According to Frost & Sullivan, the advanced wound care products was an approximately $1.5 billion global market in 2004 and is projected to grow to approximately $3.1 billion by 2011. Chronic wounds are generally defined as wounds that have not healed after six months of treatment. Advanced wound care products are frequently used in the treatment of chronic wounds. Chronic wounds include pressure ulcers, diabetic foot ulcers and venous stasis ulcers. According to a 2002 presentation by Frost & Sullivan, there were approximately 2.4 million human pressure ulcers in the United States. In addition, according to a 2005 report by Frost & Sullivan, approximately 7% of the 19.4 million people with diabetes in the United States suffered from diabetic foot ulcers in 2004.

According to a 2005 report of the National Institute of General Medical Sciences, each year in the United States approximately 1.1 million burn injuries require medical attention; approximately 45,000 of these require hospitalization, and roughly half of those burn patients are admitted to a specialized burn unit; up to 10,000 people in the United States die every year of burn-related infections; and complications following serious burns may occur long after the initial incident, often when the patient is in an intensive care unit.

Atopic dermatitis is a chronic form of eczema that currently has no cure and no effective treatment without potential adverse side effects. More than 15 million people in the United States suffer from symptoms of atopic dermatitis, according to information published by the National Institute of Arthritis and Musculoskeletal and Skin Disease, last revised in 2003. Atopic dermatitis is currently treated primarily with prescription topical steroids and topical immunomodulators, or TIMs. Prescription TIMs in the United States generated 2004 sales of approximately $463 million, according to IMS Health, a leading provider of prescription drug statistics.

Acticoat 3 and Acticoat Burn are dressings offering antimicrobial activity for up to three days. Acticoat 3 and Acticoat Burn are used extensively in the in-patient burn segment of the wound dressing market. They consist of a rayon/polyester non-woven core between two layers of high-density polyethylene, or HDPE, mesh with SILCRYST coatings that provides an antimicrobial barrier layer to protect wounds. A non-woven inner core retains moisture and improves handling characteristics.

Acticoat 7 is a dressing offering antimicrobial activity for up to seven days. Acticoat 7 is used primarily in the chronic wound segment of the wound dressing market. Acticoat 7 provides consistent seven-day sustained antimicrobial protection for patients with venous stasis ulcers, diabetic foot ulcers, pressure ulcers and other persistent wounds and allows up to seven days before wound dressings are required to be changed. Acticoat 7 consists of two rayon/polyester non-woven inner cores laminated between three layers of HDPE mesh with SILCRYST coatings.

The Acticoat Absorbent Dressing is an alginate dressing for wounds with moderate to heavy exudate, providing antimicrobial activity for up to three days. Absorbent Dressing is used primarily in the chronic wound segment of the wound dressing market. The Acticoat Absorbent Dressing consists of a calcium alginate fabric coated on both sides with SILCRYST nanocrystals. Alginate dressings are derived from seaweed and are highly absorbent, biodegradable fibrous materials. Alginate dressings are commonly used in advanced wound care because they absorb exudate to help create a moist wound healing environment.

The Acticoat Moisture Control Dressing is a solid foam dressing for wounds with light to moderate exudate, providing antimicrobial activity for up to seven days. The Acticoat Moisture Control Dressing is used primarily in the chronic wound segment of the wound dressing market. The Acticoat Moisture Control Dressing consists of an absorbent foam sandwiched between an outer film and a non-adherent wound contact layer with SILCRYST coatings. The Acticoat Moisture Control Dressing was developed in collaboration with Smith & Nephew.

The Company is currently developing drugs based on customized formulations of the NPI 32101 nanocrystalline silver API for use in the treatment of dermatologic disorders and are developing a cream for the treatment of mild to moderate atopic dermatitis. The Company has completed its initial Phase 2 clinical trial for topical NPI 32101 and is in the process of enrolling patients for a second Phase 2 clinical trial.

Manufacturing costs for the nine months ended September 30, 2005 were $7.3 million compared with $4.6 million for the nine months ended September 30, 2004.

Gross margin excluding milestone revenue for the nine months ended September 30, 2005 was $6.6 million or 47.5% compared to $5.1 million or 52.3% for the nine months ended September 30, 2004.

Research and development costs for the nine months ended September 30, 2005 were $5.8 million compared with $7.1 million for the nine months ended September 30, 2004.

Interest expense was $2.6 million for the nine months ended September 30, 2005 compared with $2.4 million for the nine months ended September 30, 2004.