The urology market includes the treatment of diseases and disorders of the urinary tract and reproductive organs such as benign prostatic hypertrophy, or BPH. BPH is a benign prostate enlargement that results in obstruction of the urinary tract. The sexual health market includes the treatment of diseases and disorders associated with poor or non-functioning sexual organs such as hypogonadism, male or female sexual dysfunction, and Peyronie’s disease. Peyronie’s disease is the development of scar tissue in the shaft of the penis which can cause pain on erection and prevent normal intercourse.

Until recently, treatment for many urologic and sexual health disorders was viewed as medically unnecessary. As a result, these disorders were undertreated or not treated at all. This dynamic has changed as treatment options have improved and as physicians and patients have begun to appreciate the benefits of treatment. This increased awareness has resulted in marked growth in the drug categories for erectile dysfunction and BPH. For example, according to EvaluatePharma, a pharmaceutical market research firm, annual sales of erectile dysfunction drugs, such as Viagra, grew from less than $100 million to greater than $2 billion between 1997 and 2003. EvaluatePharma has reported that the BPH market, which includes products such as Proscar and Flomax, grew from approximately $450 million to over $3 billion from 1992 to 2003.

Hypogonadism is a disorder that affects approximately 20% of the U.S. male population over age 50. It is estimated that there is a similar percentage of affected men in Europe. Many hypogonadal men are becoming aware that their symptoms are not a normal part of aging and can be treated.

The Company received FDA marketing approval for Testim in October 2002 and began selling it in the first quarter of 2003. Based on IMS data, it is estimated that in 2003 there were approximately 70,300 prescription units dispensed for Testim.

Clinical data support the advantages of Testim. The Company has designed and conducted its clinical trials to provide prescribing physicians with comprehensive information regarding Testim’s benefits. Since 2001, the Company has conducted 11 clinical studies involving 1,400 patients. The results from these three studies taken together demonstrated that in patients with hypogonadism, testosterone levels are directly correlated with patient symptom improvement.

The Company is developing an androgen replacement film for the treatment of hypogonadism using the transmucosal film technology. This product candidate may provide an important line extension for the Testim brand. If approved, the androgen replacement film will provide physicians with a novel treatment alternative.

The Company is developing oxybutynin transmucosal film formulations using the film technology licensed from PharmaForm. The Company is exploring both short-acting and long-acting formulations. Laboratory scale formulations have been produced and are currently being evaluated.

Cost of goods sold were $3.8 million, $0.1 million and $0 for 2003, 2002 and 2001, respectively.

Research and development expense was $7.2 million, $14.1 million and $16.3 million for 2003, 2002 and 2001, respectively.

Selling, general and administrative expenses were $27.5 million, $5.6 million and $2.3 million for 2003, 2002 and 2001, respectively.

Interest income (expense), net was $(1.0) million, $0.3 million and $0.2 million for 2003, 2002 and 2001, respectively.