This alarmed a bunch of empty-headed movie and rock stars so much that they revived an idea as old as the hills — and worse than the concept of Michael Jackson opening a daycare. I’m talking about population control.

Now, I’m not a social scientist or anthropologist. And I’m far from being an expert in demographic trends or population issues. But the point is — how in the world are you going to control population growth when you first have to control sex?

You can’t.

First, population (nature) controls itself. If the world’s population nears a dangerous level, disease, famine, and war will take care of it for us.

Second, if you reduce the human species to its most basic form, it’s no different than any other organism. Our primary goal is survival. Survival of the species.

Think about how many times a healthy male will ejaculate throughout his life. By the time he’s 40, it has to be a couple thousand times. At least! The odds of hitting pay dirt... producing 2 or 3 kids from all of that... are pretty good.

So what do you get?

Just like business and markets, population growth occurs in cycles. And there’s no better example then when millions of U.S. servicemen came home from the war in 1945 and 1946. What happened was a national sex party that seemed to go on for years. The result? We call it the baby boom.

The baby boomers are an excellent example of the “pig in the python” effect: roughly 80 million strong (30% of the current U.S. population), baby boomers are the engine of the economy right now.

Let me explain.

A lot of things will happen when the baby boomers start retiring. But one thing’s for sure: healthcare will be in big demand.

You name it, it will plague people 60 and older. Heart disease, cancer, arthritis, etc. It’s just a fact of life. The older you get, the more ailments you suffer from.

Two diseases that will be — and already are — prevalent among our nation’s elderly population are Alzheimer’s and diabetes.

Alzheimer’s costs the U.S. economy roughly US$100 billion a year.

Diabetes is huge — costing about US$98 billion per year.

But there’s a huge difference between the two diseases.

There’s no drug for Alzheimer’s. In fact, the best treatment for Alzheimer’s patients is playtime and reminiscing (or trying to). Not exactly modern science.

Diabetes, on the other hand, is a manageable disease. And the investment opportunities are enormous.

There are currently 15.7 million people in the U.S. with diabetes. It’s the seventh leading cause of death in the U.S. In fact, 6.5 times more people die from diabetes than from AIDS.

1. a drug company that will treat diabetes;
2. a medical device company that’s a leader in noninvasive insulin monitoring (pain-free); and
3. a company that supplies equipment to the diabetic population.

My first recommendation: MiniMed (MNMD:NASDAQ).

Before you do anything, take a look at MiniMed’s sales growth. Very impressive.

As a small cap investor, I love seeing rapid and robust sales growth like this. It means the company is penetrating and capturing a large percentage of the market with its new technology.

Now, MiniMed is expected to continue its rapid growth in the diabetic device market.

For fiscal year 2001, the company expects to post revenues in excess of US$376 million — up 28% from FY2000 revenues. In FY2002, revenues are expected to jump to US$509 million — up 35% from FY2001, and up 73% from FY2000.

You’d be hard pressed to find a small cap stock with better growth than that.

Better yet, the company is profitable.

MiniMed is expected to post an EPS of US$0.69 this year... and an EPS of US$0.94 in FY2002. This gives the stock a forward P/E multiple of 35... exactly in line with its EPS growth rate of 36%.

Traditionally, diabetics must finger-prick themselves to test their glucose levels. But this method is limiting because you can’t do it while sleeping or exercising.

But MiniMed’s system allows you take readings every five minutes, for up to three days.

As a medical company, MiniMed can trade anywhere from 7 to 10 times revenues. Going by FY2002 estimated revenues of US$509 million, MNMD could handle a market cap of least US$3.5 billion — or a per-share price of US$55.00.

PolyMedica’s story is a simple one — it supplies the diabetic market with supplies and equipment. And this is one huge market — as evidenced by the company’s robust sales growth. In 1999, PLMD did US$104 million in sales. Last year, the company grew the top line 49.7% to US$156.9 million.

But get a load of this. In the next fiscal year, PolyMedica is expected to post revenues in excess of US$220 million. A 40.5% increase from the previous year.

Earnings per share are expected to come in at US$2.14 — a gain of 54% from last year’s EPS of US$1.39. A gain of 54%... yet the stock currently trades at a P/E multiple of 19.

Without a doubt, this is one of the better “growth at value prices” plays in the field.

PolyMedica occupies that sweet spot in the market. At a current market cap of US$500 million, the stock is just now garnering institutional attention. Which means mutual fund managers will begin buying the stock in anticipation of further capital appreciation.

Inhale Therapeutics has one simple claim to fame: taking drugs administered through either a needle or IV (like insulin) and developing them to be delivered through an inhalation device.

Just like Aviron, which is developing a quick, convenient and painless therapy for a huge market (flu sufferers), Inhale is developing a quick, convenient and painless therapy for another huge market: an insulin inhaler for diabetics.

So promising is Inhale’s technology, and the Phase II results so strong, analysts estimate the aerosolized insulin can capture at least 25% of the market for diabetics within 24 months of launch. This equates to sales of roughly US$750 million.

Delivering drugs to the lung sounds simple enough, right? I mean, I was using asthma inhalers in the 1970s.

But developing more complex drugs has been difficult, because many of the drugs are macromolecules (a molecule with a high molecular mass).

Due to their large size, most macromolecules typically have been delivered by injection. And macromolecules that aren’t delivered directly into the body via injections have a difficult time entering the bloodstream in safe and efficacious doses.

But that’s changing. Innovation in biotechnology and recombinant techniques has led to a large increase in the number of macromolecular drugs. These drugs, which are similar or identical to the body’s natural molecules, are enabling new therapies for many previously untreated or poorly treated diseases.

To give you a quick idea of how big the market is for Inhale’s drug delivery system, there are about 30 macromolecule drugs marketed in the United States, with another 120 in human clinical trials. These drugs have a market worth, based on 1999 sales, of about US$8.7 billion.

Because of this, it is estimated that worldwide protein drug sales will surpass US$10 billion in 2001. By 2003, sales are expected to be in the US$18 billion range.

What Inhale Therapeutics does is take a drug and develop it into a fine powder. The patient inhales the fine powderized formulation of the drug as an aerosolized cloud.

The drug reaches the deep lung tissue, then passes from the deep lung into the bloodstream.

As an alternative to invasive delivery techniques, a pulmonary delivery system could potentially expand the sales of currently marketed drug therapies by increasing patient acceptance.

And that’s the other advantage to Inhale’s business: it can take drugs that are already approved by the FDA, develop them into fine powders, and sell them as an inhalation therapy.

Now, that doesn’t mean Inhale’s reformulated fine-powder drugs will automatically receive FDA approval.

I assume two things: (1) the biotech sector will maintain its higher-than-the-market P/E multiple, and (2) biotech companies with blockbuster drugs and technologies will be rewarded with premium valuations.

Because of the flood of product approvals expected in the next 12 to 24 months, and the hundreds of drugs currently in Phase II and Phase III trials, I fully expect the biotech sector to maintain its premium P/E multiples.

Just as with Aviron (and most other biotech stocks), timing your entry point is everything. Last year, Inhale rallied with the biotech sector as a whole, hitting a new 52-week high of US$70.

The stock is down 62% from its highs as a result of the crash in the NASDAQ last year. This is an excellent time to buy.

Buy Inhale (INHL:NASDAQ) under US$28 a share.