Most detected planet-bearing binaries are in wide orbits, for which a high inclination, i_B , between the binary orbital plane and the plane of the planetary disk around the primary is likely to be common. In this paper, we investigate the intermediate stages---from planetesimals to planetary embryos/cores---of planet formation in such highly inclined cases. Our focus is on the effects of gas drag on the planetesimals' orbital evolution, in particular on the evolution of the planetesimals' semimajor axis distribution and their mutual relative velocities. We first demonstrate that a non-evolving axisymmetric disk model is a good approximation for studying the effects of gas drag on a planetesimal in the highly inclined case (30° < i_B < 150°). We then find that gas drag plays a crucial role, and the results can be generally divided into two categories, i.e., the Kozai-on regime and the Kozai-off regime, depending on the specific value of i_B . For both regimes, a robust outcome over a wide range of parameters is that planetesimals migrate/jump inward and pile up, leading to a severely truncated and dense planetesimal disk around the primary. In this compact and dense disk, collision rates are high but relative velocities are low, providing conditions that are favorable for planetesimal growth and potentially allow for the subsequent formation of planets.