Erik: Welcome to the Industrial IoT Spotlight, your number one spot for insight from industrial IoT thought leaders who are transforming businesses today with your host, Erik Walenza.

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Welcome back to the Industrial IoT Spotlight podcast. I'm your host, Erik Walenza, CEO of IoT ONE. And today we're hosting Sophie Sun. Sophie is the managing director of the China Innovation Hub, and the Vice President of Strategy and transformation at Merck Group. Merck is a market leading science and technology company that specializes in healthcare life sciences and performance materials. And with Sophie, we'll be discussing how Merck collaborates with startups and local governments to explore new technologies through the Innovation Hub. We'll also discuss some of Merck’s partnerships with data platform companies to develop track and trace solutions, and to improve R&D efficiency. I hope you enjoy the discussion.

Sophie, thank you so much for taking the time to speak with us today about Merck Group and some of your innovation initiatives in China today.

Sophie: Thank you, Erik.

Erik: So Sophie, even though Merck Group is a global market leader, it's an industrial company that's focused on science and technology. So I think a lot of our readers, or listeners won't be so familiar with the business. Let's start by just giving a quick introduction to the scope of Merck’s business, and maybe some examples of some of the areas where you are innovating.

Sophie: So Merck is a company with a long history, and with history of 350 years. Actually, we celebrate the 350 years anniversary last year. But we both old and young; why we are young, because we are actually consisted of a group of people whose curious minds dedicated to human progress and will always believe that innovation and breakthrough technologies is the driving force to make Merck have been advancing and progressing in the past 350 years.

And so that's also why we think innovation is very important. And we are driving this through our three sectors and also across sector of the new technology. So, we’re active in healthcare, life science and performance materials. We do prescription drugs, and in oncology, immunology, oncology, and also infertility and cardiovascular areas, among others.

And we also do provide innovative tools and equipment for the labs and we have industry leading ecommerce platform, especially after we acquired Sigma-Aldrich. And so for performance material, we have the materials that we provide for the semicon, the surface solutions, and also the display solutions, so quite dynamic diversified technologies and business in those three industries.

We do recognize that there is a big synergy among those receptors. And also nowadays, we see more and more kinds of interaction and convergence. Like for example, among the electronics and the healthcare, now also and new ways of treating diseases because of the cell based therapy and gene therapy. So you can see that the life sciences and healthcare area also have a lot of interactions.

So that's why we do look at the new technologies that also between and beyond the current businesses. We actually set up the innovation centers and hubs globally, and to look at and to explore and develop those new technologies also, between and beyond the current businesses. So, for example, I'm currently running the China Innovation Hubs which we look very actively, the new technologies in the China innovation ecosystem. And so we work with the startups, the academia, and also VCs and also, a lot of I will say, Chinese government. They also have the incubator, high tech parks. So we work very closely also with them.

Erik: Your business is certainly very diverse. So you're covering a lot of different domains and then you're also sitting on both sides of the table, so to speak. So you're using digital technologies in your operations to improve R&D efficiency. But you're also in your material science business are really in some areas at the cutting edge of developing new sensors, and so forth. So I'm interested in digging in a little bit more to how you innovate in this very dynamic and deep science demands, and in particular, why you've chosen as a company to focus on open innovation or to invest so heavily in open innovation here in China. Maybe you can talk a bit more about the accelerator program that's recently kicked off and why this open innovation model makes sense for Merck.

Sophie: So I think you mainly covered two topics. One is about the digital technology. And another is about how we actually leverage some programs to engage startups and to explore some new technologies. So the first one about the digital technologies, and we do see that China has a very booming development of the digital technology.

And so no matter is BET companies or the unicorn startups, China is really leading the way of the word. And I’m often amazed by how many unicorn startups is from China. And we know that it's among the top 10 unicorn startups globally, five from China, and also the BET company actually invested a lot of startups not only bio are building, their own platforms and technologies, but also investing into those startups to encourage the overall industry or the digital ecosystem in China.

So that's why in China, we are very actively look into this area. And so we do see there's quite some companies that are providing the digital solutions that could transform our businesses. For example, we formed a partnership with Alihealth recently to leverage, for example, the track and fees technology for our general medicine business franchise. And we also leverage their other platforms to hap the disease awareness and diagnosis for our fertility and oncology business franchises.

It's really a promising area. And you'd mentioned about the synergy and interaction between our performance materials science, technology, and also our healthcare. So here, I want to give an example of the biosensing and interfaces, which is an innovation field that leverage our technology both in the sensor technology, which from our performance material sector. And so we use the sensor to capture the parameters of human body, and then analyzes data with the machine learning AI technology and then apply those insights into the healthcare area. And the matter is to improve the diagnosis or provide optimize the treatment solutions. So those actually is a good way to leverage the synergy of those different sectors.

And we do have a accelerator program which want to actually leverage, one, is to enable the startups who are either in China or who are interested in entering China market to be able to access Merck’s technology and expertise and also network. And then of course, at the same time, Merck also want to being able to access the new technologies through those startups and also access to some talents and also the other resources that startup could also provide to Merck.

