The 2024 JPM Healthcare conference: key topics and takeaways

Bringing over 20,000 participants and over 600 presenting companies in San Francisco, the JPM Healthcare Conference is a cornerstone for investing in the sector, and we strive to regularly attend to it.

Our takeaway last year was "the 2023 outlook for the healthcare industry was mixed", and it turned out even worse. This year, the feeling was different: optimism was palpable.

Helicopter view of the conference

Industry leaders and executives discussed the value of their innovations and what to expect for 2024 and beyond.

Global sentiment appeared to be cautiously positive:

• Blockbuster patent loss seems less scary: The patent "cliff" of big biotech drugs that made the top 10 Big Pharma fortune is more of a"hill" now. They all talked at length about newly bought assets and their pipelines with blockbuster potential. 
• GLP-1 & Obesity: The BIG topic of the year, everyone talked about it. No one knows how to pay for it or size the market, but interest was sky-high.
• In Medtech, demand is growing: In-patient and outpatient procedure volumes are up 15% above the street projections. Medtech companies hinted at better results and guidance increases for 2024.
• AI in Healthcare: an omnipresent word among panels and attendees, much less in the company's talks. Good - The industry is worried about overpromising and underdelivering.

Supply is in better shape and innovating:

• Echoes of stabilizing medical systems (more procedures, improving staffing situation) and subsiding cost inflation (both wages and raw materials) were all around.
• Innovation is alive and kicking, e.g. 20 of this year's 55 new FDA approvals are first in class.
• Medtech is laying out strong guidance despite GLP-1 negative sentiment.
• Dozens of launches are in the biotech and Medtech pipeline for 2024.

Financial markets are regaining interest:

• Valuations are attractive at 2024 P/E of 16x and a PEG of 1.0 for revenue-generating biotech vs the S&P Index (P/E 19x, PEG 2.4). For Medtech, valuation are back to 2017 level with an average 2024 P/E at 35x and a PEG 1.9.
• During informal discussions, asset managers like Fidelity stated, "It is a good time to increase exposure to the sector, and even more exciting in the SMID sector".
• Biopharmas are very active - 2023 M&A has reached $178bn among top years, and an all-time high for the number of deals above >1$bn and $8.2bn were signed during the conference.
• PE and VC investments, although lower in value, are still at decades high and funds explicitly said during conversations they are looking out for opportunities.
• The IPO pipeline was dry as public investors paid less than private actors, but the first 2024 IPOs showed investors' newly found appetite.
• More anecdotally, trading volumes during the conference at the JPM desks were up 20% YoY.

Regulation is a big topic but remains in a limbo:

• Drug pricing IRA / Pharmacy Benefits Managers / Federal Trade Commission is a mixed bag of pending issues, and historically, no big healthcare reform has passed during an election year.
• Additionally, the corporate tax rate increase to 28% from 21% is probably one of the biggest hurdles but it is industry agnostic.

China is the big unknown:

• The size of the market makes it unavoidable, and business development from Western pharma and medtech is moderately up, but anticorruption campaigns in healthcare systems are muting enthusiasm locally and abroad. All companies tried to temper investor expectations about China.
• Life science tools were the most vocal about the lack of growth in China.

The following sections will dive deeper into trends and data driving the biotech and bionics sectors.

Different drivers for Biotech and Bionics drive sector-wide optimism at the conference

Putting the macro aside, M&A is in the driver's seat for biotech. The field has been betting that patent term expiration for Pharma blockbusters will drive M&A for the past two years, and we saw a real shift in buying patterns, especially in the back half of 2023.

At the conference, most CEOs commented on looking out for opportunities in the market. For example, Eli Lilly's CEO, David Ricks said on stage "We're open for business on external innovation”. With $8.2bn deals signed during the conference, the M&A thesis sounds solid.

