Friday, December 21, 2007

Extreme Open Innovation

The open approach to drug discovery gets a healthy fillip. Big pharma should pay attention.

Humankind's continued well-being depends strongly on creating new life-saving drugs. However, the ability of the big pharma companies to innovate new drugs has been showing signs of waning, resulting in drug pipelines that are not exactly brimming.

'Open' Research & Development for discovering new drugs has been mooted for some time as a cure for ailing drug pipelines. One promising instance of such open-source drug discovery is the Collaborative Drug Discovery project backed by, among others, eBay founder Pierre Omidyar's Omidyar Network.

Now comes an initiative that has the potential to take the open drug discovery phenomenon to an altogether new level. The Council for Scientific and Industrial Research (CSIR), the apex research body of the Indian government, is planning to harness the brains of drug researchers across the world in solving drug development problems. Problems identified by CSIR will be made publicly available on a website, and any researcher will be able to suggest solutions and receive cash awards.

This initiative is novel, if not necessarily in concept, in sheer scale. This is the first time an open drug discovery initiative is receiving the backing of a government, and the incentives involved can be expected to be suitably large. It is also likely to have the clout that goes with government backing. It carries with it the promise of access to gigantic emerging markets. It is audacious, having the potential to fundamentally alter the way the multi-billion dollar pharma industry looks at innovation.

In short, it's open innovation on a massive scale. That's why, at some risk of sounding hyperbolic, I am terming this initiative as Extreme Open Innovation.

While the initiative is highly promising, and it is heartening to see such a step being taken by a government, it is too early to think of this approach as a panacea for all the ills of new drug discovery. Any new drug designs resulting from this program will be in the public domain, with scant protection for the creator. This runs counter to a basic precept on which much drug research has been based: the exclusive ability to monetize a new drug. For this reason, big pharma can be expected to, at least initially, ignore the initiative.

A lot will depend on how much backing the Indian government provides, in terms of financial investment and program management, and in terms of using its persuasive skills to convince big pharma to participate.

There are risks associated with the success of such an initiative too. Big pharma may be unable to compete in pricing with a drug discovered thru the open route. Thus, it is possible that the moment a disease is listed on the open drug discovery database, big pharma will abandon work on finding cures for that disease.

Open Innovation in Action
The generic principle on which such open drug discovery is based is that of the 'Open innovation' approach or its close cousin, crowdsourcing . Open innovation has in general come to be accepted widely, with Innocentive and Proctor and Gamble's Connect and Develop approach being two of the best known initiatives.

And the open approach to innovation clearly appears to have gained traction at the cost of internal R&D. The Economist, quoting IBM's "Global CEO study 2006", says that internal R&D was reported as a significant source of innovative ideas by less than 20% of companies. It ranked a low eighth in the list of major sources of innovative ideas, and only above academia, which brought up the rear.

If the CSIR's Open drug discovery initiative succeeds, it can greatly reduce the costs of new drug development*. It will also provide a stellar example of how the internet and social computing technologies can help innovation thrive, by removing barriers to knowledge flow. It can thus represent a major leap forward for open innovation, and for improving the human condition.

* Many observers believe that big pharma's cost of drug development is too high because of inefficiencies, and because some companies may exaggerate drug development costs in order to price drugs higher. If this is true, then the lack of transparency in drug R&D costs may be a good example of a levee in business that big pharma is sheltering behind - a levee which open drug discovery may be capable of shattering.

Thursday, December 13, 2007

A Somewhat Surprising Price Rise

The road to alternative energy hits an unexpected bump

China's inflation has rocketed to a 11-year high, primarily on the back of rising food prices, which have risen a whopping 18.2% over the year. Britain is seeing the highest gain in food prices since 1993 . And in the US, according to Labor Department statistics, food costs are on track for an annual gain of 7.5%, the biggest since 1980.

The Economist attributes two reasons for the unexpected rise in the price of food - rising incomes in the world's developing countries, and subsidies on ethanol fuels. The first - rising incomes in the developing world - contributes to food price rise in two ways. The obvious way is that, as more people come out of poverty, they increase the amount of food they eat, thus raising demand for food in general. Somewhat less obviously, people also shift to a diet with more meat content, which multiplies the demand for foodgrain (it takes several calories of grain to make one calorie of meat).

Thus, while the first reason for this "agflation" is simply the result of a lifestyle choice being exercised by millions of people, the second reason stems from a policy choice by the US government - to subsidize ethanol-based fuels. This is causing causing US farmers to divert more farmland to growing the corn that goes into making ethanol, thus reducing the land under cultivation for foodgrain. The natural effect of this is to raise foodgrain prices. It is thus being argued that such subsidies effectively translate into a tax on the poor.

Of course, not everybody is buying the ethanol-subsidy-as-a-culprit theory. A recent study based on 20 years of price data shows that corn prices have minimal impact on the U.S. Consumer Price Index for food.

Overall, it is fairly clear that a strong link has emerged between cereal and energy prices - both because transporting cereals takes energy, and because rising energy prices mean more land being diverted to growing grain for ethanol production, thus reducing the land under foodgrain cultivation.

All this goes to show that the effort to move away from conventional fossil fuels and toward alternative energy sources is more complex than it appears. All the more support for our approach toward foreseeing the potential of an emerging technology (by our definition, an alternative energy source counts as an emerging technology), which takes a wide variety of factors into consideration.