Manhattan Research President, Mark Bard explains J&J’s acquisition of HealthMedia

When RevolutionHealth merged with Waterfront Media, Mark Bard, president of Manhattan Research provided insightful commentary for this blog. (See Manhattan Research President, Mark Bard on the Revolution Health/Waterfront Media merger.) So when Johnson & Johnson bought HealthMedia, a web-based behavior change company, I turned back to Mark for his perspective.

David Williams: What differentiates HealthMedia and what methodology underlies its interventions?

Mark Bard: Like a number of business models in the online health space, the underlying HealthMedia concept itself is not a radical departure from business models that have been in place in the health system for years. The key point of differentiation is that they are using the online channel to inject significant efficiency into the health, wellness, coaching, and ultimately compliance part of the treatment equation. In other words, if the old model was to staff a telephone call center with 200 nurses to answer questions and provide patient education, the new model is to syndicate the insight and wisdom from a focused group of nurses and clinical experts and push that to a large audience online at a much lower cost per interaction.

David: What does J&J expect to achieve through this acquisition? For example, does J&J have major ambitions in the Employee Assistance Program (EAP) market?

Mark:
This move is in line with other recent moves made by J&J to expand their reach with innovative business models online. For example, they recently did a deal with ChildrenWithDiabetes.com – an online community for kids, families, and adults with diabetes. These moves are not necessarily done as a way to drive revenue for the core business at J&J. In fact, a deal such as this is typically a rounding error in the larger J&J revenue picture. However, investments such as this represent a belief that innovation is a combination of internal and external forces. If J&J wants to better understand the online wellness and EAP market as a complement to their core business of delivering health products and solutions, you can build that capability internally or buy a “best of breed” company with smart people in control. In this case, they did the latter.

David: Can companies like HealthMedia survive as independent entities, or do they need to find large-company acquirers? How important is a comprehensive offering?

Mark:
Of course companies like HealthMedia can survive as independent entities. They were acquired because they had a great business, growth, and represented a chance for J&J to move up the curve in this space very fast. What is the value to HealthMedia of joining forces with a large company such as J&J? Beyond the obvious benefit of financial rewards for the company founders who took the risk to start the company, they now have the ability to tap into a vast new resource for R&D and product innovation. This move opens up new possibilities that may not have been an option prior to a deal with J&J. In other words, as a private company the decision to invest $50 million in a product that may take years to show a return is a very different conversation than when you have a new owner that is willing to invest and take risk for the long term return.

David: For entrepreneurs, what niches should they be looking to fill in order to increase their attractiveness to acquirers like J&J?

Mark:
There is no secret to formula to increasing “attractiveness” to acquirers like J&J. In other words, it’s not like an average company can do few small things and they suddenly become valuable in the market. Who is attractive to acquirers like J&J? Companies with great brands, a defendable business model, solid management team, they make it tough for companies to displace them in clients where they have relationships, and of course people like to buy growing businesses. End of the day, it is often the acquirer buying into the vision of the founders. Given innovation often happens at the start-up level, there is significant value in bringing on board that type of talent for some period of time. With regard to companies in the space, the reality is that if you have a great brand and you are growing you have most likely been approached by potential acquirers several times. HealthMedia was approached numerous times and then decided to make it a formal process including a number of potential suitors. That is a typical process for companies that ultimately get sold.

David: What else do you expect from J&J in this space?

Mark:
I would expect J&J to continue to look for opportunistic acquisitions of online health properties ranging from community to targeted applications. It is a unique time in the market in that companies with a pool of internal capital resources, like J&J, interested in middle and small market deals have an advantage compared to companies that require outside capital or credit to get deals done. In other words, this may actually be a great time for J&J to continue to make deals at a fair price.

David: What resources does Manhattan Research offer for those who want to learn more?

Mark:
Manhattan Research has been tracking how consumers and physicians use health information to make treatment and medical decisions for many years. Most of our clients are in the life sciences space and we typically work with brand teams with a desire to better understand their target market of consumers or physicians. In addition to helping them understand the overall market, we go very deep into the impact of technology on a market segment. We answer questions about the use of the Internet, mobile devices, email, and the broader category of using the Web to acquire, convert, and retain a target audience. We do this through large proprietary studies that we conduct throughout the year and then license access to that data – and insight – to our subscriber base.

November 7, 2008

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