Long Range Planning, Vol. 21, No. 3, pp.

51 to 58, 1988 Printed in Great Britain

0024-6301/88 $3.00 + .OO Pergamon Press plc

51

Strategies of New Biotechnology Firms

John Grieve Smith and Vivien Fleck

The strategies of new biotechnology firms are dominated by the relatively long time and heavy expenditure required to develop major biotechnological products. Such firms are dependent on equity finance, and must match their product strategies to the capital available. This means starting with products that require relatively little capital, such as contract research orproduction, then moving onto diagnostic products, with the production and sale of drugs as the most ambitious and capital demanding objective. To reach this point without being taken over by large pharmaceutical companies (most probably foreign) such firms will need substantial further injections of equity capital.

its solution has been to devise on the one hand, a set of product, market and production strategies, and on the other, a financial strategy, which are mutually consistent. The potential products of the new biotechnology firms range from relatively modest ones, requiring the minimum capital to develop and produce, to more ambitious products, requiring years to develop and test, and thus requiring large amounts of capital to finance. The early, more modest, products may be standard products such as monoclonal cell lines or peptides for other larger producers; similarly contract research or production for larger firms may be good products for raising immediate revenue. Firms in the early stages of development, or with limited capital, tend to rely on products of this type. The next, more capital intensive, group of are diagnostic kits of various types for humans or animals, e.g. Cambridge Life bio-sensor, I.Q.Bios diagnostic kits using amplification. Celltech and Boots had venture company, Boots-Celltech, solely duce diagnostic products. products use with Sciences enzyme a joint to pro-

The development of the biotechnology business is divided between existing large firms (mainly pharmaceutical companies) and new specialized biotechnology firms. The relative importance of the two varies from country to country: the part played by new firms has been especially important in the Unites States, but less so in most European countries and minimal in Japan. The growth of new biotechnology firms in the United Kingdom has followed somewhat behind that in the United States and has been on a much smaller scale. Nevertheless, here as in the United States, the new firms are particularly significant in spearheading the development of saleable products from basic university research. The new biotechnology firms tend to have close relationships with the world of academic research and, unlike the major pharmaceutical companies, they have no vested interests in existing products or the development of established technologies. The factor dominating the strategies of such firms is the relatively long time and heavy expenditure required to develop major new biotechnological products. Firms have adopted various ways of overcoming this problem but in each case the key to
John Grieve Smith is Senior Bursar of Robinson College, Cambridge. He was Director of Planning at British Steel Corporation until 1981. Vivien Fleck is a graduate student at Cambridge University Management Studies Group.

The most expensive products to develop, produce and sell are drugs for human use. Apart from the long development time, testing is expensive and time-consuming as is the process of meeting regulatory procedures. When the drug is available for sale, major distribution facilities are needed. It has been estimated that in the United States the total length of time involved can be up to 7 years and R&D costs can be as high as J70m.l The size of conventional pharmaceutical companies demonstrates the resources traditionally required for such an operation. The ultimate strategic issue facing any ambitious biotechnology company is whether to aim for human therapeutics, either on its own or in collaboration with others. The leading protagonist in the United Kingdom at the moment is Celltech. In the United States Genentech and Cetus are

52

Long

Range

Planning

Vol.

