The knowledge that nothing grows forever confronts every business. The best products, markets and models go through a cycle of growth and maturity. At some point diminishing returns set in as the marketplace evolves, price competition emerges, and the current product/service loses its lustre. In any industry based on pure research and development, such as pharma, this all has an extra intensity. The scale of investment required for drug development puts an all-consuming focus on how and where to innovate.
This has always been the case for big pharma but as the industry changes, opening up ever wider to partnering with small and medium sized companies, the innovation baton is getting passed along the line. Discovering drugs is increasingly distinct from developing and commercialising them. Smaller companies are focused on the early stage work, with larger companies buying-in promising innovation.
If you are a company that’s already established, the demand this tends to impose is that you have to become ambidextrous. On the one hand, you are focused on executing and efficiencies. How do you get better at what you are already doing and growing that element? On the other you’ve got to innovate. Any CEO worth his or her salt is going to worry about having a Kodak or a Blockbuster moment. The former pioneered the digital camera but did nothing with it. The latter was interested in streaming (and had a chance to buy the embryonic Netflix) but backed the wrong horse by investing heavily in a retail network. We all know how that ended.
The innovation challenge is a priority for anyone with a stake in developing the science and technology sector. The Alderley Park Accelerator, for example, has worked with a variety of companies all broadly wrestling with the same issue: ‘We’ve got an idea for a new business, can you help us with the viability?’ There is a whole piece of work here about validating the proposition before ‘building’ it.
Missing this step is a common failing. For all that, innovation strategy is de rigueur at boardroom level, finding a place alongside commercial, marketing and HR as areas that require big picture intervention. That means setting goals, determining actions to achieve them, and mobilising resources to get everyone there.
Gary Pisano, a professor at the Harvard Business School and author of Creative Construction: The DNA of Sustained Innovation argues that there are four different types on innovation strategy – and the one to pursue depends on the specific needs of your organisation. ‘Routine’ innovation builds on a company’s existing technological competences and fits with its existing business model and customer base.
‘Disruptive’ innovation sees a product or service take root in simple applications at the bottom of a market and then relentlessly move up, eventually displacing established competitors. It challenges the business models employed by others. Google’s Android mobile operating system is one example – free of charge in a market where Apple and Microsoft demand a fee.
‘Radical innovation’, meanwhile, is purely scientific and technological. Biopharmaceutical drugs were radical innovations when they came along in the 1970s because they used a completely different approach - biotechnology as opposed to chemical synthesis.
Finally, we have ‘architectural’ innovation. It’s the hardest to deliver as it has the disruption element of challenging existing business models along with a radical scientific/technological breakthrough.
One of the boldest examples in pharma is Celgene, a company spun off from its parent in 1986. The newly independent firm at first focusing on bioremediation and biocatalysis, achieving revenues of $2.3 million in 1992. At that point, however, Celgene began transitioning to a very different business. It acquired the rights to thalidomide and explored commercialising the drug for different therapeutic applications. By 1998, Celgene obtained FDA approval for its use in the treatment of leprosy. That year Celgene reported sales of $3.3 million. Within two years the sales had grown to $62 million. The company continued to innovate in other therapeutic areas, progressing to become one of the world’s leading biopharmaceutical companies.
All strategies exist in a context where open innovation has become one of the most talked about concepts of our time. The originator of the phrase is Henry Chesbrough, a former Silicon Valley entrepreneur who now teaches at the University of California Berkeley’s Haas Business School. In his book Open Innovation: The New Imperative for Creating and Profiting from Technology, he set out the case that organisations can no longer rely on an internal R&D alone to be competitive. They need to look beyond a long held faith that investing more than others in R&D while attracting and retaining the smartest employees will deliver the required outcomes. The rise of the mobile knowledge worker has, he argued, made it increasingly difficult for organisations to find and keep the best people. Rapid changes in technology and the increasing availability of venture capital and angel investors now mean that if an employee has a good idea, he or she can rapidly capitalise on that idea as an entrepreneur.
So open innovation seeks to bring in and develop ideas from outside the organisation, and go beyond internal channels to commercialise ideas. Operating in this way involves establishing external networks and relationships in the belief that mutual benefits can accrue. It means reaching out to industry, academia and government partnerships, upping the scope for the generation of novel approaches, and reducing the investment required to develop ideas.
There are implementation challenges with open innovation. Understanding the legal requirements and developing a proper framework for distribution (internally and externally) of intellectual property when doing research with external partners is key. Cultural adoption is another goal. NIH Syndrome (Not Invented Here) is a fact of life in organisations large and small. No doubt articulating the strategy, the definition of innovation, and how everyone can contribute, as well as executing a proper change management program will mitigate this issue.
How does co-innovation or co-creation fit in to all of this? The terms are sometimes loosely defined and treated as interchangeable with open innovation. It’s really a matter of boundaries - how and where you cast the net. One way of breaking down the language is that co-innovation is more of an internal process and, for example, uses easily accessible internal platforms so that everyone with permission could share ideas, comment on them, and address challenges or opportunities. The boundary is that it’s limited to the stakeholders – including, for instance, the venture capital backing the business. Open innovation is much broader. It seeks to power up the ability to work with a broad ecosystem of partners and its customers to harvest the best ideas and to provide the appropriate tangible and intangible assets from all collaborators.
Eli Lilly is an example of one of the major players to explore this area. It has an Open Innovation Drug Discovery (OIDD) platform, where it shares proprietary data with researchers looking to test their own compounds. According to Lilly, over 360 universities, research institutes and small biotechs, representing 34 countries, are now affiliated with the programme.
Open innovation imposes other challenges. People connectivity is the first step – the chance to meet, network and exchange ideas. It doesn’t happen by itself and it’s become the role of organisations around the world like Bruntwood SciTech to facilitate the culture where people and organisations do not function in a vacuum. This is an approach that goes wider and deeper than any one company or location; it’s about understanding the discovery process today and acknowledging what it takes to produce cutting edge work.