part0008

Commercializing biotech is an extraordinarily complex process. It involves the generation of new knowledge in the upstream and the translation of knowledge into usable technological applications that bear market value. Marketable novel technologies need not be just cutting-edge knowledge but also include innovative business models and market savvy, as well as patient, creative, and entrepreneurial investment. The commercialization process encompasses a broad range of different actors and activities, all of which must be integrated in productive ways. Technical and economic uncertainties of biotech innovation, however, complicate this process. Commercializing biotech, as once described to me, involves many moving parts that must be combined and recombined in order to chase down many moving targets.

This chapter builds on the last one by untangling these complex processes from the perspective of the firm and the industry. Specifically, this chapter looks at how biotech industries have been organized in Korea, Taiwan, and Singapore. It identifies the core actors in the innovation system, the range of relevant supporting actors, and the strategic interactions between firms, labs, and the state. The analysis further articulates how decision makers in Korea, Taiwan, and Singapore strategically rationalize the ways in which bio-industry is organized. While they face similar challenges in betting against biotech’s myriad sources of uncertainty, decision makers in Korea, Taiwan, and Singapore have organized bio-industry in different ways, revealing quite varied strategic rationales.

Data on trends in innovation are a good starting point for making some initial sense of this variation. According to Mahmood and Singh’s study of overall patenting activity in Asia (a crude but still useful measure of innovative output), the specific sources of innovative activity differ markedly.1 In Korea, large business groups, or chaebols, accounted for 81% of all patenting between 1990 and 1999, while other firms made up just 12%. Multinational firms operating in Korea were responsible for less than 1% of U.S. patents, and individual researchers (such as university professors and employees of government research institutes) accounted for just 7%. In contrast, MNCs in Singapore were awarded nearly half (46%) of all U.S. patents granted to Singaporean-based inventors. In Taiwan, MNCs and large business groups accounted for merely 5% of patenting activity, while local firms and research organizations such as the ITRI made up 36% of output.2 The majority of patents in Taiwan (59%) were registered with individuals, universities, and small-scale industrial entrepreneurs.3

Mahmood and Singh also calculate the concentration of patenting activity in Asian countries. The highest levels of concentration, through the end of the 1990s, were in Korea, where 85% of all patents were granted to the top fifty patent earners, basically among the conglomerate chaebol firms. Samsung Electronics alone accounted for 36% of all patents awarded to Korean inventors between 1970 and 1999. Singapore’s innovation activities have been similarly concentrated, and its top fifty patent earners accounted for 70% of all patenting activity. Taiwan’s patent outputs, on the other hand, are much more diffuse, with only 26% of awarded patents concentrated among the top fifty patent earners. The bases of technological innovation in Taiwan have been spread out among multiple sources.

In many respects, Mahmood and Singh’s findings are not surprising given what we know about national variations in industrial technology development among these three Asian economies. In Korea, technology development is concentrated among the chaebols, whereas in Taiwan, innovative activity is diffused among public and private sources. Meanwhile, in Singapore, industrial technology development revolves around the activities of multinational corporations. Differences in both the sources and concentration of innovative activities reflect the overall organization of the respective political economies. Though not unexpected, these contrasting patterns of technological innovation are significant, for they indicate where innovative activity has been concentrated in Korea, Taiwan, and Singapore and suggest how we might expect bio-industrial innovation to evolve in the three cases. Indeed, the contrasts are so stark that it seems sensible to keep these patterns in mind as we focus on the organization of bio-industry in the three cases. To a good extent, these variable patterns of technology development have endured.

With the exception of a few U.S.-based firms, the biotech industry is dominated by small enterprises. The global biotech industry model was transformed when, beginning in the 1980s, large pharmaceutical firms opted to strategically collaborate with, or outright acquire, specialized start-ups rather than develop cutting-edge biotechnologies in-house. As the costs of translational R&D became prohibitive for big drug firms, they needed to continually fill their pipelines with prospective candidates from elsewhere.4 They wanted to spread their bets, and small biotech start-ups were the most cost-effective way to identify potential winners. Together big and small life sciences firms formed a technological and economic “marriage of convenience.”5

Because most biotech firms are spun out of universities or life sciences labs further upstream, they tend to focus on one or two specialized technologies and applications. On the one hand, specialization exacerbates the risks associated with biotech innovation and the likelihood of commercial failure among small firms. But on the other hand, growth in the overall number of bioventures increases the potential rewards for breakthrough technologies industry-wide and, more important, spreads the costs of failure across the entire industry. The proliferation of small firms means that there is a high probability of failure for individual ventures, but a critical mass of firms increases the chances of success for the industry as a whole, especially as leading firms look to innovative venture firms for potential leads. This is the same strategic logic that informs Taiwan’s current efforts in biotech commercialization.

Given the evolution of the structure of biotech industries, Taiwan’s industrial landscape seems to fit well with the commercial uncertainties of life sciences innovation. There are no large pharmaceutical companies in Taiwan, and to the extent that there is any drug-making capacity, most is in generic manufacturing for the domestic market. Marketing, sales, and distribution are also limited to the home market. Not surprisingly, then, Taiwan’s emergent biotech industry continues to be dominated by small and medium-sized enterprises, a pattern consistent with its postwar strategy of niche industrialization.6 Unlike in Korea and Singapore, the growth of SMEs continues to be the strategic basis of industrial upgrading in postwar Taiwan.7

In the absence of large diversified enterprises that can absorb the costs of industrial upgrading through the economies of scale, SMEs in postwar Taiwan leveraged instead their industrial and commercial agility. Unencumbered by the organizational constraints typical of very large firms, SMEs adapted to rapidly changing markets.8 In this respect, SMEs would appear ideal for the biotech sector, where commercial markets remain relatively uncertain. What is more, because of their scale-related constraints in financial capital, personnel, and R&D, SMEs are also more likely, out of sheer necessity, to form collaborative linkages with R&D institutes and other commercial entities. Throughout the postwar period, successful SMEs clustered around one another and in close proximity to R&D centers, notably the ITRI and the Hsinchu Science Industry Park.9 Not surprisingly, these patterns have been replicated in Taiwan’s biotech sector with the creation of dedicated clusters in Hsinchu and more recently in Tainan, Nankang, and elsewhere on the island.

Taiwan’s SMEs in the postwar period required lower start-up costs and investments, which meant more manageable entry barriers for prospective entrepreneurs. This in turn lowered the costs of risk taking. Risk aversion was further overcome by means of both broad and dense networks of firms that collectively absorbed the costs of commercial failure industry-wide and maximized the economies of scope over a broad spectrum of goods and services.10 Commercial failure became normalized in Taiwan; some firms found viable niches, though many did not. Indeed, failure came to be understood as merely a reality of industrial upgrading. But because the actual costs of failure for SMEs were minimal—when compared with the capital requirements of large firms—entrepreneurs, with the assistance of state incentives, were in the end more likely to enter potentially high-growth sectors.11 The normalization of failure in postwar industrial upgrading in Taiwan, it would seem, suits the inherent uncertainties of biotech innovation.

Most important of all, however, is the fact that the postwar SME strategy was predicated on the segmentation, rather than intrafirm consolidation, of commercial value chains, not unlike the current global biotech industry. Taiwan’s industrial SMEs are particularly well suited for more “granularized” and “dis-integrated” technologies such as IT, electronics, and, it has been argued, biotech.12 Firms are thus focusing on specialized segments of the biotech innovation process and the commercial value chain.13 Aspirations to grow large-scale, fully integrated biotech or biopharmaceutical firms in Taiwan were nonstarters from the beginning. Rather, Taiwan’s biotech industry as a whole is conceived as “one giant firm” in which individual SMEs are expected to contribute to different though vital links of the value chain.1 4

The story of ScinoPharm illustrates the SME approach to commercial biotech development. ScinoPharm was founded during the mid-1990s by two former executives and scientists at Syntex, a U.S.-based drug firm. After Syntex was acquired by Roche, Jo Shen and Hardy Chan returned to Taiwan to form ScinoPharm, a pharmaceutical ingredients firm. Its major investor was the Uni-President food conglomerate. Initially, ScinoPharm’s core business was in supplying active pharmaceutical ingredients (APIs) for drug firms. Manufacturing APIs is a growth segment in the drug development industry and one that industry watchers predict will be increasingly outsourced. ScinoPharm was among the first Taiwan-based companies to have its production facilities certified by the U.S. FDA, expanding its market beyond local buyers. Though ScinoPharm’s business model initially centered on a “me too” product and service, the firm’s competitive advantage was realized through proprietary process innovations. Its initial business model, in other words, was based on price competition.15

The firm’s long-term ambitions, however, are in the biotech sector proper, and not chemistry-based manufacturing and supply. ScinoPharm thus has a two-stage growth strategy. ScinoPharm Biotechnology was created in 2001 as a subsidiary of the parent company. With a small R&D staff working in research facilities near Shanghai, ScinoPharm Biotechnology quickly gained a foothold in the biopharmaceutical industry, providing contract manufacturing of biologicals, which Shen and Chan anticipated in the wake of new discoveries in genomic research and the rapid entry of major drug firms into the biopharmaceutical sector.16 Over the longer term, however, the firm looks to develop, manufacture, and distribute biogeneric drugs. In 2006, ScinoPharm reported a 43% revenue growth from the previous year and for the first time posted net profits, almost all of which came from its API supply business.17 The firm planned to launch an IPO soon thereafter.

