Joseph Wong

In a nutshell

Everyone is talking about innovation. In the current era of the global knowledge economy, it is generally agreed upon that innovation is the engine of economic growth. Making new things and devising novel processes are presumed to generate added-value, be it measured in terms of economic development and returns, industrial diversification, and societal benefits more generally.

Biotechnology in particular has for many years been touted as the cutting-edge of industrial technology innovation and a potential industrial blockbuster. And yet, after decades of patient waiting and with billions upon billions of dollars of investment into the sector, the biotech revolution remains unrealized.

Precisely this tension, the trade-offs in high-risk / high-reward endeavors, is at the heart of Betting on Biotech.

Asia’s industrial dynamos, postwar newly industrialized countries (or NICs) such as Taiwan, South Korea and Singapore began to bet big on biotech in the 1990s. This book examines how government over the past two decades has been re-organized in each place to foster upstream research in the life sciences. It sheds light on the ways in which industry has re-invented itself and its relationship to the state, as firms face the challenges of developing and commercializing uncertain biotechnologies, as they navigate dynamic regulatory regimes and deal with an increasingly impatient investment community.

Betting on Biotech illuminates new global linkages not just between firms but between R&D labs, universities and public-private research institutes. It reveals a new political economy of innovation and industry technology development that I suggest is a significant departure from the postwar model of “guided” or “state-led” industrial growth in Asia.

At the core of the book’s argument is the distinction I draw between strategic decision-making under conditions of “risk” versus “primary uncertainty.” In the past, when places such as Taiwan, Korea and Singapore began ramping up their domestic capabilities in the information technology and electronics sectors, they confronted risk scenarios and risky investments, to be sure. However, because they were essentially reverse-engineering existing technologies developed elsewhere, they were also able to mitigate risk rather effectively through government subsidies, investment and protection. There were unknowns (Could a Taiwanese firm make semiconductors at globally competitive prices?), but there were also many things that stakeholders did know (how semiconductors were made).

Conditions of primary uncertainty, which characterize first order innovation in the biotech sector, are situations in which decision-makers must make bets on things about which they know very little, if anything at all. Indeed, conditions of primary uncertainty are those in which “you don’t know even know what you don’t know.”

In making industrial winners in biotech, one is essentially betting blind, a logic of industry development, I contend, that has frustrated policymakers and bio-industry stakeholders in these otherwise technologically advanced and rich Asian economies (hence the subtitle of the book is “Innovation and the Limits of Asia’s Developmental States”).

The wide angle

While I was doing field research during the 1990s for an earlier book, Healthy Democracies, I came across a great deal of government and industry documents focused on the imperatives of health care cost-containment and thus the need for advanced Asian economies to develop their own health technology development capabilities.

It was around the time that places such as Taiwan, Korea and Singapore were moving into the biotechnology sector. Government and industry began investing hundreds of millions of dollars per year into the sector. R&D spending in the life sciences in East Asia was among the fastest growing in the world. They were also setting lofty goals for themselves. For instance, the Korean government proclaimed that Korea’s bio-industry sector would be a top-seven global producer by 2010. The President of Taiwan declared biotech as one of Taiwan’s future pillar industries. Singapore identified biomedical industries to be a future star industry. These rich Asian economies were increasingly hollowed-out by manufacturing competitors in Southeast Asia and China. They had to bet big on biotech. And they did.

When I started my research for this book—which, in the end, comprised over twenty trips to the region, more than two hundred interviews, and thousands of pages of government and industry reports—I expected, as many others did as well, to see a robust and growing biotech industry sector in Taiwan, Korea and Singapore. After all, these economies had beaten the odds in the past and had developed from being relative basket-case economies in the 1950s into serious global competitors in several technology sectors by the 1980s. And they had invested so much into biotech.

What I found, instead, was actually relatively slow growth in the sector, increasing impatience, and few biotechnological strides. I found the general public to be losing its appetite for the expensive uncertainties of biotech innovation and cutting-edge innovation more generally. And to the extent that there were economic returns from biotech, most were in low value-added activities, rather than the once expected high value-added gains in R&D.

What this tells us, or should remind us, is that innovation is a very uncertain enterprise. It is very expensive. It takes a long, long time; failures need to be normalized; blockbusters are few and far between; and that in biotech it is an uncertain path from lab bench to market.

So, when governments talk about innovation and making it in the innovation economy, as they all do it seems these days, I think they really need to first ask themselves if they are prepared to endure such long-term and expensive uncertainties. Economically, betting on biotech is costly; politically, it can be disastrous.

A close-up

Chapter 5 opens with an anecdote, a true story.

A few years back I was giving a talk in Taiwan about the state of the biotech sector there. The government had just invested public money in a promising biotech start-up. Tens of millions of dollars were allocated to this one firm. It was promising because the firm had acquired a drug candidate from a major US biotech company. There was a still long way to go until a drug could make it to market, but investors hoped that the newly formed Taiwanese firm could take the candidate through clinical trials. The deal had generated quite a bit of buzz. Then someone in the audience asked me about the number of jobs that would be created with this new firm. As a start-up venture, I guessed that maybe 15 employment opportunities might emerge. The audience member then asked how I could possibly justify, never mind laud, a $20 million bet on a single drug compound made with public money when its positive impact on Taiwan’s economy was likely to be so minimal. I had no convincing answer. I was looking at the trees; he at the forest.

I still do not have a convincing answer to that question. That exchange, however, captures the myriad challenges of growing a biotech sector, and of first order technology innovation more generally. And it echoes the concerns people everywhere are expressing at this moment in time.

My close-up story of Asia is in fact much more global in scope. Biotechnology innovation—and massive investments in innovation generally—is a long-term uncertain bet. We know this to be certain. It is an expensive endeavour. Few, if any, countries can claim a successful biotech industry to date. Venture capitalists are still unsure of how to evaluate prospects. Regulatory regimes remain underdeveloped and varied.

As such, it is not clear to the general public how billions of public dollars spent on basic science research—in the US, the NIH and NSF fund upwards of $30 billion per year on life sciences R&D—are generating any public goods of importance such as economic growth, job creation or even better health.

The sense of throwing good money after bad is severely deepened when one considers the current economic funk much of the advanced industrial world is in. People understandably want to know when we can expect returns on such lavish and conspicuous public and private investments. Those living under conditions of poverty seek an explanation of why billions are spent on drugs that, for instance, may (or may not) extend one’s life six weeks in late stage cancer—while tens of millions of poor people continue to die from illnesses we know how to cure but are unwilling to invest in.

That we do not have an answer affirms, on the one hand, biotech’s inherent uncertainties and the high-risk / high-reward tension in the business of biotech innovation, and highlights, on the other, just how unsatisfying this must appear to most.

Lastly

We know that what drives innovation is learning from failure. What we do not know, as yet, is how to value failure as a positive attribute.

Economics deals with failure by expressing success (and failure) as calculable and value-neutral mathematical probabilities—a number.

In politics, however, things are not so straightforward. How does a government explain to its citizens that failure, that failed bets, is a good thing? How, in this current moment, when times are tough for so many, can government value failure in a positive way?

Betting on Biotech forces us to confront the political economy of failure. And resolving this political economic tension, I think, is not just a matter of public policy and rational industry decision-making. It is about a much bigger cultural change. It is about devising new metrics with which to measure and evaluate the impact, both negative and positive, of failure. It is, in the end, about normalizing failure.

Short of normalized failure, I suspect many will continue to bet on biotech, and bet on innovation more generally, but that most will lose their appetite far too quickly for those bets to pay-off down the road.