Open Innovation in the Pharmaceutical Industry

Challenges of open innovation in pharma

Amongst the most pressing challenges facing many research-based pharmaceutical companies are those of declining Research & Development (R&D) productivity and the need to make cost savings. Drug development is costly and lengthy – new drugs can require millions of dollars and can take over a decade to reach the market.

In previous decades, traditional R&D methods have yielded blockbuster drugs, allowing companies to recoup the costs of development. Although new molecular entities are frequently discovered and brought to market, it has been some time since the release of a product with a large target market. Matthew Herper, Senior Editor at Forbes has written about the decline of innovation in the pharmaceutical industry, and commented that the last blockbuster drug was Merck’s Januvia, which received FDA approval in 2006.

In the current global economic environment, pharmaceutical companies face cost challenges in many arenas. Combined with growing regulatory pressures in many countries (for example in France, after safety worries over the drug Mediator)  and the trend towards the creation of larger and larger pharmaceutical conglomerates, with extremely complex structures, it is perhaps not surprising that the industry seems to be struggling to innovate. With weakening pipelines, it is becoming increasingly difficult for pharmaceutical companies to justify the costs of traditional R&D facilities and methodologies.


Figure 1: Over the past 30 years, there has been consolidation of the major pharmaceutical companies, resulting in a small number of very large companies. Source: AFG Venture Group (www.afgventuregroup.com)

How to increase innovation in the pharmaceutical industry

Bernard Munos, an Eli Lilly employee for 30 years, takes the view that only radical re-organisation, a decrease in investment in centralised R&D and new points of focus for drug development will save the pharmaceutical industry from further declines in profit.

The current environment presents not only challenges, but also opportunities – the internet allows for geographically separated colleagues to communicate instantly, and for easy access to information. When I contacted industry commentator, Professor Brian Smith, Editor of the Journal of Medical Marketing and Adjunct Professor at SDA Bocconi School of Management, he shared his prediction that the pharmaceutical companies who wish to survive in the changing environment will have to adopt radically different business models, which potentially draw on the opportunities afforded by digital media:

“The [pharmaceutical] industry is not simply evolving, it is co-evolving with both its social and technological environments. In the social environment, the two dominant factors are the shift in how the value of pharmaceuticals are defined…and the coming stratification of healthcare. In the technological environment, there are also two major trends. One is the obvious convergence of various technologies…that are almost science-fiction like in their capabilities. The less obvious one is the development of enabling technologies all along the pharma value chain… The…net result of these changes… will be to fragment the pharma market into a number 11 -14 – sub-habitats each of which will demand certain capabilities of the firms that wish to survive there…”

The “Open Innovation” Model

The Open Innovation model refers to networks of collaborating institutes and individuals, focused on biomedical research and drug discovery – as opposed to centralised R&D facilities. Collaborators can be anywhere in the world, and connections between partners and the parent organisation may be arranged in various ways, from loose interactions to funded biotechnology start-up models.

Open innovation in the pharmaceutical industry has been used extensively – and successfully – in the software development industry, by companies such as Linux and Mozilla, and already by 2009 industry leaders were considering how the approach could benefit the pharmaceutical industry.

Paul Stoffels of Johnson and Johnson made the following comment about open innovation over two years ago:

“We believe open innovation will fuel the intellectual entrepreneurship and novel collaborations across institutions and geographies needed to develop solutions to some of the world’s most critical healthcare challenges and to directly address patient needs in both developed and emerging economies. In turn, these solutions will provide the economic entrepreneurship that will help spur recovery and, when combined with health diplomacy, will ensure that innovation delivers solutions for generations to come.”

The benefits of an open innovation model include greater return for less intensive investment and the ability to draw on the research of talented individuals around the globe. However, an open innovation model is radically different, in that is sees a reduction of emphasis on centralised R&D facilities. This involves a relinquishment of control, and will bring challenges in terms of aligning open innovation activities with the overall business strategy.

An easier way to discover new pharma products?

A number of companies have looked into alternative discovery methods. Some of these have already yielded results, but in most cases, these initiatives are relatively new, and it remains to be seen whether the open innovation model will serve the pharmaceutical industry as well as it has served the software industry.

Procter & Gamble’s “Connect + Develop” website allows scientists and institutions from all over the world to submit their innovations – from molecules for drug development, through to cleaning agents and industrial processes. In this way, the company can benefit from fresh ideas, whilst reducing investment in R&D, and contributors are able to see their ideas developed and reap financial rewards.


Figure 2: Procter and Gamble Connect + Develop Home Page

GSK established an “Open Lab” in 2010, focused on stimulating innovation in areas that would be of use to developing countries, such as malaria treatment. The company made over 13,000 malaria-fighting compounds freely available via the European Bioinformatics Institute’s ChEMBL database, to allow researchers world-wide to develop cures. Additionally, GSK has partnered with the Emory Institute for Drug Discovery and iThemba pharmaceuticals, to help research and discovery into diseases such as tuberculosis. The company has also set up an external sourcing model on the consumer healthcare side, which encourages external innovators to create partnerships for product development. This programme features a variety of methods for connecting with potential partners, from a LinkedIn community to iPhone apps, and has a dedicated Open Innovation team to develop ideas into products.

Pfizer’s programme is a little more traditional, in that it is based on network of academic collaborators. Research at specific collaboration centres will be funded by Pfizer, and supported by company experts and resources. Where a molecule is developed into a saleable entity, both the academic department and Pfizer will benefit, through intellectual property agreements. It is hoped that the collaborative, open innovation model will benefit both industry and academia.

Reducing cost and increasing scope of clinical trials

The “downstream” part of drug development, the safety and efficacy testing, must not be neglected in an open innovation model. Pfizer is behind the first digital clinical trial, which allows patients suffering from overactive bladder to participate in a study, without the need to travel to clinics for assessment. Not only does this save on clinical trial administrative costs, but it also allows a wider range of people to participate in the trial – meaning potentially improved representation of the necessary patient populations.

Craig Lipset of Pfizer commented on the move at the 2010 e-Patient connections conference, explaining how especially with the rise of the “e-Patient” (empowered, electronic patient), clinical trials could benefit from having a more open, interactive format. This would encourage innovation, and could also prevent clinical trials being compromised by active e-Patients sharing information with each other. The closed, controlled model that currently predominates may not remain relevant in a world where healthcare information is freely available, and where patient networks are growing in size and influence.


Pharmaceutical companies are under pressure to evolve with the changing socioeconomic and healthcare environments. Their evolution may require the adoption of radically different, more flexible business models, and the integration of digital ways of working. Some companies have already begun to open up their R&D processes, but making open innovation a way of life will take time, and adjusting to the new model may be difficult, especially where large scale company re-organisation is involved.

Given the risks, pharmaceutical companies must ensure they have a clear understanding of the following areas before introducing or developing an open innovation approach:

  • The socioeconomic environment
  •  The opportunities afforded by digital media
  •  The challenges (compliance, cultural, technical) of open working and digital working

Companies that feel comfortable with their knowledge of these areas, and who can incorporate open innovation into their business strategies – rather than simply adding it on – may find that it enables them to turn the current situation to their advantage, and work more profitably and flexibly.

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