A Behind The Scenes Look At The 2015 J.P. Morgan Healthcare Conference
By Rob Wright, Chief Editor, Life Science Leader
Follow Me On Twitter @RfwrightLSL
Walking down the hallway of the Westin St. Francis Hotel at the 33rd Annual J.P. Morgan Healthcare Conference (JPM), I see former Organon Biosciences and Schering-Plough colleague, Warren Czerniak, approaching. We take a moment to briefly reflect on the “good ol’ days” of Organon. But Czerniak and I quickly delve into the key biopharmaceutical trends that bear watching today. And while you may think you can discern all there is to know about what is in store for the healthcare industry in 2015 by following the top tweets at the J.P. Morgan conference (hashtag #JPM15), Czerniak, president of Gedeon Richter USA, reminds me to pay attention to that which is not obvious. For example, one of the top 10 tweets, according to Forbes, states, “Chatting with the dealmakers today. Absolutely going to see some major #biotech deals ahead in 2015, coming from multiple sources. #JPM15.” While this insight seems analogous to crystal ball fortune telling, what is not obvious are the companies that will be doing the wheeling and dealing, and more importantly, why? You see, company presentations at JPM are well-scripted, rehearsed “dog and pony shows” involving executives working through Powerpoint slides and memorized talking points. From my perspective, if you want to gather the vital statistics on how a biopharmaceutical company’s leadership team really feels, the best place to do so is during the much-less-scripted JPM breakout sessions — assuming of course, you can get a seat.
Observation Is The Key To Getting Insight At JPM
For those who have never attended JPM, if you think you are going to be able to (A), sit through a presentation by the Gilead executive team held in the Grand Ballroom (seating capacity 1,100), and then (B), walk across the hall and get a seat for the post presentation breakout session in the Borgia Room (seating capacity 100), let me dispel you of that notion immediately. It is tough enough to accomplish this activity at JPM with companies not making big news splashes. However, when you consider Gilead’s unprecedented sales success this past year, combined with the lingering pricing controversy surrounding its breakthrough Hepatitis C drug, Sovaldi, odds are pretty good that deciding to attend the presentation first would have resulted in your being on the outside looking in when it came to attending the breakout. This is why at JPM 2015, I attended only a couple of presentations, deciding instead to focus my time on trying to get a front row seat for the breakouts.
Anticipating a packed house, I opted to sit through the CVS breakout session (expecting to be disinterested and probably catching up on my tweets) just so I could be in the room for the upcoming Gilead Q&A. However, sitting through the CVS session turned out to be beneficial for two reasons. First, I did get a front row seat, and second, I gained additional insight into the recently announced exclusive deal brokered between CVS and Gilead. That being said, for the Gilead breakout, even though I was in the front row, I still had people sitting on the floor in front of me. Luckily, I sat stage right, opposite of the entry doors. Those who thought they would have a good view on the opposite side of the room soon found themselves staring at the backs of folks standing in front of them, three to four deep, even spilling out into the hall. The center aisle was jammed with people standing three across all the way to the back of the room, reminding you of a being on a New York City subway during rush hour. To say Gilead is perceived as being a HOT STOCK would be an understatement. But how is leadership dealing with all the attention? Are they as confident and optimistic as their words say they are? Being up front I was better able to observe the less obvious, such as the temperament of senior leadership when faced with answering tough questions. What does their body language tell you?
For starters, John Milligan, Ph.D., president and COO, as well as his entire executive leadership team (ELT), opted to stand rather than sit to answer questions during the breakout session. To me, this demonstrated respect for everyone who came to the session, especially those craning their necks from the back of the room. It also demonstrated confidence in tackling tough questions, which, not surprisingly, started right away with a discussion of the pricing of Sovaldi. The drug, priced at $84,000 for a 12-week treatment, became the focus of public outrage in 2014, spearheaded by California congressman Henry Waxman (D). Milligan said the company has been actively engaged in negotiating contract pricing for the drug to increase access to patients. From my perspective, most telling was Milligan’s tone when describing a concept he referred to as, “Prior Authorization Fatigue.” According to Milligan, “They [doctors] are sick of the 45 days [slightly chuckling on words 45 days] it takes, constant calling, and hours on the phone in order to get prior authorization.” While his tone and body language suggest being very comfortable in discussing the controversial subject of drug pricing, in my opinion, I would characterize his slight chuckle during the words “45 days” as being nervous laughter. Though Gilead has been dealing with the pricing issue, which I applaud, it is still a sensitive subject.
