Sealed Lips Don't Sink Ships

Yesterday ended the annual January ritual of thousands of health care investors descending upon San Francisco to listen to companies give their spiel about why people should invest and analysts should upgrade them.

Those of us not hip (or rich?) enough to get invited to JPMorgan's health care conference are left listening to the presentations at our computers. If listening to that many presentations makes your head spin, you're not alone, so I've made it a bit easier. I'll get to the two big stories -- what's going on with Genentech (NYSE:DNA) with Roche, and Elan (NYSE:ELN) -- in just a moment. But I'd like to start with a quick review of some earnings guidance and updates.

Fresh beginnings
Some companies use JPMorgan to announce preliminary results from last year and give investors a first look at how the company expects to do this year.

Source: Company press releases. *EPS are non-GAAP as presented by the companies.

Nothing new here: drug companies are still bringing in the cash while health insurers struggle with higher costs and fewer employed workers.

But it wasn't just profitable companies making news with guidance. Some companies still trying to get out of the red were making news about how much less they're likely to lose.

Human Genome Sciences (NASDAQ:HGSI) said it hopes to bring in $250 million in revenue next year, mostly from its anthrax vaccine, ABthrax. That should help the company burn through less than $25 million this year, compared to a cash burn of $245 million in 2008, as it waits for approval of its hepatitis C treatment, Albuferon, in 2010.

Another hepatitis C drug developer, Vertex Pharmaceuticals (NASDAQ:VRTX), also made news for guiding a lower-than-expected net loss this year. The company is expecting a larger loss of $475 to $510 million this year compared with $460 million last year. That may seem like a lot, but Vertex had access to about $830 million at the end of last month, so it shouldn't have any problem making it to the point where it's submitting a marketing application for Telaprevir.

Mum's the word
A couple of companies look like there's potential for them to be absent at next year's conference, but weren't saying much about it.

Genentech still has a pending offer from its majority shareholder Roche, but neither was interested in talking about it. It's possible the deal still gets done, but there are a lot of unknowns in the equation -- Genentech wants more money and Roche might have problems getting a loan, but it is rumored that it is willing to up its bid. Investors would be smart to value Genentech based on its growth potential as an independent company and then be pleasantly surprised if there's a windfall from an acquisition.

Elan doesn't have a suitor, but it's interesting in finding one. Or at least it's interested in figuring out if it should find one. Before its presentation, the company put out a press release stating that it was reviewing its strategic alternatives including possibly selling the company.

Elan is going to have the same problem that Biogen Idec (NASDAQ:BIIB) had when it was up for sale; Elan only owns half of its two potential blockbusters, Tysabri and bapineuzumab, and it could potentially lose Tysabri if there's a change in ownership. That should make any potential suitor very uneasy.

A better solution for Elan's shareholders would probably be to break up the company. As other companies have shown, the sum of the parts is often worth more than the whole. But Elan tried to pawn off its drug-delivery business last year without success, so a breakup is probably harder than it sound.

One thing is for certain, Elan needs to do something. It has a large amount of debt due in 2011 and some more due in 2013 and generating a stockpile of cash by selling something seems inevitable.

A New Year's resolution for you
Here's my challenge to you, Foolish health care investors: Go listen to a presentation or two of a company that you don't invest in. Presentations at JPMorgan are usually a much better way to get an overview of the company than the quarterly conference calls where management generally assumes it's just shareholders and analysts listening.

And then don't buy. I know it's hard; those presenters are good at making it seem like their company's drugs will save the world.

Instead, get a watch list going and do a little more homework on the companies. But don't wait too long, at these bargain-basement prices, I'm not sure how long it'll be before biotech becomes the hot sector again.