Invention and business performance in tissue engineering

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BACKGROUND

THE LAST TWO DECADES have witnessed an escalatingpace of technological change. Competitive environ-

ment in many industries is characterized by short prod-uct life cycles and rising R&D costs. In high technologyindustries such as biotechnology and tissue engineering,innovation and new products are becoming a key sourceof competitive advantage.1–4

This study aims to examine the drivers of invention inthe tissue-engineering sector. Though much research hasbeen undertaken on the drivers of invention by firms, webelieve that the tissue-engineering sector offers us a

unique and interesting opportunity to study the influenceof alliances on invention. Our belief is rooted in threekey reasons: tissue engineering is an important and grow-ing sector; alliances are a competitive necessity in thesector; and the nature of alliance formation in this sectoris distinct from other traditional sectors such as pharma-ceuticals limiting the applicability of similar studies car-ried out within other industry contexts.

Let us first identify the significance of the tissue-en-gineering sector. Academic, clinical, and industrial ef-forts are increasingly being directed toward the use ofmolecular- and cell-based therapies for diagnosis andtreatment of a great number and broad variety of patholo-

TISSUE ENGINEERINGVolume 9, Number 6, 2003© Mary Ann Liebert, Inc.

Technical Report

Invention and Business Performance in the Tissue-Engineering Industry

NITIN PANGARKAR, Ph.D.,1 and DIETMAR W. HUTMACHER, M.Biomed.Eng., Ph.D., M.B.A.2,3

ABSTRACT

Tissue engineering is a young and interdisciplinary scientific discipline but it offers exciting oppor-tunities to improve the quality of health care for hundreds of thousands of patients. Lured by itspotential, several start-up companies, pharmaceutical corporations, and medical device enterprisesalike are investing heavily in this sector. Invention is a key driver of competition in this sector. Inthis study, we aim to explain the variation in inventive output across the different firms in the sec-tor. Our major premise is that firms that forge alliances will be able to tap into the expertise oftheir partners and thus improve their chances of inventive output. We further argue that alliancesthat enable technology acquisition or learning will enhance the inventive output of firms more thanother kinds of alliances. We measure the inventive output of a company by the number of patentsfiled. On the basis of a preliminary analysis of seven companies, we find support for the hypothe-ses. We also argue that, to achieve commercial success, firms need to manage time to market (throughalliances or otherwise), have a global outlook, nurture their financial resources, and attain criticalmass through mergers.

1School of Business, 2Division of Bioengineering, Faculty of Engineering, and 3Department of Orthopedic Surgery, Facultyof Medicine, National University of Singapore, Singapore.

gies and injuries. Hence, tissue engineering is, within thecontext of regenerative medicine, widely heralded as thehealth care technology heir of the revolutionary advancesin life sciences. In a cost-controlled healthcare environ-ment, only those technologies capable of providing a ma-jor enhancement to quality of life and a reduction in ex-penditure will be driven forward. Tissue-engineeringconcepts based on the application of a scaffold/cell con-struct have the clear potential to meet this criterion. A re-cent study has concluded that at the beginning of 2001,tissue-engineering R&D was being pursued by 3300 sci-entists and support staff in more than 70 countries witha combined annual expenditure of over $600 million. Fur-thermore, the aggregate investment in the sector since1990 exceeds $3.5 billion and the sector has witnessedthe entry of many new startup firms. As many as 16startup firms focusing on this sector have reached themilestone of initial public offerings (IPOs) and have acombined market capitalization of $2.6 billion.5

Let us now discuss the issue of why alliances are a com-petitive necessity in this sector. First, tissue engineering isan emerging sector since the technology and its marketpenetration is still at an early stage of development, im-plying a high level of technological uncertainty. Second,tissue engineering is an interdisciplinary sector—it is basedon knowledge from several different, yet interrelated, dis-ciplines (Fig. 1). Third, the industry is populated by sev-

PANGARKAR AND HUTMACHER

eral early-stage firms, which might have exciting, yet froma business point of view narrowly focused, ideas. Evenfrom a technological adequacy point of view, several ofthese firms might need to supplement their skills throughalliances with other firms. All the above factors imply thatalliances will be critical to invention in this industry. Turn-ing to the issue of the nature of alliance formation in thisindustry, we believe that, unlike other industries, such aspharmaceuticals, biotechnology, and medical devices,6

only a small proportion of alliances in this industry are dri-ven by the pursuit of economies of scale.

