The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2008, including the financial statements and notes contained therein.

This Form 10-Q contains forward-looking statements regarding us and our business, financial condition, results of operations and prospects. Such forward-looking statements include those which express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. We have based these forward-looking statements on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown which could cause actual results and developments to differ materially from those expressed or implied in such statements. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements. These forward-looking statements include statements about the following: our financial condition, competition, our dependence on other companies to commercialize, manufacture and sell products using our technologies, the uncertainty of results of animal and human testing, the risk of product liability and liability for human clinical trials, our dependence on patents and other proprietary rights, dependence on key management officials, the availability and cost of capital, the availability of qualified personnel, changes in, or the failure to comply with, governmental regulations, the delay in obtaining or the failure to obtain regulatory approvals for our products and litigation. Factors that could cause or contribute to differences in our results and outcomes include, without limitation, those discussed in "Risk Factors" below and in our Annual Report on Form 10-K for the year ended December 31, 2008, such as uncertain revenue levels, competition, rapidly changing technologies, stock price volatility and other factors discussed in our various filings with the SEC.

RESULTS OF OPERATIONS

Introduction

We are a biopharmaceutical company engaged in the research, production and delivery of small proteins, referred to as peptides, for medical use. We have a patented manufacturing technology for producing many peptides cost-effectively. We also have patented oral and nasal delivery technologies that have been shown to deliver medically useful amounts of various peptides into the bloodstream. We currently have three operating locations: administrative and regulatory offices in Boonton, New Jersey; a laboratory research facility in Fairfield, New Jersey; and a pharmaceutical production facility in Boonton, New Jersey.

Our primary focus has been on the development of calcitonin and other peptide products for the treatment of osteoporosis and other indications. Our revenue for the past three years has primarily been derived from domestic sources. We have licensed in the U.S. our nasal calcitonin product for the treatment of osteoporosis, which we have trademarked as Fortical, to USL. Fortical was approved by the FDA in 2005. This is our first product approval in the United States. We have licensed worldwide rights to our patented manufacturing technology for the production of calcitonin to Novartis. We have licensed worldwide rights to our manufacturing and delivery technologies for oral PTH for the treatment of osteoporosis to GSK. We have licensed to our Chinese joint venture certain proprietary technologies and know-how to support the research, development and manufacturing of recombinant salmon calcitonin and non-oral PTH, as well as other possible products, in the People's Republic of China. In October 2009, we licensed on a worldwide basis (except for China) our Phase III oral calcitonin program to Tarsa.

To expand our product pipeline: we are developing our SDBG technology in conjunction with Yale University; we have in-licensed technology from Queen Mary, University of London relating to potential therapies for inflammation and cardiovascular disease; and we periodically perform feasibility studies for third parties. Our products, other than Fortical in the United States, will require clinical trials and/or approvals from regulatory agencies and all of our products will require acceptance in the marketplace. There are risks that these clinical trials will not be successful and that we will not receive regulatory approval or significant revenue for these products.

We compete with specialized biotechnology and biopharmaceutical companies, major pharmaceutical and chemical companies and universities and research institutions. Most of these competitors have substantially greater resources than we do. In December 2008, Apotex and Sandoz launched nasal calcitonin products which are generic to Novartis' nasal calcitonin product, but not to Fortical. In June 2009, Par also launched a product generic to Novartis' nasal calcitonin product. We do not yet know the long-term effect on Fortical sales and royalties of the launch of these competing products. However, certain providers have substituted these products for Fortical, causing Fortical sales and royalties to decrease. For the first nine months of 2009, compared to the first nine months of 2008, Fortical sales to USL decreased 33% while Fortical royalties decreased 17%. In addition, Apotex has a pending ANDA for a nasal calcitonin product that we claim infringes on our Fortical patent. If we do not ultimately prevail in defending our patent, then Apotex could be in a position to market its nasal calcitonin product if and when its pending ANDA receives FDA approval.

We generate revenue through licensing and supply agreements with pharmaceutical companies and by achieving milestones, product sales and royalties under these agreements. Those agreements, to date, have not been sufficient to generate all of the cash necessary to meet our needs. In addition, there are risks that current collaborations will not be successful and that future collaborations will not be consummated. We have tried to mitigate these risks by developing additional proprietary technologies and by pursuing additional licensing opportunities but there is no guarantee that these efforts will be successful or sufficient.

