to technical limitations on continuous

processing (see box A), other considerations have

led manufacturers to choose the batch mode.

Batch processing is often used, for example, because it offers the operational flexibility needed

when a large number of products are manufactured, each at fairly low production levels; each

process unit, more or less standard in design, can

easily and rapidly be switched from one product

line to another. Furthermore, a switch from batch

to continuous processing is expensive, and, if a

company has unused batch equipment, it may

find that a switch to continuous processing is not

economically warranted in the near term.

Increased use of genetically manipulated biocatalyst could affect the design and operation of

bioconversion units. Harvey Blanch points out

(33):

. . . one of the difficulties which arises from the

insertion of foreign DNA into the organism is re -
Ch. 3—The Technologies 51

version. This can be minimized by placing the cell

in an environment in which cellular replication

is minimized, while cellular activity, such as the

production of enzymes and products, is maintained at high levels.

Achieving the dual objective of minimal growth

and maximum conversion activity requires restrictive nutrient supplies and high cell densities.

Immobilized biocatalyst could be used to achieve

these objectives.

Bioprocesses, unlike petroleum refining or

petrochemical operations which completely convert raw materials to products or consume them

as process fuels, regularly produce large amounts

of waste, mainly cell matter and residual nutrients. Bioprocesses also require large volumes of

clean water, discharge equivalent amounts of

dilute, high biological oxygen demand wastes, and

produce products in low concentrations. One

solution to problems associated with bioprocessing might be the use of cleaner, more defined

media, which produce fewer byproducts. Another solution might be the use of more concentrated media. The latter option is normally considered in bioprocess development, but the microorganisms now in use are limited in their tolerance for high nutrient concentrations. Genetic

manipulation may provide micro-organisms that

are less sensitive to increased product concentration.

Raw materials

Current bioprocess technology uses an extremely limited range of raw materials. Just a few agricultural commodities—starch, molasses, and vegetable oil—are employed as raw materials in many

of the existing industrial bioprocesses, Industry

chooses these feedstocks for several reasons.

There are established markets for these materials

and, for primary products like starch, reasonably

defined quality standards and assay procedures.

Several competing suppliers guarantee uniform

quality and fairly stable prices. Bioprocess applications constitute only a relatively small fraction of

the market for agricultural commodities. The

need for raw materials for bioprocesses, however,

could become a major factor in commodity grain

markets if bioprocesses find a place in large-scale

fuel or chemical production.

Less important raw materials are some byproducts of agricultural and food processing, such as

“corn steep liquor” and “distillers solubles. ” Petroleum hydrocarbons are little used because of

their high cost. The potential for relatively pure

cellulose (e.g., delignified wood) remains unrealized. * For various carbohydrate wastes—agricultural, food, industrial, or municipal—in spite of

frequent claims of their availability and low cost,

no economical bioprocess applications have yet

been found.

Biocatalyst

The substances that actually cause chemical

change in bioprocesses are the enzymes produced

by a living cell. For simple enzymatic conversions,

isolated enzymes can be used as biocatalyst.

When biological transformation of the substrate

involves several sequential and interrelated

chemical reactions, each catalyzed by a separate

enzyme, however, whole cells (most commonly,

but not exclusively, micro-organisms-bacteria,

yeast, or fungi) are used as biocatalyst. Bioproc -

esses used for the synthesis of complex molecular

structures (e.g., antibiotics or proteins such as insulin), for example, require entire systems of enzymes, Such systems do not yet function in concert outside a living cell. Indeed, when the desired

product is the cell itself (e.g., baker’s yeast or

single-cell protein), all the enzymes comprising the

cell’s growth machinery are components of the

catalytic system.

An inspection of the immense spectrum of organisms whose biochemical capabilities have been

reasonably well defined reveals that bioprocesses

employ only a small, select group of biocatalyst.

If one eliminates those organisms considered

“natural populations” in food fermentation or

biological waste treatment, the range of biocatalyst employed in bioprocesses is even more

limited. Some animal cells and tissues are

employed for vaccine production and related

activities, but the catalytic capabilities of plant

cells, except for some algae, have not yet been

employed commercially. It is possible that biotechnology will provide a means whereby important

catalytic activities from poorly understood

● See Chapter 9: Commodit}r Chemicals and Energv Production,
52 . commercial Biotechnology: An International Analysis

organisms can be transferred to cells whose largescale growth is well understood.

Wider availability of thermotolerant biocatalyst

is important for all industries using bioprocesses.

Recent research on the development of thermotolerant biocatalytic agents has advanced the

potential efficiency of bioprocesses. The advantages of thermotolerance include:

●

●

●

●

reduced susceptibility to contamination;

easier removal of metabolic heat;

more complete and rapid conversions when

volatile inhibitors are present (but oxygen

volubility is reduced); and

easier recovery of volatile products (e.g.,

ethanol).

Biocatalyst that can withstand high pressure

may also be useful industrially. For instance,

higher pressures will increase the volubility of

oxygen.

Finally, research investigating the relationship

between the structure and the function of enzymes is proceeding. Ultimately, the aim is to be

able to design, with the help of computers, an

enzyme to perform any specific catalytic activity

under given conditions. Although this procedure

will not be done routinely for many years, it will

soon be possible, using rDNA technology, to

modify the structure of an enzyme to improve

its function in a given condition, such as at a particular pH or temperature. Thus, biotechnology

could greatly affect the efficiency of bioprocesses.

Bioprocess monitoring and

associated instrumentation

Despite the need for close control of process

variables during a bioprocess operation, the techniques available for making measurements on-line

are extremely limited. Existing equipment can

readily monitor only temperature, pH, dissolved

oxygen concentration, and evolution of gases. Although many other sensors have been developed

to measure other variables (e.g., glucose levels),

all are sensitive to steam sterilization. Thus, their

usefulness in monitoring most bioprocesses is limited. Many critical variables are able to be monitored only by withdrawing samples from the reaction vessel and analyzing them off-line, and, even

then, it is difficult to determine key characteristics

accurately. When measuring cell mass (an indicator of growth), for example, most process operators simply note such crude indicators as packed

cell volume, turbidity, or, at best, dry weight.

It is possible to measure the compositions and

flow rates of gaseous streams entering and leaving

the reactor and to use the values obtained from

such measurements to help estimate key process

conditions indirectly. Such procedures have been

greatly facilitated by the use of computers. The

real potential of computer control, however, will

not be realized until a greater range of reliable

on-line sensors becomes available. *

A number of European, Japanese, and American groups have developed improved sensors for

bioprocess control, but, so far, most devices

require removal of samples for off-line analysis

because the sensors cannot withstand sterilization. Continuous sampling combined with various

types of rapid instrumental analyzers offers a

reasonable compromise, but, with this approach,

there is a time lag between the actual sample time

and the time at which the assay information

becomes available.

Sophisticated instrumentation will have increasing use in bioprocess monitoring. High performance liquid chromatography, for example, is used

to identify particular compounds in a mix of compounds and is one of the fastest growing instrumentation fields. Flow cytometry has potential use

in measuring process variables such as cell size

(an indicator for adjusting nutrient flows) and cell

viability. Other instrumentation will surely be

used as bioprocess monitoring becomes more

widely investigated.

Computer-coupled bioprocesses can greatly improve monitoring and controlling the growth conditions during a bioprocess run. Computers can

be used to analyze the data from sensors and

other monitoring instrumentation and respond

to these data by adjusting process variables, such

as nutrient flow. Additionally, computer interfaces can be used:

● to schedule efficiently the use of equipment;

. to alarm operators when necessary;

*For a discussion of biosensors, see Chapter 10: Bioeleetronics.
Ch. 3—The Technologies 53

Photo credif: Porfon/LH /nternationa/

100-liter pilot plant bioreactor with computer controls

● to log, store, and analyze data; and

● to inventory raw material depletion

product synthesis.

These functions optimize the methodology

because of increased interest in bioprocesses by

and electronics experts, as evidenced by the recent

joint venture between Genentech and HewlettPackard. * and

organization of bioprocessing within a plant. Com - The automation of bioprocessing will be of crit -

panies are only now starting to use computer- ical importance in the future as companies com -

controlled bioprocesses because of cost, lack of pete for shares in biotechnology product markets.

good sensors, and interfacing problems. Yet

advances in this field are sure to occur soon ‘See Chapter 4: F’irrns Commercializing Biotechnolo@.
54 ● Commercial Biotechnology: An International Analysis

As automation reduces the labor intensity of

laboratory tasks, the pace of competition will

quicken, and countries with sophisticated software to direct the automation will possess an advantage in the commercialization of biotechnology.

Separation and purification

of products

Separation and purification techniques used in

bioprocesses are the aspect of bioprocess engineering most in need of attention, especially for

the production of novel products such as proteins.

Research is needed to find highly selective recovery techniques that leave as little residual product

as possible in the medium and thus lessen the labor intensity associated with downstream processing. An example of the effort expended in

downstream processing is provided by the new

plant Eli Lilly built to produce human insulin

(Humulin”). The plant employs 220 people, 90

percent of whom are involved in recovery

processes.

Some of the possibilities for improving recovery

techniques now under consideration include the

following:

● Ultrafiltration. Membranes and other filtration systems, such as porous metals, offer

many advantages, and considerable experience in other areas of chemical technology is already available. Some U.S. companies, such as Millipore, Amicon, and

Nucleopore are making advances in this area.

● Continuous chromatography and high

performance liquid chromatography. If these

approaches, already available on the laboratory scale, could be scaled-up, it would be

possible, in principle, to collect a crude product from the medium and then, by selective

elution, recover product, reusable nutrients,

and inhibitory substances separately, one

American manufacturer (Waters, a Millipore

subsidiary) claims to have developed a pilotscale chromatographic unit.

● Electrophoresis. Electrophoretic methods,

especially continuous flow, can separate proteins, peptides, and nucleic acids on the basis

●

of their electrical charge. The advantage of

this separation method over some others is

that it can run continuously and can effectively separate molecules in large sample

volumes. The potential of continuous-flow

electrophoresis for producing commercial

quantities of high purity substances such as

pharmaceuticals was demonstrated on a

recent space shuttle mission. The electrophoresis experiment, cosponsored by McDonnell Douglas and the National Aeronautics and Space Administration, demonstrated

that under weightless conditions an electrophoresis system, identical to one tested on

Earth, separated about 700 times more material in a given period of time and also

achieved four times the purity while processing 250 times more material.

Monoclinal antibodies. Immobilized MAbs

are being used as purification agents for protein products (see “Monoclinal Antibody

Technology” section above). This technique

best suits large molecular weight and highvalue-added products such as proteins,

Genetic modifications of micromganisms used

in bioprocessing could also aid in recovery processes. Two changes in particular would greatly

improve the yield and ease recovery of proteins.

First, microorganisms could be developed that

have minimal intracellular proteindegrading enzymes. The presence of these enzymes will decrease the yield of protein product. Second, a protein is much more easily purified if it is secreted

from the cell into the surrounding medium. The

genetic incorporation of protein secretion mechanisms will lower production costs dramatically.

Although purification and separation protocols

have been developed for existing bioprocesses,

new bioprocesses will present new challenges.

For example, rDNA technology has led to a new

set of bioprocesses that synthesize protein

products, and substantial work is needed to improve recovery strategies for large-scale protein

purifications. In addition, one of the factors that

restricts the use of bioprocesses for producing

commodity chemicals is the expense of recovering

these low-value-added chemicals from dilute

aqueous solutions.
Ch. 3—The Technologies 55

Culture of higher eukaryotic cells

The organisms used most extensively in largescale bioprocesses are prokaryotes (e.g., bacteria)

or simple eukaryotes (e.g., yeast). These are hardy

organisms which grow to high cell densities and

consequently give high product yields.

Certain products can be obtained in some situations only from the large-scale cultivation of

higher eukaryotic cells. As noted in table 2, for

instance, many proteins that are potentially useful (e.g., in medicine) have not been isolated in

large enough quantities to study adequately. If

eukaryotic cell culture made these proteins available in larger quantities, their amino acid sequence could be determined, their genes cloned,

and even more of the proteins could be produced.

Furthermore, some proteins probably need “posttranslational modifications” (changes in protein

structure after the protein is made from mRNA)

that only higher eukaryotes can perform. These

modified proteins may onty be made in eukaryotic

cells, Also, in many cases, the production of secondary metabolizes in plant cells is a function of

several enzymatic functions, most of which are

not known. Therefore, the growth of plant cells

in culture might be the easiest way to produce

useful plant compounds. Finally, many individuals

think that the growth of hybridomas would be

easier and more economic in culture if the culture

technology were better developed (see “Monoclinal Antibody Technology” section above). As

biotechnology becomes more integrated into the

industrial structure, the development of more

efficient and economic bioprocess technologies

for higher eukaryotic cells will increase in

importance.

Photo credit: Sci&Jce Photo Library and Porion/LH International

Laboratory tissue culture production

The technologies developed for the growth of

microorganisms have limited applicability to the

growth of higher eukaryotic cells because of dif -

ferences between microbial and mammalian cells

(see table 3). Mammalian cells are larger, more

fragile, and more complex than microbial cells. *

● Most cell culture research has been done with mammalian cells,

so the work reported here focuses on those cells. Problems with

plant cell culture are similar to those of mammalian cell culture.

Table 2.—Situations Potentially Requiring Large-Scale Eukaryotic Cell Culture

Cell culture system Reason for large-scale eukaryotic cell culture

Cells producing useful proteins . . . . . . . . . . . Not large enough quantity to determine

amino acid sequence; therefore cannot use

rDNA technology

Cells producing modified proteins . . . . . . . . Modification systems present only in higher

cells

Plant cells producing useful secondary

metabolizes. . . . . . . . . . . . . . . . . . . . . . . . . . . Enzymatic pathways for metabolic production

not well understood; therefore cannot use

rDNA technology

Hybridomas . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mouse acites system has limited capacity

and applicability

SOURCE: Office of Technology Assessment.
.

56 . Commercial Biotechnology: An International Analysis

Photo cmdlt: Porton/LH International

Bioreactor specially designed for the growth of plant

or animal cells

Furthermore, mammalian cells have very complex

nutritional requirements, which have not been

completely defined. They require serum from

blood for growth, and the essential composition

of serum is not well characterized. In contrast

to microbial cells, mammalian cells are not normally exposed to the environment, but are constantly surrounded by a circulatory system that

supplies nutrients and removes wastes. When

these cells are grown in culture, the medium is

initially clean and nutritionally balanced; as the

cells take up the nutrients and excrete waste

products, however, the medium becomes much

less like the cells’ normal environment. This problem, along with the problem of fragility, requires

modified reactor design (39).

Some mammalian cells grow in suspension like

microbial cells, but most higher cells must attach

to a solid surface. A major problem with largescale cell growth of mammalian cells has been the

availability of large, accessible surfaces for cell

growth. The attachment of cells to microcarriers,

or very small beads, has begun to solve many of

the problems associated with large-scale mammalian cell culture. The beads provide a large

amount of surface area and can be placed in a

column where either a continuous-flow or fluidized-bed bioreactor can be used for cell growth

and product formation (see box A). Either of these

bioreactors is gentler than a stirred tank reactor.

Additionally, because of the continuous nature

of these bioreactors, fresh nutrients are added

and wastes are removed continuously.

The instrumentation requirements for mammalian cell growth are different than those for

microbial growth. The lower rates of metabolism

and lower density of mammalian cells require

more sensitive sensor systems than for microbial

cell growth. Additionally, because the nutritional

requirements are so much more complex, different strategies are needed to monitor and

control cell growth. These problems are just

beginning to be addressed (4o).

Priorities for future research

Priorities for future generic research in bioprocess engineering that would be applicable
Ch. 3—The Technologies ● 57

Table 3.—Comparison of Microbial and Mammalian Cells

Characteristic Microbial cells Mammalian cells

Size (diameter) . . . . . . . . . . . . 1-10 microns 10-100 microns

Metabolic regulation . . . . . . . Internal Internal and hormonal

Nutritional spectrum . . . . . . . Wide range of substrates Very fastidious nature

Doubling time . . . . . . . . . . . . . Typically 0.5-2.0 hours Typically 12-60 hours

Environment . . . . . . . . . . . . . . Wide range of tolerance Narrow range of tolerance

Other characteristics. . . . . . . Limited life span of normal

cells

Lack of protective cell wall

SOURCE: Office of Technology Assessment, adapted from R. J. Fleischaker, Jr., “An Experimental Study in the Use of instrumentation To Analvze Metabolism and Product Fermentation in Cell Culture,” thesis, Massachusetts Institute of

Technology, Cambridge, Mass., June 19S2.

to all industries using biotechnology include

research in the following areas:

●

●

●

●

●

●

continued work on the practical use of and

design of bioreactors for immobilized cell and

enzyme systems;

development of a wider range of sterilizable

sensors for process monitoring and control;

improved product recovery techniques,

especially for proteins;

general reactor design and practical

approaches to better oxygen transfer;

inhibition of intracellular protein-degrading

enzymes;

improving the genetic stability of

organisms;

Chapter 3 references

Recombinant DNA technology

references

rDNA

“ Hvferemw ot gerwral ]nterest are marked wrth asterw.ks

●

●

●

protein secretion mechanisms;

improved methods for heat dissipation during bioprocessing; and

biochemical and physiological mechanisms

for temperature and pressure tolerance.

The large-scale culture of eukaryotic cells is

beginning to receive some research attention.

Because of the complex nutritional requirements

of eukaryotic cells, the cost of the medium is high.

If industry is going to adopt eukaryotic cell culture

technology, the development of economic artificial media is important. Also important is the

development of new bioreactor design and instrumentation for the control of cell growth.

1. Guarente, L., Roberts, T., Ptashne, M., et al., ‘(A

Technique for Expressing Eukaryotic Genes in

Bacteria, ” Science 209:1428-30, 1980.

2. Ris, H., and Kubai, D. F., “Chromosome Structure, ” Ann. Rev. Genetics 4:263-94, 1970.

3. Shortle, D., DiMaio, D., and Nathans, D., “Directed

Mutagenesis,” Ann. Rev. Biochem. 15:265-94,

1981.

Monoc]onal antibody technology

references *

*4. Baskin, Y., “In Search of the Magic Bullet,”

Technology Review, October 1982, pp. 19-23.

*5. Business Week, “Biotechnology’s New Trust in

Antibodies,” May 18, 1981, pp. 147-156.

6. Cavagnaro, J., and Osband, M., “A Status

Review—Human-Derived Monoclinal Antibodies, ” Genetic Engineering News, May/June 1983,

Pp. 6-7.

7. Chemical and Engineering News, “Method May

Boost Monoclinal Antibody Output,” Jan. 11,

1982, p. 22.

*8. Chisholm, R., “On the Trail of the Magic Bullet,”

High Technology, January 1983, pp. 57-63.

9. Croce, C. M., Linnenbach, A., and Hall, W., et al.,

“Production of Human Hybridomas Secreting Antibodies to Measles Virus,” Nature 288:488, 1980.

10. Diamond, B. A., Yehon, D. E., and Scharff, M. D.,

“Monoc]onal Antibodies: A New Technique for

Producing Serological Reagents, ” New Eng. J.

Med. 304:1344, 1981.

11. Fox, P. L., Bernstein, E. H., and Berganian, R. P.,

25-561 0 - 84 - 5
58 . Commercial Biotechnology: An International Analysis

“Enhancing the Frequency of Antigen-Specific

Hybridomas)” Eur. J. Immune]. 11:431, 1981.

12. Galfre, G., Milstein, C., and Wright B., “Rat x Rat

Hybrid Myelomas and a Monoclinal Anti-Fd Portion of Mouse IgG,” Nature 277:131, 1979.

*13. Gatz, R. L., Young, B. A., Facklam, T. J., and

Scantland, D. A., “Monoclinal Antibodies: Emerging Product Concepts for Agriculture and Food, ”

Bioflechno]ogy, June 1983, pp. 337-341.

14. Gefter, M. L., Margulies, D. H., and Scharff, M.

D., “A Simple Method for Polyethylene GlycolPromoted Hybridization of Mouse Myeloma

Cells,” Somat. Cc/] Genet. 3:231, 1977.

15. Herzenberg, L. A., and Herzenberg, L. A.,

“Analysis and Separation Using the Fluorescence

Activated Cell Sorter (FACS),” Handbook of Experimental Immunology, vol. 2, D. M. Weis (cd.)

(London: Blackwell Scientific Publications, 1978).

16. Hoffman, R. A., and Hansen, W. P., “Immunofluorescent Analysis of Blood Cells by Flow

Cy-tometry,’’lnt. J. Immunopharmac. 3:249) 1981.

17. Karpas, A,, Fischer, P., and Swirsky, D., “Human

Plasmacytoma With an Unusual Karyotype Growing in Vitro and Producing Light-Chain Immunoglobulin, ” Lancet 1:931, 1982.

18. Kindel, S., “The Birth of Bioindustry,” Forbes, July

18, 1983, pp. 130-132.

19. Klausner, A., “Genentech Makes Monoclinal

Precursors From E. coZi,” Bioflechnofogy, July

1983, pp. 396-397.

20. Kohler, G., and Milstein, C., “Continuous Cultures

of Fused Cells Secreting Antibody of Predefine

Specificity,” Nature 256:495, 1975.

21. Kohler, G., and Milstein, C., “Derivation of Specific

Antibody-Producing Tissue Culture and Tumor

Lines by Cell Fusion,” Eur. J. Immunol. 6:511,

1976.

*22. Langone, J., “Monoclonals: The Super Antibodies,” Discover, June 1983, pp. 68-72.

23. Lewin, R., “An Experiment That Had To Succeed,”

Science 212:767, 1981.

24. Melchers, F., Potter, M., and Warner, N. L. (eds.),

“Lymphocyte Hybridomas,” Curr. Top. Microbioi.

Immunol., vol. 81 (New York: Springer-Verlag,

1978).

*25. Milstein, C., “Monoclinal Antibodies,” Scientific

American 243:66-74, 1980.

26. Montagnon, B. J., et al., “Large-Scale Culture of

Vero Cells in Microcarrier Cuhure for Virus Vaccine Production: Preliminary Results for Killed

Polio Virus Vaccine, ” Inter. Deve]. Biol. 47:55,

1980.

27. Olsson, L., and Kaplan, H., “Human-Human

Hybridomas producing Monoclinal Antibodies of

31

*32.

35,

36.

37.

38.

39.

40.

41.

Microbiology,” Scientific American, September

1981, pp. 181-196.

“ *Most of these references are of general interest for those wishing to pur.

sue the subject of bioprocess technology further,
Ch. 3—The Technologies 59

42. Gaden, E. L., “Bioprocess Technology: An Analysis

and Assessment,” contract paper prepared for the

office of Technolo~V Assessment, U.S. Congress,

July 1982.

43. Gaden, E. L., University of Virginia, personal communication, 1982.

44. Hochhauser, S. J., ‘

(

Bringing Biotechnology to

hlarket,” High Technology, February 1983, pp.

55-60.

45. Johnson, 1. S,, ‘(Human Insulin From Recombinant

DNA Technology,” Science 219:632-637, 1983.

46. Kindel, S., “Enzymes-The Bioindustrial Revolution)” TechnoZo~, November/December 1981, pp.

62-74.

47. Klibanov, A. M., “Immobilized Enzymes and Cells

as Practical Catalysts,” Science 219:722-727, 1983.

48. National Academy of Engineering, “Genetic Engineering and the Engineer” (Washington, D. C.:

National Academy Press, 1982).

49. Wang, D. I. C., Cooney, C. L., Demain, A. L., et

al., Fermentation and Enzuyme Technolo~ (New

York: John Wiley & Sons, 1979).
PART II

Firms Commercializing

Biotechnology
Chapter 4

Firms Commercializing

Biotechnology
Contents

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Overview of U.S. and Foreign Companies Commercializing Biotechnology . . . . . . . . . . . 66

Pharmaceutical Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Animal Agriculture Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Plant Agriculture Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Specialty Chemicals Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

U.S. and Foreign Support Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Important Product Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

U.S. Firms Commercializing Biotechnology and Their Role in Competition. . . . . . . . . . . . 91

New Biotechnology Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Established U.S. Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Collaborative Ventures Between NBFs and Established U.S. Companies. . . . . . . . . . . . . 103

Collaborative Ventures Between NBFs and Established Foreign Companies. . . . . . . . . . 108

Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

Chapter preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Tables

Table No. Page

4. Companies Commercializing Biotechnologyin the United States

and Their Product Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

5. Distribution of Sales by the Top 20 U.S.

and Foreign Pharmaceutical Companies, 1981 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

6.Introduction of New Pharmaceutical Products by Country of Origin

Between 1961 and 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

7. Biotechnology R&D Budgets for Leading U.S. and Foreign Companies, 1982 . . . . . . . 74

8. Pharmaceutical R&D Expenditures by Country: 1964, 1973, and 1978, . . . . . . . . . . . 75

9. Diversification of Japanese Chemical, Food Processing, Textile,

and Pulp Processing Companies Into Pharmaceuticals . . . . . . . . . . . . . . . . . . . . . . . . . . 77

IO. Japanese Joint Ventures in Pharmaceutical Applications of Biotechnology . . . . . . . . . 78

11. Applications of Biotechnology to Plant Agriculture for Seven New

Biotechnology Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

12. Estimates of U.S. Monoclinal Antibody Markets, 1982 and 1990 . . . . . . . . . . . . . . . . . 95

13. Equity Investments in New Biotechnology Firms by

Established U.S. Companies, 1977-83 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

14. Some Collaborative Ventures Between New Biotechnology Firms and

Established U.S .and Foreign Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., ,. 104

Figures

Figure No. Page

IO, Percentage of Firms in the United States Pursuing Applications of Botechnology

in Specific Industrial Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

ll,Ernergence of New Biotechnology Firms, 1977-83. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

12. Aggregate Equity Investments in New Biotechnology Firms

by Established U.S. Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Chapter 4

Firms Commercializing Biotechnology

Introduction

Biotechnology has the technical breadth and

depth to change the industrial community of the

21st century because of its potential to produce

substantially unlimited quantities of:

●

●

●

●

●

products never before available,

products that are currently in short supply,

products that cost substantially less than

products made by existing methods of production,

products that are safer than those now available, and

products made with raw materials that may

be more plentiful and less expensive than

those now used.

By virtue of its wide-reaching potential applications, biotechnology lies close to the center of

many of the world’s major problems—malnutrition, disease, energy availability and cost, and

pollution. It is because of biotechnology’s promise

that the developed countries of the world have

commenced a competitive battle to commercialize

its applications,

Nowhere in the world are efforts to commercialize biotechnology stronger than in the United

States. * Large established U.S. companies in industries ranging from pharmaceuticals to petroleum have followed the lead in developing biotechnology that was set by entrepreneurial new

biotechnology firms (NBFs) in the United States

whose dedication to biotechnology is unmatched

anywhere. Major competitive challenges to the

United States in current product markets, as well

as in new biotechnology markets yet to be defined, will be mounted by established companies

in the Federal Republic of Germany, United Kingdom, Switzerland, and France—but the most formidable challenge will come from established

● For a summary of activities in biotechnology in countries other

than the United States, see Appendix B: Country Summaries.

companies in Japan. The Japanese consider biotechnology to be the last major technological revolution of this century (58). More immediate than

its promise of helping to alleviate some world

problems, biotechnology offers Japan an important opportunity to revitalize its structurally depressed basic industries whose production processes are reliant on imported petroleum,

This chapter provides an overview of U.S. and

foreign private sector research and development

(R&D) and commercialization efforts in biotechnology to help answer the broader question being addressed by this report: Will the United

States be able to translate its present technological

lead into worldwide commercial success by securing competitive shares of biotechnology-related

product markets? The first section of the chapter

provides an overview of the types of companies

that are commercializing biotechnology in the

United States and the five foreign countries expected to be the major competitors in the area

of biotechnology. This section briefly examines

the four fields where biotechnology is being applied most vigorously —pharmaceuticals, animal

health, plant agriculture, and specialty chemicals.

The second section analyzes and compares the

strength of the U.S. support base with that of the

competitor countries, using three important product areas for comparison: biochemical reagents,

instrumentation, and software. The third section

analyzes the respective roles of the firms applying biotechnology in the United States—NBFs and

established companies-in the domestic and international development of biotechnology. It also describes collaborative ventures between NBFs in

the United States and established U.S. and foreign

companies that are seeking to commercialize biotechnology. The chapter concludes by summarizing major findings with respect to the role of NBFs

and established companies in the U.S. commercialization effort.

65
.

66 Commercial Biotechnology: An International Analysis

Overview of U.S. and foreign companies

commercializing biotechnology

U.S. and foreign efforts to develop and commercialize biotechnology differ substantially in qharacter and structure. The manner in which the

United States and other countries organize their

development efforts is important for two reasons:

it can influence their respective commercial capabilities; and it will ultimately shape the character

of international competition.

In the United States, two distinct sets of firms

are pursuing commercial applications of biotechnology-NBFs and established companies. NBFs,

as defined by this report, are entrepreneurial ventures started specifically to commercialize innovations in biotechnology. For the most part, they

have been founded since 1976–the same year the

U.S. firm Genentech was founded to exploit the

recombinant DNA (rDNA) technology patented in

the United States by Cohen and Boyer, * Typically, NBFs are structurally organized specifically to

apply biotechnology to commercial product development. The established companies pursuing

applications of biotechnology are generally processa-iented, multiproduct companies in traditional industrial sectors such as pharmaceuticals,

energy, chemicals, and food processing. These

companies have undertaken in-house biotechnology R&D in an effort to determine how and

where best to apply biotechnology to existing or

new products and processes. Table 4 provides a

list of NBFs and established companies currently

applying biotechnology in the United States and

the targeted commercial areas of their research.

Figure 10 illustrates the percentage of U.S. firms

pursuing biotechnology R&D in specific application areas.

Sixty-two percent (135) of the 219 U.S. companies for whom commercial application areas are

● Two U.S. firms, Cetus and Agrigenetics, though established before

1976, are considered to be NBFs. Cetus was founded to capitalize

on classical gerwtic techniques for product development, but showed

early interest in biotechnology and began aggressively pursuing

product development with the new techniques. Agrigenetics was

formed in 1975 to link new genetic research with the seed business.

Thus, the behavior and research focus of both Cetus and Agrigenetics place them in the new firm category despite their early

founding dates.

known* are pursuing applications of biotechnology in the area of pharmaceuticals; 28 percent

are pursuing applications in animal agriculture,

and 24 percent in plant agriculture.** In the area

of specialty chemicals and food additives, commodity chemicals and energy, the environment,

and electronics, respectively, relatively fewer U.S.

firms are pursuing commercial applications of biotechnology. In some of these sectors, conventional

technologies are working well or existing investments in capital equipment are very substantial.

In others, much uncertainty still surrounds the

potential of biotechnology or the research needed

to develop applications of biotechnology is long

term.

In Japan, the Federal Republic of Germany,

Switzerland, France, and the United Kingdom, * *

biotechnology is being commercialized almost exclusively by established companies. Most European nations and Japan, unlike the United States,

tend, for different reasons, to emphasize the importance of large companies instead of small ones.

Thus, the development of biotechnology in these

countries is biased considerably toward the large

pharmaceutical and chemical companies.

It should not be assumed that the small number

of NBFs in the European countries or the lack of

● This figure does not include the companies listed that are specializing in bioprocessing, because the bioprocessing R&D may not

be associated with specific products. See Appendix D.’ Firms Commercializing Biotechnology in the United States for an explanation

of how the list was obtained.

“ *These percentages add up to more than 100 percent because

many of the fimns are engaged in more than one area of commercial application.

● ● ● In the United Kingdom, some NBFs, not including Celltech and

Agricultural Genetics, are beginning to form on the periphery of

universities. Plant Science, Ltd., for example, is linked to the University of Sheffield; Imperial Biotechnology, Ltd., is linked to the Imperial College in London; IQ (Bio) was formed by some Cambridge

University biochemists; Boscot, Ltd., a joint venture between two

Scottish institutions, was established by the University of Edinburgh

and Heriot-Watt University, and Cambridge Life Sciences pursues

biosensors based on work at Southampton University. As an indication of the increased number of NBFs forming in Britain, Biotechnology Investments, Ltd., the venture fund managed by N.M. Rothschild (the bank) now has for the first time since the fund was established more proposals from British firms than from companies

in the United States (56).
Ch. 4—Firms Commercializing Biotechnology ● 6 7

Table 4.—Companies Commercializing Biotechnology in the United States and

Their Product Markets~~b

Commercial

Company (date founded) application of R&Dc Ph.D.s d

Abbott Laboratories . . . . . . . . . . . . . . . . . . . . ., . . . . . . . . . . . . . . Ph

Actagen (1982). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ph

Advanced Biotechnology Associates, Inc. (1981) . . . . . . . . . . . Ph

Advanced Genetic Sciences, Inc. (1979) . . . . . . . . . . . . . . . . . . . PA

Advanced Genetics Research Institute (1981) . . . . . . . . . . . . . .AA

Advanced Mineral Technologies, Inc. (1982) . . . . . . . . . . . . . . . Env

Agrigenetics Corp. (1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .PA,SCF

Allied Chemical Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .PA

Alpha Therapeutic Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Ph

Ambico, inc. (1974) . . . . . . . . . . . . . . . . . . . . . . .. .. ... ... .....AA

American Cyanamid Co. . . . . . . . . . . . . . . . . .. .. .. .. .. ... ...Ph,PA,AA

American Diagnostics Corp. (1979) . . . . . . . . . . . ... ... ... ...Ph

American Qualex (1981) . . . . . . . . . . . . . . . . . .. .. .. .. ... ... ..Ph,AA

Amgen (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ..Ph,PA,AA,SCF

Angenics (1980).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....Ph

Animal Vaccine Research Corp. (1982) . . . . . . .. ... ... ... ...AA

Antibodies, inc. (1960) . . . . . . . . . . . . . . . . . . . . . . . . ,. .. Ph, AA.Ph,AA

Applied DNA Systems, inc. (1982) . . . . . . . .. .. .. .. .. .. .. .. .Ph,SCF,CCE,Env

Applied Genetics, inc. (1981) . . . . . . . . . . . . . . . . . ... ... .....AA

ARCO Plant Cell Research Institute . . . . . . . . . . . . . . . ... ....PA

Atlantic Antibodies (1973) . . . . . . . . . . . . . . . . . .. ... ... ... ...AA

Axonics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ... ... ... ...Ph

Baxter-Travenol Laboratories, Inc. . . . . . . . . . . . . . . . ... ... ...Ph

Becton Dickinson &Co. . . . . . . . . . . . . . . . . . . .. ... ... .,. ..,Ph

Bethesda Research Laboratories, inc. (1976) .. .. .. ... ... ...Ph,AA

Biocell Technology Corp. (1980). . . . . . . . . . . . . . . . . . . . . . . . ..Ph

Biochem Technology, inc. (1977) . . . . . . . . . . . . . .. .. .. .. .. ..Bioprocessing

Bio-con, inc. (1971) . . . . . . . . . . . . . . . . . . . . . . . . .. ... ... .....AA

BioGenex Laboratories (1981). . . . . . . . . . . .. .. .. ... ... .....Ph

Biogen, inc. (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .Ph,AA,CCE,Env

Biological Energy Corp. (1981) . . . . . . . . . . . . . . . . .. .. ... ... .CCE,SCF

Bio Response, lnc, (1972) . . . . . . . . . . . . . . . . . .. .. ... ... ... .Mass cell culture

Biotech Research Laboratories, inc. (1973) .. .. .. .. ... ... ..Ph,CCE

Biotechnica lnternationa~ inc. (1981) . . . . . . . . . . . . . . . . . .. ..PA,CCE,SCF,Env,

AA,Ph

Bio-Technology General Corp. (1980) . . . . . . . . . . . . . . . . . ... .PA,AA,Ph

Brain Research (1968) . . . . . . . . . . . . . . . . . .. .. .. ... ... .....Ph

Bristol-Myers Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .....Ph

BTCDiagnostic, inc. (1980). . . . . . . . . . . . . . . . . . . . . . . . . . . . ..Ph

Calgene, inc. (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..PA

California Biotechnology, inc. (1982). . . . . . . . .. .. .. ... ... ..Ph,AA

Cambridge Bioscience Corp. (1982). . . . . . . . . . . . . . . . . . . . . . .Ph,AA

Campbell institute for Research & Technology . . . . . ... .....PA

Celanese Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ... ..CCE

Cellorgan lnternationa~ inc. (1972) . . . . . . . . . . . . . . . . ... ....Ph

Celtek, inc. (1980) Ph

Centaur Genetics Corp. (1981) . . . . . . . . . . . . . . . . .. .. .. ... ..Ph,PA,AA

Centocor (1979). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..,..Ph

Cetus Corp. (1971) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...Ph,AA,CCE

Madison (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ...PA

Palo Aito (1980).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..Ph

Immune (IWO).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .....Ph

Chiron Corp. (1981). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..Ph,AA

Ciba-Geigy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ... ... ... ...Ph

Clonal Research (1970) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Ph

Codon (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ... ..CCE

Collaborative Genetics, inc. (1979) . . . . . . . . . . . . . . . . .. .. ...Ph,SCF,CCE

Collagen, inc. (1977). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Ph

Cooper Diagnostics, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....Ph

Cooper-Lipotech, inc. (1981) . . . . . . . . . . . . . . . . . . . . . . . . .....Ph

Corning Glass Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SCF

5

27

8

46

45

5

18

2

79

3

6

11

12

5

3

21

21

5

4

14

45

25

2

26e

3

15

12
M . Commercial Biotechnology: An International Analysis

Table 4.—Companies Commercializing Biotechnology in the United States and

Their Product Marketsa

*

b (Continued)

Commercial

Company (date founded) application of R&Dc Ph. D.sd

Crop Genetics International (1981) . . . . . . . . . . . . . . . . . . . . . . . PA

Cutter Laboratories, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ph

Cytogen Corp. (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ph

Cytox Corp. (1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Env

Damon Biotech, Inc. (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ph

Dairyland Foods Corp. .,... . . . . . . . . . . . . . . . .. .. ... ... ....SCF

Dart and Kraft, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SCF

Davy McKee Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .Bioprocessing

DeKalb Pfizer Genetics (1982) . . . . . . . . . . . . . . . . . ... ... ....AA

Diagnon Corp. (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...Ph

Diagnostic Technology, inc. (1980) . . . . . . . . . . . . . . . . . ... ...Ph

Diamond Laboratories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...AA

Diamond Shamrock Corp. . . . . . . . . . . . . . . . . . . . . . .. ... ... ..AA,CCE

DNA Plant Technology (1981) . . . . . . . . . . . .. .. .. ... ... .....PA

DNAX Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... .....Ph

Dow Chemical Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .Ph,PA,CCE,SCF,

AA,Env

Ean-tech, inc. (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..E~Env,Ph

Eastman Kodak Co. . . . . . . . . . . . . . . . . . . . .. .. .. .. .. ... ... .Ph,Env

Ecogen (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ....PA

E. 1. du Pontde Nemours &Cov Inc. . . . . . . . . . . . . . . . . . .. ..Ph,PA,CCE,SCF

Electro Nucleonics Laboratories, Inc. . . . . . . . . . . . ... ... ....Ph

Eli Ltily &Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... .Ph,PA

EnBio, inc. (1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. ..Bioprocessing

Endorphin, inc. (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..Ph

Engenics, inc. (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .Bioprocessing

Enzo Biochem, inc. (1976) . . . . . . . . . . . . . . . . . .. .. .. .. .. .. ..Ph,AA,CCE,SCF,PA

Enzyme Bio-systems, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SCF

Enzyme CenteL Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..SCF

Enzyme Technology Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . ... ..SCF

Ethyl Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. ...CCE,SCF,Env

Exxon Research & Engineering Co... . . . . . . . . . . . . . . . . .. ...CCE,Env,SCF

Fermented Corp. (1978) . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .,Bioprocessing

FMC Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .....Ph

Frito-Lay, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ... .....PA

Fungal Genetics, inc. (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Ph,SCF

Genencor (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .,. ..SCF,CCE

Genentech, inc. (1976) . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. ..Ph,AA,CCE,El

General Electric Co....... . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .El,Env,Ph,SCF

General Foods Corp. . . . . . . . . . . . . . . . . . .. .. .. ... ... ... .,.PA

General Genetics (1982). . . . . . . . . . . . . . . . . . .. .. ... ... .....Ph

General Molecular Applications (1981) . . . . . . . . . . . . . . . . . ...Ph

Genetic Diagnostics Corp. (1981). . . . . . . . . . . .. ... ... ... ...Ph

Genetic Replication Technologies, inc. (1980). .. .. ... ... ...Ph,AA

Genetic Systems Corp. (1980) . . . . . . . . . . . . . . . . . . ... ... ...Ph

Genetics Institute (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ..Ph,PA,SCF,Env

Genetics lnternationa~ Inc. (1980) . . . . . . . .. .. .. .. .. .. .. .. .AA,Ph,SCF,CCE,

Env,El

Genex Corp. (1977). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..Ph,AA,SCF,Env

Gentronix Laboratories, inc. (1972) . . . . . . . . . . . . . . . . . . .....EI

Genzyme (1981). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ..SCF

W. R. Grace&Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .AA,SCF,Env,PA,Ph

Hana Biologics, inc. (1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..Ph

Hem Research (1966) . . . . . . . . . . . . . . . . . . .. .. .. .. ... ... ...Ph,AA

Hoffmann-La Roche, Inc. . . . . . . . . . . . . .. ., .. .Ph. ... ... ....Ph

Hybridoma Sciences, lnc, (1981) . . . . . . . . . . . . . . . . ... ... ...Ph

Hybritech, inc. (1978). . . . . . . . . . . . . . . . . . .. .. .. ... ... .....Ph

Hytech Biomedica~ inc. (1981) . . . . . . . . . . . . . . . . .. ... ... ...E~Ph

IBM Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ....EI

IGI Biotechnology, inc. (1975). . . . . . . . . . . . . . . . . . . . . . . . ....Ph

lmmulok, inc. (1980). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Ph

7

10

10

3

25

75

3

14

24

17

48

6

1310
Ch. 4–Firms Commercializing Biotechnology ● 6 9

Table 4.—Companies Commercializing Biotechnology in the United States and

Their Product Markets~b (Continued)

Commercial

Company (date founded) application of R&DcPh.D.s d

lmmunetech, inc. (1981). . . . . . . . . . . . . . . . . .. .. ... ... ... ...Ph

lmmunex Corp. (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..Ph 18

lmmuno Modulators Laboratories, inc. (1982) .. ... ... ... ...Ph

lmmunogen (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .....Ph

lmmunotech Corp. (1980). . . . . . . . . . . . . . . . . . . . . . . . . . . .....Ph

Imreg, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ... ... ... ...Ph

lndiana BioLab (1972). . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .PA,AA,SCF,CCE

Integrated Genetics, inc. (1981) . . . . . . . . . . . . . . . . ... ... ....Ph

Interferon Sciences, inc. (1980) . . . . . . . . . . . . . . . . . ... ... ...Ph

International Genetic Engineering, inc. (lngene) (1980) .. ... .Ph,PA,CCE

International Genetic Sciences Partnership (1981) .. ... ... ..PA,AA

International Minerals &Chemical Corp. .. .. .. .. .. .. .. .. ..AA,PA,Env,CCE

International Plant Research Institute (IPRI) (1978). . . . . . ....PA

Kallestad Laboratories, Inc. . . . . . . . . . . . . . . . .. ... ... ... ...Ph

Kennecott Copper Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....Env

Lederle Laboratories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... .Ph,AA

The Liposome CoVlnc. (1981) . . . . . . . . . . . . . . . . .. ... ... ...Ph,AA

Liposome Technology, inc. (1981) . . . . . . . .. .. .. .. ... ... ...Ph,AA

Litton Bionetics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ....Ph

3MC0. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ... ... ...Ph

Mallinckrodt, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....Ph

Martin Marietta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SCF,PA

Meloy Laboratories, inc. (1975). . . . . . . . . . . . . . . . . . . . . . . . ...Ph

Merck&Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...Ph,AA

Microlife Genetics (1981). . . . . . . . . . . . . . . . . .. .. .. .. ... ... .SCF,Env

Miles Laboratories, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .Ph,SCF,CCE,AA

Miller Brewing Co. . . . . . . . . . . . . . . . . . . . . . .. .. ... ... ... ...PA

Molecular Biosystems, inc. (1980) . . . . . . . .. .. .. ... ... .....Ph

Molecular Diagnostics (1981) . . . . . . . . . . . . . . . . ... ... ... ...Ph

Molecular Genetics, inc. (1979) . . . . . . . . . . . . . . . . .. .. ... ...Ph,PA,AA

Monoclinal Antibodies, inc. (1979) . . . . . . . . . . . . . . . . . ... ...Ph,AA

Monsanto Co. . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. ... ... ..PA,AA

Multivac, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Ph,PA,AA,SCF

Nabisco, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ... ...PA

National Distillers &Chemical Co. . . . . . . . . . . . . . . . ... ... ..CCE

NPI (1973). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. ...PA,CCE,SCF

Neogen Corp. (1981)... . . . . . . . . . . . . . . . . . .. .. .. .. ... ... ..PA,AA

New England Biolabs . . . . . . . . . . . . . . . . . . . . . . . . . . ... ... ...Ph

New England Monoclinal Resources (1982) .. .. ... ... .....Ph

New England Nuclear Corp. . . . . . . . . . . . . . . . . . . . . . ... .....Ph

Norden Laboratories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .....AA

Novo Laboratories, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...Ph,SCF

Nuclear&Genetic Technology, inc. (1980) .. .. ... ... ... ...Ph

Ocean Genetics (1981). . . . . . . . . . . . . . . . . . . .. .. ... ... ... ..SCF

Oncogen (1982). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ....Ph

Oncogene Science inc. (1983) . . . . . . . . . . . . . . . . . ... ... ....Ph

Organon, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Ph

Ortho Pharmaceutical Corp. . . . . . . . . . . . . . . . .. ... ... ... ...Ph

Petrogen, inc. (1980). . . . . . . . . . . . . . . . . . . . . . . .. ... ... ... ..Env

PfizeL Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .., ..Ph,PA,CCE,AA,

SCF,Env

Phillips Petroleum Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. ...Env,SCF,CCE

Phytogen (1980). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ....PA

Phyto-Tech Lab . . . . . . . . . . . . . . . . . . .. .. .. .. .. ... ... ... ...PA

Pioneer Hybrid International Corp. . . . . . . . . . . . . . . . ... .....PA

Plant Genetics, inc. (1981) . . . . . . . . . . . . . . . . .. ... ... ... ...PA

Polybac Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ... .Ph,SCF,Env

PPG Industries . . . . . . . . . . . . . . . . . . . . . .. .. .. .. ... ... ... ..SCF

Purification Engineering, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . ..Bioprocessing

Quidel Home (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Ph

17

7

16

35

7

20

7

25

7

5

11
70 .Commercilal Biotechnology: An International Analysis

Table 4.—Companies Commercializing Biotechnology in the United States and

Their Product Markets~*b (Continued)

Commercial

Company (date founded) application of R&Dc Ph.D.s d

Replicon (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Ph,SCF

Repligen Corp. (1981). . . . . . . . . . . . . . . . . . . . . ., . . . . . . . . . . . . Ph,AA,CCE,SCF

Ribi Immunochem Research, Inc. (1981). . . . . . . . . . . . . . . . . . .AA,Ph

Rohm & Haas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .PA

Salk Institute Biotechnology/ Industrial Associates, Inc.

(1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ph,AA,CCE

Sandoz, inc..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ... ..Ph,PA,AA

Schering-Plough Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..Ph,AA

SDS Biotech Corp. (1983) . . . . . . . . . . . . . . . . . .. ... ... ... ...AA

G. D. Searle &Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ..Ph,SCF

Serono Laboratories, Inc. . . . . . . . . . . . . . . . . . .. ... ... ... ...Ph

SmithKline Beckman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..Ph,AA

E. R. Squibb&Sons, Inc. . . . . . . . . . . . . . . . . .. .. ... ... .....Ph

A. E. Staley Manufacturing Co. . . . . . . . . . . . . . . . . . .. .. ... ..AA,PA,SCF

Standard Oil of California . . . . . . . . . . . . . . . . .. .. ... ... ... ..Env

Standard Oilof Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...Ph,PA

Standard Oil of Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .PA

Stauffer Chemical Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...PA

Summa Medical Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..Ph

Sungene Technololgies Corp. (1981) . . . . . . . . . . ... ... ... ...PA

Sybron Biochemical . . . . . . . . . . . . . . . . . . . . . .. .. ... ... ... ..Env

Synbiotex Corp. (1982). . . . . . . . . . . . . . . . . . . .. .. .. ... ... ...Ph,AA

Syncorlnternational. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..Ph

Synergen (1981). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .AA,SCF,CCE,Env

Syngene Products and Research, Inc. . . . . . . . . . . . . . . . . ....AA

Syntex Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ... .Ph,AA

Syntro Corp. (1982). . . . . . . . . . . . . . . . . . . .. .. .. .. .. ... ... ..AA,CCE

Syva Co. (1966) . . . . . . . . . . . . . . . . . . . .. .. .. .. .. ... ... .....Ph

Techniclone international Corp. (1982) . . . . . . . .. ... ... .....Ph

Unigene Laboratories, inc. (1980). . . . . . . . . . . . . . . . . . . . . . . . .Ph,AA

Universal Foods Corp..... . . . . . . . . . . . . . . . . . .. .. .. ... ... .SCF,PA

University Genetics CO. (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . .

Genetic Clinics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ....Ph

U.O.P V Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. ... ...SCF,CCE

The Upjohn Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ... ..Ph,AA,PA

Viral Genetics (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Ph

Wellcome Research Laboratories . . . . . . . . . . . . . . . ... ... ...Ph

Worne Biotechnology, inc. (1982) . . . . . . . . . . . . . . . . . .. .. ., .PA,CCE,Ph,AA,

Env,SCF

Xenogen, inc. (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..Ph,PA

Xoma Corp. (1981). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...Ph

Zoecon Corp. (1968) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..PA,AA

Zymed Laboratories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ...SCF,CCE

Zvmos CorD. (1982). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... .PhSCF

3

9

4

13

21

8

5

6

12

10

5

. , . r

aDoes not include support firms.

%eeApperrdixD:lrrdexofFirmsinthe UnitedStatesCommerciaikingBiotechnology foradescrlptlonofhowthedatawere

collected. Cph: pharmaceuticals, pA:plant Agriculture, AA: Animal Agriculture, SCF: Specialty Chemicals ~d Food, CCE:Commodlty

Chemicals and Energy, Env: Environmental (Microbial Enhanced Oil Recovery, Microbial Mining, Pollution Contro~ and

Toxic Waste Treatement~ El Electronics.

‘AsofMarch1983.

‘M.D.s and Ph.D.s.

SOURCE: Office of Technology Assessment.
Ch. 4–Firms Commercializing Biotechnology ● 7 1

Figure IO.— Percentage of Firms in the

United States Pursuing Applications of Biotechnology

in Specific-Industrial Sectors*

140- 620/o

1 1

Total number of companies = 219

130

120

110 m= Established companies

l(x) -= New biotechnology firms

40

30

20

10

0I

28°10

20V0

E

‘E

● The total percentage of firms exceede W percent bacauea aome compartiasamr

applying biotaohnofogy In mom than one industrial 8eotor,

SOURCE Off Ice of Technology Assessment.

NBFs in Japan will retard those countries’ development of biotechnology. Varying strategies, organizational differences, and cultural factors all contribute to the competitive strengths of foreign

countries’ established companies. It is important

to note, however, that the complementary efforts

of NBFs and established companies in the United

States have been a major factor in providing the

United States with an early competitive advantage

in the commercialization of biotechnology.

Although there are few NBFs outside the United

States at present, some European countries are

beginning to sense that small firms can make important contributions to innovation, particularly in high-technology fields such as biotechnology.

Thus, in contrast to the West German Government, which believes that the development of biotechnology in West Germany is the province of

the large chemical companies for which the country is noted and that NBFs are “not in line with

the German mentality” (5), the British and French

Governments have aided in the establishment of

small firms such as Celltech, (U.K.), Agricuhural

Genetics (U.K.), and Transgene (France’s leading

biotechnology venture company).

Efforts in support of small company formation

are also being undertaken by organizations elsewhere in Europe. The Organisation for Economic

CoOperation and Development, for example, in

an effort to spur technological innovations, has

made several proposals designed to support small

firm development (65). These proposals encompass the promotion of new sources of venture

capital, assistance to new startups in developing

high quality feasibility studies, and diverse measures to encourage high-technology startups.

Venture capitalization is almost exclusively an

American phenomenon (5,69). Many would agree

that the formation of venture capital and entrepreneurial drive necessary to start small hightechnology firms and vigorously commercialize

inventions has been inhibited in much of Europe

by a historical labor attitude that gives priority

to job security and a predictable business environment rather than to aggressive risk-taking. In

Japan, individualism and the creation of small, entrepreneurial and independent high-technology

firms appears to be discouraged by cultural traits

emphasizing group identity and acceptance.

Large, very successful firms typical of Japan provide workers with a group identity and a sense

of security, and it is these firms that are commercializing biotechnology in that country.

The biotechnology-related activities of U.S. and

foreign companies in the pharmaceutical and animal and plant agriculture sectors are introduced

below. Also discussed are foreign companies’ biotechnology-related activities in specialty chemi-
72 . Commercial Biotechnology: An International Analysis

cals. Discussion of U.S. private sector activities

in specialty chemicals, commodity chemicals, and

the environmental and electronics fields is reserved for the chapters in part III. It is important

to recognize that there is no “biotechnology industry.” Biotechnology is a set of technologies* that

can potentially benefit or be applied to several

industries.

The industrial sector in which the earliest applications of biotechnology have occurred is the

pharmaceutical sector. Because of the rapid diffusion of the new genetic techniques into pharmaceutical R&D programs, the pharmaceutical

sector is currently the most active in commercializing biotechnology. For this reason, the pharmaceutical sector serves as a model for the development of biotechnology in this chapter and

in much of this report, It is important to recognize

however, that the development of biotechnology

in other industrial sectors will differ from its development in the pharmaceutical sector. Regulatory and trade barriers and a marketing and distribution system unique to the pharmaceutical

sector limit the applicability of the model to other

industrial sectors.

Pharmaceutical industry* *

The pharmaceutical industry is one of the most

successful high-technology sectors of the world

economy (80). Because research is the foundation

of competitive strength for modern pharmaceutical companies (55), and because pharmaceuticals

are the first products to which biotechnology has

been applied, the first and perhaps most intense

proving ground for U.S. competitive strength in

biotechnology will be in the area of pharmaceuticals.

U.S. COMPANIES

The first applications of biotechnology have

emerged in the area of pharmaceuticals for several reasons. First, rDNA and MAb technologies

were developed with public funds directed toward biomedical research. The first biotechnology products-MAb in vitro diagnostic kits, rDNA-

“See Chapter 3: The Technologies.

“ ‘Applications of biotechnology to the area of pharmaceuticals

are discussed further in Chapter 5: Pharmaceuticals.

produced human insulin, and interferon—are a

direct result of the biomedical nature of the basic

research that led to these new technologies. Second, pharmaceutical companies have had years

of experience with biological production methods,

and this experience has enabled them to take advantage of the new technologies. Finally, since

some pharmaceutical products, such as large poly -

peptides and antibiotics, can only be produced

by biological methods, there are no competing

production methods that might inhibit the application of biotechnology to their production.

Pharmaceuticals are profitable products because they are low volume, high-value-added

products. * This and other financial considerations

such as the following have led many U.S. companies to apply biotechnology to the pharmaceutical field.

● The time required to develop some pharmaceutical applications of biotechnology, in

particular MAb or DNA probe in vitro diagnostic products for humans, is much less

than that required to develop other industrial

applications (except possibly some animal

health applications).

Many of the pharmaceutical products being

developed with biotechnology are replacements for or improvements in pharmaceutical products already on the market, and they

can quickly generate income to finance the

development of additional products.

The pharmaceutical industry offers high

rates of return on both sales and equity and

is thus an attractive and profitable industrial

sector into which firms might diversify.

Many of the biotechnology pharmaceutical

markets may be relatively small. Small firms

with limited production and financial resources are able to compete more equally

with large firms in small product markets

rather than in large markets, because economies of scale and costs of marketing in small

product markets are small.

“Value added is the value that a company adds to goods and services that it purchases from other companies. It is the difference between the sales revenues and the cost of resources that it has purchased from other companies. For a “high-value+ idded” product,

therefore, the difference between the resources expended to produce the product and the sales revenues generated by the product

is greater than average.
Ch. 4—Firms Commercializing Biotechnology ● 7 3

U.S. pharmaceutical companies are quite active

internationally. Table 5 illustrates the distribution

of sales by the top 20 U.S. and foreign pharmaceutical companies in 1981. Sales by the U.S. companies listed represented almost 60 percent of the

total pharmaceutical sales for the top 20 pharmaceutical companies in the world. On the average,

almost 42 percent of the sales by these U.S. companies were foreign sales. According to the Institute for Alternative Futures, foreign sales accounted for roughly 43 percent of total U.S. prescription drug sales in 1980 (45), and U.S. pharmaceutical subsidiary sales in foreign countries

exceeded $10 billion in 1980. * Given established

U.S. pharmaceutical companies’ strong export

performance in the past, the U.S. posture in world

pharmaceuticals markets will be a subject of great

interest as biotechnology develops.

Up until about 1976, the average participant in

the U.S. pharmaceutical industry could be described as a research-based, integrated, multinational company that spent (and still does) approximately 11.5 percent of its annual pharmaceutical

sales on R&D (67). Since about 1976, the profile

● This figure is from a survey of Pharmaceutical Manufacturers

Association member companies that had not been published as this

report went to press.

Table 5.–Distribution of Sales by the Top 20 U.S.

of the participants has changed considerably. Approximately 70 new US. companies have entered

the pharmaceutical field just to apply biotechnology. Many of these NBFs are wagering their existence on the success of commercial pursuits of biotechnology in nascent pharmaceutical product

markets. In total, about 135 U.S. companies—78

NBFs and 57 established companies—are known

to be pursuing pharmaceutical product and process development using biotechnology. *

Since the early 1960’s, the U.S. share of world

pharmaceutical research, innovation, production,

sales, and exports has declined, as has the number

of U.S. companies actively participating in the

various ethical drug markets compared to the

● The high level of US. firms’ interest in pharmaceutical applications of biotechnology is in part a reflection of the large number

of old and new firms producing MAbs. Many companies included

in table 4 are using hybridoma technology to produce MAbs for

the markets traditionally addressed by the pharmaceutical industry.

In some cases, OTA did not have sufficient information to determine the specific application for MAbs. For example, some companies indicated that they were engaged in the production of MAbs,

but would not specify their intended use (i.e., research, separation

and purification, diagnostic or therapeutic products for humans,

animals, or plants). Because a majority of firms producing MAbs

are manufacturing MAbs for pharmaceutical use, OTA placed firms

for whom data were incomplete in the pharmaceutical sector, even

though hybridoma technolo~v is also essential to fundamental molecular research on plants, animals, and bacterial systems.

and Foreign Pharmaceutical Companies, 1981

1981 total

Percent of Percent of pharmaceutical Share of

Home sales in sales in other sales pharmaceutical

Company country home country countries (millions of dollars) sales

American Home Products . . . . . . . . .

Merck. . . . . . . . . . . . . . . . . . . . . . . . . . .

Bristol-Myers . . . . . . . . . . . . . . . . . . . .

Warner Lambert . . . . . . . . . . . . . . . . . .

Smith Kline Beckman . . . . . . . . . . . . .

Pfizer . . . . . . . . . . . . . . . . . . . . . . . . . . .

Eli Lilly . . . . . . . . . . . . . . . . . . . . . . . . .

Johnson & Johnson . . . . . . . . . . . . . .

Upjohn . . . . . . . . . . . . . . . . . . . . . . . . . .

Abbott . . . . . . . . . . . . . . . . . . . . . . . . . .

Schering-Plough . . . . . . . . . . . . . . . . .

U s .

U s .

U s .

U s .

U s .

U s .

U s .

U s .

U s .

U s .

U s .

Hoechst. . . . . . . . . . . . . . . . . . . . . . . . . F.R.G,

Bayer . . . . . . . . . . . . . . . . . . . . . . . . . . . F.R.G.

Boehringer-lngleheim . . . . . . . . . . . . . F.R.G.

Ciba-Geigy , . . . . . . . . . . . . . . . . . . . . . Switz.

Sandoz. . . . . . . . . . . . . . . . . . . . . . . . . . Switz.

Hoffmann-La Roche . . . . . . . . . . . . . . Switz.

Takeda. . . . . . . . . . . . . . . . . . . . . . . . . . Japan

Rhone-Poulenc. . . . . . . . . . . . . . . . . . . France

660/0

53

71

55

59

43

62

56

62

65

51

28

24

37

2

5

3

94

41

440/0

47

29

45

41

57

38

44

38

35

49

72

76

63

98

95

97

6

59

$2,303

2,266

2,190

2,045

1,782

1,777

1,664

1,308

1,242

1,182

924 I

2,555

2,400

1,197 /

1,891

1,515

1,629 [

1,195 )

1,008 )

580/o

190/0

160/0

40/0

3Y0

SOURCE: Adapted from Arthur D. Little, estimates based on publicly available company data.

25-561 0 - 84 - 6
74 . Commercial Biotechnology: An International Analysis

number of foreign firms (80). At least one study

has suggested that substantially fewer U.S.-originated new chemical entities will appear on the

market in the mid to late 1980’s than are appearing today because of a decline in self-originated

investigational new chemical entities since the

mid-1970’s (83). Table 6 indicates the number of

new pharmaceutical products introduced by the

United States, four European countries, and Japan

in the period 1961-80 and each year since. As the

figures in that table show, the United States and

France were the leaders in 1961-80, with 23.6 and

18.1 percent of new product introductions, respectively. They were followed by West Germany,

Japan, Switzerland, and the United Kingdom. The

world leader for the years 1981-83 is Japan, with

an average of 27 percent of new product introductions. Although the United States had an average of only 16 percent of new product introductions for the years 1981-83, the drive by NBFs and

established U.S. companies to apply biotechnology

to the development and production of pharmaceuticals could help reverse the downward trend

in U.S. innovation and thereby contribute to the

competitive strength of U.S. companies in world

pharmaceutical markets.

FOREIGN COMPANIES

Established European and Japanese companies,

following the lead of NBFs and established companies in the United States, are now vigorously pursuing pharmaceutical applications of biotechnology. * On average, European companies’ biotechnol-

“Japanese companies are though to have begun making a serious

commitment to biotechnolo~v as early as late 1981 (7o). West German companies were among the last European companies to begin

commercializing biotechnology and did not intensify their R&.D efforts in biotechnology until late 1982. Other European countries

have paralleled the Japanese in their date of entry into biotechnolog,v.

ogy R&D budgets lag somewhat behind the budgets

of established U.S. companies and some U.S NBFs

as well (see table 7). As biotechnology processes gain

wider acceptance in the pharmaceutical industry,

however, European manufacturers-e.g., the

West German companies Bayer AG and Hoechst,

the Swiss companies Hoffmann-La Roche, Ciba

Geigy, Sandoz, and the French company Rhone

Poulenc—are expected to challenge U.S. companies, if for no other reasons than their prevailing strength in bioprocessing, their strength in

international pharmaceutical markets (see table

5)* and their intentions to maintain this strength,

*Although no British pharmaceutical companies appear in table

5, British companies such as Beecham, Welkome, Glaxo, and ICI

are important international manufacturers of biologically produced products and are applying biotechnology to product development. Additionally, Beecham and Glaxo are amcmg the world’s largest

producers of biologically made products (48).

Table 7.–Biotechnoiogy R&D Budgets for Leading

U.S. and Foreign Companies, 1982s

Biotechnology R&D

Company b

budget (millions of dollars)

Hoechst (F. R.G.). . . . . . . . . . . $42C

Schering A.G. (F, R. G.) . . . . . . 4.2

Hoffmann-La Roche (Switz.) . 59

Schering-Plough (U.S.). . . . . . 60

Eli Lilly (U. S.) ... , . . . . . . . . . 60

Monsanto (U. S.) . . . . . . . . . . . 62

DuPont (U. S.) . . . . . . . . . . . . . 120

Genentech (U.S.)* . . . . . . . . . 32

Cetus (U.S.)* . . . . . . . . . . . . . . 26

Genex (U.S.)* . . . . . . . . . . . . . 8.3

Biogen (U.S.)* . . . . . . . . . . . . . 8.7

Hybritech (U.S.)* . . . . . . . . . . 5

Sumitomo (Japan) . . . . . . . . . 6 +

Ajinomoto (Japan) . . . . . . . . . 6 +

Suntory (Japan). . . . . . . . . . . . 6 +

Takeda (Japan) . . . . . . . . . . . . 6 +

Eif-Aquitaine (France) . . . . . . 4 +

aBiotechnology R&D figures for Brltlsh companies not available.

bCompanie9 with asterisks are NBFs.

C1983 figure.

SOURCE: Off Ice of Technology Assessment.

Table 6.—introduction of New Pharmaceutical Products by Country of Origin

Between 1961 and 1983

Number of new products introduced by year

Country 1961-80 1981 1982 1983 (est.)

Japan . . . . . . . . . . . . . . . . . . . . . 155 (10.30/0) 15 (23.10/’0) 9 (23.1 0

/0) 17 (35.40!0)

West Germany. . . . . . . . . . . . . . 201 (13.40/0) 8 (12.30/o) 1 ( 2.60/o) 7 (14.60/o)

United States. . . . . . . . . . . . . . . 353 (23.60/o) 9 (13.9”/0) 9 (23.1 ~0) 6 (12.5Yo)

France . . . . . . . . . . . . . . . . . . . . 271 (18.1 0

/0) 3 (4.60/o) 5 (12.80/o) 5 (10,4!40)

United Kingdom . . . . . . . . . . . . — ( — ) 3 (4.60/o) –( – ) 3 ( 6.20/o)

Switzerland . . . . . . . . . . . . . . . . 109 ( 7.3”/0) 6 ( 9.20/o) 4 (10.2%0) –( – )

aNurnbOrS In parentheses indicate share of total rwmbr of new pharmaceutical products introduced for the Years indicated.

SOURCE: Nomura Research Institute, “Trends of Biotechnology in Japan,” Tokyo, July 19s3.
Ch. 4—Firms Commercializing Biotechnology . 75

and their increasing shares of worldwide pharmaceutical R&D expenditures as compared to U.S.

companies. (Pharmaceutical R&D expenditures by

country for the years 1964, 1973, and 1978 are

shown in table 8).

The average European company’s involvement

in biotechnology is largely characterized by

research contracts with universities and research

institutes rather than by investments in new inhouse biotechnology facilities. * Some of the large

pharmaceutical companies of Switzerland have,

however, begun to make substantial investments

in biotechnology facilities. Hoffmann-La Roche,

for example, spent $59 million on biotechnology

R&D in 1981 (26) and ranks eleventh in worldwide pharmaceutical sales (28). CibaGeigy, which

commands 3.1 percent of the global drug market,

is building a $19.5 million biotechnology center

in Switzerland and a $7 million agricultural

biotechnology laboratory in North Carolina

(11,12).

West German chemical and pharmaceutical

companies have been among the last foreign companies to move into biotechnology. Many of the

companies have signed contracts with universities

instead of investing in facilities to support their

research (10). Some West German companies, including Schering AG and Boehringer Ingleheim,

however, are making significant contributions to

the German biotechnology effort. Schering AG,

for example, in a joint agreement with the State

of Berlin is establishing a $10.7 million institute

of ‘(genetic engineering,” which is regarded as an

● Many of the established U.S. companies have made substantial

investments in new in-house facilities. See section below on

“Established Companies.”

important step for biotechnology research in Germany (29).

In terms of total sales, pharmaceutical companies in the United Kingdom are not among the

world’s top 20, and historically, the United

Kingdom has been slow to commercialize the results of much of its basic research. It is important to note, however, that some British pharmaceutical companies (e.g., Glaxo and Beecham) possess substantial bioprocessing knowledge, a capability that may provide them with a competitive

advantage as biotechnology develops. Furthermore, some British pharmaceutical companies

have made in-house investments in biotechnology.

ICI and Wellcome appear to be among the most

strongly committed of the British pharmaceutical

companies commercializing biotechnology. ICI,

for example, has the world’s largest continuous

bioprocessing plant and is considered an international leader in bioprocessing technology. This

company recently developed a new biodegradable

thermoplastic polyester, Biopol@

, formed by a genetically manipulated microorganism. Although

Biopol @ is not a pharmaceutical, it does give some

indication of ICI’s innovative capacity in the biotechnology field.

The pharmaceutical and chemical companies of

France appear less aggressive than British companies in developing biotechnology expertise.

Three major French companies have R&D programs in biotechnology-Elf Aquitaine (67-percent

Governmentawned), Rhone Poulenc (l00)-percent

Government-owned), and Roussel Eclaf (40-percent Government-owned and a Hoechst subsidiary). Of these three, Elf Aquitaine has committed

the most to biotechnology. It owns Sanofi, a pharTable 8.-Pharmaceutical R&D Expenditures by Country: 1984, 1973, and 1978

1964 1973 1978

Level World share Level World share Level World share

(millions of dollars) (percentage) (millions of dollars) (percentage) (millions of dollars) (percentage)

United States . . . . . . . . $282 60% $640 34% $1,159 28%

Federal Republic of Germany 40 310 16 750 18

Switzerland ., . . . . . . . . . . . 38 : 244 13 7ooa 17

Japan ... ., ., 27 6 236 13 641 15

France ... ., . . . . . . . . . . . 28 6 166 9 328 8

United Kingdom . . 29 6 105 6 332 8

a Estimated

Note Data are m current dollars and represent expenditures for both human and veterina~ research

SOURCE National Academy of Sciences, The CompetWe Status of the U S Pharmaceutical Industry Washington, O C , 1983
76 . Commercial Biotechnology: An International Analysis

maceutical company that is applying biotechnology to human and animal health in areas including

diagnostics, neuropeptides, serums, vaccines, and

antibiotics, and has established Elf-Bioindustries

and E1f-Bioresearch to develop biotechnology in

the foodstuffs and agriculture sectors. To support

some of its new biotechnology R&D, Elf is currently building a $10 million “genetic engineering” plant (5). Rhone Poulenc is the world’s second

largest producer of animal health products (84)

and is considered to be the second most committed of the three French companies actively

commercializing biotechnology (50). To support

its biotechnology effort, in 1980, Rhone Poulenc

established a small specialty biotechnology subsidiary named Genetica.

Despite the efforts of companies such as Elf and

Rhone Poulenc, the initial hesitation France expressed in the early stages of biotechnology development has put French companies at a distinct

disadvantage internationally, particularly vis-a-vis

U.S. companies. The French Government has a

formal policy designed to promote biotechnology,

but it is not clear that whatever impetus this

policy provides will be great enough to compensate for France’s slow entry into biotechnology.

Historically, the French Government’s plans to

promote national champions (e.g., the Plan Calcul,

the Concord) have failed. As the pace of biotechnology commercialization quickens, a strong private sector effort may be necessary in order to

launch France into a more competitive position.

Overall, Europe is considered to be farther

behind the United States in the application of biotechnology to product-related research areas than

in fundamental research (23). Strong commercialization efforts by the major chemical companies

of West Germany or by the pharmaceutical companies of Switzerland or the United Kingdom,

however, could significantly improve West Germany’s, Switzerland’s, or the United Kingdom’s

current competitive positions in the commercialization of pharmaceutical applications of biotechnology.

Some would argue that large companies have

an inertia that is difficult or impossible to change,

making rapid changes in research policy and direction impracticable (5). To the extent that large

companies pursuing pharmaceutical applications

of biotechnology in Europe lack the dynamism

and flexibility to compete with the combined efforts of NBFs and established companies in the

United States, Europe could initially beat a competitive disadvantage. If the timing of market entry for therapeutic and diagnostic products becomes the most important factor in competition

for market share and market acceptance, however, the marketing strength of the European

multinationals could help balance competition in

pharmaceuticals between the United States and

Europe.

The potential competitive challenge that will be

mounted by Japan in the area of pharmaceuticals

is more difficult to estimate than the challenge

from the European countries for two reasons: 1)

Japanese pharmaceutical companies such as Takeda, Sumitomo Chemical, Mitsubishi Chemicals

traditionally have not had a significant presence

in world pharmaceutical markets (55); and 2) present Japanese commercialization efforts, most being proprietary, are difficult to assess either quantitatively or qualitatively. One set of factors characterizing Japanese efforts to apply biotechnology

to pharmaceutical development suggests a rather

formidable challenge facing U.S. companies in future biotechnology-related pharmaceutical markets, while a different set of factors suggests less

of a future challenge. Each set of factors is discussed in turn below.

Factors that suggest that Japan will have international competitive advantages in the application

of biotechnology to pharmaceutical development

include the following:

● The application of biotechnology to pharmaceuticals in Japan has stimulated the involvement in pharmaceuticals of many Japanese

companies from a broad variety of bioprocess-based industries. Table 9 shows the diversification of Japanese chemical, food processing, and textile and pulp processing companies into pharmaceuticals.

A 1982 Keidanren* survey of 132 Japanese companies using biotechnology found that 83 percent

“Keidanren, the Japan Federation of Economic Organizations, is

a national organization composed of about 700 of the largest
—

Ch. 4—Firms Commercializing Biotechnology 77

Table 9.—Diversification of Japanese Chemical,

Food Processing, Textile, and Pulp Processing

Companies Into Pharmaceuticals

Company Pharmaceutical field of entry

Chemical companies:

Sunstar. . . . . . . . . . . . . . . . . .

Hitachi Chemical . . . . . . . . .

Hokko Chemical Industry . .

Mitsubishi Chemical

Industries . . . . . . . . . . . . . .

Denki Kagaku Kogyo . . . . . .

Sumitomo Chemical . . . . . . .

Daicel . . . . . . . . . . . . . . . . . . .

Mitsubishi Petrochemical

Industries . . . . . . . . . . . . . .

Chisso . . . . . . . . . . . . . . . . . .

Mitsui Toatsu Chemical . . .

Food processing companies:

Ajinomoto . . . . . . . . . . . . . . .

Suntory. . . . . . . . . . . . . . . . . .

Meiji Seika Kaisha . . . . . . . .

Sanraku-Ocean . . . . . . . . . . .

Kikkoman Shoyu . . . . . . . . . .

Takara Shuzo . . . . . . . . . . . . .

Meiji Milk Products ., . . . . .

Yakult Honsha. . . . . . . . . . . .

Kyowa Hakko Kogyo . . . . . .

Kirin-Seagrams . . . . . . . . . . .

Kirin Brewery. ., . . . . . . . . . .

Sapporo Breweries ... , . . . .

Toyo JO ZO . . . . . . . . . . . . . . .

Morinaga & Co. . . . . . . . . . . .

Snow Brand Milk Co. . . . . . .

Textile and pulp companies:

Asahi Chemical Industry . . .

Toray Industries . . . . . . . . . .

Teiji Limited . . . . . . . . . . . . .

Kirin-Seaarams . . . . . . . . . . .

Antibiotics, interferon

Antibiotics, vaccines

Antibiotics

Physiologically active

agents, anticancer drugs,

diagnostic reagents,

monoclinal antibodies

Physiologically active agents

Monoclinal antibodies,

interferon, growth

hormone

Anticancer drugs

Diagnostic reagents

Diagnostic reagents

Urokinase

Antibiotics

Antibiotics, interferon,

anticancer drugs, drugs

for treatment of high

blood pressure

Antibiotics, interferon

Antibiotics

Physiologically active

agents, antibiotics,

immune suppressors

Physiologically active agents

Physiologically active

agents, interferon

Physiologically active

agents, anticancer drugs,

diagnostic reagents for

liver cancer

Physiologically active

agents, interferon

Interferon

Anticancer drugs

Anticancer drugs

Immune suppressors

Diagnostic reagents for liver

cancer, drugs for

treatment of high blood

pressure

Interferon

Interferon

Interferon

Interferon

Interferon

SOURCE: Office of Technology Assessment.

Japanese companies. It enjoys the regular and active participation

of the top business leaders working closely with a large professional

staff to forge agreements on behalf of business as a whole. It often

surveys its members on issues of economic importance.

of the 60 companies that responded were pursuing applications in the area of pharmaceuticals

(70), compared to only 62 percent of U.S. companies (see table 4). Intensified competition is expected to push technical advances in the area of

pharmaceuticals along in Japan at a rate that is

comparable to or greater than the rate in the

United States. Among the companies using biotechnology in Japan, it is already a widely accepted view that Japan can catch up with the

United States within 5 years. This point is very

well illustrated by the Nikkei Sangyo Shirnbun

(Japan Industrial Daily) survey undertaken in June

1981. According to the survey, 48 percent of the

128 responding firms thought Japan could catch

up to the United States in the commercial development of biotechnology in 5 years, and 24 percent

estimated that catching up would take only 2 to

3 years (57).

● The Government of Japan, which has targeted the pharmaceutical industry for international expansion, has improved the environment for pharmaceutical innovation,

and thus, for the application of biotechnology.

The Japanese Government through targeting of

the pharmaceutical industry, changes in patent

laws to prevent imitation, and pricing policies in

the Government-administered national health insurance system has begun an effort to coordinate

trade, pricing, and health care policies to promote

pharmaceutical innovation and overseas expansion (74). These Government efforts are expected

to facilitate the application of biotechnology in the

Japanese pharmaceutical industry.

● Joint pharmaceutical research projects and

collaborative arrangements among companies, sometimes in conjunction with Government research institutions, promote biotechnology transfer throughout Japanese industry and accelerate the pace of technical advances. Table 10 provides a list of some Japanese joint ventures in pharmaceuticals derived from the Keidanren survey of 1982.

As early as 1979, the Japanese Ministry of Health

set up a study group between Green Cross and

Toray Industries to speed the development of

interferon, because the Ministry had concluded
78 . Commercial Biotechnology: An International Analysis

Table 10.–Japanese Joint Ventures in Pharmaceutical Applications of Biotechnology

Companies Product area

Otsuka PharmaceuticallHayashibara/Mochida

Pharmaceutical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Production of alpha, beta, and gamma interferon

Yamanouchi PharmaceuticallAjinomoto . . . . . . . . . . . . . . . . Large-scale production of thrombolytic agent

Yoshitomo Pharmaceutical/Takeda Chemical. . . . . . . . . . . . Large-scale production of thrombolytic agent

AjinomotolMorishita Pharmaceutical . . . . . . . . . . . . . . . . . . . R&D on pharmaceuticals

Yoshitomi Pharmaceutical Industries, Ltd./

Yuki Gosei Kogyo Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . Developing rDNA products for circulatory system

Takara Shuzo/Taiho Pharmaceutical . . . . . . . . . . . . . . . . . . . Development of heart drugs using rDNA

Toray lndustrieslKyowa Hakko KogyolGan Kenkyu Kai

(Cancer Research Association) . . . . . . . . . . . . . . . . . . . . . . Development of beta and gamma interferon by rDNA

Asahi Chemical lndustrylDainippon Pharmaceutical/Tokyo

University . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R&D on alpha and gamma interferon

Toray lndustrieslDaiichi Seiyaku Co., Ltd. . . . . . . . . . . . . . . Using rDNA to produce gamma interferon

Ajinomoto~akeda Chemical Industries, Ltd. . . . . . . . . . . . . Development of interleukin-2

Asahi Chemical Industries Co., Ltd./

Dainippon Pharmaceutical Co. . . . . . . . . . . . . . . . . . . . . . . . . Development of tissue necrotic factor

SOURCE: Office of Technology Assessment.

that the separate approach being taken was costly

both in terms of funds expended and time taken

(73). Many other examples of technical collaboration in biotechnology in Japan can be cited, and

many more Japanese companies have intentions

to cooperate with one another in research or development and/or in commercialization in the future. In 1981, a scientist from the Fermentation

Research Institute of Japan’s Ministry of International Trade and Technology acknowledged that

almost half of the companies who work or intend

to work in “genetic engineering” will cooperate

or have already cooperated in some biotechnology

activities (79). Joint ventures such as those listed

in table 10 might provide Japanese companies

with commercial advantages for two reasons: 1)

each firm participating in the venture brings different resources and expertise to the project,

thereby making the group effort more efficient;

and 2) the intention of some of the joint ventures

is to secure patents in fields not yet pre-empted

by foreign competition (e.g., new host-vector systems and sophisticated sensors for bioprocessing)

or to undertake joint clinical testing (70).

● Japan’s share of world pharmaceutical R&D

expenditures has been increasing steadily

since 1964 (see table 8) as has its share of the

worldwide total of newly introduced pharmaceuticals (see table 6).

In 1981, Japanese companies ranked first in terms

of the largest number of major new drugs introduced into world markets, being responsible for

15 (23 percent) of the 65 newly introduced pharmaceuticals (see table 6). In 1982, Japanese companies again accounted for roughly 23 percent

of the new pharmaceutical products introduced.

They also accounted for over 16 percent of all

U.S. patents issued for pharmaceutical and

medicinal products and for 38 percent of all U.S.

pharmaceutical and medicinal patents granted to

foreign firms (14).

● Japanese companies applying biotechnology

to pharmaceutical development (in contrast

to U.S. companies) appear to be dedicating

relatively more research effort to the later

stages of commercialization (i.e., bioprocessing) and cancer treatment. Seventy-five percent of all Japanese medical and drug companies are engaged in MAb research, and a

large proportion of the MAb R&D is targeted

toward developing a “magic bullet” for cancer

treatment, monitoring bioprocesses, and recovering pioteins (70).

Factors that suggest that the Japanese may not

have significant advantages in future biotechnology-related pharmaceutical markets include the

following:

● Barriers to entering foreign pharmaceutical

markets are high, and Japanese companies

at present have neither distribution channels

in place nor a sufficient sales force to permit aggressive marketing of pharmaceutical

products in Western markets.

Japanese companies’ lack of distribution channels

in Western pharmaceutical markets is one fac-
Ch. 4—Firms Commercializing Biotechnology ● 7 9

tor that has limited Japanese companies’ ability

to penetrate these markets. It is expected that the

mode by which Japanese companies will penetrate these markets in the future will be through

joint ventures with U.S. or European companies

that allow Japanese companies to take advantage

of existing distribution channels. * Although Japanese companies tend to seek opportunities to penetrate foreign markets directly through manufacturing subsidiaries rather than through licensing

contracts, only two Japanese companies have

established equity joint ventures with U.S. firms * *

and only three have established U.S. subsidiaries. * * *

However, the international expansion of Japan’s

pharmaceutical industry has only just begun.

Almost half of the Japanese companies now

using biotechnology- expect to “catch up”

technologically to the United States in 5 years.

These companies therefore intend to set their

own R&D and commercialization targets

beyond the 5-year catch-up period at considerable commercial risk.

The intention of Japanese companies to catch up

to U.S. companies and to set their own R&D targets is a unique phenomenon. In the past, even

in high- technology fields such as computers and

electronics, the R&D and commercialization targets have been demonstrated in advance by U.S.

and Western European companies, so Japanese

companies have not had to worry about the marketability of their R&D and commercialization efforts. By selecting the best technology available

and refining it, Japanese companies have been

able to minimize the time required to catch up

with the front runners and sometimes surpass

them at the product marketing stage (70). Given

the lack of established commercial targets in biotechnology and considering the barriers to entering foreign pharmaceutical markets mentioned

● In support of this expectation is a study by the Japanese Productivity Center in 1982 of the potential for Japanese drug firms

in the United States. The study estimated that the establishment

of a U.S. subsidiary by a Japanese company would require an investment of about $80 million over a 4-year period. The study recommended that Japanese companies form joint ventures with U.S. companies rather than establish a Japanese company or purchase a U.S.

company (75).

* *Takeda with Abbott (U. S.) and Fujisawa with SmithKline (U.S.).

* ● *The three U.S. subsidiaries are Daiichi Pharmaceutical Corp.,

Otuska Pharmaceutical, and Alpha Therapeutics (subsidiary of Green

Cross),

above, it cannot be assumed that the Japanese will

be major competitors in biotechnology-related

pharmaceutical markets.

Japan’s traditional bioprocess-based industries, including pharmaceuticals, rely largely on conventional microbiology, genetics,

and bioprocess feedstocks. These traditional

approaches in bioprocessing could be challenged by new biotechnology (4 I).

Japan is considered to be behind the United States

in fundamental biology. This weakness in fundamental biology could reduce the potential competitive threat of Japanese companies applying biotechnology to pharmaceutical development.

● Biotechnology R&D investments by Japanese

companies are still low in comparison to the

investments by U.S. companies.

Although Japan’s aggregate investment in pharmaceutical R&D has increased steadily since 1964,

investments by individual Japanese companies in

biotechnology R&D are still low compared to investments by NBFs and established companies in

the United States (see table 7). According to the

Nikkei SazIgyo Shiznbun survey (June 1981) and

the Keidanren survey (1982), only 5 Japanese

companies spent more than $6 million per year ,

on biotechnology R&D. The average R&D expenditure of 49 of the 60 Japanese companies that

responded to the Keidanren survey was under

$1 million. Although it is difficult to translate R&D

investment into commercial success, on a quantitative basis, Japan falls far behind the United

States in terms of industrial expenditures on biotechnology research.

Animal agriculture industry*

U.S. COMPANIES

The animal agriculture industry encompasses

companies engaged in the manufacture of products, the prevention and control of animal diseases, animal husbandry, growth promotion, and

genetic improvement of animal breeds. The companies that dominate the production of most animal health products are established U.S. and

● Applications of biotechnology to animal agriculture are discussed

further in Chapter 6: Agriculture.
80 ● Commercial Biotechnology: An International Analysis

foreign pharmaceutical and chemical companies. ” Most of these companies have global marketing and distribution networks and undertake

animal drug production as a diversification of

their principal activities. In recent years, the advent of biotechnology, the rising industrialization

of animal agriculture, and changing dietary habits

in foreign countries have increased the demands

for improvements in old products and for completely new products. NBFs may have a major role

to play in expanding animal health markets.

Sixty-one companies in the United States are

known to be pursuing animal health related applications of biotechnology, as shown in table 4.

Thirty-four (56 percent) of these companies are

NBFs. Of special note is the role new firms appear to be playing in three major segments of the

industry-diagnostic products, growth promotants, and vaccines. possible explanations for why

some NBFs might be interested in these three animal health markets include the following:

●

●

●

●

Recombinant DNA methods used to make

human vaccines are suited to making safe

and effective animal vaccines against both

viral and bacterial infections, just as the MAb

or DNA probe technology used to produce

human products is suited to making passive

vaccines or diagnostic products for animals. * *

The markets for many animal health products (e.g., vaccines or diagnostic products) are

relatively small and therefore allow NBFs to

compete equally with larger companies without suffering from scale disadvantages.

The commercial introduction of veterinary

vaccines can generally be achieved more

quickly than can that of human therapeutic

products. The regulatory process allowing

● Major U.S. producers of animal health products include Syntex,

Pfizer, Eli Lilly, Upjohn, SmithKline Beckman, American Cyanamid,

Merck, Johnson & Johnson, Tech America, and Schering-Plough.

Major foreign producers include Burmn@s-Wellcome (U.K.), RhoneMerieux (France), Hoechst AG (F.R.G.), Bayer AC (F.R.G,), Connaught

(Canada), Beecham (U.K.), Solvay (Belgium), Boehringer Ingleheim

(F. R.G.), Intervet (Netherlands), and Elf Aquitaine (France).

● *The NBFs Chiron and Cetus both became involved in the veterinary products business as extensions of their research in the field

of human health care (17,20). The NBF Monoclinal Antibodies, Inc.,

as a spinoff from research on detection kits for human pregnancy

and ovulation, is developing an ovulation detection kit for large animals which will be useful in animal breeding management.

veterinary vaccines to enter the market typically can be completed in about 1 year (17).

Thus, the lower costs of commercialization

for veterinary vaccines in comparison to

human pharmaceuticals and the potential for

short-term product revenues may reduce

NBFs’ financial need to collaborate extensively with established companies. *

Some veterinary vaccine research (e.g., on feline leukemia vaccines) could serve a~ a model for developing human vaccines for similar viruses that could launch some NBFs into

the more profitable human pharmaceutical

markets.

The fact that 34 of the 61 U.S. companies pursuing applications of biotechnology in animal

agriculture are NBFs suggests the evolution of an

expanding animal health market in which NBFs

such as Molecular Genetics, Inc. (MGI), Amgen,

Chiron, Bio-Technology General and Cetus perceive opportunities. In contrast to human pharmaceutical products, animal vaccines and diagnostic products are in many cases being developed by NBFs independently of established U.S.

or foreign companies.

In the development of animal growth promotants, however, established U.S. companies are

more involved. The market for animal growth

promotants is the second fastest growing market

in the animal health field, and because it may be

the most significant commercial development area

(26), it is also one of the most competitive. Global

sales for growth promotants are expected to

reach $515 million by 1985 (84). Several established U.S. companies, including American Cyanamid, Eli Lilly, Monsanto, and Norden (a subsidiary

of SmithKline Beckman), have displayed interest

in the field by sponsoring research contracts with

NBFs such as MGI, Biotechnica International,

Genentech, and Genex. Other established U.S.

companies have shown interest by conducting initial evaluations of growth promotants developed

by NBFs, as Eli Lilly did in the case of a product

developed by the NBF Biotechnology General.

In an effort to expand their own technical capabilities and reach new product markets, some es-

“Collaborative ventures between NBFs and established U.S. and

foreign companies are discussed further below.
Ch. 4–Firms Commercializing Biotechnology ● 8 1

tablished pharmaceutical and chemical companies

have contracted with NBFs for animal health projects including the development of animal growth

promotants and vaccines for foot-and-mouth disease, rabies and colibacillosis (a diarrheal disease

that kills millions of newborn pigs and calves each

year). Norden, for example, funded research by

the NBF Cetus to develop a vaccine to prevent colibacillosis in hogs. This vaccine received the US.

Food and Drug Administration’s (FDA’s) approval

in 1982. As other examples, American Cyanamid

and Merck have both contracted with NBFs for

projects involving bovine growth hormone and

a vaccine for foot-and-mouth disease. Many of the

products under joint development are already

undergoing testing.

Several NBFs are in a strong competitive position vis-a-vis established U.S. and foreign companies in animal-related biotechnology. Most of the

established U.S. companies have made relatively

small investments in this area-equal to or less

than investments in animal health by most of the

leading NBFs (54), As established U.S. companies

in the animal health field increase their biotechnology investments, the U.S. competitive position

in domestic as well as foreign animal health markets should strengthen.

FOREIGN COMPANIES

Established U.S. and European companies control world animal health product markets, but collectively, European companies’ efforts to produce

new or replacement animal vaccines or growth

promotants using biotechnology do not appear

to be as strong as the collective efforts underway

in the united States. European companies appear

on the basis of reported research projects almost

exclusively dedicated to the development of products for the world’s two largest animal vaccine

markets, rabies and foot-and-mouth disease. U.S.

companies dominate the world market for animal growth promotants, and few European animal health companies have indicated an interest

in entering the growth promotants product market. Furthermore, few European companies have

established R&D joint ventures with the leading

U.S. NBFs engaged in growth promotant R&D.

Japanese companies have exhibited relatively

little commercial interest in the area of animal

health, probably because meat does not constitute

as large a portion of the Japanese diet as it does

of the diets in Western European countries and

the United States. Recently, however, the Japanese chemical company Showa Denko and the

U.S. company Diamond Shamrock set up a biotechnology joint venture, SDS Biotech Corp., in

Ohio exclusively for animal health research (13).

Plant agriculture industry*

U.S. COMPANIES

The plant agriculture industry encompasses

companies engaged in R&D activities to modify

specific plant characteristics (e.g., tolerance to

stress, nutritional content, yield, and growth rate)

or to modify traits of micro-organisms that could

be important to plant agriculture (e.g., nitrogen

fixation, disease suppression, and insecticide production). The importance of plants as a food

source and renewable resource and the potential of biotechnology to alter plant characteristics

has attracted a diverse set of firms to the plant

agriculture industry. Fifty-two U.S. firms listed

in table 4, 30 established companies and 22 NBFs,

are applying biotechnology to plants. Table 11

provides some examples of the diverse application areas that NBFs are pursuing.

Established U.S. companies from industries

ranging from oil and chemicals to food and pharmaceuticals appear to be dominating the U.S. investment in biotechnology R&D in plant agriculture (25). U.S. chemical companies that have made

considerable in-house investments in plant-related

biotechnology research include American Cyanamid, Dow, Allied, DuPont, and Monsanto. These

companies already produce chemical pesticides

and herbicides and already have research using

plant cell and molecular biology techniques directed toward increasing the resistance of crop

plants to these chemicals (15). American Cyanamid, which has the expertise to synthesize herbicides, and the NBF MG1, which has the expertise to develop novel corn strains tolerant to new

herbicides, have a joint program to develop herbicide-resistant corn. New corn strains developed

for herbicide resistance might make it possible

● Applications of biotechnology to plant agriculture are discussed

further in Chapter 6: Agriculture.
82 Commercial Biotechnology: An International Analysis

Table 11 .—Applications of Biotechnology to Plant

Agriculture for Seven New Biotechnology Firms

*Bayer signed a 3-year agreement with the Max Planck Institute

for research in plant cultivation with special attention to rDNA to

improve plant resistance to phytotoxins.
Ch. 4—Firms Commercializing Biotechnology 83

The Japanese are very interested in the development of amino acids and high-value compounds

by selecting and engineering plant cells to produce secondary metabolizes in vat culture. MITI

has identified secondary compound synthesis as

a major area for commercialization, and this area

of plant-related biotechnology research will receive approximately $150 million from MITI during the next 10 years (15). With their experience

in large-scale bioprocessing, the Japanese are well

ahead of the United States in this aspect of plant

biotechnology. Japanese companies have already

reported repeated success in growing plant cells

in 15,000 liter batches (68). The upper limit in the

United States is only 300 liters (68).

Although biotechnology is not expected to provide foreign countries with an ability to reduce

U.S. dominance in world grain markets, it may

provide foreign countries with opportunities to

seize specific agricultural markets. In both France

and Italy, for example, there are major commercial activities in plant tissue culture techniques

for eliminating viruses and propagating fruit and

nut trees (15).

Specialty chemicals industry*

The specialty chemicals industry promises to

be a particularly competitive industry as biotechnology develops, because large chemical companies from both Japan and the Federal Republic

of Germany as well as the United States are hoping to switch from the stagnant commodity chemicals industry into the more profitable specialty

chemicals industry.

The general chemical and petrochemical firms

of Japan are leaning strongly to biotechnology,

and some of them are making rapid advances in

R&D through their efforts to make biotechnology

a key technology for the future. Japanese companies are expected to be especially strong competitors in future specialty chemical markets for

reasons including the following:

● Japanese bioprocess-based companies are

known to possess highly developed enzyme

*Applications of biotechnology to specialty chemicals are discussed

further in Chapter 7: Specialty Chemicals and Food Additives.

●

●

technology, a prerequisite for efficient biological production.

Japanese chemical companies view specialty chemicals as a profitable area in which to

diversify. Showa Denko, a leading chemical

company in Japan, is expecting to become a

major world producer of the amino acid tryptophan, first by using a new low-cost semisynthetic production method, and second by

rDNA production.

Two Japanese companies, Kyowa Hakko and

Ajinomoto, are currently the world’s major

producers of amino acids. Both companies

have operating production plants in the

United States, and both have strong biotechnology R&D programs in Japan. Ajinomoto,

for example, has succeeded in improving the

production of the amino acid threonine by

rDNA technology using E. coli, and Showa

Denko has cut in half the production cost for

tryptophan through a semisynthetic production process.

The commercialization of biotechnology will require many small, incremental improvements in

bioprocess technology, superb quality control,

and mass production to progress along the learning curve. As biotechnology development reaches

large-scale production stages, well-developed bioprocessing skills will be necessary to compete in

world product markets. Nowhere is the art of bioprocessing better refined than in Japan. Certainly Japan’s expertise in this area will provide competitive strengths in many future biotechnology

product markets.

Two West German companies that have experienced declining profits for the last 10 years because of poor chemical sales are Hoechst and Bayer, the world’s largest chemical exporters and the

world’s two largest pharmaceutical companies

(see table 5). These two companies spend more

on R&D than any other pharmaceutical companies. Both these companies have targeted specialty

chemicals as an area where biotechnology might

increase corporate sales and profits (10). Bayer

has a longstanding collaboration with its two U.S.

subsidiaries, Miles and Cutter, and these two subsidiaries help keep Bayer informed of biotechnology developments in the United States. Much
84 Commercial Biotechnology: An International Analysis

of Bayer’s specialty chemical research is taking

place in the United States through these two subsidiaries. Bayer has opted for specialty chemicals

as its main R&D focus; Miles is important in the

enzyme and organic acid field using bioprocessing, and Cutter is expanding its R&D activity in

purifying enzymes and proteins on a large scale

(10). Two other German companies, Schering AG

and BASF AG, are also actively applying biotechnology to the production of specialty chemicals.

U.S. and foreign support

Companies engaged in biotechnology research

have increased and expanded the demands placed

on the infrastructure that has traditionally supplied biochemical reagents, instrumentation, and

software for biological research and production.

As “scaled-up” production of biotechnology products comes on line, the demand for these supplies

as well as for new production instrumentation

is likely to increase further.

The United States, with an assortment of companies supplying biochemical reagents, instrumentation, and software, has the strongest biotechnology support sector in the world. The U.S.

biotechnology support sector is characterized by

a large number of small specialty firms that compete in small specialty product markets such as

biochemical reagents used in rDNA research (e.g.,

BioSearch, Vega, P-L Biochemical (a subsidiary

of the Swedish company Pharmacia), Bethesda

Research Laboratories, * Collaborative Research,

New England BioLabs, Applied Biosystems, Creative Biomolecules, and Intelligenetics) and several

medium-sized to large firms that produce analytical and preparative instrumentation as well

as bioprocess equipment* * for larger, more diverse product markets (e.g., Beckman, Perkin Elmer, Varian, Hewlett Packard, Waters, New

Brunswick).

“Bethesda Research Laboratories was recently pumhased by Dexter Corp.’s GIBCO division. The new name for the merged company

will be Life Technologies, Inc.

* ● See Chapter 3: The Technologies for a discussion of bioprocess

equipment.

Schering’s main research focus is on the genetic

manipulation of micro-organisms to produce

amino acids such as lysine (10), and BASF is building a $24 million “Biotechnicum)” a combination

of research laboratory and pilot plant with a product focus on optically active intermediate chemicals and vitamins. Schering has also signed two

research agreements with Genex, one of which

involves the development of a genetically manipulated microbe to produce an amino acid.

.

firms

In most support areas, European and Japanese

support sectors are underdeveloped compared to

that of the United States, although both are expanding quickly. Two factors might account for

weak support sectors in Japan and Europe as

compared to that of the United States:

●

●

The United States is a recognized leader in

basic biomedical research, and over the

years, public funds, notably from the National Institutes of Health, have created a large

well-defined market for specialty products

used in biological research (l).

Because so many large and small U.S. companies are currently applying biotechnology,

the specialty research product needs are

greater in the United States than in any other

country, and opportunities exist for many

small manufacturers. In fact, the U.S. market

for custom oligonucleotides (DNA fragments)

and biochemical reagents for synthesis of

DNA is equal to that of the rest of the world

(51).

In Europe and Japan, there are few biotechnology support firms supplying biochemical. Thus,

European and Japanese companies developing

biotechnology generally have to manufacture

oligonucleotides and other biochemical reagents

in-house. Consequently, the expense for biochemical in European countries and Japan is often

greater than in the United States, where many

support firms have achieved significant economies of scale (51). The alternative to in-house

production of support materials in Europe and
Ch. 4—Firms Commercializing Biotechnology . 85

Japan is reliance on a foreign supplier. Such

reliance could impede technical advances (21) and

retard commercialization in the short run. Although there are Japanese and European instrumentation manufacturers, U.S. instrumentation

is considered superior to both Japanese and European instrumentation and dominates the European market (51). The Japanese instrumentation

market is supplied by Japanese manufacturers,

which have not made significant inroads in

foreign markets (52).

Important product areas

For purposes of analysis, OTA examined three

product areas thought to have significant shortterm implications for research developments and

technical developments in the biotechnology field:

● biochemical reagents used specifically in

rDNA research (e.g., oligonucleotides and restriction enzymes);

. instrumentation used in product R&D (e.g.,

DNA and peptide synthesizers) and separation and purification instruments such as

high-performance liquid chromatography

(HPLC); and

● software designed to drive the microprocessors that automate instruments as well as

software designed to analyze DNA and protein sequence data in data banks.

The United States is a world leader in all three

product areas. If adequate supplies of the above

products and services can sustain the present rate

of growth of biotechnical advancement, the

United States could possess a short-term advantage in bringing biotechnology products to international markets.

BIOCHEMICAL REAGENTS

The availability of quality biochemical reagents

such as oligonucleotides (DNA fragments) and restriction enzymes (enzymes used to cut DNA) is

crucial to sustaining the rapid development of the

new biotechnology field and making it viable on

a large scale. Between 1980 and 1990, sales of biochemical for DNA and peptide synthesis in the

United States are expected to increase at an annual rate of 20 percent (81). As more research

is undertaken in plant agriculture, sales are expected to rise further. The total synthetic DNA

market for 1983 to 1984 is estimated at $3 million

to $4 million, and demand is expected to increase

25 to 30 percent a year (36).

Until rather recently, most oligonucleotides

were made in-house in the United States; however, as demand for these materials has increased,

small specialty support firms have been started

to exploit these small markets. One source believes that the evolution of small support firms

in the United States is gradually shifting many

skilled biochemists in U.S. companies commercializing biotechnology from routine laboratory duties to basic research and that the net result has

been an increase in the progress of biotechnology

research in the United States (51).

Small U.S. support firms are estimated to supply

about 25 percent of the total reagents used in

biotechnology research in the United States at

present (51). Some expect this figure to increase

to about 50 percent as small firms achieve economies of scale, and their prices become lower

than those of in-house manufacture. others believe an estimate of 50 percent might be somewhat high, because some of the major users of

reagents, in order to control availability, quality,

and cost, are opting for in-house manufacture

rather than purchase (40). In-house manufacture

may in fact limit the growth of the reagent market. The Canadian firm Bio Logicals no longer

manufactures oligonucleotides at all, because the

market is smaller than was originally estimated,

and the business is becoming one of low profit

margin (4).

The unavailability of specific DNA sequences

will clearly slow any research development on

those sequences. Research at the U.S. firm Genentech was slowed, for example, when the company

had to wait weeks for a reagent that is only available from Sweden (43). In the United States, the

existence of many small custom reagent suppliers

makes delays of this kind rare, In Europe, however, delays of 1 to 2 months occur more often.

Nonetheless, there is little competition in Europe

among firms making custom synthesized fragments, because European researchers are willing to wait a couple of months for special reagents

(51). DNA probes (small pieces of DNA that recognize specific genes) are not even manufactured

there (21).
86 . commercial Biotechnology: An International Analysis

The biochemical supply situation is somewhat

different in the United Kingdom, a nation strong

in basic research but weak in commercial applications (51,69). As early as 1980, a well-known British Government biotechnology report, the Spinks’

report, recognized that the United Kingdom had

a shortage of suppliers of suitable equipment and

reagents for biochemical laboratories (2). The

number of new small British suppliers of biochemical reagents and restriction enzymes is increasing, but British firms using these products

as well as instrumentation still purchase much of

them overseas. * British firms’ reliance on foreign

biochemical suppliers could be reduced as an increasing number of small supply companies are

beginning to form in the United Kingdom.

The demand for support materials in Japan has

increased significantly since MITI designated biotechnology a priority area for the 1980’s. In anticipating the increased demand for research supplies, the Science and Technology Agency (STA)

sponsored an industrial research team** whose

objective is “DNA extraction, analysis, and synthesis technology development” (70).

Until recently, oligonucleotides were produced

in Japan only on an experimental basis and foreign products were used for domestic consumption. Now, three Japanese companies and their

affiliated trading firms produce and market synthetic DNA in Japan, * * * and two of them are members of the MITI research team. Only two Japanese companies, Nippon Zeon Co, and Takara

Shuzo, produce restriction enzymes for the

estimated $4.5 million Japanese market (35). Nippon Zeon Co., a subsidiary of Kongo Pharmaceutical Co., is manufacturing 35 kinds of restriction

enzymes and 87 different synthetic DNA fragments mostly for research institutes in Japan (37).

Takara Shuzo, in addition to supplying enzymes

“The British firm Amersham recently launched new product lines

to meet the gruwing need for restriction enzymes in the United Kingdom, but rather than manufacturing the enzyme itself, Amersham

will be supplied with 22 restriction enzymes by the Japanese firm

Takara Shuzo Co. (9). Typically, Japanese companies do not pursue small foreign markets; in this case, however, Amersham’s

distribution network provided easy access to the European enzyme

market.

● ● Ajinomoto, Wakinaga Yukuhin, Yamasu Shoyu, Yuki Gosei

Yakuhin Kogyo, Toyo Soda Manufacturing Co., Ltd.

● * ● Nippon Zeon Co.-Mitsui Trading Co,, Yamasa Shoyu-Sumitomo

Shoji, Yoshitomi-Yuki Gosei.

to the Japanese market, is exporting them to the

United Kingdom. Because of the increasing rate

at which biotechnology research is being carried

out in Japan, and because of the underdeveloped

support industry there, the current supply of oligonucleotides and restriction enzymes for biotechnology research in Japan is inadequate. In

fact, Japanese distributors are still looking for U.S.

suppliers (40).

The biotechnology support structure in Japan

is expected to develop differently from that of the

United States, because most companies commercializing biotechnology in Japan will continue to

manufacture or import their own specialty biochemical supplies. In order to meet their own

needs, Japanese companies have integrated vertically and are increasing their efforts to develop

products such as reverse transcriptase and other

enzymes that will reduce the cost and speed up

the rate of biotechnology R&D. This pattern of

vertical integration and in-house manufacture is

not likely to change in the short term. The Japanese supply structure could retard research and

create an early commercial disadvantage for Japanese companies in the short run.

INSTRUMENTATION

The instrumentation field includes all the instrumentation used in biotechnology from the analysis

and synthesis of DNA molecules to the monitoring and control of large-scale separation and purification of commercially important biological compounds. of particular importance to the pace of

biotechnical development is the newly designed

or recently modified instrumentation that is meeting the special needs of biotechnology research

and production. Two of the most important instrument areas are DNA and peptide synthesizers

and bioprocessing separation and purification instruments such as HPLCS.

Automated DNA and Peptide Synthesizers.—Automated DNA and peptide synthesizers

significantly reduce the number of persomel and

the amount of time required for synthesis. Such

synthesizers will have significant impacts on the

timing of research outputs and technical developments in biotechnology in the United States

(61). An increased availability of specifically synthesized gene fragments arising from automated
Ch. 4—Firms Commercializing Biotechnology ● 8 7

synthesis may give researchers more flexibility

in the manipulation of genetic information. Automated synthesizers can, among other things, expand the availability and variety of linkers and

adapters* for cloning DNA, provide probes for

finding messenger RNA and DNA gene sequences,

or manufacture whole genes themselves.

The United States leads the world in synthesizer

technology. The support companies that manufacture DNA and/or peptide synthesizers in the

United States include Vega Biotechnologies, BioSearch, Beckman Instruments, Sys-Tee, Applied

BioSystems, P-L Biochemical, Syncor, Genetic Design, and Sequemat. Generally, these companies

have very good communication with the U.S. companies and laboratories they supply. BioSearch

customers, for example, keep BioSearch continually informed of their needs so that automation

can be designed based on these needs. Communication networks between European instrument

suppliers and their European customers are not

so well developed.** US. companies might, therefore, gain some competitive lead time in biotechnology, because they will be among the first to

benefit from automation developments in the

United States.

There are no Japanese companies actually manufacturing DNA or peptide synthesizers for commercial use (21)81), but some U.S. manufacturers

of DNA and peptide synthesizers have established

distribution agreements in Japan.*** The reasons

given most often for the dearth of Japanese manufacturers are the high risks of bringing synthesizers to market and the small size of the Japanese

synthesizer market. A 1982 market survey by

American Commercial Co. (Vega Biotechnoloy’s

Japanese trading company) found the Japanese

market at that time to be approximately 150 machines (81). Without automation to synthesize the

genes or fragments necessary for research, the

Japanese may find it difficult in the short run to

keep pace with American research advances. Additionally, if future markets develop for total gene

*Short nucleotide sequences that encode restriction enzyme sites.

● “See the Spinks’ report recommendations.

● ● “A U.S. synthesizer manufacturer contacted by OTA was not

aware of any Japanese companies that manufacture synthesizes (4o).

synthesis, Japanese research could be slowed because Japanese companies have not developed

their own automation.

The only two DNA synthesizer manufacturers

in Europe are Celltech and Cruachan Chemicals

Co., Ltd. (U.K.). However, companies in France,

the Federal Republic of Germany, Switzerland,

and the United Kingdom have introduced peptide

synthesizers to the market or plan to soon. Sempa (France) is not aggressively marketing its machine in the United States. The relatively small

size of the European market discourages many

potential large European manufacturers from entering the market. The inherent risks of introducing a new product might also discourage small

European companies from entering the market

as well.

Over the next 5 years, the U.S. market for automated DNA synthesizers is expected to grow to

between approximately 500 (81) and 1,000 units

(21). Since March 1983, Applied BioSystems (U. S.)

has shipped 30 synthesizers, and in just over a

year, BioSearch (U. S.) has shipped about 50 (37).

Some observers expect that the largest biotechnology support markets in the near term will be

those for synthesized whole genes and purification systems (2 I). Though some firms doubt that

a market for whole genes is developing, other

firms, including Creative BioMo]ecules (U.S.), have

aIready begun to market whole genes. Creative

BioMolecules’ synthetic gene for human pancreatic growth hormone releasing factor.

New developments in continuous-flow peptide

synthesizers have led to an upsurge in interest

in this different type of instrument technology.

The U.S. market for peptide synthesizers 5 years

from now is expected to be 500 units—the same

size market that is forecast for DNA synthesizers

(81).

In a situation of rapidly changing technology,

the United States is at a clear advantage in the

short run because of the supply of automated instrumentation, an automated synthesis instrument supply standpoint, because many small U.S.

companies are willing to address these small, highrisk markets, In Europe, few small or large firms

are willing to do the same.
88 . Commercial Biotechnology: An International Analysis

Bioprocessing Separation and Purification Instrumentation.—Technical advances in

separation and purification as well as monitoring will affect both laboratory research and commercial production and ultimately the U.S. competitive position in biotechnology (61). * The use

of rDNA technology to produce low-volume, highvalue-added products as well as high-volume

products has greatly increased the need to develop more economic bioprocesses. As large-scale

production draws closer, the ability to isolate and

purify large quantities of desired products will

be a determinant in how fast companies can reach

international product markets. Those countries

that possess the most advanced technology to separate and purify commercially important compounds might gain some commercial advantages

in the early stages of production. Without more

economic production, financial and commercial

success in biotechnology may be difficult to

achieve.

In the United States, Europe, and Japan, there

is intense competition in R&D to develop improved large-scale separation and purification

methods for biological compounds as well as

methods for monitoring and controlling a bioproc -

ess itself.** There is widespread effort to apply

HPLC, continuous-flow electrophoresis, and flow

cytometry to bioprocesses to decrease the manufacturing costs of compounds such as proteins.

Increasingly, R&D efforts are being undertaken

to scale-up analytical instruments, particularly

HPLCS, for use in larger volume production processes. The United States is a recognized leader

in analytical instrumentation used in biological

research and thus stands at the forefront of many

of the technical innovations being made in the

bioprocess field. As automation and the use of

sophisticated instrumentation to monitor and control the production process begins to transform

bioprocessing from an art to a science, thereby

making production more economic, U.S. companies will be in a strong competitive position.

*The reader is directed to Chapter 10: Bioelectrom”cs for a discussion of sensor technology.

● ● See the discussion of bioprocess technolog-- in Chapter 3: The

Technologies.

HPLC is one of the most commonly used separative techniques and also one of the fastest

growing instrumentation fields in the world (76).

The growing sales are due in part to its expanded

use in both analytical and preparative areas.

HPLCS are considered standard analytical tools

in the laboratory to accurately isolate and purify

organic molecules, drugs, and some peptide hormones. More recently, HPLCS have been scaledup successfully to monitor bioprocesses and purify large quantities of proteins such as leukocyte

interferon.

Half of the $300 million worldwide HPLC market belongs to U.S. producers, and the European

HPLC market is dominated by three U.S. companies, Varian, Beckman Instruments, and Waters.

Japanese and European companies have tried

with little success to penetrate segments of the

U.S. instrument market. Pharmacia, a Swedish

company, is the only exception. Large American

companies such as Hewlett Packard, Perkin

Elmer, and Beckman are so firmly entrenched by

virtue of their service and applications networks

that foreign firms (e.g., Shimadzu, a Japanese

company) are having a difficult time making inroads. An absence of major foreign companies in

the U.S. market and the dominance of American

companies abroad highlights the prominent U.S.

position in instrumentation markets.

Although U.S. companies dominate world HPLC

markets, the Swedish company Pharmacia is a

major competitor in separation and purification

technology, especially chromatography (52). In

fact, it is the only company in the world doing

large-scale industrial chromatography. Waters

and Beckman are thought to be catching up (52).

According to John McTaggart of Tag Marketing,

U.S. companies are catching up to Pharmacia in

procedures for reducing the bulk of material at

initial stages of isolation and purification (52), The

gap is narrowing, because U.S. companies strong

in hardware support (i.e., advanced solid matrix,

membrane, and hollow fiber design) such as

Millipore, Amicon, and Nuclepore are making advances in product recovery through ultrafiltration. The United States is considered the technological leader in hollow fiber and membrane

technology.
Ch. 4–Firms Commercializing Biotechnology 89

SOFTWARE

The United States holds a commanding position

in software designed for molecular biology and

bioprocessing. with a superior capability to analyze and manipulate sequence data or to purify

large quantities of valuable products, for example, the United States might gain some commercial lead by hastening research in some product

development areas.

Automation will be necessary to develop more

efficient bioprocesses and to lower the costs of

biological production. U.S. instrumentation and

software manufacturers such as Perkin-Elmer

and Fisher Scientific are designing a wide range

of software for use in biological research and production processes. The United States is the recognized leader in software design in general and in

sophisticated computer applications to biological

research specifically. Because of the dominant

role U.S. companies play in instrumentation markets, and because of the increasing importance

microprocessors and automation are having in

biological research and production, the United

States is expected to gain some short-term advantages in the commercialization of biotechnology.

Software controls all processes automated by

microprocessors. Current software applications

in biotechnology are wide ranging and include

the manipulation of DNA sequence data contained

in data banks, the automatic ordering of nucleotide bases to synthesize pieces of DNA, the modeling of protein structures, and the monitoring and

control of large-scale bioprocessing. on the analytical level, purification of peptides and DNA

fragments, for example, is expected to become

more sophisticated through technical advances

in automation (40). on a preparative level, the

utility of FIPLCs, for example, is being increased

by interfacing HPLCS with other instruments (e.g.,

infrared and mass spectrometers) and computers.

The availability in the United States of software

designed to analyze the data in the private and

public DNA and protein data banks that have been

created worldwide may give U.S. companies commercializing biotechnology some competitive advantages. Both public and private DNA sequence

banks exist in the United States. The two largest

private and public banks respectively are: the Nucleic Acid Sequence Database (1,200,000 nucleotide bases), operated by the National Biomedical

Research Foundation, Georgetown University

Medical Center; and the Genetic Sequence Data

Bank (GENBANK) (1,800 DNA sequences totaling

2 million nucleotide bases) founded on data collected, organized, and annotated by the Los Alamos National Laboratory and developed through

funding from the U.S. National Institutes of

Health. The latter data bank will be a repository

for all published nucleic acid sequences of more

than 50 nucleotide base pairs in length. Georgetown also operates the world’s largest protein sequence data base, which currently contains 2,100

sequences and about 360,000 amino acids.

The United States is not unique in its creation

of such data bases; however, in terms of size,

there are no foreign equivalents. The Europeans

have their own nucleic acid data base, the Nucleotide Sequence Data Library (operated by the European Molecular Biology Laboratory, EMBL), and

the Japanese will have their own equivalent soon.

In addition to these foreign DNA data bases, small

private foreign protein data banks exist for the

exclusive use of the institutions with which they

are affiliated.

A research advantage for the United States is

expected to arise not only from the availability

of data bases, but also from the software being

designed by academic institutions, nonprofit research foundations, and private companies to analyze the data in the banks. Since GENBANK’s development was made possible through public

money, the data are available to the public, domestically as well as internationally. Additionally, subscribers to Georgetown’s Nucleic Acid Database can use the accompanying programs to access both the GENBANK and EMBL’s bank. With

equal international accessibility to the data bases,

competitive advantage will flow to the country

that has the ability to perform sophisticated sequence manipulation through specially developed

software. In fact, the utility of the data bases will

be defined by the available software.

The U.S. company 1ntelligenetics is specializing

in the application of data processing and artificial

intelligence techniques to biological problems, and

this company has created specific software pack25-561 0 - 84 - 7
50 ● Commercial Biotechnology: An International Analysis

ages to assist researchers with molecular genetics analysis. Some of the subscribers include

SmithKline Beckman, DNAX, Hoffmann-La Roche,

Biogen, and Pfizer.

Conclusion

The U.S. support sector provides competitive

as well as commercial advantages to U.S. companies developing biotechnology through: 1) the

timely and sufficient supply of biochemical such

as oligonucleotides and restriction enzymes for

rDNA R&D, 2) new or modified instrumentation

such as DNA and peptide synthesizers as well as

large-scale purification instruments such as

HPLCS, 3) the design of new software for research

and production, and 4) a continuous exchange of

information between suppliers and companies

using biotechnology that results in the creation

of new products and in constant improvements

in existing instrumentation, equipment, and software used in biotechnology R&D.

The first advantage, timely and sufficient supply

of biochemical reagents for rDNA R&D, can affect the rate at which some biotechnology research is carried out. An increasing number of

small U.S. companies specializing in custom DNA

synthesis has made available sufficient supplies

of reagents in the United States that are priced

lower than European or Japanese supplies. In

Europe, although the number of companies supplying custom reagents has increased, supplies

still are not adequate and delivery is slow, especially when reagents are imported (43).

The second and third advantages, new or modified instrumentation and new software design,

may provide U.S. companies with a short-term

advantage through more efficient research methods and production processes. DNA and peptide

synthesizers, for example, are beginning to automate the long and tedious manual task of assembling DNA and peptides, thereby creating greater

efficiency in the early stages of research. The

scale-up of HPLCS for use in purification of commercially important compounds may also provide

greater production efficiency. Software used to

drive the microprocessors used in synthesizers

or bioprocessing equipment, or to manipulate sequence data in data banks, or to direct computer

modeling of proteins may also give U.S. companies

short-term advantages in the earlier stages of

commercialization. It should be noted, however,

that these materials can be exported without difficulty, and that any U.S. advantage derived from

their manufacture in the United States is short

term.

The fourth advantage, information exchange

between support firms and the companies developing biotechnology, promotes technology transfer within the United States and stimulates improvements in instrumentation and software

design for biotechnology application. Not only do

support companies constantly improve on the

products that they themselves manufacture, but

the companies that they are supplying in turn

strengthen the U.S. support base by developing

customized and automated instrumentation and

equipment for in-house use, which they may then

make available to other companies once their proprietary position has been secured. Examples of

companies in the latter category include Genentech, Cetus, and Bio Logicals (Canada). Bio Logicals’ DNA synthesizer grew out of in-house technology to produce oligonucleotides for itself.

Cetus recently established a new subsidiary, Cetus

Instrument Systems, to capitalize on the commercial value of novel instrumentation and computer

systems developed for its own in-house R&D.

Genentech and Hewlett Packard started a joint

venture company, HP Genenchem, to develop for

themselves and other companies automated instrumentation for use in biotechnology R&D.

Genentech will provide the joint venture with instrumentation already developed and add early

insights for research and commercial instrument

opportunities (37). Possible areas of automation

include DNA and protein sequencers and synthesizers and industrial-scale HPLC and flow cytom -

eters for bioprocess monitoring and control.

In the current stage of biotechnology development, there is considerable interaction between

suppliers and potential users, particularly in the

area of sophisticated instrumentation. Ideas for

new products are developed through in-depth

conferences with customers and potential customers to determine or anticipate what kinds of

R&D problems they might have. Also, in response

to customers’ needs, U.S. support firms are constantly upgrading and modifying instrumentation

to maximize its utility. These interactions and
Ch. 4—Firms Commercializing Biotechnology 91

tailoring of instrumentation and equipment to

meet industrial needs will be critical to surmounting the numerous problems anticipated in the design, scale-up, control, and optimization of industrial biotechnological processes (22).

The U.S. biotechnology support sector currently

provides a sufficient and timely supply of biochemical, instrumentation, and software to U.S.

firms using biotechnology. By virtue of its support strength, the United States holds research

advantages over other countries-advantages that

may or may not be translated into commercial

products. For the United States to retain these advantages in the future, U.S. support firms must

remain poised to meet the immediate and expanding supply needs of the U.S. firms commercializing biotechnology.

U.S. firms commercializing biotechnology

and their role in competition

As noted at the beginning of this chapter, the

commercial development of biotechnology in the

United States is being advanced by two types of

firms: NBFs and large established US. companies.

It is important to keep in mind throughout this

report the organizational nature of the U.S. biotechnology development and commercialization

effort and the strength that the present NBFestablished firm competition and complementarily lends to this effort. NBFs and established U.S.

companies both have important roles to play in

the present phase of biotechnology development.

Not until the technology is more fully developed

will the parameters of responsibility for each

group of firms be more clearly defined.

New biotechnology firms

The development of biotechnology is still at an

early stage, and competition at present, both in

the United States and abroad, is largely in research and early product development (e.g., vector selection and gene expression). Development

and commercialization have not yet progressed

to a point where competition for market shares

is of immediate concern. In the present researchintensive stage of biotechnology’s development,

NBFs are providing the United States with competitive advantages in biotechnology through contributions to innovation. In the early stages of a

new technology, small firms in the United States

tend to dominate an industry and contribute most

to product innovation. As a group, it is the small

companies that have most “quickly and successfully taken new technologies from the laboratory

and adapted them for large-scale production” (78).

Small firms move much more aggressively to market than do established companies that have builtin disincentives to advance the state-of-the-art

quickly because of existing investment in established product lines and production processes. *

As a technology matures, many established companies, as later entrants, begin to play a larger

role in innovation, as well as production and marketing.

That small firms contribute significantly to technological innovation is widely accepted, although

there is disagreement over the amount of their

contribution. Some U.S. studies suggest that small

businesses play a more important role in technological innovation than do large firms. A recent

study prepared for the Small Business Administration by Gellman Research Associates, Inc., for example, holds that: 1) small firms produce 2.5 times

as many innovations as large firms, relative to the

number of people employed; and 2) small firms

bring their innovations to market much more rapidly than do large firms (32). Another study undertaken by Human Services Research for the National Science Foundation found that small firms

(i.e., firms with fewer than 1,000 employees) pro-

*For example, a pharmaceutical firm with a vested interest in

symptomatic treatment of colds may have little incentive to develop

a vaccine against the cold~ausing viruses, since it would diminish

the company’s sales of decongestants.
92 . Commercial Biotechnology: An International Analysis

duced 24 times as many major innovations per

R&D dollar as did large firms and 4 times as many

as did medium-sized firms (44). Finally, an Office

of Management and Budget study concluded that

small firms (i.e., firms with fewer than 1,000

employees) had a ratio of innovations to employment in R&D 4 times as great as that of larger

firms (19). In combination, the results of these

studies suggest that small firms appear to be more

efficient than large companies in the way they

use the R&D funds available to them (32).

THE EMERGENCE AND FINANCING* OF NBFs

Since 1976, more than 100 NBFs have been

formed in the United States. The founders of

many NBFs recognized early that most developments in biotechnology would flow from basic research carried out in academic institutions. For

this reason, they formed their companies around

a nucleus of talented university scientists, frequently using nonproprietary technology. Several

NBFs (e.g., Genentech, Centocor, Genetic Systems)

got started by placing R&D contracts with academic researchers for the commercial development of a laboratory discovery.

The character and record of the chief scientists

in a new firm is important for several reasons:

the amount of venture capital made available to

the firm might be determined by the scientist’s

reputation in the scientific community; the scientist may have some influence over the flow of

other well-respected scientists and skilled technicians to the company; and his or her reputation might attract the endorsement of established

companies which provides valuable reinforcement to the NBF (e.g., Genentech’s early relationships with the U.S. company Eli Lilly and the Swiss

company Hoffmann-La Roche).

NBFs must be able to attract and retain qualified

personnel if they wish to attract venture capital,**

develop marketable products, and maintain their

domestic competitive position. Competition in the

United States for skilled personnel is intense.***

● The financing of NBFs is discussed in detail in Chapter 12: Financing and Tax Incentives for Firms.

● ● Because most NBFs are unable to meet many of the standard

int’ester requirements for such things as earnings, sales, rate of

growth, etc., sometimes potential investors use the number of Ph. D.s

per firm as a measure of future earning power.

● ” ● See (.”hapter 14: Personnel Availabih”twv and Traim”ng for a more

detailed discussion of personnel needs and availability in the United

States.

According to the First Annual Technical Staffing

Survey conducted by Scherago Associates in New

York, the average biotechnology firm* in the

United States more than doubled its staff of scientists between 1980 and 1982 from 3.1 to 7.3 (72).

Scherago expects the number of Ph.D.s to almost

double again by 1984. The results from the OTA/

NAS survey of firms’ personnel needs** substantiate the Scherago survey findings, but they also

show that the average number of scientists per

firm might be growing at a faster rate than originally estimated. The average number of Ph. D.s

for the NBFs listed in table 4 as of March 1983

was already 15. 7.* * *

NBFs, by virtue of their size, incentive plans,

and innovative and academic-like environment

have been able to attract many talented scientists.

It is expected that NBFs will continue forming, in

part because new firms will continue to be able

to attract good scientists.

The formation of the loosely organized and

highly competitive structure within which biotechnology is developing in the United States has

been shaped largely, but not exclusively, by the

availability of venture capital and the willingness

of scientists to pursue commercial gain through

small, newly formed entrepreneurial companies.

The emergence and growth of venture-capitalbacked NBFs in the United States began around

1976. As shown in figure 11, not until late 1982,

when venture capitalists had satisfied much of

their portfolio requirements for biotechnology

stock (42) and over 100 new companies had been

formed, did startup activity begin to taper off.1

Many of the first NBFs (e.g., Genentech, Genex,

Cetus) financed their own proprietary research

by providing large established U.S. and foreign

companies with research services for initial product development or by entering into licensing

agreements with such companies that would re-

*Scherago defines a biotechnology firm as a gene manipulation

company.

● *See Appendix E: OTA/NAS Survey of Personnel Needs of Firms

in the United States.

* ● *This average is based on the firms in table 4 for whom Ph.

D. figures are given.

tThe pace of new biotechnology startups may also have been

slowed because many of the top university scientists who wanted

to join new firms probably had already done so. A year or two ago

a survey done by an investment company looking for an unaffiliated

molecular biologist reportedly approached 20 researchers before

it found one without a commercial tie (16).
Ch. 4–Firms Commercializing Biotechnology 93

Figure 11 .–Emergence of New Biotechnology — Firms, 1977-83

43

.

.

26

.

6

iIIIl _

- 3

4

m

.

22

38

n

1977 1978 1979 1980 1981 1982 1983

‘fear

aAs of November 1983.

SOURCE: Off Ice of Technology Assessment

suit in future product royalty income. Product

development contracts between NBFs and established companies generally provide for periodic

cash payments from the established company to

the NBF during the stages of research and early

product development and for additional payments

to the NBF (royalties income) following product

sales. Following early product development by the

NBF, the established company is generally responsible for obtaining the necessary regulatory approvals, manufacturing, and marketing of the

product.

In the last couple of years, more and more NBFs

have begun shifting away from developing products for larger companies for reasons including

the following:

● NBFs have decided to concentrate more on

proprietary research,

● profit margins from licensing technology to

established companies are low and may not

provide sufficiently substantial earnings (26),

and

● most NBFs do not want to be dependent on

another company for financial survival.

Instead of relying on contract revenues many

NBFs are now obtaining financing through R&D

limited partnerships, public stock offerings, or private placements. By retaining the rights to produce and market some of the products they develop (rather than developing products for established companies), some NBFs are seeking to become fully integrated producers and marketers.

Genentech, for example, is hoping to manufacture and market four new products (human

growth hormone, tissue plasminogen activator,

and two types of interferon), and a large portion

of Genentech’s capital expenditures since 1981

has gone into a production plant for these products (24). Similarly, the NBF Amgen is building a

$10 million pilot plant in Chicago for preclinical

and clinical studies, and the NBF Genex has just

purchased a manufacturing plant in Kentucky to

produce phenylalanine and aspartic acid (the two

amino acids used to produce the sugar substitute

aspartame).

COMMERCIAL PURSUITS OF NBFS

Most NBFs are applying biotechnology to the

development of pharmaceutical products or products for use in animal and plant agriculture. For

several reasons, the most popular area of commercial pursuit among NBFs at present is the development of MAbs for research and in vitro diagnosis of human and animal diseases. *

● MAb in vitro diagnostic products require

much shorter development times than do

many rDNA-produced pharmaceutical products, because the technological development

of MAb products is less complex. Furthermore, FDA’s premarketing approval process

is less costly for in vitro products than for

products intended for internal use.

*Pharmaceutical applications of MAbs are discussed in Chapter

5: Pharmaceuticals. The applications of MAbs in the diagnosis, prevention, and control of animal diseases are discussed in Chapter

6: Agriculture.
94 Commercial Biotechnology: An International Analysis

●

●

●

Relatively short development times and modest capital requirements for MAb in vitro diagnostic products afford NBFs opportunities

to generate short-term cash flow from these

products with which to fund the more timeconsuming and costly R&D on pharmaceutical products intended for internal use. *

Entering the MAb in vitro diagnostic products

market is relatively easy for NBFs, because

the diagnostic market is highly fragmented

and the individual diagnostic markets relatively small. Thus, NBFs are likely to encounter few scale disadvantages in competition

with large established companies.

The markets for in vitro MAb diagnostic

products are growing, thus providing expanding opportunities for entry by NBFs. The

clinical immunodiagnostic market has grown

at an annual rate of approximately 20 percent for the past few years, and this rate of

growth is expected to continue or increase

in the future (63). The 1982 market was valued at $5 million to $6 million (77). Table 12

provides 1982 and 1990 estimates for the size

of various MAb markets in the United States.

Oppenheimer & Co. expects the clinical immunodiagnostics market to be the most important

source of revenue to NBFs in 1983 (63). Many of

the in vitro MAb diagnostic products now being

developed or sold are replacement products that

offer improved (more accurate) detection, shorter

test times, and lower production costs (63)—and

as might be expected, competition for market

shares and scientific and financial resources is intense. Since 1980, more than 12 new U.S. companies (e.g., Xoma, Quidel, Techniclone, New England Monoclinal Resources) have formed specifically to exploit hybridoma technology, and most

of them either already have MAb diagnostic kits

on the market or are seeking FDA’s approval. In

“Cetus Corp. (U.S.), for instance, is developing diagnostic products for detecting blood-borne pathogens such as hepatitis B virus

with funding from Green Cross of Japan and for detecting cytomegalovirus. Cetus is also developing readily marketable biotechnology products for animal agriculture until its more profitable

products, particularly anticancer drugs, are developed. Likewise

Hybritech (U. S.) and Genetic Systems (U.S.) are producing MAb diagnostic products to support other longer range R&D activities such

as MAb therapeutics.

1982 alone, FDA approved some 30 in vitro MAb

diagnostic kits (26).

To increase their chances for commercial success, NBFs solely dependent on MAb-based diagnostic products must find market niches. Although, a focused strategy such as MAb production could bring NBFs financial success with a

smaller investment of dollars and scientific expertise in a shorter time frame than a more diverse

strategy typical of some of the more heralded,

multipurpose companies, such a strategy could

also limit their growth potential (26). The worldwide diagnostic market represents only $2 billion

out of the $80 billion annual human drug market

(24). Until NBFs are capable of entering the larger

drug markets, however, diagnostic products may

prove crucial in supporting the high costs of pharmaceutical development.

Some NBFs are developing MAb therapeutic and

in vivo diagnostic products, although the number

of NBFs developing these products is less than the

number developing in vitro MAb diagnostic products. ” In addition to MAb therapeutics to treat

cancer, MAb therapeutic products are being developed to treat bacterial infections that are

sometimes difficult to treat with antibiotics and

viral infections for which no antibiotics exist. As

will be discussed in the section below entitled

“Collaborative Ventures Between NBFs and Established U.S. Companies)” the regulatory environment for pharmaceuticals imposes heavy longterm financial burdens, which many NBFs may

be unable to bear alone. Since many of the new

firms aspire toward short-term earnings and independent production and marketing, it is not

surprising that in vitro MAb diagnostic products

are the area of application most widely chosen

by NBFs.

Many small markets exist for NBFs in animal

agriculture, and for replacement as well as new

products, the barriers to market entry are low.

Furthermore, the costs of obtaining regulatory

approval for most animal health products are

lower than those for human pharmaceuticals.

However, in order to market some animal health

products, including vaccines, a large and highly

● An even smaller number are developing MAbs for use in separation and purification.
Ch. 4—Firms Commercializing Biotechnology ● 9 5

Table 12.—Estimates of U.S. Monoclinal Antibody Markets, 1982 and 1990 (1981 dollars in millions)

Application 1982 market size 1990 market size

Diagnostics:

In vitro diagnostic kits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5 to $6 $300 to $500 ($40)”b

Immunohistochemical kits (examination of biopsies, smears, etc.) . Nil $25

In vivo diagnostics (primarily imaging) . . . . . . . . . . . . . . . . . . . . . . . . . Nil Small to $lOOb

I

d

Therapeutics (includes radiolabeled and toxin-labeled reagents) . . . Nil $500 to $l,ooob”

Other

Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Small $10

Purification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Small $10

aHigh numbe r indicates market for total kit, number in parentheses indicates value of antibody alone for kit (includes patent licensing fees).

%ariation depending on industry source, although the range has been corroborated by at least two sources.

cThis number could ‘be much higher or lower depending on re9ulatow process

‘Based on current pricing (19S1 dollars) for diagnostic tests of the same type.

SOURCE: Office of Technology Assessment.

specialized sales force may be necessary. Some

NBFs do not expect to hire their own marketing

force. Genentech, for example, does not expect

to market its own animal vaccines. Some NBFs

hope to use existing distribution networks for

animal health products instead of developing their

own specialized marketing force,

NBFs pursuing plant agriculture applications of

biotechnology seem to have found sponsors for

longer term research in areas such as enhanced

protein content and nitrogen fixation, but a number of new firms are conducting proprietary research in areas such as the regeneration of inbred crop lines from tissue culture. NBFs pursuing plant biotechnology are already using cell culture technologies rather successfully to introduce

new plants to the market. One firm, Ecogen, has

been formed to focus exclusively on microbial and

viral pesticides and other novel pest control methods. As the more frontier techniques such as gene

transfer are developed, they can be incorporated

into ongoing product lines (15).

FUTURE PROSPECTS OF NBFs

Almost 2 years ago, skeptics forecast a ‘(shakeout” among the NBFs (18,31,60,66). Even though

the commercialization of biotechnology now may

be more time-consuming, more expensive, and

less profitable than was initially hoped, such a

shake-out has not yet occurred. A shakeout will

occur, however, when new markets develop and

present trends in financing, established firm involvement, and technical capability change.

NBFs were formed to exploit research advantages in biotechnology, and many NBFs still possess such advantages. Given their research advantages, and assuming good management and adequate financing, many NBFs may continue to compete successfully with both larger companies and

other NBFs as long as competition in biotechnology remains focused in research. Eventually, however, perhaps within 2 or 3 years, most NBFs will

have to manufacture and market their own products in order to finance future growth and

achieve some level of commercial success. A

change from a research-oriented strategy to a

more production-oriented strategy will mark a

new stage in development for the average NBF,

because in the past (and to some extent even now)

NBFs out of need for capital have sold their processes to established companies.

NBFs that are wholly dependent on biotechnology for revenues cannot spread the risk of product development over a broad range of products

made by traditional methods (unlike the established companies that have several product lines

to generate revenues). Many NBFs will fail if markets for the biotechnology products now being

commercialized do not develop. Furthermore,

many NBFs will fail if capital for production scaleup, clinical trials (if necessary), and marketing is

not available when markets develop.

The commercialization of biotechnology in the

United States and other countries at present is

characterized by a large number of companies,

many small, some medium, and many large, applying biotechnology to a very narrow range of

products. * Most of the products are rDNA-pro-

“Examples of such products are interferon, interleukin-2, human

growth hormone, tissue plasminogen activator, and MAb-based diag-
96 ● Commercial Biotechnology: An International Analysis

duced pharmaceuticals and MAb-based diagnostic

products. Because of the large number of companies and small range of biotechnology products,

most of the initial product markets are likely to

be very crowded, costly to enter, and highly competitive. The sharp decline in the formation of

NBFs in 1983 might be explained in part by the

currently high levels of competition. How many

producers the initial biotechnology product markets might ultimately accommodate is uncertain.

Thus, the factors likely to affect the future commercial success of the NBFs most immediately are

the timing of market introduction, product performance, and product quality. Price, and hence

production costs, will be of greater importance

later.

The major determinant to the commercial future of NBFs, assuming they are able to maintain

a research advantage, will be their ability to obtain financing and their ability to enter the newly developing product markets. NBFs must manufacture and market their own products not only

to generate sufficient revenues to fuel growth but

also to be in control of the timing of their own

product introduction. It remains unclear whether

NBFs will have the financial resources and marketing strength to enter some of the new markets. Large established pharmaceutical companies, for example, normally employ some 500 people just to market their drugs (24), while Genentech, one of the largest NBFs, has a total of about

500 employees.

Some of the most difficult markets for NBFs to

enter will be those for human therapeutics, in

part because of the regulatory costs associated

with product approval and in part because of the

market competition posed by established U.S.

pharmaceutical companies, which could control

some of the early channels of distribution. Entering the markets for in vitro diagnostic products,

as mentioned earlier, is relatively easy and does

not require large capital investments, but because

nostic products for detection of venereal diseases and pregnancy.

Tables 18 and 23 in Chapter 5: Pharmaceuticals provide a list of

firms engaged in cloning projects for interferon and human tissue

plasminogen activator, respectively, and exhibit a rather high level

of competition for the two products. Additionally, at least eight NBFs

are cloning interleukin-2 (Chiron, Genex, Biogen, Cetus, Genetics

Institute, Immunex, Interferon Sciences, and Quidel).

these markets are currently very crowded, survival may be difficult.

The specialty chemicals market appears relatively easy to enter, both because little competition exists at present and also because the regulatory environment does not impose high costs

on product development. Research is near term

for many of the products, 3 to 5 years, and an

NBF would experience few production scale disadvantages in competition with larger companies.

The safety regulations applicable to animal

health products are significantly less stringent

than those applicable to pharmaceutical products

intended for internal human use, and many market niches exist for small firm entry. Additionally, relatively little competition from established

companies exists at present. However, the need

for an extensive sales force to market some of the

products might pose a considerable barrier to

some NBFs wishing to enter animal health

markets.

The availability of venture capital and financing for NBFs has been sufficient thus far to fuel

the growth of many NBFs. The public market, particularly for new issues, and R&D limited partnerships continue to provide capital to NBFs for

use in further research, pilot plant construction,

clinical trials, and product development. From

August 1982 to May 1983 alone, NBFs raised $200

million through R&D limited partnerships (6). One

analyst estimates that R&D limited partnerships

will raise a total of $500 million in 1983 (7). The

public stock market has also been receptive to

NBF issues. Between March and July 1983, 23

NBFs raised about $450 million (39). As long as

the public market and R&D limited partnerships

make financing available to NBFs, they can continue developing independent strategies, thereby

reducing their reliance on established companies.

Paralleling the emerging desire by some NBFs

to become integrated producers and marketers

is an apparent reduction from 1982 to 1983 in

the number of research contracts sponsored by

established U.S. companies * and an increase in

the amount of capital established U.S. companies

● It is impossible to quantify the number and value of all established company sponsored research contracts because not all of
Ch. 4–Firms Commercializing Biotechnology 97

are devoting to in-house biotechnology programs.

Although the pattern is beginning to change, research contracts sponsored by established companies still provide a large portion of the NBFs’

revenues. * If the decline in number of research

contracts sponsored by established companies

continues, which is likely, NBFs must begin finding other sources of revenue. Increases in the

amount of capital established U.S. companies are

devoting to in-house biotechnology programs portend greater competition in R&D from the larger

companies. Equipped with greater financial and

marketing resources, more regulatory and, in

some cases, production expertise, many U.S. established companies will be formidable competitors in the long run as biotechnology product

markets develop. Not all NBFs will survive the

competition of the established companies; provided they have adequate financing, however,

some NBFs will be able to commercialize their

early research advantages before the established

companies commercialize theirs.

As biotechnology continues to emerge, and further technical advances are made, new generations of NBFs undoubtedly will evolve to develop

the technologies. Within the next several years,

a second generation of NBFs is likely to emerge

as the result of developments such as the following:

● intensified competition that forces some

firms out and creates new opportunities for

more entrants,

 a major technological advance in some area

of biotechnology such as computer-assisted

protein design, which encourages the entry

of more new companies,

● the diffusion of advances in bioprocessing,

which enables small firms to assume responsibility over their own production, and

. the development of the technologies to the

point where scientists from present companies or young scientists from universities

will start their own companies.

public. However, on the basis of those that have been reported, most

observers would probably agree that the number of new outside

research contracts sponsored by established companies in 1983 has

dropped significantly fmm 1982 levels.

*See Chapter 12: Financing and Tax Incentives for Firms for further discussion of the sources of NBF revenues.

ROLE OF NBFS IN U.S. COMPETITIVENESS

IN BIOTECHNOLOGY

The development of biotechnology is still at an

early stage, and competition at present is predominantly in the areas of research and early product

development. This early stage of biotechnology

development is precisely where NBFs are playing

the largest role in competition. Later, however,

as the technology develops further and enters a

large-scale, capital-intensive production stage, the

science may become less important vis-a-vis production expertise, and the dominant role NBFs

currently play in the US. biotechnology effort

may diminish.

The launching of embryonic high-technology industries by entrepreneurial firms is a phenomenon unique to the United States. Historically, small

new firms in the United States have had a major

role in shaping the competitive position of the

United States in emerging technologies. * As discussed further below, NBFs have thus far assumed a similar role in biotechnology:

●

●

●

●

●

by contributing to the expansion of the U.S.

basic and applied research base for future

biotechnology development,

by transferring the technology to several industries through joint agreements with other

companies,

by decreasing investment risk by advancing

learning curves for later entrants, such as

established companies or other NBFs,

by developing markets, and

by increasing the level of domestic competition in the United States and thereby accelerating the pace of technology advance.

The formation in the United States of over 110

NBFs that have various links to the network of

university biology, chemistry, and engineering

departments has extended the basic research base

beyond the universities and has expanded the applied research base beyond just a few companies.

While the basic and applied research base is being broadened for future biotechnology development, joint agreements and licensing arrangements between NBFs and large established U.S.

● See Appendix C: A Cbmparn”son of the U.S. Semiconductor Industty and BiotechnoIogv.
98 ● commercial Biotechnology: An International Analysis

companies are effectively diffusing biotechnology

across many industrial sectors.

With the help of venture capitalists, NBFs

started much earlier to evaluate the commercial

potential of biotechnology than did large established US. or foreign companies. As early as 1976,

NBFs were willing to risk their very existence on

the undemonstrated potential of biotechnology.

A survey conducted by OTA indicated that most

established U.S. companies did not begin in-house

biotechnology R&D until 1981 or later. * This finding suggests that the early burden of risk was carried by NBFs. Although many established U.S.

companies have now made substantial commitments to biotechnology through investments in

plant and equipment for in-house biotechnology

R&D programs, others are still hesitant to make

such investments and many NBFs continue to

function as a litmus test for the new technologies.

In Europe and Japan, most companies did not

make major investments in biotechnology until

after 1981. Thus, it might be suggested that the

early R&D activity of NBFs has given the United

States a competitive lead in the early stages of

biotechnology’s commercialization.

The NBF initiative to commercialize biotechnology not only has spurred the development of new

product markets but also is expected to expand

existing markets through the introduction of

products with increased effectiveness and decreased cost. For example, diagnostic kits using

MAbs and DNA probes are being developed to detect

venereal diseases (e.g. chlamydia and herpes) that

are difficult and time~onsuming to detect by existing methods. Vaccines are being developed for

diseases that now have no reliable prevention

(e.g., hepatitis and herpes in humans and colibacillosis in calves and pigs).

The NBFs’ entry into the traditional markets

served by established companies, where NBFs

have taken the risks of developing new products

or potentially reducing the production costs of

existing ones, has prompted many established U.S.

companies to explore potential applications of the

● The survey questionnaire is reproduced in Appendix E: OTALWAS

Survey of Personnel Needs of Firms in the United States.

new technologies. The market uncertainty created by the new firms and the perceived competition they represent to the established companies

is healthy in a competitive context, because it increases the aggregate level of industrial R&D in

the United States. The perceived competitive

threat that NBFs pose to established companies

could become even greater as NBFs such as Biogen, Genentech, and Genex begin to shift away

from developing products for large corporate

clients and begin to turn toward independent production and marketing of their own products.

Because of their technological expertise and

early role as contract research companies, the

NBFs have helped established U.S. companies evaluate the feasibility and suitability of using the new

technologies in their existing lines of business.

They have also helped the established companies

evaluate new avenues for diversification, Frequently, the established U.S. companies maintain

multiple research contracts with the NBFs to evaluate several applications simultaneously or to

evaluate the same application from different perspectives. In this way, the established companies

can “ride along” the NBF learning curves while

minimizing expenses and risk. In a competitive

context, this relationship between NBFs and established U.S. companies is important because it

may help to position both types of U.S. firms in

international product markets.

From the standpoint of U.S. competitiveness,

the innovative lead taken by NBFs in the United

States might seem to be a handicap because of

the potentially adverse consequences from the

transfer of technology from the United States to

foreign countries. But the United States, at first

through the new firms and now with the combined effort of the established companies, has the

ability to maintain its lead by continuing to innovate and develop at a pace equal to or faster than

its competitor countries. While competition remains mostly in research, the ability of the United

States to remain competitive and in the forefront

of biotechnology development rests heavily on

NBFs, As biotechnology reaches production

stages, the bioprocessing, regulatory, and marketing experience of the established companies will

be crucial to a strong US. position.
Ch. 4—Firms Commercializing Biotechnology ● 9 9

Established U.S. companies

The proliferation of many NBFs and the developments in biotechnology that have been made

thus far have prompted many established U.S.

companies to re-evaluate the competitive and

technological environments in which they have

been operating. To some extent, U.S. corporate

investment in biotechnology has been both an aggressive and defensive response to the potential

market threat represented by NBFs such as Biogen, Genex, Cetus, and Genentech. Although a

few pharmaceutical and chemical companies such

as Monsanto, DuPont, and Eli Lilly have had biotechnology research efforts underway since

about 1978, most of the established U.S. companies now commercializing biotechnology did

not begin to do so until about 1981. *

INVESTMENTS IN BIOTECHNOLOGY

BY ESTABLISHED U.A COMPANIES

The motivations underlying established U.S.

companies’ decisions to invest in biotechnology

and the forms that each investment takes vary

from company to company. When biotechnology

first began to receive commercial attention, many

established U.S. companies, particularly those

without a major in-house biotechnology program,

elected to gain in-house expertise by obtaining

technology through research contracts with NBFs

or universities, * * R&D contracts with NBFs, * * *

or equity investments in NBFs. For some established U.S. companies, contracts with or equity

positions in NBFs are still a major route by which

to expand their knowledge of biotechnology.1

However, several of the established U.S. companies that initially entered the field through R&D

● This statement is based on the responses to a survey conducted

by OTA and the National Academy of Sciences. The survey questionnaire is reproduced in Appendix E: OTAIVAS Survey of Personnel Needs of Firms in the United States.

● ● Major university contracts in biotechnology appear to have been

declining over time. University/industry relationships in biotechnology are discussed in Chapter 1 i’: University/industry

Relationships,

* ● ● For a more detailed discussion of R&D joint ventures, see the

section below entitled “Collaborative Ventures Between NBFs and

Established U.S. Companies. ”

tIn 1982, Monsanto, for example, committed approximately $40

million to outside contracts in biotechnology; however, the overall

number of newly formed research and licensing agreements is waning as more and more established companies commit large amounts

to in-house staff and facilities.

joint ventures are now increasing their commitment to biotechnology through internal

expansion.

Since 1978, equity investments in NBFs, often

accompanied by research contracts, have been

a popular way for established U.S. companies to

gain expertise in biotechnology. Table 13 lists

many established U.S. companies that have made

equity investments in NBFs and the NBF in which

they have taken the equity position. * Although

only individual corporate strategies can specifically explain why established U.S companies have

taken positions in NBFs, some of the investments

may have been viewed by the established companies as:

●

●

●

a defensive strategy against market share

losses to unknown technologies,

an avenue for diversification and greater

return on investment, and

a means of gaining a ‘(window on the new

technology.”

Figure 12 provides the aggregate equity investment figures for 1977 to 1983 based on table 13.

Review of table 13 and figure 12 shows that:

●

●

●

●

●

equity investments in NBFs range from $0.5

million to $20 million;

some established companies have made

multiple investments in the same NBF;

a number of established companies have

made investments in more than one NBF;

equity investments, in some cases, have led

to the formation of another firm (e.g., Genentech and Corning Glass formed Genencor,

and Diamond Shamrock and Salk Institute/

Biotechnology Industrial Associates formed

Animal Vaccine Research Corp.); and

equity investments have tapered off since

1982.

The years 1978 and 1979 appear to have

marked the beginning of general US. corporate

● A much smaller number of foreign established companies have

taken equity position in American NBFs. They are not included in

table 13. The notable foreign investors are Sandoz (in Genetics Institute), Novo (in Zymos), a group of Japanese and Swedish investors

(in Genentech), C. Itoh (in Integrated Genetics), and Bayer in

Molecular Diagnostics).

● ● The percentage of NBFs purchascxl by the established companies

listed in table 13 range from 1.6 to 100 percent, with 10 to 30 percent being the most common.
100 Commercial Biotechnology: An International Analysis

Table 13.—Equity Investments in New Biotechnology Firms by Established U.S. Companies, 1977=83”

Equity

Date U.S. established company New biotechnology firm (millions of dollars)

1980

1981

1983

1981

1981

1982

1982

1980

1982

1983

1981

1981

1981

1982

1983

1982

1980

1983

1981

1981

1981

1981

1981

1980

1982

1982

1983

1978

1979

1980

1981

1981

1981

1981

1977

1981

1982

1983

1982

1979

1980

1981

1981

1982

1979

1980

1982

1980

1982

1982

1982

1983

1980

1980

1980

Abbott Laboratories . . . . . . . . . . . . . . . . . . . .

Allied Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . .

American Cyanamid. . . . . . . . . . . . . . . . . . . .

ARCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Baxter-Travenol . . . . . . . . . . . . . . . . . . . . . . . .

Beatrice Foods . . . . . . . . . . . . . . . . . . . . . . . .

Bendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bendix/Genex . . . . . . . . . . . . . . . . . . . . . . . . .

BioRad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Campbell Soup.. . . . . . . . . . . . . . . . . . . . . . .

Continental Grain . . . . . . . . . . . . . . . . . . . . . .

Cooper LabslLiposome Tech. Corp. . . . . . .

CorninglGenentech . . . . . . . . . . . . . . . . . . . .

Cutter Laboratories . . . . . . . . . . . . . . . . . . . .

DeKalb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Dennison Manufacturing Corp. . . . . . . . . . .

Diamond Shamrock/Salk Institute

Biotechnology Industrial Associates. . . .

Dow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Dow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ethyl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fluor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FMCICentocor. . . . . . . . . . . . . . . . . . . . . . . . .

General Foods . . . . . . . . . . . . . . . . . . . . . . . .

Getty Scientific Corp. . . . . . . . . . . . . . . . . . .

Gillette . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Hewlett-Packard Co./Genentech . . . . . . . . .

INCO, inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INCO, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INCO, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INCO, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INCO, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INCO, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INCO, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Innoven f 

.,.... . . . . . . . . . . . . . . . . . . . . . . . .

Johnson & Johnson . . . . . . . . . . . . . . . . . . . .

Johnson & Johnson . . . . . . . . . . . . . . . . . . . .

Johnson & Johnson . . . . . . . . . . . . . . . . . . . .

Kellogg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Koppers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Koppers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Koppers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Koppers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Eli Lfliy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Lubrizol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Lubrizol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Lubrizol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

McLaren Power &Paper Co. . . . . . . . . . . . .

Martin Marietta.. . . . . . . . . . . . . . . . . . . . . . .

Martin Marietta . . . . . . . . . . . . . . . . . . . . . . . .

Martin Marietta. . . . . . . . . . . . . . . . . . . . . . . .

Martin Marietta . . . . . . . . . . . . . . . . . . . . . . . .

MeadCo. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Monsanto . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Monsanto . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amgen

Calgene

Genetics Institute

Molecular Genetics, Inc.b

Cytogen

International Genetic Engineering, inc. (lNGENE)

Genetics Institute

International Genetic Engineering, inc. (lNGENE)

Engenics

Proteins Association

International Plant Research lnstitute(lPRl)

DNA Plant Technologies

Calgene

Cooper-Lipotech

Genencor

Genetic Systems

Bethesda Research Laboratories

Biological Technology Corp.

Animal Vaccine Research Corp.

Collaborative Research

International Genetic Engineering, Inc. (lngene)

Biotech Research Labs

Genentech

Immunorex

Engenics

Synergen

Repligen

HP Genenchem

Biogene

Biogen

Biogen

Biogen

Immunogen

Plant Genetics

Liposome Co.

Genex; Genentech

Quadroma

Enzo Biochem

Immulokg

Agrigenetics

Genex

Genex

Engenics

DNA Plant Technologies

International Plant Research Institute (IPRI)

Genentech

Genentech

Sungene

Engenics

Molecular Genetics, Inc.

NPI

Chiron

Chiron

Engenics

Biogen

Collagen

$5

2.5

10

5.5

6.75

0.75

5

3.0

1.75

16.5e

1

10

1

2.7

20

9.5

0.6

2

N.A.*

5

N.A.

0.95

9

4.9

0.5

4

N.A.

N.A,

0.35

1.25

4.61

2.5

1

N.A.

N.A.

2

0.7

14

18

10

3

12

1.25

1.7

5

10

15

4

1.25

9.7

5

5

2

1.25

20

5.5
Ch. 4–Firms Commercializing Biotechnology 101

Table 13.–Equity Investments in New Biotechnology Firms by Established U.S. Companies, 1977-83a (Continued)

Equity

Date U.S. established company New biotechnology firm (millions of dollars)

1978

1980

1980

1981

1981

1979

1980

1982

1978

1978

1982

1982

1980

National Distillers . . . . . . . . . . . . . . . . . . . . .

National Patent Development Corp. . . . . . .

Nuclear Medical Systems . . . . . . . . . . . . . . .

Phillips Petroleum . . . . . . . . . . . . . . . . . . . . .

Rohm & Haas ... , . . . . . . . . . . . . . . . . . . . . .

Schering-Plough ., . . . . . . . . . . . . . . . . . . . . .

Schering-Plough . . . . . . . . . . . . . . . . . . . . . . .

Schering-Plough . . . . . . . . . . . . . . . . . . . . . . .

Standard Oil of California. . . . . . . . . . . . . . .

Standard Oil of Indiana . . . . . . . . . . . . . . . . .

SyntexhlGenetic Systems . . . . . . . . . . . . . . .

SyntexlSyva . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tosco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cetus

Interferon Sciences

Genetic Replication Technologies

Salk Institute Biotechnologyllndustrial Associates

Advanced Genetic Sciences

Biogen

Biogen

DNAXQ

Cetus

Cetus

Oncogen

Genetic Systems

Amaen

5

0.6

0.95

10

12

8

2 :

12.9

14

9.5

9.5

3.5

aAs of May 1983.

~Amer}can Cynamid sold 375,000 shares of MGI to Moorman Manufacturing in 1983.

~lnvestment over a 6-year period.

N.A. = Information not available. eBiogen j~ only ~ percent U.S.-owned.

f Monsanto & Emerson Electric.

‘Acquisition.

‘Incorporated in Panama.

SOURCE: Office of Technology Assessment.

I 119.30

120

k

c

. -

(/Y

E

z

z

al

>

c

.—

60

40

20

0

-

-

32.25 —

22.25

- ~

2

-

—

-

— .

-

—

1977 1978 1979 1980 1981 1982 1983

Year

aAs of May 1983

SOURCE: Off Ice of Technology Assessment.

interest in biotechnology, with equity investments

made by a number of oil and mining companies

in the NBFs Biogen, Cetus, Genex, and Genentech.

By 1980, commercial applications of biotechnology were advancing in industrial areas where

some established companies had no prior R&D

commitment, and from 1979 to 1980, there was

a dramatic increase in the number and size of

equity investments. Equity investments in NBFs

have been made by U.S. companies from a variety of industrial sectors: Monsanto (chemicals), for

example, invested $20 million in Biogen and $5.5

million in Collagen; Lubrizol (chemicals) made a

second equity investment in Genentech totaling

$15 million; Fluor (engineering) invested $9 million; and Koppers (mining) expanded its equity

position in Genex by investing $12 million.

In 1981, the amount of equity capital invested

in NBFs barely exceeded the amount invested the

previous year, but in 1982, equity investments

soared to a record high of $119 million, an increase of 52 percent over 1981, and the highest

level of equity investments in biotechnology ever

made. In 1983, the level of equity investments in

NBFs dropped significantly. A growing commitment among established U.S. companies to inhouse R&D programs in conjunction with pre-
102 ● Commercial Biotechnology: An International Analysis

viously made equity investments may have contributed to the sharp decline.

In 1982, established U.S. companies not only increased their equity investments in NBFs but they

also dramatically increased their in-house investments in biotechnology R&D programs. Capital investments for in-house R&D programs generally reflect the highest level of commitment to

biotechnology, as new facilities and employees are

often needed to start the new effort. Several U.S.

pharmaceutical companies are spending large

amounts on new facilities: G.D. Searle, for example, is building a $15 million pilot plant to make

proteins from rDNA organisms; DuPont is building an $85 million life sciences complex; Eli Lilly

is building a $5o million Biomedical Research

Center with emphasis on rDNA technology and

immunology and a $9 million pilot plant and lab

for rDNA products; Bristol Myers is building a

new $10 million in an alpha interferon production plant in Ireland. * Companies from other sectors have also made substantial investments in

biotechnology. See table 7 for a list of the 1982

biotechnology R&D budgets for some of the established U.S. and foreign companies most actively supporting biotechnology.

The product areas in which established U.S.

companies have directed their biotechnology

R&D efforts are as diverse as the industrial sectors they represent. Established companies, however, appear to be playing a dominant role in the

development of biotechnology in the areas of

plants (25) and commodity chemicals–two rather

long-term and costly research areas (see table 4).

ROLE OF ESTABLISHED COMPANIES IN

U.S. COMPETITIVENESS IN BIOTECHNOLOGY

Many established U.S. companies manufacture

several product lines and are therefore concurrently evaluating different biotechnology application areas. DuPont, for example, is evaluating applications of biotechnology to food production,

health care, and renewable resources. Broad

strategies such as DuPont’s will have a positive

effect on the development of biotechnology in the

● S[;h~rin~-Plough is expected to spend more than $40 million on

interferon R&.D alone in 1983.

United States by diffusing applications throughout

many industrial sectors.

Unlike the many NBFs that have taken a relatively short-term approach to biotechnology in order

to generate income for longer term research,

many established U.S. companies have several

product lines and are taking a longer term approach to biotechnology research; some established companies are not expecting commercial

development for 10 to 20 years (27). The longrange research orientation of established U.S.

companies will be very important to the long-term

competitive position of the United States.

Established U.S. companies will play a major

role in the first biotechnology product markets.

Because many NBFs have licensed technology to

established U.S. companies hoping to finance future growth from the royalties received from the

future sale of the products, the established companies will be responsible for the production and

marketing of many early biotechnology products.

For example, two NBFs, Petroferm and Interferon

Sciences, have already solicited the production expertise of Pfizer and Anheuser Busch, respectively, Pfizer’s chemical division is the foremost producer of biopolymers and xanthan gums and will

produce Petroferm’s new bacterial oil emulsifier.

Anheuser Busch, through beer production, has

accumulated years of experience using yeast and

will produce interferon using Interferon Science’s

genetically manipulated yeast.

The most important element in competition for

pharmaceutical market acceptance and market

share might be the timing of product entry. Although some NBFs have recently begun funding

their own clinical trials and product development,

most NBFs still have rather limited financial

resources. Most NBFs also have limited production, marketing, and regulatory experience. Such

limitations may hinder the ability of NBFs to

become major participants in early pharmaceutical product markets. Although the U.S. competitive position in pharmaceutical markets has

been declining since the mid-1970’s, established

U.S. companies appear strategically positioned to

compete effectively in international biotechnology

product markets as such markets develop.
Ch. 4—Firms Commercializing Biotechnology 103

Established U.S. companies also have a competitive role to play in research, because continuous

technical advances will be necessary to maintain

the present competitive strength of the United

States. As the established U.S. multinational companies, along with the other later entrants, expand their in-house research and production facilities they will undoubtedly make substantial

contributions to the U.S. commercialization of biotechnology.

Collaborative ventures between NBFs

and established U.S. companies

As suggested previously, the development of

biotechnology in the United States is unique from

the standpoint of the dynamics of the interrelationships between NBFs and the large established

U.S. companies, NBFs and established U.S. companies not only compete with one another, but

they also, through joint ventures of many kinds,

complement one another’s skills. In addition to

delaying a “shakeout” among NBFs, joint ventures

between NBFs and established companies have

allowed NBFs to concentrate on the researchintensive stages of product development, the area

in which they have an advantage in relation to

most established U.S. companies.

A joint venture is a form of association between

separate business entities that falls short of a formal merger, but that unites certain agreed upon

resources of each entity for a limited purpose. *

Joint ventures between NBFs and established

companies are attractive for at least three reasons:

●

●

●

they assist NBFs and established companies

in overcoming resource limitations which

may prevent them from developing or marketing a product themselves;

they offer established companies and NBFs

less costly methods by which to develop expertise in areas in which they lack in-house

capability; and

they provide established companies with an

opportunity to achieve economies of scale in

● Chapter 18: Antitrust Latv explores some of the legal considerations surrounding R&D joint ventures, and Chapter 12: Financing

and Tax incentives for Firms highlights joint ventures from a financial perspective

R&D for complex technological problems

that might not otherwise be obtainable.

Considerable expenditures in time and money

are required to research, develop, and market biotechnologically produced products. The NBFs,

started exclusively to exploit innovations in

biotechnology, have initially concentrated their

activities on research. As a rule, therefore, NBFs

have limited financial resources with which to

fund production scale-up activities beyond the

laboratory or pilot plant stage, not to mention the

financing required for regulatory approval and

marketing should their research activities in biotechnology yield pharmaceuticals and to a lesser

extent, animal drugs and biologics, food additives,

chemicals, or microorganisms for deliberate release into the environment. Established companies

have an advantage over NBFs in that they have

relatively more financial strength, regulatory experience, and product distribution channels that

are already in place, although many established

companies are at a disadvantage compared to

NBFs with respect to the possession of technical

expertise in biotechnology. R&D joint ventures

and contracts between NBFs and established companies, therefore, reflect a mutual search for complementary skills and resources,

Examples of the collaborative agreements that

are taking place between NBFs and established U.S.

and foreign companies are shown in table 14. *

R&D contracts accompanied by product licensing

agreements form the basis for most joint ventures

between NBFs and established U.S. companies in

the area of pharmaceuticals. Furthermore, equity investments in NBFs by established companies

are often accompanied by R&D contracts. Equity joint ventures wherein equity capital is provided by both partners (e.g., Genencor) for R&D

or marketing are less common. Since research

contracts and product licensing agreements characterize most joint ventures, three points should

be kept in mind throughout this section:

● Licensing agreements and future royalties

provide NBFs with financing to do their proprietary research.

“The large proportion of pharmaceutical joint agreements presented in table 14 reflects the commercial emphasis by companies

on pharmaceutical development.
104 . Commercial Biotechnology: An International Analysis

Table 14.-Some Collaborative Ventures Between New Biotechnology Firms and

Established U.S. and Foreign Companiesa

New biotechnology fhn—Established company New biotechnology f!rm—Established company

Biogen N.V. (Netherlands Anti//es)%

—Meiji Seika Kaisha, Ltd. (Japan) has license and

development agreement with Biogen N.V. for the scaleup of a still unnamed agricultural chemical which Meiji

could bring to market by 1984-85.

—International Minerals Corp. has exclusive marketing

rights to Biogen’s rDNA-produced swine and bovine

growth hormones. Biogen will receive royalties.

—Shionogi & Co., Ltd. (Japan) will conduct clinical trials

and pursue the commercial development in Japan of

Biogen’s gamma interferon for human therapeutic use.

—Merck is developing Biogen’s hepatitis B vaccine.

—Shionogi (Japan) has a license from Biogen to develop

and market Biogen’s human serum albumin in Japan

and Taiwan.

—Shionogi (Japan) has a license and development agreement with Biogen to develop interleukin-2. Shionogi

will conduct Japanese clinical trials.

—1/VCO has a contract with Biogen to do studies of the

feasibility of bioextraction of nonferrous metals from

low-grade ores and other sources of minerals.

—Fujisawa Pharmaceutical Co. (Japan) has an agreement

to develop and produce Biogen’s tissue plasminogen

activator in Japan, Taiwan, and South Korea.

—Monsanto will fund Biogen’s developments of a technique to produce and purify tissue plasminogen

activator.

—KabiVitrum (Sweden) is collaborating with Biogen in

the development of commercial products based on

Factor Vlll. Biogen intends to market the products in

the United States and Canada, and KabiVitrum will

have the right to market such products in certain other

countries.

—Green Cross (Japan) has a license from Biogen to

manufacture hepatitis B vaccine. Green Cross has exclusive license to market in Japan,

—Suntory, Ltd. (Japan) has an agreement with Biogen

under which Biogen will develop rDNA microorganisms to produce tumor necrosis factor, to scaleup production, and to support clinical trials, and Suntory will have exclusive marketing rights in Japan and

Taiwan.

—Teijin, Ltd. (Japan) has a license to develop and market

Biogen’s Factor Vlll in Japan, South Korea, Taiwan,

Australia, and New Zealand.

Calgene:

—Allied Chemical Corp. has a contract with Calgene

under which Calgene will do research in nutrient efficiency in plants.

Cambr/dge Bioscience:

—Virbac, a French animal health care company, has a

contract with Cambridge Bioscience under which Cambridge Bioscience will develop feline leukemia virus

vaccine.

Cenbcoc

—FMC Corp. has 50/50 joint venture to develop humanderived monoclinal antibodies (MAbs).

—Toray/Fujizoki (Japan) have signed an agreement to

manufacture and market Centocor’s hepatitis

diagnostic in Japan.

Cetus:

—Roussel Uclaf (France) has a contract with Cetus under

which Cetus produces vitamin B12. Cetus is receiving

royalties.

—TechAmerica has a contract with Cetus under which

Cetus will develop a rDNA antigen to be used as a vaccine against calf bovine diarrhea. TechAmerica will perform clinical research, manufacture, and market.

—Norden Labs, Inc. has a contract with Cetus under

which Norden will produce and market rDNA colibacillosis vaccine. Cetus receives royalties.

—Cooper will market a MAb from Cetus Immune that is

used in tissue typing for organ transplants.

—Shell Oil Co. gave a research contract to Cetus under

which Cetus will develop human beta-1 (fibroblast)

interferon.

Chiron:

Merck possesses option for exclusive worldwide license

for the use, manufacture, and sale of Chiron’s hepatitis

B vaccine.

Collaborative Genetics:

—Akzo N.V. (Netherlands) gave Collaborative Genetics a

research contract to develop genetically manipulated

micro-organisms to produce bovine growth hormone.

—Green Cross (Japan) has licensed from Collaborative

and Warner-Lambert the process by which urokinase is

microbially produced.

—Dow has given a research contract to Collaborative

under which Collaborative will produce rennin via

genetically manipulated micro-organisms.

Cytogem

—American Cyanamid has an agreement with Cytogen to

develop a MAb that will deliver a chemotherapeutic

agent to cancer cells.

Damon Biotech:

—i+offmann-La Roche (Switz.) has contracted Damon to

apply its microencapsulation system to the production

of MAbs. Hoffmann-La Roche will retain the marketing

rights to the interferon produced by this process.

Enzo Biochem:

—Meiji Seika Kaisha (Japan) obtained worldwide

marketing rights to products based on Enzo’s

hybridoma technology, including a newly developed

pregnancy test.

Genentech:

—Monsanto is testing Genentech’s bovine and porcine

growth hormones. Commercialization and production

will be joint effort.

—Genentech has a joint development contract with

Hoffmann-La Roche for the production of leukocyte

and fibroblast interferon. Hoffmann-La Roche will conduct testing to determine its effectiveness. Genentech

will supply part of Roche’s requirements and receive

royalties on sales.

—KabiVitrum (Sweden) has worldwide (except in the

United States) marketing rights for Genentech’s human

growth hormone.

—Fluor will develop commercial production operations

for Genentech to scale-up new biotechnology products.
Ch. 4–Firms Commercializing Biotechnology . 105

Table 14.—Some Collaborative Ventures Between New Biotechnology Firms and

Established U.S. and Foreign Companiesa (Continued)

New biotechnology firm—Established company New biotechnology firm—Established company

—Eli Lilly has been granted exclusive worldwide rights to —A Japanese company (proprietary) has a contract with

manufacture and market Genentech’s human insulin.

—Corning and Genentech have a joint venture (Genencor) to manufacture and market rDNA-produced enzymes for food processing and chemical industries.

Corning provides expertise in immobilization of

enzymes.

Genetics institute:

—Sandoz (Switz.) is funding research by Genetics institute to clone monokines and lymphokines in

bacteria, i.e., interleukin-2.

Genetic Systems Corp.:

—Cutter Labs and Genetic Systems have a $2.5 million

joint venture to develop human MAbs for the diagnosis

and treatment of Pseudomonas infections. For other

MAb products, Genetic Systems will do R&D and

market the diagnostic products, and Cutter will market

therapeutic products.

—Syva has a research, development, and marketing

agreement with Genetic Systems which will finance

some of Genetic Systems’ R&D activities related to

diagnostic tests for sexually transmitted diseases such

as herpes, gonorrhea, and chlamydia. Genetic Systems

receives 5 percent royalties on sales.

—Daiichi Pure Chemicals Co., Ltd. (Japan) (a subsidiary

of Daiichi Seiyaku Co.) entered into an agreement with

Genetic Systems to collaborate on the R&D of a

diagnostic test kit for blood disorders in the human immune system. Daiichi will receive the exclusive manufacturing and marketing rights in Japan, Taiwan, Mainland China, and Southeast Asia, for the products for

treating blood disorders. Genetic Systems will receive

royalties.

—A separate marketing agreement with Daiichi grants

the exclusive right to purchase and sell, for research

products only, in Japan and other Asian countries, certain MAbs developed by Genetic Systems.

—A joint venture between Syva Co. (a subsidiary of

Syntex Corp.) and Genetic Systems to develop MAbs

for the diagnosis and treatment of human cancer.

–New England Nuclear (E. 1. du Pent de Nemours & Co,)

has the rights to market Genetic Systems’ MAbs for

the identification of different types of human blood

cells to the research market throughout the world, with

the exception of Japan, Taiwan, People’s Republic of

China, and Southeast Asia, which are covered by

Daiichi Pure Chemicals Co., Ltd.

Genex:

—Yamanouchi Pharmaceutical Co. (Japan) will manufacture and sell a biological product developed by Genex

which dissolves fibrin. Yamanouchi will market the

product for 15 years, paying Genex a licensing fee of 8

percent of sales for development and scale-up. Genex

will retain the patent rights.

—BristoLMyers Co. has a contract with Genex under

which Genex will develop genetically modified microorganisms that will produce leukocyte (alpha) and

fibroblast (beta) interferon. Bristol-Myers owns all

rights. Genex receives royalties.

Genex under which Genex will develop a genetically

modified micro-organism to produce L-try ptophan. All

discoveries will be the sole property of the Japanese

customer.

—Vineland Laboratories and Genex have a joint development project to produce a vaccine against coccidiosis.

—Koppers has a contract with Genex under which Genex

will develop genetically modified micro-organisms to

do biocatalytic transformations of aromatic chemicals

from coal distillate derivatives. All micro-organisms and

research findings are the sole property of Koppers.

Genex will receive royalties.

—Schering AG (F. R. G.) has a contract with Genex under

which Genex will develop a microbe that will produce a

blood plasma protein. Schering AG will receive worldwide exclusive license.

—Green Cross (Japan) has a contract with Genex under

which Genex will develop a microbial strain that produces human serum albumin (HSA). Green Cross will

receive an exclusive license to sell, for at least 15

years, all microbially produced HSA under the contract

in Japan, Southeast Asia, India, China, Australia, New

Zealand, North America, and South America. Genex receives royalties.

—KabiVitrum (Sweden) has a contract with Genex for

HSA similar to that of Green Cross except Kabi’s

rights are limited to Africa, Europe, and the Middle

East.

—Yoshitomi Pharmaceutical Industries (Japan) has a contract with Genex under which Genex will develop

genetically modified micro-organisms to produce

interleukin-2.

—Mitsui Toatsu Chemicals Inc. (Japan) contracted Genex

to develop a microbial strain that produces human

urokinase. Genex will retain the patent and Mitsui Toatsu will receive an exclusive license with the right to

make, use, and sell the product for the royalty period,

about 15 years.

—Mitsubishi Chemical Industries, Ltd. (Japan) will

develop and market Genex’s HSA.

—Pharmacia has a contract with Genex under which

Genex will develop a nonpathogenic strain of bacteria

that would produce a protein with potential therapeutic

applications.

Hana Biologics, inc.:

—Recordati S.p.A. (Italy) has an agreement with Hana

under which Hana will develop and distribute

biomedical research and MAb diagnostic products.

—Fujizoki Pharmaceutical Co. (Japan) has a joint venture

with Hana under which Hana will develop new immunodiagnostic tests. Also, Fujizoki has a distribution

agreement with Hana under which Fujizoki will market

Hana products in Japan.

Hybritech:

—Teijin, Ltd. (Japan) has an agreement with Hybritech

under which Hybritech will develop human MAbs for

treatment of lung, breast, colorectal, prostate, and certain Ieukemia-lymphoma type cancers. The goal of the

25-561 0 - 84 - 8
— -—..

106 ● commercial Biotechnology: An International Analysis

Table 14.—Some Collaborative Ventures Between New Biotechnology Firms and

Established U.S. and Foreign Companiesa (Continued)

New biotechnology firm-Establishect company New blotechnobgy firm-Established company

joint venture is to combine Hybritech’s MAb manufacturing technique and Teijin’s unique technique of binding a cytotoxic substance to an antibody for cancer

therapy.

—Travenol Laboratories, Inc. will provide $1 million for

research and $1.9 million for stepwise benchmark payments to Hybritech to develop MAbs for treating major

bacterial infections. Hybritech will receive royalties on

Travenol’s worldwide sales.

Immunex:

—Diamond Shamrock has a license to commercialize lmmunex’s lymphokines for use in animals.

Integrated Genetics, Inc.:

–Connaught Laboratories, Ltd. (Canada) has an R&D

agreement with Integrated Genetics to produce

hepatitis B surface antigen in yeast or mammalian

cells.

Interferon Sciences:

—Bristol-hfyers has a licensing and supply agreement

with Interferon Sciences under which Bristol-Myers will

commercially develop interferon for the treatment of

herpes zoster.

–Green Cross (Japan) has a $2.5 million R&D and supply

agreement with Interferon Sciences under which interferon Sciences will supply Green Cross with gamma

and alpha interferon.

—Collaborative Research is synthesizing interferon in

yeast. Collaborative provides Interferon Sciences with

the alpha-interferon producing clones. Interferon

Sciences is involved in the product end and plans to

optimize the bioprocess.

Interferon Sciences, lncJCo/laborative Genetics:

—Both companies have a license agreement under which

Green Cross shares results of a study evaluating application of rDNA technology to the production of interferon by yeast or other micro-organisms.

Molecular Genetics, Inc.:

—American Cyanamid has an R&D contract and licensing

agreement with Molecular Genetics under which Molecular Genetics will develop bovine growth hormone.

Cyanamid is conducting scale-up and testing.

—American Cyanamid has sponsored an R&D contract

and formed a licensing agreement with Molecular Genetics to select herbicide-resistant corn in tissue

cult ure.

—American Cyanamid sponsored an R&D contract and

formed a licensing agreement with Molecular Genetics

under which American Cyanamid will conduct human

testing, secure regulato~ approvals, and manufacture

and market any products developed from Molecular’s

human herpes simplex vaccine research. Ledede has

begun preclinical testing.

—Philips-Roxane (subsidiary of Boehringer-lngleheim

(F. R.G.)) sponsored research and has exclusive license

to manufacture and market bovine papilloma virus vaccine developed by Molecular Genetics. Philips-Roxane

is responsible for obtaining government approval.

Monoclinal Antibodies:

—Ortho Pharmaceuticals has an agreement with

Monoclinal Antibodies under which Monoclinal Antibodies will develop and manufacture an innovate

diagnostic product that will be marketed by Ortho.

Petrogen, Inc.:

—Magna Corp. has a 10-year joint venture with Petrogen

under which Magna will field test micro-organisms

developed by Petrogen for use in shallow, low-pressure

stripper wells.

ARCO Plant Cell Research Institute:

—H. J. Heinz and ARCO Plant Cell Research institute

have a joint venture to develop a tomato with high

solids content.

Schering-Plough:

—Yamanouchi (Japan) will manufacture alpha interferon

using Schering-Plough’s technology.

Unlvers/ty Genetics:

—Kureha Chemical Industry (Japan) has a license to

develop bovine interferon based on University

Genetics’ technology.

Worne B/otechno/ogy:

—Ornni Biotech (Canada) and Worne are in a joint project

to extract usable petroleum from Canadian oil sands

using micro-organisms.

Zymos, Inc.:

—Cooper Laboratories funded research and has the

rights to alpha-1 antitrypsin developed by Zymos for

possible treatment in emphysema.

aMajor Public contracts, agreements, and ventures.

bBiogen is only about so-percent U.S. owned

SOURCE: Office of Technology Assessment.

● NBFs in many cases are still reliant on established companies for working capital,

whether it be through research contract

revenue or equity investments.

● Licensing agreements diffuse technology to

different industrial sectors and promote the

development of biotechnology in the United

States. ,

Typically, an NBF will enter into an R&D contract, joint venture, or licensing agreement with

an established U.S. company to secure funds for

proprietary R&D, or, in the case of some pharmaceutical products, to obtain a partner to do clinical

evaluations, obtain regulatory approvals, and

undertake marketing. Furthermore, the revenues

make the new firm attractive to investors if and
Ch. 4–Firms Commercializing Biotechnology 107

when the firm wants to use the public market

as a source of financing. Typically, the research

objective of the NBF in many R&D joint ventures

is to develop a micro-organism and the related

bioprocessing, extraction, and purification processes needed to produce the desired product in

quantities sufficient to proceed with testing. The

established company then organizes and implements clinical trials (if necessary) and takes

responsibility for the production and marketing

of the product. Joint venture partners are usually sought by NBFs to share the risk in new technological areas that appear to have significant

commercial applications but that require large investments and have long development times. Joint

venture partners are usually sought by established companies because they can provide a

“window on the new technology” in addition to

oftentimes providing products. Corporate equity investments in NBFs, in addition to providing

“windows on the new technologies,” can also provide the corporate investor with the possibility

of a large return on its investment when (and if)

the NBF goes public, or, if the NBF is aIready

publicly held, with potential profit if the stock increases in value.

NBFs in general retain the rights to any patents

resulting from the contract research performed,

and should the product be marketed, the NBF obtains income through the royalties, which over

a range of products may enhance the NBF’s financial position so as to enable it to later enter future

markets independently. The established company

often obtains an exclusive license to the technology developed through the contract and also

gains access to that specific product market. If

the contract has been preceded by an equity investment, the established company might serve

as a marketing partner to the NBF in diverse product areas.

R&D contracts also enable the established company to minimize the risks and costs associated

with biotechnology R&D. Should the research not

produce desirable results, the contract can be canceled and someone else has paid for the infrastructure. By sponsoring several companies at one

time, as Schering-Plough, Koppers, and Martin

Marietta have done, the sponsor can spread the

risk of not finding the most relevant technology-in essence, portfolio diversification. Additionally, the research effort can be either short

or long term depending on the desire of the contracting firm. By minimizing the front end costs

and the risk, contracts serve as a kind of feasibility

study (49), Successful contracts with NBFs or universities can lend credibility to the commercial

potential of the new technology and can help obtain the corporate support necessary to fund future projects in the same field.

Established companies suffer no disadvantages

in joint ventures with NBFs except a loss of risk

capital should the research be unsuccessful. In

fact, as the only buyers of the technology and the

major group with the financial resources to commercialize it, established companies exert a great

deal of control over the rate at which biotechnology is being developed in the United States.

NBFs do suffer disadvantages as a consequence

of their own resource deficiencies, which necessitate their reliance on established companies.

These financial reliances of NBFs on established

companies will play a crucial role in the future

viability of the entire NBF sector for three reasons:

●

●

●

●

The low profit margins from licensing technology do not generally provide IVBFS with

adequate financing for growth and expansion.

Contract relationships, and thus revenues,

are very likely to be transitory. There is a

strong economic incentive for established

companies to exercise a high degree of “control” over their own product development efforts and to bring their own work in-house.

The commercial success of many NBF products is reliant on the amount and timing of

resources that licensees and partners (established companies) devote to clinical testing

(when necessary), obtaining regulatory approval, and marketing.

Some of the contracts with established companies are tightly written, making it difficult

for some NBFs to pursue interesting research

findings which might occur in the course of

the contracted work.

NBFs with a heavy reliance on contract revenue

could face uncertain futures unless their own proprietary research yields marketable products in
108 ● Commercial Biotechnology: An International Analysis

the near term. Most NBFs are not assured that

operating revenues from established companies

will be sufficient to fund projected product development. The reliance on established firms for

manufacturing and royalty incomes could also

jeoprdize the future earning power of many small

firms. Those NBFs that have licensed to established companies the right to manufacture and

market their products do not control the timing

of market entry for these products. If royalties

are expected to be the major source of an NBF’s

operating revenue, then the NBF’s correct choice

of a marketing partner is crucial for financial success. It might not be wise, for example, for an NBF

to choose a marketing partner whose own products stand to be displaced by the new product.

The NBF Genentech, for example, licensed Eli

Lilly to produce the new human insulin product

Humulin” On the one hand, because Lilly controls

the insulin market in the United States, an effective distribution network is already in place and

Humulin @ sales could be substantial. On the other

hand, Humulin” is a competitor of Eli Lilly’s

animal-derived insulins, and Eli Lilly holds about

85 percent of the U.S. insulin market. In other

words, the pace of market development for

Humulin @ is controlled by the very company

whose monopoly position Humulin@ sales otherwise might challenge. For example, Eli Lilly could

be threatened by the introduction of the new

product, and delay the marketing of Humulin@

,

or if the costs of producing Humulin@ are not

competitive with Eli Lilly’s existing insulin product, then Eli Lilly could also delay the market introduction of Humul.in@

. Other arrangements of

this kind between NBFs and established companies could slow the market entry of new products

and reduce the flow of royalties to NBFs. *

An obvious disadvantage common to all NBFs

is the sale of technology to ensure survival. By

transferring technology to established companies,

some NBFs could be canceling the comparative

advantage they currently possess in domestic

markets. If the competitive pressures arising from

the technology transfer to established companies

grow too strong, many NBFs will not survive. Additionally, since the most important factor in mar-

*See Chapter 5: Pharmaceuticals and Appendix C: A Comparison

of the U.S. Semiconductor Industry and Biotechnology for a more

general discussion of the Eli Lilly -Genentech joint agreement.

ket acceptance and market share competition may

be the timing of market introduction of competitive therapeutic and diagnostic products, the correct choice of partners could be crucial to the U.S.

competitive strength.

Collaborative ventures between NBFs

and established foreign companies

The observations made concerning NBFs’ reliance on established U.S. companies apply equally to R&D arrangements between NBFs and established foreign firms. But the same situation has

greater implications for U.S. competitiveness

when viewed in the context of international technology transfer. *

Joint ventures between NBFs and established

foreign companies are motivated in part by a foreign need for American technology and in part

by NBFs’ desire to retain U.S. marketing rights–

rights often ceded in joint ventures with established U.S. companies. Most observers would

agree that the United States is currently the leader

in developing commercial applications of biotechnology. Reflecting the strong technological position of some U.S. companies is the increasing

number of established foreign companies that

are seeking R&D contracts with NBFs. Between

1981 and 1982, for example, the NBF Biogen experienced a 948-percent increase ($520)000 to

$5.5 million) in R&D fees from Japanese companies (3), while Genentech experienced a 504-

percent increase ($2.6 million to $15.7 million)

(33). NBFs often seek joint marketing agreements

with established foreign companies for access to

foreign markets. on the basis of publicly available

R&D joint venture agreements, it appears that the

United States is a net exporter of technology.

Foreign companies’ joint ventures with NBFs

generally take the form of licensing agreements

for R&D, and few foreign companies seem to be

taking equity positions in the NBFs. From the

NBFs’ point of view, the same advantages (e.g., the

*There are enormous difficulties in assessing the degree of technology inflow and outflow because of the many ways technology

can be transferred; however, most observers would probably agree

that the current net flow of biotechnology is outward from the

United States.
Ch. 4—Firms Commercializing Biotechnology 109

revenues) and disadvantages (e.g., reliance on royalty income instead of product sales and a loss

of technological advantage) are associated with

licensing agreements with foreign companies as

are associated with licensing agreements with U.S.

companies. From the standpoint of the U.S. competitive position in biotechnology, however, the

advantages and disadvantages of such agreements

are not at all the same. In the case of domesticdomestic licensing agreements, technology is diffused within the United States and U.S. biotechnology development is promoted. In the case of

domestic-foreign agreements, technology is transferred out of the United States and thus contributes to the foreign development of technology.

Agreements in the pharmaceutical industry between established U.S. and foreign companies are

more difficult to evaluate than agreements between NBFs and established foreign firms. Licensing in the pharmaceutical industry is standard

practice to overcome the complexities of clinical

testing, registration, and marketing in foreign

countries. It is common for licensers to barter,

so that they can obtain privileges to market in

their territories some products developed by the

licensee. The established U.S. companies applying biotechnology are in a position to be able to

barter without a loss to their competitive position. The’ NBFs, if in need of financing or in pursuit of foreign markets, are not in such an advantageous position. The only bargaining chip they

have is their proprietary research.

NBFs that because of their initial inability to

finance development and clinicaI trials license

some of their proprietary research to foreign

companies may be ceding an indirect advantage

to foreign companies. However, the licensing

strategy and future royalty income may also provide some NBFs with the needed working capital

to commercialize other research advantages. At

this time, it remains unclear both how technology

export will affect the commercial success of the

NBFs and how it is likely to influence the U.S. competitive position in biotechnology.

Findings

U.S. efforts to commercialize biotechnology are

currently the strongest in the world in part

because of the unique dynamism and complementarily that exists between NBFs and established

U.S. companies in developing biotechnology for

wider commercial application and in part because

of a strong U.S. support sector that supplies reagents, instrumentation, and software to the companies applying biotechnology. At present, most

NBFs are still specializing in research-oriented

phases of product and process development, precisely the commercial stage where they excel. The

established companies, on the other hand, have

assumed a major share of the responsibility for

producing and marketing, and, when necessary,

obtaining regulatory approval for, many of the

earliest biotechnology products, the commercial

stages where their resources are strongest.

Whether the dynamism arising from the competition and complementarily between NBFs and

established companies will continue giving the

United States a comparative advantage in the context of product introduction remains unclear.

Since the established U.S. companies, through

production and marketing agreements with NBFs,

control the later stages of commercialization for

many new products being developed, they will

have considerable control over the pace at which

these new products reach the market. Some established companies may have disincentives to

market the new products that might compete

with products they are already producing,

Biotechnology is still in an early stage of commercial development, and competition remains

largely in research and early product development. In the current research-intensive phase of

development, the new entrepreneurial firms

founded specifically to exploit innovations and

research advantages are providing the United

States with a competitive edge in the commercial

development of biotechnology. Through their

R&D efforts, NBFs are contributing to biotech-
110 ● Commercial Biotechnology: An International Analysis

nology’s commercial development in the United

States through innovation, technology diffusion,

product market development, and encouragement of technical advances because of the increased domestic competition they generate.

The financial constraints faced by the NBFs in

the United States have led NBFs into R&D joint

ventures and licensing agreements that are diffusing NBF-generated innovations to established

U.S. and foreign companies. The collaborative

ventures between NBFs and established U.S. companies, by broadening the U.S. technology base

for future biotechnology development, in the

short run have promoted competitive vigor

among U.S. companies commercializing biotechnology. Increasing domestic competition arising

from established company R&D, however, stands

to threaten the survival of many NBFs and, consequently, the source of much of the current innovation in biotechnology. Since the established

U.S. companies now have some control over the

later aspects of product development, they can

control the rate at which some of the early products are introduced to the marketplace. It is not

clear what this situation may do to the U.S. competitive position.

Although NBFs have assumed much of the risk

associated with biotechnology’s early development, established U.S. companies are making substantial contributions to the U.S. commercialization effort. Through equity investments and licensing and contract agreements with NBFs, established U.S. companies are providing many

NBFs with the necessary financial resources to

remain solvent. Through joint development agreements with NBFs, many established companies

will also provide the necessary production and

marketing resources to bring many NBF products

to world markets. These resources, in turn, are

helping to sustain the rapid pace of technical advance spurred by NBFs. Recently, more and more

established U.S. companies have been increasing

their in-house investments in biotechnology research and production facilities, so the role of established U.S. companies in the U.S. biotechnolo~

commercialization effort is expanding.

US. competitive strength in biotechnology will

be tested when large+cale production begins and

bioprocessing problems are addressed. The Japanese have extensive experience in bioprocess

technology, and dozens of strong “old biotechnology” companies from a variety of industrial

sectors in Japan are hoping to use new biotechnology as alever to enter profitable and expanding pharmaceutical markets. Japanese companies,

which already dominate biologically produced

amino acid markets, are also major competitors

in new antibiotic markets; in the future, they

could dominate other specialty chemical and

pharmaceutical markets as well.

