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Deloitte's Life Sciences & Health Care Blog

Open innovation: The new frontier for biopharma?

Recently I was chatting with some senior executives from a big pharma company and comparing notes about the potential of open innovation (OI) to impact biopharma.

Their view? The critical breakthroughs that have historically originated in their own laboratories are not going to come from there in the future. More likely, they will result from a sharing arrangement with other commercial and academic partners.

The concept of OI isn’t brand new, and it’s been growing across other industries. But in life sciences, it has been slow to materialize. The innovation engine in biopharma over the years has fired on all cylinders, and for many, the risks of opening up the innovation process have outweighed the benefits.

But I believe that tide is turning. OI may well be the engine that generates the most powerful future research tools and effective product development and marketing strategies—and ultimately yields more medicines that have a dramatic impact on disease. As an external network of creative thinking, it can help unlock new therapies and treatments and increase speed to market while lowering costs.

The value of OI can be measured in a number of ways. One is through the vibrancy of the biopharma IPO pipeline, which produced 82 start-ups in 2014. These companies are discovering the drugs that many large biopharmas will eventually take to market. It’s fair to say that the openness to externally discovered and developed drugs was a key environmental factor that allowed many innovators to press ahead with their entrepreneurial vision.

At the same time, big experiments in OI are underway, and still more are coming. It’s an opportunity to learn from what other industries are doing successfully, and to get a better sense of how inclusive this exercise will be. What will it mean in terms of intellectual property, R&D, marketing of ideas and products and, ultimately, competing vigorously in the marketplace?

What is particularly fascinating is the diversity of OI models. Some are open on the input (who gets to contribute?) and some are open on the output (who gets to use?). Some are completely “no strings attached,” some are “first right of refusal,” and some are “guaranteed commercialization” for productive results. With any of these models, companies will need to measure the impact and value of investments in external innovation.

Even with all of the potential benefit, still, there are risks to consider. Who handles and secures intellectual property? How is it controlled, shared, and disseminated? This is a legitimate concern in an industry that traditionally has been proprietary and protective of its creations.

The question for many organizations is how to walk that fine line between access in an open environment and maintaining ownership of the result. Sharing data is a vital part of the OI process, but it still makes more than a few executives anxious.

A second point of discussion has been how partners from different segments of the health care universe – drug makers, innovation facilities, academic centers, other commercial enterprises – can coexist productively. Will competing management styles and differences in organizational culture undermine collaborative efforts?

When an organization sponsors external innovation and retains commercialization rights to the fruits of that collaboration where does that leave the entity responsible for the discovery? How do these organizations structure reversion rights should the sponsoring organization elect not to move forward? Are the discoverers considered “damaged goods” if the sponsor does not elect to commercialize? The emerging debate over contractual terms and marketing strategy will be one to watch.

It’s an exciting time for the biopharma industry. The current and near-future pace of OI experimentation will no doubt influence the industry’s next generation, leading them down intriguing paths. We don’t know which of these business models are going to work. But that’s part of the adventure.

For more on the open innovation, check out Executing an open innovation model: Cooperation is key to competition for biopharmaceutical companies


Author bio

Matthew Hudes is the BioPharma segment leader for Deloitte LLP’s Life Sciences practice. In this role, he provides guidance to the practice’s tax, audit & enterprise risk, consulting, and financial advisory services teams. With 20+ years of experience, Matthew provides strategic professional services to leading Biotechnology, Pharmaceutical, & Medical Technology companies, as well as Academic Research Centers. He works with leading Life Sciences innovation centers in the US and globally.