JP Morgan Healthcare Conference Marked by Uncertainty

Audrey S. Erbes, Principal, Erbes & Associates, outlines the highlights of this week’s event in San Francisco.

One of the few positive notes struck in this week’s 30th Annual J.P. Morgan Healthcare Conference (held in San Francisco) was the announcement by Kevin Willsey, J.P. Morgan’s co-head of investment banking for North America, that the U.S. economy would grow 2.5 percent in 2012. Despite this encouraging note and media reports of a strengthening economy, however, an air of uncertainty permeated the conference halls as attendees moved from session to session.

Willsey conceded that “the elephant in the room remains Europe”, and this imagery reappeared in the opening remarks of Jamie Dimon, J.P.Morgan’s Chairman and CEO. In a Q&A with Maria Bartiromo, Anchor of CNBC’s “Closing Bell,” Dimon referred to a COPD TV commercial and feeling like the patient with an elephant sitting on his chest: concerns of uncertainty, regulation, and the European and U.S. economy weighed on his mind. His remarks provided much needed levity and a feeling of hope that we’d all live to see another day despite the sobering challenges faced by the country and industry.

The major breaking news of an otherwise uninspiring event was Bristol-Myers Squibb’s $2.5 billion purchase of Inhibitex. Apart from that, a welcome surprise among Big Pharma presenters was the newcomer from Roche Holdings AG, CFO Alan Hippe, whose unexpected energy was truly engaging, especially, when he noted there was something wrong when R&D returns had decreased to the cost of capital. Hippe apologetically warned the audience his presentation would be boring with its focus on financials. It was no surprise that “operational excellence” continues to be a key goal at Roche. Against this backdrop Hippe shared a 14% and 8% decline in 2011 sales versus 2010 for the pharmaceutical and diagnostic companies, respectively. But he softened this bad news with reminder that Roche provided an attractive dividend payment with an average yearly growth of 22% between 2004 and 2010.

Other presentations from Big Pharma and Big Biotech, however, were often lackluster - downright boring in some cases - as speakers made stock statements and provided financial data intended to comfort investors that the interest of shareholders was a top priority. Several members of the audience mentioned they could have obtained this information from company websites and noted the similarity in phrases and financial slogans heard repeatedly across presentations.

Pfizer’s Chairman and CEO, Ian Read, stated that the company’s animal health and nutrition businesses were better off outside Pfizer, and that the potential of large revenues from emerging markets to counter lost revenues from blockbuster patent expirations - so key to remarks just two years previously - was no longer a major strategic element. Abbott CFO Thomas Freyman provided lots of details, which he dutifully read, about the planned split of the company into two - pharmaceutical and medical products companies - but failed to answer the obvious question on the minds of listeners: “What was the compelling argument for this decision?” And GSK’s CFO Simon Dingemanns strongly asserted the need that finance drive decisions and become embedded in decision making at his company, a comment both unexpected and somewhat unnerving to some in the audience.

AstraZeneca’s CFO Simon Lowth provided a change of themes as he placed the importance of partnering as a primary plank of his pitch. He portrayed AZ as a “focused, innovation-driven, integrated global biopharmaceutical company.” Lowth’s presentation was engaging as well as refreshing as he addressed the strategic solutions selected by AZ to meet the challenge of a changing macro and industry environment. These included early payor and regulatory involvement in drug development to secure reimbursement and market access, the implementation of new marketing and sales technologies as well as new channels of communication with customers.

NIH Director Francis Collins was perhaps the conference’s “inspirational speaker”, however. He provided some of the passion of past years’ biotech entrepreneur presentations as he shared his excitement for the profusion of new science and described objectives of new NIH Institutes and a $140 million dollar partnership between NIH and DARPA to develop a chip-based approach to drug toxicity. Unexpectedly, former FDA Commissioner Mark McClelland, in a luncheon presentation on Wednesday, also gave hope for some good coming from the Affordable Health Act. He stated strongly that “the law was very unlikely to go away.” He foresaw 2012 as a very important year for financial discussions focused much more on the “value” of health care, regulatory reforms and more effective health care.

The Chinese track offered registrants the chance to hear presentations by new Chinese companies and ask questions of top managers from key companies like Simcere, Biogene and Wuxi. There were inquiries about company business plans and hurdles management faced in China, but whether or not the founders were concerned that the government might take possession of their products and technologies as they have in other industries and whether or not the lack of the rule of law in China was a major worry to them were questions left unasked.

The lack of sufficient funding for new start-ups, perhaps the largest “elephant in the room” and a major cause of feelings of uncertainty among entrepreneurs, also went unaddressed. Yet it was the focus of many quiet conversations in the hallways. Start-up company founders and supporters shared experiences of finding the “VC wells dry,” greater difficulty in winning NIH grants and scrambling to line up alternative funding sources. Some looked to other conferences in town for answers to these important questions.