Open Innovation Seminar (29th January 2013): The “Open Innovation” paradigm is being widely proclaimed as the answer to the issues of expediting commercial success from technology and strengthening industrial competitiveness. However, the term can mean different things to different people according to their sector of industry, place in value chain, and company size. Open innovation sounds very attractive in theory, but in practice, unless well planned by all participants, can give rise to some unanticipated logistical and management issues. Different real scenarios from the speaker’s experience are presented and discussed. Dr. James Green Director of Intellectual Property, Ilika plc Dr Green graduated from Bristol University. He has 42 years experience of innovation and IP. Initially, in industry and contract research, he was later appointed Secretary of the CBI Research & Technology Committee. In 1984, he joined Research Corporation’s venture with 3i plc. He then moved to Ohio as Vice President, Competitive Technologies Inc, returning later to Britain at ANGLE Technology. He relocated to the US in 2001, as Director of Development at Cumberland Pharmaceuticals Inc. Returning to the UK, he set up Seges Development Company Ltd, and is currently Director of Intellectual Property at Ilika plc.

1. Open Innovation
Dr James Green
Director of Intellectual Property, Ilika plc
IPO Fast Forward Seminar, Wednesday, 29th January 2013
University of Southampton Science Park
© 2013, Ilika plc
Disclaimer: The views expressed in this presentation are the views of the speaker and do not necessarily reflect the views or policies of
Ilika plc or its Board or of its subsidiary companies

2. Success from Innovation (I)
Innovation is a process full of “unknowns”
“Basic research is what I am doing when I don’t know what I am doing”
Wernher von Braun
“To the investor, it can seem that he is being invited to support a horse of
uncertain breeding, in a race of indeterminate length with the possibility
of there not even being a consolation prize at the end!”
Embryonic Capital for Innovation – “Technology Transfer Practice In
Europe”, C D DesForges and J Green, TII/EC SPRINT Conference,
April 28th/29th, 1994
© 2013, Ilika plc

3. Success from Innovation (II)
“If a man can make a better mouse trap than his neighbor,
the world will make a beaten path to his door.”
Attributed to Ralph Waldo Emerson by Sarah S. B. Yule in “Borrowings: A
Collection of Helpful and Beautiful Thoughts”
“In truth, odds are stacked astronomically against inventors,
and no marketing outfit can change them. There are around
1.5 million patents in effect and in force in this country, and
of those, maybe 3,000 are commercially viable. ”
Attributed to Richard Maulsby, director of the Office of Public Affairs for the
U.S. Patent & Trademark Office by Karen E. Klein, Business Week, November
10, 2005, “Smart Answers” .
© 2013, Ilika plc

4. An “Insider” View
– Innovation Paradigms: Definitions
• “Open innovation” can mean different things to different people,
depends on sector of industry, place in value chain, company size
– Factors Changing the Innovation Paradigm
– Some Examples of Open Innovation
• patenting & licensing of university IP
• intercorporate licensing
• “open” pharmaceutical company
– Ilika Experience
• company derived from specialist expertise at Southampton University
• in-licensing of IP from universities
• acquisition of IP and special facilities from SMEs
• joint development and marketing partnerships worldwide
© 2013, Ilika plc

5. Innovation Paradigms
“Closed” innovation principles Open innovation principles
•The smart people in the field work for •Not all the smart people in the field
us. work for us. We need to work with
smart people inside and outside the
•To profit from R&D, we must discover company.
it, develop it, and ship it ourselves
•External R&D can create significant
•If we discover it ourselves, we will get value: internal R&D is needed to claim
it to the market first. some portion of that value.
•The company that gets an innovation •We don't have to originate the research
to the market first will win. to profit from it.
•If we create the most and the best ideas •Building a better business model is
in the industry, we will win. better than getting to the market first.
•We should control our IP, so that our •If we make the best use of internal and
competitors don't profit from our ideas. external ideas, we will win.
• We should profit from others' use of
our IP, and we should buy others' IP
whenever it advances our business
model.
Reference: Chesbrough, H. (2003), "Open Innovation: The New Imperative for Creating and Profiting
from Technology", Harvard Business School Press.
© 2013, Ilika plc

