AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 5, 1996

REGISTRATION NO. 333-

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ATRIX LABORATORIES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 84-1043826
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2579 MIDPOINT DRIVE
FORT COLLINS, COLORADO 80525
(970) 482-5868
(Address, including ZIP code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------
JOHN E. URHEIM, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ATRIX LABORATORIES, INC.
2579 MIDPOINT DRIVE
FORT COLLINS, COLORADO 80525
(970) 482-5868
(Name, address, including ZIP code, and telephone number,
including area code, of agent for service)
---------------------

Copies to:
WARREN L. TROUPE, ESQ. BRUCE A. MANN, ESQ.
BRIAN V. CAID, ESQ. C. PATRICK MACHADO, ESQ.
DEBORAH A. HOGAN, ESQ. VALERIE A. VILLANUEVA, ESQ.
KUTAK ROCK MORRISON & FOERSTER LLP
717 SEVENTEENTH STREET, SUITE 2900 345 CALIFORNIA STREET
DENVER, COLORADO 80202 SAN FRANCISCO, CALIFORNIA 94104
(303) 297-2400 (415) 677-7000

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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box. /
/

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------

CALCULATION OF REGISTRATION FEE

========================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE
- --------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value per share..... 2,875,000 $11.375 $32,703,125 $11,276.94
========================================================================================================

(1) Includes 375,000 shares which the Underwriters have an option to purchase to
cover over-allotments, if any.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based on the closing sale price of the Common Stock
on April 3, 1996.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED APRIL 5, 1996

2,500,000 SHARES

ATRIX LABORATORIES, INC.
[LOGO] COMMON STOCK

All of the 2,500,000 shares of Common Stock, par value $.001 per share (the
"Common Stock"), offered hereby are being sold by Atrix Laboratories, Inc.
("Atrix" or the "Company"). The Common Stock of the Company is traded on the
Nasdaq National Market under the symbol "ATRX". On April 4, 1996, the last
reported sale price of the Common Stock on the Nasdaq National Market was $11.75
per share. See "Price Range of Common Stock."

THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS IN PURCHASING THE SHARES OF COMMON STOCK
OFFERED HEREBY.

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

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.

==============================================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
- ----------------------------------------------------------------------------------------------
Per Share................................... $ $ $
Total(3).................................... $ $ $
==============================================================================================

(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting certain expenses payable by the Company, estimated at
$350,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
375,000 additional shares of Common Stock solely to cover over-allotments,
if any. If the over-allotment option is exercised in full, the total Price
to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See
"Underwriting."

The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to their right to reject orders in whole or in part.
It is expected that delivery of the certificates representing such shares will
be made against payment therefor at the office of Montgomery Securities on or
about , 1996.

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

MONTGOMERY SECURITIES CRUTTENDEN ROTH
INCORPORATED
, 1996
3

[On this page the Registrant has included in the paper version of this
Prospectus, a picture depicting the ATRISORB(R) Barrier being applied to a tooth
and the ATRIDOX(TM) product being applied to a tooth. The picture also includes
illustrations of the ATRISORB(R) Barrier Kit and the ATRISORB(R) package.]

The Company's ATRIDOX(TM) product with doxycycline is an investigational
drug and has not been approved by the FDA for commercial sale in the United
States. The ATRIDOX(TM) product is in clinical testing and clinical data
obtained to date are insufficient to demonstrate safety and efficacy. There can
be no assurance that the ATRIDOX(TM) product will receive FDA approval.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS AND CERTAIN SELLING
GROUP MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH
RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including notes thereto,
appearing elsewhere herein or incorporated by reference in this Prospectus.
Except as otherwise specified, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting." This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.

THE COMPANY

Atrix Laboratories, Inc. (the "Company" or "Atrix") is engaged in the
research and development of a broad range of dental, medical and veterinary
products based on its proprietary biodegradable sustained release drug delivery
system. The Company recently commenced marketing its ATRISORB(R) guided tissue
regeneration barrier ("ATRISORB(R) Barrier"), a periodontal product used to aid
in the regeneration of the ligament and bone supporting the tooth following
osseous flap surgery, in five of six European countries in which it has received
regulatory clearance. On March 22, 1996, the Company also received 510(k)
clearance from the United States Food and Drug Administration ("FDA") to market
the ATRISORB(R) Barrier in the United States, which the Company intends to begin
in the third quarter of 1996. Additionally, in January 1995, the Company
commenced pivotal Phase III trials of the ATRIDOX(TM) product, its subgingival
drug delivery system containing doxycycline, for the treatment of periodontal
disease. All 822 patients have been enrolled and the clinical treatment phase of
the study will be completed in late May 1996. If results are favorable, the
Company intends to file a new drug application ("NDA") with the FDA in the first
quarter of 1997.

The Company's patented ATRIGEL(R) drug delivery system ("ATRIGEL(R)
system") consists of biodegradable polymers dissolved in biocompatible solvents
that can be injected or inserted into the body as flowable compositions
(solutions, gels, pastes and putties), which then solidify upon contact with
body fluids to form a biodegradable solid implant. The ATRIGEL(R) system is
designed to provide extended localized or systemic drug delivery in a single
application, without the need for surgical implantation or removal. Another
feature of the ATRIGEL(R) system is the custom-tailored degradation and rate of
drug release of the implant. Drug release occurs through both degradation of the
polymer and diffusion of the drug out of the polymer. The ATRIGEL(R) system is
compatible with a broad range of pharmaceutical compounds, including water
soluble and insoluble compounds and high and low molecular weight compounds. The
Company has demonstrated in preclinical trials the systemic delivery of proteins
and peptides including hormones and growth factors. The Company believes that
its drug delivery system addresses many of the limitations associated with
traditional pharmaceutical delivery such as achieving therapeutic drug levels
over time, toxicity and side effects, high costs due to frequent administration
and poor patient compliance.

It has been reported by the National Institute of Dental Research that 44%
of adults in the United States have some form of periodontal disease. Effective
treatment is currently possible only through periodic professional intervention
to arrest further tissue deterioration. The most common treatment is scaling and
root planing, and in more serious cases various forms of gum surgery, all of
which are performed by a dental professional or oral surgeon. The Company
believes that only a small portion of patients diagnosed with periodontal
disease seek treatment due to a number of factors including cost, pain and
potential medical complications associated with current treatments.

Both of the Company's initial products are designed to treat periodontal
disease. The ATRISORB(R) Barrier is used to isolate the healing site and aid in
the regeneration of the tooth's support tissues following osseous flap surgery
or other periodontal procedures. Once the ATRISORB(R) Barrier is placed in the
mouth it solidifies to form a sutureless, custom-fit barrier which requires no
further reintervention for removal. The Company estimates that there are
currently over two million flap surgeries performed each year in the United
States. The Company's second product, the ATRIDOX(TM) product, combines the
ATRIGEL(R) system with the generic antibiotic doxycycline to form a product
designed to control the bacteria that cause periodontal disease. The ATRIDOX(TM)
product is intended to add a new, less invasive therapeutic procedure to current

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interventional periodontal treatments. Results from Phase II clinical trials of
the ATRIDOX(TM) product suggest that the clinical measures of periodontal
disease such as pocket depth, bleeding and gum attachment level are improved
significantly.

The Company's strategy is to develop and commercialize its proprietary
ATRIGEL(R) system in dental, medical and veterinary applications by using its
own capabilities and, in some instances, the expertise of corporate partners.
The Company continues to evaluate the ATRIGEL(R) system for other health care
applications including cancer, central nervous system disorders and various
veterinary treatments. The Company has research and development programs for
several of these applications with various pharmaceutical and health care
companies.

RISK FACTORS

The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."

THE OFFERING

Common Stock Offered............................. 2,500,000 shares
Common Stock Outstanding After the Offering(1)... 10,933,296 shares
Use of Proceeds.................................. For research and development activities,
marketing and sales activities,
construction of a manufacturing facility
and general corporate purposes.
Nasdaq National Market Symbol.................... ATRX

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

YEAR THREE
ENDED MONTHS YEAR YEAR
SEPT ENDED ENDED ENDED
30, DEC 31, DEC 31, DEC 31,
1993 1993 1994 1995
------- ------- ------- --------

STATEMENT OF OPERATIONS DATA:
Contract revenue................................... $ 1,378 $ 165 $ 713 $ 580
Expenses
Research expenses - ATRIDOX(TM) product.......... 2,789 541 2,765 5,684
Other research and development................... 3,065 842 3,902 3,905
Administrative expenses.......................... 937 163 688 830
Acquisition of rights............................ -- -- -- 3,802
Total expenses..................................... 6,791 1,546 7,355 14,221
Interest income.................................... 1,556 374 1,320 987
Net loss........................................... $(3,698) $(1,007) $(5,540) $(12,658)
Net loss per share................................. $ (0.48) $ (0.13) $ (0.72) $ (1.58)
Weighted average shares outstanding................ 7,695 7,721 7,741 8,002

DECEMBER 31, 1995
---------------------------
ACTUAL AS ADJUSTED(2)
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BALANCE SHEET DATA:
Working capital.................................................... $ 10,913 $ 38,176
Total assets....................................................... 14,894 42,157
Accumulated deficit................................................ (31,056) (31,056)
Total stockholders' equity......................................... 12,807 40,070

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(1) Does not include 833,552 shares of Common Stock issuable upon exercise of
options outstanding at an exercise price ranging from $.50 to $20.75 per
share pursuant to the Company's Stock Option Plans at March 31, 1996.

(2) Adjusted to give effect to the sale of the shares of Common Stock offered
hereby at an assumed offering price of $11.75 after deducting the
underwriting discount and estimated offering expenses, and the application
of the estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."

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RISK FACTORS

An investment in the Common Stock offered hereby involves a high degree of
risk. In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors
before purchasing the Common Stock offered hereby. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the following risk factors and elsewhere in this Prospectus.

EARLY STAGE COMPANY

The Company has commenced commercial sales of only one product, the
ATRISORB(R) Barrier, the first commercial shipment of which occurred in March
1996, and has not recognized significant revenue from product sales to date. The
Company does not have regulatory approval to market any other products, and has
commenced human clinical trials on only one other product, the Phase III
clinical trials on its ATRIDOX(TM) product. All of the Company's other potential
products are at an early stage of development and will require extensive
research, development, and preclinical and clinical testing prior to
commercialization. In addition, the ATRIDOX(TM) product and all other potential
products of the Company will be subject to an extensive, time consuming and
costly regulatory approval process prior to commercialization. There can be no
assurance that any such potential products will prove safe and effective in
clinical trials, obtain required regulatory approvals, or be capable of
commercial scale production at an acceptable cost, or that any clinical trials,
including the Phase III clinical trial of the Company's ATRIDOX(TM) product,
will be completed on schedule, at or below budget or at all. Furthermore, there
can be no assurance that any of the Company's products that are sold
commercially, including the ATRISORB(R) Barrier, will be accepted by medical and
dental professionals or patients, or that reimbursement for the cost of such
products will be available from third party payors. Any failure of the Company
to achieve technical feasibility, demonstrate safety, achieve clinical efficacy,
obtain regulatory approval or successfully manufacture or commercialize its
products would have a material adverse effect on the Company.

HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY

The Company has sustained losses in each year of its operations, and had
incurred an accumulated deficit of $31.1 million through December 31, 1995. The
Company had not received any revenues from product sales through December 31,
1995, and has not received significant revenues from product sales in 1996.
Notwithstanding the commencement of commercial sales of the ATRISORB(R) Barrier
in March 1996, the Company expects to incur additional losses over at least the
next two years due to increased research, development, manufacturing, sales and
marketing expenses. In particular, the Company expects to incur substantial
manufacturing, sales and marketing expenses in connection with the commercial
launch of the ATRISORB(R) Barrier. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." There can be no assurance that
the Company will ever achieve substantial revenues from product sales or
profitability, or that profitability will be sustained for any particular period
of time.

GOVERNMENT REGULATION; UNCERTAINTY OF OBTAINING REGULATORY APPROVAL

The Company's research, development and manufacturing activities are, and
its future business will be, subject to significant regulation by the FDA and
other governmental authorities in the United States, as well as comparable
regulatory agencies abroad. All of the Company's potential products will be
required to undergo lengthy and expensive preclinical and clinical studies and
to obtain FDA approval prior to commercialization. In order to obtain FDA
approval of a product, the Company must demonstrate to the satisfaction of the
FDA that such product is safe and effective for its intended uses and has been
manufactured in compliance with the FDA's current good manufacturing practice
("cGMP") regulations. The FDA may refuse to approve a product for commercial
sale or require additional testing or information prior to granting such
approval. While the Company obtained FDA clearance for the ATRISORB(R) Barrier
under the relatively short 510(k) premarket notification process, the
ATRIDOX(TM) product will be subject to the more lengthy and expensive NDA
process, which generally takes several years to complete. Uncertainty exists
regarding the precise

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regulatory status of the Company's other potential products. The Company
believes that these products will have both device and drug components, and it
remains unclear whether these products will be regulated as devices or drugs. It
also remains unclear whether any such products regulated as devices will be
subject to the 510(k) or the pre-market approval ("PMA") process. In general,
regulation of drugs is more time consuming and costly than regulation of
devices, and regulation of devices under the PMA process is substantially more
time consuming and costly than under the 510(k) process. If the results of the
Phase III clinical trials of the ATRIDOX(TM) product are favorable, the Company
intends to file an NDA with the FDA in the first quarter of 1997. However,
because the protocol for the Phase III trials requires removal of the
ATRIDOX(TM) product following treatment, an additional study will be required if
the Company seeks approval to expand the labelling of the ATRIDOX(TM) product
for use without removal. The Company expects that such study would require
substantially less time and expense than the pivotal Phase III trials. While
such study could delay the timing of an NDA approval, the Company does not
expect significant delays to occur. There can be no assurance that such study
would be successful or that the Company would obtain approval for the expanded
labelling. The Company has only limited experience in submitting and pursuing
regulatory applications. There can be no assurance that any approval will be
granted to the Company on a timely basis or at all. Any failure to obtain
required regulatory approvals, or any substantial delay in obtaining such
approval, could have a material adverse effect on the Company.

The Company is also subject to foreign regulatory requirements in
connection with the research, development, manufacture and sale of its products
abroad. These requirements vary widely from country to country, and there can be
no assurance that the Company will be able to achieve or remain in compliance
with any such requirements. Any failure to achieve or remain in compliance with
foreign requirements, notwithstanding authorizations to legally market the
products in the United States, could have a material adverse effect on the
Company. See "Business -- Government Regulation."

RELIANCE ON PATENTS AND PROPRIETARY RIGHTS

The Company considers patents and proprietary rights to be materially
significant to its business. The Company presently maintains eleven United
States and eight foreign patents, and has nineteen United States and
thirty-three foreign patent applications pending. The Company's ATRIGEL(R)
system, upon which the ATRISORB(R) Barrier, the ATRIDOX(TM) product and all of
the Company's presently anticipated future products are based, is protected by
claims contained in these patents and in pending patent applications. The
Company intends to aggressively defend its patent position and to file
additional patent applications in the future. However, there can be no assurance
that any of the Company's present or future patents will provide the Company
with significant protection or will not be challenged. The patent positions of
drug delivery companies, including Atrix, are uncertain and involve complex
legal and factual issues. Accordingly, the Company anticipates that any attempt
to enforce its patents would be time consuming and costly. Furthermore, there
can be no assurance that any such attempted enforcement would be successful, or
that third parties will not succeed in circumventing or invalidating any one or
more of the Company's patents. Moreover, the laws of some foreign countries do
not protect the Company's proprietary rights to the same extent as do the laws
of the United States. Any invalidation or circumvention of the Company's patents
could have a material adverse effect on the Company.

There can be no assurance that any of the Company's pending patent
applications will result in the issuance of patents, that the claims filed in
any pending patent application will not be significantly reduced prior to
issuance or that any issued patents will provide significant proprietary
protection or will not be invalidated or circumvented. Because patent
applications in the United States are maintained in secrecy until patents issue
and publication of discoveries in the scientific or patent literature often lags
behind actual discoveries, the Company cannot be certain that it was the first
inventor of inventions covered by its pending patent applications or that it was
the first to file patent applications for such inventions. Moreover, the Company
may have to participate in interference proceedings declared by the Patent and
Trademark Office to determine priority of invention that could result in
substantial cost to the Company, even if the eventual outcome is favorable to
the Company.