The story of ScinoPharm is exemplary of Taiwan’s SME strategy in biotech industry development. The firm began as a start-up. It benefited from various state incentives, including low-interest loans, though its primary equity investors came from the private sector, not the government. Like other venture firms, ScinoPharm draws on foreign expertise, specifically returnees to Taiwan who bring with them overseas industrial experience. But most important, it is understood that if ScinoPharm is to survive, it has to expand its markets in the absence of excessive government patronage. Its gradual two-stage business model was therefore necessitated by the fact that the firm is dependent on a near-term revenue stream to survive, compensating for the dearth of patient and risk capital in Taiwan’s biotech sector. ScinoPharm thus delayed its entry into its core biotech business by establishing an initial market presence in a “me too” niche in the pharmaceutical supply chain. Upgrading into more innovative biotech applications has been carried out within the firm over time. ScinoPharm was not a big-bang biobusiness.

ScinoPharm’s example is an important one because it is consistent with Taiwan’s overall strategy for developing R&D-intensive biotech SMEs. Mirroring the “hit-and-miss” logic of resource allocation described in Chapter 2, Taiwan’s approach to bio-industrial growth is to seed “many sprouts.” Most are not expected to survive, but those that do might eventually grow to be successful firms.18 Given biotech’s uncertainties, it is not clear which firms will survive. Nor is there any certainty about which niches will eventually be captured by Taiwanese firms. The state has purposely steered clear of picking winners in commercial biotech. What is certain, however, is that struggling firms with little potential for growth cannot survive. The challenges faced by ScinoPharm and its responses are typical of a Taiwanese SME.

Though it is expected—and even encouraged—that the majority of Taiwanese biotech SMEs will in the end be commercial failures, firms have not had to bear the uncertainties of biotech innovation and commercialization alone. As I described in Chapter 2, the state is investing in midstream R&D to help mitigate the risks of commercializing biotechnology.19 More precisely, the state, when compared with the state in Korea and Singapore, has allocated a disproportionately large stock of public resources to strengthening, diversifying, and multiplying biotech development and transfer mechanisms dedicated to the life sciences industry. Thus, despite the uncertainty about which of Taiwan’s “many sprouts” will survive commercially, public investment in midstream activities is intended to increase, even if only marginally, the probability of some longer-term survivors in the sector.2 0

The National Health Research Institute is a good example of this midstream biotech development strategy. The NHRI was established in 1995 by the Department of Health. Its annual budget is sizable by the standards of Taiwan-based research institutes, amounting to approximately US$90 million, nearly all of which comes from the state. Unlike the ITRI, the NHRI was initially intended to concentrate on upstream life sciences research, similar to the National Institutes of Health in the United States. However, the NHRI is increasingly focusing on the development of applied technologies, a reorientation that was prompted when the DOH, its ministerial patron, steered its R&D programs further downstream. Since the early part of the first decade of the 2000s, the NHRI’s Biotechnology Division, headed by Yu-Sheng Chao, has focused on new drug discovery and development. According to Chao, because Taiwan has no domestic pharmaceutical industry, emerging biotech firms, especially those working on drug development, lack bio-industry and R&D experience.21 The NHRI’s primary objective, therefore, is to transfer promising drug candidates to commercial pipelines within the industry. To narrow the gap between R&D and commercialization, the NHRI is also increasingly partnering directly with industry.

In 2007, Genovate Biotechnology, a Taiwanese biotech start-up, initiated an R&D partnership with the NHRI to work on new drug leads for preclinical development. The partnership was subsequently transformed into a full-fledged R&D consortium made up of ten local biotech SMEs. To offset the consortium costs, the ten firms contributed just 15% of total R&D funds while the NHRI accounted for the remaining 85%. Together they conduct “precompetition” R&D. One objective of the consortium is to eventually license out NHRI-developed compounds for clinical and commercial development. Another is to promote intermural learning, in which R&D and biobusiness knowledge are transferred both up and down the research chain.22 The consortium provides firms the opportunity to conduct early-stage, high-risk research. It has allowed firms to better “understand the science, the biochemical make-up” of potential compounds. Meanwhile, the NHRI is exposed to the needs of industry, learning how upstream discoveries are developed to match downstream applications.23

The manner in which the consortium was formed is significant. In the past, parastatal labs, and not firms, were the “anchor” in public-private R&D alliances. Consortia were almost always organized from the top down and usually after targeted applications had first been identified by state planners. Past R&D consortia also tended to center on engineering problems that needed to be solved, a mandate that reflected industrial policies designed explicitly to target and make winners. The origins of the NHRI consortium were different, however. For one, the consortium was initiated from the bottom up and by private sector firms.24 Moreover, the R&D objectives of the consortium are considerably more open-ended and less targeted than in consortia of the past. As Johnsee Lee, former president of the ITRI explains, collaborative R&D in the life sciences is neither “short term” nor narrowly “project-based” in terms of organization, both of which characteristics were typical of past R&D consortia. Instead, biotech R&D collaboration is becoming more institutionalized among longer-term partners with research agendas that are more open-ended.25

The NHRI consortium is just one of many initiatives in Taiwan facilitating closer and longer-lasting linkages between midstream R&D centers and the private sector. The ITRI, not surprisingly, continues to play a leadership role in creating such linkages. Phalanx Biotechnology, a venture firm specializing in micro-array production for biochips, was spun out of ITRI in 2002. The initial idea for Phalanx arose in 1998, when ITRI researchers agreed that the best way forward was to leverage their engineering expertise in biomaterials, medical devices, and biochips, all of which are essentially engineering-based biotech applications. Johnsee Lee, who was at the time ITRI’s vice-president and director of the Biomedical Engineering Center (BMEC), focused some of ITRI’s life sciences R&D programs on micro-array technology, a specialized niche within the biochip industry.26 There were no inducements from above to target micro-array technologies. Rather, the impetus for this new R&D agenda came from within the ITRI. Though biochip R&D in ITRI was funded by the Ministry of Economic Affairs between 1998 and 2002, funds were allocated through regular budget lines. Biochip technology, in this respect, was not targeted. It did not benefit from priority investments from the Executive Yuan Development Fund. In fact, micro-array technology was considered at the time too distant to market to be a viable commercial winner; it was merely one of many sprouts .

ITRI researchers nonetheless approached the development of micro-array technology with some sense of market potential. On the supply side, micro-arrays, or gene chips, which array DNA spots on a single slide for use in monitoring gene expressions, were expensive to produce. As of the late 1990s, production costs amounted to about US$2,000 per slide. There were clear supply-side pressures to reduce costs. On the demand side, however, there was uncertainty about the market potential of gene chips. Markets had been relatively sluggish because of the costs to produce the chips, and also because applied genomic research had only just begun to take off. ITRI engineers nonetheless reasoned that cost reductions in production combined with more efficient automation techniques for using DNA micro-array technologies could induce market demand. In 2000, ITRI researchers set an eventual production goal of 50,000 slides per day, at approximately one-tenth the then market price.

What was risky and uncertain was whether ITRI-developed technologies could in fact reach this production capacity. In 2002, a prototype was developed through proprietary innovations in the production of micro-arrays. Proof of concept was demonstrated thereafter. The manufacturing technology worked. Phalanx was then spun out of the ITRI and incubated in the Hsinchu Science Industrial Park. The MOEA was one of many investors in the company, though unlike in the past, the vast majority of financing came from private sector sources and not the state. China Steel and the Yu Long conglomerate led the initial investment. In fact, the ITRI and the MOEA purposely structured the first round of financing to prevent any single investor, including the government, from holding more than a 20% equity stake in the firm. This in effect diversified Phalanx’s equity base, diffused risk among multiple investors, and, most important, ensured that the firm remained predominantly a private sector endeavor. Phalanx was not TSMC or UMC, which were heavily supported by the state in the days of IT sector upgrading, in that the economic uncertainty was shouldered by the firm’s many industrial stakeholders and not primarily the government.27

Taiwan’s approach to growing bio-industry emphasizes certain features that, as we will see, diverge from those in Korea and Singapore. First, technological innovation continues to center on activities within midstream R&D labs. Publicly funded institutes such as the ITRI, the NHRI, and the Development Center for Biotechnology, as well as upstream labs, including Academia Sinica, continue to attempt to bring technologies closer to market in order to narrow the technology gap between science and industry.28 Commercial biotech’s technological uncertainties are thus managed by publicly funded labs.29 However, unlike in the past, biotech R&D and commercialization are not directed by state planners but led largely by private sector firms, industrial investors, and individual researchers themselves.

