Stuart Henderson: IBM: Presentation from Collaborative Innovation in Biomedicine Conference

1. IBM Institute for Business Value: Life Sciences
2010 Biopartnering Study: Collaborative Innovation
Partnering for success in life sciences
Stuart Henderson
Strategy & Transformation – Life Sciences Innovation & Growth Practice
© 2010 IBM Corporation

2. Big Blue's Tiny Bug Zapper
IBM Researchers collaborate with Institute of Bioengineering and Nanotechnology,
Singapore to develop Nanoparticle to Destroy Antibiotic-Resistant Bacteria
 IBM Research worked with the Institute of
Bioengineering and Nanotechnology in
Singapore on the discovery of the new antibiotic
nanoparticles, Methicillin-resistant
Staphylococcus aureus (MRSA) killed 19,000
Americans in 2005.
A MRSA cell before treatment with nanoparticles.
 Other Potential Uses: For example, it could be
employed in low-end products where bacteria
"play an adverse role" like deodorants and
mouthwash. As well, it could be used in things
like bandages or sutures, and other products
used in healing wounds, and catheters, since
about 20 percent of people who use them end
up with infections that are expensive to treat.
What's left of the cell after getting zapped.
2 © 2010 IBM Corporation

3. Background
This is the sixth in the series of IBM Biopartnering
studies started in 1991, covering the top 24 biotech
and pharmaceutical companies (by revenue). This
point-of-view presents analysis of 242 study
respondents, with representation across pharma,
biotech and academia
Study Objectives:
 Current trends in partnering as reported by industry
(biotechs/pharmaceuticals) and academia
 The biopartnering capabilities and performance of the
top 24 biopharmaceutical companies
 The drivers of successful partnerships
3 © 2010 IBM Corporation

4. Changing Innovation Models
Companies that have been primarily in the “Innovation through rigor” model
are increasingly moving to “Innovation through Collaboration”
Marketplace of Visionary Innovation through Innovation through
ideas (16%*) leader (22%) rigor (37%) collaboration (25%)
People Leadership
 “Bottoms up” approach  “One man show”  Involved Leadership  Leadership sets framework
for collaboration
 Content with “leading from  Leader determines direction  Sets priorities, raises
behind” of innovation & selection of urgency, and allocates  Ideas generated with
ideas resources partners & customers
 Fully uses employees  Adept at the teamwork  Small groups dedicated  Collaborators
necessary to execute to problem-solving
 Recruited for creativity  Empowered to make deals
leaders’ plans
and passion  Strong team culture with outside vendors
 Well-stated innovation  Fast implementation of select  Fewer ideas, with strong  Robust stage gating and
goals for individuals ideas formal vetting process implementation mechanism
Process
 Effective stage gate  Portfolio maps and strategic  Strong focus on cross-  Frequent pilots and trials,
process, pilots and trials plans to link executive vision functional teams for rapid involving partners and
to daily activities execution customers
 Clear metrics of success
and failure
 Environments that  Few inter-dependencies with  Diffuse product lines  Understanding of customer
Environment
allow experimentation outside parties impossible for a small set needs and partner
of visionary individuals to participation
 Generates Large number  Select ideas generated and
control
of ideas – mainly internal pursued  White space innovations
 Rigorous scanning
Source: IBM Innovation Archetype research and analysis
* Percentage of the S&P 500
4 © 2010 IBM Corporation

5. Biopartnering Results and Trends
Companies that partner well – Preferred Partners – are displaying stronger
financial performance
Average Sales Growth and ROI vs.
Biopartnering Performance
 Companies that were ranked high
24
among study respondents across 2006, 22
2008, and 2010 – the Preferred 20
Partners – had better financial 18
16
performance compared to lower ranked
Percentage
14
companies 12
10
 Preferred partners: 8
– Averaged the highest return on 6
4
invested capital – over 70% than 2
the least desirable partners 0
Preferred Partners Average Partners Least Desirable
– Gaining the most points in sales
growth – 133% over the least Average across 2006, 2008 and 2010 study rankings
desired partners
Net Sales CAGR (% ) Avg 2006-2008 ROIC (% )
Preferred Partners = 7 highest ranked averaged across 2006, 2008 and 2010 study results;
Average Partners: average of 6 middle ranked; Undesirable Partners: average of 7 lowest
Partnering is a key component ranked. Average of annual ROIC % from 2006-2008.
Source: ROI - WorldScope Fundamentals, Thomas Reuters, August 18, 2010.
to overall success
5 © 2010 IBM Corporation

