Dow Jones 9771.85 -78.19  5:08 am EST, Sat., January 18, 2002  NASDAQ  1930.34 -55.48  For info, visit access.smallcapnetwork.com .  S & P 500  1127.57 -11.31  To be removed, please click here .  Russell 2000     474.37 -8.02  VOLUME 02: ISSUE 6 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 in the past few years will propel a new pipeline of drugs to reach the market. This means that many small companies may be potentially sitting on drugs or therapies that could generate billions in sales and profits. The success 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 the bureaucracy that often plagues large corporations and academic institutions.  Moreover, the prospect of amassing vast personal wealth also played a part.  These above factors are the driving forces that are fueling the current 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.   Our lives in the next 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 will soon become treatable with simple, effective, and advanced procedures. This is not only welcome news for the sick and the dying, but also for investors who are smart enough to cash in on all the progress leading to this evolutionary panacea.  During the entire 10 year period between 1976 and 1985, 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 higher in 2002. At present, an astonishing 643 new pharmaceuticals are nearing 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 question is separating the contenders from the pretenders. Nonetheless, judging from the recent rise in key biotech stock indexes, investors are banking 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 misplaced. There will indeed be companies that will develop and commercialize drugs/applications with billion dollar potential.  Developing new pharmaceutical compounds is costly and time consuming. Yet the rewards can be enormous, both for the companies involved and for their investors. Before new pharmaceuticals can be sold, they must successfully complete three phases of testing as mandated by the FDA. This process can take as long as 15 years, although expedited procedures enacted during the Clinton administration 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 risk the drug does not ever reach the market. According to Tricia Nagle, managing editor of the newsletter Drug and Market Development, more than 90 percent 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 reach Phase III testing, it is still not a guarantee of success. It is estimated that roughly 40 percent of potential new drugs fail their final phase III tests.  The following are biotech companies with applications that have the potential to make big splashes in 2002. ViroPharma (VPHM): Cure for the common cold. The company's future rests on Picovir, the magic cold treatment. ViroPharma filed its New Drug Application (NDA) with the FDA for US approval of Picovir on July 31st, and it was accepted for review on October 1st.  With an anticipated FDA review time of 12 months, we expect the company to hear back from the FDA July 31, 2002, with a final approval anticipated by the end of the third quarter. This is your typical "grand slam" or perishes type of biotech company.    Maxim Pharmaceuticals (MAXM): Cancer Treatment. Ceplene?, is currently being tested in Phase III cancer clinical trials in 12 countries for malignant melanoma and acute myelogenous leukemia, and in Phase II trials for the treatment of hepatitis C and renal cell carcinoma. Phase III clinical trials for Ceplene , the treatment of advanced metastatic melanoma, is expected to begin 1Q/02.  Maxim will also be advancing its hepatitis C infection program with a Phase II trial in 2002.  Medarex (MEDX): Cancer Treatment & Arthritis. Medarex utilizes its own patented UltiMAb-Mouse system to create fully human antibodies for itself and others, offering a full range of antibody development and manufacturing capabilities.   15 UltiMAb-derived antibodies are expected to be in the clinic by the end of this year. Collaboration agreements with 10 new partners should be initiated during 2002.  Phase III trials were recently started on MDX-CD4 a treatment for rheumatoid arthritis. MDX-010 is currently undergoing several multi center Phase I/II trials in prostate cancer, melanoma and other malignancies. MDX-210 is being evaluated  in patients with solid tumors. MDX-33 is currently being tested in patients with the auto immune disease ITP.  Axcan Pharma (AXCA): Gastrointestinal Treatment & Cancer. Axcan is a leading specialty pharmaceutical company within the field of gastroenterology in North America and Europe. Key products including ULTRASE for pancreatic enzyme replacement, PHOTOFRIN photodynamic therapy for lung and esophageal 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 potential cause of gastric cancer) should be FDA approved later this year.  It's good to know someone is fighting our gastro problems.    DUSA Pharmaceuticals (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 conditions.  Levulan apparently has wider applications and may add to the bottom line in the not too distant future.  DUSA initiated three Phase I/II Levulan PDT clinical trials. In dermatology, in co-operation with Schering AG, Germany, trials are now well underway in onychomycosis (nail fungus) and warts, joining the already ongoing study in acne. Initial results from all of these studies are expected during early to mid 2002.  Investing in the biotech world is more interesting and fruitful than any other sector.  Biotech investors 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.  In addition, most biotechs show little or no revenue, and almost all in a sea 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 substantial 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 are often too risky for many investors.  The second type of company is on the infrastructure side, usually referred to as the "picks and shovels".  These biotechs are the suppliers and drivers to the application companies.  This relationship is similar to how Cisco (CSCO) and Oracle (ORCL) has helped power all the Webvans and eToys of the world.  Infrastructure companies often have real revenues and earnings derived from supplying application companies.  Owning stock in infrastructure companies helps diversify much of the downside risk because there are so many startups aiming to develop that billion dollar cure. They will spend millions on goods and services which in turn, allow the infrastructure companies to build their war chest of cash for use in getting into the application side of the business in the future, creating a biotech behemoth. Any company can wake up one day and decide to find a cure for any disease, but trying to become an infrastructure company is very difficult because of the barriers to entry.   Now the burning question is who are these "picks and shovels" companies?  The SmallCap Digest has discovered a biotech company that fits the bill. We will be bringing you more information on this company very soon.  Once we have conducted a complete due diligence on this company we will inform our subscribers of the findings.  Stay Tuned!   D I S C L A I M E R : The SmallCap Digest is an independent electronic publication committed to providing our readers with factual information on selected  publicly traded companies. 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