We have also generated cash from loans, including officer loans, as well as from stock offerings. The loans have added debt to our balance sheet and the officer loans, after being restructured in 2007, require repayment over a five-year period beginning in May 2010. The Victory Park loans are due in full in September 2011. Our various stock offerings have provided needed cash but it is uncertain whether we will be able to obtain future financing under favorable terms, or at all.

The current need of major pharmaceutical companies to add products to their pipeline is a favorable sign for us and for other small biopharmaceutical companies. However, this need is subject to rapid change and it is uncertain whether any additional pharmaceutical companies will have interest in licensing our products or technologies.

Revenue

Revenue is summarized as follows for the three-month and nine-month periods
ended September 30, 2009 and 2008:



                                    Three Months Ended            Nine Months Ended
                                       September 30,                September 30,
                                    2009          2008           2009           2008

    Product Sales                $ 1,272,137   $ 2,644,567   $  5,311,291   $  7,931,708

    Royalties                      1,125,579     1,632,737      3,529,252      4,245,962

    Licensing Revenue                312,689       314,187        940,569        942,567

    Development Fees and other        21,359       492,329        438,654      1,255,534

                                 $ 2,731,764   $ 5,083,820   $ 10,219,766   $ 14,375,771

Revenue for the three months ended September 30, 2009 decreased $2,352,000, or 46%, to $2,732,000 from $5,084,000 in the comparable period in 2008. This was primarily due to a decrease in Fortical sales and royalties. Fortical sales to USL decreased 52% to $1,272,000 for the three months ended September 30, 2009 as compared to $2,645,000 for the three months ended September 30, 2008. Fortical sales fluctuate each quarter based upon USL's ordering schedule. Fortical royalties for the quarter ended September 30, 2009 decreased $507,000, or 31%, to $1,126,000 from $1,633,000 in the comparable period of 2008. Fortical royalties fluctuate each quarter based upon the timing and pricing of USL's shipments to its customers. Fortical sales and royalties have both declined since the launch of competitive products in December 2008. Due to the decline in Fortical sales and royalties, as well as to the timing of collections, accounts receivable from USL decreased approximately $3,838,000 at September 30, 2009 from December 31, 2008.

Revenue for the nine months ended September 30, 2009 decreased $4,156,000 or 29% to $10,220,000 from $14,376,000 in the comparable period in 2008. The nine month decrease was primarily due to a decrease in Fortical revenue of $3,337,000. Fortical sales to USL decreased 33% to $5,311,000 for the nine months ended September 30, 2009 from $7,932,000 for the nine months ended September 30, 2008. Fortical royalties for the nine months ended September 30, 2009 decreased $717,000 or 17%, to $3,529,000 from $4,246,000 in the comparable period of 2008.

Licensing revenue represents the partial recognition of milestones and up-front payments received in prior years. Licensing revenue was fairly constant from 2008 to 2009.

Development fees and other revenue decreased 96% to $21,000 in the third quarter of 2009 from $492,000 in the third quarter of 2008 and decreased 65% to $439,000 for the nine months ended September 30, 2009 from $1,256,000 for the nine months ended September 30, 2008 primarily due to the timing and amount of development work and feasibility studies for various pharmaceutical and biotechnology companies. This revenue is dependent upon the needs of our partners.

Future sales and royalties are contingent upon many factors including competition, pricing, marketing and acceptance in the marketplace and, therefore, are difficult to predict. Milestone revenue is based upon one-time events and is generally correlated with the development strategy of our licensees. It is therefore subject to uncertain timing and not predictive of future revenue. Bulk peptide sales to our partners under license or supply agreements prior to product approval are typically of limited quantity and duration and

also not necessarily predictive of future revenue. Additional peptide sales are dependent upon the future needs of our partners, which we cannot currently estimate. Sales revenue from Fortical in the future will depend on Fortical's continued acceptance in the marketplace, as well as competition and other factors. In December 2008, Apotex and Sandoz launched nasal calcitonin products which are generic to Novartis' nasal calcitonin product, but not to Fortical. In June 2009, Par Pharmaceutical launched a product generic to Novartis' nasal calcitonin product. We do not yet know the long-term effect on Fortical sales and royalties of the launch of these competing products. However, certain providers have substituted these products for Fortical, causing Fortical sales and royalties to decrease. Therefore, it is unlikely that Fortical alone will generate sufficient revenue for us to achieve profitability. In addition, Apotex has a pending ANDA for a nasal calcitonin product that we claim infringes on our Fortical patent. If we do not ultimately prevail in defending our patent, then Apotex could be in a position to market its nasal calcitonin product if and when its pending ANDA receives FDA approval.

