Transcript Document

Social & economic aspects of
biotechnology
Erik Mathijs
Division of agricultural
and food economics
K.U.Leuven
1
Introduction
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A reminder: the potential of biotech
Three sets of issues
Overview of the 3 lectures
Lecture 1
2
The potential of life sciences and
biotechnology
• Enabling technology (like IT): wide range
of purposes for private and public benefits
– Health care
– Agro-food
– Non-food uses of crops
– Environment
3
Health care
• To find cures for half of the world’s
diseases
• To replace existing cures becoming less
effective (e.g., antibiotics)
• To enable cheaper, safer and more ethical
production of traditional and new drugs
and medical services (e.g., growth
hormone, haemophiliacs free from AIDS)
4
Health care
• To provide personalised and preventive
medicine based on genetic predisposition,
targeted screening, diagnosis and
innovative drug treatments
(pharmacogenomics)
• To offer replacement tissues and organs
(stem cell research, xenotransplantation)
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Agro-food
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Disease prevention
Reduced health risks
Functional food
Reduced use of pesticides, fertilisers and
drugs
• Use of more sustainable agricultural
practices (e.g., conservation tillage)
• Fight hunger and malnutrition (lecture 3)
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Non-food uses of crops
• Complex molecules for the manufacturing,
energy and pharmaceutical industries
• Biodegradable plastics, biomass energy,
new polymers, etc.
7
Environment
• Bioremediation of pollluted air, soil, water
and waste
• Cleaner industrial products and processes
(e.g. enzymes or biocatalysis)
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Main « societal » issues:
three sets of questions
• Economic, social and ethical benefits and
costs of biotech products
• Regulatory responsability
• Legal and effective ownership of genetic
material
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Set One: Impact
• Benefits: e.g., reduced use of chemicals,
plants with desirable characteristics, more
food
• Costs: e.g., environmental and food safety
hazards, distributional impacts, ethical
considerations (intrusion of humans into
natural processes, repress technologies
with potential of humanitarian benefits)
10
Set Two: Regulation
• Have governments adequately assessed the
possible health and environmental effects?
• Has adoption been rushed as a result of
commercial pressures?
• Should one wait until long-term studies of the
effects can be concluded?
• Or is it enough to deduce from scientific studies?
• What are the implications for international trade?
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Set Three: Property Rights
• Who owns the genetic material?
• Science enforces intellectual property
rights (e.g., terminator technology)
• Control shifts to the private sector and
raises concerns
12
Overview
• Lecture 1: Exploring the Economics of
Biotechnology (by Erik Mathijs)
• Lecture 2: GMOs in Food: Economic
Impact on Various Stakeholders in the
EU and in the World (by Koen Dillen)
• Lecture 3: Prospects of Biotechnology
in Developing Countries (by Eric
Tollens)
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Lecture 1: Exploring the
Economics of Biotechnology
• Who are the stakeholders?
• An overview of the conference
« Science and Cents: Exploring the
Economics of Biotechnology », Dallas,
April 2002
• Consumer issues
• Case study: Struggle for public opinion
and regulatory control
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The stakeholders
• The Private Sector
– Life Science companies
– Other companies, farmers, etc.
• Public interest groups
– Consumer groups
– Environmental groups
• The Public Sector
– Government agencies
– Scientists and the scientific establishment
15
Life science companies
• How does this sector look like?
• How important is this sector?
• What is the current status of this sector?
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Life science companies: structure
• Small number of very large
pharmaceutical companies:
GlaxoSmithKline, Merck, Novartis, Pfizer,
etc.
• Large number of biotech companies:
Amgen, Chiron, Genentech, etc.
• USA dominates
• Other countries are emerging
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Life science companies: structure
World
US
Europe
Canada
Asia
Revenues ($bn)
41.4
30.3
8.3
1.5
1.4
R&D expense ($bn)
22.0
16.3
5.0
0.6
0.2
Net loss ($bn)
12.5
9.4
2.8
0.3
0.1
Employment (000)
194
143
33
8
10
Public
613
318
102
85
108
Private
3749
1148
1776
332
493
Public company
data
Number of
companies
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Life science companies: situation
• Too many companies
• Changing character: alliance network of
specialty companies (cfr. ICT industry)
• Critical problems:
– Lack of harmonization of regulations
– Public fear and opposition
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Life science companies: future
Advances in genetic research are setting off
an industrial convergence that will have
profound implications for the global
economy. Farmers, computer companies,
drugmakers, chemical processors and
health care providers will all be drawn into
the new life-science industry. To make the
transition successfully, they’ll have to
change the way they think about their
businesses.
