Biotechnology Reports 6 (2015) 5660

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Biotechnology Reports
journal homepage: www.elsevier.com/locate/btre

Short communication

A perspective on the economic valorization of gene manipulated

biotechnology: Past and future$
Mirjam Knockaert a, * , Sophie Manigart b , Soe Cattoir d , Willy Verstraete c
a

Ghent University, Belgium and University of Oslo, Norway

Ghent University, Belgium and Vlerick Business School, Belgium
c
Ghent University, Belgium
d
VMM, Belgium
b

A R T I C L E I N F O

A B S T R A C T

Article history:
Received 1 December 2014
Received in revised form 16 January 2015
Accepted 19 January 2015
Available online 27 February 2015

Three distinct elds of gene manipulated biotechnology have so far been economically exploited:
medical biotechnology, plant biotechnology and industrial biotechnology. This article analyzes the
economic evolution and its drivers in the three elds over the past decades, highlighting strong
divergences. Product and market characteristics, affecting rms nancing options, are shown to be
important enablers or inhibitors. Subsequently, the lack of commercialization in a fourth type of gene
manipulated biotechnology, namely environmental biotechnology, is explained by the existence of
strong barriers. Given the latters great promises for environmental sustainability, we argue for a need to
push the commercial valorization of environmental biotechnology. Our research has strong implications
for (technology) management research in biotechnology, pointing to a need to control for and/or
distinguish between different biotechnology elds.
2015 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND
license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

Keywords:
Gene manipulated biotechnology
Commercialization drivers
Industry evolution

1. Introduction
Biotechnology has been dened in many different ways. An early
denition reads: biotechnology is the application of biological
organisms, systems, or processes to manufacturing and service
industries [1]. Most denitions encompass fermentation processes
from wine to penicillin, as well as a broad spectrum of contemporary
technologies that have grown out of recombinant DNA technology
[1]. A number of biotechnological elds that have traditionally
been distinguished include health, agriculture, food and beverages
processing, natural resources, environment, industrial processing
and bioinformatics [2]. This paper specically focuses on the
valorization of gene manipulated biotechnology (or genetic
engineering). Gene manipulated biotechnology is the deliberate
modication of the characteristics of an organism by the
manipulation of its genetic material and is a subdomain of
biotechnology [3]. This paper aims at providing an understanding

$
This is an open-access article distributed under the terms of the Creative
Commons Attribution-NonCommercial-No Derivative Works License, which
permits non-commercial use, distribution, and reproduction in any medium,
provided the original author and source are credited.
* Corresponding author. Tel.: +32 92643459.
E-mail address: mirjam.knockaert@ugent.be (M. Knockaert).

of how gene manipulation technologies have been economically

exploited and what factors have driven this evolution. So far,
economical valorization of gene manipulated biotechnology has
mainly occurred in three elds: (i) medical biotechnology (referring
to applications in the health care sector); (ii) plant biotechnology
(referring to applications in agriculture) and (iii) industrial
biotechnology (referring to applications in industrial processes
such as manufacturing and chemical processes). While the
originating technology for the three elds is similar [4], their
economic valorization differs strongly. In what follows we provide
an understanding of the evolution of valorization in the medical,
plant and industrial gene manipulated biotechnology industries
and its driving forces. We subsequently show that these forces
have led to a fourth eld of gene manipulated biotechnology,
namely environmental biotechnology, to be hardly commercially
exploited. We argue that this exploitation is however highly
desirable from a social and environmental perspective. We
subsequently elaborate on the desirability for future research to
account for the differences in the biotechnology elds.
2. Industry evolution
The medical biotechnology industry originated in the United
States. Laws facilitating technology transfer as the BayhDole Act
(1980) gave incentives to universities to commercialize research

http://dx.doi.org/10.1016/j.btre.2015.01.002
2215-017X/ 2015 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