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The Company is not aware of any patents that it believes would be infringed
by its proposed products. However, there can be no assurance that the Company
has identified all patents that may pose a risk of infringement by its proposed
products. There can be no assurance that third parties will not assert
infringement claims against the Company or that any such assertions will not
result in costly litigation or require the Company to obtain a license to the
intellectual property rights of such parties. There can be no assurance that any
such licenses would be available on terms acceptable to the Company, if at all.
Furthermore, parties making such claims may be able to obtain injunctive or
other relief that could effectively block the Company's ability to further
develop or commercialize its products in the United States and abroad and could
result in the award of substantial damages. Defense of any lawsuit or failure to
obtain any such license could have a material adverse effect on the Company.
Finally, litigation, regardless of outcome, could result in substantial cost to
the Company, both financially and in terms of diversion of management's
attention. In January 1995, the Company received a letter from a third party
suggesting that the Company obtain a license to certain technology of that
party. Based on advice of patent counsel, the Company believes that it is not
infringing such technology and notified the third party to that effect in May
1995. See "Business -- Patents and Proprietary Rights."

UNCERTAINTY OF CUSTOMER ACCEPTANCE; THIRD PARTY REIMBURSEMENT

Because its initial products and product candidates are targeted toward the
treatment of periodontal disease, the Company's primary customers for these
products will be dentists and periodontists. The Company expects that a
substantial portion of these customers will seek reimbursement for the Company's
products from third party payors, including Medicare, Medicaid, health
maintenance organizations and other public and private insurors. Third party
payors are increasingly challenging the price and cost-effectiveness of medical
and dental products and services. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, such as the
ATRISORB(R) Barrier. The Company believes that certain third party payors
provide reimbursement at a specified rate for periodontal surgeries, without
additional reimbursement if a barrier product such as the ATRISORB(R) Barrier is
used therein. Furthermore, the Company believes that the portion of the United
States population that has dental insurance is substantially lower than the
percentage with medical insurance. Patients who lack dental insurance, and
therefore must pay the full cost of periodontal treatment, may elect to forego
the use of barrier products absent significant patient benefit associated with
such use. The Company's sales of the ATRISORB(R) Barrier and any future products
will depend to a great extent on the amount of available third party
reimbursement and the perceived patient benefits associated with the use of such
products. There can be no assurance that such reimbursement will be available or
that any of the Company's products will have advantages that will be significant
enough to cause dental professionals to purchase them.

LACK OF COMMERCIAL SCALE MANUFACTURING EXPERIENCE; REGULATORY COMPLIANCE

The Company has no significant commercial scale manufacturing experience.
To date, the Company has manufactured its products only on the small scale
needed for preclinical and clinical trials at its pilot production facility
which is estimated to allow the Company to manufacture, assemble and package
approximately 120,000 ATRISORB(R) Barrier kits annually. Both the ATRISORB(R)
Barrier for commercial distribution and the ATRIDOX(TM) product for
investigational use are manufactured at this facility. The Company expects that
the capacity of its existing facility will be inadequate to support the
production of commercial quantities of both products. Accordingly, the Company
intends to use a portion of the proceeds of this offering to build a new
manufacturing facility. See "Use of Proceeds." The Company expects to begin
commercial scale manufacturing at this facility in the first quarter of 1998.
There can be no assurances that the Company will be able to manufacture the
ATRISORB(R) Barrier or any other products at an acceptable cost and in
compliance with cGMP regulations. Furthermore, there can be no assurance that
the construction of the Company's new facility will be completed on schedule or
at or below budget. Failure or significant delay by the Company in successfully
scaling up its manufacturing processes or in complying with cGMP and other
regulations would have a material adverse effect on the Company. As an
alternative to establishing its own manufacturing facilities, the Company may in
the future seek to enter into collaborative arrangements where its partner would
handle manufacturing or to contract manufacturing out to third parties. There
can be no assurance that the Company will be able to enter into such
arrangements on favorable terms or at all. Any such failure could have a
material adverse effect on the Company.

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The manufacture of the Company's products is subject to drug and device
cGMP regulations of the FDA. These regulations require, among other things, that
each manufacturer establish a quality assurance program by which it monitors the
manufacturing process and maintain 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, civil penalties, suspensions or losses of regulatory approvals or
clearances, product recalls or seizures, orders to cease operations and criminal
penalties. The Company's existing manufacturing processes have not been
validated as being in compliance with cGMP regulations, but Atrix is in the
process of completing such validation. Any failure by the Company to manufacture
its present and future products in compliance with cGMP regulations could have a
material adverse effect on the Company.

LACK OF SALES AND MARKETING EXPERIENCE

The Company has no significant experience in sales or marketing of
products. The Company intends to use a portion of the proceeds of this offering
to develop a small direct sales force for the ATRISORB(R) Barrier in the United
States. See "Use of Proceeds." Such sales are expected to commence in the third
quarter of 1996. In order to market the ATRISORB(R) Barrier and future products
successfully, the Company must develop a sales force with significant technical
expertise. In Europe, the Company plans to market the ATRISORB(R) Barrier
through distributors. There can be no assurance that the Company will be able to
establish or maintain a successful direct sales organization in the United
States or a distribution network in Europe. In addition, there can be no
assurance that there will be sufficient sales of the ATRISORB(R) Barrier or
future products to fund related sales and marketing expenses, many of which must
be incurred before sales commence. Failure to develop a successful sales force
in the United States or a distribution network in Europe may have a material
adverse effect on the Company.

DEPENDENCE ON THIRD PARTIES

Although the Company has developed the ATRISORB(R) Barrier and the
ATRIDOX(TM) product independently, Atrix has entered into several collaborative
arrangements, and hopes to enter into additional collaborative arrangements,
with other companies covering the research, development, clinical trials,
regulatory approval, manufacture and marketing of various of its potential
products. The Company believes that its ability to successfully develop its
ATRIGEL(R) system for a wide array of human and animal health care applications
will depend in substantial part on its ability to enter into such collaborative
arrangements. There can be no assurance that the Company will be able to enter
into or maintain existing or future collaborations, or that any such
collaborations will be successful. Any such failure could have a material
adverse effect on the Company. Furthermore, none of the Company's existing
collaborations are exclusive, and there can be no assurance that any of the
Company's present or future collaborative partners will not pursue parallel
development of other health care products that may compete directly with the
Company's products. The Company will have limited or no control over the
resources that any partner may devote to the Company's products. There can be no
assurance that any of the Company's present or future collaborative partners
will perform their obligations as expected or will devote sufficient resources
to the research, development, clinical testing, regulatory approval, manufacture
or marketing of the Company's products. The Company has engaged distributors to
market the ATRISORB(R) Barrier in Europe, and expects to utilize independent
distributors for all foreign sales of its future products. The Company
anticipates that all such distributors will handle products of multiple vendors,
potentially including products that compete directly with Atrix products offered
by such distributors. The Company will have limited or no control over the
resources that any independent distributor may devote to sales of the Company's
products or to the level of customer service any such distributor provides.
Atrix also relies on third parties to manufacture various components of the
ATRISORB(R) Barrier. The Company also expects to rely in varying degrees on
contract manufacturers for the ATRIDOX(TM) product and its other products in
development. There can be no assurance that the Company will be able to obtain
product in required quantities, of acceptable quality or at a competitive cost
from any such third party manufacturers. Any failure by any of the foregoing
third parties to devote sufficient efforts to the research, development,
clinical testing, regulatory approval, manufacture or marketing of the Company's
products could have a material adverse effect on the Company.

8
10

SOLE SOURCE SUPPLIER

The Company presently obtains all of its requirements of a key component
used in the ATRISORB(R) Barrier and the ATRIDOX(TM) product from a sole source
supplier. The Company acquires such supplies pursuant to individual purchase
orders and does not have a contractual arrangement guaranteeing it access to any
particular amount of this material. To date, the Company has not experienced
difficulty obtaining this component on commercially reasonable terms. However,
any interruption of supply could have a material adverse effect on the Company,
including on its ability to manufacture and sell the ATRISORB(R) Barrier.

ACCESS TO PHARMACEUTICAL COMPOUNDS

The Company's ability to successfully commercialize its ATRIGEL(R) system
will depend in substantial part on its ability to obtain access to the
pharmaceutical compounds to be delivered thereby. The Company intends to rely in
certain circumstances on the ability of its collaborative partners to provide
access to such pharmaceutical compounds. There can be no assurance that the
Company will be able to obtain such access, either directly or through its
collaborative partners. The failure of the Company to obtain rights to a
particular pharmaceutical would preclude the Company from developing its
ATRIGEL(R) system for delivery of such pharmaceutical. Furthermore, there can be
no assurance that the Company's use of such pharmaceutical will not be alleged
or determined to be infringing on third parties' rights. Any such failure or
infringement could have a material adverse effect on the Company.

COMPETITION; RAPID TECHNOLOGICAL CHANGE

The drug delivery industry is highly competitive and rapidly evolving, with
significant developments expected to continue at a rapid pace. The Company's
success will depend on developing efficient and effective drug delivery products
and technologies. All of the Company's products will compete both with other
systems for delivery of a particular drug and with other forms of treatment of
the indication targeted by such products. The ATRISORB(R) Barrier will compete
directly with at least two barrier products, both of which are currently
marketed in the United States. In addition, the ATRIDOX(TM) product, if it
proves safe and effective in the ongoing Phase III clinical trial and is
subsequently approved by the FDA, will compete directly with at least one
presently marketed product. The Company is aware of many competitors in the
field of drug delivery, including competitors developing injectable or
implantable drug delivery systems, oral drug delivery systems, passive
transdermal systems, electrotransport systems, oral transmucosal systems and
inhalation systems. There can be no assurance that any such products or
technologies will not render the Company's products or technologies
uncompetitive or obsolete. In addition to competing for customers, the Company
also competes with these companies in seeking and obtaining quality
collaborative partners. Most of the Company's existing or potential competitors,
including each party presently selling products that compete directly with the
ATRISORB(R) Barrier and the potential ATRIDOX(TM) product, have substantially
greater research and development capabilities, experience, manufacturing,
marketing, financial and managerial resources than the Company. Furthermore,
acquisitions of competing drug delivery companies by large pharmaceutical
companies could enhance competitors' financial, marketing and other resources.
Accordingly, the Company's competitors may succeed in developing competing
technologies, obtaining FDA approval or gaining market share for products more
rapidly than the Company. See "Business -- Competition."

DEPENDENCE ON KEY PERSONNEL

The success of the Company is dependent on its ability to retain highly
qualified management and scientific personnel, including John E. Urheim, Vice
Chairman and Chief Executive Officer, and Dr. G. Lee Southard, President and
Chief Scientific Officer. Competition for such personnel is intense and the
inability to attract additional key employees or the loss of one or more current
key employees could have a material adverse effect on the Company. Although the
Company has been successful in retaining requisite personnel to date, there can
be no assurance that the Company will be successful in the future.

9
11

UNCERTAINTY OF ADDITIONAL FUNDING

The Company expects that the proceeds of this offering will be sufficient
to fund its operations through 1998. After that time, the Company intends to
seek additional funding through collaborative arrangements, contract research or
public or private financings. There can be no assurance that additional
financing will be available on acceptable terms or at all. If additional funds
are raised by issuing equity securities, further dilution to then existing
stockholders may result. If adequate funds are not available, the Company may be
required to delay, scale back or eliminate one or more of its research and
development programs or obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish certain rights to
certain of its technologies, product candidates or products that the Company
would not otherwise relinquish.

VOLATILITY OF STOCK PRICE

The market prices for securities of drug delivery companies (including the
Company) have historically been highly volatile, and the market has from time to
time experienced significant price and volume fluctuations that are unrelated to
the operating performance of particular companies. Future announcements
concerning the Company or its competitors, including the results of the ongoing
Phase III clinical trials on the ATRIDOX(TM) product and other clinical trials,
regulatory approvals, technological innovations or new products, developments in
patent or other proprietary rights and litigation, as well as general market
conditions, may have a significant effect on the market price of the Common
Stock.

THE COMPANY

The Company was organized as a Delaware corporation in August 1986 under
the name Vipont Research Laboratories, Inc. The Company changed its name to
Atrix Laboratories, Inc. in December 1989. The Company's principal offices are
located at 2579 Midpoint Drive, Fort Collins, Colorado 80525, and its telephone
number is (970) 482-5868.

10
12

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1995, and as adjusted to reflect the sale of 2,500,000 shares of
Common Stock pursuant to this offering and the receipt of the estimated net
proceeds therefrom (after deducting the underwriting discount and commissions
and estimated offering expenses):

DECEMBER 31, 1995
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)

Stockholders' equity:
Preferred stock; $.001 par value; 5,000,000 shares
authorized; no shares issued or outstanding actual or
adjusted................................................. $ -- $ --
Common stock; $.001 par value; 25,000,000 shares authorized;
8,433,296 shares issued and outstanding; 10,933,296
shares issued and outstanding as adjusted(1)............. 8 11
Unrealized holding loss on securities available-for-sale.... (35) (35)
Additional paid-in capital.................................. 43,890 71,150
Accumulated deficit......................................... (31,056) (31,056)
------- -------
Total stockholders' equity.......................... 12,807 40,070
------- -------
Total capitalization................................ $ 12,807 $40,070
======= =======

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

DILUTION

The net tangible book value of the Company as of December 31, 1995 was
$12,132,650 or approximately $1.44 per share of Common Stock. Net tangible book
value per share represents the amount of the Company's tangible assets less
total liabilities, divided by 8,433,296 shares of Common Stock outstanding on
such date.

Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in the
offering made hereby and the pro forma net tangible book value per share of
Common Stock immediately after completion of the offering. After giving effect
to the sale of shares of Common Stock in this offering based on the assumed
public offering price per share of $11.75 and the application of the estimated
net proceeds therefrom after deducting underwriting discounts and estimated
offering expenses, the pro forma net tangible book value of the Company as of
December 31, 1995 would have been $39,395,150 or $3.60 per share, representing
an immediate increase in net tangible book value of $2.16 per share to existing
stockholders and an immediate dilution in net tangible book value of $8.15 per
share to purchasers of Common Stock in the offering, as illustrated in the
following table:

Assumed public offering price per share............................ $11.75
-----
Net tangible book value per share at December 31, 1995........... $ 1.44
Increase per share attributable to new investors................. 2.16
-----
Pro forma net tangible book value per share after offering....... 3.60
-----
Net tangible book value dilution per share to new investors........ $ 8.15
=====

The above calculation excludes an aggregate of 833,552 shares of Common Stock
reserved for issuance upon exercise of outstanding options at an exercise price
ranging from $.50 to $20.75 per share at March 31, 1996.

11
13

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby are estimated to be approximately $27,262,500
($31,404,375 if the Underwriters' over-allotment option is exercised in full),
at the assumed public offering price per share of $11.75 and after deducting the
underwriting discount and estimated offering expenses. The Company expects
approximately $9.0 million of such net proceeds will be used to fund further
research of its products. In addition, the Company expects to use approximately
$7.0 million of such net proceeds to commercialize its dental products in the
United States and Europe, which includes developing a small direct sales force
for the ATRISORB(R) Barrier in the United States. Further, approximately $7.0
million of such net proceeds will be used for the construction of a new
manufacturing facility and the purchase of the related and necessary
manufacturing equipment. The remainder of the net proceeds will be used for
working capital requirements and general corporate purposes. Pending application
of the proceeds as described above, the Company intends to invest the net
proceeds of this offering in interest-bearing bank accounts and United States
Government or Government-backed securities.

The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including the progress of the Company's
research and development programs, the results of preclinical and clinical
studies, the timing of regulatory approvals, the rate of technological advances,
the commercial potential of the Company's products under development and the
status of competitive products. In addition, expenditures will also depend on
the establishment of collaborative relationships with other companies, if any,
and other factors.

