The human nervous system is a massive communications network that sends and receives information throughout the body via billions of specialized nerve cells known as neurons. Neurons continually gather information about the body’s internal and external environment and send signals to the brain. These signals pass from one neuron to another when electrical impulses of a communicating neuron are converted into chemicals called neurotransmitters. This occurs at the gap between the communicating neuron and the receiving neuron known as the synapse. When released by a communicating neuron, neurotransmitters bind to specialized proteins known as receptors located across the synapse on the receiving neuron to enable the signal to continue. The major neurotransmitters in the brain are dopamine, serotonin, norepinephrine, glutamate, gamma-aminobutyric acid, or GABA, and acetylcholine.

NNRs are a class of receptors found in the nervous system that play a critical role in modulating the release of neurotransmitters to regulate nervous system activity. When the neurotransmitter acetylcholine is released from a nearby neuron, called an interneuron, and binds to an NNR on the communicating neuron, the flow of neurotransmitters from the communicating neuron to the receiving neuron is adjusted by the NNR. This action, known as neuromodulation, results in a greater release of neurotransmitters across the synapse when the nervous system is understimulated and a lesser release of neurotransmitters across the synapse when the nervous system is overstimulated. As neuromodulators, NNRs serve as the nervous system’s self-adjusting “volume knob.”

Diseases and disorders of the central nervous system, commonly referred to as the CNS represent a major segment of the global healthcare environment. The Reuters Business Insight Healthcare Report estimated the global CNS pharmaceutical market to be $58 billion in 2002. Four of the top ten selling drugs in the world in 2002 treat diseases and disorders of the CNS. However, despite their commercial success, many current CNS drugs are only moderately effective or are accompanied by significant side effects or other drawbacks.

TC-1734 is a novel small molecule that the Company is developing as an oral treatment for a range of cognitive impairment in the elderly that includes age associated memory impairment, commonly known as AAMI, and mild cognitive impairment, commonly known as MCI. The Company is currently conducting a Phase II clinical trial of TC-1734 in 56 elderly persons classified with AAMI and has completed two arms of the trial.

TC-5231 is a small molecule that the Company is developing as an oral treatment for attention deficit hyperactivity disorder, commonly referred to as ADHD. TC-5231 is a low-dose reformulation of mecamylamine hydrochloride, the active ingredient in the Company’s FDA-approved product, Inversine. The Company has reformulated mecamylamine hydrochloride as TC-5231 in a liquid gel cap.

TC-2403 is a small molecule that the Company is developing for the treatment of ulcerative colitis in collaboration with Dr. Falk Pharma GmbH. The Company is currently conducting a Phase II clinical trial of an enema formulation of the compound designed to induce remission of acute episodes of left-sided colitis. The Company expects to complete the oral formulation of this product candidate in the fourth quarter of 2004.

TC-2696 is a novel small molecule that the Company is developing as an oral treatment for acute post-operative pain. The Company is currently conducting a Phase I clinical trial of TC-2696.

Inversine is currently the Company’s only marketed product. Inversine is approved in the United States for the management of moderately severe to severe essential hypertension. The Company’s market research suggests, however, that Inversine is prescribed predominantly for the treatment of Tourette’s syndrome and other neuropsychiatric disorders.

Research and development expense increased by $826,000 to $18.6 million for the nine months ended September 30, 2005, from $17.8 million for the comparable nine-month period in 2004.

Cost of product sales was $244,000 for the nine months ended September 30, 2005, as compared to $28,000 for the comparable nine-month period in 2004.

Interest and dividend income increased by $542,000 to $898,000 for the nine months ended September 30, 2005, from $356,000 for the comparable nine-month period in 2004.

Interest expense increased by $100,000 to $196,000 for the nine months ended September 30, 2005, from $96,000 for the comparable nine-month period in 2004.