R&D Mercantilism or Collaboration: Lessons from the Massachusetts Biotechnology and High Technology Industries

Transcription

1 Knowledge for Growth Industrial Research & Innovation (IRI) R&D Mercantilism or Collaboration: Lessons from the Massachusetts Biotechnology and High Technology Industries Authors Mark R. Trusheim 1, Christa Bleyleben 2 2) 1) Visiting Scientist and Executive In Residence, MIT Sloan School of Management Former Executive Director, Massachusetts Office of International Trade and Investment; Principal, Mass Global Partners Contributed paper for the 2 nd Conference on corporate R&D (CONCORD ) CORPORATE R&D: AN ENGINE FOR GROWTH, A CHALLENGE FOR EUROPEAN POLICY Globalising Economies and Internationalization of Corporate R&D File name: Trusheim Bleyleben RD Mercantilism or Collaboration.doc Author: Mark R. Trusheim Authors' contact: Trusheim@MIT.Edu Status: <Draft> Last updated: 25 February 2010 Organisation: MIT Page 1 of 37

2 Abstract Most nations and regions pursue economic mercantilism regarding their R&D investments to foster economic development in the innovative sectors such as nanotechnology and biotechnology. Recently, however, Massachusetts has augmented its Mercantilism strategy with Collaboration elements, especially in the biotechnology sector. The corporate sector began the shift, followed by venture capitalists, academics and finally government. The Human Genome Project, global clinical trials and international biopharmaceutical product licensing are all demonstrating the advantages of international collaboration. Implications for Massachusetts economic development accelerated as large biopharmaceutical and medical device companies began internationalizing their research activities with Massachusetts both losing some jobs to foreign locations but also winning many more from other regions around the globe. The Massachusetts government joined the shift in 2005 by establishing a Life Sciences agreement with Lombardy, Italy; participating in the Barcelona Spain led, EU TRANSBIO program to foster Transnational Technology Transfer through direct support of SME collaboration and partnering with North American firms; and jointly establishing with the Pudong/Shanghai government the Massachusetts Technology Center to promote trade, education and joint technology development. Finally, these experiences indicate that non collaborative approaches find it increasingly difficult to align with R&D driven industry and investor international product development processes. They also suggest that government policy and economic development agencies can continue to play a critical and creative role in accelerating growth, particularly for SMEs, if they augment traditional mercantilist approaches with multi region, multi year, integrated collaborative strategies implemented with industry expert professionals. Key words: JEL classification: Page 2 of 37

3 TABLE OF CONTENTS 1 Introduction and Motivation The Mercantilism/Collaboration Framework for R&D Driven Regional Economic Clusters Cluster Definition and Dynamics The Mercantilist Tradition Continues In Cluster Development Policies Cluster Dynamics Shifting from Mercantilism to Collaboration Development of Massachusetts Collaboration Mercantilist Beginnings Private Sector Collaboration Leadership Late 1990s Biotech Scale Up and High Tech Transformation Millennial Shift Towards Collaboration Result: Massachusetts Industry Cluster a Major Global Network Node Government Economic Development Collaboration Generally Mercantilist Approach Fundamental Science Begins to Break Government Mercantilist Tradition Massachusetts Begins Experimenting with Collaborative Economic Development China Case Study: Massachusetts Technology Center in Shanghai as a Collaboration Platform Rationale for Collaboration Launch Results: Optimizing the Mix of Mercantilist and Collaborative Approaches Lombardy Case Study Rationale for Collaboration Launch Results Clinical Trial Project Creating a Clinical Research Center of Excellence Massachusetts and Lombardy Partners in a Globe Spanning World Regions Forum Initiative TRANSBIO Case Study Program Conception and Objective: Integrated, Longer Term Process Results TRANSBIO Demonstrated Potential of Collaborative, Integrated, Multi Year Program Implications for Economic Development Policy A role for Policy and Economic Development Professions Moving SME Partnering Support beyond Networking to Partner Targeting, Entrepreneurial Coaching and Collaboration Negotiation References Page 3 of 37

4 LIST OF ANNEXES References Page 4 of 37

5 1 Introduction and Motivation Most nations and regions pursue economic mercantilism regarding their R&D investments to foster economic development in the innovative sectors such as high technology, nanotechnology and biotechnology. Under this strategy, government investments are restricted to their region with the objective to create dominant capabilities and win economic gains in zero sum regional competitions. Success is measured by the number of world class scientists, companies, foreign investment and employees in the region. While the industries have changed, the strategy is the Mercantilist one from past centuries that seeks to concentrate expertise and wealth in the region at the expense of others. Massachusetts also pursued this model by focusing on attracting foreign investment within its borders, restricting research support to those within the state, benchmarking its federal and venture capital funding against other regions and helping its Small and Medium Enterprises (SMEs) access global customers and investors through government supported activities such as participation in international trade shows and export missions. It established trade offices in foreign locations to assist in this mercantilist, self focused, strategy. Recently, however, Massachusetts has shifted its strategy to augment Mercantilism with Collaboration, especially in the biotechnology sector. The private sector began the shift first, as international firms increasingly performed joint R&D with academic researchers and Massachusetts biotechnology SMEs. This was followed by Massachusetts venture capitalists investing not just in local firms, but in early stage foreign SMEs, particularly European red biotechnology companies. Large biopharmaceutical and medical device companies began internationalizing their research activities, resulting in Massachusetts both losing some jobs to foreign locations but also winning many more from other regions around the globe. The Massachusetts government joined the shift towards global collaboration in 2005 by entering into a Life Sciences agreement with Lombardy, Italy and participating in the Barcelona, Spain, led EU TRANSBIO program to foster Transnational Technology Transfer through direct support of SME R&D collaboration and partnering with North American firms. This paper examines the history and motivations of that shift to discern possible principles that could be applied to other regions economic development of high/bio/nano technology industries. Page 5 of 37

