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NYC 19 Conference Report May 14 - 15 | #TechonomyNYC

Unleashing Innovation: How a Healthcare Incumbent Partners with Insurgents

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  • Venk Varadan of Nanowear, Kate Merton of JLABS, and Josh Kampel of Techonomy. Photo credit: Rebecca Greenfield

Speaker

Josh Kampel
CEO, Techonomy

Kate Merton
JLABS

Venk Varadan
CEO and Co-Founder, Nanowear


How does a century-old healthcare giant partner with start-ups to deliver life-enhancing health and wellness solutions to people around the globe? What lessons does it hold for other big companies?

The following transcript has been lightly edited and condensed for ease of reading.

 

Josh Kampel: Before we start, we’re going to invite Venk Varadan up, who’s the CEO of Nanowear. Nanowear’s a developer of textile-based nanosensor technology—a lot of “nano” in there. So Venk’s going to quickly tell us about what a nanosensor is and some of the applications, so Venk, join me on stage.

Venk Varadan: Thank you, Josh. Hi, everyone. My name is Venk Varadan, co-founder and CEO of Nanowear. We’re a New York-based connected-self technology and companion diagnostic platform built upon our core invention of what we call cloth-based nanosensors. We are the first and only cloth that’s been approved—I don’t know if my slides are up—that has been approved by the FDA for remote monitoring, an accomplishment we’re very proud of.

So, where can we go with a cloth-based sensor that can capture electrical, hemodynamic, sound/audio, biochemical signals, activity, directly from the skin? Do we start with consumer fitness, do we start with B2B sports, fitness buffs? Do we start with industrial applications? Perhaps stubbornly so, and certainly to the dismay of venture capitalists nowadays that are looking for quicker returns, we chose healthcare, and we chose Medicare/Medicaid public enemy number one, which is congestive heart failure. I don’t know if my slides are up. Got it. Congestive heart failure. And it’s going to take advantage of the characteristics that we’ve created with this cloth. So, passive electrical signals, active hemodynamic signals, sound/audio signals, just from the skin in a ubiquitous form factor. There’s 10 million Americans that are about to be diagnosed with heart failure. It’s a $40 billion annual problem to all of us as tax payers, with hospital systems now getting penalized for these all too frequent heart failure related admissions. Most important, 40% of this population is Medicaid or uninsured. They’re not even seeing a physician for an annual physical like you or I are every year. They wake up in the middle of the night because their lungs have filled up with fluid, they can’t breathe, and then they show up to the emergency room seven to ten times per year. We look around and wonder why this is a $40 billion problem.

So the current standard of care is either ineffective or too expensive to reach the masses of this growing epidemic, and that’s the unmet clinical need we have developed with our first product, SimpleSense. It’s a companion diagnostic that will capture and algorithmically score seven different metrics from the body each morning, alerting cardiology and care management teams of worsening heart failure three weeks before this hospitalization. Has anybody launched a product clinically in med tech? I am beaming with pride having been in this four years that we are launching in select hospitals next Friday.

[APPLAUSE]

Thank you. But I think for the purpose and the theme of Techonomy, while we’re very excited about this first therapeutic application as a technology platform, and what we’ll be discussing shortly in potential partnerships with large companies like J&J—what could a cloth-based companion diagnostic be beyond heart failure? Imagine replacing every wired electrode in the ICU or a hospital system with a bedsheet. Imagine creating complex 3D images for surgical procedures using a cloth body wrap. A cloth-based armband that can supplement at-home pharmaceutical therapies. Even beyond healthcare, you know, monitoring our men and women on the battlefield or our first responders like our EMTs and our fire fighters. We felt at Nanowear that if we started with our highest-risk population, something like congestive heart failure, that gravity would pull us into these other markets, so if you’re interested in what we are doing, our ask and hope is that you join us on this mission to solve the chronic disease management case of our time and beyond.

[APPLAUSE]

Kampel: Thanks, thanks. I did tell him he had three minutes, so I know we had to wrap it quick. We’re going to invite Kate up as well. So, Kate Merton leads Johnson & Johnson’s JLABS on the East Coast. Kate spent much of her career in R&D but now works across marketing, external alliances, innovation. Kate, thanks for joining us.

Kate Merton: Thank you.

Kampel: And Venk is part of JLABS, so we’re going to talk a little about that relationship between big companies and earlier stage entrepreneurs and startups. Kate, why don’t you tell us a little about JLABS and its sort of unique structure? You know, we’ve talked a lot about corporate venture over time, but this isn’t an equity-based program. Why did Johnson & Johnson set up JLABS, and what’s unique about the program?

