The Pharmacia story of entrepreneurship and as a creative technical university1

1. This paper draws directly on a larger study of the Lake Mälar regional economy in Eliasson (2005a) and Eliasson, G. and Eliasson, Å. (2002a,b). It was originally prepared for the ISA session at the conference Förändringens Vindar och Vanans Makt, Piteå, Sweden, 18–20 August 2004. Revised versions have been presented at seminars at ERMES, Paris Universite II – Pantheon-Assass, on 17 January 2006, at the Ratio Institute, Stockholm, on 29 March 2006 and at MERIT, Maastricht on 2 May 2006.

– an experiment in innovation, organizational break up and industrial renaissance

Abstract

While innovative technology supply has been the focus of much neo-Schumpeterian modelling, few have addressed the critical and more resource-demanding commercializing of the same technologies. The result may have been a growth policy focused on the wrong problem. Using Competence Bloc Theory and a firm-based macro to macro approach we abandon the assumed linear relation between technology change and economic growth of such models, and demonstrate that lack of local commercialization competences is likely to block growth even though innovative technology supplies are abundant.

The break up, reorganization and part withdrawal of Pharmacia from the local Uppsala (in Sweden) economy after a series of international mergers illustrate this. Pharmacia has ‘released’ a wealth of technologies in local markets. Local commercialization competence, notably industrially competent financing has, however, not been sufficient to fill in through indigenous entrepreneurship the vacuum left by Pharmacia. Only thanks to foreign investors, attracted by Pharmacia technologies that have opted to stay for the long term, the local Uppsala economy seems to be heading for a successful future.

The Pharmacia case also demonstrates the role of advanced firms as ‘technical universities’ and the nature of an experimentally organized economy (EOE) in which business mistakes are a natural learning cost for economic development.

Keywords:

• Competence Bloc Theory; commercialization of innovations; experimentally-organized economy
• innovation and entrepreneurship
• pharmaceutical industry

Acknowledgements

The authors are very grateful for a number of useful comments from Gerard Ballot, Niclas Berggren, Andreas Bergh, Robin Cowan, Gissur Erlingsen, Dan Johansson, Nils Karlson, Henrik Lindberg, Pierre Mohnen and Luc Soete. Many thanks also go to the large number of people interviewed in Swedish firms. Without their contributions this study would not have been possible.

Notes

Notes

1. This paper draws directly on a larger study of the Lake Mälar regional economy in Eliasson (2005a) and Eliasson, G. and Eliasson, Å. (2002a,b). It was originally prepared for the ISA session at the conference Förändringens Vindar och Vanans Makt, Piteå, Sweden, 18–20 August 2004. Revised versions have been presented at seminars at ERMES, Paris Universite II – Pantheon-Assass, on 17 January 2006, at the Ratio Institute, Stockholm, on 29 March 2006 and at MERIT, Maastricht on 2 May 2006.

2. For more on this theory and the interviews see Eliasson (1987a, 1991a, 1992, 2005a,b) and Eliasson, G. and Eliasson, Å. (1996, 2005).

3. The reasoning can be illustrated using a Salter (1960) curve. See Eliasson (1996a: 44–45). This is also the way growth is endogenized in the Swedish micro-to-macro model (Eliasson 1991a, b). It is particularly important to observe that innovative entry subjects incumbent firms to competition and forces them to respond. Their response in the form of innovative reorganization or desperate rationalization may mean both expansion and contraction depending upon incentives embedded in the institutions of the economy and the individual competence capital of firms.

4. Innovation is a technological concept to which the entrepreneur (see below) adds the economic dimension. Even though the two actors often are integrated in the same individual or firm, they represent principally different competencies. Theoretically you have to keep them apart. We therefore treat the supply of new technologies and innovation supply as synonyms. This is von Mises's (1949) definition. The competence of the entrepreneur is to be able to successfully choose the potential winners from a broad supply of technologically-defined competing innovations. Also the technological ability to create new technological solutions (innovations) and the economic competence to choose the profitable winners do not easily combine in the same individual or firm department. Large firms in fact often keep the two functions organizationally separated (Eliasson 1976, 1996a).

5. Carlsson (1995, 1997) has modelled that innovation supply under the name technological systems. It is, however, difficult to keep a clear distinction between the physical and the intellectual dimensions of the economic system. Technology supply is often thought of in physical engineering terms even though this is a misconception. Similarly the competence bloc which governs an entirely intellectual innovation and commercialization process should not be confused with Erik Dahmen's (1950) development bloc. The development bloc deals with the physical productivity improvements achievable within a production and distribution system undergoing expansion and reorganization.

6. A venture capitalist in the competence bloc is defined as a provider of finance embodied with such industrial competence. The venture capitalists so defined also contribute managerial, financing and marketing competence through their network, but this comes after the ‘understanding’. Such services are normally available in the market and, consequently, are less critical; see Eliasson, G. and Eliasson, Å. (1996) and Eliasson (1997b, 2002b).

7. Which is typical of non-linear economic systems (Eliasson 1977, 1991a, Day 2004).

8. This, for instance, is the procedure in the highly non-linear Swedish micro-to-macro model, which has no external equilibrium, but in which actors are still guided by more or less reliable price signals in markets towards some approximate, but constantly moving focus, the location of which depends on the ongoing search (Eliasson 1991a).

9. This section draws directly on a large number of interviews that the two authors have carried out together, or individually over several years that have been documented in Eliasson, G. and Eliasson, Å. (1996, 1997, 2005) and Eliasson (2001c, 2005a: ch.V).

10. The natural substance has been taken over by another Pharmacia spin-off Bohusbiotech (DI 29 July 2003).

11. Later renamed Personal Chemistry. Personal Chemistry merged with PyroSequencing in 2003, the new company acquired US Biotage in late 2003 and took the name Biotage (DI 5 Jan. 2004).

12. Refacto had been developed at Pharmacia using DNA technology. This technology eliminates the risk for transfer of viruses associated with traditional blood substitutes for haemophilia extracted from human blood. A ‘golden egg’ lost cries Dagens Industri (24 Aug. 1999).

13. With a very small Swedish contribution.

14. Xalatan for eyes, Netrusitol for incontinence and Fragmin for blood clots.

15. GE Healthcare in fact acquired Biacore in June 2006 (DI June 2006).

16. Cf. GE Healthcare that announces that personalized medicine is its business focus (Sv.D. Special Section on Biotech, 13 May 2004).

17. A comparison can here be made between the very slow commercialization of the Swedish so-called Brånemark technology and the very rapid commercialization of a similar US technology, 3 instead of 17 years (Fridh 2002).