ATRIX LABORATORIES INC, S-4, 1995-08-18

ATRIX LABORATORIES INC
S-4, 1995-08-18
PHARMACEUTICAL PREPARATIONS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 18, 1995

REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ATRIX LABORATORIES, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 8731 84-1043826
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
</TABLE>

2579 MIDPOINT DRIVE
FORT COLLINS, COLORADO 80525
(970) 482-5868
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

JOHN E. URHEIM, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ATRIX LABORATORIES, INC.
2579 MIDPOINT DRIVE
FORT COLLINS, COLORADO 80525
(970) 482-5868
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------

COPIES TO:

WARREN L. TROUPE, ESQ.
DEBORAH A. HOGAN, ESQ.
KUTAK ROCK
717 SEVENTEENTH STREET, SUITE 2900
DENVER, COLORADO 80202
(303) 297-2400

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES
EFFECTIVE.

If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------

CALCULATION OF REGISTRATION FEE

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<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED PRICE PER UNIT PRICE(1) FEE(1)(2)
<S> <C> <C> <C> <C>
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Common Stock, $.001 par
value per share......... 704,835 N/A $3,524,175 $1,215.23
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</TABLE>

(1) Calculated pursuant to Rule 457(f)(2) promulgated under the Securities Act
of 1933, as amended.

(2) $774.16 previously paid at the time of the filing of the preliminary proxy
materials of Vipont Royalty Income Fund, Ltd. on May 19, 1995.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2

ATRIX LABORATORIES, INC.

CROSS REFERENCE SHEET

FURNISHED PURSUANT TO ITEM 1 OF FORM S-4 AND ITEM 501(B) OF REGULATION S-K

<TABLE>
<CAPTION>
CAPTION IN
PROSPECTUS/PROXY
ITEM OF S-4 STATEMENT
---------------------------------------------------- ----------------------------------------
<S> <C> <C> <C>
A. Information about the Transaction

1. Forepart of Registration Statement and Facing Page of Registration Statement;
Outside Front Cover Page of Prospectus Outside Front Cover Page of
Prospectus/Proxy Statement

2. Inside Front and Outside Back Cover Page AVAILABLE INFORMATION; TABLE OF
of Prospectus CONTENTS; Inside Front Cover Page of
Prospectus/Proxy Statement

3. Risk Factors, Ratio of Earnings to Fixed VOTING PROCEDURES; SUMMARY; RISK
Charges and Other Information FACTORS; CONFLICTS OF INTEREST; FEDERAL
INCOME TAX CONSIDERATIONS

4. Terms of the Transaction SUMMARY; THE MERGER: DESCRIPTION OF
COMMON STOCK; THE
MERGER -- Consideration to be received
by the Limited Partners; FEDERAL INCOME
TAX CONSIDERATIONS

5. Pro Forma Financial Information PRO FORMA FINANCIAL INFORMATION

6. Material Contacts Between the Company THE PARTNERSHIP
and the Partnership

7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties Deemed
to be Underwriters

8. Interest of Named Experts and Counsel Not Applicable

9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities

B. Information about the Registrant

10. Information with Respect to S-3 Not Applicable
Registrants

11. Incorporation of Certain Information by Not Applicable
Reference

12. Information with Respect to S-2 or S-3 AVAILABLE INFORMATION; THE COMPANY
Registrants

13. Incorporation of Certain Information by AVAILABLE INFORMATION
Reference

14. Information with Respect to Registrants Not Applicable
other than S-3 or S-2 Registrants
C. Information about the Company Being Acquired

15. Information with Respect to S-3 Not Applicable
Companies

16. Information with Respect to S-2 or S-3 AVAILABLE INFORMATION; THE PARTNERSHIP
Companies

17. Information with Respect to Companies Not Applicable
other than S-3 or S-2 Companies
</TABLE>
<PAGE> 3

18. Information if Proxies, Consents or AVAILABLE INFORMATION; SUMMARY; THE
Authorizations are to be Solicited MERGER -- Vote Required for Approval of
the Merger; VOTING PROCEDURES; CONFLICTS
OF INTEREST

19. Information if Proxies, Consents or Not Applicable
Authorizations are not to be solicited
or in an Exchange Offer
</TABLE>
<PAGE> 4

VIPONT ROYALTY INCOME FUND, LTD.
2579 MIDPOINT DRIVE
FORT COLLINS, COLORADO 80525

NOTICE OF SPECIAL MEETING OF LIMITED PARTNERS
TO BE HELD SEPTEMBER 27, 1995

TO THE LIMITED PARTNERS OF VIPONT ROYALTY INCOME FUND, LTD.

NOTICE IS HEREBY GIVEN that a Special Meeting of Limited Partners (the
"Meeting") of Vipont Royalty Income Fund, Ltd. (the "Partnership") will be held
at The Marriott Hotel, 350 East Horsetooth, Ft. Collins, Colorado 80525 on
September 27, 1995, at 10:00 a.m. Fort Collins time, for the following purpose:

To consider and act upon a proposal to approve the merger (the
"Merger") of the Partnership with and into a to-be-formed Colorado limited
partnership ("Atrix, L.P."), pursuant to an Agreement and Plan of Merger to
be entered into by and among the Partnership, Atrix Laboratories, Inc.
("Atrix") and Atrix, L.P., and such actions as are necessary or appropriate
to effectuate the Merger including, without limitation, the adoption of
certain amendments to the agreement of limited partnership of the
Partnership, as described in the accompanying Prospectus/Proxy Statement.
In connection with the Merger, the limited partners of the Partnership will
receive shares of common stock of Atrix.

The General Partner of the Partnership (the "General Partner") has fixed
August 21, 1995 as the record date for the determination of the limited partners
entitled to vote at the Meeting or any adjournment thereof.

You are cordially invited and urged to attend the Meeting. All limited
partners, whether or not they expect to attend the Meeting in person, are
requested to complete, date and sign the enclosed proxy card and return it
promptly in the postage-paid, self-addressed envelope provided for that purpose.
By returning your proxy card promptly you can help the Partnership avoid the
expense of follow-up mailings to ensure a quorum so that the Meeting can be
held. Limited partners who attend the Meeting may revoke a prior Proxy and vote
their Proxy in person as set forth in the Prospectus/Proxy Statement.

THE ENCLOSED PROXY IS BEING SOLICITED BY THE GENERAL PARTNER.

The General Partner has a conflict of interest with respect to the Merger
and is not making a recommendation to the Limited Partners on whether to vote
"For" or "Against" the Merger. See "CONFLICTS OF INTEREST" in the accompanying
Prospectus/Proxy Statement. Each Limited Partner must make his or her own
decision whether to vote "For" or "Against" the Merger. See "RISK FACTORS" and
"THE MERGER -- Advantages of the Merger" in the accompanying Prospectus/Proxy
Statement.

By Direction of the General Partner

JOHN E. URHEIM,
Vice Chairman and Chief Executive
Officer

Fort Collins, Colorado
August , 1995
<PAGE> 5

<TABLE>
<S> <C>
ATRIX LABORATORIES, INC. VIPONT ROYALTY INCOME FUND, LTD.
704,835 PROXY STATEMENT
SHARES OF COMMON STOCK FOR SPECIAL MEETING OF LIMITED
$.001 PAR VALUE PARTNERS
PROSPECTUS TO BE HELD SEPTEMBER 27, 1995
</TABLE>

This Prospectus and Proxy Statement (the "Prospectus/Proxy Statement") is
being furnished to the limited partners of Vipont Royalty Income Fund, Ltd., a
Colorado limited partnership (the "Partnership"), in connection with the
solicitation of proxies by Atrix Laboratories, Inc., a Delaware corporation and
sole general partner of the Partnership (the "Company" or "General Partner"),
for use at the special meeting of limited partners, or any adjournment or
postponement thereof (the "Meeting"), which has been called to consider and vote
upon the proposed merger (the "Merger") of the Partnership with and into a
to-be-formed Colorado limited partnership ("Atrix, L.P."). Atrix, L.P. will be
formed immediately prior to the Merger and the Company will be its sole limited
partner. The general partner of Atrix, L.P. will be a to-be-formed Colorado
corporation ("AtrixSub"), which will be a wholly owned subsidiary of the
Company.

The limited partners of the Partnership (the "Limited Partners") are being
asked to approve the Merger pursuant to the terms set forth in the form of
Agreement and Plan of Merger attached to this Prospectus/Proxy Statement as
Appendix A. See "THE MERGER." Approval of the Merger requires the affirmative
vote of Limited Partners holding at least a majority of the outstanding
Partnership units (the "Units") entitled to vote. If the Merger is approved,
each Limited Partner will receive shares of the Company's $.001 par value common
stock (the "Common Stock" or "Shares") for each Unit held by the Limited
Partner.

The Company has filed a registration statement on Form S-4 (together with
all amendments, exhibits and schedules thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), relating to
the Common Stock to be issued to the Limited Partners in connection with the
Merger. This Prospectus/Proxy Statement constitutes the Company's Prospectus
filed as part of the Registration Statement. The Company's Common Stock is
traded on The Nasdaq Stock Market under the symbol ATRX. The market value used
to set the number of Shares to be issued per Unit in connection with the Merger
will be the average closing price per share taken over the 15 trading days
ending on the sixth trading day before the date of the Merger. See "THE
MERGER -- Consideration to be Received by the Limited Partners." Limited
Partners will receive Shares with an aggregate market value of $3,524,175 or
$681 per Unit. Assuming the Merger occurred on August 4, 1995, Limited Partners
would be issued an aggregate of 546,377 Shares or 105.58 Shares per Unit. The
Merger will not occur if the average closing price of the Shares over the period
is less than $5.00. On August 10, 1995, the last reported sale price of the
Common Stock on The Nasdaq Stock Market was $7.00 per share.

Upon the completion of the Merger, the Partnership will cease to exist and
Atrix, L.P. will succeed to all of its assets. Immediately thereafter the
Company intends to liquidate Atrix, L.P. and the assets of the Partnership will
be distributed to the Company. As a result of the Merger, Limited Partners will
become shareholders of the Company. The General Partner will not receive Shares,
cash or any other consideration for its general partner interest in the
Partnership in connection with the Merger. Instead, such interest will be
distributed to the Limited Partners on a pro rata basis. However, if the Merger
is consummated, the General Partner will benefit from the termination of certain
agreements between the Company and Partnership. See "CONFLICTS OF INTEREST".

FOR A DISCUSSION OF CERTAIN RISKS INVOLVED IN THE MERGER AND THE BUSINESS
OF THE COMPANY, SEE "RISK FACTORS" which begins on page 17 of this
Prospectus/Proxy Statement. See "GLOSSARY OF TERMS" for definitions of certain
terms used in this Prospectus/Proxy Statement.

This Prospectus/Proxy Statement, Notice of Meeting and form of Proxy are
first being mailed or given to the Limited Partners on or about August , 1995.
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS PASSED UPON THE FAIRNESS OR MERITS OF THIS
TRANSACTION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

THE DATE OF THIS PROSPECTUS/PROXY STATEMENT IS AUGUST , 1995.
<PAGE> 6

AVAILABLE INFORMATION

The Company and the Partnership are each subject to the information
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Regional Offices of the
Commission located at Suite 1300, 7 World Trade Center, New York, New York 10048
and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies
of such material can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.

This Prospectus/Proxy Statement does not include all of the information set
forth in the Registration Statement filed by the Company with the Commission
under the Securities Act, as permitted by the rules and regulations of the
Commission. The Registration Statement, including any amendments, schedules and
exhibits filed or incorporated by reference as a part thereof, is available for
inspection and copying as set forth above. The Company's common stock is traded
on The Nasdaq Stock Market. Reports and other information concerning the Company
may be inspected at the offices of the National Association of Securities
Dealers, Inc. (the "NASD"), 1735 K Street, N.W., Washington, D.C. 20006-1506.

Statements contained in this Prospectus/Proxy Statement or in any document
incorporated herein by reference as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, and each
such statement is qualified in its entirety by such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

THIS PROSPECTUS/PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. The following documents
previously filed with the Commission pursuant to the Exchange Act are hereby
incorporated by reference in this Prospectus/Proxy Statement: (i) The Company's
Annual Report on Form 10-K for the year ended December 31, 1994; (ii) the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995
and June 30, 1995, (iii) Form 8-K of the Company dated April 28, 1995, (iv) the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1994
(v) the Partnership's Form 10-K/A-1 filed with the Commission on August 18,
1995, and (vi) the Partnership's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1995 and June 30, 1995. THESE DOCUMENTS ARE AVAILABLE, WITHOUT
CHARGE, UPON REQUEST TO ATRIX LABORATORIES, INC., ATTENTION: CORPORATE
SECRETARY, 2579 MIDPOINT DRIVE, FORT COLLINS, COLORADO 80525, TELEPHONE (970)
482-5868. IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUESTS
SHOULD BE MADE ON OR BEFORE FIVE BUSINESS DAYS PRIOR TO THE MEETING. In
addition, such information may be copied at the Commission at the address above.

