Medical Device Daily Associate

SAN FRANCISCO — Calling 2004 a “great year“ for the healthcare industry and looking forward to a successful 2005, Douglas Braunstein, head of Americas investment banking coverage and global M&A for JP Morgan, cited the strength of the medical technology sector in opening-day remarks during the firm's 23rd annual healthcare conference on Monday.

“In my almost 20 years involved in the healthcare space, I have to say that 2004 was one of the most exciting,“ Braun- stein said. He said that the strongest performers within that space were in the med-tech and healthcare services sectors.

He noted that some 280 companies — 230 public and 50 private — are presenting at the traditional annual kickoff conference for those interested in firms involved in healthcare. The gathering runs through tomorrow at the venerable Westin St. Francis Hotel on Union Square.

Braunstein pointed out that of those companies making presentations at this year's event, some 90% would be represented by their CEOs. And those presenters and their firms are attracting a lot of attention. He said that there would be more than 4,000 public institutional investors and 1,000 private investors and a total of nearly 6,000 persons all told joining the throngs that jam the hotel's hallways and meeting rooms during the four-day event.

“If you look at a non-weighted base of the companies presenting [at the conference] this year, their stock prices were up on average almost 14%, exceeding the S&P by almost 500 basis points,“ he said.

Braunstein also said that 2004 was an exciting year in terms of strategic activity, equity raising and debt raising, particularly the strategic advisory business, which enjoyed its strongest performance in more than five years. In fact, it was the strongest year for strategic transactions in the last decade, he said. “It [was] a very active year across all sectors of the healthcare industry.“

On the equity side, he said that 2004 was a “more modest year,“ but noted that there was excitement with the reopening of the initial public offering (IPO) window.

“In fact, more companies in biotech, for example, came public than in the three prior years,“ a trend that also held true for the medical device sector (Medical Device Daily, Jan. 6, 2005). Braunstein called the IPO resurgence “an interesting start to what we hope will be a very robust window that continues through 2005.“

Drilling down to the industries within the healthcare space, Braunstein said the med-tech sector had an “incredibly strong fundamental year“ in 2004. He noted that within the sector, stock prices increased an average of from 17% to more than 25%.

“Superior growth and price performance in this space was led by such notable classes as the CRM [cardiac rhythm management] business, which enjoyed exceptional double digit fundamental growth during the course of 2004.“ He added that the market believes CRM to be an incredibly robust opportunity again in 2005.

Braunstein said med-tech was a space that was exceptionally active on the strategic front, with the most notable transaction taking place near year-end with Johnson & Johnson's (New Brunswick, New Jersey) pending $24 billion offer to merge with Guidant (Indianapolis) (MDD, Dec. 17, 2004). He also noted that other transactions in the space, such as The Cooper Companies' (Lake Forest, California) $1.2 billion stock-and-cash merger with Ocular Sciences (Concord, California), completed last week, “highlighted a year in which continued combination and strength of strategic purpose drives the M&A marketplace.“

The healthcare services sector enjoyed the most success of all healthcare sectors in 2004, particularly managed care, which was up 48% from the beginning of last year through Dec. 31.

Biotech also enjoyed a very solid performance, with mid-cap companies within the space receiving the bulk of financing and new launches and product pipelines highlighted that Braunstein said look full and exciting for 2005.

He said large-cap pharmaceutical companies had the most challenging year. The sector dealt with a variety of problems, including issues related to product pipeline, pricing, patent expiration and litigation. That being said, he noted that the “big pharma“ space enjoyed a “very robust year for strategic acquisitions,“ the largest being the $63 billion merger of Aventis (Strasbourg, France) with Sanofi-Synthelabo (Le Plessis Robinson, France) to form Sanofi-Aventis.

Braunstein said there are “real tailwinds for the healthcare sector in general and each of these specific sectors that will bring us a very exciting 2005.“ He said that the 280 companies represented at this year's conference “really reflect the best of what healthcare and the healthcare industry has to offer investors.“