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Midwest Investment Bank Piper Jaffray Resurges in New York City

CHICAGO – I just returned from New York City, which was the site of the Piper Jaffray Healthcare Conference. It was held from Tuesday to Thursday last week. The significance of this conference is:

1) It is the first of 2004’s east coast-based healthcare conferences. Remember that we started off the year with the JP Morgan Chase H&Q Healthcare Conference in San Francisco about two weeks ago. The Merrill Lynch Healthcare Conference in New York City takes place next week.

2) Headquartered in Minneapolis, Piper Jaffray is essentially a Midwest icon that’s putting its stake into the New York financial world.

3) The conference gives us an early glimpse of the outlook for the biotech, pharmaceutical and medical device industries.

Piper Jaffray was founded in 1895. It was originally known as George B. Lane Commercial Paper and Collateral Loans & Co., which was a commercial paper brokerage firm founded by George Lane. Lane set up operations in Minneapolis to focus on Minnesota’s growing grain elevator and milling industries.
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Lane merged his company with H.C. Piper Sr.’s company – Piper Jaffray & Co. – which was founded in 1913 by Piper and C.P. Jaffray to form Lane Piper Jaffray in 1917. H.C. Piper was the grandfather of the company’s current vice chairman, which demonstrates that there still is family involvement in the company.

In 1929, Lane Piper Jaffray acquired another securities firm in Minneapolis – Hopwood & Company – which was founded in 1914. Hopwood was hit hard by the stock market crash of that era. Lane Piper Jaffray wasn’t too affected by the stock market crash as it wasn’t yet active in trading securities. The combined firm Piper Jaffray & Hopwood was formed and the new firm gained a seat on the New York Stock Exchange.

In 1944, the company opened up its first non-Minnesota branch. Though you would think this might be in a large city, they chose Great Falls, Mon. Over the next 20 years, the company would further intensify its position in the Midwest and the Great Plains states as a presence was acquired via the acquisition of another securities firm – Jamieson & Company – in 1964.

With this acquisition and further expansion, the company now had a presence in Billings, Mon.; Rochester, Minn.; Fargo, Grand Forks and Minot, N.D.; Duluth, Minn.; Sioux Falls, S.D.; and Eau Claire, Wis.

Fast forward another 20 years. In 1983, Forbes lists Piper Jaffray, Inc. (the holding company for Piper Jaffray Hopwood) as one of the best “small companies” in the U.S. Two years later, the company moved to its own building in Minneapolis (the Piper Jaffray Tower), and a year later (1986), the company’s stock began trading on Nasdaq.

In 1997, Piper Jaffray was acquired by U.S. Bancorp for $730 million as part of a wave of large banks and investment banks acquiring boutique investment banks (particularly if they have an expertise in technology or biotechnology). Piper Jaffray had already carved out a name in both areas. The new company becomes U.S. Bancorp Piper Jaffray.

By the year 2000, the firm had 100 retail brokerage offices in 20 Midwest, mountain and western states. In 2001, U.S. Bancorp itself is acquired by another Midwest financial institution – Firststar, Inc. – which is headquartered in Milwaukee. It becomes part of the eighth-largest U.S. financial institution at that time with $160 billion in assets and branch offices in 24 states. U.S. Bancorp became the name of the new institution.

In 2003, Piper Jaffray became an independent publicly traded company following its spin off from U.S. Bancorp. Today, the company has reverted back to its roots and has California offices in Los Angeles, Menlo Park and San Francisco (tech and biotech centers), Seattle (a biotech center), Chicago, New York City, London and Tel Aviv. Going back to its roots has allowed it to have one of the largest healthcare investment banking and analyst teams in the U.S.

The Piper Jaffray Healthcare Conference was a four-track extravaganza featuring more than 160 healthcare companies large and small in the medical device, biotech and pharmaceuticals. Unlike its west coast counterpart (the H&Q meeting), this was not a “mobbed” meeting because it was held in a very exclusive, elegant and smallish hotel right in front of Central Park and 5th Avenue.

Of the four tracks of companies, three were dedicated to public companies that were giving a hint of their fourth-quarter 2003 results (even though it’s still a bit early). The fourth track was dedicated to privately held companies (the hopefuls that will go public in the not-so-distant future).

