TOMOTHERAPY, INC. LIGAND PHARMACEUTICALS, INC.

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Hello Readers,

Since the last Newsletter, we closed two more positions, one for an okay gain and one for a nasty loss.

SIGA TECHNOLOGIES (8/20/07). Closed position 2/13/09 at $5.16 for a 54% GAIN.

DIGITALFX (12/5/07). Closed position 12/5/07 at 28 cents for a 88% LOSS.

SIGA managed to squeak by our target range when BARDA, an arm of the HHS Department, issued a presolicitation for acquisition of a smallpox antiviral. We closed DigitalFX, which had been on the “Endangered List”, when it moved to the Bulletin Board.

Our new President is one of the most intellectual people ever elected to the office, safe to say he’s in the top five. However, when at his first news conference he stood up and said “only government” can fix the problem, he unintentionally exacerbated the mess. Many of us feel that government has been the major problem. At some point, free markets, or what’s left of “free” must be allowed to work relatively unencumbered, or this Near Depression will just get worse; that’s the real lesson of the 1930s. Mr. Obama and company truly believe that massive spending is the answer, but, truth be told, we need massive tax cuts. If the President had had any economic or business experience, he would know that.

Now, there may be a bright light in all of this. We really are getting closer to market bottoms. Our best guess is that when all is said and done, we could see Dow at 6000-6500 and NASDAQ at around 1200-1250. And yes, in the meantime, expect head fakes or bear market rallies. And, once again, our Current Portfolio, is pretty much unchanged from a few weeks ago, which is nothing to brag about.

Here are the headlines since the last Newsletter about companies in our 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.

AuthenTec (AUTH) (2/5/00). To demonstrate new touch-powered mobile device features and products at GSMA Mobile World Congress from February 16 to 18. Earnings call slated for February 17.

Rewards Network (DINE) (1/20/09). Earnings news set for February 19.

MakeMusic (MMUS) (1/20/09). SmartMusic subscriptions increase 22% over prior year.

Aetrium (ATRM) (1/5/09). Year-end numbers not great and outlook is pessimistic; balance sheet still looks good.

Endwave (ENWV) (1/5/09). Quarterly numbers dismal as company forecasts lower revenues for 2009, and we expect this to be the case for most companies; balance sheet still looks strong.

The Orchard (ORCD) (11/20/08). Secures credit facility to accelerate 2009 growth. Thai media group GMM Grammy selects company in exclusive digital tie-up.

Akeena Solar (AKNS) (10/20/08). To present at Kaufman Brothers Green Technology confab on February 18. Sets earnings call for February 26. Powers ABC’s Extreme Makeover: Home Edition with 5Kw Andalay solar system. To introduce AC solar panels.

Planar Systems (PLNR) (9/20/08). Recent numbers show drop in revenues but company records a net profit; balance sheet still looks good.

Endeavour Silver (EXK) (9/5/08). Announces 2008 exploration review and 2009 exploration outlook.

Insure.com (NSUR) (9/5/08). Recent numbers show revenue loss and a net loss in earnings; balance sheet still looks strong.

Digirad (DRAD) (8/20/08). Records pretty good revenue numbers but losses widen; balance sheet still looks strong. Sells Northern California service hubs.

U.S. Geothermal (HTM) (8/5/08). Signs interconnection agreement for Neal Hot Springs power project. GET NUMBERS!!!!!!!!!!!!!!!!!!!!!

Hythiam (HYTM) (7/20/08). To present at the Roth Annual OC Growth Stock Conference on February 18.

Neurobiological Technologies (NTII) (7/5/08). Recent balance sheet still looks good. Names new CEO. Receives $1.5 million royalty payment for quarterly sales of Memantine.

Bridgeline Software (BLSW) (6/5/08). To present at the Red Chip investor conference on March 24. Posts some good looking quarterly numbers; balance sheet still seems okay.

Biolase Technology (BLTI) (4/5/08). Announces operational restructuring and debt financing changes.

Rodman & Renshaw (RODM) (3/20/08). Sets earnings call for March 9. Names new CEO.