A major premise of this study is that external linkages,in the form of alliances, are critical for invention. Sincethe technology is interdisciplinary, few firms can hope tohave or cultivate, in a speedy manner, all the skills nec-essary to compete, thus creating the need for collabora-tion. Consider, for instance, the following statement fromthe Integra Life Sciences Corporation:

Integra LifeSciences, through acquisitions andstrategic partnerships, seeks to be the world’s lead-ing company providing customers with clinical rel-evant, innovative and cost-effective products thatimprove the quality of life (http://www.integrals.com/corp_mstr.htm) [emphasis added]

The above quote from a leading tissue-engineering com-pany indicates the importance of alliances in this industry.

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FIG. 1. Illustration of the multidisciplinarity of tissue engineering.

The rest of this article is organized as follows. We re-view the conceptual arguments and the main hypothesesof the article in the next section. Methodological aspectsof the study are also discussed. The article concludes bysummarizing the implications of the results and the lim-itations of the article and by identifying directions for fur-ther research.

CONCEPTUAL ARGUMENTS ANDHYPOTHESES DEVELOPMENT

It is widely recognized that invention or the ability tocome out with new product is a key driver of competi-tive success in today’s market environment. Several suc-cessful corporations owe their profitability to their abil-ity to come out with new products,7 especially in sectorssuch as pharmaceuticals/biotech and medical devices.8 Inaddition, invention bestows a number of advantages toits owner. It increases the visibility of firms; providesthem with greater legitimacy, early market share (firstmover advantage); and improves their changes of sur-vival.9 Greater legitimacy, in turn, might also help a firmin recruiting allies and customers or sometimes even inattracting financing.

Invention, however, is not without risks. The costs ofinvention can be substantial and there are no guaranteesof success or returns. Some studies estimate that nearly50% of new products, introduced to the marketplace dur-ing any given year, fail, causing financial loss and pos-sibly uneasiness to promoters.9a,10

A fundamental premise of this study is that formationof alliances with external parties will boost the inventiveoutput of tissue-engineering firms. In fact, Teece11 con-cludes that “to be successful, innovating firms must formlinkages, upstream and downstream, lateral and horizon-tal.” Several other studies have also arrived at the same

INVENTION AND BUSINESS PERFORMANCE

conclusion regarding strategic alliances and inven-tion.12,13 In high-tech industries, boosting invention isone of the key motivations behind forming alliances.Bidault and Cumming14 remark that “among the variousmotivations for partnering, invention is said to be a ra-tionale of singular importance.”

Strategic alliances include a broad array of coopera-tive agreements between two or more firms. Several typesof alliances, which are particularly relevant for invention,include licensing agreements, joint (or collaborative)R&D projects, and one-way research agreements inwhich only one party does the R&D work while the otherprovides funding, market access, or other types of know-how and expertise.

The above premise regarding the critical role of strate-gic alliances in invention is grounded in several factors.Strategic alliances enable accessing complementary re-sources such as knowledge of a technical field where theparticular firm is lacking. Such knowledge/IP may be ei-ther difficult (e.g., might take a long time to develop) orexpensive to acquire for the firm. Combining comple-mentary resources might give allying firms an advantageover others that are unable to do so.15 For instance, manyuniversities and research institutes possess a strong reser-voir of knowledge in basic and applied science that maybe available to firms that invest to establish partnershipsand license agreements.16 Strategic alliances could alsolead to a shorter time to market, improving the chancesof success. For instance, in the 1980s, Glaxo’s antiulcerdrug, Zantac, was able to beat out its closest rival Taga-met (from SmithKline) in international markets becauseof Glaxo’s extensive use of alliances (see Fig. 2).

