The Regulatory Environment

Public policy significantly affects the entrepreneurial biotechnology firm and its ability to innovate.

Few industries are so affected by the four external environmental factors as biotechnology. These are socio-cultural factors with regard to ethics, which link in strongly with political/legal factors such as regulation. These are mixed with the perceived economic potential of the industry (as yet unfulfilled) and are all being driven by the push factor of technology, which has created the impetus behind the progress of biotechnology in the last 30 years.

The regulation of biotechnology faces challenges as the biotechnology firm is expected to work on a global basis, whereas regulatory standards are often nationally based. This has been recognized by the OECD, who have established various working parties and attempted to encourage the development of internationally agreed protocols:

The Working Group is also focusing on outreach activities, particularly through its information exchange mechanism, BioTrack Online. This mechanism includes information on regulatory developments in OECD Member countries, including details of laws, regulations and the contact points of the responsible ministries and agencies. It also has a database of field trials in OECD Member countries, as well as a database of products that have been commercialized. (OECD 2000, p. 8)

However regulation need not necessarily be a constraint on the biotech firm if it provides a clear and consistent environment in which to operate and highlights best practice standards that the biotech firm can use to promote itself to other regions. The UK, for example has recognized the importance of clear standards for biotechnology as a guide to firms, a means of encouraging development of critical mass but also the wider community, as indicated by the BioSafety Protocol developed in the late 1990s:

The adoption of the Biosafety Protocol to the Convention on Biological Diversity in January 2000 is intended to lay the foundation for a global system for assessing the impact of genetically engineered organisms on biodiversity, and exchanging information through a Biosafety Clearing House. It also contains provisions to encourage capacity building in developing the environmental assessment of genetically engineered organisms. This experience shows that interactions between intergovernmental organizations and sharing of technical documents and expertise will avoid duplication of efforts and facilitate understanding of risk/safety assessment of products of biotechnology. (OECD 2000, p. 6)

Nevertheless, national regulation varies in its strictness which may severely constrict a firms' ability to operate. In some cases where a federated system operates, such as the US and Australia, complexity may be added by different regulation at state and national level. The recent example concerning restriction of stem cell availability in the USA but subsequent opening of these standards at state level, by California, for instance, provides such an example. In contrast, the Swiss people have recently endorsed stem cell research in a national referendum that saw support for such research from 66 per cent of the population - the first time that such a decision has been put to a national vote (BBC News, 2004). Other regions and states, for example Singapore, have deliberately relaxed regulation to attract new firms and researchers in the areas in an attempt to build critical mass of expertise and achieve global competitive advantage.

In the UK, the regulatory framework attempts to maintain a compromise between vigilance and loose control.

While we agree that regulation should set clear, ethical limits beyond which researchers should not be allowed to go, public opinion in the UK seems broadly content with the difficult ethical balance struck in the regime here. We would therefore oppose any attempt to tighten regulation here. We are aware that the Government takes the same view, but we wish to underline the importance of continuing vigilance; the regulatory environment for biotechnology research in the UK is a real source of advantage and must not be undermined by developments at the European level. (House of Commons 2002-2003, column 14)

The key issue in regulation is achieving the correct balance of risk management, as summarized by Livingstone with respect to the Australian situation, 'Our challenge, therefore, particularly in the biotech area, is to devise sustainable risk management strategies, which will enable innovation to proceed, with appropriate precaution and regulation, and without alienating the broader population' (Livingstone 2002, p. 6, emphasis in original).

To the new biotech firm, understanding and negotiating the various regulatory requirements can be difficult and require significant expertise. Frequently more than one body or organization assumes responsibility for a single sector. As an example, key regulatory bodies in the USA, Canada and Australia by industry sector are given in Table 9.1.

In the UK, a range of strategic advisory bodies have been established to provide advice to the government relating to issues such as food safety and standards. These include the FSA, and the Human Genetics Commission, which works closely with the Department of Health. Applications for plant variety rights are handled through the European Community Plant Variety Office, while environmental remediation is covered by the Cartagena Protocol, the protocol on biosafety to the UN Convention on Biological Diversity (Secretariat of the Convention on Biological Diversity, 2005).

Governments are under increased pressure to consider more the food itself rather than the peripherals (packaging, residues, contaminants, labelling and processing methods). Significant efforts have been made to develop internationally agreed standards, especially by organizations such

Table 9.1 Key regulatory bodies for the US, Canadian, and Australian biotechnology industries, by sector

Australia

Canada

US Agency

Human health

Office of the Gene

Health Canada

Federal Drug

and medical

Technology Regulator

Environment Canada

Administration

devices

(OGTR)

Transport Canada

(FDA) (Drug

National Occupational

Department of

testing and

Health and Safety

Foreign Affairs and

approval)

Commission (NOHSC)

International Trade

Therapeutic Goods

Human Resources

Administration (TGA)

Development

Canada

Agriculture

National Registration

Canadian Food

FDA (new foods

and crop bio-

Authority (NRA)

Inspection Agency

and ingredients,

technology

Australia New Zealand

Health Canada

safety and quality

Food Authority

Environment Canada

monitoring

(ANZFA)

Transport Canada

standards,

Australia New Zealand

Department of

labelling)

Food Standards

Foreign Affairs and

USDA (new crop

Council (ANZFSC)

International Trade

and variety

Human Resources

controlled field

Development

trials)

Canada

EPA (food

residue tolerance

levels, new food

testing protocols)

USDA and

EPA (safety

requirements

and standards

for pesticides,

herbicides and

genetically

enhanced test

crops)

Environment

EPA

Environment Canada

EPA

Australian Quarantine

Health Canada

USDA

and Inspection

Transport Canada

Service (AQIS)

Department of

Foreign Affairs and

International Trade

Human Resources

Development

Canada

Source: BIO 2004; BRAVO Canada 2003, Australian Government 2004

Source: BIO 2004; BRAVO Canada 2003, Australian Government 2004

as the OECD, the joint food standards programme of the Food and Agriculture Organization and the World Health Organization, UNIDO, the International Organization for Epizootics; the Asia-Pacific Economic Cooperation (APEC) forum's Experts Group on Agricultural Technical Cooperation; the UN Environment Programme; and in the UN Biosafety Protocol. Discussion of genetically modified organisms also takes place within the Codex Alimentarius Commission. Such international agreements and regulation is intended to avoid trade disputes and improve public and consumer confidence in food safety (OECD 2000).

Environmental protection for the international movement of living modified organisms (LMOs) is provided by the Cartagena Protocol on Biosafety (2000). Cartegena was the first Protocol to the Convention on Biological Diversity (1992), and is the only international instrument dealing exclusively with LMOs. The Cartagena Protocol established a global mechanism for decision-making on imports and exports of LMOs, and provided a multilateral framework to assist decision-making and reduce risk for importing countries.

The most important regulatory issues affecting a health biotech firm are those relating to drug testing and approval. The lengthy process demanded has a significant impact on the ability of a firm to get its product onto the market, and is fraught with risk and high chance of failure. 'One-product' firms are especially vulnerable to collapse where the testing process fails, or may be subject to extreme share price swings if less than positive results arise from any stage of clinical trials. The long and complex process required by FDA is highlighted in Figure 9.1.

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