Critical Success Factors in

Biopharmaceutical Business
A Comparison Between Finnish and Californian Businesses
Tanja Rautiainen

Technology Review 113/2001

Critical Success Factors

in Biopharmaceutical Business:
A Comparison Between Finnish and
Californian Businesses

Technology Review 113/2001

Helsinki 2001

Tekes your contact for Finnish technology

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Foreword

This paper is based on the authors Masters thesis Critical Success Factors in Biopharmaceutical
Business: Finland vs. California published in 2000. Since the thesis is written in an academic form
and comprises of a total of over hundred pages, this second version was written for a lighter, more
enjoyable reading experience.
I would like to thank Tekes, especially Solveig Nylund and Jari Kauppila for extending this great
opportunity to me to study the biopharmaceutical business in Finland and California. Special
thanks go to all the 25 interviewees who remain anonymous throughout the study.
I have been impressed by the high quality of biotechnology research and the effectiveness of the
business environment in Finland. I hope that this study brings new valuable information to all its
readers, and I also hope to contribute to the strengthening of the industry in the coming years.
Helsinki, May 2001
Tanja Rautiainen

Contents

Foreword
1

Introduction 1

Critical Success Factors 5

2.1 Human Resources 5
2.1.1 Commitment 6
2.1.2 Entrepreneurism 6
2.1.3 Teamworking Skills 6
2.1.4 Management Skills 7
2.2 Products 7
2.2.1 Number of Products 7
2.2.2 Strong Technology Platform 7
2.2.3 Unmet Needs 8
2.2.4 Early Marketing 8
2.3 Networking 8
2.3.1 Academia 9
2.3.2 Big Pharma 9
2.3.3 Foreign Partners 9
2.4 Company Climate 10
2.5 Clustering 10
2.5.1 Labor Pools 11
2.5.2 Knowledge Spillovers 11
2.5.3 Specialized Services 11
2.6 General Infrastructure 11
2.7 National Policies 12
2.7.1 Government Funding 12
2.7.2 Government Support for Start-ups 12
2.7.3 Tax Reductions 13

Pharmaceutical R&D Industry in Finland and California 15

3.1 Finland: Strengths and Weaknesses 15
3.2 California: Strengths and Weaknesses 16
3.3 Pharmaceutical R&D Industry in Finland 16
3.3.1 Development of the Industry 16
3.4 Pharmaceutical R&D Industry in California 17
3.4.1 Development of the Industry 18

Conclusions 19

References 21
Technology Reviews from Tekes 23

1 Introduction

Most biopharmaceutical companies today are in their development stage by all measures. Hardly any of them are
making a profit, but are nevertheless in a capital spending
race to build superior technology platforms, capture firstmover advantage, and accumulate intellectual property
(IP) rights. They are all facing long product development
cycles and years of business development before, if at all,
becoming sustainable operating companies. However,
some of the biopharmaceutical companies of today will become the Amgens or Genentechs of tomorrow.
The business angels, venture capitalists, equity analysts,
and business managers are all asking the same questions:
Which companies will succeed? What are the signs of success? Many biopharmaceutical success stories have originated from California, where biotechnological research has
been actively turned into business since the early 1980s.
Generally, Europe has lagged behind the USA, and now
European newcomers are facing a tough challenge; the international market for biotech products is already very consolidated, and the entry barrier is much higher today than
when the American biopharmaceutical business was in its
infancy. The newcomers must conquer their niches strategically.
Critical success factors (CSFs) for a product development
company have been a popular research topic among economists for the past two decades. Most of the research is fo-

cused on information technology (IT) companies or product development processes in general, and biopharmaceutical companies have very seldom been studied as a homogenous group.
The aim of the present study was to determine those CSFs
that are specific for biopharmaceutical companies. First, an
extensive literature review was conducted to find the major
CSFs and to form a hypothesis. Seven CSF groups were
identified, and the hypothesis was then tested for biopharmaceutical companies by interviewing 25 industry experts with a technique referred to as theme interview.
While 15 of the total 25 interviewees were Finnish, 10 of
the interviewees were Californians. This led to an interesting setting Finland as the worlds mobile IT forerunner
and a biotechnology challenger vs. California, the birthplace of modern hi-tech business and the indisputable number-one biobusiness hotbed in the world.
The CSFs were thus also used to compare the Finnish and
Californian biopharmaceutical businesses (see Figure 1):
what seemed to be critical in California was not necessarily
considered critical in Finland and vice versa. Most CSF
differences found could easily be explained by differences
in the infrastructure and business culture of these two geographically distant areas. And the differences are very important to remember when planning overseas business operations.

WHAT MAKES A BIOPHARMACEUTICAL

COMPANY SUCCESSFUL?

Differences
between Finnish
and Californian
biopharmaceutical
businesses

IN FINLAND?
IN CALIFORNIA?

Critical Success Factors

Figure 1. The question setting of the present study.

Pharmaceuticals are a USD300 billion business. The manufacturing and marketing of drugs are well covered by
large pharmaceutical companies, the big pharmas. Most
big pharmas today were restructured during the late 1980s
as the result of a strong consolidation trend in the industry.
The consolidation generated ever fewer and larger companies, which eventually became too large to fill their own
product pipelines. This in turn led to the emergence of a
new, fast-growing industry sector in the 1990s: the pharmaceutical R&D industry.

form of bio or biotech, to give the impression of being a

modern high-potency business. In order to avoid confusion, the terms used in this study are defined below. It
should be noted however, that the definitions refer specifically to the present study; the terms do not represent a strict
consensus, and other interpretations of the terms may occur
in the literature.

At the core of the pharmaceutical R&D industry are the

biopharmaceutical companies: small to medium-sized
companies (SMEs) focusing on the development of new innovative drugs, using modern biotechnology as a tool. The
biopharmaceutical companies operate in close cooperation
with academic research, directing the research from the lab
toward a clinically approved drug. At some point in the trials, the product is often licensed to a big pharma. In addition to the pharmaceutical industry consolidation creating a
market for these companies, the advances in biotechnology
offered them a technology push.
The terminology used in the pharmaceutical R&D industry
is relatively young. In some 25 years of its existence, the
industry has grown from a couple of ventures into several
thousand companies around the world. Biotechnology appears to be a fashionable term and is often used, also in the

Biotechnology a biological science that is applied

especially in genetic engineering and recombinant
DNA technology. Biochemical applications, such as
protein engineering and applied microbiology are also
often considered to be biotechnological sciences.
The slang word biotech has become a frequent expression even in academic articles and communications. It
is used in two different senses, as a shortening of just the
word biotechnology, or as a shortening of the expression biotechnology company. In the present study the
latter interpretation is used, i.e. biotech stands for a
company developing biotechnological tools or products. Biotechs operate vertically in several sectors:
pharmaceuticals, diagnostics, agriculture, and foods.
Pharmaceutical is a medicinal drug. It is also an adjective that implies something that is of, relating to, or
engaged in pharmacy or the manufacture and sale of
pharmaceuticals. Furthermore, it is easy to define a

BIG PHARMA
PRODUCT DEVELOPMENT PROJECTS

Financing:
Angels
Vcs
Government
agencies
IPO
etc.

