Of the top 50 selling drugs worldwide, as identified by IMS Health, nearly 40% interact with GPCRs or ion channels as their target proteins. These classes of drugs include Zyprexa for the treatment of schizophrenia, Plavix for the reduction of atherosclerotic events (e.g., heart attack, stroke) and Norvasc for the treatment of hypertension. Most major therapeutic areas are served to some degree by drugs that target these proteins, making GPCRs and ion channels attractive targets for drug discovery. GPCRs convert signals received from the outside of the cell into biological processes inside the cell. A variety of well-known biological molecules, including neurotransmitters and hormones, can bind to GPCRs and trigger cellular processes involved in health and disease. Ion channels are transmembrane proteins that form pores in the cell membrane through which ions can pass. Ion flow through ion channels can trigger a number of biological processes, including electrical conduction in nerves and the heart, modulation of cell-to-cell communication and regulation of fluid balance.

Drug discovery for GPCRs and ion channels has historically been a long and costly process, due to insufficient structural information for these targets which, if available, could guide rational drug discovery and optimization. Lacking reliable understanding of the three-dimensional, or 3D, structures of these membrane proteins, scientists have used a variety of experimental methods to discover GPCR and ion channel-targeted drugs. The most common approach for GPCR drug discovery has been high-throughput screening using genetically engineered cells that show a fluorescent marker when GPCR pathways are activated. This technique allows scientists to indirectly assess the activity of hundreds of thousands of compounds in hopes of identifying those that have affinity for a GPCR target. Screening compounds for their effects on ion channels primarily involves laborious measurements of the change in electric current passing through the channels.

The Company is developing PRX-00023 for the treatment of anxiety and depression. PRX-00023 is a novel, highly selective, small-molecule stimulator, or agonist, of a specific GPCR known as 5- HT1A. The Company’s initial therapeutic focus for PRX-00023 has been on the treatment of Generalized Anxiety Disorder, or GAD. The Company completed a Phase II clinical trial with PRX-00023 in patients with GAD in July 2005. Preliminary data shows that PRX-00023 was well tolerated at the two doses given orally once per day over the four week trial, with an acceptable adverse event profile. There were no serious adverse events and no patient discontinuations due to drug-related adverse events.

The Company is developing PRX-03140 for the treatment of Alzheimer’s disease. PRX-03140 is a novel, highly selective, small-molecule agonist of a specific GPCR known as 5-HT4. The Company is currently conducting a Phase Ib clinical trial in Alzheimer’s disease patients. In two Phase I clinical trials in healthy adult and elderly volunteers, PRX-03140 given orally once per day was well tolerated. In these Phase I trials, PRX-03140 also caused an expected, dose-dependent, transient increase within normal levels of a hormone known to be linked to 5-HT4 stimulation, consistent with the effects of other 5- HT4 agonists. In addition, PRX-03140 enhanced cognition and reduced levels of beta amyloid, a protein thought to be associated with Alzheimer’s disease progression, in several preclinical animal models in multiple species.

The Company is developing PRX-08066 for the treatment of PAH. PAH is a serious, often fatal cardiovascular disease characterized by elevation of pulmonary blood pressure and progressive thickening and narrowing of the blood vessels of the lungs, often leading to heart failure. PRX-08066 is a novel, highly selective, small-molecule inhibitor, or antagonist, of a specific GPCR known as 5-HT2B. The Company is completing two Phase I clinical trials in healthy volunteers and expect to begin a Phase Ib clinical trial in the fourth quarter of 2005. Based on its initial data, the Company anticipates that PRX-08066 will be administered orally twice per day.

The Company also has ongoing GPCR and ion channel programs in discovery, lead optimization and preclinical stages for the treatment of obesity, cardiac arrhythmia, cancer, inflammatory diseases, pain and cystic fibrosis. The Company’s most advanced drug candidate at the preclinical stage is PRX-07034. The Company is developing PRX-07034 for the treatment of obesity. PRX-07034 is a novel, highly selective, small-molecule antagonist of the 5-HT6 GPCR. This drug candidate has shown positive effects on the reduction of both food intake and body weight in preclinical animal models of obesity.

Research and development expense was $12.2 million for the six months ended June 30, 2005 compared to $5.5 million for the six months ended June 30, 2004, an increase of 122%.

General and administrative expense was $2.2 million for the six months ended June 30, 2005 compared to $1.5 million for the six months ended June 30, 2004, an increase of 46%.

Investment income, net was $326.0 thousand for the six months ended June 30, 2005 compared to $41.0 thousand for the six months ended June 30, 2004, an increase of 695%.

Interest expense was $17.0 thousand for the six months ended June 30, 2005 compared to $19.0 thousand for the six months ended June 30, 2004, a decrease of 11%.