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Life science companies: future
Example: ‘agriceuticals’
• Broccoli against cancer
• Corn against cancer, osteoporosis, heart
diseases
• Fruits and vegetables with vaccines
agains diarrhea, tetanus, diphteria,
hepatitis B, cholera
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Life science companies: future
‘A single herd of goats may soon replace a
$150 million drug factory.’
‘Medical research, which has shifted from
the in vivo study of live organisms to in vitro
experiments inside labs, is now shifting
toward ‘in silico’ research using computers.’
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Life science companies: future
Already involved
Becoming involved Soon to be
involved
Chemicals
Pharmaceuticals
Agriculture
Food processing
Mutual funds
Law firms
Environmental
mining
Energy
Cosmetics
Supermarkets
Pharmacies
Military
Computer
hardware+software
Robotics
Household
appliances
Internet
Info services
Media
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Other private actors
• In the case of food:
– Food manufacturers (Unilever, Danone,…)
– Retailers (Sainsbury, Tesco, Carrefour, Ahold,
Walmart,…)
– Farmers: particular worry that they will be
dependent (contracts, integration) from seed
companies (e.g., Monsanto)
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Public interest groups
• Consumer groups (European Bureau of
Consumer Unions): health concerns
• Environmental groups: environmental
concerns, power concentration concerns:
– Greenpeace
– WWF
– Friends of the Earth
• Controversies
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Scientific community
• Universities
• Spin-off companies from universities
• National and international public research
centres (e.g., developing countries)
• Disagreements between scientists: e.g.,
impact of GMOs on biodiversity
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The public sector: government
• Evaluates concerns: safety, ethics,
environment, competition, trade
– Procedure and requirements differ greatly
between countries
• Stimulates innovation: government is a
substantial source of funds (research
subsidies)
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Science and Cents
Conference addressing following questions:
• Potential economic benefits of biotech?
• Emergence of biotech industry?
• Location of biotech firms?
• Financing of research + funding hurdles?
• Legal and regulatory issues?
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Economic benefits
• Lower overall medical costs: $ 18 more
costs vs. $ 128 savings in net nondrug
medical costs (shorter hospital days)
• Higher worker productivity: $ 34 drug
costs vs. $ 40 less sick days + $ 112
higher performance
• Increased longevity (five months): $ 12
bn per year US expenditure vs. $ 120 bn
per year value of increased life expectancy
 Past experience, do not generalize
30
Emergence of the industry
• No incremental progress perfecting
existing products
• But: metamorphic revolutions creating new
industries
• Many new firms, few incumbents, very
unstable: shake-out will occur
• Biotech hard to imitate, importance of star
scientists and thus of universities
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High-risk + high-cost R&D hurdles
• Only 22% of drugs entering clinical trials
receive FDA approval. But approval is not
success:
– 1/3 cover out-of-pocket expenses
– 20% top selling drugs > 80% other drugs
– Earnings arise from a few drugs (cash cows)
• R&D costs are high and rising:
– $ 400 mn for new drug, 10-12 years
– $ 1-2 mn for generic drug, 1-2 years
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Capturing the returns to research
• Patent reach-through strategies, reaching into
future revenues from end products:
– Reach-through licensing: patent holder restricts
access to users that agree to share a portion of
revenue from future products
– Reach-through remedy: ex post royalty on unlicensed
use (so only when succesful)
– Reach-through claiming: broad patents covering
future discoveries based on prior inventions
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Capturing the returns to research
• Arguments contra:
– Overcompensation of who rests on their
laurels vs. who carry research forward
– Too much control to innovators to future
research (may inhibit innovation)
– Not needed when government funded
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Capturing the returns to research
• Arguments pro:
– Enable researchers to capture the value of
their discoveries which is more risky than
more upstream activities
– Helps valuing and financing biotech research
for example by joint ventures between univs
and industry
35
Role of venture capital
• Role of VC firms:
– VC firms combine managerial with scientific
talent in picking, funding, advising and
managing start-ups
– VC firms invest in start-ups directly
– Distribution of returns is highly skewed, with
few big winners
– VC firms have incentive to diversify
– Rising share of GDP for health care
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Role of venture capital
• Opportunities for VC firms:
– Shift: conventional drugs  genomics 
proteomics (potential of customizing drugs)
– Maturation of pharmaceuticals from vertical
integration to horizontal organization
37
Role of public sector
• Returns to R&D and innovation >>
investments in labor or capital
• But still underinvestment by private firms
because:
– High risk premiums, because few winners
– Spill-over effects from inventions
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Role of public sector
• Public policy options:
– Industrial policy: cannot deal optimally with
dynamic environment
– Tax credits: risk of reclassifying other
expenses as R&D
– Direct funding of R&D: risk of political
influence and lack of accountability
39
Consumer issues
• Why do consumers care?
