Innovation has become a widely used concept over the last few decades. It is frequently associated with enhanced opportunity for success and scientific excellence. The current rules-based, multilateral trading system presents innovation as a global approach to increase productivity and enhance perceived value. It is often stated that encouraging innovation is key to economic growth and sustainable development [1]. Taking this perspective into account, the present chapter outlines the importance of surrounding the concept of innovation and how organizations aim to leverage this for the pharmaceutical industry. The objective of this chapter is to highlight and present the importance of collaborative, “integrated” drug discovery and outline some of the approaches to academia, industry, and/or government partnerships that have been implemented. In particular, this chapter will look at the strengths and weaknesses of existing partnering models and in this context introduce The Access Platform, an innovative partnering model developed by SANOFI.

This chapter provides an in-depth description of collaborative platforms that exist within the pharmaceutical industry and, in particular, will focus on the development of new drugs, bringing together first-class public labs and major pharmaceutical industry players like SANOFI through its Early-to-Candidate (E2C) unit. Starting from targets, novel phenotypic assays, or tool compounds from internal activities and/or academic laboratory sources, the pipeline leads to the identification and evaluation of novel tool compounds and/or biologics in the E2C Access Platform. The specific objectives of E2C within SANOFI are to capture external innovation as early as possible, and to diversify its current scientific activities to deliver first-in-class, highly innovative compounds (mostly development candidates). To achieve these goals, E2C needs to develop and extend its collaborative activities. These dramatic steps are taken to address the industry’s core underperformance. A decade of declining research and development (R&D) returns has resulted in a spur to move or to externalize research, with deep cuts in in-house early-stage research [2]. The Access Platform model will be discussed in detail, as our analysis suggests this model could create material value for shareholders through higher earnings and multiples.

Introduction to the Early-to-Candidate (E2C) Unit with the SANOFI Group

SANOFI, one of the world’s largest pharmaceutical groups, is a global leader in healthcare focused on patients’ needs. SANOFI has 110,000 employees in 100 countries [3]. Between 2009 and 2011, the company evolved through the acquisition of 23 companies, including Genzyme, negotiation of ∼61 in-licensing agreements and two joint ventures, and investment of a total of ∼€23 billion in external growth. In 2009, SANOFI pursued 33 acquisitions and partnerships, and 37 acquisitions and partnerships in 2010 [4]. SANOFI is a diversified health-care company that collaborates with external partners to improve health, enhance life, and respond to the future health-care needs of the people around the world. The SANOFI group demonstrates leadership both in business achievements and in communities or local innovation ecosystems, and incorporates SANOFI R&D as an instrumental part of the organization. E2C is an entrepreneurial unit within SANOFI R&D that is dedicated to transforming scientific innovations into therapeutic solutions for patients. This unit is entrepreneurial in nature, being charged with in-licensing and out-licensing discovery at early stages in SANOFI R&D across the many therapeutic areas and various approaches, including devices, drugs, and biologics. The E2C unit will contribute to the global strategy of the SANOFI group, which is to (1) increase innovation in R&D, (2) seize external growth opportunities, and (3) adapt the group to future challenges and opportunities in the health-care field. In an effort to achieve these goals, a new R&D model was created to emphasize simplicity, openness, and partnerships. The E2C mission is to adopt “validated concepts” and “early-stage leads” from both within the company and externally through academia, other biotechs, or other divisions within SANOFI R&D that have core competencies that will enable the E2C unit to more rapidly convert them into well-defined tools with established therapeutic orientations. In particular, E2C brings in candidates for clinical proof-of-concept in collaboration with other SANOFI R&D divisions/units or external partners. The E2C unit aims to complement and support innovative internal research through developing external partnerships. Successful innovation depends on the development and integration of new knowledge in the innovation process. To innovate successfully, E2C combines different innovation activities. In addition to doing its own research, E2C is engaged in the acquisition of knowledge and will cooperate actively in R&D with biotechs and research organizations. The strategy combines different ways of partnering to maximize the capture of innovation. Because partnering is dependent on different parameters such as maturation, new ways of capturing external innovation are engaged in addition to typically sponsored research.

