Cosmetic dermatological procedures include laser procedures, such as facial skin resurfacing, hair removal, tattoo removal, vascular lesion removal and varicose vein removal. These procedures can be very painful and often require some type of anesthesia before they can be completed. Other cosmetic procedures, such as dermal fillers and neurotoxins, such as Botox injections, are also painful and may benefit from topical skin anesthesia before the procedure. According to the American Society of Plastic Surgeons, there were approximately 9.1 million minimally-invasive cosmetic procedures performed in 2006. These procedures are elective and not subject to reimbursement policies.

The most commonly used topical local anesthetic preparation is a lidocaine and prilocaine cream, originally marketed as EMLA, which requires application under airtight wrappings and application times of 60 to 120 minutes. Application under airtight wrappings can be difficult and inconvenient when the procedure is to be conducted on the face. Local anesthetic preparations that are not FDA approved are used by some physicians, but the safety and efficacy of these products has not been proven. The FDA warned several compounding pharmacies to stop manufacturing preparations of topical anesthetic in bulk, expressing concern about the serious health risks related to topical anesthetic creams that were prepared and distributed other than compounding by the pharmacy pursuant to an individual patient prescription.

Panic disorders are serious medical illnesses that affect approximately 6 million American adults according to the National Institute of Mental Health. Panic disorder is a specific anxiety disorder characterized by episodic panic attacks. Panic disorder is a serious condition that adversely affects an individual’s quality of life, personal relationships, ability to work, and is a significant economic burden to society. Drugs used to treat anxiety disorders (including panic disorder) include selective serotonin reuptake inhibitors, monoamine oxidase inhibitors, tricyclic antidepressants, azipirones, beta blockers and benzodiazepines.

Pliaglis is approved for marketing in the United States for local dermal anesthesia on intact skin prior to potentially painful cosmetic procedures such as dermatologic laser surgery and dermal filler injections. This product combines the Company’s Peel technology with a proprietary formulation of lidocaine and tetracaine to safely and effectively anesthetize contoured areas of the body more quickly than other therapies.

Synera, another FDA approved product, is a patch designed to anesthetize the skin before potentially painful procedures involving needles. Synera uses the Company’s CHADD technology and a proprietary formulation of lidocaine and tetracaine to provide more convenient and faster local anesthetic effect compared to the most commonly used product on the market.

ThermoProfen, the Company’s Phase 3 product candidate, integrates the CHADD technology and a topical formulation of the non-steroidal anti-inflammatory drug (NSAID) ketoprofen in a patch. It is designed to treat mild to moderate chronic pain associated with osteoarthritis (OA) of the knee.

Ketoprofen DuraPeel is in Phase 1 development and is being investigated for the treatment of pain associated with acute soft-tissue injury, such as a sprained ankle. This product uses the Company’s DuraPeel technology to deliver drug to the site of the injury for up to 12 hours and is designed to avoid the negative effects of oral systemic NSAID delivery.

Alprazolam patch is a transdermal patch in Phase 1 development and is being investigated for the treatment of panic disorder. This product uses a proprietary formulation designed to deliver alprazolam at a controlled rate for up to three days, potentially improving patient compliance and product efficacy for patients who suffer from panic disorder.

Research and development expenses were $8.9 million during the six months ended June 30, 2007 compared to $5.5 million during the six months ended June 30, 2006 or an increase of 62%.

Interest and other income (expense), net was $687,000 during the six months ended June 30, 2007 compared to $347,000 during the six months ended June 30, 2006.

Interest expense was $76,000 during the six months ended June 30, 2007 compared to $8,000 during the six months ended June 30, 2006.