Unlike H&Q, the conference wasn’t mobbed with people. In fact, it often seemed a bit empty except for the morning and meal sessions. This might have been due to the snow that hit New York Tuesday night, which accounted for 10 inches of snow and numerous last-minute company cancellations. The sessions ran straight from 8:30 a.m. until about 5 p.m. with no break for lunch. Companies were allotted 20 to 30 minutes to speak and then break-out sessions in other rooms for Q&As.

A number of Midwest companies presented at the conference including Barbeau Pharma, which, by full disclosure, employs me. Company founder and chief scientific officer Don Barbeau led a panel session on the FDA’s 505(b)(2) regulatory pathway.

If you’re wondering about that FDA mumbo jumbo, suffice it to say that the normal pathway of registering or getting approval for a new chemical entity (NCE) or a new drug with the FDA is called a 505(b)(1). The alternative pathway (which the FDA created initially in 1984 under the Waxman-Hatch Act and then modified later in the 1990s) created the 505(b)(2) mechanism.

This FDA regulatory mechanism is different than the pathway for generic drugs, which is known as an abbreviated new drug application (ANDA). The generic ANDA pathway basically applies to drugs for which a patent is about to expire or has expired and allows a company to use all data (safety and efficacy) already filed with the FDA by the innovator company and complete minimal drug development data (mostly bioequivalence data).

Under an ANDA scenario, the first generic company to file an ANDA for a generic drug and get FDA approval receives 180-day exclusivity in the marketplace. This exclusivity is critical for generic companies as it allows them to establish key distribution with retail drugstore chains and marketshare position versus the innovator company. After the 180-day exclusivity period, it is a market-feeding frenzy as generic companies trying to jockey for marketshare drop prices aggressively.

The 505(b)(2) regulatory pathway provides for FDA registration and approval of new indications (new labeling) of existing drugs already that are on the market in the U.S. It also provides for where a patent may have expired or is close to expiring and the approval of NCEs. This is based principally on a “paper” NDA process in which the soliciting company is able to use relevant and publicly available clinical trials to support an approval process with limited new clinical work.

Barbeau shared a panel with a legal expert from the law firm of Heller Ehrmann in Washington, D.C. who reviewed the whole legal history of the 505(b)(2) process while Barbeau reviewed the commercial history. In his prior company Biomega (a consulting company he ran for 10 years with Big Pharma and Big Biotech clients) and as editor of the Journal of Phase III Drug Reports, Barbeau is one of the country’s few experts in this field and is one of growing interest to both specialty pharmaceutical companies and generic companies.

Drugs that are approved under the 505(b)(2) pathway receive Waxman-Hatch market exclusivity (equivalent to patent protection) for three years for new labeling, up to five years for an NCE and seven years under orphan drug designation. While this is not of great interest to Big Pharma because market exclusivity is too short, it is of great interest to the specialty pharma industry.

Midwest companies were fairly well represented at this conference (as is appropriate given Piper Jaffray’s origins). Those that presented at the conference included:

· Abbott Labs (Illinois)
· MGI Pharma (Minnesota)
· Biomet (Indiana)
· Zimmer Holdings (Indiana)
· Stryker (Michigan)
· Dade-Behring (Illinois)
· Steris (Ohio)
· St. Jude Medical (Minnesota)
· Urologix (Minnesota)
· Endocardial Solutions (Minnesota)
· SurModics (Minnesota)
· Aksys (Illinois)
· Barbeau Pharma

I caught the Abbott Labs and MGI Pharma presentations. Abbott’s did not feature CEO Miles White but rather a prosaic and humdrum presentation from a vice president of investor relations.

It’s a shame as Abbott has had a lot of interesting news this past year with the successful launch of its new rheumatoid arthritis drug Humira, the spin off of its hospital business into the new company Hospira, the reapproval by the FDA of much of its diagnostics business and the recent hire of a senior consumer products executive from Wrigley to revamp its profitable but lackluster Ross nutritional business.

Unfortunately, the story spin was far too detailed and didn’t present the excitement of what’s to come in the future.

MGI Pharma’s story was very much to the point and exciting. You can see why this company’s stock has gone from a low of $6 a share a year ago to more than $40 a share today (maybe the Abbott folks should take heed). MGI CEO Lonnie Moulder is a very down-to-earth guy who told an interesting and focused story that was based on the FDA approval of its drug Aloxi during the third quarter of 2003.

