SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 1995

Commission File Number 0-15313

BIO-TECHNOLOGY GENERAL CORP.
(Exact name of Registrant as specified in its charter)

Delaware 13-3033811
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

70 Wood Avenue South, Iselin, New Jersey 08830
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (908) 632-8800

Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value
(Title of class)

Securities registered pursuant to Section 12(g) of the Act:
7 1/2% Convertible Senior Subordinated Notes Due April 15, 1997.
11% Convertible Senior Subordinated Debentures Due 2006.
Warrants to Purchase Shares of Common Stock, par value $.01 per share,
at a purchase price of $5.49 per Share
Warrants to Purchase Shares of Common Stock, par value $.01 per share,
at a purchase price of $6.00 per Share.
(Title of each class)

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Aggregate market value of the Registrant's Common Stock held by non-affiliates
at March 20, 1996 (based on the closing sale price for such shares as reported
by the National Association of Securities Dealers Automated Quotation System):
$246,763,098. Common Stock outstanding as of March 20, 1996: 43,682,333 shares.

Documents incorporated by reference: None

PART I
ITEM 1. BUSINESS

GENERAL OVERVIEW

Bio-Technology General Corp. ("BTG" or the "Company"), founded in 1980,
is principally engaged in the research, development, manufacture and marketing
of products for human health care. The Company is focusing primarily on the
development of therapeutic products that address serious conditions such as
endocrine and metabolic disorders, cardio/pulmonary diseases, ophthalmic and
skin disorders.

The Company's marketed products include Bio-Tropin(TM) (human growth
hormone), which is currently being marketed in several countries in Europe,
Latin America, Asia and the Far East for the treatment of growth hormone
deficiency in children; Oxandrin(R) (oxandrolone), which is primarily marketed
in the United States, for the treatment of weight loss; BioLon(TM) (sodium
hyaluronate), which is currently marketed in several countries in North and
Latin America, Europe, Asia and the Far East for the protection of the corneal
endothelium during intraocular surgery; Delatestryl(R) (injectable
testosterone), which is currently marketed in the United States for hypogonadism
and delayed puberty; and Silkis(R), a vitamin D derivative, which is currently
approved in two European countries for the topical treatment of recalcitrant
psoriasis.

The Company's principal products in advanced stages of development and
clinical testing include Oxandrin for the treatment of Turner syndrome in girls
and constitutional delay of growth and puberty in boys; Androtest-SL(R)
(sublingual testosterone) for hypogonadism; Bio-Hep-B(TM), a third generation
vaccine against hepatitis B virus; a higher dose formulation of Oxandrin
(oxandrolone), for AIDS cachexia; OxSODrol(TM) (human superoxide dismutase) for
the treatment of bronchopulmonary dysplasia in premature infants; Hepandrin(TM)
(oxandrolone), for the treatment of alcoholic hepatitis; and Imagex(TM), a
clot-imaging agent. BTG's current pre-clinical research focus is on
cardiovascular drugs, including an anti-reocclusion agent and an anti-coagulant.

The Company believes that its specialized biotechnology skills,
including its vector technology, macromolecular purification processes and
manufacturing capabilities, give it competitive advantages in developing and
commercializing new biotechnology products. In addition to its specialized
genetic engineering skills, the Company has expertise in the clinical
development of more traditional pharmaceutical agents. To enhance the Company's
research and development activities, the Company has established ties with
leading academic and scientific institutions around the world, some of which
also undertake research projects with the Company. These institutions are
important resources for the Company, providing access to technological advances
in the fields of biotechnology, drug-delivery, biology and pre- clinical
research. During 1995 the Company established a sales and marketing force in the
United States to promote distribution of Oxandrin and other BTG products in the
United States.

The Company's headquarters are located at 70 Wood Avenue South, Iselin,
New Jersey, where the Company has leased approximately 12,800 square feet of
office space. Human clinical studies, marketing activities, quality assurance
and regulatory affairs are coordinated at the Company's headquarters.
Pre-clinical studies, research, development and manufacturing activities, are
primarily carried out through its wholly-owned subsidiary in an approximately
80,000 square foot research and Good Manufacturing Practice ("GMP") designed
manufacturing facility located in Rehovot, Israel. All references herein to BTG
or the Company mean Bio-Technology General Corp. and its wholly-owned
subsidiaries, Bio- Technology General (Israel) Ltd. ("BTG-Israel"), BTG
Pharmaceuticals Corp. (as successor-in-interest by merger to Gynex
Pharmaceuticals, Inc. ("Gynex"), which merger was consummated on August 6,
1993), BTG Pharmaceuticals Ltd. and BTG Pharmaceuticals Ltd.
N.V.

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PRODUCTS AND APPLICATIONS

Products under Commercialization

Bio-Tropin (human growth hormone)--Growth Hormone Deficiency

Human growth hormone ("hGH") is naturally secreted by the pituitary
gland and controls many physiological functions that are essential for normal
development and maturation. A deficiency of hGH results in diminished growth
and, in extreme cases, dwarfism. The Company estimates that worldwide sales of
human growth hormone for treating hGH deficiency in 1995 were more than $1
billion. Geographic distribution is estimated by the Company to be approximately
30% in North America, 25% in Europe, with the balance in Japan and other
countries.

Company scientists first produced hGH by recombinant DNA methods in the
early 1980's. The Company has licensed exclusive marketing rights for
growth-related indications in Europe, the Pacific Rim, Canada and certain Latin
American countries to certain pharmaceutical partners. Pursuant to these
agreements, the Company manufactures bulk hGH or finished product for all its
partners. The Company currently sells hGH in Israel.

In 1988, the Company granted exclusive distribution rights in Japan to
JCR Pharmaceuticals Co., Ltd. ("JCR") for all hGH-related pharmaceutical
indications. JCR conducted clinical testing of the Company's hGH for
short-stature and filed for Japanese regulatory approval in August 1991, which
approval was received in April 1993, and JCR began marketing hGH in June 1993.
JCR has also completed a clinical trial to test the efficacy of the Company's
hGH in treating Turner syndrome, a condition in which girls born with
non-functioning ovaries do not develop secondary sexual characteristics and are
of shorter stature than normal, and filed for regulatory approval in January
1994. In January 1995, the Company granted JCR exclusive distribution rights in
The People's Republic of China for all hGH-related pharmaceutical indications.
Sales of hGH to JCR in 1995 were approximately $9.9 million, representing 46% of
the Company's total 1995 product sales and 82% of the Company's total 1995 hGH
product sales. In September 1993 JCR received a letter from attorneys
representing Genentech Inc. ("Genentech") and its Japanese licensee claiming
that JCR's sale of the Company's hGH infringed certain Genentech patents and
patent applications and demanding that JCR cease the sale of the Company's hGH
in Japan. During 1994, BTG filed oppositions to two Genentech patent
applications in Japan which were first published for opposition in the first
half of 1994. There can be no assurance that BTG will be successful in its
opposition to these patents. Although the Company does not believe that it is
infringing or has ever infringed any valid Genentech patent or patent
application, there can be no assurance that BTG's hGH will not be found to
infringe certain Genentech patents in Japan. If the Company's hGH is found to
infringe certain Genentech patents in Japan, the Company may be obligated to pay
damages and will be obligated to obtain a license from Genentech in Japan, of
which there can be no assurance, or JCR will be required to stop selling the
Company's hGH in Japan. See "-- Patents and Proprietary Rights."

In November 1992, the Company entered into an exclusive distribution
agreement with the Ferring Group for the marketing of the Company's human growth
hormone for the enhancement of growth and stature in growth hormone deficient
children in Europe and the countries comprising the former Soviet Union. Sales
began during the fourth quarter of 1994 in The Netherlands and Germany, in early
1995 in Sweden, Belgium, Ireland and Luxembourg, and later in 1995, in the
United Kingdom, France, Spain and Denmark. Sales of hGH to the Ferring Group in
1995 were approximately $571,000, representing 3% of the Company's total 1995
product sales and 5% of the Company's total 1995 hGH product sales. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."

In September 1987, E.I. Du Pont de Nemours and Company, Inc. ("Du
Pont"), the Company's licensee for hGH in the United States at the time, filed
for U.S. Food and Drug

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Administration ("FDA") approval for the use of the Company's hGH in the
treatment of hGH deficient children. In 1987, Eli Lilly & Co. ("Lilly") was
granted FDA approval and Orphan Drug status for short-stature applications of
its hGH, a product whose molecular structure is identical to the Company's hGH.
As a result, under Orphan Drug legislation, Du Pont's application was put on
hold until the expiration in March 1994 of Lilly's exclusivity under the Orphan
Drug Act. In June 1991, the Company re-acquired all the rights licensed to Du
Pont, together with all rights to all data generated in the Phase I and II
clinical studies and encompassed in the Investigational New Drug Application
("IND") and New Drug Application files ("NDA"), from The Du Pont Merck
Pharmaceutical Company ("Du Pont Merck"), Du Pont's assignee. The Company issued
to Du Pont Merck 275,000 shares of the Company's Common Stock, and agreed to pay
Du Pont Merck royalties on net sales of hGH of a minimum of $2,000,000 (using
10% 1991 present value) and up to a maximum of $5,000,000. In July 1995 the
Company paid Du Pont Merck $1,000,000 in full satisfaction of its remaining
royalty obligations to Du Pont Merck. As a result, the Company recorded an
extraordinary gain of approximately $1,363,000 in the third quarter of 1995. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources."

In June 1993, the Company filed an update of the NDA for Bio-Tropin
with the FDA, which approved Bio-Tropin for marketing in the United States in
May 1995. In August 1995, Genentech obtained a preliminary injunction
prohibiting the commercial introduction of Bio-Tropin in the United States
pending the outcome of litigation with Genentech regarding the validity and
infringement of certain U.S. Genentech patents relating to human growth hormone.
The Company has appealed the grant of the preliminary injunction to the United
States Court of Appeals for the Federal Circuit. A ruling on the appeal is
pending. See "Item 3. Legal Proceedings."

In December 1993, BTG entered into an agreement with Novopharm Ltd.
("Novopharm") pursuant to which Novopharm is the Company's exclusive distributor
for hGH in Canada. Novopharm is pursuing approval for hGH in Canada, although
there can be no assurance that approval will be obtained. In December 1994 the
Canadian Bureau of Biologics requested additional data and information necessary
for the Bureau to continue its review of the application for approval; the
requested data and information was submitted in March 1995. In connection with
the approval process, an inspection of the Company's manufacturing plant was
conducted in 1992 by the Canadian Bureau of Biologics, which found no material
deficiencies.

In 1988, the Company granted Scitech Medical Products, Pte. Ltd., a
Singapore company ("Scitech"), exclusive hGH distribution rights in Taiwan, Hong
Kong, Singapore, Thailand and South Korea, which rights were subsequently
extended to Australia, New Zealand, the Philippines and certain other Pacific
Rim countries. Scitech has sublicensed exclusive hGH distribution rights in
South Korea to Korean Green Cross Corporation ("KGCC"), a major South Korean
pharmaceutical company, which began to market the Company's hGH in South Korea
under the Sci-Tropin(TM) trademark in 1991. In 1995, Sci- Tropin was approved
and launched in Singapore. Scitech expects that during 1996 approvals for the
marketing of hGH in Australia, Hong Kong, Indonesia, Malaysia, New Zealand and
Taiwan will be granted on the basis of European approval and additional
information provided by BTG for registration filings in these countries,
although there can be no assurance that such approvals will be received within
this time frame or at all. Scitech informed BTG that Sci-Tropin received a
conditional one year approval from the Ministry of Health of the Philippines in
August 1994, subject to post-marketing surveillance. Scitech conducted this
post-marketing surveillance and submitted the results in 1995; full approval is
expected on the basis of this surveillance, although there can be no assurance
full approval will be received. Furthermore, Scitech also informed BTG that hGH
cannot be registered in Thailand (product category not registerable), but the
product can be imported and sold under a special governmental permit for each
individual shipment.

The Company received approval for hGH from the Israel Ministry of
Health in April 1988 and began direct marketing in Israel under the Bio-Tropin
trademark in October 1988.

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In July 1992, the Company's hGH was approved by the Israel Ministry of Health
for the treatment of a second indication, Turner syndrome.

In December 1993, the Company granted Laboratorios Cryopharma
("Cryopharma"), a Mexican company, exclusive hGH distribution rights in Mexico.
The Mexican Health Authorities approved the product for sale in early 1994, and
Cryopharma began to distribute the product in the Mexican market in the second
quarter of 1994.

In May 1994, the Company granted exclusive hGH distribution rights in
Argentina, Peru, Paraguay and Uruguay to Elvetium Rhodia S.A. ("Elvetium"), an
Argentinian company. The sale of BTG's hGH in Argentina was approved in May
1995, and the product was launched in July 1995. Approval was granted in Uruguay
in July 1995 and the product was launched early 1996. Additional approvals are
expected during 1996, although there can be no assurance that such filings will
not be delayed or that approvals will be granted in these countries within this
time frame or at all.

In February 1995, the Company granted exclusive hGH distribution rights
in Brazil to Laboratorios Enila ("Enila"), a Brazilian company. Enila has
initiated the registration for approval of hGH in Brazil, which approval is
expected in 1996, although there can be no assurance that this approval will be
obtained in this time frame or at all.

In March 1995, the Company granted exclusive hGH distribution rights in
Colombia and 11 other Latin American countries to Laboratorios Chalver de
Colombia ("Chalver"). Chalver has initiated the registration for approval of hGH
in Colombia, which approval is expected in 1996 although there can be no
assurance that such approval will be obtained in this time frame or at all.
Registration in the other countries of Chalver's territory will be initiated
following the approval in Colombia.

Oxandrin (oxandrolone)

Oxandrin (oxandrolone) is an oral anabolic agent that is an analogue of
testosterone.

In 1964, the FDA approved oxandrolone for weight gain following weight
loss due to severe trauma, chronic infection or extensive surgery and for
patients who, without definite pathophysiologic reasons, fail to gain or to
maintain normal weight. BTG subsequently obtained the rights to oxandrolone from
G.D. Searle & Co. ("Searle"), and in December 1995 re-launched the product in
the U.S. for this indication. The Company believes that Oxandrin is the only FDA
approved anabolic agent with this indication.

Weight Loss. Involuntary weight loss is a serious (and perhaps
life-threatening) disease related condition that affects patients with a wide
variety of chronic and acute disease processes. The causes of this weight loss
are believed to be multifactorial, with inadequate nutrient intake and an
altered metabolic state playing central roles. Disease- or therapy-induced
nausea and vomiting and gastrointestinal obstruction or dysfunction are some of
the other causes of weight loss. Protein breakdown (catabolism), which often
results in loss of lean body mass, increases in serious diseases and after
severe trauma or extensive surgery. If not reversed, catabolism can lead to
morbidity and mortality.

It has been widely published that anabolic agents promote protein
synthesis which may promote the building of lean body mass and ultimately weight
gain. The Company estimates the incidence of involuntary weight loss in the
United States at greater than 600,000.

Natural androgens, such as testosterone, stimulate protein-building,
anabolic activity in skeletal muscle, bone and kidneys, resulting in a positive
nitrogen balance and increased protein synthesis. In patients recovering from
severe trauma, infections, burns, and other debilitating illnesses, testosterone
and testosterone derivatives have been found to increase anabolic activity.
However, because natural androgens also possess androgenic or virilizing

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activities, which are considered undesirable side-effects in the treatment of
weight loss, efforts have been made to separate their anabolic activities from
their androgenic activities.

Oxandrolone is an oral anabolic steroid with a wide separation between
anabolic and androgenic activities. Clinical trials have shown that oxandrolone
is an effective adjunctive therapy to promote weight gain in a variety of
pathophysiologic conditions and has a low potential for androgenic side effects.
Unlike many other anabolic steroids, Oxandrin undergoes little overall metabolic
transformation in the liver, which the Company believes offers a safety
advantage over other alternatives.

In addition to a long term exclusive supply agreement with Searle, BTG
has an alternative exclusive agreement with Societa Prodotti Antibiotici S.p.A.
("SPA") covering, if necessary, the supply of oxandrolone to BTG through at
least 2003 for distribution in certain countries, primarily those outside of
Europe, where the SPA process is approved. Currently none of these countries
have yet approved the use of the SPA product. BTG is working with SPA to seek
the necessary approvals.

BTG has engaged Quantum Health Resources ("QHR"), a national pharmacy
and service provider for patients suffering with chronic disorders, as BTG's
exclusive wholesale and retail distributor of Oxandrin and Delatestryl in the
United States. QHR will also manage the patient reimbursement of both products.

Pediatric Growth Disorders. Published literature indicates that
oxandrolone has been used by pediatric endocrinologists over the past 20 years
to treat growth disorders, including Turner syndrome in girls and constitutional
delay of growth and puberty in boys. Searle, from which the Company acquired
exclusive worldwide rights, never conducted safety and efficacy studies of
oxandrolone in the treatment of these pediatric growth disorders and therefore
never requested FDA approval to market the product for these disorders. The
Company has conducted a phase III placebo-controlled study to evaluate the
safety and efficacy of Oxandrin to increase the growth rate and improve the
self-image of girls with Turner syndrome. A phase III placebo-controlled study
to evaluate the safety and efficacy of Oxandrin to increase the growth rate and
self-image of boys with constitutional delay of growth and puberty has also been
completed and an NDA supplement to the existing approval of Oxandrin for weight
gain will be submitted to the FDA in 1996 for both pediatric indications. The
Company has been requested by the FDA to supplement its submission with
biopharmaceutic data, which the Company is in the process of obtaining. The
Company currently sells Oxandrin for both pediatric indications in the United
States on a cost recovery basis pursuant to Treatment INDs granted in 1993.

In response to Company submissions made in 1990, the FDA has designated
Oxandrin as an Orphan Drug for both the treatment of Turner syndrome and for the
treatment of constitutional delay of growth and puberty. Orphan Drug designation
is reserved for drugs that may be useful in the treatment of diseases or
conditions that affect fewer than 200,000 people. BTG estimates there are
approximately 5,000 to 8,000 girls and women with treatable Turner syndrome and
approximately 80,000 boys with constitutional delay of growth and puberty in the
United States. Under current Orphan Drug legislation, if the FDA approves
Oxandrin for Turner syndrome in girls and/or for the treatment of constitutional
delay of growth and puberty in boys before any other company receives FDA
approval of oxandrolone to treat such conditions, BTG will receive certain
benefits, including seven years of marketing exclusivity.

In January 1994 the Company obtained approval to market oxandrolone for
pediatric growth disorders in Australia. This is the first regulatory approval
for the marketing of oxandrolone for pediatric growth disorders anywhere in the
world. BTG has granted CSL Limited ("CSL") of Australia exclusive marketing
rights for oxandrolone in Australia, New Zealand, and the nearby South Pacific
region. CSL commenced sales of oxandrolone in Australia in February 1994 under
the trade name Lonavar(R).

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BioLon (sodium hyaluronate)

Sodium Hyaluronate ("HA") is a high-viscosity, gel-like fluid. The
Company has developed a sodium hyaluronate-based product, trademarked BioLon,
for use in ophthalmic surgery procedures such as cataract, intraocular lens
transplantation and others. BioLon is a syringe filled with 1% sodium
hyaluronate.

The Company has concluded agreements for the commercialization and
distribution of BioLon with several companies covering most countries in Europe
and Latin America and several countries in Asia and the Far East. These
agreements provide for license fees and/or royalties and minimum guaranteed
sales in the first years after registration and commencement of
commercialization. BioLon sales commenced in early 1993 in Israel and Spain. As
further approvals were obtained, sales were commenced in those countries. BioLon
is currently approved for sale in approximately 20 countries.

In June 1995, BioLon was approved as a medical device by mdc, a
notified body of the European Economic Community. As a result, a CE mark granted
to the product and appearing on the product box allows the Company and its
partners to freely market BioLon throughout Europe. Following the European-wide
approval, BioLon was launched in Germany and Austria, and launches in the United
Kingdom, Ireland and Denmark are expected in 1996, although there can be no
assurance such launches will not be delayed.

Commercialization of BioLon in the United States was precluded by a
patent licensed to Pharmacia AB, which expired in February 1996. BTG intends to
submit an application to the FDA for approval of BioLon in 1996 based on the
clinical trials conducted outside the United States. Although BTG believes that
the clinical trials conducted by BTG or its commercial partners outside the
United States with respect to the use of BioLon will be sufficient to obtain FDA
approval to market BioLon in the United States, there can be no assurance that
the FDA will not require additional clinical trials and, accordingly, the
Company intends to initiate a U.S. based clinical trial for BioLon in 1996, if
necessary. In December 1995, the Company reacquired from Bio-Cardia Corporation
("Bio-Cardia") the right to pursue the development and commercialization of HA
for all ophthalmic and other pharmaceutical applications in the United States
and Japan. See "-- Contract Research and Development -- Bio-Cardia Corporation"
and "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations."

The Company is also developing a second-generation product having a
higher viscosity than BioLon and is planning a clinical study for the product
during 1996, although there can be no assurance that such trial will not be
delayed.

Delatestryl (testosterone enanthate)

Delatestryl is an injectable testosterone product currently used to
treat men with hypogonadism (testosterone deficiency), a condition associated
with impotence, reduced libido, insufficient muscle development and bone loss.
The Company believes approximately 500,000 men in the United States suffer from
this condition. The product is also prescribed for delayed puberty, which BTG
believes is a problem for approximately 80,000 boys in the United States. Under
an agreement with Bristol-Myers Squibb ("Bristol"), the Company acquired the
approved NDA and trademark for Delatestryl and Bristol has agreed to manufacture
Delatestryl for the Company for up to five years ending in 1997. The Company
pays Bristol a fee based on its sales of Delatestryl. The Company began the sale
and distribution of Delatestryl in mid-1992.

Vitamin D Derivative -- Anti-Psoriasis/Contact Dermatitis Agent.

The Company has licensed exclusive rights to patents covering the
composition and use of certain vitamin D derivatives in the topical treatment of
psoriasis, dermatitis and other skin disorders. United States, European and
Israeli patents have issued, and the British patent has been extended to
Singapore and Hong Kong. In March 1996, the

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Company sublicensed exclusive rights under the patents in the United States to
Galderma S.A. Galderma has agreed to pay license fees upon the attainment of
certain milestones and a royalty on sales of products. In 1987 and 1989,
respectively, the Company sublicensed exclusive rights under the patents in the
United States to Hoffmann-La Roche, Inc. ("Roche") and in the major Western
European countries to Solvay Duphar B.V. ("Duphar"), a subsidiary of Solvay &
Cie. Duphar completed clinical studies on psoriasis necessary to obtain
regulatory approvals in Europe and submitted applications for approvals in The
Netherlands, Ireland, England and Switzerland. In 1993 Duphar determined to
discontinue its efforts in the dermatological field and, with BTG's consent, in
January 1994 Duphar sublicensed its rights to Cilag S.A. ("Cilag"), an affiliate
of Johnson & Johnson, which received an approval for the drug in The Netherlands
and Switzerland in 1995. Cilag terminated the sublicense agreement in mid-1995,
and Duphar is seeking a new sub-licensee in Europe, although there can be no
assurance that it will be successful. The Company is to receive a royalty on all
commercial sales of products containing these vitamin D derivatives in countries
in which the vitamin D derivative patents have issued. In March 1996 the Company
received $2 million as a result of Cilag's termination of its agreement with
Duphar. Unlike the ointment formulation used by Duphar in Europe, the cream
formulation clinically tested by Roche produced side effects that slowed the
U.S. clinical program. Roche decided not to pursue commercialization of this
product and the license was terminated by mutual agreement. The Company
understands that Duphar is in discussions to sublicense its rights in the
major Western European countries, although there can be no assurance a final
agreement can be reached.

Products in Clinical Trials:

Bio-Hep-B(R) (hepatitis-B vaccine)

The Company has genetically engineered a third generation vaccine
against the hepatitis-B virus. The Company's Bio-Hep-B integrates the S, pre-S1
and pre-S2 surface proteins of the virus. The first stage of clinical trials in
adults has been completed and showed the vaccine to be safe and highly
immunogenic. The Company has expanded its clinical research program to include
different target groups focusing on: protective efficacy in neonates;
immunogenicity and protection in high risk children; achievement of immune
response in immunosuppressed individuals, such as dialysis patients; and
non-responders to other commercial vaccines. These studies are aimed at
establishing the beneficial effect and advantages of the S, pre-S1 and pre-S2
vaccine.

The Company has licensed marketing rights to Scitech for the
commercialization of Bio-Hep-B in certain Pacific Rim territories, excluding
Japan and the People's Republic of China. The Company and Scitech have conducted
clinical trials in several countries. The Company has been advised by Scitech
that in April 1993 Biogen initiated suit against Scitech in Singapore asserting
that Scitech's conduct of clinical trials in Singapore constitutes infringement
of Biogen's patent rights in Singapore and claiming rights in the data obtained
by Scitech through its clinical trials in Singapore and that an interlocutory
hearing was held in September 1993, although to date no final decision has been
rendered. The Company understands that Scitech is not initiating any new
clinical trials in Singapore. Biogen's broad U.K. patent (derived from its
European patent) was invalidated by the U.K. Court of Appeals in October 1994
and only three claims of the narrow patent were maintained. BTG understands that
Biogen was granted leave to appeal to the House of Lords and that a hearing is
scheduled for April 1996. The U.K. decision in the House of Lords may affect
Biogen's Singapore patents, which are based on Biogen's U.K. patent.

In September 1995, the Israeli Registrar of Patents ruled that
BTG-Israel is entitled to receive a compulsory license to manufacture the
Company's vaccine under Biogen's Israeli patent, which license will enable the
Company to produce the vaccine in Israel and likely to export the vaccine to
countries in which neither Biogen nor others have been granted a blocking
patent. The Registrar now has to finalize the terms of the compulsory license,
including royalties to be paid by BTG-Israel to Biogen. A hearing is scheduled
for April

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1996. There can be no assurance that a compulsory license will finally be issued
and, if issued, there can be no assurance that the issuance will not be appealed
by Biogen or overturned by a court. If a compulsory license is not issued, or if
a court overturns the issue of the compulsory license, the Company may not be
able to manufacture or sell its Bio-Hep- B in Israel or to export such product
from Israel unless the patent is revoked. In 1992 Biogen sued BTG-Israel for
allegedly infringing its Israeli patent (which is the subject of the compulsory
license application) by virtue of its preparation of BTG's Bio-Hep-B for use in
clinical trials. See "Item 3. Legal Proceedings."