PRICE RANGE OF COMMON STOCK

The Common Stock is traded on the Nasdaq National Market under the symbol
"ATRX." The following table sets forth, for the fiscal periods indicated, the
range of high and low sales price per share of the Common Stock, as reported on
the Nasdaq National Market:

HIGH LOW
---- ----

1996:
Second Quarter (through April 4, 1996)............................. $ 13 $11 3/8
First Quarter...................................................... 15 1/2 6 1/4
1995:
Fourth Quarter..................................................... $7 3/4 $4 7/8
Third Quarter...................................................... 8 5 1/2
Second Quarter..................................................... 8 1/8 6 3/8
First Quarter...................................................... 7 5 3/8
1994:
Fourth Quarter..................................................... $6 5/8 $5 1/4
Third Quarter...................................................... 8 3/4 5 3/4
Second Quarter..................................................... 7 1/4 5 7/8
First Quarter...................................................... 9 1/4 5 5/8

As of April 1, 1996, there were approximately 3,701 holders of record of
the Common Stock. On April 4, 1996, the last reported sale price for the Common
Stock on the Nasdaq National Market was $11.75.

The Company has paid no cash dividends on its Common Stock since its
inception and does not plan to pay dividends on its Common Stock in the
foreseeable future.

12
14

SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The financial data presented below are derived from the financial
statements of the Company, which have been audited and reported upon by Deloitte
& Touche LLP, independent auditors. The selected financial information set forth
in the table below is qualified in its entirety by, and should be read in
conjunction with, Management's Discussion and Analysis of Financial Condition
and Results of Operations and the Company's financial statements and notes
thereto appearing elsewhere in this Prospectus.

THREE
YEAR YEAR YEAR MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
SEPT 30, SEPT 30, SEPT 30, DEC 31, DEC 31, DEC 31,
1991 1992 1993 1993 1994 1995
-------- -------- -------- -------- -------- --------

STATEMENT OF OPERATIONS DATA:
Contract revenue..................... $ 1,981 $ 1,465 $ 1,378 $ 165 $ 713 $ 580
Expenses
Research expenses - ATRIDOX(TM)
product......................... 3,013 2,431 2,789 541 2,765 5,684
Other research and development..... 754 2,129 3,065 842 3,902 3,905
Administrative expenses............ 644 996 937 163 688 830
Acquisition of rights.............. -- -- -- -- -- 3,802
Acquisition of technology.......... -- 4,505 -- -- -- --
Total expenses....................... 4,411 10,061 6,791 1,546 7,355 14,221
Interest income...................... 448 1,696 1,556 374 1,320 987
Net loss............................. $ (1,905) $ (6,900) $ (3,698) $ (1,007) $ (5,540) $(12,658)
Net loss per share................... $ (0.35) $ (0.94) $ (0.48) $ (0.13) $ (0.72) $ (1.58)
Weighted average shares
outstanding........................ 5,370 7,340 7,695 7,721 7,741 8,002
BALANCE SHEET DATA:
Working capital...................... $ 4,347 $ 17,779 $ 9,372 $ 13,478 $ 12,616 $ 10,913
Total assets......................... 6,440 36,515 29,074 27,912 22,006 14,894
Note payable......................... 4,000 4,000 -- -- -- --
Accumulated deficit.................. (1,253) (8,153) (11,851) (12,858) (18,398) (31,056)
Total stockholders' equity........... $ 1,422 $ 31,529 $ 28,118 $ 26,978 $ 21,191 $ 12,807

13
15

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

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere in
this Prospectus.

OVERVIEW

Since its inception, the Company has devoted its efforts and resources
primarily to research and development of dental products. Through December 31,
1995, the Company had no revenue from product sales. Substantially all of the
Company's revenue through September 30, 1991 was derived from a research funding
agreement with the Vipont Royalty Income Fund, Ltd. (the "Partnership"). See
Note 3 contained in Notes to the Financial Statements. Since then, the Company's
revenue has been derived from interest income and payments from unaffiliated
third parties under research contracts. The Company anticipates recording modest
revenues from sales of its ATRISORB(R) Barrier product sales in 1996.

The Company has sustained losses in each year of its operations and expects
to incur additional losses over at least the next two years. During the year
ended December 31, 1995, the Company spent approximately $5,684,000 to complete
the Phase II clinical trial and commence pivotal Phase III clinical studies of
the ATRIDOX(TM) product. During 1995, the Company completed clinical trials for
the ATRISORB(R) Barrier. A 510(k) premarket notification was submitted to the
FDA on December 21, 1995, and on March 22, 1996, the Company received clearance
from the FDA to market the ATRISORB(R) Barrier in the United States.

The Company anticipates that expenses for the year ending December 31,
1996, will increase as a result of increasing costs for product development,
preclinical and clinical testing, regulatory affairs, manufacturing, commercial
distribution activities, and general and administrative activities associated
with the ATRIDOX(TM) product and the ATRISORB(R) Barrier.

During 1993, the Company changed its fiscal year end from September 30 to
December 31.

RESULTS OF OPERATIONS

Years Ended December 31, 1995 and 1994

Contract revenue represented revenue the Company received from grants and
from unaffiliated third parties for performing contract research and development
activities for the ATRIGEL(R) system, and was approximately $571,000 for the
year ended December 31, 1995, compared to approximately $701,000 for the year
ended December 31, 1994, representing a 19% decrease. The decrease in contract
revenue was a result of the Company completing a number of contracts that were
in progress in the comparable period, while contracts initiated in the current
period have generated less revenue.

Interest income for the year ended December 31, 1995 was approximately
$987,000 compared to approximately $1,320,000 for the year ended December 31,
1994, representing a 25% decrease. Interest income decreased due to a reduction
in principal balances of investments as a result of the funds being used in
general operations. The majority of the funds were invested in United States
government bond funds, long-term United States government and government agency
investments. The remaining cash and cash equivalents were invested in interest
bearing accounts to fund the Company's short-term operations.

A loss on sale of marketable securities for the year ended December 31,
1995 was approximately $5,000 compared to approximately $218,000 for the year
ended December 31, 1994. The current period loss was substantially less than the
comparable period due to improved bond market conditions. The prior period loss
resulted from the sale of marketable securities available-for-sale at a time
when the bond market had substantially declined compared to the period when the
securities were purchased. The proceeds from the sale of marketable securities
were used to fund normal operations.

14
16

Research expenses - ATRIDOX(TM) product for the year ended December 31,
1995 were approximately $5,684,000 compared to approximately $2,765,000 for the
year ended December 31, 1994, representing a 106% increase. The increase
resulted from the two Phase III clinical trials for the ATRIDOX(TM) product
which began in January 1995.

Other research and development expenses included activities for the
development of the ATRISORB(R) Barrier product and other research activities.
Other research and development expenses were approximately $3,905,000 for the
year ended December 31, 1995, compared to similar expenses of approximately
$3,902,000 for the year ended December 31, 1994.

Administrative expenses increased to approximately $830,000 during the year
ended December 31, 1995, from approximately $688,000 for the year ended December
31, 1994, representing a 20% increase. The primary reasons for this increase
were expenses for legal fees, corporate marketing partner efforts and recently
hired employees.

Acquisition of rights represented the exchange of shares of Common Stock
for the Partnership's units. For the year ended December 31, 1995, the Company
expensed $3,802,000 which included the issuance of 550,868 shares of Common
Stock valued at approximately $6.40 per share and expenses related to completing
the transaction.

The Company recorded a net loss of approximately $12,658,000 for the year
ended December 31, 1995, compared to a net loss of approximately $5,540,000 for
the year ended December 31, 1994, representing a 128% increase. The current
period loss was higher primarily due to a one-time charge of $3,802,000
associated with the acquisition of the Partnership. The current period loss was
further increased due to decreased revenues from research contracts, increased
expenses associated with the two Phase III clinical trials for the ATRIDOX(TM)
product and additional research and development on the ATRISORB(R) Barrier
product and the ATRIGEL(R) system.

Year Ended December 31, 1994 and Fiscal Year Ended September 30, 1993

Contract revenue represented revenue the Company received from grants and
from unaffiliated third parties for performing contract research and development
activities for the ATRIGEL(R) system, and was approximately $701,000 for the
year ended December 31, 1994, compared to approximately $1,037,000 for the year
ended September 30, 1993, representing a 32% decrease. The decrease in contract
revenue was a result of the Company completing joint development contracts that
were in progress in the prior year.

Contract revenue from related parties represented the reimbursement for
joint development costs from Colgate-Palmolive Company ("Colgate") for the
ATRISORB(R) Barrier and from the Partnership for management fees. Revenue was
approximately $12,000 for the year ended December 31, 1994 compared to
approximately $342,000 for the fiscal year ended September 30, 1993. The reason
for the decrease was due to the termination of the joint development agreement
with Colgate in January 1993.

Interest income for the year ended December 31, 1994, was approximately
$1,320,000 compared to approximately $1,556,000 for the year ended September 30,
1993, representing a 15% decrease. The majority of the funds were invested in
United States government bond funds, long-term United States government and
government agency investments. The remaining cash and cash equivalents were
invested in interest bearing cash accounts to meet the Company's short-term
operating needs. There was a loss on sale of marketable securities of
approximately $218,000 in the year ended December 31, 1994, compared to a gain
of approximately $158,000 for the same period ended September 30, 1993. The
change resulted from the sale of available-for-sale securities at a time when
the marketable securities bond market had substantially declined compared to the
period when the securities were purchased. The proceeds from the sale were used
to fund normal operations.

Research expenses - ATRIDOX(TM) product for the year ended December 31,
1994, were approximately $2,765,000 compared to approximately $2,789,000 for the
year ended September 30, 1993. The slight decrease was due to the change in
activity in the clinical area, specifically the cost associated with completing
the clarifying study in the prior year compared to preparation to begin the
pivotal Phase III clinical studies.

15
17

Research expenses are anticipated to increase in subsequent quarters as
additional clinical study expenses are incurred.

Other research and development expenses included activities for the
development of the ATRISORB(R) Barrier and other development activities for the
Company's own benefit. Other research and development expenses increased to
approximately $3,902,000 during the year ended December 31, 1994, from
approximately $3,065,000 for the year ended September 30, 1993, representing a
27% increase. The primary reasons for the increase were higher expenses as a
result of conducting final stage clinical studies on the ATRISORB(R) Barrier and
increased research and development activities related to the ATRIGEL(R) system.

Administrative expenses decreased to approximately $688,000 during the year
ended December 31, 1994, from approximately $937,000 for the year ended
September 30, 1993, representing a 27% decrease. The primary reasons for this
decrease were the reduction of expenses associated with the Company's accounting
and administrative staff, lower expenses related to stockholder reporting and no
fiscal year relocation expenses associated with the employment of the Company's
Chief Executive Officer. In addition, in the year ended September 30, 1993,
$50,000 was expensed for the "manufacture and purchase option" as a result of
Colgate terminating the joint development contract in January 1993.

The Company recorded a net loss of approximately $5,540,000 for the year
ended December 31, 1994, compared to a net loss of approximately $3,698,000 for
the year ended September 30, 1993, representing a 50% increase. The current
period loss was higher due to decreased revenues and increased expenses
associated with additional research on the ATRISORB(R) Barrier, the ATRIGEL(R)
system and training preparation for the pivotal Phase III clinical studies on
the ATRIDOX(TM) product.

Three Months Ended December 31, 1993 and 1992

Contract revenue represented revenue the Company received from grants and
from unaffiliated third parties for performing contract research and development
and activities, and was approximately $162,000 for the three months ended
December 31, 1993, compared to approximately $241,000 for the three months ended
December 31, 1992 representing a 33% decrease. The decrease in contract revenue
was a result of the Company completing projects in progress in the prior year.

Contract revenue from related parties represented the reimbursement for
joint development costs from Colgate for the ATRISORB(R) Barrier and from the
Partnership for management fees. Revenue was approximately $3,000 for the three
months ended December 31, 1993, and approximately $159,000 for the three months
ended December 31, 1992. The reason for the decrease was due to the completion
of the joint development contract with Colgate.

Interest income for the three months ended December 31, 1993, was
approximately $374,000 compared to approximately $392,000 for the three months
ended December 31, 1992. This decrease was due to a reduction in principal
investments as a result of the funds being used in general operations. The
majority of the funds were invested in mutual funds, long-term United States
government and government agency investments. The remaining cash and cash
equivalents were invested to meet the Company's short-term operating needs.

Research expenses - ATRIDOX(TM) product for the three months ended December
31, 1993, were approximately $541,000 compared to approximately $648,000 for the
three months ended December 31, 1992, representing a 17% decrease. The decrease
reflects the completion of the clarifying study during the current quarter.

Other research and development expenses included activities for the
development of the ATRISORB(R) Barrier and all other research and development
activities. Other research and development expenses increased to approximately
$842,000 for the three months ended December 31, 1993, from approximately
$696,000 for the three months ended December 31, 1992. The primary reasons for
the increase were higher costs as a result of conducting final stage clinical
studies on the ATRISORB(R) Barrier and increased research and development
activities related to the ATRIGEL(R) system.

16
18

Administrative expenses were $163,000 for the three months ended December
31, 1993, compared to $227,000 for the three months ended December 31, 1992,
representing a 28% decrease. The primary reason for this decrease was due to the
Company's maintaining a reduced accounting and administrative staff and lower
expenses related to stockholder reporting than incurred in the comparative
quarter.

The Company recorded a net loss of approximately $1,007,000 for the three
months ended December 31, 1993, compared to a net loss of approximately $637,000
for the three months ended December 31, 1992, representing a 58% increase. This
increase in the net loss was primarily the result of decreased revenues from
contracts and increased expenses associated with additional research on the
ATRIGEL(R) system.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 1995, the Company had cash and cash equivalents of
approximately $925,000, marketable securities available-for-sale of
approximately $10,997,000, and other current assets of approximately $1,078,000,
for total current assets of approximately $13,000,000. The Company reclassified
investments from marketable securities current and non-current to
available-for-sale in 1995. Current liabilities totaled approximately
$2,087,000, which resulted in working capital of approximately $10,913,000.

During the year ended December 31, 1995, the Company used net cash from
operating activities of approximately $7,953,000. This was primarily a result of
a net loss of approximately $12,658,000, which included a one-time non-cash
charge of $3,521,000 for the acquisition of Partnership units for common stock.
Adjustments in arriving at cash used in operating activities include
depreciation and amortization of $626,000, and changes in other operating assets
and liabilities, including the effects of an increase in prepaid expenses of
approximately $454,000 due to payments for clinical studies, an increase in
accounts payable of approximately $1,382,000, and an increase in inventory of
$202,000.

Net cash provided by investing activities was approximately $6,606,000
during the year ended December 31, 1995. The principal reason for the increase
was from sale of marketable securities available-for-sale and the proceeds from
maturities of marketable securities to fund normal operating activities during
the current period.

Net cash provided from financing activities was approximately $392,000. The
increase was a result of the exercise of stock options by certain directors and
employees.

The Company anticipates that its existing available cash, cash equivalents
and marketable securities, combined with the net proceeds of this offering and
interest income, will be adequate to satisfy its capital requirements through
1998, after which time the Company intends to seek additional financing. See
"Risk Factors -- Uncertainty of Additional Funding." The Company's long-term
capital expenditure requirements will depend on numerous factors, including the
progress of the Company's research and development programs, the time required
to file and process regulatory approval applications, the development of the
Company's commercial manufacturing facilities, the ability of the Company to
obtain additional licensing arrangements, and the demand for the Company's
products, if and when approved.

17
19

BUSINESS

The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.

OVERVIEW

Atrix is engaged in the research and development of a broad range of
dental, medical and veterinary products based on its proprietary biodegradable
sustained release drug delivery system. The Company recently commenced marketing
its ATRISORB(R) Barrier, a periodontal product used to aid in the regeneration
of the ligament and bone supporting the tooth following osseous flap surgery, in
five of six European countries in which it has received regulatory clearance. On
March 22, 1996, the Company also received 510(k) clearance from the FDA to
market the ATRISORB(R) Barrier in the United States, which the Company intends
to begin in the third quarter of 1996. Additionally, in January 1995, the
Company commenced pivotal Phase III trials of the ATRIDOX(TM) product, its
subgingival drug delivery system containing doxycycline, for the treatment of
periodontal disease. All 822 patients have been enrolled and the clinical
treatment phase of the study will be completed in late May 1996. If results are
favorable, the Company intends to file an NDA with the FDA in the first quarter
of 1997.