M. Knockaert et al. / Biotechnology Reports 6 (2015) 5660

and allowed academics to establish companies while retaining

their positions at the university. This helped stimulating the
establishment of many new biotechnology rms and the overall
biotech industry [4]. Specically for California, where the biotech
industry originated, other stimulating ingredients were the
presence of scientists with commercial ideas, mobile labor,
knowledgeable nance in the form of venture capital investors
and strong communication networks [4,5]. The latter were
inherited from the successful semiconductor industry in the
Silicon Valley area. As most of the publicly funded research in the
United States was in health care (especially in cancer-related
areas), a critical mass of technological innovation was developed
on which a new industry, the medical biotechnology industry, was
created. Numerous science-based start-up rms were created as of
the mid to late 70s [4,6], based upon scientic breakthroughs at
research institutes and mainly nanced with venture capital. These
newly established companies were the rst to successfully produce
the rst generation of genetically engineered human therapeutics
that often allowed to treat diseases for which no therapies existed
until then. Thereafter, companies specialized in new diagnostics
and in animal therapeutics emerged. Several pioneering start-ups
have grown organically to become fully integrated companies such
as Genentech [7,8]. Today still, there are many new start-ups
worldwide, often founded in collaboration with incumbent
pharmaceutical companies, providing technological or nancial
support.
Mirroring the development in the medical biotech industry,
the plant biotechnology industry originated in the 1980s through
the creation of many technology-based start-up companies
focused on generating solutions to make plants resistant against
diseases and drought. Similarly to the development in the
medical biotech industry, many of these start-up companies
originated from research at universities and research institutes.
Pioneering companies emerged simultaneously in the U.S. and
in Europe (e.g. Plant Genetic Systems). In contrast with the
medical biotechnology industry, genetically modied (GM) crops
improved existing crops, rather than offering radically new
products addressing unserved customer needs. GM crops thereby
cannibalized the sales of traditional agrichemical companies. This
induced a number of agrichemical companies to acquire smaller
start-ups, in an effort to maintain protability while investing in
their future [9]. As such, the plant biotechnology industry largely
followed an acquisitive growth trajectory resulting in a high
degree of consolidation [7]. While there were still eleven large
agrichemical companies engaging in biotechnology in 1995, next
to a large amount of smaller rms, their number was reduced to
only six by 2003 [9].
Industrial biotechnology has not received the level of
attention heaped upon therapeutics and agricultural biotechnology.
The promise of industrial biotechnology has been to reduce or
replace the use of fossil energy and hydrocarbon-based materials
with renewable, plant-based resources and naturally occurring
micro-organisms to produce more cost-effective and environmentally friendly material for textiles, fuels, chemicals, pollution
prevention and even human pharmaceuticals [9]. Producing
chemicals through bio-chemical routes is still considerably more
expensive compared to the traditional production routes for most
products and biomass is not yet competitive with fossil fuels [9].
Hence, the economic valorization of industrial biotechnological
processes has been more limited. In a rst phase, it has been driven
by large chemical corporations; it is only over the last ve years
that new start-ups emerged in this eld [2].
In summary, the industrial evolution of the three gene
manipulated biotechnology elds was very different. Medical
biotechnology has been the rst to emerge and is still the strongest
[4,10]. The industry has developed through a combination of