Any statement incorporated by reference into this Prospectus/Proxy
Statement shall be deemed to be modified or superseded to the extent that a
statement contained in this Prospectus/Proxy Statement or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference into this Prospectus/Proxy Statement modifies or supersedes that
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus/Proxy
Statement.
<PAGE> 7

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY............................................................................... 1
The Merger............................................................................ 1
Advantages of the Merger.............................................................. 3
Disadvantages of the Merger........................................................... 4
Alternative to the Merger............................................................. 5
Reasons the General Partner has approved the Merger; Recommendation................... 5
Conflicts of Interest................................................................. 6
Risk Factors.......................................................................... 6
The Company........................................................................... 8
The Partnership....................................................................... 9
Selected Historical Financial Data.................................................... 9
Selected Pro Forma Financial Data..................................................... 10
Pro Forma Balance Sheet Data.......................................................... 10
Certain Comparative Per Share Data.................................................... 10
Market Information.................................................................... 11
The Meeting........................................................................... 11
No Dissenters' Rights................................................................. 11
Regulatory Requirements............................................................... 11
Federal Income Tax Considerations..................................................... 12
RISK FACTORS.......................................................................... 13
Risks Relating to the Merger.......................................................... 13
No Independent Party Retained to Represent the Partnership or Limited Partners. .... 13
No Independent Appraisal............................................................ 13
Absence of Fairness Opinion......................................................... 13
Conflicts of Interest............................................................... 13
Loss of Relative Voting Power....................................................... 13
Fundamental Change in Nature of Investment.......................................... 14
Changes in Form of Investment Will Change Rights of Limited Partners. .............. 14
Majority Vote Will Bind All Limited Partners in the Partnership. ................... 14
No Dissenters' Rights............................................................... 14
Risks Relating to the Business of the Company....................................... 14
Lack of Regulatory Approval; Uncertainty of Product Development..................... 14
No Product Revenue; Recent Operating Losses......................................... 14
Capital Requirements................................................................ 15
Liquidity........................................................................... 15
Competition......................................................................... 15
Possible Technological Change....................................................... 15
Governmental Regulation............................................................. 15
No Commercial Manufacturing Experience.............................................. 16
No Marketing Experience............................................................. 16
Reliance on Patents and Proprietary Rights.......................................... 16
Uncertainty of Third Party Reimbursement............................................ 16
Product Liability and Insurance..................................................... 16
Dependence on Key Personnel......................................................... 16
No Dividends........................................................................ 17
</TABLE>

i
<PAGE> 8

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Company Act Considerations............................................... 17
Volatility of Stock Prices.......................................................... 17
Anti-Takeover Measures.............................................................. 17
THE MERGER............................................................................ 17
General............................................................................... 17
Consideration to be Received by the Limited Partners.................................. 18
Advantages of the Merger.............................................................. 19
Disadvantages of the Merger........................................................... 20
Alternative to the Merger............................................................. 21
Reasons the General Partner Has Approved the Merger; Recommendation................... 21
Terms of the Merger Agreement......................................................... 22
No Fractional Shares.................................................................. 23
Accounting Treatment.................................................................. 23
Certain Federal Income Tax Considerations............................................. 23
Consequences if Merger Not Approved................................................... 23
Vote Required for Approval of the Merger.............................................. 24
Amendments to the Partnership Agreement............................................... 24
THE COMPANY........................................................................... 25
Company's Products.................................................................... 27
SELECTED FINANCIAL DATA OF THE COMPANY................................................ 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE COMPANY.............................................. 33
Three Months Ended June 30, 1995 Compared to Three Months Ended June 30, 1994......... 33
Six Months Ended June 30, 1995 Compared to Six Months Ended June 30, 1994............. 34
Year Ended December 31, 1994 Compared to Fiscal Year Ended September 30, 1993......... 35
Three Months Ended December 31, 1993 Compared to Three Months Ended December 31,
1992................................................................................ 36
Fiscal Year Ended September 30, 1993 Compared to Fiscal Year Ended September 30,
1992................................................................................ 37
Liquidity and Capital Resources....................................................... 37
THE PARTNERSHIP....................................................................... 39
General............................................................................... 39
Agreements Between the Partnership and the Company.................................... 39
SELECTED FINANCIAL INFORMATION OF THE PARTNERSHIP..................................... 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE PARTNERSHIP.......................................... 42
Results of Operations................................................................. 42
Three Months Ended June 30, 1995 compared to Three Months Ended June 30, 1994......... 42
Six Months Ended June 30, 1995 compared to Six Months Ended June 30, 1994............. 42
Liquidity and Capital Resources....................................................... 42
UNAUDITED PRO FORMA FINANCIAL STATEMENTS.............................................. 43
MARKET INFORMATION.................................................................... 45
Market for the Partnership's Limited Partnership Units................................ 45
</TABLE>

ii
<PAGE> 9

<TABLE>
<CAPTION>
PAGE
--
<S> <C>
THE MEETING........................................................................... 46
General............................................................................... 46
Purpose of the Meeting................................................................ 46
Voting Procedures..................................................................... 46
Vote Required for Approval of the Merger and the Amendments........................... 46
The Amendments........................................................................ 47
Revocability.......................................................................... 47
No Right of Appraisal................................................................. 47
Right to Inspect Books and Records.................................................... 47
Solicitation of Proxies; Solicitation Expenses........................................ 47
COMPARISON OF OWNERSHIP OF THE COMPANY'S SECURITIES
AND PARTNERSHIP UNITS................................................................. 48
General............................................................................... 48
Objectives and Business Strategy...................................................... 48
Voting Rights......................................................................... 48
Management............................................................................ 49
Amendment of Governing Documents...................................................... 49
Special Meetings of Shareholders and Meetings of Limited Partners..................... 49
Business Combinations, Sales of Assets and Dissolution................................ 50
Dissenters' or Appraisal Rights....................................................... 50
Distributions and Dividends........................................................... 50
Duties of the Company's Directors and the General Partner............................. 51
Duration.............................................................................. 52
Transferability of Interests.......................................................... 52
Inspection of Books and Records....................................................... 52
CONFLICTS OF INTEREST................................................................. 52
DESCRIPTION OF COMMON STOCK........................................................... 53
Common Stock.......................................................................... 53
Preferred Stock....................................................................... 54
Provisions Which May Delay a Change in Control of the Company......................... 54
Transfer Agent and Registrar.......................................................... 54
FEDERAL INCOME TAX CONSIDERATIONS..................................................... 54
Opinions of Counsel................................................................... 54
Certain Tax Differences Between the Ownership of Units and Shares..................... 55
Tax Consequences of the Merger........................................................ 55
Taxation of Taxable Domestic Shareholders............................................. 57
Backup Withholding.................................................................... 57
Taxation of Tax-exempt Shareholders................................................... 57
State Tax Consequences and Withholding................................................ 57
LEGAL MATTERS......................................................................... 58
EXPERTS............................................................................... 58
GLOSSARY OF TERMS..................................................................... 59
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
</TABLE>

iii
<PAGE> 10

LIST OF APPENDICES

<TABLE>
<S> <C> <C> <C>
APPENDIX A -- Form of Agreement and Plan of Merger................................. A-1
APPENDIX B -- Form of Certificate of Amendment to the Amended and B-1
Restated Agreement of Limited Partnership............................
APPENDIX C -- Opinion of Kutak Rock on Certain Federal Income Tax Issues........... C-1
</TABLE>

iv
<PAGE> 11

SUMMARY

The following summary is intended only to highlight certain information
contained elsewhere in this Prospectus/Proxy Statement. This summary is not
intended to be complete and is qualified in its entirety by the more detailed
information and financial statements appearing or referenced elsewhere in this
Prospectus/Proxy Statement, the Appendices hereto and the documents incorporated
herein by reference or otherwise referred to herein. Limited Partners are urged
to review this entire Prospectus/Proxy Statement carefully, including the
Appendices hereto. Capitalized terms not otherwise defined in this Summary shall
have the meanings set forth in the "GLOSSARY OF TERMS."

THE MERGER

As described in this Prospectus/Proxy Statement, Atrix Laboratories, Inc.,
a Delaware corporation (the "Company"), is proposing the merger (the "Merger")
of Vipont Royalty Income Fund, Ltd., a Colorado limited partnership (the
"Partnership"), with and into a to-be-formed Colorado limited partnership
("Atrix, L.P."). The Company currently serves as the sole general partner of the
Partnership and, as such, may be referred to herein from time to time as the
"General Partner." Atrix, L.P. will be formed immediately prior to the Merger
and the Company will be its sole limited partner. The sole general partner of
Atrix, L.P. will be a to-be-formed Colorado corporation ("AtrixSub"), which will
be a wholly owned subsidiary of the Company.

The limited partners of the Partnership (the "Limited Partners") are being
asked to consider and approve the Merger as described herein at the Special
Meeting of Limited Partners called for that purpose to be held on September 27,
1995 (the "Meeting"). Approval of the Merger requires the affirmative vote of
Limited Partners holding an aggregate of at least 2,588 Partnership units (the
"Units"), which constitutes an majority of the outstanding Units. See "THE
MERGER -- Vote Required for Approval of the Merger." If the Merger is approved
and certain conditions are satisfied or waived, each Limited Partner will
receive shares of the Company's $.001 par value common stock (the "Common Stock"
or "Shares") upon completion of the Merger, regardless of whether the Limited
Partner voted for or against the Merger. The General Partner will not receive
Shares, cash or any other consideration for its one percent general partner
interest in the Partnership in connection with the Merger. Instead, such
interest will be distributed to the Limited Partners on a pro rata basis.
However, if the Merger is consummated, the General Partner will benefit from the
termination of the agreements between the Company and the Partnership. See
"CONFLICTS OF INTEREST."

Consummation of the Merger is conditioned upon (i) the Shares having an
average closing price per share of at least $5.00 for purposes of determining
the numbers of Shares to be issued in the Merger; (ii) the approval of the
Merger by Limited Partners holding an aggregate of at least 2,588 Units, which
constitutes a majority of the outstanding Units, (iii) the receipt of all
necessary consents, waivers, approvals, authorizations or orders required to be
obtained and the making of all filings required to be made by any of the parties
for the authorization, execution and delivery of the Merger Agreement (as
defined herein) and the transactions contemplated thereby on or before the
Effective Date (as defined herein), (iv) there having been no statute, rule,
order or regulation enacted or issued by the United States or any state, or by a
court, which prohibits the consummation of the Merger, and (v) the Registration
Statement having been declared effective and no stop order suspending the
effectiveness having been issued or proceedings for such purpose having been
instituted, and all necessary approvals under state securities laws having been
received. The foregoing conditions are for the sole benefit of Atrix, L.P. and
all such conditions, except as described in (ii), (iv) and (v), may be waived by
Atrix, L.P. in whole or in part.

The Shares issued in connection with the Merger will be allocated among the
Limited Partners in proportion to their ownership interest in the Partnership.
The aggregate number of Shares to be issued to the Limited Partners will equal
the value of the Partnership as determined by the Company as of July 10, 1995
(the "Assigned Value"), divided by the average closing price per share of the
Common Stock taken over the 15 trading days ending on the sixth trading day
before the closing date of the Merger. See "THE MERGER -- Consideration to be
Received by the Limited Partners." The Shares are traded on The Nasdaq

1
<PAGE> 12

Stock Market under the symbol ATRX, and the last reported sale price of the
Common Stock on The Nasdaq Stock Market on August 10, 1995, was $7.00.

The Partnership's assets consist of rights between the Partnership and the
Company pursuant to certain agreements described herein and as amended by the
proposal adopted by the Limited Partners at the Special Meeting of Limited
Partners held on October 14, 1992 (the "Agreements"). See "THE PARTNERSHIP --
Agreements between the Partnership and the Company." The Agreements entitle the
Partnership to receive payments from the Company based on royalties and/or
proceeds from the sale of rights relating to the Company's products which
utilize the Company's ATRIGEL(TM) drug delivery system to treat periodontal
disease (the "Perio Product"). In addition, pursuant to a Technology Transfer
Agreement between the Company and the Partnership, the Partnership has an
exclusive license for technology relating to sanguinaria, sanguinarine and other
benzophenanthridine alkaloids (the "License"). Although the Company initially
conducted studies on the Perio Product with sanguinarine, these studies were
terminated when it was found that doxycycline was a more effective agent than
sanguinarine. The Company has no plans to develop any products which utilize the
technology which is covered by the License. As a result, the Company assigned
the License no value in its calculation of the Assigned Value.

