A case study on how a pharmaceutical company adopted Open Innovation, the implementation and the outcomes from the Innovation.

1. OPEN INNOVATION DRUG
DISCOVERY- ELI LILLY
Report By:
Vijay Gaur
Dr. Swapnali Patil
Ninad Satam
Hetang Desai

2. AGENDA
• Open Innovation
Triggers, Closed Innovation Vs
Open Innovation, Practices,
Value Chain, Crisis, Factors
• OIDD
About Lilly, Alliance
Management, FIPNet, Chorus,
Innocentive, OIDD.
• OPERATIONS
• Website, Account, Tracking,
Sampling, Reporting.
• OUTCOME
• Compounds, Resources, Therapy,
Network.

3. Open Innovation
• The term “Open Innovation” was coined by Professor Henry
Chesbrough, referring to the need for firms to adapt to a
fast-changing environment, increasing competition and
specialization of firms, among other factors.
• To face these challenges, OI is defined as “a paradigm that
assumes that firms can and should use external ideas as
well as internal ideas, and internal and external paths to
market, as the firms look to advance their technology”
• Firms achieve this by commercializing “both its internal
ideas and external ones from other companies, and search
for ways to put their ideas on the market through the
development of different routes that are not a part of its
usual business”
• In other words, OI can be defined as “the use of purposive
inflows and outflows of knowledge to accelerate internal
innovation and expand the markets for external use of
innovation, respectively.”

4. Triggers for OI
Staffs are no more attached to a single company in a long term
relationship and the labor market is becoming much more dynamic
with employees changing location and roles more often
Skilled Professionals
Rise of venture
capitals
It is incentivizing the creation and development of new firms and
startups. It also triggers consequences like restructuration of
industries, increases in competition, shifts in the market share, etc.
Specifically, these new entrants play an important role in what comes
to innovation, as they often enter the market using highly innovative,
disruptive products
Faster Cycles
Faster cycles of product development, as products themselves
become obsolete much more quickly than earlier
Globalization
the consequent hardening of the competition, as firms competes in
a given industry at a global scale.
Specialization
As the complexity of technologies grows, firms need to focus in a
narrow area to master their competencies. This implies that other
competencies should be dropped if the firm wants to keep focus
and efficiency.
External Suppliers
The increasing capability of external suppliers and the threat of
competition from them.

5. Closed Innovation VS Open Innovation
• Traditionally, firms sought for differentiation in the market by
internally developing core competencies and protecting these
against leakages to the outside, in order to keep their competitive
advantage
• This model was engineered by a science-driven type of innovation
to feed the product development process, in an effort to
continuously deliver new goods to the market to maintain its
position in the industry
• It is simple to infer that this traditional model–so-called Closed
Innovation, is not performing anymore.
• The firm keeping this strategy has to possess a large range of
technologies and domains of knowledge, which will result in the
loss of specialization and increase of risks and effort, not to
mention the resulting managerial and structural overheads

6. Closed Innovation VS Open Innovation
A different strategy is required to keep the competitive advantage, by keeping
the specialization of their core competencies, and, at the same time, tapping
into existing non-core knowledge with minimized effort, and combining the
whole to meet the ever-increasing quality standards.

7. Practices in OI
• This is the currency in OI, it implements the mechanisms and restrictions for firms to exploit
existing knowledge under a regulatory frame.
• Trading of IP allows a firm to have additional revenues from its base of knowledge, without
losing control of it, and preventing an eventual appropriability of the know-how by the
competitors. But it can be also used as a strategy to create standards or technological paths
• For the firm acquiring IP, it is a way to have quick access to non-core knowledge in order to
focus on its competencies and speed-up the product development process. IP management
implies a series of complexities, ranging from the pricing to usage restrictions (to encourage
licensor to share knowledge minimizing the risk of appropriability from competitors.
IP
COLLABORA
TION
• This involves a series of more informal, dynamic practices that enables the creation of a “virtual
company” in a network that facilitates the flow of knowledge.
VENTURING
• Broadly speaking, a venture is an alternative way of developing an innovation away from the
established organizational structure of a consolidated firm. Venturing can take different forms:
 a split of a firm’s division into a more-or-less independent contact, with the parent
company benefiting from the knowledge of the child (spin off),
 the firm’s division being sold through M&A (spin out).
 Venture Capital is also used by firms themselves to ensure their access to certain
knowledge from smaller, more innovative actors in the same industry

