User:AAdekanye

From Information Systems at Pitt Business

  Executive Summary:

Across the board, Firms in the pharmaceutical industry have struggled with the speed at which drugs can be brought to market. Time is money, which means to appropriately serve and protect humanity pharmaceutical companies need to manage data, process information, analyze chemicals faster. The ability to rapidly serve humanity while maximizing profits or minimizing loss is critical. The prize for second place is reducing in a highly competitive oligopolistic market as humanity seeks faster ways to solve its medical problems. Hence the need to look outside for ways to enhance and improve innovation. This whitepaper seeks the answer the question: I want to implement open innovation- where should I start and what should I do? This whitepaper would be particularly relevant to CEO’s, CTO’s and most especially R&D managers and presidents as they are called in most pharmaceutical firms. Many firms would also ask the question Why Open innovation anyways; afterall we’ve sustained and maintained leadership using our closed innovation models while strictly containing our intellectual property. The simple answer is this Open innovation represents an opportunity to improve innovation capabilities and confront Business challenges of the future. The internet has changed the game here; the flow of information is faster, so it’s fair to say heavily guarded secrets might not be so for too long, one might think of the wikileaks situation if not thoroughly convinced. To many the Open Innovation means different things, for some it signifies a new way of working or an evolution on a way to do thing but one thing is clear it is important to develop a common language and tools to implement open innovation that can increase the successful commercialization if ideas. But in more general terms Open Innovation is a strategy by which companies allow a flow of knowledge across their boundaries as they look for ways to enhance their innovation capability. Company boundaries become permeable, enabling the matching and integration of resources between the company and external collaborators. In a closed approach to innovation, a company relies on external resources only. There are various perspectives on how to resolve or implement open innovation in the pharmaceutical industry, this whitepaper presents a unique perspective on the factors that make open innovation successful and how it can be incorporated into an organization.