– Evidence of consumer concerns
– What are consumer concerns?
– The origins of consumer concerns
– Regulatory responses
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Evidence of consumer concerns
• Growing unease among consumers, but not
uniform between or within countries
• Diversity reflects consumer heterogeneity and
different forces affecting consumer attitudes in
various countries
• Broadly: consumers in Europe and Japan more
negative than North American consumers
• Consumer attitudes towards a new technology
are constantly changing
41
Eurobarometer 2006
Support for GM foods (percent);
EU Member States. The EU-wide
average is 27 percent.
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Support for GM foods among the "decided" participants from selected EU
Member States 1996-2005: Decided supporters include all participants who
consider GM crops useful, morally acceptable, and feel they should be
encouraged. Decided supporters may or may not agree the technology is risky.
The decided non-supporters do not see GM food as useful, morally acceptable,
or worthy of support. Decided supporters and decided non-supporters added
up to approx. half of all participants.
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Willingness of Europeans to buy GM food based on given
circumstances: Most Europeans would buy GM food if they were
considered healthier and used less pesticides. But authorisation
from the EU and lower prices don't appear to be enough to get
Europeans to choose GM.
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What are consumer concerns?
• Four broad groups:
– Specific food safety concerns:
• Transfer of allergens through transgenics (e.g. peanut in
soybeans)
• Antiobiotic-resistant marker genes
– Fear of the ‘unknown’:
• fears regarding long-run consequences and perceived
inability of scientists to predict the cumulative effects of
consuming GM foods over a long period of time
– Ethical concerns: consumers believe that genetic
engineering is unnatural. Patenting genes raises
ethical concerns over the ‘right to own life’
– Environmental concerns
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What are consumer concerns?
• Difficult to respond to these concerns with
the standard risk analyis approach (risk
assessment – risk management- risk
communication), since the problem is one
of uncertainty rather than risk:
– Risk: statistcal probabilities can be attached
to different potential outcomes
– Uncertainty: insufficient information to
establish probabilities
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The origins of consumer concerns
• Five interrelated threads:
– Lack of understanding of the technology: confusion
over the meanings of terms (biotech, genetic
engineering, genetically modified, etc.)
– Proliferation of food safety scares: BSE, E. coli,
salmonella, lysteria, dioxin
– Lack of trust in regulatory authorities and in the
assurances of science
– Technology being producer rather than consumerfocused in first wave of GM products
– Influence of interest groups and media
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Regulatory responses
• Policies governing the approval and
regulation of GM food differ between
countries:
– USA and Canada: product-based approach,
products are assessed on their safety
regardless whether GM or conventional;
voluntary labelling
– EU: process-based approach, separate
procedure for GM; precautionary principle (all
potential risks must be known and
quantifiable); mandatory labelling
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Case study
• The struggle for public opinion:
– US: strong lobby of life science companies –
not a hot topic for the public
– Europe: strong lobby of environmental NGOs
– hot topic for years
• The struggle for regulatory control
– National regulation: stakeholder involvement
more and more important
– International regulation: e.g., WTO
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Case study
• The impact of incomplete institutions and
information in the global agricultural
biotech industry
• Two examples:
– Dr Arpad Pusztai: GM food could be harmful
to human health (UK, 1998)
– Dr John Losey: GM maize is harmful to
monarch butterflies (USA, 1999)
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Difference in institutions
• UK: weak institution, low trust
• USA: strong institution, high trust
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Dr. Pusztai’s GM potatoes
• Experiment: eating GM potatoes makes rats
grow slower and impair their immune systems –
turned out not to be true due to very poor
experiments
• Scientific reaction: The Lancet publishes the
results despite 6 reviewers rejecting – outrage
• Resulting govt regulation: mandatory labelling of
food with >1% GM, new institutions had to be
established
• Costs: high, consumers do not eat GM food
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Dr. Losey’s Bt maize pollen
• Bt toxin in pollen kills butterfly larvae,
published in Nature without review
• Scientific reaction: a wave of studies to
check the validity – results rejected
• Resulting govt regulation: mandatory
planting restrictions (refuge area), existing
institutions coped with the problem
• Costs: low, consumers continue to eat GM
food
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