Merton: Yeah, you already heard Kathy Wylde mention earlier that we were part of the public-private partnership bringing JLABS to New York City, and that was sponsored by the governor, and I think what makes us perhaps unique versus other incubators you’re going to see is that we do not take equity in the companies when they come in. We’re very keen to kind of provide them all the services they need to kind of succeed, and our mission is just to kind of, like, learn from the entrepreneurs. We provide them capital-efficient space and education and relationships with investors when they join us.

Kampel: So, Venk, talk a little about sort of the evolution of the company, starting it, and why a relationship with a big company—has that helped you get to the stage that you’re now launching?

Varadan: Yeah.

Kampel: What are the sort of challenges that you had prior to a relationship with a company like Johnson & Johnson?

Varadan: Yeah, I think this idea was born—actually, I cannot take credit. It was born from my father, who was a 40-plus year academic researcher. This was his last idea before he retired, so it’s been pretty special to be on that journey with him for the last four and a half years. But as we started, we start with material science and go all the way to a data analytics platform. There’s a lot of moving parts that happen within that eight-step sort of start. You start with cloth and manufacturing, you have to figure out ISO 1345–certified manufacturing practices. Then you’ve got to clear hardware with FDA, understand the software traceability, and then figure out things like reimbursement and cybersecurity. It’s very hard to do that by yourself.

And I think as we started hitting our first milestones with our first FDA clearance and getting some of those initial blocks tackled, a partnership with Johnson & Johnson and their peers I think was paramount for a technology stack that is that complex, that you simply can’t get to market that fast. And I think partnering with JLABS, as a JLABS company, especially in New York—because we’re a New York-based company—Kate I think belittled the relationship that it offers. It’s not just connecting you with investors and strategic partners; it’s firmly putting you on the radar of these larger companies that, quite frankly, we can be stubborn and think that we can do this all by ourselves, but we really, really need help from the larger companies.

Kampel: Yeah, we heard from Mehmood earlier, right, everyone under 40 thinks they’re indestructible, and—

Varadan: Absolutely.

Kampel: So, Kate when you—we were originally supposed to have one of the other founders up here, and they were doing virtual, mixed reality in operating rooms. So a very different application, very different technology. Talk a little about how you choose the startups and the entrepreneurs you work with. Do they have to align with the various J&J business units? How do you go through that process of finding them, vetting them, and choosing them?

Merton: Yeah, it’s unfortunate that Tran couldn’t be here, but she was kind of distracted by having to be in surgery. She’s so much—taking care of the patients are so important. So as most people know, J&J, massive company. We work in pharm-device consumer, so the companies that we have come into JLABS all kind of function within those spaces, and we’re also seeing a large number of sort of digital technology companies come in as well. When it comes to selection and who gets to be in and who gets to be out, they don’t have to be aligned with us, like our strategic priorities, what we generate revenue in. It’s useful for them to be in those specific areas, because then we can give them mentoring and help, but we don’t have the companies—that’s not one of the criteria that means that they have to come in. They have to come in with the best science, they have to come in with a real passion to serve an unmet human need, and they need to have a good idea about a business plan. But they don’t have to be dedicated to our portfolio, if you want to put it that way.

Kampel: So I don’t want the relationship—so far it sounds pretty one-sided, right? The entrepreneurs get all these great things, you’re not taking equity. So what is the benefit to a company like Johnson & Johnson if you’re not taking a financial stake in the company, you’re giving them access to all these great resources and knowledge. How does Johnson & Johnson rationalize this type of relationship?

Merton: Yeah, because it’s not—JLABS is not free to run, you have to employ people like me. But I’d say like six or seven years ago, I like to put it that J&J was humble enough to know that we didn’t know everything. And we seriously need to learn, and that’s why people who were doing it in a really efficient, nimble manner and are very innovative in what they’re doing—so initially it was very one-sided. We just wanted to put the space out there and kind of learn from them. Now, as we’ve been running, sort of the reality is that we do end up with a relationship with about 25% of the companies, those which may be strategically aligned, so there is something in it for Johnson & Johnson in the end, but there’s still 75% of those companies, not always strategically aligned, that we’re just happy to kind of help and learn from.

Kampel: And when you say “learn from,” right, we talked a little about executive development—executives need to see how fast—we heard about agility, how agile the startups are being. Are the mentors and the people from JLABS and J&J really bringing back those learnings to their day-to-day jobs?

