Medical Device Daily

SAN FRANCISCO – Early arrivals to this year's addition of the J.P. Morgan Healthcare Conference at the Westin St. Francis Hotel were treated to something that would soon be in short supply . . . elbow room. This reporter was certainly envious when Managing Director Kevin Willsey noted that the first meeting back in 1983 had less than 100 attendees. This year's addition of what is arguably the preeminent conference in the healthcare sector had more than 8,500 registered attendees.

Willsey, who also is co-head of investment banking, North America, paid a special tribute to the only two companies – Healthcare Corporation of America (HCA; Nashville, Tennessee) and Humana (Louisville, Kentucky) – that have presented at all 30 of the healthcare conference meetings. HCA, Willsey noted, has done three IPOs and gone private twice. “We, as bankers, like to call that the circle of life,“ he quipped.

From the paltry 21 companies that presented at the inaugural meeting, this year's addition features 396 public and private companies. Willsey said that this year has almost 90% CEO participation from the companies that are presenting at the meeting which concludes on Thursday.

Willsey also spotlighted the strong not-for-profit (NFP) and international presence at this year's event. He noted that 26 NFPs, including the Cleveland Clinic, Stanford Hospital and Clinics (Palo Alto, California), Scripps (San Diego) and Tufts Medical Center (Boston) will be presenting at the meeting, with a special track dedicated to NFPs on Tuesday. On the international front, Willsey made special note of the track dedicated specifically to China on Wednesday and Asia on Thursday.

While Willsey projected the U.S. economy to grow by roughly 2.5% in 2012, he noted the undeniable “elephant in the room,“ the European economy. “I think the question is will the U.S. markets decouple from events in Europe in 2012, or will 2011 prove to be a dress rehearsal for 2012? Let's hope not on the latter.“

Mergers and acquisitions (M&A) and capital markets activity continued to grow in 2011, especially in healthcare, Willsey said. North American M&A volume was up more than 13%, with many industry-defining mergers taking place, many of them in healthcare. He identified several catalysts that could drive equity markets higher in 2012, particularly the near historically low valuations of many companies and the strongest corporate balance sheets in over a decade, with more than $2 trillion in cash and unused debt capacity on corporate balance sheets. He also noted financing markets “that are wide open and available across the credit spectrum.“ And finally, a “slow, but steadily improving economy.“

Healthcare is still a sound investment, with Willsey noting that the every sub sector of that market outperformed the broader markets in 2011. Healthcare equity outperformed all sub sectors except in med-tech. Still med-tech stocks are up 15% since the beginning of 2008. In 2011 while the S&P was flat, each of the healthcare sub sectors, with the exception of med-tech, outperformed it, mostly by double digit percentages. An investor poll undertaken by J.P. Morgan in December had decidedly mixed results as to the ability of the healthcare sector to outperform the general markets. Out of 50 buy-side analysts polled, roughly half said it would outperform in 2012 and the other half believe it is going to underperform. Certainly this speaks, in part, to the uncertainty of the recent healthcare reform in the U.S.

Unquestionably, healthcare M&A markets showed significantly more life in 2011 than across the rest of the economy. There were $164 billion of M&A transactions announced in the healthcare sector last year, a more than 30% increase over 2010. And while equity capital markets were relatively flat, in healthcare, there was a 73% increase in activity, including HCA's $4.4 billion IPO in March.

Published: January 10, 2012