8. Crisis
• The trigger for the state of pharmaceutical industry is
attributed to the decline in R&D productivity in the
industry during the first decade of the 21st century
• Although investment in pharmaceutical research and
development has increased substantially in this time,
there is a lack of corresponding increases in the
output in terms of NMEs
• The average cost f bringing in an NME has increased
from 140 mn USD in 1970’s to 1.3 billion USD in 2010.
• Only 4% of the drugs in development pipeline will
reach the market.
• Average drug development timelines of new
compounds have remained steady at around 14 years
from initial screening to approval
• All these figures indicate that therapeutic innovation
has become more challenging.
140
320
800
1200
1300
0
200
400
600
800
1000
1200
1400
1960 1970 1980 1990 2000 2010 2020
Development Cost (Mn USD)

9. Factors
• It has been proven more and more difficult to discover new chemical entities with
the potential to be developed into new “first in class” drugsRisky therapeutic
areas
Restrictive
Regulations
• Over the past decade, there have been serious concerns about the industry's
integrity and transparency around drug safety and efficacy, compromising the
industry's image. As result, policy makers had increased regulatory scrutiny.
Patent Expirations
• Patent expirations between 2010 and 2014 have been estimated to put more
than US$209 billion in annual drug sales at risk, resulting in $113 billion of sales
being lost to generic substitution. The figure fr 2012-2018 is estimated at US
$290 billion
Strained Health
Public Budgets
• In the current socio-economical context, governments worldwide are reducing
public healthcare budgets. Additionally, the population in many western
countries is quickly ageing with the consequent increase in the expense per
patient.
Blockbuster Model
& Pipeline Gap
• The traditional strategy of focus on the discovery and development of a
blockbuster drug to maximize the profit led to having concentrated big stakes in a
single R&D project resulting in lesser numbers of drugs in the R&D pipeline. Thus,
the failures of the blockbuster drug lead to a gap in the pipeline.
Managerial Culture
• As science-driven industry, innovation in pharmaceutical industry should come
from scientific knowledge. However, in many cases, we find that innovation is
stifled by managers with little or no scientific knowledge over-managing or even
micro-managing the R&D.

10. Degree of Externalization
Preference in innovation management
ProportionofexternallyacquiredR&DProjects
Knowledge Integrator
Sanofi, Bristol-Myers Squibb,
AstraZeneca, Merck & Co, Amgen
Knowledge Creator
Roche, Novartis, Boehringer
Ingelheim
Knowledge Translator
Pfizer, GlaxoSmithKline, Takeda, Eli
Lilly
Knowledge Leverager
Shire
Low
High
Introverted Extroverted

11. OIDD

12. Eli Lilly
• Eli Lilly has more than 37,000 employees, where 7,400 work with R&D.
• Its products are marketed in 125 countries.
• In 2011, Lily spent more than $5 billion on R&D in its facilities in 8 countries around the
world, where these costs represented the 21 per cent of the company’s net sales that
year
• Lilly is considered the 9th world's biggest pharmaceutical company and thus one of the
Big Pharmas (Forbes, 2012), and is considered the world's largest manufacturer and
distributor of medications used in psychiatric and mental health.
• Lilly, despite its advantageous position suffered due to the patent expiration for Prozac
which account for 20 per cent of the company's overall revenue.
• Another important shortcoming was the fine imposed on Lilly by the US government,
for illegal marketing of its best-selling product, the atypical antipsychotic medication,
Zyprexa .
• Apart from the direct, financial impact, this event triggered a wave of distrust that
turned out in more restrictive regulations for drug approvals

13. Strategy
• The immediate answer from Lilly's management to the setbacks
included the increase in R&D budget by 30%, to more than $2.2
billion, hiring of 700 scientists in 2000 and in a search for the next
blockbuster drug, focused only on the most promising projects with
potential to reach US $500 million in annual sales
• Another immediate response was to diversify the core therapeutic
areas in which the company focused its R&D, so that the situation
they had in the mid-1990s, of having 35% of their sales dependent
on Prozac, won't repeat itself
• Thus, the firm extended their areas from psychopharmacology to a
large portfolio including Neuroscience, Oncology, Endocrinology,
Cardiovascular, Musculoskeletal, Autoimmune and Urology
• These were only the first steps in a progressive change of strategy
towards a more open, sustainable model in the given context.

