Fancy a splash in the gene pool?

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When looking for companies that are really breaking the mould, introducing new products and services in emerging markets, it is sometimes hard to see beyond the burgeoning internet.

There should be some great winners in the internet business and, as we keep saying at the Motley Fool, in the future all companies will have to be internet companies to some degree. But at the moment it is very difficult to separate the wheat from the chaff.

So where else can we look? The biotechnology sector is one that has attracted a number of followers over the last few years. But the failures at British Biotech earlier this year, when the clinical effectiveness of some of its trial therapies was overstated, caused more than a few investors to go to bed early and nurse their burnt fingers.

So we need to be careful and always remember the Foolish maxim to never invest in something we don't understand. To many, that might appear to exclude the biotechnology sector altogether.

At Fool HQ, where we count an ex-GP and a biochemistry graduate among our number, we struggle with some bio- technology companies, whose futures are usually far too uncertain for us in any case.

But the power of the Fool's online community lends us great strength, and one of our message board regulars, who is in the business, has been at hand to help our understanding of technical issues. And so, we have been dipping our Foolish toes into the mysterious waters of pharmacogenomics. Now that's a big word, so what does it mean? Well, it really just boils down to the following:

1 Our genes control everything that happens in our bodies.

2 Probably all drugs act by affecting genes in some way.

3 Studying the pattern of gene activation in an individual can potentially tell us things about their health, the state of their disease, the effect of drugs taken so far and the likelihood of future drugs being effective.

4 Pharmacogenomics is the study of the effect of drugs on gene activation.

Now we understand that, let's get back to financial caution for a moment. In the eyes of Fool HQ, most biotechnology companies can be likened to miners in the great gold rushes. Only a very few lucky ones will strike the mother lode. But meanwhile the guy in the chuck- wagon, or the bloke selling the blue jeans, makes a packet. Providing the tools for the job and letting the other suckers take the risk is nearly always a profitable strategy and an American company, Affymetrix, looks at first sight like it might fit that bill. But what does it do?

With 100,000 genes to sift through, examining individual genes within the human body is time-consuming to say the least. However, the gene chip microarray technology to which Affymetrix holds patents allows researchers to examine many thousands of genes at the same time. Commercial sales of "gene chips" began in 1996, and as far as we can tell, the company has no direct competitors.

Affymetrix is clearly the first mover and top dog in its market. It has support from a number of very important customers, and probably has a sustainable advantage because of its patented technology.

But we are undecided about investing in Affymetrix and will be doing a lot more hard thinking before we make a decision. Our chief concern is the size and importance of the company's potential market. Its particular technology is best suited to the world of clinical research, but the diagnostics market, in which similar but simpler and cheaper technologies will be needed, may well eclipse the research market in commercial importance.

We will be returning to this subject. For now, though, please remember that our cogitations here do not constitute tips. Never blindly rush in and buy anything we talk about. Fools always do their own research and make their own decisions.



Recently I discovered shares traded off-exchange (see Why are these not better publicised in the newspapers and online?

PW, London

The Fool replies: Ofex does not constitute a "proper" stock exchange, which means that it has no market makers to buy and sell shares. If you wanted to buy something, for example, your broker would have to find another individual wanting to sell the same thing at a mutually agreeable price. It can thus be difficult to buy or sell when you want to.

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