Patients differ in the way they respond to drugs. Some patients experience excellent efficacy, while others take a drug and receive little or no benefit. Some patients experience few if any side effects, while others may suffer serious adverse events. In fact, a review of published information suggests that in many therapeutic areas, only 40-60% of patients respond positively to a major drug used to treat the disease.

The current one-size-fits-all model of prescribing medicines to as many patients as possible, without adequate knowledge in advance of who will benefit, creates ineffective treatments and unnecessary costs. This results in poor treatment for the patient, lack of adequate decision-making knowledge for the physician and unnecessary expense for the payers. Overall it leads to rising healthcare costs and inadequate medical treatment.

Despite widespread recognition of such patient-to-patient variability in drug responses, physicians typically cannot anticipate which of their patients will benefit most, which will not benefit at all, and which will experience adverse events upon exposure to a given medication. Physicians are left with no other choice than to prescribe medications based on general treatment paradigms established by the medical community and regulatory agencies, coupled with their own personal experience in prescribing these medications.

PGX-510 (netoglitazone), an insulin-sensitizer and member of the thiazolidinedione, or TZD, class of drugs, is being developed by the Company as a treatment for type II diabetes and the separate indication of type II diabetes with dyslipidemia, in each case with the use of a proprietary diagnostic for patient selection.

PGX-510 has been shown to modulate activity of peroxisome proliferator-activated receptor gamma, or PPARg , specifically acting as a PPARg agonist. PPARg agonists work by increasing insulin sensitivity in fat tissue, lowering free fatty acid concentrations and improving insulin sensitivity in peripheral tissues, and by reducing excess glucose output by the liver, leading to better control of blood glucose in diabetics.

PGX-510 has also been shown to modulate activity of peroxisome proliferator-activated receptor alpha, or PPARα, thus providing potential for it to also treat type II diabetes with dyslipidemia. Binding to PPARα, as shown with fibrates, induces the activation or the inhibition of multiple genes involved in lipid metabolism, which results in reduced plasma triglyceride levels. Such PPARα binding also raises HDL, or good, cholesterol levels.

PGX-520 (bezafibrate), a member of the fibrate class of drugs, is being developed by the Company with the use of a proprietary diagnostic for the treatment of dyslipidemia, specifically hypertriglyceridemia and mixed dyslipidemia. Like other fibrates such as TriCor, PGX-520 acts primarily through activation of PPARa receptors.

Bezafibrate, the active ingredient of PGX-520, has been marketed in Europe, Canada and other countries, but never in the United States.

Cost of contract revenue decreased to $17.0 million for the year ended December 31, 2005 from $17.2 million for the year ended December 31, 2004.

Research and development expenses increased $17.1 million to $33.6 million for the year ended December 31, 2005.

Selling, general and administrative expenses increased $3.4 million to $13.2 million for the year ended December 31, 2005.

Interest income on cash and cash equivalents and investments was $1.6 million and $0.2 million for the years ended December 31, 2005 and 2004, respectively.