6 The document begins with an analysis of a region s relative focus on economic mercantilism versus collaboration. It then examines the growth of the R&D driven Massachusetts life sciences super cluster and the growth of collaboration with stakeholders outside the region. We also highlight the resulting shift in entrepreneurial culture, especially compared to Europe, and its impact on economic development. This is followed by three case studies of the Massachusetts government s shift towards R&D collaboration: The Massachusetts Technology Center in China jointly created with the Pudong/Shanghai government, the Massachusetts/Lombardy life science agreement and the TRANSBIO pilot. The paper closes with a discussion of what these experiences suggest for collaborative economic development policies and the corresponding program and personnel skill implications for supporting SMEs in R&D driven, globalizing industries into the future. 2 The Mercantilism/Collaboration Framework for R&D Driven Regional Economic Clusters 2.1 Cluster Definition and Dynamics Delgado et. al. describe industry clusters as not just a single industry but rather a set of complementary industries that create globally traded outputs. These outputs can be products, as well as services, which have become increasingly tradable. They also demonstrate that a traded industry cluster is not merely a cluster of firms operating in the same product space, but rather a set of industries, each with multiple firms, operating in a geographic region (Delgado, Porter and Stern 2010) Harvard University s Michael Porter established the diamond model for describing the competitiveness of regions for innovative R&D driven industries (M. E. Porter, Clusters and Competition: New Agendas for Companies, Governments and Institutions 1998) (Porter and Stern, Innovation: Location Matters 2001) (M. E. Porter 2003). Others have observed the forces of convergence and agglomeration which affect the growth, decline and diversification of clusters over time and the importance of innovation, particularly research driven innovation, in sustaining Page 6 of 37

7 clusters over decades (Bresnahan and Gambardella 2004) (Dumais, Ellison and Glaeser 2002) (Feldman and Audretsch 1999) (Rosegrant and Lampe 1993) (Swann, Prevezer and Stout 1998). Governments at local, regional, national and supra national levels have adopted polices intended to support, shape or direct the development of economic clusters. Some are designed to grow existing clusters, others to initiate cluster creation and still others to retain a cluster facing competition or decline. Policies range from the structural and passive to the active and company specific. The levers at government disposal range from tax policies to physical infrastructure investments, from currency controls to workforce training, from subsidized business loans to R&D support at universities, from SME promotion at trade shows to military and economic sword rattling to strengthen global R&D intellectual property rights. 2.2 The Mercantilist Tradition Continues In Cluster Development Policies Until recently, what nearly all these policies shared in practice was a mercantilist perspective in that the policies were intended to nearly exclusively benefit the acting government s region. International trade agreements explicitly break with this local benefits tradition, on the surface, to the extent that they intend to provide benefits to all signatories. However, their adoption is often justified locally as bringing specialized industry cluster benefits to that region. When a regional Pareto optimal trade agreement is not achieved, the parties that perceive a local loss, tend to request renegotiation or abrogation. This reaction occurs regardless of the country s development status. Many United States constituencies historically and currently object to the North American Free Trade Agreement (NAFTA) while nations with developing economies have called for renegotiation of multiple international trade agreements and entire trade mechanisms, often with R&D intellectual property protection being a retaliatory lever in the face of perceived overall inequities. These phenomena and policies share a common perspective: that governmental R&D action to support firms, industries or clusters must primarily, even exclusively, benefit the citizenry of the acting government. Underpinning these policies would seem to be a zero sum competition belief in which localities benefit only at the expense of other regions: A manufacturing plant location decision benefits the region which wins it at the expense of all other locations which did not. Government sponsored International Trade and Investment development offices tend to focus on inbound direct Page 7 of 37

8 investments and on increasing R&D based product exports from their region to others. Rarely do they assist in increasing imports from other nations and it would seem heretical for them to advocate for companies to build research facilities in other regions. Similarly, government funded R&D and workforce training activities must usually remain within the local region even if the recipients are foreign nationals on student or research work visas. In their emphasis on encouraging exports, discouraging imports and encouraging net asset accumulation (foreign direct investment), nearly all these policies display a tradition of mercantilism and economic nationalism, even as they are promoted by internationalist, neo liberal governments (Gee 2009). 2.3 Cluster Dynamics Shifting from Mercantilism to Collaboration From popular non fiction literature such as the The World is Flat by Thomas Friedman (Friedman 2007) to academic treatises (Mishra 1999) (Jungmittag, Reger and Reiss 2000) the phenomenon of globalization, its implications for innovation based industries such as biotechnology and high technology, and the role of governments in shaping regional responses has been described and analyzed. Some ascribe substantial power to governments to affect these trends and thus regional clusters while others do not. As evidence that these policies affect companies location decisions, organizations such as the US based Biotechnology Industry Organization (BIO), catalogue state incentives and assistance programs to attract and retain R&D based firms for their local clusters (Battelle 2008). The number and complexity of government programs has grown to such an extent that a sub industry of site selection firms such as The Boyd Company, CWS Consulting Group, and CB Richard Ellis, with its own publications for firms and government economic development agencies, (Site Selection; Conway Data) help support innovation industry participants analyze their options and negotiate among the competing government entities. Regardless of their perspective on the efficacy of government actions, much of the literature and many of the industry service providers carry an implicit model of zero sum economic competition among the regions. In sharp contrast, a closer look at industry activities clearly shows that a complex set of collaborative interactions including industry partnering relationships, licensing Page 8 of 37

9 activities and investor syndicates already exists not only in the red biotechnology sector but across other life sciences segments and other industries, such as high tech as well. These activities also suggest that private sector firms by leveraging resources clearly perceive opportunities to increase value through collaboration beyond pure mercantilist transactions. The remainder of this paper explores the evolving mix of mercantilist transactions and collaborative relationships in R&D driven regional economic clusters across industry, investors and government actors with a particular focus on how government policy actions may also evolve towards collaboration based methods. Table 1 below outlines a continuum of mercantilist to collaborative actions for each: private sector industry, investors (particularly venture capitalists) and government organizations. Each column lists selected activities, from the most mercantilist at the bottom, to the most collaborative at the top. Industry approaches range from exclusively internal, vertically integrated innovation chains (R&D through manufacturing and marketing) to technology transfer, to commercialization joint ventures and to highly collaborative interlinking actions. Examples for such comprehensive collaborations include joint product development and marketing relationships with one or more partners, whereby resources such as development and marketing costs & risks are shared. Between these two corporate extremes, R&D based corporations possess options such as outsourcing individual research functions; outsourcing complete phases of the innovation such as clinical trials or medicinal chemistry; or particularly in high technology, coordinating an integrated supply chain from product conception, design, engineering, prototyping and manufacturing through distribution while fully owning few if any functions. In the biopharmaceutical industry, agreements for limited risk sharing, such as joint development agreements, begin to share decision making as well as activities with collaborators. Venture capital investors, who focus predominantly on the R&D based industries, (PWC MoneyTree n.d.) face a similar range of actions from funding early stage portfolio companies entirely from their own accounts to participation in complex financial and governance structures that involve strategic corporate partners, philanthropic foundations and government funding sources. Between these two boundaries exist investment approaches that range from focused regional syndicates to entering new regions by establishing new local offices to participating in Page 9 of 37