Costs and Expenses

Cost of goods sold varies by product and consists primarily of material costs, personnel costs, manufacturing supplies and overhead costs, such as depreciation and maintenance. Cost of goods sold decreased 67% to $479,000 from $1,456,000 for the three months ended September 30, 2009 as compared to the same period in 2008, due to a 52% reduction in Fortical sales to USL, as well as improved margins which resulted from improved batch yields for calcitonin production. Cost of goods sold for the nine months ended September 30, 2009 decreased 57% to $1,946,000 from $4,557,000 compared to the same period in 2008 primarily due to reduced Fortical sales to USL, as well as improved margins. Cost of goods sold for 2009 and 2008 represented our costs associated with Fortical production for USL, whose purchases from us fluctuate each quarter. Cost of goods sold as a percentage of sales was 38% and 55%, respectively, for the third quarter of 2009 and 2008 and was 37% and 57%, respectively, for the nine month periods ended September 30, 2009 and 2008. The improvement in margins in 2009 was due to the utilization of calcitonin produced by our more efficient manufacturing process. A small portion of our calcitonin inventory consists of calcitonin manufactured by our prior less efficient production process. Use of this material would increase our cost of goods sold, therefore lowering our margins, for that period of use. Future production related expenses are dependent upon the level of future Fortical sales, as well as possible peptide production to meet our partners' needs.

Research, development and facility expenses primarily consist of personnel costs, pre-clinical and clinical trials, supplies, outside testing and consultants primarily related to our research and development efforts or activities related to our license agreements, as well as depreciation and amortization expense. All of our production and a portion of our research, development and facility costs are associated with our manufacturing facility in Boonton, New Jersey, where costs are relatively fixed month-to-month. We allocate such costs to the manufacture of production batches for inventory purposes, to cost of goods sold or to research, development and facility expenses, based upon the activities undertaken by the personnel in Boonton each period.

Research, development and facilities expense increased $2,638,000, or 122%, to $4,809,000 from $2,171,000 for the three months ended September 30, 2009 as compared to the same period in 2008. Oral calcitonin development for the three months ended September 30, 2009 increased $2,279,000 due to expenses related to our Phase III clinical trial. Production supplies allocated to research, development and facility expenses for the three months ended September 30, 2009 increased $597,000 due to change over of calcitonin production to PTH production for possible future clinical trials. Research, development and facilities expense increased $3,847,000 or 58% to $10,508,000 from $6,661,000 for the nine months ended September 30, 2009 as compared to the same period in 2008. The most significant increase was due to expenditures related to our oral calcitonin program. Oral calcitonin development for

the nine months ended September 30, 2009 increased $2,476,000 due to expenses related to our Phase III clinical trial. In addition, due to the capitalization of certain Phase III related payments, prepaid expenses increased approximately $2,654,000 at September 30, 2009 from December 31, 2008. Production supplies allocated to research, development and facility expenses increased $828,000 due to reduced production for inventory, primarily due to four batch failures in the first nine months of 2009, as well as change over of calcitonin production to PTH production for possible future clinical trials. We expect that research and development expenses will decline next year due to the fact that we licensed our oral calcitonin program to Tarsa who will be responsible for the remaining costs of the Phase III program. We received approximately $9,000,000 from Tarsa in October 2009 for certain of our Phase III expenditures to date.

General and administrative expenses increased $308,000, or 18%, to $2,044,000 from $1,736,000 for the three months ended September 30, 2009 as compared to the same period in 2008. The increase was primarily attributed to an increase of $415,000 in professional fees, including legal expenses related to the Apotex litigation, as well as Tarsa licensing activities. General and administrative expenses increased $1,118,000, or 19%, to $6,967,000 from $5,849,000 for the nine months ended September 30, 2009 as compared to the same period in 2008. The increase was primarily attributed to an increase of $1,246,000 in professional fees, including legal expenses related to the Apotex litigation, as well as Tarsa licensing activities.

