1,326,000 SHARES

LOGO

BONE CARE INTERNATIONAL, INC.

COMMON STOCK

All of the 1,326,000 shares (the "Shares") of Common Stock offered hereby
are being sold on an any or all basis by Bone Care International, Inc. ("Bone
Care" or the "Company") in a directed public offering by the Company. See
"Plan of Distribution." The Company's Common Stock is traded on the Nasdaq
National Market under the symbol "BCII." On July 20, 1998, the last reported
sale price for the Common Stock was $8.50 per share. See "Price Range of
Common Stock."

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS IN PURCHASING SHARES OF THE COMMON
STOCK OFFERED HEREBY. THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL SELL ANY
OR ALL OF THE SHARES.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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Price to Proceeds to
Public Company (1)
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Per Share............................................... $8.00 $8.00
Total................................................... $10,608,000 $10,608,000
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(1) Before deducting expenses payable by the Company estimated at $350,000.
It is expected that delivery of the certificates representing Shares will be
made against payment therefor in Chicago, Illinois, on or about July 24, 1998.

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July 22, 1998

[GRAPHIC ILLUSTRATION OF PRODUCTS AT VARIOUS STAGES OF DEVELOPMENT]

The Company's name and logo are a tradename and trademark of the Company,
respectively. This Prospectus also includes trademarks of companies other than
the Company.

The Company is a Wisconsin corporation with its principal executive offices
located at One Science Court, Madison, Wisconsin 53711. Its telephone number is
(608) 236-2500.

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus gives effect to the 2-
for-1 split of the Company's outstanding Common Stock effected on November 14,
1997. Unless otherwise noted or the context otherwise requires, references
herein to years refer to calendar years. References herein to fiscal years
refer to the Company's June 30 fiscal year end. Except for the historical
information contained herein, the discussion in this Prospectus contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business," as
well as those discussed elsewhere in this Prospectus.

THE COMPANY

Bone Care International, Inc. ("Bone Care" or the "Company") is a leader in
the discovery and development of improved vitamin D-hormone ("D-hormone")
therapies. D-hormones have a key role in secondary hyperparathyroidism leading
to metabolic bone diseases in several patient populations, including end stage
renal disease ("ESRD"), pre-dialysis and osteoporosis patients. D-hormones also
have a role in certain hyperproliferative diseases, including prostate, breast
and colon cancers, and psoriasis. In March 1998, the Company filed a New Drug
Application ("NDA") with the United States Food and Drug Administration ("FDA")
for an oral formulation of its lead product candidate, one-alpha D/2/, a
synthetic D-hormone analog for the treatment of secondary hyperparathyroidism
associated with ESRD. The Company filed the NDA based primarily on the results
of two pivotal Phase 3 trials which were completed in August 1997 and involved
138 patients at 17 study centers in the United States. In these trials, oral
one-alpha D/2/ effectively controlled moderate to severe secondary
hyperparathyroidism with no clinically meaningful side effects in ESRD patients
undergoing hemodialysis.

In February 1998, the Company completed two pivotal Phase 3 trials for an
intravenous formulation of one-alpha D/2/ for the treatment of secondary
hyperparathyroidism associated with ESRD. Preliminary data from these trials
are consistent with the results obtained from the completed Phase 3 trials for
oral one-alpha D/2/. The Company intends to seek regulatory approval from the
FDA for intravenous one-alpha D/2/. The Company is currently recruiting and
enrolling patients for pivotal Phase 3 trials of oral one-alpha D/2/ for the
treatment of secondary hyperparathyroidism in pre-dialysis patients. The
Company is also planning to conduct Phase 2 trials for the use of oral one-
alpha D/2/ for the treatment of osteoporosis associated with secondary
hyperparathyroidism.

Secondary hyperparathyroidism is a chronic disease where the parathyroid
glands secrete excessive quantities of parathyroid hormone ("PTH") in response
to reduced kidney function or kidney failure. Secondary hyperparathyroidism, if
left untreated, leads to debilitating metabolic bone diseases, including
osteoporosis, osteomalacia, rickets and renal osteodystrophy, as well as
increased risk of fractures and severe bone pain. Moderate to severe secondary
hyperparathyroidism is associated with advanced renal insufficiency and ESRD
found in pre-dialysis and dialysis patients. Mild secondary hyperparathyroidism
is associated with modest reductions in renal function often found in
osteoporosis patients. According to the United States Health Care Financing
Administration ("HCFA"), in 1996, there were approximately 214,000 ESRD
patients in the United States. In addition, based on published reports, the
Company estimates that in the United States in 1997 there were at least 600,000
pre-dialysis patients and at least 2,000,000 patients with osteoporosis
associated with secondary hyperparathyroidism.

conducting a Phase 1 trial of oral one-alpha D/2/ to treat terminal prostate
cancer. The Company is also investigating the use of other D-hormones and
analogs for the treatment of prostate, breast and colon cancers, and psoriasis.

Although currently marketed D-hormone therapies have demonstrated efficacy in
treating secondary hyperparathyroidism and certain hyperproliferative diseases,
the systemic (oral or intravenous) administration of those products frequently
produces toxic side effects at doses required for therapeutic effect. As a
result, the widespread and effective use of systemic D-hormone therapies has
been limited. Through the Company's collaborations with D-hormone research
institutions, as well as the Company's internal research and development
efforts, the Company has developed substantial expertise in the area of D-
hormone chemistry. The Company has leveraged that expertise to develop a
portfolio of D-hormones and analogs which the Company believes possess improved
safety and efficacy profiles compared to existing D-hormone therapies.

THE OFFERING

Common Stock offered by the 1,326,000 shares
Company...........................
Common Stock to be outstanding 10,134,956 shares(1)
after the offering................
Use of proceeds.................... For research and development activities,
commercialization activities, working
capital and general corporate purposes. See
"Use of Proceeds."
Nasdaq National Market symbol...... BCII

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(1) Assumes the sale of the maximum number of Shares and based on 8,808,956
shares of Common Stock outstanding as of June 30, 1998. Excludes as of June
30, 1998: (i) 527,778 shares of Common Stock issuable upon the exercise of
outstanding options to purchase shares of Common Stock at a weighted
average exercise price of $3.84 per share and (ii) 497,150 shares of Common
Stock reserved for future grants under the Company's 1996 Stock Option Plan
(the "1996 Plan"). See "Management--Stock Option Plans" and "Description of
Capital Stock."

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------- ------- ------- -------
(UNAUDITED)

CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Revenues............... $ 826 $ -- $ 15 $ 19 $ 39 $ 39 $ --
Operating expenses:
Cost of sales......... 158 -- -- 12 38 38 --
Research and
development.......... 426 329 535 1,158 2,885 1,993 3,062
General and
administrative....... 226 165 172 197 439 313 588
------ ------ ------ ------- ------- ------- -------
Total operating
expenses........... 810 494 707 1,367 3,362 2,344 3,650
------ ------ ------ ------- ------- ------- -------
Income (loss) from
operations............ 16 (494) (692) (1,348) (3,323) (2,305) (3,650)
Other income (expense),
net................... 22 9 (7) 90 529 408 285
Income tax expense..... (38) -- -- -- -- -- --
------ ------ ------ ------- ------- ------- -------
Net loss............... $ -- $ (485) $ (699) $(1,258) $(2,794) $(1,897) $(3,365)
====== ====== ====== ======= ======= ======= =======
Net loss per common
share(1).............. $ -- $(0.29) $(0.41) $ (0.26) $ (0.32) $ (0.22) $ (0.39)
====== ====== ====== ======= ======= ======= =======
Weighted average common
shares outstanding(1). 1,698 1,698 1,698 4,894 8,713 8,710 8,735
====== ====== ====== ======= ======= ======= =======

MARCH 31, 1998
----------------------
ACTUAL AS ADJUSTED(2)
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(UNAUDITED)

CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents.......... $5,009 $15,267
Working capital....... 4,297 14,555
Total assets.......... 6,971 17,229
Total long-term
liabilities.......... -- --
Accumulated deficit... (8,895) (8,895)
Total shareholders'
equity............... 6,174 16,432

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(1) See Note 1 to Notes to Consolidated Financial Statements for an explanation
of the computation of net loss per common share.
(2) Adjusted to give effect to the receipt of the net proceeds from the assumed
sale of the maximum number of Shares at the public offering price of $8.00
per share. See "Use of Proceeds."

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Accordingly, prospective investors should consider carefully
the following factors, together with the other information contained in this
Prospectus, in evaluating the Company and its business before purchasing
shares of the Common Stock offered hereby. This Prospectus contains forward-
looking statements that involve risk and uncertainty. Actual results and the
timing of certain events could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below and
other factors discussed elsewhere in this Prospectus. See "Special Note
Regarding Forward-Looking Statements."

EARLY STAGE OF DEVELOPMENT

The Company is at an early stage of development and currently has no
revenues from product sales. The Company does not have regulatory approval
from the FDA or foreign regulatory authorities to market any product. All of
the Company's product candidates, other than one-alpha D/2/ for the treatment
of secondary hyperparathyroidism associated with ESRD, are at an early stage
of development and will require extensive research and development and
preclinical and clinical testing prior to commercialization. In addition, each
of the Company's product candidates are and will be subject to an extensive,
time consuming and costly regulatory approval or clearance process prior to
commercialization. There can be no assurance that any such product candidates
will prove safe and efficacious in clinical trials or that any clinical trials
will be completed on schedule, or at all. Furthermore, there can be no
assurance that the Company will obtain required regulatory approvals or
clearance for any of its product candidates, that the Company's product
candidates will be capable of being produced in commercial quantities at
reasonable cost or that any of the Company's products, if introduced, will
achieve market acceptance. Any failure of the Company to demonstrate safety,
achieve clinical efficacy, obtain regulatory approvals or successfully
manufacture or commercialize its products would have a material adverse effect
on the business, financial condition and results of operations of the Company.

DEPENDENCE ON ONE-ALPHA D/2/

The Company is dependent on its ability to obtain regulatory approval of
one-alpha D/2/ for the treatment of secondary hyperparathyroidism associated
with ESRD in order to generate operating revenue while it continues its
research and development and regulatory approval processes for the potential
uses of one-alpha D/2/ for other indications and other product candidates.
Although the Company has completed its Phase 3 clinical trials for oral one-
alpha D/2/ for patients with secondary hyperparathyroidism associated with
ESRD and has filed an NDA with the FDA for oral one-alpha D/2/ as a treatment
for secondary hyperparathyroidism associated with ESRD, there can be no
assurance that the NDA will be approved, or that further clinical trials will
not be needed or that any such clinical trials will lead to marketing approval
by the FDA. In addition, there can be no assurance as to the outcome or timing
of the FDA's review of the Company's NDA submission. In addition, there can be
no assurance that one-alpha D/2/ for the treatment of secondary
hyperparathyroidism, if approved by the FDA, will achieve market acceptance.
See "Business--Government Regulation."

Furthermore, there can be no assurance that the Company will be successful
in its efforts to develop one-alpha D/2/ for other indications. Any additional
product candidates will require significant research and development,
preclinical and clinical testing, regulatory approval and commitment of
resources prior to commercialization. If one-alpha D/2/ is not successfully
manufactured or marketed, the Company may not have the financial resources to
continue research and development of other product candidates. The failure to
successfully develop, manufacture or market one-alpha D/2/ would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, technological developments may result in
one-alpha D/2/ becoming obsolete or non-competitive before the Company is able
to recover any portion of the research and development and other expenses it
has incurred to clinically test and commercialize one-alpha D/2/. Any such
development could have a material adverse effect on the business, financial
condition and results of operations of the Company.

HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY

Since its inception, the Company has been engaged in research and
development activities, has generated minimal revenues from operations and has
incurred significant operating losses. At March 31, 1998, the Company had an
accumulated deficit of approximately $8.9 million. Such losses have resulted
principally from costs incurred in research and development, preclinical and
clinical activities and from general and administrative costs associated with
the Company's operations. The Company expects that operating losses will
continue and increase for the foreseeable future as its research and
development, preclinical, clinical and marketing activities expand. The
Company's ability to achieve profitability will depend in part on its ability
to obtain regulatory approvals for its product candidates and successfully
manufacture and market any approved products either by itself or in
collaboration with third parties. There can be no assurance as to when the
Company will achieve profitability, or that profitability, if achieved, will
be sustained. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL

The laboratory testing, preclinical testing and clinical trials of all new
drugs developed by the Company, and the manufacturing, labeling, storage,
sale, distribution, export or import, marketing, advertising and promotion of
any new products resulting therefrom, are subject to extensive and rigorous
regulation by federal, state and local governmental authorities in the United
States, the principal one of which is the FDA, and by similar agencies in
other countries. Any new drug product developed by the Company must receive
all relevant regulatory approvals before it may be marketed in a particular
country. In the United States, the FDA regulatory process, which includes
extensive preclinical studies and clinical trials of each product in order to
establish its safety and efficacy, is uncertain, can take many years and
requires the expenditure of substantial resources. Data obtained from
preclinical studies and clinical trials are susceptible to varying
interpretations which could delay, limit or prevent regulatory approval. In
addition, delays or data rejections may be encountered based upon changes in
regulatory policy during the period of product development and/or the period
of review of any application for regulatory approval of a new drug. Delays in
obtaining regulatory approvals would adversely affect the marketing of any
products developed by the Company, impose significant additional costs on the
Company, diminish any competitive advantages that the Company may attain and
adversely affect the Company's ability to generate revenues and profits. There
can be no assurance that, even after such time and expenditures, any required
regulatory approvals will be obtained for any new drug developed by the
Company, and failure to obtain such approvals could have a material adverse
effect on the Company's business, financial condition and results of
operations.

FDA regulatory approval, if granted, may entail limitations on the indicated
uses for which a new drug may be marketed that could limit the potential
market for such a product, and new drug approval, once granted, may be
withdrawn from a product for failure to comply with applicable post-approval
regulatory requirements, or if safety or other problems occur after initial
marketing. Manufacturers of approved new drug products must comply with
detailed regulations governing, among other things, labeling, advertising and
current Good Manufacturing Practices ("GMP"), requiring establishment of
quality control and quality assurance procedures and maintenance of
corresponding records. Manufacturing facilities are subject to inspection by
the FDA, including unannounced inspection. There can be no assurance that the
Company or its suppliers will be able to comply with applicable GMP
regulations. Failure to comply with applicable regulatory requirements can
result in, among other things, withdrawal of marketing approval, warning
letters, injunctions, recall or seizure of products, total or partial
suspension of production, FDA refusal to approve pending NDAs or supplements
to approved NDAs, refusal to permit products to be imported or exported,
refusal to allow the Company to enter into government supply contracts or
criminal prosecution.

The Company is also subject to numerous federal, state and local laws,
regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices, the experimental use of animals, the
environment and the use and disposal of hazardous substances used in
connection with the Company's discovery, research and development work,
including radioactive compounds and infectious disease agents. In addition,
the Company cannot predict the extent of government regulations or the impact
of new governmental regulations which might have an adverse effect on the
discovery, development, production and marketing of the Company's

products, and there can be no assurance that the Company will not be required
to incur significant costs to comply with current or future laws or
regulations or that the Company will not be adversely affected by the cost of
such compliance. See "Business--Government Regulation."

UNCERTAINTY OF PATENT POSITIONS AND PROPRIETARY RIGHTS

The patent positions of pharmaceutical companies are often uncertain and
involve complex legal and factual questions, and the breadth of claims allowed
in pharmaceutical patents cannot be predicted. In addition, there is a
substantial backlog of pharmaceutical patent applications at the U.S. Patent
and Trademark Office (the "PTO") that may delay the review and the potential
issuance of patents. The Company's success will depend to a significant degree
on its ability to obtain patents and licenses to patent rights, to maintain
trade secrets and to operate without infringing on the proprietary rights of
others, both in the United States and in other countries.

To date, the Company has filed a number of patent applications in the United
States and other countries. The Company's issued patents and pending patent
applications relating to one-alpha D/2/ are methods-of-use patents which cover
only the use of certain compounds to treat specified conditions, rather than
composition-of-matter patents which would cover the chemical composition of
the active ingredient. The Company intends to continue to file applications as
appropriate for patents covering its products, uses and processes. There can
be no assurance that patents will issue from any of these applications, or
that competitors will not successfully challenge the Company's patents, if
issued, on the basis of validity and/or enforceability or circumvent, attack
or design around the Company's patent position. The failure of patents to
issue on pending applications or the finding of invalidity and/or
unenforceability of one of the Company's patents could result in increased
competition and could have a material adverse effect on the Company's
business, financial condition and results of operations.

Patent applications in the United States are maintained in secrecy until a
patent issues, and the Company cannot be certain that others have not filed
patent applications for compounds, uses or processes covered by the Company's
pending applications or that the Company was first to invent or discover the
compound, use or process that is the subject of such patent applications.
Competitors may have filed applications for, or may have received patents and
may obtain additional patents and proprietary rights relating to, compounds,
uses or processes that block or compete with those of the Company. The Company
is aware of a significant number of patent applications filed by and patents
issued to third parties relating to D-hormones. Should any of its competitors
have filed patent applications in the United States that claim compounds, uses
or processes also claimed by the Company, the Company may have to participate
in interference proceedings declared by the PTO in order to determine priority
of invention and, thus, the right to a patent for the compounds, uses or
processes in the United States, all of which could result in substantial cost
to the Company even if the outcome is favorable. In addition, litigation,
which could result in substantial cost to the Company, may be necessary to
enforce any patents issued to the Company or to determine the scope and
validity of the proprietary rights of third parties. There can be no assurance
that any patents issued to the Company or to licensors from whom the Company
has licensed rights will not be challenged, invalidated, found unenforceable
or circumvented, or that the rights granted thereunder will provide
proprietary protection or commercial advantage to the Company.

The commercial success of the Company depends significantly on its ability
to operate without infringing upon the patents and other proprietary rights of
third parties. There can be no assurance that the Company's compounds, uses or
processes do not and will not infringe upon the patents or other proprietary
rights of third parties. In the event of such infringement, the Company may be
enjoined from pursuing research, development or commercialization of its
products or may be required to obtain licenses to these patents or other
proprietary rights or to design around such patents. There can be no assurance
that the Company will be able to obtain any required license on commercially
reasonable terms, if at all. If such licenses are not obtained and the Company
is unable to design around such patents, the Company may be delayed or
prevented from pursuing the development of certain of its product candidates
which could have a material adverse effect on the business, financial
condition and results of operations of the Company.

The Company also relies on proprietary information and trade secrets. There
can be no assurance that third parties will not independently develop
equivalent proprietary information or techniques, will not gain access to the
Company's trade secrets or disclose such trade secrets to the public, or that
the Company can maintain and protect unpatented proprietary information. The
Company requires its employees, consultants and advisors to execute
confidentiality agreements upon commencement of employment or consulting
relationships with the Company. There can be no assurance, however, that these
agreements will provide meaningful protection or adequate remedies for the
Company's proprietary information in the event of unauthorized use or
disclosure of such information, that the parties to such agreements will not
breach such agreements or that the Company's trade secrets will not otherwise
become known or be discovered independently by its competitors. See
"Business--Patents and Proprietary Technology."

UNCERTAINTY RELATED TO PRICING AND REIMBURSEMENT OF PRODUCTS

In both domestic and foreign markets, sales of the Company's products, if
any, will depend in part on the availability of reimbursement from third-party
payors such as government health administration authorities, private health
insurers, health maintenance organizations, pharmacy benefit management
companies and other organizations. Both the federal and state governments in
the United States and foreign governments continue to propose and pass
legislation designed to contain or reduce the cost of health care, and
regulations affecting the pricing of pharmaceuticals and other medical
products and services may change or be adopted before any of the Company's
product candidates are approved for marketing. In addition, third-party payors
are increasingly challenging the price and cost-effectiveness of medical
products and services. Significant uncertainty exists as to the reimbursement
status of newly approved health care products including pharmaceuticals. There
can be no assurance that the Company's products, if any, will be considered
cost-effective or that adequate third-party reimbursement will be available to
enable the Company to maintain price levels sufficient to realize a return on
its investment.

The initial indication for one-alpha D/2/ is for secondary
hyperparathyroidism associated with ESRD. The Company believes the majority of
ESRD patients in the United States are covered for reimbursement of health
care costs through Medicare and Medicaid, both of which are administered by
HCFA. The current reimbursement policy of HCFA is to provide reimbursement for
intravenously administered drugs but not orally administered drugs. As a
result, intravenous D-hormones are currently favored by dialysis centers,
because under a fee-for-service reimbursement arrangement, they are reimbursed
by Medicare and Medicaid. The Company believes, however, that as the current
trend to replace fee-for-service reimbursement plans with capitated
reimbursement plans continues, dialysis centers will increasingly favor orally
delivered D-hormones because of their lower cost. The Company's strategy to
develop an oral formulation of one-alpha D/2/ for treatment of secondary
hyperparathyroidism associated with ESRD before an intravenous formulation is
based on this assumption regarding trends in health care reimbursement. There
can be no assurance that the Company's assumptions are correct regarding
capitated reimbursement or regarding the timing of any change to a capitated
environment. In the event that fee-for-service reimbursement remains the
predominant model for dialysis centers, sales of oral one-alpha D/2/, assuming
regulatory approvals are received, could be materially adversely affected. The
ability of the Company to obtain third-party reimbursement for use of one-
alpha D/2/ would be dependent on the successful development of, receipt of
regulatory approval for, and commercialization of, an intravenous formulation.
See "Business--Products Under Development" and "--Pharmaceutical Pricing and
Reimbursement."

SIGNIFICANT COMPETITION; COMPETITION FROM NEW TECHNOLOGIES

Competition in the pharmaceutical and biotechnology industries is intense.
The Company faces competition from a variety of sources and believes that
several pharmaceutical and biotechnology companies are focused on the
development of D-hormone therapies, particularly as they relate to treatment
of secondary hyperparathyroidism and hyperproliferative diseases. The Company
also competes with other large pharmaceutical companies that produce D-
hormones and analogs for marketing in international marketplaces where
alternative treatments have been approved. Several companies also compete
indirectly with the Company

for the same indications utilizing different therapeutic approaches. Many of
the Company's existing or potential competitors have substantially greater
financial, research and development, marketing and human resources than the
Company and are better equipped to develop, manufacture and market products.
Other companies may also prove to be significant competitors, particularly
through collaborative arrangements with large pharmaceutical and established
biotechnology companies. Several of these competitors have products that have
been approved or are in development and operate large, well-funded research
and development programs. The Company also faces intense competition from
other companies for marketing, distribution and collaborative development
agreements, for establishing relationships with academic and research
institutions, and for licenses to proprietary technology. In addition,
academic institutions, government agencies and other public and private
research organizations may also conduct research, seek patent protection and
establish collaborative arrangements for discovery, research, clinical
development and marketing of products similar to those of the Company. These
companies and institutions compete with the Company in recruiting and
retaining qualified scientific and management personnel as well as in
acquiring technologies complementary to the Company's programs.