Why Does Collaboration in Drug Discovery Matter?

The drug discovery process is incredibly complex and requires insights from investigators with many different backgrounds. Investigators must first develop a deep understanding of disease biology and the pathways involved. As the biology of disease is elucidated, protein targets can be identified. Once targets are validated, a wide variety of techniques are used to identify molecules that can modulate their activity. These techniques include crystallization, bioinformatics, genomics, proteomics, assay development, high-throughput screening, lead optimization, cellular and molecular pharmacology, cellular disease models, pharmacokinetics, and toxicology [15]. Due to the interdisciplinary nature of the drug discovery process, effective collaboration among investigators is essential. Furthermore, to make the drug discovery process more efficient, organizations such as large pharmaceutical companies should seek input from external investigators. At SANOFI, the Access Platform will serve as an organized model to access this valuable external knowledge.

Collaboration is defined as two or more people or organizations working together to achieve a common goal. In general, the primary goal of an academic researcher is to conduct basic research and publish findings. In contrast, the primary goal of the pharmaceutical industry is to translate basic research into a commercial product that treats an unmet medical need. This fundamental difference in core competencies and mission has in many instances hindered collaboration. More recently, the realization for academia, industry, and government health organizations is that the overall mission is essentially the same: improve the quality of life for people around the world through scientific innovation and discovery. This realization has the potential to pressure change from the position of investment bankers, patient advocacy groups, and, most importantly, shareholders. Few people from government, academia, or advocacy groups will argue that the pharmaceutical industry creates value but instead hyperinflates derivatives without a clear basis in reality. It is evident that the various players in the biomedical ecosystem must make an effort to understand each other, identify shared goals, and work together. It is collaboration among the important players in the biomedical ecosystem that will reduce global R&D costs and stimulate true innovation in the discovery of new therapeutics.

Why Are Public–Private Partnerships Critical to Drug Discovery?

It is indisputable that drug discovery is a time-consuming, risky, and expensive process with high potential for failure at multiple points. Pharmaceutical industry R&D expenditures have been steadily increasing since the 1970s (see Figure 20.1) [16, 17]. Alarmingly few new molecular entities (NMEs) were approved by the FDA in the past decade [18–20]. In 2010, the pharmaceutical industry spent $50 billion on drug development, with an additional $31.2 billion spent by the National Institutes of Health (NIH) on biomedical research [5]. Despite this enormous investment, only 21 applications for NMEs were approved by the FDA, which is less than half of the peak level in 1997 [19]. Although there are many factors responsible for the low approval rate, with increased risk and complexity of new targets as one aspect, it is disturbingly clear that R&D productivity in the pharmaceutical industry is declining.

In the private sector, the decline in research productivity can be attributed to the conservative portfolio management approaches adopted by large pharmaceutical companies in the 1990s. In an attempt to mitigate risk, pharmaceutical companies chose to focus on late-stage research on validated targets, proven modes of action, and well-known drug classes [5]. This strategy inhibits innovation and results in the development of drugs that are marginally better than or not as effective as drugs already on the market. In 2009, less than 7% of industry sales could be attributed to drugs launched within the past 5 years [21]. Therefore, it is evident that industry has suffered a deficit in both productivity and innovation. In the public sector, the deficit in R&D productivity is due to the lack of resources required for academic entrepreneurs to advance their technologies to a point where they can be licensed or used to form start-up companies. Since many entrepreneurs are often unable to find the amount of capital needed to effectively commercialize their technologies, their projects are often trapped in a cash flow “valley of death” (see Figure 20.2) [22]. There are four critical resources needed to execute successful commercialization efforts: (1) capital, (2) scientific or technical expertise and qualified intellectual property (IP), (3) business expertise, and (4) facilities. There is interdependency between these resources, whereby not having one can make it more difficult to obtain the others. Nevertheless, an entrepreneur contemplating an early-stage technology business must obtain access to all of these resources to achieve success.

