Developing sustainable competitive advantage in the biopharmaceutical industry

Developing sustainable competitive advantage in the biopharmaceutical industry, through the use of network innovation strategies Chris Jeffs Senior Lecturer in Strategic Management and International Business Newcastle Business School Northumbria University England

Research map

Innovation/creativity

Outline of lecture n n n Biopharmaceutical Industry Biopharmaceutical networks Projects within networks Knowledge transfer Limitations of Biopharmaceutical knowledge transfer Optimising biopharmaceutical innovation through innovation networks

Pharmaceutical Value Chain Basic Research Academic Government Disease Discovery Business Strategy Disease Understanding Target Identification Private • Structural genomics • Genetics • Biomedical Research • Mammalian natural products research Target. Validation • Prior validation • Functional genomics • Human genetics • Animal genetics (knockouts & transgenics) • Exploratory clinical studies (academic research) • Research –Transcriptional Profiling –Proteomics –Biomedicine Drug Discovery Drug Development Assay Development Process Research Lead Compound Selection Scale Up Generate Compounds • Historical Libraries • Natural Products • Combinatorial Chemistry • Targeted Synthesis • Rational Design Evaluate Compounds • Characterize compounds • Screen for activity • Hi Thru-put Screening (Hits) Optimize Compounds • Late stage synthesis • Identification/Purification • Secondary screening • Testing in animals • Prelim bioavailability • Specificity, Metabolism • Pharmacology (Leads) Development Candidate Discovery • Evaluate Mfg Process • Environmental safety • IP Stability & Formulation Testing Safety Testing -In. Vivo • Animal testing • Toxicity Testing (side effects) • Metabolism (DMPk) • Pharmacokinetics • ADME • Bioavailability Clinical Plan Exploratory Drug Candidate (EDC) (Clinical Candidate) Investigational New Drug (IND) (CTX) Informatics Clinical Trials Manufacturing & Post Market Surveillance Phase I Trials • Initial testing of humans (50) • Normal population • Safety profile • Human metabolism • Pharmacokinetics Manufacturing • Process Monitoring • QA/QC • Troubleshooting Phase II Trials • Human testing (100 -300) • Control studies - patients • Efficacy (does it work? ) • Dosage (amount, frequency) • Safety and Metabolism • Final mfg process definition Post Market Survey • Ongoing monitoring of patients Phase III Trials • Human testing (1000's) • Safety testing, long duration • Multicenter studies • Comparative trial (to existing therapeutics) • 3 years Phase IV Clinical Trials • New indications • New dosages Generics/ OTC • Bioequivalence to New Drug Application (NDA) (PLA international) existing drugs

Background n n n Biopharmaceuticals are used therapeutically Biopharmaceuticals include proteins, antibodies and nucleic acids, and are produced by means other than direct extraction biological source. The first such substance approved for therapeutic use was biosynthetic 'human' insulin made via recombinant DNA technology. ¡ It was developed by Genentech under the trade name Humulin, but licensed to Eli Lilly and Company, who manufactured and marketed the product from 1982.

Sustainable Competitive Advantage through Collaborative Networking n Relational capabilities (Owen-Smith et al, 2002) ¡ Facilitate innovation by network linkages n n Integrative capabilities (Owen-Smith et al, 2002) ¡ n National/Political Social Cultural Translation of basic research into commercial applications Switching strategy (Lampel, 2001 ) ¡ Seeking high quality opportunities wherever they may be found; trying to capture these opportunities, and then turning their attention to transforming these opportunities into revenues

Glaxo. Smith. Kline (2009) n n We enjoy a strong record in establishing and maintaining collaborations with scientists and organizations in both industry and academia. Since its inception, Glaxo. Smith. Kline has established over 50 compound alliances, which now represent over 40% of Glaxo. Smith. Kline’s development pipeline, along with a wealth of technology and academic alliances. http: //www. gsk. com/about/downloads/busdev-brochure. pdf

Crystal Genomics Dr Joong Myung Cho, CEO. n n n SEOUL-headquartered is a structure-based drug delivery and development company. The company was founded in 2000 and was listed on the KOSDAQ in early 2006. It has a wholly-owned subsidiary, CG Pharmaceuticals, in Emerville, US. Crystal Genomics has a diverse pipeline in the disease areas of inflammation, anti-infectives and cancer Because Korea is still relatively unknown in the biotech and pharmaceutical industries, it takes extra efforts to be noticed by potential global partners to consider Crystal. Genomics as a collaborating partner or to in-license our assets for further development.