Interest Expense

Interest expense increased 273% in the third quarter of 2009 to $1,298,000 from $348,000 in the third quarter of 2008, and increased 243% for the nine months ended September 30, 2009 to $3,526,000 from $1,028,000 for the nine months ended September 30, 2008. These increases were primarily due to the $15,000,000 note issued to Victory Park on September 30, 2008, as well as the additional $5,000,000 of notes issued to affiliates of Victory Park on May 22, 2009. These notes bear interest at the prime rate plus 7%, subject to a floor of 14% per annum and a cap of 18% per annum. During the three month and nine month periods ended September 30, 2009 we recognized $934,000 and $2,424,000, respectively, in cash and non-cash interest expense under these notes. Interest expense for the remainder of 2009 will therefore be higher than the interest expense incurred during 2008. In addition, interest expense on the Levy loans increased 8% in the third quarter of 2009 to $354,000 from $328,000 in the third quarter of 2008, and increased 8% for the nine months ended September 30, 2009 to $1,042,000 from $966,000 for the nine months ended September 30, 2008. Interest expense will continue to increase in future periods until we make payments on our debt.

Loss from Investment in Joint Venture

This loss represents our 45% ownership percentage of our China joint venture's profits and losses. Our share of the third quarter of 2009 loss of the joint venture was $32,000, a decrease of $24,000 from the third quarter of 2008. Our share of the loss for the first nine months of 2009 was $148,000, an increase of $90,000 from the first nine months of 2008. Joint venture activities accelerated in the second half of 2008 due to the joint venture hiring additional personnel, beginning construction and other activities for its future manufacturing and research facilities. Losses will continue until the joint venture generates sufficient revenue to offset expenses. Currently, the joint venture is not generating any revenue.

Gain on Technology Transfer to Joint Venture

This gain represents the difference between the fair value of the technology and licenses transferred to the joint venture and the book value of these assets. The joint venture valued these assets at $4,500,000; their book value was $0, representing a gain of $4,500,000. This gain is being recognized over 17 years, the estimated life of the transferred assets, at approximately $265,000 per year. We began recognizing this gain during the fourth quarter of 2008 due to the significant transfer of know-how and technology in the fourth quarter of 2008.

Net Loss

Net loss for the three months ended September 30, 2009 increased approximately $5,147,000, or 749%, to $5,834,000 from $687,000 for the corresponding period in 2008. This was due to a reduction in revenue of $2,352,000, as well as increases in operating expenses of $1,969,000 and in interest expense of $951,000. Net loss for the nine months ended September 30, 2009 increased approximately $8,828,000, or 236%, to $12,569,000 from $3,741,000 for the corresponding period in 2008. This was primarily due to a reduction in sales to USL of $2,620,000, as well as an increase in interest expense of $2,497,000 and an increase in research, development and facility expense of $3,847,000. These were partially offset by a decrease in cost of goods sold of $2,612,000 due to reduced Fortical sales to USL, as well as our more efficient manufacturing process. Net losses will continue unless we achieve sufficient non-deferred revenue under our GSK, Tarsa and Novartis agreements or sign new revenue generating research, licensing or distribution agreements.

LIQUIDITY AND CAPITAL RESOURCES

We need additional cash from increases in Fortical sales or royalties, milestones from existing agreements or upfront payments from new agreements or from financings in order to meet our near-term obligations. This raises substantial doubt about our ability to continue as a going concern. Our financial statements have been prepared on a going concern basis and as such do not include any adjustments that might result from the outcome of this uncertainty.

At September 30, 2009, we had cash and cash equivalents of $4,171,000, a decrease of $4,412,000 from December 31, 2008 primarily due to expenditures related to our Phase III clinical trial for oral calcitonin. We had working capital of approximately $1,480,000. In October 2009, we received approximately $9,000,000 for certain expenditures related to our Phase III oral calcitonin clinical trial. We need additional sources of cash in order to maintain all of our future operations. At our current rate of spending, we would need additional sources of cash in the first quarter of 2010.

