Open Innovation Panel 2013

June 13, 2013, Association for Corporate Growth, San Jose, CA—An executive panel considered the issues of innovation in their respective industries. Sharma Banerjee from Socialtext moderated the panel, and panelists were Komathi Stem from Genentech, Stan Rosenschein from BranchTime, Brian Steel from UC Berkeley, and Karoly Nikolich from Circuit Theraputics.

While the open innovation movement is a broad topic, what does it mean to you?
Stem observed that in biotech, the term is a relative oxymoron, since the industry is IP-based. It’s possible to share common base technologies, but it is uncomfortable. One way is to work directly with patients, rather than through the providers. Open innovation offers global access in developing molecules and is a different approach. It is a big change from the user and provider perspective.
Steel commented that everyone is focusing on new vectors. Not only the big companies, but all are moving towards mobile knowledge and distributed collaboration. New platforms are enabling mass customization as APIs and SDKs proliferate. Crowd funding is starting to impact the VC community, so many vectors are moving away from the big companies to more dynamic functions.
Rosenschein noted that scientific research has always worked in a shared knowledge environment. Researchers share techniques and base information through workshops and conferences. A lot is common sense. For example, students intern at SRI over the summers to get many grad students away from their main institution and into a place where they can work together with others. NASA is hosting an open design study to design robots for Mars. Ten thousand people are involved in creating new ideas, and identifying the needed technologies.
Nikolich stated that open innovation is hard in medicine. In other industries like oil exploration, companies have always shared, but pharmaceutical companies are haunted by the many big and expensive failures. Now, a new drug can cost over $3B before it can enter the market. But change is coming, seven companies in Europe are sharing in a large pool to address a number of targets.

Open innovation can be seen in many ways, with many methodologies and changing funding. What is the use?
Steel responded that many are working with other people to leverage many subject matter experts and use new types of tools, like Google forums for comments. New collaboration tools are emerging.
Stem added that open source platforms are enabling increased sharing and participation with groups. Part of the change is in redefining the IP, as they have found solutions from other individuals and industries. Now, they try to host a “hackathon” for human design. The transparency in the life sciences is improving in the form of an open source drug development platform. The developments are open source, but the final product will be the only valuable outcome.
Rosenschein agreed that there is a space for technology and platform collaboration. when and how much will be driven by the underlying economics. There are always costs and benefits that change with technology. Reducing the transaction costs will change the decisions towards massive collaboration, but it needs methods for coordination and discovery. Tools will provide feedback.
Nikolich surmised that pharmaceutical IP will increase in value. Advances are coming from outside sources like foundations and “wildcatters”. Research is accelerated with investments for anything out there. For example, $25M used to only fund 11 trials, but opening up trials through crowd sourcing and funding increased this to over 75 trials. The increase in trials results in improved new treatments. In another area, Alzheimer’s, work in ongoing on understanding the disease basis pathology and also the basis for learning and memory. The latest DNA study involves 1M people, which offers better resolution of the critical information.

How to reconcile IP and openness?
Stem declared that companies can use an open source development process for initial data and samples, take a year to get to clinicals, and transfer the results to the company . this process may be scalable, but where is the money?
Steel observed that the rate of change in product development far exceeds the time line from the patent office of 5-6 years. Products are delivered to the market in 18-24 months, so speed may trump the IP protection. nevertheless, companies still need to use IP protection methods.
Nikolich considered that the area holds huge challenges with few good examples of good or bad. Companies are testing the waters. For example, Glaxo is a traditional big pharmaceutical company that is moving to open innovation in nervous system research. They developed a treatment to modulate body functions with grants to innovators. The IP is in the public domain, but the result was a new treatment in a new field, so there is no IP constraint.
Steel cautioned that for a long time, IP and patents were intertwined. In the drug industry, IP has many facets, but some experiments with outside organizations is changing the economic considerations. If a treatment needs lots of resources, you need a big organization. Crowds are moving to change the IP perceptions in software and other fields.
Stem added that patients are getting fed up with the old ways. Now foundations, NGOs and others are moving much faster than the drug companies. IP doesn’t really matter, as globalization, changes in political boundaries, counterfeits, etc. are eliminating the IP protections. Other countries don’t respect the patents. This situation will get worse as 3-D drug printing becomes viable.