In an effort to address the decline in research productivity and innovation, government health organizations, academic institutions, and pharmaceutical companies have begun to form public–private partnerships [7]. These partnerships will allow the public and private sectors to share the costs and risk of translational research. The public (industry) partners benefit by gaining access to knowledge and novel ideas possessed by academic researchers. In turn, the researchers will gain access to the funding and/or business expertise necessary to turn their ideas into innovative technologies. Essentially, public–private partnerships are an effective way to facilitate the discovery and the commercialization of new technologies. Public–private partnerships can take on many forms, which will be discussed later in the chapter.

Bridging the Valley of Death: Examples of Current Models

As referenced earlier, there has been a lack of focus (and resources) on several of the early steps that must be taken to transform a novel technology into a marketable product or service. There appears to be an assumption that once a discovery is made, it will become a product or service in the marketplace through some natural evolution. Unfortunately, this scenario is becoming more difficult. Two critical steps required for successful technology commercialization include proper evaluation of the technology (see Table 20.1) and creating an integrated ecosystem that supports the ongoing development of the technology. Relative to the resources devoted to building and supporting research infrastructure, the resources dedicated to commercialization efforts are sorely lacking. Resources include funding and the necessary business and technical advice required to move research discoveries along the commercialization continuum. Given this imbalance, it is not surprising that the number and pace of novel innovations and new commercial enterprises in the United States are frustratingly low [22]. Additionally, the process to acquire the necessary resources is time-consuming, which contributes to the low outcomes as great ideas fall away due to the burden of translation.

The need for science and innovation to drive economic growth in the United States has never been greater. The United States has invested hundreds of billions of dollars in research and research infrastructure over the last 25 years. In fact, the NIH provided over $31 billion in funding for the 2010 fiscal year [23]. These investments have resulted in many advances that have benefited society; however, there is concern that the size of investment is not yielding new therapies to the extent proposed. Despite this concern, the NIH budget rose $1.0 billion (3.2%) to $32.2 billion in FY 2011 from the FY 2010 budget. New Director Francis Collins named five priority areas: high-throughput technologies, translational medicine, informing health-care reform, global health, and reinvigorating the biomedical research community. Transformation of various research discoveries into new products and services is not as productive as it could be, and the public’s concern is being articulated in various media. For example, a recent Newsweek article focusing on the large public investment in research stated that, “More and more policymakers and patients are asking, ‘Where are the cures?’ ” The answer is that potential cures, or at least treatments, are stuck in the chasm between a scientific discovery and the doctor’s office known as the valley of death. Clearly, a focus on innovative commercialization efforts would help address this concern [24]. To this end, HR3590, the Patient Protection and Affordable Care Act, authorizes the creation of the Cures Acceleration Network, which focuses on accelerating the development of high-need cures, including the development of medical pro­ducts and behavioral therapies. Other efforts are also being made to provide resources to support economic development through the creation of more small businesses across the United States.

Currently, there are many models in the public and private sector that address the cash flow valley of death faced by entrepreneurs. In addition to traditional entrepreneurial funding such as venture capital firms and angel investors, there are proof of concept centers and specialized federal, academic, and pharmaceutical industry programs focused on developing early-stage technologies.

