Biotech pilgrims are gathering today for the biggest industry frenzy of the year, the JP Morgan Healthcare Conference. This confab in San Francisco’s Union Square is the singular place each year where essentially all industry mover/shakers—and many wannabes—gather for a marathon week of investment scouting, dealmaking, publicity seeking, job-hunting, and schmoozing.
I’ve been going to this conference for at least seven or eight years (but who’s counting?) and look forward to meeting lots of interesting people and digging up all kinds of news every year. It’s the best time to meet industry players face-to-face, and hear about the latest trends at work, in an action-packed few days. Most everybody here is brimming with optimism—or least putting on their best game face—about how they’re going to make new drugs, devices, or diagnostics that will leap tall buildings with a single bound in the coming 12 months.
Some of these dreams will be fulfilled, but the odds aren’t good. Hope and hype are a couple essential ingredients in this business, and every year both are on display at this conference. Sometimes the wishful thinking can congeal into conventional wisdom. So with that, I thought I’d try to anticipate a few popular myths you can expect to hear circulated, in order to debunk them. Here goes:
1. “The biotech IPO market will pick up.” Every year this line gets repeated, and every year it’s nothing more than wishful thinking. All you need to know about IPOs is that Groupon raised more money in its initial offering last year than the entire class of 2011 biotech industry IPOs. Facebook is on the docket this year, and it will dominate the news. Many biotechs that went public last year were weak, and didn’t perform well for investors, which only serves to dampen enthusiasm. And most importantly, it’s always good to remember who will be spreading the positive word about the IPO market, and consider the sources. It’s the investment bankers, lawyers, and consultants who stand to put a lot of money in their pockets from fees every time one of these transactions occurs. Just because they want it to happen, doesn’t mean it will.
2. “Amgen will make a mondo acquisition.” The biotech industry’s biggest company was sitting on a massive stockpile of $17.6 billion in cash and investments at the end of September. Common sense says that Amgen has got to do something with the cash other than collect interest. Shareholders might like getting dividends or seeing share buybacks to lift the stock price, but this won’t excite anybody for long. The company is getting a new CEO, Robert Bradway, who might be interested in putting his own stamp on the company once he takes over in May from Kevin Sharer, who had a lackluster record in the acquisition department. And Amgen might be feeling the need to compete in the acquisition arms race, especially since Gilead Sciences (NASDAQ: GILD) scooped up Pharmasset for $11 billion.
It may sound logical, but this all feels like wishful thinking to me on the part of bankers with vested interests. Amgen will think long and hard before it attempts to do any monster acquisition, especially after seeing the organizational indigestion mega-mergers have caused in Big Pharmaland (see Pfizer/Wyeth, Merck/Schering-Plough, and Roche/Genentech). My hunch is that Amgen may buy a company in the $1 billion ballpark, but it will not pull the trigger on a really audacious mega-merger in 2012.
3. “The FDA is going to be more supportive of innovation.” I’m not sure how many people are really going to go out on a limb and take the FDA at its word that it wants to be more supportive of medical innovation. But a small group of high-powered VCs and industry advocates have pushed for this for a long time, and commissioner Margaret Hamburg has been making more noises about how the agency’s mission is to ensure the safety and efficacy of new drugs, while also helping stimulate biomedical innovation. Just like anything in politics, though, talk is cheap and the record is the only thing that matters. The FDA saw an uptick in new drug approvals in 2011, but that could just be because it saw much better applications for more innovative drugs than it had in past years. My bet is that the FDA approval rate drops again in 2012. “I always remind people, the easiest way to lose a civil service job at the FDA is to push the approval of something that is later found out to have a problem,” says Carl Weissman, the CEO of Accelerator, a biotech startup incubator in Seattle.
4. “The mood is upbeat.” Every year, JP Morgan attendees are always asking each other “how’s the mood?” among the other people they’ve been meeting at the conference. This always struck me as a silly question, because people are always in a good mood when they get to connect with friends. Even if they aren’t in a good mood, they’re going to do their best to project as much confidence as possible, because if you aren’t self-confident, why would anybody else believe in you? Plus, the whole question is moot, because whatever the mood is at JP Morgan in January, it will be long forgotten by February. As Daphne Zohar, the managing partner of Puretech Ventures in Boston puts it, “I think people are usually in a good mood that week because they’re happy to be in SF in the sun, talking about deals, schmoozing with their friends and colleagues, and going to 5-10 cocktail parties each night.”
5. “We’re raising another venture fund in 2012.” Yeah, you and everybody and their brother (and this being the healthcare venture business, most of the partners are dudes) are TRYING to raise a new fund. This is truly the year when most of the pre-downturn 2007 and 2008-vintage venture capital funds are going to run out of money. Everybody is making a stampede to their limited partners’ offices, begging for more money to keep betting on biotech startups. At least one-third to one-half of these funds will fail to raise more money in 2012, because they don’t have good enough returns to keep going. And as these firms slowly go out of business, you’re going to see some truly painful spin and reality-distortion coming from Sand Hill Road. What it means is we’re going to see fewer new startups founded with the right stuff to get them on stage at the JP Morgan conference in 2015, 2016, or 2017. And that’s the big question about the innovation ecosystem that everyone at this conference ought to be thinking about.
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