Will Biosimilars Pop Biopharma’s Optimistic Balloon?
Another sensitive subject frequently discussed at JPM was biosimilars (almost every session I attended had questions regarding this topic). It is obvious biotechs are no more eager to face the potential patent cliff that biosimilar entry represents than their Big Pharma brethren dealt with on the small molecule side. In the Roche breakout session, when an audience member asked company CFO Alan Hippe a question concerning biosimilars, Hippe included in his response, “A biosimilar is what you call it. I call it a copy.”
But although biotechs may not be eager to embrace generic biosimilar competition, at least they seem to have a better plan in place for dealing with it when it does come (i.e., many branded companies developing processes to manufacture their own biosimilars that will compete with their own branded products).
Throughout JPM everyone was talking and tweeting about how optimistic they were about the growth of the industry thanks to all of the partnerships and financial investments. Four JPM breakout sessions I observed that were bursting at the seams with this feeling of optimism include Actavis, which recently bought Allergan for $66 billion, Valeant Pharmaceuticals, which lost out on its bid to buy Allergan, Biogen Idec, which has gained a commanding 38 percent global market share of the multiple sclerosis business, and Celgene, which has garnered the reputation of being one of biotech’s shrewdest dealmakers.
I found it interesting that both Pfizer and AstraZeneca cancelled their breakout sessions following their presentations. One has to wonder as to how this can be interpreted given that these two behemoths were involved in one of the biggest deals not to happen in 2014. Perhaps this once dead deal is not yet deceased?
I also couldn’t get near the breakout room of AbbVie, thanks to trying to catch insights from billionaire R.J. Kirk’s recent venture, Intrexon. While I regret missing AbbVie, it seems both Kirk and Lilly are zeroing in on the megatrend of global population growth. Drugs and technologies that lead to increased food production will have a tremendous societal impact, and hopefully, also be profitable for investors. For those who wonder why in pharma, “One man’s trash is another man’s treasure,” (e.g., Novartis dumping its animal health division to Lilly), keep in mind that the decision as to what trends these companies follow is driven by leadership, a point Czerniak stressed to me during our hallway conversation. Novartis, with recent deals between Google and Qualcomm, may be touting developing unique partnerships, but the real mission is being properly positioned for capitalizing on the megatrend of connectivity and convergence.
What’s In Your Biopharma Growth Portfolio?
Let me share one final encounter I had at this year’s JPM. I met a first-time attendee who said he was looking for growth companies. I asked him if J&J was on his list. He smiled and said, “No.” I asked why not. If you are trying to grow your money, J&J is one of the best healthcare mutual funds going with a solid dividend. During the four day conference of JPM, there are over 440 presentations conducted. This means that one person could theoretically attend a maximum of 58 (i.e., 16 on days 1, 2, and 3 and 10 on day 4) company presentations or breakout sessions. Thus, my sampling is based on observing less than 10 percent of the entire event. But having attended the breakouts of most of the hottest biotechs and biggest of big pharma, I can tell you that the breakouts of J&J, Sanofi, and Bristol-Meyers Squibb (BMS) were not as well attended as the aforementioned biotechs. While many might not see Big Pharmas as being “sexy,” I view many of them as being very safe and solid, but at the same time — innovative and even willing to buck some of the latest trends. For example, J&J is clearly pursuing the popular strategy of open innovation and communication. On the other hand, during the BMS breakout, company executives stated they would be taking a more conservative communication approach, choosing this year’s ASCO (American Society of Clinical Oncology) meeting as the preferred venue for disclosing their latest oncology developments. BMS walked away from consumer brands a long time ago. Yet Abbott sees consumer healthcare, especially in China, as a tremendous growth opportunity.
As 2015 unfolds for life science investors, it pays to keep in mind, for 2014, all of the top 10 Big Pharma companies had positive EPS, as did the top 10 publically traded health insurance companies. Of the top 10 publically traded biotechs, four had negative EPSs. In other words, if you are looking for growth, make sure you first decide the type of growth you are looking for, because the reality is that for many biotechs, that growth is still negative.