IMMUNOGEN, INC. & HEALTHSTREAM, INC.

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Hello Readers,

Although we have not closed any new positions since the last Newsletter, much of our Current Portfolio is looking better than it did a few months ago when the markets were in the pits. The Dow continues to make new highs but the NASDAQ, while seeing modest gains, seems to be a reluctant party-goer. However, small stocks have finally started to pop during the last week, as witnessed by the Russell 2000, which has had a nice 5% to 7% surge since the second week of the month.

Here are the headlines since the last Newsletter about companies in the Current Portfolio. Dates in parentheses are when we first recommended them.

GenVec (GNVC) (10/5/06). Talk about luck. A few days after we posted this pick in the last Newsletter, the company landed a new $52 million contract with NIH/NIAID Vaccine Research Center to support HIV vaccine production, and this news seems to have juiced the stock.

GoAmerica (GOAM) (9/5/06). Sells its prepaid calling card division, but we doubt this is what gave the stock a nice uptick.

SCO Group (SCOX) (8/20/06). Investor says Microsoft has helped SCOX finance its legal battle over Linux. Ships HipCheck mobile service for administration of servers and PCs.

Microvision (MVIS) (7/20/06). Renews research and development relationship with Fraunhofer.

Advanced Life Sciences (ADLS) (7/20/06). To present at the BIO InvestorForum conference on October 19. Presents clinical data on selected Cethromycin trials.

BSQUARE (BSQR) (6/20/06). Renews its software distribution agreement with Microsoft.

Curis (CRIS) (6/5/06). Gets $3 million milestone payment from Genentech. Issued U.S. patent covering Hedgehog pathway agonists. Settles lawsuit with Micromet and will receive $2.5 million. Will present at BIO confab on October 18.

ICAD (ICAD) (5/20/06). Announces marketing initiative targeted at radiologists and consumers.

02Diesel (OTD) (5/20/06). Nevada’s Clark County extends demonstration of 02Diesel. A Chicago public school bus fleet joins company’s school bus program.

Tri-S Security (TRIS) (5/5/06). Sets shareholder meeting for November 7. Gets new DOD contract estimated at $9.5 million.

Cytogen (CYTO) (3/20/06). Buys North American rights for Caphosol, an oral mucositis drug.

Adherex (ADH) (2/20/06). Regains all rights to ADH-1. Initiates clinical trial program for ADH-1 in combination with chemotherapy. We would be more concerned about the precipitous drop in the stock, but the last balance sheet appeared to be half-decent; let’s see what the new one looks like in a few weeks.

Gateway (GTW) (2/5/06). Strengthens retail distribution in Japan with addition of Denkodo.

8X8 (EGHT) (1/20/06). A few months ago, the stock was at death’s door as it sunk to 70¢, but a slew of news and a brokerage upgrade have lifted it to present levels. Awarded two new VoIP technology patents. Regains NASDAQ compliance. Reports that 5000 U.S. businesses now use its Packet8 virtual office phone service. Slates earnings call for October 26.

Ceragon (CRNT) (1/5/06). Czech GTS Novera deploys CRNT’s broadband wireless solutions.

Fusion Telecom (FSN) (12/5/05). Enters into marketing alliance with MasterCard Worldwide.

Memory Pharma (MEMY) (11/5/05). To raise $32.2 million from private placement.

Westell (WSTL) (10/20/05). To host earnings call on October 19. WSTL solution now offering multimedia minute conferencing with WebDiaglogs. Announced as finalist in IEC InfoVision Awards 2006.

RAE Systems (RAE) (10/5/05). Introduces HazRAE 3.0 Chem/Bio/Rad/WMD decision support tool, and Aegison 8020r/8040r mobile digital video recorders for security applications.

Nephros (NEP) (9/20/05). Dutton Associates rate the stock a speculative buy (are there other kinds). Announces positive results of clinical study for Olpur MD190 mid-dilution hemodiafiltration filter. Selected by Marine Corps to develop personal water filtration system.

Verticalnet (VERT) (4/5/05). Receives NASDAQ delisting notice. This one is on the “Endangered List”.

B.O.S. (BOSC) (1/5/05). Files draft prospectus for offering in Israel.

Nova Measuring (NVMI) (11/5/04). Nanometrics files a new patent infringement suit against company; doesn’t seem to hurt the stock at this time.

Network Engines (NENG) (6/5/04). NENG and Covast introduce the Covast B2B appliance for RealTime networks.

Palatin Technologies (PTN) (4/5/04). To present at the BIO InvestorForum on October 18.

Socket Communications (SCKT) (3/20/04). Appoints new regional sales managers in Europe, the Middle East, and Africa.

AVANT Immuno (AVAN) (12/5/03). Extends pact with Pfizer to develop animal vaccines. DOD budgets $2.6 million to help develop AVANT’s oral anthrax and plague combination vaccine.

Insmed (INSM) (11/5/03). Court dismisses part of Tercica’s claims. Provides update on Virginia unfair competition litigation.

Monogram Biosciences (MRGM) (7/20/01). Lazard Capital gives the stock a “buy” rating. Gets $10 million revolving line of credit.

Our picks for this issue are another biotech and another Internet information provider, both NASDAQ-listed.

