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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF

THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2006

Commission File Number 0-20945



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ANTARES PHARMA, INC.



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|                       |  |                               
|---------------------- |  | ------------------------------
|A Delaware Corporation |  | IRS Employer ID No. 41-1350192

707 Eagleview Boulevard, Suite 414

Exton, Pennsylvania

19341

(610) 458-6200



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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act. (Check one):    Large Accelerated filer ̈Accelerated
filer ̈Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x

The number of shares outstanding of the Registrants Common Stock, $.01 par value, as of May 10, 2006, was 52,907,956.



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##### Table of Contents

ANTARES PHARMA, INC.

INDEX



|         |  |                                                                                                      |  |     
|-------- |  | ---------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                      |  | PAGE
|PART I.  |  | FINANCIAL INFORMATION                                                                                |  |     
|         |  |                                                                                                     
|Item 1.  |  | Financial Statements                                                                                 |  |     
|         |  |                                                                                                     
|         |  | Consolidated Balance Sheets, as of March 31, 2006 (Unaudited) and December 31, 2005                  |  | 3   
|         |  |                                                                                                     
|         |  | Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2006 and 2005 |  | 4   
|         |  |                                                                                                     
|         |  | Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2006 and 2005 |  | 5   
|         |  |                                                                                                     
|         |  | Notes to Consolidated Financial Statements                                                           |  | 6   
|         |  |                                                                                                     
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                |  | 11  
|         |  |                                                                                                     
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                           |  | 14  
|         |  |                                                                                                     
|Item 4.  |  | Controls and Procedures                                                                              |  | 15  
|         |  |                                                                                                     
|PART II. |  | OTHER INFORMATION                                                                                    |  | 17  
|         |  |                                                                                                     
|Item 1A. |  | Risk Factors                                                                                         |  | 17  
|         |  |                                                                                                     
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                          |  | 32  
|         |  |                                                                                                     
|Item 6.  |  | Exhibits                                                                                             |  | 32  
|         |  |                                                                                                     
|         |  | SIGNATURES                                                                                           |  | 33  



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ANTARES PHARMA, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



|                                                                                                                                                               |  |                |             |   |                  |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                               |  | March 31, 2006 |             |   | December 31,2005 |  
|Assets                                                                                                                                                         | 
|                                                                                                                                                               |  |               
|Current Assets:                                                                                                                                                |  |                |             |   |                  |   |             |  
|Cash and cash equivalents                                                                                                                                      |  | $              | 3,738,170   |   |                  | $ | 2,718,472   |  
|Short-term investments                                                                                                                                         |  |                | 6,825,075   |   |                  |   |            |  
|Accounts receivable, net of allowances of $10,000 and $22,500, respectively                                                                                    |  |                | 246,576     |   |                  |   | 223,944     |  
|Other receivables                                                                                                                                              |  |                | 154,175     |   |                  |   | 48,185      |  
|Inventories                                                                                                                                                    |  |                | 33,975      |   |                  |   | 36,022      |  
|Prepaid expenses and other current assets                                                                                                                      |  |                | 374,529     |   |                  |   | 286,185     |  
|                                                                                                                                                               |  |                |             |   |                  |   |             |  
|Total current assets                                                                                                                                           |  |                | 11,372,500  |   |                  |   | 3,312,808   |  
|                                                                                                                                                               |  |               
|Equipment, furniture and fixtures, net                                                                                                                         |  |                | 447,643     |   |                  |   | 477,608     |  
|Patent rights, net                                                                                                                                             |  |                | 938,643     |   |                  |   | 936,939     |  
|Goodwill                                                                                                                                                       |  |                | 1,095,355   |   |                  |   | 1,095,355   |  
|Other assets                                                                                                                                                   |  |                | 340,330     |   |                  |   | 343,654     |  
|                                                                                                                                                               |  |                |             |   |                  |   |             |  
|Total Assets                                                                                                                                                   |  | $              | 14,194,471  |   |                  | $ | 6,166,364   |  
|                                                                                                                                                               |  |                |             |   |                  |   |             |  
|Liabilities and Stockholders Equity                                                                                                                           | 
|                                                                                                                                                               |  |               
|Current Liabilities:                                                                                                                                           |  |                |             |   |                  |   |             |  
|Accounts payable                                                                                                                                               |  | $              | 689,135     |   |                  | $ | 945,028     |  
|Accrued expenses and other current liabilities                                                                                                                 |  |                | 519,853     |   |                  |   | 798,468     |  
|Deferred revenue                                                                                                                                               |  |                | 584,719     |   |                  |   | 604,143     |  
|                                                                                                                                                               |  |                |             |   |                  |   |             |  
|Total current liabilities                                                                                                                                      |  |                | 1,793,707   |   |                  |   | 2,347,639   |  
|                                                                                                                                                               |  |               
|Deferred revenue  long term                                                                                                                                   |  |                | 2,956,451   |   |                  |   | 3,062,076   |  
|                                                                                                                                                               |  |                |             |   |                  |   |             |  
|Total liabilities                                                                                                                                              |  |                | 4,750,158   |   |                  |   | 5,409,715   |  
|                                                                                                                                                               |  |                |             |   |                  |   |             |  
|Stockholders Equity:                                                                                                                                          |  |                |             |   |                  |   |             |  
|Common Stock: $0.01 par; authorized 100,000,000 shares; 52,785,456 and 43,019,486 issued and outstanding at March 31, 2006 and
December 31, 2005, respectively |  |                | 527,855     |   |                  |   | 430,195     |  
|Additional paid-in capital                                                                                                                                     |  |                | 105,505,525 |   |                  |   | 94,547,105  |  
|Prepaid license discount                                                                                                                                       |  |                | (2,453,116  | ) |                  |   | (2,502,178  | )
|Accumulated deficit                                                                                                                                            |  |                | (93,527,121 | ) |                  |   | (91,123,107 | )
|Accumulated other comprehensive loss                                                                                                                           |  |                | (608,830    | ) |                  |   | (595,366    | )
|                                                                                                                                                               |  |                |             |   |                  |   |             |  
|                                                                                                                                                               |  |                | 9,444,313   |   |                  |   | 756,649     |  
|                                                                                                                                                               |  |                |             |   |                  |   |             |  
|Total Liabilities and Stockholders Equity                                                                                                                     |  | $              | 14,194,471  |   |                  | $ | 6,166,364   |  
|                                                                                                                                                               |  |                |             |   |                  |   |             |  

See accompanying notes to consolidated financial statements.



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ANTARES PHARMA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



|                                                             |  |                                     |            |   |      |   |            |  
|------------------------------------------------------------ |  | ----------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                             |  | For the Three Months EndedMarch 31, |           
|                                                             |  | 2006                                |            |   | 2005 |  
|Revenues:                                                    |  |                                     |            |   |      |   |            |  
|Product sales                                                |  | $                                   | 395,084    |   |      | $ | 406,253    |  
|Development revenue                                          |  |                                     | 161,694    |   |      |   | 47,906     |  
|Licensing fees                                               |  |                                     | 55,819     |   |      |   | 80,586     |  
|Royalties                                                    |  |                                     | 24,063     |   |      |   | 19,640     |  
|                                                             |  |                                     |            |   |      |   |            |  
|Total revenue                                                |  |                                     | 636,660    |   |      |   | 554,385    |  
|                                                             |  |                                    
|Cost of revenues:                                            |  |                                     |            |   |      |   |            |  
|Cost of product sales                                        |  |                                     | 260,412    |   |      |   | 282,628    |  
|Cost of development revenue                                  |  |                                     | 61,076     |   |      |   | 24,860     |  
|                                                             |  |                                     |            |   |      |   |            |  
|Total cost of revenues                                       |  |                                     | 321,488    |   |      |   | 307,488    |  
|                                                             |  |                                     |            |   |      |   |            |  
|Gross profit                                                 |  |                                     | 315,172    |   |      |   | 246,897    |  
|                                                             |  |                                     |            |   |      |   |            |  
|Operating expenses:                                          |  |                                     |            |   |      |   |            |  
|Research and development                                     |  |                                     | 861,059    |   |      |   | 788,812    |  
|Sales, marketing and business development                    |  |                                     | 360,347    |   |      |   | 286,744    |  
|General and administrative                                   |  |                                     | 1,420,000  |   |      |   | 1,472,634  |  
|                                                             |  |                                     |            |   |      |   |            |  
|                                                             |  |                                     | 2,641,406  |   |      |   | 2,548,190  |  
|                                                             |  |                                     |            |   |      |   |            |  
|Operating loss                                               |  |                                     | (2,326,234 | ) |      |   | (2,301,293 | )
|                                                             |  |                                     |            |   |      |   |            |  
|Other income (expense):                                      |  |                                     |            |   |      |   |            |  
|Interest income                                              |  |                                     | 42,207     |   |      |   | 42,568     |  
|Interest expense                                             |  |                                     | (1,730     | ) |      |   |           |  
|Foreign exchange losses                                      |  |                                     | (3,176     | ) |      |   | (12,785    | )
|Other, net                                                   |  |                                     | (15,581    | ) |      |   | (1,362     | )
|                                                             |  |                                     |            |   |      |   |            |  
|                                                             |  |                                     | 21,720     |   |      |   | 28,421     |  
|                                                             |  |                                     |            |   |      |   |            |  
|Net loss                                                     |  |                                     | (2,304,514 | ) |      |   | (2,272,872 | )
|                                                             |  |                                    
|Deemed dividend to warrant holders                           |  |                                     | (99,500    | ) |      |   |           |  
|                                                             |  |                                     |            |   |      |   |            |  
|Net loss applicable to common shares                         |  | $                                   | (2,404,014 | ) |      | $ | (2,272,872 | )
|                                                             |  |                                     |            |   |      |   |            |  
|Basic and diluted net loss per common share                  |  | $                                   | (0.05      | ) |      | $ | (0.06      | )
|                                                             |  |                                     |            |   |      |   |            |  
|Basic and diluted weighted average common shares outstanding |  |                                     | 46,972,487 |   |      |   | 40,457,850 |  
|                                                             |  |                                     |            |   |      |   |            |  

See accompanying notes to consolidated financial statements.



