End Of Innovation Greatly Exaggerated
To compete in the global economy, Massachusetts companies need to find creative ways to more effectively utilize their most valuable asset - brainpower. Hence the birth of the innovation economy.
This past spring Worcester Polytechnic Institute (WPI) hosted our annual Biotechnology and Bioengineering Corporate Forum with an emphasis on innovation in the life sciences.
Now in its third year, the forum brings together business, academic and political leaders to spotlight the business development successes and challenges of life science companies of all sizes. Juxtaposing the stories of large and small companies provides valuable insight into the challenges faced by entrepreneurs, as well as an understanding of how established companies can remain competitive in what many view as the most competitive industry in the world.
Collegial Cooperation
The Worcester Business Journal's May 26 cover story focused on Boston Scientific's presentation at this year's forum. While it touched on many of the challenges facing today's larger life sciences companies, the cover story missed the mark by not also reporting how these companies are working to overcome those challenges.
The pharmaceutical and medical device industries face high hurdles. Technologies have short shelf lives and stringent approval criteria, which make hitting the market window very difficult. In response to these challenges, U.S. companies are embracing the idea of 'innovation' as a business model. This is the idea that market-need can be identified, new technology created and validated, markets penetrated, and high margins achieved, all before the technology is moved off-shore and commoditized.
This requires nimbleness, flexibility and a willingness to take risks and place big bets. And there is the rub. Small companies are agile and risk-tolerant but may lack the financial resources to make these bets. As a result, they often play in niche markets where competition is less and the market window is larger, but where the innovation payoff is smaller. Large companies may have the financial wherewithal to place the big bets, but are constrained by shareholder expectations and therefore are generally more risk-averse.
Large life science companies understand they have a lot to lose by not fully enabling innovation. In response, many turn to innovation-by-acquisition-purchasing fully developed technologies. This shifts the technology development risk to the smaller companies and early investors, but it has risks of its own. A lack of early investment can stifle development in the first place, and the small window for marketing life science technologies demands both careful timing of acquisitions and good chemistry between acquirer and the acquired.
An alternative strategy that is being adopted by some large companies was discussed in some detail at the WPI forum this year. In the new model, prospecting teams seek out promising new technologies in start-up companies much earlier in the product development timeline, and help nurture the young companies with relatively modest investment. In this model, the larger company is a partner with the smaller, not simply an acquirer. For the larger company, risk is more widely distributed because it invests more modestly, and can support more ideas at more young companies. For the young company, the early support of a large partner, both financial and scientific, is invaluable in creating credibility and validating its technology, which in turn can lead to more investment.
This type of interaction, where companies across the life sciences spectrum come together to frankly discuss challenges and potential solutions, is precisely why we developed the Biotechnology and Bioengineering Corporate Forum. The result, we hope, is a more competitive and prosperous life sciences industry for Massachusetts.
Grant McGimpsey is a professor of chemistry and biochemistry, and director of the Bioengineering Institute at Worcester Polytechnic Institute
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