ATRIX TECHNOLOGY

The Company's patented ATRIGEL(R) system is comprised of biodegradable
polymers dissolved in biocompatible solvents and is administered as flowable
compositions (e.g. solutions, gels, pastes, and putties), which then solidify
upon contact with body fluids to form biodegradable implants. The ATRIGEL(R)
system is designed to provide extended localized or systemic drug delivery in a
single application, without the need for surgical implantation or removal.

The ATRIGEL(R) system is compatible with a broad range of pharmaceutical
compounds, including water soluble and insoluble compounds and high and low
molecular weight compounds. The Company has demonstrated in preclinical trials
the systemic delivery of proteins and peptides, including hormones such as
leutinizing hormone releasing hormone ("LHRH") and a wide range of growth
factors. Another feature of the ATRIGEL(R) system is the custom-tailored
degradation and rate of drug release of the implant. The Company has
demonstrated in preclinical trials sustained drug release over periods of
several days to several months depending on the specific needs and the
particular drug. Drug release occurs through both degradation of the polymer and
diffusion of the drug out of the polymer. Drug release is controlled by the type
and molecular weight of the polymer as well as the solvent used in the system.

The Company believes the ATRIGEL(R) system addresses many of the
limitations associated with traditional drug delivery technologies. Most drugs
are administered orally or by injection at intermittent and frequent doses.
These routes of administration are not optimal for several reasons, including
difficulty in maintaining uniform drug levels over time, problems with toxicity
and side effects, high costs due to frequent administration and poor patient
compliance. Furthermore, innovations in biotechnology have led to an increase in
the number of protein and peptide drugs under development. These therapeutics,
because of their larger molecular size and susceptibility to degradation in the
gastrointestinal tract, must currently be administered by multiple injections
often in a hospital or other clinical setting.

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The Company believes that the ATRIGEL(R) system may provide benefits over
traditional methods of drug administration such as capsules, injections and
continuous infusion as a result of the following properties:

- Safety. All components of the ATRIGEL(R) system are biocompatible and
have independently established safety and toxicity profiles. In
addition, the polymers used in the system are members of a class of
polymers some of which have previously been approved by the FDA for
human use in other applications. The Company's ATRIDOX(TM) product will
use a polymer and solvent similar to that used in the ATRISORB(R)
Barrier, which the FDA cleared for marketing in the United States on
March 22, 1996.

- Versatility. The ATRIGEL(R) system is compatible with a broad range of
pharmaceutical compounds, including water soluble and insoluble
compounds and high and low molecular weight compounds. In addition, the
Company has demonstrated in preclinical trials the local and systemic
delivery of proteins and peptides, including hormones such as LHRH and a
wide range of growth factors.

- Site Specificity. The ATRIGEL(R) system can be delivered directly to a
target area, thus potentially achieving higher drug concentrations at
the desired site of action and minimizing systemic side effects. In
humans, the Company has delivered high concentrations of the generic
antibiotic doxycycline to the periodontal tissue with minimal systemic
concentrations of the drug. In preclinical models, the Company has
delivered several cancer drugs directly to tumors achieving high local
concentration of the drugs with minimal systemic concentrations.

- Systemic Drug Delivery. The ATRIGEL(R) system also can be used to
provide sustained drug release into the systemic circulation for those
applications where the entire body requires treatment, and the drug is
not active when taken orally. In preclinical models, the Company has
demonstrated the systemic delivery of peptides at therapeutic levels for
up to 120 days from a single depot injection.

- Customized Continuous Release. The Company has demonstrated in
preclinical trials sustained drug release over periods of several days
to several months, depending on the specific needs and the particular
drug.

- Biodegradability. The ATRIGEL(R) system will biodegrade and is not
expected in most applications to require removal when the drug is
depleted.

- Ease of Application. The ATRIGEL(R) system can be injected or inserted
as flowable compositions (e.g. solutions, gels, pastes, and putties) by
means of ordinary cannulas and syringes, or can be sprayed or painted
onto tissues.

The ATRIGEL(R) system can be used without a drug as a medical device. In
such cases, the product would have all of the properties described above except
those dependent on the release of a drug. The Company's first product, the
ATRISORB(R) Barrier, utilizes the ATRIGEL(R) system without a drug and is
classified as a medical device.

BUSINESS STRATEGY

The Company's business strategy is to develop and commercialize its
proprietary ATRIGEL(R) system in dental, medical and veterinary applications by
using its own capabilities and, in some instances, the expertise of corporate
partners. The Company's initial applications of the ATRIGEL(R) system are in the
field of dentistry. At this time, the Company plans to develop, manufacture and
market these products on its own. For certain medical and animal health
applications, the Company plans to develop, manufacture and market products in
collaboration with third parties. The Company is currently pursuing development
programs in collaboration with third parties in areas such as cancer, nervous
system disorders and various veterinary applications.

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PRODUCT DEVELOPMENT PROGRAMS

The Company is using the ATRIGEL(R) system to develop a broad range of
medical, dental and veterinary products. The following table sets forth certain
information about each of the Company's products currently under development.

ATRIX TECHNOLOGY APPLICATION AND STATUS

TECHNOLOGY INDICATION STATUS(1) PARTNER
- ------------------------------ -------------------- ---------------------- -------------

Dental Applications:
ATRISORB(R) Barrier Periodontal Surgery Available for --
marketing in the
U.S. and six
European countries
ATRIDOX(TM) Product Periodontitis Phase III --
ATRISORB(R) Barrier with
Doxycycline Periodontal Surgery Preclinical --
ATRISORB(R) Barrier with Periodontal Preclinical --
Growth Factors Regeneration
Medical Applications:
ATRIGEL(R) System with
Leuprolide Acetate Cancer Preclinical Gensia
ATRIGEL(R) System with
a CNS Drug Schizophrenia Preclinical Eli Lilly
Veterinary Applications:
ATRIDOX(TM) Product Periodontitis Preclinical Heska
ATRIGEL(R) System for
Vaccine Delivery Animal Vaccine Field Trial Pharmacia &
Upjohn

(1) See "-- Government Regulation."

DENTAL APPLICATIONS

The Company's initial dental products are targeted at periodontal disease.
Periodontal disease is characterized by chronic infection and inflammation of
the gums and surrounding tissue, resulting in the formation of periodontal
pockets (spaces between the gum and tooth) as the bone and periodontal ligament
surrounding the tooth deteriorate. Periodontal disease is not currently curable,
but continuous maintenance can prevent and/or delay flare-ups and further
deterioration. The severity of the disease varies from the mildest cases,
clinically termed gingivitis (bleeding gums), to the more severe cases,
clinically termed periodontitis, which is characterized by bone and ligament
loss around the tooth.

Periodontal disease is most prevalent after the age of 35. In a 1985-86
survey by the National Institute of Dental Research, it was determined that 44%
of adults in the United States had bleeding on probing and attachment loss of 3
millimeters or more, meeting the clinical definition of periodontal disease.
Progression of the disease is usually painless and asymptomatic allowing the
condition to become advanced before treatment is sought by the patient.
Effective treatment is possible only through periodic professional intervention
to arrest further tissue deterioration. The most common treatment, scaling and
root planing, requires the dental professional to scrape away accumulated plaque
and calculus above and below the gumline. For more serious cases, various forms
of gum surgery are the primary treatment. The Company believes that only a small
portion of patients diagnosed with periodontal disease seek treatment due to a
number of factors, including cost, pain and potential medical complications
associated with current treatments.

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The ATRISORB(R) Barrier. The Company's first product, the ATRISORB(R)
Barrier, utilizes the ATRIGEL(R) system formulated without a drug to act as a
barrier to aid in the regeneration of the ligament and bone tissue supporting
the tooth following osseous flap surgery. Osseous flap surgery, a common
treatment for severe cases of periodontal disease, involves the cutting of a
flap of gum tissue to expose infected tooth surfaces not reachable by
conventional scaling and root planing procedures. Published research has shown
that to obtain optimal healing following flap surgery, it is necessary to
isolate the healing wound site from the adjacent gum tissue. If the surgical
site is not isolated, gum epithelial cells will grow into the wound slowing the
reattachment of the supporting ligament and bone cells. The placement of a
barrier that isolates the surgical site from the gum tissue has been shown to
selectively facilitate growth of the periodontal ligament cells, leading to
connective tissue and bone regeneration at the base of the periodontal defect.
According to an American Dental Association Survey in 1990, there are over 2
million flap surgeries performed each year in the United States.

The ATRISORB(R) Barrier is formed outside of the mouth using a sterile,
single-procedure barrier forming kit. Once placed in the mouth over the
periodontal defect, the semi-solid barrier further solidifies upon contact with
oral fluids and adheres to the tooth's surface, isolating the healing site from
gum tissue and promoting selective regeneration of ligament and bone tissue. The
Company's preclinical and clinical trials have been presented at scientific
meetings and published in a number of scientific journals. To date, the Company
has published four studies. In the pivotal trial for the 510(k) submission
ATRISORB(R) Barrier was shown to be substantially equivalent to a currently
marketed barrier.

The Company believes the ATRISORB(R) Barrier has several advantages over
existing guided tissue regeneration products. These advantages include
conforming to the site, no requirement for sutures, a shorter period of time
required for placement, and no requirement of a second surgery to remove the
biodegradable ATRISORB(R) Barrier. In addition, periodontists can form multiple
barriers from a single kit, thereby reducing inventory requirements.

The Company completed human clinical trials of the ATRISORB(R) Barrier
during 1995 and filed a 510(k) notification with the FDA on December 21, 1995 to
market the ATRISORB(R) Barrier in the United States for guided tissue
regeneration applications. The Company received clearance of its 510(k)
application from the FDA on March 22, 1996. The Company also has received
clearance to market the ATRISORB(R) Barrier in Denmark, France, Ireland, Spain,
Switzerland and The Netherlands. In March 1996, Atrix commenced marketing the
ATRISORB(R) Barrier in each of the above mentioned European countries, except
Ireland. The Company expects to commence commercial sales in the United States
in the third quarter of 1996.

The ATRIDOX(TM) Product with Doxycycline. The ATRIDOX(TM) product combines
the ATRIGEL(R) system with the generic antibiotic doxycycline to form a product
designed to control the bacteria that cause periodontal disease. The ATRIDOX(TM)
product is intended to add a new, less invasive pharmaceutical maintenance
procedure to current periodontal treatment. The ATRIDOX(TM) product is
administered by a periodontist or a general dentist by filling the periodontal
pocket with the ATRIDOX(TM) product using a cannula that is similar in design to
a periodontal probe. The ATRIDOX(TM) product releases doxycycline in a sustained
manner over a period of seven days. In Phase II clinical trials, the Company
demonstrated that the ATRIDOX(TM) product reduced bleeding on probing, reduced
pocket depth and increased attachment level at statistically significant levels
over the vehicle alone. The Phase II trial included 180 patients with moderate
to severe periodontal disease. The patients were treated at baseline and at four
months with the ATRIDOX(TM) product. In these clinical trials, administration of
the ATRIDOX(TM) product was rapid, required a minimal amount of patient chair
time and involved minimal discomfort compared to conventional methods of
therapy.

In January 1995 the Company commenced pivotal Phase III trials on the
ATRIDOX(TM) product. The pivotal Phase III trials consist of two studies which
are being conducted at 20 sites and include 822 patients. The study protocol
calls for patients to be treated at baseline and again at four months to
simulate the use of the ATRIDOX(TM) product in a periodontal practice. All
patients have been enrolled and the clinical treatment phase of the study will
be completed in late May 1996. The clinical parameters being assessed are
attachment level gain, pocket depth reduction and bleeding on probing in
comparison to the placebo, scaling and root

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planing alone, and oral hygiene alone. If the results are favorable, the Company
expects to file an NDA with the FDA during the first quarter of 1997.

ATRISORB(R) Barrier with Doxycycline. The ATRISORB(R) Barrier with
doxycycline is under development by the Company in order to address concerns
about infections following periodontal surgery. It has been shown clinically
that post operative infections often lead to less than optimum healing.
Medicinal agents such as doxycycline can be incorporated into the ATRISORB(R)
Barrier, which the Company believes could provide a drug delivery capability not
feasible with other barriers currently on the market. As a result, the Company
believes the ATRISORB(R) Barrier with doxycycline will contribute to better
healing of the surgical site.

ATRISORB(R) Barrier with Tissue Growth Factors. Tissue growth factors are
capable of stimulating the growth of cellular components responsible for
regeneration of a periodontal defect. The Company has demonstrated that when
tissue growth factors are placed in a periodontal defect without a suitable drug
delivery system, there is minimal regeneration. In preclinical trials the
Company has demonstrated that regeneration of certain periodontal defects is
enhanced when certain tissue growth factors are used with ATRISORB(R) than when
the factors are delivered without the benefit of the ATRISORB(R) Barrier system.

MEDICAL AND VETERINARY HEALTH APPLICATIONS

Consistent with its business strategy, the Company continues to develop the
ATRIGEL(R) system for health care applications other than dentistry. The
Company's current medical applications under development are funded by joint
development agreements with other pharmaceutical and health care companies.

ATRIGEL(R) for Leuprolide Acetate. In 1995, the Company signed an exclusive
worldwide license agreement to collaborate with Gensia, Inc. (Gensia) in the
development of a product for the treatment of solid tumor cancers using the
ATRIGEL(R) system. Under the terms of the license, the Company is responsible
for conducting a feasibility study to characterize release rates of an existing
off-patent, anti-cancer drug and the development of a dosage form to be
evaluated in human clinical trials.

Gensia is responsible for conducting the clinical trials, scale-up and
manufacture of the product. The product will be marketed by Gensia Laboratories,
Ltd., a division of Gensia, which is developing a broad line of oncolytic
products. In addition, Gensia will fund the development program at Atrix, make
certain milestone payments, and pay a royalty on future sales of the product.

The product being developed is leuprolide acetate, a luteinizing hormone
releasing hormone peptide currently sold in the U.S. and abroad by Tap
Pharmaceuticals, Inc., a joint venture of Abbott Laboratories and Takeda
Pharmaceuticals, Ltd. The product is sold under the brand name Lupron(R).

ATRIGEL(R) System for Animal Vaccine Delivery. The Company has collaborated
with Pharmacia & Upjohn, Inc. (formerly The Upjohn Company) ("Upjohn") since
1991 to evaluate the ATRIGEL(R) system for the development of animal treatment
products. In 1994, Upjohn exercised its option for an exclusive license for the
ATRIGEL(R) system technology for animal vaccines. Upjohn has paid the Company a
licensing fee and is required to pay a royalty to the Company on future sales of
the project. During 1995, Upjohn initiated field trials to evaluate two
ATRIGEL(R) system vaccine formulations for efficacy. The Company intends to
continue to work with Upjohn as needed to optimize these products and to obtain
regulatory approval for their use in animals.

ATRIGEL(R) System for a CNS Drug. In 1994, the Company signed a research
and development agreement with Eli Lilly and Company ("Lilly") to evaluate the
potential use of the ATRIGEL(R) system with an antipsychotic drug under
development by Lilly. Pursuant to the agreement, Lilly has funded the Company's
feasibility program. Atrix completed the feasibility program in December 1995
and the Company and Lilly are currently discussing terms of a licensing
agreement.

ATRIDOX(TM) Product for Veterinary Applications. In 1995, the Company
signed an exclusive worldwide license agreement with Heska Corporation to
develop a product to treat periodontal disease in companion animals. Under the
terms of the license, the Company will develop a subgingival therapy for
periodontal disease in dogs and cats, comprised of the antibiotic doxycycline
and the ATRIGEL(R) system. In addition,

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Heska will fund certain elements of the Company's development program and make
certain milestone payments and the Company will supply all of Heska's
requirements for the product.