Amazingly, this company is sitting on $200 million in cash. If that isn’t enough to buy a whole stream of new products, I don’t know what is. MGI Pharma does need some follow-on products to its new anti-nauseant agent Aloxi, and though its cancer drug Irofulven is in multiple clinical trials for different types of cancer, it didn’t seem clear as to when launch might take place.

Still, Aloxi’s rollout should drive the company’s growth over the next couple years.

Another benefit of the Piper Jaffray conference was that I could get my hands on some good analyst reports. I’m not just referring to the profiles of different companies that they periodically file. I’m referring to the sector biotech and pharmaceutical studies that they put out, which can run as much as 300 pages of intensive analysis. One of the reports I grabbed was chock full of information.

For instance, did you know that there will be about $5.2 billion in pharmaceutical sales of drugs with patents expiring in 2004 and another $10.5 billion in 2005? This must make the generic companies salivate at the mouth. Another analysis showed the number of drugs in each stage of development in the U.S. by therapeutic class. For example:

1) There are 1,345 new cancer drugs in development (of which five have been approved and not yet launched).
2) 21 cancer drugs are under actual FDA review.
3) 67 cancer drugs are in phase III trials.
4) 219 drugs are in phase II trials.
5) 196 drugs are in phase I trials.
6) 837 drugs are in pre-clinical development.

Another startling piece of information is on the number of adults aged 65 or older in the U.S.:

1) There were 35 million in 2000. This is a critical piece of information because most healthcare expenses for an individual begin after age 65.
2) By the year 2010, this number is expected to grow to 39.7 million.
3) By the year 2020, this number is expected to grow to as much as 53.7 million people.
4) By the year 2030, this number is expected to grow to as much as 70.3 million people.

Wow! We think we have problems with the cost and expense of Medicare and social security now. Look what our children and grandchildren will be saddled with. Another related piece of information:

1) The average U.S. adult aged 65 to 74 gets 11 new prescriptions per person versus 1.5 scripts for a teenager or young adult aged 15 to 24.

2) Four new scripts are received for a middle-aged adult aged 45 to 54 (my bracket).

3) For an adult aged 75 or older, this script count on average increases to 13 new scripts per person.

Of course, an ever-important figure for pharmaceutical marketers is that the U.S. pharmaceutical market is expected to grow from $205.3 billion in 2003 to $264.7 billion in 2005 or an average of 15 percent per year.

So thank you, Piper Jaffray, for a very good conference. Just remember your Midwest roots and where you came from and also to support the home-team healthcare companies.

Biotech IPO Update

The long-anticipated launch of the 2004 biotech IPO season initiated last week with the successful IPO of Eyetech Pharmaceuticals, a New York-based ophthalmology biotech company. According to Monday morning’s Wall Street Journal, the Eyetech IPO was strong enough that underwriters Merrill Lynch and Morgan Stanley were able to price the deal higher than anticipated ($21 a share versus prior estimates of $18 to $20 a share).

Eyetech shares ended up 54 percent by the end of last week at $32.40 a share. This is a good sign for the biotech IPO market. The next two biotech IPOs up on the block are GTx (of Memphis, Tenn.) and Renovis (of Berkely, Calif.). Both are being taken out by Goldman Sachs and are looking to price between $13 and $15 a share while selling between 5.4 million and 5.5 million shares in their IPOs.

This will yield the companies about $65 to $75 million in gross proceeds. By the way, a number of the companies that had planned to go public during the fourth quarter of 2003 and didn’t were at the Piper Jaffray Conference last week. Currently, there’s no word on their status.

See you next week!

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Michael S. Rosen is president and CEO of Barbeau Pharma and a founder and board member of the Illinois Biotechnology Industry Organization (IBIO). He can be reached at rosenmichaels@aol.com. This article has been syndicated on the Wisconsin Technology Network courtesy of ePrairie, a user-driven business and technology news community distributed via the Web, the wireless Web and free daily e-mail newsletters. They can be found at www.eprairie.com.

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The opinions expressed herein or statements made in the above column are solely those of the author, & do not necessarily reflect the views of The Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.

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