Calendars list January 1 as New Year’s Day, but for the biotechnology industry, it is JPMorgan’s Annual Healthcare Conference in San Francisco that marks the start of the year.

 

This annual gathering, which kicks off January 7 and features presentations from more than 300 public and private companies, has grown into a four-day schmooze fest for the industry. Much of the action takes place outside the meeting rooms and overcrowded hallways of the Westin St. Francis hotel, which hosts the affair, and instead happens in the surrounding hotels, restaurants, investment banks, law offices, and public relations firms.

 

“It’s turned into this quite phenomenal networking event that transcends a traditional investment banking meeting, which is a good thing for us,” said Tom Dietz, co-CEO of the San Francisco-based investment bank Pacific Growth Equities, which has 200 meetings scheduled at its offices during the conference week. “We take full advantage of that.”

 

Traditionally, the industry has looked to the meeting to gauge investor sentiment on the outlook for the new year, and investor’s appetite for deals, particular IPOs as many companies on the runway get set to embark on roadshows following the conference. This year’s conference, the 26th, follows a solid year of fundraising. Through a combination of financing and partnering deals, biotechnology companies raised $44.3 billion, according to Burrill & Company (a TJOLS part owner), slightly less than the $47.1 billion raised in 2006. Of that, a total of $2 billion came through 28 IPOs, more than double the $920 million raised in 19 deals in 2006. The average IPO size grew to $73 million in 2007, compared to an average size of $50 million the previous year.

 

But as investors ready to hear what executives have to say, they will worry about the increasing scrutiny of new products by the U.S. Food and Drug Administration, the fewest number of new drug approvals in nearly a decade, and an election year that will likely put healthcare reform center stage.

 

“The JPMorgan meeting is the upside kick-off to the year. There’s lots of enthusiasm and lots of anticipated good things, and no data to say if it’s good or bad,” said Ralph Christoffersen, a partner with Morgenthaler Ventures.  “It’s usually a pretty optimistic conference and I don’t think this will be any different. The mitigating factors are the general market conditions, which are rocky with the debt crisis and job reports dampening enthusiasm for IPOs.”

Though bankers have longed looked to the conference as a place to get a read on the market’s willingness to welcome IPOs, many believe the street will continue to be comes to putting values on companies, particularly as FDA scrutiny slows the pace of new drug approvals.

FDA Dampens Valuations

“There’s this real concern that everyone is held to a standard that doesn’t seem practical across the board,” said Pacific Growth Equities Dietz, who does expect to see more money flow into the sector in 2008 than last year. “The number of approvable letters and delays at the agency are significantly greater than they have ever been. That means people have to wait longer to get this upside to their investment and it is putting a bit of pressure on the entire sector if you are later stage.”

 

M&A activity, though, is expected to continue to offer an alternative to the IPO market. High in demand will be companies with robust technologies for generating new drug candidates, or companies that have unique late-stage products, as maturing biotechs and pharmaceutical companies seek to fill gaps in their pipelines and fuel growth. In addition, the weak dollar is expected to make Japanese and European buyers more aggressive in paying for companies or making partnering deals. In a 2008 outlook from JPMorgan, analyst Geoffrey Meacham said the firm expects the M&A trends to continue with “increasingly hefty premiums” being paid.

 

“Recent foreign exchange trends may position European pharma companies as buyers of U.S. biotech given the weak dollar,” Meacham wrote. “Large cap biotech companies could also be buyers in 2008, with Amgen and Genzyme likely to execute transactions to offset expected growth slowdowns and to diversify risk.”