Merton: Yeah. So, what does learning mean, what are we truly getting out of it? So they get to, for example, you’re going to have like a really smart post-doc coming out of Rockefeller who’s got amazing science, but they don’t know what they don’t know. They don’t know the regulatory hurdles that might get in their way, supply chain, marketing, all these other things—which we do. So we give them mentoring with our like senior leaders, high-potential employees, and then in return, kind of like you’re suggesting, those people that may have been in J&J for a number of years, quite corporate, they’re getting to learn from the cutting edge of how an entrepreneur thinks about their day. Where do they invest time, what do they not do? And I think it’s very easy in a large company to get that way, like indoctrinated, and so by having JLABS as a mechanism for them to start interacting with entrepreneurs, we’ve found it’s really, really helpful for myself and colleagues.

Varadan: I would also argue that it’s probably pretty fun and exciting for them too.

Merton: If you get to work with Venk. [laughs]

Varadan: If we could get paid in fun and excitement, that would be great.

Kampel: So Venk, in your interaction with the mentors, what have been those ah-ha moments. Right, you know, you talked about these eight phases and the help—you told me one about where you going to manufacture, right, was an ah-ha moment that you would have gone down a path that if not for the relationship—talk a little about those—

Varadan: Yeah, that specific example is a very ah-ha moment. I’m a first-time founder. I think we’re good at learning very quickly, but there are just too many things you would never know if you hadn’t done it before, especially in white-space technology, what we’re doing. So when I first got started, I’m trying to concurrently tackle a lot of those eight things sequentially and not do it stepwise, because in med tech you’ll just run out of capital. So from a supply chain manufacturing standpoint, I thought for sure we would be manufacturing in Sri Lanka or India or something offshore. And through our relationship with JLABS and a lot of the business development mentors in medical devices, they connected me with the head of medical device supply chain at global headquarters in New Brunswick, at J&J. Had a meeting with him, and he’s a science nerd like me, so we talked for about an hour on the tech itself and the touch and feel of the cloth, and I told him what the plans were for manufacturing, and he said, “Venk, that’s really awesome, you can definitely manufacture in India or Sri Lanka, but J&J will never buy from you.” And that was a very big ah-ha moment; that’s when I sort of realized that if you want to be in healthcare and save lives, you’ve got to follow approved vendor list protocols, ISO 13485 standards—there’s a reason that all of that is there, right? There’s a reason that J&J works—has worked with 3M for 50 years, right? It’s a trusted 0% failure rate—or close to—organization.

One example of that—I think reimbursement was another one. As Kate mentioned, a lot of us can come from BME and science, maybe with a finance or business background, but the sales sort of revenue generation in healthcare is very different than putting an app on the consumer market, where there’s a lot of pattern recognition to revenue generation. If you remember my question to Andrew Yang this morning, a lot of us even with all the information that a company like J&J can give, there is no pattern recognition to the technology we’re doing, and we’re trying to find our ways under CPT reimbursement codes or DRG reimbursement codes that were created in the 1960s or 1970s. And help with lobbying efforts and sort of Capitol Hill resources that large companies just simply have more access to than we do really helps us get in front of members in Capitol Hill to discuss these. I’ve been in front of Congress four times now with the help of large companies like J&J.

Kampel: Right. So one of the interesting things, I think, that came out of my conversation with Tran that couldn’t be here was that she had already gone through an incubator program even prior to JLABS. And really realized it wasn’t a good fit, right? She didn’t get from the first one any of the strategic value of that. When you talk to entrepreneurs and they come in and they want to be part of JLABS, what should the entrepreneurs, for the entrepreneurs here, be thinking about in that relationship and making sure that there is a good fit?

Merton: That’s a really good question, actually. So, often when the CEOs come and meet with the site head and say, “We want to be part of JLABS,” I’ll ask them, “Why? What is it that you think you’re missing? Because there are a bunch of incubators that you could go to.” As you just mentioned, capital, you’ve got to be really careful with it. “So the time you spend with us has got to be really well spent, so why do you want to come and be with us?” And often they’ll actually—well, if they’re a bit more enlightened, they’ll say, “We don’t actually understand how to work with a payer, we don’t understand what an IDN is, we don’t know how to put together a data package for an FDA filing.” So we will kind of work out what their need is, and can we fit it, and then if they also qualify, that they’ve got the best science and they’re trying to meet an unmet need, then they get to come in. But we never want to work with an entrepreneur who’s like, “We just want to hang out with you because you’re J&J.” No, there’s actually got to be a reason—what are you going to learn from us?

Kampel: Right. And again, back to that learning, right? So you talked about some of the mentors, again, seeing, having exposure to these startups. How do you scale that, right? How does that single executive who is now interfacing with startups bring that knowledge and that learning more broadly to the organization, rather than just back to their desk and say, “Hey, that was great, I learned from Venk that I need to think more agilely and move faster.” But how do you take those learnings and bring them deeper into the core of the J&J organization?