10 multi region syndicates in which the VC does not obtain direct contact or substantial governance influence with the company. Governments face a particularly broad range of mercantilist and collaborative options due to the breadth of their capabilities, roles and responsibilities. At their most collaborative, governments participate in harmonizing regulatory standards and sharing best practices to spur global product development, reduce risk and jointly fund large basic research projects. High profile examples range from the Human Genome Project to the CERN Large Hadron Collider and the International Space Station. At the most mercantilist, as described above, is the competition to attract specific R&D facilities or foreign investments to their local cluster. By their nature, these are zero sum competitions among regions. Moving upwards in the Table 1 column, governments promote R&Dbased, product exports through participation in international trade shows, joint trade missions and other mechanisms. In promoting SMEs at various partnering venues, governments begin to aid collaborative activities. Rarely however, do governments fund R&D collaborators outside their taxable region. Humanitarian aid and military actions demonstrate governments abilities to act beyond their borders so this is clearly a matter of choice rather than capability. An exception discussed below is the European Commission sponsored TRANSBIO pilot project. This government focus on local action is in marked contrast to industry and investor stakeholders who have established routine approaches for conducting R&D activities outside their immediate geographies. Page 10 of 37

11 Moving from Mercantilism to Collaboration Collaboration Industry Investors Government Multi region joint Shared risk Strategic, Foundation activity (Cern, development & and government International space marketing syndicates station, regulatory harmonization) Joint development and Region cooperation marketing (MA/Lombardia) Integrated supply chain Outsourcing Phases (Pre clinical or Phase I development) Outsourcing functions Multi region syndicates Multiple offices, local syndicates Local Syndicates Researcher support (NIH, NSF foreign national eligibility) SME partnering promotion (Transbio) Export promotion (Trade shows) Mercantilism Exclusively Internal Operations Own account investing Direct foreign investment incentives Table 1: Mercantilism, Collaboration Continuum by Stakeholder Segment While we do not attempt to explain the driving forces for collaboration, we do observe its emergence over time. Figure 1 below schematically represents the evolution and relative level of collaborative versus mercantilist activities for industry, investors and government stakeholders. Industry is positioned more collaboratively across all time periods due to its more flexible structures for sharing and conducting both decision making and R&D activities across multiple locations. Particularly in the last two decades the high technology and life science industries have moved away from vertically integrated, geographically concentrated structures to collaborative, horizontally focused, multi regional structures. Investors and financial markets, while clearly global in nature are less collaborative than industry due to the transactional nature of their interactions. Venture capitalists (VCs) do often collaborate in investment syndicates but their actions are channelled through formal Board of Directors processes and investment rights agreements, which would seem less collaborative than many industry arrangements. In practice, however, until very recently it remained relatively rare for Page 11 of 37

12 venture capitalists to invest in early stage R&D companies outside regions where the VC had a physical presence. Governments generally find it difficult to sponsor multi regional activities where benefits generated by their actions are shared with organizations beyond the government s geographic boundaries. Even when they do, sharing decision making on activity selection and funds distribution also proves difficult. Massachusetts, in coordination with other regions, has participated in multiple pilots that move beyond its historic mercantilist programs. Other regions, nations and the European Union are similarly changing and experimenting. It is not clear at what pace these programs will evolve, or even whether they will be sustained through the current economic difficulties. Figure 1: Biotechnology Clusters Moving Towards Clusters through Industry Leadership 3 Development of Massachusetts Collaboration The Massachusetts experience with collaborative approaches grew as its innovation based clusters grew, particularly during the past ten years in the life sciences super cluster. The region began with Page 12 of 37

13 clearly mercantilist R&D approaches among entrepreneurs, investors and the government. Gradually R&D collaboration grew, particularly in the biotechnology field but also in computer and telecommunications based industries, with frequent industry and university collaborations as well as research agreements between SME biotechnology firms and larger biopharmaceutical firms. Venture capital investing similarly expanded, from local investors supporting local firms, to multioffice firms raising global capital, which they could then invest in multi investor syndicates around the world. Not only did the funding diversify, but also the collaborative capabilities of VCs increased as some essentially run incubators and orchestrate networks of expert providers to collaboratively assist entrepreneurs in launching and sustaining new enterprises. US Federal and Massachusetts state governments have evolved along different paths. US Federal R&D support began and remains focused on funding competitive research grants or contracts and providing R&D tax incentives, while providing limited direct collaboration support to SMEs or other firms with the exception of some export trade show support. The Massachusetts state government began with few, if any, R&D incentives and often introduced them more slowly than other states. Even today, tax policies for R&D firms remain unaligned with, and slightly punitive when compared to, tax policies for traditional manufacturing firms. In the past fifteen years however, the Commonwealth has moved to more fully support a range of tax, university research, infrastructure and business location incentives as commonly offered by other regions. 3.1 Mercantilist Beginnings Massachusetts biotechnology and high tech clusters began in the 1950s when firms such as Digital Equipment Corporation (DEC) were founded in the state. Supported by an investment of $70,000 from Georges Doriot, a former Dean of Harvard Business School, made through the Massachusetts based American Research and Development Corporation, DEC was founded by two MIT researchers and located in Maynard, Massachusetts, about 40 kilometres outside Cambridge. Under one of its founders, Ken Olsen, the company grew in Massachusetts into one of the world s largest mini computer businesses, at one time challenging IBM in computer hardware sales. In mercantilist fashion, DEC maintained its headquarters and nearly all its major operations from design through manufacturing to marketing and executive management in the Maynard area until Page 13 of 37

