“Pursuing the right deals now to deliver value into the future”: discussion with Jennifer Kozak, VP of Business Development, Johnson & Johnson MedTech

EY: Can you give us an overview of the current dealmaking landscape and how you’re approaching M&A?

Jennifer: We saw an increase in M&A volume in the first half of the year and cautious optimism in the market on dealmaking. The underlying fundamentals of the medtech industry remain strong.? At the same time, we still see a less active IPO market and companies are thinking about their funding options, whether that's taking on more equity, more capital, or seeking long-term investors.

Regardless of the environment, companies must remain focused on pursuing the right deals now to deliver value into the future.

At Johnson & Johnson, our approach to M&A is driven by our strategy and a clear mission. We're guided by Our Credo, which states that our first responsibility is to the patients, doctors and nurses who use our products. At the end of the day, we want to bring life-changing technologies to market that redefine what it feels like to be a patient and make immediate, lasting impacts. That’s what drives us every day, and to do that we’re focused on innovations that address some of the largest unmet needs in healthcare.

We need to ensure that we can create value and accelerate patient impact through any transaction that we consider. When we find an opportunity that aligns with our strategy and our commitment to patients, we’ll pursue it.

Many medtech companies are looking to shift their portfolios to higher growth segments that can drive stronger long-term shareholder returns. We’re focused on expanding our presence in high-growth market segments with the largest clinical unmet needs so we can help more people. We're doing that through investment in R&D as well as strategic collaborations. And of course, M&A is part of our strategy as we strengthen our current businesses and further shift our portfolio to higher growth and higher innovation markets.

EY: Tell us more about how you identify opportunities in these strategic high-growth segments?

Jennifer: It always starts with, and ultimately depends on, our strategy.

We look at each opportunity through three lenses: a strategic lens, a scientific or technical lens, and a financial lens. We start by asking a few key questions to understand if it’s a potential fit:

·?????? Do we believe this science and technology will be a significant improvement to the current standard of care and help patients?

·?????? Do we have the internal capabilities and knowledge to help advance and grow this asset?

·?????? And finally, can we create the appropriate returns for our shareholders for the risks that we're bearing?

Ultimately, we will not move forward with an opportunity unless we believe it aligns with our strategy, will deliver the expected financial returns, and most importantly, help patients.

Throughout the process, we also focus on how we execute on the transaction. Critical integration planning is important to the success of any acquisition and companies that do this well create standardisations and capabilities to deliver a successful integration. We focus on ensuring we have the right people and capabilities to deliver on the value drivers in a transaction.

EY: With so many different variations on partnering models, how do you choose which approach to take in each case?

Jennifer: We are agnostic as to where innovation comes from. We want to be a partner of choice and are always looking for opportunities to partner and bring the best innovations to market to help patients. With the strength of our balance sheet and Triple-A credit rating, we have the flexibility to pursue the right opportunities, but we also need to think about the right structure to fit that transaction. Ultimately, there's really no one path for how companies come into J&J or what the structure looks like.

We look at each opportunity independently and determine the most appropriate partnership approach to meet the needs of both companies. In addition to strategic acquisitions, we look at partnerships to strengthen and supplement our R&D programmes. We’ve also implemented creative structures, including build to buy approaches. We customise our structure around what we're trying to achieve.

Johnson & Johnson MedTech is an active part of the medtech innovation ecosystem with several longstanding relationships: we are a founding sponsor of Stanford Biodesign and also of MedTech Innovator – the largest nonprofit global competition and accelerator.

J&J also has a strategic venture capital arm, Johnson & Johnson Development Corp, which celebrated its 50-year anniversary last year and is the oldest corporate healthcare VC. With a long-term approach and deep knowledge of our business strategies, they work very closely with us on how we invest and add value to earlier stage companies.

EY: How do you see Private Equity’s role in medtech – are they your partner or competitor?

Jennifer: We're all part of the medtech ecosystem on a similar mission to help develop, scale and bring innovation to more people around the world. As we look to the future, we see many opportunities to continue to partner with Private Equity and develop creative structures, even in terms of externalising and funding R&D programmes or adding capabilities.

Historically PE has also been an important partner for us with respect to carve-outs. Today, we are seeing many of our competitors looking to optimize their portfolios. We have been on that journey for five to ten years now, constantly seeking to shift our portfolio to higher innovation and growth spaces and identify where a business is no longer a good strategic fit. If a business can find a better home elsewhere, PE can be a great partner to help achieve that.

For more additional insights into both biopharma and medtech deal environments as of Q2 2024, please read our Q2 blog, “Robust first half of 2024 for life sciences dealmaking: early- and mid-stage deals will dominate the second half of the year”, which was originally published in July 2024.