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What Open Innovation means for the Pharmaceutical industry

by blackhaj on Jul 03, 2012

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This was a presentation I did for a University assignment on Open Innovation. ...

This was a presentation I did for a University assignment on Open Innovation.

For any enquiries about it contact me @FinancialMuse
Or for the related article please visit http://graduatefinance.tumblr.com/

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Important Considerations:Aimed at CEOs of Pharmaceutical Firms so focus on high level implicationsThey already know about their business so focus not on how theirs business works but how Open Innovation (OI) is significant for itIntricacies not as important as the overall strategic importance - try to create a vision which they will wantMake it to the point - CEO's don't have time to spareFocus is primarily on external OI - although emphasise the benefit of internal innovation prior to looking externalREMEMBER – They pump billions of $ each year in to research and innovation DO NOT TELL THEM THEY ARE NOT INNOVATIVE merely show them how they can leverage this innovationCEO’s want strategic view points and clearly defined benefits - they are appointed by the shareholders to run the company in a manner that benefits the shareholders - show them how to do thisNOTES:Welcome and thank youExplain that focus is OI and that this is BMHB’s viewpointBMHB have conducted researchto identify whether it can add value to the pharmaceutical industryExplain the format of the presentation:Brief OI explanationWhat it means for PharmaceuticalsThe four main benefits The complications/dangers
CONSIDERATIONS: Need to highlight the gap between what is commonplace now and what there could be - BMHB can bridge that gapNOTES:Open Innovation (OI) is a new way of fostering innovation integral to the long term growth of an organisation. (Take a Pause)It is astrategy that allows for a company to reach out and use the global wealth of resources as well as leveraging the true strength of their existing onesCurrently innovation is costly – emphasise current economic climateOI companies are able to innovate more effectively through:lower costsless resources reduced risk whilst maintaining the security of their Intellectual Property (IP)But not without its dangers – explained laterOI -means of mobilising global talent and utilising the vast amount of specialist resources available.Achieved through:Opening up the business’s aspirations to a wider audienceCreating partnerships or contracts with experts across the world to achieve and exceed these business aspirationsThe ‘sharing’ of knowledge to aid global advance without the loss of intellectual property and the potential losses associated with it
CONSIDERATIONS: They know these stats more than anyone so don’t try and treat it as a lesson, use them as a means of highlighting what is NOW so you can explain what could be NEXTFYI - the ‘blockbuster’ business model is where ‘Big Pharma’ (term for large pharmaceutical industry) companies rely on pumping cash into R&D in the hope that they get the big blockbuster drug that covers costs for the next 10 yearsNOTES:R&D is obviously necessary evilInformation here is to highlight the recent decline in expenditure - the highest % drop on record (2.4%) (08-09 was only 2%)Signifies the industry realising that the ‘Blockbuster’ model is not creating successes of the past – “all the low apples have been picked”This decline in expenditure from companies such as Pfizer (Source: Kollewe, J. 2011) looking to other biotech firms and universities to buy drugs rather than develop in houseMany drugs are due to come off patent over the next couple of years, thereforecompanies are looking to other avenues for drugs (Source: Stynes, T. 2012)
NOTES:Highlight that the risks associated with the blockbuster model have increased as failure rates increaseEstimated to cost around $1.3bn dollars to get a drug to market (Herper, M. 2012)From 2008-2010 the number of drugs that have had to be terminated at PHASE III had over doubled to 55 in comparison with the termination rate in 2005-2007 (PhRMA Industry Report 2012)This represents real risks to the companies - real risks to the shareholdersThe time has come when Pharmaceuticalcompanies need to “innovate how they innovate” (catchy phrase – please use)
Considerations: This slide is to signpost the next section of the presentation – explain that you will cover 4 main benefit groups that OI can offer, then the dangers.NOTES:Four main benefits which we will look at todayMore effective innovation - through a deeper and wider use of resourcesReduction in costs - as companies are able to focus on their core businessFree up resources - as research is delegated and targetedReduction in risk - as the industry dangers are reduced through a change in operations and through a sharing of information
