2012 J.P. Morgan Healthcare Conference (www.jpmorgan.com) Highlights


This year, J. P. Morgan conference in San Francisco (where attendees strictly attend by invitation only), once again brought together industry leaders, financial sponsors and investors to explore emerging trends in biotech, pharmaceutical, and medical device sector.  About 9,000 attendees are expected to have attended the conference and will be now making investment decisions based on what they heard, since the conference serves as a barometer for what to expect in the coming year.  The tone at the conference, if not exuberant, did seem more optimistic.  I attended big pharma companies’ presentations because it seemed their strategy in moving forward might indicate the cascading effect downwards. Certain trends were clearly evident.  Although vast majority of the money was raised by public companies, fundraising in 2011 grew to $23.4 B from $19.3 B in 2010 and is expected to grow further this year.  Economy is in a phase of recovery and majority of big pharma companies have cash to invest in promising deals.  And yet the challenges also remain.  Most of them are at risk from patent expiration and it demands a change in focus and strategy.  Many companies are shifting from blockbuster drug markets for large segments of populations to small, more targeted patient populations.  Although, personalized medicine is a big buzz word, there are few promising advances, notwithstanding the recent Zelboraf launch success story.  Almost all companies are focusing on the emerging markets.  While emerging markets are rapidly growing, developed markets will be declining.  In accordance with this change, some large pharma companies are focusing on sales and marketing in the emerging markets and relying on in-licensing and acquisitions to drive innovation.  Also, cost concerns and the ever increasing need for more affordable healthcare will drive innovation.  Much remains uncertain.  And yet the picture is far from bleak.  Big pharma companies have good cash reserves, are streamlining and realigning business strategy, and there is a promising pipeline of drugs.

Jamie Dimon, CEO, JPM talked with Maria Bartiromo, CNBC – Market has bottomed out and is on the path of mild recovery

Jamie Dimon, Chairman of the Board and CEO of JP Morgan talked with Maria Bartiromo of CNBC, in a luncheon fireside chat.  Dimon observed that we were in a period of “mild recovery”.  Acknowledging the looming uncertainty due to the crisis in Europe, Dimon observed that he would not mind losing $5B inEuropeas long as JPM continues to operate there for the next 100 years.  Dimon also stressed that the corporations are in outstanding financial shape, they have a lot of capital, early indicators of the housing market looked good, and in next 10 years, 30 million Americans will need 15 million new homes, and as long as job situation continues the period of recovery, we will see a slow rise in consumer spending.  Dimon also cautioned against too much regulation and stressed the need to fix immigration, taxation, and solve energy problems without Government interventions.  “Government should not do Solyndra, just get out of the way”, said Dimon.

Baxter – expanding into new geographies

Baxter has extensive global footprint with 60% of sales from outside the US and is expanding portfolio into new geographies.  Baxter enjoys market leading position and 70% of the revenues come from market leading products.  Baxter made 3 acquisitions and 2 collaborations in 2011.  There is significant increase in R&D spending.  It’s Hemophilia A is first and only full length, protein-free recombinant protein.  Baxter is also advancing development of first recombinant therapy for von Willebrand Disease (vWD).  In 2011, Baxter launched GAMMAGARD LIQUID subQ, that allows patients to self-administer their therapy at home and would be a game changer in immunoglobulin therapy.  Baxter is evaluating it for treatment for Alzheimer’s.  Baxter also recently launched TachoSil for use as an adjunct to hemostasis in cardiovascular surgery and has received approval for ARTISS for use in facial surgery.  With recent acquisition of Synovis, Baxter is hoping to expand into soft tissue repair in variety of surgical procedures.  Baxter is also collaborating with DEKA research on next generation Home Hemodyalysis Machine and expected launch time frame in Europe is 2013 and in the US in 2014.  Various other acquisitions and collaborations are planned with Nektar, Prism, Takeda, Baxa, Flamel, Kamada and so on.  Since 2006, Baxter has doubled dividend rate and total money returned to shareholders is $2.3B in 2011.

                                       

Merck – CEO, Ken Frazier – Remains solid with strong late stage pipeline

Merck, CEO, Ken Frazier said Merck has a strong late stage pipeline with 19 programs in Phase 3.  There are 8 anticipated NME filings in 2012-2013 including Odanacatib for treatment for osteoporosis, suvorexant for insomnia, and Tredaptive for treatment of dyslipidaemia.  Merck has increased sales force inChinaby 60% and it’s top 7 markets are growing 14% in emerging markets.  Merck returned over $12.5 B to shareholders and anticipates strong shareholder returns, looking ahead.

GSK – Simon Dingemans – Where is it headed?