Companies that complete clinical trials, obtain required regulatory
approvals and commence commercial sales of their products before their
competitors may achieve a significant competitive advantage. Accordingly, the
relative speed with which the Company can develop products, complete
preclinical testing and clinical trials and regulatory approval processes, and
supply commercial quantities of products to the market are expected to be
important competitive factors. A number of pharmaceutical and biotechnology
companies are developing new products for the treatment of the same diseases
being targeted by the Company. Abbott Laboratories markets intravenous
calcitriol (Calcijex(R)) and Hoffmann-LaRoche, Inc. markets oral calcitriol
(Rocaltrol(R)). Both drugs are approved for the treatment of secondary
hyperparathyroidism associated with ESRD in the United States and certain
European countries. A number of companies market oral alfacalcidol, a
synthetic analog of calcitriol, in Europe under various trade names. Abbott
Laboratories received marketing approval from the FDA in April 1998 for
paracalcitol (Zemplar(R)), an intravenous formulation of an improved second
generation D-hormone analog for the treatment of secondary hyperparathyroidism
associated with ESRD. This product is expected to compete with one-alpha D/2/.
Other companies, including Amgen, Inc., Chugai Pharma Europe Ltd. and NPS
Pharmaceuticals, Inc. are also developing new therapies for the treatment of
secondary hyperparathyroidism associated with ESRD for the United States or
European markets. In addition, Leo Pharmaceuticals is developing and marketing
improved D-hormone therapies for the treatment of certain hyperproliferative
diseases and is marketing alfacalcidol in Europe for the treatment of
secondary hyperparathyroidism associated with ESRD and osteoporosis associated
with secondary hyperparathyroidism.

There can be no assurance that the Company's competitors will not develop
more effective and/or affordable products, or achieve earlier patent
protection or product commercialization than the Company or that such
competitive products will not render the Company's products obsolete. See
"Business--Competition."

DEPENDENCE ON LICENSED PATENTS; POTENTIAL NEED FOR ADDITIONAL PARTNERS OR
COLLABORATORS

The Company has licensed rights under several process patents for the
manufacture of one-alpha D/2/ from the Wisconsin Alumni Research Foundation
("WARF"). WARF has agreed not to license to other parties the patents for the
manufacture of one-alpha D/2/ for use or sale anywhere in the world as long as
the license agreement is in effect, and, if one-alpha D/2/ is being sold in
the United States, the Company pays the annual royalties. The United States
Department of Agriculture ("USDA") holds certain rights to LR-103 under
pending patent applications and has granted the Company a worldwide exclusive
license to make, use and sell products covered under the rights held by the
USDA. The license expires on the last to expire of the licensed patents. The
license may be terminated by the USDA if these products are not brought by the
Company to practical application with the benefits being made available to the
public in the United States by April 7, 2002 or under certain other limited
circumstances. The Company's strategy for the further research, development
and commercialization of its product candidates and technologies may require
the Company to enter into various arrangements with corporate and academic
collaborators, licensors, licensees and others, and the Company may therefore
be dependent upon the subsequent success of these third parties in performing
their responsibilities. There can be no assurance that the Company will be
able to enter into collaborative, licensing or other

arrangements that the Company deems necessary or appropriate to develop and
commercialize its product candidates, or that any or all of the contemplated
benefits from such collaborative, licensing or other arrangements will be
realized. Certain collaborative, licensing or other arrangements that the
Company may enter into in the future may place responsibility on the Company's
collaborative partners for preclinical and clinical activities and for the
preparation and submission of applications for regulatory approval for
potential products. Should any collaborative partner fail to develop or
commercialize successfully any product candidate to which it has rights, the
business, financial condition and results of operations of the Company may be
materially adversely affected. There can be no assurance that collaborators
will not pursue alternative product candidates either on their own or in
collaboration with others, including the Company's competitors, as a means for
developing treatments for the diseases sought to be addressed by the Company's
programs. See "Business--Patents and Proprietary Technology."

FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FINANCING

The Company will require substantial funds after the offering for its
research and development programs, preclinical and clinical testing, operating
expenses, regulatory processes and manufacturing and marketing programs. The
Company's capital requirements will depend on numerous factors, including the
progress of its research and development programs; the progress of preclinical
and clinical testing; the time and cost involved in obtaining regulatory
approvals; the cost of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights; competing technological and
market developments; changes and developments in the Company's existing
licensing relationships and the terms of any new collaborative, licensing, co-
promotion or distribution arrangements that the Company may establish; the
progress of commercialization and marketing activities; the cost of
manufacturing preclinical and clinical products; and other factors not within
the Company's control. If the maximum number of Shares is sold, the Company
believes that the net proceeds of the offering, together with its available
cash and cash equivalents, should be sufficient to fund its operations for at
least the next ten months.

The Company will need to raise substantial additional capital to fund its
future operations. The Company may seek such additional funding through public
or private financing or collaborative, licensing and other arrangements with
partners. If additional funds are raised by issuing equity securities, further
dilution to existing shareholders may result, and future investors may be
granted rights superior to those of existing shareholders. There can be no
assurance however, that additional financing will be available when needed or
on acceptable terms. Insufficient funds may prevent the Company from
implementing its business strategy or may require the Company to delay, scale
back or eliminate certain of its research and development programs or to
license to third parties rights to commercialize products that the Company
would otherwise seek to develop itself. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

NO MANUFACTURING CAPABILITIES; DEPENDENCE ON SUPPLIERS

The Company presently does not have the internal capability to manufacture
pharmaceutical products, and the Company currently uses third parties to
manufacture bulk drug compounds and formulate and package one-alpha D/2/. The
Company's dependence upon third parties for the manufacture of its product
candidates may adversely affect the Company's profit margins and its ability
to develop and commercialize its product candidates on a timely and
competitive basis. If the Company should encounter delays or difficulties with
contract manufacturers in producing, packaging or distributing its products,
market introduction and subsequent sales of such products would be adversely
affected and the Company may have to seek alternative sources of supply. No
assurance can be made that the Company will be able to enter into alternative
supply arrangements on commercially acceptable terms, if at all. No assurance
can be made that any manufacturers utilized by the Company will be able to
provide the Company with sufficient quantities of its products or that any
products supplied to the Company will meet the Company's specifications or
delivery and other requirements. If for any reason the Company is unable to
obtain sufficient quantities of any materials required to produce its products
or the Company is unable to obtain or retain third-party manufacturers on
commercially acceptable terms, it may not be able to commercialize its
products as planned.

Contract manufacturers that the Company may use must adhere to GMP
regulations enforced by the FDA through its facilities inspection program. FDA
certification of manufacturing facilities for compliance with GMP requirements
is a prerequisite to approval of an NDA for the drug. These regulations
require, among other things, that each manufacturer establish a quality
assurance program by which it monitors the manufacturing process and maintains
records evidencing compliance with FDA regulations and the manufacturer's
specifications and procedures. Failure to comply with these requirements can
result in, among other consequences, warning letters, withdrawal of marketing
approvals, injunctions, recalls or seizures of products, total or partial
suspension of production, FDA refusal to approve pending NDAs or supplements
to approved NDAs, refusal to permit products to be imported or exported,
refusal to allow the Company to enter into government supply contracts or
criminal prosecution. The processes used by the Company's suppliers of bulk
drug substance and products have been validated as being in compliance with
GMP regulations.

While the Company does not currently intend to manufacture any
pharmaceutical products itself, it may choose to do so in the future. Should
the Company decide to manufacture products itself, the Company would require
substantial additional resources to build and scale-up manufacturing
facilities. In addition, the Company would be subject to the regulatory
requirements described above, would be subject to similar risks regarding
delays or difficulties encountered in manufacturing any such pharmaceutical
products and would require substantial additional capital. There can be no
assurance that the Company will be able to manufacture any such products
successfully or in a cost-effective manner. See "Business--Manufacturing."

LIMITED SALES AND MARKETING EXPERIENCE

The Company currently has limited internal marketing and sales personnel. In
order to market one-alpha D/2/ or any other products that it may develop, the
Company will have to substantially increase its marketing staff and establish
a sales force with technical expertise and develop distribution capability.
Significant expenditures would be required in order for the Company to
establish sales, marketing and distribution capabilities. Alternatively, the
Company may rely on the marketing or co-marketing and sales capabilities of
third party collaborators. To the extent the Company enters into marketing or
distribution arrangements with others, any revenues the Company receives will
depend on the efforts of third parties. There can be no assurance that any
third party will devote sufficient resources to the Company's products or
market the Company's products successfully. There can be no assurance that the
Company will be able to establish internal sales and distribution capabilities
or that it will be able to enter into marketing arrangements with third
parties on acceptable terms, or at all, or that it will be successful in
gaining market acceptance for any products that may be developed by the
Company. The Company's failure to establish successful marketing and sales
capabilities or enter into successful marketing arrangements with third
parties would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Marketing and
Distribution."

NO ASSURANCE OF MARKET ACCEPTANCE

There can be no assurance that one-alpha D/2/, or any other product
developed by the Company, will achieve market acceptance, when and if approved
by the FDA or any other regulatory agency. The degree of market acceptance
will depend upon a number of factors, including the receipt and timing of
regulatory approvals and the establishment and demonstration in the medical
community of the clinical safety, efficacy and cost-effectiveness of the
Company's products and their advantages over existing technologies and
therapies. There can be no assurance that the Company will be able to
manufacture and market successfully its products even if they perform
successfully in clinical applications. Furthermore, there can be no assurance
that physicians or the medical community in general will accept and utilize
any products that may be developed by the Company.

PRODUCT LIABILITY

clinical use or commercial sale of any of its potential products, and the
Company does not intend to obtain such insurance until one-alpha D/2/ is
commercialized. There can be no assurance that the Company will be able to
obtain insurance coverage at acceptable costs, or at all, or that the Company
will not experience losses due to product liability claims. A product
liability claim, product recall or other claim or claims for uninsured
liabilities or for amounts exceeding the limits of the Company's insurance
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Product Liability."

DEPENDENCE ON AND ATTRACTION AND RETENTION OF KEY PERSONNEL

The Company is highly dependent upon its ability to attract and retain
qualified scientific, technical and managerial personnel. The success of the
Company will depend in large part on the continued services of its current
President and Chief Executive Officer, Dr. Charles W. Bishop. The loss or
interruption of his services could have a material adverse effect on the
business, financial condition and results of operations of the Company. There
is intense competition for qualified scientists, technicians and managerial
personnel from numerous pharmaceutical companies, as well as from academic and
government organizations, research institutions and other entities. There can
be no assurance that the Company will be able to attract and retain such
personnel on acceptable terms. Loss of the services of, or the failure to
recruit, key scientific, technical and managerial personnel could have a
material adverse effect on the Company's research and development programs.
Furthermore, the Company's anticipated growth and expansion into areas and
activities requiring additional expertise, such as marketing, will require the
addition of new personnel. The failure to attract and retain such personnel
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management."

CONTROL BY EXISTING SHAREHOLDERS; DEFENSIVE MEASURES; SHAREHOLDERS RIGHTS PLAN

Upon completion of the offering and based on the number of shares
outstanding at June 30, 1998, executive officers and directors of the Company
will beneficially own (including shares of Common Stock issuable within 60
days of June 30, 1998 upon exercise of stock options) approximately 36.5% of
the shares of Common Stock and, as a result, will have significant control
over the Company. See "Principal Shareholders." This concentration of
ownership may have the effect of delaying, deferring or preventing a change in
control of the Company. In addition, the Company's Amended and Restated
Articles of Incorporation, as amended (the "Articles of Incorporation"), and
By-Laws (the "By-Laws") and certain sections of the Wisconsin Business
Corporation Law ("WBCL") may be deemed to have an anti-takeover effect and may
discourage takeover attempts not first approved by the Board of Directors
(including takeovers which some shareholders may deem to be in their best
interests). These provisions could delay or frustrate the removal of incumbent
directors or the assumption of control by an acquiror, even if such removal or
assumption of control would be beneficial to shareholders. These provisions
also could discourage or make more difficult a merger, tender offer or proxy
contest, even if such events would be beneficial to the interest of
shareholders. Such provisions include, among other things, a classified Board
of Directors serving staggered three-year terms and provisions in the WBCL
which may discourage certain types of transactions involving an actual or
potential change of control of the Company. The Company's Board of Directors
also has the authority to issue up to 2,000,000 shares of Preferred Stock and
to determine the price, rights, preferences and privileges of those shares
without any further vote or action by the shareholders. The rights of the
holders of Common Stock will be subject to, and may be materially adversely
affected by, the rights of the holders of any Preferred Stock that may be
issued in the future. In addition, the Board of Directors has adopted a
shareholders rights plan which may be deemed to have an anti-takeover effect
and may discourage or prevent takeover attempts not first approved by the
Board of Directors (including takeovers which certain shareholders may deem to
be in their best interests). See "Description of Capital Stock."

POSSIBLE VOLATILITY OF STOCK PRICE

The market price of the Common Stock has been, and is likely to be, highly
volatile as frequently occurs with publicly traded biotechnology,
biopharmaceutical and pharmaceutical companies. Factors such as the results

of preclinical studies and clinical trials, announcements of technological
innovations or new products by the Company or its competitors, government
regulatory action affecting the Company's or its competitors' products in both
the United States and foreign countries, developments or disputes concerning
patent or proprietary rights, changes in reimbursement policies, development
of relationships with collaborative partners, changes in the recommendation of
securities analysts with respect to the Common Stock, and market conditions
for biotechnology, biopharmaceutical or pharmaceutical companies in general,
as well as period-to-period fluctuations in the Company's financial results
may cause the market price of the Common Stock to fluctuate substantially. See
"Price Range of Common Stock."

DILUTION; NO DIVIDENDS

Upon completion of the offering, purchasers of the Shares will incur
immediate and substantial dilution of $6.51 in the per share net tangible book
value of their Common Stock. See "Dilution." The Company has never declared or
paid cash dividends on its Common Stock and does not intend to declare or pay
any cash dividends to its shareholders in the foreseeable future. See
"Dividend Policy."

SHARES ELIGIBLE FOR FUTURE SALE

Assuming the sale of the maximum number of Shares, upon completion of the
offering and based on the number of shares outstanding at June 30, 1998, the
Company will have a total of 10,134,956 shares of Common Stock outstanding. Of
these shares, 10,119,956 shares of Common Stock, including the Shares, will be
freely tradeable without restriction or registration under the Securities Act
by persons other than "affiliates" of the Company, as defined under the
Securities Act. The Company has obtained from all of the executive officers
and directors and certain shareholders of the Company holding in the aggregate
3,359,956 shares of Common Stock before the offering (3,635,956 shares of
Common Stock after the offering) and exercisable options to purchase an
aggregate of 100,846 shares of Common Stock, agreements not to directly or
indirectly offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, establish an open put equivalent position or otherwise
dispose of any Common Stock or any securities convertible into, or exercisable
or exchangeable for, any shares of Common Stock for a period of 90 days from
the date of the final Prospectus. See "Principal Shareholders" and "Plan of
Distribution."

As of June 30, 1998, options to purchase a total of 527,778 shares of Common
Stock pursuant to the Company's stock option plans were outstanding at a
weighted average exercise price of $3.84 per share, of which options to
purchase 130,266 shares of Common Stock were then exercisable. An additional
497,150 shares of Common Stock were reserved for future option grants under
the 1996 Plan. The Company has an effective registration statement on Form S-8
under the Securities Act registering shares of Common Stock subject to stock
options granted under its stock option plans. See "Management--Stock Option
Plans." Sales of substantial amounts of Common Stock in the public market, or
the perception that such sales could occur, could adversely affect the trading
price of the Common Stock and could impair the Company's future ability to
raise capital through an offering of Common Stock or other equity securities.
See "Shares Eligible For Future Sale."

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this Prospectus constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 (the "Litigation Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, those described under "Risk Factors," including
the Company's early stage of development, the Company's dependence on its
ability to obtain regulatory approval of one-alpha D/2/, the uncertainty of
the Company's future profitability, the uncertainty of regulatory approvals of
any drugs developed by the Company, the uncertainty of the Company's patent
positions and proprietary rights, the uncertainty related to pricing and
reimbursement of the Company's products, the intense competition in the
pharmaceutical and biotechnology industries, the Company's potential need for
additional partners or collaborators, the Company's future capital needs and
uncertainty of additional financing, and the Company's lack of manufacturing
capabilities and limited sales and marketing experience. Certain of these
factors are discussed in more detail elsewhere in this Prospectus, including,
without limitation under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Given these uncertainties, prospective investors
are cautioned not to place undue reliance on such forward-looking statements.
The Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the maximum number of
Shares are estimated to be $10,258,000 at the public offering price of $8.00
per share after deducting the estimated offering expenses payable by the
Company. The Company intends to use the net proceeds of the offering to fund
research and development, including preclinical and clinical activities in
support of regulatory approvals, for commercialization activities for one-
alpha D/2/ for treatment of secondary hyperparathyroidism associated with ESRD
and for working capital and general corporate purposes. These corporate
purposes may include the acquisition of complementary licenses, products,
technologies or companies. The Company has no present understandings,
commitments or arrangements with respect to the purchase of any licenses,
products, technologies or companies and the amount and timing of these
expenditures will depend on numerous factors, including the progress of the
Company's research programs and its ability to attract additional partners.
Pending application of the net proceeds of the offering as described above,
the Company intends to invest such proceeds in short-term, investment-grade,
interest-bearing financial instruments.

If the maximum number of Shares is sold, the Company believes that the net
proceeds of the offering, together with its available cash and cash
equivalents, should be sufficient to fund its operations for at least the next
ten months. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

There can be no assurance that the Company will sell any or all of the
Shares. The Company has not fixed a minimum number of Shares to be sold.
Accordingly, the Company may sell less than all of the Shares, which would
reduce the net proceeds of the offering.

PRICE RANGE OF COMMON STOCK

The Common Stock is traded on the Nasdaq National Market under the symbol
"BCII." The Common Stock was traded on the Nasdaq SmallCap Market from May 6,
1996 to December 26, 1997. The table below sets forth for the fiscal periods
indicated the high and low sales prices per share as reported on the Nasdaq
SmallCap Market and Nasdaq National Market, as applicable.

HIGH LOW
------ -----

FISCAL YEAR ENDED JUNE 30, 1996
Fourth Quarter (May 9, 1996 through June 30, 1996)........ $ 4.50 $2.31
FISCAL YEAR ENDED JUNE 30, 1997
First Quarter............................................. $ 3.75 $3.00
Second Quarter............................................ 4.00 3.00
Third Quarter............................................. 6.63 3.63
Fourth Quarter............................................ 7.00 5.75
FISCAL YEAR ENDED JUNE 30, 1998
First Quarter............................................. $11.50 $6.50
Second Quarter............................................ 12.62 9.75
Third Quarter............................................. 10.88 7.25
Fourth Quarter............................................ 11.12 8.75
FISCAL YEAR ENDING JUNE 30, 1999
First Quarter (through July 20, 1998)..................... $ 9.50 $7.25

As of June 30, 1998, the Common Stock was held by approximately 2,100
shareholders of record or through nominee or street name accounts with
brokers. On July 20, 1998, the last reported sale price of the Common Stock on
the Nasdaq National Market was $8.50 per share.

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its Common
Stock and does not intend to declare or pay any cash dividends in the
foreseeable future. The Company currently intends to retain any earnings to
finance the continued development and growth of its business.

CAPITALIZATION

The following table sets forth as of March 31, 1998 the actual
capitalization of the Company and the capitalization of the Company as
adjusted to reflect the assumed sale of the maximum number of Shares by the
Company at the public offering price of $8.00 per share after deducting
estimated offering expenses payable by the Company. See "Use of Proceeds."
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus.

MARCH 31, 1998
-----------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)
(UNAUDITED)

Cash and cash equivalents.................................... $ 5,009 $15,267
======= =======
Total debt................................................... $ -- $ --
Shareholders' equity:
Preferred stock, $.001 par value 2,000,000 shares
authorized;
none issued and outstanding, actual and as adjusted....... -- --
Common stock, no par value, 28,000,000 shares authorized;
8,779,317 shares issued and outstanding, actual;
9,779,317 shares issued and outstanding, as adjusted(1)... 11,394 11,394
Additional paid-in capital................................. 3,675 13,933
Accumulated deficit........................................ (8,895) (8,895)
------- -------
Total shareholders' equity............................... 6,174 16,432
------- -------
Total capitalization................................... $ 6,174 $16,432
======= =======

- --------
(1) Excludes as of March 31, 1998: (i) 528,917 shares of Common Stock issuable
upon the exercise of outstanding options to purchase shares of Common
Stock at a weighted average exercise price of $3.47 per share and (ii)
525,650 shares of Common Stock reserved for future grants under the 1996
Plan. See "Management--Stock Option Plans" and "Description of Capital
Stock."

DILUTION

The net tangible book value of the Company as of March 31, 1998 was
$4,837,705, or $0.55 per share of Common Stock. Net tangible book value per
share of Common Stock is determined by dividing the net tangible book value
(total tangible assets less total liabilities) by the 8,779,317 shares of
Common Stock outstanding as of such date. After giving effect to the assumed
sale of the maximum number of Shares at the public offering price of $8.00 per
share, and after deducting the estimated offering expenses payable by the
Company, the pro forma net tangible book value of the Company as of March 31,
1998 would have been approximately $15,095,705, or $1.49 per share. This
represents an immediate increase in net tangible book value of $0.94 per share
to existing shareholders and an immediate dilution of $6.51 per share to
purchasers of Shares in the offering. The following table illustrates this per
share dilution:

Public offering price........................................... $8.00
Net tangible book value before offering....................... $0.55
Increase attributable to new investors........................ 0.94
-----
Pro forma net tangible book value after offering................ 1.49
-----
Dilution to new investors....................................... $6.51
=====

The above calculations exclude as of March 31, 1998: (i) 528,917 shares of
Common Stock issuable upon the exercise of outstanding options to purchase
shares of Common Stock at a weighted average exercise price of $3.47 per share
and (ii) 525,650 shares of Common Stock reserved for future grants under the
1996 Plan. See "Management--Stock Option Plans" and "Description of Capital
Stock."

SELECTED CONSOLIDATED FINANCIAL DATA

The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto included elsewhere in
this Prospectus. The consolidated statements of operations data set forth
below for each of the years ended June 30, 1995, 1996 and 1997 and the
consolidated balance sheet data as of June 30, 1996 and 1997 are derived from,
and are qualified by reference to, the audited Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus and should
be read in conjunction with those Consolidated Financial Statements and Notes.
The consolidated statements of operations data for each of the years ended
June 30, 1993 and 1994 and the consolidated balance sheet data as of June 30,
1993, 1994 and 1995 are derived from audited Consolidated Financial Statements
of the Company not included herein. The consolidated statements of operations
data for the nine-month periods ended March 31, 1997 and 1998, and the
consolidated balance sheet data as of March 31, 1998 are derived from, and are
qualified by reference to, the unaudited interim Consolidated Financial
Statements of the Company included elsewhere in this Prospectus, and should be
read in conjunction with the Consolidated Financial Statements and Notes
thereto. See "Bone Care International, Inc. Index to Financial Statements."

CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Revenues............... $ 826 $ -- $ 15 $ 19 $ 39 $ 39 $ --
Operating expenses:
Cost of sales.......... 158 -- -- 12 38 38 --
Research and
development........... 426 329 535 1,158 2,885 1,993 3,062
General and
administrative........ 226 165 172 197 439 313 588
------ ------ ------ ------- ------- ------- -------
Total operating
expenses............ 810 494 707 1,367 3,362 2,344 3,650
------ ------ ------ ------- ------- ------- -------
Income (loss) from
operations............ 16 (494) (692) (1,348) (3,323) (2,305) (3,650)
Other income (expense),
net................... 22 9 (7) 90 529 408 285
Income tax expense..... (38) -- -- -- -- -- --
------ ------ ------ ------- ------- ------- -------
Net loss............... $ -- $ (485) $ (699) $(1,258) $(2,794) $(1,897) $(3,365)
====== ====== ====== ======= ======= ======= =======
Net loss per common
share (1)............. $ -- $(0.29) $(0.41) $ (0.26) $ (0.32) $ (0.22) $ (0.39)
====== ====== ====== ======= ======= ======= =======
Weighted average common
shares outstanding
(1)................... 1,698 1,698 1,698 4,894 8,713 8,710 8,735
====== ====== ====== ======= ======= ======= =======

JUNE 30,
----------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------ ------ ------- ------- ------- -----------
(UNAUDITED)
(IN THOUSANDS)

CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents........... $ 586 $ 200 $ 23 $11,061 $ 8,532 $ 5,009
Working capital........ 584 198 (427) 11,004 8,103 4,297
Total assets........... 1,771 1,280 1,029 12,261 9,900 6,971
Total long-term
liabilities........... -- -- -- -- -- --
Accumulated deficit.... (294) (779) (1,478) (2,736) (5,530) (8,895)
Total shareholders'
equity................ 1,743 1,258 559 12,182 9,420 6,174

- --------
(1) See Note 1 to Notes to Consolidated Financial Statements for an
explanation of the computation of net loss per common share.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion below contains certain forward-looking statements that are
based on the beliefs of the Company's management, as well as assumptions made
by, and information currently available to, the Company's management. The
Company's future results, performance or achievements could differ materially
from those expressed in, or implied by, any such forward-looking statements.
See "Risk Factors" for a discussion of factors that could cause or contribute
to such material differences. The following presentation of Management's
Discussion and Analysis of Financial Condition and Results of Operations
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus and any
other financial information included therein.

OVERVIEW

The Company is a leader in the discovery and development of improved D-
hormone therapies. D-hormones have a key role in secondary hyperparathyroidism
leading to metabolic bone diseases in several patient populations, including
ESRD, pre-dialysis and osteoporosis patients. D-hormones also have a role in
certain hyperproliferative diseases, including prostate, breast and colon
cancers, and psoriasis. Through the Company's collaborations with leading D-
hormone research institutions, as well as the Company's internal research and
development efforts, the Company has developed substantial expertise in the
area of D-hormone chemistry. The Company has leveraged that expertise to
develop a portfolio of D-hormones and analogs which the Company believes
possess improved safety and efficacy profiles compared to existing D-hormone
therapies.

The Company was formed in 1984 as a wholly-owned subsidiary of Lunar
Corporation ("Lunar"). In October 1995, Lunar exchanged all of its assets
related to D-hormone research and product candidates and its ownership in
Continental Assays Corporation (a subsidiary having expertise in analytical
chemistry related to D-hormones) for additional shares of Common Stock. In
April 1996, the Board of Directors of Lunar declared a dividend of one share
of Common Stock for every two shares of Lunar common stock, thereby
distributing all of the Common Stock of the Company then held by Lunar to the
shareholders of Lunar. In May 1996, the Company became a separate, publicly
held corporation upon the distribution of the dividend (the "Distribution").

Since its inception, the Company has been engaged in research and
development activities, has generated minimal revenues from operations and has
incurred significant operating losses. At March 31, 1998, the Company had an
accumulated deficit of approximately $8.9 million. Such losses have resulted
principally from costs incurred in research and development, preclinical and
clinical activities and from general and administrative costs associated with
the Company's operations. The Company expects that operating losses will
continue and increase for the foreseeable future as its research and
development, preclinical, clinical and marketing activities expand. The
Company's results may vary significantly from period to period depending on
several factors, such as the timing of certain expenses and the progress of
the Company's research and development efforts.

RESULTS OF OPERATIONS

NINE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997

Research and development expenses increased to $3,061,783 in the nine months
ended March 31, 1998 from $1,993,485 in the nine months ended March 31, 1997.
The increase is primarily due to higher expenditures related to the
anticipated commercialization of one-alpha D/2/ for treating secondary
hyperparathyroidism associated with ESRD. General and administrative expenses
increased by $275,540 to $588,376 in the nine months ended March 31, 1998 from
$312,836 in the nine months ended March 31, 1997. Such increase was incurred
to support expanded research and development activities. Interest income
decreased to $285,183 in the nine months ended March 31, 1998 from $407,804 in
the nine months ended March 31, 1997. This decrease is due to lower invested
cash balances.

The reported net loss for the nine months ended March 31, 1998 and 1997 was
$3,364,976 and $1,897,396, respectively. The increase in net losses is
primarily attributable to increased expenses associated with expanded research
and development activities.

FISCAL YEARS ENDED JUNE 30, 1997 AND JUNE 30, 1996

The Company's research and development expenses totaled $2,885,127 in fiscal
1997 compared to $1,157,914 in fiscal year 1996. The increase is due primarily
to higher expenditures on one-alpha D/2/ clinical trials for secondary
hyperparathyroidism associated with ESRD. This increase is also due in part to
the Company assuming research and development expenses for D-hormone analogs
contributed by Lunar in October 1995. General and administrative expenses
increased $242,461 to $438,831 in fiscal 1997 from $196,370 in fiscal 1996.
The increase was incurred to support expanded research and development
activities. Interest income increased by $425,182 to $528,492 in fiscal 1997
compared to $103,310 in fiscal year 1996. The increase is primarily the result
of interest earned on capital contributions made in fiscal 1996 by Lunar and
Draxis Health Care, Inc., ("Draxis") the Company's shareholders at the time of
the contributions. No interest expense was incurred in fiscal 1997 compared to
$13,495 in fiscal 1996 due to the cancellation of loans from Lunar to the
Company during fiscal 1996. The Company reported a net loss of $2,794,345 in
fiscal 1997 compared to a net loss of $1,257,767 in fiscal 1996. The increase
in the net loss is attributable to increased expenses associated with expanded
research and development activities offset by increased interest income.

FISCAL YEARS ENDED JUNE 30, 1996 AND JUNE 30, 1995

The Company's research and development expenses totaled $1,157,914 in fiscal
year 1996 compared to $535,195 in fiscal year 1995. The increase is due
primarily to higher expenditures on one-alpha D/2/ clinical trials for
secondary hyperparathyroidism associated with ESRD. General and administrative
expenses increased to $196,370 in fiscal 1996 from $171,788 in fiscal 1995.
Interest expense was $13,495 in fiscal year 1996 compared to $9,344 fiscal
year 1995. Interest expense during these periods relates exclusively to loans
made by Lunar to the Company. Interest income was $103,310 in fiscal year 1996
and $2,588 in fiscal year 1995. The increase is primarily the result of
interest earned on capital contributions. In October 1995, in exchange for
additional shares of Common Stock, Lunar canceled outstanding loans of
$634,683. The Company reported a net loss of $1,257,767 in fiscal 1996
compared to a net loss of $698,739 in fiscal 1995. The increase in the net
loss is attributable to increased expenses associated with expanded research
and development activities offset by increased interest income.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations through a combination
of capital contributions and collaborative licensing and research agreements.
In fiscal 1996 the Company received capital contributions of $10,000,000 and
$60,000 from Lunar and Draxis, respectively. Additionally, Lunar reimbursed an
advance from the Company in the amount of $634,683 related to general advances
and $725,000 for tax benefits prior to the Distribution. Since inception
through 1993 the Company received $4,700,000 for various licensing and
research agreements relating to one-alpha D/2/. All of those third party
collaborative research and licensing agreements have either expired or been
terminated.

Net cash used in operating activities increased to $2,191,262 for fiscal
year 1997 from $1,111,536 in fiscal 1996. Net cash used in operating
activities increased to $2,962,932 for the nine months ended March 31, 1998
from $1,380,902 for the nine months ended March 31, 1997. The increases were
due primarily to increased research and development activities, including
clinical trials of one-alpha D/2/, preclinical development of other D-hormones
and activities related to the anticipated commercialization of one-alpha D/2/.

Cash and cash equivalents were $5,009,088 and $8,531,714 at March 31, 1998
and June 30, 1997, respectively. Cash and cash equivalents are currently
invested primarily in a government securities money market fund.

At March 31, 1998, the Company had state tax net operating loss
carryforwards of approximately $8,052,000 and state research and development
tax credit carryforwards of approximately $101,000, which will begin expiring
in 2009 and federal net operating loss carryforwards of approximately
$6,244,000 and research and development tax credit carryforwards of
approximately $367,000, which will begin expiring in 2012. During the period
from June 30, 1990 to May 8, 1996, Lunar realized certain federal income tax
savings that were attributable to losses incurred by the Company. As part of a
tax disaffiliation agreement, Lunar paid the Company $725,000 for the benefit
of these tax savings.

YEAR 2000 COMPLIANCE

Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. To distinguish 21st
century from 20th century dates, these date code fields must be able to accept
four-digit entries.

The Company has reviewed its existing financial and other business
information systems and believes that its computer systems will be able to
manage and manipulate all material data involving the transition from 1999 to
2000 without functional or data abnormality and without inaccurate results
related to such data.

BUSINESS

GENERAL

The Company is a leader in the discovery and development of improved D-
hormone therapies. D-hormones have a key role in secondary hyperparathyroidism
leading to metabolic bone diseases in several patient populations, including
ESRD, pre-dialysis and osteoporosis patients. D-hormones also have a role in
certain hyperproliferative diseases, including prostate, breast and colon
cancers, and psoriasis. In March 1998, the Company filed an NDA with the FDA
for an oral formulation of its lead product candidate, one-alpha D/2/, a
synthetic D-hormone analog for the treatment of secondary hyperparathyroidism
associated with ESRD. The Company filed the NDA based primarily on the results
of two pivotal Phase 3 trials which were completed in August 1997 and involved
138 patients at 17 study centers in the United States. In these trials, oral
one-alpha D/2/ effectively controlled moderate to severe secondary
hyperparathyroidism with no clinically meaningful side effects in ESRD
patients undergoing hemodialysis.

In February 1998, the Company completed two pivotal Phase 3 trials for an
intravenous formulation of one-alpha D/2/ for the treatment of secondary
hyperparathyroidism associated with ESRD. Preliminary data from these trials
are consistent with the results obtained from the completed Phase 3 trials for
oral one-alpha D/2/. The Company intends to seek regulatory approval from the
FDA for intravenous one-alpha D/2/. The Company is currently recruiting and
enrolling patients for two pivotal Phase 3 trials of oral one-alpha D/2/ for
the treatment of secondary hyperparathyroidism in pre-dialysis patients. The
Company is also planning to conduct Phase 2 trials for the use of oral one-
alpha D/2/ for the treatment of osteoporosis associated with secondary
hyperparathyroidism.

Secondary hyperparathyroidism is a chronic disease where the parathyroid
glands secrete excessive quantities of PTH in response to reduced kidney
function or kidney failure. Secondary hyperparathyroidism, if left untreated,
leads to debilitating metabolic bone diseases, including osteoporosis,
osteomalacia, rickets and renal osteodystrophy, as well as increased risk of
fractures and severe bone pain. Moderate to severe secondary
hyperparathyroidism is associated with advanced renal insufficiency and ESRD
found in pre-dialysis and dialysis patients. Mild secondary
hyperparathyroidism is associated with modest reductions in renal function
often found in osteoporosis patients. According to HCFA, in 1996, there were
approximately 214,000 ESRD patients in the United States. In addition, based
on published reports, the Company estimates that in the United States in 1997
there were at least 600,000 pre-dialysis patients and at least 2,000,000
patients with osteoporosis associated with secondary hyperparathyroidism.

Based on the role of D-hormones in controlling cellular growth and
differentiation, the Company is also developing D-hormone therapies to treat
certain hyperproliferative diseases. The Company is currently conducting a
Phase 1 trial of oral one-alpha D/2/ to treat terminal prostate cancer. The
Company is also investigating the use of other D-hormones and analogs for the
treatment of prostate, breast and colon cancers, and psoriasis.

Although currently marketed D-hormone therapies have demonstrated efficacy
in treating secondary hyperparathyroidism and certain hyperproliferative
diseases, the systemic (oral or intravenous) administration of those products
frequently produces toxic side effects at doses required for therapeutic
effect. As a result, the widespread and effective use of systemic D-hormone
therapies has been limited. Through the Company's collaborations with D-
hormone research institutions, as well as the Company's internal research and
development efforts, the Company has developed substantial expertise in the
area of D-hormone chemistry. The Company has leveraged that expertise to
develop a portfolio of D-hormones and analogs which the Company believes
possess improved safety and efficacy profiles compared to existing D-hormone
therapies.

SCIENTIFIC OVERVIEW

D-hormones have important roles in parathyroid function, calcium and
phosphorus metabolism, and cellular growth and differentiation. D-hormones are
produced in biological processes primarily involving vitamin D/3/ or vitamin
D/2/. Vitamin D/3/ is produced in human skin during exposure to sunlight.
Vitamin D/2/ is produced in plants during exposure to sunlight and is
available through dietary sources. Vitamins D/3/ and D/2/ (collectively
referred to as "vitamin D") are metabolized into three different D-hormones in
two sequential steps involving the liver and then the kidneys. Vitamin D/3/ is
metabolized into the D-hormone one-alpha,25-dihydroxyvitamin D/3/
("calcitriol"). Vitamin D/2/ is metabolized into the two D-hormones, one-
alpha,25-dihydroxyvitamin D/2/ and one-alpha,24-dihydroxyvitamin D/2/. In
diseased or aged kidneys, sufficient quantities of D-hormones often cannot be
produced.

Production of D-hormones by the kidneys is stimulated by PTH, which is
secreted into the bloodstream by the parathyroid glands. D-hormone receptors
located in the parathyroid glands monitor blood levels of D-hormones. The
parathyroid glands increase PTH secretion markedly when blood levels of D-
hormones are low and decrease PTH secretion as blood levels of D-hormones
rise. After secretion from the parathyroid glands, PTH circulates in the blood
to the kidneys where it activates an enzyme which produces D-hormones.

D-hormones increase blood levels of calcium and phosphorus, the key
components of bone, by stimulating the small intestine to absorb these
minerals from ingested food and by stimulating the kidneys to reabsorb calcium
from urine. D-hormones also stimulate osteoblasts (bone-building cells) to
increase the deposition of calcium and phosphorous in bone. When blood levels
of D-hormones are low, intestinal absorption of calcium and phosphorus and
kidney reabsorption of calcium are reduced. Bone formation is also reduced.
PTH normalizes blood levels of calcium and phosphorus and bone formation by
stimulating the increase of D-hormone production. However, when D-hormone
production is insufficient, as in renal disease, PTH normalizes blood calcium
and phosphorus by causing the release of calcium and phosphorus from bone into
the blood.

In progressive renal disease, the kidneys become unable to produce
sufficient quantities of D-hormones, leading to secondary hyperparathyroidism
and associated bone disease. Secondary hyperparathyroidism is a chronic
disease in which the parathyroid glands secrete excessive quantities of PTH.
Elevated blood levels of PTH lead to excessive release of calcium and
phosphorus from bones, causing debilitating metabolic bone diseases, such as
osteoporosis, osteomalacia, rickets and renal osteodystrophy. A recent
published report concluded that, compared to the general population, the risk
of hip fracture is 3.5 times higher in the United States population of ESRD
patients. Secondary hyperparathyroidism and associated bone disease can be
controlled, and possibly prevented or reversed, by D-hormone replacement
therapy.

In addition to having a role in parathyroid function, D-hormones have a role
in controlling the normal growth and differentiation of skin, prostate,
breast, and colon cells, all of which contain D-hormone receptors. Psoriasis,
a condition in which skin cells grow too rapidly and remain immature
(undifferentiated), can be effectively managed with topical D-hormone therapy.
Likewise, clinical and preclinical research suggests that the uncontrolled
cell growth in prostate, breast and colon cancers can be managed by D-hormone
therapy.

Calcitriol is approved for systemic treatment of secondary
hyperparathyroidism associated with ESRD and/or metabolic bone diseases in the
United States and Europe. Paracalcitol is approved for systemic treatment of
secondary hyperparathyroidism associated with ESRD in the United States.
Alfacalcidol, a synthetic analog of calcitriol, is approved for oral treatment
of secondary hyperparathyroidism associated with ESRD and/or metabolic bone
diseases in Europe. Calcitriol and two synthetic analogs, tacalcitol and
calcipotriol, are approved in Europe for the topical treatment of psoriasis.
In addition, calcipotriol has been approved for topical treatment of psoriasis
in the United States.

Although currently marketed D-hormone replacement therapies have
demonstrated efficacy, systemically administered D-hormone replacement
therapies frequently cause toxic side effects at doses required for
therapeutic effects. The principal side effects observed are hypercalcemia,
hyperphosphatemia and hypercalciuria, all of which are caused by excessive
intestinal absorption of calcium and phosphorus. The most

serious of these side effects is hypercalcemia (high blood calcium), which
increases the risk of calcification of soft tissues, including the heart,
arteries, and kidneys, and can cause cardiac arrest. In addition,
hypercalcemia can lead to other complications including gastrointestinal
problems and mental disorders including depression. Hyperphosphatemia (high
blood phosphorus) directly stimulates secretion of PTH, thereby exacerbating
secondary hyperparathyroidism. Hypercalciuria (high urine calcium) can
increase the risk of calcification of the kidneys and the formation of kidney
stones, and can hasten kidney failure. In order to control these side effects,
patients often must be temporarily or permanently withdrawn from current D-
hormone therapies. As a result of these side effects, the widespread and
effective use of currently marketed oral or intravenous D-hormone therapies
has been limited.

PRODUCTS UNDER DEVELOPMENT

The Company is developing D-hormone therapies which the Company believes
have improved safety and efficacy profiles. The following table summarizes the
Company's product candidates by indication and development status.

INDICATION PRODUCT CANDIDATE DEVELOPMENT STATUS(1)
----------------------------- ---------------------------- ---------------------

Secondary Hyperparathyroidism
ESRD One-alpha D/2/ (oral) NDA filed March 1998
One-alpha D/2/ (intravenous) Phase 3 completed
Pre-dialysis One-alpha D/2/ (oral) Phase 3
Osteoporosis One-alpha D/2/ (oral) Phase 2
Hyperproliferative Diseases
Advanced Prostate Cancer One-alpha D/2/ (oral) Phase 1
Advanced Prostate, Breast LR-103 Preclinical
and Colon Cancers
Psoriasis Lead compound Research

- --------
(1) "Research" indicates discovery and initial synthetic chemistry.
"Preclinical" indicates formulation, pharmacology and toxicity testing in
animals.
"Phase 1" indicates initial clinical testing in humans to establish safety.
"Phase 2" indicates further clinical testing in humans to establish
efficacy.
"Phase 3" indicates pivotal, well-controlled clinical testing to establish
safety and efficacy.

SECONDARY HYPERPARATHYROIDISM

Overview

Hyperparathyroidism refers to conditions in which the parathyroid glands
secrete excessive quantities of PTH into the bloodstream. In primary
hyperparathyroidism, one or more of the four parathyroid glands fails to
properly regulate PTH secretion, usually due to one or more tumors in the
glands. In secondary hyperparathyroidism, the parathyroid glands secrete
excessive quantities of PTH in response to reduced kidney function or kidney
failure. Mild secondary hyperparathyroidism is associated with modest
reductions in renal function and contributes to osteoporosis. Moderate to
severe secondary hyperparathyroidism is associated with advanced renal
insufficiency and ESRD which are found in pre-dialysis and dialysis patients.

One-alpha D/2/ for Secondary Hyperparathyroidism Associated with ESRD

The Company is developing oral and intravenous formulations of one-alpha
D/2/ as treatments for secondary hyperparathyroidism associated with ESRD.
One-alpha D/2/ is a synthetic D-hormone analog derived from vitamin D/2/.
After oral or intravenous administration, one-alpha D/2/ is metabolized by the
liver into the two D-hormones naturally produced from vitamin D/2/, without
being metabolized by the kidneys. Based on data obtained from its clinical
trials, the Company believes that one-alpha D/2/ is as active as currently
marketed D-hormone replacement therapies and has an improved safety profile.
The Company believes that the improved safety profile of one-alpha D/2/
enables it to be more consistently administered to patients at higher doses
than currently marketed D-hormone replacement therapies, resulting in improved
control of secondary hyperparathyroidism.

Secondary hyperparathyroidism is most severe in patients with ESRD.
According to HCFA, there were approximately 214,000 ESRD patients in the
United States at the end of 1996. This patient population, sustained primarily
by renal dialysis, increased by approximately 7% in 1996. In ESRD there is
extensive, irreversible loss of cells of the proximal nephron, the site in the
kidneys where D-hormones are produced. Impaired production of D-hormones leads
to low blood levels of D-hormones. Low blood levels of D-hormones cause the
small intestine to absorb less dietary calcium and the kidneys to reabsorb
less calcium from urine, often resulting in hypocalcemia (low blood calcium).
Low blood levels of D-hormones also decrease osteoblastic activity, causing
reduced bone formation. The parathyroid glands respond to low blood levels of
D-hormones and calcium by secreting PTH into the bloodstream. Ordinarily, PTH
stimulates production of D-hormones by the kidneys. However, in ESRD the
kidneys cannot respond to PTH stimulation. Without increased D-hormone
production, the parathyroid glands secrete escalating quantities of PTH.
Chronically elevated and rising blood levels of PTH stimulate a prolonged
release of calcium and phosphorus from bone, leading to debilitating metabolic
bone diseases, including osteoporosis, osteomalacia, rickets and renal
osteodystrophy. Advanced bone disease is associated with an increased risk of
fracture and is often accompanied by severe bone pain, most commonly arising
in the lower back, hips, legs and joints.

FLOW CHART

Moderate to severe secondary hyperparathyroidism is exacerbated by
hyperphosphatemia. Phosphorus derived from dietary sources (principally meat
and dairy products) accumulates in the blood due to its insufficient
elimination by dysfunctional kidneys. Excessive blood phosphorus directly
inhibits the production of D-hormones and stimulates the parathyroid glands to
secrete PTH. To control or reduce blood phosphorus, nephrologists routinely
encourage their patients to adhere to low phosphorus diets and to ingest
calcium carbonate or calcium acetate tablets with meals. These calcium
preparations bind dietary phosphorus, reducing its absorption by the intestine
and thereby helping to lower blood phosphorus levels. Calcium-based phosphate
binders, however, promote hypercalcemia in patients receiving D-hormone
replacement therapies.