NOTES:Two types of OI - Internal and ExternalInternal innovation is:Focused on leveraging current resources. OI is Developing not only a culture but a platform for innovation across departments roles and positions.Giving the employees, suppliers and anyone already close to business the ability to share how they think things could be done betterExternal innovation is:Focused on reaching out to experts from all sectors, countries and specialities Can be done independently or with the help of experienced professionals (BMHB!)By using open innovation companies can open themselves up to this vast range of resources to aid quicker and better innovations or gain a fresh look at stagnant manufacturing processesExample:Xerox were able to solve an industry wide issue in the fusing sub system of printers. By opening up the issue to a wider audience they were able to solve something the industry saw as unfixable (Source: Badesha, S. 2009)
NOTES:The vast number of resources currently tied up new drugs innovation can be committed to developing the core businessCan focus on the getting drugs to marketInnovation on how the business operates can free up labour intensive areasSpecialist institutions are the ones committing the resources, therefore:More specialist people and equipment at each stageProcess can be broken down into sections and world experts used for every different part
Considerations: Image is a timeline/costline (left to right) to show the life cycle creating a drug – familiarise yourself with it prior to the presentationNOTES:Useful stat: Decline in R&D returns from 11.8% to 8.4% (Source: Kollewe, J. 2011)The further into development the higher the costsCurrently companies enter the process at the red arrow, which results in suffering the costs of:Employing talented individualsResearch labsOther associated fixed costsCosts subjugated through:Creation of partnerships with organisations who have these highly specialised processes underwayEntering the development process anywhere along (green arrows)Periphery technologies that aren’t relevant to the core business can be licensed off (blue arrows) to subsidise the ones that areUseful example:Amyris (biofuel) developed a method of programming organisms to secrete chemical compounds. They licensed this to Sanofi-Aventis to create artimesinan (malaria treatment) enabling them to use this capital to lower the costs of research they wanted for there core business (Source: Chesbrough, H. 2011)
NOTES:Refer back to the risks highlighted with the ‘Blockbuster’ modelExamples:GSK had a experimental type-1 diabetes drug fail at a late-stage clinical trial in March (Kollewe, J. 2011)AstraZeneca had a late-stage clinical trial failure with a new antidepressant (Kollewe, J. 2011)Huge investments with no returnWith OI capital is committed by the research institutes.Pharmaceutical firms buy licenses that suit their core business (green arrow) or that they believe are likely to succeed. OI passes risk on to these institutions dramatically reducing YOUR exposure - ‘Something of an early Christmas present for your shareholders’ (again a catchy phrase – please use if appropriate for the audience)An open innovation market can also mean the sharing of research across the industry, which helps ensure that future developments have a stronger chance of successSupporting Quote: “Sharing knowledge on the science behind failed molecules (blue arrow) and studies will help improve success rates” Julian Remnant (Source: Kollewe, J. 2011)
CONSIDERATIONS: When highlighting dangers emphasis how BMHB can help minimise all of these dangersNOTES:OI can be hugely beneficial BUT does have risks:Implementation of strategy is difficult and can fail if not done properlyEXAMPLE: PowerDrive – Set-up an OI project for R&D. Did not take into account the contextual factors that emerged throughout the project. Social structures ‘did not foster acceptance’ (Westergren U.H. 2010) – This can be avoided with professional help/experience (BMHB!)Many firms struggle to protect the security of intellectual property - Easy to avoid if correct processes are known (contractual agreements etc.)Securing contracts is vital to succeeding in OI – processes need to be implemented to ensure that resources can be committed quickly when neededCosts can spiral and need to be maintainedEnsuring adequate protection of the business is VITAL
NOTES:OI can create abetter landscape for the advancement of treatmentsCompanies are already starting to adopt some of these principles – Re-enforce Pfizer example from slide 3Those who establish themselves first are likely to have a better internal integration of OI, they also have the first mover advantage where they can build the greater relationships and enjoy the best leverage of resources
CONSIDERATIONS: You are re-enforcing the main points of the presentation – quick, sharp re-enforcement to ensure it sticks in their mind.NOTES:Open Innovation is a new way of fostering the innovation integral to the long term growth of firmsIt is a means of opening up the firm to the wealth of research and professionals across the globeMore effective innovation - through a deeper and wider use of resourcesReduction in costs - as companies are able to focus on their core businessFree up resources - as research is delegated and targetedReduction in risk - as the industry dangers are reduced through a change in operations and through a sharing of informationBUT there are dangers which need to be considered. The implementation of the strategy needs to be effective or organisations run the risk of a failed OI strategy
CONSIDERATION:Leave this slide on at the end of the presentation to trigger conversations over the types of Open Innovation services we can offer

What Open Innovation means for the Pharmaceutical industry Presentation Transcript

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