Congestive heart failure, or CHF, is a widespread and debilitating disease most often caused by a weakening or stiffening of the heart muscle, which leads to a progressive loss in the heart\'s ability to pump blood effectively throughout the body. It can be caused by a number of disease states that damage heart muscle, including coronary artery disease, heart attack and high blood pressure. As the heart loses its ability to pump effectively, blood backs up into the blood vessels of the lungs, causing increases in pulmonary vascular pressure. As this pressure increases, fluid moves from the pulmonary blood vessels into the air spaces in the lung, causing pulmonary congestion and shortness of breath, a CHF symptom known as dyspnea. Fluid accumulation in other parts of the body, known as fluid overload, leads to swelling of the abdomen, legs and feet. As the disease progresses, these symptoms can severely impact the patient\'s quality of life, limiting his or her ability to perform simple activities such as walking across the room.

There are nearly five million people in the United States with CHF, according to the AHA. With the aging population and more patients surviving the early stages of cardiovascular diseases, the prevalence of CHF is increasing. Approximately 550,000 new cases of CHF are reported in the United States each year, according to the AHA. In addition, one in five patients with CHF will die within one year of diagnosis, and 80% of male patients and 70% of female patients under 65 suffering from CHF will die within eight years of diagnosis.

Many CHF patients experience a rapid deterioration of their condition requiring urgent treatment in the hospital. This acute form of CHF accounts for over one million hospital admissions with CHF as the primary diagnosis, and up to two million hospital admissions with CHF as the secondary diagnosis, according to the Cleveland Clinic, and is the leading cause of hospitalization in patients over 65, according to the Centers for Disease Control.

The Company is also developing an oral formulation of KW-3902 for the treatment of chronic CHF. In addition, the Company is developing K201 (JTV-519) for the treatment of atrial fibrillation, or A-Fib, an irregular heartbeat.

The Company is developing KW-3902, a selective adenosine A1 receptor antagonist, to improve the treatment of CHF patients by preserving renal function, improving the symptoms of fluid overload and enabling the optimal use of other CHF therapies. The Company is developing both IV and oral formulations of KW-3902 to be co-administered with diuretics for the treatment of acute and chronic CHF, respectively.

The Company has completed three multi-center, placebo-controlled Phase 2 clinical trials and have obtained preliminary data from 276 patients out of a 304-patient pilot Phase 3 clinical trial of the IV formulation of KW-3902.

The Company intends to initiate two pivotal Phase 3 trials of the IV formulation of KW-3902 for the treatment of acute CHF in May 2007 and expect to have results from these trials in mid-2008. The Company also intends to initiate two additional Phase 3 trials in the third quarter of 2007. In addition, the Company plans to commence a Phase 2 trial of an oral formulation of KW-3902 in outpatients with chronic CHF in the second half of 2007.

The Company is developing K201 (JTV-519) for the treatment of A-Fib. A-Fib afflicts over 2.2 million people in the United States and leads to over 440,000 hospitalizations per year, according to the most recent data from the AHA. A-Fib is an independent risk factor for stroke, and patients with CHF frequently also require treatment for A-Fib.

The Company is developing IV and oral formulations of K201 (JTV-519) to address acute and chronic A-Fib, respectively. The Company plans to commence a Phase 2 clinical trial of the IV formulation for the acute treatment of K201 (JTV-519) in the second half of 2007.

Selling, general and administrative expenses increased to $2.1 million for the year ended December 31, 2006 from $2.0 million for the comparable period during 2005.

Interest income increased to $0.6 million for the year ended December 31, 2006 from $0.1 million for the comparable period during 2005.

Interest expense increased to $2.2 million for the year ended December 31, 2006 from $0.2 million for the comparable period during 2005.