Achieving more with less in pharma R&D: Takeda’s open innovation programs
Japan’s oldest and largest pharmaceutical company chose open innovation as a tool to compete in the race to increase R&D productivity
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?
 “Signs that 2018 will be a record year for pharma M&A” January 2018, Pharmaletter, [https://www.thepharmaletter.com/article/signs-that-2018-will-be-a-record-year-for-pharma-m-a], Accessed November 2018
 “Open innovation and external sources of innovation. An opportunity to fuel the R&D pipeline and enhance decision making?,” Journal of Translational Medicine 2018 [https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5941640/]
 “Ten year deal activity in pharmaceuticals industry stands at $2.4 trillion,” March 2017, Mergermarket, [https://www.consultancy.uk/news/13046/ten-year-deal-activity-in-pharmaceuticals-industry-stands-at-24-trillion], Accessed November 2018
 “Models for open innovation in the pharmaceutical industry”, Drug Discovery Today Volume 18, issues 23-24, Dec 2013 [https://www.sciencedirect.com/science/article/pii/S135964461300247X]
 “Takeda to Trim Workforce 9% to Spur Profit From 11-Year Low” January 2012, Bloomberg Business, [https://www.bloomberg.com/news/articles/2012-01-18/takeda-plans-to-reduce-europe-u-s-workforce-by-2-800-jobs-in-three-years]
 “Entrepreneurship Venture Program” Takeda’s new approach for R&D innovation” October 2017 [https://www.krp.co.jp/hvckyoto/detail/468.html]
 “Co-Create Knowledge for Pharma Innovation with Takeda (COCKPI-T®)” Takeda company website [https://www.takeda.com/en-au/what-we-do/research–development/cockpi-t/], accessed November 2018
 “Shonan Innovation Health Park”, Takeda company website, [https://www.shonan-health-innovation-park.com/en/], accessed November 2018
Student comments on Achieving more with less in pharma R&D: Takeda’s open innovation programs
One of the biggest business risks around open innovation is government regulation. This is particularly important for the pharmaceutical industry as it is heavily regulated. As an organizational strategy, Takeda should take a proactive, instead of reactive, approach to managing regulations. Partnering with other pharmaceutical companies and working closely with the industry governing bodies should allow Takeda to stay ahead of the curve. If government regulators were to impose stricter regulations it could render some of the open innovation technologies as illegal or unethical. There is also the opportunity to stumble upon ethical concerns in the eyes of consumer. I believe a strategic, pragmatic, and collaborative approach to these issues will increase the likelihood that Takeda can avoid these concerns.
Open innovation at large pharma companies is a tricky thing. Being an innovation consultant in Cambridge, I constantly had projects for companies like Takeda that would come to us asking for “innovation”. On the surface, all the moves that Takeda is doing seemed like a good thing. It seems that they can make their R&D faster and better with these new practices. That said, I would be curious to dig deeper and see how it is actually being used and implemented and if there have been any mayor discoveries coming from these programs. Up until now, my experience has been that these type of organizations just want an “innovation theatre” to show that they are “innovative” but are still leaning on their traditional R&D for their actual work.
It’s interesting to hear about Open Innovation in Pharma, one of the more ‘closed’ or tightly controlled industries that come to mind. You’ve made a compelling case for the urgency with which Pharma companies are compelled to adapt their business model in the face of new challenges. The industry is plagued with long R&D cycles and low success rates for new innovations; something needs to change. Whilst I don’t see the ‘External crowd sourcing: COCKPI-T’ initiative as a long-term solution, the ‘Hybrid model: Innovation Park “Shonan iPark’ may herald a new era for the company – an expression of just how seriously they are taking innovation. To your question of how Takeda can manage the risks of Open Innovation, without stifling creativity, Apple’s open developer ecosystem proves that this is possible. Being first to market is everything in this industry, as it is in the tech industry. By embracing Open Innovation, Takeda can get ahead of their competitors, and by ensuring the right patent protections are in place, they can stay ahead.
Great use of secondary sources!
I believe one of the biggest challenges that Takeda will face as it changes its R&D model to focus on open innovation is managing cultural change. To build a robust open innovation capability, Takeda would have to change the organizational mindset. Current R&D staff would have be open to collaborations to external solutions providers, where previously they did not have to. The internal R&D staff would also need to be more open and accepting of others. They have to be comfortable with the fact that going forward, they might not be creating solutions from scratch as it was before. Rather, they would have to be collaborators and coaches who are agnostic as to to the origin of the solution, as long as it fulls a need or resolves a problem. Although this may seem simple, I believe changing mindset of these R&D personnel (and management) will be difficult for a pharma company based in a deeply conservative and hierarchical country such as Japan.
Interesting article – thank you for sharing! In my opinion, one of the biggest business risks to Takeda of using open innovation is that it will be difficult to keep their R&D pipeline confidential. The value placed on the R&D pipeline is very important for pharmaceutical companies. By crowdsourcing R&D ideas through COCKPI-T, I fear that Takeda may find it more difficult to sustain a competitive advantage if its competitors can see the type of R&D ideas being presented to the company. While I’m sure Takeda has confidentiality measures in place as R&D projects progress to the next stage, the fact that Takeda’s R&D ideas are open to the public is worrisome. I’d also like to better understand how the decision-making process is made when selecting crowdsourced R&D ideas. Has Takeda formed a team of R&D specialists, lawyers, quality and marketing professionals to ensure that the R&D idea is assessed from all angles before proceeding?
I really like how Takeda is implementing such an innovative approach to drive innovation – especially given that it is one of the oldest pharma companies in Japan, and that this industry has traditionally been quite closed in their approach to innovation. Given that the robustness of its drug pipeline is most critical for the growth of a pharma company, I think this initiative is especially important for Takeda to maintain its competitive advantage in the market going forward. As you highlighted however, this also comes with several external risks, including regulatory and legal risks. Furthermore, it may also pose operational challenges for the firm. As it starts to use open innovation to source more and more of its R&D initiatives, the company will need to focus on developing new competencies and new resources around managing this open innovation process in the most optimal way possible to ensure that it generates the best outcomes.
I think the business risk you mentioned around IP is a significant one for two reasons. The first reason is the straightforward case where you get into a legal battle between who owns the rights of whatever pharma product get’s produced and if it’s already in production the risk of paying out royalties that decrease profit margins. The second reason is reputational. If your business is known for being the company that steals ideas and takes advantage of scientists, then people will stop contributing their ideas to the open innovation programs. A secondary risk that comes to mind is that essentially by outsourcing part of your R&D to the public, you become reliant on them to define your product pipeline in the future. In an industry with high regulations that drive long lead times from conception to product shipment, not having a steady stream of ideas to test can slow your growth down significantly. With that in mind, I think it makes sense to think of open innovation as almost a new capability that you have to build, like learning how to engage different stakeholders to ensure that they are participating and support the open innovation ethos.