Biopharmaceutical
companies

INNOVATIONS

ACADEMIA
Figure 2. Structure of the pharmaceutical R&D industry.

Service
providers
Test labs
CROs
Manufacturers
Lawyers

pharmaceutical company: a company engaged in the

development, manufacture, and sale of drugs. It should
be noted that drugs are pharmaceuticals in a general
sense, as used in American terminology. No reference
is made to narcotics.
Big pharma is derived from the term big pharmaceutical company. The expression does not only indicate
the large size of the company, but also contains another
implication. Big pharmas are full-spectrum companies: able to run all the operations from basic applied
research to clinical studies to marketing of the end
product. Today, big pharmas are represented by a
handful of multinational enterprises (MNEs) such as
Novartis, Merck, or Pfizer.
Full-spectrum refers to a company that is able to conduct all the operations internally, using in-house resources. Thus the company can also be referred to as a
fully integrated pharmaceutical company (FIPCO).
On the other hand, when a company outsources most
of those operations, i.e. uses outside service companies
and partners but still manages the chain of operations
internally, it is called a virtually integrated pharmaceutical company (VIPCO).

As mentioned earlier, biotechs operate vertically in

several sectors. Two of the subsectors are involved in
the medical arena: diagnostics and pharmaceuticals. In
the present study, those biotechs involved in the pharmaceutical R&D industry fall into a group called
biopharmaceutical companies: high-tech SMEs operating in the pharmaceutical R&D industry, with the
development of a new drug as their primary focus. The
final end product may be a small-molecule drug synthesized by chemical means, but the development of
the drug includes extensive utilization of modern biotechnology applications. This definition may be disputed by some readers, since the original meaning of
biopharmaceutical is strictly a protein drug manufactured by genetically engineered cells or, in a somewhat
broader sense, includes gene therapy and monoclonal
antibodies. However, the expression biopharmaceutical company has become a concept of its own in the
English-speaking business world with the definition
explained above, and thus is used in that sense in the
present study.

The manufacture and sale of drugs are mostly covered

by big pharmas, but the drug development segment is
vivid with young companies and new business models.
This segment is called the pharmaceutical R&D industry, or pharmaceutical discovery industry. Pharmaceutical R&D industry includes all the organizations involved in the research and development of
drugs: research institutions, drug development companies, technology providers, contract service firms, and
agencies.

2 Critical Success Factors

Let us first see how a dictionary defines the term CSF:

Critical success factors are those primary process performance measures that most closely define and track how the
process must perform to be considered successful. CSFs
are directly related to strategic and business plan objectives
and goals. For each critical success factor there must be an
associated key indicator that provides the measure, and a
standard of performance or allowable variance from
planned performance. The most effective key indicators
are those designed into the process in such a way as to provide a readily available or continuous reading of performance. Many of the instruments on a car dashboard can be
considered examples of key indicators (Anon., 2000).
In other words, to identify the criticality of a success factor,
measuring the performance of a company is needed. In the
biopharmaceutical R&D business, it is difficult to measure
performance. In an early phase when prediction whether a
company will survive and do well in the global competition
is desired, there are usually no products in the market and
little if any positive cash flow for years to come. However,
some benchmarks for successful performance have been
listed by Greetham (1998): Receiving venture capital (VC)
funding, collaborating with a partner, conducting a successful initial public offering (IPO), having a product candidate complete a successful clinical trial, or finally
launching a product into the market: the point where the
scale of measure changes.

venture, project management able to focus on reducing

uncertainties (Lester, 1998), or a high-quality new product process and a clearly defined new product strategy
for the business unit (Cooper and Kleinschmidt, 1996).
Here, more concrete success factors were sought however.
In the present study, the CSFs were first categorized under
two main groups: internal and external success factors. Internal factors are those that a company can affect themselves. External factors are independent of company activities and are often dependent on the geographical location of
the company. Second, the internal CSFs were grouped under four topics: human resources, products, networking,
and company climate, and the external factors were
grouped under three topics: clusters, general infrastructure,
and national policies. Table 1 demonstrates the categorization. In the following chapters each success factor group is
discussed into more detail.

Table 1. Critical success factors of a biopharmaceutical

company. The seven success factor groups.
Success Factor Categorization
Internal Success
Factors

Human resources
Products
Networking

Then again, collaborating with a partner can be both a measure of performance and a CSF. It measures performance in
the sense that the partner has considered the company to be a
valuable ally and the coproject to be worth the risk. Or, it can
be a CSF in the sense of gaining resources and experience
essential to making the project under collaboration succeed
and at the same time making the company succeed. There is
only a thin line between the cause and the effect.
A successful IPO indicates a good company in the sense of
public evaluation. At the same time it creates cash inflow
important for the company. Is money a success factor? It
surely is critical for the companys existence, but this is
where the line is drawn here. Capital from VCs or IPOs and
cash inflow from product sales are considered to be consequences of having the right success factors in the company,
not merely success factors per se.
The outcome of a CSF analysis often includes results such
as organizational structure and process that support the

Company climate
External Success
Factors

Clusters
Infrastructure
National policies

2.1

Human Resources

Weisbach and Moos (1995) listed the general characteristics of desirable biotech employees as follows:
Flexible
Resourceful (whatever it takes to get things done)
Entrepreneurial (finding and making something out
of things that others miss)
Open-minded
5

Table 2. Result of the analysis of human resources as a critical success factor. Finnish biopharmaceutical companies
compared with Californian companies.
Success Factor

FIN

CA

Key factors

FIN

CA

Commitment
Entrepreneurism
Human resources

Quick study
Focused
Mentor-derived success traits
Broad grounding in physical and life sciences
Ownership (taking special pride in having an impact)

In addition to having an adequate amount of personnel, or

people with a certain education, there were four major
qualities that were mentioned repeatedly in the literature:
commitment, entrepreneurism, teamworking skills,
and management skills. These key factors did not differentiate scientists from chief executive officers (CEOs) or
financial managers, but were considered to be important
throughout the senior personnel if not all the personnel of
an SME.
In the following chapters the interviewed experts are often
referred to as F2 or C6. This is due to the confidentiality of the interviews. The interviewees remain anonymous
throughout the study.