Unlike the highs of 2020, today we are seeing more focused intensity around several key therapeutic areas: obesity (at least >$80-100B global market by 2030), immunology (>$150B), advanced modalities in oncology (especially ADCs and radiopharmaceuticals, >$30-40B), and neuro ($20-30B). This enthusiasm is stage-agnostic but most focused on deals involving clinical-stage assets with “de-risked” biology. This shift towards best-in-class rather than first-in-class is exemplified by this year’s M&A landscape (as shown in the figure below).

Based on the remarks and discussions with industry experts, companies have not yet fully accounted for future revenue losses. This ongoing M&A trend further supports the notion that assets are currently undervalued. 

For Bionics, the talks focused on hospital procedure volumes and reimbursements and not on M&A. Of the deals announced at the conference, only one Medtech was concerned: [THERE IS NO LABEL ASSOCIATED FOR: AXNX] (part of our portfolio).

At the conference, Intuitive Surgical, a vendor of medical robots, announced a solid 17% increase in volume procedures and said they expect more next year. Numerous experts mentioned that a return to 2019 procedure volumes in hospitals (after a bumpy ride from 2020 to 2022) is bound to trigger a resurgence of the sector, a thesis we laid out a year too early. 

This corroborates well with insurers like Humana warning investors they underestimated the 2023 procedure volume of Medicare-covered patients, and not just by a little: a hefty $700mn miscalculation. 

The second front, reimbursement, is embodied in the Transitional Coverage of Emerging Technologies. This new reimbursement path is designed to accelerate the adoption of innovative medical devices. SMID Medtech companies, with brand-new devices, are poised to benefit the most from it in the coming years and were quite vocal about it. [THERE IS NO LABEL ASSOCIATED FOR: SWAV], a cardiovascular medtech, was particularly bullish on increasing reimbursement for their technology and how it will drive the market forward for other companies.

Overall, the Medtech sector is on a path to recovery and improvement at a pace quicker than anticipated, rebounding from the negative impact of the anti-obesity drugs last year.

Enthusiasm for obesity is driving development in broader metabolic disease but not derailing Medtech

The obesity space has grown tremendously since Wegovy (high-dose formulation of semaglutide, Novo’s GLP1 agonist peptide) was first approved in mid-2021 and started flying off the shelves almost overnight.

During the conference, Eli Lilly and [THERE IS NO LABEL ASSOCIATED FOR: DK0060534915] talked at length on stage about the additional trials continuing to build the case for weight loss in broader metabolic diseases and suggest cost benefits for the overall healthcare system from the anti-obesity therapies, most notably after the SELECT-CVOT that demonstrated protection from Cardiovascular-associated mortality in obese patients with pre-existing cardiovascular disease.

The companies outlined three main areas of focus: 

• Heart Failure (HF) in Obese Patients: Even the panelists on the Obesity talks from all backgrounds (private and public) agreed the SELECT study publication was a seminal moment. Clearly weight loss alone (± additional beneficial Cardiovascular (CV) mechanisms) is profoundly impacting this segment of the HF population. Eli Lilly's Tirzepatide is also trialing in a Phase 3, and top-line readout in 2H24 will provide indications about whether the increased weight loss achieved with dual GLP1/GIPR modulation further improves quality of life and functional endpoints.
• MASH (formerly known as NASH): weight loss and liver defatting have proven effective for NASH improvement without worsening fibrosis in obese patients, with increasing mechanism involvement (GLP1 plus additional GIPR and / or glucagon receptor modulation) potentially increasing the magnitude of this benefit. Whether the GLP-1s can improve fibrosis is still an open question, but key readouts from tirzepatide Phase 2 in F2/F3 (1H 2024), semaglutide Phase 3 (biopsy data likely 2H24), among others (e.g., Altimmune) continue to build momentum in the indication. Will incretins “solve” MASH in obese patients? Madrigal Pharmaceuticals reminded everyone that currently only their compound with a PDUFA date due March 2024 has shown fibrosis improvement.
• Kidney disease: outcomes in Chronic Kidney Disease are likely to also benefit from weight loss, with the semaglutide Phase 3 FLOW trial stopped early last October after an interim efficacy read (full data expected this year).

