As investors in biopharma, medtech and affiliated industries descend on San Francisco for the start of the 34th Annual J.P. Morgan Healthcare Conference (JPM), invited guests and throngs of hangers-on could be forgiven for glancing nervously over their shoulders at the global capital markets. In the wake of geopolitical and macroeconomic uncertainties – currency and stock roiling in China, oil-fueled power brokering in the Middle East, election year politicking in the U.S. and saber-rattling in North Korea – the first trading days of 2016 took investors on a wild ride, and they might need to hold onto their hats for the foreseeable future.

Despite inching up early Friday, the Dow Jones Industrial Average closed in the red at 16,346.45, shedding more than 6 percent of its value during the first week of the New Year. The Nasdaq Composite – arguably the sector's more important index – was off more than 7 percent in the week leading to JPM after losing more ground Friday to close at 4,643.63. The Nasdaq Biotechnology Index, the subset of 190 of the sector's biggest names, also remained in the red Friday for a one-week drop of nearly 11 percent, finishing at 3,160.21.

Still, the losses didn't prevent a stunning number of biopharmas from turning to the markets with IPO filings during the first week of 2016 – eight offerings collectively seeking some $680 million – while 22 additional companies filed or priced follow-ons set to exceed $2.6 billion. (See BioWorld Today, Jan. 7, 2016, and Jan. 8, 2016.)

"Although biotech investors have headed for the sidelines for now, the industry's fundamentals remain strong," said Peter Winter, editor of BioWorld Insight and a seasoned observer of the industry's financial and business trends.

"Investors will be listening closely to company presentations at JPM on how executives plan to deliver value going forward," he observed. "After a massive inflow of cash in 2015, biopharma companies are well placed to pull the trigger on acquiring assets through M&A or ambitious partnering deals, in addition to the usual share buybacks. If investors like what they hear, expect them to return to the fold later this month."

What will biopharma will do with all that cash?

The industry is poised to see more multibillion-dollar mergers, which could be announced as early as this quarter – even during JPM, as the long-simmering offer by Shire plc, of Dublin, to acquire Baxalta Inc., of Bannockburn, Ill., heated up again last week. (See BioWorld Today, Aug. 5, 2015.)

Winter also pointed to Gilead Sciences Inc., of Foster City, Calif., which is sitting on $10 billion raised in September 2015, only a fraction of which was used last month to purchase rights to the Janus kinase 1-selective inhibitor, filgotinib (GLPG0634), from Galapagos NV, of Mechelen, Belgium. (See BioWorld Today, Dec. 18, 2015.)

Analysts had questions about what biopharmas will do with all that cash – 70 pages worth from the J.P. Morgan Healthcare team. For example, the team wants Alkermes plc, of Dublin, to explain how the company will prioritize the use of its $800 million in cash in light of its ongoing phase III program for ALKS 5461 in major depressive disorder and upcoming pivotal programs for multiple sclerosis candidate ALKS 8700 and schizophrenia drug ALKS 3831. (See BioWorld Today, Feb. 25, 2015.)

For Celgene Corp., of Summit, N.J., the question is more about capital allocation and providing the most value from its cash, reported as $7.5 billion as of Sept. 30. For Dynavax Technologies Corp., of Berkeley, Calif., which posted upbeat phase III data last week on its hepatitis B vaccine, Heplisav-B, the J.P. Morgan team asked whether the cash runway is sufficient to finance the product launch. (See BioWorld Today, Jan. 8, 2016.)

For Vertex Pharmaceuticals Inc., of Boston, which is "sitting on a nice sum of cash," inquiring minds want to know about capital allocation – whether the company plans "to keep this cushion or consider M&A/additional collaborations," asked the J.P. Morgan analysts. In October, Vertex paid $105 million up front, including $75 million in cash and a $30 million equity investment, to Crispr Therapeutics AG, of Basel, Switzerland, on a collaboration to discover and develop treatments for genetic diseases, including cystic fibrosis and sickle cell disease, that could ultimately exceed $2.6 billion. (See BioWorld Today, Oct. 27, 2015.)

For Mannkind Corp., of Valencia, Calif., questions focus more on prospects for solvency. Last week, the company lost its commercial partnership with Paris-based Sanofi SA, for the inhaled insulin product, Afrezza, and saw shares plummet. The J.P. Morgan analysts want to know how long the company's cash resources will last, how to think about its capital structure and future financing needs and whether it can raise additional capital in Israel. (See BioWorld Today, Jan. 6, 2016.)

'We're looking for the same old-fashioned stuff'

Although pundits like to look back when assessing the mood at JPM, participants remain scrupulously consistent. They arrive with meticulous meeting lists and focus on checking off their boxes as they slog cheek-to-cheek through the congested halls of the Westin St. Francis – indeed, through the streets, eateries and hotels lining Union Square.

There's no template for success at JPM. The agendas are as varied as the attendees.

"It's always a little bit of zoo," admitted Oleg Nodelman, founder and managing director of Ecor1 Capital LLC. "But everyone in the world of health care comes to San Francisco, so it's amazingly efficient."

As he always does, Nodelman will look for "the most interesting things" – processes, technologies and data – to stand out while the rest of the PowerPoints fade into background noise.

"We're fundamentally driven so we're looking for the same old-fashioned stuff," he told BioWorld Insight, stressing two of his favorite questions: "What is the market missing? Or is the market not missing anything? There's no magic buzzword. We're always looking for companies that are well funded – you can't save your way to success in this sector – but at the same time we like companies that are spending money prudently."