Crystal Genomics collaborations

Biopharmaceutical collaboration n n Rapid technological change, uncertainty & risk leads to increased numbers of collaborative ventures Collaboration may be to¡ ¡ ¡ n Fill in gaps in the value chain / gain resources Increase the likelihood of market success Increase the product portfolio Gain access to knowledge Embed the organisation into a community of practice Biopharmaceutical collaboration¡ ¡ ¡ Collaboration is typically as focal hubs Collaboration raises entry barriers Exclusivity is not always essential, competitors may also be partners, profit can be made at all stages of the value chain

XOMA collaborative product development www. pharmalicensing. com

Alliances by stage Garnsey, Leong (2007)

Project Classifications Newell et al (2007) Complex Simple Project Ecology (Time, space, # of organisations involved) Multiple dispersed projects involved but each operating independently on tasks with output pooled or sequentially added Multiple dispersed projects working together reciprocally on tasks in order to integrate knowledge Small number of co-located projects each operating independently on tasks with output pooled or sequentially added Small number of co-located projects working together reciprocally on tasks in order to integrate knowledge Low High Project Interactivity (How task interdependencies are managed across projects)

Knowledge transferability Type of knowledge Description Individual tacit knowledge (Polanyi, 1966) Developed through Protected by good HRM experience and hard to processes to motivate put into words, or even and retain employees to detect until required ‘Sticky’ collective tacit knowledge (Szulanski, 1996) Knowledge embedded in social structures about how to act in particular situations Protected as distributed through a collection of people. Damaged if social structures are disrupted ‘Leaky’ explicit knowledge (Szulanski, 1996) Knowledge that is explicit and inherently mobile Protected through forms of data protection & patents, trademarks etc Adapted from Mc. Kenzie, J. & Van Winkelen, C. (2004). Protection issues

Knowledge transfer across boundaries: Integrated 3 -T framework (Carlile, 2004) Increasing Novelty Pragmatic Transformation Semantic Translation Actor A Syntactic Transfer Actor B Known

Knowledge transfer in networks n Inter or Intra organisational networks based on shallow/weak ties more effective for the integration of explicit knowledge (Hansen, 1999) n n n Interpersonal networks, involving deep trust based relationships more appropriate for the integration of tacit forms of knowledge (Oliver & Liebeskind, 1998) Reciprocal interdependence, Sub-tasks must continuously interact because the outputs and decisions from one will have a direct impact on the other; i. e. knowledge flows to and fro between those involved. (Thompson, 1967) Opportunities for networked innovation are seen as increasingly important to organisational performance facilitating the creation of new knowledge, rather than just the transfer of existing knowledge. (Gulati, 1999)

Barriers to knowledge transfer within networked collaborations Processes Technologies Cultural differences Boundaries Power relationships

Boundaries, innovation & competitive advantage n Most innovation happens at boundaries between disciplines or specialisations (Leonard, 1995) n n n Innovation is most likely to form at the interstices of collaborating groups and organisations (Powell et al, 1996) Innovation is difficult to maintain due to ‘knowledge boundaries’ (Brown & Duguid, 2001) Knowledge is both a source of and barrier to innovation (Carlile, 2002)

Boundaries to innovation in complex networks (Carlile, 2004) n n n Not just a bundle of resources but a bundle of different boundaries where knowledge must be shared and assessed. Boundary management essential and where novelty arises it must be addressed Actors tend to reuse knowledge which limits capacity to recognise when novelty is represented

Innovation leading to sustainable competitive advantage (Lampel, 2001) n n Requires: Trust between partners in the partner selection process Entrepreneurial competencies – quickly sizing up and judge which opportunities and relationships are worth exploring or avoiding Able to handle relationships with diverse partners and deal with unforeseen contingencies as they arise. Complex innovation networks/ project ecologies rely on “a collaborative effort by a group of organisations in which none wields complete control”

Limitations to biopharmaceutical knowledge transfer (Carlile, 2002) n Complex project ecologies pose distinct challenges for coordination of project work. ¡ Knowledge regime n ¡ IP framework unfavourable to collective learning Power dynamics n Conflict rather than interaction Knowledge transfer dependent on changeable relations and interests n Resource dependency relationships n

Pisano (2006) n n n Existing anatomy of biopharmaceutical industry not appropriate, giving the long-term risks and uncertainty of projects Need for knowledge transfer and integration across disciplines is not being met Long-term collaborations rather than shorter term contracts Monetizing IP is not sustainable More inter-disciplinary research required

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