Second, though the burdens of facilitating technological innovation continue to be the responsibility of parastatal labs, publicly funded R&D institutions are perceived as not commercially agile enough to take on the market risks and economic uncertainties inherent in the sector on their own. The engines for biotech commercialization are SMEs and start-up venture sectors. As one entrepreneur explains, even the ITRI, which is experienced in transferring its R&D further downstream, is viewed as “too slow and cumbersome” and too “risk-averse” for commercializing biotech.30 Economic uncertainty is thus borne by industry, which has attempted to manage such uncertainty by seeding “many sprouts.” Industry investments in the biotech sector have been intentionally spread so that areas of potential commercial growth can be identified and the costs of anticipated failures diffused.31

And third, Taiwan’s “many sprouts” strategy demonstrates how stakeholders in Taiwan aim to capture small niche segments of biotech’s vast and unintegrated commercial chain, an approach that suits Taiwan’s industrial organization. The absence of scale advantages inside firms prohibits efforts to develop fully integrated biotech firms. Ventures such as ScinoPharm and Phalanx also have to operate with nearer-term horizons with respect to generating revenue streams and viable commercial outputs. Critics contend that these constraints force potentially innovative Taiwanese firms to abandon long-term R&D objectives for short-term revenues.32 To be sure, bioventures in Taiwan are becoming less ambitious, opting for what Steven Casper refers to as “sub-sector”—meaning less lucrative and less cutting-edge—niches along biotech’s commercial value chain.33 Yet opponents to this critical view assert that Taiwan’s SME approach ensures that only strong (i.e., revenue-generating, private sector investment) firms survive and that through learning and adaptation, and essentially bootstrapping, such firms have the capacity to grow and continually upgrade from within. They also reason that when commercially viable niches are identified, or when some “sprouts” have begun to show commercial promise, new resources will be allocated. Potential winners are therefore discovered over time through a hit-and-miss process—commercial trial and error among firms.

The industrial landscape in Korea continues to be vastly different from that of Taiwan. Korea’s postwar industrialization was led by large and diversified chaebol firms such as Samsung, Hyundai, and LG. The Korean strategy for industrial upgrading looks to capture longer portions of commercial value chains and, unlike in Taiwan, ultimately the entire value chain. The scale and scope of chaebols support such aspirations. Chaebol success in the electronics, IT, and automobiles sectors is evidence of Korean firms’ capacity to conduct innovative R&D and to ensure high-quality manufacturing, sales, and marketing, as well as logistics management, within a single firm. Technological innovation and private sector industrial R&D continues to center on the leadership of the chaebol sector. Patent data presented by Mahmood and Singh confirm this, as do investment data from studies of other industries.34

Korea’s aspirations to become a global biotech producer continue to rest with the chaebol firms.35 Industry, and not the state, has taken the lead in Korea, focusing firms’ efforts on growing a viable domestic pharmaceutical industry—a very uncertain proposition. Drug discovery and development entails the greatest risk, the longest distance from bench to market, and the largest loss-leader investment. Yet industrial stakeholders in Korea perceive biopharmaceuticals as potentially the largest source of revenue in the sector, the big prize. The goal to capture biopharmaceutical markets reflects the bio-industry ambitions of the chaebols. They have the R&D capabilities and experience needed to bring upstream research further downstream.36 They possess the resources to increase their manufacturing capacity to bring new drugs to market at competitive prices. The chaebols are able to leverage their global brand and marketing channels to ensure access to international markets. And they are huge; scale in gigantic firms such as LG, Samsung, and Hyundai is expected to help absorb the extraordinary costs of life sciences innovation over the long term.37

Expectations of chaebol leadership in commercial biotech were generated not out of state directives but rather from firms’ own bio-industry initiatives. LG Life Sciences (LGLS) emerged as Korea’s largest pharmaceutical firm during the first decade of the 2000s, though its origins date back to the mid-1980s, when the LG pharmaceutical division was first created. LGLS was spun out of its parent company, LG, in 2002, around the time that its novel antibiotic, Factive, was about to gain U.S. FDA approval. Factive is the first—and as of 2009, the only—FDA-approved drug discovered and developed in Korea. Its story raised LGLS’s profile at home and internationally, and the firm was soon recognized as Korea’s pioneer in new drug development.38 Building on the momentum generated by Factive, LGLS is currently spearheading several R&D projects in biopharmaceuticals and biological drug delivery systems.

The chemistry behind Factive was developed in-house beginning in the early 1990s. LGLS funded preclinical R&D up to Phase 1 trials, but as a relative newcomer to the industry, it decided to license the compound to Glaxo, a foreign pharmaceutical firm, for human clinical trials during the mid-1990s. The U.S. FDA initially rejected the clinical trial results due to high toxicity levels, and Glaxo abandoned the compound soon thereafter. LGLS then licensed Factive to Genesoft, a U.S.-based biopharmaceutical firm. Genesoft reanalyzed the clinical data and reapplied for FDA approval, which it gained in 2002. As part of the licensing deal, Genesoft retained Factive’s distribution rights in North American and European markets, while LGLS secured the rights to produce and distribute Factive to all other global markets, its principal targets being Japan, India, and China.39

The story of Factive and LGLS was received positively but also with some caution in Korea. With respect to the positive, Korea had clearly arrived on the global drug scene and LGLS’s triumph demonstrated that Korean firms could succeed in drug discovery and development and could leverage their brand in forging global R&D alliances. Important lessons were also learned from the Factive story. Though the Factive project did not entail a lab-to-market product, the firm gained experience in preclinical R&D as well as in dealing with the business and regulatory imperatives of drug discovery and development. Perhaps most important was the fact that Factive was seen as not a product of state patronage, as was the case in high-technology development in the past. Rather, the case of LGLS and Factive confirmed that chaebol leadership in growing bio-industry was indeed viable.40

Yet the story of Factive was also received as a cautionary tale about the future prospects of Korea’s life sciences industry. The fact remains that LGLS is small compared with established global drug firms.41 What is more, though LGLS has enjoyed sizable returns from Factive, the firm has yet to successfully bring a biological drug from bench to market. Aspirations of becoming a fully integrated biopharmaceutical firm notwithstanding, the reality is that the story of LGLS failed to assuage prevailing concerns about the technological, economic, and long-term uncertainties of biopharmaceutical development, especially among other chaebol firms. To be sure, LGLS is the only chaebol to have invested significantly in life sciences innovation during the 1990 s. Whereas Samsung’s initial investment in semiconductors in the early 1980s attracted rapid follow-on investments by competitors, chaebol investment in biotech overall has been relatively slow. Bio-industry investors note, for instance, that the development of Factive spanned nearly a decade and a half, cost LGLS a huge amount of investment capital, and yet still confronted many obstacles that could have sunk the project during its development.42 That the enormous risks and uncertainties of new drug development are shouldered almost entirely by the firm also means that entry barriers to the sector appear prohibitively high, a deterrent for even the most innovative and risk-embracing chaebol firms. Simply put, commercial biotech continues to be very far from a sure bet, both in spite of and because of LGLS’s commercial success.

LGLS cannot do it alone in biotech innovation in Korea. And while it is expected that the chaebol sector will lead the growth of biotech firms, it is also clear that the lure of potential but distant profits and market share alone are not enough to draw conglomerate firms into the sector. And the state is limited in what it can do to lead biotech commercial development. For one, the state is increasingly incapable of directly shaping large firm behavior. By the 1990s, the balance of power and the nature of the relationship between the state and industry had been reversed, and the state no longer commanded industry as it had during the postwar developmental state period. The developmental state’s ability to steer industry had waned.43 But I suggest that the state’s relatively weak position vis-à-vis industry was not solely a function of its diminishing capacity to coordinate from the top down; rather, the state is also less willing to take on the risks and uncertainties of coordinating science-based industrialization. The government has made clear that the technological and economic uncertainties of biotech are to be managed by industry and firms. Simply put, state planners have decided that betting on and prospecting biotech firms is the sort of gamble they are no longer willing to wager on .

The chaebols need a supporting cast, different parts of the innovation enterprise that can be linked in productive ways with Korea’s leading firms.44 Here the state plays a critical role. As I described in Chapter 2, the state allocates significant stocks of resources to develop upstream and midstream R&D capabilities. New laws are hastening the creation of new technology transfer mechanisms in virtually all publicly funded research labs to facilitate the “diffusion of innovation” and to encourage the integration of multiple bases of knowledge.45 In other words, the state’s primary role has been to help create this supporting cast.

Venture firms, for instance, are expected to play an essential role in supporting the chaebols by discovering potential drug candidates or providing critical research services for drug development firms.46 Once ignored by the state in favor of growing chaebol firms, technologically savvy SMEs began to benefit from government support in the 1990s. In 1996, the Ministry of Commerce, Industry, and Energy (MOCIE) created the Small and Medium Sized Business Administration (SMBA) office, which, along with other state agencies, provides R&D-intensive SMEs with a broad range of economic inducements and incentives, including investment capital and the institutionalization of technology transfer offices in all public R&D labs. Central and regional governments in Korea are also investing in the construction of new centers of R&D excellence, the revitalization of science-based industry parks, and the organization of technology clusters.47 Regulations that had previously prohibited university professors and researchers from entering the private sector were lifted in a “special” 1997 law, a decision that was intended to spark a wave of technology spin-offs.48 Furthermore, state initiatives have attempted to redress the dearth of industrial financing for technology-based SMEs, through such measures as the disbursement of government loans, the implementation of regulatory reforms in venture capital fund-raising, and the development of the secondary technology stock market ( KOSDAQ), as well as reforms to mergers and acquisitions regulations to encourage more interfirm collaboration.