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ANTARES PHARMA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



|                                                                            |  |                                     |            |   |      |   |            |  
|--------------------------------------------------------------------------- |  | ----------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                            |  | For the Three Months EndedMarch 31, |           
|                                                                            |  | 2006                                |            |   | 2005 |  
|Cash flows from operating activities:                                       |  |                                     |            |   |      |   |            |  
|Net loss                                                                    |  | $                                   | (2,304,514 | ) |      | $ | (2,272,872 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                     |            |   |      |   |            |  
|Depreciation and amortization                                               |  |                                     | 69,306     |   |      |   | 104,860    |  
|Stock-based compensation expense                                            |  |                                     | 189,649    |   |      |   | 47,834     |  
|Amortization of prepaid license discount                                    |  |                                     | 49,062     |   |      |   | 49,062     |  
|Changes in operating assets and liabilities:                                |  |                                     |            |   |      |   |            |  
|Accounts receivable                                                         |  |                                     | (21,935    | ) |      |   | 144,624    |  
|Other receivables                                                           |  |                                     | (126,725   | ) |      |   | (146,710   | )
|Inventories                                                                 |  |                                     | 2,047      |   |      |   | (27,341    | )
|Prepaid expenses and other current assets                                   |  |                                     | (88,362    | ) |      |   | (246,526   | )
|Other assets                                                                |  |                                     | 4,433      |   |      |   | 6,673      |  
|Accounts payable                                                            |  |                                     | (265,946   | ) |      |   | (33,855    | )
|Accrued expenses and other current liabilities                              |  |                                     | (283,578   | ) |      |   | (142,696   | )
|Deferred revenue                                                            |  |                                     | (134,671   | ) |      |   | (124,940   | )
|                                                                            |  |                                     |            |   |      |   |            |  
|Net cash used in operating activities                                       |  |                                     | (2,911,234 | ) |      |   | (2,641,887 | )
|                                                                            |  |                                     |            |   |      |   |            |  
|Cash flows from investing activities:                                       |  |                                     |            |   |      |   |            |  
|Purchases of equipment, furniture and fixtures                              |  |                                     | (4,932     | ) |      |   | (63,351    | )
|Additions to patent rights                                                  |  |                                     | (33,696    | ) |      |   |           |  
|Purchases of short-term investments                                         |  |                                     | (6,804,081 | ) |      |   | (2,976,913 | )
|Proceeds from maturity of short-term investments                            |  |                                     |           |   |      |   | 6,000,000  |  
|                                                                            |  |                                     |            |   |      |   |            |  
|Net cash provided by (used in) investing activities                         |  |                                     | (6,842,709 | ) |      |   | 2,959,736  |  
|                                                                            |  |                                     |            |   |      |   |            |  
|Cash flows from financing activities:                                       |  |                                     |            |   |      |   |            |  
|Proceeds from sales of common stock, net                                    |  |                                     | 9,864,945  |   |      |   |           |  
|Proceeds from exercise of warrants and stock options                        |  |                                     | 901,985    |   |      |   | 61,700     |  
|                                                                            |  |                                     |            |   |      |   |            |  
|Net cash provided by financing activities                                   |  |                                     | 10,766,930 |   |      |   | 61,700     |  
|                                                                            |  |                                     |            |   |      |   |            |  
|Effect of exchange rate changes on cash and cash equivalents                |  |                                     | 6,711      |   |      |   | (11,459    | )
|                                                                            |  |                                     |            |   |      |   |            |  
|Net increase in cash and cash equivalents                                   |  |                                     | 1,019,698  |   |      |   | 368,090    |  
|Cash and cash equivalents:                                                  |  |                                     |            |   |      |   |            |  
|Beginning of period                                                         |  |                                     | 2,718,472  |   |      |   | 1,652,408  |  
|                                                                            |  |                                     |            |   |      |   |            |  
|End of period                                                               |  | $                                   | 3,738,170  |   |      | $ | 2,020,498  |  
|                                                                            |  |                                     |            |   |      |   |            |  

See accompanying notes to consolidated financial statements



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ANTARES PHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

March 31, 2006 and
2005



|1. | Description of Business
|-- | -----------------------

Antares Pharma, Inc.
(Antares) is a specialty drug delivery/pharmaceutical company utilizing its experience and expertise in drug delivery systems to enhance the performance of established and developing pharmaceuticals. The Company currently has three
primary delivery platforms (1) transdermal gels, (2) fast-melt tablets, and (3) injection devices. The corporate headquarters are located in Exton, Pennsylvania, with research and production facilities for the injection devices in
Minneapolis, Minnesota, and research, development and commercialization facilities for the transdermal gels and fast-melt tablets in Basel, Switzerland.



|2. | Basis of Presentation
|-- | ---------------------

The accompanying unaudited
financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The accompanying financial statements and notes should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2005. Operating results for the three-month
period ended March 31, 2006, are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

Reclassifications

Certain prior year amounts previously reported as research and development expense have been reclassified
to general and administrative expense to conform to the current year presentation. These reclassifications did not impact previously reported net loss or net loss per share.



|3. | Stock Based Compensation
|-- | ------------------------

As of January 1,
2006 the Company adopted the fair value method of accounting for employee stock compensation cost pursuant to SFAS No. 123R, which requires a public entity to measure the cost of employee services received in exchange for the award of equity
instruments based on the fair value of the award at the date of grant. The cost will be recognized over the period during which an employee is required to provide services in exchange for the award. Prior to January 1, 2006, the Company used
the intrinsic value method under APB Opinion No. 25. Accordingly, compensation expense was recognized for restricted stock granted to employees, but was not recognized for employee stock options other than the intrinsic value of options when
the exercise price of the options was below their fair value on the date of grant. The Company is using the modified prospective transition method in implementing SFAS No. 123R. Under that transition method, compensation cost recognized in 2006
includes: (1) compensation cost for all stock-based payments granted prior to, but not yet vested as of December 31, 2005, based on the grant date fair value calculated in accordance with the original provisions of SFAS No. 123, and
(2) compensation cost for all stock-based payments granted subsequent to December 31, 2005, based on the grant-date fair value calculated in accordance with the provisions of SFAS No. 123R. Results for prior periods have not been
restated.



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As a result of adopting SFAS No. 123R, the Companys net loss for the quarter ended
March 31, 2006 was approximately $179,000 more than if it had continued to account for stock-based compensation under APB Opinion No. 25. The adoption of SFAS No. 123R did not change basic and diluted earnings per share for the
quarter ended March 31, 2006. The Company estimates total compensation expense related to share based arrangements with employees will be approximately $900,000 for 2006.

Had compensation cost been determined based on the fair value at the grant date for stock options under SFAS No. 123R for the quarter ended
March 31, 2005, the net loss applicable to common shares and loss per common share would have increased to the pro-forma amounts shown below:



|                                             |  |                                   |            |  
|-------------------------------------------- |  | --------------------------------- | ---------- | -
|                                             |  | Three Months Ended March 31, 2005 |           
|Net loss:                                    |  |                                   |            |  
|As reported                                  |  | $                                 | (2,272,872 | )
|Intrinsic value of stock options granted     |  |                                   | 41,298     |  
|Fair-value method compensation expense       |  |                                   | (324,465   | )
|                                             |  |                                   |            |  
|Pro forma                                    |  | $                                 | (2,556,039 | )
|                                             |  |                                   |            |  
|Basic and diluted net loss per common share: |  |                                   |            |  
|As reported                                  |  | $                                 | (0.06      | )
|Intrinsic value of stock options granted     |  |                                   |           |  
|Fair-value method compensation expense       |  |                                   |           |  
|                                             |  |                                   |            |  
|Pro forma                                    |  | $                                 | (0.06      | )
|                                             |  |                                   |            |  

The Companys stock option plans allow for the grants of options to officers, directors,
consultants and employees to purchase shares of Common Stock at exercise prices not less than 100% of fair market value on the dates of grant. The term of the options is either ten or eleven years and they vest in varying periods. As of
March 31, 2006, these plans had 1,516,820 shares available for grant. Stock option exercises are satisfied through the issuance of new shares.

A summary of stock option activity under the plans as of March 31, 2006 and the changes during the three-month period then ended is as follows:



|                                 |  |                 |   |  |                                  |  |                                                    |  |                            
|-------------------------------- |  | --------------- | - |  | -------------------------------- |  | -------------------------------------------------- |  | ---------------------------
|                                 |  | Number ofShares |   |  | WeightedAverageExercisePrice ($) |  | WeightedAverage Remaining Contractual
Term (Years) |  | AggregateIntrinsicValue ($)
|Outstanding at December 31, 2005 |  | 3,255,901       |   |  | 1.76                             |  |                                                    |  |                            
|Granted/Issued                   |  | 1,227,500       |   |  | 1.49                             |  |                                                    |  |                            
|Exercised                        |  | (3,333          | ) |  | 1.32                             |  |                                                    |  |                            
|Cancelled                        |  | (78,142         | ) |  | 2.27                             |  |                                                    |  |                            
|                                 |  |                 |   |  |                                  |  |                                                    |  |                            
|Outstanding at March 31, 2006    |  | 4,401,926       |   |  | 1.68                             |  | 7.8                                                |  | 977,288                    
|                                 |  |                 |   |  |                                  |  |                                                    |  |                            
|Exercisable at March 31, 2006    |  | 2,650,431       |   |  | 1.91                             |  | 6.8                                                |  | 450,180                    
|                                 |  |                 |   |  |                                  |  |                                                    |  |                            



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The intrinsic value of stock options exercised in the three-month period ended March 31, 2006 was
$1,133. As of March 31, 2006, there was approximately $2,000,000 of total unrecognized compensation cost related to nonvested outstanding stock options that is expected to be recognized over a weighted average period of approximately 2.8 years.