A staggering amount of public and private capital flowed into biopharma in 2014 and 2015 – more than $105 billion, combined, in private rounds, IPOs and follow-ons, according to BioWorld Snapshots. Some companies plowed those investments into "really important drugs that are going to have a significant therapeutic benefit for diseases that have no great treatment," Nodelman said. Others, however, allocated funds inefficiently, and that shakeout "is happening as we speak," he added.

But recent wobbles in the capital markets have a silver lining, according to Nodelman.

"The lower the expectations are, the more upside we could see," he observed. Although conversations, and perhaps market performance, may be dominated this year by political rhetoric, "the fundamentals are stronger than they've ever been," Nodelman said. "We have more approvals than ever, M&A is stronger than ever and innovation is clearly the strongest it's ever been."

He cited CRISPR/Cas9 gene-editing technology as an example of the compelling platforms propelling biopharma's trajectory, calling the system's use by three independent groups of researchers to improve the symptoms of Duchenne muscular dystrophy in mice "mind-bending." (See BioWorld Today, Jan. 4, 2016.)

Despite the hype around CRISPR, "when you compare it to other revolutionary technologies, like RNAi or monoclonal antibodies, the development of CRISPR is moving at an exponentially faster pace," he said.

'We're in the middle of a long innovation cycle'

Jim Healy, general partner at Sofinnova Venture Partners, was more cautious about CRISPR, citing the complicated intellectual property landscape and lack of clear regulatory guidance from the FDA.

"We're intentionally watching from the sidelines at this point in time," Healy said.

Nevertheless, he acknowledged the accelerating pace of innovation in gene therapy, from lentivirus to adeno-associated virus approaches and now CRISPR – which, he added, lit up the field with its prospect to offer durable cures even in replicating cells.

Healy will look to hear more during meetings at JPM.

"Our general approach to J.P. Morgan is to spend a lot of time interacting with big pharma, looking for what types of new products they're looking to acquire or partner with," he told BioWorld Insight. Healy also attends company presentations and said he'll be in the audience for New York-based Bristol-Myers Squibb Co., which he called "the innovation leader in the immuno-oncology field." Sofinnova is tracking that trend "in an important therapeutic area."

Sofinnova also uses JPM as an opportunity to touch base with public companies in its portfolio. Healy cited biosimilars specialist Coherus Biosciences Inc., of Redwood City, Calif., and gene therapy developer Spark Therapeutics Inc., of Philadelphia, as two that could create some buzz at the meeting.

With three programs in the clinic and numerous upcoming milestones, Coherus "should be a beneficiary of discussions around trying to put cost-containment controls around new drugs," he said. That concern is heightened by the trajectory of more-expensive biologics approvals in the U.S., which have risen four-fold over the past two years, compared to the 2004-2008 time period, and now account for more than one-fourth of FDA drug approvals, according to a BioWorld Today analysis. (See BioWorld Today, Jan. 8, 2016.)

Spark, meanwhile, reported positive phase III data in October for its lead program, SPK-RPE65, in blindness-causing, RPE65-mediated inherited retinal dystrophies and could be the first gene therapy approved in the U.S. (See BioWorld Today, Oct. 6, 2015.)

Healy also is optimistic about prospects for 2016, coming on top of two "terrific" years. The positives, he said, begin with the regulatory environment, where the FDA picked up the pace of drug approvals and is seeking to be more transparent about its decision-making process. M&A activity was steady, and IPOs remained strong, albeit with a slight falloff in 2015 as markets turned "choppy" in the second half of the year. If that pullback continues in 2016, "our expectation is that pharma is going to use that to their advantage to step in and fill up their pipelines," Healy said.

But biotech could have strong staying power. Through December, in generalist funds, fund flow was negative in every sector except biotech, he pointed out. Even in the fourth quarter, when the biotech sector dropped 20 percent, "we were still seeing positive fund flows," Healy said. "We hope that's an indicator for this year."

Despite election year rhetoric, macroeconomic jitters and concerns about drug prices, "we're in the middle of a long innovation cycle, and we believe that will continue," he added.

'a thread that's consistent among the presentations'

Scientific innovation also is the draw for Jim Robinson, U.S. president for Astellas Pharma Inc., of Tokyo, who carves out time at JPM to attend big and specialty pharma presentations.

"I try to see if there's a thread that's consistent among the presentations," he said. "Clearly, the bulk of the presentations are about the innovation that each company is driving – their future focus in terms of investment and their greatest opportunities for success in the short and long term."

Robinson keeps an ear to the ground for trends in therapeutic areas, regulatory oversight and industry activity. But, from a personal viewpoint, "I really enjoy the science aspect of the biopharmaceutical industry," he said.

At this year's JPM, Robinson expects to attend a broad cross-section of pharma presentations. He'll also take in talks by pharmacy benefit managers and retail pharmacy companies to get their take on industry challenges.

"I don't have a particular pattern," he said. "I just try to have an opportunity to meet with as many folks as possible to communicate the message about Astellas and to educate myself on trends in the industry."

Robinson also was upbeat going in to JPM.

"I'm fairly bullish," he told BioWorld Insight. "If you look at the investment that's been made over the last decade in specialty therapeutics, I'm pretty excited about what is actually coming from the pipelines of companies around the world. I'm an optimist by nature, and I'm very optimistic, in light of what I've seen during the last couple of years, about emerging oncology and specialty products. As an industry, we have an opportunity to continue to focus on invention, as well as innovation."

Biopharma investors may have a clearer read of the sector's pulse at the end of JPM than the beginning, but the early sense is that 2016 will play out pretty much as business as usual.

"The biopharma sector is in good shape as it enters the New Year," BioWorld's Winter said. "While we will likely not see a massive run-up in valuation during 2016, it should be able to exhibit slow and steady growth."