The Company is aware that certain other patents have been granted or
are pending that may prevent the Company from selling its vaccine in the United
States, Europe and certain other countries. The Company's failure to obtain any
needed license or a determination that Bio-Hep-B infringes the patent rights of
Biogen or others would substantially limit, if not prohibit, the
commercialization of Bio-Hep-B in those countries in which Biogen or others have
a patent until such patent is revoked or expires. The ability of the Company to
secure any necessary licenses or sublicenses to these patents or applications
cannot be predicted.

Oxandrin (oxandrolone) -- Other Indications

HIV Wasting Syndrome. Based on the pharmacologic actions of Oxandrin,
published literature and discussions with experts in the AIDS field, the Company
believes that Oxandrin may be useful in improving the quality of life and
possibly increasing the survival time of AIDS patients by reversing the
progressive weight loss experienced by AIDS patients with HIV wasting syndrome.
In 1991, based on submissions made to the FDA, Oxandrin was designated an Orphan
Drug as adjunctive therapy for AIDS patients suffering from HIV wasting
syndrome. The Company has completed two Phase II studies for this indication,
one of which showed a significant weight gain with Oxandrin compared to placebo
while the other smaller study did not. Additional studies at higher doses are
planned for 1996 to determine optimal dosing. The Company estimates that
approximately 160,000 AIDS patients currently suffer from wasting syndrome.

Alcoholic Hepatitis. Alcoholic hepatitis is an acute form of
alcohol-induced liver disease characterized by liver cell death, inflammation,
fat accumulation, jaundice and an enlarged liver. Malnutrition is seen in the
vast majority of patients. In 1991 the Department of Veterans Affairs (the "VA")
granted the Company access to, and use of, the results of two major VA clinical
trials using Hepandrin (oxandrolone) in patients with moderate to severe
alcoholic hepatitis and malnutrition. The VA research indicates that Hepandrin
reduced the mortality rate at six months in patients with moderate to severe
alcoholic hepatitis and moderate malnutrition by approximately 50% versus
placebo. In February 1994 BTG voluntarily withdrew its Hepandrin NDA filed in
December 1993. This was based on conversations with the FDA during which the FDA
took the position that the two VA clinical trials which formed the basis of the
NDA submission are not sufficient for approval, but would qualify as one of the
two required studies. The Company currently expects to initiate a phase III
clinical trial during 1996 which will meet FDA requirements, although there can
be no assurance that such trial will not be delayed. Since there are fewer than
200,000 patients with moderate to severe alcoholic hepatitis and moderate
malnutrition, the FDA has granted Orphan Drug designation for this drug. The
Company believes there currently is no approved therapy for these patients.

OxSODrol(TM) -- (human superoxide dismutase)

The Company has developed a process for the manufacture of a fully
active analog of copper/zinc human superoxide dismutase ("hSOD" or "SOD"), an
enzyme produced in body tissues to detoxify oxygen free-radicals (i.e.,
superoxides). These free-radicals, which are natural by-products of cellular
respiration, can cause cell injury unless they are neutralized in the body. If
exposed to a surge of these superoxides, the cell is unable to cope with the
excessive level of free-radicals, which can then inflict devastating cell and
tissue injury.

-8-

In June 1986, the Company entered into an agreement with Bristol Myers
Squibb ("Bristol") pursuant to which the Company granted Bristol an option to
acquire an exclusive worldwide license to make, use and sell the Company's hSOD
for pharmaceutical and veterinary purposes. Bristol conducted trials to test the
clinical efficacy of OxSODrol as a treatment for heart attack patients who had
undergone coronary angioplasty and for kidney transplant patients. Clinical
efficacy for these indications was not established. In March 1990, the Company
re-acquired all rights to pre-clinical and clinical data as a result of
Bristol's decision not to exercise its option to license OxSODrol.

A U.S. patent assigned to the Company which is directed to a method for
producing enzymatically active copper/zinc SOD in bacteria is the subject of an
interference action with Chiron Corp ("Chiron"), which holds a U.S. patent in
bacterially produced human copper/zinc SOD. An Israeli patent assigned to Chiron
which relates to copper/zinc SOD is being opposed by the Company. See "--
Patents and Proprietary Rights."

In December 1995, the Company reacquired from Bio-Cardia all rights to
OxSODrol for the inhibition of reocclusion of coronary arteries during and after
thrombolysis or angioplasty or in the cases of unstable angina, for the
prevention of restenosis, and for the treatment of bronchopulmonary dysplasia in
premature neonates. See "-- Contract Research and Development -- Bio-Cardia
Corporation."

OxSODrol for Bronchopulmonary Dysplasia. Bronchopulmonary dysplasia
("BPD") is a chronic lung disease that develops following treatment with oxygen
and mechanical ventilation in premature infants who experience respiratory
distress. During 1992, the Company completed additional BPD-related pre-clinical
and toxicological studies requested by the FDA and in February 1993 received FDA
permission to initiate a Phase I BPD human clinical study, which was completed
in December 1993. The Company has completed a Phase I(b) study of the safety of
repetitive doses, and the results are being analyzed. A multicenter double blind
Phase II clinical efficacy and safety trial is scheduled to commence in the
second quarter of 1996. There can be no assurance that any of these studies will
not be delayed, or that the results obtained in the clinical trials will be
consistent with those obtained to date. In 1991 the Company received Orphan Drug
designation for BPD in premature neonates. If the FDA approves OxSODrol for the
treatment of BPD before any other company receives FDA approval for the use of
SOD to treat BPD, BTG will receive seven years of marketing exclusivity under
current Orphan Drug legislation. The Company estimates that there are 50,000
premature infants born in the U.S. each year. In January 1995 SOD was licensed
to JCR for the treatment of BPD in Japan.

The Company holds a U.S. patent relating to intratracheal delivery of
copper/zinc SOD to protect human lungs from injury due to hyperoxia and
hyperventilation.

Imagex -- Thrombus-Imaging Agent.

Imagex is a novel agent for detection of blood clots (i.e., thrombi) in
patients suffering from deep vein thrombosis or pulmonary embolism, consisting
of a genetically engineered portion of the fibrin binding domain of fibronectin
attached to a radiopharmaceutical tag. Once Imagex is injected in the patient,
it targets and binds to fibrin, a substance that is essentially present only in
blood clots. Company scientists demonstrated the capacity of Imagex to bind to
thrombi both in vitro and in vivo using rat and rabbit thrombosis models. The
Company, in collaboration with Merck Frosst Canada Inc. ("Merck Frosst"), a
subsidiary of Merck & Co., completed a pilot study outside the United States to
test Imagex's safety and efficacy in humans. In this trial, Imagex's specificity
and sensitivity of clot detection in 62 patients suspected to be suffering from
deep vein thrombosis was confirmed. Deep vein thrombosis causes a reduction in
the venous blood flow, changes in the vessel walls and changes in the
composition of blood resulting from the development of thrombi. Pulmonary
embolism is the dislodgement of a piece of thrombus and its relocation via the
circulatory system to the lungs. During 1993, the Company was granted a U.S.
patent directed to this imaging agent, the plasmid expressing the fibrin binding
domain polypeptide component and the purified polypeptide itself. During 1995
the Company was granted a second, related U.S.

-9-

patent and corresponding patents in Australia and New Zealand. In August 1994,
worldwide rights to Imagex were licensed to Merck Frosst, which intends to use
such agent in the development and commercialization of a diagnostic imaging
agent for the detection of thromboembolism. In March 1996, Merck Frosst filed an
IND with the Canadian Bureau of Biologics and informed the Company that it
intends to initiate a Phase I study of Imagex in Canada in the second quarter of
1996.

Sublingual Delivery System

In 1986, the Company licensed from the U.S. Department of Commerce a
U.S. patent covering the sublingual delivery of sex steroids, in which the drug
is absorbed into the bloodstream through the mucosal membrane under the tongue.
Subsequently the Company licensed from the U.S. Department of Commerce one claim
of a related U.S. patent, which patent is currently the subject of an
interference action. See "-- Contract Research and Development -- License
Agreement with U.S. Department of Commerce" and "Item 3. Legal Proceedings."
Potential uses of this delivery system include the treatment of conditions in
which testosterone, estradiol (an estrogen), or progesterone replacement therapy
may be necessary.

Testosterone, which is presently administered by deep intramuscular
injection or transdermal patch, is used to treat male hypogonadism, a condition
which BTG believes affects approximately 500,000 men in the United States. The
condition is associated with impotence, suppressed libido, insufficient muscle
development, bone loss and other conditions. Testosterone injections are also
used to treat boys with constitutional delay of growth and puberty, of which
there are, in BTG's estimation, approximately 80,000 in the United States.
Conditions in which estrogen replacement therapy is indicated are postmenopausal
symptoms and osteoporosis. Progesterone has been shown to be useful in the
treatment of repeat spontaneous abortion and in-vitro fertilization. While
estrogen (estradiol) is available in an oral dosage form, neither oral nor
sublingual forms of native testosterone nor progesterone are available in the
United States.

An advantage of delivery by the sublingual route is that the drug to be
delivered is not initially processed in the liver (where drugs are commonly
broken down), but is largely absorbed directly into the bloodstream. As a
result, lower doses of drug may achieve the desired effect, while potentially
reducing adverse side effects.

Although the Company's sublingual delivery system is patented in the
United States, the Company does not expect to be able to prevent other companies
from introducing sublingual steroid replacement products using other delivery
systems in the United States or similar delivery systems outside the United
States. Additionally, one of the licensed patents is the subject of an
interference action. See "-- Patents and Proprietary Rights."

Androtest-SL (sublingual testosterone).

Androtest-SL is the Company's sublingual testosterone product for the
treatment of hypogonadism and constitutional delay of growth and puberty. A
multicenter Phase III human clinical trial of Androtest-SL for the treatment of
hypogonadism initiated in 1993 has been completed. Results indicate that
Androtest-SL can effectively deliver native testosterone without reported
adverse effects. The men in the study reported restoration of libido and
potency. These men also preferred the sublingual route of delivery over their
previous injectable therapy. The analysis of the final results is expected to be
completed in 1996, with an NDA filing with the FDA to follow. A claim of a
patent licensed by BTG is currently the subject of an interference action. If
this action is successful and BTG is unable to obtain a license to the blocking
patent, BTG may be prohibited from commercializing Androtest-SL. See "Item 3.
Legal Proceedings."

Until October 1993, native testosterone was not available for patient
therapy in the United States. To that date only testosterone (e.g., testosterone
enanthate) given by injection or an analogic given orally were available.
Injections are painful and orally active synthetic

-10-

androgens have been reported to be toxic to the liver. Androtest-SL will avoid
the need for injection as it is taken by mouth (sublingually) on a daily basis.
Daily dosing may allow physicians to better individualize their patients'
therapy versus painful intramuscular injections, which are given every 2-3
weeks. Androtest-SL may allow the administration of native testosterone in an
amount approximately equal to a normal man's daily production of this hormone.
The sublingual route of administration may be preferred over injectable therapy
and may result in fewer side effects and better control of hypogonadism and
constitutional delay of growth and puberty than either injectable or oral
testosterone analogs.

Androtest-SL is currently being manufactured for BTG by ProCyte
Corporation, Kirkland, Washington and Applied Analytical Industries Inc.,
Wilmington, N.C.

In October 1993 ALZA Corp. ("ALZA") received FDA approval to market a
transdermal native testosterone patch for hypogonadism, which was introduced in
1994. Sublingual administration may be preferred over ALZA's transdermal patch
because of the possibility of skin irritation caused by the patch and the fact
that ALZA's patch is designed to be worn on shaven scrotal skin only. In 1995,
through a licensing agreement with SmithKline Beecham, Theratech, Inc.
introduced a transdermal testosterone patch that requires daily application of
two large patches at alternating sites on the back, hip and abdomen.

It is estimated that with all current forms of therapy, only 50,000 to
60,000 men out of a potential 500,000 are currently being treated for
hypogonadism. The Company believes this is primarily a result of patients', and
doctors' dissatisfaction with existing products.

Ethinyl Estradiol for Turner Syndrome

The Company has developed an ultra-low dose of ethinyl estradiol, a
synthetic form of estrogen, which is one of the two active ingredients in
virtually all of today's oral contraceptives. This ultra-low dose product is
designed to treat young girls with Turner syndrome. BTG estimates there are
approximately 5,000 to 8,000 treatable Turner syndrome patients in the United
States. Studies have shown young Turner syndrome girls may be treated with very
low doses of estrogen to stimulate development of secondary sexual
characteristics. The Company's ethinyl estradiol product has been designated as
an Orphan Drug by the FDA for the treatment of Turner syndrome.

In 1994 the Company completed a Phase III study of the Company's low
dose estradiol, which was partially funded by an Orphan Drug clinical research
grant from the FDA of approximately $100,000 per year for three years through
the end of 1993 and was conducted under an FDA-approved IND application. The
study evaluated the effect of low doses of ethinyl estradiol on the development
of the patients' secondary sexual characteristics. Upon analysis of the results
of the study, the Company will determine whether the results justify continued
pursuit of the commercialization of this product. Preliminary results of the
phase III study indicated that the Company's product has a positive effect on
pubertal development with no significant negative side effects, although there
can be no assurance that the final results will be consistent with the
preliminary results.

Oral Contraceptive Dosing Regimen

In 1988, the Company acquired an exclusive license to a unique oral
contraceptive dosing regimen. Patents covering this regimen have been granted in
Australia, Israel, Hungary, Mexico and South Africa. A corresponding U.S. patent
issued on May 1, 1990 is presently the subject of a pending reissue application.
The U.S. Patent and Trademark Office issued an Office Action rejecting the
proposed claims of the reissue application as initially worded. The Company is
continuing to prosecute the re-issue application, although there can be no
assurance it will be successful. Patent applications are also pending in Europe,
Japan, Canada, Taiwan and several other countries. This new approach to oral

-11-

contraception is expected to reduce both the risk of pregnancy, in the event a
woman forgets to take a pill, and the breakthrough bleeding and spotting many
women experience when using conventional low-dose oral contraceptives.

In December 1990, the Company entered into an agreement with Organon,
Inc. ("Organon"), a subsidiary of AKZO of The Netherlands, which gave Organon an
option to license the Company's patented oral contraceptive dosage regimen for
future use with Organon's present and future proprietary progestogens. Oral
contraceptives use various combinations of estrogen and progestogen and various
dosing regimens. The Company's patented dosing regimen may use a variety of
progestogens. Therefore, the Company is free to license to other companies the
right to use progestogens other than Organon's under the Company's patent.

Under the agreement, Organon conducted human clinical studies to
determine the efficacy and potential superiority of the Company's patented oral
contraceptive dosing regimen. The studies were completed in 1992, and on January
13, 1993, Organon exercised its option and licensed the technology. Upon
signing, Organon paid $175,000 to the Company. Additional milestone payments,
pending successful development of the product, of up to $275,000 for rights in
the United States and up to $500,000 for rights in foreign markets, may be paid
to the Company. The agreement provides for royalties on sales and an advance
royalty payment of $250,000 at the time of FDA approval to market the product.
Organon is conducting a Phase III study utilizing the Company's patented oral
contraceptive dosing regimen.

On March 30, 1992, the Company licensed to Bristol certain rights to
use the Company's patented oral contraceptive dosing regimen with norethindrone,
the progestogen contained in Bristol's currently marketed oral contraceptives.
Bristol is responsible for the clinical development of the new oral
contraceptive and if Bristol eventually markets a product covered by the patent,
it will pay royalties to the Company on any sales of that product. Under the
agreement, Bristol also transferred its U.S. rights to Delatestryl to the
Company. See "-- Products under Commercialization -- Delatestryl." The license
agreement with Bristol requires that the Company use its best efforts to obtain
a re-issue of its dosing regimen patent with somewhat revised claims so as to
distinguish with greater particularity the patented invention over a 1970 U.S.
patent (now expired) of Organon.

The market for oral contraceptives in the United States is estimated by
BTG to exceed $1 billion annually. Because of the large size and competitive
nature of this market, the Company will depend on its current and potential
future licensees to develop and market products under its patent. In addition to
licensees paying the cost of development of the new oral contraceptive, the
Company expects licensees to pay royalties if the product receives regulatory
approval for marketing.

Animal Growth Hormones

In 1983, the Company entered into an agreement with American Cyanamid
Company ("ACY"), now a subsidiary of American Home Products, granting ACY an
exclusive worldwide license to manufacture and market animal growth hormones.
ACY agreed to conduct all necessary testing of the animal growth hormones, and
to obtain all regulatory approvals necessary for the commercialization of the
animal growth hormones. The Company is to receive royalties on animal growth
hormone product sales by ACY. To date, BTG has developed two animal growth
hormones, porcine and bovine.

Porcine growth hormone ("pGH") is a product designed to produce leaner
meat in pigs. ACY has conducted considerable development work including field
trials that are presently being performed. The acquisition of ACY by American
Home Products resulted in a reassessment of the investment needed to
commercialize the product, and American Home Products has determined to seek a
joint venture partner to pursue further commercialization of pGH. To date, such
a partner has not been secured, and there can be no assurance a partner will be
found.

-12-

In 1986, ACY filed a New Drug Application ("NDA") for the Company's
bovine growth hormone ("bGH"), which has a role in controlling milk production.
In 1994 the FDA requested that ACY conduct additional field trials prior to the
FDA's consideration of ACY's NDA. Despite FDA approval of Monsanto's bGH, ACY
has concluded that commercialization of bGH at this time is inadvisable. With
ACY's consent, BTG intends to approach other companies to ascertain whether they
might have interest in pursuing the commercialization of bGH; however, there can
be no assurance that BTG can find a company interested in pursuing the
commercialization of bGH or, if such a company is found, that an agreement can
be reached on reasonable terms or at all.

Products in Laboratory and Pre-clinical Research:

Bio-Flow(TM) -- Anti-Reocclusion Agent.

The Company is evaluating a genetically engineered discrete component
of the body's extracellular matrix proteins for use in blocking thrombosis
(blood clot) formation and reocclusion. Extracellular matrix proteins are a
family of multifunctional proteins, each composed of several domains, involved
in a variety of biological activities ranging from platelet aggregation and
blood clotting to wound healing and tumor metastasis. Among the proteins from
which discrete therapeutic and diagnostic domains have been derived are
fibronectin and von Willebrand Factor ("vWF").

The Company has cloned and expressed in bacteria and in yeast a
recombinant domain of vWF, a component of the blood vessel wall. Gram quantities
of pure and active domain were produced in yeast and purified. This protein
("Bio-Flow") has been found to be effective in inhibiting platelet aggregation
in several in vitro and in vivo models. Following damage to the vascular
endothelium (the inner wall of a blood vessel), a large number of platelets bind
to vWF in the subendothelium via the platelet receptor gp1b. Blocking of vWF
binding by Bio-Flow may prevent platelet adhesion to these substrates in a
clinical situation and thus prevent complications such as reocclusion (the
re-closure of the artery by a blood clot) and/or restenosis (the re-narrowing of
the coronary arteries) following angioplasty or thrombolytic therapies. Bio-Flow
was shown to prevent thrombus formation in a variety of animal models in guinea
pigs, dogs and baboons. The Company believes that the baboon model, in which
effective results were obtained, is closely related to humans and therefore may
provide a good indication of the outcome that may be achieved in human clinical
trials, although there can be no assurance of this. Bio-Flow prevented
reocclusion when administered to dogs following thrombolysis with a combination
of tPA, heparin and aspirin. Moreover, Bio-Flow exerted its antithrombotic
effect rapidly, thus shortening the time to thrombolysis (i.e., dissolution of
the thrombus) without a decrease in the number of platelets or an increase in
the bleeding time. Bio-Flow is currently in advanced pre-clinical stages of
product evaluation and pre-clinical development. Toxicology studies are planned
for late 1996. During 1994 and 1995, BTG conducted research and development on
these products on behalf of Bio-Cardia before reacquiring the rights to Bio-Flow
from Bio-Cardia in December 1995. See "-- Contract Research and Development --
Bio-Cardia Corporation" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Factorex(TM) -- Anti-Coagulant.

A highly selective protein anticoagulant ("Factorex") is being pursued
for cardiovascular applications. Factorex was isolated from the saliva of the
blood sucking leech Hirudo medicinalis, which harbors an entire array of agents
that antagonize the human hemostatic process. Factorex is a Factor Xa inhibitor.
The blood coagulation process is a multi-step, complex cascade of reactions
which ultimately lead to the formation of fibrin as an integral component of the
clot. Factor Xa catalyzes the conversion of prothrombin to thrombin, which, in
turn, converts fibrinogen into fibrin. Therefore, by inhibiting Factor Xa, thus
blocking the catalytic conversion of prothrombin, Factorex may inhibit the
creation and deposition of fibrin in clots. The Company believes that, like
other leech-derived

-13-

peptides, Factorex should have very low immunogenicity in man, facilitating
multiple administration. Factorex is manufactured via recombinant DNA technology
in E. coli and yeast and is biochemically configured in a proprietary process to
its active configuration. It has been shown to possess Factor Xa inhibitory
activity in vitro and in pre-clinical analysis in animal models. Potential
indications ranging from deep vein thrombosis to arterial reocclusion are among
the targets for Factorex therapy. Pre-clinical studies have been completed and
the Company has initiated process development of clinical grade material for
toxicology studies. During 1994 and 1995, BTG conducted research and development
on Factorex on behalf of Bio-Cardia before reacquiring the rights to these
products from Bio-Cardia in December 1995. See "-- Contract Research and
Development -- Bio-Cardia Corporation" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Cancer Therapeutics

In July 1994, the Company obtained exclusive marketing rights in most
major countries worldwide to three anti-cancer drugs which contain the same
active ingredient as Taxol(R) (paclitaxel), VePesid(R) (etoposide) and
Adriamycin(R) (doxorubicin), respectively. Shenzhen Boda Natural Product Co.,
Ltd. of Shenzhen, People's Republic of China ("Shenzhen Boda"), which licensed
the rights to BTG, is to manufacture the products in bulk for BTG. BTG has
exclusive rights to the sale of these products in North America, Europe, and the
Pacific Rim, including Japan, Indonesia, Taiwan, Thailand and the Philippines,
and non-exclusive rights in China. As yet, BTG has not identified potential
purchasers for these products.

CONTRACT RESEARCH AND DEVELOPMENT

Acquired Immune Deficiency Syndrome.

Within a framework of funding totaling $1,500,000 over three years
ending June 1996 from the National Institute of Allergy and Infectious Diseases
("NIAID") of the National Institutes of Health ("NIH") the Company conducted a
research project to provide genetic, biochemical and immunological
characterization of certain human immunodeficiency virus ("HIV") proteins as
well as proteins derived from parasites infecting AIDS patients such as P.
Carinii and Toxoplasma. These products will be used by NIAID to develop
potential therapeutics and diagnostics for AIDS and to conduct studies aimed at
a better understanding of the structures and function of the virus and the
related parasites. Receipt of funding from NIAID is subject to annual renewal by
NIAID. This program is a continuation of a $3,700,000 five year program funded
by NIAID which ended in June 1993. The Company accelerated the research program
and, as a result, completed its work for NIAID in the second half of 1995.

License Agreement with U.S. Department of Commerce.

BTG has a license agreement with the National Technical Information
Service ("NTIS"), an operating unit of the United States Department of Commerce
(the "DOC Agreement"), under which it obtained exclusive United States rights to
a U.S. patent titled "Administration of Sex Hormones in the Form of Hydrophilic
Cyclodextrin Derivatives". Under the terms of the DOC Agreement, the Company has
exclusive rights to make, have made, use and sell certain steroid products for a
period terminating five years from the date of first commercial sale of a
product; however, the Department of Commerce has notified the Company that BTG
must pay a portion of the legal fees relating to the interference action
referred to below in order to maintain its exclusive rights. The Company is
currently in discussions with the Department of Commerce, but there can be no
assurance that BTG will be able to maintain exclusive rights. The Company also
has a non-exclusive license under the patent to make, have made, use and sell
the licensed product in the United States after the expiration of the exclusive
license term. The DOC Agreement requires the Company to expend reasonable
efforts and resources to develop and bring the product to the point of

-14-

practical application by January 1, 1997, unless this period is extended by
mutual agreement of the parties. The Company will pay NTIS an administration and
royalty fee of five percent on the net sales of the product during the exclusive
period of the DOC Agreement, except that no administration and royalty fee will
be payable for direct sales of the licensed product by the Company to the U.S.
Government. BTG also has a license under a claim of a related United States
Government patent, which is currently the subject of an interference proceeding
brought by Janssen, a division of Johnson & Johnson. The Company is currently in
negotiations to secure a license to Janssen's patents and technology, although
there can be no assurance a license can be obtained on reasonable terms or at
all. If Janssen is successful in this interference action and BTG is unable to
obtain a license, BTG may be prohibited from commercializing Antrotest-SL. See
"-- Products in Clinical Trials -- Sublingual Delivery System" and "Item 3.
Legal Proceedings."

Bio-Cardia Corporation.

On December 31, 1993, the Company and Bio-Cardia completed a private
placement of 375 units (the "Offering"), each unit consisting of four shares of
common stock of Bio- Cardia and warrants ("Warrants") to purchase 15,000 shares
of the Company's common stock. The Warrants are exercisable at any time on or
prior to December 31, 1998, at an exercise price per share of $5.49. The
purchase price per unit was $100,000, of which $15,000 per unit was paid at the
closing, with the remainder paid with a promissory note ("Investor Note") due in
five installments over a period of three years. All of the cash proceeds of the
financing were to be received by Bio-Cardia. In consideration of the Warrants
included in the units, the Company received from each purchaser of units an
option (the "Stock Purchase Option"), exercisable at any time on or prior to
December 31, 1997, to purchase the Bio-Cardia stock at a purchase price
beginning at 125% and increasing over time to 200% of the cash portion of the
price paid for such stock. Such purchase price could be paid in cash, shares of
the Company's common stock or both at the discretion of the Company.

In connection with the closing of the financing, the Company licensed
to Bio-Cardia, pursuant to a technology license agreement, the right to pursue
(i) the worldwide development and commercialization of the Company's Imagex(TM),
Bio-Flow(TM), Factorex(TM) and Bio-Lase(TM) products for all cardio-vascular
indications, the Company's OxSODrol product for the inhibition of reocclusion of
coronary arteries during and after thrombolysis or angioplasty or in cases of
unstable angina, and for the prevention of restenosis, and the Company's
OxSODrol product for the treatment of bronchopulmonary dysplasia in premature
neonates, and (ii) the development and commercialization of the Company's sodium
hyaluronate-based products for ophthalmic applications in the United States and
Japan to protect the corneal endothelium during intraocular surgery and other
pharmaceutical applications where a shock-absorbing and lubricating material
compatible with the human body is required. The Company conducted research,
development and clinical testing of these products on behalf of Bio-Cardia, had
the exclusive option with respect to each product, during the period the Stock
Purchase Option was outstanding, to commercialize, directly or through others,
such product, and was obligated to supply Bio- Cardia with all its requirements
for such products.

