finding the endless frontier: lessons from life sciences for energy innovation
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October 23, 2009 Washington DC Accelerating Energy Innovation: Lessons from Multiple Sectors Rebecca Henderson and Richard NewellTRANSCRIPT
FINDING THE ENDLESS FRONTIER: LESSONS FROM LIFE SCIENCES FOR
ENERGY INNOVATION
IAIN COCKBURN, BU AND NBERSCOTT STERN, NORTHWESTERN AND NBER
JACK ZAUSNER, MCKINSEY & CO
NBER ACCELERATING ENERGY INNOVATION CONFERENCE
WASHINGTON, DC OCTOBER 2009
The Nixon Innovation Agenda
“I will also ask for an appropriation of an extra $100 million to launch an intensive campaign to find a cure for cancer” (1971 SOTU)
The 1971 National Cancer Act provided budget for National Cancer Institute, ushering in a sustained and substantial Federal commitment to life sciences research
Let this be our national goal: At the end of this decade, in the year 1980, the United States will not be dependent on any other country for the energy we need to provide our jobs, to heat our homes, and to keep our transportation moving… to spur energy research and development, we plan to spend $10 billion in Federal funds over the next 5 years. (1974 SOTU)
The War on Cancer Project Independence
During the 1970s, Federal programs directed significant attention and resources towards both energy and life sciences innovation….
Federal funding priorities
Why have the experiences of the life sciences and energy innovation systems been so different?
The Power of Life Sciences Innovation
Despite the complex nature of HIV/AIDS and high transmission potential, AIDS combination therapies developed in the early 1990s have dramatically reduced the AIDS death rate in the developed world
Drivers of the Life Sciences Innovation System
High and relatively stable public funding of basic research Long term development of a large, highly-skilled
specialized R&D workforce High willingness to pay for innovative and differentiated
new products, coupled with insurance-driven demand and stringent regulation of entry into the product market
Public funding focused on “bottom up” peer-reviewed, investigator-initiated projects
“Workable” IPRs, enabling innovators to capture value and supporting an extensive market for technology
Intense innovation-oriented competition throughout the value chain
Evolution of the Life Sciences Innovation System
Good Old Days
Public sector science
Big Pharma
Biology
Drugs
Big Pharma
CROs
The Present
Public sector science
Tool biotechs
Pro
du
ct b
iote
chs
Evolution of the Life Sciences Innovation System
Revolutionary advances in basic science have generated radical shifts in the technology base of commercial activity: chemistry biology
Dis-integration of the industry into specialized layers
Emergence of new organizational forms (science-based entrepreneurship, AMCs), and supporting “infrastructure” (VCs, patent lawyers, university TLOs, etc.)
Adaptation of incumbent firms, federal agencies, universities
Creates a highly complex, interdependent (and hard-to-manage) innovation network
Powell et al. (2005)
LESSONS FOR A SCIENCE-BASED CLIMATE CHANGE INNOVATION SYSTEM
Lesson #1: Slow and Steady Takes decades to see results from investment Instability of funding very costly
Destroys career paths, strands other specialized investments, undermines accumulation and trajectories of inquiry
Public R&D funding “buffers” notoriously fickle private investment
Long-term funding commitment supports development of specialized human capital evolution of institutions that allow for effective
public-private interactionRome wasn’t built in a day—from an economic and innovation policy perspective, the lesson is that the design principles and technologies that comprised ancient Rome took centuries to develop.
Lesson #2: Bottom-up Agenda Resource allocation through robust, investigator-
initiated and peer-reviewed processes rather than top-down “command-and-control” approach
Academic freedom, entrepreneurship permit diversity of experimentation
“Blue sky” projects are complements to public health priorities and product market incentives
Bottom-up agenda directs a cumulative stream of innovation that delivers long-term breakthroughs
Attempts to significantly reduce the freedom of investigators and entrepreneurs rarely result in important breakthroughs precisely because they reduces the diversity of experimentation.
Lesson #3: Competition
Intense and pervasive competition focused on novelty and priority throughout the value chain Darwinian competition among PIs, labs,
universities for grants, prestige etc. 1000s of science-based entrepreneurs compete
in the “market for technology” for capital, human resources and opportunities to license/collaborate downstream
Fragmented product market, with Schumpeterian dynamic competition to introduce new molecules, and intense price/cost competition from generics within old molecules
Lack of competition within innovation results in both traditional static losses of monopoly pricing, and reduced diversity and experimentation within the research community itself
Lesson #4: Transparency, Openness
Innovation governed by “Mertonian” norms supports transparency, disclosure and cumulative advance Even in close-to-the-market commercialization
activity Open access resources (BRCs, GenBank,
scientific literature) provide system-wide benefits (So far) Open Science able to co-exist with
exclusion-based IP: institutions can balance competing imperatives Openness facilitates access to prior discoveries and provides incentives
for the disclosure of new discoveries—a powerful institutional framework for step-by-step scientific and technical progress.
Lesson #5: Rewarding Innovators Intrinsically high willingness-to-pay for
innovations Innovators are able to capture a significant share
of the value of new technology—at least for a while Strong IP, with (historically) broad consensus
on rules and norms for granting and enforcing patents and trademarks
Stringent FDA regulation of entry Hatch-Waxman Act provides explicit balancing
of incentives to innovate with access/pricing
Regulation governing product market access can play a crucial role in shaping innovation incentives; product market regulation and intellectual property rights policy can be powerful complements
Lesson #6: Diversity, adaptation Organizational experimentation: DBFs, TLOs,
CROs, non-profits Incumbent firms have adapted to changes in
industry structure, effectively accommodating new entrants and new technologies Big Pharma appears not to have suffered from the
structural rigidity and organizational inertia seen in other sectors
Commercialization grounded in flexible co-operative relationships across a wide variety of institutions The Innovation Network may have hidden costs, but
supports specialization, division of innovative labor, and exploitation of complementarities between public science, science-based entrepreneurship and traditional pharmaceutical companies
A tolerance for diversity and a willingness to adapt have been hallmarks of the life sciences innovation system. Effective institutions and infrastructure for life sciences research have emerged from an extraordinary amount of organizational and institutional experimentation—within which most initiatives fail.
Conclusion
Life Sciences innovation has distinct, perhaps unique features, that limit generalization
But this history suggests there is rarely a single “magic bullet” or “quantum leap” to address an issue as complex as climate change—innovation is a cumulative process and builds on multiple technologies and platforms
Faced with pressing social, human, and technological challenges the experience of the Life Sciences sector points to a powerful role for sustained public investments in general-purpose
platform technologies support for diversity, experimentation and competition
across a wide range of organizations and technologies