2.1.1 Commitment
For any company to be successful it is critical to have committed key personnel. Lester (1998) and Cooper and Kleinschmidt (1996) studied product development processes in
general and ranked senior management commitment as the
first and sixth CSF. In biopharmaceutical companies commitment of the key personnel is usually maintained through
company stock option programs.
According to the interviews, commitment was considered
easier to maintain in a small biopharmaceutical company
than a large one. Commitment as a CSF was supported by
only a couple of experts. This was a surprising result, but
after a brief look into the interviews, an explanation could
be found.
The key managements commitment is usually ensured
with shares of the company, and according to Finnish experts it is easy to find committed personnel in Finland: first
of all, it is a question of national character and second,
there are not that many alternative companies in Finland. In

+
Teamworking skills

Management skills

California, the labor pool is very mobile: people move fast

from one company to another. Californian experts did not
see it as a problem. This is probably due to the American
culture in general it is normal to change jobs several
times in a lifetime.

2.1.2 Entrepreneurism
Entrepreneurism is a characteristic difficult to define. In a
sense, commitment, teamworking, and management skills
could be understood to be characteristics of entrepreneurism. Steinmetz (1998) described entrepreneurial personnel as individuals who can succeed in different environments, show tenacity, have a sense of urgency, and who are
pragmatic and can identify the nonobvious. Steinmetz also
emphasized that every scientist who joins a biotech company should realize that it is not all about the excitement of
science and technology, but about sustaining a profitable
business.
The entrepreneurial characteristic of the people was supported among Californian experts more than in Finland.
Expert C2 described the desired quality of a biopharmaceutical company recruit as people who are generalists,
who are able to do many things whatever it takes, drivers. Expert F6 called for people who have the ability to
maintain enthusiasm and speed in business development.

2.1.3 Teamworking Skills

The use of project teams was mentioned in a number of
studies on product development processes. Steinmetzs
(1998) list of desired personnel quality included the ability
to work in a team. Lester (1998) approached the teamwork
subject by stating that a good team has a diversity of skills
and expertise, members have an ability to function effectively as part of a team, are motivated by personal rewards,
and last but not least, the team has an experienced, skilled
leader.
Teamworking skills had a surprising outcome in the interviews. In Finland it was supported as being critical for a
companys success, but in California not one expert men-

tioned it. Expressions such as ability to work in a team

surfaced several times in interviews in Finland. The internal communications of a company was also brought up
during several interviews. Why was it not emphasized in
the Californian companies? Again, the only obvious explanation is the cultural differences. Americans may not see
employees ability to work as part of a team to be a success
factor because it is too obvious; in American business culture teamworking is more a natural way of working.

2.2.1 Number of Products

2.1.4 Management Skills

The essence of a fat product pipeline in an IPO is inevitable. A biotechnology company going public must have
substance, not just future promise. The candidate for a successful offering must demonstrate the ability to generate
contract and royalty revenue, have products close to market introduction, and have a full research and regulatory
pipeline. The products should also be validated by partners
or VCs. A successful company has validations for more
than one of its products.

Management of a company is more important than the

technology: there are no biotechnology companies in the
stock market that have become successful by virtue of their
first products. Biopharmaceutical start-ups are usually
founded by a research scientist. A key success factor in a
long-term spectrum is whether the scientist has the ability
to grow into a business leader and whether she/he understands the process enough to step aside and let a more experienced venture management take over if needed.
Expert C4s opinion was commonly shared among all interviewees: the management skills are more important
than scientific skills even in a research-based company.
Some interviewed experts defined the management skills
further: A good manager hires people who are smarter
than her/him, or even more concretely A good manager
has more than 10 years of experience in the industry. A
slight difference was observed in attitudes: experts in Finland emphasized the importance of assembling the management team from a set of talents people with different
backgrounds and different areas of expertise, whereas experts in California emphasized the management of the set.

2.2

The number of drugs in the development pipeline indicates

the competency of a company in the pharmaceutical R&D
industry. The hit-or-miss strategy of solely one product in a
company poses a great risk, since only about one in five
products in the clinical trials reaches the market. New
products are evidence of the potential worth of a company.
The number of new products in a biotechnology firm pipeline has a significant positive impact on firm performance.

Surprisingly, the number of products in the pipeline was

only slightly supported by both expert groups. Maybe it
was too obvious? Expert F8 measured a successful companys pipeline as having at least five or six products in the
development pipeline.

2.2.2 Strong Technology Platform

A high-quality new product process is one of the strongest
common features of high-performance businesses. It is
somewhat difficult to differentiate the impact of the number of products in the pipeline from the strong platform: the
novelty and quality of the platform (patents, technologies)
are essential to keep the product pipeline saturated. It is the
innovativeness and therapeutic superiority of products that
attracts investments to the company.

Products

A successful product strategy is the baseline for a

biopharmaceutical company. The literature lists four general factors that affect company performance: number of
products, well-protected platform, markets with an unmet need, and early marketing.

Californian interviewees supported strong platform as a

key to success more strongly than their Finnish colleagues.
A strong platform was understood to constitute possession
of wide immaterial rights. The importance of a strong platform in the modern virtual business structure was stressed
by a Californian expert: the experts company had recently

Table 3. Result of the analysis of products as a critical success factor. Finnish biopharmaceutical companies compared
with Californian companies.
Success Factor

FIN

CA

Key factors

FIN

CA

Number of products in the pipeline

Strong platform
Products

+
Unmet needs

Marketing

experienced disappointment in phase III of clinical trials.

The company laid off 75% of the employees and sold off
the development division. Thanks to still owning a broad
IP portfolio, the company has been able to raise the value of
its shares again over 40-fold two years after the incident.

primarily doctors and medical personnel. Second, how will

the product be distributed and sold in both domestic and
foreign markets? The strategy of the majority of small
firms is to form alliances with larger pharmaceutical companies, but as companies mature and grow their product
portfolios, their own sales channels should be reevaluated.

2.2.3 Unmet Needs

In the interviews marketing of the company as a whole was

often brought up. The role of marketing in the success of a
product was supported more often in Finland than in California. Expert F4 saw the analysis of market positioning
and profile of the products in every phase of the development as a success factor, while expert F6 described the entire product development process as the initial phase of
marketing. Finally, expert C2 emphasized the building of a
relationship with the potential partners early on to get people interested in what you are doing as part of a successful
product strategy. Again, gaining global visibility is harder
when a company is located in Finland instead of California
this may explain why marketing as part of product strategy gained more support as a key success factor in Finland
than in California.