These efforts, initiated during the late 1990s, have produced strong results. Between 1997 and 2004, SMEs accounted for nearly 90% of formal sector employment in Korea. Small firms also generated 42% of export production and more than half of all domestic manufacturing output. In the pharmaceutical sector, 87% of all R&D units in 2001 were located within SMEs and accounted for nearly two-thirds of total research personnel in the sector.49 It is estimated that early in the first decade of the 2000s, Korea’s bioventure sector comprised about 450 to 600 firms, ranking Korea among the world’s leaders in newly created biotech start-ups. Even after the dot-com bust of 2001, government and industry estimates still counted more than 200 active biotech SMEs through the middle of the first decade of the 2000s.50 Industry insiders view these figures with some optimism, as firms that survived the industry’s contraction during the early 2000s are likely to be on firmer financial footing and with potentially marketable technologies in their pipelines. Before 2000, only six biotech ventures were listed on the Korean stock exchange; between 2000 and 2005, and after the dot-com bust, 36 new biotech firms successfully launched IPOs and listed on the KOSDAQ.51

Macrogen is one such firm. It listed on the KOSDAQ in 2000, three years after the company was founded by Jun-Seong Seo, a professor at Seoul National University (SNU). Macrogen is considered Korea’s first “real” biotech firm to raise funds through an IPO. Macrogen is described by Seo as a “lab venture”—it was not technically spun out of SNU through a formal transfer agreement but rather grew out of Seo’s university lab. Seo’s research at SNU at the time focused on design and production techniques for micro-arrays and DNA sequencing. Green Cross, a domestic drug firm, was Macrogen’s earliest investor. The government’s Korean Technology Investment Corporation came on around the same time. Positioned in the market as a research service firm, Macrogen provides DNA sequencing services for pharmaceutical companies as well as upstream labs. As of 2005, about half of Macrogen’s revenue stream came from DNA sequencing. Macrogen’s initial business model was to gain market share through competitive pricing, providing sequencing services at one-quarter the market price. Once the firm went public in 2000, however, Macrogen refocused its R&D plans to develop new competitive advantages in sequencing speed and accuracy. This prompted the founding of Macrogen USA in Maryland, near the National Institutes of Health and the Washington, D.C., biotech cluster.52

Bioneer is another bioventure success case in Korea. The firm was founded by Han-Oh Park, a graduate of the Korean Advanced Institute for Science and Technology (KAIST), one of Korea’s technology-intensive public research institutes. Bioneer was among the first firms to be spun out of KAIST and incubated at the Bioventure Center (BVC), which is housed in the adjacent Korean Research Institute of Bioscience and Biotechnology (KRIBB). The firm is based in the Daeduk Science Town in Daejon, Korea’s major science park, located near the KAIST, KRIBB, and BVC. Bioneer was founded in 1992. By 2003, it had become the second-fastest-growing biotech firm in the Asia-Pacific region, and in 2005, Bioneer listed on the KOSDAQ. Like Macrogen, Bioneer is a research service firm, specializing in DNA synthesis. But unlike Macrogen, Bioneer is a true start-up: its initial investments were almost solely out-of-pocket. Some venture capital (VC) investment trickled in, though according to Park, Bioneer survived its first decade on bank loans and revenues. Bioneer benefited greatly, though, from its location in Daejon, where it serviced KRIBB and KAIST labs. Because Bioneer is considered a “homegrown” firm, local researchers were willing customers. Bioneer was thus able to generate a modest revenue stream early on, underpricing competitors by 25% with its proprietary synthesis process.53

The Korean state no longer has the capacity or the willingness to “husband” chaebol firms in the life sciences sector. And as I have described so far, it has taken on a more indirect role in facilitating the development of fully integrated biopharmaceutical firms by allocating resources to upstream and midstream R&D and by supporting the growth of technology-intensive, R&D-focused SMEs. The state’s efforts are thus aimed at nurturing a supporting cast of actors with which to draw in and help develop Korea’s would-be national industrial champions in the commercial biotech sector. This supporting cast can also be seen as the state’s indirect role in facilitating the diffusion of knowledge. By this I mean the spread of knowledge up and down the technology R&D division of labor, across the public and private sectors, and spanning large integrated chaebol conglomerates as well as small, savvy, and specialized technology firms.

But the diffusion of knowledge alone is not enough; integrating these disparate bases of knowledge is what drives technological innovation and the development of commercial breakthroughs. Molly Webb, in her recent study of Korea’s innovation system, finds that nearly two-thirds of R&D productivity among technology-based SMEs during the late 1990s and into the 2000s was generated through interfirm collaboration, not firms working in isolation.54 She concludes, therefore, that for technological innovation to be facilitated within Korea’s leading chaebols, diffuse and disparate bases of knowledge must be integrated in complementary and collaborative ways. The diffusion of knowledge is helpful in the innovation process only if the various bits of knowledge, expertise, and availability of research services can be used by industry.55 Public and private, upstream and downstream linkages need to be complementary.

How would such complementarities emerge in the biotech sector? The short answer in Korea is that they have not so far. Knowledge diffusion has been thorough, prompted, as I have argued, by both state and industry efforts. However, the consensus among biotech stakeholders in Korea is that the integration of such knowledge has been shallow. The formation of linkages that bring together leading firms and their supposed supporting casts has been slow. When asked about the likelihood of collaboration between biotech SMEs and chaebols invested in the life sciences sector, Bioneer’s Han-Oh Park responds simply, “In biotech, there is no interaction at all in Korea.”56 To the extent that any linkages have been formed among firms and labs, they have by and large been based on supplier-buyer relations and not on R&D collaboration.

There are several reasons for such shallow integration. First, there is a weak tradition of interfirm R&D collaboration in Korean industry, especially in comparison with firm behavior in Japan and Taiwan. Korean companies are historically less willing to cooperate with one another, and chaebol firms in particular have tended to eschew premarket R&D consortia involving other enterprises. They prefer to do their R&D in-house.57 Second, R&D outputs from both upstream research institutes and smaller bioventures remain too distant from the market, too “raw” for meaningful R&D linkages to be formed with biopharmaceutical firms in Korea. Chaebols such as LGLS recognize that good research is being conducted at Korean universities, public research institutes, and R&D-intensive SMEs. Yet they also find that the R&D is neither far enough along downstream nor a good enough match with their firms’ specific needs to be of use to commercially oriented pharmaceutical companies. In other words, the R&D gap between actors remains quite sizable.

Perhaps most important is the fact that the state is simply reluctant to coordinate the formation of such linkages.58 In the past, the postwar developmental state directly organized collaborative linkages from the top down. Today, however, the state perceives such practices as no longer sustainable in intensely science-based industries. For one, as alluded to in the previous chapter, the multidisciplinary complexity and functional imperatives of biotech innovation have undermined the coordinative capacity and expertise of the state and its economic planners. It is increasingly clear that complementarity and integration in science-based industrial development cannot be engineered from above.59 But the state also purposely eschews the burdens of managing biotech’s myriad uncertainties, meaning that it is not only no longer capable but also no longer willing to target, pick, and gamble on specific subsectors, technological applications, products, or firms in biotech. Put another way, while the Korean state remains willing to indirectly help make winners, it has left the business of picking winners to industry, or more generally, to chance.

Unlike in postwar Korea and Taiwan, where FDI represents a very small portion of industrial investment, MNCs and FDI play a significant and historical role in Singapore’s economic development. Poor in natural resources though abundant in human capital (i.e., cheap skilled labor), Singapore’s Economic Development Board set out early on to attract global firms. Multinational firms created jobs and stabilized domestic labor markets, which were especially crucial in the early stages of state consolidation after Singapore separated from Malaysia during the 1960s. Over time, foreign firms also transferred greater value-added industrial activities to Singapore and labor was continually up-skilled to attract more FDI. Global firms are, in this respect, the engines of industrial upgrading in Singapore. But Singapore’s historical reliance on foreign direct investment has inhibited the growth of indigenous technology-intensive firms. Patent data reveal how it is global rather than local firms that are the core of technological innovation in Singapore. Not surprisingly, Singapore’s current strategy for biomedical industry development continues to center on the inflow of FDI and the location of global life sciences firms there.

Continuities in industrial strategy in Singapore are not for lack of policy creativity on the part of stakeholders. Attracting life sciences MNCs is not solely a function of path dependency; there is a strategic rationale unique to Singapore’s circumstances. Global firms, for instance, are expected to create jobs for Singapore’s continually up-skilling labor force, especially for newly trained engineers and scientists. Such firms are expected to transfer talent to the tiny city-state, whose scale disadvantages in human capital resources are exposed in the current era of science-based industrialization. Singapore has also become less satisfied with being just the skilled manufacturing hub for multinational firms and is looking to position itself as an R&D hub for world-class biomedical firms. Stakeholders in Singapore anticipate that foreign firms will bring with them potential “winners” in their pipelines, which can be further developed in Singapore. And finally, due to their scale and diversified R&D capacities and portfolios, MNCs are also believed to be better able to absorb the risks and costs associated with biotech’s myriad uncertainties. Singapore’s strategy of leveraging the international, in other words, shifts industrial leadership and thus the conundrum of managing uncertainty to international firms. Multinational firms, rather than local ones, are expected to shoulder the burdens of commercial biotech’s technological and economic uncertainties, while Singapore looks to benefit from the externalities gained from the MNCs’ presence.

