Technology scouts: hoping to find the next big thing

Technology scouts – sometimes called in-licensing directors or external business development directors – are charged with finding external innovations to boost their companies’ own internal R&D efforts. They attend technology conferences, university symposiums and trade shows. They pound the pavement visiting universities, research centres, start-ups and medium-sized companies. Their charge is to find the coolest undiscovered technologies to license, so their companies can turn them into profitable products.

“It’s a big world out there and there are a lot of smart people who can help us grow,” says Tom Cripe, associate director of open innovation at Procter & Gamble, which has had a technology scout programme in place for the past six years. Cripe oversees a group of 50 scouts, called technology entrepreneurs, whose sole job it is to attend conferences, search the web and meet companies in the hopes of finding technologies that could be turned into commercial products at P&G.

Already, some of P&G’s most successful products are based on external technologies. A few years ago, the company’s scout in France saw a presentation from Sederma, which manufactures a compound to help speed wound healing. The P&G scout realised the technology, which helps build collagen and elastin in the skin, could also be used to treat wrinkles. After a few years of joint research, P&G launched the Olay Regenerist line of anti-wrinkle cream based on Sederma’s technology.

Building on successes like this, P&G has made in-licensing one of the cornerstones of its growth strategy. Today, some 35 per cent of the company’s products have elements that originated outside of P&G, up from 15 per cent in 2000. Within the next three to five years, P&G says at least 50 per cent of its new product launches will include technologies sourced from outside the company.

No more ivory towers

It’s not surprising that large companies are looking outwards to spur internal innovation. The old model of building everything in house is no longer commercially viable. While industry-financed R&D in the OECD region rose 51 per cent – from $244 billion to $368 billion – between 1990 and 2001, few of those dollars translated into profitable products, according to Forrester Research Inc. For example, in North America 90 per cent of new chemical formulas never make it out of R&D labs, according to Forrester.

“Multinationals know they cannot develop everything in house and they cannot afford to fund basic research internally,” says Navi Radjou, a vice president at Forrester. By extending outward and building “innovation networks”, companies can stop wasting resources, Radjou says.

Even Boeing, whose highly-regarded R&D division, Phantom Works, employs over 2,000 researchers, has turned to in-licensing as a way to boost innovation. “We have to have our eyes and ears on the ground around the world, because there is great capability out there,” says Miller Adams, director of Technology Ventures, a division of Boeing Phantom Works founded in 1998 to establish strategic alliances with universities, research agencies and other technology companies. “We need to be properly positioned to take advantage of these possibilities and not become too focused internally,” says Adams.

Boeing’s Technology Ventures division has 12 scouts in the US and three overseas, and plans to add more soon in Europe and Asia. These senior technologists, who head up “dedicated technology focals” in specific geographic areas, look for technologies at universities, research institutes and large and small companies.

For example, Boeing sent one scout to Italy in 2003. He has since formed several strategic relationships with universities doing research into wind tunnels. Each year, the company signs hundreds of deals with universities, about five large joint-development projects and another five strategic alliances.

You can’t do it all yourself

UK-based communications company BT, whose own R&D group has created over 7,500 patents, is also on the hunt for external technologies. “We absolutely need leading-edge technology to succeed and the economics just don’t stack up to do it all your own,” says Mike Carr, director of research and venturing at BT in London. “A lot of our focus today is on using the best technology, wherever it comes from.”

In 1999, Carr started BT’s External Technology Discovery Lab in the Silicon Valley. BT’s first official technology scout, Carr set out for California with a charge to find promising technologies that could boost BT’s business worldwide. Since then, Carr has turned over the reins of the California office and the technology discovery program now counts ten scouts in the US, India, China, Japan and Malaysia. The group looks at some 300 start-ups a year, but only licenses technology from a handful.

One of the first innovations BT identified through the programme was broadband DSL technology from 2Wire Inc. BT became a major customer of 2Wire, basing its entire UK broadband rollout on the company’s DSL platform.

Even Cargill, the agricultural and meat processing giant that’s hardly known for cutting-edge technology products, is dipping its toes into in-licensing. While the 180-year old firm no longer has a dedicated scout – their sole “technology commercialisation manager” recently moved to a new role – it is still on the lookout for innovations to bring in house.

Right now, about 10 per cent of the company’s innovation comes from outside, but Cargill hopes to increase that significantly in the next few years, says Harry Gwinnel, head of licensing for Cargill. “Even though we are big and old, we do not know it all,” says Gwinnel. “There are a lot of good people with good ideas outside of Cargill and we just don’t have the bandwidth to do everything.”

Hit and miss

Searching for promising technologies may be an exciting job, but it’s still a bit like finding the proverbial needle in the haystack. “The hit rate is pretty low,” admits Larry  Micek, Cargill’s former scout and now a product manager. “If you are opening the funnel wide and sorting through what you see, successes are about 1 in 200.”

Pharmaceutical giant Eli Lilly, which has had an in-licensing program for the past ten years and has about 20 scouts looking for technologies worldwide, signs less than one major in-licensing deal per year. In the past three years, the company has licensed just three phase-one or phase-two compounds to use in drug development. “We wish there was a store that had a full shelf of useable molecules, but unfortunately that doesn’t exist,” says Aaron Schacht, head of Lilly’s research strategy. “Instead, our people have to be network brokers, constantly making connections and telling Lilly’s story.”

To find these elusive deals, Lilly’s scouts – called “finders” – visit research institutes, meet small and mid-size biotech firms and build relationships with mature pharmaceutical companies that have patented molecules ready to license.

Despite the low hit rate, the outcome is worth it. Of the nine new drugs Lilly has launched in the last four years, seven were discovered by Lilly and two were discovered by external partners; five were developed by Lilly and four were jointly developed with partners. Collectively, Lilly’s jointly developed products accounted for about $1.7 billion in sales in 2005, or about 12 per cent of total revenue.

Buying in the scouts

To narrow the possibilities, some multinationals turn to consulting firms that match patent holders with those looking to in-license new technologies. London-based QED Intellectual Property Ltd. primarily helps companies manage their own IP portfolios, but has recently been hired by some companies to search for innovations to in-license. More companies are looking outside their own R&D labs because “it’s usually cheaper to buy something than to design it from scratch,” says Neil Muttock, managing director of QED. The firm recently helped appliance-maker Kenwood license a motor technology from a consortium of universities.

Another route is the Internet. Some scouts scan Yet2.com, a website that allows companies to search a database of available intellectual property, or Innocentive.com, a subsidiary of Eli Lilly that matches companies with R&D challenges with scientists around the world offering innovative solutions.

For most multinationals, in-licensing is a small part of their overall R&D strategy. But some smaller firms have already given up on the ivory-towered R&D lab once and for all. Nycomed, a 3,300-person company based in Roskilde, Denmark, that markets a portfolio of drugs in Europe, decided in 1999 to build its entire business model on in-licensing.

Spun off from its parent company, Nycomed lost its R&D arm and was no longer able to conduct its own drug discovery. Since then, it has morphed into a vehicle for other drug maker’s products, co-developing and marketing drugs it discovers through in-licensing. Every year, Nycomed screens hundreds of opportunities and licenses about one or two.

“Most pharma companies have their own R&D and use in-licensing as a gap-filler,” says Kerstin Valinder, senior vice president of international marketing and business development at Nycomed. “We turned this model on its head, making in-licensing our main source of future products.”