Developing new drugs is notoriously expensive – Tufts University’s Centre for the Study of Drug Development pegged the amount at $2.6bn in late 2014. It should come as no surprise, therefore, that healthcare companies have long held an interest in corporate venturing. After all, taking a stake in a startup or a university spinout that has already figured out a novel way of treating a condition, helping it grow and taking its product to market can be a far more efficient way than starting from scratch.
Johnson & Johnson is the most seasoned such corporate venturing actor in the life sciences sector. Beginning in the 1960s with its first investments, the company established its Johnson & Johnson Development Corporation (JJDC) unit in 1973, around the same time that the venture capital industry itself started coming into its own.
The unit, rebranded Johnson & Johnson Innovation-JJDC in 2013, has been investing consistently for four decades, today focusing on sectors such as medical devices, diagnostics, pharmaceuticals, biotechnology and consumer products.
Renee Ryan, vice-president of venture investments, told online publication MDDI in January 2015: “I would say over that whole timeframe, we have always been a strategic investor though we have pivoted in and out from strategies that are close to J&J’s three businesses to those that are farther away.
“I think today our investments across the pharmaceutical, consumer and medical devices businesses are more closely aligned to those businesses and have a strategic mindset.”
Ryan is part of a team of only nine investors who run the unit, headed by Tom Heyman. They are spread across offices in key locations, Silicon Valley, Boston, New Brunswick, London, Shanghai and Tel Aviv.
Heyman was ranked fourth in the GCV Powerlist 2016, having led JJDC for about a year. He replaced previous head Brad Vale when Vale left to found his own venture capital firm, Calaveras Creek Capital, in February 2015. Heyman has remained chief executive of Johnson & Johnson subsidiary Janssen in Belgium in addition to his new position.
Johnson & Johnson Innovation-JJDC has backed many funds over the years. One of its most recent commitments includes the $230m Medicxi Ventures I fund, also backed by GlaxoSmithKline, last February. The fund is aimed at startups in the research and development space for unmet clinical needs.
The unit’s collaborations, however, are among its most intriguing efforts.
In June 2015, Johnson & Johnson Innovation teamed up with Karolinska Institutet Holding, a holding firm of Sweden-based university Karolinska Institute. The partnership has a life sciences innovation hub at its core, established at the university to fund research commercialisation. J&J and Karolinska have also agreed to exchange knowledge and establish mentoring and scouting programs.
At the same time, Janssen inked a research agreement with Karolinska for a study that looks into the observational effects of treatments, relating them to those identified in clinical trials and taking into account social and economic factors.
Anders Hamsten, vice-chancellor of Karolinska Institute, explained at the time: “An important part of our strategy for the years to come is to establish collaborations with industry so as to strengthen innovation at our university and support corporate development from new discoveries and the implementation in healthcare.
“The collaborations with Johnson & Johnson Innovation and Janssen are an important step in that direction.”
One of Johnson & Johnson Innovation’s most ambitious initiatives to date is JLabs, an incubator network that began in San Diego in 2012 under the Janssen Labs header and has so far spread to several North American locations – San Diego, Boston, San Francisco, Houston and Toronto – as well as Israel. Together, they have amassed more than 120 portfolio companies.
JLabs gives its portfolio businesses access to a host of benefits – research facilities with specialised equipment, educational programs and operational capabilities. Startups may also secure investment from the corporate venturing division.
The incubators are currently focusing on a range of medical areas such as cardiovascular, immunology, infectious diseases, metabolism, neuroscience, oncology and vaccines.
JLabs is also another example of Johnson & Johnson Innovation tapping into university research. Its Toronto location is a collaboration not only with Janssen but with Toronto University, the government of Ontario and non-profit commercialisation organisation Mars Innovation and its urban innovation hub Mars Discovery District, the home of this incarnation of JLabs.
The Toronto-based initiative also attracted other partners in the form of the Centre for Addiction and Mental Health, Hospital for Sick Children, Sinai Health System, St Michael’s Hospital, Sunnybrook Health Sciences Centre and University Health Network.
