To be truly great you need to partner, says J&J

Nauman Shah, global head of business development at J&J Innovative Medicine, spoke at BIO 2024 in San Diego, California and said the firm is focused on the “best transformational” medicines of the future.

“In our case at J&J, even though we are obviously […] one of the largest healthcare companies in the world, and the only company in the world that has both the pharmaceutical and medtech component to it, I have had the pleasure to show up working in both of those arenas. I can tell you it gives us a wonderful viewpoint on healthcare, because both of those sectors play an immensely important role in the delivery of care.”

While the company has its fingers in multiple pies, Shah told delegates that J&J is currently focused on oncology where it aspires “to be number one in the world […] in terms of sales.” However, the company is also making efforts in immunology, dermatology, neuroscience, and ophthalmology.

The firm aims to be number one in the space, but Shah spoke about J&J’s “humble culture” and told attendees: “One of the things we truly believe, despite our great track record, despite the proud legacy that we have, we do not have all the answers inside the walls of J&J.”

“No company regardless of how big it is, how great it is, has all the health care answers.” Therefore, “to truly be great requires partnering” and “we are absolutely looking forward to continuing our track record of licensing and partnering with companies on key assets. We are also certainly employing acquisitions, whether they are large or small.”

Shah spoke about the conference itself, stating that most of the firm’s business development roles are in attendance, as well as its leaders in each of its therapeutic areas. Those who attend BIO have a goal “to obviously meet with companies that have promising transformational science,” and partner with each of those companies in a “unique” way “because every single deal is distinctly different to ultimately achieve the aspirational destination.”

When asked by Michelle Davis, M&A reporter at Bloomberg News, about how the company decides what deals it should make, Shah replied “we have immense firepower, [and] we are blessed to have that.” Furthermore, he placed emphasis on “the scale and the breadth of J&J.”

AAA-ccessing capital

The conversation lead to a discussion regarding how J&J is “the only healthcare company in the world that is a triple A rated company, [which] gives us immense power to be able to access capital.”

An AAA rating is defined by video-delivered learning platform Finance Unlocked as “the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.”

Shah told delegates the firm’s credit rating is higher than the US governments and “we love having it because it gives us access to capital [and] the ability to access capital in very favorable terms, much more so than many other companies could do.”

While J&J have clearly reaped some of the benefits through having such a rating, Shah did not rule out giving it up “for the right deal” if required, despite the “triple A rating [acting as] a huge driver for our ability to do things.”

Additionally, when looking at deals from a capital allocation standpoint, he said “our first priority is to fund the business, our assets, and our pipeline assets to ensure that we continue to support those.” Once that has happened, J&J can then look at potential acquisitions “and deploy that effectively.”

Davis asked if J&J has a budget when forging partnerships, to which Shah replied, “the answer is no.” He explained how the complex nature of deal making means you cannot “perfectly predict when specific deals will come to fruition.” But, when “decision making is plausible, we will then analyze the merits of those deals. And when both medtech and pharma deals are on the table, we will assess both.”

While deals attached to bigger numbers might receive more press and be deemed more successful, he described how the firm does not measure success through “the amount of dollars that we have spent or the [number] of headlines that we have garnered.” Instead, he said “you can be open to deals regardless of the size of them, as long as they make strategic, financial, and ultimately scientific sense for us.”

Furthermore, Shah disclosed how a multi-million-dollar deal “is possible” for the firm, but it is “hard to comment on any specific individual opportunity” because “at any given moment in time, our team is usually looking at a number” of deals. When one is always on the prowl for the next big thing, “you can be working your tail off on something for many, many months” and then the deal does not go to plan “and no one even knows you have worked on it.”

While there are deals J&J has actively pursued, he also discussed how there are deals the firm has decided not to follow. An example provided by Shah included its decision to not make an offer to acquire Horizon Therapeutics in December 2022.

He described how they “had certainly taken a look at it from a from a high-level standpoint” but “chose not to pursue it.” Shah made it clear that he is not saying that it was a “bad acquisition for Amgen” to make and gave them “kudos” for doing it but stated “it was not the right strategic fit for us, [and] it did not make sense for us.”   

Instead, “we went after other targets, which happened to be smaller, but were better strategic fits for us, were better value creating opportunities for us financially. And we felt we are going to offer amazingly great opportunities for patients.”

With the mention of companies that J&J has shown interest in and were not chosen as, Davis asked if the company has noticed “that it has gotten more competitive when it comes to M&A opportunities?”

Don’t be late to the party

“There has always been a competitive market” but “when you think about truly special opportunities, we pride ourselves on hopefully trying to identify those earlier,” Shah told Davis. To bag these assets, J&J has specific leaders “responsible for those areas from discovery to late stage.” 

He said this method “truly gives us extraordinary insights” into disease areas and targets and “that enables us to hopefully identify the right opportunities to grow faster, and then be able to execute against those opportunities, as it makes sense for us to do so.”

Another point brought up by Davis focused on foreseeing deals ahead of the upcoming US election and how this can affect M&A activity in the healthcare space.

“Whenever it is an election year, it always becomes an interesting year for pharmaceuticals,” said Shah. “In particular, somehow, we seem to always be in the news and constantly being scrutinized or even attacked, and I would say unfairly, in most cases.”

He highlighted the Inflation Reduction Act (IRA) and said the firm believes “It makes the ability to pursue, [to] follow indications, [and] to be able to recoup your investment, extraordinarily challenging.”

Additionally, Shah emphasized how the IRA can reduce the time you have to recoup your investment, which “is going to make the ability to fight for those dollars and create the business case to support those investments […] incredibly challenging.”

While he outlined the challenges that may be faced with the IRA, Shah said, “regardless of the political landscape, regardless of what is going on”, J&J are going to continue pursuing deals “that we have already executed” and “we are going to continue to fight for the right deals.”

“Because we are fighting for something that lasts well beyond this year, we are fighting for the future and the benefits for patients.”