D-hormone replacement is standard therapy for secondary hyperparathyroidism
associated with ESRD. The goals of D-hormone replacement therapy are (1) to
normalize blood calcium levels, (2) to control (normalize or reduce) blood PTH
levels and (3) to treat or prevent metabolic bone diseases. Treating and
preventing metabolic bone diseases is increasingly important as improvements
in kidney dialysis increase the life expectancy of ESRD patients. D-hormone
replacement therapies currently marketed in the United States and Europe for
the treatment of secondary hyperparathyroidism associated with ESRD are
Rocaltrol (oral calcitriol), Calcijex (intravenous calcitriol) and Zemplar
(intravenous paracalcitol). The Company estimates that total sales of these
products in the United States in 1997 were approximately $155 million.
Alfacalcidol, an oral synthetic analog of calcitriol, is marketed under
numerous brand names in Europe.

Oral and intravenous calcitriol and oral alfacalcidol have limited
effectiveness for treating secondary hyperparathyroidism associated with ESRD
because they frequently cause toxic side effects (hypercalcemia and
hyperphosphatemia) at doses required for therapeutic effect. Episodes of
hypercalcemia and/or hyperphosphatemia are unpredictable and force temporary
or permanent interruptions in therapy, resulting in less effective control of
PTH secretion. Furthermore, in an effort to control blood phosphorus and
reduce episodes of hyperphosphatemia, calcium-based phosphate binders are
often administered at higher doses. However, calcitriol and alfacalcidol
greatly stimulate intestinal absorption of calcium derived from those binders,
increasing blood calcium levels and the frequency of episodes of
hypercalcemia. In an attempt to mitigate the negative effects of calcium-based
binders, nephrologists temporarily switch their patients from calcium-based
binders to aluminum-based binders. However, aluminum from these alternate
binders is readily absorbed through the intestine and accumulates in bone,
potentially causing low turnover bone disease. When calcitriol and
alfacalcidol are administered in lower, less toxic doses, their effectiveness
in controlling secondary hyperparathyroidism decreases. Removal of the
parathyroid glands is standard treatment for patients with severe secondary
hyperparathyroidism whose disease cannot be managed with D-hormone replacement
therapy. However, removal of the parathyroid glands does not cure existing
metabolic bone disease or the underlying deficiency of D-hormones.

The Company is developing oral and intravenous formulations of one-alpha
D/2/ as treatments for secondary hyperparathyroidism associated with ESRD. The
oral product is a soft gelatin capsule designed to be administered by medical
professionals to hemodialysis patients in the clinic, or self-administered
daily by peritoneal dialysis patients at home. The Company's intravenous
product is a sterile aqueous solution designed to be administered to patients
only at hemodialysis. The Company is developing the oral formulation in
advance of the intravenous formulation based primarily on the Company's
expectation that the current fee-for-service reimbursement plan, which favors
the use of intravenous one-alpha D/2/, will be replaced with a capitated
reimbursement plan which favors the less costly oral one-alpha D/2/. Further,
the Company is developing oral one-alpha D/2/ to treat secondary
hyperparathyroidism in pre-dialysis and osteoporosis patients where
intravenous therapy is inappropriate. See "Risk Factors--Uncertainty Related
to Pricing and Reimbursement of Products."

Oral One-alpha D/2/ for Secondary Hyperparathyroidism Associated with ESRD.
In November 1997, the Company announced results from its two pivotal Phase 3
trials for oral one-alpha D/2/ for the treatment of secondary
hyperparathyroidism associated with ESRD. The trials, which were completed in
August 1997, involved 138 patients at 17 study centers in the United States.
Each trial consisted of an 8-week washout period, followed sequentially by a
16-week period in which patients received open-label treatment with oral one-
alpha D/2/ at hemodialysis, and an 8-week period in which the patients were
assigned in random, double-blinded fashion, to continued treatment with either
oral one-alpha D/2/ or placebo. The study endpoint for efficacy was the
observed change in blood PTH levels from post-washout baseline to the end of
each treatment period. Endpoints for safety were the corresponding changes in
blood levels of calcium and phosphorus. A total of 138 patients began
treatment with oral one-alpha D/2/, of whom 110 completed the full 24 weeks of
treatment. Dosages were individually titrated with patients initially
receiving 10 mcg per hemodialysis and thereafter between 0 mcg and 20 mcg per
dose three times per week. After 16 weeks of open-label treatment, observed
blood PTH reductions exceeded 50% in both trials and were clinically and
statistically significant (p<0.01). In addition, blood PTH reached target
levels in 83% of treated patients during the 16-week open-label treatment
period. At the end of the eight additional weeks of blinded treatment,
patients receiving oral one-alpha D/2/ had mean blood PTH levels approximately
50% below those receiving placebo. Differences in mean blood PTH levels
between oral one-

alpha D/2/ and placebo treatments were clinically and statistically
significant (p<0.01). In both studies, oral one-alpha D/2/ normalized blood
calcium and did not cause clinically meaningful increases in blood phosphorus.
Side effects attributable to oral one-alpha D/2/ administration, such as
hypercalcemia and hyperphosphatemia, were infrequent and clinically
insignificant. The Company believes these trials demonstrated that oral one-
alpha D/2/ is a safe and effective therapy for secondary hyperparathyroidism
associated with ESRD and that the results compare favorably with efficacy and
safety data reported in published controlled trials involving calcitriol and
alfacalcidol. The Company filed an NDA with the FDA in March 1998 for oral
one-alpha D/2/ as a treatment for secondary hyperparathyroidism associated
with ESRD. There can be no assurance that oral one-alpha D/2/ will ultimately
be approved for marketing by the FDA for such indication. See "Risk Factors--
Dependence on One-alpha D/2/" and "--Government Regulation; No Assurance of
Regulatory Approval."

Intravenous One-alpha D/2/ for Secondary Hyperparathyroidism Associated with
ESRD. In February 1998, the Company completed two pivotal Phase 3 trials for
intravenous one-alpha D/2/ for the treatment of secondary hyperparathyroidism
associated with ESRD. Each trial consisted of an 8-week washout period,
followed by a 12-week period in which patients received open-label treatment
with intravenous one-alpha D/2/ at hemodialysis. The study endpoint for
efficacy was the observed change in blood PTH levels from post-washout
baseline to the end of the treatment period. Endpoints for safety were the
corresponding changes in blood levels of calcium and phosphorus. These trials
commenced with 70 patients who had completed the Phase 3 trials for oral one-
alpha D/2/ and concluded with 67 patients completing the full 12-week
treatment period. Preliminary data from these trials are consistent with the
results obtained from the completed Phase 3 trials for oral one-alpha D/2/.
The Company intends to seek regulatory approval from the FDA for intravenous
one-alpha D/2/ as a treatment for secondary hyperparathyroidism associated
with ESRD. There can be no assurance that intravenous one-alpha D/2/ will
ultimately be approved for marketing by the FDA for such indication. See "Risk
Factors--Dependence on One-alpha D/2/" and "--Government Regulation; No
Assurance of Regulatory Approval."

One-alpha D/2/ for Secondary Hyperparathyroidism in Pre-Dialysis Patients

The Company is developing oral one-alpha D/2/ as a treatment for secondary
hyperparathyroidism in pre-dialysis patients. Chronic renal disease is
characterized by progressive reductions in kidney function leading eventually
to kidney failure and the need for dialysis. Secondary hyperparathyroidism
begins to develop in patients with modest reductions in kidney function and
becomes more severe in proportion to the degree of renal insufficiency. Based
on published reports, the Company estimates that there were at least 600,000
"pre-dialysis" patients in the United States in 1997. These patients are at
risk of developing associated metabolic bone diseases and would benefit from
D-hormone replacement therapy. However, there are currently no FDA-approved D-
hormone replacement therapies for secondary hyperparathyroidism in pre-
dialysis patients in the United States. Off-label use of intravenous
calcitriol is inappropriate for use in pre-dialysis patients because its
administration requires painful daily percutaneous injections at home without
medical supervision. Off-label use of oral calcitriol, as well as oral
alfacalcidol, at doses required for therapeutic effect, frequently causes
hypercalcemia and hypercalciuria which can calcify the soft tissue of the
kidneys and hasten kidney failure. As a result, pre-dialysis patients are
seldom treated for secondary hyperparathyroidism.

There is evidence from published clinical research suggesting that early
intervention with D-hormone replacement therapy can slow the progression of
secondary hyperparathyroidism in pre-dialysis patients. In untreated patients,
the parathyroid glands become progressively enlarged, causing further
increases in PTH secretion and requiring higher doses of D-hormone replacement
therapies for effective control. Sufficiently high doses of currently marketed
D-hormone replacement therapies often cannot be administered due to dose-
limiting side effects.

Based on the Company's clinical experience with one-alpha D/2/, the Company
is currently recruiting and enrolling patients for pivotal Phase 3 trials for
oral one-alpha D/2/ for the treatment of secondary hyperparathyroidism in pre-
dialysis patients. The trials will involve up to 140 patients at several
centers in the United States. These trials will consist of an 8-week baseline
(pre-treatment) period, followed by a 24-week

period in which the patients will be assigned in random, double-blinded
fashion, to treatment with either oral one-alpha D/2/ or placebo. The study
endpoint for efficacy is the change in blood PTH levels from baseline to the
end of the treatment period. Endpoints for safety are the corresponding
changes in blood levels of calcium and phosphorus. There can be no assurance
that oral one-alpha D/2/ will prove safe and effective in treating secondary
hyperparathyroidism in pre-dialysis patients. See "Risk Factors--Dependence on
One-alpha D/2/" and "--Government Regulation; No Assurance of Regulatory
Approval."

One-alpha D/2/ for Osteoporosis Associated with Secondary Hyperparathyroidism

The Company is investigating the use of oral one-alpha D/2/ for the
treatment of osteoporosis associated with secondary hyperparathyroidism.
Osteoporosis is a metabolic bone disease generally associated with aging and
characterized by excessive loss of bone mineral, resulting in decreased bone
density over time. Demineralization weakens bone so that minor physical stress
can cause debilitating fractures, usually in the wrists, hips and spine. These
fractures often result in disfigurement, decreased mobility and, in some
cases, extensive hospitalization and chronic nursing home care. The Company
believes that there are currently at least 2,000,000 patients in the United
States who have osteoporosis associated with secondary hyperparathyroidism.
Reduced blood levels of D-hormones have been documented in many elderly
patients with osteoporosis, caused by insufficient activity of the renal
enzyme which produces D-hormones. In postmenopausal women, this enzyme is
indirectly suppressed by estrogen deficiency. In elderly men and women, the
enzyme is often impaired due to age-related reductions in kidney function. As
in more severe renal insufficiency, decreased production of D-hormones
increases the risk that an individual will develop metabolic bone disease.
Decreased blood levels of D-hormones reduce intestinal calcium absorption and
bone formation, and stimulate the secretion of PTH, causing mild secondary
hyperparathyroidism. Elevated blood levels of PTH increase the rate of bone
metabolism which, with reduction in bone formation, decrease bone mass.
Prolonged loss of bone leads to osteoporosis.

A likely role for D-hormones in osteoporosis has prompted many clinical
investigations of D-hormone replacement therapies as potential osteoporosis
treatments. Controlled clinical trials conducted by third parties have
demonstrated that oral calcitriol and oral alfacalcidol increase or stabilize
bone mass and reduce fracture rates. Positive results from these clinical
trials have been the basis for approval of these therapies in Europe, Japan
and other geographic markets. However, in the United States there are
currently no FDA-approved D-hormone replacement therapies for the treatment of
osteoporosis. Trials conducted in the United States with oral calcitriol have
produced mixed results, possibly due to the substantial variation in doses of
calcitriol between study sites. Higher doses of calcitriol produced increases
in vertebral and total body bone mass, whereas lower doses showed little
effect. Lower doses were used in these trials due to the unacceptable
frequency of hypercalcemia and hypercalciuria at higher, potentially
therapeutic doses. These results suggest that D-hormone replacement therapies
with improved safety profiles may enable more consistent administration of
higher doses for improved therapeutic effects in osteoporosis associated with
secondary hyperparathyroidism.

In 1992, the Company completed a Phase 2 trial in the United States to
evaluate oral one-alpha D/2/ as a treatment for postmenopausal osteoporosis.
The trial involved 60 patients who were assigned in random, double-blinded
fashion to treatment with either oral one-alpha D/2/ or placebo for up to two
years. The study endpoints for efficacy were the observed changes in vertebral
and femoral neck bone mineral density from baseline to the end of one year or
two years of treatment. Endpoints for safety were the corresponding changes in
blood and urine calcium. Fifty-five patients completed one year of treatment
and 41 completed two years of treatment. Vertebral bone density increased with
oral one-alpha D/2/ and decreased with placebo over the two-year study, with
the difference being statistically significant (p<0.05). Similar changes were
observed in femoral neck bone mineral density with statistically significant
differences observed after 18 and 24 months of treatment (p<0.05). Overall,
side effects with oral one-alpha D/2/ were clinically insignificant and well
managed by appropriate adjustments in dose. Although observed changes in bone
mineral density in the oral one-alpha D/2/ treatment group as compared to
placebo were statistically significant, the Company and its corporate
collaborators concluded that the data from the trial did not provide a
sufficient basis for initiating pivotal Phase 3 trials with oral one-alpha
D/2/ as a treatment of postmenopausal osteoporosis. As a result of the data,
the Company and its corporate collaborators did not pursue further development
of one-alpha D/2/ for postmenopausal osteoporosis. At a later

date, however, a subgroup analysis of the trial performed by the Company
suggested a slight improvement in bone mineral density in patients with the
higher baseline PTH levels. Based on that subgroup analysis and published
reports that D-hormones have greater efficacy in patients with secondary
hyperparathyroidism, the Company plans to initiate additional Phase 2 trials
for oral one-alpha D/2/ for the treatment of osteoporosis associated with
secondary hyperparathyroidism.

HYPERPROLIFERATIVE DISEASES

Overview

D-hormones have an important role in controlling cellular growth and
differentiation of certain prostate, breast, colon and skin cells. Although
the mechanism of action is not fully understood, D-hormones help regulate the
growth of cells derived from tissues which contain D-hormone receptors. The
Company's preliminary studies in vitro, as well as research conducted by third
parties, suggest that such cells show substantially reduced growth rates when
exposed to D-hormones and D-hormone analogs. The Company is investigating the
use of improved D-hormone therapies to treat certain hyperproliferative
diseases involving those cells, including prostate, breast, and colon cancers,
and psoriasis.

One-alpha D/2/ for Advanced Prostate Cancer

Prostate cancer is the most common solid tumor diagnosed in men in the
United States. The American Cancer Society estimates that in the United States
in 1997 approximately 209,900 men were diagnosed with prostate cancer, and
41,800 men died from prostate cancer. Although pharmacological or surgical
castration temporarily controls this disease, prostate cancer eventually
develops into androgen-independent disease, for which no therapy exists.
Calcitriol and certain D-hormone analogs have been shown in vitro to both
inhibit the growth of prostate cancer cells as well as promote permanent
changes in these cells which eliminate their characteristic uncontrolled
growth.

In November 1996, the Company initiated a Phase 1 trial of oral one-alpha
D/2/ in patients with androgen-independent prostate cancer. The ongoing trial
is designed to determine the maximum tolerable dose of oral one-alpha D/2/ by
evaluating safety endpoints such as hypercalcemia. As of April 15, 1998, a
total of 21 patients have been treated with one-alpha D/2/. The drug has been
generally well tolerated at escalating doses. Preliminary evidence of disease
stabilization has been observed in some patients.

LR-103 for Advanced Prostate, Colon and Breast Cancers

The Company is investigating the use of LR-103 for the treatment of advanced
prostate, colon and breast cancers. LR-103 is a naturally produced D-hormone
derived from vitamin D/2/, the human uses for which were discovered by the
Company. In preclinical studies, the Company has determined that LR-103 is
characterized by lower toxicity than calcitriol. The Company's research in
vitro has demonstrated that LR-103 has potent antiproliferative effects on
cells which contain D-hormone receptors, including prostate, breast and colon
cancer cells. The Company believes that LR-103 may be a promising oral therapy
for hyperproliferative diseases.

Psoriasis

The Company is investigating the use of oral D-hormones and D-hormone
analogs to treat psoriasis. Psoriasis is a chronic disease characterized by
thickened, scaly, and reddened patches of skin. According to the National
Psoriasis Foundation, psoriasis affected at least 1,200,000 people in the
United States in 1996. There is currently no cure for psoriasis and current
treatments are focused on clearing the associated skin lesions for a period of
time.

Microscopic examination of psoriatic lesions reveals an increase in the
number of basal or dividing skin cells which possess D-hormone receptors.
Published reports from controlled clinical studies conducted by third parties
have shown that topically administered D-hormones and analogs which bind
strongly to D-hormone

receptors achieved significant improvement in psoriatic lesions. Calcitriol
and two synthetic analogs of calcitriol, tacalcitol and calcipotriol, are
approved as topical treatments for psoriasis in Europe. Calcipotriol has been
approved as a topical treatment for psoriasis in the United States. There
currently are no FDA-approved D-hormone therapies for the systemic treatment
of psoriasis.

All of the Company's potential products, other than one-alpha D/2/ for
treatment of secondary hyperparathyroidism associated with ESRD, are at an
early stage of development. There can be no assurance that any of the
Company's potential products will demonstrate sufficient safety and efficacy
to justify their further development. Even if the Company is able to
demonstrate safety and efficacy and complete product development, there can be
no assurance that regulatory approvals will be obtained or that any such
products can be successfully manufactured and commercialized. Any products
which may be developed from such efforts are not expected to be commercially
available for the foreseeable future. See "Risk Factors--Early Stage of
Development," "--Dependence on One-alpha D/2/" and "--Government Regulation;
No Assurance of Regulatory Approval."

MANUFACTURING

The Company currently has no manufacturing capabilities. To date, the
Company has contracted and intends to contract with third parties for the
production of bulk drug substance and for the subsequent manufacturing and
packaging of finished drug products. The Company purchases bulk quantities of
one-alpha D/2/ from an FDA-inspected and approved supplier of bulk drug
substance. This supplier has scaled up the GMP production of one-alpha D/2/ to
a level sufficient to support commercialization of finished drug products in
North America. The Company uses several FDA-inspected manufacturers to
produce, formulate and package one-alpha D/2/ as finished drug products
including soft-gelatin capsules suitable for oral administration and sterile
aqueous solutions suitable for intravenous administration. No assurance can be
provided that the Company will be able to obtain future supplies of one-alpha
D/2/ on favorable terms and in quantities necessary for commercialization, if
and when it receives marketing approval from the FDA. Further, no assurance
can be provided that the Company will be able to obtain other compounds or
continue to obtain production, formulation or packaging services on favorable
terms.

In addition, the Company's dependence on third parties for the manufacture
of one-alpha D/2/ or for any other products may adversely affect the Company's
profit margins and its ability to deliver products on a timely basis. The
Company may encounter significant delays in obtaining supplies from third
party manufacturers or experience interruptions in its supplies. The effects
of such delays or interruptions would be more severe if the Company relies on
a single source of supply as is presently the case for bulk one-alpha D/2/. If
the Company is unable to obtain adequate supplies of any of its products, its
business, financial condition and results of operations would be materially
adversely affected.

All contractors utilized by the Company have FDA-inspected facilities that
operate under GMP. In the event the Company were to establish its own
manufacturing facility, the Company may require additional funds and would be
required to hire and train additional personnel and comply with the extensive
GMP regulations applicable to such a facility. See "Risk Factors--No
Manufacturing Capabilities; Dependence on Suppliers" and "--Future Capital
Needs and Uncertainty of Additional Financing."

MARKETING AND DISTRIBUTION

The initial market identified for one-alpha D/2/, for treatment of secondary
hyperparathyroidism associated with ESRD, is a niche market in the United
States involving a limited number of large service providers who treat the
majority of patients in readily identifiable centers. According to HCFA, there
were approximately 214,000 ESRD patients in the United States in 1996.
Approximately 85% of ESRD patients receive hemodialysis treatments three times
a week at a dialysis center with the remaining 15% receiving self-administered
peritoneal dialysis treatments at home. Currently, the top five United States
hemodialysis service companies provide dialysis services to over 45% of the
entire hemodialysis patient population and operate over 50% of the dialysis

centers in the United States. Consequently, the Company believes that the
marketing and sale of one-alpha D/2/ for treatment of secondary
hyperparathyroidism associated with ESRD in the United States could be
accomplished with approximately 30 sales and marketing personnel.

The Company currently has limited internal marketing and sales personnel. In
April 1998, the Company hired a Vice President--Sales and Marketing. The
Company is evaluating various marketing alternatives for one-alpha D/2/
including entering into a marketing alliance with one or more pharmaceutical
companies or establishing its own sales force. The Company currently intends
to seek one or more collaborative partners to develop, market and distribute
one-alpha D/2/ for secondary hyperparathyroidism associated with ESRD outside
the United States. The Company or any such collaborative partners would be
required to obtain regulatory approval in any country where sales would occur.
No assurance can be given that the Company will be able to market one-alpha
D/2/, if approved, on its own or find a suitable partner to develop, market
and distribute one-alpha D/2/ in the United States or internationally.

The Company intends to develop one-alpha D/2/, LR-103 and selected second-
generation D-hormone compounds for other indications. The aggregate target
population for these other indications greatly exceeds the ESRD patient
population. The Company is evaluating marketing alternatives for the
commercialization of one-alpha D/2/, LR-103 and selected second-generation D-
hormone compounds in those target populations.

To the extent the Company enters into marketing, distribution or co-
promotion arrangements with third parties, any revenue the Company receives
will depend on the efforts of such third parties. There can be no assurance
that any third party will devote significant resources to the Company's
products or market such products successfully or that any such arrangement
will be on terms favorable to the Company. The Company's failure to either
establish its own marketing capabilities or to enter into successful marketing
arrangements with third parties would have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Limited Sales and Marketing Experience."

RESEARCH AND DEVELOPMENT

The Company's research and development efforts are focused on the discovery
and development of novel D-hormones and analogs which possess improved safety
and efficacy profiles. The Company conducts the majority of its research and
development activities through its own staff and facilities. As of June 30,
1998, the Company had 19 employees engaged in research and development, four
of whom have Ph.D. degrees. The Company's research and development program
encompasses the early stages of product discovery and development through the
receipt of FDA clearance or approval, and the expansion of new product uses
and applications. The Company has assembled a team of scientists and clinical,
regulatory and quality assurance personnel with a variety of complementary
skills and experiences, and conducts a broad-based research program in its
facilities. The Company has developed assay procedures for measuring the
levels of blood-borne metabolites of D-hormones. Such assays provide support
to the Company's research and development of one-alpha D/2/ and other product
candidates. The Company also employs academic institutions and independent
consultants to aid in research and the product development process.