21

June

1988 tive in forming the company, in partnership with four financial institutions: British and Commonwealth Shipping, Prudential Assurance, the Midland Bank and Investors in Industry (3is). The NEB provided 44 per cent of the original equity capital of Ll2m and the remainder came equally from the other four. Gerard Fairtlough of the NEB became the Chief Executive. In 1983 the NEB, now the British Technology and 3is reduced their holdings and Group (BTG), Biotechnology Investments Ltd (the N. M. Rothschild venture capital fund) were able to buy a substantial stake in Celltech. In the same year Celltech raised a further L6m through an equity placing: 50 per cent from existing shareholders and 50 per cent from other financial institutions. An additional k5m (in equity) was raised by a rights issue in mid-l 986 and a further k4m was subscribed by industrial partners in 1987. Thus Celltech has raised a total of A23m through equity placing; it has had no loan finance, apart from A3m in leasing agreements. Celltechs first task was to develop and produce marketable products. They acquired the rights from MRC units and universities to produce purification agents such as that needed to manufacture Intcrferon; they also acquired the rights to produce MRC blood typing reagents and arc world leaders in these fields. Contract production has also been a major source of revenue Cclltech have developed antibody diagnostic kits using research conducted at the MRC. The world market for these products is very large and they believed that this business required a major partner if they were to compete with large companies such as Abbott Laboratories. They therefore formed a joint venture company with Boots (Boots-Celltech Diagnostics) to undertake the diagnostics business. Boots provided A3m start-up finance and Celltech provided many of the people and research ideas. Celltech also formed a joint venture (Apcel) with Air Products Ltd which specializes in contract research in industrial microbiology. Apcels business is principally fine chemicals and the food industry-products which did not fit into Celltechs main business of healthcare and pharmaceutical products. Air Products provided the finance. Celltechs ultimate objective is to become a fully fledged pharmaceutical company, though not necessarily on the same scale as existing major pharmaceutical companies. This development would have to be based first on research into a number of different possible products, and then on the production and sale of a minimum number of successful drugs (hopefully at different stages of their life cycles). This would require finance on a larger scale than their present strategy of producing intermediate products.

already aiming companies.

to become

major

pharmaceutical

Product progression is a feature of the strategies of many high-tech companies, but it is particularly important for those in biotechnology. By product progression we mean a strategy of starting at the bottom of the range (i.e. with products or activities minimizing capital requirements) and then moving up to the more ambitious products with greater capital requirements as the firm develops. The different groups of products are not necessarily mutually exclusive : most biotechnology firms will be selling products at more than one stage in the progression at any given time. But they will tend to start with a product portfolio concentrated at the lower end of the range and move towards one with higher proportions of the more elaborate and capital demanding products. This means that even if the new biotechnology firm is making profits on products at the bottom end of the range, heavy rcscarch and development expenditure on further products will make its overall return low or negative for some years. This has been a clear feature of U.S. biotechnology companies and the same pattern has emerged in the United Kingdom. Such firms cannot develop on the basis of debt finance-not only because of the inevitable risks involved, but because, however successful their products may ultimately be, they could not meet the interest charges in the early years. New biotechnology companies are therefore primarily dependent on equity finance in their formative years-moreover, equity supplied by investors who are prepared to go without dividends in the early years in exchange for prospects of major capital gains in later years. Such companies financial needs and expcrience are thus in marked contrast to those of some other high. technology firms whose growth has been mainly self-financed, or who have obtained outside finance mainly in the form of debt.* The case histories which follow show experience around this central theme. a variety of

Celltech
Celltech, formed in 1980 in response to the Spinks Report, is the largest new biotechnology firm in the United Kingdom. The scale of Celltechs initial funding, helped by establishment blessing, has enabled it to follow a more ambitious policy than other British biotechnology companies, in particular by going in for large-scale production. In the words of the managing director of a smaller biotechnology company, Celltech was born with a silver spoon in its mouth-he might have added by British, but not by American standards. The National Enterprise Medical Research Council Board (MRC) (NEB) and the took the initia-

Strategies Celltechs financial development has followed the pattern now typical for successfully floated new biotechnology companies in the United States. Heavy R & D expenditure has meant continued offset by a substantial operating losses, partly income from interest on the cash balances resulting from successful share issues. In the financial year ending 30 September 1986 Celltech had a loss of A700,OOO on a turnover of E7.6m after taking into account interest received of A575,OOO. This brought the accumulated loss to &9m but they had A9m cash at the bank.

of New

Biotechnology

Firms

53

If the production technique already exists, they will sub-contract or licence manufacture of their products to a company with appropriate expertise and with an cstablishcd distribution network, probably a large pharmaceutical or agrichemical multinational. In the case of products, such as their control organism, where no expertise exists, AGC will set up their own production division to manufacture it. The second round of financing came in 1984 when existing shareholders and Rothschilds Biotechnology Investments Ltd subscribed a further Al .5m in equity. In November 1984 AGC carried out its main fund-raising campaign and raised Al5.2m. One aim had been to sell to four big industrial investors who would also each enter into a commitment to place R & D contracts worth a minimum of A500,OOO during the next 3 years. Ciba-Geigy, Eli Lilly and Danish Sugar Corporation invested. Two other U.K. companies pulled out late in the negotiations, but the foreign companies were keen to be involved. The capital raised is to be spent on developing products, funding R & D, setting up new businesses and taking small acquisition opportunities. The interest on the unspent capital and revenue from contract research eases working capital requirements.

