The biodefense market for immunobiotics has grown dramatically as a result of the increased awareness of the threat of global terror activity in the wake of the September 11, 2001 terrorist attacks and the October 2001 anthrax letter attacks. The letter attacks involved the delivery of mail contaminated with anthrax spores to government officials and members of the media in the United States. As a result of the letter attacks, 22 people became infected with anthrax, including 11 with inhalational anthrax, and five people died.

Vaccines have long been recognized as a safe and cost-effective method for preventing infection caused by various bacteria and viruses. Because of an increased emphasis on preventative medicine in industrialized countries, vaccines are now well recognized as an important part of public health management strategies. According to Frost & Sullivan, a market research organization, from 2002 to 2005, annual worldwide vaccine sales increased from $6.7 billion to $9.9 billion, a compound annual growth rate of approximately 14%. Frost & Sullivan estimates that the worldwide sales of vaccines will grow at a compound annual rate of approximately 10.5% from 2005 through 2012. As of 2005, Frost & Sullivan estimates that approximately two-thirds of global vaccine sales were attributable to pediatric vaccines.

Most non-pediatric commercial vaccines are purchased and paid for, or reimbursed by, managed care organizations, other private health plans or public insurers or paid for directly by patients. With respect to some diseases affecting the public health generally, particularly in developing countries, public health authorities or nongovernmental, charitable or philanthropic organizations fund the cost of vaccines. According to Frost & Sullivan, public purchases of vaccines, including for immunization programs and government stockpiles, account for approximately 90% of the total volume of worldwide vaccine sales. Although accounting for only 10% of the total volume of worldwide vaccine sales, private market purchases of vaccines accounted for approximately 60% of total worldwide vaccine sales revenues in 2005.

BioThrax is approved by the FDA as a pre-exposure prophylaxis for use in adults who are at high risk of exposure to anthrax spores. BioThrax is manufactured from a culture filtrate, made from a non-virulent strain of Bacillus anthracis, and contains no dead or live bacteria. The Company is developing an anthrax immune globulin as a single dose intravenous therapeutic for treatment of patients with manifest symptoms of anthrax disease resulting from the release of anthrax toxins into the body. The Company is developing its botulinum immune globulin candidate in collaboration with HPA as an intravenous therapeutic for treatment of symptomatic botulinum exposure.

In its commercial business, the Company is developing a range of commercial immunobiotic product candidates for use against infectious diseases with significant unmet or underserved medical needs. The Company is developing a live attenuated typhoid vaccine that contains deletions in two genes of the Salmonella typhi bacterium designed to eliminate virulence. The Company has designed its vaccine candidate to be administered in a single drinkable dose prior to travel to countries where typhoid is endemic.

The Company is developing a live attenuated therapeutic vaccine for treatment of patients with chronic hepatitis B infection. The Company has designed its vaccine candidate to be administered in multiple drinkable doses over several months. The Company is developing a recombinant protein subunit group B streptococcus vaccine initially for administration to women of childbearing age for protection of the fetus and newborn babies. The Company is designing its vaccine candidate to be administered by injection with an alum adjuvant in a three dose regimen.

The Company is developing a recombinant protein subunit chlamydia vaccine for all clinically relevant strains of Chlamydia trachomatis, including strains that cause ocular disease. The Company is designing its vaccine candidate to be administered by injection with a novel adjuvant in a three dose regimen. The Company is developing a recombinant protein subunit meningitis B vaccine for babies, children and adolescents. The Company is designing its vaccine candidate to be administered by injection with an alum adjuvant in a two dose regimen for children under age five and a single dose regimen for children over age five.

Milestone and grant revenues decreased by $453,000, or 94%, to $27,000 for the three months ended March 31, 2006 from $480,000 for the three months ended March 31, 2005.

Cost of product sales decreased by $1.3 million, or 31%, to $2.9 million for the three months ended March 31, 2006 from $4.1 million for the three months ended March 31, 2005.

Total other income increased by $165,000 to $40,000 for the three months ended March 31, 2006 from a loss of $125,000 for the three months ended March 31, 2005.