-15-

Bio-Cardia in December 1995. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

RESEARCH AND DEVELOPMENT, MANUFACTURING AND QUALITY
ASSURANCE INFRASTRUCTURE AND FACILITIES

The Company's research and development, manufacturing and quality
assurance organization at March 1, 1996 was comprised of 137 scientists,
associates and related personnel with expertise in molecular biology, cell
biology and protein chemistry. These individuals have received various
undergraduate and advanced degrees at prestigious universities throughout the
world. Thirty have received Ph.D. or M.D. degrees and several have completed
post-doctoral studies under the direction of internationally renowned scientists
in the area of biotechnology.

Commercialization of genetically engineered and related products
requires development of technologies that use microorganisms to manufacture
products in sufficient quantities and purity. Such products are manufactured
through a fermentation process, whereby bacteria and other microorganisms
containing the genetic materials are reproduced in large quantities in
fermentation tanks with the desired product then being separated from the
fermentation medium and purified to usable quality. In addition to its bacterial
E. coli production technology, the Company has integrated a mammalian expression
technology for the production of its hepatitis-B vaccine and established the
basic technology for expression of proteins in yeast and baculovirus. The
Company's products which are not produced by a fermentation process are sourced
through supply agreements with third parties.

The Company's facilities in Israel contain research laboratories and
laboratory-scale and production fermentation facilities, including a fermentor
of 750 liters. All bulk manufacturing activities for the Company's genetically
engineered products are conducted in the Company's GMP-designed facility, which
possesses sufficient capacity to accommodate the expected manufacturing demands
of the Company's commercial products for the next several years. The Company has
completed a modern filling suite for its BioLon syringes which has undergone
inspection by European regulatory authorities and, based on one of these
inspections, European Device approval (CE Mark) was granted. All dosages of hGH
are formulated, filled and packed in vials by Dr. Madaus GmbH in Germany, which
functions as the Company's subcontractor for these purposes. See "-- Products
under Commercialization -- Bio-Tropin (human growth hormone) -- Growth Hormone
Deficiency." Delatestryl is manufactured for the Company by Bristol. Oxandrin is
manufactured for the Company by Searle.

In February 1995, BTG-Israel was awarded an ISO 9002 Certification by
the Standards Institution of Israel (SII). The Certificate of Registration was
issued in respect of the manufacture, packaging and dispatch of BTG's
pharmaceutical products for human use. ISO 9002 is one of a series of Quality
Management System Standards established by the International Organization for
Standardization ("ISO") based in Geneva, Switzerland. It is equivalent to the
European Community Standard EN 29002. An ISO Certification issued by the SII is
recognized and accepted by several organizations and countries such as
Underwriters Laboratories of the United States, DQS of Germany, SQS of
Switzerland, BSI of the United Kingdom, QMI of Canada, JQA of Japan and others.
ISO certification was a significant milestone in the process of obtaining the
BioLon CE mark.

GOVERNMENTAL REGULATION

Regulation by governmental authorities in the United States and other
countries is a significant factor affecting the timing of the commercialization
of the Company's products and its ongoing research and development activities.
The Company's policy is to conduct its research and development activities in
compliance with current United States National Institutes of Health Guidelines
for Research Involving Recombinant DNA Molecules, and

-16-

with comparable guidelines in Israel and other countries where the Company may
be conducting clinical trials or other developmental activities.

Prior to clinically testing, manufacturing and marketing human
pharmaceutical products, approval from the FDA and comparable agencies in
foreign countries must first be obtained. The FDA has established mandatory
procedures and safety and efficacy standards that apply to the testing,
manufacture and marketing of such products in the United States. In the United
States, these procedures include pre-clinical studies, the filing of an
Investigational New Drug application, human clinical trials and approval of a
New Drug Application. European countries follow generally the same procedures.
The EEC has established a unified filing system administered by the CPMP
designed to reduce the administrative burden of prosecuting applications for new
pharmaceutical products. Following CPMP review and approval, marketing
applications are submitted to member countries for final approval and pricing
approval, as appropriate. The commercial manufacture and marketing of some
animal health products also requires approval by the United States Department of
Agriculture ("USDA") and by comparable agencies in foreign countries. These
processes are likely to take a number of years and often involve substantial
expenditures. There can be no assurance that any approval will be granted and,
even if granted, such approval may be withdrawn if compliance with regulatory
standards is not maintained. In addition, certain environmental and consumer
groups are generally opposed to genetically engineered products, primarily in
the agricultural field. There can be no assurance that opposition from such
groups will not adversely affect the FDA approval process with respect to the
Company's biotechnology products.

In addition to the foregoing, the Company's present and future business
may be subject to regulation under the United States Atomic Energy Act, Clean
Air Act, Clean Water Act, Occupational Safety and Health Act, National
Environmental Policy Act, Toxic Substances Control Act, Resource Conservation
and Recovery Act, Comprehensive Environmental Response, Compensation and
Liability Act and similar state and foreign statutes, as well as national
restrictions on technology transfer, and import, export and customs regulations
and similar laws and regulations in foreign countries.

PATENTS AND PROPRIETARY RIGHTS

The Company's scientific staff and consultants are actively working in
various areas of biotechnology to develop techniques, microorganisms, processes
and products to achieve the Company's commercial aims. It is the Company's
policy to protect its intellectual property rights in this work by a variety of
means, including applying for patents in the United States and most
industrialized countries. The Company also relies upon trade secrets and
improvements, unpatented proprietary know-how and continuing technological
innovation to develop and maintain its competitive position.

At March 1, 1996 approximately 230 patents, owned or exclusively
licensed by the Company, have been granted and are being maintained worldwide,
including 35 in the United States, 11 patents granted by the European Patent
Office ("EPO"), and 15 Israeli patents. Additionally, approximately 240 patent
applications owned or exclusively licensed by the Company are pending in various
countries. During 1995 the U.S. Patent and Trademark Office granted 4 patents,
the EPO granted 1 patent (equivalent to 12 national patents), in each case
assigned or exclusively licensed to BTG. Additionally, approximately 20 other
patents were granted in various countries.

The Company has initiated proceedings in Israel to oppose the grant to
several of its competitors of patents relating to vector systems, and may as
necessary oppose corresponding patents in other jurisdictions. The Company has
also initiated proceedings in Israel to oppose the grant to one of its
competitors of a patent relating to production of human growth hormone.
Additionally, during 1991 and 1992, two additional proceedings were initiated in
Israel to oppose the grant to others of patents which may relate to OxSODrol and
to Bio-Flow, respectively. Although the outcome of the proceedings cannot

-17-

be predicted with certainty and will likely not be determined for several years,
the Company believes that the outcome will be favorable, although there can be
no assurance of this. The Company is aware of patent applications filed by, or
patents issued to, other entities with respect to technology potentially useful
to the Company and, in some cases, related to products and processes being
developed by the Company. The Company cannot presently assess the effect, if
any, that these patents may have on its operations. The extent to which efforts
by other researchers have or will result in patents and the extent to which the
issuance of patents to others would have a materially adverse effect on the
Company or would force the Company to obtain licenses from others are currently
unknown.

During 1991, the Company received notification from the United States
Patent and Trademark Office (the "Patent Office") Board of Patent Appeals and
Interferences of the declaration of an interference between an issued patent
assigned to the Company covering a method for producing enzymatically active
human copper/zinc SOD in bacteria and a pending application of Chiron
Corporation ("Chiron"), which claims an earlier filing date. While the Company
is vigorously defending its patent, it cannot predict the outcome of such
interference. However, should the Company's patent be disallowed and a
corresponding patent be issued to Chiron, the Company's present method of
producing enzymatically active human copper/zinc SOD in bacteria may need to be
altered, which may or may not be possible; alternatively, the Company could seek
a license to market under Chiron's patent, which may or may not be available.
Subsequent to the interference being declared, Chiron was issued a U.S. patent
for the bacterially produced form of recombinant human copper/zinc SOD. The
Company is seeking to have the Patent Office either expand the scope of the
existing interference action or declare a separate interference to determine
that the Company rather than Chiron should hold the patent for the bacterially
produced form of recombinant human copper/zinc SOD on the basis that the
Company's scientists, not Chiron scientists, invented the method for producing
recombinant human copper/zinc SOD in bacteria. Unless the Company is able to
prevail in this effort or to obtain a license from Chiron, the Company may be
unable to commercialize OxSODrol in the United States. This matter is currently
under consideration by the Patent Office. In addition, the Israeli Patent Office
has accepted a Chiron patent application covering a DNA construct having certain
specified features for expression of active copper/zinc SOD and a method for
production of active copper/zinc SOD in a microorganism harboring this
construct. The Company is opposing the grant of this patent; however, there can
be no assurance that this opposition will be successful. If the opposition is
unsuccessful, the Company may be precluded from manufacturing OxSODrol in
Israel. See "-- Products and Applications -- Products in Clinical Trials --
OxSODrol (human superoxide dismutase)."

In March 1993 the U.S. Patent Office granted a patent exclusively
licensed to the Company containing broad claims for the gene encoding human
copper/zinc SOD, related recombinant expression vectors and genetically
engineered cells containing the gene. The Company believes that Chiron could not
commercialize its yeast-produced SOD product in the United States without
infringing this patent. However, the issuance of this patent does not assure the
Company's ability to commercialize OxSODrol.

In September 1995, the Israeli Registrar of Patents ruled that
BTG-Israel is entitled to a compulsory license to manufacture the Company's
Bio-Hep-B under Biogen's Israeli patent, which license will enable the Company
to produce the vaccine in Israel and likely to export the vaccine to countries
in which neither Biogen nor others have been granted a blocking patent. There
can be no assurance that a compulsory license will finally be issued and, if
issued, there can be no assurance that the issuance will not be appealed by
Biogen or overturned by a court. In 1992 Biogen sued BTG-Israel for allegedly
infringing its Israeli patent (which is the subject of the compulsory license
application) by virtue of BTG's preparation of Bio-Hep-B for use in clinical
trials. See "-- Products and Applications -- Products in Clinical Trials --
Hepatitis-B Vaccine" and "Item 3. Legal Proceedings."

-18-

three Israeli patents corresponds to two of the three U.S. patents which are the
subject of the complaint asserted by Genentech against BTG in the United States
District Court in Delaware. See "Item 3. Legal Proceedings." Additionally, in
1984 an Israeli patent application of Biogen which relates to an expression
vector was accepted; BTG is opposing the grant of this patent. There can be no
assurance that BTG will be successful in its opposition to these patents. If BTG
is unsuccessful in its opposition in Israel, then BTG may be unable to
manufacture its products in Israel.

Furthermore, in 1994 BTG filed oppositions to two allowed Genentech
patent applications in Japan relating to human growth hormone, in 1993 to one
Biogen vector patent in the EPO and in 1995 to the corresponding Biogen vector
patent in Japan. These patents correspond to the Genentech and Biogen patent
applications being opposed in Israel. There can be no assurance that BTG will be
successful in its oppositions to these patents and patent applications. If BTG
is unsuccessful in these oppositions in Japan, BTG and licensees of its products
may be unable to sell certain of its products, including hGH and SOD, in Japan.
BTG is also opposing several patents which were published for opposition in
other jurisdictions.

Janssen, a division of Johnson & Johnson, has commenced an interference
action in the U.S. Patent Office relating to a cyclodextrin patent. One claim of
this patent, which relates to the cyclodextrin patent licensed under the DOC
Agreement, is exclusively licensed to BTG. The Company is currently in
negotiations to secure a license to Janssen's patents and technology, although
there can be no assurance it will be able to obtain a license on reasonable
terms or at all. If Janssen is successful in this interference action and BTG is
unable to obtain a license, BTG may be prohibited from commercializing
Androtest-SL. See "-- Products in Clinical Trials--Sublingual Delivery System --
Androtest-SL (sublingual testosterone)" and "-- Contract Research and
Development -- License Agreement with U.S. Department of Commerce."

The Company is aware of third party patents and patent applications
related to the cloning of vWF, assigned to Scripps Clinic and Research
Foundation and assigned to Stichting Vrienden van de Stichting. The Company
believes that the likely scope of any patents granted from these applications
will be such that the manufacture, use and sale of Bio-Flow should not infringe
any valid claim of these patents, although there can be no assurance of this.
The Company believes that no valid issued claim of the Scripps patent in the
U.S. encompasses Bio-Flow. During 1995, the Scripps patent was issued by the
EPO. The Company believes that the granted claims do not encompass Bio-Flow and
decided not to oppose this patent. However, the Scripps patent has been granted
in Israel with broad claims; the Company is vigorously opposing the grant of
this patent, but there can be no assurance that the Company's opposition will be
successful or that the scope of the patent will not preclude the manufacture,
use and sale of Bio-Flow in Israel.

The Company holds an exclusive worldwide license to patents and patent
applications filed jointly by Yissum Research Development Company of the Hebrew
University of Jerusalem and American National Red Cross; so far, two related
patents have issued in the United States, and patents have also been granted in
the EPO and Israel. BTG has also filed subsequent patents in the U.S. and abroad
directed to cloning and expression of Factorex. The Company is aware of patents
and patent applications filed by Pennsylvania Hospital and Merrell Dow
Pharmaceuticals Inc. directed to other Factor Xa inhibitors, but believes that
the claims of these patents and patent applications do not encompass Factorex,
although there can be no assurance of this.

There can be no assurance that any of the patents applied for by or
licensed to BTG will issue, or that issued patents will not be circumvented or
invalidated. The Company believes that important legal issues remain to be
resolved as to the extent and scope of patent protection, and the Company
expects that litigation may be necessary to determine the validity and scope of
its and others' proprietary rights. Such litigation may consume substantial
resources. See "Item 3. Legal Proceedings."

-19-

INSTITUTIONAL AND GOVERNMENTAL RELATIONSHIPS

The Company believes its relationships with research institutions in
the United States, Europe and Israel and with the Government of Israel to be
important in its research and product development efforts. In addition to
conducting research and development at its own facilities, a portion of which is
funded through the Office of the Chief Scientist of the Ministry of Industry and
Commerce of the State of Israel (the "Chief Scientist"), the Company has funded,
and expects to continue to fund, research at universities and private research
institutions. The Company believes that these relationships greatly enhance its
research and product development efforts, and the Company intends to develop and
maintain relationships with leading universities and research institutions even
as it continues to expand its capability to conduct research and product
development at its own facilities.

The State of Israel supports and encourages research and development in
the field of high technology, as well as manufacturing for export through
programs that provide for research and development funding, export financing,
tax benefits and capital investment incentives. The Company's research and
development activities in Israel through BTG-Israel enable it to take advantage
of these programs. There can be no assurance, however, that such programs will
continue.

OPERATIONS IN ISRAEL

The Company's primary research and development and production
activities are conducted in Israel and are affected by economic, military and
political conditions there. Israel has been involved in a number of armed
conflicts with its bordering countries. During the course of military
operations, Israel's military reserves, which include a number of the Company's
employees, may be called up. To date, the Company has been able to continue its
research and development and production activities during periods of military
mobilization, although there can be no assurance that such activities could be
continued in the event of future hostilities.

Because BTG-Israel is involved in a technological industry and is an
exporter of Israeli goods, the Company has enjoyed the benefits of certain
programs promulgated by the Government of Israel in order to encourage the
development of technology and export of Israeli products. However, there can be
no guarantee that these programs will continue.

COMPETITION

Therapeutic drug development is being conducted by numerous companies
throughout the world. Competition is intense in the product areas in which the
Company has focused its efforts. Significant competition comes from independent,
dedicated biotechnology companies as well as from large, established
pharmaceutical companies. In addition, the Company's products may compete
against products developed by non-recombinant techniques. The primary
competitive factors in this field are the ability to attract and retain highly
qualified scientists and technicians, to create and maintain scientifically
advanced technology during a period of rapid technological development and to
develop proprietary products or processes.

The principal parameters influencing competition are the efficacy of
products and their production processes, the patent protection available for
such products, the timing of commercialization vis-a-vis competitors' products
and, to a limited extent, price. The Company's competitive position in the
industry varies on a product-by-product and country-by-country basis depending
upon the efficacy of the Company's products as compared to competing products,
the scope of patent protection in each country for the Company's products as
compared to competing products, whether the Company's product is the first such
product to be commercialized and, where there are a number of similar

-20-

products, the price of the Company's product as compared to its competitors'
products, and the relative strength of the Company's partner in said territory.

Many of the Company's current competitors have significantly greater
financial and organizational resources than the Company. The growth of the
biotechnology field is expected to attract new companies with significantly
greater financial resources that will enter the field through acquisitions of
existing biotechnology companies. Since technological developments are expected
to continue at a rapid pace in the biotechnology industry, the successful
development of the Company's products will be dependent upon its ability to
maintain a competitive position with respect to its technology.

EMPLOYEES

At March 1, 1996, the Company had 207 employees, most of whom are
engaged in research, development, manufacturing, quality assurance and marketing
activities, including 33 who hold Ph.D. or M.D. degrees. In addition, the
Company has consulting arrangements with scientists at various institutions and
universities in the United States and Israel.

The Company's ability to develop marketable products and to establish
and maintain its competitive position in light of technological developments
will depend, in part, on its ability to attract and retain qualified scientific,
marketing and management personnel. Competition for such personnel is intense.

None of the Company's employees is represented by a labor union and the
Company has experienced no work stoppages. The Company believes its relations
with its employees are good and has experienced a low turnover rate among its
employees.

-21-

EXECUTIVE OFFICERS OF THE COMPANY

The executive officers and other key personnel of the Company are as
follows:

Name Age Positions
- ---- --- ---------

Sim Fass 54 President, Chief Executive Officer and
Treasurer; President of BTG-Israel;
Director

Zvi Ben-Hetz 52 Vice President--Operations and Logistics
BTG-Israel

Lionel Edwards, M.D. 54 Vice President--Clinical Research

Marian Gorecki, Ph.D. 55 Senior Vice President--Chief Technical
Officer

David Haselkorn, Ph.D. 51 Senior Vice President, Chief Operating
Officer; Managing Director, BTG-Israel

Abraham Havron, Ph.D. 49 Vice President--Manufacturing, BTG-
Israel

Dov Kanner, Ph.D. 42 Vice President--Quality Assurance and
Regulatory Affairs, BTG-Israel

Nadim Kassem, M.D. 64 Senior Vice President--Chief Medical
Officer

Ernest Kelly, Ph.D. 46 Senior Vice President--Quality Assurance

Amos Panet, Ph.D. 55 Chief Scientist--BTG-Israel

Annmarie Petraglia 55 Vice President--Regulatory Affairs

William Pursley 42 Senior Vice President--Marketing, Sales
and Commercial Development

Ronald Simko 45 Vice President--Manufacturing

Yehuda Sternlicht 42 Vice President--Finance, Chief Financial
Officer

The background of these individuals is as follows:

Sim Fass, Ph.D. was elected a Director and Treasurer of the Company in
August 1983 and served as Chief Operating Officer of BTG-Israel from August 1983
to May 1987 and as President of BTG-Israel from May 1984. Dr. Fass became
President and Chief Executive Officer of the Company in May 1984. From April
1980 to August 1983, he was Vice President, General Manager of Wampole
Laboratories, a division of Carter-Wallace, Inc., a company that manufactures
health care related products. Prior to that, he held various positions at
Pfizer, Inc. from September 1969 until March 1980, including Director, Marketing
Research and Planning, Pfizer Pharmaceutical, and Vice President, Marketing and
Sales, Pfizer Diagnostics Division of Pfizer Pharmaceutical and Group Marketing
Manager of Pfizer Laboratories. Dr. Fass received his Ph.D. in developmental
biology/biochemistry from the Massachusetts Institute of Technology.

-22-

Zvi Ben-Hetz joined BTG-Israel in December 1980 as facility manager.
His work included the organization and construction of the facility and
logistics system of the Company in Israel. Between 1986 and 1988, he headed the
unit involved in the construction of the present facility in Israel, where all
the Company's research, development and manufacturing activities take place. In
1988 he was appointed Operations and Logistics Manager of BTG-Israel and in 1992
was appointed Vice President--Operations and Logistics of BTG-Israel. From 1976
until he joined BTG-Israel, Mr. Ben-Hetz worked at the Volcani Institute - the
National Institute for Agriculture Research in Israel, as a Junior Agricultural
Engineer.

Lionel Edwards, M.D. joined the Company in March 1995 as Vice
President--Clinical Research. Prior to joining the Company he was Assistant Vice
President-International Research at Hoffmann-La Roche, Inc., based in the United
States. From 1983 to 1992 he was Senior Director International Research and
Director U.S. Research at Schering Plough. From 1992 to 1994 he served on a
committee of the Institute of Medicine and a Sub- Committee for International
Harmonization (United States, European Community, Japan). He received his M.D.
degree from Guys Hospital, London University in 1966.

Marian Gorecki, Ph.D. was elected Senior Vice President--Chief
Technical Officer of the Company in June 1992. In 1986 he was appointed Vice
President and Chief Technical Officer of BTG-Israel. Prior thereto, he had
served as Vice President, Research and Development of BTG-Israel since August
1981. Prior to that, he was on the staff of the Weizmann Institute of Science
for twelve years, during which time he was an associate professor for two years.
Dr. Gorecki received his Ph.D. in biochemistry from the Weizmann Institute of
Science in 1972. He has broad experience in the fields of molecular biology and
genetic engineering as well as in peptide protein chemistry. Dr. Gorecki served
as a director of the Company from June 1992 through December 1994.

David Haselkorn, Ph.D. was appointed Vice President of the Company and
Managing Director of BTG-Israel in May 1987. In 1990, he was promoted to Senior
Vice President and Chief Operating Officer of the Company. He received his M.Sc.
degree in biochemistry from the Hebrew University in 1970 and a Ph.D degree in
chemical immunology from the Weizmann Institute of Science in 1973. From 1973 to
1982, Dr. Haselkorn rose to the rank of colonel and was appointed head of a
research and development division of the Israel Defense Forces. From 1982
through May 1987 he served as Chief Scientist of the International Eisenberg
Group of Companies. Dr. Haselkorn served as a director of the Company from
February 1992 through June 1995.

Abraham Havron, Ph.D. joined BTG-Israel in September 1987 as Director,
Manufacturing and in 1992 was appointed Vice President--Manufacturing of
BTG-Israel. Dr. Havron obtained his Ph.D. degree in bio-organic chemistry from
the Weizmann Institute of Science in 1978 and subsequently did post-doctoral
research in the Department of Radiology at Harvard Medical School. Before
joining the Company, Dr. Havron served as Production and R&D Manager at
InterPharm Laboratories Ltd., a subsidiary of Ares Serono, Inc., a multinational
pharmaceutical company.

Dov Kanner, Ph.D. was appointed to the newly-created position of Vice
President--Quality Assurance and Regulatory Affairs of BTG-Israel in September
1994. Dr. Kanner joined BTG-Israel in 1981 as a staff scientist, served as Head
of Fermentation from 1984 to 1989 and as Deputy Director, Manufacturing and
Process Development, from 1989 to 1994. He obtained his Ph.D. in microbiology
from Rutgers University in 1980.

Nadim Kassem, M.D. joined the Company in June 1992 as Senior Vice
President--Chief Medical Officer. He received his MD degree from the Hebrew
University Hadassah Medical School in 1962 and trained at Hadassah Medical
Center in Jerusalem and the VA Medical Center in the Bronx. Prior to joining BTG
he consulted extensively within the pharmaceutical industry in the pre-clinical,
clinical and regulatory affairs areas for six years. He was Vice President,
Clinical Development, for Advanced Therapeutics International from 1986 to 1988
after serving as Director, Division of Medical Research for

-23-

Revlon from 1985 to 1986. Prior to that he served for over fifteen years at
Schering Plough Corporation in a variety of senior clinical research positions.

Ernest Kelly, Ph.D. joined the Company in February 1996, in the newly
created position of Senior Vice President--Quality Assurance. Prior to joining
the Company he was Vice President, Worldwide Quality Assurance for Rhone-Poulenc
Rorer ("RPR"). From 1979 to 1996, Dr. Kelly served in positions at RPR in both
research and development and industrial operation quality assurance. Prior to
joining RPR he served Merck Sharp and Dohme from 1974 to 1979 and McNeil Labs
from 1972 to 1974 in quality assurance and analytical research positions. Dr.
Kelly received his Ph.D. in Physical Chemistry from Villanova University, served
on several United States Pharmacopeia Advisory Panels and also served as Adjunct
Professor of Pharmaceutics, Temple University.

Amos Panet, Ph.D. joined BTG-Israel in September 1986 as Assistant to
the Vice President, Research and Development. In March 1987, he was appointed
Chief Scientist. Dr. Panet obtained his Ph.D. in the field of biochemistry from
the Hebrew University of Jerusalem, and subsequently served as a post-doctoral
fellow with Drs. D. Khorana and D. Baltimore at the Massachusetts Institute of
Technology. Dr. Panet is a Professor of Virology at the Hadassah School of
Medicine of the Hebrew University.

Annmarie Petraglia joined BTG in May 1994 as Senior Director,
Regulatory Affairs and was appointed Vice President--Regulatory Affairs in
April, 1995. Previously Ms. Petraglia was Director, Regulatory Affairs and
Scientific Documentation, Daiichi Pharm. Corp. from 1991 to 1994; Vice President
Regulatory Affairs, Zambon Corp. from 1988 to 1991; Senior Vice President,
Regulatory Affairs, Advanced Therapeutics Communications [?] from 1986 to 1988;
and Director, Regulatory Affairs, American Home Products from 1984 to 1986. She
served in various regulatory affairs capacities at Schering Plough Corporation
from 1980 to 1984; as Director, Medical Analysis/Writing at Bristol Myers
International from 1973 to 1978; and Product Manager at Hoffmann-La Roche Inc.
from 1967 to 1973. Ms. Petraglia is a registered pharmacist.

William Pursley joined the Company in April 1995, in the newly created
position of Senior Vice President--Marketing, Sales and Commercial Development.
From November 1993 until April, 1994, Mr. Pursley was Chairman and CEO of
TriGenix, Inc., a virtual sales, marketing and reimbursement organization for
the biotechnology industry. Mr. Pursley was Vice President of Sales and
Marketing at Genzyme Corp. from December 1990 until November 1993. Mr. Pursley
managed the growth hormone business in the Southeast region of the U.S. for
Genentech from October 1985 until December 1990. From 1979 through October 1985,
Mr. Pursley held several sales, marketing and middle management positions at
Merck.

