Global R&D expenditures for both pharmaceutical and biotechnology companies have grown from US$47.6 billion in 2004 to US$55.2 billion in 2006, according to PhRMA. R&D expenditures for the U.S. pharmaceutical industry grew from US$20 billion in 1997 to US$40 billion in 2005, and are expected to reach US$58 billion in 2009, according to Kalorama Information.

While R&D expenditures for the U.S. pharmaceutical industry are projected to grow at an annual rate of approximately 5% to 6% over the period from 2005 to 2010, according to Kalorama Information, annual growth for R&D outsourcing is expected to be approximately 15% to 18% over the same period. Furthermore, R&D outsourcing has increasingly been accepted as an alternative by both pharmaceutical and biotechnology companies over the last decade: for example, in 1997, only 37% of pharmaceutical companies outsourced R&D projects and by 2005 the percentage had grown to 70%.

The growing use of outsourcing in drug discovery is driven by two major benefits: reduced operating costs and an increased number of drugs moving into development. The market for outsourced drug discovery is expected to grow at 15% per annum from US$4.1 billion in 2005 to US$7.2 billion in 2009.

Demand for outsourced drug manufacturing services for both pharmaceutical and biotechnology companies is growing as well. According to Kalorama Information, the pharmaceutical industry spends US$15 billion on outsourcing manufacturing, formulation and packaging of drugs, a market growing at a rate of 10% to 12% per annum, and the percentage of pharmaceutical and biotechnology companies that have outsourced some of their manufacturing needs is expected to grow from 35% in 2004 to nearly 50% by 2009. According to Kalorama Information, the global outsourced manufacturing market is expected to exceed US$17.5 billion in 2006, up 8% from 2005 sales of US$16.2 billion, and is expected to reach more than US$26.0 billion in 2011.

The Company’s core offering is discovery chemistry services, consisting primarily of lead generation and lead optimization services. Тhe Company’s lead generation services include designing and synthesizing libraries, as well as templates for library synthesis, benchmark compound synthesis and custom synthesis. The Company’s lead optimization services include designing and synthesizing focus libraries, which contain a smaller number of compounds per library compared to the general screening libraries prepared in its lead generation activities. The Company’s synthetic chemistry services include providing synthesis of complex assay standards and benchmark compounds.

The Company develops biochemical and cell-based assays to examine the activity of small molecule compounds at receptors, enzymes, ion channels and signal transaction pathways.

The Company’s DMPK services include in vivo rodent screening based on pharmacokinetic characteristics for rapid drug candidate selection and dog and non-human primate PK for prediction of drug properties in humans. The Company’s in vitro ADME profiling services include analyzing the metabolic stability of drug candidates in cell particles and liver cells, drug-drug interaction, plasma protein binding and the manner in which drugs are transported in the body through transporter assays.

The Company’s metabolite identification services include metabolite profiling, characterization and structure identification, bulk metabolite isolation and purification, synthesis of authentic standards of metabolites and pharmacokinetic evaluation of parent and metabolites in preclinical and clinical development.

The Company began offering its toxicology services in the second quarter of 2007. The Company’s toxicology services are expected to include general toxicology in rodents, dogs and non-human primates.

The Company’s gross profit increased from US$5.4 million in the first quarter of 2006 to US$15.7 million in the first quarter of 2007, or 188.5% growth.

Total operating expenses increased from US$3.9 million in the first quarter of 2006 to US$9.8 million in the first quarter of 2007, or 149.5% growth.

Interest expense increased from US$0.4 million in the first quarter of 2006 to US$0.7 million in the first quarter of 2007

Interest income increased from US$14,975 in the first quarter of 2006 to US$40,772 in the first quarter of 2007.

Net income increased from US$0.8 million in the first quarter of 2006 to US$6.0 million in the first quarter of 2007, reflecting 623% growth.