Open Innovation: Chances and Challenges for the Pharmaceutical Industry

Undoubtedly, the last century has witnessed tremendous advances in the development of medicines and vaccines, increasing the life expectancy and quality of life for billions of people. This progress would not have been possible without the R&D activities of universities, public research institutions and the chemical and pharmaceutical industries. However, R&D does not come for free, but usually requires high levels of capital expenditure. In fact, the pharmaceutical industry shows the highest R&D intensity of all industries except the aircraft and spacecraft industries [1]. Only one out of 10,000 substances becomes a marketable product and the costs to develop a new drug (including both failures and successes) have grown to more than US$1 billion [2,3]. Consequently, R&D expenditures in the pharmaceutical industry have risen drastically over the past few decades. For instance, R&D spending by the top pharmaceutical and biotechnology companies in the USA (as indicated by membership of the Pharmaceutical Research and Manufacturers of America) increased by 262.5% within 10 years, from US$15.2 billion in 1995 to US$39.9 billion in 2005 [101]. At the same time, the total number of new chemical entities launched every year has fallen from 80–100 per annum in the 1960s to 50–60 per annum in the early 1980s and 30–40 per annum in the late 1990s [4]. These numbers clearly demonstrate that the pharmaceutical industry faces severe difficulties in maintaining research productivity.

In response to this challenge, many companies started looking into new ways of organizing their innovative activities, including the internationalization of R&D or organizing R&D around new platform technologies (e.g., computational chemistry, high-throughput screening or genomics/proteomics/metabolomics) [5,6]. While these activities certainly play a key role in the R&D strategies of many pharmaceutical companies, one new approach has gained considerable attention over the last few years: the ‘open innovation’ strategy. Coined by Henry Chesbrough, the term refers to ‘the use of purposive inflows and outflows of knowledge to accelerate internal innovation and expand the markets for external use of innovation, respectively’ [7]. In the open innovation model, companies commercialize not only their own ideas but inventions from other organizations as well. Furthermore, they try to bring ideas to market via pathways outside of their current businesses. Hence, the sources of innovation no longer only lie in the company’s own R&D unit but also in start-ups, universities and other external organizations [8].

However, those who praise open innovation as the new magic bullet for reinvigorating the pharmaceutical industry’s R&D tend to overlook one important aspect: the pharmaceutical industry already shows very high levels of openness [9]. Pharmaceutical companies have been frequently collaborating with universities and public research institutions for decades. As long as 15 years ago, a study by Blumenthal et al. found that more than 90% of the companies conducting life science research in the USA had relationships with academic institutions [10]. Additionally, partnering between pharmaceutical and biotechnology companies has long become a key feature of the industry’s landscape [11]. For instance, in the period of 1997–2002, the 20 biggest pharmaceutical firms formed nearly 1500 alliances with biotechnology companies [12]. Given these facts, what are the opportunities that open innovation offers for the pharmaceutical industry? And what are the challenges associated with it?

Although many companies in the industry already operate in a rather open mode, knowledge sharing between the partners involved still seems to be a substantial problem. For instance, in one of our recent studies of university–industry collaboration, 81% of the respondents judged knowledge sharing in the collaboration as not efficient enough [6]. In this context, Coray Goodman, who was at that time President of Pfizer’s Biotherapeutics and Bioinnovation Center, noted that “the need to find better ways to bridge the gap between biomedical research and drug discovery could not be more acute” [13]. Accordingly, companies in the pharmaceutical industry need to be well aware of the variables that influence knowledge sharing. In this regard, several important factors could be identified [14].

First of all, prior to establishing collaboration, the partners need to assess whether they possess complementary knowledge assets. Otherwise, there would be no opportunity for the partners to learn from one another. At the same time, however, a certain overlap in the existing knowledge bases of the collaborating partners seems to be necessary to create a common cognitive ground and allow mutual understanding. Furthermore, the partners have to communicate frequently and establish trustful relationships, so that the partners can have confidence that knowledge involved in the collaboration will not be exploited beyond the intended level. In addition to these factors, pharmaceutical companies also need to be aware of the often neglected fact that a substantial part of people’s knowledge is tacit (i.e., it has a personal quality and is not easily verbalized). Sharing tacit knowledge requires especially close working relationships between the partners. However, these relationships are not easily established – particularly when the partners stem from different backgrounds, as is often the case in the pharmaceutical industry. When large pharmaceutical companies collaborate with academic institutions or with small biotechnology start-ups, different cultures, values and attitudes collide.