The Company anticipates incurring significant research and development
expenses in the next few years as the Company initiates commercial sales,
continues its efforts to develop its present technologies, begins to move
other products to the clinical testing stage and identifies future products
for development. The Company's aggregate research and development expenses
totaled approximately $0.5 million, $1.2 million and $2.9 million for the
fiscal years ended June 30, 1995, 1996 and 1997, respectively, and
approximately $3.1 million for the nine months ended March 31, 1998.

PATENTS AND PROPRIETARY TECHNOLOGY

The Company's success will depend in part on its ability to develop
patentable products and technologies and obtain patent protection for its
products and technologies both in the United States and other countries.

Composition of matter patents covering one-alpha D/2/ have expired and
cannot be renewed or extended. The Company owns United States patents covering
the use of one-alpha D/2/ for the prevention and treatment of

secondary hyperparathyroidism and metabolic bone disease, including renal
osteodystrophy. A corresponding patent for the use of one-alpha D/2/ for the
prevention and treatment of secondary hyperparathyroidism associated with ESRD
is pending before the European Patent Office and a corresponding patent for
the use of one-alpha D/2/ for the prevention and treatment of metabolic bone
disease has been issued by the European Patent Office. Patent applications for
similar coverage are pending in other countries, including Japan. The Company
also has received a notice of allowance for a United States patent for the use
of one-alpha D/2/ and other proprietary D-hormone compounds for treating
prostate cancer. The Company has filed international counterpart patent
applications through the Patent Cooperation Treaty and has designated Europe
and other geographic markets including Japan for national filing.

The Company's issued patents and pending patent applications relating to
one-alpha D/2/ are method-of-use patents. A method-of-use patent encompasses
the use of a composition to treat a specified condition but does not encompass
the composition itself, the method of making the composition or the compound
used in the composition. A method-of-use patent provides less protection than
a composition-of-matter patent if other companies market or make the compound
for other uses because of the possibility of off-label use.

The Company has a license from WARF to practice several of WARF's process
patents for the synthesis of one-alpha D/2/. Under this license, which extends
at least through July 2, 2013 and expires upon the expiration of the last to
expire of the licensed patents, WARF has agreed not to license to other
parties the patents for the manufacture of one-alpha D/2/ for use or sale
anywhere in the world as long as the license agreement is in effect and, if
one-alpha D/2/ is being sold in the United States, the Company pays the annual
license fee. The Company also has its own patent applications pending in the
United States, before the European Patent Office and in other geographic
markets, including Japan, for methods of synthesizing one-alpha D/2/.

The Company has issued patents and has pending patent applications in other
countries relating to other D-hormones. Patents and pending applications
include claims to compositions, compounds, methods of synthesizing the
compositions and compounds, methods of use and methods of delivery of active
D-hormones and D-hormone analogs.

There can be no assurance that any of the Company's pending patent
applications will result in the issuance of patents or that competitors will
not successfully challenge the Company's patents, if issued, on the basis of
validity and/or enforceability or circumvent, attack or design around the
Company's patent position. The failure of patents to issue on pending
applications and the finding of invalidity and/or unenforceability of one of
the Company's patents could result in increased competition and could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The patent positions of companies in the pharmaceutical industry are highly
uncertain, involve complex legal and factual questions. The patents of these
companies have been and continue to be the subject of litigation. In addition,
the breadth of claims allowed in such patents is unpredictable. Patent
applications in the United States are maintained in secrecy until a patent
issues, and the Company cannot be certain that others have not filed patent
applications for compounds, uses or processes covered by the Company's pending
applications or that the Company was the first to invent the compound, use or
process that is the subject of such patent applications. Competitors may have
filed applications for, or may have received patents and may obtain additional
patents and proprietary rights relating to compounds, uses, or processes that
block or compete with those of the Company. For example, the Company is aware
of a significant number of patent applications filed by and patents issued to
third parties relating to D-hormones and D-hormone analogs. There can be no
assurance that any such patents or patent applications will not have a
material adverse effect on the use, research, development, marketing and
future role of products. Should any of the Company's competitors file patent
applications in the United States that claim compounds, uses or processes also
claimed by the Company, the Company may have to participate in interference
proceedings declared by the PTO in order to determine priority of invention
and thus the right to a patent for the compounds, uses or processes in the
United States, which could result in substantial cost to the Company even if
the outcome is favorable. There can be no assurance that any patents issued to
the Company or to licensors from whom the Company has licensed rights will not
be

challenged, invalidated, circumvented or found unenforceable, or that the
rights granted thereunder will provide proprietary protection or commercial
advantage to the Company.

In addition, the Company's product candidates or technology may give rise to
claims that they infringe on the proprietary rights of others. Litigation may
be necessary to defend against such third party claims or assert claims of
infringement, to enforce patents issued to the Company, to protect trade
secrets owned or licensed by the Company, or to determine the scope and
validity of proprietary rights of third parties. Although no third party has
asserted that the Company is infringing such third party's proprietary rights
at this time, there can be no assurance that litigation asserting such claims
will not be initiated, that the Company would prevail in such litigation or
that any license required under any such patents or rights would be made
available on terms acceptable to the Company, if at all. Any such claims
against the Company, with or without merit, as well as claims initiated by the
Company against third parties, can be time consuming and expensive to defend
or prosecute. Failure to favorably resolve such claims, either through
litigation or by obtaining necessary licenses, could result in delays in
product development or commercialization while the Company attempts to design
around such third party patents or proprietary rights, or an inability to
pursue the use, development, manufacture or sale of products.

The Company also relies on proprietary information and trade secrets. There
can be no assurance that third parties will not independently develop
equivalent or substantially equivalent proprietary information or techniques,
will not gain access to the Company's trade secrets or disclose such trade
secrets to the public or that the Company can maintain and protect unpatented
proprietary information technology. The Company requires its employees,
consultants, and advisors to execute confidentiality agreements upon the
commencement of an employment or a consulting relationship or with the
Company. There can be no assurance, however, that these agreements will
provide meaningful protection or adequate remedies for the Company's
proprietary information in the event of unauthorized use or disclosure of such
information, that the parties to such agreements will not breach such
agreements or that the Company's trade secrets will not otherwise become known
or be discovered independently by its competitors.

The USDA holds certain rights to LR-103 under pending patent applications
and has granted the Company a worldwide exclusive license to make, use and
sell products covered under the rights held by the USDA. The license expires
on the last to expire of the licensed patents. The license may be terminated
by the USDA if these products are not brought by the Company to practical
application with the benefits being made available to the public in the United
States by April 7, 2002 or under certain other limited circumstances.

The Company has granted Draxis a license to use and sell in Canada one-alpha
D/2/ for secondary hyperparathyroidism, osteoporosis and other metabolic bone
diseases. The Company has also granted Draxis a license in Canada to all know-
how developed by or on behalf of the Company relating to the use of one-alpha
D/2/ for those indications. See "Risk Factors--Uncertainty of Patent Positions
and Proprietary Rights."

GOVERNMENT REGULATION

Regulation by governmental entities in the United States and other countries
will be a significant factor in the development, production and marketing of
any new drug products developed by the Company. Pharmaceutical products are
subject to rigorous regulation under the Federal Food, Drug and Cosmetic Act
("FDCA") by the FDA in the United States and similar health authorities in
foreign countries under laws and regulations that govern, among other things,
testing for safety and effectiveness, manufacturing, labeling, storage, record
keeping, import, export, advertising, promotion, marketing and distribution of
such products. Product development and approval within this regulatory
framework is uncertain, can take a number of years and requires the
expenditure of substantial resources. Any failure to obtain regulatory
approval, or any delay in obtaining such approvals, could adversely affect the
marketing of products under development by the Company, the Company's ability
to receive product or royalty revenues, and its liquidity and capital
resources.

The premarket approval regulatory requirements that must be met before a new
drug product may be marketed in the United States include: (i) preclinical
laboratory tests and preclinical laboratory animal studies;

(ii) the submission to the FDA of an Investigational New Drug application
("IND") to obtain the FDA's consent to conduct proposed clinical trials; (iii)
adequate and well-controlled clinical trials to establish the safety and
efficacy of the new drug product; (iv) the submission to the FDA of an NDA and
(v) FDA review and approval of the NDA.

Preclinical tests include laboratory evaluation of a new drug, as well as
laboratory animal studies to assess its potential safety and efficacy in
humans. Preclinical tests must be conducted by laboratories that comply with
FDA regulations regarding Good Laboratory Practices. The results of the
preclinical tests, together with manufacturing and chemistry information
regarding the new drug, must be submitted to the FDA as part of an IND, which
must become effective before clinical trials may commence. The IND will
automatically become effective 30 days after receipt by the FDA unless the FDA
indicates prior to the end of such 30-day period that the proposed protocol
raises concerns that must be resolved to the satisfaction of the FDA before
the trials may proceed as outlined in the IND. In such case, there can be no
assurance that such resolution will be achieved in a timely fashion, if at
all. In addition, the FDA may impose a clinical hold on ongoing clinical
trials, if for example, safety concerns are presented, in which case the study
cannot recommence without FDA authorization under terms sanctioned by the
agency.

Clinical trials involve the administration of an investigational new drug
product to healthy volunteers or to patients having the disease or condition
for which the drug is intended, under the supervision of qualified principal
investigators. Clinical trials are conducted in accordance with the FDA's Good
Clinical Practice standards under protocols that detail the objectives of the
trial, inclusion and exclusion criteria, the parameters and endpoints to be
used to evaluate safety and efficacy, the control to be used (usually a
placebo control), the method for random administration to test drug and
control patient groups, double-blinding procedures and methods for the
biostatistical analysis of the study results.

Each protocol must be submitted to the FDA as part of the IND. Further, each
clinical trial must be reviewed and approved by an independent Institutional
Review Board ("IRB") at the academic or medical institution at which the trial
will be conducted. The IRB will consider, among other things, ethical factors,
the safety of human subjects and the possible liability of the institution.
The IRB may require changes in a protocol, and there can be no assurance that
the submission of an IND will permit a study to be initiated or completed.

Clinical trials generally are conducted in three sequential phases, but the
phases may overlap. In Phase 1, the initial introduction of the new drug
product into healthy human subjects or patients, the drug is tested to assess
safety (adverse effects), absorption, metabolism, excretion, pharmacokinetics,
pharmacodynamics and pharmacological actions associated with increasing doses.
Phase 2 usually involves studies in a limited patient population with the
disease or condition for which the drug is intended to (i) determine the
efficacy of the potential product for specific, targeted indications, (ii)
determine dosage tolerance and optimum dosage and (iii) further identify
possible adverse reactions and safety risks. If a compound is found to be
effective and to have an acceptable safety profile in Phase 2 evaluations,
Phase 3 trials are undertaken to evaluate further clinical efficacy and safety
within a broader patient population having the disease or condition, generally
at multiple, geographically dispersed clinical sites. There can be no
assurance that Phase 1, Phase 2 or Phase 3 testing will be completed
successfully within any specific time period, if at all, with respect to any
of the Company's products subject to such testing. Phase 4 clinical trials are
studies conducted after approval to document clinical benefit in the case of
fast track accelerated approval conditions (see below), or to gain additional
experience from the treatment of patients with the disease for which the drug
is used.

The results of preclinical studies and clinical trials of a new drug, if
successful, must be submitted to the FDA in an NDA to seek FDA approval to
market and commercialize the drug product for a specified use. FDA approval of
the NDA is required before marketing may begin in the United States. The NDA
must also include data relating to the new drug product's chemistry and
pharmacology, and methods and quality assurance and control procedures used in
the manufacture of the new drug product. The FDA reviews all NDAs submitted to
assess whether they are complete for review, and may request additional
information rather than accepting an NDA for filing. In such an event, the NDA
must be resubmitted with the additional information and, again, is

subject to review before filing. Once the submission is accepted for filing,
the FDA begins an in-depth review of the NDA. Under the FDCA, the FDA has 180
days in which to review the NDA and respond to the applicant. The review
process is often significantly extended by FDA requests for additional
information or clarification regarding information already provided in the
submission. Nonetheless, because of the Prescription Drug User Fee Act (see
below), the FDA has adhered more closely to the 180-day statutory review time
frame. The FDA may refer the application to the appropriate advisory
committee, typically a panel of clinicians, for review, evaluation and a
recommendation as to whether the application should be approved. However, the
FDA is not bound by the recommendation of an advisory committee.

The FDA also requires a pre-approval inspection of the plant or facility at
which the new drug product will be manufactured, to determine that the
applicable manufacturing methods and controls used to produce the drug product
are in compliance with the agency's GMP regulations. Such regulations mandate,
among other things, quality control and quality assurance procedures and the
maintenance of corresponding records and other documentation. If FDA
evaluations of the NDA and the manufacturing facilities are favorable, the FDA
may issue either an approval letter or an approvable letter, which usually
contains a number of conditions that must be met in order to secure final
approval of the NDA. When and if those conditions (typically, labeling
requirements) have been met to the FDA's satisfaction, the FDA will issue an
approval letter, authorizing commercial marketing of the product for certain
indications. As a condition of NDA approval, the FDA may require postmarketing
testing (Phase 4 studies) and surveillance to monitor the drug's safety or
efficacy. If the FDA's evaluation of the NDA submission or manufacturing
facilities is not favorable, the FDA may refuse to approve the NDA or issue a
not approvable letter, outlining the deficiencies in the submission and often
requiring additional testing or information. Notwithstanding the submission of
any requested additional data or information in response to an approvable or
not approvable letter, the FDA ultimately may decide that the application does
not satisfy the regulatory criteria for approval. Once granted, product
approvals may be withdrawn if compliance with regulatory standards is not
maintained or safety or other problems associated with the drug occur
following initial marketing.

Before the Company's products can be marketed outside of the United States,
they are subject to regulatory approval similar to FDA requirements in the
United States, although the requirements governing the conduct of clinical
trials and other premarket approval requirements vary widely from country to
country, and the time spent in gaining approval varies from that required for
FDA approval. No action can be taken to market any drug product in a country
until an appropriate application has been approved by the regulatory
authorities in that country. FDA approval does not assure approval by other
regulatory authorities and there can be no assurance that foreign regulatory
approvals will be granted. In some countries, the sale price of a drug product
must also be approved. The pricing review period often begins after market
approval is granted. Even if a foreign regulatory authority approves any of
the Company's products, no assurance can be given that it will approve
satisfactory prices for the products.

The Prescription Drug User Fee Act program, reauthorized by the FDA
Modernization Act of 1997, requires the payment of a substantial application
fee for each NDA filed for a new prescription drug (at present approximately
$250,000), and annual establishment and product fees for each marketed
prescription drug for which an NDA is approved. These fees are used by the FDA
to hire additional personnel to review NDAs, in order to expedite agency
review of such applications with the goal of meeting the 180-day statutory
review deadline. The FDA files annual reports with Congress on its progress in
attaining this goal for applications reviewed during the previous government
fiscal year. Review times for NDAs have been reduced substantially as a result
of this program. A small business (having fewer than 500 employees), such as
the Company, is granted a waiver of the application fee for the first NDA it
submits to the FDA, but must pay the full application fee for all subsequent
applications.

The FDA Modernization Act of 1997 also codified the FDA's "fast track"
procedures, applicable to new drugs intended for the treatment of a serious or
life-threatening condition which demonstrate the potential to address unmet
medical needs for such conditions. Such a new drug can be designated as a
"fast track product" and reviewed and approved in an accelerated time frame,
usually on the basis of Phase 1 and 2 clinical trials,

which can utilize surrogate endpoints. However, there can be no assurance that
any given new drug will be designated as a fast track product by the FDA. The
applicant may be requested by the FDA, as a condition of fast track approval,
to conduct and submit to FDA the results of one or more larger post-approval
Phase 4 studies that verify the clinical benefit of the drug for its intended
use in the relevant patient population. Failure to conduct a required Phase 4
study with due diligence could result in withdrawal of approval of a new drug
approved under "fast track" conditions.

Manufacturing facilities in the United States are subject to periodic
inspection by the FDA and state authorities, and must comply with GMP
regulations. Failure to comply with GMP or other applicable regulatory
requirements (such as labeling and advertising rules and standards) may result
in, among other things, withdrawal of marketing approval, warning letters,
injunctions, recall or seizure of products, total or partial suspension of
production, FDA refusal to approve pending new drug applications or
supplements to approved applications, refusal to permit products to be
imported or exported, refusal to allow the Company to enter into government
supply contracts or criminal prosecution.

The Company's research and development processes involve the controlled use
of hazardous materials, chemicals and radioactive materials, and produce waste
products. The Company is subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
such materials and waste products. Although the Company believes that its
safety procedures for handling and disposing of such materials comply with the
standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated completely.
In the event of such an accident, the Company could be held liable for any
damages that result and any such liability could exceed the resources of the
Company. Although the Company believes that it is in compliance in all
material respects with applicable environmental laws and regulations, there
can be no assurance that it will not be required to incur significant costs to
comply with environmental laws and regulations in the future, or that any of
the operations, business or assets of the Company will not be materially
adversely affected by current or future environmental laws or regulations. See
"Risk Factors--Government Regulation; No Assurance of Regulatory Approval."

PHARMACEUTICAL PRICING AND REIMBURSEMENT

hyperparathyroidism associated with ESRD before an intravenous formulation is
based on this assumption regarding trends in health care reimbursement. There
can be no assurance that the Company's assumptions are correct regarding
capitated reimbursement or regarding the timing of any change to a capitated
environment. In the event that fee-for-service reimbursement remains the
predominant model for dialysis centers, sales of oral one-alpha D/2/, assuming
regulatory approvals are received, could be materially adversely affected. The
ability of the Company to obtain third-party reimbursement for use of one-
alpha D/2/ would be dependent on the successful development of, receipt of
regulatory approval for, and commercialization of, an intravenous formulation.
See "Risk Factors--Uncertainty Related to Pricing and Reimbursement of
Products."

COMPETITION

Competition in the pharmaceutical and biotechnology industries is intense.
The Company faces competition from a variety of sources and believes that
several pharmaceutical or biotechnology companies are focused on the
development of D-hormone therapies, particularly as they relate to treatment
of secondary hyperparathyroidism and hyperproliferative diseases. The Company
also competes with other large pharmaceutical companies that produce D-
hormones for marketing in international marketplaces where alternative
treatments have been approved by their respective regulatory bodies. Several
companies also compete indirectly with the Company for the same indications
utilizing different therapeutic approaches. Many of the Company's existing or
potential competitors have substantially greater financial, research and
development, marketing and human resources than the Company and are better
equipped to develop, manufacture and market products. Other companies may also
prove to be significant competitors, particularly through collaborative
arrangements with large pharmaceutical and established biotechnology
companies. Several of these competitors have products that have been approved
or are in development and operate large, well-funded research and development
programs. The Company also faces intense competition from other companies for
marketing, distribution and collaborative development agreements, for
establishing relationships with academic and research institutions, and for
licenses to proprietary technology. In addition, academic institutions,
government agencies and other public and private research organizations may
also conduct research, seek patent protection and establish collaborative
arrangements for discovery, research, clinical development and marketing of
products similar to those of the Company. These companies and institutions
compete with the Company in recruiting and retaining qualified scientific and
management personnel as well as in acquiring technologies complementary to the
Company's programs.

Companies that complete clinical trials, obtain required regulatory
approvals and commence commercial sales of their products before their
competitors may achieve a significant competitive advantage. Accordingly, the
relative speed with which the Company can develop products, complete
preclinical testing and clinical trials and regulatory approval processes, and
supply commercial quantities of products to the market are expected to be
important competitive factors. A number of pharmaceutical and biotechnology
companies are developing new products for the treatment of the same diseases
being targeted by the Company. Abbott Laboratories markets intravenous
calcitriol (Calcijex(R)) and Hoffmann-LaRoche, Inc. markets oral calcitriol
(Rocaltrol(R)). Both drugs are approved for the treatment of secondary
hyperparathyroidism associated with ESRD in the United States and certain
European countries. A number of companies market oral one-alpha D/3/ in Europe
under various trade names. Abbott Laboratories received marketing approval
from the FDA in April 1998 for paracalcitol (Zemplar(R)), an intravenous
formulation of an improved second generation D-hormone analog for the
treatment of secondary hyperparathyroidism associated with ESRD. This product
is expected to compete with one-alpha D/2/. Other companies, including Amgen,
Inc., Chugai Pharma Europe Ltd. and NPS Pharmaceuticals, Inc. are also
developing new therapies or have filed NDAs for the treatment of secondary
hyperparathyroidism associated with ESRD for the United States or European
markets. In addition, Leo Pharmaceuticals is developing and marketing improved
D-hormone therapies for the treatment of certain hyperproliferative diseases
and is marketing alfacalcidol, a synthetic analog of calcitriol, in Europe for
the treatment of secondary hyperparathyroidism associated with ESRD and
osteoporosis associated with secondary hyperparathyroidism.

The Company believes that its ability to compete successfully will be based
on its ability to create and maintain scientifically advanced technology,
develop proprietary products with improved safety and efficacy profiles over
existing therapies, attract and retain scientific personnel, obtain patent or
other protection for its products, obtain required regulatory approvals and
manufacture and successfully market its products either alone or through third
parties, and obtain adequate third party reimbursement. Many of the Company's
competitors have substantially greater financial, research and development,
marketing and human resources than the Company. There can be no assurance that
the Company's competitors will not develop more effective and/or affordable
products, or achieve earlier patent protection or product commercialization
than the Company or that such competitive products will not render the
Company's products obsolete. See "Risk Factors--Significant Competition;
Competition From New Technologies."

PRODUCT LIABILITY

The Company's business exposes it to potential liabilities inherent in
testing, manufacturing and commercializing pharmaceuticals for human use. The
Company does not have product liability insurance for clinical use or
commercial sale of any of its potential products, and the Company does not
intend to obtain such insurance until one-alpha D/2/ is commercialized. There
can be no assurance that the Company will be able to obtain insurance coverage
at acceptable costs, or at all, or that the Company will not experience losses
due to product liability claims. A product liability claim, product recall or
other claim or claims for uninsured liabilities or for amounts exceeding the
limits of the Company's insurance could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Product Liability."

PROPERTIES

The Company currently leases approximately 10,000 square feet of office and
laboratory space in Madison, Wisconsin. The lease expires on November 30,
2000. The Company believes its facility is adequate to meet its needs for the
foreseeable future.

LEGAL PROCEEDINGS

The Company may be a defendant from time to time in actions arising out of
its ordinary business operations. There are no pending legal proceedings
involving the Company as a defendant.

EMPLOYEES

As of June 30, 1998, the Company had 25 full-time employees, including 19 in
research and development and four in administration. Four of the Company's
employees have Ph.D. degrees. None of the Company's employees is represented
by a union. The Company considers its employee relations to be good.