The Company's Perio Product nearest commercialization is its Perio Product
with doxycycline (the "Perio Product-Doxycycline"). The Company commenced
pivotal Phase III clinical studies on the Perio Product-Doxycycline in January
1995 and intends to file a New Drug Application ("NDA") for the Perio
Product-Doxycycline with the U.S. Food and Drug Administration ("FDA") in the
first quarter of 1997. The Perio Product-Doxycycline is a Perio Product from
which Limited Partners would be entitled to receive royalties and/or proceeds
from the sale of rights. The Company is not currently developing any other Perio
Product, therefore, it only included projected sales from the Perio
Product-Doxycycline in its determination of the Assigned Value.

For purposes of the Merger, the Assigned Value is $3,524,175, or $681 per
Unit and was determined by the Company as of July 10, 1995 based upon the
Company's calculation of the Limited Partners' pro rata share of projected
royalty payments from projected sales of the Perio Product-Doxycycline.

In determining the Assigned Value, the Company used an income valuation
approach. Under this approach the Assigned Value was determined based on
projected royalty payments from projected sales of the Perio
Product-Doxycycline. The Company used this methodology instead of other
valuation methodologies such as discounted cash flow analysis, a comparable
transaction analysis or capitalized earning approach because the Partnership
does not have cash flow or earnings and there is no ascertainable market value.
Further, the Company's assumptions in using the income valuation approach were
(i) a projected market for the Perio Product and the Company's projected market
share thereof, (ii) a projected selling price of $70 for the Perio Product,
(iii) that the Partnership's current share of proceeds, including the general
Partner's one percent general partner interest, from royalties and/or proceeds
from sales of the Perio Product is 40%, which percentage may decrease as
additional funds are spent to develop the Perio Product and therefore maximum
payments of $21,600,000 to the Limited Partners based on the Agreements and
assuming that the Company exercises its option under the Purchase Option
Agreement (as defined herein), and (iv) a 30% discount rate to reflect net
present value and risks relating to the development, regulatory approval and
sale of the Perio Product. For a discussion of the Partnership's rights with
respect to the Perio Product, see "THE PARTNERSHIP -- Agreements Between the
Partnership and the Company."

In determining the discount rate used in the calculation of Assigned Value,
the Company considered discount rates ranging from 15% to 30%. This represents
the range that has been used in similar transactions involving the exchange by
merger of partnership interests. In such other transactions, a lower discount
rate was used primarily where partnerships had existing operations, revenue,
cash flow and/or ascertainable assets, such as real estate. In transactions
involving research and development limited partnerships, a higher discount rate
was used to reflect the risks relating to uncertainty of the development of a
product, competition, lack of revenues or cash flow, the uncertainty of
regulatory approval and the uncertainty of whether a commercial market will
develop for a product, if approved.

2
<PAGE> 13

In determining the sales projections used in the calculation of the
Assigned Value the Company utilized information from two sources. The first
source is The 1990 Survey of Dental Services Rendered, published June 1994,
conducted by the American Dental Association ("ADA"). The ADA study provides a
national statistical profile of the flow of patients into dental offices and the
dental services they received. The second source is a study conducted by Fact
Flow Research, a market research company ("Fact Flow"). The objective of the
Fact Flow study was to (i) examine current practices of periodontists in the
treatment of periodontal disease, and (ii) determine how periodontists would
most likely utilize the Perio Product. Based upon the two studies, Atrix's
management estimated the potential United States market for scaling and root
planing procedures, the projected United States market share for the Perio
Product and a projected sales price of $70 per unit for the Perio Product.

The Assigned Value is based primarily on projected sales and any such
prediction is highly speculative. Accordingly, no assurance can be given by the
Company that the actual results will not vary significantly from such estimates.

The terms of the Merger are set forth in the form of Agreement and Plan of
Merger attached to this Prospectus/Proxy Statement as Appendix A (the "Merger
Agreement"), which is incorporated herein by reference. Pursuant to the Merger
Agreement, the assets and obligations of the Partnership will be merged with and
into Atrix, L.P., as the surviving entity, and the Partnership will cease to
exist. Immediately following the completion of the Merger the Company intends to
liquidate Atrix, L.P. and each of the Agreements will be terminated.

The primary purpose and effect of the Merger is the consolidation of the
rights under the Agreements and the subsequent termination thereof, which the
General Partner believes will facilitate prospective strategic business
relationships while giving the Limited Partners substantially enhanced liquidity
of investment in an enterprise with greater asset diversification. See "THE
MERGER -- Advantages of the Merger." If the Limited Partners do not approve the
Merger, the Partnership will continue to operate as a separate legal entity with
its own assets and liabilities and the respective contractual obligations of the
Company and the Partnership under the Agreements will continue under their
present terms. If the Merger is not approved by the Limited Partners at the
Meeting, neither Atrix, L.P. nor AtrixSub will be formed.

A vote in favor of the Merger constitutes a vote in favor of the related
amendments (the "Amendments") to the Partnership's Amended and Restated
Agreement of Limited Partnership (the "Partnership Agreement"). The Amendments
specifically permit the Merger and expressly authorize all actions necessary to
successfully complete the Merger and the distribution of Shares to the Limited
Partners. See "THE MERGER -- Amendments to Partnership Agreement." The form of
the Amendments is attached to this Prospectus/Proxy Statement as Appendix B.

The Merger will become effective upon the filing of the Partnership's
Certificate of Cancellation with the Secretary of State of the State of Colorado
(the "Effective Time"), which will occur on the closing date of the Merger (the
"Closing Date") as set forth in the Merger Agreement. Such filing is currently
expected to occur shortly after the Meeting if the Merger is approved by the
requisite vote of the Limited Partners. See "THE MERGER -- Terms of the Merger
Agreement." The General Partner will pay all expenses relating to the Merger
regardless of whether the Merger is approved by the Limited Partners.

ADVANTAGES OF THE MERGER

The principal expected advantages of the Merger are:

3
<PAGE> 14

successfully marketed. If the Perio Product is not commercially
successful, the Limited Partners may not realize any return on their
investment. As shareholders of the Company, on the other hand, the
Limited Partners will have the opportunity to benefit from the Company's
more diversified product base. However, there can be no assurance that
any of the Company's products will receive the necessary regulatory
approval or clearance or that any of the Company's products can be
successfully and profitably developed, produced and marketed.

- UNCERTAINTY OF PAYMENTS RELATING TO THE PERIO PRODUCT. Even if the Perio
Product is a commercial success, payments to the Limited Partners are
based upon royalties and/or proceeds from sales or rights and therefore
the payments, if any, will be made at some undetermined time upon the
commercialization of the Perio Product and subsequent sales thereof.

- FACILITATION OF STRATEGIC BUSINESS RELATIONSHIPS. The Merger will
potentially enhance the Company's strategy of entering into strategic
alliances with pharmaceutical or healthcare companies to fully develop,
market and manufacture the ATRIGELTM System. The Merger will eliminate
the Agreements and enhance the Company's ability to negotiate global
strategic alliances encompassing all of its products.

- LONG-TERM OPPORTUNITIES. The Merger will allow the Limited Partners to
benefit, as shareholders, in the Company's products, other than the Perio
Product, that may be developed, approved and marketed in the future. The
Company expects its ATRISORBTM GTR Barrier product to receive regulatory
approval to begin marketing in the fourth quarter of 1995 and expects
first commercial sales in selected European countries in the first
quarter of 1996. The Company also expects to receive regulatory approval
in the United States in the second quarter of 1996 and projects first
commercial sales in the United States in the third quarter of 1996. The
impact of sales of the ATRIGELTM GTR Barrier product on the Company will
be to generate revenue in 1996 from the Company's first commercial
product and thereby move the Company from a research and development
stage company to a commercial stage company.

- SIMPLIFIED REPORTING. The Merger will result in simplified federal and
state tax reporting for the Limited Partners and the Company. Limited
Partners will no longer be subject to state tax withholding, or be
required to file individual state tax returns (other than in their state
of residence) solely as a result of becoming a shareholder of the
Company.

- ELIMINATION OF EXPENSES. The Merger will eliminate certain costs to the
Partnership including expenses related to the filing of reports under
federal securities laws, legal and accounting fees, and the $12,000
annual management fee payable to the General Partner. The General Partner
is currently advancing funds to the Partnership to pay these expenses.
Such advances are only required to be repaid at such time, if ever, as
the Partnership receives royalties and/or proceeds from the sale of
rights to the Perio Product. If the Merger is approved, the General
Partner will forgive all accrued expenses and management fees, the total
sum of which were $148,000 as of June 30, 1995.

DISADVANTAGES OF THE MERGER

The principal disadvantages of the Merger are:

- FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. As shareholders of the
Company, the nature of the Limited Partners' investment will have changed
fundamentally, and their rights will be different from their rights as
Limited Partners in the Partnership. See "COMPARISON OF OWNERSHIP OF THE
COMPANY'S SECURITIES AND PARTNERSHIP UNITS".

- LACK OF REGULATORY APPROVAL; UNCERTAINTY OF PRODUCT DEVELOPMENT. The
Company has not received regulatory approval or clearance to market any
of its products under development. There can be no assurance that any of
the Company's products, if and when fully developed and tested, will
perform in accordance with the Company's expectations, that necessary
regulatory approval or clearance will be obtained in a timely manner, if
at all, or that any of the Company's products can be successfully and
profitably produced and marketed.

4
<PAGE> 15

- NO PRODUCT REVENUE; RECENT OPERATING LOSSES. To date, the Company has
had no revenue from product sales. The Company incurred a loss for the
year ended December 31, 1994 and expects to incur additional losses until
such time, if any, as the Company receives regulatory approval for the
marketing of its products under development and commences commercial
sales thereof. There can be no assurance that the Company will receive
such regulatory approval or that it will be able to successfully market
its products or achieve profitability in the future even if such approval
is received.

- CAPITAL REQUIREMENTS. The Company expects to continue to expend
significant capital to fund its research and development and clinical
trials. It is also anticipated that, should any of the Company's products
under development receive regulatory approval, the Company will expend
funds to develop commercial-scale manufacturing facilities. Additional
financing may be necessary for the continued support of the Company's
existing and proposed products in the future. There can be no assurance
that the Company will be able to secure additional financing or that such
financing will be on terms satisfactory to the Company.

- VOLATILITY OF STOCK PRICES. The market prices for securities of
companies engaged primarily in the development of drug delivery systems
have been highly volatile. In addition, the stock market has experienced
extreme price and volume fluctuations that have affected the market price
of companies generally, and companies similar to the Company, that have
been unrelated to operating performance. These broad market fluctuations
may adversely effect the market price of the stock.

For a complete discussion of the risk factors relating to the Merger and an
investment in the Company, see "RISK FACTORS."

ALTERNATIVE TO THE MERGER

The only alternative to the Merger considered by the General Partner was
leaving the Partnership in its current form to pursue its present business
objectives. Under the current structure, the Company would be obligated to make
payments to the Partnership based on royalties and/or proceeds from the sale of
rights related to the Perio Product. The Partnership would then distribute these
payments to the Limited Partners. The General Partner has not rejected the
alternative of leaving the Partnership in its current form. However, the General
Partners believes that the Limited Partners should have the opportunity to
consider and vote upon the Merger as an alternative to leaving the Partnership
intact because it believes (i) the Limited Partners may prefer immediate payment
of a liquid asset over delayed payments of uncertain amounts at unknown times
and (ii) the value of the Shares to be issued in the Merger is fair compared to
what the Limited Partners might be expected to receive if the Partnership was
left intact. See "THE MERGER -- Alternative to the Merger."

