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Government and business

As we contemplate the promises of different biomedical technologies and the social challenges they create, we must consider the crucial role of business and government in either supporting or retarding progress. Governments set the rules of the game, in terms of reimbursement, taxation, research incentives, intellectual property rights such as patents, antitrust legislation, import/export restrictions, and fiscal and monetary policy. When the Bush Administration imposed a moratorium on embryonic stem cell research in 2001, the stock-market value of many stem cell companies dropped sharply and scientific talent started to explore research opportunities outside the United States, including those in Europe, South Korea, and Singapore.14 Conversely, government can stimulate applied research, as happened with the celebrated Bayh–Dole Act of 1980.15 This seminal legislation, plus key amendments in 1984 and 1986, allowed universities, other nonprofits, and small companies to own the commercial rights to their research even if the federal government funded it via basic research grants. This, in turn, allowed NSF- or NIH-funded research to be licensed to industry, giving biotech and pharmaceutical companies access to promising technologies that would otherwise remain dormant in academia. Another positive example of government support for the biosciences is the multibillion-dollar Biopolis project funded by Singapore (see the accompanying sidebar). This strategic initiative epitomizes an important partnership between government and business, and illustrates that the field of the biosciences has a wide global footprint, from basic research to the eventual delivery of clinical benefits to patients.

Whereas governments can set the rules and provide incentives, the free market is especially vital in bringing new medical technologies to patients. Scientific discoveries and medical inventions can languish for decades if no viable business model commercializes them.

The key distinction between invention and innovation is this commercial link: Innovation is all about finding a way to convert inventions into products and services that can be profitably brought to market. Figure 1.4 highlights two key inflection points in the evolution of technological innovations.16 The first concerns a scientific battle among competing modalities in the early stages of a new technology. A classic example is the struggle between alternating current (AC) and direct current (DC) in the days of Thomas Edison, which lasted several decades and was finally settled in favor of AC power. After the scientific questions are settled, through research, testing, and peer reviews, a second inflection point usually occurs around competing models for application in the market. A well-known example is the fierce battle in the 1970s between Sony's Betamax and JVC's VHS format for the home video and entertainment market, or later between Apple and Microsoft in setting the common standard for operating systems in personal computers. A current biomedical example concerns the competing standards being offered for electronic medical records. Sometimes these battles amount to a winner-take-all contest, especially when there is room for only one main standard (such as AC versus DC power) or when special protections are granted, via patents or preemptive contracts, to the first mover (as with blockbuster medical drugs).

Figure 1.4

Figure 1.4 How technologies evolve

The importance of business, especially the crucial role of business models, is central in understanding the evolution of the practical applications of the biosciences. By business model, we mean the broader conceptual framework that companies use to create, produce, and deliver products or services to the marketplace. For example, a traditional bookstore chain such as Borders in the United States operates under a different business model than Amazon, which relies heavily on the Internet. Not only are their internal operations—from procurement to warehousing, to shipping—different, but so is the way they market and distribute their books and other products. Akin to a species that has adapted to a specific ecology, the business model represents the strategic blueprint by which a company or entire industry manages to be viable, given its external environment.

To become viable, new technologies that do not fit existing business models either will remain dormant or must find new business models, via entrepreneurs or innovations by existing players. If such new technologies destroy previous business models, as supermarkets have done to local grocery stores and the Internet has done to the traditional travel agency, business scholars term them disruptive technologies.17 The many technological changes afoot in the biosciences likely will prove disruptive to existing pharmaceutical, diagnostics, and medical device companies. Just as the personal computer revolution led to the demise of the traditional vertically integrated mainframe computer companies (such as IBM, DEC, Wang, Nixdorf, and NEC), the personalized medicine revolution could result in the breakup of the traditional integrated pharmaceutical companies (such as Pfizer, Merck, GlaxoSmithKline, and Novartis). Although the industry is presently consolidating, large companies eventually might restructure around areas of genuine core competence and spin out the activities that no longer bestow competitive advantage. The rise of new business models will force this restructuring.

To appreciate the promises and pitfalls of the biosciences, we must understand the complex dynamics among technological progress, social needs and concerns, and governmental oversight and regulation. As depicted in Figure 1.5, these three areas can be viewed as the corners of a complex triangle, with back-and-forth interactions among the corners as they change over time. In the middle of this triangle lies the continually evolving world of business models that try to connect the corners to produce valuable products and services for consumers. This is where both existing companies and entrepreneurs look for opportunities. Ultimately, however, major innovations in biomedicine hinge on two deeper questions: How far can the underlying sciences really take us, and do we want to go there as a society?

Figure 1.5

Figure 1.5 Business models tie it all together

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