The per share weighted average fair value of options granted during the first quarters of 2006 and 2005 were estimated as $1.49 and $1.25,
respectively, on the date of grant using the Black-Scholes option pricing model based on the assumptions noted in the table below. Expected volatilities are based on the historical volatility of the Companys stock. The weighted average
expected life is based on both historical and anticipated employee behavior.



|                                         |  |           |   |  |       |  
|---------------------------------------- |  | --------- | - |  | ----- | -
|                                         |  | March 31, |  
|                                         |  | 2006      |   |  | 2005  |  
|Risk-free interest rate                  |  | 4.4       | % |  | 3.9   | %
|Annualized volatility                    |  | 127.0     | % |  | 131.0 | %
|Weighted average expected life, in years |  | 7.0       |   |  | 7.0   |  
|Expected dividend yield                  |  | 0.0       | % |  | 0.0   | %

The employment agreements with the Chief Executive Officer and Chief Financial Officer include
stock-based incentives under which the executives could be awarded up to approximately 710,000 shares of common stock upon the occurrence of various triggering events. The weighted average grant date fair value of the awards considered probable of
achievement was $0.49 per share which resulted in a total fair value of $141,000, of which $76,000 is expected to be recognized after March 31, 2006 over a weighted average period of 13 months.



|4. | Stockholders Equity
|-- | --------------------

Common Stock, Options
and Warrants

In the first quarter of 2006 the Company received net proceeds of $9,864,945 in a private placement of its common stock in
which a total of 8,770,000 shares of common stock were sold at a price of $1.25 per share. Additionally, the Company issued five-year warrants to purchase an aggregate of 7,454,500 shares of common stock at an exercise price of $1.50 per share.

Warrant and stock option exercises during the first quarters of 2006 and 2005 resulted in proceeds of $901,985 and $61,700, respectively,
and in the issuance of 995,970 and 75,200 shares of common stock, respectively.

During the first quarter of 2006 and 2005 the Company
granted options to purchase a total of 1,227,500 and 225,000 shares of its common stock, respectively. The options were granted to employees and members of the Companys board of directors at exercise prices ranging from $1.43 to $1.54 per
share in 2006 and $1.21 to $1.40 in 2005. All options were granted at an exercise price that equaled the fair value of the Companys common stock on the date of the grant.

Deemed Dividend to Warrant Holders

In connection with the exercise of 210,000 warrants in the fourth quarter of 2005, the Company agreed to issue new three-year warrants for the purchase of 105,000 shares of common stock with



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an exercise price of $1.35. The new warrants were issued in the first quarter of 2006 and were estimated
to have a fair value of $99,500 using the Black-Scholes option pricing model. The fair value of the new warrants has been recorded as a return to the warrant holders and has increased the net loss applicable to common stockholders in computing net
loss per share.



|5. | Net Loss Per Share
|-- | ------------------

Basic loss per common share is
computed by dividing net loss applicable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted loss per common share reflects the potential dilution from the exercise or conversion of securities
into common stock. The table below discloses the basic and diluted loss per share.



|                                                             |  |                              |            |   |      |   |            |  
|------------------------------------------------------------ |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                             |  | Three Months Ended March 31, |           
|                                                             |  | 2006                         |            |   | 2005 |  
|Net loss applicable to common shares                         |  | $                            | (2,404,014 | ) |      | $ | (2,272,872 | )
|Basic and diluted weighted average common shares outstanding |  |                              | 46,972,487 |   |      |   | 40,457,850 |  
|                                                             |  |                              |            |   |      |   |            |  
|Basic and diluted net loss per common share                  |  | $                            | (0.05      | ) |      | $ | (0.06      | )
|                                                             |  |                              |            |   |      |   |            |  

Potentially dilutive stock options and warrants excluded from dilutive loss per share because their
effect was anti-dilutive totaled 26,675,542 and 20,406,391 at March 31, 2006 and 2005, respectively.

The weighted average exercise
price of the stock options and warrants outstanding at March 31, 2006 and 2005 was $1.41 and $1.49, respectively.



|6. | Industry Segment and Operations by Geographic Areas
|-- | ---------------------------------------------------

The Company is primarily engaged in development of drug delivery transdermal and transmucosal pharmaceutical products and drug delivery injection devices and supplies. These operations are considered to be one segment. The geographic
distributions of the Companys identifiable assets and revenues are summarized in the following tables:

The Company has operating
assets located in two countries as follows:



|                         |  |               |            |                  |   |          
|------------------------ |  | ------------- | ---------- | ---------------- | - | ---------
|                         |  | March 31,2006 |            | December 31,2005
|Switzerland              |  | $             | 1,142,900  |                  | $ | 1,339,101
|United States of America |  |               | 13,051,571 |                  |   | 4,827,263
|                         |  |               |            |                  |   |          
|                         |  | $             | 14,194,471 |                  | $ | 6,166,364
|                         |  |               |            |                  |   |          



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##### Table of Contents

Revenues by customer location are summarized as follows:



|                         |  |                                     |         |      |   |        
|------------------------ |  | ----------------------------------- | ------- | ---- | - | -------
|                         |  | For the Three MonthsEnded March 31,
|                         |  | 2006                                |         | 2005
|United States of America |  | $                                   | 207,764 |      | $ | 104,923
|Europe                   |  |                                     | 273,117 |      |   | 378,841
|Other                    |  |                                     | 155,779 |      |   | 70,621 
|                         |  |                                     |         |      |   |        
|                         |  | $                                   | 636,660 |      | $ | 554,385
|                         |  |                                     |         |      |   |        

The following summarizes significant customers comprising 10% or more of total revenue for the
three months ended March 31:



|                           |  |      |         |      |   |        
|-------------------------- |  | ---- | ------- | ---- | - | -------
|                           |  | 2006 |         | 2005
|Ferring Pharmaceuticals BV |  | $    | 256,796 |      | $ | 330,051
|SciGen Ltd                 |  |      | 80,584  |      |   | 33,875 
|Undisclosed                |  |      | 122,551 |      |   |       



|7. | Comprehensive Loss
|-- | ------------------



|                                            |  |                              |            |   |      |   |            |  
|------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                            |  | Three Months Ended March 31, |           
|                                            |  | 2006                         |            |   | 2005 |  
|Net loss                                    |  | $                            | (2,304,514 | ) |      | $ | (2,272,872 | )
|Change in cumulative translation adjustment |  |                              | (13,464    | ) |      |   | 25,404     |  
|                                            |  |                              |            |   |      |   |            |  
|Comprehensive loss                          |  | $                            | (2,317,978 | ) |      | $ | (2,247,468 | )
|                                            |  |                              |            |   |      |   |            |  



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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The Company develops, produces and markets pharmaceutical delivery products, including transdermal gels, oral fast melting tablets and reusable
needle-free and disposable mini-needle injector systems. In addition, the Company has several products and compound formulations under development. The Company has operating facilities in the U.S. and Switzerland. The U.S. operation develops
reusable needle-free and disposable mini-needle injector systems and manufactures and markets reusable needle-free injection devices and related disposables. These operations, including all manufacturing and some U.S. administrative activities, are
located in Minneapolis, Minnesota and are referred to as Antares/Minnesota. The Company also has operations located in Basel, Switzerland, which consists of administration and facilities for the research and development of transdermal gels and oral
fast melt tablet products. The Swiss operations, referred to as Antares/Switzerland, focus on research, development and commercialization of pharmaceutical products. Antares/Switzerland has signed a number of license agreements with pharmaceutical
companies for the application of its drug delivery systems and began generating revenue in 1999 with the recognition of license revenues. The Companys corporate offices are located in Exton, Pennsylvania (near Philadelphia).

The Company operates as a specialty pharmaceutical company in the broader pharmaceutical industry. Companies in this sector generally bring technology and know-how in
the area of drug formulation and/or delivery devices to pharmaceutical product marketers through licensing and development agreements while actively pursuing development of its own products. The Company currently views pharmaceutical and
biotechnology companies as primary customers. The Company has negotiated and executed licensing relationships in the growth hormone segment (reusable needle-free devices in Europe and Asia) and the transdermal hormone gels segment (several
development programs in place worldwide, including the United States and Europe). In addition, the Company continues to market reusable needle-free devices for the home or alternate site administration of insulin in the U.S. market though
distributors, and has licensed its reusable needle-free technology in the diabetes and obesity fields to Eli Lilly and Company on a worldwide basis.

The
Company is reporting a net loss of $2,304,514 for the quarter ended March 31, 2006 and expects to report a net loss for the year ending December 31, 2006, as marketing and development costs related to bringing future generations of
products to market continue. Long-term capital requirements will depend on numerous factors, including the status of collaborative arrangements, the progress of research and development programs, the receipt of revenues from sales of products and
the ability to control costs.



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Results of Operations

Critical Accounting Policies

The Company has identified certain of its significant accounting policies that it considers particularly
important to the portrayal of the Companys results of operations and financial position and which may require the application of a higher level of judgment by the Companys management, and as a result are subject to an inherent level of
uncertainty. These are characterized as critical accounting policies and address revenue recognition, valuation of long-lived and intangible assets and goodwill and accounting for debt and equity instruments, each more fully described
under Managements Discussion and Analysis of Financial Condition and Results of Operations in the Companys Annual Report on Form 10-K for the year ended December 31, 2005. The Company has made no changes to these
policies during 2006.