6. Changing the Innovation Paradigm
– “Closed” Innovation Evolved Historically from
• companies needing critical mass for R&D to support production and
market control
• wide separation of the roles of universities and companies
• staff seldom changing jobs (concentration of in-house knowhow)
• low government participation in industrial policy
– Factors Involved in Change
• internationalisation/globalisation (new challenges)
• rate of technological change (how to keep up)
• research funding and growing role of universities and governments
• wider licensing of corporate and academic IP
• venture capital and spin-outs, start-ups etc
• increased mobility of skilled labour (“technology on the hoof”)
© 2013, Ilika plc

7. Intellectual Property
– IP in “Closed” Innovation (DIY Approach)
• company researches, develops, makes and markets own products
• essentially defensive – to exclude competitors
• the “Smaug Effect” and associated costs
• “Not Invented Here Syndrome” and associated constraints
– IP in Open Innovation (Pick ‘n Mix Approach)
• protecting product/process but can license-in or license-out in whole
or in part
• creating IP as a tradable commodity
• acquisition or sale of complete business sectors and associated IP
• bargaining chips in joint ventures
• comfort for investors in start-ups or spin-outs
• evaluating the broader IP landscape becomes more important
especially with globalisation
© 2013, Ilika plc

8. Some Examples (I)
– Patenting & Licensing of University IP
(progressive decentralisation and more “open”)
• Sponsored research and consultancy (sponsor owns IP)
• University IP – formerly NRDC monopoly on state-funded
research (leading to BTG) undertaking patenting and licensing
• BTG monopoly ends in 1980s - universities own their IP and
take responsibility for exploitation
o competitors to BTG (eg Research Corporation ) with similar business
model of assignment and revenue share
 few big successes had to cross-subsidise rest of portfolio (takes time)
 decline in volume of licensees due to M&A activity (less customers)
o universities set up own patenting & licensing departments
 similar issues of cost/success and declining volume of potential licensees
o involvement of venture capital and seed funds (spin-outs, start-ups etc)
 led to new economic activity and wider benefits
© 2013, Ilika plc

9. Some Examples (II)
– Intercorporate Licensing
• companies look at cost-effectiveness of in-house R&D and its
support of the business model
• review of the cost effectiveness of large international patent
portfolios
• volumes of research output and IP “sitting on the shelf” rather
than being worked
• revisiting the “Smaug effect” to realise value
o licensing of non-core IP in novel applications
o licensing to company spin-outs or sale
 divesting non-core business, IP and staff
 economic regeneration projects with development agencies
© 2013, Ilika plc

10. Some Examples (III)
– “Open” Pharmaceutical Company
• organised round the management function
o experienced professionals
• license-in or acquire technology opportunities
o from academia, research institutions
o from large pharma companies
o from tenants in its own incubator laboratories
• outsource development, clinical evaluations/trials
o using CROs (themselves spun out following mergers of large
pharma companies)
• manufacture through established companies
o using spare capacity on existing FDA approved plant
• marketing via well-established leading distributors
o before building up own sales force
© 2013, Ilika plc

11. The Ilika Experience
– High Throughput Materials Discovery
• combinatorial research techniques developed at School of
Chemistry, University of Southampton.
• Ilika Technologies Ltd founded in 2004 as a spin-out for
developing materials in energy, electronics and biomedical
sectors
o initial finance: SULIS University seed-corn fund and IP Group
o associated IP licensed-in from University
o established international reputation for rapid development of
novel materials; secured commercial partnerships with blue-chip
companies
o further rounds of venture capital in 2006 and 2007
o admitted to AIM 14 May 2010
• Altrika established as subsidiary for the biochemical activities
o licensing –in IP from Edinburgh, Sheffield, Southampton
o purchased GMP manufacturing assets in 2009 and acquired cell-
based skin regeneration therapies, Myskin® and Cryoskin®
o Altrika and its cell-based technologies sold to Adiposet in 2012
© 2013, Ilika plc

