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Enhancing Private Sector Investment in
R&D, Technology and Innovation
Nita Sachan, PhD
Indian School of Business
Biocon Cell for Innovation Management
Hyderabad, India
The private investment in R&D and innovation is low
The Problem
What needs to be done to encourage the investment?
Is the ecosystem ready?
USA
India
China EU
Japan
R&D expenditure as percentage of GDP
Indian R&D expenditure as percentage of GDP
Global Innovation Index 2010
WIPO 2010
WIPO 2012
(1) Institutions,
(2) Human capital and research,
(3) Infrastructure,
(4) Market sophistication
(5) Business sophistication
(6) Knowledge and technology outputs
(7) Creative outputs
• R&D expenditure was 0.8% of GDP
• Bulk of Indian R&D is done by public sector is in mission-oriented sectors
70-80% of R&D in : defense, aerospace, and oceans
• Only ~20% i.e., 0.16% of GDP applied work in agriculture, medicine and industry
• R&D spending by private sector is only 16-20% of total or ~0.12% of GDP
Expenditure in Public Sector in India
Pardey, P., Beintema, N., Dehmer, S., and Wood, S. Agricultural Research A Growing Global Divide (Aug 2006)
Public Sector Investment in Agricultural R&D accounts for:
~90% in Developing Countries
~50% in Industrialized Countries
Global Agricultural R&D–supported by public funds…
…therefore public institutions responsibility to exploit research outputs
Both Public and Private sector need to step up to the plate to increase the R&D and innovation output
Valley of Death
"Why is the translation of good science and research into products so weak in our country? How do we strengthen the link between universities, research laboratories and industry?”
Prime Minister Dr. Manmohan Singh, 98th Indian Science Congress
A systematic study of the R&D management issues suggests seven major
challenges, listed below:
•Lack of an appropriate risk taking mindset
•Insufficient resource base
•Lack of commercialization capabilities
•Lack of intellectual property infrastructure
•Lack of incentives
•Absence of collaboration across companies
•Absence of regulatory framework for academy-industry collaboration
Industry Academia linkages, 2010, N. Sachan
Major Challenges
The people, institutions, policies and resources that promote the translation
of new ideas into products , processes and services are generally
recognized to comprise the innovation ecosystem (Freeman, 1987;
Lundvall, 1992; Nelson, 1993)
Linkages between the academia, firms and government (Triple Helix)
Most economically developed countries have a strong Innovation
ecosystem
What is an Innovation Ecosystem?
Silicon Valley- Shockley, Bell labs, transistors, semi-conductors
Traitorous-eight- Robert Noyce and Gordon Moore (Intel)
Over the course of just 20 years, a mere eight of Shockley’s
former employees gave rise to 65 new enterprises
Biotech and Pharma clusters- Bay area, Boston, New Jersey
Recombinant DNA technology-Herbert Boyer (Univ. California Berkley),
Stanley Cohen (Stanford University)
Genentech founded in 1976 by Herbert Boyer (Univ. California Berkley)
and venture capitalist Robert Swanson.
Innovation Clusters
Researchers
Corporate
Partners Customers Angel Investors
Venture
Capitalists
Policy Makers Entrepreneurs
Academic
Centers
Research
Sponsors
(DST, DBT,
BIRAC)
Foundations
Firms
Innovation Ecosystem
Evolution of Chinese Innovation Ecosystem
Upstream and Downstream Steps Linking Research to Design and Product Development
• Prior to Bayh Dole act, fewer than 5% of the university inventions
were patented
• Enabled universities, small businesses to own the patent as opposed to
the government
• Encouraged Academia-Industry Linkages
US Bayh Dole Act (1980)
1. Created clarity about IP ownership 2. Localized licensing of IP near researcher/inventor 3. Created incentives to build technology transfer infrastructure
Bayh-Dole act transferred IP rights under government grant from funding agencies to the universities hence providing increased opportunities to independently exploit the research for commercial purposes. India’s equivalent bill- Protection and Utilization of Public Funded Intellectual
Property Bill (PUPFIP)
.