Adoption of SFAS No. 123R, Share-Based Payment

As discussed in Note 3 to the Consolidated Financial Statements, as of January 1, 2006 the Company adopted SFAS No. 123R to account for employee stock compensation cost. Prior to January 1, 2006, the
Company used the intrinsic value method under APB Opinion No. 25. Accordingly, compensation expense was recognized for restricted stock granted to employees but was not recognized for employee stock options other than the intrinsic value of
options when the exercise price of the options was below their fair value on the date of grant. As a result of the adoption of SFAS No. 123R, the Company has recognized approximately $179,000 of expense in the first three months of 2006 that
would not have been recognized under APB Opinion No. 25. The Company estimates total compensation expense related to share based arrangements with employees will be approximately $900,000 for 2006.

Three Months Ended March 31, 2006 and 2005

Revenues

Total revenues for the three months ended March 31, 2006 and 2005 were $636,660 and $554,385, respectively. The increase in revenues was primarily
the result of increases in development revenue, partially offset by a decrease in licensing fees. The increase in development revenue was the result of one transdermal gel development project. The licensing fees decrease was primarily due to
spreading revenue over longer periods of time as a result of increasing the estimated revenue recognition periods of certain existing license agreements.

Cost of Revenues

The cost of product sales of $260,412 and $282,628 for the first quarter of 2006 and 2005, respectively, are related to
reusable needle-free injector devices and disposable components. Cost of sales as a percentage of product sales were 66% and 70% in the first quarters of 2006 and 2005, respectively. This decrease was mainly due to an adjustment increasing the
inventory reserve in the first quarter of 2005.

The cost of development revenue consists of labor costs, direct external costs and an allocation of
certain overhead expenses based on actual costs and time spent in these revenue-generating activities. Cost of development revenue as a percentage of development revenue can fluctuate considerably between periods depending on the development
projects in process. In some cases development projects are substantially labor based, resulting in relatively high margins, while in other cases development projects include a significant amount of external cost passed thru to the customer at
little or no markup, resulting in very low margins.



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Research and Development

Research and development expenses were $861,059 and $788,812 for the three-month periods ended March 31, 2006 and 2005, respectively. The increase was primarily related to transdermal gel development projects, including Phase II
studies of Anturol, and oral fast melt tablet products and consisted mainly of increases in external costs for studies and analysis work around platform validation and proof-of-concept work.

Sales, Marketing and Business Development

Sales, marketing and
business development expenses totaled $360,347 and $286,744 for the three months ended March 31, 2006 and 2005, respectively. The increase was primarily due to an increase in professional services in connection with business development
projects related to transdermal gels and oral fast melt tablets.

General and Administrative

General and administrative expenses totaled $1,420,000 and $1,472,634 in the three months ended March 31, 2006 and 2005, respectively. The decrease was primarily due
to decreases in professional services, insurance, investor relations and patent expenses, partially offset by the expense increase due to the adoption of SFAS No. 123R and the required recognition of stock option expenses in 2006.

Other Income (Expense)

Other income (expense) was $21,720 and
$28,421 in the first quarters of 2006 and 2005, respectively. The decrease in other income was due primarily to increased franchise tax expense in 2006 compared to 2005.

Liquidity and Capital Resources

The Company has not historically generated, and does not currently generate, enough
revenue to provide the cash needed to support its operations, and has continued to operate primarily by raising capital and issuing debt. In order to better position the Company to take advantage of potential growth opportunities and to fund future
operations, the Company raised additional capital in the first quarter of 2006. The Company received net proceeds of $9,864,945 in a private placement of its common stock in which a total of 8,770,000 shares of common stock were sold at a price of
$1.25 per share. Additionally, the Company issued five-year warrants to purchase an aggregate of 7,454,500 shares of common stock at an exercise price of $1.50 per share. In the first quarter of 2006 the Company also received proceeds of $901,985 in
connection with warrant and stock option exercises which resulted in the issuance of 995,970 shares of common stock.

The Company believes that the
combination of the equity financing and projected product sales and product development and license revenues will provide sufficient funds to support operations for at least the next 12 months. The Company does not currently have any bank credit
lines. If the Company does need additional financing and is unable to obtain such financing when needed, or obtain it on favorable terms, the Company may be required to curtail development of new drug technologies, limit expansion of operations or
accept financing terms that are not as attractive as the Company may desire.



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Cash Flows

Operating Activities

Net cash used in operating activities was $2,911,234 and $2,641,887 for the three-month periods ended March 31,
2006 and 2005, respectively. This was the result of net losses of $2,304,514 and $2,272,872 in 2006 and 2005, respectively, adjusted by noncash expenses and changes in operating assets and liabilities.

Noncash expenses in the first quarter of 2006 totaled $308,017 compared to $201,756 in 2005. The increase was due primarily to the recognition of stock option expenses
in 2006, partially offset by a decrease in depreciation and amortization.

The change in operating assets and liabilities resulted in net decreases in cash
of $914,737 and $570,771 in the first quarters of 2006 and 2005, respectively. The primary reason for the use of cash in the first quarter of 2006 was the reduction of accounts payable, accrued expenses and deferred revenue and increases in other
receivables and prepaid expenses compared to year-end 2005. Other receivables and prepaid expenses typically increase at the beginning of each year when various annual payments are made. Decreases in deferred revenue were due to the recognition as
revenue of previously deferred amounts, which exceeded new deferrals. Other changes in operating assets and liabilities were due to timing of payments and receipts in the ordinary course of business.

Investing Activities

The first quarter of 2006
resulted in net cash used in investing activities of $6,842,709, which was primarily due to purchases of short-term investments of $6,804,081. The first quarter of 2005 resulted in net cash provided by investing activities of $2,959,736, which
consisted primarily of proceeds from the maturity of short-term investments of $6,000,000, partially offset by purchases of short-term investments of $2,976,913 and purchases of equipment, furniture and fixtures of $63,351.

Financing Activities

Net cash provided by financing
activities totaled $10,766,930 in the first quarter of 2006, which consisted of proceeds from the sale of common stock of $9,864,945 and proceeds from the exercise of warrants and stock options of $901,985. Net cash provided by financing activities
in the first quarter of 2005 was $61,700, which was due to proceeds from the exercise of warrants.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Companys primary market risk exposure is
foreign exchange rate fluctuations of the Swiss Franc to the U.S. dollar as the financial position and operating results of the Companys subsidiaries in Switzerland are translated into U.S. dollars for consolidation. The Companys
exposure to foreign exchange rate fluctuations also arises from transferring funds to its Swiss subsidiaries in Swiss Francs. Most of the Companys sales and licensing fees are denominated in U.S. dollars, thereby significantly mitigating the
risk of exchange rate fluctuations on trade receivables. The effect of foreign exchange rate fluctuations on the Companys financial results for the quarters ended March 31, 2006 and 2005 was not



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material. The Company also has exposure to exchange rate fluctuations between the Euro and the U.S. dollar. The licensing
agreement entered into in January 2003 with Ferring established pricing in Euros for products sold under the supply agreement and for all royalties. The Company does not currently use derivative financial instruments to hedge against exchange rate
risk. Because exposure increases as intercompany balances grow, the Company will continue to evaluate the need to initiate hedging programs to mitigate the impact of foreign exchange rate fluctuations on intercompany balances.

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.

The Companys management, with the participation of the Companys Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the
Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, the
Companys Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Companys disclosure controls and procedures are effective.

Internal Control over Financial Reporting.

There have not been any changes in the Companys internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.

A control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Cautionary Statement for Purposes of the Safe
Harbor Provisions of the Private Securities Litigation Reform Act of 1995

Certain statements in this Quarterly Report on Form 10-Q are
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this Quarterly Report on Form 10-Q, the words may, should, expects,
plans, anticipates, believes, estimates, predicts, intends, potential or continue and similar expressions are generally intended to identify
forward-looking statements. Because these forward-looking statements involve risks and uncertainties, including those described in Item 1A of this Quarterly Report, actual results could differ materially from those expressed or implied by these
forward-looking statements. These statements are only predictions. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance
and/or achievements.

Forward-looking statements represent the Companys expectations or beliefs concerning future events, including statements
regarding the Companys current cash situation, need for additional capital, ability



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to continue operations, whether the Company will be successful in entering into new strategic relationships, the
Companys ability to attract and retain customers, the Companys ability to adapt to changing technologies, the impact of competition and pricing pressures from actual and potential competitors with greater financial resources, the
Companys ability to hire and retain competent employees, the Companys ability to protect and reuse its intellectual property, changes in general economic conditions, and other factors identified in the Companys filings with the
Securities and Exchange Commission. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



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PART II - OTHER INFORMATION

Item 1A. RISK FACTORS

The following risk factors contain important information about us
and our business and should be read in their entirety. Additional risks and uncertainties not known to us or that we now believe to be not material could also impair our business. If any of the following risks actually occur, our business, results
of operations and financial condition could suffer significantly. As a result, the market price of our common stock could decline and you could lose all of your investment. In this Section, the terms we and our refer to
Antares Pharma, Inc.

Risks Related to Our Operations

We have incurred significant losses to date, and there is no guarantee that we will ever become profitable

We incurred a net loss of ($2,304,514) for the quarter ended March 31, 2006 and net losses of ($8,497,956) and ($8,348,532) in the
fiscal years ended 2005 and 2004, respectively. In addition, we have accumulated aggregate net losses from the inception of business through March 31, 2006 of ($93,527,121). The costs for research and product development of our drug delivery
technologies along with marketing and selling expenses and general and administrative expenses have been the principal causes of our losses.

