Johnson & Johnson ($JNJ) is shaking up its med tech innovation model. Its sprawling medical device unit had a quarterly operational sales increase of just 1.3% to $6.1 billion when adjusting for divestitures and foreign currency fluctuations. Add a negative currency impact to the equation, and the growth rate was -7.3%.
The company is applying its successful, outward-looking pharmaceuticals innovation model to med tech in the hopes of emulating that faster-growing unit's success. The global innovation centers designed to foster collaboration and innovation with startups and academics are increasingly being used to enhance J&J's device (rather than drug) ambitions.
|J&J's Bruce Rosengard|
"In the past, you had all the folks that are sitting in New Jersey (where J&J is headquartered), trying to scope out the world from New Jersey. It's much easier when I'm sitting Kendall Square (in Cambridge, MA) in the midst of biotech and med tech heaven, to make those calls," said the unit's chief medical science and technology officer, Dr. Bruce Rosengard, during a sit-down interview at the annual AdvaMed industry conference. "Similarly we've got a group in San Francisco, we've got a group in Haifa, London, San Diego, Shanghai, and there are going to be others as well."
Hired in September 2014 to spearhead the innovation model on the device side, Rosengard is aiming to create "bidirectional" partnerships, such as its robotic surgery alliance with Google ($GOOG), under the new innovation model, rather than just early equity investments and M&A.
"If we maintain our humility and maintain an external focus, then we're much more likely to partner with and develop world-leading technology and solutions," said global R&D head Dr. Martin Fitchet.
The J&J med tech leaders hope to leverage the company's pharmaceutical and consumer arms where appropriate, and repeatedly stressed their desire to look externally for technology and expertise.
"J&J wants to be the partner of choice for companies big and small that are interested in bringing excellent solutions to patients and to healthcare systems around the world." Rosengard said.
Here are some more (lightly edited) excerpts from my conversation with J&J's Rosengard and Fitchet.
FMD: On what basis do you evaluate a company for potential M&A deals or partnerships?
BR: First and foremost is this going to change patient outcome, which although infrequent in the device world, when it happens is transformative. So we are always looking for those opportunities.
The other level of analysis is that for most devices that we are looking at, there's already an existing solution for the problem, but the solution may not be perfect. We're looking now at performance relative to an existing standard. In our pharma business we look at diseases for which there is no cure and we come up with new cures. In the device world there are many, many fewer things that are dramatically going to change patient outcomes. But process innovation is very, very important because it reduces cost.
Let me give you an example. For decades people were getting their gallbladders taken out through a big incision under the ribs. Then all of a sudden in the late '80 and early '90s Johnson & Johnson and other companies developed minimally invasive surgery. The bottom line is it didn't change a patient's long-term outcome. What it meant was a patient, instead of being in the hospital for a week, was in the hospital for a day, instead of being out of work for a month, was now out of work a week. Big difference, huge costs savings to the government.
MF: And also a lot less painful for the patient.
FMD: What are some therapeutic areas that are of interest to Johnson & Johnson right now?
MF: We're very interested in focusing on trauma, osteoarthritis and joint reconstruction, metabolic diseases such obesity and Type 2 diabetes, through the surgical approach as well as potentially the drug-device approach, and surgical oncology, particularly lung and colorectal, and also atrial fibrillation. I think those are main areas of focus right now as far as internal R&D and I know you're working on them externally as well, Bruce.
BR: Because we have a coherent strategy from beginning to end, as I put my team together I'm getting people with expertise in cardiovascular, in surgical oncology, in bariatrics and metabolic, also robotics and minimally invasive surgery and robotics--although that's not a disease per se, it's no question a big part of what we're doing. We've had a long tradition in driving minimally invasive surgery, and the next frontier in minimally invasive surgery is robotics. Of course, robotics has other applications in terms of automation and machine learning and enhancing the capabilities of the surgeon, so it's not purely the fact that the effector arms are small.
FMD: Can you elaborate on your plans to use devices to treat metabolic diseases?
BR: It's well known right now that if you do some of these surgeries for obesity, whether it's a gastric bypass procedure or sleeve gastrectomy, that patients have an immediate normalization of blood glucose and that persists. So we're looking at other approaches beyond just the big operations to potentially have a companion to some of the drugs that are coming on board, particularly for Type 2 diabetes.
MF: It's not as if when you do bypass or bariatric surgery, it's a large part of what we do and innovate around at Ethicon, it's not like you have to wait for the weight loss for the correction of blood sugar. It happens immediately. And we believe it's related to some neuro-humoral pathways and interactions that are very, very important for us to further understand. But it's a very, very interesting development in medicine that Type 2 diabetes is now being discussed as a surgical disease.
BR: There are examples of diseases--and this is cutting-edge stuff--where things that were purely thought to be medical diseases like autoimmune diseases, rheumatoid arthritis, etc., there is now speculation that you might be able to come up with certain nerve stimulation approaches that can actually reset things in the immune system.
FMD: Speaking of some other hot topics, what is J&J's approach to leveraging Big Data in med tech?
BR: Martin mentioned something earlier, which was very important, and that is, there's a humility within the company--we know what we know and we know what we don't know. For example, our recently announced partnership with Google to form a new companies for next-generation robotics is all about the fact that we recognize that the field is going to involve management of Big Data, machine-based learning, advanced imaging--all things that are core to Google's effort, but not core strengths of ours. So we take our core strengths in developing tools, expertise in procedural interventions, knowledge that we've gained from decades of working with surgeons, we now merge that Google, Big Data, and now you have a solution that hopefully will revolutionize the field.
FMD: Let's talk about some specific companies within J&J like your orthopedics arm, DePuy. What joint areas is it focused on?
MF: We commit to innovate in the main core joints, and that would be the knees and the hips, but also shoulders are important to us. But particularly the knees are important to us because there's still huge unmet need in terms of stability. There's no such thing as a forgotten knee. There's a forgotten hip because they're such a successful operation. We saw huge innovation potential there to really improve knee stability, range of motion, recovery and time back to work.
Also we're really heavily invested in trauma. Our latest offering, TFNA, which is the advanced nailing system, we see as a real advance, particularly in bone sparing for advanced nailing of pertrochanteric fractures, that's a huge problem area with falls among the elderly.
Trauma can affect any bone in the body. It's usually an acute situation ranging from a fall to getting hit by a car. It's an enormous cause of morbidity in many emerging economies where there's huge urbanization. Surgeons have to have all the available equipment, instrumentation, tools and implants to mend any bone in the body. That's why to be a serious player in trauma you have to be very comprehensive, but also very, very innovative. We're now working to bring expertise across our orthopedic groups to tackle those problems which cross different areas. -- Varun Saxena (email | Twitter)