Healthcare innovation — a vague term used to describe efforts to develop new therapies, technologies and ways of doing business — is sometimes difficult for companies to prioritize amid challenging economic headwinds.
Johnson and Johnson, one of the largest healthcare businesses in the world, is often heralded as an innovative company. In fact, J&J is usually an annual inclusion on “most innovative companies” lists, such as this one issued by Fast company each year. So how will the company maintain its strong reputation for innovation amid changing economic conditions? The answer comes down to heavy investment in research and development — both internal and external, J&J CEO Joaquin Duato said Friday during virtual panel held by Boston Consulting Group.
Investing in R&D is the most important thing a company can do to prioritize innovation, Duato said. That’s easier for him to say than for other CEOs because J&J has plenty of capital to allocate to research and development. The company’s net income for the quarter ended September 30 was 4.5 billion dollarswhich represents an increase of 21.57% year-on-year.
“When we think about resource allocation, we prioritize investment in research and development. This has been one of our first priorities when allocating capital and investments over the past 10 years. Just to give you a number, we’ve invested about $100 billion in internal R&D. But at the same time, we must be aware that not all innovation occurs at Johnson & Johnson. So we’ve invested about $76 billion in M&A, which also helps us innovate the company,” Duato said.
According to Duato, J&J has a different organizational model for R&D than most pharmaceutical companies. Most companies have separate discovery and development groups, but J&J’s research and development teams are built end-to-end and organized by therapeutic areas, such as cardiology, immunology and mental health.
As for J&J’s medtech innovation strategy, Duato said the company tries not to be too dogmatic and adapts its approach depending on the situation. For example, J&J recently acquired company called Abiomedeswhich manufactures cardiac repair solutions.
“So when we acquire a company like this that’s already an end-to-end unit, we run that unit as an integrated, independent unit so we can maintain the things that made that unit special,” Duato said. “On the other hand, in new areas like robotic surgery, what we do — recognizing that this is a new area for us — is we set aside a dedicated end-to-end team with cross-functional experts so we can make sure we have the right focus and specialization.”
About half of J&J’s innovation comes from outside sources, Duato said. He attributes this to the company’s strong infrastructure for identifying, nurturing and deploying promising ideas at various stages of development.
The first part of this infrastructure is the J&J Innovation Centers. They are located in “the biggest centers in the world,” Duato pointed out — San Francisco, Boston, Oxford, Cambridge and Shanghai. J&J places science scouts in these innovation centers so they can observe activity and form early-stage relationships, with the ultimate goal of bringing new companies to J&J, he said.
Another key part of J&J’s infrastructure for external innovation is its network of incubators called JLabs. Those labs currently host more than 500 companies, Duato said.
“This again gives us more integration into the innovation ecosystem in different areas. And it’s a way for us to be able to develop relationships that we may use in the future,” he explained.
The final piece of infrastructure is J&J Development Corporation, the company’s venture capital fund.
Through the fund, J&J was able to establish collaborations with scientists early in their development processes, Duato said. An example of this is J&J’s investment and acquisition of Biosense Websterwhich focuses on the diagnosis and treatment of atrial fibrillation.
“We acquired Biosense Webster in 1997 through an initial investment by our Johnson & Johnson Development Corporation and have worked with Biosense Webster since 1987 to the present. That’s more than 20 years of work, and now it’s a $4 billion company within our medical technology business that we created. It’s a major, major source of growth in local business,” Duato said.
He pointed out that the example of Biosense Webster speaks to something important – the fact that innovation requires persistence and patience. Companies need to let go of the idea that advances in healthcare only take two or three years, Duato said.
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