Biosurgical products are used for a wide variety of applications, including wound closure. The wound closure market consists of products used in various surgical procedures to achieve hemostasis and wound healing. In its January 2005 report, MedMarket Diligence’s industry analysts estimated the worldwide wound closure market at approximately $5.6 billion. This market has two components, the first is conventional hemostats, including sutures, staples, tapes and other products that work through mechanical action. The other component of the wound closure market is surgical sealants, including biosurgical hemostats and synthetic glues. In its January 2005 report, MedMarket Diligence’s industry analysts estimated the worldwide surgical sealants market at $1 billion, with three million procedures using surgical sealants annually.

Passive immunization occurs when a patient is supplied with antibodies derived from the plasma of donors. Passive immunotherapy can provide ongoing protection and treatment to patients with immune deficiencies by providing them with the spectrum of antibodies normally present in healthy adult human plasma. When an infection is already present, hyperimmune products, which contain high levels of antibodies specific to the pathogen causing that infection, can be used. The passive immunotherapy market includes products directed to meeting the ongoing needs of the medical community and products provided to governments for stockpiling to meet potential bioterrorism and existing and emerging infectious disease threats.

Smallpox is a serious disease with high mortality rates that was declared globally eradicated in 1980. Recently, however, there has been concern that the smallpox virus may be used as a bioweapon. In response to this concern, governments have begun to stockpile smallpox vaccine and VIG. The smallpox vaccine is made using a live vaccinia virus, which is closely related to, but not nearly as virulent as, the smallpox virus. Because the smallpox vaccine is made from live viruses, a small percentage of vaccinated individuals develop complications. VIG is used to treat these complications. An industry analysis by the Frankel Group in June 2005 estimated that the combined U.S. and EU government expenditure for VIG and HT-VIG will be approximately $435 million in 2007.

The Company’s currently marketed biosurgical product is Crosseal/ Quixil, which is used for hemostasis in surgical procedures. It is sold in the U.S., the EU and several other European countries under a distribution and supply agreement the Company has with Ethicon. The Company is developing, in collaboration with Ethicon, several other biosurgical product candidates.

Crosseal/ Quixil is the Company’s marketed fibrin sealant product used for hemostasis in surgical procedures. Ethicon has been marketing Quixil as an adjunct to hemostasis in liver and orthopedic surgeries in the EU and several other European countries since 2003 and Crosseal as an adjunct to hemostasis in liver surgery in the U.S. since 2004. In addition, the Company has been marketing Quixil directly in Israel since 1998 for similar indications and through local distributors in Mexico since 2000 as an adjunct to hemostasis for general surgical use.

The Company is developing in collaboration with Ethicon, a novel hemostatic bio-device that builds on its Crosseal II/ Quixil II technology. This hemostatic bio-device product candidate is designed for the management and rapid control of bleeding, including severe or brisk bleeding, and for use on active bleeding sites. This next generation biosurgical product combines medical device components with biological components.

The Company produces and sells three passive immunotherapy products. The Company supplies VIG under government contracts for the treatment of smallpox vaccine-related complications. The Company markets IVIG in Israel primarily for the treatment of patients with immune deficiency. The Company also markets HBIG in Israel for the prevention of reinfection of transplanted livers with HBV. In addition, the Company is developing several other passive immunotherapy product candidates.

Cost of revenues increased by $1.9 million, or 15%, from $13.3 million in the nine months ended September 30, 2004 to $15.3 million in the nine months ended September 30, 2005.

Cost of product sales increased by $1.0 million, or 9%, from $11.6 million in the nine months ended September 30, 2004 to $12.6 million in the nine months ended September 30, 2005.

Financial expenses, net increased by $21.1 million, or 543%, from $3.9 million in the nine months ended September 30, 2004 to $25.0 million in the nine months ended September 30, 2005.

Other income (expenses), net was $1.2 million in the nine months ended September 30, 2004 and $0.0 in the nine months ended September 30, 2005.