BONE CARE INTERNATIONAL INC, 424B1, 2000-12-12

BONE CARE INTERNATIONAL INC
424B1, 2000-12-12
PHARMACEUTICAL PREPARATIONS

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Filed Pursuant to Rule 424(b)(1)
Registration Number 333-45662

PROSPECTUS
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2,300,000 Shares

[LOGO OF BONE CARE]

Common Stock

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Bone Care International, Inc. is offering 2,300,000 shares of common stock.
The shares of Bone Care are quoted in the Nasdaq National Market under the
symbol "BCII". On December 11, 2000, the last reported sale price in the
Nasdaq National Market was $17.88 per share.

Bone Care discovers, develops and commercializes improved vitamin D-hormone
therapies to treat a variety of diseases.

<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price.................................. $16.00 $36,800,000
Underwriting discounts and commissions................. $0.96 $2,208,000
Proceeds, before expenses, to Bone Care................ $15.04 $34,592,000
</TABLE>

See "Risk Factors" on pages 5 to 13 for factors that should be considered
before investing in the shares of Bone Care.

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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.

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The underwriters may, under certain circumstances, purchase up to 345,000
additional shares from Bone Care at the public offering price, less
underwriting discounts and commissions. Delivery and payment for the shares
will be on December 15, 2000.

Prudential Vector Healthcare
a unit of Prudential Securities

U.S. Bancorp Piper Jaffray

Robert W. Baird & Co.

December 11, 2000
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[INSIDE FRONT COVER: DEPICTION OF A BOTTLE OF HECTOROL CAPSULES BESIDE WHICH
ARE FOUR HECTORAL CAPSULES, AND CARTONS OF HECTOROL INJECTION, TOGETHER WITH
AMPULES]

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 5
Forward-Looking Statements................................................ 14
Use of Proceeds........................................................... 15
Price Range of Common Stock and Dividend Policy........................... 15
Dilution.................................................................. 16
Capitalization............................................................ 17
Selected Financial Data................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Business................................................................... 24
Management................................................................. 36
Principal Shareholders..................................................... 37
Shares Eligible for Future Sale............................................ 39
Underwriting............................................................... 40
Legal Matters.............................................................. 41
Experts.................................................................... 42
Available Information...................................................... 42
Additional Information..................................................... 42
Index to Financial Statements.............................................. F-1
</TABLE>

i
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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully.

Bone Care International

Bone Care is a pharmaceutical company engaged in discovering, developing and
commercializing improved vitamin D-hormone therapies to treat secondary
hyperparathyroidism in patients with kidney, or renal disease, and
osteoporosis, and other diseases including psoriasis and cancers of the
prostate, breast and colon. We were founded 16 years ago as a subsidiary of
Lunar Corporation, located in Madison, Wisconsin, and were spun-off from Lunar
in 1996.

We licensed our first product, Hectorol, in 1987 from the University of
Wisconsin, a leading vitamin D research center. Hectorol, also known as
doxercalciferol, is a vitamin D replacement therapy approved by the FDA in two
formulations to treat secondary hyperparathyroidism in patients with end-stage
renal disease, or ESRD. Hectorol is a safe and effective therapy for reducing
elevated levels of parathyroid hormone (PTH) in blood in the management of
secondary hyperparathyroidism, a disease characterized by excessive secretion
of PTH. Long-term hyperparathyroidism if left untreated can result in muscle
weakness, bone loss and fractures. Virtually all ESRD patients suffer from
secondary hyperparathyroidism. In June 1999, we obtained FDA approval for
Hectorol Capsules, and in October 1999, we began selling this orally
administered product in the United States. In April 2000, we obtained FDA
approval for Hectorol Injection, and in late August 2000, we began selling this
intravenous product in the United States. We recently completed two Phase III
trials for Hectorol Capsules to treat secondary hyperparathyroidism in pre-
dialysis patients, and we plan to file with the FDA a supplemental New Drug
Application for this indication by March 2001. In addition, we also are
developing Hectorol and new vitamin D therapies to treat these and several
other diseases.

D-Hormones

D-hormones are produced in the body from vitamin D that is either ingested
or generated in the skin from sunlight exposure. D-hormones have essential
roles in human health; they regulate (1) PTH secretion by the parathyroid
glands, (2) the absorption of calcium by the small intestine, (3) muscle
function, and (4) the proliferation and maturation of several types of normal
and abnormal cells. D-hormone deficiency occurs when the kidneys are unable to
produce D-hormones. Without sufficient D-hormone levels, PTH secretion is
increased and calcium absorption in the small intestine is reduced leading to
bone disease.

D-hormone replacement therapy is used in many countries as a treatment for
pre-dialysis and dialysis patients with secondary hyperparathyroidism. The
goals of D-hormone therapy are to decrease blood PTH levels and to normalize
blood calcium, thereby treating or preventing bone disease, and other adverse
effects of elevated PTH. Currently, there are three primary competitive D-
hormone products being marketed for secondary hyperparathyroidism: calcitriol,
paricalcitol and alfacalcidol. The challenge in administering therapies is to
deliver a sufficiently high dose to be effective without causing toxic side
effects, including:

. Excessive calcium in the blood, which increases the risk that calcium-
rich deposits will develop in soft tissues, such as in the heart and
arteries causing cardiac arrest, or in the kidneys accelerating kidney
failure in pre-dialysis patients.

. Excessive phosphorus in the blood, which stimulates secretion of PTH by
the parathyroid glands and exacerbates secondary hyperparathyroidism.

. Excessive calcium in the urine, which increases the risk that calcium-
rich deposits will develop in the kidneys, and this accelerates kidney
failure in pre-dialysis patients.

1
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Our Solution

We have two FDA approved products to treat secondary hyperparathyroidism in
ESRD patients, Hectorol Injection and Hectorol Capsules, and are in the process
of developing Hectorol and other products for additional applications. Hectorol
offers:

. Safe and Effective Treatment. Data obtained from our clinical trials have
demonstrated that Hectorol is a safe and effective therapy for treating
secondary hyperparathyroidism in ESRD patients. Based on these and other
trials, we believe that Hectorol compares favorably to competitive D-
hormone products, including calcitriol, paricalcitol and alfacalcidol.

. A Potentially Wider Therapeutic Window. We believe that there is
indirect, but not conclusive, evidence that Hectorol has a wider range,
or therapeutic window, between a minimum effective dose and a dose with
significant side effects than competitive D-hormone therapies.

Our Strategy

. Expand Our Sales and Marketing Infrastructure by developing our own
internal sales and marketing capabilities and establishing mutually
beneficial alliances or marketing agreements with partners.

. Competitively Price both Hectorol Injection and Hectorol Capsules by
balancing the physicians' focus on patient care with dialysis clinics'
desire for greater profit and third-party payors' desire to control
treatment costs. Hectorol is priced in the United States at a modest
premium to the older D-hormone, calcitriol, but below the recently
launched D-hormone, paricalcitol.

. Expand the Approved Indications for Hectorol by seeking FDA approval to
market Hectorol for secondary hyperparathyroidism in pre-dialysis and
elderly osteoporosis patients, as well as for psoriasis and cancers of
the prostate, breast and colon.

. Develop Additional Product Offerings by using our significant research,
clinical and regulatory expertise to identify and develop, internally or
through licensing from third parties, new D-hormones with improved safety
and efficacy for targeted diseases.

Our Products

. The FDA recently approved Hectorol Injection for use in the approximately
250,000 ESRD patients in the United States who undergo hemodialysis three
times per week. We began selling this intravenous product in late August
2000.

. The FDA recently approved Hectorol Capsules for use in the United States
ESRD patients and we are marketing the product to the approximately
34,000 ESRD patients who undergo dialysis outside the clinic. We began
selling the oral product in June 1999.

. We are developing Hectorol Capsules to treat pre-dialysis patients and
elderly osteoporosis patients with secondary hyperparathyroidism. We
recently completed two Phase III trials in pre-dialysis patients and plan
to file a supplemental New Drug Application with the FDA by March 2001.
We plan in the near future to initiate Phase II trials in elderly
osteoporosis patients. We are also investigating the use of Hectorol
Capsules and other improved D-hormone therapies to treat cell growth
diseases, or hyperproliferative diseases, including psoriasis, and
prostate, breast and colon cancers.

2
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The Offering

<TABLE>
<S> <C>
Shares offered by Bone Care........ 2,300,000 shares/(1)/

Total shares outstanding after this
offering.......................... 13,755,968 shares/(1)/

Use of proceeds.................... To commercialize Hectorol Injection,
complete FDA post-approval Phase IV
commitments for Hectorol Injection, seek
FDA approval and commercialize Hectorol
Capsules in the pre-dialysis market,
develop additional clinical indications for
Hectorol Capsules, continue research and
development activities and for working
capital and general corporate purposes.

Nasdaq National Market symbol...... BCII
</TABLE>
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/(1)/ Each share of our outstanding common stock includes an associated
preferred stock purchase right to purchase 1/200 of a share of Series A
Junior Participating Preferred Stock and the value of these rights is
reflected in the market price of the common stock.

The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding as of November 8, 2000,
and does not include the following:

. 802,704 shares of common stock issuable upon the exercise of outstanding
stock options at a weighted average exercise price of $8.75 per share;

. 123,370 shares of common stock reserved for future grants under our 1996
stock option plan; and

. up to 345,000 shares of common stock that the underwriters may purchase
if they exercise their
over-allotment option.

Risk Factors

You should consider the risk factors and the impact from various events
which could adversely affect our business before investing in our common stock.

Where to Contact Us

Our principal executive offices are presently located at One Science Court,
Madison, Wisconsin 53711 and our telephone number is (608) 236-2500. Our
website is located at www.bonecare.com. Information on our website is not part
of this prospectus.

Bone Care(R) and Hectorol(R) are registered trademarks of Bone Care
International, Inc. in the United States. A community trademark application for
Hectorol(R) is pending in the European Community Trademark Office, Japan and
selected other countries. Hectorol(TM) is the brand name for the active drug
substance of our first product, doxercalciferol. This prospectus also includes
trademarks of other companies.

3
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Summary Financial Data

You should read this summary information with the discussion in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and the related notes to those
financial statements included elsewhere in this prospectus. The statements of
operations data set forth below for each of the years ended June 30, 1998, 1999
and 2000, and the balance sheet data as of June 30, 2000 is derived from, and
is qualified by reference to, the audited financial statements and the related
notes to those audited financial statements included elsewhere in this
prospectus. The statements of operations data for the three months ended
September 30, 1999 and 2000, and the balance sheet data as of September 30,
2000 is derived from the unaudited interim financial statements and the related
notes to those financial statements included elsewhere in this prospectus. The
statements of operations data for the years ended June 30, 1996 and 1997 are
derived from our audited financial statements not included in this prospectus.

<TABLE>
<CAPTION>
Three Months
Ended
Year Ended June 30, September 30,
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1996 1997 1998 1999 2000 1999 2000
------- ------- ------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues................ $ 19 $ 39 $ -- $ -- $ 385 $ -- $ 1,363
Operating expenses:
Cost of sales......... 12 38 -- -- 103 -- 341
Inventory write-off... -- -- -- -- 400 -- --
Research and
development.......... 1,158 2,885 3,932 3,455 4,048 993 981
Marketing and
administrative....... 197 439 898 2,855 6,282 1,079 1,906
------- ------- ------- ------- ------- ------- -------
Total operating
expenses........... 1,367 3,362 4,830 6,310 10,833 2,072 3,228
------- ------- ------- ------- ------- ------- -------
Loss from operations.... (1,348) (3,323) (4,830) (6,310) (10,448) (2,072) (1,865)
Interest income, net.... 90 529 340 533 656 89 137
Income tax expense...... -- -- -- -- (13) -- --
------- ------- ------- ------- ------- ------- -------
Net loss................ $(1,258) $(2,794) $(4,490) $(5,777) $(9,805) $(1,983) $(1,728)
======= ======= ======= ======= ======= ======= =======
Net loss per common
share-basic and
diluted................ $ (0.26) $ (0.32) $ (0.51) $ (0.57) $ (0.89) $ (0.19) $ (0.15)
======= ======= ======= ======= ======= ======= =======
Weighted average common
shares outstanding..... 4,894 8,713 8,747 10,055 11,071 10,173 11,457
</TABLE>

The following table presents our balance sheet as of September 30, 2000 on
an actual and on an as adjusted basis giving effect to our sale of 2,300,000
shares of common stock at a public offering price of $16.00 per share, after
deducting underwriting discounts and commissions and estimated offering
expenses.

<TABLE>
<CAPTION>
September 30, 2000
---------------------
Actual As Adjusted
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(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................. $ 2,496 $ 36,388
Marketable securities..................................... 3,989 3,989
Working capital........................................... 7,515 41,407
Total assets.............................................. 10,777 44,669
Total long-term liabilities............................... -- --
Accumulated deficit....................................... (27,331) (27,331)
Total shareholders' equity................................ 9,362 43,254
</TABLE>

4
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RISK FACTORS

You should consider carefully the risks described below, in addition to
other information in this prospectus, before purchasing shares of our common
stock. Each of these risk factors could adversely affect Bone Care's business,
financial condition and results of operations as well as adversely affect the
value of an investment in our common stock.

Risks Related to Our Business

Our business is at an early stage of development and we do not have a
significant history for you to evaluate us on.

Our business is at an early stage of development and we currently do not
have significant revenues or positive cash flow. We face many obstacles before
we can generate enough revenue to achieve positive cash flow and finance our
operations. In June 1999, we received FDA approval to market Hectorol Capsules
in the United States to manage secondary hyperparathyroidism in kidney
dialysis patients and began selling Hectorol Capsules in October 1999. In
April 2000, we received FDA approval to market Hectorol Injection to manage
secondary hyperparathyroidism in dialysis patients and began selling Hectorol
Injection in the United States in late August 2000. We do not have FDA
approval to market Hectorol for other indications or to market any other
products. All of our other product candidates require extensive research and
development and clinical testing before we can submit a New Drug Application
to the FDA.

We have a history of losses and expect our losses to continue.

We have incurred losses since we began operating. As of September 30, 2000,
our accumulated deficit was approximately $27.3 million. To date, we have
spent our funds primarily on product development, most recently on developing
Hectorol Injection, and in fiscal year 2001 and subsequent fiscal years, we
plan to make large expenditures to expand clinical indications for Hectorol
Capsules and, to a lesser extent, other new products, which may result in
losses in future periods. These expenditures include costs associated with
performing clinical trials for new products, continuing our research and
development and seeking foreign regulatory approvals for Hectorol. The amount
of these expenditures is difficult to forecast accurately and cost overruns
may occur. We expect our operating losses to continue and increase. It is
possible, depending on the rate at which our revenues increase and our
marketing and research and development activities expand, that our losses will
continue at least through 2001. Our ability to generate revenues in the near
future will depend primarily on our success in marketing and selling Hectorol
Injection. We do not know whether we will achieve profitability, or if we do,
whether we will be able to sustain profitability. We believe that the proceeds
from this offering will be sufficient to allow us to continue operating our
business for at least the next two years.

We may fail to satisfy the FDA's conditions for marketing approval for
Hectorol Injection, and for Hectorol Capsules, slowing the progress of our
business.

The FDA allowed us to market Hectorol Injection to ESRD patients, but
required us to complete a post-approval Phase IV trial in pediatric patients
with ESRD by August 2002. If we fail to timely satisfy this requirement, the
FDA could withdraw its existing approval.

The FDA also allowed us to market Hectorol Capsules to ESRD patients, but
required us to complete post-approval Phase IV research and development
pertaining to the analysis of this product and its active ingredients by July
2000. We have already completed and submitted the results of our Phase IV
commitments for Hectorol Capsules to the FDA, but we do not yet know if the
FDA will be fully satisfied or will require additional Phase IV commitments.

5
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be required to gain approval for the use of a product as a treatment for
clinical indications other than those for which the product was initially
tested and may be required for Hectorol Injection and Hectorol Capsules. Also,
the FDA or other regulatory authorities may require post-marketing reporting
to monitor the side effects of the drug. Results of post-marketing programs
may limit or expand marketing of the products. Further, if there are any
modifications to the drug, including changes in indication, manufacturing
process or labeling or a change in manufacturing facility, an application
seeking approval of such changes will be required to be submitted to the FDA
or other regulatory authority.

If we experience delays or are unable to receive approval of our Phase IV
commitments for Hectorol Injection and Hectorol Capsules from the FDA, our
operating results and business will be substantially impaired.

We may not be able to commercialize Hectorol in foreign markets or for
other indications if we do not enter into strategic alliances or other
marketing arrangements.

If we do not find corporate partners for Hectorol in foreign markets or for
other indications, we may have to reduce our rate of product development or
increase our capital expenditures. Our strategy for the development, testing,
manufacturing and commercialization of our products is to enter into various
collaborations with partners, licensors, licensees, and others. We have been
in discussions with several potential collaborators in foreign markets but
have not entered into any agreements. We may not be able to negotiate
collaborative arrangements on acceptable terms, if at all. If we are not able
to establish collaborative arrangements, we will have to either delay further
development of some of our programs or increase our capital expenditures and
undertake the development activities at our own expense. We may encounter
significant delays in commercializing our products or find that the
development, manufacture or sale of our products is hindered by the absence of
collaborative agreements.

We do not have experience commercializing products and may not be able to
successfully do so.

We began selling Hectorol Capsules in the United States in October 1999 and
we began selling Hectorol Injection in the United States in August 2000. As of
November 8, 2000, we have hired 22 of the 32 full-time direct sales people we
intend to hire. We will need to invest a significant amount of money to
complete the development of our sales and marketing resources.

We cannot assure you that we will be able to sell and market Hectorol
successfully. We have a sales and marketing force that is limited in number,
experience and training, which we are seeking to expand. We may not be able to
establish and maintain an internal sales and marketing force with technical
expertise and supporting distribution capabilities. If we are unable to
successfully commercialize our Hectorol products, our growth prospects will be
diminished.

Additional clinical trials may not prove that Hectorol is safer or more
efficacious than competing D-hormone therapies which may limit its market
acceptance or limit our efforts to commercialize Hectorol.

We have not conducted head-to-head clinical trials comparing Hectorol and
competitive D-hormone therapies in ESRD patients. We, and others not
affiliated with us, have compared the toxicity and efficacy of Hectorol to
competitive D-hormone therapies in several animal species. In animal studies,
Hectorol shows a 3- to 15-times lower incidence of toxic side effects when
delivered at doses with equivalent potency. We cannot be sure, however, that
the results of additional clinical trials will prove that our assumptions,
based on animal studies, are correct. Hectorol may not compare favorably to
existing or new D-hormone therapies. If Hectorol, or our follow-on products,
do not prove to be superior to competing products, we may face severe
difficulties, and may incur greater expenses, in marketing Hectorol. If
additional clinical trials prove that Hectorol is inferior to competitive
D-hormone therapies, we may be forced to suspend our efforts to commercialize
Hectorol and to delay or suspend our planned efforts to develop Hectorol and
follow-on compounds for additional indications.

6
<PAGE>

If Hectorol is not accepted by the medical community, our business will
suffer.

The success of Hectorol depends on its acceptance by the medical community.
Similarly, the success of any products we develop in the future will depend on
the adoption of these products by our targeted markets. Existing and future
products, therapies, and technological approaches will compete directly with
our products. Competing products may provide greater therapeutic benefits for
a specific problem or may offer comparable performance at a lower cost. If
doctors and patients do not use our products, we may not become profitable. We
cannot predict how quickly, if at all, the medical community will accept
Hectorol or our future products or the extent to which these products will be
used. If we encounter difficulties introducing Hectorol or future products
into our targeted markets, our operating results and business may be
substantially impaired. To facilitate Hectorol's acceptance in the United
States market, we have priced Hectorol at a modest premium to the older D-
hormone, calcitriol, but below the recently launched D-hormone, paricalcitol.