REASONS THE GENERAL PARTNER HAS APPROVED THE MERGER; RECOMMENDATION

The General Partner has approved the Merger because it believes that the
Merger will be more beneficial to the Limited Partners than the alternative of
leaving the Partnership intact. See "THE MERGER -- Alternative to the Merger."
Its decision is also based on its belief that the consideration offered by the
Company is fair payment for the Limited Partners' interests and that the Merger
is fair to the Limited Partners. The General Partner bases this belief on the
high degree of uncertainty of the amount and timing of any revenues that will be
payable to the Partnership from the Company and its belief that its revenue
projections are optimistic. See "THE MERGER -- Consideration to be received by
the Limited Partners". However, the General Partner cannot predict whether the
Limited Partners would ultimately receive more or less value from leaving the
Partnership intact than from the Merger. The value to a particular Limited
Partner of the right to receive future distributions from the Partnership will
depend on the Limited Partner's desire for liquidity and tolerance for the
uncertainty of the timing and amounts of any payments they would receive if the
Partnership was left intact. The per Unit value of the Shares that the Limited
Partners would receive if the Merger occurs is $681, which is based on the
Company's projection of the payments that would be received by the Limited
Partners if the Partnership was left intact. See "THE MERGER -- Consideration to
be received by the Limited Partners". The General Partner also considered the
risk factors relating to the Company and an investment in the Shares. The
General Partner believes that these risk factors are outweighed, however, by

5
<PAGE> 16

the advantages of the Merger to the Limited Partners, see "THE
MERGER -- Advantages to the Merger", and the benefits described above.

The absence of independent representation for the Partnership; the absence
of a fairness opinion and an independent appraisal did not impact the General
Partner's decision to approve the Merger. Neither independent representation nor
an independent appraisal is required by either the Partnership Agreement or by
Colorado Partnership Law and the General Partner did not believe independent
representation or an independent appraisal were necessary in order to treat the
Limited Partners fairly. As discussed in the preceding paragraph, the General
Partner believes the consideration being offered by the Company and method used
by the Company to determine the Assigned Value are fair to the Limited Partners.

Although the General Partner has approved the Merger and believes that the
consideration to be received by the Limited Partners is fair, the General
Partner has a conflict of interest with respect to the Merger and is not making
a recommendation to the Limited Partners on whether to vote "For" or "Against"
the Merger. Each Limited Partner must make his or her own decision on whether to
vote "For" or "Against" the Merger. See "RISK FACTORS" and "THE
MERGER -- Advantages of the Merger." The General Partner is not required to make
a recommendation regarding the Merger under any applicable laws.

CONFLICTS OF INTEREST

The Company is the sole general partner of the Partnership. As such it is
subject to various conflicts of interest in connection with the Merger. The
General Partner has initiated and structured the Merger, and because the General
Partner has a financial interest in the consummation of the Merger, there is an
inherent conflict of interest in its structuring the terms of the Merger. The
General Partner did not retain an independent representative to act on behalf of
the Limited Partners or the Partnership in designing the overall structure of
the Merger. If an independent representative had been retained, the terms of the
Merger may have been different and possibly more favorable to the Limited
Partners. See "CONFLICTS OF INTEREST."

RISK FACTORS

The following summarizes certain risks relating to the Merger and the
business of the Company. This summary is qualified in its entirety by the more
detailed discussion in the section entitled "RISK FACTORS" contained in this
Prospectus/Proxy Statement.

NO INDEPENDENT PARTY RETAINED TO REPRESENT THE PARTNERSHIP OR LIMITED
PARTNERS. The terms of the Merger are not the result of arm's-length
negotiations among the Company, the Partnership and the Limited Partners. No
independent party has acted on behalf of the Partnership or the Limited Partners
in connection with the Merger, and the Company did not negotiate the terms of
the Merger with any Limited Partner. The General Partner has a conflict of
interest with respect to the Merger and is not making a recommendation to the
Limited Partners on whether to vote "For" or "Against" the Merger. Each Limited
Partner must make his or her own decision on whether to vote "For" or "Against"
the Merger. See "RISK FACTORS" and "THE MERGER -- Advantages of the Merger." No
independent party was obtained because the engagement of an independent
representative is not required by either the Partnership Agreement or Colorado
Partnership Law. If such an independent party had been retained, the terms and
conditions of the Merger may have been more favorable to the Limited Partners.
See "CONFLICTS OF INTEREST."

NO INDEPENDENT APPRAISAL. No independent appraisal of the market value of
the Partnership's assets has been or will be obtained in connection with the
Merger. The Assigned Value of the Partnership was determined by the Company. No
independent appraisal was obtained because an independent appraisal is not
required by either the Partnership Agreement or Colorado Partnership Law and the
General Partner believes the method used by the Company to determine the
Assigned Value is fair to the Limited Partners. See "THE MERGER -- Consideration
to be received by the Limited Partner". If an independent appraisal of the fair
market value of the Partnership's assets had been obtained, the consideration
received by the Limited Partners in connection with the Merger may have been
greater. See "THE MERGER -- Consideration to be Received by the Limited
Partners."

6
<PAGE> 17

ABSENCE OF FAIRNESS OPINION. The General Partner did not obtain a fairness
opinion as to the adequacy or fairness of the consideration to be received by
the Limited Partners in connection with the Merger. No fairness opinion was
obtained because a fairness opinion is not required by either the Partnership
Agreement or Colorado Partnership Law. See "THE MERGER -- Consideration to be
Received by the Limited Partners."

CONFLICTS OF INTEREST. The Company has different interests in the Merger
than the Limited Partners. This conflict of interest may adversely affect the
Partnership by causing the Company to act for its own best interests and not
that of the Limited Partners. See "CONFLICTS OF INTEREST."

FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. As shareholders of the
Company, the nature of the Limited Partners' investment will have changed
fundamentally, and their rights will be different from their rights as Limited
Partners in the Partnership. See "COMPARISON OF OWNERSHIP OF THE COMPANY'S
SECURITIES AND PARTNERSHIP UNITS."

MAJORITY VOTE WILL BIND ALL LIMITED PARTNERS. If Limited Partners holding
an aggregate of at least 2,588 Units approve the Merger and certain conditions
are satisfied or waived, the Partnership will be merged with and into Atrix,
L.P., and each Limited Partner will receive Shares regardless of whether the
Limited Partner voted for or against the Merger. See "THE MERGER."

LACK OF REGULATORY APPROVAL; UNCERTAINTY OF PRODUCT DEVELOPMENT. The
Company has not received regulatory approval or clearance to market any of its
products under development. There can be no assurance that any of the Company's
products, if and when fully developed and tested, will perform in accordance
with the Company's expectations, that necessary regulatory approval or clearance
will be obtained in a timely manner, if at all, or that any of the Company's
products can be successfully and profitably produced and marketed.

NO PRODUCT REVENUE; RECENT OPERATING LOSSES. To date, the Company has had
no revenue from product sales. The Company incurred a loss for the year ended
December 31, 1994 and expects to incur additional losses until such time, if
any, as the Company receives regulatory approval for the marketing of its
products under development and commences commercial sales thereof. There can be
no assurance that the Company will receive such regulatory approval or that it
will be able to successfully market its products or achieve profitability in the
future even if such approval is received.

CAPITAL REQUIREMENTS. The Company expects to continue to expend
significant capital to fund its research and development and clinical trials. It
is also anticipated that, should any of the Company's products under development
receive regulatory approval, the Company will expend funds to develop
commercial-scale manufacturing facilities. Additional financing may be necessary
for the continued support of the Company's existing and proposed products in the
future. There can be no assurance that the Company will be able to secure
additional financing or that such financing will be on terms satisfactory to the
Company.

LIQUIDITY. The Company expects to seek additional capital through debt
and/or equity financings in the next twelve to eighteen months. There can be no
assurance that such funds will be available to the Company on favorable terms,
if at all. In the event the Company seeks additional capital through equity
financing, it may have the effect of diluting the ownership interests of the
Company's shareholders.

COMPETITION. In general, the drug delivery and dental products industries
are composed of numerous large and well financed firms, including large
pharmaceutical and consumer good companies, as well as universities and other
research institutions, that are constantly developing or acquiring rights to new
products. There can be no assurance that one or more of these firms or
institutions will not develop or manufacture drug delivery systems and
periodontal therapeutic products that are more effective or better accepted than
those which the Company seeks to develop and produce.

GOVERNMENTAL REGULATION. The research and development, manufacturing and
marketing of the Company's products are subject to regulation by the United
States Food and Drug Administration (the "FDA") and by comparable authorities in
other countries. The process of obtaining regulatory approval from such
authorities can take many years and require the expenditure of substantial
resources. There can be no

7
<PAGE> 18

assurance that the Company will obtain necessary approval or clearance on a
timely basis, if at all, for its products under development or its future
products.

NO COMMERCIAL MANUFACTURING EXPERIENCE. The Company has no experience in
manufacturing products on a commercial basis. No assurances can be given that
manufacturing or quality control problems will not arise as the Company
increases production of its products, or as additional facilities are required
in the future.

NO MARKETING EXPERIENCE. The Company has no experience in marketing
products. The Company expects that certain of its products under development may
be marketed in collaboration with a corporate partner. Such collaborative
agreements could result in lower revenue than if the Company marketed products
itself. In other cases, the Company may develop a direct marketing organization
or make other distribution arrangements. There can be no assurance that the
Company will be able to establish such arrangements or that the Company will
market its product effectively. To market any developed product directly, the
Company would have to develop a marketing and sales force with technical
expertise and supporting distribution capability. There can be no assurance that
the Company would be able to develop such a sales force or distribution
capability.

RELIANCE ON PATENTS AND PROPRIETARY RIGHTS. The Company relies on certain
patents and patent applications pending in the United States and foreign
countries relating to various aspects of its products under development. There
can be no assurance that patents will issue as a result of any such pending
applications or that, if issued, such patents will be sufficiently broad to
afford protection against competitors with similar technology. In addition,
there can be no assurance that any patents issued to the Company will not be
challenged, invalidated or circumvented, or that any of the rights granted
thereunder will provide competitive advantages to the Company. The commercial
success of the Company will also depend on its products not infringing patents
issued to competitors.

VOLATILITY OF STOCK PRICES. The market prices for securities of companies
engaged primarily in the development of drug delivery systems have been highly
volatile. In addition, the stock market has experienced extreme price and volume
fluctuations that have affected the market price of companies generally, and
companies similar to the Company, that have been unrelated to operating
performance. These broad market fluctuations may adversely effect the market
price of the stock.

THE COMPANY

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

The Company is engaged in the research and development of a broad range of
medical, dental and veterinary products based on its proprietary biodegradable
controlled release drug delivery system. This patented drug delivery system,
trade-named ATRIGEL(TM), consists of biodegradable polymers dissolved in
biocompatible solvents that can be injected or inserted into the target site as
a liquid and that solidify upon contact with body fluids to form an implant. The
ATRIGEL(TM) drug delivery system can incorporate various pharmaceutical
compounds and is designed to release the compounds at targeted rates and over
predetermined periods of time. The Company believes that the ATRIGEL(TM) drug
delivery system has the potential to enhance the therapeutic benefits of a broad
range of drugs through one or more of the following means: controlled release of
drug, ease of application, improved safety and efficacy, reduced costs and
greater patient compliance. The Company also believes that the ATRIGEL(TM)
delivery system when used without the incorporation of a drug affords the same
benefits for a range of medical device applications. See "THE COMPANY --
Company's Products."

8
<PAGE> 19

research for third parties. The Company also has conducted research for the
United States government and its agencies through government grants. The Company
has initiated early stage research programs with several pharmaceutical
companies and intends to evaluate the use of the ATRIGEL(TM) drug delivery
system with drugs having various human and animal health applications. In
addition, the Company intends to pursue human medical device applications in
conjunction with other pharmaceutical and health care companies. See generally
"THE COMPANY."

THE PARTNERSHIP

The Partnership, a Colorado limited partnership, was organized in August
1987. Its principal offices are located at 2579 Midpoint Drive, Fort Collins,
Colorado 80525, and its telephone number is (970) 482-5868. The Company is sole
general partner of the Partnership. None of the Company's directors, executive
officers or their affiliates own any Partnership Units.

The Partnership was formed to undertake the research, development,
manufacturing and marketing of a treatment for gingivitis and periodontal
disease. The Partnership's primary asset is its right to receive royalties
and/or proceeds from the sale of rights related to the Perio Product at such
time, if ever, as the Company successfully develops and markets a Perio Product.
For a description of the Perio Product and the Partnership's rights under the
Agreements, see "THE COMPANY -- Company's Products" and "THE
PARTNERSHIP -- Agreements Between the Partnership and the Company."

