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The Radical Experiment That’s Changing the Way Big Pharma Innovates

J&J's JLABS in South San FranciscoJ&J's JLABS in South San Francisco
J&J's JLABS in South San FranciscoJacob Elliott, Courtesy of J&J

Just five years ago, one of the last places one would have looked for innovation at Johnson & Johnson was in its Merryfield Road lab in La Jolla, Calif.

The R&D facility for the healthcare giant, No. 103 on Fortune’s Global 500 list, had become something of a scientific wasteland—emptied of all but a few teams of the company’s researchers after the mass restructuring of J&J’s pharmaceutical business (For more on the transformation of J&J’s pharmaceutical business, see our Fortune story here.)

These days, the gleaming, state-of-the-art space is teeming with entrepreneurial spirit and cutting-edge science. What’s odd, though, is that these researchers toiling away within J&J’s walls—and making use of J&J’s abundant resources—do not work for the company. Nor do the findings or the discoveries they produce there belong to J&J. Some of these drug scientists even receive funding from J&J’s competitors. As for the venerable, 130-year-old company that’s paying for all this largesse, it claims it wants nothing more out of the arrangement than for its tenants—all life science start-ups—to succeed.

In the highly competitive, IP-obsessed world of drug development, throwing open the doors and inviting people in, is a departure in strategy to say the least. Yet, such is the surprising concept behind JLABS, the “no strings attached” incubator that J&J launched near San Diego in 2012, and has since rolled out to five other sites in North America. The incubators are also just one of piece of the radical “open innovation strategy” J&J’s Chief Scientific Officer Paul Stoffels has crafted for the company. (For more on J&J’s innovation strategy, see the Fortune feature story here.)

For Stoffels, an infectious disease doctor who founded his own biotech in the ‘90s with $30,000 and a bench at an incubator in Antwerp, opening the company’s R&D space to outsiders made good strategic sense: It was a way to accelerate innovation in the scientific community and to develop relationships with innovators—innovators who one day may have technology or drug candidates of interest to J&J.

The JLABS conceit made less sense to many of Stoffels’ colleagues at the J&J’s New Brunswick, N.J. headquarters. For months before the launch, company lawyers fretted about the potential for IP contamination—“The discussion for about a year was just on whether JLABS people could eat in the cafeteria with R&D folks,” said one J&J’er—and finance guys worried about coordinating deal teams. Some questioned the decision to put resources towards companies with no connection to J&J rather spend the dollars internally, while others urged J&J to adopt a “strings attached” model where incubated companies would have to sign licensing agreements with J&J. (Pfizer previously tried this and failed.)

They worked out the details, and Stoffels, of course, won the day. At its six JLABS sites, J&J is currently incubating roughly 140 companies, which are granted access to everything from J&J’s compound library to its regulatory and commercial experts. The JLABS staff also clears the various operational hurdles that tend to slow biotech entrepreneurs down, such as securing necessary permits and ensuring health, safety and environment standards. And of course, the set-up makes things, a heck of a lot cheaper: a bench at JLABS costs just over $1000 per month (a rent payment that offsets some of J&J’s overhead costs, according to the company) whereas lab space for a small startup firm can require a $5-10 million investment. (JLABS also runs occasional competitions for early-stage innovators that it calls “Quickfire Challenges”; winners bunk at JLABS rent free.)

“We want to give early stage teams that are external to us the same platform of resources that our internal teams have,” says Melinda Richter, the Head (and the brainchild) of JLABS, who adds the mission is to “to make it affordable, accessible, and quick to get life sciences companies started.”

Despite the early skepticism around the initiative, it is now heralded as a success at J&J. CEO Alex Gorsky says he is invariably reenergized after visiting JLABS sites and seeing all the science. “You can’t help but get excited by the things they’re working on,” he says.

The radical experiment J&J embarked on four years ago is also generating good will—and being copied—in the wider biotech and pharma industry.

Consider Wendye Robbins, a serial life sciences entrepreneur who based a team of scientists from her fifth biotech Blade Therapeutics out of JLABS last year while the company established a proof-of-concept and pitched funders. Blade’s investors include three J&J competitors Novartis, Pfizer, and Bristol Myers Squibb but Robbins heaps singular praise on J&J’s innovation strategy, which she describes as a “millennial approach to drug development.”

“It’s brilliant,” she says.“Johnson & Johnson is the leader in nurturing talent and creating opportunities for small companies to grow organically. They’re doing it in a very hands-off way that creates long lasting positive feelings. We’re all rooting for J&J because they’re rooting for us.”

With any luck, one of these companies may follow the path of Stoffels’. His biotech, Tibotec, has developed three breakthrough AIDS drugs. It was acquired by J&J in 2002.