Evolutionary Innovations: The Business of Biotechnology

Abstract

Evolutionary Innovations: The Business of Biotechnology Maureen D. McKelvey Oxford University Press, 1996 The theoretical first half of this book discusses the theory of evolutionary and institutional economics and the implications for the innovative process. It argues that biology's evolutionary theory offers a useful metaphor for the innovative process in the economy, but not an exact analogy. The innovative process involves the generation of novelty (similar to the mutational and sexual recombination process in evolution) and then selection from the alternatives generated. This is the basis for the metaphor. In contrast to biological evolution by genetic recombination, economic evolution is Lamarckian in that learned innovations are inherited. While in biology each individual represents only one innovation, in the economy a single firm can investigate several innovations. Finally, in the economic sphere, firms and individuals can learn from each other. McKelvey contrasts this dynamic model with the neoclassical one in which technological developments are exogenous, with firms responding to price signals and always reaching a global optimum. I suspect most observers would agree with the correctness of McKelvey's observations here, although some might disagree with how important her points are for specific cases. One case where observers might think that such factors were very important would be biotechnology and the introduction of wholly new technologies. The bulk of the book examines how biotechnology was developed and introduced, with emphasis on one of its earliest products, human growth hormone. Not surprisingly, various institutional details are found to play an important role in the history of this product. After a brief chapter introducing the technology, the history of genetic engineering is told, starting with the university research and the debates over safety. It is pointed out how the traditional dividing line between science (new knowledge that is sought in university) and technology (applied knowledge developed in firms) did not apply here, with both universities (the University of California in San Francisco is the case study here) and firms doing some of both. The story is told of how Genentech was founded, and how the Swedish pharmaceutical firm KabiVitrum gave them an early research contract to develop a new technology for producing human growth hormone. KabiVitrum was then producing this in large quantities from human pituitary glands. The emphasis is placed on the various institutional details that played a role in shaping how firms and universities acted, including the conflict between a prestige-driven academic reward system and the profit-driven-firm one. The book is rich in illustrations of how factors specific to a single firm determined how they acted. Genentech funded the research that led to the bacterial production of somatostatin, a hormone without medical value or known market value. While this may have appeared not to be profit-making activity, this achievement demonstrated the technology's feasibility, and when published brought Genentech the scientific prestige it needed to sell research contracts for more commercial products, and to attract further funding. Thus, firms, and the scientists employed by them, responded to the prestige-seeking incentive structure of science. The point is made that the search for knowledge is conducted in the dark (with little information as to what is likely to be found). Some knowledge-gathering is useful only because it produces the competence to know what knowledge to seek, or where the blind ends are. One example occurred when Genentech did human safety tests of its new genetically manufactured hormone in human volunteers, only to find that it produced negative reactions, even though it was analytically indistinguishable from the natural product. This showed a need for new analytical methods to detect the impurities that were producing the problem. …