ATRIGEL(R) System for Solid Tumor Cancers. The Company believes the
ATRIGEL(R) system is well suited for the local delivery of certain anti-cancer
agents and has the potential to capitalize on the potency of these drugs while
diminishing the systemic side effects associated with them. The Company believes
that the ATRIGEL(R) system can release the agent into the solid tumor at higher
concentrations and for longer periods of time while providing lower systemic
levels of drug than generally can be achieved through injection or intravenous
delivery. High systemic levels of the drug frequently lead to undesirable side
effects. The Company has conducted preclinical studies where the ATRIGEL(R)
system containing the anti-cancer drugs cisplatin, doxorubicin and vinblastine
has been injected directly into solid tumors. These studies resulted in reduced
tumor volume and increased survival while minimizing side effects when compared
to the agents administered intravenously. Sustained release of the agents for
periods up to 28 days has been demonstrated preclinically.

Other Potential Applications. The Company has conducted research and
development for pain control by incorporating analgesics and anti-inflammatory
agents into the ATRIGEL(R) system. In addition, the Company has delivered in
preclinical studies the narcotic antagonist, naltrexone, in a controlled release
fashion for potential application in drug and alcohol abuse. The Company has
aerosolized its ATRIGEL(R) system to provide a spray-on barrier to separate
tissues in a potential application for surgical adhesion prevention. The Company
has no plans at this time to pursue these applications but is in a position to
complete the development work for a potential marketing partner.

MARKETING AND SALES

The Company plans to market most dental products itself in the United
States and will use distributors in Europe. Certain dental applications may be
large enough to warrant the use of additional distributors in the United States
in conjunction with the Company's own efforts. There are approximately 4,000
periodontists in the United States and 3,000 dentists that perform osseous flap
procedures in Europe. The Company received clearance to market the ATRISORB(R)
Barrier in six European countries, and on March 22, 1996 received clearance by
the FDA to market the product in the United States. In March 1996, Atrix
commenced marketing the ATRISORB(R) Barrier in five of the six European
countries in which it received clearance, and expects to commence commercial
sales in the United States in the third quarter of 1996. The Company expects its
present and future corporate partners to market its non-dental products. See
"Risk Factors -- Lack of Sales and Marketing Experience."

MANUFACTURING

The Company has limited experience in manufacturing any of its products on
a commercial scale. To date, the Company has manufactured its dental products
only on the small scale needed for clinical trials and testing formulations. The
Company recently expanded and upgraded its pilot manufacturing facility. The
Company's facility has the capacity to produce approximately 120,000 ATRISORB(R)
Barrier kits annually. The Company is in the process of completing validation to
comply with cGMP regulations for the manufacture of its dental products. For
certain steps in the manufacturing process the Company currently uses contract
manufacturers. See "Risk Factors -- Lack of Commercial Scale Manufacturing
Experience; Regulatory Compliance" and "-- Dependence on Third Parties."

The Company plans to use a portion of the proceeds of this offering to
build a new manufacturing facility. The Company will need to significantly
scale-up its current manufacturing processes and comply with cGMPs and other
regulations prescribed by various regulatory agencies in the United States and
other countries. Failure by the Company to successfully scale-up its
manufacturing processes or to comply with cGMPs and other regulations would have
a material adverse effect on the Company. Prior to the completion of such
facility, the Company will use contract manufacturers if necessary in order to
produce its additional requirements for the ATRISORB(R) Barrier. As an
alternative to establishing its own manufacturing capabilities or entering into
collaborative agreements, the Company may contract its manufacturing to an

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independent third party. There can be no assurance that the Company will be able
to enter into any such arrangements with a collaborative partner or independent
third parties on favorable terms, or at all. See "Risk Factors -- Dependence on
Third Parties."

PATENTS AND PROPRIETARY RIGHTS

The Company considers patent protection and proprietary position to be
materially significant to its business. The Company maintains eleven United
States patents and eight foreign patents, and has nineteen United States and
thirty-three foreign patent applications pending. The Company's ATRIGEL(R)
system, upon which the ATRISORB(R) Barrier, the ATRIDOX(TM) product and all of
the Company's presently anticipated future products are based, is protected by
claims contained in these patents and in pending patent applications.

Notwithstanding the Company's pursuit of patent protection, there is no
assurance that others will not develop delivery systems, compositions and/or
methods that infringe the Company's patent rights resulting from outright
ownership or non-revocable exclusive licensure of patents which relate to the
Company's delivery systems, composition and/or methods. In that event, such
delivery systems, compositions and methods may compete with the Company's
systems, compositions and methods and may adversely affect the operations of the
Company. Further, there is no assurance that patent protection will afford
adequate protection against competitors with similar systems, composition or
methods, nor is there any assurance that the patents will not be infringed or
circumvented by others. Moreover, it may be costly to pursue and to prosecute
patent infringement actions against others, and such actions could hamper the
business of the Company. The Company also relies on its unpatented proprietary
know-how. No assurance can be given that others will not be able to develop
substantially equivalent proprietary know-how or otherwise obtain access to the
Company's know-how, or that the Company's rights under any patents will afford
sufficient protection. See "Risk Factors -- Reliance on Patents and Proprietary
Rights."

COMPETITION

The development of therapeutic approaches to treat periodontal disease is
competitive. GTR barriers have been developed by several companies and can be
broadly categorized as nonbiodegradable and biodegradable barriers.
Nonbiodegradable barriers are marketed by William L. Gore Company and TEF Gen
USA, under the trade names Gore-Tex Periodontal Material and TefGen-FD(R)
Barrier Membrane, respectively. Biodegradable barriers are marketed by Guidor,
Inc., Calcitek, Inc. and William L. Gore under the names Guidor, Biomend and
Resolut Regeneration Material, respectively. These barriers come in multiple
sizes and shapes, require suturing to hold them in place, take more time to
apply and can be used only to treat a single site.

The treatment of periodontis by the subgingival controlled release delivery
of antimicrobial agents is also competitive. Actisite(R), marketed in the United
States by Proctor & Gamble and in Europe by ALZA Corporation, is currently the
only product cleared by the FDA for this use in the United States. Actisite(R)
is an ethylene vinyl acetate co-polymer fiber incorporated with 25%
tetracycline. Actisite(R) is nonbiodegradable is placed by a periodontal
professional into a periodontal pocket by means of a dental tool and requires
removal after 10 days. The indicated use for Actisite(R) is as an adjunctive
treatment to scaling and root planing. The Company is aware of other products in
development which may be competitive with the Company's first products.

The drug delivery industry is characterized by rapidly evolving technology
and intense competition. The Company's competitors include major pharmaceutical,
chemical, drug delivery and biotechnology companies, many of which have
financial, technical and marketing resources significantly greater than those of
the Company. In addition, many drug delivery and biotechnology companies have
formed collaborations with large, established pharmaceutical companies to
support research, development and commercialization of products that may be
competitive with those of the Company. There can be no assurance that product
introductions or developments by others will not render the Company's products
or technologies obsolete or place them at a competitive disadvantage.

Products utilizing the Company's proprietary drug delivery systems are
expected to compete with other products for specified indications, including
drugs marketed in conventional and alternative dosage forms.

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New drugs or further developments in alternative drug delivery methods may
provide greater therapeutic benefits for a specific drug or indication, or may
offer comparable performance at lower cost, than those offered by the ATRIGEL(R)
system. The Company expects proprietary products approved for sale to compete
primarily on the basis of product efficacy, safety, patient convenience,
reliability, availability, price and patent position. There can be no assurance
that product introductions or developments by others will not render the
Company's expected products or technologies noncompetitive or obsolete. See
"Risk Factors -- Competition; Rapid Technological Change."

GOVERNMENT REGULATION

The research and development, manufacturing and marketing of the Company's
products are subject to regulation by the FDA in the United States and by
comparable authorities in other countries. These national authorities and other
federal, state and local entities regulate, among other things, research and
development activities and the testing, manufacture, safety, effectiveness,
labeling, storage, record keeping, approval, advertising and promotion of the
Company's products.

The Federal Food, Drug and Cosmetic Act (the "Act"), the Public Health
Services Act, the Controlled Substance Act and other Federal statutes and
regulations govern or influence all aspects of the Company's business.
Noncompliance with applicable requirements can result in fines, criminal
prosecution, recall, seizure of products, injunctions, total or partial
suspension of production, withdrawals of approvals, and refusal of the
government to approve or clear product premarket submissions and applications or
to allow the Company to enter into contracts with the government. In addition,
administrative remedies can involve the recall of products as well as the
refusal of the government to approve pending applications, supplements to
approved applications or premarket notifications. The FDA also has the authority
to withdraw approval of drugs in accordance with statutory due process
procedures.

In order to obtain FDA approval of a new product, whether it is a drug or
device, the Company must submit proof of safety and effectiveness for NDAs and
PMAs. In most cases, such proof entails extensive preclinical and clinical
studies and laboratory tests. The preparation of an NDA or PMA applications and
processing of those applications by the FDA is expensive and may take several
years to complete. There can be no assurance that the FDA will file an NDA or a
PMA for substantive review. There can be no assurance that the FDA will act
favorably or timely in making such reviews, and significant difficulties or
costs may be encountered by the Company in its efforts to obtain FDA approvals
that could delay or preclude the Company from marketing any products it may
develop. There can also be no assurance that the FDA will not request the
development of additional safety or effectiveness data. Based upon the data, the
FDA may also limit the scope of labelling claims for products or deny the NDA or
PMA. With respect to patented products or technologies, delays imposed by the
governmental approval process may materially reduce the period during which the
Company will have the exclusive right to exploit such patented products, even
though patent extensions may be possible.

The Company's products, as presently anticipated, will be regulated as
either drugs or medical devices. Each type of product is regulated by different
provisions of the Act. The FDA's authority over medical devices derives from the
1976 Medical Device Amendments, the Safe Medical Devices Act of 1990 and the
regulations promulgated thereunder. At least 90 days prior to commencing
commercial distribution, a pre-market notification under Section 510(k) of the
law must be filed with the FDA with respect to certain medical devices intended
for commercial distribution. After receipt of the pre-market notification, the
FDA will determine whether the device is "substantially equivalent" to a device
already lawfully marketed and whether the device is otherwise subject to a PMA
requirement. Devices for which pre-market notifications have been filed may not
be marketed until the FDA issues an order finding the device to be substantially
equivalent to an already legally marketed device which is not otherwise subject
to a requirement of pre-market approval under Section 515 of the Act. Devices
which are found by the FDA to be not substantially equivalent to a legally
marketed device, and devices which are substantially equivalent to a device that
requires pre-market approval before marketing, must submit and receive approval
of a PMA before commercialization may commence. The preparation by the Company
and the FDA's review of a PMA are complex, typically including both animal and
human trials and may take several years to complete. Such trials must be

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conducted under an Investigational Device Exemption approved by the FDA and must
be approved and monitored by an Institutional Review Board ("IRB").

The Company received clearance to market the ATRISORB(R) Barrier in the
United States on March 22, 1996. The regulatory requirements for marketing
medical devices in the European Union (the "EU") are currently in transition as
the EU's new Medical Device Directive is being implemented. Some countries do
not currently require pre-market approval or notification for this type of
product, while other countries do not distinguish between medical devices and
drug products. The EU's Medical Device Directive transition period will end in
June 1998, after which time all medical devices will require a Communaute
Europeene (a "CE Mark") before they can be marketed in any EC member state.
Obtaining the CE Mark will require compliance with EU directives, which include
manufacturing and quality assurance documentation (and inspections) mandated by
the ISO 9000 Series standards and information on the product, performance,
safety, manufacture and quality control.

The Company currently expects to market the ATRISORB(R) Barrier in the nine
foreign countries which currently permit marketing based on compliance with
national medical device requirements. Of these foreign countries, the Company
has received clearance to market the ATRISORB(R) Barrier in Denmark, France,
Ireland, Spain, Switzerland and The Netherlands. The Company also is actively
pursuing clearance to market the ATRISORB(R) Barrier in Italy, Israel, and
Sweden. The Company plans to complete the additional work required to obtain the
CE Mark prior to expiration of the Medical Device Directive transition period in
June 1998 and upon obtaining a CE Mark to market the ATRISORB(R) Barrier in
additional foreign countries.

Products such as the Company's drug delivery system have been generally
regulated under the new drug and related provisions of the Act. The process
required by the FDA before a drug delivery system may be marketed in the United
States depends on whether the drug has existing approval. If the drug is a new
chemical entity that has not been previously approved, then the process includes
(i) preclinical laboratory and animal tests, (ii) an investigational new drug
("IND") exemption which has become effective, (iii) adequate and well-controlled
human clinical trials to establish the safety and efficacy of the drug in its
intended application and (iv) FDA approval of an NDA. If the drug has been
previously approved, then the approval process is substantially similar, except
that certain toxicity tests normally required for the IND may not be required.

Clinical trials are conducted in accordance with protocols that detail the
objectives of the study, the statistical methods to be used in the study, a
description of study end points, criteria for evaluating the safety and
effectiveness, and an array of detailed parameters that are necessary to produce
an adequate and well controlled clinical study. Each protocol is submitted to
the FDA as part of the IND. The FDA must review and approve the protocol and IND
application. However, such an approval is not tantamount to commitment to
approve an NDA, even when the study results are favorable. Each clinical study
is conducted under the authority of a qualified IRB which is in compliance with
the requirements of 21 CFR, part 56. The IRB will consider, among other things,
ethical factors, the safety of human subjects, the protection of patient
confidentiality, informed consents, and the possible liability of the
institution.

Clinical trials are typically conducted in three sequential phases, but
these phases may overlap. During Phase I, the initial introduction of the drug
into healthy human subjects, the product is tested for safety, dosage tolerance,
absorption, distribution, metabolism and excretion. Phase II involves trials in
a limited patient population to (i) determine the efficacy of the product for
specific, target indications, (ii) determine dosage tolerance and optimal
dosage; and, (iii) identify possible adverse effects and safety risks. If Phase
II evaluations demonstrate that a drug has promising therapeutic benefits and
has an acceptable safety profile, Phase III trials are undertaken to further
evaluate clinical efficacy and to further test for safety within an expanded
patient population often at geographically dispersed clinical study sites. A
clinical plan, or "protocol," must be submitted to the FDA prior to the
commencement of each clinical trial. All patients involved in the clinical
trials must provide informed consent prior to their participation. The FDA may
order the temporary or permanent discontinuation of a clinical trial at any
time. The results of the clinical trials are submitted to the FDA as part of the
NDA to establish the safety and effectiveness of the drug for its intended
indications. The FDA may order the temporary or permanent discontinuation of
clinical trials at any time if it

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28

believes that clinical subjects are being exposed to an unacceptably high safety
risk or the design of the trial will not meet its stated objectives.

The results of product development, testing, preclinical trials and
clinical trials are submitted to the FDA in an NDA for approval of the marketing
and commercial shipment of the product. Prosecution of an NDA can take several
years to complete, and there is no assurance that the FDA will approve a
submitted NDA.

The FDA may deny an NDA if applicable regulatory criteria, including
compliance with cGMP, are not satisfied. The FDA may require additional clinical
testing or other types of testing, or manufacturing or quality control changes.
Even if such data are submitted or such changes are made, the FDA may ultimately
decide that the NDA does not satisfy the criteria for approval, and will deny
approval of the application. Before approval of an NDA, the FDA will inspect
records and manufacturing processes relating to the production and laboratory
testing of the finished drug product to ensure compliance with cGMPs. Following
approval, the FDA may condition marketing on receipt of final printed labelling.
Product approvals may be withdrawn by the FDA if compliance with regulatory
standards is not maintained or if new evidence demonstrating that the drug is
unsafe or lacks efficacy for its intended uses becomes known after the product
reaches the market. The FDA may require testing and surveillance programs to
monitor the effect of the Company's proprietary drug delivery systems which have
been commercialized, and has the power to prevent or limit further marketing of
the product based on the results of these post-marketing surveillance programs.
Any failure to obtain required regulatory approvals, or any substantial delay in
obtaining such approval, could have a material adverse effect on the Company.
See "Risk Factors -- Government Regulation; Uncertainty of Obtaining Regulatory
Approval" and "-- Lack of Commercial Scale Manufacturing Experience; Regulatory
Compliance."