On September 30, 2008 we entered into a financing agreement with Victory Park pursuant to which we borrowed $15,000,000 from Victory Park and, in connection therewith, we issued to Victory Park a three-year senior secured non-convertible term note and 1,125,000 shares of our common stock, and we received net proceeds of $14,372,000 after fees and closing expenses. In May 2009, we issued an additional $5,000,000 of term notes to affiliates of Victory Park, along with 375,000 shares of our common stock, under the same terms as the previous notes. We received net proceeds of $4,803,000 after fees and closing expenses (see Note H).

Cash received during the third quarter of 2009 was primarily from Fortical sales and royalties received under our agreement with USL. Our primary sources of cash have historically been (1) licensing fees for new agreements, (2) milestone payments under licensing or development agreements, (3) bulk peptide sales under licensing or supply agreements, (4) stockholder loans, (5) the sale of our common stock and (6) since 2005, Fortical sales and royalties. We cannot be certain that any of these cash sources will continue to be available to us in the future. Licensing fees from new collaborations are dependent upon the successful completion of complex and lengthy negotiations. Milestone payments are based upon progress achieved in collaborations, which cannot be guaranteed, and are often subject to factors that are controlled neither by our licensees nor us. Product sales to our partners under these agreements are based upon our licensees' needs, which are sometimes difficult to predict. Sale of our common stock is dependent upon our ability to attract interested investors, our ability to negotiate favorable terms and the performance of the stock market in general and biotechnology investments in particular. Future Fortical sales and royalties will be affected by competition and continued acceptance in the marketplace and could be impacted by manufacturing, distribution or regulatory issues.

We believe that in the short-term we will generate cash to apply toward funding our operations primarily through sales of Fortical to USL and royalties on USL's sales of Fortical and, in the long-term, on sales and royalties from the sale of Fortical and oral calcitonin, the achievement of milestones under our existing license agreements and revenue on future licensed products and technologies. We are actively seeking additional licensing and/or supply agreements with pharmaceutical companies for nasal calcitonin, for various oral peptides, for our peptide manufacturing technology and for our SDBG technology. However, we may not be successful in achieving milestones under our current agreements, in obtaining regulatory approval for our other products or in licensing any of our other products or technologies.

We are engaged in the research, production and delivery of peptide-related products. Our primary focus has been on the development of manufacturing processes and delivery technologies for various peptide products for the treatment of osteoporosis, including nasal and oral calcitonin and oral PTH. We are also developing potential products in the area of SDBG and food reduction. In general, we seek to develop the basic product or technology and then license the product or technology to an established pharmaceutical, biotechnology or medical device company to complete the development, clinical trials and regulatory process and to market the product. As a result, we will not control the nature, timing or cost of bringing our products and technologies to market. Each of these products and technologies is in various stages of completion.

• For nasal calcitonin, we signed a license agreement in November 2002 with USL. Fortical was approved by the FDA and launched by USL in August 2005, generating sales and royalties for us.

• For oral calcitonin, we have interests in two ongoing programs. An external program for which we have licensed our calcitonin manufacturing technology to Novartis is currently in Phase III clinical trials (see Note
E). We would receive royalties on any calcitonin product commercialized by Novartis that utilizes our calcitonin manufacturing technology. The anticipated completion date is outside our control. In October 2009 we licensed our internal program to a third party that will complete the product's development. Because the Phase III trial only recently began for that oral calcitonin product it is too early to speculate on the probability or timing of the development of a marketable oral calcitonin product. We incurred expenditures in both 2008 and 2009 related to the Phase III trial for our internal program, but our new licensee will fund the remaining costs of the trial. Through September 30, 2009, we capitalized approximately $4,500,000 of these Phase III expenditures. These costs are included on our balance sheet in prepaid expenses and other current assets. For the first nine months of 2009, we recognized expenses of approximately $2,476,000. In October 2009, we received approximately $9,000,000 for certain expenditures related to the Phase III oral calcitonin clinical trial (see Note N).

• For oral PTH, we signed a license agreement with GSK in April 2002. A Phase I human trial, which commenced in 2004, demonstrated positive preliminary results. A small, short-term Phase I human study was initiated in October 2008 and successfully completed using our improved oral delivery technology. PTH is in an early stage of development and it is therefore too early to speculate on the probability or timing of a marketable oral PTH product. We may incur certain additional development costs which we currently cannot estimate. GSK has the right to ultimately . . .