14 the late 1990s when the company faltered and was dismantled via sales of divisions to other firms. (Rosegrant and Lampe 1993). The Massachusetts biotechnology cluster began later, with the founding of Biogen in 1978 and Genzyme in 1981 to translate the scientific breakthroughs of recombinant DNA into patient therapies. The model was equally mercantilist, from the company s viewpoint, with the goal to create a FIPCO (Fully Integrated Pharmaceutical Company). Significantly, however, the organizational and investor model was increasingly collaborative. Biogen for instance, began with both American and Swiss locations, an international investor syndicate and, soon thereafter, product development collaborations with other larger firms. During this early period, Massachusetts universities such as Harvard, MIT, Tufts University and more than 100 others focused on their own growth fuelled by two federal programs: college assistance to veterans and increased research funding from the National Science Foundation, Department of Defence and others. Given the open nature of the programs, universities competed for both students and grants which discouraged cooperation. In 1980, universities desires to collaborate with industry, if not each other, changed substantially with the passage of the Bayh Dole Act, which provided that intellectual property generated by universities in the course of federally funded research, would now reside with the universities rather than the government. This provided universities both the assets and incentive to pursue patent filings followed by technology transfer and licensing agreements with the private sector. Massachusetts high tech and life sciences super clusters largely began as geographically concentrated confluences involving local universities, entrepreneurs and venture capitalists, fuelled by local and imported investments from the Federal government or venture capital limited partners. 3.2 Private Sector Collaboration Leadership The Massachusetts high tech and biotechnology industries provide contrasting examples of industry approaches to collaboration. The high technology cluster maintained a mercantilist approach of controlling most assets and growing through acquisition rather than collaboration. Wang Laboratories with its Chinese American founder, An Wang, established wholly owned manufacturing facilities in Taiwan and in Hong Kong in the 1970s, followed by Mainland China in the early 1980s (author s personal experience). Page 14 of 37

15 By contrast, the biotechnology industry developed more collaborative structures from its earliest years. As early as 1980, Biogen accepted a 14% equity investment from Schering Plough, which also provided a commercial license to Biogen s first product, interferon alfa 2b ( Intron A ). Six years later in 1986, Schering Plough launched the drug Intron A in the United States. Such arrangements were not unusual in biotechnology and continue to be to this day. Genentech and Hoffmann La Roche also began their relationship through an interferon, interferon alpha 2a. Founded in 1976, Genentech had grown to 200 employees by 1981 through interferon research collaboration agreements with Hoffmann La Roche and A.B. Kabi and with Eli Lilly on developing recombinant human insulin (Golden, Gavin and Moritz 1981) Late 1990s Biotech Scale Up and High Tech Transformation In the late 1990s the company that commercialized Ethernet networking, DEC, was sold and most of the other famous Massachusetts mini computer makers such as Data General, Prime Computer and Wang Laboratories were facing bankruptcy. Concurrently, though, the Massachusetts high tech sector was being transformed through the first Internet wave. Telecommunications and networking companies, internet portals such as Compuserve and software companies such as RSI security were founded in the region. Again many high technology companies generally pursued mercantilist, non collaborative strategies, focusing on either organic or acquisition driven growth. Massachusetts biotechnology industry was growing in the late 1990s on the strength of the genomics wave. In this industry however, growth was often done collaboratively with firms from outside the region. Millennium Pharmaceuticals epitomized this approach. Founded in 1993 by a former Genentech employee, Mark Levin, Millennium signed its first research agreement a year later with Hoffmann La Roche. The company went public in A series of large research collaborations quickly followed, beginning in 1997, with a $218M research collaboration with Monsanto for genome technology platforms and agricultural gene discovery and a $70M agreement with Eli Lilly focused on protein therapeutics. An even larger $465M research collaboration with Bayer followed in 1998 and additional research collaborations with Bristol Myers Squibb and Becton Dickinson in Another $450M collaboration followed in 2000, this time with Aventis. At smaller scales this approach, emphasizing collaborative research as much as public market stock offerings, was repeated at firms throughout the region. Page 15 of 37

16 The 1990s also saw an acceleration of out of state companies establishing R&D facilities in Massachusetts to better access and collaborate with university and research based SMEs in Massachusetts. AstraZeneca and Pfizer opened facilities in the mid 1990s. Serono, Eisai Research Institute and BMS imaging reagents also established or expanded their presence. Over the same period, Massachusetts also saw out flows or decentralization of R&D. Genzyme, one of the leading local biotechnology firms, established multiple R&D facilities in Europe and elsewhere through acquisition and organic growth. Other companies were acquired. For example Wyeth purchased Genetics Institute. Often, as in this case, rather than consolidating to their home region, the acquirer expanded their Massachusetts presence over time, while also providing connections to other facilities and partners around the world. Massachusetts companies lost some regional autonomy but gained scope, reach and facilitated access to remote resources. Venture capital firms played an important role: Many expanded their operations, opening offices in several locations and subsequently began investing in different geographies. Deals from multiple regions came into more direct competition with each other. Massachusetts benefitted from new funding sources as several Californian and European VCs opened offices in the state and local companies performed well in the larger global competition Millennial Shift Towards Collaboration The past decade has seen a continuation of industry s collaboration trends with both R&D in flows and out flows. Genzyme continues its global expansion, and Biogen acquired Idec in San Diego as well as several other companies and now runs a multi site R&D operation. Similarly Vertex established multiple facilities organically and obtained a large West Coast R&D presence through its acquisition of Aurora. Large global biopharma companies continue to locate R&D facilities in Massachusetts, taking advantage of a highly skilled labour pool and benefitting from close proximity to each other as well as to innovative smaller firms. They frequently acquire SMEs but often keep them as operating subsidiaries, facilitating close collaboration with other regional SMEs and universities. During the past decade Amgen, Merck, Novartis and Schering Plough established new research facilities in the area, with Novartis choosing to move its global research headquarters to the region. BMS, Dainippon, Glaxo SmithKline, Shire and Takeda all acquired Massachusetts companies and chose Page 16 of 37