Each domestic drug product manufacturing establishment must be registered
with, and achieve a satisfactory inspection from, the FDA. Establishments
handling controlled substances must be licensed by the United States Drug
Enforcement Administration. Domestic manufacturing establishments are subject to
inspection by the FDA prior to the approval of an NDA and to biennial
inspections by the FDA for cGMP compliance after an NDA has been approved.
Additionally, after approval the Company must make adverse product experience
reports to the FDA. The Prescription Drug User Fee Act of 1992, enacted to
expedite drug approval by providing the FDA with resources to hire additional
medical reviewers, imposes user fees on manufacturers who submit certain
applications to the FDA for pre-market approval of new drugs. Also, under
specified conditions, manufacturers of new drugs are subject to establishment
fees and product fees. Drug user fees are substantial.

THIRD PARTY REIMBURSEMENT

The cost of a significant portion of medical care in the United States is
funded by government and private insurance programs, such as Medicare, Medicaid,
health maintenance organizations and private insurers, including Blue Cross/Blue
Shield plans. Governmental imposed limits on reimbursement of hospitals and
other health care providers (including dental practitioners) have significantly
impacted their spending budgets. Under certain government insurance programs, a
health care provider is reimbursed a fixed sum for services rendered in treating
a patient, regardless of the actual charge for such treatment. Private
third-party reimbursement plans are also developing increasingly sophisticated
methods of controlling health care costs through redesign of benefits and
exploration of more cost-effective methods of delivering health care. In
general, these government and private cost-containment measures have caused
health care providers to be more selective in the purchase of medical products.

Significant uncertainty exists as to the reimbursement status of newly
approved health care products, and there can be no assurance that adequate
third-party coverage will be available. Limitations imposed by government and
private insurance programs and the failure of certain third-party payers to
fully or substantially reimburse health care providers for the use of the
products could have a material adverse effect on the Company. See "Risk
Factors -- Uncertainty of Customer Acceptance; Third Party Reimbursement."

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29

EMPLOYEES

As of April 1, 1996, the Company employed 71 employees on a full-time basis
and one person on a part-time basis. Of the 71 full-time employees, 62 are
engaged in research and clinical testing and the remaining nine are in
administrative capacities. Seven employees have earned doctorate or advanced
degrees. None of the Company's employees are represented by a union or
collective bargaining unit and management considers relations with employees to
be good.

MANAGEMENT

The directors and officers of the Company and their ages as of April 1,
1996 are as follows:

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

John E. Urheim(1)............... 55 Vice Chairman, Chief Executive Officer and
Director
Dr. G. Lee Southard(1).......... 59 President, Chief Scientific Officer and
Director
Dr. Richard L. Dunn............. 55 Vice President, Drug Delivery Research
Dr. Charles P. Cox.............. 43 Vice President, New Business Development
Dr. J. Steven Garrett........... 50 Vice President, Dental Clinical Research
Michael R. Duncan............... 33 Vice President, Manufacturing
Rees M. Orland.................. 51 Vice President, Marketing and Sales
Kimberly A. Marks............... 33 Corporate Controller, Assistant Secretary and
Assistant Treasurer
William C. O'Neil, Jr.(1)(2).... 61 Chairman of the Board
David R. Bethune(2)............. 55 Director
Dr. R. Bruce Merrifield(3)...... 74 Director
Dr. Jere E. Goyan(3)............ 64 Director
Dr. D. Walter Cohen(1)(3)....... 69 Director
C. Rodney O'Connor.............. 63 Director
H. Stuart Campbell(2)........... 67 Director

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

(1) Member of the Executive Committee.

(2) Member of the Compensation Committee.

(3) Member of the Audit Committee.

John E. Urheim has served as Vice Chairman, Chief Executive Officer and a
director of the Company since June 1993. From April 1989 through June 1993, he
was a principal of Urheim Consultants, a health care consulting firm. Mr. Urheim
has 25 years prior work experience at Abbott Laboratories, G.D. Searle, Owens
Illinois Corporation, and Gynex Pharmaceuticals Inc. Mr. Urheim received his
Bachelor of Arts degree in Economics and Political Science from Cornell College
and a Masters degree in Economics from the University of Iowa.

Dr. G. Lee Southard has been a director of the Company since 1986 and has
served as President of the Company since 1987. Dr. Southard has served as Chief
Scientific Officer of the Company since June 15, 1993 and serves as a director
of Mesa Laboratories, Inc., a medical equipment and data measurement company.
Dr. Southard received his Bachelor of Science degree from the Virginia Military
Institute, his Master of Science degree from George Washington University and
his Ph.D. from the University of North Carolina at Chapel Hill.

Dr. Richard L. Dunn has served as Vice President, Drug Delivery Research
since 1992. From 1987 to 1992, he served as Vice President, Research and
Development. Dr. Dunn received his Bachelor of Science in chemistry from the
University of North Carolina at Chapel Hill and his Ph.D. in organic chemistry
from the University of Florida.

28
30

Dr. Charles P. Cox has served as Vice President, New Business Development
since January 1996, and served as Vice President, Product Development from
September 1992 to January 1996. Dr. Cox served as Project Director of Research
and Development, Project Planning and Management for G.D. Searle & Company, a
pharmaceutical company, from 1987 to September 1992. Dr. Cox received a Bachelor
of Arts in Zoology from the University of Tulsa, a Masters of Business
Administration from Northwestern University, and a Masters of Science and a
Ph.D. in Medical Microbiology and Immunology from the University of Oklahoma.

Dr. J. Steven Garrett has served as Vice President, Dental Clinical
Research since April 1995. He served as Professor of Periodontics at Loma Linda
University from 1986 to 1995 and was in private practice specializing in
periodontics for 17 years. Dr. Garrett is a Diplomat of the American Academy of
Periodontology and serves on the editorial boards of numerous professional
journals.

Michael R. Duncan has served as Vice President, Manufacturing since October
1995. He served as Director of Production Operations and Packaging Manager for
Geneva Pharmaceuticals, Inc., a pharmaceutical company, from 1992 to 1995. Prior
to 1992, he served as a Production Planner at Roxanne Laboratories, Inc. Mr.
Duncan received a degree in Business Administration from Regis University.

Rees M. Orland has served as Vice President, Marketing and Sales since
January 1996. He was the owner of RMO Consulting Group, a healthcare marketing
consulting business, from 1992 to 1996 and served as Corporate Senior Vice
President for Collagen Corporation from 1991 to 1992. Mr. Orland received a
Bachelors degree and a Masters of Business Administration from the University of
Michigan.

Kimberly A. Marks has served as Corporate Controller and Assistant
Secretary of the Company since February 1991 and as Assistant Treasurer since
November 1992. Ms. Marks received a Bachelor of Science in Accounting from the
University of Denver.

William C. O'Neil, Jr. has been Chairman of the Board of the Company since
1994 and a director since 1988. He has served as Chairman, President and Chief
Executive Officer of ClinTrials Research, Inc., a clinical research services
company, since 1989. Mr. O'Neil also serves as a director of Sigma Aldrich
Corp., American Healthcorp, Central Parking and Advocat. Mr. O'Neil received a
Bachelor of Arts degree from St. Bonaventure University and a Masters of
Business Administration from Harvard University.

David R. Bethune has been a director of the Company since 1995. He has
served as President and Chief Executive Officer of Aesgen, Inc., a generic
pharmaceutical drug company, since 1995 and served as Group Vice President of
American Cyanamid Company from 1992 to 1995. In September 1992, he was named a
member of the Executive Committee of American Cyanamid Company. He was President
of the Lederle Laboratories Division of American Cyanamid Company from 1988 to
1992. Mr. Bethune also serves as a director of Elan Corp., the American
Foundation for Pharmaceutical Education, Partnership for Prevention and is a
founding trustee of the American Cancer Society Foundation. He received a
Bachelors degree in Business from Lenoir Rhyne College.

Dr. R. Bruce Merrifield has been a director of the Company since 1986. He
has been a professor at Rockefeller University since 1966 and associate editor
for the International Journal of Peptide and Protein Research and a member of
the Editorial Board of Analytical Biochemistry. In 1984, Dr. Merrifield was
awarded the Nobel Prize for Chemistry. Dr. Merrifield also serves as a director
of Profile Diagnostic Sciences, Inc. Dr. Merrifield received his Ph.D. degree
from the University of California, Los Angeles.

Dr. Jere E. Goyan has been a director of the Company since 1986. He has
served as President and Chief Operating Officer of Alteon, Inc., a
pharmaceutical company, since May 1993, acting Chief Executive Officer from May
1993 to August 1993, Senior Vice President, Research and Development from April
1, 1993 to May 1993, and a member of the Board of Directors since January 1993.
Dr. Goyan was professor of Pharmacy and Pharmaceutical Chemistry at, and Dean
of, the School of Pharmacy at the University of California, San Francisco, from
1965 and 1967, respectively, to 1993, and currently serves as Emeritus Dean of
the School of Pharmacy. Dr. Goyan also serves as a director of Emisphere
Technologies, Boehringer Ingelheim and Sciclone, Inc. Dr. Goyan received his
Ph.D. degree from the University of California.

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31

Dr. D. Walter Cohen has been a director of the Company since 1992. He has
served as Chancellor of the Medical College of Pennsylvania since July 1993 and
President of the Medical College of Pennsylvania from 1990 to 1993. Since 1950,
Dr. Cohen also has had a dental practice specializing in periodontics. Dr. Cohen
received his DDS from the University of Pennsylvania School of Dentistry.

C. Rodney O'Connor has been a director of the Company since 1986. He has
served as Chairman and Chief Executive Officer of Cameron Associates, Inc., a
financial communications firm, since 1976. Mr. O'Connor is currently a director
of Fundamental Management Corp. Mr. O'Connor received a Masters Degree in
Finance from the Wharton School of Finance.

H. Stuart Campbell has been a director of the Company since 1995. He is the
owner and an officer of Highland Packaging Labs, Inc., which is a specialty
packaging company for the pharmaceutical industry, and he currently serves as a
director for Biomatrix, Inc., Isomedix, Inc. and Mesa Laboratories, Inc. Mr.
Campbell received a Bachelor of Science degree from Cornell University.

DESCRIPTION OF CAPITAL STOCK
COMMON STOCK

The authorized common stock of the Company consists of 25,000,000, $.001
par value per share and as of April 1, 1996, there were 8,484,567 shares of
Common Stock outstanding and held of record by approximately 3,701 stockholders.
Holders of shares of Common Stock are entitled to one vote per share on matters
to be voted upon by the stockholders of the Company. The Certificate of
Incorporation of the Company (the "Certificate") provides for cumulative voting
for the election of directors on or after the date on which the Company becomes
aware that any stockholder has become the beneficial owner, directly or
indirectly, of 30% or more of the outstanding shares of capital stock of the
Company entitled to vote generally in the election of directors. No class of the
Company's stock carries with it any preemptive right to subscribe for any
securities of the Company.

PREFERRED STOCK

Under its Certificate, the Company has authority to issue 5,000,000 shares
of preferred stock, $.001 par value per share, in one or more series as
determined by the Board of Directors. No shares of preferred stock are currently
issued or outstanding. The Board of Directors may, without further action by the
stockholders of the Company, issue series of preferred stock and fix the rights
and preferences of those shares, including the dividend rights, dividend rates,
conversion rights, exchange rights, voting rights, terms of redemption,
redemption price or prices, liquidation preferences and the number of shares
constituting any series or the designation of such series. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock issued by the Company in the
future.

PROVISIONS WHICH MAY DELAY A CHANGE IN CONTROL OF THE COMPANY

The Certificate contains certain provisions which may delay or discourage a
change in control of the Company, including provisions establishing a classified
board of directors, permitting cumulative voting in certain circumstances,
establishing a process to enlarge and fill vacancies on the board of directors
and deterring certain self-dealing transactions. Certain of these provisions are
designed to increase the likelihood that the Company's Board of Directors, if
presented with a proposal for a business combination or other major transaction
from a third party that has acquired a block of the Company's stock, will have
sufficient time to review the proposal and possible alternatives to the proposal
and to act in what it believes to be in the best interests of the stockholders.
These provisions may discourage certain types of non-negotiated transactions
which would result in a change of control of the Company and are expected to
encourage persons seeking to acquire control of the Company to consult first
with the Company's Board of Directors to negotiate the terms of any proposed
business combination or offer.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.

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32

UNDERWRITING

Montgomery Securities and Cruttenden Roth Incorporated (the "Underwriters")
have severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement (the "Underwriting Agreement") among the Company and the
Underwriters, to purchase from the Company the number of shares of Common Stock
indicated below opposite their respective names at the public offering price
less the underwriting discount set forth on the cover page of this Prospectus.
The Underwriting Agreement provides that the obligations of the Underwriters to
pay for and accept delivery of the shares of Common Stock are subject to certain
conditions precedent, and that the Underwriters are committed to purchase all of
the shares if they purchase any of the shares.

NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------------- ---------

Montgomery Securities.....................................................
Cruttenden Roth Incorporated..............................................
-------
Total...........................................................
=======

The Company has been advised by the Underwriters that they propose
initially to offer the shares of Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other dealers. After the public
offering, the offering price and other selling terms may be changed by the
Underwriters. The Common Stock is offered subject to receipt and acceptance by
the Underwriters, and to certain other conditions, including the right to reject
orders in whole or in part.

The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to a
maximum of 375,000 additional shares of Common Stock at the public offering
price less the underwriting discount set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
above table. The Underwriters may purchase such shares only to cover
over-allotments made in connection with this offering.

The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.

Executive officers and directors of the Company, holding in the aggregate
521,855 shares of Common Stock and options to purchase 330,266 shares of Common
Stock, have agreed not to directly or indirectly offer, sell or otherwise
dispose of any of such Common Stock or any securities convertible into or
exchangeable therefor for a period of 90 days after the date of this Prospectus
without the prior written consent of Montgomery Securities. The Company has
agreed that, for a period of 90 days after the date of this Prospectus, it will
not, without the prior written consent of Montgomery Securities, issue, offer
for sale, sell, transfer, grant options to purchase or otherwise dispose of any
shares of its Common Stock or securities convertible into or exchangeable for
its Common Stock or other equity security, except pursuant to the Company's
Amended and Restated Performance Stock Option Plan and Non-Qualified Stock
Options Plans (the "Stock Option Plans").

In connection with this offering, certain Underwriters and selling group
members may engage in passive market making transactions in the Common Stock on
the Nasdaq National Market immediately prior to the commencement of sales in
this offering, in accordance with Rule 10b-6A under the Exchange Act. Passive
market making consists of displaying bids on the Nasdaq National Market limited
by the bid prices of independent market makers for a security and making
purchases of a security which are limited by such prices and effected in
response to order flow. Net purchases by a passive market maker on each day are
limited to a specified percentage of the passive market maker's average daily
trading volume in the Common Stock during a specified prior period and must be
discontinued when such limit is reached. Passive market making may

31
33

stabilize the market price of the Common Stock at a level above that which might
otherwise prevail and, if commenced, may be discontinued at any time.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Kutak Rock, Denver, Colorado. Certain legal matters in
connection with this offering will be passed upon for the Underwriters by
Morrison & Foerster LLP, San Francisco, California. Patton Boggs, L.L.P.,
Washington, D.C., has reviewed and passed upon certain legal (excluding factual)
matters contained in the Prospectus under the captions "Risk
Factors -- Government Regulation; Uncertainty of Obtaining Regulatory Approval,"
"-- Lack of Commercial Scale Manufacturing Experience; Regulatory Compliance"
and "Business -- Government Regulation."

EXPERTS

The financial statements of the Company as of December 31, 1994 and 1995
and for the years ended December 31, 1995 and 1994, the three months ended
December 31, 1993, and the year ended September 30, 1993, incorporated by
reference and included in this Prospectus have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report thereon incorporated by
reference and appearing herein, and have been so incorporated by reference and
included herein in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.