Description of the Issue, context, Motivation: The issues surrounding Open innovation in the pharmaceutical industry is unprecedented ranging from Ownership of Intellectual property rights to even basic hardware components. This paper focuses on difficulties arising when implementing an Open Innovation model in a historically closed corporate culture as it is the case in most firms in the pharmaceutical industry until now of course. So most companies ask themselves how we implement open innovation. There are various approaches to Open Innovation but most don’t seem to understand the real issues are beyond the frameworks and models as they only make suggestions based on the past. The real issues are managerial and they must be well aligned with the Structure, Culture, Tasks and Resources available at the organization. Industry Trends To further understand the motivation behind these white paper lets put a perspective on some industry trends. The industry wide average time for researching and developing a drug from discovery to market place takes from 12 to 15 years. The length of this development cycle often left a drug with fewer than 5 years of patent protection at the time it entered the market. The average out of pocket cost for R&D ranged from $500million to $1.1B, for drugs like HIV it could go up to $2B. and the number of new molecular entities coming into the market was also reducing which was a concern for the firms in the industry as the FDA was approving less and less NME’s. A top pharmaceutical company was fortunate it managed to produce one or two blockbuster drugs with annual sales of over $1B, every few years in spite of spending billions on Research and Development. Yet estimates has shown that each of the top pharmaceutical companies needed between 2 to 5 blockbuster drugs per year to meet sales targets and satisfy investors. Moreover most drugs never recoup their development costs and only 10% of firm’s products ever achieve blockbuster status. Finally greater costs consciousness in worldwide markets puts tremendous pressure on pharmaceutical companies to get more value out of the R&D process. Furthermore, once a blockbuster drug lost patent protection, there were open to competition from generic versions of the same compounds which often had prices that were as little as 10% for equivalent branded products and public acceptance of generic substitutes has been growing steadily for example in 1995, penetration of generic drugs amounted to 43% of the market and it was 56% as at 2004. All of these pressures facing the industry is a motivation for open innovation, some of the firms in the industry have also made an attempt at consolidation on their own, one can point at examples such as the merger between Pfizer and Pharmacia and the merger between GlaxoWellcome and SmithKline. The R&D Process It’s obvious the R&D process is one of the most important areas that would be affected by the Open Innovation process, let’s have a quick run through of the R&D process. The first step in the drug discovery process was pre-discovery research in which scientists would try to understand the biology of a specific disease and then try to understand drug targets. Once a specific target was then identified scientists would then begin to look for the molecules that stood the best chance of hitting that target. In the earliest stages of this process drug companies might screen more than 1 million molecules before identifying a particular lead compound. Then they move into the next phase called Lead optimization, the lead is then evaluated and modified through animal testing to determine whether or not it should become a development track (DT) compound and go into the next stage of testing, the number of development track compounds represents less than 1% of the initially screened compounds. This initial stage of discovery research from exploratory to DT can take up to a decade but on average between 4 to 7 years. Following discovery a DT entered preclinical evaluation- typically for a period of about one year in these stage scientists usually tested the toxicology of the compounds and to see how the body absorbed it. About 60% of these would be deemed good enough to test on humans and at these stages the drug company would file an IND (investigational new drug) with the FDA. After FDA approval phase I used to evaluate safety could then begin. Phase 1 usually took about a year with estimated costs of about $15million. 70% of drugs tested in phase I usually made it to phase II. Phase II is testing the ability of the drug to fight the disease and also test dosage options usually lasted 2 years with a cost of about $30 million . Historically about 50% of the drugs that entered phase II would make it to Phase III. Where the drug is tested on a larger human population which roughly takes about 3 years with cost of about $100million. After phase III the drug was then submitted to the FDA for approval which took another 2-3 years before approval if any at all. 65% of drugs that make it to phase III get approval. Having understood the trends in the industry and the R&D process it is obvious some issues need to be addressed most importantly time wasted in the initial stages and also revenue spent in a declining economy. There comes to motivation for Open innovation, A few of the initial process that take many years can be easily outsourced in a partnership to reduce development time and cost while increasing innovation and keeping quality. Position/Perspective While so many academics have come up with different positions on how to implement open innovation in the pharm-industry I believe no one seeks to address the major issue which has plagued the industry for years and its simply what’s the motivation to go open that exceeds beyond being faster to market and making quicker profits. I believe this motivation has to be internal more than the external partnerships that most people would suggest. I believe an organization has to find a new way to incentivize its internal resources towards openness simply by tying each other’s faith to the process of being open. For example Scientists historically have worked in silos, in order to make them more collaborative, R&D presidents could devise an incentive system where collaboration with other scientists was rewarded, say no scientists got a bonus until the organization achieved 15 Development Track compounds in a year, this way all scientists would be incentivized to collaborate to help achieve a common goal in the development process. I believe in order to implement open innovation successfully; R&D managers have to think about these 4 major internal factors: Culture: Adopting Open Innovation would mean doing things differently which is not easy in most large organizations especially if it’s in direct contradiction to behavior that was allowed or endorsed in the past. Furthermore it could even be a shift from a previous source of competitive advantage like in most pharmaceutical companies. Changing the culture of the organization and enforcing a new way of doing things from the business side of the organization to the R&D side of the organization is highly critical. Also the buy in of top-management also has to be considered as it goes a long way in convincing the rest of the organization in what direction the organization needs to go. Motivation: As culture is an important element for supporting change, it’s interesting to consider what incentives can be put in place to encourage people to adopt open practices. Although companies in the industry that adopt or seek to adopt OI strategies understand the importance of tapping into external knowledge, there is no cultural and practical background which enables and motivates employees to be open. There are no formal ways of career progression for someone who is an OI operative. So its important to consider a way of moving the organization in the same direction by providing adequate motivation and incentives to reinforce the new culture of the organization. Procedures: Cross functional working within organizations would have to increase to successfully implement OI, Independent OI teams working within the traditional organization is usually the approach most organizations take but the problem is what would the team comprise of? Would it make the traditional R&D team’s rebellious hence reducing productivity? There should be a right balance between independence and integration which is not always as easy as it sounds. There are also other external factors to consider that make this a potential difficult issue for companies, for example how do companies in the industry deal with growth or Mergers and acquisitions which is very rampant in the industry at the moment, who gets paid for goodwill, who owns the intellectual property rights are factors to also consider. Skills and Resources: An organization cannot have a perfect blend of skills and resources to implement Open innovation. However lack of an appropriate skills blend is essential so as not to stifle the implementation, much training is essentially needed, especially for traditional scientists who do not usually work in collaboration. All of the above have to be in alignment to successfully implement open Innovation in any organization.

