Last summer, amidst a tough environment for biotech startups trying to raise money, a Cambridge biotech called Rapport Therapeutics announced a fresh infusion of $150 million. That brought its total funding to $250 million — all raised in 2023.
Rapport’s key asset — a way to target drugs to specific parts of the brain — originated inside the labs of Johnson & Johnson, the New Jersey-based healthcare giant. And its Chief Scientific Officer is a former J&J exec.
The startup is an example of J&J’s approach to new venture creation, in partnership with outside venture capital firms. The company’s new venture creation group got started in 2021, under the leadership of Sanjay Mistry, VP of Venture Investments and New Company Creation at J&J. Taking J&J assets and crafting startups around them is not a simple project, Mistry says. “The hardest part…is when you’re trying to extract something out of pharma. There are many stakeholders who have touched it… You have to really partner across the organization to ensure that you’ve got a very clear way to externalize these.”
We spoke with Mistry as part of our interviews for the research report “Driving Growth Through New Ventures and Corporate VC.”
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J&J is a massive company. What is the focus of the venture team?
[The corporate venture capital team] JJDC is 50 years old. We’re the longest-existing healthcare investors out there.
We’re focused, now, on medtech and pharma only going forward… We partner closely with both of those sectors, and we look for opportunities that could…lead to future onboardings into our portfolio…
When the data begins to translate, and the assets begin to develop, that’s when you have an opportunity to get back into our [product] portfolio. Getting into that entry point is a critical part of the strategy.
We have Johnson and Johnson Innovation, which is our overarching, external-facing [entity] to attract innovation, whether it’s via R&D collaborations, via our innovation centers, or direct equity investments such as we do from JJDC, or we have a portfolio of startup companies which are housed in our JLabs ecosystem.
Specifically within JJDC, we have traditional equity investing, and then over the last couple of years, we just founded the team that I lead, which focuses very specifically on trying to create new companies much like a VC, like a Third Rock or 5AM [Ventures.]
Where does JJDC sit in the organization, and who does it report to?
Currently, we’re housed under that Johnson Johnson Innovation umbrella. We report through external innovation, which currently is headed up by Bill Hait [Executive Vice President, Chief External Innovation and Medical Officer] and a member of the Johnson & Johnson Executive Committee, who is the overarching leader.
What is the epicenter of the work that you do?
I’m very focused purely on new company creation. I’m creating the business plan.
A recent example of this was an opportunity where we partnered very closely with Third Rock Ventures.
I was asked to partner with our neuroscience therapeutic area, to look for an opportunity to accelerate the value of some earlier-stage assets and a platform within our portfolio that we could not prioritize. We began our own business assessment of the typical stuff. Is it differentiated? Is there unmet need? Is it first or best in class?
Then, we went out to the marketplace to find the right VC to partner with. In the end, it created Rapport Therapeutics, a company we created [to design more targeted drugs for neurological disorders.]
Just [in 2023] alone, within 12 months, we’ve been able to capitalize on that entity with innovation that we’ve externalized from Jannsen [part of J&J], and have raised $250 million around it. In this market, that’s pretty amazing… We were able to get a full team around it, and get a full set of capitalization around it with investors that could truly take it through the necessary inflection point, which is Phase 2 proof-of-concept.
When you hire, do you look for prior experience working in a traditional VC firm or setting?
It’s a mix, to be honest. My background is an example: pharmacologist by training, postdocs at UPMC and the Scripps Research Institute, startup biotech, been with J&J [for] two different periods, have taken own my drug discovery asset through clinical development and went through…clinical testing through IND [filing.] I left J&J voluntarily to become a venture capitalist [at Quaker Partners] for over five years, before returning back to the organization.
More recently, I moved back to California and took on the JLabs ecosystem, to get hands-on with the startup portfolio, with all my expertise and experience. Then, I was given this opportunity to help JJDC focus on creating new business opportunities. They were focused on trying to accelerate the value of opportunities on the inside, which still have high unmet need, which we cannot prioritize. We feel that there’s a huge opportunity if we could put it on the outside and build a team around it and accelerate to the valley with syndicated capital. Or de novo [totally new], where we’re looking at leading-edge innovation out of academic institutes rather than build around that much like a traditional VC would do. That has been my focus since 2021.
Looking at the team, a number of the individuals who are investors today have probably been within J&J in different roles — in the pharmaceutical sector, or the medtech sector, in R&D initially and then transitioned to business development. …But then we’ve gone out and [hired people like me, who have] real venture experience externally. That has been very attractive to bring in to JJDC, because you’ve got a different lens…
How do you connect to other parts of J&J?
We partner primarily with R&D. We look at their innovation areas of opportunity.
We work with them, and the innovation centers, and business development, to do assessments into what types of opportunities are out there today. Are there things that fit the strategy that we’re looking for? Is that really a new landscape where nothing exists, and we need to go build? That’s how we partner.
When I’m asked to try and externalize assets from within the company, I think the hardest part of that is when you’re trying to extract something out of pharma. There are many stakeholders who have touched it… You have to really partner across the organization to ensure that you’ve got a very clear way to externalize these — and that could involve not just R&D, but it can involve supply chain, it can involve CMC [chemistry, manufacturing, and controls], and many other groups — legal, IP.
These are not easy projects… It is moving mountains.
These are not easy projects. I think anyone who checks the board and says, “Hey, great, you created a company, you got it wrong when you’re trying to take something out of format and create a company around it.” It is moving mountains.
In terms of timeframes, I’d say greater than 12 months is a minimum, and if you can get it done within two years, great. I would say even on the de novo creation side, where we’re trying to take things out of academic institutions and build, those can take time as well. They’re not as quick as you’d think.
What metrics do you look at in the current year to guarantee success and that everything is on track?
This new company creation team within JJDC was founded in 2021. I recruited a team by the end of the year in 2021. In 2023, we’ve launched three companies, which is great considering the market, and they’re capitalized, and they’ve got great syndicates, etc. That’s a success metric.
The way I’m looking at this opportunity for JJDC and J&J is, if we can create a portfolio of companies externally, either with technology that we’re externalizing from within the core, or de novo creation that we build from academic institutes or elsewhere, these opportunities we’re growing in a manner where we’re looking at them to be successful in the future, which could provide us an opportunity to go in and make a license or an acquisition in the future, back to our portfolio.
By being at the front end of that build, we’re significant shareholders, we are going to be there for the long haul. You should think about it as an external portfolio opportunity that we’ve truly built. I think we’re in the prime position to bring back [new drugs and technologies] if we want to, based on the data.
What other advice do you have to share with others? For instance, reducing the risk of a new venture?
The risk-benefit equation is always an intriguing one, particularly when you’re doing something very early. And I think what you really require is within R&D, you need champions within a therapeutic area, who realize that the science is going to take a few years to translate, but they’re willing to take the risk to see if there’s a progression…
You have to have a real solid scientific idea, a credible business development plan, and, I would say, a credible outlook toward how this will fit into the commercial marketplace, particularly in lieu of some of the challenges we’re seeing coming in around the regulations and [the Inflation Reduction Act, which impacts drug pricing and Medicare spending.]
As I’m looking to 2024, I’m hopeful that we will have a couple of new launches. …I think having a portfolio of up to 10 companies in a five to six-year timeframe — that is something that I’m aspiring towards.