ActivIdentity (ACTI) (3/5/08). Extends 4TRESS with mobile strong authentication. Releases some good-looking quarterly numbers; balance sheet still looks strong.

Amicas (AMCS) (1/20/08). Sets earnings call for February 26. Embeds Fovia’s high definition Volume Rendering technology in next generation PACS.

Hollis-Eden Pharmaceuticals (HEPH) (12/20/07). Slashing 20 jobs in corporate savings measures; to focus resources on advancing ongoing clinical development programs.

Continucare (CNU) (11/20/07). Releases some decent quarterly numbers; balance sheet still looks okay.

Nucryst Pharmaceuticals (NCST) (10/5/07). Sets earnings call for February 17. Approves 80 cents per share distribution to shareholders; this is novel.

American Technology (ATCO) (10/5/07). Recent numbers so-so; balance sheet also so-so.

XATA (XATA) (9/20/07). Secures $3.1 million investment. Opens new distribution center in Minnesota. Recent quarterly numbers look promising; balance sheet looks fair.

Wave Systems (WAVX) (9/5/07). Regains compliance with market cap rule of NASDAQ Capital Market. We’re still keeping this on the “Endangered List” for now.

Radcom (RDCM) (7/20/07). Telekom Austria selects company’s Service Assurance Solution. Recent quarterly numbers not great; balance sheet so-so.

Pharmacyclics (PCYC) (6/20/07). Balance sheet still looks good.

Xenonics (XNN) (6/5/07). Revenues drop and losses mount; balance sheet still so-so. Receives $1 million follow-on NightHunter order. Announces CEO transition.

Oncolytics Biotech (ONCY) (6/5/07). Teams with University of Texas Health Science Center for multi-trial clinical research collaboration.

TTI Team Telecom (TTIL) (3/5/07). Provides further update on internal investigation.

UQM Technologies (UQM) (2/5/07). To present at Kaufman Brothers GreenTech confab on February 18. MDB Capital Group gives the stock a “buy” rating. Company’s propulsion system powers Proterra EcoRide battery-electric transit bus on California clean bus tour.

Endologix (ELGX) (1/20/07). Company’s new IntuiTrak Endovascular AAA delivery system featured at industry confab. Sets earnings call for February 19.

Neose Technologies (NTEC) (12/20/06). Common stock continues listing on NASDAQ Global Market.

AdvanSource Biomaterials (ASB) (12/20/06). Sets earnings call for February 18.

Lantronix (LTRX) (12/5/06). Revenues drop during latest quarter; balance sheet still looks good.

Hydrogenics (HYGS) (9/20/06). To present at Kaufman’s Green Investor Conference on February 18.

ThermoGenesis (KOOL) (4/5/06). Recent quarterly report shows increase in revenue; balance sheet still looks healthy.

The Inventure Group (SNAK) (3/5/06). To present at the Roth OC Growth Stock Conference on February 18. Debuts fruit smoothies. To announce quarterly results on February 26.

8×8 (EGHT) (1/20/06). Says business customer base grows to over 15,000 companies. Receives “Most Innovative Product” Best of Show Award at ITEXPO EAST 2009.

Our picks for this Newsletter are a medical equipment maker and another biotech, both listed on NASDAQ.

TOMOTHERAPY, INC. (NASDAQ: TOMO) – $2.62. Twelve-month hi-low has been $17.89 – $1.81. Based in Madison, WI, with about 700 employees, this medical equipment maker has 50.3 million shares outstanding, $261.92 million in total current assets, $295.93 million in total assets, little debt, and $84.55 million in total liabilities. Institutional ownership is around 52%. One analyst gives the stock a “moderate buy” and five have it as a “hold”. tomotherapy.com

Like many companies, TomoTherapy, Inc. has seen falling revenues causing it to lower guidance, but one must believe that with its strong-looking balance sheet and accepted technology, the company should be able to weather the current storms.