We may not receive Medicare reimbursement for Hectorol Injection.

The Health Care Financing Administration (HCFA) controls Medicare
reimbursement for D-hormone therapies administered intravenously during
hemodialysis. If HCFA does not grant Hectorol Injection reimbursement,
Medicare will not reimburse for use of Hectorol Injection and there is no
guarantee that third-party payors will provide reimbursement, and even if they
do, the amount of reimbursement may be lower than expected. Furthermore, HCFA
may elect to eliminate "fee-for-service" coverage for intravenous D-hormone
therapies and instead make a fixed payment to dialysis clinics for the total
care of each patient, otherwise known as capitation, which would include oral
or intravenous D-hormone therapy. Capitation will encourage use of lower cost
oral D-hormone therapies and may have an adverse effect on sales of
intravenous D-hormones, including Hectorol Injection.

Failure to raise additional funds in the future may delay or eliminate some
or all of our efforts to develop, manufacture and sell Hectorol and any of
our future products.

In recent years we have significantly increased our research and
development expenditures for Hectorol, and we expect this trend will continue
in the future. We also will need to make significant expenditures to
manufacture and market Hectorol and our other planned products in commercial
quantities for sale in the United States and in other countries, if and when
we obtain regulatory approval to do so. We cannot be sure that our estimates
of capital expenditures for Hectorol and the development of our other new
products will be accurate. We could have significant cost overruns, which
could reduce our ability to commercialize our products.

Based upon our current plans, we believe that with the net proceeds from
this offering, we will have sufficient funds to meet our operating expenses
and capital requirements for at least the next two years. Thereafter, we may
need to raise additional capital to fund our operations. The scope and amount
of our liquidity and capital requirements will depend upon many factors,
including the extent to which Hectorol Injection gains market acceptance, the
progress and success of our clinical trials, the timing and cost involved in
obtaining regulatory approvals, the timing and cost of developing sales and
marketing programs, our ability to enter into strategic alliances,
manufacturing and research and development activities and competitive
developments. Additional required financing may not be available on
satisfactory terms, if at all. If we are unable to obtain financing in the
future, we may have to seek alternative sources of capital, effect borrowings
under our line of credit, or re-evaluate our operating plans, or we may be
required to delay, reduce or eliminate some or all of our research and
development activities or sales and marketing efforts, in which case our
operating results and business may be substantially impaired.

We lack sufficient long-term data regarding the safety and efficacy of our
products and we could find that our long-term data do not support our
current clinical results.

Hectorol is supported by less than one year of patient follow-up, and
therefore, we could discover that our current clinical results cannot be
supported by actual clinical experience. If longer term patient studies or

7
<PAGE>

clinical experience indicate that treatments with our products do not provide
patients with sustained benefits, our sales could decline. If longer term
patient studies or clinical experience indicate that our procedures cause
tissue or muscle damage, motor impairment or other negative effects, we could
be subject to significant liability. We are not certain how long it may take
for patients to show significant increases in side effects. Further, because
some of our data have been produced in studies that are not randomized and
involved small patient groups, our data may not be reproduced in wider patient
populations.

We have no experience manufacturing pharmaceutical products so we must rely
exclusively on suppliers who are outside of our control to manufacture our
products, including Hectorol.

The manufacture of pharmaceutical products requires significant expertise
and capital investment. We do not have the internal capability to manufacture
pharmaceutical products, and we currently use others to manufacture active
pharmaceutical ingredients and to formulate and package Hectorol. Our
manufacturers are required to adhere to regulations enforced by the FDA. Our
dependence upon others to manufacture our products may adversely affect our
profit margins and our ability to develop and commercialize products on a
timely and competitive basis. Delays or difficulties with contract
manufacturers in producing, packaging or distributing our products, would
adversely affect the sales of Hectorol or introduction of other products. If we
have to seek alternative sources of supply, we may be unable to enter into
alternative supply arrangements on commercially acceptable terms, if at all.
Although we employ a small number of employees to coordinate and manage the
actions of these parties, we have relatively little experience in this regard.
Any disruption of these activities could impede our ability to sell Hectorol
which would result in reduced revenue. If our supply of Hectorol Injection is
interrupted or delayed, we may be required to slow down or interrupt our
commercialization efforts. We may be required to begin the process of seeking
an alternative manufacturer and qualifying such manufacturer for the production
of Hectorol.

The sole manufacturer of Hectorol Injection has received, following a
routine inspection of its manufacturing facility, a warning letter from the FDA
identifying general deviations from the FDA's current Good Manufacturing
Practices regarding manufacturing procedures, records and training. While most
of the deviations were not specifically applicable to Hectorol Injection, any
general deviation can affect the capabilities of the manufacturing site. The
manufacturer has advised us that a response to the warning letter has been
submitted and that they are working directly with the FDA to resolve the FDA's
concerns, including those specifically related to Hectorol Injection. We
believe that our manufacturer is adequately addressing the FDA's concerns
relating to Hectorol Injection, although there can be no assurance that the FDA
will find that our manufacturer's responses and proposed corrective actions are
adequate or that the FDA will not take further action. If the FDA is not
satisfied with our manufacturer's responses and proposed corrective action, the
FDA could take regulatory actions against our manufacturer, including seizure
of products, injunction against further manufacture, recall or other actions
that could interrupt production of Hectorol Injection. Any such action would
have a material adverse effect on us.

While we currently do not intend to manufacture any products ourselves, we
may choose to do so in the future. If we were to manufacture products
ourselves, we would need substantial additional financing to build
manufacturing facilities. We also would be subject to additional regulatory
requirements and would be subject to risks associated with delays or
difficulties encountered in manufacturing a product. We may not be able to
manufacture any products successfully or in a cost-effective manner.

We cannot assure you that we will obtain regulatory approvals for any of our
future products.

Obtaining required regulatory approvals may take several years to complete
and consume substantial capital resources. There is no assurance that the FDA
or any other regulatory authority will act quickly or favorably on any of our
future requests for product approval, or that the FDA or any other regulatory
authority will not require us to provide additional data that we do not
currently anticipate to obtain product approvals.

8
<PAGE>

We cannot apply for FDA approval to market our future products until each
product successfully completes its pre clinical and clinical trials. We intend
to seek FDA approval of Hectorol Capsules for use in pre-dialysis renal
patients in 2001, but we do not have plans to request FDA approvals for other
new indications in the next two years. Several factors could prevent
successful completion or cause significant delays of these trials, including
an inability to enroll the required number of patients or failure to
demonstrate adequately that the product is safe and effective for use in
humans. If safety problems develop, the FDA could stop our trials before
completion. If we are not able to obtain regulatory approvals for use of our
future products, or if the patient populations for which they are approved are
not sufficiently broad, the commercial success of these products could be
limited.

Our failure to obtain regulatory approvals in foreign jurisdictions would
prevent us from marketing Hectorol abroad.

We also intend to market our products in international markets, including
the European Union and Japan. We must obtain separate regulatory approvals in
order to market our products in the European Union, Japan and many other
foreign jurisdictions. The regulatory approval processes differ among these
jurisdictions. Approval in any one jurisdiction does not ensure approval in a
different jurisdiction. We intend to collaborate with others to pursue foreign
regulatory approvals and to sell our products in these markets. Hectorol
Injection and Hectorol Capsules have not been approved for marketing by any
governmental entity outside of the United States. We will require substantial
additional funds to develop the product, conduct clinical trials and gain the
necessary regulatory approvals for Hectorol Injection or Hectorol Capsules in
foreign countries. As a result, revenues from sales of Hectorol outside the
United States will require us to invest additional resources or enter into
arrangements with partners.

Our success depends on our key personnel, the loss of whom could impair our
business.

Our success depends upon our ability to attract and retain qualified
scientific, technical and managerial personnel. We depend in large part on the
continued services of our President and Chief Executive Officer, Dr. Charles
W. Bishop, with whom we do not have an employment agreement.

Pharmaceutical companies, academic and government organizations, research
institutions and other entities compete for the services of qualified
scientists, technicians and managerial personnel. We may not be able to
attract and retain such personnel. Furthermore, our anticipated growth and
expansion into areas and activities requiring additional expertise will
require additional personnel.

Our failure to expand our management systems and controls to support
anticipated growth could harm our business.

Our operations continue to grow and we expect this expansion to continue as
we execute our business strategy. Sustaining our growth has placed significant
demands on management and our administrative, operational, information
technology, financial and personnel resources. Accordingly, our future
operating results will depend on the ability of our officers and other key
employees to continue to implement and improve our operational, regulatory
support and financial control systems, and effectively expand, train and
manage our employee base. We may not be able to manage our growth successfully
which could seriously harm our operating results and business.

Risks Related to Our Industry

We have many competitors, several of which have significantly greater
financial and other resources.

We face competition from several companies that are focused on developing
D-hormone therapies, particularly to treat secondary hyperparathyroidism and
hyperproliferative diseases. We also compete with other companies that produce
D-hormones and D-hormone analogs for international marketplaces where these

9
<PAGE>

treatments have already been approved for secondary hyperparathyroidism and
hyperproliferative diseases. We expect competition to increase further as
additional companies begin to enter our markets and/or modify their existing
products to compete directly with ours. Companies also compete indirectly with
us utilizing different therapeutic approaches. Other companies also may compete
with us through collaborative arrangements with other companies. Many of our
competitors have substantially greater financial, research and development and
marketing resources than we do and are better equipped to develop, manufacture
and market products, for example:

. Abbott Laboratories, Inc. markets intravenous calcitriol (Calcijex(R)),
and paricalcitol (Zemplar(R)), and Roche Pharmaceuticals markets oral
calcitriol (Rocaltrol(R)). These products are approved to manage
secondary hyperparathyroidism in kidney dialysis patients in the United
States and in European countries. Oral calcitriol is also approved in
Japan.

. Roche Pharmaceuticals markets oral calcitriol (Rocaltrol) in the United
States to manage secondary hyperparathyroidism in pre-dialysis and ESRD
patients.

. A number of companies market oral and intravenous alfacalcidol, a
synthetic analog of calcitriol, in Europe and Japan under various trade
names.

. Other companies, including Amgen, Inc., Chugai Pharmaceutical Co., Ltd.
and NPS Pharmaceuticals, Inc., also are developing new therapies to
manage secondary hyperparathyroidism in kidney dialysis patients in the
United States, European or Asian markets.

. Leo Pharmaceuticals Products A/S and TEVA Pharmaceuticals are marketing
alfacalcidol in Europe to manage secondary hyperparathyroidism in kidney
dialysis patients or to treat osteoporosis in elderly patients associated
with secondary hyperparathyroidism.

. Leo Pharmaceuticals Products A/S and ILEX Oncology, Inc. are developing
D-hormone therapies to treat certain cancers.

. Leo Pharmaceuticals Products A/S and Bristol-Myers Squibb Company are
marketing topical Dovonex(R) in the United States and Europe to treat
psoriasis. Teijin Ltd. is marketing topical tacalcitol to treat psoriasis
outside the United States.

Our competitors may have broad product lines which allow them to negotiate
exclusive, long-term supply contracts and offer comprehensive pricing for their
products. Broader product lines may also provide our competitors with a
significant advantage in marketing competing products to group purchasing
organizations and other managed care organizations that are increasingly
seeking to reduce costs through centralized purchasing. Greater financial
resources and product development capabilities may allow our competitors to
respond more quickly to new or emerging technologies and changes in customer
requirements that may render our products obsolete. These technological
developments which result in Hectorol becoming obsolete or non-competitive may
occur before we are able to achieve profitability. We also face competition for
marketing, distribution and collaborative development agreements, for
establishing relationships with academic and research institutions, and for
licenses to intellectual property. Our competitors compete with us in
attracting and retaining qualified scientific and management personnel as well
as in acquiring technologies complementary to our programs.

Our products and development activities are subject to extensive government
regulation which could make it more expensive and time consuming for us to
conduct our business.

Any new drug product must undergo lengthy and rigorous clinical testing and
other extensive, costly and time-consuming procedures mandated by the FDA and
foreign regulatory authorities. We may elect to delay or cancel our anticipated
regulatory submissions for new indications for Hectorol or proposed new
products for a number of reasons, including:

. unanticipated clinical testing results;

. lack of sufficient resources;

. changes in, or adoption of, new FDA regulations;

10
<PAGE>

. unanticipated enforcement of existing regulations or guidelines;

. unexpected technological developments; and

. developments by our competitors.

The FDA continues to review products even after they receive FDA approval.
The manufacture and marketing of Hectorol is subject to ongoing regulation,
including compliance with the FDA's current Good Manufacturing Practices,
adverse event reporting requirements and the FDA's general prohibitions
against promoting products for "off-label" uses, or uses not listed on the
FDA-approved labeling. We also are subject to inspection and market
surveillance by the FDA for compliance with these and other requirements. Any
enforcement action resulting from failure to comply with these requirements
could adversely affect the manufacturing and marketing of Hectorol. In
addition, the FDA could withdraw a previously approved product from the market
upon receipt of new information.

We must also comply with numerous federal, state and local laws,
regulations and recommendations relating to safe working conditions, current
Good Laboratory Practices, current Good Manufacturing Practices and the
experimental use of animals. We cannot predict the extent of government
regulation or the impact of new governmental regulations which might have an
adverse effect on the discovery, development, production and marketing of our
products, and require us to incur significant costs to comply with the
regulations.

Risks Related to Our Offering

Concentration of ownership in our company by certain shareholders may make
it more difficult to replace or remove our current management.

Upon completion of this offering and based on the number of shares
outstanding at December 11, 2000, our executive officers and directors will
beneficially own approximately 24.5% (23.9% if the underwriters' over-
allotment option is exercised in full) of the outstanding shares of our common
stock and, as a result, will have significant control of us, which they could
exert to make it more difficult to replace or remove our current management.

Our future operating results and the trading price of our common stock is
likely to fluctuate substantially in the future.

The price of our common stock in this offering may not be indicative of the
prices that will prevail in the public market after this offering. Our stock
price has fluctuated substantially since we became a public company in May
1996. Our stock price, like that of many other biotechnology and
pharmaceutical companies, is likely to remain volatile. The trading price of
our common stock may fluctuate widely as a result of a number of factors, some
of which are not in our control, including:

. market perception and customer acceptance of our products;

. our efforts to increase sales of our Hectorol products;

. quarter to quarter variations in our operating results;

. timely implementation of new and improved products;

. our level of investment in research and development;

. increased competition;

. our establishment of strategic alliances or acquisitions;

. changes in our relationships with suppliers;

. litigation concerning intellectual property rights in the industry;

. announcements regarding clinical activities or new products by us or our
competitors;

. timing of regulatory actions, such as product approvals or recalls;

11
<PAGE>

. costs we incur in anticipation of future sales, such as inventory
purchases or expansion of manufacturing facilities;

. general and economic conditions in the biotechnology and pharmaceutical
industry and the state of healthcare cost containment efforts, including
reimbursement policies; and

. changes in earnings estimates by analysts.

In addition, the market for our stock has experienced extreme price and
volume fluctuations, which have often been unrelated to our operating
performance. We believe that period-to-period comparisons of our historical
and future results will not necessarily be meaningful, and that investors
should not rely on them as an indication of future performance. To the extent
we experience the factors described above, our future operating results may
not meet the expectations of securities analysts or investors from time to
time, which may cause the market price of our common stock to decline or be
volatile.

This sale of common stock will be immediately and substantially dilutive to
you.

You will experience an immediate and substantial dilution of $12.96 per
share in the net tangible book value per share of common stock from the
offering price. Based on a public offering price of $16.00 per share of common
stock, our net tangible book value as of September 30, 2000, after giving
effect to this offering, is $3.04 per share.

Substantial future sales of our common stock in the public market may
depress our stock price and make it difficult for you to recover the full
value of your investment in our shares.

Most of our outstanding shares of common stock are freely tradable. The
market price of our common stock could drop due to sales of a large number of
shares or the perception that such sales could occur. These factors also could
make it more difficult to raise funds through future offerings of common
stock. After this offering, 13,755,968 shares of our common stock will be
outstanding after this offering based on the number of shares outstanding as
of November 8, 2000, or 14,100,968 shares if the underwriters exercise their
over-allotment option in full. Of these shares, the 2,300,000 shares sold in
this offering, or 2,645,000 shares if the underwriters exercise their over-
allotment options in full, will be freely tradable without restrictions under
the Securities Act, except for any shares purchased by our affiliates (as that
term is defined in Rule 144 under the Securities Act).

We, our officers and directors, have entered into lock-up agreements. We
and our officers and directors have agreed not to offer or sell any shares of
our common stock for a period of 90 days after the date of this prospectus
without the prior written consent of Prudential Securities Incorporated, on
behalf of the underwriters. However, Prudential Securities Incorporated may,
at any time and without notice, waive the terms of these lock-up agreements.
After the lock-up agreements expire, approximately 3,184,683 shares may be
sold without regard to compliance with Rule 144 subject to compliance with the
volume limitations and other restrictions of Rule 144. The following table
indicates approximately when the shares of our common stock that are not being
sold in the offering will be eligible for sale into the public market.

<TABLE>
<CAPTION>
Number of shares Date of eligibility for resale into public market
---------------- ----------------------------------------------------------
<C> <S>
3,184,683 90 days after the date of this prospectus upon expiration
of lock-up agreements our officers and directors have with
Prudential Securities Incorporated.
</TABLE>

Risks Related to Intellectual Property

If we are unable to protect our patents, our competitiveness and business
prospects may be materially damaged.

Our success will depend to a significant degree on our ability to obtain
and enforce patents and licenses to patent rights, both in the United States
and in other countries. The patent position, however, of pharmaceutical
companies is often uncertain and involves complex legal and factual questions,
not the least of which is that we cannot predict the breadth of patent claims
in pharmaceutical patents. In addition, a substantial backlog of
pharmaceutical patent applications exists at the United States Patent and
Trademark Office. The backlog may delay review and potential issuance of
patents.

12
<PAGE>

To date, we have filed a number of patent applications in the United States
and other countries. Our issued patents and pending patent applications
relating to Hectorol are method-of-use patents which cover only the use of
certain compounds to treat specified conditions, rather than composition of
matter patents which would cover the chemical composition of the active
ingredient. Method-of-use patents provide less protection than composition of
matter patents because of the possibility of off-label uses if other companies
market or make the compound for other uses. We actively continue to file
applications as appropriate for patents covering our products, uses and
processes. We cannot guarantee that we will obtain patent protection for our
products or processes.

We also cannot guarantee that competitors will not successfully challenge
our patents, if issued, on the basis of validity and/or enforceability. Nor
can we guarantee that they will not circumvent or design around our patent
position. We could face increased competition as a result of the failure of
patents to be issued on our pending applications or a finding of invalidity
and/or unenforceability of one of our patents.

In the United States, patent applications are maintained in secrecy until a
patent issues. We cannot be certain that others have not filed patent
applications for compounds, uses or processes covered by our pending
applications. We also cannot be certain that we were the first to invent or
discover the compound, use or process that is the subject of our applications.
Competitors may have filed applications for, or may have received patents and
may obtain additional patents and proprietary rights relating to, compounds,
uses or processes that block or compete with our patents and rights. We are
aware of a significant number of patent applications relating to D-hormones
filed by, and patents issued to, third parties. If any of our competitors have
filed patent applications in the United States that claim compounds, uses or
processes also claimed by us, we may have to participate in an interference
proceeding declared by the United States Patent and Trademark Office to
determine priority of invention and the corresponding right to a patent for
the compounds, uses or processes in the United States. A proceeding could
result in substantial cost to us even if the outcome is favorable.

