Hidden benefits of a collaborative R&D alliance in the pharmaceutical industry: the case of Schering AG and Novo Nordisk A/S.

SUMMARY

In addition to the anticipated advantages of a collaborative R&D alliance, we argue that a number of valuable hidden benefits can arise from the process of a partnership itself. Hidden benefits can come in the form of innovations derived from preparing and organising the collaborative R&D alliance, the potential for improvement exposed in applying existing expertise to a new situation, the dynamic network generated by the collaborative R&D alliance itself, and the stimulating challenge of competition to parts of the organisation that are normally shielded from it. This case study focuses on the exploitation of the above mentioned hidden benefits within a well-planned collaborative R&D alliance between two pharmaceutical companies, Schering AG and Novo Nordisk A/S.

KEY WORDS

R&D management; pharmaceutical companies; collaborative R&D alliance; virtual integration strategy; cross cultural innovation; organisational innovation; dynamic network

INTRODUCTION

Collaborative alliances occur in many different ways and for very diverse reasons. Specific advantages of collaborative alliances vary enormously; no two alliances are created to generate precisely the same benefits. The main objective, however, is almost always to get access to resources, to know-how, to technology, to manufacturing capabilities and markets.

There is a near universal consensus in the pharmaceutical industry that the number, importance and diversity of collaborative R&D agreements such as collaborative R&D alliances as well as outsourcing R&D activities, where only R&D management activities are kept in-house, has increased. Most collaborative R&D alliances in the pharmaceutical industry sector; however, are based on the intention to exchange resources and competencies in order to develop a new product. They are usually based on formal contractual agreements specifying at least the objectives of the collaborative R&D alliance, the direction, the expected contribution of each of the partners and the distribution of material and immaterial proceeds.

The costs, risks and the benefits of collaborative R&D alliances have been well documented in the literature. Costs and risks of these alliances fall into the following categories: Costs and effort necessary to manage collaborative R&D alliances, leakage of core competencies and creation of competitors. The benefits of collaborative R&D alliances include spreading the costs and risks of product development and gaining access to expertise and technology. In addition to the above mentioned advantages, a number of valuable hidden benefits can arise from the very process of the partnership itself.

According to Bidault and Cummings (1997), hidden benefits can arise in alliances in the form of innovative ideas derived from detailed presentations of each side's expertise, which they illustrated firstly with an example from the tower cranes manufacturing industry. Secondly, there is potential for improvement exposed in applying existing expertise to a new situation, which they demonstrated with an example from the tyre manufacturing industry. Thirdly, the pressure to perform with a demanding partner, which they demonstrated with an example from the car manufacturing industry.

In this paper, the authors show that the same hidden benefits existed in a collaborative R&D alliances within the pharmaceutical industry sector. Furthermore, they identify another potential hidden benefit, the 'dynamic network', in such an alliance. These benefits are illustrated by a collaborative R&D alliance in 1999 between two pharmaceutical companies, Schering AG and Novo Nordisk A/S.

The background of the collaborative R&D alliance between Schering AG and Novo Nordisk A/S was the discovery of the structure of a molecule around 1995 by scientists at Novo Nordisk A/S. The above mentioned biological active molecule was recognised as a potential drug for regulating in vivo ('occurring in the living body') as well as in vitro (occurring in the test tube; i.e., 'outside the living organism') fertility of female reproductive cells. A year later Novo Nordisk A/S decided to enter into a collaborative R&D alliance with Schering AG in order to develop the drug candidate. Several improvements at Schering AG resulted from the process of the partnership with Novo Nordisk A/S itself.

