J&J Innovation's Ken Drazan on the future of med tech

Johnson & Johnson ($JNJ) sits right at the nexus of consumer, medical device, biopharma and diagnostic products. That makes it privy to some of the more interesting developments as these segments increasingly commingle and rely more on information technology and connectivity.

Ken Drazan, the head of Johnson & Johnson's Innovation Center in California, sat down with FierceMedicalDevices to muse on the company's interest in med tech. Its regionally focused Innovation Centers are aimed at sourcing early stage innovation and creating unique deals that bring together the resources of Johnson & Johnson, including venture investment from Johnson & Johnson Development Corporation (JJDC) and company incubation at J-Labs. The aim of the whole structure is to keep J&J plugged in to the latest developments--which could potentially provide deal fodder down the line.

Med tech hasn't seen the kind of breakthroughs that biopharma has enjoyed in the postgenomics era, Drazan observed. But that's what he'd like to see from med tech startups.

Ken Drazan, Head, Johnson & Johnson Innovation, California

"The hope is that they'll develop creative products that have the same impact on disease that some of the breakthroughs we're seeing with drug therapies are having," he said. "That's only possible on the med tech side with surgery. Hopefully, we'll have devices that enable less intrusive surgery and are more normalizing of the patient's life after those intrusive events."

Drazan was trained as a liver transplant surgeon and he co-founded growth equity firm Bertram Capital Management, which focuses on business services, consumer products, light manufacturing and healthcare services companies. He started as the head of Johnson & Johnson's Innovation Center in California in March.

Innovation in disease management can also be a crucial contribution for med tech, suggests Drazan. "The promise that medical devices can bring is to make the system more intelligent and require fewer costly touches," he said, citing glucose monitors as an example.

"In the past, most devices were passive, not constructed to interpret data. But now we're seeing glucometers connected to phones and starting to create a level of intelligence that reduces the burden on the diabetic. I'd like to see that kind of model appear in other chronic diseases like hypertension, glaucoma and chronic musculoskeletal disease," Drazan added.

He cited that med tech regions of interest follow J&J's business lines in orthopedics, general surgery and cardiology. In addition, it's also investing in potentially disruptive areas that are outside those core regions, such as neuromodulation, aesthetics and vascular.

Drazan noted some of JJDC's portfolio companies including NeuroPace, with its implantable antiseizure device, and stealth startup Cala Health, which has a minimally intrusive device for the management of tremor that emerged from the Stanford University Biodesign program.

JJDC is also an investor in implantable sleep apnea device company Inspire Medical as well as in hydrogel optical inlay company ReVision Optics. On the diagnostics side, its portfolio also includes molecular diagnostics player Biocartis and acute condition diagnostics company Astute Medical.

Full disclosure: NeuroPace, Inspire Medical and Astute Medical all made this year's Fierce 15 list from FierceMedicalDevices.

But Nevro is likely the firm's highest profile med tech investment just now; it has filed for a $100 million IPO that is slated to go out next week and values the startup at about $400 million. The startup has a spinal cord stimulation system to treat chronic pain in the back and legs for which it has filed a PMA with the FDA and it is looking toward a potential launch in early 2016.

Neuromodulation is obviously a major investment theme for JJDC right now. "We are gaining a better understanding of the peripheral and central nervous systems from an anatomical and physical point of view," Drazan said. "Microelectronics are continuing to provide a more intelligent value proposition for patients."

Continuous monitoring, which is promised by an ever-increasing number of wearable and connected devices, is also a source of potential leaps forward.

"Historically, a patient's biometrics are measured one at a time in a doctor's office. What the sensor market is enabling is continuous monitoring at a very low cost. Measurement and analytics can interpret whether a disease state is present. This brings in a brand-new dimension," said Drazan.

"We are at the very beginning of this phase with the easiest measurements. Pulse, blood pressure and hydration status can all be detected at the surface of the skin," he continued. "With the next wave, there will be deeper measurement in the body. This can be delivered at very low cost, with comfort for the patient and value for the consumer in the aesthetics. It also provides a decision support system that is valuable to the healthcare system."

J&J has an interesting angle and familiarity with consumer products. Drazan noted that consumer products, along the lines of the FitBit, are pushing more into the traditional terrain of medical devices and that doctors are also moving more toward a consumer-oriented model. He expects that an appreciation for consumer perspectives with aspects such as a great form factor that's aesthetically pleasing will play more into med tech as consumer-oriented medical devices continue to converge.

Med tech innovation should be crucial to J&J, particularly since it is its worst performing segment in recent quarterly figures. Medical Device and Diagnostics revenues were down 5.2% in the third quarter from a year earlier to $6.6 billion, which accounted for more than one-third of the total of $18.5 billion. Pharmaceutical revenues grew by 18% to $8.3 billion, while Consumer revenues shrank a bit by 0.6% to $3.6 billion.

J&J VP of Finance and CFO Dominic Caruso described J&J's medical device strategy, which he sees as consistent, on the third-quarter call. "We're going to focus on surgery and orthopedics with selective investments in selective growth areas within cardiovascular medicine," he summed up. The company recently divested its lagging Ortho-Clinical Diagnostics business for more than $4 billion to private equity firm The Carlyle Group. -- Stacy Lawrence (email | Twitter)

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