We completed private placements in March 2006 and February and March 2004 in which we received aggregate gross proceeds of $10,962,500 and $15,120,000, respectively. We believe that the combination of these equity
financings and projected product sales and product development and license revenues will provide us with sufficient funds to support operations beyond 2006. However, if we need additional financing and are unable to obtain such financing when
needed, or obtain it on favorable terms, we may be required to curtail development of new drug technologies, limit expansion of operations, accept financing terms that are not as attractive as we may desire or be forced to liquidate and close
operations.

Long-term capital requirements will depend on numerous factors, including, but not limited to, the status of
collaborative arrangements, the progress of research and development programs and the receipt of revenues from sales of products. Our ability to achieve and/or sustain profitable operations depends on a number of factors, many of which are beyond
our control. These factors include, but are not limited to, the following:



| |  |  | the demand for our technologies from current and future biotechnology and pharmaceutical partners;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | our ability to manufacture products efficiently and with the required quality;
| | - |  | ------------------------------------------------------------------------------



| |  |  | our ability to increase and continue to outsource manufacturing capacity to allow for new product introductions;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | the level of product competition and of price competition;
| | - |  | ----------------------------------------------------------



| |  |  | our ability to develop, maintain or acquire patent positions;
| | - |  | -------------------------------------------------------------



| |  |  | our ability to develop additional commercial applications for our products;
| | - |  | ---------------------------------------------------------------------------



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| |  |  | our limited regulatory and commercialization experience;
| | - |  | --------------------------------------------------------



| |  |  | our reliance on outside consultants;
| | - |  | ------------------------------------



| |  |  | our ability to obtain regulatory approvals;
| | - |  | -------------------------------------------



| |  |  | our ability to attract the right personnel to execute our plans;
| | - |  | ----------------------------------------------------------------



| |  |  | our ability to control costs; and
| | - |  | ---------------------------------



| |  |  | general economic conditions.
| | - |  | ----------------------------

As we changed our
business model to be more commercially oriented by further developing our own products, we may not have sufficient resources to fully execute our plan.

We must make choices as to the drugs that we will combine with our transdermal gel, fast-melt tablet and disposable mini-needle technologies to move into the marketplace. We may not make the correct choice of drug or
technologies when combined with a drug, which may not be accepted by the marketplace as we expected or at all. FDA approval processes for the drugs and drugs with devices may be longer in time and/or more costly and/or require more extended clinical
evaluation than anticipated. Funds required to bring our own products to market may be more than anticipated or may not be available at all. We have limited experience in development of compounds and in regulatory matters and bringing such products
to market; therefore, we may experience difficulties in making this change or not be able to achieve the change at all.

We currently depend on a limited number of customers for the majority of our revenue, and the loss of any one of these customers could substantially reduce our revenue and impact our liquidity

During the first quarter of 2006 we derived approximately 40%, 13% and 19% of our revenue from Ferring, SciGen Pte Ltd. and an undisclosed
company, respectively, and in 2005, we derived approximately 48% and 12% of our revenue, from Ferring and JCR Pharmaceuticals, Co., Ltd., respectively.

The loss of any of these customers would cause our revenues to decrease significantly, increase our continuing losses from operations and, ultimately, could require us to cease operating. If we cannot broaden our
customer base, we will continue to depend on a few customers for the majority of our revenues. Additionally, if we are unable to negotiate favorable business terms with these customers in the future, our revenues and gross profits may be
insufficient to allow us to achieve and/or sustain profitability or continue operations.

If we or our third-party manufacturer are
unable to supply Ferring with our devices pursuant to our current license agreement with Ferring, Ferring would own a fully paid up license for certain of our intellectual property

Pursuant to our license agreement with Ferring, we licensed certain of our intellectual property related to our needle-free injection
devices, including a license that allows Ferring to manufacture our devices on its own for use with its human growth hormone product. This license becomes effective if we are unable to continue to supply product to Ferring under our current supply
agreement. In accordance with the license agreement, we entered into a manufacturing agreement with a third party to manufacture our devices for Ferring. If we or



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this third party are unable to meet our obligations to supply Ferring with our devices, Ferring would own
a fully paid up license to manufacture our devices and to use and exploit our intellectual property in connection with Ferrings human growth hormone product. In such event, we would no longer receive royalties or manufacturing margins from
Ferring.

If we do not develop and maintain relationships with manufacturers of our drug candidates, then we may not successfully
manufacture and sell our pharmaceutical products.

We do not possess the capabilities, resources or facilities to
manufacture Anturol, which is currently in clinical studies for over active bladder, or any other of our future drug candidates. We must contract with manufacturers to produce Anturol according to government regulations. Our future
development and delivery of our product candidates depends on the timely, profitable and competitive performance of these manufacturers. A limited number of manufacturers exist which are capable of manufacturing our product candidates. We may fail
to contract with the necessary manufacturers or we may contract with manufactures on terms that may not be entirely acceptable to us. Our manufacturers must obtain FDA approval for their manufacturing processes, and we have no control over this
approval process.

We have not contracted with a commercial supplier of active pharmaceutical ingredients of oxybutynin for
Anturol. We are currently working towards selecting a manufacturer to provide us with oxybutynin in a manner which meets FDA requirements.

We have contracted with Patheon, a manufacturing development company, to supply clinical quantities of Anturol in a manner that meets FDA requirements. The FDA has not approved the manufacturing processes of
Patheon. Any failure by Patheon to achieve compliance with FDA standards could significantly harm our business since we do not have an approved secondary manufacturer for Anturol.

We have limited device manufacturing experience and may experience manufacturing difficulties related to the use of new device materials and
procedures, which could increase our production costs and, ultimately, decrease our profits

Our past assembly, testing
and device manufacturing experience for certain of our device technologies has involved the assembly of products from machined stainless steel and composite components in limited quantities. Our planned future drug delivery device technologies
necessitate significant changes and additions to our manufacturing and assembly process to accommodate new components. These systems must be manufactured in compliance with regulatory requirements, in a timely manner and in sufficient quantities
while maintaining quality and acceptable manufacturing costs. In the course of these changes and additions to our manufacturing and production methods, we may encounter difficulties, including problems involving yields, quality control and
assurance, product reliability, manufacturing costs, existing and new equipment, component supplies and shortages of personnel, any of which could result in significant delays in production. Additionally, in February 2003, we entered into a
manufacturing agreement under which a third party assembles our MJ7 devices and certain related disposable component parts. There can be no assurance that this third-party manufacturer will be able to meet these regulatory requirements or our own
quality control standards. Therefore, there can be no assurance that we will be able to successfully produce and manufacture our products. Any failure to do so would negatively impact our business, financial condition and results of operations. We
are now in



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the process of outsourcing manufacturing of our AJ mini-needle products to third parties. Such products
will be price sensitive and may be required to be manufactured in large quantities, and we have no assurance that this can be done.

Our
products have achieved only limited acceptance by patients and physicians, which continues to restrict marketing penetration and the resulting sales of more units

Our business ultimately depends on patient and physician acceptance of our needle-free injectors, gels, fast-melt tablets and our other
drug delivery technologies as an alternative to more traditional forms of drug delivery, including injections using a needle, orally ingested drugs and more traditional transdermal patch products. To date, our device technologies have achieved only
limited acceptance from such parties. The degree of acceptance of our drug delivery systems depends on a number of factors. These factors include, but are not limited to, the following:



| |  |  | advantages over alternative drug delivery systems or similar products from other companies;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | demonstrated clinical efficacy, safety and enhanced patient compliance;
| | - |  | -----------------------------------------------------------------------



| |  |  | cost-effectiveness;
| | - |  | -------------------



| |  |  | convenience and ease of use of injectors and transdermal gels; and
| | - |  | ------------------------------------------------------------------



| |  |  | marketing and distribution support.
| | - |  | -----------------------------------

Physicians may refuse to prescribe products incorporating our drug delivery technologies if they believe that the active ingredient is better administered to a patient using alternative drug delivery technologies, that the time required to
explain use of the technologies to the patient would not be offset by advantages, or they believe that the delivery method will result in patient noncompliance. Factors such as patient perceptions that a gel is inconvenient to apply or that devices
do not deliver the drug at the same rate as conventional drug delivery methods may cause patients to reject our drug delivery technologies. Because only a limited number of products incorporating our drug delivery technologies are commercially
available, we cannot yet fully assess the level of market acceptance of our drug delivery technologies.

A 2002 National Institute of
Health (NIH) study and the 2003 findings from the Million Women Study first launched in 1997 in the U.K. questioned the safety of hormone replacement therapy for menopausal women, and our female hormone replacement therapy business may
suffer as a result

In July 2002, the NIH halted a long-term study, known as the Womens Health Initiative, being
conducted on oral female hormone replacement therapy (HRT) using a combination of estradiol and progestin because the study showed an increased risk of breast cancer, heart disease and blood clots in women taking the combination therapy.
The arm of the study using estrogen alone was stopped in March 2004 after the NIH concluded that the benefits of estrogen did not outweigh the stroke risk for women in this trial. The halted study looked at only one brand of oral combined HRT and of
estrogen, and there is no information on whether brands with different levels of hormones would carry the same risk. In January 2003, the FDA announced that it would require new warnings on the labels of HRT products, and it advised patients to
consult with their physicians about whether to continue treatment with continuous combined HRT and to limit the period of use to that required to manage post-menopausal vasomotor symptoms only. Subsequently, additional analysis from the NIH study



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has suggested a slight increase in the risk of cognitive dysfunction developing in patients on long-term
combined HRT. The Million Women Study, conducted in the U.K., confirmed that current and recent use of HRT increases a womans chance of developing breast cancer and that the risk increased with duration of use. Other HRT studies have found
potential links between HRT and an increased risk of dementia and asthma. These results and recommendations impacted the use of HRT, and product sales have diminished significantly. We cannot yet assess the impact any of the studies results
may have on our contracts or on our partners perspective of the market for transdermal gel products designed for HRT. We also cannot predict whether our alternative route of transdermal administration of HRT products will carry the same risk
as the oral products used in the study.

