JPMorgan Healthcare Musings…

The New Year for life sciences investors does not begin on January 1. Instead, it commences on Monday of the following week in San Francisco, with the annual JPMorgan Healthcare Conference – or as old guys like me stubbornly continue to call it, the H&Q Conference.

It’s a four-day marathon of early-morning breakfasts, back-to-back meetings during business hours, and endless receptions/dinners/parties into the late-night hours. And it’s filled with traditions such as meeting colleagues “where the clock used to be” at the Westin St. Francis; fighting the crowds to belly up to the bar at the Clift Hotel (although I’ve got to admit that I’ve never been able to figure out exactly why); and catching up with old friends from throughout the life sciences and financial industries

Given the season, the circumstances, and some significant recent sleep deprivation, I found myself reflecting back on previous H&Q meetings. It occurred to me that while the life sciences VC world remains one of constant change and advancement, this “progress” often takes us full-circle or loops back on itself in unexpected ways. So with that as the overall theme, here are some musings from this year’s event…

Technology Redux
It sure seems that what was old is now new again in the wonderful world of drug development.

Proteins were hot in the early days of biotechnology, where recombinant versions of bioactive molecules such as insulin and human growth hormone simply replaced native proteins that were missing or diminished in diseased individuals. Then, despite successes such as erythropoietin and glucocerebrosidase, the pharma industry largely turned away from proteins and back toward small molecules that were easier to produce, more straightforward to optimize, and largely deliverable via convenient oral formulations. Today, however, with the rise of personalized medicine and true targeted therapies, protein-based drugs are back with a vengeance and can once again lay claim to being the hottest class of prospective drugs under development.

Similarly, monoclonal antibodies have gone from anticipated “magic bullets” in the early days… to extreme disappointments perhaps 15 years ago… to arguably the most versatile and lowest risk class of therapeutic proteins today. True, in the meantime the brainiacs in the lab figured out how to make these molecules fully human and to optimize their binding and other biochemical properties, thereby giving these drugs their chance to shine. But who could have predicted the prices that Big Pharma would pay in the last year or two for monoclonal-based companies? Or, maybe even more amazing, who’d have believed that a 27-year old company like Xoma would still be fighting the good fight as a standalone entity and still be working on developing antibody-based therapeutics? (Oh yeah, and still be selling around $3 a share.) Can the resurgence of the intellectually pleasing but largely commercially unsuccessful concept of immunoconjugates (perhaps with kinder, gentler payloads than previous toxins and radioisotopes) be far behind?

In the same type of ebb and flow, in the late ‘80s and early ‘90s, antisense-based drugs were supposed to open up a whole new era of translation targeted therapeutics. These molecules never lived up to their early promise, and were supplanted in the development pipeline by ribozymes (whatever happened to them?) and then by today’s darlings, interfering RNA. And with just about everybody except Isis Pharmaceuticals having written off antisense as drugs, just after the new year CEO Stan Crooke goes and pulls off one of the biggest single-product deals of all time for its Phase III cholesterol candidate. Even more surprisingly, it turns out to be Genzyme – long known for having deep pockets but relatively short arms – that stepped up to pay something between $325MM and a mind-boggling $1.9 billion depending on how the BioBucks end up panning out.
 
Ask the Audience
It used to be that big crowds at H&Q equated to bullish sentiment for the sector, while smaller crowds portended a tough year ahead – kind of like the groundhog seeing its shadow in early February. This year, however, the crowds were intense, yet the sentiment definitely seemed dominated by doubt and apprehension. Lots of companies are filing to go public, but how many will actually make it out into the public markets (and at what price!) remains an open issue.

Speaking of the investor side of the business, has anybody else noticed certain parallels between the woes of the investment banks and those of Big Pharma? Waiting for the next shoe to drop in the sub-prime debacle is only a little more imminent than the upcoming patent expirations that threaten to cripple the growth of the pharmaceutical industry. And, while Elliott Spitzer was shaking the public’s trust in the banking industry by publicly blowing the cover off the inherent conflicts between the buy and sell sides, Big Pharma was more quietly shooting itself in the communal foot by going from one of the most trusted industries in the world to one of the least. Also in parallel have been recent high-profile CEO departures in both fields, as well as significant layoffs from among the rank and file.

However things end up unfolding in 2008, including a little election that I understand is scheduled for early of November, it is definitely going to be a year characterized by the old but decidedly non-Chinese saying, “May you live in interesting times.” I can barely wait until next year’s H&Q to find out how things have played out.