1. Venture Capital and Angel Investments:  The first “valley” presenting a challenge to commercializing a technology can be found at the early-stage transition point between discovery and development. Access to early-stage capital to finance pre-seed and seed stages has changed significantly over the past 10 years. “Changed significantly” means that it is increasingly difficult to raise the $100K–$2M necessary to advance beyond the pre-seed stage. Only 4% of venture capital investment went into early-stage companies last year. In fact, after the 2008 financial crisis, it became much more difficult to even raise the pre-seed funds ($25K–$100K) necessary to get beyond proof of concept. Technologies with uncertain commercial potential represent significant risks for investors. Therefore, to fund innovation development through this technical risk phase, sources of early-stage capital typically include friends, family, and angel investors. In this scenario, demand far outweighs supply, and demand is further augmented by the fact that funding biotechs is much more expensive than developing software. Furthermore, in addition to the shifting support of venture capital funding to later stage investments, early data are showing that angel investors may also be shifting their investment strategy. Angel investment groups, and some individual angels, are now co-investing in larger deals or later stage companies. According to the Angel Capital Association, in 2008, the majority of angel groups or networks looked to invest between $250K–$500K, with $25K–$250K running a close second [25]. Now, 3 years later, rather than one angel group putting $250K in an early-stage company and running the risk that the company would not be able to raise additional funding, angel groups are now co-investing with one another or with venture funds so that the total is closer to $1M or $2M. This early-stage funding gap is further expanding the size of the valley of death and thus, new solutions are required to bridge the divide. The longer this early-stage funding gap continues without a workable solution, the greater the chance that institutional venture funds and growth capital investors will see a widening gap in the number of companies that reach their respective stage of investment [26].
   
2. Federal Programs:  The federal government has implemented various initiatives and programs in an attempt to address some of the valley of death concerns. Over the past 25 years the federal government has promoted the Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programs. The programs’ legislative objectives are to stimulate technological innovation and use small businesses to meet federal research and development needs. According to a recent report, the NIH has had some success in focusing its SBIR/STTR program on commercialization, but room for improvement remains [27]. The NIH is beginning to recognize that a greater emphasis at the pre-SBIR (proof-of-concept) stage could significantly increase the effectiveness of the SBIR program and assist in furthering important technology. For example, many applicants do poorly or fail because of prematurely formed companies (necessary to qualify for the program), insufficiently developed technology, and an inadequate assessment of commercial feasibility. Currently, there are few federal programs or mechanisms to address these issues.
   
3. Proof of Concept Centers:  Early stress testing of a new technology’s commercial feasibility is critical for the development of a successful product. Early indications show that Proof of Concept Centers (POCCs) can serve a very effective role in facilitating technology commercialization and economic development. According to the Kauffman Foundation, “Proof of Concept Centers are a new model of support at some universities that provide seed funding and expert assistance to help entrepreneurs prepare for the strongest market entry possible.” Recognizing that the POCCs are an effective method for launching the commercialization of academic innovation and to fill the seed-stage funding gap for new technologies, the Kauffman Foundation is facilitating networking among these centers, studying best practices, and establishing metrics for measuring outcomes. Kauffman has reviewed two examples of POCCs, the William J. von Liebig Center at the University of California, San Diego, founded in 2001, and the Deshpande Center at MIT, founded in 2002. Results thus far suggest that the POCC is a good model. By early 2008, the two centers combined had provided nearly $10M in grants, producing 26 spinout companies that raised an additional $159M in private investment. As the Foundation states, “the process is useful even when it demonstrates that a research idea will not be viable. The researcher can move on quickly to other work, better informed about what could help make the next idea a winner” [28]. Failing quickly is a good outcome in the case of technology commercialization so that limited resources are not wasted.
   The number of states forming and supporting bioscience POCCs has increased from 23 to 33 since 2006 [29]. This increase is due in large part to the broader realization of the effectiveness of these Centers in technology commercialization and the value they can bring to the state. However, technology “deal flow” is also an essential element to success; creating POCCs at every research institute is therefore not an effective solution.
   
4. Academic Programs:  Most academic institutions in the United States have some form of “technology transfer office,” which is responsible for generating IP around technologies developed on campus. These offices generally focus on licensing the technology rather than commercializing it through the creation of a new entity. Therefore, there are often few resources available for academic entrepreneurs seeking funding and commercialization advice. However, some universities are making an effort to do more to address technology commercialization issues faced by entrepreneurs. Programs such as the Biomedical Accelerator Fund at Harvard University provide funding for academics pursuing translational research. The Bioscience Discovery Evaluation Grant Program at the University of Colorado provides technology commercialization resources to students, faculty, and research staff who want to form start-ups.
   
