Health Is Wealth

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: ISSUE 6 =09
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Health Is Wealth It's PARTY time! 2002 is expected to be the coming out =
party for the biotech sector. The fruits of innovative research performed i=
n the past few years will propel a new pipeline of drugs to reach the marke=
t. This means that many small companies may be potentially sitting on drugs=
or therapies that could generate billions in sales and profits. The succes=
s of Genentech in the 80's helped inflate a biotech bubble that eventually =
imploded in the late 80's and early 90's. However, the trickle down effect=
produced a new breed of scientist/entrepreneur. These future biotech CEOs=
realized that they could go off on their own to pursue research without th=
e bureaucracy that often plagues large corporations and academic institutio=
ns. Moreover, the prospect of amassing vast personal wealth also played a =
part. These above factors are the driving forces that are fueling the curr=
ent biotech sprint. The new paradigm has shifted from internet/technology=
companies to biotech. This is where the next major area of expansion will =
be. Even the Nasdaq 100 (QQQ ) has expelled some of its most high profile =
tech names in favor of biotech companies. [IMAGE] Our lives in the ne=
xt few decades will be touched by the biotech industry more than any other.=
Thousands of new jobs will be created, and as technology and biotechnology=
start converging to one, the next great industry will be born. Ultimately=
, for mankind, illnesses that were once thought to be fatal and incurable w=
ill soon become treatable with simple, effective, and advanced procedures. =
This is not only welcome news for the sick and the dying, but also for inve=
stors who are smart enough to cash in on all the progress leading to this e=
volutionary panacea. During the entire 10 year period between 1976 and 1=
985, the FDA approved only 198 new drugs. In 2001 alone, the number of new =
drug approvals skyrocketed to 160. That figure is expected to climb even hi=
gher in 2002. At present, an astonishing 643 new pharmaceuticals are nearin=
g the final stages of the FDA's testing and approval process, according to =
a recent report prepared for the US Department of Health and Human Services=
. Many investors are already well aware of the coming biotech boom. The q=
uestion is separating the contenders from the pretenders. Nonetheless, judg=
ing from the recent rise in key biotech stock indexes, investors are bankin=
g on biotechs, hoping that they'll generate whopping returns reminiscent of=
those investors pocketed from once hot tech stocks such as Cisco (CSCO ) ,=
Microsoft (MSFT) and other tech stalwarts. Such hopes are not entirely m=
isplaced. There will indeed be companies that will develop and commercializ=
e drugs/applications with billion dollar potential. [IMAGE] Developing new=
pharmaceutical compounds is costly and time consuming. Yet the rewards can=
be enormous, both for the companies involved and for their investors. Befo=
re new pharmaceuticals can be sold, they must successfully complete three p=
hases of testing as mandated by the FDA. This process can take as long as 1=
5 years, although expedited procedures enacted during the Clinton administr=
ation have reduced the testing period in some cases to less than five years=
. The earlier a new drug is in the development process, the higher the r=
isk the drug does not ever reach the market. According to Tricia Nagle, man=
aging editor of the newsletter Drug and Market Development, more than 90 pe=
rcent of all new biopharmaceuticals under development never even make it to=
the first part of Phase III trials. If a company is fortunate enough to re=
ach Phase III testing, it is still not a guarantee of success. It is estima=
ted that roughly 40 percent of potential new drugs fail their final phase I=
II tests. The following are biotech companies with applications that hav=
e the potential to make big splashes in 2002. ViroPharma (VPHM ): Cure fo=
r the common cold. The company's future rests on Picovir, the magic cold tr=
eatment. ViroPharma filed its New Drug Application (NDA) with the FDA for U=
S approval of Picovir on July 31st, and it was accepted for review on Octob=
er 1st. With an anticipated FDA review time of 12 months, we expect the co=
mpany to hear back from the FDA July 31, 2002, with a final approval antici=
pated by the end of the third quarter. This is your typical "grand slam" or=
perishes type of biotech company. Maxim Pharmaceuticals (MAXM ): Canc=
er Treatment. Ceplene?, is currently being tested in Phase III cancer clini=
cal trials in 12 countries for malignant melanoma and acute myelogenous leu=
kemia, and in Phase II trials for the treatment of hepatitis C and renal ce=
