Like all industries, biotech has its own jargon. Newcomers to the sector can find themselves struggling to get through just one paragraph of a press release without having to look up several terms.

Here is a primer on some of the key phrases, acronyms or statistical concepts that you'll need to know when investigating a biotech stock idea.

ANDA

-- Abbreviated New Drug Application. This is an application to the Food and Drug Administration (FDA) to seek approval of a generic drug.

For example, last week

Mylan Laboratories

(MYL) - Get Mylan N.V. (MYL) Report

announced that its ANDA for generic Valtrex received tentative approval from the FDA. Valtrex, for the treatment of herpes, is made by

GlaxoSmithKline

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.

NDA

-- New Drug Application. This application seeks approval for a new drug before commercialization. Included in the NDA is safety and efficacy data, proposed labeling and manufacturing methods.

IND

-- Investigational New Drug. This is the process in which companies apply to the FDA for permission to begin trials of a new drug in humans.

Pharmion

(PHRM)

announced last week that the FDA accepted the company's IND for an oral version of Vidaza, a treatment for patients with myelodysplastic syndromes. The new drug will enter phase I trials shortly.

Phase I Studies

-- The first study of a drug in humans. The trial is usually conducted in a small number (20-80) of healthy people. According to the FDA, sufficient information about the drug's pharmacokinetics and pharmacological effects should be obtained in order to design phase II studies.

Phase II Studies

-- These studies are used to test the effectiveness of the drug and include patients with the disease that the drug is intended to treat. Phase II trials usually include several hundred patients or fewer. In rare disorders, the number may be less than one hundred.

Phase III Studies

-- Larger studies with hundreds or thousands of patients. Safety and efficacy from these trials are what the FDA uses to determine whether a drug will be approved or rejected. Occasionally, the FDA can order more studies be conducted before reaching a decision.

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It's important to keep in mind that drugs can be in different phases for different diseases. For example,

Genentech's

(DNA)

Avastin is approved for colorectal and non-small-cell lung cancer. However, the drug is in or about to begin phase III trials for a host of other cancers, including first-line metastatic breast cancer and first- and second-line ovarian cancers. Avastin is being prepared to enter phase II for extensive small-cell lung cancer.

P-value

-- A measure of how statistically significant a trial's results are. In other words, it's the percentage chance that a result is not true. The standard "line in the sand" p-value is 0.05, meaning 5%. Results with a p-value of greater than 0.05 are considered statistically insignificant. The results have a greater than 5% chance of being false. Let's take a look at a real-world example.

Last year,

Celgene

(CELG) - Get Celgene Corporation Report

compared a combination of its thalidomide with melphalan and prednisone vs. just melphalan and prednisone in patients newly diagnosed with multiple myeloma. The company reported that the combination that included thalidomide led to improvement in overall survival. The p-value was 0.001 -- meaning the results had only a 1/10 of one percent chance of being false.

Contrast those results with

Amgen's

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trial for Aranesp for cancer-caused anemia. Amgen released the

results in its fourth-quarter earnings report. In the trial, 18% of the patients taking Aranesp needed red blood cell transfusions vs. 24% in the placebo group. Sounds promising, right? But the p-value was 0.15, indicating there was only an 85% certainty that the results were accurate. There were some other problems in the study, but this example shows that you can have positive results, but without a low p-value, they're meaningless.

Hazard Ratio

-- The relative risk of a patient in the experimental group compared to the control arm. If a drug increased survival by 100%, the hazard ratio would be 0.01. If there was no increase in survival, the hazard ratio would be 1. So clearly, a lower number is better. Returning to our Aranesp example -- after 16 weeks the hazard ratio was 0.89, indicating only a 12% increase in survival.

These are just a few of the basic terms you should know when investingin biotech stocks. I'll cover others as time goes by. In the meantime, feelfree to

email me with your questions or

write Adam Feuerstein, who fields questions each week in

Feuerstein's Biotech Mailbag.

In keeping with TSC's editorial policy, Lichtenfeld doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.

Marc Lichtenfeld was previously an analyst at Avalon Research Group and The Weiss Group and a trader at Carlin Equities. He holds NASD 86, 87, 7 and 63 licenses. His prior journalism experience includes being a reporter/anchor for On24 in San Francisco and a managing editor of InvestorsObserver, a personal finance Web site. He is a graduate of the State University of New York at Albany. He appreciates your feedback;

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