Capturing Value from Biotech Inventions in the Era of Open Innovation

Abstract

The approach to research and development (R&D) of new products in large companies has changed greatly in recent decades. While innovation of new products in large companies used to be driven by large investments in internal R&D infrastructures, globalization, employee mobility and risk-willing capital has led to a change in this behavior. Large companies now face competition from thousands of startups and small-medium enterprises (SMEs), but instead of building walls to protect their business, we have seen a shift in the innovation paradigm to a more open approach. Especially within industries where there is a constant pressure from new products, such as the information technology- , pharmaceutical- and energy sector, a landscape of collaborations between large established companies, small-medium-enterprises, startups and public funded institutions has evolved. As a stakeholder in this landscape, it is important to be able to identify and absorb innovation from external sources. Large companies must be able to adopt innovation from external sources and small stakeholders must be able to identify and make contact to the correct larger stakeholder in order to make a successful partnership. The focus of this thesis was partnership establishment between small startups and large companies within the pharmaceutical and biotech sector and the different approaches for startups to capture value from their technological inventions. A literature review of the factors involved in high-tech partnerships in the era of open innovation was conducted and the most relevant factors surrounding partnerships in pharma and biotech were explained. While doing so we employed a theoretical framework to analyze a case example from the pharma industry, more specifically the medical device pre-spinout company MiM that has developed a gastrointestinal model. We used a framework developed by Gans & Stern in combination with our literature review in order provide MiM with the best strategy for commercialization of their technology and development of future partnerships, taking into consideration appropriability and complementary assets. We described and analyzed three different commercialization strategies for MiM; 1) integration into an established value chain by collaborating with a larger medical device company, 2) sell their technology directly to the pharma industry and 3) establishing MiM as a fee-for-service company that can provide high-throughput screening of compounds with their gastrointestinal model. With no formal intellectual property rights on their technology, we anticipate limited possibilities for integrating into an existing value chain of established medical device companies due to the risk of expropriation. From the analysis of the MiM business case, we therefore suggested two commercialization strategies for MiM: 1) MiM can compete in the product market by selling their technology; however, they must be very careful with which companies they supply. Their customers should only be pharmaceutical and biotech companies developing therapeutics, as we expect limited interest for such companies to expropriate MiM’s technology. 2) Our principal recommendation to MiM is to enter the market as a fee-for-service company that can conduct high-throughput test of compounds in their gastrointestinal model. In this way, they can keep their invention in-house limiting the risk of expropriation. The considerations and factors provided in this thesis for determining commercialization strategy and partnership interaction are of general interest to early biotech startups, but our analysis and suggestions to MiM is very case specific and would be hard to apply to other startups.