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information with respect to the
executive officers and directors of the Company as of June 30, 1998:

NAME AGE POSITION
- ---- --- --------

Richard B. Mazess,
Ph.D.(1).................. 59 Chairman of the Board
Charles W. Bishop, Ph.D.... 46 President, Chief Executive Officer and Director
Robert A. Beckman(2)....... 43 Director
John Kapoor, Ph.D.(1)(2)... 55 Director
Martin Barkin, M.D......... 61 Director
Dale W. Gutman............. 44 Vice President-Finance
Paul V. Peterson........... 47 Vice President-Sales and Marketing

- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee

Richard B. Mazess, Ph.D., the Company's founder, has served as a director of
Bone Care since 1984. Dr. Mazess served as President of Bone Care from its
inception in 1984 through February 1996, and has served as its Chairman of the
Board since February 1996. Dr. Mazess has been President and a director of
Lunar since its inception in 1980. Lunar develops and sells x-ray and
ultrasound bone densitometers for the diagnosis and monitoring of osteoporosis
and other metabolic bone diseases. Lunar also develops and sells medical
imaging equipment used by orthopedists and radiologists for imaging
extremities. Dr. Mazess became Professor Emeritus of Medical Physics at the
University of Wisconsin--Madison in 1985, and has been on the faculty of the
Department of Medical Physics since 1968.

Charles W. Bishop, Ph.D., joined Bone Care in 1987 as Project Director and
was named Vice President in 1990, and President and Chief Executive Officer in
February 1996. Dr. Bishop has been a director of Bone Care since 1989. Dr.
Bishop received a Ph.D. degree in Nutritional Biochemistry from Virginia
Polytechnic Institute and completed a four-year National Institutes of Health
Postdoctoral Fellowship in Vitamin D Biochemistry at the University of
Wisconsin--Madison.

Robert A. Beckman has been a director of Bone Care since 1989 and was Vice
President of Finance for the period May 1996 through November 1996. Mr.
Beckman has been Vice President of Finance for Lunar since 1987.

John Kapoor, Ph.D., has been a director of Bone Care since 1990. Dr. Kapoor
has been President and owner of EJ Financial Enterprises, a private financial
and investment firm, since 1990. Since 1991, Dr. Kapoor has been a director of
Akorn, Inc., an opthalmic and pharmaceutical product manufacturer and
distributor, and has been acting Chief Executive Officer since June 1996. Dr.
Kapoor also serves as a director of Unimed Pharmaceuticals, Inc., Option Care,
Inc., Neopharm, Inc. and Integrated Surgical Systems, Inc.

Martin Barkin, M.D., has been a director of Bone Care since 1993. Dr. Barkin
has been President and Chief Executive Officer of Draxis Health, Inc., a
pharmaceutical company, since 1992. Dr. Barkin formerly was a partner and
National Practice Leader for Health Care at KPMG Peat Marwick, independent
certified public accountants, from 1991 to 1992 and Deputy Minister of Health
for the Province of Ontario from 1987 to 1991. Dr. Barkin is also a director
of Dyna Care, Inc.

Dale W. Gutman joined Bone Care in December 1996 as Vice President-Finance.
From 1986 to December 1996, Mr. Gutman served as Vice President and Corporate
Controller of the Chas. Levy Company, a distributor of magazines and books to
independent and mass market retailers throughout the United States. Mr. Gutman
is a Certified Public Accountant.

Paul V. Peterson joined Bone Care in April 1998 as Vice President-Sales and
Marketing. From 1973 to March 1998, Mr. Peterson served in a variety of sales
and marketing positions of increasing responsibility with Pharmacia & Upjohn,
Inc., a pharmaceutical company, where he last served as Director of Sales,
U.S. Peptide Hormones.

BOARD COMPOSITION

The Board of Directors of the Company consists of five members. Pursuant to
the Articles of Incorporation, the Board is divided into three classes with
each member of a class serving for a term of three years. The terms of Dr.
Mazess and Dr. Kapoor expire at the Company's 1998 annual meeting of
shareholders. The term of Dr. Barkin expires at the Company's 1999 annual
meeting of shareholders. The terms of Dr. Bishop and Mr. Beckman expire at the
Company's 2000 annual meeting of shareholders. Each director serves a term
expiring at the annual meeting of shareholders in the year indicated above and
until his successor shall have been elected and qualified. Executive officers
of the Company are elected annually and serve until their earlier resignation
or removal.

BOARD COMMITTEES

The Board of Directors has established an Audit Committee and a Compensation
Committee as permitted by the Company's By-Laws. The Audit Committee, composed
of non-employee directors, is responsible for oversight of the audit of the
corporate accounts conducted by the Company's independent public accountants
whom it recommends for selection by the Board. The Audit Committee reviews the
scope of the audit with such accountants and their related fees. The
Compensation Committee, composed of non-employee directors, determines the
compensation and benefits for officers (other than stock options granted under
the 1996 Plan), and makes recommendations to the Board concerning compensation
arrangements for the President and Chief Executive Officer and for members of
the Board of Directors. The Company does not have a nominating committee of
the Board. Under the By-Laws, the Board may establish additional committees as
it deems advisable.

DIRECTOR COMPENSATION

Officers of the Company do not receive any additional compensation for
serving as members of the Board. In August 1997, Messrs. Barkin, Beckman and
Kapoor were each granted non-qualified options under the 1996 Plan to purchase
9,000 shares of Common Stock at an exercise price of $7.50 per share, the fair
market value on the grant date. These options expire ten years after their
grant date and become exercisable in equal one-third annual increments on the
first three anniversaries of the grant date. In September 1997, the Board
determined that non-employee directors shall annually receive non-qualified
stock options to purchase 9,000 shares of Common Stock pursuant to the 1996
Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the fiscal year ended June 30, 1998, Dr. Mazess served on the
Compensation Committee of the Board of Directors. Dr. Mazess was President of
the Company since its inception in 1986 through February 1996. In addition,
Dr. Mazess has served as the President and as a director of Lunar since 1980.

EXECUTIVE OFFICER COMPENSATION

The following table sets forth certain compensation during the fiscal years
ended June 30, 1998, 1997 and 1996 for Charles W. Bishop, Ph.D., the Company's
President and Chief Executive Officer. No other executive officer of the
Company earned more than $100,000 during any of the last three fiscal years.

SUMMARY COMPENSATION TABLE

LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------- ------------
SECURITIES
NAME AND PRINCIPAL FISCAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION(2)
- ------------------ ------ -------- ------ ------------ ---------------

Charles W. Bishop,
Ph.D................... 1998 $150,000 $4,225 -- $2,290
President and Chief 1997 143,846 2,250 10,000 2,116
Executive Officer 1996 133,847 2,250(1) 140,000 1,966

- --------
(1) Compensation received from Lunar Corporation Bonus Program.
(2) Amounts shown consist of Company contributions to a defined contribution
plan.

AGGREGATED STOCK OPTION EXERCISES IN FISCAL YEAR 1998 AND FISCAL YEAR END
STOCK OPTION VALUES

The following table sets forth information on stock options exercised in
fiscal year 1998 by Dr. Bishop, the number of unexercised stock options held
by Dr. Bishop and the value of his unexercised stock options as of June 30,
1998.

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY STOCK
STOCK OPTIONS AT FISCAL OPTIONS AT FISCAL YEAR
YEAR END (#) END(2)
SHARES ACQUIRED ------------------------- -------------------------
NAME ON EXERCISE (#) VALUE REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- --------------------- ----------- ------------- ----------- -------------

Charles W. Bishop,
Ph.D................... 23,691 $185,441 58,000 92,000 $337,840 $581,760

- --------
(1) Fair market value of underlying securities at exercise minus the exercise
price (i.e., value before income taxes payable as a result of the
exercise). The annualized value realized was $20,582.
(2) Based upon the closing price of the Common Stock of $8.75 on June 30,
1998, as reported by the Nasdaq Stock Market, minus the exercise price.

STOCK OPTION PLANS

Incentive Stock Option Plan. The Company adopted the Incentive Stock Option
Plan (the "ISO Plan"; and, together with the 1996 Plan, the "Stock Option
Plans") in January 1989. As of June 30, 1998, 67,124 shares of Common Stock
have been issued upon the exercise of options granted under the ISO Plan, and
options to purchase 59,228 shares of Common Stock were outstanding under the
ISO Plan. The weighted average exercise price per share of such options is
$2.11. In June 1990, the Board of Directors of the Company agreed not to grant
any new options under the ISO Plan. The Company has not made any subsequent
grants, except for a grant in March 1996 of replacement stock options to
purchase 78,970 shares in exchange for the forfeiture of an equal amount of
previously granted stock options.

1996 Stock Option Plan. The 1996 Plan was initially adopted as of February
1, 1996. Under the 1996 Plan, a total of 1,000,000 shares of Common Stock were
made available for grant.

Only nonqualified stock options may be granted under the 1996 Plan. The
option price per share of Common Stock purchasable upon exercise of an option
is 100% of the fair market value of a share of Common Stock on the date of
grant of such stock option. The 1996 Plan is administered by the Board of
Directors of the Company and has the authority, subject to the terms of the
1996 Plan, to establish eligibility guidelines, select officers, key
employees, consultants, and non-employee directors for participation in the
1996 Plan and determine the number of shares of Common Stock subject to a
stock option, the exercise price for such shares of Common Stock, the time and
conditions of vesting or exercise, and all other terms and conditions of the
stock options. To the extent

required under Section 162(m) of the Internal Revenue Code of 1986, and the
rules and regulations thereunder, the maximum number of shares of Common Stock
with respect to which options may be granted during any calendar year to any
person is 200,000, subject to adjustment for changes in the Company's
capitalization.

The 1996 Plan may be amended by the Board of Directors in any respect,
except that no amendment may be made without shareholder approval if such
amendment would increase the maximum number of shares of Common Stock
available under the 1996 Plan (other than certain adjustments for changes in
the Company's capitalization) or would otherwise require shareholder approval.
The 1996 Plan will terminate on February 1, 2006, unless earlier terminated by
the Board of Directors.

In the event of a change in control of the Company, any stock option not
previously exercisable in full will become fully exercisable. A change in
control generally is the acquisition, subject to certain exceptions, by any
person of beneficial ownership of 50% or more of the outstanding shares of
Common Stock, a change in the majority of the Board of Directors and approval
by the shareholders of a reorganization, merger, consolidation, or sale of all
or substantially all of the assets of the Company unless certain conditions
are satisfied. This provision could raise the cost to a potential acquiror of
engaging in a transaction that would constitute such a change in control and,
therefore, could affect the willingness of an acquiror to propose such a
transaction or the terms thereof.

As of June 30, 1998, 34,300 shares of Common Stock have been issued upon the
exercise of options granted under the 1996 Plan, options to purchase 468,550
shares of Common Stock at a weighted average exercise price of $4.06 were
outstanding and 497,150 shares of Common Stock were reserved for future
grants.

LIABILITY AND INDEMNIFICATION

Under the Company's By-Laws and the WBCL, directors and officers of the
Company are entitled to mandatory indemnification from the Company against
certain liabilities and expenses (a) to the extent such officers or directors
are successful in the defense of a proceeding and (b) in proceedings in which
the director or officer is not successful in the defense thereof, unless it is
determined the director or officer breached or failed to perform his duties to
the Company and such breach or failure constituted: (i) a willful failure to
deal fairly with the Company or its shareholders in connection with a matter
in which the director or officer had a material conflict of interest, (ii) a
violation of criminal law, unless the director or officer had reasonable cause
to believe his or her conduct was lawful or had no reasonable cause to believe
his or her conduct was unlawful, (iii) a transaction from which the director
or officer derived an improper personal profit, or (iv) willful misconduct.
The Company's By-Laws provide that the Company may purchase and maintain
insurance on behalf of an individual who is a director or officer of the
Company against liability asserted against or incurred by such individual in
his or her capacity as a director or officer regardless of whether the Company
is required or authorized to indemnify or allow expenses to the individual
against the same liability under the By-Laws. The Company has obtained such
insurance for directors and officers.

Under Section 180.0828 of the WBCL, a director of a corporation is not
subject to personal liability to the corporation, its shareholders, or any
person asserting rights on behalf thereof for damages, settlements, fees,
fines, penalties or other monetary liabilities arising from breach of, or
failure to perform any duty resulting solely from such person's status as a
director, unless the person asserting liability proves that the breach or
failure constituted: (i) a willful failure to deal fairly with the corporation
or its shareholders in connection with a matter in which the director had a
material conflict of interest, (ii) a violation of criminal law, unless the
director had reasonable cause to believe his or her conduct was lawful or had
no reasonable cause to believe his or her conduct was unlawful, (iii) a
transaction from which the director derived an improper personal profit, or
(iv) willful misconduct. These provisions pertain only to breaches of duty by
directors as directors and not in any other corporate capacity, such as
officers. As a result of such provisions, shareholders may be unable to
recover monetary damages against directors for actions taken by them which
constitute negligence or gross negligence or which are in violation of their
fiduciary duties, although it may be possible to obtain injunctive or other
equitable relief with respect to such actions. If equitable remedies are found
not to be available to shareholders in any particular case, shareholders may
not have any effective remedy against the challenged conduct.

CERTAIN TRANSACTIONS

RELATIONSHIP WITH LUNAR

On May 8, 1996, Lunar, which then held 97.3% of the issued and outstanding
shares of the Company's Common Stock, distributed to its shareholders of
record as of April 24, 1996, all of the shares of Company Common Stock then
owned by Lunar in a transaction intended to qualify as a tax-free
distribution. As a result of the Distribution, the Company became a separate
publicly-owned company.

In connection with the Distribution, the Company and Lunar entered into a
distribution agreement dated as of April 16, 1996 (the "Distribution
Agreement") providing for, among other things, the principal corporate
transactions required to effect the Distribution, the conditions to the
Distribution, the allocation between the Company and Lunar of certain
liabilities and certain other agreements governing the relationship between
the Company and Lunar with respect to or in connection with the Distribution.

In addition, the Company and Lunar entered into a tax disaffiliation
agreement dated as of April 16, 1996 which provided for, among other things, a
contribution of $725,000 by Lunar to the Company completed prior to the
Distribution to reflect federal income tax savings previously realized by
Lunar that were attributable to losses incurred by the Company prior to the
Distribution and cross indemnification by each party for certain tax
liabilities. Prior to the Distribution, Lunar entered into a transition
agreement (the "Transition Agreement") with the Company pursuant to which Dr.
Mazess, Mr. Beckman and other employees of Lunar would perform certain
services and provide certain assistance to the Company. Such services include
legal, treasury, financial, accounting, insurance administration, employee
benefit and other services. As compensation for the various services provided
to the Company pursuant to the Transition Agreement, the Company paid Lunar a
monthly fee of $7,000, plus certain expenses, for services provided through
June 30, 1997. Payments made to Lunar during fiscal year 1997 aggregated
$135,000. To reflect changes in the level of such services, the base monthly
fee was reduced effective July 1, 1997 to $5,000 per month and further reduced
effective April 1, 1998 to $2,750 per month. Under the Transition Agreement,
Lunar leased to the Company for a monthly fee of $2,000 approximately 3,000
square feet in Lunar's principal offices in Madison, Wisconsin. Lease
obligations under the Transition Agreement terminated upon the Company's
relocation to its new facilities during the first quarter of 1998. The
Transition Agreement runs until May 8, 1999; however, the Company may
terminate the Transition Agreement prior to the completion of the term by
giving Lunar 90 days written notice. See Note 4 of "Notes to Consolidated
Financial Statements."

Dr. Mazess, the Chairman of the Board of the Company, is also the Chairman
of the Board, President and Chief Executive Officer of Lunar and is the
beneficial owner of approximately 33% of the outstanding common stock of
Lunar. Mr. Beckman, a director of the Company, is also Vice President of
Finance of Lunar.

RELATIONSHIP WITH TAYLOR PHARMACEUTICALS, INC.

In November 1996, the Company entered into an agreement (the "Development
Agreement") with Taylor Pharmaceuticals, Inc. ("Taylor"), whereby Taylor will
assist in the formulation and manufacture of the intravenous formulation of
the Company's lead compound, one-alpha D/2/. Taylor is a wholly-owned
subsidiary of Akorn, Inc. Dr. Kapoor, a director of the Company, is a director
and acting Chief Executive Officer of Akorn, Inc. Dr. Kapoor currently has a
beneficial ownership interest of approximately 24% of Akorn, Inc. The
Development Agreement calls for payments by the Company of approximately
$500,000 to formulate one-alpha D/2/ into a safe, stable liquid presentation
and to provide the Company with specified quantities. The Development
Agreement was negotiated at arm's length after obtaining competitive bids.
Payments during the fiscal year ended June 30, 1997 aggregated $244,167.

SALE OF COMMON STOCK

The Company expects to sell Shares to Dr. Mazess and Dr. Kapoor, directors
of the Company, Dr. Bishop, President, Chief Executive Officer and a director
of the Company, T. Rowe Price Associates, Inc. and Dresdner RCM Global
Investors LLC in the offering. See "Principal Shareholders" and "Plan of
Distribution."

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of June 30, 1998 and as adjusted
to reflect the anticipated sale by the Company of the Common Stock offered
hereby, by (i) each director of the Company, (ii) each executive officer of
the Company who is named in the summary compensation table included in this
Prospectus, (iii) all directors and executive officers of the Company as a
group and (iv) each person known by the Company to be the beneficial owner of
more than 5% of the Common Stock of the Company. See "Plan of Distribution."

BEFORE OFFERING AFTER OFFERING(1)
------------------------- -------------------------
PERCENTAGE PERCENTAGE
SHARES OF SHARES SHARES OF SHARES
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED OWNED(2) OWNED OWNED(2)
- ------------------------ ------------ ------------ ------------ ------------

Richard B. Mazess, Ph.D. (3)
........................... 2,942,710 33.4% 3,112,710 30.7%
313 West Beltline Highway
Madison, WI 53713
T. Rowe Price Associates,
Inc. (4) .................. 854,000 9.7 954,000 9.4
100 E. Pratt Street
Baltimore, MD 21202
Dresdner RCM Global
Investors LLC (5) ......... 718,500 8.2 968,500 9.6
4 Embarcadero Center, Suite
3000
San Francisco, CA 94111
Martin Barkin, M.D. (6) .... 238,642 2.7 238,642 2.4
Robert A. Beckman (7) ...... 46,773 * 46,773 *
Charles W. Bishop, Ph.D. (8)
........................... 90,627 1.0 96,627 *
John Kapoor, Ph.D. (9) ..... 139,050 1.6 239,050 2.4
All directors and executive
officers as a group (7
persons) (10).............. 3,460,802 38.8 3,736,802 36.5

- --------
* Less than one percent (1%)
(1) Assumes the sale of the maximum number of Shares. See "Plan of
Distribution."
(2) Except as indicated below, the percentage beneficially owned represents
shares of Common Stock held of record and beneficially as of June 30, 1998
and all shares of Common Stock are held with sole voting and investment
power. Percentage amounts are based upon an aggregate of 8,808,956 shares
issued and outstanding as of June 30, 1998 (10,134,956 shares of Common
Stock outstanding upon completion of the offering if the maximum number of
Shares is sold) and shares of Common Stock issuable within 60 days of June
30, 1998 upon exercise of stock options.
(3) Includes 1,433,950 shares of Common Stock held by Dr. Mazess in joint
tenancy with his wife and 587,500 shares of Common Stock held by Dr.
Mazess as custodian for his daughters.
(4) Based on Amendment No. 1 to Schedule 13G dated February 12, 1998 furnished
to the Company, before the offering T. Rowe Price Associates, Inc., an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940, had sole voting power with respect to 68,800 shares of Common
Stock and sole dispositive power with respect to 854,000 shares of Common
Stock, and T. Rowe Price Small Cap Value Fund, Inc., an investment company
registered under Section 8 of the Investment Company Act of 1940, had sole
voting power with respect to 650,000 shares of Common Stock and sole
dispositive power with respect to no shares of Common Stock.
(5) Based on Amendment No. 2 to Schedule 13G dated January 30, 1998 furnished
to the Company, before the offering Dresdner RCM Global Investors LLC , an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940, had sole voting power with respect to 618,500 shares of
Common Stock

and sole dispositive power with respect to 718,500 shares of Common Stock.
RCM Limited L.P. is the managing agent of Dresdner RCM Global Investors LLC
and RCM General Corporation is the general partner of RCM Limited L.P. and
may be deemed to be the beneficial owner of such securities to the extent
that Dresdner RCM Global Investors LLC is deemed to be the beneficial owner
of such securities. Based on Amendment No. 2 to Schedule 13G dated January
30, 1998 furnished by Dresdner Bank AG to the Company, Dresdner RCM Global
Investors LLC is a wholly-owned subsidiary of Dresdner Bank AG and Dresdner
Bank AG may be deemed to be the beneficial owner of such securities to the
extent that Dresdner RCM Global Investors LLC is deemed to be the
beneficial owner of such securities.
(6) Includes 1,800 shares of Common Stock issuable within 60 days upon
exercise of stock options and 236,842 shares of Common Stock owned by
Draxis, of which Dr. Barkin is Chief Executive Officer and over which he
may be deemed to have voting and investment power.
(7) Includes 39,246 shares of Common Stock issuable within 60 days upon
exercise of stock options, and 27 shares of Common Stock held by Mr.
Beckman as custodian for his children.
(8) Includes 58,000 shares of Common Stock issuable within 60 days upon
exercise of stock options and 2,800 shares of Common Stock held by Dr.
Bishop as custodian for his children.
(9) Includes 1,800 shares of Common Stock issuable within 60 days upon
exercise of stock options.
(10) Includes 100,846 shares of Common Stock issuable within 60 days upon
exercise of stock options.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 28,000,000 shares of
Common Stock, no par value, and 2,000,000 shares of Preferred Stock, par value
$.001 per share. The Board of Directors of the Company has designated 140,000
shares of the Preferred Stock as Series A Junior Participating Preferred Stock
in connection with the Rights described below. The following summary
description of the capital stock of the Company is qualified in its entirety
by reference to the Articles of Incorporation and the By-Laws of the Company,
which are filed as exhibits to the Registration Statement on Form S-1 (the
"Registration Statement") filed by the Company with the Securities and
Exchange Commission (the "Commission").

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders. Holders of Common Stock do not
have cumulative voting rights in the election of directors and have no
preemptive, subscription or redemption rights. All outstanding shares of
Common Stock are validly issued, fully paid and nonassessable, except for
certain statutory liabilities which may be imposed by Section 180.0622 of the
WBCL for unpaid employee wages. Section 180.0622 of the WBCL provides that
shareholders of every corporation are personally liable to an amount equal to
the par value of the shares owned by them and to the consideration for which
their shares without par value were issued, for all debts owing to employees
for services performed for such corporation, but not exceeding six months'
service in the case of any individual employee. The Common Stock has no par
value. Holders of Common Stock are entitled to such dividends as may be
declared by the Board of Directors out of funds legally available therefor.
See "Dividend Policy." Upon liquidation, dissolution or winding-up of the
Company, the assets legally available for distribution to shareholders are
distributable ratably among the holders of Common Stock at that time
outstanding subject to prior distribution rights of creditors of the Company.