17 to retain them as research facilities, further connecting the Massachusetts cluster to other research centres. Particularly when the recent financial crisis closed market access to biotechnology companies, SMEs have increased their collaboration with larger biopharmaceutical companies, universities and non profit research centers domestically and internationally. Venture capitalists, historically hostile to non institutional funding of their portfolio companies, now began supporting such funding diversification. In addition to new financial resources, the venture capitalists and their companies also saw the benefits of enhanced collaboration and access to specialized expertise that often accompanied foundation, university and corporate venture funds. The result has been less dilutive and more capital efficient organizational models for product development Result: Massachusetts Industry Cluster a Major Global Network Node This industry partnering evolution has positioned the Massachusetts biotechnology supercluster as a major node in the global red biotechnology R&D network. Massachusetts is one of the few biotechnology hubs, which has converted its R&D skills into a broad multi function region, complete with bio manufacturing and commercial operations across multiple healthcare segments of therapeutics, devices, diagnostics, research reagents and instrumentation. 3.3 Government Economic Development Collaboration Generally Mercantilist Approach US Federal and Commonwealth of Massachusetts economic development groups have focused on mercantilist, local gain centric policies and programs. With the possible collaborative exceptions of international trade agreements and participation in supra national institutions, such as the International Monetary Fund and World Bank, to stabilize global financial markets, US Federal and Massachusetts state economic development programs emphasize growing local company exports and attracting inbound investments to create jobs. In R&D driven industries, government supported research provides critical economic development spending. Indeed, for Massachusetts, funding from US Federal sources constitutes a large fraction of R & D funding. This funding continues to be directed primarily at US academic and US Page 17 of 37

18 corporate institutions; direct participation by international organizations remains difficult or even illegal. Massachusetts economic development programs historically focused on supporting local business or attracting out of state investment and business relocations to the state. The state employs a sub set of the usual tools, generally eschewing direct grants in favour of providing infrastructure improvements, tax incentives, workforce training support and services such as subsidized trade show booths Fundamental Science Begins to Break Government Mercantilist Tradition The US Federal government has experimented over the past decade with international collaborative approaches in several large scientific endeavours including the International Space Station and the Human Genome Project. These projects divide various activities between the United States and other world regions, with each region funding and executing its activities in coordination with the others. Each region essentially funds its own costs with little funding flowing across borders. However, these experiments remain relatively locally focused compared to the private sector where corporations routinely fund activities in multiple other firms and in various global regions Massachusetts Begins Experimenting with Collaborative Economic Development Massachusetts conducted multiple experiments in collaborative economic development in the period, particularly in the Life Sciences sectors. Several of these experiments focused on SME partnering while others sought to encourage mutual cluster development with other regions across university, SME and large firm activities. This case study highlights the following pilots: China Massachusetts initiative, which involved expanded university education programs, direct private sector investments, and the expansion of government contacts and trade offices between the regions. The initiative s objective was to promote collaborative education, basic research and technology development activities in addition to traditional trade and investment promotion. Page 18 of 37

19 Lombardy, Italy s agreement with Massachusetts to encourage both basic and translational research among each region s organizations. Massachusetts participation in the European Union sponsored TRANSBIO program to promote trans national technology transfer, particularly for SMEs, between Europe and North America Each of these pilot programs created new joint activities benefitting each region s cluster. However, sustaining these international economic development activities in the wake of the global economic crisis has proven difficult, given shrinking government resources. These pilots successes and failures, however, have created knowledge that can inform future actions for Massachusetts and perhaps other regions. 4 China Case Study: Massachusetts Technology Center in Shanghai as a Collaboration Platform 4.1 Rationale for Collaboration Early in 2006, several Massachusetts business executives and government officials began discussions with the Management Committee of Shanghai Zhangjiang Hi Tech Park (ZJ Park). ZJ Park encompasses an area of 25 square kilometres and contains more than 4600 companies. It is China s largest technology park with a substantial life sciences presence. The Massachusetts coalition sought to establish a collaboration platform that would mutually benefit both regions by: Providing an entry portal for Massachusetts companies wishing to enter fast growing markets in China Establishing an education center offering executive programs and academic exchanges to Chinese professionals Informing the Chinese corporate sector about US opportunities Identifying collaboration opportunities in R & D, investments and partnering The coalition anticipated that creating a platform to support multiple ongoing, cooperative actions would create more economic activity than single events, such as export trade missions. As the list above demonstrates, while the overall concept was collaborative, individual elements could be mercantilist to either party. Page 19 of 37

20 4.2 Launch In December 2007, Governor Deval Patrick of the Commonwealth of Massachusetts, joined by senior government officials from the Shanghai region, attended the official opening of the Massachusetts Technology Center (MATC) located within ZJ Park. In a novel arrangement for Massachusetts, MATC was managed by a private company (Global Emerging), as a public/private partnership, receiving in kind support from both the local Chinese and Massachusetts governments. 4.3 Results: Optimizing the Mix of Mercantilist and Collaborative Approaches In the two years since its launch, MATC has continued to blend traditional mercantilist infrastructure activities with collaborative initiatives to foster shared growth through entrepreneurial R&D driven life sciences fields. In the traditional mercantilist mode, MATC offers Chinese inbound direct investment support to Massachusetts firms desiring a Chinese physical presence. This support takes the form of flexible, well priced office space, consultative services and exhibition space from which to recruit employees. From the Massachusetts perspective, that same MATC exhibition center offers for Massachusetts firms a preferred mercantilist venue from which to promote their export products to the Chinese. To date, more than 25 companies are taking advantage of this novel approach to display and promote products to Chinese customers without the need to hire local staff while the Chinese have benefitted from several medical device and biotechnology firms opening facilities in ZJ Park. More collaboratively MATC has facilitated two joint education programs, which will train Chinese in the American business style to foster entrepreneurial and economic development in R&D intensive industries such as life sciences. While financially, the Massachusetts universities benefit immediately, both the Shanghai and Massachusetts regions expect benefits as the students enter the workforce. Specifically, a leading Massachusetts university in cooperation with the Chinese Medical Devices Association will provide an executive development program for the China medical devices industry. The program aims to help medical device enterprises in China to enter international markets in Europe and the US. In addition, an agreement between the University of Massachusetts (Massachusetts leading public university), the Shanghai Zhangjiang Institute of Innovation, MATC and the Park s management company was signed to promote education degree and certification programs. Page 20 of 37

