AETERNA-ZENTARIS, INC. & AASTROM BIOSCIENCES, INC.

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Hello Readers,

And, once again, the markets are about at the same places they were at the beginning of the month, and so is our Current Portfolio, which has been banged up since early May. And, also, once again, most us know what has been causing the market jitters, with the biggest overhang being a sense that all of this government stuff isn’t really working. Yes, we will have periods of three and five-day upturns here and there, but the prospects of a summer rally are looking very very iffy.

Here are the headlines since the last Newsletter about companies in the Current Portfolio; dates in parentheses are when we first recommended them. We are not giving updates about companies on the “Endangered List” unless we feel the news to be significant.

Clearfield (CLFD)(6/5/10). Launches new fiber management elements optimized for small count deployments.

PHC, Inc (PHC)(5/20/10). Extends stock repurchase program for up to one million shares.

CombinatorRx (CRXX)(5/5/10). Gets $500,000 milestone payment on pinkeye drug. Sets annual stockholders meeting for September 8.

American CareSource (ANCI)(4/20/10). Adds Arizona Foundation for Medical Care to client portfolio.

China Direct Industries (CDII)(4/5/10). To host Gateway to China Business Roundtable Conference June 28 and 29.

Novavax (NVAX)(4/5/10). Completes construction of vaccine production facility in India.

Zagg, Inc (ZAGG)(2/20/10). iPhone 4 invisibleSHIELD Protection now available. CEO named Ernst & Young’s 2010 Entrepreneur of the Year. To offer its Premier Mobile Protection solution at over 1200 U.S. Staples stores.

Microtune (TUNE)(2/5/10). To present at the Sidoti & Co. micro cap conference on June 25.

CytRx (CYTR)(1/5/10). Set to join the Russell 3000 Index. Issued key U.S. patent covering Bafetinib.

OXiGENE (OXGN)(11/20/09). Reports positive data from Phase 1 study of OXi4503. Also reports encouraging safety and efficacy data from ongoing Phase 2 trial of ZYBRESTAT in non-small cell lung cancer.

Uranerz Energy (URZ)(11/20/09). Proceeding to obtain permits on three uranium mining units in Wyoming. Announces results of AGM; project update. Adds to resource base in Powder River Basin.

BioSante (BPAX)(9/20/09). FDA gives orphan drug status for GVAX chronic myeloid leukemia cancer vaccine.

BioClinica (BIOC)(8/5/09). Introduces new reporting solution that supports Metrics Champion Consortium clincial trial performance metrics. Unveils platform for integrated clinical operations based on Microsoft technologies. To present at Sidoti % Company’s micro-cap conference on June 25.

Durect (DRRX)(4/20/09). Signs pact with Hospira to develop and commercialize POSIDUR (SABER – Bupivacaine) in the U.S. and Canada.

Ligand Pharmaceuticals (LGND)(2/20/09). Board authorizes a 1 for 5 to a 1 for 10 reverse stock split and a $10 million share repurchase. This has now become a wait and see, which means this is making us nervous. Seldom do reverse splits benefit current stockholders and one would think that a company could find a better way to spend $10 million.

Market Leader (LEDR)(12/20/08). Launches advances to RealtyGenerator product.

The Orchard (ORCD)(11/20/08). Enters into a partnership with 19 Entertainment and Simon Fuller, creator of American Idol, to handle worldwide digital distribution for the first two seasons of a new reality series “If I Can Dream”.

Akeena Solar (AKNS)(10/20/08). Law firms announce “investigation” on behalf of shareholders. Ardour Capital upgrades stock to a “buy”.

Life Quotes (QUOT)(9/5/08). Stock gets a nice lift when LQ Acquisition commenced a cash tender offer of $4.00 a share for all the outstanding shares it does not own. Offer will expire July 15, at which time we will close the position.

U.S. Geothermal (HTM)(8/5/08). Offered conditional commitment of $102 million loan guarantee for construction of Neal Hot Springs.

Applied Energetics (AERG)(7/5/08). Receives $1.8 million in funding for a U.S. Army contract to develop laser guided energy technology.

Bridgeline Digital (BLIN)(6/5/08). Cadaret, Grant selects iAPPS Content and iAPPS Analytics.

GlobalScape (GSB)(5/20/08). Enters into a partnership agreement with Rackspace Hosting to deliver cloud-based secure information exchange solutions.

Biolase Technology (BLTI)(4/5/08). Granted Canadian approval to sell iLase personal dental laser systems.

Move, Inc (MOVE)(1/5/08). Antitrust suit filed against Dow Jones, NY Times, Move, and a slew of other companies. One million downloads of Realtor.com iPhone app in five months.

TTI Telecom (TTIL)(3/5/07). TEOCO to acquire company for $58 million, or $3 a share. Deal should be done by July 9, at which time we will close the position.

Endologix (ELGX)(1/20/07). Gets FDA for expanded stent graft products.

YM BioSciences (YMI)(11/5/06). Raises $3.2 million in support of JAK 1/2 program.