Investors are bullish on GLP-1s and alternative therapies for obesity and metabolic disease.

On the Bionics front, the SELECT-CVOT data publishing in August was the biggest scare witnessed in the MedTech market. Within two months, $400bn of combined Medtech company valuation was erased. Although not directly comparable, $400bn represents half of the 2030 medtech total addressable market.

Interestingly at the conference, no Medtech company mentioned the GLP-1 impact on business except bariatric surgery during their speeches. Confirming our thesis, laid out in October, that only the bariatric surgery would be impacted. 

We wrote that the story of GLP-1 is more likely to be similar to the story of statins and stents. Both were immense innovations in controlling and treating cardiovascular disease, whether to lower cholesterol levels, a known cause of artery-clogging, or alleviate said clogging by mechanical force via a stent, but were not magic bullets - a view also expressed by the obesity specialist at the GLP-1 panel.

As a proof, cardiovascular disease is still the leading cause of death, and remained the major focus of Medtech companies at the conference. This is reflected also in stocks performances, with the iShares US Medical Devices ETF growing 7-fold since its inception in 2006 and significantly outperforming the S&P500, which saw a 2.7x increase over the same period.

The rise of best-in-class biologics is a double-edged sword for biotech, and a blessing for MedTech

Big pharma in-licensed or invested a lot in “de-risked” biology already in the clinic phase during 2023. The past year has seen an explosion in “fast follower” approaches to improve on existing target product profiles for select mechanisms.This was exceptionally apparent for antibodies and other biologics.

The conference confirmed such a trend, with discussions centered around:

• Commercial potential: Data on company slides for a given indication often suggest strong commercial potential for cannibalizing existing therapies if next-gen biologics can lower dosing.
• Improved administration & dosing to improve cost and patient compliance.
  • Antibody half-life extension technology is now widely available given the original MedImmune patents has expired. It allows dosing every 3 months (or even less frequent) meaning less hospital visits.
  • Contrary to intravenous infusion at hospitals, subcutaneous formulations are increasingly becoming required to enable more convenient and at-home use. Merck, Argenx and all companies with injectable biologics laid out plans for subcutaneous formulation.
• Intellectual property considerations: the recent Amgen vs. Sanofi SA ruling by the Supreme Court substantially restricted IP for antibodies, limiting claims to specific sequences with enablement support vs. broad epitope coverage. This ruling is good news for “fast follower” approaches where sequences can be selectively mutated to achieve similar (or better) potency while still having freedom to operate for a given target or epitope

Despite these advances, the enthusiasm may be going too far. The market for each target class likely asymptotes with the number of Pharma or large biotech who can clinically develop and commercialize such assets; thus, there is intense focus on the first handful of assets to market. The following figure shows pipelines across modalities for some of the competitive targets today.

Our biotech strategy heavily focuses on first-in-class to limit the "fast follower" risk.

For bionics, the narrowing development of biologics targets means less competition on numerous indications, either untractable by biologics, like breaking calcium deposits in the artery as Shockwave is doing, or hard to achieve, such as tissue regeneration, sleep apnea, kidney dialysis. At all the presentations during the events, Medtech companies showed they not only have little competition from Biotech but often still address less than 10% of the patient population.

Simultaneously, the rise of biologics requires better diagnostics as patient response to this expensive therapy is carefully monitored by insurance companies. Investors' sentiment has been negative since the wind-down of Covid diagnostics in numerous companies, but the opportunity is huge. Companies like Natera Inc, have mentioned that millions of Americans are still not given a proper cancer diagnosis that can help the physician prescribe the best therapy course. 

We positioned the strategy to capture both trends, expanding TAM and Serviceable Addressable Market (SAM).

Delivery is still a bottleneck for novel modality genetic medicines

Everyone is excited about the prospect of genetic medicine, especially after the December CRISPR approval. Yet, extra-hepatic delivery continues to dominate discussions for many platform companies. Once a pipe dream, we are starting to see real advances in several key areas worth highlighting.

