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Hello Readers,

Since the last Newsletter, we closed three positions; one for a gain and two for losses.

BG MEDICINE (12/5/12). Closed position 12/11/12 at $3.30 for a 129% GAIN.

COMBIMATRIX (8/20/10). Closed position 12/11/12 at $12 for a 57% LOSS.
(price reflects 1 for 10 reverse split)

YM BIOSCIENCES (11/5/06). Closed position 12/12/12 at $2.90 for a 3% LOSS.

This happens only a few times a year. We make a pick one week and the next week the stock does a moon shot, as happened with BG Medicine. The stock shot up a whopping 129% from our recommended price on news that the company obtained a CE Mark for its CadrioSCOPE test in Europe. Then, something else strange happened over the last several weeks to CombiMatrix, which had been on the “Endangered List”. Two weeks ago, the stock was at 28 cents and then did a 1 for 10 reverse stock split, which usually isn’t a good thing. Shortly after this, the stock soared when one of the company’s tests was mentioned in the New England Journal of Medicine. So, instead of facing a 90% loss, we took a 57% loss. And the next day, came another fluke when Gilead Sciences acquired YM Biosciences, our longest-running Current Position, at $2.90, giving us only a mild 3% loss.

During the last few weeks, the markets shed most of their post-election losses in anticipation that Congress will strike a deal on the Fiscal Cliff, which has us baffled. If and when a deal is struck, won’t that mean less liquidity for the economy? After all, the markets have gorged on easy money for the last four years. Maybe the markets feel that in the end only the top 2% will be slammed with new taxes and that spending cuts will be esoteric, at best, which we feel is wishful thinking. Our advice between now and year-end is not to second guess Washington or the markets. Our instincts tell us that there needs to be a major sell-off before a deal is reached; and, then, once a deal is finalized and people look into the details, expect another swoon.

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 very significant.

AcelRx Pharmaceuticals (ACRX)(11/20/12). Announces secondary stock offering, which is usually good for a company long-term, but depresses the stock price. Presents top-line data from Phase 3 study of Sufentanil Nano Tab PCA system vs. IV PCA morphine.

TeleCommunications Systems (TSYS)(11/5/12). Receives $25 million delivery order from U.S. Army for deployable satellite systems equipment and another $2.7 million order for MICRO VSAT and baseband equipment.

Delcath Systems (DCTH)(10/20/12). Provides update on NDA submission for its chemo saturation system and secures a $35 million committed equity financing facility with Terrapin Opportunity, L.P.

Zynga (ZNGA)(10/5/12). About several dozen articles on the company with the most significant probably being that they are applying for a Nevada gaming license with an eye on online gaming.

Immunocellular Therapeutics (IMUC)(9/20/12). Names new CEO.

Meru Networks (MERU)(8/20/12). Meru’s wireless network deployed by Tobit.Software.

Metabolix (MBLX)(7/5/12). Signs film grade agreement with Kenmare in Europe. Secures UCLA Engineering ARPA-E grant for improving the productivity of making biofuels in plants. Now shipping Mvera B5008 compostable film grade resin.

Rare Element Resources (REE)(6/20/12). Drilling results expand district-wide enrichment zones of critical rare earth elements including Eu,Tb, Dy, and Y.

Avanir Pharmaceuticals (AVNR)(6/5/12). FY results look pretty good, as does balance sheet.

Axcelis Technologies (ACLS)(4/5/12). Enters into a strategic collaboration pact with Lam Research on ion implants, dry-strip, and etch.

Mattson Technology (MTSN)(4/5/12). Receives order for multiple paradigm etch systems from major CMOS image sensor manufacturer.

Echo Therapeutics (ECTE)(3/20/12). To present clinical study results of Symphony tCGM System at the 42nd Critical Care Congress on January 20. Downgraded by Northland Securities.

Geron Corporation (GERN)(2/5/12). Presents positive results from Phase 2 study of Imetelstat in Essential Thrombocythemia. Company scraps GRN1005 and cuts jobs.

Cover-All Technologies (COVR)(7/20/11). Announces availability of Cover-All policy conversion studio.

On Track Innovations (OTIV)(6/20/11). Receives $4 million in orders to support Ecuador’s national eID programs. Shareholder encourages vote for new directors. Gets NASDAQ listing rule deficiency notice.

Oculus Innovative Sciences (OCLS)(3/5/11). Provides second half update.

Astex Pharmaceuticals (ASTX)(12/5/10). Announces SGI-110 Phase 1 clinical results.

Inovio Pharma (INO)(10/20/10). Says its Syncon synthetic boosts flu vaccine efficacy. Announces positive interim results in Phase II leukemia trial.

