How Business Units Work with J&J’s Innovation Centers

January 24, 2017

How do innovation teams build constructive working relationships with the business units?

That’s the focus of our forthcoming research report, out later this month. And among the people we sought out for advice was Darren Snellgrove, Chief Financial Officer for Johnson & Johnson’s network of innovation centers. The centers aim to be an interface between J&J’s various business units — including pharmaceuticals, medical devices, and consumer healthcare — and the world of startups and academic research institutions. The goal is to spark new collaborations, and sometimes investments, that will lead to new products that J&J can deliver to patients.

What We Do

J&J has 3 sectors: pharmaceutical, medical device, and consumer, and the innovation centers are one of the few places where those three sectors come together. At J&J Innovation, we’ve invested in some exciting areas across all three sectors and we’re seeing a lot more convergence. General areas of investment include; immuno-oncology, robotic surgery, 3D-printing, gene therapy, the microbiome, wearable technologies, and light therapy for aging and acne. The consumerization of healthcare and the wearable space will have a big impact on healthcare. Wearables, for example, can provide diagnostic capability, continuous monitoring, caregiver interaction, and increased patient and physician interaction.

How Business-Side Employees Get Involved with Us

The model is one where we actually put the scientific and technical experts from J&J strategic areas of interest in the innovation centers. So it’s somewhat unique. We’ve done that to make sure that there’s absolute connectivity back to our R&D organization, which works side-by-side with our commercial and business unit partners. We’ve found this to be a pretty effective model, because it reduces the risk of doing off-strategy investments, and it speeds up the deal process because we are in direct communication. That’s something that’s really important for us, particularly when you’re working with smaller companies and entrepreneurs where every second counts, and they don’t have time to wait six months for a large corporation to make a decision. We have one innovation center located in Silicon Valley, California; another one in Cambridge, Massachusetts; one in London, which is our hub for Europe; and then another in Shanghai.

How We Collaborate with Startups and Academia

…A lot of the easy challenges in healthcare have been solved already, and we know that our scientists can’t be head down in a lab and come up with a cure for Alzheimer’s on their own. They’ve got to be working with the best and the brightest entrepreneurs, academics, small companies, and so we put a lot of focus on collaboration.

In the past, I think J&J has done more mid- to late-stage licensing deals and acquisitions [of smaller companies,] and there’s less of those available [in our industry.] …Deal prices have increased, and so it’s become harder to create value through those late-stage collaborations. We recognized that we needed to focus earlier, and we do this through a number of mechanisms.We have JLABS, our incubator model. Companies can literally start with a credit card and get just the right amount of lab space that they need. They can share equipment with other companies, and it’s a great way for them to get their healthcare company off the ground without investing a huge amount of capital on labs and equipment. It allows us to build a relationship with various companies such that when it comes time to do a strategic collaboration, they hopefully come to J&J first, because we’ve helped them and built a good relationship.

We also invest in the ecosystems that we’re in, whether it be through early-stage investments in companies, providing advice and expertise, research grants, and various other mechanisms that we use to build partnerships and relationships at the early stages.


Both Sides Have Skin in the Game

We have the business units providing at least 50 percent of our deal funding [when we make investments in startups.] Co-funding is a critical component of our model, and on every collaboration we provide 50 percent of the deal funding from J&J Innovation, and the business unit provides the other 50 percent. We have found that both sides having skin in the game, and a say in the decision making is an important component of success. We’ve actually looked at this model in terms of the returns that we get, and we’ve found that deals perform better when there’s this kind of 50-50 collaboration approach.

Our Training and Education Role

We provide training and education, mostly around new, disruptive technologies that we’re seeing, as well as a lot of education around the types of deal structures and approaches that we’re deploying. We try and take an agnostic approach to the deal structure and find what works best for the partner and for J&J, often deploying structures that our business units are not used to seeing. In turn, our business units educate us on the latest thinking on the business strategy, so that we can help them achieve their objectives. From my perspective, it’s an extremely important relationship, and I think it’s one that’s evolving within J&J Innovation. We’re primarily focused on product innovation, but there’s a lot that we can and should do really in conjunction with the business units to help with business model innovation.

A Successful Collaboration with Google

One that’s interesting has been a deal that we did in our medical device group in collaboration with Verily, which is Google’s healthcare group. We formed a new company called Verb, which is focused on robotic surgery It’s a really exciting deal, and a great example of collaborating with a business unit to really think about the commercial strategy and how a robotic platform could play into our surgical franchise, which is a big piece of J&J’s medical device business.

Pulling Together Disparate Groups

About three-and-a-half years ago, we…recognized that it wasn’t that easy to do business with J&J. We’re a huge company that has a lot of capabilities to offer entrepreneurs and smaller companies, but it wasn’t always easy to figure out how to access those capabilities. We had a lot of externally-facing organizations, which made it even more confusing. We wanted to simplify that and bring some of our externally-facing groups together under the J&J Innovation umbrella.

Johnson & Johnson Development Corp. [JJDC], our venture investing group, is one of those groups. It’s actually been around for more than 40 years, investing in various healthcare startups. It has been quite successful and has built a great reputation. We wanted to supplement that with JLABS (our incubator model) and also the innovation centers, which really are the glue that pull all the pieces of the model together. The innovation centers have scientific and operational experts from each of our therapeutic areas and business areas surrounded by finance, legal, and business development folks that can help execute on important collaborations. The JJDC investors are co-located in our innovation centers.

Transformational Innovation — but Not at Any Price

We are focused on transformational innovation, and so we look at factors such as the level of unmet need, the amount of differentiation, the size of the opportunity, the strategic fit with Johnson & Johnson, the technical feasibility, and then [intellectual property] protection. We’re really looking for opportunities where we have line-of-sight to the project becoming an asset that can be on-boarded into the J&J pipeline, with the goal of bringing treatments to patients. We obviously use financial models as well to assess projects.

We defined success as reaching proof of concept and onboarding assets at a steady run rate into the J&J pipeline. The projects have to be transformational, and we can’t do deals at any price. We’ve actually developed a framework called the “value creation pathway,” which we use to make sure that our deal structures are appropriate from a value creation perspective.

Governance, Funding, and the Transition

We recognize that J&J is a big company and can be overwhelming at times, particularly for smaller companies, and we try to be really respectful and thoughtful about that so that we don’t overwhelm them, and we bring the best that we have to offer to help them be successful. And if they’re successful, we’ll be successful as well. So that’s one thing I would offer up. Another would be to think carefully about your governance process, and funding mechanism, as well as your approach to the transition from your innovation group to your mainstream business unit. These are areas that are critical to success.