We have not filed patent applications in every country. In certain
countries, obtaining patents for our products, processes and uses may be
difficult or impossible. Patents issued in countries and regions other than
the United States, Japan and Europe may be harder to enforce than, and may not
provide the same protection as, patents obtained in the United States, Europe
and Japan.

If we are unable to protect our proprietary rights and trade secrets, our
competitiveness and business prospects may be materially damaged.

Operation of our business also relies on our ability to protect proprietary
information and trade secrets. We require our employees, consultants and
advisors to execute confidentiality agreements upon commencement of employment
or consulting relationships with us. We cannot guarantee, however, that these
agreements will provide meaningful protection or adequate remedies for our
proprietary information and trade secrets in the event of unauthorized use or
disclosure of such information nor can we guarantee that the parties to the
agreements will not breach their agreements. We also cannot guarantee that
third parties will not know, discover or develop independently, equivalent
proprietary information or techniques, that they will not gain access to our
trade secrets or disclose our trade secrets to the public. Therefore, we
cannot guarantee that we can maintain and protect unpatented proprietary
information and trade secrets.

We may be accused of infringing upon the proprietary rights of others and
any related litigation could damage our business.

Our commercial success depends significantly on our ability to operate our
business without infringing upon the patents and other proprietary rights of
third parties. We cannot guarantee that our compounds, uses or processes do
not and will not infringe upon the patents and proprietary rights of third
parties. In the event of an infringement determination, we may be enjoined
from research, development or commercialization of our products. We may also
be required to enter into royalty or license arrangements with third parties
claiming infringement or otherwise to design around their patents. Any
required license, if available at all, may not be obtained on commercially
reasonable terms. If we do not obtain the licenses or are unable to design
around the patent, we may be delayed or prevented from pursuing the
development of some of our product candidates.

13
<PAGE>

FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. We have
based these forward-looking statements largely on our current expectations and
projections about future events and financial trends affecting the financial
condition of our business. These forward-looking statements are subject to a
number of risks, uncertainties and assumptions about us, including, among other
things:

. general economic and business conditions, both nationally and in our
markets;

. our expectations and estimates concerning future financial performance,
financing plans and the impact of competition;

. anticipated trends in our business;

. existing and future regulations affecting our business;

. our early stage of development;

. the uncertainty of our future profitability;

. our ability to satisfy the FDA's conditions for marketing approval for
Hectorol;

. our ability to commercialize Hectorol; and

. other risk factors set forth under "Risk Factors" in this prospectus.

In addition, in this prospectus, the words "believe", "may", "will",
"estimate", "continue", "anticipate", "intend", "expect" and similar
expressions, as they relate to us, our business or our management, are intended
to identify forward-looking statements.

Unless otherwise required by law, we undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise after the date of this prospectus.
However, we acknowledge our obligation to disclose material developments
related to previously disclosed information. In light of these risks and
uncertainties, the forward-looking events and circumstances discussed in the
prospectus may not occur and actual results could differ materially from those
anticipated or implied in the forward-looking statements.

You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of these securities in any
jurisdiction where the offer or sale is not permitted. You should not assume
that the information contained in this prospectus is accurate as of any date
other than the date on the front cover of this prospectus.

14
<PAGE>

USE OF PROCEEDS

We will receive net proceeds of approximately $33.9 million from the sale of
2,300,000 shares of common stock by us in the offering, at a public offering
price of $16.00 per share, $39.1 million if the underwriters exercise their
over-allotment option in full, after deducting underwriting discounts and
commissions and estimated offering expenses. Although we do not have any
specific plans for the allocation of the net proceeds of the offering, we
intend to use the net proceeds of the offering to:

. commercialize Hectorol Injection to manage secondary hyperparathyroidism
in patients with ESRD;

. complete FDA post-approval Phase IV commitments for Hectorol Injection;

. seek FDA approval and commercialize Hectorol Capsules in the pre-dialysis
market;

. develop additional clinical indications for Hectorol Capsules by
conducting Phase II, and possibly Phase III, trials in patients with
senile osteoporosis, psoriasis and prostate cancer;

. continue research and development activities, including clinical
activities in support of regulatory approvals and continue pre-clinical
testing of new D-hormone therapies; and

. provide working capital for general corporate purposes, including the
acquisition of complementary licenses, products, technologies or
companies.

Pending those uses, we intend to invest the proceeds in short-term,
investment-grade, and interest-bearing financial instruments. We have no
present understandings, commitments or arrangements with respect to the
purchase of any licenses, products, technologies or companies and the amount
and timing of these expenditures will depend on several factors, including the
progress of our research programs and our ability to attract partners. Our
management has broad discretion over our use of proceeds and may spend them in
ways in which our shareholders may not agree.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Our common stock is quoted in the Nasdaq National Market under the symbol
"BCII" and has been publicly traded since May 1996. The following table shows,
for the fiscal periods indicated, the high and low sales prices per share as
reported in the Nasdaq National Market.

<TABLE>
<CAPTION>
High Low
------ -----
<S> <C> <C>
Fiscal Year Ended June 30, 1999
First Quarter................................................ $10.25 $7.25
Second Quarter............................................... 11.88 7.69
Third Quarter................................................ 14.75 10.25
Fourth Quarter............................................... 15.31 9.00
Fiscal Year Ending June 30, 2000
First Quarter................................................ 11.50 8.75
Second Quarter............................................... 12.63 8.00
Third Quarter................................................ 26.75 9.63
Fourth Quarter............................................... 27.00 15.34
Fiscal Year Ending June 30, 2001
First Quarter................................................ 24.00 17.94
Second Quarter (through December 11, 2000)................... 30.25 17.38
</TABLE>

As of September 30, 2000, our common stock was held by approximately 198
shareholders of record. On December 11, 2000, the last reported sale price of
common stock in the Nasdaq National Market was $17.88 per share.

We have never declared or paid any cash dividends on our common stock and we
do not plan on paying any in the near future. Any future determination as to
the declaration and payment of dividends will be at the discretion of our board
of directors and will depend on then existing conditions, including our
financial condition, results of operations, contractual restrictions, capital
requirements, business prospects and other factors our board of directors deem
relevant.

15
<PAGE>

DILUTION

Purchasers of common stock in this offering will experience immediate and
substantial dilution in the net tangible book value of our common stock from
the public offering price. Net tangible book value per share represents the
amount of our total tangible assets less our total liabilities, divided by the
number of shares of common stock outstanding. As of September 30, 2000, we had
a net tangible book value of $8.0 million or $0.70 per share of common stock.
After giving effect to the sale of 2,300,000 shares of common stock offered by
us at a public offering price of $16.00 per share and after the deduction of
underwriting discounts and commissions and estimated offering expenses payable
by us, our pro forma net tangible book value at September 30, 2000 would have
been $41.9 million or $3.04 per share. This represents an immediate increase
in such net tangible book value of $2.34 per share to existing shareholders
and an immediate and substantial dilution of $12.96 per share to new investors
purchasing common stock in this offering. The following table illustrates this
per share dilution:

<TABLE>
<S> <C>
Public offering price................................................ $16.00
Net tangible book value as of September 30, 2000............. $0.70
Increase of net tangible book value attributable to this
offering.................................................... $2.34
Pro forma net tangible book value after this offering................ $ 3.04
------
Dilution in pro forma net tangible book value attributable to this
offering............................................................ $12.96
======
</TABLE>

The presentation above assumes no exercise of the following options
subsequent to September 30, 2000:

. 674,004 shares of common stock issuable upon the exercise of outstanding
stock options at a weighted average exercise price of $6.88 per share;

. 258,370 shares of common stock reserved for future grants under our 1996
stock option plan; and

. up to 345,000 shares of common stock that the underwriters may purchase
if they exercise their over-allotment option.

16
<PAGE>

CAPITALIZATION

The following table shows our capitalization as of September 30, 2000:

. on an actual basis; and

. on an adjusted basis to give effect to the sale of 2,300,000 shares of
common stock and the application of the net proceeds, at a public
offering price of $16.00 per share, after deducting underwriting
discounts and commissions and our estimated offering expenses.

This table should be read in conjunction with our financial statements and
the related notes to those statements included in this prospectus.

<TABLE>
<CAPTION>
September 30, 2000
---------------------
Actual As Adjusted
-------- -----------
(in thousands)
<S> <C> <C>
Total long-term liabilities........................ $ -- $ --
Shareholders' equity:
Preferred stock, $.001 par value 2,000,000 shares
authorized, none issued and outstanding, actual
and as adjusted................................. -- --
Common stock, no par value, 28,000,000 shares
authorized, 11,456,668 shares issued and
outstanding, actual; 13,756,668 shares issued
and outstanding, as adjusted.................... 11,394 11,394
Additional paid-in capital....................... 25,300 59,192
Accumulated deficit.............................. (27,331) (27,331)
Accumulated other comprehensive loss............. (1) (1)
-------- --------
Total shareholders' equity..................... 9,362 43,254
-------- --------
Total capitalization........................... $ 9,362 $ 43,254
======== ========
</TABLE>

The above table excludes the following shares as of September 30, 2000:

. 674,004 shares of common stock issuable upon the exercise of outstanding
stock options at a weighted average exercise price of $6.88 per share;

. 258,370 shares of common stock reserved for future grants under our 1996
stock option plan; and

. up to 345,000 shares of common stock that the underwriters may purchase
if they exercise their over-allotment option.

17
<PAGE>

SELECTED FINANCIAL DATA

The following table sets forth selected statements of operations data for
the years ended June 30, 1996, 1997, 1998, 1999 and 2000 and the three months
ended September 30, 1999 and 2000. Also included in this table are our balance
sheet data as of June 30, 1996, 1997, 1998, 1999 and 2000 and September 30,
1999 and 2000. The financial data with respect to our statements of operations
for the years ended June 30, 1998, 1999 and 2000 and with respect to our
balance sheets as of June 30, 1999 and 2000 are derived from our financial
statements that appear elsewhere in this prospectus and that have been audited
by our independent auditors. For our fiscal year ended June 30, 1999 and prior
fiscal years, KPMG LLP served as our independent auditors. For the fiscal year
ended June 30, 2000, Arthur Andersen LLP served as our independent auditors.
The following statements of operations data for the three months ended
September 30, 1999 and 2000, and the balance sheet data as of September 30,
2000 is derived from the unaudited interim financial statements and the related
notes to those financial statements included elsewhere in this prospectus. The
following statements of operations data for fiscal years ended June 30, 1996
and 1997 and balance sheet data as of June 30, 1996, 1997 and 1998 are derived
from our audited financial statements not included in this prospectus. You
should read the financial statement data in conjunction with the discussion in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and the related notes to those
financial statements included elsewhere in this prospectus.

<TABLE>
<CAPTION>
Three Months
Ended September
Year Ended June 30, 30,
---------------------------------------------- ----------------
1996 1997 1998 1999 2000 1999 2000
------- ------- -------- -------- -------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenues................ $ 19 $ 39 $ -- $ -- $ 385 $ -- $ 1,363
Operating expenses:
Cost of sales......... 12 38 -- -- 103 -- 341
Inventory write-off... -- -- -- -- 400 -- --
Research and
development.......... 1,158 2,885 3,932 3,455 4,048 993 981
Marketing and
administrative....... 197 439 898 2,855 6,282 1,079 1,906
------- ------- -------- -------- -------- ------- -------
Total operating
expenses........... 1,367 3,362 4,830 6,310 10,833 2,072 3,228
------- ------- -------- -------- -------- ------- -------
Loss from operations.... (1,348) (3,323) (4,830) (6,310) (10,448) (2,072) (1,865)
Interest income, net.... 90 529 340 533 656 89 137
Income tax expense...... -- -- -- -- (13) -- --
------- ------- -------- -------- -------- ------- -------
Net loss................ $(1,258) $(2,794) $ (4,490) $ (5,777) $ (9,805) $(1,983) $(1,728)
======= ======= ======== ======== ======== ======= =======
Net loss per common
share-basic and
diluted................ $ (0.26) $ (0.32) $ (0.51) $ (0.57) $ (0.89) $ (0.19) $ (0.15)
======= ======= ======== ======== ======== ======= =======
Weighted average common
shares outstanding..... 4,894 8,713 8,747 10,055 11,071 10,173 11,457
<CAPTION>
June 30, September 30,
---------------------------------------------- -----------------------------
1996 1997 1998 1999 2000 1999 2000
------- ------- -------- -------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $11,061 $ 8,532 $ 3,484 $ 7,314 $ 4,736 $ 5,723 $ 2,496
Marketable securities... -- -- -- -- 4,972 -- 3,989
Working capital......... 11,004 8,103 3,073 7,956 9,229 5,847 7,515
Total assets............ 12,261 9,900 5,813 10,303 12,460 9,129 10,777
Total long-term
liabilities............ -- -- -- -- -- -- --
Accumulated deficit..... (2,736) (5,530) (10,020) (15,797) (25,602) (17,780) (27,331)
Total shareholders'
equity................. 12,182 9,420 5,122 9,717 11,083 7,734 9,362
</TABLE>

18
<PAGE>

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

The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and our financial statements and the related notes
included elsewhere in this prospectus.

Overview of Our Business

We licensed our first product, Hectorol, in 1987 from the University of
Wisconsin, a leading vitamin D research center. Hectorol, also known as
doxercalciferol, is a vitamin D replacement therapy approved by the FDA in two
formulations to treat secondary hyperparathyroidism in patients with end-stage
renal disease or ESRD. Hectorol is a safe and effective therapy for reducing
elevated levels of parathyroid hormone (PTH) in blood in the management of
secondary hyperparathyroidism, a disease characterized by excessive secretion
of PTH. Long-term hyperparathyroidism if left untreated can result in muscle
weakness, bone loss and fractures. Virtually all ESRD patients suffer from
secondary hyperparathyroidism. In June 1999, we obtained FDA approval for
Hectorol Capsules, and in October 1999, we began selling this orally
administered product in the United States. In April 2000, we obtained FDA
approval for Hectorol Injection, and in late August 2000, we began selling this
intravenous product in the United States. We recently completed two Phase III
trials for Hectorol Capsules to treat secondary hyperparathyroidism in pre-
dialysis patients, and we plan to file with the FDA a supplemental New Drug
Application for this indication by March 2001. In addition, we also are
developing Hectorol and new vitamin D therapies to treat these and several
other diseases.

Since our inception in 1984, we have generated minimal revenue from
operations and substantially all of our resources have been dedicated to:

. the development, patenting, pre-clinical testing, and clinical trials of
Hectorol Capsules and Hectorol Injection;

. the development of manufacturing processes for Hectorol Capsules and
Hectorol Injection;

. pursuing United States regulatory approvals of Hectorol Capsules and
Hectorol Injection;

. the sales and marketing associated with the launch of Hectorol Capsules
and Hectorol Injection; and

. research and development and pre-clinical testing of other potential
product candidates.

We have lost money since inception and, as of September 30, 2000, have an
accumulated deficit of approximately $27.3 million. Our only sources of revenue
have been:

. revenues from the launch of Hectorol Capsules and Hectorol Injection;

. licensing fees associated with our early stage research collaborations,
which licenses have since expired; and

. fees from conducting incidental laboratory assay services.

We estimate that commercialization, regulatory compliance, and sales efforts
associated with Hectorol Capsules and Hectorol Injection could require in
excess of $10 million prior to achieving profitable operating levels. Further,
development of LR-103, BCI-202 and other product candidates, or expansion of
Hectorol into other therapeutic areas, will require significant, time-consuming
and costly research and development, pre-clinical testing and extensive
clinical trials prior to submission of any regulatory application for
commercial use. We plan to continue pre-clinical testing of LR-103 and BCI-202
in order to begin Phase I clinical trials on both product candidates within
three years. The pre-clinical efforts could cost approximately $3 million. In
addition, we plan to conduct Phase II, and possibly begin Phase III, clinical
trials to expand the approved indications for Hectorol. The cost of these
trials could exceed $10 million through June 2002. We expect to

19
<PAGE>

incur substantial losses at least through 2001 until revenues from the sale of
Hectorol products are sufficient to offset those expenses. The amount and
timing of our operating expenses will depend on many factors, including:

. the extent to which Hectorol Capsules and Hectorol Injection obtain
market acceptance;

. the costs of sales and marketing activities associated with Hectorol
Capsules and Hectorol Injection;

. the status of our research and development activities;

. the costs involved in preparing, filing, prosecuting, maintaining,
protecting, and enforcing our patent claims and other proprietary rights;

. our ability to maintain our current manufacturing capabilities through
relationships with third parties or establish those capabilities
internally;

. technological and other changes in the competitive landscape; and

. evaluation of the commercial viability or potential of product
candidates.

As a result, we believe that period-to-period comparisons of our financial
results are not necessarily meaningful.

Results of Operations for the Quarter Ended September 30, 2000

Revenues for the quarter ended September 30, 2000 totaled $1,362,833.
Revenues include $1,248,475 related to Hectorol Injection and $114,358 related
to Hectorol Capsules. Bone Care launched Hectorol Injection in the United
States in late August 2000. Hectorol Injection revenues resulted from a sale to
one of the largest United States kidney dialysis providers. The product was
sold on a non-returnable basis with extended payment terms of 180 days from the
date of sale. We began selling our first product, Hectorol Capsules, in October
1999 and, accordingly, no revenues were recognized in the quarter ended
September 30, 1999.

Our margins on product revenues for the quarter ended September 30, 2000
were $1,021,617, or 75% of product revenues, compared to $131,907, or 56% of
product revenues for the year ended June 30, 2000, (excluding a $400,000
inventory write-down). Margins on product revenues have improved due to the
increase in sales volume.

Our research and development expenses were $981,266 in the quarter ended
September 30, 2000, and $993,008 in the quarter ended September 30, 1999.

Sales and marketing expenses increased $672,579 to $1,452,917 in the quarter
ended September 30, 2000, from $780,338 in the quarter ended September 30,
1999. The increase was attributable to:

. additional sales and marketing expenses associated with the launch of
Hectorol Injection; and

. the development of a marketing research data base to analyze dialysis
patient data associated with D-hormone treatments. The project data base
resulted in $240,000 of expense in the quarter ended September 30, 2000.

Our general and administrative expenses increased $154,411 to $453,219 in
the quarter ended September 30, 2000 from $298,808 in the quarter ended
September 30, 1999. The increase was attributable to an expansion of
infrastructure to support Bone Care's increased commercial activities.

Interest income increased $48,118 to $137,292 in the quarter ended September
30, 2000, from $89,174 in the quarter ended September 30, 1999. The increase
was due to net higher average cash and marketable securities balances during
the quarter ended September 30, 2000.

20
<PAGE>

Results of Operations for Fiscal Years Ended June 30, 2000 compared to June 30,
1999

Revenues consisted of three elements in the fiscal year ended June 30, 2000.

. $234,741 of revenue for sales of Hectorol Capsules;

. $125,000 of revenue related to a letter of intent to license Hectorol to
a foreign pharmaceutical company which was subsequently cancelled; and

. $24,996 of other revenue, including fees from incidental laboratory assay
services.

We had no revenue in the fiscal year ended June 30, 1999. Revenues from
shipments of Hectorol Capsules and the related costs are deferred at the time
of shipment to wholesalers and are recognized at the time the product is sold
by these wholesalers to retail users of the product. Revenues of $234,741 were
recognized in fiscal year 2000 and related cost of sales were $102,834. This
resulted in gross margin of $131,907. For the year ended June 30, 2000, the
total sales value of Hectorol Capsules shipped, net of $409,655 of returned
product, was $348,282, having a net cost of $152,836. This resulted in deferred
income of $63,539 representing the gross margin of our product not yet sold to
end users. We continue to evaluate data related to sales exchanges, wholesaler
inventories and retail sales. We believe we will have enough data to reasonably
estimate future returns when retail customers have purchased from wholesalers a
high percentage of our initial shipments or when the product approaches its
expiration date. We intend to recognize future revenues and related costs upon
shipment of Hectorol Capsules once a reasonable estimate of future returns can
be calculated.

