Creating and Capturing Value through Open Innovation Initiatives in the Pharmaceutical Industry

Abstract

The pharmaceutical industry is heavily dependent on innovation in order to provide new drugs for patients. This will generate revenue and profit that can ensure continued growth for the companies and new therapies for the patients. The efficacy of internal R&D has been declining in the pharmaceutical companies for the last decades and therefore they have to supplement their pipelines with molecules and technologies developed externally. Traditionally inclusion of externally developed molecules and technologies has proceeded through in-licensing, merger and acquisitions and joint ventures. However, recently the drug discovery paradigm has changed towards open innovation. Some pharmaceutical companies have for example developed innovation centres for external innovators to explore scientific and business aspects of the external inventions, whereas other pharmaceutical companies have recently implemented open innovation platforms, where compounds submitted by external stakeholders can be screened for biological activity in disease assays relevant for the pharmaceutical companies. The results of this thesis is primarily based on the Open Innovation platform at LEO Pharma and will investigate what value such open innovation initiatives create for the pharmaceutical companies implementing them and how value can be captured with such initiatives. Ultimately the value created via open innovation platforms should result in development of novel drugs for patients. Drug development is a risky and expensive venture and thus the pharmaceutical companies do not pursue many interesting opportunities encountered in the open innovation platforms internally. Financial constraints by the pharmaceutical company are often limiting the pursuance of assets and thus we have developed a model that can enable financial and scientific support for external development of interesting assets. The early-stage of assets evaluated in the open innovation platforms and the perceived risk of adverse selection make in infeasible to attract financial resources from independent venture capitalists. In order to bridge the gap to the independent venture capitalists we propose establishment of an enabling grant-setup and a corporate venture arm for larger investments at LEO Pharma, which can be used to signal that LEO Pharma believes in the asset and will better enable LEO Pharma to capture value from externally developed assets.