For the better part of the last year, Flamel (NASDAQ:FLML) has had more than its share of bad news. In September of 2004, Bristol-Myers Squibb (NYSE:BMY) backed out of a deal to use its Medusa technology for the treatment of diabetes. Then this past March, Flamel had to terminate a partnership with Biovail (NYSE:BVF) on the drug Genvir as Biovail was not making satisfactory progress. On top of these business development troubles, the company endured a contentious shareholder revolt this summer against the company's board of directors, which ultimately resulted in the resignation of founder and CEO Dr. Gerard Soula.

Last week, however, a ray of hope pierced through the otherwise dark cloud that has been hovering over the company. On Friday, Flamel officials released preliminary data from a phase 1/2 trial suggesting IFN-alpha-XL -- its hepatitis C treatment -- may work just as well as existing treatments while having the additional benefit of producing fewer side effects.

This is good news for a couple of reasons. First, IFN-alpha-XL utilizes the company's proprietary Medusa nanoparticle technology, and this positive result suggests the technology provides competitive advantages over existing drugs. The Medusa technology is a nano-encapsulated technology that doesn't require the use of toxic solvents and can release its drugs in a controlled manner over an extended period of time. Such a technology could find a number of profitable applications in the pharmaceutical arena, given the need for improving the delivery of protein drugs.

The second positive outcome is that if the favorable results hold up in subsequent larger trials, IFN-alpha-XL may be able to compete with PEG-Intron -- a hepatitis C drug produced by Schering-Plough (NYSE:SGP). There are an estimated 4 million people in the U.S. and 170 million people worldwide infected with the hepatitis C virus. Current treatments require frequent administration and can often last up to a year. Because of the nasty side effects of existing drugs, treatment is often limited. IFN-alpha-XL, by minimizing these side effects, could find a large and receptive audience among the sufferers of this disease. This possibility is likely the reason why a few unnamed major pharmaceutical firms are exploring a partnership with Flamel in this area.

Unfortunately for Flamel investors, like me, this news does not guarantee sunnier days ahead. Until follow-up trial tests confirm Medusa's superiority in the treatment of hepatitis C and until a major deal with a pharmaceutical firm -- like Eli Lilly (NYSE:LLY), Merck (NYSE:MRK), or GlaxoSmithKline (NYSE:GSK) -- is announced, it's too soon to do anything but be thankful that at least a small glimmer of light has poked through the otherwise dark and ominous dark cloud that has been hovering over Flamel's head for the last year.

For more nanotech Foolishness, click here:

Flamel is a Motley Fool Hidden Gems recommendation. Want to learn about other promising small caps? Click here to take a free trial.

Merck is a Motley Fool Income Investor pick.To discuss nanotechnology with other Fools, take a gander at our Nanotechnologydiscussion board.

Jack Uldrich has been accused by teachers and friends alike of thinking small since grade school. He is the author of The Next Big Thing is Really Small: How Nanotechnology Will Change the Future of Your Business. He owns shares of Flamel but none of the other companies mentioned in this article. The Fool has an ironclad disclosure policy.