5. Industry Programs:  In addition to traditional sponsor research agreements or grant programs, large pharmaceutical companies such as Lilly, Pfizer, GSK (and others) have implemented new public–private partnership models that can be divided according to their organizational structure into either centralized or virtual organizations. For example, a central organization has a lean organization at its core. Pfizer has recently announced the creation, together with the University of California, San Francisco, of the first Global Centers for Therapeutic Innovation (CTI) focused on the development of biotherapeutics. The CTI will be staffed with 20 or so Pfizer employees, with each project being led by local academic researchers and CTI Pfizer employees. Pfizer plans to create several CTIs with major academic institutes around the world. The budget committed to each center will be around $90 million. Virtual organizations, on the other hand, include the model announced by GSK. This new initiative aims to create up to 10 relationships with individual researchers throughout the world, forming a virtual project team with each of them to provide immediate access to GSK resources for developing new therapeutics. Similarly, Lilly has launched the Open Innovation Drug Discovery Program, which includes the Lilly Phenotypic Drug Discovery Initiative (PD²) and the Lilly Target Drug Discovery Initiative (TargetD²) Platforms. This program allows academic researchers to submit tool compounds to be tested in Lilly’s internal disease-relevant and target-based assay panels, respectfully, but neither approach provides opportunities for academic researchers to be acquainted to industrial needs. In Table 20.2, we have highlighted example models that are aimed at commercializing technologies through partnerships from within industry and outlined some of the pros and cons of the various models.

   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   

   Lilly—Open Innovation Drug Discovery Provides academic researchers access to their assays and computational tools and maintain first right to negotiate	Pros: Clear timeline and exit, IP belongs to investigator, requires minimal investment Cons: Not very proactive, minimal communication
   Pfizer—Global Center for Therapeutic Innovation Laboratories on or near campuses staffed with Pfizer and academic researchers	Pros: Integrated process, monetary incentive for investigators, clear expectations surrounding IP, designated facility promotes open communication, local proximity, embedded scientists together Cons: Requires significant investment
   Johnson & Johnson Development Corporation Venture Capital subsidiary that invests in emerging health-care businesses Johnson & Johnson COSAT Team of researchers that identify and aid high-risk projects	Pros: Proactive, clearly defined focus areas, rapid review of technology, early partnerships possible Cons: Unclear timeline and expectations regarding exit/IP
   Abbott—Global Licensing and New Business Development Team	Pros: Promotes open communication Cons: Unclear timeline and IP expectations, not proactive in finding entrepreneurs
   AstraZeneca—Innovative Medicine Units Teams focused on an area of study identify and evaluate	Pros: Promise to be prompt, unclear IP expectations Cons: No clear timeline, they prioritize late-stage projects
   Novartis	Pros: Defined areas of interest, single database to organize opportunities Cons: Not proactive, no clear timeline
   Amgen Extramural Research Alliances and Licensing Provides Amgen products and related materials to academic investigators at no cost	Pros: Actively seeks new projects, integrated and interdisciplinary team handles valuation and communicates with entrepreneur Cons: No clear timeline, focuses on preclinical and clinical projects
   Merck Partnering Worldwide scouts seek out external opportunities. Projects are evaluated and collaborations established in a four-step partnership process	Pros: Flexible and clear process, definitive agreements drafted before collaborative work begins Cons: No clear timeline, IP expectations unclear
   Roche—Expanding the Innovation Network Provides strategic questions, funding, and guidance for academic projects	Pros: Specific needs of the company are made clear, first right to negotiate for licensing or partnering Cons: IP expectations unclear
   GSK—Open Innovation Team http://innovation.gsk.com/ Entrepreneurs can form virtual project teams with them	Pros: Relatively clear timeline, interdisciplinary team dedicated to communicating with entrepreneurs Cons: Not very proactive, very broad input expectations

