Dow Jones 10281.67 -146.00 5:38 pm EST, Mon., March 25, 2002  NASDAQ  1812.49  -38.90  For info, visit access.smallcapnetwork.com .  S & P 500  1131.70  -17.00  To be removed, please click here .  Russell 2000   496.39  -6.00  VOLUME 02: ISSUE 24 Small Cap Digest Trading Alert: Axcan Pharmaceuticals  Our trading alert is on Axcan Pharmaceuticals (AXCA) a company SmallCap Digest subscribers have heard of before. Axcan markets a broad line of pharmaceutical products used in the treatment of a variety of gastrointestinal diseases and disorders. The company has a very impressive drug pipeline currently developing five products for nine indications, eight of which are in phase II or III studies.  In 2001 the company produced $104.55 million in revenue and expects $129 mill in 2002 and $142 in 2003.  Earnings per share were $0.31 in 01, est of $0.47 in 02 and $0.56 in 03. The reason for the trading alert is based on three related events. Secondary Filing NDA For Barrett's Esophagus Wall Street Analysts Secondary Offering Axcan just recently filed to sell 4.5 million shares to help pay for the acquisition of Enteris and bulk up the balance sheet.  The offering was very warmly received with the company selling 5 million shares at $11.50 per share.  In addition, the underwriters of the secondary offering exercised their over-allotment option and purchased from Axcan an additional 750,000 common shares.  In a week when biotechs were getting hammered, it was very impressive that Axcan was able to price the offering at such a minimal discount to the market and also having such strong demand.  Selling 5,750,000 shares brought roughly $66 million of which approximately $12 million will be used to pay off the Enteris acquisition.  That leaves about $54 million in the bank which will be earmarked for sales and marketing of newly approved drugs and possibly an acquisition. NDA For Barrett's Esophagus Axcan is expected to file a new drug application (NDA) for the treatment of Barrett's Esophagus with Photofrin. The filing is expected before the end of March with approval coming in September of this year.  The secondary offering gives Axcan a nice war chest to fund the sales and marketing of Photofrin for Barrett's Esophagus.  The fact that Axcan raised $66 million leads us to believe everything is on track for the NDA filing.  This filing should pop the stock anywhere from 10%-20%. Wall Street Analysts J.P. Morgan, Thomas Weisel Partners LLC, UBS Warburg LLC, National Bank Financial Inc. and SunTrust Capital Markets, Inc. served as the managers of the offering.  All of them currently have coverage on Axcan except for UBS Warburg which means there is a very high likelihood that the investment bank initiates coverage.  In case our subscribers forgot, fees for banks equal coverage for companies. Currently, the estimates the analysts have for Axcan do not include additional FDA approvals.  Once the NDA is filed perhaps the analysts will have the heart to upgrade or even send out some positive notes on the company. JP Morgan and SunTrust Capital already have issued some positive notes early this am and it will be a matter of time before the rest follow. Conclusion The catalyst is an NDA filing which will prompt analysts' upgrades and the initiation of coverage by UBS.  The UBS coverage may come before or after the filing but due to its involvement with the secondary it would be almost impossible for them not to give Axcan coverage.  The company itself is poised to do very well in the future but this trading alert is based on events we feel are in the near future.  Some SmallCap Digest subscribers may decide this is a long term hold as opposed to a trading alert.  Either way the floor on this stock should be in the $11.50-$12.00 level.  Considering that the secondary was priced at $11.50 it would take a catastrophic event for the stock to go below that level. A break above the 50 day moving average at around $13.00 dollars will form a cup and handle chart pattern.  The combination of an NDA filing and a barrage of positive analyst notes will help push Axcan past its 52 week high of $14.58.  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. SmallCap Digest is not a registered investment advisor or broker-dealer. 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