Obesity is a serious condition that is growing in prevalence and afflicts populations worldwide. In 1980, approximately 15% of the adult population in the United States was obese, according to the National Health and Nutrition Examination Survey. By 2002, the obesity rate had doubled to approximately 30% of the U.S. adult population, according to a later installment of the same survey. In addition, the survey estimated that another 34% of the U.S. adult population was overweight in 2002.

The growing prevalence of obesity has increasingly been recognized as a significant public health problem. In 2004, the Centers for Disease Control and Prevention identified obesity as the number one health threat in the United States. Approximately 300,000 deaths per year in the United States are associated with obesity according to the Department of Health and Human Services, or HHS.

Obesity is also a significant health problem outside of the United States. According to the World Health Organization, there are as many as 1.6 billion people worldwide considered to be overweight, of which at least 400 million are estimated to be obese.

Excessive body weight is also associated with various physical complications that are often present and exacerbated by the obese condition. Diabetes, cancer, hypertension, high cholesterol, coronary artery disease, sleep apnea, liver and pulmonary disease, among others, are seen in greater prevalence among the obese than the general population.

In addition, research has established a new disease category called metabolic syndrome, which comprises the various co-morbidities, or related conditions, that often accompany obesity. Beyond these consequences, a number of co-morbidities involving the CNS may be complicated by obesity. These co-morbidities include anxiety, depression, substance abuse, chronic pain and insomnia. Obesity and its co-morbidities are believed to cause significant added cost to the health care system. In 2000, HHS estimated the overall economic costs of obesity in the United States to be $117 billion.

The Company is developing Contrave and Excalia for the treatment of obesity. Both product candidates have been prepared with combinations of chemical entities that, individually, have already received regulatory approval and have been commercialized previously.

Contrave is a fixed dose combination of naltrexone SR and bupropion SR. The Company choses these constituents based on the results of its screening model as well as its understanding of the circuitries in the brain that regulate appetite and energy balance.

In particular, naltrexone was chosen as a complement to bupropion in order to block compensating mechanisms that attempt to prevent long-term, sustained weight loss. The Company holds the exclusive license to two issued U.S. patents covering the Contrave composition, and it has filed additional patents covering various compositions, methods of use and formulations.

Naltrexone was approved in the United States in 1984 for the treatment of opioid addiction and in 1995 for the treatment of alcoholism. In its Contrave clinical trials to date, the Company has used the generic IR formulation of naltrexone.

Bupropion was approved for marketing in the United States in 1985 for depression, marketed under the brand name Wellbutrin, and in 1997 for smoking cessation, marketed under the brand name Zyban. Bupropion is currently among the most commonly prescribed anti-depressants in the United States

Excalia is a fixed dose combination of zonisamide SR and bupropion SR. The combination of zonisamide and bupropion, in the Company’s screening model, produced a synergistic increase in POMC neuronal firing, suggesting that this drug combination would enhance satiety and energy expenditure. The Company holds an exclusive license to an issued U.S. patent covering the Excalia composition, and it has filed additional patents covering various compositions, methods of use and formulations.

Zonisamide IR was approved in the United States in 2000 for the adjunctive treatment of partial seizures, which is a form of epilepsy.

Research and development expenses increased to $15.4 million for the nine months ended September 30, 2006 from $6.2 million for the comparable period during 2005.

General and administrative expenses increased to $3.3 million for the nine months ended September 30, 2006 from $2.2 million for the comparable period during 2005.

Interest income increased to $649,000 for the nine months ended September 30, 2006 from $470,000 for the comparable period during 2005.