Singapore’s emerging biomedical industry has indeed benefited from this leveraging strategy. Investments by global firms give Singapore international credibility, necessary if the city-state is to become a global biomedical hub.60 Multinational firms are also attracting world-class R&D talent to Singapore. Over the past several years, Singapore has recruited the “who’s who” of the world’s leading scientists to serve on company boards, in research institutes, and on government advisory councils. The inflow of biomedical FDI and the location of global firms in Singapore also ensure the state’s continued commitment to develop biomedical R&D infrastructure, including government investments in upstream R&D and public research institutes dedicated to life sciences research and commercial biotech.61

Singaporean firms have particularly benefited from this leveraging strategy. As was the case for the semiconductor and electronics sectors, the location of global firms in Singapore has prompted the development of supply chain linkages for local SMEs in the biomedical sector. Local firms and start-ups are positioning themselves not as cutting-edge innovators in life sciences industry per se, but as suppliers of materials and research services for multinational firms. Kooprime, for example, is a bio-informatics spin-off from the state-funded Institute for Molecular and Cell Biology (IMCB), specializing in information technologies for managing biological databases. With investments from the state’s Bio*One venture capital fund and collaborations with the National University of Singapore (NUS), GlaxoSmithKline (GSK), and locally based Merlion Pharmaceuticals, Kooprime has grown its business operations in Singapore and across the region. BRASS, an NUS spin-off founded during the late 1990s, provides preclinical testing services for medical device firms. A-Bio, a Singapore-based biologics contract manufacturer, entered into an agreement with GSK in 2004 to supply its pharmaceutical ingredients. All these ventures are essentially enabling firms in that they are far from the cutting edge of biomedical innovation yet sufficiently good enough to have earned revenue-generating partnerships and contracts with global clients.62 Simply put, the recent growth in Singapore’s indigenous SMEs in the life sciences sector reflects the inflow of foreign investment from global biomedical firms.63

The most important externality, from the perspective of Singapore’s economic planners, is the potential relocation of global biomedical firms’ R&D operations to Singapore, transforming the existing “made in Singapore” model into a higher value-added “discovered in Singapore” path. Technological spillover in R&D is seen as the most important means by which Singaporean researchers and entrepreneurs can eventually climb the value chain in the biomedical sector and build a more robust critical mass of local bio-entrepreneurs. To that end, biotech stakeholders in Singapore have geared their efforts toward establishing a competitive industrial and research environment for global, R&D-intensive biomedical firms. Such efforts include strengthening local R&D capabilities, training a new generation of R&D talent, growing R&D-intensive bioventures, and further solidifying Singapore’s regulatory regimes.

Of course, the decision to locate value-added R&D activities to Singapore is ultimately not Singapore’s to make, and certainly not its state’s. When it comes to technology transfer, global collaboration, and transnational R&D partnerships, such decisions are always made in global corporate boardrooms and not within the government.64 Singapore’s prospects for climbing the bio-industrial commercial value chain thus depend on multinational firms, investors, and individual researchers to deliver new R&D opportunities and value-added commercial activities to the city-state. The long-term development of Singapore’s biomedical industry hinges on the strategic decisions of others. This is Singapore’s gamble and the basis of its uncertainty in biomedical industry upgrading. Though the Singaporean approach to growing biomedical industries essentially shifts biotech’s technological and economic uncertainties to global firms and global actors more generally, the state must first assume the risks inherent in attracting R&D and commercial activities to Singapore. To that (uncertain) end, state policy has been directed at increasing the likelihood that global firms will choose to locate their value-added operations in Singapore.

The first phase of the state’s Biomedical Sciences Initiative (2001–2006) mainly focused on strengthening local R&D capacity through the creation of new biomedical research labs and the growth of local life sciences R&D talent. Before the 1990s, R&D infrastructure in the life sciences sector was considerably weaker than in competitors such as Korea and Taiwan. There were few public research institutes dedicated to biomedical research, and universities were still primarily training institutions rather than knowledge-creating centers of research excellence. To catch up, the state invested heavily in developing Singapore’s science and technology capabilities. In 2005, public funding accounted for nearly two-thirds of total R&D spending in the biomedical field, much more than from the private sector. Singapore’s two research universities, National University of Singapore and Nanyang Technological University, received 15% of all biomedical R&D funding. Meanwhile, public research institutes managed by the A*STAR accounted for 35% of biomedical R&D spending, a proportion larger than the private sector’s share of total investment in the sector. Indeed, more than half the researchers located in Biopolis, Singapore’s world-class commercial biotech R&D hub, are employed in labs overseen by the A*STAR.65

Phase 2 of the biomedical industry plan (2006–2011) emphasized translational R&D, or the downward transmission and commercialization of scientific knowledge.66 The EDB and A*STAR co-administer competitive funding schemes to seed promising venture businesses in life sciences industry. The A*STAR also established international partnerships such as those with Johns Hopkins University and Duke University’s medical school to provide opportunities for local researchers to gain experience in applied health technology development and clinical R&D. The Hopkins and Duke campuses in Singapore were heavily supported by state funds. As in Taiwan and Korea, technology transfer centers have also been created to deepen linkages between the academy and industry. The A*STAR established its in-house technology transfer arm, Exploit Technologies, early in the first decade of the 2000s. Exploit’s principal role has been to mine publicly funded A*STAR labs to help commercialize promising technologies through formal technology transfer, licenses, or the creation of spin-off firms. Life sciences R&D and commercialization activities are also clustered in or near Biopolis. In sum, the first and second phases of Singapore’s biomedical industry plans have been a coordinated effort by the state to increase the probability that foreign MNCs will locate their value-added R&D intensive operations there, a risk proposition that policymakers in Singapore have, thus far, been comfortable with.

But has this strategy paid off? There are two ways to evaluate the situation. On the one hand, efforts to attract biomedical MNCs to Singapore have definitely been rewarded. Virtually all the major global pharmaceutical firms have a significant presence in Singapore. Britain’s GSK set up a sales and distribution center in Singapore in the 1980s and subsequently invested in manufacturing plants as well as R&D labs. American firm Eli Lilly established a research lab in Biopolis in 2002 and later expanded it into its Center for Drug Discovery in 2007. Swiss firm Novartis invested in a tableting plant in 2005 and announced two years later its plans to establish a cell culture production facility in Singapore. Meanwhile, Pfizer has invested US$300 million in a plant for pharmaceutical ingredients. In the areas of biologics and biopharmaceuticals, multinational firms Genentech, GSK, and Lonza made commitments in 2007 to invest in new production facilities. In total, Singapore received US$1.5 billion in foreign investment for biologics manufacturing between 2005 and 2007.

A global industry presence in Singapore has definitely translated into jobs, investment capital, the creation of new supply chain opportunities for local firms, and commercial output. But as I argued above, in addition to these important externalities, the attraction of global firms to Singapore is intended to be a stepping-stone for the eventual inflow of more sophisticated, early-stage and higher value-added R&D.67 The strategic rationale, according to biotech stakeholders in Singapore, is that once global firms are in Singapore, in whatever capacity, they will recognize the benefits of moving their R&D operations to the city-state. Singapore would become a global R&D hub.

As it turns out, attracting biomedical manufacturing is one thing, while bringing in value-added R&D and sparking innovative commercial activity in Singapore is another. Despite coordinated government efforts to encourage value-added foreign investment in the life sciences, it appears that Singapore’s gamble has not paid off, or at least not at the pace once anticipated. According to industry stakeholders in Singapore, value-added investment in the form of R&D has fallen well short of expectations. Of the billions of investment dollars that pharmaceutical and biomedical MNCs have poured into Singapore, much of it has been directed at the manufacturing side of biomedical industries, where value-added gains are most modest. According to government data, between 1997 and 2009, manufacturing output in biomedical industries grew from just S$2.6 billion to S$20.7 billion, an impressive eightfold increase. Meanwhile, value-added manufacturing output in the biomedical sector, for which business complexity and innovation are key drivers, grew from S$1.9 billion to S$9.1 billion, a fivefold increase over the same period, to be sure, but nonetheless a slower pace of growth than in overall manufacturing in the sector. In 1997, value-added output equaled nearly three-quarters of the value of total biomedical manufacturing output; by 2009, that share was 47%.68 These data suggest that growth in commercial biomedical output in Singapore is becoming more, not less, concentrated in lower value-added manufacturing activities, despite hopes for the opposite.