6. Biopartnering Results and Trends
Observations & Recommendations
Key observations:
 Patterns seen behind performance:
– High performers have an explicit R&D externalizing strategy and an operating model that
utilizes both internal and external collaboration
– The risers are implementing a partnering strategy, starting with a focus on the basics
– The fallers and low performers appears to be narrowing or losing focus on partnering
Recommendations:
 In the future, Biopharmaceutical R&D will be heavily networked and collaborative
 Companies need to:
– Put in place an R&D Operating Model that has networks of collaborations at its core
– Establish an “infostructure” that can support extensive collaborations
– Evolve their collaboration skills set to meet the demands of a networked R&D model
6 © 2010 IBM Corporation

7. Results and Trends
Over the last three studies (2006, 2008, 2010), top ranked partners have been
consistent in their performance across three key elements, deal sourcing, deal
making, and partnership management
Deal Sourcing Top 5 Rank The top 5 performers in 2010, based on the
2006 Rank 2008 Rank 2010 Rank average of all study questions, were:
Roche Genentech Eisai 1. Roche 4. Lilly
Genentech Merck Eli Lilly
2. Genentech 5. GlaxoSmithKline
Amgen GlaxoSmithKline AstraZeneca
3. AstraZeneca
Abbott Roche GlaxoSmithKline
Novartis Boehringer Ingelheim Roche
 Over the past 4 years, Roche has been the most
consistently highly ranked partner across all areas
Deal Making Top 5 Rank
of partnering performance
2006 Rank 2008 Rank 2010 Rank
Roche Genentech Roche
Amgen Merck Eli Lilly
 AstraZeneca, Lilly and GlaxoSmithKline have also
Eli Lilly Roche GlaxoSmithKline
appeared in the top 5 rankings multiple times
Genentech Eli Lilly AstraZeneca
J&J BMS Teva  The exception is Genentech1 which was highly
ranked in all categories in 2006 and 2008, but failed
Partnership Management Top 5 Rank to make the top 5 in 2010. Study results indicate
2006 Rank 2008 Rank 2010 Rank that Genentech has been able to maintain its high
Roche Genentech AstraZeneca overall rank through its reputation as the leader in
Amgen Eli Lilly Roche innovation and talent and a strong commitment to
Genentech Novo Nordisk Eli Lilly partnership by its leadership
J&J Takeda Takeda Source: IBM Analysis and Silco Research, 2010
(1) For the purposes of this study, Roche and Genentech were identified as separate
AstraZeneca Merck GlaxoSmithKline
companies by the respondents. The companies merged in March 2009
7 © 2010 IBM Corporation

8. Results and Trends
These top ranking companies also lead the industry across other individual
partnership drivers
Genentech leads companies across strength and
dedication in leadership, innovation and people
100%
90%
90% 87% 86%
82% 83% 84%
% of Maximum Score (2010)
80%
70% 76%
71% 70% 69% 70%
68%
60%
50%
40%
30%
20%
10%
Trust: “Its Leadership: “Having Innovation: “Its People: “Having an Finance: “The Social: “Its attention
commitment to trust, a strong leadership commitment to ability to attract, strength and to social
reliability and an and a commitment to innovation internally develop and keep consistency of its responsibility”
ethical approach to excellence” and across talented people” financial
partners and organisational performance”
stakeholders” boundaries”
Lowest Performer Average across all Highest Performer
More Important Driver Importance Less Important
Source: IBM Analysis and Silco Research, 2010. Level of Importance for each driver in partnerships were scored on a 1-7 scale with
8 7 being the highest. Companies were rated on their performance against drivers on a 1-7 scale with 7 being the highest. © 2010 IBM Corporation

9. Results and Trends
Academics also largely agreed with industry respondents on the
importance of the top drivers
5.75
Scientific expertise 6.77
 Scientific expertise, the deal on
5.44
offer, partnering culture, reputation Deal on offer 6.71
and development expertise were 5.56
Partnering culture 6.64
leading drivers among academics
and industry respondents alike, Reputation 5.34
6.35
although academics scored each
Development expertise 5.65
area of a greater level of 6.31
importance 4.86
Prior relationships between parties 6.08
 Prior relationship and access to IP 4.74
Access to intellectual property assets 6.08
ranked significantly higher for
academics Partnership management skills 5.45
5.85
 Partnership management skills, Manufacturing capabilities 4.14
5.12
while rated nearly the same by
Market presence 4.42
academia and industry, was much 4.81
lower in relative importance for 4.13
Distribution channels 3.71
academics
Sales and marketing channels 4.57
 On the other hand, commercial 3.24
channels and geography were Geographical position 3.57 Industry
3.08
ranked higher by industry
Academia
Source: IBM Analysis and Silco Research, 2010. Average of level of Importance for each driver in partnerships, rated on a 1-7 scale with 7 being the highest.
9 © 2010 IBM Corporation