57

organic and acquisitive growth, with many early start-ups having

grown to become fully integrated companies. Following the
dominant position of medical biotechnology in the biotechnology
industry, (technology) management researchers have largely
focused on this industry eld. The plant biotechnology eld has
been characterized by acquisitive growth: whereas many
start-ups initially successfully applied the science of biotechnology, many got acquired by large incumbents and few start-ups
survived as independent companies [9]. Finally, the industrial
biotechnology eld has more recently emerged in incumbent
chemical companies, with new start-ups only recently entering
this market.
3. Drivers of the evolution
In what follows, we elaborate on the factors that explain the
differences in evolution between the biotechnology elds. First, we
elaborate on the research and development (R&D) process and
costs. Second, we indicate how the nature of the product and its
appropriability together with the nature of the market, has driven
the evolution. These factors lead to differences in the availability of
nancing sources which has, in turn, affected the biotechnology
industry evolution.
3.1. R&D process and costs
A rst important difference between the three elds relates to
the R&D process and cost. The time from scientic discovery to rst
sales of a new drug in the medical biotechnology eld is at least
ten years [11]. Due to an intense regulatory framework, the
average cost for a new drug to achieve regulatory approval is
estimated to vary from $500 million [12] up to $800 million
[13,14]. While the time for developing a new GM crop and
gaining approval is comparable, the cost for developing agro-bio
products is signicantly lower and is estimated to be about
$100 million [9]. The industrial biotechnology industry is able to
bring innovations to the market in only three to ve years. It has
less regulatory requirements to be taken into consideration and
hence can generate revenues much faster than medical or plant
biotechnology [2]. While the bulk of the invested capital in medical
and plant biotechnology innovations goes to intangible resources
such as people, industrial biotechnology often requires expensive
infrastructure such as testing sites, as innovations are often
related to industrial process improvements.
3.2. Product/process and appropriability regime
A second way in which the three elds differ is the extent to
which inventions can be protected through patents, leading to
intellectual property (IP) rights. Intellectual property rights can
lead to a strong monopoly position for the owner and higher prot
margins in case of a successful product [15]. The drug development
process (medical biotechnology) is characterized by high risk and
low success rates in nal regulatory approval, but medical
biotechnology inventions, especially therapeutics, typically have
a strong patent position. Similarly, the plant biotechnology is
characterized by a strong appropriability regime through strong
patent positions. This allows the IP owners to generate high
margins that cannot be eroded by comparable products throughout the lifetime of the patent. Industrial biotechnology, in contrast,
frequently focuses on innovative technologies in production
processes without a distinct patentable end-product. This creates
a high risk for opportunistic behavior by competitors, which may
acquire and use the new technology through copying. It also makes
licensing the technology to a third party risky, as the payment of
royalties and fees may cease when the licensee acquired the

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M. Knockaert et al. / Biotechnology Reports 6 (2015) 5660

technical knowledge. In sum, the medical and plant biotech

industries were able to build upon patent-protected product
innovations whereas the industrial biotech industry has
mainly generated process innovations characterized by lower
appropriability regimes.
3.3. Nature of the market
A third difference driving the evolution of the biotechnology
elds relates to the nature of the market and includes the type of
market addressed (pull versus push market), added-value from a
customer perspective, public opinion and potential prot
margins. The medical biotechnology industry has generated
many role models where blockbuster drugs yielded extremely
high returns on investment. The success of these blockbusters is
to a large extent driven by the clear added-value of the new drug
from a patients perspective. In case of a common disease, this
positively combines with a large market potential. Given the
lifesaving possibilities of medical biotechnology, public opinion
has been mainly positive toward this eld. As such, the medical
biotechnology has in general been characterized by a strong
market pull.
By contrast, plant biotechnology addresses the agricultural
industry, which is a low margin industry with a low global
market growth around 2% annually. Further, GMOs improve
traditional crops, but do not provide radically new products. An
additional factor inhibiting economic valorization of GMOs
has been the growing apprehension of consumers in certain
parts of the world, including Europe, leading to legal bans
on these products. Subsequently, plant biotech companies
mainly have to push their products on the market by replacing
traditional products in sometimes adverse conditions, which is
more difcult compared to the commercialization of medical
biotechnology.
Finally, the industrial biotech industry still lacks strong role
models of companies and entrepreneurs which have successfully
commercialized technological developments in industrial
biotechnology [2]. In a rst phase, this industry mainly developed
new industrial processes to manufacture already available
products. Technological know-how is often used in the early
stage of the production process and hardly visible in the end
product. More recently, industrial biotechnology also led to the
development of new products, such as bioplastics or biofuels.
However, the added-value of industrial biotech products
compared to established products is less clear to the customer,
strongly requiring a market push mechanism. Compared to plant

