AETERNA ZENTARIS, INC & NUPATHE, INC.

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Hello Readers,

Since the last Newsletter, we closed eight positions; five for gains and three for losses.

MERRIMACK PHARMACEUTICALS (11/20/13). Closed position 11/26/13 at $3.85 for a 54% GAIN.

DURECT CORP (9/5/13). Closed position 11/25/13 at $1.73 for a 60% GAIN.

ZYNGA, INC. (10/5/12). Closed position 11/21/13 at $4.46 for a 57% GAIN.

INTELLIPHARMACEUTICS (10/5/13). Closed position 11/19/13 at $3.70 for an 89% GAIN.

ON TRACK INNOVATIONS (6/20/11). Closed position 11/18/13 at $3.48 for a 58% GAIN.

QUALSTAR (10/20/10). Closed position 11/18/13 at $1.03 for a 70% LOSS.

TRANSWITCH (2/5/13). Closed position 11/19/13 at 20 cents for a 78% LOSS.

BACTERIN INT’L (5/5/12). Closed position 11/26/13 at 45 cents for a 78% LOSS.

Over the last few months, On Track Innovations had finally broken out due to a string of good news, and even more came when the company partnered with ABnote to enable payments for that company’s mobile wallet offering. Sometimes we get an unexpected jolt out of the blue as when Intellipharmaceutics announced an immediate commercial launch of generic Focalin XR that sent the stock on a major rip. The unexpected also popped up when Merrimack Pharmaceuticals announced nanotechnology collaboration with Actavis, sending the stock on a major tear; yes, this was in the Current Portfolio for less than two weeks, and we must remind readers that this is the exception rather than the norm. Our second go-around with Durect worked quite well, again, as the stock had been moving nicely upward on no news visible to us. We suspect the resurgence of Internet gaming chatter is what sent Zynga through our 50%-plus target, and, given the angst that the stock caused us over the last year, we are happy to take the gain. And, we finally threw in the towel on Bacterin, Qualstar and Transwitch for losses.

Is this the final melt up before the great sell off? Every time the market crosses another one thousand threshold, i.e. recently 16,000, the chatter turns overly bearish. At some point, the doomsayers will be right, tragically so. When that happens is anyone’s guess, so, in the interim, the Kool-Aid consumption raises.

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 highly significant.

Nanosphere (NSPH)(11/20/13). To present at the Piper Jaffray Healthcare Conference on December 3.

Sequenom (SQNM)(11/5/13). Will present at the same conference on December 4.

Agenus (AGEN)(10/20/13). Elsevier Business Intelligence names company’s brain cancer vaccine a “Top Project to Watch”.

Amicus Therapeutics (FOLD)(10/5/13). Announces revised Fabry agreement with GSK. Acquires Callidus Biopharma and secures $15 million through secondary offering.

Towerstream (TWER)(8/5/13). To present at the LD Micro Conference on December 3.

Solta Medical (SLTM)(8/5/13). To present at the Piper Jaffray health confab on December 3.

Baxano Surgical (BAXS)(7/5/13). Will present at the Piper Jaffray conference on December 4.

Commtouch Software (CTCH)(7/5/13). Makes some top executive changes.

InspireMD (NSPR)(5/20/13). Oppenheimer initiates coverage on the company.

Antares Pharma (ATRS)(5/20/13). Gets additional U.S. patent protection for OTREXUP.

Synacor (SYNC)(4/20/13). To participate in the BMO Capital technology conference on December 10.

Alphatec Holdings (ATEC)(2/20/13). To present at the Oppenheimer Healthcare Conference on December 11, and at the Piper Jaffray confab on December 4.

Ventrus Biosciences (VTUS)(2/20/13). Completes enrollment of second pivotal Phase 3 trial of Diltiazem Cream in patients with anal fissure.

Apricus Biosciences (APRI)(2/5/13). Gets National Phase Approval for ED cream in Italy.

Palatin Technologies (PTN)(12/5/12). To present at the Managing Data Summit on December 4 or 5.

ImmunoCellular Therapeutics (IMUC)(9/20/12). Stock gets a nice lift on positive brain cancer data.

SemiLEDS (LEDS)(8/20/12). Releases pretty lousy quarterly numbers, but balance sheet still looks very strong, which is why we don’t throw this one under the boat.

Aviat Networks (AVNW)(7/20/12). Deploys eclipse adaptive intelligent repeater for low latency networks. Upgrades MTN Ghana’s microwave backbone capacity.

Metabolix (MBLX)(7/5/12). To present at the LD Micro Investor Conference on December 3.

Athersys (ATHX)(7/5/12). Plans $20 million secondary offering, which may put pressure on stock price. To present at the Piper Jaffray confab on December 4.

Air Media Group (AMCN)(4/20/12). Latest numbers so-so; balance sheet still looks pretty strong.

