Biotech Values

[cfoofme]

By Erica Owen
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--When it comes to the high-risk Focus Fund LP, "active"
is the key word.
Winder Hughes of Ponte Vedra, Fla., founded the fund in 2000 and manages its
$10 million through Hughes Capital Investors LLC. The fund seeks to generate
long-term gains through actively managing unleveraged, emerging-growth stocks.
"Because we're small and they're small, we're very active," said Hughes, who
generally invests in companies that have a market cap of between $50 million
and $200 million and that are in a growth sector. "These are (companies) that
are usually within a year of being profitable for the first time in their
history."
The Focus Fund invests in the common stocks of roughly a dozen companies at
any given time and interacts with their management as an active investor.
Hughes said most companies welcome the outside perspective as they are
generally too small to garner Wall Street coverage or institutional interest.
"It's almost like publicly traded venture capital," Hughes said.
The fund has a turnover rate of less than 50% and strives for a 25% annual
return. The minimum investment is $100,000.
In 2001, the fund returned 35.9%, compared with a return for the Russell
2000 Index of 2.5%, while the Standard & Poor's 500 index was down 11.9%,
Hughes said. In 2003, the fund returned 355.2%, compared with 47.3% for the
Russell 2000 and 28.7% for the S&P 500, according to Hughes. For 2006 so far,
Hughes said that as of Thursday, the fund is running "flattish" due to an
ailing holding earlier in the year and noted that as the fund is highly
concentrated, returns can vary sharply.
The following are three of Hughes' favorite Focus Fund holdings:
- Stockeryale Inc. (STKR): Hughes said Stockeryale, which designs
telecommunications component products and specialty optical fiber for the
telecom industry, is a good investment opportunity after the market's
enthusiasm for competitor IPG Photonics Corp. (IPGP), which made its debut
earlier this month.
Hughes said a recent acquisition upped Stockeryale's revenue run rate to $30
million from $20 million. The company has positive earnings before interest,
taxes, depreciation and amortization, and Hughes sees sales growth of 25%,
with earnings of 20 cents to 25 cents a share by 2008.
- Unigene Laboratories Inc. (UGNE): Hughes pointed to this over-the-counter
stock, a biopharmaceutical that develops oral and nasal peptide drugs that
treat osteoporosis patients, a growing market world-wide.
Unigene currently markets its nasal calcitonin product, Fortical, its first
Food and Drug Administration-approved treatment, which launched in August
2005. Hughes said Fortical is on track to generate 800,000 prescriptions over
the next year, and he sees earnings potential of between 20 cents and 30 cents
a share from Fortical alone.
In addition, Unigene has lucrative licensing deals in place with both
Novartis AG (NVS) and GlaxoSmithKline PLC (GSK). At the same time, competing
osteoporosis treatment Fosamax from Merck & Co. (MRK) is facing growing
concerns about side effects that may include osteonecrosis of the jaw, known
as "dead jaw."
"As health risks around Fosamax and other bisphosphonates grow, the safer
alternative of calcitonin will gain more traction," Hughes said.
- Sutcliffe Resources Ltd. (SCRRF): Hughes discussed another OTC stock:
Sutcliffe, a gold exploration company with eyes on Russia, which Hughes calls
the "last big bastion where there are unexploited multimillion-ounce gold
deposits." Hughes noted that Sutcliffe has formed relationships in Russian
provinces and acquired four major gold deposits through auction and private
purchase.
Hughes compared Sutcliffe to Bema Gold Corp. (BGO), which was just acquired
for $2.5 billion. "We believe that Sutcliffe has at least the same amount of
reserves that Bema has," said Hughes, who sees potential Sutcliffe gold
production of more than 500,000 ounces a year within three years.
-By Erica Owen, Dow Jones Newswires; 201-938-5393; [e-mail]

(END) Dow Jones Newswires
12-22-06 1500ET