Agricultural

Genetics

The Agricultural Genetics Company (AGC) was founded like Cclltech with official blessing, although its initial funding was on a much smaller scale and its strategy necessarily less ambitious. But in 1984 it raised &15m in equity and is at present well endowed with capital for the next stage of development. The impetus for founding the Agricultural Genetics Company came from the British Technology Group, which wanted. to repeat the success of its Celltech venture. After spending some time trying to set up a similar agricultural technology transfer company, eventually in 1983 BTG joined forces with Ultramar, an oil company seeking opportunities for diversification, and then with Advent (a venture capital fund), and the three founding investors provided A578,OOO in equal shares as initial backing. They chose as Chief Executive, Dr Roger Gilmour, who was at that time working in the United States. Dr Gilmour then produced a three stage business plan which aimed to bring in short and medium term cash while the longer term agricultural work was carried out. He proposed that AGC should start by managing contract research, to be done in university and government labs, in order to generate short term cash from management fees. Through this contract work, and through projects funded by AGC, they would develop saleable products based on micro-organisms and on enabling techniques. This would generate medium term cash. In the long term, AGC would fund research on agricultural products such as new strains of plant. AGCs strategy of acting in effect as agents and subcontracting research from large companies to government and university labs is an unusual way of keeping down capital requirements. They are also attempting to sell their own ideas to large companies for funding. Their first product was a type of rhizobia which enhances the health/resistance of soya. Their second product was a biological control organism which is now being tested by a major U.K. company. Manufacturing should start in 1987 and a full market launch is planned for 1988.

Cambridge

Life Sciences

Cambridge Life Sciences (CLS) was formed in June 1981 by Dr Mike Gronow and Dr Bill McCrae. They had identified biotechnology as a future high and planned to commercialize growth market, university and government laboratory research in this field. Their strategy is to produce user-friendly, qualitative and quantitative tests for human, veterinary, agricultural and industria1 uses. Initially they focused on enzyme technology. Their first commercial product was launched in mid-1982 and was a test for overdoses of paracetamol. Next came a product for use by farmers for testing whether a cow is ovulating or pregnant. It is marketed by Smith Kline in the EEC and distributed world-wide by other large companies. Their latest product is a small instrument called a bio-sensor. It combines micro-electronics and clinical biochemistry to produce a quantifiable signal from blood, sweat etc. (e.g. to measure the blood glucose count). Other products include a test for potential kidney damage, especially useful for diabetics. They feel that they could have got their products to market much earlier if they had been able to obtain adequate funding from the start. They have acquired Ab-Ag, near Ely, in order to set up a manufacturing facility. CLS makes the membranes for the bio-sensor in-house, and has recently raised money to buy the necessary capital and

54

Long

Range

Planning

Vol.