Mattson Technology (MTSN)(4/5/12). Qualifies new etch system and ships production orders to support memory upturn. To participate in the Midtown CAP Summit on December 11.

Our picks for this Newsletter are two more biotechs, trading on NASDAQ, both of which have appeared in the Current Portfolio before.

AETERNA ZENTARIS, INC. (NASDAQ: AEZS) – $1.14. Twelve-month hi-low has been $3.45 – $1.00. Based in Quebec City, Canada, this biotech has 32 million shares outstanding, $37.38 million in total current assets, $51.52 million in total assets, little debt, and $33.38 million in total liabilities. Institutional ownership is around 2%. Three analysts give the stock a “buy” and two have it as a “hold”. www.aezsinc.com

And, yes, AEterna Zentaris, Inc. is another oldie with whom we had previous success. It still has numerous promising drug candidates in the pipeline, a decent balance sheet, and appears worth a gamble at current stock prices. Not included in the above numbers is a recent $15 million secondary offering that probably pushed the stock price down to its current levels.

Founded in 1990, and public for over ten years, AEterna Zentaris is developing product candidates in oncology and endocrine therapy. The company’s product pipeline includes AEZS-108, which is in Phase III clinical trial for treating endometrial cancer, as well as in Phase II clinical trial for treating ovarian, prostate, bladder, and breast cancers; and AEZS-130, an oral diagnostic test that has completed Phase III clinical trial for adult growth hormone deficiency, as well as in Phase II clinical trial for treating cancer-induced cachexia. In early November, the company submitted a New Drug Application (NDA) to the FDA for AEZS-130, named Macimorelin Acetate, for evaluation of AGHD.

AEterna Zentaris’ pipeline also comprises Ozarelix, which is in Phase II clinical trial for treating prostate cancer; Perifosine that is in Phase II clinical trial for treating neuroblastoma, glioma, and pediatric solid tumors; and AEZS-112 an oral anticancer agent, which has completed Phase I clinical trial for treating solid tumors and lymphoma. Other candidates in preclinical development include AEZS-120, a live recombinant oral tumor vaccine for treating prostate cancer; AEZS-129, 134, and 136 P13K/Erk inhibitors for oncology; and AEZS-137 and AEZS-125 for oncology.

For the first nine months of the current FY, ending 9/30/13, revenue was $60.79 million with $15 million in losses. However, this is a company dependent on grants and royalties, so these numbers can have wide year-to-year fluctuations.

Unless there is an unforeseen bombshell sitting somewhere under the company, this one seems poised to move much higher, given the balance sheet and the product candidates in its arsenal.

Our 24-month target for the stock is $2.00 to $2.25.

For more information, contact AEZS’ Ginette Vallieres at 418-652-8525, ext. 265; gvallieres@aezsinc.com

NUPATHE, INC. (NASDAQ: PATH) – $2.03. Twelve-month hi-low has been $4.00 – $1.57. Based in Malvern, PA, with about 15 employees, this biotech has 31.3 million shares outstanding, $11.28 million in total current assets, $21.42 million in total assets, and $14.21 million in total liabilities, of which $5.8 million is long-term debt. Institutional ownership is around 46%. Three analysts rate the stock a “strong buy” and one has it on “hold”. www.nupathe.com

What? Yes, NuPathe, Inc. is another oldie from the past that worked once and, given the company’s product candidates, should worked, again. We are not too concerned about the long-term debt, right now, since this doesn’t appear to be pressing.

Founded in 2005, and public for nearly three years, NuPathe is developing therapeutics for treating neurological and psychiatric disorders. Their lead product is Zecuity, which is a sumatriptan iontophoretic tranddermal system, or patch, used for treating migraine with or without aura in adults. Zecuity was approved by the FDA earlier this year. In addition, the company has a pipeline based on its biodegradable implant technology that allows it to deliver therapeutic levels of medication over a period of months with a single dose. NP201, for the continuous symptomatic treatment of Parkinson’s disease, utilizes a leading FDA-approved dopamine agonist and is being developed to provide up to two months of continuous delivery. NP202 is being developed to treat noncompliance, a long-standing problem in treating schizophrenia and bipolar disorder, by providing three months of continuous delivery of risperidone, an atypical antipsychotic.

A few months ago, NuPathe announced it had initiated dosing of patients for NP101-015, a Phase 1 study of Zecuity in adolescents with a history of migraine attacks. Also, around the same time, the company was issued a U.S. patent for Zecuity.

NuPathe is typical of many small biotechs in that it has zilch income and some hefty losses, i.e. for the quarter ending 6/30/13 revenue was zero and losses totaled almost $5 million.

We liked NuPathe once for pretty much the same reasons as we do now.

Our 24-month target for the stock is $3.25 to $3.50.

For more information, contact PATH at 610-232-0800.

Look for the December 20, 2013 Newsletter to be posted on 12/16 or 12/17.

Thank you,

George

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