New Strategies for Improving R&D Productivity: The Access Platform

Each year, investigators at universities throughout the world are developing innovative assays and finding tool compounds and biologics that are never fully evaluated as potential drug candidates. One of the challenges for academic investigators is to have ready access to know-how and expertise in drug discovery and development. Therefore, E2C aims to become part of the valorization process of academic institutes by providing access to its expertise (in assay development, screening, and hit identification/optimization) through a collaborative platform model known as the Access Platform. If promising, results can further serve as a basis for requesting options or license agreements. Equally important, the Access Platform model will create a 50/50 joint relationship where the goals of the academic investigators (or biotechs) and E2C are aligned and both sides are empowered to succeed.

A key part of this initiative is to expand the level of collaborative research with selected academic institutes to fuel innovative discovery in the E2C key domains while also providing a means for E2C to rapidly acquire and exploit new expertise in various scientific domains. At steady state, the E2C Access Platform is designed to deliver optimized tools and leads (small molecules and biologics).

University research has formed the foundation for a majority of the significant technological and medical advancements. Despite this fact, it is well known that many additional innovative ideas and assays, developed by academic research, remain in the laboratories of academia and are waiting to be disclosed and used by industrial partners (mostly big pharma) for drug discovery purposes. In this context, there is a need to build a strong bridge and close the transfer gap between basic “academic” research and market exploitation.

The strategic aim of the Access Platform is to create a collaborative platform for the development of new drugs, bringing together first-class public labs and a major pharma player like SANOFI through its E2C unit (see Figure 20.3). Starting from targets, novel phenotypic assays, or tool compounds from public lab sources, the pipeline leads to the identification and evaluation of novel tool compounds and/or biologics in the E2C Access Platform to accelerate discoveries in the several scientific domains. This Access Platform is a unique early partnering concept operating in a mutual shared-risk framework with several benefits for both partners:

• SANOFI is able to access early external innovation requiring maturation or de-risking steps (no additional costs except operational cost of the Access Platform will be required for the de-risking step).
  
• Academic partners are able to access know-how and skills in pharmaceutical drug discovery through a fully operational and integrated platform.
  
• A win–win situation is created: E2C is afforded the opportunity to enter into in-licensing agreements on “validated” projects, and external partners are able to valorize their project according to “pharmaceutical” standards.

The E2C Access Platform model creates an efficient, cost-effective mechanism to open innovation portals for SANOFI R&D. An adaptation of the current E2C Access Platform that exists in Europe and China is being launched to leverage efforts at academic drug discovery centers throughout the United States. This strategy permits access to mature discovery projects (assays, tools, leads) where significant investments and validation has already been accomplished. The Access Platform DC² partnering model (U.S. arm of the Access Platform) only relies upon the investment of internal SANOFI resources initially and postpones the commitment of any R&D funds until after key project milestones have been achieved, thereby decreasing the financial risk associated with external partnering. In addition, since the projects engage partnered resources within SANOFI, the quality will be higher and the investment will be lower than in-licensing the project from the discovery centers directly. Overall, the Access Platform DC² model increases the ability of SANOFI to capture innovative opportunities and progress them toward development candidates while decreasing the scientific and financial risk associated with early drug discovery.

Challenges to Public–Private Partnerships: Seizing the Opportunity

Guiding Principles for Partnering: What Have We Learned to Date?

Expanding the Access Platform to Evolve with Global Change: Open Innovation versus Crowdsourcing

“Open innovation” has gone from theory to case studies and has now moved into corporate strategic planning as a recognized tool and current hot topic in management circles. As such, organizations must review the decisions associated with the process as part of their ongoing financial strategies. To be effective, financial groups need to review decisions in terms of impact to the product pipeline and the development of new cash flow sources on an ongoing basis. Technology managers plan around the completion of a project; financial organizations seek success of the overall program and manage risk across multiple events. The challenge is to find the ROI in the process. Case studies have many examples of the importance of open innovation, but roll back to high technology-centered corporations in markets with rapid turnover (Intel), global product development groups (Procter and Gamble), or companies that have made R&D part of their culture (3M). For example, at 3M, each associate had 10% of their time to work on a back-burner project with other associates and at Raytheon, chosen (up to 20 per year) associates were given a 1-year period to create a team of their choosing on a project of their choosing with full authority. What we do not see are the case studies on the failure of innovation (Mark Hurd’s cutbacks at HP) or where the longer term payback was for companies who run extensive programs (GSK).