SELECTED HISTORICAL FINANCIAL DATA

THE COMPANY. The selected historical financial information as of December
31, 1994 and September 30, 1993 and for the year ended December 31, 1994, the
three months ended December 31, 1993 and the four years in the period ended
September 30, 1993 presented below are derived from the financial statements of
the Company, which have been audited and reported upon by Deloitte & Touche LLP,
independent auditors. The selected historical financial information as of June
30, 1995 and 1994 and for the six months ended June 30, 1995 and 1994, are
derived from unaudited financial statements of the Company. The Company's
management believes such unaudited financial statements have been prepared on
the same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such financial statements. The selected financial information
set forth in the tables below is not necessarily indicative of the results of
future operations of the Company and should be read in conjunction with
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY" and the financial statements, related notes and
report of independent auditors, included herein. See "INDEX TO FINANCIAL
STATEMENTS."

<TABLE>
<CAPTION>
THREE
SIX MONTHS ENDED YEAR MONTHS YEAR YEAR YEAR YEAR
JUNE 30, ENDED ENDED ENDED ENDED ENDED ENDED
------------------- DEC. 31, DEC. 31, SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1995 1994 1994 1993 1993 1992 1991 1990
------- ------- -------- -------- --------- --------- --------- ---------
(UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Total revenue....................... $ 789 $ 945 $ 1,815 $ 539 $ 3,092 $ 3,161 $ 2,429 $ 3,026
Total expenses...................... 4,868 3,728 7,355 1,546 6,791 10,061 4,411 2,778
Net income (loss)................... (4,079) (2,783) (5,540) (1,007) (3,699) (6,900) (1,905) 244
Net income (loss) per common
share............................. (.52) (.36) (.72) (.13) (.48) (.94) (.35) .05
Weighted average shares
outstanding....................... 7,844 7,739 7,741 7,721 7,695 7,340 5,370 4,774
BALANCE SHEET DATA:
Working capital..................... $ 9,086 $10,503 $ 12,616 $ 13,478 $ 9,372 $ 17,779 $ 4,347 $ 5,837
Total assets........................ 18,701 24,729 22,006 27,912 29,074 36,515 6,440 8,286
Long-term obligations............... -- -- -- -- -- 4,000 4,000 4,000
Shareholders' equity................ 17,723 23,941 21,191 26,978 28,118 31,529 1,422 2,182
</TABLE>

THE PARTNERSHIP. The selected historical financial information for the
five years ended December 31, 1994 presented below are derived from the
financial statements of the Partnership, which have been audited

9
<PAGE> 20

and reported upon by Deloitte & Touch LLP, independent auditors. The selected
historical financial information for the six months ended June 30, 1995 and
1994, are derived from unaudited financial statements of the Partnership. The
Company's management believes such unaudited financial statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of such financial statements. The selected financial
information set forth in the tables below is not necessarily indicative of the
results of future operations of the Partnership and should be read in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE PARTNERSHIP" and the financial statements,
related notes and report of independent auditors, included herein. See "INDEX TO
FINANCIAL STATEMENTS."

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------------- --------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Research and Development
Expenses................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 1,142,328 $ 2,125,288
General and Administrative
Expenses................... 16,524 18,147 28,626 35,245 155,640 22,865 22,595
------- ------- --------- ------- --------- ----------- -----------
Total Expenses....... 16,524 18,147 28,626 35,245 155,640 1,165,193 2,147,883
------- ------- --------- ------- --------- ----------- -----------
Interest Income.............. 0 0 0 0 1,997 8,400 112,241
------- ------- --------- ------- --------- ----------- -----------
Net loss..................... $ (16,524) $ (18,147) $ (28,626) $ (35,245) $ (153,643) $ (1,156,793) $ (2,035,642)
======= ======= ========= ======= ========= =========== ===========
Net loss per Limited
Partnership Interest....... $ (3.16) $ (3.47) $ (5) $ (7) $ (29) $ (221) $ (389)
======= ======= ========= ======= ========= =========== ===========
Total Assets......... $ 0 $ 0 $ 0 $ 0 $ 0 $ 101,404 $ 1,334,197
======= ======= ========= ======= ========= =========== ===========
</TABLE>

SELECTED PRO FORMA FINANCIAL DATA

The following selected pro forma balance sheet data for the Company assumes
that the Merger had occurred on June 30, 1995. Selected statement of operations
data has not been presented because the Partnership has no revenues and general
and administrative expenses are not material. The pro forma financial data are
unaudited and are not necessarily indicative of the financial position or
results of operations of the Company that would have occurred had the Merger
occurred as of June 30, 1995. The following pro forma information should be read
in conjunction with the historical financial statements and notes thereto of the
Company and Partnership and the pro forma financial statements appearing
elsewhere in this Prospectus/Proxy Statement. Pro forma information is
illustrative only and is not necessarily indicative of future results of
operations of the Company.

PRO FORMA BALANCE SHEET DATA:

<TABLE>
<CAPTION>
JUNE 30, 1995
(IN THOUSANDS)
<S> <C>
Working Capital........................................ $ 8,149
Total Assets........................................... 18,701
Long Term Obligations.................................. --
Shareholders' Equity................................... 17,423
</TABLE>

CERTAIN COMPARATIVE PER SHARE DATA

The following table sets forth certain comparative data related to book
value and earnings (loss) (i) per Share on an historical basis for the Company,
(ii) per Unit on an historical basis for the Partnership, and (iii) on an
equivalent pro forma basis for the Company after giving effect to the Merger.
The pro forma information shown is derived from the pro forma financial
statements presented elsewhere herein, which give effect to the Merger as if it
had occurred at the date or at the beginning of the period indicated. The
information shown below should be read in conjunction with the historical
financial statements of the

10
<PAGE> 21

Company and the Partnership, including the respective notes thereto, and the pro
forma financial statements, including the notes thereto, all appearing elsewhere
in this Prospectus/Proxy Statement. See "INDEX TO FINANCIAL STATEMENTS." The
equivalent pro forma amounts are equal to the pro forma per share amounts of the
Company multiplied by 105, the estimated number of Shares to be exchanged for
each Unit.

<TABLE>
<CAPTION>
THE COMPANY
-------------------------------------- THE PARTNERSHIP
EQUIVALENT ---------------
HISTORICAL PRO FORMA PRO FORMA HISTORICAL
---------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Book value:
June 30, 1995.............................. $ 2.25 $ 2.08 $218.11 $(30.80)
Net loss:
Year ended December 31, 1994............... (0.72) (0.67) (70.21) (5.48)
Six months ended June 30, 1995............. (0.52) (0.49) (51.06) (3.16)
</TABLE>

The Company has never paid cash dividends, and the Partnership has never
made any distributions to the Limited Partners. The Company currently
anticipates that it will retain all available funds for use in the operation of
its business and does not anticipate paying any cash dividends in the
foreseeable future.

MARKET INFORMATION

The Company's Common Stock is traded on The Nasdaq Stock Market under the
symbol ATRX. On August 17, 1995, the last trading day before the proposed Merger
was publicly announced, the last reported sale price of the Common Stock on The
Nasdaq Stock Market was $7.00. On August 10, 1995, the last trading day before
the date of this Prospectus/Proxy Statement, the last reported sale price of the
Common Stock was $7.00. There is no established trading market for the
Partnership Units and it is not anticipated that such a market will develop. See
"MARKET INFORMATION."

THE MEETING

The Meeting will be held at the Marriott Hotel, 350 East Horsetooth, Ft.
Collins, Colorado 80525, at 10:00 a.m. local time, on September 27, 1995, to
consider and vote upon the Merger and the adoption of the related Amendments, as
summarized above and described in more detail elsewhere in this Prospectus/Proxy
Statement. Limited Partners holding Units of record at the close of business on
the Record Date will be entitled to vote at the Meeting. At the close of
business on the Record Date, there were 5,175 Units outstanding and entitled to
vote. Each Unit is entitled to one vote on each matter properly submitted to the
Limited Partners at the Meeting.

Approval of the Merger and the adoption of the related Amendments requires
the approval of Limited Partners holding an aggregate of at least 2,588 Units,
which constitutes a majority of the outstanding Units entitled to vote. Limited
Partners voting in favor of the Merger will be deemed to have voted in favor of
the adoption of the related Amendments. None of the Company's directors,
executive officers or their affiliates own any Units. See "THE MEETING."

NO DISSENTERS' RIGHTS

Limited Partners who vote against or abstain from voting for the Merger
will not be entitled to dissenters' or appraisal rights under the Partnership
Agreement or the Colorado Uniform Limited Partnership Act of 1981, as amended
(the "Colorado Partnership Law"). Such rights, when they exist, give the holders
of securities the right to surrender such securities for an appraised value in
cash, if they oppose a merger or similar reorganization. No such rights will be
provided by the Partnership or the Company. See "THE MEETING -- No Right of
Appraisal."

REGULATORY REQUIREMENTS

No federal or state regulatory requirements, other than applicable
requirements related to federal and state securities laws and the requirements
of the Colorado Partnership Law regarding mergers, must be

11
<PAGE> 22

complied with in order to complete the Merger, and no regulatory approvals must
be obtained in order to complete either Merger.

FEDERAL INCOME TAX CONSIDERATIONS

The Company believes that the Merger, if consummated, would be treated as a
taxable exchange of the assets of the Partnership for the Common Stock. As a
result, each Limited Partner will be required to recognize a proportionate share
of the gain or loss which results from the Merger. See "FEDERAL INCOME TAX
CONSIDERATIONS." Limited Partners should review the tax consequences of the
Merger with their tax advisers considering their individual financial and tax
situations.

12
<PAGE> 23

RISK FACTORS

The Merger involves certain risks and other adverse factors. Limited
Partners should read this entire Prospectus/Proxy Statement, including all
appendices hereto, and consider carefully the following factors in evaluating
the Merger, the Company and its business before completing the accompanying
Proxy Card.

RISKS RELATING TO THE MERGER

NO INDEPENDENT PARTY RETAINED TO REPRESENT THE PARTNERSHIP OR LIMITED
PARTNERS. The Company initiated the Merger and the terms were not the result of
arm's-length negotiations among the Company, the Partnership and the Limited
Partners. No independent party has acted on behalf of the Partnership or the
Limited Partners in connection with the Merger, and the Company did not
negotiate the terms of the Merger with any Limited Partner. The General Partner
has a conflict of interest with respect to the Merger and is not making a
recommendation to the Limited Partners on whether to vote "For" or "Against" the
Merger. Each Limited Partner must make his or her own decision on whether to
vote "For" or "Against" the Merger. See "RISK FACTORS" and "THE
MERGER -- Advantages of the Merger." No independent party was retained because
the engagement of an independent representative is not required by either the
Partnership Agreement or Colorado Partnership Law. If such an independent party
had been retained, the terms and conditions of the Merger may have been more
favorable for the Limited Partners.

NO INDEPENDENT APPRAISAL. No independent appraisal of the fair market
value of the Partnership's assets has been or will be obtained. The Assigned
Value of the Partnership was determined by the Company. No independent appraisal
was obtained because an independent appraisal is not required by either the
Partnership Agreement or Colorado Partnership Law and the General Partner
believes the method used by the Company to determine the Assigned Value is fair
to the Limited Partner. See "THE MERGER -- Consideration to be received by the
Limited Partner." If an independent appraisal of the fair market value of the
Partnership's assets had been obtained, such appraisal may have resulted in a
value higher or lower than the Assigned Value in which case the consideration
received by the Limited Partners may have been higher or lower, respectively.

ABSENCE OF FAIRNESS OPINION. The Company did not obtain a fairness opinion
as to the adequacy or fairness of the consideration to be received by the
Limited Partners in connection with the Merger. No fairness opinion was obtained
because a fairness opinion is not required by either the Partnership Agreement
or Colorado Partnership Law. If obtained, a fairness opinion could provide an
independent analysis of the fairness, from a financial point of view, of the
consideration to be received by the Limited Partners in the Merger, including
the value of the assets involved in the Merger and the reasonableness of the
projections and underlying assumptions used to determine the Assigned Value.
However, since no fairness opinion will be rendered, the Limited Partners will
not have the benefit of the analysis of an independent third party in deciding
whether to vote for or against the Merger. See "THE MERGER -- Consideration to
be Received by the Limited Partners."

CONFLICTS OF INTEREST. The Company has different interests in the Merger
than the Limited Partners. The Merger, if completed, would relieve the Company
of its obligation to make cash payments to the Partnership based on royalties
and/or proceeds from the sale of rights it receives related to the Perio
Product, if the Perio Product receives regulatory approval, as provided in the
Agreements. This conflict of interest may adversely affect the Partnership by
causing the Company to act for its own best interests and not that of the
Limited Partners. See "CONFLICTS OF INTEREST."