GSK is developing a broader platform of growth drivers and has a strong, diverse, and broad pipeline, driving returns, with 38% of business outside ofEuropeand US, said Dingemans.  However, he did not share numbers, nor did he share any wowing data on new drugs in the pipeline.  But GSK’s strategy to focus strongly on the emerging markets should prove promising.

Eli Lily – John Lechleiter, CEO – Fostering a culture of innovation

Eli Lily’s total revenues in 2011 were around $22 B.  Sharing the report card, Lechleiter cited information about recent activity of late stage drugs in the pipeline.  Lily launched Cymbalta for treatment of chronic musculoskeletal pain and launched Axiron for testosterone replacement therapy.  Lily obtained regulatory approval in Europe for Bydureon for diabetic therapy and Cialis in the US and has completed phase 3 Duration 6 trial for diabetes therapy.  Like other big pharma, Lily is also dealing with patent expiration challenges.  Lily’s most profitable drug, Zyprexa which accounted for 24% of Lily’s total revenues in 2010,  lost its patent protection in 2011.  But despite Zyprexa decline due to patent expiration, Lily shows good revenue growth on account of growing sales of Cymbalta and Cialis and by focusing on markets outside the US.  Lily is 2nd fastest growing company in Japan.  Lily repatriates about $5B each year, to shareholders and is committed to innovation, and focus on biosimilars.  Lily’s late stage pipeline includes 12 NMEs in phase 3 portfolio with complementary mix of small and large molecules, that inclue Solanezumab for Alzheimer’s, Ramucirumab for breast cancer, anti IL-17 for autoimmune disease, and Evacetrapib for reduction of HDL-C and increase of LDL-C.  Lily is fostering a culture of innovation and has a rich pipeline and would make a great stock pick, in my opinion.  Also check out openinnovation.lily.com/dd.

Bayer – Chairman, Jorg Reinhardt – Trying to offset negative effects of patent expiration with rich pipeline and emerging market growth

Bayer has late stage assets going as planned or better, said Reinhardt and now the focus is on building early and mid stage pipeline.  Bayer is also dealing with challenges of patent expiration and resultant generic competition.  Bayer is focusing on emerging markets and is expecting double digit sales growth in emerging markets.  Bayer expects to launch 4 potential blockbusters this year that include Xarelto for cardiology issues, Nexavar in collaboration with Onyx for hepatocellular carcinoma, and VEGF Trap-eye for treatment of wet AMD.  Bayer is also optimistic regarding Alpharadin for metastatic castration resistant prostate cancer and Regorafenib for metastatic colorectal cancer.  Bayer expects to offset negative effects of patent expiration with this rich pipeline and with expansion of its production and distribution network and research activities inAsiaand increase its sales activities in this region.

Bristol-Myers Squibb – Continues to drive advances in treatment for Hepatitis C

BMS’s recent acquisition of Inhibitex for $2.5B to target treatment for Hepatitis C, has been the big news and clearly BMS is very optimistic about that.  BMS also expects a strong position going forward on account of its 2011 approval of Yervoy for late stage melanoma and Eliquis for Afib.  BMS has a diversified portfolio that includes currently marketed products including its blockbuster Abilify for psychiatric depression.  BMS is optimistic about Elofuzumab for multiple melanoma and has other interesting drugs in the pipeline.  BMS focuses strongly on R&D, with 27,000 people focusing solely on innovation.  BMS has $10 B in cash reserves and has $2.5 B planned productivity initiatives and expects a good year, going forward.

Sanofi – Chris Viehbacher, CEO – Uncertainty and changes in the near term future

Sanofi was hit hard by patent expiration in 2012 and going forward, has a goal to transform the company so it does not happen again, said Viehbacher.  Sanofi plans to invest in growth pipeline and not focus too much of business around small molecules.  The company has identified businesses like vaccines, consumer business etc. to go through transition that will dramatically shift the nature of the business.  Sanofi filed 5 new products in 2011 that include Lemtrada, Aubagio, Visamarin, Zaltap, and Lyxumia and expects to file 6 more in next nine months.  I would conclude, while the future remains somewhat uncertain, the transition strategy might prove to be a good one, in the long run, for Sanofi.

Abbott – Thomas Freyman, EVP & CFO – Much is expected from acquisition of Inhibitex

Abbott Labs recently split into two distinct publicly traded companies, separating its branded drug business from more diversified medical products business.  Rick Gonzales is at the helm of the research based pharma side, with revenues of $18 B by 2011 estimates and which is counting heavily on it’s flagship product, anti-inflammatory drug, Humira to drive growth.  Other drugs in the pipeline are Bardoxolone for treatment of chronic kidney disease, Daclizumab for MS and interferon free combination program targeting Hepatitis C.  Abbott expects some of the pipeline drugs to deliver yearly sales over $1B.  Abbott’s diversified clinical product side has a well balanced portfolio and emerging market sales will approach 50% of sales by 2015.