We see this kind of a win-win platform for both the startups to benefit from Merck’s expertise and resources and then at the same time for Merck to explore some new technologies, which is either between and beyond kind of business or on the very cutting edge area of the existing business. And so it's a program that we open to the Chinese startups and also international communities, three months program, which the startups either in the healthcare or life science or performance material or emerging technology, like for example, what I mentioned about sensing interfaces, or the other digital technologies such as the AI application in healthcare area. So those startups could apply for our program.

And this year, we actually had quite encouraging results. So far, we had more than 200 applications. And we had the selection days and the two days ago to have the interviews and to have the demo days with the 18 startups which entered our shortlist. So we had actually 18 startups from 9 cities, including also those from Singapore, or Taiwan, and Hong Kong; and so, very interesting technologies and business models. So we look forward to narrow down and finally to accept 5-6 startups into our program.

So what's unique about our program is that we do also lead the startups to leverage our global network, because we also have an accelerator program in Germany. So for those startup into the China program, they also got the opportunity to attend the boot camp to understand the European market.

And so of course, at the same time for those startups who joined our Germany headquarter accelerator program, they could also come to China for the boot camp to explore the China ecosystem here. Merck truly wanted to let the startups to benefit from our global network of the expertise and also the resources. So of course, this three program is not the end of the collaboration as startups is only the beginning.

After the program, the startups could further work either with our R&D department for co-development, or work without business units for some joint projects, or accept probably maybe the investment from the corporate venture capital and ventures. And they could also further, of course, work with the Innovation Hub, and for further incubation, really a lot of opportunities. And these programs have to form alumni network for those startups to also keep the communication and learning experience with each other.

Erik: Incredible opportunity for a startup because this is a very challenging domain for a startup, very different from consumer technology, where a smart team can put together a product in six months with a couple $100,000 of investment. In the domains where you're active, really the technology development cycle, it's long, and it's expensive and it requires really deep insight into the future. Curious, Sophie, because you have this program active in a few different countries, maybe if we look at the types of companies you're working with, or the needs that those companies have, do you see significant differences between the companies that you would be incubating or collaborating with here in China versus the ones in Germany or in the US market?

Sophie: So some startups when they are interested in the China program, and I will see that also a lot of attractiveness comes from the market and the channel and the large customer base here they can test their products. I think that's something different from those startups who join the Germany program and to my understanding. And also, we can understand from a those startups a Germany program, they actually also attend the selection day through the Skype and to talk about why they want to join the boot camp in China. I think that's probably something different.

Except for the technologies and the expertise that Merck can provide, and they also actually see the big benefit to leverage Merck’s channels and customer base in China. And because of this is a quite a unique market, and also, people here are quite open to new technologies and are fast adopters, and so I think that's something it's different.

We see a lot of companies who are very active in the digital area. It could also because here in China, the digital technologies is very leading. And so we have more startups who are active in this area. So comparing the portfolio for the headquarter startups, we also see a list of more applications in the digital technology area.

Erik: Actually, earlier this morning, I was just sitting down with the CTO of our company that's also looking at whether they should be doing more innovation in China. And it was exactly for these points that you mentioned that, in terms of digital technology, China, development is very strong, and companies are very quick to test out new concepts, new business models, new solutions, but also that the market is very open to new solutions.

And I think that extends from the end consumer up through the government. So the government is also fairly, I would say, even entrepreneurial in terms of allowing new models and testing new models in a way that maybe in Europe it takes a little bit longer for something to work its way through a traditional process. So that really accelerates the innovation process here.

Sophie: I think the Chinese government really play in the China ecosystem. And I mean, [inaudible 17:24] try to see intrapreneurship, or innovation initiative started by [inaudible 17:32], and all the made in China 2025, or internet pass. And actually, all the very favorable policies then could encourage the Chinese startups to really drive their technologies. And the government also provides some very good facilities and also incentive policies to encourage development.

So for example, and we also work quite closely with the Guangzhou government, and we have set up the agreement with them. And so we are building two sides of the innovation hubs, one in Shanghai, one in Guangzhou, and so we do see a lot of support from the Guangzhou government. Especially after the launch of the Greater Bay Area initiative from the government, you can see a lot of favorable policies and opportunities coming out from the Greater Bay area.

Now, of course, Shanghai, and the Ganges River Delta area is also very booming ecosystem for the biotech, and also for the digital area. A lot of opportunities the government actually created for the startups.

Erik: Sophie, let's go back and touch a little bit more on the partnership with Alibaba that you mentioned, especially this track and trace solution, I think that's very, very interesting. Is my understanding correct that this is for tracking your product through the supply chain to maintain kind of the safety and the quality? Or does it have other applications as well?

Sophie: Yeah, that's correct. It’s mainly for that purpose. But of course, and through this, we could also actually have a better understanding of the patient behavior, the patient purchasing habit and could help us to understand a better of the patient's needs and in addition to managing the supply chain and the anti-counterfeit function.

