The immune system is the body’s natural defense mechanism for fighting disease caused by infectious pathogens, which are organisms such as bacteria, viruses and other microbes. The skin is one of the body’s first lines of defense against pathogens. In addition to presenting a barrier to entry, the skin contains specialized immune surveillance cells called Langerhans cells, a subset of the body’s main class of antigen-presenting cells that serve an important early-warning function.

Travelers’ diarrhea is a disease caused by a bacterial, viral or other microbial infection contracted by the ingestion of contaminated food or water while abroad. According to the United States Centers for Disease Control and Prevention, or CDC, travelers’ diarrhea is the most common illness affecting travelers, with an estimated 20% to 50% of international travelers contracting travelers’ diarrhea. Each year more than 50 million individuals from the United States, Western Europe and Japan/ Australasia visit regions where infection by ETEC is common, resulting in an estimated 10 million cases of travelers’ diarrhea caused by LT-secreting ETEC strains.

Influenza, commonly called the flu, is an infection of the respiratory tract caused by an influenza virus. Influenza is highly contagious and occurs mainly in the late fall, winter and early spring. Influenza affects all age groups and commonly causes moderate to severe illness those results in absences from school and work and lost productivity. Some individuals, however, develop serious complications, such as pneumonia, that require hospitalization and may even result in death.

Each flu season, approximately 15 million to 60 million people in the United States, become ill with influenza. This infection rate results in approximately 36,000 deaths and approximately 200,000 hospitalizations in the United States annually. Approximately 80 million people in the United States are vaccinated against the flu annually. The CDC has indicated that it wants to increase this figure to 185 million annually by 2010. According to a study conducted by Kalorama Information, the worldwide market for influenza vaccines was estimated to be in excess of $1.4 billion in 2004 and is expected to grow to $1.8 billion in 2006.

The Company’s traveler’s diarrhea program is designed to reduce the risk of contracting travelers’ diarrhea or reduce the severity of symptoms in the event of infection. The Company’s vaccine candidate is targeting disease caused by LT-secreting Enterotoxigenic E. coli bacteria, or ETEC. The labile toxin, or LT, alone or in conjunction with the stabile toxin, or ST, toxin is the pathogenic agent in two-thirds of the cases of ETEC infection.

The Company has conducted several clinical studies of its travelers’ diarrhea vaccine patch. The Company’s initial proof-of-principle trial, a simple gauze patch containing a 500mg LT dose was applied to the skin for six hours with no pretreatment. Three such doses resulted in robust immune responses with no systemic side effects. This initial finding, robust immunity without systemic effects, has been replicated in 21 trials using a needle-free travelers’ diarrhea vaccine patch with approximately 1,600 healthy volunteers across all of the Company’s clinical programs.

During the first quarter of 2005, the Company completed a clinical study designed to test whether high antibody responses to LT delivered in a patch could prevent or reduce the severity of travelers’ diarrhea caused by oral ingestion of ETEC bacteria. The Company conducted the trial with the assistance of investigators at the Johns Hopkins School of Public Health. Forty-seven volunteers participated in this double-blind, placebo controlled clinical trial. Twenty-seven of the volunteers were vaccinated with the Company’s “wet patch” formulation of its needle-free travelers’ diarrhea vaccine patch and 20 were given placebos.

The Company is currently preparing for additional Phase 2 trials designed to determine the final dry patch formulation, number and timing of doses, and duration of patch wear. The Company’s needle-free flu vaccine patch products candidate combines flu antigens and an adjuvant.

Research and development expenses were approximately $7.4 million during the six months ended June 30, 2005, as compared to $6.5 million during the six months ended June 30, 2004.

General and administrative expenses were approximately $1.6 million during the six months ended June 30, 2005, as compared to $1.6 million during the six months ended June 30, 2004.

Net interest and other expense was approximately ($34.0 thousand) during the six months ended June 30, 2005, as compared to net interest and other income of approximately $194.0 thousand for the six months ended June 30, 2004.

Net loss for the six months ended June 30, 2005 was approximately $7.3 million, and net loss for the six months ended June 30, 2004 was approximately $6.1 million.