Open innovation: A real option to restore value to the biopharmaceutical R&D

Abstract

a b s t r a c tThe pharmaceutical landscape has changed, and new business models, based on alliances, are increasingly being adopted in this industry. Biotechnology advances have pushed this development, and pooling complementary resources coming from incumbents and newcomers is a key skill to succeed: these are the premises for a quick spread of the open innovation (OI) paradigm in this industry. R&D portfolio selection needs R&D project evaluation, and Real Options Analysis (ROA) is acknowledged as a powerful tool to evaluate uncertain projects that have an intrinsic flexibility. The present research aims to foster the use of ROA in the OI field in order to encourage firms to undertake this innovation model; to achieve this goal the authors propose a closed-form model that is easy to implement, to evaluate the OI initiative for selecting an optimal R&D portfolio. The study wants to support managers in optimal R&D portfolio construction in terms of choosing the most promising products, the means by which the related project has to be undertaken (in an open or closed manner; i.e. licensing-in or not) and the self-financing policy. The proposed model can be easily implemented into a spreadsheet, and the inputs needed to run it are usually requested to evaluate projects using the most used net-present-value-based methods. Moreover, some parameters of the model allow strategic aspects to be considered: for example the nature of the project (core/non-core), the impending project phase, and the risk-sharing opportunity.The results of the developed numerical example show that the selected portfolio is well balanced in terms of development stages, core/non-core therapeutic areas and, licensing-in (an inbound open innovation solution), is preferred in the case of products at their early stages of development.

Evaluation of Open Innovation with R&D Alliances for Breakthrough Technologies in the Energy Sector

“…Open innovation and the application of real options frameworks (Copeland & Tufano, 2004;Guthrie, 2009) for the portfolio of R&D Ventures allows businesses to evaluate and compare the risk exposure of a technology development approach with internal or external capabilities and resources, which is supported by the open innovation literature (Lo Nigro et al, 2013). However Dahlander & Gann (2010) found that there is a limited understanding about the cost of openness, the underlying decision process and the elaboration of "…open innovation from the perspective of product/ technology lifecycles and the different phases through which an innovation evolves from conceptualization to commercialization."…”

“…In applying the ROA (Yeo & Qiu, 2002;Copeland & Antikarov, 2001;Leiblein, 2003;Guthrie, 2009) to open innovation, new capabilities are proposed to support the decision between an internal or external R&D project (Vanhaverbeke et al, 2008). In a biopharmaceutical study (Lo Nigro et al,2013) it has been proposed to evaluate R&D projects with ROA for in house development or in an alliance open innovation model. An overview of ROA applications and a model to evaluate R&D projects has been suggested by Perlitz et al (1999) and the value of management flexibility with a discussion of different real options in technology investments has been introduced by Yeo & Qiu (2002).…”

An Open Innovation Decision Support System to Select a Biopharmaceutical R&D Portfolio

“…() and Lo Nigro et al . () take into account OI solutions into their models. In particular, Rogers et al .…”

Research and development project assessment and social impact

“…R&D portfolio decisions are, mainly, made based on financial indicators, such as NPV or IRR (Ghasemi et al, 2011;Nigro et al, 2014;Vandaele & Decouttere, 2013). However, several studies have shown that the use of traditional financial techniques in project evaluation was not the most suitable for the analysis of investment in R&D (Chan et al, 2001).…”