healthcare

JP Morgan Healthcare Conference Fails To Instill Confidence

Forbes article by Steve Brozak

The gloom at the J.P. Morgan 34th annual healthcare conference in San Francisco last week is still thick in the air – and will likely to hover there for a while, as macro issues and falling investor confidence continue to cause problems for the U.S. pharmaceutical and biotech sector. Compare this to last year’s conference, after which the main debate was whether or not we were in a biotech bubble, with many pundits questioning asset valuations. How quickly times change.

The tenor at JPM matters because JPM is basically synonymous with healthcare investment and sets the tone for the rest of the year.

From its early inception as a boutique event it has become a conference of global proportion, making it a real-time monitor of medical events. The conference, which attracts IB bankers and venture capitalists from across the country, as well as from financial centers in Europe and Asia, is like the Super Bowl of healthcare investing. Mood matters, and if JPM’s investors and presenters are not talking excitedly about upcoming opportunities, swapping tips, and making deals, it’s not a promising sign for Pharma/Biotech/Med Devices.

The reasons for the dismal atmosphere this year are simple, and with the force of hindsight, predictable. Capital markets are in retreat, and there has been little real recovery in the US economy—middle class wages remain stagnant or comparatively lower, the gap in income between the rich and the rest continues to grow, and China’s economy is swinging sideways, putting the US capital markets in hibernation. In other words, winter has come.

Two events that used the conference as their backdrop are emblematic of the main issues pushing medical industry stocks down. The first was Shire Pharmaceutical’s announcement that it was finalizing its acquisition of Baxalta Incorporated, a smaller company with several important drugs that treat rare diseases. The other was the WWE-like throw-down between Anthem, Inc., the second largest healthcare insurer in the nation, and its pharmacy benefit manager PBM, Express Scripts Holding Co., over the amount of savings in prescription drug costs Anthem has demanded from its PBM. The two seemingly unrelated events are joined together in the perception driving both business decisions.

Shire Plc’s roughly $35 billion purchase of Baxalta including its debt reflects a reaction to a continued slow downward spiral in biotech markets. Baxalta is a leader in the hemophilia treatment sector that also and wants to push into oncology treatment development through a partnership with a small Danish company.

But the Shire deal is clearly based on a suspicious view of biotech’s near future, the same perspective that shadowed the JP Morgan meeting: Shire’s not buying Baxalta because it’s seeing growth in the hemophilia markets. It’s more likely Shire wants to lock onto a safe stream of revenue to tide it through the coming downturn.

But the Shire deal is clearly based on a suspicious view of biotech’s near future, the same perspective that shadowed the JP Morgan meeting: Shire’s not buying Baxalta because it’s seeing growth in the hemophilia markets. It’s more likely Shire wants to lock onto a safe stream of revenue to tide it through the coming downturn.

The big question remains, what should investors do? While the mood at the J.P. Morgan conference may have been subdued about the general state of the capital markets, companies all around the city were moving forward and making progress on their business plans for the upcoming year. It’s still early in the year, and we’re about to head into earnings season. With the Shire/Baxalta merger announced, and the Pfizer/Allergan merger still working its way to closure, other major M&A is expected as companies become emboldened by these mega transactions. As for China, the U.S. and other economies of the world should become less sensitive to the daily gyrations there as their own markets stabilize. If so, by the time the next J.P. Morgan conference rolls around, the pundits might be complaining about another boom in the biotech markets.

Source:  http://www.forbes.com/

Posted by:  The Wealthy Doctor

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JP Morgan Healthcare Conference Fails To Instill Confidence - overview

Summary: The gloom at the J.P. Morgan 34th annual healthcare conference in San Francisco last week is still thick in the air – and will likely to hover there for a while, as macro issues and falling investor confidence continue to cause problems for the U.S. pharmaceutical and biotech sector. Compare this to last year’s conference, after which the main debate was whether or not we were in a biotech bubble, with many pundits questioning asset valuations.

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