Ronald Simko joined the Company in August 1994 as Vice
President--Manufacturing. From 1977 to 1989, Mr. Simko worked in numerous
manufacturing capacities at Schering Plough managing the process validation
organization as well as the sterile products and tablet production operations.
From 1989 to 1994, he was at Enzon, Inc., where he served as Senior Director,
Manufacturing and Materials Management.

Yehuda Sternlicht joined BTG-Israel in July 1992 as financial manager
and in January 1993 was appointed Chief Financial Officer of the Company. In
June 1995 he was appointed Vice President--Finance and Chief Financial Officer
of the Company. From 1988 until he joined BTG-Israel he was financial manager of
Bordeaux Textile Ltd., an Israeli company. From 1985 to 1988 he served as
controller of Laser Industries Ltd., an Israeli company listed on the American
Stock Exchange. Prior to that, he held various positions at Haft & Haft, one of
the largest CPA firms in Israel. From 1983 to 1985 he worked at Haft & Haft's
affiliate's New York office. Mr. Sternlicht is qualified as a Certified Public
Accountant in the State of Israel.

-24-

ITEM 2. PROPERTY

The Company's administrative offices are currently located in Iselin,
New Jersey, where the Company has leased approximately 12,800 square feet of
office space. The lease has a term of ten years, with a base average annual
rental expense of approximately $229,000. The Company's research, development
and manufacturing facility is located in Rehovot, Israel, where BTG leases
approximately 80,000 square feet at an annual rental of approximately
$1,055,000. Construction of this facility was completed in 1988 and occupancy
commenced shortly thereafter. The lease term expires in January 1999. The
Company believes its space will be suitable and adequate for its current
activities and planned expansion over the next several years.

ITEM 3. LEGAL PROCEEDINGS

On March 16, 1993, Genentech filed a complaint with the U.S.
International Trade Commission (the "ITC") alleging, among other things, that
BTG's importation of hGH into the United States violates Section 337 of the
Tariff Act of 1930 because of the existence of certain claims in U.S. patents of
Genentech. Genentech sought an immediate investigation and an order that BTG
cease and desist from importing hGH into the United States. The trial on the
Genentech complaint was held in April 1994. In January 1995 the ITC issued a
final decision dismissing the complaint with prejudice as a sanction for
Genentech's conduct which resulted in an incomplete record and violated the due
process rights of BTG and Novo-Nordisk A/S, another respondent in the
proceeding. The ITC also found no violation by BTG of Section 337 of the Tariff
Act of 1930. Genentech appealed the ITC decision to the United States Court of
Appeals for the Federal Circuit (the "CAFC"). The appeal was heard on December
4, 1995, and a decision is pending. During 1993 and 1994, BTG incurred total
legal fees of approximately $4.2 million relating to the ITC proceeding. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Results of Operations."

On December 1, 1994, Genentech filed a lawsuit against BTG in the
United States District Court for the District of Delaware alleging that BTG's
importation of hGH infringed two Genentech process patents. In January 1995, BTG
commenced an action against Genentech in the United States District Court for
the Southern District of New York seeking, among other things, declaratory
judgments as to the non-infringement, invalidity and unenforceability of such
Genentech patents as well as damages resulting from Genentech's actions in the
ITC proceedings. The Delaware action was consolidated with the New York action,
and in August 1995 the United States District Court for the Southern District of
New York granted a preliminary injunction prohibiting the commercial
introduction in the U.S. of BTG's hGH. BTG appealed to the CAFC, and the appeal
was heard on December 4, 1995 (during the same session as the ITC appeal
discussed above). The decision is pending. Unless the preliminary injunction is
stayed or overturned on appeal, of which there can be no assurance, BTG will be
precluded from marketing and distributing its human growth hormone in the United
States pending the outcome of the patent infringement action. Although BTG
believes that it does not infringe any valid Genentech patent, there can be no
assurance that BTG will not be found to be infringing Genentech's patents. If
BTG is ultimately found by the district court to infringe one or more claims in
Genentech's U.S. patents, it likely will be precluded from selling its hGH in
the United States. During 1995, the Company incurred total legal fees relating
to this litigation of approximately $824,000, which amount has been capitalized.
The Company expects to incur substantial legal fees in defending and prosecuting
these lawsuits in respect to Genentech.

During 1991, BTG received notification from the U.S. Patent Office
Board of Patent Appeals and Interferences of the declaration of an interference
between an issued patent assigned to BTG covering a method for producing
enzymatically active human copper/zinc SOD in bacteria and a pending application
of Chiron which claims an earlier filing date. While BTG is vigorously defending
its patent, it cannot predict the outcome of such

-25-

interference. However, should BTG's patent be disallowed and a corresponding
patent be issued to Chiron, BTG's present method of producing enzymatically
active human copper/zinc SOD in bacteria may need to be altered, which may or
may not be possible; alternatively, BTG could seek a license to market under
Chiron's patent, which may or may not be available. Subsequent to the
interference being declared, Chiron was issued a U.S. patent for the bacterially
produced form of recombinant human copper/zinc SOD. BTG is seeking to have the
Patent Office either expand the scope of the existing interference action or
declare a separate interference to determine that BTG rather than Chiron should
hold the patent for the bacterially produced form of recombinant human
copper/zinc SOD on the basis that BTG scientists, not Chiron scientists,
invented the method for producing recombinant human copper/zinc SOD in bacteria.
Unless BTG is able to prevail in this effort or to obtain a license from Chiron,
BTG may be unable to commercialize OxSODrol in the United States. This matter is
currently under consideration by the Patent Office. In addition, the Israeli
Patent Office has accepted a Chiron patent application covering a DNA construct
having certain specified functions for expression of active copper/zinc SOD and
a method for production of active copper/zinc SOD in a microorganism harboring
this construct. BTG is opposing the grant of this patent; however, there can be
no assurance that this opposition will be successful. If the opposition is
unsuccessful, BTG may be precluded from manufacturing OxSODrol in Israel. See
"Item 1. Business -- Products and Applications -- Products in Clinical Trials --
OxSODrol (human superoxide dismutase)."

In March 1993, the U.S. Patent Office issued a patent exclusively
licensed to BTG containing broad claims for the gene encoding human copper/zinc
SOD, related recombinant expression vectors and genetically engineered cells
containing the gene. BTG believes that Chiron could not commercialize its
yeast-produced SOD product in the United States without infringing this patent.
However, the issuance of this patent does not assure BTG's ability to
commercialize OxSODrol.

In September 1991, the Company received a letter from Biogen stating
that it believed that the Company's recombinant surface antigen of the
hepatitis-B virus, which is an active ingredient of the Company's Bio-Hep-B, or
the Company's intermediates for the process of making such antigen, falls within
the claims of one or more of Biogen's patents and/or patent applications. To
date, the Company's activities with respect to its Bio-Hep-B have been limited
to research and clinical evaluations, which activities the Company believes do
not infringe Biogen's patent rights. The Company has also made inquiries of
Biogen and SmithKline Beecham (the exclusive licensee of all of Biogen's
hepatitis-B patents except those in Japan) requesting that the Company be
granted a license to the Biogen patents; however, such efforts have not been
successful to date.

In January 1992, BTG-Israel filed an application in the Israeli Patent
Office for a compulsory license to manufacture BTG's Bio-Hep-B under Biogen's
Israeli patent which license, upon approval, would enable BTG to produce the
vaccine in Israel and likely to export the vaccine to countries in which neither
Biogen nor others have been granted a blocking patent. In September 1995 the
Registrar ruled in an interlocutory decision that BTG-Israel is entitled to a
compulsory license to the Biogen patent. Biogen's appeal of the interlocutory
decision was rejected. The Registrar now has to finalize the terms of the
license, including royalties to be paid by BTG to Biogen. A hearing is scheduled
for April 1996. There can be no assurance that a compulsory license will finally
be issued and there can be no assurance that if it issues, the grant will not be
appealed by Biogen or overturned by a court. If a compulsory license is not
issued or if a court overturns the issuance, BTG may not be able to manufacture
or sell its Bio-Hep-B in Israel or to export such product from Israel unless the
patent is revoked. In August 1992, Biogen sued BTG-Israel for allegedly
infringing its Israeli patent (which is the subject of the compulsory license
application) by virtue of its preparation of BTG's Bio-Hep-B for use in clinical
trials, and applied for an interlocutory injunction restraining BTG-Israel from
continuing R&D and clinical trials. In June 1993, the District Court of Tel
Aviv, Israel denied Biogen's application for an interlocutory injunction in
connection with research and development and clinical trials, but did prohibit
BTG-Israel from commercial marketing of Bio-Hep-B unless permitted by Biogen or
its exclusive licensee, until a compulsory license is obtained, or until

-26-

the patent is revoked. See "Item 1. Business -- Products and Applications --
Products in Clinical Trial -- Hepatitis-B Vaccine."

Three patent applications of Genentech in Israel which cover general
methods relating to genetically engineered products and to human growth hormone
were accepted in 1983 (two) and 1985 (one). BTG is opposing the grant of these
patents. One of these three Israeli patents corresponds to the two U.S. patents
which are the subject of the complaint asserted by Genentech against BTG in the
United States District Court in Delaware. Additionally, in 1984 an Israeli
patent application of Biogen which relates to expression vectors was accepted;
BTG is opposing the grant of this patent. There can be no assurance that BTG
will be successful in its opposition to these patents. If BTG is unsuccessful in
its opposition in Israel, then BTG may be unable to manufacture its products in
Israel.

Furthermore, in 1994 BTG filed oppositions to two allowed Genentech
patent applications in Japan relating to human growth hormone and in 1993 to one
Biogen vector patent in the EPO, which were all published for opposition. These
patents correspond to the Genentech and Biogen patent applications being opposed
in Israel. There can be no assurance that BTG will be successful in its
oppositions to these patent applications. If it is unsuccessful in these
oppositions, BTG and licensees of its products may be unable to sell certain of
its products, including hGH, in Japan.

The Company has also initiated proceedings in Israel to oppose the
grant to several of its competitors of patents relating to vector systems, and
may as necessary oppose corresponding patents in other jurisdictions.
Additionally, during 1991 and 1992, proceedings were initiated in Israel to
oppose the grant of patents relating to OxSODrol and to Bio-Flow, respectively.
Although the outcome of the proceedings cannot be predicted with certainty and
will likely not be determined for several years, the Company believes that the
outcome will be favorable, although there can be no assurance of this. The
Company is aware of patent applications filed by, or patents issued to, other
entities with respect to technology potentially useful to the Company and, in
some cases, related to products and processes being developed by the Company.
The Company cannot presently assess the effect, if any, that these patents may
have on its operations. The extent to which efforts by other researchers have or
will result in patents and the extent to which the issuance of patents to others
would have a materially adverse effect on the Company or would force the Company
to obtain licenses from others are currently unknown.

Janssen, a division of Johnson & Johnson, has commenced an interference
action in the U.S. Patent Office relating to a cyclodextrin patent. A claim of
this patent, which relates to the cyclodextrin patent licensed under the DOC
Agreement, is exclusively licensed to BTG. If Janssen is successful in the
interference proceeding, BTG may not be able to market Androtest-SL in the
United States without a license, which may not be available. The Company is
currently in negotiations to secure a license to Janssen's patents and
technology, although there can be no assurance it will be able to obtain a
license on reasonable terms or at all. If Janssen is successful in this
interference action and BTG is unable to obtain a license, BTG may be prohibited
from commercializing Antrotest-SL. See "Item 1. Business -- Products in Clinical
Trials -- Sublingual Delivery System -- Androtest-SL (sublingual testosterone)"
and "-- Contract Research and Development--License Agreement with U.S.
Department of Commerce."

ITEM 4. SUBMISSION OF MATTERS TO A VOTE

None

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

The Company's common stock is quoted on the National Association of
Securities Dealers Automated Quotation System ("Nasdaq") National Market under
the symbol BTGC. The following table sets forth, for the periods indicated, the
high and low sale prices per share of the Company's common stock from January 1,
1994 through December 31, 1995 as reported by the Nasdaq National Market.

High Low
1994 ---- ---
----
First Quarter.........................................5 7/8 4 1/4
Second Quarter........................................4 3/8 2 3/8
Third Quarter.........................................3 1/16 2
Fourth Quarter........................................3 1 1/2

1995
----
First Quarter.........................................2 3/4 2
Second Quarter........................................4 1/4 2
Third Quarter.........................................3 11/16 2 13/16
Fourth Quarter........................................5 3 1/16

The number of stockholders of record of the Company's common stock on March
20, 1996 was approximately 1,600.

The Company's warrants to purchase common stock at a purchase price of
$5.49 per share are quoted on the Nasdaq National Market under the symbol BTGCL.
The Company's warrants to purchase common stock at a purchase price of $6.00 per
share are quoted on the Nasdaq National Market under the symbol BTGCZ. See Note
5 of Notes to Consolidated Financial Statements.

The Company has never declared or paid a cash dividend on its common stock,
and it is not expected that cash dividends will be paid to the holders of common
stock in the foreseeable future. In addition, the indentures under which the
7 1/2% Convertible Senior Subordinated Notes due April 15, 1997, and the Series
B 11% Senior Secured Convertible Notes due October 15, 1998 were issued prohibit
the payment of cash dividends on the Company's common stock.

-28-

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands except per share data)

For the year ended December 31,
--------------------------------------------------------
1991 1992 1993* 1994 1995
--------------------------------------------------------
Statement of Operations Data:

Total revenues ............................. $ 5,879 $ 8,025 $ 13,867 $ 17,440 $ 27,960
Total expenses.............................. 13,944 18,560 36,692 26,359 24,544
Extraordinary gain.......................... -- -- -- 1,500 1,363
Net income (loss)........................... (8,065) (10,535) (22,825) (7,419) 4,779
Extraordinary gain per share................ -- -- -- 0.04 0.03
Net income (loss) per share................. (0.31) (0.32) (0.63) (0.19) 0.11
Weighted average shares
outstanding................................. 26,220 33,410 36,180 38,725 43,784

As of December 31,
-------------------------------------------------------
1991 1992 1993* 1994 1995
-------------------------------------------------------
Balance Sheet Data:

Working capital............................. $ 24,997 $ 20,863 $ 12,274 $ 13,652 $ 15,200
Total assets................................ 37,138 36,831 31,086 32,340 31,737
Long-term liabilities....................... 4,135 5,987 3,648 1,389 661
Stockholders' equity........................ 30,784 27,487 20,082 23,182 25,689

- -------------------------------------

* See Notes 2 and 11 of Notes to Consolidated Financial Statements for a
discussion of merger expenses of $1.4 million and research and development
financing expenses of $10.2 million, respectively, included in the Company's net
loss for the year ended December 31, 1993.

-29-

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The Company has been principally engaged in research and product
development activities since it commenced operations in October 1980 and
currently has several products being marketed. On August 6, 1993 the Company
completed its acquisition of Gynex Pharmaceuticals, Inc. by merging Gynex into a
wholly-owned subsidiary of the Company, BTG Pharmaceuticals Corp. The merger was
accounted for as a pooling of interests for accounting and financial reporting
purposes.

Net income (loss) for the years ended December 31, 1993, 1994 and 1995
includes: (i) extraordinary gains from debt forgiveness of $1,500,000 and
$1,363,000 in 1994 and 1995, respectively; (ii) legal fees of approximately
$2,200,000 and $2,000,000 for the years ended December 31, 1993 and 1994,
respectively, relating to the ITC complaint filed by Genentech; (iii) research
and development financing expenses of $10,241,000 in 1993, representing the
uncertain realizability of the value of a stock purchase option and related
expenses in connection with the research and development financing with
Bio-Cardia Corporation ("Bio-Cardia"), and $806,000 in 1995 representing the
net funds provided to Bio-Cardia by BTG in respect of an exchange offer and the
deferred revenues received from Bio-Cardia prior to such exchange offer; (iv) in
1995, $3,004,000 of research and development revenues under collaborative
agreements resulting from the receipt by the Company of warrants to purchase
shares of the Company's common stock obtained by Bio-Cardia from its defaulted
stockholders in partial satisfaction of amounts owed by Bio-Cardia to BTG for
research and development; and (v) in 1993 merger expenses of $1,355,000. The
deficit at December 31, 1995 was $91,528,000.

Revenues from product sales, derived primarily from the Company's hGH,
Oxandrin, BioLon and Delatestryl products, amounted to $10,067,000, $11,047,000
and $21,428,000, or 76%, 65% and 79%, respectively, of total revenues (exclusive
of interest income), for the years ended 1993, 1994 and 1995, respectively. In
1993 the Company's hGH was approved by the Japanese Ministry of Health and
Welfare, and JCR, the Company's licensee in Japan, launched the product in Japan
in June 1993. During 1993, 1994 and 1995, JCR purchased approximately
$5,611,000, $5,170,000 and $9,853,000 of hGH, representing 56%, 47% and 46%,
respectively, of total product sales. See "Item 1. Business--Products under
Commercialization--Bio-Tropin (human growth hormone) -- Growth Hormone
Deficiency." In 1993 the Company launched its BioLon product in several
countries and during the years ended December 31, 1993, 1994 and 1995, sold
approximately $726,000, $1,871,000 and $3,781,000 of BioLon, representing 7%,
17% and 18%, respectively, of product sales. See "Item 1. Business--Products
under Commercialization--BioLon (sodium hyaluronate)." In December 1995 the
Company launched Oxandrin for the treatment of weight loss, which accounted for
approximately $2,992,000, or 14%, of 1995 product sales. See "Item 1.
Business--Products under Commercialization--Oxandrin (oxandrolone)."

For the years ended December 31, 1993, 1994 and 1995, contract fees,
which consist of licensing and option to license fees, amounting to $428,000,
$762,000 and $591,000, or 3%, 4% and 2%, respectively, of total revenues
(exclusive of interest income), were earned from certain of the Company's
collaborative partners. Of the contract fees earned in 1993, $253,000 was earned
in respect of the license of BioLon in Europe, South America and Canada and
$175,000 in respect of the license of the Company's oral contraceptive dosing
regimen. In 1994 contract fees of $500,000, $160,000 and $87,000 were earned in
respect of the license of marketing rights of oxandrolone in Australia, hGH in
Canada and Latin

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America and BioLon in Europe and Latin America, respectively. Of the contract
fees earned in 1995, $345,000 was earned in respect of the license of marketing
rights of hGH in Latin America and the Far East and $245,000 in respect of
BioLon in Latin America and Europe.

For the years ended December 31, 1993, 1994 and 1995, research and
development revenues under collaborative agreements, which consist of research
funding, (other than funding from the Chief Scientist of the Israeli government
("Chief Scientist")), amounting to $1,340,000, $3,652,000 and $4,041,000, or
10%, 22% and 15%, respectively, of total revenues (exclusive of interest
income), were earned primarily from the National Institutes of Health ("NIH")
and in 1993 and 1994 from the U.S. Army and in 1994 and 1995 from Bio- Cardia.
In 1993, $810,000, or 60% of research and development revenue under
collaborative agreements, was earned with respect to AIDS research performed for
the NIH and $530,000 in aggregate from other projects. Of the research and
development revenues under collaborative agreements earned in the year ended
December 31, 1994, $2,950,000, or 81% of total research and development revenues
under collaborative agreements, was earned in respect of research and
development activities conducted pursuant to the research and development
agreement and service agreement which the Company entered into with Bio- Cardia
in December 1993, including $275,000 representing reimbursement of previously
incurred research and development expenses. In 1995, $3,486,000 or 86% of total
research and development revenues under collaborative agreements, resulted from
the receipt by the Company of warrants to purchase shares of its common stock,
obtained by Bio-Cardia from its defaulted stockholders in the amount of
$3,004,000 and net cash received from Bio-Cardia in the amount of $482,000. Of
the remainder of research and development revenues under collaborative
agreements, $507,000 was earned in respect of research and development for the
NIH. Research and development revenues under collaborative agreements from the
NIH represented 60%, 18% and 13% of total research and development revenues
under collaborative agreements in 1993, 1994 and 1995, respectively. See
"--Liquidity and Capital Resources," "Item 1. Business--Contract Research and
Development--Bio-Cardia Corporation" and Note 11 of Notes to Consolidated
Financial Statements.

Other revenues, which include partial funding of several of the
Company's research and development projects by the Chief Scientist, aggregated
$1,461,000, $1,476,000 and $1,113,000 for the years ended December 31, 1993,
1994 and 1995, respectively. Other revenues represented 11%, 9% and 4% of total
revenues (exclusive of interest income) in the years ended December 31, 1993,
1994 and 1995, respectively. Funding from the Chief Scientist represented 87%,
96% and 99% of other revenues in the years ended December 31, 1993, 1994 and
1995, respectively. The Company annually applies to the Chief Scientist for
research and development funding for its various projects for the coming year.
The projects and amount funded each year are within the sole discretion of the
Chief Scientist. There can be no assurance that the Company will be able to
continue to secure additional funds from the Chief Scientist at the same levels
or at all. The Company is obligated, for products resulting from research and
development partially funded by the Chief Scientist, to pay royalties to the
Chief Scientist of 1% to 2% on commercial sales, if any, of these products if
produced in Israel up to the amount so funded or royalties of 3% if produced
outside Israel up to 150% of the amount so funded.

Interest income was $571,000, $503,000 and $787,000 for the years ended
December 31, 1993, 1994 and 1995, respectively. The increase in interest income
in 1995 was derived primarily from an increase in cash balances resulting from
$9,000,000 received from financing transactions consummated in October 1994 as
well as higher yields.

In the years ended December 31, 1994 and 1995 the Company recognized an
extraordinary gain of $1,500,000 and $1,363,000, respectively, resulting from
the Company's

-31-

payment, in January 1994, of $1,500,000 to SB in full satisfaction of its
$3,000,000 obligation and from the Company's payment, in July 1995, of
$1,000,000 to Du Pont Merck in full satisfaction of its $2,363,000 obligation.
See "-- Liquidity and Capital Resources."

Expenditures for research and development were $13,811,000, $13,714,000
and $10,935,000 for the years ended December 31, 1993, 1994 and 1995,
respectively. The decrease in research and development expenditures in 1995 is
mainly due to the change in the focus of the Company's activities from research
and development towards the Company's commercialized products and those which
are nearing commercialization and away from early stage research and development
activities. Of total research and development expenses, expenditures for
research and development conducted on behalf of Bio-Cardia pursuant to a
research and development agreement were approximately $5,314,000 and $4,467,000
in the years ended December 31, 1994 and 1995, respectively. However, due to
default by certain Bio-Cardia stockholders in 1994, Bio-Cardia was only able to
pay BTG $2,467,000 (plus management fees) of the $5,314,000 due; the remaining
$2,847,000 was not recognized as revenues because of the uncertainty of the
realizability of such amounts. Of the $4,467,000 due BTG from Bio-Cardia in
1995, only $482,000 was reimbursed to the Company in cash and $3,004,000 was
reimbursed through the return of warrants to purchase the Company's common stock
obtained by Bio-Cardia; the remaining $981,000 has not been recognized as
revenues. See "--Liquidity and Capital Resources." In 1993 the Company fully
amortized patents related to non-commercial products, which increased
amortization by approximately $931,000.

Cost of product sales, primarily related to commercial sales of hGH,
Oxandrin, BioLon and Delatestryl, were $1,592,000, $2,168,000 and $3,913,000 in
1993, 1994 and 1995, respectively. Cost of product sales as a percentage of
product sales varies from year to year depending on the quantity and mix of
products sold. Cost of product sales as a percentage of product sales is
expected to decrease as the quantity sold increases due to economies of scale.
In addition, certain products, such as hGH, have a lower cost of sales than
other products.

General and administrative expenses were $9,045,000, $9,743,000 and
$8,005,000 in the years ended December 31, 1993, 1994 and 1995, respectively.
Included in 1993 and 1994 are substantial legal fees relating to the complaint
filed by Genentech with the ITC relating to hGH, on which the Company spent
approximately $2.2 million in 1993 and $2.0 million in 1994, and the suit filed
by Biogen Inc. and the application for a compulsory license filed by the Company
in respect of the hepatitis-B vaccine, as well as the amortization of marketing
rights of hGH in Europe. The decrease in 1995 resulted primarily from the
decrease in legal expenses as a result of the completion of the ITC proceedings
relating to hGH and the Company's decision to capitalize the $824,000 of its
legal fees incurred in respect of the Company's litigations with Genentech
relating to hGH. See "Item 1. Business--Patents and Proprietary Rights" and
"Item 3. Legal Proceedings."

For the years ended December 31, 1993, 1994 and 1995, interest and
finance expense amounted to $374,000, $290,000 and $159,000, respectively.
Interest expenses in 1993 and 1994 resulted primarily from interest on the
minimum royalty balance payable to The Du Pont Merck Pharmaceutical Company ("Du
Pont Merck") in respect of the reacquisition of rights to hGH in the United
States. In 1989 the Company exchanged existing long-term debt for new long-term
debt and shares of common stock. The transaction was accounted for in accordance
with Statement of Financial Accounting Standards No. 15 under which the total
maximum future interest payments were capitalized and included as a long-term
liability on the Company's balance sheet. As such the Company does not record
interest

-32-

expense for interest payments made on these securities. See "--Liquidity and
Capital Resources" and Note 4 of Notes to Consolidated Financial Statements.

Commissions and royalties expense for the years ended December 31,
1993, 1994 and 1995 were $274,000, $444,000 and $726,000, respectively. These
expenses consist primarily of royalties to the Chief Scientist and to entities
from which the Company licensed certain of its products and commissions to
marketing intermediaries.

In 1993 the Company incurred $1,355,000 of merger expenses which
consist primarily of legal, investment banking and accounting fees in connection
with the acquisition of Gynex.

