European Asymmetries: a Comparative Analysis of German and UK Biotechnology Clusters Philip Cooke, Centre for Advanced Studies & Centre for Economic & Social Analysis of Genomics (CESAGen), Cardiff University. Abstract This paper discusses the relative performance of two of the larger European healthcare biotechnology economies, Germany and the UK. It updates to 2006 material first gathered in the late 1990s showing longitudinally the evolutionary trajectories in the main biotechnology clusters of the two countries. Though Germany has about the same number of firms a sthe UK its biotechnology economy is far weaker, with many small firms employing few people, relatively low venture capital investment and, little interest in general being shown by pharmaceuticals companies (big pharma) in licensing intellectual property. The reverse is the case in the UK even though the investor euphoria at the time of the first comparative study has not returned, a factor that has affected investment practices considerably. So much so that a new policu of ‘entrepreneurship outsourcing’ has become visible in the UK as venture capital perceives a better business climate for biotechnology entrepreneurship in the US. The paper concludes somewhat pessimistically that recent developments of this kind may add to such debilitating European problems as witdrawal from healthcare pharmaceuticals altogether and relocation of R&D decision-making to the US on the part of European big pharma, loosening more proximate links within national and regional innovation systems widely perceived as highly important elements in biotechnology cluster performance. 1. Introduction In this paper an effort is made to compare the nature, characteristics and performance of the German and UK biotechnology sectors, particularly with reference to their leading biotechnology clusters. At key points global country and cluster comparisons are made, utilising the US as a key benchmark. A variety of economic indicators regarding the medical biotechnology sector and bioscientific knowledge metrics are utilised. Public policies of various kinds play a key role: they range from public research funding, through public regulation of, and in some cases conduct of clinical trialling, to special support initiatives for ‘ technology platforms’ or clusters, to public risk capital and incubation of new firms. We contrast Germany’s more co-ordinated and the UK’s more liberal policy approaches, finding the latter superior. It will be recalled from earlier work (e.g. Cooke, 2002) that a cluster involves innovative interaction of vertical and horizontal kinds among knowledge generation, testing and commercialisation firms and agents located in geographical proximity. Biotechnology clusters also have important linkages of these kinds with equivalents in distant clusters. Finally some such interactions are unclustered, but overwheming research findings show biotechnology to be highly global and local in its key network interactions. This is clearly the case in Germany and the UK as will be shown. This report concentrates on the medical or healthcare biotechnology sector in the two countries. The medical biotechnology sector is one of the bioscientific ‘family’ that together account for a significant share of GDP in the advanced countries, and a growing share in countries like India and China. Agro-food biotechnology has another significant share of many national GDP accounts, while environmental and energy biotechnology are of rising importance. Within such sectors, subsectors like bioprocessing1, bioengineering, bioinformatics, bioimaging and so on are also growing in significance in certain regional economies. It is a science-driven, knowledge-intensive and widely applicable group of interacting platforms that are already evolving certain pervasive characteristics for different functions, including health and safety testing and standardisation (bioanalysis), civil and military security (DNA fingerprinting; biometrics) and applications in mechanical, electronic and civil engineering (nanobiotechnology) rather as ICT became pervasive during the 1990s2. To that extent they have the character of platform technologies and even General Purpose Technologies (GPTs) as discussed by inter alia Helpman (1998). Traditional natural resource-based theories in economic geography explained the microeconomics of agglomerative economic activity relatively well. However, knowledge-based economic growth is less easy to explain and predict, although there are some aspects of knowledge economy clusters that are less uncertain than others. Thus, by way of introduction, this paper is able to point with reasonable confidence at the leading global bioregions and offer a rationale for their current prominence. However, such regions may be said to arise through a process not of direct comparative or even competitive advantage, not least because markets do not explain much of the rationale for their existence. Rather, bioregions are exemplars of a modern tendency for regional accomplishment to be a product of ‘constructed advantage’ (Smith, 1776; Foray & Freeman, 1993). Constructed regional advantage occurs in substantial measure because of the influence of public goods and policies upon a region3. Thus, in 1 A broad term that describes the use of microbial, plant, or animal cells for the production of chemical compounds. 2 In a government-commissioned report CRIC (2005) the contribution of biotechnology to UK GDP was estimated at 11.4% of which healthcare’s share was 6.9%. Germany’s 12% GDP expenditure on healthcare suggests the equivalent statistic is at least 16.4%. 3 A number of key terms have been introduced. In definitional terms, their usage here is as follows. ‘Region’ is a governance unit between national and local levels. A ‘regional economy’ is ‘...the production, distribution and consumption of goods and services in a particular geographic region.’ The ‘knowledge economy’ is measured , currently inadequately, as high technology manufacturing added to knowledge intensive services. A ‘bioregion’ has no standard definition, although regarding biotechnology ‘clusters’a location quotient of 1.25 is considered sufficient. ‘Knowledge’ bioscience, a university and medical school is a key factor, not only for its role in the production of talent, but the innovative research and entrepreneurial businesses it sustains. Similarly, large research hospitals, for patient trials of new treatments, add to regional constructed advantage. Notably, most of these facilities are the product of initial public provision and are sustained by public teaching and research subventions. Thereafter, nearby pharmaceuticals and agro-chemicals facilities may provide intermediate markets as they adjust to meet the new exigencies of ‘open innovation’ (Chesbrough, 2003). In this paper, there follows a detailed analysis of leading biotechnology clusters in Germany and the UK, subsequently US data on cluster comparisons are included as benchmarks. Finally implications of current developments are drawn, and a global benchmarking is conducted of German and UK biotechnology clusters against North American, European and Asian exemplars. 2. Biotechnology Clusters in Germany An important point in the recent history of biotechnology policy in support of clustering was represented by BioRegio, the German Federal initiative started in 1995 with funding from 1997-2002 to support new firm formation in biotechnology clusters. As a policy contest, it favoured well- networked regions (actually cities or groups of cities) yet BioRegio had by 2003 considerably assisted the formation of new biotechnology businesses in Germany. BioRegio fits into a lengthy history of German federal and land policies to support biotechnology but differed from its predecessors by its success in giving a stimulus to the commercialisation aim which had often been the ambition of previous programmes, but never satisfactorily fulfilled. Other policies e.g. and BioChance, BioChancePlus, BioProfile, BioFuture and the new HighTechFoundation Fund complemented the firm formation emphasis of BioRegio later on. There was some debate indicating BioRegio was unfair to innovative firms outside BioRegio areas, but it was clearly recognised that the geographical focus and development of firms in proximity to research institutes and local venture capital meant that whatever policy measure was adopted to boost start-ups, clusters would remain the distinctive mode of business organization in biotechnology as indeed they have worldwide (Dohse, 2000). This is because they offer vital external economies that promote productivity, innovation and new business formation, differs from ‘information’ in that it is creative and informed by meaning and understanding, whereas information is passive and, without the application of knowledge, meaningless. To ‘develop’ , as in ‘regional development,’ means to evolve and augment, or enrich. Hence ‘regional development’ involves the cultural, economic and social enrichment of a region and its people. Here it mainly, but not exclusively, entails economic growth arising from increased efficiency and effectiveness in use and exchange of the productive factors of an openly trading regional economy. hence the competitiveness of biotechnology firms compared to slower-moving big pharma, which, in Germany, had been heavily dependent on foreign biotechnology firms to enter the market. Despite a growth in private venture capital associated with BioRegio, public funding remains