21 MATC also fosters direct company to company joint R&D development and international venture investment. Interestingly, the initial facilitated venture agreement has Chinese investors seeking Massachusetts opportunities rather than the reverse. ZJ s High Tech Park s venture investment fund will invest up to USD20 million in high potential technology USA projects identified with MATC assistance. MATC demonstrates how policy makers need not ideologically choose between mercantilist and collaborative strategies but rather, may blend individual tactics in creative ways that meet the needs of the participating regions. However, even in this blended approach, certain collaborative characteristics remain and are emphasized over the mercantilist characteristics. Specifically this case demonstrates over riding collaborative characteristics regarding a focus on entrepreneurial culture education and SME implementation support; economic development professional staff continuity and industry expertise; multi year programs matched to the R&D business life cycle; and explicit anticipation of shared economic gains by both regions. 5 Lombardy Case Study 5.1 Rationale for Collaboration In 2004 and 2005 a group of scientists in Massachusetts and Lombardy, business leaders and government decision makers began exploring collaboration opportunities in the life sciences that would lead to measurable and shared benefits. Both Lombardy and Massachusetts endeavoured to create long term linkages between the regions by engaging in specific joint research projects in the areas of public health, biotechnology, and medical research to improve the competitiveness of both regions. The areas of hematology, diabetes research and clinical trial preparedness were selected for initial projects (Johnson 2005). 5.2 Launch In November 2005, then Governor Mitt Romney of the Commonwealth of Massachusetts and President Roberto Formigoni of Lombardy, Italy, signed a Memorandum of Understanding to establish bilateral networks and partnerships for facilitating joint scientific, medical research, and biotechnology projects between their two regions. The regions allotted up to EU5 million to Page 21 of 37

22 support the effort. Importantly, the signing ceremony was immediately followed by the unusual announcement of a joint board, composed of selected academic scientific advisors, entrepreneurs and government officials from both regions to oversee the agreement s implementation (Pagano 2005). Supporting this board were specialized working teams. Major organizations from each region participated, including Harvard Medical School, Massachusetts General Hospital, as well as private sector companies from Massachusetts and the National Cancer Institute of Milan and San Raffaele Hospital from Lombardy. 5.3 Results Since 2005 the agreement has fostered projects ranging from academic exchanges to targeted partnering events in sectors such as Bio Nanotechnology to the most recent major initiative, namely the Lombardy led launch of a global multi region forum to foster broad based collaborations in innovation sectors, the World Regions Forum (WRF). To better illustrate specific results and bi lateral collaboration, we highlight two projects: a clinical trial center of excellence project and the World Regions Forum initiative Clinical Trial Project Creating a Clinical Research Center of Excellence The joint team determined that, despite its lower than average costs, pharmaceutical companies select Italy less often than other European regions to perform therapeutic clinical trials, thus foregoing a considerable payments stream which could be re employed into R & D. The primary barriers to greater use of Italy for clinical trials included cumbersome and lengthy approval processes, inconsistent quality assurance, insufficiently trained personnel and inadequate data capture and integrity assurance systems. Taking advantage of the agreement, Lombardy s government decided to improve the region s clinical trial and translational research capabilities by creating a regional clinical research center of excellence by pro actively accessing Massachusetts hospital and private sector expertise in a multi phase, multi year project. The Massachusetts government supported the effort despite some local, mercantilist concerns regarding aiding, even creating a competitor. Four organizations formed the Clinical Research Consortium of Massachusetts to partner with Italy: Tufts Medical Center s Institute for Clinical Research and Health Policy Studies; Phase Forward (a clinical trial software developer); BBK Worldwide (a Page 22 of 37

23 clinical trials enrolment management company); and Court Square Group (a life sciences systems integration firm). (Applied Clinical Trials 2008) The effort focuses on three areas: Developing training programs in clinical research Creating a centralized resource to assist clinical investigators in designing and managing clinical research projects (including data management, patient recruitment etc.) Building relationships to key external stakeholders (target customers in the pharmaceutical and medical device sectors, industry & professional associations, government officials as well as the public at large) The parties perceived opportunities and benefits for both sides. For Lombardy the program would: Improve overall public health and cost control Increase revenues from industry sponsored research studies Attract and retain talented medical and scientific professionals Attract the industry that follows such a nucleus of research professionals Contribute to Lombardy s reputation as an international center of innovation For Massachusetts, the program would: Increase its reputation as a center of excellence in R & D and related fields Develop clinical research training and implementation skills that could be re deployed in other areas Benefit from increased revenues associated with the project Forge relationships among researchers and professionals that lead to new innovations, therapeutics and partnering opportunities At the time of writing the project continues, with several phases completed. The collaboration has spawned new industry segments in both regional clusters. Lombardy is building its clinical research segment across multiple therapeutic areas while Massachusetts is building a new clinical trials education and services industry sub segment. Already, the consortium is in discussions to expand its efforts to three South American and two European countries (Applied Clinical Trials 2008). Page 23 of 37

24 5.3.2 Massachusetts and Lombardy Partners in a Globe Spanning World Regions Forum Initiative Lombardy, under the leadership of President Roberto Formigoni is seeking to create a framework for multi regional collaborations. In the autumn of 2009, Massachusetts joined Lombardy and 15 other global regions to launch the World Regions Forum (WRF), which recognizes the importance of sub national regions to drive economic development. By creating a G 20 of Global Regions, the WRF aims to create linkages among leading world regions to cooperatively address global challenges for the mutual benefit of all thus promoting worldwide economic growth. The Forum selected the following initial focus areas: Healthcare and Welfare including E health, Bio/Pharma and related sectors Environmental sustainability including energy, waste, pollution & mobility management; renewable energy resources and energy efficiency Knowledge based economy: R&D, human capital, education, innovation and resource efficiency; technology transfer and innovative financing solutions The WRF envisions that by creating international networks for strategic cooperation, not only between leading regional governments but also academia and private sector participants, common challenges can be addressed in a more effective manner, leading to a more rapid economic recovery and sustainable development. Fifteen regions spanning the globe attended the official launch in November 2009 and subsequent working groups will focus on topics such as sharing of best practices, local case study experiences and opportunities for closer cooperation in the above listed areas. 6 TRANSBIO Case Study 6.1 Program Conception and Objective: In 2006 the European Commission invited proposals under its framework (FP6 INNOV7) program to develop and promote new methodologies for successful Transnational Technology Transfer (TTT) in the biotechnology field. The TRANSBIO supported Framework objective called for: Identification of new methods of promoting and encouraging TTT for delivery in the form of Page 24 of 37