The market for pharmaceutical discovery companies can

be divided into two parts: in the first market are the investors and potential partners to whom a discovery company
must market its profit potential and development projects,
and those in the end market are the doctors and patients.
These two markets are closely linked together. To succeed
in the first market, reimbursement issues must be considered: Who will be paying for the end product? Successful
product strategy involves a market with unmet needs.
To find unmet need among the first market (large pharmaceutical companies and investors) needs careful market
analysis. Knowing that real competition should be focused
on, the successful strategy here is to pay attention to the
larger pharmaceutical firms that may have an interest in the
product under development. These well-established firms
have little need to trumpet their own research, and at the
same time they are able to invest the resources needed to
bring their products all the way to the market. To compete
with a well-established full-spectrum company or a big
pharma is quite difficult.
The emphasis of unmet needs as a key success factor was
supported more strongly in Finland than in California. The
geographical location of Finland puts extra pressure on
gaining visibility for a company. This explains why in
Finnish experts opinions unmet needs rated so high on the
importance scale. Gaining global visibility and credibility
is easier when a company targets a very specialized sector
with clearly unmet needs.

2.2.4 Early Marketing

Thus far the product pipeline, platform, and unmet-need
market have been mentioned as key factors for a successful
companys products. A very important factor is still missing: marketing. Again, there are two target groups: the first
market (big pharmas and VCs) and the end users of the
drugs (doctors and patients). It may even be that the product must be marketed to insurance companies, opinion
leaders, and public health agencies. Planning rapid market
penetration is essential to any companys success.
Marketing should begin early in the product development
cycle, and there are a few questions to be asked: First, how
will the product be positioned in the market? This should
be expressed in terms of product value and use, and it
should be borne in mind that the end-product customers are

2.3

Networking

Generating good ideas for new technologies requires expertise, skills, motivation, appropriate boundaries, and
time. Often it also requires leveraging of expertise outside
the company. Typically, a biopharmaceutical firm focuses
on one or two core competencies and outsources the other
parts of the product development to its allies. Partnerships
are formed to access resources, expertise, and new product
ideas, or to some extent to share the risks of drug development. Another main strategy behind partnering is to find a
way across national borders. Alliances are most useful
when the allies are not rivals but are at different points on
the same value chain. A biopharmaceutical seeks its allies
from academia, big pharmas, or companies in foreign
markets.
Networking was proven to be a success factor by both
Finnish and Californian interviewees, but an interesting
observation was made: the two expert groups saw networking in a different light. Finnish experts often mentioned
networking when the quality of human resources was under discussion; the employees ability to network was described as a success factor. Networking was seen as a tool
to access knowledge spillovers, and creation of the network was seen to be critical. In California, networking was
never mentioned as a desired capability of an employee,
but was instead seen more as a structural matter; todays
virtual companies operate in a network, point-blank. Networking was usually seen as a series of on- and off-going
partnerships.

Table 4. Result of the analysis of networking as a critical success factor. Finnish biopharmaceutical companies compared
with Californian companies.
Success Factor

Networking

FIN

CA

Key factors

FIN

CA

Academia

Big pharma

Foreign partners

2.3.1 Academia
Public science, i.e. universities, research institutes, and
government laboratories play an important part in all industries, but a recent study by McMillan et al. (2000) revealed that the linkage between the biotechnology industry
and public science is much more critical than in any other
industry. Biotechs rely on public science for very basic scientific research, and they rely on academia to a much
greater extent than big pharmas do. Proximity of research
institutions is definitely a CSF.
In California, networking toward academia was seen to be
more important than in Finland. Expert C3 explained the
need to be close to academia as access to smart people as
consultants and expert C2 stated that you have to know
what the scientific predators are up to. Even access to libraries(C3) was mentioned as one of the reasons why a
company should network with academia. The reason why
networking toward academia was emphasized more in California than in Finland probably involves the fact that Californian companies are generally relatively older and larger
not so attached to the original academic research, whereas
the Finnish biopharmaceutical companies are younger and
close to academia anyway. Networking with academia was
seen to be more obvious and natural in Finland.

2.3.2 Big Pharma

Partnering with a big pharma is often thought to be beneficial to the biopharmaceutical company in the sense of gaining resources. With regard to company-wide performance,
validation is even more important. Investors see deals
struck between a biotech and a large pharmaceutical company as a validation that a technological approach or particular product has credibility. Big pharmas today set aside up
to a fifth of their research budget for joint ventures with
biotech firms and the number of biotech alliances by the
top 20 big pharmas rose from 152 in 19881990 to 375 in
19971998 (Anon., 1999a). Rule et al. (1999) calculated
that large pharmaceutical companies worldwide are forging alliances with small biotechs at a rate of more than $5
billion a year, and forecasted that year 2000 will see as
much as 30% of big pharma R&D expenditures going to
external partnerships.

However, small biotechnology companies must realize that

a big pharma may not stick around forever. Small biotechs
should have enough cash reserves, so that if a partner pulls
out it can fund the project to the next stage itself. Then
again, if a big pharma pulls out the validation is also lost.
Since a significant degree of disappointment is inevitable
in drug development projects, small companies must have
several products and actively search for partners for each of
their products.
Although several Finnish experts brought up networking
with big pharmas as one of the most important success factors for the whole business, it was even more critical in Californian experts views. Big pharmas validate your technology and help to build the investors confidence in your
company was a common reply to why networking with
big pharmas was so critical. In California companies rely
solely on the private sectors validation and money in
Finland a start-up company may rely on public funding for
a longer period of time.

2.3.3 Foreign Partners

Developing a new drug is extremely expensive. Since pharmaceutical discovery companies often have niche products,
they cannot create sufficient profits from restricted markets. The market therefore must be global. Entering a new
market is often initiated by partnering with locals. For a
Finnish biopharmaceutical company to sustain growth and
big revenues, it must enter the American market sooner or
later. Since a good dealer is hard to find and opening company operations in the USA can get extremely expensive,
forming partnerships or merging with an American company is recommended. According to an article in The Economist (Anon., 1999b), there are about 330 public biotech
companies in the USA. Almost half of those companies
have less than two years worth of cash left. Therefore, it is
inevitable that the sector will have to consolidate, and
merging can work as a profile raiser for many companies.
Networking with foreign partners was rated more important for Finnish companies than for Californian companies.
In fact, only one Californian interviewee saw networking
in Europe and Japan as a key success factor. In Finland the
opinions on internationalization varied widely. Expert F6
stated that to gain maximum growth potential, a drug de-

velopment company has to be global from the first minute

of existence. Expert F9 on his behalf considered international networking to be just as important, but at the same
time emphasized the importance of first settling things in
Finland and not rushing abroad too early. Now, it is not a
complex quiz to figure out why international networking is
more important to Finnish companies than the Californian
ones. Finland is a small country with a small pharmaceutical cluster it is not even possible to stay inside the borders.
On the other hand, some Californian experts who had been
interested in foreign companies were troubled in expert
C4s opinion it is hard to find out what European therapy
start-ups are doing, there are no technology-finance-type
conferences, there are no organizations putting up these
presentations. The key for Europeans is visibility. Californian experts also stated that some European start-ups suffer from out-of-line business expectations; they want big
money for basically nothing proved, with the royalty-share
too small. They should be more aware of the American
market standards, now they are too nave about the conditions.