Melinda Richter, head of JLabs, said of the latest addition: “We are thrilled to be part of the flourishing life sciences community in Toronto and to contribute to Ontario’s vision to help drive the province toward becoming a world leader in innovation for health and wellness.
“Canada’s startup scene is booming, and we look forward to working with the many enterprising innovators in the region that are working to turn science into tangible commercial products.”
Meanwhile, J&J’s European incubator initiative, JLinx, was launched in March. Established in collaboration with Janssen in Belgium, the incubator is expected eventually to add external investors as it focuses on microbiome research and other sectors. JLinx is expected to welcome its first cohort this summer, with VC firm Bioqube Ventures taking care of day-to-day operations.
Yet another example of the promise that academic research holds for J&J is Apollo Therapeutics Fund, a £40m ($57m) commercialisation fund launched with the support of Imperial College London, University College London and Cambridge University, which committed capital through tech transfer offices Imperial Innovations, UCL Business and Cambridge Enterprise respectively. J&J was joined by fellow pharmaceuticals GlaxoSmithKline and AstraZeneca.
Launched in January 2016, Johnson & Johnson Innovation and two other corporate venturing divisions have committed £10m each to the fund over the next decade, while the tech transfer offices (TTOs) are set to provide £3.3m each.
Apollo’s aim is to speed up research commercialisation in medical sciences, ranging from antibodies to gene therapies. The goal is to advance preclinical research to a point where it can be acquired by one of the three corporates through an internal bidding process, or licensed to a third party.
The originating university and its respective TTO will be entitled to a percentage of revenues or licensing fees, with the remaining stake split among the other Apollo backers.
Since GCV began tracking JJDC activity directly – six years ago – the subsidiary has made a notable 94 investments, with fellow pharmaceutical corporate Novartis the most common co-investor at seven deals, closely followed by GlaxoSmithKline and medical device company Medtronic at six each.
The largest round in which the division took part during this period was a €71m ($100m) series C round in 2013 for molecular diagnostic company Biocartis, alongside fellow corporates Philips and Debiopharm, New Rhein Healthcare, Biovest, as well as the Wellcome Trust, pension fund manager Valiance and Korys, the investment holding firm for the Colruyt family, who operate a retail chain in Belgium. JJDC also contributed to an $85m series D in 2014.
Biocartis celebrated a €100m initial public offering in April last year, providing an exit for JJDC – the company’s largest external shareholder with a 16.3% stake.
One of the many startups working on cancer treatments, specifically immuno-oncology, that attracted the attention of JJDC is Aduro Biotech, also backed by Novartis. The company obtained $160m from investors ahead of its $119m IPO in April last year, as part of which Novartis injected $25m through a concurrent private placement and J&J purchased $30m of additional stock.
Not all of J&J’s investments have been this successful. PhysioSonics, a medical device company that used ultrasound imaging to monitor blood flow in the brain, which raised $18m capital from investors including JJDC and Medtronic, may not have shut down but its website has vanished and there has been no news about the company since late 2012.
Zeo, which hoped to market a sleep-tracking product, shut down in 2012 after attracting funding from JJDC as well as Best Buy Capital, the investment arm of retail chain ID Ventures America, a fund operated by computer maker Acer and VC firm Trident. Zeo’s idea survives, however, and several companies are trying to offer a consumer-friendly solution for sleep-tracking today – with the ability to run such functionality as an app on a smartphone, the need for a dedicated hardware manufacturer might have become moot.
Nevertheless, Johnson & Johnson Innovation-JJDC has not used a few setbacks as an excuse to stop investing, and with its multiple strong partnerships and incubators in place, the corporate venturing arm is well equipped to tackle big challenges. Promisingly, the unit’s portfolio produced a $200m higher gain in 2015 than it did in 2014, according to the corporate’s annual report.
Among conditions such as dementia, cancer, viral infections, diabetes and antibiotic-resistant superbugs, healthcare startups have their work cut out for them. Opportunities abound for J&J and it looks like the unit will have no problem identifying them.