Pain is a serious health and economic problem. According to Front Line Strategic Management Consulting, Inc., the worldwide market for therapeutics to manage pain is expected to grow from $22 billion in 2000 to $30 billion in 2007. Over the past ten years, the healthcare industry has taken active measures that focus on the importance of pain management as a component of patient care.

The 2000 U.S. incidence rate of breakthrough cancer pain as determined by The Analytica Group and the American Cancer Society was estimated to be approximately 793,000 patients per year. It is estimated that more than 70% of cancer patients with advanced disease suffer from moderate-to-severe breakthrough pain and are treated for their conditions with a combination of short and long acting analgesics. On average, patients suffering from breakthrough pain experience three to four breakthrough episodes per day and

require therapy for their condition for an average of 150 days per year. The current standard of care for breakthrough pain is the administration of as- needed, immediate-release oral opioids.

Lower-back pain is the most common medical complaint in developed countries. As a result, the patient population is extremely large. According to the Centers for Disease Control, in 1998 there were approximately 7.9 million individuals whose chronic back problems were activity limiting.

The 2000 U.S. incidence rate of dental pain as determined by The Analytica Group was estimated to be approximately 21.6 million patients per year. Dental pain is typically acute, mild-to-severe, somatic pain. Dental pain associated with oral surgery, including wisdom tooth extraction and periodontal procedures, frequently requires short-term management with opioid analgesics

or strong NSAIDs.

Ketamine is a non-opiate, N-methyl-D-aspartate, or NMDA, receptor antagonist that has been in clinical use for over 25 years as a general anesthetic. The use of ketamine as an analgesic is gaining acceptance by clinicians in view of its effectiveness and minimal impact on cardiovascular and respiratory functions. The Company’s intranasal ketamine product is in clinical development for the treatment of a heterogeneous group of syndromes associated with acute pain and acute episodes of chronic pain.

Morphine, the analgesic standard to which all other opioids are usually compared, is a potent agonist of the mu-opioid receptor. The Company’s intranasal morphine product candidate is in clinical development for the treatment of a heterogeneous group of syndromes associated with acute pain and acute episodes of chronic pain. The Company has completed two Phase I clinical trials and has initiated a Phase II clinical trial of its intranasal morphine product candidate.

Diclofenac is one of the most potent NSAIDs known clinically for both inflammation and pain. It is also one of the world's most prescribed anti-inflammatory agents due to a combination of efficacy and tolerability. The key to the intravenous formulation of diclofenac that the Company has in-licensed is hydroxypropyl-B-cyclodextrin, or HPBCD. The Company’s intravenous diclofenac product candidate has been evaluated in Phase I clinical trials performed in South Africa and a Phase II clinical trial performed in the United Kingdom

Fentanyl is a synthetic opioid that was originally approved by the FDA in 1968 and is commercially available in formulations for transdermal, transmucosal and injectable delivery. Fentanyl is a widely-used and effective opioid analgesic for treating chronic moderate-to-severe pain, including cancer pain. The Company believes that an intranasal formulation of fentanyl could also be used to complement the fentanyl transdermal patch, as well as oral morphine controlled-release formulations, to effectively treat episodes of breakthrough pain. Intranasal fentanyl is currently in preclinical development using the Company’s chitosan delivery platform technology.

Research and development expenses decreased from $21.4 million for the nine-month period ended September 30, 2000 to approximately $3.1 million for the nine-month period ended September 30, 2001.

General and administrative expenses remained constant at approximately $1.1 million for the nine-month periods ended September 30, 2000 and September 30, 2001.

Interest expense decreased from $295.0 thousand for the nine-month period ended September 30, 2000 to zero for the nine-month period ended September 30, 2001.

Interest income increased from $4.3 thousand for the nine-month period ended September 30, 2000 to $309.7 thousand for the nine-month period ended September 30, 2001.