LOSS OF RELATIVE VOTING POWER. If the Merger is completed, Limited
Partners will have an investment in a larger entity and will thus lose relative
voting power. Limited Partners may currently vote on certain Partnership matters
in proportion to their interests in the Partnership relative to the interests of
other Limited Partners in the Partnership. After the Merger, Limited Partners
will be able to vote as shareholders of the Company, and, assuming the Closing
Date occurred on August 4, 1995, would hold approximately 7% of the outstanding
Common Stock. Shareholders of the Company have one vote per Share. See
"COMPARISON OF OWNERSHIP OF THE COMPANY'S SECURITIES AND PARTNERSHIP UNITS."

13
<PAGE> 24

FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. Limited Partners will have
changed fundamentally the nature of their investment, and their rights as
shareholders will be different from their rights as Limited Partners. The
Partnership was formed as a finite-life entity with certain characteristics,
including: (i) Limited Partners would receive a portion of all royalties and/or
proceeds from the sale of rights related to the Perio Product (ii) there would
be no reinvestment of Partnership proceeds; and (iii) upon liquidation, the
Limited Partners of the Partnership would realize the market value of the
Partnership's assets, less expenses of liquidation and liquidation fees, if any,
payable to the General Partner.

In contrast, as shareholders, (i) Limited Partners will share in the
capital appreciation of the Company, if any, (ii) they will not receive cash
distributions since the Company does not anticipate paying cash dividends, and
(iii) the Company plans to continue operations indefinitely. If the Merger is
completed, shareholders will not receive liquidation proceeds through asset
sales but may liquidate their investment by selling their Shares on the open
market. In this regard, the market value of the Shares may never reflect the
full fair market value of the Company's assets and, consequently, shareholders
may not realize the full fair market value of such assets by selling their
Shares at prices which will be determined by the trading market for the Shares.
See "COMPARISON OF OWNERSHIP OF THE COMPANY'S SECURITIES AND PARTNERSHIP UNITS."

CHANGES IN FORM OF INVESTMENT WILL CHANGE RIGHTS OF LIMITED
PARTNERS. Specifically, instead of holding Units in a finite-life partnership,
Limited Partners, as holders of securities in a company that has indefinite
duration, will have to depend on the secondary market for the Common Stock to
liquidate their investment. The Common Stock is listed on The Nasdaq Stock
Market.

The Delaware GCL, as well as the Company's Certificate of Incorporation,
impose restrictions upon certain business combinations which may discourage a
change in control of management of the Company and limit the liability of
directors to Shareholders. In addition, the Company's Certificate of
Incorporation generally provides for (i) greater indemnification of directors
than is available to the General Partner under the Partnership Agreement, and
(ii) the ability to relieve directors of certain monetary liabilities not
available to the General Partner under the Partnership Agreement.

MAJORITY VOTE WILL BIND ALL LIMITED PARTNERS IN THE PARTNERSHIP. If the
Merger is approved by Limited Partners holding an aggregate of at least 2,588
Units, which constitutes an majority of the outstanding Units, the Partnership
will be merged with and into Atrix, L.P., and all Limited Partners of the
Partnership will receive Shares in exchange for their Units regardless of
whether they vote for or against the Merger.

NO DISSENTERS' RIGHTS. Limited Partners who vote against or abstain from
voting for the Merger will not be entitled to dissenters' or appraisal rights
under the Partnership Agreement or Colorado Partnership Law. Such rights, when
they exist, give the holders of securities the right to surrender such
securities for an appraised value in cash, if they oppose a merger or similar
reorganization. No such rights will be provided by the Partnership or the
Company.

RISKS RELATING TO THE BUSINESS OF THE COMPANY

NO PRODUCT REVENUE; RECENT OPERATING LOSSES. To date, the Company has had
no revenue from product sales. The Company's future operating results will
depend on many factors including regulatory approval or clearance of the
Company's products, demand for the Company's drug delivery system and products
based thereon, the level of competition, the ability of the Company to develop
and manage product enhancements and new products, the ability of the Company to
control costs and the level of third party reimbursement. The Company incurred a
loss for the year ended December 31, 1994 and expects to incur additional losses
until

14
<PAGE> 25

such time, if any, as the Company receives regulatory approval for the marketing
of its products under development and commences commercial sales thereof. There
can be no assurance that the Company will achieve profitability in the future.

CAPITAL REQUIREMENTS. It is expected that the Company will continue to
expend significant capital to fund its research and development and clinical
trials. It is also anticipated that, should any of the Company's products under
development receive regulatory approval, the Company will also expend funds to
develop and/or expand commercial-scale manufacturing facilities. Additional
financing may be necessary for the continued support of the Company's existing
and proposed products in the future. There can be no assurance that the Company
will be able to secure additional financing or that such financing will be on
terms satisfactory to the Company. If adequate funds are not available, the
Company may be required to curtail or terminate one or more of its research and
development programs or attempt to obtain funds through arrangements with
venture partners or others that may require the Company to relinquish rights to
certain of its technologies or potential products.

LIQUIDITY. The Company believes that under the current operating plan its
existing capital resources will be sufficient to meet its operating expenses and
capital expenditure requirements through at least 1996. However, as the
Company's goal is to maintain a cash and investment balance sufficient to fund
its operating expenses for at least two years, the Company expects to seek
additional capital through debt and/or equity financings in the next twelve to
eighteen months. There can be no assurance that such funds will be available to
the Company on favorable terms, if at all. In addition, the availability of such
funds may be adversely affected by increasing governmental pressures on the
pharmaceutical industry. The Company cannot predict the effect that health care
reforms may have on the Company. The Company's long-term success depends on
sales of products that must undergo an extensive regulatory approval process.
There can be no assurance that regulatory agency approvals will be obtained for
any products or drugs developed or discovered by the Company, or that the
Company will be successful in developing any products or drugs.

COMPETITION. In general, the drug delivery and dental products industries
are intensely competitive and composed of numerous large and well financed
firms, including large pharmaceutical and consumer good companies, as well as
universities and other research institutions, that are constantly developing or
acquiring rights to new products. There can be no assurance that one or more of
these firms or institutions will not develop or manufacture drug delivery
systems and periodontal therapeutic products that are more effective or better
accepted than those which the Company seeks to develop and produce. Many of
these entities have greater financial, technical, clinical, marketing
manufacturing and other resources and experience than the Company.

POSSIBLE TECHNOLOGICAL CHANGE. The markets in which the Company intends to
compete are undergoing, and are expected to continue to undergo, rapid and
significant technological change and innovation, and the Company expects
competition to intensify as technological advances in such fields are made.
There can be no assurance that development by others will not render the
products or technologies of the Company obsolete or uncompetitive.

GOVERNMENTAL REGULATION. The development, manufacture and sale of drug
delivery systems, devices and certain dental products are subject to strict
regulation and approval or clearance by governmental authorities in the United
States and elsewhere. The process of obtaining regulatory approval can take many
years and require the expenditure of substantial resources. There can be no
assurance that the Company will obtain necessary approval or clearance on a
timely basis, if at all, for its products under development or its future
products. Delays in receiving these regulatory approvals could adversely affect
the Company's ability to market its products commercially. Moreover, if granted,
such approvals may entail limitations on the indicated uses for which it may be
marketed, and such approved drug, its manufacturers and its manufacturing
facilities would be subject to continual review and periodic inspections, and
later discovery of previously unknown problems with a product, a manufacturer or
facility may result in restrictions on such product or manufacturers, including
withdrawal of the product from the market. In addition, laws or regulations may
be adopted in the future, including legislation to regulate the prices of
products sold by pharmaceutical companies and

15
<PAGE> 26

legislation to regulate laboratory or manufacturing practices, any of which
could have a material adverse affect on the business and operations of the
Company.

NO COMMERCIAL MANUFACTURING EXPERIENCE. The Company has no experience in
manufacturing products on a commercial basis. The Company believes that its
existing manufacturing facilities will enable it to produce initial commercial
quantities of its products, although it may have to make certain leasehold
improvements in order to do so. No assurances can be given, however, that
manufacturing or quality control problems will not arise as the Company
commences production of its products, or as additional facilities are required
in the future. If the Company is unable to commercially procure the raw
materials needed for the Perio Product (as defined herein), it will have a
material adverse affect on the value of the Company's rights to manufacture the
Perio Product.

NO MARKETING EXPERIENCE. The Company has no experience in marketing
products. The Company expects that certain of the products under development may
be marketed in collaboration with a corporate partner. Such collaborative
agreements could result in lower revenue than if the Company marketed products
itself. In other cases, the Company may develop a direct marketing organization
or make other distribution agreements. There can be no assurance that the
Company will be able to establish such arrangements or, that the Company will
market its products effectively. To market any product directly, the Company
would have to develop a marketing and sales force with technical expertise and
supporting distribution capability. There can be no assurance that the Company
would be able to develop such a sales force or distribution capability.

RELIANCE ON PATENTS AND PROPRIETARY RIGHTS. The Company considers patent
protection and proprietary technology to be materially significant to its
business. The Company relies on certain patents and patents pending in the
United States and foreign applications relating to various aspects of its
products under development. There can be no assurance that patents will issue as
a result of any such pending applications or that, if issued, such patents will
be sufficiently broad to afford protection against competitors with similar
technology. In addition, there can be no assurance that any patents issued to
the Company, will not be challenged, invalidated or circumvented, or that any of
the rights granted thereunder will provide competitive advantages to the
Company. The commercial success of the Company will also depend on not
infringing patents issued to competitors. Litigation, which could result in
substantial cost to the Company, may be necessary to enforce the Company's
rights provided by the Company's patents or to determine the scope and validity
of other's proprietary rights.

UNCERTAINTY OF THIRD PARTY REIMBURSEMENT. The Company intends that any
dental products that may be developed will be sold to dental practitioners and
other health care providers. These persons, in turn, may seek reimbursement from
third-party payers, such as Medicare, Medicaid, health maintenance organizations
and private insurers, including Blue Cross/Blue Shield Plans. Sales of potential
dental products may be largely dependent on the availability of reimbursement to
the health care providers or their patients from such payers. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and there can be no assurance that adequate third party coverage will
be available. Limitations imposed by insurance programs and the failure of
certain payers to fully or substantially reimburse health care providers or
their patients for the use of the Company's dental products could materially
adversely affect the Company's revenues and acceptance of such dental products.

PRODUCT LIABILITY AND INSURANCE. The Company currently has in force
general, product and professional liability insurance with coverage limits of $3
million per year and $1 million per occurrence. The Company's insurance policies
provide coverage on a claims made basis and are subject to annual renewal. Such
insurance may not be available in the future on acceptable terms or at all.
There can be no assurance that coverage limits of such policies will be
adequate.

DEPENDENCE ON KEY PERSONNEL. The Company is heavily dependent upon the
expertise of certain key officers and scientists, including John E. Urheim, Vice
Chairman and Chief Executive Officer; Dr. G. Lee Southard, President and Chief
Scientific Officer; Dr. Richard L. Dunn, Vice President of Drug Delivery
Research and Research and Development, Dr. Charles P. Cox, Vice President of
Product Development and Dr. Steve Garrett, Vice President of Dental Clinical
Research. Of these individuals, the Company has employment agreements with Mr.
Urheim and Dr. Garrett. The loss of one or more of these individuals could

16
<PAGE> 27

have a material adverse affect upon the Company. There can be no assurance that
the Company will continue to be successful in recruiting or retaining such
personnel in the future.

NO DIVIDENDS. The Company has never paid any cash dividends on its Common
Stock and does not anticipate paying any dividends in the foreseeable future.
Earnings, if any, will be retained to fund operations of the Company.

INVESTMENT COMPANY ACT CONSIDERATIONS. A significant potion of the
Company's assets are invested in interest-bearing securities, which, if not
invested properly, could subject the Company to the registration requirements of
the Investment Company Act of 1940 (the "1940 Act"). Registration under the 1940
Act would subject the Company to substantive regulations which could have a
material adverse effect on its business. The Company intends to conduct its
business in a manner designed to avoid being subject to the registration
requirements of the 1940 Act; however, there can be no assurance that the
Company can avoid becoming subject to these registration requirements.

VOLATILITY OF STOCK PRICES. The market prices for securities of companies
engaged primarily in pharmaceutical development have been highly volatile. The
announcement of technological innovations or new commercial products by the
Company and its competitors, governmental regulation, regulatory approvals or
developments relating to patents or proprietary rights, publicity regarding
actual or potential medical results with respect to products under development
by the Company or others, as well as period-to-period fluctuations in financial
results, may have a significant impact on the market price of the common stock.
In addition, the stock market has experienced extreme price and volume
fluctuations that have affected the market price of companies generally, and
companies similar to the Company, that have been unrelated to operating
performance. These broad market fluctuations may adversely effect the market
price of the stock.