Recommendation Any organization willing to implement Open Innovation should do the following - Initiate a new way of working: o This typically entails making bold statements from the Top about the collaboration effort by clearly defining the drug discovery process to the whole organization to create transparency. Detailed documentation of each discovery phase should be distributed to both the business and technical side of the organization. - Clearly defined targets: o Firms in the industry should provide clearly defined targets and by targets I mean targets greater than they have originally been working the reason behind that is the logic that if firms are supposed to be Open requiring more resources from outside its important the organizations sets targets that push the limit of creativity of scientists because imploring the same targets with more help does not provide sufficient pressure to promote both internal collaboration and external collaboration - Incentives: o This is the most important of all recommendations for a drug company it’s important to create incentives for scientists that would usually work in silos to start collaboration. A good way to start would be to tie all incentives together from the business side to the organization and the R&D side: for example if a target of 15DT’s is set yearly then everyone knew they had to achieve this to get any compensation, this way there is incentive to collaborate as everyone’s skin is potentially in the game as your future is tied to mine. - Internal portfolio Management: o To drive towards better collaboration, Scientists and business people should be encouraged to be part of multiple teams. This way for example a scientist in both the pre-clinical team and cardiovascular team would know exactly what the other team would require from the clinical team that way there is no misunderstanding and wasted time as both teams know what is required to get a marketable drug out there. - External collaboration: o External collaborations are tremendously important but OI does not work well if the internal alignment is not in place. External collaborations must be targeted, for example A firm in the industry could work with Universities in the initial exploratory stage to reduce the amount of years it takes to get to the Development Track stage. This way the issue of intellectual property is mitigated. - Recognition measures: o R&D managers need to then set clear measures on how star performers would be recognized so as not discourage the star performers as their incentives are basically tied to that of others. There is no right or wrong answers for implementing Open Innovation but an R&D manager could use the above as a starting thought process towards achieving a successful model, if internal staff were encouraged to collaborate with a clear target and well defined incentives, it could help foster innovation better when the organization has to look outside its doors for Innovation. References Bob Ruffolo, “ Bob Ruffolo discusses the rhythm of drug development” Interview by Katherine E. Barnes, Drug Discovery Today 9, No 15(2004) : 632 Healthcare: Pharmaceuticals: Industry surverys: Standard and Poors Industry surveys: May 2006 via Netadvantage: http://www.netadvatage.standardandpoor.com. Phelps, Marshall, and David Kline. (2009). Burning the Ships: Intellectual Property and the Transformation of Microsoft. Hoboken, NJ: John Wiley and Sons, Inc. Rivette, Kevin G. and David Kline. (2000). Rembrandts in the Attic. Unlocking the Hidden Value of Patents. Boston: Harvard Business School Press. Gassman, O., Reepmeyer, G. and von Zedtwitz, M.(2008) Leading pharmaceutical Innovation, 2nd edition Berlin: Springer Oliver Gassman, Ellen Enkel and Henry Chesborough.(2010). The future of Open Innovation. Chesborough, H.W. (2003) Open Innovation: The new imperative for creating and profiting from Technology. Cambridge, MA: Harvard Business School publishing. Lindergaard, S .(2010) Open Innovation : The Side Effects .The Bloomberg Business Week Joel West and Scott Gallagher. (2006) Open Innovation: Challenges of Open innovation: the paradox of firm investment in Open-source software. Gene Slowinski and Matthew W. Sagal. (2010). Good Practices in open Innovation. Research Technology Management 0895-6308/10 – Industrial research institute. Gassman, o., Enkel , E. (2004) Towards a theory of Open innovation: three core process archetypes. 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