This year's JPMorgan Healthcare Conference promises to be a festive gathering, as young companies, venture investors, and established health care firms search for the business partners to help them fulfill their dreams.

Biotech's annual kickoff conference, which starts today at the Westin St. Francis Hotel in San Francisco, is like a slightly delayed New Year's Eve party, with revelers celebrating the past year's triumphs, resolving to do better in the future while cruising for new relationships.

The past year has seen enough promising pairings to fill a fan magazine, as big pharmaceutical firms and larger biotech companies signed drug development deals with smaller outfits -- or bought them outright.

In the Bay Area, the noteworthy deals in play include Amgen's $2.2 billion purchase offer for the Fremont biotech company Abgenix, and Novartis' pending $5.1 billion offer for the pioneering Emeryville biotech company Chiron Corp.

The potential funding from partnership deals also surged from $10.9 billion in 2004 to $17.1 billion in 2005, according to a year-end report by Burrill & Co., a San Francisco life sciences investment bank. Those figures reflect the maximum amount of funding biotech firms could reap if they meet all the milestones set by their funding partners.

In recent years, such big drug companies as Pfizer have pursued relationships with innovative biotechnology firms like a movie studio mogul signing up a stable of ingenues. Biotech companies have become the richest source of new drug candidates, as the patents start to expire on blockbuster drugs that form the mainstay of big pharmaceutical firm revenues.

"Big pharma is desperate to augment its (drug) pipeline," said Steven Burrill, chief executive of Burrill & Co. Through partnership deals, larger health care firms provide funding for the drug studies of smaller companies, in exchange for later rights to share the profits if the drug is approved.

Having already snapped up co-development rights to many of the new compounds in later stages of clinical studies, the big drug companies in 2005 started wooing biotech firms with earlier-stage products, Burrill said. "Not only is big pharma getting in earlier, but the price tag is going up."

Under those market conditions, some of the smaller biotech firms are expected to garner even greater attention when they showcase their work at the 24th annual JPMorgan conference, where 296 companies will take the stage before a record 7,000 attendees.

The invitation-only JPMorgan event has expanded beyond its original mission of promoting biotechnology investment and now features presentations by big drug companies, medical device firms and health care services providers as well.

Vivek Jain, co-head of health care investment banking at JPMorgan, said the conference's burgeoning attendance illustrates the increasing importance of the health care industry, as an aging U.S. population demands access to the improved therapies starting to flow from advancing technology.

Over the past five years, investment in health care has doubled from $1 trillion to more than $2 trillion.

But Jain said the cost of providing new treatments to patients is becoming an increasing burden to the U.S. economy. That creates a market niche for companies that can help reduce medical care costs while improving the quality of care.

Jain said this year's conference includes molecular diagnostic firms whose gene-based tests can determine which drug would be best for each individual. That way, an expensive new drug would be used only for those who will really benefit from it.

In spite of the flow of funding from partnership deals, financing remains a challenge in the biotech sector, where a typical company records losses for 10 or more years while developing potential therapies.

The scientific work to identify a drug candidate is only the beginning. A company must conduct clinical trials in patients to prove the drug is safe and effective, and the cost of clinical trials of drugs is rising.

Those costs may go even higher given recent concerns over drug safety, raised in part by the withdrawal of Merck's painkiller Vioxx. That high-profile incident could spur the Food and Drug Administration to require even more rigorous studies.

"What concerns me most is what happened with Vioxx and how that will impact how the FDA regulates products and what data is required for approval," said Karen Boezi, managing partner, Thomas McNerney & Partners, a health care private equity firm.

Those regulatory requirements could increase the amount of capital that must be advanced before investors in a biotech firm can reap returns, either through a public offering or acquisition of the company, she said.

Lou Bock, managing director of BA Venture Partners in Foster City, said biotech companies used to go through $30 million to $40 million in capital spending before going public. Now they need as much as $100 million, he said.

"I'm trying to find the companies that are truly efficient with the capital," Bock said.

Venture capital funding for biotech dipped from $3.7 billion in 2004 to $3.5 billion in 2005, according to the Burrill report. Only 17 initial public offerings were completed in 2005, and the $812 million they raised was 52 percent below the 2004 total.

Burrill attributes the sluggish IPO market to the general economic climate rather than to conditions specific to biotech. He anticipates 30 to 40 IPOs in 2006.

In the meantime, co-development partnerships with bigger drug firms are filling the funding gap for many pre-IPO firms and smaller public biotechs.

Exelixis of South San Francisco boasts collaboration partners including GlaxoSmithKline, Bristol-Myers Squibb, Genentech and Wyeth.

Partnership deals not only reflect big pharma's deference to the innovative genius of biotech firms, said George Scangos, chief executive officer of Exelixis. "I think it's risk-shifting off of pharma onto biotech," he said.

The big drug firms are willing to pay a premium to acquire the most promising drug development rights, once early-stage biotech firms have spent their own money to prove their initial worth, he said.

Biotech passed a milestone in November 2005 by reaching an all-time high in aggregate market capitalization of $488 billion. That surpassed the previous record high it achieved in the summer of 2000, at the height of excitement over the completion of the draft sequence of the human genome.

But the market-cap peak reflected huge gains by two large companies, Genentech of South San Francisco and Amgen of Thousand Oaks, which each touched $100 billion in market capitalization before receding a bit as the year ended. Still, those values put Genentech and Amgen ahead of several major drug firms, including Merck, Wyeth and Bristol-Myers Squibb.