biotechnology, industrial biotechnology has however faced less

negative public opinion.
3.4. Financing sources
Whereas each of the above mentioned differences has
inuenced the evolution of the different biotechnology elds
by itself, they have also affected an important driver of their
evolution, namely the availability of nancing sources for both
new start-ups and established companies. The importance
of the national and regional innovation systems in which
biotechnology is embedded, is further not to be underestimated
[16]. Within such innovation systems, public sources of nancing
are provided in order to fund technological developments in
biotechnology [17], which are, however, often insufcient to fund
the long trajectory toward successful commercialization of
biotechnology inventions. Specically, whereas investing in the
early development stages requires signicant amounts of
nancing in each biotechnology eld, actors in medical and
plant biotechnology need the funding for the development of IP,
while actors in industrial biotechnology mainly need the
funding to build infrastructure. The development in the medical
and plant biotechnology elds typically follows a staged process
with clear go-or-no-go decision points. This allows sequential
investing, decreasing the nancial risk as additional money is
only invested if a previous phase was successful. In case of
industrial biotechnology, however, the efcacy of a technology
can often only be tested in a nal, industrial scale. Subsequently,
in case the technology does not perform as expected, the
infrastructure does not have any residual value and the total
investment is irrecoverable. As the total investment in
infrastructure has to be made upfront, sequential investment is
not possible making that investors risk losing a larger investment
amount. The low appropriability regimes that characterize
industrial biotechnology have further negatively affected the
interest by nancing parties.
Further, as argued previously, the nature of the market for
medical biotechnology is economically more attractive compared
to that for plant biotechnology, which is, in turn, more attractive
than that for industrial biotechnology. This makes medical
biotechnology more attractive for private external investors such
as venture capital investors. Finally, external investors are
concerned by the way they can sell their equity stakes in the
medium term. The most successful exit routes for venture capital
investors are initial public offerings (IPOs) and trade sales, in
which the entrepreneurial companies are acquired by industrial

Table 1
Drivers of the evolution in medical, plant and industrial biotechnology.
Driver

Medical

Plant

Industrial

Industry origination

Research at universities and research

institutes
Long time
High, sequential investment

Research at universities and research

institutes
Long time
Medium, sequential investment

Research at large chemical corporations

Product
Strong
PULL
Market potential: high
High margins
Public opinion: PRO
Many (IPOs and acquisitions)

Product
Strong
PUSH
Market potential: high
Lower margins
Public opinion: AGAINST
Few (mainly acquisitions, some IPOs)

Shorter time
Medium, up-front investment
(infrastructure)
Initially process followed by product
Weak
PUSH
Market potential: unclear
Lower margins
Public opinion: NEUTRAL to PRO
Unexplored

High

Medium (decreased)

Low but growing

R&D timeline
Development cost
Product/process
Appropriability of IP
Nature of the market

