Gaule: Johnson & Johnson Development Corporation (JJDC) is one ofthe longest-running corporate venturing units. Give a brief description of the purpose of your venture, when it was formed and how the process occurs in your organisation.
Vale: JJDC is the Johnson & Johnson (J&J) subsidiary dedicated to corporate venturing. It was established 40 years ago to look beyond the corporation’s current research and development (R&D) activities to create strategic options for J&J. We work with operating units across J&J to identify areas of interest to them, and then bring back opportunities that we have identified from the venture community that match what is going on in each of those areas of interest. It might be in pharmaceutical and biotech, in medical devices or our consumer health arena. So we aim to reconcile interests from the business with the many opportunities we see in early-stage companies.
Gaule: How has JJDC changed over the years?
Vale: The original proposition was that we would invest in companies and then acquire them – a presumption of a one-to-one relationship. It turns out that we very often develop different types of strategic relationships that are equally as beneficial. Acquisition is still an occasional outcome. But as we matured over the years we came to define our interaction as starting with a strategic interest where an early-stage company is a candidate for collaboration, or a business that we believe J&J should be closer to. Then we invest and manage the relationship to obtain the best strategic and financial result. Over the years, we have refined how we focus in on a collaboration and define success.
Gaule: How many investments have you made over that time or each year?
Vale: It started fairly slowly. We make between five and 10 new investments a year, and many of those generate follow-on commitments which significantly add to the number of deals we do.
Gaule: What have been the key factors in JJDCs longevity?
Vale: The biggest one is staying close to our internal customers. We sit down with them on a regular basis to understand what is at the top of their strategic focus, what would disrupt their thinking, either the clinical results of a new biotech molecule, a new medical device, a new material or a new business approach to a consumer area of focus. So staying close to what they think is one of the most important things we do. They are an incredible source of new opportunities– a lot of the insights that drive our investing come from inside our businesses.
Gaule: You would have seen many other corporate venturing units fold in that time. What do you think were the main issues in that?
Vale: The corporate strategy board did some analysis of this over the past 10 years and one of the factors they identified was having a significantly high enough presence in the organisation. It has been shown to be difficult if you are placed within an R&D unit. If you are in parallel with the R&D units so you can be on an equal footing to reconcile the difference in views. We have found that a driver of success has been engaging our internal customers both strategically and financially. It turns out that if you offer to invest in a company and you do not share the risk financially, then they are more eager to do a lot of deals. Balancing what is strategically interesting and makes financial sense for both of us has been a huge driver of how we find places to collaborate.
Gaule: Measuring the performance of the unit is a challenge for many, especially strategic benefits. How does J&J address this issue?
Vale: An acquisition that comes out of the JJDC portfolio is a big success, and we have had a few of those along the way. But beyond that, the strategic engagement is what we focus on and can track. If there is a new therapeutic area of interest where we might engage the company and play arole in discussing what the clinical trial might look like, that is also quite valuable. It starts with that strategic engagement. The business development collaboration that accompanies and investment could be an R&D contract, marketing ordistribution agreement, or just an information rights agreement. We track those for evidence that the relationship has matured and is more likely to bring good results for both the investment company and ourselves. It always starts with that strategic engagement and escalates through possible business development relationships. In some cases the interest of the company or ourselves changes and in those cases we default to managing for the best financial outcome for the company.
Gaule: Give an example of one or two investments your team has made and where they have been good for J&J.
Vale: We played a role in the investment and in creating the option for a bigger relationship in the early days of Biosense. JJDC made an initial investment in the company’s series B in 1995 and continued to make subsequent investments until Cordis, a J&J franchise, acquired the company in 1997. Today, Biosense Webster has propelled the field of electrophysiology from a collection of possibilities to an established, mainstream medical discipline which has helped an untold number of patients around the world. The credit for building a major cardiology business for J&J goes to the powerful team at the company. JJDC played an early role in creating the option and started the long path from investment in 1995 to a major business unit in J&J almost 20 years later. Tibotec is another example of a company where we made an initial investment that ultimately led to acquisition. Tibotec has developed HIV therapies built on some core technologies that the company had to identify. Both of those companies have long paths to success. We played early roles in enabling the larger collaborations and are happy with the outcome 10 to 15 years later.
Gaule: Without needing to name a specific investment, where has an investment not been so successful and why?
Vale: One of the things we all learn in the venture industry is how important the basics are. The most basic element is the team. Many folks have spoken about how you can have a great technology but if there is a flaw in the team you do not always get to a good outcome. If there is a flaw in the technology a good team can often find a better way to get there or find a new destination. I think there are core team issues that we become more and more attentive to over the years. We can provide endless value-add input to a team, but if a first-time chief executive will not listen to good input from his team, customers or us, the value is lost. It took us a while to understand as a business unit how much we should pay attention to that team which ultimately drives all that success.
Gaule: Give a brief overview of the people in the team and the partners you work with.
Vale: We have nine people doing venture investing. Four of them are dedicated on the pharma and biotech side. The remainder are split between consumer and medical devices. There is no single profile. What works for us is to get a team around the table, some with technical expertise, some with financial capabilities, some with general business management experience. The core question about getting the right investor is not so much about what an individual brings but more about what the combined team can deliver together. Some people who worked at JJDC have moved on to other parts of the J&J business. Ideally we have folks stick around for a minimum of three years, preferably five or seven years, because so much of this is a networking business. We have recently located people to our innovation centres, where weare aiming to be creative in earlier deal structures. We have one in London, Boston, Silicon Valley and Shanghai. In each of those situations, aggregating complementary sets of credentials and capabilities is what makes it work.
Gaule: What do you do to relax?
Vale: My wife and I have a cattle ranch in the hills east of Silicon Valley so we raise some cattle and have some dogs to help us chase the cattle around. It helps us to switchgears over the weekend.
You can get free previous audios of Gaule’s Question Time at the iTunes store – search Corven Group – and as audio downloads from Global Corporate Venturing or from www.corven.com/corven-networks.To contact Andrew Gaule and for future interview ideas email andrew.gaule@corven.com and tlewis@globalcorporateventuring.com