Pharmaceutical markets will be the first proving ground for U.S. competitive strength. International competition will be intense, and the American drug and chemical companies, as well as some

NBFs, will be competing against not only the Japanese companies but also the major pharmaceutical and chemical companies of Western Europe,

all of whom expect to recover their biotechnology

investments through extensive international market penetration. Although there seem to be fewer

European companies than Japanese companies

commercializing biotechnology, the potential of

European pharmaceutical companies such as

Hoechst (F.R.G,), Rhone Poulenc and Elf Aquitaine

(France), ICI, Wellcome, and Glaxo (U.K.), and

Hoffmann-La Roche (Switzerland) is impressive.

Thus, to remain competitive internationally and

to compete effectively in the future, it is crucial

for U.S. companies to rely on rapid innovation

made possible by NBFs, rapid product development made possible by established companies,

and the accumulated and combined experience

of both groups of firms.
Ch. 4—Firms Commercializing Biotechnology . 111

Chapter 4 references

1.

2.

3,

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

,

23.

24.

25.

26.

27.

28,

29.
112 ● Commercial Biotechnology: An International Analysis

38.

39.

40.

41.

42.

43.

44.

45.

46.

4 8

49.

64

65.

No. 83-276, New York, Mar. 21, 1983.

Organisation for Economic Co-Operation and Development, Directorate for Science, Technology,

and Industry, “Impact of Multinational Enterprises

on National Scientific and Technical Capacities, ”

Paris, 1977.

Organisation for Economic Co-Operation and De-
Ch. 4—Firms Commercializing Biotechnology ● 113
PART III

Applications of Biotechnology in

Specific Industrial Sectors
Chapter 5

Pharmaceuticals
Contents

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Regulatory Proteins. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

Human Insulin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

Interferon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

Human Growth Hormone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

Neuroactive Peptides . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

Lymphokines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

Other Regulatory Proteins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Blood Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Human Serum Albumin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

Antihemophilic Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

Thrombolytic and Fibrinolytic Etnzymes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

Vaccines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

Viral Disease Vaccines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

Bacterial Disease Vaccines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Parasitic Disease Vaccines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

Antibiotics, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

Monoclinal Antibodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

Diagnostic Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144

Preventive and Therapeutic Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

DNA Hybridization Probes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148

Commercial Aspects of Biotechnology in the Pharmaceutical Industry . . . . . . . . . . . . . . . 150

Priorities For Future Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

Chapter 5 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

Tables

Table No. Page

15.U.S. and European Markets for Insulin: Eli Lilly’s Estimated Sales . . . . . . . . . . . . . . . . 121

16. Some Ongoing Clinical Trials Using Alpha or Beta Interferon

To Treat Human Viral Diseases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

17. Some Ongoing Clinical Trials of the Use of Interferons To Treat Cancer . . . . . . . . . . 126

18.Some U.S. and Foreign Companies Involved in Interferon Gene Cloning Projects . . . 128

19. Some Proteins With Possible Pharmaceutical Applications

Being Developed With Recombinant DNA Technology . . . . . . . . . . . . . . . . . . . . . . . . . . 129

20. Some Protein “Growth Factors’’With Potential Pharmaceutical Applications . . . . . . . 131

21. Human Serum Albumin Production and Consumption in the United States . . . . . . . . 132

22. Antihemophilic Factor Production and Consumption in the World . . . . . . . . . . . . . . . 133

23.Thrombolytic and Fibrinolytic Enzymes:

Companies Involved in Development and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . 13s

24. Some Current Viral Vaccine Biotechnology Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

25. Estimated Worldwide Populations Affectedly Parasitic Diseasesin 1971 . . . . . . . . . 140

26. In Vitro Monoclinal Antibody Diagnostic Products Approved in the United States. . 145

Figures

FigureNo. Page

13. Methods Used to Prepare Subunit Vaccines for Viral Diseases:

Recombinant DNA Technology. Chemical Synthesis . . . . . . . . . . . . . . . . . . . . . . . . . . 138

14.The Lifecycle of Plasmodum,the Malarial Organism:

Possibilities for Development of Vaccines for Malaria . . . . . . . . . . . . . . . . . . . . . . . . . . 141

15.DNA Probe Filter Assay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
Chapter 5

pharmaceuticals

Introduction

In the United States, many industrial biotechnology developments rest on the broad base of

knowledge generated by university research in

the biological sciences. Such research has been

funded largely by the National Institutes of Health

(NIH) and other public health-oriented sponsors.

As a consequence, the first areas of application

of new biotechnology in the United States have

been in the pharmaceutical field. As research

using the new genetic techniques has progressed,

the pharmaceutical industry has been the leader

in industrial applications.

Perhaps the most important application of biotechnology is to facilitate further biomedical research. Among the most intriguing areas of research using biotechnology are those pertaining

to the nervous system, the immune system, the

endocrine system, and cancer. As research in

these areas yields insight into mechanisms of

disease and healthy body function, basic questions

about the organization and function of the brain,

the nature of behavior, and the regulation of body

functions may be answered. The illumination of

these phenomena, in turn, may generate new possibilities for pharmaceutical products.

Pharmaceutical production may be improved

with biotechnology in many ways. In some instances, production of pharmaceutical products

by chemical synthesis or tissue extraction methods may be replaced by production from cloned

genes. In other instances, applications of recombinant DNA (rDNA) technology may supplant traditional bioprocess methods for the production

of antibiotics and other pharmaceutical compounds. Perhaps most importantly, new biotechnology provides a means of producing for the first

time large amounts of compounds that are otherwise scarce. Thus, biotechnology may give rise

to the development of entirely new pharmaceutical products.

Whatever the intended impact of a new pharmaceutical product, profit expectations usually

govern the selection of projects for development.

In considering the use of biotechnology to produce substances by new means, manufacturers

must make multifaceted decisions that include the

following considerations:

●

●

●

●

●

●

the possibility of making products superior

to those already marketed for a given purpose (i.e., more effective, convenient, safe, or

economical);

the technical feasibility of applying new

methods (e.g., in rDNA applications, the feasibility of cloning DNA that directs synthesis

of desired substances);

the cost of the conventional method (e.g.,

chemical synthesis, tissue extraction, or traditional bioprocessing) and the potential to reduce costs with rDNA technology or other

new methods;

the nature of the market (i.e., whether it is

of high enough value or volume to justify the

substantial start up costs of new production

methodology and regulatory approval);

the possible l0SS of production of other

substances with the change in methods (e.g.,

substances that were coproduced in the old

method), as well as the potential for developing new, useful byproducts; and

the possibility that the new methods employed will serve as useful models for preparing other compounds (whereby the new technology may justify high startup costs and the

loss of formerly coproduced products).

Although biosynthesis may eventually reduce production costs of widely used compounds by several orders of magnitude (from millions of dollars

per kilogram for chemical synthesis to several

thousand dollars per kilogram for biosynthesis),

chemical synthesis often suffices for production

of low molecular weight compounds for testing,

In many cases, substantial research and development (R&D) costs and high product attrition rate

in pharmaceutical development may not justify

119
120 Commercial Biotechnology: An International Analysis

initial exploration of some compounds with biotechnology. .

This chapter introduces the scientific and commercial bases of a number of pharmaceutical

developments that exemplify biotechnology’s

promise in the pharmaceutical industry. Some examples include human insulin (hI), the first rDNAmanufactured product of biotechnology to reach

the marketplace, interferon (Ifn), human growth

hormone (hGH), and human serum albumin (I-ISA)

rDNA projects. Other examples discussed are

monoclinal antibodies (MAbs) and DNA hybridization probes, which are already being marketed

for in vitro diagnostic use. Discussions include

market profiles for each of these compounds,

many of which will compete with products made

by other methods.

Several important points are raised in this

chapter that are discussed throughout this report.

The first is that government regulation and licensing of pharmaceuticals play a major part in the

development of these new products. With the rapid progress taking place in biotechnology, technical barriers may in some instances become secondary to regulatory barriers. Regulatory considRegulatory proteins

The use of biotechnology to manufacture pharmaceutical products can be viewed in several

ways. First, biotechnology may be used as a

substitute for conventional methods of production, which include chemical synthesis and extraction from tissue. The successful cloning projects

and microbial production of the proteins hl, Ifns,

and hGH in rDNA systems, outlined below, are

valuable as paradigms for biotechnology’s role in

developing competitive pharmaceutical substitutes, Second, biotechnology may be used to produce unprecedented amounts of scarce biological compounds, of which certain regulatory proteins provide the leading examples. Finally, the

use of biotechnological methods yields basic

knowledge on which future research can be

based.

erations that have shaped the use of biotechnology in the pharmaceutical industry are noted in

this chapter. *

A second point is that in assessing the potential for biotechnology’s use throughout the pharmaceutical industry, it is important to examine

the receptivity of established companies to the

adoption of new production methods. Traditionally, funding for most of the applied research and

development of new pharmaceutical products in

the United States has been provided by large

pharmaceutical manufacturers. Since these manufacturers generally command the markets for

products made by conventional means, they may

have vested interests in established products that

will impede the development and marketing of

new products. This situation might perpetuate the

problem of decreasing innovation in the pharmaceutical industry and contribute to the underde -

velopment of biotechnology applications to

pharmaceuticals.

● For a further discussion of regulatory factors that affect the use

of biotechnology in the pharmaceutical and other industrial sectors, see Chapter 15: Health, Safety, and Environmental Regulation.

Human insulin

The first therapeutic agent produced by means

of rDNA technology to achieve regulatory approval and market introduction is hI, marketed

under the name Humulin ”. * Although Humu -

lina may be the debutant of rDNA produced

drugs, the extent to which rDNA-produced hI will

be substituted in the marketplace for animal insulin is uncertain. Insulin derived from animals

has long been the largest volume peptide hormone used in medicine. Human insulin differs

only slightly from that of pigs and cows, and its

incremental benefits have yet to be demonstrated

(82).

*Humulin@ has been approved in both the United States and the

United Kingdom.
Ch. 5—Pharmaceuticals . 121

A profile of insulin markets and sales by Eli Lilly

& Co. (U.S. )-the dominant producer and marketer of insulin, and licensee from Genentech Corp.

(U. S.) of the new rDNA product–in the United

States and Europe is shown in table 15. By 1985,

as indicated in that table, both U.S. and European

markets for insulin are expected to double. Eli Lilly is expected to retain a sizable portion of the

U.S. market, but its greatest potential lies in

penetrating foreign markets with Humulin”.

The development and commercialization of Humulin ”establishes several important precedents

of general significance to the introduction of biotechnology to industry:

● Liaison between industry and academic scientists. The original bacterial production of

polypeptide chains of insulin at the new biotechnology firm (NBF)* Genentech made use

of nucleic acid sequences synthesized by collaborators at City of Hope Medical Center, an

academic laboratory that had capabilities not

otherwise available to Genentech at the time

(31).

● Collaboration between NBFs and established

companies. Early in the development of

Humulin@

, Genentech entered a collaborative

arrangement with Eli Lilly. Under the agreement, Genentech performed the rDNA work

and received financial support for the work

from Lilly. Lilly, in addition to providing this

financial support, was responsible for manu-

*NBFs, as defined in Chapter 4: Firms Commercializing

Bio?echnologv, are firms that have been started up specifically to

capitalize on new biotechnology. Most NBFs are U.S. firms.

Table 15.-U.S. and European Markets for Insulin:

Eli Lilly’s Estimated Sales (millions of dollars)

1981 1985 estimate

U.S. market:

Lilly’s sales. . . . . . . . . $133 $205’

Total market . . . . . . . . $170 $345

●

facturing, marketing, and obtaining regulatory approval for the hI product that resulted

from Genentech’s work. This arrangement

capitalized on Lilly’s decades of experience

in large-scale bioprocessing and the purification of insulin. Most significantly, Lilly was

thoroughly familiar with insulin and the procedures of regulatory agencies, marketing,

and distribution. Lilly was able to satisfy the

Food and Drug Administration’s (FDA’s) requirements for approval of Humulin@ i n

record time-4 years after the first bacterial

preparation of hI. Under their arrangement,

Genentech receives royalties from Lilly on

the sale of Humulin@

. Lilly, in turn, has access to improvement inventions by Genentech. Proinsulin, for example, produced from

genes cloned by Genentech (disclosed in

March 1980), may provide a more efficient

route for the production of hI or may have

clinical value of its own (see below). This pattern of collaboration between NBFs and established pharmaceutical firms is common. *

International joint ventures. Though Eli Lilly

has had little competition in the U.S. insulin

market until now, the company has been only

a minor factor in insulin markets outside of

the United States. Recently, however, Lilly

has licensed Swedish and Japanese firms to

facilitate penetration of overseas markets

(121). The leading insulin supplier abroad is

the Danish firm Novo Industri A/S (142). Novo

countered Lilly’s rDNA hI effort by commercializing an enzymatic process devised in the

early 1970’s to transform insulin from swine

into a form identical to hI, * * Novo’s symisynthetic hI product was approved for marketing in the United Kingdom shortly before Lilly’s Humulin” attained approval there. To

compete with Lilly in the United States for

insulin markets, Novo formed a joint venture

with an established American pharmaceutical

company, E. R. Squibb (116). Novo also con-

● For a further discussion of collaboration between NBFs and

established firms, see Chapter 4: Firms Commercializing Biotechnology.

● ● Hoechst @. R. G.) and Nordisk (Denmark) have subsequently introduced semisynthetic M products, and Shionogi (Japan) has developed

a significant process improvement involving an immobilized bacterial

enzyme (94).

25-561 0 - 84 - 9
122 Commercial Biotechnology: An International Analysis

●

●

tracted with Biogen S.A, (Switzerland)* to

develop an alternative rDNA process for the

production of hI (11).

Refinement of process technology. The race

to supply international insulin markets has

spawned further biotechnological innovation

in the pharmaceutical industry. The A and

B protein chains of insulin can join in several

ways, only one of which is correct. Combining the two chains by nonbiological chemistry

is generally regarded as the ‘(hard way” to

make insulin. In the body, a connecting peptide in proinsulin (the precursor of insulin)

positions the chains appropriately for joining to make the biologically active form of

insulin. The connecting peptide is deleted

when proinsulin is converted to insulin within pancreatic cells. Work to design bioprocesses using immobilized enzymes** to transform rDNA-produced proinsulin into insulin

and to separate the products is currently

underway. Lilly has reported the production

of human proinsulin in bacteria through

rDNA technology and the efficient conversion of proinsulin to hI (27). The NBF Cetus

(U. S.) also has an improved proinsulin process, and Hoechst (l?. R. G.) is reported to be

developing one (10).

Clarification of related problems. The injection of insulin has saved the lives of many

diabetics, but the delivery of insulin by injection is thought to cause complications.***

Initial hopes for rDNA-produced hI centered

on avoiding allergic reactions to impurities

in insulin preparations, but these hopes have

not been realized. Although results with patients switching from animal insulin to h.1 are

encouraging, substantial allergic responses

“Biogen N. V., the parent company of the Biogen group, is registered in the Netherlands Antilles. Biogen S. A., one of Biogen N.V.’S

four principal operating subsidiaries, is a Swiss corporation that

conducts R&D under contract with Biogen N.V.

● ● Immobilized enzymes are enzymes bound to solid supports so

that they can exert their catalytic effects on dissolved substances

without becoming inextricably mixed up with the reactants and

products. For further discussion, see Chapter 3: The Technologies.

● ● ● In spite of daily injection of insulin, long-term complications

continue to plague many diabetics. After 20 to 30 years of disease

patients often develop blindness, need for leg amputations, kidney

failure, stroke, heart disease, and/or nerve damage. About 10 percent of all hospital days (21 million per year) are consequences of

diabetes, and the disease accounts for 19 million physician visits

per year (49).

sometimes occur in patients taking hI for the

first time (79). These problems probably arise

because insulin is administered by subcutaneous injection. Thus, improvements in the

mode of delivering insulin to patients maybe

at least as important to commercial implementation as technical advances in rDNA production of hI. (See Box B.—Recent Work on

Drug Delivery Systems.)

Some diabetic complications may not be

caused simply by insulin deficiency. Human

proinsulin, for example, may have therapeutic value. Animal proinsulin, which differs significantly from its human counterpart, is considered a contaminant in preparations of ani- ‘

mal insulin. However, some scientists hypothesize that administration of human proinsulin

may be beneficial to diabetic patients. Human

proinsulin’s availability through rDNA technology is allowing Eli Lilly to evaluate this

hypothesis (27).

Interferon

Ifns, a class of immune regulators or lymphokines, are proteins that regulate the response of

cells to viral infections and cancer proliferation.

These extraordinarily potent substances are the

subject of the most widely publicized, well-funded

applications of rDNA technology to date, but

details of their functions remain unknown. Until

recently, the study of Ifns was limited by the extremely small amounts of Ifn that could be obtained from cultured cells. Now, however, rDNA

technology allows production of large quantities

of Ifn-like proteins for testing as pharmaceutical

products. Despite certain structural differences

from native Ifns, * rDNA-produced Ifns appear to

have identical effects on cultured cells.

The cloning and production of Ifns illustrate

several aspects of the commercialization of

biotechnology:

● the use of rDNA technology to produce a

scarce product in quantities sufficient for research on the product’s effects;

. a massive, competitive scale-up campaign by

● Ifns produced by rDNA in bacteria lack carbohydrate (sugar)

groups found on native Ifns. It is not known to what extent the

absence of these groups affects protein function.
Ch. 5—Pharmaceuticals ● 123

pharmaceutical manufacturers in advance of

demonstrated uses of the product;

the attempt to produce economically a functional glycoprotein (protein with attached

sugar molecules) in an rDNA system;

a pattern of international R&D investment

that reflects the differing needs and medical

practices of various nations; and

the establishment of a U.S. national effort,

via research grants and procurement contracts administered through the National

Cancer Institute, the American Cancer Society (ACS), and other organizations, to SUppofi

testing of Ifns toward a national goal (cure

of cancer). *

Ifns are being considered for various pharmaceutical applications, but are not yet approved as

*In general, Ifn projects in the United States have received massive

public funding. Studies in Sweden, and to a limited extent in the

United States, stimulated appropriations of $5.4 million by the nonprofit ACS for extended clinical trials in the early 1980’s. This was

by far the greatest single commitment ever made by ACS, and it

was followed by a boost in NIH funding for Ifn research from $7.7

million to $19.9 million for fiscal year 1980.
124 ● Commercial Biotechnology: An International Analysis

pharmaceutical products. There is some evidence

that Ifns are effective in preventing certain viral

infections, but more clinical trials are necessary

to demonstrate their preventive abilities (81). *

Most evidence that Ifns cure viral infections is

anecdotal. In combination with other drugs, how-

*Assuming the safety criterion can be satisfied for the use of Ifn

in a prophylactic mode, the immediate market may be for persons

whose natural defenses are weakened by illness or medication, such

as those undergoing cancer therapy with drugs or radiation. Other

early markets could be for patients entering elective surgery or per.

sons at high risk of viral exposure, such as teachers and ce~in

medical peraomel. Since Ifns apparently will be available from many

sources, the dosage forms or delivery systems may be crucial for

widespread acceptance and efficacy.

ever, Ifns may prove useful in treatment of viral

diseases (50,81,130,157). Extensive clinical trials

to determine Ifns’ effectiveness in the treatment

of herpes and other viral infections are underway, some which are listed in table 16. The availability of Ifns made with rDNA technology has

allowed many of these clinical trials to be undertaken.

Several clinical trials to evaluate Ifns’ effectiveness in the treatment of cancer have taken place,

but, at present, only limited conclusions can be

drawn from the data. In some cases, Ifns inhibit

tumor cell growth and may stimulate immune

Table 16.—Some Ongoing Clinical Trials Using Alpha or Beta Interferon To Treat Human Viral Diseases

Herpes genitalis

Herpes Iabialis

Herpes infections

Multiple sclerosis

apJIAID- Nation# Institute of Allergy and Infectious Diseases.

%cherlng-Plough’s Ifn produced for clinical trials outside of the United States is synthesized microbially from genes cloned by Blogen S.A.

cEnzo Biochem obtained natural alpha-lfn from New York Blood Center and Sponsors trials at Sloan Kettmhrg.

dlnter.y~a LS an Israeli firm conducting clinical trials primarily in Israel, Europa, Md Canda.

eGenentech (u.s.) cloned and produces the Ifns being evaluated by Hoffmann-La Roche (Switzerland).

f phase H! studies at !jtanford with Ifn obtalnad from K. Cantell, Finnish Red CrOSs, completed In 1~.

%egrowth of these wart-like growths, apparently caused by virus, has been Inhibited by Ifns in Danish studies. hNIAID.5ponsored tria15 indicate that Ifn atone la ineff~tlve for the carrier state in males, but combinations with other drugs show prOITliSe.

i viral Or{g{n suspected but not PrOv@

SOURCE: Office of Technology Assessment.
Ch. 5—Pharmaceuticals 125

cells to destroy cancerous cells; their effects on

inhibiting tumor metastasis are better established

than their ability to cause regression of primary

tumors (8). With some exceptions, the tumors that

respond to Ifn treatment (certain Iymphomas,

benign human esophageal papillomavirus tumors,

and leukemia, in particular) are also the most responsive to established chemotherapeutic agents.

Some subtypes of interferon (e.g., alpha-Ifn) occasionally induce tumor regression in patients

who are resistant to radiation and multiple drug

therapy (95).

Several problems have been noted in initial clinical trials designed to test Ifns’ effectiveness in the

treatment of cancer. For example, side effects

(fever, fatigue, and influenza-like symptoms)

caused by injections of Ifn made in cell cultures

were thought to be toxic reactions to impurities

of the culture medium, but pure rDNA-produced

1fns show similar side effects (95). Thus, despite

extensive research, numerous questions remain

concerning Ifns’ anticancer potential. Some ongoing clinical trials for Ifns’ anticancer properties

are listed in table 17.

Perhaps the most enlightening results stemming

from Ifn research will concern cellular function

during immune responses. Such results may

prove extremely valuble in medicine. Better

understanding of immune mechanisms, for example, may provide insight into the etiology of the

recently problematic acquired immunedeficiency

syndrome (AIDS). Substantial supplies of Ifns to

conduct such research can now be produced with

rDNA technology.

Though most rDNA-made 1fns currently under

evaluation are produced in the bacterium E. ccdi,

yeast are being increasingly employed as production organisms. Yeast require less stringent culture conditions than do most bacteria, have long

records of reliability and safety in large-scale bioprocessing, and are more adaptable to continuous

culture production than are many bacteria. Furthermore, because yeast more closely resembles

higher organisms than bacteria, yeast can add

sugar molecules to protein when necessary. Thus,

modified products made in yeast are more likely

to be pharmaceutically useful than unmodified

products made in bacteria. Several groups have

recently reported progress with Ifn production

from yeast, including secretion of the Ifn polypeptide into the culture medium from which it can

more easily be purified (45). Academic workers

funded by the British firm Celltech, Ltd., have reported yields of alpha-Ifn as high as 15 milligrams

(3 billion units*) per liter of yeast culture (139).

Numerous genetic techniques are being devised

to increase production: 1) amplification of the

number of Ifn genes, 2) enhancement of gene expression by placing it under control of regulatory

elements which can be varied without hampering cell growth, 3) limitation of product degradation, 4) inducement of product secretion, and 5)

stabilization of microbial strains. Additionally, the

Swiss company Hoffmann-La Roche has reported

a MAb system for alpha-Ifn purification that gives

in excess of 1)OOO-fold purification with 95 percent recovery of biological activity (133).

Many U.S. and foreign companies using biotechnology are working toward large-scale Ifn production. Some of the companies with Ifn gene

cloning projects are listed in table 18. The large

number of companies involved in Ifn production

reflects the large market potential so widely

publicized in the late 1970’s. Since clinical trials

have not supported many of the claims made for

Ifns, companies are beginning to draw back from

Ifn R&D.

The international pattern of interest and investment in the use of rDNA technology to produce

Ifn reflects to some extent international differences in medicine and, possibly, movements to

reduce national dependence on pharmaceutical

imports. Japan, for instance, has long been the

largest market in the world for cancer drugs, today exceeding $375 million in annual sales (compared to $210 million in the United States) (127),

and is actively investigating the production of anticancer pharmaceutical products using new biotechnology. * *

*A single dose of Ifn ranges from 1 million to 100 million units.

* *protein agents are especially popular for cancer treatment in

Japan. 1mmunotherapeutic concepts which are regarded as experimental hypotheses in the West provide the rationale for administration in Japan of hundreds of mdhons of dollars worth of agents,

such as Krestin” (an orally administered fungal glycoprotein that

accounted for Japanese sales in 1981 of $230 million) and urokinase

(which is used in Japan for indications not even suggested in the

United States). Sales of over $117 million were recorded in 1981

for a streptococcial “vaccine,” czdlwl Picibanil@, which Japanese physicians regard as an immunostimulant (118).
126 . Commercial Biotechnology: An International Analysis

Table 17.—Some Ongoing Clinical Trials of the Use of Interferon To Treat Cancer

s-P

s-P

s-P

s-P

University of Wisconsin
Ch. 5—Pharmaceuticals ● 127

Table 17.–Some Ongoing Clinical Trials of the Use of Interferon To Treat Cancer (Continued)

Interferon supplier Sponsor Cancer Phase Institution

Osteogenic sarcoma

Breast cancer

II

II

II

II

Antibodies)” memorandum, May 4, 1983.

Human growth hormone

As suggested by the preceding discussion, rDNA

technology is increasingly being used to produce

large amounts of otherwise scarce biological compounds. In addition to supplying compounds for

basic research, rDNA technology is likely to contribute to the discovery of many new pharmaceutical products. Some of the promising protein

compounds actively being developed with rDNA

technology-human growth regulators, neuroactive peptides, and lymphokines, for instance—

are listed in table 19.

The development of hGH with rDNA methods

is another model for biotechnology’s use in the

pharmaceutical industry. Human growth hormone is one of a family of at least three, closely

related, large peptide hormones secreted by the

pituitary gland. These peptide hormones are

about four times larger than insulin (191 to 198

amino acids in length). All three hormones possess

a wider variety of biological actions than do most

other hormones. The primary function of hGH

is apparently the control of postnatal growth in

humans. Whereas insulin derived from slaughtered animals can be used for treating diabetics,

only growth hormone derived from humans is

satisfactory for reversing the deficiencies of

hypopituitarism in children (65).

Although the established market for hGH is

small and current supplies from tissue extracts

are sufficient, * hGH was one of the first targets

for the applications of rDNA technology. Workers

at both Genentech and the University of California, San Francisco (UCSF) reported cloning and

expression of hGH in 1979 (39). Genentech’s work

was supported by the Swedish firm KabiGen AB,

while partial funding for the UCSF work was provided by Eli Lilly, which is believed to be the

licensee for the product (39). Genentech has such

high aspirations of proving sufficient utility for

hGH in medical applications beyond those currently treated with cadaver hGH that it has announced its intent to make the development of

hGH from rDNA one of the cornerstones of its

integrated pharmaceutical enterprise (9). To this

end, Genentech is raising capital through an R&D

limited partnership specifically to support clinical

testing of hGH and is investigating a variety of

possible new clinical indications for hGH use, The

NIH National Pituitary Agency has been enthusiastic about these investigations, which were not

practical when the supply of hGH was limited by

the availability of human cadaver pituitaries (104).

● Most pharmaceutical hGH ia obtained from human pituitaries

removed at autopsy. In the United States, isolation and distribution

of hGH has been managed primarily by the National Pituitary Agency

(under the auspices of NIH and with the cooperation of the College

of Pathologists). Under pmgrama of the National Institute of Arthritis,

Diabetes, and Digestive and Kidney Diseases, hGH is provided,

without charge, for approximately 1,600 children per year for treatment of hypopituitariam. Another several hundred patients are

treated with commercial hGH imported from abroad, which is also

obtained from tissue extracts (39).
128 ● Commercial Biotechnology: An International Analysis

Table 18.—Some U.S. and Foreign Companies

invoived in interferon Gene Cioning Projects

‘%his alpha4fn lacks carbohydrate groups, but lack of glycosylatlon does not

appear to influence activity.

bAttemptlng production In yeast. Cclinical trials began early ‘n ‘m”

%oray is seating-up to acapmity of 3- 101* units par month and expects approval

from Japan’s Ministry of Health and Welfare soon for beta-lfn as an anticancer

e&unge~{2~\ retdnti ~1 mmufwtuhng rights and only licensed Its Japanew colf Iaborators to sell in Japan and, parhaps, other Asian markets (32).

Revlon’s subsidiary, Meloy Laboratories was the first firm to supply both alphaIfn and gamma-lfn to the National Cancer Institute.

%slng Genentech’s published gamma.lfn gene sequence (450 bases long),

Suntory, a Japanese beverage company, took only 3 months to synthesize and

clone the gamma-lfn gene (1 19). Suntory has also succeeded in producing

gamma-lfn in yeast.

SOURCE: Office of Technology Assessment; and S. Panem, The Interferon Crusade: Public Policy and Biomedical Dreams, Brooklngs Institution,

Washington, D.C., {n press.

KabiVitrum AB, a firm owned by the Swedish

Government, is the world’s largest producer of

hGH from frozen human pituitaries (113). KabiVitrum owns 50 percent of KabiGen AB, which

has the sole rights to manufacture and market

hGH made by the Genentech process anywhere

in the world, except in the United States and

Canada, where Genentech has sole rights (31).

KabiGen researchers are among the long-term

leaders in the study of other growth-promoting

hormones, especially the polypeptides known as

somatomedins (30,100).

Although it is premature to judge the likelihood

of success, hGH is being evaluated for: 1) treating

constitutionally delayed short stature; 2) improving healing of burns, wounds, and bone fractures;

and 3) treating the deficiency of nitrogen assimilation known as cachexia (9). Approximately 3 percent of all children are thought to have constitutionally delayed short stature, and Genentech advisors speculate that as many as one-third of these

might benefit from hGH treatment (136). *

Neuroactive peptides

Several important biosynthetic discoveries in recent years have involved identification of polypeptides in the body that act at the same cellular receptors that are affected by drugs. Some of the

body’s neuroactive peptides, for example, bind to

the same receptors affected by opiate drugs and

produce analgesic effects in the nervous system

similar to those produced by these drugs. Two

of the body’s own “opiates,” enkephalins and endorphins, appear to be structurally related to

many other polypeptides that play various roles

in the nervous and endocrine (hormonal) systems

(41). Another neuroactive peptide that may affect

neurological processes, including attention span,

is melanocyte stimulating hormone (MSH). Some

evidence suggests that MSH enhances the ability

of test animals to pay attention to their environment, and MSH treatment has improved the

health of some mentally retarded patients as well

(53). Initial hopes raised by the treatment of

schizophrenic patients with beta+ndorphin have

not withstood more rigorous testing. Results of

testing some other peptides as antidepressants,

after encouraging earlier studies, are also disappointing (53).

● Genentech, Lilly, Amgen, Monsanto, and other firms are also interested in applications of rDNA-produced GHs for food production purposes, and those investigations may prove complementary

to the medically oriented studies (see Chapfer 6: Agriculture).
Ch. 5—Pharmaceuticals ● 129

Table 19.—Some Proteins With Possible Pharmaceutical Applications

Being Developed With Recombinant DNA Technology

Size

(number

of amino

Class/substance acids) Function R&D status Project sponsors Applications

synthesized, 1982
130 . Commercial Biotechnology: An International Analysis

Despite the setbacks noted above, many investigators are confident that neuroactive peptides

are among the most promising potential advances

in medicine; thus, a great deal of research is being done on synthetic analogs of neuroactive peptides (e.g., 26,41) to identify structures that may

have research or pharmaceutical applications. Lilly and Burroughs-Wellcome (U.K.) are investigating the use of enkephalin analogs in clinical trials

in the United States. Foreign companies with major research programs concerning neuroactive

peptides include Abello @. R.G.), Hoechst (F.R.G.),

Hoffmann-La Roche (Switzerland), Organon (Netherlands), Reckitt & Colman (U.K.), Roussel Uclaf

(France), Sandoz (Switzerland), and Takeda

(Japan). In addition to screening neuroactive peptides compounds for analgesic and anesthetic activity, researcher~ are attempting to recognize

those compounds that might suppress coughing

or diarrhea or might counteract asthenia, cerebral

vascular disorders, failing memory, mental depression, Pmkinson’s disease, and forms of dementia, including senility.

Much basic research remains to be done before

substantial use is made of neuroactive peptides

as pharmaceutical compounds in medicine (53).

Studies of these substances and their chemical

analogs are expected to result in the development

of new drugs, some of which may be produced

with biotechnology, Companies vigorously pursuing the production of neuroactive peptides with

biotechnology include Amgen (U.S.), which has

cloned and obtained expression of the genes for

the neuroactive peptide betaadorphin (126), and

Endorphin, Inc. (U.S.), which is primarily concerned with compounds active in both the nervous and digestive systems.

Lymphokines

Lymphokines are proteins produced by lymphocytes (cells of the immune system) that convey information among lymphocytes. With the exception of Ifn, lymphokines are only beginning

to be characterized, but these proteins appear to

be crucial to immune reactions. Some lymphocytes, for example, produce lymphokines that

engage other lymphocytes to boost the immune

response to a foreign substance (antigen) and

repel foreign invasion or disease. Other lymphocytes produce lymphokines that act in tandem

with the antigen to stimulate the secretion of antibodies. Lymphokines may also help to ensure

that only the antigen is attacked during an immune response, not the body’s own tissues.

The importance of lymphokines in preventing

disease and understanding cellular function (including aberrant cell function such as cancer

growth) is fostering widespread research on these

compounds (for review, see 47). Investigations of

the complex interactions among lymphocytes

have been hampered in the past by impure lymphokine preparations, which have led to ambiguous findings. Recent progress, including the

establishment of lymphocyte cell lines that produce various classes of lymphokines (e.g., 37) and
Ch. 5—Pharmnaceuticals ● 131

cloning of lymphokine-producing genes into rDNA

systems for production in bacteria (24,137), has

been made possible with the use of biotechnology.

The availability of pure lymphokine samples from

such systems may enable researchers to answer

more questions concerning cell biology and immune function. Lymphokines may also be useful

in the culture of certain cell lines. Eventually,

these efforts may lead to the use of lymphokines

in medicine to stimulate the patient’s own immune

system to combat disease.

Leading commercial efforts to produce lymphokines with biotechnology are centered in Japan,

Switzerland, and the United States. In Tokyo, Dr.

Tadatsugi Taniguchi of the Japanese Cancer Institute is collaborating with Ajinomoto Company

to produce the lymphocyte growth factor, interleukin-2 (13). IN Switzerland and the United States,

numerous firms using biotechnology are engaged

in lymphokine research, especially in the production of interleukin-2, but their efforts are largely

proprietary at this time (24).

Other regulatory proteins

In addition to hormones and other regulatory

proteins, a number of protein “growth factors”

for a variety of somatic (body) cells have been

isolated and are currently being characterized

with the possibility that they may soon be candidates for production by rDNA technology as

well (see table 20). Perhaps the most important

use of growth factors will be in preparing culture

media for growing higher eukaryotic cells, thereby facilitating further research with more complex cells.

Table 20.-Some Protein “Growth Factors” With

Potential Pharmaceutical Applications

Factor Function

CSF (colony stimulating

factor) . . . . . . . . . . . . . . . .

ECGS (endothelial cell

growth supplement) . . . .

EDGF (endothelial-derived

growth factor). . . . . . . . . .

EGF (epidermal growth

factor) . . . . . . . . . . . . . . . .

FGF (fibroblast growth

factor) . . . . . . . . . . . . . . . .

FN (fibronectin) . . . . . . . . . .

MDGF (macrophagederived growth factor). . .

NGF (nerve growth factor) .

PDGF (platelet-derived

growth factor). . . . . . . . . .

SGF (skeletal growth

factor) . . . . . . . . . . . . . . . .

WAF (wound angiogenesis

factor) . . . . . . . . . . . . . . . .

TAF (tumor angiogenesis

factor) . . . . . . . . . . . . . . . .

Stimulate granulocyte

differentiation

Required by vascular lining

cells

Stimulates cell division in

blood vessels

Stimulates growth of

epidermal cells and

many tumors

Stimulates fibroblast cell

growth

Stimulates adhesion and

proliferation of fibroblast

cells

Stimulates cell division

near inflammation

Stimulates nerve growth

and repair

Stimulates division of

fibroblast-like cells

Stimulates bone cell

growth

Stimulates wound healing

Stimulates blood vessel

proliferation in tumors

SOURCE: Office of Technology Assessment, 19S3.

Blood products

Products derived from the fractionation of hu - three main plasma commodities are human serum

man blood represent the greatest volume of bio- albumin (HSA), gamma globulin (GG), and antilogical pharmaceutical products sold today and hemophilia factor (AHF), which accounted for 41

comprise a world market of $1 billion yearly. The percent, 25 percent, and 13 percent, respective-
132 Commercial Biotechnology: An International Analysis

ly, of the global plasma component market in

1978. North America and Japan each consume 25

percent of the world’s blood products (106).

The United States now enjoys a favorable trade

balance with respect to blood products. Because

blood donation is more widely practiced in the

United States than elsewhere, the United States

supplies blood components to many other countries. Japan obtains 50 percent of its HSA and 60

percent of its GG* from the United States. The

plasma production of Europe is about 60 percent

of that of the United States (105).

The blood products industry is characterized

by large markets and strong incentives for biotechnological innovation on a nationwide basis.

Currently, the industry is troubled by the disease

AIDS. Although the etiology of AIDS is not yet

understood, the strong possibility that it can be

transmitted in blood products lowers the marketability of such products. Thus, the industry is

seeking new methods for the production of blood

products. * *

Human serum albumin

HSA, a single polypeptide chain of 585 amino

acids, is the protein used in the largest quantities

● GG is a fraction of serum that contains antibodies. Soosting a

patient’s antibody level generally is thought to help prevent infectious disease. This treatment is used especiaUy for hepatitis prevention. The ability to produce specific antibodies (MAbs) may make

GG a less desirable therapy and increase the effectiveness of antibody prophylaxis.

* “These efforts are to be discussed in a forthcoming OTA report,

Blood Banking Policy and Technology..

in medicine. HSA is used primarily during surgery

and to treat shock, burns, and other physical

trauma. In 1979, worldwide HSA consumption exceeded 90,000 kg, with U.S. consumption accounting for 80 percent (72,500 kg) of this amount. Although the United States consumed large amounts

of HSA relative to most other countries in the past,

foreign HSA consumption is rising, as shown in

table 21. Worldwide HSA consumption is expected to exceed 250,000 kg by 1984 (64,106,143)

with the largest increases of HSA consumption

taking place in foreign countries. The United

States has experienced an overcapacity of HSA

production from blood fractionation since 1975

(143) and is currently the world’s leading exporter

of HSA.

HSA’S tremendous markets make it an attractive target for production with biotechnology.

However, HSA’S substantial molecular size (585

amino acids) and its relatively low cost of conventional production present formidable challenges

to biotechnology. In November 1981, Genentech

amounced successful HSA production in bacteria

and yeast through rDNA manipulation (63). This

achievement is a landmark in several respects:

●

●

●

HSA is the largest protein (585 amino acids)

yet produced by rDNA technology.

Planners and technologists aim to manufacture tons rather than grams of injectable

products using rDNA systems.

Competitive product costs are more than an

order of magnitude lower per unit weight of

product than those for previously considered

rDNA pharmaceuticals (e.g., less than $1/

Table 21 .—Human Serum Albumin Production and Consumption in the United States

Forecast

1971 1976 1979 1984

Plasma processed in the United States (thousands of liters) . . . . . . 1,950 2,910 3,950 6,920

HSA production in the United States (millions of grams) . . . . . . . . . 39 67 91 159

HSA consumption:

Domestic (millions of units) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 4.6 5.8 8.5

Foreign (millions of units) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 0.7 1.5 4.2

Total (millions of units) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 5.3 7.3 12.7

Domestic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 940/0 870/o 800/0 670/o

Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60/0 13’?/0 200!0 330!0

HSA revenues:

Domestic (millions of dollars) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $58 $133.4 $168.2 $300

Foreign (millions of dollars) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.3 43.5 148

Total (millions of dollars) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . : 2 153.7 211.7 448

SOURCE: Office of Technology Assessment, based on data and estimates in M. M. LeConey, “Who Needs Plasma?” Plasrrra C?uar?edy 2:66-93, Septembr 1960.
Ch. 5—Pharmaceuticals ● 133

gram, compared to somewhat less then $50/

gram for insulin).

● The companies that successfully produce

HSA with rDNA technology will amass knowledge of certain related processes, including

purification of large amounts of product. This

knowledge might allow them to dominate the

production of other proteins made by similar

processes.

Since cloning the HSA gene, Genentech has entered into an agreement with Mitsubishi Chemical

Industries, Ltd. (Japan) to cooperate in continued

R&D for manufacturing and commercialization.

The partnership hopes to produce 10 metric tons

(tonnes) of HSA per year by 1985 (121). Mitsubishi

will probably ask Green Cross, which is the largest

Japanese blood products company, to distribute

the rDNA-produced product, thus avoiding discrimination against the present distributor of

HSA. In 1981, HSA sales in Japan were $60 million

(*14.2 billion) (118), compared to about $200

million in the United States (64). The corporate

arrangements between Genentech, Mitsubishi,

and Green Cross may lead to the reduction of

Japanese imports, the establishment of a blood

product industry in Japan, and advances in Japanese technology for producing and purifying

proteins.

Genex (U. S.) and Biogen S.A, (Switzerland) also

have established arrangements with Japanese

firms to conduct R&D on rDNA production of

HSA (115). Genex made a contract in 1981 with

Green Cross. In exchange for research funding,

Genex agreed to grant Green Cross exclusive

licenses to make, use, and sell all microbially produced HSA developed under the contract in the

Far East, South America, and North America.

Genex made a similar agreement with the Swedish firm KabiVitrum, with licensing pertaining to

Europe, Africa, and the Middle East. Biogen S.A.

negotiated a similar agreement in late 1981 to

cooperate with Shionogi (Japan) in the development of rDNA techniques for HSA production.

Only one major American drug company, Upjohn Pharmaceuticals, shows evidence of developing a fully in-house large-scale biosynthetic HSA

process. Upjohn is making HSA in both E. coli and

yeast.

Antihemophilic factor

AHF, a class of proteins contained in the fraction of blood used to treat hemophilia (a set of

hereditary disorders that prevent blood clotting),

is used by approximately 14)

000 hemophiliacs in

the United States on a routine basis (143). Type

A hemophilia, which affects about 5 people in

every 100,000, is caused by a deficiency of factor VIII, and type B hemophilia (which is much

rarer but equally severe) by a lack of factor IX.

AHF is separated during the fractionation of

whole blood to obtain HSA, As shown in table 22,

U.S. AHF production has multiplied faster than

consumption in recent years, and AHF comprises

sizable exports for U.S. firms and nonprofit

organizations. With AHF selling for over $1 million per gram and AHF use growing at a rate of

14 percent per year, AHF is the blood fractionation industry’s most profitable product (64).

Table 22.—Antlhemophilic Factor Production and Consumption in the World

Forecast

1971 1976 1979 1984

Plasma processed globally for AHF (thousands of liters) . . . . . . . . . 365 1,600 2,750 5,320

AHF units processed (millions). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 400 688 1,330

Domestic consumption:

Millions of units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 300 412 648

Average price (cents/unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 10 10 14

Sales (millions of dollars) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8 30 41.2 91

Foreign consumption:

Millions of units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 100 275 682

Average price (cents/unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 30 30 27

Sales (millions of dollars) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 30 82.5 184

Total AHF sales (million of dollars) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 60 123.9 275

SOURCE: Office of Technology Assessment, based on data and estimates in M. M. Le Coney, “Who Needs Plasma?” Plasma Ouarterfy 2:68-93, September 19S0.
134 ● Commercial Biotechnology: An International Analysis

Efforts to produce AHF with biotechnology are

underway. The gene for factor IX has recently

been cloned and expressed in E. coli (18,61). The

availability of factor IX produced by rDNA technology facilitates studies concerning the genetic

basis of type B hemophilia (e.g., 35). However,

quantities of factor IX necessary to treat the relatively uncommon type B hemophilia are adequately provided by whole blood fractionation, and the

rDNA product is not now a competing alternative.

Significantly stronger medical and commercial

reasons motivate efforts to clone factor VIII genes,

since the majority of hemophiliacs are type A. At

present, difficult problems surround factor VIII

gene cloning. Not only is factor VIII present in

low concentrations in plasma, making its isolation

and purification difficult, but this molecule is an

extremely large and labile glycoprotein (over

300,000 molecular weight, about 20 times the size

of Ifn). Recent progress in factor VIII research includes development of MAbs to aid in AHF isolation (86,132) and localization of AHF-producing

cells in the liver (134).

The rDNA production of factor VIII is an elusive

goal, but the implications of success are substantial. Apart from providing more economic treatment for hemophiliacs, results of factor VIII cloning may lead to a better understanding of the

most common type of hemophilia and prove useful for prenatal screening for the disease.

Biosynthetic AHF may lower costs of treatment

for the expanding population of hemophiliacs

throughout the world. Furthermore, if the production of HSA from rDNA technology proves

competitive with fractionation, the need to produce AHF with rDNA may be paramount, since

AHF is copurified with HSA from plasma. *

Research laboratories working towards AHF microbial biosynthesis include the following (12,128):

● Armour Pharmaceutical (U. S.)/Scripps Clinic

and Research Foundation (U.S.),

● The price of factor VIII controls the price of serum albumin (64).

The worldwide growth rate for AHF, about 14 percent per year

(64), is twice the growth rate of HSA. Thus, any major shift of HSA

production to rDNA technolo~ with a concomitant loss of AHF production may drive the price of AHF (produced from fractionation)

to higher levels.

●

●

●

●

Baxter Travenol Laboratories (LJ.S.)/Genetics

Institute (U.S.),

Biogen S.A. (Switzerland)fleijin (Japan),

Speywood Laboratories (U.K.)/Katherine Dormandy Hemophilia Centre and the Royal Free

Hospital of London (U.K. )/Genentech (U.S.),

and

Connaught Laboratories (Canada)/Canadian

Government.

Thrombolytic and fibrinolytic

enzymes

Thrombosis, the blockage of blood vessels, is

the leading cause of death in industrialized nations. Blood clots in the vessels that supply the

heart (coronary heart disease), brain (stroke), or

lungs (pulmonary embolism) account for more

than half of all deaths in the Western Hemisphere.

The search for substances that dissolve blood

clots is a major undertaking of the pharmaceutical

industry. At present, the most popular compounds are thrombolytic and fibrinolytic enzymes. These substances initiate the dissolution

process by converting plasminogen, a plasma protein, into plasmin, which then attacks fibrin, the

protein that comprises most of the blood clot.

The two most widely used thrombolytic enzymes are streptokinase and urokinase. Streptokinase is manufactured from colonies of Streptomyces bacteria, while urokinase is obtained

either from cultured human kidney tissue or from

human urine. Recent improvements in large~cale

cell culture techniques and purification methods

(including the use of MAbs for the purification

of protein) now yield good quantities of thrombolytic enzymes (57). Despite the great usefulness

of these enzymes, however, several problems

diminish their clinical value. In prolonged therapy

with streptokinase, chances of allergic reactions

arise. In addition, streptokinase and urokinase appear to act nonspecifically throughout the body,

thus raising risks of internal hemorrhaging in patients. To circumvent this risk, carefully placed

catheters must be used to deliver the enzyme to

its target. Finally, high costs of manufacturing and

therapy also restrain more widespread use (streptokinase treatment costs $275, while urokinase

costs about $3,000 per patient) (57). Because of
Ch. 5—Pharmaceuticals 135

these problems, alternative thrombolytic enzymes

and more economic production methods are being sought.

A group of fibrinolytic enzymes called tissue

plasminogen activators (tPAs) may solve some of

the problems associated with streptokinase and

urokinase. Although tPAs are generally not well

characterized and are only available in limited

quantities at present, they appear to work specifically at blood clots over a prolonged time (59),

reducing both the risks of hemorrhage and the

doses necessary for thrornboiysis, thus lowering

costs of treatment.

Advances in culturing tPA-secreting cells and

isolating tPA using MAbs indicate that manufacturing costs may be reduced in the future. Moreover, Genentech, in collaboration with investigators at the University of Lueven (Belgium), recently succeeded in cloning the gene that produces

tPA (108), and a number of other companies are

working to produce tPA from rDNA systems (see

table 23). Cloned genes in bacteria or yeast may

provide a means for economically producing large

quantities of tPA. The biochemical effectiveness

and commercial viability of rDNA-produced tPAs

remain to be demonstrated. In particular, questions concerning the stability of the cloned genes

in bacterial strains, scale-up costs, and importance

of sugar residues found on native tPA remain to

be answered.

At present, the extent to which thrombolytic

enzymes are used by different countries varies

substantially. German and Japanese physicians

prescribe streptokinase and urokinase extensively, often in conjunction with cancer chemotherapy (on the premise that fibrin shields tumors

from drugs and the body’s immune defenses and

hence must be removed). American medical practices, on the other hand, discourage the use of

streptokinase and urokinase because of the problems mentioned earlier. Thus, the annual market

for thrombolytic enzymes in the United States

represents a modest $8 million, whereas the annual market for urokinase in Japan, where it is

the seventh largest selling drug, represents $150

million (57).

The widespread sponsorship of tPA projects by

Japanese companies, as shown in table 23, reflects

these national differences in thrombolytic enzyme

use. In addition to underwriting clinical testing

and marketing costs of enzymes produced from

cultured cells, Japanese companies such as Green

Cross are active in sponsoring tPA production

using rDNA techniques.

The development of tPA illustrates biotechnology’s role in providing new pharmaceutical agents.

Table 23.-Thrombolytic and Fibrinolytic Enzymes: Companies Involved in Development and Marketing

Protein Company Project description

Streptokinase . . . . . . . . . . . . . Hoechst-Roussel (F. R. G.) Production from bacteria

KabiVitrum (Sweden) Production from bacteria

Urokinase . . . . . . . . . . . . . . . . Abbott Laboratories (U. S.) Extraction from cultured kidney cells

Genex (U. S.)lMitsui Toatsu Chemicals, Inc. Production from rDNA

(Japan)

Genentech (U. S.)/Grunenthal (F. R.G.) Production from rDNA

Human tissue plasminogen

activator . . . . . . . . . . . . . . . . GenentechlUniversity of Leuven (Belgium)l Production from rDNA

Mitsubishi Chemical Industries, Inc.

(Japan)lKyowa Hakko Kogyo (Japan)

Biogen S.A. (Switz.)lFujtsawa (Japan) Production from rDNA

Integrated Genetics (U.S,)I Production from rDNA

Toyobo Pharmaceutical (Japan)

Chiron (U. S.) Production from rDNA

Collaborative Resarch (U.S.)/ Extraction from cultured kidney cells

Green Cross (Japan)

Anticoagulant and

fibrinolytic agents ., . . . . . Genentech/Yamanouchi Ltd. (Japan) Development of microbial strains that

Genex/Yamanouchi Ltd. produce a fibrinolytic agent

SOURCE: Office of Technology Assessment.
136 . Commercial Biotechnology: An International Analysis

Through the use of improved bioprocess systems, Given successful economic development of tPA

purification methods, and rDNA technology, large (i.e., at one-half the cost of urokinase production)

quantities of scarce materials are becoming avail- and improved mode of action, industry experts

able for study, possibly leading to substantial estimate that U.S. markets for tPA could climb

changes in medical practices in the United States. swiftly to $125 million per year (57).

Vaccines

The combined techniques of biotechnology find

perhaps no greater promise for medicine than in

the preparation of vaccines and other pharmaceutical products to combat infectious diseases. There

are several approaches to disease control using

biotechnology, including the use of rDNA and

MAb technology, artificial vaccine synthesis, and

protoplasm fusion to prepare novel antibiotics.

Most vaccines used at present consist of the organisms that cause the particular disease that the

vaccine is intended to prevent. These organisms

(pathogens) are killed or otherwise treated (’(attenuated”) in an effort to make them nonvirulent,

and the killed or attenuated mixture is then injected into the person to be vaccinated. Ideally,

the recipient’s immune system responds to the

introduction of the vaccine by producing antibodies that bind to particular molecules (antigens)

on the surface of the vaccine organism and identifying it for destruction by other components of

the immune system. The antibodies produced by

the recipient remain in circulation for a period

of months to years, protecting the recipient

against the live pathogen should it be encountered

later. Thus, the recipient becomes “immune” to

the disease. Immunity thus induced, since it uses

the recipient’s immune system for constant surveillance and defense against the disease, is

known as “active immunity.” The administration

of foreign antibodies or immune products that

themselves protect the recipient from the disease,

on the other hand, provides what is known as

“passive immunity.” Passive immunization usually

confers only short-term protection against a disease.

Killed and attenuated vaccines represent one

of the highest achievements in medicine. Nevertheless, several problems with these vaccines persist. one substantial problem is that killed and attenuated vaccines contain the complete genetic

material of the pathogen, If the pathogen is not

killed or attenuated completely, the vaccine itself

may be capable of causing the disease it is intended to prevent. Another problem with conventional vaccines is that, in many instances, they do

not immunize the recipient against all of the various strains of the pathogen. Finally, many conventional vaccines are not stable enough for use

where they may be most needed, as in areas without refrigeration.

Subunit vaccines—vaccines that contain only

portions of the pathogens-may solve some of the

problems associated with killed and attenuated

vaccines. Subunit vaccines do not contain the

pathogen’s genetic material, and, thus, they cannot themselves cause infection. Furthermore, subunit vaccines may be more stable for storage and

of greater purity than most conventional vaccines,

although these qualities remain to be demonstrated in most cases. Two new methods are being developed to prepare subunit vaccines: rDNA

technology to produce all or part of a surface protein molecule of the pathogen and chemical synthesis of short polypeptides that represent surface proteins. Both of these new approaches have

the added advantage that subunit vaccine manufacture does not require large-scale culture of the

infectious organism.

Viral disease vaccines

Because of the relatively simple, well-understood structure of viruses, the most preeminent

biotechnology efforts for the development of new

vaccines are focused on viral diseases (51,135).

As shown in table 24, biotechnology is being used

to develop vaccines for influenza types A and B,

herpes, polio, hepatitis A and B, and a number
Ch. 5—Pharmaceuticals . 137

Table 24.—Some Current Viral Vaccine Biotechnology Projects

Viral disease Company Project description

Influenza virus. . . . . .

Polio virus . . . . . . . . .

Hepatitis B virus. . . .

Herpes viruses . . . . .

Numerous investigators

Numerous investigators

Scripps (U. S.)

Scripps

Numerous investigators

Merck (U. S.)

lnstitut Pasteur Production (France)

Chiron Corp (U. S.)lMerck/University of

Washington, UCSF

Takeda/Osaka and Hiroshima Universities

(Japan)

Amgen (US.)

Biogen/Green Cross (Japan)Wniversity of

Edinburgh

Integrated Genetics (U. S.)lConnaught (Canada)

Merck

Molecular Genetics (U. S.)lLederle Labs (U. S.)

Institut Merieux (France)Wniversity of Chicago

SOURCE: Office of Technology Assessment.

of other human viral diseases. The two main

methods used to prepare subunit vaccines for

viral diseases are summarized in figure 13.

Hepatitis B subunit vaccines, in particular, illustrate the use of biotechnology in vaccine improvement. Using the rDNA approach, a number

of groups have cloned genes that encode portions

of the hepatitis B surface antigen (HBsAg) and

have shown that isolated surface antigens behave

similarly to the whole virus when used as a vaccine (25,74,131,146). Merck (U.S.), which supports

work done at UCSF and Chiron Corp. (U. S.) and

has built an in-house molecular genetics group

of nearly 50 scientists since 1978, expects to market a hepatitis B vaccine made from rDNA in yeast

by 1987 (44). Biogen S.A. (Switzerland) has successfully immunized chimpanzees against hepatitis B using its yeast-grown vaccine, and a license

to Biogen’s work with hepatitis vaccines has been

acquired by Green Cross (Japan). It has been estimated that Biogen’s hepatitis B vaccine will sell

for only $10 to $30 per dose as compared with

$100 per dose for Merck’s vaccine made from

virus particles extracted from blood of hepatitis

B carriers (14,71). How well these rDNA-produced

hepatitis B subunit vaccines will compete with

Improved attenuated strains

Modifications of viral genome through rDNA

manipulations

Synthesis of short peptides corresponding to

fragments of influenza virus surface

proteins

Attachment of viral subunit to larger carrier

to evoke broader immune response

Modifications of viral genome through rDNA

manipulations

Purification of viral particles from blood

Production of viral surface proteins from

rDNA in yeast

Purification of surface glycoprotein from

herpes simplex viruses

Production of viral proteins in bacteria

Production of nonpathogenic viruses by the

deletion of specific genes

vaccines made by traditional methods is not yet

known, but the need for an effective and inexpensive hepatitis B vaccine is great. *

Using chemical synthesis, other researchers

have prepared synthetic polypeptides which may

be useful as subunit vaccines. These synthetic

peptides are based on known amino acid sequences of virus surface proteins. The amino acid

sequences and their molecular shapes are analyzed by computer, and peptide sequences that

are likely to elicit immune responses are defined

(for review, see 68)). Researchers have synthe-

● In the United States, there are 80,000 to 100,000 cases of hepatitis

B and about 1,000 deaths each year. The incidence in some other

parts of the world runs 10 times as high. Between 3 and 15 percent of healthy blood donors in Western Europe and the United

States show serological evidence of past infection, and 0.1 percent

are chronic carriers of the type B virus. In many African and Asian

countries the majority of the adult population have been infected,

and 5 to 10 percent of the population are clinically ill with hepatitis.

A very strong association has recently been demonstrated between

the carrier state of hepatitis and liver cancer. In areas of the world

where hepatitis B is endemic, primary liver tumors account for 20

percent of cancer, in contrast to the 1 percent level of liver tumor

incidence in the United States (150). A costly hepatitis B vaccine was

brought to market by Merck in 1982 in the United States. Although

not made with new biotechnolo~v, this vaccine consists of natural

subunits—particles of the virus coat protein which are isolated and

purified from the blood of relatively rare suitable donors (34,44).

25-561 0 - 84 - 10
138 ● Commercial Biotechnology: An International Analysis

Figure 13.—Methods Used to Prepare Subunit Vaccines for Viral Diseases:

Recombinant DNA Technology v. Chemical Synthesis

Chemical Synthesis Method

/

synthesize the

surface protein gene

Extract

protein vaccine

IIn the chemlcal synthesis method, proteins that comprise the viral surface are Isolated, often with the use of monoclinal antibodies. The protein sequence is then

determined. Based on the sequencing information, large amounts of the Protein or Portions of the Protein are made chemically for use as the vaccine; alternatively, the

sequencing information may allow chemical synthesis of the gene that encodes the protein (or a small portion of the protein). This synthetic gene is cloned wa rDNA

techniques.

In the recombinant DNA method, the gene that encodes the viral surface Protein is Isolated and cloned into an appropriate vector (such as Plasmid), transformed into a

host (such as a bacterium or yeast), and the host is grown in large quantities. Formation of the protein by the rDNA and isolation of the protein results in the subunit

vaccine.

SOURCE: Office of Technology Assessment.
Ch. 5—Pharmaceuticals ● 139

sized both linear and cyclic peptides that stimulate

immunity similar to the complete virus for hepatitis B and influenza (23)46,66) cf, 68). Preliminary

evidence indicates that a synthetic influenza subunit vaccine adequately protects animals against

several strains of the live virus, but more tests

must be done before synthetic subunit vaccines

are ready for clinical evaluation.

If synthetic vaccines prove effective, they may

be produced in rDNA systems by cloning the DNA

corresponding to the synthetic polypeptide and

producing the vaccine using microbial bioprocesses. Fairly small amounts of protein may be required, with a few kilograms sufficing for millions

of vaccine doses. However, it remains to be seen

whether economics favor development of microbial bioprocesses over chemical synthesis. On the

other hand, multivalent vaccines (vaccines that

protect against several diseases) may be created

by combining a number of peptide sequences to

elicit responses to several different antigens and

thus broaden the range of synthetic subunit vaccines. Such multivalent vaccines may be more economically produced using biotechnology.

In order for both synthetic and rDNA-produced

subunit vaccines to be more effective, better immunizing systems must be devised to promote active immunity. Live (attenuated) vaccines proliferate within the body, thus sustaining immune

responses that are necessary for long-term protection. On the other hand, subunit vaccines are

destroyed rapidly. Delivery systems are being formulated by coupling the subunit proteins with

larger carrier proteins that evoke better immune

responses (e.g., 2), and by encapsulating subunit

vaccines in lipid packages that allow the vaccine

to diffuse slowly throughout the body and prolong exposure (92).

A potential live virus vector system is being

investigated using vaccinia virus, a virus not

pathogenic to humans (131). DNA encoding HBsAg

is joined to DNA sequences (“vaccinia virus promoters”) which control transcription of the HBsAg

DNA. This rDNA construct is inserted into vaccinia virus, and a “living” vaccine that synthesizes

and secretes the HBsAg is produced. Rabbits receiving injections of this live vaccine rapidly produce antibodies against HBsAg, and the vaccine

is currently being tested in chimpanzees. The investigators are doing further work on the use of

this live virus vector system for other vaccines.

Such live vaccines may prove useful after a single,

easily administered dose of the vaccine where

subunit vaccines fall short in achieving a sufficient immune response.

Bacterial disease vaccines

Unlike viruses, whose surfaces are relatively

simple and offer protein targets to which vaccines

can be directed, bacteria and other microbial

pathogens have complex, dynamic surfaces which

in many cases defy vaccine development. Most

bacterial surfaces are composed mainly of lipids

and polysaccharides, which are molecules derived

from complex biosynthetic pathways determined

by many genes. Hence, bacteria are not as amenable as viruses to genetic manipulation techniques used in subunit vaccine technology.

Biotechnology is being used in several ways to

create novel vaccines against bacterial infections,

but the results with bacterial vaccines at present

are not as extensive as those with viral vaccines.

It is necessary first to identify targets that might

be suitable for vaccine development. On the surface of some bacteria, such as Gonococci a nd

several pathogenic E. coli strains, for example,

there are certain proteins which perform functions essential to the disease mechanisms. Though

subunit vaccine technology has not been widely

explored in bacteria, these proteins may provide

targets for subunit vaccines comparable to those

being made against viruses.

The genes responsible for a bacterium’s virulence can be genetically manipulated to create

viable, harmless mutants. These mutant bacteria,

which outwardly resemble the pathogenic form,

can be introduced into the body, where they elicit

the production of antibodies against both mutant

and pathogenic bacteria. * Such mutant bacteria

might be used to colonize body spaces prone to

infection and to provide long-lasting immunity

(51).

● As discussed in Chapter 6: Agriculture, such bacterial vaccines

are currently being introduced to the animal agriculture industry

to treat colibacillosis, a common bacterial infection in newborn farm

animals.
140 ● Commercial Biotechnology: An International Analysis

A similar method involves using mutation/selection procedures on pathogenic bacteria to select

bacteria that die after a short period of time in

the body. For instance, a mutant of the typhoidcausing bacterium, Sahnonella typhi”, type Ty-21a,

accumulates toxic amounts of galactose during

growth and causes its own death. This mutant

can proliferate within the body for a short time,

and its presence elicits an immune response that

protects against the disease. The Swiss Serum and

Vaccine Institute, in association with the French

Institut Pasteur, has developed an oral typhoid

vaccine of this type.

Other workers have taken this typhoid vaccine

strain and incorporated a plasmid with a gene encoding a protein normally produced by Shige]la

sonnei, one of the bacteria which cause dysentery. In mice, this “hybrid” strain elicits immune

responses that protect against both the dysentery

and typhoid organisms. Thus, it may be possible

to construct a multipurpose oral, attenuated ty -

phoiddysentery vaccine organism that will produce “protective” antigens for both dysentery and

typhoid (51).

Parasitic disease vaccines

Diseases caused by parasites, including protozoa, pose major barriers to acceptable health

standards for millions of people throughout the

world (see table 25). Many of these organisms exhibit even more extraordinary degrees of complexity than bacteria, however, and lack of basic

knowledge restrains new vaccine development in

virtually all cases (51). As basic knowledge accrues, immunization against diseases caused by

parasites may eventually be the greatest breakthrough in health care provided by biotechnology. *

Progress in developing malaria vaccines exemplify efforts to realize biotechnology’s potential in combating parasitic diseases. Because of the

lack of a vaccine, combined with parasitic resistance to the drugs used in malaria control (e.g.,

chloroquine), malaria remains the most prevalent

infectious disease in the world.** Historically, the

search for malaria vaccines has been hampered

by difficulties in growing the malarial parasite

Plasnmdium (which is transmitted by female

Anopheles mosquitoes) in the laboratory. Other

difficulties stem from Plasmodium's complex lifecycle and the apparent ability of the parasite to

evade the body’s immune system. In addition, vaccines based on killed, injected whole Plasmocfia

presently require the use of powerful adjuvants

(additional components of vaccines that boost immune responses) in test animals which are too

strong for human use.

The complexity of Plasmodium's lifecycle hints

at the difficulties in developing a vaccine that protects against all forms of malaria. As shown in figure 14, the sporozoites, injected into the blood

Table 25.—Estimated Worldwide Populations

Affected by Parasitic Diseases in 1971

Diseased population

Type of Parasite (in millions)

Intestinal parasites:

Ascariasis . . . . . . . . . . . . . .

Ancyclostomiasis. . . . . . . .

Amoebiasis . . . . . . . . . . . . .

Trichuriasis . . . . . . . . . . . . .

Periocular parasites:

Trachoma. . . . . . . . . . . . . . .

Systemic parasites:

Filariasis . . . . . . . . . . . . . . .

Schistosomiasis. . . . . . . . .

Malaria. . . . . . . . . . . . . . . . .

Leishmaniasis. . . . . . . . . . .

Try~anosomiasis . . . . . . . .

650

450

350

350

Greater than 400

250

180

100

N.A.a

7

aN,A. = Information not available.

SOURCE: Office of Technology Assessment, based on data from World Health

Organization, Repori for the Special Programme for Research and Trahring In Troplcai Diseases, Geneva, 1976.

● The U.S. National Academy of Sciences and the Agency for International Development convened meetings in July and December

1982 on the applications of biotechnolo~ most significant for the

developing world. Recommendations were made with respect to

research priorities on the basis of applicability of the new technologies and other considerations (88,145). The only human parasitic

diseases that ranked among the top priorities for development at

this time were leishmaniasis and malaria. Leishmaniasis is a family

of diseases, caused by sandfly-transmitted protozoa, which is considered to have grossly underestimated public health importance

in South America, Africa, and the Middle East. It was identified for

special attention because there is evidence that immunity can be

developed by people in sandfly-infested areas over a period of time.

An understanding of this immunity may provide ways to prevent

leishmaniasis.

● ● There are now an estimated 300 million malaria cases per year

and a very high mortality rate for children (I million deatha in Africa

alone per year) (158). About 850 million people live in areas where

malaria continues to be transmitted despite activities to control it.

An additional 345 million people reside in areas with little or no

active malaria control efforts. Over half of the health budget of India is spent on malaria control. Resistance to both drugs and insecticides and the number of new malaria cases are all increasing at

alarming rates (155). No vaccine is currently available.
Ch. 5—Pharmaceuticals . 141

SOURCE: Office of Technology Assessment.
—

142 ● Commercial Biotechnology: An International Analysis

stream during the mosquito bite, infect liver cells

to initiate infection. Large numbers of merozoites,

the next life-stage, proliferate within the liver cells

and, bursting into the blood stream, successively infect large numbers of red blood cells. Some

of the merozoites remain blood-borne; other

merozoites develop into gametocytes, which are

picked up by mosquitoes, reproduce to form new

sporozoites, and begin the cycle anew. Additionally, Plasmodium has the ability to evade the immune system over time.

Since the pathology of malaria is caused largely by Plasmodia in the merozoite stage, the

merozoite appears to be the best target for vaccines. Even one sporozoite reaching a liver cell

is capable of causing malaria, so vaccines against

this stage must kill every sporozoite to be effective. The gametocyte itself is not pathogenic; an

antigametocyte vaccine, therefore, would serve

only to reduce the transmission of the disease.

Many investigators (particularly in the United

States, the United Kingdom, and Switzerland) are

developing MAbs that may be useful in malaria

research (153). Antisporozoite and antimerozoite

MAbs that inhibit the in vitro multiplication of

Wasmodia and antigametocyte MAbs that inactivate male gametes have been developed (153).

Also, MAbs that destroy merozoite-infected red

blood cells have been developed. Such MAbs may

prove useful as vaccines that confer passive immunity (19,87,160).

The most promising use of such MAbs is in the

isolation of surface antigens which might be used

for the development of subunit malarial vaccines.

Though quantities of surface antigens obtained

by MAb precipitation are too small for use as vaccines, these purified antigens provide a starting

point for developing other MAbs with an even

greater affinity for Plasmodium for use as passive

vaccines. They may also provide a starting point

for using rDNA technology to isolate large

amounts of antigen. Workers at New York University (NYU) recently reported the successful cloning and expression in E. COLZ” of a surface antigen

from the sporozoite stage of one species of Plasmodium using rDNA technology (28), and similar

efforts to obtain quantities of antigen from other

Plasmodium species and life stages using rDNA

technology are underway (54). These rDNA-produced surface antigens may serve as protective

malarial vaccines.

NYU’s “antisporozoite vaccine” has been the

subject of a widely publicized dispute between

NYU; Gmentech (U.S.) (the proposed manufacturer of the vaccine); and the World Health Organization (WHO) (which, with the U.S. Agency for International Development, sponsored NYU’s basic

research with the standard provision that all

WHO-funded work must be “publicly accessible’’). * When it became clear that Genentech

would not obtain an exclusive license to commercialize the vaccine, the company bowed out of negotiations. At present, no other arrangements to

pursue large-scale rDNA production of the sporozoite antigen have been made.

As mentioned earlier, a vaccine effective against

only the sporozoite stage of a single Plasmodium

species may not prove to be fully protective

against malaria. Ultimately, malaria vaccines may

include a variety of stage-specific antigens that

result in combined sporozoite and merozoite neutralization, accelerated removal of infected red

blood cells, and prevention of gametocyte transmission to the mosquito (158). The delay of further development of NYU’s potential milestone

sporozoite vaccine imposed by the turmoil over

commercialization, however, has raised concern

that, in the future, profit motivations may delay

the development of urgently needed pharmaceutical products made possible by biotechnology

(7’5,90). Despite their promise, the development

of effective malarml “ vaccines appears to be several

years away.

For a variety of reasons, biotechnology holds

less promise for vaccine solutions for other parasitic diseases than for malaria. For most of the

parasites, there are formidable problems related

to culture of the pathogenic organisms and establishment of meaningful models of the human

disease in animals. For example, the parasite that

causes schistosomiasis, a disease that ranks second only to malaria as a cause of morbidity and

“A similar situation aroae with regard to the cloning of several

more malarial surface antigena at Walter and Eliza Hall Institute

of Medical Research in Australia. This research was also partially

funded by WHO (110).
Ch. 5—Pharmaceuticals . 143

mortality from parasitic organisms, is difficult to Much basic research on parasites is needed in

culture in the laboratory. The ability of this para- order to develop effective antiparasite vaccines

site to alter its susceptibility to host immunological using rDNA technology. The techniques of bioresponses and the difficulty in obtaining sufficient technology have accelerated the study of parasitic

quantities of an antigen have hampered efforts diseases, but urgently needed pharmaceutical apto develop a vaccine for schistosomiasis. placations in this area are still in early stages.

Antibiotics

For the past three decades, antimicrobial agents

for the treatment of infectious diseases caused

by bacteria have consistently led worldwide sales

of prescription pharmaceuticals. Novel antibiotics,

produced mainly by traditional microbial bioprocesses, continue to be developed and introduced

each year (especially in Japan in recent years).

Methods of biotechnology such as the following

offer strong innovative possibilities for producing new antibiotics:

● “Sexual’ ’recombination. A technique known

as protoplasm fusion, whereby the contents

of two micro-organisms are fused to give one

cell, enables researchers to induce rapid improvements in bacterial germplasms. Protoplasm fusion allows the rejuvenation of strains

of industrial microbes that have lost vigor as

a result of mutation and selection procedures

that have been performed to increase their

antibiotic productivity. The fusion of microorganisms is beginning to yield new (hybrid)

antibiotics (22). *

● Through protoplasm fusion and selection, researchers at BristolMyers (U. S.) developed an improved method of producing purer

penicillins that has accounted for 8 percent per year improvement

in penicillin productivity over the past 4 years. Other genetic approaches produced 60 to 70 percent improvements in yields of

cephalosporina (a class of antibiotics) in the same period. Genetic

research by Pfizer, Inc., at laboratories in the United Kingdom and

United States, have gradually lowered costs of producing oxytetracycline, a long eatabliahed antibiotic, to coats similar to bulk chemical

production, to give prices of several dollars per kilogram (73).

● Recombinant DNA technology. Gene coding

for enzymes and other metabolic proteins

can be cloned into antibiotic-producing

microorganisms to add steps to existing

biosynthetic pathways that improve products

or manufacturing processes. Ongoing research includes: 1) the rDNA-mediated transfer of acyltransferase genes among species

of bacteria to obtain solvent+xtractable

cephalosporins (149); 2) the combination of

genes via rDNA technology and transformation to obtain direct, efficient synthesis of the

antibiotic amikacin (149); and 3) Eli Lilly’s

utilization of rDNA technology to improve the

production of the antibiotic tylosin (4).

The combination of new and traditional technology in the pharmaceutical industry holds tremendous potential for improvement of microorganisms used in antibiotic production and the

isolation of new antibiotic products. Japanese

pharmaceutical companies, with their extensive

bioprocessing resources, are placing great emphasis on new antibiotic research (114). This emphasis

may be due to the fact that antibiotics comprise

25 percent of (1981) ethical drug sales in Japan

(compared to about 8 percent in the united States)

and that at least 28 percent of the antibiotic sales

in Japan now arise from antibiotics produced in

the United States (120,125).

Monoclinal antibodies

MAb technology currently leads other forms of largely due to MAb in vitro diagnostic products.

biotechnology in commercial use, as measured by In vitro diagnostic products do not have to undernumbers of products on the market. Its lead is go the same rigorous safety testing required of
144 Commercial Biotechnology: An International Analysis

pharmaceuticals used within the body (in vivo). *

The increasing number of MAb-based products

also stems from advances in knowledge about hy -

bridoma technology and antibody functions. Further refinements of MAb technology will allow

MAbs to be used in numerous applications in the

pharmaceutical industry, including in vivo diagnosis, prophylaxis, and therapy.

Hybridomas (MAb-secreting cell lines) derived

from human (rather than rodent) cells have only

recently become available for use in the pharmaceutical industry. The use of human-cell-derived

MAbs in in vivo pharmaceutical applications

should give fewer adverse immune reactions than

the use of mouse-derived MAbs. Though the preparation of human hybridomas is in its technical

infancy, as described in Chapter 3: The Technologies, advances in producing MAbs from human

cell lines will encourage MAb-based applications

for new and replacement medicines.

Diagnostic products

IN VITRO DIAGNOSTIC PRODUCTS

The roster of MAb-based in vitro diagnostic

products is growing rapidly. Table 26 provides

a list of the products approved for use in the

United States as of June 1983.** MAb technology

is being used to make both novel diagnostic products and products to replace conventional, poly -

clonal diagnostic products. Although the competitive advantages of MAb products must ultimately be demonstrated in the marketplace, such products may prove superior to traditional methods

used to identify infectious diseases, hormonal

changes, or the presence of cancer.

Recently developed applications of MAbs for in

vitro diagnosis include the following:

● Diagnosis of human venereal diseases. Conventional diagnosis of several common venereal diseases—gonorrhea, chlamydia, and

herpes simplex virus—is hampered by timeconsuming cell culture requirements. A

speedy, sensitive MAb-based diagnostic kit for

● The regulation of pharmaceutical products in the United States

and other countries is discussed in Chapter IS: Health, Safety, and

Environmental Regulation.

● “A longer list of approved MAb products for research and diagnostic use appears in Monodonal Antibodies in Cliru”cal Mml”cine (77).

●

●

chlamydia has been produced by Genetic Systems Corp. (U.S.), in collaboration with Syva

Co. (U. S.) and the University of Washington

(93), and MAb-based diagnostic kits for all

three types of infections maybe used in the

clinic in the near future (38,93 ).*

Diagnosis of hepatitis B and other viral infections. MAb-based diagnosis of hepatitis B infection is reportedly 100 times more sensitive

than conventional diagnosis based on poly -

clonal antibodies (6,151). The MAb diagnostic

product, developed by Centocor (U. S.) with

Massachusetts General Hospital, may benefit

the blood banking industry, where unambiguous screening for hepatitis is crucial. MAbs

are also proving satisfactory for diagnosing

rotavirus and cytomegalovirus infections and

for distinguishing between strains of influenza viruses that have until now been indistinguishable by conventional methods (80).

Diagnosis of bacterial infections. The recuperation of hospitalized patients is often jeopardized by infections with bacteria such as

Pseudomonas aerouginosa, and diagnosis

may take several days before treatment is begun. Also, group B streptococcal infections

are the most common serious infections of

newborn infants in the United States. Prior

to availability of MAbs, there was little application of immunoassay to the diagnosis

of bacterial infections. Genetic Systems, in a

joint venture with Cutter Laboratories (U. S.)

and its parent company Bayer (F. R.G.), is developing diagnostic and therapeutic MAb

products for Pseudomonas infections (124).

Researchers at the University of Pennsylvania

report that diagnosis times for streptococcal

*New infections of gonorrhea, chlamydia, and herpes simplex

virus type 2 (HSV2) are estimated to exceed 15 million per year in

the United States. Approximately 1 million new cases of gonorrhea

are reported annually to the U.S. Centers for Disease Control. It

is estimated that the true prevalence of gonorrhea in the United

States is 3 million cases annually. Chlamydia infections are not reported and their prevalence can only be estimated. Clinically, the

infection rate is estimated to be three to four times that of gonorrhea (approximately 10 million cases annually in the United States).

Separately or in combination, chlamydia and gonorrhea are responsible for an estimated 200,000 to 300,000 cases of pelvic inflammatory disease per year resulting in infertility in 50,000 to 100,000

women. HSV2 infections are becoming increasingly common, with

approximately 200,000 to 300,000 new cases occurring each year.

These new cases accrue on an estimated base of 10 million individuals who are already infected (38).
Ch. 5—Pharrnaceuticals ● 145

Table 26.—In Vitro Monocionai Antibody Diagnostic Products

Approved in the United States’

Manufacturer Analyte Date approved

Hybritech, Inc. . . . . . . . . . . . . . . . .lgE

Hybritech, Inc. . . . . . . . . . . . . . . . .PAP

Hybritech, Inc. . . . . . . . . . . . . . . . .HCG

Hybritech, Inc. . . . . . . . . . . . . . . . .T Cell

Hybritech, Inc. . . . . . . . . . . . . . . . .Ferritin

Abbott . . . . . . . . . . . . . . . . . . . . . . .PAP

Abbott . . . . . . . . . . . . . . . . . . . . . . .CEA

Abbott . . . . . . . . . . . . . . . . . ... ...CEA

Ortholil . . . . . . . . .. .. .. ... ... ..OKT-11

Centocor . . . . . . . . . . . . . . . .. .. ..Anti-Rabies

Hybritech, Inc. .. .. .. ... ... ....HCG

Hybritech, Inc. .. .. .. ... ... ....HGH

Mallinckrodt, inc. .. .. .. ... ... ..Total Ti

Hybritech, Inc. . . . . . . . . . . . . . . . .Prolactin

Clinical Assays.. .. .. .. .. ... ...’’sl-lgE

Biogenex Laboratories ... ... ...@-HCG

Hybritech, Inc. .. .. .. ... ... ....HCG (EIA)

New Horizons . . . . . . . . . . . . . . . . .Gonogen

Monoclinal Antibodies, Inc. ....UCG

Hybritech, inc. .. .. .. ... ... ....TSH

Afiergenefics (Div.of Axonics). ..lgFast@t@ (Specific lgE)

Becton Dickinson&Co. ... .....T4

Syva Co.. . . . . . . . .. .. .. .. .. ... .Chlamydia

Miles Laboratories . . . .., .. .. ...Gentamicin

Allergenetics (Div.of Axonics). ..TotallgFASTST

Carter-Wallace, inc. .. ... ... ... .@HCG

Hybritech, Inc. . . . . . . . . . . . . . . . .Tandem-E@ Ferritin

Ortho . . . . . . . . . . . . . . . . . ... ... .Rubefia

PCL-RIA . . . . . . . . . . .. ... ... ....HCG

Quidel Home. . . . . . . . . . . . . . . . . . HCGb

Ventrex Labs, Inc. .. .. .. ... ... .Enzyme TSH

Quidel Home. . . . . . . . . . . . . . . . . . HCGb

Diagnon . . . . . . . .. .. .. .. .. ... ..Ferritin

BTC Diagnostics .. .. ... ... ....HCG

Immunlok. . . . . . . . . . . . . . . . . . . . .Chlamydia

Monoclinal Antibodies ... ... ...HCG

Ventrex Labs V inc. .. ... ,.. ... ..lgE (total)

Organon Inc. . . . . . . . . . . . . ... ...HCG

BioGenex Laboratories . . . . . . . . .RIAGen~-HCGRIA Kit

Micromedia System, Inc. .. .. ...Micromedia @-HCG RIA

Organon Inc. . . . . . . . . . . . . . . . . . .Neo-Presmosticon Duoclon Tube Kit

5/29/81

9/1/81

10I13I81

7126J81

10I19I81

1}19182

313182

3/29/82

416/82

4116182

4/23/82

618182

6/9/82

6I1OI82

6118/82

7/13/82

7122182

8/4/82

9/24/82

10/8/82

11/10/82

1217182

12I1OI82

12/14/82

1113/83

1/20/83

2/24183

3/15/83

4/5/83

4/14/83

4126/83

4/26183

4/28/83

4/28/83

4129183

5125/83

5125183

5/26/83

5/26/83

6/1/83

6/3/83

aAsof61141S3.

%heeekitesreforhorneuae.

SOURCE: U.S. Department of Health and Human Services, Food and Drug Administration, National Center for Devices and

Radiological Health, 1983.

infections maybe reduced to 2hours using ● Pregnancy testing. Products composed of

MAb-based products, Additionally, Becton polyclonalantibodies have long beenusedto

Dickinson (U.S.) has introduced a MAb kit detect high levels of human chorionic gonadthat detects the bacteria responsible for men- otropin (hCG) in the blood as an indicator of

ingitis infection. The bacterial strains can be pregnancy. Large amounts of antisera are redetected in 10 minutes, and the company’s quired to circumvent the need for radioacprice for each test is $2 (17). tive isotope labels, which often accompany
146 ● Commercial Biotechnology: An International Analysis

immunoassay. MAb technology is an economic means of producing the high quantities

of antibody required in pregnancy testing. *

Cancer detection. The detection and quantitation of indicators related to malignant tumors is potentially one of the most important

applications of immunoassay and MAbs. A

great deal of work on tumor markers is

underway, and a few MAb-based products

have been approved for marketing. In some

cases (e.g., prostatic acid prosphatase and

CEA), MAbs are used used to detect bloodborne antigens shed by the tumor; in others,

the MAb reagents are used to identify tumor

cells by staining tissue specimens.

IN VIVO DIAGNOSTIC PRODUCTS

Diagnosis of some diseases requires identification and localization of the disease within the

body. Antibodies with detectable markers (e.g.,

radioactive chemicals) provide highly specific

means for accomplishing these ends. Antibodies

injected into the body, although used in diagnostic

applications, are considered drugs; thus, they

require extensive testing prior to approval for

marketing.

MAb technology provides quantities of antibodies for testing, and MAbs are being evaluated in

an increasing number of in vivo diagnostic appli-
Ch. 5—Pharmaceuticals ● 147

cations. one application involves radioisotopelabeled MAbs that bind to cardiac myosin (a major heart muscle protein) to locate and characterize myocardial infarcts (the most common type

of “heart attack”) (55,56). Another application involves the use of radioisotope-labeled MAbs that

bind to antigens on cancer cells, but results to date

have not been encouraging, As yet, no antigen

that occurs on cancer cells exclusively has been

found. A few clinical trials of in vivo diagnosis

using MAbs have been undertaken, but experts

agree that clinically useful products will require

5 or more years of further development (48). Success in this work could provide useful information prior to and following surgery.

In certain types of malignancies, such as plasmacytomas whose surface immunoglobulins are

homogeneous and particular to the tumor, MAbs

can be made against these proteins and then used

as diagnostic or therapeutic agents. The therapeutic approach has been used in clinical trials for

some types of cancer with encouraging results

(20,109).

Preventive and therapeutic products

Applications of MAbs to prevent or treat diseases are being pursued on two fronts: 1) administration of MAbs as passive vaccines to protect against specific diseases, and 2) coupling

cytotoxic agents (e.g., diptheria toxin, ricin, or

cobra venom) to MAbs that direct the agents to

diseased cells (7).

Much of the technology being developed that

uses MAbs as diagnostic reagents may lead to development of MAb-based (passive) vaccines. This

is especially true in the case of the viral diseases

hepatitis B, herpes, and cytomegalovirus. Until

recently, no cell culture system for hepatitis B has

been available; however, a human liver tumor has

been adapted to cell culture, and these tumor cells

secrete the HBsAg (23). The availability of this

HBsAg may make MAb preparation possible, leading to MAbs that neutralize the virus and are

effective as a passive vaccine. Infants born to

women with hepatitis B apparently benefit from

treatment with human serum that contains antibodies against hepatitis B (78), and such serum

is used prophylactically in many parts of the

world. MAb technology provides a means for

producing large quantities of antibodies against

hepatitis B.

Scientists at Genetic Systems have produced human MAbs against Pseudomonas, Klebsiella, and

E. coli, all gram negative bacteria which account

for serious problems in patients with depressed

immune system function (83). Clinical trials of

these MAbs as passive vaccines are underway.

Trials of MAbdirected cytotoxic agents against

tumor cells indicate that while cytotoxic agents

such as cobra venom factor can be made to direct

their activity in a very specific fashion against

their targets, problems with finding cancer-specific antigens noted earlier restrain such applications of MAbs (36,60,147,148,161). other problems associated with the use of MAbs in either

chemotoxic or direct anticancer therapy include

the

●

●

●

●

following:

toxicity problems associated with rapid administration of antibodies,

cancer defense mechanisms that apparently

involve shielding of target antigens by tumor

cells (109),

the difficulty of getting the cytotoxic agents

inside the tumor cells, and

the difficulty of getting the agent to the majority of cells of a solid tumor.

MAbs will undoubtedly play a major role in the

pharmaceutical industry in the future, both as

products and reagents for pharmaceutical research. R&D in the use of MAbsas pharmaceuticals is proceeding rapidly in the United States,

where several MAb-based biotechnology companies have emerged, in the United Kingdom, where

MAb technology was invented, and in Japan.
148 . Commercial Biotechnology: An International Analysis

DNA hybridization probes

DNA ‘(hybridization” occurs when two single

strands of DNA join to reform the double helix

(see Chapter 3: The Technologies). The DNA

strands must have exact, corresponding sequences of nucleotide bases for hybridization to

occur; thus, a given strand can hybridize only

with its complementary strand.

DNA hybridization is a powerful tool in molecular biology. Radioactive phosphorus is commonly

incorporated into one of the DNA strands, the

“probe,” so that the hybridization process can be

followed using the radioactive label. DNA hybridization is used to identify and isolate for further

study particular DNA sequences (and cells that

bear this DNA). DNA hybridization is also used

to determine where certain DNA sequences are

located on chromosomes. In addition, DNA probes

are being tested as reagents in clinical medicine.

Probe DNA obtained from a pathogenic organism

such as a virus, for example, can be used to identify the presence of that virus within human cells,

thus allowing specific diagnosis based on whether

or not the radioactive DNA probe hybridizes with

DNA in the cells.

Radioactive labeling of DNA hybridization

probes raises problems of safety, handling, and

disposal that in many cases limit the use of such

probes to the research laboratory. Furthermore,

since radioactive phosphorus loses its radioactive

strength rapidly, only small batches of probes

may be practically labeled with radioactivity at

any given time.

Several methods to label DNA probes with nonradioactive substances are emerging. The most

predominant new method, developed and patented by Dr. David C. Ward and his colleagues

at Yale University’s School of Medicine, is to couple chemically the molecule biotin to DNA. Biotinlabeled DNA probes hybridize with the target

DNA and the hybrids are identified using compounds that recognize biotin (62) (see fig. 15).

With such detection systems, only a few hours

are required to identify DNA sequences using

biotin-labeled probes, whereas 1 or more days are

required when radioactive phosphorus labels are

used. Additionally, biotin-labeled probes have the

potential to be more sensitive than radioactive

probes (70).

Nonradioactively labeled DNA is stable and safe

to handle, so these probes can be prepared in

large (manufacturer’s level) quantities and stored

for long periods of time. Almost any given short

DNA fragment can now be chemically synthesized

for use as a probe rather than isolating the fragment from a natural source. Another method of

preparing DNA for use as probes is the isolation

of DNA fragments made by restriction enzymes.

Several companies (e.g., Applied Biosystems (U.S.),

University Genetics (U.S.)) are working toward

producing a large repertoire of DNA fragments

for use as probes.

The ready availability of DNA probes and the

convenience of nonradioactive labeling is likely

to encourage widespread use of DNA hybridization probes in the near future. While many uses

for DNA probes exist in basic research, developers

such as Enzo Biochemical (U. S.) and Cetus Corp.

(U. S.) are striving to produce probes for clinical

use, where much larger markets exist. Some

promising clinical applications of DNA probes include the following:

●

●

●

Diagnosis of infectious diseases. DNA probes

that identify and differentiate among species

of bacteria that cause diarrheal diseases have

been made. other DNA probes may prove

useful in diagnosing human sexually transmitted diseases. DNA probes to detect infections of rotavirus, cytomegalovirus, hepatitis,

herpes, and other viruses are being developed (29), In some clinical situations, DNA

probes may be more useful than MAbs for

diagnosis.

Prenatal diagnosis of congenital abnormalities

such as sickle cell anemia (97), beta-thalassemia (101), and duchenne muscular dystrophy.

Diagnosis of disease susceptibility. Researchers in several laboratories are developing

DNA probes that recognize DNA abnormalities leading to such conditions as atherosclerosis, the leading cause of death in the United

States (5).
Ch. 5—Pharmaceuticals ● 149

Figure 15.—DNA Probe Filter Assay

Sample Deposit organisms

on a matrix

Break open organisms

and isolate the DNA

Treat the DNA with chemicals

to separate the strands and

bind them to the matrix

2 < -- ‘

-

Add labeled DNA probes DNA probes hybridize Wash away extra probes

to complementary and add signal molecules

DNA in the sample to identify

SOURCE: A. Klausner and T. Wilson, “Gene Detection Technology Opena Doors for Many Industries,” Wotechnology, Auguat 1983; Ron Carboni, N. Y., N. Y., artist.

The success of DNA probes for clinical use probably depends most on convenience and safe labeling of the DNA. Enzo Biochem (U.S.), capitalizing

on Ward’s biotin labeling technique, markets kits

for labeling any given DNA sequence with biotin

for use as a probe. Enzo has granted Ortho Diagnostics, a subsidiary of Johnson &Johnson (U.S.),

exclusive worldwide marketing rights for its

human diagnostic products. Cetus (US,), the exclusive licensee of a patent that involves diagnostic applications of DNA probes stemming from

work at the University of Washington, is also emphasizing diagnostic applications of probes (91).

Other NBFs that have amounced their intentions

to develop commercial diagnostic products based

on DNA probe technology are Amgen (with backing by Abbott Laboratories) and Integrated Genetics (in collaboration with the University of California, San Diego).

The development of DNA hybridization probes

represents a challenge to MAb technology for

clinical diagnostic applications. MAb kits for

diagnosing human venereal diseases are now on

the market, but proponents of DNA hybridization

probes claim that DNA hybridization offers an

even more specific method of diagnosing infections (58). DNA hybridization can be performed

with a minimum of tissue handling and may be

used on some fixed tissues that are not amenable

to MAb use. Ultimately, the relative strengths of

DNA hybridization probes and other diagnostic

products must be assessed on an individual basis.
150 . commercial Biotechnology: An International Analysis

Commercial aspects of biotechnology

in the pharmaceutical industry

The path leading from the concept for a drug

to a marketable product is arduous, costly, and

extremely speculative. Discovery and development costs alone in the United States are estimated to range from $54 million to over $70 million per drug (43). Despite the generally low returns on the majority of potential drugs, however,

high investments in pharmaceutical R&D continue. With an average of 11.5 percent of annual

sales invested in R&D (99), the U.S. pharmaceutical industry ranks only below the information

processing and semiconductor industries in terms

of R&D as a percentage of annual sales (16).

During the past 40 years, the pharmaceutical

industry has given increasing attention to R&D,

and extensive government regulation of pharmaceutical products has evolved. Despite the increasing R&D commitments, however, recent trends

indicate that the rate of innovative return to pharmaceutical companies throughout the world has

declined (89). In short, fewer new drug introductions are emanating from larger research commitments by the public and industry (40).

Reasons most often cited for this decline in the

United States center on the burdens imposed by

Government legislation, including high costs of

obtaining FDA approval, brevity and insufficiency of patent protection for new drugs, sponsorship of competition and product undercutting by

State substitution laws and maximum allowable

cost programs, and other regulatory factors that

act as disincentives for renewed industrial R&D

for new drugs. other popular hypotheses for

lower pharmaceutical innovation are decentralization of R&D resources by pharmaceutical companies to other industries such as specialty chemicals, cosmetics, and agricultural products, and increased displacement of R&D in industrial countries by R&Din less developed countries, emphasizing substitution rather than innovation.

Although biotechnology should not be viewed

as a panacea for the problem of diminishing innovation in the pharmaceutical industry, it does

offer promise in augmenting existing technologies

in the pharmaceutical industry. In addition to allowing improvements in pharmaceuticals themselves, the adoption of biotechnology may provide ways for companies to streamline R&D costs

for such things as biological screening, pharmacological testing, and clinical evaluation of new

products. To a large degree, pharmaceutical development involves the correlation of function

and molecular structure, and biotechnology may

aid in making such correlations. Prior knowledge

about the structure of drug receptor molecules,

as gained partially from gene cloning and DNA

sequencing research, for example, could supply

investigators with information about which structures of new drugs might be effective in reacting

with these receptors. This predictive ability may

be increased by the use of computers to select

appropriate drugs for development, as has been

done in the development of synthetic subunit vaccines (67,68).

The costs of applying biotechnology to the development of new pharmaceutical entities cannot

be readily determined at this time. In most instances, however, biotechnological methods of

production are probably not yet cost-competitive

with conventional methods. With biotechnology,

as with other new technologies, there are costs

associated with learning the technology that will

diminish as facilities and skills are acquired.

Achieving the limited goal of supplying MAbs successfully to manufacturers of in vitro diagnostic

products, it has been estimated, will require a

cumulative 3-year investment of $3.5 million to

$4 million, and final immunodiagnostic product

development may require 5 to 10 times this

amount (138). The costs of commercial rDNA

work are considerably higher. Although expenditures are rarely disclosed, indications of the cost

of production for rDNA produced products can

be gleaned from Schering-Plough’s (U.S.) $6 million investment in a pilot-scale bioprocessing and

purification facility (52), Genentech’s drive to raise

$32 million to sponsor clinical testing and development of its rDNA produced tPA (32), and Eli Lilly’s

$60 million investment in facilities to produce hI

(129).
Ch. 5—Pharmaceuticals . 151

The international pharmaceutical market represents a major source of trade between nations,

and foreign sales are comprising increasing percentages of total sales in the developed countries.

From 1975 to 1981, for example, U.S. companies’

control of their domestic market fell to 73 percent from 85 percent, and Japanese companies’

share of their domestic market fell to 69 percent

from 87 percent (120). Foreign sales account for

43 percent of total sales by U.S. ethical drug

manufacturers. West German and Swiss companies are even more oriented toward foreign markets than their U.S. counterparts (40).

Many companies conducting biotechnology

R&D are considering markets on a global scale,

and for that reason, international market differences are likely to have strong effects on the

pattern of biotechnology’s introduction to the

pharmaceutical industry. These differences are

suggested by the fact that the most widely used

pharmaceuticals in the U.S. market are neuroactive drugs, while those most widely used in foreign markets are anti-infective compounds. Thus,

national preferences lead to differences in the

choice of R&D ventures among leading companies, as exemplified by Japanese companies’ interest in thrombolytic compounds. The potential

of these new agents is more readily appreciated

by Japanese drug firms than their U.S. counterparts, and thrombolytic agent R&D efforts by U.S.

NBFs are underwritten largeIy by Japanese companies.

International differences of pharmaceutical use

may also make the high costs associated with

developing new methods such as biotechnology

more acceptable in certain nations. In Japan,

where blood products are imported because of

cultural barriers to domestic collection, the

Government may choose to subsidize the costs

for domestic production of HSA by rDNA technology (which is likely to exceed the current price

of HSA on the world market) rather than perpetuate the import trade. Such an action might

enable firms involved with HSA biotechnology in

Japan to move more rapidly along the manufacturing learning curve with generally applicable

technology. Ultimately, this could reverse Japan’s

substantial pharmaceutical trade debt with the

United States.

Biotechnology is likely to augment the international stature of the pharmaceutical industry

through international corporate arrangements

that combine research, production, and licensing

in ways that best satisfy market needs in various

countries. Because biotechnology offers possibilities of creating novel pharmaceutical compounds

in large quantities and at reduced costs (e.g., Ifns,

growth hormones, vaccines, and other biological

response modifiers) and because many small new

companies are involved in pharmaceutical R&D,

the demands of “less glamorous” markets for

products such as parasitic vaccines may have

greater chances of being met than they have in

previous years. Thus, biotechnology provides the

pharmaceutical industry with a variety of new

sources of R&D possibilities.

priorities for future research

Funding from NIH has been and will continue research that would benefit pharmaceutical innoto be instrumental in developing biotechnology vation in biotechnology including the following:

for pharmaceutical use. The new biological tech- ● clarification of the functions and mechanisms

niques have dramatically increased the under- of action of immune regulators such as Ifn

standing of many disease mechanisms. Areas of and interleukin-2,
152 Commercial Biotechnology: An International Analysis

●

●

●

investigation into the clinical use of neuroac- ●

tive peptides and thrombolytic and fibrinolytic peptides,

development of improved drug delivery systems, ●

clarification of the mechanisms of acquired

immunity leading to better vaccine development procedures,

Chapter 5 references

development of the ability to culture and an

increased understanding of the lifecycle of

the world’s more debilitating protozoan

parasites, and

acquisition of a better understanding of the

physiology and genetics of cancer.
Ch. 5—Pharmaceuticals ● 153

36

41,

42,

43,

44.

45ti

46.

47.

48.

49.

50.

25-561 0 - 84 - 11
154 . Commercial Biotechnology: An International Analysis
Ch. 5—Pharmaceuticals . 155

93,

94,

95,

96,

97,

99,

100,

101!

102.

103.

104.

105.

106.

107.

108.

109.

110.

111.

112.

113.

114,

115,

116.

117,

118,

119,

120,

121,

122,

duction,” June 23, 1982, p. 8.

123. Scrip 704,

June 23, 1982, p. 16.

124. Scrip 713, “Cutter/Genetic Systems Joint Venture,” July 26, 1982, p. 7.

125. Scrip 715, ‘

(Leading Japanese Antibiotics Surveyed,” Aug. 2, 1982, p. 13.
156 ● Commercial Biotechnology: An International Analysis
Ch. 5—Pharmaceuticals 157
Chapter 6

Agriculture
—-

Contents

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

Animal Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162

Diagnosis, Prevention, and Control of Animal Diseases . . . . . . . . . . . . . . . . . . . . . . . . . . 162

Animal Nutrition and Growth Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

Genetic Improvement of Animal Breeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168

Commercial Aspects of Biotechnology in Animal Agriculture . . . . . . . . . . . . . . . . . . . . . 169

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

Plant Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172

Improvement of Specific Plant Characteristics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174

Uses of Microorganisms for Crop Improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184

Commercial Aspects of Biotechnology in Plant Agriculture . . . . . . . . . . . . . . . . . . . . . . . 185

Priorities for Future Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

Animal Agriculture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

Plant Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

Chapter preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188

Tables

Table No. Page

27. Viral Animal Diseases and Potential Vaccine Production . . . . . . . . . . . . . . . . . . . . . . . . 164

28. World and U.S. Sales of Growth Promotants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

29.Global Animal Health Product Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170

30.U.S.Producers of Animal Health Productsts . . . . . . .. .$..... ..., . . . . . . . . . . . . . . . . 170

31. Sales of Major U.S. Animal Vaccine Products, 1981 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

32. Major Producers of Animal Vaccines Sold in the United States . . . . . . . . . . . . . . . . . . 171

33. Plant Resistances of Economic Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

34.U.S. Soils With Environmental Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

35. Distribution of Insurance Indemnities From Crop Losses

in the United States From 1939 to 1978 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

36. Examples of Secondary Plant Products of Economic Value .....,... . . . . . . . . . . . . . 179

37.Importance of Basic Research (Model Systems) on Nitrogen Fixation. . . . . . . . . . . . . . 183

Figure

Figure No. Page

16.Steps To Create a New Variety of Plant by Using Biotechnology. . . . . . . . . . . . . . . . . 174
Chapter 6

Agriculture

— . — —. —

●

●

●

●

●

161
. —

162 ● Commercial Biotechnology: An International Analysis

Animal agriculture

The commercial use of biotechnology in animal

agriculture is affected by several often-contradictory forces. Favorable forces include the extensive use of animals as test models in basic research

and, as is discussed in Chapter 15: Health, Safety, and Environmental Regulation, less stringent

regulatory approval processes for animal health

products than for pharmaceutical products intended for human use. Because animals are used

during the development of pharmaceutical and

biologic products for humans, veterinary medicine stands to benefit from biotechnology research and development (R&D) such as that described in Chapter 5: Pharmaceuticals. Biotechnologically made products for use in animal agriculture, such as MAb diagnostic products,

growth hormones (GHs), and vaccines, are becoming available on a limited basis.

●

Among the factors that inhibit commercial applications of biotechnology in animal agriculture

is the fact that the low value-added nature of individual farm animals limits veterinary costs per

animal, veterinary medicine sales, and funding for

veterinary R&D. In addition, some biotechnologically made products do not suit current animal

husbandry practices. Commercialization of at

least one rDNA-made vaccine, the vaccine for footand-mouth disease (FMD), for example, awaits

successful applied research results to achieve protection against several strains of the disease, fewer dosage requirements, lower costs, and other

improvements that make the vaccine amenable

to animal husbandry practices in the developing

nations where FMD exists (20).

Biotechnological developments in the areas

of animal disease control, animal nutrition and

health, and genetic improvement of animal breeds

are discussed further below. Distinctions between

the use of biotechnology to expand fundamental

knowledge and to develop specific products for

commercial use are noted.

Diagnosis, prevention, and control

of animal diseases

Losses due to animal diseases exceed hundreds

of millions of dollars yearly in the United States, *

giving strong impetus to efforts to improve animal

health. A combination of the techniques of biotechnology is being used to better understand

viral, bacterial, protozoan, and parasitic infections

that affect animal productivity throughout the

world, MAbs, for example, are being used as research tools to gain a better understanding of the

molecular biology of animal diseases. MAbs may

also be used for diagnosis of diseases, for monitoring the efficacy of drugs, and for providing shortterm passive immunity against animal diseases.

In addition, recombinant DNA technology and

polypeptide synthesis maybe used to develop vaccines for long-term immunization against certain

animal diseases.

MONOCLINAL ANTIBODY DIAGNOSTIC PRODUCTS

The diagnosis of animal diseases can be accomplished by the identification in the laboratory of

specific antigens displayed by the infectious agent.

As discussed in Chapter 3: The Technologies,

MAbs that recognize specific antigens can be prepared readily. MAbs for several animal diseases

are now being made, and in vitro MAb diagnostic

products for a number of animal diseases may

be used in the near future. MAb-based diagnostic

tests are currently being developed for bluetongue, equine infectious anemia, and bovine leu -

kosis virus. Furthermore, diagnostic MAbs are be-

● “Animal losses” are described by a number of parameters, including dollar value of animals lost, losses in productivity due to

morbidity, and value of potential progeny lost due to sickness or

death of breeders. In this report, the dollar value of animals actually lost to disease (as a primary cause of death) is used for the sake

of comparison in describing animal diseases. These estimates are

based on data collected for U.S. Department of Agriculture’s Animal and Plant Health Inspection Service, Veterinary Services, Hyattsville, Md., and by Deane Agricultural Services, Inc., St. Louis, Mo.
Ch. 6—Agriculture ● 163

ing sought for canine parvovirus, canine rotavirus

(a potentially fatal viral diarrhea in puppies), feline

leukemia virus, and canine heartworm disease.

For MAb diagnostic products to be effective diagnostic tools and hence commercially viable, they

must recognize the large variety of disease strains

likely to be encountered (20).

The acceptance of iMAbs for field use by veterinarians and animal owners remains to be demonstrated. Whether MAb products will have a

large role in the diagnosis of specific animal

diseases is unclear. Since livestock producers and

poultry growers attempt to spend as little money

as possible per animal raised, the markets for

individual MAb diagnostic tests initially may be

limited. Applications of MAb diagnostic as well

as therapeutic products initially may be restricted

to high-profit animals, animal products for export,

and companion animals such as dogs, cats, and

horses. Although individual diagnostic kits are not

costly, the farmer’s narrow margin of return on

other animals may prevent the routine use of

diagnostic products.

In the future, diagnostic MAbs could substantially assist large-scale disease control programs

in both developed and less developed countries

(16). Such reagents might be used to detect disease

in order to select an appropriate vaccine and monitor the level of disease during the course of a

control program.

Apart from potentially being used as diagnostic

reagents by animal producers, MAbs can be used

as purification tools to isolate compounds (antigens) that may prove to be effective animal vaccines. They can also be used to provide “passive

immunity” to certain animal diseases. The applications of biotechnology to the development of ani -

mal vaccines

Prevention

being sought

forts similar

is described further below.

ANIMAL VACCINES

of a number of animal diseases is

with rDNA subunit vaccines in ef -

to human vaccine programs described in Chapter 5: Pharmaceuticals. Subunit

vaccines may solve some of the problems associated with conventional vaccines. One problem,

for example, is that “attenuated” and killed whole

vaccines contain the genetic material of the pathogen and therefore have the potential to cause

the infection they are supposed to prevent. Subunit vaccines do not contain the pathogen’s genetic material and therefore cannot cause infection. Subunit vaccines may also be more stable,

more easily stored, and of greater purity than conventional vaccines, but these qualities remain to

be demonstrated. Despite their potential advantages, subunit vaccines raise new technical problems, as mentioned above, and these must be

overcome if the vaccines are to prove useful in

the field (20).

Viral Animal Diseases. —The development

of improved vaccines may allow the prevention

of several problematic animal diseases caused by

viruses (34). Most subunit vaccine research for

animals to date has been focused on viral diseases,

particularly FMD and rabies, but some of the findings can be generalized to other viral diseases,

Table 27 shows some viral diseases in animals

against which subunit vaccines may prove effective and economic.

The development of subunit vaccines for FMD

is currently receiving much attention from researchers (2). Although the disease is nonexistent

in the United States, FMD affects livestock productivity and exportability throughout South

America, Africa, and the Far East. The world market for FMD vaccine is larger than that of any

other vaccine, either animal or human. In 1981,

800 million doses of inactivated FMD virus vaccine worth $250 million were used (36). Vaccines

for all types of FMD commonly encountered exist at present, but these vaccines vary in effectiveness against different FMD field strains. Evolution of new field strains is a continuing problem,

because a vaccine may lose its effectiveness

against such strains. The impetus for developing

a subunit vaccine for FMD is the hope that such

a vaccine will offer enhanced protection with

greater safety than conventional vaccines. The

degree of protection offered, however, will only

become clear over the next few years as research

and field evaluations progress (9).

Three research groups have cloned the gene

that codes for the major FMD viral surface protein (5,14,15). The new biotechnology firm (NBF)*

“NBF”s, as defined in Chapter 4: Firms Commercializing Biotechnology, are firms that have been started up specifically to capitalize

on new’ biotechnolo~v.
164 Commercial Biotechnology: An International Analysis

Table 27.—Viral Animal Diseases and Potential Vaccine Production

Potential Current

for new vaccine

Disease biotechnology Company status

Viral diseases:

Foot-and-mouth disease . . . . .

Rabies. . . . . . . . . . . . . . . . . . . . .

Parvovirus:

Swine . . . . . . . . . . . . . . . . . . .

Canine . . . . . . . . . . . . . . . . . .

Bovine Ieukosis virus . . . . . . . .

Bovine papilloma virus . . . . . .

Rift Valley fever . . . . . . . . . . . .

Marek’s disease (fowl) . . . . . . .

Infectious bovine

rhinotracheitis . . . . . . . . . . . .

Pseudorabies. . . . . . . . . . . . . . .

African swine fever . . . . . . . . .

Rota viruses. . . . . . . . . . . . . . . .

Bluetongue . . . . . .

Hog cholera. . . . . .

Newcastle disease

Bacterial diseases:

Tuberculosis . . . . .

Neonatal diarrhea .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

Bacterial respiratory disease .

Anaplasmosis

Parasitic diseases:

Babesiosis . . . . . . . . . . . . . . . . .

Trypanosomiasis . . . . . . . . . . . .

Coccidiosis ., . . . . . . . . . . . . . .

Helminithic diseases . . . . . . . .

+

+

+

+

+

+

+

+

+

+

+—

+

—

+

N.A.

+

N.A.

N.A.

+

+

+

+

Genentech (U. S. MJSDA (U. S.) Medium

Pirbright (U.’K.)

Biotech Gen (Israel)

MGI (U.S.)a

Wistar Transgene (France)

Genentech (U. S.)

Inst. Pasteur (France)

MGI

TechAmerica (U. S.)

MGI

MGI

MG1/U.S. Department of

Defense

BRL (U.S.)C

MGI

MGI

Spanish Government

Vido Institute

University of Saskatchewan

Bio-Tech Gen. (Israel)

USDA

N.A.

USDA

N.A.

Cetus (U. S.)/Norden (U. S.)

InterVet (Netherlands/

Akza (U. S.)

MGI

N.A,

N.A.

IMC (U.S.)d

American Cyanamid (U. S.)

Genex (U. S.)

Hoffmann-La Roche (Switz.)

Eli Lilly (U. S.)

Merck W. S.)

Variable

Poor

Medium

N.A.b

N.A.

Good

Medium

Medium

Medium

None

None

Poor to medium

Good

Poor in some areas

None

Poor

Poor

None

None

None

Good

Fair

Potential for

new vaccine

Replacement

Replacement

Replacement

Replacement

Replacement

Export animals

Replacement

Replacement

Replacement

Replacement

New product

New product

Export animals

Replacement

Replacement

New product

Replacement

Replacement

New Product

Replacement

New product

Replacement

Replacement

a MGl

= Molecular Genetics, Inc

b N.A = Information not ava!lable

c ~RL = Bethesda Research Laboratories

d IMC = International Minerals & Chemicals Corp

SOURCE Board of Science and Technology for International Development, et al , “Prlorltles In Biotechnology Research for International Development—Proceedings

of a Workshop” (Washington, D C National Academy Press), and the Off Ice of Technology Assessment

Genentech Corp. (U.S.), in collaboration with the

U.S. Department of Agriculture (USDA), cloned

the DNA that encodes the protein of one strain of

FXID into bacteria, made the protein product in

large enough quantities for field trials, and tested

it at USDA’s Plum Island Animal Disease Facility

(14). The FMD subunit vaccine protected animals

against infection by the particular strain against

which the vaccine was made (although the field

trial was not extensive), but it was less effective

than the whole inactivated vaccine. The two other

research groups working on a subunit FMD virus

vaccine are a Swiss-West German team (University of Heidelberg, Federal Research Institute for

Animal Virus Diseases at Tubingen, Max Planck

Institute for Biochemistry, and Biogen S. A.) and

a British team (Animal Virus Research Institute

and Wellcome Research Laboratories) (9).
Ch. 6—Agriculture . 76 5

Cloning of the genes that code for the surface

proteins of viruses of fowl plague, influenza, vesicular stomatitis, herpes simplex, and rabies also

has been achieved, and the cloned genes may lead

to the development of effective subunit vaccines

for these animal diseases (2). Cloning projects for

virus proteins that cause gastroenteritis, infectious bovine rhinotracheitis, Rift Valley fever, and

paramyxovirus currently are underway (2), Different challenges are associated with each project. Rabies projects, for example, have encountered problems with the consistent expression of

the surface protein from rDNA plasmids (34). Influenza virus projects, among others, face problems in that the natural viruses spontaneously

change their surface proteins to evade the immune system, making the choice of optimal genes

for cloning difficult.

Another method being used to prepare new

subunit vaccines for animals, aside from the use

of rDNA technology, is chemical synthesis of peptides. Synthetic peptides corresponding to part

of one viral surface protein of FMD protect test

animals against live FMD virus (3), and efforts are

underway to prepare synthetic rabies vaccines

(28). As noted in Chapter 5: Pharmaceuficals, most

synthetic vaccines are prepared with the use of

MAbs as purification tools, Chemically synthesized peptides ma-y prove useful in rapid screening programs to determine which peptides act as

the best vaccines; subsequently, the DNA corresponding to these fragments may be cloned for

large-scale production in microbial systems.

Whether produced from rDNA or chemical synthesis, subunit vaccines for viral animal diseases

must satisfy several requirements to be effective.

In most instances, subunit vaccines must contain

antigens from a sufficient number of different

strains of virus to offer comprehensive protection against field challenge. The new vaccines

must induce a protective immune response to the

same or greater degree than conventional vaccines if they are to compete for market shares.

Proper dosage and timing of vaccination must be

determined. Ideally, the vaccines should be administered in a single injection to be amenable

to most husbandry practices throughout the

world where animals are dispersed over wide

tracts of land. Also, long shelf storage life and

stability when stored at room temperature are

desirable features of the new vaccines for use in

all the countries affected by the particular diseases. *

In addition to subunit vaccines that provide active immunity, MAbs may be used to provide passive immunity against a variety of viral animal diseases. Several MAb-based products currently are

being developed. For instance, antirabies MAbs

that protect mice from active rabies virus have

been made (19). The use of these products, however, is likely to be limited to herds (e.g., dairy

animals) where the passive vaccines can be readily

and repeatedly administered.

Bacterial Animal Diseases.—The potential

for biotechnology in fighting bacterial diseases in

animals is less clear than its potential in fighting

viral diseases, but severaI promising advances are

currently being made. In developing new methods

to prevent these diseases, an understanding of the

natural and pathogenic roles bacteria pIay in domestic animals is important. Numerous types of

bacteria are normal inhabitants of both human

and animal gut. In general, disease may result

when animals, especially those predisposed to infection (e.g., young, weak, or stressed animals),

either succumb to pathogenic bacteria or suffer

from overgrowths of their own native bacteria.

Bacterial infections often occur simultaneously

with other infections, including viral invasions.

Because of the complexity of most of the currently

important animal diseases in which bacteria are

involved, the effectiveness of bacterial vaccines

produced by biotechnology is difficult to predict.

Bacterial vaccines against colibacillosis (scours),

a widespread disease that causes diarrhea, dehydration, and death in calves and piglets, are be-

— . —

* ~lt present, the ral)ies sut)unit \LitxIn[I IS mosI }]r[)ll~isil]g III

meeting the criteriii for t) fw)ming a (umpetitii f> Ia(xInc ‘1’}NIIT ,ip -

pear to he onl) slight f’ariations in Sll[’tii(’(> ~)rott~in S(Y]U(JII(YS l) f~-

ttveen rabies t’irus strains, anci these surta(r prott>il)s eli(’it liir~(~

immune responses ‘1’h(’ RNA mroding s(w (>[iil \ ir.il surta(r proteins has been cloned and expressed In 1,, (’{)/1 (3-I ) (~llestlons tt)at

remain concerning the efficaq of this \ ii(’(’lll(iil)(.l~](lf~ 1 J I ht’ ntv’(]

for gl~’ros~’lation of the rllNA-produ(. t tor pr(]f)[>l. flJII(.1 it)nil)g ISP(J

{’lldptel’ 5: P/]dl’rlI;](’fl( ltl(’ii/,Jj, iin(j Z) prop(>r ddifwy sj’stmns, pl’lllliiI’iI V to \\,ilc{ animal respr~oirs such as skunks and fox(’s, \th(lI-(l riil)](>~

proliferates, and to (lisp(~rse(l iininlitl hrr(ls surh ;is thos(” In !+]~lth

.lmeri(:i, where thr (l(~iittl of (iittl(~ infwted b~ the t)it(~s ot riil)i(i

I’;impir(’ I)ilt!l I’f>SUlt S in ill) t] Sti IlliitWi }’f~arll 10SS of morr t}lii[l $29

. .

million (34)
166 ● Commercial Biotechnology: An International Analysis

ing made with biotechnology. Recombinant DNA

technology is used to change bacterial plasmids

found in pathogenic strains of enteric bacteria

from a virulent to a harmless state. This approach

is used by both Intervet (Netherlands) and Cetus

Corp. (U. S.) to prepare vaccines against colibacillosis. These vaccines have been successfully tested

in pregnant cows, which transferred immunity

against colibacillosis to their offspring, and the

products are now available commercially. *

Using another approach to fight colibacillosis,

the NBF Molecular Genetics, Inc. (U. S.) uses hy -

bridomas to produce MAbs against the attachment antigens of the bacteria responsible for the

disease. Incorporating these MAbs in milk fed to

young calves within 36 hours of birth protects

the animals through the period for which they

are most susceptible (36]. This product is approved for use in the United States and Canada.

The development of biotechnological solutions

to bacterial animal diseases, as well as viral infections, will require much basic research. Pasteurellosis (a lower respiratory tract infection in cows,

sheep, and pigs) and swine dysentery (which

causes annual losses of $75 million in the United

States) are among the major animal bacterial infections about which more knowledge is needed

before applications of biotechnology are possible.

The potential for biotechnological production of

new bacterial vaccines and the development of

successful delivery systems is largely unexplored.

protozoan and Parasitic Infections of

Animals. -Coccidiostats (compounds that prevent coccidiosis in poultry) and anthelmintics (substances that fight helminthic parasites such as

roundworms, tapeworms, lung worms, and liver

flukes) constitute large, rapidly expanding animal

health product markets. In 1985, the global market for coccidiostats is expected to be $500 million

(compared to $300 million in 1981), and the global

market for anthelmintics may exceed $900 million

“These bacterial vaccines were made by replacing a “virulemx’

gene” (a gene which encodes a protein that regulates cellular water

loss and is responsible for the diarrhea) located on a plasmid with

a harmless gene and “infecting” animals with bacteria containing

these harmless plasmids. The bacteria continue to produce surface

antigens, but they do not produce the \rirulence protein. The surface antigens stimulate an immune response that prm’ents adherence

of natural \’irulent harteria (18)

(compared to $450 million in 1981) (35). At present, coccidiostats and anthelmintics are synthesized by either chemical synthesis or microbial

bioprocess methods. These agents, many of which

have been discovered serendipitously, are commonly administered in animal feed (10).

The widespread use of coccidiostats, anthelmin -

tics, and antibacterial in animal feed raises concerns about the nurturing of drug resistance

among populations of micro-organisms. These

risks are outlined in a 1979 OTA report entitled

Drugs in Livestock Feed (30). As described in that

report, the genes in bacteria that encode resistance to most drugs are located on plasmids. Resistance to drugs may be shuttled via these plasmids into pathogenic microa-oganisms such as Salmonella. Widespread use of antibacterial selects

for bacteria, including Salmonella, that contain

resistance genes, perpetuating drug resistance

among bacteria. Thus, wide use of antibacterial

in animal feed eventually may compromise the

effectiveness of the same drugs in treatment of

human diseases. Drug resistance among the protozoa and parasites is even less well understood

than is resistance among bacteria. Such resistance

is difficult to quantify but may be increasing

(13,30).

Fundamental knowledge may be gained by

using rDNA technology to explore the structure

and function of genes that confer resistance to

drugs. MAb technology and other conventional

methods may be used to isolate, purify, and better understand antigens found on parasitic cells,

perhaps resulting in vaccines effective against

these parasites. The increased use of vaccines

would decrease the use of feed additives and presumably lessen the problems of drug resistance.

Strong needs, large market potentials, and safety considerations characterize the further development of compounds effective against protozoa

and parasites that afflict animal populations. Because of the complexity of most parasitic infections, however, biotechnological solutions may

not be forthcoming immediately. [n addition, the

recent introduction of potent new antiparasitic

feed additive compounds, such as the avermectins (which are microbially produced) (8), may

lower incentives to explore new antiparasitic

possibilities with biotechnology in the near term.
Ch. 6—Agriculture ● 1 6 7

— .

one serious worldwide rickettsial disease that

requires urgent attention is anaplasmosis. Ana -

plasmosis, which is caused by blood-borne microorganisms transmitted to cattle by ticks, causes

severe anemia and subsequent death in afflicted

animals. In the United States, annual losses due

to anaplasmosis are estimated to exceed tens of

millions of dollars. At present, an unsatisfactory

attenuated vaccine exists, and attempts to culture

the micro-organism and prepare better vaccines

have been only marginally effective (36).

Animal nutrition and growth

promotion

Practices and products that promote animal nutrition and growth have the potential to produce

direct, substantial returns on investments. Animal

scientists seek better animal nutrition and feeduse efficiency in several ways, including the study

of gut bacteria that participate in animal digestion, feed additives that enhance absorption of

nutrients, and substances such as GHs that may

directly stimulate growth and animal productivity.

Synthetic steroids and natural hormones are

used widely to promote animal growth, as indicated in table 28. Furthermore, as noted above,

health- and growth-promoting compounds from

industrially grown micro-organisms constitute a

large share of feed additives (30). Some of these

compounds act by enhancing the growth of beneficial micro-organisms in the gut, others by reducing the prevalence of harmful micro-organisms and parasites throughout the gastrointestinal tract; still other compounds directly provide

animal nutrition. In cases where microbial metabolic pathways and products are known, biotechnology may augment the production of com -

pounds used as feed additives by increasing the

production of specific microbial metabolizes. ” At

present, however, applications of biotechnology

to the production of metabolizes largely remain

unexploited (10).

GHs produced by rDNA technology, in contrast,

currently are undergoing trials in humans and

animals in efforts to demonstrate safety and effectiveness in stimulating growth. Several U.S.

NBFs, including Genentech Corp. (in collaboration

with Monsanto Corp.), Molecular Genetics, Inc.

(for American Cyanamid), Bio-Technology General, Amgen, and Genex Corp., are producing GHs

for various animal species. In addition to yielding

potential commercial products, rDNA GH projects

are stimulating widespread research into the nature of growth, development, and animal produc-

“’1’}1[> I)ro(iurti(m 01 (’ompoun(is” usf’d as fwd :Iddltiles is discussed

in [:liapter’ 7. Special t.\ [.’hemicals anci fi’ood Adcliti~ffis

Table 28.—World and U.S. Sales of Growth Promotants (millions of dollars)

Sales

1979

Products World U.S .

38 — 43 — 75 — 15 ”/0

$175 $ 95 $210 $106 $515 $246 250/o
168 . Commercial Biotechnology: An International Analysis

tivity. The results of experiments pertaining to

GHs’ mode of action to date have yielded results

that suggest caution. Previous observations that

injections of bovine pituitary gland extracts enhance lactation in cows led to the finding that

purified GHs increase milk yield by 10 to 17 percent, without a concurrent change in feed intake

(24). Other experiments with sheep and pigs have

shown rapid growth following GH treatment (36).

However, other evidence indicates that GHs stimulate growth and feed-use efficiency at the expense of body-fat deposition (24). Thus, critics

argue, GHs may impair long-term animal health

and productivity (24).

Substantial hurdles must be overcome before

rDNA-produced GHs become commercially available. In addition to requiring regulatory approval,

the commercial success of GHs requires an adequate drug delivery system that introduces GH

slowly to animals. Oral administration of GHs,

although most convenient and marketable, is an

inadequate system of delivery because polypeptides such as GHs are degraded by digestive enzymes. The hormones must be made available to

the body’s circulation, where they can reach endocrine organs. Slow-releasing ear implants may

be used as alternatives to frequent injections (injections are not amenable to most husbandry

practices except those for dairy cattle), but, at

present, dose requirements are too high for such

implants to be practical (21). Eli Lilly (U. S.) is developing a long-lasting bolus to be used in the

rumen. Presumably, enough GH is released directly through gastrointestinal tract walls to avoid the

problem of enzymatic degradation. With the development of convenient delivery systems, better field trials to investigate the efficacy of GH may

result.

,,

Genetic improvement of animal breeds

Throughout the history of animal agriculture,

breeders have sought to improve animal productivity by selecting animals with desirable traits for

breeding. Recent increases in the understanding

of animal reproductive biology and the genetic

basis of traits have fostered new animal breeding

technologies (31). As a result of increased knowledge due to biotechnology, the identification of

genes and gene products that influence traits of

productivity, vigor, and resistance to certain diseases may be possible.

In the future, animal breeding programs may

be augmented by biotechnology to achieve desired changes with unprecedented speed and

selectivity. Biotechnology may be used in ongoing breeding programs first to identify animals

with desirable genes (e.g., genes that make the

animals resistant to certain infections), and second, to transfer these genes directly into the germ

line (cells that contain the genes that will be

passed onto future generations) of other animals.

Possible applications of biotechnology include the

use of MAbs to identify and isolate gene products

correlated with certain traits, the use of rDNA

technology to produce large quantities of desired

gene products for further study, gene transfer

(micro-injection of isolated DNA into embryo

cells), and implantation of the embryo cells to

which genes have been transferred into surrogate

mothers.

The technology of gene transfer is in its infancy. To date, it has been used only in laboratory

animals, In most instances, the gene(s) to be studied is fused within a plasmid to a gene with a

known “housekeeper” function required for

growth. The plasmid is injected into a host cell

that is deficient in the housekeeper function. Only

host cells whose chromosomes incorporate the

foreign DNA have the restored housekeeping activity and survive. These cells then are screened

for activity of the desired gene. The GH gene has

been the subject of many recent gene transfer

experiments,

Thus far, gene transfer experiments in animals

have increased fundamental understanding in

several areas. Scientists have made great gains in

preparing receptive host cells, transferring genes

from one animal cell to another, and recognizing the successful recombination of foreign DNA

in host chromosomes (1,6,32)33). Fundamental

understanding of mechanisms of gene control in

mammals has also burgeoned in recent years. Several investigations have revealed that the host

tissues surrounding the cells that contain implanted genes affect expression of the foreign

genes (as surrounding tissue may regulate gene
Ch.. 6—Agriculture 169

expression in normal cells) and that this “tissuespecific gene regulation” continues through successive generations (7, 12,23,25)27). Finally, gene

transfer experiments have allowed the study of

the expression of single genes that, with other

genes, comprise traits that might be too complex

for study by other methods.

Gene transfer studies may reveal much about

the function of single gene products. For instance,

the transfer of genes implicated in immune responses and resistance/susceptibility to disease are

being studied (some of these genes encode immunological cell-surface proteins called the HLA antigens) (11). The ability to transfer such genes into

foreign cells to distinguish the production and

function of their products may lead to valuable

knowledge about animal diseases.

In the future, gene transfer may prove to be

the sole means of overcoming certain animal diseases that defy preventive vaccine technology

and/or veterinary treatment. An example of such

a disease is trypanosomiasis (“nagana” in cattle and

“sIeeping sickness” in humans). Trypanosomiasis

is caused by parasites borne in the saliva of certain insects and impedes livestock productivity

throughout Africa (where the disease is transmitted by tsetse flies). Strains of cattle and sheep

with resistance to trypanosomiasis (trypanotolerance) exist, and their resistance may be traceable

to several distinct genes (26,29). Gene transfer

may prove useful in better identifying these genes

and selecting animals for breeding programs designed to encourage trypanotolerance in affected

areas. In the future, transfer of these genes into

cattle germ lines may rapidly foster widespread

trypanotolerance where most other programs to

control trypanosomiasis have failed. The application of knowledge gained from gene transfer experiments to animal agriculture will not be immediate, but such knowledge eventually may lead

to considerable agricultural advances.

Commercial aspects of biotechnology

in animal agriculture

Although field trials of several biotechnology

products for animals are underway and a few

products (e.g., vaccines for colibacillosis) have

been approved for use, it is not yet clear to what

● hlajor [1 .S, producers include S>ntrk, Pfiz[,l. I,li I,il]>, 1‘p;ohn

SmithKline Beckman, ,American (: Janamid, Nlerrk, ,Ameriran }ionw

Products, Johnson & Johnson, ‘1’ech America, and Schering-Plough

\Iajor foreign producers inc]u(k) BL]l-]’ol]gl~s-\ \’tll]c’onlt~ (L1 .K ), Rhon~Ihlvrimlx Ik’ranw), ~{ow’hst ,4(; (h’ R (; ) [la} rr ,1(; [k- R (;.), (’onn,iught

i(’anada], Beecham (L] K ), Sol\ a~ (Belgium) Ekwhringer lngt~lht~lnl

(F’ R .(; .1, Intertet [Netherlands) and E;lt ,Aquit;iinc [E’rance),

25-561 0 - 84 - 12
—

170 ● Commercial Biotechnology: An International Analysis

Table 29.-Global Animal Health Product Markets

Estimated Estimated

sales, 1981 annual growth,

(millions of dollars) 1981-85

Nutritional products . . . . . . . . . . . . . . . . . . . . . .

Medicinal products:

BiologicslVaccines . . . . . . . . . . . . . . . . . . . . .

Antibacterial . . . . . . . . . . . . . . . . . . . . . . . . . .

Anthelmintics . . . . . . . . . . . . . . . . . . . . . . . . . .

Ectoparasiticides . . . . . . . . . . . . . . . . . . . . . . .

Coccidiostats . . . . . . . . . . . . . . . . . . . . . . . . . .

Growth promotants . . . . . . . . . . . . . . . . . . . . .

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,500

1,000

2,000

450

400

300

200

650

5,000

$7,500

10-15%0

20-250/o

10-15%0

25-300/o

10-150/0

15-200/o

24-300/o

15-200/o

15-200/o

15-200/o

SOURCE: S. J. Zimmer and R. B. Emmitt, “Industry Report: Animal Health Products Market” (New York: F. Eberstadt & Co.,

Inc., 19S1).

Table 30.—U.S. Producers of Animal Health Products

Estimated

Estimated Percent of animal health sales

animal health sales, Percent of corporate annual growth,

1981 (millions of dollars) corporate sales operating income 1981-85

Pfizer . . . . . . . . . . . . . . . . . . . . $44 0 13 ”/0 130!0 100/0

Eli Lilly. . . . . . . . . . . . . . . . . . . 365 130/0 150!0 200/0

American Cyanamid. . . . . . . . 265 7%0 7“/0 11%0

Merck . . . . . . . . . . . . . . . . . . . . 200 70/0 7“/0 270/o

SmithKline. . . . . . . . . . . . . . . . 155 70!0 50/0 1 70/0

Upjohn . . . . . . . . . . . . . . . . . . . 134 70!0 7“/0 110/0

Syntex . . . . . . . . . . . . . . . . . . . 83 120/0 N+A.a 110/0

e N A. = Information not available.

SOURCE S. J Zimmer and R B. Emmitt, “Industry Report Animal Health Products

product sales by the U.S. companies that produce

such products constitute a fairly low percentage

(an average of 11 percent) of the companies’ total

sales. Investments in animal-related biotechnology

R&D in those companies probably average about

the same or less than the investments by the leading NBFs that are applying biotechnology to animal agriculture (22).

As noted in Chapter 4: Firms Commercializing

Biotechnology, most major pharmaceutical and

veterinary medicine companies are investing in

biotechnology R&D, but there is some question

as to their motivation for producing new products

for large, established animal health care markets.

Such markets include those for antibiotics, anthelmintics, and coccidiostats. Established companies

with existing lines of conventionally made, widely

marketed animal health products may have

strong interests in maintaining these products. In

many cases, therefore, their primary interests do

Market” (New York: F, Eberstadt & Co., Inc , 1981)

not lie in R&D to produce new animal health

products. As described earlier, applications of

biotechnology to the production of animal products involve a substantial investment in basic research. In some cases, healthy sales of conventionally made products may dissuade a company

from pursuing basic research that could lead to

the development of a competing product. In other

cases, corporate developers may choose to pursue human pharmaceutical innovations of new

biotechnology, rather than applications of

biotechnology to animal health. Because of these

considerations, innovation and new product development in animal agriculture might be slowed.

Innovation in smaller product market areas,

such as animal vaccines and diagnostic products,

however, is widespread, New or replacement animal vaccines are among the most promising

applications of biotechnology, as are MAb-based

diagnostic products, Much of the innovation in
Ch. 6—Agriculfture . 171

Table 32.—Major Producers of Animal Vaccines

Sold in the United States

production of food from animals. MAb-based diagnostic products exemplify this promise. Other

products, such as new vaccines, may face technical problems of dosage, formulation, and delivery before they are suitable to animal husbandry

practices. Until these problems successfully are

resolved, the impact of biotechnology on improving animal productivity will not be realized. Applications of biotechnology such as gene transfer

experiments and investigations into the nature of

growth using rDNA-produced GHs currently

serve to increase basic knowledge about animal

biology.
172 ● Commercial Biotechnology: An International Analysis

Plant agriculture --

There are hundreds of forms of crop improvement whose purpose generally falls into one of

three categories. The first is to increase crop

yields by increasing resistances to pests or environmental conditions such as drought or soil salinity or by developing more productive plants, The

second is to improve crop quality by enhancing

such features as nutritional value, flavor, or processability. The third is to reduce agricultural production costs by reducing a crop’s dependence

on chemicals or by making harvesting easier (55,

56).

During the last century, plant breeders have

been efficiently and successfully addressing all of

these goals. The use of new biotechnology in crop

improvement, as in other areas, is not a new beginning, but an extension of previously evolved

skills. New biotechnology alone will not produce

better crop plants, but combined with knowledge

from other plant science and microbiological dis.

ciplines, biotechnology will develop techniques

that could be very powerful in improving agriculturally important crops. Thus, the greatest advances in crop improvement are likely to be made

using an interdisciplinary approach.

The genetic manipulation and modification of

plants presents some special challenges. Most molecular genetics to date has been done with simple unicellular organisms and, to a lesser extent,

with laboratory animals. The application of molecular genetics to plants is relatively more recent

and consequently at an earlier stage of technical

development. Furthermore, there are fewer studies of the physiology and biochemistry of plants

than there are studies of these aspects of animals.

The recent application of the new techniques of

molecular biology to plants has produced astoundingly rapid results, however, and these techniques

are sure to have an impact on crop improvement

in the next several years.

Of the several hundred domesticated plants in

the world today, only about 30 are of great economic significance. Of these, eight domesticated

grains, including rice, corn, and wheat, produce

most of the calories and protein consumed by humans and agriculturally important animals. The

legumes, which include soybeans, represent the

second most common source of food for human

and animal consumption. There are two philosophies, which are not incompatible, with regard

to improving crop plants. One is that there should

be diversification of crop plants and attention

given to the domestication and breeding of new

major crop plants. Another philosophy is that

plant breeding, tissue culture, and biotechnology

efforts should be devoted to the most successful

crop plants. The genetic diversity of some of the

world’s current crop plants is not great. Consequently, even if the major crop plants are the

focus of research efforts, some genetic material

from exotic sources may be required to effect the

desired improvements. In any case, the techniques discussed here are equally applicable to

the improvement of both common and exotic

species,

Research on plants has shown that the genetic

organization of plants exhibits striking similarity to that of animals. The universal genetic code

is used, and most genes contain intervening

sequences and are surrounded by very similar

regulatory sequences. Unlike animals, however,

plants have a characteristic called totipotency

that, for many species, indicates the potential for

regeneration of a single cell into a complete plant.

Because plants have this totipotent characteristic,

certain genetic manipulations can be done in cell

culture, and, after selection of cells with the appropriate qualities, the cells can be regenerated

into parental plants (for breeding programs). Adjusting the laboratory variables to achieve regeneration from single cells is evolving from an art

to a science and has yet to be accomplished consistently for the principle cereal grains (monocots *), but regeneration research is proceeding

at a rapid rate. It is likely that many important

crop plants will be able to be regenerated from

single cells in the next few years.

There are several potential applications of new

biotechnology for plants that may help in the im-

‘E;arly in the evolutionary history of flowering plants, tt~o main

t~’pes of plants, monocots and dicots, clitwrged. [:ereal grains (corn,

wheat, r}’e, barley, rice, etr. ) art’ monocots, whereas legumes ko~’-

h{ Ians, etr ) :irv dirols
Ch. 6—Agriculture 173

—

Phofo Credit Dean Eflgler Agrfgenef~c5 Corp

Freshly isolated plant protoplasts

Photo Credit” Dean Eng/er, Agrigeneflcs Corp

Plant shoots arising from protoplast-derived calli
174 . Commercial Biotechnology: An International Analysis

provement of crop species, as shown in figure 16.

New technologies for testing for the presence or

absence of traits, for example, will save years of

plant breeding time. Many applications to plant

agriculture will be in the regulation of endogenous genes, and other improvements will be made

using techniques such as the following, which

transfer DNA from one species to another:

● The fusion of cells from two different plant

species can be used to overcome species hybridization barriers. In order to be useful, the

resulting cell fusion product must be regenerated to form a whole plant. To date, regenerated plants have only resulted from fusions

between closely related genera (62). The regenerated plants are selected to express beneficial characteristics of both parents (94). As

yet, no economically important variety has

been produced using this method (62).

● Transferring subcellular organelles such as

nuclei or chloroplasts from one plant species

to another can be accomplished by a variety

of techniques. One of these, liposome transfer, involves surrounding the organelle with

a lipid membrane. Because chloroplasts carry

many of the genes important in photosyntheFigure 16.–Steps To Create a New Variety of Plant

by Using Biotechnology

SOURCE. Office of Technology Assessment

●

sis, liposome transfer may be instrumental

in improving photosynthetic efficiency.

Vector-mediated DNA transfer (and microinjection of DNA) is the most specific, and potentially the most versatile, of the genetic

manipulation techniques. Recently, foreign

plant genes have been inserted and expressed

in plants.

Recent advances in the methods of plant cell

culture and the techniques for introducing DNA

from one plant species to another are discussed

in Box C.—Methodology Important in Plant Agriculture. The applications of these methods to

specific problems in plant agriculture, such as disease resistance, photosynthetic efficiency, and nitrogen fixation and the commercial aspects of biotechnology in plant agriculture are discussed in

the sections that follow.

Improvement of specific plant

characteristics

Greater crop yields or a reduction in the cost

of crop production would be possible if plants

were resistant to disease and certain environmental factors and contained a larger amount of higher quality product. In the United States, there is

great research interest in crop resistance and

crop quality improvement in academic, Federal,

and industrial laboratories. Unlike most other

plant traits, some resistances and specific improvements may be accomplished with one or a

few gene modifications. This area, therefore, is

probably the most active area of industrial research, and it is likely that considerable research

progress in this area will be made in the next 5

to 10 years.

PLANT RESISTANCE FACTORS

Disease and environmental resistances are important to most crops in most areas of the world.

Important plant resistances are shown in table

33. Productivity losses often can be attributed to

the lack of resistance to one or more factors (see

tables 34 and 35). Thus, the study of resistances

could lead to greatly improved productivity and

an increased realization of genetic potential (42).

Numerous single gene resistance factors are

known in higher plants. The most common re-
Ch. 6—Agriculture ● 175

-,

. .-, ,

, ,.,
176 ● Commercial Biotechnology: An International Analysis

sistance genes are those that confer decreased

susceptibility to disease (54,71,79). In maize, for

example, there are resistance genes to several

diseases such as northern corn-leaf blight (s1).

Because most of the single gene resistance factors confer resistance to a single pathogenic organism, it is thought that a single characteristic

of the host and pathogen determine the outcome

of an infection.

Most of the existing disease-resistance genes

have been introduced into economically important lines of interbreeding plant species by traditional plant breeding. Currently, however, there

is interest in cloning disease-resistance genes from

plants in order to study the nature of resistance

and to determine the possibility of transferring

resistance factors among species that do not normally interbreed. It is not known in most cases
Ch. 6—Agricu/ture 177

Table 33.—Plant Resistances of Economic Value

Resistance to: Relevance in United States

Disease . . . . . . . . . . . . . . . . . . All CfOPS

Saline . . . . . . . . . . . . . . . . . . . . Irrigated soils, particularly in

California and Southwest

Alkaline earth metals . . . . . .Southeastern United States

and West

Anaerobic soil conditions. . . Areas subject to flooding

Drought . . . . . . . . . . . . . . . . . .All crops

Herbicides . . . . . . . . . . . . . . . . All crops

Pesticides . . . . . . . . . . . . . . . . All crops

Soil pH . . . . . . . . . . . . . . . . . . . Low pH on acid mine tailings and soil affected by

acid rain; high pH on most

Western soils

SOURCE Office of Technology Assessment

Table 34.—U. S. Soils With Environmental Limitations

Environmental limitation Percentage of U. S. soil

affected

Drought . . . . . . . . . . . . . . . 25.30/o

Shallowness . . . . . . . . . . . 19.6

Cold . . . . . . . . . . . . . . . . . . 16.5

Wet . . . . . . . . . . . . . . . . . . . 15.7

Saline or no soil . . . . . . . . 4.5

Alkaline salts. . . . . . . . . . . 2.9

Other. . . . . . . . . . . . . . . . . . 3.4

None . . . . . . . . . . . . . . . . . . 12.1

SOURCE: J S Boyer, “Plant Productivity and Environment,” Sclefrce 218443-448,

1982

Table 35.-Distribution of Insurance Indemnities From

Crop Losses in the United States From 1939 to 1978

Cause of crop loss Proportion of payments (

0

/0)

Drought . . . . . . . . . . . . . . . . . . 40.80/o

Excess water . . . . . . . . . . . . . 16.4

Cold . . . . . . . . . . . . . . . . . . . . 13.8

Hail . . . . . . . . . . . . . . . . . . . . . . 11.3

Wind . . . . . . . . . . . . . . . . . . . . . 7.0

Insect . . . . . . . . . . . . . . . . . . . . 4.5

Disease . . . . . . . . . . . . . . . . . .

Flood . . . . . . . . . . . . . . . . . . . .

; : ;

Other . . . . . . . . . . . . . . ... , . . 1.5

SOURCE” J. S Boyer, “Plant Productivity and Environment,” Science 218443-448,

1982

what the disease-resistance genes in plants actually do to plant metabolism or structure. By understanding how the products of plant disease-resistance genes work, better screening programs for

enhanced resistance can be designed. Environmentally, it is desirable to develop pest-resistant

plants, because such plants would reduce the

need for spraying crops with pesticide * chemicals, and disease control would be more effective.

It should be kept in mind, however, that much

of the agricultural research effort is being made

by the agricultural chemical industry, and this

industry may see the early opportunity of developing pesticide-resistant plants rather than undertaking the longer term effort of developing pestresistant plants.

Resistance to environmental conditions probably depends on both single and multigenic inheritance. These traits, as well as disease resistance,

can be selected for in tissue culture. If analogs

of the disease or detrimental environment conditions can be applied to plant cells in culture, the

entire procedure can take place in a few test tubes

or petri dishes in a laboratory setting. Millions of

individual cells can be treated simultaneously and

then examined for survivors. Stepwise selections

under gradually more stringent conditions (e.g.,

a gradual increase in the salinity of the medium)

are accomplished readily.

Some of the traits that could be selected in tissue

culture are listed in table 33. Many of the traits

are resistance factors that confer protection

against disease and salinity. In selection schemes

for these factors, the test organism is exposed

either to normally lethal doses of the toxins produced by a disease organism or to high doses of

salt (to mimic salinity), and the surviving cells are

identified by their growth under these normally

toxic conditions. This protocol holds great promise for identifying rare cells that have spontaneously acquired a novel resistance. Somaclonal

variation probablv supplies much of the variation

seen in tissue culture (see box C) (47).

A rate-limiting step in applying selection techniques more widely is the present inability to regenerate major cereal and legume crops from

individual cells or small cell clumps on a routine

basis. Furthermore, some of the traits selected in

tissue culture for resistance to a specific factor

may not be manifested in the whole plant, because it is possible for cells to develop nongenet -

‘,4 pesticide is an agent (hat prm’ents the growth or propq+ition

of deleterious organisms, including weeds an(i insects Both iler -

i)icides an(i insecticides are pesticicies.
178 ● Commercial Biotechnology: An International Analysis

ic adaptations. Consequently, numerous regenerated plants will be required to determine if a particular selection procedure yields whole plants

with important agronomic traits. on the other

hand, pollen or embryo manipulation may circumvent some of these problems.

Genetic manipulations can make plants resistant to chemicals or can enhance their response

to chemicals. These traits are of particular importance to the agricultural chemical industry. For

instance, various plant growth regulators are produced by this industry. These chemicals can affect many stages of the growth or reproduction

activities of plants to give a crop with increased

yield. Enhanced response to these chemicals allows the crop to be grown at a lower cost.

Producing herbicide-resistant plants can have

definite benefits, especially in crop rotation. For

instance, corn is naturally resistant to triazine

herbicides, whereas soybeans are not. Occasionally, soybeans do not grow well in a field the year

after triazine-sprayed corn was grown there. In

this case, one solution would be to introduce triazine resistance into soybeans. This particular

resistance is due to a modified protein in the

chloroplast membrane. Therefore, resistance between dissimilar species could be transferred by

protoplasm fusion or liposome-mediated chloroplast transfer (38,66). It should be noted, though,

that increased use of agricultural chemicals could

have serious environmental consequences.

PRIMARY PLANT PRODUCTS

The largest research effort in the modification

of plant products using biotechnology is concentrated on the improvement of seeds and seed proteins. Seeds serve a dual role in agriculture. They

are the major source of food for people and animals and represent an easily stored form of plant

material, and they are also the material for propagating the next plant generation. The storage materials of seeds contain all of the materials necessary to nourish a plant, because each seed must

support the initial phases of germinlation and

seedling establishment until the plant is self-sufficient. During domestication, various crops have

undergone an enormous exaggeration of the normal storage reserves. Today, far more material

is stored in agricultural crop seeds than in the

seeds of wild relatives; sometimes the increase is

as much as tenfold (68).

Although the agronomic (applied) research effort is devoted primarily to increasing the amount

of seeds and seed protein, current basic research

efforts are devoted both to increasing the quality of the stored materials and to exploring plant

gene structure. Because plants are capable of synthesizing all of the amino acids required for protein synthesis from simple carbon- and nitrogencontaining precursor molecules, the exact amino

acid composition of the stored protein in seeds

may not matter to a plant, and seed proteins often

have an unbalanced amino acid composition. Because humans and most animals are unable to

synthesize eight amino acids (the essential amino

acids), the composition of ingested protein matters very much in their nutrition,

Much is known about the structure of the storage-protein products and the genes encoding

these proteins in the major crop plants. In all cases

studied so far, the storage-protein genes are found

in small gene families with 3 to 30 members. Typically, a few genes of the multigene family contribute a significant fraction of the total protein,

There is not much genetic variation among the

seed storage-protein genes of a given species, although this low variation might be due to the limited diversity of the varieties currently studied,

These crops may have lost much of the original

diversity present in the progenitor species during the intensive plant breeding activities that

have occurred throughout history.

DNA clones of storage proteins are available

from several crop species: soybean, garden bean,

corn, wheat, and other less significant crop plants.

Changes in these genes can be made readily in

vitro to improve the balance of amino acids in the

protein. The difficult part is reintroducing the

altered storage-protein gene back into the crop

plant and ensuring that this novel gene is expressed appropriately. Most storage proteins are

present only in seeds. Retention of this tissue

specificity is important; storage proteins’ presence

in other plant cells may be detrimental. Another

important consideration is that the storage-protein genes are found in families. Introduction of

a new gene may change only a fraction of the total

protein produced. To modify the overall amino
Ch. 6—Agriculture ● 179

acid composition, several genes may have to be

introduced or the natural genes deleted and

replaced by novel genes. In some crops such as

corn, there are mutations that reduce the production of zein, the storage protein. These mutant genes can be used to reduce the zein concentration, thus allowing an introduced gene to have

a greater impact on overall amino acid composition.’

An alternative to the modification of existing

crop species’ genes is the introduction of completely novel genes isolated from other organisms.

Genes whose products are very rich in the amino

acids that are deficient in a particular seed type

could be introduced to increase the concentration of specific amino acids. One promising example of this type is the storage protein of the

Brazil nut (97). This protein is composed of 25 percent sulfur-containing amino acids (methionine

and cysteine). Legume seed protein usually is deficient in these amino acids. Introduction of a few

copies of the Brazil nut storage-protein gene into

legume species might overcome the sulfur amino

acid deficiency. Proteins of unusual composition

may offer the quickest method of preparing a

gene to complement deficiencies in major crop

storage proteins.

SECONDARY COMPOuNDS FROM PLANTS*

Table 36 lists some of the desirable secondary

products from plants. Very little research has

been done on the tissue culture production of

these compounds, yet it should be possible to produce important high-value plant products using

culture systems instead of gathering plants from

nature. Cell culture offers the advantages of reproducibility and control over production where

seasonal variations, weather changes, or disease

are not problems (40,57,95). On the other hand,

a difficulty in the production of some products

is maintaining the plant cell culture in a differentiated state such that compound production

occurs.

Biotechnology offers many opportunities for the

production of secondary plant compounds. The

transfer of the plant metabolic pathway for a

— .

““[-his topic was cotered by a recent OTA workshop entitled

“Plants: The Potent ial for Extracting Protein, Nledicines, and other

(Isefu] (;h~mlra]s” ($j~)

Table 36.—Examples of Secondary Plant Products of

Economic Value

Agricuitural chemicais:

Pyrethrins

Rotenone

Nicotine

Allelopathic compounds

Antibiotics against soil microbes

Pharmaceutical drugs:

Codeine

Morphine

Steroids

Cardiac glycosides

Alkaloids

Reserpine

Retinoic acid

Caffeine

Cannabinoids

Antitumor compounds

Fiavorlngs and saits:

Licorice

Coumarin

Coiorings and pigments:

Anthocyanins and betacyanins

Carotenoids

industrial intermediates:

Latex

Lignin

Dye bases

Steroid and alkaloids products

SOURCE Off Ice of Technology Assessment, adapted from E A Bell and B V

Charlwood (ads.) Secondary Plant Products (New York” Springer-Verlag,

1980).

compound to a bacterial or fungal cell, for instance, could offer an opportunity for providing

a steady supply of these compounds, although

much more knowledge concerning the genetics

and biochemistry of the pathways that produce

these compounds is necessary. Another possibility

is identifying and modifying the gene coding for

the enzyme responsible for the rate-limiting step

in product production. Overproduction of the

products could result from the plants being

grown in culture or in the field.

There is little current U.S. research effort to

improve the yield of secondary plant compounds

from cultured cells or whole plants. The Federal

Republic of Germany, Canada, India, and Japan,

on the other hand, have large research programs,

as measured by the number of papers presented

at the 1982 International Congress of Plant Tissue

and Cell Culture (58). Japan, for instance, has

scaled up the growth of tobacco cells to 7,000

liters, and researchers at the University of British

Columbia are growing 100 liter batches of Mada-
180 . Commercial Biotechnology: An International Analysis

gascar periwinkle cells in order to isolate anticancer compounds (58). In fact, the Japanese Government is spending $150 million over 10 years

for research on obtaining secondary compounds

from plants. It is argued by some, though, that

plant cell culture for producing secondary products is necessary only when good farm land is not

abundant (65).

PLANT GROWTH RATE

The rate at which plants grow can limit both

the amount of harvestable biomass (food, fiber,

secondary products) and the length of time between planting and harvesting. Traditional plant

breeding has been quite successful in modifying

and improving plants to respond to modern agricultural practices of herbicide, pesticide, irrigation, cultivation, and high-fertilizer application.

These breeding programs have established that

there is no single gene for yield. On the other

hand, much is known about the genetics of harvestable products such as seed size. Additionally, there are single gene mutants, such as that for

gibberellic acid, that can affect plant growth

dramatically. Increased understanding of these

areas of genetics may have an impact on this area

of plant biology. For instance, a plant can be imagined that had a decreased amount of total biomass but an increased amount of harvestable

product.

PHOTOSYNTHETIC EFFICIENCY

Photosynthesis is the basis for most life on

Earth. Higher green plants, algae, and some bacteria can utilize the energy in sunlight to split

water molecules; in this process, energy is generated and utilized to combine atmospheric carbon dioxide (CO,) into an organic form as well as

to drive other energy requiring processes of

plants. A byproduct of this reaction is molecular

oxygen (Oz

). Thus, photosynthesis is not only the

ultimate source of fixed carbon we use as food

and fiber, but also of the oxygen we breathe.

Because photosynthesis is so important to food

production, much research has focused on the

mechanism of photosynthetic action. The photosynthetic system is very complex, combining enzymatic activities, key roles played by cellular

organelles, and plant anatomy as well as environmental factors such as light, water, and temperature. Many proposals have been made to improve the efficiency of this system by genetic

manipulation.

The critical step of the photosynthetic COZ fixation cycle is catalyzed by the enzyme ribulose

bisphosphate carboxylase (RuBPCase), probably

the most abundant protein on Earth. This enqyme

is sequestered in chloroplasts, the cellular organelles where photosynthesis occurs. It is a complex

molecule synthesized from both chloroplast genes

and nuclear genes (50,51).

When photosynthesis originated, the Earth’s atmosphere is postulated to have been nearly

devoid of oxygen. The oxygen we have today is

a byproduct of photosynthesis, and oxygen comprises about 20 percent of our atmosphere. RuBPCase initially evolved in a low oxygen atmosphere

but now must fix CO. with a large excess of 0.

present. RuBPCase can utilize this 0, in what appears to be a nonproductive enzymatic reaction.

This process is called photorespiration and results

in a net loss of fixed COZ (45). Photorespiration

can decrease crop yields by as much as 50 percent (82). It is ironic that RuBPCase activity over

the past millions of years has produced the Oz

that now decreases the efficiency of photosynthesis. On the other hand, it has been postulated that

the ubiquitous and continued presence of photorespiratory activity implies some natural selection

advantage (61).

Suggestions have been made for modifying

RuBPCase or other enzymes involved in the photosynthetic system. For instance, genetic manipulations that would increase the affinity of

RuBPCase for COZ or decrease its affinity for Oz

could substantially increase net COZ fixation. It

has yet to be determined what effects these

changes would have on the survivability of plants.

In addition to manipulating the enzymatic system, changing the plant’s anatomy, such as the

types of cells in leaves, might be possible. Several

groups of higher plants have increased rates of

COZ fixation that correlate with modified anatomy

and physiology. Very little is known about the

genetic control of leaf and cellular anatomical

development, so near-term success in modifying

these aspects of plant anatomy is unlikely.
Ch. 6—Agriculture ● 181

Genetic manipulations to increase photosynthetic efficiency, and consequently food production, are very difficult now because of the complexity of the system. It will be several years

before rDNA technology will aid in producing

agriculturally important plants with increased inherent photosynthetic efficiency.

PLANT-PRODUCED PESTICIDES

Some species of plants are highly resistant to

potentially damaging insects. Although not very

much is understood about this phenomenon, it

appears that certain plants can produce compounds that are toxic to specific species of insects

Or that interfere w’ith the insects) normal reproductive or growth functions (86). An African

plant, for example, produces a compound that interferes with a particular caterpillar’s molting,

and, as a result, the insect cannot eat (48). other

plants are known that produce chemicals that

cause potentially harmful insects to avoid those

plants for feeding or egg laying (59). The specificity of these plant-produced insecticides and nonpreference chemicals allows the control of pests

while permitting potentially useful insects to survive. Many applied chemical pesticides do not

have this specificity. 1t may be feasible soon to

clone and transfer the genes that code for these

naturally occurring chemicals, allowing them to

be expressed in other plants. The result of these

gene transfers could be to reduce greatly the

amount of agricultural chemicals needed and,

hence, the cost of production.

Investigations into chemicals released by some

plants that adversely affect neighboring plants is

receiving an increased amount of attention ($10).

These herbicides, known as allelopathic chemicals, may influence another plant directly or may

act by inhibiting the micro~organisms normally

associated with that plant. Allelopathic chemicals

consist of a wide variety of chemical types, and

their actions range from inhibiting cell division

to protein synthesis to photosynthesis. Much

more still is to be learned about these naturally

occurring chemicals, including the factors influencing their production and how best to use them

agriculturally. A goal of biotechnology is to identify the genes responsible for the synthesis and

release of the plant pesticides and to transfer

them to nonresistant plants. Biotechnology also

could aid in the understanding of their production and possibly help develop their production

in controlled laboratory culture systems.

Uses of micro-organisms for

crop improvement

Applications of biotechnology in the area of

crop improvement include genetic manipulations

of micro-organisms that interact with plants in

nitrogen fixation, for example, or that produce

substances such as insecticides of potential benefit

to plants. These applications are discussed further below.

NITROGEN FIXATION

Plants have a universal need for metabolically

usable nitrogen in the form of ammonia (NH),

which can originate either from the air or from

applied ammonia fertilizer. Biological nitrogen fixation, the process by which living systems convert nitrogen gas in air to NH, is catalyzed in living systems by the enzyme nitrogenase. Nitrogenase, and consequently the capacity to fix nitrogen,

is found only in prokaryotes, either bacteria or

blue-green algae. Some nitrogen-fixing prokary -

otes are free-living and can be either anaerobic

or aerobic; other prokaryotes fix nitrogen only

when they coexist symbiotically with a higher

plant host. The application of biotechnology to

nitrogen fixation may result in more efficient prokaryotic nitrogen fixation or the transfer of nitrogen-fixing ability to plants themselves.

Nitrogen-fixing prokaryotes share some common physiologic features. First, nitrogen fixation

typically does not occur in cells already supplied

with usable nitrogen. Second, nitrogenase is oxygen-sensitive, so all nitrogen-fixing organisms

have mechanisms for limiting oxygen. Third, NH,,

which is toxic at high concentration, must be converted readily into organic nitrogen,

Biological nitrogen fixation is energy intensive

(84,88,93), and in plant-microbe associations, this

energy is derived from the plant. Estimating the

energy expenditures for biological nitrogen fixation is difficult, and few reliable numbers are

available. The energy cost of nitrogen fixation is
182 . Commercial Biotechnology: An International Analysis

an appropriate concern, but this cost should be

compared with the true cost of nitrogen nutrition in field-grown plants (i.e., the cost of chemical

fertilizer synthesis and other biological costs to

the plant).

It may be possible to decrease the energy required for nitrogen fixation by 30 to 50 percent

by preventing the evolution of hydrogen during

nitrogen fixation. Some bacteria have a set of

genes that allow for hydrogen recycling. These

genes have been cloned and inserted into less

efficient nitrogen-fixing bacteria. The recipient

bacteria showed increased nitrogen-fixing efficiency (37).

Agriculturally important nitrogen-fixation systems discussed below are nonlegume nitrogen fixation and symbiotic nitrogen fixation in legumes.

Nonlegume Nitrogen Fixation.—Nitrogen

fixation is performed by several groups of bacteria and blue-green algae that live free in soil or

in aquatic habitats. The best studied nitrogenfixing bacterium is the free-living Klebsiella pneumonia, which can easily be grown in the laboratory. * The gene complex coding for the nitrogenfixing function in Klebsiel]a pneumonia is comprised of 17 genes, and the regulation and activities of these genes now are being studied extensively. Still, the nitrogen-fixing function is extremely complex and not well understood.

Algae have been used to fix nitrogen in Asian

rice paddies for many years. Recently, research

has produced strains of algae that could be used

in soil to fix nitrogen for domestic crops. Algae

are inexpensive compared to nitrogen fertilizer,

and because they release nitrogen slowly into the

soil, algae bypass the problem of nitrogen leaching

(60). Furthermore, algae are being considered the

botanical equivalent of yeast for genetic manipulation, and vector systems for algae transformation

are in development (41).

Symbiotic Nitrogen Fixation in Legumes.—

The legume-llhizobium symbiosis is the most

agriculturally significant biological source of fixed nitrogen. Both grain and forage legumes have

large amounts of nitrogen fixed by Rhizobium.

● Two other free-living nitrogen-fixing bacteria, Azosporillum and

Azotobacter, also are important agriculturally.

Recent work on legume-Rhizobium symbiosis has

focused on several areas, including the determination of energy costs, pathways of nitrogen assimilation and transport, the biochemistry of symbiotic nodule development, and the genetics of

the bacterial partner.

Symbiotic nitrogen fixation can be a significant

source of nitrogen nutrition for legume crops, but

its practical application can be limited by several

sets of factors, some environmental, others intrinsic to the plant-bacterial partners. Soil conditions

and environmental levels of fixed nitrogen have

significant effects on rhizobial survival, nodule

formation, and levels of nitrogen fixation. One

crucial area, poorly understood at present, is the

role played in symbiotic nitrogen fixation of soil

micro-organisms other than Rhizobium. Understanding nodule formation in detail will help explain environmental effects on infection that may

relate to competitiveness and effectiveness of

various Rhizobium inocula. In addition, an

understanding of why legumes, and not other

plants, can nodulate would be essential for attempting to extend host range.

Another nitrogen-fixing micro-organism, the

actinomycete Frankia, is of interest because it

nodulates a number of unrelated plant genera.

This ability suggests a simpler genetic symbiosis

than that of Rhizobium and legumes. If this is

true, it may be easier to extend genetically the

host range of the symbiotic relationship of Frankia

than to extend that of Rhizobium (41).

Specific host proteins are produced in nodules.

One of these is leghemoglobin, which controls the

oxygen content of the infected nodule cells. This

protein is produced in high quantities in nodules.

Two research groups have cloned the genes for

soybean leghemoglobin (77,96), but their mechanism of action is not understood. Other new proteins appear when nodules develop (76). These

are called “nodulins” and are likely to be essential for symbiotic nitrogen fixation; however, their

exact role is not known. Some of these might be

enzymes, such as those for ammonium assimilation (67). When nodulins and their functions are

better understood, a logical extension of current

research will be to move cloned modulation genes

into other plants. This may make it possible to

extend nitrogen fixation to other plant species.
Ch. 6—Agriculture ● 183

Summary. -Individual nitrogen-fixing systems

can be improved or extended by a knowledge of

how they work and by techniques that permit the

genes for nitrogen fixation to be altered and moved. One line of research will be the improvement

of existing systems. Some new nitrogen-fixing systems have been proposed, as well. Proposals have

been made, for example, to insert directly the

genes for nitrogen fixation into the plant genome.

Success of these as well as other systems in the

end will be measured by the practicality of the

new association, The problems of specificity, oxygen regulation, and effect on yield must be considered, and these will require broad-based knowledge of biochemistry, genetics, and physiology

in a variety of nitrogen-fixing organisms (see table

37). There is a considerable amount of research

being done in the area of nitrogen fixation, and

genetically manipulated Rhizobiwn maybe field

tested soon (85).

MICROBIALLY PRODUCED INSECTICIDES

Problems or drawbacks associated with chemical insecticides, including their increasing cost

and environmental hazards, their lack of specificity, and the ease with which insect resistances to

such insecticides are developed, have sparked

renewed interest in microbially induced insect

control to improve crop yield. Microbial insecticides, because of their narrow host ranges, can

control specific pests while allowing natural predators and beneficial insects to survive. Furthermore, the few characterized microbial pesticides

do not appear to harm humans or animals, and

they are biodegradable.

There are three natural sources of microbial

insecticides: bacterial, viral, and fungal. About 100

bacteria have been reported to synthesize toxins

that are insecticidal. Very few of these bacteria

have been studied extensively, but in one case (Bacillus thuringiemis kurstaki), the gene that controls the synthesis of a toxin has been cloned using

rDNA technology (69). The cellular mechanism of

the toxin’s insecticidal activity is not yet well

understood. Genes for bacterial toxins could be

put into other bacteria that normally exist on the

surface of plants (48).

Viruses also can be insecticidal by virtue of their

ability to cause disease in various insects. Several

families of viruses have been identified as potentially pathogenic to insects, but the family BacuZoviridae has received the most attention. The U.S.

Environmental Protection Agency (EPA) has registered, or is considering registering, several baculoviruses for the treatment of such diseases as cotton bollworm, Douglas fir tussock moth, gypsy

moth, and alfalfa looper (81). One particular baculovirus [Autographa californica nuclear polyhedrosis virus (AcNPV)) has been genetically and molecularly well characterized, making the use of

rDNA techniques with this virus feasible,

In contrast to bacterial and viral insecticides,

fungal pathogens need not be ingested; they can

disable or kill the insect by colonizing its surface.

More than 500 fungal species can infect insects,

Table 37.—importance of Basic Research (Model Systems) on Nitrogen Fixation

Research area Or9anisms used in research Importance

Cloning nitrogenase genes. . . .

Physiology of nitrogen fixation

Biochemistry of nitrogenase . .

. . . . . . Klebsiella pneumonia Direct study of genes

Introduction of nitrogen-fixing genes into

other organisms

. . . . . . Azotobacter Improving energy efficiency of nitrogen

Anbaena fixation in the cell

Klebsie/la Understanding role of ammonia in

nitrogen fixation

. . . . . . Clostridium Understanding oxygen sensitivity of

Azotobacter n itrogenase

Klebsiella Improving energy efficiency of

Rhodospirillum nitrogenase enzyme

Cell and developmental biology of

modulation . . . . . . . . . . . . . . . . . . . . . Rhizobium Bacteriallplant recognition process

Modulation process

SOURCE Office of Technology Assessment
184 . Commercial Biotechnology: An /international Analysis

and there are susceptible hosts in all the major

orders of insects (72). The use of fungal insecticides will require a better understanding of their

pathogenesis and ecological requirements. The

large-scale production of these pathogens is difficult, and, in many cases, the technology is not

developed. Also, their safety with regard to higher

animals and humans has not been adequately

studied (43,44)81).

DISEASE-SUPPRESSIVE AND GROWTHREGULATING MICRO-ORGANISMS

Increasing plant yields may be achieved through

better understanding of the many bacteria that

protect plants from naturally occurring, deleterious conditions (80,92). Some of these bacteria act

by producing compounds that bind iron. Others

act by altering the pH or the salinity of the soil.

Still others prevent frost damage to leaves. Furthermore, there are other bacteria that produce

compounds that regulate plant growth. The

mechanisms by which these processes occur is

not well known. With better understanding of the

genetics and biochemistry of some of these

bacteria and their environment, it may be possible to program them genetically to produce compounds to change any number of soil and growth

conditions.

For two reasons, it probably will not be economically feasible to incorporate the useful microorganisms directly into soil on a regular basis,

because large amounts of the micro~organisms

would be required and because the useful microorganisms might not be able to compete with the

well-established microorganisms already present

in the soil. Instead of being incorporated into soil,

the useful microorganisms could be given a competitive advantage by applying them to the seeds

or other plant parts prior to planting. Then they

would already have established a niche allowing

them an advantage over naturally occurring

micro-organisms (92).

The first authorized deliberate release of genetically manipulated bacteria, planned for the fall

of 1983, was to prevent frost damage. The genes

coding for the compounds that initiate ice crystals

were identified and deleted from a bacterial strain

normally found on many crop plants. The re -

searchers intended to spray these new bacteria

on field crops early in the growing season, so that

they became the established strain and crowded

out the natural, harmful bacteria. * It is thought

that this approach could prevent up to $5 billion

worth of damage to crops throughout the world

(80).

Conclusion

The first successes in DNA transformation of

plants to give novel characteristics have been

achieved. Continued research on vectors and

plant tissue culture is needed to extend these successes from model systems to major crop plants.

The identification of genes that would substantially improve a crop plant requires cooperation

between traditional breeders and geneticists.

Plant molecular biologists need the knowledge of

the more traditional plant disciplines to produce

agronomically useful plants more rapidly. Interdisciplinary basic research on plant biochemistry,

development, and physiology will be required to

help identify important genetic traits, to define

biosynthetic pathways in plants, and consequently, to develop better plants. Many single gene

traits in agronomic species have been used in past

breeding programs; such genes also can be studied using new biotechnology, The novel technologies also can introduce genetic material from

plants that normally do not interbreed and possibly provide simultaneous introduction of many

specific traits into a single breeding line.

The next 5 years will produce major breakthroughs in DNA transformation in model systems and routine regeneration of plants from our

major crop species. Problems such as changing

the composition of the storage proteins of cereals

and legumes are difficult, because multigene

families limit the impact of single gene introductions. Within the next decade, however, genes

conferring resistance to stress and disease are

likely to be introduced and expressed in plants.

● This experiment was indefinitely postponed pending the outcome

of a lawsuit filed against the U.S. Government raising the question

of the necessitJ’ of filing an I+;nvironmental Impact Statement prior

to the deliberate release into the environment of a genetically

manipulated microorganism.
Ch. 6—Agriculture . 185

The production of better plants has obvious value in food production, but biotechnological developments in plants certainly will have other

applications. Contributions to health care in the

form of novel biological substances may result.

Floriculture and the forestry industry will benefit from the development of new strains and acceleration of breeding programs. Plants could be

used potentially as a source of industrial enzymes.

The fiber industry is likely to see an increase in

the production and quality of plant fibers, and

an increased production of biomass (organic matter that grows by photosynthetic conversion of

solar energy) should contribute to the generation

of energy in the form of ethanol (39). The production of energy from biomass is discussed further in Chapter 9: Commodity Chemicals and

Energy Production.

Commercial aspects of biotechnology

in plant agriculture

Although the generation of new plant varieties

may be important to the farmer in increased

yields or decreased costs of production or to the

end processor in better food products, the commercialization of plants developed using new biotechnology is in the hands of seed and live plant

producers. The ability of the U.S. seed and plant

producers to develop and market new plants will

determine the competitive position of the United

States in plant agriculture. In general, seed production is not a business where international competition plays a role. Because the climates around

the world vary so greatly, researchers would have

to do field trials and grow seed in other countries.

Thus, each locality generally does its own research and seed production.

Excellent research programs in the applications

of biotechnology to plant agriculture exist in the

United States, the United Kingdom, and Australia.

Because of the climatic differences among these

countries, the research is concentrated on different species.

The seed market is one of the largest markets

to which biotechnology is directed. In the United

States, $4.5 billion of seed are sold to farmers each

year. Cuttings of vegetatively propagated plants

account for $500 million of this market, and the

largest segment of the market, $1.2 billion, is for

corn seed. The world market for seeds is estimated at $30 billion. The United States exports

$250 million of seeds per year, and U.S. subsidiaries overseas contribute to world seed production (85).

Another potentially lucrative market is the market for cut flowers. This market may be one of

the easiest horticultural markets to enter with

novel plants produced by biotechnology because

it readily accepts and depends on novel phenotypes.

It is likely that genetically manipulated plants

may increase the demand for commercial seeds.

Drought-resistant plants could increase the acreage planted, and other plants might be planted

at higher density, both resulting in an increase

in the number of seeds sold.

A phenomenon not necessarily related to biotechnology is the long-established movement by

U.S. farmers toward buying new seeds every

year, rather than saving and planting seeds from

crops produced the previous year. The evidence

is gathering that seeds from companies give better results than a farmer’s own seeds. Because

the cost of seeds is only 3 to 7 percent of agricultural direct costs, it behooves the farmer to get

the best seeds possible (85,100). The U.S. soybean

industry, for example, has moved recently from

buying approximately 20 percent of its seeds a

few years ago to buying approximately 40 percent of its seeds today (85). This trend could

amplify the demand for seeds produced by biotechnology.

The industrial production of agricultural chemicals now produced by micro-oraganisms or plants

could be a substantial market. These pesticides,

along with pest-resistant and nitrogen-fixing

plants, could begin to capture the $10 billion

domestic agricultural chemical market (78).

U.S. corporate investment in agricultural research has been high in the last few years. Many

of the firms that have invested in plant biotechnology are chemical firms, especially firms that

produce agricultural chemicals. The investment

may be a response to a potential decrease in the

agricultural chemical market due to the development of plants not needing chemicals (e.g., nitro25-561 0 - 84 - 13
186 ● Commercial Biotechnology: An International Analysis

gen-fixing plants, pest-resistant plants), the development of biological pesticides, or the development of plants with enhanced responses to chemicals. Another major industrial sector investing

in plant biotechnology in the United States is the

petroleum industry. The firms in this sector may

see plants as the next source of energy, either in

the form of biomass or photosynthesis itself. Pharmaceutical and food companies also are investing

in plant agriculture. How the large chemical and

petroleum corporations, the existing seed companies, and the NBFs will compete for market

shares is yet to be seen.

The seed and vegetative cutting market is very

large, and it appears that U.S. companies are oriented mainly toward domestic markets because

of the transportation costs and the expense and

inconvenience of field trials in other countries.

Probably because of large domestic markets,

many new entrepreneurial firms are directing

their efforts toward plant agriculture. In fact, the

number of NBFs in plant agriculture is third only

to the number in pharmaceuticals and animal agriculture (see Chapter 4: Firms Commercializing

Biotechnology).

Priorities for future research

Animal agriculture

The prospects for the application of biotechnology in the areas of animal and plant agriculture

are truly exciting. To encourage the introduction

and progress of biotechnology in animal agriculture, however, several persistent problems must

be overcome. These problems include the following:

●

●

●

●

●

developing effective delivery systems for

almost all products of new biotechnology to

be used in animals;

achieving consistent expression of polypeptides such as those used for subunit vaccines

from rDNA systems;

developing host/vector systems that yield

products more closely resembling mammalian molecules (e.g., glycosylated proteins) and

that secrete products for easier purification.

demonstrating product stability under the climactic and handling conditions where these

products (e.g., subunit vaccines) will be implemented; and

achieving higher immune responses with

subunit vaccines, for example, by developing delivery systems that prolong exposure

to the vaccine.

More basic knowledge about biological processes in animals and about the cellular and

molecular biology of pathogenic bacteria and

animal parasites is required before many biotechnological applications are realistic. Advances in

basic knowledge about metabolic pathways in

beneficial bacteria may lead to useful growth-enhancing compounds. Finally, more basic knowledge concerning the actions of nascent products

such as rDNA-produced GH is needed to discern

effectiveness and safety.

Given the novelty of disciplines such as molecular genetics and cellular biology in animal science, there is some question as to whether sufficient communicative links are established yet between basic and applied scientists. The efforts of

applied scientists usually are communicated to

animal growers in the United States through the

land grant universities’ State Agricultural Experiment Stations and extension services, supported

by USDA. A corollary to the productiveness of

future research rests in encouraging the establishment of communication between basic and applied scientists to encourage biotechnological applications in animal agriculture.

Plant agriculture *

Because interest in plant molecular biology is

fairly recent, the most important research priority

is an increased understanding of DNA structure

—.. —

“Research goals similar to those outlined in this section were published recently by the National Research Council (83) and the National Academy of Sciences (82).
Ch. 6—Agriculture . 187

and gene expression in plants. * The knowledge

generated from investigations of DNA sequences

and their functions will be essential to the use of

biotechnology in crop improvement, although the

initial contributions of biotechnology will not be

in crop improvement but in acquiring a better

understanding of the basic biology of plants.

It is unlikely that results from laboratory

“model” species can be extrapolated to agriculturally important crop plants. Therefore, research

is needed for improving and understanding the

laboratory culture conditions for cells from these

important plants. These plants must be able to

be regenerated from single cells on a routine basis

before many experiments using novel biological

techniques can be performed. Much more work

needs to be done before any plant cell vector can

be used routinely. Additionally, a continued

search for vectors for monocots is necessary if

rDNA technology is to have an impact on some

of the most important crop species.

It also is important to develop better selection

methods. For instance, it is essential to be able

to determine rapidly which cells carry specific

genes and whether or not those genes are acting

appropriately.

Both basic and applied research efforts in improved plant characteristics are quite active. The

economic impact of finding disease or environmental resistances in the near term are potentially

great enough that this research area is the primary thrust of many of the new plant genetics

companies in the United States. Considerable effort continues in universities, as well, although

overall funding for the university effort probably

is much less than that represented by the current industrial effort. For many desirable traits,

the actual protein product of the gene is not

known. Cloning and genetic analysis of such genes

would greatly increase the knowledge of what

kinds of proteins are involved in disease and other

resistances. Other improvements in specific plant

characteristics may be made by modifying genes

in major crop plants or by the introduction of

● ’1’11[’S(’ prioriti[’s onl} c(n er the trrhniques discussed in this report It shouldI](; noted, though, that gerwtir ad~ancm and applications are ciependent on concurrent research in plant hiorhemistr}

and ph~’siologj’

novel traits from other plants. Both approaches

warrant investigation.

Plants are known to produce a variety of secondary metabolizes that have either pharmaceutical or agricultural uses, yet little is known about

the genetic regulation of their production or the

development of culture systems for optimal production. Better understanding of these areas

could lead to the production of new, improved,

or less expensive drugs and compounds that attract or repel insects for controlling weeds and

pests.

Goals for improved biological nitrogen fixation

include extending nitrogen-fixing bacterial systems to a wider variety of plants, transferring the

bacterial nitrogen-fixing genes to plants, and making existing nitrogen-fixing systems more efficient.

Genetic studies will reveal how nitrogen-fixing

genes are regulated, including how they respond

to environmental levels of nitrogen and oxygen.

The extension of any of the nitrogen-fixing sysems depends partly on understanding more about

survival and competition of nitrogen-fixing

bacteria in field conditions. Temperature extremes, nutrient and pH status of soils, and presence of other micro-organisms are factors that

influence colonization of host plants. Reliable,

analytical descriptions of the field ecology and

physiology of nitrogen-fixing organisms are

needed.

Much basic biology of microbial insecticides is

yet to be understood. In order to determine the

appropriate strategy for their use, it is necessary

to study the influence of such factors as sunlight,

temperature, rain, and relative humidity on the

microorganisms. Additionally, little is known

about the mode and schedule of application and

dose required for effective use of microa--

ganisms in the field. Criteria established by EPA

require an analysis of the pathogen’s possible effect on human and animal health and the environment.

Even with the lack of biological knowledge currently, it is possible to apply the techniques of

biotechnology to the field of microbial insecticides. Approaches include the development of

more potent strains, an increase in their tolerance
188 ● Commercial Biotechnology: An International Analysis

to environmental stresses, and an extension of

their host ranges. The cloning of the Bacillus toxin

gene, for example, opens up possibilities for the

genetic manipulation of this gene to produce a

more potent toxin and for the transfer of the gene

to other microaganisms.

The virus AcNPV currently is well enough characterized that its use as a vector is now possible.

Some ideas for genetic manipulation include the

introduction of insect-specific toxins and broadening the host range of the virus. The use of fungal

insecticides requires a better understanding of the

physiology, genetics, and pathogenicity of the

genes that code for these insecticides. This understanding should lead to the development of strains

with increased virulence and greater ease of production in culture (81).

Plants are capable of producing insecticides, yet

little is known about their biosynthesis or mode

of action. Further research on this topic would

allow for more specific, effective, and environmentally sound insecticides.

Because of the complexity of the photosynthetic

system, more basic research is needed on the enzymatic processes of photosynthesis and their

regulation and compartmentalization. Photosynthesis is used for the production of carbohydrates,

and understanding how these compounds are

partitioned throughout the plant may allow the

ability to direct them into the harvestable parts

of the plant.

Finally, knowledge concerning the ecological

results of growing plants more densely or of

growing plants on marginal land is scant. More

research is needed on soil and water use and mineral cycling plants.

Chapter 6 references*

Animal agriculture references

1

2

6.

7.

8.

9.

10.

11.

12.

13.
Ch. 6—Agriculture ● 189

15,

16,

17,

18,

19,

20

24

25.

26

27

28

*31

32.

for the Office of Technology Assessment, U.S.

Congress, August 1982.

Plant agriculture references

38.

*39.

40.

41.

42.

43.

44.

45
190 . Commercial Biotechnology: An International Analysis

63.

64.

65.

66.

67.

68

69.

70,

,71

72

73

74

75
Ch.. 6—Agriculture . 191

79

80

81

*82

*83.

92

93

94

95

9 6

97,

98.

99.

100.

101
chapter 7

specialty Chemicals and

Food Additives
Contents

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amino Acids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Glutamic Acid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Methionine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Lysine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tryptophan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Aspartic Acid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Phenylalanine. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Enzymes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Vitamins. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Vitamin B2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Vitamin B12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Vitamin C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Vitamin E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Single-Cell Protein. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Complex Lipids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fatty Acids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fatty Alcohols . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Microbial Oils. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sophorolipids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Steroids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Aromatic Specialty Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Polysaccharide Biopolymers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commercial Aspects of Biotechnology in Specialty Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . .

Priorities for Future Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter p references . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Table

195

195

196

197

197

197

198

198

198

200

201

201

201

202

202

202

205

205

206

206

207

207

208

209

211

212

212

Table No. Page

38. Typical 1982 Selling Prices of Selected Microbial, Plant, and Animal Protein Products . . . 203

Figures

figure No. Page

17. Uses of Amino Acids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196

18, Conversion of Starch Into High Fructose Corn Syrup (HFCS) . . . . . . . . . . . . . . . . . . . . . . . . . 199

19. Hydrolysis of Triglycerides . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206

20. Microbial Modifications of Steroid Molecules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208

21.An Example of a Microbial Aromatic Hydroxylation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
Chapter 7

Specialty Chemicals and Food Additives

Introduction

In the production of specialty chemicals, defined in this report as chemicals whose price exceeds $1/lb (50¢kg) in cost, there are many potential applications of biotechnology. * The nearest

term applications are in the production of specialty chemicals that are already produced by processes using micro~organisms, e.g., amino acids and

enzymes. Enzymes are the direct products of

genes, so their production is particularly accessible with new genetic technologies.

A number of specialty chemicals are chemically synthesized. Some, including some vitamins,

are synthesized chemically from petrochemicals.

Others, including fatty acids and steroids, are synthesized chemically from naturally occurring

compounds. Current chemical synthesis production processes often require large energy inputs,

have complicated synthesis steps, and yield many

byproducts. Potentially, some of the steps in current chemical synthesis processes could be replaced by biological steps catalyzed by enzymes.

Enzymes that perform some of the necessary conversions in a very specific manner and with small

energy inputs are already known. If appropriate

microbial enzymes (or higher organism enzymes)

were identified and characterized, the appropriate genetic information could be cloned and expressed fairly rapidly in well-studied micro-organisms to produce or modify compounds such as

vitamins, lipids, steroids, and aromatic chemicals.

Alternatively, a chemical synthesis production

process might be replaced entirely by a biological

● ’III{’ application of l)iot(~(’}~rlot(]g;” to the production of cornmodit~

chemirals, det In{’d in this report as chemicals that sell for less than

$1 per pound, IS discussed in (’hapfer 9.’ [.’omnwdi(.}’ [,’hemical.s ami

khergif Prociu(’tion

Amino acids _

In 1982, the worldwide sales volume of amino

acids was 455,000 metric tons (tonnes) valued at

$1.15 billion (see fig. 17), and an annual growth

process if a microorganism were identified that

performed the synthesis. Both individual enzymes

and biosynthetic pathways consisting of several

enzymes can be manipulated genetically to increase production.

Finally, it should be noted that there are some

specialty chemicals synthesized in nature, such

as complex polysaccharides, for which chemical

synthesis is not feasible. Improving the syntheses

of these specialty chemicals in controlled microbial processes is beginning to be investigated.

This chapter discusses the applications of biotechnology to the production of specialty chemicals. It also discusses applications to the production of animal feed and human food additives, because many of the genetic techniques applicable

to the production of specialty chemicals also apply

to the production of such additives. Since the

main difference between specialty chemicals and

food additives is in the Food and Drug Administration’s (FDA’s) regulatory approval process for food

and food additives, food additives are discussed

here as a subset of specialty chemicals.**

The several kinds of products that could be produced using biotechnology, which are discussed

in this chapter, are only representative of the

large range of products that could be synthesized

using biotechnology. The specialty chemicals and

food additives market is extremely broad, and

many other applications of biotechnology to the

production of such products may be evident in

the future.

● ● F-I)A’s regulatory apprm’al processes are ciiscussd in (,’haptf~r

15 Health, Safe[\, and En\’ironnwntal Regulation,

rate of 7 to 10 percent is expected during the remainder of this decade. The world markets for

amino acids are currently dominated by Japanese

195
196 ● Commercial Biotechnology: An International Analysis

Figure 17.— Uses of Amino Acids

Specialties

1“/0

Anim

3

Anirnal

30

Worldwide volume

1982 total = 455,000 tonnes

Sales value

1982 total = $1.15 billion

SOURCE: Office of Technology Assessment, adapted from P. L. Layman, “Capacity Jumps for Amino Acids, ” Chem. & Eng. News, Jan 3, 1983

producers, the largest of which is Ajinomoto.

Amino acid production in the United States, however, is beginning to expand. W. R. Grace is planning to use a new plant in Maryland to produce

pharmaceutical-grade amino acids, and two Japanese producers, Ajinomoto and Kyowa Hakko,

are opening plants in the United States (47).

Amino acids have traditionally been used as animal feed and human food additives, and their use

as animal feed additives may increase as other

proteinaceous feedstuffs become more expensive.

Recently, there has been increased use of pharmaceutical-grade amino acids for enteral and intravenous feeding solutions. Important constituents of these feeding solutions are the essential

amino acids, those that the human body cannot

make. Leading U.S. manufacturers of such solutions are Abbott Labs, Baxter Travenol, and American Hospital Supply (30). As shown in figure 17,

the specialty market accounts for only 1 percent

of world volume of amino acid production, but

amounts to 18 percent of the sales value. The production of pharmaceutical-grade amino acids

using biotechnology is receiving attention from

both U.S. and Japanese companies (28,47).

>ds

0/0

Glutamic acid

The largest world market for an amino acid is

the market for glutamic acid; the sodium salt of

glutamic acid, monosodium glutamate (MSG), is

used as a food additive. On the order of 300,000

tonnes of glutamic acid are produced annually

worldwide (23,25). Approximately 30,000 tonnes

are used in the United States, and about one-half

of U.S. needs are met through imports at a price

of about $2/kg (10).

MSG is produced by an efficient bioprocess

using a strain of Corynebacterjum. This strain

was first isolated, on the basis of the microorganism’s ability to synthesize and excrete glutamic acid, by the Japanese in the late 1950’s. Reports through the Japanese patent literature indicate that Ajinomoto, the world’s leading MSG

manufacturer, is applying recombinant DNA

(rDNA) techniques to Corynebacterium strains in

an effort to improve glutamic acid production. *

*Strains of Corynebacterium are used extensively in Japan for

synthesis of several amino acids, but the Japanese bioprocess industry

did not do basic research with these bacteria until recently.

However, patents and reports in the literature indicate that Japanese

amino acid producing firms have begun application of rDNA tech-
Ch. 7—Specialty Chemicals and Food Additives ● 197

Methionine

Another large market for amino acids is in animal feeds (47). Typical corn/soybean animal feeds

have low concentrations of the amino acids methionine and lysine, so their nutritive value in animal

diets is Iimited. Methionine and Iysine (see below),

therefore, are widely used as animal feed additives. Two companies in the United States, Monsanto and the U.S. affiliate of the West German

firm Degussa, produce feed-grade methionine

using a chemical process (9). Because this process

is quite inexpensive, it is not likely that competitive biological routes to methionine production

will be developed in the near future.

Lysine

The production of the amino acid lysine is dominated by three Japanese producers, Ajinomoto,

Kyowa Hakko, and Toray Industries (1 1), which

together account for 90 percent of the world market. Manufacturers’ prices are variable, generally in the range of $3 to $4/kg for feed-grade lysine

(43). The United States imports all its Iysine (67)

and in 1981 imported approximately 11,000

tonnes (68). A plant for lysine production is being built in Cape Girardeau, MO. ) by the Japanese

manufacturer Kyowa Hakko, and it is projected

that the plant initial production of lysine will be

7)500 tonnes per year (40).

Most lysine is produced in a bioprocess using

mutant strains of Cory/nebacterjum. A substantial increase in lysine production and a corresponding decrease in cost can be expected to

result from applying rDNA techniques to these

bacteria (30). In production processes, Corynebacterium mutants already yield large amounts of

Iysine from a crude carbon source such as molasses (45). Amplification of Iysine biosynthetic enzymes in these bacteria through gene cloning

should result in an increased synthesis rate and

amount.

Tryptophan

The amino acid tryptophan is the second limiting essential amino acid in corn and the third

niques to (,’oq’nebacteriu rn. Genex and W. R. Grace also have research programs to develop genetic techniques for these bacteria

(30).

limiting essential amino acid in combination feeds

for swine and poultry (58). Although tryptophan

would seem to be a prime candidate for the animal feed supplement business, marketing analyses

have shown that the cost of tryptophan would

have to be reduced to the $10/kg range (i.e., about

three times the cost of lysine) in order to interest

feed formulators in its use [47). The current cost

of tryptophan, $95/kg, makes its addition to animal feeds out of the question at this time.

The development of efficient bioprocesses for

tryptophan production using either modified Corynebacterium or enterobacteria (intestinal bacteria) such as Escherichia coli could potentially

lower tryptophan costs. The current level of understanding of the E. coli aromatic amino acid

pathway and sophisticated rDNA techniques that

are available should facilitate strain construction

in the enterobacteria. As for constructing a tryptophan-producing Corynebacterium, basic understanding of the synthetic pathway and development of a vector system remain to be achieved.

Manipulating any micro-organism to produce

tryptophan efficiently may be difficult, however,

because the synthesis of tryptophan requires a

greater expenditure of energy than does that of

any other amino acid (l). The yield of tryptophan

from a given carbon source, therefore, will be

lower than the yield for other amino acids. The

yield of product from glucose is an important factor in determining production cost in a bioprocess. Information concerning production cost improvements made by the Japanese companies

now manufacturing tryptophan is not available.

Progress has been made in developing a twostep enzymatic process for tryptophan production (32). This approach requires three substrates:

glycine, formaldehyde, and indole. The high levels

of the two enzymes required for this process are

obtained by cloning and amplifying each of the

genes for these enzymes. This process has not yet

been commercialized, but is being investigated by

the new biotechnology firm (NBF)* Genex (US.).

Commercialization requires that the three substrates be priced low enough to meet the target

price for tryptophan. Another enzymatic process

for the production of tryptophan has been devel-

● NBFs, as defined in Chapter 4: Firms Commercializing Biotechnology, are firms that have been started up specifically to capitalize

on new biotechnology.
198 ● Commercial Biotechnology: An International Analysis

oped by Mitsui Toatsu Chemicals. Commercial

production of tryptophan by this Japanese firm

was due to begin in January 1983 (7,12).

The relative costs of corn and soybean meal influence the use of these products as animal feed

additives. As the price of soybean meal, the main

source of protein, and thus amino acids, in poultry and swine feeds rises relative to feed-corn

prices, as is expected during the 1980’s, there will

be a tendency to use less soybean meal in animal

diets if less expensive feedstuffs are available. A

reduction in lysine production cost and a substantial reduction in tryptophan cost could result in

increased incorporation of these amino acids in

animal diets as a substitute for proteinaceous soybean meal.