Investor exit
opportunities
Venture capital interest

M. Knockaert et al. / Biotechnology Reports 6 (2015) 5660

players [18]. Incumbent pharmaceutical companies often

acquire medical biotechnology start-ups that have successfully
passed critical stages in the FDA approval process. Given the
large number of acquisitions and IPOs of medical biotech
start-ups, there has always been a wide range of exit opportunities for successful companies active in medical biotechnology.
The strong IP positions, the pull nature of the market thanks to
clear added-value to the customer, and the possibility of
sequential investing coupled with valuable exit options, offset
the high levels of technological risk and make medical
biotechnology an interesting eld for private investors. This
explains why the medical biotechnology eld has been
characterized by a large number of start-up companies nanced
by venture capital [19,20].
In plant biotechnology, exit opportunities used to include
acquisitions by industrial players, but these have lately dwindled
down due to a strong consolidation in the industry. Fewer exit
options for private investors, together with less attractive
commercial margins and the pull nature of the market in
combination with an increasingly negative public opinion in
certain parts of the world, made this industry less attractive to
private early stage investors. This, in turn, led to a decrease in the
number of plant biotech start-ups. Currently, technological
developments mainly take place within large agrichemical
companies. Finally, in industrial biotechnology, the difculties
to get a new genetic development appropriated, the erce
competition, the large upfront and irrecoverable investment in
infrastructure and the relatively weak pull of the market for
innovative products, have resulted in venture capital investors
turning toward other investment areas. Consequently, a relatively
low number of start-up companies have been created in industrial
biotechnology and developments in industrial biotechnology
have so far mainly taken place in large chemical companies.
Table 1 summarizes the main drivers.
4. Future evolution
This paper has highlighted the different routes to economic
valorization and industrial evolution in three biotechnology elds
involving gene manipulation. The main drivers for the industry
evolutions are related to R&D, product and market characteristics
which have subsequently affected the availability of external
nancing for biotech developments. By consequence, the
availability of nancing for entrepreneurial companies has
strongly driven the degree to which entrepreneurial companies
have been established in a specic eld, or alternatively how
important incumbents have driven economic valorization. Our
analysis of the different industry elds and their evolution gives
rise to theoretical and practical implications.
First, our observations lead to a number of recommendations
for management researchers. Specically, so far, researchers
studying the biotechnology industry have either focused on the
broader biotech industry or have focused on specic industry elds
or technologies, very often medical biotechnology. Nevertheless,
the latter researchers have often drawn conclusions for the entire
industry, without acknowledging the vast differences between
biotechnology elds [20]. As such, we call for future research to
either control for the industry eld in biotechnology or to dedicate
attention to the extent to which conclusions can be generalized
beyond the medical biotechnology industry.
Second, our analysis has a number of practical implications.
Remarkably, there are currently few companies which apply
a fourth type of gene-manipulated biotechnology, namely
environmental biotechnology. This eld focuses on improvements in downstream processes, striving for a healthier and more
hygienic environment thereby increasing the overall quality of

59

life and fostering long-term sustainability. While the eld of

environmental biotechnology originated in the 1970s, it has
incorporated gene manipulation since the 1990s. This has
produced
interesting
technological
breakthroughs,
but
commercialization thereof is limited. This eld differs from the
ones analyzed above as it has so far mainly focused on removing
unwanted chemicals (pollutants) and materials (waste), and as
such has not directly generated economic returns. The lack of
commercialization so far can also be explained using the drivers
identied before. While the development trajectory and
cost of environmental biotechnology is comparable to that of
plant and industrial biotechnology, it mainly generates process
technologies which are hard to protect. Further, while waste
reduction is socially desirable, this is typically not (correctly)
priced in the market. Hence, rms are not able to internalize the
social value they could create by adopting these technologies.
This is a typical case of positive externalities at the societal level
which cannot be appropriated by individual rms. In addition,
public opinion is negative vis--vis these GM technologies in
certain parts of the world. Given these adverse economic
conditions, neither incumbent rms nor start-ups are inclined
to exploit environmental biotechnology innovations. This may
change in the future as environmental biotechnology is strongly
becoming re-oriented toward up-cycling of used materials' in
the framework of providing a cyclic economy which helps to
abate the putative dramatic negative consequences of climate
change.
We conclude that differences in economic valorization of GM
biotechnology can be explained by market mechanisms. Market
mechanisms lead to market failures in the case of environmental
biotechnology, however: technological developments are
exploited to a lesser extent than would be optimal from a larger
societal perspective, and more specically an environmental
sustainability perspective. We argue therefore that public policy
intervention is needed in order to embrace gene-manipulated
environmental biotechnology and exploit environmental
biotechnological technological progress to its full potential.
Acknowledgement
This research was supported by the Multidisciplinary Research
Partnership Ghent Bio-Economy.
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