For instance, universities and companies have fundamentally different cultures: while the primary goal of universities is the creation and dissemination of knowledge, companies provide products and services within a highly competitive environment [15]. As a consequence, time horizons and the methods of validation and reward differ substantially [16]. Acting under strong competitive pressure, companies mostly need to consider time in terms of meeting short-term goals. By contrast, the time horizons in the academic world are often much longer and less well defined [15]. Furthermore, due to different research approaches, companies might face complex, ambiguous and abstract knowledge where they look for simple and concrete solutions to problems. Similar problems emerge when large pharmaceutical companies collaborate with small biotechnology start-ups. Industry experts largely agree that biotechnology companies have a research culture that is very different to ‘big pharma’ and, in many regards, resembles the academic way of performing research. Typically, biotechnology companies are said to offer a collaborative and creative research atmosphere, with higher levels of risk-taking and more direct methods of decision-making. By contrast, R&D in large pharmaceutical organizations is often characterized by many different layers of authority and a high level of bureaucracy, slowing down decision making and decreasing flexibility [17].

Considering the preceding discussion, companies in the pharmaceutical industry need to address two related major challenges to increase the returns from open-innovation strategies. They need to find ways for more effective and efficient knowledge sharing and need to bridge gaps between their own and their partners’ (research) culture. The latter issue might be resolved by the efforts of large pharmaceutical companies to establish new R&D structures that, at least partly, resemble those of smaller biotechnology companies. For instance, Novartis set up its Institutes for Biomedical Research and GlaxoSmithKline established Centers of Excellence for Drug Discovery – both aimed at the creation of a more open and collaborative atmosphere for conducting R&D [17]. Similarly, Pfizer launched its independent, stand-alone ‘Biotherapeutics and Bioinnovation Center’ in 2007 to strengthen its ties with the academic and biotechnology community [102]. The first empirical evidence from the chemical industry clearly demonstrates that different innovation cultures can exist in companies. For instance, organizational units can differ in the degree to which they are infected with the ‘not-invented-here’ or ‘not-sold-here’ syndrome. Furthermore, these studies show that companies can successfully create an open innovation culture by setting up separate and specialized organizational units [18–21]. However, it still remains to be seen how far these cultural changes translate into increased R&D productivity in the long run.

The challenges described could also be approached with new forms of alliances between industry and academia. In the past, these alliances were often narrow in scope, focused on a specific research project and tied to a specific investigator [13]. In such partnerships, knowledge sharing might just be viewed as a form of economic exchange – academics offer their expertise in exchange for external funding [22]. However, the latest developments indicate a change in the way pharmaceutical companies view academic collaborations [23]. Recently established alliances between universities and large pharmaceutical companies have often been much broader in scope and involved long-term commitments on both sides. For instance, Novartis and the Massachusetts Institute of Technology teamed up in 2007 to establish the ‘Novartis–MIT Center for Continuous Manufacturing’, aimed at the development of continuous manufacturing processes that could replace the conventionally used batch-processes. The long-term collaboration involves the investment of US$65 million over a 10-year period [24]. Similarly, Pfizer and the University of Washington announced an extension of their collaborative activities under a new 5-year agreement involving US$25 million, directed at the advancement of research in immune-inflammatory disorders. Only lately, Harvard University and GSK signed a similar agreement in the field of stem cell research, with a time horizon of 5 years and US$ 25 million of funding involved [25].

All these alliances have in common their aims of long-term relationships between industry and academia and broadness in the scope of research. Under such conditions, cultural differences between the involved partners might be diminished as the relationships have some time to evolve and a basis for mutual understanding can be developed. Furthermore, knowledge sharing might then not be primarily viewed as economic exchange but rather as social exchange (i.e., knowledge is shared because of common research interests and goals). Such an environment would also offer more favorable conditions for sharing tacit knowledge, as very close working relationships can be developed.

In conclusion, the pharmaceutical industry is already a rather open industry when compared with other sectors. However, certain challenges still remain to be addressed to fully leverage the potential of open innovation. Two crucial aspects in this regard are the process of knowledge sharing and differences in the R&D and innovation culture of different parties in the innovation system. Potential approaches to these issues could be new ways of structuring the R&D activities of large pharmaceutical companies and new forms of R&D collaboration with external partners.

Financial & competing interests disclosure

The authors have no relevant affiliations or financial involvement with any organization or entity with a financial interest in or financial conflict with the subject matter or materials discussed in the manuscript. This includes employment, consultancies, honoraria, stock ownership or options, expert testimony, grants or patents received or pending, or royalties.

No writing assistance was utilized in the production of this manuscript.

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The authors have no relevant affiliations or financial involvement with any organization or entity with a financial interest in or financial conflict with the subject matter or materials discussed in the manuscript. This includes employment, consultancies, honoraria, stock ownership or options, expert testimony, grants or patents received or pending, or royalties.