Listening to the company's speech, 2024 is the year extra-hepatic delivery finally starts to hit its stride.

• TfR1 is almost becoming a standard for Pharma and biotech looking to deliver to the brain and / or muscle. While names like Denali Therapeutics Inc, Johnson & Johnson, Dyne Therapeutics, and Avidity Biosciences were real pioneers in the space for delivery of antibodies and oligos, TfR1 shuttles have made an appearance in several presentations, including Alnylam, Arrowhead, Lundbeck, and Ionis (partnering with Bicycle Therapeutics for peptide binders), among others.
• What comes next? We are starting to see data to suggest that different formats (e.g., Fab vs. mAb) and epitopes may increase the therapeutic window. Despite these advances, we are merely scratching the surface regarding potential ligandable targets for delivery of biologic, oligo, or other cargo – 2024 promises more development in this area of huge unmet need.
• Capsid evolution approaches for viral delivery are also undergoing a huge step change, with Voyager Therapeutics’s TRACER platform pioneering the way and recently enabling several high-profile partnerships with Novartis , Neurocrine Biosciences, and others. Other companies in the space (e.g., Affinia Therapeutics, Capsida) are focusing both on CNS and other ex-liver tissues – 2024 may be the year we see real progress towards the clinic for these novel capsids.
• Extra-hepatic targeting of LNPs has also been making strides in late preclinical pipeline, with advances from Capstan in the lung, Generation Bio for immune subsets, and Capstan for HSCs and T cells.

All in all, the delivery of genetic medicines has never looked more promising, though many investors are still wary of the investment and time required for very early discovery plays given historical challenges with translation into the clinics.

AI: the hype with no trust yet

Beyond the promise of a genetic cure for all diseases, nothing captures the imagination like Artificial intelligence.

One cannot deny that Nvidia’s presentation had a completely packed room. As stated by all players in the field for years, the aim is to cut time and investments while increasing the likelihood of success of clinical projects. The firm hopes to disrupt the $250 billion drug research and development industry. Interestingly, companies involved in the space were less bullish at the conference. Some, like AbCellera, even dropped the term entirely.

Artificial intelligence—specifically its potential uses in biopharma— tends to command a lot of attention, as with the panel hosted by Boston Consulting Group, which discussed how to best leverage generative AI. But in the clinics, the companies failed to impress so far. Nonetheless, the hype is alive with recently Alphabet’s drug development arm, Isomorphic Labs, inking deals with Eli Lilly and Novartis with nearly $3 billion in combined deal value. 

Parry Bhatia, chief AI officer at GE HC, told attendees that large language models, already being used in science and technology, will be further incorporated into the vast healthcare ecosystem, while John Doyle, global chief technology officer for healthcare and life sciences at Microsoft, said, “It’s not actually about the technology. It’s about us all collectively working together to solve the same problem.”

A very careful approach to AI in healthcare is the rule for now.

Regulation, a complex situation with little changes expected soon

Often scrutinized even more than the tech, rules, and regulations drive the sector like nothing else. The Biden administration’s policies affecting the biopharma industry, including implementation of the Inflation Reduction Act, intellectual property challenges, and mergers and acquisitions, took center stage in San Francisco. With an aging obese population, the biggest market in the world for Biopharma is under pressure.

During the conference, the lion's share of the talks was given to the CMS drug price negotiation process and Medicare Advantage reimbursement rate. Although everyone points to a heavy agenda, all participants agreed that election years generally are historically devoid of major healthcare reforms. The second half of the year will bring more action, with the list of future drug names negotiated and the end of the first negotiation round, which started in September last year. 

Small molecules are still in vogue despite IRA headwinds with lower time to market before price negotiation: Optimism for the convenience of orals, even in indications with high-commercial potential and enriched for CMS coverage (likely to fall in crosshairs of IRA), is not abating as expected. Whether it’s small molecules to target the incretins (GLP-1 ± GIP), targeting well-validated signaling nodes in Inflammation & Immunology (e.g., STAT6), or enhancing the target product profile via next-gen approaches (PROTACs, glues, covalent binders, etc.), small molecules continue to be enthusiastically funded even at the discovery stage.