How are U.S. universities supporting innovation and economic development? The Legal Framework
Focus on intellectual property
Bayh-Dole Act > 25 years old
Licensing activity and royalty revenues indicate that university innovation accounts for >$20 Billion in economic activity And contribute to a robust engine for future innovation cycles:
Startups Number % of Total
Formed in FY 2007 555 100%
Primary Place of
Business- Home State
402 72%
Involved Equity 300 54%
Startups Location and Equity Deals
Research support
Collaborative Research
Knowledge transfer
Technology Transfer
Funds
Equipment for Labs
Contract Research
Model
Education programs
Internship
Royalty
Thesis dissertation
Project Report
Specific Research
work
TechnologyTechnology
Models of Co-operation
University technologies
Steve Jobs Didn't Invent Design,
But He Patented It
Role of Intellectual Property in Knowledge Creation and Protection
High-tech sectors like pharmaceuticals protect inventions through
“Intellectual Property Rights’- “create entry barriers”
Why Intellectual Property?
It costs Nerck Pharmaceuticals $802 million to discover a new drug, obtain regulatory approval, and bring it to market
In the absence of patent protection, what would Nerck’s competitors do?
Copy it
Reduces Nerck’s incentive to invest in R&D
Patents allow rights-holders to exclude others from exploiting their creations without authorization
Enhances incentives to invent and create
o Typical drug development process takes 8-10 yrs and $800 million to
$1billion investment
o The big pharma value chain is broken and no one firm can take the
drug to market
o Big pharma leverages the ecosystem networks ie., linkages to
universities , small biotech firms to replenish its dried pipeline
Reasons why firms may under invest in R&D
• Lengthy interval between R&D investment and appearance of product in market
• Outcomes of firm’s previous R&D investments may have failed
• Capital for R&D is excessive
What happens instead?
• Budgets are reduced
• No breakthrough research,
• Firms assimilate generic technologies from external sources
thus creating inward spillovers from other companies/ universities
• Take advantage of innovations that emerge from other firm’s R&D
Industry Challenges
How about India???
•Legacy from the British times led us to be a nation of imports (missed Industrial
revolution)
• Primary sector (Agriculture and mining) tertiary sector (service sector)
•Traditional Industries- steel, oil, textile, diamond, automobiles and agriculture
• After independence technology imported from Soviet union for defense and steel
industry; Products tended to be bulky rather than high performance
• Has been predominantly agriculture focused due to fertile land
• Government focus on biopharma sector early 1950-70s
•Pharmaceutical industry increased capabilities in early 80s with scientists from
public institutions becoming entrepreneur or most tended to be family run businesses
ex: IDPL (Dr. Reddy labs); Bharat Biotech (CCMB)
Indian Legacy
Global Leaders in Technology Area
Nature publishing house, 2012
Nature publications
Aligning Incentives
The most recent Union Budget provides that “incubators set up by companies at academic institutions will qualify as CSR activities”
Funding of Incubators
Intellectual property
Funds Talent
Process patent Product patent
Low incentive to innovate
Quantity not quality
Decreasing # of Ph.D.
Lower high quality papers
Increase foreign univ.
Focus on training students to meet
industry needs
Lack of funding for high-risk sector
Low Govt. funding for private firms
Bankruptcy laws
Increase FDI
Tap Indian Diaspora
Some Global Successful Examples??
Often a national crisis give rise to new industries/ technologies
•In 1980 Japanese predominated the semi-conductor sector
•A bold experiment to strengthen the US semi-conductor industry
• A US industry-government cooperation to form a consortia
SEMATECH (SEMiconductor MAnufacturing TECHnology)
• 14 US based- semiconductor manufacturers and US govt.
• US govt. funded it with $500 million to develop along with public subsidies
• By mid 1990s more than half of worldwide chips were produced by SEMANTECH
Prize4Life
Non Profit dedicated to discovery for treatment for Amyotrophic lateral sclerosis
(ALS) or Lou Gehring’s disease
• In 2006 launched $1 million prize
• Dr. Seward Rutkove won the prize for developing tools to track the progression
of the disease
• Prize4life has been working with Alzheimer Research Forum (Alzforum) a web
based resource for Alzheimer's disease researcher.
