June 7th, 2007

Funding Innovation

img_2968.JPGWe held an analyst meeting today, focusing on our consumer and pharmaceutical businesses. There will no doubt be a fair amount of news media coverage of this event, so I won’t rehash what was in our press release or recap all of today’s presentations.

However, I did want to elaborate on one topic that Vice Chairman Christine Poon touched on. During her opening remarks, Chris provided some “examples of how the breadth of Johnson & Johnson can catalyze innovation at the intersection of our three business segments… resulting in the creation of new growth platforms and completely new businesses.” (A podcast of all that was said can be found on our website.)

I thought it might be worthwhile to highlight one of the more intriguing approaches that has recently been put in place to encourage the kinds of cross-company innovation Chris mentioned. With so many different companies focused on so many different technologies and markets, innovative ideas that do not fit within the core business sometimes fail to get the funding and management support they need. With that in mind, a few years ago, the Johnson & Johnson Internal Ventures Group was created to identify and support the development of internally generated early-stage technologies.

The approach is fairly simple. Internal teams that have identified cool new technologies or business approaches that don’t fit into our current businesses can submit their ideas to a team lead by folks from the Johnson & Johnson Development Corporation (JJDC) — an internal venture capital group — and the Corporate Office of Science and Technology (COSAT) — a central group that evaluates and tracks scientific advancements and new technologies. If the project passes muster, JJDC will act as the lead investor and will solicit other “investors” — in this case, Johnson & Johnson operating companies — to join the “syndicate.” Operating companies can invest in a number of ways: with funding, with professional talent, with information technology, with laboratory space, or with other facilities or services.

Fully-funded through the internal ventures initiative, the project team will then try to achieve certain milestones to ensure that the idea is viable. Based on the outcome, the project will either become a new Johnson & Johnson business, be spun-out to external investors or closed down completely.

To date, one of these projects has been spun out — Macroflux — a drug delivery approach which was based on technology from ALZA Corp. This morning, Chris described two other internal venture project — a treatment for Retinitis Pigmentosa and a technology for “smart” consumer products that use molecules to adhere substances onto the body and allow them to be pulled off quickly and easily. There are others.

While our management has talked about the internal ventures program, it hasn’t been widely discussed in the press, with the possible exception of a recent article in In Vivo Magazine.

The internal ventures approach isn’t rocket science. Other technology companies have long had similar “skunk works” funding mechanisms in place. But for a highly decentralized company, with so many different operating companies, business objectives and approaches, to have a central group in place that looks at ways to make sure innovative ideas are developed (or at least fully evaluated) makes good business sense.

David Holveck, the former president of Centocor Inc. and well-known biotechnology advocate who is now responsible for JJDC, has told me Johnson & Johnson has to get better at harnessing its own internal expertise and knowledge. The internal ventures is one way to accomplish this goal.

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