The anecdotal evidence reinforces this perception. For example, when Britain’s GSK announced in 2007 a US$300 million investment in a biologics manufacturing facility in Singapore, that same year the firm invested just US$13 million in its R&D drug discovery lab. Other big pharmaceutical and biomedical firms have made similarly skewed investment decisions. Multinational firms have also been cautious about integrating local talent into their R&D operations. Most Singaporean scientists are recruited at the junior level, while senior scientists and directors are almost always recruited from abroad.69 Meanwhile, efforts by the government to establish collaborative partnerships with prominent foreign universities have resulted in, at best, relatively modest outputs. The once lauded partnership between the A*STAR and Johns Hopkins University (JHU) came to an end in 2006. The dissolution was reportedly acrimonious. The government claims that JHU failed to bring to Singapore the high-profile researchers and R&D projects expected by the EDB and the A*STAR. JHU’s response was that decisions about research personnel and R&D programming are its to make, and not the Singaporean government’s.70 Beyond the specter of what was a very public breakup, the failed partnership underscores the serious challenge that Singapore faces by relying on foreign investments to prompt its transformation from a predominantly manufacturing center to a world-class life sciences and commercial biotech R&D hub. In the end, Singapore’s biomedical future hinges on the decisions of others, whose interests may not align with the city-state’s aspirations. Some are becoming wary of this approach; in late 2006, the government’s biotech development strategy was criticized for being too ambitious by one of Singapore’s leading scientists, Lee Wei Ling, who is also former Prime Minister Lee Kuan Yew’s daughter .

Why have Singapore’s apparent advantages in attracting huge amounts of investment in biomedical manufacturing not swiftly translated into other opportunities in higher value-added outputs and innovation-intensive commercial activities? Part of the answer rests with the internal organization of global firms themselves. Manufacturing and R&D operations within a global pharmaceutical firm, for instance, are organizationally distinct. As one MNC executive explains, “there is a wall which separates” manufacturing and sales on one side from R&D on the other, and the “two sides of the firm do not speak to one another.” They operate according to different logics. Economic and financial incentives attract manufacturing investment. He adds that manufacturing is “basically a tax game,” a viewpoint echoed by other management executives of global biomedical firms with some presence in Singapore. The corporate decision to outsource R&D high-value operations overseas, however, has much more to do with the host country’s capabilities in life sciences R&D, its expertise in biomedical industry commercialization, and the pool of viable firms with which to collaborate.71 Executives of global biomedical and pharmaceutical firms perceive Singapore as lacking a critical mass of R&D talent and bio-industrial entrepreneurs.

Given the sluggish growth in the global biopharmaceutical industry and the paucity of drug candidates in existing pipelines, global biomedical firms are looking to embed themselves within innovation-oriented R&D environments rather than service- or manufacturing-intensive economies. Over the past two decades, the highly competitive global pharmaceutical industry has restructured to manage uncertainty through a new global division of R&D labor, in which innovative venture firms discover drug candidates further upstream while large drug firms focus more on downstream commercialization. What MNCs need, therefore—and why they outsource their R&D operations in the first place—is a robust pool of innovative biomedical firms and research labs that can provide viable leads for commercialization.72 Cost, the main variable in manufacturing-related decisions, is less relevant when it comes to innovative R&D.

Empirical evidence from Singapore suggests that there has been little collaboration among Singaporean bioventures and multinational firms, and that the skeptical view shared among global firms is a valid one.73 Though the Biomedical Sciences Initiative was intended to nurture indigenous bio-industrial growth to complement the eventual expected inflow of R&D investment, the development of Singapore’s R&D intensive bio-venture sector has been relatively slow.74 With the exception of a small handful of firms targeted by the state as potential “stars” in the biomedical sector (discussed in Chapter 4), even government officials in Singapore admit that the performance of the domestic biotech sector has been underwhelming. The lack of innovative firms in Singapore translates into fewer collaborative R&D opportunities domestically and with multinational firms.

Some contend that Singapore’s industrial culture is hardwired against creativity-driven entrepreneurship.75 Unlike in Taiwan, where innovative SMEs have been and continue to be the bases for its industrial dynamism, efforts to develop small and innovative firms in Singapore have historically been subordinated to the MNC sector. According to Mark Goh and Irene Chew, Singapore’s is a deeply entrenched “non-entrepreneurial culture.”76 The paternalistic state and an education system that emphasizes rote learning have socialized a conformist, risk-averse ethic among Singaporeans rather than the free-wheeling mindset required of innovation and entrepreneurial creativity.77 Cutting-edge innovation “implies a readiness of letting go and allow[ing] for chaos,” an attitudinal imperative that has failed to resonate in Singapore.78

The culturalist take is just one of many for explaining the slow growth of Singapore’s bioventure sector, however. Other factors matter as well, and perhaps even more so. With the exception of the government’s Bio*One fund, venture capital, particularly from the private sector, has been hesitant to invest in the life sciences sector. Venture capital is generally risk-averse when it comes to the biomedical industry, and it lacks the patience demanded by biotech’s technical and market uncertainties. One official describes biotech VC promotion as an “abject failure” in growing local biomedical firms. Investors, he adds, have been slow to appreciate the long-term uncertainties of biotechnology innovation.79 They are, as one entrepreneur put it, “very uncomfortable with illiquidity,” and the notion that a “promising biotechnology firm can have little to no revenue is inconceivable.”80 The reality in Singapore is that if an entrepreneur is unable to successfully appeal to government sources of investment in high-risk sectors such as biomedical industries, there are few other options for venture funding.

Singapore is also without the institutional platforms to facilitate the deepening of collaborative linkages among researchers in public labs and industry. The costs for firms to locate at Biopolis, for instance, are described as prohibitive for domestic start-up firms.81 What is more, the means for technology transfer and midstream R&D have only recently been institutionalized in Singapore.82 Exploit Technologies, the technology transfer arm of the A*STAR, is criticized for its lack of business development expertise. Though it is noted for its legal and administrative proficiency, Exploit is viewed primarily as a passive repository of intellectual property (IP) rather than a proactive manager of commercially viable IP.83 Entrepreneurs further criticize the state for neglecting its role in facilitating opportunities for interfirm collaboration, asserting that the state continues to expend resources on attracting multinational firms to Singapore rather than growing local firms alongside MNCs.84 Critics quietly point out that the state, as in the past, has traded off domestic industry development in favor of securing foreign investment. State officials, meanwhile, explain that the legacies of weak domestic industry development have undermined the organization of industry associations, which has, in turn, fragmented the sector’s cohesiveness and constrained opportunities for interfirm collaboration even further.85

Singapore has also been unable to compensate for its scale disadvantages. Singapore is tiny, even when compared with Korea and Taiwan, never mind other global competitors such as the United Kingdom, Germany, Japan, and the United States. Because it is so small, Singapore has trouble achieving the scale and critical mass of local firms needed to match technologies with prospective partners.86 Due to scale constraints, the prospects for “needs-based” collaboration are also weak in Singapore,87 exacerbating what one executive calls the “translational R&D gap” between researchers and industry.88 Indeed, investment opportunities in Singapore are scant, meaning that from the perspective of the investor, the risks of investment cannot be diversified across either a portfolio of firms or a range of biotech applications. Put another way, there simply are not enough viable prospects in Singapore for investors to strategically cover their bets.

But perhaps most important is the fact that Singapore’s talent pool remains very small, despite government efforts to train locals and entice overseas researchers to return home.89 Executives of multinational biomedical firms point out that while government initiatives to nurture local life sciences researchers are a step in the right direction, the fact of the matter is that foreign nationals continue to make up a significant proportion of world-class researchers with industry experience working in Singapore. They worry that Singapore is particularly susceptible to talent flight. Therefore, despite the state’s commitment to ramping up its local R&D and bio-industrial bases—in short, to make Singapore attractive to global biomedical firms looking to locate their R&D operations there—serious concerns prevail with respect to Singapore’s scale-related capacities to help global firms bet on biotech.

Commercializing biotech is a complex process, involving many moving parts chasing after many moving targets. Given the dearth of blockbuster cases, however, we still know very little about the processes of generating new knowledge, translating this knowledge into something usable by industry, and then transforming these new technologies for the market. We do know, however, that the innovation and commercialization processes involve the diffusion and integration of otherwise disparate groups of actors and stakeholders. We know as well that there needs to be a critical mass of knowledge and expertise for there to be commercially viable outputs in biotech. And we know that narrowing the gaps in the innovation process requires various types of interactions among actors and stakeholders, whether competitive, collaborative, or both. But to reiterate my earlier point, we still know very little about how to actually facilitate these complex processes in ways that ultimately foster technological and economic returns. More specifically, there is no single organizational model that can be emulated to generate, translate, and commercialize new biotechnological knowledge.

In the absence of any such winning model for commercial biotech innovation, it is no surprise that distinctive national styles in the organization of bio-industry have endured in Korea, Taiwan, and Singapore. In Korea, the prospects of commercial biotech innovation continue to rest on potential collaboration among a broadly diversified group of actors, though with the chaebol firms at the core of the strategy. In Taiwan, on the other hand, the organization of bio-industry continues to center on growing technologically savvy SMEs through a hit-and-miss logic and the mobilization of resources around what might emerge as potential winners. Meanwhile, in Singapore, the prospects of biomedical innovation and commercialization depend on the ability of the state and industrial stakeholders to compel global biomedical firms to locate their value-added R&D operations in the city-state.