2.4

Company Climate

Small corporations possess a quality that cannot easily be

transferred into a larger, well-established company: the
small corporate environment. A small firm can offer the
employees an entrepreneurlike environment, where new
product ideas are encouraged. New technologies with high
risks may easily be ruled over in a larger company, but
smaller corporate environments have greater freedom to
develop projects with no predictable outcome. Technology
enthusiasm is well nurtured in small firms.
Cooper and Kleinschmidt (1996) mentioned innovative
climate and culture among the top eight success factors for
a successful product development project. Lester (1998)
emphasized the importance of intrapreneurial cross-functional teams, or venture teams, when developing a new
product even in a larger company: The teams were found to

be most effective when they were offered favorable ownership and entrepreneurial characteristics of speed, agility,
and adaptability, i.e. the teams were allowed to operate as
though they were in business for themselves.
The small corporate environment brings yet another advantage to the start-ups. According to Weisbach and Moos
(1995), the young, bright scientists prefer working in a
small company with an entrepreneurial setting where they
can proceed to key positions quickly, rather than work at a
big corporation where the fear is to get stuck at a
lower-level supporting role for years. This is another factor
making it harder for a big pharma to access new, academic
innovations.
The company climate was supported as a CSF by only four
Finnish and two Californian experts. Expert C1 saw creating a climate of success in the company as a CSF. Expert
C7 linked human resource commitment with the small corporate environment: After 50 to 100 employees it is hard
to keep up the start-up like feeling and it is harder to keep
the people committed. The Finnish experts who supported
the small corporate environment as a key factor for a successful company climate saw the small corporate environment not only as a breeding ground for a certain climate,
but as a success factor in itself: virtually operating light organization is a success strategy.

2.5

Clustering

Geographic location can have a significant positive impact

on the firms performance. A firm located in an area with a
higher concentration of biotechnology firms generally has
a higher market value than those located in areas with
lower concentration. An area with a high concentration of
businesses also nurtures an entrepreneurial spirit: new entrepreneurs feel more encouraged to set up and develop
their businesses in the area.
Clustering as a CSF was supported by eight Californian experts, but only four Finnish experts supported it. Clustering
was considered as an external success factor, and the sub-

Table 5. Result of the analysis of clustering as a critical success factor. Finnish biopharmaceutical companies compared
with Californian companies.
Success Factor

Clustering

FIN

CA

Key factors

CA

Labor pooling

Knowledge spillovers

Specialized services

10

FIN

ject was approached by looking for the advantages of belonging to a cluster. Californians saw the advantages of being situated in a cluster area as labor pooling and knowledge spillovers, but not so much as having ready access to
nearby specialized services.

2.5.1 Labor Pools

A high concentration of biotech companies in an area creates a labor pool, which in turn enables a high rate of employee mobility, and again, this creates an opportunity for
information exchange. The labor pools do not involve only
people with expertise in biotechnology, but also people
with experience in raising VC, with management skills and
with marketing and sales experience.
All but one Californian expert mentioned labor pooling as a
key success factor access to talents, easy recruiting and
wide variety of expertise were often-used arguments. It
was very surprising to see that labor pooling was not considered to be a success factor by any Finnish experts. The
reasons may be many. First of all, Finnish business culture
appreciates long-term commitment, employees who the
management can rely on to also work for the company next
year. Secondly, one national characteristics of the Finnish
people is that they are typically not extremely entrepreneurial or risk-taking. This combined with the fact that Finland
has a shortage of persons with biopharmaceutical expertise
there is no pool to be considered as a success factor.

2.5.2 Knowledge Spillovers

Clustering leads to increased knowledge flow: the proximity to competitors and suppliers enables social interactions,
both formal and informal, from which a company can access information about competitors plans, development in
production technologies, and proceedings in academia.
Prevezer (1998) called the knowledge flow knowledge
spillovers and stated it as a major success factor gained
from being part of a biotechnology cluster.
Knowledge spillovers were more important for Californian
than for Finnish companies. In an area with a high concentration of biotechs, universities, and research institutes,
knowledge spillovers are a part of everyday life; there are
numerous conferences, meetings, poster shows, and exhibitions going on every day. The Finnish cluster is typically
small and cannot rely on such knowledge spillovers as a
building block to success. In Finland, active networking is
more important.

2.5.3 Specialized Services

Scott and Love (1999) found specialized services to be one
of the advantages of clustering: clusters create a critical
mass of supporting services and resources, such as lawyers,
accountants, and construction firms that understand the
needs of the biotech industry.
However, specialized services were not seen to be an important factor of clustering in either Finland or California.
Those who supported specialized services in close proximity mostly talked about VCs specialized in biopharmaceutical companies. Many interviewees did not even see
this to be very critical. As long as the service provider was
one day away by mail and the time difference did not make
contacting too difficult, the service provider did not have to
be in the cluster area.

2.6

General Infrastructure

In the same way as clustering, general infrastructure interacts with the geographic location of a company. Endersby
(1999) listed some critical factors in the infrastructure:
transportation, telecommunications, energy, and education
thereby maintaining prosperity and high quality of life.
To attract people into a company, a reputation for quality of
life in a certain area is critical. For example, there has been
an extraordinary amount of criticism about the extreme increase in cost of living in San Francisco affecting businesses ability to attract new professionals to move to the
area.
Finnish experts considered the Finnish infrastructure to be
highly efficient and pointed to it generally as a success factor. Quality of life was mentioned as a key factor only by
expert F11 who emphasized the good level of education as
the basis for an overall good quality of life. The reason why
Finnish experts did not emphasize quality of life more is
probably due to the fact that the Finnish nation is used to
having a good infrastructure and a high quality of life automatically schools are free, medical aid is free, and a
shortage of clean water or electricity would never even occur to a Finn.
Californian experts supported quality of life as a key external factor in a biopharmaceutical companys success.
There were two subjects that the Californian experts especially brought up. The first was the sunny, warm Californian climate it is not too difficult to attract professionals
to move to California. The second common subject was the
cost of living and how it affects the quality of life. Northern

11

Table 6. Result of the analysis of national policies as a critical success factor. Finnish biopharmaceutical companies compared with Californian companies.
Success Factor

National policies

FIN

CA

Key factors

FIN

Government funding of basic research

Government support for start-ups

CA

Tax reductions

California experts were quite concerned with the rocketing

prices of property and houses in the Bay area. An example
was given by one Californian expert; a house in South San
Francisco that cost $300 000 three years ago now costs
$700 000. Another expert had similar experiences; the cost
of property is approximately $23/sqft in San Francisco,
whereas it floats around $1/sqft in the San Diego area. However, recently San Diego prices have been rising as well.

the research groups to find partners from industry even before the innovation has been born. In California, the National Institutes of Health (NIH) grants were appreciated
highly, and the fact that research conducted by federal
funding could be commercialized was also rated as highly
important.

