Epilepsy is a chronic disorder characterized by abnormal electrical discharges in the brain. These abnormal electrical discharges result in seizures, the clinical manifestation of epilepsy. Epilepsy is one of the most common neurologic disorders in the United States, affecting 2.5 million people in 2000 with an estimated 181,000 new cases diagnosed each year. Most seizures end within two minutes; however, those that do not are unpredictable in length. The longer a seizure lasts, the more difficult it becomes to treat and the greater the risk of injury and death to the patient. A wide variety of antiepileptic drugs are available to prevent and treat seizures. These drugs are typically administered orally on a daily basis. Most patients receive a regimen of a single drug or a combination of several antiepileptic drugs. Nevertheless, approximately 30% of, or 750,000, patients with epilepsy have inadequate seizure control or are resistant to drug therapy and suffer from seizures. These patients may have frequent visits to the emergency room and admissions to the hospital because of their breakthrough seizures. Even patients for whom antiepileptic drugs provide adequate control are still at risk of breakthrough seizures.

Migraine is a neurologic disorder characterized by recurrent headache attacks where the pain most often occurs on one side of the head. Migraines are usually accompanied by various combinations of symptoms, including nausea and vomiting, distorted vision, and sensitivity to light and sound. The biochemical mechanism underlying migraines remains to be fully understood. However, recent advances in migraine research have identified the neurotransmitter, serotonin (5-hydroxytryptamine, or 5-HT), as a key mediator in the generation of migraine. There is much evidence to suggest that the principal factor in migraine and its associated symptoms are blood flow changes in the brain. Migraines affect approximately 28 million people in the United States, nearly 13% of the total U.S. population. Migraines are episodic and vary among patients. The average migraine patient experiences two migraines per month. A variety of migraine drugs are available to abort migraines. These drugs can be administered orally, nasally or via injection and are taken on an as needed basis. Of the 16 million people who receive a prescription drug for migraines each year, approximately 25%, or 4 million, of them do not experience effective relief from first-line therapies.

Diastat is the only drug approved in the United States for the acute treatment of seizures outside of a hospital setting. Diastat is a rectally administered gel for patients age two and above experiencing breakthrough seizures. Diastat serves a previously unmet need for patients suffering from a breakthrough seizure by treating the patient immediately at the location where the seizure occurs. For most patients, the ability to receive treatment wherever the seizure occurs significantly shortens the time between the onset of the seizure and the administration of effective treatment. This, in combination with Diastat’s rapid onset of action, generally between five and 15 minutes, results in an increased likelihood of shortening the seizure, thereby reducing the risks of irreparable injury and death to the patient. Diastat also reduces the need for patients and their families to visit an emergency room.

Migranal is a nasal spray used to treat migraines. Of the 16 million people who receive a prescription drug for migraines each year, approximately 25%, or 4 million people, do not experience effective relief from first-line therapies. The leading first-line migraine therapies prescribed by neurologists are the triptan class of drugs. Migranal has a mechanism of action that is broader than the triptan class of drugs.

D.H.E. 45 is an injectable product that can be administered intravenously, intramuscularly or subcutaneously to treat migraines. D.H.E. 45 has been used since the mid-1940s and has been a standard of care for many years for the acute treatment of migraine. The majority of D.H.E. 45 ampules are administered in headache clinics, medical offices or emergency rooms. The Company promotes D.H.E. 45 together with Migranal as a proven treatment for migraine patients who do not experience effective relief from triptan-based drugs. D.H.E. 45 is not protected by a patent and two abbreviated new drug applications for generic equivalents to D.H.E. 45 were approved by the FDA in the second quarter of 2003.

Mysoline, the Company’s brand name for primidone, is an oral prescription medication that has been used since the early 1950s for the chronic treatment of seizures associated with epilepsy. It is used alone and in combination with other anticonvulsant drugs. Mysoline is also a frequently prescribed therapy for the treatment of essential tremor. Essential tremor is considered the most common neurologic movement disorder.

Cost of sales was $5.6 million for the six months ended June 30, 2003, an increase of $1.2 million, or 26.7%, over $4.4 million for the six months ended June 30, 2002.

Product development expense was $1.1 million for the six months ended June 30, 2003, an increase of $922.0 thousand over $129.0 thousand for the six months ended June 30, 2002.

Product rights amortization expense was $5.0 million for the six months ended June 30, 2003, an increase of $1.3 million over $3.7 million for the six months ended June 30, 2002.

Interest expense was $3.8 million for the six months ended June 30, 2003, an increase of $314.0 thousand over $3.5 million for the six months ended June 30, 2002.