14. • To consolidate this approach and develop it
from a partnership-based into a network-
based, Lilly created, in 1999, the Office of
Alliance Management, whose mission was to
source innovation based on a 3-step process
“find it/get it/create value”
Office of
Alliance
Management
FIPCo & FIPNet:
• Further development of the above strategy
led to the creation of FIPCo and, ultimately,
FIPNet.
• FIPNet, aims to transform "from a Fully
Integrated Pharmaceutical Company to a
Fully Integrated Pharmaceutical Network"

16. Chorus
• Chorus began in 2002 as an
operationally independent drug
development organization but
eventually transformed itself into a
radical model in early phase clinical
development.
• Chorus helped to determine the
probability of technical p(TS) of a
compound in the shortest time and
at the lowest cost termed as “lean to
proof of concept”, L2POC.
• The cost to establishing a POC for an
NME through chorus was just US $6
million as compared to the traditional
approach which cost almost US $22
million

17. InnoCentive
• In an effort to explore the application of internet in Business, in 2001
Innocentive was launched with majority of the seed funding from Lilly.
• It was the first internet-based platform designed to help connect Seekers,
(difficult research problems), with Solvers, (came up with creative
solutions)
• Innocentive’s clients at the start were mostly R&D intensive companies
whose innovations were based upon chemistry, Biochemistry, biology and
material science which were typically industries like Pharmaceutical,
Chemical, consumer goods and petrochemicals
• The employees of Innocentive worked with the scientists from these firms
and provided them with separate “pavilions” on its website which was
divided based upon the topic area.
• In 2005, Innocentive was spun out of Lilly through external venture
capitalists investments; however, Lilly retains 20% of ownership in the firm
and seats on the boards of directors.

18. PD2 &TD2
PD2
• The set of molecules offered through PD2 focuses on endocrinology and
oncology diseases such as diabetes and cancer.
• The key value of PD2 is that it allows scientists to have their compounds
screened against phenotypic, disease-relevant assays that were already
established within Lilly, so that they focus on phenotypic drug discovery
(the earliest step in the R&D process).
The key difference between PD2 and TD2 is that TD2 emphasizes
the collaboration effort on the drug optimization step of the R&D
process by sharing molecules that are target-based and already-
validated
TD2
• It offers resources to focus within the same therapeutic areas as PD2,
but also extends to cardiovascular and neuroscience areas.
• The resources it proposes to external collaborators are not limited to
molecules, but also relevant computational methods to let investigators
carry out structure-based research on the initial results.

19. OIDD at Lilly
• When it came up to improve the productivity of the R&D process, apart from the
increase in R&D budget, and in line with the FIPNet strategy, Lilly opened up the
R&D process in more subtle ways other than the use of outsourcing.
• These approaches that rely on the idea of opening up company’s resources and
expertise to trigger an exchange of knowledge, were implemented by PD2 and
TD2.
• The common traits of these two initiatives reside in the fact that Lilly opens up the
R&D process to external collaboration by sharing (without charge) its internal
resources (basically, molecules in company's portfolio to be used as starting points
on drug discovery and development) with external scientist (mainly, academia, and
small biotechnology companies –Hunter 2014).
• In exchange, Lilly will profit from external skills and expertise applied on the
shared resources by having access to the results that external collaborators came
up with after carrying out R&D efforts based upon the molecules initially provided
by Lilly's PD2 and TD2.
• Specifically, Lilly's goal here is to receive quality inputs from the outside rather
than a high quantity of proposal submissions.