Genzyme’s Epicel and Carticel also provide examplesin this regard. In the 1980s Genzyme thrived by acquir-ing external technology in orphan drug and biotech mar-ket segments that were generally considered to be toosmall to be attractive to large corporations and by pre-

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FIG. 2. Alliances and firm performance.

senting a too-high entry barrier for small companies. Inthe 1990s competition was entering these same markets,placing the Genzyme business model under new pres-sures. Hence, although Genzyme was able to be the firstin the U.S. market with the above two products, manysmall companies (e.g., Biovision, Codon, Medex, andIsotis) were able to be the first in several European mar-kets, largely by signing up allies with strong distributionnetworks in individual countries. As a result, the profitmargins for Genzyme’s “me, too” products decreased sig-nificantly over time in their home market as the later en-trants were able to gain market share in the United States.

Strategic alliances also allow firms to share and spreadrisks. In sectors where new technology and product devel-opment are expensive and time-consuming, strategic al-liances enable firms to spread the costs over several firmsand to speed up the time to market.17 Risk reduction dueto alliances goes well beyond simply dividing up the in-vestment requirement—it is attributable to complementaryresources (specialization), cross-fertilization of ideas, andbetter speed to market. In addition, redundancies can beeliminated across partners, saving costs in the process.13

Strategic alliances might also enable partners to learnnew skills, boosting future invention and strengthen theoverall IP portfolio.18,19 Cultivating these skills in-housemight take years of efforts and be impacted by the in-herent uncertainties in scientific discovery as well as mar-ket developments (e.g., another company reaching themarket first). Previous research has observed an increasein alliance formation in settings where cooperative learn-ing is particularly important.20 The preceding argumentssuggest the following hypothesis:

H1: Firms that have forged a larger number of allianceswill have greater learning opportunities due to their mul-


tiple alliances and hence exhibit greater invention out-put than other firms.

Not all types of alliances, however, are likely to leadto increased invention, or at least not to the same ex-tent. We divide alliances into two broad types: tech-nology acquisition/technology learning alliances andother alliances. In the first category of alliances, thetissue-engineering firm experiences a direct inflow oftechnical knowledge (say, through inward licensing)or at least has an opportunity to learn from its alliancepartner (say, through a joint R&D project or a jointventure). The importance of inward licensing can beseen from the fact that Atrix Laboratories and Isotis,two leading firms in the area of regenerative medicine,identified “acquiring or in-licensing proprietary know-how or compounds” as one of their key growth strate-gies (http://www.atrixlabs.com/compinfo/coinfo.cfm).Knowledge acquisition alliances such as inward li-censing agreements may not lead to an immediate boostin invention because the intellectual property rightsmay be owned by the licensor or be shared with an al-liance partner. In some cases, the licensor might stip-ulate bounds, geographical or otherwise, within whichthe licensee must operate. It is noteworthy that despitethe above constraints technology acquisition or learn-ing alliances might still enhance the inventive outputof firms for several reasons. For instance, the knowl-edge acquired might stimulate the exploration of newareas of research. Since the knowledge base of the li-censee is upgraded, the learning cycle for inventing thefuture generations of technologies may be considerablyshortened (see Fig. 3).

In the second category of alliances, the tissue-engi-neering firm may not experience a direct inflow of tech-nology or knowledge. This might include an arrangement

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FIG. 3. Technology alliances and invention.

in which the tissue-engineering firm receives fundingfrom another firm (or a government agency such as theNIH, European Union, etc.) for carrying out a researchproject. Other alliances in this category might includemarketing/distribution agreements or outward licensingagreements. In both these cases, the tissue-engineeringfirm is either a donor of technical knowledge or it is uti-lizing the expertise of its partner in a different functionalarea such as marketing/sales. While these kinds of al-liances might improve the financial viability of the ally-ing firm, they may not add directly to the technologicalknowledge base of the tissue-engineering firm and henceare unlikely to boost invention to the same extent as thefirst category of alliances. This leads us to the second hy-pothesis:

H2: Technology acquisition or technology learning al-liances will have a greater impact on the inventive out-put of a tissue engineering firm than other types of al-liances.