In the fourth quarter of fiscal year 2000, we wrote-off $400,000 of excess
inventory representing amounts which we estimate will not be sold prior to
expiration.

In June 1999, we entered into a letter of intent with a pharmaceutical
company establishing terms under which exclusive rights to Hectorol would be
licensed to the potential foreign partner in one foreign country. In June 1999,
we received a payment of $125,000 upon signing a letter of intent. The payment
was recognized as revenue in December 1999 when negotiations terminated.

Our research and development expenses were $4,048,608 in fiscal year 2000
and $3,455,401 in fiscal year 1999. These expenses increased in fiscal year
2000 due to increased early-stage research and increased regulatory and filing
compliance efforts associated with the manufacture and sale of Hectorol
Capsules and Hectorol Injection.

Marketing and administrative expenses were $6,281,614 in fiscal year 2000
and $2,854,785 in fiscal year 1999 an increase of $3,426,829. Marketing
expenses increased $2,765,760, from $1,715,837 in fiscal year 1999 to
$4,481,597 in fiscal year 2000. The increase resulted from the following:

. approximately $1.1 million due to increased sales and marketing personnel
costs;

. approximately $800,000 due to increased promotional activities; and

. approximately $900,000 due to resources relating to sales and marketing
activities. The department has grown from 3 to 42 employees.

These expenses increased as we began marketing activities relating to the
launch of Hectorol Capsules and preparations to launch Hectorol Injection,
which we began selling in late August 2000.

Our growth has also resulted in the increase of administrative expenses.
Administrative expenses increased $661,069, from $1,138,948 in fiscal year 1999
to $1,800,017 in fiscal year 2000. The increase was the result of our overall
growth and our use of third-party consultants.

Interest income increased to $655,574 in fiscal year 2000 from $533,571 in
fiscal year 1999. In October 1999, our cash balance increased approximately
$11.0 million as a result of receiving the net proceeds of a common stock
offering. The increase in interest income was due to the resulting higher level
of average cash balances.

21
<PAGE>

Results of Operations for Fiscal Years Ended June 30, 1999 compared to June 30,
1998

We did not sell products or services in fiscal years ended June 30, 1999 or
1998.

Our research and development expenses were $3,455,401 in fiscal year 1999
and $3,932,008 in fiscal year 1998. These expenses decreased because during
fiscal 1998, we completed research activities related to producing commercial
quantities of Hectorol Capsules. Some of the decrease in the expenses was
offset by increased regulatory filing and compliance costs during fiscal year
1999.

Marketing and administrative expenses were $2,854,785 in fiscal year 1999
and $898,274 in fiscal year 1998. Expenses increased because we began pre-
marketing activities relating to the launch of Hectorol Capsules.

Interest income increased to $533,571 in fiscal year 1999 from $340,349 in
fiscal year 1998. In July 1998, our cash balance increased approximately $10.3
million as a result of receiving the net proceeds of a common stock offering.
The increase in interest income was due to the resulting higher level of
average cash balances.

Liquidity and Capital Resources

During the quarter ended September 30, 2000, cash, cash equivalents and
short-term marketable securities decreased $3,222,629 to $6,485,326. During the
quarter ended September 30, 1999, these assets decreased $1,590,972 to
$5,722,579. The increase in the use of cash during the quarter ended September
30, 2000 of $1,631,657 was primarily the result of increased sales and
marketing expenses related to the launch of Hectorol Injection in late August
2000 and higher labor costs associated with our expansion.

In October 1999, we completed a directed public offering of 1,229,058 shares
of newly issued common stock at a price of $9.02 per share. We received net
proceeds of approximately $11.0 million from the sale. In July 1998, we
completed a directed public offering of 1,326,000 shares of common stock at a
price of $8.00 per share. We received net proceeds of approximately $10.3
million from the sale.

Net cash used in operating activities was $7,995,937 in fiscal year 2000,
$6,403,670 in fiscal year 1999, and $4,255,461 in fiscal year 1998. The cash
used by operating activities was used primarily to fund research and
development as well as marketing and commercialization efforts for Hectorol
Capsules and Hectorol Injection.

We have experienced negative cash flows from operations since our inception
and do not anticipate generating sufficient positive cash flows to fund our
operations until we achieve, if ever, significant revenues from the sale of
Hectorol Capsules and Hectorol Injection. We have expended, and expect to
continue to expend in the future, substantial funds for our:

. pre-clinical and clinical testing;

. regulatory processes, including completion of FDA post-approval Phase IV
commitments for Hectorol Capsules and Hectorol Injection;

. manufacturing expenses;

. sales and marketing programs; and

. other operating expenses.

22
<PAGE>

Cash, cash equivalents and short-term marketable securities were $9,707,955
at June 30, 2000 and $7,313,551 at June 30, 1999. Cash and cash equivalents are
currently invested primarily in short-term investment grade United States
government, municipal and corporate debt securities.

On November 17, 2000, we entered into a line of credit agreement with
Firstar Bank, Madison, Wisconsin. Under the terms of the agreement, we may
borrow up to $6,000,000. Amounts outstanding under this facility will bear
interest at prime (9.50% at June 30, 2000). In addition, we will pay a
commitment fee of $500 per month. The line of credit matures in December 2002.
Borrowings under this facility have been personally guaranteed by Richard B.
Mazess, our Chairman and the owner of 27.2% of our common stock prior to the
offering.

Based upon our current plans, we believe that with the net proceeds of this
offering, we will have sufficient funds to meet our operating expenses and
capital requirements for at least the next two years. Thereafter, we may need
to raise additional capital to fund our operations, however, we do not have any
specific plans to raise additional capital. If we were to seek additional
funds, equity offerings or other sources would be considered. There is no
assurance that such additional funds will be available on acceptable terms, if
at all. Should our plans not be consummated, we may have to seek alternative
sources of capital, effect borrowings under our line of credit described above,
or re-evaluate our operating plans.

At June 30, 2000, we had state tax net operating loss carryforwards of
approximately $24,742,000 and state research and development tax credit
carryforwards of approximately $222,000 which will begin expiring in 2009. We
also had federal net operating loss carryforwards of approximately $21,940,000
and research and development tax credit carryforwards of approximately
$957,000, which will begin expiring in 2012.

Recent Accounting Pronouncements

In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101,
Revenue Recognition (SAB No. 101), to provide guidance on the recognition,
presentation and disclosure of revenue in financial statements. SAB No. 101
does not modify existing literature on revenue recognition. SAB No. 101
explains the staff's general framework for revenue recognition. We believe we
have conformed to the guidance of SAB No. 101 in recognizing revenue related to
the sales of Hectorol.

Impact of Year 2000

We are not aware of any material problems resulting from Year 2000 issues,
either with our products, our internal systems, or the products and services of
third parties. We will continue to monitor our mission critical computer
applications and those of our suppliers and vendors throughout the year 2000 to
ensure that any latent Year 2000 matters that may arise are addressed promptly.

Quantitative and Qualitative Disclosures about Market Risk

Our sales from inception to date have been made to United States customers
and, as a result, we have not had any exposure to factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
However, in future periods, we expect to sell in foreign markets, including
Europe and Asia. As our sales are made in United States dollars, a
strengthening of the United States dollar could make our products less
competitive in foreign markets. As of June 30, 2000, we did not hold any short-
or long-term investments other than short-term investment grade United States
government, municipal and corporate debt and, therefore, we do not believe that
short-term fluctuations in interest rates would materially affect the value of
our investments. Therefore, no quantitative tabular disclosures are required.

23
<PAGE>

BUSINESS

Overview

We licensed our first product, Hectorol, in 1987 from the University of
Wisconsin, a leading vitamin D research center. Hectorol, also known as
doxercalciferol, is a vitamin D replacement therapy approved by the FDA in two
formulations to treat secondary hyperparathyroidism in patients with end-stage
renal disease, or ESRD. Hectorol is a safe and effective therapy for reducing
elevated levels of parathyroid hormone (PTH) in blood in the management of
secondary hyperparathyroidism, a disease characterized by excessive secretion
of PTH. Long-term hyperparathyroidism if left untreated can result in muscle
weakness, bone loss and fractures. Virtually all ESRD patients suffer from
secondary hyperparathyroidism. In June 1999, we obtained FDA approval for
Hectorol Capsules, and in October 1999, we began selling this orally
administered product in the United States. In April 2000, we obtained FDA
approval for Hectorol Injection, and, in late August 2000, we began selling
this intravenous product in the United States. We recently completed two Phase
III trials for Hectorol Capsules to treat secondary hyperparathyroidism in pre-
dialysis patients, and we plan to file with the FDA a supplemental New Drug
Application for this indication by March 2001. In addition, we also are
developing Hectorol and new vitamin D therapies to treat these and several
other diseases.

Background

D-hormones are produced in the body from vitamin D that is either ingested
or generated in the skin from sunlight exposure. D-hormones have essential
roles in human health; they regulate (1) parathyroid hormone (PTH) secretion by
the parathyroid glands, (2) the absorption of calcium by the small intestine,
(3) muscle function, and (4) the proliferation and maturation of several types
of normal and abnormal cells. D-hormone deficiency occurs when the kidneys are
unable to produce D-hormones. Without sufficient D-hormone levels, PTH
secretion is increased and calcium absorption in the small intestine is reduced
leading to bone disease.

Hyperparathyroidism is a disease characterized by excessive secretion of PTH
by the parathyroid glands. Hyperparathyroidism is classified by the medical
community as either "primary" or "secondary", depending on the underlying
cause. Primary hyperparathyroidism is the less common type of
hyperparathyroidism and is caused by a disorder in one or more of the
parathyroid glands, usually a tumor. Surgical removal of the affected
parathyroid glands is the only effective treatment. Secondary
hyperparathyroidism is the more common type of hyperparathyroidism and is
caused by diseases unrelated to the parathyroid glands. It is seen in varying
severity in virtually all ESRD patients, in whom normal kidney function is lost
and dialysis is required for survival. Secondary hyperparathyroidism in renal
disease continues and worsens unless treated with D-hormone therapy.

. Hypercalcemia, excessive calcium in the blood, which increases the risk
that calcium-rich deposits will develop in soft tissues, such as in the
heart and arteries causing cardiac arrest, or in the kidneys accelerating
kidney failure in pre-dialysis patients.

. Hyperphosphatemia, excessive phosphorus in the blood, which stimulates
secretion of PTH by the parathyroid glands and exacerbates secondary
hyperparathyroidism.

24
<PAGE>

. Hypercalciuria, excessive calcium in the urine, which increases the risk
that calcium-rich deposits will develop in the kidneys, and this
accelerates kidney failure in pre-dialysis patients.

Due to the risks of these side effects, competitive D-hormones are
customarily administered at low dosages which are at times ineffective.
Starting dosages are increased cautiously, if at all, to minimize the chance of
these toxic side effects, rather than to optimize therapeutic response.
Intravenous products are favored in the United States marketplace because of
several factors: (1) drug administration is assured at the time of dialysis by
a healthcare professional; (2) repeated oral delivery of active D-hormones
promotes their breakdown in the intestine so that the amount delivered to the
parathyroid glands is reduced; and (3) Medicare reimbursement is only available
for intravenous products. In addition, intravenous delivery of competitive D-
hormones immediately causes abnormally high levels of D-hormones in the blood
followed by abnormally low levels as the D-hormones are eliminated rapidly from
the body. After oral delivery of competing D-hormone products, blood levels
also rapidly drop to abnormally low levels. This is in contrast to the
relatively constant blood levels of D-hormones which are maintained in
individuals with normal kidney function without side effects, yielding
consistent efficient regulation of PTH secretion.

The Bone Care Solution

We have two FDA approved products to treat secondary hyperparathyroidism in
ESRD patients, Hectorol Injection and Hectorol Capsules, and we are in the
process of developing Hectorol and other products for additional applications.
Hectorol offers:

. Safe and Effective Treatment. Data obtained from our clinical trials have
demonstrated that Hectorol is a safe and effective therapy for treating
secondary hyperparathyroidism in ESRD patients. In these trials, Hectorol
reduced blood levels of PTH in more than 90% of the treated patients with
minimal side effects. Based on these and other trials, we believe that
Hectorol compares favorably to competitive D-hormone products, including
calcitriol, paricalcitol and alfacalcidol, however, we have not performed
comparative trials to demonstrate these conclusions.

. Oral Delivery that Expands Market Opportunities. Hectorol Capsules
provide a safe, convenient and effective orally delivered therapy that we
believe could be applied to address wider therapeutic markets than ESRD
when approved by the FDA for additional indications. Intravenous D-
hormone products are used only in hemodialysis patients under medical
supervision. Competitive intravenous D-hormones are not well suited for
oral delivery because they are fully active on delivery, which can cause
certain cells lining the small intestine to absorb too much calcium and
phosphorus, leading to side effects. Hectorol, on the other hand, is an
inactive pro-hormone that, after oral delivery, is not recognized by
these intestinal cells. Therefore, Hectorol does not over-stimulate
absorption of calcium and phosphorus during absorption by the intestine.

. A Pro-Hormone that Provides Consistent Levels of Natural D-Hormones.
Hectorol is a pro-hormone, an inactive chemical substance that is slowly
metabolized by the liver into two active and naturally occurring D-
hormones. Activated Hectorol is released into the bloodstream at a rate
which closely mimics the steady production and release of these same
D-hormones by normal kidneys. Normal blood levels of D-hormones allow
efficient regulation of PTH secretion by the parathyroid glands with few
side effects.

. A Potentially Wider Therapeutic Window. We believe that there is indirect
evidence that Hectorol has a wider range, or therapeutic window, between
a minimum effective dose and a dose with significant side effects than
competitive D-hormone therapies. There are currently no direct
comparisons of Hectorol to competitive D-hormone therapies in ESRD
patients and we have not conducted these studies in any human subjects.
Animal studies, however, have demonstrated that Hectorol has fewer side
effects than calcitriol or alfacalcidol when delivered at doses of
equivalent potency. A wider therapeutic window would facilitate improved
individualized patient therapy and reduce episodes of temporary drug
withdrawal, thereby improving long-term patient outcome and increasing
the ease of patient management and monitoring.

25
<PAGE>

Our Strategy

Our strategy is to develop new D-hormone products and commercialize our two
newly approved products, Hectorol Injection and Hectorol Capsules, by:

. Expanding Our Sales and Marketing Infrastructure. We will continue to
develop our internal sales and marketing capabilities to address the over
$400 million D-hormone market in the United States for ESRD patients and
for related markets that could be effectively addressed with a small,
highly targeted sales and marketing effort. We will seek to establish
mutually beneficial alliances or marketing agreements with partners who
can rapidly penetrate geographic markets and therapeutic areas where we
have no current or planned sales presence.

. Competitively Pricing Hectorol. Recent concerns as expressed in two bills
considered in the United States Congress about the costs of D-hormone
therapy for ESRD patients may be a catalyst for exploring more cost-
effective D-hormone treatments. Hectorol is priced in the United States
at a modest premium to the older D-hormone, calcitriol, but below the
recently launched D-hormone, paricalcitol. We believe Hectorol's
competitive pricing will create interest by third-party payors and
facilitate its acceptance in the United States market. Hectorol Injection
is priced below a competing product, Zemplar, which is under review by a
number of third-party payors due to its significantly higher price
without a clearly demonstrated therapeutic advantage compared to other D-
hormone treatments. Hectorol Capsules also represent an attractive cost-
effective alternative to intravenous D-hormone therapies. While oral D-
hormone therapies are not reimbursed by Medicare, they are favored
outside of the United States. We are the only United States company with
both oral and intravenous D-hormone products and we believe we are well
positioned to take advantage of changes in preference for the method of
delivery.

. Expanding the Approved Indications for Hectorol. We plan to seek FDA
approval to market Hectorol for secondary hyperparathyroidism in pre-
dialysis and elderly osteoporosis patients, as well as for psoriasis and
cancers of the prostate, breast and colon. We have completed two Phase
III trials with pre-dialysis patients and are planning a Phase II trial
in elderly osteoporosis patients suffering from secondary
hyperparathyroidism. We currently are conducting Phase II trials in
prostate cancer patients and we are planning Phase II trials in psoriasis
patients.

. Developing Additional Product Offerings. We will continue to use our
significant research, clinical and regulatory expertise to identify and
develop, internally or through licensing from third parties, new
D-hormones with improved efficacy and safety for targeted diseases.

Our Products

We are discovering, developing and commercializing improved vitamin D-
hormone therapies to treat a variety of diseases where current treatments are
either unavailable or inadequate. Our products have not been compared with
competitive D-hormone therapies in clinical studies, but comparative studies in
several animal species have demonstrated that our products have a wider range,
or therapeutic window, between a minimum effective dose and a dose with
significant side effects. These studies compared our products, Hectorol, and/or
LR-103, to calcitriol and/or alfacalcidol, and showed that our products are 3-
to 30-times less toxic when administered at doses with equivalent potency. We
monitored for the same side effects as those affecting pre-dialysis or ESRD
patients receiving D-hormone therapy, including hypercalcemia,
hyperphosphatemia, and hypercalciuria. Additional animal studies have shown
that, unlike Hectorol and LR-103, competitive D-hormone therapies cause
significant calcium deposits in the kidneys when delivered in doses equivalent
to those used to treat patients. We cannot, however, be certain that additional
clinical studies will support our conclusion that Hectorol has a wider
therapeutic window than other D-hormone therapies.

26
<PAGE>

The following table summarizes the status of our products and our product
development programs:

<TABLE>
<CAPTION>
Clinical
Development
-------------------
Phase Phase
Pre-clinical Phase I II III Filing Launch
------------ ------- ----- ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Secondary
Hyperparathyroidism
Hectorol Injection
Dialysis

Hectorol Capsules
Dialysis

Pre-Dialysis March 2001
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Osteoporosis

Hyperproliferative Diseases
Hectorol Capsules
Prostate Cancer
Psoriasis

Oral LR-103
Psoriasis and Cancers

Oral BCI-202
Psoriasis
</TABLE>

= Completed
= In process

Hectorol Injection

We developed Hectorol Injection for use in the approximately 250,000 ESRD
patients in the United States who undergo hemodialysis three times per week.
The FDA approved Hectorol Injection in April 2000 after initially declining to
accept our New Drug Application for review. We provided the FDA with
supplemental analyses that demonstrated the equivalence of Hectorol Injection
and Hectorol Capsules and reinforced the safety and efficacy of Hectorol
Injection. Our application included data from two Phase III trials which
involved a total of 70 patients and consisted of an eight-week monitoring
period in which no D-hormone therapies were given, followed by a 12-week period
in which patients received open-label treatment with Hectorol Injection at
hemodialysis. The study endpoint for effectiveness was the observed reduction
in blood PTH levels and the endpoints for safety were the observed rates of
hypercalcemia and hyperphosphatemia. In both trials, after 12 weeks of open-
label treatment, blood PTH levels were reduced 40-50%. These reductions were
statistically significant (p<0.01). In both studies, blood PTH reached a
predetermined optimal range in more than 70% of treated patients. Hectorol
Injection normalized blood calcium but also caused infrequent episodes of
hypercalcemia and hyperphosphatemia. In April 2000, we obtained FDA approval
for Hectorol Injection, and in late August 2000, we began selling the product.
The approval was accompanied by a Phase IV commitment to complete a post-
approval Phase IV trial in pediatric patients with ESRD by August 2002. If we
fail to satisfy this commitment in a timely manner, the FDA could withdraw its
existing approval.