Aspartic acid

Innovative processes for amino acid production

that involve immobilization of whole cells or enzymes for bioconversion of precursors to amino

acids are being developed (30). In the case of

aspartic acid, a constituent of the sugar substitute

aspartame, an immobilized process has reduced

the costs of production. An early process for

aspartic acid production involved the enzyme

aspartase in a one-step batch reaction. The life

of the catalyst in this process was, at most, a few

days. When the enzyme aspartase was immobilized and a continuous-flow process was developed, a 40-percent saving in aspartic acid production cost was realized (14). The life of enzymes

in immobilized systems can be increased many

fold, up to several months. Cost savings are due

to reductions in the amount of catalyst required,

in the size of equipment used, and in the labor

needed to operate the system.

Phenylalanine

The demand for the amino acids aspartic acid

and phenylalanine as components of the sugar

Enzvmes

substitute aspartame has spurred process development. Aspartic acid is already available at an

attractive price, and the research described below

will make reasonably priced phenylalanine available soon (30). Phenylalanine, like tryptophan, requires large amounts of energy for the microbial

cell to make. However, it should be possible to

genetically manipulate enterobacteria or Corynebacterium strains to overproduce phenylalanine,

thereby making the process economic.

A group of Australian scientists at the University of New South Wales, Kensington, is constructing E. coli mutants to overproduce phenylalanine

in either a batch or continuous-flow bioprocess

(15). No report of the commercialization of their

process has been made, Amino acid producers in

Japan (Ajinomoto and Kyowa Hakko) may also be

applying rDNA techniques to improve phenylalanine production by their Corynebacterium

strains in order to reduce phenylalanine costs.

A single-step enzymatic process to produce

phenylalanine for use in aspartame is being

developed in the United States by Genex and in

Japan by Tanabe Seiyaku (31,73). In this process,

yeast cells that contain the enzyme phenylalanine

ammonia lyase (PAL) are utilized, Under the appropriate conditions, PAL will catalyze the formation of phenylalanine from cinnamic acid and

ammonia. The economics of the PAL process are

very sensitive to the cost of the major raw material, cinnamic acid, which is currently rather

expensive. Recovery of phenylalanine from the

PAL process, however, will be much more

straightforward than recovery from the complex

broth that results from a batch bioprocess. High

recovery yields in the PAL process may offset the

disadvantage of a more expensive raw material.

w

Enzymes are proteins whose function in living cially since the 1890’s, when fungal cell extracts

systems is to catalyze the making and breaking were first added to brewing vats to facilitate the

of chemical bonds. They have been used commer- breakdown of starch into sugar. The size of the
Ch. 7—Specialty Chemicals and Food Additives ● 199

world industrial enzyme market for 1981 was estimated to be 65,000 tonnes at a value of $400

million. A growth rate resulting in 75,000 tonnes

valued at $600 million has been predicted for the

end of 1985. Fewer than 20 enzymes comprise

the large majority of this market. Economic

sources of enzymes include a limited number of

plants and animals and a few species of microorganisms (33).

The enzyme industry is dominated by two European companies, Novo Industri (Denmark) and

Gist-Brocades NV (Netherlands), which together

have about 65 percent of the current world market (25), other companies marketing or planning

to market large volume enzymes include CPC International (US.), ADM (a division of Clinton, U.S.),

Miles (U.S.), Pfizer (U.S.), Dawi Kasi (Japan), Alko

(Finland), Finnish Sugar (Finland), and Rohm (a

division of Henkel, F, R.G.).

The leading enzymes on the world market in

terms of volume are the proteases, amylases, and

glucose isomerase (25). Alkaline protease is added

to detergents as a cleaning aid and is widely used

in Western Europe. Trypsin, another type of protease, is important in the leather industry. Two

amylases, alpha-amylase and glucoamylase, and

glucose isomerase are corn-processing enzymes.

The reactions catalyzed by these three enzymes

represent the three steps by which starch is converted into high-fructose corn syrup (see fig. 18).

Fructose is sweeter than glucose and can be used

in place of table sugar (sucrose) in preparation

of candy, bread, carbonated beverages, and in

canning. Historically, the United States imported

sugar, but with the commercial development of

an economic process for converting glucose to

fructose in the late 1960’s, corn sweeteners have

decreased the amount of sugar imported. About

$1.3 billion in U.S. payments for sugar imports

was saved in 1980 because of the domestic use

of corn sweeteners (17).

The process for converting glucose to fructose

is catalyzed by the enzyme glucose isomerase. Initially, the conversion was done using a batch reaction; in 1972, however, a continuous system using

immobilized glucose isomerase was initiated (36).

The immobilized glucose isomerase process represents the largest immobilized enzyme process

used in production in the world. A large processing plant can convert 2 million pounds of corn

starch into high-fructose corn syrup per day (19).

Because of expanded sales in, for example, the

detergent and high-fructose corn syrup markets,

demand for enzymes will increase. The application of rDNA techniques to microbial enzyme production is expected to facilitate the expansion of

the enzyme industry (25). Additionally, enzymatic

activities of higher organisms could be cloned into

micro-organisms, also expanding the enzyme industry, The fact that enzymes are direct gene

products makes them good candidates for improved production through rDNA technology. For

example, a 500-fold increase in the yield of a

Iigase, used for connecting DNA strands in rDNA

research, was obtained by cloning the gene for

that enzyme on an E. coli plasmid vector (25).

Several research enzymes now on the market are

produced by microorganisms modified using

rDNA techniques, Some are restriction endonu -

cleases used for cutting DNA, and others are DNAmodifying enzymes. Companies that market these

enzymes include Bethesda Research Laboratories

(U.S.), New England Biolabs (U.S.), P-L Biochemical (U.S.), and Boehringer Mannheim (F. R. G.) (30).

Recombinant DNA technology could potentially be used to increase glucose isomerase produc -

reaction)

SOURCE Off Ice of Technology Assessment
200 . Commercial Biotechnology: An International Analysis

tion in microaganisms and to improve the enzyme’s properties. An improved glucose isomerase would have the following properties:

. a lower pi-l optimum to decrease the browning reaction caused by the alkaline pH now

required;

● thermostability so that the reaction temperature can be raised, thus pushing the equilibrium of isomerization to a higher percentage fructose; and

. improved reaction rates to decrease production time.

Improvements in glucose isomerase will first

come from the cloning of its gene into vectors and

micro-organisms that have been developed for

high production. It is also possible that screening a broad range of micro-organisms will yield

enzymes with some improved properties. Finally, it will be possible in the future to identify the

regions of the enzyme that are responsible for

its various properties, such as pH optimum, and

to direct changes in the gene structure to modify

these properties.

Rennet is an enzyme that is essential to the

cheese industry because of its milk+ lotting properties. The world market for rennet from various

sources is valued at approximately $64 million,

over half of which is the more valuable calf rennet (25). The increasing scarcity of calf rennet has

made this enzyme a very attractive candidate for

gene cloning and subsequent production in a microbial bioprocess. The first announcement of the

cloning of the rennet gene came from a Japanese

scientist (53). Since then, it also has been cloned

by four NBFs: the U.S. firms Genex, Collaborative

Research (29), and Genencor (56), and the British

firm Celltech (24,35). The first marketing of calf

rennet produced by genetically manipulated bacteria is likely to occur in 1984 (30).

Enzymes, such as urokinase and streptokinase,

are being used increasingly for treatment of

human disorders. Their use and importance are

discussed in Chapter 5: Pharmaceuticals. Many

other enzymes are used for research and medical

purposes in small quantities. Because rDNA technology potentially allows the construction of enzymes with improved stability and faster reaction

rates, the use of enzymes industrially and medically could increase dramatically.

Vitamins

In 1981, the U.S. Department of Commerce reported that sales of vitamins for human use

amounted to $1.1 billion (69). This market is expected to grow substantially over the next decade

because of the current trend toward a more

health- and nutrition-conscious population. A

smaller but significant sector of the human vitamin market is for food processing and fortification.

Another important use of vitamins is in commercially prepared animal feeds. The vitamin content of natural feedstuffs is variable, so animal

producers often supplement animal diets with vitamins. The U.S. market for vitamins as supplements in commercially prepared animal feed is

large but is expected to increase an average of

only 2.5 percent annually over the next decade

(26) because of a decrease in the consumption of

animal products.

Vitamins are either synthesized chemically or

isolated from natural sources, and to date,

biotechnology has had essentially no impact on

vitamin production. Nevertheless, some opportunities do exist for reducing vitamin production

costs using biotechnology. First, the cost of existing bioprocesses for vitamin production, such

as that for vitamin B12, might be reduced by using

a genetically manipulated microa-ganism that

synthesizes the vitamin in larger amounts at a

higher rate. Second, some steps in a chemical synthesis might be replaced by biological steps, or

the chemical synthesis might be replaced entirely by identifying microorganisms able to synthesize particular vitamins. Once such microbes have
Ch. 7—Specialty Chemicals and Food Additives 201

been identified, vitamin synthesis can be enhanced by various biochemical, traditional genetic, and rDNA techniques. Finally, a micro-organism might be identified that produces a vitamin

precursor. Such a micro-organism might then be

genetically modified so that it would produce the

vitamin itself by introducing a gene (or genes) that

specifies an enzyme that would convert the precursor to the vitamin.

There are technical problems that introduce

risks to research programs for new process developments for vitamins. one major problem is

the dearth of information concerning vitamin biosynthetic pathways, especially in micro-organisms. Another problem is that any new biotechnology-based process will have to be very efficient

to compete with the established chemical production methods.

Since vitamins are naturally occurring substances, they all have the potential for biotechnological production. The discussion below concentrates on vitamins B2, B12, C, and E to illustrate the range of biosynthetic pathways and potential problems for industrial production.

Vitamin B2

Riboflavin (vitamin B2) is known to be synthesized in small quantities by micro-organisms, but

is manufactured primarily by chemical synthesis.

The synthesis of riboflavin by the bacterium Bacillus subtilis has been studied extensively by a

group of Soviet scientists (13), and strains of B.

subtilis that overproduce and excrete riboflavin

have been isolated (22). Because B. subtilis has

been the subject of extensive studies by U.S. and

European scientists, techniques such as DNA

transformation, protoplasm fusion, and gene cloning have been developed for this bacterium (21).

The availability of such techniques should facilitate the construction of a strain of B. subtilis for

the production of riboflavin.

Vitamin B 1 2

Vitamin B12 is currently produced by a microbial bioprocess (27). The U.S. market for vitamin

B12 is supplied both by U.S. and European firms.

One U.S. company (Merck) supplies the major part

of the feed-grade vitamin B 12 market, while imports from Europe account for the major portion

of the pharmaceutical grade (30). The current

manufacturers’ price for vitamin B 12 is approximately $8,000/kg for pure material (9). *

Reducing the cost of vitamin B12 production

will require genetic modifications of bacterial

strains so that the micro-organisms synthesize .

vitamin B 12 more efficiently. Vitamin B 12 is one

of the most complex molecules of living systems,

however, and its biosynthetic pathway has not

been definitively characterized.

Vitamin C

The U.S. market for vitamin C is very large,

17,500 tonnes in 1982 (30). Approximately twothirds of this volume is supplied by U.S. producers, while the remaining third is imported.

The current price of vitamin C is approximately

$12/kg (9).

Although some of the synthesis of vitamin C is

done microbially, efforts to replace other steps

with bioconversions have not been successful (18).

The synthesis of vitamin C has been reported in

a few micro-organisms (50). The first step in developing a vitamin C bioprocess, therefore, will

be screening for a potential production organism.

Analysis of the biosynthetic pathway must be

done, because little is known about microbial

pathways for vitamin C synthesis. Once the ratelimiting steps of the pathway have been identified, rDNA techniques could possibly be used to

increase production. A complicating factor in a

vitamin C bioprocess is the fact that this vitamin,

in solution, is readily oxidized when exposed to

air. Controlling dissolved oxygen and completing

vitamin C with other compounds are two potential techniques for controlling the rate of vitamin

breakdown during production. The wealth of

unknowns makes it impossible at this time to predict a time frame for developing an improved vitamin C production process.

● The prices in this reference are for small volumes. “l’he purchase

of large quantities of these chemicals can result in a substantial price

reduction,

25-561 0 - 84 - 14
202 ● Commercial Biotechnology: An International Analysis —.—..——— . .

Vitamin E

If an approach to natural vitamin E production

using biotechnology could be developed, its impact would be quite significant. In 1979, approximately 3,200 tonnes of vitamin E were used in

the United States (39). Of this amount, 700 tonnes

were the natural form of vitamin E. The remaining 2,500 tonnes were synthetic forms. Synthetic

vitamin E is a mixture of closely related compounds that vary in biological activity, whereas

the natural vitamin preparation consists of only

the most active compound. Demand for vitamin

E as an antioxidant could increase the market for

this vitamin by as much as 1,500 tonnes per year,

depending on FDA’s decisions concerning continued use of chemical antioxidants. The U.S. demand for natural vitamin E is met by two U.S.

manufacturers, Eastman Chemicals and Henkel,

and 95 percent of synthetic vitamin E is produced

in the United States (30). The May 1983 price of

the synthetic vitamin mixture was $27/kg (9). The

price of the natural vitamin was several times that

amount, depending on the activity of the preparation.

Natural vitamin E is now purified from vegetable oil by a process that involves several steps.

If a one-step fermentation process could be developed based on a high-producing microbial

strain, the manufacturing cost of natural vitamin

E might be lowered substantially.

Blue-green algae are the only well-characterized

micro-organisms that are known to produce vitamin E (20,55). It might be possible to increase

vitamin E synthesis by altering the biosynthetic

pathway in blue-green algae, but the biochemistry

and physiology of this pathway is poorly understood, and gene cloning in these microorganisms

is at a rudimentary stage of development.

Single-cell protein

The discovery in bacteria, such as E. coli B. subtilis, and Pseudomonas, of a compound that is

potentially a vitamin E precursor suggests another

route for vitamin E production (37). These bacteria are well-characterized species for which genetic transfer techniques are developed. Construction of a vitamin E-producing strain first

would involve isolating mutants that overproduce

the precursor, Then the genes for the enzyme

that catalyzes the conversion of the precursor to

vitamin E could be isolated from blue-green algae

and introduced into the potential production

strain. Although the savings in production cost

of vitamin E could be great, this project involves

a substantial amount of risk related to the lack

of information concerning the biosynthesis of this

vitamin. For example, it is not known if only one

enzyme is needed for the conversion of precursor to vitamin, how complex such an enzyme is,

how many genes encode it, and what cofactor requirements it might have.

Summary

Biotechnological techniques for improving the

efficiency of vitamin production are similar to

those being used in amino acid process development. The research and development (R&D) effort for vitamins will be more extensive than that

for the amino acids, because vitamin biosynthetic

pathways are more complex and less understood.

In some instances, screening programs to identify micro-organisms with potential for producing

a particular vitamin may be required. Furthermore, for some micro-organisms that have good

potential for vitamin production, it will be necessary to develop techniques of genetic manipulation. In summary, the impact of biotechnology on

vitamin production will be more long range than

its impact on the production of either amino acids

or enzymes.

The term “single-cell protein” (SCP) refers to high protein content, it also contains fats, carbocells, or protein extracts, of micro-organisms hydrates, nucleic acids, vitamins, and minerals.

grown in large quantities for use as human or an- Interest in SCP production is not new, as eviimal protein supplements. Although SCP has a denced by the fact that Dutch, German, and Brit-
Ch. 7—Specialty Chemicals and Food Additives ● 203

ish patents for SCP production were issued as

early as 1920 (51). Interest in SCP has waxed and

waned throughout the ensuing years, but SCP

production has never achieved great significance,

mostly because of economic considerations

(49,64). With the advent of new biotechnology and

the threat of potential world food shortages, interest in SCP may once again return (49).

SCP can be used as a protein supplement for

both humans and animals. In animal feed, it is a

replacement for more traditional supplements,

such as soybean meal and fishmeal. For humans,

S(;P is used either as a protein supplement or as

a food additive to improve product functionality, for example, flavor, whipping action, or fat

binding (49). The use of SCP in human food presents a problem: humans have a limited capacity

to degrade nucleic acids. Therefore, additional

processing is necessary before SCP can be used

in human food. The animal feed market is more

attractive for SCP, not only because there is less

processing of the product, but also because the

regulatory approval process is less stringent.

Relative protein content of the various commercial sources of concentrated protein is shown in

table 38. Nutritionally, the amino acid composition of SCP resembles meat, fish, and shrimp meal

rather than vegetable protein. It has been shown

through extensive testing both in the United

States and abroad to be a suitable substitute for

at least part of the former high-cost protein

sources. The high protein content, good storage

properties in dry form, texture, and bland odor

Table 38.—Typical 1982 Selling Prices of Selected

Microbial, Plant, and Animal Protein Products

Protein 1982 selling

content price

Product (

0

/0) ($lkg)

Food-grade products:

Candida uti/is (tortula yeast). . . . . 50 to 55 $1.87 to $2.24

K/uyveromyces ffagi/is. . . . . . . . . . 45 to 50 2.09 to 2,29

Soy protein concentrate . . . . . . . . 72 0.88 to 1.03

Soy protein isolate . . . . . . . . . . . . . 92 2.59 to 2.68

Dried skim milk. . . . . . . ... , ... , . 37 1.16 to 1.21

Feed-grade products:

Saccharomyces cerevisiae . . . . . . 45 to 50 $0.48 to $0.66

Soybean meal . . . . . . . . . . . . . . . . . 44 0.19 to 0.20

Meat and bonemeal . . . . . . . . . . . . 50 0.19 to 0.21

Fishmeal . . . . . . . . . . . . . . . . . . . . . 65 0.23 to 0.40

SOURCE J H Litchfield, “Single.Cell Proteins, ” Science 219’740-746, 1963.

and taste of SCP suggest real potential in feed and

food markets. In prepared aquiculture feeds

where, for juvenile animals, protein content up

to 50 percent and above is required, SCP appears

to be an attractive product. Another application

is as a calf, lamb, or kid starter, thus leaving more

milk for human consumption.

Incentives for production of SCP are fourfold.

First, some parts of the world, for example, the

high rainfall, tropical areas, have agricultural feed

and food products high in carbohydrates; in such

places, there is a chronic shortage of protein,

which results in deteriorated physical and mental health. SCP would raise the protein content

of food. Second, the land in other regions, including the Middle East and Africa south of the Sahara, cannot produce sufficient food of any type to

prevent hunger. Here also an SCP supplement

would be an asset. Third, there is demand worldwide for very high protein ingredients for feeds

in the aquiculture industry, i.e., in the production of shrimp, prawns, trout, salmon, and other

finfish and shellfish. Finally, SCP does not rely on

temperature, rainfall, or sun for survival. At least

one of the variety of feedstocks is usually available in almost any country or region of the world.

The security of having such an internal source

of protein is attractive to many countries.

Economically feasible SCP production is dependent on the efficient use of an inexpensive feedstock by a microorganism. A large variety of feedstocks have been used for SCP production over

the years, including carbon dioxide, methane,

methanol, ethanol, sugars, petroleum hydrocarbons, and industrial and agricultural wastes.

These feedstocks have been used industrially with

different micro-organisms, including algae, actinomycetes, bacteria, yeasts, molds, and higher

fungi. The choice of a feedstock includes such

considerations as cost, availability, efficient

growth of the microorganism, and requirements

for pretreatment (49).

SCP has yet to become an important source of

protein, mainly because of high production costs.

Some Scp-production processes that were economical at one time have not remained so because

of changes in prices of competitive sources of protein such as soybean meal or fishmeal. In comparison to SCP, these protein sources are quite
204 “ Commercial Biotechnology: An International Analysis

inexpensive (see table 38), In fact, the price of

most SCP processes would have to be decreased

one-half to one-fifth for SCP to be competitive

with soybean meal and fishmeal.

Through the years, the high cost of SCP relative

to that of these other sources of concentrated protein has prevented extensive utilization of SCP,

primarily in animal feeds. In the case of SCP produced from methanol, for example, the methanol

represents approximately 50 percent of the cost

of the product. In the United States, the cost of

SCP made from methanol exceeds the average

cost of fishmeal by a factor of 2 to 5. A plant in

the United Kingdom (ICI) is operating at a loss

because of such a situation (49,52). In some parts

of the world, such as the Middle East, low-cost

methanol and high shipping costs for fishmeal and

other natural protein sources make the cost differential considerably less. In countries without

methanol, biomass presents an option as a cheap

feedstock source. However, this market has not

been developed yet.

It is possible that the application of biotechnology will help to reduce the cost of production

of SCP. Strains of micro-organisms could be improved using rDNA techniques. Improvements

could include increasing the production of proteins with a better amino acid balance* or improving the ability of the microorganism to utilize the

feedstock efficiently. Technological improvements

in the process and recovery steps would also be

important. The use of automated, continuous

processes could improve the efficiency of production. Recovery steps could be aided by using

micro-organisms that have been genetically manipulated to excrete protein. Additionally, it is

possible that an enzyme that degrades cell walls

could be cloned and produced in large amounts.

Its use would help in the production of a protein

concentrate from cells. New technologies will

probably improve the production of SCP, but

widespread introduction of SCP will be governed

by economic and regulatory factors.

Several companies in Western and Eastern Europe, the United States, and Japan have built SCP

*As do proteins from plants, proteins from microaganisms often

lack one or more essential amino acids. Most commercial SCP products are low in methionine (51).

production plants in the last 15 years (3,5,64).

Many of these are no longer operating because

of high production costs and regulatory approval

problems. Nevertheless, there are several companies operating plants, including Shell Chemicals

(Netherlands), British Petroleum (U.K.), ICI (U.K.),

Rank Hovis McDougall (U.K.), Sosa Texaco (Mexico), Finnish pulp and Paper Institute (Finland),

Amoco (U.S.), Phillips Petroleum (U.S.), Pure Culture Products (U.S.), Rhinelander Paper Corp.

(US.), and Amber Laboratories (U.S.). In addition,

there is one plant in the German Democratic Republic, and there are several in the U.S.S.R.

The center of SCP technology is in England, especially at ICI (71). The ICI process uses aerobic

bacteria with methanol and ammonia as feedstocks. The bacteria are grown in the world’s largest continuous bioprocess system with computerized control and monitoring of performance. The

product, Pruteen@

) contains 80 percent crude protein as well as a high content of essential micronutrients, especially B group vitamins. Pruteen@

is used in animal feed diets (poultry, swine, fish)

and as a milk replacer (calves). In 1981, ICI had

scaled up its process to produce 3,000 tons of SCP

per month. It is beginning research using rDNA

technology to facilitate protein harvesting (49). So

far, however, the production of Pruteen” has not

been economic even though it is twice as nutritious as soybean meal (52).

Two of the SCP plants in the United States (Amber and Rhinelander) use wastes produced in

other parts of their plants for feedstocks, assuring a constant and inexpensive source of raw materials for SCP production (49). This type of smallscale operation using internally generated wastes

as feedstocks may be the most appropriate use

of SCP technology in the United States and other

countries where animal- and plant-derived protein sources are abundant.

The U.S.S.R. is actively pursuing the production

of SCP. The Soviets consider the construction of

plants to produce SCP a high priority in order to

decrease their dependency on foreign sources of

protein for animal feed (5). The U.S.S.R. produces

about 1 million tons of SCP per year, but production has not increased since 1976 (62). About half

of the Soviets’ SCP feedstock is cellulose, and the

balance is petroleum. The current Five-Year Plan
Ch. 7—Specialty Chemicals and Food Additives ● 205

calls for doubling SCP production by 1985 to 2

million tons per year, but the Soviets will have

to produce a total of 3 million tons per year in

order to be able to stop importing soybeans for

use as a protein source.

Low-cost or waste biomass feedstocks have

been cited as one means to product cost reduction. Inedible biomass can serve as an indirect

feedstock for SCP processes by high-temperature

conversion to synthesis gas and then to methanol

(2).

Engineering improvements expected include

bioreactor designs for continuous operation and

high cell density. High cell densities decrease cost,

because at high cell densities, the cell suspension

leaving the fermenter can be dried without pre -

concentration of the cells by centrifugation, and

because extracellular nutrients are recovered in

the product.

Conventional genetic and rDNA methods for

SCP production are currently being directed

toward the following goals: 1) broadening the

range of utilizable feedstocks; 2) increasing the

optimum bioprocessing temperature and achieving a concomitant decrease in cooling requirements; 3) increasing the efficiency of utilization

of the feedstock with the associated benefit of decreased generation of heat; 4) optimizing the balance of the essential amino acids in the product;

and 5) producing of high-value products in conjunction with the SCP (e.g., growth stimulators)

which may be either left in the SCP product or

isolated from the broth.

The future of SCP depends largely on reduction in cost and improvement in quality. Means

to meet these requirements involve lower cost

feedstocks, improved engineering of the conversion and recovery processes, and upgrading the

yield and quality of the product through conventional genetic and rDNA methods. The renewed

interest in all of biotechnology, in part due to

rDNA technology, is leading to increased effort

in developing economically competitive SCP with

improved qualities.

Complex lipids

Lipids are water-insoluble compounds found in

cells whose many functions include serving as the

structural components of membranes and storing of metabolic fuel. The term lipid designates

a general class of compounds that includes the

complex lipids (saponifiable lipids) which contain

fatty acid components and simple lipids (nonsaponifiable lipids) which have no fatty acid component. The simple lipids include some vitamins,

steroid hormones, and other highly specialized

fat-soluble biomolecules.

Complex lipids are readily available and are extracted from natural sources. Some lipids such

as sophorolipids have commercial uses. By far the

most valuable attributes of lipids, however, are

the products that can be derived from them, including fatty acids and fatty alcohols and the

potential of lipids to replace petroleum feedstocks

(48). Biotechnology could be used to develop new

methods for economical production of lipid-derived products.

Fatty acids

Fatty acids are important industrial chemicals

used in cosmetics, plastics, lubricating greases,

rubber compounding, polymer emulsifiers, specialty household cleaners, foods, paints, varnishes,

and flotation reagents (46). In the United States

alone, the present consumption of fatty acids is

about 1.65 billion pounds annually (46). The major sources of fatty acids are the naturally occurring fats and oils of plants and animals. The major plant sources of fatty acids in the United States

are tall oils and coconut oil, and the major animal

source is tallow (46). Synthesizing fatty acids from

petroleum feedstocks is possible, but the process

requires complex reactions and is more expensive than obtaining the acids from natural

sources.

Fats and oils are composed of triglycerides,

which can be broken down to free fatty acids and

glycerol, a valuable coproduct. The usual decom -
206 ● Commercial Biotechnology: An International Analysis

position method is a chemical process whereby

the triglycerides are continuously hydrolyzed (16).

This chemical process is efficient; 99 percent of

the available triglycerides are hydrolyzed to free

fatty acids and glycerol. Because the process requires both high temperatures and high pressure,

however, it is also energy-intensive.

An attractive alternative to chemical hydrolysis

of triglycerides is an enzymatic process that uses

lipases to split the triglycerides into free fatty

acids and glycerol (see fig. 19). Such a process does

not require severe reaction conditions and is

therefore more energy-efficient. Two Japanese

companies have begun to commercialize the production of fatty acids from natural oils and fats

using lipases. Miyoshi Oil and Fat Co. has reportedly constructed two plants for the lipase-catalyzed production of fatty acids. Its initial plant

reportedly is producing 300 tons of fatty acids

annually. Similarity, the Nippon Oil and Fat Co.

has begun trial operation of a pilot plant at its

Amagaski facility, It plans to produce initially

about 1,000 tons of fatty acids per month. These

Japanese companies report that the lipase-based

production of fatty acids is both energy- and

labor-efficient (38,39).

Because of their stability and lack of cofactor

requirements, lipases are good candidates for use

in an immobilized enzyme process. At the present time, however, the apparent requirement of

lipases for an emulsified substrate represents a

barrier to an immobilized enzyme process. Research on both process design and the identificaTrlglycerlde Glycerol Fatty acids

SOURCE Off Ice of Technology Assessment

tion of lipases that are more amenable to immobilization should result in the development of an

immobilized enzyme process for the production

of fatty acids. Such process development might

take several years.

The cost of obtaining sufficient quantities of

lipase will have a major impact on the economic

viability of such processes. The application of

biotechnology to develop or improve techniques

for the recovery and reuse of lipases would be

desirable. Supplies of specific lipases could be increased through gene cloning and amplification.

Fatty alcohols

Fatty alcohols are important industrial chemicals. The plasticizer ester industry uses large

quantities of shorter chain (6 to 10 carbons)

alcohols, while alcohols of longer length (11 to 18

carbons) are used to make detergents. Fatty alcohols can be synthesized chemically from ethylene, which is derived from petroleum feedstocks. Alternatively, some Japanese companies

use a chemical process to convert fatty acids obtained from coconut oil into fatty alcohols (30).

Although the Japanese chemical process does not

rely on nonrenewable petroleum feedstocks, it

does require extreme reaction conditions and

therefore high energy consumption. A number

of microaganisms are capable of converting fatty acids to fatty alcohols, but these biological conversions are also energy consumptive. Furthermore, both the substrate and product are toxic

to micro-organisms. Hence, the development of

a biological process would require, at best, a number of years of R&D effort.

Microbial oils

Although naturally occurring fats and oils can

currently be obtained cheaply from plants and

animals, there is a resurgence of interest in exploiting microorganisms for the production of oil.

Israel, for example, is actively pursuing the development of a microbial source for oil (57) to

reduce its dependence on imports. A number of

eukaryotic oil-producing micro-organisms have

already been identified, and preliminary research

in developing micro-organisms as a source of oil

is underway. It is impossible to predict when such
Ch. 7—Specialty Chemicals and Food Additives ● 207

——.————.

processes will be commercial. The United States

has sufficient plant and animal sources for fats

and oils, but the supply is affected by climate.

European countries, unless they develop a microbial source, will have to rely on imported materials to satisfy demands for vegetable oils and fats

(57).

Sophorolipids

There is increasing interest in identifying and

exploiting microbial biosurfactants (biologically

derived emulsifying agents). one group of glycolipids, the sophorolipids, shows considerable

promise for use as biosurfactants. Sophorolipids

can be produced from vegetable oils by the yeast

Torulopsis. These sophorolipids are comparable

in activity to other surfactants, but are produced

by the yeast in much higher yield and are easily

separated from reaction broths, thus minimizing

costs. Further characterization of the sophoro -

lipids and their potential markets is required

before applications of biotechnology to their production are likely to be considered.

Steroids

With the recognition of the therapeutic value

of the natural steroid hormones and their analogs,

it became necessary to develop efficient processes

for producing these products. The steroids currently in therapeutic use are synthesized primarily by modifying naturally occurring steroids obtained from plants. Two commercially important

modifications, 11-beta -hydroxylation and delta ldehydrogenation, are difficult to achieve via

chemical routes, but micro-organisms have been

reported to perform both reactions. Examples of

a microbial 11-beta -hydroxylation and a delta 1-

dehydrogenation are shown in figure 20.

Microbial reactions have been identified for the

hydroxylation of virtually every position of the

steroid nucleus. Because whole-cell bioconversions for introducing the 1 l-beta-hydroxyl group

occur at low levels and are plagued by the formation of byproducts, they have not been developed for commercial use. Further study of the

enzymatic process should establish whether the

byproducts are the result of many steroid-metabolizing enzymes or a lack of specificity of the

1 l-beta-hydroxylating enzyme. If the enzyme is

specific, it may be possible to obtain the desired

conversion levels by cloning and expressing at

high levels the genes that encode the 11-betahydroxylase.

Microbial delta I-dehydrogenations are used

commercially today. However, an efficient microbial process that combines delta-dehydrogenation

and 11-beta-hydroxylation has not vet been developed. Biotechnology could make a significant

contribution to the steroid industry by achieving

both the delta l-dehydrogenation and 11-beta-hydroxylation in a single biological process step. The

latter reaction is catalyzed by a complex enzyme,

so it is unlikely that an immobilized enzyme system could be developed for it. Therefore, the most

efficient process would be to have the two reactions carried out by one cell.

The steroid market is readily accessible to bio -

technology. Microbial processes are used routinely in the manufacture of steroid products. Furthermore, bioconversions with potential value to

the steroid industry have been identified, and

rDNA technology could be used to construct a

microorganism that more efficiently converts the

steroid substrate to the desired product. The primary barriers to further biotechnological applications in the manufacture of steroids are the lack

of rDNA host/vector systems for some of the

micro-organisms involved and a lack of understanding of the specific enzymatic processes of

steroid synthesis.
—

208 ● Commercial Biotechnology: An International Analysis

—

Figure 20.— Microbial Modifications of Steroid Molecules

SOURCE: Genex Corp., “Impact of Biotechnology on the Specialty Chemicals Industry,” contract paper prepared for the Office of Technology Assessment, U.S. Congress, April 1983

Aromatic specialty chemicals

Aromatic compounds occur in many household

products, medicines, agricultural products,

pesticides, paints, cosmetics, and dyes, and their

synthesis is a major component of the specialty

chemical industry (6). Aromatic compounds that

contain a hydroxyl group on the aromatic ring

are an important group of specialty chemicals. Examples are the parabens and their esters, which

are used as preservatives; 2,4-dichlorophenoxy -

acetic acid (2,4-D), which is the most extensively

used herbicide; and N-acetylated para-aminophenol, an aspirin substitute. The synthesis of each

of these compounds requires the specific hydrox -

ylation of the aromatic ring.

The chemical hydroxylation of the aromatic

ring is generally an inherently expensive step in

the synthesis of an aromatic specialty chemical.

This expense often results from the nonspecificity

of the hydroxylation reaction, which forms unwanted byproducts and is therefore an inefficient

use of the starting material. Additional processing may be required in order to remove the byproducts and to dispose of them properly. Chemical hydroxylations also require severe reaction

conditions and therefore consume a large amount

of energy. In addition, chemical reactions can

result in the formation of undesirable contaminants. One highly publicized case is the dioxin
Ch. 7—Specialty Chemicals and Food Additives . 209

contamination that occurs during the chemical

synthesis of 2)4,5 -trichlorophenoxy acetic acid

(2,4,5-T), an herbicide and a component of the

now banned Agent Orange.

By replacing a chemical reaction with a biological process, biotechnology has the potential to

decrease the manufacturing cost of aromatic specialty chemicals, especially in processes that involve aromatic hvdroxylations. Many microarga-

.

nisms are able to grow on aromatic compounds,

and aromatic hydroxylations are key reactions in

these growth pathways. These enzymatic reactions occur under mild conditions and result in

specific hydroxylations of the aromatic ring. Furthermore, using enzymatic reactions, hydroxyla -

tions can be obtained at positions not readily

hydroxylated by chemical reactions. The development of bioprocesses for aromatic hydroxylation

reactions represents a valuable biotechnological

opportunity for the specialty chemical industry.

Microbial aromatic hydroxylations are mediated

principally by oxygenates that catalyze the direct

incorporation of molecular oxygen into the aromatic ring (6,54,65)66). An example of an aromatic

hydroxylation mediated by a microbial oxygenase

is shown in figure 21. Many oxygenates have been

studied in detail; while differences do exist among

the various types of oxygenates, oxygenates generally are complex enzyme systems that require

cofactors for activity.

As found in nature, the conversion efficiencies

of most aromatic hydroxylations are generally too

low to be commercially viable (30). However, the

conversion efficiency could be improved by cloning the gene(s) encoding the oxygenase and expressing the cloned gene at high levels in an appropriate production strain. Once the oxygenase

Figure 21.—An

OH

SOURCE Office of Technology Assessment

gene(s) have been cloned and expressed in an appropriate production strain, more research time

and effort will be required for process development. One major consideration is how to minimize the toxic effects of the aromatic compounds

on microorganisms. One solution would be to

develop an immobilized enzyme process; however, because of the complexity of the hydroxylation reaction it may not be possible to apply this

technology. Toxic effects in bioprocesses have

been minimized by innovative process design, and

it is anticipated that there will continue to be

significant advances in this area of research.

Another consideration in developing an effective

process is that the substrates and products are

not soluble in water. Again, innovative process

design could minimize this problem.

Polysaccharide biopolymers

Biopolymers are naturally occurring macromol- The major commercially available water-soluble

ecules that include proteins, nucleic acids, and biopolymers are used as viscosifiers (thickening

polysaccharides. The discussion here will empha- agents), flocculating agents (aggregating agents),

size the polysaccharide biopolymers and the op- and lubricants. Currently, there is a trend toward

portunities for the application of biotechnology increased use of synthetic polymers as flocculatto their synthesis, ing agents in place of natural products (70). This
210 ● Commercial Biotechnology: An International Analysis

trend, however, is sensitive to the availability and

cost of the petroleum feedstocks required for

manufacturing synthetic polymers, and biopoly -

mers will be important if the price of oil rises.

The market for viscosifiers is several times

larger than that for flocculants. The currently

used viscosifiers, unlike flocculants, are biopoly -

mers obtained from plants, especially seaweed.

Although these sources are not dependent on

petroleum feedstocks, the use of plants as biopoly -

mer sources has several disadvantages, including

labor costs associated with extraction and purification, limited availability of the sources, and

a supply that can be affected by adverse climatic

conditions. Microorganisms could provide a constant and reliable supply of these products (72).

Microbial biopolymers produced in controlled

processes would not suffer from the problems

associated with climate, disease, and other factors that normally affect plant products. Furthermore, microbial biopolymers have relatively uniform chemical and physical properties.

These attributes have led to increasing interest

in the production of biopolymers that could be

used in novel applications as well as in place of

commercial biopolymers that are not now microbially produced. For example, alginate is a commercially important gum obtained from kelp. The

markets for alginates demand different specific

characteristics such as solution viscosities and gelling qualities. The alginates obtained from kelp can

vary in composition, so they must be separated,

evaluated, and categorized for the different markets. Alginate is also synthesized by Azotobacter

vinelandii (41). Because the composition of the

microbial alginate can be closely controlled by bio -

processing conditions, separate microbial bioprocesses could be developed to produce specific alginates with uniform chemical and physical properties. Another microbial biopolymer that has

been developed by the Kelco Co. and has recently become commercially available is gellan. Gellan

is a Pseudomonas polysaccharide that can be used

as a solidifying agent for laboratory media or food

products (44).

While a number of microbial biopolymers are

being developed for commercial applications as

gums, plastics, and other products, only xanthan

gum, dextran, polytran, and gellan are currently being produced commercially (44,72). In terms

of production volume, xanthan gum is the major

microbial polysaccharide. At present, over 20,000

tons of xanthan gum are manufactured in the

United States annually (30). Xanthan gum’s primary use is as a food additive for stabilizing liquid suspensions and for gelling soft foods, such

as ice creams and cheese spreads. More recently, it has been used in the new clear-gel toothpastes. The use of xanthan gum in enhanced oil

recovery is still experimental, but this appears to

be the largest potential market for this product. *

Xanthan gum is commercially produced in an aerobic batch bioprocess using the bacterium Xan -

thomonas campestris (30),

The importance of polysaccharide biopolymers

is likely to grow. For example, the microbial poly -

saccharide pullulan is synthesized by Aureoba -

sidium pullulans from a number of substrates

(42). Pulhdan has potential applications in the

cosmetic industry, in diet foods, and, more importantly, as a biodegradable plastic to be used

in place of wraps and plastic containers. Plastic

wraps and containers are now made from petroleum-based plastics which are not biodegradable

and are dependent on nonrenewable feedstocks.

The Japanese are already at the pilot plant stage

for the microbial production of pullulan, and

pullulan has the potential to develop into a significant market.

Another microbial biopolymer that is expected

to be available commercially in 1983 is emulsan.

A potent hydrocarbon emulsifier, emulsan is expected to gain widespread use in cleaning oil-contaminated vessels, oil spill management, and enhanced oil recovery (4). * * Like many biologically produced polymers, emulsan exhibits a specificity that generally is not observed in chemically

synthesized materials; the emulsifying activity of

emulsan is substrate-specific, acting only on

hydrocarbons that have both aliphatic and cyclic

components. Emulsan was originally discovered

by researchers in Israel (34,59,60,61,75).

● Enhanced oil recovery is discussed in Chapter 8: Ent;ironmental Applications.

* ● See discussion in Chapter ~: b;r]t’ir’c)nll]er][al ,Applications
Ch. 7—Specialty Chemicals and Food Additives ● 211

Emulsan was awarded patents in the United

States in 1982, and Petrofirm, USA, a subsidiary

of Petroleum Fermentations, N. V,, headquartered

in Netherlands Antilles, is developing emulsan as

a commercial product (4). To date, the development has been confined to strain improvement

through mutation and selection techniques. Because of the complexity surrounding the microbial biopolymer, the feasibility of applying rDNA

technology for strain improvement is uncertain.

IJseful microbial biopolymers can extend beyond the polysaccharides. For example, polyhy -

droxybutyrate (PHB), a metabolic product of the

bacterium Alcaligenes eutrophus, has potential

commercial applications as a biodegradable thermoplastic that could be used as a surgical material. The unique electrical properties of PHB are

also useful in other specialty markets (8). ICI (U. K.)

soon will market a PHB product known as

Biopol @

, made with a bioprocess using glucose as

a feedstock. ICI does not know yet what Biopol ”

first markets will be. PHB has-properties similar

to polypropylene but costs substantially more. Its

edge is its biodegradability, and ICI believes that

its customers will pay the higher price for this

quality (63).

There are several inherent problems in using

bacteria to produce polysaccharides (30). There

are probably at least 100 enzymatic steps important in the production of these biopolymers, very

few if any of urhich have been identified. Therefore, it is much more likely that classical genetic

selection techniques will be more useful than

rDNA techniques initially for improving the characteristics of the compounds. Before it is possible to predict the role that rDNA technology will

play in microbial biopolymer production, the producing micro-organism will have to be characterized genetically and physiologically. It will also be

important to have an understanding of the complex biochemical pathways for the production of

the biopolymer and its regulation. Most biotechnology advances will only appear several years

into the future, if at all.

More immediate improvements in the production of microbial biopolymers might be realized

by the development of novel bioreactor designs.

The polysaccharides have very large molecular

weights and are viscous, two characteristics that

preclude the use of most standard bioreactors.

One way to generate a large quantity of polysac -

charides is to maintain live cells in an immobilized cell bioreactor. The cells cannot be microencapsulated, because the product is too large to

be washed away. Therefore, they need to be attached to a solid surface by a procedure that does

not damage the cells. Another critical research

area is improved product recovery from the

broth. Current methods for the recovery of xan -

than gum, for example, often result in preparations that contain water-insoluble solids such as

nonviable cells and residual medium constituents,

For xanthan gums to be used in enhanced oil recovery, it is important to have a product free of

cells and other fine particulate because the fluid

must be able to flow through porous rocks.

Another area of research is the identification

of thermophilic polysaccharide producers. Devel -

opment of a thermophilic micro-organism could

result in substantial gains in productivity and

lower process costs due to energy conservation.

Screening thermophiles for polysaccharide production is an active area of research (74). To date,

no thermophilic xanthan gum producers have

been identified. Thermophilic Bacillus and Clos -

tridium bacteria are being screened for the production of polymers that would be useful as bio -

surfactants (74).

Commercial aspects of biotechnology

in specialty chemicals ——.—.

Some specialty chemicals are currently made by Japanese companies, especially Ajinomoto and

using bioprocesses, most notably amino acids and Kyowa Hakko, whereas the enzyme markets are

enzymes. The amino acid markets are dominated dominated by two European firms, Notro and Gist-
212 ● Commercial Biotechnology: An International Analysis

Brocades. Japan also leads the world in the biotechnological production of fatty acids, a relatively

new process.

Most of the opportunities for the use of biotechnology in the production of specialty chemicals

are still in planning or early development stages.

Many potential bioprocesses would replace chemical processes, necessitating a large investment in

new plants. Thus, the potential of a process using

biotechnology must justify this investment. On the

other hand, enzymes that could withstand high

temperatures and pressures could be used to replace existing chemical steps without having to

change the basic chemical process. Enzymes with

these characteristics are beginning to be studied.

U.S. companies are beginning to enter some specialty chemical markets with biotechnology products. Corn sweetener companies are planning to

market enzymes that they have produced for inhouse use for some time. Other established firms,

such as W. R. Grace, are entering markets with

biotechnologically derived specialty chemicals.

Several U.S. NBFs, such as Genex, Genentech,

Chiron, Amgen, Ingene, Enzo, and Industrial Genetics, have stated interests in specialty chemical

markets. Although 20 percent of U.S. companies

using biotechnology say they are working in the

specialty chemicals field, their interests are not

well known and most of their research is highly

proprietary.

Priorities for future research

The most glaring lack of knowledge for the successful application of biotechnology to the production of specialty chemicals is in the identification

and characterization of microaganisms that perform particular chemical conversions. often

when industrially useful reactions in microorganisms have been identified, the micro-organism

is so poorly understood that the application of

new biotechnology is not possible. There are

many opportunities for the specialty chemical industry to expand and improve its production capabilities using biotechnology, but before it can

take advantage of these opportunities, useful

micro-organisms, especially those that function

at high temperature and pressure, will have to

be screened and identified.

For the specialty chemical industry to take full

advantage of biotechnology, sharing of information between industrial chemists and biologists

is needed. The sharing of information has to proceed beyond identification of specific steps in a

chemical synthesis that are inherently expensive

to discussion of the total process for the manufacture of a specialty chemical. Broad discussion

could suggest a bioconversion that uses a less expensive starting material and that would replace

several steps of the chemical process. Processes

for the manufacture of many specialty chemicals

could ultimately combine chemical and biological

steps, thereby resulting in more economic and

energy-efficient manufacturing.

Chapter 7 references

1. Atkinson, D. E., “Adenine Nucleotides as Universal Stoichiometric Metabolic Coupling Agents,” Advances in Enzyme Regulation, G. weber (cd. ) (New

York: Pergamon Press, 1971).

2. Biomass Digest, “International Harvester Builds

Methanol Units Around SERI Gasifier,” November

1982, pp. 4-6.

3. Biotechnolo~ Newswatch, “East German Fermentation Process Produces Single-Cell Protein Plus

Arctic Diesel Fuel,” Mar. 1, 1982, p. 3.

4. Biotechnolo~ Newswatch, “Oil-Eating Bioemulsifier Passes Field Tests, Wins Patents, Federal OKS,”

Apr. 5, 1982, pp. 1-2.

5. Carter, G. B., “Is Biotechnology Feeding the Russians?” New Scientist, Apr. 23, 1981, pp. 216-218.

6. Cernigha, C. E., “Aromatic Hydrocarbons: Metab-
Ch. 7—Specialty Chemicals and Food Additives ● 213

8.

9.

10.

11.

12.

13.

14.

15.

16.

17

18

19

20.

21.

22.

23.

24

25

30.

31.

32,

33

34

35.

36.

37.

38.

39.

40,

41,

42,
214 ● Commercial Biotechnology: An International Analysis

—— ——— — . ——

46.

47.

48.

49.

50.

51

52.

53.

54.

56,

57,

58.

59.

60.

61

71.

72,

73.

74.

75.
Chapter 8

Environmental Applications
—

Contents

. .

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pollution Control and Toxic Waste Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Treatment of Nontoxic Liquid and Solid Wastes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Toxic Waste Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Slime Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Grease Decomposition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commercial Aspects of Biotechnology in Pollution Control and Toxic Waste Treatment . . .

Microbiological Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mineral Leaching . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,

Concentrationof Metals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commercial Aspects of Biotechnology in Microbiological Mining . . . . . . . . . . . . . . . . . . . . . . .

Microbial Enhanced Oil Recovery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Uses of Micro-Organisms in Oil Wells . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Use of Microbially Produced Compounds in Oil Wells... . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commercial Aspects of Biotechnology in Microbial Enhanced Oil Recovery . . . . . . . . . . . . . .

Priorities for Future Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter p references . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figure s

Page

217

217

217

222

223

223

224

226

226

227

228

228

229

229

230

230

231

FigureNo. Page

22. Steps in Waste Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218

23.One Possible Configuration for a Leaching Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
Chapter 8

Environmental Applications

Introduction

Micro-organisms have several uses in the environment, and new biotechnology can potentially be used to improve these micro-organisms. one

application is in the control of pollution and treatment of toxic wastes. As discussed in this chapter,

micro-organisms are currently used in pollution

control, and the potential applications of biotechnology to treat liquid and solid wastes are numerous. Additionally, techniques are beginning to be

used to select micro-organisms that can degrade

extremely toxic compounds. In the mining indus -

try, microbes are used to leach metals from mine

dumps and concentrate metals from dilute solutions, and there are possibilities for using biotechnology to improve the efficiencies of these processes. A third environmental application of biotechnology is in enhanced oil recovery. About 50

percent of the world’s subterranean oil is either

reserves trapped in rock or is too viscous to

pump. It is possible that either micro-organisms

themselves or microbially produced compounds

could be injected into oil wells to release the

trapped oil.

None of the environmental applications Of new’

biotechnology are ready to be marketed, and

there are still many technological problems to be

overcome. Nevertheless, several companies are

pursuing research and development (R&D) in

these environmental applications, and their development will progress over the next several

years.

Pollution control and toxic waste treatment

Waste products and the pollution problems

associated with such products have been part of

human existence since the dawn of civilization.

Troublesome wastes are of three types: those in

the atmosphere, those in aqueous systems, and

solids, In the treatment of both liquid and solid

wastes, there are significant opportunities for the

use of biotechnology. Indeed, most liquid and solid

wastes have been dealt with for millennia by nat -

ural biological processes, Moreover, humans in

their initial attempts to control such wastes have

generally resorted to contained biological systems,

particularly for the treatment of liquid wastes.

The possibilities for using biological systems to

control atmospheric pollution, in contrast, are

rather limited. The discussion here, therefore,

focuses on the applications of biotechnology in

the treatment of liquid and solid wastes.

Treatment of nontoxic liquid

and solid wastes

Of the conventional microbiological systems for

the treatment of liquid wastes now in use, the

most complex is that found in publicly owned

water treatment plants. As shown in figure 22,

there are four basic unit operations in a wastewater treatment plant:

● primary processing;

● secondary processing;

● tertiary processing; and

● digestion.

The primary treatment step removes solids

from the wastewater. These solids (sludge) are

then either disposed of or sent to a sludge digester, and the wastewater is forwarded to second217

25-561 0 - 84 - 15
. 

218 ● Commercial Biotechnology: An International Analysis

Figure 22.—Steps in Waste Treatment

Primary Secondary

Settling/ Aerobic/ Settling/

separation micro-organisms separation

Raw

waste

Solids Air Solids

(cellulosic (spent

and carbohydrate) cells)

Filtrate

return

Digestiona

To disposal

(farm, landfill,

incineration)

NOTE: aMay be aerobic.

SOURCE Office of Technology Assessment.

ary treatment. The secondary treatment system

generally consists of natural aerobic microbes in

a large open basin with some type of forced aeration. The purpose of this processing step is to

degrade the dissolved organic compounds. The

sludge resulting from this operation is primarily

composed of microbial cells and is either disposed

of or sent to a digester. The liquid from the secondary operation is sometimes subjected to tertiary processing, which can involve precipitation

and separation of phosphorous and nitrogen,

sand filtration, detention ponds, or biological

filters. The water from the tertiary unit (or, in

*

Discharged

water

the absence of tertiary treatment, from the sec -

ondary unit) is returned to the environment.

The sludge digestion process used to treat the

sludge resulting from the primary and secondary

treatments is conventionally an anaerobic bioprocess. Its purpose is threefold: to reduce the

total volume of solids requiring disposal, to reduce

the odor, and to reduce the number of pathogenic

organisms. Another potential objective of solid

waste treatment can be to recover useful methane

from the anaerobic bioprocess. Although the effective anaerobic treatment of solid wastes is
Ch. 8—Environmental Applications 219

more a problem of engineering than of biotechnology, there is a possibility that enzymes added

to the waste could improve the efficiency of this

treatment. Like secondary processing, sludge

digestion is a classic bioprocess open to further

technological improvements.

The total cost of running publicly owned water

treatment systems in the United States has been

estimated to be $5 billion to $6 billion per year

(12). The cost of the chemicals used in these systems represents approximately 20 percent of the

total operating costs (12). The biotechnology-based

improvements that could be used by these treatment systems will either:

●

●

●

increase the capacity of the treatment plants

and therefore reduce the need for new

capital expenditures,

replace existing synthetic organic chemical

additives, or

remove newly identified, potentially harmful materials.

Processes similar to those just described for

publicly owned water treatment plants are also

used in the treatment of industrial wastewater,

particularly wastewater from the chemical,

petroleum, food processing, and pulp and paper

industries. For that reason, biotechnology-based

improvements in bioprocessing or solids separation procedures that are applicable to public

water treatment systems will very likely be applicable to the industrial sector.

IMPROVEMENT OF CONVENTIONAL

WASTEWATER TREATMENT PROCESSES

Both physical and biological processes are utilized in the treatment of wastewater. Improvements in any of these operations would be reflected in reduced capital and operating costs for

wastewater treatment. Some specific opportunities for biotechnology-based improvements in

wastewater treatment are discussed below.

Solids Separation: Flocculation.-The major

physical operation in wastewater treatment is that

of solids separation. Suspended solids must be

separated during both the primary and secondary

treatment steps, Quite frequently, it is also desirable to “thicken” the sludges resulting from these

settling operations. The present techniques for

accomplishing these separation and thickening

operations generally include the use of materiaIs

known as flocculants. Because of the increased

use and reuse of water, the U.S. market for floe -

culants is expanding (8,10).

Examples of classical flocculants are iron or

aluminum salts and activated silica. In recent

years, synthetic polymers have been used as flocculants, and in some cases, they have produced

very promising results (8,10). Unfortunately, most

of these synthetic polymers are based on acrylamide, a toxic compound. Moreover, these synthetic polymers are usually subjected to postpoly -

merization chemical modification, which adds to

their cost. For both safety and economic reasons,

therefore, biologically derived flocculants could

be very desirable.

A few microbially produced polyelectrolyte

polysaccharides that may prove to be effective

flocculants have been identified (15). Before these

potential bioflocculants can be commercially applied, microorganisms with the potential for highIevel production of effective polysaccharides at

low cost will have to be identified. The potential

bioflocculants will also have to be tested for their

flocculating ability in waste treatment situations.

Because the potential bioflocculants are polysac -

charides and not proteins, improving their production through recombinant DNA (rDNA) technology may be a complex task (see discussion of

polysaccharide biopolymers in Chapter 7: Specialt-v Chemicals and Food Additives). It should be

noted, however, that improvements in microbial

polysaccharide production have already been

achieved with classical chemical mutagenesis and

selection (34).

Sludge Dewatering. –For ease of handling of

solid residues from water treatment processes, the

water content of such residues must be reduced

to a minimum to reduce their total weight. It is

particularly important to reduce the water content of these residues to the smallest practical

value if the sludge is to be disposed of by incineration.

The sludge dewatering operations with current

technology (filtration and centrifugation, for example) result in a solids content of 15 to 40 percent, leaving a water content of 60 to 85 percent.
—— . . .

220 ● Commercial Biotechnology: An International Analysis

A significant proportion of the water that is

retained is “microscopic” in nature, i.e., it is

associated with microbial cells and organic debris

present in the sludge. If techniques for releasing

this retained water could be developed, they

would find a ready and profitable market in the

field of residue disposal.

Because much of the water retained in sludge

is probably held in polymeric matrixes composed

of cellulosics, fats, polysaccharides, and proteins

(38), partial degradation of these matrixes by

using some combination of cellulases, proteases,

amylases, and polysaccharide hydrolyses should

release it. Some enzymes potentially useful for

sludge dewatering may already be available in sufficient quantities and at economically attractive

costs. For other potentially useful enzymes, techniques for economic, high-yield production will

have to be developed. In some instances, these

developments will simply involve process development using known microbial strains, In other instances, it may be necessary to construct genetically strains of microorganisms for high-level

production of specific enzymes and perhaps specifically alter the characteristics of the enzymes

through directed protein modification. It may also

be desirable to identify new enzymes from nature

that have superior characteristics for use in

sludge dewatering.

Conventional Uses of Biological Proc -

esses.—Biological processes are used in two operations of wastewater treatment plants, the secondary

treatment step involving an aerobic process and the

sludge digestion operation involving an anaerobic

process. The performance of these standard aerobic and anaerobic biological treatment processes

could conceivably be improved by the addition

of specific enzymes that could augment the ability

of the natural micro-organisms to degrade, for

example, protein, starch, polysaccharides, and

cellulosics. Such enzymes could be applied selectively at specific wastewater treatment plants

where their particular substrates are present in

unusually high concentrations. Enzyme “augmentation” might also help accommodate fluctuating

loads on a particular treatment plant. The R&D

involved in providing enzymes for this purpose

would be similar to that for providing enzymes

for sludge dewatering.

One potential byproduct of anaerobic bioproc -

esses is gas. Solid wastes, when held in sanitary

landfill, very often encourage the growth of

micro-organisms that produce methane. The

generation of methane has become a serious

problem in many sanitary landfill sites around the

country. Experiments concerning the possibility

of tapping this methane as an energy resource

are in progress (39). Preliminary results indicate

that the costs of the required anaerobic equipment are so high as to make the methane gas thus

generated uneconomic as an energy source (39).

Research is continuing, however, and it is conceivable that at some point in the future, improved micro-organisms or added enzymes could

improve to a limited extent the economics of

methane production from solid waste.

CONTROL OF ORGANIC MICROPOLLUTANTS

In recent years, significant pollution problems

have arisen with regard to drinking water (27).

Analyses of surface waters in the United States

and Europe have demonstrated the presence at

low concentrations of certain naturally arising

soluble organic compounds that, when chlorinated, lead to the formation of trihalomethanes

(THMs) (23,24,25,28,35,36). Increasing attention

is being focused on these precursors of THM,

because THMs are classified as potential carcinogens (23,24,25,28,31,35,36). In addition, there

has been a series of toxic compounds discovered

in ground water called volatile organic compounds (VOCS). VOCS are apparently leached

from a variety of sources in the ground. Both

VOCS and the precursors of THMs are potentially amenable to biological treatment methods.

Biotechnology can potentially offer improved

techniques for the removal of organic micropollutants (13). It is possible, for example, that their

removal could be accomplished by the use of enzymes that are capable of polymerizing aromatic

compounds (e.g., fulvic acids and phenolic compounds) that often contaminate drinking water.

These low molecular weight aromatic compounds

are not precipitated in the traditional flocculation

procedures, and they do not adsorb readily to activated carbon (26). These compounds also contribute to the formation of THMs and chlorophenOIS during chlorination procedures (2,23,24,25,

28,35,36).
Ch. 8—Environmental Applications ● 221

Enzymatic polymerization should result in the

removal of most of these low molecular weight

aromatic compounds during flocculation procedures. Horseradish peroxidase is one enzyme that

can catalyze polymerization reactions of this type

(1, 19,20), but it is not clear that purified or even

crude horseradish peroxidase could be employed

in a cost-effective manner, Other potentially useful polymerizing enzymes are synthesized by

micro-organisms, but the current production

levels are much too low for these enzymes to be

commercially viable (5,6, 11,33). Development of

enzymatic polymerization to remove low molecular weight aromatic compounds will therefore

require one or more of the following biotechnological developments (13):

microbial strain improvement and process

development programs using known polymerizing enzyme-producing microbial

strains;

identification of micro-organisms that produce useful polymerizing enzymes in high

yield; or

the genetic manipulation of a microorganism

to produce high levels of a polymerizing enzyme.

Another potential approach for using biotechnology to remove organic micropollutants from

water is to develop micro-organisms that will

better degrade these contaminating compounds.

Such micro-organisms could be introduced into

the water treatment cycle by seeding them onto

activated carbon. When activated carbon is employed in water treatment processes, it accumulates naturally occurring microbes from the water. The goal would be to expand the degradative

capacity of that microbial population. Although

certain micro-organisms of various genera (Pseudomonas, Acinetobacter, Arthrobacter, Klebsiella)

will degrade a variety of organic compounds, it

will probably be necessary to identify or develop

novel micro-organisms for the degradation of

specific classes of pollutants. One procedure for

accomplishing this, plasmid-assisted molecular

breeding, is discussed below in the section on toxic waste treatment. Because micro-organisms of

the genera listed above are generally present in

natural populations, it should be possible to transfer genes that encode degradative enzymes from

strains developed in the laboratory to the naturally occurring micro-organisms to encourage their

survival in the environment.

The comments above have been made with respect to the control of organic micropollutants

in drinking water. Any technology developed to

solve the problems associated with drinking water, however, would most likely be applicable to

similar organic contamination problems in industrial wastewater.

CONTROL OF HEAVY METAL CONTAMINATION

Heavy metals in drinking water have long been

of concern (3). The concern has focused on lead,

zinc, copper, and cadmium, although iron, at relatively high concentrations, can also present

health risks (38). In addition to contaminating

drinking water supplies, heavy metals can have

detrimental effects on the operation and performance of biological processes used in wastewater

treatment (3), Moreover, heavy metal contaminants in effluents from wastewater treatment

plants can have potentially deleterious effects on

downstream flora and fauna (3).

Micro-organisms used in metal accumulation

(see section on microbiological mining below) are

not useful for concentrating the heavy metals discussed here (except copper), because most metals

found in contaminated water are toxic to microorganisms. One potential approach to solving the

problems of heavy metal contamination involves

the use of metallothioneins (see also section on

microbiological mining). These proteins, found

principally in higher organisms, have a high affinity for various heavy metals (21). The economics of this process would depend on efficient

release of the bound metals and reuse of the

metallothionein. In fact, the gene coding for

mouse metallothionein has been cloned and expressed (22,46). It is possible, therefore, that this

protein could be produced in large amounts by

bacteria, immobilized on a solid support, and used

to extract metals from any solution passed over

the immobilized protein (41). This process would

be highly controlled and could be used not only

for decontamination of waste streams from any

industrial process, but also for concentrating

metals by the mining industry.
222 ● Commercial Biotechnology: An International Analysis

Toxic waste treatment

The chemical and petroleum industries produce

a variety of highly toxic organic wastes that are

not initially amenable to conventional microbial

treatment. Such wastes can be either liquid or

solid. For developing biologically based processes

that will degrade or otherwise detoxify them, a

variety of techniques can be envisioned. A specific

microorganism or enzyme will probably have to

be developed for each toxic compound.

As the number of toxic compounds that are

leached or dispersed into the environment increases, the development of technologies for the

treatment of toxic wastes becomes more critical.

Toxic wastes are often resistant to natural biological degradation and therefore persist in the

environment. Because of their toxic character, developing biotechnological approaches for effective treatment of such wastes may be difficult,

Toxic wastes are generally present in the environment in one of two forms. In some cases, they

are purposefully concentrated at specific disposal

sites in the form of dumps or lagoons. In other

instances, the toxic compounds have already been

dispersed into the environment, and they are

often present at very low concentrations in soil

and water over a fairly large geographical area,

In general, toxic wastes in dumps or lagoons are

likely to be more amenable to biological treatment

than those that have been more widely dispersed.

Dumps and lagoons have the advantage of presenting a reasonably high concentration of a particular type of compound or family of compounds

at a specific site. Thus, the feasibility of developing a very specific treatment process tailored to

both the waste to be detoxified and the environment in which it is found is increased. For more

widely distributed wastes, even if biological

methods for detoxification are developed, it may

be impossible to apply them effectively.

It has often been observed in traditional biological waste treatment systems that the microbial

population will adjust to the presence of a toxic

compound and eventually achieve some degree

of efficiency in its decomposition. This phenomenon, traditionally termed acclimatization, probably represents the selection of mutant microorganisms that are able to both tolerate and

degrade the toxic compound. In the case of certain toxic wastes, it may be possible to accelerate

this natural mutation and selection process in the

laboratory by the use of a technique called chem -

ostat selection.

In traditional chemostat selection, the natural

microbial populations present in soil or water

samples collected from or near the waste disposal

sites are grown continuously over several months

in the presence of steadily increasing concentrations of the relevant toxic compound. This process provides steadily increasing selective pressure

for the growth of mutant micro-organisms able

to tolerate and potentially degrade the toxic

substrate. The mutation rate in the chemostat can

often be increased by the use of chemical or phys -

ical agents.

In a more modern version of chemostat selection, plasmid-assisted molecular breeding, laboratory strains of Pseudomonas that contain plasmids

encoding enzymes involved in the degradation of

toxic compounds are added to the chemostat (16).

This technique is based on the observation that

in nature degradative plasmids often evolve by

the recruitment of genes from other plasmids in

other micro-organisms. Plasmid-assisted molecular breeding has resulted in the generation of both

a mixed-culture and a pure Pseudomonas strain

that degrade the normally recalcitrant molecule,

2)4,5-T) which is a component of herbicides and

Agent Orange (16,17). It has also been possible

to develop microorganisms that degrade novel

substrates by introducing into a single bacterial

strain plasmids specifying the degradation of different, but analogous, compounds or different

portions of a single degradative pathway (32).

Because degradation of a toxic compound usually involves a complex and often uncharacterized

series of reactions, it has generally been preferable to let nature select for the proper genetic

combination rather than to attempt to construct

it de novo in the laboratory.

More recently, however, in a joint research

project between the University of Geneva

(Switzerland) and the University of Gottingen

(F.R.G.), researchers have cloned the gene for one

of the key enzymes in the degradation of 2,4,5-T.

Their hope is to understand better the degrada-
Ch. 8—Environmental Applications ● 223

tion pathways that have been naturally selected

and possibly use this knowledge to develop a

more capable micro-organism (4).

one or more of the techniques described above

could potentially lead to the isolation of either a

mixed culture or a pure strain that degrades a

particular toxic compound that might be able to

be used at a disposal site or in a contaminated

area. The Pseudomonas strain that degrades

2,4,5-T has been shown to function successfully

both in laboratory tests using contaminated soil

and in field tests (17). The micro-organisms being investigated now are aerobic. However, if the

toxic waste is present in a dump, it may be necessary to develop anaerobic micro-organisms for

detoxification.

The development of micro-organisms for the

degradation of both organic micropollutants and

toxic wastes will require screening of natural microbial populations or chemostat selection for the

appropriate degradative abilities. Once microorganisms with the ability to degrade the offending compound(s) are available, it may be desirable

to transfer that ability to a different microbial host

by using rDNA technology to increase the efficiency of degradation or to increase the ability

of the micro-organisms to survive in the environment in which they are utilized.

For certain toxic wastes, an alternative approach to detoxification might involve the use of

specific enzymes. Enzymatic processes would not

totally degrade the toxic compound but simply

would convert it to a nontoxic derivative that

might then be degraded through natural biological processes. Development of such enzymatic

processes would probably involve an extensive

research effort, and only very hazardous toxic

wastes would justify this degree of effort.

Slime control

Slime can be broadly defined as an aggregation

of microbial cells held together by the extracellular polysaccharides produced by the microorganisms. Wherever water moves in significant

quantities, slimes proliferate. The proliferation

merely requires the presence of a nutrient, even

in minute quantities. In the manufacture of paper,

slime control is of major concern because slimes

have a very deleterious effect on product quality (7,9)29,30). This problem arises because of the

high nutrient availability and favorable temperature and pH in the paper processing environment.

The slimicides currently in use are often heavy

metal-based poisons that can result in significant

pollution and waste treatment problems (7,9,29,

30). However, the potential for using enzymatic

methods for slime control appears quite promising. The formation of slimes is principally due to

the extracellular polysaccharides produced by

micro-organisms, so it should be possible to use

polysaccharide hydrolyses to degrade the slimes

rather than toxic agents to destroy the microorganisms.

Grease decomposition

Facilities processing meats, poultry, and certain other foods have particularly difficult problems with grease. Grease problems also appear

throughout the wastewater collection and treatment cycle. Both pipe collection branches and

pump stations are susceptible to the problems of

grease accumulation, which include plugging of

lines, accumulation of debris in wet wells, slippery working surfaces, unsightly conditions,

odor, and operational problems at the facility site.

Scum layers on sedimentation tanks and scum

mats in digesters cause additional problems. The

two basic problems are the congealing (solidifying) of the grease and the difficulty, if not an impossibility, of decomposing the grease once it arrives at the wastewater treatment plant.

Techniques that result in the emulsification and

decomposition of grease would significantly improve the operation of all waste treatment facilities. Bacterial formulations have been used in the

past for grease decomposition (18). Improvement

of these cultures might be possible. Additionally,

an enzymatic approach, such as the use of lipases,

could improve the operation of waste facilities. *

However, because grease contamination generally

is in the form of nonaqueous, congealed deposits,

substrate availability may be a significant prob-

*!XW Chapter 7: Special%\, (,-hwnirals an(i b-ood .4[i(iiti\ws
224 . Commercial Biotechnology: An International Analysis

Photo credit, David W Taylor, Naval Ship Research and Development Center

Grease buildup in a holding tank on a U.S. Navy ship after

5 months of normal operation

lem. A mechanism for delivering the enzyme to

the substrate might solve the problem, but no

approaches for accomplishing this have been

postulated.

Commercial aspects of biotechnology

in pollution control and toxic

waste treatmen t

In contemporary times, basic developments and

improvements in water treatment have originated

primarily in Western Europe and spread through

the Western Hemisphere. Higher population and

industrial densities coupled with fewer water

resources have forced Western European countries to advance the technology at a much faster

pace than required in the United States. In a

sense, Western Europe has been the proving

ground for new technologies used for water and

wastewater treatment. This historical pattern suggests that Western Europe has probably been

Photo credit: David W. Taylor, Naval Ship Research and Development Center

Grease buildup in the same tank after 4% months of

operation with daily addition of decreasing bacteria

produced through classical genetic selection techniques

making initial assessments of the impact of advanced biotechnology in this area. Japan is also

conducting a small amount of R&D in this area.

In the United States, there probably is more activity oriented to biotechnology, much of it financed by the U.S. Government, in the municipal

solid waste treatment sector than in either the

air or liquid waste treatment sectors. Additionally,

R&D efforts aimed at improving the technology

of wastewater treatment are concentrated in a

handful of small bioprocess-oriented companies

and certain academic microbiology laboratories.

Only recently did interactions begin between

these research groups and the plant operators involved in purifying wastewater (14). In the past,

industry has relied primarily on engineering consultants, not technology-based companies, to address pollution problems; these consultants have

used the most basic existing technologies for treatment of organic wastes.
Ch. 8—Environmental Applications ● 225

Two potential barriers to the commercial application of novel approaches to the problems of

pollution control and waste treatment are the performance of the products that are developed and

scientific uncertainty regarding their application.

For example, although the technology for highlevel production of enzymes and metallothioneins

certainly exists or can be developed, the performance of these products in the desired application

is as yet untested. If their performance turns out

to be poor, then the R&D effort for commercialization would be much more extensive and might

not be worth pursuing. Furthermore, although

reasonable approaches can be designed to identify or develop microa-ganisms for the degradation of organic micropollutants and toxic wastes,

the success of these approaches is uncertain. It

is also unclear whether genetically manipulated

micro-organisms or micro-organisms that have

been otherwise selected in the laboratory will be

able to survive in a nonlaboratory environment.

Their ability to survive and function in the field

will probably be greatest if the desired degradative activities can be introduced through

minimal alteration of a naturally occurring microorganism.

If the technological barriers to commercial application can be surmounted, the other areas of

importance will be markets, Government policy,

and regulation. Biotechnological improvements in

the area of conventional wastewater treatment

processes and slime control would provide economic benefits. If the performance is satisfactory,

markets for these products should develop. The

primary limitation to commercialization will be

the rate of acceptance by the treatment plant

operators.

In the case of pollution control, whether it be

control of organic micropollutants, heavy metals,

or toxic wastes, the primary nontechnological barrier will be Federal Government policy. Biotechnological solutions to these problems are likely

to be vigorously pursued only if the Government

sets goals and criteria for reducing these contaminants that must be met by both the public and

private sectors, The effort for developing these

biotechnological solutions will probably initially

require Federal funding, However, the requirements could eventually create a demand for a

commercial product, and funding might then shift

partially to the private sector. At the present time,

most industries will not fund biotechnological research on waste treatment problems. They are

only interested in licensing or purchasing such

technology if it has already been developed.

Another potential barrier to commercialization

of products for pollution control is Government

regulation of the products themselves. In the case

of enzymes and other proteins, few significant

safety problems requiring regulation are anticipated, although care must be taken in handling

these products. The application of micro-organisms, in contrast, could involve significant regulatory implications. Since the micro-organisms

proposed here will have the potential for being

released into the environment, it will probably

be necessary to establish their safety or to develop

methods for their containment at the site of treatment. U.S. policy with regard to the regulation

of micro-organisms, particularly genetically manipulated ones, is dynamic. The regulatory constraints that will be placed on the use of microorganisms in the future, therefore, cannot be

accurately predicted. The benefits of using microorganisms in the area of pollution control to protect human health will have to be carefully balanced against any perceived dangers associated

with their use.

, # -r “

Photo credit” G E. Pterce and M K Mulks

Pseudomonas putida, a bacterium capable of degrading

hydrocarbons
226 ● Commercial Biotechnology: An International Analysis

Microbiological mining

Micro-organisms have been used to some extent in mineral leaching and metal concentration

processes for many years. For the most part,

these processes have been fortuitous, relying on

micro-organisms found associated with mine

dumps. With the recent advent of novel biological techniques, people in the mining industry and

biologists have begun to think about ways to

manipulate genetically some of the microorganisms important in metal recovery processes

to increase their efficiency and allow them to

function on a larger variety of substrates.

Mineral leaching

More than 10 percent of the copper produced

by the United States is leached from ores by

micro-organisms (41,48). The micro-organisms

used are found naturally associated with ores; the

ores are not inoculated with selected strains. Until

recently, the use of micro-organisms in the mining industry received little research attention

because of the ease of mining high-grade ores and

the relatively low energy cost for conventional

mineral processing. The use of micro-organisms

is gaining new attention, not only because of the

depletion of high-grade ore and the soaring cost

of energy, but also because of the possibility for

genetic manipulation to increase the efficiency

and broaden the application of microbial leaching.

There are many advantages to the use of microorganisms. Besides having a low energy requirement due to their growth at ambient temperature

and pressure, micro-organisms work efficiently

and are less polluting than smelting techniques.

It is possible they could be used for leaching in

deep underground sites that are inaccessible to

more traditional mining equipment. Mining with

microorganisms requires relatively low capital

and operating costs, making it feasible for smallscale mining operations. The major drawback to

the use of micro-organisms is that the biological

processes are slow compared to the equivalent

chemical ones (4 I).

Microorganisms have been used mostly to leach

copper and uranium (40). The organism that is

most often used in these operations, and consequently the best studied, is Thiobacillus ferrooxidans. T. ferrooxidans has also been shown to effect solubilization of cobalt, nickel, zinc, and lead

(43). This organism, and most of the other bacteria

found in mine dump sites, are autotrophic: they

use carbon dioxide from the air for their carbon

source, and they generate their energy from the

oxidation of inorganic matter. In other words,

they need no raw material input from miners who

wish to exploit them.

The solubilization (leaching) of metals from ore

by bacteria occurs in two ways: indirect and

direct. The indirect method involves the transformation of ferrous iron to ferric iron by T. ferrooxidans. The ferric iron is a very powerful oxidizing agent that consequently converts metal

sulfide minerals into acid soluble metal sulfate

compounds. For example, ferric iron reacts with

copper sulfide to form soluble copper sulfate. The

direct method involves an enzymatic attack by

the bacteria on sulfide minerals to give soluble

sulfates and, in the process, also oxidizes the ferrous iron to ferric iron. The result is the same,

i.e., the metal is soluble in an acid solution. The

metal-laden solutions are collected and the metals

are removed from solution by chemical and physical processes (see fig. 23). Additionally, since the

use of coal as an energy source will increase, bacteria may be used to extract the sulfur from coal,

making it less polluting.

Biotechnology could be used by the mining industry to create more efficient micro-organisms.

Recombinant DNA technology could be used to

effect the following improvements in selected

bacteria:

●

●

●

●

●

an enhancement in the rate at which the bacteria regenerate the ferric iron;

greater tolerance to acidic conditions;

greater tolerance to saline conditions;

a decrease in the bacteria’s sensitivity to some

metals, especially thorium, silver, mercury,

and cadmium; and

an increase in the bacteria’s ability to withstand high temperatures for deep mine operations.
Ch. 8—Environmental Applications 227

for a

SOURCE Off Ice of Technology Assessment

It is likely that rDNA technology will be able to

address some of these problems in the near future

(41)43,47)!

Microorganisms used in a metal-leaching operation are subjected to very different stresses than

those used in a laboratory setting. These differences must be kept in mind when considering the

use of rDNA technology, especially since most of

the experience with the new technology has focused on well-defined laboratory strains in controlled environments. The bacteria used in leaching endure variable weather conditions, some

quite inhospitable for most organisms. When a

micro-organism is placed in the environment, it

will most likely have to interact with other organisms, and this fact has to be taken into account

when researching organisms of interest. Additionally, the mineralogy at each mine site is

unique, so microorganisms either will have to be

modified for each site or will have to be able to

act on varied feedstocks. It is unlikely that feedstocks will be prepared to suit the micro-organism. It seems that the most likely application for

genetically manipulated micro-organisms in mineral leaching will be in the same area in which

microorganisms are used now, for the treatment

of large quantities of discarded waste rock that

have small quantities of valuable metals (41,43).

Because the leaching process takes place in the

environment, the biological process cannot be

completely controlled. Nevertheless, there are

ways to optimize the reaction conditions for the

microorganisms of interest. The particle size and

particle-to-solution ratio of the mine dumps can

be manipulated. It is also possible to some extent

to control the pH, temperature, and oxygen and

carbon dioxide levels. By optimizing these conditions, the leaching organisms can be given an advantage over naturally occurring organisms.

In recent years, the search for new microorganisms in such primeval environments as hot acid

springs, volcanic regions, and deep ocean thermal vents has revealed many micro-organisms

capable of metal transformations under harsh

conditions. Not only are these organisms likely

to have application in commercial metal recovery,

but they also represent an enormous gene pool

for improving existing leaching bacteria through

rDNA technology.

Concentration of metals

Another area where micro-organisms could be

useful to the mining industry is the concentration of metals from aqueous solutions. The R&D

of this kind of process is somewhat easier than

R&D of leaching because it can occur in more

controlled laboratory situations, making manipulation of the organism’s environment possible.

There are two biological methods for concentrating metals. In one case, the metals are nonspecifically adsorbed to the surface of the organism.

In the other, the metals are specifically bound and

taken up by the organism. In the latter mechanism, metals can be ”concentrated up to 10)000

times. There is a great diversity of organisms that

have been shown to concentrate metals, including

bacteria, fungi, and algae. The metals they concentrate are primarily copper, uranium, silver,
228 Commercial Biotechnology: An International Analysis

and the lanthanides. Recombinant DNA technology could be useful in developing organisms to

expand the range of metals concentrated.

Another approach to concentrating metals involves the use of specific metal-binding proteins

produced in higher organisms. One of the best

studied metal-binding proteins is metallothionein,

which binds cadmium, zinc, mercury, and copper. The use of these proteins is discussed earlier

in the section on pollution control and toxic waste

treatment.

Commercial aspects of biotechnology

in microbiological mining

In the United States, there is no Federal R&D

funding specifically earmarked for mining microbiology. The National Science Foundation and the

U.S. Department of Energy (DOE) have funds

under various programs that can be used for

basic research studies on microorganisms important in mining. In fiscal year 1984, neither agency anticipates funding at levels more than

$300,000. The Bureau of Mines of the U.S. Department of the Interior did not fund any microbiology in fiscal years 1981 and 1982. In fiscal year

1983, it funded the Idaho National Engineering

Laboratory at about $300,000 to study the leaching and concentrating of cobalt. The Bureau intends to continue the funding of this project at

the same level in fiscal year 1984 (45).

Much of the R&D funding in this field comes

from both large and small firms in the mining industry. Atlantic Richfield Co. is doing a substantial amount of research in this area. Other large

companies investing in microbiological mining include General Electric, Koppers, Eastman Kodak,

International Nickel Co., Chevron, W. R. Grace,

and Standard Oil of California. Additionally, at

least four small U.S. companies, Advanced Mineral Technologies, Inc. (Socorro, N. Mex.), Poly -

bac (Allentown, Pa.), Genex, and Biogen S. A.* are

researching mining and metal microbiology.

Two spinoff applications could derive from the

work in the area of microbiological mining. one

application is the recovery of expensive metals

such as silver from processes such as photograph

developing. In the past, the developing solutions

containing the silver were disposed, but with the

increased price of silver over the past few years,

there has been increasing interest in silver recovery. Another application is using microa-ganisms

to reactivate metal catalysts, recovering metals

that have been deposited on the catalyst. Both the

catalyst is regenerated and the metal is recovered

(48).

Several other countries, notably the United

Kingdom, Australia, South Africa, and Canada, are

interested in the applications of biotechnology in

the mining industry. The majority of the R&D,

however, is being done by private industry. Very

little is funded by the Governments of these countries.

As of mid-1983, there were no genetically manipulated micro-organisms on the market (4.4). Yet

it is possible that research efforts could yield

useful, new bacteria for leaching and concentration of metals in a few years. If scale-ups and field

trials (for leaching) were carried out expediently, marketable products for leaching and concentration could be available in less than 10 years

(42). This research is proceeding slowly, however,

because of the currently depressed state of the

minerals market. Most industry experts hesitate

to speculate when micro-oganisms used for mining might reach the marketplace, because the

worldwide availability and price of these metals

will determine how fast the research will proceed.

There will have to be a scarcity of the metal before much microbiological research will be done.

“Biogen is about 80-percent U.S. owned, but most of its work in

microbiological mining is done by Biogen S.A. in Switzerland.

Microbial enhanced oil recovery

Conventional oil extraction technologies can re- trapped in rock or is too viscous to pump. The

cover only about 50 percent of the world’s sub- application of microa-ganisms or their products

terranean oil reserves. The balance either is possibly could be used to aid in the recovery of
Ch. 8—Environmental Applications . 229

trapped oil. The use of microbial processes for

this purpose is called microbial enhanced oil

recovery (MEOR).

The interest in MEOR has increased substantially since 1975. Several conferences on the subject have brought together petroleum engineers

and microbiologists to begin to analyze the roles

that micro-organisms could play in the recovery

of trapped oil. TO date, several field tests have

been done, but none have yet revealed a microorganism that is broadly applicable in MEOR (51).

There are three general experimental approaches to MEOR (.51):

●

●

●

the stimulation of endogeneous micro-organisms by injection of nutrients into the well,

the injection of laboratory-selected microorganisms into the well, and

the production by micro-organisms of specific biological compounds and the subsequent use of these compounds in wells.

As discussed further below, new biotechnology

offers possibilities in the latter two approaches.

Uses of micro-organisms in oil wells

Various microorganisms are now being isolated

and examined for properties useful for oil extraction. Micro-organisms evolve gases, notably carbon dioxide, that could aid in repressurizing an

oil well. An ideal microbe would use the less valuable parts of oil as a carbon source to produce

surfactants or emulsifiers to lower the viscosity

of the oil allowing it to be pumped to the surface.

Several problems complicate this senario. No

micro-organism has yet been found that degrades

only the less useful components of oil; microorganisms usually also degrade the compounds

important to the petroleum industry. Some microorganisms will not degrade the oil at all, but these

micro-organisms need to have a carbon source,

usually molasses, pumped into the well, and this

increases the cost of production.

Microbes currently being studied survive only

under conditions of moderate heat, salinity, and

pressure (55,56). Given the wide variability in geological deposits, these micro-organisms have limited usefulness. However, there is substantial evidence that the oil reservoir is not as an untenable,

restrictive environment for micro-organisms as

some laboratory studies would indicate. Microorganisms can, in fact, be isolated from deep reservoirs, and they may have developed specialized

mechanisms to cope with low amounts of oxygen.

Other micro-organisms have been isolated that

do not need oxygen for growth. Further study

of these organisms may lead to the development

of micro-organisms useful to the petroleum industry (52).

Use of microbially produced

compounds in oil wells

Another approach to MEOR, the use of microbially produced compounds in oil wells, could be

a relatively near-term application of biotechnology. Biological compounds that could be injected

into wells include surfactants and viscosity enhancers and decreases. The search has begun

for these compounds, but it is becoming increasingly obvious that little is known about these compounds and the micro-organisms that produce

them.

Even with the lack of knowledge, however, two

promising compounds have been isolated and

studied. One substance, characterized at the

University of Georgia, is a glycolipid from a

bacteria named H-13. This substance reduces the

viscosity of various heavy crude oils (51). Another

substance, originally isolated in Israel but now

studied in the United States, is called emulsan and

has the property of emulsifying oil, allowing better flow and dispersal (54). * Field trials have included the cleaning of an oil tanker hold and an

aircraft carrier runway (57). Emulsan proved effective at these jobs and holds promise for use

in oil wells. Emulsan is being developed by Petroferm, USA (Amelia Island, Florida), and produced

and marketed by Pfizer (50).

● Emulsan is discussed further in Chapter 7: Special?.}’ Chemicaf,s

and F’wxf ,4dditit’es,
. . . . .

.

230 ● Commercial Biotechnology: An International Analysis

Commercial aspects of biotechnology

in microbial enhanced oil recovery

Many of the major oil companies are thought

to be investing in MEOR (49). The U.S. leader in

this field appears to be Phillips Petroleum. Small

U.S. firms doing R&D in MEOR include Petroferm, Genetics International (Boston), and Worne

Biotechnology (Medford, N.J.). Only one company,

Shell Oil Co., has stated that MEOR is too speculative for its R&D laboratories (55). Additionally,

the LJ.S. Government, through DOE, is investigating MEOR.

Foreign companies and countries are also investigating MEOR, notably the Swiss firm Petrogenetic AG, the British Government and British

Petroleum, the U. S. S. R., and the Peoples Republic

of China (49,53),

The status of potential markets for MEOR is

very questionable because of the lack of knowledge about MEOR’s real potential. However,

MEOR could potentially increase the production

of oil and decrease the costs of recovery significantly.

Priorities for future research

The applications of new biotechnology in the

environment are at a rudimentary stage, primarily because of the lack of knowledge about the genetics and biochemistry of the potentially useful

microaganisms and the environment in which

they operate. Currently, most basic research is

done with pure cultures that do not represent the

real world situation. There is certainly no guarantee that a species of bacterium will perform in

an outdoor environment as it does in the laboratory. Additionally, scale-up problems will be great

because of the large size of the operations. Studies

in all of these research areas are interdisciplinary.

Unless there is close collaboration between biologists and engineers, it is unlikely that the research will be very productive,

Specific challenges for pollution control and

toxic waste treatment include:

●

●

●

●

the isolation and characterization of enzymes

to polymerize low molecular weight organic

compounds,

better characterization of metallothioneins

from various species,

the identification of polysaccharides to serve

as bioflocculants,

the development of enzymes for sludge dewatering,

●

●

the development of microbial strains or enzymes that degrade toxic compounds, and

the development of improved polysaccharide

hydrolyses to degrade slimes.

Specific challenges for microbiological mining

include:

●

●

●

the development of micro-organisms that

could leach valuable metals such as thorium,

silver, mercury, gold, platinum, and cadmium;

a better understanding of the interactions between the micro-organisms and the mineral

substances; and

the development of DNA transfer technologies for use at low pHs.

Specific challenges for MEOR include:

●

●

●

better biochemical and physiological understanding of microorganisms already present

in oil reservoirs,

the development of a microaganism that degrades only the less useful components of oil,

and

screening of microorganisms for the production of surfactants and viscosity enhancers

and decreases.
Ch. 8—Environmental Applications ● 231

Chapter 8 references

pollution control and toxic

waste treatment references

9.

10.

11

12.

13.

14.

20.

21,

22.

23.

24.

25.

26.
232 ● Commercial Biotechnology: An International Analysis

33

34.

38

39

and Conservation

references

43<

44,

45.

46.

47.

48

50.

51.

52.
Ch. 8–Environmental Applications ● 2 3 3

54. Gutnick, D. L., et al., “The Interaction of Emulsan 56. Springham, D., “Bugs to the Oil Industry’s Rescue,”

With Hydrocarbons, ” Proceedings of the Interna- Newr Scientist, May 13, 1982, pp. 408-410.

tional Conference on Microbial Enhancement of .57. Warren, R., Naval Air Systems Command, personal

Oil Recovexy, Afton, Okla., in press, 1982. communication, 1983.

55. Lancaster, H., “Scientists Turning to Microbes To

Improve Oil Well Output, ” Wall Street Journal,

May 28, 1982, p. 17.

25-561 0 - 84 - 16
Chapter 9

Commodity chemicals and

Energy production
Contents

. . . .

.

.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

,,.,.. . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

237

239

240

241

242

242

243

244

247

248

248

249

United States . . . . . . . . . . . . . . . . . . . . . . 237

for the

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246

Page

Cellulose . . . . . . . . .. .. .. .. ... . $ . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

240

240

241

242

245
Chapter 9

Commodity Chemicals and

Energy Production

—.

Introduction

In 1982, the U.S. chemical industry produced

about 158 billion pounds (lb) of organic chemicals

(36). About 30 commodity chemicals–defined in

this report as chemicals that sell for less than $1

per lb” —constitute the majority of this market

(see table 39).

— —

“(:h[~rnicals with higher value such as \’itamins, food additives,

ii ml amino aci(L\, form the suhject of Chapter 7: Speciahv Chemicals

i]l][/ 1<’ood ,.lddifh es ‘1’he difference between “comrnodit:’” and “spccialt}” chemicals is somewhat fluidlv cietermined hv prire versus

quantities produred Some of the compounds descrihed in chapter

7 are considered by some analj~sts to be commodity chemicals. These

ln(lude tcgetahle oils and their dcrit”atives, single cell protein, and

fructose. Because of their predominant use as food additives, howe~’er, these compounds are considered in the earlier chapter.

Practically all commodity chemicals are currently made from petroleum and natural gas resources and are used as precursors for a variety

of materials such as polymers and solvents. The

United States, which now imports about 30 percent of its petroleum (34), uses about 7 to 8 percent of its total petroleum and natural gas supply for the production of commodity chemicals

(10,18,22); the remainder of this supply is used

as an energy source.

The chemical industry’s reliance on petroleum

feedstocks raises a number of problems. Two

problems are the fluctuating cost and uncertain

Table 39.—Annual Production and Selling Price of the Major Organic Commodity Chemicals in the United States

Production in 1982 Price in 1982

Chemical (billion pounds) (Mb) Major uses

Ethylene . . . . . . . . . . . . . . . . . . . . . . . . 24.7 25.5 Polyethylene derivatives

Toluene . . . . . . . . . . . . . . . . . . . . . . . . 15.3 26.7 Benzene, gas additive, solvents, polyfoams

Propylene . . . . . . . . . . . . . . . . . . . . . . . 12.3 24.0 Polypropylene, isopropanol

Ethylene dichloride . . . . . . . . . . . . . . 10.0 13.7 Vinyl chloride

Benzene . . . . . . . . . . . . . . . . . . . . . . . . 7.9 21.1 Styrene, phenol, cyclohexane

Methanol ., . . . . . . . . . . . . . . . . . . . . . 7.3 10.8 Formaldehyde

Ethylbenzene . . . . . . . . . . . . . . . . . . . . 6.6 30.0 Styrene

Vinyl chloride . . . . . . . . . . . . . . . . . . . 6.5 22.0 Polyvinyl chloride, resins

Styrene . . . . . . . . . . . . . . . . . . . . . . . . . 5.9 37.5 Pol yst yrenes

Xylene . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 18,9 p- and o-xylene, gas additive, solvent

Terephthalic acid . . . . . . . . . . . . . . . . 5.0 N.A. Polyester fibers

Ethylene oxide . . . . . . . . . . . . . . . . . . 4.9 45.0 Ethylene glycol

Formaldehyde . . . . . . . . . . . . . . . . . . . 4.7 24.4 Resins

Ethylene glycol . . . . . . . . . . . . . . . . . . 4.0 33.0 Antifreeze, polyesters

p-xylene . . . . . . . . . . . . . . . . . . . . . . . . 3.2 31.0 Synthetic fibers

Acetic acid. . . . . . . . . . . . . . . . . . . . . . 2.8 26.5 Vinyl and celtulosic acetate

Cumene . . . . . . . . . . . . . . . . . . . . . . . . 2.7 24.0 Phenol

Phenol . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 36.0

Acrylonitrile . . . . . . . . . . . . . . ... , . . . 2.0 44.5 Polymers

Vinyl acetate . . . . . . . . . . . . . . . . . . . . 1.9 37.5 Polyvinyl acetates, alcohols

Butadiene. . . . . . . . . . . . . . . . . . . . . . . 1.8 40.0 Rubber

Acetone . . . . . . . . . . . . . . . . . . . . . . . . 1.8 31.0

Propylene oxide . . . . . . . . . . . . . . . . . 1.5 40.5 Propylene glycol, urethanes

Isopropanol . . . . . . . . . . . . . . . . . . . . . 1.3 32.9 Acetone, solvents

Cyclohexane . . . . . . . . . . . . . . . . . . . . 1.3 25.3 Nylon, caprolactum

Adipic acid. . . . . . . . . . . . . . . . . . . . . . 1.2 57.0 Nylon

Acetic anhydride. . . . . . . . . . . . . . . . . 1.1 41.0 Cellulose esters

Ethanol . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 25.8 Detergent, solubilizer, cosmetics, solvent, fuel

SOURCE Office of Technology Assessment, adapted from D Webber, “Basic Chemical Output Fell Third Year in a Row,” Ctrern. Eng. News, May 2, 1983, pp. 10-13;

T C O’Brien, “Feedstock Trends for the Organic Chemical Industry,” Planning Report 15, U.S. Department of Commerce, National Bureau of Standards, April

1983, and Ctrermica/ Marketing Reporter, “Weekly Price Report, ” May 31, 1982, pp. 35-39.

237
238 ● Commercial Biotechnology: An International Analysis

supplies of petroleum. Commodity chemical

prices are especially sensitive to the cost of

petroleum because feedstock costs typically

represent 50 to 75 percent of commodity chemical manufacturing costs (6). Other problems of

the commodity chemical industry include a current overcapacity of production by the capitalintensive petrochemical companies, the high costs

of energy associated with “cracking” petroleum

into chemical feedstocks, and environmental, safety, and ideological concerns surrounding the use

of nonrenewable, fossil resources (6).

These well-publicized problems, which increase

in urgency with the passing of time, have intensified the search for nonpetroleum feedstocks for

chemical and energy production. The options being pursued at present include the liquification

and gasification of coal, the development of synthetic fuel from natural gas, and the conversion

of biomass* * to fuels and a wide variety of organic chemicals.

The substitution of natural gas, coal, and other

nonrenewable resources for petroleum are issues

that have been discussed in several previous OTA

reports (28)29,31). Despite the drawbacks outlined

in those reports, coal is favored as an alternative

resource by U.S. petroleum companies, which

control 20 percent of U.S. coal production and

25 percent of US. coal reserves (3,27). Processed

coal feedstocks fit readily into most petroleum

feedstock schemes for the production of commodity chemicals and thus do not require large capital

investments for new chemical plants. Nevertheless, at least one analyst thinks that petroleum will

continue to be used as a feedstock for commodity chemicals for some time and that coal will not

make a significant impact on the production of

chemicals until the 21st century (22).

It appears that countries with substantial inexpensive supplies of petroleum, such as Mexico and

Saudi Arabia, are turning to the production of

commodity chemicals as a way of adding value

to their resources, Thus, countries with petroleum may begin to control the price of these

chemicals. Because such countries may be able

to produce commodity chemicals at a lower price,

● ● Biomass is all organic matter that grows by the photosynthetic

cent’ersion of solar energy.

companies in the United States, Europe, and Japan

may have to develop new ways of using commodity chemicals to produce compounds of greater

value or to move directly to the manufacture of

higher value-added chemicals from biomass. In

any case, a rapid or dramatic shift in feedstock

use is unlikely; it is much more probable that

there will be a slow transition to the use of

biomass as a feedstock in particular instances.

Although nonrenewable resources such as coal

will probably be adopted earlier, biomass—including crop and forest product wastes and municipal

and agricultural wastes—may provide solutions

to some of the long-term problems associated with

chemical and energy production from petroleum.

It is technologically possible to produce essentially

all commodity chemicals from biomass feedstocks

such as starch or cellulose, and most commodity

chemicals can be synthesized biologically (10,24).

A viable biomass feedstock for the production of

commodity chemicals may be starch. Less than

I percent of the U.S. corn crop would be required

to obtain the cornstarch needed to produce a typical commodity chemical at the rate of I billion

lb per year (18). Although a few high-volume

chemicals that could be produced from biomass,

such as ethanol, can be used for fuel, the volume

of biomass needed to produce a nation’s energy

would be substantially greater than that needed

to produce its commodity chemicals. Starch probably could not be used for energy production

without putting a strain on food and feed uses.

Thus, if biomass is to be used extensively for

energy production, the biomass source will most

likely be lignocellulose.

Biomass as an alternative to petroleum for U.S.

energy production was described in OTA’S July

1980 report Energy From Biological Processes

(30). As emphasized in that report, substantial

societal change, i.e., more public support and a

higher priority for research on biomass use in the

U.S. Departments of Agriculture and Energy programs, will be necessary if biomass is to become

a viable alternative to petroleum as a source of

energy in the near future. At present, the level

of U.S. public support for biomass research is not

high. Furthermore, Federal support of applied research and development (R&D) programs for al-
Ch. 9—Commodity Chemicals and Energy Production 239

ternative fuel sources has been plummeting in the

recent climate of intense fiscal scrutiny.

A shift from petrochemical processes to bioprocesses for the production of commodity chemicals will be difficult because of the existing infrastructure of chemical and energy production.

This infrastructure allows a barrel of oil to be converted to products in a highly integrated system

in which the byproduct of one reaction may form

the substrate for another reaction. Most chemicals derived from biomass cannot yet compete

economically with chemicals made from oil in this .

infrastructure.

AS the costs of bioprocesses are reduced

through R&D, however, a transition to biomass

resources may become a more realistic proposition. This chapter examines ways in which biotechnology might improve the efficiency of biomass conversion, thus facilitating the transition

to the use of biomass resources. The advances

biotechnology could provide for the improved

growth of plants used for biomass conversion are

discussed in Chapter 6: Agriculture.

Since commodity chemicals represent only a

small portion of today’s U.S. petroleum consumption, a transition to biomass-based commodity

chemical production without a concurrent transition to biomass-based energy production will not

substantially reduce the country’s dependence on

petrochemical resources. For moving the United

States toward the goal of reduced reliance on imported, nonrenewable resources, a unified approach to chemical and fuel production will be

necessary.

Biomass resources

The United States has abundant biomass resources. The largest potential amount of cellulosic

biomass is from cropland residues such as corn

stover and cereal straw, * although the potential

amount of cellulosic biomass from forest resources is also quite large. About 550 million dry

tons of hgnocelhdose are easily collected and available for conversion to chemicals each year. In

addition, some percentage of the 190 million dry

tons of corn produced yearly could be converted

to starch and used for chemical production (21).

Parameters used to determine the optimal kind

of biomass used in microbial systems include

availability of the biomass, its energy content per

dry weight, the amount of energy that must be

expended to achieve the desired products, the

environmental impact of the process, and the

amenability of the material to conversion by existing microbial systems. Ultimately, biomass resources that minimize usurpation of food sources

are sought (e.g., nonfeed crops grown on extant

arable land).

“Agricultural residues left On the soil aid in the sustainahilit~ of

soil. ‘I-he emrironmental impact of the remo~’al of these residues must

be studied more thoroughly in order to determine whether agricultural wastes are, in fart, true wastes,

This chapter emphasizes the use of the two

most abundant feedstocks from biomass: starch

and cellulose. Starch and cellulose are both polymers of glucose units [6-carbon simple sugars)

which, when hydrolyzed, yield glucose molecules

(see fig. 24). These glucose sugars provide the

starting point for biological chemical production,

for example, the transformation of glucose to ethanol. Other derivatives of biomass, such as vegetable oils, are used in bioprocesses, and those

resources are considered in Chapter 7: Specialty

Chemicals and Food Additives.

One drawback to the use of biomass as a feedstock for commodity chemical and energy production is its relatively low energy content per

unit dry weight. Dry cellulose biomass, for example, yields roughly 16 million Btu per ton and

cornstarch yields 15 million Btu per ton, whereas

petroleum yields 40 to 50 million Btu per ton.

Thus, the energy yield per unit of weight is lower

for biomass than for petroleum. Furthermore, the

costs of transporting biomass to a factory m a y

bean important economic consideration. Raw material and transportation costs are particularly important in the production of commodity chemicals, because of the low value added to the feedstock in the synthesis of final products.
.—— — — .

240 ● Commercial Biotechnology: An International Analysis

Figure 24.—Polysaccharides of Biomass:

Starch and Cellulose

SOURCE Office of Technology Assessment.

Starch

Starch, a molecule composed of many hundreds

of glucose units bound together in branched or

unbranched chains, is the principal carbohydrate

storage product of higher plants and is readily

available from such crops as corn and potatoes.

In 1979, the United States produced about 666

billion lb of grain from six major cereal crops, and

this grain contained 470 billion lb of starch. The

major grain produced, corn, contained 316 billion

lb of starch (10), which could provide 285 billion

lb of glucose.

As shown in figure 25, world grain production

has increased steadily over the past several years,

Figure 25.–Trends in World Grains Production

(million metric tons)

67/68 69/70 71/72 73174 75/76 77178 79/80 81182

Years

SOURCE: Off Ice of Technology Assessment, adapted from CPC, Int., 1983.

and this trend is expected to continue through

the end of the century as the result of yield improvement and an expansion of acreage planted

(19). Furthermore, the price of corn has remained

relatively constant over the past decade, especially

when compared to the nearly tenfold increase in

the price of oil over the same period of time.

The utilization of U.S. corn has changed over

the past 10 years. A decrease in U.S. meat consumption caused a concurrent decrease in the

amount of corn used for animal feed, while at the

same time, technological advances increased corn

yields. Consequently, the export market for U.S.

corn has risen from 15 percent of the crop to 35

percent. Since U.S. corn production is expected

to increase and meat consumption is expected to

decrease, U.S. farmers will need new markets for

their corn. Commodity chemical production from

a starch feedstock could provide a market for U.S.

corn. The potential for industrial use of starch

from corn alone is large, and an increase in the

industrial use of corn would probably aid in supporting farm prices. Currently, only about 7 percent of the corn produced in the United States

is processed into cornstarch (7,19). Figure 26 suggests that 14 percent of the 1990 corn crop could

go to chemical production, and enough corn

would still be available for other uses.

Because of its high volubility in water and ease

of hydrolysis into individual glucose units, starch

is highly amenable to bioprocessing and may be

an ideal feedstock for chemical production. The

use of starch for both chemical and fuel production, however, might be at the expense of its use
Ch. 9—Commodity Chemicals and Energy Production ● 241

Figure 26.—Trends in U.S. Corn Utilization

1980/81

7230 million bushels

Food industry,

seed, alcohol

1990

9760 million bushels

in food production. Starch may not be produced

in large enough quantities to be used both as a

source of food and a source of energy. *

Lignocellulose

Lignocellulose is composed of cellulose, an unbranched chain of glucose units, lignin, a linked

mixture of aromatic molecules, and hemicellulose,

a polymer composed mainly of 5-carbon sugars.

This structure provides the rigidity necessary for

cellulose’s primary function, the support of plants.

Because of its wide availability, lignocellulose has

the potential to be the most important of all the

raw materials for use in bioprocessing. Currently, however, several problems impede the use of

lignocellulose on a large scale. Lignocellulose is

highly insoluble in water and its rigid structure

makes cellulose much more difficult than starch

to hydrolyze to individual sugars. Furthermore,

most microaganisms cannot utilize lignocellulose

directly without its having been pretreated either

chemically or physically. Despite the considerable

advances made in both chemical and enzymatic

hydrolysis techniques, the cost of glucose derived

from cellulose is still much higher than that derived from starch.

The inherently diffuse nature of lignocellulose

resources means that very high collection costs,

especially in energy and manpower, will be encountered in any attempt at large-scale utilization,

These considerations have given rise to the concept that the utilization of lignocellulose for

energy will be feasible only through a widespread

network of smaller manufacturing facilities that

draw on local resources and supply local needs.

Indeed, this pattern has already been established

for farm-scale alcohol production from corn. An

alternative to multiple small-scale production units

*As detailed in OTA’S July 1980 report Energv From Bio]ogica/

Processes (30), starch could be used to produce approximately 1

billion to 2 billion gal of ethanol in the United States each year (about

1 to 2 percent d U.S. gasoline consumption) before food prices might

begin to rise.
242 Commercial Biotechnology: An International Analysis

is the concept of centralized, intensive lignocel- prospects for success, but the development with

lulose production on so+-died “energy planta- biotechnology of more effective biological agents

tions.” The potential ecological problems and high- for lignocellulose utilization could radically

ly questionable economics have detracted from change this picture.

Conversion of biomass to commodity chemicals —

As noted above, there are numerous types of

biomass resources, including lignocellulosic products and feed crops such as corn. Because of the

varying compositions of these raw materials, different methods are used in rendering them into

useful chemicals. Nevertheless, all microbial conversion of biomass to marketable chemicals is a

muhistep process that includes:

●

●

●

●

●

pretreatment (particularly with lignocellulosic biomass),

hydrolysis (saccharification) to produce hexose (6-carbon) and pentose (5-carbon) sugars,

bioprocessing of these sugars by specific

micro-organisms to give commodity chemicals,

subsequent bioprocessing or chemical reactions to produce secondary commodity chemicals, and

separation and purification of end products.

Figure 27 is a schematic summary of the multistep

processes for the conversion of starch and lignocellulosic biomass to commodity chemicals. Although figure 27 emphasizes the microbial steps

that could be used for these processes and applications of biotechnology to them, it should be

noted that a variety of chemical syntheses can also

be used to convert the components of biomass

into useful chemicals (9,10,17,18).

Pretreatment

Before either starch or lignocellulosic biomass

can be used as feedstocks for bioprocesses, they

must be pretreated in preparation for hydrolysis.

Starch from corn requires little pretreatment. Lignocellulosic materials such as wood, however, demand extensive pretreatment to make cellulose

and hemicellulose available for hydrolysis.

Figure 27.—Convers!on of Biomass to Commodity

Chemicals

A. Starch biomass

Corn

1 * Oil

Fiber

Germ

Gluten

Starch

I

* * *

Dextrose Syrups Starch products

B. Lignocellulosic biomass

Lignocellulose

*1

t # #

Cellulose Hemicellulose Lignin

*I *1

* = Possible microbiological step

SOURCE: Office of Technology Assessment

STARCH

The United States relies primarily on corn for

starch feedstocks. About 500 million bushels are

processed by corn refiners yearly to produce
Ch. 9—Commodity Chemicals and Energy Production ● 243

cornstarch products. In the production of cornstarch, refiners employ a process known as “corn

wet milling” in which corn kernels are cleaned,

soaked in warm, dilute acid, and ground to yield

a slurry composed of starch, protein, and oil.

Much of the starch is further converted to sweeteners, such as glucose and high fructose corn

syrup (7). Cornstarch is the milling product that

could be used to make commodity chemicals.

The pretreatment of starch requires minimum

inputs of acid and heat. Energy requirements are

low compared with the potential energy gained,

and almost all byproducts are marketable. Combined with starch thinning and saccharification

costs (see below), corn wet milling is estimated

to yield monomeric sugar at a cost of 12¢lb (at

$3.40/bushel of corn) (21).

LIGNOCELLULOSE

Methods used to pretreat lignocellulosic biomass include chemical pretreatment in acids and

bases, steam explosion, and mechanical grinding.

These methods, described in OTA’S July 1980 biomass report (30), add substantially to the costs involved in using lignocellulosic biomass as a chemical resource.

In the future, biodelignification (the biological

degradation of lignin) by micro-organisms may

prove useful in the pretreatment of lignocellulosic

biomass (8,24). Biodelignification results in removal of lignin, exposing the crystalline cellulose and

lowering the costs of mechanical pretreatment.

At present, however, biodelignification is an inadequate, expensive means of pretreatment, and

it is not used in the pilot projects for use of lignocellulose currently underway. As yet, there are

no valuable uses for lignin. Uses must be found

for lignin derivatives before these processes will

be commercially viable (2).

Several groups are working toward obtaining

faster biodelignification using mixed cultures of

micro-organisms, but microbial reaction rates at

present do not approach those needed for economic feasibility. With use of the best candidate,

the degradative mold Chysosporium pruinosum,

40 percent of lignin remains intact after 30 days

of treatment (l). At least 20 strains of bacteria that

have Iignodegradative abilities have been identified, but efforts to use micro-organisms for delignification are hampered by the fact that lignin

metabolizes are toxic to these micro-organisms.

Thus, more work remains to be done before biodelignification and other methods of biological

pretreatment are competitive with the currently used chemical or mechanical pretreatment

methods. Were more information available on

these micro-organisms, biotechnology could be

used to improve their efficiency.

Hydrolysis

STARCH

Enzymes from microbial systems are widely

used industrially to catalyze hydrolysis of starch

into sugars. * Batch bioprocesses are used for

hydrolysis. Three enzymes, alpha -amylase, betaamylase, and glucoamylase, are used to hydrolyze

the starch chains to yield complete hydrolysis and

the formation of glucose (15). The largest industrial use of enzymes is in the corn wet milling

industry.

The major U.S. corn refiners have ongoing active research programs for the improvement of

enzymatic degradative processes, and these manufacturers have made major advances in the areas

of bioprocessing and enzyme immobilization.

These manufacturers have continued their efforts

toward improvement of enzymes by using new

biotechnology (32).

CELLULOSE

The well-ordered crystalline structure of cellulose necessitates harsher treatments than those

used for starch. Whereas hemicellulose is readily hydrolyzed into its 5-carbon sugars under mild

conditions, the hydrolysis of cellulose requires

strong acids, heat, and pressure. These conditions

lead to the formation of byproducts which must

be separated and utilized to minimize the overall

costs of lignocellulose use. In addition, the acid

used for the hydrolysis of cellulose must be neutralized before the mixture is used for bioprocess -

ing, a requirement that raises the cost of hydrolysis.

‘For further discussion of these enzymes, see Chapter 7: Specialtbv

Chemicals and Food Additi\’es.
244 Commercial Biotechnology: An International Analysis

The use of enzymes known as cellulases (and

microorganisms that produce cellulases) to hydrolyze cellulose, either alone or in conjunction

with chemical treatment, offers an increasingly

popular alternative to chemical methods of hydrolysis. Cellulose is the most abundant biological

compound on earth, and a myriad of microorganisms employ cellulases to obtain energy for

growth from the resulting glucose molecules. Research efforts to improve cellulase activity by

mutagenesis and selection of cellulolytic (cellulosedegrading) microa-ganisms have yielded mutant

strains of microa-ganisms (particularly fungi) that

produce cellulases with higher tolerance to glucose (the product of hydrolysis that inhibits cellulase activity), increased efficiency and reaction

rate, and better functioning at the elevated temperatures and high acidities used in industrial bioprocesses (l).

The enzymatic activity of cellulases has been

improving over the past several years, and in

some cases, the time needed for saccharification

and subsequent bioprocessing to produce ethanol

from cellulose has been reduced several fold (11).

Despite these improvements, however, the activity of cellulases does not begin to compare with

the activities of amylases, which are about 1,000

times more catalytically efficient (5).

Although research into the molecular biology

of cellulases is in its early stages, biotechnology

is being used to improve the cellulase-catalyzed

hydrolysis of cellulosic biomass in several ways.

Two challenges for biotechnological approaches

to cellulase production are increasing the low activity of the cellulase and making sure the entire

cellulase gene complex is expressed. Processes

that optimize cellulase activity and efficiency are

prerequisite to the use of lignocellulosic biomass

resources.

Researchers at the National Research Council

of Ottawa, Canada, the University of British Columbia, the University of North Carolina, and Cornell are using recombinant DNA (rDNA) techniques to clone cellulase genes from several

micro-organisms into bacteria that may be induced to produce cellulase in large quantities (20).

Similarly, researchers at the U.S. Department of

Agriculture are cloning celhdase genes from the

fungus Penicillium funiculosum (12).

Another possibility for a biotechnological improvement is to transfer the ability to utilize the

5-carbon sugars from hemicellulose into celluloseutilizing microorganisms. A third possibility is improving the specificity of organisms that can utilize lignocellulose directly, e.g., Clostridium thermocellum. The “wild types” of these microorganisms produce a range of products, typically ethanol and several organic acids. This varied

synthesis results in low yields for each product

and great difficulties in subsequent recovery and

purification. Genetic mechanisms could be used

to select for high production of any one of the

products.

Microbial production of commodity

chemicals

Some commodity chemicals, including ethanol

and acetic acid, are now produced in the United

States with microbial bioprocesses (9), while other

chemicals, such as ethylene and propylene, will

probably continue to be made from petroleum

feedstocks because of lower production costs. The

commodity chemicals that are attractive targets

for production from biomass include ethanol, acetone, isopropanol, acetic acid, citric acid, propanoic acid, fumaric acid, butanol, 2,3-butanediol,

methyl ethyl ketone, glycerin, tetrahydrofuran,

and adipic acid (9,18). Additionally, some chemicals, such as lactic and levulinic acids, could be

used as intermediates in the synthesis of polymers

that might replace petrochemically derived polymers (18).

Because the chemical composition of biomass

differs from that of petroleum and because microorganisms are capable of a wide range of activities, it maybe that the most important commodity

chemicals produced from biomass till be, not

chemicals that directly substitute for petrochemicals, but other chemicals that together define a

new structure for the chemical industry. Microorganisms used to produce organic chemicals

could be used with micro-organisms that fix nitrogen to produce nitrogenous chemicals, either

higher value-added compounds or ammonia, a

high volume commodity chemical. Other microorganisms, such as the methanogens or the microorganisms that metabolize hydrogen sulfide, may

be used to produce sulfur-containing chemicals

(14).
Ch. 9—Commodity Chemicals and Energy Production ● 245

The aerobic and anaerobic microbial pathways

leading to a number of important compounds are

shown in figure 28. Some of the micro-organisms

Figure 28.—Metabolic Pathways

responsible for these reactions are listed in table

40. Knowledge of biochemical pathways for the

synthesis of particular chemicals will lead to the

for Formation of Various Chemicals

?

6X)*

SOURCE T K Ng, R M Busche. C C. McDonald, et al “ProductIon of Feedstock Chemicals.” Science 219:733.740, 1983
246 “ Commercial Biotechnology: An International Analysis

Table 40.—Potentially Important Bioprocessing Systems for the Production of Commodity Chemicals

Micro-organism Carbon source(s) Major fermentation product(s)

Saccharomyces cerevisiae. . . . . . . . . . . . . . . .

Saccharomyces cerevisiae. . . . . . . . . . . . . . . .

Zymomonas mobilis . . . . . . . . . . . . . . . . . . . . .

C/ostridium thermocellum . . . . . . . . . . . . . . . .

C/ostridium thermosaccharo/yticum. . . . . . . .

C/ostridium thermohydrosu/furicum. . . . . . . .

Schizosaccharomyces pombe . . . . . . . . . . . . .

K/uyveromyces Iactis . . . . . . . . . . . . . . . . . . . .

Pachysolen tannophilus . . . . . . . . . . . . . . . . . .

Thermobacteroides saccharolyticum . . . . . . .

Thermoanaerobacter ethano/icus . . . . . . . . . .

C/ostridium acetobuty/icum. . . . . . . . . . . . . . .

C/ostridium aurianticum . . . . . . . . . . . . . . . . . .

C/ostridium thermoaceticum . . . . . . . . . . . . . .

Clostridium propionicum . . . . . . . . . . . . . . . . .

Aeromonas hydrophilic. , . . . . . . . . . . . . . . . . .

Dunaliella sp. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Aspergil/us niger . . . . . . . . . . . . . . . . . . . . . . . .

Aerobacter aerogenes . . . . . . . . . . . . . . . . . . . .

Bacillus polymyxa . . . . . . . . . . . . . . . . . . . . . . .

Glucose

Glucose

Glucose

Glucose, lactic acid

Lactic acid

Glucose, xylose

Xylulose

Xylulose

Glucose, xylose

Xylose, glucose

Glucose, xylose

Glucose, xylose, arabinose

Glucose

Glucose, fructose, xylose

Alanine

Xylose

Carbon dioxide

Glucose

Glucose

Glucose

Ethanol

GI ycerol

Ethanol

Ethanol, acetic acid

Glucose, xylose, ethanol, acetic acid

Ethanol, acetic acid, lactic acid

Ethanol

Ethanol

Ethanol

Ethanol

Ethanol, acetic acid, lactic acid

Acetone, butanol

Isopropanol

Acetic acid

Propionic acid, acetic acid, acrylic acid

Ethanol, 2,3-butanediol

Glycerol

Citric acid

2,3-butanediol

2,3-butanediol

SOURCE Office of Technology Assessment, from T. K. Ng, R. M. Busche, C. C. McDonaldt et al., “Production of Feedstock Chemicals,” Science 219:733.740, 1963;

J C. Linden and A Moreira, “Anaerobic Production of Chemicals,” Bask Biology of New Deve/o~rnerrts In Blotec/mo/o~y (New York: Plenum Press, 1963);

and D I C Wang, Massachusetts Institute of Technology, personal communication, 19S2.

identification of the genes that control the synthesis of these chemicals. With such knowledge,

it will be possible in some instances to employ

rDNA technology or cell fusion methodology to

yield microorganisms with improved bioconversion efficiencies. Improvements of these microorganisms by genetic manipulation at present are

limited to a few cases. Examples include the development of a pseudomonas putida plasmid that

codes for proteins that hydroxylate chemicals and

the development of rDNA plasmids in E3cherichia

coli that provide the genes that code for enzymes

that convert fumarate to succinate (21).

In developing commercial bioprocesses, a major need is for micro-organisms with characteristics such as tolerance to increased levels of products during bioprocess reactions;* better efficiency of sugar utilization; faster rates of production;

tolerance to higher temperatures, so that separation and purification methods (which often require elevated temperatures) can be coupled with

bioprocesses; * * selected drug tolerance, so that

growth of contaminant bacteria can be inhibited

by drug treatment; and better growth on a variety

of biomass sources (26). Another major need is

the identification of plasmids that can be used as

vectors for the transmission of useful genetic

information.

“The most commonly used micro+xganism for ethanol fermentation is yeast, which tolerates ethanol concentrations up to about ● ● A combination of bioprocmsing and purification could be imple12 percent. Since the purification of ethanol from such dilute solu - mented whereby products are continuously removed and coUected.

tions is costly, a desirable goal is to develop organisms (and thus In this case, the high temperatures would minimize contamination

emem=) whose to]era~e to end products is higher. Such organisms by other organisms and avoid product concentrations high enough

could be used as hosts for cloned bioconversion genes. to kill the micm-organisms (13,37).
Ch. 9—Commodity Chemicals and Energy Production ● 247

International research activities

Biomass-related research in the United States

is conducted by the Department of Energy (DOE),

the National Science Foundation, and private companies. Programs within DOE include the Biomass

Energy Technology- program, which examines the

technical feasibility of innovative biomass feedstock production and conversion technology; the

Alcohol Fuels program; and the Biological Energy Research program (within DOE’s Office of Basic Energy Science), which funds research on genetic manipulation of plants for increased biomass

production and of micro-oganisms for improved

bioprocessing. DOE’s Energy Conversion and

Utilization Technologies (ECUT) group recently

started a program in biocatalysis specifically in

response to the potential use of rDNA organisms

in chemical production processes. The goal of this

generic applied research program is to build “biocatalysis technology to enable industry to displace

a significant level of nonrenewable resource requirements by [the year] 2000” (33). The ECUT

program focuses on research on scale-up of bioprocesses, monitoring continuous bioprocesses,

bioreactor design, and downstream product separation.

The Reagan administration’s proposed fiscal

year 1984 budget is not generous to biomass conversion for energy programs. The budget requests $17.3 million to support ‘(fundamental

R&D” in this area, a small increase of $1.3 million

(8.1 percent) from fiscal year 1983. Alcohol fuels

R&D, formerly budgeted separately, would be

combined with biomass energy programs (25),

Since some of this R&D relates to studies of microbial chemical production, any change in Federal support for R&D of biomass energy will effectively alter R&D for biological commodity

chemical production. The only DOE program specifically directed toward the use of new biotechnology, the ECUT program, received no funding

for fiscal year 1984.

Differing emphasis is placed on the biological

production of chemicals and fuels by the governments of foreign countries. The United Kingdom

funds biotechnological applications to chemical

production processes through several governmental departments. The Canadian Development

Corporation is pursuing technology development for producing ethanol from aspen wood

($21 million over 5 years), and several other

Canadian Government agencies are addressing

chemical and energy production from biomass.

Japan, France, and Sweden also have Government-funded programs pursuing the use of biomass as a feedstock for chemicals and energy (33).

Profiles of recent U.S. patent activity indicate

widespread attention by private inventors and

companies in the United States and other countries to biomass conversion, particularly in areas

related to hydrolysis of starch to sugar, the production of higher value-added chemicals such

as amino acids from microbial systems, and improvements in bioprocess systems such as enzyme immobilization (32). Organizations with the

most U.S. patents in starch hydrolysis and related

bioprocesses include CPC International Inc. (U.S.),

with 21; A. E. Staley Manufacturing Co. (LJ.S.),

with 18; A. J. Reynolds Tobacco Co. (U.S.), with

8; France’s National Agency for the Funding of

Research (L’ Agence Nationale de lralorisation de

la Recherche); Anheuser-Busch, Inc. (U.S.), and Hayashibara Biochemical Laboratories, Inc. (Japan),

with 7 each; and Novo Industri A/S (Denmark) and

Miles Laboratories Inc. (U.S.), with 5 each (32).

Even though patents in starch hydrolysis do not

give a conclusive view of future biotechnological

applications to the commodity chemical industry,

they do indicate that U.S. companies are the predominant developers of the bioprocess technology

underlying the utilization of starch biomass.
 _

248 ● Commercial Biotechnology: An International Analysis

Conclusion

The production of low-value-added, high-volume commodity chemicals demands the use of

the most economic production schemes available.

The most economic schemes for chemical and

energy production at present favor the use of

petrochemical feedstocks. In the future, however,

decreasing petroleum supplies, increasing oil

prices, and technological advances in biomass

utilization may foster a transition to the use of

feedstocks derived from biomass. Such a transition is not expected to occur on an industrywide

scale in the near future, but bioprocesses are

being used to produce significant amounts of fuelgrade ethanol from corn and other crops economically.

Because of the potential for disruption of the

existing industrial structure, the complex interrelationships that characterize the production of

commodity chemicals will affect the success of

the introduction of particular compounds produced by microbial bioprocesses. Projected bioprocessing costs of commodity chemicals and the

structure of the chemical industry have been investigated by B. O. Palsson, et al, (23). These investigators concluded that the potential exists for

a smooth introduction of four microbial products

(ethanol, isopropanol, n-butanol, and 2,3-butanoO

into the U.S. chemical industry, and that these

products may foster other bioprocess development. In order for this transition to take place,

however, either the costs of producing these

products must be reduced (about 20 to 40 percent of their existing costs) or the price of

petroleum must rise. Reducing the costs of production of chemicals from biomass is a prerequisite to commercial success in all case studies thus

far.

U.S. Government support for applications of

biotechnology to the conversion of biomass is decreasing, while high levels of government support

are provided in several competitor countries, particularly Japan and the United Kingdom. U.S. companies appear to be active in developing certain

biotechnological applications, but most of this activity as reflected in patents is concentrated in

applications to starch conversion, with primary

emphasis on higher value chemicals which are

expected to be produced before biomass-based

commodity chemicals are made. Some companies

in the united States and other countries are active in bioprocess development, but given the current slow pace of R&D in microbial systems that

perform the chemical conversions, these processes will not be applicable in the chemical industry for some years.

Priorities for future research *

Biotechnology will be a key factor in developing economic processes for the conversion of biomass to commodity chemicals. A number of priorities for research that will improve the efficiency of the conversion of biomass to useful chemi- ●

cals can be identified:

● bioprocess improvements, including the use

of immobilized cell and enzyme systems and

improved separation and recovery methods, * * an area especially important to the

●

“k!anj of these suggestions are from Rabson and Rogers (24),

● ‘See Chapter 3: 7he Technologim for a more extensi~’e discussion.

production of commodity chemicals because

incremental improvements in bioprocess

technology will be readily reflected in the

price of these chemicals.

screening programs to identify micro-organisms (and their biochemical pathways) useful to processes such as commodity chemical

synthesis, cellulose hydrolysis, lignin degradation, and catalysis of reactions that utilize byproducts that are currently unmarketable;

developing host/vector systems that facilitate

increased production of commodity chemicals by gene amplification and increased gene

expression of desired products and that allow
Ch. 9—Commodity Chemicals and Energy Production ● 249

— —

●

●

●

the transfer of genes into industrially impor- ●

tant micro-organisms;

understanding the structure and function of

the cellulase and ligninolytic activities of

micro-organisms;

understanding the mechanism of survival of ●

micro-organisms in extreme environments,

such as high temperature, high pressure, ●

acid, or salt;

understanding the mechanism of cell tolerance to alcohols, organic acids, and other organic chemicals;

Chapter 9 references*

*1.

‘2. -.

3.

4.

.5.

* .

b,

4.

8,

:)

10

11

1 2 .

13.

14.

1.5.

16.

17.

* 18.

19.

~().

*21.

understanding the genetics and biosynthetic

pathways for the production of commodity

chemicals, especially for the strict anaerobic

bacteria such as the methanogens and the

clostridia;

understanding microbial interactions in

mixed cultures; and

developing an efficient pretreatment system

for lignocellulose.
250 . Commercial Biotechnology: An lnternational Analysis

25<

26,

27,

28.

29

33

34

35.

36

37
chapter 10

Bioelectronics
Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Biosensors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Biochips. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Priorities for Future Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter IO References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figure

253

253

254

256

256

Figure No. Page

29.The Use of Proteins in Constructing Circuit . . . . . . . . . . . . . . . . . . . . ..., . . . . . . . . 255
—

Chapter 1 0

Bioelectronics

.—— . —

Introduction --—-----

The potential for the use of proteins in electronic dmices has received attention recently with

the advent of recombinant DNA (rDNA) technology}’ and the potential for computer-aided design

of proteins (I ,2,3 5 ,6,7, 11, 13,14,15,19,2 1 ). Work

is focused in two areas: biosensors and biochips.

Biosensors (biological}’ based sensors) have been

———

Biosensors -——-- –—- ——

A potential application of biotechnology is in the

development of improved sensing devices. Because of their high specificity for given sub-

.

stances, enzymes and monocIonal antibodies

(hlAbs) are particularly suited for use as sensors.

Sensors using these biological molecules have the

potential to be smaller and more sensitive than

traditional sensors.

Biosensors using enzymes have been used to

detect the presence of various organic compounds

for many years (12). Most of them have used a

free or immobilized enzyme and an ion-sensitive

electrode that measures indirectly (e.g., by temperature or color changes produced during an

enzymatic reaction) the presence of a product the

formation of which is catalyzed by the enzyme.

Because of the proximity of the enzyme and electrode, these biosensors are rapid and sensitive.

They have not had wide application, however,

because of the high cost of many enzymes, lack

of particular enzymes, and temperature instability.

The use of rDNA and MAb technology and computer-aided design of enzymes and other proteins

may allow the problems associated with existing

biosensors to be overcome. The cloning in bacteria of genes coding for useful enzymes, for example, could allow the enzymes to be made in

large amounts cost effectively. The use of MAbs,

which can be made for virtually any molecule,

used for several years, but design problems have

limited their acceptance. Biotechnology is expected to increase the variety, stability, and sensitivity of these devices. Biochips (biologically

based microchips) capable of logic and memory

are still only speculative, and their development

is many years away.

.—— .

not only could obviate the need for enzymes but

also could substantially broaden the applications

of biosensors. A longer term solution to the lack of

particular enzymes might be to have computers

design enzymes with particular catalytic functions. Finally, features of proteins that determine

temperature stability could be incorporated into

the genes that code for important sensing enzymes.

A new approach to fabrication is yielding biosensors with greater speed, sensitivity, and ease

of operation [4). The new biosensors use a fieldeffect transistor that translates a chemical reaction, such as that catalyzed by an enzyme, into

an electronic signal. Because the electronic response is a direct measure of the chemical reaction, the sensitivity and speed of the device is increased. (It is postulated that these sensors could

use MAbs as specific detection agents.) The British

Government has one of these new biosensors on

the market; it detects a particular nerve gas (4).

There are many potential applications for improved biosensors in the medical, industrial, environmental, and defense fields (2, 12). These are

discussed in turn,

In medical diagnostics, many substances need

to be measured accurately and rapidly, but the

sensors now available are often expensive, slow,

and insensitive. Improved biosensors could poten253
254 *

tially

Commercial Biotechnology: An International Analysis —. -— — . —

solve many or all of these problems. Such

biosensors could detect, for example:

. antigens associated with infectious disease,

● hormonal levels to examine endocrine function, and

. serum protein levels indicative of disease.

One particularly important medical application of

improved biosensors could be in the treatment

of diabetic patients for whom proper levels of insulin and glucose must be maintained. Small, im -

plantable devices that sample blood for glucose

and regulate the delivery of insulin could be developed.

As mentioned in Chapter 3: The Technologies,

one of the hindrances to effective bioprocess monitoring and control is the need for a wide range

of sterilizable sensors. Biosensors could be developed to measure levels of key reaction substances,

such as reactants, intermediates, nutrients, and

products. Continuous monitoring of several substances with biosensors interfaced to a computer

would allow better control over the reaction process and thus increase productivity. The use of

thermotolerant enzymes could potentially allow

these sensors to be sterilized in place.

A potential environmental application of improved biosensors would be to monitor water and

air quality. However, cost considerations limit the

use of the extremely sensitive sensors now available. Additionally, very few measuring systems

are portable enough for monitoring in the field.

Biochips

—— -——. — — —

Better biosensors might circumvent these problems. other environmental biosensors could be

developed to detect exposure of workers to hazardous substances and to monitor indoor air pollution in the office or at home.

The U.S. Department of Defense (DOD), in the

near future, will be the major supporter of biosensing research in the United States ($8 million

over the next 4 years). DOD’s aim is to develop

biosensors for the detection of chemical and biological warfare agents that are small, have high

sensitivity, quick response times, and no false

alarms (18). If such devices were developed, they

would have broad civilian applications such as

those just mentioned. Companies funding research on biosensors for a number of uses include

IBM, IT&T, and Johnson & Johnson in the United

States and Cambridge Life Sciences in the United

Kingdom (4,9,16).

Many technical barriers to developing highly

reliable biosensors remain (8,17). Operating limitations (e.g., a narrow temperature range) and fabrication problems have yet to be overcome. Research is needed to identify which proteins are

most appropriate for this technology. Moreover,

sensors implanted in animals or used to monitor

bioprocesses must be sterilized prior to implantation or use, and research is needed to develop

biosensors that are not destroyed by sterilization

methods. Over the next 5 to 10 years, many of

these generic problems inherent in the development of biosensors will probably be solved (2,18).

Probably the most novel potential application

of biotechnology is in the production of a bimolecular electronic device. Such a device would

contain a specially designed organic molecule that

would act as a semiconductor surrounded and

stabilized by specially designed proteins, as shown

in figure 29. Researchers have studied the use of

proteins as a matrix for semiconductors since the

early 1970’s, but the possibility of designing proteins aided by computers and producing the proteins with rDNA technology has sparked more intense interest.

Two small entrepreneurial firms in the United

States are doing research on biological microchips, or biochips: Gentronix (Rockville, Md.) and

Ean-Tech (San Francisco, Calif.). Furthermore,

DOD will be funding biochip research beginning

in fiscal year 1984 at $3 million to $4 million for

5 years. A few large electronics companies in the

United States (Westinghouse, General Electric,

and IBM) have small inhouse programs in this

area. Japan, France, the United Kingdom, and the

U.S.S.R. have indicated interest in bimolecular

computers (10,20).
Ch. 10—Bioelectronics 255 — — — . —

Pr

ffl

Figure 29.—The Use of Proteins in

Constructing a Circuit

A semiconducting

organic molecule

/

otein

‘a me

‘ monolayer

lattice

SOURCE Otflce of Technology Assessment

Bioelectronics research is in its infancy. Although most potential applications of proteins in

this field are only speculative, the successful

development of these applications could have a

substantial effect on the electronics industry.

Computers using protein-based biochips, for example, would be smaller, faster, more energy ef -

ficient, and possibly more reliable than computers

using silicon chips. * The impact of such biochips

would be as broad as that of present computers,

from hand-held calculators to robotics.

The biological nature of biochips also raises the

possibility of some exciting medical applications–

they could be implanted in the body to interface

with the living system. Some possibilities include:

 brain implants to circumvent damage that

has caused blindness and deafness,

● cardiac implants to regulate heart beat,

● blood implants to regulate drug delivery (e.g.,

insulin for diabetics), and

● implants to control artificial limbs.

DOD considers biochip technology potentially

very useful. Because the circuits would be the

*Mutations that occur at a certain low level during growth of

micro-organisms could affect the reliability of the final product.

width of molecules, the resulting devices would

be very small and should find use in areas where

small size is essential (e.g., in missile guidance).

Furthermore, because of the nonmetallic nature

of biochips, it is thought that they would be immune to ‘(electromagnetic pulse,” the extraordinary electrical charge that results from a nuclear

explosion and renders useless all metallic devices

in a large area. In spite of the potential uses, however, it is likely to be many years before any complex biochip wiIl be developed.

A conventional silicon chip contains a set of optically imprinted circuits on a wafer of silicon.

Four factors limit the number of circuits contained on a chip, First, the lower limit of the width

of a circuit is determined by the wavelength of

light used for imprinting. The current limit is 1

to 10 microns; it has been postulated that by 1990

the width could be 100 times narrower (2). Second, the distance between circuits is limited by

the nature of the silicon circuit construction itself.

When circuits are too close together, electrons

can “tunnel” between circuits. This tunneling

decreases the reliability of the electronic device.

The lower limit for the distance between circuits

is rapidly being approached for silicon chips. The

third limiting factor for conventional chips is heat

dissipation. As circuits are packed more closely

together, the chip becomes too hot to function

effectively. Lastly, as the amount of information

processing ability per chip increases, the problems with fabrication and quality control increase.

Biological and chemically synthesized molecules

conceivably could solve these problems associated

with conventional silicon chips as well as provide

additional advantages in design. Because the molecules themselves would be the conductors, the

lower limit of the circuit width would be the

width of molecules, which is several orders of

magnitude narrower than silicon circuits used (or

even postulated) at present. Molecular circuits

could be placed very close to one another without

tunneling effects, because the proposed molecules

conduct current without losing electrons. Furthermore, since almost no energy is required for

molecules to conduct current, very little heat

would be generated even when the circuits were

close together. The specificity of complex interactions among proteins and the self-assembling
. 

256 Commercial Biotechnology: An International Analysis — -— -— —.. . —.- .— —..

processes characteristic of biological systems

would facilitate the fabrication of very reliable

biochips.

The fabrication of complex three-dimensional

biochips with the fabrication technology now

used in the electronics industry is probably impossible. An essential feature of the use of a protein matrix is that the proteins direct their own

assembly and the appropriate positioning of the

semiconductor molecules. There are numerous

examples of self-assembling protein structures,

including virus particles, and these are being

studied intensely for potential applications to

biochip technology.

Several proteins, including MAbs, have been

suggested for constructing a biochip in three dimensions. The movement of microelectronics

from two- to threedimensional structures would

allow not only for increased complexity but also

for greatly reduced size. The use of a three-dimensional protein matrix necessitates the design

of proteins that will interact with other proteins

at correct and unique angles. The construction

of these proteins will rely on computer-aided design and rDNA technology.

There are many problems to be solved before

a threedimensional biochip will become available.

Biological equivalents of capacitors, transistors,

and resistors are yet to be developed. Switching

devices, necessary for use with the computer binary system, are only theorized. No one has determined how a three-dimensional biological structure will do logic functions or store memory. The

problem of interfacing biochips so they can be

programed or can assimilate other input has not

been addressed. And, because the chips would

use complex molecules, research needs to be done

on their environmental stability,

Biochips will not be possible without computerdesigned proteins and rDNA technology. Yet it

will probably be several years before rDNA technology will be able to contribute substantially to

biochip research, because it is first necessary to

understand more about the relationship between

protein structure and function, the biological selfassembly processes, and the mechanisms by

which molecules could do logic functions and

store memory.

Priorities for future research

Increased funding for research in the follow- ●

ing areas could speed the development of bioelec- ●

tronics: ●

● computer-aided design of proteins,

●

● temperature stability of proteins,

field-effect transistors,

miniaturization of sensors,

biological self-assembly processes, and

molecular-switching mechanisms for electronic signal propagation.

Chapter 10 references*

*1. Angier, N., “The Organic Computer, ” Discover,

May 1982, pp. 76-79.

2. Clerman, R. J., “State-of-the-Art Survey: Biochips

Technology” (McLean, Va.: MITRE Corp., 1982).

3. Economist, “Putting Organic Molecules to Work,”

June 4, 1983, pp. 87-88,

● References of general interest are marked with asterisks.

4. Economist, “Sensing Devices: A New Breed)” June

25, 1983, p. 92.

5. Fox, J. L., “Molecular Electronic Devices Offer

Challenging Goal, ” Chem. & Eng. News, May 23,

1983, PP. 27-29.

6. Freidman, S., “Molecular Electronics Promises

‘Biochips’, But Research Proceeds Behind ‘Silicon

Wall’,” Genetic Engineering Ne~ts, September/C) ctober 1982, p. 1.
Ch. 10—Bioelectronics ● 257

*-

( .

8.

9.

10

11

12,

13.

* 14. Peterson, I., “The Incredible Shrinking Compu15<

1 6

17

18<
PART IV

Analysis of U.S. Competitiveness

in Biotechnology
Chapter 11

Framework for Analysis
.

Contents

Page

Factors Influencing Competitiveness in Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263

Firms Commercializing Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265

Results of the Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266
Chapter 11

Framework for Analysis

With the increasing importance of high-tech- commercialization of emerging technologies. If

nology industries in the united States and the the country’s potential competitive position can

decreasing competitiveness of U.S. goods in world be defined, policy analysis can suggest possible

markets, U.S. policy makers need to be able to governmental steps to improve that position.

assess the country’s future with respect to the

Factors influencing competitiveness in biotechnology

To analyze the future competitive position of

the United States in biotechnology, OTA identified

10 factors believed to have potential influence on

the international competitiveness of products

resulting from an emerging technology. * Many

of these factors relate to the legal system and

various governmental policies, although societal

and private sector factors were also identified.

The 10 factors are:

●

●

●

●

●

●

●

●

●

●

financing and tax incentives for firms;

government funding for basic and applied

research;

personnel availability and training;

health, safety, and environmental regulation;

intellectual property law;

university/industry relationships;

antitrust law;

international technology transfer, investment,

and trade;

targeting policies in biotechnology; and

public perception.

These 10 factors are described in the chapters

that follow. The chapters are presented, more or

less, in the order of the factors’ importance to

competitiveness in biotechnology, Each of these

factors was analyzed for the United States and

five countries identified as the major potential

competitors of the united States in biotechnology:

Japan, the Federal Republic of Germany, the

United Kingdom, Switzerland, and France.

“(l 1 \‘5 modf’1 for detf>rmining lhf; futurf, competitik’r position of

(i it f (~rf~nt (ount rlf~s u ith respect to ttw (’on]nl(;r(;ializati[)Il of bio -

tf’(hnolog}” (x)uld i(’r~ M ell he useful in df~terrnining international

(’om[)f’tlt II crl{>>s t~ it h r’rspw’t to the conlr~]er-(’ializatiorl” of othrr

[’rnrrging trrhnologim F’or rmerging technologies other than bio -

t(’(hnologj, hotf fn (~r the r[~lati~ e importance of specific factors

II ()~11(1 not rl(’(f>ssa rll~f I)(> t I](I sam e

The three factors that OTA believes to be most

important to a country’s success in commercializing an emerging technology such as biotechnology

are financing and tax incentives for firms, government funding of basic and applied research, and

the availability of trained personnel,

The first of these factors encompasses the availability of capital both for starting new firms and

for financing the growth of existing firms. It also

includes tax policies that affect the formation and

availability of capital as well as the strategic

decisionmaking in firms.

Funding of basic, generic applied, * and applied

research is necessary both to maintain a science

base and to ensure the availability of the technical

means to apply scientific knowledge industrially. The distinction between basic, generic applied,

and applied science research is an important one,

because, in establishing a competitive position, a

comparative advantage in applied science may be

more important than an advantage in basic research. optimally, an analysis of funding for basic,

generic applied, and applied research would include funding from both government and industry. Industry figures are usually proprietary, however, so the analysis in this report necessarily concentrates on government funding,

The third factor, availability of personnel

trained in essential disciplines in a new tech-

“[;meric applied research is research whose objective is to gain

the understanding necessary to solve a problem common to a particular industr}’. Such research falls between basic research, the

ohjecti~’e of which is to gain understanding of the basic aspects of

phfmomena without goals tow’arcl the development of specific prwces.ws or produrts; and applied research, the objective of which is

to gain understanding necessarJr to meet a recognized and specific

n(x>d, proress, or produrt.

263
264 Commercial Biotechnology: An International Analysis

nology, is important to firms considering the commercialization of that technology. Furthermore,

the quality of science and engineering education

is a major factor in determining the future availability of personnel.

Three factors were identified as having moderate importance in the commercialization of biotechnology: health, safety, and environmental regulation, intellectual property law, and universi -

ty/industry relationships.

To determine the importance of health, safety,

and environmental regulation, several issues had

to be weighed. on the one hand, the more stringent the regulations protecting against potential

risks of the technology, the more positive the public’s reaction to the development of the technology

is likely to be. On the other hand, stringent regulations may discourage commercialization. Most

companies will seek to enter domestic markets

first, and for these companies, the domestic regulations will be of primary importance. Companies interested in developing international markets, however, must also consider the regulations

of other countries. Some countries’ regulations

are effective nontariff trade barriers that discourage entry by foreign firms into domestic markets.

The intellectual property laws of a country partially affect whether a company will pursue a line

of inquiry. If one is unlikely to reap the benefits

of the discovery of an invention, then one is less

likely to work on such an invention. Furthermore,

if a country’s patent laws are not sufficiently protective, then a company may choose to keep its

inventions as trade secrets. Protection through

trade secrets usually discourages technology

transfer.

Active interaction between industry and academia is a factor that could promote the compet -

ititiveness of a country in an emerging technology.

Usually when a technology is in the early experimental phase, most of the important research is

carried out in universities. Ongoing dynamic university/industry relationships are an effective . .

means of domestic technology transfer. Generally

therefore, such interactions promote a country’s

competitiveness.

Three factors were determined not to be very

important to the development of biotechnology
Ch. 1 l—Framework for Analysis . 265

.—

Firms commercializing biotechnology

25-561 0 - 84 - 18
266 ● Commercial Biotechnology: An International Analysis
Chapter 12

Financing and Tax Incentives

for Firms
Contents

Page

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269

Financing in Firms Commercializing Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269

Financial Needs of Firms Commercializing Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269

Sources and Availability of Financing for U.S. Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273

Sources and Availability of Financing for Firms in Other Countries . . . . . . . . . . . . . . . . . . . . 284

Tax Incentives Relevant to Firms Commercializing Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . 288

Tax Incentives Relevant to New Biotechnology Firms in the

United States and Other Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291

Tax Incentives Relevant to Established Companies in the

United States and Other Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295

Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297

Issues and Policy Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300

Chapter 12 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302

Tables

Table No. Page

41. Breakdown of Revenues and Net Income/Losses for

18 New Biotechnology Firms in the United States, Fiscal Year 1982 . . . . . . . . . . . . . . . . . . . 270

42. Capital Expenditures, R&D Budgets, and Operating Revenues of

Nine New Biotechnology Firms in the United States, Fiscal Year 1982 . . . . . . . . . . . . . . . . . 271

43.Cash Drain Relative to Equity for Six New Biotechnology Firms

in the United States, Fiscal Year 1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271

44. Distribution of Venture Capital Disbursements in the

United States by Industry, 1980 and 1981 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275

45. Distribution of Venture Capital Disbursements in the United States

by Stage of Investment, 1981 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275

46.Cost of Venture Capital for Selected New Biotechnology Firms in the United States . . . . . 276

47. Comparison of Private and Public (Market) Valuations of Eight New

Biotechnology Firms With Initial Public Offering in 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277

48.U.S, Venture Capital Pool, 1977 and 1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278

49.R&D Limited Partnerships Used by 12 New Biotechnology Firms

in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278

50. Initial Public Offering History and Market Valuations as of

July 1983 for 19 New Biotechnology Firms in the United States . . . . . . . . . . . . . . . . . . . . . . 282

51. Number of Initial Public Coffering sand Amount Raised in All Industrial

Sectors in the United States, 1972-83 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282

52. Amounts Raised in Recent Initial Public Offerings by Six New Biotechnology Firms . . . . . 283

53.Tax Treatment of Innovation Activities in the United States and Other Countries . . . . . . . 289

54. Estimated Relationship Between Tax Credit Earned and U.S. Firm Size . . . . . . . . . . . . . . . . 296

Figure

Figure No. Page

30. Comparative Market Performance: Companies Using Biotechnology vs.

Standard and Poor’s 500 Companies, April 1982 through April 1983 . . . . . . . . . . . . . . . . . . 281
Chapter 12

Financing and Tax Incentives for Firms

Introduction

Two of the most important factors in the development of biotechnology in the United States

have been the supply of venture capital to finance

the startup and growth of new biotechnology

firms (NBFs)* and the tax incentives provided by

the U.S. Government to encourage capital formation and stimulate research and development

(R&D) in the private sector. As noted in Chapter

4: Firms Commercializing Biotechnology, the

types of companies commercializing biotechnology in the United States include a large number

of NBFs and a smaller yet growing number of

established companies from a variety of industrial

sectors. In Japan and the European countries, by

contrast, it is predominantly established companies that are commercializing biotechnology.

A variety of reasons might explain the different

nature of foreign commercialization efforts, but

certainly of major importance is the fact that venture capital to fund the startup of new companies

is not generally available outside the United States.

——..——

● NBFs, as defined in Chapter 4: Firms Con]mercializing Biotechnology’, are firms established around 1976 or later specificall~ to

pursue applications of biotechnology

The first section of this chapter examines financial needs of firms commercializing biotechnology, emphasizing the needs of NBFs in the United

States. It also evaluates the sources and availability

of capital for firms in the United States and other

countries. The second section examines tax incentives for firms. Tax incentives are an indirect

source of government funding.** Such incentives

can expand or contract the supply of funds available to companies engaged in biotechnology and

can thereby affect the overall rate at which biotechnology develops. They also can affect the

financial decisionmaking and thus the methods

of financing used by companies applying biotech -

nology.

Financing in firms commercializing biotechnology

Starting a new company, expanding the product

line of an existing company, and manufacturing

an existing product in a new way all require some

form of financing. The discussion below outlines

the financial needs of US. companies applying

biotechnology. It also examines the sources and

availability of private sector funds to meet these

needs. Brief comparisons are made with the five

countries likely to be the major competitors of

the United States in the commercialization of biotechnology—Japan, the Federal Republic of Germany, the United Kingdom, Switzerland, and

France.

Financial needs of firms

commercializing biotechnology

As discussed in chapter 4, a distinction can be

made in the United States between two types of

firms that are active in the commercialization of

biotechnology: NBFs and established companies.

NBFs, as defined in this report, are firms established around 1976 or later specifically to pursue applications of biotechnology. * Established

269
270 ● Commercial Biotechnology: An International Analysis

companies have considerably longer corporate

histories than NBFs and are generally much larger. In Japan, the Federal Republic of Germany,

the United Kingdom, Switzerland, and France, efforts to commercialize biotechnology are led by

established companies, although the United Kingdom and France do have a few NBFs. Because of

their large financial assets, established companies

generally do not need external sources of funds

for R&D in new areas such as biotechnology. Furthermore, if they do need such funds, established

companies are generally able to obtain debt financing. Debt financing, a traditional means to

fund corporate growth, is not available to NBFs,

because they lack both collateral to secure a loan

and sufficient means to repay the lender (27). The

discussion in this section, therefore, focuses on

the financial needs of NBFs.

Even the most mature NBFs at present have

only a few products to generate revenues that can

be used to cover operating expenses and provide

capital for future growth. In order to generate

revenue, as described in chapter 4, NBFs in the

United States are currently relying heavily on

research contracts. The reliance of entrepreneurial firms on research contracts to generate

revenue is almost without parallel, except perhaps

for the small firms that do defense contracts.

Table 41 shows profitfloss figures for 18 NBFs

in the United States, all of which are publicly held.

Of these firms, only three, Cetus, Genentech, and

International Genetic Engineering (INGENE), have

shown earnings in the most recent fiscal year for

which data are available. The favorable financial

position of Cetus and Genentech is mostly due to

earned interest income from funds obtained in

public offerings. However, revenues from sales

(including contract research) fall far short of expenses for all three of these companies, and all

three are losing money on an operating basis.

As shown in table 42, NBFs’ investment in R&D

is currently very large in comparison to their op -

Table 41 .—Breakdown of Revenues and Net lncome/Losses for 18 New Biotechnology Firms in the United

States, Fiscal Year 1982 (millions of dollars)

Operating revenues

Revenues Contract revenue Revenues from

from as a percent of product sales Interest Total

New biotechnology firm research total revenues or royalties Total income revenues Net income/lossa

Amgen b . . . . . . . . . . . . . . . . . . . . . . $ 0.13 9.4 ‘/0

~ OTIS - --- - .- ,-- -.

Biogen . . . . . . . . . . . . . . . . . . . . . . . 12.1 58,8 12.1

Biotechnica International . . . . . . . 0.031 34 0.031

Bio-Technology General . . . . . . . . 0.15 93 0.15

Centocor . . . . . . . . . . . . . . . . . . . . . 2.4 84.2 2.4

Cetus . . . . . . . . . . . . . . . . . . . . . . . . 15.2 46.5 $0.79 15.99

Chiron b. . . .0. . . . . . . . . . . . . . . . . . . 1.58 92 1.58

Damon Biotech . . . . . . . . . . . . . . . . 0.81 48 0.81

Enzo Biochemc . . . . . . . . . . . . . . . . 0.10 11.2 0.17 0.27

Genentech c . . . . . . . . . . . . . . . . . . . 28.8 88.3 28.8

Genetic Systems . . . . . . . . . . . . . . 2.2 71.66 2.2

Genex. . . . . . . . . . . . . . . . . . . . . . . . 5.2 85.3 5.2

Hybridoma Sciencesd . . . . . . . . . . 0.07 73 0.07

Hybritech . . . . . . . . . . . . . . . . . . . . . 1.3 27.4 1.8 3.1

Integrated Genetics . . . . . . . . . . . . 0.6 60 0.6

International Genetic Engineering

(Ingene) . . . . . . . . . . . . . . . . . . . . . . 1.78 90 1.78

Molecular Genetics . . . . . . . . . . . . 0.66 61 0.66

Monoclinal Antibodiesb 

. . . . . . . . 0.10 1.5 0.16 0.26 . ,

a ‘o~~e~ are shown in parentheses.

b Fiscal year 1983.

c Stock split

d Units offered (one unit= three shares of common stock and three Class A Warrants).

SOURCE Office of Technology Assessment, based on information from E F. Hutton & Co, comPany annual reports, and company prospectuses

$ 1.35

8.5

0.059

0.16

0.45

16.7

0.14

0.62

3.76

0.87

0.67

0.024

1.6

0.46

0.211

0.42

0.39

$ 1.5

20.6

0.09

0.011

2.85

32.7

1.72

1.7

0.89

32.6

3.70

6.1

0.095

4.75

1.0

($/u)

(3.9)

(1.6)

(2.3)

(2.76)

(;:2)

(1 .38)

(1.25)

0.625

(1.0)

(5.6)

(0.186)

(7.26)

(1.76)

1.98

1.08

6.5

0.13

(3.75)

(2.7!
Ch. 12—Financing and Tax Incentives for Firms ● 271

Table 42.—Capital Expenditures, R&D Budgets, and Operating Revenues of Nine New Biotechnology Firms in

the United States, Fiscal Year 1982 (miiiions of doiiars)

Capital R&D Operating R&D as a percent of

New biotechnology firm expenditures budget revenues operating revenues

Biogen . . . . . . . . . . . . . . . $8. 7 $8, 7 $12.1 720/o

Cetus . . . . . . . . . . . . . . . . 22.9 25.9 16.0 143

Enzo Biochem . . . . . . . . 0.09 1,2 0.3 400

Genentech. . . . . . . . . . . . 31.8 31.9 28.8 111

Genetic Systems . . . . . . 0.46 3.9 2.2 177

Genex . . . . . . . . . . . . . . . 1.8 8.3 5.2 160

Hybritech. . . . . . . . . . . . . 1.44 5.0 3.1 161

Molecular Genetics . . . . 1.4 2.8 0.66 424

Monoclinal Antibodies . 0.57 1.1 0.26 423

SOURCE: Office of Technology Assessment based on information from company annual reports.

crating revenues. Furthermore, NBFs that are incurring large R&D costs to develop products are

sustaining large losses relative to their earnings

(see table 41). * These losses, which will likely continue for several years, are eroding the capital

bases of many NBFs and increasing their need for

additional sources of funds. NBFs such as Biogen

N. V.* * do not expect operating revenues to meet

R&D expenses, and consequently do not expect

to operate at a profit for at least several years (2).

For the next several years, expenditures by NBFs

for R&D will probably equal 20 percent or more

of sales (27).

● The cumulative losses shown in table 41 understate the level of

funding required to sustain these companies because they do not

fully reflect capital outlays. Only the depreciated portion of capital

outlays shows up in a profit and loss statement and, hence, in

cumulative loss (27),

● “Biogen N.L’., the parent company of the Biogen group, is registered in the Netherlands Antilles but is about 80-percent U.S. owned.

Biogen’s principal executive offices are located in Switzerland. Biogen N t’. has four principal operating subsidiaries. Biogen Research

Corp. (a Massachusetts corporation) and Biogen S.A. (a Swiss corporation) conduct research and development under contract with

Biogen N.\’. Biogen B.\’. (a Dutch corporation) and Biogen Inc. (a

Delaware corporation) conduct marketing and licensing operations,

Available figures pertaining to Biogen refer to Biogen N.V, and its

subsidiaries.

Because of the emphasis on R&D in biotechnology, skilled labor for firms applying biotechnology

is relatively more important than labor for firms

in other areas, Such labor is also quite expensive.

The average Ph. D., supported by two technicians,

costs on the order of $150)

000 to $175)000 p e r

year with overhead (27). As a result, labor may

initially constitute a large percentage of a new

firm’s operating expenses.

The most revealing indicator of the NBFs’ potential need for cash is the rate at which such firms

are consuming funds. Table 43 shows decreases

in working capital for six NBFs. Except for Cetus,

which raised an exceptional amount of money in

its initial public offering, the drop in working

capital for these firms is large compared to their

equity capital. In 1981, Genentech used up 21 percent of its ending equity capital, while Molecular

Genetics used up 10 percent, and Cetus 12 percent (27). Hybritech increased its working capital

by 72 percent of beginning equity in 1981 by

means of a public stock offering; by October 1982,

however, Hybritech had returned to the public

markets to raise additional equity because its

Table 43.—Cash Drain Relative to Equity for Six New Biotechnology Firms in the United States, Fiscal Year 1982

(miiiions of doiiars)

Equity Cash Yearly change in Cumulative

New biotechnology firm capital flowa working capital deficit

Biogen . . . . . . . . . . . . . . . $61.9 ($3.0) ($12.1) $10.0

Cetus . . . . . . . . . . . . . . . . 128.3 5.7 (15.7) (0.3)

Genex . . . . . . . . . . . . . . . 13.3 0.6 (9.4) (2.3)

Genentech. . . . . . . . . . . . 53.1 (1 1.4) (0.03)

Hybritech. . . . . . . . . . . . . 17.6 (i::) (12.8)

Molecular Genetics . . . . 1.5 (3.6) ( % (4.0)

a cash flow is sum of net income or IOSS pIUS noncash expenses such as depreciation.

SOURCE’ Office of Technology Assessment, based on information from company annual reports
272 ● Commercial Biotechnology: An International Analysis

——.—— —

working capital had dropped to 43 percent of

stockholder’s equity by the end of 1981 (27). Other

NBFs, including Monoclinal Antibodies, Genex,

and Molecular Genetics, have also had to return

to the public market not long after their initial

or second public offerings.

The financial needs of NBFs are largely dependent on which market they are trying to enter. To

enter each of the markets described below, increasing amounts of funds are necessary.

Contract Research and Development Market.

The funding needed to support entry into the contract R&D market is generally less than that required for entering product markets, because research that a firm does for another company, university, or government agency is funded by that

organization, often through progress * or advance

payments. Most NBFs perform contract R&D to

generate revenues to fund their own proprietary

research, although the costs of proprietary research generally exceeds their contract research

fees (27).

In Vitro Monoclinal Antibody Diagnostic Products Market. * * The funding needed to support

entry into the market for in vitro (used outside the

body) monoclinal antibody (MAb) products is

more than funding needed to support entry into

the contract research market. Because of the

small amount of plant and equipment required

to develop such products and because of the comparatively low cost of complying with the Food

and Drug Administration’s (FDA’s) testing requirements for in vitro diagnostic products for humans, the financial requirements are relatively

low. * * * A number of NBFs, including Hybritech,

Monoclinal Antibodies, Molecular Genetics, Cen -

tocor, and Genetic Systems, have developed in

vitro MAb diagnostic products for humans that

are “substantially equivalent” to products that

FDA has already approved and thus do not require rigorous testing. Other MAb products being

developed by these firms are intended for research or production (e.g., separation and puri-

“ Progress pa~~nwnts ar(I receitd Ithm the rontr;wting ronlp;in}

re~cheh r(?rtain nlileslOnm in ttw rww;~rch prOj(J(’t,

● ● In ii[rf) NIAI) prOdurtS ;irf, d isrussfxi i n f.’h:I/)lfII’ .;.

IJllitI’IlliJ[’ellti( ’;lls,

● * ● 1;()[’ ii discussio[l of t“L)A ‘S I’(]gUliltoI’}” ~)l’()(’(’!$st>s, S(>[> {~))il;)(ol”

1;7: fi(’iilttj, Siitf’t.\’, iil)(l hlI)\ril’OIIIl) t>t)tiil Rt’gllliltiol).

fication) purposes and thus do not require FDA

approval. Several of these NBFs are within a few

quarters of achieving operational profitability for

these product lines (27).

Specialty Chemicals Market. * Specialty chemicals are defined in this report as chemicals whose

price exceeds $1 per pound (50¢ per kilogram).

These include substances such as enzymes, amino

acids, vitamins, fatty acids, and steroids. Most specialty chemicals do not need regulatory approval.

For specialty chemicals considered foods or food

additives, however, FDA approval is required, and

significant funds may be expended to meet FDA

requirements. Thus, the amount needed to enter

the specialty chemicals market varies depending

on the product. In general, though, the amount

of funds needed to enter the specialty chemicals

market is more than the amount required to enter

the contract research market but less than that

needed to enter the commodity chemicals market.

Agricultural Products Market. * * For the animal

agricultural market, the R&D cost are very similar to those for pharmaceuticals (in vitro and in

vivo products), because many of the products,

such as diagnostics, vaccines, and hormones, are

essentially the same. However, the regulatory requirements promulgated by the U.S. Department

of Agriculture (USDA) and FDA for animal health

products are much less stingent than the requirements for pharmaceuticals. Some animal agriculture products (e.g., vaccine for colibacillosis) have

received approval and are already reaching the

market.

The R&D costs for applications of biotechnology

to plant agriculture vary over a broad range. The

genetic manipulation of microorganisms important to plant agriculture, for the most part, is less

costly than the genetic manipulation of the plants

themselves. Furthermore, the various traits being investigated are at different stages of research.

For instance, plants with traits conferring resist -

ance to drought or saline stress are more near

term than those with improved photosynthesis

or nitrogen fixation. The financial requirements

for developing the latter plants are much greater

“ ,Alq)li(ations 01 t)iot(~c.tlrlologtr” to speciallj chemicals art> discussed

in (;hiij][t”l’ 7. .9pe(>ialt. \’ [;h(:mi(’i]fs ~IId k’(d ..lddititres.

* ● ,,\})l)li(’iitiolls of l)iott’(’tlrlolog~’ to animal and pl:in[ agri(’ulturf’

iil’(’ disrussed in (;)lii/)t(’l’ 6’ .-l~~rirll)turf~
● Applications of biotechnology to in \i\’o diagnostic and therapeutic products intended for human use are discussed in Chapter

S: Pharmaceuticals.

● “Applications of biotechnology to commodity chemical production are discussed in Chapter 9: Cmnmoditjr Chemicals and Enqqtr

Production.

Ch. 12—Financing and Tax Incentives for Firms 273

With the exception of firms developing in \itro

MAb assays and diagnostic products, it will be

some time before NBFs, most of which are U.S.

companies, can be self-financing; some estimate

that NBFs cannot be self-financing before the late

1980’s (27). The new firms must finance not only

losses due to operating expenses but also expenditures needed for capital assets. For some NBFs,

meeting FDA regulatory requirements wril] also

require substantial funds. Because, as noted

earlier, debt financing may not be a\railabIe to

manv NBFs, the financial needs of these firms .

must for the most part be met by additions to

equity capital (27). Thus, in many cases, the receptivity of the public market to NBF stock issues and

the use of R&Il limited partnershil)s is a nlalter

of” great importance.

Sources and availability of financing

for U.S. firms

NEW BIOTECHNOLOGY FIRMS

the

●

●

●

following:
— ——.

274 ● Commercial Biotechnology: An International Analysis

technology. Thus, such agreements usually provide for royalty payments to the NBF by the established company on the future sales of the product that results from the R&D work; these royalties may range from 2 to 10 percent of total sales,

depending on the size of the product market.

Table 41 breaks down total fiscal year 1982 revenues for 18 NBFs into operating revenues received from contract research or product sales

or royalties and interest income. In most NBFs,

no income or very limited income was obtained

from the sale or licensing of products. Most revenue, even for the larger NBFs such as Genentech,

Cetus, and Biogen, was contract revenue and interest on cash raised through public offerings and

private investment. Genentech reports, for example, that 88 percent of its total $32.6 miilion revenue in 1982 was derived from contracts and the

balance derived from interest income. Cetus reports that, in fiscal year 1982 (which ended in

June 1982), income from contracts accounted for

almost 47 percent of its total revenues and interest income for most of the remainder. Similarly,

Biogen reports that 59 percent of its revenue

comes from contract sales with the balance being interest income.

Biogen and Genentech are concentrating on

product development using rDNA technology.

Some NBFs, including Genetic Systems, Monoclinal Antibodies, Centocor, and Hybritech, are developing MAbs for in vitro assays, diagnostics, and

research products. These firms will probably

achieve an income stream from product sales

more quickly. In fiscal year 1982, however, these

firms also show primarily interest income. Currently, Hybritech has the greatest percentage of

total revenue coming from product sales, 38 percent. In the near future, product sales should contribute more substantially to revenues for

Hybritech as well as other diagnostic product

companies.

Venture Capital. —In the United States, there

are several sources of venture capital. These are:

●

●

●

●

corporate venture capital,

R&.D limited partnerships,

venture capital funds, and

Small Business Investment Corporations

(SBICS).

Each of these is discussed further below.

From 1969 to 1977, the total venture capital

pool in the United States remained relatively unchanged, at the level of about $2.5 billion to $3

billion each year (27). Since then, however, the

venture capital pool has increased sharply, reaching between $3.5 billion and $4 billion in 1979

(45), $5.8 billion in 1981 (46), and an estimated

$7.5 billion as of the end of 1982 (48).

Variability in the amount of venture capital in

the United States is influenced by many factors.

These include general macroeconomic variables

(e.g., interest rates and inflation), changes in capital gains tax laws, and changes in pension fund

investment rules. In 1969, the U.S. capital gains

tax was increased from 29 to 49 percent. In addition, the U.S. inflation rate increased sharply

in 1972, causing investors to seek a much higher

rate of return on their investments, In 1973-74,

the price index of the National Association of Security Dealers Quotation of over-the-counter securities, which represents smaller companies, declined more than did the Dow-Jones industrial

price index, which represents larger companies

(27), indicating a decline in investor interest in

newer, smaller firms relative to larger, more established companies.

Recent changes in U.S. laws and regulations affecting the formation of venture capital have led

to a resurgence in the supply of venture capital

in this country. In 1979, Employee Retirement Income Security Act pension fund regulations were

interpreted to allow some pension fund money

to flow into venture capital investments. Around

the same time, the Securities and Exchange Commission adopted Rule 144 allowing founders of

companies to liquidate their “restricted” stock

holdings sooner than previously allowed. The opportunity to liquidate sooner provides investors

with a stronger incentive to invest. Especially important to the supply of venture capital in the

United States have been decreases in the rate at

which long-term capital gains are taxed. The current long-term capital gains tax rate for individuals, established under the Economic Recovery

Act of 1981, is 20 percent (28 percent for corporations), making venture investments even more attractive than they were under the pre-1969 rate

of 29 percent.
Ch. 12—Financing and Tax Incentives for Firms ● 275

Table 44 shows the distribution of venture capital disbursements in the United States by industry

for 1980 and 1981. In 1980, investments in “genetic engineering”* accounted for 4.2 percent of

the total number of investments but 7.6 percent

of the dollars invested. In 1981, “genetic engineering” accounted for 6.2 percent of the number of

investments but absorbed 11.2 percent of venture

dollars. The disproportionately large average size

of “genetic engineering” investments reflects the

fact that a large amount of funds must be dedicated to R&D before a concept is proven. In other

high-technology industries, “seed money” is usually sought to prove a concept and averages around

$1 million per project. But in biotechnology, seed

money and startup financing from venture capi-

*A definition of “genetic engineering” was not given by the t’enture Capital Journal

talists is generally combined to obtain enough

money for product development and initial marketing. Financing for biotechnology projects

averaged about $2.2 million per project in 1982

(27). As shown in table 45, seed money is a very

small percentage of total venture capital disbursements in the United States, In biotechnology, venture investments have tended to combine both

seed and startup financing, making the average

disbursement disproportionately high.

The peak period for raising venture capital in

biotechnology in the United States occurred in

1980. That year, the valuations of NBFs ranged

from $5 million to $25 million for 25 percent of

the company (41). The stock market decline of

1981-82 was accompanied by changes in the venture capital market with respect to biotechnology

ventures. Valuations of NBFs ranging from $2 milTable 44.—Distribution of Venture Capital Disbursements in the United States by

Industry, 1980 and 1981

Percent of total Percent of

number of investments dollar amount invested

1980 1981 1980 1981

Communications . . . . . . . . . . . . . . . . . . . . . . 11 .5 ”/0 11 .4 ”/0 10.9 ”/0 11 .2 ”/0

Computer related . . . . . . . . . . . . . . . . . . . . . . 27.4 30.0 25.7 34.3

Other electronics related . . . . . . . . . . . . . . . 9.6 14.5 9.6 13.1

Genetic engineering . . . . . . . . . . . . . . . . . . . 4.2 6.2 7.6 11.2

Medical/Health related . . . . . . . . . . . . . . . . . 10.5 7.0 9.3 5.8

Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3 4.9 19.9 5.8

Consumer related. . . . . . . . . . . . . . . . . . . . . . 7,5 4.9 3.7 1.9

Industrial automation . . . . . . . . . . . . . . . . . . 4.5 6.2 2.7 5.3

Industrial products. . . . . . . . . . . . . . . . . . . . . 3.6 4.4 2.0 3.4

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.9 10.5 8.6 8.0

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1OO.O”/O 100.0 ”/0 100.OYO 100.0 ”/0

SOURCE Venture Capital Journa/ 22(6)8, June 1982

Table 45.—Distribution of Venture Capital Disbursements in the United States by Stage of Investment, 1981

Percent of number Percent of dollar Average size

of investments amount of investments of venture

Venture Total Venture Total financing

State of investment development activity development activity ($000)

Seed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4“/0 2“/0 $1,000

Startup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 31 2,200

Other early stage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 19 2,000

Total early stage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 ”/0 39 ”/0 520/o 460/o $2,000

Expansion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 40 48 41 $1,750

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%0 79 ”/0 100YO 87°/0 $1,900

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ”/0 80/0 1,850

Stage unrecorded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5 900

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100”!0 100 ”/0

SOURCE Venture Capital Journal 22(6):9, June 1962
276 Commercial Biotechnology: An International Analysis

lion to $4 million for 40 to 50 percent of the company became more common. The following two

factors may have accounted for the decrease in

the

●

●

valuation of NBFs in 1981 and 1982:

increased investor knowledge of the time that

would be required for commercializing applications of biotechnology, and

decreased investor interest in biotechnology

because most venture capitalists who desired

to invest in an NBF had already done so.

At least one venture capitalist stated that the

number of new proposals based on biotechnology

decreased substantially from 1981 to 1982 (27).

Possible reasons for the decrease in proposals include the following:

●

●

the existence of many competing companies

in each of the major application areas discouraged additional entrants, and

the fact that many of the scientist/entrepreneurs who wanted to form a new firm had

already done so.

Table 46 shows the cost of venture capital for

selected NBFs in the United States, although it

should be noted that few general rules can be determined from this table. Genentech and Hybritech, which the venture capital firm Kleiner, Perkins, Caulfield, and Byer partly organized as well

as financed, turned out to be particularly good

investments. For Hybritech, a $300,000 investment initially purchased 72 percent of the company at a price of $0.20 per share. At the time

of the public offering at $26.75 per share, Kleiner,

Perkins, Caulfield, and Byer held 29.3 percent of

Hybritech worth $1,7 million. For Genentech, a

$200,000 investment eventually equated to 14.3

percent of the common stock ($0.21 share cost)

worth around $33 million at the time of the public

offering. Wilmington Securities, a later investor

in Genentech, purchased 6.2 percent of the company for $500)

000 or $2 per share of a stock that

went public at $35. Lubrizol, a still later investor

in Genentech, paid $10 million for 24 percent of

the company or $6.43 per share.

Table 47 contrasts the private valuations and

public (market) valuations of some recently offered NBF issues. Hybridoma Sciences exhibits the

greatest increase in valuation (and thus the highest rate of return to original investors) in the

shortest period of time-over 1,100 percent in just

over 2 years.

The four sources of venture capital in the

United States, which were mentioned at the beginning of this section, are discussed further

below. Independent private venture capital funds

have accounted for an increasing share of total

venture capital relative to that provided by corporate investors and SBICS, as shown in table 48,

Corporate venture capital. A number of major

corporations provide revenue to NBFs through

R&D contracts as well as equity investments and

joint ventures. Contractual relationships provide

benefits to the corporate investors as well as the

NBF. Chapter 4: Firms Commercializing Biotech -

Table 46.—Cost of Venture Capital for Selected New Biotechnology Firms in the United States

New biotechnolocw firm

Private venture capital

Cetus:

1st stage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SOCal—2d round . . . . . . . . . . . . . . . . . . . . . . . . .

Genentech:

Wilmington Securities, early stage . . . . . . . . . .

Lubrizol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Genetic Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Hybritech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Molecular Genetics:

Founders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sale of 632,366 shares to American Cyanamid . .

Monoclinal Antibodies . . . . . . . . . . . . . . . . . . . . . .

Venture Percent

capital of company

invested purchased

$ 1,999,600 16.5°\o

5,000,000 10,4

500,000 6.2

10,000,000 24.0

200,000 9.7

300,000 72.0

40,560 59.9

2,750,000 18.7

825,116 29.2

Price Price per share

per share in public offering

.

$23.00

$0.91

3.60

35.00

2.00

6,43

0,51 6.00

0.20 26.75

9.00

0.02

4.35

0.52 10.00

SOURCE Off Ice of Technology Assessment, based on information from company prospectuses.
-. . - -. .- . . . . -. ---

c. -

1-

1

ial

z

.->

;

0

co0)

Y
278 “ Commercial Biotechnology: An International Analysis

Table 48.—U.S. Venture Capital Pool, 1977 and 1982 (millions of dollars)

Percent Percent

1977 of total 1982 of total

Independent private funds and venture capital

partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 887 35 ”/0 $4,400 580/o

SBICS (exclusive of nonventure capital related

SBlcs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 612 24 1,300 17

Corporate (financial and industrial subsidiaries

and non-SBIC public funds) . . . . . . . . . . . . . . . . 1,022 41 1,900 25

Total pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,521 100 ”/0 $7,600 100 ”/0

SOURCE: Venture Capital Journal 22(10)”7, October 1982.

~o@,v provides a discussion of these joint ventures and the costs and benefits accruing to both

parties. Table 13 in chapter 4, entitled “Equity Investments in New Biotechnology Firms by U.S. Established Companies, 1977-1983,’” summarizes established U.S. firm equity investments in and joint

equity ventures with NBFs.

R&D Iiznitedpartnerships. R&D limited partnerships, consisting of at least one general and one

limited partner, are a financing mechanism that

allows businesses to engage in research activities

without paying for the activities out of retained

earnings or borrowed capital. * Most of the 300

to 400 R&D limited partnerships that exist in the

United States have been formed since 1980 (29).

From August 1982 to May 1983, over $200 million was raised through R&D limited partnerships

by NBFs alone (4). One analyst estimates that R&D

limited partnerships will raise a total of $5O O

million in 1983 (3). In R&D limited partnerships

in biotechnology, the NBF typically serves as the

general partner and assumes liability. The limited

partners are the investors whose money buys a

share of the partnership’s future profits or losses.

The liability of the limited partners is limited to

the loss of their investment. More than 10 R8LD

limited partnerships in biotechnology have been

formed since 1980, and 10 to 20 more are now

being formed (40).

Such partnerships have enabled NBFs to reduce

their reliance for financing on established companies and venture capital firms and to reduce

—

● The U.S. Supreme Court decision in the 1974 precendent-setting

Snow v. Commissioner (416 U.S. 500) held that limited partners could

offset their other income with partnership research or other experimental expenditures. It also extended the reach of section 174

(Title 26 U. SC. IRS f174) to include businesses that had not yet cffered any products for sale.

their costs of capital. They have also provided

many NBFs with a stable source of financing for

the next 4 to s years—the time frame written into

most of the partnerships. In other words, R&D

limited partnerships are providing NBFs with the

financial ability to undertake their own proprietary research and early product development and

in some cases clinical testing without relying on

established companies and venture capital firms.

As shown in table 49, the total amount raised

by 12 NBFs for R&D limited partnerships in biotechnology exceeds $4OO million. The amount

raised for each partnership ranged from just

under $1 million (Neogen) to $80 million (Cetus).

The first NBF to raise a fairly large amount of

money ($55 million) through an R&D limited partnership was Agrigenetics. Genentech, which is

using an R&D limited partnership as a novel approach to financing clinical trials of human

growth hormone and gamma interferon, raised

Table 49.—R&D Limited Partnerships Used by 12

New Biotechnology Firms in the United States

Partnership

formation Amount

New biotechnology firm date (millions of dollars)

Agrigenetics . . . . . . . . . . . 1981 $55.0

Genetic Systems . . . . . . . 1982 3.4

Cetus . . . . . . . . . . . . . . . . . 1982 80.0

California Biotechnology. 1982 27.5

Genentech . . . . . . . . . . . . . 1982 55.0

Molecular Genetics . . . . . 1982 11.1

Neogen . . . . . . . . . . . . . . . . 1982 0.96

Hybritech . . . . . . . . . . . . . . 1982 7.5

Cetus . . . . . . . . . . . . . . . . . 1983 78.0

Genentech . . . . . . . . . . . . . 1983 34.0

Genetics Institute. . . . . . . 1983a 25.0

Serono Labs . . . . . . . . . . . 1983 29.0

Total . . . . . . . . . . . . . . . . $405.46

a AS of &83 not yet cIosed.

SOURCE Office of Technology Assessment, based on information from the trade

press and company reports
Ch. 12—Financing and Tax Incentives for Firms 279

$34 million (27). R&D limited partnerships can

provide more financing than the average amount

raised by NBFs in the most recent initial public

stock offerings (see below).

One advantage to the general partner in an

R&D limited partnership is the fact that partnership funds appear on the corporate balance sheet

as contract revenue rather than as debt or equity, thus enhancing future investment prospects.

Another advantage for the general partner is that

the limited partners do not participate in the

management of the partnership; in this respect,

an R&D limited partnership is unlike other forms

of equity financing where investors may sit on

the board of directors and shareholders vote on

major management decisions.

The limited partner (investor) in an R&D limited

partnership is generally interested in investing in

such a partnership because R&D limited partnerships, unlike corporations, are treated under the

U.S. Internal Revenue Service (IRS) Code as nontaxable entities, meaning that partnership profits

and losses are “passed through” to the individual

partners who then combine them with their other

items of income and expense. * Since an R&D project typically generates tax losses in its initial years

(because of large R&D expenditures), limited partners can use those losses immediately to offset

other income which might be taxable at rates as

high as 70 percent. Furthermore, partners can

deduct as much as 85 to 95 percent of their initial investment, immediately decreasing their

after-tax cost (and risk) and more than doubling

the potential rate of return.

Venture capital funds. Venture capital funds are

professionally managed funds dedicated to investment in one or more industries. Sources of capital

for these funds include pension funds (e.g., John

Deere, General Electric, and Ohio Public Employees Retirement Fund), insurance companies (e.g.,

Wausau Insurance, Prudential Life, and Metropolitan Life), trust departments of commercial banks

such as Morgan Stanley or City Bank, and corporate investors interested in potential profit from

discoveries arising from the fund’s support.

Of interest is the fact that a few independent

private venture capital funds have been formed

“Corporate profits, by contrast, are taxed both at the corporate

and the shareholder level, and deductions for losses incurred by

the corporation are not atailable to the indit’idual shareholders.

to invest a significant percentage of their funds

in biotechnology. One example is Plant Resources

Venture Fund, a $15 million to $20 million fund

that invests in companies doing plant-related

R&D. In the first 18 months of its operation, this

fund invested in three companies, taking all the

outside equity in each. Two of the companies are

engaged in tissue culture research and the other

is a plant genetics company. The strategy of the

Plant Resources Venture Fund is to invest

$5000,000 to $1.75 million in each company in several stages. In first-stage financing, the fund expects to assume the major share of investment.

In subsequent financing, the fund will take progressively smaller amounts as other investors are

brought in. Plant Resources Venture Fund anticipates financing another seven to nine companies

by 1984 (10).

Small Business lnvestment Corporations. In

1982, approximately 17 percent of the venture

capital funds in the United States were raised by

SBICS. SBICS are private companies licensed by

the Small Business Administration (SBA) that must

invest their funds in U.S. small businesses. There

are three major groups of SBICS: 1) bank affiliates,

2) subsidiaries of venture capital and other financial companies, and 3) independent SBICS and

units of nonfinancial companies. Each SBIC must

have paid-in equity capital contributed by shareholders of at least $500,000. After the paid-in capital requirement is met, SBA will loan up to three

times the paid-in amount of capital, thus extending the resources of the SBIC. In effect, SBICS leverage their paid-in capital by four times with

SBA’S assistance. SBICS obtain funds from SBA at

very favorable interest rates, several points below

the prime rate. They then lend the money to small

businesses at a rate that is higher than the rate

at which they have obtained it but still less than

the prevailing rate.

An SBIC provides at least three kinds of tax advantages for shareholders (34). First, a loss on the

sale or exchange of the stock can be treated by

stockholders as an ordinary loss, i.e., such loss

does not have to be offset against gains from sales

of stock, and it can be regarded as a business loss

for net operating loss deduction purposes. Second, a loss on the sale or exchange of convertible debentures purchased from small businesses

(or stock obtained through conversion) can be
280 . Commercial Biotechnology: An International Analysis

treated by the company as an ordinary loss.

Third, rather than the normal 85-percent deduction for dividends received from domestic corporations, the company gets a 100-percent dividends received deduction. *

For NBFs that might want to use funds from

SBICS, there are two problems. First, because

SBICS obtain much of their money as loans from

SBA and must repay the SBA in a prescribed

period of time, SBICS lend their money rather

than use it to buy stock in small businesses. HO Wever, an increasing number of equity investments

are being made by SBIC bank affiliates such as

First Capital Corp. of Chicago. Most NBFs do not

seek money from SBICS, because such firms need

to retain dollars internally rather than use them

to pay interest on debt to an SBIC. Second, SBICS

do not generally commit public funds guaranteed

by public institutions to high-risk ventures, which

is exactly what NBFs are. However, in spite of the

interest risks associated with investments in new

high-technology firms, some SBICS have invested

in NBFs. SBICS raised $4,108,197 in capital for

NBFs in 1981 and $3,383,333 in 1982 (50). ” They

invested in 15 NBFs in 1981 and 9 NBFs in 1982.

Thus, although the total amount of capital invested by SBICS decreased from 1981 to 1982, the

average e amount of capital invested per company

increased.

public Stock Offerings .—Public offerings can

be divided into initial public offerings, the first time

a firm attempts to raise money by offering shares

in itself to the public, and subsequent public offerings, when the firm returns to the market to raise

additional funds. As a way to obtain funds, the

initial public offering differs in an important way

from the other methods for raising funds that

have already been discussed. The initial public

offering is the first time that the firm must publicly disclose its financial and product development

status. Going public also requires registration with

an oversight organization, the Securities and Exchange Commission, and commits the firm to continued public scrutiny through publicly available

“ A corporation pays tax on dividends distributed. The dividend

is also taxed as part of income of the distribute. To partially compensate for this double taxation, if the distribute is a corporation,

85 percent of dividends received is excluded from this second taxation. However, if the corporation is an SBIC, 100 percent of di\’-

idends received is excluded.

*The 1982 figures available from the SBA did not include

November and December figures,

reports to shareholders and annual statements

to the Securities and Exchange Commission (Form

1O-K). Meeting the requirements for public accountability is expensive, both in time and money,

and meeting the earnings expectations of the investors can inhibit long-term R&D. In confirmation, Gabriel Schmergel of Genetics Institute in

Boston says “reasons why companies haven't gone

public is because sometimes they are under great

pressure to produce earnings” (18). Thus, although a great deal of money can be raised in a

public offering, its costs, both fiscal and otherwise, must also be considered.

The amount that a firm can raise through a public offering depends not only on the performance

of the firm itself but also on the stock market and

the receptiveness of investors, In times of recession, institutional investors tend to undervalue

high-technology stocks because they are interested in short-term gains (16). Yet, during the

early 1980’s, despite the recession, high-technology issues were fairly successful, with the peak

years for biotechnology stocks being 1980 and

1981. In 1982, some NBFs that made public offerings were not able to raise as much as they had

expected. Until September of 1982, the performance of biotechnology stocks paraleled that of

Standard and Poor stocks. After September, however, the biotechnology stocks outperformed the

Standard and Poor stocks, Thus far, the 1983 bull

market has been accompanied by a boom in new

issues, greater in magnitude and scale than eve r

before. For biotechnology issues, 1983 is a banner year. Between March and July of 1983, 23

JNBFs raised about $450 million (18). Figure 30 provides a comparative market performance of some

MAb, rDNA, and biotechnology support companies with the Standard and Poor 500 for the

period April 1982 through April 1983..

During the 1970’s, venture capitalists were accustomed to waiting 5 to 7 years before seeing

their investments achieve liquidity in the public

markets. With the advent of the microprocessor,

a number of electronic companies developed applications that became profitable quickly. In some

cases, these companies were able to achieve profitability in 18 months and a public offering within

2 to 3 years from founding, in part because of

better capital markets after 1978 (8). As a result,
Ch. 12—Financing and Tax Incentives for Firms ● 281

Figure 30.—Comparative Market Performance:

Companies Using Biotechnology vs. Standard and Poor’s 500 Companies, April 1982 through April 1983

aBlotech ,nde~ in~lude~ A B, F~rtla Bioresponse, CetUs, C)arnorl, Enzo.Blochem, Flow-General, Genentech, Genetic SYstems, Hybrltech Monoclinal Antibodies, ‘ovo

Industrl A/S. OTA did not Include A. B. Fortia or Flow General as companies using biotechnology.

bstandard and poor,s 5~ ,s an index of a broad cross section of companies traded on American stock ‘

xChan ge s

.

SOURCE. Off Ice of Technology Assessment, adapted from E F Hutton

some venture capitalists may have shortened their

investment time horizons (41), a development that

now might be affecting the time taken to bring

NBFs to the public market. Table 50 shows the

elapsed time between company founding date and

initial public offering for 19 NBFs.

The number of, and the amount of money

raised in, initial public offerings in all industrial

sectors in the United States over the past 10 years

is shown in table 51. As can be seen, both the

number of offerings and the amount raised first

decreased and then increased dramatically. The

years 1981 and 1982 were record years for new

stock offerings, both in the number of offerings

and in the amount raised (though the total amount

raised in 1982 was 25 percent less than the

amount raised in 1981). Not since the boom of the

late 1960’s, however, has the new issues market

been as active as in 1983.

The initial public offering history and market

valuations as of July 1983 for 19 NBFs is shown

in table 50. No NBFs made offerings prior to 1980.

Two firms went public in 1980, five in 1981, and

three in 1982; as of August 1, nine had gone public

in 1983. The drop in the number of biotechnology

public offerings between 1981 and 1982 parallels

the drop in initial public offerings in all sectors

during the same period (table 51).

The first recognized “biotechnology firm” to go

public, in October 1979, was BioResponse)* with

an offering of 1,320,000 units* * at $2.50 per

share. Thus, the total raised was $3.3 million. It

is interesting to note that at the time of the initial public offering, BioResponse had no revenues

and a negative net worth of more than $600,000.

“BioResponse was founded in 1972 and is not included here as

an ,NBF’.

* “one unit = one shar-e of rommon stock plus onf’ l~arr’al)t

25-561 0 - 84 - 19
282 . Commercial Biotechnology: An International Analysis

Table 50.—lnitial Public Offering History and Market Valuations as of July 1983 for

19 New Biotechnology Firms in the United States

Market valuation as of July 1983

Date of

Date initial Millions of Price per Market

company public shares share as of value

New biotechnology firm founded offering outstanding 7/15/83 (millions of dollars)

Advanced Genetic Sciences. . . . . . . .

Amgen . . . . . . . . . . . . . . . . . . . . . . . . . .

BioCell Technology . . . . . . . . . . . . . . .

Biogen . . . . . . . . . . . . . . . . . . . . . . . . . .

Cambridge Bioscience . . . . . . . . . . . .

Centocor . . . . . . . . . . . . . . . . . . . . . . . .

Cetus . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chiron a

. . . . . . . . . . . . . . . . . . . . . . . . . .

Damon Biotech. . . . . . . . . . . . . . . . . . .

Enzo Biochemc 

. . . . . . . . . . . . . . . . . . .

Genentech c 

. . . . . . . . . . . . . . . . . . . . . .

Genetic Systems . . . . . . . . . . . . . . . . .

Genex . . . . . . . . . . . . . . . . . . . . . . . . . . .

Hybritech . . . . . . . . . . . . . . . . . . . . . . . .

Hybridoma Sciences . . . . . . . . . . . . . .

Immunex . . . . . . . . . . . . . . . . . . . . . . . .

Integrated Genetics . . . . . . . . . . . . . . .

Molecular Genetics . . . . . . . . . . . . . . .

Monoclinal Antibodies . . . . . . . . . . . .

1979

1980

1980

1978

1981

1979

1971

1981

1983

1976

1976

1980

1977

1978

1981

1981

1981

1979

1979

7183

7183

8/81

3183

4183

12/82

3/81

8183

6/83

6/80

10I8O

6/81

9182

10I81

8183

7183

6/83

4/82

8181

12.2

10.0

NIA

18.5

4.08

5.3

22.0

7.28

19.5

5.8

1.4

1.8

12.6

10.3

4.29

5.7

8.3

6.13

2.4

N/Aa

$133/8

1/2

153/4

11314

17 1/2

17 1/4

12b

16

30

46314

14

19

27 1/4

6

b

I

d

13 1/4

13

18314

18314

NIA

133.75

NIA

291.375

48.175

92.75

379.5

87.4

312

174

65.45

25.2

239.4

280.67

25.7

7.5

107.9

114.94

45

aN,A—information not availabie.

bAfterpubiic offering August 1983,

cStock split.

‘One unit = 3 shares common stock + 3Ciass A Warrants.

SOURCE Office of Technology Assessment, adapted from E,F. Hutton &Co. inc. Washington, D.C. personal communication, August 1983

Table51 .—Number of lnitial Public Offerings

and Amount Raised in All Industrial Sectors in the

United States, 1972.83

Number of

initial public Amount raiseda

Year offerings (millions of dollars)

1972 . . . . . . . . . . . . . . 568 $2,700

1973 . . . . . . . . . . . . . . 100 330

1974 . . . . . . . . . . . . . . 15 51

1975 . . . . . . . . . . . . . . 15 265

1976 . . . . . . . . . . . . . . 34 234

1977 . . . . . . . . . . . . . . 40 153

1978 . . . . . . . . . . . . . . 45 249

1979 . . . . . . . . . . . . . . 81 506

1980 . . . . . . . . . . . . . . 237 1,400

1981 . . . . . . . . . . . . . . 448 3,200

1982b . . . . . . . . . . . . . . 222 1,470

1983 a’

b 

. . . . . . . . . . . . 516 7,900

a Through August 1983 ’

bHoward ACo., Philadelphia, personal communication 1983.

SOURCE Office of TechnologyAssessment, adapted fromK Farrell, ’’Going Pubbc 1982,” ~ent~re, April 1982, p 30

No revenues had been recorded by September

1982 (27), yet stock in BioResponse is trading in

1983 at about $13 per share. The successful experience of BioResponse established a precedent

for bringing NBFs with similar financial characteristics to the market.

The history of the initial public offering of BioResponse illustrates the extraordinary investor interest in firms commercializing biotechnology. lndeed, biotechnology has produced two’’firsts”on

Wall Street. In 1980,Genentech set a new record

with a price rise from $35 to $89 per share in

the first 20 miqnutes of trading in its initial public

offering. In 1981, Cetus set anew high for an initial public offering-$120 million (net amount was

$107 million). Even in 1983, the best year ever

for raising money for biotechnology, few products had been introduced.

Public offerings in 1982 were less successful

than had been hoped for, probably because of an

increasing realization by the public that the fruits

of biotechnology R&D might be more distant than

was first anticipated and also because the stock

market was depressed in 1982. Thus, Collaborative Research in February of 1982 raised less than

half of the $28.5 million it had hoped to raise in

its initial public offering, while Molecular Genetics

obtained only $3.3 million, less than one-third of

its goal. Genex, in a 2.5 million share initial offering, sought to raise about $30 million to sup-
Ch. 12—Financing and Tax Incentives for Firms 283

port scale-up of its research products, but first

day over-the-counter sales totaled only about 1

million shares, and the closing price was $9 rather

than the $10 to $12 initially predicted.

The boom in the 1983 public offerings market

has provided many new firms including NBFs,

with capital. Venture capital for NBFs increasingly

difficult to obtain, the result being that public offerings in 1983 are supplying second- and thirdround financing. NBFs that are either seeking or

already have raised second- and third-round financing in 1983 include Cambridge Bioscience,

Damon Biotech, Molecular Genetics, Biotechnica,

Genetics Institute, Biogen, Integrated Genetics,

Applied BioSystems, California Biotechnology/

Synergen, DNA Plant Technology, Amgen, Hybridoma Sciences, INGENE, Advanced Genetic Sciences, Biotechnology General, Immunex, and

Chiron. Table 52 lists some recent initial public

offerings by NBFs and the amounts raised.

