Ecosystems – the new networks of global innovation

No pharma conference today is complete without manifold references to ecosystems. It’s a buzzword that reflects a global transition taking place, a journey that is edging us away from a corporation-centric ‘Industrial Age’ towards the ‘Information Age’.

The former was driven by a logic that said the best way to achieve an economic gain was keeping business-critical functions in-house. The latter is focused on the belief that without agility and a breadth of relationships a 21st century enterprise cannot thrive.

The rise of the archetypal ‘Industrial Age’ corporation was best described by the British economist Ronald Coase, who won a Noble Prize for a seminal paper written in 1937, ‘Nature of the Firm’. It explained the benefits and optimum size of corporations. His thesis was that the costs associated with managing information and transactions in all their guises were key to company formation and growth. By combining people and activities within one organisation, he reasoned, this burden could be minimised. His ideas gave intellectual support to the rise of huge corporations in the post-war era.

Over the last two decades the overwhelming advance of information technology has dated this theory somewhat. The perceived advantages enjoyed by traditional, 20th century corporations are being eroded and are no longer necessarily sufficient to overcome the additional costs of complexity and inertia that large organisational forms tend to impose.

Instead, we are seeing the emergence of more loosely-coupled networks. These consist of small businesses and start-ups taking advantage of less costly access to information and data. By harnessing these efficiencies and not assuming a monolithic scale, the theory goes that these firms tend to perform better at innovation. They also have an innate adaptability and the ability to pivot and re-configure themselves in the face of a constantly changing competitive environment. Put together in the context of a single site or region, they collectively form an ecosystem.

This is the structural change we have all witnessed in pharma over the last decade. Big pharma continues to reshape itself and rethink its approach to innovation. Great science is increasingly the product of a web of interdependent enterprises and relationships functioning together to create value. Partnerships and co-innovation have become mainstream.

During this period San Diego has emerged as the standard bearer of new biotech ecosystems. It is now home to more than 1,225 life sciences companies and some 80 independent and university-affiliated research institutes. These include The Scripps Research Institute and global corporations in the guise of Eli Lilly, Pfizer, GlaxoSmithKline, and Takeda all maintain a local presence. They do so to foster collaboration with the research institutes, universities, and the scores of small and medium-sized biotechs operating in the region.

The roots of this story go back to 1978 when Hybritech, San Diego’s first biotech company, was formed by two students from the University of California. Hybritech went on to produce pioneering work, including the first blood test to screen for prostate cancer. When the business was sold to Eily Lilly for $450 million in 1986, its executives and investors reaped significant rewards. Many subsequently left to set up their own enterprises. In doing so, they formed new start-ups and helped spawn San Diego’s biotech ecosystem, a self-perpetuating cycle of growth, acquisition, and more growth.

The city’s experience is the subject of books and academic research. The insights played back go beyond the impact of the presence of a single business acting as a growth catalyst. It’s a wider success story built around an enterprise-friendly civic culture and plentiful gateways to develop ideas and opportunities. Studies also cite a healthy balance struck between state infrastructure investments, research grants, and a certain self‐organisational capability; the ability to get things done without relying on government‐led initiatives. The wherewithal to attract global talent and the presence of highly interdisciplinary and entrepreneurial research institutions have also proved key.

Many observers have commented that, in the end, business is still about people. They point to the strong personal networks that were created in the San Diego area and proactive engagement with decision makers – both contributory factors to the momentum achieved.

So far, so good for San Diego. The inspiration I draw from its story is the sense of shared goals, of the right people and organisations pulling in the same direction at the same time. This is surely the hallmark of any successful large scale project. It also helps explain the difference between those regions that can create a virtuous circle of enterprise around science and technology - and those which cannot. The complexity of cities and regions means this it’s no small corporate, civic or political achievement to pull this off. The challenge for our life science industry is to find the same willingness to work together, to make the sum of the parts add up to a greater whole.

We have our own success stories in the UK. Alderley Park in Cheshire is a good example of a life science ecosystem that reflects how the industry has changed. It had its own ‘Hybritech’ moment when AstraZeneca announced it was pulling out in 2013. The transformation since has been about replacing that old model with an effective ecosystem. The site is currently being developed by Bruntwood SciTech as a result of a £257m investment plan to provide new laboratory and office space together with a sophisticated programme of business supporting including structured mentoring for start-ups as well as providing access to talent, markets and finance. There are now some 200 life science businesses operating at Alderley Park, a blend of early stage biotechs, fast growth SMEs and CROs, along with key research charities and institutions.

Innovation and good research are the keys to everything - and are much less likely to happen in a vacuum. An effective ecosystem allows companies to reach out and find potential partners, funders and collaborators. Proximity is a factor. It’s said that doing business with an organisation usually requires meeting them at least three times. That’s so much easier when you are operating within a diverse and successful ecosystem where physical connectivity is a matter of walking distance – the ‘human collisions’ prized by the business thinkers who have followed in the footsteps of Ronald Coase. Through this interaction people can exchange ideas and discuss issues, which may create new opportunities.

The life science industry is not alone in facing disruption and challenges on a number of fronts, including technology, regulation and pricing. We see the single site ecosystem model continuing to evolve, with the next iteration allowing for convergence of tech and life science. A.I and health tech are already in a space once largely occupied by biologists and chemists. The shape of things to come is about how this interplay can bring benefits in terms of better outcomes for patients, the healthcare sector and the life science industry as a whole. Watch this space.