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Where will innovation come from?
August 2010
by Peter T. Kissinger  | 
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In the early 1980s, I traveled to Berlin and to China for the first time. To reach Berlin, you flew in a PanAm DC-9 from Frankfurt, your only choice of airline and departure airport. It was a beautiful day. Crossing the border to East Germany, many things disappeared: color, highways, modern buildings and traffic. From low altitudes, it appeared that 30 to 40 years had just been lost. Arriving in China in a 747 Combi, the impression was very similar. The people hadn't discovered color? The cars appeared to be from the early 1950s and no private citizen could own one.
 
I was struck by the possibility that two highly inventive cultures were held back for many decades by autocracy, rules, five-year plans and prohibited debate. During these same two trips, by contrast, West Germany, Taiwan and Hong Kong were highly vibrant, filled with color and excitement for innovation.    
 
Thirty years later, it is unsettling to note the regular closure of R&D assets in the United States and the associated reductions in scientific headcount. The chairman of the board at Pfizer Inc. assisted with my high school science fair project on antibiotics (circa 1960). I won a great prize and still feel grateful to Pfizer. More recently, the company announced the complete shutdown of a very new R&D headquarters in New London, Conn. A bargain was no doubt possible when the site was sold to engineer nuclear submarines.  
 
A decade ago, it was predicted that pharma would submerge under the weight of patent expirations, and now we're there and heading deeper. The science has gotten harder, and R&D hasn't been able to keep up the pace under pricing pressure from the previous generation of inventions.  
 
We have a government that many feel is unfriendly to business, focused on what goes wrong versus what goes right and keen on spending (which ultimately means taxing) as government headcount rises. There is no doubt that free enterprise provides enough evidence of avarice and malfeasance to justify the statist and Robin Hood instincts of the left. With all its faults, it is only free enterprise that has successfully raised the living standards for all, step by step. It has done so by incentivizing innovation, most commonly by the small and nimble.  
 
This is the principle of the Chinese miracle that introduced private housing, personal cars, digital communications, modernized universities, a rapidly growing middle class and yes, fashion and color. Once Chinese individuals were free to create and be rewarded, they got to work. Their great talent now affords investing in new research laboratories just as our economy forces them to close. This is not to be feared, but embraced and challenged.
 
We are beginning to innovate on how we innovate. There is the concept of open innovation. There is crowd sourcing. There is a renewed interest on the part of pharma in academic partnerships that are disease focused and cover five to 10 years. There is developing government support for translational or transformative research involving academic teams. Put these terms into Google and you can have all sorts of fun and even buy books on these topics.
 
Let's be sure these ideas are new. They are by no means settled, and there are sure to be rough spots.  
 
For example, academic science was not built on teamwork outside of an individual professor's research group. We became professors to follow our passions, not to be organized around an objective set by others. Education is the primary goal, and 99 percent of the intellectual property walks across the stage at graduation, as well it should.  Turnover of laboratory personnel is not the problem. It's the goal!  
 
Consortia of pharmaceutical companies are now working together by sharing precompetitive information on topics as diverse as kidney toxicity, Alzheimer's disease and malaria. They are even investing together, as evidenced by Enlight Biosciences in Boston, which is currently supported by six leading companies.  
 
Note as well the Critical Path Institute. When will we similarly enlighten our immigration policy for science and engineering talent? When will we work harder on R&D tax credits and reduce the grab on capital gains from development stage companies in high-risk ventures? When will we see more matching of SBIR grants with private resources to leverage the taxpayer investment?  
 
There is also debate about patent system reform and even the legal definition of innovation. Squabbles between generic and innovative pharma continue to consume huge resources. What's new? What's important? What's just a nit in the process to allow for delay and a battle of wits? Can I patent my own unique DNA? Would you like to take a license? Might I suggest 5 percent with minimum annual royalties of $100,000? Clone a curmudgeon today!  
 
There is also debate whether university licensing offices are stimulating or constricting innovation. A good case can be made that they are doing both. Technologies and personalities differ widely and rules don't often work. Our Indiana neighbor Eli Lilly & Co. speaks of transformation from a fully integrated pharmaceutical company to a fully integrated pharmaceutical network. Their MBAs are as good as the military and systems biologists at inventing acronyms. Imagine an organic chemist as CEO of a pharmaceutical company. Is this even legal? The Lilly construct does make a serious point.   
 
Everything I've mentioned about the mechanics of innovation involves a vertical and horizontal disintegration of organizations into an ecosystem that is dynamic and global, with temporary assignments and alignments. It is a system where loyalty is not valued and you've got to stay on your toes and deliver results. Graduate students view these developments with some trepidation. Credentialism will surely not protect them. They'd better not stop learning at graduation or even think for a moment about settling into a house for 30 years. In California and Boston, there is nothing new about moving from startup to startup. It's a way to further your education. It does mean that dense clustering of like businesses is a requirement to build healthy communities and families. It is interesting that this occurs in sections of the country considered to have the most unfriendly business climates and the highest costs of living.  
 
Just remember that innovation is very precious and it can be discouraged when society imposes too many constraining rules. It can even go away. This is not theory. The 20th century experiments have already given us proof enough. I saw the results in China and East Germany three decades ago.  
 
Peter T. Kissinger is chairman emeritus of BASi, CEO of Prosolia in Indianapolis and a professor of chemistry at Purdue University.
 

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