METHODOLOGY

This study is based on the analysis of various sec-ondary data sources (please see Table 1 for a listing ofall the data sources used in the study). We adopted thefollowing procedure for data collection. First, since one


of the authors in the research project is actively involvedin undertaking technical research in the tissue-engineer-ing sector, we were able to identify a comprehensive listof firms that are key players in this sector. Next, we iden-tified the patents obtained by each of these firms. Thekey data source for this step was the homepage of theU.S. Patent Office (http://www.uspto.gov/). We followeda two-step procedure for utilizing the information avail-able at this Web site. First, we identified all the patentsobtained by the companies included in our list. In the sec-ond stage, we focused only on patents relating to the tis-sue-engineering sector. Our next task was to identify thestrategic alliances for each of these firms. We purchaseda database on strategic actions published by BioAbility,a leading provider of information regarding strategic actions by firms included under the broad heading of biotechnology (http://www.bioability.com/). For thepurposes of the current article, we gathered data regard-ing alliance formation by seven firms: Advanced TissueSciences, Organogenesis, Osiris Therapeutics, Atrix Lab-oratories, Integra Life Sciences, Lifecell, and StemCells.Even though a sample of seven firms seems to be rathersmall, we believe that we can produce some initial re-sults regarding the impact of alliance formation on in-ventive output. In the next stage of research, we will ex-pand the scope of analysis to include all the major firmsin the sector.

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TABLE 1. DATA AND INFORMATION SOURCES

Data source Information gathered Processing

The Actions database Names of parties � Classification of each alliance asfrom Bioability: involved in alliances, � technology acquisition/learning orwww.bioability.com dates of formation, � other and relevant to tissue

brief description of � engineering versus otherwisepurpose including the � Count of alliances for each calendartype of alliances � year

Home pages of Alliances formed by � Classification of each alliance ascompanies companies � technology acquisition/learning or

(confirmation); � otherfinancial performance � Counts of alliances for eachincluding sales and � calendar yearprofits

Yahoo & Edgar (SEC Financial performance � Tabulation of financialfilings by companies): (confirmation) � performancewww.yahoo.com andwww.edgar-online.com

U.S. Patent Office: Name of company, � Classification of patents as tissuewww.uspto.gov description of patent � engineering patents versus

obtained, date of � otherwisegranting the patent, � Counts of the number of patents fordate of filing � each company during each calendar

� year

To test the hypotheses, we will correlate the allianceactivity of the sample firms with their inventive output.Alliances will be further divided into the two categoriesidentified above: technology acquisition (or learning) al-liances or other alliances.


RESULTS OF ANALYSIS

Table 2 identifies the key players in the tissue-engi-neering sector, their main lines of business, date of found-ing, and the total number of tissue-engineering patents

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TABLE 2. PROFILE OF KEY PLAYERS IN TISSUE-ENGINEERING SECTORa

Date offounding/

initial publicCompany Main business offering Business description/mission/focus

Acorda Tisue- 1995/private Therapeutic products for spinal cordTherapeutics engineering injuries

companyAdvanced Tissue Tissue- 1986/1988 Tissues for the purpose of replacing,

Sciences engineering repairing, or restoring diseased, damaged, or(formerly Marrow company aging tissue and organsTechnology)

Atrix Laboratories Drug delivery and 1987 Nonoral drug deliverytissue engineering

Biomatrix Drug delivery and 1981/1991 Biological polymers for use in surgicaltissue engineering applications, therapeutic medical

applications, and skin care productsBiora (Sweden) Drug delivery and 1986/NA Biology-based products to enable dentists to

tissue engineering restore and improve the oral health andesthetics of their patients

Bionx Implants Also in medical NA/NA Biomaterial solutions using polymer-baseddevices implant technologies for surgical

applicationsIntegra Life Drug delivery and 1989/date of IPO Medical devices, implants, and biomaterials

Sciences scaffold company not available primarily for use in neurosurgery,orthopedics, and soft tissue repair

Lifecell Biotechnology and 1986/1992 Biologically based products for the repairtissue and replacement of human tissueengineering

Organogenesis Tissue- 1985/1986 Engineered tissues for living wound-healingengineering products and bioengineered surgicalcompany products

Orquest Tissue- 1994/private Materials that accelerate and enhance boneengineering repair and regenerationcompany

Ortec Tissue- 1991/date of IPO Innovative and superior products for theInternational engineering not available repair and regeneration of human tissue

companyOsiris Tissue- 1993/private Cellular therapeutic products for the

Therapeutics engineering regeneration and functional restoration ofcompany damaged and diseased tissue

Osteotech Medical devices 1986/1991 Human bone and connective tissue fortransplantation and biologic, biomaterial,and device systems for musculoskeletalsurgery

StemCells Tissue- 1988/1992 Stem and progenitor cells derived from fetal(formerly engineering or adult sources to treat, and possibly cure,Cytotherapeutics) company human diseases and injuries such as

Parkinson’s disease, hepatitis, diabetes, andspinal cord injuries

aFirms with a principal focus on biotechnology and a secondary focus on tissue engineering are not included.

obtained by them. It is apparent that while many com-panies are publicly listed, some remain private. Possibly,these companies in the early stages of developing theirtechnology suggesting heavy reliance on venture capitalor private investments.