2.7.2 Government Support for Start-ups

2.7

National Policies

Gilmartin (1998) brought up national policies as an external success factor in a biopharmaceutical company. Some
enabling activities that nations often provide include national, or federal, support of basic biomedical research,
support for start-up companies, and tax reductions.

2.7.1 Government Funding

A study by Columbia University concluded that success in
the modern pharmaceutical industry is dependent on a
countrys willingness to adopt certain national policies.
These policies include public funding of basic biomedical
research, high regulatory standards, and a free market environment (Gilmartin, 1998). The importance of public funding is easily proved. In 1980, the Bayh-Dole Act was
launched in the USA. The Act enabled federal agencies and
nonprofit organizations to retain ownership of the IP developed through federal funding. During the past 20 years,
roughly half of the important medicines introduced worldwide have been discovered and developed in the USA.
The Finnish experts supported the significance of government funding more strongly than the Californian experts
did. Tekes, the National Technology Agency of Finland,
was mentioned in almost all the Finnish interviews. Tekes
is a significant early-stage source of funding, Tekes forces

12

Giesecke (2000) studied the roles of government in development of the biotechnology industry and concluded that
direct government intervention aimed at science-based
high-tech industries is more likely to failing its goals than
indirect enhancement of the already existing economic
structure connecting academic innovations with market
opportunities. According to Giesecke, successful indirect
approaches include the enhancing of incubator environments that the academic institutions can provide, availability of venture capital and professional business advice, exit
opportunities for early investors, possibilities for diffusion
of knowledge, and competence of political bodies to distribute research money where innovations are most probable.
In Frsts (1999) opinion there is a limit to which a government must stop funding and let the free market environment pick the strongest companies. For example, there has
been discussion about the State interfering too much in
Germany, that German biomanagers do not have to strive
hard enough to keep their companies alive, and that less
funding from the State would create more aggressive management teams similar to their American counterparts.
In Finland governments financial support for new companies was found to be essential, whereas Californians spoke
mainly of legislative enhancements: The Bayh-Dole act
and the several bills supporting small research-based companies have had a tremendous positive impact on biopharmaceutical business (C6).

2.7.3 Tax Reductions

There are a few examples of state/provincial tax reduction
arrangements in North America; e.g. in the State of Washington USA, there is no corporate or personal income tax.
The state sales tax is 6,5% and some local taxes ranging
from 0,5% to 1,7%. Capital investments for high-technology firms, including biotechs, are exempt from the state
sales tax. The business and occupation tax (B&O tax), a
major expense for companies in Washington, is also easier
on biotechs. High-tech firms receive credit against the
B&O tax for their R&D expenditures, up to $2 million per
year (Scott and Love, 1999). Consequently, in the State of
Washington the biotechnology sector experienced an increase of 11,6% in employment from 1997 to 1998. Approximately 7100 people were employed by biotechnology
in 1998, two-thirds of them in small companies (50 or
fewer employees).

nies earn a 20% tax credit on Ontario R&D expenditures,

and for small Canadian-owned companies the percentage
is 35%. Approved R&D conducted in an Ontario university
or research institute earns an additional 20%. There are
also federal funding programs, encouraging private sector-academia relations hips, and creating opportunities and
pathways for networking, strategic alliances, and partnerships, e.g. by distinguishing clusters. Ontario policy also
includes educating scientists to commercialize their discoveries and last but not least, aggressive global marketing
of Ontarios benefits as a favorable location to do business.
Strangely, tax reductions were supported as a success factor by only one Californian expert and no Finnish experts.
There are two possibilities for this outcome: either the tax
reductions play a less important role or they were not mentioned because they do not exist to a significant extent in either one of the areas studied.

Endersby (1999) introduced the provincial strategy to reinvigorate the biotechnology business in Ontario, Canada.
First, there is the tax incentive: every dollar spent on R&D
earns tax credits. Large, public, or foreign-owned compa-

13

3 Pharmaceutical R&D Industry in Finland and

California

The table below summarizes the outcome of the CSF analysis. The reasons for the differences between Finnish and
Californian biopharmaceutical companies were discussed
shortly in the previous chapters. In this chapter we will go
some further steps into the background: how do these two
markets differ from each other? What are the similarities?
Generally, the differing can be explained by the cultural
differences and the different sizes and ages of the business
clusters.

3.1

Finland: Strengths and

Weaknesses

In the interviews, three Finnish experts mentioned Finnish

national characteristics as an important feature of operating
in Finland. Finnish people were described as honest, reliable, perseverant, and having an ingrown desire for high
quality in all work. With Finnish people it is action, not
only talk. Finnish people have a strong national sense of
self-confidence.

Table 7. Outcome of success factor analysis. A (+) was given to a factor that was supported by 50% or more of the interviewees.
Success Factors
Internal Success Factors

FIN

CA

Key factors

FIN

CA

Commitment
Entrepreneurism
Human resources

+
Teamworking skills

Management skills

Number of products in the pipeline

Strong platform
Products

Networking

Unmet needs

Marketing

Academia

Big pharma

Foreign partners
Company climate
External Success Factors

Small corporate environment

FIN

Clustering

CA

Key factors

FIN

CA

Labor pooling

Knowledge spillovers

Specialized services
Infrastructure

National policies

Quality of life

Government funding of basic research

Government support for start-ups

Tax reductions

15

An excellent university infrastructure and the high level of

education and research in biotechnology are the strengths
that Finland possesses. Innovativeness and the lack of
heavy regulation between university and industry can be
linked together and stated as a pro for operating in Finland.
The strong IT industry in Finland has also had a positive
impact on the biopharmaceutical business: success in the
IT business has jump-started the entrepreneurial spirit in
Finland and developed a basic belief that Finnish companies have the ability to succeed.
The history of the university-industry relationship and the
small size of the country contribute to the fact that cooperation is easy in Finland. Networking in the pharmaceutical
R&D industry can be considered quite efficient. However,
the geographical location of Finland also affects business.
It is harder to gain global visibility for a company located
in Finland than for one located in California, which makes
marketing one of the greatest challenges of a company located in Finland.
The high overall educational level of Finnish people reflects the confidence in technology and good public acceptance of genetically modified organisms (GMO). The overall national infrastructure can be described as being highly
efficient, as can the high-quality IT infrastructure.
There are also weaknesses in operating in Finland. Almost
all of the experts interviewed were concerned with the
shortage of professional know-how; the number of bioscientists or experienced managers was feared to be too
scarce. This is a puzzling remark; many studies reveal that
the concentration of university-educated people and PhDs
in Finland is among the highest in the world. Perhaps just
not enough emphasis has been placed on the biosciences.
Attracting foreign professionals is hard; the high taxation
structure of Finland as well as the harsh northern climate
may be the reasons.
As one of the Finnish expert interviewees mentioned, there
is a lack of spontaneous entrepreneurship in Finnish culture. This may explain the lack of experienced managers;
academic entrepreneurship is quite a new phenomenon in
Finland, and the first biomanagers are still in their first
businesses. And with the booming Finnish IT business,
much of the current business and marketing know-how is
used in this sector.

