Over 6,000 people piled into the Westin St. Francis Hotel in San Francisco for J.P. Morgan’s (JPM) “28th Annual Healthcare Conference.” Investors, company presenters, and entrepreneurs were emboldened by good biotech sector returns in 2009 of 18–28% with many stocks reaching new highs. Seasonality has been a factor with the so-called “January effect,” where small-cap stocks tend to spike for a number of reasons, this conference paramount among them. For example, the IBB ETF is up about 6% from November levels.
Among the big movers on Monday were Amag Pharmaceuticals up 7.9%, Array BioPharma up 8.5%, BioCryst up 4%, Helicos BioSciences up 4.6%, Idenix Pharmaceuticals up 9.2%, Micromet up 11%, NovaVax up 14%, Quidel up 4.5%, and SeraCare up 6.7%.
Although financing opportunities are still limited due to a closed IPO window, there is renewed optimism due to explosive scientific developments in molecular biology, immunology, and genomics and how these will result in more targeted drugs and diagnostics. Here are some broad themes and market trends gleaned from company presentations:
1. There is a shift from small molecule drug development to biologicals and vaccines, exemplified by Pfizer’s recent deals.
2. "Bolt-on" acquisitions of smaller companies are being done to bolster product portfolios and positions in emerging market, for example, GlaxoSmithKline has inked a number of agreements in India and China.
3. There is increasing synergy between diagnostics and pharmaceuticals, like is the case with Roche’s new drug development activities.
4. A migration of diagnostics out of the lab and into the home will occur for chronic diseases such as obesity and diabetes, as seen from Inverness’ focus.
5. Pure-play personalized medicine companies are targeting cancer treatments through genomics, for example, Genomic Health.
6. There continues to be an increasing number of partnerships between pharma and biotech.
7. Pharmacogenomics also continues to gain traction.
8. On the healthcare reform scene a luncheon presenter Thomas Scully, an ex-administrator of the Centers for Medicare and Medicaid Services, said the reform will trigger an expansion of insurance benefits that will be positive for the industry in the short term due to increased demand but will create federal budget problems in the long term from around 2013.
Following are some brief notes from important companies presenting at JPM.
• Genzyme had a difficult year with serious manufacturing problems in its Allston, MA, facility caused by viral contamination in one of its bioreactors. To correct the situation the firm reports hiring a new GM for the Allston plant and strengthening its regulatory and compliance staff. Cerazyme (for Gaucher disease) manufacturing was restarted in November 2009, and Fabrazyme production (for Fabry disease) is expected to begin this week. Additionally, new capacity will be brought on from 20 kL in 2009 to 32 kL in 2011.
Fourth quarter revenues slipped to $1.04 billion due to the plant shutdown but were helped by the osteoarthritis knee pain drug Synvise-One and the oncology drug Mozobil, both of which were launched last year. Henri Termeer, chairman and CEO, said he is confident that "Genzyme will emerge as a stronger company.” Revenues are in the $4.5 billion range, with a CAGR of 19%.
• Gilead is involved in developing treatments for HIV and AIDS. Revenues in 2009 were $4.7 billion, up 26% from 2008. The company expects that HIV testing will be mandated or encouraged this year, resulting in 5 million more tests in the U.S. and creating increased drug demand.
The company also sells the leading antiviral, Tamiflu, with partner Roche. The drug had sales of $2.7 billion last year, and royalties to Gilead reached $195 million. Viread is another major drug for Gilead. It is a reverse transcriptase and polymerase inhibitor and was approved in Europe in 2008 for chronic HBV infection.
The firm’s pipeline includes Quad integrase fixed-dose regimen for HIV/AIDS in a Phase II trial, GS9450 caspase inhibitor for HCV in Phase II, Aztreonam inhalation for cystic fibrosis with pending market applications, other Phase II products for HCV, cystic fibrosis, and pulmonary arterial hypertension, as well as several compounds in preclinical and Phase I stages.
• Dendreon is gearing up to launch Provenge, an active cellular immunotherapy for asymptomatic, metastatic, and androgen-independent prostate cancer. Commercialization is expected by year-end, with full capacity expected to be reached by mid-2011 to support sales in excess of $500 million. Three cell-processing centers will be set up as well. A partner for Europe may be sought, according to Dendreon. The firm expects to have 125 domestic sales reps covering 3,000 urologists and 5,000 oncologists.
The company has a cash position of about $600 million. In the pipeline are products for bladder cancer and renal cell carcinoma as well as other cancer types. This new class of therapy uses the power of a patient's own live cells, by isolating and activating antigen-presenting cells in an autologous therapy administered three times a month.
• Illumina appears to have weathered the brief slowdown in purchases of genetic-analysis systems, with a preliminary financial report that states fourth quarter revenues of $176 million, above Wall Street estimates. 2010 guidance estimates revenues of $800 million and earnings close to $1 per share.
The stock took a big hit last quarter and went down to the $26 per share range after Illumina issued a warning on October 28, 2009, about weak third quarter sales. Shares are now trading at between $39 and $40.The company recently received an order for 128 HiSeq 2000 sequencing systems from the Beijing Genomics Institute, some of which will be installed in their genome center in Hong Kong this quarter. This new system will have a price tag near $700,000 and can reportedly sequence an entire human genome for about $10,000. The HiSeq 2000 can generate 200 gb of data per run with new standards to improve ease-of-use and cost-effectiveness.
• The merger of Invitrogen with Applied Biosystems has created one of the largest biotech tool providers, with revenues of over $3 billion. The combined entity, called Life Technologies, covers molecular, genetic, and cellular markets. Over $1 billion of sales revenue comes from eCommerce, and 50% of its revenues come from NIH and other government life science research funding. The company has a patent estate valued at $100 million, and efforts are under way to leverage that technology through licensing and partnerships. The firm expects to pursue synthetic biology, animal health, food testing, and molecular diagnostics. The vision is to apply single-molecule sequencing as a basis for medical treatment. Recently, the company signed a definitive agreement to acquire AcroMetrix, a provider of molecular and serological QC products. AcroMetrix is a strong fit with the current high-growth $300 million molecular diagnostic product line.