The Innovation Deficit

Two ScientistsLast week, I attended an evening seminar at the Management school of my university. The lecturer was, in a former life, a senior manager in a pharmaceutical firm. What he had to say about the state of the industry was not particularly comforting: apparently, the industry’s present business model is thoroughly broken, and indeed, many companies are one bad drug away from complete collapse. In particular, he highlighted the plight of Merck, whose ill-conceived and over-marketed drug Vioxx nearly wrecked the firm.

How did they get into such a mess? The lecturer suggested that the current paradigm is based upon corporations generating a “hit drug” regularly: a good example of this is Viagra. Viagra is safe and has a popular usage to treat a common disorder. The billions made by the sale of such drugs justify a huge investment into a largely closed and secretive research and development process. The problem with pharmaceuticals is that one can spend billions and have it all come to nought at the final hurdle, i.e., human trials and approvals: in most other endeavours, the potential for failure can be identified at an earlier stage and lessons learned.

The lecturer suggested that the companies should adopt a new model: rather than spending vast quantities of cash on research and development professionals and labs, they should tap into the wider marketplace of ideas. The term he used was “open innovation”. This model has hitherto been successfully used by the information technology industry in the development of software; the operating system Linux, for example, is still largely a collaborative project, incorporating the efforts of programmers all over the world. Project management is a challenge with such a disparate workforce, however, it’s not an insurmountable obstacle. Linux is the operating system of choice for web servers and has become increasingly popular among home users.

There is an obvious snag with applying the same model to pharmaceuticals, which was not lost on the audience: to generate a piece of code, one only needs a computer and a spare room, sometimes even the latter is optional. In order to do ground-breaking drug research, one needs a lab, access to expensive chemicals and equipment, and it’s highly unlikely that one can “self-train” to be a world beating biochemist. While it’s possible some small venture capitalists may want to take a flutter on creating these facilities, the onus will likely fall on universities in order to provide the innovations which will continue the flow of life-saving, life-enhancing drugs. Furthermore, pharmaceutical firms’ role would be reduced to validation of the research and distributing the results.

As I sat there, I found the situation thoroughly ironic. Here we were, discussing the failure of a private industry and the need for it to be rescued by the public sector; yet again, as with the banks, the free market had failed. Capitalists find they need, for lack of a better term, some kind of socialism, as purely private enterprise is no longer affordable. Banks wanted the ultimate form of insurance for all sorts of misbehaviour, now pharmaceutical companies were more or less being advised to go cap in hand to the state in order to help them survive. Meanwhile, corporation tax is kept low in many nations because of the fear that these more or less parasitical entities will flee abroad. Basically, private firms of all kind want government backing, and indeed, need it, but at the same time, they furiously kick up a fuss when they receive the bill.

The paradox should not be lost on the general public: it merely needs to be explained in more detail. However, none of the three largest parties in Britain nor the two largest political parties in America are basically asking the following question about our present situation: “how is this working out for you?” The truth is, it isn’t. I can’t say I’m entirely surprised; my experience in private industry suggests that the greatest challenge was to get companies to back “blue skies” research, i.e., to do something risky and different, even though it was something risky and different that allowed them to exist in the first place. As the financial crisis has become entrenched, so too has this thinking. This is a recipe for stagnation, and again, only the government has the means to intervene in order to break the deadlock. However, politicians either don’t have the wisdom or the courage to explain these facts.

I can talk about a number of ideas I’ve seen at my university which have magnificent potential; I’ve seen plans for wave power generators which could provide clean electricity at reasonable cost. I’ve seen a proposal for the creation of a trans-Atlantic train, complete with tunnels which float beneath the waves. I’ve seen research grant applications which require the design and manufacture new imaging equipment which can take three dimensional snapshots of archaeological sites. All three of these ideas advance the frontiers of human knowledge, and could achieve great progress in the fields of sustainable energy, transport and technology. To my knowledge, however, no private company will contribute a farthing to any of these projects, though to be resolutely fair, some will give help in kind. Worse, the British government and both the opposition parties are committed to cuts in Higher Education, while at the same time, all three parties demand that universities contribute more to the development of the economy. The equations do not balance; something has to give. Considering society’s increasing dependence upon universities to provide progress, I would suggest it is not down to higher education to ensure that the sums work.

We all owe a debt to the government, whether we like it or not; our roads are paved, albeit, not always well. Our streets are policed, albeit, not always perfectly. Our children are schooled, though they are sometimes educated so badly that ignorance is reinforced. However arguments with the quality of the service provided does not invalidate the requirement. Higher education is not perfect; sometimes the ivory towers do shelter intellectuals who are so abstracted from reality that their contribution to society is as valuable and concrete as fairy dust. But at the same time, the overall role of universities is as important now as that of monasteries during the Dark Ages: in an era of societal and economic stagnation, both shine out as beacons of progress. The institutions of Higher Education remain the sole credible remedy for the innovation deficit that is taking hold in Britain and America; I am not alone in seeing this and saying this. However, it appears the politicians do not; if they don’t wake up in time, we will all be the poorer, and very soon.

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