Amgen – Bob Riley, CEO – 2011 was a solid year

Amgen doubled revenue growth in 2011, expanded and advanced pipeline, got great performance from Xgeva and Prolia with $500M in revenue, and overall 2011 was a solid year, says Riley.   Also Neulasta grew $5B worldwide, Enbrel is demonstrating market leadership and company’s original blockbuster drug Epogen for treatment of anemia often resulting from cancer and kidney disease, continues to provide stability.  Amgen has equally promising pipeline, with Sensipar for treatment of chronic kidney disease showing great promise, and T-VEC for melanoma patients looks promising.  Even bigger and promising news story is Amgen’s partnership with Watson Pharmaceuticals to focus on biosimilar molecules in Oncology.  Watson is expected to contribute up to $400 M in co-development costs for oncology products enabling Amgen to continue to aggressively return capital to shareholders.

Medtronic – Omar Ishrak, CEO – Focus on customer economics in emerging markets will drive reverse innovation

Continued demands for higher standards of care, wordwide, points to some areas for improvement, said Omar Ishrak, the new CEO of  Medtronic.  Areas for improvement include, the need to address lack of R&D productivity, misaligned global organization, and business model that needs to evolve to address changing market conditions.  Ishrak shared the three key imperatives for the company, necessity to improve execution, optimize innovation, and accelerate globalization in order to create a business that can move quickly and is agile.  In order to improve execution, the company needs to focus on goals, achieve efficient business alignment, and improve operating rigor for follow up and decision making.  The company plans to optimize innovation by emphasizing value proposition, focus on products and offerings that address customer economics, and improve its R&D, and optimize the capability.  Ishrak said, “this is not about going and getting the engineers to work harder, nor is it about improving our technical capability”, but is about “what we work on and how we work on it”, emphasizing the importance of processes aligned with the overarching goals.   Accelerated pace of globalization will be achieved through changing the focus from macro economics to focusing on financial health of the customers.  The company aims to develop products that improve standard of care in the hospitals and improve workflow in the hospitals.  “Customer economics is something that is going to be a screen for all of our new products”, added Ishrak.  Significant source of future growth will be from emerging markets.  Medtronic anticipates the current 10% of revenue from emerging markets to grow to 20% in the next few years.  The premium segment, representing about 10% of emerging market population is the company’s current focus and represents $5 B opportunity, primarily in India and China.  The value segment is the long time opportunity and will address 75% of the population in emerging markets and will eventually drive “reverse innovation” into developed markets and will begin to disrupt developed markets.

Covidien – Driving growth by reducing manufacturing footprint and expanding shared services

There has been a shift in customer dynamics from volume driven business to venue driven business, necessitating cost effective products, launched on time.  Covidien’s growth is attributable to new products coming from both legacy business and from acquisitions.  Covidien plans to launch more than 100 products in the next 2 years and expects to continue with single digit top line growth and double digit bottom line growth with emerging markets driving the growth, by reducing manufacturing footprint, and expanding shared services.

Gilead – John Martin, CEO — Targeting Hepatitis C with high valuation Pharmasset acquisition

Gilead recently received approval for Complera for HIV therapy and is launched in US,Canada, andEurope.  After Truvada, Complera is the second single table regimen thatGileadhas introduced and they both lead to reduction in transmission of the disease, benefiting also the society, along with the patient. Gileadalso continues to focus on treatment options for Hepatitis B and Hepatitis C.  Global prevalence of Hep C is 5X that of HIV and estimated to be 160 Million and many patients discontinue treatment due to low tolerability and high toxicity of current interferon based self-administered injections. Gilead’s recent acquisition of Pharmasset at the highest valuation on record is greatly expected to accelerate better treatment options for Hep C. Gileadhas also expanded efforts in oncology and has other promising drugs in the pipeline.

Life Technologies – Greg Lucier, CEO — Poised to become a game changer in genetic medicine with acquisition of Rothberg’s Ion Torrent

Life Technologies enjoys a strong market position, with a recurring revenue stream of 80%, and strong operating cash flow of $700 M annually and growing, said Greg Lucier, CEO.  The company is widely diversified, with over 50,000 products and 75,000 customers with no products or customers accounting for more than 5% of revenues.  The company is global with big commercial footprint that includes 1500 scientists, 4000 patents, 2000 field sales employees, and $1B in eCommerce in 160 countries. Life Technologies is the most scientifically sited company, with large and broad and deep patent portfolio.  Since merging with Applied Biosystems, over last 3 years, 50% of cash has been reverted back to the investors.  The big story focuses on its recent acquisition with Ion Torrent, which is expected to fuel growth and more likely will become a game changer in the genetic medicine.

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