Brief profiles of the seven companies, which were fur-ther analyzed, are listed in Table 3. In terms of date ofentry, many of the sample firms entered the sector be-tween 1985 and 1990. Among the seven companies,Osiris is the only privately held company, possibly be-cause it is also the youngest in terms of age.

In terms of tissue-engineering patents, Advanced Tis-sue Sciences is the clear leader (35 patents) followed byStemCells (Cytotherapeutics) (28 patents) and Organo-genesis (20 patents). Osiris (17 patents) and Atrix Labo-ratories (16 patents) fall in the middle band, while Inte-gra Life Sciences and Lifecell are at the low end of thespectrum.

In terms of total alliance formation (number of al-liances of all kinds), Advanced Tissue Sciences andOrganogenesis are quite comparable, while most othercompanies have been far less active in forming partner-ships. We will, however, bring out a key distinction be-tween the alliances formed by these companies in the fol-lowing discussion.

At a finer level of analysis, we divided the alliancesinto two categories. The first category included thosewhere there was an inflow of technical knowledge. Thesemight include inward licensing arrangements, joint R&Dprojects, and so on. The second category included


alliances where there was no direct flow of technicalknowledge. These included outward licensing arrange-ments, funding alliances, and marketing and distributionagreements, among others. Hypothesis 2 predicted thatthe first category of alliances would have a more signif-icant impact on patent count than the second category ofalliances. Again, we observe some support for hypothe-sis. Though Advanced Tissues Sciences and Organogen-esis have similar levels of alliance formation, AdvancedTissue has been involved in many more (eight versus fouror less for any of the other firm) technology acquisitionand learning alliances and hence exhibits a higher patentcount. On the other hand, Organogenesis has been in-volved in several outward-licensing arrangements, whichmight have led to greater financial viability and productdistribution but not to increased patent count. In fact, itwas involved in only two technology acquisition or learn-ing alliances, exactly identical to Osiris, which againmight explain the similar levels of patent filing for thesetwo firms. Thus, the critical variable seems to be the num-ber of technology and learning alliances rather than theaggregate number of alliances. It is also apparent fromTable 2 (columns 4 and 6) that there is a close corre-spondence between samples firm rank in the formationof learning alliances and the number of tissue-engineer-ing patents. However, it needs to be noticed that Osirishas a number of products in clinical trials (but none iscommercialized, yet).

From Table 4, there appears to be a lagged effect ofalliances on patent filing. For instance, the impact of the

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TABLE 3. PROFILE OF SELECTED TISSUE-ENGINEERING COMPANIESa

Debt/ TEequity patent Total Learning Alliance

Company Revenuesb Profitsb ratio Cash Patentsc rank alliances alliances rank

Advanced Tissue Sciences 29.500 (12.2) 0.20 12.8 35 1 14 8 1http.//www.advancedtissue.com/ (35)

Organogenesis 11.300 (24.2) N/A 10.4 123 3 13 2 3http.//www.organogenesis.com/ (20)

Osiris Therapeutics N/A N/A N/A N/A 17 4 3 2 3http.//www.osiristx.com (17)

Atrix Laboratories 19.800 (18.7) 0.10 135.10 40 5 1 0 7http.//www.atrixlabs.com (16)

Integra Life Sciences 101.200 21.40 0.10 101.70 5 6 1 1 5http.//www.integra-ls.com (5)

Lifecell 29.600 2.49 0.10 5.17 7 7 4 1 5www.lifecell.com (3)

