Building a Better R&D Mousetrap By posting their scientific conundrums online, companies like Eli Lilly and Procter & Gamble have discovered a rich new source of brainpower.
By Paul Kaihla

(Business 2.0) – Alph Bingham, a former vice president for research and development at Eli Lilly, was stumped. Lilly had spent much of the 1990s ratcheting up its R&D spending by an average of 14 percent per year--and yet the billions in extra dollars had hardly budged the rate at which it was pumping out new drugs. All too often, relatively minor scientific puzzles held up the process or forced the company to call in pricey consultants to solve them.

In 1999, Bingham hit on a radical idea for getting more bang for his R&D buck: Instead of relying solely on the company's 6,000 researchers and occasional help from outside firms, he could put those puzzles to thousands of bright freelance minds--easily reached through the omnipresent Web. Bingham likens the idea to talk radio: "If I asked a question on a call-in radio show, like who came in third in the Indy 500 in 1938," he says, "the phone would ring and in two minutes I'd know everything I wanted to know. There's a mind out there that can answer that one obtuse question." The difference is that Bingham would put a bounty on the answer--for example, offering $2,000 to anyone who could devise a cheaper process for making BTCA, a chemical compound used to manufacture polyester and carpets.

In 2001, Lilly decided to test Bingham's idea. It invested a few million dollars to launch a startup, called InnoCentive, to serve as a kind of Internet dating service, hooking up freelance researchers with companies interested in outsourcing small R&D projects. Based in Andover, Md., InnoCentive already has more than 25,000 "solvers"--freelance researchers in 125 countries--registered on its website, where they can find 80 to 100 new queries each week.

More impressive is that InnoCentive's clients include not just Eli Lilly (which remains InnoCentive's majority owner), but also Dow Chemical, Procter & Gamble, and German chemical conglomerate BASF. So far those companies have collectively shelled out more than $500,000 for answers to dozens of scientific conundrums. The solutions could have easily cost the companies many times that amount if they'd farmed out the problems the old-fashioned way: typically, to consultants at universities or to industry veterans who have gone freelance. One researcher in North Carolina recently helped Eli Lilly push a cardiovascular medication through early development. The $25,000 he earned was a bargain for Lilly. Says Bingham: "I might have assigned this to five different labs, and they'd have come back in six months and told me it's unsolvable."

InnoCentive charges clients like P&G about $2,000 to post an online query, which now carries an award ranging from $5,000 to $100,000. Freelancers who think they've nailed problems submit confidential reports or ship solutions they've made in their labs; then InnoCentive staffers either validate or disqualify the work. The privately held company, which employs 30 people, won't disclose revenue figures, but Bingham says it makes most of its money by charging a fee of 60 to 100 percent of the award whenever a client accepts an answer.

The answers are coming from some unlikely sources. David Bradin, a patent lawyer in Durham, N.C., stumbled on the BTCA query. Within minutes of logging on at the InnoCentive website last year, Bradin--who'd worked in an Ohio chemical plant and has a master's degree in chemistry--realized that the solution was similar to one he'd come up with years earlier, when he identified an impurity in a giant vat of tear gas. That day, Bradin filed his analysis. A few months later, he received an award check for $4,000.

Researchers like Bradin must agree to work on spec, and must relinquish all rights to the research. So how is it that InnoCentive boasts a 40 percent solution rate? Rashmi Nunn, a former research manager at Scripps Research Institute, was drawn by intellectual curiosity and the possibility that the work might help her job search; she has been working as a systems administrator since leaving her post at Scripps last year. Several months ago she won a $5,000 InnoCentive award for explaining why crystalline arrays form inside cells when a particular drug is given to a patient. The solution got her an interview at a biotech startup.

Cash, of course, remains the main attraction in countries like China and India; 53 percent of InnoCentive's researchers live outside the United States. Last year the CEO of a pharmaceutical firm in India assigned a team of researchers to work on the solution to a $75,000 InnoCentive query. According to InnoCentive CEO Darren Carroll, the award allowed the company to hire two new employees in its lab.

Larry Huston, who oversees P&G's $1.6 billion R&D organization, has used InnoCentive to help pinch manufacturing costs and speed up product development. He's also working with a similar firm, NineSigma, to handle other R&D odd jobs.

The talk-radio approach to R&D, Bingham cautions, isn't likely to deliver the next wonder drug. It works best for well-defined "fragment" problems, such as creating the right chemical for an intermediate step in a deodorant formula. Not exactly the stuff of scintillating drive time, but sexy enough to make sure his white-coated "callers" will keep tuning in. --PAUL KAIHLA