ll carcinoma. Phase III clinical trials for Ceplene , the treatment of adva=
nced metastatic melanoma, is expected to begin 1Q/02. Maxim will also be a=
dvancing its hepatitis C infection program with a Phase II trial in 2002. =
Medarex (MEDX ): Cancer Treatment & Arthritis. Medarex utilizes its own pa=
tented UltiMAb-Mouse system to create fully human antibodies for itself and=
others, offering a full range of antibody development and manufacturing ca=
pabilities. 15 UltiMAb-derived antibodies are expected to be in the clini=
c by the end of this year. Collaboration agreements with 10 new partners sh=
ould be initiated during 2002. Phase III trials were recently started on M=
DX-CD4 a treatment for rheumatoid arthritis. MDX-010 is currently undergoin=
g several multi center Phase I/II trials in prostate cancer, melanoma and o=
ther malignancies. MDX-210 is being evaluated in patients with solid tumor=
s. MDX-33 is currently being tested in patients with the auto immune diseas=
e ITP. Axcan Pharma (AXCA ): Gastrointestinal Treatment & Cancer. Axcan i=
s a leading specialty pharmaceutical company within the field of gastroente=
rology in North America and Europe. Key products including ULTRASE for panc=
reatic enzyme replacement, PHOTOFRIN photodynamic therapy for lung and esop=
hageal cancer and CANASA rectal suppository for inflammatory bowel disease.=
Helicide, Axcan's patented, oral, single capsule, triple therapy treatment=
for H. Pylori infection (the leading cause of peptic ulcers and a potentia=
l cause of gastric cancer) should be FDA approved later this year. It's go=
od to know someone is fighting our gastro problems. DUSA Pharmaceutica=
ls (DUSA ): Cancer Detection. The company's main product Levulan
PDT/PD is a platform used for the detection and treatment of a variety of =
superficial conditions, such as early cancers, pre cancers and skin conditi=
ons. Levulan apparently has wider applications and may add to the bottom l=
ine in the not too distant future. DUSA initiated three Phase I/II Levulan=
PDT clinical trials. In dermatology, in co-operation with Schering AG, Ger=
many, trials are now well underway in onychomycosis (nail fungus) and warts=
, joining the already ongoing study in acne. Initial results from all of th=
ese studies are expected during early to mid 2002. Investing in the biote=
ch world is more interesting and fruitful than any other sector. Biotech i=
nvestors most often seek to find the company with the cure for something. =
The companies mentioned above are on the "application side", where returns =
are much higher, although accompanied with the downside of greater risk. I=
n addition, most biotechs show little or no revenue, and almost all in a se=
a of red ink. However, finding "the one" will lead to the kind of home run=
that each investor only dreams about. The monetary gains are quite substan=
tial but so are the potential losses if something goes awry. Just look at =
Imclone (IMCL ) - a perfect example of what happens when a dream turns to a=
nightmare. But much like the internet/technology sector, there are two =
types of companies. First, we mentioned the application companies which ar=
e often too risky for many investors. The second type of company is on the=
infrastructure side, usually referred to as the "picks and shovels". Thes=
e biotechs are the suppliers and drivers to the application companies. Thi=
s relationship is similar to how Cisco (CSCO ) and Oracle (ORCL ) has helpe=
d power all the Webvans and eToys of the world. Infrastructure companies=
often have real revenues and earnings derived from supplying application c=
ompanies. Owning stock in infrastructure companies helps diversify much of=
the downside risk because there are so many startups aiming to develop tha=
t billion dollar cure. They will spend millions on goods and services which=
in turn, allow the infrastructure companies to build their war chest of ca=
sh for use in getting into the application side of the business in the futu=
re, creating a biotech behemoth. Any company can wake up one day and deci=
de to find a cure for any disease, but trying to become an infrastructure c=
ompany is very difficult because of the barriers to entry. Now the burnin=
g question is who are these "picks and shovels" companies? The SmallCap =
Digest has discovered a biotech company that fits the bill. We will be brin=
ging you more information on this company very soon. Once we have conducte=
d a complete due diligence on this company we will inform our subscribers o=
f the findings. Stay Tuned! =09
D I S C L A I M E R :[IMAGE] The SmallCap Digest is an independent electro=
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ward maximizing the upside potential for investors while minimizing the do=
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