If transdermal gels do not achieve greater market acceptance, we may be unable to achieve
profitability

Because transdermal gels are a newer, less understood method of drug delivery, our potential consumers
have little experience with manufacturing costs or pricing parameters. Our assumption of higher value may not be shared by the consumer. To date, transdermal gels have gained successful entry into only a limited number of markets. There can be no
assurance that transdermal gels will ever gain market acceptance beyond these markets sufficient to allow us to achieve and/or sustain profitable operations in this product area.

We rely on third parties to supply components for our products, and any failure to retain relationships with these third parties could negatively
impact our ability to manufacture our products

Certain of our technologies contain a number of customized components
manufactured by various third parties. Regulatory requirements applicable to medical device manufacturing can make substitution of suppliers costly and time-consuming. In the event that we could not obtain adequate quantities of these customized
components from our suppliers, there can be no assurance that we would be able to access alternative sources of such components within a reasonable period of time, on acceptable terms or at all. The unavailability of adequate quantities, the
inability to develop alternative sources, a reduction or interruption in supply or a significant increase in the price of components could have a material adverse effect on our ability to manufacture and market our products.

We may be unable to successfully expand into new areas of drug delivery technology, which could negatively impact our business as a whole

We intend to continue to enhance our current technologies. Even if enhanced technologies appear promising during various
stages of development, we may not be able to develop commercial applications for them because



| |  |  | the potential technologies may fail clinical studies;
| | - |  | -----------------------------------------------------



| |  |  | we may not find a pharmaceutical company to adopt the technologies;
| | - |  | -------------------------------------------------------------------



| |  |  | it may be difficult to apply the technologies on a commercial scale;
| | - |  | --------------------------------------------------------------------



| |  |  | the technologies may not be economical to market; or
| | - |  | ----------------------------------------------------



| |  |  | we may not receive necessary regulatory approvals for the potential technologies.
| | - |  | ---------------------------------------------------------------------------------



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We have not yet completed research and development work or obtained regulatory approval
for any technologies for use with any drugs other than insulin, human growth hormone and estradiol. There can be no assurance that any newly developed technologies will ultimately be successful or that unforeseen difficulties will not occur in
research and development, clinical testing, regulatory submissions and approval, product manufacturing and commercial scale-up, marketing, or product distribution related to any such improved technologies or new uses. Any such occurrence could
materially delay the commercialization of such improved technologies or new uses or prevent their market introduction entirely.

As
health insurance companies and other third-party payors increasingly challenge the products and services for which they will provide coverage, our individual consumers may not be able to receive adequate reimbursement or may be unable to afford to
use our products, which could substantially reduce our revenues and negatively impact our business as a whole

Our
injector device products are currently sold in the European Community (EC) and in the United States for use with human growth hormone or insulin. In the case of human growth hormone, our products are provided to users at no cost by the
drug manufacturer. In the United States the injector products are legally marketed and available for use with insulin.

Although it is impossible for us to identify the amount of sales of our products that our customers will submit for payment to third-party insurers, at least some of these sales may be dependent in part on the availability of adequate
reimbursement from these third-party healthcare payors. Currently, insurance companies and other third-party payors reimburse the cost of certain technologies on a case-by-case basis and may refuse reimbursement if they do not perceive benefits to a
technologys use in a particular case. Third-party payors are increasingly challenging the pricing of medical products and services, and there can be no assurance that such third-party payors will not in the future increasingly reject claims
for coverage of the cost of certain of our technologies. Insurance and third-party payor practice vary from country to country, and changes in practices could negatively affect our business if the cost burden for our technologies were shifted more
to the patient. Therefore, there can be no assurance that adequate levels of reimbursement will be available to enable us to achieve or maintain market acceptance of our technologies or maintain price levels sufficient to realize profitable
operations. There is also a possibility of increased government control or influence over a broad range of healthcare expenditures in the future. Any such trend could negatively impact the market for our drug delivery products and technologies.

The loss of any existing licensing agreements or the failure to enter into new licensing agreements could substantially affect our
revenue

One of our business pathways requires us to enter into license agreements with pharmaceutical and biotechnology
companies covering the development, manufacture, use and marketing of drug delivery technologies with specific drug therapies. Under these arrangements, the partner company typically assists us in the development of systems for such drug therapies
and collect or sponsor the collection of the appropriate data for submission for regulatory approval of the use of the drug delivery technology with the licensed drug therapy. Our licensees may also be responsible for distribution and marketing of
the technologies for these drug therapies either worldwide or in specific territories. We are currently a party to a



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number of such agreements, all of which are currently in varying stages of development. We may not be
able to meet future milestones established in our agreements (such milestones generally being structured around satisfactory completion of certain phases of clinical development, regulatory approvals and commercialization of our product) and thus,
would not receive the fees expected from such arrangements or related future royalties. Moreover, there can be no assurance that we will be successful in executing additional collaborative agreements or that existing or future agreements will result
in increased sales of our drug delivery technologies. In such event, our business, results of operations and financial condition could be adversely affected, and our revenues and gross profits may be insufficient to allow us to achieve and/or
sustain profitability. As a result of our collaborative agreements, we are dependent upon the development, data collection and marketing efforts of our licensees. The amount and timing of resources such licensees devote to these efforts are not
within our control, and such licensees could make material decisions regarding these efforts that could adversely affect our future financial condition and results of operations. In addition, factors that adversely impact the introduction and level
of sales of any drug covered by such licensing arrangements, including competition within the pharmaceutical and medical device industries, the timing of regulatory or other approvals and intellectual property litigation, may also negatively affect
sales of our drug delivery technology.

The failure of any of our third-party licensees to develop, obtain regulatory approvals for,
market, distribute and sell our products as planned may result in us not meeting revenue and profit targets

Pharmaceutical company partners help us develop, obtain regulatory approvals for, manufacture and sell our products. If one or more of these pharmaceutical company partners fail to pursue the development or marketing of the products as
planned, our revenues and profits may not reach expectations or may decline. We may not be able to control the timing and other aspects of the development of products because pharmaceutical company partners may have priorities that differ from ours.
Therefore, commercialization of products under development may be delayed unexpectedly. Generally speaking, in the near term, we do not intend to have a direct marketing channel to consumers for our drug delivery products or technologies except
through current distributor agreements in the United States for our insulin delivery device. Therefore, the success of the marketing organizations of our pharmaceutical company partners, as well as the level of priority assigned to the marketing of
the products by these entities, which may differ from our priorities, will determine the success of the products incorporating our technologies. Competition in this market could also force us to reduce the prices of our technologies below currently
planned levels, which could adversely affect our revenues and future profitability.

If we cannot develop and market our products as
rapidly or cost-effectively as our competitors, then we may never be able to achieve profitable operations.

Competitors
in the over active bladder, transdermal gel drug delivery and needle-free injector market, some with greater resources and experience than us, may enter the market, as there is an increasing recognition of a need for less invasive methods of
delivering drugs. Additionally, there is an ever increasing list of competitors in the oral disintegrating fast-melt tablet business. Our success depends, in part, upon maintaining a competitive position in the development of products and
technologies in rapidly evolving fields. If we cannot maintain



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competitive products and technologies, our current and potential pharmaceutical company partners may
choose to adopt the drug delivery technologies of our competitors. Drug delivery companies that compete with our technologies include Bioject Medical Technologies, Inc., Bentley Pharmaceuticals, Inc., Aradigm, Cellegy Pharmaceuticals, Inc., Watson
Pharmaceuticals, Cardinal Health, CIMA Laboratories, Laboratories Besins-Iscovesco, MacroChem Corporation, NexMed, Inc. and Novavax, Inc., along with other companies. We also compete generally with other drug delivery, biotechnology and
pharmaceutical companies engaged in the development of alternative drug delivery technologies or new drug research and testing. Many of these competitors have substantially greater financial, technological, manufacturing, marketing, managerial and
research and development resources and experience than we do, and, therefore, represent significant competition.

Additionally, new drug delivery technologies are mostly used only with drugs for which other drug delivery methods are not possible, in particular with biopharmaceutical proteins (drugs derived from living organisms, such as insulin and
human growth hormone) that cannot currently be delivered orally or transdermally. Transdermal patches and gels are also used for drugs that cannot be delivered orally or where oral delivery has other limitations (such as high first pass drug
metabolism, meaning that the drug dissipates quickly in the digestive system and, therefore, requires frequent administration). Many companies, both large and small, are engaged in research and development efforts on less invasive methods of
delivering drugs that cannot be taken orally. The successful development and commercial introduction of such a non-injection technique could have a material adverse effect on our business, financial condition, results of operations and general
prospects.

Competitors may succeed in developing competing technologies or obtaining governmental approval for products
before we do. Competitors products may gain market acceptance more rapidly than our products, or may be priced more favorably than our products. Developments by competitors may render our products, or potential products, noncompetitive or
obsolete.

Although we have applied for, and have received, several patents, we may be unable to protect our intellectual property,
which would negatively affect our ability to compete

Our success depends, in part, on our ability to obtain and enforce
patents for our products, processes and technologies and to preserve our trade secrets and other proprietary information. If we cannot do so, our competitors may exploit our innovations and deprive us of the ability to realize revenues and profits
from our developments.

