NEXMED, INC. PALATIN TECHNOLOGIES, INC.

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Hello Readers,

Since the last issue, we have closed two more positions, both for some very nice gains.

A.P. PHARMA (11/5/03). Closed position 3/23/04 at $3.76 for a 60% GAIN.

HAUPPAUGE DIGITAL (2/5/01). Closed position 3/23/04 at $3.76 for a 71% GAIN.

Ever since recommending A.P. Pharma last November, the stock had held pretty steady before spiking upward on 3/23. We don’t know why and we don’t care, since a 60% gain is nice to grab in what is still a sloppy market. About five days after we recommended Hauppauge Digital over three years ago, the CEO died and the stock dropped, and, since then, it usually traded between $2.50 and $4.00. All during this time, the company, for the most part, maintained a good balance sheet and that is why we kept the stock in the Current Portfolio. HAUP came back to life on news about licensing its DivX Video technology.

Given the market action over the last week, it’s obvious that the bull still wants to run. Terrorism worries seem to have abated, for now, and Bush is ahead in the Gallup Poll. But, we may have a new boogie man, namely gasoline prices, which will damper consumer confidence and spending, if they persist at current levels. Shouldn’t Bush and Cheney be strong-arming their oil buddies? It’s not really that simple and the markets know it, so, we may be stalled in this wait-and-see mode a little longer.

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

DOR BioPharma (DOR) (9/20/00). Balance sheet seems to have improved year-to-year. Now, if they can only report some good results from something or somewhere.

Digital Power (DPW) (2/20/01). Year-end results down 16% from previous year’s, as is balance sheet. This one is making us nervous, again.

Arotech (ARTX) (6/5/01). FAAC subsidiary delivers first full mission light rail simulator.

ViroLogic (VLGC) (7/20/01). Launches Vlink, which allows Internet access for healthcare professionals seeking HIV test results.

VASCO Security (VDSI) (2/5/02). Presents Anti-Phishing platform for e-commerce.

Argonaut Technologies (AGNT) (4/20/02). Introduces the Advantage Series 2410 personal screening synthesizer.

Generex (GNBT) (8/5/02). Inks letter of intent for joint venture with PharmaBrand to accelerate approval of Oralin in Central & Latin America.

Art Technology (ARTG) (8/5/03). Offers hands-on access to the first-ever adaptive self-service solution and marketer-driven A/B testing solution. Helps A&E TV Networks re-design web site.

Targeted Genetics (TGEN) (10/5/03). Begins rheumatoid arthritis clinical trial.

Insmed (INSM) (11/5/03). Presents cancer data on rh1GFBP-3 in herceptin-resistant breast tumors.

V.I. Technologies (VITX) (11/20/03). Adds new sites for the Phase III INACTINE red blood cell acute transfusion study.

AVANT Immuno (AVAN) (12/5/03). GSK invests in new production facility for Rotarix, AVAN’s Rotavirus vaccine.

SatCon (SATC) (12/5/03). SATC and Data Physics intend to form strategic alliance to sell SatCon’s Ling Vibration and Acoustic test systems.

Actuate (ACTU) (1/5/04). Subsidiary ReportingEngines improves market forecasting and analysis processes for Formula One.

Peerless Systems (PRLS) (1/20/04). Year-end numbers drop from previous year; balance sheet still looks good.

Crossroads Systems (CRDS) (2/5/04). Company and LeftHand Networks announce strategic partnership. Reports distribution of common stock by investor.

Somera Communications (SMRA) (2/20/04). Stock sinks as company guides below consensus; off by $5 million to $7 million. Could be a dead-cat bounce in here.

Transgene (TRGNY) (3/5/04). MVA-HPV-IL2 vaccine shows activity in Phase II clinical trial.

OpenTV (OPTV) (3/20/04). emuse technologies and OPTV enter into joint marketing pact to promote worldwide ITV production and development. Names new board chairman. Subsidiary BettingCorp and BSkyB agree to terms to relaunch PlayMonteCarlo on Sky digital interactive platform.

Socket Communications (SCKT) (3/20/04). Announces support for Windows Mobile-based Pocket PCs from Hitachi and Samsung.

Our picks for this Newsletter are two companies that are both involved in treating sexual dysfunctions. Hey! It’s newsworthy.

NEXMED, INC. (NASDAQ: NEXM) – $2.70. Twelve-month hi-low has been $5.65 – $1.09. Based in Robbinsville, NJ, with about 45 employees, this drug developer has 40.2 million shares outstanding, $12.5 million in total current assets, $23.1 million in total assets, and $10.41 in total liabilities, of which $6.9 million is long-term debt. Institutional ownership is around 20%. http://www.nexmed.com

Time again to pick at some more medical/biotechs, and, though, we’d like to see a little less debt from NexMed, Inc., their drug candidates are the kind that could eventually make some headlines, which then could send the stock higher.