The price/earnings ratios for NBFs appear high

in 1983, given their negative or low earnings

records. Continued reliance on the public market

for funds will place increased pressure on public

NBFs to earn a profitable income stream quickly. If products are not manufactured and income

generated within the time frame demanded by

investors in the stock market, NBFs will face additional financial constraints. If they have to rely

on the stock market and R&D limited partnerships for funds, NBFs might face problems in

financing the long-term risky research in scaleup processes that is needed to commercialize biotechnology products.

ESTABLISHED COMPANIES

Established U.S. companies like Eli Lilly, DuPont,

and Monsanto can finance their entry into biotechnology using internal funds generated from

a variety of sources, (e.g., the sale of products,

interest income on capital, and other sources).

Such companies also have ready access to debt

financing (e.g., loans) or through debt offerings

and the sale of bonds. The cost of borrowing is

less for established companies than for new companies, because financing is available to established companies at or near the prime rate. Those

NBFs that are able to qualify for loans may pay

2 or 3 percentage points over the prime rate (27).

In sum, for established US. companies considering commercial applications of biotechnology, the

question is not whether financing is available, but

whether or not to spend their sizable resources

(or those that they borrow) on the new commercial pursuits of biotechnology.

To illustrate the magnitude of established company resources to enter biotechnology, a few examples can be noted. In 1981, DuPont budgeted

$120 million for biotechnology R&D out of a total

R&D budget of $570 million (19). In 1982, DuPont

began construction of a new $85 million life sciences center, and it acquired New England Nuclear (U. S.) for $340 million, in part to expand its

capability in the life sciences. As another examp]e, in 1984, Eli Lilly expects to complete a $60

million research center that will emphasize rDNA

and immunological applications of biotechnology

(13). The annual R&D budgets of established U.S.

companies such as DuPont and Eli Lilly dwarf the

Table 52.—Amounts Raised in Recent Initial Public Offerings by Six New Biotechnology Firms

Date of initial Shares offered Offering price Amount raised

New biotechnology firm public offering (in millions) per share (millions of dollars)

Amgen . . . . . . . . . ., . . . . 6/83 2.35 $ 18 $42.3

Biogen . . . . . . . . . . . . . . . 3183 2.5 23 57.5

Cambridge Biosciences 3/83 1.0 5 5.00

Chiron . . . . . . . . . . . . . . . 8183 1.5 12 18.0

Immunex . . . . . . . . . . . . . 7183 1.65 11 18.15

Integrated Genetics . . . . 7183 1.6 13 20.8

SOURCE Off Ice of Technology Assessment, adapted from E F Hutton & Co , Inc , Washington, D C , personal communication, July 18, 1983.
2&f ● Commercial Biotechnology: An International Analysis

amounts that have been raised by NBFs in the

United States in even the most successful public

stock offerings. In 1981, for example, the NBF

Cetus raised a record breaking $120 million in its

initial public offering—a little more than 20 percent of DuPont’s annual R&D budget.

Sources and availability of financing

for firms in other countries

The sources and availability of financing for

companies commercializing biotechnology in

Japan, the Federal Republic of Germany, the

United Kingdom, Switzerland, and France—the

five countries considered the major competitors

of the United States in the area of biotechnology-are outlined in the discussion below.

JAPAN

As noted in Chapter 4: Firms Commercializing

Biotechnology, predominantly large established

companies are developing biotechnology in Japan.

Established companies in Japan, like those in the

United States, are able to rely on debt financing

or revenues generated from the sale of products

and other internal sources of funds to finance

their entry in the field of biotechnology.

The industrial and financial structures of Japan

are very different from those of the United States

and most European countries. In Japan, equity

markets are relatively unimportant for allocating

capital. Instead of raising capital by sharing equity, Japanese companies continue to favor debt fi -

nancing. * The emphasis on personal savings by

Japanese families has produced a large pool of

funds in banks and postal savings accounts, and

these funds are lent to Japanese corporations.

Thus, private sector financing of biotechnology

in Japan is usually mediated through the banking system.

NBFs, especially prevalent in the United States,

and to a lesser extent in the United Kingdom and

France, are not found in Japan because of the low

level of equity funds there (39). * Public offerings,

venture capital, and other equity instruments are

of relatively minor importance there. The low

level of equity funding available in Japan is illustrated by comparing the over-the-counter securities markets in Japan with those in the United

States. About 111 companies are traded on the

Japanese market, compared to 13,000 in the

United States. Differences in venture capital investments are also indicative of the relative importance of venture capital in the two countries.

In 1982, venture capital investments in Japan

amounted to about $84 million, whereas those in

the United States amounted to $5.8 billion (6). The

low level of interest by Japanese investors in venture capital is further shown by the fact that a

venture capital firm established in July 1982 by

the Daiwa Securities and Long Term Credit Bank

was the first venture capital company to be

started in 8 years (6).

The Japanese Government has made two efforts

to encourage the development of a venture capital

industry in Japan. One effort was made by the

Ministry of International Trade and Industry

(MITI) in the early 1970’s but yielded little in the

way of results (22). In a resurgence of interest

in this area, in 1982, MITI set up an Office of Venture Enterprise Promotion in parallel with the creation of the Office of Biotechnology Promotion

(32).

Japan’s private sector has recently taken some

initiative in developing a source of “venture capital” by pooling corporate resources. The Japan

Associated Finance Corporation (JAFCO) is a private venture capital fund that was organized by

Nomura Securities Company. One French, three

Hong Kong, and 10 Japanese firms are involved

in JAFCO, which plans to offer financial help to

new businesses until they qualify for listing as a

joint stock company. when the firm reaches this

stage of maturity, its income gains will be distributed among the partners of the fund accord-

● A majority of Japanese companies commercializing in biotech.

nology have debt to equity ratios that exceed 3 (39), as compared

to U.S. ratios that are generally closer to 1. Although the Japanese

figures are biased upwards because of differences in land values

and because off-sheet financing is used more frequently in the United

States than in Japan, the differences in debt to equity ratios are

significant.

“Other reasons for the scarcity of NBFs in Japan are cultural attitudes that discourage entrepreneurism, the rigid separation in

Japan between university basic research departments and industry,

and Japan’s weak basic science base in molecular biolo~v (39), Some

of these subjects are addressed in Chapter 17: llnit’ersitb~~dndustq~~

Relationships.
Ch. 12—Financing and Tax Incentives for firms . 285

ing to the ratio of the capital contribution of the

fund (22).

These new sources of venture capital may or

may not succeed in increasing the supply of venture capital in Japan. In any case, the amount of

venture capital these sources currently provide

is very small when compared to the amount avail -

able in the United States.

The one source of “venture capital” that has

been very important to the development of biotechnology in Japan is personal loans of sizable

amounts by wealthy individuals who are the managers of progressive Japanese companies such as

Hayashibara, Suntory, and Green Cross. As entrepreneurial managers, these individuals are very

unusual in Japanese history. A venture by Haya -

shibara for producing interferon with hamsters

was possible only because the owner, who owns

or controls 12 institutions (hotels, gas stations, and

candy manufacturing firms) and does about $150

million worth of business a year, put his capital

behind it (51). The diversification by Suntory (a

whiskey company) into rDNA research to produce

pharmaceuticals was similarly supported. Significantly, Japan’s giant pharmaceutical companies

were far slower and more bureaucratic in their

response to the potential of biotechnology than

these newer Japanese more progressive firms.

In fiscal year 1981, a Government-related organization called the Center for Promoting R&D

Type Corporations guaranteed approximately

$3.7 million ( Y 750 million) in loans (a total of

24 loans). Beginning in 1982, the center was to

begin making loans as well as guaranteeing other

lender’s loans. Up until now, however, the Japanese Government has not been a major source

of financing for Japanese companies developing

biotechnology.

There is no indication that significant funds are

being channeled into biotechnology by financial

institutions connected with the Japanese Government to make up for the shortage of venture capital. In the past, Government-funded banks like the

Japan Development Bank (JDB) lent only to projects that fit into articulated Government policy

and were located in Japan. In the past decade,

however, private bank loans have expanded to

such an extent that they are competitive commercially with the Government financial institutions

(39). Certain funds within the JDB loan portfolio

are targeted for technology promotion. For the

past 4 years, this fund has remained fairly constant at the level of $500 million ( Y 100 billion),

approximately 10 percent of the total loan portfolio. Loans from the JDB are made at interest

rates between 7.5 and 8.4 percent. There is no

indication that any of these funds are being channeled into biotechnology.

FEDERAL REPUBLIC OF GERMANY

In the Federal Republic of Germany, nearly all

private sector investment in biotechnology has

been made by the established pharmaceutical and

chemical companies. There is no parallel in the

Federal Republic of Germany to the U.S. venture

capital industry. Commercial banks provide most

of the funds used for industrial expansion, and

it is common for such banks in Germany, unlike

those in the United States, to have equity participation in companies in which they invest. The

West German commercial banking sector is dominated by three banks, and the linkages between

the banking and corporate structures are so close

that the Monopoly Commission concluded in 1976

that the banks effectively utilize management

functions to the detriment of competition (23).

In 1975, a consortium of 28 banks recognized

that the German banking system is not conducive

to high-risk, innovative, startup firms and formed

a venture capital concern called Risk Financing

Society (WFG, Deutsche WagnisfinanzierungsGesellschaft) (7). The principal objective of this

organization is to aid small and medium-sized

firms in commercializing their products. So far,

the electronics industry has been the major recipient of WGF funds; biotechnology firms have not

yet been of great interest to WFG. Since 1980,

WFG has been looking for innovations that could

achieve commercial success within 24 months. If

this continues to be the criterion for any firm

receiving funds from WFG, then it would be surprising if many startup firms in biotechnology

were established in the Federal Republic of Germany with WFG funds (23).
286 . Commercial Biotechnology: An International Analysis

UNITED KINGDOM

The present Government of the United Kingdom believes that the successful industrial development of biotechnology depends on private industry. The main source of funds will be the retained earnings of established companies and the

capital provided by private financial institutions.

The United Kingdom does not have a well-developed venture capital market, and the tax structure in the United Kingdom is not conducive to

the formation of risk capital (the capital gains tax

rate there is higher than in the United States, as

are the marginal income tax rates for higher

incomes).

Despite the little direct availability of venture

capital, the United Kingdom is providing public

and institutional support to encourage the formation of small firms. The Unlisted Securities Market

(USM), for example, was formed in 1980 primarily

to raise capital for small companies. At the time

of its opening, USM had 6 firms; 2 years later,

it had a membership of 115 firms and was capitalized at a total of $2 billion. Most of the trading

volume in this market is accounted for by small

investors. The value of the shares of USM’S 20

largest companies has increased 45 percent over

the past 2 years, excluding dividends (43). Before

USM was established, companies could be listed

only on the London Stock Exchange, and listing

there required profits of at least $1 million. In addition, until 1977, the London Stock Exchange required a company to sell off at least 35 percent

of its equity for listing (the requirement has since

been scaled down to 25 percent).

The British Government has introduced two

new measures to encourage the formation of

small firms. The first measure is designed to encourage the private sector to make equity investments in startup firms by offering tax relief at

the top marginal rate to investors in new (up to

5 years old) qualifying businesses. As a result of

this measure, a number of professionally managed funds have been established wherein individuals have pooled their money allowing the professional managers of the fund to make their investments. Cambridge Life Sciences, the first

British biotechnology firm to go public, used this

measure in April 1982 (43). The second Government measure is to guarantee loans made by

banks and other financial institutions for qualifying projects that are considered to be viable (in

the institution’s judgment) but are not backed by

personal securities. This measure means that individuals need not have substantial income in

order to form a company.

Views on whether there is a shortage of funds

available for biotechnology firms in the United

Kingdom vary depending on the source of information. Financial institutions say funds are not

in short supply; rather, the shortage is in wellpresented ideas with commercial value that are

capable of earning the relatively high rates of

return desired by investors with risk capital. Entrepreneurs say that there is a shortage of funds

because institutions demand more evidence than

they can supply to prove that their products are

capable of earning high profits.

Several institutions in the United Kingdom are

supplying funds for the development of biotechnology, including Biotechnology Investments Ltd.,

Prutec, Advent Eurofund, Cogent, and Technical

Development Capital (43). Biotechnology Investments Ltd., a branch of N.M. Rothschild Asset

Management, is the largest, with an initial capital

pool of $55 million (17). Although Rothschild has

invested mostly in U.S. NBFs and other foreign

companies, it recently purchased equity in Celltech (U. K.) and is considering several proposals

from other British firms. Another fund, Technical

Development Capital (TDC), provides equity financing in addition to loans and has a policy of

becoming actively involved in management teams.

TDC has an annual budget of $5.7 million ( 10

million) of which $1.4 million ( # 2.5 million) is

devoted to biosciences, one of three priority areas.

The time scale of investments required depends

on the industrial sector (e.g., in the medical field,

the time horizon is 5 to 7 years; in agriculture,

it is 15 to 20 years), TDC has investments in Celltech, Imperial Biotechnology, and three other

NBFs in the United Kingdom. Prutec, a wholly

owned subsidiary of the Prudential Assurance

Co., Ltd., was established in 1980 and makes investments in technology-based firms. Prutec has

identified biotechnology as one of 10 strategic

areas for investment.
Ch. 12—Financing and Tax Incentives for Firms ● 287

A public institution, the British Technology

Group (BTG), is sponsored by the Department of

Industry and is the major public source of venture capital in the United Kingdom. BTG invests

a certain percentage of its funds in high-risk, longterm investments. The aim of BTG’s investment

group is to invest on commercial terms in minority partnership with private industry. The best

known example of this policy is BTG’s investment

in Celltech.

Although the number of NBFs forming in the

United Kingdom is increasing, the established firm

sector is largely responsible for the development

of biotechnology there.

SWITZERLAND

Funding for new, high-risk enterprises in Switzerland is not readily available. Analysts attribute

this situation to many factors. The Swiss banking industry is oriented to large-scale international

financial transactions in areas such as securities,

foreign exchange, and precious metals. The banking expertise to evaluate and finance new technologies is lacking. Some argue that the structure

of the savings system is changing, with private

savings declining and pension funds, traditionally more conservative in investment policies, increasing. Added to these factors is the national

reluctance to take risks. The NBF Biogen S. A., for

example, has relied heavily on U.S. venture capital

and the U.S. stock market to obtain needed capital

to finance operations (24).

All of the established Swiss chemical and pharmaceutical companies have substantial capital investments in the United States. Because of the

small size of Switzerland’s domestic market, most

Swiss companies are multinational. The Swiss

companies spend a substantial fraction of their

R&D costs abroad (this fraction varies among

companies). Ciba-Geigy, for example, traditionally spends about 60 percent of its research expenditures in Switzerland and 40 percent in other

countries; in 1981, Ciba-Geigy’s expenditures on

R&D in the United States rose to 23 percent of

its total research expenditures, and expenditures

on R&D in Europe and in Asia accounted for 20

percent (24).

FRANCE

The number of companies involved in commercializing biotechnology in France is fairly small,

and the Government expects this situation to continue. The French Government, which generally

believes that only large companies have the

necessary resources to undertake biotechnology,

has identified three centers of development in the

private sector: Rhone Poulenc, Elf Aquitaine, and

Roussel Uclaf. Rhone Poulenc and Elf Aquitaine

are now nationalized, and Roussel Uclaf is

40-percent Government owned (44).

The venture capital market is poorly developed

in France. Banks are the major source of financing. Banks in France, like their counterparts in

the United Kingdom but unlike those in West Germany, have always hesitated to take equity positions in industry. The Government of France

would like to change this attitude (28). A mutual

guarantee company, INODEV, was established by

the French Government to guarantee bank credit

for the purpose of innovation (33). Since French

banks do provide long-term financing, French

firms do not have to worry as much about secondand third-round financing as do firms in the

United States (44).
288 . Commercial Biotechnology: An International Analysis

Tax incentives relevant to firms

commercializing biotechnology

The various tax provisions in the United States,

Japan, and Western Europe that are potentially

important to companies commercializing biotechnology * are those pertaining to R&D expenditures, capital formation, corporate taxation, and

tax treatment of small businesses. * * A summary

of the tax provisions described for the United

States, Japan, the Federal Republic of Germany,

the United Kingdom, and France is presented in

table 53. Switzerland is excluded from the table,

because Swiss tax rates vary among cantons, and

the Federal tax system is less important.***

U.S. tax provisions affect NBFs and established

companies differentially. In order for corporate

tax rates to make a difference in the decisionmaking process of firms, taxable income, the base on

which taxes are figured, must be present. Since

the NBFs are not experiencing substantial profits,

and because there are loss carry-forward provisions in the tax code (for the United States, the

period that a company can carry forward losses

is 7 years), most NBFs are not now focusing a lot

of attention on tax incentives, * Established companies earning taxable income from a number of

product lines, by contrast, are interested in current tax benefits.

“The tax codes of various countries change frequently. The discussion here is based on the latest information available in existing

sources. The intent of this section is to sketch the major provisions,

not to detail specifics of each tax code.

“ *Local or regional taxes are not included, except in the case of

Switzerland, which taxes primarily on a cantonal level. Value-added

taxes are also not included, since not all countries have this tax.

● ● “In Switzerland, taxes are goi’erned by Federal law and the

tax laws of 26 cantons. }\’hile the Federal Government collects practicall~’ all indirect taxes, it receives only a small portion of direct

taxes Ie\’ied. The 26 Swiss cantons have a number of obligations,

which in other countries would be the responsibility of the Central Got’ernment, such as education, road construction, health,

police, and justice expenses. To be able to meet these obligations,

tax revenue is collected from taxes on income and net assets of indit,iduals and business entities by each canton.

● For this analysis, OTA solicited the views of the following companies engaged in biotechnolo~v: Biogen, Cetus, Genex, Genentech,

DuPont, l{ybritech, and Monoclinal Antibodies. Industrial Biotechnology Association and the U .S, Department of Commerce were

also contacted. ,Most stated that tax incentives are of secondary importance to other tax provisions (e.g., loss carry forward provisions,

R&D limited partnership, and capital gains treatment) given the stage

of the company’s development,

In a recent study of California biotechnology

companies, few participants in the survey stated

that tax abatement programs would be useful to

their companies (16). Tax abatement programs

were rated on a scale of possible utility to the company; evaluations of these programs by the executives responding to the survey ranged from “possible” (at best) to “unlikely.” This pattern may reflect

the essentially entrepreneurial nature of the NBFs

included in the survey. The more established

firms with a diversity of product lines would be

more interested in tax incentives not primarily

focused towards capital formation. It may happen that as established companies become more

important in the field, tax incentive programs will

be viewed with more interest.

It is important to note that some countries rely

more on tax provisions to stimulate capital formation or industrial development than others that

use grants or subsidies to assist specific industrial

projects. The United States, Switzerland, and to

a lesser extent the United Kingdom, for example,

tend to rely more on tax incentives to encourage

overall capital formation than, for example, the

Federal Republic of Germany or France, which

use grants or subsidies for specific projects. Other

countries (e.g., the United Kingdom, France, and

Japan) use tax incentives to encourage investment

in R&D or plant and equipment required for

scale-up or scientific research, Furthermore, some

countries (e.g., the United States and Japan) favor

formation of small businesses by tax provisions

that are specifically aimed at smaller establishments. Japan targets particular industries and

uses both tax incentives and grants.

Some analysts state that the tax incentives in

the United States, when compared to those in

Western Europe, are not a major factor in decisions about the location of foreign subsidiaries

of biotechnology companies (26). However, others

argue that sharp differences in the corporate tax

rate between countries such as the Netherlands

Antilles (whose nominal corporate tax rate is 3

percent) and the United States (whose nominal

corporate tax rate is 46 percent) have led some
Table 53.—Tax Treatment of Innovation Activities in the United

.

Venture capital

Capttal Current investments in new

expenditures expenditures technology-based

for R&D for R&D firm s

. —

United States:

— - .

Treated in same manner as other Immediately expensed R&D limited tax partnerships allow

depreciable assets investors to write off current expenses as losses and treat future

gains as capital gains

Investors can pool funds in a

regulated investment company of

which venture capital corporations

are a member, and the company

can avoid taxes if the company

distributes all its income

Japan:

Firms that are members of Research Immediately expensed No special provisions

Association can take 100°/0

depreciation allowance on all fixed

assets used in connection with

Research Association activities

States and Other Countries

—

R&D tax

Small business credltsl

tax treatment Investment grantsa

.— — — —

SBIC treatment: 1) dividends-received Can deduct 25% of the difference

deduction of 100/0 is allowed to between the current year’s R&D exSBICS for dividends received from penditures and the moving average

taxable domestic corporations; 2) of a 3-year period.

loss on stock is treated as an ordinary loss and does not have to be

offset against gains from sales of

stocks; 3) gains are treated as

capital gains

Subchapter S corporations: A sub S

company gives owners of closely

held corporations the advantage of

limited liability for depts while taxing the corporation’s income at

shareholder’s income rates. Number

of shareholders permitted is 35

The cort)orate tax rate for small-and Can deduct each year from its inmedium-sized corporations on the

first + 7 million ($28,107) is 22°/0

(as opposed to regular rate of 300/0).

A small business can add each year

to the ordinary depreciation

allowance up to 14Y0 of the original

value of new equipment and

machinery acquired between Apr. 1,

1972 and Mar. 31, 1983

Additional depreciation allowances

are allowed for small businesses

that are entering new industries.

Federal Republic of Germany:

come tax 20°/0 of the difference

between the current year’s R&D expenditures and the highest R&D expenditures in a year before the current year if the difference is

positive

Det)reciated in same way as other Immediately expensed No . . special corporate tax treatment There is no special corporate tax Investment grant of 200/0 of cost can

assets. For expenditu~es of plant for” venture capital investments treatment apart from a provision apand equipment embodying new

technology, the depreciation

allowance includes reasonable

allowance for obsolescence

United Kingdom:

For scientific research assets, a Immediately expensed. No special tax provisions

100°/0 tax allowance (or deduction) capital investments

is given. Allowances are given for

capital expenditures (e.g., labs) and

current expenditures (e.g., research

workers’ salaries)

plicable to foundations and associa

tions. For these organizations,

there is a deductible tax free

amount of DM5,000 (U.S. $2,060). If

corporate income exceeds

DM1O,OOO ($4,120), the tax-free

amount is reduced by half the

excess

for venture A closely held company’s investment

income is apportioned, provided it

is surplus to the requirements of

the business.

Corporation tax rate is 400/0 if profits

do not exceed ~’ 70,000 (U.S.

$122,527)

be claimed for the first DM500,000

(U.S. $206,049) of the costs of

assets used in R&D. The excess of

cost DM500,000 qualifies

vestment grant of T.S”/ O

—

for an in-
Table 53.—Tax Treatment of Innovation Activities in the United States and Other Countries (Continued)

Venture capital

Capital Current investments in new Fi&D tax

expenditures expenditures technology-based Small business

for R&D

creditsl

for R&D firms tax treatment investment grantsa

France:

Can depreciate 50°/0 of the cost in Current expenditures Businesses which purchase shares Small and medium-sized businesses

first year with the balance are immediately

—

in Qualified Research Companies (fewer than 2,000 employees, not

depreciable over useful life expensed—carry- and shares in Innovation Finance legally dependent on a larger

backs are not allowed Companies may deduct 500/. of the business and having less than 500/.

cost of the shares in the year of of their shares held by quoted comacquisition. If shares are sold, the panics) are entitled to an excepadditional gain attributable to this tlonal deduction of 50°/0 of the cost

50°/0 deduction is eligible for capi- of equipment and tools used for

tal gains tax treatment. If shares R&D

are held for 3 years or more, no Tax allowance amounting to one-third

capital gains tax is assessed of the firm’s taxable profits in the

fiscal years of its establishment

and in the 3 subsequent tax years

a Information on the tax rules of foreign countries obtained from tax serwces and other secondary sources, not from the foreign statutes themselves While efforts were made to obtain accurate and up-to-date

Information, It should be noted that reliance on secondary sources does Increase the potential for error

SOURCE Off Ice of Technology Assessment, based on information from National Science Foundation, Corporaf/on Income Tax Treatment of /rrvestrnent and Innovation Act/v/f/es In SIX Counfr/es, Washington,

D.C , 1981, Price Waterhouse & Co , Price Waterhouse Information Gwde” Do/rrg i3us/rress In Germany, September 1978, Price Waterhouse & Co , Price Waterhouse /n format/on Gwde Do/rrg Business

In France, 1979, Price Waterhouse & Co , Price Waterhouse /rrforrrrat/on Gwde Do/rig Business In the Unlfed Kingdom, 1980; and Price Waterhouse & Co Pr/ce Waterhouse /n formation Guide Doing

Bwness (n Switzerland. 1982
Ch.. 12—Financing and Tax Incentives for Firms ● 291

.—. . . . —

biotechnology companies to incorporate in the

Netherlands Antilles and then form a subsidiary

in the United States (20). Generally, tax incentives

aimed at capital formation, such as the R&D lim -

ited tax partnership or capital gains tax rate, are

viewed with much more interest in the short term

by LJ.S. NBFs than tax incentives because NBFS

need taxable income to use them.

Tax incentives relevant to new

biotechnology firms in the United

States and other countries

Tax incentives beneficial to NBFs include R&D

tax incentives, capital formation tax incentives,

and tax treatment of small businesses.

R&D TAX INCENTIVES

The LJ.S. tax code offers no special incentives for

R&D beyond those available for investment generally and for investment in depreciable structures or

equipment used for research and experimental

design. The buildings used for R&D are not given

preferential tax treatment in the United States as

they are in Western European nations. Thus, the

United States has no special tax incentive for construction of plant or equipment used in biotechnology. Such an incentive may be, depending on

the importance of the costs of depreciable assets

in the total production costs, an important factor in determining cost competitiveness in biotechnology products. As products move from research to scale-up stages of production, these

costs become more important.

Companies in the United Kingdom are entitled

to a 100-percent first year writeoff on capital expenditures for scientific research, the most rapid

allowance offered by any country (1). Tax provisions allowing the immediate deduction of capital

expenditures for assets used in R&D provide a

current tax benefit* rather than a deferred tax

benefit, because the capital expenditures for R&D

may be offset against income earned in the year

of the capital asset’s acquisition rather than offset against income earned over the useful life of

the asset. Accelerated depreciation provides a tax

● This current benefit is of immediate benefit only to firms with

sufficient current taxable income to use the tax benefit.

benefit in that it permits a much faster recovery

of the cost of an R&D asset; however, the immediate deduction of the total cost of the asset provides an even faster recovery of costs. The Federal

Republic of Germany allows accelerated depreciation for R&D assets in the form of additional

depreciation taken in the first few years the assets

are used. For investments of less than $234,750

(DM570,000), there is an investment grant of 20

percent of the cost of the assets used in R&D

(9,30). France allows 50 percent of the cost of

buildings used for scientific or technical research

to be written off in the first year.

The United States, Japan, the Federal Republic

of Germany, the United Kingdom, and France

allow deductibility of current R&D expenditures,

but only the United States and Japan give a tax

credit for incremental R&D. The Japanese tax

credit allows a company to deduct each year from

its income tax 20 percent of the difference between the current year’s R&D expenditures and

the highest R&D expenditures in a base year

before the current year. The U.S. tax credit allows

a company to deduct 25 percent of the difference

between the current year’s R&D expenditures

and the moving average of a 3-year period’s R&D

expenditures. In order to qualify for the credit,

a company must be carrying on a trade or business. The U.S. Treasury was given leeway in defining the trade or business, and it was widely

hoped that the newest proposed regulations

would give small firms, primarily engaging in

research but not yet selling products, an advantage. Some have stated that Treasury’s position

is inflexible towards the small firms not yet able

to produce products (5).

Some analysts argue that the U.S. tax credit for

incremental R&D encourages more R&D than

Japan’s tax credit, because the base used in the

United States (the moving 3-year average) may be

lower than the base used in Japan (the highest

R&D expenditure in a previous year); the lower

base in the United States may allow a higher tax

credit given the same rate of increase in R&D

expenditures. The U.S. tax credit is currently

scheduled to expire in 1985, and many are urging an automatic extension of the credit, especially

since the planning and implementation of R&D

is a long-term process. Legislation introduced in
292 Commercial Biotechnology: An International Analysis

the 98th Congress, H.R. 3031, sponsored by Representative Fortney Stark, and S. 738, sponsored

by Senator John Danforth, would amend the IRS

Code by making the R&D credit permanent in the

United States. France is considering a 25-percent

tax credit for R&D expenditures, thus encouraging through the tax system an increase in R&D

expenditures (49). Whether the implementation

of additional tax credits will affect the amount

of money devoted to R&.D expenditures will depend in part upon the permanency of the tax provision in each country.

The treatment of income derived from the sale

or license of technology differs among countries.

In the United States, proceeds from the sale of

patents are treated as long-term capital gains

(taxed at the long-term corporate capital gains tax

rate of 28 percent). Royalties are taxed as ordinary

income (30). In Japan, both proceeds and royalties

are treated as ordinary income. Sales of patent

rights, technical and manufacturing processes,

and know-how are taxable in France at the reduced 15 percent long-term capital gains tax rate

(l). Royalties are taxed at the standard 50-percent

corporation tax rate unless industrial property

rights have the characteristics of fixed assets or

the license is granted for 8 years and for exclusive

use within a geographical area. In the latter instances, royalties are taxed as long-term capital

gains. In the United Kingdom, any capital sum received on the sale of a patent by a U.K. resident

is charged as if it were a corporation (at a tax rate

of 52 percent); the sum is generally spread over

6 years, so that one-sixth of the sum is liable to

tax in each year. Royahies received are treated

as ordinary income (30). Overall, the United Kingdom has the most adverse tax treatment of income resulting from the sale of technology

(whether involving the sale of patents or licensing).

CAPITAL FORMATION TAX INCENTIVES

Tax incentives designed to stimulate capital formation are of special importance to the formation and growth of NBFs, because few NBFs have

enough income derived from product sales or

contract revenue to sustain high costs for both

R&D and scale-up production. In affecting the

amount of capital available to smaller firms, the

tax treatment of individual capital gains and R&D

limited partnerships are important.

Tax Treatment of Individual Capital

Gains.—The long-term capital gains tax rate for

individuals in the United States is 20 percent,

down from 49 percent in 1976. Industry analysts

suggest that this decrease in the individual capital

gains tax rate is the primary reason for the substantial increase in venture capital available in the

united States (27).

In Japan, capital gains on the sale of securities

are exempt from tax, unless the sales are habitual

or in the course of business. For nonexempt gains,

the first $2,232 ( 500,000) is exempt, and the

remainder of gain is either taxed as short-term capital gains (treated as ordinary income) or longterm gains (SO percent taxed at ordinary income

tax rates) [42).

In the Federal Republic of Germany, no capital

gains tax is payable by individuals on assets held

longer than 6 months, If an asset is held less than

6 months, the capital gains income is taxed as ordinary income. Capital gains arising from the sale

of business assets by an individual are liable to

tax at normal rates where the assets form part

of the business property. Extraordinary income

arising as a result of a gain from the sale of an

entire unincorporated business or from the sale

of shares by a substantial shareholder are taxed

at half the individual’s marginal tax rate, i.e., at

a maximum of 28 percent (35).

In the United Kingdom, capital gains income is

subject to a tax rate of 30 percent (42). The tax

treatment of capital gains in France depends on

the length of time the asset is held. Short-term

capital gains (on assets held for less than 2 years)

are included in operating profit and are taxable

at a 50-percent tax rate (37). The taxpayer may

elect to spread the capital gains tax over 3 years.

Long-term capital gains (on assets held for 2 years

or more) are taxable at a IS-percent tax rate.

Long-term capital gains and losses of the same fiscal year are offset against each other.

Tax Treatment of RdkD Limited Partnerships . —As discussed in the section of this

chapter on “Financing in Firms Commercializing

Biotechnology)” an important tax tool used for risk
—

Ch. 12—Financing and Tax Incentives for Firms ● 293

capital formation in the smaller companies engaged in biotechnology in the United States is the

R&D limited partnership. Some NBFs using R&D

limited partnerships as a method of raising capital

have stated that they prefer the partnerships as

a method of financing, because the revenues from

a partnership are treated as revenues and allow

a company to show a profit even if it has few or

no products to sell (27). By using R&D limited

partnerships, NBFs have postponed issuing stock,

selling equity to established firms, or searching

for venture capital, thereby keeping more control over their company. Neither Japan nor West

European countries use a similar type of tax

treatment.

An R&D limited partnership is formed to support R&D that will result in something that is

marketable and patentable. As discussed below,

financial advantages accrue to the limited partners (investors) at both the R&D phase and the

marketing phase, provided certain conditions are

met.

Turning attention first to advantages at the

R&D phase, the applicable part of the Internal

Revenue Service (IRS) Code is section 174 (Title

26 U.S.C. IRS f174). Section 174 allows each

limited partner to deduct all expenses for research (generally, the amount the limited partner

invested in the partnership) from income in the

year the expenses were incurred, provided the

limited partners were at risk. * If the limited partners are not at risk, such deduction is not allowed,

The challenge, therefore, is to write the agreement establishing the partnership so that the limited partner is at risk, This is generally done by

structuring the agreement so that the general

partner does not automatically buy the results of

the research from the limited partners. An automatic purchase provision in the agreement would

presume the research would be successful and

imply that there was no risk. Similarly, agreements usually base any financial return to the

limited partners that may arise from the partnership on sales rather than profits, because the term

“profits” in the agreement implies success and

hence a no-risk situation.

*To ascertain whether the partners bear the required risk, one

asks, “Who loses if the research effort is a complete failure?”

Upon successful completion of an R&D project

supported by an R&D limited partnership, the

limited partners may realize economic returns

either through royalties or license fees derived

from the sale or transfer of a patent or by sale

of the product back to the general partner or to

a third party. Both of these may qualify for favorable tax treatment. If the research results in a patent, the patent may be sold or transferred by the

limited partners to the general partner, generally in return for royalties or license fees, Under

section 1235 of the IRS Code (Title 26 U.S.C. IRS

~1235), any royalties received as a result of

transfer of a patent qualify as long-term capital

gain rather than ordinary income. The current

tax rate on long-term capital gains for individuals

is 20 percent, whereas the tax rate on ordinary

income can be as much as 50 percent. The usual

l-year period necessary for the sale of a capital

asset to qualify for capital gains treatment does

not apply.

Generally, section 1235 treatment applies to a

transfer of property consisting of all substantial

rights to a patent by any holder. A holder is defined as any individual whose efforts created the

patentable property or any other individual who

has acquired interest in the patentable property

in exchange for money paid to the creator prior

to the actual reduction to practice of the invention. * This definition of holder makes it difficult

for R&D limited partnerships to acquire rights

to a patent when a university has the rights to

the patent through employment agreements with

its university scientists. Universities that have obtained patent rights through employment agreements with university scientists are excluded

from the present definition of holder. As a result,

relatively few universities have formed R&D limited partnerships as a means for helping to commercialize their research results.

If the research results in nonpatentable knowhow or technology, the sale of the property must

meet the requirements of sections 1221-1223 or

section 1231 of the same IRS code for the proceeds to be taxed to the limited partners as capital

gains rather than ordinary income. Under this

——

“Reduction to practice is a term used in patent Ia\\’ referring to

when the imwntion has been tested under operating conditions.
-.

294 . Commercial Biotechnology: An International Analysis

section, capital assets must be held for at least

1 year before they are sold to qualify for longterm capital gains treatment. Another challenge

then is to write R&D limited partnerships so that

they result in a patent.

Two recent changes in the U.S. tax code have

increased investor interest in economic return

from tax shelters, rather than just a tax deduction. First, the maximum tax rate on unearned

income has been reduced from 70 percent to 50

percent. This reduction in the maximum tax rate

makes unearned income for individuals in high

tax brackets more valuable than it used to be and

also reduces their need to shelter it. Second, investors may no longer deduct more than the

amount they are actually at risk; thus, they can

no longer recoup more than their full cash investment in tax savings.

There are two potential disadvantages of R&D

limited partnerships for the limited partner. The

first is low liquidity: the only way for a limited

partner to get out of the agreement is to convince

the general partner to buy his or her interest in

the partnership. The second is that patents are

the only assets that qualify for tax treatment

under section 1235, other types of intellectual

property, such as plant variety protection certif -

icates and trade secrets, do not qualify. *

R&D limited partnerships permit the partners

to deduct partnership expenses for R&D activities

from their individual incomes and then allow any

income from the sale of the successfully developed invention to be treated as capital gains income, which is taxed at lower individual tax rates.

Because the financial markets are so dissimilar

amoung countries, it is difficult to compare the

effect on investments of different capital gains tax

treatment. However, the United States has a more

developed capital market than its competitors in

biotechnology and also has more options for financing smaller firms. If the NBFs continue to

serve as an important source of innovation, the

expanded financing options for these firms will

help the competitive position of the United States.

The ability of firms to commercialize innovations

“Patent law’ and plant breeders’ rights statutes are discussed in

Chapter 16: Intellectual Propert~’ Lawf.

will serve as a better indicator of a country’s competitiveness than the ability of firms to serve as

a source of innovation.

TAX TREATMENT OF SMALL BUSINESSES

Some countries have special tax incentives to

promote the growth of small businesses. Studies

suggest that small businesses serve as an important source of innovation as well as of the diffusion of technology.

The most favorable tax treatment for smaller

businesses is provided by the United States. Subchapter S corporations* give the owners the advantage of limited liability for debts, while the corporation’s income is taxed at the shareholder’s tax

rate rather than at the corporation’s tax rate. A

key advantage of subchapter S is that if a company generates operating losses, these can be

“passed through” to the individual shareholders.

The shareholders can use the losses to offset

other taxable income. If the owners of a small

company have incorporated as a “Sub-S” and they

are in the 50-percent tax bracket, then the effect

is that the U.S. Treasury is financing 50 percent

of the new company expansion. Most NBFs are

experiencing losses, so this form of corporation

is attractive.

Japan also has special tax treatment for small

businesses. A small business can add each year

to the ordinary depreciation allowance up to 14

percent of the original value of new machines and

equipment. In addition, there is a special depreciation allowance for encouraging small businesses

to enter new industrial sectors. A small business

that plans to change its business can treat its old

machines and equipment as ones newly acquired

when it calculates depreciation allowance. Special

first-year depreciation credits are now allowed

on this machinery (39).

A recent study by the Organisation for Economic Co-Operation and Development (OECD) outlined

member government policy towards small businesses and concluded that European countries

had fewer policies aimed at small firms than did

either the United States or Japan (33).

* ,!nj (wrporation satist’~ing requirements desrribed in the Sut)-

rhapter S Art and Subchapter S Revision ,.4ct of 1 !38.2 is kno\in ~is

a Suhrhapter S corporation,
Ch. 12—Financing and Tax Incentives for Firms ● 295

The French Government has been giving increasing attention to startup firms since 1976.

Three problems for smaller businesses have been

addressed: self-financing, external capital financing, and access to medium- and long-term bank

credit (33). The first problem is being addressed

through a tax allowance for startup firms equal

to one-third of the firm’s taxable profits in the

fiscal year of their establishment and in the 3 subsequent tax years. The usefulness of this incentive for the small firms using biotechnology in its

present stage of development is questionable. Few

NBFs are experiencing profits, so few wouId be

able to use the tax allowance. The second problem, external capital financing, is addressed in

France through the establishment of regional financing companies (Societesde Financement Regional) and incentives for these financing companies to acquire holding in new firms. The last

problem, access to bank credit, has been and still

continues to be a problem for smaller companies

in France. As noted earlier, the Government of

France has established a mutual guarantee company, INODEV, to guarantee bank credit for the

purposes of innovation (33). In addition, small and

medium-sized businesses (i.e., businesses that

have fewer than 2,000 employees, are not legally dependent on a larger business, and have less

than so percent of their shares held by quoted

companies) are entitled to an additional deduction of 50 percent of the cost of equipment and

tools used in R&D. However, the small firm sector is not expected to play as innovative a role

in France as it has in the United States.

In the Federal Republic of Germany, there is

no special tax treatment of small businesses other

than a provision applicable to research foundations and associations (30),

The United Kingdom has few tax provisions

available to investors or owners of small businesses that would encourage the formation of

startup firms. To the extent that the NBFs are important in determining a country’s ability to capture world market share in biotechnology products, the United Kingdom would be at a disadvantage. A U.K. resident company which is controlled

by five or fewer persons (a person is defined as

an individual and near relatives) or by its directors is known as a close company. There is exemption for certain companies which, although

closely controlled, have a 35-percent public shareholding and are quoted on a recognized stock exchange. A close company is subject to special tax

provisions, of which the most important before

March 26, 1980, was that all or part of the company’s undistributed after-tax income, after allowing for certain business requirements, could be

apportioned (i.e., attributed to its shareholders according to their respective interests in the company and treated as their income). For accounting periods ending after March 26, 1980, only a

close company’s investment income can be apportioned (37). Therefore, the income of a close company is, to the extent attributed to shareholders

under these provisions, subject to the progressive

rates of personal income tax and investment income surcharge. Companies whose pretax profits do not exceed $40,000 (<22,900) pay a corporate tax rate of 40 percent instead of the usual

52 percent (37).

Various countries have national programs of

regional tax incentives to encourage industries to

develop in particular geographical locations.

France is divided into four zones, Zones A

through D, for incentive purposes. Zone D is the

Paris Basin area and the Lyon region, and for this

area, there exist no incentives, The other areas

have varying amounts of grants and other incentives available (33), In the United Kingdom, enterprise zones are to be designated to encourage the

creation of new businesses in economically declining areas. Generous depreciation allowances will

be granted in these areas on the cost of certain

new buildings in these zones. There also exist regional tax incentives in the Federal Republic of

Germany, but the incentives only apply to the

West Berlin area. In the United States, there are

no Federal programs to encourage industry development in certain sections of the country. Increasingly, however, local and State governments

are offering their own tax incentive programs.

Tax incentives relevant to established

companies in the United States and

other countries

Tax incentives for established companies include R&D tax incentives, capital formation tax

incentives, and corporate taxation.
296 ● Commercial Biotechnology: An International Analysis

R&D TAX INCENTIVES

The depreciation allowances that apply to the

capital assets used in R&D by established companies are the same as those discussed in the R&D

tax incentives section for small firms above. Additional tax incentives for established companies

are noted below.

Large established companies in the United

States can utilize the same R&D tax credits as

those used by small firms. An early assessment

of the recent U.S. R&D tax credit suggests that

it is not likely to induce significant increases in

the growth rate of R&D in the short run, but the

tax credit may have been one of a number of factors helping to maintain R&D budgets in the tight

financial situation of 1980-82 (31).

Table 54 shows initial calculations relating U.S.

firm size to tax credits earned in 1981. The assumptions underlying this table are: 1) about 63

percent of total R&D budgets is actually eligible

for inclusion as R&D expenses for the credit; and

2) half of 1981 eligible expenditures occurred in

the second half of the year (because only the second half of 1981 is covered by the credit). The

tax credit as a percent of total 1981 R&D falls

from about 2 percent on average for firms with

fewer than 1)000 employees to about 1 percent

for firms with 25,000 employees or more. The

inverse relationship between firm size and tax

credit as a percentage of R&D reflects the inverse

relationship between firm size and rate of growth

of R&D. The initial results tend to suggest that

the tax credit for R&D is relatively more important to small than large companies.

Japan allows companies that are members of

a Government Research Association* such as the

one formed for biotechnology research to take

a 100-percent depreciation allowance on all fixed

assets used in connection with their Research Association activities. Only established companies

are members of Research Associations. The Federal Republic of Germany provides a 7.5 percent

tax-free cash subsidy for investment in R&D

facilities for investments exceeding $206,050

(DM500,000).

Some countries allow businesses to deduct payments to research institutes for contract research.

The United Kingdom allows deduction for payments made to research institutes approved by

the Secretary of State or the Minister of Technology (1). The United States allows corporations

to deduct the cost of equipment given to universities. Also, a manufacturer of new R&D equipment in the United States can donate equipment

to universities and obtain a deduction of cost plus

one-half the difference between price and cost,

up to a limit of twice cost. Payments to universities for contract research or basic research by

firms may be included in eligible expenditures for

computing R&D tax credit.

CAPITAL FORMATION TAX INCENTIVES

The corporate capital gains tax rate and investment tax credits are discussed below as they relate to capital formation for established compa-

● Research Associations are government-sponsored groups of established rompanies in Japan performing joint research in specified

fields

Table 54.—Estimated Relationship Between Tax Credit Earned and U.S. Firm Sizea

R&D expenditures (millions of dollars)

Change Tax credit as a

Number of employees Number of 1980 to percent of R&D

in company companies 1980 1981 1981 expenditures

Not available . . . . . . . . . . . . . . . . . . 24 $ 102 $ 130 $ 28 1.460/o

Under 1,000 . . . . . . . . . . . . . . . . . . . . 113 185 240 55 1.91

1,000 to 4,999 . . . . . . . . . . . . . . . . . . 286 1,260 1,563 302 1.56

5,000 to 9,999 . . . . . . . . . . . . . . . . . . 99 872 1,031 158 1.28

10,000 to 24,999 ......, . . . . . . . . . 108 2,781 3,282 500 1.25

25,000 and over . . . . . . . . . . . . . . . . 147 22,686 25,862 3,176 0.99

Total. . . . . . . . . . . . . . . . . . . . . . . . 777 $27,886 $32,107 $4,221 1.060/0

a Based on figUr~~ Publlshed in Business Week’s “R&D scoreboard 1981”

SOURCE. National Science Foundation, An Ear/y Assessment of Three R&D Tax Incenhves Prowded by the Economic Recovery Act of 1981, PRA repod 83-7, Washington,

D C., April 1983
Ch. 12—Financing and Tax Incentives for Firms . 297

nies. In a broader sense, all of the tax incentives

discussed in this chapter have some influence on

companies’ decisions concerning investment.

Corporate long-term capital gains are taxed in

the United States at a maximum rate of 28 percent. In the Federal Republic of Germany and

Japan, corporate capital gains are taxed at ordinary corporate income tax rates. In the United

Kingdom, corporate long-term capital gains are

effectively taxed at 30 percent (30)37). France

allows long-term capital gains and losses of the

same fiscal year to be offset against each other.

Any remaining net after-tax gain (after off-setting)

is credited to a special reserve, where it is allowed

to remain for an indefinite period of time. If

capital gains in the special reserve are distributed

as cash dividends, a complementary tax equal to

the difference between the long-term capital gains

tax and the corporate tax is assessed. If the

amount is a loss (after off-setting), it may be carried forward for 10 years to offset future longterm capital gains (36).

The United States and Japan have investment

tax credits. In the United States, the credit is equal

to 10 percent of qualified investment in depreciable property up to 70 to 100 percent of the tax

liability for the year the equipment was placed

in service; the excess may be carried over. In

Japan, the credit is equal to 10 percent of the purchase price up to 20 percent of total corporate

tax liability in the year of purchase for certain

industries; the excess may be carried over for 3

years.

CORPORATE TAXATION

The top-bracket corporate tax rate on retained

earnings or distributed earnings in the United

States for established companies is 46 percent.

The corporate tax rate in Japan is 40 percent on

retained earnings and 30 percent on distributed

earnings. In the Federal Republic of Germany, the

corporate tax rate is 56 percent on retained earnings and 36 percent on distributed earnings. In

United Kingdom, the corporate tax rate on retained earnings is 52 percent. In France, the corporate

tax rate is 50 percent (42).

For international comparisons, effective corporate tax rates should be used rather than the

statutory rates just cited. The effective rates take

into account different definitions of taxable income and treatments of depreciation. Available

studies suggest that effective corporate tax treat -

ment in the Federal RepubIic of Germany, France,

and the United States is relatively equal, with

Japan and the United Kingdom having lower effective corporate tax rates; however, these studies

need to be updated.

In Switzerland, different cantons have different

corporate tax rates: some allow taxes that are paid

to other tax authorities as a deduction; others

have different loss carry-forward provisions; still

others will tax capital gains at a separate rate or

not tax the gains at all. The effective corporate

tax rates (including Federal defense taxes) in Switzerland range from 8.85 percent to 36.89 percent,

depending on the size of profits and the particular

canton (38). These tax rates are among the lowest

in Europe, and Switzerland is favorable in its

treatment of established companies. Switzerland

does not have any special treatment for small

businesses, only for companies that invest in the

equity of other companies and derive most of

their income from dividends.

Findings

As a factor determining competitiveness in the ly now when the technology is new and its applica -

commercial development of biotechnology, finan- tions are just being developed. Financial resources

cial resources to support entry into this new field available to commercialize biotechnology are great -

are of critical importance in all countries, especial- est in the United States and Japan and somewhat

25-561 0 - 84 - 20
298 . Commercial Biotechnology: An International Analysis

less in the four other countries examined: the Federal Republic of Germany, United Kingdom, Switzerland, and France.

In the United States, a variety of funding

sources are available to support the commercialization of biotechnology in both NBFs and established companies. Most major U.S. corporations

have sizable internal sources of funds and are

therefore less likely than NBFs to use external

sources of funds to support R&D efforts in biotechnology. If external funds are needed, however, they are most likely to be obtained through

debt financing.

Funding needs of NBFs depend on the market

selected for entry. Funding needed to support entry into the contract research market is very low.

Higher, but still quite low, are the funds needed

to manufacture in vitro MAb diagnostic products;

indeed, such product lines should be profitable

within 2 to 3 years. Greater financial resources

are required to enter the pharmaceutical market

involving products for internal human use because of the expense of testing and clinical trials

to obtain FDA approval. Nevertheless, about 55

percent of the NBFs in the United States plan to

enter this market. * The amount of financial resources needed to enter the specialty chemicals

market varies depending on the product. Most

specialty chemicals do not require regulatory approval; however, FDA approval is required for

specialty chemicals considered foods or food additives. Because research is near term for many of

the products, 3 to 5 years, and most do not require approval, the financial costs of entering this

market fall between those for the contract research and commodity chemicals markets. Very

great financial resources are needed if an NBF

wishes to enter the market for applications to

plant agriculture requiring the manipulation of

many genes, such as nitrogen fixation or photosynthesis, because a great deal of basic science remains to be done before commercial applications

can be achieved, so a firm must plan on many years

of research without financial return. Entry into the

commodity chemicals market also requires major

financial resources, because economies of scale are

● The commercial applications of biotechnolo~v being pursued by

NBFs are discussed in Chapter 4: Firms Commercializing Biotech -

Ilologv

essential for economic production, and production

plants for commodity chemicals cost millions of dollars. The commodity chemicals market is a risky one

to select because it involves competition over a few

cents difference in price, Additionally, the biotechnology that would be used needs substantial basic

research.

The major sources of financing available to NBFs

in the United States may be broadly categorized as:

. revenues from contract research and interest

on cash previously obtained from public or

private offerings,

. various sources of venture capital, and

● public stock offerings.

Research and product development agreements

between NBFs and established companies are generally cost reimbursement contracts with additional incentives for reaching agreed upon milestones. Prepayments and advance payments may

be obtained, and licensing agreements may bring

royalties to the NBF from marketable products

of the research. The funding that NBFs receive

from research contracts is likely to diminish in

the future as large corporations establish greater

in-house capabilities in biotechnology. The funds

available from corporate sponsors will increasingly be for truly innovative research, which historically has been done by small firms. As contract research funds decrease, however, many

NBFs may find themselves in financial jeopardy.

Venture capital sources include venture capital

from major corporations, R&D limited partnerships, venture capital funds, and SBICS. SBICS

have provided relatively little venture capital to

NBFs, although recently an increasing number of

equity investments in new firms including NBFs

have been made by SBIC bank affiliates. Many

equity investments have also been made by major corporations in NBFs. Such investments appear to be motivated more by the corporations’

desire to gain “a window on the technology” than

by the hope of financial gain from their investments.

Some venture capital firms are set up by major corporations to invest corporate funds in new

ventures. Because the firms are independent entities, the corporation is protected from loss. If suc-
Ch. 12—Financing and Tax Incentives for Firms . 299

cessful, the venture firm returns some profits to

the parent corporation. Other venture firms have

no connection to major corporations. Venture

capital firms can provide seed money (used to

write business plans for new firms), but most

often, they fund startups, underwrite public offerings, and invest in R&D limited partnerships

as limited partners. A few of these firms have invested a significant amount of their money in

NBFs.

R&D limited partnerships are a very important

source of funds for NBFs; next to public offerings, R&D limited partnerships have so far provided the most funds for NBFs. Although such

partnerships have been available for some time,

NBFs are responsible for popularizing their use.

Such partnerships have enabled NBFs to attract

the substantial funding needed to fund research

and early product development and have also

been formed for novel purposes, such as supporting the cost of clinical trials.

The number of public stock offerings in biotechnology in 1982 declined to about half the number

in 1981, paralleling a similar decline in the number of public offerings in all U.S. industrial sectors. Furthermore, the amounts raised by NBFs

in 1982 public offerings were less than NBFs had

hoped for. The disappointing return on public offerings probably reflected increased public

knowledge about biotechnology and more realistic appraisals of the time necessary before investments in biotechnology are likely to pay off.

Thus far in 1983, there is a boom in the new

issues market and a large number of NBFs are

using the market as a means to finance expansion. Between March and July of 1983, 23 NBFs

raised about $450 million (18). The stock market

is also providing newly public NBFs with secondand third-round financing. Some of these firms,

however, may encounter future financial constraints if they continue to rely on the stock

market, because many investors are interested

in relatively short-term returns.

In European countries and Japan, there is significantly less venture capital available than there

is in the United States, and venture capital has

therefore not been a major funding source for

biotechnology R&D. Furthermore, because of a

lack of venture capital in these countries, the

number of NBFs in Europe and Japan is tiny compared to the number of NBFs in the United States.

Some governments, such as those in France, Japan, and the United Kingdom, have attempted to

stimulate the formation of venture capital, but the

results have been disappointing. Outside the

United States, direct government funding of industry is proportionately a far more important

funding source for the commercial development

of biotechnology than it is within the United

States. In Japan, corporate funds supply most of

the financing for biotechnology’.

The United States tends to use tax incentives

more than direct government funding to encourage industrial development. In the United States,

the tax measures aimed at capital formation and

R&D are important to NBFs in their present stage

of development, As scale-up proceeds, tax

measures aimed at R&D capital assets will become

more important. The United States tax code offers no special incentives, beyond those available

for investment generally, for investment in

depreciable structures or for equipment used for

research and experimental design. Currently,

France and the United Kingdom have accelerated

write-offs for R&D capital assets, and West Germany has an investment grant allowing a com -

pany to recover up to 20 percent of the cost of

R&D capital expenditures. Japan also has extremely favorable depreciation allowances for

capital assets used in R&,D for members of Government Research Associations such as the one

formed for biotechnology].

Available studies suggest that Switzerland,

followed by Japan and the United Kingdom, have

the lowest effective corporate tax rates. The effective rates in the United States, the Federal

Republic of Germany, and France are higher and

about equal.

In most countries, proceeds from patents are

treated as either capital gains income or ordinary

income. In the United Kingdom, however, proceeds from patents are taxed as corporate income
300 ● Commercial Biotechnology: An International Analysis

(at a rate of 52 percent). Royahies are taxed as

ordinary income, except in France under certain

circumstances. From a tax viewpoint, the United

Kingdom has the most adverse treatment of income derived from innovational activity, because

proceeds from patents are taxed at corporation

tax rates and the long-term capital gains tax rate

in the United Kingdom is the highest of the competitor countries.

The United States has the most favorable tax

treatment for raising capital for smaller firms.

This is an important advantage in fostering the

growth of startup and small expanding firms. The

people contacted in NBFs agreed that this feature

of the U.S. tax system aided the formation of their

companies, especially compared to the tax treatment abroad. Recently, OECD published a study

comparing the treatment of small businesses

among its members and concluded that the European governments had few policies directly aimed

at small businesses (33). The European governments are trying to develop policies to encourage

entrepreneurs, but there are cultural as well as

economic obstacles to be overcome.

Issues and policy options -—

ISSUE 1: How could Congress help new biotechnology firms obtain the financing necessary for production scaleUp?

Many NBFs in the United States are currently

sustaining large losses because of the very large

investment in R&D relative to operating revenues

required to develop a biotechnology product.

Most NBFs at present have few or no products

to generate revenues and will have difficulty financing production scale-up. Furthermore, as

more and more NBFs carrying large losses approach production stages in the future, financing difficulties are expected to increase. If NBFs

do not have the financing necessary for production scale-up, the commercialization of biotechnology in the United States may be hindered.

Although many NBFs are currently using public

stock offerings and R&D limited partnerships to

obtain funds for scale-up, it is not at all certain

that these sources of financing will remain available to them, The public market is not generally

considered a reliable source of funds for investments characterized by long time horizons and

high risk; and R&D limited partnerships may not

be a reliable source of funds given current legal

uncertainties and uncertain IRS interpretations

which affect the tax status of the partnership, If

future returns on investments are lower than expected by current investors or if the time horizons for biotechnology scale-up are longer than

expected, these sources of financing might become less available.

It might be argued that sufficient investment

capital is available to commercialize biotechnology

in the United States and that the Government

need not intervene with specially targeted guaranteed loans or special tax provisions to further

stimulate the U.S. biotechnology effort. However,

the commercialization of biological technologies

appears more costly both in time and investment

than other high technologies. For this reason,

Government support may be necessary to maintain the current competitive status of the United

States. To help NBFs obtain the financing necessary for production scale-up, Congress could

adopt one or more of the following options.

Option 1: Provide guaranteed loans for production

scale-up.

A guaranteed loan program, much the same as

the 1950 V-loan program that supplied working

capital for U.S. semiconductor firms, * could be

formulated for biotechnology. Under a V-loan program for biotechnology, the Federal agency guaranteeing a loan would be obliged to purchase a

stated percentage of the loan if the borrower defaulted. The loans would be granted at less than
Ch. 12—Financing and Tax Incentives for Firms 301

prevailing interest rates and would thus decrease

the cost of capital for the individual firm. Because

the guarantees would not be tied to a particular

loan but to a particular level of debt, they would

serve as a system of revolving credit, As periodic

repayments reduce the outstanding debt, additional loans could be taken out as long as repayment kept the debt within the face amount of the

authorization. The V-loan program of 1950 authorized a total of $2.9 billion over its life, which

permitted loans totaling about $11.6 billion. It also

returned a profit to the Federal Government of

about $24.5 million, because the Federal guaranteeing agent was entitled to a portion of the interest paid on the loan.

Funds for biotechnology earmarked for scaleup projects could be placed in a “Biotechnology

Development Bank” or allocated to an interested

agency such as the National Institutes of Health,

National Science Foundation, or the SBA. The

funds could be authorized for a specific amount

and aimed at a particular level of debt, thus allowing successful biotechnology firms to pay back

the loans to the level of debt only. once the level

of debt was paid back, the firms could obtain

additional funds from the agency/Bank.

Option 2: Allow rapid depreciation for capital assets

required for production scale-up.

The current depreciation schedule for plant and

equipment assets in the United States is a set of

statutorily provided depreciation periods: 15 years

for most structures, 5 years for most equipment,

and 3 years for R&D equipment. This schedule

is faster than earlier schedules and provides a

greater incentive than was provided before for

the purchase of long-lived equipment such as bioreactors. A depreciation schedule that would

allow an even more rapid recovery of capital costs

incurred in production scale-up would help alleviate some of the financial constraints faced by

NBFs in production scale-up. The increased writeoffs could be made available to investors through

equipment partnership agreements or leasing arrangements. Such agreements would allow NBFs

to obtain additional money instead of relying on

tax provisions alone.

The Defense Procurement Act of 1950, which

allowed participating firms to write off their

capital expenditures in a 6-month period, could

be used as a model for new legislation that would

similarly benefit firms using biotechnology. The

new legislation could allow NBFs to write off 100

percent of their expenditures for pilot plant

equipment.

Currently, the United Kingdom and France have

tax provisions applicable to scientific R&D equipment, alIowing up to 100-percent write-offs in the

first year. Congress could allow similar write-offs

or accelerated depreciation for equipment used

in biotechnology pilot plants.

Option 3: Refund the R&D tax credit to NBFs not

earning enough taxable income on which

to apply the R&D tax credit.

The R&D tax credit legislation currently allows

unused tax credits to be carried over to each of

the 15 taxable years following the unused credit

year. For NBFs experiencing cash flow problems

while scaling-up production, a tax credit refundable in the year sustained would help alleviate

these financial constraints. In addition, in present

value terms, a refundable tax credit would be

more valuable to NBFs in the year earned than

a tax credit carried forward to the years in which

enough taxable income would be earned to take

advantage of the credit.

The major disadvantage of this option would

be the loss of revenue to the U.S. Treasury in

times of high deficits. In addition, political and

equity-related objections might be raised concerning Government rebates to businesses.

ISSUE 2: How could Congress encourage

broader use of R&D limited partner

ships in biotechnology?

R&D limited partnerships have been an important source of financing for NBFs. As noted above,

NBFs incur high R&D costs relative to their revenues and have few marketable products. NBFs

have found R&D limited partnerships useful vehicles by which to attract the substantial funding

needed to fund research, early product development, and in the case of some pharmaceutical

products, clinical trials required by FDA. Such

partnerships may allow more NBFs to enter markets such as that for pharmaceuticals, where extensive regulation makes the costs of entry high.
302 ● Commercial Biotechnology: An International Analysis

Given the very large amounts of capital which

will be required to support the further commercial development of biotechnology and the variability of the stock market as a source of funds

through public offerings, R&D limited partnerships are probably critical to the survival and

growth of NBFs. To encourage broader use of

R&D limited partnerships and increase their role

in providing financing for NBFs, Congress might

consider the following options.

Option 1A: Amend section 1235 of the IRS code so

that it applies to plant variety protection

certificates.

The most favorable tax treatment of income for

R&D limited partnerships is provided under section 1235 of the IRS Code. Section 1235 treatment

applies to a transfer of property consisting of all

substantial rights to a patent by any holder. Under

section 1235, any royalties received as a result

of transfer of a patent qualify as long-term capital

gains rather than ordinary income. Because they

are legally distinct from patents, plant variety protection certificates are currently excluded from

section 1235 treatment. Their exclusion from section 1235 treatment may have limited the use of

R&D limited partnerships for biotechnology research in plant agriculture—an area where some

of the most important applications of biotechnology are likely to occur. Adopting this option

would very likely encourage the formation of

R&D limited partnerships for plant-related biotechnology.

Option IB: Amend section 1235 of the IRS code so

that universities are included in the definition of holder.

Under section 1235, a holder is defined as any

individual whose efforts created the patentable

Chapter 12 references
Ch. 12—Financing and Tax Incentives for Firms 303

.5.

6.

7.

8.

9.

l o .

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

21,

22.

23.

24.

38.

39.

40.

41
304 Commercial Biotechnology: An International Analysis

42.

43.

44.

45.

46.
Chapter 13

Government Funding of Basic

and Applied Research
Contents

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307

U.S. Government Funding of Basic Research in Biotechnology . . . . . . . . . . . . . . . . . . . . . . 310

National Institutes of Health ......, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31o

National Science Foundation ...., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31o

U.S. Department of Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311

Department of Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311

Department of Defense . . ; . ., .,...,... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311

U.S. Government Funding of Generic Applied Research in Biotechnology . . . . . . . . . . . . 312

U.S. Government Funding of Applied Research in Biotechnology . . . . . . . . . . . . . . . . . . . . 313

Small Business Innovation Research Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313

Small Business Set Aside Program.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316

U.S. Government Instrumentation Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316

International Comparisons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317

Government Funding of Biotechnology Research in Other Countries . . . . . . . . . . . . . . . 317

organization of Basic and Applied Research in Other Countries . . . . . . . . . . . . . . . . . . 318

findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323

Issues and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325

Chapter 13 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328

Tables

Table No. Page

56.U.S. Federally Funded Research in Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309

57.NIH Projects in Biotechnology, Fiscal Years 1978-82 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310

58. NSF R&D Equipment and Instrumentation, Fiscal Year 1984 Request , . . . . . . . . . . . . 317

59.Government Funding for Biotechnology Research in Japan, 1982 and 1983 . . . . . . . . 317

60. Some Biotechnology Projects in Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318

61. Government-Sponsored Applied Biotechnology Centers in the United Kingdom . . . . . 319

Figure

-No . Page

31. British Technology Group Support for Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . 321
Chapter 13

Government Funding of Basic

and Applied Research

Introduction —

Federally funded basic research in the United

States has been essential to the development of

biotechnology. The United States currently has

a strong and diversified basic research capability, the foundation for which was laid during

World War 11 by the Office of Scientific Research

and Development (OSRD). The National Institutes

of Health (NIH) was established to succeed OSRD’S

Committee on Medical Research in 1930.

Within a few years after World War H, several

patterns of U.S. Government funding for basic

research had been established. First, funding of

scientific research would further the broad aims

and priorities of the U.S. Government as defined

by Congress and the President. Second, nongovernmental laboratories (e.g., research universities) would perform much of the research of

interest to the Federal Government; in-house

Government laboratories would also perform

such research, Third, direct relationships between Federal agencies and university researchers would be established; funds for university

research would be awarded to individual investigators or small teams of investigators rather than

to the institutions themselves (legally, funds are

administered through institutions in the name of

investigators). Fourth, university research and

graduate training in the United States would be

closely related functions. These patterns, with

elaboration, have persisted until the present (21).

The launching of Sputnik in 1957 triggered a

spectacular increase in the U.S. research effort.

From 1953 to 1967, national expenditures in current dollars for research and development (R&D)

increased by more than 350 percent, and current

dollar R&D expenditures by the Federal Government increased almost 425 percent, In 1967, Federal Government expenditures represented 62

percent of total national expenditures for R&D.

After 1967, the rate of growth in R&D expenditures declined, and by 1976, the Federal Government’s contribution had dropped to an estimated

53 percent of total national R&D expenditures

(21).

National basic research expenditures by the

Federal Government have decreased more sharply in constant dollars than in total R&D outlays.

Between 1968 and 1976, basic research expenditures declined in constant dollars by an estimated

15 percent. Since universities perform the greatest share of basic research, they have suffered

the most from constraints on Federal research

funding. In real dollars, fewer basic research

funds were spent in universities in 1976 than in

1968 (21). In spite of this leveling off of Federal

support, the basic research effort of the United

States is prodigious and led to the recent developments in biotechnology.

one aspect of the development of biotechnology

demonstrates the unanticipated results of a longterm commitment by the U.S. Federal Government to basic research. The “war on cancer”

stimulated investigators to study the properties

of viruses that cause tumors. * A great deal of

work was done to locate the genes in several

tumor viruses, such as SV40 virus, that cause

tumors in hamsters and mice. These viruses are

particularly recalcitrant to classical genetic procedures for mapping genes. This problem led to

the use of bacterial restriction enzymes-enzymes

that cut DNA at specific locations—to construct

physical maps of genes. Physical mapping of an

entire genome (a complete set of genes of an organism) using restriction enzymes was first accomplished on SV40 DNA. It was the knowledge

of the mechanism of action of these restriction

enzymes, generated originally from cancer research, that led to the cloning of genes.

“W? Appendix [;:,4 Comparison of the 1‘.S. Semiconductor lndus11:}’ and Biotechnology\’.

307
308 ● Commercial Biotechnology: An International Analysis

As biotechnology is commercialized, different

emphases will be placed on various aspects of the

continuum that stretches from basic to applied

research. The objective of basic research is to gain

a better understanding of the fundamental aspects of phenomena without goals toward the development of specific processes or products, The

objective of applied research is to gain the understanding necessary to meet a recognized and specific need, process, or product (13). Bridging the

gap between basic and applied research is “generic applied” research, which is more specific

than basic research, but longer term and more

risky than most applied research. * The Federal

commitment to basic and generic applied research

in the United States will be a necessary element

in the commercialization of biotechnology in the

coming years.

Donald Kennedy has characterized the process

that moves from basic, to generic applied, to applied research as the “trajectory of innovation”

(10). Within this trajectory, particular kinds of institutional sponsors play defined roles:

● Phase One (Basic Research). Characterized by

loose, informal organization, open communication, quick publication of all the details of

an experiment. Usually takes place in university departments or laboratories such as

those at NIH, or sometimes in a special organization such as Bell Laboratories. Most

often publicly funded, oriented toward the

discovery and explanation of phenomena.

● Phase Two (Generic Applied Research). Focused on processes, the application phase.

Takes place in various settings: applied institutes, some university departments, nonprofit organizations (e.g., Stanford Research Institute, Battelle). Mixed public and private

funding. Environments variable with respect

to proprietary secrecy.

● Generic applied research is a part of the continuum between

the two poles of basic and applied. This research may be characterized as follows: 1) it is not committed to open-ended expansion of

knowledge as university basic research typicaUy is, but is less specific

(more widely applicable or “generic”) than the typical industrial prodUCI or process development effort; 2) it has more welldefined objectives than basic research, but is longer term than typical product and process development efforts; and 3) it is high risk, in the

sense that the stated objectives may fail and the resources committed

may be lost for practi~al purposes.

Phase Three (Applied Research). Innovative

emphasis on products, the development

stage, attention given to practical application.

Funding by private risk capital, environment

tends to be closed for proprietary reasons,

essentially all work takes place in private laboratories.

Biotechnology is moving rapidly along the trajectory of innovation. The role of Federal funding

in the process has been and will continue to be

critical to the U.S. competitive position in biotechnology.

Assessing the US. competitive position in biotechnology research is difficult for several

reasons, First, the definition of biotechnology

used in this report is a definition specific to the

commercialization of biotechnology, and thus is

more likely to fit traditional definitions of applied

research. Second, basic or fundamental research

in biotechnology can include research on topics

as diverse as cancer, developing new vectors to

improve recombinant DNA (rDNA) techniques, increasing oxygen volubility in aqueous systems,

understanding immune function, and neurobiology. Basic research by its very nature is wide

ranging; many elements drawn from basic research of various kinds go into the innovation and

development of a particular patentable product.

Third, the use of rDNA techniques or rDNA research may be but a small component of a particular research project, or the description of the

particular research may not have contained key

words that warranted its inclusion in an agency

classification of biotechnology research. In addition, as rDNA techniques are more widely used,

much of basic research at the cellular and subcellular level will use these techniques; thus, much

of basic biomedical research will use the techniques of biotechnology, Fourth, even in the

United States, biotechnology is defined differently

among funding agencies. Added to problems of

definitions are differences in granting procedures

by various agencies, as well as different accounting procedures for indirect costs (indirect costs

are part of the cost of doing research and therefore must be included). And, finally, overall funding levels give some indication of the total research effort but do not reveal the quality of the

research. Nevertheless, most experts would agree
Ch. 13—Government Funding of Basic and Applied Research 309

that the two are closely correlated and that the

United States leads the world both in its investment in science and in the quality of its science.

The totals for Federal funding for biotechnology

research are shown in table 56 and will be discussed in the sections to follow.

Since the focus of this chapter is an assessment

of the relative strengths of basic, generic applied,

and applied research in biotechnology in the

United States, Japan, the Federal Republic of Germany, the United Kingdom, Switzerland and

France, the estimates of government funding for

biotechnology research in other countries that are

available have been included in this chapter. Given

problems with respect to definitions, currency exchange fluctuations, and lack of complete data,

these figures must be interpreted with caution.

For detailed analysis of agency budgets within the

United States, the reader is referred to the American Association for the Advancement of Science

and National Science Foundation (NSF) documents

listed in the references (1,13).

The three sections of this chapter that follow

are intended to provide a perspective on the U.S.

commitment to biotechnology research by discussing basic, generic applied, and applied biotechnology research, respectively, within individual U.S. Government agencies. A separate section

considers instrumentation initiatives by the U.S.

Government that have bearing on biotechnology

research. Near the end of the chapter, research

expenditures in biotechnology and channels of

research funding in Japan, the Federal Republic

of Germany, the United Kingdom, Switzerland,

and France are presented in a comparative overview. The final section of the chapter identifies

issues and congressional policy options pertaining to U.S. Government funding of biotechnology

research and instrumentation initiatives.

Table 56.—U.S. Federally Funded Research in Biotechnologya

Amount of funding (millions of dollars)

Basic Generic applied Applied

NIH:

Molecular biology, generic manipulation,

hybridoma, monoclinal antibodies. . . . . . . .

Immobilized enzymes . . . . . . . . . . . . . . . . . . . . . .

NSF:

rDNA research . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bioprocess engineering . . . . . . . . . . . . . . . . . . . .

Other biotechnology-related research (broadly

defined) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

USDA:

ARS plant biotechnology . . . . . . . . . . . . . . . . . . .

ARS animal biotechnology . . . . . . . . . . . . . . . . .

CSRS competitive grants (CRGO) . . . . . . . . ., .

SAES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

DOD:

DARPA ., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Army/Navy/Air Force rDNA research . . . . . . . . .

Other biotechnology . . . . . . . . . . . . . . . . . . . . . . .

DOE:

Photosynthesis, stress mechanisms of plants

and micro-organisms, genetic mechanisms,

methanogenesis, etc. c 

. . . . . . . . . . . . . . . . . .

Conservation & Renewable Energy Program . .

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Biocatalysis research . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FY 1982

FY 1982

FY 1982

FY 1982

FY 1983

FY 1983

FY 1982

1981-82

FY1983

FY 1983

FY 1983

FY 1983

FY 1983

FY 1983

FY 1983

$378.0—

12.8

—

38.6

7.2b

6.4b

5.0

15.6b

3 ;

2,0

$ ; 0

—

1.7

—

—

—

—

—

2.2 —

—

—

—

—

—

—

—

—

—

—

—

—

—

9.9b — —

23.7b — —

2.0 b — —

— 0.5 —

$510.9 $6. 4 $5. O(SBIR)

aUnless otherwise speclfled, see text for explanation of figures

b some of this research may be generic applled research

c Blotech n o

l

ogy , broadly defined

SOURCE Office of Technology Assessment
310 “ Commercial Biotechnology: An International Analysis

U.S. Government funding of basic research

in biotechnology

U.S Government agencies funding basic research in biotechnology are NIH, NSF, the U.S.

Department of Agriculture (USDA), the Department of Energy (DOE), and the Department of

Defense (DOD).

National Institutes of Health

In November 1983, the fiscal year 1984 budget

of NIH was appropriated at $4.3 billion with some

of the unauthorized programs still under continuing resolution. The number of new and competing project grants will be maintained at 5,000. *

The 16)560 research project grants—5)000 competing and 11,560 noncompeting-will be the largest number of research project grants supported

in the history of NIH. Budget estimates indicate

that direct costs for noncompeting continuation

grants will be reduced by about 1 to 2 percent

and those for competing grants by 2 to 4 percent.

A 4-percent reduction in average costs was applied to these grants in both 1982 and 1983,

Most of the basic research that has been and

is done in biotechnology is NIH-funded research.

Despite the budget pressures on NIH funding as

a whole, the number of extramural projects using

rDNA techniques has increased, Funding figures

for NIH projects in biotechnology for the fiscal

years 1978 to 1982 are shown in table 57. Since

data are cataloged by NIH staff on the basis of

grant applications or progress reports and indexed by staff who looked for key words such

as “genetic manipulation,” “hybridoma)” “monoclinal antibodies,” and “immobilized enzymes, ”

the figures may be slightly misleading. For example, the term “genetic manipulation” includes

some projects that do not involve rDNA techniques. Also, the figures are the total costs

associated with the awards, including direct and

indirect costs, and are not related to the proportion of rDNA research in the total research ef-

“ ~e~~ proj~ds are ~~ose Competing for first time; competing projects are those that are competing but hai’e been funded before by

NIli (a competitii’e renewal); and noncompeting projects are ongoing

projects awarded for more than 1 year,

Table 57.—NIH Projects in Biotechnology,

Fiscal Years 1978=82

Number Dollars awarded

Fiscal year of projects (millions of dollars)

Genetic manlpulatlon:

1978 . . . . . . . . . . . . 546 $ 6 1

1979 . . . . . . . . . . . . 847 103

1980 . . . . . . . . . . . . 1,061 131

1981 . . . . . . . . . . . . 1,400 164

1982 . . . . . . . . . . . . 1,588 185

Hybr!domas (term not created until 19/?0):

1980 . . . . . . . . . . . . 256 $ 22’

1981 . . . . . . . . . . . . 479 49

1982 . . . . . . . . . . . . 654 64

Monoclinal antibodies (term not created until 1980):

1980 . . . . . . . . . . . . 268 $ 2 2

1981 . . . . . . . . . . . . 768 78

1982 . . . . . . . . . . . . 1,274 129

Immoblllzed enzymes:

1978 . . . . . . . . . . . . 25 $ 1

1979 . . . . . . . . . ! . . 33 2

1980 . . . . . . . . . . . . 26 2

1981 . . . . . . . . . . . . 27 2

1982 .., . . . . . . . . . 25 2

a~ata are probably not COm Plete.

SOURCE: U.S. Department of Health and Human Services, National Institutes

of Health, Office of Recombinant DNA Activities, 1983.

fort. With the exception of generic applied research on immobilized enzymes, the work is primarily basic research, so many of the industrial

applications associated with new biotechnology

may be in the distant future. Despite these classification problems, it is evident from the figures

in table 57 that research using rDNA techniques

is becoming more widespread and comprises a

larger proportion of the total grants awarded

each year.

Funding figures for biotechnology research in

NIH intramural programs are unavailable; however, this research is a much smaller portion of

all NIH-sponsored research.

National Science Foundation

The total fiscal year 1984 budget request for

NSF is $1.2 million, a 17.4-percent increase over

fiscal year 1983. Research instrumentation and

support for graduate students are high priorities.

Within NSF’s Biological, Behavioral, and Social Sci-
Ch. 13—Government Funding of Basic and Applied Research ● 311

ences program, the physiology, cellular, and molecular biology program is increased 20 percent

over fiscal year 1983. The Chemical and Process

Engineering Division budget in NSF’s Engineering program is also up 21.5 percent; this may have

some effect on biotechnology (4).

The total NSF expenditure for grants having

some rDNA component from 1975 through October 1982 was just over $57 million. From fiscal

year 1975 through fiscal year 1980, about $35.3

million was spent. Funding for grants having some

rDNA component in fisca] year 1981 was $9.8 million and in fiscal year 1982, $12.8 million.

U.S. Department of Agriculture

The fiscal year 1984 budget proposal calls for

USDA’s agricultural research programs to get

along with essentially the same amount of money

in 1984 as in 1983 (19).

The division of funds among USDA’s bureaus—

the Agricultural Research Service (ARS), the

Cooperative State Research Service (CSRS), and

the Forest Service—and the USDA research agenda have been the subject of several reports and

studies, The latest, from the White House Office

of Science and Technology Policy (5), has caused

considerable debate. The findings from that report indicate that research at the land-grant colleges and universities lags far behind current

developments in plant biology, that agricultural

research funds should be more widely distributed, that much of the research conducted by

ARS is duplicative, and that the agriculture system

overall is no longer energy- nor resource-efficient.

In addition, this and other reports have suggested

that the competitive grants program within CSRS

funds high-quality basic research within USDA

and should be expanded in order to create a critical mass of long-term high-quality research. Hearings on this issue are expected in the next year.

In fiscal year 1984, there will bean increase of

$4.6 million for the competitive research grants

within CSRS in order to initiate a program in animal science. Some of these grants may include

biotechnology research. In fiscal year 1981 (latest

year for which data are available), of the $15.8

million total being spent for competitive research

grants, approximately $5 million was spent on biotechnology research (17).

The Agriculture Committee on Biotechnology

of the National Association of State Universities

and Land-Grant Colleges (12) has estimated that

during 1981-82, $34.7 million was committed to

biotechnological research by State Agricultural

Experiment Stations (SAES). (This estimate was

derived from a survey of SAES that totaled the

number of persons plus full-time equivalents

working on biotechnological research. ) The distribution of this total is 42 percent State, 45 percent Federal, and 14 percent private funding.

ARS has funded a total of $13.6 million in biotechnology research in fiscal year 1983; $7.2 mi]-

lion of this was devoted to plant biotechnology

and $6.4 million to animal biotechnology (27).

Department of Energy

DOE has several programs involved in biotechnology research. DOE’s Office of Basic Energy Sciences, which funds fundamental research in plant

sciences and microbiology (photosynthesis, stress

mechanisms of plants and micromganisms, genetic mechanisms, methanogenesis, genetics of

anaerobic micro-organisms, and regulatory aspects of metabolic pathways), had a budget of $9.9

million in fiscal year 1983 and will have $11.0 million in fiscal year 1984. work on anaerobic digestion, algal production, and genetic manipulation

is funded through DOE’s Conservation and Renewable Energy programs (including DOE’s Solar

Energy Research Institute); the budget for these

programs is $23.7 million. Other programs support biotechnology research relating to pollutant

control, beneficiation of coal, and microbial enhanced oil recovery. The aggregate of these latter activities totaled between $1.5 million and $2.0

million in fiscal year 1983 (14).

Department of Defense

The Federal agency with the greatest increase

in the fiscal year 1984 budget proposal for R&D

funding is DOD—up 29.7 percent over fiscal year

1983 in current dollars. Although most of this increase will fall in the development areas of re-
312 ● Commercial Biotechnology: An International Analysis

—..—. -

search, a 9-percent increase in basic research is

also proposed (18). Within this framework, there

are some data available on biotechnology R&D.

The total funding for rDNA basic research over

all three military services for fiscal year 1983 is

$3.3 million; $2.9 million of this is funded with

$0.4 million obligated but not yet funded (2). DOD

is currently amassing data on fiscal year 1983

funding for biotechnology- activities (research on

cell culture, monoclonal antibodies, etc.). DOD estimates that in-house research is probably at a

level of $1 million per year and that contract research in biotechnology is at least as great as that.

More accurate figures should be available in fiscal

year 1984 (2). These figures represent a very small

proportion of the total military basic research

budget ($787.5 million for basic research in fiscal

year 1983) (19).

U.S. Government funding of generic applied research

in biotechnology —

NSF, DOE, DOD, and NIH are the only U.S. Government agencies funding generic applied research in bioprocess engineering. Because of limited Federal support, bioprocess engineering

could prove to be a critical bottleneck in the

United States as biotechnology moves toward production scale-up. Not only is bioprocess engineering research underfunded relative to other types

of engineering research, but trained bioprocess

engineers are in short supply. *

The major U.S. Government funding group for

generic applied research in bioprocess engineering is NSF’s Chemical and Process Engineering Division. In fiscal year 1983, $1.7 million of its $4.5

million budget was used to fund projects in bioprocess engineering. In fiscal year 1984, there is

no increase in its budget, but more of the budget,

$2.7 million, is being allocated to bioprocess engineering (25).

DOE has a Biocatalysis Research Activity within

its Energy Conversion and Utilization Technologies Program. Although this activity was funded

up to $525,000 through fiscal year 1983, the administration’s fiscal year 1984 budget request implies that biocatalysis research activities will be

terminated. This research project, begun in 1981

at $130)

000 was a generic applied research project designed specifically to capitalize on basic

research conducted at universities. Its goal was

“See Chapter 14: Personnel A~’ailabili[\’ and Training for a discussion of the shortage of bioprocess engineers.

to build the technical and engineering base of

biocatalysis technology to enable U.S. industry to

displace a significant level of nonrenewable resource requirements by the year 2000. The project supported applied research and exploratory

development to help establish the technology base

that the chemical process industry will need to

develop cost-competitive products from genetically manipulated organisms based on renewable

energy feedstocks. Unfortunately, this beginning

toward a federally funded generic applied research base in bioprocess engineering has been

terminated. Currently, however, discussions are

underway in DOE’s Office of Energy Research to

begin a broader bioengineering initiative.

DOD’s Defense Advanced Research Projects

Agency (DARPA), with an overall budget for fiscal

year 1983 of $719.5 million (projected to increase

9.7 percent in fiscal year 1984), has two program

areas in biotechnology, one underway and one

beginning in fiscal year 1984. Thie first program,

a research effort in chemical and biological ultrasensors, began in fiscal year 1982 with a budget

of $888,000. Funding for this program is expected

to increase to $2.2 million in fiscal year 1983, stay

level at about $2,2 million in fiscal year 1984, and

increase to $2.9 million in fiscal year 1985. The

research is being done through contracts with

four universities, two private companies, and

three Federal laboratories. The purpose of the

second initiative, which is to begin in fiscal year

1984, is to study the mechanical properties of bio-
Ch. 13—Government Funding of Basic and Applied Research . 313

—

polymers. Funding in fiscal year 1984 will be $1.4

million, rising to $2 million in fiscal year 1985 and

1986, $2.7 million in fiscal year 1987, and decreasing to $1 million for phaseout in fiscal year 1988.

Projects are undertaken in DARPA if there is

a perception that there will be downstream applications of interest to the military. Thus, the research DARPA funds is generic applied. If a particular initiative appears to be fruitful, additional

funding will he targeted to basic research in the

U.S. Government funding

area. Programs are viewed as successful if the

technology is transferred to secondary agencies

within 5 years. Thus, most research initiatives are

for 5 years, at which time they are phased out.

New initiatives are continually being phased in

as projects demonstrate merit (20).

Although most NIH research is basic research,

NIH research on immobilized enzymes, which

totaled about $2 million in 1982, could be characterized as generic applied.

of applied research

in biotechnology

U.S. Government funding of applied research in

biotechnology is provided principally through the

Small Business Innovation Research (SBIR) program, a program that was established to promote

research by small businesses because only about

1 to 2 percent of the total research budgets of

Federal funding agencies were set aside for

research by small businesses. The Small Business

Innovation Development Act establishing this program was passed in 1982, so it is too early to

evaluate it. Furthermore, each Federal agency is

implementing the program slightly differently. In

several of the agencies, however, there is potential for some funding of applied biotechnology research. The status of the SBIR program with regard to biotechnology in specific Federal agencies

is detailed below. Also discussed is the Small Business Set Aside program.

Small Business Innovation Research

program

The findings of both Government and private

studies on technological innovation in small firms

convinced the U.S. Congress of the need to increase the share of Federal R&D dollars going to

small businesses. The new Federal SBIR program

was created to meet this objective, The SBIR program provides a source of nonequity capital to

small businesses in the United States. The SBIR

program is designed as an expanded version of

continuing smaller programs in DOD and NSF.

When the program is fully phased in, nearly $430

million annually will be set aside for small hightechnology firms, including many new biotechnology firms (NBFs). *

On July 22, the Small Business Innovation Development Act of 1982 was signed into law by President Reagan. The purposes of this act are to: 1)

stimulate technological innovation from Government-funded R&D, 2) use small businesses to meet

Federal R&D needs, and 3) increase private sector innovation derived from Federal R&D by

coupling the SBIR to venture capital. In the first

NSF SBIR solicitation, NSF awards totaled $5.3 million. Approximately $42 million in follow-on funding was awarded to the first recipients.

In order to accomplish the three objectives of

the law, the SBIR program is structured in three

phases. Phase I is a screening phase to evaluate

the technical and commercial feasibility of proposals. Usually, the period of performance is

months. The awards given in phase I are up to

$50,000. This money is most effectively used for

either out-of-pocket expenses and the salary of

a technician or for financial sustenance while

developing a business plan and looking for venture capital. Only winners of Phase I awards can

compete for Phase II awards, and only about so

* NBFs, as defined in Chapter 4: Firms Commercializing Biotechnology’, are small firms that ha~’e been started-up in recent years

specifica]l}’ to capitalize on new biotechnology.

25-561 0 - 84 - 21
314 ● Commercial Biotechnology: An International Analysis

—.— — —

percent of the Phase I winners receive Phase II

awards.

Phase II provides funds for the projects found

most promising after Phase I. These awards are

generally used for the principal research effort.

The period of performance is up to 2 years and

the awards given are up to $500,000. In Phase

II, the law requests (but does not require) the proposer to obtain a follow-on funding commitment

from a third party, usually a large corporation

or a venture capital firm. The third party is used

not only because the small firms tend to be undercapitalized but also to provide an objective look

at the management, market, technology, and longterm financial requirements.

Phase III consists of private investments to stimulate commercial production. This phase is not

funded by the Federal Government.

The SBIR law requires that each Federal agency for the next 6 years set aside a specific percentage of its R&D budget for awards to small businesses. Federal agencies with external R&D budgets exceeding $100 million-i.e., the National Aeronautics and Space Administration (NASA), the Department of Health and Human Services (of which

NIH is a part), NSF, DOE, USDA, the Department

of Transportation, the Department of the Interior,

the Environmental Protection Agency, and the

Nuclear Regulatory Commission—must set aside

0.2 percent of their external R&D budget for

small businesses in fiscal year 1983, 0.6 percent

in 1984, 1 percent in 1985, and 1.25 percent in

1986-88. In those agencies with external R&D

budgets exceeding $10 billion (DOD), the set aside

begins at 0.1 percent and increases to 1.25 percent in the fifth year. Each agency sets its own

guidelines for implementation and its own R&D

areas for solicitations.

Because the SBIR law is so new, it is difficult

to determine the extent to which it might affect

technological innovation and the overall competitiveness of N13Fs. Nevertheless, it is clear that the

SBIR program gives the U.S. Federal Government

an opportunity to influence technological innovation in the U.S. private sector. If biotechnology

research areas are given adequate support by Federal agencies, innovations in biotechnology might

very well be fostered.

U.S. DEPARTMENT OF AGRICULTURE

USDA has reserved almost $550,000 for its SBIR

program in fiscal year 1983. There are five project areas. The two most likely to initiate biotechnology proposals are animal production and

protection and plant production and protection.

Solicitations were sent May 1, 1983. USDA anticipates making 10 to 14 awards.

DEPARTMENT OF ENERGY

DOE has set aside $5.5 million for the SBIR program for fiscal year 1983. One topic of the 25 in

the solicitation schedule deals with bioprocess

technology and applied microbiology. of the 1,700

proposals DOE received, 100 were on this topic.

Traditionally, DOE’s relationships with small businesses have been through subcontracting of

funds allocated to the National Laboratories and

contractors in universities and elsewhere. The

work has usually involved procurement of materials, construction, and fabrication rather than

research. The SBIR program will provide DOE

with another means of supporting applied research in small R&D firms (14).

DEPARTMENT OF DEFENSE

For fiscal year 1983, DOD has almost $17 million

set aside in its SBIR program. Unlike all other Federal agencies, with the exception of NSF, DOD already relies on the small business sector for R&D

contracts. In fiscal year 1981, DOD awarded 7.4

percent ($679 million) of its external budget to

small businesses—almost twice the small business

share of total Federal R&D. Because DOD does

not classify R&D projects by industrial application or research area, the amount awarded to

small businesses for biotechnology R&D is

unknown. *

Because of the important contribution small

firms have made to DOD’s R&D effort, the Department designed its own SBIR program in

1981—the Defense Business Advanced Technology (DESAT) program—and has made awards to

small businesses through that program as well as

through regular procurement channels. In fiscal

● DOD’s classification system is as follows: 6.1-Basic Research, 6,2-

Exploratory Research, 6.3-Advanced Research, 6.4-Engineering,

6.5-Support, 6.6-Major Systems. These headings are not immediately

recognizable as biotechnology.
Ch. 13—Government Funding of Basic and Applied Research ● 315

-.. — .

year 1982, 1,103 proposals were received from

the first solicitation under the DESAT program

and 100 awards were made. The DESAT program

will in all likelihood be replaced by the SBIR

program.

All three military services plus DARPA participate in DESAT.

● Air Force. The Air Force is not pursuing any

biotechnology-related R&D with small business or otherwise.

. Navy. In fiscal Year 1982, the Navy granted

36 awards under the DESAT program; few

if any of which were in biotechnology-related

areas. Other awards were made to small business, but no agency or service is able to break

down biotechnology-related contracts for

small businesses only, unless they fall under

a specific small business program. Most contract research carried out by the Office of

Naval Research and the Naval Research Laboratory in the past has been unsolicited. Of

the unsolicited business in the past, 48 percent was done by small business and 50 percent was done by universities.

 Army. Under the SBIR program, biotechnology and chemical defense “correspond to the

U.S. Army’s ‘New Thrust’ program designed

to take advantage of U.S. technology unmatched by Soviet capabilities that can provide the leverage technologies needed for the

future battlefield” (23). The Army’s R&D efforts under the SBIR program will emphasize

the application of novel technologies such as

rDNA and hybridoma technology in the development of vaccines, antidotes, analgesics,

and blood substitutes (mostly for casualties).

About 3,000 proposals are expected to be received for this topic aIone.

● Defense Advanced Research Projects Agen -

cy. In fiscal year 1983, DARPA has set aside

$750,000 for its SBIR program. It is unlikely

that more than one biotechnology-related

contract will be awarded under the program

this year, because there are 14 research areas

to be covered and the average contract price

is about $50,000. In fiscal year 1982, about

12 percent of all awards went to small businesses. Most proposals that come into DARPA

are unsolicited. Earlier in fiscal year 1983,

when the schedule for solicitations was being formulated, biotechnology R&D was

given the highest ranking for research areas

to be pursued. As the schedule went through

the review process, however, the specificity

of the proposals was changed and the proposals were broadened. A biotechnology effort

will, however, be funded in DARPA, in the

area of biopolymers. Some of the contract

awards will no doubt go to NBFs.

DEPARMENT OF HEALTH AND HUMAN SERVICES

The fiscal year 1983 SBIR budget for the Public

Health Service, of which NIH is a part, is $5.6

million. Within NIH, it is difficult to speculate

about the amount of R&D money to go to NBFs.

NIH uses what it refers to as an omnibus solicitation. This approach is designed to generate new

business. NIH has little experience awarding applied research contracts to small for-profit companies. In fiscal year 1981, contracts totaling $40

million went to small businesses, mostly for research support (e.g., building animal cages). In

fiscal year 1982, the amount increased to $70 million. However, only since January 1982 has NIH

been making awards to other types of profitmak -

ing organizations. Most of the forthcoming NIH

research solicitations under the SBIR program are

in the field of biotechnology.

NATIONAL AERONAUTICS AND SPACE

ADMINISTRATION

NASA’s fiscal year 1983 SBIR program has a

budget of $11 miliion. However, biotechnology

as defined in this report does not fall within the

mission of NASA and is therefore not a NASA research area.

NATIONAL SCIENCE FOUNDATION

NSF’s SBIR budget for fiscal year 1983 is $5.5

million, approximately the same as the SBIR budget for the Public Health Service. In fiscal year

1982, NSF did not give any awards in biotechnology, and few good proposals were received by

NIH. Congressman Don Fuqua sent a letter to NSF

and NIH asking why so few proposals for biotechnology research topics were received (6), The

response given was that many of the NBFs had
316 ● Commercial Biotechnology: An International Analysis

received funding from private sources for their

first-round financing needs (6). Such firms were

ineligible to receive Phase II funding without having participated in Phase I.

Small Business Set Aside program

The Small Business Set Aside program was created to help small businesses obtain Federal

Government contracts and subcontracts by setting aside “suitable” Government purchases or

competitive awards to small businesses. The set

aside contracts (not grants) reserve an entire procurement or a portion of a procurement for the

exclusive bidding of small business concerns. The

program was designed to give small businesses

equal opportunity to compete for Government

contracts and subcontracts. It was not designed

specifically with R&D contracts in mind and has

had limited significance in stimulating technological innovation in small businesses (22).

U.S. Government instrumentation initiatives

The obsolescence of analytical instruments is

an increasingly severe problem for U.S. universities. As instrumentation becomes more sophisticated, it also becomes more costly; furthermore,

obsolescence occurs more rapidly. DOD has estimated that upgrading all qualified laboratories to

“world class” status in instrumentation would take

an infusion of $1.5 billion to $2 billion. Instrumentation is needed not only to carry out research

but also to teach the next generation of researchers and industrial personnel.

Since reduced funding levels have caused universities to cut back purchases of necessary technical equipment, a special fund totaling $150 million over 5 years for the purchase of equipment

has been set up in DOD. The purpose of the special DOD fund is to upgrade the equipment of universities. Each of the three military services contributes equally to DOD’s special fund, and the

Office of Naval Research coordinates its administration. The solicitations sent out by DOD stipulate that the requests are to be for major pieces

of equipment that cannot be purchased with

other funding. One goal of DOD’s fund is to stimulate program projects, i.e., to encourage several

researchers to work together. The research they

would undertake would necessitate the purchase

of equipment costing a minimum of $50,000 (this

may be raised to $100,000). The primary criterion

for evaluating proposals is the relevance of the

proposed research to DOD’s interests. The second

criterion is the scientific merit of the research to

be performed with the equipment. By the closing date of November 30, 1982, 2,478 proposals

totaling $645 million had been received. The announcement of 204 awards was made in late April

1983, with awards averaging $148,000. The large

response to the DOD initiative is one index of the

need for updating instrumentation in universities

(15).

For fiscal year 1984, major increases in NSF’s

R&D equipment and instrumentation initiative are

proposed (see table 58). Rather than taking the

form of a single dedicated line-item, the funding

is distributed among the regular disciplinary elements of the budget. NSF stresses that a few manufacturers of equipment recently have agreed to

provide substantial discounts for equipment purchased by NSF grantees. Efforts to broaden participation by manufacturers in this program are

continuing.

DOE has a $4 million university equipment initiative in fiscal year 1984 for IJOE contractors

who need equipment costing more than that allowed in the DOD instrumentation initiative; these

requests can have a minimum of about $100,000

(14).
Ch. 13—Government Funding of Basic and Applied Research ● 317

Table 58.—NSF R&D Equipment and Instrumentation, Fiscal Year 1984 Request (obligations in millions of dollars)

Actual Estimate Estimate Increase (percent)

FY 1982 FY 1983 FY 1984 F’f 84182 FY84183

Mathematical and Physical Sciences . . . . . . . . . . . . . . . . . . . . $41.7 $ 56.4 $ 86.3 107.0 0/0 53.0 ”/0

Engineering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 8.7 18.3 184,4 109.2

Biological, Behavioral, and Social Sciences . . . . . . . . . . . . . . . 14.3 16.2 24.6 72,0 51.9

Astronomical, Atmospheric, Earth and Ocean Sciences . . . . . 19.6 22.1 36.7 87.2 66.1

U.S. Antarctic Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.0 6.6 12.1 101.7 83.3

Scientific, Technological and International Affairs. . . . . . . . . . 2.1 2.3 2.3 9.5 0.0

Total, NSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $90.1 $112.3 $180.2 100.00/0 60.50/o

SOURCE American Association for the Advancement of Science, /?&D In the FY 1982 Budget A Pre//rn/nary Ana/ys~s. Washington D C March 1983

International comparisons

A brief overview of Government research funding in the foreign countries expected to be the

major competitors of the United States in biotechnology-Japan, the Federal Republic of Germany,

the United Kingdom, Switzerland, and France—

is presented below. ●

Government funding of biotechnology

research in other countries

The amounts spent by foreign governments on

biotechnology research (including basic, generic

applied, and applied) are extremely difficult to estimate. Any estimate is at best a guess, and, ex- ●

cept where indicated, breakdowns by basic or generic applied cannot be made. Currently available

estimates for the countries identified as the major competitors of the United States in the area

of biotechnology are as follows:

● Japan. Funding for biotechnology research

in Japan is divided among the Ministry of In- ●

ternational Trade and Industry (MITI), the

Science and Technology Agency, the Ministry

of Agriculture, Forestry and Fisheries, and

three other Government agencies. This research is a mix of basic, generic applied, and

applied. The figures are shown in table 59.

Federal Republic of Germany. Estimates of

spending for projects funded by the Federal

Ministry for Research and Technology

(BMFT, Bundesministerium fur Forschung

and Technologies) range from $49 million to

$70 million (DM120 million to DM170 million).

A large proportion of this research is generic

applied.

United Kingdom. The British Government is

spending about $43.8 million to $52.5 million

(<25 million to <30 million) per year on generic applied and applied research in biotechnology. If basic research is included, the figure probably ranges upward toward $60 million.

France. Estimates for Government expenditures for biotechnology range from $35 milTable 59.—Government Funding for Biotechnology Research in Japan, 1982 and 1983 (in miliions)

1982 1983

Yen Dollars Yen Dollars

Ministry of International Trade and Industry . . . . . . . . . . . . . . . . . . . . . . . . . . + 2,381 $9.56 + 2,503 $10.04

Science and Technology Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,172 8.72 2,338 9.40

Ministry of Agriculture, Forestry, and Fisheries . . . . . . . . . . . . . . . . . . . . . . . 1,874 7.53 2,017 8.10

Ministry of Education, Ministry of Welfare, and Environmental

Protection Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,557 30.35 7,906 31.75

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . # 13,984 $56.16 + 14,761 $59.29

SOURCE G Saxonhowe, “Biotechnology !n Japan” contract report prepared for the Of f!ce of Technology Assessment, U S Congress, June 1983
318 Commercial Biotechnology: An International Analysis

lion to $60 million (F230 million to F395 million).

Organization of basic and applied

research in other countries

The organization of basic research in the United

States and other countries competing in biotechnology is described in Chapter 17: University/Industry Relationships and in Appendix B: Country

Summaries. The organization of generic applied

and applied research efforts in countries likely

to compete with the United States in biotechnology is outlined below.

JAPAN

Because of Japan’s continuing interest in bioprocess engineering and because MITI has identified biotechnology as a “next-generation” project, there is a great deal of activity in biotechnology research in Japan, Much of the research

is carried out by MITI’s Agency for Industrial Science and Technology. Some biotechnology projects that MITI is sponsoring are listed in table 60.

This agency oversees several research institutes,

including the Fermentation Research Institute

(FRI). FRI was founded in 1940 to develop fermentation technology and has expanded to include

any microbial application in industry and environmental protection. Additionally, FRI has a

depository for patented micro-organisms. Its fis -

cal year 1982 budget was $4.4 million ( 1.1 billion), FRI and other institutes in Japan meet many

of industry’s needs for generic applied research

in biotechnology. Their equivalent does not exist in the United States (16). *

FEDERAL REPUBLIC OF GERMANY

The Society for Biotechnological Research (GBF,

Gesellschaft fur Biotechnologische Forschung) is

without doubt the most important of the federally

owned research centers for biotechnology in

West Germany and perhaps the most ambitious

governmentally operated institution of its kind in

the world. In 1982, GBF’s operating expenses were

$13.1 million (DM32 million). Generously funded

by the West German Government, GBF is one of

the best equipped facilities of its kind in Europe.

Its bioprocess laboratory, for example, permits

considerable experimentation with bioprocess

technology as well as scale-up of biotechnological processes to the pilot-plant stage.

GBF was set up to perform a variety of substantive research tasks as well as to cooperate with

other researchers working in the field of biotechnology. GBF’s major functions include the following (9):

● to develop environmentally sound biotech -

nological processes in order to assure a suf -

● For further details, see Chapter 17: llni\’eI’sit.\Bndust[\’ Relationships

Table 60.—Some Biotechnology Projects in Japan

Project

Title of R&D project Ministry with jurisdiction Institutions conducting projects period

Utilization of biomass Ministry of Agriculture, Business Office, Agriculture, Fishery and Forestry 1980-90

Forestry, and Fisheries Technology Council

National Institute of Agricultural Sciences

Forestry Experiment Station

National Agricultural Experiment Station

National Research Institute of Agriculture

University and private research institutes

Enzymatic reactors MITI National Chemical Laboratory 1979-83

Agency for Industrial Science and Technology

Industrial enzyme use MITI Fermentation Research Institute 1980-84

Agency for Industrial Science and Technology

Physiologically active MITI Research Institute for Polymers and Textiles 1978-82

macromolecules and Agency for Industrial Science and Technology

production processes

Biochemical pulp MITI Government Industrial Research Institute, Shikoku 1980-83

technology Agency for Industrial Science and Technology

SOURCE: G Saxonhouse, “Biotechnology in Japan, ” contract report prepared for the Office of Technology Assessment, U.S. Congress, June 19S3
Ch. 13—Government Funding of Basic and Applied Research “ 319 —.— —.——.

●

●

s

●

●

●

●

ficient supply of chemicals, pharmaceuticals,

and foodstuffs;

to scale-up biotechnological processes from

the laboratory to the pilot-plant stage, this being the basis for the development of full-scale

industrial processes;

to make new sources of raw materials available for the manufacturing of natural products by micro-organisms and to make plant

and tissue cultures available;

to make new pharmacologically significant

natural products available and to investigate

their modes of action;

to make its scientific facilities available to nonGBF research groups, provided that their

projects fit within the R&D program of GBF;

to support other research groups in the fields

of biology, chemistry, and medicine by supplying noncommercial natural products;

to participate in joint projects, provided they

are within the framework of BMFT's Biotech -

nology Program; and

to provide advanced interdisciplinary training for scientists, engineers, and technicians.

In keeping with its overall mission, GBF is involved in a number of cooperative arrangements

with industry and with academic institutions.

GBF’s resources and expertise are used by industrial and academic researchers, and GBF relies on

other institutions, usually private industry, for

services such as toxicological and pharmacological

testing of new products. GBF is also engaged in

joint activities with academic and international

research centers. GBF fosters international scientific exchanges by receiving temporary visitors

from other countries. An acknowledged objective

of BMFT is to strengthen existing ties between

GBF and private industry in order to facilitate

technology transfer in the field of biotechnology

(9).

Since 1979, the German Collection of Microorganisms (DSM, Deutsche Sammlung von Mikroorganismen) has been incorporated into GBF.

DSM has served since October 1981 as an international depository of patented or patentrelated micro-organisms pursuant to the Budapest

Treaty. * More generally, DSM’S mission is to collect micro-organisms of scientific and technological significance, to conserve them unchanged,

and to make them available for R&D and teaching

purposes. The proposed budget for operating

DSM in 1982 was $833,000 (DM2 million).

UNITED KINGDOM

The United Kingdom has several Governmentsponsored research centers that are involved in

biotechnology development projects (see table 61).

Some of the centers are entirely Government

owned, whereas others have significant industrial

commitments.

“See Chapter 16: Intellectual Propert>r La\$r,

Table 61.— Government-Sponsored Applied Biotechnology Centers in the United Kingdom

Name of center Funding (in millions) Source of funds

Center for Applied Microbiology

and Research (CAMR) . . . . . . . . . . . . . . . . 4’ 2 ($3.5) Department of Health and Social Security,

sales of products, industry contracts

British Technology Group (BTG) . . . . . . . . . ~’13 ($22.8) Government

Celltech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . # 12 ($20) BTG (44°\o)a

Technical Development Capital (14VO)

Prudential Assurance (14°/0)

Midland Bank (140A)

British & Commonwealth Shipping Co. (14°/0)

Agricultural Genetics . . . . . . . . . . . . . . . . . . . about ~’40 ($70) BTG (about one-third), Ultramar, Advent

Eurofund

Biotechnology Institute and Studies

Centre Trust ., . . . . . . . . . . . . . . . . . . . . . . N.A.b Government through: Polytechnic of Central

London, University of College London,

University of Kent at Canterbury

No committed industries

%TG recently released 1A percent Of its equity to the Rothschild Biotechnology Investments Group and BoO~S co.

bN,A, = information not available.

SOURCE M Vaquin, “Biotechnology in Great Brltaln, ”contract report prepared for the Office of Technology Assessment, US. Congress, December 1982,
320 ● Commercial Biotechnology: An International Analysis

One Government-sponsored center is the Center

for Applied Microbiology and Research (CAMR).

As shown in table 61, CAMR is financed in part

through the Department of Health and Social

Security and in part from sales of products and

contract research. Its current operating budget

is $3.5 million (&’2 million), and there are plans

for expansion. CAMR has been singled out by the

British Government to play a special role in the

development of biotechnology. It has well-developed and established contacts with both universities and industry and sees itself as an intermediary between basic university research and

production on an industrial scale. CAMR’S major

commercial contract in biotechnology is with

KabiVitrum (Sweden) to scale-up and develop a

process for manufacture of human growth hormone using rDNA bacteria developed for Kabi by

the U.S. firm Genentech. CAMR also has contracts

with Cadbury Schweppes (U.K.), Unilever (U.K.),

Technofirm Development, Ltd. (U.K.), and Celltech (U.K.).

The British Technology Group (BTG) is a public

corporation sponsored by the Department of Industry with the aim of supporting the development of biotechnology by facilitating the transfer

of technology from the laboratory to the marketplace (see fig. 31). BTG has committed about $22.8

million (1’13 million) for biotechnology projects

to date, with annual increases of $6.5 million projected. BTG has four major investment areas: research support, joint venture funding, startup financing of small firms, and equity and loan financing. It is not clear what portion, if any, of

BTG’s funds is being used for scale-up and development processes, In addition to and separate

from BTG activities, the Department of Industry

has initiated a 3-year $30 million ‘(

Biotechnology

in Industry” program.

Celltech was founded in 1980 by the National

Enterprise Board (now BTG), Technical Development Capital, Prudential Assurance, Midland

Bank, and British and Commonwealth Shipping

Co., with an initial outlay of $20 million (1’ 12).

Recently, the BTG and Technical Development

Capital released 14 percent of their equity to the

Rothschild Biotechnology Investments Group and

Boots Co. The establishment of Celltech represented one of the first steps initiated by the British

Government to involve industry in commercializing the results of research in public sector

laboratories. While the company was being

formed, it successfully negotiated exclusive access

to all work in the Medical Research Council,

where monoclinal antibodies (MAbs) were dis.

covered in 1975. Although the firm, which intends

to concentrate on the development of MAbs for

human diagnostic and therapeutic applications,

has yet to make a profit on its limited product

sales, it has extensive plans for the future, including the development of a continuous cell culture

bioreactor that would produce MAbs in higher

volumes than current bioprocessing technologies

permit.

Agricultural Genetics is a company similar in

design to Celltech that will commercialize research of the Agricultural Research Council. BTG

will provide about one-third of the capital ($8.6

million; -L’5 million). The industry sponsors are

Ultramar and Advent Eurofund.

The Biotechnology Institute and Studies Centre

Trust (BISCT) is a recently established organization that draws on the expertise of some of United

Kingdom’s foremost biotechnologists. Currently,

BISCT is offering continuing education in the form

of a l-year postgraduate degree in biotechnology,

short courses, and an advisory service for industry. It hopes to undertake research programs

sponsored by industry in bioprocess engineering

and applied microbiology (26).

SWITZERLAND

Switzerland has no publicly owned research institute specifically for biotechnology comparable

to GBF in West Germany. outside industry, research related to biotechnology, both basic and

applied, is carried out primarily in the university system, which at present includes 10 institutions of higher learning.

The leading Swiss center for research on the

generic applied and applied aspects of biotechnology is at the Federal Institute of Technology

(ETH, Eidgenossiche Technische Hoschschule) in

Zurich, one of the two polytechnic universities

managed by the Federal Government through the

Swiss School Council (Schweizerischer Schulrat).

Headed by a former research director of the

Swiss pharmaceutical company Hoffmann-La
Ch. 13—Government Funding of Basic and Applied Research ● 321

Figure 31 .—British Technology Group Support for Biotechnology

BTG Support for Biotechnology

 Support research

● Joint venture funding

. Minimum-fuss finance for small firms

● Equity and loan finance

Total funds committed by BTG: f13 million

I

British Technology Group I w

Technology

Transfer

Research at universities,

Government,

and other laboratories

Genetic engineering

Application of enzymes

and micro-organisms

Antibiotics

Vaccines

.

r 1

I Small Companies I

MInimum fuss”

funding

(up to 60,000

!

Floranova

Cambridge Research

Biochemical

t

m

Investments

Catalytlc Weatments with other

financial and Industrial partners

I

Celltech

Speywood Laboratories

Dytes (RHM)

Biotechnology Subject Areas Being Supported

Agricultural applications 8 projects

Industrial applications 8 projects

Medicinal applications 17 projects

Veterinary applications 4 projects

Enabling technology 2 projects

Strategy for Further Investment

Seek out and promote:

● Opportunities for industrial investment in downstream applications of genetic

engineering and cell fusion

— Low volume, high margin products

— Healthcare, food production and fine chemicals

Respond positively to:

c Technology transfer opportunities from universities and public sector laboratories

— Back a lot of starters

— Involve potential industrial partners as early as possible

s Opportunities for industrial investments in “biotechnology infrastructure”:

— Laboratory reagents and equipment

— Fermentation hardware

Avoid:

c Early investment in “big biotechnology” projects

— e.g., heavy organic chemicals, bioenergy, and waste recovery

SOURCE Brltlsh Technology Group, Prutec Ltd., and Technical Development Capital, “Minutes of Evidence to Education,

Science, and Arts Committee on Biotechnology,” H. M, Stationery Office 289iil, April 26, 1982
322 “ Commercial Biotechnology: An International Analysis

Roche, ETH proved receptive to the idea of

biotechnology at a fairly early date, and its department of biotechnology was established in 1976.

One of the department’s achievements to date is

the development of a new bioreactor design,

which is being tested along with more conventional models in the ETH bioprocessing facility.

The channels for transfer of knowledge from

the universities to industry appear well established in the area of biotechnology, although the

large pharmaceutical companies may not yet be

major beneficiaries of this exchange. The president of ETH, for example, has endorsed the practice of industrial contracts with professors in the

biotechnology department. Joint funding by industry and the Commission for the Encouragement of Scientific Research provides another

avenue for collaboration with the private sector,

one that has been actively utilized by the ETH

biotechnology group. The Swiss firm Biogen S.A. *

is not only closely linked to the Swiss university

research system, but has built an important share

of its competitive strength on the productivity of

these ties (8).

FRANCE

France has no Government-sponsored applied

research centers like GBF in West Germany and

the ETH-Zurich in Switzerland. The Institut Pasteur, a nonprofit organization jointly sponsored

by the Government and industry, is the single

most important facility in biotechnological

research in France, but is primarily concerned

with basic research. The Institut Pasteur receives

47 percent of its income from the French Government (Directorate General for Research). The rest

of its income comes from the sale of services: royalties from Institut Pasteur Production (13 per-

● Biogen N .1’., the parent compan~ of the Biogen group, is regis.

tered in the Netherlands Antilles, Biogen S.A , one of Biogen N.\’. ’s

four principal operating subsidiaries, is located in %vitzerland, along

with Biogen N’ .\’. ’s principal executi~’e offices.

cent), industrial contracts (33 percent), and donations collected by the Association for the Development of Institut Pasteur (7 percent). Although the

Institut Pasteur is mostly concerned with basic

research (e.g., projects on vaccines and monoclinal antibodies), it does support the development aspects of biotechnology (e.g., projects on

the use of cellulose for alcohol production and

biological insecticides) with industrial contracts.

The Institut Pasteur has plans to open a new

biotechnology building in 1985 or 1986. This

building, which will have 3,000 square meters of

new laboratory space, will be used partly to rehouse existing projects and partly for new projects. It will also contain bioprocess scale-up facilities (at present, the Institut Pasteur cannot do

any scale-up work itself). The new biotechnology

building is to be financed by the Government, but

the Institut Pasteur will have to cover the operating costs, probably by increased industrial contracts,

An organization within the Institut Pasteur, G3,

was started several years ago to encourage applied research in rDNA technology. G3 is funded

by a set of Government groups: Institut Pasteur,

the National Center for Scientific Research (CNRS,

Centre National de la Recherche Scientifique), the

National Institute for Agricultural Research (Institut National de la Recherche Agronomique), and

the National Institute of Health and Medical Research (INSERM, Institut National de la Sant6 et

de la Recherche M6dicale). G3 has no capital, cannot employ directly, and does not own any laboratory space. It only has an operating budget. Now

working with a staff of only 10, G3 plans to expand into the new biotechnology building. The

work program is proposed in part by the Government partners and in part undertaken at the request of industries. It is too early to predict

whether G3 will contribute significantly to a

generic applied research program in bioprocess

technology (25).
Ch. 13—Government Funding of Basic and Applied Research ● 323

Findings ——.

U.S. Government expenditures for basic research in biotechnology-the largest in the world

—amount to approximately $511 million per year

(mix of data from fiscal years 1982 and 1983). U.S.

Government expenditures for generic applied

research in bioprocess engineering and applied

microbiology are estimated to be approximately

$6.4 million (see table 56), although the amount

could possibly range as high as $20 million or $30

million if the portions of USDA and DOE expenditures devoted to generic applied biotechnology

research were known. U.S. Government funded

applied research in biotechnology is virtually

nonexistent, except for the SBIR program and

some work being done in the National Laboratories. Most of NIH’s solicitations for the SBIR program and about 5 percent of DOE’s are for biotechnology; if all solicitations are funded, this

could total about $5 million plus. The U.S. Army

has also included a major initiative for biotechnology under its SBIR program. Since none of

these grants has been funded, it is too early to

estimate the amounts that will be devoted to applied biotechnology research.

Data on Government expenditures on biotechnology research in Japan are the best for purposes of international comparisons. The total

amount being spent by the Japanese Government

for biotechnology research in Japan is about $60

million, but Japan’s definition of biotechnology

is a broad one. A significant proportion of the

Japanese Government’s funding is for generic applied research in bioprocess engineering. The Federal Republic of Germany, United Kingdom, and

France are probably spending similar amounts for

biotechnology research (approximately $60 million to $100 million each), probably with relatively

equal portions of basic and generic applied research.

The current pattern of U.S. Government funding for basic and generic applied research in biotechnology in the United States may compromise

the U.S. competitive position in the commercialization of biotechnology. There is no doubt that

past Federal support for basic research has produced a scientific infrastructure and knowledge
324 ● Commercial Biotechnology: An International Analysis

———

ment funds its own laboratories through CNRS

or INSERM. These laboratories are attached to

several universities. The most important center

for biotechnology research is the Institut Pasteur

which is funded jointly by the Government and

industry and carries out primarily basic research.

G3, an organization established several years ago

within the Institut Pasteur, was specifically mandated to encourage applied research in rDNA

technology. It is too early to predict whether G3

will contribute significantly to the development

of the field. The major lack in French biotechnology is a supply of trained researchers, because

the biological disciplines have not traditionally

been favored in France.

Basic, generic applied, and applied research are

necessary for any country’s competitive position

in biotechnology. In terms of funding of basic

research, the United States is clearly the leader

with the largest and most extensive basic research

enterprise in the world. The United Kingdom,

West Germany, and Switzerland follow, and Japan is slightly behind them. France is sixth because it only now is beginning to exert a concerted effort to study molecular biology.

In contrast, the Japanese Government leads all

countries in its commitment to generic applied

and applied research. The West German Government also has an extensive commitment to generic

applied research with the best equipped generic

applied research laboratory in Europe. The

United Kingdom and Switzerland follow. The

United Kingdom is beginning to fund applied

efforts with its support, for instance, of Celltech

and Agricultural Genetics, and Switzerland, with

ETH, has had a biotechnology effort since 1976.

The United States ranks behind these four countries in its relative commitment to generic applied

research as opposed to basic research, and is followed by France, which ranks sixth in all three

categories of research.
Ch. 13—Government Funding of Basic and Applied Research 325

—

Issues and options

ISSUE 1: How could Congress improve U.S.

competitiveness in biotechnology

by promoting generic applied research?

With its continua] support of basic research,

Congress has endorsed a Federal commitment to

long-term funding of basic research that is essential to technological development and innovation

in this country. It is crucial to the U.S. competitive

position in biotechnology that this commitment

to basic research continue.

Over the last three decades, the Federal commitment to generic applied research in biology

and Bioprocess engineering has declined relative

to the commitment to basic research. Researchers

in the United States have not been attracted to

fields such as applied microbiology or bioprocess

engineering because only small amounts of Federal funding have been available. Two critical factors underlie this decline: 1) there is no flexible,

broad-based Federal system for carrying out such

work; and 2) there has been a steady erosion of

these generic applied science efforts in U.S. universities.

The governments of the major industrial countries of Western Europe and Japan all possess

generally effective and sometimes extensive

mechanisms for funding generic applied R&D.

Furthermore, the university systems of these

countries have not become as unaware of the

needs of industrial technology as have the universities in the United States (7). To improve U.S.

competitiveness in biotechnology by promoting

generic applied research, Congress could adopt

one or more of the following options. *

Option 1: Fund one or more biotechnology institutes

within universities.

The interdisciplinary nature of biotechnology

requires interaction among people with backgrounds in biology and engineering, but most

American universities are not structured to facilitate this interaction. The creation at selected

● S(IIJ (’hapff~r 12 F’i:uincir]g:irld‘1’a,l Inrf’ntitf>s for I’irms for indirect funding options for R&.[1,

campuses of biotechnology institutes, in which

faculty in both biology and engineering could be

located in the same physical structure and work

on common research projects, could facilitate this

interaction. These institutes could carry out basic

and generic applied research. Funding could come

from Federal and State Governments and from

industrial sources. Several States have already

begun development of biotechnology centers;

Federal funding might help leverage State funding

to bring in more industrial support. Industrialists

as well as academicians could work in the institutes; this arrangement would foster domestic

technology transfer. In addition, students could

be trained in both academic and industrial environments and industry personnel could be retrained at the institutes.

Option Z: Increase funding for university -industry cooperative programs within NSF.

NSF currently has two university/industry

cooperative programs. One, the Industry/University Cooperative Research Projects program, encourages industry/university cooperation for basic research because it will fund up to half of the

cost of a grant for basic research projects involving the cooperation of investigators from industry

and universities. The program is advantageous to

industry, because it allows industry to leverage

its research funding effort, and, through cooperation, to gain a competitive edge in the innovation

process. University researchers benefit from the

program as well, because they improve their

awareness of industrial problems and applications

of basic research work.

The other NSF program, the Industry/University Cooperative Centers program, provides seed

money for a university to set up a center in

cooperation with industrial partners. Federal

funding is phased out after 3 to 5 years. This program allows the establishment of settings that encourage university/industry cooperative research,

while market demand helps to determine the type

of research to be undertaken. Government funding adds incentive for industry to fund long-term,

generic applied research. The infrastructure for
326 ● Commercial Biotechnology: An International Analysis

the continued implementation of the program

already exists within NSF.

The peer review system for reviewing university/industry cooperative research projects at NSF

is separate from the system for reviewing other

research projects. Thus, the generic applied nature of these cooperative research projects is

taken into consideration, while high standards of

research are assured.

Although increased Federal funding for university/industry cooperative programs within NSF

could promote generic applied research, if the

funding is not supplemental to needed increases

in basic research in bioprocess engineering, the

cooperative program could be damaging to the

extension of fundamental knowledge in bioprocess engineering and applied microbiology.

Option 3: Establish special grants for interdepartmental cooperative research in biotechnology.

Currently, there is little communication between bioprocess or chemical engineers and basic

biologists in universities. Special grants stipulating

that a bioprocess engineer and a biologist be coprinciple investigators on a cooperative research

project could make researchers in these disciplines more likely to conduct research on bioen -

gineering or applied microbiology research rele -

vant the commercial development of biotechnology. The grants could be administered by NSF,

since it has the technical personnel to administer

such a program.

One potential problem with special grants, given

current difficulties in obtaining funding, is that

the researchers might cooperate in order to write

the proposal then do essentially separate pieces

of research once funding is obtained. Thus, the

research conducted might not be truly cooperative. Avoiding this problem would necessitate

carefully stated requests for proposals and careful

monitoring of research.

Option 4: Develop generic applied research capability for biotechnology in the National Laboratories.

The National Laboratories are an existing resource, both in terms of physical plant and personnel, that would be expensive to duplicate. Currently, the National Laboratories do not have a

great deal of expertise in biotechnology, Nevertheless, there would be several advantages to developing their generic applied research capability. These laboratories have a commitment to research, facilities to conduct research, an objective attitude towards industrial development, an

array of personnel trained in relevant disciplines,

and unique instrumentation development capabilities that could have a major impact on biotechnology development. DOE’s Energy Research Advisory Board has just assessed the laboratories,

and the White House Office of Science and Technology Policy is currently reviewing them. An

assessment of the capability of the National Laboratory system to carry out generic applied research in biotechnology has not been a part of

this report. This is an option for further study

by Congress.

Option 5: Increase funding for the SBIR program.

Increased funding for the SBIR program would

foster applied research not only in biotechnology

but also in other high-technology areas. Furthermore, this program maintains the traditional philosophy of keeping much of applied research in

industry and fostering entrepreneurship.

Two counterarguments to this option should

be mentioned. First, although DOD and NSF have

had programs similar to the SBIR program, the

SBIR program has not been in existence long

enough in other agencies to be evaluated. Second,

because SBIR-funded research must have commercial potential within 3 years, it is too short

term for problems that are generic applied, i.e.,

studies that fall between fundamental research

and applied research. The SBIR program, as it is

structured, is funding research that is further on

the continuum toward product development than

generic applied research. Although the program

is important for biotechnology because it could

help support small businesses that are doing biotechnological research, it may not be a viable op-
Ch. 13—Government Funding of Basic and Applied Research ● 327
328 ● Commercial Biotechnology: An International Analysis

. .

change in the tax law to stipulate that installation

Chapter 13 references

6.

7,

8,

9,

10.

11.

1~

13.

14.

19.

20.

21.

22.

23.

24.

25.

26.

27.

28.

29.
Chapter 14

Personnel Availability

and Training
Contents

Page

Introduction. , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331

Size and Future Growth of the Biotechnology Labor Force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332

Availability of Biotechnology Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333

Categories of Technical Expertise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333

Availability of Biotechnology Personnel in the United States. . . . . . . . . . . . . . . . . . . . . . . , . . . 33s

Availability of Biotechnology Personnel in Other Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . 336

Personnel Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339

Secondary School Education in the United States and Other Countries . . . . . . . . . . . . . . . . . 339

Undergraduate and Graduate Education in the United States and Other Countries . . . . . . . 340

Translational Training in the United States and Other Countries . . . . . . . . . . . . . . . . . . . . . . 343

Midcareer Retraining in the United States and Other Countries . . . . . . . . . . . . . . . . . . . . . . . 344

Findings ..., . . . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345

Issues and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347

Chapter 14 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350

Tables

Table No. Page

62. Major Categories of Biotechnology R&D Personnel in Firms in the United States . . . . . . . 334

63. Shortages in Major Categories of Ph. D. Biotechnology R&D Personnel in Firms

in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336

64. Number of Scientists and Engineers Engaged in R&D by Country, 1977 . . . . . . . . . . . . . . . 337

65. Sources of New Ph. D. Biotechnology R&,D Personnel in Selected Categories

in Firms in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . . . . . . . . . . . . . 340
Chapter 14

Personnel Availability and Training

Introduction

331
332 Commercial Biotechnology: An International Analysis

Size and future growth of the

biotechnology labor force

It is very difficult to estimate the size of the

biotechnology labor force, Theoretically, the number of personnel in supply and technological support firms, which is approximately four to five

times that of firms commercializing biotechnology

(11), should be included in the estimate. This chapter, however, focuses exclusively on the personnel requirements for professional and technical

personnel of firms commercializing biotechnology. It does not consider the requirements of supply and technological support firms, the vast majority of which market products not only to companies commercializing biotechnology but to

other companies as well.

A July 1982 report estimated total U.S. private

sector employment in “synthetic genetics” to be

3,278, * including about 2)000 “professional and

technical” employees (1 1). The same report estimated that U.S. private sector employment in

“synthetic genetics” had grown at a rate of 54 percent annually since 1976 and projected that total

employment would reach about 40,000 in 1992.

OTA estimates that about 5,000 employees are

employed by companies in the United States in

biotechnology R&D. In April 1983, OTA and the

National Academy of Sciences (NAS)* * conducted

a survey to determine the personnel needs in biotechnology of companies in the United States. The

questionnaire, reproduced in Appendix E: OTA/

NAS Survey of Personnel Needs of Firms in the

United States, was sent to 286 companies. of the

133 that responded, 18 indicated that they were

not engaged in biotechnology activities, and 20

others were determined not to be engaged in bio-

“This numher wirs irrrived at h~ taking estimates of total \\orldwide shipment of I)iotechnologv produrts estimated for the targrt

.vcar from (YI’A’s 1981 report lrnjxrcts of Applied (A)eli(w: ,} firro-

(~rgani.srns, P/drItLS, and Animals (40). “1’his w+timat(~ was con~’(:rted

to en]ploynwnt of production wwrkw-s t)~’ using cirse stud: (Litir from

the sirrnc ()’I’A report, Next, this rwtimatc was (vn~erte(i into total

employment, including nonproduct ion workers, t)} utilizing dat;i

for established industrim h’i[~iill}’, total ~torldwid(’ tvl~pk)~nwnt \\iis

suhdii’idmi and ii wf~ightrd illlOCatiO1l ma(if~ to thf> [ Initmi Stilt(>S

* “NAS (k)n)nlitt(w on National Needs for Bionledi(’i]l and Ik’hii\’101’al

Researrh i+rsonnet; Rohert Barker, (k)rnel] L{nii(’rsit:’, (:halr of

P{lrl(l] orl ~asi(. Bionledi(.al P(>rsonnel

technology activities from their answers to the

questionnaire. To estimate the total number of

firms engaged in biotechnology in the United

States, OTA determined which of the 153 nonresponding companies were engaged in biotechnology by telephoning the companies, examining annual reports, reading newspaper reports, etc.

OTA's estimate of the total number of companies

engaged in biotechnology activities in the United

States is 219. *

As of April 1983, the 95 companies that responded to the OTA/NAS survey employed 2,591

individuals in industrial biotechnology R&I).

These 95 firms represent 43 percent of the 219

firms in the United States estimated to be engaged

in biotechnology activity. Extrapolation of this

number suggests that the number of individuals

employed in biotechnology R&D in all 219 companies using biotechnology could be about 5,000.

The 95 firms that responded to the survey indicated plans to hire an additional 1,167 technically trained employees over the next 18 months.**

No company indicated plans to reduce the number of technically trained employees in the next

18 months, so this figure represents an annual

employment growth rate approaching 30 percent

(not including any new companies formed in the

next 18 months). A 30-percent annual growth rate

in the number of R&D personnel probably will

not be sustained over any length of time, so it is

unlikely that the commercialization of biotechnology will lead directly to large increases in employment in the R&D sector. The need for marketing

and sales personnel and the potential for spinoff

industries are difficult to assess at this time.

However, these sectors could be high-growth sectors for biotechnology.

——— —

*k’or” ii list 01 rompanies (~llgaged in t)iot(~(hnolog~” in the [ Tnitwl

States, see .4ppf’ndi,l D: [r]df~.1 of k’irms {~[}rl]f]]fll’(>i;ilixjll~

Biote(’htmlogl in the [ lnitf~d St,7tf~s

“ ● F’or i) tabulation of the numbers iin(l t~”prs of enlplo~wtjstht?st>

(’orllpi]rli(>s indicatfxi they pianrmi to hir(l, set> question 4 in ,4ppwx/i.\

1,; [1’1;4 51,4.% .Sunqb of Per-somjel ,i’(w].s [)t” [lIW)L% it] tjjt~ [ ‘I]it(yj ,St;)tf~,~
Ch. 14—Personnel Availability and Training ● 333

● F’[’l(llllcill (’11(’S ii 1 !)8(1 l-(’~)ol’t t))’ 11)(’ Niillollill IIlstitl]tt’ to]” ()(’(’ll~)ii -

t loIliil Silf(’t}’ ;111(1 ti(>iiltl~ (NI( )S1 I ) in it’hl(’!l NI()S11 1’(’~X)l’t(>(i 011 d

S(’tl(”l’lllg-IJlol] $tl ([ ‘ S ) pl’(}(’f%s for” prm(iucing h~llllii!l hwkoc}’1(” 1rltf>r’-

t(’rx)r) onl) \rx p(’oplc werxl ,issrgnfd to production, iirl(l prxhbl}

all irk m (11’(’ rl{)t rlewll’(1 to rnorlitor-” tllc t)rol)rwcf’st I 11 I

Availability of biotechnology personnel
334 . Commercial Biotechnology: An International Analysis

—

Table 62.—Major Categories of Biotechnology R&D Personnel in Firms in the United States (OTA/NAS Survey)

—

Employees to be hired

Present employees in the next 18 months

Area of technical expertise Number Percent of totala Number Percent of totala

Areas related to genetic manipulation:

rDNA/molecular genetics . . . . . . . . . . . . . . . . . . . . . . 586

Hybridoma/monoclinal antibodies . . . . . . . . . . . . . . . . . . . . 247

Plant molecular biology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Areas reiated to scale. upldownstream processing:

Microbiology b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334

Biochemistry c 

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326

Bioprocess engineering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

Areas related to all aspects of biotechnology:

Enzymology/immobilized systems . . . . . . . . . . . . . . . . . . . . . . 219

Cell culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187

230/o

10

3

13

13

7

9

7

302

146

63

160

125

100

59

66

250/o

12

5

13

10

8

5

5

aThe total “umber of ,nd”~trial ~er~onnel (currently engaged ,n FI&D in new biotechnology) identified in the OTAINAS survey was 2,591, The total number Of perSOnnel

bto be hired in the next 18 months, according to the survey responses, was 1,167 (see app. E)

Mlcroblology, as used In this table, combtnes the OTAINAS survey responses to industrial microbiology and general microbiology (categories g and s of the survey

questionnaire reproduced In app E)

cBlochemlst W as used ,n this table combines the OTA/NAS survey responses to analytical biochemistry and general biochemistry (categories j and k of su~ey quesIlonnalre reproduced In app E)

SOURCE Off Ice of Technology Assessment

of products will become increasingly important

as companies developing commercial applications

of biotechnology move into production. Although

few companies have reached the scale-up stage

for new biotechnology products to date, * a

substantial amount of R&D in companies developing commercial applications of biotechnology is

related to scale-up,

As shown in table 62, about one-third of the biotechnology R&D technical personnel at the 95

companies responding to the OTA/NAS survey are

specialists in areas related primarily to scale-up

and downstream processing: bioprocess engineering, biochemistry, and microbiology. Bioprocess

engineers are needed to design, construct, and

maintain scale-up equipment and bioprocesses.

Biochemists (apart from enzymologists, discussed

below) are involved in the recovery, purification,

and quality control of protein products. Microbiologists are needed for the isolation, screening, and

selection of micro-organisms having particular

catalytic properties. Such specialists are also

needed to determine the optimal growth and production conditions for micro-organisms in order

to facilitate the design of environments that maximize the micro-organisms’ productivity, In the

context of the commercialization of biotechnology, bioprocess engineering, biochemistry, and

“In 1982, about 2 percent of all biotechnology workers in California were production workers [1 1).

microbiology are generally considered to be more

applied science disciplines than are molecular

biology and immunology.

As shown in table 62, the OTA/NAS survey of

firms in the United States found that bioprocess

engineers constitute approximately 7 percent of

the current biotechnology R&D work force and

will constitute 8 percent of all new hirees over

the next 18 months. Specialists in microbiology

constitute 13 percent of current employees and

13 percent of the employees to be hired in the

next 18 months. Biochemists constitute 13 percent of current employees and will constitute 10

percent of new hirees in the next 18 months.

SPECIALISTS IN ALL ASPECTS OF

BIOTECHNOLOGY: ENZYMOLOGISTS AND CELL

CULTURE SPECIALISTS

Enzymologists and cell culture specialists are

important for many aspects of biotechnology. Advances in the understanding of enzyme structure

and function are important in developing the potential of biocatalyst for product formation. Cell

culture is used at early R&D stages, but it is becoming increasingly important for the large-scale

growth of higher organism cells, especially hy -

bridomas. As shown in table 62, according to the

OTA/NAS survey, enzymologists constitute 9 percent of current biotechnology employment in

R&D; cell culture specialists constitute 7 percent
Ch. 14—Personnel Availability and Training ● 335
336 ● Commercial Biotechnology: An International Analysis

Table 63.—Shortages in Major Categories of Ph. D. Biotechnology R&D Personnel in Firms in the United States

(OTAINAS Survey)

Number of firms

Experiencing shortages Experiencing shortages Not experiencing shortages

Area of technical and plan to hire in and do not plan to hire in but plan to hire in

expertise (Ph. D.) the next 18 months the next 18 months the next 18 months

Bioprocess engineering , ., . . . 11

Recombinant DNA . . . . . . . . . . 10

Gene synthesis . . . . . . . . . . . . . 7

Plant molecular biology. . . . . . 4

Industrial microbiology . . . . . . 3

SOURCE Office of Technology Assessment

II, U.S. chemical companies switched from biomass to petroleum feedstocks and consequently

decreased their demand for bioprocess engineering and applied biology programs. Conditions in

Japan, the Federal Republic of Germany, and the

United Kingdom have differed markedly from

those in the United States; in these countries, both

public and industrial support have helped maintain a strong academic base for the microbial and

bioprocess industries over the past several years

(12).

The late David Perlmann wrote in 1973 (8):

The interest in the U.S. has shifted in the past

20 Years toward molecular biology. Few students

.

are being trained for the fermentation industries.

In the long run, this has worked to the disadvantage of the industries. Unless present trends in

the U.S. are reversed, we can expect that in the

future it will be desirable to send our students

to Japan to learn the techniques that will assure

the continuation of the fermentation industries

in the United States.

This situation does not appear to have changed

much in the last 10 years.

The OTA/NAS survey also showed that 10 of

39 companies planning to hire Ph. D. specialists

in rDNA in the next 18 months are experiencing

shortages. Much of the R&D activity now in the

commercialization of biotechnology is in this area,

and, thus, the demand for these specialists is high.

However, as companies move toward production,

the demand for scale-up and downstream processing specialists will increase, while the demand

for the more basic scientists will not. Thus, the

current shortages of bioprocess engineers and industrial microbiologists are considered to be more

serious.

1 15

1 29

3 7

4 15

4 14

The shortages in biotechnology personnel in the

United States may be partially counteracted by

a flow of skilled foreign personnel into the United

States. * A representative of one U.S. company

stated that of the company’s R&D staff of 130,

13 were foreign nationals (9 Ph. D.s). The foreign

nationals were from Taiwan, India, Canada, and

Hong Kong, and had expertise in nucleotide chemistry, applied microbiology, and bioprocess engineering. U.S. companies using biotechnology

might be hiring an even greater percentage of

foreign technical personnel if cumbersome and

strict immigration regulations did not exist.

Availability of biotechnology

personnel in other countries

The number of scientists and engineers engaged

in R&D activities in the United States, Japan, the

Federal Republic of Germany, the United Kingdom, and France is shown in table 64. As can be

seen from that table, in 1977, the United States

had more R&D scientists and engineers than any

of its principal competitors in biotechnology.

Japan had the second largest number, with half

that of the United States. The size of a country’s

R&D labor force is one measure of a nation’s R&D

capacity. It is only an approximate measure, however, because it does not take into account such

factors as the level of sophistication or specialization, utilization, or productivity of a country’s

R&D personnel. Furthermore, these data cannot

—

“Reliance on foreign R&D personnel has been common in other

L},S, high.tmhno]o~v industries. Many semiconductor and COrnPUter

companies hire foreigners in order to compensate for shortages of

LI.S. e]ectrica] engineers. Al [rite] (L’.s. ), for instance, 50 percent of

the engineers holding M.S. degrees and 64 percent of the engineers

with Ph. D.s are foreign ( 15),
Ch. 14—Personnel Availability and Training . 337

Table 64.-Number of Scientists and Engineers Engaged in R&D by Country, 1977

Number of Scientists and engineers

Country scientists and engineers as percentage of work force

United States . . . . . . . . . . . . . . . . . . . . 573,900 0.580/o

Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . 272,000 0.50

Federal Republic of Germany . . . . . . 111,000 0.44

United Kingdom. . . . . . . . . . . . . . . . . . 80,700a

0.31

France . . . . . . . . . . . . . . . . . . . . . . . . . . 68,000 0.30

a

1975

SOURCE National Science Foundation, Scierrce Indicators, 1990, Report of the National Science Board, Washington, DC , 1961

be dissected into the percentage of biological personnel.

There are few statistics documenting numbers

of specific types of biotechnology personnel in

countries other than the United States. For that

reason, shortages and surpluses in foreign countries are difficult to identify. Nevertheless, distinct

patterns with respect to the availability of biotechnology personnel in foreign countries can be discerned through an examination of available government policy documents and other supporting

evidence.

JAPAN

Several experts noted that in the early 1980’s,

Japan experienced a shortage of experts in genetic manipulation. This shortage was undoubtedly

due to the inadequacy of the basic biological sciences in the universities. * Japanese universities

have received limited Government support for basic research, so most Japanese universities have

not developed extensive research programs in the

basic biological sciences. Japan’s public universities have been a relatively minor source of highly

trained personnel in rDNA and hybridoma techniques (35). Thus, Japanese companies have had

to look to other sources of trained basic biological

scientists. Some companies have started in-house

training programs. Japanese companies have also

hired Japanese researchers from abroad, sent employees to be trained abroad and at Japanese

universities, and recruited midcareer researchers

from other Japanese companies (35). The last op-

“There is little communication between the basic and applied

srirnc(> departments in Japanese uni~’ersities Onl} t hr app]ie(i

wience departments hat’r traditionally’ maintained close relationships urith industry, k’or a more extensi~v description of the Japanese

uni~ersitj sjstem and its relationship ~~ith inciustr}’, see [.’hapter

17: [ ‘[Ii\er.sit.\,7r1d11stq\ Relationships

tion is particular unique for Japan, a country

noted for a lack of personnel mobility. The extensive effort exhibited by Japanese companies

seems to have overcome the personnel shortages

documented a few years ago.

The supply of bioprocess engineers and industrial microbiologists is larger in Japan than in any

of the competitor countries. Japanese Government officials monitoring biotechnology have indicated that the supply of personnel to handle the

challenges of scale-up in Japan is not an area of

concern (19)35). In fact, a major proportion of biotechnologists in Japan have their background in

microbial physiology, an area of neglect in every

country examined here except Japan (29).

The specialties of bioprocess engineering and

industrial microbiology are strong in Japanese

universities in part because the specialty chemical

and other industries using traditional bioprocesses in Japan have kept the demand for graduates in these specialties high. After World War

II, when chemical companies throughout the

world largely switched to processes using petroleum feedstocks, Japanese chemical companies retained some processes using biomass feedstocks

and came to dominate the international amino

acid market. Furthermore, applied biology departments at Japanese universities have kept in close

contact with industry representatives. Each year,

75 students in applied biochemistry graduate

from Tokyo University alone; half go on to graduate studies, and half of these go beyond their

M.S. degrees. Most are employed by Japan’s leading bioprocess companies (35).

FEDERAL REPUBLIC OF GERMANY

The Federal Republic of Germany has sufficient

personnel to compete with the United States and
338 Commercial Biotechnology: An International Analysis

——

* Biogen S ,A, is one of the tour principal operating subsidiaries

of lli(~gen N.\’,, whirh is registered in the h’etherlands Antilles. Biogen

X .\’ is atmut M)-per(wnt [ 1 ,S. -mtnml.
Ch. 14—Personnel Availability and Training ● 339

——

Personnel training —.

education in the

other countries

● F’ot gfIn(JI’al information” on s(’ience an(i engineering f~clucalion

an(l personrwl i[ltf>l’Ilii tloIlall)”, S(X’ (39)
—

340 ● Commercial Biotechnology: An International Analysis

—

nology. Nevertheless, interest in plant molecular

biology is increasing dramatically. Botanists are

learning the new techniques, and biomedically

trained researchers are applying their expertise

to plants. Because of the separation of agricultural

researchers and plant molecular biologists in the

United States, however, there are problems of

communication between these groups which may

slow research advances (34).

There is a growing concern that a shortage of

plant molecular biology professors in the United

States could result from a drain of Ph. D. plant

molecular biologists from U.S. universities to industry (25). As numerous companies have started

efforts in plant molecular biology and existing

companies have expanded into plant molecular

biology, industry has been competitively recruiting university researchers. As shown in table 65,

according to the OTA/NAS survey, all of the companies wanting to employ Ph.D. plant molecular

biologists intend to hire from academia, and half

intend to hire from industry as well.

Bioprocess engineering education in the United

States, now almost exclusively provided in university chemical engineering departments at the

graduate level, * is closely tied to training opportunities in chemical engineering (12). Between

1970 and 1980, the number of Ph. D.s graduating

in chemical engineering declined by nearly 25 percent, and the bioprocess subset of the chemical

“~!t the undergraduate lek’el, there are only two accredited bioengineering (distinct from biomedical engineering) programs in the

IInited States, one at the LJni\erSity of Illinois at Chicago and one

at ‘1’exas A&%!.

Table 65.—Sources of New Ph. D. Biotechnology R&D Personnel

In Selected Categories in Firms in the United States

(OTAINAS Sumey)

Companies planning to Companies planning to Companies planning to

hire from industry hire from academia retrain current staff

Area of technical expertise Percent Percent Percent

(Ph. D.) Number of totala Number of totala Number of totala

Recombinant DNA . . . . . . . . . 15 380/o 35 84 ”/0 3 7“/0

Gene synthesis . . . . . . . . . . . 9 64 13 93 3 21

Industrial microbiology . . . . . 11 67 13 81 2 13

Bioprocess engineering . . . . 19 86 11 50 2 9

Plant molecular biology . . . . 9 50 18 100 3 17

af+efer~ t. percent of ~ompanie~ that both indicated plans to hire in the specialty area and revealed the sources from which they would hire new Personnel, Many

companies indicated more than one hiring source for each specialty area.

SOURCE: Office of Technology Assessment.
Ch. 14—Personnel Availability and Training ● 341
342 Commercial Biotechnology: An International Analysis
Ch. 14—Personnel Availability and Training 343

Transnational training in the

United States and other countries

A trend evident in many scientific and technical

fields, including biotechnology, is the training of

increasing numbers of foreign students in the

United States. In 1982, foreign students constituted 2.6 percent of the total U.S. university

enrollment, and 23 percent of the foreign students enrolled at U.S. universities were studying

engineering. In 1981, for the first time, more

foreigners than Americans received doctoral degrees in engineering in U.S. graduate programs

(15). The proportion of foreign students in American postdoctoral engineering programs was more

than 60 percent. Furthermore, foreign students

constituted a third of all postdoctoral students in

American science and engineering programs (26).

These numbers illustrate the esteem with which

U.S. science and engineering education is held

throughout the world (43).

In the areas of molecular biology and immunology, foreign nationals are actively seeking training at U.S. institutions. Hoechst’s (F. R. G.) 10-year,

$70 million contract with Massachusetts General

Hospital, for example, was, in part, established

to train Hoechst’s personnel at Harvard MedicaI

School (21). *

NIH has several programs that sponsor research

by foreign nationals in NIH laboratories. Under

the “visiting program, ” NIH sponsors and pays

visiting scientists studying at NIH labs. In 1983,

810 foreign nationals were enrolled in this program. Of these visiting scientists, 158 were from

Japan, 97 from India, 62 from Italy, 27 from

France, and 6 from the United Kingdom. Under

the ‘(guest researchers program, ” foreign nationals are sponsored by their native country. In

1983, 32 Japanese were enrolled, 23 Italians, 21

French, 10 Indians, and 4 British (36).

Japanese personnel trained in the United States

are now being actively recruited by Japanese

● This arrangement is discussed in Appendix H: Selected ~spects

of” 1‘,S. [ Initersit.}’ ‘7ndtlstr:v Relationships.
344 . Commercial Biotechnology: An International Analysis

firms. In a 1982 Keidanren survey* of 60 Japanese companies using biotechnology, 35 percent of the companies were active in recruiting

researchers already studying or working abroad

(35). When the Japanese company Suntory hired

new employees for about one-third of the 126

research positions in its Biomedical Research Institute established in 1979, for example, many of

the new employees were Japanese who had been

working abroad (35).

The larger more established Japanese companies sponsor translational training of their employees. Sixty-two percent of Japanese companies

responding to the 1982 Keidanren survey indicated that some scientific and engineering personnel would be sent abroad for training in specialized technologies (35).

Foreign nationals are being trained not only at

university and government centers in the United

States, but at U.S. companies looking for supplemental sources of revenue. Five corporate researchers from Japan recently attended a 3-

month course at Genex in rDNA technology offered at $120,000 per person. According to the

Japanese companies, they learned “highly specific

knowledge . . . and key points for developing

specific products by using the rDNA technology ”

(18).

Amid all the evidence that foreign countries are

making use of U.S. training facilities, data show

that U.S. doctoral graduates are going abroad for

postdoctoral study less frequently. During the

decade of the 1970’s, postdoctoral training abroad

decreased by nearly 50 percent (26), In biotechnology especially, postgraduate training abroad

appears to be an area poorly funded by the United

States. Professor Arnold Demain, for example, has

indicated that 8 of the 11 students currently

enrolled in his graduate program in industrial

microbiology at Massachusetts Institute of Technology (MIT) are foreigners, all sponsored either

by their government or company. Money to send

Americans overseas to do postdoctoral work in

—.. —

“ Keidanren, the Japan Federation of Economic Organizations,

is a national organization composed of about 700 of’ the largest

.lapanese companies. It enjoys the regular and acti~e participation

of the top business leaciers working rloselJ’ with a large professional

staff to forge agreements on behalf of business as a whole. It oft[’rl

sur~’evs its members on issues of eronomir importance.

industrial microbiology, however, is not avail -

able (7).

Midcareer retraining in the

United States and other countries

To address the challenges of biotechnology, industrial scientists and engineers can probably be

retrained. Retraining in the United States is often

viewed as the responsibility of the individual sci-

.

entist or engineer and not that of the employer,

with some exceptions (see below). A problem is

that it is very difficult for a scientist or engineer

in midcareer to take a year off to go back to

school.

Reflecting concern over this situation, four senior professors at MIT recently published a report

advocating “lifelong cooperative education” (48).

The report’s major recommendation was that engineering schools and neighboring industries collaborate in making off-campus graduate programs

available to working engineers. Although the

report was addressed specifically to the electrical

engineering department of MIT, it could also be

addressed to a larger community, and many of

its recommendations may apply to biotechnology.

For example, MIT Professor Daniel Wang recently

stated that chemical engineers who “don’t know

the faintest thing about how proteins are isolated)” if taught some basic protein chemistry,

could develop new techniques for large-scale purification (17). Historically, chemical engineers

in the United States have been retrained by pharmaceutical companies to be bioprocess engineers (7).

As shown in table 65, a relatively small percentage of the 95 companies responding to the OTA/

NAS survey intend to retrain their workers to fill

vacancies in areas of biotechnology personnel

shortages. For most categories of Ph. D. personnel, hiring from academia is considered the optimal choice. In the case of Ph. D.s in bioprocess

engineering, however, 86 percent of the companies planning to hire Ph. D. bioprocess engineers

intend to hire them away from other companies,

50 percent plan to hire from academia; only 9

percent of the companies plan to retrain. * one

“’1’hesr perrrntages f~xceed 100, I)ecaus(’ some (wmpanies indi-

(’at(’d nlorr than one turing sourer.
Ch. 14—Personnel Availability and Training 345 —— ———

Findings

The OTA/NAS survey of 95 companies using ber is expected to increase about 30 percent over

biotechnology in the [Jnited States suggests that the next year, it is unlikely that a 30-percent anapproximately 5,OOO w’orkers are no\~’ doing bio- nual growth rate can be maintained over the next

technology R&D in the 219 companies using bio - decade. The commercialization of biotechnology

technology in the IJnited States. Though the num- is unlikely to contribute directly to large increases

25-561 0 - 84 - 23
346 Commercial Biotechnology: An International Analysis

———- .———— - ———

in employment. Bioprocess technology, an essential part of industrial biotechnology activities, is

not labor intensive.

About one-third of the technical personnel currently employed in 95 surveyed companies using

biotechnology are specialists in basic science areas

related to genetic manipulation: rDNrA/molecular

genetics and hybridoma/MAb technology. Specialists in these categories will continue to be important to biotechnology R&D, and more hirees are

expected. Another third of the technical personnel currently employed by the US. companies

using biotechnology are specialists in areas of applied science related to scale-up and downstream

processing: microbiology, biochemistry, and bioprocess engineering. Of these categories, only

hirees in bioprocess engineering will increase

over the next 18 months. About one.fifth of the

biotechnology work force are specialists in areas

important to all aspects of biotechnology: enzymology and cell culture. The balance of people

are specialists in such fields as pharmacology and

toxicology.

The United States currently has a competitive

edge in the supply of scientific personnel able to

meet corporate needs for R&D in rDNA and hy -

bridoma technology. This edge is primarily due

to generous Federal support for university life

science research since World War II. Nevertheless, the supply of Ph. D. specialists in plant

molecular biology and in applied disciplines such

as bioprocess engineering and industrial microbiology may be inadequate for U.S. corporate

needs. It may be difficult to alleviate rapidly the

shortage of engineers because of the shortage of

Ph. D. engineers serving as university faculty and

the lack of governmental training programs. To

an extent, foreign technical personnel are alleviating some of the industrial shortages.

With the exception of France, the other competitor countries have adequate supplies of basic

biological scientists. French companies are importing foreign specialists. German and Japanese companies, where slight shortages do exist, are making efforts to train some of their personnel abroad

and to retrain workers. Some Japanese companies

are making successful efforts to repatriate Japanese workers trained overseas.

Japan, the Federal Republic of Germany, and

the United Kingdom, unlike the United States,

maintained a steady supply of both industrial and

government funding for applied microbiology and

bioprocess engineering after World War II. Japan’s supply of scale-up personnel appears to be

sufficient. However, the United Kingdom and

West Germany are suffering from a brain drain

to foreign countries (in particular to the United

States), and shortages of scale-up personnel may

occur.

The United States has very few undergraduate

or graduate interdisciplinary programs in biotechnology. Consequently, in the agricultural fields,

for example, there are communication barriers

between classical plant breeders and plant molecular biologists. Bioprocess engineering education in the United States is provided almost exclusively at the graduate level and is closely tied

to training opportunities in chemical engineering

with few interactions occurring between biologists and engineers. Funds for Ph. D. and postgraduate education in bioprocess engineering in

the United States have been inadequate for the

training of sufficient numbers of specialists for

industry and academia. Furthermore, the high industrial demand for Ph. D. bioprocess engineers

is likely to create a shortage of university faculty

in the field,

Universities in the United Kingdom, in contrast

to their counterparts in the United States, have

long had interdisciplinary programs in biotechnology, and the British Government is encouraging the formation of overarching biotechnology

programs in those universities where they do not

already exist. Though France, the Federal Republic of Germany, and Japan have systematic barriers to interdisciplinary programs, their governments are utilizing national research institutes

to facilitate interdisciplinary research in biotechnology.

The funding by foreign governments and companies for the training of domestic workers overseas is far more extensive than that of organizations within the United States. In fact, in biotechnology-related areas, the U.S. Government

appears to fund more the training of overseas
Ch. 14—Personnel Availability and Training 347

nationals in the United States than the training

of U.S. nationals abroad.

Switzerland, which has not been extensively discussed in this chapter, appears to have no trouble

meeting the personnel needs in either its universities or companies developing biotechnology.

Particularly in relation to the size of the country, Swiss academic institutions show unusual

strength in both basic and applied research relevant to biotechnology. Swiss companies seeking

to develop and expand their expertise in these

technologies may choose to work with the quali -

Issues and

ISSUE 1: HOW could

fied Swiss researchers in the university or may

recruit foreign scientists, with apparently little

difficulty, to work in Slvitzerland (20).

Retraining of corporate workers in biotechnology is being pursued more actively in foreign

countries than in the United States. Japanese companies, in particular, make a regular practice of

sending their workers to be retrained at Japanese

and foreign universities and research institutions.

Only a very small percentage of companies using

biotechnology in the United States intend to retrain their workers in areas of personnel scarcity.

options

training for biotechnology at the graduate–and postdoctoral

levels be improved?

The United States appears to be suffering shortages of Ph. D. plant molecular biologists, applied

microbiologists, and bioprocess engineers in its

biotechnology-related industries. Although improved science education at the secondary school

and undergraduate level could enhance the development of biotechnology in the future, the

graduate level seems to be the best place to address the shortages of certain types of personnel.

For the past several years, U.S. Government

funding for research in the areas of plant molecular biology, applied microbiology, and bioprocess

engineering has been far less than funding for

research in animal and bacterial molecular biology and immunology. Increasing Federal funding

for research grants in plant molecular biology,

applied microbiology, and bioprocess engineering, by encouraging more investigators to enter

these fields, could help alleviate shortages of personnel. Since fields of faculty endeavor are at least

partially determined by the availability of research grants, increased funding for research

might encourage training and indirectly prevent

future shortages of faculty. Options for directing

research funds toward areas of personnel shortages are discussed in Chapter 13: Government

Funding of Basic and Applied Research.

Another area where more Federal research

funding could potentially reduce personnel shortages is that of interdisciplinary research. The interdisciplinary nature of biotechnology requires

research collaboration among people with backgrounds in biology, engineering, and chemistry.

Options that Congress could take to encourage

interdisciplinary research are discussed below.

0PTION 1: Authorize increased funding for LISDA,

NIH, and NSF graduate and postdoctoral

training grants in plant molecular biology,

applied microbiology, and bioprocess en -

gineering.

The lack of training grants is probably the single

most outstanding reason for U.S. shortages in selected areas of biotechnology personnel. There

are no NIH or NSF training grants for industrial

microbiology or process engineering. The U.S. Department of Agriculture (USDA) this past year

gave only five training fellowships in plant science. NSF until recently had no training grants

at all in plant science, although in May of 1983,

NSF’s Biological and Behavioral Directorate approved 24 postdoctoral fellowships for study in

plant cell biology.

In fields such as molecular biology, competitive

training grants have been one of the most effective uses of Government funds for graduate and

postdoctoral education. Training grants encour-
348 ● Commercial Biotechnology: An International Analysis

age university departments to carry on a cohesive

training program and allow money from faculty

research grants to be used for research instead

of salaries. The institution of adequate training

grants in the areas of plant molecular biology, applied microbiology, and bioprocess engineering

would be a long-term strategy to counter personnel shortages in these areas. Such grants could

be administered by NIH (for applied microbiology

and plant biology), USDA (for plant biology), and

NSF (for all three).

OPTION 2: Continue to support special incentives to

encourage young engineers to stay in

academia.

The shortage of engineering faculty at U.S. universities could seriously hamper efforts to increase the number of qualified engineers, including bioprocess engineers, in the United States. The

recently instituted Presidential Young Investigator

Awards to be administered by NSF is an example of the sort of special incentives program that

Congress could continue to support to counteract

the shortage of engineering faculty. Two hundred

of these awards, 100 of which are to go to engineers, are to be awarded each year for 5 years

to scientists and engineers in academia who have

fewer than 7 years postdoctoral experience. Each

award could total up to $100,000 per year for 5

years. The first $25,000 per year is to come from

NSF. Industry funding for the engineers, of up

to $37,500 per year, is matched by NSF, giving

the total amount of $100,000.

OPTION 3: Specific that a certain percentage of NSF

graduate and postdoctoral grants be used

for training in other countries and authorize NIH and other relevant agencies to initiate researcher exchanges with other industrialized countries.

Increasingly fewer U.S. Ph. D.s are doing postdoctoral work abroad, while the number of foreign Ph. D.s doing postdoctoral work in the United

States is increasing. The U.S. Government supports the training of its nationals overseas far less

than its industrialized competitors.

Foreign countries have many significant and

growing research programs in biotechnology that

U.S. researchers could fruitfully be visiting-e. g.,

Japan’s Fermentation Research Institute and University of Tokyo; the Society for Biotechnological

Research (GBF) in Braunschweig, Federal Republic

of Germany; and the John Innes Institute and

Plant Breeding Institute in the United Kingdom.

Few Americans are studying at those institutions.

Though NSF’s Science and Engineering Directorates can give grants to students studying overseas,

such grants are not generally given because they

are usually more costly than regular grants.

NSF’s Science, Technology, and International Affairs Directorate has an International Cooperation and Scientific Activities program that provides special funds for researchers to study

abroad—funds that can supplement the grants of

other programs within NSF. One advantage of authorizing more money for this program is that

this program has had experience negotiating

standards of bilateral student exchange with

foreign governments, having negotiated a successful bilateral agreement with France. In most

foreign countries, American students cannot

study at the best institutions (usually national)

without the proper contacts and encouragement

of the domestic government.

Congress could also specify that the NSF international grants that are given have a clearer training component. Currently, even the international

fellowship grants are evaluated on the basis of

their proposed research, rather than the quality

of training for the US, nationals. It should be

noted, however, that setting aside a part of NSF

international grants for graduate and postdoctoral

training would probably reduce the current percentage of international grants given to junior

professors.

NIH’s unilateral programs to support the study

and research of foreign postdoctoral personnel

in the United States could also be expanded to

support the study of American nationals overseas.

Since the United States is not the sole source of

advanced R&D capability, Congress could authorize NIH to formulate programs that result in reciprocal exchanges and postdoctoral research opportunities for American scientists and engineers

in areas of foreign expertise.
Ch, 14—Personnel Availability and Training ● 349

ISSUE 2: How could Congress improve interactions between classical plant biologists and plant molecular biologists?

Many people would argue that the agricultural

research system in the United States does not

need to be improved because the United States

has the most productive agricultural system in

the world. Nevertheless, there are specific areas

where some advances in plant science, aided by

new biotechnology, may be crucial to feeding the

world’s population in the coming years. These advances can be made only with the interaction of

classical plant breeders and plant molecular biologists. Yet, because of the historical separation

of agricultural researchers and plant molecular

biologists in the United States, these groups do

not have established communication networks.

Most of the classical plant breeders are trained

at agricultural research stations and land grant

colleges, whereas most of the plant molecular biologists were originally trained in biochemistry,

bacterial genetics, and animal biology (funded extensively by NIH) and are now working at the universities where much of the molecular biology is

done. The lack of interaction between these two

disciplines puts the United States at a disadvantage in modern agricultural research. *

The agricultural surpluses that the United States

has today could vanish in a single year and probably are temporary. Greater productivity will be

necessary as we move into the 21st century. The

United States is also depleting its water resources

and its topsoil. Advances in biotechnology can

contribute to the solution of these problems with

the development of plants that need less water,

have greater nutritive value, and are more resist -

ant to the high saline content of irrigation water.

The costs of production can be lowered if plants

are pest-resistant, and fewer fertilizers will be

needed if plants can fix their own nitrogen. These

advances cannot be made without greater interac-

● The administration of’ basic research in agriculture has recentlj been rmi(’i~f’d b~ sm era] agencies [5,34,41). Changes in the administration of L’SDA research will be extremel~ important to the

dirertion of de~wlopment of biotechnology in agriculture. A proposal within LISDA to significantly increase the competiti~e grants

in plant biok)~y has recentl}~ been put)lished (2.5). Howe~’er, an assessment of the LISDA twhn ical and administrate ii’e infrastructurf~ is

t)e~ond the sropr of this rf~port.

tion between classical plant breeders and plant

molecular biologists. The Federal Government is

spending about $20 billion on an acreage diversion program. This money subsidizes the market

price, but does not address the central agricultural production issue, the farmer’s low profit

margin. Diverting a portion of this money to research on plant genetics could go a long way

toward reducing agricultural production costs.

OPTION 1: Legislate the creation of one or more plant

research institutes.

A plant research institute was established under

the Department of Energy’s (DOE’s) management

and with cooperation from the State of Michigan

in 1965. DOE’s contribution to this effort was

$1.65 million in fiscal year 1983 and will be $1.7

million in fiscal year 1984. This is a beginning

toward solving some of the problems of communication among biologists of different disciplines,

but it is only one effort.

The creation of several more plant research institutes could facilitate interdisciplinary research

between classical plant biologists and plant molecular biologists, although there could be some

problems. First, a large amount of money would

be required. Second, scientists to work in the institute would have to be drawn from other institutions, thereby possibly causing a shortage of

teaching faculty. Faculty shortages could be partially alleviated if the institute were located near

a major research university or land grant college.

Third, it is not obvious what agency would administer the institute. DOE is one choice because

it already has experience with one institute. USDA

is another choice, but recent studies (see preceding footnote) have suggested that the research stations it already administers have not kept up-todate with the latest molecular techniques being

applied to plants. NIH, which is well versed in molecular biology, is not an ideal agency to administer an essentially agricultural program, NSF

might be a candidate to administer a new plant

research institute because of its interdisciplinary

staff,

OPTION 2: Establish grants for cooperative research

between classical and molecular plant biologists from different institutions.
350 ● Commercial Biotechnology: An International Analysis

An increase in funding alone would facilitate

interaction between classical and molecular plant

biologists. Because of its interdisciplinary focus,

NSF might be the agency to administer these

grants.

Careful specification of requests for proposals

and monitoring of the grants by technically qualified staff would be needed to ensure that the research that is funded is truly cooperative. Otherwise, some researchers experiencing difficulties

in obtaining research funding might be tempted

to cooperate in proposal writing in order to obtain a grant and then carry out independent

research.

ISSUE 3: How could the retraining of industrial personnel in biotechnology be

improved?

The OTA/NAS survey of companies using biotechnology in the United States shows that there

is little retraining of personnel in this field. This

situation is probably due, in part, to the fact that

many of the US. companies using biotechnology

are small and have neither the resources nor incentives to retrain personnel. These small companies depend on their ability to attract already

highly qualified personnel. However, the pharma -

ceutical industry has shown that chemical engineers can be retrained in bioprocess engineering.

Continuing education sponsored by large U.S.

companies, in general, takes place through short

courses or joint research performed at universities. University/industry training and research

agreements in biotechnology are being developed

without the assistance of the Federal Government.

But the Government could further encourage retraining in biotechnology by increasing funding

for NSF’s Industry/University Cooperative Centers

Program, which provides seed money for a university to set up a research center with industrial

partners. This option is discussed in Chapter 13:

Government Funding of Basic and Applied Research.

Whether human resources in the United States

are used and retrained adequately is a larger, national question that addresses the transition of the

U.S. labor force from declining to growing industrial sectors. Suggestions to encourage more retraining have included revision of the tax code

to encourage business loans to employees for retraining and an extension of unemployment insurance to include payment for retraining. The

comparative evaluation of measures such as these

that include other disciplines is beyond the scope

of this study.

Chapter 14 references

1. Abelson, P. H., “Science and Engineering Education, ” Science 210:965, 1980.

2. Advisory Council for Applied Research and Development, Advisory Board for the Research Councils, and The Royal Society, “Biotechnology: Report

of a Joint Working Party” (Spinks’ Report) (London: H. M. Stationery Office, March 1980).

3. AFP Sciences, “Scientific Research Policy and

Organization, ” July 22, 1982, pp. 4-5.

4. ASM News, “Shockman Testifies on Manpower

Needs . . . ,“ 48(8):349-350, 1982.

5. Bentley, O., “Perspective on Agricultural Research, ”

Science 219:4584, 1983.

6. Chemical and Engineering News, “Foreign Precollege Curricula Gives Strong Dose of Science, ” Jan.

25, 1982, p. 42.

7, Demain, A., Professor of Industrial Microbiology,

hlassachusetts Institute of Technology, personaI

communication, 1983.

8. Demain, A. L., and Solomon, N. A., “Responsibilities

in the Development of Biotechnology, ” Bioscience

33(4):239, 1983.

9. Dunnet, J. S., “Brain Drain Threatens Progress, ”

Nature 302:644, 1983,

10. Feinberg, L., ‘

(

Panel LJrges Measures To Halt Decline of Education in America, ” Washington Post,

Apr. 27, 1983, p. 1.

11. Feldman, M., and O’hlalley, E. P., The Biotechnology Industry in California, contract paper prepared for the California Commission on Industrial Innovation, Sacramento, Calif., August 1982.

12. Gaden, E., “Bioprocess Technology: An Analysis
13

14

1,5

16

4 -

. —

Ch. 14—Personnel Availability and Training ● 351

30.

31.

:32,

33.

:14.

35.

36.

37.

40

41

4 ~

43.

44.

4.5.
352 “ Commercial Biotechnology: An International Analysis

46. Walgate) R., “La Loi at Last,” Nature 298:1 10, 1982. 49. Worthy, W., “Classroom Crisis in Science and

47. lValsh, J., “Trouble in Science and Engineering Math,” Chemical and Engineering News, July 19,

Education,” Science 210:215, 1980. 1982, pp. 9-16,

48. Walsh, J., “ New’ Slant on Engineering Training,”

Science 2 18:269, 1982.
Chapter 16

Health, Safety, and

Environmental Regulation
Contents

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355

Regulation Directed Specifically Toward Biotechnology: rDNA Research Guidelines . . . . 356

Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. ... ... ... ....$ .. ....4. 357

Containment Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358

Approval Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358

Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359

Effect on Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359

Existing Regulation of Biotechnology Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359

United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360

European Economic Community Countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365

Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370

Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370

Environmental Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371

Regulation of Worker Health and Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373

Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374

Issue and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376

Chapter 15 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378
Chapter 15

Health, Safety, and

Environmental Regulation

Introduction

Regulation has been and will continue to be a

factor in the development of biotechnology,

especially for recombinant DNA (rDNA) processes

and products. When the rDNA technique was first

developed, its novelty and tremendous power to

manipulate organisms raised the specter of potentially drastic consequences to human health and

the environment through the creation and proliferation of organisms with unknown but potentially hazardous traits. In the United States, therefore, Congress moved to develop stringent regulation of rDNA. This movement was forestalled in

part by the adoption in 1976 of fairly restrictive

self-regulatory guidelines by the scientists (27).

As time passed, however, concern and fears diminished greatly. As scientists learned more about

molecular genetics, perceived risks associated

with probing the unknown diminished, and no

evidence was discovered to support many of the

early risk scenarios. Formal risk assessment

studies also led to downward evaluation of potential risk. Molecular biologists gained the confidence of the public by bringing other experts and

the public into the decisionmaking process that

established the system of voluntary self-regulation. And, most importantly, there has been no

evidence of any harm to human health or the

environment from rDNA. Consequently, the

requirements of the rDNA guidelines in the

United States have been substantially relaxed.

Today, most experts believe that the potential

risks of rDNA research were drastically overstated and that rDNA technology generally does

not involve a risk beyond that already inherent

in the host, vector, DNA, solvents, and physical

apparatus being used (35). This is not to say,

however, that biotechnology-like most new technologies-does not continue to raise special

concerns or present special risks. In particular,

questions have been raised about the long-term

effects on workers’ health from exposure to novel

organisms and products and about the risks of

deliberately releasing genetically manipulated

organisms into the environment. In addition, some

of the products that will be made by biotechnology may present special risks. For example,

the U.S. Food and Drug Administration (FDA) has

been concerned about bacterial endotoxins found

in drugs produced by Escherichia coli (28).

Regulation will have a moderately important

effect on the development of biotechnology and,

consequently, on U.S. competitiveness in biotechnology. Special risks may lead to limited new regulation that could direct commercial efforts away

from certain areas or at least slow advancements

in those areas. In addition, most of the products

that could be made by biotechnology and associated processes are already subject to considerable

regulation, pharmaceuticals and chemicals being

the best examples. This existing regulation also

will affect corporate strategies and patterns of

industrial development.

The costs and time involved in complying with

regulatory requirements are the price society

pays for safety. However, unreasonable restrictions and unnecessary burdens may delay or prevent important products from reaching the market or may increase the business risks of developing those products. Uncertainties, for example,

about what the regulatory requirements will be

or which agencies have jurisdiction, will also

affect the risk, time, and cost of product development. Those countries that have the most favorable regulatory environment in terms of least

restrictions and uncertainties will have a competitive advantage in the commercialization of

biotechnology.

This chapter evaluates the regulatory environment for the commercialization of biotechnology

in the United States and five competitor countries

355
356 ● Commercial Biotechnology: An International Analysis

being examined in this assessment—the Federal

Republic of Germany, the United Kingdom, France,

Switzerland, and Japan. Two specific factors are

considered in the evaluation: 1) the restrictiveness

of the regulation, and 2) the uncertainties with

respect to possible agency jurisdiction or requirements. Congressional options for improving

U.S. competitiveness in biotechnology through

changes in the regulatory environment are presented at the end of the chapter.

In the analysis that follows four areas of regulation are considered:

● regulation directed specifically toward biotechnology;

● existing regulation that would apply to

biotechnology products;

● environmental regulation relevant to biotechnology; and

. worker health and safety regulation.

The chapter concentrates on the guidelines for

rDNA research adopted by the competitor countries and the approval requirements for pharmaceuticals (human drugs and biologics) and for

veterinary medicines (animal drugs and biologic).

The guidelines for rDNA research merit significant attention because they are the only type of

governmental oversight developed specifically for

biotechnology. The approval requirements for

pharmaceuticals and veterinary medicines also

merit attention because those products are subject to the most restrictive regulation, even when

made by conventional means, * and because so

“Significant regulation also exists for commodity and specialty

chemicals (including herbicides and pesticides), but it is generally

not as restrictive as for pharmaceuticals and some types of veterinary medicines. The use of genetically modified organisms in the

environment will probably face some moderate degree of regulation, Agricultural products currently face little health, safety, or

environmental regulation, but this situation could change in the case

of genetically modified plants and animals.

much of the current activity in biotechnology is

directed toward those types of products. In addition, with respect to regulation of products in

other countries, most of the information OTA was

able to obtain related to the approval process for

pharmaceuticals and veterinary medicines. Sufficient information on foreign regulation of food,

food additives, medical devices, and chemicals

was not available for meaningful international

comparisons; however, this information is included for the United States because of its availability and because of the interest in it.

Two inherent limitations could qualify the analysis in this chapter. The first results from the difficulty of determining and interpreting foreign laws

and especially the rules and policies of the foreign

agencies. Much of this material is not readily available in English or even in the native language. In

addition, enforcement of laws and regulations in

other countries generally is much more discretionary than in the United States. * Thus, there

may be a wide gap between the written laws and

regulations and the actual regulatory environment in which foreign companies operate. The

second limitation results from the fact that the

analysis does not consider the positive effects of

regulation and a country’s track record for safety.

In other words, the restrictiveness of regulation

theoretically should be balanced against some

measure of the harm avoided. However, the necessary data are generally not available, and such

an analysis is beyond the scope of the chapter,

● In fart, this discretion has led to claims of selecti~’e enforcement

against l] .S. companies, thus creating a nontariff trade barrier, For

discussion of other nontariff trade barriers, see Chapfer 19: International Technolo@ Transfer, Investment, and Trade.

Regulation directed specifically toward

biotechnology: rDNA research guidelines

The only oversight mechanism directed specifi- cerns in the mid-1970’s about potential risks of

cally toward biotechnology is the rDNA research rDNA research and the desire to proceed cauguidelines. These guidelines grew out of the con- tiously in the face of the uncertainties. Guidelines
Ch. 15–Health, Safety, and Environmental Regulation . 357

similar to the National Institutes of Health Guidelines for Research Involving Recombinant DNA

Molecules (NIH Guidelines) in the United States

have been adopted by Japan, the Federal Republic of Germany, the United Kingdom, France and

Switzerland. Over time, they have been substantially relaxed worldwide in a series of revisions

that reflect decreasing concern about the risk. In

fact, many types of experiments involving rDNA

are now exempt from the guidelines. The guidelines are essentially self-regulatory.

The guidelines for rDNA research reflect the

decision by experts and policymakers that rDNA

research presents some special risks and uncertainties that require special attention. They are

based on two underlying concepts:

● rDhA research should be conducted at increasing levels of physical and biological containment related to the degree of possible

hazard, and

● the degree of oversight should relate to the

degree of possibIe hazard.

The implementation of these concepts is fairly

similar in the competitor countries, because the

worldwide scientific community was involved in

their development and because most countries

followed the lead of the United States. Nevertheless, there are some important differences among

the guidelines adopted in the various countries,

and different countries are at different stages in

the process of relaxing them.

This section surveys the rDNA research guidelines of the six competitor countries with respect

to their scope, containment requirements, approval requirements, and enforcement mechanisms in order to assess their impact on competitiveness in biotechnology. * The commercial development of biotechnology in many of these

countries, however, will depend less on the

specific biological and physical containment

measures required by their rDNA research guidelines than on the scope of activities reached by

the guidelines (i.e., whether they cover large-scale

research) and the structure set up for implementing and enforcing the guidelines. The analysis

“Pro~isions relating specifically to worker health and safety are

dl>(’uss(’(i 1[1 t tl(’ 5(’(’11( )[1 of this (’hiipter entltlt’(i “R(>~UlaIN)n of

\\ orh[’1” I Ir’ilth ‘In(i s’itf’t\’

presented here is based on the more detailed

description of the rDNA research guidelines of

the six countries and the European Economic

Community found in Appendix F: Recombinant

DNA Research Guidelines, Environmental Laws,

and Regulation of Worker Health and Safety,

which the reader is urged to examine.

Scope

In the United States, Japan, and France, the

guidelines technically apply only to governmentfunded rDNA research, while in Switzerland, the

Federal Republic of Germany, and the United

Kingdom, they apply to all rDNA research. (Actually, all the guidelines also apply to large-scale

rDNA work to varying degrees, as discussed below.) While U. S., Japanese, and French private

laboratories might seem to have some advantage

over private laboratories in the other countries

because they could dispense with safety measures

perceived to be unnecessary, this ‘(advantage” is

probably illusory, Industry perceives compliance

with the guidelines to be in its best interest, and

there has been no publicized evidence of noncompliance.

Perhaps the single most important issue for

companies using biotechnology is the rDNA

guidelines’ treatment of large-scale research (i.e.,

work with cell cultures in volumes exceeding 10

or 20 liters), which is a necessary step in successful commercial development. The guidelines in

Japan are easily the least favorable in this regard.

Recombinant DNA research with volumes exceeding 20 liters can be conducted in Japan only after

Government permission, and that permission has

been quite difficult to obtain. * It should be noted,

however, the situation in Japan is expected to

change shortly. * * Under the U.S. guidelines, the

large-scale work need only be reviewed by each

● Six companies ha~e obtained permission for large-scale work (14),

● *The Council for Science and Technolo&v, which advises the

Prime Minister and oversees rDNA work by private institutions in

Japan, is expected to recommend the elimination of the prohibition

of large-scale work without special Government approval. Instead,

large-scale bioprocess facilities would classify into two categories,

LS1 and LS2. LS1 facilities would be covered by rules similar to those

for con~’entional microbiological laboratories, LS2 facilities, which

would involve work with more hazardous microa-ganisms, would

be covered by more stringent rules. The Prime Minister is expected

to act favorably on the recommendation in August 1983.
358 ● Commercial Biotechnology: An International Analysis

Institutional Biosafety Committee (IBC), although

NIH has made specific recommendations regarding physical containment, which were recently

incorporated into the U.S. guidelines. Large-scale

research in the United Kingdom is treated on a

case-by-case basis by the supervising authority,

the Genetic Manipulation Advisory Group

(GMAG). * But in explaining the need for a different kind of review of large-scale research, GMAG

has suggested that large-scale research will not

be subject to as stringent containment measures

as smaller scale research. The French rDNA

guidelines exclude large-scale research from their

coverage, but the Government oversight agency

will apparently consider such activity on a caseby-case basis. The West German guidelines do not

mention large-scale research. The Swiss guidelines permit scaling-up without special approval;

it is unclear whether the small-scale rules continue to apply or whether, as with the NIH guidelines, large-scale research is subject to the safety

measures decided on by the IBC.

Containment requirements

Each country’s rDNA guidelines specify requirements for physical and biological containment of

the research organisms. Except for the United

Kingdom, each country assesses risk in the same

manner—according to the source of the DNA used

in the experiment and the pathogenicity of the

host-vector system. The United Kingdom determines risk by considering the survivability and

likely harm of the organism containing rDNA.

Whether this risk assessment method gives the

United Kingdom an advantage or disadvantage depends on the particular experiment. The United

Kingdom does have an advantage with respect to

rDNA production of insulin and interferon, which

are classified at a lower containment level there

than in the United States (8). Each country uses

four levels of physical containment, Most research

is now conducted at the lowest physical containment level.

*GMAG’s status was recently’ reviewtxi hy tht? }{ealth and Safet~’

Executive, and the subsequent report recommended relocation ot

the group from the Department of Education and Science to the

Department of Health and Social Security. GMAG has been moved

and is now called the Health and Safety Commission Advisory Group

on Genetic Manipulation.

The physical and biological containment measures required for an experiment vary slightly

from country to country, but it is difficult to

determine what effect on a country’s competitive

position any one requirement might have. It is

difficult to determine, for example, what effect

will come from the fact that at the United Kingdom’s physical containment level II, a continuous

air flow into the laboratory is required, while it

is not required in other countries until the third

containment level. The measures with the great -

est impact are probably the biological containment rules in Japan, which severely restrict the

types of organisms that can be used in host-vector

systems. These restrictions may prevent commercially promising rDNA research from going forward.

Approval requirements

Notice and approval requirements depend on

the risk of the experiment. Research in the United

States at the highest risk level is subject to the

approval of NIH and the appropriate IBC; at the

next level, only IBC approval before initiation is

necessary. IBC notification at the time of initiation is required for some lower level risk experiments, while many are exempt entirely. More

than 85 percent of all rDNA work in the United

States is done at the lowest containment levels

(23), and virtually all monitoring of rDNA work

is done by IBCS.

The recommendation of the European Economic Community (EEC) on rDNA research suggests

that notice of experiments be given to the central

authority in each member state, usually before

the work begins. For some types of research,

notice would not have to be made before work

is begun. The United Kingdom, France, and the

Federal Republic of Germany are members of the

EEC.

In the United Kingdom, the Health and Safety

Executive (HSE) is directed to inspect the facilities

for rDNA research at the two higher containment

levels, categories III and IV. For research at these

levels, GMAG also must have notice and an opportunity to give advice. Advance notice is required

for research at the category II level but n o t

approval. Activities at the category I level can go

forward provided only that the local safety com -
Existing regulation of biotechnology products

A comparative assessment of the regulation of regulation for generic products, it is first

biotechnology products in the competitor coun- necessary to compare these general regulatory

tries involves two stages. Since biotechnology regimes. In other words, biotechnologically made

products generally will be subject to existing pharmaceuticals, for example, will be subject to
360 ● Commercial Biotechnology: An International Analysis

the general regulations covering pharmaceuticals,

regardless of how they are made; thus, comparing

the pharmaceutical laws of the different countries

will provide information about competitiveness.

In this context, the following questions are particularly relevant:

● How much time and effort does it take to get

products through the approval process?

● What is the usual or average cost for securing

regulatory approvals?

● What are the import and export restrictions

on approved and unapproved products?

● Will the regulatory authorities accept foreign

test data in the approval process?

The second stage of the analysis involves looking at specific issues raised by biotechnology.

Some of these are the following:

● Will new biotechnology products chemically

identical to approved products made by other

means still be required to go through the full

regulatory review process?

● Will the classification of a pharmaceutical as

a drug or biologic affect the time or cost of

securing regulatory approval?

United States

Three Federal agencies will be most involved

in regulating biotechnology products. They are

the Food and Drug Administration (FDA), the U.S.

Department of Agriculture (USDA), and the Environmental Protection Agency (EPA).

FOOD AND DRUG ADM1N1STRATION

FDA regulates drugs, biologics, food, food additives, and diagnostics pursuant to the Federal

Food, Drug, and Cosmetic Act (FFDCA) (21 U.S.C.

\f301-392) and section 351 of the Public Health

Service Act (21 U.S.C. f262).

Since the first commercial applications of biotechnology (i.e., pharmaceuticals) have been in

areas subject to FDA jurisdiction, FDA is the agency having the most experience with biotechnology products. FDA has approached rDNA-produced products on an agencywide basis by creating a Recombinant DNA Coordinating Committee, composed of representatives of its centers

and bureaus, the office of General Counsel, and

Office of Regulatory Affairs. FDA’s Recombinant

DNA Coordinating Committee has determined

that rDNA products whose active ingredients are

identical to ones already approved or to natural

substances will still have to go through the new

product approval process. Data requirements may

be modified and often abbreviated, however, and

each case will be handled on an ad hoc basis. *

(In the case of many conventionally produced

products, abbreviated review procedures are

available when the active ingredient of the new

product is identical to one already approved or

to natural substances.) FDA will not require compliance with the NIH Guidelines as a condition of

approval. For monoclinal antibody (MAb) products, no coordinating body similar to the Recombinant DNA Coordinating Committee exists; FDA’s

policy for these products has been set by the National Center for Devices and Radiologic Health

(NCDRH) and the Office of Biologics. Actual product regulation will occur at the individual bureaus

or offices as discussed below.

Human Drugs.—FDA’s Office of New Drug

Evaluation has taken the position that drugs made

by rDNA technology, even if identical to currently

approved drugs, are “new drugs.”* * Therefore,

such drugs cannot be marketed until approved

by FDA as safe and effective.

FDA’s approval process for a new drug can take

several years because it requires a series of animal

and human tests. Clinical investigations can be

carried on only after a drug’s sponsor files a

Notice of Claimed Investigational Exemption for

a New Drug (IND). The IND contains the results

of animal testing, a description of the planned

clinical investigations, and other information. The

preclinical investigations generally last from 1 to

2 years (20). The human studies then go through

“FDA has been concerned about bacterial endotoxins and immu -

nogens contaminating the products and about the genetic stability

of the rDNA organism. In the latter case, the product might be

affected if the DNA underwent changes.

* ● A new drug is a drug whose composition is not generally recognized by qualified experts as safe and effective under the conditions of use set forth in its labeling or, men if so recognized, has

not been used to a material extent or tor a material time [sec. 201(p)

of the Federal Food, Drug, and Cosmetic Act; 21 U.S.C. $321(p)).

A drug is a substance intended for use in the diagnosis, treatment,

or prevention of disease or which is intended to affect the structure or function of the body (sec. 201(g) of the Federal Food, Drug,

and Cosmetic Act; 21 U.S.C. $321(g)).
Ch. 15—Health, Safety, and Environmental Regulation 361

three phases to establish safety, set dosage levels,

and establish efficacy. This clinical testing often

takes 5 to 6 years (20), During or after the clinical

studies, the sponsor files a New Drug Application

(NDA), which contains the results of animal and

human testing, a statement of the drug’s composition, a description of the methods and controls

used in its manufacture, and other information.

The time required for processing an NDA depends on the completeness of the data, the drug’s

performance, and the speed of FDA review. In

1980, the duration of the NDA phase for new

chemical entities varied from about 1 to 7 years

and averaged slightly less than 3 years (20). *

Taking into account the research and development (R&D) costs of drugs that fail to reach the

market, various economic analyses indicate that

the R&D costs per marketed new chemical entity

range from $54 million to over $70 million (11).

There are abbreviated approval procedures that

FDA might eventually permit sponsors to use after

it gains more familiarity with rDNA technology

and if warranted by the risks. One is the Supplemental New Drug Application (SNDA), which is

required when an NDA holder intends to market

the drug under conditions materially different

from those approved in the NDA. An SNDA could

become available in the case where the manufacturer of an approved drug made by chemical synthesis decides to make the drug by using rDNA

and bioprocess techniques. A second procedure

is the Abbreviated New Drug Application (ANDA),

which is available for generic versions of drugs

first marketed between 1938 and 1962. An ANDA

might be used by a manufacturer using rDNA

techniques to make an approved drug made by

conventional techniques by another manufacturer. The final procedure is a “paper” NDA, available for generic copies of drugs marketed after

1962. Such drugs require an NDA, but FDA is willing to accept published reports demonstrating

safety and efficacy, thus saving the new sponsor

the time and costs of clinical trials. A “paper” NDA

could become available in the case where a manufacturer wants to make an rDNA-produced drug

whose NDA is held by another manufacturer, if

—.

‘~ General Accounting Office stud~’ of the [1.S. drug approtral

process found that for 132 NDAs submitted to FDA k 1975, the

a~wra~e approval time was about 20 months (2o).

adequate data are available in the published

literature to establish safety and effectiveness.

Human Biologics.—A biologic is a vaccine,

therapeutic serum, toxin, antitoxin, or analogous

product for the prevention, treatment, or care

of diseases or injuries, The distinction between

a drug and a biologic is largely historical and

bureaucratic and is becoming even more blurred

with the advent of biotechnology.

Although biologics also come within the definition of drugs in section 201(g) of the Federal Food,

Drug, and Cosmetic Act (FFDCA), they primarily

are regulated under section 351 of the Public

Health Service Act and by FDA’s Office of Biologics

rather than the Office of New Drug Evaluation. *

Section 351 creates a regulatory structure for biologics similar to that for drugs. However, it is a

licensing procedure; both the product and the

establishment where it is produced must be licensed. At the investigational stage, the Office of

Biologics follows the requirements for INDs. After

clinical trials, the procedure involves a license

application for the establishment and for the

product; together they provide essentially the

same information as required by an NDA. Differences, however, occur in practice. The Office of

Biologics generally has been perceived to be more

flexible than the Office of New Drug Evaluation.

It often uses informal, unpublished guidelines, or

“regulatory memoranda .“ * * on the other hand,

it is the administrative practice of the Office of

Biologics to require lot by lot approval of many

biologics before they are released by the manufacturer, which is not usually required by the Office

of New Drug Evaluation (l).

Biologics made by biotechnology will have to

go through the approval process outlined above.

In accordance with announced policy, rDNA-pro -

duced biologics, even if chemically identical to

approved biologics, will have to go through the

*The Office of Biologics also regulates diagnostics related to blood

bank products. All other diagnostics, including most of those incor.

porating monoclinal antibodies (MAbs), are regulated b~ FDA’S

National Center for Drugs and Radiologic Health INCDR}I) “1’he first

MAb diagnostic kits related to blood products and were appro~ed

hJ the office of Biologics.

● “It has published three about biotechnology. One covers hfAb

diagnostic kits for blood bank related products [31) Another ro~ers

MAbs for use in human therapy (33). A third co~!ers the production

anci testing of interferon (32).

25-561 0 - 84 - 24
—

362 ● Commercial Biotechnology: An International Analysis

full approval process, but data requirements may

be lessened. For MAbs, there has been no announced policy, but virtually all of those that

would be used for therapeutic purposes would

be truly new and therefore have to go through

the full review process.

Medical Devices. —Medical devices are regulated by FDA’s National Center for Devices and

Radiologic Health (NCDRH), except for those in

vitro diagnostic products used in connection with

blood banking activities such as tests for hepatitis B surface antigen. Those products are regulated by the Office of Biologics.

The Medical Device Amendments to FFDCA in

May 1976 required that all devices for human use

marketed before the amendments be classified by

FDA into one of three categories on the basis of

recommendations by expert panels. Class I products are subject to general controls, such as good

manufacturing practice regulations. Class II devices are required to meet performance standards

in addition to the general controls. Class 111 devices

require FDA premarket approval for safety and

effectiveness. For devices marketed after May

1976, those that are “substantially equivalent” to

a preamendment device are classified with that

product, and those that are not substantially

equivalent are placed in Class III. Under section

510(k) of the act, manufacturers are required to

give FDA a 90-day notice before they can market

a device, during which period FDA determines

whether the device is substantially equivalent to .

a preamendment device.

Manufacturers of MAb diagnostic kits generally have been successful in using the 510(k) notice

procedure to get their products to the market

quickly. Although MAbs are different from and

generally superior to polyclonal antibodies for

diagnostic purposes, applicants have been successful in showing that MAbs are “substantially

equivalent” to polyclonal antibodies marketed

before May 1976. That is, the applicants have

demonstrated to the satisfaction of NCDRH that

the MAbs provide essentially the same (or better)

results as polyclonal antibodies used for the same

diagnostic purposes (1). Since the review panels

of experts required by the statute have placed

most preamendment diagnostic kits in Class H (l),

the new MAb kits have been placed in Class II,

which requires certain performance standards to

be met, rather than Class III, which would require

the manufacturer to demonstrate safety and efficacy. * The availability of the 510(k) application

is highly desirable from a company’s perspective

because NCDRH must respond within 90 days.