• Since then they have collaborated to work on a similar tool for Alzheimer's
disease progression
Innocentive
Spin-off from the Drug firm Eli Lilly who could not solve certain drug
synthesis and development challenges
• Offers Prizes on behalf of clients for problem solving
• Solve complex problem
• Cash prize ranges from $500-$50,000
• Has raised more than $9 million in venture capital; Innocentive gets a percentage of
prize money
• Sponsoring firms can remain anonymous
• Sponsoring firms can choose to share IP
with the problem solver
IP Group • Screens IP from universities and spins out companies.
• Partnerships with ten leading UK universities and has spun out nearly 63 companies
• Exclusive access to deals from partner universities and also receives a large minority
equity stake in company.
Biopontis • Utilizes a network of contract research firms to develop exclusively licensed IP from
eight academic partners.
• Successfully licensed the technology to Johnson and Johnson, Merck and Pfizer.
Mirror Venture Fund • Eli Lilly invested $150 million into a ‘Mirror Venture Fund’ run by independent venture
capitalists.
• Eli Lilly will raise additional $750 million through three funds that will share drug
development costs and potential benefits with venture capitalists and external
researchers.
• Eli Lilly will provide up to half the experimental drugs to be tested by virtual drug
companies and will have the first right of refusal if the drug proves to be promising.
Other Instances
Other Instances
UNITAID
• Global health initiative, hosted by WHO, is partly financed by levying taxes on airline tickets
• Brazil, Chile, France, and UK
• Sustainable funding to tackle inefficiencies in markets for medicines, diagnostics and
prevention of HIV, Malaria, Tuberculosis in developing countries
Medicines Patent Pool
•The Pool acts as a ‘one-stop shop’ for patent holders, manufacturers of generic drugs
or other organizations interested in engaging in research and development.
• ‘Pooling’ allows more affordable versions of patented drugs to be produced as generics,
long before their 20-year patnet terms run out. Generic competition both brings down
prices and helps spur innovation.
Kentucky Tobacco Research Development Centre
• University based organization funded by every pack of cigarette sold in the
state of Kentucky
Genentech research supports for several researchers at the UCSF Small Molecule
Discovery Center (SMDC)
A research team at Genentech is assigned to this project.
In addition to receiving $13 million from Genentech for its research function, UCSF has
the potential for further funding, if certain development and commercial milestones are
met, plus royalties.
First major collaboration the SMDC (2005) has formed with an industry partner
Genentech 2010 Deal with Univ. of Calif. San Francisco
QB3 Garage- Univ. of Calif. San Francisco
QB3 Garage- Univ. of Calif. San Francisco
QB3 Garage- Univ. of Calif. San Francisco
Hillman succeeded in genetically engineering
a strain of Streptococcus mutans that
produces a small amount of antibiotic capable of
eliminating all other strains of Streptococcus
mutans. Moreover, through recombinant DNA
technology, this modified strain can no longer
produce lactic acid. Topical application of the
patented strain of Streptococcus mutans to a person’s
teeth actually displaces any decay-causing
strain of Streptococcus mutans.
Atripla contains three drugs—efavirenz (Sustiva®), emtricitabine (Emtriva®), and tenofovir
disoproxil fumarate (Viread®), combined in one tablet and hence can be used as
a stand-alone therapy in patients. Gilead and Bristol-Myers Squibb gained FDA approval
in 2006 for the first once-a-day, single tablet regimen for adults with HIV called Atripla®
1 9 9 6 2 0 0 6
HIV Treatment Progress Over a Decade
Improving Access: Pricing Spectrum
$21.43 $.21 $.57
+15% Dist.
