Traditional closed innovation model stifles innovation
Takeda, a Japanese pharmaceutical giant, is not alone in facing considerable challenges in improving pharma R&D productivity. The return for the world’s 12 major drug companies compared to their R&D spending is a mere 3.2% in 2018— down from 10.1% in 2010.  Some factors why the industry is struggling include sustained drug pricing pressure from governments, complexity and cost for a new drug research, and block buster drugs coming off-patent without strong new pipelines. 
To complement their in-house R&D capabilities through outside expertise, various pharmaceutical companies have engaged in partnerships and M&A. The steady increase of global M&A market (CAGR of 10% from 2011-2016) reflects this trend. 
While a research has shown a positive correlation between R&D externalization and profitability, Takeda was behind its competitors in sourcing innovation outside. In 2013, Takeda’s percentage of externally sourced R&D pipeline (38%) was about 10% lower than industry average.  In addition, Takeda had been downsizing its internal R&D workforce by 9% as it shifted its focus from mature products to new therapeutic.  Simply put, Takeda had to achieve more with less.
Turning to open innovation to increase productivity
As a response, Takeda has recently launched a wide spectrum of open innovation programs. Below are the three examples of their programs, each of which employs different approach and delivers varying benefit for Takeda.
(1) Internal crowd sourcing: Entrepreneurship Venture Program
- Approach: In 2016, Takeda started Entrepreneurship Venture Program (EVP) to enable its employees to pursue drug development in a smaller scale but faster cycle time. EVP receives candidate proposals from researchers and offers seed funds for three years to selected proposals. In 2017, the company received 31 proposals, accepted 9, and 2 biotechs (SEEDSUPPLY and ChromaJean) have already been established. 
- Benefit for Takeda: This program enables Takeda to continue R&D in areas that could be promising but not large enough to commit as a company, while minimizing the risk and operational complexity.
(2) External crowd sourcing: COCKPI-T
- Approach: In 2015, Takeda launched its open innovation forum called COCKPI-T (Co-Create Knowledge for Pharma Innovation with Takeda) in Japan. Takeda invites external researchers to submit proposals that are in line with their area of focus: neuroscience, gastroenterology, oncology, and regenerative medicine. 
- Benefit for Takeda: External crowdsourcing allows Takeda to identify promising candidates in cost-effective way. In addition, even if certain proposals are not accepted, the proposals potentially expose Takeda to new ideas and technology
(3) Hybrid model: Innovation Park “Shonan iPark”
- Approach: In 2018, Takeda opened Shonan Health Innovation Center to create an ecosystem of open innovation through cross-industry collaboration. Current constituents of this ecosystem include Takeda’s researchers, startups (including the ones developed through EVP), tech players, academia, and the government. The most prominent tenant is T-CiRA, a group of scientists from Kyoto University, including Nobel Laureate Professor Yamanaka. 
- Benefit for Takeda: Physical proximity with various players could decrease lead time for R&D and decrease operational complexity.
Recommendation: Aligning strategy and operation at iPark
While Takeda’s iPark has started to gain traction (As of Nov 2018, it has 22 tenants), Takeda could further increase iPark’s effectiveness by clarifying its value proposition and by designing the operation in accordance with it. Below is a suggested approach.
- Articulate unique value proposition
- Takeda needs to distinguish iPark from other innovation parks nearby; there are four innovation parks in 50km radius from iPark (all of which were developed by non-pharmacos). As the first and only Japanese pharmaceutical company to create an innovation park, the value proposition should be centered around its expertise, resources, and network in a healthcare sector.
- Actively attract the right mix of talents that will contribute to the park’s vision
- While the goal for the innovation park is to facilitate open innovation through cross-industry interaction, current tenants are primarily small Japanese startups. One important player Takeda might be missing is companies that can provide operational support (e.g., professional legal/finance companies, consultancy). These companies are important for open innovation as it helps the scientists translate the ideas into viable businesses.
- Facilitate open innovation
- Physical proximity of different players is not enough for innovation. Takeda should also consider systems to facilitate the interaction between different players, such as workshops, conferences, and park-wide communication methods.
Remaining question: Managing business risks of open innovation
While it would be helpful to have an increasing number of players in the innovation value chain to gather more new ideas and expertise, it also presents various risks, such as legal risks around intellectual property. What are some major business risks related with open innovation, and how should Takeda manage such risks without stifling innovation?
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