Food and Food Ingredients. ● ● —The distinction between food and food ingredients (substances added to food) is important in terms of

the regulatory approval process. Food can be marketed without FDA clearance, but food ingredients are subject to the food additives provisions

of FFDCA, which may require premarketing approval. FFDCA defines food broadly and circularly

as food or any component thereof (sec. 201(f)).

A food additive is defined as a substance that may,

by its intended use, become a component of food

or affect the characteristics of food (sec. 201(s)).

This definition excludes, among other things, substances generally recognized as safe (GRAS) by

qualified experts and certain prior-sanctioned

(previously approved) substances. A new food additive requires premarketing clearance by FDA,

and its sponsor has the burden of demonstrating

its safety. Favorable action by FDA results in a

published regulation stipulating the concentration

and other conditions under which the additive

may be used. GRAS substances technically can be

marketed without prior approval by FDA, but also

can be the subject of published FDA regulations. * * *

FDA’s Bureau of Foods has not been confronted

with any foods, food additives, or GRAS substances produced by rDNA techniques; however,

on the basis of the announced policy of FDA’s

Recombinant DNA Coordinating Committee and

discussions with the staff, the Bureau appears

likely to take the following positions. If FDA were

concerned about the safety of such a food, high

lysine corn, for example, it could take various

*If a MAb kit were placed in Class 111, the sponsor could petition

for a reclassification to Class 11; however, such reclassifications are

supposedly difficult to obtain.

* ● This section uses the term food ingredient instead of the term

food additive used in other chapters, because the term food additive

has a particular meaning under FFDCA. As explained in this section, under FFDCA a food additive is one type of food ingredient

(substance added to food).

● ● “FDA publishes lists of what it considered to be GRAS substances

and sometimes it will consider a substance GRAS only when used

under certain conditions.
Ch. 15—Health, Safety, and Environmental Regulation ● 363

steps to prevent its sale or remove it from the

market by proving it was “ordinarily . . . injurious

to health” and, therefore, was adulterated within

the meaning of section 402(a) of FFDCA. It might

be able to require premarketing clearance if the

corn were used as an ingredient in other foods,

such as stew, because then it would be subject

to the food additive requirements (21 C.F.R.

\170.30 (f)), Recombinant DNA products that are

similar or chemically identical to GRAS substances

or food additives already approved for use will

be required to go through the approval process

by FDA’s Bureau of Foods, although the Bureau

will be flexible on data requirements.

Animal Feeds, Feed Additives, and Devices.—These products are regulated in a way

similar to the way in which human foods, food

additives, and medical devices are regulated; however, the regulation for animal products is less

rigorous than that for human products. For animal feeds and feed additives, the requirements

for demonstrating safety are less than for the

comparable case of human food and food additives. In the case of animal feed additives, however, there is an additional requirement that they

be shown to be safe to people consuming edible

products from animals receiving the additive. For

animal devices, there is no premarket approval

requirement as there is for many human devices.

At this time, there is no reason to expect any particular regulatory problems if these products are

made by biotechnology.

Veterinary Medicines.—For veterinary

medicines (animal drugs and biologic), FDA’s

authority is similar to its authority for human

drugs or biologics with two exceptions. First,

there is an additional requirement in the animal

drug approval process, i.e., animal drugs must not

leave unsafe residues or metabolizes in edible

tissues or other food products. Second, FDA does

not have the primary regulatory authority over

animal biologics; USDA regulates them under the

Virus, Serum, Toxin Act of 1913 (VST Act) (21

U.S.C. \~151-158), even though they are also technically drugs under FFDCA. USDA’s authority applies only to interstate marketing. According to

a recent case, FDA has jurisdiction over intrastate

marketing (10).

These jurisdictional distinctions have been

blurred by rDNA and MAb technology. An

FDAAJSDA memorandum of understanding creates a standing committee to sort out regulatory

responsibilities in this area (29). * The memo says

FDA will regulate where the VST Act does not

apply or does not offer an appropriate remedy.

The first product to be considered by the standing committee is bovine interferon. Both agencies

claimed jurisdiction, and the committee has split

along agency lines. Several attempts to resolve the

impasse on scientific grounds have failed; however, efforts are continuing. In the meantime, the

manufacturer has encountered additional costs

and burdens by attempting to meet the requirements of both agencies (6).

Control Over Exports.—Under section

801(d) of FFDCA, unapproved food additives and

medical devices can be exported if certain conditions are met. * * Unapproved new human drugs

or biologics and unapproved new animal drugs,

however, cannot be exported except in the following two cases: 1) if the products are subject to

an IND, providing the importing country’s government has approved such imports; or 2) if the

importing country’s government formally requests through the U.S. Department of State that

the product be exported (for purposes of clinical

trials only) (21 C.F.R. j312.l(a)). As to unapproved

animal biologics, there is some question about

whether the VST Act applies to exports. Nevertheless, it is clear that FDA has authority over

such exports, and, as indicated in the previously

—

● The FDA/USDA memorandum of understanding defines animal

biologic products as those that “generally act through a specific

immune process and are intended for use in the trwatment (including

prevention, diagnosis, or cure) of diseases in animals. Such products

include but are not limited to vaccines, bacterins, sera, antisera,

antitoxins, toxoids, allergens, diagnostic antigens prepared from,

derived from, or prepared with microaganisms, or growth products of microorganisms, animal tissues, animal fluids, or other

substances of natural or synthetic origin. ”

● ‘h approved food additive can be exported if the exporter determines, without any need to inform or petition FDA, that the four

conditions in sec. 801(d)fl) of FFDCA are met. The same is true for

a Class I medical device, but an unapproved Class II or Class III

medical device cannot be exported unless a petition has been submitted to FDA and FDA has found that the exportation is not contrary to the public health and safety of the importing country and

has the approval of the importing country, under sec. 801(d)(2) of

FFDCA.
364 ● Commercial Biotechnology: An International Analysis

discussed memorandum of understanding, FDA

could exercise that authority.

The U.S. policy of restricting the export of unapproved drugs and biologics is essentially based

on paternalism. Many countries do not have the

mechanisms either to evaluate or to regulate the

quality of the drugs they import. In addition, there

have been cases of drug dumping—situations

where drugs deemed unsafe or ineffective by the

United States or other developed countries have

been marketed in less developed countries (25).

This policy has several implications for U.S.

companies using biotechnology, and the implications may differ depending on the size of the

company. In part because of the export restrictions, several of the large U.S. pharmaceutical

companies have established manufacturing facilities in foreign countries, where their products

are approved or where the law permits the export

of unapproved products. These actions result in

the transfer of technology, lost employment

opportunities for U.S. workers, and lost opportunity to help the U.S. international balance of

payments. These consequences can be expected

to continue with respect to biotechnology products. The existence of such facilities in foreign

countries may provide the large companies with

at least a short-term competitive advantage over

small, new biotechnology firms (NBFs). * The vast

majority of the latter companies do not have and

probably cannot afford to establish foreign

facilities.

The export restrictions will also have an important implication for NBFs and for U.S. competitiveness in general because they may foster technology transfer to foreign companies with which

they have joint ventures. In their joint ventures

with large foreign companies, some NBFs in the

United States are required to provide bulk product produced by the microorganism to the foreign partner, which would secure necessary approvals and purify, package, and market the drug

in foreign markets. If the U.S. firm is unable to

provide bulk product, the foreign partner then

has the right to obtain the organism for its own

● NBFs, as defined in Chapter 4: Firms Commercializing Biotechnology, are firms that have started up specifically to capitalize on

new biotechnology.

use. The U.S. prohibitions on the export of unapproved drugs and biologics might be one reason why an NBF could not fulfill its agreement

to supply bulk product to its foreign partner,

thereby being required to transfer the organism

and the technology.

In proposed revisions to the regulations governing the approval of new drugs, FDA has taken the

position that bulk products, which it calls “drug

substances,” can be exported only if they are used

in the manufacture of approved drugs and if certain labeling requirements are followed (30). FDA

has proposed to define “drug substance” as “an

active ingredient that is intended to furnish pharmacological activity or other direct effect in the

diagnosis . . . treatment or prevention of disease. . . .“ (30). This definition would cover drug

products produced by biotechnology, even if they

required purification, packaging, and labeling, because such products usually will be active. At least

one NBF in the United States has argued that section 801(d) of FFDCA should not be interpreted

to prohibit the export of such substances for purposes of clinical trials (if the conditions of sec.

801(d) are met) and that such an interpretation

will require it to transfer technology for the reasons mentioned in the preceding paragraph (9).

This entire problem concerning the export of

unapproved drugs can be avoided in the future,

however, without changes in the law or regulations. As mentioned previously, the current U.S.

regulations allow the export of unapproved drug

substances upon the formal request of the importing country’s government. NBFs in the United

States rightly point out that such requests are

unlikely in cases where the government is actively

seeking to encourage inward technology transfer.

However, the NBFs’ licensing agreements with

foreign companies could be written so that the

NBFs would not have to transfer the technology

if the foreign company’s government did not

make the necessary request.

Imported Pharmaceuticals and Foreign

Test Data.—Imported pharmaceuticals must

meet FDA’s IND and NDA requirements, even if

approved for clinical testing or marketing in a

foreign country. A question naturally arises regarding the acceptability of foreign test data.
Ch. 15—Health, Safety, and Environmental Regulation ● 365 — . —
366 ● Commercial Biotechnology: An International Analysis

marketing will be governed by national procedures conforming to the directives.

Although the ultimate aim of the EEC directives

is to replace national drug approval processes

with a Community-wide system, such a system

is unlikely in the near future. The speed with

which the EEC does achieve a Community-wide

drug approval system, however, will have a significant impact on the development of biotechnology, because such a system could cut costs,

provide uniform regulation, speed up the approval process, and open access to new markets.

Currently, the existing directives deal only with

drugs and veterinary medicines, not biologics.

The directives also deal only with some aspects

of the pharmaceutical approval process—marketing authorizations and certain testing requirements. A system has been set up for obtaining

multiple authorizations for marketing in EEC

member states, but control over exports outside

the EEC is entirely up to member states.

Council Directive 65/65/EEC established the

basic regulatory framework with respect to drugs

(4). It requires an authorization from the competent authority of a member state before a drug

can be marketed in that state. It sets forth the

required information that must be submitted to

the authorizing agency and provides that authorization of the product shall be based on a finding

of safety, efficacy, and quality. Licenses are to be

granted for a 5-year period, subject to extension.

A similar directive exists for veterinary medicine (5).

Two questions that will be important to biotechnology companies that manufacture drugs and

that seek EEC marketing authorizations remain

unanswered. The first concerns the so-called

paper NDA issue. The EEC permits a new manufacturer of an already approved product to rely

on published data to establish the safety, efficacy,

and quality of its version. It is unclear, however,

whether this policy will apply to biotechnological

products. Under most member states’ existing regulations, a change in manufacturing process from

chemical to biotechnological synthesis requires

either a new market authorization or an amendment to an existing one. Since the EEC has not

addressed the issue, the individual member states

will determine whether published tests results

can be relied on or whether new tests must be

undertaken.

A variation of this same issue involves unpublished test results. Under current regulatory policies for drug approvals in both Europe and the

United States, the documents submitted in support of an application for approval of a drug (the

“dossier”) are treated as confidential. Proposals

are being considered in Europe, particularly in

the Federal Republic of Germany, to change the

scope of the confidentiality of the dossier. one

proposal is to retain the confidentiality of the

dossier for a certain number of years, and then

allow access to the information after the payment

of compensation to the original manufacturer

who performed the tests.

FEDERAL REPUBLIC OF GERMANY

The Law on the Reform of Drug Legislation of

1976 sets forth the approval process for drugs,

biologics, and veterinary medicines (7). It is designed to conform with the relevant EEC directives, and responsibility for its administration lies

with the Federal Health Office (BGA, Bundesgesundheitsamt).

The licensing procedure for new drugs and biologics produced through biotechnological processes will be the same as for more traditional

products, A manufacturer of pharmaceuticals

must obtain individual marketing authorizations

to distribute each drug or biologic that it manufactures and separate manufacturing authorizations

for each of its production plants. Generally, the

drug approval process takes 4 to 6 months from

the time the application is filed. In the case of biologics, BGA defers to the Paul Ehrlich Institute,

which provides authorizations for the manufacture of sera, vaccines, test aUergens, test sera, and

test antigens. Before deciding to approve a new

drug or biologic, BGA must consult an independent commission of experts composed of physicians and representatives of the pharmaceutical

industry. After an authorization for a drug or a

biologic is given, BGA continues to monitor the

competence of the managers and the adequacy

of the facilities. An authorization may be withdrawn, revoked, or suspended if satisfactory

standards are not maintained.
Ch. 15—Health, Safety, and Environmental Regulation . 367

BGA regulations governing clinical testing of

drugs and veterinary medicines track the applicable EEC directives. No specific prior approval

of clinical testing is required, but BGA guidelines

for such trials must be followed. The process for

obtaining marketing approval and the information

required in the application follows the EEC directives on proprietary medicinal products and on

veterinary medicinal products. * In addition, the

manufacturer must show that it holds a manufacturing license.

Anyone seeking to market an imported product

must show that the product’s foreign manufacturer has the equivalent of a manufacturing

license and a marketing license in the country of

manufacture; otherwise an explanation of why

such authorization has not been granted must be

supplied.

With respect to exports, it appears that a manufacturer intending to produce an item solely for

export must comply with the requirements anci

obtain a manufacturing license but need not

obtain a marketing license.

Certain biologics, specifically sera, vaccines, or

test allergens, may only be marketed if each batch

is approved by the Paul Ehrlich Institute. Approval is given only if a test shows that the batch

possesses the required safety, efficacy, and quality, and has been manufactured and tested by

methods which conform to the standard set by

scientific knowledge currently prevailing.

Several aspects of the Federal Republic of Germany’s pharmaceutical approval process are of

particular significance to pharmaceuticals produced by biotechnology, because a change in

manufacturing process from chemical synthesis

to biotechnology would necessitate a reauthorization of these products. In certain cases, a manufacturer must apply for reauthorization of a drug

● The application data must contain data showing: 1) the toxicological effects and pharmacological properties of the drug; 2) its effectiveness in the given indications; 3) the propriety of the suggested

dosage; 4) side effects; .5) the drug is of appropriate quality’; and

6) the production control methods correspond to scientific knowledge currently prevailing and are suitable for quality’ assessment,

An application for an authorization for veterinary medicines anci

medicated foodstuffs must include residue tests and indicate how

long it takes for residues to occur in edible tissues and how such

residues are to be assessed,

despite an existing authorization. The circumstances in which such a reauthorization must be

sought include a change in the composition of the

active constituents either in type or quantity, a

change in dosage form, or an extension in the field

of application. For biologics such as sera, vaccines,

and test allergens, a change in the manufacturing

process also requires a reauthorization.

Two regulatory issues currently being debated

in the Federal Republic of Germany are also relevant. The first is a regulation now in force that

requires any person who markets a drug in the

country to maintain a legal presence in the

Federal Republic of Germany. The EEC has recently ruled that this requirement is illegal and

has asked that it be abolished, Whether the Federal Republic of Germany will do so remains to

be seen.

The second issue involves current proposals to

modify the confidentiality of drug authorization

dossiers. As in most of Europe, no manufacturer

in West Germany has access to confidential information in another manufacturer’s dossier unless

it specifically receives permission from the original manufacturer, permission which is usually

granted, if at all, only after the payment of substantial compensation. A second manufacturer of

a drug that has already been approved may also

rely on published material in lieu of relying on

the dossier or conducting its own tests, but most

important drugs are not the subject of published

studies. Almost any scientifically reliable material

will be contained in the confidential dossier that

the first manufacturer submitted. Under active

consideration are proposals that would maintain

absolute confidentiality of the dossier for a given

number of years, but then allow for access to the

dossier with a statutorily prescribed compensation system. It will probably be some time before

any such system is enacted (8).

UNITED KINGDOM

Because the United Kingdom is a member state

of the EEC, its regulations conform to the basic

requirements of the EEC pharmaceutical directives. Its current standards are embodied in the

Medicines Act of 1968 and in the regulations

adopted under this statute. No specific regulations

governing the approval of biotechnologically pro-
.

368 ● Commercial Biotechnology: An International Analysis

duced pharmaceuticals have yet been adopted,

so such products are subject to the general approval process set forth in the Medicines Act. The

approval process for pharmaceuticals and related

substances is similar to the U.S. system in several

respects, but it is somewhat less restrictive and

much more efficient in terms of the time for

approval.

The Medicines Act of 1968 provides a comprehensive framework for the regulation of “medicinal products” which include drugs, biologics, and

veterinary medicines. Its provisions are administered by the Health and the Agriculture Ministers

of the United Kingdom, acting with the advice of

the Medicines Commission. The day-today operation of the act is the responsibility of the Medicines Division of the Department of Health and

Social Security.

The regulations governing the use of medicinal

products focus on the safety, efficacy, and quality

of the product. The system utilizes five types of

licenses: licenses as of right, clinical trial certificates, * product licenses, manufacturers’ licenses,

and wholesale dealer licenses. These licenses

apply to the manufacture, sale, storage, import,

or export of any medicinal product. The requirements for the issuance of clinical trial certificates

are considered to be among the strictest in

Europe. Before a certificate can be granted, an

applicant must present animal pharmacokinetic

data, acute and chronic toxicity data, and information on potential reproductive toxicity. The

basic documentation required to obtain a product

license is similar to that required by the relevant

EEC directives. Trial certificates valid for up to

2 years and product licenses valid for 5 years are

issued for drugs on which clinical testing and production began after September 4, 1971. Either

may be renewed.

Additional requirements are imposed with respect to “biological,” which include vaccines,

toxins, antigens, sera, and enzymes. Such biological medicines are licensed on a batch release

system. The manufacturing license requires that

“Licenses of right and clinical trial certificates are self-limiting.

The trial certificates terminate automatically once the trial process

has ended. Licenses of right are transformed into product licenses

once the drug has been reviewed by the Medicines Review Commission and found safe, effective, and of proper quality.

each batch of product be subject to certain tests

and that samples and the results of the tests be

submitted to the National Institute of Biological

Standards and Controls (NIBSC). The basic tests

administered by NIBSC, which may have to be

modified in the case of new biotechnological applications, include potency, purity, toxicity, pyrogenicity, and immunogenicity.

NIBSC has begun considering how its testing requirements may have to be modified for biotechnological products but has not formally adopted

new requirements (2). Among the issues which

NIBSC has identified as requiring modification of

its procedures for biotechnologically produced

products are establishment of the identity of large

proteins produced by rDNA technology, adaptation of bioassay techniques, biological potency,

contamination of biotechnologically produced products with macromolecules of bacterial origin, and

chemical modification of the required products.

Several aspects of the pharmaceutical approval

process in the United Kingdom will be particularly

relevant to the development of biotechnology. The

batch release system for testing biologics will apply to many biotechnologically produced products, but that will be the case in many countries.

Also of importance for biotechnology is the treatment of already licensed drugs produced with

new methodologies. In the United Kingdom, such

drugs require product and manufacturing licenses.

However, the full documentation that would be

required for a completely new drug need not be

provided. The precise amount of documentation

will vary with the particular drug. In general, the

United Kingdom will allow the substitution of

published references for actual test results in

those situations permitted under the EEC Council

Directive 65/65/EEC (4). However, a second manufacturer is not permitted to rely on the confidential information submitted in the dossier of a first

manufacturer. Thus, a new manufacturer of an

already approved drug is required independently

to demonstrate the safety, efficacy, and quality

of the drug through its own research or that of

independent researchers.

Imported drugs also require a product license.

The manufacturer may be required to declare

that any requirements imposed by the law of the

country in which the drugs are manufactured
Ch. 15—Health, Safety, and Environmental Regulation . 369

have been complied with and to permit the licensing authority to inspect his premises to ensure

that they comply with any prescribed conditions

of the license. Drugs produced solely for export

also must be licensed, but the licensing authority

is required to consider only quality, not the safety

and efficacy of the drug.

FRANCE

The French approval processes for pharmaceuticals includes many of the same steps as the processes in the United States. The basic standards

for approval are quality, safety, and efficacy of

the pharmaceuticals, and the necessary tests are

largely the same.

The authority responsible for the registration

of new drug products is the Directorate of Pharmacy and Medicaments of the Ministry of Health,

which administers the requirements of the Public

Health Code, Book V, and the EEC protocols for

analytical, toxicological, and pharmacological tests

and clinical trials. The Ministry of Health uses the

same basic standards of quality, safety, and efficacy required by the EEC.

A manufacturer must notify the Ministry of

Health before commencement of clinical trials of

a new product or for a new indication of an established product. The trials must be carried out

under the supervision of an “approved expert”*

and must follow procedures and present data in

the format established by the Ministry of Health.

Toxicological and pharmacological data must be

submitted to the approved expert prior to commencement of the trials. Except for the analytical

data, the information does not have to be generated by local French studies; however, the foreign data can only be accepted if it is justified by

approved experts and conforms to EEC protocols.

These rules apply also to clinical data generated

by studies conducted abroad. Clinical trials must

be performed in hospitals as controlled experiments.

Prior to obtaining a marketing license, a manufacturer is also required to request authorization

.—.. . —

● “Approwd experts” are scientists tvith expertise in various aspects

of pharmaceutical testing who are approved by the Minister of

Health. The Minister maintains lists of these experts from among

whom an applicant may select experts to re~’iew his or her data

and supenise further testing. Approved experts need not be French.

from the Directorate of Pharmacy and Medicaments to manufacture the new drug product. If

the product is to be manufactured abroad, the

manufacturer must attach to the French marketing application the document granting it authority

to manufacture the product in the foreign country. The marketing authorization itself is subject

to the documentary requirements established by

the EEC directives.

Once a manufacturer has submitted all relevant

data to the Ministry of Health, the Minister must

announce a decision on the application for marketing registration within 120 days. This period

may be extended for another 90 days in exceptional cases. In practice, however, the processing time for an application averages 6 to 8 months.

A second manufacturer cannot rely on the dossier

of a first manufacturer to qualify its drug, so a

new manufacturer making an already approved

drug by biotechnological processes would have

to show the drug’s safety, efficacy, and quality

all over again. However, as in other EEC countries, a manufacturer may rely on some published

data to support its application.

Once registration has been approved, as in the

rest of the EEC, the marketing license is valid for

5 years. It may be renewed for additional 5-year

periods only if the manufacturer formally declares that no modification has occurred in the

scientific data submitted in support of the original

application. The Ministry of Health must therefore be notified of any new data.

A drug may be imported from another EEC

country and, in exceptional circumstances, from

a non-EEC country, provided that a marketing

license has been obtained in France. A certificate

is required proving authorization for sale or distribution within the exporting country. Authorization for the marketing of an imported drug is

only valid for 6 months, but presumably may be

renewed.

Drug products designed for animal consumption are also regulated by the Ministry of Health.

The application procedures for obtaining authorization to market veterinary drugs are basically

the same as those for human drugs.
370 . Commercial Biotechnology: An International Analysis

Switzerland

The Intercantonal Convention for the Control

of Medicaments is the authority for the regulation

of drugs and related products. Under the Convention, the Intercantonal Office for the Control

of Medicaments (IOCM, Interkantonale Kontrollstelle fti Heilmittel) administers the drug regulatory system. IOCM has four principal tasks: quality control of marketed drugs, quality control of

manufacturing, the licensing of new drugs, and

the review and relicensing of existing drugs.

IOCM has responsibility for pharmaceuticals, *

veterinary medicines, and medical devices. Food

and cosmetics are controlled by the Federal Office

of Public Health under separate Federal authority. The quality control functions of IOCM are

exercised through sampling of drugs at the time

of their registration and periodically thereafter

and through periodic inspections of pharmaceutical facilities.

The licensing of pharmaceuticals is much more

streamlined than in other countries. There is no

requirement for government approval before initiation of clinical trials. This is due both to the

small size of IOCM and to greater reliance on the

good faith of manufacturers and the common

sense of medical practitioners participating in the

clinical trials of new drugs.

Approval of the marketing of a drug is based

on its efficacy and safety, which are judged by

an independent board of university scientists.

Approval can be refused not only if the drug is

found not to be safe and effective, but also if its

price is excessive. Licenses are issued for a 5-year

period and may be renewed by the same board.**

The drug approval process generally takes 6 to

10 months.

Of particular importance for biotechnology is

the fact that less documentation is required for

drugs that are not new chemical entities. Switzerland’s streamlined drug approval process

should mean faster action on new drug applica-

“This includes in vivo diagnostics, contraceptives, narcotics,

anesthetics, antibiotics, some industrially produced homeopathic

medicines, herbal remedies, radiopharmaceuticals, and certain blood

products.

“ “In special cases, up-todate analytical, preclinical, and chemical

data as well as samples may be required if requested by 10CM,

tions and on old drugs being produced through

biotechnology.

For imports, it is necessary to have a certification that the drug is authorized for sale or distribution in the country of manufacture and that

the manufacturer is subject to regular inspection.

Drugs intended solely for export are exempt from

registration, but voluntary registration can be

made.

Japan

The approval process for drugs, biologics, and

veterinary medicines in Japan is set forth in the

Pharmaceutical Affairs Law (17). The law generally requires each manufacturer or importer to

obtain a license for each manufacturing plant or

business office and a separate approval for each

drug manufactured or imported. * The manufacturer’s or importer’s license must be renewed

every 3 years. The product approval has no set

duration, but in practice many drugs are reviewed again after 6 years. The approval process

is quite drawn out and complex because many

agencies are involved. The time from submission

of an application to approval is supposed to take

1 to 3 years but in practice takes longer (13).

The information that must be filed with the

application for the approval of a new drug in

Japan include data on origin, discovery, use in

foreign countries, physical and chemical structure

and properties, stability, various forms of toxicity

and other dangerous side effects, pharmacological

action, how the drug will be used in the body,

and results of clinical trials (15). Most of the data

is required to be published as an original article

in a Japanese scientific journal. Data on animal

tests for toxicity must meet certain special requirements. The application will be denied if the

drug has no effect, efficacy, or efficiency as indicated in the application, if the drug is “remarkably dangerous” in comparison to its effect, or

if the drug has been designated improper under

the Ministry of Health and Welfare Ordinance (17).

An application to import a new drug must meet

these standards. It must also contain a document

*The separate approval for each drug is unnecessary if the drug

is listed in the Japanese Pharmacopoeia and has been exempted by

the Minister for Health and Welfare.
Ch. 15—Health, Safety, and Environmental Regulation 371

certifying that the exporting country approves its

manufacture and copies of the import contract

or similar document (16). The import or manufacture of biologics is prohibited unless special

requirements concerning their processing, properties, quality, and storage are met (16). Each

batch of biologics must be tested and approved

by the National Institute of Health.

New drugs must be reexamined about 4 to 6

years after approval, largely so that the safety of

the drug can be assessed in light of post-approval

clinical tests and other scientific research. The

reexamination is to determine whether the drug

now displays any condition that would, if a new

drug application were now filed, require its rejection, i.e., that the drug is not efficacious, is more

dangerous than efficacious, or has been designated improper (17). The approval for a drug may

be canceled if the drug cannot pass reexamination, if health or sanitation reasons so require,

if the licensee fails to submit accurate reexamination material, or if the

the drug for 3 years

drugs produced with

licensee has not produced

(17). How this will affect

biotechnology is unclear.

Environmental regulation *

Protection of the environment is one aim of the

rDNA guidelines in each of the competitor countries; none of them have any other rules specifically directed to the environmental effects of biotechnology. Nevertheless, the more general environmental laws will apply to biotechnological

processes, products, and waste products. The extent to which these general laws will apply to genetically modified organisms used in the environment is uncertain in all of the countries except

the United States, where EPA has asserted jurisdiction under TSCA.

The environmental requirements in the rDNA

guidelines are likely to have little effect on the

competitive position of any country. The specific

measures required for any physical containment

level vary little from country to country, Moreover, most rDNA activities are now conducted at

low containment levels that require essentially

only that good microbiological practices be followed. Deliberate release of genetically modified

organisms is generally prohibited, although procedures exist for exceptions from the prohibition.

In the United States, deliberate release is not prohibited as such, but one who would do so under

the guidelines must have the approval of IBC and

*For specific information regarding the six countries, see the

section on environmental regulation in Appemh F“: f?ecornbinanf

DIVA Research Guicfelinm, Environmental Lawrs, anc] Regulation of

L%’orker Health anti .$afet.b.

NIH, after consultation with the Recombinant

DNA Advisory Committee. *

It is difficult to determine what effect, if any,

the more general environmental regulations of

each country dealing with air and water pollution

and waste disposal will have on biotechnology in

that country. Since much of the environmental

regulation in any country is performed on the

local level, generalizations about national environmental controls can be misleading. States (Lander)

in the Federal Republic of Germany, for example,

are about to enact specific legislation to fill in the

framework set up by Federal laws. Certain environmental legislation in Japan, though enacted at

the national level, applies only to certain areas.

Local authorities in France and the United Kingdom possess considerable responsibility for administering and enforcing environmental rules.

Switzerland leaves most decisions on environmental regulation to the cantons, as it does decisions

on other subjects. The United States has one of

the more centralized systems for environmental

control, but even Federal statutes allow for

responsibility to be transferred to the States.

*,A Iamsuit has heen filed against N1l I rlaiming that al)})rm al b~

the Recombinant DN’A ,Ad\isorJ Committee is not consistent i~i[h

thr National Ent’ironnwntal Polir} Act iind rlaiming that an k;ntironmvntal Impact Statement ITILISt t)(’ pI’(?[MI’(?d k’OUldatk)ll ()[1

I<[wnomic ‘1’I’f’lJdS \ tlt’rld(’r, so. 83 (: I\’ ~y 1A (1).[),(:, Sept. 14, 1 983)).
372 ● Commercial Biotechnology: An International Analysis

All of the countries except Switzerland have

fairly comprehensive and stringent environmental

regulation. Switzerland’s national regulation is

directed only toward water pollution. Thus, its

biotechnology companies may have a competitive

advantage over those in the other countries because of less restrictive environmental regulation.

Yet even the more stringent regulation in other

countries would not necessarily handicap companies because the regulation is directed mainly

toward toxic chemicals. The degree of traditional

environmental problems that companies using

biotechnology might create—air and water pollution and hazardous waste-does not now appear

to be so great that environmental controls will

significantly affect the commercialization of biotechnology. However, increasing commercialization of biotechnology eventually will require more

consideration about the disposal of waste byproducts. All countries are now about equal in this

area, but those who undertake to resolve uncertainties about the specifics of that regulation

should enhance the competitive positions of their

biotechnology companies.

The United States seems to be the farthest

ahead in considering the risks and regulation of

the deliberate release of genetically modified

organisms. This may simply be the result of the

fact that this area of biotechnology is further

along in the United States than in the other countries. In any event, NIH recently has reviewed and

approved several proposals to release organisms

into the environment. Also, on June 22, 1983, two

congressional subcommittees held a joint hearing

on the topic of regulating such releases (22).

At the hearing, EPA took the position that such

organisms are “chemical substances” as defined

by TSCA * and therefore subject to regulation by

EPA under TSCA (3). Although the matter is not

free from doubt, a consensus has been developing

among the experts that TSCA would apply (18).

TSCA gives EPA broad authority to regulate the

products of biotechnology, and, assuming EPA’s

● A ‘{chemical substance” is defined in the relevant part under sec.

3(2)(A) of TSCA as “any organic or inorganic substance of a particular molecular identity,” including “any combination of such substances occurring in whole or in part as a result of a chemical reaction or occurring in nature. . . .“

interpretation of the definition of “chemical substance” survives any subsequent legal challenge,

TSCA would have great potential for regulating

the deliberate release of genetically modified organisms. Under section 4 of TSCA, EPA can adopt

rules requiring testing of chemical substances that

“may present an unreasonable risk of injury to

health or the environment” or will be produced

in substantial quantities (and enter the environment in substantial quantities or result in substantial human exposure) when existing data are

insufficient to make a determination and testing

is necessary to develop adequate data. Section 5

requires the manufacturer of a new chemical substance to notify EPA 90 days before beginning

production and submit any test data it may have

on the chemical’s health or environmental effects.

If the agency decides that the data are insufficient

for evaluating the chemical’s effects and that it

“may present an unreasonable risk of injury to

health or the environment” or will be produced

in substantial quantities (and enter the environment in substantial quantities or result in substantial human exposure), it can propose an order to

restrict or prohibit the chemical substance’s manufacture or use. Under section 6, EPA can prohibit or regulate the manufacture or use of any

chemical substance that “presents, or will present

an unreasonable risk of injury to health or the

environment. ” TSCA also provides for recordkeeping and information gathering about the

environmental and health effects of chemical

substances.

Despite its theoretical applicability, TCSA may

leave much to be desired in terms of a practical

program to regulate the use of genetically manipulated organisms in the environment. First, EPA

has little expertise or experience in the area of

genetic manipulation. Second, its toxic substances

program has been significantly understaffed, according to a 1980 study by the U.S. General Accounting Office study (21), Third, TSCA may not

give EPA sufficient regulatory power, if the risks

presented by deliberate release are viewed as substantial, For example, section 5, which creates the

premanufacturing notice requirement, does not

require the generation of toxicological data. A

recent OTA background paper found that nearly half of the premanufacturing notices submitted
Ch. 15—Health, Safety, and Environmental Regulation . 373

to EPA do not have information about the chemical’s toxicity (26). * Moreover, the burden is on

EPA to take legal action if it believes that insufficient data exists for a new chemical substance.

USDA also has an environmental role to play

with respect to biotechnology. It regulates importation and interstate shipment of plants, animals,

and their pathogens (21 U.S.C. \$lO1-135; 7 U.S.C.

● As to the importance of such information, OTA’S background

paper stated (26): “(k?rtainly, the absence of toxicity data complicates

EPA’s efforts to decide whether a new chemical may present an

unreasonable risk to health or the environment. But the importance

of toxicity data for making decisions about particular chemicals

iraries. Those data are less important for chemicals that closel~’

resemble others for which there is much information and experience. They are critical for unusual chemicals or chemicals for which

there is limited information. ”

\\151-167; 7 U.S.C. \150aa et seq.). Thus, some

of the “raw materials” of interest to biotechnologists in the agriculture field are subject to USDA

restrictions. For example, two potential mechanisms for transferring genes into plants are the

bacterium Agrobaclerimn Imnefaciens with its

integrating Ti plasmid and the cauliflower mosaic

virus. Both the bacterium and the virus are subject to the restrictions. Similarly, work with particularly dangerous animal viruses may be prohibited or severely restricted. For example, work

on foot and mouth disease virus can only be performed at Plum Island, a high containment USDA

laboratory located off the coast of Long Island,

N.Y. USDA also bars entry into the United States

of 22 other pathogens that might be of interest

to companies desiring to produce animal vaccines.

Regulation of worker health and safety*

The rDNA research guidelines in each of the

six countries (but not those of the EEC itself) contain provisions for the safety and health of laboratory workers. Each country also has more widely

applicable laws and regulations, but it is the rDNA

guidelines that will have the most immediate impact on the biotechnology companies.

The substance of the various worker health and

safety provisions in the national rDNA guidelines

varies among the six countries studied, although

most set forth rules to ensure that laboratory

workers are knowledgeable about laboratory procedures, that emergency procedures are known

and safety equipment is available, and that worker

health is monitored for certain types of work. It

seems fair to infer that the costs and burdens

associated with these requirements are modest,

because there has been little criticism or complaints about them from academia or industry (8).

The more general worker health and safety

laws in the United States and in each of the five

foreign countries have had no measurable effect

● For specific information regarding the six countries, see section

on regulation of worker health and safety in ,4ppendix 1+-: Recombinant D,N’A Research Guidelines, En~fironmental La~+rs, and Regulation of H’orker Health and Safet~J.

as yet on the industries using biotechnology in

each country. Each country imposes general

duties on employers to maintain safe workplaces

and to eliminate or control hazardous substances

(although when these substances are specified,

they do not include materials likely to be found

in a biotechnology laboratory). The most that can

be said is that each country has at least one

authority able to impose further requirements to

protect worker health and safety, but none has

yet done so. Such requirements would be primarily process rather than product oriented.

The United States has studied the question of

the possible risks posed to workers from longterm exposure to novel organisms and products.

The Centers for Disease Control and the National

Institute of Occupational Safety and Health

(NIOSI-1) created an ad hoc working group on

medical surveillance for industrial applications of

rDNA. The group concluded that, while physical

containment of rDNA-containing organisms and

their products is the first line of defense, medical

surveillance of industrial workers can play a valuable auxiliary role in protecting their health (19).

Others have disagreed with this finding, questioning the need for surveillance and the ability to

construct a meaningful program.
. . . .

374 . Commercial Biotechnology: An International Analysis

The NIOSH findings have not been implemented

by the Occupational Safety and Health Administration (OSHA), the U.S. agency primarily responsible for worker safety and health. Under the

Occupational Safety and Health Act of 1970, OSHA

can promulgate workplace standards to protect

workers from toxic substances or harmful physical agents. Under a recent decision by the US.

Supreme Court (12), such standards must be “reasonably necessary to remedy a significant risk of

material health impairment. ” Although this requirement would appear to prevent OSHA from

acting on those purely conjectural risks associated

with biotechnology, the agency could act on

known biological risks (e.g., those presented by

known pathogens), or physical risks (e.g., those

presented by the use pressurized containment

vessels). In any event, OSHA has not promulgated

any standards for bioprocesses in general, nor has

it taken any position on regulating biotechnology.

At this point and for the foreseeable future,

worker health and safety regulation of biotechnology is minimal. Thus, it will give neither an

advantage nor a disadvantage to any of the competitor countries.

Findings _ -—

Health, safety, and environmental regulation

can affect the cost, time, and financial risks of

getting products to market. Thus, such regulation

can be expected to affect international competitiveness in biotechnology.

The only government controls directed specifically toward biotechnology are the rDNA guidelines adopted by the EEC and the six competitor

countries. They are essentially voluntary and

directed primarily at research, although they do

apply to large-scale work to varying degrees.

Their containment and oversight provisions have

been substantially relaxed since they were originally adopted, and this trend is expected to

continue.

The rDNA guidelines in the competitor countries are quite similar in their regulatory goals,

requirements, and implementation because they

are generally patterned after the U.S. guidelines,

which were initially developed through the efforts

of the international scientific community. Nevertheless, there are differences that allow the

guidelines to be ranked in terms of their restrictiveness and potential impact on the competitiveness of the various countries.

The rDNA guidelines of the United States are

the least restrictive of the guidelines in any of the

competitor countries. The vast majority of the experiments that are done with the most commonly used host-vector systems are either exempt or

can be done at the lowest containment levels.

Prior approval, even by the IBCS) is required only

for a limited category of experiments. The rDNA

research guidelines of Japan and the European

countries are more restrictive than the U.S. guidelines in one or more of the following ways:

● they require more stringent containment;

● they require more time-consuming approval

procedures;

● they have fewer categories of approved hostvector systems; or

● they severely restrict large-scale work.

Japan has the most restrictive rDNA guidelines.

A limited number of host-vector systems have

been approved for use. More importantly, companies have had extreme difficulty in obtaining

approval to do work with more than 20 liters of

culture, but this is expected to change soon.

Of the remaining countries, Switzerland appears to have the least restrictive guidelines. Its

Government has played no role in the guidelines,

and there are no requirements covering largescale work. However, Switzerland follows an

earlier, and thus more restrictive, version of the

U.S. guidelines. The guidelines in France and the

United Kingdom appear to be roughly equivalent

with regard to their impact on biotechnology. The

Federal Republic of Germany appears to be

slightly more restrictive, primarily because

Government approval must be obtained before

even moderate risk experiments can be started.
Ch. 15—Health, Safety, and Environmental Regulation 375

It is the existing regulation that will most affect

biotechnology: product approval laws, environmental laws, and worker health and safety laws.

The most important of these for biotechnology

will be the product approval requirements, especially for pharmaceuticals and veterinary medicines because those products are the most stringently regulated or the subject of much of the current effort in product development. For this

reason, and because of insufficient information

on foreign regulation of the other products, the

analysis for product approval in this chapter concentrated on the regulation of pharmaceuticals and

veterinary medicines,

With respect to the product approval process,

particularly for pharmaceuticals and animal

drugs, the United States appears to be at a competitive disadvantage with respect to all of the

other countries except Japan. The competitive disadvantage for the United States results mainly

from the time and cost necessary to secure

premarketing approval. In contrast, the United

Kingdom has the most expedited pharmaceutical

approval process, even though its substantive requirements are quite similar to those of the United

States. Switzerland is the least restrictive of the

countries in terms of substantive requirements.

For example, it does not require Government approval before initiation of clinical trials, In contrast to pharmaceuticals and animal drugs, the

regulatory requirements for animal biologics are

less restrictive in the United States and roughly

on par with those in other countries.

Another reason the United States is at a competitive disadvantage is that the United States, in

contrast with the other countries, does not allow

the export of unapproved pharmaceuticals. In

addition, bulk drug products may also not be able

to be exported, Given certain provisions in joint

venture agreements between U.S. NBFs and their

foreign partners, these requirements could enhance the transfer of biotechnology to foreign

companies.

Specific requirements regarding biotechnology

products are or will be set at the agency level

within the existing statutory framework. In the

United States, FDA has taken the lead in developing and publishing informal statements. Since

these statements help dispel uncertainties, they

will help product development. In its policy statements, however, FDA has taken the position that

rDINA products whose active ingredients are

identical to ones already approved or to natural

substances will still need to go through the new

product approval process. However, data requirements may be modified and abbreviated. This appears not to be the situation in other countries,

although there have not been definitive pronouncements by the regulatory agencies.

one area of uncertainty that could hinder U.S.

competitiveness in biotechnology to some degree

is the question of jurisdiction over animal biologics. FDA and USDA are engaged in a jurisdictional dispute that could delay product approvals.

Environmental and occupational safety and

health regulations are not likely to give any of the

countries a significant competitive advantage in

biotechnology. This regulation is likely to play a

minor role, except in the area of deliberate release

of genetically manipulated organisms into the

environment. For that application of biotechnology, uncertainties exist as to what, if any, kind

of special regulation will develop. The United

States appears to be the farthest along in considering the problem; thus, to the extent that decisions

are made and the regulatory picture clarified for

corporate planners, the United States may have

a slight advantage.
376 ● Commercial Biotechnology: An International Analysis

Issue and options

ISSUE: How could Congress improve U.S.

competitiveness in biotechnology

through changes in the regulatory

environment?

Regulation imposes costs, constraints, and delays on biotechnology companies that are justified when they promote such general goals as the

enhancement of human health or quality of the

environment. To the extent that such regulation

is inefficient or unnecessarily restrictive or

creates uncertainties that impede business planning, however, it will restrict biotechnological

innovation and U.S. competitiveness in biotechnology without achieving the other goals.

OTA has identified several options that could

improve U.S. competitiveness in biotechnology

through changes in laws, regulations, and administrative policies regarding health and safety.

Many of these are not specific or limited to biotechnology but nevertheless could significantly

affect this technology. Furthermore, many of the

actions could be taken by executive agencies, and,

in fact, are being considered. Nevertheless, Congress may decide legislative action is necessary

or more appropriate.

Option 1: Amend the Federal Food, Drug, and Cosmetic Act (FFDCA) to permit the export of

unapproved drugs and biologics.

of the six competitor countries identified in this

assessment, the United States is the most restrictive regarding the export of unapproved drugs

and biologics. The relevant provision of FFDCA

is designed to prevent “drug dumping’ ’—situations

where drugs deemed unsafe or ineffective by the

United States or other developed countries have

been marketed in developing countries.

Those who advocate eliminating this provision

of FFDCA argue that a US. company can have

ethical reasons for wanting to export a drug that

is unapproved by FDA. For example, it may be

supplying a company that sells the drug in a country that has approved the drug for sale. Advocates

of eliminating this provision also argue that the

provision simply embodies U.S. paternalism

toward other countries, which are capable of

making their own health and safety decisions.

Partly to avoid the U.S. ban on the export of unapproved drugs, the multinational drug companies have established foreign manufacturing facilities. This practice results in the transfer of

technology and jobs from the United States and

has an adverse effect on the U.S. balance of

payments. For NBFs, which may not have the

money to establish foreign facilities or the time

before contract revenues and capital run out, the

export restriction may be especially burdensome.

FDA has taken the position that bulk pharmaceutical products made by biotechnology are

drugs because such products are biologically active; thus, the export prohibition of FFIICA applies. One U.S. company, Genentech, has asserted

that its inability to sell bulk pharmaceutical products to its foreign joint venturers will result in

its being required to transfer the technology to

produce that bulk product to its foreign partners.

This company has argued that bulk pharmaceutical products produced by biotechnology and not

labeled as drugs should not be considered drugs

under FFDCA and FDA regulations. Clearly, this

question of interpretation could be resolved on

the administrative level without congressional action. To change the general prohibition in FFDCA

against the export of unapproved human and animal drugs and biologics, however, legislation

would be necessary.

The arguments against amending FFDCA to permit the export of unapproved drugs and biologics

are essentially moral ones. There have been

documented cases of drug dumping in developing

countries. Supporters of the existing restrictions

argue that the United States has a moral duty to

try to prevent such actions and that the developing countries are unofficially in favor of these

export restrictions.

There are several different ways that legislation

to permit the export of unapproved human and

animal drugs and biologics could address these

moral arguments. First, the legislation could exclude products that have actually been barred by

FDA. Second, it could permit the export of unapproved drugs and biologics only if they have
Ch. 15—Healfh, Safety, and Environmental Regulation 377

. —

25-561 0 - 84 - 25
378 ● Commercial Biotechnology: An International Analysis

Option 4: Address the uncertainties and concerns

about the deliberate release of genetical!y

manipulated organisms into the environment by passing new legislation or amending the Toxic Substance Control Act to clari -

[V its applicability to living organisms.

There are risks associated with releasing nonindigenous organisms into the environment. Although most nonindigenous such organisms do

not establish an ecological niche, many have done

so with disastrous consequences. For example,

over half of the insect pests in the United States

today came from abroad; similarly, the microorganism causing Chestnut blight was not indigenous to the United States.

The risks of releasing genetically manipulated

organisms into the environment are not known.

On one hand, changing the genetic makeup of an

organism usually decreases its ability to survive.

On the other hand, many of these organisms, such

as microbes used for enhanced oil recovery, will

have to be manipulated so as to be competitive

with indigenous micro-organisms and to be able

to withstand extreme environments in order to

be able to accomplish the task. Some industry

spokespeople, who believe that rDNA-containing

microorganisms do not present any special risks

when properly contained in bioreactors, have

expressed concern about the deliberate release

of such micro-organisms into the environment.

The concern about releasing genetically manipulated organisms into the environment and the

Chapter 15 references* —

1. Bozeman, N. H., “The Regulation of Hybridoma

Products)” The Impact of Hybridoma Technology

on the Medical Device and Diagnostic Product Industry, T. J. Henry (cd.) (Washington, D.C.: Health

Industry Manufacturers Association, 1982).

2. Bristow, A. F., and Bangham, D. R., “The Control

of Medicines Produced by Recombinant DNA Technology, ” Trends in Biological Science (Amsterdam:

Elsevier/North-Holland Biomedical Press, August

1981), 6: VI-VIII.

● Note: F.2d =Federal Reporter, Second Series

S Ct. =Supreme Court Reporter.

uncertainties about the Federal Government’s authority to regulate such activities may impede

developments in the use of biotechnology in areas

such as microbial enhanced oil recovery, pollution

control, and mineral leaching. It may even hinder

genetic manipulation of plants, * although the

risks involved are seen as much less than those

for micro-organisms. Given the concern about

risk and the uncertainty over the Federal Government’s possible regulatory response, U.S. companies may have difficulty planning where to

place limited resources for research and product

development.

Opponents of this option are likely to question

whether legislative action is needed to accomplish

the goal of environmental protection. Although

most experts acknowledge that there is uncertainty about whether TSCA covers organisms, a

consensus seems to be developing that it does.

More importantly, EPA has taken the position that

TSCA applies. In addition, voluntary oversight is

being exercised by the Recombinant DNA Advisory Committee, although the quality of that oversight is the subject of litigation.

● The U.S. Recombinant DNA Advisory Committee (RAC) recently approved a change in the guidelines that would permit field tests

with plants containing rDNA with the prior approval of the local

Institutional Biosafety Committee and a working group of the RAC

under certain conditions.

3. Clay, D. R., Acting Assistant Administrator, Office

of Pesticides and Toxic Substances, Environmental

Protection Agency, statement in Environmental Implications of Genetic Engineering, hearings before

the Subcommittee on Science, Research, and Technology and the Subcommittee on Investigations

and Oversight, House Committee on Science and

Technology, U.S. Congress, June 22, 1983 (Washington, D.C.: U.S. Government Printing Office,

1983).

4. Council of the European Communities, Council

Directive of 26 January 1965, No. 65/65/EEC, on

the Approximation of Provisions Laid Down by
Ch. 15–Health, Safety, and Environmental Regulation 379

5,

6.

7.

8.

9.

10.

11.

12,

13.

14,

15.

16.

17.

18.

19.

20.

21.

22,

23.

24.

25.

26,

27.
380 ● Commercial Biotechnology: An lnternational Analysis

28

29

30

31

32

33.

34.

35.

36.
Chapter 16

Intellectual Property Law
Contents

Introduction .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Intellectual Property Law of the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Law of Trade Secrets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Plant Breeders ’Rights Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Comparison of U.S. and Foreign Intellectual Property Law . . . . . . . . . . . . . . . . . . . . . . . .

Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Trade Secret Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Plant Breeders’ Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Evaluation of Effectiveness of Intellectual Property Law To

Promote the Development of Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

United States.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ... a s+.......

Foreign Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Issue and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 16 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

383

384

384

385

392

393

393

398

399

4 0 0

4 0 0

401

401

403

405
Chapter 16

Intellectual Property Law

Introduction

Biotechnology will give rise to a vast array of

new inventions. The inventions may be placed

into two general categories: products and processes. Products will include organisms, such as

genetically modified micro-organisms, cell lines,

hybridomas, plants, and possibly even animals.

Products also include parts of organisms and

related material such as high expression plasmids,

viral vectors, synthetic genes, probes, and restriction enzymes. Finally, there will be products of

organisms, such as drugs, chemicals, biologics,

and monoclinal antibodies (MAbs). Processes will

include various ways to make new organisms or

parts thereof or to use an organism to make some

product such as insulin. Other examples of processes include various bioprocessing techniques,

regeneration of plant tissue culture, breeding

techniques, and methods of treating the human

body. In addition, research and development

(R&D) will give rise to new knowledge, which will

be of value to whoever possesses it.

The ability to secure a property interest in an

invention and to protect related know-how generally is perceived as providing an extremely important incentive for a private company to spend

time and money to carry out research, development, and scale-up for the commercialization of

new processes and products. Without the ability

to prevent other companies from taking the results of this effort, many new and risky projects

that could lead to important new products would

not be undertaken. Empirically proving this notion, however, is difficult (47). It is beyond the

scope of this chapter to delve into the debates

among experts on that problem. This chapter will

assume—as our society does—that the ability to

secure property interests in or otherwise protect

technological processes, products, and know-how

will encourage development of technology. Therefore, one factor to evaluate in assessing U.S. competitiveness in biotechnology is how well the law

of intellectual property of the United States and

the five other major competitor countries—Japan,

the Federal Republic of Germany, the United

Kingdom, France, and Switzerland-aIlows inventors, private companies, and others to protect the

results of their efforts.

The three categories of intellectual law most

relevant to biotechnology are those dealing with

trade secrets, patents, and plant breeders’ rights.

These are the focus of this chapter. * Copyright

may also be relevant, because it protects the tangible expression of information, and a gene may

be viewed as the tangible expression of information (36). Because this idea has not been widely

accepted, and several commentators have criticized its usefulness (16)40)52)) here it will not be

discussed any further.

The categories of intellectual property law work

together as a system. If one has disadvantages,

a company can look to another. To the extent that

a country has available many alternative ways for

companies to protect biotechnological inventions,

it is more likely to be competitive in biotechnology.

This chapter compares and contrasts the law

relating to the protection of biotechnological

inventions and related know-how in the United

States, the United Kingdom, the Federal Republic

of Germany, Switzerland, France, and Japan. The

chapter begins by examining U.S. law in order

to provide a basis for comparisons, raise the relevant issues, and explain some basic legal concepts.

—

● Two other areas of law are also relevant to biotechnology but

will not be considered in this chapter: personal property law and

contract law. Traditional personal property law will apply to cell

lines and many other biological inventions because they are physical

objects—just like cars and jewelry. Contracts create legally enforceable rights and duties between the contracting parties. Thus, biotechnological inventions can be protected by contract, and in k’iew

of some of the uncertainties in the intellectual property lam’ regarding biotechnolo~~,, contracts can be important to biotechnolo~~

companies in many instances. These topics will not be considered

further in this chapter, because OTA was unable to obtain information on how they would apply to biotechnoloqv in other countries. Some commentators have ad[iressed their applicability to

biotechnolo~~ in the LJnited States (10,40,42).

383
384 ● Commercial Biotechnology: An International Analysis

Foreign intellectual property laws are considered tected; and 3) what questions are unanswered?

after the discussion of the U.S. law and also in Policy options for Congress addressing the issue

appendix G. The strengths and weaknesses of the of how to improve U.S. competitiveness in biolaws of the six countries are then analyzed by con- technology by strengthening U.S. intellectual

sidering three basic questions: 1) what interests property law are identified and discussed at the

will the law protect; 2) how well will they be pro- end of the chapter.

Intellectual property law of the United States

As noted above, three categories of intellectual

property law are particularly relevant to biotechnology: trade secrets, patents, and plant breeders’

rights,

Law of trade secrets

An inventor is regarded in the United States as

having a natural right to keep an invention secret.

This right is recognized by the law of trade secrecy. A trade secret is generally viewed as “any

formula, pattern, device, or compilation of information which is used in one’s business, and which

gives him (sic) an opportunity to obtain an advantage over competitors who do not knew or use

it” (l). * Examples of trade secrets in biotechnology are a method for genetically manipulating an

organism, a method for selecting among the organisms for those particular characteristics, and the

organism itself.

The holder of a trade secret in the United States

can enforce his or her interests in State courts

by securing either an injunction or monetary

damages against a person who takes or otherwise

acquires the secret through improper means, or

even against a person who acquired it through

mistaken disclosure by the owner.** Criminal

penalties may also be available in egregious cases

in the majority of States. The underlying policy

is that a person should not benefit by unfairly

using another’s efforts.

“In recognizing the existence of a trade secret, the courts do not

use a hard and fast definition, but look at numerous factors, such

as the extent to which the information is known outside of the

business, the effort involved in developing and guarding the information, and the difficulty with which the information could be properly acquired by others (see 34).

* ● The cases also recognize secret information that does not qualify

as a trade secret, but a person acquiring or using that information

is liable only if he does so by “improper means” (l).

In the United States, virtually any biological invention, including cells and their components, or

related information would be protectable by the

law of trade secrets. *

It should be noted, however, there are some

limitations on its scope. One important limitation

arises from the fact that a trade secret must be

continuously used in a business. This requirement

raises questions about the results of basic research. Generally, the courts have held that if information is merely a preliminary idea, it does

not qualify as a trade secret (41,51). Some degree

of commercial value must be established if the

information is to be considered a trade secret. A

few States have taken a more expanded view of

the concept of trade secret and protect information that also has only potential economic value.

In those States—Arkansas, Idaho, Kansas, Minnesota, and Washington—the results of basic research clearly would be protected.

Another possible limitation on the scope of the

law of trade secrets arises from the fact that the

holder of a trade secret must know the information and attempt to keep it secret from others.

In the well-known case involving disputed ownership of an interferon-producing cell line, Hoffmann-La Roche, hc. v. Go/de (28). Genentech

(U. S.) and Hoffmann-La Roche (Switzerland) apparently argued that the University of California

had no trade secret interest in the cell line because the university did not know about its ability to produce interferon (10).

The advantages of a trade secret to its holder

are several. First, there is no time limit on trade

*Misappropriation of an organism or other tangible biological

material constitutes misappropriation of the information it contains

(see 53).
Ch. 16—Intellectual Property Law ● 385

secret protection. It should be noted, however,

that in a fast moving area like biotechnology, the

“useful life” of a trade secret may actually be quite

short. Second, a trade secret does not have to be

a patentable invention. Third, maintenance and

enforcement are generally less expensive for

trade secret rights than for patents. Fourth, competitors are not apprised of the information, in

contrast to the situation with patents (see below).

Fifth, trade secret protection is valuable for certain inventions that would be hard to police if

patented. For example, if a product is capable of

being made by many different processes, keeping secret a new process for making the product

might be preferable to patenting it. Sixth, if there

is doubt as to the patentability of an invention,

trade secrecy is a viable alternative. Finally, certain organisms and parts thereof, such as highexpression plasmids, may be better off held as

trade secrets, since they could not be reverse

engineered from the products that they produce,

but, if patented, would be placed in the public

domain.

Disadvantages of relying on trade secrecy include the following. First, the protection exists

only as long as secrecy exists. The holder of a

trade secret has no rights against someone who

independently discovers and uses the trade secret

and has no rights against someone who may have

innocently learned the secret from someone who

originally obtained it improperly. Second, reverse

engineering (the examination of a product by experts to discover how it was made) is a legitimate

way to discover a trade secret. The structure of

a gene, for example, may be determined by reverse engineering a polypeptide that is on the

market. Because of the complexity of biological

processes and organisms, however, most of these

will not be capable of being discovered by reverse

engineering of their products. Third, trade secrecy is, by definition, incompatible with the desire

of most scientists to publish the results of their

research. If a company wishes to attract and retain good scientists, it may not be able to rely on

trade secrecy to protect their work. Fourth, there

is always the chance that a trade secret will be

independently discovered by another, who then

obtains a patent on it. The patent holder may then

prevent the holder of the trade secret from using

it. Finally, the acquisition of a trade secret by a

competitor through misappropriation or breach

of a confidential agreement may be difficult to

prevent, discover, or prove. Microorganisms are

especially easy to steal, once one gains access to

them, because of their small size and self-replicating nature. Further, the thief would not even

have to understand exactly the valuable information contained in the micro-organisms; he or she

has acquired the factory (i.e., the microorganism)

and the ability to grow it in any amount desired.

Patent law

U.S. patent law, Title 35 of the United States

Code, is designed to encourage invention by granting inventors a limited property right in their inventions. A U.S. patent gives the inventor the right

to exclude all others from making, using, or selling the invention within the United States without

the inventor’s consent for 17 years. In return, the

inventor must make full public disclosure of the

invention.

The policy behind U.S. patent law is twofold.

First, by rewarding successful efforts, a patent

provides inventors and their backers with an incentive to risk time and money in R&D. Second,

and more importantly, the patent system encourages public disclosure of technical information,

which may otherwise have remained secret, so

that others are able to use it. The inducement in

both cases is the potential for economic gain

through exploitation of the patent right.

To qualify for patent protection in the United

States, an invention must meet the following requirements:

. it must be capable of being classified as a

process, machine, manufacture, or composition of matter;*

● it must be new) useful, and not obvious; and

. it must be disclosed to the pubIic in sufficient

detail to enable a person skilled in the same

or the most closely related area of technology

to construct and operate it.

“These categories are set out in j 101 of Title 35 of the Llnited

States Code (35 [T.S.C. $101). Sec. 101 is the basic section under which

most inventions are patented. Patents under 35 U.S.C. $101 are often

called utility patents.
386 ● Commercial Biotechnology: An international Analysis

Plants that reproduce asexually may also be

patented under slightly different criteria.

The criteria for obtaining and enforcing patents

on biotechnological inventions are quite similar

in the six countries being examined in this report.

The following eight subsections discuss the criteria of patentable subject matter, novelty, utility, nonobviousness, disclosure requirements, deposit requirements, claims, and enforcement in

the United States in order to provide a basis for

a comparative analysis of how each country’s patent law will affect its competitiveness in biotechnology.

PATENTABLE SUBJECT MATTER

The categories of patentable subject matter

under 35 U.S.C. $101—process, machine, manufacture, or composition of matter—are quite

broad but they are not unlimited. The courts have

held scientific principles, mathematical formulas,

and products of nature to be unpatentable on the

grounds that they are only discoveries of preexisting things—not the result of the inventive,

creative action of human beings, which is what

the patent laws are designed to encourage.

One of the major patent law questions arising

with respect to biotechnology is whether living

organisms are patentable subject matter. The U.S.

Supreme Court addressed this question in 1980

in the landmark case Diamond v. Chakrabarty

(21). In a five to four decision, the Court held that

the inventor of a new micro-organism, whose invention otherwise met the legal requirements for

obtaining a patent, could not be denied a patent

solely because the invention was alive. The Court

ruled that Congress had not intended to distinguish between unpatentable and patentable subject matter on the basis of living v. nonliving, but

on the basis of “products of nature, whether or

living or not, and human-made inventions” (22).

The U.S. Supreme Court stated that its decision

in the Chakrabarty case was limited to a humanmade micro-organism, leaving unresolved questions of whether eukaryotic cells or other higher

organisms would be patentable subject matter.

In theory, however, the Chakrabarty decision

stands for the proposition that any organism is

potentially patentable, because the crucial test

used by the Court was whether or not the organism is human-made. As a result, eukaryotic cells,

cell lines, tissue culture, and even plants are generally viewed as being patentable under 35 U.S.C.

$101. The harder question is whether the U.S. Patent and Trademark Office or the courts would

permit patents on higher organisms such as

animals. *

There is no question, however, that virtually

any other biotechnological invention would be

patentable subject matter, providing that it meets

the other requirements. Such inventions would

include processes using micro0organisms, recombinant DNA (rDNA) molecules, subcellular units

such as plasmids, methods for making these inventions, and biotechnological methods for treating human or animal disease (29). * *

NOVELTY

The statutory requirement of novelty signifies

that an invention must differ from the “prior art,”

which is publicly known technology. Novelty is

not considered to exist, for example, if: 1) the applicant for a patent is not the inventor; 2) the invention was previously known or used publicly

by others in the United States; or 3) the invention was previously described in a U.S. or foreign

publication or patent (35 U.S.C. f102). The inability to meet novelty requirement is another reason

why products of nature are unpatentable.

Two questions are particularly relevant to biotechnology. First, how can naturally occurring

substances, such as genes, plasmids, and even

organisms, be patentable? Second, what actions

on the part of an inventor, such as discussing the

invention with colleagues or publishing a paper

about the results of research, can place the invention in a public domain, thus barring patentability because the invention will not be novel?

● The U.S. Patent and Trademark Office has stated that it will determine questions as to patentable subject matter on a case-by~ase

basis following the test set forth in Chakrabarty (49).

* ● A [J.S. Patent and Trademark Office official estimated that there

are currently 500 genetic manipulation related patent applications

pending, that the office is receiving applications at the rate of 200

per year, and that the rate is increasing (46). These applications are

classified in Class 435, Subclass 172 in the U.S. Patent Classification System (46). This classification is not coextensive with OTA’S

definition of biotechnology.
Ch. 16—intellectual Property Law . 387

As to the first question, the crucial element of

patentability for most biological inventions in the

United States, as shown in the Chakrabarty case,

will be the fact that the substance was in some

way changed from the naturally occurring substance by human intervention. For example,

although genes and regulatory sequences may be

obtained from natural sources, it is the removal

of the DNA sequences from their natural habitat

and their joining to other DNA sequences that

provides the human-made requirement of the

Chakrabmty case. Thus, it is not the sequence that

is new, but the environment, such as the host or

flanking DNA regions (44). *

As to the second question, it should be noted

that U.S. law, in contrast to the laws of most

foreign countries, provides a l-year grace period

between the date of any publication by the inventor relating to the invention and the filing of

a patent application, This grace period in the

United States is generally viewed as favorable to

the rapid dissemination of new scientific knowledge, because knowledge pertaining to an invention can be published without the inventor’s

foregoing the opportunity to file for a patent.

Most countries other than the United States require the patent application to have been filed

before the invention is disclosed, for example, in

a scientific paper. This requirement is known as

“absolute novelty” and will be discussed in greater

detail in the section comparing and contrasting

U.S. and foreign law. * *

UTILITY

The utility standard in the United States is generally not a difficult standard for an invention to

meet to qualify for a U.S. patent. There is one

potential problem, however, with regard to biological inventions. Since the courts have held that

an invention must show some practical or commercial utility (12,32,33), certain results of

● In a companion case to Chakrabart-v, a lower court, the Court

of Customs and Patent Appeals (now the Court of Appeals for the

Federal Circuit), held that a purified culture of naturally occurring

bacteria was patentable subject matter (3). For procedural reasons,

the Supreme Court did not rule on this issue.

● *Japan provides for a limited 6-month grace period for: 1) experimentation, publication, and papers presented before scientific

organizations by the applicant; Z) unauthorized disclosure by third

parties; and 3) displays at authorized exhibits. Otherwise, it is considered an absolute novelty country.

research that may be very important for research

purposes (e.g., a new DNA probe or even certain

organisms) may not meet the utility standard. This

problem can generally be avoided by describing

some practical use of the invention in the patent

application, even if that use will not be the one

that is of ultimate commercial value to the

company.

NONOBVIOUSNESS

The nonobviousness standard that inventions

must meet to qualify for a U.S. patent pertains

to the degree of difference between the invention and the “prior art .“ An invention that would

have been obvious at the time it was made to a

person with ordinary skill in the relevant field of

technology is not patentable (35 U.S.C. ~103). The

U.S. patent law requirements for nonobviousness

and novelty together represent a policy that a patent should not take from the public something

that it already enjoys or potentially enjoys as an

obvious extension of current knowledge.

Given the fact that many of the basic techniques

in biotechnology are well known and straightforward to competent scientists, how can the various

inventions meet the nonobviousness standard?

The answer is that biotechnology is still in many

respects a very inexact science. Many of the various manipulations of genetic material, for example, will give unexpected results. Difficulty in the

isolation or preparation of materials and the unexpected or superior nature of results are some

of the criteria that would be used to show nonobviousness.

It is interesting to note that some scientists view

hybridoma technology as more straightforward

than rDNA technology. If this is true, patents may

be more difficult to obtain for hybridoma technology than for rDNA inventions, necessitating

.

a greater reliance on trade secrets. However,

there are still many problems associated with

human-human hybridomas, so broad patents may

be able to be secured for inventions in that area.

(See Box D.–patents on Hybridoma Inventions for

further information on patenting hybridoma technology.)

The nonobviousness requirement may present

another problem for biotechnology. The rapid
388 ● Commercial Biotechnology: An International Analysis

development and complexity of the field will make

it difficult to determine as of a given point in time

what is ordinary skill or what is obvious.

DISCLOSURE REQUIREMENTS

The requirement for adequate public disclosure

of an invention is designed to ensure that the

public receives the full benefit of the new knowledge in return for the granting a limited monopoly to the patent holder, Thus, a U.S. patent, which

is a public document, must contain a sufficiently

detailed description of the invention to enable

others in that field of technology to build and use

the invention without “undue experimentation. ”

This is known as the enablement requirement.

The patent also must disclose the best mode

known to the inventor for carrying out the invention at the time the patent application is filed.

In the case of biological inventions, satisfying

the enablement requirement is a major hurdle.

Because of their complex and unknown nature,

many biological inventions, especially organisms,

cannot be sufficiently described in writing to

allow their predictable reproducibility on the

basis of that description alone. Even with fairly

precise techniques such as rDNA, random events

provide uncertainty as to predicting the exact

nature of the final product. There is always the

possibility during the manipulation of DNA fragments, plasmids, and transformed organisms that

random changes have occurred, The final product may in fact be quite different from the description provided by the experimenter, even

though the experimentation process itself may

have been accurately described.

This problem has been dealt with for patent applications on new micro-organisms or processes

involving them by permitting the microorganisms

to be placed in culture depositories, where they

are available to the public (31). The depository

and the culture catalog number are then referenced in the patent application, and if the patent

issues, the public gains access to the culture. *

There is some debate over whether such things

as plasmids must be deposited, because there is

some question as to the reproducibility of the plas -

mids on the basis of a written description alone.**

● The case law has left open the possibility of satisfying enablement in ways other than through a deposit (25,31).

* ● One of the questions raised by the patent examiner in the pending Cohen-Boyer patent application on the products of rDNA technique, e.g., plasmids, was whether the application disclosed a reproducible way to make a certain plasmid (5).
Ch. 16—intellectual Property Law 389

In an-y event, the enablement requirement will

be one major hurdle to the patentability of higher

organisms because of the logistical problems

associated with depositing those organisms.

DEPOSIT REQUIREMENTS

Deposit requirements in the United States have

developed by court decision and administrative

action. The practice of the U.S. Patent and Trademark office has been to require a deposit to be

made at a recognized depository no later than the

patent application filing date (50). The office further requires that deposits be maintained for the

life of the patent (50).

Along with the other five countries being considered in this report, the United States is party

to the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the

purpose of Patent Procedure (14), which attempts

to harmonize the deposit requirements of the signatory countries. Under the treaty, the signatory

states recognize in their own patent procedures

a micro-organism deposit made in another country if the deposit is made in a depository meeting

the requirements of the treaty. * Thus, if the patent applicant is filing applications in several countries, only one deposit need be made. Deposits

made under the treaty must be maintained for

at least 30 years.

A potential problem that arises with respect to

deposits should be noted. Although any valid patent must describe an invention with sufficient

specificity so as to enable a person of ordinary

skill in that technology to make the invention,

there is a significant difference between describing an invention and actually turning it over to

the other person. The know-how that is associated with the actual making and subsequent perfection of an invention clearly provides the inventor with an advantage over a competitor who

must construct the invention from the description in the patent. Yet in the case of a microorganism, the invention must actually be turned

over to any competitor who desires it. In essence,

therefore, the holder of a patent on a micro-organism that produces a commercially useful poly -

*’l-h(~ American ‘1’vpe Culture Collection in Rock\ ri]k?, Nld., and

LTsD,,\’s ~orth(?rn Kegional Research Lahorator~’ in Peoria, 11!.,

together with fiiw foreign institutions, currently meet the requirements (45).

peptide such as insulin must turn his or her “factory” (i.e., the micro-organism) over to competitors. Given the current state of the technology,

this situation is probably unavoidable. Possibly,

however, consideration could be given to allowing various restrictions to be placed on access to

the deposits.

CLAIMS

Claims are the precise language that define the

boundaries of an invention protected by a patent.

U.S. law permits a series of claims, ranging from

broad to narrow, to be made with respect to an

invention, so that if one or more of the claims are

subsequently held invalid (e.g., for covering some

of the prior art or being indefinite), the inventor

may still be able to rely on a narrower invention.

of course, all of the claims could be held invalid.

The scope of permitted claims will be important for biotechnology. The scope is initially determined by what the U.S. Patent and Trademark

Office will accept. In any new technology, the initial inventions tend to be broad and pioneering,

so broad claims are usually permitted. As time

passes, however, prior art develops and new extensions of the art become more obvious. Then,

the claims permitted by the Patent and Trademark Office will be narrower. The Cohen-Boyer

patent on the basic rDNA technique (U.S. Patent

4,237,224) is an excellent example of a broad, pioneering invention, although some commentators

have questioned its validity (7). In the case of

hybridomas and MAbs, however, there is some

indication that the Patent and Trademark Office

is being fairly conservative from the start. The

data supporting this perception are largely anecdotal, because there have been few patents issued

on hybridoma technology. If the claims being

allowed are more narrow, however, the value of

patents on this technology would be lessened.

A recent decision by the U.S. Patent and Trademark Office, Ex parte Jackson (24), has important

implications for the scope of permitted claims on

micro-organisms, cell lines, and processes for producing or using them (6). The case involved the

isolation and purification of three strains of

bacteria that made a new antibiotic. All three

strains had been deposited and referenced in the

patent application. Although the Board of Appeals
390 . Commercial Biotechnology: An International Analysis

of the U.S. Patent and Trademark Office upheld

a claim to producing the antibiotic by using a

micro-organism selected from the deposited

strains (or mutants thereof), it rejected a claim

to producing the antibiotic by using any microorganism of the same species on the grounds that

the claim was not enabling. Thus, the scope of

the patent on the applicant process for producing the antibiotic will be limited, and others may

be able to legally practice the invention by using

other strains. This case, if broadly applied, may

have a significant adverse impact on the incentive to patent many kinds of biotechnological inventions, because inventors may see the scope of

patent protection as being too narrow.

Subsequent to patenting, the scope of the claims

will be determined by Federal courts ruling in patent infringement suits. If the patent is upheld, the

court has some discretion on how broadly to interpret the written claims. It will tend to interpret the scope more broadly for fundamental inventions. Sometimes the scope of the literal wording of the claims can be extended, if the infringing invention does substantially the same thing,

by substantially the same means, and in substantially the same way, as does the patented invention, yet the literal wording of the claims in the

patent for the invention does not cover the infringing invention (26). In such cases, the courts

will interpret the claim as covering the infringing invention. This is known in patent law as the

“doctrine of equivalents.”

The fact that the claims define a new invention

does not mean that the new invention does not

infringe on a previously patented invention. For

example, consider the Cohen-Boyer patent on the

fundamental rDNA technique. Its existence will

not prevent new applications of the rDNA technique from being patented (providing they also

meet the other requirements of the patent law);

however, the new inventions may infringe the

Cohen-Boyer patent. Thus, for a holder of the new

patent to make use of that invention, he or she

may have to pay royalties to the owners of the

Cohen-Boyer patent.

ENFORCEMENT

Patent infringement in the United States is defined as the unauthorized making, using, or selling of any patented invention within the United

States (35 U.S.C, \271(a)). No liability for infringement exists prior to the date the patent is issued.

With respect to enforcing a patent, certain

problems arise. One problem, generally not a

problem for products but potentially a very

serious problem for processes, is knowing

whether or not an infringer is using the patent.

If an unpatented product can be made by many

different processes, the owner of a patent on one

of those processes may have no way of knowing

whether a product made by a competitor has

been made by a different process or by the patent owner’s process. This is a special problem for

any process involving a micro-organism or cell

line. To get a patent on such a process, a deposit

must be made, making the microorganism or cell

line available to anybody who desires to use it.

For this reason, processes using such organisms

are likely to be held as trade secrets unless the

process is truly a major advance.

Another problem with respect to enforcing

process patents granted in the United States is

the fact that the patented process may be used

in other countries to make the same product,

which can then be imported into the United States

and compete with the product made by the owner

of the U.S. process patent. Although many countries would define this action as infringement of

that process patent, the United States does not.

A remedy for the owner of the process patent

is available through an action before the U.S. International Trade Commission. If the owner of

the patent can prove that the foreign activity infringes the US. process patent and that importation of the product would injure an efficiently

conducted U.S. industry (or prevent its establishment), the product can be excluded from the

United States (19 U.S.C. \1337, \1337(a)). This

remedy has been criticized as leaving much to be

desired (39). However, one commentator has

pointed out many substantial advantages of go-
Ch. 16—intellectual Property Law ● 391

ing this route as compared to an action in Federal

district court (13). The requirement for proving

injury to an industry is not as problematical as

it might seem because the International Trade

Commission has held that the domestic industry

may consist of only one company, the U.S. patent

owner (13). Thus, the issues of whether biotechnology is an industry or whether one imported

product could injure that whole “industry” would

not be relevant. In fact, an International Trade

Commission action is one way the owners of the

Cohen-Boyer patent might enforce it against

foreign users of the rDNA process.

Another problem area relevant to biological

inventions has been the general attitude of the

courts in the United States toward patents. Despite a statutory presumption of validity, about

one-half of all litigated patents are held invalid

by the courts (48). There has been a certain judicial hostility toward patents because they are

“monopolies, ” even though permitted by the U.S.

Constitution and Title 35 of the U.S. Code (29).

Certain language in U.S. Supreme Court decisions,

for example, refers to such “monopolies” and

states that patents must be construed very narrowly and must not be upheld on “mere gadgets”

(27). In the 15 years before Chakrabarty, the

Supreme Court had not ruled in favor of a single

patent applicant or patentee (29).

On the other hand, this judicial hostility appears

to be changing. In some recent U.S. Supreme

Court decisions, including the Chakrabarty case,

the Court has upheld the patents and has used

broad language to do so (20,23).

PATENT V. TRADE SECRET PROTECTION ●

Patents and trade secrets are alternative and

not necessarily mutually exclusive ways to protect biotechnological inventions. Companies are

likely to choose between them on a case-by-case

basis. In choosing, they would evaluate the following factors:

. whether there is any significant doubt that

the invention can meet the legal requirements for patenting,

● whether there is the likelihood of others ——.. —

‘This section draws on the analogous section in 017A’S report impact ot’,-lpplifll {;fvwtics: Aficro<)rganisnw, Plants, and Animals [47).

●

●

●

●

●

●

discovering the invention independently or

through reverse engineering,

what the invention’s projected commercial

life is and how readily others could improve

on it if it were disclosed in a patent,

how easily the patent could be “policed)”

whether it is a pioneer invention,

the cost of the related R&D and regulatory

approvals,

whether there are any plans for scientific

publication, and

what the costs of patenting are versus reliance on trade secrecy.

The first factor speaks for itself. The next two

factors require difficult decisions to be made on

the basis of the characteristics of the invention

and the competitive environment. If research to

develop a particular product is widespread and

intense (as is the case with interferon), the risk

of a competitor developing the invention independently provides a significant incentive for patenting. On the other hand, reverse engineering

by competitors is virtually impossible for most

products of micro-organisms because of the variability and biochemical complexity of microbiological processes.

The fourth factor, how easily the patent could

be policed, is especially relevant for processes.

Greater protection may lie in keeping a process

secret, even if the microbe and the process could

be patented. This is especially true for a process

that is only a minor improvement in the state of

the art or that produces an unpatentable product

already made by many competitors. The commercial life of the process might be limited if it were

patented, beause infringement would be difficult

to detect and not worth the time and money to

prosecute. Reliance on trade secrecy might then

extend its commercial life.

Most companies would patent truly pioneer

inventions, which often provide the opportunity

for developing large markets. Moreover, patents

of this sort tend to have long commercial lives,

since it is difficult to circumvent a pioneer invention and since any improvements are still subject

to the pioneer patent. Furthermore, infringement

is easy to detect because of the invention’s trailblazing nature. This would be true for processes

also.
392 . Commercial Biotechnology: An International Analysis

High costs for research, development, and regulatory approval of products is a factor in favor

of patenting because a company will want to protect its investment. The research-oriented pharmaceutical companies have traditionally relied on

patents for this reason.

The last two factors involve considerations secondary to a product and its market. obviously,

any publication of the experiments leading to an

invention forecloses the option of trade secrecy.

Also, a company must evaluate the options of protection via either patenting or trade secrecy in

terms of their respective cost effectiveness.

Plant breeders’ rights statutes

Ownership rights in new varieties of plants are

specifically granted by two Federal statutes: 1) the

Plant Patent Act of 1930 (35 U.S.C. ~~161-164) and

2) the Plant Variety Protection Act (PVPA) of 1970

(7 U.S.C. \2321 et seq.).

The Plant Patent Act, which covers new and

distinct asexually reproduced varieties other than

tuber-propagated plants or those found in nature,

confers the right on the patent holder to exclude

others from asexually reproducing the plant or

from using or selling any plants so reproduced,

for a period of 17 years. Because of the impossibility of describing plants with the same degree

of specificity as machines and the inability to

recreate a new plant solely from a written description, this law also liberalized the enablement

requirement; the description need be only as complete as “reasonably possible.”

PVPA provides for patent-like protection to

new, distinct, uniform, and stable varieties of

plants that are reproduced sexually, excluding

fungi, bacteria, and first-generation hybrids. The

breeder may exclude others from selling, offering for sale, reproducing (sexually or asexually),

importing, or exporting the protected variety. In

addition, others cannot use it to produce a hybrid

or a different variety for sale. However, saving

seed for crop production and for the use and

reproduction of protected varieties for research

is expressly permitted. The period of exclusion

is 18 years for woody plants and 17 years for

other varieties.

These acts are basically consistent with an international treaty designed to provide consistency in the international protection of plant breeders’ rights—the International Union for the Protection of New Varieties and Plants—known as

UPOV. * UPOV has been signed by 16 countries,

including all those discussed in this chapter, but

not all of those countries have yet conformed

their laws to it.

Until the Chakrabarty decision, the Plant Patent

Act and PVPA were generally viewed as the sole

source of plant breeders’ rights in the United

States. The Chakrabarty decision raises the

possibility of protecting plants under 35 U.S.C.

101, because the essential point of the decision

is that a human-made organism is a “manufacture”

or “composition of matter” as those terms are

used in 101. Further, there is no indication in

the decision that the Plant Patent Act and PVPA

preempt protection for plants.

There would be certain advantages and disadvantages of securing protection of sexually and

asexually reproduced plant varieties through

101. One advantage is that more than one claim

could be presented, as opposed to the single claim

permitted under the Rules of Practice relating to

plant patent applications (37 C.F.R. $1.164) This

would allow parts of the plant to be covered as

well as the whole plant. Further, a patent grant

under 35 U.S,C. 101 for a new variety would provide more comprehensive protection against infringement in certain situations.

The disadvantages of proceeding under 35

U.S.C. ~101 are that other currently irrelevant

sections of the patent law would come into play.

For example, the Plant Patent Act (35 U.S.C. $162)

significantly modifies the disclosure requirements

of 35 U.S.C. $112, simply requiring that the description be as complete as reasonably possible.

This would at least theoretically no longer be true.

However, the use of depositories for plant material, as required for micro-oganisms, could satisfy

the enablement requirement. A further potential

factor is the applicability of the nonobviousness

“The Plant Patent Act conforms, but PVPA does not. Since the

United States is a party to UPOV, some changes in PVPA may be

necessary. At this time, however, it is hoped that conformity can

be achieved through administrative practices (45).
Ch. 16—/nte//ectua/ Property Law ● 393

requirement of 35 U.S.C. $103. This test is inher- example, tuber-propagated plants such as potaently difficult for plant material. toes, which are not patentable under the Plant

On balance, the Chakrabarty decision is likely Patent Act, would appear to be patentable under

to provide yet another protection option which 35 U.S.C. ‘$101.

can, in certain circumstances, be very useful. For

Comparison of U.S. and foreign

intellectual property law

Much of the analysis in this section is based on

the more detailed description of intellectual property law of the Federal Republic of Germany, the

United Kingdom, France, Switzerland, and .Japan

found in Appendixr G: Intellectual Property Law.

Patent law

The Federal Republic of Germany, the United

Kingdom, France, and Switzerland, along with

seven other Western European countries, are signatories to a treaty that creates a European patent system. That treaty, known as the European

Patent Convention (EPC), went into force on October 7, 1977. The EPC establishes a legal system

for granting European patents through a single

supranational European Patent Office and a uniform procedural system with respect to patent

applications. The single European patent application, if granted, become a bundle of individual

European patents, one for each of the countries

designated by the applicant. * The EPC system and

the resulting patents exist in parallel with the patent systems of the member countries. Enforcement, however, is handled by the individual

member countries. The ultimate goal is for each

of the member countries to adopt in its national

law the same substantive law of patents set forth

in the EPC. The following discussion compares

the patent law of the EPC countries and Japan

with that of the United States.

● A proposed European Community Patent Comwntion would take

the EPC one step further by pro~iding for a single patent colering

the entire European Fxonomic Community,

PATENTABLE SUBJECT MATTER

One of the most difficult problems facing the

owners of biological inventions is the inability of

the law to respond rapidly enough to keep pace

with the development of the technology. This is

especially a problem in the case of the law’s definition of patentable subject matter. Questions about

what constitutes patentable subject matter create

a significant degree of uncertainty for owners of

inventions.

One of the basic decisions to be made by owners

of inventions is whether to maintain their inventions as trade secrets or to attempt to protect

them by patents. An intelligent decision is nearly impossible when one does not even know

which basic subject matter is patentable under

the laws of particular countries. In the United

States, the trade secret route can still be selected

in the event that no patent protection is ultimately

secured. In most foreign countries, including the

United Kingdom, France, the Federal Republic of

Germany, and Japan, however, pending applications are published before it is known whether

patenting will be possible, thereby providing complete and enabling disclosure to the public, including samples of any deposited micromganisms

necessary to carry out the invention. Such publication usually occurs 18 months after the application is filed. This situation effectively

precludes reliance on trade secrecy once a patent

application is filed. As a result, there exists in

many foreign countries today considerable disincentive to seek patent protection for certain

types of biological inventions, particularly those

involving basic genetic procedures and the resulting products. However, with respect to the five

25-561 0 - 84 - 26
394 ● Commercial Biotechnology: An International Analysis

foreign countries under study here, much of the

uncertainty surrounding subject matter patentability of biotechnological inventions has been

resolved.

This uncertainty in many foreign countries may

indirectly discourage U.S inventors from filing for

patent protection in the United States, since there

is no way available at present to confine within

the United States the culture deposit samples

which must be made available once a U.S. patent

issues. While enabling disclosure theoretically is

communicated upon issuance of a U.S. patent to

all countries, regardless of whether corresponding protection is available or is actually sought

in those countries, it is only in connection with

many biological inventions that an applicant is required to provide also the physical means to carry

out the invention, i.e., a self-replicating organism,

which in many instances is a “factory” capable

of carrying out the invention.

One important aspect of this problem of uncertainty in the definition of patentable subject matter is the uncertainty of classification of certain

types of biological inventions. It is not clear in the

case of certain lower organisms, for example,

whether they are to be classified as plants, animals, or something else (e.g., protista) (see, e.g.,

15,19). Fortunately, in the United States, it seems

to be a matter of choosing between multiple options for protecting such subject matter by either

utility patents or plant patents, but in most other

countries, plants and animals are explicitly excluded from patentability. Thus, a definition may

be determinative of patentability.

As a result of the 1980 U.S. Supreme Court’s

decision in the Diamond v. Chakrabarty case, the

U.S. definition of patentable subject matter is very

broad. It is broader than that under the EPC or

any of the national laws of the five other countries being examined in this assessment. In contrast to the United States, the EPC, which has a

very liberal definition of patentable subject matter, excludes methods for treatment of the human

or animal body by surgery or therapy and diagnostic methods. Also, the EPC excludes plant and

animal varieties and biological methods for producing them, which are apparently not excluded

by Chakrabarty. In all other respects pertaining

to biological inventions, the United States and EPC

appear to permit patenting of the same general

classes of subject matter. France, Switzerland, the

United Kingdom, and the Federal Republic of Germany follow the EPC, except Switzerland does not

allow patents on micro-organism themselves.

Japan’s definition of patentable subject matter

is essentially coextensive with the definition of

the EPC, excluding processes in the fields of medicine, diagnosis, therapy, and pharmacology in

which the human body is an indispensible element. However, certain microbiological inventions could be excluded from patentability in

Japan if they are “likely to injure the public

health.” The situation with respect to plants and

animals in Japan is unclear.

NOVELTY

U.S. law requires the patent application to be

filed by the inventor. If two different applicants

happen to have the same invention, the patent

will issue to the one who invented it first. Hence,

the U.S. system is called a “first-to-invent” system.

The laws of the other five countries, in contrast

to U.S. law, permit someone other than the inventor (e.g., the employer) to file the patent application. If there are two applications for the

same invention, the patent will issue to the applicant who filed first. These countries thus have

what is called a “first-to-file” system. The combination in the United States of a first-to-invent system

with the provision of a l-year grace period between the date of any publication relating to an

invention and the filing of a patent application

makes the U.S. system fundamentally different

from nearly all foreign systems, which are generally first-to-file systems are characterized by absolute novelty (i.e., allow no grace periods).

This difference manifests itself in connection

with prior disclosures by the applicant. Under

US, law, the general rule is that a disclosure of

an applicant’s own invention cannot be used to

prevent the applicant from obtaining a patent,

unless the disclosure satisfies the requirements

of one of the statutory bars under 35 U.S.C. $102

(18). For example, consider the following types

of possible disclosure by an inventor of his or her

own work:

I. Communicating with colleagues by telephone, letter or in person;
Ch. 16—/nte//ectual Property Law ● 395

a. under expressed confidentiality;

b. with no indication as to confidentiality; or

c. under expressed nonconfidentiality.

2. Delivering a paper at a conference or seminar, orally only.

3. Delivering a paper at a conference or seminar, both orally and with a disseminated written text.

4. Submitting a paper for publication.

5. Submitting an abstract prior to a conference

to the conference promoting organization.

Under U.S. law, items 1, 2, 4, and 5 would not

bar patentability. * Item 3 will become a statutory

bar 1 year after the paper is disseminated in some

tangible form, assuming the disclosure was enabling.

Under the laws of the four Western European

countries, items 2 and 3 would prevent the granting of a patent if they occurred before the earliest

effective filing date (e.g., before a U.S. applicant

filed a patent application in the United States

which will later serve as a basis for claiming the

right of priority in corresponding foreign applications). * * Items 4 and 5 would normally not bar

a patent, assuming that the paper and/or abstract

were not disseminated to members of the public,

(e.g., conference attendees) prior to the actual

date the patent application was filed. This is based

on the implied confidentiality under which submissions of this type are usually handled by publishers. Similarly, the concept of expressed or implied confidentiality prevents items l(a) and l(b)

from constituting prior art under German law

concepts, which commentators believe will apply

to the EPC and other European countries (11). It

appears that even item I(c), in and of itself, does

not necessarily constitute prior art under German

principles, inasmuch as such a nonconfidential

disclosure must be available to an unlimited

number of persons (43). If the disclosure were

limited to the colleagues contacted and not otherwise made freely available, it would not defeat

novelty of a subsequently filed application. It is

too early to tell how EPC law will develop on this

issue. The same can be said for the United Kingdom, where introduction of the EPC novelty

standards represents a significant change from

prior law and practice.

The Japanese law provides a limited 6-month

grace period for publications and papers presented before scientific organizations. Thus, items

1, 4, and 5 would not bar patentability, and items

2 and 3 would bar patentability after 6 months.

It must be noted that the above discussion regarding bars to patents because of lack of novelty is predicated on the assumption that the disclosure is enabling. If the disclosure is not enabling, even a published paper about the invention

would not bar patentability.

Because of the different approaches with respect to novelty, the US. patent law provides a

competitive advantage in that scientific informa -

tion can be quickly disseminated in the United

States without forgoing patent rights, if the application for a patent is filed within a year. This

advantage is qualified by the fact that the inventor who also wishes to file abroad cannot publicly disclose the invention until the priority application is filed. The case of the Cohen-Boyer patent

on the rDNA technique is a well-known example

of a case in which the inventors were able to obtain a U.S. patent, even though they had published

papers about the techniques, but were unable to

file for foreign patents because of the absolute

novelty requirement in other countries. The probable result will be a substantial loss of income

from foreign royalties.

● If a paper or proceedings of conference were published, however, then the inventor would be barred if he or she filed a patent

application more than 1 year after the date the proceedings or paper

were published. A]so if the invention were sufficiently disseminated

so that it was deemed to be “in public use, ” then the int’enter would

be barred by sec. 1020)) from patenting it after the expiration of

the I -year grace period.

● * IInder the Paris LJnion Convention, to which a]] six competitor

countries subscribe, applications filed in any country within I z

months of the first filing in a member countr} ha~e, as their efl’&’-

titw fihng date, the filing date of the first application. ‘1’his is kmmn

as the “right of priorit} ,“

UTILITY

The U.S. patent law’s requirement for practical

utility differs slightly from the requirement of

European and Japanese law for industrial applicability. The U.S. utility doctrine has been criticized by the American patent bar, but has not

proved to be a major obstacle for industry (45).

It has undoubtedly disadvantaged some researchers and simultaneously deprived the public of
396 ● Commercial Biotechnology: An International Analysis

——— —— . — -.

prompt disclosure of research on, for instance,

new pharmacological compounds and processes

that do not yet have an established utility (45).

In some cases, effort has undoubtedly been

wasted in establishing trivial or unimportant yet

“practical” utilities for such inventions in order

to satisfy the U.S. Supreme Court’s definition (45).

This problem will affect researchers in biotechnology to some extent, particularly those working with pharmaceuticals.

On the other hand, the foreign systems present

a different problem of “utility. ” They exclude

method inventions in the field of therapeutic or

diagnostic treatment, at least those involving treatment of humans, as not being part of “industry. ”

Thus, certain types of biological inventions (e.g.,

monoclinal antibody diagnostic assays) will not

be patentable in EPC member countries or possibly in Japan, although patent protection can be

obtained for them in the United States. This is,

in most cases, not a serious obstacle, since patent

protection is not precluded for the materials that

are used in the excluded methods or the products

of those methods.

DISCLOSURE REQUIREMENTS

U.S. disclosure requirements are stricter than

those of the EPC and Japan. The U.S. law requires

(35 U.S.C. l12):

● a written description of the invention,

● enablement both with respect to “how to

make” the invention and also with respect to

“how to use” the invention, and

. a disclosure of the best mode known t. the

inventor for carrying out the invention as of

the time of filing.

As to the basic enablement standard, however,

U.S. law does not differ substantially from the

foreign laws. Under the U.S. law, the test of

enablement is whether the invention can be carried out by a person of ordinary skill in the art

without “undue experimentation” (30). This is

another way of stating the requirement for “reproducibility” which is fundamental to European

law.

As previously mentioned, compliance with the

enablement requirement creates serious difficulties for many biological inventions, because such

intentions may have been produced by random

mutation and selection or another procedure that

cannot be repeated with the certainty of obtaining the same results. The solution that has been

adopted essentially worldwide is to permit a

deposit of the appropriate biological material in

a depository, from which samples will be made

available to the public.

The Federal Republic of Germany’s requirement

for reproducibility raises additional obstacles to

patenting a micro-organism itself. It requires that

a patent application describe a repeatable procedure for reproducing with certainty the deposited

organism apart from the deposit itself (i.e., “from

scratch” so to speak) before a patent can be

granted on the organism per se. This is not required if one claims only a method of using such

a deposited organism. Thus, this requirement, in

effect, could preclude patents on many microorganisms.

Neither the EPC countries nor Japan specify a

best mode requirement in their respective laws.

In the United States, the best mode requirement

arguably requires the best producing microorganism strain to be deposited, but this issue is

not resolved.

The written description of the invention requirement under U.S. law is not articulated as

such in foreign laws, but a requirement similar

in principle is applied in some situations under

the laws of most countries.

DEPOSIT REQUIREMENTS

At present, uncertainty regarding the deposit

requirements exists in many countries. The circumstances under which a deposit is necessary

are not clearly spelled out. Moreover, before receiving a substantive examination on this question in the EPC, for example, the patent applicant

must take action that has the effect of making the

deposit, and also access thereto upon publication

of the application, irreversible. In the United

States, the same basic uncertainty exists, but the

applicant need not make a commitment until after

substantive examination is completed. *

*,% a practical matter, however, if patent protection is sought

in other countries, this irret’ersible effect will have taken place

alread~’, prior to conclusion of the examination in the CJnited States

berause of the l%nontb publication prartice in other countries.
Ch. 16—Intellectual Property Law ● 397 —

The United States does not have any explicit deposit requirements in the patent statute or rules

thereunder. For deposits necessary in order to

comply with the enablement requirement, however, certain requirements for the deposit have

been developed by aciministrative action (S O) and

court decisions.

As far as timing and location of deposit, the U.S.

practice is basically consistent with the practice

most countries, i.e., the deposit is to be made no

later than the patent application filing date and

at a recognized depository (so). The United States

does not have a specific list of recognized depositories and therefore maintains more flexibility

than the EPC and certain national offices that do

have such lists. Of course, the United States also

recognizes deposits meeting the requirements of

the Budapest Treaty.

The U.S. Patent and Trademark office has required only that deposited cultures be maintained

for the life of the U.S. patent (although any deposit

made under the Budapest Treaty must be maintained for a minimum of 30 years). The EPC and

many European countries have opted to apply the

longer period of the Budapest Treaty to any deposit made in accordance with national law. This

will require additional costs for the applicants in

those countries.

Samples of deposited micro-oganisms become

available to the public under U.S. practice at the

time the patent issues, after which time no restrictions on access are permitted. The situation in the

United States is quite different than that in the

EPC countries and Japan. In the EPC countries

(except for Switzerland) and Japan, patent applications are published approximately 18 months

after the effective filing date. Such publication,

which also makes the deposit publicly available,

may place foreign applicants at a disadvantage.

On the other hand, under many foreign systems, including the EPC, the patentee is entitled

to maintain certain limited restrictions on those

receiving samples of the deposited culture

throughout the life of the patent. The restrictions

also apply to cultures derived from the original

one (EPC Rule 28(6)). The Federal Republic of Germany also allows territorial restrictions to be

placed on deposited micro-organisms.

potential problems exist in the present deposit

system as a result of import/export restrictions

imposed by countries. In one case, a German applicant was unable to perfect a deposit in a US.

depository (one of two in the world which accepted his type of cell line) within the 12-month

priority period because of health-oriented import

restrictions imposed by the United States (9). It

is also possible that a patentee could lose his or

her rights entirely in a given country if that country imposed restrictions on the import of samples

of a culture in a foreign depository that is otherwise recognized by its patent office. The same

result could occur if the country in which the

depository is located refuses to permit export of

samples of the deposited culture. In the latter instance, however, the Budapest Treaty permits a

second deposit to be made in another depository

without loss of deposit date.

CLAIM PRACTICE

Claim practice in the United States is extremely liberal and is regulated primarily by the requirement for definiteness contained in the second paragraph of 35 U.S.C. $112. This fact, together with the fact that patentable subject matter in

the United States is generally less restricted than

in most other countries, results in an very broad

freedom for an applicant to claim his or her invention in a U.S. patent application.

There is a dearth of experience with claims directed to the relatively new inventions of biotechnology, and the EPC itself is too new for any significant precedent. Existing precedent primarily

involves processes for the use of micro-oganisms.

Under U.S. practice, biological inventions can

be claimed in many different ways. In addition

to process claims directed to methods of genetic

manipulation, the products thereof can be

claimed with regard to their structure, or if their

structure is not known, with regard to their

chemical and/or physical characteristics or in

terms of the process steps for preparing them.

Despite this flexibility, however, the previously

discussed Jackson case (24) indicates that the U.S.

Patent and Trademark Office may impose significant limitations on the breadth of claims.
398 ● Commercial Biotechnology: An International Analysis

Some of the patent offices in foreign countries

have taken positions similar to that taken in the

Jackson case. Switzerland and Japan have refused

to grant claims that are broader than the specific microorganisms disclosed in the application

and deposited (Swiss Patent Ordinance, Section

15.15.3, May 12, 1980; Japanese Examination

Guidelines).

There is little reported precedent regarding judicial interpretation of claims pertaining to biological inventions in infringement cases. Nevertheless, one can extrapolate from general principles of claim interpretation in the various foreign patent systems. The law in most countries

provides for application of the doctrine of equivalents in some form, although in some countries,

including Japan, the scope of equivalents is apparently very limited. As a general rule, it can be

said that the scope of equivalents must be determined on a case-by-case basis, depending on factors such as the degree of unpredictability of the

technology (i.e., equivalents must be obvious to

persons of ordinary skill) and the degree of advance which the claimed invention exhibits over

the “prior art .“ The more unpredictable the subject matter, the smaller the scope of equivalents,

whereas the more pioneering the invention, the

broader the scope of equivalents. Biological inventions typically involve highly unpredictable phenomena; thus, claims are likely to be narrowly

interpreted.

Even if it is assumed that a reasonable degree

of equivalents will be given for biological inventions, the next problem is to determine what constitutes an equivalent. No precedent is available,

and, of course, the determination will be made

on a case-by-case basis. It would seem that good

arguments can be made to the effect that closely

related strains of the same species can be looked

on as equivalents, that different species normally would not constitute equivalents, and that

mutants of the basic strain would, in most instances, be expected to have equivalent properties to the basic strain (see 8).

ENFORCEMENT

The United States, the four European countries,

and Japan define patent infringement in similar

ways. The major difference is that, unlike the

other countries, the United States does not grant

extraterritorial effect to process patents by defining as infringement the importation of a product

made by the patented process without the authorization of the patent owner.

The United States grants the basic remedies of

injunction and monetary damages for infringement (35 U.S.C. $283, $284), as well as reasonable

attorneys’ fees to the prevailing party in exceptional cases (35 U.S.C. $285). The foreign countries provide for similar remedies. There are no

criminal penalties provided under the U.S. patent

statute, contrary to many foreign patent laws.

Enforcement of patents claiming biological inventions involves unique problems. The first is

simply identification of infringing activity. Many

of the products will be unpatentable for lack of

novelty and will be manufactured in small quantities. Thus, it will be difficult to determine if a

competing product infringes one’s patented process. In addition, strains of micro-organisms can

be altered through mutation and other modification techniques to produce different organisms

that possess the same basic characteristics of the

protected organism.

It may prove to be an essential, or at least important, element of the case for the patentee to

establish that the alleged infringer actually derived his or her organism from a sample obtained

directly or indirectly from the culture deposit of

the patentee’s organism. Without adequate controls on the access to samples of deposited strains,

proof of this fact will be extremely difficult.

Proving the identity and equivalence of the patented microorganism with an allegedly infringing microorganism can also present difficult

problems for the present state of this technology.

The technology is still sufficiently undeveloped

that much room exists for honest differences of

opinion among experts. Most questions of infringement will probably turn out to be a battle

between the respective parties’ expert witnesses,

until more objective criteria are established.

Trade secret law

Of the countries considered in this assessment,

the Federal Republic of Germany seems to have
Ch. 16—intellectual Property Law ● 399

the strongest statutory system for the protection

of proprietary information, and its courts are

most consistent in enforcement of those statutes.

Switzerland’s system, which closely resembles

West Germany’s, has also been very effective in

protecting such information. However, Swiss law

does not recognize as trade secrets the secrets

held by professors, scientists, and others not

engaged in a business (45). This could affect the

exploitation of commercial rights by educational

institutions in Switzerland.

The United States and the United Kingdom appear to be slightly less effective than the countries just mentioned in protecting proprietary

information. The British courts emphasize the

‘(confidential” over the “secret” aspects of such

information. Breaches of confidence are therefore

not tolerated, regardless of whether the particular

information misappropriated fits within a preestablished “trade secret” category. The U.S.

courts often overlook the breach of obligation

aspect of misappropriation and concentrate on

determining whether or not the information qualifies as a ‘(trade secret. ” As a result, misappropriators of confidential information are sometimes held not liable in the United States, whereas

they would be held liable for the same activity

in the United Kingdom (45). Nevertheless, U.S.

courts have shown much greater flexibility than

their British counterparts in fashioning remedies

that prevent the use of misappropriated information. Furthermore, U.S. law provides for criminal penalties in addition to the usual civil remedies provided for under U.K. law. Finally, the

sheer mass of successful trade secret cases, including favorable rulings from the U.S. Supreme

Court in the Kewanee case (38) and in Aronson

V. Quick point (4), indicates that the United States

is probably more effective than the United Kingdom in safeguarding such information (45).

France does not have as strong a system for protection of proprietary information as the United

Kingdom or the United States. French courts have

been rather restrictive in defining the types of

information that may receive protection and more

protective of the employee who leaves with the

employer’s confidential information than the

courts in other industrialized countries (45).

The protection of proprietary information in

Japan has been improving over the last two decades, but still is not on a level with the protection in the United States or the major European

countries. As Japan continues its development

from a technology-importing country to a technology-generating country, further progress in

this area may be expected (45).

Plant breeders’ rights

CHOICE OF TYPE OF PROTECTION

A breeder of asexually reproduced varieties of

plants in the United States will normally proceed

under the Plant Patent Act, However, 35 U.S.C.

$101 may provide a viable option. Although additional disclosure requirements for asexually reproduced plant material will be required (e.g., the

deposit of plant material in a satisfactory depository), this is not an onerous burden. Moreover,

with the depository, there is the additional advantage that the patented plant material will be available during the life of the patent for comparison

purposes with any alleged infringing varieties.

The public would also be able to practice the invention when the patent expired.

For sexually reproduced plant varieties, the

principal advantages of proceeding under 35

U.S.C. $101, as opposed to PVPA, are the substantially reduced costs of filing a patent application

(as opposed to an application under PVPA)* and

the possible increased protection afforded by the

patent as opposed to the protection certificate

issued pursuant to PVPA. Moreover, whereas numerous judicial decisions have been rendered

under the patent statutes, judicial interpretation

of PVPA is relatively limited.

In the United Kingdom, the Federal Republic

of Germany, Switzerland, France, and Japan, a

single statute covers both sexually and asexually

reproduced plant varieties. As previously noted,

protection is in the form of protection certificates

rather than patents. Therefore, there is no choice

of the type of protection obtained in these countries.

“The cost of filing an application under PL’PA is $1,000, as compared with the cost of filing a utility patent application f$15tI for

small entities and $300 for others).
400 ● Commercial Biotechnology: An International Analysis

. —

LIMITATION ON PROTECTABLE VARIETIES

In the United States, only tuber-propagated

plants or plants found in an uncultivated state are

excluded from protection under the U.S. Plant

Patent Act. As a practical matter, this exclusion

affects only the Irish potato and the Jerusalem

artichoke. All other plant varieties that can be

propagated true to type through asexual reproduction can be protected. Similarly, under PVPA,

only first-generation hybrids are excluded, and

all other varieties otherwise meeting the act requirements can be protected.

In most countries other than the United States,

by contrast, the number of specific genera or species that can be protected is restricted. The 1 9 7 8

UPOV Text requires only a very limited number

of designated genera or species for a country to

comply with the provisions of the text. Thus, the

protection provided in the European countries

and Japan is relatively limited when compared

with the all-encompassing protection provided by

the U.S. Plant Patent A& ‘and PVPA-

.

EFFECT ON COMPETITIVENESS

With respect to plant breeders’ rights,

provides a competitive advantage over the other

countries. The scope of protection is much broader in terms of the tvpes of varieties than can he

.

protected, and

option of using

$ 101).

U.S. law provides

 101 of the patent

the additional

law (35 U.S.C.

Evaluation of effectiveness of intellectual property law

to promote the development of biotechnology

United States

U.S. patent law embodies a number of proinnovation features: a “first-to-invent” system

coupled with a l-year grace period; secrecy of the

invention subject matter until grant of the patent;

and, as a result of the latter, no requirement for

owners of biological inventions to grant access

to deposited cultures until after protective rights

have been established. These features provide incentive for owners of biological inventions to

utilize the patent system, thereby making their

inventions known to the public to aid further developrnent. They also provide a sufficient period

of time for the patentee to develop a leading position in the technology before being forced to hand

over his or her enabling disclosure (including

means for immediately practicing the invention,

in the case of culture deposit samples) to competitors, both domestic and foreign. The “firstto-file” systems in the other competitor countries

do not provide these advantages to applicants.

Another strength of the U.S. system is the

choice of protection routes it now offers to inventors. Developers of new varieties of plants can

now choose between the special plant pro

provisions of the law and the possibility

taining a utility patent.

The 1980 Chakrabarty decision has far g

ection

of ob -

reater

significance than merely holding that living organisms constitute patentable subject matter under

U.S. law. It, together with other recent cases, represents the first truly positive pronouncement in

many decades from the U.S. Supreme Court regarding the role and value of the patent system

in promoting and maintaining technological competitiveness of U.S. industry (37,45 ).* This should

have an effect on the way in which the lower

courts will treat patents in the future. In addition, creation of the new Court of Appeals for the

Federal Circuit should provide uniformity and

consistency at the appellate level, as well as a body

of law that is well informed and respected by

those whom the patent laws serve. The important role of trade secret protection has been reaffirmed by the Supreme Court in its 1974

“Jus[ire Jarkson uas prompted to state in his dissenting opinion

In JIJngPrSOn y’ OS(QJI & Barton [.’(J. (35) that: “The only patent that

is \ a]i(! is onf~ ~~hirh this (:ourt hus not heen ahk> to get its hands 01]. ”
Ch. 16—Intellectual Property Law . 401

Findings
402 ● Commercial Biotechnology: An International Analysis

organisms per se to be patented. A major departure from U.S. law under the EPC and in Japan

is the exclusion from patentability of therapeutic

and diagnostic methods.

Japan appears to be moving in the direction of

providing significant patent protection for biotechnology products and processes. One possible

obstacle, however, is that Japan has strict health

and safety guidelines regarding genetic research,

which may bar patenting of genetically manipulated organisms viewed as hazardous,

The concept of utility in the patent laws of most

foreign countries is based on industrial (including

agriculture) applicability, which differs in interpretation from the utility standard in the United

States. In countries with the former concept, including the five foreign countries discussed in this

chapter, even products and processes of scientific research satisfy the utility requirement, as long

as the basic endeavor falls into the broad category

of industry; however, therapeutic and diagnostic

methods do not. In the United States, certain

chemical products and processes of research interest only are considered not to satisfy the utility requirement. The fact that utility under U.S.

law includes utility in the therapeutic and diagnostic fields, however, helps U.S. competitiveness

in biotechnology.

The four European countries studied here have

an absolute novelty standard, with no grace

period for either oral or written disclosures of

an invention by the inventor before the date he

or she files an initial patent application covering

the invention. The United States has a l-year

grace period, and Japan has a limited 6-month

grace period for presenting scientific papers

before filing a patent application. In all of the

countries, the novelty defeating disclosure must

be enabling. Thus, the notion that any disclosure

before filing a patent application will bar patentability is incorrect.

Most countries have a disclosure standard for

inventions based on the concept of enablement.

This standard typically includes an aspect of reproducibility, i.e., an invention must be repeatable with a fair degree of certainty and the results

must not be merely randomly achievable. Particular problems in satisfying the disclosure standard have been encountered up until now in connection with many biological inventions. This

situation has led to the practice of requiring a

culture deposit of new micro-organisms used to

carry out an invention or forming the subject matter of the invention. The Federal Republic of Germany has refused to grant patent protection on

micro-oganisms themselves in those cases where

disclosure of a reproducible method for producing the micro-organism cannot be given apart

from a culture of the micro-organism itself.

In those countries that publish unexamined patent applications (all but the United States and Switzerland of the six competitor countries), a serious

problem for owners of biological inventions is the

fact that deposited cultures can become publicly

available before any patent rights are granted.

Although the access to deposited cultures usually is granted with some safeguards in the form

of assurances given by the recipient, these safeguards often do not adequately protect the valid

interests of the technology owner (e.g., they usually are not geographically limited or do not

restrict the activities of the recipient to only experimental use). In fact, it may be desirable to

have some restrictions on access even after the

patent grant, in view of the fact that the patentee

must furnish a “working model” of the invention,

which patentees in other fields are not required

to do.

Because of the nature of biotechnology, special

problems are faced by patentees in the enforcement of their rights. Apart from the general problems of policing for infringement, the possibilities

for disguising the use of a biological invention by

genetic manipulation will present difficult questions of law and fact. The law and practice of

claim interpretation in this field are in their infancy. In the present state of the technology, it

is likely that patent-granting authorities generally

will limit claims to the specific organisms or parts

thereof disclosed in patent applications.

All of the countries studied provide some element of legal protection for trade secrets. Most

aspects of biotechnology lend themselves to protection via the trade secret route, and owners of

such technology may rely on trade secrets when

patent rights are uncertain or when they judge
Ch. 16—intellectual Property Law ● 403

trade secrecy to be more advantageous in a particular case.

With the major international and national efforts regarding plant variety protection, culminating in the 1978 UPOV treaty, there is a trend

toward providing such protection without requiring satisfaction of any enablement standard. The

nature of the protection for plant varieties is different from traditional patent protection in that

it protects basically against derivation and

copying.

The U.S. intellectual property law system appears

to offer the best protection for biotechnology of

any system in the world. In general, it appears

that the United States offers protection for broadest scope of biological subject matter, especially

because of the 1980 ruling by the U.S. Supreme

Court in the Diamond v. Chakrabarty case (21)

that the inventor of a microorganism could not

be denied a patent solely because the invention

was alive. The United States also offers some of

the best procedural safeguards for inventors, including the l-year grace period and no publication of the patent application before patent grant.

In addition, the United States offers a choice of

protection to plant breeders. Finally, the trade

secrecy protection “offered in the United States

is as good as that offered in most countries, with

the exception of the Federal Republic of Germany

and Switzerland.

Issue and options

ISSUE: How could Congress improve U.S .

competitiveness in biotechnology by

strengthening U.S. intellectual property law?

Option 1: Pass a statute specifically covering living

organisms and related biological inventions,

The advent of the new biotechnology has raised

questions in the United States regarding what inventions will be patentable, under what conditions, and what the scope of protection will be.

Although the Diamond v. Chakrabarty case in

1980 answered in the affirmative the basic question of whether Iiving organisms would be patentable, other questions remain.

A statute specifically covering living organisms

and related materials could help resolve this uncertainty. Greater certainty would allow companies to plan their R&D and marketing strategies

better and in some cases would lower the financial risks involved. The result should be increased

innovation. The alternative is to rely on case-bycase developments in the U.S. Patent and Trademark Office and the courts. Patent litigation is extremely expensive and may be unaffordable for

small, new biotechnologgy firms.

Another argument in favor of a special statute

is that it could help patentees to secure better

ownership rights in biological inventions. The existing U.S. patent law was developed primarily for

inanimate objects and processes. Living organisms

are fundamentally different. Unlike a machine,

a living organism reproduces itself and occasionally mutates during its lifetime. Furthermore, a living organism is extraordinarily more complex

than any machine. Although the inventor of the

most complex machine knows all of its parts and

understands completely how it functions, no one

knows all of the components of the simplest

micro-organism or understands completely how

it functions. Finally, many biochemical pathways

in an organism are not unique to that organism;

because there are many different ways to produce a product, a patent on one of the ways may

provide only limited protection. In the case of

biological inventions, therefore, there may be

problems in meeting the enablement and written

description requirements, in securing an adequate

scope of protection for inventions, and in policing for infringement.

The complexity of living inventions will make

it difficult to fully describe them, Although depositing a microorganism in a culture collection may

circumvent these difficulties with regard to enablement, it may be of little help in establishing

novelty and the bounds of patent protection. Mi -
404 . Commercial Biotechnology: An International Analysis

crobial taxonomy is an imprecise art. Microorganisms have different characteristics in different environments, and taxonomists often disagree on their classification and description. Thus,

it may be impossible to distinguish sufficiently a

micro-organism for patent law purposes from

similar ones created by other inventors or from

ones existing in nature.

The fact that organisms reproduce may require

a change in the definition of infringement. The

law currently defines infringement as the unauthorized making, using, or selling of the patented invention. If someone took a patented organism from a public depository, reproduced it,

and gave it away to many users, would this be

infringement? One could argue that the person

did not “make” the invention.

The fact that organisms mutate may cause problems with respect to the scope of the claims and

infringement, For example, if a patented organism

subsequently mutated, it might no longer be within the scope of the claims. Also, if the deposited

organism is the standard against which infringement is measured, a patent holder may have difficulty enforcing the patent if the organism

mutated after it had been deposited. On the other

hand, culture deposits generally are preserved by

freezing, so mutations may not be much of a

problem.

Finally, there is the problem of adequately protecting a product that can be made many different

ways, only some of which may be known at the

time the patent application is filed. For example,

because of the degeneracy of the genetic code,

a particular protein can be made by various base

sequences. Claiming a particular sequence will

provide insufficient protection, and claiming the

protein will not help if the protein is not novel.

Claiming the novel organism is one solution, but

others can easily construct different organisms

to produce the same product.

These problems have been addressed in PVPA

(and to a lesser extent in the Plant Patent Act),

which could be used as a model. For a plant variety to be protected under PVPA, for example, it

must be distinct, uniform, and stable. The definitions of these terms embody the concept that

it is necessary only to know the important characteristics of a new plant variety in order to

distinguish it from others and that only these

characteristics need to be stable through succeeding generations. In addition, PVPA defines infringement to include unauthorized reproduction.

If this approach were taken, the plant acts could

be subsumed in the new statute.

There are several arguments against this option.

First, any new technology raises questions about

the scope and nature of patent protection, and

many of these will only be able to be resolved on

a case-by-case basis rather than by statute. Second, most patent attorneys argue that the patent

laws are flexible enough to accommodate any new

technology, including biotechnology. Third, despite the possible limitations in applying the patent law to living organisms, utility patents actually may provide the patentee with the greatest

degree of protection when compared to the protection provided by a statute like PVPA. One of

the principal reasons is that a multiplicity of

claims is permitted for utility patents, which could

cover components of organisms, whereas just the

plant itself (and its seeds) is covered by a plant

variety protection certificate. Fourth, many experts would argue that since the Chakrabarty case

resolved the fundamental issue—the patentability

of living organisms —there is no need to undertake the major effort needed to pass legislation

to solve more minor problems. In addition, since

there is some degree of public sentiment against

patenting living organisms, the fundamental issue

also would be raised again. Finally, a new statute

would create its own new issues and questions

of interpretation.

Option 2: Allow patentees to place restrictions on

micro-organism cultures supplied to third

parties.

U.S. patent law requires complete and enabling disclosure of an invention in order to place

it in the public domain. In the case of patented

micro-organisms, the patentee is in effect required to turn over more than his or her invention—the micro-organism is virtually a complete

“factory” ready to begin production. For this

reason, inventors may be more inclined to rely

on trade secrets than on patents, and the public

will not gain the benefits of the new knowledge
Ch. 16—Intellectual Property Law . 405

Chapter 16 references*
—

406 . Commercial Biotechnology: An International Analysis

12. Brenner v. Manson, 383 U.S. 519, 153 U. S.P.Q. 45

(1966).

13. Brunswold, B., “Analysis of the United States International Trade Commission as a Forum for Intellectual Property Disputes, ” J. Pat. Off. Society

60:505, 1978.

14. Budapest Treaty on the International Recognition

of the Deposit of Microorganisms for the Purpose

of Patent Procedure, Officia/ Gazette 961:21-16,

Aug. 23, 1977.

15. Cooper, I. P., “Arzberger Under the Microscope:

A Critical Reexamination of the Exclusion of Bacteria From Plant Patent Protection, ” Pat. & T.M.

l?ev. 78:59, 1980.

16. Cooper, 1. P., Biotechnology and the Law, sec. 11.02

(New York: Clark Boardman & Co., 1983).

17. Cooper, 1. P., “Patent Strategies for Biotechnology

Products,” presented at a conference on Biotechnology: Drugs, Biologics, Medical Devices, Institute

for Applied Pharmaceutical Sciences, East Brunswick, N.J., 1983.

18. Corning Glass Works v. Brenner, 175 U. S.P.Q. 516

(D.C. Cir. 1972).

19. Daus, D. G., Bond, R. T., and Rose, S. K., “Microbiological Plant Patents,” IDEA 10:87, 1966.

20. Dawson Chemical Co. v. Rohm & Haas Co., 448

U.S. 176 (1980).

21. Diamond v. Chakrabarty, 447 U.S. 303 (1980).

22. Diamond v. Chakrabarty, 447 U.S. 310 (1980).

23. Diamond v. Diehr, 450 U.S. 175 (1981).

24. Ex parte Jackson, 21? U. S.P.Q. 804 (1983).

25. Feldman v. Aunstrup, 517 F.2d 1351, 186 U. S.P.Q.

108 (C. C.P.A. 1975).

26. Graver Tank & Mfg. Co. v. Linde Air Products Co.,

339 U.S. 605, 85 U. S.P.Q. 328 (1950).

27. Great A&P Tea Co. v. Supermarket Equipment

Corp., 340 U.S. 147 (1950).

28. Hoffmann-La Roche, Inc. v. Go/de, Civ. No. 80-3601

A.J.Z. (N.D. Ca].).

29. Halluin, A., “Patenting the Results of Genetic Engineering Research: An Overview,” Banbury Report 10: Patenting of Life Forms (New York: Cold

Spring Harbor Laboratory, 1982).

30. In re Angstadt, 537 F.2d 498, 190 U. S.P.Q. 214

(C.C.P.A. 1976).

31. Zn re Argoudelis, 434 F.2d 1390, 168 U. S.P,Q. 99

(C.C.P.A. 1970).

32. Zn re Jo@, 576 F.2d 909, 153 U. S.P.Q. 45 (C. C.P.A.

1967).

33. In re Kirk, 376 F.2d, 936, 153 U. S.P.Q. 48 (C. C.P.A.

1967).

34

35

36

Jet Spray Cooler, Inc. v. Crampton, 282 N.E.2d 921,

925 (1972).

Jungerson v. Ostby & Barton Co., 335 U.S. 560

(1949).

Kayton, I., “Copyright in Living Genetically Engineered Works, ” Geo. Wash. L. Rev. 50:191, 1982.

37. Kayton, I., The Crisis of Law in Patents (Washington, D. C.: Patent Resources Group, 1970).

38. Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470

(1974).

39. Kiley, T., “Learning To Live With the Living Invention,” APLA Q.J. 220:228, 1979.

40. Kiley, T., “Speculations on Proprietary Rights and

41,

42.

43.

44.

45.

46.

47.

48.

49.

Biotechnology,” Banbury Report 10: Patenting of

Life Forms (New York: Cold Spring Harbor Laboratory, 1982).

Milgrim, R. M., Trade Secrets, sec. 2.02(2) (New

York: Mathew Bender, 1981).

Ostrach, M., and Nyari, L., “Arrangements With

Respect to Transfer of Biological Materials.” Industrial Applications of Genetic Engineering: The

Legal and Regulatory Regime (Philadelphia:

American Law Institute, American Bar Association,

1983).

Rauh, P. A., Patent Attorney, Munich, personal

communication to Richard Schwaab, OTA contractor, Aug. 3, 1982.

Rowland, B., ‘(Are the Fruits of Genetic Engineering Patentable?” Banbury Report 10: Patenting of

Life Forms (New York: Cold Spring Harbor Laboratory, 1982).

Schwaab, R., Jeffery, D., and Conlin, D., “U.S. and

Foreign Intellectual Property Law Relating to Biological Inventions,” contract report prepared for

the Office of Technology Assessment, U.S. Congress, 1983.

Tegtmeyer, R., “Patenting of Genetic Engineering

Technology,” speech presented to the National

Academy of Sciences’ Convocation on Genetic Engineering of Plants, Washington, D.C., 1983.

U.S. Congress, Office of Technology Assessment,

Impacts of Applied Genetics: Microorganisms,

Wants, and Animals, OTA-HR-132, Washington,

D. C., April 1981.

U.S. Department of Commerce, “Industrial Advisory Subcommittee Report on Patent Policy,” Advisory Committee on Industrial Innovation: Final

Report, Washington, D. C., 1979.

U.S. Department of Commerce, Patent and Trademark Office, Manual of Patent Examining Procedure, sec. 2105, Washington, D. C., 1980.
Ch. 16—Intellectual Property Law ● 407

50. U.S. Department of Commerce, Patent and Trade- 52. Whale, A., “Patents and Genetic Engineering, ”

mark Office, Manual of Patent Examining Pro- Intellectual Property L. Rev. 14:93, 1982.

cedure, sec. 608. Ol(p), Washington, D. C., 1980. 53. Yoder Brothers, Inc. v. California-Florida Plant

51. Vendo Co. v. Stoner, 105 111. App. 2d 261, 245 Corp., 537 F.2d 1347, 1365 (5th Cir. 1976).

N.E.2d 263 (1969).
Chapter 17

University/Industry

Relationships

25-561 0 - 84 - 27
Contents

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411

The Effectiveness of University/Industry Relationships in Biotechnology Transfer . . . . . 413

Why are University/Industry Relationships in Biotechnology Being Formed? . . . . . . . . 414

Are the Relationships Working Smoothly? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414

Has the Way University Research Is Done or the Quality of University Research

Been Affectedly the Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414

Has Collaboration Among University Researchers

Been Affectedly the Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414

Has the Quality of Education Students Receive

Been Adversely Affectedly the Relationships? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414

Are There Lessons to be Learned from University/Industry

Relationships in Fields Such as Microelectronics?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415

What Forms are University/Industry Relationships in Biotechnology

Taking and What are the Associated Issues? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416

Are University Policies With Respect to University/Industry

Relationships Being Formulated? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418

What is the Likely Future of University/Industry Relationships in Biotechnology?. . . . 422

How Effective is University/Industry Technology Transfer in Countries

Likely to Compete With the United States in Biotechnology. . . . . . . . . . . . . . . . . . . . . 422

Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427

Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429

Chapter 17 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430

Table

Table No. Page

66. License and Patent Activity at IO Leading Research Institutions . . . . . . . . . . . . . . . . . 412
Chapter 17

University/Industry Relationships —

Introduction ———— -—— —. ———

411
———— .—

412 ● Commercial Biotechnology: An International Analysis

Table 66.—License and Patent Activity at 10 Leading U.S. Research Institutions

Fiscal year 1980 Federal R&D support Current annual Current annual

number of royalty income

Institution Total ($000) Life sciences ($000) Type of activity disclosures (thousands of dollars)

1. Johns Hopkins . . . . . . . .

2. MIT . . . . . . . . . . . . . . . . . .

3. Stanford University . . . . .

4. University of

Washington . . . . . . . . . . .

5. University of California,

San Diego. . . . . . . . . . . . .

6. University of California

Los Angeles. . . . . . . . . . .

7. Harvard University . . . . .

8. Columbia University . . . .

9. University of Wisconsin .

$239,869

141,011

104,011

$60,275

24,200

43,712

Licensing program

Licensing program

Licensing program

20

164

140

$ 9 0

1,500

2,500

100,567 54,968 Research foundation 28 120

90,703 37,327 Licensing programa

320a 1 ,700a

Licensing programa

Licensing program

—

Research foundation

87,073

83,997

81,361

80,460

52,606

53,962

49,383

43,342

60

20

75

50

Minimal

6,000 (with investment income)b

10. Cornell University . . . . . 74,761 37,900 Research foundation 50 1,300

~University of California system.

Investment income is the substantial portion

SOURCE: G. S Omenn, “University-Corporate Relatlons in Science and Technology: An Analysis of Specific Models,” Parfrrers irr the Research Errterprise, T, W, Langfitt,

S. Hackney, A. P. Fishman, et al. (eds.) (Philadelphia: University of Pennsylvania Press, 1983)

There are potential disadvantages to closer university/industry relationships, but some problems

can be avoided if participants are aware of potential difficulties and adequate safeguards are in

place. One potential disadvantage of closer relationships might be a tendency to increased secrecy on the part of university faculty; it should be

noted, however, that some secrecy has always existed when a particular faculty member is close

to a new discovery. A second potential disadvantage is the danger that basic research in universities will be directed toward profitable lines of

inquiry instead of toward interesting questions

raised by past or recent findings. This might occur if there were a precipitous decline in Federal

support for research in universities and universities had to turn increasingly to industry for

financial support. A third potential problem is that

some universities might be associated with products and processes linking them to lawsuits for

damages, causing subsequent impairment of the

universities’ impartiality and credibility, Finally,

there is the danger that universities that traditionally have competed for the best faculty might

compete instead for the most lucrative industrial

contracts.

In general, the purposes of universities in the

United States are education, the conservation

of knowledge, and the pursuit of unrestricted

knowledge. The ends of a university and its facul -

ty are pursued in a relatively open environment

that allows the exchange of ideas and unrestricted

publication of research findings. This does not

mean that there is no competition among scholars, nor is it to deny that secrecy can accompany

the desire to be first to announce a discovery (31).

Similarly, it does not mean that the pursuit of

knowledge for its own sake cannot be diverted

by the funds currently available for particular

kinds of endeavors (e.g., a “war on cancer” or

secret government research). Generally, however,

the pursuit by universities of the principles of

openness, aided by generous Federal funding for

basic research, has enabled the United States to

build the greatest research capability in the world.

In contrast to the purposes of universities, the

goal of industry is to make a profit, and the mode

of achieving this goal is competition. Industry is

output oriented, i.e., industry aspires to the efficient production of goods and services. When a

company pays for research, it may expect ownership of the results long enough to justify the investment to bring the product to market. In an

industrial setting, there is less willingness than

there is in a university setting to share research

materials; such materials are often kept as trade

secrets. The reason for greater secrecy in industry is that development of a product is often risky,

costly, and fraught with many obstacles along the

route to success. Although the costs of develop-
Ch. 17—University/lndustry Relationships ● 413

ing and marketing a product vary among industries and products, the development of a pharmaceutical product in the United States can cost

from $50 million to $75 million, with no guarantee

of profit (27). Thus, in industry, achieving a competitive edge in a market necessitates guarding

communication and intellectual property, an operating mode quite opposite from that of universities (6,13).

Industries and universities undertake partnerships in biotechnology for a variety of reasons,

ranging from the desire by industry to gain access to new technology, to gain a lead time in basic

knowledge, or to obtain trained personnel, to the

need by universities to fill shortfalls in funding.

Ultimately, it is hoped, the effect of the partnerships in the United States will be to facilitate and

speed up the process of domestic technology

transfer, since this is critical to the maintenance

of a competitive position by the United States. Examining U.S. university/industry relationships in

biotechnology is necessary in order to gain insight

into the process of technology transfer and to

determine if technology is being transferred in

a spirit of cooperation and without compromising the goals of two very different institutions.

E. David has described the fundamental characteristic of optimal technology transfer between

universities and industry as a two-way synergistic

process between equal partners (6). Basic research, usually carried out in universities, is essential to the process. It is important to note, however, that basic science itself cannot progress

without advances in technology, which often is

developed by industry. Just as, for example, Gali -

leo and Newton could not have made their contributions to astronomy without the invention of

the telescope, the recent advances in molecular

biology could not have been made without advances such as the electron microscope, X-ray

crystallography, radioisotope Iabeling, and chromatography. Thus, universities and industry alike

must accept the requirements of the other institution and enter into agreements that maximize the

ability of each to maintain its standards and goals.

The effectiveness of university/industry relationships

in biotechnology transfer

Since most of the university/industry relationships in biotechnology are new, it is difficult to

ascertain how effective the relationships in the

United States will be in transferring the technology between universities and industry. An estimate of their effectiveness can be made however,

by considering the following questions:

●

●

●

●

●

●

Why are university/industry relationships in

biotechnology being formed?

Are the relationships working smoothly?

Has the way research is done in university

laboratories or the quality of university research been affected by the relationships?

Has collaboration among university researchers been affected?

Has the quality of education been affected?

Are there lessons to be learned from university/industry relationships in fields such as

microelectronics?

●

●

●

●

What forms are university/industry relationships in biotechnology taking and what are

the associated issues?

Are university policies with respect to university/industry relationships (e.g., patent and

royalty agreements, handling of tangible research property, and conflicts of interest)

being formulated?

What is the likely future of university/industry relationships in biotechnology?

And finally, how effective is universit,y/industry technology transfer in countries likely to

compete with the United States in biotechnology?

At the request of OTA, two contractors interviewed university administrators, faculty, and

graduate students (principally in biotechnology)

from the University of California, Berkeley, the

University of California, San Francisco (UCSF),
414 ● Commercial Biotechnology: An International Analysis

Stanford University, Harvard University, Massachusetts Institute of Technology (MIT), and Johns

Hopkins University, and representatives from 15

companies (a mix of new biotechnology firms and

other companies moving into the biotechnology

area) to obtain their opinions. Although this sample was not statistically representative, it included

some of the major U.S. companies and research

institutions working in biotechnology; thus, the

opinions came from individuals active and knowledgeable in the field.

Why are university/industry

relationships in biotechnology

being formed?

OTA found an almost unanimous consensus

among both university and industry representatives in the United States that universities are

seeking money from their relationships with industry, motivated in part by a reduction or fear

of reduction in Federal funding. Industry representatives believe that universities want to gain

more real-world exposure for faculty and students and offer them a look at “economic reality” (18), In addition, some faculty stated that industrial funding requires less administrative work

and is longer term than Government-funded renewable grants.

Are the relationships

working smoothly?

The perception of most of the respondents in

OTA’S survey is that university/industry arrangements in the United States are working well. The

initial administration of agreements between universities and industry in the area of biotechnology

was inefficient, because new policies were being

formulated and new players (biologists, in contrast to engineers or chemists) are now involed

in interactions with industry. In addition, some

research administrators have had to learn how

to administer technology transfer agreements

(18). Some individuals have speculated that agreements are working well because there are almost

no biotechnology products yet. Disagreements

may arise, especially in limited partnerships,

when product sales revenues are generated (18).

Has the way university research is

done or the quality of university

research been affected by the

relationships?

Respondents in OTA’S survey were asked to

consider two potential effects of university/industry relationships on U.S. university research: effects on the way research is done (its focus or

methodology) and effects on the quality of the

research. Nearly 85 percent of those responding

believed that university/industry relationships in

biotechnology have had no effect on the way research is done, and virtually all believed there has

been no change in the quality of research.

Has collaboration among university

researchers been affected by the

relationships?

Almost 85 percent of the respondents in OTA’S

survey who had an opinion about this issue believed that university/industry relationships in biotechnology have had no substantial effect on the

exchange of information or the collaboration that

has existed among U.S. university researchers.

Most respondents believed that there is only

limited collaboration in rapidly evolvring areas of

science anyway and that levels of communication

vary among faculty. Industry representatives

. . .

commented that faculty having consulting arrangements should keep proprietary information

confidential (18).

Has the quality of education students

receive been adversely affected by

the relationships?

Slightly more than half of those who responded

to this question said there has been no change

in the quality of education students receive, The

others said that if there has been any effect, it

has been to enhance the quality. Two forces will

probably keep the quality of education at American universities unaffected by university/industry

relationships in biotechnology. First, the goal of

the faculty and university administrators to protect and maintain standards of academic excel-
— ——
416 ● Commercial Biotechnology: An International Analysis

nology, the traditionally distinct roles of the university as source of research and training and

of industry as source of commercialization are

blurred. Though the consulting arrangements,

equity arrangements, and research contracts between U.S. universities and industry in the field

of biotechnology resemble in form the cooperative ties that emerged between U.S. universities

and industry in the field of semiconductors, their

timing, substance, and scale are significantly different (2).

What forms are university/industry

relationships in biotechnology

taking and what are the associated

issues?

The major issues in university/industry relationships, though derived in part from the differences

between the two institutions, are also set in a context of broader social and economic issues. Thus,

the discussion of types of university/industry arrangements below is set in this context of broader

issues. First a caveat: industry and universities are

not monolithic institutions. The variability within

each of these two institutions is as least as great

as, if not greater than, the variability between

them. This diversity is essential to the health of

both and must be borne in mind in any discussion of university/industry arrangements, because

no two arrangements are identical.

In the following discussion, five broad types of

university/industry arrangements in biotechnology are considered:

● consulting arrangements,

. industrial associates programs,

. research contracts ,

● research partnerships, and

● private corporations.

Additional information about specific university/

industry relationships in biotechnology is presented in Appendix H: Selected Aspects of U.S. University/Industry Relationships in Biotechnology.

By far the most common form of interaction

is personal interaction among scientists. Personal

interactions can include consulting arrangements,

personnel and publication exchanges, seminars,

and speaker programs. Issues arise most

with regard to consulting arrangements.

CONSULTING ARRANGEMENTS

often

Consulting is important for several reasons. It

allows direct technology transfer between universities and industry that goes in both directions.

Academicians agree that consulting keeps them

apprised of new innovations in industrial R&D

and that their knowledge can be applied to new

kinds of problems related to, but outside of, their

on-campus research. University faculty who consult publish more than faculty who do not consult (this may be a chicken and egg situation); they

also do more research and participate as actively in their administrative duties as faculty who

do not consult (17). Furthermore, consulting plays

a significant role in faculty salary supplementation: 44 percent of calendar year faculty at doctoral granting institutions in the United States

report that consulting is their first or second

largest source of supplemental income (17). Consulting relationships have led to longer term industrial support of U.S. university research such

as that provided by Monsanto to Washington University (see below) and Harvard and that provided

by Exxon to MIT.

Industry views consulting arrangements with

university faculty essentially as having an expert

on retainer. Most U.S. universities have policies

on consulting, but the policies vary. Some examples of university policies on consulting are

presented in appendix H.

University consulting policies typically have provisions regarding conflict of interest, time regulation, disclosure, and policy enforcement. In most

cases, policy enforcement is based on an honor

system; each faculty member who consults is personally responsible for adhering to this. Although

some faculty members may not always observe

the rules, with incentives to carry on good research, train graduate students, and publish findings, most university faculty are not motivated

to pursue consulting activities to the point where

conflicts of interest occur on a regular basis. Disclosure policies are of interest for public access

to objective scientific information. An argument

could be made that because the public has sup-
Ch. 17—University//ndustry Relationships ● 417

ported research in universities, it has a right to

know whether a particular university faculty

member who is giving testimony, for example, has

a consulting relationship with a company that

manufactures a particular potentially harmful

chemical. The negative side of disclosure policies

is that “objective” information maybe judged “subjective” because of guilt by association. If a faculty member’s consulting arrangement with industry is declared openly, it is not necessarily the case

that his or her testimony is biased. In fact, the

expert may have a more objective view because

he or she understands both the research and development aspects of the technology.

INDUSTRIAL ASSOCIATES PROGRAMS

Industrial associates programs usually involve

entire university departments or groups of specialists within a department. Companies pay a set

annual fee that allows them to participate in

seminars, interact with graduate students and

faculty, and preview publications.

Industrial associates programs allow university/

industry contacts and at the same time avoid conflict of interest problems and patent agreements.

These programs exist at several U.S. universities,

and some ongoing programs now include biotechnology. At MIT, for example, the Industrial Liaison

Program has begun to include biotechnology as

a subject of its symposia and seminar series. One

of Stanford’s 19 industrial affiliates programs is

a program in biochemistry. And Pennsylvania

State University has just initiated a Cooperative

Program in Recombinant DNA Technology.

Industrial associates programs facilitate technology transfer between universities and industry, open up opportunities for further consulting

and contract arrangements, provide funding for

graduate students and faculty research, and give

industry access to graduate students for future

employment. Industrialists generally view these

programs as useful. However, some industrialists

believe that a few university programs tend to

give the impression that research results are being sold to members only. Exclusivity is not the

purpose of these programs; rather, their purposes

are support of research activities and continuing

open lines of communication of research results.

RESEARCH CONTRACTS

University research contracts with industrial

sponsors have been and continue to be an important type of university/industry relationship in

biotechnology. Research contracts differ from

consulting arrangements in that the industrial

sponsor is usually paying for a specific piece of

research or supporting general research activities.

Contractual arrangements often grow out of consulting or industrial associates programs and are

usually motivated by industry’s need for research

that complements research being done in-house

or for some expertise in a new area.

Several of the university research contracts

with industrial sponsors in biotechnology have

been large and have elicited questions regarding

issues such as commingling of funds, patent

rights, and disclosure of equity or other financial arrangements between the industrial sponsor and the principal investigator. The larger

agreements have received extensive press coverage.

Issues of conflict of interest, invention rights,

commingling of funds, and university policies regarding the processing of contractual arrangements are all important. It is interesting to note

that MIT, which traditionally has had a close relationship with industry and has a relatively larger

(7 percent) share of industrial sponsorship than

other American universities, has the most explicit

guidelines for consulting, disclosure, and processing of industry-sponsored contracts. other

universities, notably, Johns Hopkins, Harvard, and

the University of California, are moving toward

more explicitly stated policies. See appendix H for

descriptions of selected university policies on

sponsored research and patents.

RESEARCH PARTNERSHIPS

Another type of university/industry arrangement taking place in biotechnology is the joint establishment of a research foundation, institute,

or long-term collaborative arrangement by an industrial sponsor and a university. Three recent

ones, further described in appendix H, are well

known: the Hoechst/Massachussetts General Hospital agreement, the Monsanto/Washington Uni-
418 ● Commercial Biotechnology: An International Analysis

versity agreement, and the Whitehead Institute/MIT agreement. These arrangements raise

several issues, some of which are pertinent to only

one or two of them, others to all three.

The agreement between the West German company Hoechst and Massachusetts General Hospital, for example, raises the issue of foreign investment in and foreign benefit from U.S. Government-funded research. This agreement also raised

the issue of commingling of funds (see below). For

both the Hoechst and Whitehead Institute agreements, faculty selection is an issue because of the

need for balance in subdiscipline in biology in

Massachusetts General Hospital’s medical school

and MIT’s biology department, respectively. Other

issues raised by these agreements are external

peer review of projects and controls on rights to

publish. Another issue is the terms of termination of the agreements and whether adequate

notification provisions have been made for the

university to seek other support.

In the Hoechst/Massachusetts General Hospital

agreement, the company will pay for all equipment and other expenses in order to ensure that

there will be no Federal support of the research.

Questions will arise if faculty cooperate with

other researchers who are funded, for example,

by the National Institutes of Health. Provisions

have been made in both the Hoechst and Whitehead agreements to separate faculty selection and

consulting. Choice of directions of research is the

responsibility of the Whitehead Institute’s directors and scientific board, all of whom have high

academic reputations. Provisions for termination

of the agreements vary, but they have been clearly stated.

Several States have established institutes for biotechnology development that encourage interactions between industry and universities. The

North Carolina Biotechnology Center and the

Molecular Biology Institute in Michigan have

already been established; other States are in the

process of establishing such centers. *

● h’or ~ list of State gmwrnment initiatives for high-techno]ogv industrial development, see ‘Z’echrlo/o@’, hmo~’ation, and Regional Economic De\’elopment: Censos of’ State Government Im”tiatives for High-

‘1’erhnolog}’ Industrial Development-Background Paper (28).

PRIVATE CORPORATIONS

Innovative approaches to connecting university

research to commercial developments in biotechnology are being initiated. The establishment of

Engenics (with Stanford and the University of

California, Berkeley) and the establishment of

Neogen (with Michigan State) are examples of two

different approaches. For descriptions of these

arrangements, see appendix H.

The Engenics arrangement is funded by six corporations, with money flowing through the simultaneously established nonprofit Center for Biotechnology at Stanford. The Center for Biotechnology funds contract research on the campuses

of the University of California, Berkeley, and Stanford (and also funds one contract at MIT) and will

funnel royalty income back into the university to

fund more research. Neogen was established to

utilize limited partnerships and tax benefits as a

vehicle to allow Michigan State University faculty to remain on campus and simultaneously allow

entrepreneurial ideas to flourish. Neogen’s royalties are funneled back to the university through

the nonprofit Michigan State University Foundation.

It is too early to evaluate the Engenics and Neogen arrangements. It should be noted, however,

that potential challenges could arise with respect

to adequate mechanisms for peer review of projects, applied research being done on campus, conflicts of interest of professors, and a private company doing the same type of work as is being done

on campus with the on campus principal investigator having ties (equity, consulting, board membership) to the company.

Are university policies with respect to

university/industry relationships

being formulated?

The control of intellectual property, commingling of funds, tangible research property, and conflicts of interest are issues that cut across all

university/industry arrangements and ultimately affect technology transfer and the U.S. competitive position in biotechnology. University policies with respect to these issues are addressed

in the discussion that follows, and additional in-
Ch. 17—University/industry Relationships ● 419

formation about university policies is presented

in appendix H.

INTELLECTUAL PROPERTY

Different traditions have developed in the

United States to deal with different kinds of property. Although some U.S. universities allow the

faculty member who developed the invention to

retain any patent rights, most require those rights

to be transferred to the institution. Created works

are subject to copyright laws. Most institutions

assert that ownership, but universities do not

assert rights to books written by faculty (14).

Patent&—Issues relating to patent agreements

can be divided into two kinds: those dealing with

retention of rights to an invention and those dealing with decisions regarding exclusive or nonexclusive licenses.

The rights of small businesses, universities, and

other nonprofit organizations to inventions made

under research sponsored by the U.S. Government are addressed in the 1980 U.S. patent law,

Public Law 96-517. An Office of Management and

Budget (OMB) circular, Circular A-124, “establishes a standard Patent Rights clause to be

included in all Government grants and contracts

with such organizations, which gives these invent -

ing organizations the right to retain title to the

inventions. The Circular also requires agencies

to modify existing regulations to bring them into

conformity with the Circular” (7). Public Law

96-517 was passed with the recognition that the

public interest can in most instances be promoted

by allowing exclusive licenses under those circumstances. In a competitive economy, private enterprise will not invest funds to develop ideas that

can be duplicated with impunity. Without exclusive licenses, important investigations made at

Government expense would remain undeveloped

because development costs are high. Thus, these

inventions would never be available to the public

(lo).

The consensus expressed in recently developed

university guidelines for industrial sponsorship

of academic research is that granting of exclusive

or nonexclusive licenses will be on a case-by-case

basis to the corporate sponsors of research. Summaries of State Agricultural Experiment Stations

(SAES) and Pajaro Dunes Conference guidelines

are presented in appendix H. In some cases, an

exclusive license is given to allow time for development of the product. There is a division of opinion on whether exclusive licenses should be

granted on all discoveries that result from university research funded by an industrial sponsor:

some university representatives believe that an

exclusive license should be granted, while others

believe that the university should provide a nonexclusive royalty free license (see Pajaro Dunes

Conference guidelines in appendix H). Most agree,

however, that if a faculty member’s research is

being sponsored by a company in which the faculty member has substantial interest and/or equity, the university should grant only a nonexclusive

license. In most of the major multimillion dollar

university/industry agreements being struck in

biotechnology, the corporate sponsor is receiving some exclusive rights to inventions developed

as a result of the funding. In all arrangements between industry and universities, it is essential that

the patent issues be carefully thought out in

advance. *

COMMINGLING OF FUNDS

Since one of the purposes of the 1980 U.S. patent law (Public Law 96-5 17) is to foster cooperative research arrangements among Federal Government agencies, universities, and private industry, one question that immediately arises is

the potential for commingling of funds. Currently,

for agreements struck after 96-517 became law,

no exemption for Government de minimus provisions has been made. Where the Government

has funded a small percentage-even 1 or 2 percent of direct costs—then the provisions of Public

Law 96-517 and OMB Circular A-124 apply.

The Comptroller General of the United States,

in his reply to Congressman Albert Gore concerning the possibility for commingling of funds in the

Hoechst/Massachusetts General Hospital agreement stated, “MGH must account separately for

all expenses leading to an invention, including the

cost of research itself as well as indirect or

overhead costs, t. be able to show that the

“ F’or- a discussion of ~~!ent issues in surh agrcem[’nts, see 1]. l{utl,

“( I[ll\,(, mit\/(:or])OI.: it(~” ” Research Agrfmnent-s” ( 10)
420 . Commercial Biotechnology: An International Analysis

expenses were paid with funds provided by

Hoechst” (23). After reviewing the terms of the

contract, the Comptroller General ruled that it is

possible for Massachusetts General Hospital to

separate the funds properly.

TANGIBLE RESEARCH PROPERTY

A basic principle among scientists is that research findings should be communicate promptly to the scientific community by written and oral

means. Written and oral processes, however, are

not sufficient to disseminate tangible products of

research such as the antibody-producing cell lines

and plasmids used in biotechnology.

Stanford University developed in March 1982

a specific policy on tangible research property

(TRP), defined as “tangible (or corporeal) items

produced in the course of research projects, ” including items such as “biological materials, computer software, computer data bases, circuit diagrams, engineering drawings, integrated circuit

chips, prototype devices and equipment, etc.” (16).

Stanford’s policy was promulgated to protect the

university’s ownership in such property consistent with the policy of promoting the prompt and

open exchange of TRP and associated research

data with scientific colleagues outside the investigator’s immediate laboratory. Controlling the

distribution of TRP, subject to provisions of applicable grants or contracts and university policy,

is the responsibility of the principal investigator.

Such control includes determining if and when

distribution of the TRP is to be made beyond the

laboratory for others’ scientific use.

WARF has developed a confidential disclosure

agreement in order to disseminate or license intellectual property, tangible or intangible property, and products arising from work conducted at

the University of Wisconsin. In order for the receiver to obtain the materials, the following conditions must be met (3):

● The materials will be received and held in confidence by the receiver. Only persons within

the receiver’s organization and only those

essential in the evaluation of the materials will

be permitted access to the materials.

● If opinions or services of other persons outside

the receiver’s organization are needed, then

the receiver will notify WARF and the confidential disclosure agreement will be executed

with that person.

● The receiver will not commercially utilize the

material or any part thereof without written

consent of WARF or prior to entering into a

licensing arrangement with WARF.

Recently, a dispute over the ownership of a cell

line that produces interferon arose between the

University of California and the Swiss company

Hoffmam-La Roche. The University of California,

as the institutional home of the scientists who created the cell line, claimed ownership of the cell

line and the right to future royalties. Hoffmann -

La Roche also claimed ownership on the grounds

that it had funded the university research that

increased interferon production by the cell line

and filed a patent application covering this interferon production process. Lawyers from the

university sued the company, arguing among

other things that the firm had made unauthorized use of the material, taking commercial advantage of the open exchange of information and

material among academic scientists. This suit was

settled out of court, but the settlement has not

been made public.

Another recent case has left unresolved the issue of ownership of a cell line (24). H. Hagiwara,

a visting Japanese researcher at the University

of California, San Diego, took, without permission,

a hybridoma fused from cancer cells taken from

his mother and used the resulting monoclinal

antibodies to treat her for cancer. Although the

usefulness of the treatment has not yet been evaluated, the cell line may have commercial potential, so the issue of ownership is important. The

University of California sued Hagiwara, stating

that, as the research institution, it owned the cell

line. This case has been settled with the Hagiwara

Institute of Health (Hagiwara’s father is the director) obtaining exclusive license in Japan and other

Asian countries and the patent rights assigned to

the University of California. Some argue that a

hybridoma is a newly created entity, so the donor

has no rights of ownership; others contend that

cell donors should automatically be given a share

of any subsequent profits (24).

CONFLICT OF INTEREST

Conflict of interest situations have both financial and intellectual components. A potential con-
Ch. 17—University/industry Relationships ● 421

flict of interest could arise if a university held

equity in a company in which a faculty member

of the university also held equity interest as a line

officer. This situation arose in a Harvard proposal

to establish a firm to commercialize the research

of one of its professors. The proposal was subsequently withdrawn, and Harvard President Derek

Bok described the potential problems with the arrangement (l):

●

●

●

●

●

●

●

The administration could be exposed to disagreements not only with the faculty partners

but also with other nonpartner faculty who

might also want support.

Commercial ventures could impose responsibilities on the university it doesn’t have when

its endowment invests only in shares of many

companies.

Conflicts could arise if the university were associated with particular products and a public

that expects high standards from the university were dissatisfied with the standards of

marketing or the products.

The arrangement could inevitably change and

confuse the relationship of the university to its

professors. A faculty member who joins with

the administration in founding a new company

is no longer valued merely as a teacher and

scholar; he becomes a source of potential income to the institution.

There could be more doubt concerning decisions made with respect to qualifications for

tenure, extra leave, larger laboratory space,

more graduate students, salaries, etc.

Professors might become so involed with the

challenges of seeing an enterprise grow and develop that their work commitment to university duties might be diminished. The university would be in a prejudiced position regarding

assessment of that person’s performance of

work since that person’s commercial success

would be linked to that of the university.

Participation would increase the risk of secrecy, and- the university could have a stake in supporting that secrecy.

A potential conflict of interest and commitment

arises when a professor holds equity within a

company that engages in the same type of activities as the university. This issue has been raised

in the activities of Calgene. The State Agricultural

Experiment Station (SAES) at Davis helps develop

new varieties of plants for California growers.

University of California professors, including Ray

Valentine, have part-time employment at the station. Calgene, a company Valentine founded, is

undertaking for profit the same kinds of activities

as the SAES undertakes for growers. Thus, there

is a potential source for conflict and for taking

the results of work off campus and marketing

them through the company.

University conflict of interest policies and consulting policies vary, but university policies are

becoming more explicit, in part because universities are responding to developments in biotechnology. It is interesting to note that MIT, which

has traditionally had extensive contacts with industry, has explicit policies on industrially sponsored research. In addition, several organizations

are setting guidelines for industrial sponsorship

of academic research (see app. H).

At the request of Representative Albert Gore,

the American Association of Universities (AAU)

reviewed the ethical dilemmas posed by increases

in industrial support for research. AAU suggested

that it serve as a clearinghouse and monitor activities at the major American universities with

regard to the formulation of policies. AAU decided

not to develop policies, because “conditions exist

[in the universities] for intelligent and thoughtful

decisionmaking on these issues and policies that

are informed by wide experience and that are tailored to individual circumstances are preferable

to injunctions broady enough cast to cover the

multitude of local circumstances that exist among

many universities” (15).

Also, representatives from universities, industry, and the legal community are now meeting

to review issues and communicate more effectively. Recent meetings have been hosted by Columbia University, the Gulf Universities Research Consortium, the Industrial Biotechnology Association,

Florida State University, Harvard, and the Bar of

the City of New York, and a meeting in Philadelphia in December 1982 was hosted by eight major research universities (15).

It is clear that recent activities to formulate explicit policies are advantageous in helping to define the role of the university and ultimately facilitating effective technology transfer between universities and industry. Technology transfer will

be most effective if both sides are strong, vibrant,

creative, and have something to offer each other.
422 . Commercial Biotechnology: An International Analysis

What is the likely future of

university/industry relationships

in biotechnology?

A comparison of the responses to OTA’S survey

of university and industry groups in the United

States shows that both groups see the future of

university/Industry relationships in biotechnology

as depending largely on the success of biotechnology companies in getting products into markets. There was divergence of opinion among the

respondents, however, on what kind of research

assistance—broad basic research or more specialized research-industry would seek from universities, In biotechnology as in other fields, an increase in the actual number of industry/university relationships and an increase in the total

amount of funding made available by industry can

be expected to develop over the short term (18).

U.S. university/industry relationships in biotechnology will most likely follow the same pattern

that they have in other high-technology areas.

First, scientific breakthroughs generate a period

of hyperactivity in university/industry relationships. This hyperactivity phase is characterized

by the promise of “big bucks,” which leads to a

short-term faculty and post-graduate drain. After

the industry goes through its initial phases, an

equilibrium state is reached and a fairly healthy

symbiotic relationship emerges.

How effective is university/industry

technology transfer in countries

likely to compete with the

United States in biotechnology?

The countries identified in this assessment as

being the most likely major competitors of the

United States in biotechnology are Japan, the

Federal Republic of Germany, United Kingdom,

Switzerland, and France.

JAPAN

Japan has a mixed situation with regard to university/industry relationships in biotechnology.

First, a distinction should be made between institutions and individuals. At the national universities, which are at the top of the Japanese university hierarchy, institutional ties are very strictly

regulated. At the level of individual professors,

however, there is considerable opportunity for

interaction. A second distinction is between the

basic and applied sciences. The distinction and

separation of basic and applied science departments at Japanese universities is strong. Japanese

professors in disciplines such as biology, biochemistry, and medical science are proud of their

independence from industry. Professors in applied disciplines such as bioprocess engineering,

on the other hand, have ongoing contacts with

industry. Japanese professors in applied science

departments are considered to have a moral

obligation to place their students as employees.

Consequently, they tend to maintain good relationships with industry. Furthermore, because

former students are members of industry, informal contacts continue.

Even though Japanese professors in applied sciences have contacts with industry, the level of

exchange of information between universities and

industry in Japan is not as high as that in the

United States. Japanese professors at the national

universities are forbidden to take other positions

simultaneously with their university work, and

all donations toward their research must be made

through formal university channels. No fees for

consulting can be accepted, and offers of stock

options are unheard of. Japanese professors were

not allowed to hold patents or collect royalties

until 1981. Because of the restrictions on both

professors and industry, Japanese professors

often quit their posts to work in industry or

private laboratories where facilities-and salaries

are better than in the universities. They do this

in spite of the fact that there is a great deal of

social prestige attached to being a professor.

There are only two mechanisms through which

Japanese industry can channel funds to a university. One of these, the “itakuhi,” is commissioned

research on a particular topic. The company supplies a researcher and some funds, usuaIly only

$500 to $1,000 (Y 125,000 to * 250,000), to a

university professor. This mechanism allows the

company to have its researchers trained by the

professor and the professor’s staff; the professor,

in turn, gets extra help in doing his research. The

second mechanism, the “shogaku kifukin,” is a

scholarship grant donated to a specific university researcher but not for a specific topic. The
Ch. 17—University/industry Relationships . 423

grant money must be used only for equipment

and other direct costs, not personnel costs; no

overhead is charged by the university, and there

is no limit on the amount. Money for these grants

must be channeled through the Ministry of Education. Within this framework, there are a number

of administrative obstacles in terms of hierarchy

of approvals necessary, different policies on patents among departments, etc. In spite of the tight

control of channels of funds and lack of consulting opportunities for Japanese professors, about

10 percent of all university funding for research

in Japan does come from industry. Most of this

is probably channeled to applied research (22).

The Science and Technology Agency (STA) has

established the New Technology Development

Fund in order to subsidize Japanese companies

that develop and commercialize university research findings. The fund will probably be used

to transfer technology between applied science

departments and industry, which already have

good relations, rather than between basic science

departments and industry.

Another STA program is designed to cross traditional barriers between university basic science

departments and industry and between the Ministry of Education and the Ministry of International

Trade and Industry (MITI). Research responsibilities

in STA’S program are allocated between university and corporate laboratories. The success of the

program will depend in part on getting MITI, the

Ministry of Education, and basic research departments to work together. Basic researchers have

already asked the Ministry of Education to supervise the project, so there is some doubt as to

whether the program will be successful. If supervision stays in Ministry of Education, the link with

industry will be weakened.

Research in Government institutes makes up for

the lack of technology transfer from the heavily

regulated Japanese universities. In almost every

major industrial sector in Japan, there are a number of governmental research institutes that do

background research for MITI policy makers and

where professors, industry representatives, and

Governrnent officials meet for discussion. Mitsui

Information Development and Normura Research

Institute have been used for background research

in biotechnology.

In addition, the Japanese Government is building two biotechnology centers, each with a P4-

level laboratory facility: one in Tsukuba (a new

university research community) and one at osaka

University. The P4 facilities will be available to

private sector corporations via contacts with university professors. Four other universities were

designated by the Ministry of Education to have

P3 level facilities and received $640,000 ( * 160

million) in fiscal year 1981 to help build them: 1)

Tokyo University Medical Research Institute; 2)

Kyoto University Chemistry Research Institute;

3) osaka University Microbial Disease Research

Institutes; and 4) Kyushu University Medical Department. These large-scale biotechnology facilities administered by the Japanese Government

will provide a place for university professors,

Government researchers, and company researchers to work together.

The applied science departments of Japanese universities have been instrumental in Japan in providing training and information exchange in biotechnology. At present, university basic research

in Japan is peripheral to Japanese industrial activities. If Japan intends to develop a greater basic

research capacity that industry can draw on,

funding for basic research will have to be increased and mechanisms to increase communication between researchers and industry will have

to be implemented, Japanese companies look to

other countries to make up for the weaknesses

in the technology transfer from Japanese universities. Whether the Japanese will have a competitive edge in biotechnology will rest, in part,

on the differences in industrial relationships

in applied and basic research. If biotechnology

develops such that most research moves into industry, then the present system will be adaptive.

If strong basic research and effective domestic

technology transfer by universities is important

to the development of biotechnology and if international technology transfer proves ineffective,

then the Japanese system will have to change (22).

FEDERAL REPUBLIC OF GERMANY

Biotechnology research in the Federal Republic

of Germany is carried out at the federally sup-
424 . Commercial Biotechnology: An International Analysis

ported, private Max Planck institutes as well as

in German universities. * Critics have charged that

the Max Planck institutes may be depriving the

universities of talent by drawing away promising researchers and that they are “ivory towers”

conducting research of little relevance to the nation’s technological well-being. The Federal Ministry for Research and Technology (BMFT, Bundesministerium fur Forschung und Technologies)

would like to see closer connections between the

Max Planck institutes and industry. One successful outcome of its strategy is the recent cooperative agreement between the Max Planck Institute

for Plant Research and Bayer Leverkusen.

The university system is in flux. Beginning in

the 1960’s, West German universities were subjected to a series of reforms that left the system

in turmoil. According to one recent analysis (11):

The underlying trouble is that West Germany

has sought to reconcile several irreconcilables—

the principle of open access to any university in

the country, the doctrine that all universities are

equal, the practice that the universities are run

by the ministries of culture in the Lander in

which they happen to be sited, and the phenomenal increase in the demand for higher education

in the past twenty years.

The result is a university system in which litigation about the rights and duties of students and

faculty sometimes seems to take precedence over

research and teaching,

A lack of money has recently added to the administrative and legal conflicts created by the

West German university reforms. Biotechnology

in the universities, both because of financial cutbacks and because it is a new discipline, depends

on outside sources of funding. Probably the largest single source of funding is the German Research Society (DFG, Deutsche Forschungsgemeinshaft), a nonprofit institution that serves as

a German National Academy of Sciences and as

a conduit for Government funding of basic research. The approval by DFG of a “special collaborative project” on bioconversion in Munich

will give a boost to academic work in this area.

Other sources of funding for biotechnology in

universities include the Fraunhofer-Gesellschaft

and the Volkswagen Foundation, as well as private

industry. Relations with industry in the past have

largely taken the form of contracts or consulting

agreements between individual professors and interested firms. Hoechst’s arrangement with Mas -

sachusetts General Hospital (see app. H), however,

has prompted BMFT to seek more systematic uni -

versity/industry collaborations within West Germany. One product of BMFT’s initiatives in this

area is an agreement between the German chemical company BASF and the University of Heidelberg whereby the chemical company will give the

university $450 )

000 per year for research over

a 5-year period. BASF’S commitment is more

modest than Hoechst’s support for Massachusetts

General Hospital. Nevertheless, it marks an important step in the German Government’s effort

to engage the private sector in building up fundamental research in biotechnology inside Germany.

Among the factors cited to explain West Germany’s slow entry into commercial biotechnology

is an educational system that prevents the kind

of interdisciplinary cooperation that is viewed by

most experts as essential to the development of

this field. In particular, the traditional separation

of technical faculties from their arts and sciences

counterparts means that process technicians,

usually located in the technical schools, rarely

come into contact with colleagues holding university appointments in biochemistry or microbiology.

One of BMFT’s professed aims since the adoption of its performance plan for biotechnology has

been to bridge this institutional gap.** A significant contribution toward meeting this objective

is made by the German Society for Chemical Engineering (DECHEMA, Deutsche Gesellschaft fur

chemisches Apparatewesen). DECHEMA played

a crucial role in the original formulation of BMFT’s

biotechnology program. Its working group on

“technical biochemistry” was charged in 1971

with preparing a study on biotechnology that established the framework for the BMFT program.

● For a description of Federal applied reseamh carried out through

the Society for Biotechnological Research, GBF, see Chapter 13: Government Fun&”ng of Basic and Applied Research.

“ ● BMFT’s performance plan, Leistungsplan: Biotechnologie, is discussed in Chapter 20: Targeting Policies in Biotechnology.
Ch. 17—University//ndustry Relationships ● 425

DECHEMA continues to further interdisciplinary

exchanges through a variety of means. Its expert

group on biotechnology is a standing body that

brings academics and industrial scientists into

regular contact at seminars on biotechnology for

small groups of experts. Attendance at these is

by invitation, and one of their functions is to further a fruitful dialog between industry and academia. The confidential character of these meetings permits research scientists to discuss their

results at prepublication stages. At the same time,

industry representatives can present their own

problems with the hope of interesting academic

groups in their resolution. Finally, DECHEMA also

organizes continuing education courses in various

aspects of biotechnology, such as the use of immobilized enzymes or measurement and control

of bioreactors (11).

UNITED KINGDOM

A traditional weakness in the united Kingdom

has been a gap between university research and

industry. This gap in the area of strategic applied

research has been termed the “pre-development

gap.” Them is consensus that the National Enterprise Board set up to foster university/industry

relationships failed. The National Enterprise

Board is now called the British Technology Group

(BTG), and measures have been taken to improve

its efficiency. Also, new institutions for biotechnology have been developed. Furthermore, direct

contacts between British universities and industry

have recently increased, in part because of economic conditions.

To stimulate the transfer of university basic science research in health-related fields to industrial

applications, the British Government and four industrial partners created a new company, Celltech, Ltd., in 1981. In the original agreement, Celltech received the right of first refusal* on all

work in hybridoma technology conducted by the

Medical Research Council. Celltech also plans to

commercialize the results of basic research in

rDNA technology. Currently, the British Government owns 28 percent of the company and private companies hold the other 72 percent. Celltech’s initial capitalization was $20 million (<11.4)

“’I’his is the right to choose whether to produce any good or sernice without hak’ing to bid competitively.

million). Celltech currently maintains a staff of

130 persons, two-thirds of whom are scientists.

It is likely to increase this number to 180 persons

in the near future.

In an arrangement similar to that of Celltech,

the British Government, through BTG and two

private concerns (Ultramar and Advent Eurofund),

recently established the company Agricultural Genetics. The objective of this company is to commercialize basic research results in nonconventional plant breeding, microbial resistance factors,

and biological control products originating from

research in the Agricultural Research Council. Agricultural Genetics has the right of first refusal

on all work in the Agricultural Research Council. Though only about $1.2 miIlion (685,000) has

been invested to date, the total initial capital promised approaches $28 million ( 16 million).

To encourage direct links between academia

and manufacturers, the Cooperative Research

Grant Scheme has been initiated under the Science and Economic Research Council (SERC).

SERC will support the academic side provided that

the company in a particular arrangement makes

substantial contributions in effort, materials, and

expertise. Patent rights, subject to a small royalty, will be assigned to BTG. The number of projects in biotechnology under this scheme increased

from 3 to 14 in the last 6 months of 1982.

Industrialists are also beginning to invest in

university centers. At the University of Leicester,

four companies have put up $1.7 million YI million) to establish a new biotechnology center.

SERC is granting $316,000 (#180)000) for capital

equipment.

Another program has been started by industry

to help academics in British universities develop

their ideas into commercial realities. At the initiative of Monsanto (U. S.) and including the Universities of oxford, Cambridge, and St. Andrew,

the Imperial College in London, and the Nuffield

Foundation, $17.5 million (10 million) initial

capital has been raised (Monsanto contributed

half). The program will include most fields of high

technology as well as biotechnology.

Imperial College in London, in order to transfer

its technology to industry, has launched a private

company to exploit the pilot plant built at Imperial

25-561 0 - 84 - 28
426 . Commercial Biotechnology: An International Analysis

College in the 1960’s. The plant is in good condition, but has been underused because of lack of

funds. Imperial College has reserved 20 percent

of the time of the plant for its own use in lieu

of shares. Thus, there will be a continuing contact between research workers, the associated Imperial Biotechnology Center, and industrialists.

Imperial Biotechnology’s first major contract is

with the Swiss firm Biogen S.A. to scale-up the

firm’s interferon production to 3,000 liters.

Engineers in British universities have traditionally done consulting for industry; biologists

in British universities are now adopting the same

practice. The extent of this phenomenon is not

known, but all the large British companies involved in biotechnology are using the services of

consultants in the universities. No general rules

apply to consultancies in British universities; arrangements are left to individual institutions and

to the consciences of the individuals involved.

There is some concern on the part of the British

Government, however, that foreign companies

are making more use than domestic companies

of British biotechnology experts.

Most authorities agree that the United Kingdom

has an excellent basic research base with welltrained researchers. Traditionally, however, the

United Kingdom has had a problem translating

this expertise to industry; the next 5 years will

determine how effective the new British measures

to effect domestic technology transfer are (30).

SWITZERLAND

The field of molecular biology is highly developed in Swiss universities, particularly in relation

to the size of the population. Centers of excellence

include the universities of Basel, Geneva, and Zurich. The quality of research in these institutions

is all the more remarkable in view of the fact that

they are under cantonal jurisdiction and thus derive support primarily from local revenues.

The channels for transfer of knowledge from

the Swiss universities to industry appear well established in the area of biotechnology. The president of the Federal Institute of Technology (ETH,

Eidgenossiche Technische Hochschule), which established a department of biotechnology in 1976,

for example, has endorsed the practice of direct

contracts between professors in the biotechnology department and industry. Joint funding by

industry and the Commission for the Encouragement of Scientific Research provides another

avenue for collaboration with the private sector,

one that has been actively utilized by the ETH biotechnology group.

The Swiss firm Biogen S.A. is closely linked to

the Swiss university research system and has built

an important share of its competitive strength on

the productivity of these ties. Two members of

the company’s scientific board, Drs. Weissmann

and Mach, have done seminal work for the company in the Universities of Zurich and Geneva,

respectively. Finally, the city of Basel, as the fountainhead of Swiss research in the chemical and

biological areas, provides unique opportunities for

communication and collaboration between the

academic and industrial sectors, a potential that

the BaseI-based pharmaceutical corporations

clearly recognize and are prepared to exploit (12).

FRANCE

Universities in France are generally regarded

as teaching institutions and not looked to for their

research capabilities. Highly regarded research

in France is usually funded by the National Center

for Scientific Research (CNRS, Centre National de

1a Recherche Scientifique) or the National Institute

of Health and Medical Research (INSERM, Institut

National de la Sante et de la Recherche Madicale).

Both of these are Government research institutes

(grands organisms). CNRS operates its own laboratories, which are usually associated with universities. INSERM is concerned with the applied

aspects of medical research. French universities

that are important in biotechnology are those at

Toulouse, Strasbourg, Marseille, Line, Montepellier, ParisOrsay, Grenoble, and Nancy. A newer university, the Technical University at Complegne (modeled after the American university

structure), which is an important center for enzymology and bioprocess technology, has concentrated on some of the disciplines underlying biotechnology and has developed good relations with

industry.

There is divided opinion in France as to

whether relationships between academics and industrialists should be encouraged. The December
-.

Ch. 17—University/industry Relationships . 427

1980 Pelissolo report concluded that relations

formerly were poor; this situation has changed,

however, and the problem now is not whether

university research results should be transferred

to industry, but how best to accomplish the

transfer (29).

There are no formal constraints in France on

relationships between academics and industrialists. The National Agency for the Funding of Research [ANVAR, L’Agence Nationale de la Valorisation de la Recherche) is an independent organization that stimulates the transfer of public research

results to industry and encourages applied research in industry. ANVAR does not have any

rights of first refusal on the results of public

research, which includes university research, and

apparently encourages direct links between universities and industry by offering general advice

on suitable contract terms and on patenting problems. Large French companies such as Elf Aquitaine and Rhone Poulenc have organizations to

keep in touch with and seek out public sector university research of interest and appear to have

no problems developing and maintaining these

links (except for occasional conflicts between the

firms’ desire for secrecy and the researchers’

legitimate desire to publish). In addition, some

companies are locating their new biotechnology

facilities near universities in order to benefit from

proximity (e.g., Elf Aquitaine at Toulouse and

Transgene at Strasbourg). The University of Compiegne is situated in an agricultural region and

works closely with the local foodstuffs industry.

Also, according to ANVAR, a phenomenon similar

to the involvement of American professors in U.S.

venture capital firms is developing in France,

although along more traditional lines—top French

scientists are either acting as consultants to private firms or leaving the public sector for industry

Findings

(this kind of transfer is generalIy much more common in France than in, for example, the United

Kingdom (29).

Despite the absence of formal constraints on

relationships between academics and industrialists, there remains a problem in France in the exploitation of the results of public sector research

by industry. Except for large companies, industry

has an insufficient number of qualified personnel to seek out opportunities, and French research

scientists as a whole have not been very active

in the pursuit of commercial opportunities (29).

The French Government has recently taken

steps to encourage cooperation between the

grands organisms and French industry. The institutes participated through the Committee for

the Organization of Strategic Industries (CODIS,

Comite d’Orientation des Industries Stratdgiques)*

in the establishment of the French pharmaceutical

firm, Immunotech. More generally, in the recent

law reforming these institutes, there are provisions for them to form profitable liaisons with industry (up until now they have been Iimited to

contract research). This change is very recent, so

it is impossible to judge its practical effect. But

CNRS, in a change of statutes published on November 25, 1982, has for the first time appointed

a scientific director of “Funding and Application

of Research. ”

Fields related to biotechnology have not attracted large numbers of French researchers in

the past. Government policies and funding changes

have been promulgated to change and to foster

university/industry relationships. It is too early

to determine the effectiveness of these policies.

——

*CotlIS mobilizes State funds from multiple sources to produce

packages for projert dmwlopment in strategic industries,

.

The [Jnited States has the most effective and tern and the freedom of faculty to pursue redynamic university/industry technolo~ transfer search. It is also facilitated by the many mecha -

process of the six countries being examined in this nisms by t~’hich the process can occur. These

assessment. The process in the United States is include dissemination of publications, profes -

facilitated by the openness of the uni~ersity sys - ional meetings, consulting arrangements, con-
428 ● Commercial Biotechnology: An International Analysis

tract research, cooperative research agreements,

and institutes within universities funded by industry. All these mechanisms are being exploited

in biotechnology. U.S. universities and industry

are benefiting from the present arrangements,

and diffusion of knowledge is occurring.

University and industry representatives in the

United States agree that Federal support of basic

research is essential. Even if industrial support

of university R&D were to rise to 15 percent of

universities’ R&D budget, it could never replace

Federal funding. Furthermore, since the goals and

philosophy of industry are different from those

of universities, the focus of research in industry

is different from that of research in universities.

Of necessity, industry is mission oriented; the emphasis in industry is on applied research leading

to products. By contrast, the purpose of university basic research is to extend knowledge itself.

Universities in the United States are formulating

and implementing policies that are more consistent across disciplines and more specific with regard to consulting, conflict of interest, and disclosure than policies formulated in the past. There

have been some cases of potential conflict of interests with researchers who have consulting or

contract arrangements with firms in which they

hold equity. University administrators, faculty,

and students appear to be taking measures to reduce the potential for conflicts of interest and ensure quality research and education.

Although funding of large agreements between

U.S. universities and industry in biotechnology

has occurred, the consensus is that, after the initial excitement has dissipated and companies have

developed in-house capabilities, most of the university/industry arrangements in biotechnology

will be consulting and contract research as in

other fields with close university/industry ties.

Universities are looking for financial support,

but the promise of patent royalties from biotechnology may be premature. Especially if biotechnology becomes a rapidly moving process field

where research is carried out primarily in industry, research in biotechnology will have to move

off campus and royalty income to universities

may not be significant.

Biotechnology has spawned a new kind of arrangement in university/industry relationships:

for-profit companies established with nonprofit

buffers to funnel contract research money and

royalty payments between the university and the

company. One arrangement (Neogen) takes advantage of new U.S. tax laws that permit funding of

R&D through limited partnerships. The other (Engenics) is built on the support of six major corporations that are funding the research and have

invested in the company. It is too early to predict

whether these approaches will be viable.

Biotechnology is being transferred between industry and universities in the United States; most

of the arrangements are working well. Some individuals have noted potential problems and administrative bottlenecks; these should lessen as individuals on both sides gain more experience and

policies are formulated to standardize administrative procedures within universities. Some individuals believe that problems may arise when

sales revenues are generated as a result of some

of the limited partnership agreements.

The early history of the U.S. microelectronics

industry can serve as a comparison for the commercialization of biotechnology. The U.S. semiconductor industry was fueled by and developed

in a milieu of DOD support for basic research and

training at universities, DOD procurement of the

industry’s products, and DOD’s need for increasingly more sophisticated products from that industry. In the history of the U.S. semiconductor

industry, relationships between universities and

industry were very close. Many professors had

equity in companies located close to campuses,

and consulting was extensive, It appears that education in this field did not suffer; in fact, it was

probably enhanced, and students gained an understanding of industrial career paths. The current leveling of Federal support for biology combined with the lack of consensus that biotechnology is a strategic industry (as was microelectronics in the instance of the space race) leads to the

perception of more “potential conflicts” in industry/university relations in biotechnology than actually exist.

In countries other than the United States, there

are varying degrees of cooperation between uni-
Ch. 17—University//ndustry Relationships . 429

versities and industry. In Japan, the ties between

university applied science departments and industry have always been close. Most people acknowledge that Japan already leads the world in

bioprocess engineering research, and the close

relationships that already exist between Japanese

industry and university applied research departments benefit the commercialization of biotechnology in that country. Currently, the Japanese

Government is implementing new policies to encourage closer ties between university basi c

researchers and industry.

In the Federal Republic of Germany, BMFT is

encouraging domestic university/industry contacts, especially in light of Hoescht’s agreement

with Massachusetts General Hospital. After that

agreement was announced, some West Germans

were concerned because they felt that research

money was being fumeled into American universities instead of into German universities.

The United Kingdom has an excellent basic research base. University ties with industry have

Issue

been few in the past, but are now being encouraged by the Government. The British Government

helped to establish two firms, Celltech and Agricultural Genetics, to capitalize on British university research in animal and plant molecular biology .

In Switzerland, the field of molecular biology

is highly developed, and patterns of interaction

between individuals in universities and industry

are well established. ETH established a department of biotechnology in 1976 and endorses the

practice of direct contracts between professors

in the biotechnology department and industry.

In France, an ambitious program is underway

to tie universities and industry closer together.

One problem in France is that the country lacks

a cadre of experts in molecular biology, because

this field has not been considered an important

one.

ISSUE 1: Should Congress set guidelines for

university policies on industry-sponsored research?

At the request of Representative Albert Gore,

the American Association of Universities (AAU)

reviewed ethical dilemmas posed in the United

States by increases in industrial support of university research. A select committee drawn from the

AAU membership suggested that the AAU could

serve as a clearinghouse and monitor of activities

at major universities with regard to the formulation of university policies on industrially sponsored research. Because one policy formulated by

the AAU or Congress would have to be broad

enough to cover all circumstances, it might be too

general to be useful. Furthermore, as the committee noted, informed decisionmakers within

universities are formulating policies that fit each

university’s needs.

In addition, in a report of joint hearings on universityfindustry relationships in biotechnology,

the Subcommittee on Investigations and Oversight

and the Subcommittee on Science, Research, and

Technology of the Committee on Science and

Technology of the U.S. House of Representatives

made the following recommendations: 1) universities should prepare guidelines for industrially

sponsored research that require open disclosure

of all faculty consulting and contractual agreements; and 2) full-time faculty should be discouraged from holding equity or directing such firms.

The subcommittees further recommended that

there be continued review by universities, industry, and the Federal Government of the benefits

and problems resulting from large-scale corporate

support for and involvement in university research programs in biotechnology.
430 . Commercial Biotechnology: An International Analysis

Chapter 17 references

8.

9,

10.

11,

12.

13.

14.

15.

16,

17.

18.

19,

20.

21.

22

23

24.

25.

26.

, LA, . . . ,
—

Ch. 17—University/industry Relationships 431
Chapter 18

Antitrust Law
Contents

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 435

Antitrust Implications of Research Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436

Antitrust Aspects of Technology Licensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437

A Review of Relevant U.S. and Foreign Antitrust Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . 438

United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..., . . . . . . . 438

European Economic Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441

Federal Republic of Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442

United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443

France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444

Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444

Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445

Applicability of Antitrust Law to Biotechnology Research Joint Ventures. . . . . . . . . . , . . 446

Application of Antitrust Law to Biotechnology Licensing Agreements. . . . . . . . . . . . . . . . 447

Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448

Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449

Chapter 18 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449
Chapter 18

Antitrust Law

Introduction

Antitrust laws in the United States date back

to 1890, when they were first passed to counter

the concentration of industrial power. Their fundamental goal is to prevent the distortion of competitive market forces, and thus ensure more productivity, innovation, and lower prices. The assumption underlying the laws is that competition

between industrial units generates more consumer benefits than a cartelized or managed industry. *

Today) there is much public debate about

whether U.S. antitrust laws do, in fact, accomplish

these goals in all cases. Some commentators have

claimed, for example, that U.S. antitrust restrictions, uncertainties about their scope and applicability, and substantial penalties for violations

serve to discourage research and development

(R&D) joint ventures that could actually stimulate

rather than retard innovation. * * In addition,

there are claims that antitrust restrictions have

hampered the ability of many U.S. companies to

compete in world markets against foreign companies that face significantly less stringent restrictions under the antitrust laws of their countries

(see, e.g., ref. 21).

Antitrust law creates no issues or problems

unique to biotechnology; it embodies broad economic principles and affects or potentially affects

virtually any business enterprise. Much of the debate on antitrust is essentially a general debate

on economic policy and high technology that is

beyond the scope of this report. Two issues in

the debate, however, are particularly relevant to

biotechnology. One is whether current U.S. antitrust law discourages the formation of R&D joint

‘See ,\’urthern Pacific Raihia.}f [.’0, v. Lrnited States, 3.56 U.S. 1,

4 ( 1958), t~here \fr. Justice Black wrote that “[tlhe Sherman Act

~~’as designed to be a comprehensive charter of economic liberty

aimed at preserving free ancl unfettered competition as the rule

of trade. ”

* ● See, for example, the testimony of Peter ~fc{:loskey, Malcolm

Baldridge, V$’illiam Norris, and Admiral B. R. tnman in hearings before the Senate Judiciary Committee, June 29, 1983 (34).

ventures and thereby retards innovation and the

.

competitiveness of U.S. firms in world markets.

The second issue is whether current U.S. antitrust

law inhibits the legitimate exploitation through

licensing arrangements of the technology created

by R&D efforts.

These issues are relevant because biotechnology is very much in the R&D phase of its development, despite some well-known examples of products being marketed. That phase is likely to continue for some time, and R&D will always be important for many new and established companies

using biotechnology, even when they are engaged

in production and marketing. Similarly, technology licensing is and will continue to be important

for many of these companies. As discussed in

Chapter 4: Firms Commercializing Biotechnology,

much of the current research in biotechnology

is being funded by large, established companies

with well-developed marketing capabilities. In

return for their funds, these companies have received, among other things, rights to market the

fruits of the research being conducted by new

biotechnology firms (NBFs), * Moreover, even if

a new or established company were to develop

certain technology on its own, it might be in the

company’s best interest for various reasons to

license the technology to others rather than to

exploit the technology itself.

This chapter will first examine why and how

research joint ventures and technology licensing

agreements come within the scope of antitrust

law. Second, the chapter will compare and contrast the relevant antitrust laws and policies of

the United States, the European Economic Community (EEC), the Federal Republic of Germany,

the United Kingdom, France, Switzerland, and

Japan (the “competitor countries”). Third, the

“ IUBR, as defined in Chapter 4: Firms Commercializing

Biotechno/ogv, are firms that have been started UP specifically to

capitalize on biotechnology. The relationship between NBFs and established companies is further explored in that chapter.

435
436 . Commercial Biotechnology: An International Analysis

chapter will examine the current impact of these of whether congressional action on antitrust law

laws on biotechnology-related R&D and the licens- is needed to promote U.S. competitiveness in bioing of the results of that R&D. Finally, the issue technology will be addressed.

Antitrust implications of

A joint venture is a form of association between

separate business entities that falls short of a formal merger, but that unites certain agreed on resources of each entity for a limited purpose. The

form of a joint venture may range from a purely

contractual agreement to take joint action, to an

agreement where any participant acquires certain assets of another, to the creation of a separate

entity in which at least one participant acquires

an equity interest, Joint venturers often agree that

they will share the management and control of

the joint activity’s results.

Reasons for entering an R&D joint venture are

as varied as the companies and individuals involved. The reasons must be strong enough to

overcome the powerful disincentives among individual companies of sharing management and

profits. Three reasons stand out in particular:

●

●

●

Small firm limitations. Often small firms have

the capability of inventing a process and obtaining a patent but are unable to develop or

market the product without the assistance

of a larger company.

Interdisciplinary technological areas. Companies of any size may need to draw on expertise outside their own. It maybe cheaper

and faster to tie up with another company

than to develop the new expertise themselves.

Economies of scale in R&D. On certain large

and complex technological problems, even

large companies may not be able to achieve

economies of scale in research if they undertake the R&D themselves.

From the perspective of antitrust policy, the last

reason is the most important, since one goal of

the antitrust laws is to enhance economic efficiency. In addition, joint ventures could allow certain

high-risk, costly R&D to be undertaken that might

not be undertaken otherwise by individual firms.

research joint ventures —

Thus, research joint ventures can increase R&D

and promote innovation. It is precisely because

of these potential benefits to society that the antitrust authorities in both the United States and

Europe have set forth official policy statements

assuring companies that research joint ventures

are viewed very favorably under the antitrust law

and rarely raise significant questions.

Despite the general encouraging attitude that

antitrust authorities have taken towards joint

R&D activity, there are potentially anticompetitive

effects of R&D joint ventures. Because R&D joint

ventures may involve market-dominating technology, may be conducted by competitors or potential competitors, or may involve restrictive agreements concerning the use of the results, such ventures can give rise to antitrust concerns (36). In

its Antitrust Guide Concerning Research Joint

Ventures, the U.S. Department of Justice identified three kinds of effects on competition (36):

●

●

●

when the association itself would lessen existing or potential competition between the

participating firms,

when the joint venture agreement or related

agreements contain restrictions that restrain

competition, and

when limitations on participation or access

to the results of research create or abuse

market power.

The first concern is straightforward. When research ventures include most or all of the major

competitors in an industry, they could reduce the

competitors’ separate efforts and thereby reduce

innovation. The incentive to finance research and

rapidly develop the results is diminished when

the participants know that any invention is available for everyone to use. As Assistant Attorney

General William Baxter stated, “Rivalry, in short,

is important in research as it is in any other commercial activity” (4). There may be cases, however,
Ch. 18—Antitrust Law 437

where an industrywide effort is clearly the most

efficient means to perform the research successfully (36).

In practice, the second antitrust concern is

more common. Joint ventures in R&D often contain restrictions on the use of the technology once

it is developed. Such restrictions may have anticompetitive effects.

would allow the participants to dominate the market. Such domination could create significant anticompetitive effects. Market domination itself,

however, is not necessarily illegal; what is important is how that market power is exercised. In

any event, the antitrust law must balance these

anticompetitive effects with the reasonable desire

of the participants to be rewarded for the risks

and costs incurred by entering the joint venture.

Finally, a joint venture may create an important or even revolutionary new technology that

Antitrust aspects of technology licensing

An inventor’s ability to protect his or her invention long enough to reap sufficient benefits to

make the inventor’s investment of time and capital

worthwhile will have a major impact on the inventor’s decision to undertake R&D in the first

place. Both the patent laws and laws permitting

an inventor to license* a product, process, or

discovery serve the social goal of promoting R&D.

By protecting the inventor from interlopers who

would otherwise benefit at little or no cost from

the inventor’s labor, ingenuity, or financial investment, these ‘(legal monopolies” help ensure

that invention is both encouraged and sufficiently

rewarded.

Although they may at times appear to conflict,

the U.S. patent laws (see Chapter 16: Intellectua]

Property Law) and the U.S. antitrust laws have

virtually identical goals—the fostering of competition and innovation. Competition and innovation

improve the allocation of scarce resources so that

the maximum type and quantity of goods are produced at the lowest cost. The patent “monopoly,” which is expressly recognized by the U.S. Constitution, is essentially a property right—the right

to exclude others from making, using, or selling

an invention for a limited period of time. A patent may or may not provide an economic monopoly. But even the existence of an economic monopoly based on a IawfulIy acquired patent is not

of concern under the antitrust laws, because a

● A license is a contractual right granted by the owner of the technology to another part-v to use the technology. It is one way the

owner can exploit the in~’ention.

patent is granted to encourage inventions that

might not occur if a patent were not available.

Inventions benefit the public by creating new

products or more efficient means of making old

products. Thus, the creation and introduction of

inventions is an important form of competition.

The exploitation of the patent right involves its

use by the owner or its use by other parties via

a licensing agreement whereby these parties pay

royalties to the owner. The antitrust laws do limit

the exploitation of the market power resulting

from patents. The patent owner is naturally interested in obtaining the greatest possible economic return from that market power. In patent

licensing agreements, therefore, the owner/licensor may attempt to place certain restrictions on

the licensee that are designed to enhance that economic return. (For example, the licenser may

want the licensee to use a patented process only

with materials supplied by the licenser. ) However,

these restrictions are not always compatible with

society’s goal of maximum production of goods

at the lowest cost. Thus, patent licensing agreements may violate the antitrust laws. *

*In addition to the antitrust laws, the doctrine of patent misuse

also serves to limit the patent owner’s exploitation of the patent.

It is a~raildble as a defense in a patent infringement case, and, if established, it renders the patent unenforceable. It is established by

facts that do not establish an antitrust violation and is available even

to a defendant who is not affected by the misuse (27). The doctrine

has been criticized as tague, subjective, and mostly detrimental to

inno~’ation (5). An extended discussion of the doctrine is beyond

the scope of this chapter.
438 . Commercial Biotechnology: An International Analysis

For similar reasons reflecting both the concept

of proprietary interest and the concept of rewarding invention, trade secrets and other forms of

know-how may receive protection against improper disclosure. * And, like patents, they may

be exploited through licensing agreements. Under

*Know-how may be defined as technological information relating

to manufacturing processes not protected by a patent, not generally known or accessible, and of competitive advantage to its owner

(20). Legal protection of know-how is based on a theory of breach

of trust and misappropriation. To the extent know-how is known

only by its owner, the owner holds a limited monopoly.

A review of relevant U.S.

Antitrust laws and policies relevant to biotechnology in the United States are described below.

Also discussed are the laws and policies of the

EEC, the Federal Republic of Germany, the United

Kingdom, France, Switzerland, and Japan,

United States

Four provisions of the U.S. antitrust laws are

most relevant to this discussion. Section 1 of the

Sherman Act (15 U.S.C. $1) prohibits “[eJvery contract, combination . . . or conspiracy, in restraint

of trade or commerce among the several States

or with foreign nations . . .“ Section 2 of the Sherman Act (15 U.S.C. $2) condemns monopolization,

attempts to monopolize, or any combination or

conspiracy to monopolize “any part of the trade

or commerce among the several States, or with

foreign nations . . .“ Section 7’ of the Clayton Act

(15 U.S.C. ~18), as amended in 1980, prohibits partial or entire corporate acquisitions “ . . . by any

person engaged in commerce or in any activity

affecting commerce . . .“ where “the effect of such

acquisition may be to substantially lessen competition or to tend to create a monopoly .“ Section

5 of the Federal Trade Commission Act (15 U.S.C.

$45 prohibits unfair methods of competition,

Taken together, these four statutory provisions

prohibit any behavior that results in a substantial lessening of competition. The US. Department

appropriate circumstances, then, know-how

licensing is a legitimate procompetitive action that

promotes research and product development.

Know-how licensing, however, will be subject to

antitrust scrutiny.

Whether a particular form of patent or knowhow licensing is anticompetitive is a determination that is fact specific and requires a detailed

analysis of the terms of the agreement and the

markets involved, The courts have developed various principles to guide the analysis, which will

be discussed in greater detail in the next section.

and foreign antitrust laws

of Justice and the Federal Trade Commission have

the power to investigate agreements or actions

for anticompetitive effects. Violators of the antitrust laws face criminal penalties or injunctions.

In addition, “injured” private parties can sue for

violations of the law, which supplements Government enforcement. Under section 4 of the Clayton

Act (15 U.S.C. $15), a private plaintiff* may sue

for treble damages or seek injunctive relief. While

in many instances private antitrust lawsuits follow

successful Government litigation, private lawsuits

can be the sole action challenging a given practice (32). The threat of private antitrust enforcement, coupled with the treble damages remedy,

is a significant adjunct to U.S. Government enforcement and an important deterrent to anticompetitive behavior.

The U.S. antitrust laws are very different from

most other statutes because they do not provide

a checklist of specific, detailed statutory requirements, but instead set forth very broad principles.