21

June

1988 consistently underfunded. After small capital injections from BTG and then the National Research and Development Corporation (NRDC), they raised L600,OOO from Rothschild and Charterhouse, but only solved their need for capital by selling their instrumentation business to Millipore as part ofan equity/licensing deal which raised Ll .lm. Their initial capital was only A12,OOO: L6000 of which was in the form of a bank overdraft with Dr Liddles house as security. When they needed more capital in 1981, they approached the British Technology Group under the Oakwood Scheme, and raised A50,OOO to start manufacturing operations. The company spent its first year ascertaining that a market did exist for its product range, and deciding that the Medical Research Council technology could be successfully exploited for peptide production. In March 1983 they obtained &40,000 from the Small Companies Innovation Fund operated by the NRDC. Part of the process of obtaining more finance was preparing the company strategy to use it. They wrote a business plan; and began to look for suitable investors. They received a number of approaches but preferred N. M. Rothschild as having expertise in the biotechnology area, and accepted a joint offer from Rothschild and Charterhouse to subscribe A600,OOO in the form of convertible preference shares. CRB received the funding in February 1986; A90,OOO was used immediately to repay the Oakwood loan to BTG and LlOO,OOO went to creditors. The business plan had included A420,OOO capital expenditure, and working capital requirements increased considerably, so they still needed further capital. Just before the Rothschild/Charterhouse deal was concluded, Millipore approached them. They were looking for an overseas distributor for their peptide synthesis instruments and suggested an equity licensing deal worth kl.1 m, under which Millipore acquired 11 per cent of CRBs equity. As part of this deal Millipore acquired the exclusive rights to CRBs instrumentation and reagents for Fmocpolyamide peptide synthesis, important to them because CRB had chemical expertise and knowledge of the MRC technology which Milliporc did not have. Millipore will market these reagents world-wide. CRB still markets independently other peptide related products which amount to approximately two-thirds of its total business. At the end of December 1986, the accumulated loss was L220,000, with A500,OOO in the bank. Capital expenditure for the last 6 months had been A615,OOO. Th e money had been used to increase staff from 30 to 55 in 9 months, and to purchase extra equipment. They are now in the process of developing the organizational structure, financial

quality control equipment for instrument manufacture. They assemble in-house, but where subcontracting is necessary, as much as possible is given to local companies. Export markets account for over 90 per cent of their sales. Overseas distribution is done through agreements with multinationals, some of which sell the products under the CLS label. But they are also force in the building up th eir own marketing United Kingdom, despite the cost, because they believe such a move is necessary to keep them in touch with their customers and to give them credibility with the multinationals. CLS first attempted to raise finance from the City and local banks, but could not find anyone who understood this new commercial area. Eventually they turned to TDC (now 3is) but in the end took only k25,OOO from them, contributing the rest of the A63,OOO start-up money themselves. In April 1982 with the help of a small broking firm, McAnally Montgomery, they raised just under Llm, partly from 3is (L225,OOO) and partly from investors under the new Business Start-up Scheme (now the BES) which allowed total tax relief to its investors in return for a 5 year investment. The money was raised on terms which allowed the existing shareholders to retain control by restricting the issue of voting shares. In October 1983 they raised a further kl.4m from placing shares with five institutions, and another L700,OOO m F e b ruary 1986. But the company was . making heavy losses (Al .5m in the year ending June 1986) and had to obtain a temporary bank loan of A500,OOO. This was repaid out of a further placing which raised L7m. Over the last 5 years CLS has remained in a phase of heavy development expenditure with fairly limited sales, and making substantial losses. But having raised a total of LlOm in equity, it ended 1986 with just under L5m cash in hand. Its pattern of financial development was thus typical of many new biotechnology companies.

Cambridge

Research

Biochemicals

Not all biotechnology firms start with substantial Research Biochemicals, Cambridge equity. founded by Dr Liddle in 1980, is one such exception. To get the company going on a shoe-string, CRB started by relabelling and distributing the peptides of an American company, Bachem. By 1982 several peptides were in great demand, so the company began to manufacture these themselves. CRB now offers three services: the sale of biologically active peptides, custom synthesis (i.e. producing to customer specifications) and the development of reagents for peptide synthesis. It has been

Strategies control and sales and marketing resources to go with the laboratory equipment and staffing level.