To a great extent, then, the organizational characteristics of bio-industrial development in Korea, Taiwan, and Singapore reflect past practices in industrial organization among each of the three. Decision makers in both government and industry have reverted to preexisting strategic repertoires. The emphasis on chaebol leadership in Korea, for instance, reveals a logic that is rooted in the presumed advantages of economies of scope and scale, just as the “many sprouts” approach in Taiwan reflects a historical normalization of SME failure and “guerrilla” entrepreneurship. These distinctive approaches make strategic sense to decision makers in each of the three places, even if they might make little strategic sense outside their national contexts. To be sure, Singaporean entrepreneurs are less likely to embrace the notion that failure is the basis of creativity and the norm when it comes to commercializing innovation, just as it would be inconceivable for biotech stakeholders in Korea to expect anything but the chaebol sector to lead the sector’s development over the long term.

Distinctions in national styles of organizing bio-industry also reflect stakeholders’ technological and economic objectives, which vary among the three. For Korean firms, the principal objective has been and continues to be capturing as much of the commercial biotech value chain as possible; hence the focus on growing fully integrated, lab-to-market, biopharmaceutical firms. In contrast, Taiwan’s commercial biotech ambitions are to develop specialized niches and thus generate value in small segments along biotechnology’s long and otherwise unintegrated commercial value chain. Meanwhile, Singapore looks to position itself as an R&D hub and is therefore more concerned about attracting value-added R&D activities than about growing local firms into global ones.

Yet, national distinctions aside, this chapter also reveals how the state in all three cases has similarly retreated, no longer playing the role that Robert Wade once referred to as “big leadership.” In betting on biotech, the state has refrained from making those risky bets that are “on a large enough scale to make a real difference to investment and production patterns in an industry.”90 In this respect, the relationship between the state and industry more generally has evolved quite considerably and similarly in Korea, Taiwan, and Singapore, a departure from the ways in which industry was organized by the postwar developmental state. The state’s earlier dominance over the private sector has waned. The policy instruments it can use to steer industry have also weakened over time. And most important, industry, and not the state, has taken the lead in industrial upgrading. The state’s coordinative role in organizing industry has diminished. As argued in the previous chapter, the state no longer has the authoritative capacity to coordinate very complex, intermural, and R&D-intensive sectors such as the life sciences. But as I have shown in this chapter, it is not only the erosion of the state’s coordinative capacity that is significant; rather, the state has also become less willing to coordinate actors in intensely science-based industries such as biotech. The state has opted to facilitate commercial biotech by allowing niches and core competencies to grow from the bottom up, as in Taiwan; through the diffusion and eventual integration of knowledge, as in Korea; or by the decisions of global biomedical firms, as in Singapore. In other words, the state is increasingly less capable and less willing to gamble on very high-stakes bets about which there remains tremendous technological, economic, and temporal uncertainty.

1 . Their study uses U.S. patent data; patents awarded domestically (i.e., within the home country) are not included in their data set. However, given that U.S. patents are considered the most difficult to attain and usually provide the largest market access for eventual products, U.S. patent data offer an indication of the most significant and innovative outcomes. Ishtiaq Mahmood and Jasjit Singh, “Technological Dynamism in Asia,” Research Policy 32 (2003), 1045.

2 . The ITRI was Taiwan’s top patent earner between 1970 and 1999, with 1,229 patents. See Mahmood and Singh, “Technological Dynamism,” 1046.

3 . Thanks to one of the anonymous reviewers of the manuscript of this book for pointing this out to me.

4 . Lawton Robert Burns, ed., The Business of Healthcare Innovation (New York: Cambridge University Press, 2005).

5 . See Richard Oliver, The Coming Biotech Age: The Business of Bio-Materials (New York: McGraw-Hill, 2000).

6 . Unlike in Korea, where industrial output was dominated by a handful of chaebols, approximately 98% of Taiwan’s firms during the postwar era were SMEs, many of which contributed to Taiwan’s export economy and its industrial value-added gains.

7 . Yun-Han Chu, “Surviving the East Asian Financial Storm: The Political Foundation of Taiwan’s Economic Resilience,” in The Politics of the Asian Economic Crisis, ed. T. J. Pempel (Ithaca: Cornell University Press, 1999).

8 . Danny Lam and Ian Lee, “Guerilla Capitalism and the Limits of Statist Theory: Comparing the Chinese NICs,” in The Evolving Pacific Basin in the Global Political Economy, ed. Cal Clark and Steve Chan (Boulder, Colo.: Lynne Rienner, 1992), 111–113; Vincent Wang, “Developing the Information Industry in Taiwan: Entrepreneurial State, Guerilla Capitalists and Accommodative Technologists,” Pacific Affairs 68 (1995), 572–574.

9 . In 1998, the Hsinchu Science Industrial Park housed 272 firms. See Wen-Hsiung Lee and Wei-Tzen Yang, “The Cradle of Taiwan’s High Technology Industry Development: Hsinchu Science Park (HSP),” Technovation 20 (2000), 570.

10 . Dan Breznitz, Innovation and the State: Political Choice and Strategies for Growth in Israel, Taiwan and Ireland (New Haven, Conn.: Yale University Press, 2007); Richard Nelson, ed., National Innovation Systems: A Comparative Analysis (New York: Oxford University Press, 1993).

11 . According to AnnaLee Saxenian, 1,373 IT companies were formed in 1997 and another 1,147 (or 84%) folded that same year. AnnaLee Saxenian, “Taiwan’s Hsinchu Region: Imitator and Partner for Silicon Valley,” SIEPR Discussion Paper No. 00-44, 2001, 11.

12 . See Suzanne Berger and Richard Lester, eds., Global Taiwan: Building Competitive Strengths in a New International Economy (Armonk, N.Y.: M. E. Sharpe, 2005); Alice Amsden and Wan-Wen Chu, Beyond Late Development: Taiwan’s Upgrading Policies (Cambridge, Mass.: MIT Press, 2003); Haider Khan, Interpreting East Asian Growth and Innovation: The Future of Miracles (New York: Palgrave Macmillan, 2004); Saxenian, “Taiwan’s Hsinchu Region.”

13 . Author interviews, various cities, Taiwan, December 16, April 23, and April 26, 2002.

14 . Author interview, Nankang, Taiwan, April 29, 2004.

15 . Robert Yuan, “Scinopharm Focuses on Manufacturing of APIs,” Genetic Engineering News 22 (March 15, 2002).

16 . Author interviews, Tainan, Taiwan, October 15, 2004.

17 . Scinopharm press release, “Scinopharm’s 2006 Revenue and Net Income at Record High,” February 26, 2007. See http://www.scinopharm.com (accessed March 5, 2007).

18 . Author interview, Taipei, Taiwan, October 11, 2004.

19 . Author interview, Taipei, Taiwan, September 16, 2007.

20 . Author interview, Taipei, Taiwan, October 11, 2004. See also Pao-Long Chang and Chiung-Wen Hsu, “A Stage Approach for Industrial Technology Development and Implementation,” Technovation 19 (1999).

21 . Author interview, Nankang, Taiwan, April 29, 2002.

22 . Author interview, Zhunan, Taiwan, September 17, 2007.

23 . Author interview, Zhunan, Taiwan, September 17, 2007.

24 . The transformation of R&D alliances in Taiwan is well documented by John Matthews, who argues that by the end of the 1990s, firms played “an increasingly active role” by “taking the initiative in forming [R&D] alliances.” See Matthews, “The Origins and Dynamics of Taiwan’s R&D Consortia,” Research Policy 31 (2002), 635.

25 . Author interview, Hsinchu, Taiwan, March 22, 2004.

26 . Author interview, Hsinchu, Taiwan, March 25, 2002.

27 . Author interviews, Hsinchu, Taiwan, October 12, 2004, and December 16, 2005.

28 . In a recent conference paper on biotechnology clusters in Taiwan, Mark Dodgson et al. note, “Rather than organizing around multinational firms which import knowledge, the biotechnology clusters [in Taiwan] are being formed around primary research facilities with the aim of developing new knowledge.” The point is that publicly funded research institutes are the institutional core of collaborative R&D and biotech commercialization. See Dodgson, John Matthews, Mei-Chih Hu, and Tim Kastelle, “The Changing Nature of Innovation Networks in Taiwan: From Imitation to Innovation?” (paper presented at the annual DRUID conference, Copenhagen, Denmark, June 18–20, 2006), 7.

29 . Author interview, Taipei, Taiwan, October 11, 2004.

30 . See also Min-Ping Huang, “The Cradle of Technology: The Industrial Technology Research Institute,” in The Silicon Dragon: High-Tech Industry in Taiwan, ed. Terence Tsai and Bor-Shiuan Cheng (Northampton, Mass.: Edward Elgar, 2006).

31 . Author interview, Taipei, Taiwan, March 24, 2004.

32 . Author interviews, Taipei, Taiwan, April 23, 2002, and October 13, 2004.

33 . Steven Casper, Creating Silicon Valley in Europe: Public Policy toward New Technology Industries (New York: Oxford University Press, 2007).

