Cancer is a common and serious disease of unregulated cell proliferation. The American Cancer Society estimates that in 2004 approximately 1.4 million new patients in the United States will be diagnosed with primary solid tumors or malignancies of the blood and that there will be approximately 564,000 patient deaths attributable to these cancers. The most common cancers worldwide include cancers of the breast, prostate, lung, ovary, skin, liver, colon and rectum. The National Cancer Institute estimates that in 2001 there were approximately six million patients with the foregoing cancers in the United States.

The worldwide market for supportive care drugs is substantial and includes drugs to prevent nausea and vomiting, drugs to alleviate pain and drugs to stimulate the bone marrow to produce white and red types of blood cells. Supportive care drugs have been developed to prevent or mitigate many common side-effects caused by chemotherapy drugs, including the taxane and platinum drugs. However, there is no FDA-approved treatment to prevent or reduce neuropathy caused by taxane and platinum drugs. Paclitaxel and docetaxel are reported by the Physician’s Desk Reference, or PDR, a drug reference text, to cause some degree of clinically detectable neuropathy in approximately 60% and 50% of the patients treated, respectively. American Hospital Formulary Systems, or AHFS, reports that neuropathy is a principal dose-limiting side-effect caused by with the administration of cisplatin. The incidence of neuropathy increases when cisplatin is administered concurrently with other potentially neuropathy-causing chemotherapy drugs, including paclitaxel. Oxaliplatin, which was recently approved by the FDA for the treatment of patients with advanced colorectal cancer, is reported by AHFS to cause some degree of clinically reported neuropathy in approximately 74% of the patients treated.

The Company is developing Tavocept as a chemotherapy supportive care drug to prevent and mitigate the incidence, severity and duration of neuropathy, which is often caused by the taxane and platinum classes of chemotherapy drugs. Based on its non-clinical and Phase I clinical trials to date, the Company believes Tavocept has the potential to prevent or mitigate neuropathy caused by the administration of two common chemotherapy drugs, paclitaxel, a taxane drug, and cisplatin, a platinum drug, without impairing their anti-tumor benefits. Because Tavocept is intended to treat a serious condition and has the potential to address an unmet medical need, chemotherapy-induced neuropathy, Tavocept has been granted a “fast track” designation by the FDA to investigate its potential use in preventing or mitigating the neuropathy that is commonly caused by paclitaxel. The Company and its strategic alliance partners are currently conducting three Phase III clinical trials of Tavocept in the United States, Europe and Japan, in patients with metastatic breast cancer or advanced non-small cell lung cancer.

The Company is developing BNP1350 as a new anti-tumor drug in the camptothecin class of chemotherapy drugs. BNP1350 appears to have potentially fewer side-effects and an improved safety profile compared to the currently marketed camptothecin drugs. Two existing camptothecins are used and FDA-approved to treat patients with colorectal, lung and ovarian cancers. The Company is currently conducting three, and has completed one, Phase II clinical trials of intravenously administered BNP1350 in the United States involving patients with advanced non-small cell lung cancer, brain tumors, metastatic melanoma or advanced ovarian cancer. Based on its non-clinical and clinical studies to date, the Company believes that BNP1350 will have a lower incidence of the severe and potentially life-threatening diarrhea that can be caused by irinotecan, the most widely used camptothecin, and a lower incidence of reduced red and white blood cell counts that can be caused by topotecan, the other FDA-approved camptothecin.

The Company is currently engaged in the non-clinical development of a number of potential drug candidates involving other oncology product classes such as DNA methyltransferases, novel taxanes and formulations, DNA binding agents, novel platinum compounds and novel cytoprotective agents that it believes represent significant unmet patient needs and potentially address large markets.

In 1993, the Company acquired the rights to a novel antifolate, known as MDAM, from an academic research consultant and collaborator. MDAM is structurally similar to methotrexate, a drug commonly used to treat various types of cancers and inflammatory and autoimmune diseases, including rheumatoid arthritis and psoriasis.

Research and development expenses were $5.1 million for the three months ended June 30, 2004, and $2.0 million for the three months ended June 30, 2003, an increase of $3.1 million, or 160%.

General and administrative expenses were $680,000 for the three months ended June 30, 2004, and $610,000 for the three months ended June 30, 2003, an increase of $70,000, or 11%.

Interest and other income was $85,000 for the three months ended June 30, 2004, and $58,000 for the three months ended June 30, 2003, an increase of $27,000, or 46%.