PREFERRED STOCK

The Articles of Incorporation provides that the Board of Directors of the
Company is authorized, subject to certain limitations prescribed by law or the
rules of The Nasdaq Stock Market, to issue, without further shareholder
approval, up to 2,000,000 shares of Preferred Stock of the Company, to
determine with respect to the Preferred Stock the preferences, limitations and
relative rights, in whole or in part, before the issuance of any shares of
Preferred Stock, to create one or more series of Preferred Stock, and, with
respect to any series, to determine the number of shares of the series, the
distinguishing designation and the preferences, limitations and relative
rights, in whole or in part, before the issuance of any shares of that series.
In connection with the adoption of the Company's shareholders rights plan, the
Board of Directors of the Company designated 140,000 shares as the Series A
Junior Participating Preferred Stock. See "--Rights Agreement."

RIGHTS AGREEMENT

The Board of Directors has adopted a shareholders rights plan. Under the
shareholders rights plan, each share of Common Stock has associated with it
one preferred share purchase right (a "Right"). The terms of the Preferred
Rights are set forth in a Rights Agreement (the "Rights Agreement") between
the Company and Norwest Bank Minnesota, N.A. The following summary description
of the Rights and the Rights Agreement is qualified in its entirety by
reference to the Rights Agreement, which is filed as an exhibit to the
Registration Statement.

Under certain circumstances described below, each Right would entitle the
holder thereof to purchase one two-hundredth of a share of Series A Junior
Participating Preferred Stock for a price of $12.50 per one two-hundredth of a
share, subject to adjustment. The Rights are not presently exercisable and are
transferable only with the related shares of Common Stock. The Rights will not
become exercisable or be evidenced by separate certificates or trade
separately from the Common Stock prior to the occurrence of certain triggering
events

described below. In such an event, separate Rights certificates would be
issued and distributed representing one Right for each share of Common Stock.
There is no present market for the Rights separate from the Common Stock and
the Company cannot predict whether a trading market would develop with respect
to the Rights if the Rights ever become exercisable.

The Rights would become exercisable at the specified exercise price upon the
earliest to occur of (i) 10 business days after the first public announcement
that any person or group (other than an Exempt Person, as defined below) has
acquired beneficial ownership of 15% or more of the Company's outstanding
shares of Common Stock (an "Acquiring Person") and (ii) 10 business days
(unless delayed by the Board of Directors) after any person or group (other
than an Exempt Person) has commenced, or announced the intention to commence,
a tender or exchange offer which would, upon its consummation, result in such
person or group being the beneficial owner of 15% or more of the outstanding
shares of Common Stock (the earliest of such date is the "Distribution Date").
Rights certificates will be distributed as soon as practicable after the
Distribution Date. Notwithstanding the foregoing, Rights may not be exercised
following the occurrence of an event described below under the caption "Flip-
In" prior to the expiration of the Company's right to redeem the Rights. An
"Exempt Person" includes the Company, Dr. Mazess and certain persons and
entities related to or affiliated with the Company or Dr. Mazess.

Flip-In. After the Rights become exercisable and a person or group has
become an Acquiring Person, the holders of the Rights (other than an Acquiring
Person and certain transferees therefrom) would be entitled to purchase shares
of Common Stock at a 50% discount. After the occurrence of a "Flip-In" event,
the Rights of an Acquiring Person and such transferees become void.

Flip-Over. In the event that, on or after the date on which an Acquiring
Person has become such: (i) the Company merges into or consolidates with an
Interested Shareholder (as defined below) or, unless all holders of the
outstanding shares of Common Stock are treated the same, any other person
(with limited designated exceptions), (ii) an Interested Shareholder or,
unless all holders of the outstanding shares of Common Stock are treated the
same, any other person (with limited designated exceptions) merges into the
Company or (iii) the Company sells or transfers 50% or more of its
consolidated assets or earning power to an Interested Shareholder or, unless
all holders of the outstanding shares of Common Stock are treated the same,
any other person (with limited designated exceptions), the holders of the
Rights (other than Rights which have become void) would be entitled to
purchase common shares of the acquiror (or a person affiliated therewith) at a
50% discount. In general, an "Interested Shareholder" is an Acquiring Person
and certain persons affiliated, associated or acting on behalf of or in
concert therewith.

Redemption of Rights. The Rights may be redeemed, in whole but not in part,
at a redemption price of $.005 per Right, subject to adjustment, at the
direction of the Board, at any time prior to the earliest of (i) 10 business
days after the first public announcement that any person or group has become
an Acquiring Person, (ii) the occurrence of any transaction described under
the caption "Flip-Over" and (iii) April 13, 2006. Under certain circumstances
set forth in the Rights Agreement, redemption requires that disinterested
directors be in office and that the decision to redeem the Rights have the
concurrence of at least a majority of the disinterested directors after the
occurrence of an event. Such circumstances include redeeming the Rights (i) at
a time at which there is an Acquiring Person or (ii) after the first public
announcement that a person or group has become an Acquiring Person but prior
to the occurrence of a transaction described under the caption "Flip-Over,"
but only (i) if the person who is the Acquiring Person shall have reduced its
beneficial ownership of the then outstanding shares of Common Stock to less
than 10% or (ii) in connection with any transaction described under the
caption "Flip-Over" which does not involve an Interested Shareholder and in
which all holders of the Common Stock are treated the same.

Exchange of Shares for Rights. At any time after any person or group shall
have become an Acquiring Person and before any person (other than an Exempt
Person), together with its affiliates and associates, shall have become the
beneficial owner of 50% or more of the outstanding shares of Common Stock, the
Board of

Directors may, at its option, exchange all or any part of the Rights (other
than Rights which have become void) for shares of Common Stock at the exchange
rate of one share of Common Stock (or one two-hundredth of a Preferred Share)
per Right, subject to adjustment.

The Rights have certain antitakeover effects. See "Certain Anti-takeover
Effects of Certain Provisions of Articles of Incorporation, By-laws, the
Rights and Wisconsin Law."

TERMS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

The Series A Junior Participating Preferred Stock (the "Preferred Shares")
which would be issuable upon exercise of the Rights (should the Rights become
exercisable) would not be redeemable. Each Preferred Share would entitle the
holder thereof to receive a preferential quarterly dividend equal to 200 times
the aggregate per share amount of all cash dividends, plus 200 times the
aggregate per share amount (payable in kind) of all non-cash dividends and
other distributions (other than in shares of Common Stock), declared on the
Common Stock during such quarter, adjusted to give effect to any dividend on
the Common Stock payable in shares of Common Stock or any subdivision,
combination or reclassification of the Common Stock (a "Dilution Event"). Each
Preferred Share would entitle the holder thereof to 200 votes on all matters
submitted to a vote of the shareholders of the Company, voting together as a
single class with the holders of the Common Stock and the holders of any other
class of capital stock having general voting rights, adjusted to give effect
to any Dilution Event. In the event of liquidation of the Company, the holder
of each Preferred Share would be entitled to receive a preferential
liquidation payment equal to 200 times the aggregate per share amount to be
distributed to the holders of the Common Stock, adjusted to give effect to any
Dilution Event, plus an amount equal to accrued and unpaid dividends and
distributions on such Preferred Share, whether or not declared, to the date of
such payment. In the event of any merger, consolidation or other transaction
in which the outstanding shares of Common Stock are exchanged for or converted
into other capital stock, securities, cash and/or other property, each
Preferred Share would be similarly exchanged or converted into 200 times the
per share amount applicable to the Common Stock, adjusted to give effect to
any Dilution Event.

ARTICLES OF INCORPORATION AND BY-LAWS

Certain provisions of the Articles of Incorporation and the By-Laws could
have anti-takeover effects and may delay, defer or prevent a takeover attempt
that a shareholder might consider to be in the shareholder's best interest.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of and in the policies formulated by the Board of
Directors of the Company. In addition, these provisions are also intended to
ensure that the Board of Directors will have sufficient time to act in what
the Board of Directors believes to be the best interests of the Company and
its shareholders.

Classified Board of Directors. The Articles of Incorporation and By-Laws
provide for a Board of Directors divided into three classes of directors
serving staggered three-year terms. The classification of directors has the
effect of making it more difficult for shareholders to change the composition
of the Board of Directors in a short period of time. At least two annual
meetings of shareholders, instead of one, will generally be required to effect
a change in a majority of the Board of Directors.

Number of Directors; Filling Vacancies; Removal. The Articles of
Incorporation and the By-Laws provide that the Board of Directors will consist
of at least five and no more than twelve members as fixed by the By-Laws. The
By-Laws currently fix the number of directors at five. The By-Laws provide
that the Board of Directors, acting by majority vote of the directors then in
office, may fill any newly created directorships or vacancies on the Board of
Directors. The Articles of Incorporation and the By-Laws provide that a
director may be removed upon the affirmative vote of 80% of the outstanding
shares entitled to vote for the election of such directors, and any vacancy so
created may be filled by the affirmative vote of 80% of such shares.

Super-Majority Vote. The Articles of Incorporation provide that in voting on
a merger or consolidation of the Company with or into any other corporation,
or sale, lease or exchange of all or substantially all of the property and
assets of the Company, the affirmative vote of 60% of the shares of Common
Stock then entitled to vote is required for approval.

Shareholder Advance Notice Requirements. The By-Laws of the Company provide
that for nominations for the Board of Directors or for other business to be
properly brought by a shareholder before an annual or special meeting of
shareholders, the shareholder must first have given notice thereof in writing
to the Secretary of the Company. To be timely, a shareholder's notice
generally must be delivered not more than 90 days nor less than 60 days prior
to the date of the meeting. In addition, the notice must contain, among other
things, certain information about the shareholder delivering the notice and,
as applicable, background information about each nominee or a description of
the proposed business to be brought before the meeting.

Preferred Stock. The Articles of Incorporation provide that the Board of
Directors of the Company is authorized, subject to certain limitations
prescribed by law or the rules of The Nasdaq Stock Market, to issue, without
further shareholder approval, up to 2,000,000 shares of Preferred Stock of the
Company. The authorized shares of Preferred Stock of the Company, as well as
shares of Common Stock, are available for issuance without further action by
the shareholders of the Company, unless such action is required by applicable
law or the rules of The Nasdaq Stock Market. The Nasdaq Stock Market currently
requires shareholder approval as a prerequisite to listing shares in several
instances, including in certain situations where the present or potential
issuance of shares could result in a change in control or an increase in the
number of shares of common stock or in the voting power outstanding of 20% or
more.

Although the Board of Directors of the Company has no intention at the
present time of doing so, the Company could issue a series of Preferred Stock
that could, depending on the terms of such series, impede the completion of a
merger, tender offer or other takeover attempt. The Board of Directors will
make any determination to issue such shares based on its judgment as to the
best interests of the Company and its shareholders. The Board of Directors, in
so acting, could issue Preferred Stock having terms that could discourage an
acquisition attempt through which an acquirer may be able to change the
composition of the Board of Directors, including a tender offer or other
transaction that some, or a majority, of the Company's shareholders might
believe to be in their best interests or in which shareholders might receive a
premium for their stock over the then-current market price of such stock.

CERTAIN EFFECTS OF THE RIGHTS PLAN

The Rights Plan is designed to protect shareholders of the Company in the
event of unsolicited offers to acquire the Company and other coercive takeover
tactics which, in the opinion of the Board of Directors, could impair its
ability to represent shareholder interests. The provisions of the Rights
Agreement may render an unsolicited takeover of the Company more difficult or
less likely to occur or might prevent such a takeover, even though such
takeover may offer the Company's shareholders the opportunity to sell their
stock at a price above the then prevailing market rate and may be favored by a
majority of the Company's shareholders. See "--Rights Agreement."

CERTAIN WISCONSIN BUSINESS CORPORATION LAW PROVISIONS

Restrictions on Business Combinations. Section 180.1141 of the WBCL provides
that a "resident domestic corporation," such as the Company, may not engage in
a "business combination" with an "interested stockholder" (a person
beneficially owning 10% of the voting power of the outstanding voting stock),
for three years after the date (the "stock acquisition date") the interested
shareholder acquired its 10% or greater interest, unless the business
combination (or acquisition of 10% or greater interest) was approved before
the stock acquisition date by the corporation's board of directors. After the
three-year period, a business combination that was not so approved by the
corporation's board of directors can be consummated only if it is approved by
the affirmative vote of a majority of the outstanding voting shares not
beneficially owned by the interested stockholder or is made at a specified
formula price intended to provide a fair price for the shares held by
noninterested shareholders. As described above under "Articles of
Incorporation and By-Laws," under the Articles of Incorporation, the
affirmative vote of 60% of the shares of Common Stock then entitled to vote is
required to approve a business combination.

In addition, the WBCL provides, in Sections 180.1130 to 180.1133, that
business combinations involving a "significant shareholder" (as defined below)
and an "issuing public corporation" (generally defined as a Wisconsin
corporation with total assets exceeding $1,000,000, a class of equity
securities held of record by 500 or more persons, and with at least 100
shareholders of record with unlimited voting rights who are Wisconsin
residents) are subject to a supermajority vote of shareholders, in addition to
any approval otherwise required. A "significant shareholder," with respect to
an issuing public corporation, is defined as a person who beneficially owns,
directly or indirectly, 10% or more of the voting stock of the corporation, or
an affiliate of the corporation which beneficially owned, directly or
indirectly, 10% or more of the voting stock of the corporation within the last
two years. Under the WBCL, the business combinations described above must be
approved by 80% of the voting power of the corporation's stock and at least
two-thirds of the voting power of the corporation's stock not beneficially
held by the significant shareholder who is party to the relevant transaction
or any of its affiliates or associates, in each case voting together as a
single group, unless the following fair price standards have been met: (i) the
aggregate value of the per share consideration is equal to the higher of (a)
the highest price paid for any common stock of the corporation by the
significant shareholder in the transaction in which it became a significant
shareholder or within two years before the date of the business combination,
(b) the market value of the corporation's shares on the date of commencement
of any tender offer by the significant shareholder, the date on which the
person became a significant shareholder or the date of the first public
announcement of the proposed business combination, whichever is highest, or
(c) the highest liquidation or dissolution distribution to which holders of
shares would be entitled, and (ii) either cash, or the form of consideration
used by the significant shareholder to acquire the largest number of shares,
is offered. The Articles of Incorporation provide that neither Dr. Mazess, any
affiliate of Dr. Mazess nor the estate, executor, administrator, conservator
or beneficiaries of Dr. Mazess shall constitute a significant shareholder for
purposes of the foregoing.

Stock Purchase Restrictions. Section 180.1134 of the WBCL provides that, in
addition to the vote otherwise required by law or the articles of
incorporation of an "issuing public corporation," the approval of the holders
of a majority of the shares entitled to vote is required before such
corporation can take certain action while a takeover offer is being made or
after a takeover offer has been publicly announced and before it is concluded.
Shareholder approval is required for the corporation to (i) acquire more than
5% of its outstanding voting shares at a price above the market price from any
individual or organization that owns more than 3% of the outstanding voting
shares and has held such shares for less than two years, unless a similar
offer is made to acquire all voting shares or (ii) sell or option assets of
the corporation which amount to at least 10% of the market value of the
corporation unless at least a majority of at least three independent directors
vote not to have this provision apply to the corporation. The restrictions
described in clause (i) above may have the effect of deterring a shareholder
from acquiring shares of the Company with the goal of seeking to have the
Company repurchase such shares at a premium over the market price or,
alternatively, may deter a person from embarking on an acquisition of the
Company in which shareholders might receive a premium for their stock over the
then-current market price of such stock.

Control Share Voting Restrictions. Section 180.1150 of the WBCL provides
that, absent a contrary provision in the Articles of Incorporation, the voting
power of shares (including shares issuable upon conversion of convertible
securities or upon exercise of options or warrants) of an "issuing public
corporation" held by any person in excess of 20% of the voting power in the
election of directors is limited to 10% of the full voting power of such
excess shares unless, at a special meeting of shareholders called in
accordance with certain procedures, the affirmative vote of a majority of the
voting power represented at the meeting and entitled to vote on the subject
matter approve a resolution restoring full voting power to such shares. Shares
of an issuing public corporation held or acquired from the issuing public
corporation or acquired under an agreement entered into at a time when the
issuing public corporation was not an issuing public corporation are excluded
from the application of these provisions. The Articles of Incorporation
provide that Section 180.1150 should not in any way limit the voting power of
any shares of capital stock owned by Dr. Mazess, any affiliate of Dr. Mazess
or the estate, administrator, conservator or beneficiaries of Dr. Mazess.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is Norwest Bank
Minnesota, N.A.

SHARES ELIGIBLE FOR FUTURE SALE

Assuming the sale of the maximum number of Shares, upon completion of the
offering and based on the number of shares outstanding on June 30, 1998, the
Company will have a total of 10,134,956 shares of Common Stock outstanding. Of
these shares, 10,119,956, including the Shares, will be freely tradeable
without restriction or registration under the Securities Act by persons other
than "affiliates" of the Company, as defined under the Securities Act.

The Company has obtained from all of the executive officers and directors
and certain shareholders of the Company holding in the aggregate 3,359,956
shares of Common Stock before the offering (3,635,956 shares of Common Stock
after the offering) and exercisable options to purchase an aggregate of
100,846 shares of Common Stock agreements not to directly or indirectly offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, establish an open put equivalent position or otherwise dispose of
any Common Stock or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock for a period of 90 days from the
date of the final Prospectus. See "Principal Shareholders" and "Plan of
Distribution."

As of June 30, 1998, options to purchase a total of 527,778 shares of Common
Stock pursuant to the Stock Option Plans were outstanding at a weighted
average exercise price of $3.84 per share, of which options to purchase
130,266 shares of Common Stock were then exercisable. An additional 497,150
shares of Common Stock were reserved for future option grants under the 1996
Plan. The Company has an effective registration statement on Form S-8 under
the Securities Act registering shares of Common Stock subject to stock options
granted under the Stock Option Plans. See "Management--Stock Option Plans."

PLAN OF DISTRIBUTION

The Shares are being sold on an any or all basis by the Company in a
directed public offering by the Company. No underwriter or placement agent has
been or will be engaged by the Company in connection with the sale of any
Shares. The Company intends to offer and sell the Shares at the price to
public set forth on the cover page of this Prospectus in privately negotiated
transactions between the Company and the purchasers of the Shares. The Company
expects that delivery of the certificates representing the Shares will be made
against payment therefor on or about July 24, 1998. The Company expects to
sell 170,000, 100,000, 6,000, 100,000 and 250,000 of the Shares, respectively,
to Dr. Mazess and Dr. Kapoor, directors of the Company, Dr. Bishop, President,
Chief Executive Officer and a director of the Company, T. Rowe Price
Associates, Inc. and Dresdner RCM Global Investors LLC. See "Principal
Shareholders." There can be no assurance that the Company will sell any or all
of the Shares. The Company has not fixed a minimum number of Shares to be
sold.

The directors, executive officers and certain shareholders of the Company,
who based on the number of shares outstanding and stock options exercisable
within 60 days as of June 30, 1998, collectively beneficially own 3,359,956
shares of Common Stock (3,635,956 shares of Common Stock after the offering),
have agreed not to directly or indirectly sell, offer, contract or grant any
option to sell, pledge, transfer, establish an open put equivalent position or
otherwise dispose of any rights with respect to any shares of Common Stock,
any options or warrants to purchase Common Stock, or any securities
convertible or exchangeable for Common Stock, owned directly by such holders
or with respect to which they have the power of disposition for a period of 90
days after the date of the final Prospectus.

LEGAL MATTERS

Certain legal matters in connection with the offering will be reviewed for
the Company by Sidley & Austin, Chicago, Illinois and with respect to certain
patent matters, by Stroud, Stroud, Willink, Thompson & Howard, Madison,
Wisconsin. The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Michael, Best & Friedrich, Milwaukee,
Wisconsin.

EXPERTS

The consolidated financial statements of the Company as of June 30, 1997 and
1996 and for each of the years in the three-year period ended June 30, 1997
have been included herein and in the registration statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

AVAILABLE INFORMATION

The Company has filed with the Commission the Registration Statement under
the Securities Act with respect to the Common Stock and associated Rights
offered hereby. As permitted by the rules and regulations of the Commission,
this Prospectus omits certain information contained in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock and Rights offered hereby,
reference is hereby made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding
the contents of any agreement or other document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such agreement filed as an exhibit to the
Registration Statement, each such statement being qualified in its entirety by
such reference. The Registration Statement, including the exhibits and
schedules thereto, may be inspected at the public reference facilities
maintained by the Commission at Room 204, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, DC 20549; Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661; and Seven World Trade Center, New York, New York 10048; and
copies of all or any part thereof may be obtained from such office upon
payment of the prescribed fees. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants, such as the Company, that file
electronically with the Commission.

The Company is required to comply with the reporting requirements of the
Exchange Act and files annual, quarterly and other reports with the
Commission. Similarly, the Company is subject to the proxy solicitation
requirements of the Exchange Act and, accordingly, furnishes audited financial
statements to its shareholders in connection with its annual meetings of
shareholders.

BONE CARE INTERNATIONAL, INC.

INDEX TO FINANCIAL STATEMENTS

PAGE
----

Independent Auditors' Report............................................. F-2
Consolidated Statements of Operations for the nine months ended March 31,
1998 and 1997 (unaudited) and each of the three years in the period
ended June 30, 1997..................................................... F-3
Consolidated Balance Sheets as of March 31, 1998 (unaudited) and June 30,
1997 and 1996........................................................... F-4
Consolidated Statements of Shareholders' Equity for the nine months ended
March 31, 1998 (unaudited) and each of the three years in the period
ended June 30, 1997..................................................... F-5
Consolidated Statements of Cash Flows for the nine months ended March 31,
1998 and 1997 (unaudited) and each of the three years in the period
ended June 30, 1996..................................................... F-6
Notes to the Consolidated Financial Statements........................... F-7

F-1

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Bone Care International, Inc.:

We have audited the accompanying consolidated balance sheets of Bone Care
International, Inc. and subsidiary as of June 30, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended June 30, 1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bone Care
International, Inc. and subsidiary as of June 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1997 in conformity with generally accepted
accounting principles.

KPMG Peat Marwick LLP

Chicago, Illinois
August 2, 1997

F-2

BONE CARE INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
-------------------------------------- ------------------------
1995 1996 1997 1997 1998
---------- ------------ ------------ ----------- -----------
(UNAUDITED)

Revenues................ $ 15,000 $ 18,620 $ 39,425 $ 39,425 $ --
Operating expenses:
Cost of sales......... -- 11,918 38,304 38,304 --
Research and
development.......... 535,195 1,157,914 2,885,127 1,993,485 3,061,783
General and
administrative....... 171,788 196,370 438,831 312,836 588,376
---------- ------------ ------------ ----------- -----------
Total operating
expenses........... 706,983 1,366,202 3,362,262 2,344,625 3,650,159
---------- ------------ ------------ ----------- -----------
Loss from operations.... (691,983) (1,347,582) (3,322,837) (2,305,200) (3,650,159)
Other income (expense):
Interest income....... 2,588 103,310 528,492 407,804 285,183
Interest expense...... (9,344) (13,495) -- -- --
---------- ------------ ------------ ----------- -----------
Interest, net......... (6,756) 89,815 528,492 407,804 285,183
---------- ------------ ------------ ----------- -----------
Net loss................ $ (698,739) $ (1,257,767) $ (2,794,345) (1,897,396) (3,364,976)
========== ============ ============ =========== ===========
Net loss per common
share.................. $ (0.41) $ (0.26) $ (0.32) $ (0.22) $ (0.39)
========== ============ ============ =========== ===========
Weighted average number
of common shares....... 1,697,884 4,894,028 8,713,344 8,710,364 8,734,845
========== ============ ============ =========== ===========

See accompanying notes to consolidated financial statements.