Hectorol Capsules

Hectorol Capsules are approved for use in the approximately 284,000 ESRD
patients in the United States, however, we are only marketing the product to
the subgroup of approximately 34,000 ESRD patients who undergo dialysis outside
of clinics. In addition, we are conducting clinical trials of Hectorol Capsules
to gain FDA approval for use in other larger disease populations. The FDA
approved Hectorol Capsules in June 1999 based on the results of two Phase III
trials involving a total of 211 subjects. Each trial consisted of an eight-week
monitoring period in which no D-hormone therapies were given, followed by a 16-
week period in which patients received open-label treatment with Hectorol
Capsules at hemodialysis, and an eight-week period in which patients received
in a double-blinded randomized fashion continuing treatment with either
Hectorol Capsules or a matching placebo. The study endpoint for effectiveness
was the observed reduction in blood PTH

27
<PAGE>

levels and the endpoints for safety were the observed rates of hypercalcemia
and hyperphosphatemia. In both trials, after 16 weeks of open-label treatment,
blood PTH levels were reduced more than 50%. These reductions were
statistically significant (p<0.01). In addition, blood PTH reached a pre-
determined optimal range in 83% of the treated patients. At the end of the
eight additional weeks of blinded treatment, mean blood PTH levels in patients
receiving Hectorol Capsules remained approximately 50% below those receiving a
matching placebo. Differences in mean blood PTH levels between patients
receiving Hectorol Capsules and those receiving placebo treatments were
clinically and statistically significant. Hectorol Capsules normalized blood
calcium levels but caused infrequent episodes of hypercalcemia and
hyperphosphatemia.

In addition to treating dialysis patients, we are developing Hectorol
Capsules to treat pre-dialysis patients and elderly osteoporosis patients with
secondary hyperparathyroidism.

Secondary Hyperparathyroidism in Pre-Dialysis Patients. Secondary
hyperparathyroidism begins to develop in patients with modest reductions in
kidney function and becomes more severe as ESRD progresses. We estimate
that there are at least 600,000 pre-dialysis patients in the United States.

Evidence from published clinical research suggests that early
intervention with D-hormone replacement therapy can slow the progression of
secondary hyperparathyroidism in pre-dialysis patients. Rocaltrol is
approved in the United States and we believe oral alfacalcidol is used in
certain foreign markets to treat pre-dialysis patients. As with their use
in dialysis patients, however, these competitive oral products can cause
toxic side effects at the doses required for effective treatment and can
hasten the onset of dialysis.

We recently completed two randomized, double blind, placebo-controlled
Phase III trials for Hectorol Capsules to treat secondary
hyperparathyroidism in pre-dialysis patients. The trials consisted of an
eight-week monitoring period in which no D-hormone therapies were given,
followed by a 24-week period in which patients were treated with either
Hectorol Capsules or a matching placebo. The study endpoint for
effectiveness was the observed reduction in blood PTH levels and the
endpoints for safety were the observed rates of hypercalcemia,
hyperphosphatemia and hypercalciuria, and significant decreases in kidney
function. In both studies, Hectorol significantly reduced blood PTH levels
relative to a matching placebo, without significant side effects. We intend
to use the results from these two trials as the basis for filing with the
FDA a supplemental New Drug Application by March 2001, requesting approval
to market Hectorol Capsules for secondary hyperparathyroidism in these pre-
dialysis patients.

Secondary Hyperparathyroidism in Elderly Osteoporosis Patients. We plan
to further investigate the use of Hectorol Capsules to treat secondary
hyperparathyroidism in elderly osteoporosis patients. Of the 16 million
people in the United States over the age of 75 years, we estimate that two
to four million have secondary hyperparathyroidism associated with
osteoporosis. In many elderly individuals, there is reduced responsiveness
of the parathyroid glands, the small intestine and muscles to D-hormones.
Higher D-hormone levels are needed in the blood of these individuals to
control PTH secretion and to maintain both intestinal calcium absorption
and muscle strength. Often these individuals develop secondary
hyperparathyroidism. Left untreated, the elevated level of PTH in the blood
causes bone loss which increases the risk of debilitating fractures. In
addition, decreased muscle strength increases the risk of falling, which in
turn, further increases the risk of fractures. Fractures often result in
disfigurement, decreased mobility and, in some cases, extensive
hospitalization and chronic nursing home care.

In the United States, there are currently no FDA-approved D-hormone
therapies to treat patients with osteoporosis, however, D-hormone therapies
are approved in Europe, Asia, Australia and other markets. Controlled
clinical trials conducted in these markets using oral calcitriol or oral
alfacalcidol demonstrated increased or stabilized bone mass and reduced
rates of fractures. However, other trials conducted in the United States
have produced mixed results, possibly due to the use of inconsistent doses.
Higher doses of oral calcitriol produced increases in spinal and total body
bone mass, whereas lower doses showed little effect. Lower doses were used
in several trials due to the unacceptable frequency of hypercalcemia and
hypercalciuria. These results suggest that D-hormone therapies with
improved safety profiles may enable

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<PAGE>

more consistent delivery of higher doses for improved therapeutic effects
in elderly osteoporosis patients with secondary hyperparathyroidism.

In 1992, we completed a Phase II trial in the United States to evaluate
Hectorol Capsules to treat postmenopausal osteoporosis. We and our
corporate collaborators concluded that the data from the trial did not
provide a sufficient basis for initiating pivotal Phase III trials with
Hectorol Capsules to treat postmenopausal osteoporosis. Based on published
reports that D-hormones have efficacy in patients with secondary
hyperparathyroidism, we plan to initiate an additional Phase II trial of
Hectorol Capsules in elderly osteoporosis patients to treat secondary
hyperparathyroidism. We plan to discuss this potential Phase II trial with
the FDA within the next six months and to initiate the trial in 2001 if a
satisfactory design can be agreed upon with the FDA. Until a satisfactory
design can be agreed upon, we cannot determine the duration of the trial.

Hyperproliferative Diseases

In addition to having a role in parathyroid function and calcium and
phosphorus metabolism, D-hormones have an important role in controlling the
development of skin, prostate, breast and colon cells. We are investigating the
use of Hectorol Capsules and other improved D-hormone therapies to treat cell
growth diseases, or hyperproliferative diseases, involving these cells,
including psoriasis, and prostate, breast and colon cancers. Our preliminary
studies, as well as research conducted by others, suggest that these cells show
substantially reduced growth rates when exposed to D-hormones and D-hormone
analogs.

Psoriasis. We are developing Hectorol in a delayed, sustained release
formulation, as an oral D-hormone therapy for psoriasis, a chronic disease
that most often affects the skin. Psoriatic lesions are characterized by an
abnormal thickening or growth of the skin, usually on the scalp, elbows,
knees, and shins. Microscopic examination of these lesions reveals an
increased rate of skin cell division, together with a decrease in the time
required for these cells to migrate to the skin surface, resulting in
thickening or growth of the skin.

According to the National Psoriasis Foundation, psoriasis affects more
than seven million individuals in the United States of which approximately
1.5 million are being treated by a physician. A similar prevalence rate is
observed in Europe. Psoriasis affects people of all ages, with most
exhibiting mild or moderate lesions. No cure for psoriasis exists. Dovonex
(topical calcipotriol marketed by Bristol-Myers Squibb Company) is a
synthetic D-hormone analog of calcitriol and is approved to treat psoriasis
in the United States. Dovonex and tacalcitol, another D-hormone analog, are
approved to topically treat psoriasis in many countries outside of the
United States. Currently, no oral D-hormones are approved to treat
psoriasis in the United States.

Controlled clinical studies have demonstrated that orally administered
D-hormones can cause significant improvement in psoriatic lesions reducing,
in particular, skin redness, scaling and thickness. In many patients,
complete clearing of psoriatic lesions is observed during the course of D-
hormone treatment. We plan to conduct a Phase II trial in 2001 to determine
the effectiveness of orally delivered Hectorol as a treatment for
psoriasis.

Prostate, Breast and Colon Cancers. We intend to develop Hectorol
Capsules or another compound to treat prostate, breast and colon cancers.
These cancer cells are similar because they contain specific D-hormone
receptors and have shown reductions in cell division rates when treated
with D-hormones in vitro. Oncologists consider D-hormones to be promising
new treatments for these three cancers, but the frequent side effects
observed with D-hormones have inhibited clinical evaluations of this class
of compounds. We believe that no D-hormone has received marketing approval
for cancer anywhere in the world.

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<PAGE>

Prostate cancer has become the most commonly diagnosed tumor in American
men. The American Cancer Society (ACS) estimates that in the year 2000,
180,000 men will be diagnosed with, and 32,000 men will die from, prostate
cancer. Breast cancer is the second leading cause of death among women in
the United States. According to ACS estimates, in the year 2000, 184,000
women will be diagnosed with, and 41,000 women will die from, breast
cancer. Colon cancer is the third most common cancer in American men and
women. In the year 2000, 94,000 men and women will be diagnosed with, and
48,000 people will die from, colon cancer. The major known risk factors for
prostate cancer, namely old age, race, and residence at northern latitudes,
are all associated with low blood levels of vitamin D, the natural
precursor for D-hormones. Incidence rates for breast and colon cancers also
correlate with residence in northern latitudes. Mortality rates for these
three cancers increase as exposure to ultraviolet radiation, the principal
source of vitamin D in the human body, decreases.

We completed a Phase I trial in January 1999 in patients with terminal
prostate cancer to determine the maximum tolerable dose of Hectorol
Capsules without side effects. These patients had diseases which could be
monitored by objective imaging techniques while simultaneously evaluating
safety endpoints such as hypercalcemia and hyperphosphatemia. Results from
this Phase I trial showed that 70% of patients treated for at least 12
weeks were free of disease progression. We are currently conducting a Phase
II trial in terminal prostate cancer patients. Preliminary results indicate
that six of the 13 evaluated patients treated with Hectorol Capsules became
free of disease progression for at least six months. We have enrolled an
additional 13 patients in this trial. If the results of this trial remain
significant at the end of 2001, we plan to initiate Phase III trials using
Hectorol Capsules in patients with prostate cancer. We have not yet
initiated Phase II trials in patients with breast or colon cancer.

LR-103 and BCI-202

We are investigating the use of LR-103, BCI-202 and other research compounds
in pre-clinical studies to evaluate them to treat psoriasis and prostate,
breast and colon cancers. LR-103 is a naturally occurring D-hormone that is
produced by the kidneys from vitamin D. LR-103 is one of the D-hormones
produced from Hectorol.

Hectorol's chemical structure differs from calcitriol and alfacalcidol only
in a few areas. Results from animal studies indicate that Hectorol shows a 3-
to-15-fold lower incidence of toxic side effects compared to calcitriol and
alfacalcidol at doses having equivalent potency. Consequently, we synthesized
and examined a series of compounds related to Hectorol in which chemical
structural changes were systematically made to these areas. From this research,
we determined that Hectorol is activated, in part, to LR-103, whereas
calcitriol and alfacalcidol cannot be so activated.

We have since synthesized LR-103 and closely related analogs and have
studied their pharmacological properties in biological models in collaboration
with the USDA. LR-103 is as potent as Hectorol, calcitriol and alfacalcidol,
but is 30 times less likely than calcitriol and alfacalcidol to cause toxic
side effects. In addition, we have observed that LR-103 inhibits growth of skin
cells as well as breast and colon cancer cells. Most importantly, LR-103 is
readily absorbed after oral delivery and circulates through the bloodstream to
tissues which respond to D-hormones. LR-103 currently is in the late stages of
pre-clinical research and we plan to begin Phase I clinical studies with LR-103
in calendar 2001.

BCI-202 is a novel pro-hormone that is metabolized to LR-103. This promising
pharmaceutical candidate is in an early stage of pre-clinical development. We
cannot be certain that future studies will yield safe and effective results
that warrant continued development.

Sales and Marketing

Hectorol Capsules, which we commercially introduced in October 1999 and
Hectorol Injection, which we commercially introduced in late August 2000, are
currently being marketed for ESRD patients in the United States by our direct
sales force. We believe that the ESRD market in the United States is well
defined and therefore, is suited for a highly focused, direct sales and
marketing effort. In addition, we believe that our

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pricing strategy balances the physicians' focus on patient care with dialysis
clinics' desire for greater profit and third-party payors' desire to control
treatment costs.

We are directing our marketing efforts to the following key decision makers:

. Nephrologists. The nephrologist is the physician responsible for the care
of patients diagnosed with early and end-stage renal disease. This care
includes delivering D-hormone replacement therapy, which may be
administered based on protocols developed in conjunction with the
dialysis clinics. We estimate that in the United States there are
approximately 5,100 nephrologists caring for 284,000 dialysis patients
and over 600,000 pre-dialysis patients.

. Dialysis Clinics. The nephrologist is generally associated with a clinic
that performs dialysis procedures. In the United States, a limited number
of large corporations control the majority of these clinics with the
largest eight corporations controlling more than 66% of in-center
dialysis facilities and the largest three controlling over 50% of all in-
center dialysis facilities. Generally these clinics bill for services
provided to ESRD patients, including D-hormone therapy. These clinics
work with the nephrologist to maximize both the quality of patient care
and profits.

. Third-Party Payors. Dialysis clinics who administer intravenous D-
hormones seek reimbursement from third-party payors who generally are
either insurance companies or governmental agencies, including Medicare
and Medicaid. These payors set reimbursement levels for products and
services which the clinics provide to dialysis patients. Payors,
including the United States government, have increasingly focused on
containing costs, which has impacted the reimbursement of various
products and, in turn, affected clinical use of certain products. For
example, some payors' proposed reduction in reimbursement levels for
Calcijex (intravenous calcitriol) may drive dialysis clinics currently
using Calcijex toward alternative D-hormone products with more favorable
or certain reimbursement. We are positioning both Hectorol Capsules and
Hectorol Injection as safe, effective and attractively priced products,
and our strategy is to establish Hectorol products as preferred D-hormone
therapies. Currently, oral D-hormone products are not reimbursed for use
by hemodialysis patients. However, given payors' focus on cost
containment, we believe that oral therapies represent an attractive,
cost-effective alternative to more expensive intravenous therapies.

During the last six months, we accelerated the growth of our direct sales
and marketing organization. As of November 8, 2000, the organization consisted
of 30 people, including a Vice President-Sales and Marketing, a Marketing
Director and 22 direct sales people. In addition, we have hired a group of
certified nephrology nurses to assist in using Hectorol. We intend to allocate
significantly greater resources to our sales and marketing organization to
support the commercialization of Hectorol. We intend to expand our direct sales
force to 30 people by December 2000 and to hire additional nephrology nurses.
Additionally, we will seek to establish mutually beneficial alliances or
marketing agreements with partners who can access geographic markets and
therapeutic areas where we have no current or planned sales presence.

Hectorol is distributed to patients and dialysis centers through both direct
and traditional wholesale and retail channels. We have contracted for selected
administrative and distribution services from a third-party company having a
proven record of providing services to wholesale and retail customers in the
continental United States, Hawaii and Puerto Rico.

Competition

We operate in a field in which new discoveries occur at a rapid pace.
Competitors may succeed in developing technologies or products that are more
effective than ours or in obtaining regulatory approvals for their drugs more
rapidly than we are able to, which could render our products obsolete or
noncompetitive. Competition is intense and is expected to continue to increase.
Many competitors, including biotechnology and pharmaceutical companies, are
actively engaged in the research and development of products in similar areas,
including the fields of hyperparathyroidism, osteoporosis, and prostate, breast
and colon cancer.

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A number of pharmaceutical and biotechnology companies are developing new
products for the treatment of the same diseases we have targeted. Abbott
Laboratories, Inc. markets intravenous calcitriol (Calcijex) and Roche
Pharmaceuticals markets oral calcitriol (Rocaltrol). These drugs are approved
to manage secondary hyperparathyroidism in kidney dialysis patients in the
United States and in European countries. Abbott Laboratories, Inc. received
marketing approval from the FDA in April 1998 for intravenous paricalcitol
(Zemplar), a new D-hormone analog to treat secondary hyperparathyroidism in
kidney dialysis patients. Roche Pharmaceuticals markets oral calcitriol
(Rocalctrol) in the United States to manage secondary hyperparathyroidism in
pre-dialysis and ESRD patients. A number of companies, including Leo
Pharmacuetical Products A/S, TEVA Pharmaceuticals and Chugai Pharmaceutical
Company Co., Ltd., market oral or intravenous alfacalcidol, a synthetic analog
of calcitriol, in Europe and Asia under various trade names for both secondary
hyperparathyroidism and osteoporosis. Other companies, including Amgen, Inc.
and NPS Pharmaceuticals, Inc., also are developing new therapies to manage
secondary hyperparathyroidism in kidney dialysis patients in the United States
and foreign markets. Leo Pharmaceutical Products A/S and ILEX Oncology, Inc.
are developing D-hormone therapies to treat cancers. Leo Pharmaceutical
Products A/S, Bristol-Myers Squibb Company and other companies are marketing a
topical D-hormone (Dovonex) in major markets of the world to treat psoriasis.
Teijin Limited is marketing topical tacalcitol to treat psoriasis outside the
United States.

Intellectual Property

Our success will depend in part on our ability to develop patentable
products and technologies and obtain patent protection for our products and
technologies both in the United States and other countries. We currently have
42 issued patents and 91 pending applications worldwide. We have several United
States patents covering the use of Hectorol for the prevention and treatment of
secondary hyperparathyroidism and metabolic bone disease, including renal
osteodystrophy. Patents covering secondary hyperperathyroidism begin to expire
in 2010. Patents covering metabolic bone disease begin to expire in 2009.

A corresponding patent for the use of Hectorol to prevent and manage
secondary hyperparathyroidism in kidney dialysis patients is pending before the
European and Japanese patent offices. If issued, both patents would expire in
2016. A corresponding patent for the use of Hectorol to prevent and treat
metabolic bone disease has been issued by the European Patent Office and
expires in 2009. Patent applications for similar coverage are pending in other
countries.

We also own United States patents for the use of Hectorol for treating
prostate cancer that expire in 2013. We have filed counterpart patent
applications in Europe and other geographic markets, including Japan that
expire in 2017. We own United States patents for delayed sustained release
formulations of Hectorol as a treatment for psoriasis. Foreign counterpart
applications are also pending in Europe, Japan and other major markets. The
psoriasis related patents expire in 2013.

The issued composition of matter patent covering Hectorol has expired. Our
issued patents and pending patent applications relating to Hectorol are method-
of-use patents. A method-of-use patent encompasses the use of a compound or
composition to treat a specified condition but does not encompass the compound
itself, the active ingredient used in the composition or composition itself, or
the method of making the composition or the compound used in the composition.
Method-of-use patents provide less protection than composition of matter
patents because of the possibility of off-label or authorized uses if other
companies market or make the compound for other uses.

We have a license from the Wisconsin Alumni Research Foundation to practice
several of their process patents for the synthesis of Hectorol. Under this
license, which extends at least through July 2, 2013 and terminates upon the
expiration of the last licensed patent, the Wisconsin Alumni Research
Foundation has agreed not to license to other parties the patents to
manufacture Hectorol for use or sale anywhere in the world as long as the
license agreement is in effect and we pay royalties based on Hectorol sales. We
also have our own patent in the United States for methods of synthesizing
Hectorol and patent applications pending in other geographic markets, including
Japan.