Merton: It’s funny, because I actually got that question yesterday when I was off in Boston, and I hadn’t actually thought about it prior to yesterday. But often, we all find, senior leaders, they get to interact with an entrepreneur, and they’re like, “Oh, well, that’s a different way of doing it.” And maybe next time, when they go to hire someone into their team, they’re going to rethink about what is the job req, like am I specifically looking for a person who can tick all those boxes, or maybe am I going to look for someone who might think slightly differently. So we’re actually maybe seeing a slight change in the way people think when they’re hiring. And I think just sort of, we’re also—the high potential employees, keeping good talent within a company, I think most people know is one of the most effective things you can do. It’s an amazing way to save money. You don’t want talent walking out the door. And if we can keep them engaged, and maybe when they’re thinking about a company but actually rather doing that work within J&J, that’s another way we actually see our business change.

Kampel: And the JLABS are global.

Merton: Yes.

Kampel: And do you see—obviously you’re responsible here, Boston, New York, East Coast area. Are you seeing different types of entrepreneurs and technologies based on geography. Are you seeing different things from the Bay Area versus from the East Coast?

Merton: Yeah, so I get to do the East Coast, Boston down to Philly, and then I’m lucky that I do the global health tech strategy, so I get to see what’s going on all around. And you will see, depending upon the ecosystem you’re in, you’re going to see a predominance of one tech versus another. For example, we have a site down in Houston, and we see a lot more devices there, versus maybe our San Diego, which is heavy pharm. What I’ve got here in my portfolio here in New York is a lot of health tech—more than most other cities—and a lot of pharm as well, and then a mixture of device and quite a bit of consumer. So it really does vary. I think what Mehmood was saying earlier about, you need to let people stay where they are and where they feel nurtured, that’s kind of how we think as well. It’s great to let people stay in the environment they’re in, and we’re going to support the technology they want to develop there.

Kampel: Great. We have time for one quick question. Do we have a question—we have a question in the back over here?

Petri: Hi, I’m Peter Petri. Venk, I just wanted a clarification from you. The product for congestive heart failure, is that a T-shirt, is it a wrap? What’s the form that it takes?

Varadan: Yeah, it’s a great question. It’s another brick, unknowingly, that I tripped over as a first-time founder. It’s going to sound so obvious when I tell you, but our first FDA approval was with a tank top for men and a bra for women, and as I started to navigate reimbursement and sales into hospital systems through DRG—you guys know exactly where this is going—the hospital C-level was just like, “This is awesome; I have no idea how many 6’5”, 300-pound men are coming in with a heart failure event this week, I don’t know how many 34BB cup sizes are coming in this week,” and I quickly realized—and they were like, “I’m not going to store all of those sizes, I’m not going to store six sizes for men and for women. We’re not a retail store, we’re a hospital.” And that was just the clunk on my head, and I was like, “Okay, I have to go gender-neutral and size-adjustable. This is a giant inventory management nightmare.” So the form factor’s actually a shoulder sash. So it goes over your right shoulder, it maintains the vectors that we need, which is the largest slice of the heart and the largest slice of the lungs. But again, just one of those things that you had to sort of learn on the job.

Kampel: Great, we actually have time—one more question? Any for Venk? We have one right here. Sure.

Kellen: Hi, I’m Tonya Kellen from Kellen Content. We’re going through FDA approval on our virtual reality software to drive greater mental health outcomes. And I’m so confused about it all some days. What was that experience for you in general?

Kampel: The FDA approval process?

Kellen: Yeah.

Varadan: I’ll give two pieces of advice. I know we’re out of time, but happy to talk to you afterward. Get in front of them often. We met—we were in D.C. 11 times during our pre-sub process. I think very strangely, we forget that the FDA and those agencies are comprised of people, and the relationship matters. I think a lot of med tech companies do a first sort of informational call, figure they’ve got all the questions answered, and spend two years, three years on a submission, and then wonder why there’s an additional information request of 500 questions, right? So I think that’s number one.

And I think for your product in particular, really, really understand the evolving guidance. I think the FDA is in a far better—CMS is a different story—but I think FDA’s in a very, very better place than even when we started. Software as a medical device, the new guidance there, what the pre-cert pilot groups are doing—which J&J is a member of—there’s some pretty specific guidelines there that are easier to follow. They don’t answer everything for you, but follow those stepwise. They’re really onerous to read, but the minute you can do that and sort of kiss the ring to your reviewers, saying, “I listened to what you said,” it’s going to make your whole process much easier. Don’t try to power something through that doesn’t sort of jive with what they tried to put together.

Kampel: Well, thank you, Venk, thank you, Kate, for joining us today. Get a round of applause.

[APPLAUSE]

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