This approach requires private parties, Government prosecutors, and the courts to consider the

● Since enactment of the Clayton Act in 1914, Congress has twice

amended $4 to qualify the rights of certain plaintiffs bringing actions under its provisions. New subsection (b) of 15 U.S.C. $15 limits

monetary recovery in successful actions brought by foreign corporations to actual damages unless the plaintiff meets each of four

specified tests. Other additions limit the time in which lawsuits maJ’

be filed to 4 years and establish rights and procedures governing

parens patriae actions and instituted by Federal and State attorneys

genera], See 15 U, S.C,A. $$15, 15a~,f,g (1983 Supp.),
Ch. 18—Antitrust Law ● 439

●

●

●
440 . Commercial Biotechnology: An International Analysis

There have been few Justice Department

enforcement actions with respect to R&D joint

ventures. In fact, a pure research joint venture

without ancillary restraints has never been challenged by the Antitrust Division (9). In the past

15 years, the Justice Department has formally

challenged only one joint research arrangement,

and only because it involved patent pooling and

ancillary restraints that hindered the coventurers

from undertaking the R&D themselves (8,24 ).*

Of the few private suits in the United States attacking R&D joint ventures, one recent case is the

most significant. In Berkey Photo, Inc. v. Eastman

Kodak CO. (7), the plaintiff, Berkey, contended that

Kodak had extracted secrecy agreements from

General Electric (GE) and Sylvania, its coventurers,

that precluded other camera manufacturers from

competing to produce cameras that could be used

together with the certain new flash devices made

by GE and Sylvania. The court noted that Kodak

and GE were not direct competitors and that

Kodak and Sylvania were potential competitors

at best. However, because of Kodak’s market power over cameras in general, the court found an

exclusionary potential. The court recognized that

if several substantial companies in an industry

undertake joint research on a scale unattainable

by the remaining companies and those remaining companies are not permitted to join the group,

the coventurers might gain a decisive and unjustified advantage over the others. While the court

had found market power to be a significant factor in assessing the joint venture’s legality, it had

been necessary for the plaintiff also to demonstrate that Kodak was gaining competitive advantages which were not the pure products of technological improvement (30).

Like joint ventures, technology licensing agreements are generally evaluated by the rule of reason when they contain terms that may restrict

competition. Examples of license provisions that

have raised antitrust concerns are limitations on

how much the licensee can charge or sell, restrictions on the licensee’s dealing in competing prod-

*The challenged R&,D venture involved an alleged agreement between auto manufacturers to delay installation of existing emission

control devices or stall the improvement of such devices. The case

was ultimately settled and it enjoined the defendants from preventing or delaying the development or installation of these devices (37).

ucts, restrictions on the resale of the patented

product, and tying arrangements. * Restraints may

take several other forms, such as territorial

restraints, field-of-use restrictions, and grantbacks. * * Similar restraints also exist for knowhow licensing. Factors relevant to assessing the

legitimacy of such restraints are as follows:

whether they are ancillary to a lawful main purpose of the agreement, have a scope and duration no greater than that reasonably required to

achieve that purpose, and are not part of some

larger pattern of anticompetitive restriction (36).

There is relatively little case law on the subject

of know-how restrictions, but the existing cases

state that the same type of ancillary-restraints

analysis will be followed in this area as well. This

is not to say that the outcome will be the same

as for patents, since there are differences between patent and know-how licensing. * * * Recognizing these differences, particularly the fact that

know-how lacks the legislative status of the patent system, the U.S. Department of Justice at one

time took the position that “know-how licenses

will in general be subject to antitrust standards

which, if anything, are stricter than those applied

to patent licenses” (36). Further, the Justice

Department took the position that restraints in

know-how licenses should not last longer than the

time necessary for the licensee to develop equivalent know-how for itself, “a reverse engineering

● A tying arrangement requires the licensee to purchase unpatented materials from the licenser.

* “Territorial restraints are restraints that limit the licensee’s use

of the invention to specified geographical areas. Field af-use restrictions limit the use of the invention to something less than all of its

potential applications. For example, if Stanford licensed the CohenBoyer recombinant DNA process patent to a company only for making specialty chemicals but not for making pharmaceuticals, that

would be a field af-use restriction. A grantback is an agreement by

the licensee to give back to the licenser (the owner of the basic patent) rights to any improvement patent.

● ● *Some of these differences are the following: 1) all the patent

claims must be definite in scope while know-how is usually of an

amorphous character and cannot be described precisely; 2) patent

protection is limited to the territory of the country granting the

patent, while know-how could be protected, at least in theory, wherever the domestic law of the forum protects trade secrets; 3) patents

are limited to the 17-year period of protection, while know-how

is protected for as long as it does not become generally known; 4)

a patent grant protects its owner from a duplicative independent

invention, but the character of know-how can be destroyed by an

independent invention; and 5) know-how content changes as new

information is incorporated, and old information becomes publicly known (29).
Ch. 18—Antitrust Law . 441

period” (23). The rationale for the concept of the

reverse engineering period appears to be that a

restraint limited to the length of time necessary

to invent around the licensed know-how “does

not eliminate competition which would have

taken place in the absence of the licensing agreement” (12). The current policy is to be more flexible on these restraints (2).

European Economic Community

The Federal Republic of Germany, United Kingdom, and France are members of the European

Economic Community (EEC). The EEC, or Common Market, was created in 1958 by the Treaty

of Rome, One of the goals of the treaty was the

“establishment of a system ensuring that competition in the common market is not distorted. ” The

result has been a two-tiered system of antitrust

law in the Common Market. EEC law coexists with

the national systems of antitrust law and is considered part of the national law of each member

state. If there is any conflict between the national

law and the law of the EEC, the latter prevails.

Responsibility for enforcement of EEC law rests

primarily with the Commission of European Communities (“Commission”). The Court of Justice,

located in Luxembourg, reviews the formal decisions of the Commission.

Articles 85 and 86 of the Treaty of Rome govern

anticompetitive practices. article 85(1) prohibits

“all agreements . . . and concerted practices . , .

which have as their object or effect the prevention, restriction or distortion of competition within the common market . , . .“* Article 86 prohibits

abuses by one or more enterprises “of a dominant position within the common market)” such

as ‘(limiting of production, markets, or technical

development . . . .“

Article 85(3) of the Treaty of Rome provides for

exemptions from article 85(1) for certain agreements or practices such as those that promote

economic and technical progress and do not impose ancillary restrictions or afford the possibility

“Article 85 will apply to an agreement only if it “may affect trade

between Member States. ” ‘1’hus, if a contract only affects internal

trade of one nation, trade between nonmember nations, or trade

between a member and a nonmember nation, it is not cotr~red b~~

article 8.5 regardless of its impact on competition (~()).

of eliminating competition. A notification procedure has been created which allows the Commission to review agreements for which an article

85(3) exemption is claimed. The grant of an exemption by the Commission is binding on the

national authorities and courts of the member

states. * Thus, clearance by the enforcing agency is much more important in the EEC than in

the United States.

The articles in the Treaty of Rome give the Commission of European Communities broad authority to prohibit: 1) R&D joint ventures that have

the potential to eliminate competition between

major companies, and 2) ancillary restrictions of

R&D joint ventures that could restrain competition. The criteria that the Commission has shown

to be important in judging whether a venture

comes under the first category have generally

been similar to those of the U.S. Department of

Justice, i.e., the market share of the relevant companies, the ability of other enterprises to perform

the research, and the extent to which the research is applied as opposed to basic. In the second category, restraints ruled illegal usually have

been restrictions on the ability of the participants

to compete with the joint venture itself and restrictions concerning distribution of the joint venture’s end results.

Though 15 years ago the Commission published

an official notice intended to reassure enterprises

of the legality of most R&D agreements (in particular ventures with R&D as the “sole object”)) later

decisions of the Commission have showed some

of its statements of leniency to be unreliable (6).

For example, in 1972, two of the largest manufacturers in the oligopolistic European soap industry

created a joint, equally owned subsidiary in Switzerland to conduct research into soap products.

● In addition to the ability to petition for article 85(3) exemptions,

an enterprise can request the Commission to rule that, based on

the information supplied, it will not challenge the agreement under

article 85(l). Such a ruling is provided for under article 2 of regulation 17 and is called a negative clearance. The grant of a negati~’e

clearance means that article 85( 1) does not apply to the agreement

at all. [n practice, applications for negative clearance are often accompanied by requests for an exemption, so that if the commission finds a \’iolation of article 85(1), it can consider whether to grant

an exemption, Failure to disclose all pertinent facts or a subsequent

change in the factual situation may result in cancellation of an exemption or a negatil~e clearance.

25-561 0 - 84 - 29
442 . Commercial Biotechnology: An International Analysis

The Commission found that the agreement eliminated competition in research and therefore violated article 85(1) (18).

Since the Commission may not grant an exemption in the absence of a notification of the agreement and its provisions, the EEC legal system

has ensured that most major research ventures

among European companies of different nationality are filed with the Commission. * The soap case

mentioned above was in fact notified and granted

an exemption because the commission ruled that

the joint research would promote economic and

technical progress, The exemption was subject to

the condition that the companies inform the Commission of all license agreements emanating from

the results of the joint research.

The Commission will also exempt anticompetitive collateral restraints on the basis of article

85(3). In one case, an agreement between two

enterprises for joint R&D work on a new type

of electrically powered bus was granted an exemption, even though its provisions prohibited

cooperation with third parties within the field

covered by the agreement (19).

The Commission’s decisionmaking process differs substantially from the U.S. adjudicatory process in the sense that it is much less formal and

less procedurally oriented. Before giving approval,

the Commission is willing to negotiate and, wherever necessary, mandate conditions that will guarantee that the parties will remain competitive

once the joint research venture has terminated. * *

It is rather frequent that harmful collateral

restrictions are found, which usually can be

eliminated or redrafted without prohibiting the

joint venture itself. Although there have been no

Commission decisions to prohibit research joint

ventures, many recent decisions have in some

way limited or controlled joint research agreements, in most cases with respect to their collateral restrictions. Since 1968, the Commission

has modified at least eight cases involving joint

research and subjected others to reporting obligations or otherwise limited the exemption granted

in time or scope of coverage. *

Considering the list of cases that have been

modified and the mandatory notification requirement, it appears that in practice the EEC is at least

as tough as, and probably tougher than, the

United States on joint research, particularly with

respect to collateral restraints. The Commission

has not hesitated to impose reporting obligations

and to review periodically whether a joint venture may become anticompetitive in future years.

Patent and know-how licenses are agreements

that may come within the scope of article 85. EEC

law and the law of the member countries generally follow the traditional doctrine that restrictions

on the licensee are valid if they do not expand

the scope of the patent. A body of law has developed, based mainly on Commission decisions,

with regard to what kinds of restrictions in licensing agreements are legal and what kinds are not. * *

The Commission has also issued a proposed exemption from article 85(1) for two-party patent

licensing agreements (10). The proposed exemption is very narrow and has received substantial

criticism (40).

Federal Republic of Germany

In the Federal Republic of Germany, the Act

Against Restraints of Competition (GWB, Gesetzgegen Wettbewerbsbeschrankungen) prohibits

restrictive business practices and is concerned

with maintaining competitive market structures.

*Article 4(2) of regulation 17 provides that certain classes of agreement need not be notified to the commission in order to obtain an

exemption. W means merely that they are eligible to be considered

for the grant of an exemption under article 85(3) even if notification has not been filed. Though agreements which have as their

“sole object . . . joint research and development” do not have to be

notified [(Article 4)(2) (iii)(b)], R&D agreements with any sort of ancillary restraints must be.

● ● An example of this was the ICIA%fontedison case (17) where the

Commission proposed to mandate an obligation that would insure

that “on the termination of the agreement, Montedison should be

in a position to continue as an independent producer of a line if

it wished, thereby increasing competition in an oligopolistic market.”

● See ACEL/Berliet, 1968 C. M.L.R. D35 (1968) (modification);

HenkeUColgate, J.O. 1972, L, 14/14 (1972) (reporting obligation, exemption limited to 5 years); SOPER:EM/Rank, 1975-1 C. M.L.R. D72,

(1974) (modification, reporting obligation, exemption limited to 10

years); Vacuum Interrupters, 1977-1 C.M.L.R. D67 (1977) (reporting

obligation, exemption limited to 8 years); General Electric/Weir,

1978-1 C. M.L.R. D42 (1977) (modification, reporting obligation, exemption limited to 12 years); SOPELEM/Vickers, 1978-2 C.M.L.R. 146

(1977) (reporting obligaton, exemption limited to 5 years) modified,

1982-3 C.M.L.R. 443 (1981) (exemption extended until 1991); Beecham/Parke Davis, 1979-2 C. M.L.R. 157 (1979) (modification, reporting obligation, exemption limited to 12 years).

* ● For information on particular kinds of clauses, see (40).
Ch. 18—Antitrust Law 443

This law is intended expressly to promote ‘(competition based on efficiency” and is regarded as

the “constitution” of the German social market

economy (31). Section 1 of the law establishes a

general prohibition against agreements made for

a common purpose by enterprises that restrain

competition, production, or market conditions,

Thus, this section can preclude a research joint

venture having anticompetitive market effects.

Section 5b permits small- and medium-sized

firms to form rationalization cartels)” assuming

no substantially adverse effect on competition and

assuming that the result promotes the firms’ overall efficiency. Such cartels may include cooperative R&D ventures.

The application of German law by Government

authorities appears to have been at least as tough

as in the United States in regard to research joint

ventures. Between 1979 and 1980, the German

Cartel Office caused the abandonment of two

agreements involving joint research. A proposed

venture between Siemans AG and VDO Adolph

Schindling to develop, produce, and market liquid

crystal gages for use in automobile instrument

panels was prohibited, because the arrangement

already jointly held 80 percent of the market for

automobile instruments (13). Another proposed

joint venture between Takeda Chemical of Japan

and Bayer AG of Germany to develop, test, and

market pharmaceutical products in the Federal

Republic of Germany was prohibited because it

would have represented a combination of two of

the world’s eight largest pharmaceutical companies and eliminated Takeda as an independent potential competitive force in West Germany (13).

With respect to technology licensing agreements, GWB section 20(1) is relevant. It nullifies

agreements covering the acquisition or use of

patents or protected seed varieties to the extent

they impose restrictions on the business conduct

of the acquirer or licensee that go beyond the

scope of the protected right. However, German

cartel authorities may grant an exemption to this

provision under GWB section 20(3) if the economic freedom of the licensee or other company is

not unfairly hurt and market competition is not

“A rationalization cartel is one formed to improve efficiency of

production through concerted action.

substantially impaired. Thus, the approach of

West Germany is similar to that of the United

States in terms of having a general prohibition

against agreements that extend the scope of the

patent, but German law gives the antitrust authorities discretion to exempt agreements on a caseby-case basis, which makes the German system

more flexible.

United Kingdom

The U.K. antitrust law is contained in several

statutes. The ones most relevant for R&D joint

ventures and technology licensing are the Fair

Trading Act of 1973 and the Competition Act of

1980.

Under section 76 of the Fair Trading Act, the

Director General of Fair Trading has the duty to

be generally informed about all mergers and to

decide whether to recommend to the Secretary

of State referral to the Monopolies and Merger

Commission. Not all joint ventures are affected

by the legislation. The Fair Trading Act does not

apply if the joint venture is merely the result of

an investment of capital by the coventurers in a

jointly owned company. In most instances, a research joint venture will not involve the type of

agreement constituting a merger under the Fair

Trading Act.

Should a “merged” R&D venture be referred

to the Monopolies and Mergers Commission, its

legality is assessed on the basis of whether it will

operate in the public interest. The five factors

considered are whether the merger will promote:

1) effective competition, 2) the interests of consumers, 3) reduced costs and the development

of new techniques and products, 4) a balanced

distribution of industry and employment, and

5) competitive activity in British markets. Even if

a proposed research joint venture were subject

to the Fair Trading Act’s reporting provisions, it

is likely to be characterized as activity helping to

develop “new techniques and products” and

therefore not violate the Fair Trading Act.

The Competition Act was designed to provide

a comprehensive approach to anticompetitive

practices not already covered by existing statutes.

Generally, the act applies to all activities that prevent, restrict, or distort competition. Thus, it
444 . Commercial Biotechnology: An International Analysis

would apply to R&D joint ventures and to technology licensing agreements.

Generally, the antitrust regime in the United

Kingdom is relatively loose, and enforcement actions on joint R&D ventures and licensing agreements have been few. But U.K. companies formulating agreements with companies of other European countries must take into account the EEC

laws.

France

The relevant statutes in France are Title II of

Act No. 77-806 and Articles 50 and 51 of Price

Ordinance No. 15-1483. Under title II, the Minister of Economic Affairs may act against a “concentration” * that is “of such a nature as to prevent adequate competition in the market.” Articles

50 and 51 apply to concerted actions or agreements that prevent, restrain, or distort competition.

R&D joint ventures could be prohibited under

title II if they involved major French companies.

However, an anticompetitive concentration may

be exempted under section 4 when the concentration is found to make “a sufficient contribution

to economic and social progress” to compensate

for its restraints on competition. A determination

on this point considers the international competitiveness of the companies concerned. A biotechnology R&D joint venture among large companies

would likely be exempted under this provision,

and such a joint venture among small firms is

unlikely to raise problems in the first place.

Ancillary restraints which accompany many

joint R&D agreements would come under paragraph one of article 50) which prohibits concerted

actions or agreements that may prevent, restrain,

or distort competition and specifically mentions

impeding technological advance. However, article 51 provides for an exception where the anticompetitive practices further contribute to eco-

*A ‘(concentration” is defined as, “the result of any legal act or

transaction . having the object or effect of enabling one enterprise or a group of enterprises to exercise an influence, directly

or indirectly, on one or more other enterprises which is of such

a nature as to direct or even orientate the management or workings of the latter. ”

nomic progress, particularly through enhanced

productivity.

There is no French antitrust law that applies

specifically to technology licensing, but the Competition Commission has taken the position that

articles 50 and 51 apply to intellectual property

rights. However, there is very little case law in

this area (25).

French antitrust law is of recent origin and is

still developing. It is unlikely to be applied to a

biotechnology R&D joint venture. How it will be

applied to biotechnology licensing agreements is

somewhat unclear at this point.

Switzerland

Joint ventures and licensing agreements in Switzerland are governed under the provisions of the

Federal Cartels Act. The mere creation of a joint

venture would not trigger liability under this act.

If the venture dominated or exercised a determining influence on a product market, however, the

act would apply. Unless major companies joined

a biotechnology R&D joint venture, the act would

not appear to apply.

Exemptions to the Federal Cartels Act are outlined in article 5. Activities that are otherwise

prohibited by the act may be permitted on the

“grounds of overriding legitimate interests” if

competition is not prevented “to a degree that is

excessive. “ “Overriding legitimate interests” include those aimed at: 1) establishing reasonable

requirements as to training, skill, or technical

knowledge for a particular occupation or industry; and 2) promoting an economic or occupational structure that is desirable in the general interest. Thus, even if a biotechnology research venture interfered with competition to a limited

degree, it would appear to be exempt under article 5.

Swiss law appears to favor R&D joint ventures.

There apparently have been no specific cases

dealing with R&D joint ventures, and there has

been no general treatment of the subject in Swiss

legal periodicals (9).

The Federal Cartels Act would apply to licensing agreements in situations involving market
.

Ch. 18—Antitrust Law ● 445

dominance. For example, a requirement that a licensee undertake no research in the same area

as a patented invention would be objectionable

under the act. Similar objections would be raised

if a licensee were obligated to assign any improvements on the licensed technology to the licenser.

However, cooperative agreements to exchange research results appear to be lawful.

Japan

Japan’s antimonopoly law—the Act Concerning

Prohibition of Private Monopoly and Maintenance

of Fair Trade (Japanese Law 54 of 1947)—was first

enacted in 1947 during the U.S. occupation and

was revised three times subsequently, in 1949,

1952, and 1977. Enforcement procedures were

established in the Japanese Fair Trade Commission (JFTC), an independent five-person regulatory body modeled after the U.S. Federal Trade

Commission. Section 25 of the law allows private

companies the right to sue for damages, but only

after JFTC has found a violation.

The basic provisions of Japan’s antimonopoly

law are quite rigorous. Article 1 explains that the

purpose of the law is to “eliminate unreasonable

restraint of production, sale, price, technology,

and the like . . . .“ Revisions in 1977 reflected a

concern for controlling large corporations so that

the revitalized market structure could function

more efficiently. Sections 3 and 6 of the 1977 revisions preclude entrepreneurs from engaging in

any unreasonable restraints of trade or entering

into international agreements with terms that

might be unreasonable trade restraints. Research

joint ventures could qualify, since section 2(6)

defines ‘(unreasonable restraints of trade” as:

“business activities by which entrepreneurs . . .

mutually restrict or conduct their business activities in such a manner as to fix, maintain, or enhance prices, or to limit production, technology,

products, facilities, or customers or suppliers.”

The act also prohibits private monopolization.

Several provisions in articles 21 through 24 of

the antimonopoly law specifically permit certain

types of legal cartels, including research joint ventures. In total, there are 39 laws permitting businesses to form legal cartels exempt from the antimonopoly laws (26).

With the end of the occupation in 1951, Japan’s

antimonopoly law was ineffectively enforced by

JFTC; its relatively severe antimonopoly restrictions and prohibitions against cartels drew considerable hostility from the Japanese Government,

and JFTC virtually languished between 1952

and 1969 (15). In the meantime, Japan’s Ministry of International Trade and Industry (MITI)

often implemented a procedure known as ‘(administrative guidance” in which persuasion would be

used by MITI to influence businessmen within its

oversight. In some instances, administrative guidance functioned to foster cartelization either by

restricting production or investment, or otherwise influencing prices —all circumventing the

antimonopoly law.

The last decade, however, has seen a marked

increase in JFTC’S enforcement activities. In 1980,

for example, JFTC completed 62 cases, 24 of

which involved price-fixing. It has also ordered

279 businesses to pay a total of $10 million in fines

and has prosecuted a wide variety of unfair business practices (33).

Despite the increase in enforcement activity, the

Japanese Government has to date not prosecuted

any R&D joint ventures. The Research Association Law, passed in 1961 and amended in 1963,

provides an important perspective on the Japanese Government’s competition policy as opposed

to its enforcement of its antimonopoly laws. This

law allows several companies to undertake longterm R&D or to pool financial, personnel, and

capital resources. In almost all such instances, the

approved association involves R&D in which some

Japanese Government ministry or agency participates. Rather than being anticompetitive, these

research associations often serve to undermine

collusive behavior by increasing entry into advanced industries and helping to diffuse new technology (26). Pursuant to the Research Association

Law, the Ministry of Finance has specifically

recognized the recently created Biotechnology

Research Association.

There is one significant difference between the

Japanese and U.S. antitrust perspective on research joint ventures. In Japan, there would be

no objection in the case of a new technology if

all the companies involved were to join in the

same venture. In the United States, such a ven-
446 ● Commercial Biotechnology: An International Analysis

ture would raise serious antitrust problems .

However, if the Japanese joint venture restricted

entry into or subsequent use of the technology

by competitors, then it would probably violate the

antimonopoly law.

Japan’s antimonopoly law creates a mechanism

for Government oversight of international technology transfer. Section 6 of the law prohibits a

firm or entity from “enter[ingl into an international agreement or contract which contains such

matters as constitute unreasonable restraints of

trade or unfair business practice.” On July 23,

1982, section 6 was amended to require that international agreements that may constitute unreasonable restraints of trade or unfair business

practices be filed with JFTC. Technology licensing and joint venture agreements are among those

required to file. JFTC has promulgated a regulation covering patent licensing agreements (3).

Thus, JFTC can monitor these agreements for restraints on competition.

Applicability of antitrust law to biotechnology

research joint ventures

The use of joint ventures in biotechnology, as

discussed in Chapter 4: Firms Commercializing

Biotechnology, is prevalent. The capital markets

have not funded all the long-term, high-risk R&D

that NBFs wish to undertake. Joint ventures have

been used as an important source of revenue by

NBFs until they can develop the production and

marketing capabilities to distribute their own

products. Large, established companies have

entered into several different kinds of joint ventures with NBFs, in most cases to obtain access

to the new technology until their own in-house

capabilities can be developed.

Joint research ventures in biotechnology currently run very little risk of violating either the

U.S. or foreign antitrust laws. Two factors in particular support this assertion. One is the very high

risk of biotechnology R&D. For example, total

sales of biotechnology products reached $20 million in 1982 and are projected to range from $150

million to $3 billion in 1987 (16). This huge range

reflects the considerable uncertainty and risk at

this time over the size of future markets, a factor that depends on the number of commercially available products (16).

The track record of the first rDNA product, the

human insulin product Humulin”, provides an instructive example of the risks involved in commercializing biotechnology. The microorganisms

used to produce Eli Lilly’s (U. S.) product Humulin” were first provided by the NBF Genentech

(U. S.) over 5 years ago. Lilly sponsored both the

research and the marketing and agreed to pay

Genentech royalties (see Chapter 5: Pharmaceuticals), The commercial success of this product,

however, remains uncertain. In clinical trials,

Humulin @ has not shown any special advantages

over naturally produced porcine insulin and has

been found to cause immune reactions similar to

the porcine product. Furthermore, production

difficulties may have caused Eli Lilly to have run

short of the drug during clinical trials. Finally, according to some critics, a newer and cheaper

method of producing human insulin may already

be available (11).

Eli Lilly’s experience with Humulin” demonstrates that the commercial development of biotechnology products may take several years and

may generate products that may become rapidly outdated. Combined, these factors indicate a

very high level of risk. When the risks are as

substantial as they currently are in biotechnology,

enforcement authorities are far more tolerant of

joint ventures.

The second reason joint research ventures in

biotechnology do not currently raise antitrust

concerns is the decentralization of biotechnology

R&D. At the end of 1983, there were about 200

companies using biotechnology in the United

States. The major thrust of all systems of antitrust
Ch. 18—Antitrust Law ● 447

law is to prevent dangerous trends towards concentration and monopolization-conditions that

could signal a downturn in innovation. Although

the point where dangerous concentration in R&D

occurs varies from case to case, the biotechnology

field remains far from that point today.

Because of the reconcentration of biotechnology R&D, research joint ventures are essentially

procompetitive, assuming the absence of ancillary

restraints. Most established companies that have

participated in joint ventures with NBFs are also

undertaking in-house R&D. The revenue earned

by joint ventures for NBFs is sustaining the viability of a larger number of competitors.

Thus, joint ventures in biotechnology R&D in

the United States (and most likely foreign countries as well) currently face virtually no significant antitrust restraints. The absence of measurable product markets and the lack of R&D concentration means that reseach joint ventures are

not reducing competition. only when successful

products and measurable market shares become

apparent will joint research activities among major companies invite major antitrust challenge.

Antitrust law has come under much scrutiny recently, and the trend in the U.S. Department of Justice is toward a policy that an action is unlawful only if the injury to competition

outweighs the benefits. For instance, the Department of Justice recently gave preliminary approval to the formation of one of the largest cooperative research arrangements in U.S. industrial history—an amalgam of 12 major computer firms

called the Microelectronics Computer Corp. (MCC)

(39). Although the Department of Justice press

release gave little guidance on the antitrust aspects, the decision not to challenge MCC’S formation at least demonstrates that a carefully structured R&D joint venture can include most of the

U.S. competitors without being considered anticompetitive.

Application of antitrust law to biotechnology

licensing agreements

The preceding survey of the antitrust laws of

the competitor countries in biotechnology indicates that most restraints on competition in

licensing agreements will be evaluated by a rule

of reason test. The authorities of the various countries have applied this test to various types of provisions in licensing agreements, including grantbacks and field of use restrictions. Other provisions, such as tying arrangements, are generally

treated under per se rules. It is not useful to examine these in detail, since virtually none of them

raises any unique issues with respect to biotechnology.

One type of factor relating to restrictions may

have unusual significance for biotechnology. As

a general rule, restrictions extending beyond the

life of the technology being licensed are considered suspect. For U.S. patents, the life of the technology is arguably no more than 17 years, i.e.,

the term of the patent. For know-how, however,

the useful life is not so easily defined. At least two

commentators have suggested that most knowhow can be reverse-engineered in 3 to 5 years

and that restrictions exceeding 5 years should

therefore be considered in the United States per

se unreasonable unless the licenser can provide

a special justification (1). On one hand, this view

may make sense for biotechnology know-how,

given the pace of technological development. on

the other hand, many, if not most, production

processes for biological products, i.e., the organisms themselves, are not capable of being reverse-engineered because of their complexity,

Thus, the rigid and unthinking application of a

5-year rule would unfairly and unnecessarily

hinder licensers in their ability to exploit their

technology.
448 . Commercial Biotechnology: An International Analysis

Findings

U.S. companies using biotechnology face no major antitrust compliance problems. Nevertheless,

there is some degree of uncertainty about the

scope and applicability of the antitrust laws to

R&D joint ventures and to licensing agreements.

This uncertainty, plus the expense of litigation

and the threat of treble damages, could discourage some activities that might lead to innovation

in biotechnology and could limit the ability of U.S.

companies to commercially exploit their technology. Furthermore, the rigid application of certain

per se rules in the area of licensing may actually

lead to anticompetitive results. Thus, the current

antitrust laws in the United States may have some

modest adverse effect on biotechnology.

The antitrust laws of the United States, the Federal Republic of Germany, the United Kingdom,

France, Switzerland, and Japan are generally

similar in that they all prohibit restraints of trade

and monopolization. Unlike the U.S. laws, however, the foreign laws generally provide for exemptions and vest much discretion with the enforcement authorities. Most of the kinds of arrangements that would be of interest to firms

using biotechnology would be evaluated under

a rule of reason test, but others are now per se

illegal.

Under U.S. antitrust law, the legality of a research joint venture is judged on the basis of a

balancing of its procompetitive v. anticompetitive

effects. Factors considered important are whether

the individual joint venturers would have undertaken the same or similar R&D on their own, the

number and size of competitors in the relevant

market, the scope of the research (basic v. applied), and the scope of the research joint venture (how it is limited in time and subject matter).

It is by no means clear that more favorable

treatment is given to R&D joint ventures by the

laws and enforcement authorities of European

countries. Authorities in the EEC and the Federal

Republic of Germany in particular have caused

the abandonment or modification of a larger number of joint R&D ventures than their U.S. counterparts have. Though Switzerland, France, and the

United Kingdom appear to have less stringent antitrust enforcement than the United States, European company activity across national boundaries

of member states comes under EEC law.

Japan has probably been more tolerant than the

United States toward anticompetitive aspects of

R&D joint ventures. The highly publicized research associations sponsored by the Japanese

Government best exemplify this attitude. However, this attitude may be changing, as indicated

by the growing number of antitrust enforcement

actions in general.

At the present time, companies applying biotechnology both in the United States and foreign

countries face virtually no significant antitrust

compliance problems with research joint ventures, excluding blatantly anticompetitive activities like price-fixing. In biotechnology, there is a

lack of concentration of industry research and

an absence of measurable markets. only when

biotechnology-related industries develop increasing concentration, successful products, and measurable market shares will R&D joint ventures be

exposed to the antitrust statutes.

Technology licensing agreements are reviewed

by the governmental authorities under the general principle that the agreements should not extend the scope of the patentor know-how in ways

that are on balance anticompetitive. The only

issue unique to biotechnology raised by the application of the antitrust laws to these agreements

relates to the length of time of permissible restrictions on competition. The rule that such restrictions should not extend beyond an arbitrarily determined useful life of the licensed technology

may not be especially relevant to biotechnology,

and its application may hinder the exploitation

of inventions through licensing.

Despite the fact that U.S. antitrust law is not

likely to be a major concern with respect to biotechnology R&D joint ventures or licensing, there

will be some degree of uncertainty regarding the

antitrust implications of any corporate activity in

this area. The degree of uncertainty is less in for-
Ch. 18—Antitrust Law . 449

eign countries than in the united States because violations. Lessening the uncertainties under U.S.

these countries have more well-defined proce- law could be expected to have a positive effect

dures for prior review of transactions by govern- on the development of biotechnology in the

ment authorities and less onerous penalties for United States.

Issue

ISSUE: Should Congress change U.S. antitrust

laws to encourage more joint research

in biotechnology or to facilitate biotechnology licensing?

U.S. companies using biotechnology face no major antitrust compliance problems. For the reasons discussed in the findings of this chapter,

however, current U.S. antitrust laws could have

some modest adverse effect on U.S. competitiveness in biotechnology. The impact of these laws

is not particularly unique to biotechnology, as

distinguished from other areas of technology. In

fact, the impact will probably be less for biotechnology than for more mature technologies, given

the current lack of concentration in commercial

R&D in biotechnology and the absence of measurable markets for products. Therefore, despite

the many proposals to change the law and enforcement procedures now being discussed, no

policy options are discussed here, because their

broad applicability to technology in general is

beyond the scope of this report.

Chapter 18 references*

1. Adelman, M. T., and Brooks, E. L., “Territorial] Restraints in International Technology Agreements

After Topco, “ Antitrust Bull. 17:763, 1972.

2. Andewelt, R., Chief, Intellectual Property Section,

Antitrust Division, U.S. Department of Justice,

‘

(Competition Policy and the Patent Misuse Doctrine, ” remarks before the Bar Association for the

District of Columbia, Patent, Trademark, and Copyright Section, Washington, D. C., Nov. 3, 1982.

3. ‘( Antimonopoly Act Guidelines for International

Licensing Agreements (Fair Trade Commission,

1968), ” app. H to G. Rose, “EEC and Other Foreign

Antitrust Law as Applied to Licensing,” Technology

Licensing, vol. 1, T. Arnold and T. Smegal, Jr. (eds.)

(New York: Practicing Law Institute, 1982).

4. Baxter, W. F., Assistant Attorney General, Antitrust

Division, U.S. Department of Justice, speech to the

National Association of Manufacturers, Washington, D. C., May 20, 1983.

5. Baxter, W. F., Assistant Attorney General, Antitrust

Division, U.S. Department of Justice, statement

“ ,Notf’ (’ D (hl = (kmtral Dtstrwt of (’all forma

F Sllpp = Federal Supplement

[‘ 5 = [ 1 S Supreme Court Reports.

F 2d = k’ederal Reporter, Second Srrws.

6.

7.

8.

9.

10.

11,

12<

concerning S. 737, S. 568, and S. 1383, Bills Related

to Joint Research and Development, in Industry

Joint Research and Development Ventures, hearings before the Senate Committee on the Judiciary,

U.S. Congress, June 29, 1983 (Washington, D. C.:

U.S. Government Printing Office, 1983).

Bellamy, C., and Child, G. D., Common Market Law

of Competition (New York: Mathew Bender, 1973).

Berkey Photo, Znc. v. Eastman Kodak, 603 F.2d 263,

cert. denied, 444 U.S. 1093 (1980).

Brodley, J., “Joint Ventures and Antitrust Policy, ”

Harv. L. Rev. 95:1521, 1982.

Cira, C., and Kolb, C., of Foreman and Dyess, “Report on Antitrust and Biotechnologv,” contract report prepared for the Office of Technology Assessment, U.S. Congress, April 1983.

Commission of European Communities, “Proposal

for Commission Regulations on Article 85(3) of the

Treaty to Certain Categories of Patent Licensing

Agreements,” Official Journal of the European

Communities 22(C58):12, Mar. 3, 1979.

Economist, “A Shaky Start for Genetic Engineering’s First Drug, ” Sept. 25, 1982, pp. 103-104.

Farmer, D. A., Jr., Special Assistant to the Assistant Attorney General, Antitrust Division, U.S. De-
450 ● Commercial Biotechnology: An International Analysis

13

14

15.

16.

17.

18.

19.

20.

21.

partment of Justice, “An Overview of the Justice

Department’s Guide to International Operations, ”

speech to the Council of the Americas, June 8,

1977, reprinted in Trade Regulation Transfer Binder: Current Comment, 1969-1983, 12th ed. (CCH)

50, 325, p. 55, 690.

Federal Republic of Germany, Tatigkutsbericht des

Bundeskarte/lamt (Report of the German Cartel

Office), N. 9/565 at 63, 68 (1979).

Ginsburg, D., Antitrust Uncertainty and Technological Innovation, 28 (Washington, D. C.: National Academy of Sciences, 1980).

Hadley, E., Antitrust in Japan (Princeton, N. J.:

Princeton University Press, 1970).

Hochhauser, S., ‘(Bringing Biotechnology to Market,” High Technology, February 1983, p. 60.

ICIJWontedison, 7th Report on Competition (EEC),

point 156-159 at pp. 117-119 (1978).

In re HenkeVColgate, decision of the Commission

of European Communities of 23 December 1971,

J.O. 114:14, Jan. 18, 1972.

Kintner, E., and Joelson, M., An International Antitrust Primer (New York: Macmillan Publishing Co.,

1974).

Kirkpatrick, A., and Mahinka, T,, “Antitrust and

the International Licensing of Trade Secrets and

Know-How: A Need for Guidelines,” Law& Policy

International Business 9:725, 1977.

National Research Council, “International Competition in Advanced Technology: Decisions for America,” Washington, D.C., 1983.

22. Northern Pacific Railway Co. v. United States, 356

U.S. 1,5 (1958), cited in U.S. Department of Justice,

Antitrust Division, Antitrust Guide for International Operations, Washington, D.C., Jan. 26, 1977.

23. Oppenheim, S. C., and Weston, G. E., Federal Antitrust Laws: Cases and Comments (St. Paul, Minn.:

West Publishing Co., 1968).

24. Pfeffer, J., and Nowak, P., “Patterns of Joint Venture Activity: Complications for Antitrust Policy,”

Antitrust Bull. 21:315, 1976.

25. Rose, G., “EEC and Other Foreign Antitrust Law

as Applied to Licensing,” Technology Licensing,

vol. 1, T. Arnold and T. Smegal, Jr. (eds.) (New

York: Practicing Law Institute, 1982).

26. Saxonhouse, G., “Biotechnology in Japan,” contract

report prepared for the Office of Technology Assessment, U.S. Congress, June 1983.

27. Schlicher, J., “An Introduction to the Antitrust and

Misuse Limits on Commercial Exploitation of a Pat28,

29,

3 0

ent, ” Banbury Report 10: Patenting of Life Forms

(New York: Cold Spring Harbor Laboratory, 1982).

Standard Oil Co. of N.J. v. United States, 221 U.S.

1 (1911).

Stedman, A., “Legal Problems in the International

and Domestic Licensing of Know-How,” A.B.A. Antitrust Section Rep. 29:247, 1965,

Stein A., statement in Japanese Technological Advancement and Possible U.S. Response Using Research Joint Ventures, hearings before the Subcommittees on Investigation and Oversight and Science, Research, and Technology, House Committee on Science and Technology, June 30, 1983,

p. 3, U.S. Congress (Washington, D.C.: US, Government Printing Office, 1983).

31. Stockman, K., and Strauck, V., “Germany,” World

Competition Law, J. O. von Kalinowski (cd.) (New

York: Mathew Bender, 1979), 5:202(1], at pp. 2-5,

32. Sullivan, L., Handbook of the Law of Antitrust $246

(St. Paul, Minn.: West Publishing Co., 1977).

33. Uesugi, A., “Japanese Antimonopoly Policy—Its

Past and Future,” Antitrust L. J. 50:709, 1981.

34. U.S. Congress, Senate Judiciary Committee, Industry Joint Research and Development Ventures,

hearings before the Senate Judiciary Committee,

U.S. Congress, June 29, 1983 (Washington, D. C.:

U.S. Government Printing Office, 1983).

35. U.S. Department of Justice, Antitrust Division, Antitrust Guide for International Operations, Washington, D.C., Jan. 26, 1977.

36. US. Department of Justice, Antitrust Division, Antitrust Guide Concerning Research Joint Ventures,

Washington D. C., 1980.

37. United States v. Automobile Manufacturers Association, Inc., 307 F. Supp. 617 (C.D. Cal. 1969), aff’d

sub nom., City of New York v. United States, 397

U.S. 248 (1970) (consent decree), modified sub

nom. United States v. Motor Vehicle Manufacturers Association of the United States, Inc., 1982-83

Trade Cas. f165,175 (C.D. Cal. 1982).

38, United States v. Penn-Olin Chemical Co., 378 U.S.

158 (1964).

39. Walsh, J., “MCC Moves Out of the Idea State,”

Science 220:1256, 1983.

40. Wiesen, J., “EEC Antitrust Considerations in Patent

Licenses and Other Technology Transfer Agreements,” Industrial Applications of Genetic Engineering: The Legal and Regulatory Regime (Philadelphia: American Law Institute, American Bar

Association, 1983).
Chapter 19

International Technology

Transfer, Investment, and Trade
Contents

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Export Controls and Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .....$

Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Federal Republic of Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

United Kingdom. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Comparative Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Patent Law Provisions Affecting International Technology Transfer. . . . . . . . . . . . . . . . . . . . . .

National Security Restrictions on Patent Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Compulsory Licensing of Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Regulation of Technology Imports and Foreign Investments . . . . . . . . . . . . . . . . . . . . . . . . . . .

Trade Barriers Affecting Biotechnology Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Standards and Certification Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Price Regulation and Government Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Government Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Customs Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Trade Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Section 337 0f the Tariff Act of 1930. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Section 301 0f the Trade Act of 1974. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Countervailing and Antidumping Duty Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 19 References.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Table

4 5 3

4 5 5

4 5 5

4 5 8

4 5 8

4 5 8

4 5 9

4 5 9

4 5 9

4 5 9

4 5 9

4 6 0

4 6 1

4 6 3

4 6 3

4 6 4

4 6 5

4 6 6

4 6 7

4 6 7

4 6 7

4 6 8

4 6 8

4 6 8

4 7 0

4 7 0

Table No. Page

67. Controlson Biotechnology Products Under the Export Administration Act of 1979 ...,.. 456
Chapter 19

International Technology

Transfer, Investment, and Trade

Introduction

Intense international research and development

(R&D) activities in biotechnology have stimulated

equally intense efforts to diffuse the resulting

knowledge and to sell the products of the research, both in the United States and abroad.

Academic scientists are racing to publish their

research results or to share them with colleagues

at international conferences. Established companies and new biotechnology firms (NBFs) * are

funding university research programs to gain access to potentially valuable new developments.

U.S. and foreign patents arising from the increase

in biotechnology R&D and international licensing agreements formulated to exploit the patents

are diffusing the technology and promoting

worldwide commercialization. Finally, NBFs in the

United States and large U.S. and foreign companies have undertaken many R&D joint ventures

to develop and market new products.

Several other chapters of this report have examined factors basic to the commercialization of

biotechnology research (e.g., venture finance and

patent rights). This chapter focuses on the legal

environment surrounding the international exploitation of biotechnology and access to foreign

markets through international technology transfer, investment, and product trade,

Although most companies are not yet marketing

biotechnology products, the legal environment

surrounding licensing, investment, and trade is

already influencing the strategic decisionmaking

of companies commercializing biotechnology—

strategic decisions, such as negotiations on licensing, locational decisions for R&D, production, and

clinical trials.

This chapter considers laws that can be employed directly by governments to control or in-

● FJBFs, as defined in Chapter 4: Firms Commercializing Biotechnolo~’, are firms that ha~’e been started specifically to commercialize

new biotechnology. Most NBFs are L! .S. firms,

fluence access to foreign or domestic markets: export controls, patent laws, compulsory licensing

provisions, investment and exchange controls,

and trade laws. Export controls on technology and

on products have a direct effect on potential demand and may affect the price that technology

will fetch. Controls also bring delay and red tape

into export transactions. Patent laws may contain

secrecy provisions that restrict outward technology transfer for security, economic, or foreign

policy reasons. They are similar in purpose and

effect to export control laws. Compulsory licens -

ing can be used to force inward technology transfer and can diminish return on R&D; where aggressively used, it may simply deter foreign and

domestic investment in local R&D. Investment

and exchange controls as well as technology transfer controls can be used to reserve national markets for locally owned firms and to force inward

technology transfer. Nontariff barriers to trade

such as product certification systems that discriminate against imported products, may block access to important markets abroad. However, trade

remedy statutes such as section 301 of the Trade

Act of 1974 offer a means of negotiation for opening markets.

Any company generally has three means of exploiting its technology in a worldwide market:

. it may license the technology directly to a

foreign company,

 it may invest in a foreign manufacturing subsidiary or joint venture, or

. it may make the product in its home market

and export it.

Companies may also combine these alternatives,

for instance, by licensing technology tied to sales

of raw materials, or licensing to a joint venture

abroad.

453
454 Commercial Biotechnology: An International Analysis

At present, most NBFs in the United States have

licensed at least some of their technology to established U.S. or foreign companies, the reason

being that these NBFs lack the capital and expertise for full-scale manufacturing and marketing,

much less manufacturing or marketing abroad.

Typically, NBFs that license technology to

established U.S. companies surrender their rights

to the U.S. market in exchange for future royalties

from sales. But a number of NBFs have preferred to reserve the U.S. market for themselves and

have made licensing agreements with foreign

companies, especially Japanese companies, whose

production and marketing expertise resides in

foreign markets. These NBFs and the licensers of

their technology are interested in export controls

on technology and other laws that can b e

employed directly by governments to control or

influence biotechnology transfer.

For some NBFs and most established U.S. companies, domestic or foreign manufacturing are

viable options and are particularly desirable to

the extent that the alternative, licensing of technology, confers long-term benefits on foreign

competitors that are not recouped by the royalties

and other provisions of the licensing contract.

However, in a situation in which, for instance, a

foreign government makes it difficult or impossible to import biotechnology products into that

country or to manufacture them there through

a wholly owned subsidiary, a U.S. firm seeking

to work a patent in that foreign market may find

it necessary to license its technology to a local

company or to enter a joint venture with a local

company on terms that reflect the U.S. firm’s lack

of market access and therefore favor the local

licensee. One NBF has expressed concerns about

this issue concerning its licensing negotiations

with a Japanese company (14). The short-term

consequence of forced technology transfer is that

part of the potential return from the technology

is transferred from the U.S. licenser to the foreign

licensee. The foreign licensee may also receive a

valuable technological boost in the short and long

term.

Even though there is already substantial diffusion of biotechnology itself, via licensing, joint ventures, and scientific journals, it is difficult to

quantify and assess the present amount of biotechnology transfer, * investment, and trade and

their potential impact on U.S. competitiveness in

biotechnology. Studies of more mature technologies only emphasize the difficulties associated

with estimating the level or direction of technology flow (13). Most observers would agree that

the net flow of biotechnology is outward from

the United States, but such judgments are impressionistic at this time. Also, the net flow of technology outward from the United States is likely

to diminish as foreign companies enter the U.S.

market (via subsidiaries or foreign manufacturing operations) bringing with them foreign technology. It is not possible to provide reliable

estimates of the size of the net outflow, nor is it

possible to compare biotechnology with other

more advanced technologies in this respect.

In examining the effects of international technology transfer, investment, and product trade,

on competitiveness in biotechnology, the first

question to be asked is whether biotechnology

raises any new issues at all in these areas. For instance, will the growing application of biotechnology in many industries create any new problems in these areas, problems that the existing U.S.

or international legal framework does not adequately cover? The answer to this question depends largely on whether there will be relevant

significant differences between:

●

●

●

transfer of biotechnology and transfer of existing chemical or biological technology;

biotechnology investment and other technology investment; or

trade in biotechnologically -produced products and trade in the-chemical or biological

products they supplement or replace.

OTA concludes that biotechnology will raise no

such significant novel issues for the regulation of

international biotechnology transfer, product

trade, or investment. Even without truly novel

issues, however, the existing legal framework

bears examining, because it will affect access to

foreign markets and ultimately competition in industries applying biotechnology. Furthermore,

the laws embodying government practices can be

changed.

● Ways technology is transferred include: 1) scientitlc and technical

literature, 2) construction of industrial plants, 3) joint ventures, 4)

licensing, 5) training, 6) technical exchanges, 7) sale of processing

equipment, 8) engineering documents, 9) consulting, 10) documented

proposals, and 11) trade exhibits.
.

Ch. 19—international Technology Transfer, Investment, and Trade ● 455

Export controls and biotechnology

Export control laws restrict international technology transfer, as well as trade in products, for

reasons of national security, foreign policy, or

economic policy. From a biotechnology standpoint, the relevant questions are:

● What technologies or products are under

what types of controls?

● What is the framework for controls and how

are decisions made on controls?

● What is the potential impact of export controls on U.S. competitiveness?

Like the United States, Japan, and the four

European countries being considered in this

assessment all have some export controls. All but

Switzerland belong to the Coordinating Committee for Multilateral Export Controls (CoCom)* and

are subject to its multilateral export controls.

Although current CoCorn control lists do not include biotechnology products as such, CoCom lists

on toxicological products and commercial chemicals could become relevant to biotechnology.

However, there is no indication that companies

would find CoCom requirements restrictive.

United States

In the United States, biotechnology products

and data are subject to a number of export controls. The most significant are under the Export

Administration Act (EAA) of 1979 (50 U.S.C. App.

Sec. 2401, et seq.).** Under the EAA, export restrictions depend on the type of commodity or

data and its destination. Exporters of any item on

the Commodity Control List of the EAA regulations must have a “general license” or a “validated

license” for all exports except most shipments to

Canada. A general license is essentially an exemption because no application is required. A validated license, on the other hand, requires an application. The Office of Export Administration in

the U.S. Department of Commerce, which admin-

“CoCom is composed of the NATO nations, minus Iceland and

Spain, plus Japan, and was formed to deny the Communist countries access to military technology and strategic materials.

* ● The following discussion is based on the EAA that expired on

Sept. 30, 1983, but continues in effect indefinitely under the authority of the International Emergency Economic Powers Act.

isters the EAA, may deny permission to export

or take a long time to issue the validated license.

With regard to biotechnology products, two

groups on the Commodity Control List are especially relevant: Group 7 and Group 9. Group 7 includes chemicals, metalloids, petroleum products,

and related materials, including industrial chemicals obtainable by bioprocessing, such as citric

and lactic acids. The compounds in Group 7 require a validated license for export to communist

countries with the exception of those compounds

in a subgroup of Group 7 called “Interpretation

No. 24 compounds” (CCL Category 6799G). These

latter compounds include DNA, many enzymes,

nucleosides, nucleotides, “protein substances,”

“prepared culture media,” and pharmaceutical

products for humans and animals. These can be

exported to most countries without a validated

license.

Group 9 (“Miscellaneous”) of the Commodity

Control List includes four pertinent categories:

1) “viruses or viroids for human, veterinary, plant,

or laboratory use, except hog cholera and attenuated or inactivated systems” (CCL Category

4997B); 2) bacteria, fungi, and protozoa (except

those listed in supplement No. 1 to sec. 399.2, Interpretation No. 28) (CCL Category 4998B); 3)

bacteria and protozoa listed in Interpretation No.

28 (which basically covers inactivated, attenuated,

or relatively harmless organisms); and 4) a catchall category (CCL Category 6999G), which includes

some medicines. Exports in the first category require a validated license for virtually every country except Canada. This category would include

viral cloning vectors such as cauliflower mosaic

virus, SV4 0) and bacteriophage lambda. Similarly, the second category requires, with certain exceptions, a validated license for export to any

country other than Canada. The third and fourth

categories have few restrictions unless the export

is being made to certain countries like North

Korea, Cuba, Vietnam, or Libya.

Certain bacteria of major industrial importance,

such as those of the family Streptomycetaceae and

of the genus Lactobaci]lus, fall into Interpretation

No, 28 and are therefore exempted from validated
456 ● Commercial Biotechnology: An International Analysis

license requirements. However, several other

types of bacteria commonly used in industry and

research, such as the genera Escherichia, BaciZlus,

and Pseudomonas, do not come within Interpretation No. 28 and therefore require a validated

license for export to all countries except Canada

(3). For a summary of the controls on biotechnology products under the EAA of 1979, see table 67.

one commentator has criticized the way in

which Interpretation 28 (which will provide major exemptions for biotechnology products) was

developed (6). First, the Office of Export Administration did not seek comments from the scientific community before issuing it. Second, the Office has not clarified the basis on which it decides

if an organism should be placed on the list. Finally,

the Office must formally amend Interpretation 28

by rulemaking before it can place new, nonpathogenic species of commercially important microorganisms on the list.

Data exports * or reexports** to certain countries are also subject to licensing under the ex-

“Export of data occurs whenever data are transmitted out of the

LJnited States, released in the United States with the knowledge that

they will be transmitted abroad, or released abroad (I5 C.F.R.

$379. I(?J)(l)).

* *Reexport of data is the release of data of U.S. origin in a foreign

country with the knowledge that the data will be transmitted to

another foreign country (15 C.F.R. $370.2). The recipient of technical

data must provide written assurances that the data will not be reexported.

Table 67.–Controls on Biotechnology Products Under the Export Administration Act of 1979

Commodity Control List Countries for which a

Commodity (CCL) category validated license is requireda

Organisms:

Viruses CCL 49976 All except Canada

Bacteria CCL 49986 All except Canada

Human and animal bacterial Interpretation No. 24 (CCL s. z

vaccines 6799G) or Interpretation No.

28

Human and animal viral CCL 49976 or All except Canada

vaccines CCL 6999G s. z

Human and animal peptides Interpretation No. 24 (CCL s, z

and proteins 6799G)

(Pharmaceuticals) . .

Human and animal peptides Interpretation No. 24 s, z

and proteins or CCL 6999G

(miscellaneous) or CCL 5799D P, Q, S, W, Y, Z

Recombinant DNA and related Interpretation No. 24 s, z

compounds (DNA

nucleosides, nucleotides)

Human and animal antibiotics Interpretation No. 24 s, z

Human and animal diagnostic Interpretation No. 24 s, z

agents

Amino acids Interpretation No. 24 s, z

or CCL 6999G

or CCL 5799D P, Q, S, W, Y, Z

Vitamins Interpretation No. 24 s, z

Enzymes Interpretation No. 24 s, z

or CCL 57919D P, Q, S, W, Y, A

Pesticides and herbicides Interpretation No. 24 s, z

(excluding microbial agents) or CCL 47076 All except Canada

or CCL 5799D P, Q, S, W,Y,Z

Seeds CCL6999G s, z

aT~* ~OUntrle~ ~r~ ~~~u~~d as fOllOW: p. people’s ~public of china; Q - Romania; T - essentially the Western Hemisphere, excePt Cuba and Canada; V

 - Southern

Rhodesia and countries not in any other group (except Canada); W - Hungary and Poland; Y - Aibania, Bulgaria, Czechoslovakia Estonia, G. D. R., Laos, Latvia, Lithuania,

Outer Mongolia, and the U. S. S. R.; Z - North Korea Vietnam, Cambodia, Cuba; S - Libya.

Under a recent amendment to the Commodity Control List, the export of “medicine and medical products” to Libya does not require a validated license.

SOURCE: Office of Technology Assessment, 1983.
Ch. 19—lnternational Technology Transfer, Investment, and Trade ● 457

port control regulations. There are three categories of technical data that may be exported to any

country under a general license (i e., an exemption): 1) data already generally available without

restriction and at nominal cost, such as in publications or through conferences; 2) scientific or

educational data not directly and significantly

related to industrial applications; and 3) data contained in foreign patent applications (15 C.F.R. $

379). However, if companies using biotechnology

choose to protect information as trade secrets or

if information has commercial value, these exceptions will not apply.

The U.S. export control regulations do provide

another limited exemption of greater practical use

for biotechnology data exports, depending on the

destination and the nature of the exported data.

Broadly speaking, exports of technical data to virtually all non-Communist countries and, under

more restricted circumstances, to the eastern bloc

or the Peoples Republic of China, may take place

under a general license rather than a validated

license. * However, a validated license is required

for technical data related to Group 9 commodities,

if the data is exported to Communist countries.

Controls on the export of “dual-use” technical

data (data with both military and civilian uses)

may become more important to the international

commercialization of biotechnology in the future.

In 1976, the Defense Science Board Task Force

on Export of U.S. Technology issued a report (the

Bucy report) which concluded that U.S. export

controls should focus on design and manufacturing know-how for critical technologies rather

than on products (7). In the EAA, Congress directed the U.S. Secretary of Defense to develop

a “Militarily Critical Technologies List” (MCTL) and

to incorporate it into the export control system

after review by the U.S. Department of Commerce. The U.S. Department of Defense has developed a broad MCTL, most of which is classified

(19). This list covers many technologies, including

ones with primarily nonmilitary applications and

has been criticized as covering virtually all of

modern technology (19). The MCTL is being re-

“In man~ instances, the at’ailability of this general license for exports to non-Communist countries is conditioned on assurances

against unauthorized reexport to a controlled destination.

vised and has not yet been incorporated into the

export control regulations.

Section 16.8 of the Defense Department’s MCTL

is most pertinent to biotechnology because it

covers “technology for manufacture and dissemination of biological and toxic materials. ” It would

cover know-how for: 1) design and production

of bacterial, viral, and fungal products, including

vaccines, specialized high containment facilities,

and special instrumentation; and 2) design, production, and use of dissemination equipment. It

would also cover related equipment, materials,

and goods accompanied by sophisticated knowhow. Although the MCTL has not yet been implemented, it appears that such a concept will be incorporated into the EAA renewal.

In addition, “biological agents adapted for use

in war” are subject to controls under the Arms

Export Control Act, as are technical data related

to biological warfare agents, including ‘(any technology which advances the state-of -the-art or establishes a new art in an area of significant military applicability in the United States” (22 C.F.R.

$ 125.01). Manv pathogenic organisms could be .

viewed as biological warfare agents, yet their export could be for peaceful purposes such as for

research to develop a vaccine. Ultimately, the decision on what products are “adapted for use in

war” is left to the discretion of the U.S. Department of State. In addition, the broad definition

of technical data could include even information

indirectly related to military applications, such

as information relating to cloning of genes for

human neurotransmitters, because many chemical and some biological warfare agents act by affecting these neurotransmitters (4). On the other

hand, a fairly recent case indicates that the courts

will interpret the definition of technical data

much more narrowly (17).

To sum up, the current impact of U.S. export

control requirements is minimal except in the case

of microaganisms where the Commerce Department sees the need for broad controls on national

security grounds. Exports of most products and

technical information to non-Communist countries should be possible without need for a validated license under the EAA regulations. However, the export of most micro-oganisms to all

25-561 0 - 84 - 30
.

458 Commercial Biotechnology: An International Analysis

countries except Canada will require a validated

license unless the microorganisms are inactivated, attenuated, or fall within Interpretation No.

28 E. coli and some other micro-organisms of

interest to biotechnologists do not fall within

Interpretation 28 and therefore require a validated license for export (unless inactivated or attenuated). Controls over micro-organism shipments and data transfers will have most impact

on those companies that do research abroad.

Although the impact of the current U.S. export

controls on biotechnology companies appears to

be fairly modest, the future impact is unclear. The

EAA expired on September 30, 1983. Although

U.S. export controls continue in effect under the

International Emergency Economic Powers Act,

it is not clear what form the EAA’s successor will

take. * Many different bills are pending. Some

would strengthen U.S. export controls in general,

while others would liberalize them. Furthermore,

even if the broad framework of export controls

does not change significantly, it is possible that

controls could be tightened at the administrative

level. The Undersecretary of Defense for Policy

testified before Congress in 1982 that “microbiology” is one of the technologies that “pose the

greatest risk to U.S. security” (11). Similarly, the

April 1982 Central Intelligence Agency publication, Soviet Acquisition of Western Technology,

identified microbiology, and especially “genetic

engineering,” as one of the major fields of interest

to Soviet and Eastern European visitors to the

United States (11). A recent interagency discussion paper for the White House Office of Science

and Technology Policy (OSTP), on the other hand,

concluded that more restrictive measures to control the transfer of biotechnology are not warranted and may be counterproductive (8). It also

noted that existing export control regulations

could be clarified and better administered. How

much impact this latter report will have in the

administration is unknown. OSTP has taken the

position that the report is a draft only and will

be part of a larger review of technology transfer

and national security (4).

● For a complete discussion of the major bills and the various congressional options on export control, see the May 1983 OTA report

Technology and East-West Trade: An Update (19).

Japan

Japanese export controls combine trade concerns with defense and foreign policy objectives.

In addition, Japan cooperates with CoCom controls (18). Under the Foreign Exchange and Foreign Trade Control Law of 1949 (most recently

revised in 1979) and the implementing Export

Trade Control Order, Japan’s Ministry of International Trade and Industry (MITI) may require

export licenses on the basis of domestic short

supply, export restraints for orderly marketing

reasons, defense, and harm to public order or

morals. The list of controlled items in the Export

Trade Control order includes blood derivatives,

fertilizers, and bacterial agents for military use.

(The policy of the Japanese Government is to ban

all arms exports.) An export license from MITI

is required to export these commodities to any

foreign destination. The licensing process, in practice, involves extensive preliminary consultations

resulting in informal advance clearances (18).

Federal Republic of Germany

Export controls in the Federal Republic of Germany are limited to commodities and information

directly related to “implements of war)” are

limited in nature and scope, and must interfere

as little as possible with freedom of economic activity (l). Except for data and documents concerning goods controlled multilaterally by CoCorn,

technical data are unrestricted. Certain biological

and chemical warfare materials, including some

micro-organisms, are controlled. Thus, export

controls in the Federal Republic of Germany are

much less restrictive than the controls in the

United States. West Germany’s export controls

should have little or no impact on data or product exports by companies using biotechnology in

the Federal Republic of Germany that wish to

trade internationally.

United Kingdom

The United Kingdom controls the export of

goods but not technical information under the Import, Export, and Customs Powers (Defense) Act.

Export licensing decisions are national-securitybased. No biotechnology products are on the

Board of Trade’s list of controlled commodities.
Ch. 19—lnternational Technology Transfer, Investment, and Trade ● 459

Switzerland

Swiss law formerly provided for export controls

in the “national interest” on two categories of biotechnology products: serums and vaccines, and

pharmaceuticals (16). Currently, however, there

are no Swiss controls on biotechnology products

or data.

France

The French export controls appear to be quite

informal and a product of administrative action

rather than statutory decree. The French Ministry

of Economics and Finance’s list of products requiring export licenses includes biotechnology materials usable in biological warfare and their related

technical data. The controlled list does not include

antibiotics, other medicinal products, or cultures

of nonpathogenic organisms.

Comparative analysis

U.S. export controls in general are more restrictive than those of Japan or the four European

competitor countries, and they are more restrictive with regard to biotechnology. The United

States is the only country that controls exports

of pharmaceuticals for foreign policy reasons and

is the only nation that has perceived a national

security interest in controlling the export of

microbial cultures generally. The other nations

only embargo shipments of biological warfare

agents.

U.S. export controls could cause problems for

U.S. firms using biotechnology due to delays in

the export licensing process or uncertainties in

the application of controls. These problems will

occur primarily in the export of micro-organisms,

many of which will require a validated U.S. export license. In contrast, exports of most biotechnology products and data will not require a validated license. If export controls are a significant

handicap to U.S. firms’ competitiveness in biotechnology, these controls may lead U.S. firms using

biotechnology to source their exports from affiliates abroad, to first introduce new products

abroad, or to site their R&D abroad.

Patent law provisions affecting international

technology transfer

Patent laws of many countries, including the

United States, contain secrecy provisions that restrict outward technology transfer for security

or foreign policy reasons. On the other hand,

compulsory licensing provisions can be used to

force inward technology transfer, This section

discusses these two types of provisions in the patent laws of the competitor countries.

National security restrictions on

patent applications

The U.S. patent law provides a waiting period

after filing for a patent in the United States during which the U.S. Patent and Trademark Office

and the U.S. defense agencies may screen the invention on national security grounds and withhold the grant of a patent. In addition, procedures

exist for the review of applications in foreign

countries by U.S. parties, and secrecy orders can

be issued in certain instances. The review period

results in an effective prohibition against foreign

filings within 3 months of the U.S. filing. French,

United Kingdom, and West German patent laws

have similar provisions. However, the Federal

Republic of Germany will issue a secret patent

instead of a secrecy order. Swiss patent law provides for expropriation with compensation;

Japanese patent law does not place any national

security restrictions on the application process.

National security provisions create delay in filing foreign patents for all patent applicants. It is

too early to tell whether military uses of biotechnology will make patent secrecy orders a significant problem for biotechnology.
460 Commercial Biotechnology: An International Analysis

Compulsory licensing of patents

In most countries, patent owners who fail to put

their inventions into practice in the country within a prescribed period may have their patent

rights reduced or revoked. Failure to exploit a

patented invention in the country is regarded as

an abuse of the patent monopoly rights and may

subject the patent to compulsory licensing, revocation, or automatic lapse (2). Compulsory licensing is the normal remedy employed in these situations. Proponents of compulsory licensing argue

that it ensures early applications of a technology

and diffuses control over technology. Its opponents argue that it discourages public disclosure

of new technology through the patent system, expropriates property rights, and decreases incentives to innovate. In the United States, compulsory

licensing is generally viewed as inconsistent with

the patent owner’s right to exclude others from

making, using, or selling the patented invention,

and U.S. law provides for compulsory licensing

only in limited instances.

Countries with compulsory licensing recognize

that it may be very difficult for a licensee to practice a patent without the benefit of the patent

owner’s continued technical assistance and that

this assistance is unlikely to be forthcoming when

unfavorable terms are imposed on the patent

owner. Thus, compulsory licensing can discourage the transfer of know-how in conjunction with

the license. This may be less of a problem in cases

where an organism has been deposited in support

of a patent. Since the organism is publicly available and is in esence a “factory” for the product,

a licensee that obtained a compulsory license may

not need the know-how. In this situation, compulsory licensing could be a threat to U.S. biotechnology companies because sufficient technology

transfer could occur for the compulsory licensee

to use the invention competitively without any

assistance from the patent owner.

An international patent treaty known as the

Paris Convention permits any of its member countries to require compulsory licensing of its patents

after 3 years from the date of issuance, if the patent is not sufficiently worked. However, the Convention provides exceptions for reasons such as

compliance with national safety requirements

(15). All of the competitor countries are signatories to the Convention, and all but the United

States have general compulsory licensing statutes

consistent with the Convention,

In some cases, in the interests of free trade and

regional cooperation, the requirement that an invention be worked in the country is waived when

the demand for the patented product in the country is being met by manufacturing in a cooperating country. This is the case for the member states

of the EEC. Bilateral agreements also exist between Switzerland and the United States and between the Federal Republic of Germany and the

United States whereby the working of a patent

in the territory of one of the parties is considered

equivalent to its working in the territory of the

other party.

Specialized compulsory licensing provisions of

interest include United Kingdom and French provisions for compulsory licensing of pharmaceuticals in certain circumstances.

Although the U.S. system generally allows the

patentee to use or not use the patented technology at will, certain statutes and judicially created

legal doctrines provide for compulsory licensing

in limited cases. For example, statutory compulsory licensing exists under the Plant Variety Protection Act* and the recent statute on ownership

of federally funded inventions (Public Law 96-

517). Compulsory licensing also exists de facto

where courts do not enjoin patent infringement

on grounds of patent misuse, antitrust violation,

or public policy.

Assessing the impact of compulsory licensing

laws on U.S. competitiveness in biotechnology is

necessarily speculative at this time. Compulsory

licensing of patents could result in transfer of biotechnology and could adversely affect U.S. competitiveness in biotechnology. Although compulsory licenses apply in theory equally to any company, foreign or domestic, in practice they could

be used discriminatorily against U.S. companies;

standards that provide for licenses “in the public

interest” grant wide discretion to the governmental body that decides such cases.

● The act permits the Secretary of Agriculture to declare a protected variety open for use for up to 2 years at a reasonable royalty in order to ensure an adequate supply of food, fiber, or feed in

this country when the owner is unwilling or unable to meet the

need at a fair price (47 U.S,C. $2404),
Ch. 19—International Technology Transfer, Investment, and Trade 461

Regulation of technology imports and

foreign investment

Foreign exchange and investment control laws

are sometimes applied to technology licensing or

technical assistance agreements or to foreign

investment, with the effect of restricting the importation of foreign technology or foreign capital

and helping locally controlled firms retain control of the local market. * Such restrictions have

two rationales. First, a nation in a precarious

balance of payments position may look askance

at what it views as the payment of exorbitant

sums for foreign technology. Second, a nation

might act to prevent or modify a transaction for

political reasons in instances where imported

technology or foreign investment might result in

increased control of a local firm by a foreign firm.

The United States, the United Kingdom, the Federal Republic of Germany, and Switzerland currently have no significant formal exchange or investment control laws. Although these countries

lack statutory and administrative mechanisms for

direct control over private international technology transfer agreements, de facto means exist in the United Kingdom, the Federal Republic

of Germany, and Switzerland under which these

governments could block foreign investments in

those exceptional cases in which it might be

deemed necessary to do so for screening important investments * (14). France and Japan have investment or exchange control mechanisms that

do affect technology transfers and foreign

investment.

“Track and in~estment restrictions, together with compulsory

licensing pro~!isions can act like pincers to extract a foreign technology owner’s industrial property rights. The foreign technology

owner may patent the product in an important market, be blocked

from using the patent himself, and have to license the patent on

pain of losing its benefits,

*For example, in the k’ederal Republic of Germany, any enterprise

whether domestic or foreign that acquires 25 percent or more of

the shares of stock in a German corporation must notify the provincial banking authorities and the target company when it buys the

shares, Section 23 of the Foreign Trade Law authorizes the German k’ederal Government to ban the sale of a company to nonresidents on national security grounds. While the Federal Go\’ernment

has neter had to use this power, its existence makes possible an

informal but well-known agreement between the Federal C,o\wrn -

ment and the major banks (which often are major shareholders of

companies) that no company nor block of stock be soki without prior

consultation with the (;o\ernment.

France moved in 1970 from a system requiring prior review of technology transfer agreements to a system requiring notification after the

fact. Currently, the French party to an international “industrial property” or “scientific and technical assistance” agreement must notify and submit a copy to the Industrial Property Service of

the Ministry of Industrial and Scientific Development within 1 month after the agreement is concluded (9). The French party must also submit

yearly reports of payments made and reciprocal

transfers of technology. The submissions are confidential, and compliance is a prerequisite to being able to transfer royalty payments (10).

This mechanism appears to be one primarily

designed to gain statistical information, but one

source indicates that it may have further ramifications (5). The French Ministry of Economy

may express reservations if it considers the royalty payments to be too high. Such an action could

result in the excess amount of royalties being prohibited from being deducted for tax purposes.

Most of the reservations expressed by ministry

officials have involved contracts in the chemical,

pharmaceutical, and petroleum sectors (5). Thus,

the ministry officials may be inclined to express

reservations for biotechnology licensing agreements, if those agreements are viewed as not being sufficiently favorable to the French party.

France’s investment control laws are relevant

both to biotechnology transfer and to the ability

to invest in the French market. Nonresidents of

the European Economic Community (EEC) that

plan to invest in France must submit a declaration to the Ministry of Economics and Finance.

The declaration includes information on the identity of the investor, the business to be invested

in, the forms, conditions, rationale, and consequences of the investment, and financial information on the companies involved. Within 2 months

following the receipt of the declaration, the

Ministry may order the suspension of the proposed action.

Direct foreign investment in certain industries

is not encouraged in France. And in France as in
—.

462 . Commercial Biotechnology: An International Analysis

all countries other than the United States, takeovers of local companies are not favored, particularly takeovers resisted by the local management

(14). On the other hand, investments that provide

for capital transfer or technology transfer into

France are favored. Given the French Government concerted efforts to stimulate biotechnology, investments by foreign companies in French

companies using biotechnology are likely to be

carefully scrutinized.

Of the countries under study, Japan has been

most restrictive regarding technical assistance and

licensing agreements between foreign parties and

Japanese companies and direct foreign investment. In the period 1949-68, all licensing agreements and all foreign investments in Japan had

to be reviewed in advance by the Japanese Government. Over the years, an increasing range of

agreements and investments were given “automatic approval. ” Finally, the revised Foreign Exchange and Foreign Trade Control Law (effective

Dec. 1, 1980) provided that foreign trade and investment is to be free in principle and restrictions

are to be exceptional.

Under Japan’s revised Foreign Exchange and

Foreign Trade Control Law, the Japanese Government has the power to screen investments. Before

a foreign investor can conduct a transaction characterized as “direct foreign investment, ” the investor must give notice to the Japanese Government. The foreign investor must then wait 30

days before proceeding with the transaction. *

The Minister of Finance and the minister in

charge of the industry concerned also have the

power to designate specific companies for special

controls on foreign ownership. Eleven companies

have been so designated, including Sankyo Pharmaceuticals (25-percent ceiling on foreign ownership).

Articles 29 and 30 of Japan’s Foreign Exchange

and Foreign Trade Control Law deal specifically

with “agreements for importation of technology.”

● If certain circumstances are found to exist, then within an extended waiting period, the Government may recommend that the

agreement be altered; this power has seldom been used in recent

years. If this recommendation is not accepted, the Government may

suspend the transaction indefinitely by Cabinet Order,

The parties to such an agreement must first notify

the Minister of Finance and the minister in charge

of the industry involved of the terms of the agreement whenever they intend to enter into, renew,

or amend such an agreement. The agreement cannot be concluded until a 30day waiting period

has elapsed. (Normally, the ministries exercise

their power to shorten this period for transactions not deemed “harmful.”) The ministries

review the agreement with respect to a number

of criteria, ranging from national security to competition with other Japanese business. The Japanese Government has a fair degree of control over

technology transfer agreements, although it is not

clear whether the control is used to secure better contractual terms for Japanese companies,

particularly terms that encourage biotechnology

transfer to Japan.

The greatest significance of Japanese investment controls for biotechnology products is the

lingering effect of past controls. In strategic industries where foreign companies’ technology position was strong, liberalization of investment controls came late. In pharmaceuticals, for instance,

100-percent” foreign ownership was not permitted

in Japan until 1975, so non-Japanese drug companies either had to enter a joint venture with a

Japanese firm (or license to a Japanese firm) or

had to forgo the world’s second largest drug

market (22). Late liberalization of investment controls retarded foreign firms’ establishment of their

own marketing and distribution networks in

Japan. Nevertheless, the international pharmaceutical companies have a strong and increasing

presence in Japan, and some foreign pharmaceutical companies have even acquired smaller

Japanese pharmaceutical firms. Merck’s recent

acquisition of Banyu Pharmaceutical, the number

three firm in the Japanese industry, puts Merck

in an extremely strong position in the Japanese

market. Still, the waiting period for investments

and for licensing contracts is at the least a nuisance to the inward investment or licensing transaction, although other factors such as interlocking directorships, cross-holding of stock, and labor

resistance to foreign management may be very

significant in discouraging investment entry into

the Japanese market through a hostile takeover.
Ch. 19—International Technology Transfer, Investment, and Trade 463

Trade barriers affecting biotechnology products _

While firms using biotechnology now trade

mostly in technology through licensing and have

in a few cases invested abroad, trade in the products of biotechnology is just beginning. The tariffs

on biotechnology products are generally low in

the competitor countries and are getting lower

(as Tokyo Round tariff cuts are phased in). * Thus,

it is nontariff barriers that are most likely to be

important to trade in biotechnologically produced

products.

Nontariff barriers to trade include any government intervention affecting competition between

imported and domestic goods. The barriers most

significant for biotechnology products will be

those that affect technology development and

technology transfer:

●

●

●

●

●

health and safety standards and certification

systems;

subsidies;

price regulation;

to a minor degree, government procurement;

and

least significant, customs classification of new

products.

Rather than addressing health and safety regulation per se, the discussion here addresses how

such regulation applies specifically to imports.

Similarly, rather than considering the specific production and R&D subsidies, it considers how

these programs fit in with U.S. rights under trade

agreements. For instance, Japan maintained until very recently a dual safety certification system

that discriminated against imports, including imported drugs, medical devices (e.g., monoclinal

antibodies), chemicals, and animal drugs (20).

Standards and certification systems

Product standard systems are a particularly

thorny problem for exporters of health care prod-

● A11 of the competitor countries belong to the General Agreement

on Tariffs and Trade (GATT), GAIT is a multilateral agreement

signed by 87 governments accounting for over 80 percent of world

trade, GATT serves as a code of rules for international trade and

as an international trade organization. A primary goal of GATT is

to discourage the use of nontariff barriers to trade and then to reduce tariff levels through a series of multilateral trade negotiating

rounds of which the most recent was the Tokyo Round (1973-78),

ucts, because such products are extensively regulated and subject to the regulator’s discretionary

determination of whether imported products

meet applicable standards. Product standards can

affect the activities of both exporting and importing companies. Biologically produced pharmaceuticals, vaccines, foods, chemicals, and veterinary

products will all be subject in some degree to inspection, approval, and/or certification of whether

they meet local standards of safety and efficacy.

For a foreign manufacturer, registration and approval of a product in a certification process involves inevitable leakage of technology. Any manufacturer must explain its technology to local

regulators to the extent necessary to get its products approved. In those countries where marketing approval for an imported product can only

be given to a locally resident importer, as has been

the case in Japan, the technology (including trade

secrets and nonpatentable know-how) that is required for an application for approval must be

transmitted to the regulating authority by the importer, whose possession of this information

could provide the resident importer with leverage over the foreign manufacturer. This generalization applies equally to foreign manufacturers

in the United States and to U.S. manufacturers

abroad. Leakage of technology may also occur

where a registration scheme involves disclosure

of trade secrets, as in the case of disclosure of

chemical identities for registration in the European Inventory of Existing Chemical Substances

under the EEC’S Sixth Amendment regulation

scheme for toxic chemicals.

The Agreement on Technical Barriers to Trade

((’Standards Code”) addresses these problems. The

Standards Code, negotiated in the Tokyo Round

of multilateral trade negotiations, came into effect January 1, 1980 and covers all six countries

discussed in this report. This code requires the

following: 1) national or regional certification

systems must treat products of code signatories

no less favorably than domestic products, 2) imported products must be treated in a nondiscriminatory manner with regard to product testing

and certification, and 3) signatories must use the

same test methods and administrative procedures
464 . Commercial Biotechnology: An International Analysis

for imports and domestic products and charge

comparable fees. Test results must be made available to the exporter, importer, or their agents,

and confidentiality of information must be

respected equally for foreign and domestic suppliers. The Standards Code does not implement

a transnational standards system. It merely provides international rules for how individual national systems treat products of other code

signatories, provides a forum for negotiations, and

provides redress against foreign violations of the

code (20).

JAPAN

Until recently, one of the most wide-ranging

barriers to foreign market access in Japan was

discriminatory certification systems (20). While

various product standards were administered

under different laws, the framework was remarkably uniform. Each law would provide two tracks:

1) an approval adapted to high-volume production and sales, requiring factory inspection and

product-type approval; and 2) a low-volume approval, involving lot-by-lot inspection. The first

track was legally foreclosed to foreign manufacturers. Because the person holding the product

approval had to be subject to potential sanctions

under Japanese law, that person had to be present in Japan. Furthermore, the product approval

(and all data to obtain it) was the property of the

approval holder, who under the second track had

to be the Japanese importer. Transfer of the approval to another importer (even transfer of the

approval from a joint venture to a wholly owned

subsidiary) meant regenerating the data.

In response to foreign complaints, the Japanese

Diet, on May 18, 1983, passed legislation amending 16 Japanese standards and certification laws,

including the Pharmaceutical Affairs Law (drugs,

medical devices), the Agricultural Chemicals Law,

and the Toxic Chemicals Law. The amendments,

together with their implementing regulations

issued soon thereafter, are designed to give

foreign producers direct access to certification

systems, including direct ownership of approvals.

Foreign regulated products—such as drugs or

monoclinal antibody kits—still (as of fall 1983)

must be unpacked, sampled, and tested, lot by lot,

as they pass Japanese customs. Foreign manufac -

turers may now apply for, and be granted, factory inspection and U.S. product type approval.

U.S. trade negotiators are now working for Japanese acceptance of factory inspections carried out

by U.S. testing firms for this purpose.

The Japanese Ministry of Health and Welfare,

which previously refused to accept entirely

foreign clinical test data because of racial and

dietary differences, agreed in January 1983 to

work toward acceptance of foreign clinical data

and to undertake objective studies of racial and

dietary differences. However, as of December

1983 no such studies had been undertaken. In addition, the Ministry promised to clarify the line

between (regulated) pharmaceuticals and (unregulated) foodstuffs and to shorten the approval

period for in vitro diagnostics used as medical

devices. The Ministry has also promised to allow

approvals to be transferred between importers

of drugs and importers of medical devices.

EUROPE

U.S. chemical exporters have been concerned

about inadequate protection of proprietary data

in the European registration process, in particular, the requirements for disclosure o f

chemical identities of substances. Another longterm concern of U.S. pesticide exporters has been

pesticide registration procedures abroad, which

may diminish the proprietary value of registration data by allowing national authorities to use

data submitted by pioneer registrants in determining the safety of “me-too”* pesticides (20).

Subsidies

Subsidies (e.g., loans, grants, tax preferences)

are a form of government intervention which, in

some cases, can provide competitive advantages

to domestic producers. There is basic disagreement between the United States and its trading

partners both on how to define a subsidy and on

how to measure its effect. The position of the

United States is that a measure of a subsidy is the

benefit conferred on the recipient; the position

of the EEC is that the measure should be the cost

to the government or the benefit to the recipient,

● “Me-too” products are generic products equivalent to an already

existing product.
Ch. 19—international Technology Transfer, Investment, and Trade . 465

whichever is lower. In any case, subsidies used

by governments may be important in international competition to commercialize biotechnology.

One of the most controversial agreements of

the Tokyo Round was the Subsidies Code, which

attempts to expand international discipline over

subsidies. Three aspects of the Subsidies Code are

important to firms using biotechnology. First, the

code prohibits any export subsidies on industrial

products. This means that neither the United

States nor its competitor countries can grant export subsidies on biotechnology products without

violating the code. second, the code recognizes

that domestic subsidies, which include all existing

subsidies that affect biotechnology, can be used

except in situations where the subsidies: 1) cause

or threaten injury to another signatory’s industry,

2) cause or threaten “serious prejudice)”” or 3)

nullify or impair GAIT benefits of another signatory. Third, the code provides for remedies. Two

methods of obtaining remedies are available:

countervailing duties (described under the discussion of U.S. trade law below) and multilateral

dispute settlement.

The Subsidies Code sets limits on both the export subsidy behavior of our trading partners and

on what the United States (and other signatories)

can do to promote industry. The code also authorizes national governments to unilaterally impose

countervailing duties * * on subsidized imports to

offset subsidies, where the importing country’s

government has found that there are subsidies

and that injury to domestic industries is caused

or threatened by reason of the subsidized imports.

All presently known government promotion

measures affecting the commercialization of

biotechnology are either domestic subsidies or

other promotional measures that legally do not

qualify as subsidies at all. Under U.S. subsidy and

countervailing duty practice, R&D grants and

preferential loans awarded by a government to

finance research that has broad application and

*Serious prejudice relates to effects of subsidies in third <ountry

markets but is not defined in the Code or GATT.

● “Countemailing dutitzi are imposed by governments to offset subsidies found to benefit imports into countries where the subsidized

imports cause or threaten material injurJ~ to a domestic manufac -

turer producing a like product.

yields results that are made publicly available are

not legally subsidies. The test of a subsidy in this

case is wvhether the result of a governmentfunded research project in biotechnology is published and made available. Loans are deemed subsidized to the extent that the borrower obtains

a better interest rate for the loan than that which

would otherwise be available to him for a loan

of similar size and terms, As for government equity ownership, the U.S. position is that government

ownership implies a subsidy only when it is inconsistent with commercial considerations. If the

government buys shares either directly from the

company or the stock market, a subsidy arises

to the extent the government pays more than the

market price. Given the favorable market for most

biotechnology stocks, even for those issues that

have shown no operating profits to date, it seems

unlikely that government investment in biotechnology companies such as Celltech would be classified as a subsidy under U.S. practice.

Price regulation and government

procurement

Price regulation is central in importance to the

world market in pharmaceuticals and may be an

important means of discouraging foreign suppliers to enter particular domestic pharmaceutical

markets. Thus, price regulation, particularly of

new drugs, will be important to the marketing

and profitability of biotechnology pharmaceuticals. The basis for price regulation is the local or

national social insurance scheme, which pays for

all or part of the beneficiaries’ drug cost. Although

the basic motivation for price regulation is health

care cost containment, price regulation can be

used to reward manufacturers for local production, local R&D, and other desired behavior. Thus,

in countries where drug costs are paid or reimbursed by the government, in a real sense the government creates the market. Furthermore, inclusion on the government list of approved drugs,

at a profitable price, is essential to market access

for foreign drugs.

GATT Article 111 requires that products of GATT’

signatories be given treatment equal to that given

local products with regard to price regulation, internal taxes, and other regulations. If there is a
466 ● Commercial Biotechnology: An International Analysis

clear factual case of discrimination, enforcement

of this requirement is straightforward.

In the United States, Federal and State funds

pay for only 8 percent of out-of-hospital drug

costs. The Maximum Allowable Cost program instituted in 1979 by the Department of Health, Education, and Welfare sets price ceilings on drugs

paid for by federally financed health-care programs such as Medicaid. In addition, a growing

number of States are instituting open or closed

formulary systems (recommended or mandatory

drug lists) for prescriptions paid for by State

funds (22).

In the Federal Republic of Germany, all drugs

are dispensed through the pharmacies or hospitals, which are reimbursed by the insurance

plan to which the patient belongs. An official price

list is set by the pharmaceutical manufacturers

association, and the Government regulates the

wholesalers’ and pharmacies’ markup.

In the United Kingdom, the Government pays

for approximately 90 percent of drugs consumed

(22). Dispensing of drugs is through the pharmacies, which are reimbursed on the basis of ingredient cost, profit, professional fee, and container

allowance. The Department of Health allows a

larger profit margin for companies that manufacture or perform R&D locally, a provision which

may be inconsistent with GATT Article III and the

Treaty of Rome (21).

In France, drugs are distributed primarily

through pharmacies, and patients are reimbursed

by the social insurance system at a set percentage

(40, 70, or 100 percent) of the official list price.

The Government sets not only the retail price for

each drug on the official price list, but also the

markups in the distribution chain. One report

states that health care cost containment concerns

have led to drug prices too low to finance R&D

by the local pharmaceutical industry (21).

In Switzerland, dispensing of drugs is through

pharmacies and doctors. Price regulation is the

responsibility of the Federal Social Insurance Office which maintains two lists of drugs for reimbursement: 1) generic drugs, for which reimbursement is required; and 2) the ‘(

SL List,” a list

of specialty drugs for which reimbursement is not

required but usually happens anyway. For imported drugs, sales prices abroad are carefully

monitored; the Federal Social Insurance Office

will allow a 25-percent margin over the selling

price in the country of origin (excluding tax) (22).

The Japanese drug distribution system is

unique. Almost all drugs in Japan are dispensed

by physicians whose drug lists and markup are

regulated by the national health insurance system.

The doctor buys drugs from the wholesaler at a

price that varies depending on the size of order,

size of clinic, and other commercial factors. The

doctor then resells the drug to his patients at the

regulated price. The difference is the doctor’s

profit, which averages between 20 to 50 percent

of the regulated price (12). Japan’s price regulation system is used to encourage R&D. The recently revised (April 1983) method of drug price

reimbursement allows a larger profit margin depending on desirability and efficacy of the drug;

this, in combination with the more generous official prices set for new drugs, may be used to

reward R&D and favor new drug (including biotechnology drug) development (14).

Government procurement

Under GATT, governments may buy products

as they wish for their own consumption and target their procurement to favor local suppliers.

However, the GATT Procurement Code, negotiated in the Tokyo Round reciprocally, opens bidding opportunities on certain procurement and

provides fair procurement procedures. For biotechnology products, government procurement

would have substantial impact only where consumption by the government is large relative to

the total market or has a significant demonstration effect. It is unlikely that government procurement will play a role in biotechnology development comparable to the role of the U.S. Defense

Department or the Japanese Government in the

semiconductor industry. While governments do

buy pharmaceuticals, many drug companies avoid

bidding on government tenders for commercial

reasons, and in developed countries, procurement

markets are not significant relative to total pharmaceutical demand.
Ch. 19—International Technology Transfer, Investment, and Trade ● 467

Customs classification

Customs classification might be a problem only

for those biotechnology products for which classification is an open issue—i.e., either those products that are genuinely new or existing products

assigned to a different classification due to their

biotechnologically based production. Over the

next several years, most biotechnology products

with the exception of some vaccines will probably be replacement products for existing products. If the trading partners of the United States

reclassify biotechnology products and raise tariffs, such strategic protectionism could raise new

barriers around foreign markets. Since only a few

products developed through biotechnology are

traded at present, it is not clear whether the competitor countries will reclassify the biotechnology

products under different (higher tariff) categories.

There is, however, no reason to believe that they

will be reassigned.

Trade laws

Trade laws may offer a means to improve the

competitive position of US. firms using biotechnology. This section reviews the array of trade

law actions relevant to U.S. firms using biotechnology and assesses whether biotechnology raises

particular issues as to the adequacy of present

trade laws.

While trade in biotechnology products is in its

infancy, some factors will influence the likely interaction between biotechnology and trade law.

First, to the extent that trade in a product is wholly under a licensing agreement or is an intracompany transfer of a patented substance (or organism), there are likely to be few problems with

import competition. Second, there is no reason

to believe that biotechnology products will trade

differently or be classified differently from other

products; human insulin will have the same distribution channels as animal-derived insulin, for

instance. Third, since the efficacy of any type of

import relief is tied to the pace of product obsolescence, which differs by industry, the import relief

concerns of other industries such as the semiconductor industry will be of limited importance to

industries using biotechnology.

Section 337 of the Tariff Act of 1930

The U.S. import trade statute most immediately relevant to firms using biotechnology is section 337 of the Tariff Act of 1930 (19 U.S,C.

1337), which provides for relief against unfair

competition in import trade, including imports

found to be infringing intellectual property rights,

where such practices injure an efficiently

operated industry in the United States, prevent

the establishment of such an industry, or restrain

trade. If the U.S. International Trade Commission

(ITC) finds a violation, it may issue either an exclusion order prohibiting the import of the goods

in question or a cease and desist order to proscribe specific conduct by parties over which ITC

has jurisdiction. Investigations under section 337

are conducted by ITC. The President may disapprove such a determination for policy reasons

within 60 days.

There are several points to note about section

337. If an import is found to violate section 337,

it can be completely excluded from importation;

ITC need not get jurisdiction over the foreign

manufacturer. Second, section 337 investigations

are faster (18 months maximum) and generally

less expensive than other types of litigation (e.g.,

patent or trade secret infringement litigation).

Third, where there is multiple-source infringement, ITC can issue a general exclusion order, excluding all infringing products made by any firm.

Section 337a (19 U.S.C. j1337a) provides that section 337 can be used to enforce process patents;

ITC in past process patent cases has been willing

to issue broad exclusion orders, particularly

where infringing and noninfringing goods are

physically indistinguishable.

Section 337’s greatest relevance for biotechnology is that at present, section 337 is the most

effective means of enforcing process patents
468 ● Commercial Biotechnology: An International Analysis

against foreign producers. It could, for instance,

be used to enforce the Cohen-Boyer process

patent against imports from firms that have not

taken a license from Stanford (although Stanford

would run the risk that its patent might be found

invalid by ITC). Furthermore, a firm need not

have patented the intellectual property in question; section 337 applies as well to misappropriations of trade secrets. A firm that has elected to

take the trade secret route instead of patenting

its research results could use section 337 against

goods incorporating stolen trade secrets.

A section 337 investigation concerning allegations of patent infringement and trade secret

misappropriations with respect to “certain limited

charge cell culture microcarriers ” is now in

progress. *

Section 301 of the Trade Act of 1974

The other important trade remedy for firms

using biotechnology is section 301 of the Trade

Act of 1974 (19 U.S.C. 2411 ff). Under section 301,

firms can petition the U.S. Government to enforce

U.S. rights under trade agreements or to negotiate

to eliminate foreign government actions that unreasonably limit market access abroad. Section

301 also provides authority for the President to

retaliate against any foreign government action

that is “unjustifiable, unreasonable, or discriminatory” and burdens or restricts U.S. commerce

(14).

“Certain Limited Charge Cell Cuhure Microcarriers, Investigation

No. 337-TA-129, instituted Aug. 17, 1982, concerning allegations of:

misappropriation of trade secrets; refusal to sell sieved beads; false

and deceptive advertising; false and disparaging comments about

complainants; direct, contributory, and induced patent infringement;

and unauthorized manufacture abroad in violation of process claims

of a U.S. patent. Complainants are Flow General Inc. and Massachusetts Institute of Technology; respondents are AB Fortia, Pharmacia AB, Pharmacia Fine Chemical of Sweden, and Pharmacia Inc.

of New Jersey.

Findings

An investigation under section 301 of the Trade

Act of 1974 is conducted by the U.S. Trade Representative and is normally initiated in response to

a petition by any interested person. * The Trade

Representative, with the advice of other U.S.

Government agencies, recommends what action

should be taken by the President. Firms using

biotechnology can use section 301 to gain U.S.

Government action against foreign government

actions that restrict market access or violate

GATT, the Standards Code, or bilateral or multilateral agreements. For such problems, section

301 is often the best or only formal remedy.

However, section 301 would not apply if there

were no foreign government involvement (e.g.,

dumping or illegal private cartels). Also, even

without formal section 301 action, the assistance

of the U.S. Government is available for resolving

market access problems abroad.

Countervailing and

antidumping duty laws

Countervailing duties (19 U.S.C. 1671 ff) are imposed to offset subsidies found to benefit imports

into the United States where the subsidized imports cause or threaten material injury to U.S. industry producing a like product. Similarly, antidumping duties (19 U.S.C. 1673 ff) are imposed

to offset injurious dumping of foreign merchandise in the United States.** The US. Department

of Commerce makes preliminary and final findings concerning subsidization or dumping, and

ITC makes preliminary and final findings concerning material injury to the U.S. industry. Biotechnology products are unlikely to raise novel issues

for these laws. \

● Interested persons include any person representing a significant

economic interest affected by the complained policy or actions.

* ““Dumping” exists when goods are sold for export below their

cost of production or more cheaply than for the home market.

Export control laws restrict outward technology the United States is the only country that controls

transfer for national security, economic, or for- the export of medicines for foreign policy reasons.

eign policy reasons. Of the six countries studied, The United States also has imposed more far
Ch. 19—International Technology Transfer, Investment, and Trade ● 469

reaching controls on the export of microorganisms than have the European nations and Japan,

which appear to limit their concern to biological

warfare agents. With these broader commodity

controls come commensurately broader controls

over the export of technical data. These controls

may have a slightly adverse effect on the competitiveness of U.S. companies commercializing biotechnology because they could cause delays that

result in sales being lost to foreign competitors.

All of the countries studied, except the United

States, have compulsory licensing provisions of

general applicability for patents. The United States

has special compulsory licensing provisions in

some statutes, notably the Plant Variety Protection Act. In addition, compulsory licensing has

been imposed in patent misuse cases. It should

have little effect on U.S. competitiveness in biotechnology.

Exchange controls may delay or limit the remittance of royalties. Investment controls may obstruct inward foreign investment or licensing and

technical assistance activities. The United States,

the United Kingdom, the Federal Republic of Germany, and Switzerland do not have significant

controls. France formerly required prior review

of investments and licensing agreements but now

requires only notification after the fact. However,

non-EEC residents who plan to invest in France

must submit a declaration of their proposed activity to the Ministry of Economics and Finance,

which may order the suspension of the proposed

action. Japan has had a prior notification system

since 1980. However, both the French and Japanese systems give the Government the ability to

object or order alteration of the transaction. This

system may increase the leverage of French and

Japanese prospective licensees of biotechnology

transfers. It might also provide protection for

domestic firms against foreign competition in the

local market.

For biotechnology products such as pharmaceuticals, tariffs are relatively insignificant as a barrier to trade. The significant trade barriers are

nontariff trade barriers, such as standards and

certification systems, subsidies, and the use of

price regulation to discriminate against imports.

Multilateral trade agreements such as GATT

provide rules aimed at eliminating nontariff barriers to trade. Similarly, the Standards Code prohibits its parties from discriminating against imports in their standards and certification systems.

The Subsidies Code prohibits certain forms of

subsidies. All of the competitor countries belong

to all three of these agreements. U.S. rights under

these agreements can be enforced through dispute settlement proceedings before an impartial

panel of arbitrators.

Biotechnology products may face significant

nontariff barriers to trade because of the desirability of the technology and because of health and

safety regulation likely to surround the product.

For instance, certification of safety requirements

may be difficult to gain, especially for imported

biotechnology products. Additionally, price regulation in important overseas markets such as

France and Japan may on occasion significantly

impair return on R&D investment for biotechnology pharmaceuticals.

The U.S. trade remedy of greatest interest to

U.S. firms engaging in biotechnology is section

337 of the Tariff Act of 1930, which provides a

remedy against imports that create unfair competition, including those that infringe intellectual

property rights. A firm using biotechnology producing a product in the United States can use section 337 to gain exclusion of infringing imports,

even in the case of those made by a process patented only in the United States or where the firm

has chosen the trade secret route rather than patenting. Section 337 proceedings are administrative

(before the U.S. International Trade Commission)

and can be much speedier than other types of litigation.

The other significant trade remedy for U.S.

firms using biotechnology is section 301 of the

Trade Act of 1974. This statute provides a window for U.S. parties to get the Government to negotiate to enforce U.S. rights abroad. Antidumping and countervailing duty laws may be of significance in the future as well.

Since trade in biotechnology products has barely begun, it is too soon to assess definitively

whether the present trade laws are adequate to

address the trade problems of this industry, However, since there are no trade issues peculiar to

biotechnology and biotechnology products are

likely to trade similarly to other products, biotechnology is not likely to raise new issues for trade

law.
470 . Commercial Biotechnology: An International Analysis

Issue

ISSUE: How could Congress respond to the international transfer of biotechnology?

Biotechnical knowledge is being rapidly transferred both domestically and internationally, but

there is no empirical evidence showing the

amount and net direction of the transfer. Much

of the new knowledge is being generated in the

United States, primarily in research universities

and NBFs, and because of the openness of the university scientific establishment and the many joint

R&D ventures between NBFs and larger manufacturing companies, particularly foreign ones, this

knowledge is being disseminated worldwide. At

the same time, however, high-quality research in

molecular biology, immunology, and bioprocess

engineering is done in many foreign countries,

and the published results are available to U.S.

scientists. The technique for making hybridomas,

for example, was developed in the United Kingdom. Furthermore, patents granted in the United

States and abroad to foreign inventors and companies make technology available to all. Finally,

R&D joint ventures between NBFs and large companies presumably have resulted in the transfer

of some technology to NBFs in the United States,

although this is not certain because of the proprietary nature of these agreements. Despite the

lack of empirical evidence showing the amount

and net direction of biotechnology transfer, most

observers would agree that currently the net flow

of biotechnology transfer is outward from the

United States. However, the net flow outward

Chapter 19 references

1. Baker, R., and Bohlig, R., “The Control of Exports:

A Comparison of the Laws of the United States,

Canada, Japan, and the Federal Republic of Germany, ” International/ Lawyer 1:163:172-173, 1966.

2. Baxter, J, W., World Patent Law and Practice,

2:117 (New York: Matthew Bender & Co., 1983).

3. Bent, S., “Export Controls and U.S. Biotechnology,”

Biotechnology Law Report 2:6-14, 1983.

4. Biotechnology Newswatch, “White House Gets

may change as foreign companies enter the U.S.

market (via subsidies or foreign manufacturing

operations) bringing with them foreign technology. The long-term effect of what appears to be

an outward flow of technology on the international competitiveness of U.S. companies applying biotechnology is unknown.

Although certain laws affect the international

technology transfer and will therefore affect the

transfer of biotechnology, biotechnology raises

few, if any, unique issues in this context. Similarly,

since there are no trade issues peculiar to biotechnology, and biotechnology products are likely to

trade similarly to the products they replace, biotechnology is not likely to raise new issues for

trade law. The laws most relevant to biotechnology now are the export control laws, which could

have a modest effect on U.S. competitiveness.

As this study went to press, the debate over replacement of the Export Administration Act of

1979 was still in progress. Although the delay and

commercial uncertainty created by current U.S.

export controls may adversely affect the development of biotechnology in the United States, these

problems are general ones that are now under

consideration in Congress, and as such, are beyond the scope of this report. The reader is referred to the OTA report Technology and EastWest Trade: An Update (19) for a full discussion

of the export control issue.

Study on Biocompetitiveness: Will It Surface or

Sink,” June 20, 1983, p. 1.

5. Business International Corp., Investing, Licensing,

and Trading Conditions Abroad (France), November 1981.

6. Cooper, I., “U.S. Export Controls on Biotechnology)”

Recombinant DNA Technical Bulletin 6:12, 1983.

7. Defense Science Board Task Force on Export of

U.S. Technology, An Ana&sis oflixport Control of
Ch. 19—International Technology Transfer, Investment, and Trade 471

15

16

19

20

21.
Chapter 20

Targeting” Policies

in Biotechnology
Contents

475

475

475

476

477

477

478

478

478

478

478

479

479

479

479

479

480

480

481

482

482

482

483

484
Chapter 20

Targeting Policies in Biotechnology

Introduction

During the past few years, some governments

in countries other than the United States have

designated the commercial development of biotechnology as essential to their nations’ continued

economic well-being. Unlike the U.S. Government,

which has relied on a policy of funding basic

research in the life sciences and encouraging

research and development (R&D) in all industries

with tax credits, * these governments have instituted targeting policies in biotechnology designed

to promote the commercial development of biotechnology. In the context of this report, a

targeting policy for biotechnology is defined as

any policy that singles out the indigenous development of biotechnology for special attention

from the central government. Foreign targeting

policies in biotechnology may have the potential

“See Chapter 12: h’inancing and Tax Incentit,es for Firms and

C’hapter 13: [hnrernment Funding of Basic and Applied Research.

Timing and coordination

The biotechnology targeting policies of Japan

and the Federal Republic of Germany have

evolved out of at least a decade of interest in the

commercialization of life-science-related technologies; these policies have more recently emphasized the incorporation of the new recombinant

DNA (rDNA) and hybridoma/monoclinal antibody

(MAb) technologies, as well as advances in bioprocess engineering. The biotechnology targeting

policies of the United Kingdom and France, in contrast, have developed since about 1980, largely

in response to the recent developments that have

occurred in the field of molecular biology. The

both to enhance the international competitiveness

of foreign firms and to weaken that of U.S. firms.

This chapter examines the targeting policies in

biotechnology of Japan, the Federal Republic

of Germany, the United Kingdom, and France. *

The targeting policies of most foreign governments are directed toward both “old” and “new”

biotechnology. This chapter focuses on the aspects of these policies applicable to new biotechnology, as defined at the outset of this report.

Although it does not address the issue of whether

the U.S. Government should adopt a targeting policy for biotechnology, it does identify which

targeting mechanisms could most readily be

adopted in the United States if the U.S. Government chose to target biotechnology.

“Switzerland is not considered in this chapter, because the Swiss

Federal Government has no central policy for the industrial development of biotechnolo~y.

of policies

extent and degree of coordination of targeting

policies differ among countries.

Japan

As early as April 1971, the Council for Science

and Technology, Japan’s highest science and technology policymaking body, including government,

business, and academic leaders, stressed the importance of promoting life science on a nationwide basis because of its commercial potential

(16). Since then, three governmental departments

in Japan—the Science and Technology Agency

475
476 ● Commercial Biotechnology: An International Analysis

(STA), the Ministry of International Trade and Industry (MITI), and the Ministry of Agriculture,

Forestry, and Fisheries (MAFF)-have specifically targeted the development of biotechnology.

STA responded in 1973 by establishing the Office for Life Science Promotion to plan and coordinate STA’S R&D programs in life sciences. Until MITI’s entry into major biotechnology programing in 1980, STA’S R&D programs in fields related

to biotechnology were the largest and the best

funded in Japan. Even today, STA’S programs are

comparable in scale to those of MITI (25).

STA, in addition to being responsible for carrying out its own R&D program in the fields related

to biotechnology, is responsible for interministerial coordination. It should be pointed out, however, that STA’S influence on the formulation and

implementation of Japanese biotechnology policy

is not as pervasive as it might appear on paper,

Interministerial rivalries and competition are common in Japan, and as described below, MAFF and

MITI, each with substantially larger in-house

staffs and laboratories than STA, have independently formulated their own biotechnology targeting policies. Nevertheless, STA’S foresight with

respect to the development of biotechnology has

accorded the agency a more authoritative position for biotechnology than for other high-technology fields. *

MITI did not enter the biotechnology area until

1981. In that year, MITI reorganized itself to deal

comprehensively with the challenges of new developments in technology and established its “System for Promotion of Research on Next-Generation Industrial Technologies, ” an overall plan to

promote “next-generation” industrial technologies

(25). Three “next-generation” projects in biotechnology were established within MITI’s Basic Industries Division, and an Office of Biotechnology

Promotion was established within this division to

provide policy oversight for MITI’s biotechnology

effort and to serve as liaison between MITI’s

Biotechnology Long-Term Vision Advisory Group

and possible MITI efforts to obtain from the Jap-

*STA was involved from the beginning with its own program and

had the central role in the setting of rDNA regulations. The agency

has a policy of reviewing on a case-by+ase basis scaled-up production of genetically manipulated micmarganisms beyond 20 liters

and has been reluctant to relinquish this authority (4).

anese Diet special legislation governing the promotion of biotechnology in Japan (25). *

MAFF has more recently established the Committee on Biological Resources Development and

Utilization, which compiled a report recommending actions MAFF could take to promote biotechnology’s development (21).

In addition to STA, MITI, and MAFF, three other

Japanese Government agencies are funding R&D

in biotechnology: the Ministry of Health and

Welfare, the Ministry of Education, and the Environment Agency (26).

Federal Republic of Germany

The West German Government’s interest in the

development of old biotechnology, like that of the

Japanese Government, is more than 10 years old.

In 1968, the old Federal Ministry for Scientific

Research explicitly recognized the potential commercial importance of old biotechnology by

including it in a program to promote new technologies (15), In 1972, the newly reorganized Ministry for Research and Technology (BMFT’, Bundesministerium fur Forschung und Technologies),

along with the Ministry of Education, commissioned a report on old biotechnology from the

German Society for Chemical Engineering

(DECHEMA, Deutsche Gesellschaft fur Chemisches Apparatewesen) (7). The DECHEMA study,

completed in 1974, laid the groundwork for a

comprehensive Federal policy for the development of old biotechnology (15). In 1980, in light

of increasing evidence suggesting potential commercial applications of advances in both scientific

and engineering aspects of biotechnology, BMFT

presented its Leistungsplan: Biotechnologie, a performance plan for biotechnology (5). This plan

identified and targeted for support specific areas

in which West German industry could commercially exploit both old and new biotechnology (15).

BMFT makes policy and coordinates German

governmental activity for all biotechnology. BMFT

funds basic and generic applied research in biotechnology through a number of public and non-

“Several factors, including visible American concern with Japanese Government aid to high-technology industries, have made the

passage of such programs unlikely (25).
Ch. 20—Targeting Policies in Biotechnology ● 477

profit research centers (15). Its most important

function, however, is to oversee the development

efforts of various industries in biotechnology, and

it aids such efforts with a strong funding program

(15).

United Kingdom

The formulation of official Government interest

in the commercialization of biotechnology in the

United Kingdom dates from March 1980, with the

publication of the Spinks’ report (1). This report

identified major weaknesses in the country’s biotechnology commercialization efforts and suggested ways of correcting them. The document

elicited almost immediate Government action on

its recommendations and sparked a spirited dialog

among the various sectors with an interest in

developing and incorporating the latest advances

in this set of technologies into British industries. *

The Department of Industry is the United Kingdom’s lead department for biotechnology. Other

Government departments involved in health, energy, the environment, agriculture, and food,

however, contribute to the advancement of biotechnology within their respective sectors, primarily by funding basic research (8). In April

1982, the Department of Industry established the

Interdepartmental Committee on Biotechnology

to strengthen the existing coordinating arrangements by focusing the Government’s effort on the

commercial development of biotechnology. This

committee coordinates the activities of other

related bodies, such as the Research Councils, the

British Technology Group (BTG), and the Public

Health Laboratory Service, and serves as a point

of contact for those outside Government.

*Biotechnology and Education: Report of a J%’orking Group, The

Royal Society, 1981; Biotechnology, Cmnd 8177 (London: H. M. Stationery Office, ,March 1981); ‘l%e Strategv for Biotechnology in Britain, BCCB Seminar, London, October 1981, series of unpublished

papers, widely circulated at the time; Biotechrdogy: Interim Report

on the Protecticm of the Research Base in Biotdmology, Sixth Report

from the Education, Science and Arts Committee, Session 1981-82,

House of Comnmns Paper 289 (London: H. L1, Stationery Office, July

29, 1982).

France

Official interest in the commercialization of biotechnology in France was marked by the appearance of the Pelissolo report (23) in December 1980. Since the election of the socialists in

1980, the French Government has resolved to

push the development of several new technologies

in French industries and has accorded a privileged

position to biotechnology within this scheme.

In July 1982, the old Ministry of Research and

Technology in France was reorganized into a

new, more powerful Ministry of Research and Industry (Ministere de la Recherche et de lInhdustrie)

based on the model of Japan’s MITI (29). Furthermore, a wide-ranging research law adopted by

the French National Assembly in July 1982 stipulated a real increase in the civilian R&D budget

of 17.8 percent per year for 5 years, economic

conditions permitting, and set up seven technological “programmed, ” on which the majority

of all civilian research funds are now to be

focused (30).

Biotechnology was one of the seven “programmed)” and a Biotechnology Mission (Mission

des Biotechnologies), established in August 1981,

produced a planning document for biotechnology

in France in July 1982. This document, the “Programmed Mobilisateur: l’Essor des Biotechnologies, ” called for the restructuring of biotechnology policymaking into three separate coordinating bodies: 1) a national committee, presided

over by the Minister of Research and Industry;

2) an interministerial coordinating committee; and

3) a program team to work in daily liaison with

other Government organizations most closely involved in distributing research funds (18).

Since the publication of the “Programme Mobilisateur,” the Ministry of Research and Industry

has undergone a further restructuring. The new

name of this ministry, Ministry of Industry and

Research (Ministere de lIndustrie et de la Recherche), further reflects the efforts of French

policymakers to focus on the commercialization

of research results, including those in biotechnology (9).
478 . Commercial Biotechnology: An International Analysis

Industrialists’ role in policy formulation

Formulating a policy with the assistance of the

parties whose activities it is intended to affect

usually makes its implementation far more effective. Foreign nations competing with the United

States in the commercialization of biotechnology

have various mechanisms which incorporate industrialists into the formulation of a government

targeting policy.

Japan

In Japan, technological strategy is usually

formed by a “bottom-up” process, and the formulation of the strategy for biotechnology was no

exception. After the announcement of the CohenBoyer patent for the basic rDNA process in 1980,

five major Japanese chemical companies organized a joint study group called the Biotechnology

Forum. The Biotechnology Forum was instrumental in lobbying for the establishment of MITI’s

three major “next-generation” biotechnology R&D

projects: rDNA technology, bioreactors, and mass

cell culture (25). * Furthermore, discussions with

industrialists helped narrow MITI’s focus. A

planned “next-generation” R&D project in cell fusion was dropped, because the chemical companies working with the Basic Industries Division

of MITI were already rather advanced in this area

and because MAFF and the Ministry of Health and

Welfare were developing their own programs in

the field (25).

Federal Republic of Germany

The biotechnology policy of the Federal Republic of Germany was formulated with industry consultation. As noted above, a report on old biotechnology from DECHEMA, the private sector

research association of the German chemical

● In fact, following the award of the Cohen-Boyer patent, the Committee on Life Sciences of the Japan Federation of Economic Organizations met in alarm to discuss a Japanese response. Included at

this meeting were representatives of 30 major Japanese companies

with an interest in biotechnolo~y. The Cohen-Boyer ptent was seen

as a matter of concern because, acceding to their company sources,

the patent would affect almost any product application of rDNA

technology. Ironically, it was suggested that the United States was

designating biotechnology as a strategic national industry and was

weaving about it a network of protective patents (27).

industry (7), laid the groundwork for a comprehensive Federal policy. Much of BMFT’s funding goes to nonprofit research centers such as the

Society for Biotechnology Research (GBF, Gesellschaft fur Biotechnologische Forschung) that conduct generic applied research useful to industry

(13). The research institutes of these organizations

have boards of directors with strong industrial

representation, so their research strategy is thus

usually formed by a “bottom-up” process. *

United Kingdom

The Department of Industry launched in November 1982 a new 3-year, $30 million program

of support for biotechnology in industry (2). To

promote and monitor. its funding initiatives, the

Laboratory of the Government Chemist, part of

the Department of Industry, setup a Biotechnology Unit. The unit is headed by one official from

the Laboratory of the Government Chemist and

three full-time biotechnologists on loan from industry. The purpose of this group is to provide

industrial biotechnology expertise previously

unavailable in the Department of Industry (12).

The establishment of the Biotechnology Unit in

1982 marks the first time the British Government

has incorporated the industrial sector on a regular

basis into the policymaking process for biotechnology. Previously, the direction of the United

Kingdom’s informal involvement in biotechnology

was determined largely by Government officials

and scientists acting through already existing committees, with only occasional input from the private sector.

France

The presentation of the ‘(Programmed Mobilisateur” in July 1982 followed an intensive period

of analysis and discussion between French Government officials, research scientists, and industrialists. A product of the plan was a National

Biotechnology Committee, presided over by the

● OTA’S report US. lndustrkd C’ompetifi\’eness: A Comparison of

Steef, Electronics, and Automobiles (28) presents a general description of structural integration of business into West Germany’s policymaking apparatus, pp. 196-200.
Ch. 20—Targeting Policies in Biotechnology . 479

Minister of Research and Industry, with 30 to 40 French Government officials advocated generalmembers from the Government, academia, and ized support of R&D projects regardless of the

industry responsible for providing general prospects for successful exploitation, to the misguidance in implementing the Government pol- may of industrialists who doubted the viability

icy. In the past, the industrial policy of France has of some of the projects designated to receive Govbeen more autocratic than that of West Germany ernment support (29).

or Japan (31). For biotechnology, enthusiastic

Policy goals

An examination of the goals of foreign biotechnology policies indicates that the domestic

development of biotechnology, rather than the

advancement of knowledge per se, is their foremost objective.

Japan

Japanese Government programs for biotechnology R&D are concerned specifically with the

development of Japanese industry.

MITI’s interest in biotechnology has been almost

exclusively related to a more general program of

structural adjustment for Japan’s extremely depressed basic chemicals industry (24,25). MITI’s

three “next-generation” biotechnology R&D projects are part of a 10-year program that is specifically designed to develop and diffuse biotechnology among Japanese companies. According to a

recent MITI policy statement, it is not feasible to

rely on the private sector for biotechnology-related research that involves huge economic risks,

so “the Government itself must take the initiative

in such R&D, while at the same time offering assistance to private corporations in various forms

to expedite this R&D” (19).

STA also is directly concerned with providing

the technological underpinning for industrial

advancement in Japan. The essential distinction

between the STA and the MITI biotechnology

projects is that the former concentrate on medical

applications and longer term development of advanced bioreactors, whereas the latter are mainly

concerned with fine chemicals, biological routes

to production, fertilizers, and enzyme technology

(25).

Federal Republic of Germany

According to a September 1979 BMFT statement, a primary goal of Germany’s Federal biotechnology policy is “to establish the preconditions

for industrial innovation in this key area of

technology” (15). Another goal is “to strengthen

the performance and competitive capacity of the

German economy in long-range growth-oriented

areas, in the process, correcting weaknesses

revealed through international comparison and

preventing distortions in Germany’s competitive

position” (15).

United Kingdom

While the British Government recognizes the

potential of biotechnology, it is fairly guarded

about the objectives of its biotechnology policy.

The Minister of Industry has stated that “many

developments are only now beginning to emerge

from the research phase, and the direction of development for commercial exploitation remains

uncertain. In addition, new biotechnological techniques and processes may well emerge over the

next 20 years with benefits as yet unforeseen”

(8). Clearly, however, the British Government intends to assist the country’s industries in realizing the commercial potential of biotechnological

developments as such developments appear (8).

France

The French Government “Programme Mobili -

sateur” plans to remedy the present deficiencies

in qualified personnel and spending levels for
480 ● Commercial Biotechnology: An International Analysis

R&D in biotechnology in French industry and the should account for 10 percent of the world

lack of public sector applied research in 5 years. market in the “bioindustries” (not defined) in 1990,

According to the document, French companies compared with an estimated 7.5 percent now (18).

Policy implementation

Examples of the mechanisms used to implement

biotechnology targeting policies in Japan and

other countries illustrate the variety of forms

which biotechnology targeting policies can take.

Several examples are cited below. For more information on government funding, see Chapter

12: Financing and Tax Incentives for Firms and

Chapter 13: Government Funding of Basic and Applied Research.

Japan

The activities of STA’S Office for Life Science

Promotion are shown in figure 32. As shown in

the figure, the Office is funding two goal-oriented

research projects in biotechnology. These projects

are to be carried out in 10 years by research

groups whose members are affiliated with Japanese universities and research institutes (26). One

of the projects, the project on the development

of bioreactors, aims to develop what the Japanese

call “second generation” bioreactors and includes

computer control, biochemistry, and systems design. STA has encouraged an interdisciplinary approach to the project by inviting a variety of Japanese companies skilled in various aspects of biotechnology to participate. This approach has been

very productive (24). As shown in figure 32, the

Office for Life Science Promotion is providing supFigure 32.—Activities of STA’S Office for Life Science Promotion
Ch. 20—Targeting Policies in Biotechnology ● 481

port for rDNA research. This support includes

funding for the construciton of facilities. In 1982,

construction was begun on a P-4 (highest physical

containment level) facility in which experiments

in genetic manipulation can be performed in Tsu -

kuba Science City (26). In 1980, as one of the Office for Life Science Promotion’s projects for the

promotion of research services, the Japan Collection of Micro-Organisms was constructed to collect, preserve, and supply micro-organisms (26).

STA is implementing its policy in part through

the general Newr Technology Development Fund.

This fund has already commenced funding a

number of biotechnology-related projects. A $4

million grant to the pharmaceutical company

Green Cross in March 1980, for example, launched

Green Cross into the international arena of competition in pharmaceuticals by enabling it to conduct research on rDNA methods for the production of alpha interferon (25).

MITI’s three next-generation biotechnology

projects, which are targeted to establish and diffuse scale-up techniques among companies, are

even more illustrative of Japanese Government

cooperation with industry. MITI has invited 14

companies to participate in the projects on a longterm (l O-year) basis* and will provide allocations

over 10 years of $43 million each to both the

rDNA and bioreactor projects and $17 million to

$22 millon for the mass cell culture project (10).

Although some 10 percent of the R&D work (by

expenditure) for MITI’s biotechnology projects is

being conducted in the national laboratories** of

the Agency for Industrial Science and Technology,

the bulk of the work (90 percent) is conducted

in industry laboratories. To facilitate coordination by the Office of Biotechnology Promotion and

the Next-Generation Research Coordination Bureau of MITI’s Agency for Industrial Science

and Technology, the 14 companies receiving

grants under the next-generation biotechnology

“The bioreactor project has been di~rided into two subprojects

with Llitsubishi Chemicals as the overall leader. Sumitomo Chemi.

cals is the leader of the rDNA project, and Kyowa Hal&o is the leader

of the mass cell culture project (25).

● ● These include the Fermentation Research Institute, National

Chemical Laboratory for lndustrv, Research Institute for Polymers

and Textiles, Government Indusfial Research Institute, and Institute

of Physical and Chemical Research (25).

projects have been organized into the Biotechnology Development Research Association. This

association has its own central office through

which the various companies communicate with

MITI, but otherwise there are no intercompany

institutions (e.g., there are no common laboratories being maintained by the companies). MITI

subsidies to these companies cover 100 percent

of all direct expenses (salaries and laboratory expenses) for biotechnology R&D, but no overhead

is allowed and any capital equipment purchased

is nominally the property of the Japanese Government. Furthermom, all patents resulting from the

work belong to the Japanese Gmernment, which,

MITI has assured other companies, both domestic

and foreign, will be freely available (14).

MAFF also is actively promoting cooperative

research with private industry at its laboratories

and is currently funding work with both Nippon

Shokuhin Kako and Oriental Yeast at the National

Food Research Institute and with Kao Soap at the

National Institutes of Agricultural Sciences. Further joint research is planned in the areas of plant

breeding and species improvement with private

seed companies. Achievements from the research

are used jointly by Government and industry,

but those companies that participate in the research projects receive exclusive licensing rights

to the patents resulting from these projects for

3 years (22).

Federal Republic of Germany

BMFT implements its biotechnology targeting

policy in the Federal Republic of Germany

through three categories of support. One category

is funding for already existing schemes for industrial development. Another category is funding

for third-party organizations to which BMFT contributes as part of more generalized funding programs for all areas of public research. GBF is the

foremost example of such an organization. Originally founded to conduct generic bioprocessing

research to meet the needs of industries (17), GBF

employs 365 people and has a budget (1982) of

$13 million (DM31 millon), of which 89 percent

came from BMFT (13). GBF’s current activities include general development of bioprocess technology, scale-up of laboratory processes, screening
482 . Commercial Biotechnology: An International Analysis

United Kingdom

Findings

*This is the right to choose whether or not to produce and market

any good or sewice without having to bid competitively with other

firms.

The governments of four leading industrialized and France-have instituted programs to target

competitors of the United States—Japan, the Fed- the development of certain areas of biotechnoleral Republic of Germany, the United Kingdom, ogy. The targeting policies are intended to reduce
Ch. 20—Targeting Policies in Biotechnology ● 483

economic risk and lessen corporate duplication

in biotechnology R&D.

The governments of these four countries took

an interest in biotechnology at different times.

The governments of both the Federal Republic

of Germany and Japan identified the life sciences

in the early 1970’s as an area worthy of special

government and private sector assistance. Those

of France and the United Kingdom, on the other

hand, realized the industrial importance of biotechnology only recently, primarily as a result of

the recent advances in molecular biology.

The centralization of government activities

varies among countries. In France and the Federal

Republic of Germany, the direction of all activities,

from basic research to industrial development,

is centralized in a single ministry: the Ministry

of Industry and Research in France and BMFT in

Germany. In the United Kingdom, the Department

of Industry is responsible for articulating and

executing the Government’s policy to commercialize biotechnology, but it must work with other

departments that are concerned with the development of science in specific fields, In Japan, at least

three Government departments have major biotechnology policies of their own.

These four foreign countries have various processes by which industrialists are brought into the

formulation of their commercial biotechnology

policies. Japan, France, and West Germany have

a long history of involving industrialists. The

United Kingdom, on the other hand, has only

been officially involving industrialists in the formulation of its biotechnology policy for a short

period.

The mix of policy measures to encourage industrial innovation in biotechnology assumes a variety of forms within each country. In Japan and

the Federal Republic of Germany, the governments carry out their policies partly in the form

of joint R&D projects with industry. These projects concentrate the resources of the government

and private companies to meet specific objectives

set by the government. In some cases, the com -

panics have exclusive rights to the resulting

patents; in other cases, the patents are made available to all interested parties. The British and

French Governments, in addition to providing

support for specific projects, have adopted a different sort of approach: the organization and support of small firms, such as Celltech in the United

Kingdom and Immunotech in France, to commercialize the results of government-funded basic and

generic applied research.

At this early stage, any evaluation of the foreign

targeting programs’ probability for success is preliminary. History has shown that even the best

thought-out targeting policies do not guarantee

competitive success. whether the targeting policies of Japan, the Federal Republic of Germany,

the United Kingdom, or France are superior to

the U.S. Government policy of funding basic research in the life sciences and encouraging R&D

in all industries with tax credits remains to be

seen. The united States currently leads the world

in the commercialization of biotechnology. A1-

though targeting policies may not be of great importance when compared with other competitive

factors, they could tip the balance of equivalent

competitive situations in the future.

Issue

ISSUE: How could the U.S. Government taken, however, several targeting mechanisms

target biotechnology? might be considered.

It is beyond the scope of this report to evaluate The mechanisms for targeting biotechnology in

whether the commercialization of biotechnology France, the United Kingdom, the Federal Republic

is of sufficient importance to the U.S. economy of Germany, and Japan range from highly coordias a whole to warrant targeting efforts by the U.S. nated to loosely organized, but all reflect some

Federal Government. If such efforts are under- combination of the following:
484 Commercial Biotechnology: An International Analysis

●

●

●

Firm-specific assistance. Firm-specific assistance involves choosing a single company or

group of companies for assistance from the

government in jointly agreed upon areas of

high-risk R&D. The companies chosen sometimes perform the subsidized research in

consortia.

Industrywide assistance. Industrywide assistance involves providing government assistance to all companies that perform R&D in

a particular area (or funding R&D in a national laboratory open to all interested industry participants). Low-interest loans or tax

credits for R&D and procurement of new

products are methods commonly used.

An interagency coordinating committee. An

interagency oversight committee without the

authority to set goals or grant subsidies facilitates coordination of the policies and

actions of government agencies and periodically recommends action through the appropriate agencies to address problems hindering the development of biotechnology.

The U.S. Government would probably have to

avoid actions in the category of firm-specific

assistance. If the U.S. Government were to select

a few companies for subsidies, demands for equal

assistance would probably arise from the companies that did not receive subsidies.

For U.S. Government policies in the category

of industrywide assistance, there are historical

precedents. The types of U.S. Government support that were provided for the U.S. semiconductor industry in its early years are described in

Appendix C: A Comparison of the U.S. Semiconductor Industry and Biotechnology. As it did in

the case of the U.S. semiconductor industry, the

U.S. Government could provide or guarantee lowinterest loans for high-risk R&D in biotechnology.

It could also guarantee Government procurement

of certain products to eliminate some market size

uncertainties. A commitment by the Federal Government to purchase certain drugs developed by

biotechnology could spur R&D that otherwise

might not be undertaken.

The third mechanism, an interagency coordinating committee, would probably raise the

fewest objections in the United States but would

also be the least substantial. The defunct Interagency Working Group on Biotechnology of the

White House Office of Science and Technology

Policy temporarily served this function and

presented its recommendations to the Office of

Science and Technology Policy in June 1983 (11).

Earlier chapters of this report have outlined

options that could improve U.S. competitiveness

in biotechnology. The adoption of the most acceptable of these options in a coordinated fashion

would be one way in which the U.S. Government

could target biotechnology.

Chapter 20 references
Ch. 20—Targeting Policies in Biotechnology . 485

9. .

1 (),

11,

12,

13.

14.

15,

16.

17.

18.

19.

20.

21.

22

23.

24.

25.

26.

27.

28.

29.

30.

31.
Chapter 21

Public Perception
Contents

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489

Public Perception in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489

The Public and the Policymaker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489

Factors Influencing Public Perception of Genetic Research and Technology. . . . . . . . . 49o

Arguments Raised in Debates Over Genetic Research and Technology . . . . . . . . . . . . . 492

Difficulties in Weighing the Risks) Costs, and Benefits of Genetic Research and Technology 494

Influence of the Media on Public Perception of Genetic Research and Technology . . . 49s

Surveys of Public Perception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496

Implications of Public Perception for Competitiveness in Biotechnology . . . . . . . . . . . . . . 497

Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499

Issues and Policy Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499

Chapter 21 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499
Chapter 21

Public Perception

Introduction

Public perception of genetic research and technology is a factor that could influence the rate

of commercialization of biotechnology. This

chapter considers the factors that may affect

public perception of genetic research and technology. As it does not consider the many ways

by which the public might express its perceptions,

it does not describe various methods that have

been or could be used for public participation in

decisionmaking processes, nor does it consider

the arguments advanced for each.

Most of the discussion in this chapter is centered on the United States. One of the final sections considers the relative influence of public

perception on the commercialization of biotechnology in the United States and foreign countries.

For issues and policy options, readers are referred

to OTA’S April 1981 report Impacts of Applied

Genetics: Microorganisms, Plants, and Animals

(29).

The discussion in this chapter goes beyond biotechnology as defined in the rest of this report,

and, for that reason, uses the broader terms “genetic research” and “genetic technology These

broader terms include directed manipulation of

genes in human beings. Biotechnology, as defined

in this report, does not include directed change

of genes in human beings and is limited to industrial applications of new genetic technologies to

produce useful substances, to improve the characteristics of economically significant plants and

animals, and to act on the environment in useful

ways. Because the public does not always make

a clear distinction between industrial applications

of novel genetic technologies and the manipulation of genes in humans, biotechnology can elicit

public concerns that are based on incomplete

knowledge and sometimes erroneous assumptions.

Regardless of the accuracy of public perceptions

about biotechnology, however, these perceptions

could influence the rate of commercialization.

Public perception in the United States

The discussion that follows begins by considering the U.S. policymaker vis-a-vis the public on

issues related to science and technology. It then

describes various factors that influence public

perception of biotechnology in the United States.

It also reviews some arguments frequently raised

in debates over genetic research and technology,

considers difficulties in assessing risks and benefits of genetic research and technology, discusses

the influence of the media on public perception

of biotechnology, and provides some survey data.

The public and the policymaker

In a democratic society, where decisions are

made by elected representatives, the public plays

a vital role in the acceptance of new technology

and the directions in which it will be applied (2).

That public beliefs can significantly influence U.S.

policymakers with respect to biotechnology is

illustrated by the changing attitudes of policymakers in Massachusetts. In 1976, Boston Mayor

Alfred Vellucci argued strongly for major controls

on research and development (R&D) using recombinant DNA (rDNA) technology in Boston and

Cambridge, As a result, the Cambridge Experimental Review Board was established to determine whether additional protection for citizens

was needed beyond that provided by the National

Institutes of Health (NIH) Guidelines for Research

Involving Recombinant DNA Molecules (NIH Guidelines). * Mayor Vellucci’s position may be con-

““rhe NIH Guidelines for Research Involving Recombinant DINA

klolecules are discussed along with the rDNA research guidelines

of other countries in Chapter 15: Health, Safetwv, and En\7ironmen -

tal Regulation and Appendix k“: Recombinant D,VA Research

(guidelines, ih~ironmental Lawrs, and Regulation of Vt’orker Health

and Safetti\’.

489

25-561 0 - 84 - 32
490 . Commercial Biotechnology: An International Analysis

trasted with that taken by then Massachusetts

Governor King when he addressed Harvard University’s symposium on “New Partnerships in Biotechnology” in 1982. Governor King pledged his

assistance to the establishment of commercial biotechnology firms in the State. The different positions taken by Mayor Vellucci and Governor King

reflect, in part, the changes in public concern over

the risks posed by rDNA technology.

Although the level of U.S. public concern about

R&D involving rDNA appears lower now than it

was in the late 1970’s, it is not nonexistent. As

of June 1982, two States and nine municipalities

had passed laws and resolutions relating to control of rDNA R&D. The two States are New York

and Maryland. With the exception of Princeton,

N.J., the municipalities are located in Massachusetts (Amherst, Boston, Cambridge, Newton,

Somerville, and Waltham) and California (Berkeley

and Emeryville). It is interesting to note that all

local municipalities involved in formulating laws

or resolutions are the sites of, or located near,

major centers of corporate and university research activity in rDNA. Although most of this

legislative activity took place in the late 1970’s,

several municipalities in Massachusetts either

amended or originated ordinances or laws in

1981. At a minimum, the laws extend the NIH

Guidelines from institutions receiving NIH funds

to all public and private institutions conducting

rDNA research. Some of them also establish additional occupational and environmental safety requirements (15).

In light of the developments noted above, U.S.

policymakers probably can expect to be increasingly involved in biotechnology issues. one issue

in biotechnology is the amount of consideration

that should be given to the unanticipated consequences of deliberately releasing into the environment products of rDNA technology (e.g., modified

plants or microbes with improved capability for

mineral leaching or pollution control). But this is

just the opening wedge to a wider range of societal concerns that are emerging as new knowledge

leads to new capabilities, The potential capabilities

of genetic research and technology include

human gene therapy, gene surgery, and estimation of differential susceptibility to disease based

on differences in genetic traits.

An accident or perceived negative consequence

involving genetic research or technology could

stir up public fears and have a sizable impact on

biotechnology’s further development. This observation is true especially in the United States,

where public involvement in the debates surrounding rDNA technology in its early years was

very strong compared with public involvement

in other Western democracies.

Factors influencing public perception

of genetic research and technology

The Organisation for Economic Co-Operation

and Development identified the following characteristics of science and technology issues that distinguish these issues from other public controversies (18):

. rapidity of change;

 the raising of new issues;

● scale , complexity, and interdependence

among technologies;

. irreversibility of effects;

● strong public sensibilities about real or imagined threats to human health; and

● challenging of deeply held social values.

OTA’S April 1981 report Impacts of Applied Genetics: Micro-Organisms, Plants, and Animals (29)

noted that these factors were especially applicable to advances in genetics and that they helped

to explain the public controversy over the safety

of rDNA technology. The same factors remain applicable to advances in genetics today. Some are

discussed below, along with other factors that

may elicit positive, negative, or mixed public reactions to developments in genetic research and

technology.

THE TECHNOLOGY IS PERCEIVED TO

ENDANGER BASIC HUMAN NEEDS

Some new developments in science and technology are far more threatening to the societies

in which they arise than are other developments.

In an attempt to understand and predict which

emerging technologies will be most threatening,

and hence be most likely to raise issues for policymakers, E. W, Lawless makes the reasonable

assumption that public concern with a new technology will vary in direct proportion to the degree
Ch. 21—Public Perception ● 491

that the technology is perceived to affect basic

human needs (16). The greater the importance

of an individual or societal need, and the greater

the impact of the new technology on that need,

the greater will be public concern.

At the top of the list of important individual

needs developed by Lawless are the functions

controlled by the nervous system, and particularly by the brain. Genetic technology has the

potential to alter the functioning of the human

brain, affecting attitudes, emotions, learning, and

memory. Besides the concerns associated with the

technology’s potential to alter these characteristics

per se, genetic technology may arouse deeper

concerns that relate to an individual’s sense of

self. Aspects of self derive from each person’s

most basic characteristics—tendencies to elation

or depression, ambition or sloth, and extroversion

or introversion, to name a few. If these characteristics can be modified, what happens to an

individual’s unique, inviolate self?

The most fundamental societal need identified

by Lawless is sexual activity, reproduction, and

family organization. He notes (16):

. . . any events or practices which portend a

threat to man’s reproduction or care of children

cause immediate and serious alarm. Technologically related cases involving materials which are

mutagenic (cause genetic damage) or teratogenic

(cause congenital deformities) receive wide coverage by the news media and attention by the

public—the announcement that LSD may cause

chromosome breakage apparently caused much

more concern to its users than other stated hazards, and the thalidomide case is almost classic.

The application of genetic technology to the production of useful industrial substances is not

always clearly distinguished from the genetic manipulation-or “genetic engineering’’-of higher

organisms. Following Lawless, if biotechnology

is associated with the capability to alter human

reproductive cells, and hence future human generations, it is likely to be perceived as threatening.

TERMINOLOGY

As has been pointed out by various authors

(20,21), some of the terminology of applied genetics has negative overtones. The phrase “genetic

engineering, ” for example, may raise Frankenstein-like subconscious fears when associated

with human application. ‘(Cloning” of genes, a

basic technique of rDNA technology, can be confused in the minds of those who are not expert

in the field with the cloning of individual human

beings. Because language is widely understood to

influence perception, the problem of terminology

is not a minor one. Terms that are widely used,

however, even though inaccurate, misleading, or

imprecise, are not easily changed.

PERCEPTION OF BENEFITS FROM

B1OTECHNOLOGY

Biotechnology appears to offer potentially major

positive contributions to diverse aspects of life.

Economic benefits (e.g., cheaper chemicals and

drugs), health benefits (e.g., cures for cancer,

schistosomiasis, and herpes; improved diagnostic

tools), agricultural benefits (e.g., saline-tolerant or

pest-resistant plants, a vaccine for foot-and-mouth

disease), and even decreased dependence on foreign oil (e.g., substitution of biomass for petroleum feedstocks, production of fuel alternatives)

are envisioned. * To the extent that these benefits

are perceived by the public, their perceptions of

biotechnology are likely to be positive.

NIH GUIDELINES FOR

RECOMBINANT DNA RESEARCH

Biological scientists were instrumental in bringing about the NIH Guidelines for Research Involving Recombinant DNA Molecules that established

safety procedures for rDNA research conducted

with NIH funds. The NIH Guidelines apply only

to work supported by NIH funds, but other U.S.

Government agencies have adopted them voluntarily. As far as is known, private industry

observes them as well.

On the one hand, the history of the NIH Guidelines should produce a positive perception of

responsible action with regard to genetic research

and technology by the scientists concerned and

the Federal Government. On the other hand, NIH

is in a position of potentially conflicting interests.

It serves both as a quasi-regulator of genetic

research through the NIH Guidelines and as a promoter of genetic research through its sizable

“For a re}rimt of the state of the art in achieving these benefits,

tht’ reader is referred to chs. 5 through 10 of this report,
492 . Commercial Biotechnology: An International Analysis

funding of genetic research. The degree to which

the public perceives a potential conflict of interest

and its influence on public perception of biotechnology are unknown.

THE IMAGE OF THE SCIENTIST

Some members of the public appear to be dismayed by the fact that some scientific researchers

have turned into entrepreneurs. The question of

the appropriateness of private gain from research

supported by public funds was aired as part of

joint hearings in 1981 and again in 1982 by the

Subcommittee on Investigations and oversight

and the Subcommittee on Science, Research, and

Technology of the U.S. House of Representatives

(26,27).

There is no reason that scientists should not

share in financial rewards that accompany application of the results of their research, but the

deliberate pursuit of profits makes a scientist also

a businessman. It can be argued that a major reason for supporting research with public funds is

that such research leads to commercial products

that benefit society and also generates more

public funds through taxes levied on new businesses. However, the fact that some scientists

have become millionaires through corporations

they have helped to establish has disturbed some

people. Simple envy is not the sole reason for

unease; more important may be the public image

of the scientist. Although U.S. cultural tradition

has supported, and even encouraged, the entry

of engineers and inventors into the business

world (e.g., Edison), it has not done the same for

individuals with established careers in pure

science. *

COMMENT

A fundamental reason that rDNA technology

may be “so inflammatory” is that it elicits a mixture of concerns from many categories (9). These

concerns range from perceived positive benefits

to fears associated with research on human subjects. The point for the policymaker is that,

because of the wide range of concerns, genetic

research and technology is a volatile area, one

“For a discussion of’ universit~/industr.y relationships in biotechnology, see Chapter 17. [Jniversit.vdndus[qv Relationships.

where the smallest incident may raise heated

public emotions.

Arguments raised in debates over

genetic research and technology

Five broad categories of arguments that are frequently raised in debates over genetic research

and technology are briefly summarized below. It

should be noted that the discussion that follows

is in the simplest possible terms. The purpose is

to indicate some topics of controversy rather than

to describe the considerable subtlety of some of

the positions that have been taken.

FREEDOM OF INQUIRY

Some people argue that scientists should be free

to pursue any inquiry they choose, and hence that

genetic research should not be restricted in any

way. Others disagree and feel that at least some

forms of research are subject to restraint, H.

Jonas takes the latter position and argues that

unqualified free inquiry ceases as a preeminent

right when science moves from contemplation to

action (12). As soon as science involves action (e.g.,

conducting experiments with real apparatus and

real subjects) rather than just thought, it is subject

to legal and moral restraints, as all actions are,

RISK OF CATASTROPHIC CONSEQUENCES

Some people argue that genetic research should

be banned unless the risk of catastrophic consequences can be shown to be zero. At the other

extreme, some people argue that any level of risk

is acceptable. Although either of these extreme

positions may be taken by individuals, neither is

likely to be taken by society. What constitutes an

acceptable level of risk of catastrophic consequences, however, is a major societal issue, in part

because of the difficulty of assessing both risks

and benefits. The fundamental disagreement on

both this and the preceding topic is where the

line is to be drawn between two extreme positions

that can be taken. The position of the line is a

societal decision that is never permanent and that

varies across cultures and over time.

THE TECHNOLOGICAL IMPERATIVE

Some people argue that what is technologically

possible will eventually be done, regardless of
Ch. 21—Public Perception 493

moral and ethical guidelines. Others disagree. As

S. P. Stich points out, successful animal breeding

has been carried out for centuries, yet controlled

breeding is not done in humans even though it has

been known for a long time that it could be (24).

Thus, people have differing views on whether society is capable of deciding when genetic manipulation of traits is and is not permissible.

“WE SHOULD NOT PLAY GOD”

Some opponents of genetic research argue that

humans should not “play God” by manipulating

the genes of other organisms or themselves. Despite its use of the term “playing God, ” this argument is based on areligious as well as on religious

grounds. Both types of arguments are briefly considered below.

To opponents of genetic research who argue

on religious grounds that humans should not manipulate genes, proponents respond that humans

have manipulated the genes of other organisms

for thousands of years. Long before the laws of

genetics were known, humans were successful

in changing the characteristics of plants and

animals by selectively breeding them for desired

characteristics. In addition to altering the genes

of other organisms, humans also have altered

their own gene pool. Throughout history, because

some persons are more desirable than others as

mates, some genes have tended to increase in the

gene pool while others have tended to decrease.

More recently, medical advances have permitted

persons with genetic diseases, such as hemophilia

and phenylketonuria, to live and reproduce (17).

But, opponents argue, the genetic changes that

have been brought about so far have been limited

and did not involve crossing fundamental species

barriers. So far, this argument is correct in that

species are defined by the fact that fertile hybrids

between them do not occur in nature. However,

some opponents of research involving genetic

manipulation further argue that the forces of

evolution have led to separation of the species and

that breaking down the separation will be deleterious or separation would not have occurred

in the first place. The accuracy of this argument

is not known.

As noted above, arguments for a prohibition

against genetic research are sometimes based on

religious grounds. Fundamentalist and religious

objections have played a major role in U.S. debates

over genetic research and technology in the past

and are likely to continue to do so in the future.

Recognizing the importance of religious views in

such debates, the President’s Commission for the

Study of Ethical Problems in Medicine and Biomedical and Behavioral Research (hereafter referred to as the President’s Commission) asked

the General Secretaries of the National Council

of Churches, the Synagogue Council of America,

and the United States Catholic Conference to

“elaborate on any uniquely theological considerations underlying their concern about gene splicing

in humans” (2 I). The scholars concluded (21):

. . . contemporary developments in molecular

biology raise issues of responsibility rather than

being matters to be prohibited because they

usurp powers that human beings should not possess. The Biblical religions teach that humans beings are, in some sense, co-creators with the

Supreme Creator.

Furthermore, Pope John Paul II, who has been

critical of genetic manipulation, “recently told a

convocation on biological experimentation of the

Pontifical Academy of Science of his approval and

support for gene splicing when its aim is to

‘ameliorate the conditions of those who are affected by chromosomic diseases, because this offers hope for the great number of people affected

by these maladies’ “ (21).

It should be noted, however, that the religious

community’s position is in a state of flux. As illustration, a resolution was issued on June 8, 1983,

that urged the U.S. Congress to ban genetic

changes affecting human reproductive cells. The

resolution was signed by 64 religious leaders representing several faiths. The actual positions of

the signatories of the resolution are difficult to

decipher, because some church officials who

signed the resolution appear to be in favor of

genetic changes that would repair the effects of

genetic diseases. Some forms of genetic defect,

such as Tay Sachs disease, may be best eliminated

through changes that affect the reproductive

cells. Such changes would be banned by the resolution (3)11,14)19).
—

494 ● Commercial Biotechnology: An International Analysis

GENETIC DIVERSITY

Another area of controversy is the potential

effect directed genetic manipulation may have on

genetic diversity, i.e., the total number of different

kinds of genes available to a population. All

members of a given species can mate with any

other member of that species, so the total number

of genes available to the species population is the

sum of all the different kinds of genes in all

members of the population. Nevertheless, certain

combinations of genes may be perceived as particularly desirable. In agriculture, for example,

most farmers in a given location often plant the

same strain of a particular crop that they perceive

as especially desirable; then all members of that

crop in a given location are genetically identical.

When a new pest threatens the crop, much of

the crop will be lost, because the genetic similarity of the plants results in a similar susceptibility to disease. The corn blight of 1970 is a case

in point (10).

Opponents of directed genetic manipulation

fear that it may result in increased genetic uniformity with a consequent loss of a species’ resistance to future threats. Whether such fears are

justified depends, of course, on how the organisms resulting from genetic manipulation are

used.

COMMENT

Genetic technology, particularly when direct

applications to humans are considered, raises

strong public concerns. The degree to which public concerns about direct human applications of

genetic research and technology are likely to influence the commercial development of biotechnology as defined at the outset of this report is

unclear. Some influence is likely, however,

because of a failure on the part of the public to

make a clear distinction between human and nonhuman applications of genetic technology, a problem that is exacerbated by multiple uses of terms

such as cloning.

Difficulties in weighing the risks,

costs, and benefits of genetic research

and technology

The central question raised by genetic research

and technology is how risks, costs, and benefits

are to be weighed. This is a question surrounded

by problems.

One problem is that of establishing the probabilities that various risks and benefits will occur.

Some probabilities can be estimated more accurately than others because of differences in the

assumptions that must be made and in the availability of data that are useful in making estimates.

Estimating the probability that an organism will

escape from a laboratory, for example, involves

different assumptions than estimating the probability that an organism released to the environment (e.g., a genetically modified plant or a

microbe designed to control oil spills) will adversely affect that environment.

Then, there is the problem of measuring benefits, risks, and costs, First, it is necessary to decide

whether the measure should be in economic

terms (i.e., dollars) or human terms (e.g., lives

saved or lost, illnesses prevented, or some

measure of quality of life). If a measure can be

selected, then there is the problem of applying

it. Furthermore, if different measures are appropriate for costs, benefits, and risks, how should

they be compared? Although methods have been

developed to deal with these questions, including

cost-benefit and cost-ffectiveness analysis, they

are always fraught with assumptions that become

particularly acute with a new technology. *

Finally, like most new technologies, some applications of the new genetic technologies will have

consequences that cannot be envisioned. These

“For a discussion of some of the limitations of techniques such

as cost-benefit analysis and cost~ffectiveness analysis, see OTA’S

1980 report 7he Implications of Cost-Effectiveness Anafysis of

Medical Technology (28).
Ch. 21—Public Perception 495

consequences may be high in benefit or high in

cost, but some are certain to alter significantly

any calculations that are made today.

In sum, assessment of benefits, risks, and costs,

except where empirical data are available, is a

subjective rather than an objective process, as is

the assigning of relative value to various benefits,

risks, and costs. Unfortunately, the most interesting and significant contributions of genetic research are those for which there are no empirical data. While risk assessment analysis was helpful several years ago when concern focused on

the safety of laboratory research with rDNA, it

may be of little use in considering many issues

that may emerge as the technology matures, such

as whether to release genetically modified organisms to the environment,

What, then, can be done? In a thoughtful analysis of gene splicing as applied to humans, the

President’s Commission recommends that an

oversight group be established (21):

. . . through which the issues generated by genetic engineering can continue to receive appropriate attention. These issues are not matters for a

single day, deserving of only occasional attention.

They will be of concern to the people of this country—and of the entire globe—for the foreseeable

future; indeed, the results of research and development in gene splicing will be one of the major

determinants of the shape of that future. Thus,

it is important that this field, with its profound

social and ethical consequences, retain a place at

the very center of “the conversation of mankind.”

The President’s Commission suggests several objectives to guide the oversight group. Education,

it states, should be a primary responsibility—

education of the public about science and education of the scientific community about the social

and ethical implications of emerging capabilities

in genetic technology.

That Congress may perceive that the recommendation of the President’s Commission for an

oversight body reflects a broader public interest

is suggested by the introduction of H.R. 2788 to

the 98th Congress (Apr. 27, 1983) by Representative Albert Gore. H.R. 2788 would establish the

President’s Commission on the Human Applications of Genetic Engineering. The proposed Commission would review developments in “genetic

engineering” that have implications for human

application and examine the medical, legal, ethical,

and social issues that might accompany such application. As of this writing, H.R. 2788 has been

incorporated into the Health Research Education

Act of 1983, H.R, 2350.

Influence of the media on pubIic

perception of genetic research

and technology

The media bring knowledge of new discoveries

and applications of genetic research to the attention of the public and thereby play a role in public

perception of biotechnology. The role of the

media extends beyond simple reportage of facts,

however, because television, radio, and print

media have time or space limitations that result

in selective coverage. In selecting items for coverage, the media impose value judgments on the

relative worth of possible news items. The media

also determine how the items they consider newsworthy will be covered and thus vary the amount

of coverage and the tone of coverage. Thus, it is

helpful to explore the role of the media in public

perception of biotechnology further.

June Goodfield, in an essay entitled “Reflections

on Science and the Media” (8), traces the shifting

relationship between scientists and the media in

American society and the reasons for present day

dissatisfaction between these two groups. Goodfield’s orientation is to the public, which, she

believes, both professions serve. The media and

scientists, Goodfield observes, share a common

aim in their respective spheres, namely, “the

public expression of truth.” Different pressures,

however, constrain achievement of this ideal for

each profession. Constraints on the print media

include the need to create interest, the basic structure of newspaper reports, and the constant need

for newness. The problems are exaggerated for

radio and television. Scientists, on the other hand,

are constrained by the nature of their work and

their methodology. No scientist likes to “go public”

before being sure that his or her findings are reproducible. The tendency among scientists, therefore, is toward caution. There is also, for a variety
496 . Commercial Biotechnology: An International Analysis

of reasons, an aversion among scientists to popularization. Thus, the different forces acting on

each profession tend to polarize scientists and the

media rather than bring them together.

In considering the relationships among scientists, the public, and the media, Goodfield is particularly concerned with three aspects: 1) the obligation of science to inform, 2) the duty of the

public to become informed, and 3) the appropriate

role of the journalist relative to science and the

public. The journalist, she believes, not only must

help the public distinguish what is factual from

what is speculative but also must help people

judge between scientists who differ.

Some of Goodfield’s observations are echoed by

William Stockton, former Director of Science

Times of the New York Times. At a recent New

York Academy of Sciences meeting, Stockton cited

an increasing number of science publications,

such as Science 80 and the Science Times, as indicators that scientific journalism is moving into an

era of scientific interpretation (25).

The possible roles for the media vis-a-vis genetic research and technology include:

. reporting the facts;

● separating facts from speculation;

● presenting issues;

 indicating which individuals or groups have

a stake in each side of an issue and why;

● promoting, or downplaying, specific aspects

of genetic technology; and

● educating the public in genetic science and

technology, both their methods and their

content.

Although many media people would probably

claim that their role is limited to reporting the

facts and separating these from speculation, their

role is clearly larger. The media promote or

downplay a technology, if only by virtue of the

fact that some news items are selected for print

or featured in a radio or television spot while

others are rejected. Furthermore, the media’s promotional role is sometimes far more active than

simple selection.

Surveys of public perception

Given all the above, it is reasonable to ask for

actual data on public perception of biotechnology,

or at least of the broader area of genetic research

and technology. Unfortunately, such data are

extremely limited.

Two early surveys of the U.S. population were

conducted in the 1970’s with the following results

(6):

●

●

In 1977, the National Assessment of Educational Progress surveyed the attitudes of

adults 26 to 35 years in age toward rDNA

technology. About two-thirds of the respondents opposed its use on any life form.

In 1979, the National Science Board conducted a survey of 1,635 adults. Sixty-five

percent of the respondents believed that

studies relating to creating new life forms

should not be conducted.

In the 1980’s, Cambridge Reports, Inc., included

five questions on “genetic engineering” in its

survey for the first quarter report of 1982 (5) and

one question on behalf of the American Chemical

Society in its survey for the firstquarter report

of 1983 (1). The responses to the five questions

in the 1982 survey showed (5):

●

●

●

About half the people surveyed either hadn’t

heard the phrase “genetic engineering” or

wouldn’t guess what it meant.

Of those who had heard of private corporations “getting into the field of ‘geneti c

engineering’ or biotechnology” (roughly 40

percent), and who were willing to take a position as to whether this was good or bad, positive sentiments (15 percent) outweighed negative (8 percent) by almost two to one.

Of those expressing an opinion about “genetic

engineering, ” 25 percent believed it would

bring major benefits to society; 11 percent

believed it would endanger public health and

safety; 44 percent didn’t know; and 20 percent believed it would bring both benefits

and dangers.
Ch. 21—Public Perception 497

● Respondents with higher income level s

and/or higher levels of education were more

likely to expect major benefits from “genetic engineering” than those with lower incomes and/or less education.

● Of respondents able to choose between government regulation and self-regulation, 28

percent favored the former and 16 percent

the latter. Combination of both government

regulation and self-regulation and “don’t

know” made up the balance.

The single question in the 1983 survey by Cambridge Reports, Inc., asked what respondents

thought of when the term “DNA” was mentioned.

Sixty-three percent didn’t know; 27 percent

responded with relevant but incomplete answers;

2 percent gave an accurate definition; and 2

percent said it was “poison” (1).

In 1981 and 1982, Yankelovich, SkeIly, and

White surveyed the general public with regard

to “genetic engineering” (13). Their survey population is a nationwide stratified random sample of

2,500 persons aged 16 and over. Results are considered predictive of the U.S. population as a

whole at a confidence level of 98 percent. The

results showed the following:

● The percentage of the general public believing that the benefits of “genetic engineering”

outweigh the risks increased from 31 percent

in 1981 to 39 percent in 1982.

● Seventy percent of the public had heard of

“genetic engineering” in 1982.

●

●

Sixty-two percent of the public were very or

somewhat concerned about ‘(genetic engineering” in 1982.

In 1982, those who had heard of “genetic

engineering” were asked how it would be

applied (by responding to a list of possible

application areas). Health was selected most

frequently (61 percent), followed closely by

test tube babies (58 percent), and farming (57

percent), Responses to other application areas

were: food processing (33 percent ), forestry

(31 percent), waste management (30 percent),

chemical research (28 percent), pollution control (20 percent), and energy (19 percent).

Yankelovich, Skelly, and White believe that,

although the intensity of public concern with

“genetic engineering” is low at present, there is

a significant latent level of public concern that

could surface if adverse consequences associated

with applied genetics were reported (13).

The survey data just cited suggest several

things:

● A relatively small fraction of the American

public is fully informed about genetics in general and, undoubtedly, about biotechnology

in particular.

 The more informed public is more likely to

view applied genetics favorably than unfavor-

.

ably.

● There are real concerns about applied genetics.

Implications of public perception for

competitiveness in biotechnology

As a factor influencing competitiveness in biotechnology, the importance of public perception

varies greatly both across and within countries.

Considering first democratic v. nondemocratic

countries, public perception as a factor influencing competitiveness will be more important in the

democracies than in those countries without such

forms of government, simply because of the

greater public input permitted by democratic,

representative forms of government and the independence of the media.

Among democratic nations, variability in the

importance of public perception as a factor influencing the commercialization of biotechnology is

a function of many cultural characteristics. of

these characteristics, the traditions of the media,

the degree to which the public participates in deci -
498 . Commercial Biotechnology: An International Analysis

sionmaking on scientific and technological issues,

and the level of public education in science and

technology are particularly important.

Of the six countries examined in this assessment—the United States, Japan, the Federal Republic of Germany, the United Kingdom, Switzerland, and France—public perception appears to

have the greatest importance in the United States.

The basis for this statement is that public debate

over the establishment of rDNA R&D laboratories

in the late 1970’s was much greater in the United

States than in the other countries. The behavior

of the public and the media in the United States

and other countries in the years since has

changed little, and thus, public involvement as a

factor in competitiveness currently remains of

greatest importance in the United States.

Public perception will be a factor in determining

competitiveness of the United States in the commercialization of biotechnology primarily in the

event that genetic research or technology results

in actual or perceived adverse consequences. In

the case of an accident or perceived negative consequence, several factors would operate to make

public perception of genetic research and technology of particular importance in the United

States compared to other countries: the role of

the media, traditions regarding public participation in scientific and technological issues, and the

public’s level of education in such issues. In this

context, “level of education” requires further

elaboration.

A technologically literate public can discriminate between different uses of genetic research

and technology; this is important because different uses are associated with different issues.

Some uses do not raise any new issues; others do.

Thus, use of rDNA technology to produce drugs

and biologics that replace similar products produced by chemical synthesis or extraction is

simply an alternate means of production and in

itself raises no ethical issues (17). An ethical issue

for the pharmaceutical industry may be allocation

of resources to produce drugs using biotechnology with markets that are potentially large and

profitable v. drugs for treating rare diseases or

diseases endemic to the Third World, where profits are more limited. Ethical issues are also raised

if rDNA technology permits the manufacture of

drugs that influence learning, memory, and personality traits, for decisions will be needed on

whether such substances should be produced and

perhaps on how their distribution should be

handled and controlled.

Use of normal DNA to treat the body cells of

patients with genetic diseases such as sickle cell

anemia is another area where rDNA raises no

new ethical issues beyond those associated with

other treatment of sick persons. As geneticist A.

G. Motulsky points out, this therapy is (17):

. . . conceptually no different from any therapy

in medicine that attempts to improve the health

of a sick patient. The only difference is that DNA,

rather than other biological, drugs, or surgery,

is used as the therapeutic modality.

An application of genetic research and technology that does involve new ethical issues is use

of genetic markers for diagnosis of susceptibility

to disease. This application raises questions pertaining to private v. societal goals and confidentiality. Similarly, any genetic manipulation that

alters the reproductive cells is “a qualitative departure from previous therapies since this would

affect future generations” (17).

Rational consideration of issues raised by genetic research and technology is often confounded

by failure to discriminate between different types

of applications. The problem is compounded,

because, as pointed out in Chapter 14: Personnel Availability and Training, scientific education

in the United States is falling behind that of many

industrialized nations. These factors could act to

the disadvantage of the United States in the

worldwide commercial development of biotechnology should an accident or other adverse consequence occur.
Ch. 21—Public Perception ● 499

Findings

Public perception of the risks and benefits of

biotechnology is of greater importance in countries with representative, democratic forms of

government than it is in countries with other

forms of government, simply because of the

greater attention paid to public opinion in the

democracies, and the independence of the media.

As a factor influencing competitiveness, public

perception is probably of greater importance in

the United States than it is in Japan, the Federal

Republic of Germany, the United Kingdom, Switzerland, or France.

A number of factors influence the relative

importance of public perception as a factor influencing competitiveness. In all countries, the importance of public perception will be greatly increased in the event of an accident or perceived

Issues and policy options

OTA’S first assessment in the field of genetics,

Impacts of Applied Genetics: MicroOrganisms,

Plants, and Animals (29), was published in April

1981 and contained a chapter titled “Genetics and

Society. ” The issues that arise from the material

presented in the preceding pages are similar to

Chapter 21 references

negative consequence of biotechnology. In such

a case, the level of scientific and technological

literacy in the various competitor countries becomes important, as judgments must be made

concerning complex issues. Unfortunately, at least

in the United States, survey data show that only

a small fraction of the public is fully informed concerning genetics in general and therefore, undoubtedly, about biotechnology in particular. Survey data also suggest that there are real concerns

in the public mind concerning applied genetics.

Given the lack of public knowledge, it is particularly important that the media play a responsible role with respect to biotechnology. The role

of the media extends beyond mere reporting of

the facts. How far the media should go beyond

such reportage deserves consideration.
500 Commercial Biotechnology: An International Analysis
Appendixes
Appendix A

Definitions of Biotechnology

The following is a list of definitions of biotechnology

used by the governments and organizations of various

countries in assessments of the developing field within

their jurisdictions. Most of these definitions encompass both old and new biotechnology. *

Australia

[Biotechnology is] ‘(the devising, optimizing, and

scaling-up of biochemical and cellular processes for

the industrial production of useful compounds and

related applications. This definition envisages biotechnology as embracing all aspects of processes of which

the central and most characteristic feature is the involvement of biological catalysts” (2).

“In its broadest sense, biotechnology encompasses

industrial processes based on biological systems involving naturally occurring micro-oganisms, micro-organisms that have been modified by genetic engineering, or isolated cells of plants or animals, and the genetic manipulation of cells to produce new strains of

plants or animals” (4).

Canada

[Biotechnology is] “the application of biological

organisms, systems, or processes to manufacturing or

service industries” (9).

[Biotechnology is] “the utilization of a biological process, be it via microbial, plant or animal cells, or their

constituents, to provide goods and services” (11).

European Federation of Biotechnology

[Biotechnology is] “the integrated use of biochemistry, microbiology, and engineering sciences in order

to achieve technological (industrial) application of the

capabilities of micro-organisms, cultured tissue cells,

and parts thereof” (3).

Federal Republic of Germany

“Biotechnology deals with the introduction of biological methods within the framework of technical

processes and industrial production. It involves the application of microbiology and biochemistry together

with technical chemistry and process engineering” (5).

● The distinction between old and new biotechnology as used in this report

is noted in Chapter I: Erecutive Surmna~v.

France

“Biotechnology consists of the industrial exploitation

of the potential of micro-organisms, animal and plant

cells, and subcellular fractions derived from them” (6).

International Unions of Pure and

Applied Chemistry (1981)

[Biotechnology is] “the application of biochemistry,

biology, microbiology, and chemical engineering to industrial processes and products (including here the

products in health care, energy, and agriculture) and

on the environment” (3).

Japan

IBiotechnology is] “a technology using biological phenomena for copying and manufacturing various kinds

of useful substances” (7).

The Netherlands

[Biotechnology is) “the science of the production

processes based on the action of microorganisms and

their active components, and of production processes

involving the use of cells and tissues from higher organisms. Medical technology, agriculture, and traditional crop breeding are not generally regarded as biotechnology” (10).

Organisation for Economic

Co-Operation and Development

Biotechnology consists of “the application of scientific and engineering principles to the processing of

materials by biological agents to provide goods and

services” (3).

Switzerland

The Swiss Government uses the same

European Federation of Biotechnology

definition above.)

United Kingdom

[Biotechnology is] “the application of

definition the

uses (8). (See

biological organisms, systems or processes to manufacturing and

service industries” (1).

503
504 ● Commercial Biotechnology: An International Analysis

Appendix A references

1.

2.

3.

4.

5.

6.

Advisory Council for Applied Research and Development, Advisory Board for the Research Councils, The

Royal Society, Biotechnology: Report of a Joint Working Party (London: H.M. Stationery Office, March 1980).

Biotechnology for Australia, Report to the Executive of

the Commonwealth Scientific and Industrial Research

Organisation by a Special Committee of Review, Sydney,

Australia, June 1981.

Bull, A. T., Holt, G., and Lilly, M. D., Biotechnology: International Trends and Perspectives (Paris: Organisation for Economic Co-Operation and Development,

1982).

Commonwealth Scientific and Industrial Research

Organisation, Biotechnology Reseamh and Development,

Sydney, Australia, 1981.

Deutsche Gesellschaft fiir Chemisches Apparatewesen

(German Society for Chemical Engineering), “Biotechnology: A Study of Research and Development,” contract report prepared for the Federal Ministry for

Education and Science and the Federal Ministry for Research and Technology, Frankfurt, 1974.

Delegation Generale a la Recherche Scientifique et Technique (General Delegation of Scientific and Technical

Research) (1980), cited in M. Vaquin, “Biotechnology in

France,” contract report prepared for the Office of

Technology Assessment, U.S. Congress, December 1982.

7. Japan External Trade Organization, “Research on Biotechnology in Japan,” Japan Industrial and Technological

Bulletin (Tokyo: Ministry of International Trade and Industry, 1982).

8. Jasanoff, S., ‘(Public and Private Sector Activities in

Biotechnology: Switzerland,” contract report prepared

for the Office of Technology Assessment, U.S. Congress,

January 1983.

9. Miller, J., Fish, K., Basuk, J., et al., Biotechnology in

Canada: Premises and Concerns (Ottawa: Science Council of Canada, 1981).

10. Netherlands Study Centre for Technology Trends,

Biotechnolo~: A Dutch Perspective (Delft, The Netherlands: Delft University Press, 1981).

11. Task Force on Biotechnology, Biotechnology:A Development Plan for Canada (Ottawa: Minister of State for

Science and Technology, 1981).
Appendix B

Country Summaries

OTA identified five foreign countries as the major

potential competitors of the United States with respect

to the commercialization of biotechnology: Japan, the

Federal Republic of Germany, the United Kingdom,

Switzerland, and France. This appendix summarizes

information about those countries presented elsewhere in this report. It also describes the activities in

biotechnology of Sweden, the Netherlands, Australia,

Israel, Canada, the U. S. S. R., and Brazil.

Japan

INTRODUCTION

The commercialization of biotechnology in Japan is

accelerating over a broad range of industries, many

of which have extensive experience in bioprocessing.

Leading Japan’s drive to commercialize biotechnology

are large established Japanese companies such as

Takeda Pharmaceutical, Shionogi Pharmaceutical, Mitsubishi Chemical, Sumitomo Chemical, Toray Industries, Suntory, and Ajinomoto. The general chemical

and petrochemical firms especially are leaning strongly to biotechnology, and some of them are making

rapid advances in research and development (R&D)

through their efforts to make biotechnology a key

technology for the future.

The Japanese Government, which fell behind in

starting to form a national support structure, has embarked on building a foundation for R&D and is demonstrating ambitious movement by forming Government and private collaborative projects with the motto

“catch up, get ahead” (8). As biotechnology product

markets begin to develop, Japan’s expertise in the art

of bioprocessing will provide Japanese companies with

significant competitive strengths.

INDUSTRY

All of the large private sector Japanese companies

using biotechnology have come from established industries. In this respect, Japan differs from the United

States, where more than 100 new biotechnology firms

(NBFs)* have been started specifically to exploit biotechnology.

Japanese companies did not start investing in new

biotechnology until after 1980, when publicity spread

about its potential applications to the pharmaceutical

● NBFs, as defined in Chapter 4: Firms Commercializing Biotechnolog\~, are

firms that have formed specifically to capitalize on developments in biotechnology

industry. Since then, led by the promise of interferon

and monoclinal antibodies (MAbs) in cancer treatment

and the potential of producing unlimited quantities of

each through biotechnology, more than 150 Japanese

companies have rapidly reorganized their R&D systems, equipped research institutes, and recruited new

staff to evaluate the applications of biotechnology. The

breakdown by funding sector of Japan’s total expenditures for recombinant DNA (rDNA) related R&D for

fiscal year 1981 is illustrated in figure B-1.

Japanese pharmaceutical companies, whose penetration of international markets heretofore has been low,

show promise of becoming increasingly competitive

with the United States in world pharmaceutical markets. The Japanese pharmaceutical market is currently

second only to the U.S. market in size. In addition to

the pharmaceutical companies, Japanese companies

from the food, chemical, textile, and pulp and paper

industries have also begun to further exploit their accumulated experience in bioprocessing by diversifying into newly developing pharmaceutical product

Figure B-l.— Breakdown of Japan’s Expenditures

for Recombinant DNA Technology R&D,

Fiscai Year 1981

Total rDNA expenditure = $38.1 million (Y 9.5 billion)

SOURCE. Off Ice of Technology Assessment, based on data from Science and

Techno/ogy~v In Japan, April/June 1983

25-561 0 - 84 - 33
506 Commercial Biotechnology An International Analysis

markets, * The field of specialty chemicals will be

another highly competitive area of Japanese involvement. Japan is already the dominant international

force in amino acid production, and two of the largest

amino acid producers, Ajinomoto and Kyowa Hakko

Kogyo, have production plants in the United States.

Japanese companies’ current emphasis on research in

specialty chemicals such as enzymes and amino and

organic acids reflects efforts to pull the Japanese

petrochemical industry out of its present decline in

international markets. The urgency of this task is

greater in Japan than in the United States, because

Japanese petroleum-based industries such as chemicals and textiles are solely dependent on imported

petroleum feedstocks. Although some specialty chemicals have traditionally been made by bioprocesses, opportunities for using bioprocesses to make specialty

chemicals previously made from petroleumderived

feedstocks have arisen with biotechnology. Producing

specialty chemicals using biotechnology offers Japanese companies in these industries an opportunity

to reduce their dependence on petroleum and at the

same time switch from the production of high-volume,

low value-added products to products with higher

profit margins.

GOVERNMENT TARGETING POLICIES AND

FUNDING OF BASIC AND APPLIED RESEARCH

Within the Japanese Government, a consensus regarding the importance of biotechnology to the future

health of the Japanese economy has been achieved.

Three Government departments in Japan—the Science

and Technology Agency (STA), the Ministry of International Trade and Industry (MITI), and the Ministry

of Agriculture, Forestry, and Fisheries (MAFF)—have

specifically targeted the development of biotechnology.

STA was the first to demonstrate an interest. As

early as April 1971, STA’S advisory group, the Science

and Technology Council, composed of government,

business, and academic leaders, stressed the importance of promoting life science on a nationwide basis

because of its commercial potential (4), and STA

responded in 1973 by establishing its Office for Life

Science Promotion. This office, which is Japan’s

highest science and technology policymaking body,

also manages and coordinates R&D projects in biotechnology. Until the early 1980’s, STA’S basic, generic ap-

“The first Japanese companies to enter the field of rDNA-produced pharmaceuticals, Green Cross, Hayashibara, and Suntory, were led by pioneering entrepreneurial managers. For example, the Hayashibara venture into

producing interferon with hamsters was possible only because the owner

owns or controls 12 companies motels, gas stations, and candy manufacturing) and does about $ISO million ( + 37.4 billion) worth of business a year

(14). Suntory’s (a whiskey company) diversification into rDNA-produced pharmaceuticals is a similar situation.

plied research)* and applied programs in biotechnology were the largest and best funded Government programs in Japan, and even today STA’S programs are

comparable in scale to those of MITI (see below). The

agency is currently funding corporate generic applied

research projects to develop DNA synthesis techniques, bioreactors, immobilized enzyme processes,

screening techniques for new micro-organisms, and

new medicines.

Mfi did not enter the biotechnology field until 1981.

That year, MITI established its “System for Promotion

of Research on Next-Generation Industrial Technologies,” an overall plan to promote “next-generation” industrial technologies, including biotechnology (11). To

focus MITI’s overall biotechnology effort and to oversee its three next-generation biotechnology projects,

an Office of Biotechnology Promotion was established

within MITI’s Basic Industries Division.

MITI’s three next-generation projects in biotechnology— bioreactors, rDNA technology, and mass cell culture-are a part of a 10-year program that is specifically designed to develop and diffuse new biotechnology

among Japanese companies. * * MITI has invited 14

companies to participate in the projects and will provide allocations over 10 years of $43 million each to

the rDNA and bioreactor projects and $17 million to

$22 million for the mass cell culture project (2). Some

10 percent of the R&D work (by expenditure) for

MITI’s biotechnology projects is conducted in the national laboratories of MITI’s Agency for Industrial

Science and Technology. Ninety percent of the work

is conducted in industry laboratories.

To facilitate coordination, the 14 companies that

MITI has invited to participate in the biotechnology

projects have been organized into the Biotechnology

Development Research Association. This association

has its own central office through which the various

companies communicate with MITI, but otherwise

maintains no intercompany institutions or laboratories. MITI subsidies to the companies cover 100 percent of all direct expenses (salaries and laboratory expenses) for biotechnology R&D, but no overhead is

allowed, and any capital equipment purchased is nominally the property of the Japanese Government. Furthermore, all patents resulting from the work belong

to the Japanese Government. MITI has assured both

domestic and foreign companies access to the patents (11).

● Basic, generic applied, and applied research are defined in Chapter 13:

Government Funding of Basic and Applied Reseamh.

● *The Biotechnology Forum, a group of five major Japanese chemical companies that had organized independently after the announcement of the

Cohen-Boyer rDNA process patent, was instrumental in lobbying for the establishment of the biotechnology projects.
App. B—Country Summaries . 507

The third Japanese Government agency that is taking an active role in biotechnology, MAFF, recently

established the Committee on Biological Resources Development and Utilization, which compiled a report

recommending actions MAFF could take to promote

biotechnology development (7). Currently, MAFF is actively promoting cooperative biotechnology research

with private industry at its laboratories and is funding

work both with Nippon Shokuhin Kako and Oriental

Yeast at the National Food Research Institute and with

Kao Soap at the National Institutes of Agricultural

Sciences. It is also planning cooperative research with

Japanese seed companies in the areas of plant breeding and species improvement. Although achievements

from the cooperative research are used jointly by Government and industry, these companies that participate in the research projects receive exclusive licensing rights to the patents resulting from these projects

for a 3-year period (9). MAFF funding for biotechnology R&D is comparable to that of MITI and STA (11).

In addition to STA, MITI, and MAFF, three other Japanese Government agencies are funding basic and generic applied research in biotechnology: the Ministry

of Health and Welfare, the Ministry of Education, and

the Environmental Protection Agency. Total Japanese

Government funding for biotechnology R&D in 1983

is $67 million (11). Although the level of Japanese funding may be slightly lower than Government funding

in both the Federal Republic of Germany and the

United Kingdom and is dwarfed by that of the United

States, a far greater proportion of Japanese than U.S.

funding goes to applied research.

The importance of the Japanese Government’s investment in applied research relevant to biotechnology, however, should not be overstated. Of greater

importance than the Government’s investment in research per se is the Japanese Government’s success

in encouraging industry’s involvement in and longterm commitment to biotechnology. The strength of

Japan’s biotechnology policy lies in its emphasis on the

sensible development of mutually agreed on research

strategies, horizontal organization and coordination

within the private sector, and timely funding of the

necessary high technologies (known in Japan as the

“seed corn” policy).

FINANCING AND TAX INCENTIVES FOR FIRMS

Private sector financing in Japanese biotechnology

is still mostly indirect and mediated through the Japanese banking system. At present, most Japanese firms

using biotechnology are very thinly capitalized. The

ratio of debt to equity is still far higher in Japan than

it is in the United States. As far as can be determined,

however, the financing of R&D efforts is not a major

problem for the large companies in Japanese biotechnology. The Japanese companies involved in biotechnology R&D have either their own internal sources

of funds or close relations with the banks (11).

Certain weaknesses in Japan’s financial system have

been especially evident in biotechnology. Despite many

changes in recent years, capital remains heavily concentrated in the Japanese banking system, and stock

markets play a relatively small role in allocating capital.

Only 111 Japanese companies currently have their

securities traded over the counter, and total venture

capital investments amount to no more than $84 million (l). * Mostly because of the lack of venture capital

and the cultural factors inhibiting risk-taking entrepreneurialism, Japan does not have a large class of

startup companies that specialize in biotechnology

R&D such as that found in the United States.

Japan’s private sector has recently taken some initiative in developing a source of “venture capital” by pooling corporate resources, The Japan Associated Finance

Corp. (JAFCO) is a private venture capital fund that

was organized by Nomura Securities Co. One French,

three Hong Kong, and 10 Japanese firms are involved

in JAFCO, which plans to offer financial help to new

businesses until they qualify for listing as a joint stock

company. When the firm reaches this stage of maturity, its income gains will be distributed among the partners of the fund according to the ratio of the capital

contribution to the fund (3). These new sources of venture capital may or may not succeed in increasing the

supply of venture capital in Japan. In any case, the

amount of venture capital these sources currently provide is very small when compared to the amount available in the United States.

The Japanese Government is interested in changing

the country’s financial system. In 1982, MITI set up

a new Office of Venture Enterprise Promotion in parallel with the creation of the Office of Biotechnology

Promotion (6). In fiscal year 1981, a Governmentrelated organization called the Center for Promoting

R&D Type Corporations guaranteed approximately

$3.7 millon (x 750 million) in loans (a total of 24

loans), and beginning in 1982, this center began making its own loans as well as guaranteeing other lender’s

loans. In an equally significant development, MITI and

the Ministry of Finance (MOF) have recently begun discussing an ‘(automated over-the-counter share transaction system” to make it easier for enterprising small

and medium-sized firms that lack business experience

to raise funds in the finance market. Currently, MOF’S

evaluation standards are so strict from the standpoint

of protecting investors that venture businesses find

“Institutions such as Japan Godo Finance, Sogo Finance, and Universal

Finance Corp. are viewed as nascent venture capital companies.
508 ● Commercial Biotechnology An International Analysis ——

it difficult to have their shares sold when they want

to go public.

In the past, Government-funded banks like the Japan

Development Bank UDB) have played a key role in providing large amounts of low interest loans to heavy

industries. Certain funds within the JDB loan portfolio

are targeted for “technology promotion,” and loans

from the fund are made at interest rates between 7.5

and 8.4 percent. Currently, however, these funds are

not being channeled into biotechnology (11).

Japan’s corporate tax code exhibits a uniformity

across industrial sectors that is not evident in the

United States. Furthermore, corporate taxes are generally lower in Japan than they are in the United States

(13). A number of Japanese tax code provisions are

aimed at benefiting R&D activity and technological innovation across the board.

One Japanese tax break of particular relevance to

the development of biotechnology is the special depreciation schedule used for companies that are members

of a Ml’TI-approved National Research Association (e.g.,

the Biotechnology Development Research Association).

Such companies can take an immediate 100-percent

depreciation deduction on all fixed assets used in connection with their research association activities.

Because of the decentralized character of most National Research Association R&D—90 percent of it is performed separately in corporate laboratories—the tax

writeoffs directly encourage R&D activity within corporate laboratories.

PERSONNEL AVAILABILITY AND TRAINING

Since World War II, the training of industrial microbiologists and bioprocess engineers has been encouraged by both Government and industry funding in

Japan, and as a result, a steady supply of these personnel has been maintained. In fact, Japan is considered the world leader in this area. On the other

hand, largely because of its weak basic biological science research base, Japan is experiencing a shortage

of molecular biologists and immunologists. Some Japanese companies have addressed this problem by

sending some of their personnel to the United States

for training in molecular biology. Other companies

have had success in repatriating Japanese workers

already trained overseas. Figure B-2 gives a breakdown of Japanese personnel engaged in rDNA R&D

by type of research organization.

Retraining of corporate workers in biotechnology

is being pursued actively in Japan. In Japan, more than

in any other industrialized country, worker training

is the responsibility of the corporation. Japan’s ability to adjust rapidly to weaknesses in its labor force,

based primarily on the Japanese corporations’ funding

of worker retraining, is truly extraordinary. In 1981,

for example, no more than 10 private Japanese companies had more than 10 researchers working on rDNA

technology; a year later, surveys revealed that 52 out

of the 60 leading companies surveyed had obtained

10 or more research workers in that area (11).

UNIVERSITY/INDUSTRY RELATIONSHIPS AND

DOMESTIC TECHNOLOGY TRANSFER

In applied research areas such as bioprocessing and

microbiology, Japanese university/industry relations

and the transfer of information from universities to

industry are generally very good. In basic research

areas, however, the transfer of information from universities to industry is impeded by the fact that almost

all university rDNA and hybridoma research in Japan

takes place in ‘(basic” science departments, and these

departments pride themselves on independence from

industrial influence. The Japanese Government has

launched new programs designed to cross the barriers

between university basic science departments and industry, but their future success is questionable (11).

The movement of knowledge across industrial sectors in Japan is facilitated by the unique “keiretsu”
App. B—Country Summaries 509

structure (a group of companies with historical ties,

which usually consists of a company from each industrial sector and a bank or trading company which

plays a dominant role by virtue of its contact with

other companies within the group). The transfer of

information among companies within sectors, however, is inhibited by extreme secrecy and a lack of

mobility of personnel from one company to another.

MITI’s “next generation” projects in biotechnology are

designed in part to compensate for this problem and

to diffuse knowledge among companies using biotechnology. In part because they suspect they would have

to sacrifice proprietary positions in some commercially

important research areas, however, some Japanese

companies have not joined the MITI projects in the

areas in which they have comparative advantages (11).

For example, Kyowa Hakko, a leader in work on rDNA,

is not participating in the “next generation” project in

this area.

OTHER FACTORS

Historically, Japan’s guidelines for rDNA research

have been among the most restrictive in the world.

Although the guidelines have recently been relaxed

somewhat, they are still quite restrictive. Japanese

companies have mounted intensive lobbying efforts

to get the guidelines changed. Although companies

have had extreme difficulty in obtaining approval to

do work with more than 20 liters of culture, this situation is expected to change soon.

Although estimates are difficult to obtain, the cost

of gaining approval for new pharmaceuticals is believed to be lower in Japan than the United States. In

Japan, the cost of obtaining approval for a new drug

is about $12 million to $20 million ( 3 billion to #

5 billion), compared to about $87 million in the United

States. The time required for drug development and

approval is similar (about 10 years) in both the United

States and Japan (5).

The basic law governing worker health and safety

in Japan is the Industrial Safety and Health Law. This

law imposes on employers the obligation of preventing health impairment caused by substances and conditions found in the workplace. Substantial criminal

penalties and fines are imposed for violations. At the

present time, no regulations are addressed specifically to biotechnology. Furthermore, specific measures

governing environmental effects of biotechnology applications have not been prepared by the Japanese

Government.

Because the United States is considered a world

leader in the commercial applications of biotechnology, Japanese companies have been actively importing technology from the United States and other countries through R&D joint ventures and licensing agreements. NBFs in the United States in need of financial

support widely accept research contracts from Japanese companies, often because U.S. partners cannot

be found.

An issue brought up in recent U, S.-Japan trade negotiations was U.S. access to the technologies developed

by the MITI-sponsored National Research Associations.

MITI has promised to abandon its past policy and disclose the patents obtained in National Research Associations to foreign firms. MITI is also promising membership in National Research Associations to U.S. companies that have Japanese subsidiaries or substantial

technological expertise.

Japan is engaged in international efforts to secure

sources of biomass* in the event that biomass becomes

the favored route to meeting energy needs. In cooperation with developing countries (mostly Asian), Japan

is organizing biomass centers. This foresight may operate to Japan’s advantage in the future.

Nontariff trade barriers in Japan, especially in the

area of pharmaceuticals, may hinder U.S. companies’

penetration of Japanese markets. The Japanese Ministry of Health and Welfare has not yet begun to accept

clinical test data from the United States, although as

of April 1983, Japan did begin accepting foreign test

data on animals. Foreign stability test data and data

on specifications and test methods will be accepted

from October 1983 onward (10).

Unlike the United States, Japan has constraints inhibiting foreign acquisition of domestic companies.

Foreign acquisitions in Japan require the unanimous

approval of the Japanese company’s board of directors and also the approval of MOF. Recently, however,

the regulation surrounding the establishment of foreign subsidiaries in Japan has noticeably eased; large

numbers of European pharmaceutical companies have

established wholly owned subsidiaries in Japan during the past year. The ease of foreign acquisition of

domestic companies in the United States is an important issue to consider, because Japanese companies

very often acquire foreign companies to gain access

to their technology, markets, and distribution networks.

CONCLUSIONS

Because of its present competitive strength in biologically produced specialty chemicals, Japan can be

expected to be a major competitor in future specialty

chemical markets defined by biotechnology. The fu-

● Biomass, discussed further in Chapter 9: Coti”ty Chemicals and Ener~

Production, is all organic matter that grows by the photosynthetic conversion of solar energy.
510 Commercial Biotechnology: An International Analysis

ture competitive position of Japanese companies in

future pharmaceutical markets is more difficult to

assess. Japanese companies traditionally have not had

a significant presence in world pharmaceutical markets, but Government promotion of the pharmaceutical industry, rising investments in pharmaceutical

R&D (including related biotechnology applications),

and increased competition in the domestic pharmaceutical market all portend a greater role for Japanese

companies in future international markets. *

Federal Republic of Germany

INTRODUCTION

A powerful private sector, a well-developed administrative infrastructure, an extensive research base, a

generous funding program, and an adequate supply

of personnel all contribute to the potential of the

Federal Republic of Germany to compete with the

United States and other industrialized countries in

biotechnology. The overall West German effort does

have certain deficiencies (e.g., an inflexible research

grants system), however, and the ability to correct

them will be a factor that influences the country’s competitive position.

The ability to correct these deficiencies, however,

will not by itself guarantee competitive success. Politics, for example, and its most powerful ally, public

perception, could influence the course of biotechnology development more immediately in the Federal

Republic of Germany than in any other country. The

West German environmentalists, embodied in the

political party of the Greens, have yet to focus their

attention on risks specifically associated with biotechnology, but the leading German companies using biotechnology have already aroused public protest as major chemical polluters, The Greens, now incorporated

in the Federal parliamentary process, represent a potential threat, especially in the event of a mishap, to

the progress of biotechnology in the Federal Republic

of Germany (24).

INDUSTRY

The Federal Republic of Germany’s competitive position in biotechnology will be determined by the ability of large, established West German companies to develop and market biotechnologically produced goods

● For example, in 1981, Japanese companies ranked first in terms of the

largest number of major new drugs introduced into world markets. In 1982,

not only did Japanese companies account for over 16 percent of all U.S. patents issued for pharmaceutical and medicinal products, but 38 percent of

all U.S. medicinal patents granted to foreign firms went to Japanese originators. See Chapter 4: R“rms Commercializkg Biotechnology for a more detailed description of Japanese pharmaceutical activity.

and services, Responsibility for most of the development of the country’s industrial capabilities in biotechnology to date rests largely with chemical companies

such as Hoechst, Bayer, and BASF, three of the four

largest in the world, and with the slightly smaller pharmaceutical companies such as Boehringer and Schering. Small and medium-sized West German companies

have played no significant role in biotechnology innovation, despite the West German Government’s efforts to encourage this through the provision, for example, of startup funding for high-risk undertakings

(24).

To speed the transition to new biotechnological techniques and processes, the large West German companies that are developing biotechnology have sought

outside expertise. Hoechst, for example, signed a 10-

year, $70 million contract with Massachusetts General

Hospital to support work in molecular biology (18).

Hoechst, criticized in Germany for a breach of faith

with national science and in the United States for the

ap~ropriation of U.S. technology, apparently entered

into this agreement with the objectives of getting a

“window on the technology” and gaining access to a

large, state-of-the-art laboratory in which to train its

scientists (18).

GOVERNMENT TARGETING POLICIES

A government policy for the commercialization of

biotechnology rates as one of the Federal Republic of

Germany’s strengths. According to a 1979 statement

by the Federal Ministry for Research and Technology

(BMF’I’, Bundesministerium fur Forschung und Technologies), the German Government has an obligation

to establish the preconditions for industrial innovation in key areas of technology in order to strengthen

the competitive performance and competitive capacity of the German economy in long-range growth areas,

and in the process, correct weaknesses revealed

through international comparisons (24).

The present biotechnology targeting policy has

evolved from the West German Government’s historical interest in the life sciences. In 1972, BMFT commissioned a report on old biotechnology from the German Society of Chemical Engineering (Deutsche Gesellschaft fur Chemisches Apparatewesen) (19), and in

1979, BMFT presented its first official policy specifically for biotechnology (16). This “performance plan”

(Leistungsplan) outlined biotechnology research programs with specific objectives, such as the development of unconventional feed and foodstuffs, bioinsecticides, and pharmaceuticals from plant cell cultures.

BMFT’s more recent statements continue to promote

the development of specific product areas (e.g., pharmaceuticals, plant agriculture) and particular proc-
App. B—Country Summaries ● 511

esses (e.g., cell culture), but they also focus attention

on the importance of basic research and the need for

greater interdisciplinary cooperation between biologists, chemists, medical experts, and engineers, disciplinary areas which are important to the development

of biotechnology (24).

BMFT implements its policy primarily through a

strong and varied funding program. Types of BMFT

support fall into three broad categories: 1) funds specifically set aside for the development of biotechnology, 2) grants that fall into already existing schemes

for industrial development work, and 3) funds distributed by third-party organizations to which BMFT

contributes as part of more generalized funding programs for all areas of public research. For its own biotechnology program alone, BMft in 1982 spent $29

million (DM70 million), up $5 million (DM12 million)

from 1981. In 1981, BMFI’ also contributed to the German Research Society (DFG, Deutsche Forschungsgemeinschaft) (25) and to the Max Planck Society (Max

Planck Gesellschaft) (15). It is impossible to calculate

the exact proportion of these other funds dedicated

to biotechnology research, but a reasonable estimate

might range from $20 million to $40 million (DM50

million to DM 100 million). Since data are unavailable

to support this estimate, a total BMFT biotechnology

funding figure of $5o million to $7o million (DM120

million to DM170 million) for 1982 should be regarded

with caution.

GOVERNMENT FUNDING OF BASIC

AND APPLIED RESEARCH

The Federal Republic of Germany maintains an extensive public research base. Both basic and generic

applied research are generally good. Three different

types of nonindustry laboratories conduct basic research in biotechnology: 1) laboratories belonging to

the universities, 2) laboratories dependent on BMFT

for operating expenses and on DFG for project support, and 3) laboratories supported by the Max Planck

Society (which, in turn receives support from BMFT).

The operating costs of the universities are supported

by the individual States (Lander). Highly publicized

deficiencies in German university research have resulted from budget cuts and university reform laws.

With the current shortage of funds, grant allocations

go to tenured professors (27) and to replace used

equipment, not to the young researchers (29). University reform laws have created excessive administrative

duties for university professors, making it difficult for

them to dedicate sufficient time to their research (20).

Despite such problems, however, universities such as

those at Heidelberg, Munich, and Cologne continue to

conduct research fundamental to the development of

biotechnology (21).

Although laboratories supported jointly by BMFT

and DFG, such as the Cancer Research Center at

Heidelberg, carry out important biotechnology-related

work, laboratories funded by the Max Planck Society

are responsible for the bulk of the basic research advances in biotechnology. The Max Planck Institute for

Plant Breeding Research in Cologne boasts some of the

best plant genetics teams in the world (24). Other

leading Max Planck institutes working in basic research related to biotechnology include those in

biochemistry at Martinsried, biology and virus research in Tubingen, genetics in Berlin, and cell biology

in Ladenburg (21).

Some of the Max Planck institutes conduct generic

applied biotechnology research, but the center for

such research is the Society for Biotechnological Research (GBF, Gesellschaft fur Biotechnologische Forschung). GBF is a Government-supported though private institution that was originally founded to conduct

generic bioprocessing research to meet the needs of

industries (26). GBF employs 365 people (249 permanent and 116 temporary), and its 1982 budget was $13

million (DM31.6 million), of which 89 percent came

from BMFT, 9 percent from the lander, and 2 percent from its own earnings (Gesellschaft fur Biotechnologische Forschung, 1982). GBF’s current activities

include the general development of bioprocess technology, the scale-up of laboratory processes, the

screening of micro-organisms and plant and animal

cell cultures, the support of other research groups in

biotechnology, the participation in joint biotechnology

projects with industry, and the advanced interdisciplinary training for scientists, engineers, and technicians. GBF suffers from the usual rigidity of a large

German research organization—funds, once allocated,

cannot be shifted from one area of research to

another. Nevertheless this well-equipped and wellstaffed Government-supported applied research facility in West Germany is one of Europe’s best.

FINANCING AND TAX INCENTIVES FOR FIRMS

There is no parallel in the Federal Republic of Germany to the U.S. venture capital industry. The powerful and rather rigid banking structure in the Federal

Republic of Germany virtually inhibits the formation

of venture capital, though there is apparently little demand for it (24). Commercial banks provide most of

the funds used for industrial expansion, and it is common for such banks to have equity participation in

companies in which they invest. The commercial banking sector is dominated by three banks, and the linkages between the banking and corporate structures

are so close that the Monopoly Commission in 1976

concluded that the banks effectively utilize management functions to the detriment of competition (24).
512 ● Commercial Biotechnology: An International Analysis

In 1975, a consortium of 28 banks recognized that

the German banking system was not conducive to

funding high-risk innovative, startup firms and formed

a venture capital concern called the Risk Financing Society (WFG, Deutsche Wagnisfinanzierungs-Gesellschaft) (17). The principal objective of this organization was to aid small and medium-sized firms in commercializing their products. So far, however, this concern has not shown much interest in biotechnology

companies, a major reason being that since 1980 it has

been looking for innovations that could achieve success within 24 months. If this continues to be the criterion for a firm to receive funds from WFG, it would

be surprising if many biotechnology startup firms

were established in the Federal Republic of Germany

with WFG funds.