Founded in 1997, and public for about 19 months, TomoTherapy develops and markets what it calls the Hi Art System, a radiation therapy system for treating various types of cancers. The Hi Art system combines integrated CT imaging with radiation therapy to deliver radiation treatment while reducing exposure to surrounding healthy tissue. Hi Art contains a linear accelerator, a device that generates external beam radiation that is used both to capture images and to deliver therapeutic radiation to selected targets in a helical, or spiral, delivery system 360 degrees around the body. This is suppose to give clinicians the ability to better focus radiation beams, and the flexibility to adapt daily treatment based on shifting targets and changing patient anatomy. It also creates entirely new options for treating most complex cases. TomoTherapy also has a collaboration with Lawrence Livermore National Laboratories on acceleration technology.

TOMO markets the Hi Art system to university research centers, community hospitals, private and government institutions, and cancer centers in North America, Europe, the Middle East, and Asia. The company boasts of more than 200 installations in over sixteen countries.

During January, the company and Hitachi Medical entered into a distribution agreement for Japan; Addenbrookes Hospital of Cambridge England agreed to install its second Hi Art system; and the Siteman Cancer Center, in St. Louis, also added their second Hi Art system.

For FY 2008, ending 12/31/08, revenue was $204.58 million with $35.85 million in net losses compared to 2007 revenues of $232.81 million and $10.66 million in net income.

It’s no secret that hospitals, like other businesses, have cut back on their capital spending, but how much longer can they keep doing that? As we said, TomoTherapy appears to have the resources to wait out that cycle.

Our 24-month target for the stock is $4.25 to $4.75.

For more information, contact TOMO’s Stephen Hathaway at 608-824-2800; shathway@tomotherapy.com

LIGAND PHARMACEUTICALS, INC. (NASDAQ: LGND) – $2.60. Twelve-month hi-low has been $4.55 – $1.10. Based in San Diego, CA, with about 55 employees, this drug developer/biotech, has 94.9 million shares outstanding, $93.44 million in total current assets, $171.82 million in total assets, and $169.85 million in total liabilities, of which nearly $89 million is for other liabilities and deferred long-term liability charges. Institutional ownership is around 84%. Two analysts rate the stock a “strong buy”. www.ligand.com

There are times when we can overlook things like “deferred liabilities” when the top of the balance sheet still looks to be very liquid; and we cannot ignore Ligand Pharmaceuticals, Inc.’s collaborations with many top biopharmas, which usually means that a company has some promising technology.

Founded in 1987, and public for nearly fifteen year, Ligand is an early-stage biotech that focuses on discovering and developing drugs for critical unmet medical needs in such areas as thrombocytopenia, anemia, cancer, hormone-related diseases, osteoporosis, and inflammatory diseases. The company’s partnered development programs include Eltrombopag, which is in Phase III clinical trials for treating hepatitis C; in Phase I/II clinical trials for treating chemotherapy-induced CIT; in Phase I clinical trials for the treatment of hepatic, renal, and CITs; and has an NDA submitted for short-term and long-term ITP. Other such programs comprise SB-559448, a Phase I clinical trial product for treating Thrombocytopenia; Bazedoxifene CE, a Phase III trial product for osteoporosis prevention and for treating vasomotor symptoms; LGD-2941, a Phase I clinical trial product for treating osteoporosis, fraility, and sexual dysfunction; and Bazedoxifene, an NDA filed product for osteoporosis prevention and treatment.

Ligand’s partnerships include companies such as King Pharmaceuticals, GlaxoSmithKline, Wyeth, Pfizer, and Tap Pharmaceutical, Inc.

Earlier this month, Ligand announced that its drug candidate for reducing hypertension, which is in Phase IIb, demonstrated statistically greater reductions in blood pressure.

Ligand is typical of many small biotechs in that its income is derived from sporadic royalties while the losses can be mind-numbing. For example, during FY2008, ending 12/31/08, revenue was $27.31 million with $98.12 million in losses.

Ligand appears to have an active pipeline of candidates that have been noticed by some of pharmas biggest names.

Our 24-month target for the stock is $4.25 to $4.75.

For more information, contact LGND’s Erika Luib at 858-550-7896; investors@ligand.com

Look for the March 5, 2009 Newsletter to be posted on 3/2 or 3/3.

Thank you,
George

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