F-3

BONE CARE INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

JUNE 30,
------------------------
ASSETS 1996 1997 MARCH 31, 1998
- ------ ----------- ----------- --------------
(UNAUDITED)

Current assets:
Cash and cash equivalents............... $11,060,843 $ 8,531,714 $ 5,009,088
Receivables............................. 1,619 -- --
Inventory............................... -- 52,565 34,392
Prepaid expenses........................ 20,695 -- 49,639
----------- ----------- -----------
Total current assets................ 11,083,157 8,584,279 5,093,119
Property, plant and equipment, at cost:
Lab improvements........................ 21,092 21,092 64,237
Furniture and fixtures.................. 20,390 24,625 66,954
Machinery and other equipment........... 215,979 263,970 380,275
----------- ----------- -----------
257,461 309,687 511,466
Less accumulated depreciation............. 192,677 226,737 258,105
----------- ----------- -----------
64,784 82,950 253,361
Excess of cost over fair value of net
assets acquired, net of
accumulated amortization of $553,512 at
June 30, 1996, $642,960 at June 30, 1997
and $710,046 at March 31, 1998........... 806,405 716,957 649,871
Patent fees, net of accumulated
amortization of $251,462 at
June 30, 1996, $359,462 at June 30, 1997
and $458,462 at March 31, 1998........... 306,979 516,270 686,776
Other non-current assets.................. -- -- 287,828
----------- ----------- -----------
$12,261,325 $ 9,900,456 $ 6,970,955
=========== =========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------

Current liabilities:
Accounts payable........................ $ 73,236 $ 141,445 $ 400,592
Accrued liabilities:
Accrued clinical study and research
costs................................ -- 291,165 330,994
Compensation payable.................. 4,133 15,447 31,121
Property, payroll and other taxes..... 1,750 8,388 --
Other................................. -- 24,500 33,896
----------- ----------- -----------
Total current liabilities........... 79,119 480,945 796,603
Shareholders' equity:
Preferred stock--authorized--2,000,000
shares of
$.001 par value; none issued........... -- -- --
Common stock--authorized--28,000,000
shares of
no par value; issued and outstanding--
8,707,382 shares at June 30, 1996,
8,722,382 at June 30, 1997 and
8,779,317 at March 31, 1998............ 11,393,883 11,393,883 11,393,883
Additional paid-in capital................ 3,524,275 3,555,925 3,675,742
Accumulated deficit....................... (2,735,952) (5,530,297) (8,895,273)
----------- ----------- -----------
12,182,206 9,419,511 6,174,352
----------- ----------- -----------
$12,261,325 $ 9,900,456 $ 6,970,955
=========== =========== ===========

See accompanying notes to consolidated financial statements.

F-4

BONE CARE INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

ADDITIONAL TOTAL
NUMBER OF COMMON PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES STOCK CAPITAL DEFICIT EQUITY
--------- ----------- ---------- ----------- -------------

Balance at June 30,
1994................... 1,697,884 $ 583,333 $1,453,984 $ (779,446) $ 1,257,871
Net loss for the year
ended June 30, 1995.... -- -- -- (698,739) (698,739)
--------- ----------- ---------- ----------- -----------
Balance at June 30,
1995................... 1,697,884 583,333 1,453,984 (1,478,185) 559,132
Conversion of Lunar
Corporation advances
to common stock........ 214,802 634,683 -- -- 634,683
Contribution of Lunar
Corporation D- hormone
assets and all the
outstanding shares of
Continental Assays
Corporation for common
stock.................. 3,397,348 175,867 -- -- 175,867
Capital contributions by
Lunar Corporation...... 3,397,348 10,000,000 1,285,291 -- 11,285,291
Capital contribution by
Draxis Health Inc...... -- -- 60,000 -- 60,000
Payment from Lunar
Corporation for tax
benefit................ -- -- 725,000 -- 725,000
Net loss for the year
ended June 30, 1996.... -- -- -- (1,257,767) (1,257,767)
--------- ----------- ---------- ----------- -----------
Balance at June 30,
1996................... 8,707,382 11,393,883 3,524,275 (2,735,952) 12,182,206
Issuance of shares under
stock option plan...... 15,000 -- 31,650 -- 31,650
Net loss for the year
ended June 30, 1997.. -- -- -- (2,794,345) (2,794,345)
--------- ----------- ---------- ----------- -----------
Balance at June 30,
1997................... 8,722,382 11,393,883 3,555,925 (5,530,297) 9,419,511
Issuance of shares under
stock option plan
(unaudited)............ 56,785 -- 119,817 -- 119,817
Issuance of stock
awards................. 150 -- -- -- --
Net loss for the nine
month period ended
March 31, 1998
(unaudited)............ -- -- -- (3,364,976) (3,364,976)
--------- ----------- ---------- ----------- -----------
Balance at March 31,
1998 (unaudited)....... 8,779,317 $11,393,883 $3,675,742 $(8,895,273) $ 6,174,352
========= =========== ========== =========== ===========

See accompanying notes to consolidated financial statements.

F-5

BONE CARE INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------------- ------------------------
1995 1996 1997 1997 1998
--------- ----------- ----------- ----------- -----------
(UNAUDITED)

Cash flows from
operating activities:
Net loss.............. $(698,739) $(1,257,767) $(2,794,345) $(1,897,396) $(3,364,976)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization....... 115,094 182,378 231,508 168,966 202,525
Changes in assets
and liabilities:
Receivables....... (785) 33,168 1,619 1,619 --
Inventory......... -- -- (52,565) (51,708) 18,173
Accounts payable.. 11,692 (70,909) 68,209 42,784 259,147
Accrued
liabilities...... (8,431) 4,289 333,617 334,138 56,511
Other............. 1,110 (2,695) 20,695 20,695 (134,312)
--------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities....... (580,059) (1,111,536) (2,191,262) (1,380,902) (2,962,932)
--------- ----------- ----------- ----------- -----------
Cash flows from
investing activities:
Additions to property,
plant and equipment.. (15,254) (30,081) (52,226) (52,912) (206,850)
Patent fees........... (26,501) (87,597) (317,291) (174,631) (269,506)
Continental Assays
cash contribution.... -- 6,832 -- -- --
--------- ----------- ----------- ----------- -----------
Net cash used in
investing
activities....... $ (41,755) $ (110,846) $ (369,517) $ (227,543) $ (476,356)
--------- ----------- ----------- ----------- -----------
Cash flows from
financing activities:
Proceeds from Lunar
Corporation advances. 444,344 190,339 -- -- --
Proceeds from Lunar
Corporation capital
contributions........ -- 12,010,291 -- -- --
Proceeds from Draxis
Health, Inc. capital
contribution......... -- 60,000 -- -- --
Proceeds from exercise
of stock options..... -- -- 31,650 31,650 119,817
Offering costs........ -- -- -- -- (203,155)
--------- ----------- ----------- ----------- -----------
Net cash provided
by (used in)
financing
activities....... 444,344 12,260,630 31,650 31,650 (83,338)
--------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ (177,470) 11,038,248 (2,529,129) (1,576,795) (3,522,626)
Cash and cash
equivalents at
beginning of the
period................. 200,065 22,595 11,060,843 11,060,843 8,531,714
--------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
the period............. $ 22,595 $11,060,843 $ 8,531,714 $ 9,484,048 $ 5,009,088
========= =========== =========== =========== ===========

See accompanying notes to consolidated financial statements.

F-6

BONE CARE INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF ACCOUNTING POLICIES

Principles of Consolidation: The consolidated financial statements include
the accounts of Bone Care International, Inc. and its wholly-owned subsidiary,
Continental Assays Corporation through June 11, 1998, the date of its
dissolution, (the Company). All significant intercompany accounts and
transactions have been eliminated in consolidation.

Description of Business: Bone Care International, Inc. is engaged in the
discovery and development of improved D-hormone therapies. In November 1997,
the Company announced results from its two pivotal Phase 3 clinical trials for
an oral formulation of its lead product candidate, one-alpha D/2/, a synthetic
D-hormone analog, for the treatment of secondary hyperparathyroidism
associated with end stage renal disease. The Company also performs blood
assays to determine the variety and level of D-hormone metabolites in blood
for both internal research and on behalf of third parties.

The Company was a subsidiary of Lunar Corporation (Lunar) until May 8, 1996.
The Board of Directors of Lunar declared a dividend, payable to holders of
record of Lunar common stock, of one share of the Company's common stock for
every two shares of Lunar common stock held of record on April 24, 1996. The
distribution occurred on May 8, 1996, at which time Lunar and the Company
became separate publicly-traded companies.

Interim Financial Information: The financial information at March 31, 1998
and for the nine months ended March 31, 1997 and 1998 is unaudited but
includes all adjustments (consisting only of normal recurring adjustments)
which the Company considers necessary for a fair presentation of the financial
position at such date and of the operating results and cash flows for those
periods. Results of the nine month period are not necessarily indicative of
results expected for the entire year.

Revenue Recognition: Revenues from assay services are recognized as services
are performed.

Cash and Cash Equivalents: For purposes of the statements of cash flows, the
Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.

Inventory: Inventory is stated at the lower of cost or market; cost is
determined by the first-in, first-out method. Inventory consists of raw
materials.

Depreciation and Amortization: Depreciation and amortization are provided
for in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated service lives. A combination of straight-line
and accelerated methods of depreciation are used for financial statement and
income tax reporting purposes.

The cost of property and equipment are depreciated over the following
estimated useful lives:

ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
-------------------- ---------------------

Machinery, furniture, and fixtures 5-7 years
Lab improvements 31.5 years

Intangible Assets: The excess of cost over fair value of net assets acquired
is being amortized on a straight-line basis over a 15-year period. Legal costs
incurred to register patents are amortized over a period of up to 10 years.
The Company continuously reviews intangibles to assess recoverability from
future operations using undiscounted cash flows. Impairment would be
recognized in operating results if a permanent diminution in value occurred.
Impairment would be measured using fair value.

Research and Development Costs: Materials, labor, and overhead expenses
related to research and development projects are charged to operations as
incurred.

F-7

BONE CARE INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Stock-Based Compensation: Stock-based compensation related to employees is
recognized using the intrinsic value method and thus there is no compensation
expense for options granted with exercise prices equal to the fair value of
the Company's common stock on the date of the grant. Stock-based compensation
related to non-employees is not material.

Capital Structure: On October 10, 1997, the Company declared a 2-for-1 stock
split in the form of a stock dividend to shareholders of record on October 27,
1997. The dividend was paid November 14, 1997. Accordingly, all common share
and per share data in the accompanying financial statements have been adjusted
to give effect to the stock split.

Net Loss Per Share: Net loss per share is based on a weighted average number
of shares of common stock of 1,697,884, 4,894,028 and 8,713,344 for the years
ended June 30, 1995, 1996 and 1997, respectively, and 8,710,364 and 8,734,845
for the nine months ended March 31, 1997 and 1998, respectively. Common
equivalent shares resulting from stock options have been excluded as their
effect is antidilutive.

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 "Earnings per Share" (SFAS No. 128), in February
1997. The Company adopted SFAS No. 128 effective with financial statements
issued for periods ended on or after December 31, 1997. Although SFAS No. 128
requires restatement of prior period per share data, such restatement resulted
in no effect to the Company's previously reported per share data. Diluted per
share data is not presented as the effect of potentially issuable common
shares would be antidilutive.

Income Taxes: Income taxes are accounted under the assets and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and credit carryforwards. Deferred tax assets and
liabilities are measured using enacted rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

For the period prior to the May 8, 1996 distribution, the Company was
included in the consolidated federal income tax return of Lunar. Through the
date of distribution, tax expense has been calculated as if the Company filed
separate income tax returns; however, as a result of net operating losses
incurred, no income taxes have been provided for in any of the periods
presented.

Fair Value of Financial Instruments: The fair value of financial
instruments, which consisted of cash and cash equivalents, receivables,
accounts payable, and accrued liabilities, approximate their carrying values.

Use of Estimates: In preparing the consolidated financial statements, the
Company's management makes 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. Actual results could
differ from those estimates.

2. STOCK OPTIONS

Bone Care has granted options to key employees and directors under two
separate programs.

The January 1, 1989 option plan is intended to qualify as an incentive stock
option plan within the meaning of Section 422 of the Internal Revenue Code of
1986. Stock options to purchase shares of the Company's common stock granted
under this plan may be exercised, with certain exceptions in the case of the
optionee's death or retirement, only during employment. Stock options granted
are exercisable, during the optionee's lifetime, only by the optionee. The
stock options granted under this plan vest over a five year period and expire
10 years from the granting date. At March 31, 1998, a total of 126,352 options
were issued and 86,867 options were outstanding under this plan. In June 1990,
the Board of Directors of Bone Care agreed not to issue any

F-8

BONE CARE INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

new options under this plan. The Company has not made any subsequent grants,
except for a grant in March 1996 of replacement stock options to purchase
78,970 shares in exchange for the forfeiture of an equal amount of previously
granted stock options.

Under the second option program, titled the Bone Care International, Inc.
1996 Stock Option Plan, a total of 1,000,000 shares of common stock were made
available, of which 619,700 remain available for grant at June 30, 1997
(525,650 at March 31, 1998). Options granted under this program vest over a
three- or five-year period. The options will expire 10 years from the granting
date, or upon termination of employment.

A summary of the Company's stock option activity, and related information
are summarized as follows:

YEAR ENDED JUNE 30, NINE MONTHS
---------------------------------------------------- ENDED
1995 1996 1997 MARCH 31, 1998
---------------- ----------------- ----------------- -----------------
(UNAUDITED)
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- -------- ------- --------

Outstanding--beginning
of the period ......... 126,352 $2.11 126,352 $2.11 453,652 $2.12 491,652 $2.49
Granted................. -- -- 406,270 2.12 53,000 5.51 98,850 7.50
Exercised............... -- -- -- -- (15,000) 2.11 (56,785) 2.11
Terminated/cancelled.... -- -- (78,970) 2.11 -- -- (4,800) 2.11
------- ----- ------- ----- ------- ----- ------- -----
Outstanding--end of the
period ................ 126,352 $2.11 453,652 $2.12 491,652 $2.49 528,917 $3.47
======= ===== ======= ===== ======= ===== ======= =====
Exercisable at end of
the period............. 126,352 $2.11 47,382 $2.11 119,236 $2.12 149,205 $2.12
======= ===== ======= ===== ======= ===== ======= =====
Weighted average fair
value of options
granted during the
period................. $1.08 $2.88 $3.84

The options outstanding at June 30, 1997, have been segregated into three
ranges for additional disclosure as follows:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- ------------------------
WEIGHTED OPTIONS
OPTIONS AVERAGE WEIGHTED CURRENTLY WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
AT CONTRACTUAL EXERCISE AT JUNE 30, EXERCISE
RANGE OF EXERCISE PRICES JUNE 30, 1997 LIFE PRICE 1997 PRICE
- ------------------------ ------------- ----------- -------- ----------- --------

$2.11................... 435,152 7.4 $2.11 118,536 $2.11
$2.935-$3.125........... 6,500 9.1 3.01 700 3.01
$5.75................... 50,000 10.0 5.75 -- --

The Company has elected to follow Accounting Principles Board Option No. 25,
Accounting for Stock Issued to Employees (APB 25), and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, Accounting
for Stock-Based Compensation, requires use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because of the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.

Pro forma information regarding net loss and net loss per share is required
by SFAS No. 123, which also requires that the information be determined as if
the Company has accounted for its employee stock options

F-9

BONE CARE INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

granted subsequent to June 30, 1995, under the fair market value method of
that statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted-
average assumptions for 1996 and 1997, risk free interest rate of 5.5% for
1996 and 6.0% for 1997, volatility factors of the expected market price of the
Company's common stock of 0.60, no expected dividends, and a weighted-average
expected life of the option of four years from the grant date.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair market value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair market value of its employee
stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:

1996 1997
----------- -----------

Pro forma net loss............................. $(1,291,830) $(2,889,880)
Pro forma net loss per share................... (0.26) (0.33)

Since SFAS No. 123 is applicable only to options granted subsequent to June
30, 1995, its pro forma effect will not be reflective until 2000.

The Company has a longevity stock award program whereby 50 shares of common
stock are issued to employees with five years of service, and 100 shares are
issued for ten years of service. The Company issued 150 shares under this
program in the nine months ended March 31, 1998.

3. INCOME TAXES

As of March 31, 1998, the Company had federal and state net operating loss
and R&D tax credit carryforwards expiring as follows:

FEDERAL STATE
------------------- -------------------
R&D R&D
NOL CREDIT NOL CREDIT
---------- -------- ---------- --------

2009.............................. $ -- $ -- $ 388,000 $ 24,000
2010.............................. -- -- 596,000 24,000
2011.............................. -- -- 1,146,000 16,000
2012.............................. 322,000 -- 2,667,000 18,000
2013.............................. 2,667,000 169,000 3,255,000 19,000
2014.............................. 3,255,000 198,000 -- --
---------- -------- ---------- --------
Total......................... $6,244,000 $367,000 $8,052,000 $101,000
========== ======== ========== ========

Deferred tax assets at June 30, 1996, 1997 and March 31, 1998 were as
follows:

JUNE 30,
---------------------- MARCH 31,
1996 1997 1998
--------- ----------- -----------
(UNAUDITED)

Federal net operating loss carryforward.... $ 110,000 $ 1,016,000 $2,123,000
Federal R&D tax credit carryforward........ -- 169,000 367,000
State net operating loss carryforward...... 168,000 377,000 636,000
State R&D tax credit carryforward.......... -- 82,000 101,000
Valuation allowance........................ (278,000) (1,644,000) (3,227,000)
--------- ----------- ----------
Total.................................. $ -- $ -- $ --
========= =========== ==========

F-10

BONE CARE INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

Realization of deferred tax assets is dependent upon generating sufficient
taxable income prior to the expiration of the related carryforward period.
Management believes there is a risk that such carryforwards may expire unused,
and accordingly, has established a valuation allowance against them.

4. RELATED-PARTY TRANSACTIONS

The Company entered into a Transition Agreement with Lunar pursuant to which
certain employees of Lunar will perform administrative services for the
Company. Such services include legal, treasury, accounting, insurance and
employee benefit administration. As compensation the Company paid Lunar a
monthly fee of $7,000 plus certain expenses for services through June 30,
1997. The monthly fee was reduced to $5,000 per month effective July 1, 1997.
Lunar leases approximately 3,000 square feet of office space to the Company
for $2,000 per month under the Transition Agreement. The Transition Agreement
expires in May 1999; however, the Company may terminate the agreement by
giving Lunar 90 days advance written notice. Prior to the distribution, the
Company paid $5,000 per month to Lunar for rent and the aforementioned
administrative services. The total payments for those expenses were $60,000,
$66,968, and $135,000 during the years ended June 30, 1995, 1996, and 1997,
respectively and $63,700 for the nine months ended March 31, 1998.

During the years ended June 30, 1995 and 1996, the Company paid $9,344 and
$13,495, respectively, for interest on intercompany advances from Lunar.

5. SHAREHOLDERS' EQUITY

On April 15, 1996, the Board of Directors of the Company adopted Amended and
Restated Articles of Incorporation of the Company which, among other things,
increased the authorized capital of the Company to 30,000,000 shares
consisting of 28,000,000 shares of common stock and 2,000,000 shares of
preferred stock issuable in series. The Board of Directors of the Company also
declared a 789.7 for 1 stock split payable in the form of a stock dividend.
The accompanying financial statements give retroactive effect to these
changes.

6. NON-CASH TRANSACTIONS

In October 1995, Lunar contributed its ownership of Continental Assays
Corporation and certain assets with a book value of $175,867 for 3,397,348
shares of the Company's common stock. In October 1995, Lunar also exchanged
$634,683 of loans receivable from the Company for 214,802 shares of common
stock of the Company.

7. PROFIT-SHARING PLAN

The Company has established a 401(k) profit-sharing plan covering
substantially all employees. Employer contributions to the plan are at the
discretion of the Board of Directors. The Company's policy is to fund profit-
sharing plan contributions as they accrue. Profit-sharing expense amounted to
$7,779, $6,699, and $6,215 for the years ended June 30, 1995, 1996 and 1997,
respectively and $6,481 for the nine months ended March 31, 1998.

8. SHAREHOLDERS RIGHTS PLAN AND PREFERRED STOCK

In 1996, the Company adopted a Shareholders Rights Plan. Under this plan,
each share of common stock has associated with it one preferred share purchase
right (a Right). Under certain circumstances, each Right would entitle the
holders thereof to purchase from the Company 1/200th of one share of Series A
Junior Participating Preferred Stock for the price of $12.50 per 1/200th of
one share. The Rights do not have voting or dividend rights, and until they
become exercisable, have no dilutive effect on the per-share earnings of the
Company. The Rights are not presently exercisable and are transferable only
with the related shares of common stock. The Company's Board of Directors has
designated 140,000 shares of the Preferred Stock as Series A Junior
Participating Preferred Stock in connection with the Rights.

F-11

[A FLOW CHART DEPICTING THE METABOLIC PROCESS INVOLVED IN
SECONDARY HYPERPARATHYROIDISM ASSOCIATED WITH RENAL DYSFUNCTION]

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No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any securities other than the shares of Common Stock to which it
relates, or an offer to, or a solicitation of, any person in any jurisdiction
where such an offer or solicitation would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create an implication that there has been no change in the affairs of the
Company since the date hereof or that information contained herein is correct
as of any time subsequent to the date hereof.

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

TABLE OF CONTENTS

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

Page
----

Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Special Note Regarding Forward-Looking Statements......................... 15
Use of Proceeds........................................................... 16
Price Range of Common Stock............................................... 17
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Dilution.................................................................. 19
Selected Consolidated Financial Data...................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 24
Management................................................................ 41
Certain Transactions...................................................... 45
Principal Shareholders.................................................... 46
Description of Capital Stock.............................................. 48
Shares Eligible for Future Sale........................................... 53
Plan of Distribution...................................................... 54
Legal Matters............................................................. 54
Experts................................................................... 54
Available Information..................................................... 55
Index to Financial Statements............................................. F-1

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1,326,000 SHARES

LOGO

BONE CARE INTERNATIONAL, INC.

COMMON STOCK

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

PROSPECTUS

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

July 22, 1998

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