of New

Biotechnology

Firms

55

number of patents in the field of enzyme amplification which Colin Self had brought to the company. Founded in 1981 by Christopher Keightley and Chris Curry, it spent a year working entirely on the development of its first product. During this time it was financed by a L30,OOO overdraft facility guaranteed by Acorn and the British Technology Group (who subscribed Al65,OOO in equity in 1982). This was followed in 1983 by a subscription agreement with Biotechnology Investments Ltd and with Acorn which raised a further klrn in equity. In December 1985 a further k2.5m was raised through a private placing. The new shareholders were Touche Remnant, Hambros, Royal Life Insurance together with BTG and BIL who both increased their shareholding. No further capital has been raised, but Acorns shares have been bought by Equity Capital for Industry. I.Q.Bio has now been taken over by Novo who have bought 100 per cent of the share capital (including the founders). The two companies whose products are complementary already had reciprocal distribution agreements; but the main gainer in terms of distribution outlets will be I.Q.Bio. Ca m b rid ge will become the headquarters for Novos diagnostic work and production capacity will be expanded both in Cambridge and Copenhagen. This takeover strategy should provide the former I.Q.Bio business with both the marketing and distribution facilities and the access to finance to enable it to develop as rapidly as possible. Nova, for their part, wished to develop their small diagnostic group and has gained perhaps 2 years on its competitors.

LKB Biochrom
LKB Biochrom is the smallest of three companies in the Swedish LKB-Produkter group, which develops and manufactures scientific instruments aimed at the life sciences area. LKB Biochrom specializes in spectrophotometry and in protein systems, their main activity in this area being peptide synthesis. Although they have not had much direct recourse to the parent company for finance, this has been a sustaining factor in the background. LKB Biochrom have also made use of the groups world-wide sales organization to handle its projects. LKB sub-contracts manufacture of all components, 80 per cent to firms within 30 miles of Cambridge. One reason for relocating the company in Cambridge was the low cost (in comparison with Scandinavia) of high quality precision manufacture. LKB Biochrom has its own promotional group but uses the distribution network of its parent company -one of the most valuable aspects of belonging to a larger group. This distribution network has also been used by other small firms with products complementary to the LKB range, which are sold under the LKB logo. Such an agreement can take the form of finance to the small company to develop the product, or long term agreements to take a large volume of the product. Although LKB has been self-financing for some time, they are able to raise money from the parent company to exploit new areas with long term potential. However, in 1987 Pharmacia acquired a majority shareholding, and took over LKB-Produkter. Pharmacia has one group in direct competition with LKB-Produkter, but it seems that the LKB Biochrom work is complementary. The takeover may provide a stronger financial base for expansion for LKB Biochrom which needs to extend its product range.

Finance and Strategy

The development strategies and product portfolios of these companies have in each case been mirrored in their financing. At one end of the spectrum Cambridge Research Biochemicals kept its initial capital requirements to a minimum by starting off as an agent or distributor for other firms products (peptides) before going on to manufacture such products themselves. In the middle, Cambridge Life Sciences has concentrated on a limited range of diagnostic products. The AlOm it has raised in equity has been adequate to cover this, but they have lacked the capital to develop a wider range of products. At the other extreme, Celltech, with its L23m equity, has been able to aim directly at developing human therapeutic products; and large quantities of human growth hormone for the treatment of growth retardation have already been manufactured for clinical trials.

I.Q.Bio
I.Q.Bio had the distinction of getting its initial financial support from another high-tech company -Acorn Computers-and has now solved the problem of financing further expansion by accepting a takeover bid from the large Danish pharmaceutical company, Novo. The firm produces diagnostic kits and the distinctive feature of their product is the use of enzyme amplification to achieve more effective testing. This follows from the commercial development of a

56

Long

Range

Planning

Vol.

