Barriers to Outbound Open Innovation in large biopharmaceutical enterprises

4 Problem description . 7 Research question . 10 Justification. 10 Usefulness . 13 Scope . 13 Related/Relevant Innovation Theories . 14 Outbound OI (OOI) modes . 15 OOI – examples within the pharmaceutical industry . 16 Conceptual framework and hypotheses . 21 Managerial framework . 24 Methodology . 26 Research design . 26 Data gathering . 27 Data analysis . 28 Research quality . 30 Results . 31 Selected OOI examples from interviewed companies . 31 Result overview . 32 OOI activity characterization . 36 OOI objective . 37 Importance of OOI within corporate strategy . 38 Inbound vs. outbound . 38 Asset selection . 39 Internal barriers . 40 External barriers . 41 Supporting management . 42 Barriers to Outbound Open Innovation in large biopharmaceutical enterprises 6 SIM Master‘s Thesis | Flavia Botschen Discussion . 45 Limitations & Future research . 50 Managerial advice . 52 Conclusion & Outlook . 55 References . 57 Appendix . 59 Barriers to Outbound Open Innovation in large biopharmaceutical enterprises 7 SIM Master‘s Thesis | Flavia Botschen Problem description In the current knowledge-based setting of our global economy, leverage of knowledge and creation of new commercializable ideas are crucial processes which have to be managed properly if a company wants to sustain its competitive advantage and thus its survival. This is particularly the case for traditionally knowledge-intensive sectors like the pharmaceutical industry. In addition to competitive pressure exerted by multiple players wanting to reap the benefits from this lucrative market, this sector faces severe challenges from a multitude of directions, ranging from significant decrease in R&D-productivity (Hughes, 2009), spiralling costs and increasing complexity of drug development (Belsey, 2007) to considerable revenue losses due to patent expiration of many major drugs to be expected in the forthcoming years (Frantz, 2006). Furthermore, payors (government and health insurances) are exerting pressure on the price levels of marketed drugs and on safety regulations, which further reduces the achievable revenues for pharmaceutical companies. All these challenges currently faced by the pharmaceutical industry indicate that the current business model is far from optimal. This is also apparent when considering that the number of newly approved innovative drugs (new molecular entities (NMEs)) has remained constant during the last 60 years whereas R&D spending has grown 12.3% annually since the 1970s (Munos, 2009). Clearly, there is a need for a new business model delivering higher innovative output. This is also apparent when considering that during the period of 1998-2007 more than half (56%) of all ‘scientifically novel’ drugs approved by the FDA (US Food and Drug Administration) were originally discovered by biotech companies and academia and not by the larger pharmaceutical companies (Kneller, 2010). As a reaction, the pharmaceutical industry has already reconsidered its traditional fully integrated model where the entire drug discovery and development value chain was performed by primarily drawing on internal sources of knowledge and innovation. Although already pursued to some extent in the past, especially in the past decade, Big Pharma has increasingly relied on in-sourcing assets and knowledge via in-licensing and M&A activities (Tralau-Stewart et al., 2009). Realizing that doing everything by themselves is risky, connected to significant investments (Gilbert et al., 2003) and does not deliver the required R&D-productivity, Big Pharma is now relying extensively on external sources of innovation (Mullen, 2007; Jones, 2007). In a cross-industry context addressing this phenomenon of opening up to external sources of innovation, Henry Chesbrough has coined the term ‘open innovation’ which he defines 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 firms look to advance their technology” (Chesbrough, 2003, p.xxiv). Depending on origin of the idea and the chosen path to market, open innovation (OI) can be divided into two dimensions: (i) inbound OI (IOI) comprising practices leading to the acquisition of external knowledge and expertise which are then developed internally and marketed by the focal firm and (ii) outbound OI (OOI) which is concerned with the transfer of internal knowledge to external organizations for commercial purposes (Chesbrough & Crowther, 2006; Bianchi et al., 2010). Examples for inbound OI include in-licensing of intellectual property (IP), external networking and Barriers to Outbound Open Innovation in large biopharmaceutical enterprises 8 SIM Master‘s Thesis | Flavia Botschen alliances, customer involvement, and outsourcing of R&D (van de Vrande et al., 2009). Outbound OI activities on the other hand include for instance out-licensing of intellectual property, venturing (spin-off, joint ventures), supply of scientific services, and alliances for exploitation (van de Vrande et al., 2009, Bianchi et al., 2010). Due to the reciprocal nature of the OI process, an inbound activity of one party is simultaneously an outbound activity for the providing counterpart. Consequently, there are always as many inbound as outbound activities ongoing. However, there seems to exist an imbalance regarding the preference to pursue one mode or the other. Whereas inbound OI represents an already quite established practice in most companies (Lichtenthaler, 2010; Bianchi et al., 2010), outbound OI has been found to be practiced to a much lesser extent (Bianchi et al., 2010). This indicates that a small number of companies specialized on outbound activities are providing a large variety of companies with assets. In the pharmaceutical sector this observed preference for IOI is particularly true for large pharmaceutical companies (‘Big Pharma’), as already alluded to above. They are indisputably th