3.2

California: Strengths and

Weaknesses

All of the Californian interviewees emphasized the effects

of clustering. The snowball effect is obvious; a critical
mass of innovation, financing, facilities, and medical professionals has created an environment in which the sector
feeds itself. It was also noted that in southern California,

16

organizations such as CONNECT or BioCom have had a

strong effect on development of the cluster.
A cluster of companies and organizations involved in biotechnology creates a labor pool that enhances access to talents in Californian clusters, the labor pool is mobile, and
people move fast from one company to another. The great
speed for business activities was also highlighted as a specific feature of operating in California. Californian bioclusters are larger and have a longer history than in many
other areas. As a consequence there is a greater availability
of professional managers, people who have also started up
several companies in the biosector.
A common concern seemed to be the high cost of living in
northern California. The Bay area has become too expensive in many experts opinions for both the companies and
their employees. Southern Californias cost of living is
lower, and some companies have actually moved from the
Bay area to the San Diego area for this reason. However, it
must be mentioned that the Bay area still has the greatest
concentration of biocompanies in the world.

3.3

Pharmaceutical R&D Industry

in Finland

Every tenth European biotechnology company is Finnish.

The number of biotechnology companies in Finland is approximately 100 and growing, employing more than 5600
individuals. Almost half of all the companies are involved
in diagnostics or pharmaceutical development. There are
180 research groups, 19 graduate schools, and several science parks dedicated to biotechnology. The five biotechnology-specific centers of excellence are located in Helsinki, Turku, Kuopio, Oulu, and Tampere.
The Finnish government has strongly supported the emergence of a biotechnology industry. Considerable investments have flowed into the sector through the National
Technology Agency of Finland (Tekes), the Academy of
Finland, and the Finnish National Fund for Research and
Development (Sitra). Finnish consumers have very positive attitudes toward biotechnology. In a study conducted
by Finnish Bioindustries (FIB), an industrial association of
Finnish biotechs, 71% of Finns believe that biotechnology
will improve the quality of life within the next 20 years.
Medical applications were considered highly useful,
whereas food products received a more conservative attitude (Kuusi, 2000).

3.3.1 Development of the Industry

Finland has strong know-how in high-technology areas.
Finland is on the forefront of modern technology in IT, es-

pecially wireless communication has shown that. Nokia

has been one of the leading examples of world-renowned
Finnish technology. The public attitude toward technology
in Finland is also noteworthy; more than half of the Finns
have mobile phones and the frequency of Internet connections per capita, both domestic and commercial, is the highest in the world.
During the early 1980s there were 13 pharmaceutical companies in Finland. Through mergers and acquisitions, the
number of these companies decreased to three in the early
1990s. These three still exist: Orion, Leiras (now a subsidiary of Schering) and Japanese-owned Santen (the former
Leiras/Star). In the process of strategic refocusing several
product ideas were left without further development. These
ideas, coming especially from Orion, were the start of several new ventures in Finland, taken forward by some entrepreneurial individuals with a background mostly in Orion.
Since the entrepreneurial atmosphere in Finland has been
greatly encouraged by national policymakers such as
Tekes, researchers in universities have also begun to start
up their own businesses centering research. Simultaneously, universities have started to set up their own technology transfer offices. One of the first such technology
transfer offices was Otaniemi International Innovation
Center (oIIc), which is located at the Helsinki University of
Technology and was founded in 1998. In 2000, five other
organizations identified themselves as technology transfer
companies in Finland: AboaTech, Finntech Finnish Technology, Helsinki University Licensing, OuluTech, and
Tamlink.
The significant growth of the biopharmaceutical businesssector in Finland begun in the latter half of the 1990s. The
first VC-based biopharmaceutical company conducted
IPO in 2000, namely BioTie Therapies Ltd., was founded
in November 1996. Some other examples of companies in
the forefront of the pharmaceutical R&D arena include
Hormos Medical, Juvantia Pharma, Contral Pharma, and
Fibrogen Europe. At present, out of the roughly 100 companies in the life science sector in Finland, there are approximately 17 involved in the development of pharmaceuticals, of which 3 are larger, full-spectrum pharmaceutical companies.
The Finnish biopharmaceutical sector has adapted well to
the virtual trend with increased importance in networking.
Biopharmaceutical companies have formed a pharma cluster, Lkeklusteri together with the academic research,
patenting, marketing, and service parties of Finland. The
biotechnology community of the City of Turku has played
a central role in initiating nationwide policies. Turku also
has great visions for its future; by 2010, biotechnology will
supposedly create 30004000 new jobs in about 35 companies and attract 5001000 new researchers to Academia
(Haapala, 1999).

3.4

Pharmaceutical R&D Industry

in California

Of the top 50 big pharmas, 18 operate in the United States,

21 in Europe, and 11 in Japan (Flynn et al., 1998). Approximately 36% of pharmaceutical R&D conducted by companies worldwide is performed in the USA, followed by Japan with 19% of global R&D. In the USA, the core biotechnology areas are California, Washington, and New
England.
The USA is the global leader in pharmaceutical business
trends. A good example is patent expansion: the journey
from the laboratory to the market requires 1015 years for
a new medical molecule. Since patents are valid for 20
years, the exclusivity time on the market is only a few
years. This creates pressure to crank up the prices. To
lessen the financial strain, a pharmaceutical that has been
granted a sales permit may also be granted a patent extension of five years (Gilmartin, 1998). This system was first
developed in the USA, and was soon mimicked by Europe
and Japan.
A typical American therapeutic biotechnology company
has been described by Dibner (2000). The median figures
are as follows (the average figure is in brackets):
Founded in 1992 (1990)
33 employees (149)
$25 million in revenues including product sales,
alliance and royalty incomes (49,7)
$8,5 million in R&D spending (15,8)
It was also noted that for all biotechnology firms (also
other than therapeutics), IPOs have typically raised about
$30 million in the past two years, the employee has increased by 20%, and revenues have almost tripled between
1995 and 1999.
Finding a definite number of biotechs involved in the
American medical arena is difficult. The Biotechnology
Guide U.S.A. (Dibner, 2000) lists 421 therapeutics biotech
firms, 192 diagnostics biotech firms, roughly 40 firms focusing on vaccines, and 30 or less on drug delivery systems, immunological products, and testing services for
each. The number of large pharmaceutical corporations
was stated to be 51. This adds up to about 800 firms in the
medical sector throughout the USA. Dibner (2000) also
calculated that the number of all biotechnology companies
is 1239, of which 408 are publicly traded. Out of those publicly traded, 48% are firms focusing on therapeutics.
On the other hand, the California Healthcare Institute states
in its 2000 report (Gollaher, 2000) that there are 2500 biomedical companies in California. Approximately 75% focus on R&D for medical devices and diagnostics, and 22%
focus their efforts on biotechnology and pharmaceutical
R&D. The report also states that 170 000 Californians are

