Green Hills Biotechnology, Austria: Business creation and entrepreneurship
Green Hills Biotechnology, a Viennese biopharmaceutical research company with 30 employees, decided to cease development of one of its product lines, as it did not fit into the company’s strategic portfolio. Instead, Green Hills Biotechnology and a group of experienced professionals co-founded the new company Onepharm in 2005, which is now continuing the development of these products. Onepharm is 60% owned by management and currently employs six people; by 2010, the size of its workforce is expected to increase to between 30 and 40 employees.
Green Hills Biotechnology (GHB) is a biopharmaceutical research company, located in Austria’s capital city of Vienna. Founded in 2001, the company is a spin-off of an initiative launched by the Medical University of Vienna. Research at GHB is focused on virology and biotechnology, aimed at the treatment of a wide range of diseases, such as influenza vaccines. GHB is funded through private risk capital and grants obtained from international and national authorities. Although the company has not released any products on the market thus far, results of its research are gaining momentum as the company draws closer to market roll-out. The latter refers to a process whereby patents are sold on to larger companies and where venture investments pay off – a practice which is very common in the biotechnology sector. An estimated 50% of biotechnology and pharmaceutical research is accomplished within such small research institutes, which are often financed by venture capital.
GHB currently employs 30 people, 60% of whom are women. One fifth of the workforce is of non-Austrian descent. The majority of the employees are university graduates and 20% of the workforce comprises highly-skilled workers. A quarter of the staff is employed on fixed-term contracts, and the remainder on permanent contracts. The age profile of the employees ranges from 23 to 46 years. No works council is present in the company, and the union density rate among the workforce is unknown.
Description of the initiative
Broadly speaking, the biotechnology sector can be divided into two main kinds of research and processes: biological and chemical processes. Each of these processes requires a different type of expertise, infrastructure and management of research.
GHB specialises in biological products and processes. However, as unexpected discoveries are not uncommon in research, the company inadvertently began developing two products that are processed chemically and which therefore did not fit into GHB’s overall strategy. As these products required a different type of infrastructure and expertise, the continuing development of the two chemical products in question, along with the main biological product line, was considered inefficient and too costly. Nevertheless, an estimated €1 million had been invested in these two products and they were considered promising.
In the end, the GHB partners decided to cease development of the chemical product line at GHB, and to continue its advancement within a new company called Onepharm. GHB succeeded in assigning three industry professionals with experience ranging between 15 and 30 years as co-founders, two of whom are now part of Onepharm’s management. One of these professionals was previously a top manager of a pharmaceutical production enterprise in Switzerland and is now Onepharm’s chief executive officer (CEO); the other was formerly a senior level executive and professor at the University of Applied Life Sciences in Vienna and is now Onepharm’s chief operating officer (COO) and a professor at the University of Technology in Vienna.
The preparation process for the new spin-off company took six months in total. The main actors involved in this process were the executive managers of GHB, the senior researcher in charge of chemical products and the now CEO of Onepharm, Bernhard Küenburg. The preparation phase mainly included the elaboration of a business plan and the setting up of financial means. GHB was able to lend its knowledge and experience of the local funding scene, along with its contacts. An experienced US investment banker was also consulted in relation to legal, financial and administrative issues.
Onepharm launched its operations in September 2005. The initial funding for Onepharm was provided for by two credit programmes of the Austrian Economy Service. Six months later, Onepharm was awarded a €2.7 million grant in funding from the Vienna Business Agency’s Centre for Innovation and Technology, as part of a collaboration with the University of Natural Resources and Applied Life Sciences and the Vienna University of Technology. Additional financing is also expected in the form of venture capital, which Onepharm has not yet secured. Onepharm is owned by Onepharm Beteiligungs GmbH, whose partners are Onepharm’s executive management, with a 60% holding, and GHB, with a 40% holding. However, GHB is not involved in the operational business of the company and only holds a rather formal right of veto in relation to a small set of specific decisions.
No GHB employees were taken over by Onepharm in the course of its establishment; rather, the company has built up its workforce from scratch. The enterprise currently employs six people on permanent contracts and four consultants on fixed-term contracts. Within the next five years, the size of its workforce is expected to expand to between 30 and 40 employees.
GHB has transferred all of the relevant patents to Onepharm, so that the latter will be able to act independently from GHB. The senior researcher in charge of chemical products is still employed by GHB and maintains close contact with Onepharm, spending a significant amount of time each week providing consultancy services.
In addition, GHB has supported the Onepharm enterprise in several ways. Before the operational start, GHB paid a salary to Dr Küenburg, who was involved in the preparation process and the company also pre-financed consultancy. Moreover, office space was provided for in the initial months before Onepharm organised its own office space. GHB also provided the technical and administrative infrastructure, including the information technology (IT), phones, secretary, and graphics services, free of charge; indeed, the technical infrastructure is still jointly used by Onepharm and GHB.
The decision to establish Onepharm was not a defensive measure taken in the course of a restructuring process, but rather an offensive strategy geared towards business creation by a local small-to-medium sized enterprise (SME). The success of the initiative was highly dependent on the involvement of persons like the founders, whose long experience, high skills, in-depth knowledge of the industry and willingness to join the Onepharm start-up are considered key factors. Other crucial complementary factors were GHB’s knowledge and experience of the local funding market, as well as the local scene in general. The company’s establishment was accomplished in a cooperative manner between GHB and the now executive managers. Despite GHB’s 40% ownership of the company, GHB sees Onepharm as being totally independent in terms of its management. This is further reflected in the transfer of all relevant patents to Onepharm.
The collaboration with local universities plays an important role at Onepharm. Two of the management members are professors at Viennese universities. The high proximity to academic research allows for the successful outsourcing of certain stages of the development process. It also plays a crucial financial role and was the key factor in the company being awarded a €2.7 million grant in March 2006.
Another critical success factor for the establishment of Onepharm was its location in Vienna. Austria’s capital city has one of the largest funding volume for biotechnology companies in the EU, thus attracting major players in the industry. As a result, a large local pool of expertise is available in the area, including highly skilled and experienced employees who are available to Onepharm through ongoing dynamics in the biotechnology cluster. In addition to hosting the major players in the industry, Vienna has around 20 smaller biotechnology research agencies, which are said to make up a dynamic scene. Informal exchange is still relatively easy between these companies, as each knows the other.
Exemplary and contextual factors
As outlined, the Onepharm start-up constituted part of a dynamic business creation approach. Its establishment relied heavily on specific persons, their human capital and also their financial resources, which allowed them to take on the entrepreneurial challenge. Another key factor was the company’s location in the city of Vienna, which is the home of the country’s major pharmaceutical companies and small research institutes. This has ensured that the company has high quality human capital and favourable networking opportunities at its disposal.
Manfred Krenn, FORBA, Vienna