StemCells (Cytotherapeutics) 0.641 (10.4) 0.35 7.78 28 2 7 4 2http.//www.stemcellsinc.com (28)

aSources for financial infomation: www.yahoo.com and individual company homepages as listed above.bRevenues and profits are for the most recent 12 months (figures obtained on November 1, 2002) in US$ millions. Figures in

parentheses indicate loses.cFigures without parentheses indicate the total number of patents obtained by the firm. Figures inside parentheses indicate the

patents obtained in the tissue-engineering sector.

technology acquisition or learning alliances formed byAdvanced Tissues Sciences between 1992 and 1994 isapparent (in terms of increased patent counts) in 1995and subsequent years. A similar pattern can be observedwith StemCells (Cytotherapeutics), where the lag appearsto be 2–3 years. Organogenesis seems to be benefiting in1998 and 1999 from an alliance formed in 1996.

The lag effect is quite consistent with expectationssince the absorption of new knowledge as well as capi-talizing on it would need time. In addition, there is a lagin filing for patent and obtaining approval.


DISCUSSION AND CONCLUSIONS

In summary, we find some support for both hypothe-ses. External linkages appear to spur invention. Tech-nology acquisition or learning alliances seem to have agreater and more direct impact on the inventive outputof firms. There seems to be a lag effect of alliances oninvention—that is, alliances lead to greater invention onlya few yeas after their formation.

Though this article discussed the alliances as determi-nants of invention in some detail, we did not intend to

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TABLE 4. PATTERNS OF ALLIANCE FORMATION AND PATENT FILING FOR SELECTED TISSUE-ENGINEERING COMPANIES

1987–1989 1990–1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Total

AdvancedTissueSciencesPatents 0 0 1 0 3 9 2 9 6 4 1 35Alliances (1) 0 3 0 2 0 0 2 1 0 0 0 8Alliances (2) 0 0 2 0 1 0 0 0 1 1 0 5Total alliances 0 3 2 2 1 0 2 1 1 1 0 13

OrganogenesisPatents 1 0 1 1 2 2 1 4 4 0 2 18Alliances (1) 1 0 0 0 0 1 0 0 0 0 0 2Alliances (2) 7 0 0 1 1 1 0 1 0 0 0 11Total alliances 8 0 0 1 1 2 0 1 0 0 0 13

OsirisTherapeuticsPatents 0 0 0 0 0 1 1 3 3 4 2 14Alliances (1) 0 0 0 0 1 1 0 0 0 0 0 2Alliances (2) 0 0 0 0 0 1 0 0 0 0 0 1Total alliances 0 0 0 0 1 2 0 0 0 0 0 3

AtrixLaboratoriesPatents 0 0 0 2 0 1 3 5 2 1 2 16Alliances (1) 0 0 0 0 0 0 0 0 0 0 0 0Alliances (2) 0 0 0 0 0 1 0 0 0 0 0 1Total alliances 0 0 0 0 0 1 0 0 0 0 0 1

Integra LifeSciencesPatents 0 0 0 0 0 1 1 2 0 0 0 4Alliances (1) 0 0 0 0 1 0 0 0 0 0 0 1Alliances (2) 0 0 0 0 0 0 0 0 0 0 0 0Total alliances 0 0 0 0 1 0 0 0 0 0 0 1

LifecellPatents 0 0 0 2 0 0 0 0 0 0 1 3Alliances (1) 0 0 0 1 0 0 0 0 0 0 0 1Alliances (2) 0 0 0 0 0 1 1 0 1 0 0 3Total alliances 0 0 0 1 0 1 1 0 1 0 0 4

StemCellsPatents 0 0 0 0 0 2 5 14 5 2 0 28Alliances (1) 0 1 1 0 1 0 1 0 0 0 0 4Alliances (2) 0 1 1 0 1 0 0 0 0 0 3Total alliances 0 2 3 0 2 0 0 0 0 0 7

imply that invention alone leads to business success. Ad-vanced Tissue Sciences, one of leading companies interms of number of patents, recently filed for bankruptcyprotection (Advanced Tissue Sciences files for Chapter11, www.yahoo.com, October 10, 2002). To convertpatents into revenue and profit streams, tissue-engineer-ing companies need to forge other kinds of alliances, suchas marketing and distribution agreements, that might helpfirms realize the potential of their inventions. In fact, ac-cording to a leading European tissue-engineering com-pany, “the path to global marketing is being paved bymeans of ingenious alliances” (Biovision TechnologiesAG, Annual Report, 2001).