21

June

1988 $1 and $lOm. The firms investing came from a variety of industries. Monsanto (chemicals) invested $20m in Biogen and S5.5m in Collagen; Lubrizol (chemicals) invested $15 in Genentech; Fluor (engineering) invested $9m also in Genentech; and Koppers (mining) invested $15m in Genex. The absence of such investment by major U.K. companies is very noticeable. A fund-raising device peculiar to the United States has been the rise of R & D limited partnerships which have come into being mainly since 1980. They typically consist of a general partner, in this case the biotechnology firm, and a number of limited partners. The partnership will finance a research project, paying the firm the costs of the project as they are incurred. If the project is successful, the partners make their money out of the sale of the rights to the firm. If the project is unsuccessful, the limited partners stand to limit the loss borne by the main partner. The attraction of this vehicle to the investor depends on the tax treatment: in the United States the losses in the early years could be set against investors other income, making the investment an attractive one for high income tax payers. The attraction to the firm raising finance is that it can cover part (or all) of its R & D costs out of revenue and thus avoid or reduce losses. Twelve new biotechnology companies raised $400m in this way in 1981-1983. As U.S. biotechnology firms reached a critical size, they tended to make a public offering of their shares. The first to go public was Bio-Response in 1979 followed in 1980 by Gcnentech; and in 1981 Cetus set a record for an initial public offering which raised 0120m. These were heady days with share prices booming in companies which had introduced very few products. A reaction followed, both in share prices and in the initial naive over-confidence in anything with a bio-technology label. On this side of the Atlantic this change in sentiment reduced the attraction to British firms of seeking early flotation. A survey by the Arthur Young High Technology Group of U.S. biotechnology firms? showed that in 1985 only 17 out of 96 public companies rcsponding were in profit. These tended to be the larger firms with 130 or more employees. Across the board, the average company had losses of $1.2m. Research and development costs averaged $3.8m out of total operating costs of $10.7m. The report analysed separately the results of companies whose activities fell primarily in the fields of (a) diagnostics (37 p er cent of the total number), (b) human therapeutics (33 per cent), (c) agri-tech (6 per cent), (d) supplying to the biotechnology industry (18 per cent) and (e) other, e.g. contract research (6 per cent).

The sources of equity finance have been varied. Celltech was first financed by four financial institutions and then raised additional capital both from the original shareholders and other institutional investors. They have also received indirect finance from an existing pharmaceutical company through hiving off their diagnostics business into a joint AGC initially had both venture with Boots. institutional and industrial investors, but its major round of financing brought in three major international companies: Ciba-Geigy, Eli Lilly and Danish Sugar. Cambridge Life Sciences have not only placed shares with institutions but also raised money from private investors under the Business Expansion Scheme. Cambridge Research Biochemicals started out with a very low capital requirement, and then obtained a capital injection of A600,OOO from Rothschild and Charterhouse in order to start up manufacturing on its own; but their largest source of capital was an equity/licensing deal with a related company, Millipore. I.Q.Bio fmancc from the British raised A4m in equity Technology Group and a number of institutional investors before selling out to the Danish firm Novo.

Comparison

with the United States

Compared with the United States the development of new biotechnology firms has been relatively modest both in terms of products and turnover. The peak period for the emergence of new biotechnology companies in the United States was 1980-1982 when 91 companies started, as compared with 13 in the previous 3 years and relatively few since. This phenomenon was heavily dependent on the availability of equity capital. Debt financing was not a practical option because in their early years (apart from any question of security) they did not have the profits to meet the interest burden. Heavy and the time required to R & D expenditure, develop products, meant that the typical firm was running at a loss. Thus in 1982 only three out of 18 new biotechnology firms in the United States were in profit (all publicly held): Cetus, Genentech and International Genetic Engineering; and of these three, the first two were only in profit because of the interest being earned on the money raised by the sale of shares. In both cases, R & D expenditure alone exceeded operating revenues. These firms needed large amounts of equity to finance their negative cash flows during their initial years. The number of start-ups reflected the relatively plentiful supply of equity capital in the United States. In marked contrast to U.K. experience, established major companies invested heavily in new biotechnology firms in the 1980s. In the three peak years 1980,198l and 1982, they invested a total ofS78m in each of the first 2 years and $119m in the third. The amounts invested in each firm were usually between

Strategies Diagnostics was the one field where the average firm was profitable. Revenue was obtained mainly from sales of products and the proportion of costs going in research and development was relatively low. Firms mainly involved in developing human therapeutics were at the other extreme. Most of their revenue came from contract or collaborative research rather than product sales. Interest on money raised for equity capital but not yet spent also made a significant contribution to revenue. On the cost side, research and development was the major expense, and the sector as a whole was making losses. The agri-tech companies were more akin to diagnostics than therapeutics in having reached a stage where they were mainly dependent on product sales for their income. Their spending on research and development in relation to total costs was, however, intermediate between diagnostics and therapeutics. Most agri-tech firms were also making losses. Suppliers to other biotechnology firms showed a high proportion of product sales, fairly low research and development expenditure and more modest losses.