Regarding M&A, the shared vision was stated by an OrbiMed advisor:  “The imperative for M&A, which is what drives our industry forward, will override the FTC’s personnel problems that they’re having now with the poor results they’re seeing when they take cases forward in their decision-making".

That said, all industry insiders expressed their concern about the disconnect in how the industry is perceived externally and how regulation can be distorted as a political tactic - a concern we have expressed in several articles.

China is the big unknown

Second to the U.S. healthcare market, we find China. Unlike the U.S., tensions arise from both inside and outside.

The topic of investment in China was almost non-existent during the conference as companies commented on limited visibility on the market. From outside, geopolitical tensions have made investing in Chinese biotechs more precarious and pressure stays unabated as the U.S. just signed a BIOSECURE act limiting further export to the U.S. of Chinese biotech services and products.

From inside, the anticorruption campaign is raging. All companies pointed toward a miss in sales in China of at least about 20%.

Chinese healthcare is organized through large public hospitals and their local networks of health stations and clinics. These conglomerates are under intense pressure to provide affordable healthcare to an aging population. To balance the books, hospital managers must control wages and other costs and aggressively pursue additional income – fertile ground for taking bribes to buy expensive machines or overprescribing drug treatments to raise revenues. About 40% of the 2,900 corruption cases between 2013 and 2022 involved equipment procurement and 30% pharmaceutical products. Therefore, hospitals and research centers have lowered orders and involvement with foreign companies to limit the risk. This situation affects life science tools and Medtech the most. 

When no one wants exposure to China, it might be a good time to look at it. We are screening opportunities with our Chinese partner company, whose favorite sector for 2024 is actually healthcare.

Likely increased rate of capital deployment in 2024

A complex environment is at least not deterring private investment that much. Therapeutics-focused venture funds have raised record amounts over the past two years, and yet 2023 saw a  contraction in company formation via Seed and Series A financings (as seen in the figure below). The “haves” in this environment are still able to raise capital to fund through critical inflections.

Many of the biotech VCs that raised recent funds are sitting on ample capital, and GPs will start feeling the pressure to invest more aggressively in 2024 given the “typical” fund deployment lifespan of 4-5 years. The phrase “watchful waiting” was frequently cited in meetings with other investors at JPM to describe the sentiment in 2023, but firms expect to be more active this coming year.

This should result in a reopening of the IPO window within a year or two.

Conclusion

The JPM Healthcare conference is the kick-off event to start the year in Healthcare. After an euphoric 2020, 2021 to 2023 have been rough market-wise. But green shoots are everywhere now in healthcare, and while TAMs have not moved, valuations have become attractive.

With big indications like obesity moving forward, new tech entering the clinics, and strong utilization of medical systems boosting Medtech, investors are greenlighted to overweight the Healthcare sector.

Atonra's positioning on SMID actors offers to capture the pure play innovation while being diversified across sub-industries and indications.

Catalysts

• GLP-1 sales goes through the roof. Among the last big bull run reasons is the presence of massive blockbusters and the GLP-1 class is the poster child.

• Strong M&A activity with big premiums. The FOMO on biotech assets gains can draw generalist investors back in.

• Approval of groundbreaking treatments. NASH first drug, Alzheimer mot efficacious treament, and ex-Covid mRNA vaccines are due in 2024, and all are projected to be blockbusters.

Risks

• Higher than expected interest rates. >80% of Biotech are not revenue-generating and are sensitive to rates for future funding.

• Dry IPO market. If the IPO market does not reopen it would indicate that confidence in the sector is still not back.

• Increased China/US tension around biotech. China is the second biggest healthcare market in the world and produces 70% of all pharmaceutical ingredients, increased tensions might clog the supply chain.