Our picks for this Newsletter are two more small biotechs, both trading on NASDAQ.

AETERNA ZENTARIS, INC. (NASDAQ: AEZS) – $1.31. Twelve-month hi-low has been $3.25 – 75 cents. Based in Quebec City, Canada, with about 95 employees, this biotech has 63.1 million shares outstanding, $26.94 million in cash/equivalents, $71.97 million in total assets, little debt, and $68.8 million in total liabilities, of which $53.84 million is non-financial long-term liabilities. Institutional ownership is around 7%. Two analysts rate the stock a “strong buy”, one a “moderate buy”, three as a “hold”, and one as a “moderate sell”. www.aezsinc.com

Yes, another small biotech, and besides a nice-looking balance sheet and some royalty income, AEterna Zentaris, Inc. also appears to have a lot happening; in other words, it’s not standing still.

Founded in 1991, and trading on NASDAQ for over ten years, AEterna Zentaris bills itself as a late-stage drug developer specializing in oncology and endocrinology. Its lead oncology compounds include perifosine, an orally active P13K/Akt pathway inhibitor that is in Phase III registration trial for multiple myeloma; and AEZS-108, a doxorubicin-targeted conjugate in Phase II for treating advanced ovarian and endometrial cancer. The company’s lead endocrinology compound, AEZS-130, is an oral ghrelin antagonist in Phase III trial as a diagnostic test for Adult Growth Hormone Deficiency (AGHD). Its pipeline also includes earlier-stage compounds, such as AEZS-112 that is in Phase I trial in advanced solid tumors and lymphoma, as well as AEZS-120, an anti-cancer vaccine in pre-clinical development. AEZS currently has one product on the market called Cetrotide, the first luteinizing hormone-releasing hormone (LHRH) antagonist treatment approved for in vitro fertilization.

In May, AEterna Zentaris received a positive opinion for orphan medicinal product designation from the European Medicines Agency for AEZS-108 for treating ovarian cancer. It also received FDA approval for an IND application for AEZS-108 in LHRH receptor positive bladder cancer. Earlier in that month, the company received FDA orphan-drug designation for AEZS-108 for treating ovarian cancer.

For FY2009, ending 12/31/09, revenue was $63.27 million with $24.72 million in losses compared to FY2008 revenue of $38.47 million and $58.64 million in losses. During the first QT of the current FY, ending 3/31/10, revenue was $6.42 million with $5.88 million in losses.

As we said, there seems to be a lot going on here, usually a good sign for a small biotech.

Our 24-month target for the stock is $2.25 to $2.50.

For more information, contact AEZS’ Dennis Turpin at 908-626-5517, dturpin@aezsinc.com

AASTROM BIOSCIENCES, INC. (NASDAQ: ASTM) – $1.50. Twelve-month hi-low has been $4.72 – $1.32. Located in Ann Arbor, MI, with about 45 employees, this biotech has 28.3 million shares outstanding, $23.43 million in total current assets, $24.56 million in total assets, little debt, and $1.95 million in total liabilities. Institutional ownership is around 5%. www.aastrom.com

Periodically, stem cell stocks get attention for some crazy reason and the group goes on a tear and Aastrom Biosciences, Inc. has usually been part of that group. Even if stem cell companies never get hot again, Aastrom still has a pretty good balance sheet and some promising technology in the pipeline.

Founded in 1989, and trading on NASDAQ for over a dozen years, Aastrom is developing autologous cell products for treating severe, chronic, and cardiovascular diseases based on its Tissue Repair Cell (TRC) technology. The company’s preclinical and clinical product development programs use patient-derived bone marrow stem and early progenitor cell populations and are investigated for their ability to aid in the regeneration of tissues, such as cardiac, vascular, and bone. TRC-based products have been used in over 375 patients, and its stages of development Cardiac regeneration includes cardiac repair cells (CRCs); dilated cardiomyopathy (DCM) (severe heart failure); vascular regeneration includes vascular repair cells (VRCs); critical limb ischemia (CLI); bone regeneration includes bone repair cells (BRCs); osteonecrosis of the femoral head; non-union fractures, and maxillofacial.

Aastrom is conducting a Phase II cardiac regeneration clinical trial (the IMPACT-DCM trial) in patients with DCM and a Phase IIb vascular regeneration trial (the RESTORE-CLI trial) in patients with CLI, the most severe form of peripheral arterial disease. The company is also undergoing a Phase II clinical trial to evaluate the catheter delivery of CRCs for treating DCM.

Aastrom is typical of many small biotech in that it earns little money but chalks up heavy losses. For example, during the first nine months of its current FY, ending 3/31/10, revenues were $89,000 with losses of $12.62 million.

This is another small biotech with what seemingly appears to have a lot going on. Then again, there is also the potential for some sort of stem cell mania in the future.

Our 24-month target for the stock is $2.50 to $2.75.

For more information, contact ASTM’s Kimberli O’meara at 734-930-5777; ir@aastrom.com

Look for the July 5, 2010 Newsletter to be posted on 7/1 or 7/2.

Thanks,
George

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