of New

Biotechnology

Firms

57

and distribute drugs on this scale must be a major one with turnover measured in hundreds (if not thousands) of millions. To reach this size, the small f-it-m must not only grow very rapidly, but go through a series of organizational and cultural metamorphoses. At the moment Celltech is perhaps the only new firm in the United Kingdom likely to take this path. To do so it will not only need access to very large amounts of additional equity capital, but also a strategy of product progression which will enable it to make some financial contribution from intermediate products. The second line of development is to merge with, or be taken over by, a larger company, as in the case of I.Q.Bio. The larger firm may not necessarily be a mainstream pharmaceutical company but must have the financial clout, size and distributive potential to fund and market the new products. The most serious disadvantage of this approach is that the large firms in question are more likely to be foreign than British, and there is a danger that Britain could be without an indigenous biotechnology industry by 1995. The response of larger British firms to the possibility of corporate venturing or joint ventures in this field could thus be very important. September 1987

Conclusions
The new biotechnology companies may in the longer run develop in three alternative ways. The first is to remain a small or medium size company manufacturing products or undertaking research for other larger companies and possibly selling their own brand diagnostic kits. The latter business seems likely to become more competitive as the new technologies lose their novelty and the larger established firms expend more effort on biotechnology products. Nevertheless there will almost certainly be niches for smaller firms in this as in most high technology fields. The second and most ambitious option is to become a fully fledged pharmaceutical company-if not as large as the present major international companies, at least large enough to survive on its own. To achieve this, however, the company needs to develop a portfolio of several products at various stages of development. Such a portfolio is essential for two reasons: first the firm needs more than one product at any particular stage of development in order to hedge against failure, tither during the course of development, or more expensively at the testing stage; and second it needs products at different stages of the life cycle in order to have a succession of products coming onto the market. A company large enough to develop, manufacture

Acknowledgements-The authors would like to express their thanks to Mr Hugh Perrott of Celltech Limited, Dr Roger Gilmour of Agricultural Genetics Company Limited, Dr Michael Gronow and Mr Anthony Burton of Cambridge Life Sciences plc, Dr Ken Liddle and Mr Don Forrest of Cambridge Research Biochemicals Ltd, Mr David Storey of LKB Biochrom Limited and Dr Christopher Keightley of I.Q. (Bio) Limited.

References (1)

and notes
Business: A Strategic Analysis,

Peter Daly, The Biotechnology Frances Pinter, London (1985).

(2) For further discussion of the financing problems of small high

technology firms see: John Grieve Smith and Vivien Fleck, Strategy and finance in small high technology companies, in Z. A. Silberston (Ed.), TechnologyandEconomic Progress, Macmillan, London (1988). (3) The six companies whose experience is summarized in this paper were visited as part of a study of business strategies in small hightechnology companies started by the authors in 1985. The first results of this study were published in Long Range Planning, 20 (2), 61-68 under the title, Business strategies in small high technology companies. (4) Biotechnology: (1980).
Report of a Joint Working Party, H MSO, London

(5) Office of Technology Assessment, Congress of the United States, Commercial Biotechnology: An International Analysis. Washington DC (1984). (6) Biotech 86: At the Crossroad, Group (1986). Arthur Young High Technology

(7) Company financial years ending in 1985.

58
Further

Long Range Planning Vol. 21

reading

June 1988
Margaret Sharp, Europe and the new technologies, in Biotechnology: Watching and Waiting, Chap. 6, Cornell University Press, Ithaca, New York (1986). J. P. G. Williams (Ed.), Biotechnology: The Financial Implications, City of London Polytechnic, London, U.K. (1982).

John Elkington, Bio-Japan: The Emerging Japanese Challenge in Biotechnology, Oyez, London (1985). John Elkington, The Gene factory, Century, London (1985). Margaret Sharp, The new biotechnology: European governments in search of a strategy, Sussex European Papers No. 15 (1985).