25 services either directly to principal target groups or in support of intermediaries that themselves offer TTT services. TRANSBIO s overall objective was to show policy makers and technology transfer (TT) professionals how European companies and researchers, who often perceive insurmountable barriers to working outside Europe, can be successfully encouraged and supported to take their knowledge to the USA and Canada, sign technology transfer agreements and begin to develop their innovations in the world s most advanced and competitive markets for biotech products and services (CIDEM 2005). Executives from the Catalonian Centre of Innovation and Enterprise Development (CIDEM) led the TRANSBIO project conception, proposal and subsequent two year program. The TRANSBIO project was the only funded project among 200 proposals submitted that involved third (outside EU) countries. Notably, TRANSBIO explicitly adopted a collaborative rather than mercantilist approach in its structure and detailed objectives by emphasizing joint technology development agreements; soliciting North American technologies to be developed in Europe as well as seeking North American partners and funding for European innovations; and by directly addressing the entrepreneurship culture and training issues for both the SMEs and the government intermediaries. TRANSBIO was also notable for its emphasis of outcome measurements in addition to input and process measures. Specifically, TRANSBIO measured the number of TTT agreements achieved rather than merely measuring participation levels and qualitative satisfaction metrics. TRANSBIO attempted to build technology transfer bridges in biotechnology between emerging European biotech SMEs and the North American life science industry by encouraging sustainable partnerships, joint ventures and collaborations, and thus supporting economic development opportunities on both sides of the Atlantic. CIDEM assembled six leading European technology regions and invited two North American regions into the TRANSBIO network as illustrated in Figure 2. Page 25 of 37

26 TRANSBIO Network Figure 2: TRANSBIO Network created to promote trans Atlantic joint economic development through R&D based Transnational Technology Transfer Government officials in Massachusetts quickly decided that participating in this unique EU sponsored program as the only invited US partner was worth the investment. Massachusetts anticipated multiple collaborative and mercantilist benefits including: Massachusetts companies gaining preferred access to promising European companies, products and technologies International promotion of the Massachusetts life sciences cluster Bi lateral investment opportunities would expand and diversify Massachusetts life sciences portfolios, thus lowering risk while expanding growth Massachusetts officials clearly expected local gains from the collaborative TRANSBIO approach. What distinguished this program from its traditional Mercantilist approach was that Massachusetts officials also clearly expected the European regions to simultaneously gain economic benefit and that Massachusetts would directly collaborate with European economic development organizations rather than compete with or bypass them. 6.2 Integrated, Longer Term Process The 2 year pilot project began in June 2006 and consisted of multiple, carefully defined, and measurable building blocks, that moved beyond traditional networking activities to include program Page 26 of 37

27 promotion, creation of Joint Technology Programs (JTPs) in which two EU organizations would combine their capabilities to create a more attractive offering, North American partnering training and a week long facilitated partnering event held in Boston in November 2007 with TTT negotiation support continuing for seven months thereafter as shown in Figure 3. Importantly, the selection of EU organizations to participate in the process was competitive. Each organization had to apply to TRANSBIO and was included after a multi step review process and extensively used peer review style selection committees composed of both business and scientific experts. During the process, each EU organization was assigned a local EU economic development contact and upon selection, gained access to a US, Boston based, experienced life sciences advisor. The Boston partnering event went substantially beyond traditional events by including small group coaching sessions for each EU and Canadian organization. Thirty U.S. biotechnology executives from venture capital, corporations and professional service firms served on these expert panels. In addition, the event included customized matchmaking usually resulting in meetings at the potential partner s site, traditional receptions, participation in a major US Investor s conference conducted by the Massachusetts Biotechnology Council and then follow up de briefing and action planning with US based consultant advisors. Following the event, each EU and North American participant received an offer of six months information follow up and negotiation support from both their EU and Boston based advisors. Page 27 of 37

28 Figure 3: Flowchart of TRANSBIO activities dedicated to the support of TTT agreements signatures. Source: TRANSBIO Deliverable 9 Work Product Report 6.3 Results Over the two years of the program, European and North American biotechnology projects were carefully selected, refined and actively promoted in the North American and European Union markets. Companies and researchers were coached in many aspects of commercializing technologies and introduced to doing business with and in the North American biotechnology market. The coaching provided them with a better understanding of the legal, regulatory and cultural differences and helped lay a foundation for successful transnational technology transfer collaborations. In addition, each firm received specific coaching on positioning their offering for the North American market, selecting potential partners/investors and refining their introductory presentation. Page 28 of 37

29 Table 2: TRANSBIO 24 Month Program Design. Source: TRANSBIO proposal, work product reports and MOITI internal reports Table 2 shows the TRANSBIO calendar, projected and achieved milestones. From more than 200 submitted technology offers from Europe, 40 top technologies were selected through a competitive process adjudicated by an international expert panel. The selected companies and researchers received careful coaching and training before participating in a weeklong partnering program in Boston that included a day long role play and communications workshop provided by 30 expert coachers in Boston. Twenty seven companies from Europe, five from Quebec and 34 from Massachusetts participated in close to 200 customized one on one meetings in Massachusetts in November These interactions resulted in 13 technology transfer agreements by June 2008 when the tracking was halted. At that time another 41 relationships remained in various stages of discussion and negotiation. In addition to the number of signed agreements, TRANSBIO s final activity report notes the following additional achievements. The program contributed to an increase in competitiveness in the European biotechnology market, stimulating the development of new technologies and products. The program developed robust, long term relationships with North American TT intermediaries that benefitted the partner organizations during the life of the project and the wider European TT community beyond it. TRANSBIO built a cadre of trained personnel in all participating countries with skills in biotech TT by means of participating in several weeklong internships in both Quebec and Massachusetts, which continue to stimulate new activities. Page 29 of 37