The existing open innovation model tends to focus on the value-generating properties of collaboration with external partners. In particular, it seems to assume that collaboration with external partners improves product innovation performance, which in turn has a positive impact on financial performance. At the same time, the open innovation model remains relatively silent on the cost implications of collaborative strategies. In this way, we were able to show that greater technology alliance portfolio diversity indirectly (i.e., via increased internal innovation efforts and product innovation performance) decreases the share of personnel costs in the added value. At the same time, though, we also found greater technology alliance portfolio diversity directly increases the share of personnel costs in the added value. Moreover, our analyses (data not shown) indicated that the direct cost-increasing effect supersedes the indirect value-enhancing effect. As a result, the total effect of the technology alliance portfolio on the profit margin of the firm turned out to be negative. The development of the collaboration pipeline must be part of a strategic plan for company growth. On steady earnings, the stock price remains unchanged. To grow the stock price, growth in new products and revenue must occur on a consistent and regular basis. Innovation projects, whether new technologies or revenue generation, are key to maintaining long-term corporate growth and stock price.

Summary, Conclusions, and Recommendations

Finding Common Ground through a Common Understanding

Organizations must develop a balanced strategy around innovation, provide a mix of risk and nonrisk investments, and allow the organization to work simultaneously with sustaining and disruptive technologies. Many innovation consulting groups focus on the value and strategies around the importance of innovation, open innovation, crowdsourcing, and other ideas, and do not focus on maintaining the ROI to the corporation, allowing them to manage risk and support innovation programs. Predictive systems based upon risk assumptions have their own challenges. Financial models will be used to understand the risk points and allow the organization to make decisions earlier in the development process to proceed or abort a project based upon criteria developed in advance. What is not critical is the guarantee of success of an individual project, but the more successful management of the risk across the system:

• Development of a process of innovation
  
• Development of financial models that can be verified with the marketplace for acceptance, rather than an inward focus
  
• Development of a portfolio that shows managed risk over an extended period of time
  
• Aggressive pipeline management to ensure new compounds meet certain completion steps or are terminated from the pipeline
  
• Management of the portfolio to ensure that the gaps in the annual pipeline are filled by new compounds, licensing of other technologies, purchase of companies, or development of cooperative agreements
  
• Management of internal R&D into a structure of joint ventures with scientists and external financial organizations
  
• Cooperation with universities and smaller organizations especially in the area of patent support and market development, which are the vulnerabilities of these two groups
  
• Developing long-term interests in new markets and using older products to enter these markets and create relationships which can be leveraged when newer products are introduced to these markets.

Corporations need to manage collaborative relationships. These relationships are critical to growth, process, and risk management. Successful corporations look extensively outside for new ideas and technologies and the ability to supplement current product offerings with external ideas. The execution of this process is what differentiates the winners from the losers. In “The Road to Positive R&D Returns,” the authors note several strategies for managing innovation as it relates to generating bottom-line results. In their Exhibit 2, these strategies include moving testing to earlier phases, reducing launch time for drug development, and reviewing cost models for the development of the compound. The authors state,

A consistent, aggressive, and simultaneous focus on costs, speed, and decision making could raise an average small molecule’s IRR [internal rate of return] to about 13 percent, from 7.5 percent. Let’s say that a leading pharmaceutical company has a typical R&D portfolio split 75 percent to 25 percent between small molecules and biologics, respectively, and distributed across various phases of development. Our approach would raise the portfolio’s returns to between 14 and 15 percent, from 9 to 10 percent currently. [31]

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