Hambrecht & Quist:1998

This conference was, as always, one of the most important and provocative events of the biomedical year


The luncheon speaker at the 1998 Hambrecht & Ouist Healtheare Conference in San Francisco was former Senator and now academic, television pundit and putative presidential contender, Bill Bradley. Concluding his enthralling presentation about the vagaries of life and history and finding one's way, Senator Bradley told a tale of an old friend who was flying herself home to be with her family in Billings, Montana one night an electrical problem in her small private plane caused her instrumentation to fail when she was deprived of her cockpit lights and direction indicators. She looked below and saw the Yellowstone River glistening in the moonlight. Driven to survive in the vast darkness and see her home again she resolved to follow that Yellowstone River until she reached Billings.

Parallels can be drawn with the H&O conference about the direction of the market sector on which it focusses, comprising biotechnology, pharmaceutical technology, advanced biomedical devices and instrumentation and healthcare services and information issuers.

This year's conference, generally regarded as the granddaddy of all the annual investment house healthcare conferences, was the best attended ever. Almost 200 companies, public and private, presented to some three thousand institutional and venture investors, analysts, and the customary smattering of consultants, reporters and other friends of the industry. Logistics capabilities were pushed to their limits.

And yet the entire sector is still languishing with low valuations in an otherwise effervescent stock market. It appears that traditional investors are very busy looking and analyzing, but not many are buying. Underneath the bristling veneer of interest by funds flush with cash is an undercurrent of caution.

Some might say it is about time. while some success stories have been written over the last five years (veteran Genzyme keeps marching forward), the crashing disappointments that had led to sector implosions have occurred on such a regular basis since Centocor's Centoxin failure in 1992 that investors appear to have finally become numbed to the glitzy stories of scientific promise and revolutionary breakthroughs represented by simplistic cartoons of cellular mechanisms on the Grand Ballroom screen. (Please explain signal transduction one more time and slowly.) Companies focused on protein therapeutics now are but a handful and attract waning interest. Where was this year's new academic fresh from the lab energized with risk capital and armed, finally, with the immune system's real secret weapon against cancer and AIDS? Gone were the stories that antisense oligoneucleotides will soon change the dynamics of disease. This year's Gilead presentation instead focused rather on real antiviral therapeutics in the market and in clinical development and licensed in from a Czechoslovakian research institute.

This year the unstated theme seemed to be the pursuit of reality, more data and considerably less risk. And while the industry has had its ups and downs, if the perception that the low-hanging fruit (like EPO, the CSF's, clotbusters and, of course Interferon) has already been plucked, the harvest season may be over for this era of technology. Or, at a minimum, those things up there on the top of the tree will have to be brought a lot closer to earth.

Instead, the appeal of investors has now turned to the technology platform companies with tools like genomics, gene sequencing, gene chips, and combinatorial chemistry synthesis; companies like Aurora, Millenium, Incyte, HGS and Affymetrix, with Orchid biocomputer a gleam in many a financier's eye. These companies have attracted attention and interest less from their own proprietary products than the deals they have concluded with the larger pharmaceutical industry experiencing ever greater pressure to fill their NCE pipelines. Significantly, in greater attendance at H&Q this year were the representatives of large pharma. And the conference's first luncheon speaker, Jan Leschly, CEO of SmithKline Beecham, expressed his confidence in the allure of these technologies by interspersing his company's high investment in the area with SmithKline's success otherwise in its core businesses and market capitalization enhancement

To the cynics among us, this interest by institutional investors may evince less certainty in the viability of these technologies than the persistence of the syndrome that an investor can get excited by a technology story and indulge himself in it when the proof of the pudding is far enough out so he need not fear come-uppance during the life of his career.

But perhaps the most important unheralded refrain at this years conference, putting aside bits and islands of potentially significant trends such as the appearance of advanced materials companies and the participants in the physical sciences such as Perkin Elmer, is the successful return of what had become regarded as functional failure, monoclonal antibody therapeutics. Centocor, the bad boy of 1992, reported the market success and promise for its ReoPro, marketed by Lilly, and positive results for Avakine for Crohn's disease. Others, as well, most notably Medarex and Genentech/IDEC with approval of Rituxan for B cell lymphoma, signaled that this long disparaged area, now that the unrealistic expectations and hype have been purged from the market, may in fact bear fruit the second time around. As well, another old, pedestrian protein or two began to stir and show signs of life in the nearly empty back meeting rooms of the St. Francis.

So returning to the Yellowstone River, in the darkness that is this industry sector this year, investors were looking for direction, and many may feel they can reach Billings by following the river. If they follow it the wrong way, however, they will end up in a lonely stretch of North Dakota and out of gas. And, the current that will reveal which way the river is heading may well this time be under the surface.

Jan Andrew Buck is President of Princeton Group International,Inc., a consulting firm specializing in healthcare related technologies.

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