On December 31, 1993, the Company and Bio-Cardia completed a private
placement of 375 units, each unit consisting of four shares of common stock of
Bio-Cardia and warrants ("Warrants") to purchase 15,000 shares of the Company's
common stock. In consideration of the Warrants included in the units, the
Company received from each purchaser of units an option (the "Stock Purchase
Option"), exercisable at any time on or prior to December 31, 1997, to purchase
the Bio-Cardia stock at a purchase price beginning at 125% and increasing over
time to 200% of the cash portion of the price paid for such stock. In connection
with the financing, the Company issued Warrants to purchase an aggregate of
6,206,250 shares, consisting of (i) the 5,625,000 Warrants issued to investors
in Bio-Cardia in consideration of their grant of the Stock Purchase Option to
the Company, (ii) the 562,500 Warrants issued to D. Blech & Company,
Incorporated, the placement agent in the financing, and (iii) the 18,750
Warrants issued to the directors of Bio-Cardia. The Company expensed
$10,241,000, equal to the aggregate value of the Warrants as determined by an
independent investment banking firm, representing (i) the uncertain
realizability of the value of such Stock Purchase Option, (ii) the Company's
expenses of the financing and (iii) director compensation expense, respectively.
In December 1995, Bio-Cardia returned to BTG Warrants to purchase 2,670,000
shares of the Company's common stock in partial payment of amounts Bio-Cardia
owed to BTG; as a result, BTG recognized research and development revenues under
collaborative agreements of $3,004,000. In 1995, the Company expensed $806,000
relating to Bio-Cardia, representing the net funds provided to Bio-Cardia
following Bio-Cardia's default under its agreements with the Company. The net
funding provided to Bio-Cardia consisted of: (i) $1,710,000 received from
Bio-Cardia in 1994 but not recognized as revenues, which amount was included in
other current liabilities on the December 31, 1994 balance sheet and was
returned to Bio-Cardia by BTG to fund the Exchange Offer discussed below; (ii)
$210,000 received from Bio-Cardia in 1995, prior to the Exchange Offer, but not
recognized as revenues and returned to Bio-Cardia by the Company to fund the
Exchange Offer discussed below; and (iii) $2,726,000 provided to Bio-Cardia to
fund the Exchange Offer discussed below (including the $1,920,000 referred to in
(i) and (ii) above). See "--Liquidity and Capital Resources" and "Item 1.
Business--Contract Research and Development--Bio-Cardia Corporation."

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS
123"), which will require companies either to reflect in their financial
statements or reflect as supplemental disclosure the impact on earnings and
earnings per share of the fair value of stock based compensation using certain
pricing models for the option component of stock option plans. It is the
Company's intention to continue to account in its basic financial statements
under the general philosophy of Accounting Principles Board Opinion No. 25, as
allowed under the new standard, which measures only the intrinsic option value
as compensation. Disclosure, as required by SFAS 123, will be made commencing
with the Company's financial statements for the year ending December 31, 1996
and will reflect the impact of the compensation for

-33-

options issued in 1995 and 1996 (if any) in the Notes to the Consolidated
Financial Statements. Accordingly, SFAS 123 has no impact on the financial
position and results of operations for any period described herein.

LIQUIDITY AND CAPITAL RESOURCES

The Company's working capital at December 31, 1995 was $15,200,000 as
compared to $13,652,000 at December 31, 1994.

The Company's cash requirements have been and continue to be satisfied
primarily through (i) product sales, (ii) contract fees, (iii) funding of
projects through collaborative research and development arrangements, (iv)
government of Israel funding of certain research and development projects and
(v) equity and debt financings. There can be no assurance that these financing
alternatives will be available in the future to satisfy the Company's cash
requirements.

The major portion of the Company's revenues is derived from product
sales and the Company's collaborative arrangements, under which the Company may
earn up-front contract fees, may receive funding for additional research, is
reimbursed for producing certain experimental materials, may be entitled to
certain milestone payments, may sell product at specified prices, and may
receive royalties on sales of product. Revenues have in the past displayed and
will in the immediate future continue to display significant variations due to
the obtaining of new research and development contracts and licensing
arrangements, the completion or termination of such contracts and arrangements,
the timing and amounts of milestone payments, and the timing of regulatory
approvals of products.

BTG manages its Israeli operations with the objective of protecting
against any material net financial loss in U.S. dollars from the impact of
Israeli inflation and currency devaluations on its non-U.S. dollar assets and
liabilities. The Bank of Israel's monetary policy is to manage the exchange rate
while allowing the Consumer Price Index to rise by approximately 11% in 1993,
14% in 1994 and 8% in 1995. For those expenses linked to the Israeli Shekel,
such as salaries and rent, this resulted in corresponding increases in these
costs in U.S. dollars. In 1993, 1994 and 1995, the Shekel was devalued by
approximately 8%, 1% and 4%, respectively, against the U.S. dollar. As a result
of the devaluations of the Shekel and modest increases in cost-of-living
adjustments in Shekel salaries in 1993, BTG's costs of local goods and services
in Israel measured in U.S. dollars remained relatively constant in 1993 despite
the rise in the Consumer Price Index. However, because of the insignificant
devaluation of the Shekel against the U.S. dollar despite the 14% and 8% annual
rate of increase in the Consumer Price Index during 1994 and 1995, respectively,
BTG's costs of local goods and services, to the extent linked in whole or in
part to the Consumer Price Index, increased in U.S. dollar terms in 1994 and
1995. To the extent that expenses in Shekels exceed BTG's revenues in Shekels
(which to date have consisted primarily of research funding from the Chief
Scientist and sales of Bio-Tropin and BioLon in Israel), the devaluations of
Israeli currency have been and will continue to be a benefit to BTG's financial
condition. However, should BTG's revenues in Shekels exceed its expenses in
Shekels in any material respect, the devaluation of the Shekel will adversely
affect BTG's financial condition. Further, to the extent the devaluation of the
Shekel with respect to the U.S. dollar does not substantially offset the
increase in the costs of local goods and services in Israel, BTG's financial
results will be adversely affected as local expenses measured in U.S. dollars
will increase. There can be no assurance that the government of Israel will
continue to devalue the Shekel from time to time to offset the effects of
inflation in Israel.

-34-

The Company maintains its funds in money market funds, commercial
papers and other liquid short-term debt instruments. BTG's investment policy is
to preserve principal and to avoid risk. See Note 1c of Notes to Consolidated
Financial Statements.

The cash flows of the Company have fluctuated significantly due to the
impact of net income and losses, capital spending, working capital requirements
and issuances of common stock and other financings. The Company expects that
cash flow in the near future will be primarily determined by the levels of net
income plus depreciation and amortization, and financings, if any, undertaken by
the Company. In the year ended December 31, 1995, net cash decreased by
$10,005,000, primarily as a result of an increase in accounts receivable
($3,621,000), prepaid expenses and other current assets ($1,075,000) and
inventories ($486,000), short-term investments of $8,445,000, capital
expenditures of $1,480,000, changes in patents of $836,000 and repayment of
long-term debt in the amount of $1,000,000, partially offset by income before
extraordinary gain of $3,416,000 (including $3,004,000 of research and
development revenues under collaborative agreements resulting from the receipt
by the Company of Warrants to purchase shares of its common stock obtained by
Bio-Cardia from its defaulted stockholders), proceeds from the sale of
short-term investments of $4,475,000 and depreciation and amortization of
$2,622,000. In the year ended December 31, 1994 net cash increased by $840,000,
primarily resulting from proceeds of $9,843,000 derived from issuance of common
stock, of which $9,000,000 was received from financing transactions consummated
in October 1994, depreciation and amortization of $2,849,000 and an increase in
accounts payable and other current liabilities of $1,502,000, which was
partially offset by net loss of $7,419,000 (including $2,847,000 of research and
development expenditures made on behalf of Bio-Cardia which have not been, and
are not expected to be, reimbursed), extraordinary gain resulting from debt
forgiveness of $1,500,000 and payment of long-term debt of $1,800,000
(consisting of the payments to SB and to Du Pont Merck described below). The net
cash used in investment activities during 1994 was approximately $1,814,000. In
the year ended December 31, 1993 net cash decreased by $5,821,000, primarily
resulting from a net loss of $22,825,000 and an increase in receivables of
$1,115,000 which was partially offset by proceeds of $4,697,000 derived from the
issuance of common stock as a result of the exercise of outstanding options and
warrants, research and development financing expense of $10,241,000 arising from
the issuance of Warrants, depreciation and amortization of $3,636,000 and an
increase in other current liabilities. The net cash used in investing activities
in 1993 was $1,692,000.

BTG does not currently have any material commitments for capital
expenditures.

In January 1995, $185,000 aggregate principal amount of the Series A
7 1/2% Senior Secured Convertible Notes were converted into shares of common
stock; the remaining $30,000 aggregate principal amount was repaid at maturity.
During 1995, holders of Series B Notes converted an immaterial principal amount
of these notes into shares of common stock.

In June 1991, the Company concluded an agreement with Du Pont Merck
pursuant to which it reacquired all the rights relating to the Company's hGH
that had been licensed by BTG to Du Pont, together with all rights to all data
generated in pharmacological, toxicological and clinical studies and encompassed
in the Investigational New Drug Application and New Drug Application files then
pending with the U.S. Food and Drug Administration for the treatment of human
growth hormone deficient children. The Company issued to Du Pont Merck 275,000
shares of common stock, which the Company subsequently registered for resale by
Du Pont Merck and which Du Pont Merck sold. In addition, the Company agreed to
pay Du Pont Merck royalties on net sales of hGH up to a maximum of $5,000,000. A
minimum royalty of $2,000,000 (using a 10% 1991 present value)

-35-

was to be paid. Three hundred thousand dollars of the minimum royalty was due
December 31, 1993 and was paid in February 1994. The remainder of the minimum
royalty was to be paid as follows: $500,000 to be paid by December 31, 1994,
which was not paid; $500,000 to be paid by December 31, 1995; $700,000 to be
paid by December 31, 1996; and the remainder to be paid by December 31, 1997. In
1995 the Company paid Du Pont Merck $1,000,000 in full satisfaction of its
obligation to Du Pont Merck. As a result, the Company recorded an extraordinary
gain of approximately $1,363,000 in 1995.

In June 1991, the Committee for Proprietary Medicinal Products ("CPMP")
of the European Economic Community ("EEC") approved SmithKline Beecham's ("SB")
application for the use of the Company's hGH for growth hormone deficient
children. The Company made an initial sale of hGH to SB in December 1991
totaling $1,033,000. In November 1992, the Company and SB entered into an
agreement, effective July 17, 1992, whereby the Company reacquired all rights to
its human growth hormone in Europe and certain other countries previously
licensed to SB. The reacquired rights include the EEC CPMP approval of the use
of the Company's hGH for growth hormone deficient children, together with all
individual EEC member country approvals and pricing approvals obtained by SB to
date. The license agreement was terminated in connection with the reacquisition
of rights. Simultaneous with the execution of the agreement with SB, the Company
entered into an exclusive distribution agreement with the Ferring Group for the
marketing of the Company's human growth hormone for the enhancement of growth
and stature in children. The agreement covers all of Europe as well as countries
comprising the former Soviet Union. Sales began during the fourth quarter of
1994 in The Netherlands and Germany, in early 1995 in Sweden, Belgium, Ireland
and Luxembourg and later in 1995 in the United Kingdom, France, Spain and
Denmark. In connection with the reacquisition of rights from SB, the Company
agreed to pay SB an aggregate of $3,000,000 over a period of up to five years,
approximating SB's payments to the Company under the license agreement. In 1994
the Company paid SB $1,500,000 in full satisfaction of its obligation to SB.
Accordingly, the Company recorded an extraordinary gain of $1,500,000 during
1994.

On December 31, 1993, the Company and Bio-Cardia Corporation
("Bio-Cardia") completed a private placement of 375 units (the "Offering"), each
unit ("Unit") consisting of four shares of common stock of Bio-Cardia and
Warrants to purchase 15,000 shares of the Company's common stock. All of the
cash proceeds of the financing were to be received by Bio-Cardia. In
consideration of the Warrants included in the Units, the Company received from
each purchaser of Units an option (the "Stock Purchase Option"), exercisable at
any time on or prior to December 31, 1997, to purchase the Bio-Cardia stock at a
purchase price beginning at 125% and increasing over time to 200% of the cash
portion of the price paid for such stock. Such purchase price could be paid in
cash, shares of the Company's common stock or both, at the Company's discretion.
In connection with the closing of the financing, the Company licensed to
Bio-Cardia the right to pursue (i) the worldwide development and
commercialization of the Company's Imagex, Bio-Flow, Factorex and Bio-Lase
products for all cardiovascular indications, the Company's OxSODrol product for
the inhibition of reocclusion of coronary arteries during and after thrombolysis
or angioplasty or in cases of unstable angina, and for the prevention of
restenosis, and the Company's OxSODrol product for the treatment of
bronchopulmonary dysplasia in premature neonates, and (ii) the development and
commercialization of the Company's sodium hyaluronate-based products for
ophthalmic applications in the United States and Japan to protect the corneal
endothelium during intraocular surgery and other pharmaceutical applications
where a shock-absorbing and lubricating material compatible with the human body
is required. The Company conducted research, development and clinical testing of
these products on behalf of Bio-Cardia, had the exclusive option, during the
period the Stock Purchase Option was

-36-

outstanding with respect to each product, to commercialize, directly or through
others, such product, and was obligated to supply Bio-Cardia with all its
requirements for such products.

Bio-Cardia and the Company had originally budgeted approximately $32
million of the net proceeds of the Offering (less if the Stock Purchase Option
was exercised prior to January 1, 1997) to fund development and
commercialization of the products licensed to Bio-Cardia over a period of four
years and to reimburse BTG for previously incurred research and development
expenses. However, holders of 221 Units failed to make the required July 1, 1994
payment of $10,000 per Unit, which resulted in Bio-Cardia being unable to pay
approximately $1,540,000 of the $3,250,000 in reimbursement of previously
incurred research and development expenses and approximately $500,000 of the
$1,521,000 of development costs due BTG during the three months ended September
30, 1994 under the research and development agreement. In October 1994,
Bio-Cardia reached settlements with certain of the defaulting stockholders,
holding an aggregate of 178 Units, who surrendered to Bio-Cardia their
Bio-Cardia stock and Warrants to purchase an aggregate of 2,670,000 shares of
BTG common stock in exchange for a release from their future funding obligations
to Bio-Cardia. The net effect of this settlement was to reduce the funding
expected by Bio-Cardia by approximately $14,240,000. In addition, Bio-Cardia
commenced legal action against the remaining defaulting stockholders, holding an
aggregate of 43 Units, who owed an aggregate of $3,440,000, which actions were
settled during 1995 without the payment or recovery by Bio-Cardia of any monies.
Accordingly, Bio-Cardia was not in a position to fund the up to $32 million
research and development program originally contemplated by Bio-Cardia and BTG.
At December 31, 1995, Bio-Cardia owed BTG approximately $2,200,000 for research
and development performed by BTG on behalf of Bio-Cardia during 1994 and 1995.
The Company did not recognize as revenues the amounts due from Bio-Cardia during
the second half of 1994 or during 1995.

The Company funded a revised research and development budget for 1995.
In addition, in May 1995, Bio-Cardia, with the Company's consent, completed an
exchange offer with all those Bio-Cardia stockholders who were not in default
under their Investor Note, who held an aggregate of 157 Units, including holders
of three Units against which Bio-Cardia commenced litigation (the "Exchange
Offer"). Under the terms of the Exchange Offer, Bio-Cardia exchanged $4,250 in
cash (together with interest on $2,500 from the date Bio-Cardia received such
funds) and forgiveness of $17,500 principal amount of the Investor Note
remaining outstanding for each one share of Bio-Cardia common stock and an
unconditional release. In addition, Bio-Cardia agreed that if by December 15,
1995 neither (i) the average daily price of the Company's common stock for any
20 trading days in a 30 consecutive trading day period exceed $3.50 nor (ii) the
best closing bid price of the Warrants exceeds $1.10 during any 20 trading days,
then Bio-Cardia would distribute to the Bio-Cardia stockholders accepting the
Exchange Offer some or all of the Warrants obtained in the settlements with
defaulting Bio-Cardia stockholders such that, in the aggregate, the Warrants
issued in the Offering, together with the Warrants distributed by Bio-Cardia,
have a value of $16,500 as determined using the Black Scholes option pricing
formula using an assumption of no dividends and a volatility of 70%. Prior to
December 15, 1995, the best closing bid price of the Warrants exceeded $1.10 for
20 trading days and, as a result, Bio-Cardia's obligation to distribute the
Warrants expired. In connection with the Exchange Offer, the Company amended the
Warrants to provide that if the Company enters into certain transactions which
would result in the sale of the Company for cash at a price per share of the
Company's common stock of less than $6.59 (adjusted for stock splits, stock
dividends and similar transactions), then the exercise price of the Warrants
will automatically be reduced to a price per share equal to the difference
between the sale price and $1.10. The Company reacquired from Bio-Cardia all
rights to the products licensed to

-37-

Bio-Cardia in December 1995. See "--Results of Operations" and "Item 1. Business
- -- Contract Research and Development -- Bio-Cardia Corporation."

A number of the Company's products are in the process of gaining
approval from various governmental agencies. While costs associated with this
process are generally borne by the Company's collaborative partners, the
approval processes have been considerably longer than the Company expected,
thereby resulting in delays in revenues until such product approvals have been
obtained. As a result, the Company has had to continue to finance its operations
through debt and equity offerings and collaborative research arrangements that
provided research funding. The Company believes that these delays have
negatively impacted the Company's ability to attract funding and that, as a
result, the terms of such financings were less favorable to the Company than
they might otherwise have been had the Company's product revenues provided
sufficient funds to finance the large costs of taking a product from discovery
through commercialization. As a result, the Company has had to license the
commercialization of many of its products to third parties in exchange for
research funding and royalties on product sales; this will result in lower
revenues than if the Company had commercialized the product on its own.

The Company believes that its remaining cash resources as of December
31, 1995, together with anticipated product sales, scheduled payments to be made
to BTG under its current agreements with pharmaceutical partners and third
parties, the proceeds from sales of equity and continued funding from the Chief
Scientist at current levels, will be sufficient to fund the Company's ongoing
operations at least until the end of 1997. There can, however, be no assurance
that product sales will occur as anticipated, that scheduled payments will be
made by third parties, that current agreements will not be canceled, that the
Chief Scientist will continue to provide funding at current levels, or that
unanticipated events requiring the expenditure of funds will not occur. The
satisfaction of the Company's future cash requirements will depend in large part
on the status of commercialization of the Company's products, the Company's
ability to enter into additional research and development and licensing
arrangements, and the Company's ability to obtain additional equity investments,
if necessary. There can be no assurance that the Company will be able to obtain
additional funds or, if such funds are available, that such funding will be on
favorable terms. In addition, the indentures under which the Company's debt
securities were issued limit the ability of the Company to satisfy its cash
requirements through borrowings or the issuance of debt securities, and prohibit
the sale of equity securities at a price per share of less than $1.00 (as
adjusted under certain circumstances). The Company continues to seek additional
collaborative research and development and licensing arrangements, in order to
provide revenue from sales of certain products and funding for a portion of the
research and development expenses relating to the products covered, although
there can be no assurance that the Company will be able to obtain such
agreements.

For a description of the products and projects on which the Company is
currently focusing, see "Item 1. Business--General Overview" and "-- Products
and Applications."

-38-

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Page

Report of Independent Public Accountants........................43

Consolidated Financial Statements:

Consolidated Balance Sheets as of
December 31, 1994 and 1995......................................44

Consolidated Statements of Operations for the
years ended December 31, 1993, 1994 and 1995....................45

Consolidated Statements of Changes in
Stockholders' Equity for the years
ended December 31, 1993, 1994 and 1995..........................46

Consolidated Statements of Cash Flows for
the years ended December 31, 1993, 1994 and 1995................47

Notes to Consolidated Financial Statements......................48

-39-

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Bio-Technology General Corp.:

We have audited the accompanying consolidated balance sheets of Bio-Technology
General Corp. (a Delaware corporation) and subsidiaries as of December 31, 1994
and 1995, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bio-Technology General Corp.
and subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

New York, New York
March 25, 1996

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BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

December 31,
---------------
1994 1995
- ----------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:

Cash and cash equivalents.................................................. $16,891 $ 6,886
Short-term investments..................................................... -- 3,989
Accounts receivable........................................................ 2,726 6,347
Inventories................................................................ 1,632 2,118
Prepaid expenses and other current assets.................................. 172 1,247
------- ------
Total current assets.................................................... 21,421 20,587

Property and equipment, net (Note 3)......................................... 4,800 4,922
Marketing rights, net of accumulated amortization of $857
in 1994 and $1,778 in 1995................................................. 5,174 5,078
Patents, net of accumulated amortization of $133 in 1994
and $208 in 1995........................................................... 370 457
Other assets (Note 8)........................................................ 575 693
------ -------
Total assets............................................................ $ 32,340 $ 31,737
====== =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term bank loans...................................................... $ 64 $ --
Current portion of long-term debt (Note 4)................................. 1,251 27
Accounts payable........................................................... 1,091 1,123
Other current liabilities (Note 9)......................................... 5,363 4,237
----- -----
Total current liabilities............................................... 7,769 5,387
----- -----

Long-term Liabilities (Note 4)............................................... 1,389 661
----- -----

Commitments and contingent liabilities (Note 8)

Stockholders' equity (Notes 5, 6 and 12):
Preferred stock - $.01 par value; 4,000,000
shares authorized; no shares issued .................................... -- --
Common stock - $.01 par value; 150,000,000
shares authorized; issued: 42,876,000 in 1994
and 43,275,000 in 1995.................................................. 429 433
Capital in excess of par value............................................. 120,008 117,390
Deficit.................................................................... (96,307) (91,528)
Less - treasury stock at cost; (67,000 shares in 1994 and
83,000 shares in 1995)................................................... (303) (340)
- deferred compensation......................... (570) (266)
- common stock subscriptions receivable......... (75) --
------- ------
Total stockholders' equity.............................................. 23,182 25,689
------ ------
Total liabilities and stockholders' equity................................. $32,340 $31,737
====== =======

The accompanying notes are an integral part of these consolidated balance
sheets.

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BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)

Year Ended December 31,
-------------------------------------------------
1993 1994 1995
- ----------------------------------------------------------------------------------------------------------------
Revenues (Note 10):

Product sales........................................... $10,067 $11,047 $21,428
Contract fees........................................... 428 762 591
Research and development revenues
under collaborative agreements........................ 1,340 3,652 4,041
Other revenues.......................................... 1,461 1,476 1,113
Interest income......................................... 571 503 787
------- ------- -------
13,867 17,440 27,960
------- ------ ------
Expenses:
Research and development................................ 13,811 13,714 10,935
Cost of product sales................................... 1,592 2,168 3,913
General and administrative.............................. 9,045 9,743 8,005
Commissions and royalties............................... 274 444 726
Interest and finance.................................... 374 290 159
Merger (Note 2)......................................... 1,355 -- --
Research and development
financing (Note 11)................................... 10,241 -- 806
------- ------- ------
36,692 26,359 24,544
------- ------ ------

Income (loss) before extraordinary gain.................... (22,825) (8,919) 3,416
Extraordinary gain (Note 4)................................ -- 1,500 1,363
------- ----- -----
Net income (loss).......................................... $(22,825) $(7,419) $4,779
======== ======= =====

Earnings (loss) per common share:

Income (loss) per common share
before extraordinary gain................................ $(0.63) $(0.23) $0.08
Extraordinary gain per common share........................ -- 0.04 0.03
------ ----- ----
Net income (loss) per common share......................... $(0.63) $(0.19) $0.11
====== ====== ====

Weighted average number of common
and common equivalent shares............................. 36,180 38,725 43,784
====== ====== ======

The accompanying notes are an integral part of these consolidated financial
statements.

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BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
Common Stock Common Stock
------------ Capital in Deferred Sub- Total
Par Excess of Treasury Compen- scriptions Stockholders'
Shares Value Par Value Deficit Stock sation Receivable Equity
- -----------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1992.................... 33,996 $340 $94,161 $(66,063) $(198) $(576) $(177) $27,487
Issuance of common stock...................... 13 67 67
Issuance of common stock on series A and
B note conversions (including
capitalized interest) and on conversion of
convertible debentures..................... 3 9 9
Exercise of stock options..................... 472 5 665 670
Exercise of warrants.......................... 2,579 26 4,001 4,027
Research and development financing
(Note 11)................................... 10,241 10,241
Deferred compensation......................... 806 (806)
Amortization of deferred compensation ........ 511 511
Purchase of treasury stock.................... (105) (105)
Net loss for 1993 ............................ (22,825) (22,825)
------- ----- -------- --------- ------- ------ ------ --------
Balance, December 31, 1993.................... 37,063 $371 $109,950 $(88,888) $(303) $(871) $(177) $20,082
Issuance of common stock...................... 5,171 52 9,033 9,085
Issuance of common stock on series A and
B note conversions (including
capitalized interest) and on conversion of
convertible debentures..................... 1 4 4
Repayment of common stock subscriptions....... 102 102
Exercise of stock options..................... 616 6 781 787
Exercise of warrants.......................... 25 56 56
Deferred compensation......................... 184 (184)
Amortization of deferred compensation ........ 485 485
Net loss for 1994 ............................ (7,419) (7,419)
------- ----- -------- --------- ----- ----- ----- ------
Balance, December 31, 1994.................... 42,876 429 120,008 (96,307) (303) (570) (75) 23,182
Issuance of common stock...................... 28 84 84
Issuance of common stock on series A and
B note conversions (including
capitalized interest) and on conversion of
convertible debentures..................... 107 1 184 185
Repayment of common stock subscriptions....... 75 75
Exercise of stock options..................... 264 3 118 121
Retirement of warrants (Note 11).............. (3,004) (3,004)
Purchase of treasury stock.................... (37) (37)
Amortization of deferred compensation ........ 304 304
Net income for 1995 .......................... 4,779 4,779
------- ----- -------- -------- ------ ------ ----- -------
Balance, December 31, 1995.................... 43,275 $433 $117,390 $(91,528) $(340) $(266) $ -- $25,689
====== ==== ======== ======== ====== ===== ===== ======

The accompanying notes are an integral part of these consolidated financial
statements.