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We have granted Draxis Health Inc. a license to use and sell Hectorol in
Canada for secondary hyperparathyroidism, osteoporosis and other metabolic bone
diseases. We also have granted Draxis a license in Canada to all know-how
developed by or on behalf of us relating to the use of Hectorol for those
indications. Draxis entered into the license agreement in 1990 and paid Bone
Care $100,000 for the rights to treat secondary hyperparathyroidism and
metabolic bone disease with Hectorol in Canada. The agreement does not include
royalty payments and expires upon the expiration date of the last to expire of
the Canadian patents which is 2016.

We own issued patents and have pending patent applications in the United
States and other countries relating to other D-hormones. Our patents and
pending applications include claims to compounds, compositions, methods of
synthesizing the compounds and compositions, methods of use and methods of
delivery of active D-hormone and D-hormone analogs.

We and the USDA jointly own rights to LR-103 under issued patents and
pending patent applications. The USDA has granted to us an exclusive worldwide
license to make, use and sell products covered under their rights. If we do not
commercialize these products by April 7, 2002, the USDA may modify or terminate
the license. We will, however, retain co-marketing rights under these patents.
This license terminates upon the expiration of the last licensed patent.

In addition to patent protection, we also rely on proprietary information
and trade secrets. We require our employees, consultants, and advisors to
execute confidentiality agreements upon commencement of an employment or a
consulting relationship with us.

Manufacturing

We have no internal manufacturing capabilities. We have contracted and
intend to contract with others to produce active pharmaceutical ingredients and
for the subsequent manufacturing and packaging of finished drug products. We
purchase the active ingredient Hectorol from an FDA-inspected and approved
supplier. We believe this FDA-inspected and approved supplier and other
suppliers can produce Hectorol in a quantity sufficient to support
commercialization of our finished drug products. We use FDA-inspected
manufacturers to produce, formulate and package Hectorol as finished drug
products, including capsules suitable for oral delivery and solutions suitable
for intravenous delivery.

All of our suppliers have FDA-inspected facilities that operate under
current Good Manufacturing Practices regulations established by the FDA. These
regulations govern all stages of the drug manufacturing process, and are
intended to assure that drugs produced will have the identity, strength,
quality and purity represented in their labeling for all intended uses. If we
were to establish our own manufacturing facility, we would need additional
funds and would have to hire and train additional personnel and comply with the
extensive regulations applicable to the facility. We believe our relationships
with our suppliers are good.

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Government Regulation

Pharmaceutical products are subject to extensive regulation under the
Federal Food, Drug and Cosmetic Act by the FDA in the United States and similar
health authorities in foreign countries. This rigorous regulation governs,
among other things, testing for safety and effectiveness, manufacturing,
labeling, storage, recordkeeping, import, export, advertising, marketing and
distribution of pharmaceutical products. Any new drug candidate must undergo
lengthy, rigorous and costly pre clinical testing, clinical trials and other
procedures mandated by the FDA and foreign regulatory authorities prior to
approval for sale.

Before testing agents with potential therapeutic value in healthy human test
subjects, stringent government requirements for pre-clinical data must be
satisfied. The data, obtained from studies in several animal species, as well
as from laboratory studies, are submitted in an investigational New Drug
Application to the FDA or its equivalent in countries outside the United States
where clinical studies are to be conducted. Pre-clinical data must provide an
adequate basis for evaluating both the safety and the scientific rationale for
the initiation of clinical trials.

Clinical trials are typically conducted in three sequential phases, although
these phases may overlap. Phase I frequently begins with initial introduction
of the compound into healthy human subjects. Prior to patient introduction, the
product is tested for safety, adverse affects, dosage, tolerance, absorption,
metabolism, excretion and clinical pharmacology. Phase II typically involves
studies in a small sample of the intended patient population to assess the
efficacy of the compound for a specific indication to determine dose tolerance
and the optimal dose range as well as to gather additional information relating
to safety and potential adverse effects. Phase III trials are undertaken to
further evaluate clinical safety and efficacy in an expanded patient population
which suffers from the targeted illness at geographically dispersed study sites
to determine the overall risk-benefit ratio of the compound and to provide an
adequate basis for product labeling. Each trial is conducted in accordance with
certain standards under protocols that detail the objectives of the study, the
parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the
investigational New Drug Application.

Data from pre-clinical and clinical trials are submitted to the FDA as a New
Drug Application for marketing approval and to other health authorities as a
marketing authorization application. The process of completing clinical trials
for a new drug is likely to take a number of years and requires the expenditure
of substantial resources. Preparing a New Drug Application or marketing
authorization application involves considerable data collection, verification,
analysis and expense. There can be no assurance that the FDA, or any other
health authority, will grant approval on a timely basis, if at all. The
approval process is affected by a number of factors, primarily the risks and
benefits demonstrated in clinical trials as well as the severity of the disease
and the availability of alternative treatments. The FDA or other health
authorities may deny a New Drug Application or marketing authorization
application if the authority's regulatory criteria are not satisfied or may
require additional testing or information.

Even after initial FDA or other health authority approval has been obtained,
further studies, including Phase IV post-marketing studies, may be required to
provide additional data on safety. Additional studies will be required to gain
approval for the use of a product as a treatment for clinical indications other
than those for which the product was initially tested and may be required for
Hectorol Injection and Hectorol Capsules. Also, the FDA or other regulatory
authorities may require post-marketing reporting to monitor the side effects of
the drug. Results of post-marketing programs may limit or expand marketing of
the products. Further, if there are any modifications to the drug, including
changes in indication, manufacturing process or labeling or a change in
manufacturing facility, an application seeking approval of such changes will be
required to be submitted to the FDA or other regulatory authority.

The manufacture and marketing of Hectorol is subject to ongoing regulation,
including compliance with the FDA's current Good Manufacturing Practices,
adverse event reporting requirements and the FDA's general prohibitions against
promoting products for "off-label" uses, or uses not listed on the FDA-approved
labeling.

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We also are subject to inspection and market surveillance by the FDA for
compliance with these and other requirements. Any enforcement action resulting
from failure to comply with these requirements could affect the manufacture and
marketing of Hectorol. In addition, the FDA could withdraw a previously
approved product from the market upon receipt of new information.

Before our products can be marketed outside of the United States, they are
subject to regulatory approval similar to FDA requirements in the United
States, although the requirements governing the conduct of clinical trials and
other premarket approval requirements vary widely from country to country, and
the time spent in gaining approval varies from that required for FDA approval.
FDA approval does not assure approval by other regulatory authorities and we
cannot predict whether foreign regulatory approvals will be granted. In some
countries, the sales price of a drug product must also be approved. The pricing
review period often begins after market approval is granted. Even if a foreign
regulatory authority approves any of our products, we cannot predict whether
satisfactory prices for our products will be approved.

We must also comply with numerous federal, state and local laws, regulations
and recommendations relating to safe working conditions, current Good
Laboratory Practices, current Good Manufacturing Practices and the experimental
use of animals. We cannot predict the extent of governmental regulation or the
impact of new governmental regulations which might have an adverse effect on
the discovery, development, production and marketing of our products, and
require us to incur significant costs to comply with the regulations.

Our research and development processes involve the controlled use of
hazardous materials, chemicals and radioactive materials, and produce waste
products. We are subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of such
materials and waste products. Although we believe that our safety procedures
for handling and disposing of such materials comply with the standards
prescribed by such laws and regulations, the risk of accidental contamination
or injury from these materials cannot be eliminated completely. In the event of
such an accident, we could be held liable for any damages that result and any
such liability could exceed our financial resources. We believe we comply in
all material respects with applicable environmental laws and regulations.

Completing the multitude of steps necessary before marketing a new drug or
obtaining a new indication for Hectorol requires the expenditure of
considerable resources and a lengthy period of time. Delay or failure in
obtaining the required approvals, clearances or permits by us, our corporate
partners or our licensees would have a material adverse effect on our ability
to generate sales or royalty revenue. The impact of new or changed laws or
regulations cannot be predicted with any accuracy.

Employees

As of November 8, 2000, we had 70 full-time employees, including 27 in
research and development, 30 in sales and marketing and 13 in administration.
Four of our employees have Ph.D. degrees. None of our employees are represented
by a union and we consider our employee relations to be good.

Properties

We currently lease approximately 12,000 square feet of office and laboratory
space in Madison, Wisconsin. This lease expires on January 10, 2001. We have
entered into a lease for a new facility which has approximately 34,000 square
feet of office and laboratory space in Middleton, Wisconsin. The new lease
begins in December 2000 and expires in December 2005. We believe our facilities
are adequate to meet our needs for the foreseeable future.

Legal Proceedings

We may be a defendant from time to time in actions arising out of our
ordinary business operations. There are no material legal proceedings pending.

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MANAGEMENT

Executive Officers and Directors

The following table lists members of our board of directors and our
executive officers, with the position held by each and their ages as of
November 8, 2000:

<TABLE>
<CAPTION>
Name Age Position(s)
--------------------------- --- -----------------------------------------------
<S> <C> <C>
Richard B. Mazess, Ph.D.... 61 Chairman of the Board

Charles W. Bishop, Ph.D.... 49 President, Chief Executive Officer and Director

Robert A. Beckman.......... 46 Acting Vice President-Finance, Director

Dale W. Gutman............. 47 Vice President-Finance

Paul V. Peterson........... 49 Vice President-Sales and Marketing

Charles R. Klimkowski, CFA. 65 Director

Martin Barkin, M.D......... 64 Director
</TABLE>

Richard B. Mazess, Ph.D. Dr. Mazess, our founder, has served as a director
since 1984. Dr. Mazess served as President from our inception in 1984 through
February 1996, and has served as our Chairman of the Board since February 1996.
Dr. Mazess was President and a director of Lunar Corporation prior to its sale
in August 2000. Lunar developed and sold x-ray and ultrasound bone
densitometers for the diagnosis and monitoring of osteoporosis and other
metabolic bone diseases. Dr. Mazess became Professor Emeritus of Medical
Physics at the University of Wisconsin-Madison in 1985 and has been on the
faculty of the Department of Medical Physics since 1968.

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

Robert A. Beckman. Mr. Beckman has been a director since 1989 and was Vice
President of Finance for the period May 1996 through November 1996. Mr. Beckman
had been Vice President of Finance for Lunar since 1987 prior to its sale in
August 2000. Mr. Beckman currently is our Acting Vice President-Finance during
Mr. Gutman's convalescence.

Dale W. Gutman. Mr. Gutman joined us in December 1996 as Vice President-
Finance. From 1986 to December 1996, Mr. Gutman served as Vice President and
Corporate Controller of the Chas. Levy Company, a distributor of magazines and
books to independent and mass market retailers throughout the United States.
Mr. Gutman is convalescing well from a serious automobile accident in December
1999, during which time Mr. Beckman is serving as our Acting Vice President-
Finance.

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

Charles R. Klimkowski, CFA. Mr. Klimkowski has been a director since March
1999. Prior to his retirement in 1998, Mr. Klimkowski served as Executive Vice
President and Director and formerly as Chief Operating Officer and Director of
Investments of ABN AMRO Asset Management (USA) Inc. and The Chicago
Corporation. Mr. Klimkowski was employed by The Chicago Corporation from 1980
until its acquisition by ABN AMRO.

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

36
<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of November 8, 2000 and as adjusted to reflect
the completion of this offering by:

. each of our directors and executive officers;

. all of our directors and executive officers as a group; and

. each person who is known by us to own beneficially more than five percent
of the outstanding shares of the common stock.

Unless otherwise indicated below, the persons in the table have sole voting
and investment power with respect to all shares shown as beneficially owned by
them. Beneficial ownership is determined in accordance with the rules of the
SEC. The number of shares beneficially owned by a person and the percentage
ownership of that person include shares of our common stock subject to options
held by that person that are currently exercisable or exercisable within 60
days of November 8, 2000.

<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to the Owned After the
Offering Offering
----------------------- -----------------------
Name Number Percent Number Percent
---- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Richard B. Mazess, Ph.D. (1)..... 3,110,710 27.2% 3,110,710 22.6%
State of Wisconsin Investment
Board (2)....................... 2,148,000 18.7 2,523,000 18.3
T. Rowe Price Associates, Inc.
(3)............................. 1,037,000 9.1 1,037,000 7.5
Robert W. Baird & Co.
Incorporated (4)................ 638,330 5.6 638,330 4.6
Martin Barkin, M.D. (5).......... 18,000 * 18,000 *
Robert A. Beckman (6)............ 75,146 * 75,146 *
Charles W. Bishop, Ph.D. (7)..... 148,627 1.3 148,627 1.1
Dale W. Gutman (8)............... 15,000 * 15,000 *
Charles R. Klimkowski, CFA (9)... 50,500 * 50,500 *
Paul V. Peterson (10)............ 14,000 * 14,000 *
------------ ------- ------------ -------
All directors and executive
officers as a
group (7 persons) (11).......... 3,431,983 29.3% 3,431,983 24.5%
</TABLE>
--------
* less than 1%

(1) Includes 1,601,950 shares of common stock held by Dr. Mazess in joint
tenancy with his wife and 587,500 shares of common stock held by Dr. Mazess
as custodian for his daughters.

(2) Based on Amendment No. 2 to Schedule 13G dated February 10, 2000, furnished
to us, the State of Wisconsin Investment Board had sole voting power with
respect to 2,148,000 shares of common stock and sole dispositive power with
respect to 2,148,000 shares of common stock. The underwriters have received
a commitment from the State of Wisconsin Investment Board for approximately
375,000 shares of common stock. The State of Wisconsin Investment Board's
address is P. O. Box 7842, Madison, Wisconsin 53707.

(3) Based on Amendment No. 3 to Schedule 13G dated February 12, 2000, furnished
to us, T. Rowe Price Associates, Inc., an investment adviser registered
under Section 203 of the Investment Advisers Act of 1940, had sole voting
power with respect to 52,000 shares of common stock and had sole
dispositive power with respect to 1,037,000 shares of common stock, and T.
Rowe Price Small-Cap Value Fund, Inc., an investment company registered
under Section 8 of the Investment Company Act of 1940, had sole voting
power with respect to 900,000 shares of common stock and sole dispositive
power with respect to no shares of common stock. T. Rowe Price Associates,
Inc.'s address is 100 E. Pratt Street, Baltimore, Maryland 21202.

(4) Based on the initial Schedule 13G dated February 14, 2000, furnished to us,
Robert W. Baird & Co. Incorporated, an investment adviser in accordance
with Section 240.13d-1(b)(ii)(E), had sole voting power with respect to
5,000 shares of common stock and sole dispositive power of 638,330 shares
of common stock. Robert W. Baird & Co. Incorporated's address is 777 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202.

37
<PAGE>

(5) Includes 18,000 shares of common stock issuable within 60 days upon
exercise of stock options.

(6) Includes 62,800 shares of common stock issuable within 60 days upon
exercise of stock options.

(7) Includes 6,000 shares of common stock held by Dr. Bishop in joint tenancy
with his wife, 2,800 shares of common stock held by Dr. Bishop's wife in
custody for their children, and 120,000 shares of common stock issuable
within 60 days upon exercise of stock options.

(8) Includes 12,000 shares of common stock issuable within 60 days upon
exercise of stock options.

(9) Includes 20,500 shares of common stock issuable within 60 days upon
exercise of stock options.

(10) Includes 14,000 shares of common stock issuable within 60 days upon
exercise of stock options.

(11) Includes 242,300 shares of common stock issuable within 60 days upon
exercise of stock options.

38
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

The market price of our common stock could decline due to sales of a large
number of shares of our common stock or the perception that these sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.

After this offering, 13,755,968 shares of common stock will be outstanding
after this offering based on the number of shares outstanding as of November 8,
2000, 14,100,968 shares if the underwriters exercise their over-allotment
options from us in full. All of the shares sold in this offering will be freely
tradeable without restriction under the Securities Act except for any shares
purchased by our affiliates as defined in Rule 144 under the Securities Act.

We and our officers and directors have entered into lock-up agreements
pursuant to which we and they have agreed, subject to some exceptions, not to
offer or sell any shares of common stock or securities convertible into or
exchangeable or exercisable for shares of common stock for a period of 90 days
from the date of this prospectus without the prior written consent of
Prudential Securities Incorporated, on behalf of the underwriters. Prudential
Securities Incorporated may, at any time and without notice, waive any of the
terms of these lock-up agreements specified in the underwriting agreement.
Following the lock-up period, these shares will not be eligible for sale in the
public market without registration under the Securities Act unless these sales
meet the conditions and restrictions of Rule 144 as described below:

In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned shares for a period of at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:

. 1% of the then outstanding shares of common stock and

. the average weekly trading volume in the common stock during the four
calendar weeks immediately preceding the date on which the notice of such
sale on Form 144 is filed with the Securities and Exchange Commission.

In addition, a person (or persons whose shares are aggregated) who has not
been an affiliate of ours at any time during the 90 days immediately preceding
a sale, and who has beneficially owned the shares for at least two years, would
be entitled to sell such shares under Rule 144(k) without regard to the volume
limitation and other conditions described above.

39
<PAGE>

UNDERWRITING

We have entered into an underwriting agreement with Prudential Securities
Incorporated, U.S. Bancorp Piper Jaffray Incorporated and Robert W. Baird & Co.
Incorporated, are acting as underwriters. We are obligated to sell, and the
underwriters are obligated to purchase, all of the shares offered on the cover
page of this prospectus, if any are purchased. Subject to certain conditions of
the underwriting agreement, each underwriter has severally agreed to purchase
the shares indicated opposite its name:

<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Prudential Securities Incorporated.................................. 1,150,000
U.S. Bancorp Piper Jaffray Incorporated............................. 805,000
Robert W. Baird & Co. Incorporated.................................. 345,000
---------
Total.............................................................. 2,300,000
=========
</TABLE>

The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and they have, for a period of 30
days from the date of this prospectus, an over-allotment option to purchase up
to 345,000 additional shares from us. If any additional shares are purchased,
the underwriters will severally purchase the shares in the same proportion as
per the table above.

The underwriters have advised us that the shares will be offered to the
public at the offering price indicated on the cover page of this prospectus.
The underwriters may allow to selected dealers a concession not in excess of
$0.57 per share and such dealers may reallow a concession not in excess of
$0.10 per share to certain other dealers. After the shares are released for
sale to the public, the underwriters may change the offering price and the
concessions.

We have agreed to pay to the underwriters the following fees, assuming both
no exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares:

<TABLE>
<CAPTION>
Total Fees
-------------------------------------------
Fee Without Exercise of Full Exercise of
Per Share Over-Allotment Option Over-Allotment Option
--------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by us........... $0.96 $2,208,000 $2,539,200
</TABLE>

In addition, we estimate that we will spend approximately $700,000 in
expenses for this offering. We have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, or
contribute to payments that the underwriters may be required to make in respect
of these liabilities.

We, our officers and directors have entered into lock-up agreements with
Prudential Securities Incorporated pursuant to which we and they have agreed
not to offer or sell any shares of common stock or securities convertible into
or exchangeable or exercisable for shares of common stock for a period of 90
days from the date of this prospectus without the prior written consent of
Prudential Securities Incorporated, on behalf of the underwriters. Prudential
Securities Incorporated may, at any time and without notice, waive any of the
terms of these lock-up agreements specified in the underwriting agreement.

40
<PAGE>

Prudential Securities Incorporated, on behalf of the underwriters, may
engage in the following activities in accordance with applicable securities
rules:

. Create a syndicate short position by making short sales of our common
stock and may purchase our common stock on the open market to cover
syndicate short positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of shares of common stock
than they are required to purchase in the offering. Short sales can be
either "covered" or "naked". "Covered" short sales are sales made in an
amount not greater than the underwriters' over-allotment option to
purchase additional shares in the offering. "Naked" short sales are sales
in excess of the over-allotment option. A "naked" short position is more
likely to be created if the underwriters are concerned that there may be
downward pressure on the price of the common stock in the open market
after pricing that could adversely affect investors who purchase in the
offering.