30 6.4 TRANSBIO Demonstrated Potential of Collaborative, Integrated, Multi Year Program TRANSBIO moved beyond traditional economic development programs in multiple ways. Not only did it pursue a collaborative approach, it did so with multiple partners simultaneously while using a competitive SME participant selection process. Figure 4 demonstrates the broad and integrated scope of TRANSBIO, from data driven technology and partner targeting at the beginning, through networking to competitive participant selection, technology refinement advice and partnering coaching, to facilitated matchmaking in the North American market and collaboration facilitation to achieve finalized TTT agreements. As Table 2 details, the process required two years, not including the initial one to two years of building the TRANSBIO network and obtaining funding from all parties and the European Union. This activity integration over an extended period, with consistent leadership with industry expertise, appears reasonably unusual in government driven economic development activities. Figure 4: TRANSBIO collaborative scope attempted to integrate the entire TTT process Even with such integration and commitment, TRANSBIO encountered multiple challenges. The project time frame still proved too short as more than three times as many potential relationships remained in discussion than were executed at the time tracking was halted. In retrospect, this is not Page 30 of 37

31 surprising as red biotechnology collaborations often require months to consummate from the time of first contact between the partners. The TRANSBIO program as a pilot did not continue past its first cycle of activity. Thus the program could not inform issues of continuity, repeatability, and capability sustainability. Anecdotal evidence suggests that, while many individual relationships among the sponsoring agencies remain strong, the organizational collaborative capability has dissipated as individual professionals rotate to other roles and the integrated processes did not become institutionalized at either the regional agency or the coordinating TRANSBIO organization level. Despite these limitations, the TRANSBIO pilot program demonstrated the potential success that a collaborative, integrated economic development program, matched to the natural life cycle for life sciences R&D based products, could produce for multiple regions and firms simultaneously. 7 Implications for Economic Development Policy 7.1 A role for Policy and Economic Development Professions Massachusetts experiences demonstrate the difficulty and suggest the rewards that a collaborative economic development approach presents to governments. Collaborative approaches involve more participants, increasing coordination costs and the challenge of aligning goals and incentives across regional stakeholders. Issues of relative value received for the resources invested arise, particularly in the face of a historic solo advantage, win lose culture. Massachusetts experience suggests that initial efforts in which each side understands their relative strengths and needs can prove important in overcoming this natural reluctance. The China experiment provides access to each area s scientific expertise, new students for each university s programs and applied R&D collaboration to speed product development and provide faster access to each other s markets. The TRANSBIO experience provided each region with SME TTT offerings, expertise and capital to which it might not otherwise have had access. The Lombardy case study demonstrates the value of involving potential private sector participating collaborators early in the process to help shape and invest in it. It also demonstrates how initial agreements should be expected to change, adapt and even transform over time as the initial projects and relationships lead to new areas of collaboration. Page 31 of 37

32 All three case studies demonstrate that a role exists for creative economic development professionals to identify potential matches and encourage their development at both the region and the firm levels. 7.2 Moving SME Partnering Support beyond Networking to Partner Targeting, Entrepreneurial Coaching and Collaboration Negotiation Adopting a more collaborative economic development strategy for R&D driven industries suggests that policy makers need to transform tactical SME support programs from event focused activities to programs that are integrated, across the R&D collaboration creation process. Figure 5 below maps the primary programs of traditional government SME support strategies across that collaboration creation process. These traditionally disparate activities include sponsoring conferences, delegations and trade shows to enhance networks; creating connections and referrals to professional services firms; providing incentives such as tax relief, training programs or individual grants to match or supplement private sector investments and the provision of incubators to house the SMEs. Mercantilist SME Support Model R&D Collaboration Chain Networking & Introductions First Meeting Gestation First Deal Collaboration & Follow on Events Connections Local Incentives Activities Incubators Metric Participation Quantity No Engagement No Press Releases Engagement Figure 5: Traditional Mercantilist SME Support Programs Map Poorly to R&D Collaboration Chain Page 32 of 37

33 Notably, many of these activities are managed separately with limited connections among them. Even within a category of activities, such as networking events, each event is often designed and executed independently of the other events. The impact of many of these individual activities on R&D collaboration creation and success proves difficult to measure, and the overall effectiveness of growing SMEs is difficult to judge, as the economic development agency is usually not engaged in the deal transaction process. In the Massachusetts examples above, the TRANSBIO program a relatively holistic and long term program still ended too early and participated too little in post networking event activities to reliably measure its impact on transnational technology transfer on the SME success or to measure TRANSBIO s effectiveness in improving economic development staff skills through internships and partnering training. The preliminary findings from the three Massachusetts pilot collaborative efforts suggest linking activities into a longer term strategy, augmented with collaboration support activities, and a more complete set of metrics could demonstrate economic development activity effectiveness in impacting R&D activity, job creation and perhaps, economic growth. Figure 6 illustrates how the mercantilist tactical elements, such as conferences and trade shows, continue in an integrated collaborative approach, but are now placed in the context of the larger R&D collaboration chain process with more SME training, selection and potential partner targeting occurring prior to the networking and partnering events and substantial partnering support provided afterwards. Page 33 of 37

34 Collaborative Cluster Development: Fostering Relationships to Meet Goals Figure 6: Integrating and Extending SME Support Programs to Promote Collaborative Growth The Massachusetts experience suggests that, prefacing SME support at conferences and trade shows with entrepreneurial partnering training, a competitive selection process for participants and extensive potential partner targeting, improves the quality of on site event introductions which in turn increases the yield of follow up contacts and collaboration discussions. The Massachusetts experience also demonstrates that failing to provide creative support to nurture nascent SME partnering relationships results in both loss of visibility to the process and likely overall reduction in achieving collaboration agreements for the SMEs. A possible best practice, suggested by the case studies, is for economic development groups to provide on going negotiation facilitation and cultural translation support from industry expert in house staff or consultants to help the SMEs convert initial contacts into specific collaboration proposals and agreements. The findings hint, but were not designed to definitively demonstrate, that governments might also spur SME success by facilitating the initial collaboration by providing some direct financial support in the form of grants, loans or in kind resources. Ideally, incentive programs would enable support of activities beyond the immediate geographic region. Page 34 of 37