Well, I told you that we are in treacherous markets, and that caution was the watchword. We have also been preaching that October is the big danger. The younger pundits like to point out that September is the worst market month. Maybe so in very recent years, but not too long ago, the thought of October struck fear into the hearts of many. Whether it's 1929 or 1987, or many times before or since, October has taught brave men fear. But I guess the rookie experts were too busy then in high school, to pay attention.

Well, you can bet they're paying a lot of attention now. The 29 year-old managers of multi-billion dollar funds are no doubt in a state of shock. Wow! Do you mean markets go down too? Gee, I wonder if they're nervous? Naw, they just stocked up this weekend on disposable diapers by coincidence. A wise man once told me that when the tide goes out, you find out who isn't wearing a bathing suit. Well, a lot of our youthful intelligentsia has been caught with the tide out, and it isn't a very pretty sight. Ah, Index funds, where is thy sting?

If you haven't been lightening up your portfolio as we have been suggesting, it's probably too late to begin now. Of course, it's generally a good policy to sell a stock when the company has problems, as the time it takes to cure them almost always takes longer than initially projected by management. And when you get into these historically weak times of the year, you will seldom go wrong accumulating cash. Days like today are also a great reminder of how great it is to have a cash reserve.

I have been promising to tell you about a Biotech/Genomic stock that I believe has great promise. That stock is Hyseq, Inc. (HYSQ), and I'm loaded in it.

Hyseq is a biopharmaceutical company with a goal of producing gene-based products using their proprietary sequencing by hybridization technology (SBH), which permits them to process more than 1 million samples per month on a single production line and permitting the identification of rarely-expressed genes. They believe they have the world's largest database of partial gene sequences, which at the beginning of the year stood at 12 million, and growing at 50,000 per day at that time. Whatever the current figure, it has to be enormous.

Their collaborations include Chiron, Kirin, and PE Corp (successor to Perkin Elmer). They have a growing pipeline of therapeutic and diagnostic product candidates, and their business includes discovery of therapeutic targets for its corporate partners, and the commercialization of DNA analysis tools such as the HyChip universal DNA sequencing chip.

On September 23, 1999, Hyseq launched genesolutions.com, a new website offering genomic resources to pharmaceutical and biomedical researchers worldwide. Competitors who have offered this type of information, have required multli-million dollar subscription fees. Through this new website, gene sequences and related data are available to all researchers for purchase on an item-by-item basis, even by using a credit card. Cost efficiencies of Hyseq's technology allow prices to be set lower than the cost for a researcher to generate the data in-house.

They went public on August 8, 1997 at around $14 per share. Since then, the stock has traded in a range of 2 ½ and 21 5/8. In the last 12 months, the range has been 2 ½ and 8 3/8. As with all such start-ups, Hyseq has been losing money. In the second quarter June 30, 1999, they lost $4.5 million vs. losing $3.9 million in the same quarter of 1998. That equated to $(.35) vs. $(.31) on 13 million shares.

At June 30, 1999, their cash and short-term investments were $34.8 million and equity was $38.4 million. This puts their book value at $2.95 per share, with cash, etc. being $2.67 of that. They have no long-term debt. If they keep losing money at the rate of something under $5 million per quarter, their cash-burn rate will carry them through 7 quarters, or through the quarter ended March, 2001. Today they closed at 4 ½ - 13/32 on 78 thousand shares.

There are some interesting recent developments. On October 5 they announced that their proprietary gene has the potential for the treatment of inflammatory diseases such as rheumatoid arthritis. On October 6, broker M.H. Meyerson & Co. announced initiating coverage with a buy rating. On October 11, Jim McCamant of the Medical Technology Stock Letter, was on television saying that they just recommended Hyseq, a company with interesting technologies. And on October 12, they received a favorable U.S. District Court procedural ruling in the case of Affymetrix, Inc. v. Hyseq, Inc. The separate patent infringement lawsuit of Hyseq v. Affymetrix, filed by Hyseq in March 1997, is further advanced, and a hearing result is expected soon. I understand that the judge who is hearing the Microsoft anti-trust case will be hearing the Hyseq v. Affymetrix case.

All things considered, I think you get a lot of bang for the buck with Hyseq. It's not too far above it's low of last fall, and appears to have a unique technology and enormous data base. With only 13 million shares outstanding, any successes don't have to be divided too many ways. Between now and when their cash should run out, there are all kinds of money raising possibilities, as long as their science has value. Bear in mind, their relationship with the PE Corp. bears watching. PE is the leader in life sciences, and if the Hyseq component becomes a big part of their offerings, it could be a biggie.

Finally, Genomic stocks are receiving a lot of attention, and you know about how Internet stocks can get hot (or cold!). With Hyseq's new website, you get Genomics on the Internet, which has the potential for big things, especially if the pundits make a story out of it.

Anyway, you can't get a good hamburger for the price of a Hyseq share, which is insulting to all Hyseq shareholders. But if I'm right, it could be very profitable to you. You must know your own psychology. Their are some loss-averse millionaires who can't sleep a wink if they lose 50 cents. They lie in bed with eye-balls big as saucers. If that's you, forget Hyseq and buy a nice safe 300 year U.S. Bond paying 2% or so. But if you have any sporting instinct whatever, take a long, hard look at Hyseq. Stay tuned.

The Market Pro - October 15, 1999