The statements in the Prospectus under the captions "Risk
Factors -- Reliance on Patents and Proprietary Rights," and "Business -- Patents
and Proprietary Rights" have been reviewed and approved by Merchant & Gould,
Minneapolis, Minnesota, patent counsel for the Company, as experts in such
matters, and are included herein in reliance upon that review and approval.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities of the Commission located at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at 7 World Trade Center, 13th Floor, New York, New York 10048, and at
500 West Madison Street, Chicago, Illinois 60661. Copies of such material can
also be obtained at prescribed rates from the Public Reference Section of the
Commission at Room 1024, 450 Fifth Street, N.W, Washington, D.C. 20549. The
Common Stock of the Company is quoted on the Nasdaq National Market. Reports and
other information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc. at 9513 Key West Avenue, Rockville,
Maryland 20850.

The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the rules
and regulations of the Commission. Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete, and in each instance, reference is made to the copy of such contract
or other document filed as an exhibit or incorporated by reference to the
Registration Statement of which this Prospectus forms a part, each such
statement being qualified in all respects by such reference. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement. Copies of the Registration
Statement may be inspected, without charge, at the offices of the Commission, or
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549.

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34

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission are hereby
incorporated by reference in this Prospectus: (1) the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, and (2) the description
of the Company's Common Stock contained in its Registration Statement on Form
8-A filed with the Commission on January 12, 1990. All documents filed by the
Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this Prospectus and prior to the termination of
the offering covered by this Prospectus will be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained herein or in any document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.

The Company will provide, without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any and all of the information that has been or may be incorporated by reference
in this Prospectus, other than exhibits to such documents (unless such exhibits
are specifically incorporated by reference into such documents). Such requests
should be directed to Atrix Laboratories, Inc. Attention: Corporate Secretary,
2579 Midpoint Drive, Fort Collins, Colorado 80525, telephone (970) 482-5868.

33
35

INDEX TO FINANCIAL STATEMENTS

PAGE
-----------

REPORT OF INDEPENDENT AUDITORS................................................. F-2
FINANCIAL STATEMENTS:
Balance Sheets -- December 31, 1994 and 1995................................... F-3
Statements of Operations -- Year Ended September 30, 1993, Three Months Ended
December 31, 1993, and Years Ended December 31, 1994 and 1995................ F-4
Statements of Changes in Stockholders' Equity -- Year Ended September 30, 1993,
Three Months Ended December 31, 1993, and Years Ended December 31, 1994 and
1995......................................................................... F-5
Statements of Cash Flows -- Year Ended September 30, 1993, Three Months Ended
December 31, 1993, and Years Ended December 31, 1994 and 1995................ F-6
NOTES TO FINANCIAL STATEMENTS.................................................. F-7 - F-12

F-1
36

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Atrix Laboratories, Inc.:

We have audited the accompanying balance sheets of Atrix Laboratories, Inc.
(the "Company") as of December 31, 1994 and December 31, 1995, and the related
statements of operations, changes in stockholders' equity and cash flows for the
year ended September 30, 1993, three months ended December 31, 1993, and years
ended December 31, 1994 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1994 and
December 31, 1995, and the results of its operations, and its cash flows for the
year ended September 30, 1993, three months ended December 31, 1993, and years
ended December 31, 1994 and 1995, in conformity with generally accepted
accounting principles.

/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP

Denver, Colorado
January 26, 1996

F-2
37

ATRIX LABORATORIES, INC.

BALANCE SHEETS

ASSETS

DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------

CURRENT ASSETS:
Cash and cash equivalents...................................... $ 1,880,275 $ 925,487
Marketable securities, held-to-maturity, at cost (Note 2)...... 7,896,827 --
Marketable securities, available-for-sale, at fair value (Note
2).......................................................... 3,300,894 10,996,847
Accounts receivable............................................ 93,469 190,665
Interest receivable............................................ 140,848 112,303
Prepaid expenses and deposits.................................. 119,102 572,751
Inventories (Note 1)........................................... -- 202,264
----------- -----------
Total current assets................................... 13,431,415 13,000,317
----------- -----------
MARKETABLE SECURITIES, HELD-TO-MATURITY, AT COST (Note 2)........ 7,172,095 --
----------- -----------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures.............................. 1,276,895 1,847,164
Leasehold improvements......................................... 368,851 506,190
----------- -----------
Total.................................................. 1,645,746 2,353,354
Accumulated depreciation and amortization...................... (771,274) (1,133,864)
----------- -----------
Property and equipment, net............................ 874,472 1,219,490
----------- -----------
OTHER ASSETS:
Intangible assets, net of accumulated amortization of $37,065
and $52,240................................................. 527,640 674,116
----------- -----------
TOTAL............................................................ $ 22,005,622 $ 14,893,923
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable-trade......................................... $ 481,267 $ 1,862,850
Accrued salaries and payroll taxes............................. 63,000 72,199
Other accrued liabilities (Note 8)............................. 195,815 152,108
Deferred revenue............................................... 75,000 --
----------- -----------
Total current liabilities.............................. 815,082 2,087,157
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 8)
STOCKHOLDERS' EQUITY: (Note 4)
Preferred stock $.001 par value; authorized 5,000,000 shares,
none issued or outstanding.................................. -- --
Common stock $.001 par value; authorized 25,000,000 shares;
7,743,078 and 8,433,296 shares issued and outstanding....... 7,743 8,433
Unrealized holding loss on securities available-for-sale (Note
2).......................................................... (396,965) (35,176)
Additional paid-in capital..................................... 39,977,455 43,889,473
Accumulated deficit............................................ (18,397,693) (31,055,964)
----------- -----------
Total stockholders' equity............................. 21,190,540 12,806,766
----------- -----------
TOTAL............................................................ $ 22,005,622 $ 14,893,923
=========== ===========

See notes to the financial statements

F-3
38

ATRIX LABORATORIES, INC.

STATEMENTS OF OPERATIONS

THREE
YEAR ENDED MONTHS ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1993 1994 1995
------------- ------------ ------------ ------------

REVENUE:
Contract revenue (Note 6)............ $ 1,036,514 $ 162,209 $ 701,112 $ 571,164
Contract revenue from related party
(Notes 5 and 6)................... 341,924 3,000 12,000 9,000
Interest income...................... 1,556,187 373,930 1,320,258 986,995
(Loss) gain on sale of securities.... 157,681 -- (218,043) (4,895)
----------- ----------- ----------- ------------
Total revenue................ 3,092,306 539,139 1,815,327 1,562,264
----------- ----------- ----------- ------------
EXPENSES:
Research expenses-ATRIDOX(R)
product........................... 2,788,787 540,512 2,764,587 5,683,805
Other research and development....... 3,064,702 841,849 3,902,480 3,904,730
Administrative expenses.............. 937,035 163,416 688,122 829,509
Acquisition of rights (Note 3)....... -- -- -- 3,802,491
----------- ----------- ----------- ------------
Total expenses............... 6,790,524 1,545,777 7,355,189 14,220,535
----------- ----------- ----------- ------------
NET LOSS............................... $ (3,698,218) $(1,006,638 ) $ (5,539,862) $(12,658,271)
=========== =========== =========== ============
NET LOSS PER COMMON SHARE.............. $ (0.48) $ (0.13 ) $ (0.72) $ (1.58)
=========== =========== =========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING 7,695,164 7,721,023 7,740,981 8,001,985
=========== =========== =========== ============

See notes to the financial statements.

F-4
39

ATRIX LABORATORIES, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

COMMON STOCK ADDITIONAL UNREALIZED TOTAL
------------------- PAID-IN HOLDING ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL GAIN (LOSS) DEFICIT EQUITY
--------- ------ ----------- ----------- ------------ ------------

BALANCE, SEPTEMBER 30, 1992........ 7,627,256 $7,627 $39,673,890 $ -- $ (8,152,975) $ 31,528,542
--------- ------ ----------- --------- ------------ ------------
Exercise of employee stock
options.......................... 89,917 90 209,113 -- -- 209,203
Issuance of common stock for
warrants......................... 3,850 4 19,245 -- -- 19,249
Unrealized holding gain............ -- -- -- 59,634 -- 59,634
Net loss for the year.............. -- -- -- -- (3,698,218) (3,698,218)
--------- ------ ----------- --------- ------------ ------------
BALANCE, SEPTEMBER 30, 1993........ 7,721,023 $7,721 $39,902,248 $ 59,634 $(11,851,193) $ 28,118,410
--------- ------ ----------- --------- ------------ ------------
Unrealized holding loss............ -- -- -- (133,637) -- (133,637)
Net loss for the period............ -- -- -- -- (1,006,638) (1,006,638)
--------- ------ ----------- --------- ------------ ------------
BALANCE, DECEMBER 31, 1993......... 7,721,023 $7,721 $39,902,248 $ (74,003) $(12,857,831) $ 26,978,135
--------- ------ ----------- --------- ------------ ------------
Exercise of employee stock
options.......................... 14,080 14 35,340 -- -- 35,354
Issuance of common stock for
warrants......................... 7,975 8 39,867 -- -- 39,875
Unrealized holding loss............ -- -- -- (322,962) -- (322,962)
Net loss for the year.............. -- -- -- -- (5,539,862) (5,539,862)
--------- ------ ----------- --------- ------------ ------------
BALANCE, DECEMBER 31, 1994......... 7,743,078 $7,743 $39,977,455 $(396,965) $(18,397,693) $ 21,190,540
--------- ------ ----------- --------- ------------ ------------
Exercise of stock options.......... 139,350 139 391,611 -- -- 391,750
Acquisition of rights.............. 550,868 551 3,520,407 -- -- 3,520,958
Unrealized holding gain............ -- -- -- 361,789 -- 361,789
Net loss for the year.............. -- -- -- -- (12,658,271) (12,658,271)
--------- ------ ----------- --------- ------------ ------------
BALANCE, DECEMBER 31, 1995......... 8,433,296 $8,433 $43,889,473 $ (35,176) $(31,055,964) $ 12,806,766
========= ====== =========== ========= ============ ============

See notes to the financial statements.

F-5
40

ATRIX LABORATORIES, INC.

STATEMENTS OF CASH FLOWS

YEAR THREE YEAR YEAR
ENDED MONTHS ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1993 1994 1995
------------- ------------ ------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................... $ (3,698,218) $(1,006,638 ) $ (5,539,862) $(12,658,271)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................. 215,825 61,187 277,075 369,663
Amortization of patents...................... 6,896 1,890 13,632 15,175
Amortization of bond premiums................ 367,544 157,798 360,763 241,623
(Gain) loss on sale of marketable
securities................................. (157,681) -- 218,043 4,895
Write-off of obsolete patents................ 69,038 -- 134,380 5,506
Acquisition of rights through issuance of
common stock............................... -- -- -- 3,520,958
Net changes in current assets and
liabilities:
Accounts receivable.......................... (74,433) (11,598 ) (62,176) (97,196)
Inventory.................................... -- -- -- (202,264)
Prepaid expenses and deposits................ 72,205 (53,702 ) 43,199 (453,649)
Income tax refund receivable................. 112,492 -- -- --
Interest receivable.......................... 244,661 150,996 17,035 28,545
Accounts payable - trade..................... 92,903 109,921 (18,134) 1,381,583
Accrued salaries and payroll taxes........... 8,116 355 10,412 9,199
Other accrued liabilities.................... 20,576 (6,335 ) (32,106) (43,707)
Deferred revenue............................. (151,865) (125,643 ) (79,357) (75,000)
------------ ----------- ----------- ------------
Net cash used in operating activities... (2,871,941) (721,769 ) (4,657,096) (7,952,940)
------------ ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment, furniture and
fixtures................................... (231,475) (43,053 ) (312,294) (577,342)
Acquisition of leasehold improvements........ -- (2,983 ) (27,055) (137,339)
Investments in intangible assets............. (184,291) (46,893 ) (157,829) (167,157)
Proceeds from maturities of marketable
securities................................. 12,934,404 -- 5,000,000 5,185,800
Proceeds from sale of marketable securities,
available-for-sale......................... 11,314,120 -- 4,848,194 2,533,283
Investment in marketable securities.......... (19,522,350) (116,902 ) (3,478,191) (230,843)
------------ ----------- ----------- ------------
Net cash provided by (used in) investing
activities............................ 4,310,408 (209,831 ) 5,872,825 6,606,402
------------ ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Prepayment of long-term borrowing from related
party........................................ (3,586,272) -- -- --
Proceeds from issuance of common stock and
exercise of stock options.................... 228,452 -- 75,229 391,750
------------ ----------- ----------- ------------
Net cash (used in) provided by financing
activities............................ (3,357,820) -- 75,229 391,750
------------ ----------- ----------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS.................................... (1,919,353) (931,600 ) 1,290,958 (954,788)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD... 3,440,270 1,520,917 589,317 1,880,275
------------ ----------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD......... $ 1,520,917 $ 589,317 $ 1,880,275 $ 925,487
============ =========== =========== ============

See notes to the financial statements.

F-6
41

ATRIX LABORATORIES, INC.

NOTES TO THE FINANCIAL STATEMENTS
FOR YEAR ENDED SEPTEMBER 30, 1993, THREE MONTHS ENDED DECEMBER 31, 1993,
AND YEARS ENDED DECEMBER 31, 1994 AND 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Atrix Laboratories, Inc. (the "Company") was incorporated in 1986. Its
principal business is the research and development of a broad range of medical,
dental and veterinary products based upon a biodegradable sustained release drug
delivery system. Subsequent to December 31, 1995, the Company received 510(k)
clearance to market its first product, the ATRISORB(R) GTR Barrier, in the
United States. The Company has also received clearance to market the product in
six European countries. All of the Company's other products are in either the
research, development, or clinical stage.

CHANGE IN FISCAL YEAR END

Effective October 1, 1993, the Company changed its year end from September
30 to a calendar year ending December 31.

CASH AND CASH EQUIVALENTS

Cash equivalents include all highly liquid investments with an original
maturity of three months or less.

INVESTMENTS

Investments in marketable securities for which the Company has the ability
and intent to hold to maturity are carried at amortized cost. Other securities
are classified as available-for-sale and carried at fair value with the
unrealized holding gain or loss included in stockholders' equity. Premiums and
discounts associated with bonds are amortized using the effective interest rate
method.

INVENTORIES

Inventories are stated at the lower of cost, determined by the first-in,
first-out (FIFO) method, or market. The components of inventories at December
31, 1995 are:

Raw Materials..................................... $155,632
Work In Progress.................................. 46,632
--------
$202,264
========

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized over
the term of the related lease.

Betterments, renewals and extraordinary repairs that extend the life of an
asset are capitalized; other repairs and maintenance are expensed. Repairs and
maintenance expense was $66,375, $14,696, $72,865 and $83,106 for the year ended
September 30, 1993, the three months ended December 31, 1993, and the years
ended December 31, 1994 and 1995 respectively.

INTANGIBLE ASSETS

Certain technology rights acquired from the Company's former parent, Vipont
Pharmaceutical, Inc. ("VPI"), a wholly owned subsidiary of Colgate-Palmolive
Company ("Colgate"), were transferred at cost less accumulated amortization and
are being amortized on a straight-line basis over their estimated useful lives.
Also included in intangible assets are the legal costs incurred to obtain
patents. Upon receiving a determination that the Company's claims have been
approved, these costs are amortized over the patent's

F-7
42

ATRIX LABORATORIES, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

estimated useful life commencing with the approval of the patent. Costs
associated with patents are expensed upon the determination that such costs are
not recoverable.

REVENUE RECOGNITION

The Company recognizes revenue on research contracts as research work is
performed and costs are incurred. Deferred revenue is recorded with respect to
payments received that relate to research activities to be performed in
subsequent periods.

RESEARCH AND DEVELOPMENT

Costs incurred in connection with research and development activities are
expensed as incurred. These costs consist of direct and indirect costs
associated with specific projects as well as fees paid to various entities that
perform certain research on behalf of the Company.

LOSS PER COMMON SHARE

Net loss per common share is computed by dividing net loss by the weighted
average number of shares outstanding during the period. Fully diluted earnings
per share is the same as primary earnings per share.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

INCOME TAXES

Effective October 1, 1993, the Company changed its method of accounting for
income taxes to comply with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (See Note 7).