NovaBay Pharmaceuticals (NBY)(4/20/10). Provides business update and 2013 outlook. Plans secondary stock offering, which puts a damper on stock price.

Novavax (NVAX)(4/5/10). Phase 1 RSV vaccine data published in Vaccine.

GlobalScape (GSB)(5/20/08). Announces dividend of 7 cents a share.

Our picks for this Newsletter are two more biotechs/drug developers, both NASDAQ-listed.

GALECTIN THERAPEUTICS, INC. (NASDAQ: GALT) – $1.87. Twelve-month hi-low has been $6.78 – $1.60. Based in Norcross, GA, with around ten employees, this drug developer has 16 million shares outstanding, $11.14 million in total current assets, $11.19 million in total assets, little debt, and $1.44 million in total liabilities. Institutional ownership is around 11%. Two analysts rate the stock a “Buy”.

And, so, Galectin Therapeutics, Inc. is another one of those small drug developers/biotechs that recently have taken a hit for a myriad of reasons. Earlier this year, the company received an infusion of cash and appears to have some promising products in the hopper.

Founded in 2000, and public for nearly ten years, Galectin is creating new therapies for fibrotic disease and cancer by using naturally occurring carbohydrate polymers with galactose residues to create complex carbohydrates with specific molecular weights. Using these candidate compounds that bind and inhibit galectin proteins, they are pursuing therapies for indications where galectins have a demonstrated role in the pathogenesis of a particular disease. The company has two compounds in production, one to be used for cancer therapy and the other for treating liver fibrosis and fatty liver diseases. GM-CT-01 is a linear polysaccharide polymer comprised of mannose and galactose that is in Phase I/II clinical trials; and GR-MD-02, a complex polysaccharide polymer that is in pre-clinical stage; both candidates are derived from a plant source.

At the end of November, Galectin received a U.S. patent for Second Drug Class to treat chronic liver diseases with fibrosis and cirrhosis. Earlier that month, the company presented new data for treating fatty liver disease and fibrosis.

This is another one of those small R&D’s with little revenue and major losses, i.e. for the quarter ending 9/30/12, revenue was zilch and losses were nearly $3 million.

Over the next several months, the company has expectations that certain plans will fall into place, and that could juice the stock.

Our 24-month target for the stock is $3.50 to $3.75.

For more information, contact GALT’s Tom McGauley at 678-620-3186;

HORIZON PHARMA, INC. (NASDAQ: HZNP) – $2.37. Twelve-month hi-low has been $8.72 – $2.03. Based in Deerfield, IL, with about 235 employees, this biotech has 61.6 million shares outstanding, $136.1 million in total current assets, $212.34 million in total assets, and $83.93 million in total liabilities, of which $39.4 million is long-term debt. Institutional ownership is around 81%. Two analysts rate the stock a “Strong Buy” and one as a “Buy”.

Yes, we know that Horizon Pharma, Inc. has a lot of debt, but it also has $122 million in cash/equivalents, which seems to be a pretty good cushion. Another thing, too, is unlike many small biotechs, the company is starting to garner some revenue thanks to their inroads in easing certain types of arthritic pains.

Founded in 2005, and public for less than two years, Horizon Pharma develops and commercializes medicines for treating arthritis, pain, and inflammatory diseases. The company’s lead product is FDA-approved DUEXIS for the relief of signs and symptoms of rheumatoid arthritis and osteoarthritis, and to decrease the risk of developing upper gastrointestinal ulcers in patients who are taking ibuprofen for these ailments. The company is awaiting approval to also sell DUEXIS in the United Kingdom. Horizon Pharma’s other major product is RAYOS, which received FDA approval in July, for treating moderate to severe active rheumatoid arthritis in adults when accompanied by morning stiffness. RAYOS is currently marketed in Europe and Asia as LODOTRA by their distribution partner, Mundipharma.

The company is also developing several other products, among them is LODOTRA/RAYOS, which is in Phase 2 clinical trial for treating polymyalgia rheumatica.

As we mentioned, Horizon Pharma has started to see some decent revenue, particularly during the current FY. For the FY ending 12/20/11, revenue was $6.92 million with $113.27 million in losses. During the first nine months of the current FY, revenue was $14.67 million with $63.46 million in losses.

Yes, we would like to see the losses pared, but the balance sheet should keep the company afloat while it turns up the marketing for its two FDA-approved products.

Our 24-month target for the stock is $4.00 to $4.50.

For more information, call HZNP’s Robert De Vaere at 224-383-3000;

Look for the January 5, 2013 Newsletter to be posted on 1/2 or 1/3.