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Internet Fund Founders to Launch Cancer-Focused Biotech Fund

The backers say investors should not expect the Internet fund's sky-high returns.

First the Internet, now the cure for cancer.

From the folks in the Long Island, N.Y., 'burbs who gave us the wildly successful

(WWWFX) - Get Kinetics Internet NL Report

Internet fund comes

The Medical Fund and the Cure for Cancer

-- a mutual fund that invests in companies engaged in cancer research and treatment.

But don't expect the same 475% return on this fund that shareholders in the Internet fund have enjoyed since its October 1996 inception, warns manager Peter Doyle. "The returns will not even be remotely close to what the Internet fund has done," says Doyle. "I don't think you could hope for that kind of return with any

other investment."

Biotechnology investing is very different from investing in the Internet, says Rich van den Broek, an analyst at

Hambrecht & Quist

. "There are longer product cycles, higher barriers to entry and business models that are a lot more sound," he says. "There's not going to be the same type of stock trading going on."

Just a few years ago, some members of the Doyle family and several friends found a way to cash in on a growing trend -- use of the World Wide Web. Together they became

Kinetics Asset Management

and started the Internet fund. The unlikely crew included a retired schoolteacher, a postal worker and a computer programmer, operating out of a house in North Babylon, N.Y.

At first, the tiny fund stuttered along with just $200,000 in assets and a handful of investors. But in 1998 it caught fire, finishing the year up 196.1% and at the top of the mutual fund heap. Now the fund has more than $500 million in assets. Kinetics is in talks to sell its prize to

Lepercq de Neuflize

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and move on to weightier subjects.

In about a month,

Kinetics Holdings

-- a slightly different incarnation of Kinetics Asset Management -- will launch its new biotech fund. The provocative name is a "working title," says Doyle.

At the helm are Peter Doyle, a research analyst and portfolio manager with

Horizon Asset Management

in New York, and Bruce Abel, a mechanical engineer and former freelance writer for

Academic Science News and Review

. James Doyle is the firm's executive vice president and general counsel. James and Peter's mom, Margaret Doyle (the retired schoolteacher), is the firm's chairman.

The new fund will invest in "companies engaged in the field of medical and pharmaceutical research" with a particular interest in "cancer-related medical research companies," according to the prospectus.

It's quite a departure from the firm's flagship fund. So what makes them think they can pull it off?

For starters, they have "a lot more experience" investing in medicine than they did in Internet firms, says Peter Doyle. It's a favorite sector for Doyle, who's got about 40% of the $50 million in private assets he runs at Horizon invested in drug companies. "If you really looked to see where the advances in technology are being made, it's in the pharmaceutical and medical fields," he says.

Both private and government-backed firms have sunk tens of billions of dollars into research in the past decade, says Peter Doyle. "They are mapping out the entire human body and will know every gene and what it does as early as the end of next year. Pharmaceutical companies will be able to use that information to develop more powerful drugs."

Still, there already are plenty of funds trying to cash in on the same wave. Many were launched in the ill-fated biotech craze of the early 1990s. "Biotech was a brand new industry back then and it attracted a lot of attention," says Doyle. "But people have kind of lost focus and didn't stay with it."

After an early boom in 1991, when the average biotech fund moved up 68.4%, the sector went bust a year later, when funds averaged a negative 6.7% return. Biotech rallied again in 1995, and funds rose an average 45%. Returns since then have been steady but below the broader market.

Some of the earlier funds have moved into investing in medical equipment and hospital supply firms, according to Doyle. He says the new fund will stick primarily to drugs and treatments that help to stifle and cure a variety of cancers. "They are a lot closer now than they were 10 years ago," Peter Doyle says. "You are going to see products on the market that combat cancer within two years."

Unlike the money-losing firms that fill the Internet portfolio, Doyle says the medical fund will focus on firms with a solid bottom line. "We want companies that are going to be able to fund research and development without having to go outside for financing," he says, offering

Abbott Labs

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Bristol-Myers Squibb

(BMY) - Get Bristol-Myers Squibb Company Report

as examples.

About the only things the new fund has in common with its famous first cousin are its

Web site and its humble beginnings. When the no-load Medical fund goes on sale next month, its back office will be the very same cozy home in Babylon that once housed the operations of the Internet fund.