ANTI-TAKEOVER MEASURES. The Company's Amended and Restated Certificate of
Incorporation (the "Certificate") contains certain provisions establishing a
classified board of directors and a process to enlarge and fill vacancies of the
board of directors. The Certificate also provides for cumulative voting for the
election of directors on or after the date on which the Company becomes aware
that any shareholder has become the beneficial owner, directly or indirectly, of
30% or more of the outstanding shares of Common Stock entitled to vote generally
for the election of directors. These provisions, as well as the issuance under
certain circumstances of preferred stock of the Company, could delay, discourage
or prevent certain types of transactions involving an actual or potential change
in control of the Company.

THE MERGER

The information contained in this Prospectus/Proxy Statement with respect
to the Merger is qualified in its entirety by reference to the Merger Agreement,
the form of which is attached hereto as Appendix A and incorporated herein by
reference.

GENERAL

The Company, which is the sole general partner of the Partnership, is
proposing the Merger of the Partnership with and into Atrix, L.P., pursuant to
the terms and conditions of the Merger Agreement. If the Merger is approved by
the Limited Partners at the Meeting, Atrix, L.P. will be formed immediately
prior to the Merger, solely to effectuate the Merger, and the Company will be
its sole limited partner. AtrixSub, which will be a newly formed wholly owned
subsidiary of the Company, will be the sole general partner of Atrix, L.P.

If the Merger is approved and certain conditions are satisfied or waived,
each Limited Partner will receive shares of the Company's $.001 par value Common
Stock (the "Common Stock" or "Shares") upon completion of the Merger, regardless
of whether the Limited Partner voted for or against the Merger. Shares issued in
connection with the Merger will be allocated among the Limited Partners in
proportion to their ownership interest in the Partnership. See
" -- Consideration to be Received by the Limited Partners." The Shares are
traded on The Nasdaq Stock Market under the symbol ATRX. The General Partner
will not receive any Shares, cash or other consideration for its general partner
interest in connection with the Merger.

17
<PAGE> 28

However, the General Partner will receive certain economic benefits in exchange
for issuing the Shares in the Merger. See "CONFLICTS OF INTEREST."

The primary purpose and effect of the Merger is the consolidation of the
rights under the Agreements and the subsequent termination thereof, which the
General Partner believes will facilitate prospective strategic business
relationships while giving the Limited Partners substantially enhanced liquidity
of investment in an enterprise with greater asset diversification. If the
Limited Partners do not approve the Merger, the Partnership will continue to
operate as a separate legal entity with its own assets and liabilities and the
respective contractual obligations of the Company and the Partnership under the
Agreements will continue under their present terms. If the Merger is not
approved at the Meeting, Atrix, L.P. and AtrixSub will not be formed.

A vote in favor of the Merger constitutes a vote in favor of the related
Amendments, the form of which is attached to this Prospectus/Proxy Statement as
Appendix B. The Amendments specifically permit the Merger and expressly
authorize all actions necessary to successfully complete the Merger and the
distribution of Shares to the Limited Partners in connection therewith.

CONSIDERATION TO BE RECEIVED BY THE LIMITED PARTNERS

In connection with the Merger, each Limited Partner will receive Shares.
The Shares will be allocated among the Limited Partners in proportion to their
ownership interest in the Partnership. The aggregate number of Shares to be
issued will be equal to the Assigned Value of the Partnership, as determined by
the General Partner, divided by the average closing price per share of the
Common Stock taken over the 15 trading days ending on the sixth trading day
before the Closing Date. Assuming the Merger occurred on August 4, 1995, Limited
Partners would be issued an aggregate of 546,377 Shares or 105.58 Shares per
Unit. The Merger will not occur if the average closing price of the Shares over
the period is less than $5.00. The last reported sale price of the Common Stock
on The Nasdaq Stock Market on August 10, 1995, was $7.00.

For purposes of the Merger, the Assigned Value of the Partnership is
$3,524,175, or $681 per Unit. The Assigned Value was determined by the Company
as of July 10, 1995 based upon the Company's calculation of the Limited Partners
potential return on their investment in the Partnership. Further, the Company's
assumptions in using the income valuation approach were (i) a projected market
for the Perio Product and the Company's projected market share thereof, (ii) a
projected selling price of $70 for the Perio Product, (iii) that the
Partnership's current share of proceeds, including the General Partner's one
percent general partner interest, from royalties and/or proceeds from sales of
the Perio Product is 40%, which percentage may decrease as additional funds are
spent to develop the Perio Product and therefore maximum payments of $21,600,000
to the Limited Partners based on the Agreements and assuming that the Company
exercises its option under the Purchase Option Agreement (as defined herein),
and (iv) a 30% discount rate to reflect net present value and risks relating to
the development, regulatory approval and sale of the Perio Product. For a
discussion of the Partnership's rights with respect to the Perio Product, See
"THE PARTNERSHIP -- Agreements Between the Partnership and the Company."

In determining the sales projections used in the calculation of the
Assigned Value it utilized information from two sources. The first source is The
1990 Survey of Dental Services Rendered, published June 1994, conducted by the
American Dental Association ("ADA"). The ADA study provides a national
statistical profile of the flow of patients into dental offices and the dental
services they received. The second source is a study conducted by Fact Flow
Research ("Fact Flow"). The objective of the Fact Flow Study was to (i) examine
current practices of periodontists in the treatment of periodontal disease, and
(ii) determine how periodontists would most likely utilize the Perio Product.
Based upon the two studies, Atrix's management estimated the potential United
States market for scaling and root planing procedures, the projected United
States market share for the Perio Product and a projected sales price of $70 per
unit for the Perio Product.

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The General Partner will not receive Shares, cash or any other
consideration in exchange for its general partner interest in the Partnership.
Assuming the Merger occurred on August 4, 1995 the Shares issued to the Limited
Partners would constitute approximately 7% of the Company's issued and
outstanding Common Stock. No fractional Shares will be issued by the Company in
connection with the Merger. See " -- No Fractional Shares."

ADVANTAGES OF THE MERGER

The principal expected advantages of the Merger are as follows:

- SUBSTANTIALLY ENHANCED LIQUIDITY. The Common Stock is traded on The
Nasdaq Stock Market, whereas there is no established trading market for
the Units and it is not anticipated that such a market will develop.
Therefore, the conversion of Units into Shares in connection with the
Merger offers Limited Partners the potential for substantially enhanced
liquidity of investment. However, there can be no assurance that any of
the Company's products will receive the necessary regulatory approval or
clearance or that any of the Company's products can be successfully and
profitably developed, produced and marketed.

- ASSET DIVERSIFICATION. The Partnership's primary asset is its right to
receive payments from the Company based on royalties and/or proceeds from
the sale of rights related to the Perio Product. However, there can be no
assurance that the Perio Product will ever be developed, approved or
successfully marketed. If the Perio Product is not commercially
successful, the Limited Partners may not realize any return on their
investments. As shareholders of the Company, on the other hand, the
Limited Partners will have the opportunity to benefit from the Company's
more diversified product base.

- FACILITATION OF STRATEGIC BUSINESS RELATIONSHIPS. The Merger will
potentially enhance the Company's strategy of entering into strategic
alliances with pharmaceutical or healthcare companies to fully develop,
market and manufacture the ATRIGEL(TM) System. The Merger will eliminate
the Agreements and enhance the Company's ability to negotiate global
strategic alliances encompassing all of its products.

- LONG-TERM OPPORTUNITIES. The Merger will allow the Limited Partners to
benefit, as shareholders, in the Company's products, other than the Perio
Product, that may be developed, approved and marketed in the future. The
Company expects its ATRISORB(TM) GTR Barrier product to receive regulatory
approval to begin marketing in the fourth quarter of 1995 and expects
first commercial sales in selected European countries in the first quarter
of 1996. The Company also expects to receive regulatory approval in the
United States in the second quarter of 1996 and projects first commercial
sales in the United States in the Third quarter of 1996. The impact of
Sales of the ATRIGEL(TM) GTR Barrier product on the Company will be to
generate revenue in 1996 from the Company's first commercial product and
thereby move the Company from a research and development stage company to
a commercial stage company.

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<PAGE> 30

at such time, if ever, as the Partnership receives royalties and/or
proceeds from the sale of rights to the Perio Product. If the Merger is
approved, the General Partner will forgive all accrued expenses and
management fees, the total sum of which were $148,000 as of June 30, 1995.

Based on the factors above, among others, the General Partner believes that
an investment in the Company through the ownership of Common Stock will provide
greater benefits to the Limited Partners than a continued investment in the
Partnership. The General Partner has therefore determined that the Merger is in
the best interests of the Limited Partners as well as the Company.

Limited Partners are urged, however, to consider carefully the factors
described under "RISK FACTORS" and the comparison of an investment the
Partnership versus an investment in the Company set forth under "COMPARISON OF
OWNERSHIP OF THE COMPANY'S SECURITIES AND PARTNERSHIP UNITS." Limited Partners
also are urged to consult with their independent financial and tax advisors
prior to consenting to the Merger.

DISADVANTAGES OF THE MERGER

The principal disadvantages of the Merger are:

For a complete discussion of the risk factors relating to the Merger and
the Company, see "RISK FACTORS."

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<PAGE> 31

ALTERNATIVE TO THE MERGER

The only alternative to the Merger considered by the General Partner was
leaving the Partnership in its current form to pursue its present business
objectives. Under the current structure, the Company would be obligated to make
payments to the Partnership based on royalties and/or proceeds from the sale of
rights related to the Perio Product. The Partnership would then distribute these
payments to the Limited Partners. The General Partner has not rejected the
alternative of leaving the Partnership in its current form. However, the General
Partner believes that the Limited Partners should have the opportunity to
consider and vote upon the Merger as an alternative to leaving the Partnership
intact because it believes (i) the Limited Partners may prefer immediate payment
of a liquid asset over delayed payments of uncertain amounts at unknown times
and (ii) the value of the Shares to be issued in the Merger is fair compared to
what the Limited Partners might be expected to receive if the Partnership left
intact.

REASONS THE GENERAL PARTNER HAS APPROVED THE MERGER; RECOMMENDATION

The absence of independent representation for the Partnership; the absence
of a fairness opinion and an independent appraisal did not impact the General
Partner's decision to approve the Merger. Neither an independent representation
nor an independent appraisal is required by either the Partnership Agreement or
by Colorado Partnership Law and the General Partner did not believe independent
representation or an independent appraisal were necessary in order to treat the
Limited Partners fairly. As discussed in the preceding paragraph, the General
Partner believes the consideration being offered by the Company and the method
used by the Company to determine the assigned value are fair to the Limited
Partner.

The General Partner believes that the Merger is procedurally fair to the
Limited Partners because the Merger is consistent with the contractual rights
Limited Partners accepted when they made their original investment in the
Partnership. Limited Partners are not entitled under the Partnership Agreement
to the appointment of an independent representative, an independent appraisal of
the Partnership's assets prior to the sale or the grant of dissenters' or
appraisal rights. Since the Merger will not proceed unless approved by Limited
Partners holding at least 2588 Units, none of which are owned or controlled by
the Company or its affiliates, the General Partner does not believe those added
mechanisms are necessary for the Merger to be procedurally fair.

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<PAGE> 32

See "RISK FACTORS" and "THE MERGER -- Benefits of the Merger." The General
Partner is not required to make recommendation regarding the Merger under any
applicable laws.

TERMS OF THE MERGER AGREEMENT

GENERAL, EFFECTIVE TIME. The terms of the Merger are set forth in the form
of Merger Agreement attached to this Prospectus/Proxy Statement as Appendix A.
Pursuant to the Merger Agreement, the assets and obligations of the Partnership
will be merged with and into Atrix, L.P., as the surviving entity. The
Partnership's primary asset consists of certain rights under the Agreements to
receive payments from the Company based on royalties and/or proceeds from the
sale of rights relating to the Perio Product. See "THE PARTNERSHIP -- The
Agreements Between the Partnership and the Company." Immediately following the
completion of the Merger the Company intends to liquidate Atrix, L.P. and each
of the Agreements will be terminated.