2. MARKETABLE SECURITIES

At December 31, 1995 marketable securities balances are as follows:

ESTIMATED
NUMBER OF SHARES/ FAIR
PRINCIPAL AMOUNT COST VALUE
----------------- ----------- -----------

Available-for-sale:
U.S. Government and Agency Bond Funds
Thornburg Fund...................... 36,161 $ 458,151 $ 453,461
Pimco Fund.......................... 363,720 3,470,553 3,422,601
--------- ----------- -----------
Total.......................... 399,881 $ 3,928,704 $ 3,876,062
--------- ----------- -----------
U.S. Government and Agency Bonds....... 7,025,000 $ 7,103,319 $ 7,120,785
--------- ----------- -----------
Total.......................... 7,424,881 $11,032,023 $10,996,847
========= =========== ===========

F-8
43

ATRIX LABORATORIES, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1994 marketable securities balances are as follows:

ESTIMATED
NUMBER OF SHARES/ FAIR
PRINCIPAL AMOUNT COST VALUE
----------------- ---------- ----------

Available-for-sale:
U.S. Government and Agency Bond Funds
Thornburg Fund........................ 34,014 $ 431,770 $ 401,360
Pimco Fund............................ 341,122 3,266,089 2,899,534
--------- ----------- ----------
Total............................ 375,136 $3,697,859 $3,300,894
========= =========== ==========
Held-to-maturity -- current:
U.S. Government and Agency Bonds......... 4,570,000 $4,756,027 $4,619,995
Commercial paper...................... 3,177,025 3,140,800 3,153,758
--------- ----------- ----------
7,747,025 $7,896,827 $7,773,753
========= =========== ==========
Held-to-maturity -- non-current:
U.S. Government and Agency Bonds......... 7,025,000 $7,172,095 $6,947,833
========= =========== ==========

The U.S. Government and Agency bonds mature in 1-2 years.

The Company adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" as of
September 30, 1993. This statement requires that marketable securities that are
available-for-sale be stated at fair value with the difference between cost and
fair value included as a component of stockholders' equity. In the fourth
quarter of 1995 the Company reassessed its classification of securities pursuant
to a recent interpretation of Financial Accounting Standards No. 115 and
reclassified securities with a market value of $7,120,785 from held-to-maturity
to available-for-sale as of December 31, 1995 in accordance with such
interpretation. An unrealized holding gain of $17,466 was recorded in
stockholders' equity in connection with the transfer.

At December 31, 1995, gross unrealized gains and losses pertaining to
marketable securities were as follows:

GAINS LOSSES
------- -------

Available-for-sale....................... $32,689 $67,865
======= =======

3. VIPONT ROYALTY INCOME FUND, LTD.

The Company was the sole general partner of Vipont Royalty Income Fund,
Ltd., a Colorado limited partnership (the "Partnership"). The primary asset of
the Partnership was its right to receive payments from the Company based on
royalties and/or proceeds from the sale of rights relating to the ATRIDOX
product, if any, pursuant to certain agreements (the "Agreements") between the
Company and the Partnership. On September 27, 1995, the limited partners (the
"Limited Partners") of the Partnership approved the merger (the "Merger"), of
the Partnership with and into Atrix, L.P., a Colorado limited partnership
("Atrix, L.P."). The Company was the sole limited partner of Atrix, L.P.
AtrixSub, a Colorado corporation and a wholly-owned subsidiary of the Company,
was the sole general partner of Atrix, L.P. The Company determined the value of
the Partnership using an income valuation approach based on projected royalty
payments from projected sales of the ATRIDOX product. The Company issued 550,868
shares of common stock, valued at $6.40 per share for purposes of the Merger,
for a total consideration of $3,524,000. Additional expenses related to the
Merger of approximately $278,000 were paid by the Company. The total cost of
acquiring the Partnership rights of approximately $3,802,000 is considered a
research and development cost and accordingly, was expensed in 1995. Immediately
following the Merger, the Agreements were terminated pursuant to a

F-9
44

ATRIX LABORATORIES, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

Termination Agreement dated September 27, 1995 entered into between the Company
and Atrix, L.P. Subsequent to the Merger, Atrix, L.P. and AtrixSub were
dissolved.

4. STOCKHOLDERS' EQUITY

Performance Stock Option Plan

The Company has reserved 1,500,000 of its authorized but unissued Common
Stock for stock options to be granted under its Amended and Restated Performance
Stock Option Plan. Under the terms of the plans, options are not exercisable for
a period of one to three years from the date of grant. The exercise price of all
options is the closing bid price of the stock on the date of grant. There are
265,967 shares which remain available under the plan for future employee stock
option grants.

NUMBER
OF EXERCISE
SHARES PRICE PER SHARE
-------- ---------------

Options outstanding September 30, 1992..................... 556,450 $ .50 - 20.75
Options granted............................................ 383,655 6.63 - 9.88
Options canceled or expired................................ (73,741) .50 - 20.75
Options exercised.......................................... (89,917) .50 - 7.87
--------
Options outstanding September 30, 1993..................... 776,447 $ .50 - 20.75
Options granted............................................ 69,345 5.88
--------
Options outstanding December 31, 1993...................... 845,792 $ .50 - 20.75
Options granted............................................ 19,000 6.13 - 9.13
Options canceled or expired................................ (58,850) 5.88 - 14.00
Options exercised.......................................... (14,080) .50 - 3.75
--------
Options outstanding December 31, 1994...................... 791,862 $ .50 - 20.75
Options granted............................................ 153,088 6.63 - 6.88
Options canceled or expired................................ (45,345) 5.88 - 15.88
Options exercised.......................................... (139,350) .50 - 5.88
--------
Options outstanding December 31, 1995...................... 760,255 $ .50 - 20.75
========

Options outstanding were available for exercise as follows:

Currently Exercisable...................................... 501,350
1996....................................................... 156,546
1997....................................................... 54,263
1998....................................................... 48,096
--------
Total...................................................... 760,255
========

Non-qualified Stock Option Plan

During 1991, the Company reserved 50,000 of its authorized but unissued
Common Stock for stock options to be granted to outside consultants. The Company
granted 30,000 shares to a consultant at an exercise price equal to the market
price on the date of grant, which became fully exercisable on November 12, 1993.
In April 1994, the Company granted a non-qualified option to purchase 7,500
shares to a consultant at an exercise price equal to the market price on the
date of grant, to vest over a period of three years. In August, 1995, the
Company granted a non-qualified option to purchase of 7,000 shares to a
consultant at an exercise price equal to the market price on the date of grant.
The option will vest based on performance criteria. In September, 1995, the
Company granted a non-qualified option to purchase 3,360 shares to a consultant
at an exercise price equal to the market price on the date of grant which became
fully exercisable as of

F-10
45

ATRIX LABORATORIES, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1995. In October, 1995, the Company amended its non-qualified stock
option plan on a registration statement S-8 to increase the number of shares
available from 50,000 to 100,000.

5. RELATED PARTY TRANSACTIONS

In 1992 and 1993, the Company received a total of $1,000,000 from Colgate
for funding of research and development of a biodegradable membrane for guided
tissue regeneration in periodontal flap surgery ("GTR Product"). The Research
and Development Agreement provided that in the event Colgate exercised its right
to terminate, which it did after the $1,000,000 expenditure, the Company could
supply the GTR Product to any third party. However, in such event the Company
agreed to reimburse Colgate for all actual out-of-pocket costs expended by
Colgate, the manner and period for such reimbursement to be mutually agreed upon
by the parties but in no event shall the full reimbursement to Colgate for its
expenditures extend for a period of more than two years after the effective date
of an executed agreement by the Company to supply the GTR Product to a third
party.

6. MAJOR CUSTOMERS

Contract revenue for one customer was $125,642 for the three months ended
December 31, 1993, and for two customers was $210,000 and $335,357 for 1994, and
$225,000 and $227,000 for 1995.

7. INCOME TAXES

Effective October 1, 1993, the Company prospectively adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109), which requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement basis and the
income tax basis of assets and liabilities that will result in taxable or
deductible amounts in the future. Such deferred income tax liability
computations are based on enacted tax laws and rates applicable to the years in
which the differences are expected to affect taxable income. A valuation
allowance is established when necessary to reduce deferred income tax assets to
the amounts expected to be realized. There was no cumulative effect on prior
years resulting from the adoption of SFAS No. 109 because, as of October 1,
1993, a valuation allowance was established equal to the net deferred tax
assets, due to uncertainties as to the ultimate realization of deferred tax
assets.

Net deferred tax assets and the valuation allowance at December 31, 1994
and 1995, consist of:

1994 1995
----------- ------------

Deferred tax assets (liabilities):
Net operating loss carry forwards...................... $ 6,284,000 $ 9,941,000
Amortization of intangibles............................ 1,575,000 2,881,000
Available-for-sale securities.......................... 148,000 13,000
Depreciation........................................... 22,000 60,000
Investment in Partnership.............................. 85,000 --
Other items............................................ (12,000) (50,000)
----------- ------------
Net deferred tax assets........................ 8,102,000 12,845,000
----------- ------------
Less valuation allowance................................. (8,102,000) (12,845,000)
----------- ------------
Total.......................................... $ 0 $ 0
=========== ============

At December 31, 1995 the Company has approximately $26,652,000 of federal
income tax net operating loss carry forwards which expire through 2010.

F-11
46

ATRIX LABORATORIES, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

8. LEASE COMMITMENTS

As of December 31, 1995, minimum rental commitments under non-cancelable
operating leases of one year or more are as follows:

YEAR ENDING
DECEMBER 31,
- ------------

1996............................................... $261,674
1997............................................... 240,337
1998............................................... 109,837
1999............................................... 13,170
2000............................................... 6,585
--------
Total.............................................. $631,603
========

Other accrued liabilities includes deferred rent of $152,108 as of December
31, 1995 and $195,815 as of December 31, 1994. Rent expense was $197,798 the
year ended September 30, 1993, $43,911 for the three months ended December 31,
1993, $179,204 for 1994, and $202,503 for 1995.

9. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

Effective December 31, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value of
Financial Instruments." SFAS 107 requires, among other things, that the Company
disclose the fair value of financial instruments, and the methods and
significant assumptions used to estimate the fair value of financial
instruments. The estimated fair value amounts have been determined by the
Company using available market information.

The estimated fair values of the Company's financial instruments as of
December 31, 1995 are as follows:

CARRYING ESTIMATED
AMOUNT FAIR VALUE
----------- -----------

Cash and cash equivalents................................. $ 925,487 $ 925,487
Marketable securities, available-for-sale................. $10,996,847 $10,996,847

The following methods and assumptions were used to estimate the fair value
of financial instruments:

Cash and cash equivalents -- The carrying amount is a reasonable
estimate of fair value.

Marketable securities, available-for-sale -- The fair value is based
on quoted market prices or dealer quotes.

F-12
47

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

No dealer, salesman or any other person has been authorized to give any
information or to make any representations in connection with this offering,
other than those made in this Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any of the Underwriters. 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 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 the
information contained herein is correct as of any time subsequent to the date
hereof.

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

TABLE OF CONTENTS

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

Page
----

Prospectus Summary..................... 3
Risk Factors........................... 5
The Company............................ 10
Capitalization......................... 11
Dilution............................... 11
Use of Proceeds........................ 12
Price Range of Common Stock............ 12
Selected Financial Data................ 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 14
Business............................... 18
Management............................. 28
Description of Capital Stock........... 30
Underwriting........................... 31
Legal Matters.......................... 32
Experts................................ 32
Available Information.................. 32
Incorporation of Certain Documents by
Reference............................ 33
Index to Financial Statements.......... F-1

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

2,500,000 SHARES

LOGO

ATRIX
LABORATORIES, INC.
COMMON STOCK

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

PROSPECTUS

------------------------
MONTGOMERY SECURITIES

CRUTTENDEN ROTH
INCORPORATED
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
48

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses to be borne by the registrant,
other than underwriting discounts and commissions, in connection with the
issuance and distribution of the Common Stock hereunder.

PAYABLE BY THE
REGISTRANT
--------------

SEC registration fee.................................................... $ 11,276.94
NASD filing fee......................................................... 3,770.31
Nasdaq filing fee....................................................... 17,500.00
Accounting fees and expenses............................................ 40,000.00
Legal fees and expenses................................................. 130,000.00
Printing costs.......................................................... 125,000.00
Blue Sky fees and expenses.............................................. 15,000.00
Miscellaneous........................................................... 7,452.75
-------------
Total......................................................... $ 350,000.00
=============

The foregoing items, except for the SEC registration fee, the NASD filing
fee and the Nasdaq filing fee, are estimated.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 ("Section 145") of the General Corporation Law of the State of
Delaware (the "DGCL") provides that directors and officers of Delaware
corporations may, under certain circumstances, be indemnified against expenses
(including attorneys' fees) and other liabilities actually and reasonably
incurred by them as a result of any suit brought against them in their capacity
as a director or officer, if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful. Section 145 also
provides that directors and officers may also be indemnified against expenses
(including attorneys' fees) incurred by them in connection with a derivative
suit if they acted in good faith and in a manner they reasonably believed to be
in or not opposed to the best interests of the corporation, except that no
indemnification may be made without court approval if such person was adjudged
liable to the corporation.

The Company has implemented such indemnification provisions in its
Certificate of Incorporation which provides that officers and directors shall be
entitled to be indemnified by the Company to the fullest extent permitted by law
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement incurred in connection with any action, suit or proceeding by
reason of the fact that he or she is or was an officer or director of the
Company.

The above discussion of the Company's Certificate of Incorporation and
Sections 102(b)(7) and 145 of the DGCL is not intended to be exhaustive and is
qualified in its entirety by such Certificate of Incorporation and statutes.

II-1
49

ITEM 16. EXHIBITS.

The following is a complete list of exhibits filed as part of the
Registration Statement. Exhibit numbers correspond to the numbers in the Exhibit
Table of Item 601 of Regulation S-K.

1.1 Underwriting Agreement.
5.1 Opinion of Kutak Rock as to the legality of the Common Stock being registered.
23.1 Consent of Kutak Rock (see Exhibit 5.1).
23.2 Consent of Merchant & Gould.
23.3 Consent of Deloitte & Touche LLP
24.1 Powers of Attorney (included on page II-4 of the Registration Statement).

ITEM 17. UNDERTAKINGS.

The Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

(3)(a) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time
it was declared effective.

(b) For the purpose of determining any lability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.

II-2
50

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fort Collins, State of Colorado, on the fifth day of
April, 1996.

ATRIX LABORATORIES, INC.
(Registrant)

By: /s/ JOHN E. URHEIM
-------------------------------
John E. Urheim,
Vice Chairman of the Board
and Chief Executive Officer

II-3
51

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John E. Urheim his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this Registration
Statement and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto such attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, to all intents
and purposes and as full as he may or could do in person, hereby ratifying and
confirming all that such attorney-in-fact and agent, or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

NAME TITLE DATE
- --------------------------------------------- -------------------------------- ---------------

/s/ WILLIAM C. O'NEIL, JR. Chairman of the Board of
William C. O'Neil, Jr. Directors April 5, 1996
/s/ JOHN E. URHEIM Vice Chairman of the Board of
John E. Urheim Directors and Chief Executive
Officer April 5, 1996
/s/ DR. G. LEE SOUTHARD President, Chief Scientific
Dr. G. Lee Southard Officer and Director April 5, 1996
/s/ DR. R. BRUCE MERRIFIELD Director
Dr. R. Bruce Merrifield April 5, 1996
/s/ JERE E. GOYAN Director
Dr. Jere E. Goyan April 5, 1996
/s/ RODNEY O'CONNOR Director
C. Rodney O'Connor April 5, 1996
/s/ DR. D. WALTER COHEN Director
Dr. D. Walter Cohen April 5, 1996
/s/ DAVID R. BETHUNE Director
David R. Bethune April 5, 1996
/s/ H. STUART CAMPBELL Director
H. Stuart Campbell April 5, 1996
/s/ KIMBERLY A. MARKS Corporate Controller, Assistant
Kimberly A. Marks Secretary and Assistant
Treasurer April 5, 1996

II-4
52
EXHIBIT INDEX

Exhibit
Number Exhibit Description Page
------- ------------------- ----