Report From JPMorgan's HealthCare Conference: The Spinal Business Is Hot

Here are day one reports filed by our intrepid observers at the JPMorgan HealthCare Conference, currently underway in San Francisco. (If there seems to be some duplication, it is because both observers covered the company.)

XDx, a private company, made a compelling presentation, showing great potential. The company uses gene expression to monitor immune and inflammatory status. It has a test for cardiac transplant rejection, and is developing one for lung transplant rejection and another for SLE (lupus). This is the right way to apply gene expression. It is a well-run company with solid science. It seems to have more potential than its competitor Genomic Health (GHDX).

The Amylin (AMLN) presentation was reportedly packed and the enthusiasm level was very high, although I did not attend. There were positive reports about Byetta.

The same was true for Genentech (DNA). They had a very full house in the largest room at the conference. In fact, it was overflowing. The company gives every indication of being a solid performer for years to come.

Celgene (CELG) also made a strong presentation. Although they toned down their earnings estimate for 2007, they have tremendous potential and will grow strongly in the future. Their strategy is very expansive. They have a strong management team and $2 billion in cash on hand, which should take them somewhere.

Celgene is down today on "missed" numbers, probably representing a long-term buying opportunity. These misses are to be expected. Analysts always get too enthusiastic at first and also companies experience glitches ramping up sales. Celgene says Revlimid was the most successful hematological launch ever, going from zero to over $300 million in a disease group that is not really all that common and for a drug that is not priced like Imclone’s (IMCL) or Genentech’s (DNA) monoclonals.

The reports on Gilead (GILD) were also positive. Some concerns remain about the Myogen (MYOG) acquisition, but overall I think it remains a solid performer.

Allergan (AGN) is also an up and coming company. Their focus on aesthetics (botox, breast implants and dermal fillers) may not be everyone's idea of health care, but it will result in very strong sales and a very profitable company. Allergan also has a solid eye care business.

Reports were that the Amgen (AMGN) presentation was pretty flat, which seems to have been usually true at JPMorgan, if memory serves. In some years, people were very down on Amgen. And Amgen never has the excitement that Genentech or other companies have. But Amgen always delivers and they have a franchise that is second to none. Even though Embrel is going off patent soon, there is no path to make a biosimilar right now and so the product is likely to keep going as if nothing happened.

The other presentations were not particularly very exciting. The wow factor is still lacking. Companies are delivering solid sales, and they are focused on product. The industry is maturing, but the wow factor is no longer there.

Overall meeting attendance is high, still on the rebound from the post-2000 drop, but still not as packed as it used to be during the genomics boom of the late 90s (or as enthusiastic as it used to be back then). Many more public and established companies now, as opposed to startups and privates. It is interesting how genomics high flyers that survived are now in small rooms and barely attract any attention at all. Affymetrix (AFFX) went from the big room to a small room upstairs. Celera (CRA) and Exelixis (EXEL) ditto. Only Millenium (MLNM) kept some status (speaking in terms of room size), but Velcade is a distant second to Revlimid. Millenium is still not profitable (although they make a big deal about being non-GAAP profitable), and they are essentially depending on Velcade to drive it forward.

Medtronic (MDT) – While technically a device company, not a biotech, they are very impressive. Their pacemaker business is stable (growing at 4%) but their spine business, considered by many to be the hot area for the next decade, is growing at 16%.

Gilead (GILD) – Boring presentation, exciting company. They own the HIV franchise and appear to be positioned to continue to dominate with Atripla, and they are also very strong in Hepatitis.

Spine Wave – A private device company, but spine is hot. They position themselves as a Kyphon killer, and they appear to have a superior mouse trap. But they don’t have Kyphon’s killer sales force, so I wouldn’t bank on them. Big VCs behind them, though, including NEA, Morgenthaler (IPO in their future?), Foundation, Canaan, NLV, etc.

Kyphon – This is sounding like a spine report, but so be it. With two recent acquisitions under their belt, they may be pre-occupied for a bit, but this is an extremely well-run, aggressive company and they are definitely a winner.

Flow Cardio – OK, this IS a device report. Flow Cardio has a great device for getting through total occlusions. They have very impressive results, but there are many dead bodies along this path. This could be THE winner, though.

Genentech (DNA) – THE # 1 biotech, in my book, although I may be biased (see Disclosure). But the numbers back up my sentiments – they have incredible top line and bottom line growth, an amazing pipeline, and they exceeded all of their stretch goals for 2006, including 8 new NMEs (vs. 3 targeted). Have 30 NMEs in late state research and 17 in early stage development. Lucentis is putting all doubts to bed, beating projections and expected to be a major growth engine in 2007. And, yes Virginia, it IS a different formulation from Avastin.

Celgene (CELG) – the last presentation of the day, but not the least, by any means. They have an incredible franchise in their IMiD® platform, based on thalidomide. It may seem like an unlikely business plan, but it works.

Disclosure: Centient management holds a position in Genentech shares and does consulting work for Genentech.