Another critical issue for business success, or evensurvival, seems to be the acquisition, and prudent man-agement, of financial resources. From Table 3, it is ap-parent that many tissue-engineering firms have lowlevels of debt—a sign of conservative financial poli-cies. However, many of these firms have minisculerevenues and several have incurred steep losses dur-ing the previous 12 months. There might be two pos-sible reasons for the high levels of losses. First, theproducts of these firms may not be reaching the mar-ket in a timely fashion or not making a big impact onreaching the marketplace. Second, these firms mightlack the required critical mass, rendering them less ef-fective in the discovery process as well as in the com-mercialization process. Alliances as well as mergersand acquisitions could help solve these problems. InMarch 2000, Creative Biomolecules, Ontogeny, andReprogenesis merged to form Curis (Three BiotechCompanies to Merge, www.findarticles.com). Re-cently, two European firms, Isotis and Modex, merged.Their CEOs had the following comments regardingtheir merger:

Jacques Essinger, CEO of Modex, stated: Combin-ing IsoTis and Modex will create a market leaderwith an improved risk–reward profile. The new en-tity will have an internal development capability,and the resources to capitalize on opportunities thatmay otherwise be beyond the reach of each com-pany alone. We anticipate that there will be signif-icant consolidation in the biotech industry in theyears ahead, and this merged entity will be muchbetter prepared to capture further external growthopportunities as they arise.

Pieter Wolters, CFO and interim CEO of IsoTis,stated: Combining both companies will secure casheven further into the future as it creates consider-able scope for burn rate reduction. We will have thefinancial resources to both fund the transition froman R&D focused enterprise to a product focusedcompany, as well as to finance external growth. To-gether with its strong pipeline of second generation


products this will make the combination one of themajor players in the industry.

Conversations with leading CEOs from the tissue-en-gineering industry (our unpublished data) unearth otherlessons for success besides alliances, invention, andmergers and acquisitions. When investors can’t quantifya company’s value, the proxy they use to gauge prospectsis company leadership and number of products in the mar-ket place or status quo of clinical trials.

From a marketing/sales point of view it is a conditionsine qua non to justify the use of tissue-engineered prod-ucts based on several important cost-related generalhealth care issues—does the inevitable initially highercost associated with a tissue-engineered product, whencompared on a unit price basis with conventional ther-apy, translate into more clinically predictable or fasterhealing rates as well as improved overall cost effective-ness? In performing such calculations over the entiretreatment period, it is important to consider indirecthealth care costs, such as duration of hospitalization,nursing time, and complications after treatment, im-provement of patient’s quality of life, and duration med-ical leave.

In summary, even though research and developmentscosts are enormous, and it would seem prudent to devoteresources to only one or two highly promising products,the uncertain nature of competition (stem cells, new scaf-fold technologies, etc.) makes it important to keep the in-vention pipeline full. While alliances can potentially leadto significant benefits, they are not without risks. Differ-ences among partners might lead to slower decision-mak-ing, resulting in lost opportunities. Self-seeking partnersmight imbibe the knowledge of their partners withoutcontributing anything to the relationship.

This article is a report of ongoing research work onthe issues of invention and business performance in thetissue-engineering sector. While this article has providedsome initial results, much remains to be done. In the nextphase of research, we intend to broaden the sample to in-clude more firms, incorporate wider measures of busi-ness performance (e.g., survival, sales growth, prof-itability) and also include variables such as age of thecompany, and financial resources raised from the market(including public offerings as well as private placements).

One limitation of the present study is that it focusessolely on patents as a measure of inventive output. Whilethey have their limitations (not all patents lead to usefulnew products), patents are objective and unbiased indi-cators. Since they are approved by a regulatory author-ity (government), patents meet the test of newness—thatis, they are substantially different from anything that ex-ists currently. Other performance measures might includeprofitability and sales growth. As noted earlier, however,many tissue-engineering firms are small in size and loss-

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making, rendering the above measures somewhat lessfunctional at this point of time.

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Address reprint requests to:Dietmar W. Hutmacher, Ph.D., M.B.A.

National University of Singapore10 Kent Ridge Crescent

Singapore 119260

E-mail: [email protected]

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