J&J Opens San Diego Biotech Startup Center, Says ‘No Strings Attached’

1/18/12Follow @xconomy

Johnson & Johnson’s West Coast research leader, Diego Miralles, has met with a lot of biotech entrepreneurs who are curious about what J&J is doing to foster more startups at its facility in San Diego. At some point, a skeptical question usually comes up.

“What’s the catch?” Miralles says he’s sometimes asked.

He insists there isn’t any catch.

“We are genuinely trying to help the industry,” Miralles said last week in a meeting at the JP Morgan Healthcare Conference in San Francisco. “We think helping the biotech industry helps us. We strongly believe that a rising tide lifts all ships.”

J&J (NYSE: JNJ), which is based in New Brunswick, NJ, has been moving quickly the past few months on a new initiative to help biotech startups get up and running, through its new 30,000 square foot Janssen Labs startup space on the Torrey Pines Mesa. As Bruce first reported here in October, the idea is to create a space at J&J’s facility where 18-20 fledgling companies can get modern lab space, supplies, professional facilities management, and equipment that is supposed to free up the entrepreneurs to focus more on their science.

The life sciences industry has been buzzing about the concept since then, and Monday night more than 500 people turned out to see the new Janssen Labs in San Diego during an open house at J&J’s renamed Janssen Research & Development facility.

J&J insists that it won’t take equity stakes in the startups, or attempt to direct them, but that it hopes the industry, and eventually its shareholders, will benefit by “fertilizing the soil” for more innovation. At Monday night’s soiree, J&J publicly named the initial four startups settling into the space, selected from the first 100 applications that have rolled in from around the world since October.

Big Pharma companies have gotten some heat from entrepreneurs and VCs over the past couple of years for taking advantage of them, essentially by harvesting the best ideas at bargain rates as the startups struggle to raise more venture capital to keep going. But as biotech startups are now less able to fill up Big Pharma’s product pipeline, those same Big Pharma companies are experimenting with new ways to stir up more early-stage R&D. Sanofi CEO Chris Viehbacher has outlined a strategy to shift resources toward startups and academic collaborators, Pfizer has set up a network of academic collaborations around the country, and Bayer has sought to become a landlord to promising startups in San Francisco’s Mission Bay.

Here’s how the J&J startup space is supposed to work. Companies apply for space that can be configured to house one to three people, or as many as 25, Miralles says. Prescience International, the group that runs the San Jose BioCenter, will provide professional management of the space, and to handle all kinds of startup hassles (like setting up the phone, Internet service, permits, lab supplies, and equipment) that make it hard to fully concentrate on science in the first six to nine months of a biotech startup’s existence, Miralles says.

J&J will charge a competitive market rate for the space, Miralles says, and it will have a hand in selecting companies that get in, but otherwise the arrangement is “no strings attached.” Although the Janssen Labs will be in the same building as J&J’s 300-person R&D center in San Diego, there will be a physical separation between the two entities, he says. Startups may choose to collaborate with J&J, but in order to protect the intellectual property of both sides, those conversations will have to be conducted under formal legal terms that J&J uses for any external collaboration, Miralles says.

Still, J&J hopes that being next door will provide a few clear advantages for the mother ship. Miralles says he hopes some of the entrepreneurial spirit will rub off on J&J scientists, and that it will help inspire good creative scientific thinking. He wants the startups to represent a diverse group of cutting-edge disciplines (different kinds of drugs, devices, diagnostics, health IT) that a diversified company like J&J might find “remotely interesting” in the future. Some of those things J&J may want to acquire, some things, others in the industry may want to acquire, Miralles says.

Miralles says he’s been surprised by both the quantity and quality of companies trying to get into the new space. Most of the entrepreneurs are from around San Diego, but some applicants from outside the region are considering moving to San Diego just so they can get into the space and start moving fast, Miralles says. Companies get in with three-month renewable leases, which enable them to get out of the deal quickly if a project fails, as many early-stage projects do.

“The response we’ve gotten, and the gratitude in the community has been overwhelming,” Miralles says.

The first four startups represent a varied cross-section of what Miralles said J&J is looking for. There are a couple of diagnostics companies (Diomics and Tem Systems), a small-molecule neurology drug developer (Neurolixis), and an optometry device company (Yolia Health).

Rob Hillman of Tem Systems says he chose to go with the new Janssen Labs location because he likes the way it packages together all the key services in a good location. “On the surface, the rate is more expensive than other facilities. However, if you factor in the conference rooms, furnished offices, services (shipping, receiving, business center, reception), shared lab facilities (centrifuges, -80 freezers, cold room, etc.), lunch area, infrastructure (Internet, phone, video conference, etc.) it is a great deal,” Hillman wrote in an e-mail.

Miralles was definitely enthusiastic about this new project when we met, but he also let me know he wasn’t getting carried away. The success of this initiative will be judged over time on how many of the startups go on to achieve bigger things—things like large venture financings, IPOs, FDA approvals, and Big Pharma partnerships with J&J and others. Those things take many years to materialize in biotech. But Miralles figures that after three years, he’ll have a good read on whether this initiative is on the right track or not.

“It’s one of many experiments we as an industry should be conducting. We’re asking ourselves, how can we improve the model?” Miralles says. “When there’s a lot of capital around, you are not forced to operate as efficiently as possible. This is next iteration, we’ll learn from it. But nothing is perfect. We’ll see what works, learn from that, and adjust.”

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