Anemia, a condition in which the blood is deficient in red blood cells and hemoglobin, is a frequent and serious complication associated with a number of common chronic diseases. Anemia is associated with chronic fatigue and, if left untreated, may increase the risk of other diseases or even death. Red blood cells are normally formed in the circulating blood from progenitor cells, known as stem cells, and from precursor cells which are initially present primarily in the bone marrow. These cells are stimulated to divide and differentiate and are mobilized into circulation by erythropoietin, or EPO, a hormonal factor produced by the kidney.

Anemia can be caused by conditions such as chronic kidney disease, or treatments such as chemotherapy, that result in underproduction of EPO or a muted response to EPO. Anemia generally exists in men when the hemoglobin level in blood, which is a measure of red blood cells, is less than 12 g/dL, or the hematocrit, which is a ratio of the volume packed red blood cells to the volume of whole blood, is less than 37%, and in women when hemoglobin is less than 11 g/dL or hematocrit is less than 33%.

According to the Centers for Medicare and Medicaid Services, or CMS, there are approximately 320,000 end-stage renal disease patients on dialysis in the U.S. served by approximately 4,700 dialysis facilities. The United States Renal Data System projects average annual growth rate for the end-stage renal disease population to 2010 of approximately 4.1% for new patients and 7.1% for dialysis patients.

According to a U.S. Renal Data abstract, approximately two-thirds of these patients are not treated with an ESA prior to progression to stage 5, end-stage renal disease, and initiating dialysis. While in the U.S., currently marketed ESAs are indicated for up to every two week dosing in predialysis, these patients often require much less frequent visits to their nephrologists or primary care physicians for treatment of their underlying disease.

The Company is currently conducting Phase 2 clinical trials in patients suffering from end-stage renal disease who are on dialysis, as well as in earlier stage chronic kidney disease patients, or predialysis patients. In oncology supportive care, the Company has initiated Phase 2 clinical trial evaluating Hematide in cancer patients who suffer from anemia as a consequence of their chemotherapy treatment.

The Company is also building a proprietary pipeline of other novel drug candidates which are designed to offer advantages over first generation recombinant protein therapeutics currently addressing large markets.

Hematide is being developed for room temperature stability, ease-of-handling and long shelf life in order to overcome many of the limitations which hamper the cost effectiveness, and thus the physician adoption, of rEPOs. In particular, room temperature stability may reduce cost at each step of the supply chain, while ease-of-handling and long shelf life may reduce healthcare providers\' cost of inventory and dose administration.

The Company’s early clinical trials have shown similar positive effects on red blood cell formation when Hematide is given at equivalent doses either intravenously or subcutaneously. These results suggest that Hematide may be equally effective in humans when administered by either route.

Hematide does not share the amino acid sequence of rEPO. However, like currently marked rEPOs, it does directly bind to and activate the EPO receptor. When tested against a large panel of different cell receptors, Hematide appears to be highly specific to the EPO receptor. Thus the mechanism of action of Hematide is well known and is similar to that of naturally occurring EPO.

Research and development expenses increased by $24.4 million, or 145%, to $41.2 million in the nine months ended September 30, 2006 from $16.8 million in the nine months ended September 30, 2005.

Interest income, net increased by $2.7 million, or 2.7%, to $3.5 million in the nine months ended September 30, 2006 from $766,000 in the nine months ended September 30, 2005.