10. Recommendations
Our research indicates three critical elements need to be in place to drive
superior performance as a collaborator
Become a Partner of Choice … … and a Top Performing R&D Organization
Enterprise R&D Collaborative R&D Networked R&D
Innovation Internal focus plus some
An Innovation Network that
Sourcing Internally focused extend beyond the
external collaborations
enterprise
Processes Managed by functions Managed by Therapeutic Managed by Projects
+
Areas
Deal Deal Partnership Organization Fixed Functional
(Chemistry, Tox, etc)
Fixed Therapeutic Areas
Plus supporting functions
Flexible Project Teams
Plus select large scale support
functions
Sourcing Making Management Culture “We are the World” “We are Part of the World” “The World is our
Laboratory”
Investment Science driven internal Science driven external
Internal hurdles
criteria hurdles comparative hurdles
Traditional In- and Out- Empowered In-Licensing Embedded in the
Licensing Licensing Large Function Organization
Small Function Small orchestrating function
Mergers &
Ingest & Transform Ingest and Co-exist Integrate into the Network
Acquisitions
Element Recommendation
Ensure that the company is able to utilize 1. Put in place a Strategy and Target Operating Model
external R&D for partnering with collaboration at the core
Ensure that the company is able to utilize 2. Build a collaborative “infostructure” to support the
collaborations Target Operating Model
Go beyond partnering and start building 3. Experiment with and learn to use the components of
the collaboration organization of the the Networked R&D model
future
10 © 2010 IBM Corporation

11. Recommendations
Recommendation #1: Establish a Strategy and a Target Operating Model
for R&D with collaboration at the core
Target Operating Model that Supports Partnering
 Establish a Strategy and Target Operating
Model for collaboration that allows the Business Goals and Strategy
company to take advantage of external R&D
– An explicit strategy for collaboration is Partner
fundamental to engaging external sources Experience
of innovation and product opportunities Assets & Sourcing
Locations & Scouting
– A Target Operating Model that supports
the strategy is fundamental to
Target
implementation Technology Operating Processes
Model
 The strategy should also be backed by an
ongoing corporate commitment Culture
Skills, Organization
&
– Collaborating successfully is hard and & Capabilities Governance
Performance
takes an ongoing and deep organizational Metrics
commitment
Roadmap for Implementation
11 © 2010 IBM Corporation

12. Recommendations
Recommendation #2: Build a collaborative “infostructure” to support the
Target Operating Model
A model that sources innovation externally should be supported by a
Collaborative Infostructure
Recommendations
 Build an infostructure to support collaborations
 Utilize this system of tools fully to change how collaborations are managed
 Establish the processes, organization and culture to around this infostructure
 Extend the infostructure outside the enterprise
– To closely collaborate with partners
– To create a competitive advantage in sourcing and using partnerships
12
12 © 2010 IBM Corporation

13. Recommendations
Recommendation #3: Start learning and implementing the fundamentals
required to move to a Networked R&D model
Increasingly Outward Focused R&D Target Operating Model
(A Target Operating Model defines the best deployment of elements to achieve a strategy)
Enterprise R&D Collaborative R&D Networked R&D
Innovation An Innovation Network that
Internal focus plus some
Sourcing Internally focused extend beyond the
external collaborations
enterprise
Processes Managed by functions Managed by Therapeutic Managed by Projects
Areas
Organization Fixed Functional Fixed Therapeutic Areas Flexible Project Teams
Plus select large scale support
(Chemistry, Tox, etc) Plus supporting functions
functions
Culture “We are the World” “We are Part of the World” “The World is our
Laboratory”
Investment Internal hurdles
Science driven internal Science driven external
criteria hurdles comparative hurdles
Traditional In- and Out- Empowered In-Licensing Embedded in the
Licensing Licensing Large Function Organization
Small Function Small orchestrating function
Mergers & Ingest & Transform Ingest and Co-exist Integrate into the Network
Acquisitions
No one company can support sufficient internal innovation to meet pipeline requirements
To be competitive, Pharma needs to utilize a highly networked externalized R&D model
13 © 2010 IBM Corporation

14. Contact Details
 Stuart T Henderson
 sthender@us.ibm.com
 Blog: www.pharmarandd.blogspot.com
 Twitter: stuarthenderson
14 © 2010 IBM Corporation