Tax incentives are a less important source of financing for private sector innovation in the Federal

Republic of Germany than direct Government subsidies. This country maintains the highest nominal corporate tax rate of the six countries analyzed in this

report (56 percent on retained earnings and 36 percent on distributed earnings). Measures such as an investment grant provision allowing a company to

recover up to 20 percent of the cost of R&D capital

expenditures contribute to lower the effective tax rate,

although the United Kingdom, Switzerland, and Japan

still have the lowest effective tax rates of the competitor countries.

PERSONNEL AVAILABILITY AND TRAINING

The Federal Republic of Germany has sufficient personnel to compete with the United States and other

competitor countries in biotechnology. Molecular

biologists with expertise in rDNA and hybridoma research are in short supply, but the training of such

specialists is now a high priority (24). Like Japan, the

Federal Republic of Germany maintained a steady supply of both industrial and government funding for applied microbiology and bioprocess engineering after

World War II. Thus, the supply of personnel in these

areas appears to be adequate.

The Max Planck Society’s senate and the present

Minister of Research and Technology have indicated

that there is a significant drain of German researchers

from the Federal Republic of Germany to the United

States (21)28). The “brain drain” of scientists from West

Germany, however, appears to be less serious than

that from the United Kingdom (see below).

UNIVERSITY/INDUSTRY RELATIONSHIPS AND

DOMESTIC TECHNOLOGY TRANSFER

The Federal and State Governments and the private

sector in the Federal Republic of Germany use several

mechanisms to accomplish the transfer of technology

developed in public research laboratories into domestic industries, The Max Planck Institute for Plant

Breeding Research and GBF both have several contract

arrangements with private companies. On a much

larger scale, the pharmaceutical company Schering

joined with the State of Berlin and its two universities

to establish a biotechnology research institute (Biotechnikum). Though the institute will undertake primarily basic research in rDNA technology, it will also support industrial microbiology research and the production of hormones and amino acids (22). Bayer, BASF,

and Hoechst have also established cooperative research programs with West German universities and

other research institutes.

OTHER FACTORS

In general, the West German regulatory environment is comparable to that in the United States and

poses no additional barriers to the commercial development of biotechnology for either domestic or foreign firms. Guidelines for rDNA research, food and

drug testing regulations, intellectual property law, and

international trade laws in West Germany are approximately equivalent to those in the rest of the competitor countries.

CONCLUSIONS

The Federal Republic of Germany could become one

of the principal competitors of the United States in the

commercialization of biotechnology. West Germany’s

extensive research base would be one of the most wellbalanced in the world, were it not for the funding and

administrative problems in the universities and the resulting effects on the quality of research. Another

problem is that the Government bureaucracy for implementing biotechnology policy is somewhat inflexible. Once funding has been granted for specific projects, money cannot be shifted to other potentially

more promising studies. One of the Federal Republic

of Germany’s strengths, however, is the country’s private sector. The size and international market penetration of established German chemical and pharmaceutical companies suggests that these companies are likely to be competitive in the commercial use of biotechnology.

United Kingdom

INTRODUCTION

In many respects, the United Kingdom has the capabilities to compete in biotechnology on an equal

basis with the United States, Japan, and the Federal
App. B—Country Summaries ● 513

Republic of Germany. Government initiatives, national

science and technology resources, both human and

material, and efforts by a few individual companies

to commercialize biotechnology place the United Kingdom on a par with these other competitor countries.

A relative lack of experience in joint government, industry, and public research cooperation compared to

the United States and, with some exceptions, a generally risk-averse private sector, however, could become

obstacles to the smooth development of biotechnology

in the United Kingdom.

INDUSTRY

A number of NBFs have been started to commercialize biotechnology in the United Kingdom. These

include Celltech, Agricultural Genetics, Plant Sciences,

Imperial Biotechnology, IQ (Bio), and other companies

that were founded specifically to exploit results of

basic research in biotechnology-related disciplines.

Although the United Kingdom has more NBFs than do

other European countries or Japan, the importance

of NBFs to the commercialization of biotechnology in

the United Kingdom does not generally rival that of

their U.S. counterparts. The 1983 marketing by Celltech of MAbs to detect and isolate interferon (34) and

of two blood-typing kits using MAbs (47), however,

demonstrates a certain dynamism within the United

Kingdom’s NBF sector.

The large established U.K. companies such as ICI,

Burroughs-Wellcome, G. D. Searle, Unilever, Glaxo,

and others will play the major role in determining the

United Kingdom’s competitiveness in the commercialization of biotechnology. These companies, like established companies in the other competitor countries,

are better equipped than the NBFs to absorb the high

costs of large-scale production, health and safety

testing, and marketing, in fields such as pharmaceuticals, food, or agriculture. Although they appear to

be investing large sums in biotechnology R&D (44), it

remains to be seen whether established companies in

the United Kingdom can generate the same level of

innovation from in-house research and arrangements

with universities as the NBFs in the United States.

GOVERNMENT TARGETING POLICIES

Until recently, many analysts in the United Kingdom

believed that biotechnology products would reach

markets only after 10 to 20 years (36) and that the

British Government should maintain its traditional

functions with respect to developing technologies, i.e.,

limit itself to supporting basic R&D, training qualified

personnel, and creating a propitious climate for industry to capitalize on discoveries made in public research

facilities (35).

In 1980, a Government committee published a report

that identified weaknesses in the development of biotechnology and recommended that the Government

take specific corrective actions to assist the transfer

of the results of public sector research to industry and

to expand existing programs supporting training, research, and innovation (3o). The British Government

has responded to this report, commonly known as the

Spinks’ Report, by increasing funds both for the British

Technology Group (BTG) for investment in innovative

private sector projects in biotechnology and for the

Research Councils and Government departments for

the support of basic life science research.

In 1981, the British Government, through BTG and

in association with four private investors, established

Celltech, Ltd., to develop and market products made

by some of the new technologies, In 1982, the Department of Industry launched a new 3-year, $3o million

program of support for biotechnology in industry (30.

The Government has also encouraged the creation of

university centers of expertise in biotechnology to

bring together experts in different disciplines within

a single field and has established a Biotechnology Directorate at the Science and Engineering Research

Council (SERC) to coordinate biotechnology R&D in

all public sector research laboratories.

GOVERNMENT FUNDING OF BASIC AND

APPLIED RESEARCH

The United Kingdom has a strong and well-established basic research base. The Research Councils and

the universities possess considerable depth in basic

research fields such as immunology and plant genetics. Although the economic recession has forced cuts

in both university and Research Council grants (46),

the Government has attempted to protect the basic

science research budget and to redirect resources

within this budget to priority areas such as biotechnology. Research Council funds for biotechnology have

actually increased. University funds have been reduced in some areas, but the Government has encouraged universities to protect basic research, and the

University Grants Committee has been funding the establishment of new posts at many different universities (37).

Generic applied research in biotechnology has been

receiving strong support in the United Kingdom. The

British Government sponsors generic applied research

at a number of locations, including the Centre for Applied Microbiology Research in Porton Down (’bioprocess engineering); Warren Spring Laboratory in Harwell (downstream processing); and the Biotechnology

Institute and Studies Centre Trust (enzymes). These

and other programs all contribute to make develop-
514 Commercial Biotechnology An International Analysis

ment a strength of the Government’s support for biotechnology.

Definitional problems make it difficult to arrive at

a figure for overall Government expenditures for biotechnology R&D. Though the British Government uses

the Spinks’ Report definition, * research institutes tend

to classify work in scientific terms such as rDNA technology, hybridoma technology, and others. A conservative estimate of biotechnology funding for all phases

of R&D would fall between $56 million and $60 million

for 1982 (46), though the Government expects to increase this level substantially during 1983. The 1982

figure roughly equals spending in Japan, the Federal

Republic of Germany, and France.

FINANCING AND TAX INCENTIVES FOR FIRMS

Views on whether there is a shortage of funds available for biotechnology firms in the United Kingdom

vary depending on the source of information. Financial institutions say funds are not in short supply;

rather, the shortage is in well-presented ideas with

commercial value that are capable of earning the relatively high rates of return desired by investors with

risk capital. Entrepreneurs say that there is a shortage of funds, because institutions demand more evidence than they can supply to prove that their products are capable of earning high profits.

Funds for the industrial development of biotechnology, especially for NBFs, are available from both public

and private sources. The major public source of venture capital is BTG (see above). Private venture capital

groups with either investments or plans to invest

include Biotechnology Investments, Prutec, Advent

Eurofund, Cogent, Technical Development Capital, and

others. Of these, Biotechnology Investments, a branch

of N. M. Rothschild Asset Management, is the largest,

with an initial capital pool of $55 million (39). Most of

the fund’s investments to date have been in U.S. NBFs

and in primarily foreign quoted companies (39),

although the company recently purchased equity in

Celltech (33) and is now considering more project proposals from British firms than from U.S. companies

(43). Other sources of capital for NBFs include banks

and other financial institutions, whose project loans

are guaranteed by the Government, and the Unlisted

Securities Market, for companies with profits of less

than $1 million.

Tax law in the United Kingdom tends to favor established companies with programs in or plans to implement biotechnology R&D rather than NBFs. Most

of the Government’s tax incentives apply to companies

earning taxable income (i.e., the large established companies) and are used primarily to encourage additional

expenditures on R&D or on plants and equipment required for research or scale-up. The tax code allows

the largest and most rapid depreciation allowance of

capital expenditures for scientific research of all the

competitor countries (100 percent in the first year of

use). This provision contributes to making the effective corporate tax rate in the United Kingdom among

the lowest of the countries analyzed by this report.

Few of the tax incentives in the United Kingdom, on

the other hand, encourage the formation of capital,

a necessary precondition for starting an NBF. Both the

taxation of long-term capital gains (30 percent) and of

income resulting from the sale of technology (in the

form of patent sales or licensing royalties) are the most

unfavorable of the competitor countries. The British

Government recently introduced new measures designed to encourage the private sector to make equity investments in startup firms by offering tax relief

at the top marginal rate to investors in new (up to 5

years old) qualifying trades, but the effect of this policy

remains to be seen.

PERSONNEL AVAILABILITY AND TRAINING

Like the United States, the United Kingdom boasts

both qualified personnel and excellent training and

education programs for personnel in the basic life

sciences. Personnel supported by the Medical Research Council are internationally prominent in the

development of rDNA and hybridoma technologies. *

Also like the United States, the United Kingdom is experiencing personnel shortages in areas related to

scale-up. The shortage in the United Kingdom in part

results from the fact that very limited opportunities

in British universities have led some scientists to leave

their posts in academia for positions in foreign biotechnology companies. Approximately 70 Ph. D.s have

left the United Kingdom in the past few years. Slightly less than two-thirds of these scientists have come

to the United States, though some of them may not

be working exclusively in biotechnology. About 30 of

the 70 have joined commercial enterprises (13 now

work at Biogen S.A. in Switzerland). This “braindrain”

also affects another class of professionals, i.e., individuals skilled in applying the new technologies such

as bioprocess and chemical engineers and masterslevel microbiologists. Analysts estimate that a total of

between 100 and 1,500 experts in some aspect of biotechnology have left the United Kingdom over the past

several years (45).

The effects of this outflow on the overall British effort are difficult to determine; no one really knows

“This and other definitions of biotechnology are presented in Appendix

A: Definitions of Biotechnology.

● British researchers Georges Kohler and Cesar Mi]stein at the Medical Research Council were the first to develop hybridomas,
App. B—Country Summaries . 515

whether the United Kingdom may be losing visionaries

as well as scientists or whether 100 people represent

a significant portion of the available specialized personnel in the United Kingdom (41). In an effort to correct a situation which often obliges some younger researchers and engineers to emigrate, the British Government has recently launched a program to make

room for “new blood” in the life sciences in the universities. The creation of these new positions will raise

the number of lecturers and create new openings for

postdoctoral research and postgraduate courses. In addition, SERC maintains a list of British biotechnologists

outside the United Kingdom and may be taking measures to encourage them to return (45).

UNIVERSITY/INDUSTRY RELATIONSHIPS AND

DOMESTIC TECHNOLOGY TRANSFER

The universities in the United Kingdom have had

very few ties with industry in biotechnology. As a

result, the transfer of technology from public research

to the industrial sector in the United Kingdom has not

always been effectively accomplished. In 1975, for example, the Government failed to patent Kohler and

Milstein’s technique for making hybridomas, the specialized cells which produce MAbs, and the Americans

were the first to recognize the commercial potential

of MAbs (40).

With the growth of biotechnology and of public support for these technologies, however, the British Government has taken steps to encourage the process of

domestic technology transfer. BTG, which encourages

cooperative projects between industry and public sector research and serves as a public source of venture

capital, has committed $21 million in support for biotechnology projects so far, with $6.5 million annual

increases expected for the next few years (44). In addition, the Department of Industry launched in 1982

a new, 3-year, $30 million “Biotechnology in Industry”

program, independent of BTG’s activities. Directed by

the Laboratory of the Government Chemist, this program sets aside funds for consultancies and project

feasibility studies, supports demonstration plant construction, and sponsors joint industry-research centers

(31). SERC has initiated several collaborative research

programs and promoted, for example, the Leicester

Biocentre. The British Government’s establishment of

NBFs such as Celltech and Agricultural Genetics Co.

in association with private investors and BTG’s loss of

the rights of first refusal* on inventions in public research (32) may help stimulate direct relationships between researchers and industrialists,

“This is the right to choose whether or not to produce and market any

good or service, without having to bid competitively with other firms,

OTHER FACTORS

The regulatory environment in the United Kingdom

poses little threat to the development of biotechnology

in that country. Approval for the marketing of a new

drug in the United Kingdom, for example, occurs twice

as quickly as in the United States (46). *

The public body that has been responsible for setting and enforcing the United Kingdom’s guidelines

for rDNA research is the Genetic Manipulation Advisory Group (GMAG). GMAG’s status was recently reviewed by the Health and Safety Executive, and the

subsequent report recommended the relocation of the

group from the Department of Education and Science

to the Department of Health and Social Security (42).

GMAG, now called the Health and Safety Commission

Advisory Committee on Genetic Manipulation, has

been moved to the Department of Health and Social

Security and will advise the Health and Safety Commission and Executive on general questions, giving advice, when requested, to Government departments.

This change in status of the old GMAG reflects a belief

by the Government that those responsible for agriculture, environment, and industry need the committee’s

advice now more than those in charge of education

and science (44). Only in exceptional instances will the

Advisory Committee on Genetic Manipulation actually review project proposals. The burden of this task

has been passed on to Government officials (42).

British patent law in general conforms to European

standards. The lack of case law specific to biotechnology inventions, however, precludes an assessment

of whether certain patents that are issued in the

United States would receive the same treatment in the

United Kingdom. Antitrust laws are approximately

equivalent to U.S. statutes.

CONCLUSIONS

The United Kingdom could be a major competitor

of the United States in specific product markets in

biotechnology. The country’s strong basic and generic

applied research base, the British Government’s strong

interest in direct measures to stimulate the commercial development of biotechnology, the excellent university system, and the relatively positive regulatory

environment all contribute to allow domestic industries a competitive foothold in biotechnology. The

future of commercial biotechnology will be decided

in part by the speed, content, and scale both of political

decisionmaking with respect to biotechnology and of

industrial commitment to developing the technologies.

Although the number of NBFs has grown in the

United Kingdom because of an increasingly positive

“For further discussion, see (38).
516 . Commercial Biotechnology An International Analysis

public attitude toward high technology in general, the

development of high-technology fields in the United

Kingdom may lack some of the dynamism of similar

enterprises in the United States. The causes of what

appears to be a lack of entrepreneurialism fall outside

the scope of conventional modes of analysis and may

be due in part to cultural factors which defy measurement.

The ability of all interested parties to adopt recent

Government measures to encourage technology transfer from public institutions to industry and to solve

other problems will, to a large extent, determine

whether the country can challenge the United States,

Japan, and West Germany in this new set of technologies. The United Kingdom’s affinity with the United

States and longstanding commercial ties to the Pacific

Basin could very well be assets.

Switzerland

INTRODUCTION

Switzerland reveals an impressive national commercial potential in the area of biotechnology. It has a good

university system and several renowned research institutions. A strong financial sector and a technologybased, export-oriented economy also contribute to

Switzerland’s potential competitiveness in biotechnology. Swiss companies produce 10 percent of the

world’s pharmaceuticals (53), and, by reinvesting large

proportions of sales revenues in R&D, they achieve

high rates of imnovation essential to competitive

success.

Switzerland is organized as a federation of 26

relatively autonomous regions (cantons), and a liberal

economic tradition constrains the Federal Government’s role in industrial policymaking. Consequently,

the Swiss Federal Government has not developed a

central policy for biotechnology. A number of steps

have been taken to promote innovation through Government loans to highly focused, small-scale projects,

but these have not been focused on biotechnology (53).

In fact, in 1982, a proposal to establish a national

research program specifcally for biotechnology under

the auspices of the Swiss National Science Foundation

(Schweizerischer Nationalfund zur Forderung der

Wissenschaftlichen Forschung) was voted down by

this organization.

INDUSTRY

Private sector biotechnology R&D in Switzerland is

concentrated among three large pharmaceutical companies (Ciba-Geigy, Hoffmam-La Roche, and Sandoz),

an NBF (Biogen S.A. *), and, to a lesser extent, several

companies involved with bioprocess engineering and

biomass conversion for producing chemicals and for

energy production (Bioengineering AG, Chemap AG

(now owned by Alfa Laval), Petrotec Holding Co. AG,

and Batelle Geneva Research Center (U.S. owned).

All of the three large Swiss pharmaceutical companies spend a substantial portion of their R&D expenditures abroad. Ciba-Geigy has made the greatest

in-house commitment to biotechnology R&D by improving current production lines such as antibiotics

with genetic manipulation. Ciba&eigy’s commitment

to the development of biotechnology can be seen in

its new $19.s million biotechnology research center

employing 150 people and in its extensive program of

support for research in local universities and its own

institute laboratories (53). Ciba-Geigy, spent about 8

percent of its 1981 total sales of $1.8 billion (SFr 3.8

billion), on overall R&D. Of this amount, almost 60 percent was spent within Switzerland, while expenditures

in U.S. facilities comprised 23 percent and those in the

rest of Europe and Asia accounted for 20 percent of

the total outlays (49).

In comparison with Ciba-Geigy, Hoffmann-La Roche

and Sandoz look more toward the United States for

developing biotechnology expertise through contracts

and R&D subsidiaries. Hoffmann-La Roche, in conducting biotechnology R&D in its research institutes

throughout the world (especially New Jersey) and

forming partnerships with NBFs in the United States,

spent $59 million on biotechnology R&D in 1981 (50).

Approximately one-third of Hoffmann-La Roche’s biotechnology R&D budget goes to rDNA experiments

(48). Similarly, Sandoz pursues biotechnology through

a half-million dollar contract with the Wistar Institute

(Philadelphia), a contract with NPI (Salt Lake City), a

$5 million investment in the Genetics Institute (Boston),

and the purchase of Zoecon (Palo Alto), in addition to

research conducted in its Austrian institutes. Though

only $5 million of the $226 million Sandoz R&D budget

has been spent on biotechnology since 1977, biotechnology will account for an increasing share in the

future (48). For example, a biotechnology research institute recently established by Sandoz at University

College, London, a center of neurobiology and neuro-

● Biogen, S.A., a Wias company, is one of the four principal operating subsidiaries of Biogen N. V., which is the parent company of the Biogen group

and is registered in the Netherlands Antilles. Biogen N.V. is about 80 percent

U.S. owned. The other three subsidiaries include: Biogen Research Corp. (a

Massachusetts corporation) which conducts R&D under contract with Biogen

N.V. and Biogen B.V. (a Dutch corporation) and Biogen, Inc. (a Delaware corporation) both of which perform marketing and licensing operations. Biogen’s

principal executive offices are located in Ceneva, Switzerland. Biogen N.V.

is largely U.S. owned.
App. B—Country Summaries . 517

chemistry, will receive $7.6 million over the next 3

years.

While the established pharmaceutical companies are

beginning to explore new applications of biotechnology in the area of pharmaceuticals, the NBF Biogen

S.A. is applying biotechnology to several industrial sectors with a diverse R&D program. Biogen was established in 1978, largely at the initiative of venture capitalists from the United States, with funds from International Nickel Co. Biogen currently has three other

principal shareholders: Monsanto (U.S.), ScheringPlough (U.S.), and Grand Metropolitan Limited (U.K.).

Biogen S.A. has yet to sell any products made from

biotechnology, but it was the first firm to obtain expression of hepatitis B surface antigens, leukocyte interferon, and the viral antigen of foot-and-mouth disease from rDNA technology. The diverse background

of its scientific board suggests a flexible R&D policy

with widespread applications of biotechnology to mining and metals refining, pharmaceuticals, chemicals,

energy, agriculture, and food and beverage production (54). In 1982, through $20.5 million generated

from contract research (primarily with Schering

F.R.G.], Shionogi [Japan], and Fujisawa [Japan]), Biogen

S.A. supported an $18.4 million R&D program (48).

GOVERNMENT FUNDING OF BASIC AND

APPLIED RESEARCH

Though the Swiss Federal Government has no specific biotechnology policy, its funding for biotechnology-related research is increasing (48). The Swiss National Science Foundation serves as a clearinghouse

for Federal funds for the support of basic research

related to biotechnology at specific universities and

other institutions. Much of the fundamental research

in the life sciences, however, is carried out in the largely canton-supported universities (52). Out of Switzerland’s total biological and biomedical research budget

of about $73 million (SF150 million), about 4 percent

or $980,000 (SF2 million) goes to biotechnology.

The major Government source of applied research

funds is the Commission for the Encouragement of Scientific Research (Commission zur Forderung der Wissenschaftlichen Forschung). This commission provides

grants for applied research projects of proven interest

to industry, normally contributing 50 percent of the

costs. The Department of Biotechnology (Institut fur

Biotechnologie) at the Swiss Federal Institute of Technology at Zurich (ETH-Zurich, Eidgenossische Technische Hochschule) receives strong support from the

commission. ETH-Zurich, with an additional complex

at Honggerberg, conducts research in the areas of

basic biological research, bioprocess engineering, and

water and sludge treatment. In addition to funding

these activities, the Commission for the Encouragement of Scientific Research itself plays an active role

in identifying potential industrial partners and interesting them in particular research projects (53).

Given the proprietary nature of much of the work,

funding figures are unavailable (52).

TAX INCENTIVES FOR FIRMS

Beause of low corporate tax rates, Switzerland provides a favorable environment for established companies in biotechnology. Though corporations conducting business in Switzerland are subject to both

Federal and cantonal taxes, the Swiss effective corporate tax rate is the lowest in Europe (51).

PERSONNEL AVAILABILITY AND TRAINING

The access to distinctive universities and the high

standard of living in Switzerland, attract highly

qualified persomel from around the world to participate in Swiss biotechnology. Although the availability of personnel may not be important for the large

pharmaceutical companies, which conduct a large proportion of their R&D in other countries, it is crucial

to the Swiss advancement of biotechnology in other

sectors. The attraction of talent from other industrialized countries may help the competitive efforts of

Swiss companies in biotechnology in the future.

OTHER FACTORS

Swiss antitrust laws preventing monopolies present

no serious problems for R&D joint ventures. In Government-industry joint projects, Swiss law assigns

patents to industry, though holders of inventions

whose R&D was supported by a Federal grant must

repay the Federal contribution from license fees generated by the patent.

Health and safety laws in Switzerland do not generally impose barriers to biotechnology development.

Although Switzerland is following a previous, and

more restrictive version of the U.S. guidelines for

rDNA research, there are no requirements covering

large-scale work. The licensing of pharmaceuticals is

more streamlined in Switzerland than in other countries. There is no requirement for Government approval before initiation of clinical trials, and the drug

approval process generally takes from 6 to 10

months. *

*The Swiss pharmaceutical industry exports ruughly 90 percent of its pruducts. Thus, the drug and other product regulations of importing countries

cause more concern to these companies than Switzerland’s relatively relaxed

regulatory framework (s3).
518 ● Commercial Biotechnology: An International Analysis

CONCLUSIONS

The factors cited above and a growing commitment

to biotechnology by the private sector suggest that

biotechnology is advancing in Swiss industries. Both

the Federal Government and most companies have

been slow to initiate R&D programs in biotechnology,

although the Swiss pharmaceutical industry and

especially four companies have boosted their activities

in these fields. For several reasons, Switzerland has

only recently begun to dedicate its collective efforts

to biotechnology (53):

●

●

●

●

financial experts and bankers have lacked the

technical expertise to evaluate high risk technologies;

manufacturers have been averse to incorporating

biotechnology into some Swiss industries because

of the high financial risks and uncertainties caused

by public and professional concern about the safety of rDNA research;

Swiss industrial scientists have trailed Swiss and

non-Swiss academic scientists in recognizing the

widespread potential of biotechnology; and

Swiss industries are highly oriented toward chemical synthesis and thus have underestimated the

commercial implications of new biological processes.

In conclusion, the majority of Swiss biotechnological

expertise rests in the large pharmaceutical companies

and in Biogen S.A. and a few other small firms. The

large companies generally conduct their R&D in foreign subsidiaries or in the form of proprietary research at in-house facilities and make no concerted

effort to support domestic basic research outside industry (48). Thus, technology transfer between large

Swiss firms and the universities is limited. Nevertheless, given the quality of Swiss educational institutions

teaching the knowledge needed for the development

of biotechnology, the attraction of foreign talent to

Switzerland, and a new Government focus toward biotechnology development, the industrial use of biotechnology by Swiss companies is likely to become more

widespread in the near future.

France

INTRODUCTION

France is currently in a less favorable position to

compete with the United States than Japan and the

other European countries analyzed in this report. The

country’s research system and industries generally

lack a critical mass of qualified personnel in many

disciplines important to the development of biotechnology, In addition, attempts by the socialist government to increase R&D expenditures have met with

frustration because of an adverse macroeconomic

situation in France during the last 2 years, However,

the existence of isolated centers of excellence in scientific disciplines such as immunology, molecular biology, and bioprocessing, and of a few companies with

bioprocessing expertise and a strong commitment to

developing biotechnology, such as Elf Aquitaine and

Rhone Poulenc, may help France to compete with

other industrialized companies in selected product

markets.

INDUSTRY

Three large French companies have R&D programs

in biotechnology-Elf Aquitaine (67-percent Government owned), Rhone Poulenc (100-percent Government owned), and Roussel Uclaf (40-percent Government owned and a Hoechst subsidiary). Of these three,

Elf Aquitaine has committed the most effort and

money to biotechnology. It owns Sanofi, a pharmaceutical company that has the right of first refusal on all

development research at Institut Pasteur Production

(the scale-up branch of the Institut Pasteur), and has

established Elf Bioindustries and Elf Bioresearch to

develop biotechnology in the foodstuff and agricultural

sectors. Medium-sized French companies, especially

in the foodstuff sector, spend very little in overall R&D

(about 0.1 to 0.2 percent of revenues) and have hesitated to devote their energies to biotechnology (62).

Furthermore, France has only a few NBFs (e.g., Genetica, Transgene, Hybridolab, and Immunotech), and

most of them are subsidiaries of large companies or

commercializing arms of research institutes. Thus, the

ability of large companies to commercialize biotechnology products will determine France’s competitiveness in certain product markets.

GOVERNMENT TARGETING POLICIES

Official interest in the commercialization of biotechnology in France emerged only recently, with the appearance of the Pelissolo report in December 1980

(59). Since the election of the socialists, the French

Government has resolved to push the development of

several new technologies in its national industries and

has accorded a privileged position to biotechnology

within this scheme.

The French socialist government has established the

most highly coordinated policy for the development

of biotechnology of any of the six major competitor

countries identified in this assessment. This policy

rests on two cornerstones:

. a general research law (Loi de Programmation et

d’Orientation) adopted by the French National

Assembly in the first week of July 1982, and
App. B—Country Summaries 519

● a program specifically for biotechnology (“Programmed Mobilisateur: L’Essor des Biotechnologies”) presented toward the end of the same

month (58).

The general research law sets two objectives: l)to

stimulate French effort in new technologies by “guaranteeing” real increases in the overall civilian R&D

budget of 17.8 percent per year, economic conditions

permitting, and setting up seven technological “programmed,” including one for biotechnology, on which

a major portion of research funds are now to be directed; and 2) to open up French science to industry

and education by encouraging scientists in research

institutes to work in collaboration with private sector colleagues and to teach in universities (65). The

Programme Mobilisateur, presented in July 1982 by

the Biotechnology Mission of the newly organized Ministry of Research and Industry (now the Ministry of

Industry and Research), outlines in detail the steps the

Government should take to strengthen French biotechnology. This document calls for intervention from

Paris through a myriad of organizations and committees in all aspects of research, education, technology

transfer, and industrial development.

Both the research law and the Programme Mobilisateur demonstrate the French Government’s determination to promote the necessary multidisciplinary approach to the various technologies and to establish vertical chains (filires) that incorporate all the relevant

expertise in basic research, generic applied research,

and large-scale production necessary to bring a product to market (60). The effectiveness of the French

policy, however, will depend in part on the extent of

voluntary cooperation among the various Government

groups implementing the policy and the sectors the

plans affect (i.e., public research centers, universities,

and private industry).

GOVERNMENT FUNDING OF BASIC AND

APPLIED RESEARCH

Most basic research in France is conducted in public

research centers (“grands organisms”), similar in principle to the British Research Councils, or in a few university laboratories associated with these centers. *

One of the three major “grands organisms,” the National Center for Scientific Research (CNRS, Centre National de le Recherche Scientifique), conducts basic

research related to biotechnology in three different

divisions, and some of the projects CNRS sponsors

overlap with similar work both at the center itself and

at other centers and universities (62).

● For a more detailed description of the research infrastructure in France,

see R. Walgate, “Great Schools, Great Contradictions” (63) and “CNRS-The

Core of Research (64).

Little public sector generic applied research takes

place in France. There are no national applied research laboratories, and with the exception of isolated

programs at the universities at Compiegne (enzymology and bioprocess engineering) and Toulouse (biotechnology), the Government of France supports almost no generic applied research of benefit to its domestic industries.

Until recently, Government funding of both public

and industrial R&D counted as a French strength. Although it should be noted that definitions of biotechnology differ from one organization to the next, funding estimates vary according to referred sources, and

many research projects receiving biotechnology money have nothing to do with biotechnology (62), the

French Government probably spent between $35 million and $60 million on biotechnology R&D in 1982. *

Notwithstanding the Government strong initial effort

to fund biotechnology, increases planned for 1983

were effectively reduced. The National Assembly reduced the scheduled 17.8-percent real increase in the

1983 civil research budget to about 10 percent (66),

and the reduction for researchers in biotechnology related fields was even greater. CNRS saw its original

1983 budget cut by 12.5 percent, and the Programme

Mobilisateur research has lost a quarter of its allocation. These austerity measures allow research funding

to keep pace with inflation, but little more. In spite

of the reductions, the overall research budget still represents a 7.5-percent real increase over 1980 levels,

and the Ministry of Industry and Research continues

to support its policy of increasing allocations for

science (56).

FINANCING AND TAX INCENTIVES FOR FIRMS

A new law enacted in February 1983 created a legal

structure allowing the formation and investment of

venture capital (67), but the venture capital market

in France is poorly developed. Banks are the major

source of financing in France, and have always hesitated to take major equity positions in industry. The

financing that French banks provide, however, is designed for long-term projects, thus eliminating the

problem, encountered by companies in the United

States, of finding sources for second- and third-round

financing.

With the exception of one provision, tax law in

France generally conforms to European and American

standards. A generous depreciation allowance in the

tax code permits a company in France to write off SO

● This estimate is based on a 3-year (1983-85) projected total of $175 million,

with a guaranteed (by law) 17.8-percent annual increase in the ci~ril research

budget, plus increased support for industry through existing schemes.
520 . Commercial Biotechnology: An International Analysis

percent of its expenditures on R&D capital assets during the first year following the acquisition of these

assets.

PERSONNEL AVAILABILITY AND TRAINING

France has a serious shortage of qualified personnel that could well undermine the country’s basic and

applied science base and prevent France and its industries from competing successfully in the world biotechnology marketplace. Specialists in the fields of general

and industrial microbiology, rDNA and hybridoma

technologies, enzymology, plant and animal cell culture, and bioprocess engineering are few (55). Although some French research centers boast internationally recognized teams, such as the enzymology and

bioprocess technology teams at the technical University of Compiegne or the immunology groups at the

Institut Pasteur (62), these are isolated clusters of expertise and will have difficulty matching the total output of the large and balanced national research bases

of other competitor countries.

The scarcity of personnel in France cuts across several sectors of R&D in these technologies and applies

equally to different categories of personnel, from scientists and bioprocess engineers with advanced degrees to skilled laboratory and production technicians.

In order to correct this situation, the French Government has given special attention to the education and

training of qualified personnel. The research law

passed in July called for the active involvement in the

educational process of public sector researchers outside universities (65), and the Programme Mobilisateur

presents educational guidelines for all stages of schooling from secondary to postdoctoral levels, placing special emphasis on an interdisciplinary approach within

the universities (58). The education of a specialist in

rDNA technology, nonetheless, takes many years, as

does the implementation of such training programs.

As a short-term solution to its present lack of personnel, therefore, France imports foreign experts (58).

UNIVERSITY/INDUSTRY RELATIONSHIPS AND

DOMESTIC TECHNOLOGY TRANSFER

Universities in France have had very few ties with

industry in biotechnology. Large firms in France actively seek out developments in basic research, either

by locating plants near research centers or through

an office that monitors current developments in biotechnology research in France and other countries.

The French Government encourages domestic technology transfer through the National Agency for the

Evaluation of Research (ANVAR, L’Agence National de

la Valorisation de la Recherche). ANVAR, which has

no right of first refusal on the results of research in

public laboratories, acts as a catalyst for the direct interaction between these institutes and private firms

(e.g., through publications on the status of innovation

with applications in different industrial sectors). *

OTHER FACTORS

The French legal and regulatory environment, with

one exception, poses no real barriers to the commercial development of biotechnology. France maintains

the most rigid investment control laws in Europe (61).

These regulations allow the French Government to

prevent strategic companies from being acquired by

foreign concerns and may well hinder foreign firms’

ability to penetrate French markets.

Health and safety regulations, as well as patent and

antitrust laws in France, however, are approximately

equivalent to those in other European countries.

CONCLUSIONS

At present, France lags somewhat behind the United

States, Japan, the Federal Republic of Germany, the

United Kingdom, and Switzerland in the commercial

development of biotechnology. If the country can solve

its personnel problems, however, French industries

could well gain a competitive footing in selected product markets. The Government’s well-coordinated formal policy and adequate but precarious funding program represent a strong commitment to the development of biotechnology that needs to be completed with

the necessary qualified personnel. Although the

French private sector until rather recently has hesitated to develop its biotechnology capabilities, large

companies do have the money and the means of uncovering the latest technological developments. Therefore, the ability of both the public and private sector

to recruit and train scientists and technicians and the

maintenance of sufficient Government allocations for

R&D in the face of adverse macroeconomic conditions

may ultimately determine the competitiveness of

French biotechnology in the international marketplace.

Sweden

Sweden is a technologically progressive country, but

adverse public opinion toward rDNA technology has

resulted in the imposition of Government restrictions

on the use of rDNA in research and industry. Furthermore, a lack of trained personnel in basic sciences has

restrained the commercialization of biotechnology.

● For a general review of ANVAR’S functions and activities, see “Commentary on the National Agency for the Evaluation of Research,” L+?? Monde (57).
App. B—Country Summaries ● 521

Swedish public opinion and Government policies

may be changing to encourage biotechnology in

Sweden. If this proves to be the case, Sweden may

market products in areas such as the following:

●

●

●

Support sector. Swedish scientific instrumentation, filtration, and industrial separation systems

are used around the world and are important in

the commercialization of biotechnology.

Bioprocess engineering. A large portion of

Sweden’s combined public and private sector

R&D efforts is devoted to heterogeneous bioprocessing systems, stabilization of immobilized cell

systems, membrane technology, and downstream

purification and regeneration (76).

Pharmaceutical industry. Swedish pharmaceutical

companies maintain aggressive export policies and

are active in innovation. The five largest Swedish

companies have a gross annual income of about

$1 billion, with 70 percent derived from exports

(76). It is not known to what extent Swedish pharmaceutical companies will use biotechnology,

given Sweden’s shortage of trained personnel in

rDNA technology and other areas. In the near

term, most Swedish companies will probably

rely on licensing arrangements with NBFs in the

United States to gain access to biotechnology (76).

Among the Swedish companies that appear to have

the potential to use biotechnology for producing goods

and services are Pharmacia AB, KabiGen/KabiVitrum,

and Alfa-Laval.

Pharmacia AB concentrates on pharmaceuticals,

separation products, diagnostics, and cosmetic products, and derives 90 percent of its revenues from exports; the U.S. subsidiary, Pharmacia, accounts for 25

percent of these sales. With demonstrated abilities to

serve specialty markets, this company is a leader in

separation science and is working to establish rDNA

capabilities.

KabiGen/KabiVitrum, operated by the Swedish Government, is currently the world’s largest supplier of

pituitary derived human growth hormone (hGH). In

order to protect its hGH market from foreign competition, Kabi has entered into a licensing arrangement

with Genentech (U. S.) to market rDNA-produced hGH

outside of the United States. KabiGen is also moving

to establish its own rDNA capabilities, intending to

pursue projects on human insulin, methanol production, bacterial metal enrichment from ores, interferon,

and anticoagulant pharmaceuticals (71,72). Furthermore, Kabi is involved with the development of support equipment, including a polynucleotide synthesizer (69).

Alfa-Laval has large-scale fermentation capabilities

and is currently working to establish rDNA capabilities

through its subsidiary AC Biotechnics, in which it

shares ownership with Cardo Co. Biotechnics has a

budget of $8 million to $10 million for an unspecified

length of time to produce specialty chemicals and

ethanol using rDNA technology.

Other Swedish companies interested in biotechnology include Sorigona AB, which produces chemicals

and foods; Astra, which is working in collaboration

with U.S. researchers to develop long-acting anesthetics (74); and approximately a dozen additional

firms.

Funding for high technology in Sweden is available

from several Government sources. Since each department of the Swedish Government establishes its own

R&D budget, however, overall R&D funding estimates

are difficult to obtain. Some degree of R&D coordination is maintained by the National Swedish Industrial

Board (Statens Industri Verk), which is responsible for

promoting technological development, organizing

training, and orchestrating Government actions, and

the National Swedish Board for Technical Development (STU, Styrelsen for Teknisk Utveckling). STU,

which is the main source of Government funds for

biotechnology, granted an estimated $4 million for

biotechnology in 1982, and Swedish industry probably

spent an additional $15 million (72).

The manner in which STU distributes R&D funds

reflects a Swedish Government policy of directly promoting strategic industries. STU works through joint

Government/private ventures with foundations established by Swedish and foreign companies interested

in a particular field of development. STU provides half

the R&D funding as provisional grants and the foundation provides the other half. If the venture is successful, the funding is treated as an interest-free loan;

otherwise, it is considered a grant. Research grants/

loans are limited to $100,000, and those for product

development to $600,000. In 1973, 20 Swedish, 2

Danish, 2 Finnish, and 1 Norwegian company established a specific foundation to promote biotechnology

called the Biotechnology Research Foundation (SBF,

Stiftelsen Bioteknisk Forskning) (72). SBF, in conjunction with STU, is currently conducting research on

heterogeneous bioprocessing systems, immobilized cell

systems, membrane biotechnology, and regeneration

of coenzymes (76).

Private industry R&D in Sweden is encouraged by

corporate tax incentives, which include a 10-percent

deduction for R&D and a 20-percent deduction for any

increase in R&D from the previous year.

Sweden’s Central Investment Bank and commercial

banks provide risk capital in promising technological

areas. Information about the banks’ views toward new

biotechnology is not available, but in 1982, $300

million for all R&D loans in Sweden were tendered.

Capital for risk ventures from other sources is limited

25-561 0 - 84 - 34
522 Commercial Biotechnology An International Analysis

in Sweden, and the larger Swedish companies, such

as Fortia, rely primarily on internal funds and Biotechnology Research Foundation loans (73).

The Swedish Government has encouraged high-technology, export-directed growth for many years and

has promoted relations among the Government, industry, and the universities. Seven Swedish universities have liaison officers with industry whose salaries

are paid by STU. A 6-year, $7 million agreement has

been established between the University of Uppsala,

the University of Agriculture, the Swedish Veterinary

Institute, and Fortia AB, that is intended to develop expertise in rDNA technology and to create the ( most intensive programme of biotechnology in

the “world” (68).

Although extensive interaction between the sectors

is encouraged and funded, Swedish efforts to commercialize biotechnology suffer most from a shortage of

certain types of trained personnel. Estimates of the

number of Swedes working in biotechnology vary

from 30 to 40 people (72) to as many as 200 workers

at Uppsala alone (68), but shortages of personnel in

key areas such as rDNA technology hamper wider

commercial applications (75).

Personnel training for biotechnology has been largely inhibited by negative Swedish public attitudes

toward rDNA experimentation. As a result of the restrictive rDNA guidelines, which required the Swedish

National Recombinant DNA Advisory Committee’s permission to conduct any rDNA research, there was little need for trained personnel, and Sweden’s private

sector relied on foreign companies for developing

products requiring rDNA processes (70). In a joint project between KabiVitrum and Genentech (U. S.) to develop and produce hGH, for example, the first actual

cloning of the hGH gene was performed in the United

States by Genentech. Since the relaxation of the guidelines, however, the need for qualified engineers and

scientists has increased, and some Swedish universities

have instituted training programs in biotechnology.

The Swedish Government’s identification of biotechnology as an industrially strategic area, as exemplified

by the establishment of joint programs with SBF and

other promotional activities for research, indicates that

Swedish views may be changing. With Sweden’s demonstrated ability to successfully exploit new technologies, Swedish companies may prove to be competitive in the future in the support and bioprocess sectors, as well as in pharmaceutical markets.

Netherlands *

The Dutch Innovation Programme on Biotechnology,

started in May 1981, is aimed at filling the gap between

basic research and applied development work in

Dutch universities. Funds supplied by the Government

of the Netherlands will be used to develop research

in areas where current national effort is insufficient.

The program will be coordinated by the Dutch Programme Committee on Biotechnology. The program

will last until the end of the 1980’s, after which the

existing research budgets of universities and institutes

will furnish Dutch industry with the needed basic research.

The Programme Committee on Biotechnology (Programma Commissie Biotechnologie) requested $11.2

million (NLG30 million) to be spent on basic biotechnology research from 1983 until 1988. This amount

is in addition to the $11.2 million to $15 million (NLG30

million to NLG40 million) which the Government

spends yearly on research projects in the fields of

molecular and classical genetics, microbiology, cell

biology, biochemistry, enzymology, and bioprocess

and bioreactor engineering.

In addition to the aforementioned sums, $2,6 million

(NLG7 million) will be used by university/institute and

industry groups in the Netherlands for multidisciplinary biotechnological research projects. According to

the Programme Committee, these projects should be

in the following areas:

● host vector systems for industrial and agricultural

applications,

● somatic cell hybridization,

● second generation of biotechnological reactors

and processes, and

● downstream processing.

Established Dutch companies that are setting up inhouse R&D efforts in biotechnology include the following:

● Gist-Brocades N.V.

c Akzo-Pharma N.V.

● Unilever H.V.

● N.V. DSM

● Heineken N.V.

Q Dupher N.V.

● This summary is based on a personal communication with Dr. Ir. R. R.

Van der Meer, Secretary-Coordinator, Programme Committee on Biotechnology, Gravenhague, April 1983 (78).
App. B—Country Summaries ● 523

Gist-Brocades N. V., one of the two companies in the

world that supply more than 60 percent of the world’s

enzymes for industrial use, is devoting almost all of

its $20.6 million (NLG55 million) budget for R&D to

biotechnology. Intervet International, a subsidiary of

Akzo-Pharma, was the first company to market vaccines produced through rDNA technology, Intervet’s

vaccines, introduced in March 1982, prevent scours

(infectious diarrhea) in calves and piglets (77).

The Programme Committee on Biotechnology forecasts no personnel shortages. In fact, there is an excess of biochemical and microbiology students for the

available Dutch jobs in industry. There are no tax

policies aimed at encouraging biotechnology in Dutch

industries. The Dutch have eased their regulatory

guidelines for working with rDNA technologies to conform to U.S. guidelines.

Australia *

The Australian Government supports a highly respected basic research system, especially in plant

breeding and molecular biology, but it regards the

development of biotechnological applications, including scale-up development and bioprocess engineering, as the responsibility of the private sector.

Owing to a historic dearth of capital for high-risk ventures and a lack of trained personnel in applied technology, commercial biotechnology in Australia is not

well developed. Australia’s problems are exacerbated

by the emigration of some of its top scientists to other

countries where attractive jobs exist, although there

is some indication that this situation might change in

the future. The Australian Government is taking steps

to implement incentives to help retain scientists and

encourage venture capital formation to help foster

promising applications of biotechnology.

Australian efforts are not expected to have an immediate impact on the markets discussed in this report. Nevertheless there is a strong possibility that, by

using biotechnology to help solve local problems, Australia will find new markets for biotechnology products. Areas of biotechnology application in Australia

being pursued include the following:

 plant improvement programs to develop agricultural species that are adapted for higher yields

in Australian conditions;

. animal health products, particularly veterinary

and nutritional products that improve the marketability of Australia’s animals and animal products

(especially wool) for export;*

● microbiological mineral recovery to reduce extraction and separation costs for certain minerals

that Australia exports in great quantities;

 biomass conversion to ethanol and chemicals,

based on Australia’s large resources of grain crops

and sugar cane residues.

Other applications of biotechnology in Australia include animal breed improvements through embryonic

gene transfer, MAb-based diagnostic reagents for a

number of human diseases, and, on a small scale, interferon and other rDNA projects to develop pharmaceutical products.

Government funding for biotechnology in Australia

is administered through several Government agencies,

including the Australian Science and Technology

Council, which emphasizes expanded manufacturing

and agricultural production with biotechnology, and

the Commonwealth Scientific and Industrial Research

Organization (CSIRO), the main research agency in

Australia, which provided $4.6 million ($A4.5 million)

for biotechnology research in 1981. Other sources are

the National Health and Medical Research Council,

which distributed $19.0 million ($A18.7 million) in research funds in 1980/81 (some of which benefited Australian biotechnology); the Energy Research, Development, and Demonstration Program which distributed

$3.9 million ($A3.8 million) in 1980/81, partly for biotechnology project development; the Department of

Health, which gave $1.88 million ($A1.85 million) to

the Commonwealth Serum Laboratories to conduct research on interferon from 1980/81 to 1983/84; and the

Australian Research Grants Scheme, which awarded

$18.3 million ($A18 million) in 1982 to individual

research scientists, some of whom use biotechnology

in their work. In addition, financial assistance for

general industry R&D projects is provided under the

Australian Industrial Research and Development Incentives Scheme which in 1980/81, distributed $9.8

million ($A9.7 million) in commencement grants and

$36.6 million (A$36.1 million) in project grants.

Other Australian incentives include tax policies that

give minor benefits to firms undertaking R&D activities. Buildings used solely for scientific research purposes are depreciable over a 3-year period, compared

to general industry’s 40-year depreciation schedule.

New equipment used for scientific research is also

depreciable over a 3-year period, as opposed to a

5-year period for general industry equipment.

● This summary is based on information presented in “Biotechnolo@

Research and Development, the Application of Recombinant DNA Techniques

in Research and Opportunities for Biotechnolo~v in Australia” (79) and “Genetic Engineering--Commercial Opportunities in Australia” (80).

● To date, most rDNA efforts have centered on cloning the genes that en.

code sheep wool keratin and other wool constituents in an effort to impro~e

wool quality and lessen treatment costs of wool.
524 Commercial Biotechnology An International Analysis

In addition to basic research funding and tax incentives to businesses, liaisons between Australian universities and industry are encouraged. In some cases, academic researchers have financial equity in biotechnology firms. In other cases, the relationship is through

contracts with the universities. One example is an

agreement under which Agrigenetics Research Association, Ltd. provided $2 million for biotechnology

research at Australian National University. * Although

Australia has the infrastructure to support healthy

biotechnology development, lack of capital for hightechnology firms retards growth. The Government

and Australian banks make loans available to small

businesses at low interest rates, but these loans are

not generally available to high-risk enterprises such

as NBFs. High-risk ventures are hampered by a smaller

capital base in Australia than in the six major competitor countries. With increased Government interest

in commercial biotechnology, more capital may

become available. This increase in capital might in turn

encourage increased efforts by existing NBFs to find

applications for new biotechnology, as well as the formation of more NBFs. It should be noted, however,

that Australia has some of the most restrictive drug

licensing laws in the world, and these regulations may

impede Australian applications of biotechnology to the

pharmaceutical industry.

Biotechnology companies in Australia include the following:

●

●

●

●

●

Biotechnology Australia Pty., Ltd. (a subsidiary of

CRA Ltd.). Projects include animal feed additives

and health care products, specialty chemicals, biomass conversion, and mineral extraction schemes.

Austgen Pty., Ltd. (includes Biojet International

[Australia] Pty. Ltd.). projects include nutritional

additives and waste treatment systems. Much of

Biojet International’s R&D is oriented towards

products that can be exported.

Australian Genetic Engineering Pty., Ltd. Projects

focus on MAbs for diagnosis (a $5 million per year

market for MAbs for diagnosis currently exists in

Australia; a $15 million market is expected by

1986).

Bioclone Australia Pty., Ltd. This firm markets

MAbs made by the Garvan Institute and CSIRO

on a worldwide basis. Its best known product is

an antiprolactin MAb. Eleven additional MAb

products have been or will soon be marketed.

Australian Monoclinal Development Pty., Ltd.

This company supplies MAbs primarily for research purposes.

*The goal of this research is to incorporate the nitrogen-fixing genes of

bacteria into plants adapted to Australian conditions.

● Fielder Gillespie, Ltd. This milling company funds

MAb and biomass conversion projects.

In conclusion, Australia has the potential to develop

and commercialize several applications of biotechnology successfully. A good Australian research base exists, but increased infusions of capital are necessary

for new commercial startups if the potentials of biotechnology in Australia are to be realized. Australian

Government policies have targeted the development

of biotechnology, but the effect of the policies remains

to be seen. Some Australian products, such as MAb

diagnostic products, may prove to be competitive in

world markets, but overall, major competition in the

pharmaceutical and specialty chemical industries is

unlikely.

Israel

For several reasons, Israel may be unique among developed nations in fostering a strong basic and applied

research capability in biotechnology without having

a large industrial infrastructure to exploit the successes of research endeavors. Israeli scientists train

in U.S. institutions prominent in biotechnology and

have become well-versed in molecular biology and immunology. Except for small brewery plants and one

bioprocess plant (Gadot, which manufactures about

7,000 tons of citric acid per year), however, Israel does

not have companies using old biotechnological techniques. Furthermore, Israel’s tax and financial structures do not encourage financial risk-taking or the formation of new firms. Therefore, there are few industrial positions available for scientists trained in biotechnology.

As a result of the lack of depth in industrial expertise in Israel, Israeli universities, through their University-Connected Research and Development Organizations (UCRDOS)) * turn to foreign companies that

have the expertise to evaluate Israeli research and the

resources needed to commercialize the results of this

research. The number of joint ventures between Israeli UCRDOS and foreign firms is fairly large.

Noteworthy basic research in biotechnology is taking place at several Israeli universities and institutes,

among them Hebrew University, Technion Institute

at the Israel Institute of Technology, the Center for

Biotechnology at Tel-Aviv University, and the Weizmann Institute of Science.

At Hebrew University, 12 departments in the medical school are conducting biotechnology-related research projects, ranging from cellular biology to can-

● UCRDOS are set up by Israeli universities to promote commercialization

and applied research. These organizations may enter into joint ventures or

own equity in spinoff firms.
App. B—Country Summaries ● 525

cer research. The agriculture department has initiated

several projects and has received over $410,000 (more

than DM1 million) from the Minerva Fund in the Federal Republic of Germany for cooperative projects on

improving plant tissue culture techniques, rDNA and

protoplasm fusion in plant breeding, nitrogen fixation

and control of soil-borne plant pathogens by microorganisms, and new uses of algae (84). Hebrew University’s UCRDO Yissum signed a $5 million agreement

on nitrogen-fixation research with Biotechnology General (Israel), Ltd. (82), an Israeli NBF, and another $3

million agreement has been signed with International

Genetic Sciences Partnership (U. S.) (85),

Technion Institute, at the Israel Institute of Technology, is doing research on biotechnology instrumentation and on blood and blood plasma substitutes (82).

Tel-Aviv University, Center for Biotechnology, conducts research on MAbs, enzyme systems of anaerobic

bacteria, and immobilized enzymes (82).

The Weizmann Institute of Science is Israel’s main

center for rDNA research and is especially noted for

its work with interferon. Additionally, research is

proceeding with MAbs, antiviral vaccines, synthetic

antigens, and new genetic forms of wheat, within

seven departments.

Applied research using new biotechnology began in

Israel in 1978. As of 1981, 17 universities, institutes,

and venture firms in Israel had been identified as performing or funding applied research in biotechnology.

Of the 17, perhaps 10 use the new technologies in their

work (87). The four universities and institutes cited

above, in addition to conducting basic research, also

do applied work.

Israeli companies noted for their applied R&D include Biotechnology General, Interpharm, Inter-Yeda,

Kibbutz Beit Ha’Emek. Biotechnology General develops

research findings from the Weizmann Institute and

Hebrew University. Its main emphasis is on foot-andmouth disease vaccine, bovine growth hormone, biological disease control agents, and nitrogen fixation

(82).

Interpharm, a subsidiary of Applied Research Systems (ARES), a Dutch multinational firm based in Geneva, sold over 1.15 million shares of common stock on

the United States over-the-counter market in 1981. At

the time of offering, Interpharm had a contract to

supply ARES with hGH. Further, Interpharm may soon

market human fibroblast interferon for labial and genital herpes, depending on results of clinical trials, produced by its R&D susidiary Inter-Yeda (83). Other projects with commercial possibilities include an immunoassay separation technology, extraction technologies

for follicle-stimulating hormone and luteinizing hormone, and research on hybridomas (81).

Inter-Yeda, a joint venture firm owned 60 percent

by Interpharm and 40 percent by Yeda, will concentrate on four areas: production of interferon using

rDNA techniques, identification and isolation of interferon-associated proteins, artificial production of interferon, and MAb research (82). Inter-Yeda is shipping human fibroblast interferon to the Serono Corporation in the United States (81).

Kibbutz Beit Ha’Emek hired researchers in order to

use advanced tissue culture techniques to “develop

plant varieties resistant to herbicides, diseases and

other environmental hazards” (86). The kibbutz claims

a $1 million income from “tissue-cuhurederived products,” of which 65 percent are exported, mainly to the

Netherlands and the Federal Republic of Germany.

At present, there is no central planning of any R&D

by the Israeli Government, and thus the Government

has no national targeting policy for biotechnology.

Each Ministry within the Israeli Government determines and funds the R&D it deems necessary. The major source of Government funds for biotechnology

R&D is the Office of the Chief Scientist in the Ministry

of Industry and Trade. The Israeli Ministry of Industry

and Trade plans to invest $25 million in biotechnology

R&D over the next 5 years (85).

Canada

Canada’s economy relies greatly on its natural

resources such as agriculture, livestock, mining, and

forestry. In the past 3 years, Canada’s Federal and Provincial governments, as well as a few Canadian companies, have worked to incorporate biotechnology specifically as it relates to the development and exploitation of the country’s natural resources. A focus on

improving domestic capabilities in the necessary technologies and avoiding dependence on imported products and processes, however, represents an attempt

by both the public and private sectors in Canada to

compete in selected world markets. Whether Canada

becomes internationally competitive in areas of biotechnology such as agricultural plant strain development, mineral leaching, or lignocellulose conversion,

for example, will depend to a large extent on the rapidity with which it can exploit national expertise

before other countries with extensive R&D programs

in these fields.

Interest in the commercial development of biotechnology has evolved slowly in Canada. In June 1980,

the Canadian Federal Government commissioned a

Task Force on Biotechnology to evaluate the opportunities available to Canada in this area. This task

force, in its report to the Minister of State for Science

and Technology, identified specific weaknesses in
526 ● Commercial Biotechnology: An International Ana/ysis

Canada’s research base, Federal Government programs, regulations, and industry, and made specific

recommendations to help correct these deficiencies

(96). The Canadian Federal Government took more

than 2 years to act on these recommendations, In early

May 1983, it announced two separate yet complementary initiatives to help promote biotechnology in

Canada,

First, as part of a broader plan to support the development of emerging technologies in general, the

Ministry of State for Science and Technology designated biotechnology as one of the priority technologies

targeted for development (94). The plan to support

emerging technologies consisted of five basic components. The first was identification of strategic areas

of development most important to Canada. Adopting

the recommendations of the Task Force on Biotechnology, the Federal Government will concentrate efforts on research in nitrogen fixation, plant strain

development, cellulose utilization, mineral leaching

and metal recovery, and animal and human health

care products. The second component was creation

of research networks. Individual Federal departments

will establish and promote networks of research projects in biotechnology and researchers in areas relevant to their mandates. The third component of the

plan was establishment of a cost-sharing program.

Under the program, and with $7.7 million per year,

the Federal Government will match funds invested by

industry in universities or Provincial research organizations. The funds could be used for purposes such

as specific biotechnology research projects, the replacement of equipment, and the establishment of research chairs. The fourth component of the plan was

strengthening of overall Federal research capacity in

biological sciences ($3.1 million). The funds will be

used to establish and promote networks, to promote

interactions between Federal departments and universities and industry, and to strengthen existing programs within Government research organizations. Finally, the fifth component of the plan was the creation of advisory and coordinating committees. A National Biotechnology Advisory Committee, chaired by

a member from the private sector with 25 representatives from industry, academia, and Federal Government departments, will monitor the course of the biotechnology policy and advise the Minister of State for

Science and Technology on the program’s progress.

An Interdepartmental Committee on Biotechnology,

which functions at the Deputy Ministry level, will control the allocation of funds to departments participating in the Federal plan and will deal with a wide range

of issues such as patenting and regulation in biotechnology (92).

Parallel to and coordinated with the five-pronged

program outlined above, the Ministry of State for Science and Technology has charged the National Research Council (NRC)* with responsibility for the promotion of centers of expertise in biotechnology. Under

this program, NRC will undertake three separate projects:

. construction in Montreal of a $61 million biotech.

nology institute which will probably conduct

generic applied research on bioprocessing and enzyme technology (95);

● refurbishment and reorientation of the Prairie Regional Laboratory in Saskatoon (95); and

● strengthening of the NRC Biological Sciences Division in Ottawa.

In addition to the Canadian Federal Government,

many Canadian Provinces have begun to promote the

development of biotechnology. Quebec, Ontario, Saskatchewan, Alberta, and British Columbia have shown

an increasing interest in the commercial opportunities

offered by biotechnology. Quebec, for example, has

developed an explicit policy which gives high priority

to biotechnology. Saskatchewan is also in the process

of developing such a policy. Quebec and Ontario have

invested in commercial ventures in biotechnology (BioEndo and Allelix, respectively).

Several problems may limit the commercial development of biotechnology in Canada. First, there is a generalized shortage of personnel trained in the relevant

technologies (only 200 to 300 Ph. D. s), and many of

those who do graduate with degrees, for example, in

molecular biology or biochemical engineering are

lured to the United States to work in the private sector (97). Furthermore, very few private firms have directed their efforts to developing an expertise in new

biotechnology; most rely instead on more traditional

techniques in research, development, and production. **Canada also has very little experience in joint

university, industry, and Government cooperation (93),

though current Federal initiatives are addressing this

problem.

“NRC is an independent Crown Corp. with considerable influence on Federal science and technology policy. Though not a Government Department,

the Council is funded primarily by the Federal Government. Because of the

scientific expertise NRC possesses, it will administer $120 million for the technology support program (of which biotechnology forms a part). NRC currently employs a total of over 600 persons (including support staff) in biotechnolo~ alone when their program is in full operation.

“*A]lelix Corp. appears to be one of the few companies devoted entirely

to developing new biotechnology. Started by the Provincial Government of

ontario, the Canadian Development Corporation, and John Labatt Ltd. with

a total initial capitalization of $IOS million (89), this company is currently

concentrating on the development of new plant strains, using both cell-fusion

and rDNA techniqum (88). For further information on private sector activities

in biotechnology in Canada, see “Biotechnology Research and Development

in Canada” (9o).
.—

App. B—Country Summaries ● 527

The current Canadian patent law requires compulsory licensing of all human therapeutic drugs developed by one company to other general generic pharmaceutical companies (92). As a result of the implementation of this law in 1969, all multinational

pharmaceutical companies in Canada closed their research operations (91). There is no equivalent in

Canada to the U.S. Plant Variety Protection Act, even

though certain mechanisms do exist in Canada to protect the ownership of new plant strains (88).

Canadian tax law favors the development of biotechnology. One provision allows for a 100-percent, first

year deduction on all current and capital expenditures

for R&D. Additionally, corporations in Canada may

deduct a further 50 percent for incremental R&D expenditures (calculated from a moving 3-year average).

R&D expenditures are also eligible for a 10 percent

investment tax credit (small businesses and investments in some provinces receive a higher percentage

rate) up to a limit of $12,200 ($C 15,000). R&D limited

partnerships are also permitted in Canada (94).

U.S.S.R.

It is extremely difficult to obtain information on development plans for biotechnology in the U.S.S.R.

Although it is known that biotechnology R&D is carried out in the Soviet Union, information about the

extent of these activities is unavailable to the general

public. The following summary formed part of the report on competitive and technology transfer aspects

of biotechnology by a working group for the White

House Office of Science and Technology Policy (98):

The Soviet Union is actively supporting biotechnology R&D and has established an Interagency Technical

Council to organize and stimulate its progress across

a broad spectrum of disciplines, There is no information regarding the budget for biotechnology R&D.

However, the rate of growth of the Soviet research

establishment mirrors that which occurred in the

United States 3 to 5 years ago. Their stated interests

are directed toward domestic concerns such as the

development of medical/pharmaceutical preparations

and agricultural applications. Soviet establishment

of U.S. patents covering an amino acid producing organism and the enabling technology suggests an interest in international commercial competition as well.

Although Soviet research is often hampered by difficulties in obtaining equipment and reagents, the

Soviet system offers one major advantage over the free

enterprise system of the United States; i.e., R&D is

supported from inception through production and distribution, The financing gap between completion of

basic research which has potential for application, and

actual development, the costs of which in the United

States must be borne by industry, receives full support of the Government in the Soviet Union. The advantages of this system are:

● risks are taken by the Government;

. costs of development are borne by the Government;

● the Government’s financial base can support an extended period of development; and

● the Government can support long-term price control to facilitate international market entry.

It is too early to project potential Soviet success in

the international biotechnology market. Much depends on successful completion of research programs

now underway, and, most importantly, continued support by the Soviet Government.

Brazil *

Brazil is the only developing country that has a formal government policy for biotechnology. This policy

was developed because relations among the university, industry, and government sectors in Brazil tend

to be adversarial, inhibiting communication among the

sectors, Brazilian industry tends not to fund risky projects, concentrating its efforts instead on already existing products and processes. Historically, Brazilian

industry has relied on the purchase of foreign technology and on joint ventures with foreign companies.

Brazil’s universities have little contact with either industry or the Government and conduct little multidisciplinary research. These historical relationships

suggest that the government (both Federal and State)

will have to play a strong role in Brazil to develop the

R&D infrastructure necessary to develop biotechnology and to aid the commercialization of biotechnological applications.

In general, the major weaknesses for biotechnology

development in Brazil are as follows:

●

●

●

●

Brazil’s human resource base trained in advanced

biotechnology techniques is limited. In 1982, six

qualified and experienced researchers in the field

of rDNA and MAbs were identified.

Brazil’s national industrial sector is fairly underdeveloped and has little in-house R&D capability

and little inclination to pursue high-risk, new

product operation.

There is uncertainty about the interpretation of

Brazilian patent statutes with respect to biotechnological products and processes.

Import and bureaucratic delays make it difficult

for both public and private laboratories to obtain

the necessary R&D equipment and supplies not

available on the Brazilian market.

● This summary is based on “An Analysis of Current and Projected Biotechnological Activity in Brazil,” a contract report prepared for the Office of Techno]ogv Assessment, U ,S, Congress, bv Robert Goodrich, Julv 21, 1982
528 ● Commercial Biotechnology: An International Analysis

● Adequate analyses of market needs and opportunities are lacking, leading to inadequate orientation of research activities.

Three major Federal agencies in Brazil are involved

in the funding of biotechnology: 1) the National Research Council, now known as the Council for the Development of Science and Technology (CNPq, Conselho

Nacional de Desenvolvimento Ciendfico e Tecnolojico);

2) the National Funding Agency for Studies and Projects (FINEP, Financiadora de Projetos); and 3) the

Secretariat of Industrial Technology of the Ministry

of Industry and Commerce. CNPq will devote about

5 percent of its annual budget to biotechnology or

. $1.12 million (BCr200 million) during 1982-83. FINEP

will spend approximately $1.5 million to $2 million

(BCr270 million to BCr360 million) during 2 years to

aid the commercializing of R&D in biotechnology by

supporting economic anaIyses, commercialization ventures, and marketing studies. The Secretariat of Industrial Technology of the Ministry of Industry and

Commerce is responsible for the National Alcohol Program and is already funding extensive R&Din bioprocesses and enzymology.

The Brazilian Federal Government plans to fund the

development of two biotechnology research centers.

The first, in Sao Paulo, will be an educational facility

for multidisciplinary training. Its research program

will focus on bioprocesses and enzyme research. The

second center, the Biotechnology Center in Porto

Alegre, will receive $0.97 million (BCr175 million) in

funding and will concentrate on microbiology and applied genetics with little or no concern for product

development. It will have an initial staff of four

Ph. D. and four M.S. researchers and trainees.

Appendix B references

JAPAN REFERENCES

1. Business Week, “Smoothing the Way for Venture

Capita] —Again,” Oct. 11, 1982.

2. Elkington, J., “The Climate for Biotechnology: National

Strategies Contrasted,” Bioflechnology 1(6):490-492,

1983.

3. Japan Economic Journal, “Japan Associated Finance

Forms U.S. Type Venture Capital Funds,” Mar. 23, 1982.

4. Kagaku Gijutsu Kaigi (Council for Science and Technology), 1970 Nendai Ni Okeru Sogo-Teki Kagaku Gijutsu

Seisaku No Kihon Ni Tsw”te (The Basics of a Comprehensive Science and Technology Policy for the 1970’s),

Tokyo, 1971.

5. Kojima, N., Chairman, Japanese Pharmaceutical Manufacturers Association, personal communication, to L. Santucci, Pharmaceutical Manufacturers Association, 1983.

6. Nihon Keizai Shimbun (Japan Economic Journal), “Dainiji

Bencha Boomu Torai” (The Second Venture Capital Boom

is Coming), Sept. 9, 1982.

7. Nihon Keizai Shimbun (Japan Economic Journal), “Promotion of Biotechnology Development,” Sept. 2, 1982,

translated by the Foreign Broadcast Information Service

in Japan Re~rr (Joint Publications Research Service, Arlington, Va.).

8. Nihon Kogyo Shimbun (Japan Industrial Daily), “Four Applications of Biotechnology,” Feb. 10, 1982, translated by

the Foreign Broadcast Information Service in Japan Report (Joint Publications Research Service, Arlington, Va.).

9. Nikkei Biotechnology, “Ministry of Agriculture, Forestry,

and Fisheries,” Feb. 14, 1983, translated by the Foreign

Broadcast Information Service, in Japan Report (Joint

Publications Research Service, Arlington, Va.).

10. Porges, A., “Trade and Investment Laws and U.S. Competitiveness in Biotechnology,” contract report prepared

for the Office of Technology Assessment, U.S. Congress,

April 1983.

11. Saxonhouse, G., “Biotechnology in Japan,” contract report

prepared for the Office of Technology Assessment, U.S.

Congress, June 1983.

12. Science and Technology in Japan, “Research and Development of Life Sciences in Japan, ” April 1983, p. 8.

13. U.S. Congress, Congressional Research Service, Tax Rates

in Major Industrial Countries: A Brief Comparison, No.

80-224E, Washington, D.C., December 1980.

14. Yamamura, K., University of Washington, personal communication, July 1982.

FEDERAL REPUBLIC OF GERMANY REFERENCES

15. Boldt, D., Counselor, Office of Science and Technology,

West German Embassy to the United States, personal

communication (from 1982 Yearbook of the Max Planck

Society, in German), May 1983.

16. Bundesministerium fiir Forschung und Technologies (Federal Ministry for Research and Technology), Leistungs -

plan: Biotechnologie (Performance Plan: Biotechnology),

Bonn, 1979.

17. Business Week, “High Tech Tries an End Run Around

Germany’s Banks,” July 18, 1983, p. 74.

18. Culliton, B., “The Hoechst Department at Mass General,”

Science 316:1201, 1982.

19. Deutsche Gesellschaft fur Chemisches Apparatewesen

(German Society of Chemical Engineering), Biotechnologie (Biotechnology), a contract report to the Federal

Ministry for Education and Science and the Federal Ministry for Research and Technology, Frankfurt, 1974.

20. Dunnett, J., “Time To Count Costs, ’’Nature 301:367, 1983.

21. Dunnett, J, S., “Brain Drain Threatens Progress,” Nature

302:644, 1983.

22. Europa Chemie, “Genetic Engineering Institute Established in Berlin,” Dusseldorf, October 1982, translated

by the Foreign Broadcast Information Service in West

Europe Report; Science and Technology (Joint Publications Research Service, Arlington, Va.).

23. Gesellschaft fiir Biotechnologische Forschung (Society for
App. B—Country Summaries ● 529

24

25.

Biotechnological Research), Programmbudget (Program

Budget), Braunschweig, 1982.

Jasanoff, S., “Public and Private Sector Activities in Biotechnology: The Federal Republic of Germany,” contract

report prepared for the Office of Technolo~ Assessment, U.S. Congress, January 1983.

Maddox, J., ‘

{Where To Get Research Grants,” Nature

297:265, 1982.

26. Maddox, J., “Research Labs Galore,” Nature 297:279,

1982.

27. Nature, “Crunch in West Germany,” 298:108, 1983.

28. Strack, G., “Bonn Entices Bio-Scientists,” Frankfurter

Rundschau, Frankfurt/Main, February 1983, translated

by the Foreign Broadcast Information Service in West

Europe Report: Science and Technology (Joint Publications Research Service, Arlington, Va.).

29. Tooze, T., “Few Changes for West Germany, ” Nature

299:569, 1982.

UNITED KINGDOM REFERENCES

30. Advisory Council for Applied Research and Development,

Advisory Board for the Research Councils, and the Royal

Society, Biotechnology: Report of a Joint Working Party

(The Spinks’ Report) (London: H.M. Stationery Office,

March 1980).

31. Beardsley, T., “More Help,” Nature 300:394, 1982.

32. Beardsley, T., “Cans and Can’ts for Government,” Nature

305:172, 1983.

33. Business Week, “A Biotech Venture Lures Some Big Bettors,” Aug. 15, 1983, pp. 15-16.

34. Cookson, C., “Biotechnology Begins To Flower,” The

Times, June 9, 1983.

35. Department of Education and Science (U.K.), “Government Response to the Select Committee on Biotechnology Report of July 29, 1982,” Feb. 2, 1983.

36. Department of Industry (U.K.), “Minutes of Evidence to

Education, Science and Arts Committee on Biotechnology,” 289~i:l 19:338 (London: H.M. Stationery Office, May

24, 1982).

37. Dickson, D., “British Universities in Turmoil,” Science

217:813, 1982.

38. Diggle, G. E., and Griffen, J. P., “Licensing Times in Granting Market Authorizations for Medicines—A Comparison

Between the U.K. and USA,” Pharmacy International, July

1982.

39. Fishlock, D., “Biotechnology Fund Still Seeks British Investment,” Financial Times, Jan. 11, 1983.

40. Fishlock, D., “How To Make a Nobel Prize Pay,” Financial Times, May 13, 1983.

41. Haydon-Baillie, W., L.H. Fermentation, London, personal

communication, June 1983.

42. Nature, “Watchdog To Bark Less Often,” 302:467, 1983.

43. New Scientist, “Biotech Fund Finds Hope in Britain,”

99:748, Sept. 15, 1983.

44. Norton, M., First Secretary Science, British Embassy to

the United States, persona] communication, May 1983.

45. Pearson, R., Institute of Manpower Studies, University

of Sussex, personal communication, June 1983.

46.

47.

48,.

Vaquin, M., “Biotechnology in Great Britain,” contract

report prepared for the Office of Technology Assessment, U.S. Congress, December 1982.

Yanchinsky, S., “British Leader in Biotechnology Faces

Cash Crisis,” New Scientist 97:704, Mar. 17, 1983.

SWITZERLAND REFERENCES

Biotechnology Newswatch, “Biotechnology in Switzer49.

50.

51.

52.

53.

54.

55..

land–Parts-I and II,” 3(8):6-7 and 3(9):6-7, 1983.

Ciba-Gei~, Ltd., Annual Report, Basel, 1981.

E. F. Hutton, “Biotechnology Overview,” Jul. 7, 1983, p. 6.

Ernst and Ernst, International Business Series, a series

of pamphlets discussing the tax laws of various countries, New York, 1975.

Executive Office of the President, Office of Science and

Technology Policy, “Report of a Working Group on Competitive and Transfer Aspects of Biotechnology,” Washington, D.C., May 27, 1983.

Jasanoff, S., “Public and Private Sector Activities in

Biotechnology: Switzerland,” contract report prepared

for the Office of Technology Assessment, U.S. Congress,

January 1983.

Sharp, P., Biogen, Inc., Cambridge, Mass., personal communication, May 1983.

FRANCE REFERENCES

AFP Sciences, “Scientific Research Policy and Organization,” July 22 1982, pp. 4-5.

56. Dickson, D., ‘

(

The Party is Over for French Science, ”

Science 220:935, 1983.

57. Le Monde (French), ‘(Commentary on the National Agency for the Evaluation of Research, ” Jan. 2, 1983, p. 6.

58. Minis;ere de la Recherche et de l’hdustrie (Ministry of

Research and Industry), Mission des Biotechnologies (Biotechnology Mission), “Programme Mobilisateur: lEssor

des Biotechnologies” (Mobilizing Program: The Expansion of Biotechnology), Paris, July 1982.

59. Pelissolo, J,, La biotechnologie, demain? (Paris: La Documentation Franqaise, 1981).

60. Pinon, J. C., Scientific Attach&, Embassy of France to the

United States, personal communication, May 1983.

61. Porges, A., “Trade and Investment Laws and U.S. Competitiveness in Biotechnology,” contract report prepared

for the Office of Technology Assessment, U.S. Congress,

April 1983.

62. Vaquin, M., ‘

(Biotechnology in France, ” contract report

prepared for the Office of Technology Assessment, U.S.

Congress, December 1982.

63. Walgate, R., “Great Schools, Great Contradictions,”

Nature 296:287-288, 1982.

64. Walgate, R., “CNRS-The Core of Research,” Nature

296:292-293, 1982.

65, Walgate, R., “La Loi at Last,” Nature 298:110, 1982.

66. Walgate, R., “Let the Good Times Stop,” Nature 298:1 10,

1982.

67. Zotov, A., and Wilson, T., “French Biotechnology in the

New Regime, ” Bio~echnologv 1:3, 1983.
530 Commercial Biotechnology An International Analysis

68.

69.

70.

71.

72.

73.

74,

75.

76.

SWEDEN REFERENCES

Dampier, W., “The Biotech Boom Town,” Sweden Now,

pp. 23-25, May 1982.

Erland, R., “World Interest in New Version of Swedish

DNA Machine,” NY Teknik, Stockholm, Dec. 3, 1981,

translated by the Foreign Broadcast Information Service

in West Europe Report.’ Science and Technology (Joint

Publications Research Service, Arlington, Va.).

Fairlamb, D., “Scandinavian Setback,” Dun’s Business

Month 120(6):86-88, 1982.

Haijlen-Rylander, M. L., mailgram from U.S. Embassy,

Stockholm, US. Department of State, July 18, 1980.

Henriksson, K., “Swedish Industries’ Interest in Biotechnology Increasing,” Svenska Dagldadet, May 18, 1982,

translated by the Foreign Broadcast Information Service

in West Europe Report: Science and Technology (Joint

Publications Research Service, Arlington, Va.).

Malmgren, Inc., and Developing World Industry and

Technology, Inc., “Technology and Trade Policy, Issues

and Agenda for Action,” prepared for the Department

of Labor, Bureau of International Labor, and the Office

of the United States Trade Representative, Washington,

D. C., October 1981.

Marketplace Sweden, “Swedish Pharmaceuticals:

Cresting on Product Development,” 14(4):11-12, 1982.

Royal Swedish Academy of Engineering Sciences, ‘(Industry and Biotechnology, Developments Internationally and in Sweden,” Report -214, Stockholm, December

1981.

Skagius, K., “Can SBF Offer Danish Companies New Policies-New Possibilities?, ” speech, Nov. 25, 1982.

NETHERLANDS REFERENCES

77. Schuuring, C., “New Era Vaccine,” Nature 296:792, 1982.

78. Van Der Meer, Ir. R. R., Secretary-Coordinator, Programme Committee on Biotechnology, Gravenhague, personal communication, April 1983.

AUSTRALIA REFERENCES

79. Commonwealth Scientific and Industrial Research

Organization, Biotechnology Research and Development,

The Application of Recombinant DNA Techniques in Research and Opportunities for Biotechnology in Australia,

Canberra, November 1981.

80. Department of Science and Technology (Australia), Bank

81

of New South Wales, Australian Institute of Management,

NSW Division, “Genetic Engineering-Commercial Opportunities in Australia,” proceedings of a symposium held

in Sydney, Nov. 18-20, 1981 (Canberra: Australian Government Publishing Service, 1982).

ISRAEL REFERENCES

Bioengineering News, “Yet Another Offering: Interpharm,” June 1981, p 6.

82. Biotechnology Newswatch, “Biotechnology Research and

Development in Israel,” Oct. 5, 1981, p. 7.

83. Biotechnology Newswatch, “Interferon From Interpharrn

Enters Anti-Herpes Trials,” Mar. 1, 1982, p. 1.

84. Biotechnology Newswatch, “Israel, West Germany Join

Forces in Plant Biobreeding,” May 16, 1983.

85. Executive Office of the President, Office of Science and

Technology Policy, “Report of a Working Group on Competitive and Transfer Aspects of Biotechnology,” Washington, D.C., May 27, 1983.

86. Meyers, N., “Farming Today,” Nature 297:354, 1982.

87. Zilinskas, R., “Biotechnology in Israel,” a report prepared

for the Office of Technology Assessment, U.S. Congress,

1983.

CANADA REFERENCES

88. Bates, A,, President, Allelix Corp., Toronto, personal communication, July 1983.

89. Biotechnology Newswatch, “$105 Million Starts ‘Allelix,’

Canadian R&.D Firm,” Jan. 4, 1982, p. 1.

90. Biotechnology Newswatch, ‘

{Biotechnolo~ Research and

Development in Canada,” Jan. 4, 1982, pp. 4-5.

91. Chemical Week, “Canada’s Biotech Plan Gets Chilly Reception,” 132(21):17, 1983.

92. Farina, C., Director University Science and Technology

Branch, Ministry of State for Science and Technology,

Ottawa, personal communication, July 1983.

93. Miller, J., “Biotechnology Studies in Canada,” notes for

a presentation to the Canada-Europe Conference on

Technological Planning, Ottawa, June 1-3, 1983.

94. Ministry of State, Science and Technology, “Towards

1990: Technology Development for Canada,” Government brochure describing the new technology policy (Ottawa: Minister of Supply and Services Canada, 1983).

95. National Research Council Canada, “Institute for Plant

Biotechnology in Saskatoon,” communique’, Ottawa, May

12, 1983,

96. Task Force on Biotechnology, Biotechnology: A Development Plan for Canada, a report to the Minister of State

for Science and Technology (Ottawa: Minister of Supply and Services Canada, 1981).

97. Zeman, Z., Institute for Research on Public Policy, Montreal, personal communication, July 1983.

U.S.S.R. REFERENCES

98. Executive Office of the President, Office of Science and

Technology Policy, “Report of a Working Group on Competitive and Transfer Aspects of Biotechnology,” Washington, D.C., May 27, 1983.

BRAZIL REFERENCES

99. Goodrich, R., “An Analysis of Biotechnological Activity

in Brazil,” contract report prepared for the Office of

Technology Assessment, U.S. Congress, July 21, 1982.
Appendix C

A Comparison of the U.S. Semiconductor

Industry and Biotechnology*

Introduction

A parallel is sometimes drawn between the early development of the U.S. semiconductor industry and biotechnology. There are similarities. Semiconductors and

biotechnology each showed promise for major advances. Whereas semiconductors immediately showed

promise for major advances in electronics, biotechnology shows promise for major advances in many industries, from agriculture to oil recovery. Furthermore, developments in semiconductors and in biotechnology have both been characterized by the pioneering efforts of small startup companies, which have

played a major role in technological innovation.

Another reason for drawing a parallel between the

U.S. semiconductor industry and firms using biotechnology is probably the hope that the development of

biotechnology will be accompanied by the same kind

of intense competition, continuing innovation, wide

commercial diffusion, and spectacular financial returns that characterized the U.S. semiconductor industry.

As will be seen in this appendix, the early history

of the U.S. semiconductor industry and the history of

biotechnology to date are in fact characterized more

by differences than by similarities. Nevertheless,

studying the history of the U.S. semiconductor industry may aid the healthy development of biotechnology in the United States. Some of the actions that

fostered the development of the U.S. semiconductor

industry could be applied to the further development

of biotechnology, thereby increasing its similarity to

the semiconductor industry. The clear success of the

U.S. semiconductor industry suggests that such actions

deserve consideration for their applicability to biotechnology, although biotechnology is not an industry, but

a set of technologies that can potentially be used by

many industries.

The purpose of this appendix is to clarify the similarities and differences between the early history of

the U.S. semiconductor industry and the development

of biotechnology, to identify factors contributing to

the successful development of the semiconductor industry, and to consider the relevance of these factors

to the further development of biotechnology.

● The primary source for this comparison was a contract report prepared

for OTA by Michael Borrus and James Millstein (2).

Semiconductor devices: terminology

and evolution

Semiconductors are materials such as silicon and

germanium with electrical conductivities intermediate

between good conductors, such as copper, and insulators, such as glass. By appropriate manipulations,

these materials can be made into semiconductor devices that have special properties. Such devices include

diodes and transistors.

One of the most important properties of a transistor

is its ability to amplify an electrical current flowing

through it. A transistor is a compact, reliable replacement for the vacuum tube, which was the foundation

of the early electronics industry. While transistors

substantially improved the reliability and performance

of electronic devices such as computers, they were

simply components in electrical circuits connected by

wires to other components.

Integrated circuits were the next major advance in

semiconductor technology. Integrated circuits are

“chips” or single components that perform functions

that had previously required groups of components

wired together.

The next step in”semiconductor technology involved

increasing the density of circuit elements on each chip.

The integrated circuit era began in the early 1960’s.

By the end of the decade, medium-scale integration

(MSI) had been achieved (10 to 100 digital logic gates

on one chip). Large-scale integration (LSI) (100 to 1,000

gates) was achieved in the mid-1970’s, and the industry

is now working on very large-scale integration (VLSI)

(circuit complexity exceeding 1,000 gates) (9).

Advances in semiconductor technology have resulted in extraordinary gains in reliability and performance, with simultaneous reductions in component

size and cost. In the 1950’s, for example, the cost of

computer memory capacity was about $1 per bit, but

by 1981, a bit could be purchased for only $0.0001 (9).

The U.S. senu”conductor industry is comprised of the

companies that manufacture semiconductor devices

such as transistors and integrated circuits. Two types

of firms can be differentiated: 1) firms that develop

and manufacture semiconductor devices for sale to

other firms that use them to manufacture computers

and other end products; and 2) firms that develop and

manufacture semiconductor devices for in-house use

531
532 Commercial Biotechnology: An International Analysis

in the manufacture of final products. Both types of

firms have been important to the development of the

industry.

The following material describes the early development of the U.S. semiconductor industry and compares it to the short history of biotechnology. For the

semiconductor industry, the period covered is from

1947 (the invention of the transistor) to the early

1960’s. For biotechnology, which began in the mid1970’s, the period covered is from the mid-1970’s to

the present. In part because of the different time

periods in which the semiconductor industry and biotechnology initially developed, an immediate difference between the two can be identified. The early

development of the U.S. semiconductor industry occurred primarily in the context of the U.S. domestic

market, whereas biotechnology is evolving in a world

marketplace. International competition, which is an

important factor in the development of biotechnology,

is a far more important factor in the semiconductor

industry now than it was in the early history of the

industry. Both differences and similarities between the

development of the U.S. semiconductor industry and

biotechnology are indicated in the material that

follows.

Development of the U.S.

semiconductor industry

Two major influences in the development of the U.S.

semiconductor industry were Bell Telephone Laboratories (Bell Labs) and the U.S. Government. These two

influences are intimately related, because the Federal

Government played a major role in shaping Bell Labs’

contribution to the preeminence of the United States

in high-technology electronic products including semiconductors, lasers, and computers. These industries

have been built, in large measure, on the results of

research undertaken at Bell Labs.

The role of Bell Labs in the development of the U.S.

semiconductor industry is briefly described below.

The multifaceted role of the Federal Government is

discussed in the section that follows.

THE ROLE OF BELL TELEPHONE LABORATORIES

As part of the American Telephone& Telegraph Co.

(AT&T), Bell Telephone Laboratories does fundamental and applied research in many areas to benefit its

parent company. Bell Labs also serves a broader constituency. During World War II, for example, Bell Labs

undertook about 2,OOO research and development

(R&D) projects for the U.S. Army, U.S. Navy, and National Defense Research Council (11). Federal funding

of research at Bell Labs and AT&T’s manufacturing

arm Western Electric from 1949 to 1959 amounted

to about $609 million-or about 48 percent of all

AT&T research (17). The quality of research at Bell

Labs and the level of funding available from corporate

and Government sources attracted the most competent electronics scientists and engineers to work there.

In the late 1930’s) the electronics industry depended

on the vacuum tube for amplification of electric currents. The advantages of a smaller, more reliable device that would generate less heat were obvious, however, and because of military and aerospace needs,

there was strong motivation to invent an alternative.

Also clear was the potential importance of the transistor to commercial communications and computer

applications. It is not surprising, given Bell Labs’ commanding position in fundamental and applied electronics research, that the first new device that could

compete with the vacuum tube in the marketplace,

i.e., the transistor, was invented in 1947 at Bell Labs.

This invention gave Bell Labs a lead in what would

ultimately become the semiconductor industry.

Semiconductor R&D by Bell Labs was supported

with corporate funds from AT&T. Between 1946 and

1964, Bell Labs’ annual expenditures on semiconductor R&D rose from less than $1 million to about $22

million. In 1959, the funding of semiconductor R&D

at Bell Labs represented about 30 percent of all

privately funded semiconductor R&D in the United

States (14).

The fact that Bell Labs was part of AT&T also contributed to Bell Labs’ leadership in the semiconductor industry (2). The research done at Bell Labs was

linked to real-world problems through AT&T’s manufacturing arm, Western Electric. Western Electric involved Bell Labs in the solution of engineering problems associated with conversion from vacuum tube

to semiconductor technology in communications systems. Western Electric also involved Bell Labs in research to improve production of semiconductor devices. In addition to conducting research that led to

new devices, therefore, Bell Labs did research that led

to process innovations. It was these process innovations that dramatically decreased the cost of semiconductor devices (2).

Federal and corporate investment in Bell Labs produced significant return. Between 1947 (invention of

the transistor) and 1959 (invention of the integrated

circuit at Texas Instruments and Fairchild), Bell Labs

obtained 339, or more than 25 percent, of the patents

related to the development of semiconductors. During this period, Bell Labs also was responsible for a

disproportionate share of the most important product

and process innovations (14).

In summary, market pull for an alternative to the

vacuum tube favored the development of the semicon-
App. C—A Comparison of the U.S. Semiconductor Industry and Biotechnology 533

ductor industry. The key invention, the transistor,

arose from fundamental R&D in an industrial laboratory. That laboratory was an arm of a major corporation that also would be a significant user of the new

technology.

The history of biotechnology is quite different from

the early history of the U.S. semiconductor industry.

Biotechnology arose from basic research in universities—research supported by Federal funds for basic

biomedical research. Probably most significant were

Federal funds for research associated with the ‘(war

on cancer. ” Because of the “war on cancer, ” a great

deal of research was done on tumors and tumor viruses. One of the simplest viruses, SV40, causes tumors in hamsters and mice. Researchers went to great

effort to locate the genes in SV40 that enabled it to

cause tumors. A need to improve on tedious genetic

selection procedures for mapping genes led to the

identification and use of restriction enzymes that cut

DNA in specific locations, and thus enabled physical

mapping of genes. Restriction enzymes also produce

the “sticky ends” that are fundamental to recombinant

DNA (rDNA) experiments. Physical mapping of an entire genome (an organism’s complete set of genes)

using restriction enzymes was first accomplished with

SV40. And it was a proposed rDNA experiment using

SV40 that gave rise to the Asilomar meeting that eventually led to the National Institutes of Health (NIH)

Guidelines for Research Involving Recombinant DNA

Molecules. *

Other researchers concentrated on myelomas

(neoplastic growth of certain white blood cells). Thus,

cancer research probably also contributed to the discovery of hybridomas * * and the monoclinal antibodies they make possible.

In summary, cancer research played a significant

role in the history of biotechnology and is another example of how fundamental research may produce unexpected results. In the development of biotechnology,

“science push,” rather than the “market pull” that gave

impetus to the U.S. semiconductor industry, was particularly important.

THE ROLE OF THE U.S. GOVERNMENT

The actions of the U.S. Government that influenced

the development of the U.S. semiconductor industry

were many and diverse. Undoubtedly, not all the effects of the Federal Government’s actions were intended or anticipated. With the benefit of hindsight,

however, it is apparent that these actions helped to

● “I Iwse (1 S guidelines for rDX.A research arc dIsrussed In Chapfer 1.5

Hfw/t/J, Safet,\’, and En L’ironnwnta/ Regulation

● “Hyhndomas are made by fus]ng an ant]bo{l~’.pl-[)[]u(’ir]g spleen cell with

a 111} f’lomd rf’11

produce a dynamic, healthy U.S. semiconductor industry. Similar actions by the Federal Government could

encourage the development of companies in other

high-technology fields such as biotechnology.

Federal Funding of Semiconductor Research and Development To Encourage Competition.—In the late 1940’s, the U.S. Department of

Defense (DOD) wanted to miniaturize and increase the

reliability of electronic devices so that a new generation of defensive weapons could be developed. Defensive missile systems, in particular, required these advances. To ensure achievement of its objectives, DOD

distributed R&D funds to many research houses, including Bell Labs. The provision of funding to many

research houses encouraged the competitive development of semiconductor technology throughout the

U.S. electronics industry. It also had the effect of leveraging private funding of semiconductor R&D (2).

The same forces driving military interests—miniaturization and reliability–also applied to the U.S.

aerospace program. In addition to DOD, therefore, the

National Aeronautics and Space Administration (NASA)

also became a major source of funding for semiconductor R&D.

It is important to note that the early development

of semiconductor technology was dominated by the

interests of the U.S. military and NASA (2). Civilian applications followed. This early predominance of military interests driving the development of semiconductors contrasts with the development of biotechnology,

for although there are military applications of biotechnology, civilian commercial interests have driven its

development.

Federal Funding of Demonstration Projects,

Production, and Consumption of Semiconductor Device% —Demonstration projects using semiconductor technology were financed by the Federal Government. The U.S. Air Force, for example, funded a

demonstration in which a small digital computer using

integrated circuits was built by Texas Instruments (l).

Demonstration projects such as this convincingly demonstrated to both military and civilian users the feasibility of using integrated circuits in electronic systems

(2).

In addition to funding demonstration projects, the

Federal Government funded the development of semiconductor production capability and provided a market for semiconductor products under industrial preparedness contracts in 1952-53 and 1956-57. In 1952-

.53, $11 million of DOD funds were used to build pilot

transistor production lines at five sites operated by

Western Electric, General Electric (GE), Raytheon,

RCA, and Sylvania (10). In 1956, DOD provided major

assistance to production technology with $4o million
534 . Commercial Biotechnology: An International Analysis

in transistor production contracts to 12 firms. Because

early production was often faulty and about 90 percent of the devices produced could not meet Federal

specifications, the 12 firms had to build production

facilities potentially capable of manufacturing 10 to

12 times the number of devices the Government

wanted, thus assuring the Government of the number

of devices it needed (19). As processes improved, more

and more usable devices came off each assembly line,

and the search for new commercial markets was stimulated by the need to absorb increases in production

capacity.

The actions of the Federal Government just outlined

helped to demonstrate the value of semiconductor

technology to users other than the Federal Government, greatly reduced the risk of developing and producing semiconductor devices, and helped to develop

industry capacity to produce semiconductor devices

at levels that would meet the needs of new users as

well as those of the Federal Government.

The Federal Government could support in biotechnology, just as it did in the semiconductor industry,

the development of process and production technology. These are the very areas in biotechnology where

needs for funds and for innovation are high. It is also

in process and production capability and capacity that

the United States is least competitive with Japan, its

major competitor in biotechnology (2). One area of

biotechnology that might be stimulated by a bioprocess

production and demonstration project is the production of commodity chemicals. Large-scale bioprocess

facilities, and hence large financial investments, will

be necessary for U.S. firms using biotechnology to successfully enter the commodity chemical market. Cetus

Corp. made an attempt to enter this market with its

fructose-alkene oxide process using Standard Oil of

California (SOCal) as financial backer. The attempt was

frustrated when SOCal decided to terminate its backing (2). Federal funds could help new biotechnology

firms (NBFs)* enter commercial markets requiring

large-scale production. Alternately, rather than funding specific projects at particular firms, the Federal

Government could support R&D in generic technology

underlying bioprocessing. Regardless of the particular

form of support, the Government should ensure that

new knowledge of bioprocess technology gained with

the assistance of Federal funding is made available to

other potential users.

Federal Government support of field and clinical

trials necessary for approval of some products of biotechnology by the U.S. Department of Agriculture

● NBFs, as defined in Chapter 4: Firms Commercializing Biotechnology, are

new, generally small firms that have been formed specifically to capitalize

on new biotechnology.

(USDA) and the Food and Drug Administration (FDA)

would be somewhat analogous to the federally funded

semiconductor demonstration projects. Such trials are

very expensive and beyond the financial resources of

many small firms.

The 19S6 Consent Decree.—In the development

of the semiconductor industry, the Federal Government provided more than dollars, useful as these were

to fund R&D, build production lines, demonstrate

their products, and provide a first market. Substantial Federal dollar investments were accompanied by

less direct policy decisions that helped shape a highly

competitive U.S. semiconductor industry. The 1956

consent decree is a case in point.

In 1949, the U.S. Department of Justice initiated an

antitrust suit against AT&T. Resolved in 1956, the consent decree (20) required AT&T’s manufacturing arm

Western Electric to license existing Western Electric

patents to U.S. firms without royalty and to establish

reasonable rates for licenses under future patents.

AT&T was permitted to retain its vertically integrated

-structure but was prohibited from entering new product markets; in other words, AT&T was restricted to

its existing markets of basic common carrier communications and Government defense and aerospace.

Thus, AT&T was prohibited from using the results of

research at Bell Labs to enter additional commercial

markets that semiconductor technology promised to

advance, such as commercial electronic computers.

Given the consent decree, one option for AT&T

would have been to redirect Bell Labs’ research so that

it would not benefit fields AT&T could not enter.

However, semiconductor R&D directed to enhancing

AT&T’s major interests in the telecommunications,

military, and aerospace markets was not separable

from R&D applicable to areas such as commercial

computers from which AT&T was prohibited. In addition, Bell Labs had a history of open communication

regarding its research. As a result, AT&T conformed

not only to the letter but also to the spirit of the 1956

decree. The effect was to transform Bell Labs, for a

time, into a sort of national laboratory for semiconductor R&D.

Continuing its open practices begun prior to the consent decree, Bell Labs actively contributed to the diffusion of the technology that it helped develop. Symposia to educate Government users and small and

large firm licensees were begun in 1951, and a liberal

license policy was begun in 1952. Also important, Bell

Labs and Western Electric personnel moved freely to

new employment in firms exploiting the results of Bell

Labs R&D without fear of suit for theft of trade secrets

(18). Such movements transferred know-how developed at Bell Labs and Western Electric to other firms.
App. C—A Comparison of the U.S. Semiconductor Industry and Biotechnology . 535

Liberal licensing, the educational activities of AT&T,

and personnel mobility encouraged by Federal antitrust activity resulted in wide diffusion of semiconductor technology. Diffusion was facilitated by the fact

that data acquired under DOD R&D contracts were

subject to unlimited use by the Government, including

their supply to other contractors working in related

areas. Various DOD offices and agencies, and DODfunded centers at universities, served as information

centers for research findings. The U.S. Department

of Commerce (6), National Science Foundation, National Bureau of Standards (4), and NASA (13) served

as clearinghouses for semiconductor information and

transferred knowledge derived from military contracts to civilian users. Government agencies held symposia and colloquia to inform industrial contractors

of the results of federally funded research and of

future military and space requirements. The result

was an acceleration in the pace, and hence the competitiveness, of the U.S. semiconductor industry, in

civilian as well as military markets. In 1961, the

Army Signal Corps estimated that defense R&D had

made possible many civilian applications of semiconductor technology in a period perhaps 75 percent

shorter than that which would have occurred without

Government support (17).

In biotechnology, there is no institutional equivalent

to Bell Labs, which served as a national resource for

semiconductor research, development, education, and

personnel. Furthermore, the scope and magnitude of

Federal actions facilitating diffusion of knowledge and

know-how in the area of semiconductors have no parallel in biotechnology at present. Finally, the diffusion

of technolo~ by personnel mobility that occurred in

the semiconductor industry because of the commanding position of Bell Labs, which was restrained by the

1956 consent decree, is unlikely to occur to the same

degree in biotechnology, where knowledge is spread

among many competing firms.

Federal Loan and Tax Policies.—In the 1950’s

and 1960’s, the U.S. Government also encouraged the

development of the U.S. semiconductor industry

through Federal loan guarantees and tax policies. Although not developed specifically for the semiconductor industry, these general policies made funds available for operations, plant investment, and new equipment.

The Defense Procurement Act of 1950 established

the V-loan program and was a major source of Federal

loan guarantees to defense contractors from 1950 to

1958. This act provided Federal loan guarantees that

obligated the Federal agency guaranteeing the loan to

purchase a stated percentage of the loan if the borrower defaulted. Thus, the Federal agency shared any

potential losses up to the amount of the guaranteed

percentage (16). Such guaranteed loans accomplished

several things:

They encouraged private investors by decreasing

their risk of loss.

Because they were granted at lower than prevailing interest rates, they decreased the cost of capital.

They served as a system of revolving credit. Guarantees were not tied to particular loans but instead were guarantees against loss of a particular

level of debt. As periodic repayments reduced outstanding debt, therefore, additional loans could

be taken out as long as repayments kept debt

within the face amount of the authorization. Thus,

authorizations of only $2.9 billion allowed loans

totaling about $11.6 billion to be made to defense

contractors.

They returned a net profit to the Federal Government of about $24.5- million (15). This profit resulted because the Federal guaranteeing agent

was entitled to a portion of the interest paid on

the loan.

Most of the funding leveraged by the V-loan program was used for working capital rather than facilities. Other Government financial aids produced additional working capital. Progress payments, advance

payments, and direct loans were made to companies

involved in defense production (16).

A particularly important financial instrument encouraging investment in defense production capability was a program permitting accelerated depreciation.

In the 1950’s, the Office of Defense Mobilization

awarded Certificates of Necessity that provided a

5-year writeoff (compared to the usual 20- to 25-year

amortization schedule) of the percentage of the cost

of certified production facilities that could be attributed to major defense production needs. From

November 1950 through April 1957, 21,925 Certificates of Necessity permitted the accelerated writeoff

of almost $23 billion on facilities costing $39.2 billion

(15). Although these figures include more than semiconductor firms and data do not permit isolation of

their share, semiconductor firms definitely received

Certificates of Necessity and their writeoff was surely substantial (5).

The growth of the U.S. semiconductor industry was

further spurred in 1962 by two changes in general U.S.

tax policy (2). One change was that the Revenue Act

of 1962 permitted all manufacturing industries an investment tax credit of up to 7 percent of qualified investment in machinery and equipment. This investment tax credit stimulated investment in semiconductor production capacity just when integrated circuit
536 Commercial Biotechnology An International Analysis

procurement began to expand. The second change

was adoption by the U.S. Treasury Department in

1962 of new regulations that shortened depreciation

guidelines by 15 to 20 percent.

Clearly, Federal tax and loan policies can stimulate

substantially the growth of emerging industries. Consideration might be given to whether current tax and

loan policies are stimulating development of biotechnology adequately or whether additional Government

financial instruments are needed.

Defense Laboratory Research.–During the

1950’s and early 1960’s, each branch of DOD developed intramural programs for semiconductor R&D.

Although these defense facilities produced relatively

few significant semiconductor discoveries (with some

major exceptions) (21), they nonetheless played a major role in the development of the semiconductor industry. In addition to serving as centers for information and technical liaison, these laboratories tested

theories and ideas considered too speculative by private industry. Those that turned out to be practical

were then developed by industry (7). Furthermore,

personnel movements from defense establishments to

private industry served to transfer knowledge, sometimes at critical points in the development of the U.S.

semiconductor industry (23). Especially important, defense laboratory researchers provided the Federal

Government with an independent view of the stateof-the-art of semiconductor technology and the capacity to verify, assist, and at times lead industrial efforts.

In terms of level of expertise and dynamic interaction between Federal agencies and industry, the

closest analogs in biotechnology are NIH and FDA.

Because it issues the U.S. guidelines for rDNA research, however, NIH is a quasi-regulator of biotechnology. This role puts NIH in a conflict of interest position vis-a-vis both its substantial funding of basic

research in biotechnology and any additional role it

might assume in commercialization. NIH, which has

been forced to be aware of developments in the commercialization of biotechnology by the guidelines,

however, nevertheless has a major potential role in

biotechnology transfer. The degree to which and how

best to involve NIH in commercial development of biotechnology deserve consideration.

FDA has developed expertise in biotechnology because of its regulatory function. Its major contribution to the development of biotechnology to date has

been in providing a favorable regulatory climate for

new products. However, the present regulatory climate is highly subject to administration views on industry regulation. Whether U.S. regulatory agencies

should be better insulated from the effects of changes

in administrations so that biotechnology evolves in a

relatively stable environment deserves thought. In any

case, an increased role for FDA in fostering the development of biotechnology is probably prohibited by

conflict of interest with its significant regulatory responsibilities.

Other relevant U.S. Government agencies, such as

DOD, the Environmental Protection Agency (EPA), the

National Bureau of Standards, the National Science

Foundation, the Occupational Safety and Health Administration (OSHA), and USDA have so far been less

involved in the development of biotechnology than

either NIH or FDA.

In sum, the substantial role that DOD and NASA

played in encouraging the early development of the

U.S. semiconductor industry is a role that is not being played by the U.S. Government in the commercial development of biotechnology.

THE ROLE OF UNIVERSITIES

During World War II, the successful funding of

defense developments at universities gave rise to a

conscious national policy of U.S. Government funding

of university basic research. Although Federal funds

for joint research at universities and industrial laboratories in solid-state physics and materials helped

provide the basis for the U.S. semiconductor industry

(22), the key discovery leading to the transistor was

made in an industrial laboratory.

In the early 1950’s, university electrical engineering

departments lagged behind industry in the area of

semiconductors by a considerable margin. * Federal

funds were provided to universities to help reduce this

gap and build the university expertise and training

capacity that would be needed to support the expansion of the U.S. semiconductor industry.

These Government expenditures were fruitful. By

roughly 1960, the major research universities in the

United States had highly trained electronics personnel, creative basic research programs, and faculty members who served as expert consultants to industry.

Furthermore, the U.S. semiconductor industry became concentrated geographically around the major

university recipients of Federal dollars, in particular,

in Boston and San Francisco. The geographic proximity

of semiconductor firms and these universities fostered

productive interchange and insured the continued

buildup of university expertise.

Increasingly cooperative ties between U.S. universities and the semiconductor industry resulted in the

part-time employment by the industry of significant

numbers of students. Many university faculty mem-

“Massachusetts Institute of Technolo&v’s Lincoln Laboratories is an exception
App. C–A Comparison of the U.S. Semiconductor Industry and Biotechnology ● 537

bers served as directors of semiconductor corporations, and some even held positions such as board

chairman and part-time company president (2). Some

faculty members became millionaires through equity

participation in the companies with which they were

associated (2). In comparison with the protests that

have been raised in reaction to similar arrangements

in biotechnology, public protests against these arrangements were small.

In sum, in the early history of the U.S. semiconductor industry, few innovations emerged from federally funded university research. The universities used

Federal dollars to bring their expertise up to a level

commensurate with industry’s and to become geographic foci for the development of the new semiconductor industry. In the case of biotechnology, by contrast, innovations have emerged directly from university research. New semiconductor firms tended to locate near major university research institutions. This

collocation occurred fairly gradually as Federal dollars

flowed to universities and helped build their expertise. In the case of biotechnology, the collocation of new

firms and universities occurred immediately, because

the universities were the site of biotechnology expertise (2).

The lack of public and congressional concern over

equity ownership of semiconductor companies by university professors is in stark contrast to the reaction

to similar arrangements in biotechnology. Some of the

factors that may account for the differences include

the

●

●

following:

The locations from which biotechnology and semiconductor technology emerged and the source of

their expertise, coupled with patterns of Federal

spending, are different. Semiconductor R&D was

dominated by industry, especially in its early

years, and Federal funds went to industry for the

development of the technology. Federal funds to

the universities were used very differently from

Federal funds to industry, namely, to build the

scientific infrastructure necessary to support the

new industry. Thus, the roles played by universities and industry and the use of Federal funds

in the two sectors were more distinct in the early

years of the semiconductor industry than they

have been in biotechnology.

Many recent advances in research in biotechnology immediately suggest commercial products.

Although there are many problems to be solved

between, for example, cloning the gene for human

insulin and market success, the potential marketability of the product of the research is obvious

immediately, In addition, the DNA organism that

makes insulin, is, in a sense, itself the product. A

transistor, on the other hand, is of no value unless

●

it is used with other electronic components to

make an end product such as a missile guidance

system. Thus, in biotechnology, the contributions

of the universities and industry are less distinct

than they were in the semiconductor industry.

The semiconductor industry had obvious contributions to make to aerospace and defense. Defense and aerospace are seen as national objectives and national commitment to them tends to

be stronger and more focused than commitment

to other sectors of the economy, where biotechnology is making its first contributions. Actions

that would be protested otherwise may be tolerated when they relate to meeting defense and

aerospace needs.

Structure of the U.S. semiconductor

industry

Industries develop unique structures in response to

their own characteristics and the effects of external

forces acting upon them. The forces that have been

described in this appendix shaped the U.S. semiconductor industry so that its particular structure evolved

from a myriad of possible structures, much as biological systems evolve in response to pressures of selection. The structure that emerged in the semiconductor

●

●

●

industry consisted of three types of companies:

small, new entrepreneurial firms that developed

and manufactured semiconductor devices, the socalled “merchant” firms;

generally larger, established companies that obtained most or all of their semiconductor devices

from the merchant firms and incorporated them

into electrical systems; and

one very large, vertically integrated company,

AT&T, t-hat manufactured semiconductor devices

for use in its telecommunications systems but was

constrained by antitrust policy from dominating

other markets. *

The role of AT&T, along with its affiliates Bell Laboratories and Western Electric, has already been discussed. The rest of this section describes the relationships between the other two groups of firms.

The emergence of new entrepreneurial firms in the

U.S. semiconductor industry was facilitated by U.S.

Government policies and actions, such as the 1956 consent decree and military and aerospace demands. Information on semiconductor technology was widely

available, and personnel mobility was not effectively

discouraged. AT&,T’s liberal licensing policy, a U.S.

*I,ater In the h]storj of the st’r~]i(orl(luctor” incfostr’} a seconcl ~arj Iar-ge

\ ert icallt integr<ited firm, If3\l, was added to this group IB\l manufactured

sellli(’O1ldL1(’t[)r” cfsn’ires for Its ol~ n LI!W In the rornpoter’ IOdUStr’j’

25-561 0 - 84 - 35
538 . Commercial Biotechnology An International Analysis

Government market for new products, and the fact

that transistors could be substituted for vacuum tubes

meant that an entrepreneur could start a new semiconductor firm and move immediately to market with

a few million dollars of capital, a license from AT&T,

and a DOD or NASA contract.

Larger U.S. companies were helped in establishing

their position in the semiconductor industry by the

patterns of DOD development and procurement established during World War 11 that favored large corporations. “Even as late as 1959 the old-line vacuum tube

companies were awarded 78 percent of the federal

R&D funds devoted to improving the performance and

reducing the cost of the transistor although they accounted for only 37 percent of the product market”

(3). In contributing to the development of transistors

and integrated circuits, the large defense electronics

companies were speeding the obsolescence of a technology in which they had a very large investment,

vacuum tubes. The large companies were forced into

this position, however, by the presence of small entrepreneurial firms that managed to obtain DOD funds

by their more flexible and rapid response to DOD’s

demands for miniaturization and reliability. The small,

new firms undoubtedly contributed to the speed of

entry of the large companies into semiconductor technology.

Small entrepreneurial firms did contribute to innovation in semiconductors, but preeminence in that role

went to Bell Laboratories. In the development of the

U.S. semiconductor industry the major contributions

of small firms were to diffuse semiconductor technology and to stimulate competition. Diffusion of semiconductor technology occurred because the small firms

exploited new markets. It was they who most “quickly and successfully (took) new technology from the laboratory and adapted it for large-scale production” (14).

The small firms also stimulated-competition. In effect,

the small firms, as independent sources of advanced

semiconductor technology, introduced an element of

dynamic uncertainty into the US. semiconductor industry. And because Federal policies helped them to

produce and market their products, the small firms

stimulated semiconductor R&D among all companies

in the industry, large and small.

Biotechnology, as it now stands, presents a very different picture. Small NBFs in the United States, in

order to spread risk and raise capital, have had to turn

to complex cooperative arrangements with large domestic and foreign companies. * On the surface, the

arrangements between NBFs and established companies may appear analogous to the relationship between

the small new semiconductor firms and the Federal

Government. An essential difference, however, is that

small new semiconductor firms and the Federal Government did not compete for markets; NBFs would like

to compete with established companies.

In the absence of support from the Government for

producing and marketing its products or processes,

an NBF is likely to turn to a large established company

that has expertise in scale-up technology and regulatory clearance procedures. The established company

is likely to have gained this expertise by developing

a product similar to the one the NBF wants to bring

to market. If the new product threatens an existing

product of the established company, the established

company’s marketing of the new product is likely to

be less than optimal. This is not to say that the established company will refuse to undertake the clinical

trials, marketing, and distribution of the new product

developed by the NBF. Indeed, the motivation of the

established company is just the opposite. By obtaining a license for the NBF’s new product, the established

company ensures that another large competitor does

not obtain the biotechnology product that threatens

its own market. Furthermore, the established company can control the market environment of the new

product. By entering into an agreement with an NBF,

the established company also gains access to the new

technology.

The arrangements between Eli Lilly and the NBF

Genentech with respect to the new biotechnology

product Humulin” are illustrative. * Eli Lilly has licensed this rDNA-produced human insulin product

from Genentech. Humulin” is a competitor of insulin

obtained from animals, and Lilly currently holds about

85 percent of the U.S. insulin market. Thus, the pace

of market development in Humulin” can be controlled

by the very company whose monopoly position Humulin” sales otherwise might challenge. A consequence of

arrangements of this kind could be to slow market

development and to reduce the flow of royalties to

NBFs. Yet royalties maybe necessary to NBFs’ survival

and certainly are anticipated by the new firms to assist

them in expansion. Arrangements like that between

Eli Lilly and Genentech in biotechnology go against the

lessons to be learned from the evolution of the U.S.

semiconductor industry. Both the pace of technological

development and the growth of small, innovative semiconductor firms such as Texas Instruments might have

been quite different had Texas Instruments found it

necessary to license GE or RCA to get its transistor

products on the market.

● These arrangements are discussed in Chapter 4: Firms Commercializing

Biotechnology. ● These arrangements are discussed in Chapter 5: Pharmaceuticals
App. C—A Comparison of the U.S. Semiconductor Industry and Biotechnology 539

Like the semiconductor industry in its early stages,

biotechnology currently is restricted by its need for

process technology. The history of process development in the evolution of the U.S. semiconductor industry is of relevance to biotechnology. As has been

shown, large electronic defense contractors such as

GE were assisted in developing production lines for

semiconductor devices by large infusions of DOD

dollars. But the history of the U.S. semiconductor industry demonstrates that small firms are not automatically foreclosed from process advances. Thus, the early growth of Fairchild Semiconductor, for example,

was tied largely to its development of the planar process, which dramatically increased the firm’s production yield and helped compensate it for its lack of production experience,

In the case of biotechnology, firms that exploit possibilities in both new product development and process innovation clearly will have more growth opportunities than those that restrict themselves to one or

the other. In biotechnology, as in semiconductors,

process know-how is probably transferable across a

range of potential products and markets. Thus, if NBFs

can surmount the financial hurdles to commercial production, the pace of technological advance and market

development likely will be accelerated significantly,

and the competitiveness of U.S. firms using biotechnology probably will be increased.

Other differences

Two other differences between the early history of

the U.S. semiconductor industry and biotechnology

are noteworthy. The first difference is the range of

economic sectors each technology was perceived

potentially to affect. For semiconductors, military, aerospace, communications, and computer applications

were foreseen. All these draw primarily on the disciplines of electronics and engineering. The applications

of biotechnology are perceived to be broader—pharmaceuticals, plant and animal agriculture, chemicals,

pollution control, energy production, mining, oil recovery, and biosensors/biochips are areas where applications are being pursued. Not only is the array of

sectors expected to be affected by biotechnology

broader, the technical disciplines required for effective application of biotechnology are more numerous.

Developing an effective infrastructure to support the

commercialization of biotechnology, therefore, may

be more complex than was developing an infrastructure to support the semiconductor industry.

The second difference is the prominent role of Federal regulation in biotechnology. NIH, through the

rDNA research guidelines, is in a quasi-regulatory position with regard to both R&D and scale-up to commercial production. And for specific products of biotechnology, FDA, which regulates food ingredients and

human drugs and biologics, and USDA, which regulates animal biologics, are particularly important. EPA

and OHSA also may have significant regulatory authority, although their exact authority is somewhat

unclear. * U.S. Government regulation in research, development, and marketing of many products of biotechnology, for which there is no parallel in the semiconductor industry, makes effective commercialization of the products of biotechnology relatively more

complex.

Conclusions

Certain differences between the early history of the

U.S. semiconductor industry and biotechnology are

particularly important from a policy perspective:

The U-

.S. semiconductor industry- arose from a

fundamental invention (the transistor) made at a

major industrial laboratory, AT&T’s Bell Telephone Laboratories, in 1947, and most of the subsequent product and process innovations in the

period from 1947 to the early 1960’s also were

made by industry. Biotechnology arose from fundamental biomedical research in universities, and

its early subject matter experts were primarily

unversity professors.

The need for development of the U.S. semiconductor industry to meet military and aerospace

needs was clear. The tie between biotechnology

and national objectives is less clear. The U.S.

Government’s role in support of basic biomedical

research has been, and remains, clear, but its role

in the commercialization of biotechnology is far

less defined.

At Bell Labs, early commercial exploitation of

semiconductor discoveries was strictly limited to

one industrial sector, communications (despite the

much wider applicability of semiconductor technology). In effect, Bell Labs became, for a time,

something like a national laboratory for the semiconductor industry. There is no equivalent in biotechnology.

Many new semiconductor firms in the United

States were formed to market a definite product,

and, because of the availability of Federal contracts, relatively little capital was required to enter

the market. Most NBFs were started as R&D

houses, with the objective of determining how to

make a product. With certain exceptions (e.g., in

vitro monoclinal antibody diagnostic products),

● This issue is discussed in Chapter 1.5: Health, Safety, and Environmental

Regulation.
540 Commercial Biotechnology: An International Analysis

●

●

●

the capital required to produce a biotechnology

product and bring it to market will be greater

than that needed by early semiconductor firms.

For NBFs attempting to commercialize a new drug

or biological for human use, capitalization requirements may be $50 million to $100 million. *

The early U.S. semiconductor industry was characterized by multifaceted Federal encouragement

of commercialization through a variety of policies

ranging from antitrust to Federal loan and tax policies. There is no parallel to this in biotechnology.

Biotechnology differs from the U.S. semiconductor industry in that the Federal Government is not

providing substantial funds for process engineering and development of pilot and production facilities. Nor is the Federal Government serving as

a “creative first market” for the products of biotechnology as it did for the semiconductor industry.

Biotechnology also differs from semiconductor

technology in the wider array of economic sectors it is perceived potentially to affect and in the

larger role of the Federal Government in regulating many products of biotechnology.

Thus, NBFs currently face a very different, and

much more complex, market environment than did

the new entrants in the semiconductor industry. The

industrial sectors in which biotechnology appears to

be making its first contributions are human and animal

health care, and the pharmaceutical sector has special

characteristics. The market for a particular pharmaceutical product is often dominated by one or a few

major corporations, as, for example, the U.S. insulin

market is dominated by Eli Lilly.** The product of the

dominant corporation is supported by extensive advertising in medical journals, by a complex distribution

system involving detail men who provide product samples and are recognized by the physicians they serve,

and by the reluctance of physicians to switch to a

product with less familiar properties. The established company is also skilled in the clinical testing procedures necessary to obtain market approval. An NBF

with a competing product, but without production

capacity, experience in regulatory compliance, and an

established marketing and distribution system within

the medical community, has little choice but to license

the new product to an established company that already produces a similar product. Such licensing,

however, will tend to reduce the competitive stimula -

● For discussion of the financial needs of firms using biotechnology, see

Chapter 12: Financing and Tax Incentives for Firms,

* ● A profile of Lilly’s sham in U.S. and foreign insulin markets is presented

in Chapter .5: Pharmaceuticals.

tion to the industry that the NBF might otherwise

provide.

The Federal Government was clear about its role in

the development of the U.S. semiconductor industry.

DOD and NASA funded the industry to produce products needed in military and aerospace applications.

The Federal Government has funded basic biomedical

research in university settings, but as yet it has no explicit role in the commercialization of biotechnology.

Unlike semiconductor technology, biotechnology has

sprung primarily from academia. As biotechnology

moves to the market, universities of necessity have

played a role in commercializing the fruits of public

funding of research, because they were the sole source

of basic knowledge. Moreover, the role of the universities has been further complicated in biotechnology

by the close association between basic and applied

research in this area. The traditionally distinct roles

of the university as source of research and training

and of industry as source of commercialization, which

were clear with respect to semiconductors, are

blurred for biotechnology. *

In the early history of the U.S. semiconductor industry, the Federal Government and industry were

partners, with industry providing know-how and the

Federal Government supplying public funds for R&D,

demonstration projects, production, and consumption

of semiconductor devices. Direct returns to the Federal Government, in the form of advances in defense

and aerospace electronics, were obvious. In the case

of biotechnology, however, not the Federal Government but the public health organizations and universities that were the sources from which biotechnology

arose have been industry’s partner in commercialization, As a result, an impression is left that the public

is ceding the biotechnology research infrastructure

and discoveries brought about by public moneys to

private industry without corresponding return. The

problem has been exacerbated because biotechnology

emerged so quickly from the academic setting. Basic

biomedical research nourished by Federal dollars is

applicable suddenly to the development of commercial products.

Consideration of the differences between the early

history of the U.S. semiconductor industry and biotechnology suggests several areas of need for biotechnology:

● One need is for the Federal Government clearly

to distinguish basic research from commercialization and to define its different roles with regard

to each.

*University/industry relationships in biotechnology are explored at greater

length in Chapter 17: Unit,ersit-vilndustry Relationships.
App. C—A Comparison of the U.S. Semiconductor Industry and Biotechnology ● 541

A second need, suggested by the successful history of the U.S. semiconductor industry, is for the

Federal Government to facilitate the development

of NBFs so that they can compete effectively in

the marketplace. As in the semiconductor industry, small firm competition would stimulate innovation by all companies, large and small.

Related to the above is the need to develop effec -

tive mechanisms for the diffusion of knowledge

developed in biotechnology.

The last is very important and is really the central

issue with respect to ensuring a return to the public

for the financial investment that the public has made

in biotechnology.

Appendix C references

1.

2

3.

4.

5.

6.

7.

8.

9.

Asher, N., and Strom, L., The Role of the Department

of Defense in the Development of Integrated Circuits

(Arlington, Va.: Institute for Defense Analysis, 1977).

Borrus, M., and Millstein, J., “Technological Innovation

and Industrial Growth: A Comparative Assessment of

Biotechnology and Semiconductors, ” contract report

prepared for the Office of Technology Assessment, U.S.

Congress, March 1983.

Braun, E., and MacDonald, S., Revolution in Miniature

(Cambridge, England: Cambridge University Press,

1975)<

Diamond, H., “Research and Development Programs

of the National Bureau of Standards, ” unpublished

paper, Dec. 1, 1947.

Electronic News, “9 Firms Get Tax Writeoff Certificates, ” July 15, 1957, p. 6.

Electronic News, “2 Services-Backed Research Studies

Available by OTS,” Jan. 27, 1958, p. 14.

Electronic News, “Navy Electronics Lab Turns Equipment Ideas Into Reality, ” Mar. 28, 1960, p. 17.

Ginzberg, E., Kuhn, J. W., Schnee, J., et al., Economic

Impact of Large Public Programs: The NASA Experience (Salt Lake City, Utah: Olympus Press 1976).

Levin, R. C., “The Semiconductor Industry,” Government and Technical Progress: A Cross Industry Analvsis, R. R. Nelson, ed. (New York: PerEamon Press, , -

1982).

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

21,

22.

23.

Linville, J. G., and Hogan, L. C., “Intellectual and Economic Fuel for the Electronic Revolution, ” Science

195:1107, 1977.

Lustig, L. K. (cd.), Impact (Short Hills, N.J.: Bell Telephone Laboratories, 1981),

Organisation for Economic Cooperation and Development, Gaps in Technology, Electronic Components,

Paris, 1968.

Organisation for Economic Co-Operation and Development, United States Industrial Policy, Paris, 1970.

Tilton, J., International Diffusion of Technology: The

Case of Semiconductors (Washington, D. C.: Brookings

Institution, 1971).

U.S. Congress, Joint Committee on Defense Production,

Hearings on the Defense Production Act of 1950, Program Report No. 39 (Washington, D. C.: U.S. Government Printing Office, May 28, 1957).

U.S. Congress, Senate Committee on Banking and Currency, Review of Voluntary Agreements Programs

Under the Defense Production Act (Guaranteed Loans)

(Washington, D.C.: U.S. Government Printing Office,

1958).

U.S. Congress, Senate Committee on the Judiciary, Subcommittee on Patents, Trademarks, and Copyrights,

Patent Practices of the Department of Defense,

(Washington, D. C.: U.S. Government Printing Office,

1961).

U.S. Department of Commerce, A Report on the U.S.

Semiconductor Industry (Washington, D.C.: U.S. Government Printing Office, 1977).

U.S. National Commission on Technology, Automation,

and Economic Progress, “Technology and the American Economy, ” in The Employment Impact of Technological Change, vol. 2 (Washington, D. C.: U.S. Government Printing Office, 1966).

U.S. vs. Western Electric Co., 1956 Trade Case (CCH

68,246 (D. N.J., 1956).

Utterback, J., and Murray, A., The Infi’uence of Defense

Procurement and Sponsorstu”p of Research and Development on the Development of the Civilian Electronics

Zndustry (Boston: Center for Policy Alternatives, MIT,

1977)

Weiner, C., “How the Transistor Emerged,” I.E.E.E.

Spectrum, January 1973, pp. 24-33.

Wolff, M. F., “The Genesis of the Integrated Circuit,”

1.E.E.E. Spectrum, August 1976, pp. 44-53.
Appendix D

Firms in the United States

Commercializing Biotechnology

Table 4 in Chapter 4: Firms Commerializing

Biotechno]ogy listed firms in the United States commercializing biotechnology and their product markets.

Their names and addresses are provided below. In

order for a company to be listed in table 4, the existence of the company and the fact that the company

is pursuing the development of biotechnology as defined by OTA had to be confirmed by at least two

sources (e.g., company directories, individuals, trade

journals). The existence and commercial application

areas of many of the companies listed also were confirmed through the survey of firms’ personnel needs

conducted by the National Academy of Sciences and

OTA. *

The number of companies listed in table 4 is a very

conservative estimate of the number of companies

commercializing biotechnology in the United States.

More than five established companies thought to be

applying novel bioprocessing technology (e.g., G. B.

“All but 33 of the firms listed were sent the OTA/NAS survey questionnaire, which is repmdumd in Appendix E: OTAfNAS Survey of Personnel

Needs of R“rms in the United States.

Abbott Laboratories

14th St. & Sheridan Rd.

North Chicago, Ill. 60064

Actagen

Rm. 802

99 Park Ave.

New York, N.Y. 10016

Advanced Biotechnology Associates, Inc.

177 Post St., Suite 700

San Franciso, Calif. 94108

Advanced Genetic Sciences, Inc.

42 Maher Ave.

Greenwich, Corm, 06830

Advanced Genetics Research Institute

2220 Livingston St.

Berkeley, Calif. 94606

Advanced Mineral Technologies, Inc.

P.o. Box 1339

Socorro, N. Mex. 87801

Agrigenetics Corp.

3375 Mitchell Lane

Boulder, Colo. 80301

Fermentation Industries, Inc.) are missing from the list,

because sufficient information to confirm their activities could not be obtained. Like the biotechnology research of established companies, the existence of new

biotechnology firms (NBFs) is often difficult to confirm.

More than 10 new companies, not included here, are

thought by OTA to be operating but with very little

public visibility. Some established companies and NBFs

regard the application of their biotechnology research

to be proprietary, and others will not even publicly

confirm whether or not they are involved in biotechnology. Approximately 10 companies are not listed for

this reason. Various other companies are not listed,

because their existence and involvement in biotechnology were not confirmed by at least two sources.

Most support firms are not included in the table, because they are not applying biotechnology to the production of their products. Those support companies

that, in addition to supplying support products (e.g.,

restriction enzymes and oligonucleotides), are applying biotechnology to the development and production

of such products as vaccines and monoclinal antibodies are included.

Allied Chemical Corp.

Columbia Rd. & Park Ave.

P.o. Box 4oom

Morristown, N.J. 07960

Alpha Therapeutic Corp.

5555 Valley Blvd.

Los Angeles, Calif. 90032

Ambico, Inc.

P.O. Box M, Route 2

Dallas Center, Iowa 50063

American Cyanamid Co,

One Cyanamid Plaza

Wayne, N.J. 07470

American Diagnostics Corp.

1600 Monrovia Ave.

Newport Beach, Calif. 92663

American Quahx

14620 Firestone Blvd.

La Mirada, Calif. 90638

Amgen

1892 Oak Terrace Lane

Newbury Park, Calif. 91320

Angenics

100 Inman St.

Cambridge, Mass. 02139

Animal Vaccine Research Corp.

3333 Torrey Pines Ct., Suite 120

La Jolla, Catif. 92037

Antibcxiies, Inc.

P.O. BOX 442

Davis, Calif. 95617

Applied DNA Systems, Inc.

4415 Fifth Ave.

Pittsburgh, Pa. 15213

Applied Genetics, Inc.

5 Jules Lane

New Brunswick, N.J. 08901

ARCO Plant Cell Research Institute

6560 Trinity Ct.

Dublin, calif, 94568

Atlantic Antibodies

10 Nonesuch Rd.

P.O. BOX 60

Scarborough, Maine 04074

542
App. D—Firms in the United States Commercializing Biotechnology ● 543

Axonics

1500 Salado Dr., Suite 202

Mountain View, Calif. 94043

Baxter-Travenol Laboratories, Inc.

One Baxter Parkway

Deerfield, Ill. 60015

Becton Dickinson & Cb.

Corporate Research Center

P.O. BOX 12016

Research Triangle Park, N.C. 27709

Bethesda Research Laboratories, Inc

P.o. Box 577

Grovemont Circle

Gaithersburg, Md. 20760

Biocell Technology Corp.

22o East 23rd St.

New York, N.Y. 10010

Biochem Technology, Inc.

66 Great Valley Parkway

Great Valley Corporate Center

Malvern, Pa. 19355

Bio-con, Inc.

3601 Gibson St.

P.O. BOX 5277

Bakersfield, Calif. 93388

Biogen, Inc.

241 Binney St.

Cambridge, Mass. 02142

BioGenex Laboratories

6529 Sierra Lane

Dublin, Calif. 94566

Biological Energy Corp.

P.o. Box 766

2650 Eisenhower Ave.

Valley Forge, Pa. 19482

Bio Response, Inc.

55o Ridgefield Rd.

Wilton, Corm. 06987

Biotech Research Laboratories, Inc.

1600 East Gude Dr.

Rockville, Md. 20850

Biotechnica International, Inc.

85 Bolton St.

Cambridge, Mass. 02140

Bio-Technology General Corp.

280 Park Ave.

New York, N.Y. 10017

Brain Research

46 East 91st St.

New York, N.Y. 10028

Bristol-Myers Co.

Industrial Division

P.O. BOX 657

Syracuse, N.Y. 13201

BTC Diagnostics, Inc.

61 Moulton St.

Cambridge, Mass. 02138

Calgene

1910 Fifth St.

Davis, Calif. 95616

California Biotechnology, Inc.

2450 Bayshore Frontage Rd.

Mountain View, Calif. 94303

Cambridge Bioscience Corp.

495 Old Connecticut Path

Framingham, Mass. 01701

Campbell Institute for Research and

Technology

Campbell Soup Co.

Campbell Rd.

Camden, N.J. 08101

Celanese Research Co.

86 Morris Ave.

Summit, N.J. 07901

Cellorgan International, Inc.

300 Park Ave.

New York, N.Y. 10010

Celtek, Inc.

102 West Eufala

Norman, C)kla. 73069

Centaur Genetics Corp.

120 South LaSalle St., Suite 825

Chicago, 111.60603

Centocor

3508 Market St.

Philadelphia, Pa. 19104

Cetus Corp.

600 Bancroft Way

Berkeley, Calif. 94710

Cetus Immune Corp.

34OO West Bayshore Rd.

Palo Alto, Calif. 94303

Cetus Madison Corp.

2208 Parkview Rd.

Middleton, Wis. 53562

Chiron Corp.

4560 Horton St., Suite 0214

Emeryville, Calif. 94608

CibaGeigy

444 Saw Mill River Rd.

Ardsley, N.Y. 10502

Clonal Research

1598 Monrovia Ave.

Newport Beach, Calif. 92630

Codon

430 Valley Dr.

Brisbane, Calif. 94005

Collaborative Genetics,

128 Spring St.

Lexington, Mass. 01273

Collagen, Inc.

2455 Faber P1.

Palo Alto, Calif. 94303

nc.

Cooper Diagnostics, Inc.

1230 Wilson Dr.

West Chester, Pa. 19380

Cooper-Lipotech, Inc.

1030 Curtis St.

Merdo Park, Calif. 94025

Corning Glass Works

Corning Biotechnology Department

Baron Steuben Plaza

Corning, N.Y. 14830

Crop Genetics International

7170 Standard Dr.

Dorsay, Md. 21076

Cutter Laboratories, Inc.

2200 Powell St.

P.O. BOX 8817

Emeryville, Calif. 94662

Cytogen Corp.

201 College Rd., East

Princeton Forrestal Center

Princeton, N.J. 08540

Cytox Corp.

954 Marcon Blvd.

Allentown, Pa. 18103

Dairyland Foods Corp.

620 Progress Ave.

Waukesha, Wis. 53187

Damon Biotech, Inc.

115 Fourth Ave.

Needham Heights, Mass. 02194

Dart & Kraft, Inc.

2211 Sanders Rd.

Northbrook, Ill. 60062

Davy McKee Corp.

10 South Riverside Plaza

Chicago, 111.60606

DeKalb Pfizer Genetics

Sycamore Rd.

DeKalb, Ill. 60115

Diagnon Corp.

225 Main St.

Westport, Corm. 06880

Diagnostic Technology, Inc.

240 Vanderbilt Motor Parkway

Hauppauge, N.Y. 11788
544 . Commercial Biotechnology: An International Analysis

Diamond Laboratories

2538 S.E. 43rd St.

Des Moines, Iowa 50316

Diamond Shamrock Corp.

T. R. Evans Research Center

P.O. BOX 348

Gainesville, Ohio 44077

DNA Plant Technology

2611 Branch Pike

Cinnaminson, N.J. 08077

DNAX Corp.

1454 Page hfill Rd.

Palo Aho, Calif. 94304

Dow Chemical Co.

2030 Dow Center

Midland, Mich. 48640

Ean-tech, Inc.

699-A Cerramonte Blvd.

Dale City, Cdif. 94015

Eastman Kodak Co.

343 State St.

Rochester, N.Y. 14650

Ecogen, Inc.

c/o Johnston Associates, Inc.

1101 State Rd., Bldg. O

Princeton, N.J. 08540

E. 1. du Pent de Nemours & Co.

Central Research and Development

Department

1007 Market St.

Wilmington, Del. 19898

Electro Nucleonics Laboratories, Inc

12050 Tech Rd.

Silver Spring, Md. 20904

Eli Lilly & Co.

Lilly Research Laboratories

307 East MKarty St.

Indianapolis, Ind. 46285

EnBio, Inc.

Union Ave. #408A

Fairfield, Calif. 94533

Endorphin, Inc.

1000 Seneca St.

Seattle, Wash. 98111

Engenics, Inc.

2 Palo Alto Sq., Suite 500

Palo Alto, Calif. 94304

Enzo Biochem, Inc.

325 Hudson St.

New York, N.Y. 10013

Enzyme Bio-systems, Ltd.

BOX 8000

Englewood Cliffs, N.J. 07632

Enzyme Center, Inc.

33 Harrison Ave.

Boston, Mass. 02111

Enzyme Technology Corp.

783 U.S. 250 East, Route 2

Ashland, Ohio 44805

Ethyl Corp.

P.O. Box 341

Baton Rouge, La. 70821

Exxon Research & Engineering Co.

180 Park Ave.

Florham Park, N.J. 07932

Fermentec Corp.

301 Saratoga Ave.

Los Gates, Calif. 95030

FMC Corp.

2000 Market St.

Philadelphia, Pa. 19103

Frito-Lay, Inc.

Frito-Lay Tower

Exchange Park

P.O. Box 35034

Dallas, Tex. 75235

Fungal Genetics, Inc.

14721 Cottonwood P1.

Bothell, Wash. 98011

Genencor

Baron Steuben P1.

Corning, N.Y. 14870

Genentech, Inc.

460 Point San Bruno Blvd.

South San Francisco, Calif. 94080

General Electric Co.

Research and Development

Laboratories

One River Rd.

Schenectady, N.Y. 12345

General Foods Corp.

555 South Broadway

Tarrytown, N.Y. 10591

General Genetics

15400 West 44th Ave.

Golden, Colo. 80403

General Molecular Applications

1834 Elmwood Ave.

Columbus, ohio 43212

Genetic Diagnostics Corp.

160 Community Dr.

Great Neck, N.Y. 11021

Genetic Replication Technologies, Inc

1533 Monrovia Ave.

Newport Beach, Calif. 92663

Genetic Systems Corp.

3005 First Ave.

Seattle, Wash. 98121

Genetics Institute

225 Longwood Ave.

Brookline, Mass. 02115

Genetics International, Inc.

50 Milk St., 15th Floor

Boston, Mass. 02109

Genex Corp.

6110 Executive Blvd.

Rockville, Md. 20852

Gentronix Laboratories,

15825 Shady Grove Rd.

Rockville, Md. 20850

Genzyme

1 Bishop St.

Norwalk, Corm. 06851

W. R. Grace & Co.

Research Division

7379 Route 32

Columbia, Md. 21044

Hana Biologics, Inc.

626 Bancroft Way

Berkeley, Calif. 94710

Hem Research

12220 Wilkins Ave.

Rockville, Md. 20852

Inc.

Hoffmann-La Roche, Inc.

34o Kingsland St.

Nutley, N.J. 07110

Hybridoma Sciences, Inc.

4761 Hugh HowelI Rd., Suite D

Tucker, Ga. 30084

Hybritech, Inc.

11085 Torreyana Rd.

San Diego, Calif. 92121

Hytech Biomedical, Inc.

1440 Fourth St.

Berkeley, Calif. 94710

IBM Corp.

Thomas J. Watson Research Center

Yorktown Heights, N.Y. 10598

IGI Biotechnology, Inc.

9110 Red Branch Rd.

Columbia, Md. 21045

Immulok, Inc.

1019 Mark Ave.

Carpinteria, Calif. 93013

Immunetech, Inc.

8950 Villa La Jolla Dr., Suite 2132

La Jolla, Calif. 92037

Immunex Corp.

51 University Bldg., Suite 600

Seattle, Wash. 98101

Immuno Modulators Laboratories, Inc.

10511 Corporate Dr.

Stafford, Tex. 77477

Immunogen

c/o T. A. Associates

111 Devonshire St.

Boston, Mass. 02109
App. D—Firms in the United States Commercializing Biotechnology . 545

Immunotech Corp.

11 Blackstone St.

Cambridge, IMass. 02139

Imreg, Inc.

P.O. BOX 56643

New Orleans, La. 70156

Indiana BioLab

Palmyra, Ind. 47164

Integrated Genetics, Inc.

51 New York Ave.

Framingham, Mass. 01701

Interferon Sciences, Inc.

783 Jersey Ave.

New Brunswick, N.J. 08901

International Genetic Engineering, Inc.

(INGENE)

1701 Colorado Ave.

Santa Monica, Calif. 90404

International Genetic Sciences

Partnership

155-25 Styler Rd.

Jamaica, N.Y. 11433

International Minerals & Chemical

Corp.

Biochemical Division

1401 South Third St.

Terre Haute, Ind. 47808

International Plant Research Institute

853 Industrial Rd.

San Carlos, Calif. 94070

Kallestad Laboratories, Inc.

Austin National Bank Tower, Suite 2000

Austin, Tex. 78701

Kennecott Copper Corp.

One Stanford Forum

Stanford, Corm. 06904

Lederle Laboratories

one Cyanamid Plaza

Wayne, N.J. 07470

The Liposome Co., Inc.

1 Research Way

Princeton Forrestal Center

Princeton, N.J. 08540

Liposome Technology, Inc.

1030 Curtis St.

Menlo Park, CMif. 94025

Litton Bionetics

5516 Nicholson Lane

Kensington, Md. 20895

3M co.

3M Center

St. Paul, Minn. 55144

Mallinckrodt, Inc.

675 McDonald Blvd.

P.O. Box 5840

St. Louis, Mo. 63134

Martin Marietta

1450 South Rolling Rd.

Baltimore, Md. 21227

Meloy Laboratories, Inc.

6715 Electronic Dr.

Springfield, Va. 22151

Merck & Co., Inc.

Merck Sharp and

Laboratories

P.O. Box 2000

Rahway, N.J. 07065

Microlife Genetics

P.O. BOX 2399

1817 57th St.

Dohme Research

Sarasota, Fla. 33578

Miles Laboratories, Inc.

1127 Myrtle St.

Elkhart, Ind. 46515

Miller Brewing Co.

3939 West Highland Blvd.

Milwaukee, Wis. 53201

Molecular Biosystems, Inc.

1118-A Roselle St.

San Diego, Cdif. 92121

Molecular Diagnostics

400 Morgan Lane

West Haven, Corm. 06516

Molecular Genetics, Inc.

10320 Bren Rd., East

Minnetonka, Minn. 55343

Monoc]onal Antibodies, Inc.

2319 Charleston Rd.

Mountain View, Calif. 94043

Monsanto Co.

500 N. Linbergh

St. Louis, Mo. 63167

Multivac, Inc.

P.O. Box 575

Seal Beach, Calif. 90740

Nabisco, Inc.

River Rd. and De Forest Ave.

East Hanover, N.J. 07936

National Distillers & Chemical Co.

99 Park Ave.

New York, N.Y. 10016

Neogen Corp.

Nisbet Bldg., Suite 22

1407 S. Harrison Rd.

East Lansing, Mich. 48824

New England Biolabs

32 Tozer Rd.

Beverly, Mass. 01915

New England Monoc]onal Resources

267 Plain St.

Providence, R.I. 02905

New England Nuclear Corp.

85 Wells Ave.

Newton Center, Mass. 02159

Norden Laboratories

601 West Cornhusker Highway

Lincoln, Nebr. 68521

Novo Laboratories, Inc.

59 Danbury Rd.

Wilton, Corm. 06897

NPI

417 Wakara Way

University Research Park

Salt Lake City, Utah 84108

Nuclear & Genetic Technology, Inc.

172 Brook Ave.

Deer Park, NY. 11729

Ocean Genetics

1990 N. California Blvd., Suite 830

Walnut Creek, Calif. 94596

Oncogen

3005 First Ave.

Seattle, Wash. 98121

Oncogene Science Inc.

Nassau Hospital

Professional Bldg., Suite 33o

222 Station Plaza North

Mineola, N.Y. 11501

Organon, Inc.

375 Mt. Pleasant Ave.

West Orange, N.J. 07052

Ortho Pharmaceutical Corp.

Route 202

Raritan, N.J. 08869

Petrogen, Inc.

2452 East Oakton St.

Arlington Heights, Ill. 60005

Pfizer, Inc.

25 East 42nd St.

New York, N.Y. 10017

Phillips Petroleum Co.

Research Center

Bartlesville, Okla. 74004

Phytogen

101 Waverly Dr.

Pasadena, Calif. 91105

Phyto-tech Lab

21822 South Vermont Ave.

Torrance, Calif. 90502

Pioneer Hybrid International Corp.

1206 Mulberry St.

Des Moines, Iowa 50308

Plant Genetics, Inc.

1930 Fifth St., Suite A

Davis, Calif. 95616
546 . Comrnercial Biotechnology: An International Anaiysis

Polybac Corp.

1251 S. Cedar Crest Blvd.

Allentown, Pa. 18103

PPG Industries

One Gateway Center

Pittsburgh, Pa. 15222

Purification Engineering, Inc.

9505 Berger Rd.

Columbia, Md. 21046

Quidel Home

11077 North Torrey Pines

La Jolla, Calif. 92037

Replicon

P.O. BOX 27053

South San Francisco, Calif. 94127

Repligen Corp.

101 Binney St.

Cambridge, Mass. 02142

Ribi Immunochem Research, Inc.

P.o. Box 1409

Hamilton, Mont. 59840

Rohm & Haas Co.

Independence hfall

West Philadelphia, Pa. 19105

Salk Institute Biotechnology/

Industrial Associates, Inc.

3333 Torrey Pines Ct., Suite 140

La Jolla, Calif. 92037

Sandoz, Inc.

Route No. 10

East Hanover, N.J. 07936

Schering-Plough Corp.

2000 Galloping Hill Rd.

Kenilworth, N.J. 07033

SDS Biotech Corp.

7528 Auburn Rd.

Gainesville, Ohio 44077

G. D. Searle & Co.

Box 1045

Skokie, Ill. 60076

Serono Laboratories, Inc.

280 Pond St.

Randolph, Mass. 02368

SmithKline Beckman

One Franklin Plaza

P.O. BOX 7929

Philadelphia, Pa. 19101

E. R. Squibb & Sons, Inc.

P.o. Box 4000

Princeton, N.J. 08540

A. E. Staley Manufacturing Co.

22OO Eldorado St.

Decatur, Ill. 62525

Standard Oil Co. of California

225 Bush St,

San Francisco, Calif. 94104

Standard Oil Co. of Indiana

Amoco Research Center

P.o. Box 400

Naperville, Ill. 60566

Standard oil Co. of Ohio

1424 Midland Bldg.

Cleveland, (lhio 44115

Stauffer Chemical Co.

Nyala Farm Rd.

Westport, Corm. 06881

Summa Medical Corp.

4272 Balloon Park Rd., N.E,

Albuquerque, N. Mex. 87109

Sungene Technologies Corp.

3330 Hillview Ave.

Palo Alto, Calif. 94304

Sybron Biochemical

Birmingham Rd.

Birmingham, N.J. 08011

Synbiotex Corp.

348-B Rancho Dr.

San Marcos, Calif. 92069

Syncor International

12847 Arroyo St.

Sylmar, Calif. 91342

Synergen

1885 Thirty Third St.

Boulder, Colo. 80301

Syngene Products & Research, Inc.

225 Commeme Dr.

P.o. Box 2211

Fort Collins, Colo, 80524

Syntex Research

c/o Syntex Corp.

3401 Hillview Ave.

Palo Alto, Calif, 94304

Syntro Corp.

11095 Torreyana

San Diego, Calif. 92121

Syva Co.

900 Arastradero Rd.

Palo Alto, Calif. 94303

Techniclone International

33o1 South Harbor Blvd.,

Santa Ana, Cahf. 92704

Corp.

Suite 104

Unigene Laboratories, Inc.

110 Little Falls Rd.

Fairfield, N.J. 07006

Universal Foods Corp.

433 East Michigan St.

Milwaukee, Wis. 53202

University Genetics Co.

537 Newtown Ave.

Norwalk, Corm. 06852

U.O.P., Inc.

10 UOP Plaza

Des Plaines, Ill. 60016

The Upjohn Co.

7000 Portage Rd.

Kalamazoo, Mich. 49001

Viral Genetics

10 Cutter Mill Rd., Rm. 403

Great Neck, N.Y. 11021

Wellcome Research Laboratories

3030 Cornwallis Rd.

Research Triangle Park, N.C. 27709

Worne Biotechnology, Inc.

Medford Medical Bldg.

Stokes Rd., Box 458

Medford, N.J. 08055

Xenogen, Inc.

557 Wormwood Rd.

Mansfield, Corm. 06250

Xoma Corp.

3516 Sacramento St.

San Francisco, Calif, 94118

Zoecon

975 California Ave.

P.o. Box 10975

Palo Alto, Calif. 94304

Zymed Laboratories

P.O. BOX 1856

Burlingame, Calif. 94010

Zymos Corp.

2121 North 35th St.

Seattle, Wash. 98103
Appendix E

OTA/NAS Survey

of Firms

of Personnel Needs

in the United States

As noted in Chapter 14: Personnel Availability and

Training, OTA and the National Academy of Sciences’

(NAS) Committee on National Needs for Biomedical and

Behavioral Research Personnel cosponsored a survey

of the personnel needs of U.S. firms using biotechnology. The purpose of the OTA/NAS survey was twofold.

First, OTA was interested in identifying the companies

that were using new biotechnology as defined at the

outset of this report. Second, OTA and NAS were interested in the number of employees engaged in industrial biotechnology, how that number would grow,

and where shortages of personnel, if any, are occurring. The cover letter and survey questionnaire reproduced in this appendix were sent to 286 U.S. companies. Of the 133 firms that responded, 18 indicated

that they were not engaged in biotechnology activities, and 20 others were determined not to be engaged

in biotechnology from their answers to the questionnaire. The remaining 95 indicated that they were engaged in biotechnology activities. The responses of

these 95 firms, which are tabulated on the survey

questionnaire reproduced in this appendix, are the

basis of the characteristics described for the respondents. The distribution of size of firms was not significantly different between respondents and nonrespondents. Because the survey response rate was low,

however, only general trends in the data have been

used in the discussion of personnel needs in chapter

14.

547
548 ● Commercial Biotechnology: An International Analysis

Cornell University

Ithaca, New York 14853

March 4, 1983

Dear :

The Congressional Office of Technology Assessment (OTA) and the National

Academy of Sciences (NAS) Committee on National Needs for Biomedical 

Behavioral Research Personnel have a mutual interest in determining the

nation'ts need for research personnel. I am chairman of the NAS Committee’s

Panel on Basic Biomedical Sciences. We are particularly concerned that there

be an adequate nunber of people trained in areas of the new biotechnology.

I am writing to ask your assistance in collecting some information on

this issue. You could help us greatly in our efforts to get a profile of

current employment opportunities and a sense of future demard in biotechnology and related industries by responding to the three questions on the

attached page. To be useful in our report to the Congress, we need your

answers before March 14, 1983. The tabulated data from the questionnaire

will be published. Only OTA and the NAS panel will have access to the

individual responses.

If you have additional commments or suggestions that you think would

assist us, please include them with your response. A self-addressed envelope

is enclosed. Also, if you have any questions concerning the questionnaire,

don’t hesitate to call me at (607) 256-3374.

With thanks for your help.

Yours sincerely,

Robert Barker, Ph.D.

Director, Division of Biological Sciences

Cornell University

RB:db

Enclosures
App. E—OTA/NAS Survey of Personnel Needs of Firms in the United States ● 549

—

N o

—

m d

—

m

—

r--

d

—

r- m

— —

Ill

.5E

— — — —

f- C 0 c c

w c c c — —

r r .2

II I — —

HI

----

Qn OQ

.
Appendix F

Recombinant DNA Research Guidelines,

Environmental Laws, and Regulation

of Worker Health and Safety

Chapter 15: Health, Safety, and Environmental Regulation discussed the regulatory policies of the United

States, the Federal Republic of Germany, the United

Kingdom, France, Switzerland, and Japan as they pertain to biotechnology. This appendix elaborates on the

material presented in that chapter.

Recombinant DNA research Guidelines

UNITED STATES

The National Institutes of Health “Guidelines for Research Involving Recombinant DNA Molecules” (NIH

Guidelines) apply to all research involving recombinant

DNA (rDNA) in the United States or its territories conducted at or sponsored by any institution receiving

support for rDNA research from NIH (28). All Federal

agencies require their own scientists to comply with

the guidelines, and Federal agencies other than NIH

funding rDNA research also require their grantees to

comply. Compliance is enforced by the authority of

the agency to suspend, terminate, or place restrictions

upon its financing of the offending projector all rDNA

projects at the institution receiving support.

Although the NIH Guidelines are not legally binding

on private companies (unless the company receives

Federal funds), the private sector has espoused voluntary compliance. Some States and localities have required industry to comply by law.

Administrative Framework.—The NIH Guidelines create an administrative framework for oversight

that specifies the responsibilities of scientists, their institutions, and the Federal Government. The primary

responsibility for ensuring compliance lies with the

institutions and scientists doing the research. The institution must establish an Institutional Biosafety Committee (IBC) meeting certain requirements, appoint a

biological safety officer if certain experiments are

done, ensure appropriate training, and implement

health surveillance, if appropriate. The principal investigator has the initial responsibility for determining and implementing containment and other safeguards and for training and supervising the staff.

The IBC oversees all rDNA work at the institution

for compliance with the NIH Guidelines. The IBC must

consist of at least five members who collectively have

the expertise to assess the safety of rDNA experiments.

TWO members must be otherwise unaffiliated with the

institution and must represent the community’s interest with respect to health and the environment. Institutions are encouraged to open IBC meetings to the

public, and minutes of IBC meetings and certain other

documents must be made available to the public on

request. The institution must register the IBC with NIH

by providing information about its members.

At the Federal level, the responsible parties are the

Director of NIH, the NIH Recombinant DNA Advisory

Committee (MC), the NIH Office of Recombinant DNA

Activities, and the Federal Interagency Advisory Committee on Recombinant DNA Research (Interagency

Advisory Committee). The Director of NIH is the final

decisionmaker under the guidelines. For major actions,

he or she must seek the advice of the RAC and must

provide the public and other Federal agencies at least

30 days to comment on proposed actions. Every action taken by the Director of NIH must present “no

significant risk to health or the environment .“ RAC is

a diverse group of experts that meets three or four

times a year to advise the Director of NIH on the major technical and policy issues. * The NIH Office of

Recombinant DNA Activities performs NIH’s administrative functions under the guidelines. Additional oversight is provided by the Interagency Advisory Committee. This committee, which is composed of representatives of approximately 20 agencies, coordinates

all Federal rDNA activities, and its members are nonvoting members of RAC.

Substantive Requirements.—The NIH Guidelines classify all experiments into four categories:

1) exempt, 2) those requiring RAC review and NIH approval before initiation, 3) those requiring IBC approval before initiation, and 4) those requiring IBC

notification at the time of initiation. The first cate-

● In accordance with its charter, RAC is composed of not more than 25 members. At least eight must specialize in molecular biology or related fields; at

least six must be experts in other scientific disciplines; and at least six must

be authorities on law, public policy, the environment, public or occupational

health, or related fields. As of June 30, 1983, RAC Was Composed of 10

molecular biologists, 6 experts from other scientific disciplines, and 9 persons in the third category (6). An industry trade association has requested

that an industry representative be appointed to the RAC as a nonvoting

member.

550
App. F—Recombinant DNA Research Guidelines, Environmental Laws, and Regulation of Worker Health and Safety 551

gory-exempt-covers an estimated 80 percent to 90

percent of all rDNA experiments. Examples include

work with E. coli K-12, S. cerevisiae, and asporogenic

B. subtilis host-vector systems.

NIH approval is required for experiments involving

formation of rDNA containing genes for the synthesis

of certain toxins lethal to vertebrates, deliberate release of recombinant organisms into the environment,

and transfer of drug resistance to certain microorganisms under certain conditions.

IBC approval is required for experiments involving

certain pathogenic organisms, whole organisms or

plants, or more than 10 liters of culture (except for

certain exempt experiments). The last category experiments requiring IBC notification–is a catch-all

category. Containment levels are specified for each category except the one requiring NIH approval, where

containment is set on a case-by-case basis.

Application to Industry. -In the absence of legal

authority over industry’s work with rDNA, NIH has

taken several steps to encourage voluntary compliance

and provide a modest degree of Federal oversight. Part

VI of NIH Guidelines, added in January 1980, sets up

a mechanism for voluntary compliance. It creates a

parallel system of project review and IBC registration,

modified to protect proprietary information. * In addition, RAC established a subgroup in May 1979 to deal

with large-scale work. “Physical Containment Recommendations for Large-Scale Uses of Organisms Containing Recombinant DNA Molecules” (Large-Scale Recommendations) (27) developed by that subgroup, RAC,

and NIH specify physical containment requirements,

suggest the appointment of a biological safety officer,

and suggest the establishment of a worker health surveillance program for work done at higher containment levels. (They were added to the NIH Guidelines

as Appendix K in June 1983.)

According to industry spokespeople, the NIH Guidelines are accepted and followed by the private sector.**

Compliance with the Large-Scale Recommendations

also appears to be widespread, but there have been

few, if any, definitive statements by industrial spokespeople on this point. Regarding present Large-Scale

Recommendations, one industry group stated that its

experience has indicated that “the present [recommendations] are reasonable and workable, although they

are quite stringent for work at the P1-LS level. The

“Proprietary information is protected in several ways. First, there is a

presubmission review of data as to availability under the Freedom of Information Act. Second, NIH must consult with institutions applying for exemptions or approvals about the content of any public notice to be issued, if the

application Contains proprietary information. Finally, applications involving

proprietary information are considered by RAC in nonpublic sessions,

● ● Although there is no means for NIH to monitor compliance with the NIH

Guidelines or Large-Scale Recommendations, there is no evidence suggesting

noncompliance.

design requirements in the Recommendations make

sense to us and are consistent with other regulations

relating to the manufacture of products for use with

human subjects” (4). The group went onto state that

it also saw difficulties arising from the recommendation that the primary containment system not be

opened until all microorganisms are inactivated because that could compromise that product in some

cases (4).

Impact on Biotechnology.—The impact of the

NIH Guidelines on biotechnology appears to be minimal. As essentially voluntary codes of practices that

are fairly consistent with previously established good

laboratory and manufacturing practices, they add little

in the way of additional restrictions. Moreover, an estimated 80 to 90 percent of the experiments are exempt. On the basis of past history and what experts

continue to learn about risks, the NIH Guidelines are

likely to be further liberalized and may even disappear. In fact, whatever burdens they impose are probably offset by the gains in public confidence and the

likelihood that they have headed off more restrictive

mandatory controls.

EUROPEAN ECONOMIC COMMUNITY COUNTRIES:

FEDERAL REPUBLIC OF GERMANY,

UNITED KINGDOM, AND FRANCE

European Economic Community.—The European Economic Community (EEC) has considered at

length the problems and prospects for rDNA research

and the need for common Communitywide action to

regulate and promote its development (13), but only

a nonbinding recommendation has been made by the

Council of the European Communities to member

states on the question of guidelines applicable to rDNA

research. The nonbinding EEC Guidelines were

adopted in June 1982 (2). By that time, most of the individual member states with any significant amount

of rDNA research had already adopted their own national guidelines. The EEC Guidelines impose no

stricter requirements on rDNA research than those

of the individual member states. They principally provide that any laboratory wishing to conduct rDNA research notify the competent national or regional authority in the member state and that the member

states adopt a common definition of work involving

rDNA (sees. 1-3).

More particularly, the EEC Guidelines suggest that

notification of any rDNA research be given before

work is commenced, except for research of very lowrisk potential. * The notification should include infor-

● The EEC Guidelines do not define the term “very low risk potential,” but

indicate that this be determined by the competent national authorities. The

United Kingdom, France, and the Federal Republic of Germany have adopted

somewhat different methodologies in their guidelines for defining risk

potential
552 Commercial Biotechnology: An International Analysis

mation about the experimental protocol, the protective measures to be taken, and the general education

and training of the staff working on the experiment

or monitoring it. Such notification is thought desirable

because it creates records that will be helpful in what

the Commission of the European Communities believes

to be the highly unlikely event of an accident or other

misfortune involving rDNA (2). The authority receiving the notification must also, under the recommendation, protect the confidentiality of the information

submitted (2). The EEC Guidelines do not call for specific approval of rDNA research of any type. As is

discussed below, certain member states do require

specific approval.

The EEC Guidelines do not address many issues

which national guidelines, including those of the

United States, have attempted to cover. The EEC

Guidelines do not discuss the question of whether

private laboratories should be subject to regulation,

leaving this decision to the discretion of national

authorities. Neither do they address how large-scale

rDNA research should be regulated.

The fact that the EEC issued its rDNA guidelines despite the existence of more comprehensive guidelines

in the member states reflects both the continuing concern over the safety of rDNA research and the difficulty in obtaining agreement on such matters. It is clear

that the EEC has not yet determined its proper role

in the regulation of rDNA research. Although discussions concerning rDNA as well as biotechnology generally are continuing within the EEC, it is likely to be

some time before any agreement is reached concerning the respective roles of the EEC and the member

states.

Federal Republic of Germany.—The Federal

Republic of Germany has issued guidelines for rDNA

research (3) that borrow heavily from the NIH Guidelines of the United States. The West German guidelines

are theoretically broader than the NIH Guidelines

because the German guidelines nominally apply to all

research activities involving DNA. The only enforcement mechanism, however, is control over research

funding from the German Federal Government.

The West German guidelines, like the NIH Guidelines, provide that the physical and biological containment measures required for particular experiments

be determined according to the risk of the experiment.

Risk is evaluated largely in terms of the source of the

DNA. The German guidelines also prohibit certain

specified experiments in the host organism E. coli K12

and other E. coli strains discussed in the NIH

Guidelines (and the corresponding bacteriophages and

plasmids of these strains), thereby requiring that the

higher biological containment measures be used, regardless of the source of the DNA. * The guidelines also

specify the appropriate containment methods required

for various rDNA experiments. Physical and biological

containment measures are divided into four and two

levels (LI to L4 and B1 to B2), respectively.

The German guidelines for rDNA research are administered by the Central Commission for Biological

Safety (Zentrale Commission ffi die Biologische

Sicherheit), * * a biological safety officer or committee

at each laboratory, and a project leader for each experiment. * * * The guidelines specify that the Central

Commission must be notified of all rDNA experiments

except those at the lowest physical containment level.

For research at the next level, the Central Commission must authorize one of its scientist members to

supervise the work and to keep the Commission informed. Experiments using mid-level containment

measures require the prior approval of two members

of the Commission. Prior approval must be sought

from the Central Commission for all experiments using

vertebrate cells as the host and for experiments using

DNA from pathogenic organisms. In the case of the

latter, the Central Commission must find that the expected benefits clearly outweigh the conceivable hazards. On request, the Central Commission will also

authorize the use of new host-vector systems not

enumerated in the German guidelines. The Central

Commission also gives advice on research and safety

measures.

United Kingdom.-The U.K. guidelines for rDNA

research (26)T are similar to the NIH Guidelines in

broad conceptual terms but differ with respect to

“These specially restricted experiments are: 1) the production of recombinant DNA for the biosynthesis of powerful bacterial exotoxins such as

botulinus toxin, tetanus toxic, diphtheria toxin, and snake toxin; Z) the use

of genomes of extremely pathogenic viruses such as Lassa, small pox, and

hepatitis B; and 3) the transmission of genes which confer resistance to an

antibiotic between micro-organisms that do not naturally exchange genes

when the resistance gene has not previously been known in the receptor cell,

* ● West Germany’s Central Commission for Biological Safety, the only Gov.

ernment body, has 12 members, 4 rDNA experts, 4 experts from related field

of biology, and 4 “outstanding individuals” from unions, industry, or researchpromoting organizations, all appointed by the Federal Minister for Research

and Technology.

● ● ● The officer or at least one member of the committee must have the

appropriate license, if the research work involves pathogenic or toxinproducing organisms. The project leader must possess adequate experience

in microbiology and, for certain higher containment level work, knowledge

about pathogens. The project leader is responsible specifically for planning

and conducting the research, health monitoring of laboratory workers, informing the Central Commission and the biological safety officer or committee of the research and the planned safety measures, implementing Commission instructions, making regular reports to the Commission, maintaining a record of safety instruction, and training laboratory personnel.

Whe term used in the United Kingdom to describe rDNA research is ‘(genetic manipulation. ” Genetic manipdation is defined in the Genetic Manipulation Regulations as: the formation d new combinatims of heritable material

by the insertion d nucleic acid molecules produced by whatever means outside the cell, into any virus, bacterial plaamid, or other vector system so as

to allow their incorporation into a host organism in which they do not naturally occur but in which they are capable of continued propagation.
App. F—Recombinant DNA Research Guidelines, Environmental Laws, and Regulation of Worker Health and Safety 553

scope, risk assessment, and enforcement. Like the NIH

Guidelines, the U.K. guidelines have been gradually

relaxed. Nevertheless, the guidelines in the United

Kingdom are still regarded as more restrictive than

those of the United States.

The guidelines for rDNA research in the United

Kingdom are promulgated and administered by the

Genetic Manipulation Advisory Group (GMAG) under

the Health and Safety at Work Act of 1974 (24). * The

guidelines apply to all research in the United Kingdom,

not just that funded by the Government. Enforcement

is the responsibility of the Health and Safety Executive

(HSE), which is comparable to the U.S. Occupational

Safety and Health Administration. HSE has taken no

enforcement action to date.

As do the guidelines in all of the competitor countries, the GMAG guidelines establish four progressively

more restrictive physical containment levels based on

the perceived hazards of the research.** Facilities for

the highest two levels must be examined by HSE

inspectors before any rDNA research can be conducted to ensure that the GMAG requirements are

met.

The GMAG guidelines also adopt the two-level biological containment approach of most of the other

countries * * * which is based on the degree of disability of the host-vector system being used. However,

GMAG has also developed special rules for rDNA research involving experimental animalsl and for work

that involves the introduction of foreign nucleic acid

into higher plants or into any plant pest. *

GMAG asssess the degree of potential hazard in a

way somewhat different from the other countries, including the United States. GMAG considers three fac-

● The Government department with responsibility for GMAG policy is the

Department of Educaticm and Science, afthough this department has little

expertise in such areas, particularly in comparison to tk Department of

Health and Social Security, which has a very limited role, via the Medical

Reseamh Council, in the wersight of genetic manipulation safety [25). GMAG’s

status was recently reviewed by the Health and Safety Executive, and the

subsequent report recommended the relocation of the group to the Department of Health arri Social Security (12). GMAG, now called the Health and

Safety Commissicm Advisory Committee on Genetic Manipulation, has been

moved to the Department of Health and Social Security.

● *Certain Dh’A research is considered so safe as to not require containment. 1~boratories conducting this research must imtead follow simply the

Guidelines for Microbiological Safety.

● ● ● France has four levels of biological containment.

tThese require isolatkm of the animal, safe disposal of refuse and waste,

and stricter rules for twsearch in category 111 and IV laboratories (23).

“plant pest is defined as “any living organism, other than a vertebrate

animal, or any pathogen which is injurious to any plant, and includes any

culture of such organism or pathogen. ” me work requires a special license

from the Agricultural Ministries. The Iiceme will be issued cmly if the research

is conducted according to the containment recommendation of GMAG, which

include special rules for the handli~ of plants and preventing the dissemination of pollen and seed. The special plant rules do not cover experiments

involving the introduction of plant nucleic acid into bacteria or other microorganisms (except #ant pests), which are covered by the existing GMAG guidelines (z I). It should be noted that the United Kingdom has adopted specific

restrictions on the importation of such pests.

tors: access, expression, and damage. * As a general

matter, the British classification system appears to

require less stringent containment measures for some

types of research than would be required in other

countries. For example, the damage factors associated with interferon and insulin are quite low and

work with these products would be classified as less

risky in the United Kingdom than in some other countries (22).

The administrative framework for implementing the

GMAG guidelines relies on institutional and governmental oversight. GMAG and HSE must be given advance notice of work involving rDNA except for certain selfdoning experiments.** Most work at the lOWest two physical containment levels can go forward

after notice. Although no express provision prohibits

work at containment levels three and four before

GMAG issues its advice, such premature work might

violate the Health and Safety at Work Act, which carries criminal penalties. In addition, each institution

conducting rDNA research is required to have certain

personnel responsible for the research * * * review, to

forward notifications of proposed rDNA research to

GMAG, and to suggest other health and safety actions

that the institution might take.

Industrial or large scale applications of rDNA—that

is, research involving the growth of self-propagating

products of genetic material in volumes of 10 liters

or more—are subject to special rules. GMAG reviews

proposals to conduct such large-scale research on a

case-by-case basis and visits each site, commenting on

the safety measures proposed. GMAG expects that this

review will involve “integration” of questions about

physical and biologic containment. Whether this

means that review of large-scale work will be stricter

or more relaxed is unclear. GMAG has stated, however, that vaccine and antibiotic production can be

done safely using ordinary chemical engineering measures—measures probably more relaxed than the containment-level measures required for small-scale

research (20).

GMAG has recognized the potential commercial and

industrial importance of genetic manipulation by

establishing special confidentiality requirements for

work that raises questions about commercial proper-

● “Access” is the possibility that escaped organisms will enter the human

body and eventually reach susceptible cells. “Expression” is the possibility

that a foreign ge~ incorporated into the gene sequence of an organism will

be able to carry on or “express” its normal function, such as secretion of

a toxin that the mganism formerly did not secrete. “Damage” is the chance

that a new gene sequence will cause physiological damage in the body to

which it gains amess once it is expressed (15,18, 19,22).

* ● These include experiments using E. cdi K12, B. subtilis, and S. cerevisae

(17).

● ● ● These include a Biological Safety Officer familiar with the safety procedures for rDNA work and a Safety Committee to consider the containment

and other safety measures proposed for genetic manipulation.
554 Commercial Biotechnology: An International Analysis

ty or patents. While confildentiality arrangements may

vary from case to case, GMAG generally treats as confidential any material so labeled. Members of GMAG

who have commercial interests in DNA work are prohibited from seeing such material or taking part in the

discussion about it (17,20).

France.-The French guidelines for rDNA research

(S) largely follow those of the United States. The guidelines were promulgated and are administered by the

National Control Commission (Commission de Controle), which reports to the General Delegation of

Scientific and General Research (Delegation Generale

de la Recherche Scientifique et Technique). The

French guidelines apply only to Government-funded

research and require that scientists conducting such

research notify the Control Commission of the planned

research and in some cases obtain approval of the

research. Local safety committees monitor ongoing

research. The principal sanctions for failure to comply with the French guidelines are loss of Government

funding or denial of approval to conduct research.

As in the United States, rDNA experiments in France

must be conducted using certain physical and biological containment measures. The degree of containment

depends on the risk of the work. Risk is assessed using

a method very similar to that used in the United States.

Research with DNA from oncogenic or highly pathogenic viruses is reviewed on a case-by-case basis

but generally must be conducted according to the

most stringent containment measures unless the oncogenic or highly pathogenic genes are eliminated

before cloning.

In certain respects, the physical and biological containment requirements in the French guidelines differ from those in the United States, Although the

French guidelines use four levels of physical containment as in the United States, they appear to be more

flexible than the U.S. guidelines with respect to upgrading containment. In some cases, the French guidelines permit a laboratory’s containment level to be

upgraded without requiring construction of a new

facility. Use of an approved safety cabinet will give

the laboratory the next higher rating. If a safety cabinet is used to render a P3 laboratory equivalent to a

P4 laboratory (the laboratory with the highest degree

of containment), however, the National Control Commission must certify the facility. This upgrading

system should expand the ranges of research that a

French laboratory can do, as well as make research

at higher containment levels less expensive. With

respect to biological containment, the French guidelines use four levels, unlike the U.S. guidelines, which

use two levels. Biological containment is based on the

safety of the host-vector system. In effect, the French

approach to biological containment appears quite similar to that of the United States, with the four levels

of containment in France being finer gradations of the

two levels used in the United States.

France allows biological agents containing rDNA to

be imported and exported freely, although the French

guidelines specify that certain measures must be met

to safely transport and import rDNA materials. Largescale research—i.e., experiments involving volumes of

10 liters or more—is not covered by the French guidelines for rDNA research, but Government oversight

exists on a case-by-case basis.

SWITZERLAND

The Swiss have basically adopted the U.S. guidelines

as their national rDNA research guidelines. Although

the Swiss generally have amended their guidelines

whenever the NIH Guidelines are amended, they are

currently using a version based on the NIH Guidelines

in effect in April 1982 (14).

There are other basic differences. The Swiss Government has no direct role in regulation of rDNA research; Swiss scientists instead have established a system of complete self-regulation. The Commission for

Experimental Genetics (Commission fur Experimentelle Genetik) created by the Swiss Academy of Medical

Sciences, is responsible for monitoring rDNA research.

The guidelines that this commission has promulgated

apply to all research involving rDNA in Switzerland,

not only that funded by the Government. Moreover,

the Swiss guidelines do not require special approval

for work using cell culture volumes in excess of 10

liters.

The adminstrative structure for oversight in Switzerland is quite similar to that in the United States.

The Commission for Experimental Genetics must approve certain experiments in advance, such as those

involving the deliberate release into the environment

of any organism containing rDNA. For two other

classes of experiments, scientists must notify the commission but need not obtain approval. A final class of

experiments are exempt from the guidelines. Principal

investigators, safety officers, and institutional safety

committees also bear oversight responsibility,

JAPAN

Japan’s guidelines for rDNA research (11) are promulgated by the Ministry of Education (on recommendation by the Science Council). The guidelines apply

only to publicly funded research, but private industry

has followed them on a voluntary basis.

Each research institution is required under these

guidelines to have laboratory supervisors, a safety

committee, and a safety officer. The head of each research institution is also charged with specific duties
App. F—Recombinant DNA Research Guidelines, Envirvnmental Laws, and Regulation of Worker Health and Safety ● 555

in supervising the rDNA work. The laboratory supervisor must submit plans of experiments and changes

in plans to the head of the research institution for his

or her approval, The head of the institution then consults with the safety committee—a body consisting of

“members representing the relevant fields, and having high standards of both professional and technical

knowledge and judgment”—to determine whether the

plans comply with the guidelines, what training will

be necessary, and other issues relevant to the safety

of the research. The safety officer’s role is to monitor

the safety of ongoing work and to make appropriate

reports to the safety committee.

The Japanese Government monitors rDNA research

through two bodies: 1) the Council for Science and

Technology, which advises the Prime Minister and

which oversees work by private institutions; and

2) the Science Council, which advises the Ministry of

Education and which supervises Government-funded

university research. The Science Council and the

Ministry of Education formerly had to approve university rDNA research; now it is only necessary that the

university safety committee and the university president approve the experiment (7,9). Ministry authorization is still required, however, for experiments involving specified “especially dangerous” organisms and the

release of such organisms into the environment. *

Certain experiments are effectively prohibited in

Japan, because the Japanese guidelines for rDNA research specify no safety or containment rules for

them. Effectively prohibited experiments include

large-scale research (more than 20 liters of cell culture)

and experiments in which recombinant organisms infect individual animals and plants, in which the source

of the DNA is other than specified cells or host-vector

systems. Such experiments can be done once containment standards are set, but setting such standards

depends under the guidelines on confirmation of the

safety of these experiments, which has not been completed for most types of this research. Large-scale

research is possible if special permission is granted by

the Ministry of Education; few companies have sought

it successfully. Japanese companies using biotechnology are now lobbying heavily for relaxation of

restrictions on large-scale research,

For permissible experiments, the Japanese rDNA research guidelines require physical and biological containment based on the perceived risk of each experiment. Under the guidelines, risk is assessed principally

according to a phylogenic scale** but also according

● “Especially dangerow” experiments indude the transplant of manipulated

genes with toxicity into animal and plant cells. University presidents may

still approve work with disease pathogem, including influenza and hepatitis

viruses [7).

● ‘DNA donor organisms closer phylogenically to humam are considered

riskier.

to the biological characteristics of the source of the

DNA, * the purified or unpurified nature of the DNA,**

the size of the clone number,*** and the scale of the

cultivation. t Required physical containment measures

resemble those under the NIH Guidelines and are categorized in a similar PI to P, scale. Similarly, the Japanese guidelines provide for two levels of biological

containment.

Historically, the Japanese guidelines have been

among the most restrictive in the world. Although Japan’s guidelines have recently been relaxed considerably to bring them more into line with the guidelines

in other countries, they are still the most restrictive

of the ones surveyed in this appendix, Japanese companies applying biotechnology consider themselves

handicapped in competition against their foreign counterparts for two principal reasons. First, hosts are limited in Japan, with a few exceptions, to E. coli and B.

subtilis; other micro-organisms such as the actinomy -

cetes, which is effective in producing antibiotics, therefore cannot be used. Second, work in Japan is limited

to volumes of 20 liters or less, and successful commercial development requires larger fermenters (8). Japanese companies using biotechnology have mounted

an intensive lobbying campaign to eliminate the 20-

liter rule (10).

Environmental laws and regu1ations

UNITED STATES

The United States has no laws specifically directed

toward biotechnology, but, as discussed in Chapter IS:

Health, Safety, and Environmental Regulation, the Toxic Substance Control Act (15 U.S.C. $2601-2629) and

the Federal Insecticide, Fungicide, and Rodenticide Act

(47 U.S.C. ~136(a)-(y)) will play a major role in preventing any adverse environmental impacts from biotechnology products. In addition, there are several statutes

dealing with pollution that would apply because they

generally define pollutants or wastes so as to cover

biological materials. They are:

● The Federal Water Pollution Control Act, as

amended by the Clean Water Act of 1977 (33

● The relevant bokgical characteristics of the DNA are pathogenicity, toxinproducing ability, cardnogenicity, parasitic quality, drug resistanm, likelihood

of becoming an alkmgen, masked intkctive factors such as nucleic acids related

to C-type virus, vulnerability to contamination by vimses, bacteria, or other

parasites, ability to produce substances such horrmnes or metabolic intermediates affecti~ the metabolism of human beings, and possibility of causing ecological disturbances.

“ ● Purified DNA, prow?d to carry only Nonhazardous genre) is deemed safer

than unpurified DNA,

● ” ● The fewer the number of clones, the safer the experiment is, on the

reasoning that a lower number will reduce the probability that harmful genes

will appear.

TSmaller-scale experiments are considered safer than large-scale ones.
556 . Commercial Biotechnology: An International Analysis

●

●

●

U.S.C. $$1251-1376, as amended by Public Law

No. 95-217, 91 Stat. 1566 (1977)).

The Marine Protection, Research and Sanctuaries

Act of 1972 (33 U.S.C. j$1401, 1402, 1411-1421,

1441-1445).

The Clean Air Act (42 U.S.C. $$7401-7508,

7521-7574, 7601-7626).

The Solid Waste Disposal Act, as amended by the

Resource Conservation and Recovery Act of ‘1976

(42 U.S.C. f\6901-6987, as amended by Public law

No. 94-580, 90 Stat. 2795 (1976)).

Under the Federal Water Pollution Control Act, as

amended, the Environmental Protection Agency has

promulgated regulations on wastewater from the

manufacture of pharmaceuticals by fermentation (4

C.F.R. Part 439 (1982)).

EUROPEAN ECONOMIC COMMUNITY COUNTRIES:

FEDERAL REPUBLIC OF GERMANY,

UNITED KINGDOM, AND FRANCE

European Economic Community.–Although

the EEC has issued no directives or taken any other

action specifically to regulate the environmental effects of biotechnology, several general directives concerning waste disposal and water pollution will be applicable to biotechnological products (30,31,33). The

EEC’S environmental regulations are general and flexible, giving maximum discretion and authority to the

bureaucrats that implement them.

Companies using biotechnology will encounter environmental regulation in manufacturing biotechnological products in the EEC member states and in exporting products to those states. Under the premarketing notification requirement imposed by the Sixth

Amendment to the EEC’S dangerous substances directive (32), * a firm must test a new chemical before

marketing, must provide the proper authorities in the

member states where the product is to be marketed

with the results of the “base test” (minimum testing

requirements), and must conduct such further tests

as those authorities may deem necessary before approval may be granted. Since many biotechnology

products will likely qualify as “new chemicals,” the

Sixth Amendment’s requirements would apply. Of

course, a firm seeking to build a plant to manufacture

biotechnology products in a member state would be

required not only to secure “new chemical” approval,

but also to comply with the more comprehensive system of environmental regulation in the member state.

Federal Republic of Germany.-The Federal

Republic of Germany is a federal state, and under its

Constitution, the 11 ~“nder (States) share power with

● The first directive in the field of dangerous substances was Council Directive of June 27, 1967 (29).

the Federal Government. In controlling pollution, poisonous substances, and waste, the Federal Government and the ~“nder have concurrent jurisdiction, but

the Lander may pass laws in these areas only if the

Federal Government has not done so. In environmental protection, land use, and water law, the Federal

Government may enact broad “framework” legislation,

but the Lander must implement the general Federal

laws by enacting detailed legislation adapted to the

conditions of each State.

The Ministry of the Interior (Bundesministerium Des

Innern) coordinates the environmental policies of the

West German Federal Government, including environmental planning, waste and water management, and

control of air pollution. The Federal Environmental

Agency (Umweltbundesamt), which is more concerned

with environmental protection, furthers Federal environmental policies by developing planning programs

and performing research. Coordination of Federal environmental programs also is conducted by a Cabinet

Committee for Environmental Questions (Arbeitsgemeinschaft fur Umweltfragen E.V.).

The only environmental regulations directed specifically at biotechnology are contained in the Federal

Republic of Germany’s guidelines for rDNA research

(39). The Gerrnm guidelines impose requirements on

disposal of waste from rDNA experiments, requirements that depend on the containment level of the

work involved. In no case may biological agents containing rDNA be released into the environment. Experimental plants and animals containing rDNA must

be kept under conditions of isolation. All rDNA material may be removed from the laboratory only in airtight packaging and must eventually be destroyed, usually by incineration. All wastes containing microorganisms or nucleic acids must be sterilized or

denatured. Waste water from experiments at the L3

or L4 level must be decontaminated.

Apart from the rDNA research guidelines, it appears

that the Federal Republic of Germany’s legislation and

implementing regulations do not specifically regulate

environmental impacts from biotechnological products

and processes. Instead, companies using biotechnology

would appear to be subject, like other firms in West

Germany, to a series of general environmental protection laws and regulations.

The most general of these laws is the Chemicals Act

(40), which is designed to protect humans and the environment from all types of dangerous substances.

This law set up compulsory testing of substances and

compulsory classification, labeling, and packaging of

dangerous substances and materials. It implements in

the Federal Republic of Germany the Sixth Amendment to the EEC’S environmental protection directive.
App. F—Recombinant DNA Research Guidelines, Environmental Laws, and Regulation of Worker Health and Safety ● 557

Other relevant statutes in the Federal Republic of

Germany are the following: the Law for the Prevention of Harmful Effects on the Environment Caused

by Air Pollution, Noise, Vibration, and Similar

Phenomena (Federal Emission Control Law) (37), the

Law on Disposal of Wastes (36). Act on Regulation of

Matters Relating to Water (Federal Water Act) (35), and

the Waste Water Charges Act (Waste Water Law) (38).

A Committee of the German Society for Chemical

Engineering (Deutsche Gesellschaft fur chemisches Apparatewesen E. V.) completed a study of the risks specifically associated with biotechnology and of the relevant statutory and regulatory provisions that could be

used to control those risks (34). The study concluded

that adequate legal authority exists in the Federal Republic of Germany for regulating the kinds of hazards

most likely to arise in connection with biotechnology.

United Kingdom.—Responsibility for protection

of the environment in the United Kingdom lies primarily with the Department of the Environment. In addition, a Royal Commission on Environmental Pollution

was established in 1970 to advise the government on

environmental issues. As in the United States, much

environmental regulation in the United Kingdom is the

responsibility of local governments.

Although the United Kingdom has an extensive statutory environmental protection scheme, there is no

legislation or regulation specifically concerned with

environmental impacts of biotechnological products

and processes. Companies using biotechnology, therefore, would be subject to the general environmental

protection laws and regulations.

The Control of Pollution Act of 1974 (53), provides

in chapter 40 for licensing of sites for the disposal of

‘(controlled waste, ” defined as household, industrial,

and commercial waste, both on land and in water. The

penalties for unlicensed disposal are fines and imprisonment. The law is to be phased in between July

1983 and July 1986. Waste products of biotechnological processes would appear to be covered by this law.

France.—The principal environmental protection

agency in France is the Ministry of the Environment

(Ministdre de lEnvironnement). Environmental protection legislation applies broadly to activities that degrade the environment in a variety of ways. The touchstone of most regulation is not the nature of a particular activity, but whether it produces environmentally

adverse effects. To the extent that biotechnological

products and processes produce such effects, they

would be subject to these laws.

The most general environmental statute is the Law

on Installations Classified for Purposes of Environmental Protection (44). This law covers all types of risk to

humans and the environment resulting from the activities of various types of facilities, including but not

limited to industrial and commercial establishments.

These facilities are subject to requirements specific to

the type of danger or inconvenience involved. This determination rests largely in the hands of local authorities, who have a continuing right of access to the regulated facilities, Failure to comply with the law may

result in administrative and criminal penalties. No

rules specifically aimed at biotechnology facilities have

yet been adopted under the authority of this law.

The Chemicals Control Law of France (45), which

predates the Sixth Amendment to the EEC’S dangerous

substances directive, would apply to chemical compounds produced by biotechnology. This law aims to

protect human beings and the environment against

risks arising from both naturally occurring and industrially produced chemicals. Any producer or importer seeking to import or manufacture commercially

a chemical which has never been placed on the French

market before must notify the relevant authority, provide certain information, and submit to whatever conditions may be imposed. *

Two other statutes would be particularly relevant

to biotechnology. They are the Law on Waste Disposal

and Recovery of Materials (43) and the Act on the Administration and Classification of Waters and the Control of Water Pollution (42).

SWITZERLAND

Although the Swiss rDNA research guidelines prohibit the release of biological agents containing rDNA

into the environment, they do not mention effects on

the environment from other forms of waste which

may result from applications of biotechnology. These

would presumably be regulated in Switzerland under

Article 24 septies (seventh) of the Federal Constitution,

which gives the Federal Government far-reaching

powers to pass environmental laws.

Legislation under this article has been sparse, however, and there are apparently no nonfederal rules in

Switzerland on air pollution, noise abatement, or

waste disposal. Only in the area of water pollution has

legislation been enacted. The Water Protection Act of

October 8, 1971 (51), seeks to ensure the quality of

the nation’s water by means of sweeping protective

measures which cover all natural, artificial, ground,

and surface waters.

In addition, Article 6 of the Federal Act on Work

in Industry, Trade, and Commerce (52) requires employers to protect the area surrounding their business

enterprise from harm or discomfort by taking all

measures shown necessary by experience and found

to be technically feasible and appropriate.

● Decree No. 79-35 desrribes the technical dossier to be prot’ided when providing notice concerning a new chemical substance (41),
558 ● Commcial Biotechnology: An International Analysis

JAPAN

Specific measures governing environmental effects

of biotechnology applications have not been prepared

by the Japanese Government. The regulations applicable to biotechnology are those applicable to all industry. The agencies with responsibility for environmental protection in Japan include the Environmental Protection Agency, the Ministry of International

Trade and Industry (MITI), the Ministry of Health and

Welfare, and the Ministry of Agriculture, Forestry,

and Fishery. The Environmental Protection Agency

has jurisdiction over basic policy, general coordination of governmental pollution control activity, budgetary policy, and research and investigation.

The Basic Law for Environmental Pollution Control

(46) establishes fundamental national principles and

policies and establishes the basic regulatory framework for environmental protection in Japan. The law

applies to air, water, soil, and other pollution. It empowers the Central Government to promulgate and

enforce environmental quality standards necessary to

protect the public health and conserve natural resources. This and other environmental laws are supplemented by and implemented through Cabinet

orders issued by the Prime Minister, and through

ministerial orders and Environmental protection Agency notifications. Administrative guidance is used to

regulate pollution from specific industrial plants and

industries. Local governments have responsibility with

the Central Government in monitoring pollution and

for regulation, and they may set more stringent standards than those set by the Central Government.

Japan’s Basic Law for Environmental Pollution Control is supplemented by laws aimed at specific types

of pollution. These include the Air Pollution Control

Law (47), the Water Pollution Control Law (49) and

the Waste Management Law (48).

Finally, the Chemical Substances Control Law (50)

requires manufacturers to notify the Japanese Government and to test all new chemical substances to be

produced in quantities exceeding 100 kilograms.

Chemicals are tested for their biodegradability and

bioaccumulation. Manufacturers and importers of

chemical substances must notify MITI of their intent

to use or market a new chemical. Japan’s Environmental Protection Agency monitors the effect of chemicals

in the air and water, and the Ministry of Health and

Welfare administers laws on chemical products.

Regulation of worker health

and safety

UNITED STATES

The Occupational Safety and Health Administration

(OSHA), which is part of the U.S. Department of Labor,

is the agency primarily responsible for worker safety

and health. OSHA’S authority derives from the Occupational Safety and Health Act of 1970 (29 U.S.C.

$$651-678) which creates a broad mechanism for protecting workers from workplace hazards, Section

5(a)(1) of the act requires U.S. employers to furnish

their employees with a workplace “free from recognized hazards that are causing or are likely to cause

death or serious physical harm.” Section 5(a)(2) requires employers to comply with safety and health

standards set by the U.S. Secretary of Labor. Under

a recent U.S. Supreme Court decision (62), the Secretary of Labor can promulgate permanent standards

for toxic substances or harmful physical agents only

after a finding that the standard is “reasonably

necessary to remedy a significant risk of material

health impairment.” Section 6(c) of the act permits the

Secretary of Labor to promulgate emergency temporary standards after a finding that employees are “exposed to grave danger.” The statute also creates the

National Institute for Occupational Safety and Health

to gather data, assess risks, and recommend safety and

health standards to OSHA. Other sections grant OSHA

authority to require record keeping and medical surveillance and to enforce the act and its regulations

through civil and criminal penalties.

Given the language quoted above regarding risk and

hazard, the applicability of the Occupational Safety

and Health Act to biotechnology would be limited

when risk is conjectural. However, the act would be

applicable to large-scale processes using known human

toxins, pathogens, or their DNA. It also would be applicable to physical hazards presented by the fermentation process, such as temperature, pressure, and toxic solvents. OSHA has not promulgated health and safety standards for bioprocesses and has made no statements on how it might apply the act to biotechnology.

OSHA arguably has authority to require a medical

surveillance program, although this is not clear cut.

Section 8(c)(1) of the Occupational Safety and Health

Act requires employers to “make, keep and preserve”

such records as the U.S. Secretary of Labor prescribes
App. F—Recombinant DNA Research Guidelines, Environmental Laws, and Regulation of Worker Health and Safety ● 559

by regulation as “necessary or appropriate for the enforcement of this act or for developing information

regarding the causes and prevention of occupational

accidents and illness.” Further, section 8(c)(2) of the

act authorizes the Secretary of Labor to require employers to “maintain accurate records of, and to make

periodic reports on, work-related deaths, injuries and

illnesses other than minor injuries . . . .“ Since the purpose of a surveillance program would be to develop

information on any occupational disease related to

biotechnology, section 8(c)(1) of the Occupational Safety and Health Act would seem to apply. In addition,

the information developed in such a program would

also be the kind of information necessary for compliance with regulations promulgated under section

8(c)(2). Employers, on the other hand, might argue that

both sections require an initial showing that biotechnology causes occupational disease.

EUROPEAN ECONOMIC COMMUNITY COUNTRIES:

FEDERAL REPUBLIC OF GERMANY,

UNITED KINGDOM, AND FRANCE

European Economic Community.–Although

its powers in the area of worker health and safety regulation are limited and indirect, the EEC has attempted

to ensure at least minimal protection for most industrial workers. In 1980, the EEC adopted a directive that

required each member state to adopt a variety of

measures to protect workers’ health and safety (54). *

The directive covers work that does or may involve

a “chemical, physical or biological agent . . . likely to

be harmful to health.” The directive is quite general;

the specific content and substance is left to the discretion of the member states.

The directive does not refer explicitly to rDNA work

or other applications of biotechnology. Thus, the question of how worker health and safety laws will affect

● The required measures include the following:

1. limitations on the use of chemical, physical or biological agents in the

workplace;

2. limitations on the number of workers exposed or likely to be exposed

to such agents;

3. engineering controls;

4. establishment of exposure limit values for such agents and methods

of assessing their level;

5, safe working procedures and methods;

6. collective protection measures;

7. individual protection measures, where exposure cannot reasonably

be avoided by other means;

8. hygiene measures;

9. information for workers on potential risks associated with the exposures to such agents, technical preventive measures workers should

take, and precautions to be taken by the employer and the workers;

10. use of warning and safety signs;

11. surveillance of workers’ health;

12. maintenance of current records of exposure levels, workers exposed,

and medical records;

13. emergency procedures; and

14. if necessary, general or limited bans on an agent from which protection cannot be adequately ensured.

the biotechnology industry is left to the discretion of

each member state.