. Stabilizing and short covering: Stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price. Prudential
Securities Incorporated, on behalf of the underwriters, may close out any
covered short position by either exercising the over-allotment option or
purchasing shares in the open market and must close out any naked short
position by purchasing shares in the open market. In determining the
source of shares to close out the covered short position, Prudential
Securities Incorporated, on behalf of the underwriters, will consider,
among other things, the price of shares available for purchase in the
open market as compared to the price shares may be purchased through the
over-allotment option. These activities may cause the price of the shares
to be higher than would otherwise exist in the open market.

. Penalty bids permitting representatives to reclaim concessions from a
syndicate member of the shares purchased in the stabilizing or short
covering transactions.

These activities, which may be commenced and discontinued at any time, may
be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise. Also and prior to the pricing of the shares, and until such time
when a stabilizing bid may have been made, some or all of the underwriters who
are market makers in the shares may make bids for or purchases of shares
subject to certain restrictions, known as passive market making activities.

Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:

. the Public Offers of Securities Regulations 1995,

. the Financial Services Act 1986, and

. the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996 (as amended).

Prudential Securities Incorporated facilitates the marketing of new issues
online through its PrudentialSecurities.com division. Clients of Prudential
Advisorsm, a full service brokerage firm program, may view offering terms and a
prospectus online and place orders through their financial advisors. We are not
aware of any means of distributing or delivering the prospectus other than by
hand, by mail or by the above-mentioned online access.

LEGAL MATTERS

Certain legal matters in connection with the offering will be reviewed for
us by Sidley & Austin, Chicago, Illinois and, with respect to certain patent
matters, by Michael Best & Friedrich LLP, Madison, Wisconsin. The validity of
the shares of common stock we are offering will be passed upon for us by
Michael Best & Friedrich LLP, Madison, Wisconsin. Certain legal matters will be
passed upon by the underwriters by Stroock & Stroock & Lavan LLP, New York, New
York.

41
<PAGE>

EXPERTS

The financial statements of Bone Care included in this prospectus and
elsewhere in the registration statement to the extent and for the periods
indicated in their reports, have been audited by Arthur Andersen LLP and KPMG
LLP, independent public accountants, and are included herein in reliance upon
the authority of said firms as experts in giving said reports.

KPMG LLP's ("KPMG") report dated August 6, 1999 contains an explanatory
paragraph with respect to the uncertainty regarding Bone Care's ability to
continue as a going concern as discussed in Note 1 to the financial statements.
Bone Care has agreed to indemnify and hold KPMG harmless against and from any
and all legal costs and expenses incurred by KPMG in successful defense of any
legal action or proceeding that arises as a result of KPMG's consent to the
inclusion of its audit report on Bone Care's past financial statements included
in this registration statement.

AVAILABLE INFORMATION

We have filed a registration statement on Form S-3 with the SEC in
connection with this offering. In addition, we are required to file annual,
quarterly and current reports, proxy statements and other information with the
SEC.

This prospectus is part of the registration statement and does not contain
all of the information included in the registration statement and all of its
exhibits, certificates and schedules. Whenever a reference is made in this
prospectus to any contract or other document of ours, the reference may not be
complete and you should refer to the exhibits that are a part of the
registration statement for a copy of the contract or document.

You may read and copy our registration statement and all of its exhibits and
schedules at the following SEC public reference rooms:

450 Fifth Street, N.W. Seven World Trade Center Citicorp Center
Judiciary Plaza Suite 1300 500 West Madison Street
Room 1024 New York, NY 10048 Suite 1400
Washington, DC 20549 Chicago, IL 60601

You may obtain information on the operation of the SEC public reference room
in Washington, DC by calling the SEC at 1-800-SEC-0330. You may also inspect
and copy the complete registration statement and other information at the
offices of the Nasdaq Stock Market located at 1735 K Street, N.W., Washington,
DC 20006-1500.

The registration statement is also available from the SEC's web site at
http://www.sec.gov, which contains reports, proxy and information statements
and other information regarding issues that file electronically.

ADDITIONAL INFORMATION

The SEC allows us to "incorporate by reference" the information that we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus and should be read with the same care.
Later information that we file with the SEC will automatically update and
supersede information in this prospectus or an earlier filed document. We have
filed with the SEC and incorporate by reference the documents below:

1. Our Quarterly Report on Form 10-Q for the quarter ended September 30,
2000;

42
<PAGE>

2. Our Annual Report on Form 10-K for the fiscal year ended June 30, 2000,
as amended October 17, 2000, November 20, 2000 and December 8, 2000; and

3. The "Description of Capital Stock" contained in our Registration
Statement on Form 10 filed under the Exchange Act, including any
amendment or report filed for the purpose of updating such description.

All reports and other documents that we file under Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act after the date of this prospectus and before the
termination of the offering shall be deemed to be incorporated by reference in
this prospectus from the date of the filing of the reports and documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference in this prospectus shall be deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement contained in this
prospectus or in any other subsequently filed document which also is or is
deemed to be incorporated by reference in this prospectus modified or
supersedes that statement. Any statement that is modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this prospectus.

You may request a free copy of any of these filings by writing or
telephoning us at the following address or telephone number:

Bone Care International, Inc.
One Science Court
Madison, Wisconsin 53711
Attention: Dale W. Gutman, Vice President-Finance
Telephone Number: (608) 236-2500

43
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Audited Financial Statements

Report of Independent Public Accountants ................................. F-2

Report of Independent Public Accountants.................................. F-3

Balance Sheets at June 30, 1999 and 2000.................................. F-4

Statements of Operations for the Years Ended June 30, 1998, 1999 and 2000. F-5

Statements of Shareholders' Equity for the Years Ended June 30, 1998, 1999
and 2000................................................................. F-6

Statements of Cash Flows for the Years Ended June 30, 1998, 1999 and 2000. F-7

Notes to the Financial Statements......................................... F-8

Unaudited Financial Statements

Balance Sheets as of June 30, 2000 and September 30, 2000................. F-16

Statements of Operations for the Three Months Ended September 30, 1999 and
2000..................................................................... F-17

Statements of Cash Flows, for the Three Months Ended September 30, 1999
and 2000................................................................. F-18

Notes to the Financial Statements......................................... F-19
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors
Bone Care International, Inc.:

We have audited the accompanying balance sheet of Bone Care International,
Inc. (a Wisconsin corporation) as of June 30, 2000, and the related statements
of operations, shareholders' equity, and cash flows for the year then ended.
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 audit. The financial statements of Bone Care International, Inc. as of
June 30, 1999 and 1998, were audited by other auditors whose report dated
August 6, 1999, on those statements included an explanatory paragraph with
respect to the Company's ability to continue as a going concern.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bone Care International,
Inc. as of June 30, 2000, and the results of its operations and its cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States.

ARTHUR ANDERSEN LLP

Milwaukee, Wisconsin
August 4, 2000 (except with
respect to the matter
discussed in Note 10, as to
which the date is November
17, 2000)

F-2
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors
Bone Care International, Inc.:

We have audited the accompanying consolidated balance sheets of Bone Care
International, Inc. and subsidiary (Bone Care) as of June 30, 1999 and 1998,
and the related consolidated statements of operations, shareholders' equity,
and cash flows for each of the years in the two-year period ended June 30,
1999. These consolidated financial statements are the responsibility of Bone
Care's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bone Care
International, Inc. and subsidiary as of June 30, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
two-year period ended June 30, 1999, in conformity with generally accepted
accounting principles.

The accompanying consolidated financial statements have been prepared
assuming that Bone Care will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, Bone Care has suffered recurring
losses from operations that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

KPMG LLP

Chicago, Illinois
August 6, 1999

F-3
<PAGE>

BONE CARE INTERNATIONAL, INC.

BALANCE SHEETS

June 30, 1999 and 2000

<TABLE>
<CAPTION>
ASSETS 1999 2000
------ ----------- -----------

<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 7,313,551 $ 4,735,780
Marketable securities................................... -- 4,972,175
Accounts receivable..................................... -- 29,481
Inventories............................................. 1,119,262 639,271
Other current assets.................................... 110,017 229,438
----------- -----------
Total current assets................................ 8,542,830 10,606,145
Property, plant, and equipment--at cost:
Leasehold improvements.................................. 97,319 115,532
Furniture and fixtures.................................. 101,144 102,482
Machinery and other equipment........................... 579,008 920,699
----------- -----------
777,471 1,138,713
Less--Accumulated depreciation and amortization......... 467,879 692,525
----------- -----------
309,592 446,188
Patent fees, net of accumulated amortization of $645,013
at June 30, 1999 and $810,401 at June 30, 2000........... 862,645 958,980
Excess of cost over fair value of net assets acquired, net
of accumulated amortization of $821,856 at June 30, 1999
and $911,304 at June 30, 2000............................ 538,061 448,613
Other noncurrent assets................................... 50,133 --
----------- -----------
$10,303,261 $12,459,926
=========== ===========

<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

<S> <C> <C>
Current liabilities:
Accounts payable........................................ $ 202,686 $ 400,949
Accrued liabilities--
Accrued clinical study and research costs............. 171,988 213,718
Compensation payable.................................. 43,311 137,261
Due to customers...................................... -- 409,655
Other................................................. 43,477 151,617
Deferred income......................................... 125,000 63,539
----------- -----------
Total current liabilities........................... 586,462 1,376,739
Shareholders' equity:
Preferred stock--authorized 2,000,000 shares of $.001
par value; none issued................................. -- --
Common stock--authorized 28,000,000 shares of no par
value: issued and outstanding 10,173,396 and 11,456,668
at June 30, 1999 and 2000, respectively................ 11,393,883 11,393,883
Additional paid-in capital.............................. 14,119,761 25,299,954
Accumulated deficit..................................... (15,796,845) (25,602,090)
Accumulated other comprehensive income (loss)........... -- (8,560)
----------- -----------
Total shareholders' equity.......................... 9,716,799 11,083,187
----------- -----------
$10,303,261 $12,459,926
=========== ===========
</TABLE>

See accompanying notes to financial statements

F-4
<PAGE>

BONE CARE INTERNATIONAL, INC.

STATEMENTS OF OPERATIONS

Years ended June 30, 1998, 1999 and 2000

<TABLE>
<CAPTION>
1998 1999 2000
----------- ----------- ------------
<S> <C> <C> <C>
Revenues............................... $ -- $ -- $ 384,737
Operating expenses:
Cost of sales........................ -- -- 102,834
Inventory write-off.................. -- -- 400,000
Research and development............. 3,932,008 3,455,401 4,048,608
Marketing and administrative......... 898,274 2,854,785 6,281,614
----------- ----------- ------------
4,830,282 6,310,186 10,833,056
----------- ----------- ------------
Loss from operations............... (4,830,282) (6,310,186) (10,448,319)
Interest income........................ 340,349 533,571 655,574
----------- ----------- ------------
Loss before income tax............. -- -- (9,792,745)
Income tax expense..................... -- -- 12,500
----------- ----------- ------------
Net loss........................... $(4,489,933) $(5,776,615) $ (9,805,245)
=========== =========== ============
Net loss per common share--basic and
diluted............................... $ (0.51) $ (0.57) $ (0.89)
=========== =========== ============
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

BONE CARE INTERNATIONAL, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

Years ended June 30, 1998, 1999 and 2000

<TABLE>
<CAPTION>
Accumulated
Additional Other
Number of Common paid-in Accumulated Comprehensive
shares stock capital deficit Income (Loss) Total
---------- ----------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1997................... 8,722,382 $11,393,883 $ 3,555,925 $ (5,530,297) $ -- $ 9,419,511
Issuance of shares
under stock option
plan................. 86,424 -- 192,403 -- -- 192,403
Issuance of stock
awards............... 150 -- -- -- -- --
Net loss for the year
ended June 30, 1998.. -- -- -- (4,489,933) -- (4,489,933)
---------- ----------- ----------- ------------ ------------ -----------
Balance at June 30,
1998................... 8,808,956 11,393,883 3,748,328 (10,020,230) -- 5,121,981
Issuance of shares
under stock option
plan................. 38,440 -- 101,499 -- -- 101,499
Issuance of common
stock................ 1,326,000 -- 10,269,934 -- -- 10,269,934
Net loss for the year
ended June 30, 1999.. -- -- -- (5,776,615) -- (5,776,615)
---------- ----------- ----------- ------------ ------------ -----------
Balance at June 30,
1999................... 10,173,396 11,393,883 14,119,761 (15,796,845) -- 9,716,799
Net loss for the year
ended June 30, 2000.. -- -- -- (9,805,245) -- (9,805,245)
Unrealized loss on
marketable
securities........... -- -- -- -- (8,560) (8,560)
-----------
Total comprehensive
(loss)............... -- -- -- -- -- (9,813,805)
Issuance of shares
under stock option
plan ................ 54,114 -- 204,583 -- -- 204,583
Issuance of stock
awards............... 100 -- -- -- -- --
Issuance of common
stock................ 1,229,058 -- 10,975,610 -- -- 10,975,610
---------- ----------- ----------- ------------ ------------ -----------
Balance at June 30,
2000................... 11,456,668 $11,393,883 $25,299,954 $(25,602,090) $ (8,560) $11,083,187
========== =========== =========== ============ ============ ===========
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE>

BONE CARE INTERNATIONAL, INC.

STATEMENTS OF CASH FLOWS

Years ended June 30, 1998, 1999 and 2000

<TABLE>
<CAPTION>
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $(4,489,933) $(5,776,615) $(9,805,245)
Adjustments to reconcile net loss to
net cash used in operating
activities--
Depreciation and amortization....... 309,781 402,263 637,809
Inventory write-off................. -- -- 400,000
Loss on disposal of fixed assets.... 16,703 -- --
Changes in assets and liabilities--
Accounts receivable............... -- -- (29,481)
Inventories....................... (176,935) (889,762) 79,991
Other current assets.............. (50,162) (59,855) (119,421)
Other noncurrent assets........... (75,265) 25,132 50,133
Accounts payable.................. (81,860) 143,101 198,263
Accrued liabilities............... 292,210 (372,934) 653,475
Deferred income................... -- 125,000 (61,461)
----------- ----------- -----------
Net cash used in operating
activities..................... (4,255,461) (6,403,670) (7,995,937)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of marketable securities,
net.................................. -- -- (4,980,735)
Purchase of property, plant and
equipment............................ (332,174) (157,329) (361,242)
Patent fees........................... (354,538) (278,827) (420,050)
----------- ----------- -----------
Net cash used in investing
activities..................... (686,712) (436,156) (5,762,027)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds (costs) from issuance of
common stock, net.................... (297,570) 10,567,504 10,975,610
Proceeds from exercise of stock
options.............................. 192,403 101,499 204,583
----------- ----------- -----------
Net cash provided by (used in)
financing activities........... (105,167) 10,669,003 11,180,193
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents........... (5,047,340) 3,829,177 (2,577,771)
Cash and cash equivalents at beginning
of year................................ 8,531,714 3,484,374 7,313,551
----------- ----------- -----------
Cash and cash equivalents at end of
year................................... $ 3,484,374 $ 7,313,551 $ 4,735,780
=========== =========== ===========
</TABLE>

See accompanying notes to financial statements

F-7
<PAGE>

BONE CARE INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS

June 30, 1998, 1999 and 2000

(1)Summary of Significant Accounting Policies

Description of Business

Bone Care International, Inc. (Bone Care) is engaged in discovering,
developing and commercializing improved D-hormone therapies. In June 1999, Bone
Care received approval from the U.S. Food and Drug Administration for an oral
formulation of Hectorol(R), and in May 2000, Bone Care received approval for
the intravenous formulation. Hectorol(R) is a synthetic D-hormone analog to
manage secondary hyperparathyroidism in kidney dialysis patients. Bone Care
also performs blood assays to determine the variety and level of D-hormone
metabolites in blood for both internal research and on behalf of third parties.

The financial statements include the accounts of Bone Care and its wholly
owned subsidiary, Continental Assays Corporation through June 11, 1998, the
date of its dissolution.

Liquidity

Bone Care has incurred losses since its inception and expects to incur
substantial product launch and additional research and development costs prior
to reaching profitability. Based upon its current plans, Bone Care believes it
has sufficient funds and borrowing availability (see Note 10) to meet its
operating expenses and capital requirements through the second quarter of
fiscal year 2002. Thereafter, Bone Care will need to raise additional capital
to fund its operations. Bone Care intends to seek such additional funding from
equity offerings to existing shareholders or other third parties. There is no
assurance that such additional funds will be available on acceptable terms, if
at all. Should the plans contemplated by management not be consummated, Bone
Care may have to seek alternative sources of capital, effect borrowings under
its line of credit or re-evaluate its operating plans.

Revenue Recognition

Bone Care began shipping Hectorol Capsules in October 1999. Because Hectorol
is Bone Care's first product, Bone Care does not have historical data to
estimate returns and exchanges in accordance with SFAS No. 48, "Revenue
Recognition When Right of Return Exists." Revenues from shipments of Hectorol
Capsules and the related costs are deferred at the time of shipment to
wholesalers and are included in the Statement of Operations at the time the
product is sold by these wholesalers to retail users of the product. For the
year ended June 30, 2000, the total sales value of Hectorol Capsules shipped,
net of $409,655 of returned product, was $348,282 having a net cost of
$152,836. Revenues of $234,741 were recognized for the year ended June 30, 2000
having a cost of $102,834 based on the amount of capsules wholesalers have sold
to retail users.

Bone Care's June 30, 2000 balance sheet includes deferred income of $63,539
related to Hectorol Capsule sales not yet sold to retail users. Bone Care's
standard sales terms do not allow customers to return products for refunds;
however, products may be exchanged. As of June 30, 2000, Bone Care has accrued
$409,655 as amounts due to customers for returned product. Bone Care continues
to evaluate data related to sales exchanges, wholesaler inventories and retail
sales. Bone Care believes it will have enough data to reasonably estimate
future returns when retail customers have purchased from wholesalers a high
percentage of Bone Care's initial shipments or when the product approaches its
expiration date. Bone Care intends to recognize future revenues and related
costs upon shipment of Hectorol Capsules once a reasonable estimate of future
returns can be calculated.

License fees received by Bone Care are recognized as income when the
associated licensing obligations are satisfied.

Revenues from assay services are recognized as services are performed.

F-8
<PAGE>

BONE CARE INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

June 30, 1998, 1999 and 2000

Cash, Cash Equivalents and Marketable Securities

Highly liquid investments with remaining maturities of ninety days or less
at the time of purchase are considered to be cash equivalents. Other highly
liquid marketable securities with remaining maturities of one year or less at
the time of purchase are classified as marketable securities.

Inventory

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

<TABLE>
<CAPTION>
June 30,
---------------------
1999 2000
---------- ----------
<S> <C> <C>
Raw materials...................................... $ 404,354 $ 209,979
Work-in-process.................................... 714,908 22,178
Finished goods..................................... -- 407,114
---------- ----------
$1,119,262 $ 639,271
========== ==========
</TABLE>

Bone Care periodically reviews its inventory carrying levels. During fiscal
2000 Bone Care wrote-off $400,000 of excess inventory representing amounts
which Bone Care estimates will not be sold prior to expiration.

Depreciation and Amortization

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

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

<TABLE>
<CAPTION>
Asset classification Estimated useful life
-------------------- ---------------------
<S> <C>
Machinery, furniture, and fixtures.................. 5-7 years
Leasehold improvements.............................. 2.9-31.5 years
</TABLE>

Intangible Assets

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

Research and Development Costs

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

F-9
<PAGE>

BONE CARE INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

June 30, 1998, 1999 and 2000

Stock-based Compensation

Stock-based compensation related to employees and non-employee directors is
recognized using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and thus there is no compensation expense for options granted with exercise
prices equal to the fair value of Bone Care's common stock on the date of the
grant. Stock-based compensation related to non-employees is not material.