The market for open is moving to more mature industries. What are the relevant economics, status, metrics for open development?
Steel answered that it is still early due to competing vectors that are moving towards critical mass, like Twitter now is a global power. The efforts that are successful grew up in a collaborative business model, so it’s better to start with an open development model. The big companies need to make bigger corporate cultural changes to become open. Rosenschein agreed that it is early for some types of open innovation. One question about open development, is it scalable? Developers need a good platform to support the new workflows. Big companies have an advantage in being able to enforce standards. Open development platforms are still needed, and it is hard to predict the rate of adoption.
Stem opined that companies have to start with collaboration that improves productivity. Just as the 50 voice mails became over 100 emails, companies need to add new communications forms to keep up. The existing approaches are not sufficient.
Rosenschein added that collaboration and coordination are not the same as communications.
Nikolich agreed that it is too early to tell. There are many dimensions to development and more advances in some domains than in others. Diversity improves the outcomes. Various industries are seeing lots of progress, but IP is still a big barrier. Companies are expanding from simple joint ventures, but the IP portions are still hard. The US may trail the rest of the world due to our excess of lawyers.
Steel wanted to see more open platforms. For example, Pandora has an open API that 32 automotive manufacturers have adopted, even though each one wanted to have differentiation. The availability of the API makes differentiation easier, as differences can be developed on top of the common denominator of the API.

Is open the way of the future, or are there better models?
Nikolich declared that many successful companies, like Google, are based on open source platforms. Money is becoming available through other channels. Pharmaceutical business will have to adopt most of the open development practices in the next decade due to the costs. In the ’70’s through the ’90’s, the blockbuster drugs cost over $1B to get to market. A successful big drug funded the next generation.
The human genome project identified much greater granularity in the DNA, leading to personalized treatments based on specifics in your genome. Some diseases are amenable to micro drugs, and niche diseases are becoming treatable at small numbers of patients. Smaller diseases are getting attention from foundations and social networks, to the point that patients can now determine who is on a placebo in a test.
Steel concluded that generational changes bring behavioral changes. Micro-sensors and big data are all to stay. The wisdom of the crowd is going to change people.
Rosenschein considered the future is bright. The economic models are changing and clearly are not fixed. The advent of disruptive technologies changes the levels of aggregation of resources in the economic and legal areas. The changes will create a field day for the lawyers
Stem concluded that open development is here to stay. The crowd demands the common interest be the driving power. Service matters and is much more important than IP

Changes in early stage deals is causing open development to eat the early VC economics?
Nikolich agreed that the new trend is open. The IP hurdles are changing the sources of money, with greater emphasis on relationships. This represents a loosening of bounds rather than an increase in open. Open development has always started in academia, and entrepreneurs give credit to the institution for the IP and pay royalties. This is all related to money and not to innovation.
Steel wryly noted that UC gets the Nobels. The VCs are still at both ends, early and late stage, but are seeing greater uncertainty. In the new model, it is easier to get $0.5 M, and hard to get $1M. There is an opportunity for new models and a change in private equity.

Mobile video collaboration?
Stem suggested that video use is increasing. internal video conferencing is up, and some video is moving to trials with new drugs. Video represents a really hard adoption cycle, but healthcare overall is seeing greater use of tablets.
Steel is skeptical of greater use, because there is no synchronization. It depends upon the application. A high touch function need a full body video, but for most meetings, the extra image content is of no value. All you need to do is just talk.

Collaborative platforms will increase use with more robust systems?
Nikolich stated that additions are evolutionary and transitional. The new generation are already doing these things. For example, in personal medicine, your genome is only a $2k cost. In the next decade, the new generation doctors, who are genome literate, will be using the information for treatments. They will also be more comfortable with video checkups.

The context is not part of core, differentiation needs protection. Collaboration on the platform and share when secure?
Rosenschien expressed appreciation for the insight between security and risk. Developers need to adapt to changes, and small teams can do as well as big companies. The difficulties are not in the collaboration, but in the lack of platforms.
Stem noted that core expertise can be distributed.