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BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
-------------------------------------------------
1993 1994 1995
- ----------------------------------------------------------------------------------------------------------------------

Cash flows from operating activities:

Net income (loss)................................................... $(22,825) $(7,419) $4,779
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Research and development financing............................... 10,241 -- --
Receipt of warrants.............................................. -- -- (3,004)
Depreciation and amortization.................................... 3,636 2,849 2,622
Extraordinary gain resulting from debt forgiveness............... -- (1,500) (1,363)
Gain on disposal of fixed assets ................................ (16) (37) (10)
Gain on sales of short-term investments.......................... -- -- (19)
Common stock as payment for services............................. 67 85 84
Changes in:
receivables ................................................... (1,115) (175) (3,621)
inventories.................................................... (94) (721) (486)
prepaid expenses and other current assets...................... (22) (55) (1,075)
other assets................................................... (262) 23 (118)
accounts payable............................................... 102 444 32
other current liabilities...................................... 1,897 1,058 (527)
------ ------ -----
Net cash used in operating activities............................... (8,391) (5,448) (2,706)
----- ----- -----

Cash flows from investing activities:
Short-term investments.............................................. -- -- (8,445)
Capital expenditures................................................ (1,621) (1,777) (1,480)
Marketing rights.................................................... -- -- (836)
Change in patents................................................... (88) (104) (162)
Proceeds from sales of short-term investments....................... -- -- 4,475
Proceeds from sales of fixed assets................................. 17 67 57
------ ------ ------
Net cash used in investing activities............................... (1,692) (1,814) (6,391)
------ ------ ------

Cash flows from financing activities:
Repayment of long-term debt......................................... (288) (1,800) (1,000)
Proceeds from issuance of common stock, net......................... 4,697 9,843 121
Purchase of treasury stock.......................................... (105) -- (37)
Repayment of common stock subscriptions............................. -- 102 75
Repayment of Series A Notes......................................... -- -- (32)
Interest on Series A and B Notes.................................... (42) (43) (35)
------- ------- -------
Net cash provided by financing activities........................... 4,262 8,102 (908)
------- ------- -------

Net increase (decrease) in cash and cash equivalents................ (5,821) 840 (10,005)
Cash and cash equivalents at beginning of year...................... 21,872 16,051 16,891
------- ------- ------
Cash and cash equivalents at end of year............................ $16,051 $16,891 $6,886
======= ======= ======

Supplementary Information
Non-cash investing and financing activities:
Series A and B note conversions
(including capitalized interest) and
conversion of convertible debentures............................. $ 9 $ 4 $ 185

Other information:
Interest paid ................................................... $ 96 $ 77 $ 729

The accompanying notes are an integral part of these consolidated financial
statements.

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BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Bio-Technology General Corp. ("BTG") and its wholly owned subsidiary,
Bio-Technology General (Israel) Ltd. ("BTG-Israel"), were formed in 1980 to
research, develop, manufacture and market products through the application of
genetic engineering and related biotechnologies. A substantial amount of
research and development activities has been conducted, on behalf of the parent,
by BTG-Israel. Another wholly owned subsidiary, BTG Pharmaceuticals Corp., was
formed in 1983 and is engaged in developing and marketing certain products for
human healthcare (see Note 2).

a. Basis of consolidation:

The consolidated financial statements include the accounts of BTG,
BTG-Israel, and BTG Pharmaceuticals Corp., hereinafter referred to as the
"Company". All material intercompany transactions and balances have been
eliminated. Certain prior year amounts have been reclassified to conform with
current year presentation.

b. Translation of foreign currency:

The functional currency of BTG-Israel is the U.S. dollar. Accordingly,
its accounts are remeasured in dollars and translation gains and losses are
included in the statements of operations.

c. Cash and cash equivalents:

At December 31, 1994 and 1995, cash and cash equivalents included cash
of $125,000 and $788,000, respectively, and money market funds, commercial paper
and other liquid short-term debt instruments (with original maturity date of
less than 90 days) of $16,766,000 and $6,098,000, respectively. At December 31,
1995, the market value of these investments approximated cost.

d. Short-term investments:

Short-term investments consist primarily of investments in corporate
bonds which have been classified as trading securities. Realized and unrealized
gains have been recorded as a component of current year earnings.

e. Inventories:

Inventories are stated at the lower of average cost or market on the
first-in first-out basis. At December 31, 1994 and 1995, inventory includes raw
materials of $535,000 and $601,000, work in process of $112,000 and $278,000,
and finished goods of $985,000 and $1,239,000, respectively.

-45-

BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

f. Patents:

Patent costs related to products approved by any regulatory agency
worldwide or being sold, have been capitalized. Amortization has been calculated
using the straight-line method over 17 years commencing the date of grant with
respect to each project. In 1993, the Company fully amortized patents related to
non-commercial products, which increased amortization by approximately $931,000.

g. Marketing Rights:

Marketing rights are amortized, using the straight-line method over the
shorter of the life of the related revenue stream or seven years, commencing
with the initial sale of the related product.

h. Property and equipment, accumulated depreciation and
amortization:

Depreciation has been calculated using the straight-line method over
the estimated useful lives of the assets, ranging from 5 to 17 years. Leasehold
improvements are amortized over the lives of the respective leases, which are
shorter than the useful life. The cost of maintenance and repairs is expensed as
incurred.

i. Product sales, Contract fees, Research and development
revenues under collaborative agreements and Other revenues:

Product sales are recognized when the product is shipped.

Contract fees for grants of licenses and other rights are recognized
when the relevant terms of each contract have been performed by the Company.

Research and development revenues under collaborative agreements and
Other revenues represent funds received by the Company for research and
development projects that are partially funded by collaborative partners and the
Chief Scientist of the Israeli government, respectively. The Company recognizes
revenue upon performance of such funded research. In general, these contracts
are cancelable by the Company's collaborative partners at any time.

j. Severance pay plan:

Under Israeli law, the Israeli subsidiary is required to make severance
payments to its dismissed employees on the basis of one month's salary for each
year of service. This commitment is satisfied as follows: (i) by monthly
payments of premium under life insurance policies; (ii) by monthly payments to a
pension fund (not under control of the subsidiary); and (iii) by an additional
unfunded provision totalling approximately $467,170, $904,000 and $1,038,000 at
December 31, 1993, 1994 and 1995, respectively.

k. Income taxes:

Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which requires a
change from the deferred method to the liability method of accounting for income
taxes. Under this method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying

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BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

enacted statutory tax rates to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities.

At December 31, 1995 BTG has net operating loss carryforwards for
income tax purposes of approximately $50 million, which expire from 1997 through
2010. The use of such carryforwards in a particular year is limited as a result
of ownership changes resulting from share issuances. The future income tax
benefit of these net operating loss carryforwards is approximately $20 million,
of which $2 million, if realized, will be credited to capital in excess of par
value. The Company has provided a valuation allowance for this entire amount,
since ultimate realization of the tax benefit is dependent upon earning future
taxable income.

At December 31, 1995, BTG-Israel has net operating loss carryforwards
for income tax purposes of approximately $2.4 million. These tax losses may be
carried forward indefinitely and remain linked to the Israeli Consumer Price
Index. The Company has provided a valuation allowance for this entire amount,
since ultimate realization of the tax benefit is dependent upon earning future
taxable income.

l. Income (loss) per common share:

Income (loss) per common share has been calculated using the weighted
average number of shares of common stock outstanding and common stock
equivalents. In the years ended December 31, 1993 and 1994, convertible notes
and debentures, warrants and options granted to purchase common stock were not
included in the calculation of earnings per share because of their anti-dilutive
effect.

m. Use of estimates in preparation of financial statements:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. These assets and liabilities include BTG's marketing rights,
patents, prepaid and deferred expenses, fixed assets and severance accruals, as
management has made estimates as to their useful lives and realizability and
future obligations. Actual results could differ from changes in those estimates.

NOTE 2 - MERGER

On August 6, 1993, the Company completed its acquisition of Gynex
Pharmaceuticals Inc. ("Gynex"), a publicly traded corporation quoted on the
Nasdaq Small Cap Market, by merging Gynex into a wholly owned subsidiary of the
Company. As a result of the merger, in August 1993, the Company issued an
aggregate of approximately 9.94 million shares of its common stock and reserved
for issuance up to 1.25 million shares of its common stock upon exercise of
options and up to 0.82 million shares of its common stock upon exercise of
warrants.

The merger was accounted for as a "pooling of interests" for accounting
and financial reporting purposes. The Company's financial statements and related
disclosures include Gynex revenues and net loss of $822,000 and $1,957,000,
respectively, for the period January 1, 1993 through August 6, 1993.

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BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

NOTE 3 - PROPERTY AND EQUIPMENT, NET
December 31,
-----------------------
1994 1995
---- ----
(in thousands)
a. Cost:
Laboratory and manufacturing equipment.......... $7,520 $ 8,587
Office equipment................................ 1,267 1,525
Air conditioning and other...................... 2,035 1,966
Leasehold improvements.......................... 6,728 6,835
------ -----
17,550 18,913

Accumulated depreciation and amortization....... (12,750) (13,991)
-------- ------

Total....................................... $ 4,800 $4,922
===== =====

b. Depreciation expense was $1,749,000, $1,898,000 and $1,311,000 for
the years ended December 31, 1993, 1994 and 1995, respectively.

NOTE 4 - LONG-TERM LIABILITIES

a. Debt is summarized as follows:

December 31,
----------------------------
1994 1995
---- ----
(in thousands)
Convertible Notes and Debentures (1)(3):
7 1/2% Notes................................. $ 272 $ 272
11% Debentures............................... 94 94
------ ------
366 366
------ -----
Senior Secured Convertible Notes (1)(2)(3):
Series A Notes............................... 216 --
Series B Notes............................... 243 242
------ -----
459 242
------ -----
Capitalized future interest on Senior
Secured Convertible Notes (2):
Series A Notes............................... 8 --
Series B Notes............................... 107 80
------ -----
115 80
----- -----
Other long-term debt:
Marketing rights (4):........................ 1,700 --
----- -----
2,640 688

Less - current portion........................... (1,251) (27)
------- ------
Total long-term liabilities.................. $1,389 $661
===== ===
- ----------------------------------
(1) 7 1/2% Convertible Senior Subordinated Notes due April 15,
1997 (the "Notes") are convertible into shares of common stock
at a conversion price of $10.50 per share and 11% Convertible
Senior Subordinated Debentures due 2006 (the "Debentures") are
convertible into shares of common stock at a conversion price

-48-

BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

of $8.75 per share. Conversion prices are subject to
adjustment under certain circumstances. Mandatory sinking fund
requirements were satisfied as a result of the exchange of
Notes and Debentures for Series A 7 1/2% Senior Secured
Convertible Notes due January 15, 1995 (the "Series A Notes")
and Series B 11% Senior Secured Convertible Notes due October
15, 1998 (the "Series B Notes").

(2) In connection with a recapitalization in 1989, the Company
issued the Series A Notes and Series B Notes and capitalized
all future interest payable thereon. Interest on the Series A
Notes and Series B Notes may be paid, at the option of the
Company, in cash, in shares of common stock or a combination
thereof. If the Company elects to satisfy the interest
requirements by the issuance of common stock, the number of
shares of common stock to be issued will be determined based
on the market price of the common stock (80% of market value
if below $3.00 per share and 90% of market value if equal to
or above $3.00 per share but in no event less than $1.00 per
share). Through July 1991, the Company satisfied the interest
requirements by the issuance of shares of common stock. The
Company began to pay interest in cash in October 1991 and
presently intends to continue to satisfy the interest
requirements by payment in cash. The Series A Notes and Series
B Notes rank pari passu and are secured by a first lien on
substantially all the assets of the Company, including a
pledge of the shares of the Company's Israeli subsidiary. The
Series A Notes and Series B Notes are convertible into shares
of common stock at an initial conversion price of $1.75,
subject to adjustment under certain circumstances.

Approximately $185,000 of Series A Notes were converted into
the Company's common stock during January 1995. The remaining
balance was repaid on the January 15, 1995 due date.

(3) In accordance with the respective terms of the Notes,
Debentures and Series B Notes, the Company had reserved, at
December 31, 1995, 175,000 shares of common stock for holders
of those securities in the event they elect to convert their
securities to common stock.

(4) In 1991, the Company reacquired all U.S. marketing rights
pertaining to human growth hormone ("hGH") from its U.S.
licensee. Under the terms of the agreement, the Company agreed
to pay minimum royalties aggregating $2,000,000 (using a 10%
1991 present value) from 1993 through 1996. In 1995, the
Company paid its former U.S. licensee $1,000,000 in full
satisfaction of this obligation. As a result, the Company
recorded an extraordinary gain of approximately $1,363,000 in
1995.

(5) In 1992, the Company reacquired all European marketing rights
pertaining to hGH from its European licensee. Under the terms
of the agreement, the Company agreed to pay an aggregate of
$3,000,000 over a period of up to 5 years, as a royalty on net
sales, with a minimum of $600,000 paid annually (commencing
with the first sale of hGH in Europe), until the full amount
was paid to the former licensee. In 1994 the Company paid
$1,500,000 to its former licensee in full satisfaction of its
$3,000,000 obligation. Accordingly, the Company recorded an
extraordinary gain of $1,500,000 in 1994.

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BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

b. Annual maturities:

Annual maturities, including capitalized interest, as of December 31
for each of the next five years and thereafter are as follows: 1996 -- $27,000;
1997-- $299,000; 1998 -- $268,000; 1999 -- $0; 2000 -- $0; and $94,000
thereafter.

NOTE 5 - STOCKHOLDERS' EQUITY

In 1994, the Company issued 5,142,857 shares of common stock in a
private placement, resulting in net proceeds to the Company of approximately
$9,000,000.

In the years ended December 31, 1993 and 1994, the Company issued
2,579,000 and 25,000 shares of the Company's common stock upon the exercise of
outstanding warrants having an aggregate purchase price of $4,027,000 and
$56,000, respectively. Of these issuances, in 1993, 800,000 shares of the
Company's common stock, having an aggregate purchase price of $2,400,000, were
issued to D. Blech & Company, Incorporated ("DBC"), a company owned by a former
major stockholder. See Note 12.

In 1993, the Company issued warrants ("Warrants") to purchase an
aggregate of 6,206,250 shares of common stock, consisting of (i) 5,625,000
Warrants issued to investors in Bio-Cardia Corporation ("Bio-Cardia") in
consideration of their grant of a stock purchase option to the Company, (ii)
562,500 Warrants issued to DBC, the placement agent in the financing, and (iii)
18,750 Warrants issued to the directors of Bio-Cardia. The Warrants have an
exercise price of $5.49 per share, and expire on December 31, 1998. The Company
expensed $10,241,000 for the year ended December 31, 1993, equal to the
aggregate value of the Warrants, as determined by an independent investment
banking firm, representing (i) the uncertain realizability of the value of such
stock purchase option, (ii) the Company's expenses of the financing and (iii)
director compensation expense, respectively. In 1995 the Company received from
Bio-Cardia Warrants to purchase 2,670,000 shares of common stock, having a value
of $3,004,000, in partial payment of amounts owed to the Company by Bio-Cardia.
See Note 11.

NOTE 6 - STOCK OPTIONS

The Company's Stock Option Plan (the "Plan") permits the granting of
options to purchase up to an aggregate of 3,900,000 shares of the Company's
common stock to employees, consultants and directors of the Company. Under the
Plan, the Company may grant either incentive stock options, at an exercise price
of not less than 100% of the fair market value of the underlying shares ("market
value") on the date of grant, or restricted stock options, at an exercise price
of not less than the lower of (i) 50% of the book value per share of the
Company's common stock, or (ii) 50% of market value on the date of grant.
Options generally become exercisable ratably over a four-year period, with
unexercised options expiring shortly after employment termination. Terminated
options are available for reissuance. No additional options can be granted under
the Plan.

The Company also established a Stock Option Plan for New Directors (the
"New Director Plan") that, upon an individual's initial election or appointment
to the Board of Directors, provides for the grant of an option to purchase
20,000 shares of common stock at an exercise price equal to the market value of
the common stock on the date of grant. Options become exercisable over a
three-year period.

-50-

BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

In 1992, the Company adopted the Bio-Technology General Corp. 1992
Stock Option Plan (the "1992 Stock Option Plan"). The 1992 Stock Option Plan
currently permits the granting of options to purchase up to an aggregate of
6,000,000 shares of the Company's common stock to key employees (including
employees who are directors) and consultants of the Company. Under the plan, the
Company may grant either incentive stock options, at an exercise price of not
less than 100% of the fair market value of the underlying shares on the date of
grant, or non-qualified stock options, at an exercise price not less than the
par value of the common stock on the date of grant. Options generally become
exercisable ratably over a four-year period, with unexercised options expiring
shortly after employment termination. Terminated options are available for
reissuance.

In May 1991, the Company granted restricted stock options to purchase
up to an aggregate of 265,000 shares to senior employees of the Company at an
exercise price of $3.00 per share. The amount of deferred compensation of
$265,000 arising from the difference between the exercise price and the $4.00
per share market price of the Company's common stock on the date of grant is
included in stockholders' equity and is being amortized over the vesting period
of four years. In September 1991, the Company granted restricted stock options
to employees of the Company to purchase up to an aggregate of 655,000 shares at
an exercise price of $5.25 per share. The amount of deferred compensation of
$655,000 arising from the difference between the exercise price and the $6.25
per share market price of the Company's common stock on the date of grant is
included in stockholders' equity and is being amortized over the vesting period
of four years. During 1993 the Company granted restricted stock options to
employees of the Company to purchase up to an aggregate of approximately 990,000
shares at exercise prices that were $1.00 less than the market price of the
common stock on the date of grant. The amount of deferred compensation of
$990,000 arising from the difference between the exercise price and the market
price of the Company's common stock on the date of grant is included in
stockholders' equity and is being amortized over the vesting periods of the
options.

Transactions under the Plan, the New Director Plan, the 1992 Stock
Option Plan and other plans during 1993, 1994 and 1995 were as follows:

Year ended December 31,
-----------------------
1993 1994 1995
---- ---- ----
(in thousands)

Options outstanding at beginning of year... 4,297 5,839 5,399
Granted.................................... 2,087 610 1,250
Exercised.................................. (472) (616) (264)
Terminated................................. (73) (434) (381)
----- ----- -----
Options outstanding at end of year......... 5,839 5,399 6,004
===== ===== =====

The weighted average option price of shares exercised was $1.47 in
1993, $1.28 in 1994 and $0.46 in 1995. At December 31, 1995, 3,689,000 shares
were exercisable at prices ranging from $1.06 to $7.50. The remaining balance of
2,315,000 will become exercisable at prices ranging from $2.16 to $7.50.

-51-

BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

NOTE 7 - FOREIGN OPERATIONS

Information about the Company's operations in the United States and Israel
is presented below:

Consol-
U.S. Israel Eliminations idated
---- ------ ------------ -------
(in thousands of U.S. dollars)
------------------------------
Year ended December 31, 1993:

Revenues......................................... <F1>10,212 3,655 13,867
Intercompany purchases/sales..................... 542 1,289 (1,831)
Reimbursement of subsidiary's expenses........... 7,443 (7,443)
Loss............................................. (21,742) (941) (142) (22,825)
Identifiable assets<F2> ......................... 49,450 5,936 (24,300) 31,086
Foreign liabilities<F2> ......................... <F3>2,214 2,214
Investment in subsidiaries (cost basis)<F2> ..... 17,214 (17,214)

Year ended December 31, 1994:
Revenues......................................... <F1>14,177 3,263 17,440
Intercompany purchases/sales..................... 1,041 2,010 (3,051)
Reimbursement of subsidiary's expenses........... 9,812 (9,812)
Loss............................................. (6,694) (675) (50) (7,419)
Identifiable assets<F2> ......................... 49,725 5,942 (23,327) 32,340
Foreign liabilities<F2> ......................... <F3>2,859 2,859
Investment in subsidiaries (cost basis)<F2> ..... 17,226 (17,226)

Year ended December 31, 1995:
Revenues......................................... <F1>24,791 3,169 27,960
Intercompany purchases/sales..................... 1,447 3,690 (5,137)
Reimbursement of subsidiary's expenses........... 9,120 (9,120)
Income........................................... 4,982 60 (263) 4,779
Identifiable assets<F2> ......................... 48,027 7,086 (23,376) 31,737
Foreign liabilities<F2> ......................... <F3>3,796 3,796
Investment in subsidiaries (cost basis)<F2> ..... 17,226 (17,226)
- ------------------------------
<FN>
<F1> Includes exports sales of $7,300, $8,295 and $15,189, in 1993, 1994 and 1995, respectively.
<F2> At year end.
<F3> Excludes liability to parent.
</FN>

NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES

a. The Company has leased approximately 12,800 square feet of office
space in New Jersey for its executive office, having an average annual rental
expense of approximately $229,000. The lease expires in October 2003. In
addition, the Company will be obligated to pay its proportional share of any
annual increase in taxes and operating expenses of the facility in which the
leased premises are located. BTG-Israel currently leases approximately 80,000
square feet of space for its research, development and production facilities in
Israel. This lease is for the period through January 1999. In March 1994,
BTG-Israel rented additional storage space of approximately 5,000 square feet.
This lease is for the period through April 1996. Rent expense was $797,000,
$932,000 and $1,195,000 for the years ended December 31, 1993, 1994

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BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

and 1995, respectively. The future consolidated annual minimum rentals
(exclusive of amounts for real estate taxes, maintenance, etc.) for each of the
next five years and thereafter are as follows: 1996--$1,274,000,
1997--$1,275,000, 1998--$1,275,000, 1999--$296,000, 2000--$220,000 and $692,000
thereafter. Additionally, included in other assets at December 31, 1995, are
certificates of deposit of $300,000 made in support of a letter of credit with
respect to BTG-Israel's lease, which funds are restricted as to use. There is
also a bank guarantee outstanding in favor of the lessor for $487,000 secured by
the assets of BTG-Israel.

b. On March 16, 1993, Genentech filed a complaint with the U.S.
International Trade Commission (the "ITC") alleging, among other things, that
BTG's importation of hGH into the United States violates Section 337 of the
Tariff Act of 1930 because of the existence of certain claims in U.S. patents of
Genentech. Genentech sought an immediate investigation and an order that BTG
cease and desist from importing hGH into the United States. The trial on the
Genentech complaint was held in April 1994. In January 1995 the ITC issued a
final decision dismissing the complaint with prejudice as a sanction for
Genentech's conduct which resulted in an incomplete record and violated the due
process rights of BTG and Novo-Nordisk A/S, another respondent in the
proceeding. The ITC also found no violation by BTG of Section 337 of the Tariff
Act of 1930. Genentech appealed the ITC decision to the United States Court of
Appeals for the Federal Circuit (the "CAFC"). The appeal was heard on December
4, 1995, and a decision is pending. During 1993 and 1994, BTG incurred total
legal fees of approximately $4.2 million relating to the ITC proceeding.

On December 1, 1994, Genentech filed a lawsuit against BTG in the
United States District Court for the District of Delaware alleging that BTG's
hGH infringed two Genentech patents. In January 1995, BTG commenced an action
against Genentech in the United States District Court for the Southern District
of New York seeking, among other things, declaratory judgments as to the
non-infringement, invalidity and unenforceability of such Genentech patents as
well as damages resulting from Genentech's actions in the ITC proceedings. The
Delaware action was consolidated with the New York action, and in August 1995
the United States District Court for the Southern District of New York granted a
preliminary injunction prohibiting the commercial introduction in the U.S. of
BTG's hGH. BTG appealed to the CAFC, and the appeal was heard on December 4,
1995 (during the same session as the ITC appeal discussed above). A decision is
pending. Unless the preliminary injunction is stayed or overturned on appeal, of
which there can be no assurance, BTG will be precluded from marketing and
distributing its human growth hormone in the United States pending the outcome
of the patent infringement action. Although BTG believes that it does not
infringe any valid Genentech patent, there can be no assurance that BTG will not
be found to be infringing Genentech's patents. If BTG is ultimately found by the
district court to infringe one or more claims in U.S. patents of Genentech, it
likely will be precluded from selling its hGH in the United States. During 1995,
the Company incurred total legal fees relating to this litigation of
approximately $824,000, which amount has been capitalized. The Company expects
to incur substantial legal fees in defending and prosecuting these lawsuits in
respect to Genentech. The Company does not believe that it infringes any valid
Genentech patent, and intends to defend itself vigorously.

c. The Company has agreed, for products resulting from research and
development projects partially funded by the Chief Scientist, to pay royalties
to the Israeli government of 1% to 2% on commercial sales, if any, of these
products if produced in Israel up to the amount so funded or royalties of 3% if
produced outside Israel up to 150% of the amount so funded. As of December 31,
1995, the Company is obligated to repay to the Chief Scientist, out of revenue
from future product sales, $4,584,000 of research and development funding for

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BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

products that are currently being sold and $5,792,000 of research and
development funding for products currently under development. During the years
ended December 31, 1994 and 1995, the Company accrued approximately $191,000 and
$338,000, respectively, as royalties to the Chief Scientist.

The Company is also committed to pay royalties on future sales, if any,
of certain of its products to licensees from which the Company licensed these
products.

d. The Company currently has employment agreements with six senior
officers. Under these agreements the Company has committed to total aggregate
base compensation per year of approximately $1,179,000 plus other normal
customary fringe benefits and bonuses as well as a minimum annual increase in
compensation. These employment agreements generally have a term of two years and
are automatically renewed for successive two year periods unless either party
gives the other notice of nonrenewal.

e. The Company has received notification of claims filed against
certain of its patents. Management believes that these claims have no merit, and
the Company intends to defend them vigorously.

NOTE 9 - OTHER CURRENT LIABILITIES
December 31,
-----------------------
1994 1995
---- ----
(in thousands)

Salaries and related expenses.................. $2,058 $2,607
Accrued subcontracting payable ................ 260 542
Legal and professional fees.................... 373 507
Accrued interest and finance expenses.......... 670 20
Deferred revenues from Bio-Cardia (Note 11).... 1,710 --
Other.......................................... 292 561
------ ------
$5,363 $4,237
===== =====

NOTE 10 - CONCENTRATIONS

In 1993, 1994 and 1995, one customer for human growth hormone, located
solely in Japan, represented $5,611,000, $5,170,000 and $9,853,000 or 42%, 31%
and 36% of revenues (exclusive of interest income), respectively. In 1995, one
customer for Oxandrin and Delatestryl, located solely in the United States,
represented $3,589,000 or 13% of revenues (exclusive of interest income). In
1995, the Company's product sales consisted primarily of sales of human growth
hormone, BioLon and Oxandrin in the amount of approximately $12,074,000,
$3,781,000 and $2,992,000, or 56%, 18% and 14% of total product sales,
respectively. During 1994 and 1995, the Company earned $2,950,000 and $3,486,000
or 17% and 12% of revenues (exclusive of interest income), respectively, from
Bio-Cardia as research and development revenues under collaborative agreements.
The Company received research funding from the Chief Scientist of the Israeli
government aggregating $1,274,000 or 10% of revenues (exclusive of interest
income) in 1993. In addition, as of December 31, 1994 and 1995, one customer
accounted for 57% and 18% of total receivables, respectively and another
customer accounted for 55% of total receivables as of December 31, 1995.