IMMUNOGEN, INC. (NASDAQ: IMGN) – $3.95. Twelve-month hi-low has been $6.34 – $2.82. Located in Cambridge, MA, with about 190 employees, this biotech has 41.5 million shares outstanding, $84.54 million in total current assets, $94.12 million in total assets, little debt, and $21.78 million in total liabilities. Institutional ownership is around 37%. One analyst rates the stock a “strong buy”. www.immunogen.com

Usually, when we chase small biotechs we like to see them lower in price than ImmunoGen, Inc. However, not only does the company have a healthy-looking balance sheet, it is also rubbing elbows with some pretty big names in its industry.

Founded in 1981, and public for nearly 16 years, ImmunoGen, simply put, researches and develops anticancer therapeutics using, what it calls, its Tumor Activated Prodrug (TAP) technology, which uses antibodies to deliver a potent cytotoxic agent. ImmunoGen’s Phase 2 product candidate is HuN901-DM2 for treating small-cell lung cancer and multiple myeloma. The company’s Phase 1 candidates include: HuC242-DM-4 for treating colorectal, pancreatic, and other cancers that express the CanAg antigen; AVE9633 for treating acute myeloid leukemia; and Trastuzumab-DM1 for treating HER2-positive metastatic breast cancer.

ImmunoGen’s preclinical product candidates comprise AVE1642 for treating solid tumors and hematological malignancies, SAR3419, Cripto-targeting TAP compound, av integrin-targeting TAP compound, and Biotest TAP compound.

Presently, eight companies have licensed access to IMGN’s TAP technology: Amgen, Biogen, Biotest AG, Boehringer Ingelheim, J&J’s Centocor, Genetech, Millennium Pharmaceuticals, and sanofi-aventis with whom the company has a broader collaboration. Three compounds are now in clinical testing through these pacts.

A few weeks ago, ImmunoGen announced initiation of clinical testing of the AVE1642 anticancer compound in collaboration with sanofi-aventis and this event triggered a $2 million milestone payment to the company. Back in July, IMGN granted Biotest rights to use its TAP technology to develop anticancer therapeutics. Under this deal, the company will receive a $1 million upfront payment, up to $35.5 million in potential milestone payments, and royalties on sales of any resulting products.

For the FY ending 6/30/06, revenue was $32.08 million with net losses of $17.83 million. For the current fiscal year, the company expects losses to be between $26 million to $29 million. These numbers are pretty typical of small biotechs.

ImmunoGen appears to have a lot happening with some big-time biopharma heavyweights.

Our 24-month target for the stock is $7.00 to $8.00.

For more information, contact IMGN’s Carol Hausner at 617-995-2500; info@immunogen.com

HEALTHSTREAM, INC. (NASDAQ: HSTM) – $3.66. Twelve-month hi-low has been $5.14 – $1.87. Based in Nashville, TN, with about 160 employees, this Internet information provider has 21.9 million shares outstanding, $21.4 million in total current assets, $37.57 million in total assets ($10.3 million is goodwill), little debt, and $9.8 million in total liabilities. Institutional ownership is around 27%. www.healthstream.com

Several years back, HealthStream, Inc. was in a whirlwind of controversies, which were probably intensified because of the company’s association with Senate Majority Leader Bill First whose family co-founded HSTM. Most of that appears to be behind the company as it shows a pretty decent balance sheet, revenue growth, and some earnings.

Founded in 1990, and public for nearly six years, HealthStream provides Internet-based solutions and services to meet the training, information, education, and compliance needs of the healthcare industry. Roughly 1.3 million healthcare professionals subscribe to the HealthStream Learning Center, HealthStream’s learning platform. In addition, the company has pioneered a new collaboration with pharmaceutical and medical device companies to assist them in product launch and market education initiatives within HSTM’s network of hospital customers.

The company’s main offering are: HealthStream Learning Center, designed to manage, deliver, track and report blended learning initiatives;HealthStream Express, an online training center targeted at smaller healthcare organizations; Course Library gives over 2000 hours of healthcare and professional education; Authoring Center allows professionals to develop their own online courses and deliver them through the Learning Center; and Authoring Pro, aka A.D.A.M., eight different resources to aid in creating learning solutions.

Earlier this month, HealthStream landed a deal with a subsidiary of HCA; the new four-year contract is for enterprise-wide learning systems. Also, at that time, the company said it expects net income for this year to be comparable to 2005’s $1.9 million and foresees revenue growth between 13% to 15% from last year’s, implying revenue of around $31 million. At the end of August, HSTM inked a five-year pact with Cedars Sinai of LA, CA, allowing that medical center access to its online education system.

For FY2005, ending 12/31/05, revenue was $27.35 million with net income of $1.91 million. During the first six months of FY2006, ending 6/30/06, revenue was $15.74 million with $947,000 in net income, meaning that the company is on pace to meet this year’s guidance.

HealthStream has never been a high-flier, but the company’s basics seem too good for the stock not to trade higher than current levels.

Our 24-month target for the stock is $6.00 to $7.00.

For more information, contact HSTM’s Mollie Condra at 615-301-3237; mollie.condra@healthstream.com

Look for the November 5, 2006 Newsletter to be posted on 11/1 or 11/2.

Thank you,
George