function (and dysfunction). The increased knowledge about the structure of biological molecules such as enzymes and the isolation and cloning of human genes offer new opportunities to develop drugs that can counteract diseases (Gambardella, 1995; Office of Technology Assessment, 1984; Pisano et al., 1988). For instance, the synthesis of the nucleic acid sequence, originally performed at the City of Hope Medical Center, led to the large scale production of rDNA insulin. This was developed, produced, and commercialized by a joint venture between Genentech and Eli Lilly.
Biotechnology, with its strong grounding in basic science, has changed markedly the organizational pattern of the innovation process in this industry. Three types of agents now contribute to the generation, development, and commercialization of new biotechnology products, and particularly of biopharmaceuticals: the universities; small/medium-sized research-intensive firms or the so-called new biotechnology firms (NBFs); and the large "established" chemical and pharmaceutical manufacturers. Many new drugs and therapies now stem from systematic interactions and cooperation between these three types of agents.
Universities and NBFs were important sources of new techniques and products at the outset, and remain very important sources of basic and applied scientific knowledge in this field. However, while collaborations with universities have been common in the pharmaceutical industry for many years (see, for instance, Swann, 1988; Thackeray, 1982), and biotechnology has only intensified an already existing pattern of relationships, the rise of the NBFs is an entirely new phenomenon. Most NBFs were founded during the early 1980s. Their major asset consists of knowledge, especially that embodied in their researchers (Kenney, 1986; Office of Technology Assessment, 1984; Pisano et al., 1988). In many instances they were founded to exploit a discovery made by an individual or group, and they were created by professors or groups of academic scientists. Over a thousand NBFs have been founded in the past decade. Even in a "bad" year such as 1988, some 36 new NBFs were formed (Burrill, 1990).
As Table 8-1 shows, a majority of NBFs are U.S. based. A number of reasons can be cited for the formation of NBFs, and particularly for the finding that a majority are U.S. based. Clearly, their growth was triggered by the rise of new scientific and technological opportunities and the fact that established corporations were late to enter into biotechnology research (see, inter alia, Pisano et al., 1988). However, economic forces at work in the U.S. system have played an important role as well. The relationship between universities and industry in this country is unusually close; and there is an availability of finance especially suited for high-risk technology businesses (venture capital and the like; see Florida and Kenney, 1990; Office of Technology Assessment, 1984). The biotech industry in the United States has also benefited considerably from the output of federally sponsored research in this field—often a new product or a method that can rapidly translate into new product opportunities. That is, federally supported research has helped produce discoveries that have, in turn, paved the way to new