Federal Republic of Germany.-The rDNA research guidelines of the Federal Republic of Germany

(57) provide specifically for the health-monitoring and

training of laboratory workers. Each worker at an

rDNA laboratory that is above the lowest containment

level must have a pre-employment examination by an

authorized doctor. If the results of this examination

reveal a susceptibility to hazards which may be involved in the contemplated research, the worker may

not be employed. Appropriate immunizations are required for work with pathogenic microorganisms.

Blood serum from the worker must be taken at the

first examination and at the end of employment and

stored until at least 2 years after the end of participation in the research. All workers must receive instruction before the research begins and annually thereafter in the methods to be used, the conceivable hazards

of the experiment, and the protective measures to be

applied.

- The Federal Republic of Germany’s general worker

health and safety regulations would also apply to commercial uses of biotechnology. At the Federal level,

substantive workplace health and safety requirements

are stated in the Act Respecting Plant Physicians, Safety Engineers, and Occupational Safety Specialists (55), *

in the Ordinance Respecting Workplaces (56),** and

in rules that are issued by the Dangerous Industrial

Substances Committee (Ausschus fur Gefahrliche

Arbeitsstoffe) of the Federal Ministry of Labor and

Social Affairs (Bundesministerium fur Arbeit und

Sozialordnung) concerning the marketing and handling of dangerous substances (70).

Within this Federal framework, a significant regulatory role is played in the Federal Republic of Germany by accident insurance funds. These funds are

authorized by statute to issue regulations setting standards for workplace health and safety (58). When approved by the Federal Minister of Labor and Social

Affairs, the regulations become binding on covered

employers. The funds, which are organized by indus -

● The Act Respecting Plant Physicians, Safety Engineers, and Occupational

Safety Specialists requires each employer to appoint a plant physician and

an occupational safety specialist. The appointed physician must conduct medical examinations of employees, advise the employer concerning health and

safety precautions (including technical equipment and personal protective

devices), supervise workplace safety, investigate and report to the employer

on the causes of work-related illnesses, and instruct employees concerning

the dangers to which they are exposed in the course of their work and the

measures available to avert such dangers.

● ● Section 3(1)1 of the Ordinance Respecting Workplaces imposes a general

obligation on employers to operate workplaces in accordance with both the

law and the “generally recognized rules of safety engineering, occupational

medicine and hygiene and any other scientifically established findings in the

labor field.” Its specific requirements, however, relate to physical design and

construction.
560 ● Commercial Biotechnology: An International Analysis

try, are authorized not only to promulgate the applicable standards, but also to enforce them through inspections and fines. Because all employers must carry

accident insurance, the funds have a large role in occupational safety and health.

United Kingdom. -Guidelines promulgated by

GMAG contain specific requirements regarding the

health and safety of laboratory workers who are involved in rDNA research (67,68,69) (see discussion of

“Recombinant DNA Research Guidelines” above). Each

laboratory must appoint a supervisory medical officer

with experience in public health, infectious diseases,

or occupational medicine, and conduct health reviews

of all workers before they start work involving genetic manipulation. The reviews are designed to check

workers for particular susceptibilities and to assist in

determining whether any laboratory-contracted illnesses have developed. If a worker’s medical history

indicates that the worker’s participation in genetic

manipulation may be particularly hazardous, appropriate steps may be required to prevent his or her exposure to genetic manipulation work. The institution

must also investigate any unexplained illiness, and if

a laboratory contracted infection is suspected, the institution must inform both the worker and the worker’s physician as well as GMAG and other authorities.

Companies using biotechnology in the United Kingdom must also fulfill the obligations imposed on virtually all employers and manufacturers by the Health

and Safety at Work Act of 1974 (66). In general, an

employer must ensure so far as reasonably practicable

that employees are not exposed to health and safety

risks and to inform them of the risks that are created.

Employees also have certain obligations under the act.

Health and safety regulations in the United Kingdom,

under the Health and Safety at Work Act, are promulgated by the Secretary of State, on the advice of the

Health and Safety Commission. The Health and Safety Commission also supervises efforts to improve

worker health and safety, makes necessary investigations, and may approve codes of practice for particular

industries.

There is no code of practice for biotechnology other

than the GMAG guidelines for rDNA research. If a

broader code were developed, it would be only advisory; violation of a code is not per se a violation of

the Health and Safety Work Act but is only evidence

tending to show a violation of the act. HSE (and local

authorities) enforce the act through appointed inspectors, who may issue “notices” prohibiting certain activities as too risky or requiring remedial actions.

Violators of the act are subject to civil and criminal

penalties.

France.—The guidelines for rDNA research in

France contain no provisions dealing expressly with

the health or the health-monitoring of laboratory

workers. The guidelines do require, however, that

scientists and technicians be familiar with the physical

and biological containment measures involved in rDNA

research and be prepared to take emergency action

in the event of an accident.

The formulation and implementation of general policy on the prevention of occupational hazards in

France is the responsibility of the Central Council for

the Prevention of Occupational Hazards (Conseil Central pour la Prevention des Risques Professionally). So

far, the council has not specifically addressed worker

health problems arising from biotechnology.

Specific employee health and safety regulations are

promulgated and enforced in France by the Minister

of Labor, who is in charge of conditions in industrial

and commercial establishments, and by the Minister

of Agriculture, who is granted the same authority over

agricultural facilities.

An occupational safety and health committee must

be set up in any industrial establishment normally

employing 50 or more workers (59,60). The committee advises management on safety procedures and periodically inspects the establishment to ensure that the

safety laws and regulations are being applied. It also

is supposed to take immediate action to avert imminent danger at the facility and to conduct an inquiry

into the causes of any accident or serious occupational

disease.

The manufacture of chemical substances potentially harmful to workers is also regulated by statute (61).

Prior to the marketing of any substance or preparation that may involve a danger to workers, the manufacturer, importer, or seller must file with a Government-approved laboratory the information necessary

to assess the risks of the manufacturing process. If the

chemical substance has already been placed on the

market, its manufacture, sale, transfer, or use may be

restricted or prohibited in the interests of occupational

health and safety,

SWITZERLAND

By following the U.S. guidelines for rDNA research,

Switzerland applies to rDNA work the worker health

and safety rules set out therein. Thus, each research

institution in Switzerland must ensure that laboratory

workers receive appropriate training, determine

whether a health surveillance program is appropriate,

and report to the Commission for Experimental Genetics any work-related accidents or illness. The re-
App. F—Recombinant DNA Research Guidelines, Environmental Laws, and Regulation of Worker Health and Safety “ 561

sponsibility for assessing the training provided to personnel and the adopting emergency plans for accidental spills and personnel contamination rests with the

institution’s biohazards committee. The biological safety officer must report work-related accidents or illnesses and assist in developing emergency plans. The

group leader is obligated to train and supervise his

or her staff.

Worker health and safety not specifically related to

rDNA research is regulated in Switzerland on the cantonal rather than the nonfederal level. In one canton,

Geneva, an advisory committee has been established

to serve as a channel of communication between public authorities and business and to develop proposals

on worker health and safety. The committee meets

four times a year (63). The other cantons do not have

such committees.

JAPAN

The basic law governing worker health and safety

in Japan is the Industrial Safety and Health Law of

1972 (64). * This law imposes on employers health and

safety obligations which are comprehensive in scope

but very general in actual language. Among these obligations is the duty to take necessary measures to prevent health impairment caused by substances, agents,

and conditions found in the workplace. The law vests

broad discretion in the Japanese Ministry of Labor to

determine when regulation is appropriate and what

kinds of precautions an employer must take. Employers who manufacture, import, or use “chemical substances” may be subject to special requirements. Medical examinations must be conducted on all employees,

but employers may also be required to provide special

tests for employees engaged in harmful work. At the

present time, no regulations have been addressed specifically to biotechnology.

The Industrial Safety and Health Law includes a

stringent enforcement mechanism. Substantial criminal penalties and fines are imposed for violations. For

the most serious violations, offending employers may

also be ordered to close or alter their operations.

Appendix F references * *

RECOMBINANT DNA RESEARCH

GUIDELINES REFERENCES

1. Commission of the European Communities, “Draft Council Recommendation Concerning the Registration of

Recombinant DNA (deoxyribonucleic acid) Work,” Offi-

“This discussion is based on a 1980 publication of the Japanese Govern.

ment entitled f,abour Law of Japan (65), and does not reflect changes that

may have been subsequently enacted,

* “Note: S.Ct = Supreme Court Reporter.

cial Journal of the European Communities 23(C214):7-8,

Aug. 21, 1980.

2. Council of the European Communities, ‘(Council Recommendation of 30 June 1982, No. 82/472 /EEC, Concerning the Registration of Work Involving Deoxyribonucleic

Acid (DNA),” Official Journal of the European Communities 25 (L213):15-16, July 21, 1982.

3. Federal Republic of Germany, Bundesministerium f~

Forschung und Technologies (Federal Ministry for Science

and Technology), “Richtlinien zum Schutz vor Gefahren

durch in-vitro neukombinierte Nukleinsauren” (Guidelines for the Safe Handling of Recombinant Nucleic Acid

(DNA)), appearing in 4. u“berarbeitete Fassung, Bonn,

Aug. 7, 1981.

4. Fildes, R. A., Chairman, Industrial Biotechnology Association Committee on Industrial Applications and Scale-Up,

remarks in Recombinant DNA Technical Bufletin (NIH)

5:196-197, December 1982.

5. France, “Les lois Gouvernant 1a R~cherche du DNA Recombinaisant” (Guidelines on Recombinant DNA Research), adopted Dec. 13, 1977.

6. Gartland, W., Director, Office of Recombinant DNA Activities, National Institutes of Health, Bethesda, Md., personal communication, Aug. 22, 1983.

7. Genetic Engineering News, “Regulatory Update: Universities To Follow in Easing DNA Rules,” September/October 1982, p. 23.

8. Japan Economic Journal, “Biotechnology Development

Role Mounts With New Entrants,” Mar. 16, 1982, p. 16.

9. Japan Economic Journal, “Easing Recombinant DNA

Rules to Western Levels is Recommended,” Aug. 3, 1982,

p. 9.

10. Japan Economic Journal, “Biotechnology is Entering Sec11.

12.

13.

14.

15.

16.

ond Stage of Its Boom, ” Sept. 28, 1982, p. 9.

Japan, “Kumikae DNA jikken shishin” (Guidelines for Recombinant DNA Experiments) (Cabinet Prime Minister,

Aug. 27, 1979, as amended on Apr. 7, Nov, 7, 1980, and

Apr, 1, 1981, Tokyo, Japan).

Nature, “Watchdog To Bark Less Often,” 302:467, 1983.

Rorsch, A., Genetic Manipulations in Applied Biology—

A Study of the Necessity, Content, and Management Principles of a Possible Community Action, contract no.

346-77-7 ECI, NL, submitted to Directorate General

“Scientific and Technical Information and Information

Management Management,” Commission of the European

Communities, Brussels, Belgium, 1979.

Switzerland, “Les lois Gouvernant la Reserche du DNA

Recombinaisant” (Guidelines on Recombinant DNA

Research).

United Kingdom, Genetic Manipulation Advisory Group,

“Prospective New Basis for the Categorisation of Genetic

Manipulation in the United Kingdom, ” Nature

276:104-108, 1978.

United Kingdom, Genetic Manipulation Advisory Group,

GMAG Note No. 1, “Local Safety Committees in Genetic

Manipulation Laboratories,” London.

17. United Kingdom, Genetic Manipulation Advisory Group,

GMAG Revised Note No. 7, ‘Information and Advice on

the Completion of Proposal Forms for Centres (Part A)

and Projects (Part B),” London, May 1979.
562 Commercial Biotechnology: An International Analysis

18. United Kingdom, Genetic Manipulation Advisory Group,

GMAG Note No. 8 (March 1979), Note No. 8-Supplement

1 (December 1979), Note No. 8-Supplement 2 (December

1980), “Self-Cloning Experiments,” London, 1979 and

1980.

19. United Kingdom, Genetic Manipulation Advisory Group,

GMAG Note No. 11, “The GMAG Categorisation Scheme,”

London, January 1980.

20. United Kingdom, Genetic Manipulation Advisory Group,

GMAG Note No. 12, “Large-Scale Uses of the Products

of Genetic Manipulation—Work Involving GMAG Volumes of 10 Litres or More,” London, November 1979.

21. United Kingdom, Genetic Manipulation Advisory Group,

GMAG Note No, 13, “Genetic Manipulation of Plants and

Plant Pests,” London, January 1980.

22. United Kingdom, Genetic Manipulation Advisory Group,

GMAG Note No. 14, “Revised Guidelines for the Categorisation of Recombinant DNA Experiments, ” London,

1980.

23. United Kingdom, Genetic Manipulation Advisory Group,

GMAG Note No. 15, “Code of Practice for Genetic Manipulation Containment Facilities,” London, June 1981.

24. United Kingdom, Health and Safety at Work Act of 1974,

Statutory Instrurnents, Chapter 37.

25. United Kingdom, House of Parliament, House of Commons Select Committee on Science and Technology, Recombinant DNA Reseamh-Znten”m Report, vii (London:

H.M. Stationery Office, Apr. 3, 1979).

26. United Kingdom, Health and Safety (Genetic Manipulation) Regulations, Statutory Instrument 1978 No. 752

(London: H. M. Stationery Office, 1978).

27. U.S. Department of Health, Education and Welfare, National Institutes of Health, “Physical Containment Recommendations for Large-Scale Uses of Organisms Containing Recombinant DNA Molecules,” Federal Re&”ster

45:24968, Apr. 11, 1980.

28. US. Department of Health and Human Services, National

Institutes of Health, “Guidelines for Research Involving

Recombinant DNA Molecules,” Federal Register

48:24556-24581, June 1, 1983.

ENVIRONMENTAL LAWS AND REGULATIONS

REFERENCES

29. Council of the European Communities, Council Directive

of 27 June 1967, No. 67/548/EEC, on the Approximation

of Laws, Regulations and Administrative Provisions

Relating to the Classification, Packaging and Labelling

of Dangerous Substances, official Journal of the European Communities 10(196):234, Aug. 16, 1967.

30. Council of the European Communities, Council Directive

31

of 4 May 1976, No.-76/464/EEC, on Pollution Caused by

Certain Dangerous Substances Discharged into the Aquatic Environment of the Community, Official Journal of

the European Commum”ties 19(L129):23, May 18, 1976,

reprinted in 2 Int’1. Env’t, Rep. Ref. Fife (Bureau of National Affairs, Washington, D.C.) 151:2101.

Council of the European Communities, Council Directive

of 20 March 1978, No. 78/319 /EEC, on Toxic and Dangerous Wastes, official Journal of the European Commumities 21(L84):43, Mar, 31, 1978, reprinted in 2 Znt!l.

Env’t. Rep. Ref. Fife (Bureau of National Affairs, Washington, D.C.) 151:1201,

32. Council of the European Communities, Council Directive

of 18 September 1979, No. 79/831 /EEC, Amending for

the Sixth Time Directive 67/548/EEC on the Approximation of the Laws, Regulations and Administrative Provisions Relating to the Classification, Packaging and Labelling of Dangerous Substances, Officiaf Journal of the

European Communities 22(L259):1O, Oct. 15, 1979.

33. Council of the European Communities, Council Directive

34

of 17 December 1979, No. 80/684/EEC, on the Protection

of Groundwater Against Pollution Caused by Certain

Dangerous Substances, Official Journal of the European

Communities 22(L20):43-47, Jan. 26, 1980, reprinted in

2 MY. Env’t. Rep. Ref. File (Bureau of National Affairs,

Washington, D.C.) 151:2.101.

Deutsche Gesellschaft fur chemisches Apparatewesen,

Arbeitmethoden ffi die Biotechnologie (Work Procedures for Biotechnology), Frankfurt, 1982.

35. Federal Republic of Germany, Act on Regulation of Mat3 6

37<

38.

39.

ters Pertaining to Water, Law of July 27, 1957, 1957

Bundesgesetzblatt llJGBll 1:1110, as amended by Fourth

Act for Amendment of Federal Water Act, Apr. 26, 1976,

BGB1 at 1109, reprinted in 3 Int'l. Envl. Rep. Ref. Fife

(Bureau of National Affairs, Washington, D.C.) 241:2201.

Federal Republic of Germany, Abfallbeseitigungsgesetz

(Law on Disposal of Wastes), Law of June 7, 1972, 1972

Bundesgesetzblatt @3GBll at 873:1601, summarized in 3

lntl. Env’t. Rep. Ref. File (Bureau of National Affairs,

Washington, D.C.) 241:0105.

Federal Republic of Germany, Law for the Prevention

of Harmful Effects on the Environment Caused by Air

Pollution, Noise, Vibration, and Similar Phenomena, Law

of March 15, 1974, 1974 Bundesgesetzblatt D3GB11, 721,

1193, as amended by Law Amending the Law To Introduce the Penal Code, August 15, 1974, 1974 BGB1 at

1942, reprinted in 3 Int?. Envl. Rep. Ref. file (Bureau

of National Affairs, Washington, D.C.) 241:1001.

Federal Republic of Germany, Waste Water Charges Act,

Law of Sept. 13, 1976, 1976 Bundesgesetzblatt ~GBl]

1:2721, reprinted in 3 Int!l. Env’t. Rep. Ref. We (Bureau

of National Affairs, Washington, D.C.) 241:2301.

Federal Republic of Germany, Bundesministerium fh

Forschung und Technologies (Federal Ministry for Science

and Technology), “Richtlinien zum Schutz vor ~fahren

durch in-vitro neukombinierte Nukleinsauren ”

(Guidelines for the Safe Handling of Recombinant Nucleic

Acid (DNA)), 4. uberarbeitete Fassung, Bonn, Aug. 7,

1981.

40. Federal Repubiic of Germany, Chemikaliengesetz (Chemicals Act), Law of Sept. 16, 1980, 1980 Bundesgesetzblatt

U3GB11 (Fed. L. Gaz. I), 1:1718, translation reprinted in

3 lnt~. Env’t. Rep. Ref. FiYe (Bureau of National Affairs,

Washington, D,C.) 241:4101.

41. France, Decree No. 79-35 Journal Off.iciel de la

Rt?publique Fran~aise (Official Journal), Jan. 17, 1979.

42. France, La loi no. 64-1245 du 16 decembre 1964 relative

au regime et repartitions des eaux et ~ la lutte contre

la pollution (Law No. 64-1245 of Dec. 16, 1964 on the
App. F—Recombinant DNA Research Guidelines, Environmental Laws, and Regulation of Worker Health and Safety 563

Administration and Classification of Waters and the Control of Water Pollution), Jounal Officiel de la Republique

Francaise (Official Journal), Dec. 16, 1964, pp. 11,258 et

seq.

43. France, Law No. 75-633 on Waste Disposal and Recovery

of Materials, Journal Officiel de la RdpubLique Frangaise,

(Official Journal) July 15, 1975, excerpts reprinted in 3

Znff. Env’t. Rep. Ref. File (Bureau of National Affairs,

Washington, D.C.) 231:7001.

44. France, La Ioi no. 76-663 du 19 juillet 1976 relative aux

installations classes pour la protection de l’environment

(Law No. 76-663 of July 19, 1976, on Installations Classified for Purposes of Environmental Protection), Journal

Officiel de la Rt?publique Fran~aise (Official Journal), pp.

4320 et seq., July 19, 1976, reprinted in 31nt?. Env’t. Rep.

Ref. File (Bureau of National Affairs, Washington, D.C.)

231:2001.

45. France, Law No. 77-771 on the Control of Chemicals,

Journal Officiel de la R6publique Fran~aise (Official Journal), July 12, 1977, excerpts reprinted in 3 Int’1. Env’t.

Rep. Ref. File (Bureau of National Affairs, Washington,

D.C.) 231:5001.

46. Japan, Basic Law for Environmental Pollution Control,

Law No. 132 of 1967, as amended, reprinted in 2 Intf.

Env’t. Rep. Ref. File (Bureau of National Affairs, Washington, D.C.) 91:0501.

47. Japan, Air Pollution Control Law, Law No. 97 of 1968,

as amended, reprinted in 2 MY. Env’t. Rep. Ref. File

(Bureau of National Affairs, Washington, D.C.) 91:0901.

48. Japan, Waste Management Law, Law No. 137 of 1970,

as amended, reprinted in 2 Int’1. Env’t. Rep. Ref. File

(Bureau of National Affairs, Washington, D.C.) 91:2401.

49. Japan, Water Pollution Control Law, Law No. 138 of

1970, as amended, reprinted in 2 Znt’1. Env’t. Rep. Ref.

File (Bureau of National Affairs, Washington, D.C.)

91:1401.

50. Japan, Chemical Substances Control Law, Law No. 117

of 1973, reprinted in 2 Znt 1. Env’t. Rep. Ref. Fde (Bureau

of National Affairs, Washington, D.C.) 91:6401.

51. Switzerland, loi Federal du 8 octobre 1971 sur la Protection des Eaux Contre la Pollution, RS 814.20 (Water

Protection Act of Oct. 8, 1971).

52. Switzerland, loi Federal du 3 Mars 1974 sur le Travaille

d’en l’hdustrie, l’Artisant, et les Commerce, RS 822.11

(Federal Act on Work in Industry, Trade, and Commerce

for March 3, 1974.

53. United Kingdom, Control of Pollution Act of 1974,

reprinted in 3 Jnt’1. Env’t. Rep. Ref. Fi/e (Bureau of National Affairs, Washington, D.C.) 291:7301.

REGULATION OF WORKER HEALTH

AND SAFETY REFERENCES

54. Council of the European Communities, “Council Directive of 27 November 1980, No. 80/1107/EEC, on the Protection of Workers From the Risks Related to Exposure

to Chemical, Physical, and Biological Agents at Work,”

Official Journal of the European Communities

23(L327):8-13, Dec. 3, 1980.

55. Federal Republic of Germany, Act of 12 December 1973

Respecting Plant PhJ’sicians, Safety En@eers, and Occupational Safety Specialists, as amended, Bundesgestz -

blatt U3GB11 105:1885, Dec. 15, 1973, translation

reprinted in Le#”slative Series, 1973 -Ger. F.R.2 (International Labor Office, Geneva), January-February 1975.

56. Federal Republic of Germany, Ordinance of 25 March

1975 Respecting Workplaces, Bundesgesetzblatt IBGB1]

32:729, Mar. 25, 1975, translation reprinted in Le#”slative

Series, 1975 -Ger. F.R. 2 (International Labor Office,

Geneva), September-October 1976.

57. Federal Republic of Germany, Bundesministerium f~

Forschung und Technologies (Federal Ministry for Science

and Technology), ‘( Richtlinien zum Schutq vor @fahren

durch in-vitro neukombinierte Nukleinsauren” (Guidelines for the Safe Handing of Recombinant Nucleic Acid

(DNA)), in 4. berabeitete Fassung, Bonn, Aug. 7, 1981.

58. Federal Republic of Germany, Federal Insurance Code

(as amended), translation reprinted in Legislative Series,

1980Ger. F.R. 1 (International Labor Office, Geneva) $708

(as last amended on 18 August 1980), SozialgestzbuchVerwaltungsverfahren BGBLI:1467, Aug. 18, 1980.

59. France, Act No. 73-1195 of 27 December 1973 Respecting the Improvement of Working Conditions, Journal Officiel de la R6publique Franqaise (Official Journal)

304:14-146, Dec. 30, 1973, translation reprinted in

Legislative Series, 1973-Fr. (International Labor Office,

Geneva) 3:1-7, May-June 1974.

60. France, Decree No. 74-274 of 1 April 1974, Journal Officiel de la Rdpublique Fran~aise (Official Journal), Apr.

5, 1974.

61. French Labour Code, Article L. 231-7, translation

reprinted in Legl”slative Series 1981-Fr. 1 (International

Labor office, Geneva) 1:78, 90, JanUaryFebrUw 1982.

62. Industrial Union Dept., AFL<IO v. American Petroleum

Inst., 100 S. Ct. 2844 (1980).

63. International Labour Organisation, “Cantonal Advisory

Committee on Occupational Health and Safety Set Up,”

Soc. & Lab. Bull. 4:368, December 1976.

64. Japan, Industrial Safety and Health Laws, Law No. 57

of June 8, 1972, as amended by Law No. 28 of May 1,

1975 (Working Environment Measurement Law) and

Law No. 76 of July 1, 1977, translation available in Japan,

Ministry of Labor, Labour Laws of Japan, Tokyo, 1980.

65. Japan, Ministry of Labor, Labour Laws of Japan, Tokyo,

1980.

66. United Kingdom, Health and Safety at Work etc. Act of

1974, Statutory Instruments, ch. 37.

67. United Kingdom, Genetic Manipulation Advisory Group,

GMAG Note No. 6, “Health Monitoring,” London, revised

January 1980.

68. United Kingdom, Genetic Manipulation Advisory Group,

GMAG Note No. 14, “Revised Guidelines for the Categorisation of Recombinant DNA Experiments,” London,

1980.

69. United Kingdom, Genetic Manipulation Advisory Group,

GMAG Note No. 14, Supplement 1, “Guidelines for the

Categorisation of Recombinant DNA Experiments Involving Eukaryotic Viruses, ” London, January 1981.

70. Versen, P., “Employer-Worker Cooperation in the

Prevention of Employment Injuries,” Znt?. Labour Rev.

118:75, January-February 1979.
Appendix G

Intellectual Property Law

Chapter 16: Intellectual Property Law discusses

three areas of intellectual property law that are particularly relevant to the commercialization of biotechnology: patents, trade secrets, and plant breeders’

rights. That chapter focuses initially on the United

States and then discusses the laws of the other countries by comparing them to the U.S. laws. This appendix elaborates on the intellectual property laws of the

five countries likely to be the major competitors of the

United States in the commercialization of biotechnology-Japan, the Federal Republic of Germany, the

United Kingdom, Switzerland, and France—and is the

basis for the comparisons in chapter 16. The first section examines the laws of the four European countries,

and the second section considers the intellectual property law of Japan.

Intellectual property

the Federal Republic

the United Kingdom,

and France

laws of

of Germany,

Switzerland,

The Federal Republic of Germany, the United Kingdom, Switzerland, and France, have created an intellectual property law similar to that of the United

States, Important differences exist, however, especially

on a country -by+ountry basis. Patent laws, laws of

trade secrets, and plant breeders’ rights in these countries are reviewed in the sections that follow.

PATENT LAW

Eleven European countries, including the Federal

Republic of Germany, the United Kingdom, Switzerland, and France, have agreed to a treaty, the European Patent Convention (EPC), that creates a European

patent system (8). These countries also have patent

systems created by national laws.

European Patent Convention.—The EP C

entered into force on october 7, 1977, and as of

January 1, 1983, the treaty had been ratified by

Belgium, the Federal Republic of Germany, France, the

United Kingdom, Luxembourg, the Netherlands, Switzerland, Sweden, Italy, Austria, and Liechtenstein. The

EPC establishes a legal system for granting European

patents through a single supranational European Patent Office and a uniform procedural system with respect to patent applications, The single European patent application, if granted, becomes a bundle of individual European patents, one for each of the countries

designated by the applicant.

564

The EPC system and the resulting patents exist in

parallel with the patent systems of the member countries. The ultimate goal is for each of the member

countries to adopt in its national law the same substantive law of patents set forth in the EPC; in the beginning, however, and perhaps always to a certain extent, differences in substantive law will exist between

countries. Enforcement of European patents is handled by the same national authorities that are responsible for handling enforcement of national patents in

the EPC member countries (EPC art. 64(3)).

Patentable Subject Matter. Under the EPC, patents

can be granted for any invention susceptible of industrial application* that is new and involves an inventive step (EPC art. 52(l)). This broad definition is

narrowed by specific exclusions. Discoveries, scientific theories, and naturally occurring products, for

example, are not considered patentable inventions.

Methods of treating humans or animals and related

diagnostic methods are similarly excluded from patentability, although products so used are not. Finally,

plant or animal varieties and essentially biological

processes for the production of plants or animals are

not patentable; however, their exclusion does not apply to microbiological processes or the products of

such processes (EPC art, 53(a) and (b)). The question

of whether a process is “essentially biological” depends

on the extent to which there is technological intervention by humans in the process. Under the Guidelines

for Examination of the European Patent Office, if such

intervention plays a significant part in determining or

controlling the result it is desired to achieve, the process would not be excluded (G.E. pt. C(IV)(3.4)).

Under EPC articles 52(1) and 53(b), as interpreted

by the European Patent Office, microbiological inventions of the following kind would be patentable:

1) micro-organisms (including viruses and cell lines),

2) processes for making them, 3) processes using them,

4) products obtained from microbiological processes,

and 5) DNA and RNA molecules or subcellular units

(e.g., plasmids) (G.E. pt. C(IV)(3.5-3.6)). The European

Patent Office also stated that the term “micro-organism” covers plasmids,

one major area that will require further clarification, however, is whether naturally occurring microorganisms, subcellular units, or DNA and RNA molecules are patentable. Under the EPC, there appears

to be no absolute bar, it will simply be a question of

● l’he term industrial application includes agricultural applications (EPC art

57), This is actually the standard for utility under the EPC.
App. G—lntellectual Property Law ● 565

the degree to which such subject matter is naturally

available and of the effort required to identify and/or

isolate it (G.E. pt. C(IV)(2.1)).

Novelty. Under the EPC, an invention is new if it is

not part of the state-of-the-art on the effective filing

date of the patent application (EPC art. 54(l)). The EPC

provides that the state~f-the-art comprises everything

made available to the public by means of a written

or oral description, by use, or in any other way, before

the date of filing of the European patent application

(EPC art. 54(2) ).* There are no restrictions as regards

the geographical location where, or the language or

manner in which, the relevant information is made

available to the public.

This is known as an “absolute novelty standard” because certain public disclosures even by the inventor

himself/herself before the filing can result in loss of

patent rights. The absolute novelty standard is a major distinction of European patent law from that of

the United States.

Standard of Invention. The EPC defines inventive

step as follows (EPC art. 56):

An invention shall be considered as involving an inventive step if, having regard to the state of the art,

it is not obvious to a person skilled in the art.

This definition parallels the definition of nonobvious -

ness under section 103 of the U.S. patent law (35 U.S.C.

103)) except that fI03 refers to a person of ordinary

skill in the art and also to the differences between the

invention and the prior art.

The European Patent Office’s Guidelines for Examination indicate that the test of obviousness to be applied by the European patent examiners is consistent

with the objective test under section 103 (G.E. pt.

C(IV)(9.9)). In particular, the European Patent Office

apparently will consider such factors as unexpected

advantages, evidence of immediate commercial success, and evidence of long felt need (18,30).

Disclosure Requirements. The basic disclosure requirement under the EPC is as follows (EPC art. 83):

The European patent application must disclose the

invention in a manner sufficiently clear and complete

for it to be carried out by a person skilled in the art.

This enablement requirement has as its essential element the concept of the reproducibility or repeatability; i.e., the making of the invention must not be dependent on chance. For micro-organisms, enablement

generally is satisfied by depositing a culture of the

micro-organism in a depository to which the public

has access and referencing the depository and file

number in the patent application. However, a deposit

need not be made if the micro-organism is already

“Implicit in the concept of the stateaf-the.art is the concept that the public

ctisrlosure must be enabling

publicly available or can be described so as to be

reproducible.

Deposit Requirements. If a deposit is required, it

must be made with a recognized depository not later

than the date the application is filed. The European

Patent Office publishes a list of recognized depositories, and, since it adheres to the Budapest Treaty, the

European Patent Office also recognizes deposits made

pursuant to the treaty. Cultures must be maintained

for at least 30 years.

Since all European patent applications are published

approximately 18 months after their filing date (unless

previously withdrawn) (EPC art. 93(l)), the deposited

microorganism can become publicly available before

the patent has been issued. The EPC sets up certain

safeguards on access to prevent abuse. *

Claims. Claims in an EPC application must define the

subject matter for which protection is sought, be clear

and concise, and be supported by the description (EPC

art. 84; G.E. A(III)(4)-(6)).

Enforcement. Under the EPC, European patents are

granted for a term of 20 years. Enforcement is handled by the national courts of the EPC member countries. The question of infringement is considered

under national law principles, but taking account of

treaty requirements regarding claim interpretation.

European patents may be revoked by a national court

on certain specified grounds (EPC arts. 138(1) and

139(2)).

Patent Laws of the Federal Republic of Ge~

many, the United Kingdom, Switzerland, and

France.—As described below, the patent laws in the

Federal Republic of Germany, the United Kingdom,

Switzerland, and France vary with respect to certain

provisions regarding patentable subject matter, novelty, disclosure requirements, or enforcement.

Patentable Subject Matter. The provisions defining

patentable subject matter in the patent law of the Federal Republic of Germany are virtually identical with

the corresponding provisions of the EPC. Regarding

biological inventions, the Federal Republic of Germany

has been a pioneer in recognizing the patentability of

microorganisms per se. After deciding in 1969 that

patents could be obtained for inventions in the field

of biology (22), the German Federal Supreme Court

specifically held in 19i’.5 that micro-organisms per se

constituted patentable subject matter (2). Therefore,

in line with EPC law, the same categories of biologi-

“’1’he safeguards are as follows” 1) the recipient may not pass the sample

on to anyone else unless or until the application is abandoned or all European patents ha\e expwed, Z) the recipient can onlj use the micro-organism

for experimental purposes until the application is abandoned or a patent

Issues, 3) the patentee ran elect to permit samples to be git,en only to certain

neot ral experts (WC Rule 28(3)-(4)).
568 Commercial Biotechnology: An International Analysis

cal inventions are patentable in principle according

to West German law. *

In its Patent Act of 1977, the United Kingdom

adopted the EPC definition of patentable subject matter. The British Patent Office has taken the position

that all of the five general categories of biological subject matter listed above are patentable (27).

Section 1a of the Swiss Patent Law corresponds to

EPC Article 53(b), stating that “micro-biological methods and products obtained thereby shall be patentable.” There is no specific provision in the law which

states that ‘(discoveries” are not patentable subject matter, although prior case law recognizes such an exclusion (5).

Nevertheless, it appears that Swiss practice varies

considerably from that under the EPC. According to

the Swiss Patent Office, micro-organisms per se are

not patentable, including human-made ones. The Patent Office has apparently not yet taken a position on

the patentability of DNA and RNA molecules or subcellar units (7).

As to the remaining categories of subject matter involving microorganisms, the Swiss law provides for

patent protection in the same manner as the EPC. Furthermore, since microbiological processes are explicitly patentable, some protection is obtainable for microorganisms per se under Swiss law, because section 8

of the Swiss Patent Act provides that the protection

of a patent claiming a process shall extend also to the

immediate products of the process.

The substantive law regarding patentable subject

matter in France corresponds to the EPC, specifically

in all respects which are relevant to microorganisms.

However, article 7 of the French patent law (1978) excludes patents on plant varieties to the extent to which

such varieties are protectable under French plant protection legislation.

Utility. All of the EPC countries have adopted the

EPC requirement for utility-that the invention be useful in industry (including agriculture) (24). However,

Swiss law restricts the concept of industrial use by excluding private use and use for research (15).

Novelty. The Federal Republic of Germany, United

Kingdom, and France have adopted the EPC absolute

novelty standard in their latest national patent laws

(24). Switzerland also has adopted the absolute novelty standard with one technical exception relating to

prior filed Swiss or EPC applications (Swiss Patent

Law, art. 7a).

Disclosure and Deposit Requirements. The statutory

provision of West German law governing disclosure

● The German Federal Patent Court has also upheld a patent on a microorganism obtained as a pure culture fmm an unpurified, naturally occurring state through a selective culture process (16).

requirements (West German patent law sec. 35(2),

1981) is identical to article 83 of the EPC, i.e., enablement of a person skilled in the art. However, there

are certain differences in practice regarding biological inventions. By court decision, a new micro-organism cannot be patented unless the application discloses a reproducible method of producing it. Thus,

a deposit without an enabling written description is

inadequate to support a claim to the microorganism

itself (3,26). This is in marked contrast to the law of

the other countries. On the other hand, a deposit alone

is sufficient to support a claim to a method of using

a new micro-organism (32). A required deposit must

be made no later than the filing date (or the priority

date) (32). Although the applicant must furnish samples

of the deposit to third parties after publication of the

application, the applicant can require that the samples

not be removed from the Federal Republic of Germany

and not be passed on to others.

The British Patents Act, in section 14(3), has the same

enablement standard as the EPC. In the case of an invention involving a microorganism, the application as

filed must contain the relevant information on the

characteristics of the micro-organisms, to the extent

known to the applicant. The required deposit must be

made no later than the filing date or the priority date

(British Patent Office Rule 17(1) (1978)). Samples will

be publicly available when the application is published

18 months after the priority date. Those who request

samples must undertake not to pass them onto others

and to use them only for experimentation until the

patent is granted or the application is abandoned

(British Patent Office Rule 17(2) (1978)).

The Swiss Patent Act, in section 50 (1978), contains

the same enablement standard as the EPC. The Patent

Ordinance, section 26(6) (1977), also requires that the

description explain how the invention may be used

industrially. In the case where the micro-organism is

not publicly available or cannot be described in an enabling manner, a deposit in a recognized depository

is required. The application must identify the depository, the deposit number, and the date of the deposit

(Swiss Guidelines for Examination, Z-14.3 and 14.4,

May 12, 1980). In the case of a microaganism that

is available to the public, identification of a known

source need not be disclosed in the application as originally filed. Such information (e.g., reference to a

deposit that was publicly available on the application

filing date) can be added to the application after the

filing date (Swiss Guidelines for Examination, Z-13.2,

May 12, 1980). Since Swiss applications are not published before the patent is granted, culture samples

are not required to be furnished until the patent is

granted. Then samples are released only to identified
App. G—intellectual Property Law ● 567

parties, who undertake not to pass them on (Swiss

Patent Ordinance, sec. 27(6)).

The French patent law, in article 14bis (1978), sets

forth the same standard of enablement as the EPC.

Publicly available micro-oganisms need not be deposited. Required deposits must be made in a Government-authorized depository no later than the priority date. A regulation under the statute (Decree No.

79-822 on Sept. 19, 1979, amended by Decree No. 81-

865 issued on Sept. 11, 1981) contains provisions regarding the content of a French patent application

relating to a microorganism that are consistent with

EPC Rule 28. Thus, the application must contain

(French patent law, art. 10):

● the available information as to the characteristics

of the micro-organism, and

● an identification of the depository and deposit

number.

Access to the deposit, which is granted at the time of

publication, can be limited to recognized experts until

the patent is granted or the application is abandoned

(French patent law, art. 31).

Claim Practice. Claims acceptable under EPC practice should be acceptable in the four countries. Switzerland, however, will not accept claims to a microorganism per se.

Enforcement. * Subject to specific requirements contained in the EPC regarding claim interpretation, European patents as well as national patents are interpreted and considered with respect to the questions

of both infringement and validity in accordance with

national law in the EPC member countries.

In the Federal Republic of Germany, an infringer is

broadly defined as any person who makes use of a

patented invention. Protection for a patented process

extends to the product directly obtained by that process. Provisional rights for reasonable compensation are

given for applications which have been published but

not yet granted.

Infringement was defined for the first time in the

new British law, and a separate Patent Court was established for the purpose of trying patent infringement cases. Infringement includes the acts of making,

using, importing, disposing of, or offering to dispose

of an infringing product. Similar provisions are provided with regard to a process and with regard to a

product obtained by a patented process. Provisional

rights are given for published applications, and full

recovery for damages from the date of publication

may be obtained after grant. The 1977 act also provides that the scope of the patent may extend beyond

the literal meaning of the words of the claims.

● The discussion in this section is based substantially on ch. HI in Schwaab

and Thurman (24).

Swiss law defines infringement to include any unlawful utilization of the patent invention, including imitation. patent protection for a process also extends

to products which are directly made from the process.

The patent rights begin at publication, but suit for

damages may be initiated only after grant. Criminal

sanctions may also be imposed as well as confiscation

and destruction of the infringing goods.

Infringement in France is defined broadly to include

the acts of manufacture, offer, commercial disposal,

use, or import of the patented product. However, for

actions other than manufacturing or importing, there

is no liability unless the acts were committed with

knowledge of infringement. Process patents extend

coverage to products obtained directly by the process.

provisional rights for published applications are limited to reasonable compensation. Suit maybe brought

before grant but will probably be suspended until

after grant.

In countries with national laws providing for provisional protection after preliminary publications—

namely, the Federal Republic of Germany, the United

Kingdom, and France—there should be no difference

in treatment between published national applications

and published European applications. In Britain and

France, damages may be recovered for published national or European applications. Moreover, in France,

damages are recoverable from the time of notification

to the infringer of the patent application contents.

Only reasonable compensation may be obtained in

West Germany.

The EPC also provides for provisional protection

after publication of a European patent application.

Generally, the right is limited to recovery of damages

after the patent issues.

In Switzerland, on the other hand, provisional protection is not provided. But, in ratifying the EPC,

Switzerland has provided a provisional remedy for

European patent applications.

Remedies for infringement include injunctions and

monetary damages. In addition, as a general rule, the

loser pays most or all of the costs of litigation of

the winning party. Finally, in most cases, the infringing goods will be destroyed or handed over to the

patentee.

Criminal sanctions exist in the national patent laws

of the Federal Republic of Germany and Switzerland,

but they are not of much practical importance.

LAW OF TRADE SECRETS

National laws that protect trade secrets, confidential information, and know-how (hereinafter sometimes referred to collectively as “proprietary information”) are designed to prevent the misappropriation
588 ● Commercial Biotechnology An International Analysis

of a competitor’s technical and commercial information. These laws coexist with the patent laws of the

various countries and are a necessary adjunct to those

laws in order to provide basic protection in many

areas where the patent laws do not reach.

There are no treaties, such as the EPC for patents,

dealing with the international protection of proprietary information. Thus, when a question involving

trade secrets comes before the European Court of Justice, it will be decided generally in accordance with

the national laws of the member states, much like U.S.

Federal Courts are governed by State law in trade secret cases.

Federal Republic of Germany.—The West German law dealing with trade secrets has at least two

components, “industrial secrets” and “commercial

secrets. ” Although no distinction is made in enforcement of rights as to one type or the other, the fact

that both are protected makes it clear that not only

technical secrets are protected, but also secret commercial or business information,

With respect to the elements for establishing protectable industrial and commercial secrets, the German Supreme Court has stated on several occasions

that such a secret maybe any fact that is: 1) connected

with a business, 2) known only to a small number of

persons, 3) for which its possessor has a justifiable interest in keeping secret, and 4) for which its possessor

has manifested an express or recognizable intent to

keep secret (33).

The West German law is more liberal than the U.S.

law as to the degree of public knowledge required to

destroy a trade secret. In the Federal Republic of Germany, if information is discernible only with a great

deal of work and expense, it is still protectable as an

industrial or commercial secret. Thus, for example,

even the purchase of a machine does not destroy the

secret nature of its contents if the purchaser must

dismantle, tear apart, and put in substantial time and

effort to uncover its secrets (33). Further, knowledge

by a small group of persons, particularly if they are

not competitors, will not destroy the secret nature of

an industrial or commercial secret.

As in the United States and the United Kingdom,

neither novelty nor technical advance need be established in order for information to be classified as an

industrial or commercial secret in West Germany.

One element of a trade secret is whether the information gives its possessor an advantage in competition which would be lost if it were disclosed to competitors. But at least one commentator has suggested

that the industrial or commercial secret need not be

actually industrially or commercially utilized at the

time of its loss (4). Thus, it would appear that research

data that would or potentially could give the holder

a competitive advantage would satisfy the requirements for an industrial secret.

Substantial civil and criminal liabilities for violation

of trade secret rights are written in statutory law. The

most pertinent provisions are in the German Unfair

Competition Law of 1909 (UWG, Gesetzgegen den unlauteren Wettbewerb). An employee who wrongfully

communicates an industrial or commercial secret may

be imprisoned for up to 3 years and fined. If the employee uses the secret abroad, or knows it is to be used

abroad, the prison sentence is increased to up to 5

years. Civil penalties and a civil right of action for

damages or an injunction are also available (6,20,33).

United Kingdom.—The British courts, much like

their American counterparts, have refrained in most

instances from adopting a hard and fast definition

of the term “trade secret. ” One definition is as follows (31):

1. It consists of information;

2. The information must be secret either in an absolute or a relative sense;

3. The possessor must demonstrate that he has acted

with an intention to treat the information as a

secret;

4. The secret information must be capable of industrial or commercial application; and

5. The possessor must have an interest in the information worthy of legal protection, bearing in

mind English principles of equity. This will generally be an economic interest.

The English (as well as the other Europeans) are

rather parochial in their approach to the question of

whether something is secret. They are concerned most

with public knowledge in their own country. For example, knowledge by other people outside of the

United Kingdom would not be as great a threat as

knowledge of a few people inside of the United

Kingdom (31).

One possible problem for biotechnology in Great Britain is the requirement that information must have

some industrial or commercial use in order to qualify

as a trade secret. Thus, research data or abstract ideas

not capable of being used commercially in the near

future may not be a trade secret (31). Such information may be protectable, however, as “confidential information” (23). While English legal scholars have

debated the degree of secrecy necessary for information to be protected as confidential, it is clear that the

degree necessary to protect such information pursuant to a confidentiality agreement is less than that required to establish a trade secret. The British “confidential information” approach might well be the way

to avoid the problem raised by some U.S. cases which
App. G—intellectual Property Law ● 569

have indicated that technical information will not be

protected if it is not developed to the stage of practical application (9).

Enforcement of trade secret law in the United Kingdom is by way of civil actions for damages. Unlike

other major industrialized countries, the United Kingdom has no specific statute making misappropriation

of trade secrets a crime, and there has been no significant prosecution under more general theft or conspiracy statutes.

Switzerland.—Swiss law recognizes “industrial

secrets” and “commercial secrets.”* The elements of

protectable industrial and commercial secrets are

quite similar to those under West German law. Knowledge by a small number of people, or public availability, but only after substantial expense or effort, does

not defeat the secrecy of the information (19,20).

There must be an intention to maintain the secrecy

of the information and an intent in maintaining its

secret for the purpose of enhancing economic or competitive position (19). One additional element to the

Swiss law, however, is that the secret must have a relationship to a particular business enterprise. Secrets

held by professors, scientists, factory workers, and

others not engaged in business do not qualify as industrial and commercial secrets, unless, of course,

they own or participate in a business and the secret

is possessed by the enterprise rather than themselves

as individuals (19).

Switzerland’s Unfair Competition Law of 1943 specifically prohibits the misappropriation of industrial

or commercial secrets, and contains sections establishing both civil and criminal liability. One who is injured

by an act of unfair competition may obtain injunctive

relief and damages (19).

Switzerland has a wide variety of criminal statutes

prohibiting misappropriation of industrial and commercial secrets and various other types of industrial

espionage. The Unfair Competition law provides that

those guilty of the same acts of unfair competition

discussed above shall be punished by a fine or imprisonment, on complaint of the aggrieved party (19).

Thus, Switzerland has a formidable array of civil and

criminal liabilities to discourage industrial espionage

and misappropriation of propriety information.

● ’I’he Swiss Supreme Court has defined “industrial secret” as (BGE 64 II

66) (19):

All facts related to a manufacturing process or method and neither

in the public domain nor generally a~ailable, in the secrecy of which

the holder has a justified interest and which he actually wishes to be

maintained secret, can be the subject matter of an ldustrial secret.

and “commercial secret” as (BGE 74 Ii’ 103) ( 19):

The term “commercial trade secret” encompasses basically all facts

of economic life in the maintenance of secrecy of which an interest

worthy of protection exists,

France.—French law, like West German law,

rather than following the single concept of “trade

secret” found in the U.S. and English law, segregates

the secrets into “manufacturing secrets” (secret de

fabrique) and ‘(commercial secrets” (secret de commerce) (10). A commercial secret is treated by the commentators similarly to a manufacturing secret, although there is no direct reference to commercial secret in the French Code (10), For information to be

a manufacturing secret, it must be: 1) relatively secret,

2) of industrial application, 3) of commercial or market

value, 4) a secret of the factory; and 5) the misappropriator must know it is a secret (10).

The difficulty for researchers is the requirement of

industrial application. The majority view seems to be

that to be a manufacturing secret, the secret information must either be suitable for immediate industrial

application or have already been used industrially. For

example, a process not yet applied industrially, but

used only in research and experimentation cannot

be a manufacturing secret. Mere unapplied, theoretical ideas of a technical or scientific nature do not

qualify (10).

Misappropriation of manufacturing secrets by an

employee is a criminal violation under article 418 of

the French Penal Code, if the employee has the requisite criminal intent for doing the act for his or her own

benefit (10). Disclosure to aliens or non-French residents is punishable by significantly higher fines and

much longer prison terms.

PLANT BREEDERS’ RIGHTS

The important provisions of the plant breeders’

rights laws of the Federal Republic of Germany, the

United Kingdom, Switzerland, and France are as

follows.

Federal Republic of Germany.—Article 2(3) of

the Federal Republic of Germany’s Law on the Protection of Plant Varieties (text of May 20, 1968) covers

both sexually and asexually reproduced varieties. The

variety must be new, sufficiently homogeneous, and

stable. Novelty exists when the variety is clearly distinguishable by at least one important morphological

or physiological characteristic from any other variety, the existence of which is a matter of common

knowledge at the time for which protection is applied.

Common knowledge is defined in terms of absolute

novelty in Germany, with commercialization of the

variety in Germany prior to filing the application constituting a statutory bar (art. 2(3)). Homogeneous

means plants of the variety must be identical in all

their essential characteristics (art. 5). Stability is

demonstrated when plants of the variety retain their

essential characteristics true to the definition of the

25-56 I O - 84 - 37
570 ● Commercial Biotechnology An International Analysis

variety after each successive reproduction or reproductive cycle (art. 6).

Article 36 provides that as a part of the examination procedure, the variety must be grown, either by

the Federal Office of Plant Varieties or a delegated outside service. The holder of the protection right also

is required to submit to the Federal Office of Plant

Varieties, upon request, material for establishing the

continued existence of that variety. If the holder is

unable to do so, the protection right ceases (arts, 16

and 20).

The duration of protection or grant is for 20 years,

except for certain varieties for which it is 25 years (art.

18). The law provides for criminal penalties comprising fine or imprisonment of a term of up to 1 year

(arts. 48 and 49). The holder of the protection right

may claim remuneration from any person who has

propagated material without authorization in the interval between the publication of the application and

the grant of title of protection (art. 47(4)).

United Kingdom.-The Plant Varieties and Seed

Act of 1964 covering United Kingdom is the basis for

adherence to the UPOV 1961 Convention, with ratification being effective September 17, 1965. * The act covers both sexually and asexually reproduced plant materials.

The new variety must be distinct, uniform, and stable. To meet the first requirement, it must be clearly

distinguishable by one or more important morphological, physiological, or other characteristics from any

other variety whose existence is a matter of common

knowledge at the time of the application (pt. II, 1(1)).

The variety must be sufficiently uniform or homogeneous (pt. II(4)). The variety must be stable in its essential characteristics—i .e., it must remain true to its

description after repeated reproduction or propagation (pt. II(5)).

There is an absolute novelty requirement, that is,

the variety may not have been offered for sale or sold

in the United Kingdom prior to the filing of the application. Where such sales or offers for sales are made

outside the United Kingdom, a grace period of 4 years

is provided prior to the filing of the application (pt.

11, (2)(1) and (2)).

The scope of protection afforded by the rights include the exclusive right to produce or propagate the

variety for the purpose of selling the variety or parts

or products of the variety (pt. II, 3(1) and (2)). The term

of protection ranges from 15 to 25 years, depending

on the type of plant.

A growing trial is required during the examination

period, thus requiring the submission of plant mate-

“For further information about UPOV, see Chapter 16: Intellectual Prop.

ertbv Law,

rial. Further, every holder of plant breeders’ rights

must ensure that, throughout the period for which

the rights are exercisable, he or she is in a position

to provide reproductive material that is capable of producing the variety, and the holder must provide such

information and facilities as the plant variety rights

office may request for the purpose of fulfilling the

maintenance requirements. If plant material cannot

be so provided, the protection rights shall be terminated (pt. I(6)).

The law provides for a Plant Variety Rights Tribunal

having jurisdiction over cases brought under the act,

with the tribunal being authorized to sit in any designated place in Great Britain to hear any proceedings,

Switzerland.—Switzerland ratified the 1978

UPOV Text on June 17, 1981, Under Swiss law, sexually and asexually reproduced varieties are covered.

Protected varieties must be novel, stable, and sufficiently homogeneous. The variety is considered novel

unless, at the time the application is filed, the variety

has already been offered for sale or marketed in Switzerland or for more than 4 years outside of Switzerland. A “variety” refers to any cultivar, clone, line, stock,

or hybrid and is considered new if it is clearly distinguished by one or more important features from any

other variety whose existence is generally known at

the time the application is filed.

Variety protection precludes another, without the

consent of the holder, from producing propagation

material of the protected variety with a view to

marketing it, offering it for sale, or selling it in the

course of business. Propagation material includes

seeds, fruits, or vegetative material. Protection is for

a term of 20 years following issue, but it can be extended in certain cases.

The applicant is required to deposit propagation material for purposes of conducting examination for verifying the stated characteristics of the plant. The title

of protection can be annulled when the title holder

cannot supply a propagation material capable of producing the new variety with its morphological and

physiological characteristics as defined when the right

was granted.

Action for variety infringement is brought in the

canton of the defendant’s place of residence in Switzerland. Intentional infringement can be punished by

imprisonment for up to 1 year or by a fine.

France.—Although France was an early ratifier of

the 1961 UPOV Convention Text, and a signatory to

the 1978 Text, it has not yet ratified the latter. France

continues to operate under the Law on the Protection

of New Plant Varieties, Law No. 70-489 of June 11,

1970,

Both sexually and asexually produced plant materials

of all species are covered, including bacteria, although
App. G—intellectual Property Law . 571

the schemes are limited to specified varieties. For a

variety to be “new, ” it must be distinct from similar

known varieties, by reason of one characteristic that

is important, specific, and subject to little fluctuation,

or more than one characteristic where the combination thereof is such as to give it the quality of a new

plant variety (ch. I, sec. 1). Further, the variety must

not have been exploited in France, or appear in specified publications, before the filing of the application

in France; if so, a valid certificate cannot be issued.

The variety must be homogeneous in all of its characteristics, and must remain stable—i.e., it must remain

identical with its original definition at the end of each

propagating cycle (ch. 1, sec. 1). An application for

each new variety fulfilling the above requirements

must be given a denomination and a sample to be left

in a collection (ch, II, sec. 2).

The plant variety certificate confers on the certificate owner the exclusive right to produce, import into

France, sell, or offer for sale all or part of the plant

(ch. II, sec. 3). The certificate is valid for 20 years from

the date of issue, although this period shall be extended to 25 years if the constitution of the elements

for production of the species requires a considerable

time.

The breeder must at all times keep a vegetative collection of the plant variety (ch. 1, sec. 9). If the owner

is unable to furnish the administration at any time

with the elements of reproduction or vegetative propagation so that the specified characteristics of the

variety can be ascertained, the rights of the owner will

be forfeited (ch. IV, sec. 22).

Chapter IV, section 23 relates to infringement, which

is broadly defined. It provides that any violation of the

rights of the owner of a new plant variety certificate

shall constitute an infringement for which the offender shall be liable.

Intellectual property law of Japan

Having discussed the patent law, trade secret law,

and plant breeders’ rights in the European competitor

countries, we turn now to Japan.

PATENT LAW

Patentable Subject Matter.–The Japanese Patent Act contains the following broad definition of

patentable subject matter (art. 29(1), 1976):

Any person who has made an invention which can

be utilized in industry may obtain a patent . . . .

Until 1979, the Japanese Patent Office took the position that micro~rganisms were unpatentable because

they are not industrially applicable. After reversing

that position, the Japanese Patent Office issued a set

of Working Standards for micro-oganism inventions

in November 1979, and in August of 1980, it issued

a Classification of Inventions Relating to Genetic Engineering (14). * According to these guidelines, recombination of the genes of higher animals is not permitted, so that inventions in that area are thought to

not be patentable (14).

In the intervening years, the greatest obstacle to

securing patent protection for microbiological inventions in Japan was the rDNA research safety guidelines

published by the Science and Technology Council and

the Ministry of Education. These guidelines originally permitted only E. coli bacteria to be genetically

modified. In January 1980, yeast strains were also included. Since then, other microorganisms have been

included. * * Any rDNA inventions that were not directed to subject matter approved by the safety guidelines were considered to fall into the category of inventions “likely to injure the public health” and thus

were precluded from patenting under article 32(2) of

the patent law (13).

Subject to the above considerations, therefore, the

following five basic categories of biotechnological inventions appear to be patentable: 1) micro-oganisms,

2) processes for producing micro-organisms, 3) processes using micro-organisms, 4) products obtained

from microbiological processes, and, 5) DNA and RNA

molecules or subcellular units.

Novelty.—Under article 29 of the Japanese Patent

Act (1978), an invention is novel if it is not worked or

publicly known in Japan, or it is not described in a

publication anywhere prior to the application filing

date (or priority date). A 6-month grace period is provided in article 30 (1978) for: 1) experimentation, publication, and papers presented before scientific organizations by the applicant, 2) unauthorized disclosure

by a third party, and 3) displays at authorized exhibits.

Utility.—The standard of utility is one of industrial

applicability, similar to the EPC. Processes in the field

of medicine, diagnosis, therapy, and pharmacology in

which the human body is an indispensable element are

excluded from patentability by the Japanese Manual

for Examination and by court decision, as not being

usable in industry (11).

Standard of Invention. -Under article 29(2) of

the Japanese Patent Act, a claimed invention is not patentable, even if novel, if it ‘(could easily have been

made, at the filing of the application, by a person with

ordinary skill in the art to which the invention pertains,” This standard is similar to the concept of obviousness under U.S. law, except that U.S. law focuses

*The guidelines also mention vectors, DNA molecules, and enzymes.

* “See Chapter 15: Health, Safety, and Enn”rvnmental Regulation for details.
572 ● Commercial Biotechnology: An International Analysis

on the difference between the claimed invention and

the prior art.

Disclosure Requirements. -Disclosure requirements for inventions under article 37 of the Japanese

Patent Act (1976) require that an application be accompanied by a specification setting forth a detailed explanation of the invention including the purpose, construction, and effect of the invention to the extent that

any person having an ordinary knowledge in the technical field to which the invention belongs may easily

make it. This is basically an enablement standard.

Deposit Requirements.—A micro-organism

must be deposited except in the case where:

. it cannot be preserved in a depository for technical reasons or cannot be controlled under safe

conditions; or

. it is readily available to those skilled in the art (e.g.,

a commercially available microorganism or one

constituting a stock culture listed in a catalog

published by a reliable depository) (35).

The situation is unclear in the case of micro~rganisms

for which an enabling disclosure is presented in the

patent application (35).

Japan is bound by the Budapest Treaty, and therefore, it must accept deposits made thereunder, without requiring deposit in Japan. For those deposits not

made under the Budapest Treaty, the minimum required maintenance period for the culture deposit is

the lifetime of the Japanese patent (28).

Generally, no sample of a deposited culture will be

furnished to third parties (without consent of the

depositor) until the patent application is accepted and

published for opposition. After publication, access is

granted on the condition that the party will not furnish the sample to others (28).

Claims Practice. -There are no formal limitations

on the basic type, style, or category of claims (1).

Enforcement.—Infringement is defined in article

101 and 3(2) of the Japanese Patent Act (1978) to include the acts of making, using, selling, and importing

the patented article and/or patented process, including

importing an article produced by a patented process.

There is a presumption that a claimed process for producing a novel product has been used to produce the

product whenever found in Japan (art. 104, 1978).

It is the predominant view that claims in a Japanese

patent define the outer boundary of the invention and

that only in rare instances is it possible to establish

infringement for anything outside of the literal language of the claims, i.e., there is no traditional doctrine of equivalents (29).

Article 65(3) of the Japanese Patent Act provides that

after the first publication of a Japanese application,

the applicant has a right to reasonable compensation.

After acceptance and grant, the patentee has the right

to injunctive relief as well as monetary damages and,

in theory, criminal sanctions (29).

LAW OF TRADE SECRETS

There are no specific statutes assigning liability for

misappropriation of trade secrets;* thus, one must rely

on general principles of Japanese civil law (see 17).

That is, an injured party may sue under general tort

law principles. * * Employees, however, are viewed as

having an implied contractual obligation not to misappropriate or improperly disclose trade secrets of their

employer.

The Japanese Penal Code does not contain a provision specifically punishing misappropriation of trade

secrets, manufacturing secrets, or commercial secrets.

Criminal liability can only attach through the general

sections of the penal code dealing with larceny, embezzlement, receiving stolen property, fraud, etc.

Misappropriation of trade secrets has been successfully criminally prosecuted under such general statutes

in Japan (see 12).

Trade secret protection in Japan for any type of

technology is seen as very unsatisfactory. Liability

for misappropriation has been the exception rather

than the rule. In fact, one commentator has described

Japan as the world’s leading country for industrial

espionage (34).

PLANT BREEDERS’ RIGHTS

A Seed and Seedling Law in Japan, enacted July 10,

1978, conforms to the provisions of the UPOV Treaty, which Japan has signed (21). The details of the

Japanese legislation are similar in essential respects

to the EPC countries discussed previously.

Appendix G references* * *

1. Aoki, A., et al., Japanese Patent and Trademark Law,

(Lausanne: Seminar Services, 1976), distributed by Bureau of National Affairs, Washington, D.C.

2. Baekerhefe (Baker’s Yeast), International Review of Industrial Property and Copyright Law 6:207 (1975).

3. Bakterienkonzentrat, Gewerblicher Rechtsschutz und

Urheberrecht, 263, 1981.

4. Baumbach-Hefernahl, A., Wettbewerbs und Warenzeicher, 9th ed. (Munich: C. H. Beck’she Verlag, 1964).

“While the term “trade secret” is sometimes used in Japanese law, one is

more likely to find the terms “industrial secret” and “commercial secret” utilized, in a manner similar to that of German law (34).

● ● The general tort principle is set out in art, 709 of the Japanese Civil Code

as follows: “A person who, willfully or negligently, has injured the right of

another is bound to compensate him for the damage which has arisen therefrom,”

● ● ● Note: R.P.C. = Reports of Patent, W@, and Trade Mark Cases (Great

Britain).
App. G—lntellectual Property Law . 573

5. Braendli, P., “Das neu schweizerische Patentrecht,” Gewerblicher Rechtsschutz und Urheberrecht, International

Part, 1979, p. 1.

6. Cohn, E. J. (cd.), Manual on German Law $7.182, j7.194

(London: Ocean Publications, Inc., 1971).

7. Comte, J. L., Deputy Director, Swiss Patent Office, personal communication to R. Schwaab, OTA contractor,

Feb. 16, 1982.

8. Convention on the Grant of European Patents, 2d. ed.

(Munich: European Patent Office, 1981).

9. Cornish, W. R., “Protection of Confidential Information

in English Law,” International Review of’industrial Property and Copyright Law 6:43-46, 1975.

10. Harle, Y. R., “Trade Secrets and Know-How in French

Law,” Trade Secrets and Know-How Throughout the

World, vol. 3, A. N. Wise (cd.) (New York: Clark Boardman Co., Ltd., 1981).

11. Hayashi, I., “A Japanese Prospective on Patenting Microorganisms: Prospects and Considerations,” APLA Q.J.

7:306-308, 1979.

12. Japan v. Te/enchef, 7 Kakyu Keishu 1319, 419 Hanrei

Jiho 14 (Tokyo District Court 1965).

13, Japan Patents and Trademarks, No. 25 (Tokyo: Suzuye

Institute of I. P. P.R., 1980).

14. Japan Patents and Trademarks, No. 27 (Tokyo: Suzuye

15.

16.

17.

18.

19.

20.

Institute of I. P. P.R., 1980).

Katzarov, K., Manual on Industrial Property (Geneva:

Prof. K. Katzarov S. A., 1981).

Lactobacillis bavaricus, Gewerblicher Rechtsschutz und

Urheberrecht, 586, 1978.

Lyon, J., and Doi, T., “The Protection of Unpatented

Know How and Trade Secrets in the United States and

Japan,” Patent and Know How Licensing in Japan and

the United States, T. Doi, et al. (cd.) (Seattle: University

of Washington Press, 1977).

Pagenberg, J., “The European Patent System—More Objective Standards Needed,” International Review of industrial Property and Copyright Law 9:1-20, 121-152

(1978).

Pestalozzi, P., “Trade Secrets and Know-How in Swiss

Law,” Trade Secrets and Know-How Throughout the

World, vol. 4, A. N. Wise (cd.) (New York: Clark Boardman Co., Ltd., 1981).

Pinners World Unfair Competition Law, $74 (Alpen and

Rijn: Sijthoff & Noordhoff, 1978).

21. Plant Variety Protection-Number 28, Newsletter, UPOV,

April 1982.

22. Rote Taube (Red Dove), International Review of Industrial

Property and Copyright LAW, 13s,, 1970.

23. Saltman Engineering Co., Ltd. v. Campbell Engineering

Co., Ltd., 65 R.P.C. 203, 1948,

24. Schwaab, R., and Thurman, R., International Law: EPC

& PCT Practice and Strategy (Washington D.C.: Patent

Resources Institute, 1980).

25. Schwaab, R., Jeffery, D., and Conlin, D., “US, and Foreign

Intellectual Property Law Relating to Biological Inventions,” contract report prepared for the Office of Technology Assessment, U.S. Congress, February 1983.

26. 7<hor-6dimethyltetracyclin, Gewerblicher Rechtsschutz

und Urheberrecht, 162, 1978.

27, Sharrock, J., Principal Examiner, British Patent Office,

personal communication to R. Schwaab, OTA contractor, Mar. 2, 1982.

28. Suzuye, T., Japanese patent attorney, Tokyo, personal

communication to R. Schwaab, OTA contractor, Feb. 25,

1982.

29. Tanabe, T., and Wegner, H., Japanese Patent Law (Tokyo:

AIPPI Japan, 1979).

30. Ullrich, H., “Standards of Patentability for European Inmentions, ” International Review of Industrial Property

and Copyright Law Studies 1:35 (Weinheim/Bergstr.:

31.

32.

33.

34.

35.

Verlag Chemie, 1977).

Vitoria, M., “Trade Secrets, Know-How and Confidential

Information in English Law,” in Trade Secrets and KnowHow Throughout the World, vol. 2, A. N. Wise (cd.) (New

York: Clark Boardman Co., Ltd., 1981).

Vossius, V., “Patent Protection for Biological Inventions—

Review of Recent Case Law in EEC Countries,” European

industrial Property Reporter 1979:278-279.

Wise, A. N., “Trade Secrets and Know-How in German

Law,” Trade Secrets and Know-How Throughout the

WorJd, vol. 3, A. N. Wise (cd.) (New York: Clark Boardman Co., Ltd., 1981).

Wise, A. N., “Trade Secrets and Know-How in Japanese

Law)” Trade Secrets and Know-How Throughout the

World, vol. 3, A. N. Wise (cd.) (New York: Clark Boardman Co., Ltd., 1981).

Yuasa and Hara Patent News, “Procedures for Deposit

of Microorganisms in Japan, ” 6:26-30, spring 1979.
Appendix H

Selected Aspects of U.S. University/

Industry Relationships in Biotechnology

University/industry relationships in biotechnology

were the focus of the discussion in Chapter 17: University/Industry Relationships. Material on selected university/industry agreements is presented below. Also

described are guidelines for university/industry research adopted by the National Association of Land

Grant Colleges and the 1982 Pajaro Dunes Conference,

selected statements on patent rights and commingling

of research funds, and university policies on patents,

consulting, and sponsored research in the United

States.

Selected university/industry

agreements in biotechnology

Selected university/industry arrangements in biotechnology are discussed below. The arrangements

were selected for discussion because they represent

different approaches to university/industry relationships, because they are relatively large agreements,

and because some of them have raised issues central

to university/industry agreements. The agreement between the Whitehead Institute and the Massachusetts

Institute of Technology (MIT) is not strictly a university/industry agreement, but has been included because it raises issues in university/industry relationships and because it is a product of industrial interest

in biotechnology research.

RESEARCH PARTNERSHIPS

Monsanto/Washington University. -Washington University and Monsanto (U. S.) have a 5-year renewable contract totaling $23.5 million. Under the contract, individual research projects in biotechnology will

be carried out by cooperative arrangements involving Washington University faculty and Monsanto scientists. About 30 percent of the research will be fundamental research (terminology of the agreement) and

70 percent will be special research directly applicable

to human disease. The contract between Washington

University and Monsanto establishes an 8-person advisory committee made up of 4 members from each

institution. This committee will solicit research proposals from the faculty of Washington University and

from researchers at Monsanto, review and approve

the proposals on the basis of individual merit, distribute appropriate funding, and act as a liaison between

the university and Monsanto.

Monsanto’s participation in the program will begin

with a $3 million grant the first year (1982) and rise

annually to accommodate expansion in the number

and scope of research projects involved. Washington

University faculty members will beat liberty to publish

results of any research done under the Monsanto

funding. Monsanto will exercise the right of prior

review of draft materials, because they may contain

potentially patentable technical developments. If they

contain patentable developments, Monsanto can request a short delay of submission for publication or

other public disclosure in order to begin the patent

process. Monsanto will pay for and carry out the entire patent application process. If Monsanto does not

elect to license a patent, the university is free to license

the patent to others.

Washington University will retain patent rights,

while Monsanto will have exclusive licensing rights.

Royalties will go to Washington University for support

of its education and research programs-not to individual researchers. The portion of royalty normally going to the individual will instead be channeled to his/

her laboratory to support more research.

During the third year of the 5-year agreement, the

entire program will be reviewed by a panel of distinguished scientists who are independent of both

Monsanto and Washington University.

The schedule for funding in millions of dollars is as

follows (11,13):

The schedule for funding in millions of dollars is as

follows (11,13):

Contract Exploratory Specialty Contract year

year projects projects total budget

1982 -83 . . . . . . . . . $1.5 $1.5 $3.0

1983 -84 . . . . . . . . . 1.6 2.2 3.8

1984 -85 . . . . . . . . . 1.7 3.0 4.7

1985 -86 . . . . . . . . . 1.8 3.8 5.6

1986 -87 . . . . . . . . . 1.9 4.5 6.4

Total $8.5 $15.0 $23.5

The process by which the agreement between

Washington University and Monsanto came about had

some major strengths, First, individuals from Monsanto and Washington University met continually over a

period of 2% years to discuss the project. Second,

members of the university faculty and administrative

staff and representatives of the company held a 3day

retreat to discuss the interactions and what form they

should take. Furthermore, the Washington University/Monsanto agreement is unlike other agreements in

that it is intended to be a cooperative research agree574
App. H—Selected Aspects of U.S. University/Industry Relationships in Biotechnology . 575

ment with industrial and university scientists working together on research projects. In other agreements, the explicit purpose has been to allow industry

to gain a window on the technology and educate its

personnel.

Hoechst/Massachusetts General HospitaL—A

$70 million agreement between Massachusetts General

Hospital, a teaching hospital associated with Harvard

University, and the West German company Hoechst

will create a department of molecular biology at Mass

General and will provide support for the department

for 10 years. The department of molecular biology will

be headed by Dr. Howard Goodman and will eventually have a staff of about 100 persons. Hoechst will fund

basic research in eukaryotic cell gene regulation,

somatic cell genetics, microbial genetics, virology, immunology, and plant molecular biology.

The department faculty will be regular members of

the staff of Mass General and will be nominated for

membership on the faculty of the Harvard Medical

School. Faculty duties will primarily consist of

research for the department of molecular biology.

Faculty may “also devote a reasonable amount of time

to faculty duties other than research and to consulting

for non-profit-making entities so long as such activities do not interfere materially with their research activities under the agreement. ”

Hoescht has the right to send up to 4 individuals to

work and be trained in the department at any one time

and to send up to 40 individuals over the life of the

contract. The individuals that Hoechst sends, however,

must have qualifications acceptable to the department.

The contract between Hoechst and Mass General

states that the scientists in the department of molecular biology are free to collaborate with others but that

“research collaborations funded in part by the Company and in part by others shall take into account the

interest of the Company in obtaining exclusive, worldwide licenses. ” If Hoechst cannot obtain an exclusive

license from such collaboration, it must be assured of

a nonexclusive license.

All faculty in the department have the right to publish but must submit early drafts of all manuscripts

from Hoechst-sponsored research not less than 30

days prior to the submission of the manuscript for

publication.

Mass General will hold any patents that may arise

out of the Hoechst-sponsored research. The hospital

will grant Hoechst an exclusive worldwide license for

the life of the patent. Hoechst will pay the hospital

royalties at rates that give “due consideration” to the

fact that Hoechst paid for the research (2,10).

The exclusive funding may preclude department scientists from seeking grants from the U.S. National Institutes of Health (NIH), thereby taking them out of

the peer review process. The department will report

to a scientific advisory committee of two members

from Mass General, two from Hoechst, and two from

elsewhere. The committee’s review, however, may not

be the equivalent of the critical peer review of proposals at NIH. The department will be physically separate from Mass General, and all equipment and physical plant will be paid for by Hoechst. Department

scientists will generally be free to collaborate with

others but will have to obtain written permission from

Hoescht. Dr. Goodman hopes to collaborate with Dr.

Philip Leder who has a 5-year $6 million research

agreement with DuPont, Whether Hoechst will grant

this request will probably depend on the nature of the

collaboration.

Whitehead Institute/Massachusetts Institute

of Technology.—Whitehead Institute, a biomedical

research institute administratively separate from MIT,

has been provided for by Edwin C. Whitehead, the

President of Technicon Corporation. Whitehead has

bequeathed about $2o million to build the structure,

$5 million annually to operate it through the year

2003, and a gift of $100 million upon his death. Whitehead has also given $7.5 million to MIT plus support

moneys estimated to be worth about $1 million a year

for faculty, graduate students, and research assistants

in MIT’s biology department.

The Whitehead Institute is headed by a 14-member

board of directors that includes 3 MIT directors, 3 of

the Whitehead children, and David Baltimore, the director of Whitehead Institute who is serving a renewable 5-year term. Whitehead Institute faculty will have

joint appointments with MIT but will be paid entirely

from Whitehead Institute funds. Faculty appointments

will be proposed by Whitehead Institute according to

the research needs of the institute and in consultation

with the appropriate MIT department. Appointees will

follow the rules and regulations of MIT with regard

to teaching, consulting, tenure, benefits, salaries, etc.

It is expected that 10 to 15 appointments will be made

during the first 7 or 8 years, Graduate students will

also be supported.

Whitehead Institute will retain the patent rights on

any inventions arising from the research. After deduction for expenses, the royalty will be shared according

to the following formula: one-half to the inventor and

one-half shared by Whitehead Institute and MIT. The

term of the agreement is 10 years, with a 5-year renewal and 2 years written notice necessary for termination. If the agreement should be terminated, faculty will be given the choice of joining the MIT or Whitehead Institute faculty.

Prior to the signing of the agreement, the agreement

was extensively discussed by MIT faculty and administrators. Some were concerned that an imbalance in
576 Commercial Biotechnology: An International Analysis

the MIT biology department might result from the addition of 15 new faculty members in molecular biology; other important specialties would have less representation. Since the members of the faculty of

Whitehead Institute, though approved by MIT, would

be chosen for their research contributions to Whitehead Institute rather than to MIT’s educational or research needs, there was also concern over the possibility that the loyalty of the Whitehead Institute faculty

would be divided. Other concerns centered on conflict of interests. Some faculty thought that the findings

of Whitehead Institute could turn up in the investment

portfolio of Whitehead Associates, Edwin H. Whitehead’s venture capital firm. Furthermore, since David

Baltimore has equity in the Collaborative Research

Company, and several other proposed faculty of

Whitehead Institute consult for the company, there

were concerns that the link between Collaborative and

Whitehead Associates might be too close. After extensive discussions, the MIT faculty decided that the positive aspects of the arrangement outweighed these

concerns and voted overwhelmingly to approve the

agreement. MIT’s Board of Trustees would not have

approved the arrangement without faculty support.

Furthermore, a special committee will be appointed

to monitor the arrangement so that any misunderstandings can be avoided (3).

PRIVATE CORPORATIONS

Engenics/Center for Biotechnology Research and Stanford University.-The for-profit

company Engenics was established in September 1981,

along with the nonprofit Center for Biotechnology

Research (CBR). The purpose of CBR is to support basic

and applied biotechnology research at universities,

disseminate the results of such research to the public,

and facilitate the conversion of knowledge into products and processes. The purpose of Engenics is to

carry out research and process development and to

establish new businesses. Although the two organizations are separate, they have the same six corporate

sponsors and will work in close cooperation.

CBR is receiving $2.5 million from its six corporate

sponsors over a period of 4 years. The six sponsors

of CBR are Elf Technologies, Inc. (a U.S. venture capital

subsidiary of Elf Aquitaine), General Foods, Koppers

Co. Inc., Bendix Corp., Mead Corp., and McLaren Power and Paper Co. (a subsidiary of Noranda Mines). CBR

holds about 30-percent of the equity in Engenics, equity that was issued to Engenics in exchange for options

to licenses under university patents. The same six corporations that sponsored CBR paid $7.5 million for a

total of about 30 percent of the equity in Engenics.

The remaining 30 percent of the equity in Engenics

is shared by the line officers and the consultants Charming Robertson (Chairman of the Chemical Engineering Department at Stanford), Abdul Matin (Professor

at Stanford’s Medical School), and Harvey W. Blanch

(Professor of Chemical Engineering at the University

of California, Berkeley).

CBR can use all capital appreciation or dividends

from the equity in Engenics only for the support of

university research. Any patents resulting from CBRsponsored research will be held by the university at

which the work was performed, with CBR, Engenics,

and the six corporate sponsors receiving royalty-bearing licenses, Negotiations at the time of the patent will

determine the terms of the license. Investigators performing CBR-sponsored research will retain the right

to publish their findings.

CBR is currently funding three university research

contracts. One is a 4-year $970)000 contract with Drs.

Robertson and Matin, both of Stanford, as principal

coinvestigators. The second contract is a 5-year

$783,000 contract with Dr. Blanch, of the University

of California, Berkeley, as the principal investigator.

This contract is funded by both CBR and Engenics,

because University of California policy stipulates that

licensing agreements cannot be made with nonprofit

organizations. The third contract is with Anthony Sinsky at MIT. No data on the amount of this contract

are available. Dr. Sinsky is on the Scientific Advisory

Board of Engenics (68).

Neogen/Michigan State University Foundation and Michigan State University. -Neogen

was f~unded in July of 1981 by the Michigan State

University (MSU) Foundation, an independent nonprofit fundraiser and disburser of donations and royalty income to MSU. Neogen, which was organized to

seek venture capital for limited partnerships to develop and market innovations arising out of research at

MSU, was formed for several reasons: MSU wished

to retain faculty members who are getting lucrative

offers from other small companies; MSU would like

to allow faculty to develop their entrepreneurial talents and remain at the university; and a company such

as Neogen can help diversify Michigan’s economy. The

company was organized with full knowledge of the

board of trustees, the administration, and the faculty

of MSU.

Neogen limited partnership purchases are being

managed by an investment firm in Detroit. The MSU

Foundation, which purchased $100,000 of stock when

the company was founded, will soon purchase another

$130,000 of stock, and Doan Resources is buying

$250,000 in stock.
App. H—Selected Aspects of U.S. University/Industry Relationships in Biotechnology . 577

One project (a parasite diagnosis project) is ready

to begin (funded at $455,000) and two projects are

awaiting funding. Neogen will be able to buy title to

any resulting patents from MSU for the parasite diagnosis project. The money will be paid through the MSU

Foundation to Neogen.

Patents will usually be applied for by MSU. The pat -

ents will be assigned by MSU to the MSU Foundation

for subsequent sale to Neogen in exchange for stock.

Inventors will receive a 15-percent royalty or can exchange this for a l-to 2-percent stock option in Neogen.

Because Neogen is tied to the MSU Foundation, MSU

receives moneys from successful commercialization

of products or processes and the individuals are rewarded commensurate with their efforts. The basic

research takes place on the campus of MSU, but commercialization will be moved off-campus to a nearby

research park in order to avoid conflicts of interest.

The MSU faculty and administration were aware of

and/or participated in the founding of the company,

and there is a scientific advisory board that reviews

the projects, thus preserving the principle of peer

view.

Guidelines for industrial sponsorship

of university research in

biotechnology

NATIONAL ASSOCIATION OF STATE UNIVERSITY

AND LAND GRANT COLLEGES, DIVISION OF

AGRICULTURE

A document titled “Genetic Engineering Policy for

the State Agricultural Experiment Stations” was

adopted by the Experiment Station Committee on Policy (ESCOP) in November 1981 at a meeting held in

conjunction with the fall meeting of the National

Association of State University and Land Grant Colleges (NASULGC). ESCOP, headed by Dean Clarke of

Texas, was brought together after Clarke and several

other members observed that several State Agricultural Experiment Stations (SAES) were being simuhaneously approached by industry to do genetic research. Since there were no policy guidelines for the

new field of biotechnology, SAES often found themselves in a weak position during contract negotiations.

Thus, ESCOP was formed to draw up guidelines.

Because the field of “genetic engineering” is changing rapidly, the November 1981 ESCOP policy document is regarded by ESCOP as an interim document

subject to annual revision, if necessary. In addition,

Clarke is collecting copies of legal documents from

SAES institutions and will develop an aggregate summary of appropriate components of general agreements to be made available to all members of

NASULGC’S Division of Agriculture. Work is now

underway to draw up guidelines for NASULGC’S Division of Agriculture. The committee that is drawing up

these guidelines is headed by Dean F. A. Wood of the

University of Florida.

The ESCOP document of November 1981 is summarized below because it addresses issues that are common to most industry/university relationships in biotechnology. As noted in that document, the SAES have

five general concerns (5):

1.

2.

3.

4.

5.

As publicly supported institutions, the SAES will need

to assure that industrial relationships generate an

end result in the interest of the general public. This

end result should reward the industrial investor but

avoid placing such an investor in an unwarranted

position of financial advantage through privileged use

of information or technology partly derived from research using public funds; nor should a curtailment

of new information to the public occur.

The SAES are greatly concerned about the curtailment of communication on early research results and

about the constraints on sharing of germplasm

emerging due to concerns . . . for protecting potentially patentable research results. . . .

There is general concern in the academic community about the drain of scientific manpower from the

universities to industry. . . .

There is concern that individual scientists may place

themselves in the positions of compromise or conflict of interest as they establish personal relationships with industry as contractors, consultants or institutional officers.

There is concern on the Part of both scientists and

the SAES that through industrial sponsorship of research, there may be introduced an undesirable level

of direction of effort by industry.

The guidelines set forth in the ESCOP document are

subsumed under the three major issue areas outlined

below (5):

A. Institutional relationships

1) Maintain SAES management control of

research:

Consensus: SAES should retain ihe ability to

manage research programs, and control the direction of new investigations, regardless of the source

of support, including situations in which one or

several firms may sponsor research at several institutions.

2) Strong basic research and graduate education

capability:

Consensus: SAES should maintain and expand

the basic research capability in genetic engineering and related areas within the domain of publicly supported institutions.

3) Faculty-industry relations@:

Consensus: Scientists should maintain close communication with institutional administrators in

development of relationships and commitments

with the commercial sector. Institutional guidelines
578 “ Commercial Biotechnology: An International Analysis

B.

c.

should be developed which assist the scientists in

avoiding institutional or personal conflicts of

interest.

Technical relationships

4) Publication and communication:

Consensus: The ability to publish and exchange

information is essential and must be secured in

agreements. In some instances, publications or information exchange may need to be temporarily

delayed to allow time for an institution or sponsor to assure adequate patent protection. The final

decision to defer or modify a publication should

reside with the public institution.

5) Trade secrets and confidential information:

Consensus: Protection of “trade secrets” or “confidential information” for more than a very limited

period should be avoided by public institutions. Advance review by a private sponsor, to avoid premature release of information, may be advisable

but should not become a mechanism to “shelve”

useful information or unpatentable technology.

6) Patent rights and premature disclosure:

Consensus: SAES should retain the right to participate in the decisions related to the disposition

of intellectual and real property and patent rights

resulting from research. Retained ownership of

patents by the SAES is preferred. In any agreement, the SAES should retain the right to use discoveries and inventions from SAES research to extend and enhance public research and education.

The need of private sponsors to obtain a return

on investment must be recognized, and agreements

may provide for special licenses for patents originating from sponsored research.

7) Biosafety of recombinant DNA:

Consensus: SAES must retain responsibility for

review and decisions in the release or distribution

of laboratory research products, although some research may be supported by outside sponsors.

Fiscal and management relationships

8) Grants and income earnings:

Consensus: Extending knowledge and developing new technology while serving the public interest should be the prime motivations in agreements

between SAES and the private sector. Royalty income from discoveries originating under such

agreements should be recognized as a secondary

consideration.

9) Licensing responsibilities and performance

expectations:

Consensus: SAES should assure that “due diligence” clauses are included in contracts to assure

that new technology is not shelved and the public

interest is served while private investment in commercialization is respected. Assignments of rights

or licensing of patents for commercial use should

be considered separately from contractual definition of research to be conducted. Initial or developmental processes and pervasive technology ultimately leading to improved biological materials

generally should not be assigned for sole use by

a sponsoring firm.

10) Tax code implications:

Consensus: When sponsored research is motivated by certain interpretations of Tax Code Section 1235, exclusive licensing or co~wnership of

patent rights is a preferred alternative for the institution, since the institution maintains a vested

interest and some ownership of patent rights involving the scientist, the institution, and the firm

may require unique documentation. Careful attention to these rights and relinquishments is suggested.

PAJARO DUNES CONFERENCE, MARCH 1982

The March 1982 Pajaro Dunes Conference on university/industry relationships in biotechnology, which

was financed by the Henry J. Kaiser Family Foundation, was organized principally by Donald Kennedy,

the President of Stanford, and included the Presidents

of Harvard, Derek Bok; California Institute of Technology, Paul Gray; and the University of California,

David Saxon. Also invited were an administrator and

two faculty from each university. Leading industrialists were also invited, among them representatives

from Beckman Instruments, Inc.; Syntex Corp.; Cetus

Corp.; Cabot Corp.; Applied Biosystems, Inc.; Damon

Corp.; Gillette Corp.; Eli Lilly and Co.; E. I. du Pent

de Nemours; and Genentech Corp. A statement drafting guidelines and principles emerged from the conference, although Kennedy and others stressed its role

as a draft of the process of policy formation rather

than a statement of policy.

The premise of the Pajaro Dunes Conference was

that collaboration between universities and industry

will benefit all parties, including the general public,

if the university’s ideals are not distorted. The general

consensus was as follows (9):

. . . research agreements and other arrangements

with industry (must) be so constructed as not to promote a secrecy that will harm the progress of science;

impair the educational experience of students and

postdoctoral fellows; diminish the role of the university as a credible and impartial resource; interfere with

the choice by faculty members of the scientific questions they pursue, or divert the energies of faculty

members and the resources of the university from primary educational and research missions.

The consensus of the Pajaro Dunes Conference with

respect to specific issues is discussed further below.

Disclosure of Research Agreements—On this

topic, the following views were expressed (9):

In order to satisfy the faculty and general public that

the role of the university is being maintained, contracts should be made public. This could involve publication of relevant provisions of research contracts

with industry or, alternatively, examination by a facul-
.

App. H—Selected Aspects of U.S. University/Industry Relationships in Biotechnology 579

ty committee or some other competent body of all research contracts to assure that terms are consistent

with university values. *

Patents and Licenses.—The consensus on patents and licenses was as follows (9):

The traditions of open research and prompt transmission of research results should be maintained.

However, it is appropriate for the institution to file

for patent coverage; actions which might require brief

delays in publication or other public disclosure. Receipt of proprietary information may occasionally be

desirable to facilitate research. These situations must

be handled on a case-by-case basis so as not to violate

the educational process or the traditions of openness.

There was a disagreement on the issue of whether

exclusive rights should be given, although the document does appear to favor the granting of exclusive

licenses (9):

Some people fear that allowing a single firm the sole

right to develop a patent will necessarily remove competition, slow the development of the patent, or even

prevent development altogther. This fear is exaggerated. . . . Thus, universities should be able to negotiate

exclusive licenses provided that exclusivity seems important to allow prompt, vigorous development of the

patent to occur.

In license negotiations, the consensus was that the

university should insist on a requirement of due diligence on the part of the licensee in developing and

using the patent.

The situation is more difficult when a sponsor requests the right to exclusive licenses on all discoveries

made as a result of the research funded by the company (9):

Some of us believe that such exclusive rights are an

appropriate quid pro quo for the funds provided for

research. Others believe that the university should be

willing to agree to provide instead nonexclusive royalty-free licenses to the sponsor, but should not give

up its right to examine the appropriateness of exclusivity for each invention on a case-by-case basis.

Conflict of Interest—-Discussion focused on two

aspects of the problem. The first was the propriety

of a university’s taking an equity position in a company in which one of its faculty is a major stockholder

or officer. Most were against such investments (9):

It is not advisable for universities to make such investments unless . . . there are sufficient safeguards

to avoid adverse effects on the morale of the institution . . . .

The second and really complex issue, conflict of interests, was avoided by participants entirely. Issues

related to university/industry relationships are not

new, and the Pajaro Dunes Conference participants

were all experienced with and knowledgeable about

*Harvard has elected to keep its contracts confidential and Stanford is

following an informal policy of full disclosure (1],

these relationships. Rather than producing some definite guidelines regarding the structuring of such relationships, however, Pajaro Dunes Conference participants provided only general principles underlying

general university policies.

Selected statements on patent rights

and commingling of research funds

Since one of the purposes of the 1980 U.S. patent law (Public Law 96-517) is to foster cooperative research arrangements among government,

universities, and industry, one question that immediately arises is how the establishment of patent rights is affected by potential commingling

of funds. Circular A-124 issued by the U.S. Office of Management and Budget (OMB) sets out

some guidance on this (4):

Notwithstanding the right of research organizations

to accept supplemental funding from other sources

for the purpose of expediting or more comprehensively accomplishing the research objectives of the government sponsored project, it is clear that the Act would

remain applicable to any invention “conceived or first

actually reduced to practice in performance” of the

project. Separate accounting for the two funds used

to support the project in this case is not a determining factor.

To the extent that a non-government sponsor establishes a project which, although closely related, falls

outside the planned and committed activities of a government funded project and does not diminish or distract from the performance of such activities, inventions made in performance of the non-government

sponsored project would not be subject to the conditions of the Act. An example of such related but separate projects would be a government sponsored project having research objectives to expand scientific

understanding in a field with a closely related industry

sponsored project having as its objectives the application of such new knowledge to develop usable new

technology. The time relationship in conducting the

two projects and the use of new fundamental knowledge from one in the performance of the other are

not important determinants, since most inventions rest

on a knowledge base built up by numerous independent research efforts extending over many years.

Should such an invention be claimed by the performing organization to be the product of non-government

sponsored research and be challenged by the sponsoring agency as being reportable to the government as

a “subject invention, ” the challenge is appealable . . . .

An invention which is made outside of the research

activities of a government funded project but which

in its making otherwise benefits from such project

without adding to its cost is not viewed as a “subject

invention, ” since it cannot be shown to have been “con-
—

580 “ Commercial Biotechnology: An International Analysis

ceived or first actually reduced to practice” in performance of the project. An obvious example of this

is a situation where an instrument purchased with

government funds is later used, without interference

with or cost to the government funded project, in making an invention all expenses of which involve only

non-government funds.

Members of the Advisory Committee to the Director of NIH asked Mr. Dietrich of OMB for some guidance on problems posed by commingled funds. Dietrich noted that application of OMB and the Department of Health and Human Services cost-accounting

and auditing principles can resolve some of the issues.

He stated that one good way to distinguish between

commingled funds is to determine whether a project

was supported through direct costs (in which case the

patent regulations would likely apply) or by indirect

costs (in which case the regulations would likely not

apply). He then provided an assessment of some

specific cases (12).

In a situation where privately supported work is

done in a building previously constructed with Government funds, the Government obtains no patent

rights in inventions developed through those private

funds.

Similarly, in a situation where privately supported

work is done using equipment previously purchased

with Government funds, the Government obtains no

patent rights in inventions developed through those

private funds; however, it does if the equipment is

currently operated under Government support.

If a single individual spends one-half time on a project supported with Government funds and one-half

time on a privately supported project, the Government obtains patent rights only if the privately supported project is directly dependent on ideas or materials generated in the publicly supported project.

Similarly, if a scientist spends 10 years on a publicly

supported project and then 10 years on a privately

supported project, the Government obtains no patent rights to the invention developed under private

support unless it is clear the idea was conceived with

public funds.

In the case of a team working on a single project with

both public and private support, the Government

would obtain patent rights.

For inventions resulting from normal intellectual intercourse in which two individuals, one privately and

one publicly supported, exchange information, the

Government would obtain no patent rights unless

there is intent to commit fraud (e.g., the scientist on

public funds provides information to the scientist in

the private sector to increase the marketability of

an invention and then shares in the profits).

Selected university policies

UNIVERSITY PATENT POLICIES

To analyze the patent policies of universities in the

United States, OTA reviewed documents on the patent policies of the following 32 universities:

1. Alabama/Birmingham, 16. Miami, University of

University of 17. Michigan, University of

2. Arizona, University of 18. Minnesota, University of

3. Boston University 19. Northwestern University

4. California 1nsitute of 20. Ohio State University

Technology 21. Pennsylvania, University

5. California, University of of

6. Case Western Reserve 22. Purdue University

University 23. Rochester, University of

7. Colorado, University of 24. Rockefeller University

8. Connecticut, University of 25. Rutgers University

9. Cornell University 26. Southern California,

10. Georgia, University of University of

11. Indiana University 27. Stanford University

12. Iowa, University of 28. Vanderbilt University

13. Johns Hopkins University 29, Virginia, University of

14. Maryland, University of 30. Washington University

15. Massachusetts Institute of 31. Washington, University of

Technology 32. Wisconsin, U. of

In general, the patent policies of the 32 universities

OTA sampled define the obligations and rights of the

university and the university researchers who produce inventions that have commercial potential. They

also recognize the rights of outside sponsors. Typically,

university patent policy documents state that the relationships defined between the university and inventor are subject to the obligations that the inventor has

made in return for outside support from either private

or government sources. In some cases, an industrial

sponsor may have retained the right to the invention

(because most universities grant only nonexclusive

licenses if they own the patent, subject to a short exclusive licensing period to help commercialize the invention) and also may have defined how royalties are

to be shared. Thus, for example, the Stanford patent

policy document notes:

In practice, the great majority of inventions arise

from externally funded research covered by agreements containing patent provisions. Some agreements

permit the University to retain title and grant license

rights to the sponsor; some provide for the reverse

or defer allocation of rights.

The crucial issue, therefore, seems not to be the patent agreements between universities and their researchers (i.e., what is covered in the documents OTA

reviewed), but the terms of contracts from external

sponsors to individual researchers.
App. H—Selected Aspects of U.S. University/Industry Relationships in Biotechnology . 581

Most university patent policies cover anybody working with university facilities, although individual

universities vary in the degree of specific identification of personnel types. Most of them also cover students, although MIT excepts students from the provision and Johns Hopkins invites students to “take advantage of the mechanisms set forth herein. ” University employees who produce inventions on their own

time and without substantial use of university resources own their inventions, but all 32 universities

invite them to use the university’s commercialization

mechanism,

All 32 universities require researchers to report inventions with potential commercialization promptly

so that the university can assess their potential and

file for a patent. Some universities (e.g., University of

Pennsylvania) also require delay in publication of the

findings to allow for filing of a patent. Since publications prior to patenting can make an invention nonpatentable, the practice of requiring a delay in publication is probably common even at universities whose

documents do not explicitly mention it.

University administrative mechanisms have been set

up to evaluate inventions, to settle disputes, and to attempt commercialization. Many universities use the

services of commercialization firms such as Research

Corporation of New York and Battelle Development

Laboratories. Other universities have their own commercialization ventures (e.g., the Wisconsin Alumni

Research Fund at the University of Wisconsin).

The sharing of royalties varies with each university. Almost all the universities use the U.S. Government’s stipulation that no more than 15 percent of

gross royalty income is to go to the inventor, but they

usually set this as the minimum share (i.e., many give

the inventor a bigger share if the stipulations of outside sources do not apply). Private universities have

a greater propensity than public universities to give

ownership of the invention to the inventor, while the

university is given a license. This may not be a substantive difference, as the other provisions in university

policies (commercialization, royalty sharing, etc.) do

not seem to be related to whether the inventor rather

than the university owns the invention. On the question of ownership, universities having the right to take

ownership have the option to do so. Conversely, the

inventor can petition to have the invention assigned

to him/her if the university does not diligently pursue its commercial applications.

Royalties, after deduction for expenses and the inventor’s share, may be assigned to a number of university activities, Some universities place the remaining

royalty income in their general operating funds; often,

however, royalties are assigned to “research” or to

“research and training” either through stipulation or

through a separate fund set up for that purpose (e.g.,

Cal Tech’s California Institute Research Foundation).

Some universities also allocate a share to the inventor’s department, division, and/or area of activitiy (e.g.,

the University of Colorado allocates a 25-percent share

each to the discoverer, to an account for support of

the discoverer’s research, to the discoverer’;

ment or primary administrative unit, and

university).

The crucial issue is the commercialization

tions that are attached to funds provided by

sponsors, public and private. The patent

departto the

stipula -

outside

policies

discussed here are subject to these external conditions,

and, as the Stanford document states, external sponsorship of university research is more the rule than

the exception.

UNIVERSITY POLICIES ON CONSULTING

The policies on consulting of five major U.S. universities (Harvard, MIT, Johns Hopkins, Stanford, and the

University of California) are summarized in table H-1

below.

UNIVERSITY POLICIES ON SPONSORED RESEARCH

The policies on sponsored research of three major

U.S. universities (Harvard, MIT, and Johns Hopkins)

are summarized in table H-2 below.

25-561 0 - 84 - 38
Table H-l.—Summary of Selected University Poiicies on Consulting

Harvard Massachusetts Johns Johns

Harvard Medical Institute of Hopkins Hopkins University of California

University School Technology University Medical School Stanford (all campuses)

Conflict of interest:

. Time for outside

involvement

regulated

. Primary commitment to the university required

● Disclosure of

potential conflict

required

●

●

●

Time for outside . Outside activities . No formal policy

involvement may not conflict

regulated with their obligaPrimary commit- tions to the

ment to the univer- institute

sity required ● For all those in

Disclosure of decisionmaking

potential conflict roles required anrequired nual acknowledgement in writing of

the policy

● Required

disclosure of all

outside activities,

including financial

interests, to institute officers

● Requirement: To

seek advice of

department head if

a potential conflict

exists

. 1 daylweek ● 200/0

c No dollar amount

Time regulation:

● 200/0 ● 2x salary

Dlsclosunx

. Not required,

unless potential

conflict exists

s Required ● Faculty are re- . Not required

annually—reported quired to keep

to the dean’s office their department

heads continuously

informed on all

outside activities

. Time for outside ● Overriding profes- ● Primary responinvolvement sional allegiance to sibilities to university

regulated the university stressed

● Primary commit- , Disclosure of poten- ● Outlines specific exment to the univer- tial conflict situations amples of conflict-ofsity required urged interest situations

. Financial gain ● Prewritten clause to

regulated be inserted into all

agreements stating

that university conditions of employment

prevail before all other

agreements

● 200!0 ● 13 days per academic ●

quarter (13-week

quarter)

. Monthly reporting ● Disclosure of names ●

of companies you request of dean, provost, etc.

No limit on consulting

days unless time conflicts with prima~

responsibility to the

university

California Political

Reform Act of 1982,

requires disclosure of

faculty member financial interest in industrial sponsor of

hislher research

Annual reports of consulting activities to be

supplied to heads of

units
Table H-l.–Summary of Selected University Poiicies on Consulting (Continued)

Harvard Massachusetts Johns Johns

Harvard Medical Institute of Hopkins Hopkins University of California

University School Technology University Medical School Stanford (all campuses)

Po/icy enforcement:

● Essentially ● Essentially ● Department heads ● Self-enforced ● By department ● Essentially ● By department dean,

self-enforced self-enforced are required to director and dean self-enforced variable enforcement

register once year- among campuses and

Iy faculty members departments

● Minimally by ● By dean outside commitdepartment ments in terms of:

chairman — number of days

● By department spent

— nature of the

relationship

— any significant

financial interest

the faculty

member may

have in the

company

SOURCE: Management Analysis Center, Inc., “Study of University/Industry Relationships in Biotechnology,” contract report prepared for the Office of Technology Assessment, U.S. Congress, January 19S3; and

P.R. Lee, W. Levinson, L.H. Butler, et al., “industrial-Academic Relationships in Biotechnology at Stanford University, University of California, Berkeley, and University of Callfomia, San Francisco,” contract report prepared for the Office of Technology Assessment, U.S. Congress, July 19S2.
584 Commercial Biotechnology: An International Analysis

Table H-2.—Summary of Selected University Policies on Sponsored Research

Harvard University

(includes Medical School Massachusetts Institute Johns Hopkins University

and Mass. General Hospital) of Technology (includes Medical Schooi)

Patent rights:

● Retained by the university

License:

● Generally nonexclusive encouraged

Publication rfghts:

● Guaranteed

● Sponsor preview

Confidentia//ty:

● No confidentiality of results

Choice of reseach topics:

● Selected by researcher

. Reviewed by department chairman

● Retained by the university

● Generaiiy nonexclusive encouraged

. Guaranteed

. Sponsor preview deferrals up to 30

days

. No confidentiality of results

● Seiected by researcher

● Reviewed by department head

Policy enforcement:

● Review by the department chairman. ● A three-stage approvai process is

Approval by the Committee on Patents utiiized. The stages are:

and Copyright required — review by department head

— review by the Office of Sponsored

Programs

— review by dean or provost

● Required disclosure to dean of faculty

of all personal and remunerative commitments to potentiai industrial

sponsor

Policy development:

● Currently underway at alli faculties ● Centrally deveioped policies already

in existence

● Decentralized development, moving

. Retained by the university

● Generalliy nonexclusive encouraged

. Guaranteed

. Sponsor preview deferrals up to 120

days

● No confidentiality of results

● Seiected by researcher

● Reviewed by committees (by Biosafety

Committee at the Medical School)

● Review by the dean and Office for

Sponsored Research (Office of

Research Administration at the

Medical School)

. Being developed by divisions under

the direction of central administration

toward greater centralization

SOURCE: Management Analysis Center, Inc., “Study of University/Industry Relationships in Biotechnology,” contract repofl prepared for the Office of Technology Assessment, U.S. Congress, January 19S3.
App. H—Selected Aspects of U.S. University/Industry Relationships in Biotechnology . 585

Appendix H references

1,

2.

3.

4.

5.

6.

7.

Broad, W., “Pajaro Dunes: The Search for Consensus, ”

Science 216:155-157, Apr. 9, 1982.

Culliton, B, J., “The Hoechst Department at Mass General, ” Science 216:1200-1203.

Culliton, B. J., “New Bology Foundation Off to a Good

Start,” Science 220:803, 1983.

Executive Office of the President, Office of Management

and Budget, OMB 82-5 Public Affairs Cover Memo for

OMB Circular A-124 (Patents—Small Firms and Nonprofit

Organizations), Washington, D.C., released Feb. 12, 1982.

Experiment Station Committee on Policy, “Genetic Engineering Policy for the State Agricultural Stations, ” November 1981.

Lee, P. R., Levinson, W., Butler, L. H., et al., “IndustrialAcademic Relationships in Biotechnology at Stanford University, University of California, Berkeley, and University of California, San Francisco, ” contract report prepared for the Office of Technology Assessment, US. Congress, July 1982.

Management Analysis Center, Inc., “Study of University/Industry Relationships in Biotechnology, ” contract

report prepared for the Office of Technology Assessment, U.S. Congress, January 1983.

8. Muto, F. T., Cooley, Godward, Castro, Huddleson, and

Tatum, San Francisco, Calif., personal communication,

1982.

9. Pajaro Dunes Conference, press release, Stanford University, March 1982.

10. Socolar, M. J., Comptroller General of the United States,

11

12

13

letter to Congressman Albert Gore, Oct. 16, 1981.

U.S. Congress, House Committee on Science and Technology, University/Industry Cooperation in Biotechnology, hearings before the Subcommittee on Investigations

and Oversight and the Subcommittee on Science, Research and Technology, House Committee on Science and

Technology, U.S. Congress, June 16-17, 1982 (Washington, D.C.: U.S. Government Printing Office, 1982).

U.S. Department of Health and Human Services, National

Institutes of Health, Advisory Committee to the Director, “NIH Cooperative Research Relationships With Industry,” Bethesda, Md., October 1981.

Washington University, St. Louis, Me., news release,

distributed at University/Industry Cooperation in Biotechnology, hearings before the Subcommittee on Investigations and Oversight and the Subcommittee on Science,

Research, and Technology, House Committee on Science

and Technology, U.S. Congress, Washington, D. C., June

16-17, 1982.
—

Appendix I

List of Acronyms and Glossary of Terms

List of acronyms

AAU

AcNPV

ACS

AHF

AIDS

ANDA

ANVAR

ARES

ARS

AT&T

BCr

BGA

BISCT

BMFT

BRL

BTG

CAMR

CCL

CDC

C.F.R.

CNPq

CNRS

CoCom

CODIS

COGENE

CRGO

CSIRO

586

—American Association of Universities

–Autographa californica nuclear poly -

hedrosis virus

—American Cancer Society

-antihemophilic factor

-acquired immune deficiency syndrome

—Abbreviated New Drug Application

—L’Agence Nationale de la Valorisation de

la Recherche; National Agency for the

Funding of Research (France)

–Applied Research Systems (Netherlands)

–Agricultural Research Service (U.S.)

–American Telephone & Telegraph Co.

(U.S.)

—Brazilian cruzeiros

–Bundesgesundheitsamt: Federal Health

Office @. R. G.)

—Biotechnology Institute and Studies Centre Trust (U. K.)

—Bundesministerium ftlr Forschung und

Technologies; Federal Ministry of Science

and Technology @. R. G.)

–Bethesda Research Laboratories (U. S.)

–British Technology Group (U.K. Department of Industry)

-Center for Applied Microbiology and Research (U. K.)

<ommodity Control List (U.S.)

-Centers for Disease Control (U.S.)

-Code of Federal Regulations (U. S.)

-Conselho Nacional de Desenvolvimento

Cientifico e Tecnologico; National Research Council, now known as the

Council for Development of Science and

Technology (Brazil)

-Centre National de la Recherche Scientiflque; National Center for Scientific Research (France)

-Coordinating Committee for MukiLateral Export Controls

<Comite d’Orientation des Industries

Strategiques; Committee for the Organization of Strategic Industries (France)

-Committee on Genetic Experimentation

(international)

-Competitive Research Grants Organization (U.S.)

-Commonwealth Science and Research

Organisation (Australia)

CSRS

DARPA

DECHEMA

DESAT

DFG

DHHS

DM

DNA

DOD

DOE

DSM

EAA

ECUT

EEC

EMBL

EPA

EPC

EPO

ETH

FDA

FFDCA

FIFRA

FINEP

FMD

FRI

F.R.G.

F-rc

GAO

GBF

GE

G.E.

GENBANK

GG

-Cooperative State Research Service

(U.S.)

—Defense Advanced Research Projects

Agency (U.S. Department of Defense)

—Deutsche Gesellschaft ftir Chemisches

Apparatewesen; German Society for

Chemical Engineering @. R. G.)

–Defense Business Advanced Technology

program (U.S. Department of Defense)

—Deutsche Forschungsgemeinschaft; German Research Society (F. R.G.)

—Department of Health and Human Services (U. S.)

—Deutsche mark

-deoxyribonucleic acid

–Department of Defense (U. S.)

–Department of Energy (U.S.)

—Deutsche Sammlung von Mikroorganismen; German Collection of MicroOrganisms (F.R.G.)

–Export Administration Act of 1979 (U.S.)

—Energy Conversion and Utilization Technologies program (U. S.)

–European Economic Community

–European Molecular Biology Laboratory

–Environmental Protection Agency (U.S.)

—European Patent Convention

–European Patent Office (supranational)

—Eidgentissiche Technische Hochschule;

Federal Institute of Technology (Switzerland)

–Food and Drug Administration (U. S.)

—Federal Food, Drug and Cosmetic Act

(Us.)

—Federal Insecticide, Fungicide, and Rodenticide Act U.S.)

—Financiadora de Projetos National Funding Agency for Studies and Projects

(Brazil)

—foot-and-mouth disease

—Fermentation Research Institute (.Japan)

—Federal Republic of Germany

–Federal Trade Commission (U.S.)

-General Accounting Office (U.S.)

-Gesellschaft ftlr Biotechnologische Forschung; Society for Biotechnological Research (l?. R. G.)

-General Electric Corp. (U. S.)

-Guidelines for Examination

-Genetic Sequence Data Bank (U. S.)

–gamma globulin
App. l—List of Acronyms and Glossary of Terms ● 587

GH

GMAG

GRAS

GWB

HBsAg

hCG

HFCS

hGH

hI

HPLC

H.R.

HSA

HSE

HSV

HSV2

IBC

IBM

ICI

Ifn

IMC

IND

Ingene

INSERM

IOCM

IRS

ITC

JAFCO

JDB

JETRO

JITC

LSI

MAbs

MAFF

MCC

MCTL

MEOR

MGH

MGI

–growth hormone

-Genetic Manipulation Advisory Group

(U.K.)

–generally recognized as safe by qualified

experts

-Gesetz gegen Wettbewerbsbeschrankungen; Act Against Restraints of Competition (F.R.G.)

—hepatitis B surface antigen

—human chorionic gonadotropin

–high fructose corn syrup

–human growth hormone

—human insulin

—high-performance liquid chromatography

—House of Representatives (U.S. Congress)

—human serum albumin

–Health and Safety Executive (U. K.)

—herpes simplex virus

–herpes simplex virus type 2

—Institutional Biosafety Committee

—International Business Machines Corp.

(U. S.)

–Imperial Chemical Industries (U.K.)

—interferon

—International Minerals & Chemicals

Corp. (U. K.)

—Notice of Claimed Investigational Exemption for a New Drug

—International Genetic Engineering, Inc.

(us.)

—Institut National de la Sante et de la

Recherche Medicale; National Institute

of Health and Medical Research (France)

—Interkantonale Kontrollstelle ftir

Heilmittel: Intercantonal Office for the

Control of Medicaments (Switzerland)

–Internal Revenue Service (U. S.)

—International Trade Commission (U. S.)

—Japan Associated Finance Corporation

—Japan Development Bank

—Japan External Trade Organization

–Japanese Fair Trade Commission (Japan)

—Large-Scale Integration

—monoclinal antibodies

—Ministry of Agriculture, Forestry, and

Fisheries (Japan)

–Microelectronics Computer Corp. (U. S.)

—Militarily Critical Technologies List (U.S.

Department of Defense)

—microbial enhanced oil recovery

—Massachusetts General Hospital

–Molecular Genetics, Inc. (U. S.)

MIT

MITI

MOF

MRC

mRNA

MS

MSG

MSH

MSI

NAS

NASA

NBFs

NCDRH

NCI

NDA

NIBSC

NIH

NIOSH

NLG

NRC

NSF

NYU

OECD

OMB

OSHA

OSRD

OSTP

OTA

PAL

PEPCase

P m

PMA

PTo

PVPA

RAc

R&D

rDNA

Ri

RuBPCase

SAES

SBA

—Massachusetts Institute of Technology

—Ministry of International Trade and industry (Japan)

—Ministry of Finance (Japan)

–Medical Research Council (U. K.)

—messenger RNA

—multiple sclerosis

—monosodium glutamate

—melanoycte-stimulating hormone

—Medium-Scale Integration

–National Academy of Sciences (U. S.)

—National Aeronautics and Space Administration (U. S.)

—new biotechnology firms

—National Center for Devices and Radiologic Health (U. S.)

–National Cancer Institute (U. S.)

—New Drug Application

—National Institute of Biological Standards

and Controls (U. K.)

–National Institutes of Health (U. S.)

—National Institute for Occupational Safety and Health (U. S.)

–Netherlands guilder

–National Research Council (Canada)

—National Science Foundation (U. S.)

—New York University

-Organisation for Economic Co-Operation and Development

-Office of Management and Budget (U. S.)

-Occupational Safety and Health Administration (U. S.)

-Office of Scientific Research and

Development (U. S.)

-Office of Science and Technology Policy

(Executive Office of the President, U.S.)

Office of Technology Assessment (U.S.)

—phenylalanine ammonia Iyase

–phosphoenol pyruvate carboxylase

—polyhydroxybutyrate

—Pharmaceutical Manufacturers Association (U. S.)

–Patent and Trademark Office (U. S.)

–Plant Variety Protection Act of 1970

(Us.)

—Recombinant DNA Advisory Committee

(Us.)

—research and development

—recombinant DNA

—root-inducing

—ribulose bisphosphate carboxylase

—State Agricultural Experiment Stations

(Us.)

–Small Business Administration (US.)
588 ● Commercial Biotechnology An International Analysis

SBF

SBIC

SBIR

SCP

SERC

SFr

SNDA

SOCal

SRBCS

STA

STU

TDC

T-DNA

THMs

Ti

tPA

TRP

TSCA

UCLA

UCRDO

UCSD

UCSF

U.K.

UPOV

U.s.c.

USDA

USM

UWG

VLSI

Voc s

VST Act

WARF

WFG

WHO

–Stiftelsen Bioteknisk Forksning; Biotechnology Research Foundation (Sweden)

—Small Business Investment Corporation

—Small Business Innovation Research

—single-cell protein

—Science and Economic Research Council (U.K.)

—Swiss francs

—Supplemental New Drug Application

—Standard Oil of California

—sheep red blood cells

–Science and Technology Agency (Japan)

—Stryelsen for Teknisk Utveckling; National Swedish Board for Technical Development

—Technical Development Corporation

(U.K.)

–transferred-DNA

—trihalomethanes

—tumor-inducing

—tissue plasminogen activator

—tangible research property

–Toxic Substance Control Act (U. S.)

—University of California, Los Angeles

—University Connected Research and Development Organization (Israel)

—University of California, San Diego

—University of California, San Francisco

–United Kingdom

—International Convention for the Protection of New Varieties and Plants

—United States Code

—U.S. Department of Agriculture

–Unlisted Securities Market (U. K.)

-Gesetz gegen den unlauteren wettbewerb; Unfair Competition Law of 1909

(F.R.G.)

—Very-Large Scale Integration

—volatile organic compounds

–Virus, Serum, Toxin Act of 1913 (U.S.)

—Wisconsin Alumni Research Fund

—Deutsche Wagnisfinanzierungs-Gesellschaft; Risk Financing Society (F. R.G.)

—world Health Organization

Glossary of terms

Accession In biotechnology, the addition of germplasm deposits to existing germplasm storage banks.

Acclimatization The biological process whereby an

organism adapts to a new environment. Describes

process of developing microorganisms that degrade

toxic wastes in the environment.

Active immunity Disease resistance in a person or

animal due to antibody production after exposure

to a microbial antigen following disease, inapparent

infection, or inoculation. Active immunity is usually long-lasting. (Compare passive jrnrnunjty.)

Adsorption The taking up of molecules of gases, dissolved substances, or liquids by the surfaces of

solids or liquids with which they are in contact.

Aerobic% Living or acting only in the presence of

oxygen.

Affinity chromatography The use of compounds,

such as antibodies, bound to an immobile matrix to

“capture” other compounds as a highly specific

means of separation and purification.

Amino acid= The building blocks of proteins. There

are 20 common amino acids.

Amino acid sequence The linear order of amino

acids in a protein.

Anaerobic Living or acting in the absence of oxygen.

Antibiotk A spedic type of chemical substance that

is administered to fight infections, usually bacterial

infections, in humans or animals. Many antibiotics

are produced by using microorganisms; others are

produced synthetically.

Antibody A protein (immunoglobulin) produced by

humans or higher animals in response to exposure

to a specific antigen and characterized by specific

reactivity with its complementary antigen. (See also

monoclinal antibodies. )

Antidumping laws: Laws that prevent a country

from exporting goods to another country and selling those goods below cost or more cheaply than

in the home market. Antidumping duties may be imposed by a country to offset damages sustained from

dumping. In the United States, the antidumping law

most relevant to biotechnology is Section 337 of the

Tariff Act of 1930 (19 US.C. 1337).

Antigem A substance, usually a protein or carbohydrate which, when introduced in the body of a

human or higher animal, stimulates the production

of an antibody that will react specifically with it.

Antihemophilic factor (AHF): The fraction of

whole blood that contains blood clotting agents. AI-IF

is used to treat hemophilia, a set of hereditary

disorders that prevent blood clotting.

Antimicrobial agenti See antibiotic.

Antiserum Blood serum containing antibodies from

animals that have been inoculated with an antigen.

When administered to other animals or humans,

antiserum produces passive immunity.

Applied research Research to gain knowledge or

understanding necessary for determining the means

by which a recognized and specit3c need maybe met

(National Science Foundation definition). (See also

generic applied research.)

Aromatic compound: A compound containing a

benzene ring. Many specialty and commodity

chemicals are aromatic compounds.
App. l—List of Acronyms and Glossary of Terms . 589

Ascites: Liquid accumulations in the peritoneal cavity. Used as a method for producing monoclinal

antibodies.

Assay A technique that measures a biological

response.

Attenuated vaccine Whole, pathogenic organisms

that are treated with chemical, radioactive, or other

means to render them incapable of producing infection. Attenuated vaccines are injected into the

body, which then produces protective antibodies

against the pathogen to protect against disease.

Autotrophic: Capable of self-nourishment (opposed

to heterotrophic).

Bacillus subtilis @3. subtilis): An aerobic bacterium used as a host in rDNA experiments.

Bacteria: Any of a large group of microscopic

organisms having round, rodlike, spiral, or filamentous unicellular or noncellular bodies that are often

aggregated into colonies, are enclosed by a cell wall

or membrane, and lack fully differentiated nuclei.

Bacteria may exist as free-living organisms in soil,

water, organic matter, or as parasites in the live

bodies of plants and animals.

Bacteriophage (or phage)/bacterial virus: A

virus that multiplies in bacteria. Bacteriophage

lambda is commonly used as a vector in rDNA experiments.

Basic research: Research to gain fuller knowledge

or understanding of the fundamental aspects of

phenomena and of observable facts without specific

applications toward processes or products in mind

(National Science Foundation definition).

Batch processing: A method of bioprocessing in

which a bioreactor is loaded with raw materials and

microaganisms, and the process is run to completion, at which time products are removed. (Compare

continuous processing. )

Betaendorphin: A neuro-active polypeptide with

analgesic properties similar to opiate compounds

such as morphine.

Biocatalyst: An enzyme that plays a fundamental

role in living organisms or industrially by activating

or accelerating a process.

Biochemical Characterized by, produced by, or involving chemical reactions in living organisms; a

product produced by chemical reactions in living

organisms.

Biochip: An electronic device that uses biological

molecules as the framework for molecules that act

as semiconductors and functions as an integrated

circuit.

Bioconversiom A chemical conversion using a

biocatalyst.

Biodegradation: The breakdown of substances by

Biological oxygen demand (BOD): The oxygen

used in meeting the metabolic needs of aerobic organisms in water containing organic compounds.

Biological response modifer: Generic term for

hormones, neuroactive compounds, and immunoactive compounds that act at the cellular level; many

are possible targets for production with biotechnology.

Biological warfare agents: Biological products or

processes that are determined to be useful in

military applications and whose export is restricted

for national security reasons.

Biologics: Vaccines, therapeutic serums, toxoids,

antitoxins, and analogous biological products used

to induce immunity to infectious diseases or harmful substances of biological origin.

Biomass: All organic matter that grows by the

photosynthetic conversion of solar energy.

Biooxidation: Oxidation (the loss of electrons)

catalyzed by a biocatalyst.

Biopolymers: Naturally occurring macromolecules

- that include proteins, nucleic acids, and

polysaccharides.

Bioprocess Any process that uses complete living

cells or their components (e.g., enzymes,

chloroplasts) to effect desired physical or chemical

changes.

BioreactoR: Vessel in which a bioprocess takes place.

Biosensor: An electronic device that uses biological

molecules to detect specific compounds.

Biosurfactant: A compound produced by living

organisms that helps solubilize compounds such as

organic molecules (e.g., oil and tar) by reducing surface tension between the compound and liquid.

Biosynthesis Production, by synthesis or degradation, of a chemical compound by a living organism.

Biotechnology Commercial techniques that use living organisms, or substances from those organisms,

to make or modify a product, and including techniques used for the improvement of the characteristics of economically important plants and animals

and for the development of microorganisms to act

on the environment. In this report, biotechnology

is used to mean “new” biotechnology, which only

includes the use of novel biological techniques—

specifically, recombinant DNA techniques, cell fusion techniques, especially for the production of

monoclinal antibodies, and new bioprocesses for

commercial production.

Callus An undifferentiated cluster of plant cells that

is a first step in regeneration of plants from tissue

culture.

Capacito~ A device that consists of two conductors

insulated from each other by a dielectric. A capaci -
590 Commercial Biotetinology: An International Analysis

current, and introduces alternating current into a

circuit.

Carboxylatiom The addition of an organic acid

group (COOH) to a molecule.

Catalysi= A modification, especially an increase, in

the rate of a chemical reaction induced by a material

(e.g., enzyme) that is chemically unchanged at the

end of the reaction.

Catalysfi A substance that induces catalysis; an agent

that enables a chemical reaction to proceed under

milder conditions (e.g., at a lower temperature) than

otherwise possible. Biological catalysts are enzymes;

some nonbiological catalysts include metallic complexes.

Gelk The smallest structural unit of living matter

capable of functioning independently; a microscopic

mass of protoplasm surrounded by a semipermeable

membrane, usually including one or more nuclei

and various nonliving products, capable alone, or

interacting with other cells, of performing all the

fundamental functions of life.

Cell culture The in vitro growth of cells isolated

from multicellular organisms. These cells are usually

of one type.

Cell differentiation The process whereby descendants of a common parental cell achieve and maintain specialization of structure and function.

Cell fusion: Formation of a single hybrid cell with

nuclei and cytoplasm from different cells.

Cell line Cells that acquire the ability to multiply indefinitely in vitro.

Cellulase: The enzyme that digests cellulose to

sugars.

Cellulose: A polymer of six-carbon sugars found in

all plant matter; the most abundant biological compound on earth.

Centrifugc: A machine for whirling fluids rapidly to

separate substances of different densities by centrifugal force; also, to whirl in a centrifuge.

Chakrabarty decision: Diamond v. Chakrabarty,

U.S. Department of Commerce, PTA, sec. 2105,

1980; landmark case in which U.S. Supreme Court

majority held that the inventor of a new microorganism, whose invention otherwise met the legal

requirements for obtaining a patent, could not be

denied a patent solely because the invention was

alive,

Chemostat selectiom Screening process used to

identify micro-organisms with desired properties,

such as micro-organisms that degrade toxic chemicals. (See also acclimatization,)

Chloroplastcx Cellular organelles where photosynthesis occurs.

Chromatography A process of separating gases, liquids, or solids in a mixture or solution by adsorption as the mixture or solution flows over the absorbent medium, often in a column. The substances

are separated because of their differing chemical

interaction with the absorbent medium.

Chromosomeex The rodlike structures of a cell’s

nucleus that store and transmit genetic information;

the physical structure that contain genes.

Chromosomes are composed mostly of DNA and

protein and contain most of the cell’s DNA. Each

species has a characteristic number of chromosomes.

Clinical triak One of the final stages in the collection of data for drug approval where the drug is

tested in humans.

Clone A group of genetically identical cells or organisms produced asexually from a common ancestor.

Cloning The amplification of segments of DNA,

usually genes.

Coding sequence% The region of a gene (DNA) that

encodes the amino acid sequence of a protein.

Cofactom Additional molecules needed for enzymatic function.

Colibacillosis A bacterial disease that causes diarrhea, dehydration, and death in calves and piglets,

Commodity chemical=sChemicals produced in

large volumes that sell for less than $1 per pound

(500 per kg). (Compare specialty chemicals.)

Commodity controls list (CCL): Large roster of

items that have been identified under the Export

Administration Act by the U.S. Department of Commerce to require a “validated license” before they

can be exported to certain countries.

Complementary DNA (cDNA): DNA that is complementary to messenger RNA; used for cloning or

as a probe in DNA hybridization studies.

Compulsory licensing: Laws that require the licensing of patents, presumably to ensure early application of a technology and to diffuse control over

a technology.

Continuous processing: Method of bioprocessing

in which raw materials are supplied and products

are removed continuously, at volumetrically equal

rates. (Compare batch processing.)

Corn wet milliqp The processing of corn, including

hydrolysis of starch, to yield products used for food

and chemicals.

Cosmid: A DNA cloning vector consisting of plasmid

and phage sequences.

Countervailing duties Duties charged to importers when their product is determined to cause or

threaten material injury to domestic industries producing similar products.

Corporate venture capitak Capital provided by
App. l—List of Acronyms and Glossary of Terms ● 591

major corporations exclusively for high-risk invest -

ments.

Culture deposits: See accession.

Culture medium: Any nutrient system for the artificial cultivation of bacteria or other cells; usually

a complex mixture of organic and inorganic materials.

Cytoplasm The “liquid” portion of a cell outside and

surrounding the nucleus.

Cytotoxic: Damaging to cells.

Debt financing: The use of outside or borrowed

capital to finance business activities.

Deoxyribonucleic acid (DNA): A linear polymer,

made up of deoxyribonucleotide repeating units,

that is the carrier of genetic information; present

in chromosomes and chromosomal material of cell

organelles such as mitochondria and chloroplasts,

and also present in some viruses. The genetic material found in all living organisms. Every inherited

characteristic has its origin somewhere in the code

of each individual’s DNA,

Deposit requirement= Patent requirements for inventors to turn over at the time of patent application a sample of the invention which is maintained

throughout the life of the patent.

Diagnostic products Products that recognize molecules associated with disease or other biologic conditions and are used to diagnose these conditions,

Dicots (dicotyledons): Plants with two first embryonic leaves and nonparallel veined mature leaves.

Examples are soybean and most flowering plants.

Disclosure requirements: A patent requirement

for adequate public disclosure of an invention that

enables other people to build and use the invention

without “undue” experimentation.

DNA: Deoxyribonucleic acid.

DNA base pahz A pair of DNA nucleotide bases.

Nucleotide bases pair across the double helix in a

very specific way: adenine can only pair with thymine; cytosine can only pair with guanine.

DNA probcz A sequence of DNA that is used to detect

the presence of a particular nucleotide sequence.

DNA sequenc= The order of nucleotide bases in the

DNA helix; the DNA sequence is essential to the

storage of genetic information.

DNA synthesis The synthesis of DNA in the laboratory by the sequential addition of nucleotide bases.

Downstream processhqp After bioconversion, the

purification and separation of the product.

Drug: Any chemical compound that may be administered to humans or animals as an aid in the treatment of disease.

Elution: The removal of adsorbed material from an

adsorbent, such as the removal of a product from

an enzyme bound on a column.

Emulsification The process of making lipids soluble in water.

Enablement requirement A patent requirement

for adequate public disclosure of an invention,

enabling others in the relevant field of technology

to build and use the invention.

Endorphin& Opiate-like, naturally occurring peptides with a variety of analgesic effects throughout

the endocrine and nervous systems,

Enkephalins Small, opiate-like peptides with analgesic effects in the brain.

Enzynm Any of a group of catalytic proteins that are

produced by living cells and that mediate and promote the chemical processes of life without themselves being altered or destroyed,

Equity capitak Capital proceeds arising from the sale

of company stock.

Equity investment: An investment made in a company in exchange for a part ownership in that

company.

Escherichia colJ(E cd): A species of bacteria that

inhabits the intestinal tract of most vertebrates.

Some strains are pathogenic to humans and animals.

Many nonpathogenic strains are used experimentally as hosts for rDNA.

Eukaryote A cell or organism with membranebound, structurally discrete nuclei and welldeveloped cell organelles. Eukaryotes include all

organisms except viruses, bacteria, and blue-green

algae. (Compare prokaryote,)

Export controhx Laws that restrict technology

transfer and trade for reasons of national security,

foreign policy, or economic policy.

Fatty acids Organic acids with long carbon chains.

Fatty acids are abundant in cell membranes and are

widely used as industrial emulsifiers.

Feedstocks Raw materials used for the production

of chemicals.

Fermentation An anaerobic bioprocess. Fermentation is used in various industrial processes for the

manufacture of products such as alcohols, acids, and

cheese by the action of yeasts, molds, and bacteria.

Fibrinolytic agents: Blood-borne compounds that

activate fibrin in order to dissolve blood clots.

Flocculating agent: A reagent added to a dispersion of solids in a liquid to bring together the fine

particles into larger masses.

Food additive (or food ingredient): A substance

that becomes a component of food or affects the

characteristics of food and, as such, is regulated by

the U.S. Food and Drug Administration.
592 . Commercial Biotechnology: An International Analysis

Foot-and-mouth disease A highly contagious virus

disease of cattle, pigs, sheep, and goats that is

characterized by fever, salivation, and formation of

vesicles in the mouth, pharynx and on the feet and

is transmissible to humans.

Fractionation (of blood): Separation of blood by

centrifugation, resulting in components sold as

plasma, serum albumin, antihemophilic factor, and

other products.

Freeliving organisrm An organism that does not

depend on other organisms for survival.

Fungus: Any of a major group of saprophytic and

parasitic plants that lack chlorophyll, including

molds, rusts, mildews, smuts, and mushrooms.

Gamma globulin (GG): A protein component of

blood that contains antibodies and confers passive

immunity.

Gen~ The basic unit of heredity; an ordered sequence

of nucleotide bases, comprising a segment of DNA.

A gene contains the sequence of DNA that encodes

one polypeptide chain (via RNA).

Gene amplification In biotechnology, an increase

in gene number for a certain protein so that the protein is produced at elevated levels.

Gene expression The mechanism whereby the genetic directions in any particular cell are decoded

and processed into the final functioning product,

usually a protein. See also transcription and

translation.

Generic applied research Research along the continuum between the two poles of basic and applied.

This research may be characterized as follows: 1)

it is not committed to open+mded expansion of

knowledge as university basic research typically is

but is less specific (more widely applicable or “generic”) than the typical industrial product or process development effort; 2) it has more welldefined

objectives than basic research but is long term relative to product and process development; and 3) it

is high risk, in the sense that the stated objectives

may fail and the resources committed may be lost

for practical purposes.

Gene transfen The use of genetic or physical manipulation to introduce foreign genes into host cells

to achieve desired characteristics in progeny.

Genom= The genetic endowment of an organism or

individual.

Genus A taxonomic category that includes groups

of closely related species.

Germ celk The male and female reproductive cells;

egg and sperm.

Germplasnx The total genetic variability available

to a species.

Glycoproteintx Proteins with attached sugar groups.

Glucose A 6-carbon sugar molecule used as a basic

energy source by the cells of most organisms.

Glycosylatiom The attachment of sugar groups to

a molecule, such as a protein.

Government procurement: The acquisition by a

government of goods or services. Government procurement may stimulate development of technology.

Growth hormone (GH): A group of peptides involved in regulating growth in higher animals.

Helminth: Parasitic worm.

Herbicide An agent (e.g., a chemical) used to destroy

or inhibit plant growth; speciilcally, a selective weed

killer that is not injurious to crop plants,

High performance liquid chromatography

(HPLC): A recently developed type of chromatography that is potentially important in downstream

processing.

Hormone A chemical messenger found in the circulation of higher organisms that transmits regulatory messages to cells.

Hosti A cell whose metabolism is used for growth and

reproduction of a virus, plasmid, or other form of

foreign DNA.

Host-vector system Compatible combinations of

host (e.g., bacterium) and vector (e.g., plasmid) that

allow stable introduction of foreign DNA into cells.

Human chorionic gonadotropin (HCG): A hormone produced by human placenta, indicating pregnancy; widespread target of MAb developers to

diagnose pregnancy at an early stage.

Human insulin (hI): Hormone that stimulates cell

growth via glucose uptake by cells. Insulin deficiency leads to diabetes.

Human serum albumin (HSA): Abundant protein

in human blood; as a product, used in highest quantities in medicine, primarily in burn, trauma, and

shock patients.

Hybrid: The offspring genetically dissimilar parents

(e.g., a new variety of plant or animal that results

from cross-breeding two different existing varieties,

a cell derived from two different cultured cell lines

that have fused).

Hybridization The act or process of producing

hybrids.
App. I—List of Acronyms and Glossary of Terms 593

Hybridomm Product of fusion between myeloma cell

(which divides continuously in culture and is “immortal”) and lymphocyte (antibody-producing cell);

the resulting cell grows in culture and produces

monoclinal antibodies.

Hybridoma technology See monoclinal antibody

technology.

Hydrolysis Chemical reaction involving addition of

water to break bonds.

Hydroxylatiom Chemical reaction involving addition

of hydroxyl (-OH) group to chemical compound.

Immobilized enzyme or cell techniques Techniques used for the fixation of enzymes or cells onto

solid supports. Immobilized cells and enzymes are

used in continuous bioprocessing.

Immune response The reaction of an organism to

invasion by a foreign substance. Immune responses

are often complex, and may involve the production

of antibodies from special cells (lymphocytes), as

well as the removal of the foreign substance by

other cells.

Immunoassay The use of antibodies to identify and

quantify substances. The binding of antibodies to

antigen, the substance being measured, is often

followed by tracers such as radioisotopes.

Immunogenic Capable of causing an immune response. (See also antigen. )

Immunotoxin: A molecule attached to an antibody

capable of killing cells that display the antigen to

which the antibody binds.

Interferon (Ifns): A class of glycoproteins (proteins

with sugar groups attached at specific locations) important in immune function and thought to inhibit

viral infections.

In vitro: Literally, in glass; pertaining to a biological

reaction taking place in an artificial apparatus;

sometimes used to include the growth of cells from

multicellular organisms under cell culture conditions. In vitro diagnostic products are products used

to diagnose disease outside of the body after a sample has been taken from the body,

In vivo: Literally, in life; pertaining to a biological

reaction taking place in a living cell or organism.

In vivo products are products used within the body.

Joint venture Form of association of separate business entities which falls short of a formal merger

but unites certain agreed on resources of each entity for a limited purpose; in practice most joint ventures are partnerships.

Leaching: The removal of a soluble compound such

as an ore from a solid mixture by washing or

percolating.

Li@in: A major component of wood.

Lignocellulose The composition of woody biomass,

including lignin and cellulose.

Lignolytic Pertaining to the breakdown of lignin.

Linke~ A small fragment of synthetic DNA that has

a restriction site useful for gene cloning, which is

used for joining DNA strands together.

Lipid= A large, varied class of water-insoluble

organic molecules; includes steroids, fatty acids,

prostaglandins, terpenes, and waxes.

Liposome transfe~ The process of enclosing biological compounds inside a lipid membrane and

allowing the complex to be taken up by a cell.

Lymphocytetw Specialized white blood cells involved

in the immune response; B lymphocytes produce

antibodies.

Lymphokine~ Proteins that mediate interactions

among lymphocytes and are vital to proper immune

function.

Medical device: An instrument or apparatus (including an in vitro reagent such as MAbs) intended

for use in the diagnosis or treatment of a disease

or other condition and which does not achieve its

intended purpose through chemical action within

or on the body.

Messenger RNA (mRNA): RNA that serves as the

template for protein synthesis; it carries the transcribed genetic code from the DNA to the protein

synthesizing complex to direct protein synthesis,

Metabolism: The physical and chemical processes

by which foodstuffs are synthesized into complex

elements, complex substances are transformed into

simple ones, and energy is made available for use

by an organism.

Metabolitcx A product of metabolism.

Metallothioneins: Proteins, found in higher organisms, that have a high affinity for heavy metals.

Methanogens: Bacteria that produce methane as a

metabolic product.

Mic~o~anismw Microscopic living entities; microorganisms can be viruses, prokaryotes (e.g.,

bacteria), or eukaryotes (e.g., fungi).

Microencapsulatiom The process of surrounding

cells with a permeable membrane.

Mixed culture: Culture containing two or more

types of microorganisms.

Moleculcx A group of atoms held together by

chemical forces; the smallest unit of matter which

can exist by itself and retain its chemical identity.

Monoclinal antibodies (MAbs): Homogeneous antibodies derived from a single clone of cells; MAbs

recognize only one chemical structure. MAbs are

useful in a variety of industrial and medical

capacities since they are easily produced in 1arge

quantities and have remarkable specificity.

Monoclinal antibody technology The use of hy -

bridomas that produce monoclinal antibodies for

a variety of purposes. Hybridomas are maintained
594 . Commercial Biotechnology An International Analysis

in cell culture or, on a larger scale, as tumors

(ascites) in mice.

MonoCots (monocotyledons): Plants with single

first embryonic leaves, parallel-veined leaves, and

simple stems and roots. Examples are cereal grains

such as corn, wheat, rye, barley, and rice.

Multigeni~ A trait specified by several genes.

Mutagenesicx The induction of mutation in the genetic material of an organism; researchers may use

physical or chemical means to cause mutations that

improve the production of capabilities of organsims.

Mutagem An agent that causes mutation.

Mutant: An organism with one or more DNA mutations, making its genetic function or structure different from that of a corresponding wild-type

organism.

Mutatiom A permanent change in a DNA sequence.

Myelom= Antibody-producing tumor cells.

Myeloma cell lin= Myeloma cells established in

culture.

Neumtrammittemx Small molecules found at nerve

junctions that transmit signals across those

junctions.

New biotechnology firm (NBF): A company

formed after 1976 whose sole function is research,

development, and production using biotechnological

means.

NIH Guidelineex Guidelines established by U.S. National Institutes of Health to regulate the safety of

NIH-funded research involving recombinant DNA.

Nitrate A compound characterized by a NO,-group.

Sodium nitrate and potassium nitrate are used as

fertilizers.

Nitrogen fixatiom The conversion of atmospheric

nitrogen gas to a chemically combined form, ammonia (NH~) which is essential to growth. Only a

limited number of microorganisms can fix nitrogen.

Nodukz The anatomical part of a plant root in which

nitrogen-fixing bacteria are maintained in a symbiotic relationship with the plant.

Nodulinw Proteins, possibly enzymes, present in

nodules; function unknown.

Nontariff trade barrien A government regulation,

other than a tariff (see below), that directly alters

the volume or composition of international trade.

Examples include quotas (restrictions on the quantity of goods imported), orderly marketing agreements (by which exporters agree to restrict the

volume of goods exported), exchange controls

(which constrain the value of foreign exchange

spent rather than the number of units purchased),

government preferences in purchases, and standards and certification systems.

Nucleic acid= Macromolecules composed of sequences of nucleotide bases. There are two kinds

of nucleic acids: DNA, which contains the sugar deoxyribose, and RNA, which contains the sugar

ribose.

Nucleotide ba~ A structural unit of nucleic acid.

The bases present in DNA are adenine, cytosine,

guanine, and thymine. In RNA, uracil substitutes for

thymine.

Nucleu~ A relatively large spherical body inside a

cell that contains the chromosomes.

Oligonucleotide~ Short segments of DNA or RNA.

Organelhx A specialized part of a cell that conducts

certain functions, Examples are nuclei, chloroplasts,

and mitochrondria, which contain most of the genetic material, conduct photosynthesis, and provide

energy, respectively.

Organic compoundtx Molecules that contain

carbon.

Organic micmpollutanti Low molecular weight

organic compounds considered hazardous to

humans or the environment.

Passive immunity Disease resistance in a person

or animal due to the injection of antibodies from

another person or animal. Passive immunity is

usually short-lasting. (Compare acti”ve immum”ty. )

Patent: A limited property right granted to inventors

by government allowing the inventor of a new invention the right to exclude all others from making, using, or selling the invention unless specifically

approved by the inventor, for a specified time

period in return for full disclosure by the inventor

about the invention.

Pathogem A disease-producing agent, usually

restricted to a living agent such as a bacterium or

virus.

Peptide A linear polymer of amino acids. A polymer

of numerous amino acids is called a pdypptide.

Polypeptides may be grouped by function, such as

“neuroactive” polypeptides.

pH: A measure of the acidity or basicity of a solution

on a scale of O (acidic) to 14 (basic). For example,

lemon juice has a pi-i of 2,2 (acidic), water has a pH

of 7.o (neutral), and a solution of baking soda has

a pH of 8.5 (basic).

Pharmaceutical= Products intended for use in

humans, as well as in vitro applications to humans,

including drugs, vaccines, diagnostics, and biological

response modifiers.

Photorespiratiom Reaction in plants that competes

with the photosynthetic process. Instead of fixing

CO,, RuBPCase can utilize oxygen, which results in

a net loss of fixed COZ.
App. /—List of Acronyms and Glossary of Terms 595

Photosynthesis The reaction carried out by plants

where carbon dioxide from the atmosphere is fixed

into sugars in in the presence of sunlight; the

transformation of solar energy into biological

energy.

Plant Patent Act of 1930 (35 U.S.C. ~5161-164):

Confers exclusive license on developer of new and

distinct asexually produced varieties other than

tuber-propagated plants for 17 years.

Plant Variety Protection Act of 1970 (7 U.S.C.

$2321): Provides patent-like protection to new plants

reproduced sexually.

Plasmw The liquid (noncellular) fraction of blood. In

vertebrates, it contains many important proteins

(e.g., fibrinogen, responsible for clotting).

Plasmkb An extrachromosomal, self-replicating, circular segment of DNA; plasmids (and some viruses)

are used as “vectors” for cloning DNA in bacterial

“host” cells.

Polyme~ A linear or branched molecule of repeating

subunits.

Polypeptide A long peptide, which consists of amino

acids.

Polysaccharid~ A polymer of sugars.

Prior ak Publicly known technology; patent requirements include the demonstration of the novelty of

an invention, as distinguished from prior art.

Probtz See DNA probe.

Proinsulim A precursor protein of insulin.

Prokaryot~ A cell or organism lacking membranebound, structurally discreet nuclei and organelles.

Prokaryotes include bacteria and the blue-green

algae. (Compare eukaryote. )

Pmmote~ A DNA sequence in front of a gene that

controls the initiation of “transcription” (see below).

prophylaxis: prevention of disease.

pmteas~ Protein digesting enzyme.

Protein* A polypeptide consisting of amino acids. In

their biologically active states, proteins function as

catalysts in metabolism and, to some extent, as

structural elements of cells and tissues.

Protoplasm fusiom The joining of two cells in the

laboratory to achieve desired results, such as increased viability of antibiotic-producing cells.

Protozoa: Diverse phylum of eukaryotic microorganisms; structure varies from simple single cells

to colonial forms; nutrition may be phagotropic or

autotrophic; some protozoa are pathogenic.

Pyrogenicit~ The tendency for some bacterial cells

or parts of cells to cause inflammatory reactions in

the body, which may detract from their usefulness

as pharmaceutical products.

Public offering: The Securities and Exchange Commission approved sale of company stock to the

public,

R&D limited partnership: A risk capital source

and tax sheltered mechanism for funding the R&D

of new products. It raises the potential rate of

return to investors without adding extra cost to the

corporation.

Reagenti A substance that takes part in a chemical

reaction.

Recombinant DNA (rDNA): The hybrid DNA produced by joining pieces of DNA from different

organisms together in vitro.

Recombinant DNA technolo~ The use of recombinant DNA for a specific purpose, such as the formation of a product or the study of a gene.

Recombinatiorx Formation of a new association of

genes or DNA sequences from different parental

origins.

Regeneration: The laboratory process of growing

a whole plant from a single cell or small clump of

cells.

Regulatory sequence: A DNA sequence involved

in regulating the expression of a gene.

Replication: The synthesis of new DNA from existing DNA and the formation of new cells by cell

division.

Resistance gene: Gene that provides resistance to

an environmental stress such as an antibiotic or

other chemical compound.

Resiston A device designed to limit electron flow in

an electric circuit by a definite amount, resulting

in a limited current or a voltage drop.

Restriction enzymew Bacterial enzymes that cut

DNA at specific DNA sequences.

Ri-plasmid* Plasmid from Agrobactern”um rhizogenes

used as plant vector.

RNA Ribonucleic acid. (See also messenger RNA. )

RuBPCase (ribulose bisphosphate carboxylase): An enzyme that catalyzes the critical step of

the photosynthetic COZ cycle.

Saccharificatiom The degradation of polysaccharides to sugars.

Scaleup: The transition of a process from an experimental scale to an industrial scale.

Selectiom A laboratory process by which cells or

organisms are chosen for specific characteristics.

Semiconducto~ A material such as silicon or germanium with electrical conductivities intermediate

between good conductors such as copper wire and

insulators such as glass.

Semiconductor devictx An electronic device that

uses a semiconductor to limit or direct the flow of

electrons. Examples are transistors, diodes, and integrated circuits.

Semiconductor industry: Companies that manufacture semiconductor devices. As used in this

report, the description of the semiconductor in-
596 . Comrnercial Biotechnology: An International Analysis

dustry is that deriving from the period between

1947 (discovery of the transistor) to the early 1960’s.

Single cell proteim Cells, or protein extracts, of

microorganisms grown in large quantities for use

as human or animal protein supplements.

Slimew Aggregations of microbial cells that pose environmental and industrial problems; may be

amenable to biologic control,

Sludge Precipitated solid matter produced by water

and sewage treatment or industrial problems; may

be amenable to biologic control.

Small Business Investment Corporation s

(SBICS): private companies licensed by the Small

Business Association (SBA) and owned by stockholders who have made investments in exchange for

equity. SBICS are required by SBA to invest or loan

money exclusively to U.S. small businesses.

somaclonal variatiom Genetic variation produced

from the culture of plant cells from a pure breeding

strain; the source of the variation is not known.

Specialty chemicals Chemicals, usually produced

in small volumes, that sell for more than $1 per

pound (50c per kg). (Compare commodity

chem”cals. )

Speciecx A taxonomic subdivision of a genus. A group

of closely related, morphologically similar individuals which actually or potentially interbreed.

Spectmmetem An instrument used for analyzing the

structure of compounds on the basis of their lightabsorbing properties.

Starch A polymer of glucose molecules used by some

organisms as a means of energy storage; starch is

broken down by enzymes (amylases) to yield

glucose, which can be used as a feedstock for

chemical or energy production.

Startup financing: Financing usually supplied by

venture capitalist to fund the early R&D, production, sale of a new company’s products.

Steroid: A group of organic compounds, some of

which act as hormones to stimulate cell growth in

higher animals and humans.

Storage protein genes: Genes coding for the major proteins found in plant seeds.

Strairu A group of organisms of the same species having distinctive characteristics but not usually considered a separate breed or variety. A genetically

homogeneous population of organisms at a subspecies level that can be differentiated by a biochemical,

pathogenic, or other taxonomic feature.

subsidy: A government intervention in the form of

either grants, loans, or tax preferences that are

directed to a particular domestic industry.

Substrate: A substance acted upon, for example, by

an enzyme.

Subunit vaccine A vaccine that contains only portions of a surface molecule of a pathogen. Subunit

vaccines can be prepared by using rDNA technology

to produce all or part of the surface protein molecule or by artificial (chemical) synthesis of short

peptides.

symbionfi An organism living in symbiosis, usually

the smaller member of a symbiotic pair of dissimilar

size.

Symbiosis The living together of two dissimilar

organisms in mutually beneficial relationships.

Tariff: Charges levied on importers of a particular

good by a government in return for granting access

to the government’s domestic markets, which may

occur at the expense of domestic industry; sometimes high tariffs are used to discourage importation and protect domestic industry.

T-DNA Transfer DNA; that part of Ri or Ti plasmids

that is transferred to the plant chromosome.

Technology transfe~ The movement of technical

information and/or materials, used for producing

a product or process, from one sector to another;

most often refers to flow of information between

public and private sectors or between countries.

Therapeutic= Pharmaceutical products used in the

treatment of disease.

Thermophili~ Heat loving. Usually refers to microorganisms that are capable of surviving at elevated

temperatures; this capability may make them more

compatible with industrial biotechnology schemes.

Thmmbolytic enzymes: Enzymes such as streptokinase and urokinase that initiate the dissolution

of blood clots.

Thrombosis: Blockage of blood vessels.

Ti plasmid: Plasmid from Agrobacterium tumefaciens used as a plant vector.

Totipotency The capacity of a higher organism cell

to differentiate into an entire organism. A totipotent cell contains all the genetic information

necessary for complete development.

Toxicity The ability of a substance to produce a

harmful effect on an organism by physical contact,

ingestion, or inhalation.

Toxim A substance, produced in some cases by diseasemausing micro-organisms, which is toxic to

other living organisms.

Toxoid” Detoxified toxin, but with antigenic properties intact.

Trade secreti An invention used continuously by its

holder in his or her business to maintain a competitive edge over other competitors who do not

know or use it. Trade secrets are often used instead

of patents to protect production information.

Transcription The synthesis of messenger RNA on
App. l—List of Acronyms and Glossary of Terms . 597

a DNA template; the resulting RNA sequence is complementary to the DNA sequence. This is the first

step in gene expression. (See also translation.)

Transformation The introduction of new genetic

information into a cell using naked DNA.

Transistor An active component of an electrical circuit consisting of semiconductor material to which

at least three electrical contacts are made so that

it acts as an amplifier, detector, or switch.

Translation: The process in which the genetic code

contained in the nucleotide base sequence of

messenger RNA directs the synthesis of a specific

order of amino acids to produce a protein. This is

the second step in gene expression. (See also transcription. )

Transposable element: Segment of DNA which

moves from one location to another among o r

within chromosomes in possibly a predetermined

fashion, causing genetic change; may be useful as

a vector for manipulating DNA.

Trihalomethanes (THMs): Organic micropollutants

and potential carcinogens, consisting of three halide

elements attached to a single carbon atom; their

destruction during water purification may be done

biologically.

Turbid: Thick or opaque with matter in suspension.

Vaccine A suspension of attenuated or killed bacteria

or viruses, or portions thereof, injected to produce

active immunity. (See also subunit vaccine.)

Vecto~ DNA molecule used to introduce foreign DNA

into host cells. Vectors include plasmids, bacteriophages (virus), and other forms of DNA. A vector

must be capable of replicating autonomously and

must have cloning sites for the introduction of

foreign DNA.

Venture capital (venture capital funds): Money

that is invested in companies with which a high level

of risk is associated.

Viruw Any of a large group of submicroscopic agents

infecting plants, animals, and bacteria and unable

to reproduce outside the tissues of the host. A fully

formed virus consists of nucleic acid (DNA or RNA)

surrounded by a protein or protein and lipid coat.

Viscosity A measure of a liquid’s resistance to flow.

Volatile organic compounds (VOCS): Group of

toxic compounds found in ground water and that

pose environmental hazards; their destruction during water purification may be done biologically.

Wild-type: The most frequently encountered phenotype in natural breeding populations.

Yeas& A fungus of the family Saccharomycetacea that

is used especially in the making of alcoholic liquors

and as leavening in baking. Yeast are also commonly used in bioprocesses.

25-56 I O - 84 - 39
Appendix J

Currency Conversion Factors

The following is a list of conversion factors for cur- 1 dollar = 6.2826 Swedish kroner (Skr)

rencies from the countries studied in the report. All 1 dollar = 2.67021 Netherlands guilder (NLG)

figures are averages from calendar year 1982 and 1 dollar = 2.4266 German marks 03M) were provided by the International Monetary Fund.

1 dollar = 249.05 Japanese yen (=) 1 dollar = 2.0303 Swiss francs (SWF)

1 dollar = 179.51 Brazilian cruzeiros (BCr) 1 dollar = 1.23370 Canadian dollars ($0

1 dollar = 24.267 Israeli shekels (IS) 1 dollar = 0.98586 Australian dollars ($A)

1 dollar = 6.5724 French francs (F) 1 dollar = 0.5i’13 British Pounds (1)

598
Appendix K

Other Contractors, Contributors,

and Acknowledgments

Other contractors Acknowledgments

Robert Barker Lynne Alexander

Cornell University Office of Technology Assessment

Ithaca, N.Y.

Keith Gibson

Medical Research

London, England

Loren Graham

Washington, D.C.

Kozo Yamamura

William Amen, Jr.

Cetus Corp.

Council Mary Anderson

Office of Technology Assessment

Roger Andewelt

U.S. Department of Justice

Paul Baumann

University of Washington

Seattle, Wash.

Contributors

James E. Bailey

California Institute of Technology

Harvey Blanch

University of California

Hugh Bollinger

NPI

Charles Cooney

Massachusetts Institute of Technology

Morris Danzig

CPC International

Wensley Hayden-Baillie

Porton/LH International

Ed Lipinsky

Battelle Columbus Laboratories

Hunt McCauley

Big Timber, Mont.

Roger Morris

University of Minnesota

Patrick 0’Connor

Genetic Sciences International

Robert Rabson

U.S. Department of Energy

Mark Radcliffe

Brobeck, Phleger & Harrison

John W. Schlicher

Townsend and Townsend

University of California

William R. Beisel

U.S. Army Medical Research Institute

for Infectious Diseases

Frederick Betz

U.S. Environmental Protection Agency

Judy Blakemore

Cetus Corp.

Detlef Boldt

Embassy of the Federal Republic of Germany

Lawrence J. Brady

U.S. Department of Commerce

Corale Brierley

Advanced Mineral Technologies, Inc.

Mark F. Cantley

Commission of the European Communities

Ronald Cape

Cetus Corp.

Peter Carlson

Crop Genetics International N.V.

Earl Cilly

Stanford University

Mary Clutter

U.S. National Science Foundation

Stanley Cohen

Stanford University

Eileen Collins

U.S. National Science Foundation

Brian Cunningham

Genentech, Inc.

Linda Curran

Batte]le Columbus Laboratories

John Weil

(formerly of) Bendix Corp.

599
— - .

600 ● Commercial Biotechnology: An International Analysis

Michael Curran

Micro Industries

Norm Goldfarb

Calgene, Inc.

June Goodfield

East Sussex, England

Eugene P. Damm, Jr.

International Business Machines Corp.

Michael Gough

Office of Technology Assessment

Lee Davenport

Greenwich, Corm.

William Davies

(formerly at) Armos Corp.

Tom Graham

Kilpatrick & Cody

James D. Grant

CPC International

John Dearden

Johns Hopkins University

Harold P. Green

George Washington University

Arnold Demain

Massachusetts Institute of Technology

Lorance Greenlee

Agrigenetics Corp.

Roger G. Ditzel

University of California

Joe Griffin

Wald, Harkrader, and Ross

Donald K. Dougall

University of Tennessee

Charles Groginski

Vega Biochemical

Sidney Draggan

U.S. National Science Foudnation

Ben Hall

University of Washington School of Medicine

George H. Dummer

Massachusetts Institute of Technology

Albert P. Halluin

Cetus Corp.

Gerald Hickman

Collaborative Research, Inc.

Diana Dutton

Stanford University

James J. Eberhardt

U.S. Department of Energy

Richard Hill

U.S. Environmental Protection Agency

Gerry J. Elman

Elman, Shaiman and Moskowitz

Steven Hochhauser

Redwood City, Calif.

Frederic Eustis

Biogen, Inc.

Anne Hollander

U.S. Environmental Protection Agency

L. Peter Farkas

Craig and Burns

John Holt

Eli Lilly & Co.

Norman Fast

Capital Publishing Corp.

Jack Houck

Endorphin, Inc.

Alan Fechter

U.S. National Science Foundation

John Jennings

Pharmaceutical Manufacturers Association

Andrew J. Ferrara

Collaborative Research, Inc.

Philip Filner

ARCO Plant Cell Research Institute

Elmima Johnson

US. National Science Foundation

David Kabikoff

Hybritech, Inc.

William Finnerty

University of Georgia

Paul Kesselring

Swiss Federal Institute of Reactor Research

James E. Flinn

Battelle Columbus Laboratories

George H. Kidd

(formerly of) International Plant Research Institute

Gene Fox

ARCO Plant Cell Research Institute

Wayne Kindsvogel

Zymos Corp.

Orrie M. Friedman

Collaborative Research, Inc.

Jay Kingham

Pharmaceutical Manufacturers Association

James Glavin

Genetic Systems Corp.
App. K—Other Contractors, Contributors, and Acknowledgments ● 601

Jay Kraemer

Fried, Frank, Harris, Shriver, & Kampelman

Sheldon Krimsky

Tufts University

Lawrence P. Kunstadt

Novatech Resource Corp.

Stephen E. Lawton

Pierson, Ball, and Dowd

Jeff Lepon

Kornmeier, McCarthy, Lepon & Harris

Morris Levin

U.S. Environmental Protection Agency

Warren Levinson

Massachusetts General Hospital

Herman Lewis

U.S. National Science Foundation

Malcolm D. Lilly

University College, London

Charles R. Lipsey

Finnegan, Henderson, Farabow, Garrett and

Dunner

Max Lyon

Genetic Systems Corp.

Hugh Macki

Cruachem, Inc.

Bruce F. Mackler

Meyer, Failer, and Weisman

William E. Marshall

General Foods Corp.

James McAlear

Gentronix International, Inc.

James McCullough

U.S. Congressional Research Service

Donald E. McElmury

CPC International

Thomas O. McGarity

University of Texas at Austin

Bruce Merchant

U.S. Food and Drug Administration

Larry Miike

Office of Technology Assessment

Teri Miles

Office of Technology Assessment

Elizabeth Milewski

U.S. National Institutes of Health

Henry Miller

U.S. Food and Drug Administration

Charles Muscoplat

Molecular Genetics, Inc.

Kay Noel

Cetus Corp.

John R. Norell

Phillips Petroleum Co.

Michael G. Norton

British Embassy

Thomas C. O’Brien

(formerly of) U.S. National Bureau of Standards

David V. O’Donnell

Commonwealth of Virginia

Sandra Panem

Brookings Institution

Richard Pearson

University of Sussex

Joseph Perpich

(formerly of) Genex Corp.

George Pierce

Battelle Columbus Laboratories

.Jean-Claude Pinon

Embassy of France

Harvey S. Price

Industrial Biotechnology Association

Frank Pugliese

U.S. Food and Drug Administration

William H. Rastetter

Genentech, Inc.

Neils Reimers

Stanford University

David Rosenbloom

Boston, Mass.

Roy Rothwell

University of Sussex

Robert Ryan

U.S. Office of Naval Research

Louis G. Santucci

Pharmaceutical Manufacturers Association

Ken Sargeant

Commission of the European Communities

Holly Schauer

U.S. Department of Agriculture

Stanley Schlosser

U.S. Patent and Trademark Office

Charles D. Scott

Oak Ridge National Laboratory

David Seligman

Hoffmann-La Roche, Inc.

Al Shapero

Ohio State University
602 Commercial Biotechnology: An International Analysis

Stuart Shemtob

U.S. Department of Justice

Gerald D. Shockman

Temple University

Alexander W. Sierck

Beveridge and Diamond

David Silberman

Agrigenetics Corp.

Allen Singer

National Academy of Sciences

Ira Skurnick

U.S. Defense Advanced Research Projects Agency

Hedy Sladovich

(formerly of) E. F. Hutton

Ed Soule

Weyerhauser Co.

Gary Steele

Genentech, Inc.

R. W. Stieber

Merck & Co., Inc.

Eliezer Tal

Inter-American Development Bank

Masami Tanaka

Ministry of International Trade and Industry

(Japan)

Fred Tarpley

Georgia Institute of Technology

Ron Taylor

Hybritech, Inc.

Albert H. Teich

American Association for the Advancement of

Science

Elizabeth Terry

U.S. Central Intelligence Agency

Eleanor Thomas

U.S. National Science Foundation

Susan Thompson

U.S. Food and Drug Administration

Sue Tolin

U.S. Department of Agriculture

Ezra Vogel

Harvard University

Don Wallace

Georgetown University Law Center

William J. Walsh, III

U.S. Department of State

Amy Walton

U.S. National Science Foundation

Daniel Wang

Massachusetts Institute of Technology

Robert Warren

U.S. Naval Air System Command

Rick Weber

US. National Institute of Mental Health

William A. Weigand

(formerly of) U.S. National Science Foundation

Barry Weiner

Enzo Biochem

Bruno O. Weinschel

Weinschel Engineering

Philip J. Whitcome

Amgen

Bill Williams

ARCO Plant Cell Research Institute

John Wilson

(formerly of) Bendix Research

Phyllis Windle

Office of Technology Assessment

Zachary Wochok

Monsanto Co.

James Womack

Massachusetts Institute of Technology

Jim Young

Zoecon

Oskar Zaborsky

(formerly of) U.S. National Science Foundation

Michael E. Zacharia

U.S. Department of Commerce
Index
.

Index

Abbott Laboratories, 149, 196

Abello Co. (F. R.G.), 130

acquired immunedeficiency syndrome (AIDS), 125, 132

Advanced Genetic Sciences, Inc., 82

Agent Orange, 222

Agricultural Genetics (U.K.), 71, 82, 320, 425

Ajinomoto Co., 83, 131, 196, 197, 505

Allied Corp., 82

American Association for the Advancement of Science,

309

American Association of Universities, 421

American Cancer Society, 123

American Commercial Co., 87

American Cyanamid, 80, 81, 167

American Hospital Supply, 196

American Society for Engineering Education, 341

Amgen Co., 80, 130, 149, 167

Amicon Co., 54, 88

analysis, framework for, 263-266

competitiveness in biotechnology, factors influencing,

263

firms commercializing biotechnology, 265

Anheuser Busch, 102, 247

animal agriculture industry, 6, 79-81, 162-171

animal nutrition and growth promotion, 167

commercial aspects of biotechnology, 169

diagnosis, prevention, and control of animal diseases,

162

animal vaccines, 163, 164

monoclinal antibody diagnostic products, 162

future research, 186

genetic improvement of animal breeds, 168

Animal Vaccine Research Corp., 99

Applied Biosystems, 84, 87, 148

antitrust law, 435-449

biotechnology licensing agreements, 447

biotechnology research joint ventures, 446

European Economic Community, 441

findings, 448

issue, 449

relevant U.S. and foreign antitrust laws, 438

research joint ventures, 435

technology licensing, 437

ARCO, 82

Arkansas, 384

Armour Pharmaceutical, 134

Aronson v. Quick Point, 399

Atlantic Richfield Co., 228

Australia, 523

automated DNA and peptide synthesizers, 86

Bailey, James, California Institute of Technology, 44

Baltimore, David, 575

basic and applied research, U.S. Government funding of,

307-328

Department of Defense, 311

Department of Energy, 311, 323

findings, 323

generic applied research, 312

international comparisons, 317

issues and options, 325

National Institutes of Health, 310, 323

National Science Foundation, 310

USDA, 311, 323

Baxter Travenol Laboratories, 134, 196

Baxter, William, Assistant Attorney General, 436

Bayer Co., 83

Beckman Instruments, 87, 88

Becton Dickinson Co., 145

Beecham Co. (U.K.), 75

Bell Laboratories, 308, 532

Berkey Photo, Inc. v. Eastman Kodak Co., 440

Bethesda Research Laboratories, 84, 199

bioelectronics, 7, 253-256

biochips, 254

biosensors, 253

future research, 256

bioengineering, novel techniques, 3, 4, 25

Biogen Co., 99, 101, 122, 133, 134

Bio Logicals, 85, 90

Biopol@

, 211

bioprocessing separation and purification

instrumentation, 88

bioprocess technology, 5, 44-57

biocatalyst, 51

continuous bioprocessing, 48-50

culture of higher eukaryotic cells, 55

essentials, 46

monitoring and associated instrumentation, 52

priorities for future research, 56

processing modes, 47

raw materials, 51

separation and purification of products, 54

steps in, 46

BioSearch Co., 84, 87

Biotechnica International, 80, 82

Bio-Technology General Corp., 80, 82, 167

Biotechnology Industrial Associates, 99

Biotechnology Institute and Studies Centre Trust, 320

Blanch, Harvey, University of California, Berkeley, 44,

576

Boehringer Ingleheim (F. R.G.), 75

Boehringer Mannheim (F. R.G.), 82, 199

Bok, Derek, president, Harvard University, 421

Brazil, 527

Bristol Myers, 102

British Technology Group, 320

Budapest Treaty on the International Recognition

of the Deposit of Microorganisms for the Purpose of

Patent Procedure, 389

Burroughs-Wellcome (U.K.), 130, 171

Calgene Co., 421

Cambridge Reports, Inc., 496, 497

Canada, 525

Canadian Development Corp., 247

605
— . — —

606 Commercial Biotechnology: An International Analysis

cancer treatment, 126

cell fusion, 3, 4, 174

Celltech (U.K.), 71, 87, 125, 200, 320, 425

Centocor Co., 92, 144

Cetus Corp., 80, 82, 90, 92, 99, 101, 122, 148, 166

Chiron Corp., 80, 137

Ciba Geigy Co., 74, 75

City of Hope Medical Center and Research Institute, 42,

121

Cohen-Boyer patent, 389, 390, 411, 478

Collaborative Research Co,, 84, 200

Columbia University, 421

commodity chemicals and energy production, 237-249

biomass resources, 239

lignocellulose, 241

conversion of biomass to commodity chemicals, 242

hydrolysis, 243

pretreatment, 242

future research, 248

international research activities, 247

microbial production, 244

Commission of European Communities, 441

Commodity Control List, 455, 456

companies commercializing biotechnology

in the United States, 67-70

Congress:

Subcommittee on Investigations and Oversight, 492

Subcommittee on Science, Research, and Technology,

492

congressional interest, 22, 325, 347, 376, 403

Connaught Laboratories, 134

Cooney, Charles, MIT, 44

Coordinating Committee for Multilateral Export

Controls, 455

Cornell University, 244

Corning Glass, 99

Creative Biomolecules, 84, 87

Cruachan Chemicals Co., 87

Cutter Laboratories, 144

David, E., 413

definitions of biotechnology, 3, 503

Demain, Prof. Arnold, 344

Demon Biotech Corp. (U.S.), 43

Diamond Shamrock, 81, 99

Diamond v. Chakrabarty, 386, 387, 391, 392, 394, 400,

403

Du Pent, 82, 99, 102

Eastman Chemicals, 202

Ecogen, Inc., 82

Elf Aquitaine (France), 12, 75

Elf-Bioindustries, 76

Elf-Bioresearch, 76

Eli Lilly & Co., 54, 80, 92, 99, 102, 121, 122, 127, 130,

150, 168, 446

environmental applications, 217-230, 555

commercial aspects of biotechnology in, 224

conventional wastewater treatment process,

improvement of, 219

future research, 230

grease decomposition, 223

heavy metal contamination, control of, 221

microbial enhanced oil recovery, 228

microbially produced compounds in oil wells, use of,

229

microbiological mining, 226-228

commercial aspects of biotechnology in, 228

concentration of metals, 227

mineral leaching, 226

microorganisms in oil wells, use of, 229

organic micropollutants, control of, 220

slime control, 223

toxic waste treatment, 222

treatment of nontoxic liquid and solid wastes, 217

Enzo Biochemical, 148, 149

E. R. Squibb, 121

established U.S. companies, 99-1o3

collaborative ventures with U.S. NBFs, 103

investments in biotechnology, 99

role in U.S. competitiveness in biotechnology, 102

European Economic Community (EEC), 358, 365, 366,

435, 441, 461, 551, 556, 559

European Molecular Biology Laboratory, 89

European Patent Convention, 393, 395, 397, 564

European Patent Office, 393

Florida State University, 421

Fluor Co., 101

food additives, 6

France:

antitrust laws, 444

Biotechnology Mission, 477

competitiveness, 8, 9

environmental control, 557

export controls, 459

financing and tax incentives, 519

funding of biotechnology, 317

government funding of basic and applied research,

519

government targeting policies, 477, 518

intellectual property law, 564

industry, 518

Institut Pasteur, 140, 322, 339, 343

investment control laws, 461

law of trade secrets, 569

Ministry of Health, 369

Ministry of Research and Industry, 477

National Biotechnology Committee, 478

National Center for Scientific Research, 343, 426

National Control Commission, 359, 554

patent law, 565

personnel availability, 339, 520

pharmaceutical industry, 75

plant breeders rights, 57o

R&D SUPPOrt, 482

rDNA research control, 359, 554

regulation of biotechnology products, 369

research, 322
Index ● 6 0 7

undergraduate and graduate education, 343

university/industry relationship, 426, 520

worker health safety, 560

Fuqua, Congressman Don, 315

Gaden, Elmer, University of Virginia, 44

G. D. Searle, 102

Gellman Research Associates, Inc., 91

Genencor, 99, 103, 200

Genentech (U.S.), 42, 53, 66, 80, 85, 90, 92, 93, 95, 96,

98, 99, 101, 121, 127, 128, 133, 142, 150, 164, 167,

376, 384

generic applied research, 8, 14

Genetica Co., 76

Genetic Sequence Data Bank (GENBANK), 89

Genetics Systems Co., 92, 144

Genex Corp., 80, 84, 93, 98, 99, 101, 133, 167, 197, 200

Georgetown University Medical Center, 89

German Cartel Office, 443

German Research Society, 342, 424

German Society for Chemical Engineering, 424, 510

Germany, Federal Republic of @. R.G.):

antitrust laws, 442

competitiveness, 8, 9, 424

Control Commission for Biological Safety, 552

Dangerous Industrial Substances Committee, 559

environmental control, 556

export controls, 458

Federal Environmental Agency, 556

Federal Health Office, 366

Federal Ministry of Science and Technology (BMFT),

18, 317, 338, 424, 476, 478, 481, 510, 511

financing and tax incentives for firms, 511

government funding of basic and applied research,

317, 511

government targeting policies, 476, 510

intellectual property law, 395, 396, 564

law of trade secrets, 568

Max Planck Society, 342, 511

Ministry of Education, 476

NBFs, 71

organization of basic and applied research, 318

patent law, 565

pharmaceutical industry, 74, 75

plant agriculture industry, 82

plant breeders rights, 569

personnel availability and training, 337, 512

R&D SUPPOrt, 481

rDNA research control, 359, 552

regulation of biotechnology products, 366

Risk Financing Society, 512

specialty chemicals industry, 83

Society for Biotechnology Research, 82, 318, 319, 478

summary of biotechnolo~, 510

undergraduate and graduate education, 342

university/industrial relationships, 423, 512

worker health safety, 559

Gist-Brocades NV, 199

Glaxo (U.K.), 12, 75

Goodfield, June, 495

Goodman, Howard, 575

Gore, Cong. Albert, 419, 421, 495

grants, 347

Green Cross Co., 133, 135, 137, 481

Guide to Research Joint Ventures, 439

Gulf Universities Research Consortium, 421

Hagiwara Institute of Health, 420

Harvard University, 412, 414, 417, 421

health, safety, and environmental regulation, 355-378

environmental regulation, 371-373

findings, 374

issue and options, 376

rDNA research guidelines, 356

approved requirements, 358

containment requirements, 358

effect on competitiveness, 359

enforcement, 359

scope, 357

regulation of biotechnology products, 359

European Economic Community, 365-370

United States, 360-365

worker health and safety regulation, 373-374

Henkel Co., 202

Hewlett-Packard, 53, 84, 88, 90

Hoechst (F. R.G.), 12, 74, 83, 122, 130, 343, 417, 510, 575

Hoffmann-La Roche, Inc. v. Golde, 384

Hoffmann-La Roche (Switzerland), 12, 74, 75, 92, 125,

130, 420

Human Services Research, 91

Humulin”, 446, 538

ICI (U.K.), 12, 75, 204, 211

Idaho, 384

Idaho National Engineering Laboratory, 228

impact on reseach community, 25

Industrial Biotechnology Association, 421

industrial development of, 5, 9

Integrated Genetics Co., 149

intellectual property law, 383-405

evaluation of effectiveness, 400

foreign countries, 401

United States, 400

findings, 401

issue and options, 403

United States, 384-393

law of trade secrets, 384

patent law, 385

plant breeders’ rights statutes, 392

U.S. and foreign, comparison of, 393

patent law, 393

plant breeders’ rights, 399

trade secret law, 398

Intelligenetics Co., 84

international competitiveness factors:

analysis of, 8-10

antitrust laws, 18

financing and tax incentives for firms, 12

government funding of basic and applied research, 13

government targeting policies, 19
608 Commercial Biotechnology: An International Analysis

health, safety, and environmental regulation, 15

intellectual property law, 16

personnel availability and training, 14

public perception, 20

technology transfer, investment and trade, 18

university/industry relationships, 17

International Congress of Plant Tissue and Cell Culture,

179

International Genetic Engineering, 82

international technology transfer, investment, and trade,

453-470

export controls and biotechnology, U.S. and foreign,

455

findings, 468

issue, 470

patent law provisions, 459

compulsory licensing, 460

national security restrictions, 459

regulation of technology imports and foreign

investment, 461

trade barriers affecting biotechnology products, 463

trade laws, 467

International Union for the Protection of New Varieties

and Plants, 392

Intervet Corp., 166

Israel, 524

Japan:

amino acids, 196

antitrust laws, 445

Associated Finance Corp., 507

bioprocessing, 12

Biotechnology Forum, 478

biotechnology projects, 318

competitiveness, 7, 9, 11, 21

Council for Science and Technology, 475

diversification of chemical, food processing, and textile

and pulp processing companies into

pharmaceuticals, 76, 77

environmental control, 588

export controls, 458

Fair Trade Commission, 445

financing and tax incentives, 13, 507

funding of biotechnology, 317

intellectual property law, 393, 396, 397, 402, 571

investment control laws, 462

joint ventures in pharmaceutical applications of

biotechnology, 78

Keidanren (Japan Federation of Economic

Organizations), 76, 77, 79

law of trade secrets, 572

Ministry of Agriculture, 317, 476, 506

Ministry of Education, 423, 555

Ministry of Finance, 445

Ministry of Health, 77, 37o

Ministry of International Trade (MITI), 9, 12, 78, 83,

86, 317, 341, 423, 445, 458, 476, 479, 481, 506, 507,

558

New Technology Development Fund, 423, 481

Nikkei Sangyo Shimbun (Japan Industrial Daily), 77, 79

organization of basic and applied research, 318

C)saka University, 423

patent law, 571

personnel availability, 337, 508

personnel engaged in rDNA R&D, 506

pharmaceutical industry, 76, 77, 78, 79

plant agriculture industry, 83

plant breeders’ rights, 572

R&D SUPPOI’t, 480

rDNA research control, 359, 554

rDNA technology expenditures, 505

regulation of biotechnology products, 37o

Science and Technology Agency, 86, 317, 341, 423,

480, 506

specialty chemicals industry, 83

summary of biotechnology, 505

support firms, 84, 86

targeting policies, 475

Tokyo University, 341

trade barriers, 464

transnational training, 343, 344

Tsukuba Science City, 481

undergraduate and graduate education, 341

university/industry relationships, 422, 508

University of Tsukuba, 341

worker health safety, 561

Japanese Cancer Institute, 131

Johns Hopkins University, 412, 414, 417

Johnson & Johnson, 149, 254

KabiGen AB, 127, 128

KabiVitrum AB, 128, 133

Kansas, 384

Keidanren survey, 76, 77, 79, 344, 345

Kelco Co., 210

Kennedy, Donald, 308

Kohler, George, 39

Kyowa Hakko Co., 83, 196, 197

Lawless, E. W., 490

legislation:

Act Against Restraints of Competition (F. R.G.), 442

Act Concerning Prohibition of Private Monopoly and

Maintenance of Fair Trade (Japan), 445

Act No. 77-806 (France), 444

Agricultural Chemicals Law (Japan), 464

Basic Law for Environmental Pollution Control (Japan),

558

Chemicals Act (F. R.G.), 556

Chemicals Control Law (France), 557

Chemical Substances Control Law (Japan), 558

Clayton Act, 438, 439

Clean Air Act, 556

Clean Water Act of 1977, 555

Competition Act of 1980 (U.K.), 443

Control of Pollution Act of 1974 (U.K.), 557

Export Administration Act, 455, 456, 470

Fair Trading Act (U.K.), 443

Federal Cartels Act (Switzerland), 444
index ● 6 0 9

Federal Food, Drug, and Cosmetic Act (FFDCA), 360,

361, 362, 363, 365, 376, 377

Federal Insecticide, Fungicide, and Rodenticide Act

(FIFRA), 365, 555

Federal Trade Commission Act, 438

Foreign Exchange and Foreign Trade Control Law

(Japan), 458, 462

Federal Water Pollution Control Act, 555

Health and Safety at Work Act of 1974 (U.K.), 560

Health Research Education Act of 1983, 495

H.R. 3577, 405

Import, Export, and Customs Powers Act (U.K.), 458

Industrial Safety and Health Law (Japan), 561

International Emergency Economic Powers Act, 458

Law on the Reform of Drug Legislation (F. R.G.), 366

Marine Protection, Research and Sanctuaries Act of

1972, 556

Medicines Act of 1968 (U.K.), 367

Occupational Safety and Health Act of 1970, 374, 558

Patent Act of 1977 (U.K.), 566

Pharmaceutical Affairs Law (Japan), 370, 464

Plant Patent Act of 1930, 392, 399, 400, 404

Plant Variety Protection Act, 392, 399, 400, 404, 460

Price Ordinance No. 15-1483 (France), 444

Public Health Service Act, 360, 361

Public Law 96-517, 411, 419

Research Association Law (Japan), 445

Sherman Act, 438

Small Business Innovation Development Act, 313

Solid Waste Disposal Act, 556

Swiss Patent Act, 566

Tariff Act of 1930, 467

Toxic Chemicals Law (Japan), 464

Toxic Substance Control Act (TSCA), 365, 371, 372,

555

Trade Act of 1974, 453, 466, 469

Virus, Serum, Toxin Act of 1913, 363, 365, 377

Water Protection Act (Swiss), 557

Lilly, Malcolm, 342

local efforts to promote biotechnology development in

United States, 26

Los Alamos National Laboratory, 89

Lubrizol Co., 101

Massachusetts General Hospital, 144, 343, 417, 418, 419,

424, 510, 575

Massachusetts Institute of Technology (MIT), 344, 412,

414, 417, 418, 421, 575

Max Planck Institute for Biotechnology, 164

Max Planck Institute for Plant Research, 82, 425

Merck Co., 137, 201

messenger RNA (mRNA), 34

Mexico, 238

Michigan State University, 418, 576

Microelectronics Computer Corp., 447

Militarily Critical Technologies List, 457

Millipore Co., 54, 88

Milstein, Cesar, 39

Minnesota, 384

Mitsubishi Chemical Co., 76, 133, 505

Mitsui Toatsu Chemicals, 198

Miyoshi Oil and Fat Co., 206

Molecular Biology Institute, 418

Molecular Genetics, Inc., 80, 82, 166, 167

monoclinal antibodies (MAbs) technology, 5, 8, 25, 38-43

industrial uses for, 43

large-scale production of, 42

preparation, 40

sheep red blood cells (SRBCS), 39

and rDNA technology, 42

Monsanto, 80, 82, 99, 101, 167, 197, 417, 574

Motulsky, A. G., 498

multidisciplinary nature of biotechnology, 25

McDonnell Douglas, 54

McTaggart, John, 88

National Academy of Sciences, 26, 332

National Aeronautics and Space Administration, 54, 123,

314, 315

National Assessment of Education, 496

National Biomedical Research Foundation, 89

National Cancer Institute, 123

National Council of Churches, 493

National Institutes of Health, 84, 89, 119, 123, 127, 151,

307, 308, 310, 312, 313, 335, 343, 348, 357, 358, 360,

371, 372, 418, 489, 491, 551

National Institute of Occupational Safety and Health, 373

National Research Council, Canada, 244

National Science Foundation, 91, 228, 247, 309, 310, 312,

313, 315, 316, 327, 335, 347, 348

Netherlands, 522

new biotechnology firms (NBFs), 6, 7 11, 12, 13, 65, 66,

91-98

collaborative ventures with established foreign companies, 108

commercial pursuits of, 93

emergence and financing, 92

future prospects, 95

joint ventures, NBFs and established firms, listing of,

104

licensing, 454

role in U.S. competitiveness, 97

New Drug Application (NDA), 361

New England BioLabs, 84, 199

New England Monoclinal Resources, 94

New York University (NYU), 142

Nippon Oil and Fat Co., 206

Nippon Zeon Co., 86

Norden Co., 80

Norman Research Institute, 423

North Carolina Biotechnology Center, 26, 75, 418

Notice of Claimed Investigational Exemption for a New

Drug (IND), 360

Novo Industri A/S, 121, 199, 247

Nucleopore Co., 54, 88

Nucleotide Sequence Data Library, 89

Nucleic Acid Sequence Database, 89

Occupational Safety and Health Administration (OSHA),

374, 558
610 Commercial Biotechnology: An International Analysis

Oppenheimer & Co., 94

Organization for Economic Cooperation and Development, 71

organization of report, 27

Organon Co., 130

OTA/NAS survey of personnel needs of firms in the

United States, 547

Paris Convention, 460

Paul Ehrlich Institute, 366

Perkin Elmer Co., 88

Perlmann, David, 336

personnel and training, 331-350

availability of personnel in the United States, 335

categories of technical expertise, 333-335

findings, 345

issues and options, 347

labor force, size and growth of, 332

personnel availability in other countries, 336

secondary school education, U.S. and other countries,

339

translational training, 343

undergraduate and graduate education, U.S. and other

countries, 340

Petroferm, 229

Pfizer Co., 102, 229

pharmaceutical industry, 72-79, 119-152

antibodies, 143

blood products, 131-136

antihemophilic factor (AHF), 133, 134

human serum albumin (HSA), 132

thrombolytic and fibrinolytic enzymes, 134

commercial aspects of biotechnology, 150

DNA hybridization probes, 148-149

drug delivery systems, 123

foreign companies, 74

future research, 151

human growth hormone, 127

interferon gene cloning projects, companies involved,

128

lymphokines, 130

melanocyte stimulating hormone (MSH), 128

monoclinal antibodies, 143-147

diagnostic products, 144

preventive and therapeutic products, 147

neuroactive peptides, 128

proteins being developed with rDNA technology, 129

R&D expenditures, 75

regulatory proteins, 120

human insulin, 120

interferon, 122-126

top 20 U.S. and foreign companies, 73

U.S. companies, 72

vaccines, 136, 143

bacterial disease vaccines, 139

parasite disease vaccines, 140

viral disease vaccines, 136

Pharmacia, 88

plant agriculture industry, 6, 172-186

commercial aspects of biotechnology, 185

disease-suppressive and growth-regulating microorganisms, 184

foreign, 82

future research, 186

methods of plant cell culture, 175

microbially produced insecticides, 183

nitrogen fixation, 181

photosynthetic efficiency, 180

plant growth rate, 180

plant-produced pesticides, 181

primary plant products, 178

secondary compounds from plants, 179

specific plant characteristics, improvement of, 174

United States, 81

uses of micro~rganisms for crop improvement, 181

vector construction and transformation, 176

P-L Biochemical Co., 84, 87, 199

Pope John Paul II, 493

President’s Commission for the Study of Ethical Problems in Medicine and Biomedical and Behavioral

Research, 493, 494, 495

public perception, 489, 499

arguments raised, 492

difficulties in weighting the risks, costs, and benefits,

494

factors influencing, 490

findings, 499

implications for competitiveness, 497

influence of the media, 495

issues, 499

surveys, 496

Quidel Co., 94

recombinant DNA technology (rDNA), 3, 4, 5, 25

environmental regulation, 355

guidelines, environmental laws, and regulation of

health and safety, 550-561

in industrial processes, 37-38

preparing rDNA, 36, 37

structure and function, 33-36

Reckitt & Colman (U.K.), 130

regulation of worker health and safety, 558

research funding, U.S. Government, 14

Rhone Poulene (France), 12, 74, 75, 76

Roussel Uclaf Co., 130

Salt Institute, 99

Sandoz Co., 74, 130

Sanofi Co., 75

Saudi Arabia, 238

Schering AG (F.R.G.), 75, 84

Schering-Plough (U.S.), 150

Science 71”mes, 496

Scripps Clinic and Research Foundation, 134

SDS Biotech Corp., 81

Shell, 82

Showa Denko, 81, 83

SmithKline Beckman, 80

Soviet Acquisition of Western Technology, 458
Index ● 611

specialty chemicals industry, 6, 83-84, 195-212

amino acids, 195-198

aspartic acid, 198

g]utamic acid, 196

lysine, 197

methionine, 195

phenylalanine, 198

tryptophen, 197

aromatic specialty chemicals, 208

commercial aspects of biotechnology in, 211

complex lipids, 205-207

fatty alcohols, 206

microbial oils, 206

sopherolipids, 207

enzymes, 198-200

future research, 212

polysaccharide copolymers, 209

single-en protein (SCP), 202,205

production plants, 204

steriods, 207

vitamins, 200-202

Speywood Laboratories, 134

Stanford Research Institute, 308

Stanford University, 411, 412, 414, 415, 418, 420

Sumitomo Chemical Co., 76, 505

support firms, U.S. and foreign, 84-91

product areas:

biochemcial reagents, 85

instrumentation, 86

software, 89

Sweden, 520-522

Swiss Serum and Vaccine Institute, 140

Switzerland:

antitrust laws, 444

Commission for Experimental Genetics, 554

Commission for the Encouragement of Scientific

Research, 322

competitiveness, 8, 9

environmental control, 557

export controls, 459

Federal Institute of Technology, 320, 426

Federal Office of Public Health, 37o

government funding of basic and applied research,

517

industry, 516

intellectual property laws, 564

Intercantonal Convention for the Control of

Medicaments, 370

law of trade secrets, 569

patent law, 565

personnel availability, 338, 517

plant breeders rights, 57o

rDNA research control, 554

regulation of biotechnology products, 37o

research, 320

tax incentives, 517

summary of biotechnology, 516

university /indudstry relationship, 426

worker health safety, 560

Synagogue Council of America, 493

Takara Shuzo Co., 86

Takeda Co., 76, 130

Taniguchi, Dr. Tadalsugi, 131

targeting policies in biotechnology, 425

findings, 482

industrials’ role in policy formulation, 478

issue, 483

policy goals, 479

policy implementation, 480

timing and coordination, 475

Techniclone Co., 94

Toray Industries, 197, 505

Transgene (France), 71

Treaty of Rome, 441

U.N. Industrial Development Organization, 26

United Kingdom:

antitrust laws, 443

biochemical supply, 86

bioprocessing, 12

biotechnology centers, 319

Center for Applied Microbiology, 320

competitiveness, 8, 9, 425

Department of Industry, 477, 478, 482

environmental control, 557

export controls, 458

financing and tax incentives, 514

Genetic Manipulation Advisory Group, 358, 515, 553,

560

government funding of basic and applied research,

312, 513

government targeting policies, 477, 513

Health and Safety Executive, 358

Imperial College, 342, 425

industry, 513

intellectual property laws, 399, 564

law of trade secrets, 568

Medical Research Council, 338, 425

Monopolies and Mergers Commission, 443

patent law, 565

plant agriculture industry, 82

plant breeders rights, 57o

organization of basic and applied research, 319

personnel availability and training, 338, 514

R&D SUPPOI’t, 482

rDNA research control, 358, 552

regulation of biotechnology products, 367

Science and Economic Research Council, 338,425

summary of biotechnology, 512

financing, 514

funding, 513

industry, 513

personnel, 514

targeting, 513

undergraduate and graduate education, 342

university/industrial relationship, 425, 515

University Grants Committee, 342

worker health safety, 560

United States v. Penn~lin Chemical Co., 439

University Genetics, 148
— —.

612 . Commercial Biotechnology: An International Analysis

University/industry relationships, 411-427

commingling of funds, 419

consulting arrangements, 416

effectiveness in biotechnology, 413

guidelines for industrial sponsorship, s77

industrial associates programs, 417

intellectual property, 419

issue, 429

Pajaro Dunes Conference, 578

patent rights and commingling of research funds, 579

private corporations, 418, 576

research contracts, 417

research partnerships, 417

selected agreements, 574

tangible research property, 420

university policies, 580-584

University of British Columbia, 244

University of California, Berkeley, 384, 411, 413, 418,

420

University of California, Davis, 415, 421

University of California, San Diego, 149, 420

University of California, San Francisco, 127, 137, 413

University of Geneva, 222

University of ~.orgia, 229

University of Gottingen, 222

University of Lueven (Belgium), 135

University of North Carolina, 244

University of Pennsylvania, 144

University of Virginia, 341

University of Washington, 144, 149, 418, 574

University of Wisconsin, 411, 412

Upjohn Pharmaceuticals, 133

U.S. Agency for International Development (AID), 26,

142

U.S. Air Force, 315

U.S. Army, 315

U.S. competitiveness, 7, 8

antitrust laws, 18

commitment to basic research, 14

intellectual property system, 17

NBFs, 11

patent law, 16

training of personnel, 15

U.S. Department of Agriculture, 164, 238, 310, 314, 347,

360, 373

Plum Island Animal Disease Facility, 164

venture capital, 12, 71

U.S. Department of Commerce, 200, 455, 457, 468

U.S. Department of Defense (DOD), 254, 310, 312, 313,

314, 316, 327, 415, 457

Defense Advanced Research Projects Agency, 312, 315

Defense Business Advanced Technologies, 314

U.S. Department of Energy (DOE), 228, 247, 310, 312,

314, 316, 349

U.S. Department of Health and Human Services, 315

Public Health Service, 315

U.S. Department of the Interior, 228, 314

U.S. Department of Justice, 436, 438, 439, 440, 441

U.S. Department of Transportation, 314

U.S. Environmental Protection Agency (EPA), 183, 314,

360, 371, 372

U.S. federally funded research in biotechnology, 310-312

U.S. Federal Trade Commission, 438

U.S. firms commercializing in biotechnology, list of, 542

U.S. Food and Drug Administration (FDA), 16, 81, 121,

150, 355, 376, 377

Bureau of Foods, 362

National Center for Devices and Radiologic Health, 362

Office of New Drug Evaluation, 361

regulation of biotechnology products, 360

U.S. General Accounting Office, 361, 372

U.S. International Trade Commission, 391, 467

U.S. Naval Research Laboratory, 315, 316

U.S. Navy, 315

U.S. Nuclear Regulatory Commission, 314

U.S. Office of Management and Budget, 92, 419

U.S. Patent and Trademark Office, 386, 389, 390, 403,

459

U.S. semiconductor industry and biotechnology, a comparison, 531-541

Bell Telephone Labs, 532

development of U.S. industry, 532

role of universities, 536

role of U.S. Government, 533

semiconductor devices, terminology and evaluation,

531

structure of U.S. industry, 537

U.S. Small Business Administration, 91, 313

Set Aside Program, 316

U.S. Supreme Court, 374, 386, 391, 400, 439

U. S. S. R., 204, 527

Valentine, Ray, 421

Varian Co., 88

Vega Biotechnologies, 84, 87

Vellucci, Alfred, 489

Wang, Prof. Daniel, 344

Ward, Dr. David C., 148, 149

Washington, 384

Waters Technologies, 88

Wisconsin Alumni Research Foundation, 411

Wellcome Research Laboratories (U.K.), 12, 75, 164

Whitehead, Edwin C., 575

Whitehead Institute, 418, 575

White House Office of Science and Technology Policy,

458

World Health Organization (WHO), 142

W. R. Grace, 196, 228

Xoma Co., 94

Yale University School of Medicine, 148

Yankelovich, Skelly, and White, survey, 497

U . S . GOVERNMENT PRINTING OFFICE : 1984 0 - 25-561