Hambrecht & Quist
18th Annual Healthcare Conference
On the road for
Info.Resource, publisher of Oregon-Bioscience.com
At the cutting edge of the new economy: Chase Hambrecht & Quist
By Lorraine Ruff and David Gabrilska, Partners
Milestones, the critical thinking company
At a time when the combined market cap for life sciences companies - pharmaceuticals, biotechnology,
medical devices, health services and eHealth - is at $600 billion and climbing and when
the average stock appreciation for those companies in the last 12 months is 109 percent,
the 18th annual Chase Hambrecht & Quist Healthcare Conference opened in San Francisco
on Monday to 4,000 attendees. During that 18-year period the NASDAQ composite increased from 251 to 4049.
Americans have very high expectations for those engaged in the research and development of drugs and
devices. In a recent survey, among 18 to
65-year olds, respondents were asked what's ahead for a baby born on January 1, 2000. More than 50 percent reported that they expected
significant advancements in medicine, with 79 percent predicting a cure for cancer and
AIDS. More than 50 percent stated that they expected humans would be cloned.
Biotechnology is one generation - 20 years - old. In that
time there's been explosive growth, health care reform and the commercialization of
applied technologies that have fundamentally changed the way we diagnose, treat and
prevent disease. The industry has also
experienced significant ups and downs, the near re-invention of the venture capital
community, and massive merger and acquisition activity.
This time last year, nearly all the gains - money raised and valuation -- were posted by only 10
biotech companies, one-half of one percent of all biotech companies. The rich got richer. This year, more than 100 companies participated in
significant gains. So what's going on? The
significant increases in the stock markets are the primary sources for the improved health
of biotechnology, but there are other less quantitative factors at work:
In part it's related to "momentum" investors who are looking beyond e-commerce companies for
opportunities to score big. With the near
completion of the sequencing of the human genome and sequencing of human chromosome 22,
there's been a lot of media coverage of the benefits that will shortly accrue as a result
of applied genomics. Investors may be reacting to the herd mentality, investing money based on hope, hype and glitz.
We can look to the Internet sector for insights. As Chase
Hambrecht & Quist chairman and CEO William B. Harrison observed in his keynote
remarks, underlying the glitz may be an emerging trend whereby "legacy"
companies - the ones with traditional operating strategies, bricks and mortar -- acquire
(or in the case of the $350 billion AOL-Time Warner deal announced Monday be acquired) -
the means by which they remain relevant and competitive into the 21st century.
"Legacy companies have given us proven products and services, financial strength and powerful
brands," Harrison said, adding, "there's an e-line with legacy companies below
it and net services companies above," [companies without the constraints of the past]
who focus on eyeballs and mindshare. These
companies all have one thing in common: they
drive down the costs of legacy-based companies. The
analogy is similar to the impact of mechanical genius during the industrial revolution. This time the product is information," he
said. "These companies are at the
cutting-edge of "the new economy."
The recent acquisition of Hambrecht & Quist -- one of the world's most successful investment
banks -- by Chase -- one of the world's most successful commercial banks -- is an
excellent example of this 21st century synergy.
"In like fashion, Big Pharma needs biotech," said Dennis J. Purcell, managing director and global head of
Chase Hambrecht & Quist Life Sciences. For
example, SmithKline Beecham has stated it counts on alliances with Phase I & II
biotechnology companies. Johnson &
Johnson had more than 16 compounds that each accounted for more than $100 million in sales
in 1998, half of which were in-licensed. And
Eli Lilly recently announced that alliances are one of the cornerstones of its future
success. However, Purcell reported that there
were other reasons for the rebound.
The public equity markets re-opened for
biotechnology as investors were encouraged by improved regulatory success rates and
Biotechnology companies and the FDA
continue to work effectively with one another throughout the discovery process. This has resulted in increasing visibility and
Increased large biotech/small biotech
alliances as Big Biotechs continue their evolution toward becoming Big Pharmas.
Increased alliances between Big Pharma
and biotech companies increased as Big Pharma moved increasingly from "Buy" to
"Rent." For example, in 1998 there were 221 collaborations between biotechnology
companies and Big Pharma amounting to $3.7 billion. By
comparison, in 1999, there were 477 deals amounting to $3.8 billion.
Genomic information drove the drug
discovery process and significant interest among investors.
Looking forward toward 2000, Purcell says he expects:
Continued cooperation between the drug
development industry and the FDA.
The pharmaceutical industry will
continue to rely on biotech for growth.
Private equity will represent a solid
alternative for companies. There may be a
return to cash-based transactions as companies seek to reduce dilution and preserve value
for their shareholders.
A continued acceleration of sequencing
of the genome and development of the products that will emerge from this fundamental
Drug prices and Medicare reform are key
issues in the presidential election.
For several years Chase Hambrecht & Quist has shaped what it characterizes as the convergence of
the Internet and healthcare. They strongly
endorse the notion that the use of the Internet will change the face of healthcare, and
judging from the number of eHealth companies they've nurtured and taken public -
drKoop.com with a first year market cap of nearly $600 million - they are clearly walking
the talk. Numerous factors are driving it:
"Internet use continues to grow worldwide in large part due to people who are taking more
responsibility for their own health and prevention," Purcell said.
"For example, two-thirds of Internet users retrieve healthcare-related information when they go
on-line. The percent of investors trading
securities on-line has nearly doubled to 18 percent in 1999.
"Trading gains from Internet investments are increasingly finding their way into the biotechnology
sector as the Internet softens," he said. "Retail
investors are moving more heavily into biotechnology stocks with more positive flow and
increasing market capitalization.
But he warned that with all the interest in biotechnology, there will also be increased stock
The trading we're seeing, particularly among momentum investors, is not based upon traditional
investment fundamentals, and this could be both stimulative as well as problematic. But for now, everyone seems content to ride the
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