We do see that the cooperation could bring us multiple benefits, other than the supply chain management. And the insight into the patient into this behavior is actually very useful also. So Merck do see that the digital technology, and especially AI is not only actually worked for the commercial side, we think it's also very critical on haping the R&D part.

Last year, we announced the intention to form and [inaudible 20:37] Palantir on a Central P, which is a platform that we could get the data from the Council Centers, and then provide the aggregated data to the researchers and the clinicians which could help them to provide better treatment options, because of the insight they got from the data. And we see a lot of times that the data is isolated, and it couldn't really be accessed. But through this, we are able to actually help the patient being able to get better treatment because of the data insight regard from this platform.

Another collaboration we just actually formed, we formed the collaboration with the actors for the generative artificial intelligence technology, which they will actually hap on three discovery projects. And they will help to reduce the cost and also speed the discovery process. So it's a lot of exciting technologies we see that could really help the pharmaceutical industry, both on the commercial side, and also on the R&D side.

So we actually also recently announced that we have been granted a US patent for normal combination of AI and blockchain technology aimed at providing a solution, secure integration of physical products into the digital worlds, a lot of things and going on. And both internally for the pipeline we are developing in our innovation center all through the collaborations with the external companies. We see a lot of opportunities and promising future.

Erik: So Sophie, I'm interested in understanding your perspective on how the talent pool needs to change or should change. Because, of course, you're coming from an expertise in material science and chemistry, and now you're talking about a lot of areas where it's more about data science and it going forward? Do you see Merck primarily working with partners and you're providing the industry expertise, but they're providing the data science and IT expertise? Or is Merck also hiring thousands of developers and data scientists? And is that part of the future of Merck of having a strong internal competence also in that space?

Sophie: So the digital technology is transforming the industry. No matter is healthcare, life science, or performance materials, and it's transforming those industries, and everyone who work for those industries, and need to be digital savvy, and need to have the digital mindset and the skills to be able to understand the industry and do their work right. So I believe that just by hiring a lot of professionals specialized on IT probably is not enough to hap on this transformation. So it's really the whole company be mobilized and to work toward that and to embrace the change, and to have the culture change.

And of course, we see a lot of advantages of collaborating with the external partners so that why we found the partnerships with the digital players, and so to leverage their expertise in that area, and then combine with Merck's expertise in the healthcare life science and performance materials, and to explore new innovations. I would say that, first, is a transformation that requires the whole company or the employees to embrace and to change their culture and mindset.

And at the same time they open innovation, the collaboration with external partners is also very critical. That's also why we are having the Innovation Hub globally, and especially we see this opportunities in China to really tap into this booming digital opportunities this country bring to us.

Erik: It's not just around hiring data scientists, it's around transforming the mindset and to an extent the skill sets or the understanding of the entire organization, and then working with specialized partners. I mean, this is a challenge that many companies are facing right now figuring out the right way to transform their teams in order to be prepared for the future. Maybe we can talk for the last several minutes here about your approach and some of the details around the setup of the Innovation Hub in China, and also where you see this going in the future.

Sophie: For the China Innovation Hub, we started more than one year ago. Our CEO Stefan Oschmann announced the setup of China Innovation Hub in February last year when he visited China. Already that year, he was attending the global Fortune forum, and then also visited some biotech companies and also some digital companies.

And so he understands that the China market is really booming. And before that, we only had the Innovation Center in Darmstadt, our headquarter and also Silicon Valley hub. But we see importance of the China market as a strategic market for Merck, and also a lot of innovation opportunities here. And we decided to also set up the China Innovation Hub here.

And so, for the China Innovation Hub, we look at the innovation areas, both for within sector, and also especially across sector and beyond and the kind of business. And we look at the innovation in the fields such as biosensing and interfaces and liquid biopsy, which is good and have implications for global market. But at the same time, we also look at China for China innovation field, meaning that which the innovation area might not be necessarily the priority for our global business but have big knees here in China, for example, the diabetes area.

We do the scouting and we work with the academia. For example, from the [inaudible 28:05] Peking University, we also work with Hong Kong University of Science and Technology and Singapore University on several research projects. So we also do the ideation internally with the employees to generate ideas from within. And through our accelerator program, we attract to the startups who are active in the areas we're interested in.

Erik: Well, it sounds like a really exciting initiative, both in terms of the technology are dealing with but also in terms of the approach working with the local governments and also with the startup ecosystem. Sophie, I wish you a lot of success in the future and building this program up. And thank you so much for taking the time to speak with us today. I really do appreciate your sharing.

Sophie: Thank you, Erik.

Erik: This episode of the industrial IoT spotlight podcast is part of a collaboration with PTC, the global software company that helps companies design, manufacture, operate, and service things for a smart connected world. To learn more about PTC, visit www.ptc.com and to collaborate on future podcasts with IoTONE, please feel free to reach out to us at team@IoTone.com

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