During UBS Warburg's recent conference, however, several biotech companies caught my attention because of their growth potential, particularly Cephalon (CEPH:Nasdaq - news - boards) and Celgene (CELG:Nasdaq - news - boards). (UBS Warburg rates both stocks a buy and has done underwriting in the past for Celgene.)

Cephalon is focused on developing therapeutics for neurology and cancer. The company has three products being marketed in the U.S.: Provigil, Gabitril and Actiq. With these three drugs, Cephalon's projected revenue is about $240 million this year, and the company could be profitable for the first time in 2001, as the consensus estimate is for yearly earnings of 10 cents a share.

Its key product is Provigil, used in the treatment of narcolepsy, or excessive sleepiness, and so far sales have been growing 15% to 20% each quarter. The company expects Provigil to continue being its key driver for growth. Cephalon plans to expand the label of Provigil by filing a supplementary new-drug application to the FDA. Provigil may get approval by the second half of next year for expanded usage with other diseases associated with fatigue. Cephalon has had a nice run, and a dip in its share price, probably due to profit-taking, could represent a good entry point for buying.

However, Celgene is a riskier play. It has one drug on the market, Thalomid, used to treat leprosy. However, because Thalomid possesses strong anticancer activity, it is prescribed off-label to help treat cancer. Thalomid is tightly regulated, because it is associated with serious birth defects. For now, Celgene won't achieve profitability, but the drug has enabled the company to build a base for its future. Celgene is hoping that Thalomid will be approved for other conditions, such as multiple myeloma. Besides Thalomid, Celgene is awaiting FDA approval for Attenade, a drug to treat attention deficit disorder. Celgene has the potential; all it needs is positive clinical data to convince the FDA.