Net Loss Per Share

Net loss per share is based on a weighted average number of shares of common
stock of 8,746,677, 10,055,327 and 11,070,667, for the years ended June 30,
1998, 1999 and 2000, respectively. Options to purchase common stock have been
excluded from the calculation of diluted earnings per share as the impact of
these options on diluted earnings per share would be antidilutive. The excluded
options totaled 527,778, 548,638 and 690,054 for the years ended June 30, 1998,
1999 and 2000, respectively.

Income Taxes

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

Fair Value of Financial Instruments

The fair value of financial instruments, which consisted of cash and cash
equivalents, marketable securities, receivables, accounts payable, and accrued
liabilities, approximated their carrying values at June 30, 1999 and 2000.

Concentration of Suppliers Risk

Bone Care purchases Hectorol's active pharmaceutical ingredient from one
supplier. In addition, Bone Care utilizes one supplier to formulate, and
another supplier to package, Hectorol. However, management believes that other
suppliers, formulators, and vendors are available and could provide these goods
and services to Bone Care on comparable terms. A change in suppliers, however,
could cause a delay in manufacturing and a possible loss of sales, which would
affect operating results adversely.

Use of Estimates

In preparing the financial statements, Bone Care's management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

F-10
<PAGE>

BONE CARE INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

June 30, 1998, 1999 and 2000

(2)Foreign License Agreement

In June 1999, Bone Care entered into a letter of intent with a
pharmaceutical company which established terms under which exclusive rights to
Hectorol(R) would be licensed to the potential foreign partner in one foreign
country. In fiscal 1999 Bone Care received a payment of $125,000 upon signing a
letter of intent. The payment was recognized as revenue in December 1999 when
negotiations terminated.

(3)Shareholders' Equity

In October 1999, Bone Care completed a directed public offering of 1,229,058
shares of common stock at a price of $9.02 per share. The price per share was
approximately 7.5% below the average trading price of the previous four weeks.
Proceeds of $10,975,610, net of offering costs, were received from the sale.

In July 1998, Bone Care completed a directed public offering of 1,326,000
shares of common stock at a price of $8.00 per share. The price per share was
approximately 5% below the average trading price of the previous 30 days.
Proceeds of $10,269,934, net of offering costs, were received from the sale.
Certain directors of the Company purchased 276,000 of the shares sold.

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

(4)Stock Options

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

The 1989 option plan is intended to qualify as an incentive stock option
plan within the meaning of Section 422 of the Internal Revenue Code of 1986.
Stock options to purchase shares of Bone Care's common stock granted under this
plan may be exercised, with certain exceptions in the case of the optionee's
death or retirement, only during employment. Stock options granted are
exercisable, during the optionee's lifetime, only by the optionee. The stock
options are all fully vested and expire 10 years from the granting date. In
June 1990, the Board of Directors of Bone Care agreed not to issue any new
options under this plan, and except for a grant in March 1996 of replacement
stock options to purchase 78,970 shares in exchange for the forfeiture of an
equal amount of previously granted stock options, has not made any subsequent
grants under this plan.

Under the second option program, titled the Bone Care International, Inc.
1996 Stock Option Plan, a total of 1,000,000 shares of common stock were made
available, of which 242,320 remain available for grant at June 30, 2000.
Options granted under this program vest over periods ranging from nine months
to five years. The options will expire 10 years from the granting date, or upon
termination of employment.

F-11
<PAGE>

BONE CARE INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

June 30, 1998, 1999 and 2000

A summary of stock option activity and related information is presented
below:

<TABLE>
<CAPTION>
Year ended June 30,
-----------------------------------------------------
1998 1999 2000
----------------- ----------------- -----------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Options price Options price Options price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning
of year................ 491,652 $2.49 527,778 $3.84 548,638 $ 4.71
Granted................. 130,850 7.81 89,900 9.09 221,250 12.09
Exercised............... (86,424) 2.19 (38,440) 2.64 (54,114) 3.78
Terminated/canceled..... (8,300) 3.57 (30,600) 5.18 (25,720) 7.68
------- ----- ------- ----- ------- ------
Outstanding--end of
year................... 527,778 $3.84 548,638 $4.71 690,054 $ 7.04
======= ===== ======= ===== ======= ======
Exercisable at end of
year................... 130,266 $2.35 202,550 $3.17 277,360 $ 3.80
======= ===== ======= ===== ======= ======
Weighted average fair
value of options
granted during year.... $ 4.00 $ 5.02 $ 6.99
======= ======= =======
</TABLE>

The options outstanding at June 30, 2000 have been segregated into five
ranges for additional disclosure as follows:

<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------- --------------------
Options Weighted Weighted
Range of outstanding Weighted average average Exercisable average
exercise at June 30, remaining exercise at June 30, exercise
prices 2000 contractual life price 2000 price
-------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.11-$5.75 305,454 5.8 $2.60 216,660 $2.50
$7.50-$8.75 126,850 7.8 7.94 47,000 7.92
$9.00 150,250 9.3 9.00 -- --
$10.25 43,500 7.7 10.25 25,700 10.25
$15.25-$23.56 64,000 9.8 19.67 -- --
</TABLE>

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

Pro forma information regarding net loss and net loss per share is required
by SFAS No. 123, which also requires that the information be determined as if
Bone Care had accounted for its employee stock options granted subsequent to
June 30, 1995 under the fair market value method of that statement. The fair
value for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average assumptions:

<TABLE>
<CAPTION>
1998 1999 2000
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate..................... 5.9% 5.4% 6.1%
Expected market price volatility factor..... 0.55 0.51 0.53
Weighted average expected life.............. 4.6 years 6.0 years 6.0 years
</TABLE>

F-12
<PAGE>

BONE CARE INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

June 30, 1998, 1999 and 2000

No dividends are expected to be paid.

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

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

<TABLE>
<CAPTION>
1998 1999 2000
----------- ----------- ------------
<S> <C> <C> <C>
Net loss:
As reported................... $(4,489,933) $(5,776,615) $ (9,805,245)
Pro forma..................... (4,672,909) (6,062,349) (10,276,600)
Net loss per share--basic and
diluted:
As reported................... $ (0.51) $ (0.57) $ (0.89)
Pro forma..................... (0.53) (0.60) (0.93)
</TABLE>

(5)Shareholders' Rights Plan and Preferred Stock

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

(6)Income Taxes

As of June 30, 2000, Bone Care has federal and state net operating loss and
R&D tax credit carryforwards expiring as follows:

<TABLE>
<CAPTION>
Federal State
-------------------- --------------------
R&D R&D
NOL credit NOL credit
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
2009.................................. $ -- $ -- $ 388,000 $ 24,000
2010.................................. -- -- 596,000 24,000
2011.................................. -- -- 1,146,000 18,000
2012.................................. 322,000 -- 3,061,000 24,000
2013.................................. 2,726,000 219,000 4,682,000 34,000
2014.................................. 4,376,000 275,000 5,667,000 42,000
2015.................................. -- -- 9,202,000 56,000
2019.................................. 5,518,000 190,000 -- --
2020.................................. 8,998,000 273,000 -- --
----------- -------- ----------- --------
Total............................. $21,940,000 $957,000 $24,742,000 $222,000
=========== ======== =========== ========
</TABLE>

F-13
<PAGE>

BONE CARE INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

June 30, 1998, 1999 and 2000

Significant components of Bone Care's deferred tax assets at June 30, 1999
and 2000 are as follows:

<TABLE>
<CAPTION>
1999 2000
----------- ------------
<S> <C> <C>
Deferred tax assets:
Inventory reserves........................... $ 23,000 $ 225,000
Deferred income.............................. 57,000 58,000
Accrued liabilities.......................... 11,000 41,000
Other........................................ 15,000 33,000
Federal net operating loss carryforward...... 4,418,000 7,459,000
Federal R&D tax credit carryforward.......... 677,000 957,000
State net operating loss carryforward........ 1,231,000 1,955,000
State R&D tax credit carryforward............ 177,000 222,000
Valuation allowance.......................... (6,335,000) (10,634,000)
----------- ------------
Net deferred tax assets........................ 254,000 315,000
Deferred tax liabilities:
Patents...................................... (254,000) (316,000)
----------- ------------
Total deferred taxes........................... $ -- $ --
=========== ============
</TABLE>

The net change in the valuation allowance for the years ended June 30, 1999
and 2000 was an increase of $2,832,000 and $4,299,000, respectively.
Realization of deferred tax assets is dependent upon generating sufficient
taxable income prior to the expiration of the related carryforward period.
Management believes it is more likely than not that such deferred tax assets
may expire unused and, accordingly, has established a valuation against them.

Income tax expense of $12,500 for the year ended June 30, 2000 consists of
foreign taxes.

(7)Lease Commitments

Bone Care has an operating lease for its office and laboratory facilities.
The lease commenced in January 1998 and expires in January 2001. Total lease
expense was $110,000 for each of the years ended June 30, 1998, 1999 and 2000.
Bone Care has entered into a new operating lease for office and laboratory
facilities which will commence in December 2000 and terminate in December 2005.
Lease payments under these leases include utilities, operating costs, and
property taxes. The new lease agreement provides for lease payments which
aggregate $52,686 per month. Minimum future payments under these leases as of
June 30, 2000, are as follows:

<TABLE>
<S> <C>
2001.......................... $ 414,635
2002.......................... 642,374
2003.......................... 660,039
2004.......................... 678,190
2005.......................... 696,841
thereafter.................... 293,625
----------
Total..................... $3,385,704
==========
</TABLE>

(8)Profit-sharing Plan

Bone Care has established a 401(k) profit sharing plan covering
substantially all employees. Employer contributions to the plan are at the
discretion of the Board of Directors. Bone Care's policy is to fund profit
sharing plan contributions as they accrue. Profit sharing expenses amounted to
$9,031, $19,648 and $22,710 for the years ended June 30, 1998, 1999 and 2000,
respectively.

F-14
<PAGE>

BONE CARE INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

June 30, 1998, 1999 and 2000

(9)Quarterly Financial Data (Unaudited)

Summary quarterly financial data for the years ended June 30, 1999 and 2000
are summarized as follows:

<TABLE>
<CAPTION>
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
(In thousands except for per
share data)
<S> <C> <C> <C> <C>
2000:
Revenue............................ $ -- $ 206 $ 59 $ 120
Loss from operations............... (2,072) (2,681) (2,575) (3,120)
Net loss........................... (1,983) (2,491) (2,375) (2,956)
Net loss per share--basic and
diluted........................... (0.19) (0.22) (0.21) (0.26)
1999:
Revenue............................ $ -- $ -- $ -- $ --
Loss from operations............... (1,607) (1,569) (1,825) (1,309)
Net loss........................... (1,421) (1,441) (1,702) (1,213)
Net loss per share--basic and
diluted........................... (0.15) (0.14) (0.17) (0.12)
</TABLE>

(10) Subsequent Event

On November 17, 2000, Bone Care entered into a line of credit agreement
with a bank. Under the terms of the agreement, Bone Care may borrow up to
$6,000,000. Amounts outstanding under this facility will bear interest at
prime (9.50% at June 30, 2000). In addition, Bone Care will pay a commitment
fee of $500 per month. The line of credit matures in December 2002. Borrowings
under this facility have been personally guaranteed by the Chairman, a
significant shareholder of Bone Care.

F-15
<PAGE>

BONE CARE INTERNATIONAL, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
June 30, September 30,
ASSETS 2000 2000
------ ------------ -------------
(Audited) (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................. $ 4,735,780 $ 2,496,455
Marketable securities................................. 4,972,175 3,988,871
Accounts receivable................................... 29,481 1,286,853
Inventories........................................... 639,271 823,127
Other current assets.................................. 229,438 335,381
------------ ------------
Total current assets................................ 10,606,145 8,930,687
Property, plant and equipment--at cost:
Leasehold improvements................................ 115,532 115,532
Furniture and fixtures................................ 102,482 102,482
Machinery and other equipment......................... 920,699 921,219
------------ ------------
1,138,713 1,139,233
Less accumulated depreciation and amortization.......... 692,525 751,190
------------ ------------
446,188 388,043
Patent fees, net of accumulated amortization of $862,902
at September 30, 2000 and $810,401 at June 30, 2000.... 958,980 966,269
Excess of cost over fair value of net assets acquired,
net of accumulated amortization of $933,666 at
September 30, 2000 and $911,304 at June 30, 2000....... 448,613 426,251
Other non-current assets................................ -- 65,975
------------ ------------
$ 12,459,926 $ 10,777,225
============ ============

<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable...................................... $ 400,949 $ 288,031
Accrued liabilities:
Accrued clinical study and research costs........... 213,718 119,118
Accrued compensation................................ 137,261 72,400
Accrued production costs............................ -- 384,945
Due to customers.................................... 409,655 407,320
Other current liabilities........................... 151,617 97,643
Deferred income....................................... 63,539 46,104
------------ ------------
Total current liabilities......................... 1,376,739 1,415,561
Shareholders' equity:
Preferred stock--authorized 2,000,000 shares of $.001
par value; none issued............................... -- --
Common stock--authorized 28,000,000 shares of no par
value; issued and outstanding 11,456,668 shares at
September 30, 2000 and June 30, 2000................. 11,393,883 11,393,883
Additional paid-in capital.............................. 25,299,954 25,299,954
Accumulated deficit..................................... (25,602,090) (27,330,583)
Accumulated other comprehensive loss.................... (8,560) (1,590)
------------ ------------
Total Shareholders' Equity........................ 11,083,187 9,361,664
------------ ------------
$ 12,459,926 $ 10,777,225
============ ============
</TABLE>

See the accompanying notes to financial statements.

F-16
<PAGE>

BONE CARE INTERNATIONAL, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended
---------------------------
September 30, September 30,
1999 2000
------------- -------------
<S> <C> <C>
Revenues............................................ $ -- $ 1,362,833
Operating expenses
Cost of sales..................................... -- 341,216
Research and development.......................... 993,008 981,266
Sales and marketing............................... 780,338 1,452,917
General and administrative........................ 298,808 453,219
----------- -----------
2,072,154 3,228,618
----------- -----------
Loss from operations................................ (2,072,154) (1,865,785)
Interest income..................................... 89,174 137,292
----------- -----------
Net loss............................................ $(1,982,980) $(1,728,493)
=========== ===========
Net loss per common share--basic and diluted........ $ (0.19) $ (0.15)
=========== ===========
Weighted average number of common shares............ 10,173,396 11,456,668
=========== ===========
</TABLE>

See the accompanying notes to financial statements.

F-17
<PAGE>

BONE CARE INTERNATIONAL, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended
---------------------------
September 30, September 30,
1999 2000
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(1,982,980) $(1,728,493)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 106,527 133,528
Changes in assets and liabilities:
Accounts receivable.......................... -- (1,257,372)
Inventories.................................. (133,192) (183,856)
Other current assets......................... (156,865) (105,943)
Other noncurrent assets...................... (37,431) (65,975)
Accounts payable............................. 599,040 (112,918)
Accrued liabilities.......................... 209,452 169,175
Deferred income.............................. -- (17,435)
----------- -----------
Net cash used in operating activities...... (1,395,449) (3,169,289)
----------- -----------
Cash flows from investing activities:
Sale of marketable securities.................... -- 990,274
Additions to property, plant and equipment....... (20,575) (520)
Patent fees...................................... (174,948) (59,790)
----------- -----------
Net cash provided by (used in) investing
activities................................ (195,523) 929,964
----------- -----------
Net decrease in cash and cash equivalents.. (1,590,972) (2,239,325)
Cash and cash equivalents at beginning of period... 7,313,551 4,735,780
----------- -----------
Cash and cash equivalents at end of period......... $ 5,722,579 $ 2,496,455
=========== ===========
</TABLE>

See the accompanying notes to financial statements.

F-18
<PAGE>

BONE CARE INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

(1)Basis of Presentation

The financial statements in this report have been prepared by Bone Care
International, Inc. without audit, except for balance sheet information at June
30, 2000, pursuant to the rules of the Securities and Exchange Commission for
quarterly reports on Form 10-Q and do not include all of the information and
note disclosures required by generally accepted accounting principles for
annual financial statements. These financial statements should be read in
conjunction with the financial statements and notes thereto for the year ended
June 30, 2000, included in the Company's Form 10-K/A as filed with the
Securities and Exchange Commission on October 17, 2000, November 20, 2000 and
December 8, 2000.

In the opinion of management, information included in this report reflects
all adjustments, consisting of normal, recurring adjustments, necessary for a
fair presentation of results for these interim periods.

The results of operations for the interim period ended September 30, 2000,
are not necessarily indicative of the results to be expected for the entire
fiscal year ending June 30, 2001.

(2)Revenue Recognition Policy

Bone Care began selling Hectorol Capsules in October 1999. Because Hectorol
Capsules was Bone Care's first product, Bone Care did not have historical data
to estimate returns and exchanges in accordance with SFAS No. 48, "Revenue
Recognition When Right of Return Exists." Revenues from shipments of Hectorol
Capsules and the related costs are deferred at the time of shipment to
wholesalers and are included in the Statement of Operations at the time the
product is sold by these wholesalers to retail users of the product. For the
quarter ended September 30, 2000, the total sales value of Hectorol Capsules
shipped was $96,071 having a net cost of $14,089. Revenues of $114,358 were
recognized for the quarter ended September 30, 2000, having a cost of $25,837
based on the amount of capsules wholesalers have sold to retail users.

Bone Care's September 30, 2000 balance sheet includes deferred income of
$46,104 related to Hectorol Capsule sales not yet sold to retail users. Bone
Care's standard sales terms do not allow customers to return products for
refunds; however, products may be exchanged. As of September 30, 2000, Bone
Care has accrued $407,320 as amounts due to customers for returned products.
Bone Care continues to evaluate data related to sales exchanges, wholesaler
inventories and retail sales. Bone Care believes it will have enough data to
reasonably estimate future returns when retail customers have purchased from
wholesalers a high percentage of Bone Care's initial shipments or when the
product approaches its expiration date. Bone Care intends to recognize future
revenues and related costs upon shipment of Hectorol Capsules once a reasonable
estimate of future returns can be calculated.

Bone Care began selling Hectorol Injection in late August 2000. Bone Care's
terms for these sales do not allow the customer a right of return; accordingly,
no revenues were deferred.

(3)Inventories

Inventories are stated at the lower of cost or market; cost is determined
principally by the first-in, first-out method. Inventories are comprised of:

<TABLE>
<CAPTION>
June 30, September 30,
2000 2000
--------- -------------
(Audited) (Unaudited)
<S> <C> <C>
Raw materials..................................... $209,979 $170,966
Work in process................................... 22,178 227,486
Finished goods.................................... 407,114 424,675
-------- --------
$639,271 $823,127
======== ========
</TABLE>

F-19
<PAGE>

BONE CARE INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Unaudited)

(4)Common Stock

In October 1999, Bone Care completed a directed public offering of 1,229,058
shares of common stock at a price of $9.02 per share. Bone Care received
proceeds of $10,975,610 from the sale, net of offering expenses.

(5)Net Loss Per Share

Net loss per share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding during the period. Options to
purchase common stock have been excluded from the calculations of diluted
earnings per share as the impact of these options on diluted earnings per share
would be anti-dilutive.

F-20
<PAGE>

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[BONE CARE LOGO]

Prudential Vector Healthcare
a unit of Prudential Securities

U.S. Bancorp Piper Jaffray

Robert W. Baird & Co.

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