17

directly employed by organizations developing therapeutics and diagnostics, manufacturing medical devices, preparing laboratory instruments and equipment, supplying
laboratory services, and distributing medical products. An
additional 41 000 Californians are involved in biomedical
and clinical research in Californias 75 public and private
research institutions.
In conclusion, the above data suggest that there are 750
biotechs involved in the medicine throughout the USA
(Dibner, 2000) and 2500 biomedical companies in California (Gollaher, 2000). Here, the terminology is slightly confusing, but it can be presumed that in Gollaher has counted
the entire life science sector in the Californian figures.
From screening through tens of articles and directories, it
can however be estimated that the number of companies
and organizations involved in the American pharmaceutical R&D sector may well approach several thousand. Furthermore, the number of true pharmaceutical development
SMEs, i.e. biopharmaceutical companies as they are called
in this study, is somewhere between 500 and 600. There is
no doubt that the great majority are located in California.

3.4.1 Development of the Industry

The genesis of the biotechnology industry in California
benefited from the inheritance of computing industry genesis in northern Californias Silicon Valley. A concentration
of VCs experienced in founding and growing high-tech
firms created fertile ground in combination with a culture
of high job mobility and fluid communications networks.
California also provided another element essential to
biotechs: an excellent scientific community. For example,
recombinant DNA technology was discovered and developed in the University of California at San Francisco
(UCSF).
The biopharmaceutical business was born along with the
founding of ALZA Corporation (1968), Genentech (1976),
and Chiron (1981) in the Bay area, which refers to the region around San Francisco. Genentech has been one of the
strongest role models in the biopharmaceutical business.
Genentech created an atmosphere of openness and communication by encouraging employees to maintain their contact with the science base, publish papers, and attend conferences. By allowing informal dress and flexible working
hours, Genentech designed an academic lifestyle inside the
company. This was all done to attract the best scientific talents. In 1980, Genentech conducted a highly successful
IPO, thereby raising public knowledge about the biotechnology industry in the USA. At the same time, Genentech
became the trailblazer for all biotechs and launched Californias position as a center of biotechnology in the eyes of
the world.

18

However, it is not only the Bay area that has contributed to

Californias leading position in the biopharmaceutical
business. In 1985, the University of California at San
Diego (UCSD) in southern California created CONNECT,
a network of academia, high-tech entrepreneurs, and technical, managerial, and financial resources. Although the
network structure in the San Diego area is more coordinated than that of the Bay area, it has proven to be very efficient and dynamic. Currently, San Diego hosts the fastest
growing biomedical cluster in the USA.
Amgen, born in 1980, has also had a strong impact on Californias biopharmaceutical business. Located in Thousand
Oaks just north of Los Angeles, Amgen has generated a
small biomedical cluster around the area. Currently, Amgen
is the worlds largest independent biotechnology company
with well over 5000 employees worldwide. Amgens success has evolved around three products (EPOGEN,
NEUPOGEN, and INFERGEN), introduced to the market
in 1989, 1991, and 1997, respectively.
NIH is the major financing body for pharmaceutical basic
research in the USA. In recent years, California has received more grants than any other state, and out of the top
15 recipients of NIH grants nationwide, five have been
California organizations. The San Diego area alone accounts for ten times more NIH grant dollars per capita than
the national average, with the San Francisco area following
not far behind.
Over 50% of Californias biopharmaceutical companies
were founded in the 1980s, and a majority (63%) are privately owned (Gollaher, 2000). To raise capital for the
pharmaceutical R&D companies, angel investors and VCs
are needed. In the USA there are 270 VC firms that invest
in biotechnology, with about 30% of them headquartered
in California (Dibner, 2000). Most of the Californian
bioindustry-oriented VCs are located in San Francisco. Although biotech angel investors are growing in number
troughout the nation, San Francisco appears to be in the
forefront of the trends again: some angels have started to
form groups to better focus their investments in the biotech
sector. One of the first angel groups has been Tenex, based
in San Francisco.
The biotech industry has still been projected to grow in
California, with about 80% of the companies expecting to
expand their facilities within the next couple of years
(Gollaher, 2000). However, Dibner (2000) has forecasted
that half of the existing companies will not survive in their
present form, and there will be tremendous consolidation
in the industry. Some hope is still left though: regardless of
the cautious economic climate, good ideas and breakthrough technologies will always be supported.

4 Conclusions

The CSFs in the biopharmaceutical business fall into the

following groups: human resources, products, and networking, which are internal success factors; and clustering,
infrastructure, and national policies, which are external
success factors.
The following factors were verified as the key success factors in Finnish biopharmaceutical companies:
Human resources: management skills, teamworking
skills
Product strategy: unmet needs, early marketing
National policies: government funding of basic research
and government support for start-ups.
The key success factors in Californian biopharmaceutical
companies are:
Human resources: management skills, entrepreneurism
Product strategy: strong platform
Networking: toward academia and big pharmas
Clustering: labor pooling and knowledge spillovers
Infrastructure of the community quality of life
The Finnish biopharmaceutical business concentrates
more on the substance: people and products. The government is noted as a great help in the initial stages of development of a pharmaceutical. The Californian biopharmaceutical business places more emphasis on what is outside
the company: networks, clustering, quality of life, and even
the sunny climate.

The reasons are many. The Californian biopharmaceutical

business is larger and older than its Finnish counterpart.
Most of the Californian biopharmaceutical companies are
located in a geographical cluster of hundreds of companies
and organizations involved in pharmaceutical R&D. As a
result of operating in a cluster area, the advantages of clustering, such as labor pooling and knowledge spillovers
have been integrated into the business strategies. In Finland the pharmaceutical cluster is relatively small and does
not provide these advantages. In Finland the issue is more
about networking and an individuals ability to create national and international networks.
In California, biopharmaceutical companies are often run
by professional managers. In Finland, the lack of business
professionals was a concern to many industry experts. On
the other hand, the Californian experts emphasized networking toward academia more than their Finnish counterparts. In Finland, the companies still operate close to academia and the information flow is more spontaneous.
There are pros and cons in both the Californian business
structure and its Finnish countepart: the Californian critical
mass and management experience versus the Finnish dynamic tech experts.

19

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http://tolppa.net/medinet, 8.10.1999.

Anonymous, Mergers and alliances Hold my hand, The

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Kuusi, H., Biotechnology in Finland, Journal of commercial biotechnology 6 (2000) No 3, 188-198.

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