Founded about a dozen years ago, and trading on NASDAQ for nearly five years, NexMed is focusing its efforts on developing new and patented topical pharmaceutical products based on what it calls NexACT, short for penetration enhancement drug delivery technology, that may enable an active drug to be better absorbed through the skin. The NexACT transdermal drug delivery technology is designed to enhance the absorption of an active drug through the skin, overcoming the skin’s natural barrier properties and enabling high concentrations of the active drug to rapidly penetrate the desired site of the skin or the extremity. Successful applications could improve the therapeutic outcomes and reduce gastrointestinal or other side effects that often accompany oral medications.

With a library of over 40 patented molecules for its NexACT platform, NexMed’s most advanced new product in clinical testing is Alprox-TD, a topical treatment for male sexual dysfunction. Sounds topical and potentially newsworthy to us. The company has completed two pivotal Phase 3 studies for the drug. Also under clinical development is what NexMed calls Femprox cream for treating female sexual dysfunction. In addition, the company is working with various drug firms to explore incorporating NexACT into their existing drugs so as to develop new patient-friendly transdermal products.

A month ago, NexMed announced plans to initiate a 400-patient Phase 3 study for Femprox in China. In February, the company announced a Femprox license accord for South Korea. Also, in February, NexMed entered into what seems to be a very interesting R&D pact with a Japanese pharmaceutical company to develop NM100120, a new topical gel to relieve pain associated with dental procedures, some skin surgeries, skin graft harvesting, and needle insertions.

NexMed is a typical small R&D in that it has little revenue and big losses. For FY2003, ending 12/31/03, revenue was $110, 743 with $20.35 million in losses.

NexMed is potentially a story stock, thanks to sexual dysfunctions which now seem to dominate the airwaves and TV media.

Our 24-month target for the stock is $4.75 – $5.50.

For more information, contact NEXM’s Deborah Carty at 609-208-9688, ext. 159; dcarty@nexmed.com

PALATIN TECHNOLOGIES, INC. (AMEX: PTN) – $4.10. Twelve-month hi-low has been $5.89 – $1.43. Located in Cranbury, NJ, with about 50 employees, this biopharmaceutical has 52.6 million shares outstanding, $11.76 million in total current assets, $15.52 million in total assets, little debt, and $2.8 million in total liabilities. One analyst rates the stock a “strong buy”. Institutional ownership is around 16%. http://www.palatin.com

If you notice similarities with NexMed above, that is because there are. Like NEXM, Palatin Technologies, Inc. also has the potential to capture some headlines down the road.

Founded in 1996, Palatin is a developmental-stage biopharmaceutical company focused on developing what are called Melanocortin (MC) – based therapeutics. The MC family of receptors has been identified with a variety of conditions and diseases, including sexual dysfunction, obesity, anorexia, cachexia, inflammation, and drug abuse.

Here is Palatin’s product portfolio: PT-141 is a patented nasally administered peptide that is under investigation for treating both male and female sexual dysfunction. A Phase 1 safety study showed that the drug had an excellent safety profile while Phase 2A efficacy studies illustrated positive safety and efficacy results in patients with varying degrees of erectile dysfunction (ED). In November, 2003, Palatin announced the presentation of a positive Phase 2B “at-home” study for male ED and reported consistently improved erectile function across all dosing levels.

LeuTech is an infection imaging diagnostic agent that recently received an FDA advisory panel recommendation as a diagnostic for equivocal appendicitis and is now in Phase 2 clinical testing for diagnosis of osteomyelitus. Palatin has a collaborative agreement with Mallinckrodt for the sales and marketing of LeuTech. MIDAS is Palatin’s drug discovery technology from which the company is also exploring drug candidates for obesity, inflammation, and cancer.

At the end of January, Palatin raised $22.7 million in a private equity deal through CIBC and Legg Mason, and the next balance sheet should reflect these proceeds. Like NexMed above, Palatin is another small biotech that is short on revenues and long on losses. For example, during the first six months of its current FY, ending 12/31/03, revenue was $2.12 million with $11.3 million in losses. Palatin could end up having a lot of “sex appeal” – yeah, that was bad.

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

For more information, contact PTN’s Steve Wills at 609-495-2200; swills@palatin.com

Look for the April 20, 2004 issue to be posted on 4/16 or 4/19.

Happy holidays,
George