20. OPERATIONS

21. COMPOUND SCREENING PROCESS
In Silico
screening
Process
Generates a
molecular
properties profile
report for you
Provides you with
immediate
feedback your
structures
Uses only
structural
descriptor to
protect your IP
Biological
screening
Aligned with Strategic
areas of focus:
Emerging biological
assays
Phenotypic target
based approaches
Includes neglected &
tropical diseases
Advanced
evaluation
More details
More results
More testing
1) Lilly Takes a look
2) Lilly Generates results
3) Lilly take things further
Collaborate with usGet your resultsSend us a sample

22. Secure Relationship
Sharing intellectual property and data is an inherent risky proposition , so Eli Lilly created a
four step process to reassure program participants that pen innovation environment was
secure
External
Investigator
Encrypted and
Secure
Firewall
Access your
results
1
23
4 While you're working in your
structures, no else sees your
work.
Your work is stored in a secure
“neutral” network hosted by Eli
Lilly. Each Structure is converted
to a set of calculated descriptors
to be used in further analysis
When you're ready, you submit
your structure for in silico
screening. Only the corresponding
descriptor profile is sent across the
firewall to the Cheminformatics Eli
Lilly Servers.
Once the silico screening is
complete the results are
accessible through your
OIDD account.

23. Tour Inside the OIDD Website
• Accessing the individual OIDD Account

24. Managing the Individual OIDD
Account
There are 4 important tabs to manage your compound submissions:
Manage Libraries: Maintain libraries of compounds (default view)
Track compounds: Overall view of user’s compounds
Ship Samples: Input shipping information (barcodes, weights, etc)
View Reports: Maintain all data reports associated with compounds
completed with biological screening

25. In the Track Compounds Tab
• You can track your compounds by the compound
ID, structure Name, current Stage, Status, stage
Outcome, etc.
• To filter, click on the drop down tab in the column,
go to “Filters” and choose the category youwould
like to view.

26. Shipping Samples from the
Individual OIDD Account
In the Ship Samples Tab
You can input shipping information
(barcodes, sample amount, etc)

27. Accessing Reports in the Individual
OIDD Account
In the View Reports Tab
You can view and download all data reports
associated with your compounds that have
completed biological screening

28. OUTCOMES

29. Compounds
0
5
10
15
20
25
30
35
40
45
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2009 2010 2011 2012 2013 2014 2015 2016
Thousands of compounds tested Thousands of datapoints generated
Statistical analysis of OIDD inputs over the life of the program demonstrates that on
an average 500 new compounds are registered each month, resulting in a steady
increase in the Oidd compound collection over time. Since 2009 almost 2 million
additional data points have been generated and leveraged to support the full
complent of Lilly’s scientific research efforts.

30. Resources
0%
20%
40%
60%
80%
100%
120%
2009 2010 2011 2012 2013 2014 2015 2016
Business IT Science
The original OIDD program infrastructure was established with IT and Business
functions alone. As the program grew, and the volume and complexity of
submissions increased, the composition of the dedicated team evolved to an even
distribution of IT, Business & Scientific resources.

31. Therapy Distribution
The distribution of the 1800 confirmed active identified
from the nearly 50,000 registered compounds represents
an approximate 4% confirmed hit rate over all projects
and reflects Lilly’s internal research priorities
66%
10%
10%
6%
7%
1%
oncolgy
Diabetis
Immunlogy
Neglected Disease
Neurodegeneration
Pain

32. Network
Growth of the OI network is a positive indicator of the increasing diversity of
potential opportunities. The proliferation of submitters within active
affiliations can be directly attributed to the realized value of leveraging the
OIDD offerings perceived by the affiliated organisations.
0
100
200
300
400
500
600
700
800
2009 2010 2011 2012 2013 2014 2015 2016
Affiliations Submitters

33. References
1) Measuring the effectiveness and impact of an open innovation
platform-Glenn P. Carroll, Sanjay Srivastava, Adam S. Volini, Marta
M. Pineiro-Nunez and Tatiana Vetman
2) Open Innovation at Eli Lilly- Raghav Narsalay, Dr. Sabine
Brunswicker, Mehdi Bagerzadeh, Thomas E Kawalec
3) Lilly Open Innovation Drug Discovery Program- ChemAxon UGM,
Boston, Sep 25-26 Daniel H. Robertson, Sr. Dir, LRL IT Research
4) Open Innovation in Pharmaceutical Industry: A case study of Eli
Lilly- Borja Hernandez Raja, PriyadarsiniSambandan
5) The Role of Open Innovation: Focus on the Pharmaceutical
Industry- Henric Atterfors, Sofie Farneman
6) Executing an open Innovation model: Cooperation is key to
competition for biopharmaceutical companies- Ralph Marcello,
Glenn Carroll, Gaurav Vardnekar, Adam Volini

34. THANK YOU!