12. Ilika Materials Discovery Platform
© 2013, Ilika plc

13. Ilika Materials Discovery Platform
• Simultaneous synthesis of multiple families of materials
versus traditional step-wise approach
• Each ‘field’ on chip is addressable and can be
analysed in a high throughput manner
• Control over composition
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14. Ilika Materials Discovery Platform
“hot spot”
identified
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15. Ilika Approaches to IP
– High Throughput Platforms
• defensive - protecting core technology for synthesising and screening
large numbers of candidate compounds
• licensed-in from Southampton
• independent improvements by Ilika (eg informatics)
• joint developments with Ilika’s industrial partners
– Promising Compounds
• focus: hydrogen storage; phase change memory; fuel cell catalysts
• some licensed in from Southampton
• some developed by Ilika or with university chemistry departments
• joint development and scale-up work with Ilika’s industrial partners
• contract research for industrial clients
– Novel Instrumentation
• acquisition of novel design for mass spectrometer and associated IP
© 2013, Ilika plc

16. Ilika Business Model
– Contract Research
• high-margin research and development services (IP client owned)
• short-term cashflow benefit
• builds relationships with customers
• potential route for future Joint Development Programmes
– Joint Development Programmes
• preferred route to market (maximises likelihood of commercialisation)
• cost-sharing minimises cash burn
• IP owned by Ilika and licensed to partners (or other arrangement on
case-by-case basis)
• milestones and royalties on end product sales
Low cash burn and significant upside potential from milestones and
royalties
© 2013, Ilika plc

17. Open or Closed Innovation?
– Can you really do it all yourself?
• The skills
• The financial resources
• The technical, support and management functions
• Sales and marketing function worldwide
– Is it commercially sensible to do it all yourself?
• Is there expertise out there you could use?
• Are there out-sourcing opportunities to specialists?
– Consider existing models being used by others
• Innovation in the aerospace or telecomms industries
© 2013, Ilika plc

18. Working with Others - Practical Issues
– In any successful partnership you need
• The necessary skills
• Sufficient project resources
• Commitment at senior level
• Common aims
– Issues to consider and define carefully
• What do partners bring
• Who does what
• What are timescales
• Who owns inventions
• What is field of collaboration
• Contingencies
Unless these points are well understood, thought out and planned, not
even the cleverest legal agreements can save you from problems!
© 2013, Ilika plc

19. Management Issues - Control
– In “closed” innovation you have overall control
• Resources (staff, financial)
• Timelines
• Intellectual property and strategy
• Commercialisation strategy and tactics
• Response to “events” and “unknowns”
– In open innovation you have shared control
• Effective control only of your own contribution
• Little control over your partners (and legal disputes take time)
• Possible divergence of aims and objectives
o for Intellectual Property (ownership issues)
o for Commercialisation
• Differing responses to “events” and “unknowns”
The management of Open Innovation is very time-consuming and
needs regular attention throughout the process (gives control freaks
lots of very bad days!) © 2013, Ilika plc

20. Management Issues - Partners
– Universities/Institutes
• Access to advanced science/technology
• Motivation and timescales differs from industry
• Confidentiality vs publication
– Large Corporations
• Can address very large markets
• Slow to progress through its management/legal process
• Large corporations can override smaller partners
• Innovation project small compared to core business
o may lack support at sufficiently senior level
o easily terminated when core strategy changes
– SMEs
• Faster decision making processes
• May lack critical mass/resources for a sustained “campaign”
© 2013, Ilika plc

21. Questions & Discussion
© 2013, Ilika plc