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3 Lessons From the J.P. Morgan Health-Care Confab

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Anyone else watch more than their fair share of webcasts over the past four days during the J.P. Morgan Healthcare Conference? The annual conference gives investors a chance to get updates about company's progress during the fourth quarter and plans for the new year.

After looking at surely hundreds of slides, here are three somewhat random thoughts about investing in biotech as we head into 2012.

Some biotechs never die
Investment lesson: Drug development is a slow process but can be worth it.

This was the 30th J.P. Morgan Healthcare Conference; back then it was called the Hambrecht & Quist conference before JPMorgan Chase bought the firm. Of the biotechs that presented at the very first conference, some have been acquired -- Genentech was purchased by Roche, and Centocor went to Johnson & Johnson, for example -- but one of the biotechs, XOMA (Nasdaq: XOMA  ) , remains an independent public company.

Not that it's been the most productive 30 years. The biotech has helped develop a few drugs that have resulted in royalties, but revenue never topped $100 million, and XOMA has had only one year with an operating profit. Since its inception in 1981, XOMA has racked up a deficit of $874 million. If you bought shares back in 1986, you're sitting on a 99.3% loss.

Long development times are just something that biotech investors have to deal with, but they're not a death sentence, either. Regeneron Pharmaceuticals' (Nasdaq: REGN  ) CEO Len Schleifer mentioned during his presentation that he's been presenting at J.P. Morgan for the past 20 years. Like XOMA, Regeneron isn't profitable despite having a drug on the market, but with the recent approval of its macular degeneration drug, Eylea, it's not that far off.

In the United States, more people die from flu each year than die from HIV AIDS
Investment lesson: There are still areas of unmet needs out there.

I learned during Vertex Pharmaceuticals' (Nasdaq: VRTX  ) presentation that more people in the United States die from the flu every year than from HIV AIDS. The company is developing a flu treatment called VX-787. Multiple pharmaceutical companies sell flu vaccine, but people obviously aren't getting their annual shot in the arm. Tamiflu, which was developed by Roche and Gilead Sciences, and GlaxoSmithKline's Relenza are both options as post-flu treatments, but there's still an obvious need for more, given all those deaths. VX-787 is still in early development and would be behind BioCryst Pharmaceuticals' peramivir if it's approved, but the point here is that there are still areas where biotechs can make money. Targeting an unmet need is the reason Vertex's Incivek has become an instant blockbuster.

Drug launches are back (maybe)
Investment lesson: Biotech investors are short-term thinkers.

Dendreon (Nasdaq: DNDN  ) popped before the conference after announcing fourth-quarter sales figures for its prostate cancer treatment Provenge, which missed expectations last year. Ditto for InterMune (Nasdaq: ITMN  ) , which had a solid start for its idiopathic pulmonary fibrosis treatment, Esbriet. Regeneron saved its stellar Eylea data for the conference itself.

Investors with a long-term outlook and a little bit of guts profited from the pessimism that often plagues the industry. But keep in mind that the what-have-you-done-for-me-lately attitude is apparent at the other end of the spectrum as well. Drug launches may be going better than expected, but that's partially due to lowered expectations. If euphoria sets in again and investors overreact to good news, it might be a good time to take some profits off the table.

The best thing about the conference
While the conference offers lots of news about an industry that's already packed with binary events, the best part of the conference is that the webcasts for most companies will be available for a few weeks. For the companies that didn't have any news at the conference, the presentations offer a nice introduction to what the company is working on. Sure they're completely one-sided and have to be supplemented with other research, but they offer a nice jumping-off point.

Fool analysts think they've found the next rule-breaking multibagger medical-device company. You can find out more about the company by picking up the free report. We won't even make you sit through a webcast.

Brian Orelli holds no position in any company mentioned. The Motley Fool owns shares of Dendreon, JPMorgan Chase, and Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Gilead Sciences, GlaxoSmithKline, Johnson & Johnson, and Vertex Pharmaceuticals and creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 16, 2012, at 11:10 AM, skm1965 wrote:

    Since you attended this conference-could you share what you learnt from Amarin and IDIX presentation .Was there a presentation by Achillon ACHN?

  • Report this Comment On January 16, 2012, at 11:12 AM, skm1965 wrote:

    Obviously we want to avoid XOMA types.Can you think of a co.-that may be XOMA of the future.

    GERON comes to my mind-but since you quoted XOMA--you must have some guesses?

  • Report this Comment On January 16, 2012, at 11:13 AM, skm1965 wrote:

    By the way,Should we buy Vertex or wait?

  • Report this Comment On January 16, 2012, at 8:00 PM, BTA798 wrote:

    Just want to add something to the Flu section of this article: GSK's Relenza was developed by the Australian Biotech company, Biota Holdings Limited. Besides those pipelines of influenza antivirals from Vertex and Biocryst, Biota's next generation influenza antiviral, Laninamivir is already in its Phase 3 trial in the US and approved for marketing in the Japanese market under the name "Inavir". Laninamivir phase 3 trial is fully funded (US$231) by the BARDA and expected to be completed by 2016. More detailed information about Laninamivir is available on Biota's website.

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