Currently, we have been granted 32 patents and an additional 111 applications pending in the U.S.
and other countries. Any patent applications we may have made or may make relating to inventions for our actual or potential products, processes and technologies may not result in patents being issued or may result in patents that provide
insufficient or incomplete coverage for our inventions. Our current patents may not be valid or enforceable and may not protect us against competitors that challenge our patents, obtain their own patents that may have an adverse effect on our
ability to conduct business, or are able to otherwise circumvent our patents. Further, we may not have the necessary financial resources to enforce or defend our patents or patent applications.



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To protect our trade secrets and proprietary technologies and processes, we rely, in
part, on confidentiality agreements with employees, consultants and advisors. These agreements may not provide adequate protection for our trade secrets and other proprietary information in the event of any unauthorized use or disclosure, or if
others lawfully and independently develop the same or similar information.

Others may bring infringement claims against us, which could
be time-consuming and expensive to defend

Third parties may claim that the manufacture, use or sale of our drug
delivery technologies infringe their patent rights. If such claims are asserted, we may have to seek licenses, defend infringement actions or challenge the validity of those patents in court. If we cannot obtain required licenses, or obtain licenses
on acceptable terms, we may not be able to continue to develop and commercialize our product candidates. Even if we were able to obtain rights to a third partys intellectual property, these rights may be non-exclusive, thereby giving our
competitors potential access to the same intellectual property. If we are found liable for infringement or are not able to have these patents declared invalid, we may be liable for significant monetary damages, encounter significant delays in
bringing products to market or be precluded from participating in the manufacture, use or sale of products or methods of drug delivery covered by patents of others. Even if we were able to prevail, any litigation could be costly time-consuming and
could divert the attention of our management and key personnel from our business operations. We may not have identified, or be able to identify in the future, United States or foreign patents that pose a risk of potential infringement claims.
Furthermore, in the event a patent infringement suit is brought against us, the development, manufacture or potential sale of product candidates claimed to infringe on a third partys intellectual property may have to stop or be delayed.
Ultimately, we may be unable to commercialize some of our product candidates as a result of patent infringement claims, which could harm our business.

We are aware of a recently issued US Patent relating to a gel formulation of oxybutynin. We believe that we do not infringe this patent and that it should not have been issued. We may seek to invalidate this patent
but there can be no assurance that we will prevail. If the patent is determined to be valid and if Anturol is approved, we may be delayed in our marketing and the potential market value of Anturol may be reduced.

If the pharmaceutical companies to which we license our technologies lose their patent protection or face patent infringement claims for their drugs,
we may not realize our revenue or profit plan

The drugs to which our drug delivery technologies are applied are
generally the property of the pharmaceutical companies. Those drugs may be the subject of patents or patent applications and other forms of protection owned by the pharmaceutical companies or third parties. If those patents or other forms of
protection expire, become ineffective or are subject to the control of third parties, sales of the drugs by the collaborating pharmaceutical company may be restricted or may cease. Our expected revenues, in that event, may not materialize or may
decline.



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Our business may suffer if we lose certain key officers or employees or if we are not able to add
additional key officers or employees necessary to reach our goals

The success of our business is materially dependent
upon the continued services of certain of our key officers and employees. The loss of such key personnel could have a material adverse effect on our business, operating results or financial condition. There can be no assurance that we will be
successful in retaining key personnel. We consider our employee relations to be good; however, competition for personnel is intense and we cannot assume that we will continue to be able to attract and retain personnel of high caliber.

We are involved in international markets, and this subjects us to additional business risks

We have offices and a research facility in Basel, Switzerland, and we also license and distribute our products in the European Community
and the United States. These geographic localities provide economically and politically stable environments in which to operate. However, in the future, we intend to introduce products through partnerships in other countries. As we expand our
geographic market, we will face additional ongoing complexity to our business and may encounter the following additional risks:



| |  |  | increased complexity and costs of managing international operations;
| | - |  | --------------------------------------------------------------------



| |  |  | protectionist laws and business practices that favor local companies;
| | - |  | ---------------------------------------------------------------------



| |  |  | dependence on local vendors;
| | - |  | ----------------------------



| |  |  | multiple, conflicting and changing governmental laws and regulations;
| | - |  | ---------------------------------------------------------------------



| |  |  | difficulties in enforcing our legal rights;
| | - |  | -------------------------------------------



| |  |  | reduced or limited protections of intellectual property rights; and
| | - |  | -------------------------------------------------------------------



| |  |  | political and economic instability.
| | - |  | -----------------------------------

A
significant portion of our international revenues is denominated in foreign currencies. An increase in the value of the U.S. dollar relative to these currencies may make our products more expensive and, thus, less competitive in foreign markets.

If we make any acquisitions, we will incur a variety of costs and might never successfully integrate the acquired product or business
into ours.

We might attempt to acquire products or businesses that we believe are a strategic complement to our
business model. We might encounter operating difficulties and expenditures relating to integrating an acquired product or business. These acquisitions might require significant management attention that would otherwise be available for ongoing
development of our business. In addition, we might never realize the anticipated benefits of any acquisition. We might also make dilutive issuances of equity securities, incur debt or experience a decrease in cash available for our operations, or
incur contingent liabilities and/or amortization expenses relating to goodwill and other intangible assets, in connection with future acquisitions.



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If we do not have adequate insurance for product liability claims, then we may be subject to
significant expenses relating to these claims.

The Companys business entails the risk of product liability
claims. Although the Company has not experienced any material product liability claims to date, any such claims could have a material adverse impact on its business. The Company maintains product liability insurance with coverage of $5 million per
occurrence and an annual aggregate maximum of $5 million. The Company evaluates its insurance requirements on an ongoing basis.

Geopolitical, economic and military conditions, including terrorist attacks and other acts of war, may materially and adversely affect the markets on which our common stock trades, the markets in which we operate, our operations and our
profitability

Terrorist attacks, such as those that occurred on September 11, 2001, and other acts of war, and any
response to them, may lead to armed hostilities and such developments would likely cause instability in financial markets. Armed hostilities and terrorism may directly impact our facilities, personnel and operations, which are located in the United
States and Switzerland, as well as those of our clients. Furthermore, severe terrorist attacks or acts of war may result in temporary halts of commercial activity in the affected regions, and may result in reduced demand for our products. These
developments could have a material adverse effect on our business and the trading price of our common stock.

Risks Related to
Regulatory Matters

We or our licensees may incur significant costs seeking approval for our products, which could delay the
realization of revenue and, ultimately, decrease our revenues from such products

The design, development, testing,
manufacturing and marketing of pharmaceutical compounds, medical nutrition and diagnostic products and medical devices are subject to regulation by governmental authorities, including the FDA and comparable regulatory authorities in other countries.
The approval process is generally lengthy, expensive and subject to unanticipated delays. Currently we, along with our partners, are actively pursuing marketing approval for a number of products from regulatory authorities in other countries and
anticipate seeking regulatory approval from the FDA for products developed internally and pursuant to our license agreements. In the future we, or our partners, may need to seek approval for newly developed products. Our revenue and profit will
depend, in part, on the successful introduction and marketing of some or all of such products by our partners or us.

Applicants for FDA approval often must submit extensive clinical data and supporting information to the FDA. Varying interpretations of the data obtained from pre-clinical and clinical testing could delay, limit or prevent regulatory
approval of a drug product. Changes in FDA approval policy during the development period, or changes in regulatory review for each submitted new drug application also may cause delays or rejection of an approval. Even if the FDA approves a product,
the approval may limit the uses or indications for which a product may be marketed, or may require further studies. The FDA also can withdraw product clearances and approvals for failure to comply with regulatory requirements or if
unforeseen problems follow initial marketing.



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We are currently evaluating Anturol for the treatment of over active bladder (OAB).
Anturol is the anticholinergic oxybutynin delivered by our proprietary ATD gel that is used to achieve therapeutic blood levels of the active compound that can be sustained over 24 hours after a single, daily application.

In February 2006, we announced the results of our Phase II dose ranging study for our ATD oxybutynin gel product Anturol. The
study was an open label, single period, randomized study using 48 healthy subjects and three different doses of Anturol over a 20 day period. Our overall conclusions of the study were positive.

The FDA however, may not concur with our analysis of the data and we may never receive FDA approval for Anturol and without FDA
approval, we cannot market or sell Anturol.

Our licensee partner, BioSante, recently submitted an NDA to the FDA for
transdermal estradiol gel (Bio-E-Gel). Bio-E-Gel is a low dose estradiol product candidate based on our ATD gel system for the treatment of moderate to severe hot flashes in menopausal women. BioSante may never receive FDA approval for
Bio-E-Gel and without FDA approval they cannot market or sell Bio-E-Gel, which would eliminate any possible future royalties to us.

In other jurisdictions, we, and the pharmaceutical companies with whom we are developing technologies, must obtain required regulatory approvals from regulatory agencies and comply with extensive regulations regarding safety and quality. If
approvals to market the products are delayed, if we fail to receive these approvals, or if we lose previously received approvals, our revenues may not materialize or may decline. We may not be able to obtain all necessary regulatory approvals. We
may be required to incur significant costs in obtaining or maintaining regulatory approvals.

The 505(b)(2) regulatory pathway for many
of our potential pharmaceutical products is uncertain and could result in unexpected costs and delays of approvals.

Transdermal and topical products indicated for the treatment of systemic or local treatments respectively are regulated by the FDA in the U.S. and other similar regulatory agencies in other countries as drug products. Transdermal and
topical products are considered to be controlled release dosage forms and may not be marketed in the U.S. until they have been demonstrated to be safe and effective. The regulatory approval routes for transdermal and topical products include the
filing of an NDA for new drugs, new indications of approved drugs or new dosage forms of approved drugs. Alternatively, these dosage forms can obtain marketing approval as a generic product by the filing of an ANDA, providing the new generic product
is bioequivalent to and has the same labeling as a comparable approved product or as a filing under Section 505(b)(2) where there is an acceptable reference product. Other topical products for local treatment do not require the filing of either
an NDA or ANDA, providing that these products comply with existing OTC monographs. The combination of the drug, its dosage form and label claims and FDA requirement will ultimately determine which regulatory approval route will be required.