-54-

BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

NOTE 11 - RESEARCH AND DEVELOPMENT FINANCING

On December 31, 1993, the Company and Bio-Cardia completed a private
placement of 375 units (the "Offering"), each unit ("Unit") consisting of four
shares of common stock of Bio-Cardia and Warrants to purchase 15,000 shares of
the Company's common stock. All of the cash proceeds of the financing were to be
received by Bio-Cardia. In consideration of the Warrants included in the Units,
the Company received from each purchaser of Units an option (the "Stock Purchase
Option"), exercisable at any time on or prior to December 31, 1997, to purchase
the Bio-Cardia stock at a purchase price beginning at 125% and increasing over
time to 200% of the cash portion of the price paid for such stock. Such purchase
price could be paid in cash, shares of the Company's common stock, or both, at
the Company's discretion. In connection with the closing of the financing, the
Company licensed to Bio-Cardia the right to pursue (i) the worldwide development
and commercialization of six of the Company's products, and (ii) the development
and commercialization of one of the Company's products in the United States and
Japan. The Company conducted research, development and clinical testing of these
products on behalf of Bio-Cardia, had the exclusive option, during the period
the Stock Purchase Option was outstanding with respect to each product, to
commercialize, directly or through others, such product, and was obligated to
supply Bio-Cardia with all its requirements for such products.

In connection with the financing the Company issued Warrants to
purchase an aggregate of 6,206,250 shares of common stock, consisting of (i)
5,625,000 Warrants issued to investors in Bio-Cardia in consideration of their
grant of the Stock Purchase Option to the Company, (ii) 562,500 Warrants issued
to DBC, the placement agent in the financing, and (iii) 18,750 Warrants issued
to the directors of Bio-Cardia. The Company expensed $10,241,000 for the year
ended December 31, 1993, equal to the aggregate value of the warrants, as
determined by an independent investment banking firm, representing (i) the
uncertain realizability of the value of such Stock Purchase Option, (ii) the
Company's expenses of the financing and (iii) director compensation expense,
respectively.

For its services as placement agent, DBC received from Bio-Cardia (i)
an aggregate selling commission in cash of $3,375,000, which is equal to 9% of
the gross proceeds of all Units sold in the financing (including, for the
purposes of the computation, all cash and the principal amount of all Investor
Notes received by Bio-Cardia), (ii) a non-accountable expense allowance of
$100,000, and (iii) reimbursement for legal expenses and disbursements incurred
in connection with the financing. DBC received from the Company, for its
services as placement agent, Warrants to purchase 562,500 shares of the
Company's common stock, which is equal to 10% of all Warrants included in the
units sold in the financing.

-55-

BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

their future funding obligations to Bio-Cardia. The net effect of this
settlement was to reduce the funding expected by Bio-Cardia by approximately
$14,240,000. In addition, Bio-Cardia commenced legal action against the
remaining defaulting stockholders, holding an aggregate of 43 Units, who owed an
aggregate of $3,440,000, which actions were settled during 1995 without the
payment or recovery by Bio-Cardia of any monies. Accordingly, Bio-Cardia was not
in a position to fund the up to $32 million research and development program
originally contemplated by Bio-Cardia and BTG. At December 31, 1995, Bio-Cardia
owed BTG approximately $2,200,000 for research and development performed by BTG
on behalf of Bio-Cardia during 1994 and 1995. The Company did not recognize as
revenues the amounts due from Bio-Cardia during the second half of 1994 or
during 1995.

The Company funded a revised research and development budget for 1995.
In May 1995, Bio-Cardia, with the Company's consent, completed an exchange offer
with all those Bio-Cardia stockholders who were not in default under their
investor note, who held an aggregate of 157 Units, including holders of three
Units against which Bio-Cardia commenced litigation (the "Exchange Offer").
Under the terms of the Exchange Offer, Bio-Cardia exchanged $4,250 in cash
(together with interest on $2,500 from the date Bio-Cardia received such funds)
and forgiveness of $17,500 principal amount of the Investor Note remaining
outstanding for each one share of Bio-Cardia common stock and an unconditional
release. In addition, Bio-Cardia agreed that if by December 15, 1995 neither (i)
the average daily price of the Company's common stock for any 20 trading days in
a 30 consecutive trading day period exceed $3.50 nor (ii) the best closing bid
price of the Warrants exceeds $1.10 during any 20 trading days, then Bio-Cardia
would distribute to the Bio-Cardia stockholders accepting the Exchange Offer
some or all of the Warrants obtained in the settlements with defaulting
Bio-Cardia stockholders such that, in the aggregate, the Warrants issued in the
Offering, together with the Warrants distributed by Bio-Cardia, have a value of
$16,500 as determined using the Black Scholes option pricing formula using an
assumption of no dividends and a volatility of 70%. Prior to December 15, 1995,
the best closing bid price of the Warrants exceeded $1.10 for 20 trading days
and, as a result, Bio-Cardia's obligation to distribute the Warrants expired. In
connection with the Exchange Offer, the Company amended the Warrants to provide
that if the Company enters into certain transactions which would result in the
sale of the Company for cash at a price per share of the Company's common stock
of less than $6.59 (adjusted for stock splits, stock dividends and similar
transactions), then the exercise price of the Warrants will automatically be
reduced to a price per share equal to the difference between the sale price and
$1.10. The Company reacquired from Bio-Cardia all rights to the products
licensed to Bio-Cardia in December 1995.

Of the research and development revenues under collaborative agreements
earned in the years ended December 31, 1994 and 1995, $2,950,000 and $3,486,000,
respectively, was earned in respect of research and development activities
conducted pursuant to the research and development agreement and service
agreement which the Company entered into with Bio-Cardia in December 1993. In
1994, these revenues include $275,000 representing reimbursement of previously
incurred research and development expenses. Research and development revenues
under collaborative agreements in 1995 include $3,004,000 representing the value
of Warrants to purchase shares of the Company's common stock received from Bio-
Cardia.

In 1995, the Company expensed $806,000 as research and development
financing expenses relating to Bio-Cardia, representing the net funds provided
to Bio-Cardia following Bio-Cardia's default under its agreements with the
Company. The net funding provided to Bio-Cardia consisted of: (i) $1,710,000
received from Bio-Cardia in 1994 but not recognized as

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BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

revenues, which amount was included in other current liabilities on the December
31, 1994 balance sheet and was returned to Bio-Cardia by BTG to fund the
Exchange Offer discussed above; (ii) $210,000 received from Bio-Cardia in 1995
but not recognized as revenues and returned to Bio-Cardia by the Company to fund
the Exchange Office discussed above; and (iii) $2,726,000 provided to Bio-Cardia
to fund the Exchange Offer discussed above (including the $1,920,000 referred to
in (i) and (ii) above).

NOTE 12 - RELATED PARTY TRANSACTIONS

a. In 1993, the Company incurred $150,000 of financial advisory
fees to DBC. In connection with a research and development
financing, DBC acted as the placement agent. See Note 11.
During 1993, DBC exercised warrants. See Note 5.

b. In June 1986, Gynex loaned three officers (one of whom ceased
to be an officer in 1989, the second of whom ceased to be an
officer in August 1993 and the remaining one ceased to be an
officer in October 1994) a total of $133,000 relating to the
exercise of options to purchase approximately 70,000 shares of
the Company's common stock (Gynex common stock at the time of
the loan). During February 1992, Gynex also loaned two of
these officers (one of whom ceased to be an officer in August
1993 and the remaining one ceased to be an officer in October
1994) a total of $44,000 relating to the exercise of incentive
stock options to purchase approximately 245,000 shares of the
Company's common stock (Gynex common stock at the time of the
loan). The loans and related interest (bearing annual rates of
6.74% and 4.64% for the 1986 and 1992 loans, respectively) to
the two persons who ceased to be officers in 1989 and in
August 1993 were repaid in early 1994. The loans made to the
person who ceased to be an officer of the Company in October
1994 were repaid in early 1995. The principal amount loaned is
deducted from stockholders' equity and the interest receivable
of $25,000 is included in other assets at December 31, 1994.

c. In 1993 the Company loaned to a senior officer/director
$50,000 which was to be forgiven if (i) he had relocated to
the metropolitan area of the Company's headquarters by August
1994, (ii) his employment was terminated prior to August 1994
by reason of his death or disability, or (iii) the Company
terminated his employment prior to August 1994 for any reason.
This loan was repaid in early 1995.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors

The directors of the Company, their ages, the year in which
each first became a director and their principal occupations or employment
during the past five years are:

Year First Principal Occupation During
Director Age Became Director the Past Five Years
-------- --- --------------- -------------------

Herbert J. Conrad.......................... 63 1993 Retired; President of Roche Pharmaceuticals
Division, Hoffmann-La Roche from
December 1981 until September 1993. (1)

Sim Fass................................... 54 1983 President/CEO of the Company and
President of Bio-Technology General
(Israel) Ltd., the Company's wholly-owned
subsidiary ("BTG Israel"), since May 1984;
Treasurer of the Company since August
1983; Chief Operating Officer of BTG
Israel between August 1983 and May 1987.
(1)(2)

Fred Holubow............................... 57 1994 Vice President of Pegasus Associates, Inc.
since June 1982. (3)(4)

Hoffer Kaback.............................. 46 1989 President of Gloucester Capital Corporation
since 1980; General Partner of Bosworth
Partners, an investment partnership, since
1986. (3)(5)

Charles MacDonald.......................... 38 1994 Individual investor since July 1995; Portfolio
Manager at Elliott Associates, L.P. from
November 1987 to July 1995.(1)

Moses Marx................................. 60 1994 Partner of United Equities Company since
June 1954 and partner of United Equities
(Commodities) Company since January
1972. (1)(6)

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Year First Principal Occupation During
Director Age Became Director the Past Five Years
-------- --- --------------- -------------------

David Tendler.............................. 57 1994 Chairman of Tendler Beretz Associates Ltd.
since January 1985; Chairman of Melville
BioLogics Inc. since February 1995; Co-
Chairman and Chief Executive Officer of
Phibro-Salomon, Inc. (now Salomon, Inc.)
from May 1982 until October 1984.
(1)(3)(6)

Virgil Thompson............................ 56 1994 President and Chief Executive Officer of
Cytel Corporation since January 1996;
President and Chief Executive Officer of
CIBUS Pharmaceutical, Inc. from July
1994 until January 1996. President from
August 1991 to August 1993 and Executive
Vice President from March 1986 to August
1991 of Syntex Laboratories, Inc. (3)(6)

Dan Tolkowsky.............................. 75 1985 Partner at Adler & Tolkowsky Management
Associates, the general partner of Athena
Venture Partners L.P., a venture capital
partnership, since May 1985; prior thereto,
Vice Chairman and Managing Director of
Discount Investment Corporation (Tel-
Aviv); Chairman of the Executive
Committee of BTG Israel from 1983
through October 1989. (6)

Bradford T. Whitmore....................... 38 1994 General Partner of Grace Brothers, Ltd.
since January 1986. (1)

(1) Member of the Executive Committee of the Board of Directors.

(2) Pursuant to Dr. Fass' employment agreement with the Company, the Company
has agreed to nominate Dr. Fass for election as a director during all
periods when Dr. Fass serves as President and Chief Executive Officer of
the Company. See "Executive Compensation--Employment Agreements."

(3) Member of the Audit Committee of the Board of Directors.

(4) Pursuant to the Agreement and Plan of Merger, dated as of March 9, 1993,
by and among the Company, BTG Acquisition Subsidiary, Inc. and Gynex
Pharmaceuticals, Inc. (the "Merger Agreement"), the Company agreed that
for the longer of (i) the 1994 and 1995 Annual Meeting of Stockholders of
the Company and (ii) a group consisting of William Harris Investors, Inc.,
Irving B. Harris, the William B. Harris Revocable Trust, Marc A. Neuerman
and Jerome Kahn, together with persons and entities associated with them,
beneficially own at least five percent of the outstanding Common Stock,
the Company would nominate as a nominee for director and solicit proxies
for election as a director a person designated by Irving B. Harris and
reasonably acceptable to the Company. Fred Holubow is Mr. Harris'
designee. Mr. Holubow is not standing for reelection at the 1996 Annual
Meeting of Stockholders.

(5) In connection with the Company's offer to exchange (a) $250 principal
amount of the Company's Series A 7 1/2% Senior Secured Convertible Notes
due January 15, 1995 and 200 shares of the Company's Common Stock for each
$1,000 principal amount of its 7 1/2% Convertible Senior Subordinated
Notes due April 15, 1997 and (b)

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$250 principal amount of the Company's Series B 11% Senior Secured
Convertible Notes due October 15, 1998 and 200 shares of Common Stock for
each $1,000 principal amount of its 11% Convertible Senior Subordinated
Debentures due 2006, the Company reached an agreement with Elliott
Associates, L.P., Grace Brothers, Ltd. and Wechsler & Krumholz, Inc. (the
"Group") to appoint as a director a person designated by the Group and to
nominate as a director and solicit proxies for the Group's nominee. The
Company and the Group have terminated this agreement. Mr. Kaback was the
representative designated by the Group to serve as a director of the
Company.

(6) Member of the Compensation and Stock Option Committee of the Board of
Directors.

Mr. Conrad is a director of Bradley Pharmaceuticals, Inc., Gensia, Inc.
and Dura Pharmaceuticals, Inc. Mr. Holubow is a director of Jefferson State
Bank, Thermo Remediation Inc. and Unimed Pharmaceuticals, Inc. Mr. Kaback is a
director of Lewis Galoob Toys, Inc. and Sunshine Mining and Refining Co. Mr.
Marx is a director of The Cooper Companies, Inc. and Cooper Life Sciences, Inc.
Mr. Tendler is a director of Ryan, Beck & Co. Mr. Thompson is a director of
Cytel Corporation and Cypros Pharmaceuticals Corp. Mr. Whitmore is a director of
Patten Corp.

On December 6, 1994 the Board reestablished the Executive Committee to
exercise, to the extent authorized by law, all of the powers and authority of
the Board in the management of the business and affairs of the Company. Messrs.
Herbert Conrad, Sim Fass, Charles MacDonald, Moses Marx, David Tendler and
Bradford Whitmore are the current members of the Executive Committee. During the
fiscal year ended December 31, 1995 the Executive Committee held four meetings.

In November 1989, the Board formed an Audit Committee which was
established to review the internal accounting procedures of the Company and to
consult with and review the Company's independent auditors and the services
provided by such auditors. Messrs. Fred Holubow, Hoffer Kaback, David Tendler
and Virgil Thompson are the current members of the Audit Committee. During the
fiscal year ended December 31, 1995, the Audit Committee held one meeting.

In January 1990, the Board formed a Compensation Committee. In May
1990, the Board combined the Compensation Committee and the Stock Option Plan
Committee to form the Compensation and Stock Option Committee which was
established to review compensation practices, to recommend compensation for
executives and key employees, and to administer the Company's stock option
plans. Messrs. Moses Marx, David Tendler, Virgil Thompson and Dan Tolkowsky are
the current members of the Compensation and Stock Option Committee. During the
fiscal year ended December 31, 1995, the Compensation and Stock Option Committee
acted by unanimous written consent in lieu of a meeting one time and held one
meeting.

During the fiscal year ended December 31, 1995, each person who was a
director, officer or beneficial owner of more than 10 percent of the Company's
equity securities filed on a timely basis all Forms 3 and 4 pursuant to Rule
16a-3(e) and any required Form 5 for the fiscal year ended December 31,
1995 except for Herbert Conrad who filed one such form in an untimely manner and
Marian Gorecki who filed two such forms in an untimely manner.

During the fiscal year ended December 31, 1995, the Board of Directors
held five meetings. Each director attended at least 75% of the meetings of the
Board of Directors held when he was a Director and of all committees of the
Board of Directors on which he served.

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Executive Officers

See "Part I - Executive Officers of the Company".

ITEM 11. EXECUTIVE COMPENSATION

The following table shows all the cash compensation paid or to be paid
by the Company or its subsidiaries as well as certain other compensation paid or
accrued during the fiscal years indicated to the Chief Executive Officer of the
Company and each of the four other most highly compensated executive officers of
the Company for such period in all capacities in which they served.

SUMMARY COMPENSATION TABLE

Long Term All Other
Annual Compensation Compensation Compensation(1)
------------------- ------------ ---------------
Fiscal
Name and Principal Position Year Salary($) Bonus($)(2) Options(#)
--------------------------- ---- --------- ----------- ----------

Sim Fass (3)........................... 1995 $282,500 $100,000 60,000 $4,620(4)
President and Chief 1994 264,583 115,000 120,000 4,620(4)
Executive Officer 1993 243,039 105,000 157,500

David Haselkorn (3).................... 1995 177,102 70,000 50,000
Senior Vice President and Chief 1994 163,750 60,000 80,000
Operating Officer; General 1993 149,267 50,000 100,000
Manager of BTG Israel

Marian Gorecki (3)..................... 1995 163,102 55,000 35,000
Senior Vice President - 1994 148,750 40,000 70,000
Chief Technical Officer 1993 134,267 40,000 82,500

Nadim Kassem (3)....................... 1995 190,500 25,000 20,000 4,620(4)
Senior Vice President - 1994 178,750 30,000 60,000 4,620(4)
Chief Medical Officer 1993 173,696 15,000 25,000 40,000(5)

Ronald J. Simko (6).................... 1995 128,333 15,000 10,000 4,620(4)
Vice President - Manufacturing 1994 43,109 - 30,000 600(4)

(1) Pursuant to the SEC's rules on executive compensation disclosure, "All
Other Compensation" does not include perquisites because the aggregate
amount of such compensation for each of the persons listed did not exceed
the lesser of (i) $50,000 or (ii) 10 percent of the combined salary and
bonus for such person in each such year.

(2) Bonuses paid during a fiscal year are for the prior fiscal year.

(3) Each of Drs. Fass, Haselkorn, Kassem and Gorecki is a party to an
employment agreement with the Company. See "--Employment Agreements."

(4) Represents the Company's matching contribution pursuant to its 401(k)
defined contribution plan.

(5) Pursuant to his employment agreement, the Company loaned Dr. Kassem
$40,000 which was forgiven in full on June 1, 1993. See "--Employment
Agreements."

(6) Mr. Simko joined the Company in August 1994.

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The following table sets forth information with respect to option
grants in 1995 to the persons named in the Summary Compensation Table.

OPTION GRANTS IN LAST FISCAL YEAR

Potential Realized
Value at Assumed
% of Total Annual Rates of
Number of Options Stock Price
Securities Granted to Market Appreciation for
Underlying Employees in Exercise or Price on Option Term (3)
Options Fiscal Year Base Price Date of Expiration ---------------------------
Name Granted(#)(1) (2) ($/sh) Grant Date 5% ($) 10% ($)
- ---- ------------- ----- -------- ------- ----- ------- --------

Sim Fass.......... 60,000 4.81% $3.50 $3.50 06/13/05 $132,068 $334,686

David Haselkorn... 50,000 4.01 3.50 3.50 06/13/05 110,057 278,905

Marian Gorecki.... 35,000 2.81 3.50 3.50 06/13/05 77,040 195,254

Nadim Kassem...... 20,000 1.60 3.50 3.50 06/13/05 44,023 111,562

Ronald Simko...... 10,000 0.80 3.50 3.50 06/13/05 22,012 55,781

(1) Options vest ratably over four years on the anniversary date of the grant
unless otherwise indicated; however, options granted under the Company's
1992 Stock Option Plan and certain other options become immediately
exercisable upon a change in control of the Company. See "--Employment
Agreements."

(2) Based upon options to purchase 1,247,734 shares granted to all employees in
1995.

(3) These amounts represent assumed rates of appreciation in the price of the
Company's Common Stock during the terms of the options in accordance with
rates specified in applicable federal securities regulations. Actual gains,
if any, on stock option exercises will depend on the future price of the
Common Stock and overall stock market conditions. The 5% rate of
appreciation over the 10 year option term of the $3.50 stock price on the
date of grant would result in a stock price of $5.70. The 10% rate of
appreciation over the 10 year option term of the $3.50 stock price on the
date of grant would result in a stock price of $9.08. There is no
representation that the rates of appreciation reflected in this table will
be achieved.

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The following table sets forth information with respect to (i)
stock options exercised in 1995 by the persons named in the Summary Compensation
Table and (ii) unexercised stock options held by such individuals at December
31, 1995.

AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES

Number of Unexercised Value of Unexercised,
Options Held at Fiscal In-the-Money Options at
Shares Year End Fiscal Year End ($)(1)
Acquired on Value ------------------------------- ------------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------

Sim Fass................ --- --- 771,250 256,250 $388,544 $0

David Haselkorn......... --- --- 397,500 172,500 131,100 0

Marian Gorecki (2)...... 24,500 47,405 290,000 132,500 8,075 0

Nadim Kassem............ --- --- 102,500 102,500 0 0

Ronald Simko ...... --- --- 7,500 32,500 0 0

(1) Based on a closing stock price of the Company's Common Stock on December
29, 1995 of $2.40625.

(2) On March 7, 1995, September 11, 1995 and December 12, 1995 Marian Gorecki
exercised options to acquire 5,000, 12,000 and 7,500 shares, respectively,
of the Company's Common Stock at a price of $1.06 per share. The closing
price of the Company's Common Stock on March 7, 1995, September 11, 1995
and December 12, 1995 was $2.375, $2.9375 and $3.50, respectively.

EMPLOYMENT AGREEMENTS

The Company and Sim Fass entered into an employment agreement dated as of
January 1, 1990 (the "Fass Agreement") pursuant to which Dr. Fass has served as
President and Chief Executive Officer of the Company. At January 1, 1996, the
Fass Agreement was automatically renewed for another two year period, and will
automatically be renewed for successive two year periods thereafter unless
either party gives the other notice of nonrenewal. The Fass Agreement also
provides that the Company will nominate Dr. Fass for election as a director
during all periods when he serves as President and Chief Executive Officer of
the Company. For his services, Dr. Fass is currently entitled to an annual
salary of $290,000, with bonuses to be determined at the discretion of the
Company's Board. In the event Dr. Fass' employment is terminated by the Company
at any time for any reason other than justifiable cause, disability or death, or
the Company shall fail to renew the Fass Agreement at any time within two years
following a "Change of Control of the Company," the Company shall pay Dr. Fass,
for a period equal to the longer of (1) the remaining term of the Fass Agreement
or (2) one year (such period being hereinafter referred to as the "Fass
Severance Period") a monthly payment equal to $20,000, which amount shall be in
lieu of any and all other payments due and owing to Dr. Fass under the terms of
the Fass Agreement. During the Fass Severance Period, the Company shall continue
to provide Dr. Fass with health, life and disability insurance. In the event the

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Company elects not to renew the Fass Agreement other than within two years
following a "Change in Control of the Company," the Company is obligated to pay
Dr. Fass a severance payment equal to the sum of one month's salary plus 1/12 of
his most recently declared bonus for each year Dr. Fass has been employed by the
Company.

Pursuant to the Fass Agreement, all options granted or to be granted to
Dr. Fass under any Company stock option plan shall become immediately
exercisable and all restrictions against disposition, if any, which have not
otherwise lapsed shall immediately lapse if (i) Dr. Fass' employment with the
Company is terminated upon a determination by the Company's Board that the
performance of his duties has not been fully satisfactory for any reason that
would not constitute "justifiable cause" (as defined in the Fass Agreement),
(ii) Dr. Fass dies or is disabled (as defined in the Fass Agreement) while
employed by the Company, (iii) Dr. Fass is not nominated by the Company for
reelection to the Company's Board, other than for justifiable cause, (iv) there
shall occur a material reduction in Dr. Fass' duties, other than for justifiable
cause, or (v) any event constituting a Change in Control of the Company shall
occur while Dr. Fass is employed by the Company.

For purposes of the Fass Agreement, the Haselkorn Agreement (as described
below) and the Gorecki Agreement (as described below), a "Change in Control of
the Company" shall be deemed to occur if (i) there shall be consummated (x) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the Company's
Common Stock would be converted into cash, securities or other property, other
than a merger of the Company in which the holders of the Company's Common Stock
immediately prior to the merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the merger, or (y) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of the assets of the
Company, or (ii) the stockholders of the Company shall approve any plan or
proposal for liquidation or dissolution of the Company, or (iii) any person (as
such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) shall become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of 40% or more
of the Company's outstanding Common Stock other than pursuant to a plan or
arrangement entered into by such person and the Company, or (iv) during any
period of two consecutive years, individuals who at the beginning of such period
constitute the entire Board shall cease for any reason to constitute a majority
thereof unless the election, or the nomination for election by the Company's
stockholders, of each new director was approved by a vote of at least two-
thirds of the directors then still in office who were directors at the
beginning of the period.

The Company and David Haselkorn entered into an employment agreement dated
as of September 5, 1990 (the "Haselkorn Agreement") pursuant to which Dr.
Haselkorn has served as Senior Vice President and Chief Operating Officer of the
Company and General Manager of BTG Israel. At September 5, 1994, the Haselkorn
Agreement was automatically renewed for an additional two year period, and will
automatically be renewed for successive two year periods unless either party
gives the other notice of nonrenewal. For his services, Dr. Haselkorn is
currently entitled to an annual salary of $183,000 and to bonuses to be
determined at the discretion of the Company's Board. In the event that Dr.
Haselkorn's employment is terminated by the Company at any time for any reason
other than justifiable cause, disability or death, or the Company shall fail to
renew the Haselkorn Agreement at any time within two years following a "Change
in Control of the Company," the Company is obligated to

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pay Dr. Haselkorn an amount equal to the greater of (i) one year's salary plus
Dr. Haselkorn's most recent bonus, if any, or (ii) the product of one month's
salary plus 1/12 of Dr. Haselkorn's most recently declared bonus multiplied by
the number of years Dr. Haselkorn has been employed by the Company.

BTG Israel and Marian Gorecki entered into an employment agreement dated
as of September 5, 1990 (the "Gorecki Agreement") pursuant to which Dr. Gorecki
has served as Senior Vice President and Chief Technical Officer of BTG Israel.
At September 5, 1994, the Gorecki Agreement was automatically renewed for an
additional two year period, and the Gorecki Agreement provides that it
automatically will be renewed for successive two year periods unless either
party gives the other notice of nonrenewal. For his services, Dr. Gorecki is
currently entitled to an annual salary of $170,000 and to bonuses to be
determined at the discretion of the Company's Board. In the event that Dr.
Gorecki's employment is terminated by BTG Israel at any time for any reason
other than justifiable cause, disability or death, or BTG Israel shall fail to
renew the Gorecki Agreement at any time within two years following a "Change in
Control of the Company," BTG Israel is obligated to pay Dr. Gorecki an amount
equal to the greater of (i) one year's salary plus Dr. Gorecki's most recent
bonus, if any, or (ii) the product of one month's salary plus 1/12 of Dr.
Gorecki's most recently declared bonus multiplied by the number of years Dr.
Gorecki has been employed by BTG Israel.