COLLABORATIVE R&D ALLIANCE CAN BE A SOURCE OF INNOVATION

A research project leader in the Department of Fertility Control and Hormone Therapy at Schering AG was required to thoroughly prepare and organise Schering AG's contribution to the collaborative R&D alliance with Novo Nordisk A/S in the field of fertility regulation, in particular in the area of animal experiments. Among other things, animal experiments were used in the Department of Fertility Control and Hormone Therapy at Schering AG to test the effect of potential drugs on only one specific organ, e.g. the ovary. Problems may arise in an in vivo experiment according to interactions of the potential drug with other organs in the organism. Her examination of rat animal experiments conducted at Schering AG generated a brilliant idea: Testing a potential drug in a system, where the rat ovary is isolated from the organism but for the duration of the experiment is still fully functional. The methodology was successfully established and subsequently standardised in the Department of Fertility Control and Hormone Therapy at Schering AG.

Collaborative R&D alliances generally require the partners to contribute some of their managerial or technical expertise to the partnership. This transfer of knowledge can be a valuable source of ideas for improvement as it requires the partners to prepare and organise operations they are familiar with and probably have not yet examined objectively for some time. Ideas for improvement tend to be stifled by routines that no one questions (Bidault and Cummings, 1997). The innovative idea resulted from the preparation and organisation of animal experiments for the partner at Schering AG.

COLLABORATIVE R&D ALLIANCE CAN TEST METHODOLOGIES IN A NEW CONTEXT

A protein chemist in the Department of Fertility Control and Hormone Therapy at Schering AG was responsible for proteomics. Proteomics is an area of protein biochemical research concerned with the study of the total protein complement expressed by cells or an organism in a given developmental or physiological state. The proteomics approach at Schering AG (Brockstedt et al., 2000) was used within the collaborative R&D alliance in order to demonstrate the effect of the drug candidate. However, this proved to be insufficient due to problems caused by the protein separation process. Nevertheless, this problematic research produced a number of valuable suggestions from colleagues at Schering AG. A solution was developed and the specific protein chemical method was significantly improved.

Collaborative R&D alliances typically involve applying knowledge under different condition such as application of methodologies under new circumstances. Knowledge is put to the test and this can generate valuable ideas. Hidden benefits can arise by applying established expertise to a new situation and revealing a potential for improvement (Bidault and Cummings, 1997). The improvement of the protein chemical method resulted from the application of this methodology within a new context.

COLLABORATIVE R&D ALLIANCE CAN INCREASE THE NETWORK OF INTERORGANISATIONAL RELATIONS FAR BEYOND THE PARTNER ORGANISATION, THE 'DYNAMIC NETWORK'

A research project leader in the Department of Fertility Control and Hormone Therapy at Schering AG had the idea during one of the experiments with the drug candidate that it would be a great achievement if not only the regulation of fertility of female reproductive cells could be affected, but also the constitution of female reproductive cells might be maintained over a longer period of time. A bundle of diverse ideas from the knowledge network which comprised already far more scientists than the ones who were actively working on it from both pharmaceutical companies encouraged the research project leader to investigate the effect on the ageing process of mouse female reproductive cells. In general, a drug which would have the ability to maintain the constitution of female reproductive cells over a longer period of time may also delay the ageing process of human female reproductive cells. Consequently, such a drug may have the chance to promote the fertility of women.

The value of a collaborative R&D alliance is not primarily defined by the cash flow coming in from the initial investment but also by the future investment opportunities. The collaborative R&D alliance between Schering AG and Novo Nordisk A/S increased the network of interorganisational relations far beyond the partner organisations, the 'dynamic network'. A 'dynamic network' which was generated by the collaborative R&D alliance can increase the possibilities for unanticipated an new opportunities. In many cases it is not always clear in advance what kind of proceeds will be achieved in a collaborative R&D alliance. In general, the more the results of the research, the intellectual assets and the know-how created are so uncertain that they cannot be predicted, the higher the possibilities for unanticipated and new opportunities. Especially collaborative research alliances can multiply the possibilities for these opportunities due to the injection of a variety and increase of resources and competencies.

COLLABORATIVE R&D ALLIANCE CAN BRING A STIMULATING CHALLENGE OF COMPETITION TO PARTS OF THE ORGANISATION THAT ARE NORMALLY SHIELDED FROM IT