Many of our transdermal product candidates such as Anturol may be developed via the 505(b)(2) route. The 505(b)(2)
regulatory pathway is continually evolving and advice provided in the present is based on current standards, which may or may not be applicable



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when we potentially submit an NDA. Additionally, we must reference the most similar predicate products
when submitting a 505(b)(2) application. It is therefore probable that:



| |  |  | should a more appropriate reference product(s) be approved by the FDA at any time before or during the review of our NDA, we would be required to submit a new application
referencing the more appropriate product;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the FDA cannot disclose whether such predicate product(s) is under development or has been submitted at any time during another companys review cycle.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

Accordingly, these regulations and the FDAs interpretation of them might impair our ability to obtain
product approval or effectively market our products.

Our business could be harmed if we fail to comply with regulatory requirements
and, as a result, are subject to sanctions

If we, or pharmaceutical companies with whom we are developing technologies,
fail to comply with applicable regulatory requirements, the pharmaceutical companies, and we, may be subject to sanctions, including the following:



| |  |  | warning letters;
| | - |  | ----------------



| |  |  | fines;
| | - |  | ------



| |  |  | product seizures or recalls;
| | - |  | ----------------------------



| |  |  | injunctions;
| | - |  | ------------



| |  |  | refusals to permit products to be imported into or exported out of the applicable regulatory jurisdiction;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | total or partial suspension of production;
| | - |  | ------------------------------------------



| |  |  | withdrawals of previously approved marketing applications; or
| | - |  | -------------------------------------------------------------



| |  |  | criminal prosecutions.
| | - |  | ----------------------

Our revenues may be limited if
the marketing claims asserted about our products are not approved

Once a drug product is approved by the FDA, the
Division of Drug Marketing, Advertising and Communication, the FDAs marketing surveillance department within the Center for Drugs, must approve marketing claims asserted by our pharmaceutical company partners. If we or a pharmaceutical company
partner fails to obtain from the Division of Drug Marketing acceptable marketing claims for a product incorporating our drug technologies, our revenues from that product may be limited. Marketing claims are the basis for a products labeling,
advertising and promotion. The claims the pharmaceutical company partners are asserting about our drug delivery technologies, or the drug product itself, may not be approved by the Division of Drug Marketing.

Product liability claims related to participation in clinical trials or the use or misuse of our products could prove to be costly to defend and could
harm our business reputation

The testing, manufacturing and marketing of products utilizing our drug delivery
technologies may expose us to potential product liability and other claims resulting from their



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use in practice or in clinical development. If any such claims against us are successful, we may be
required to make significant compensation payments. Any indemnification that we have obtained, or may obtain, from contract research organizations or pharmaceutical companies conducting human clinical trials on our behalf may not protect us from
product liability claims or from the costs of related litigation. Similarly, any indemnification we have obtained, or may obtain, from pharmaceutical companies with whom we are developing drug delivery technologies may not protect us from product
liability claims from the consumers of those products or from the costs of related litigation. If we are subject to a product liability claim, our product liability insurance may not reimburse us, or may not be sufficient to reimburse us, for any
expenses or losses that may have been suffered. A successful product liability claim against us, if not covered by, or if in excess of our product liability insurance, may require us to make significant compensation payments, which would be
reflected as expenses on our statement of operations. Adverse claim experience for our products or licensed technologies or medical device, pharmaceutical or insurance industry trends may make it difficult for us to obtain product liability
insurance or we may be forced to pay very high premiums, and there can be no assurance that insurance coverage will continue to be available on commercially reasonable terms or at all.

Risks Related to our Common Stock

Together, certain of our stockholders own or have the right to acquire a significant portion of our stock and could ultimately control decisions regarding our company

As a result of our reverse business combination with Permatec in January 2001 and subsequent additional debt and equity financings,
Permatec Holding AG and its controlling shareholder, Dr. Jacques Gonella, own a substantial portion (as of March 31, 2006, approximately 18%) of our outstanding shares of common stock. Dr. Gonella, who is the Chairman of our Board of
Directors, also owns warrants to purchase an aggregate of 4,198,976 shares of common stock and options to purchase 104,500 shares of common stock. Additionally, five investors (Crestview Capital Master Fund, North Sound Funds, Perceptive Life
Sciences Fund, SCO Capital Group and SDS Funds) own warrants that are, as of March 31, 2006, exercisable into an aggregate of 6,162,904 shares of our common stock. Some of these investors plus Atlas Equity also directly own an aggregate of
approximately 5,419,884 shares of our common stock. If Dr. Gonella and all of the above investors exercised all of the warrants and options owned by them, Dr. Gonella would own approximately 22%, and the six investors as a group would own
approximately 18%, of our common stock.

Because the parties described above either currently own or could potentially own a
large portion of our stock, they may be able to generally determine or they will be able to significantly influence the outcome of corporate actions requiring stockholder approval. As a result, these parties may be in a position to control matters
affecting our company, including decisions as to our corporate direction and policies; future issuances of certain securities; our incurrence of debt; amendments to our certificate of incorporation and bylaws; payment of dividends on our common
stock; and acquisitions, sales of our assets, mergers or similar transactions, including transactions involving a change of control. As a result, some investors may be unwilling to purchase our common stock. In addition, if the demand for our common
stock is reduced because of these stockholders control of the Company, the price of our common stock could be adversely affected.



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Certain of our stockholders own large blocks of our common stock and own securities or exercisable
into shares of our common stock, and any exercises, or sales by these stockholders could substantially lower the market price of our common stock

Several of our shareholders, including Dr. Gonella, whose sales are subject to volume limitations, Atlas Equity, Crestview Capital Master Fund, SCO Capital Group, the SDS funds, the North Sound funds and
Perceptive Life Sciences Master Fund, own large blocks of our common stock or could own sizeable blocks of our common stock upon exercise of warrants. With the exception of a portion of the stock controlled by Dr. Gonella, the shares of our
common stock owned by these stockholders (or issuable to them upon exercise of warrants or options) are registered or registration will be applied for in the near future. Future sales of large blocks of our common stock by any of the above investors
could substantially adversely affect our stock price.

Future conversions or exercises by holders of warrants or options could
substantially dilute our common stock

As of March 31, 2006, we have warrants outstanding that are exercisable, at
prices ranging from $0.55 per share to $5.00 per share, for an aggregate of approximately 22,300,000 shares of our common stock. We also have options outstanding that are exercisable, at exercise prices ranging from $0.70 to $15.65 per share, for an
aggregate of approximately 4,405,259 shares of our common stock. Purchasers of common stock could therefore experience substantial dilution of their investment upon exercise of the above warrants or options. The warrants and the options are not
registered and may be sold only if registered under the Securities Act of 1933, as amended, or sold in accordance with an applicable exemption from registration, such as Rule 144. The shares of common stock issuable upon exercise of the warrants or
options held by these investors are currently registered or registration will be applied for in the near future.

Sales of our common
stock by our officers and directors may lower the market price of our common stock

As of March 31, 2006, our
officers and directors beneficially owned an aggregate of approximately 15,000,000 shares (or approximately 26%) of our common stock, including stock options exercisable within 60 days. If our officers and directors, or other shareholders, sell a
substantial amount of our common stock, it could cause the market price of our common stock to decrease and could hamper our ability to raise capital through the sale of our equity securities.

We do not expect to pay dividends in the foreseeable future

We intend to retain any earnings in the foreseeable future for our continued growth and, thus, do not expect to declare or pay any cash
dividends in the foreseeable future.

Anti-takeover effects of certain certificate of incorporation and bylaw provisions could
discourage, delay or prevent a change in control.

Our certificate of incorporation and bylaws could discourage, delay
or prevent persons from acquiring or attempting to acquire us. Our certificates of incorporation authorizes our



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board of directors, without action of our stockholders, to designate and issue preferred stock in one or
more series, with such rights, preferences and privileges as the board of directors shall determine. In addition, our bylaws grant our board of directors the authority to adopt, amend or repeal all or any of our bylaws, subject to the power of the
stockholders to change or repeal the bylaws. In addition, our bylaws limit who may call meetings of our stockholders.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the quarter ended
March 31, 2006 the Company received net proceeds of $9,864,945 in a private placement of its common stock in which a total of 8,770,000 shares of common stock were sold at a price of $1.25 per share. Additionally, the Company issued five-year
warrants to purchase an aggregate of 7,454,500 shares of common stock at an exercise price of $1.50 per share. The placement was exempt from registration pursuant to Rule 506 of Regulation D under the Securities Act of 1933.

Item 6. EXHIBITS



|(a) | Exhibits
|--- | --------



|            |  |                                      
|----------- |  | -------------------------------------
|Exhibit No. |  | Description                          
|31.1        |  | Section 302 CEO Certification        
|            | 
|31.2        |  | Section 302 CFO Certification        
|            | 
|32.1        |  | Section 906 CEO and CFO Certification



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be
signed on its behalf by the undersigned thereunto duly authorized.



|             |  |                                                  
|------------ |  | -------------------------------------------------
|             |  | ANTARES PHARMA, INC.                             
|             | 
|May 12, 2006 |  | /s/ Jack E. Stover                               
|             |  | Jack E. Stover                                   
|             |  | President and Chief Executive Officer            
|             | 
|May 12, 2006 |  | /s/ Robert F. Apple                              
|             |  | Robert F. Apple                                  
|             |  | Senior Vice President and Chief Financial Officer



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