The pharmaceutical industry historically has been focused on discovering and developing single agent drugs that are selective for isolated disease targets. This approach to drug discovery has proven to be successful in several diseases, particularly in cases where the modification of a single target has a dramatic effect on the outcome of the disease. However, there is growing understanding of the complexity of biological systems. Biologists now recognize that cellular activity occurs across redundant, convergent and divergent pathways. The activity of a therapeutic compound against one pathway can be insufficiently effective because biological systems often compensate by using a secondary pathway. In such cases, if a second compound could complement the activity of the first compound by simultaneously targeting the secondary pathway, the two compounds acting together might overcome the biologic redundancy. Similarly, a drug may have a therapeutic effect by acting against one pathway, but may trigger adverse side effects by its actions on other pathways. In such cases, if a second compound could selectively enhance the first compound's desirable activity without enhancing its undesirable side effects, the combination could improve the first drug's efficacy or safety, or both.

Physicians and the pharmaceutical industry have acknowledged this biological complexity by prescribing or creating combination drugs, which often combine two or more drugs with distinct and complementary modes of action. Traditional combination drugs are often co-formulations of two drugs that have known mechanisms of action, are indicated for the same disease and are often already co-prescribed by physicians.

It is believed that traditional combination drugs represent only a small fraction of possible combinations of existing pharmaceutical agents. These traditional combinations typically have been limited to cases where, based on clinical experience or mechanistic understanding, there was an obvious reason to combine the two drugs in a particular indication.

The Company is developing a portfolio of selective steroid amplifier product candidates for the treatment of multiple immuno-inflammatory diseases. Steroids target multiple biological pathways and their effects are multi-faceted. The goal of the Company’s selective steroid amplifier class of product candidates is to modulate these intersecting pathways in order to selectively amplify desirable aspects of steroid activity. Each of the Company’s selective steroid amplifier drug candidates consists of a reduced-dose steroid and a different enhancer agent.

Calcineurin inhibitors, like steroids, are potent immuno-modulatory compounds, whose usefulness is limited by their adverse side effects. The Company’s calcineurin inhibitor program seeks to increase the therapeutic potential of this compound class with enhancer compounds that selectively enhance the immuno-modulatory effects of a reduced-dose calcineurin inhibitor without a comparable increase in its adverse side effects. The Company’s preclinical studies suggest that its clinical product candidate in this class, CRx-140, has the potential to produce the immuno-suppressive activity of a calcineurin inhibitor without a comparable increase in its adverse side effects.

Cytokines are protein signaling molecules used by the immune system to regulate immune and inflammatory response. The Company’s synergistic cytokine modulators product candidates combine approved drugs which are not currently indicated for immuno-inflammatory disease. The Company’s preclinical studies suggest that the two active pharmaceutical ingredients in its clinical product candidate in this class, CRx-150, interact synergistically to modulate cytokine production.

The Company’s anti-tumor drug discovery program seeks to identify drug combinations that may interact synergistically to block cancer cell division, offering the potential for improved therapeutic benefit. Currently, one drug candidate from this product class, CRx-026, has entered clinical development, and several other candidates are in preclinical evaluation.

The Company’s programs in Type II diabetes are at the preclinical stage.

Research and development expense for the year ended December 31, 2004 was $15.9 million compared to $12.1 million for the year ended December 31, 2003.

General and administrative expense for the year ended December 31, 2004 was $6.8 million compared to $4.5 million for the year ended December 31, 2003.

Interest income increased to $620.0 thousand for the year ended December 31, 2004 from $499.0 thousand for the year ended December 31, 2003.

Interest expense increased to $403.0 thousand for the year ended December 31, 2004 from $176.0 thousand for the year ended December 31, 2003.