The Company and Nadim Y. Kassem, M.D. entered into an employment agreement
dated as of June 1, 1992 (the "Kassem Agreement") pursuant to which Dr. Kassem
has served as Senior Vice President-Chief Medical Officer of the Company.
At June 1, 1994, the Kassem Agreement was automatically renewed for an
additional two year period, and will be automatically renewed for successive two
year periods unless either party gives the other notice of nonrenewal. For his
services, Dr. Kassem is currently entitled to an annual salary of $196,000 and
to bonuses to be determined at the discretion of the Company's Board. In the
event Dr. Kassem's employment is terminated by the Company at any time for any
reason other than justifiable cause, disability or death, or the Company shall
fail to renew the Kassem Agreement, the Company is obligated to pay Dr. Kassem,
for a period equal to the longer of (1) the remaining term of the Kassem
Agreement or (2) one year (such period being hereinafter referred to as the
"Kassem Severance Period") a bi-monthly payment equal to 1/24th of his
annual salary, which amount shall be in lieu of any and all other payments due
and owing to Dr. Kassem under the terms of the Kassem Agreement. During the
Kassem Severance Period, the Company shall continue to provide Dr. Kassem with
health and disability insurance until the earlier of (1) one year or (2) such
time as Dr. Kassem becomes eligible to participate in another employer's health
and disability insurance plan.

In connection with the commencement of his employment with the Company,
Dr. Kassem was granted options to purchase 100,000 shares of the Company's
Common Stock at an exercise price of $6.50 per share. On the date of grant of
the option, the fair market value of the Company's Common Stock was $7.50. If
(i) Dr. Kassem's employment with the Company is terminated upon a determination
by the Company's Board that the performance of his duties has not been fully
satisfactory for any reason that would not constitute "justifiable cause" (as
defined in the Kassem Agreement) or (ii) Dr. Kassem dies or is disabled (as
defined in the Kassem Agreement) while employed by the Company, these options
shall become immediately exercisable.

Pursuant to the Kassem Agreement, the Company loaned to Dr. Kassem
$40,000. The Company agreed to forgive repayment of the loan on June 1, 1993 if
Dr. Kassem

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is then still an employee of the Company and under certain other circumstances.
This loan was forgiven on June 1, 1993.

COMPENSATION OF DIRECTORS

Directors of the Company do not receive any cash compensation for their
services as directors, except that beginning January 1, 1995 non-employee
members of the Executive Committee and beginning June 1, 1995 non-employee
members of the Audit Committee and Compensation and Stock Option Committee
receive $1,000 per Committee meeting attended. In addition, on January 31, 1996,
the Board of Directors engaged Mr. Conrad as a consultant to the Company with
respect to research and development strategic planning and the Oxandrin product
launch at a fee of $20,000 per year. Upon becoming a director of the Company,
non-employee directors receive a one time only grant of options to
purchase 20,000 shares of the Company's Common Stock pursuant to the Company's
Stock Option Plan for Outside Directors. In addition, non-employee
directors receive quarterly grants of shares of Common Stock pursuant to the
Company's Stock Compensation Plan for Outside Directors. All directors are
reimbursed for their expenses in connection with attending meetings of the
Company's Board.

Stock Option Plan For Outside Directors. Pursuant to the Company's
Stock Option Plan for Outside Directors (the "Option Plan"), each person who is
neither an officer nor employee of the Company or its subsidiaries and who is
elected or appointed a director of the Company (the "New Director")
automatically receives on the date of his initial election or appointment to the
Company's Board (the "Grant Date") an option to purchase 20,000 shares of the
Company's Common Stock (the "Option") at a per share exercise price equal to the
Fair Market Value (as defined in the Option Plan) of the Company's Common Stock
on the Grant Date.

Options may be exercised as to 5,000 shares on the date which is six
months and one day after the Grant Date and an additional 5,000 shares on each
of the three successive anniversaries of the Grant Date. In the event that a New
Director ceases to be a director of the Company, such person may exercise any
portion of the Option that is exercisable by him at the time he ceases to be a
director of the Company, but only to the extent such Option is exercisable as of
such date, within six months after the date he ceases to be a director of the
Company. However, in the event a "Change of Control of the Corporation" (as
defined in the Option Plan) shall occur, all options granted under the Option
Plan which are outstanding at the time a Change of Control of the Corporation
occurs shall immediately become exercisable. Options granted under the Option
Plan have a term of ten years from the Grant Date and are not "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").

Mr. Hoffer Kaback, who was elected a director of the Company on November
1, 1989, was granted an Option at a per share exercise price of $1.09, the Fair
Market Value of the Company's Common Stock on January 29, 1990, the date of the
adoption of the Option Plan by the Company's Board. Mr. Herbert J. Conrad, who
was elected a director of the Company on October 14, 1993, was automatically
granted an Option at a per share price of $5.8125. Mr. Fred Holubow, who was
elected a director of the Company on April 6, 1994, was automatically granted on
such date an Option at a per share exercise price of $4.1875. Mr. David Tendler
and Mr. Virgil Thompson, who were elected as directors of the Company on June 2,
1994 were each automatically granted an Option at a per share exercise price of
$2.9375. Mr. Charles MacDonald, who was

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elected as a director of the Company on October 24, 1994, was automatically
granted an Option at a per share exercise price of $2.15625. Mr. Moses Marx and
Mr. Bradford Whitmore, who were elected as directors of the Company on December
6, 1994, were each automatically granted an Option at a per share exercise price
of $2.375.

Stock Compensation Plan for Outside Directors. Pursuant to the
Company's Compensation Plan for Outside Directors (the "Compensation Plan"),
each director of the Company who is neither an officer nor employee of the
Company or its subsidiaries (an "Outside Director") is awarded automatically, in
lieu of cash compensation for services as a director, on the last business day
of each full fiscal quarter subsequent to his election or appointment as an
Outside Director, such number of shares of the Company's Common Stock as has an
aggregate Fair Market Value (as defined in the Compensation Plan) equal to
$2,500, based on the price of the Company's Common Stock on the date of issue
(the "Shares"). The Compensation Plan provides that each Outside Director will
be awarded Shares until such time as he is no longer an Outside Director. If an
Outside Director ceases to be an Outside Director for any reason, the number of
Shares which he will be awarded on the last business day of the Company's next
fiscal quarter will be equal to one-third of the number of Shares which he
would have been awarded on such date for each complete month that he was an
Outside Director in the fiscal quarter in which he ceased to be an Outside
Director.

The Compensation Plan allows any Outside Director to defer the issuance
and delivery of the Company's Common Stock awarded under the Compensation Plan
until the termination of his services on the Company's Board or such other time
as the Company's Board may determine. Virgil Thompson and the Company entered
into a deferral agreement in June 1994 (the "Deferral Agreement") pursuant to
which the issuance and delivery of the Company's Common Stock to be awarded to
Mr. Thompson under the Compensation Plan has been deferred until after the date
Mr. Thompson ceases to be a member of the Company's Board; provided, however,
that any shares of the Company's Common Stock, the issuance of which was
deferred, will be issued to Mr. Thompson at the time of a change in ownership or
effective control of the Company or a change in ownership of a substantial
portion of the Company's assets, as defined in the Code, except that in
determining whether there is a change in effective control by reason of a stock
acquisition, there must be an acquisition of stock possessing at least 40% (as
opposed to the 20% requirement set forth in the Code), of the total voting power
of the Company's Common Stock.

During the 1995 fiscal year, each Outside Director eligible to receive
shares under the Compensation Plan received 1,111 shares of the Company's Common
Stock on March 31, 1995, 833 shares of the Company's Common Stock on June 30,
1995, 754 shares of the Company's Common Stock on September 30, 1995 and 547
shares of the Company's Common Stock on December 31, 1995. On March 31, 1995,
June 30, 1995, September 30, 1995 and December 31, 1995, the Fair Market Value
of the Company's Common Stock was $2.25, $3.00, $3.3125 and $4.5625,
respectively. Each of Herbert Conrad, Fred Holubow, Hoffer Kaback, Charles
MacDonald, Moses Marx, David Tendler, Dan Tolkowsky and Bradford Whitmore
received an aggregate of 3,245 shares of the Company's Common Stock each under
the Compensation Plan for their services as director during the 1995 fiscal
year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

-67-

BENEFICIAL OWNERSHIP OF COMMON STOCK

The following table sets forth information as of February 1, 1996 (except
as otherwise noted in the footnotes) regarding the beneficial ownership (as
defined by the Securities and Exchange Commission (the "SEC")) of the Company's
Common Stock of: (i) each person known by the Company to own beneficially more
than five percent of the Company's outstanding Common Stock; (ii) each director
of the Company; (iii) each executive officer named in the Summary Compensation
Table (see Item 11); and (iv) all directors and executive officers of the
Company as a group. Except as otherwise specified, the named beneficial owner
has the sole voting and investment power over the shares listed.

Amount and Nature of Beneficial Percentage of
Name of Beneficial Owner Ownership of Common Stock Common Stock
------------------------ ------------------------- ------------
Grace Holdings, L.P. 3,853,300 (1) 8.8%
1000 W. Diversey, Suite 233
Chicago, Illinois 60614
Elliott Associates, L.P............... 3,433,262 (2) 7.9%
712 Fifth Avenue, 36th Floor
New York, New York 10019
Momar Corporation..................... 2,650,390 (3) 6.1%
160 Broadway
New York, New York 10038
Herbert J. Conrad..................... 21,952 (4) *
Sim Fass.............................. 671,250 (5) 1.5%
Marian Gorecki........................ 350,000 (6) *
Fred Holubow.......................... 99,225 (7) *
David Haselkorn....................... 460,000 (8) *
Hoffer Kaback......................... 3,293 *
Nadim Kassem.......................... 105,500 (9) *
Charles MacDonald..................... 13,245 (10) *
Moses Marx............................ 2,663,635 (2)(10) 6.2%
Ronald J. Simko....................... 7,500 (11) *
David Tendler......................... 15,429 (10) *
Virgil Thompson....................... 10,000 (10) *
Dan Tolkowsky......................... 72,381 *
Bradford T. Whitmore.................. 3,866,545 (12) 8.9%
All directors and executive officers.. 8,401,204 (2)(12)(13) 18.6%
as a group (17 persons)
- ----------
* Represents less than one percent of the Company's Common Stock.

-68-

(1) Includes 1,530,614 shares of Common Stock held of record by Grace
Brothers, Ltd. and 408,686 shares of Common Stock held of record by
Grace Brothers International, Ltd. Both Grace Holdings, L.P. and Grace
Brothers International, Ltd. are substantially wholly owned affiliates
of Grace Brothers, Ltd. See note 12.

(2) Information included herein concerning the shares of Common Stock owned
beneficially by Elliott Associates, L.P. is as of February 29, 1996 and
was taken from an amended Schedule 13D that was filed with the
Securities and Exchange Commission by Elliott Associates, L.P. on March
21, 1996.

(3) Includes 1,000,000 shares of Common Stock owned by Momar Corp., a
Maryland corporation of which Mr. Marx, a director of the Company, is
the President and sole director and 1,650,390 shares of Common Stock
owned by United Equities (Commodities) Company, a partnership of which
Mr. Marx owns a majority interest. Mr. Moses Marx, United Equities
(Commodities) Company and Momar Corp. filed a joint Schedule 13D because
they may be deemed to constitute a "group" within the meaning of Section
13(d)(3) of the Exchange Act of 1934, as amended. See note 10.

(4) Includes 15,000 shares which may be acquired through the exercise of
stock options. Does not include 5,000 shares of Common Stock issuable
upon the exercise of options which are not exercisable within 60 days of
February 1, 1996.

(5) Consists of shares which may be acquired through exercise of stock
options. Does not include 256,250 shares of Common Stock issuable upon
the exercise of options which are not exercisable within 60 days of
February 1, 1996.

(6) Includes 290,000 shares which may be acquired through the exercise of
stock options. Does not include 132,500 shares of Common Stock issuable
upon the exercise of options which are not exercisable within 60 days of
February 1, 1996.

(7) Includes 1,000 shares of Common Stock owned by a trust of which Mr.
Holubow is a trustee, which shares Mr. Holubow is deemed to beneficially
own. Includes 10,000 shares which may be acquired through exercise of
stock options. Does not include 10,000 shares of Common Stock issuable
upon the exercise of options which are not exercisable within 60 days of
February 1, 1996.

(8) Includes 397,500 shares which may be acquired through the exercise of
stock options. Does not include 172,500 shares of Common Stock issuable
upon the exercise of options which are not exercisable within 60 days of
February 1, 1996.

(9) Includes 102,500 shares which may be acquired through the exercise of
stock options. Does not include 102,500 shares of Common Stock issuable
upon the exercise of options which are not exercisable within 60 days of
February 1, 1996.

(10) Includes 10,000 shares which may be acquired through exercise of stock
options. Does not include 10,000 shares of Common Stock issuable upon
the exercise of options which are not exercisable within 60 days of
February 1, 1996.

(11) Consists of shares which may be acquired upon the exercise of stock
options. Does not include 32,500 shares of Common Stock issuable upon
the exercise of options which are not exercisable within 60 days of
February 1, 1996.

-69-

(12) Includes 1,914,000 shares of Common Stock held of record by Grace
Holdings, L.P., 1,530,614 shares of Common Stock held of record by Grace
Brothers, Ltd. and 408,686 shares of Common Stock held of record by
Grace Brothers International, Ltd. Both Grace Holdings, L.P. and Grace
Brothers International, Ltd. are substantially wholly owned affiliates
of Grace Brothers, Ltd. Mr. Bradford T. Whitmore may be deemed the
beneficial owner of the 3,853,300 shares owned by such entities due to
the fact that he is a general partner of Grace Brothers, Ltd. and the
sole shareholder of a general partner of Grace Holdings, L.P. Includes
10,000 shares which may be acquired through the exercise of options.
Does not include 10,000 shares of Common Stock issuable upon the
exercise of options which are not exercisable within 60 days of February
1, 1996.

(13) Includes 1,600,000 shares of Common Stock which may be acquired upon the
exercise of stock options.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

-70-

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K

(a) Financial Statements

(1) and (2) See "Index to Consolidated Financial Statements" at Item 8
of this Annual Report on Form 10-K.

(3) Exhibits

Certain exhibits presented below contain information that has been
granted or is subject to a request for confidential treatment. Such information
has been omitted from the exhibit. Exhibit Nos. 10(a), (r), (s), (t), (aa),
(bb), (cc), (ff) and (ss) are management contracts, compensatory plans or
arrangements.

Exhibit No. Description
- ----------- -----------

3(a) Certificate of Incorporation of the Registrant, as amended. *(1)

(b) By-laws of the Registrant, as amended through October 24, 1994.
*(2)

10(a) Bio-Technology General Corp. Stock Option Plan, as amended
through May 29, 1991.*(3)

(b) Agreement, dated as of November 23, 1983, between the Company and
American Cyanamid Company. *(4)

(c) Agreement, dated January 25, 1981, between Bio-Technology General
(Israel) Ltd. and Yeda Research and Development Co., Ltd.
("Yeda"). *(5)

(d) Agreement, dated February 12, 1982, between Bio-Technology
General (Israel) Ltd. and the Office of the Chief Scientist of
the Ministry of Industry, Commerce and Tourism (the "Chief
Scientist") (Cattle Growth Hormone). *(5)

(e) Agreement, dated March 21, 1983, between Bio-Technology General
(Israel) Ltd. and the Chief Scientist (Anti-depressant). *(5)

(f) Letter from the Chief Scientist to Bio-Technology General
(Israel) Ltd. *(5)

(g) Letter from the Company to Yeda relating to bGH and hSOD. *(4)

(h) Agreement, dated January 20, 1984, between Bio-Technology General
(Israel) Ltd., and the Chief Scientist with regard to certain
projects. *(6)

(i) Agreement, dated July 9, 1984, between the Company and Yeda. *(6)

(j) Agreement, dated as of January 1, 1984, between the Company and
Yissum. *(7)

(k) Research and Development Service Agreement, dated May 9, 1983,
between the Company and Bio-Technology General (Israel) Ltd., as
amended. *(7)

-71-

Exhibit No. Description
- ----------- -----------

(l) Indenture, dated as of February 15, 1986, between the Company and
United States Trust Company of New York, as Trustee. *(8)

(m) Indenture, dated as of April 15, 1987, between the Company and
United States Trust Company of New York, as Trustee. *(9)

(n) Supplemental Indenture, dated as of October 27, 1989 to the
Indenture dated as of April 15, 1987, between the Company and
United States Trust Company of New York, as Trustee. *(10)

(o) Indenture, dated as of October 30, 1989, between the Company and
Continental Stock Transfer and Trust Company, as Trustee,
relating to the Series A 7 1/2% Senior Secured Convertible Notes
due 1995 and the Series B 11% Senior Secured Convertible Notes
due 1998. *(10)

(p) Form of Indemnity Agreement between the Company and its directors
and officers. *(11)

(q) Agreement, dated November 18, 1988, between the Company and Yeda.
*(12)

(r) Employment Agreement, dated as of January 1, 1990, between the
Company and Dr. Sim Fass.*(13)

(s) Bio-Technology General Corp. Stock Compensation Plan for Outside
Directors, as amended through March 1991. *(3)

(t) Bio-Technology General Corp. Stock Option Plan for New Directors,
as amended through March 1991. *(3)

(u) Common Stock and Warrant Purchase Agreement dated as of July 20,
1990 by and among the Company and the purchasers named therein.
*(14)

(v) Common Stock and Warrant Purchase Agreement, dated as of May 16,
1991. *(15)

(w) Reacquisition of Rights Agreement, effective June 12, 1991
between the Company and The Du Pont Merck Pharmaceutical Company.
*(16)

(x) Common Stock and Warrant Purchase Agreement dated August 26,
1991. *(17)

(y) Common Stock and Warrant Purchase Agreement, dated December 19,
1991, among Bio-Technology General Corp. and the purchasers named
therein. *(18)

(z) Common Stock and Warrant Purchase Agreement, dated as of December
19, 1991, among Bio-Technology General Corp. and the non-U.S.
purchasers named therein. *(18)

(aa) Employment Agreement, dated as of September 5, 1990, between the
Company and David Haselkorn. *(19)

-72-

Exhibit No. Description
- ----------- -----------

(bb) Employment Agreement, dated as of September 5, 1990, between
Bio-Technology General (Israel) Ltd. and Marian Gorecki. *(19)

(cc) Employment Agreement, dated as of June 1, 1992, between the
Company and Nadim Kassem. *(19)

(dd) Agreement, dated as of November 17, 1992, between the Company and
SmithKline Beecham Intercredit B.V. *(19)

(ee) Exclusive Distribution Agreement, dated as of November 9, 1992,
between the Company and Ferring B.V. *(19)

(ff) Bio-Technology General Corp. 1992 Stock Option Plan, as amended.
*(1)

(gg) Agreement and Plan of Merger, dated as of March 9, 1993, by and
among the Company, BTG Acquisition Subsidiary, Inc. and Gynex
Pharmaceuticals, Inc. *(20)

(hh) Sales Agency Agreement, dated as of July 20, 1993, as amended as
of December 31, 1993, by and among Bio-Technology General Corp.,
Bio-Cardia Corporation and D. Blech & Company, Incorporated.
*(21)

(ii) Technology License Agreement, dated as of December 31, 1993,
between Bio-Technology General Corp. and Bio-Cardia Corporation.
*(21)

(jj) Research and Development Agreement, dated as of December 31,
1993, between Bio-Technology General Corp. and Bio-Cardia
Corporation. *(21)

(kk) Marketing Option Agreement, dated as of December 31, 1993,
between Bio-Technology General Corp. and Bio-Cardia Corporation.
*(21)

(ll) Supply Agreement, dated as of December 31, 1993, between
Bio-Technology General (Israel) Ltd. and Bio-Cardia Corporation.
*(21)

(mm) Form of Warrant to purchase shares of Bio-Technology General
Corp. Common Stock. *(21)

(nn) Form of Stock Purchase Option Agreement among Bio-Technology
General Corp. and each stockholder of Bio-Cardia Corporation.
*(21)

(oo) Registration Rights Agreement, dated as of December 31, 1993,
made by Bio-Technology General Corp. in favor of the Warrant
holders. *(21)

(pp) Exclusive Distribution Agreement, dated as of December 29, 1993,
between Bio-Technology General Corp. and Novopharm Limited.
*(22)

(qq) Agreement, dated as of December 22, 1993, between Bio-Technology
General Corp. and SmithKline Beecham Intercredit B.V. *(22)

-73-

Exhibit No. Description
- ----------- -----------

(rr) Employment Agreement, dated as of August 9, 1993, between
Bio-Technology General Corp. and Stephen M. Simes. *(22)

(ss) Employment Agreement, dated as of September 21, 1993, between
Bio-Technology General Corp. and Matthew Pazaryna. *(22)

(tt) Bio-Technology General Corp. Common Stock Purchase Agreement,
dated as of October 4, 1994, by and between the Company and
Elliott Associates, L.P. *(23)

(uu) Bio-Technology General Corp. Common Stock Purchase Agreement,
dated as of October 4, 1994, by and between the Company and Grace
Holdings, L.P. *(23)

(vv) Bio-Technology General Corp. Common Stock Purchase Agreement,
dated as of October 4, 1994, by and between the Company and Momar
Corporation. *(23)

(ww) Bio-Technology General Corp. Common Stock Purchase Agreement,
dated as of October 4, 1994, by and between the Company and WACO
Partners. *(23)

(xx) Purchase and Supply Agreement, dated as of December 1, 1995,
between Bio-Technology General Corp. and Quantum Health
Resources.+

(yy) Support Services Agreement, dated as of December 1, 1995,
between Bio-Technology General Corp. and Quantum Health
Resources.+

(zz) Amended and Restated Research and Development Services Agreement,
dated as of December 28, 1995 by and between Bio-Technology
General Corp. and Bio-Technology General (Israel) Ltd.

(aaa) Employment Agreement, dated as of January 29, 1995 between
Bio-Technology General Corp. and Ernest L. Kelly.

(bbb) Agreement, dated as of December 29, 1995, by and among
Bio-Technology General Corp., Bio-Cardia Corporation and
Bio-Technology General (Israel) Ltd.

14(a) Patent issued by the British Patent Office. *(6)

21 Subsidiaries of the Company.*(24)

23.1 Consent of Arthur Andersen LLP.

Exhibits have been included in copies of this Report filed with the
Securities and Exchange Commission. Stockholders of the Company will be provided
with copies of these exhibits upon written request to the Company.

- -------------------
+ A request for confidential treatment has been made for portions of such
document. Confidential Portions have been omitted and filed separately with the
Commission as required by Rule 406(b).

* Previously filed with the Commission as Exhibits to, and incorporated herein
by reference from, the following documents:

(1) Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1994.
(2) Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1994.
(3) Company's Annual Report on Form 10-K for the year ended December 31, 1991.
(4) Company's Annual Report on Form 10-K for the year ended December 31, 1983.
(5) Registration Statement on Form S-1 (File No. 2-84690).
(6) Registration Statement on Form S-1 (File No. 33-2597).
(7) Registration Statement on Form S-2 (File No. 33-12238).
(8) Company's Annual Report on Form 10-K for the year ended December 31, 1985.
(9) Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1987.
(10) Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1989, as amended on Form 8 dated November 15, 1989.

-74-

(11) Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1987.

(12) Company's Annual Report on Form 10-K for the year ended December 31, 1988.

(13) Company's Annual Report on Form 10-K for the year ended December 31, 1989.

(14) Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1990.

(15) Report on Form 8-K dated May 16, 1991.

(16) Registration Statement on Form S-3 (File No. 33-39018).

(17) Registration Statement on Form S-3 (File No. 33-42583).

(18) Registration Statement on Form S-3 (File No. 33-44359).

(19) Company's Annual Report on Form 10-K for the year ended December 31, 1992.

(20) Company's Current Report on Form 8-K dated March 9, 1993.

(21) Company's Current Report on Form 8-K dated December 31, 1993.

(22) Company's Annual Report on Form 10-K for the year ended December 31, 1993.

(23) Company's Current Report on Form 8-K dated October 12, 1994.

(24) Company's Annual Report on Form 10-K for the year ended December 31, 1994.

(b) Reports on Form 8-K

Current Report on Form 8-K dated October 12, 1994, relating to the
Company's sale of 5,142,857 shares of the Company's common stock.

Current Report on Form 8-K dated December 9, 1994, relating to a
restructuring of the Company's Board of Directors.

See (a) (3) above.

(d) Financial Statement Schedule

See "Index to Consolidated Financial Statements and Supplemental Schedule"
at Item 8 of this Annual Report on Form 10-K. Schedules not included herein
are omitted because they are not applicable or the required information
appears in the Consolidated Financial Statements or notes thereto.

-75-

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

Bio-Technology General Corp.
(Registrant)

By: /s/ SIM FASS
----------------------------
(Sim Fass)
President and CEO

March 29, 1996

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.

Signature Title Date
- --------- ----- ----

/s/ SIM FASS
- ------------------------- President, CEO and March 29, 1996
(Sim Fass) Director (Principal
Executive Officer)

/s/ HERBERT CONRAD
- ------------------------- Director March 29, 1996
(Herbert Conrad)

/s/ FRED HOLUBOW
- ------------------------- Director March 29, 1996
(Fred Holubow)

/s/ HOFFER KABACK
- ------------------------- Director March 29, 1996
(Hoffer Kaback)

/s/ CHARLES MacDONALD
- ------------------------- Director March 29, 1996
(Charles MacDonald)

-76-

Signature Title Date
- --------- ----- ----

/s/ MOSES MARX
- ------------------------- Director March 29, 1996
(Moses Marx)

/s/ DAVID TENDLER
- ------------------------- Director March 29, 1996
(David Tendler)

/s/ VIRGIL THOMPSON
- ------------------------- Director March 29, 1996
(Virgil Thompson)

/s/ DAN TOLKOWSKY
- ------------------------- Director March 29, 1996
(Dan Tolkowsky)

/s/ BRADFORD WHITMORE
- ------------------------- Director March 29, 1996
(Bradford Whitmore)

/s/ YEHUDA STERNLICHT
- ------------------------- Vice President-Finance March 29, 1996
(Yehuda Sternlicht) and Chief Financial Officer
(Principal Financial
and Accounting Officer)

-77-

EXHIBIT INDEX