34 . John Matthews and Dong-Sung Cho, Tiger Technology: The Creation of a Semiconductor Industry in East Asia (New York: Cambridge University Press, 2000); Joonghae Suh, “Korea’s Innovation System: Challenges and New Policy Agenda,” INTECH Discussion Paper Series, 2000; Linsu Kim, “National Systems of Industrial Innovation: Dynamics of Capability Building in Korea,” in National Innovation Systems, ed. Richard Nelson (New York: Oxford University Press, 1993); Mahmood and Singh, “Technological Dynamism.”

35 . Author interview, Daejon, Korea, May 23, 2003. The Biotech Policy Research Center’s 2006 report, for instance, emphasizes how biomedicines account for 90% of resources in the global biotech market, thus concluding that this particular sector is the most lucrative. Biotech Policy Research Center (BPRC), Status of Biotechnology in Korea (Daejon: BPRC, 2006), 21.

36 . According to 2001 figures for the pharmaceutical sector, R&D expenditures per researcher in large firms (more than 300 employees) were about 50% higher than those of SMEs. Ministry of Science and Technology (MOST), National Science and Technology Statistical Indicators (Seoul: MOST, 2002).

37 . Author interview, Seoul, Korea, September 13, 2007.

38 . Author interviews, Seoul, Korea, May 26, 2003; July 11, 2003; and September 13, 2007.

39 . Author interview, Seoul, Korea, July 11, 2003.

40 . One contrarian view on the suitability of chaebol leadership in biotechnology notes that in the past, Korea’s largest firms were primarily motivated by market share rather than profitability and real earnings. In an industry such as biotech, where recouped investments are critical for long-term product and service development, the chaebols will need to rethink prevailing business models. See Meredith Woo-Cumings, “The State, Democracy and the Reform of the Corporate Sector in Korea,” in The Politics of the Asian Economic Crisis, ed. T. J. Pempel (Ithaca: Cornell University Press, 1999), 122, 141.

41 . BPRC, Status of Biotechnology, 18.

42 . The long-term nature of drug development was particularly startling for Korean firms, especially when compared with their experiences in the ICT sector. Korean firms first entered the semiconductor industry in 1983 with relatively small investments. Just five years later, Korea’s four main semiconductor firms invested over $1.3 billion in new manufacturing facilities. Spending on R&D increased more than sevenfold between 1983 and 1987, and accounted for 22% of total investment in the sector. By the end of 1988, Korean firms were just half a year behind Japanese leaders in introducing the 1M DRAM chip. In short, the time horizon between a firm’s initial entry into the sector to the point where it was competitive was very short. See Kim, “National Systems,” 377.

43 . Author interview, Seoul, Korea, May 28, 2003. See also Eun Mee Kim, Big Business, Strong State: Collusion and Conflict in South Korean Development, 1960–1990 (Albany: SUNY Press, 1997).

44 . Author interview, Seoul, Korea, May 26, 2003.

45 . Suh, “Korea’s Innovation System,” 29.

46 . Author interviews, Seoul, Korea, May 27, 2003, and September 14, 2007. See also Suh, “Korea’s Innovation System.”

47 . Soon Il Ahn, “A New Program in Cooperative Research between Academia and Industry in Korea, Involving Centers of Excellence,” Technovation 15 (1995); S. Chung, “Building a National Innovation System through Regional Innovation Systems,” Technovation 22 (2002).

48 . The law was implemented in 1999 and was to expire ten years later. Macrogen’s Jun-Seong Seo was the first university professor to take advantage of this law when he became Macrogen’s CEO in 2000.

49 . MOST, Statistical Indicators.

50 . Joseph Wong, “From Learning to Creating: Biotechnology and the Postindustrial Developmental State in Korea,” Journal of East Asian Studies 4 (2004); Molly Webb, South Korea: Mass Innovation Comes of Age (London: Demos, 2007). MOCIE figures estimated approximately 450 bioventure firms in Korea early in the first decade of the 2000s. The Korean Bioventure Association counted approximately 600 firms.

51 . Ministry of Science and Technology (MOST), Bio-Vision 2016 (Seoul: MOST, 2007), 13.

52 . Author interviews, Seoul, Korea, July 11, 2003; September 7, 2005; and July 9, 2003.

53 . Author interviews, Daejon, Korea, July 7, 2003; May 23, 2003; September 8, 2005; and September 14, 2007.

54 . Webb, South Korea: Mass Innovation, 18.

55 . Author interviews, Seoul, September 13, 2007.

56 . Author interview, Daejon, Korea, July 7, 2003.

57 . Matthews and Cho, Tiger Technology; Suh, “Korea’s Innovation System”; Mariko Sakakibara and Dong-Sung Cho, “Cooperative R&D in Japan and Korea: A Comparison of Industrial Policy,” Research Policy 31 (2002). For an overview of weak interfirm collaboration in the Korean biotech sector, see Dong-Sung Cho, Eunjung Hyun, and Soo Hee Lee, “Can Newly Industrializing Economies Catch Up in Science-Based Industries? A Study of the Korean Biotechnology Sector,” Journal of Interdisciplinary Economics 18 (2007).

58 . Author interview, Seoul, Korea, September 13, 2007.

59 . Author interviews, Seoul, Korea, September 13, 2007, and July 9, 2003.

60 . Author interview, Singapore, June 17, 2004.

61 . Cynthia Fox, Cell of Cells: The Global Race to Capture and Control the Stem Cell (New York: Norton, 2007).

62 . Author interview, Singapore, December 11, 2002.

63 . Author interviews, Singapore, June 16, 2004; December 1, 2006; December 13, 2003; and June 16, 2004.

64 . Kai-Sun Kwong, “Singapore: Dominance of Multinational Corporations,” in Industrial Development in Singapore, Taiwan and South Korea, ed. Kwong et al. (Hackensack, N.J.: World Scientific Press, 2001); Poh-Kam Wong, “Singapore’s Technology Strategy,” in The Emerging Technological Trajectory in the Pacific Rim, ed. Denis Fred Simon (Armonk, N.Y.: M. E. Sharpe, 1995).

65 . The seven A*STAR research institutes are the Bioinformatics Institute, the Bioprocessing Technology Institute, the Genome Institute of Singapore, the Institute of Bioengineering and Nanotechnology, the Institute of Molecular and Cell Biology, the Center for Molecular Medicine, and the Singapore Bioimaging Consortium.

66 . Author interview, Singapore, October 31, 2007.

67 . Author interview, Singapore, November 30, 2006.

68 . EDB data for 1997 to 2003, cited in Govindan Parayil, “From ‘Silicon Island’ to ‘Biopolis of Asia,’” California Management Review 47 (2005), 63. For EDB data for 2009, see Economic Development Board, Biomedical Sciences: Factsheet 2010, available at http://www.sedb.com (accessed October 15, 2010).

69 . Author interview, Singapore, June 15, 2004. One biomedical MNC executive notes that only 50% of his firm’s research staff are local Singaporeans and that most are junior scientists. Senior researchers are by and large foreign expatriates. Author interview, Singapore, October 30, 2007.

70 . Ai-Lien Chang and Daryl Loo, “How a Perfect Marriage Fell Apart,” Straits Times, August 13, 2006.

71 . Author interview, Singapore, October 30, 2007.

72 . Author interview, Singapore, June 17, 2004.

73 . Nanyang Technological University and Nanyang Business School, Collaboration in the Biopharmaceutical Industry: Implications for Singapore SMEs [summarized main findings], 2007. This view was echoed in every interview I conducted with senior managers and executives at foreign multinational biomedical firms.

74 . Author interviews, Singapore, December 12 and December 14, 2002. See Ernst and Young, Beyond Borders: Global Biotechnology Report, 2008 (Cleveland: Ernst and Young, 2008), 105.

75 . Author interview, Singapore, December 12, 2002.

76 . Mark Goh and Irene Chew, “Public Policy and Entrepreneurship Development—Singapore Style,” Journal of Enterprising Culture 4 (1996), 88.

77 . Regarding the issue of creativity in Singaporean research labs, one senior executive at a global pharmaceutical firm recounted to me that “in the U.K., if you ask [for someone’s opinion], they tell you what they think. In the U.S., they will tell you even if you don’t ask in the first place. In Singapore, you may ask and they still won’t tell you.” Author interview, Singapore, October 31, 2007.

78 . Check-Teck Foo and Check-Tong Foo, “Socialization of Technopreneurism: Towards Symbiosis in Corporate Innovation and Technology Strategy,” Technovation 20 (2000), 561.

79 . Author interview, Singapore, November 1, 2007.

80 . Author interview, Singapore, November 1, 2007.

81 . Author interview, Singapore, June 23, 2004.

82 . Only recently have efforts been made to remedy this midstream gap, notably with the formation of the Experimental Therapeutics Center (ETC) in 2007. Located in Biopolis and headed up by renowned British scientist Sir David Lane, the ETC is expected to bring promising leads and compounds developed in A*STAR labs further downstream for the pharmaceutical sector. Envisioned as being “commercially savvy,” the ETC is intended to engage a strategy of “target refinement” for the purposes of partnering local research labs with large pharmaceutical firms. Author interview, Singapore, November 2, 2007.