Margin
$1
Cost of
manufacturing,
pre-distribution,
pharmacovigilance,
medical education
+ 5% royalty
Intellectual Property
Return on investment,
incentive for innovation
$17.13 $4 $1.75
COST OF VIREAD TABLET
(PER DAY)
Provided option to any pharmaceutical company in India to manufacture API and finished product and distribute in developing countries
Receive full technology transfer to enable faster production and ensure quality
Produce tenofovir and tenofovir-based combinations and pediatric formulations
Free to set their own price and sell API to each other
Seek WHO or tentative FDA approval
Pay 5% royalty on finished goods
69% below branded price (21 cents a day)
20 tentative FDA approvals and WHO prequalifications
70 percent of patients receiving these medicines receive them from Indian partners
1.6 million patients receive tenofovir-containing regimens from Indian partners
Licensing agreements with 13 Indian
companies for TDF
Leading to increased access to HIV
treatment
Licensing Model: Key Component of Gilead Access Model
Indian Partners Reaching Majority of Patients
Licensed Territory: 95 countries
Representing 82% of People Living with HIV
$6.15
$6.50
$17.00
$12.00
$12.42
$8.25
1,600,000
129,279
508,103
31,000
1,400,000
702,911
$4
$6
$8
$10
$12
$14
$16
$18
2006 2007 2008 2009 2010 2011
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
Price Patients
Multiple Partners Can Serve More Patients at a Lower Price
Initiatives at Indian School of Business
Technology Commercialization Program
Four day long executive education program Description Train scientists, innovators, R&D professionals, and policy makers with key concepts of
commercialization. Insights into product development, intellectual property, financing and funding
strategies, linkage to socioeconomic development and innovation ecosystem.
Details • Product development, Intellectual Property, Financing, Commercialization strategies, Due
diligence, Valuation
• Initial plan to conduct 2 modules this year with a batch of 40.
• Depending upon the response online modules and full-fledged certification course with hands-
on training for technology based ventures will be launched
Impact The course will enable the participants to effectively transform R&D into commercial products and
services by equipping the participants with skills and knowledge for successful commercialization
and management.
Faculty Steven Sammut, Senior fellow at Wharton Healthcare and Entrepreneurship program and venture
partner at Burrill and Co.
Technology Boot Camp
Two Day Technology Boot camp
Description An excellent opportunity for inventors (scientists, entrepreneurs, technology commercialization
professionals and student innovators) to showcase their inventions, prototypes and products that
they would like to get to marketplace by out-licensing to established firms, capital infusion by
potential investors or to gain feedback from mentors to take them to the next level. Highly
interactive sessions will be conducted by successful serial entrepreneurs, angel investors and
venture capitalists
1. Pre-bootcamp workshops on opportunity assessment, feasibility analysis, competitive
landscape, market analysis, revenue strategy and fund raising strategies for tech start-ups
2. Matchmaking prospective technology firms by pairing them with potential licensors, investors
and mentors.
Impact A platform to highlight technological innovations and get customer validation, funding and
partnership opportunities.
BIOAXL LIFESCIENCE BUSINESS ACCELERATION PROGRAM
Description BIOAXL aims to be first of its kind lifescience venture accelerator in India which will act as a
launch pad for lifescience entrepreneurs. The BIOAXL program will develop the firm’s innovation
capabilities, identify bottle necks and avoid pitfalls which cause a firm to fail. The program aims
to promote ventures which have potential to achieve scale quickly, show financial stability and
demonstrate social impact. The BIOAXL aims to foster lifescience ventures with the prospect of
becoming the next big thing.
• Accelerate 1-2 existing life science start-ups per year. These start-ups could be small scale
start-ups or housed at existing incubators, inventions from public and private research labs
• Develop firm’s innovation capabilities and avoid pitfalls which cause a firm to fail
• BCIM will create domain specific mentor ecosystem to hand hold the start-ups.
• Unique blend of scientific and innovation mindset
• Lifescience ventures- Agricultural ventures, Personalized medicine, diagnostic kits, medical
devices, stem cells, bio-pesticides etc.
Impact A platform to foster lifescience ventures with the prospect of becoming the next big thing.
Boot Camp
Technology
Commercialization
program
BIO Accel
Indian School of Business (ISB)
Biocon Cell for Innovation Management
Our goal is for you to achieve
Innovation in business outcome
Our goal is change your business failure into economics of innovation and problem solving
Are you ready for the challenge ??
