By Marisa Taylor

The attendees of the JP Morgan Healthcare conference in San Francisco gathered in the grand ballroom of the Westin St. Francis for a luncheon on Wednesday afternoon, expecting to hear JP Morgan analysts give a panel discussion about the next year’s outlook for healthcare investment.

But the lunchtime panel, titled “Vital Signs – Stat! Prognosis for the Healthcare Investor 2007,” came with a bit of a twist.

JP Morgan pharmaceutical analyst Chris Shibutani emceed the event, clad in a white doctor’s coat and stethoscope. He informed the audience that they would have to actively participate during the lunch—in an America’s Funniest Home Videos-like twist, each table was equipped with an electronic voting keypad at every place setting such that attendees could answer the polling questions on the overhead projector. Answers would immediately calculated and broadcast on the screen for all to see and discuss.

“If you’re here, you’re answering questions,” said Mr. Shibutani. “If you don’t….” he paused with mock menace, tugging at a blue latex glove that he had slipped on his right hand and letting it go with a snap, getting a laugh from the audience. “Give us a hand,” he quipped, waving a faux skeleton’s arm that he had stashed at the podium.

And with that, the questions began. The audience members were asked to identify themselves—and nearly half of the attendees in the room were hedge fund investors.

When asked which sector of healthcare they thought would perform the best in 2007 37 percent chose biotechnology, which Geoffrey Meacham, JP Morgan’s biotechnology analyst, did not expect. “I’m surprised that biotech was picked to be the best performing sector, because it’s been underperforming,” he said after the event.

However, 23 percent of the group selected specialty pharmaceuticals as the best performing sector, 11 percent voted for medical devices, and 8 percent chose small cap pharmaceuticals.

Among the large cap biotechnology companies, 29 percent of the crowd voted for Genentech as their top pick for 2007, followed by Gilead Sciences at 19 percent. Again, Meacham expressed surprise—Celgene and Biogen Idec were the best performers of 2006, he said.

And when asked what would the most important driver of growth in the biotechnology sector, 37 percent chose M&A activity, with 36 percent voting for late stage clinical developments. “I get the sense that the first half of the year, you will see a lot of IPOs,” said Meacham in response to the votes. “Clearly there are a lot of good stories coming into the pipe, and I think that’s indicative of almost a limitless access of capital that smaller companies have been provided with.”

In the realm of pharmaceuticals, 22 percent of the crowd chose Merck as the best U.S. pharmaceutical investment for the next year, with Wyeth and Pfizer following closely behind at 20 percent and 17 percent, respectively.

But the crowd’s attitude about pharma was considerably negative with respect to congressional changes—when asked which sector was most likely to suffer under the new Democratic leadership in the House and Senate, 67 percent said large cap pharma would be the biggest loser.

In the medical device sector, 35 percent of the group felt that cardiovascular stocks like Boston Scientific, Edwards Lifesciences, Medtronic, and St. Jude Medical would perform the best. And when asked which medical device company was most likely to be acquired in 2007, 27 percent chose Kyphon, with 25 percent selecting St. Jude Medical.

Overall, when asked which areas in the healthcare sector held the most interesting opportunities for growth in 2007, 41 percent of the crowd chose personalized medicine.

And just for fun, the panelists decided to get political, asking attendees who were the most likely Republican and Democrat presidential nominees in 2008. Half the room chose Senators John McCain and Hillary Clinton, the latter of which led Mr. Shibutani to say, “Come on—you’re supposed to pick who you think will win, not who you want to win!”

In the end, Mr. Shibutani asked the panelists to volunteer their picks of the top companies to watch for in 2007, selecting Wyeth as his own favorite. Pharmaceutical analyst Adam Greene selected Barr Pharmaceuticals, and Meacham said his favorites were Celgene and Biogen Idec.