The Merger Agreement provides that the Merger will become effective at the
Effective Time, which is anticipated to be shortly after the Meeting if the
requisite vote of the Limited Partners is obtained. As of the Effective Time,
each Unit of the Partnership will automatically be converted into the right to
receive a specified number of Shares as determined by the average closing price
per share of the Common Stock taken over the 15 trading days ending on the sixth
trading date before the Closing Date. See "-- Consideration to be Received by
the Limited Partners."

For state partnership law purposes, at the Effective Time of the Merger,
the Partnership will be deemed to have merged with and into Atrix, L.P., and all
assets and obligations of the Partnership will be deemed to have been
transferred to Atrix, L.P. as the surviving entity. For federal tax purposes, at
the Effective Time, each Limited Partner will be deemed to have exchanged all
assets and obligations of the Partnership for Shares, which Shares will be
distributed to the Limited Partners in the liquidation of the Limited Partners'
interests in accordance with their respective capital accounts.

Approval of the Merger by the Limited Partners constitutes consent to the
merger of the Partnership with and into Atrix, L.P. pursuant to the terms of the
Merger Agreement and to all actions necessary or appropriate to accomplish the
Merger, including approval of the Amendments to the Partnership Agreement.
Consummation of the Merger is subject to certain conditions. See "-- Conditions
to the Merger."

CONDITIONS TO THE MERGER. Consummation of the Merger is conditioned upon
each of the following:

(i) The Shares having an average closing price per Share of at least
$5.00 for purposes of determining the number of Shares to be issued in the
Merger.

(ii) approval of the Merger by Limited Partners holding an aggregate
of at least 2,588 Units, which constitutes an majority of the outstanding
Units;

(iii) receipt of all necessary consents, waivers, approvals,
authorizations or orders required to be obtained and the making of all
filings required to be made by any of the parties for the authorization,
execution and delivery of the Merger Agreement and the consummation of the
transactions contemplated thereby on or before (and remaining in effect at)
the Effective Time;

(iv) there having been no statute, rule, order or regulation enacted
or issued by the United States or any state, or by a court, which prohibits
the consummation of the Merger; and

(v) the Registration Statement having been declared effective and no
stop order suspending the effectiveness of the Registration Statement
having been issued or proceedings for such purpose having been instituted,
and all necessary approvals under state securities or blue sky laws having
been received.

In addition, if any event shall occur or any matter shall be brought to the
attention of the Atrix, L.P. that, in its sole judgment, materially affects,
whether adversely or otherwise, the Partnership or its assets, subject to the
terms of the Merger Agreement, Atrix, L.P. reserves the right to modify or amend
the terms of the Merger to take such event or matter into account, or to take
such other actions as may be appropriate, including, without limitation,
canceling the Merger. Any determination of Atrix, L.P. concerning the events and
matters

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<PAGE> 33

set forth above will be final and binding on all parties. The foregoing
conditions are for the sole benefit of Atrix, L.P. and all such conditions,
except as described in (ii), (iv) and (v) above, may be waived by Atrix, L.P. in
whole or in part. Certain of the conditions to the consummation of the Merger
are beyond the control of Atrix, L.P. and the Partnership; consequently, there
can be no assurance that the Merger will occur.

TERMINATION; AMENDMENT WAIVER. The Merger Agreement and the transactions
contemplated thereby may be terminated at any time prior to the Effective Time
(i) by mutual consent of Atrix, L.P. and the Partnership, (ii) by action of the
Partnership in the event of a failure of a condition to the obligations of
Atrix, L.P. as set forth in Article VIII of the Merger Agreement, (iii) by
action of Atrix, L.P. in the event of a failure of a condition to the
obligations of the Partnership as set forth in Article VIII of the Merger
Agreement, or (iv) by action of Atrix, L.P. or the Partnership in the event the
Merger is not consummated prior to December 31, 1995 or such later date as the
parties shall mutually agree in writing.

In the event of termination, the Merger Agreement shall become void and of
no effect with no liability on the part of any party thereto.

Atrix, L.P. and the Partnership may amend the Merger Agreement by written
agreement at any time prior to the Effective Time, such amendment to be approved
by Atrix, L.P., the Company and the Partnership; provided that, after the
approval of the Merger by the Limited Partners, no amendment shall be made which
alters or changes (i) the amount or kind of consideration which the Limited
Partners are entitled to receive upon conversion of their Units, or (ii) the
terms and conditions of the Merger Agreement if such alteration or change would
have an adverse effect on the Limited Partners. Atrix, L.P. or the Partnership
may extend the time for performance of any of the obligations or other acts of
any other party to the Merger Agreement, or waive compliance with any of the
agreements of any other party or with any condition to the obligation under the
Merger Agreement, in each case only to the extent that such obligations,
agreements and conditions are intended for its benefit.

NO FRACTIONAL SHARES

No fractional Shares will be issued by the Company in the Merger. Each
Limited Partner who would otherwise be entitled to a fractional Share will
instead receive a cash payment equal to the fraction multiplied by the average
closing price per share of the Common Stock taken over the 15 trading days
ending on the sixth trading day before the Closing Date.

ACCOUNTING TREATMENT

For accounting purposes, the Merger will be recorded using the purchase
method of accounting. For unaudited pro forma effects of the Merger upon the
financial position of the Company see "UNAUDITED PRO FORMA FINANCIAL
STATEMENTS."

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The General Partner believes that the Merger if consummated would be
treated as a taxable exchange of the assets of the Partnership for the Common
Stock. As a result, each Limited Partner will be required to recognize a
proportionate share of the gain or loss which results from the Merger. See
"FEDERAL INCOME TAX CONSIDERATIONS." Limited Partners should review the tax
consequences of the Merger with their tax advisers considering their individual
financial and tax situations.

CONSEQUENCES IF MERGER NOT APPROVED

If the Merger is not approved by the Limited Partners, the Partnership will
continue to operate as separate legal entity with its own assets and liabilities
and the contractual obligations between the Company and the Partnership will
continue under their present terms. In addition, neither Atrix, L.P. nor
AtrixSub will be formed.

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<PAGE> 34

VOTE REQUIRED FOR APPROVAL OF THE MERGER

Approval of the Merger requires the approval of Limited Partners holding a
majority of outstanding Units. On the Record Date, there were 5,175 Units
outstanding; therefore, approval of the Merger requires the affirmative vote of
Limited Partners holding at least 2,588 Units. This Prospectus/Proxy Statement
constitutes the solicitation of the approval of the Limited Partners to the
Merger, including all such actions required by the Partnership to consummate the
Merger. None of the Company's directors, executive officers or their affiliates
own any Units.

AMENDMENTS TO THE PARTNERSHIP AGREEMENT

The Partnership Agreement does not specifically address the merger of the
Partnership into another entity or the conversion of equity securities for
Units. Therefore, the General Partner is also seeking the approval of the
Limited Partners to amend the Partnership Agreement to include specific
provisions regarding the Merger. By voting "FOR" the Merger, a Limited Partner
will also be deemed to have approved the Amendments to the Partnership
Agreement, which specifically permit the Merger and expressly authorize all
actions necessary to successfully accomplish the Merger and the distribution of
Shares to the Limited Partners as described in this Prospectus/Proxy Statement.
See "THE MEETING -- The Amendments." The form of the Amendments to the
Partnership Agreement is set forth in Appendix B to this Prospectus/Proxy
Statement.

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<PAGE> 35

THE COMPANY

The Company, originally named Vipont Research Laboratories, Inc., was
formed in August 1986 as a Delaware corporation. Simultaneously with the
formation of the Partnership, the Company entered into the Agreements all of
which were dated August 5, 1987. See "THE PARTNERSHIP -- Agreements between the
Partnership and the Company". At a special meeting of the Limited Partners held
on October 14, 1992, the Limited Partners approved a proposal to authorize the
General Partner to amend the Agreements to permit the Partnership and the
Company to share in the royalties and/or proceeds from the sale of rights to the
Perio Product. Subsequently, the Research and Development Agreement terminated
pursuant to its terms.

On August 5, 1987, the Company entered into a Master Technology Transfer
Agreement, together with amendments No. 1 and No. 2 (the "Prior Agreement") with
Vipont Pharmaceutical, Inc. ("VPI") whereby VPI granted the Company an
exclusive, irrevocable license to use all of VPI's proprietary technology
relating to sanguinaria, sanguinarine and other benzophenanthridine alkaloids
(except solely as it relates to human dental or oral care consumer products) in
exchange for 3,200,000 Shares. (The Company then granted the Partnership an
exclusive, irrevocable license to use this technology pursuant to the Technology
Transfer Agreement.) In addition the Company granted VPI the first right to
exercise all of its rights under the Agreements. At the time the Prior Agreement
was entered into, VPI was the sole general partner of the Partnership and Atrix
was a wholly owned subsidiary of VPI.

On November 13, 1989 VPI Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of Colgate Palmolive Company ("Colgate"), commenced a
tender offer for all of the outstanding common stock of VPI. In connection with
the tender offer, VPI, Colgate and VPI Acquisition Corp. entered into an
Agreement and Plan of Merger which provided for the merger of VPI Acquisition
Corp. into VPI and the spin-off of Atrix, a wholly owned subsidiary of VPI, to
the shareholders of VPI. As a result, VPI became a wholly owned subsidiary of
Colgate. On June 20, 1990 Atrix was appointed as general partner of the
Partnership in substitution of VPI.

In connection with the acquisition of VPI by Colgate, Atrix entered into
several agreements with Colgate, which have subsequently been terminated. In
addition, Atrix entered into Amendment No. 3 and Restatement of the Master
Technology Agreement with VPI (the "Revised Agreement") dated as of February 22,
1990 which supersedes, replaced and terminated the Prior Agreement.

In general, the Revised Agreement allocates between VPI and Atrix rights to
technology disclosed in certain patents (all relating to sanguinaria,
sanguinarine and other benzophenanthridine alkaloid, referred to herein as the
"Patents."), sanguinaria or other benzophenanthridine subject matter disclosed
in certain specified patent applications (relating to sanguinaria and
non-sanguinaria technology, and referred to herein as the "Patent Applications")
and related know-how and other proprietary information as of the date thereof
(collectively with the Patents and the Patent Applications, the "Sanguinarine
Technology") as well as other contractual rights arising out of the Agreements.
Also under the Revised Agreement, VPI granted to Atrix royalty-free, exclusive
licenses in certain situations with respect to the Sanguinarine Technology.

There is currently no relationship between Atrix and/or the Partnership and
their respective affiliates on the one hand and VPI and/or Colgate and their
respective affiliates on the other hand.

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<PAGE> 36

The Company's drug delivery strategy is to combine the patented ATRIGEL(TM)
drug delivery system with drugs whose therapeutic effectiveness may be enhanced
when administered in a sustained-release form or through systemic application.
The Company conducts research activities on its own behalf and contract research
for third parties. The Company also conducts research for the United States
government and its agencies through government grants. The Company has initiated
early stage research programs with several pharmaceutical companies and intends
to evaluate the use of the ATRIGEL(TM) drug delivery system with drugs having
various human and animal health applications. In addition the Company intends to
pursue human medical device applications in conjunction with other
pharmaceutical and health care companies. There can be no assurance that these
programs will result in commercial products or that the Company will ultimately
enter into other funded research programs. In the past the Company has been
awarded government grants (including grants by the Department of Defense and
National Institute of Health) to conduct research utilizing the ATRIGEL(TM) drug
delivery system. Such research continues to be directed toward the development
of products in the orthopedic and periodontal disease areas. See "-- Company's
Products."

The Company's products nearest commercialization utilize the ATRIGEL(TM)
drug delivery system and are designed to treat periodontal disease. The Perio
Product is designed to provide localized sustained delivery of an active agent,
such as doxycycline, to diseased periodontal tissue. The Company's guided tissue
regeneration product utilizing the ATRIGEL(TM) delivery system without an active
agent, trade-named ATRISORB(TM), is designed to aid in the selective and
enhanced regeneration of the periodontal tissue following gum surgery. The
Center for Devices and Radiological Health Dental Products Panel has recommended
to the FDA that reabsorbable barrier membranes be used in guided tissue
regeneration as a Class II medical device.

The Company conducted Phase III clinical studies on the Perio Product
containing sanguinarine ("Perio Product-Sanguinarine") during fiscal year 1992.
A statistical analysis of the results from the Phase III clinical studies
indicated that the differences between the Perio Product-Sanguinarine and the
Perio Product without an active agent were not sufficiently different to justify
the submission to the FDA of an approvable NDA. Upon receiving the results, the
Company elected to conduct a clarifying study, which was completed during fiscal
year 1994. The clarifying study employed a different design from the above Phase
III clinical studies and also incorporated the Perio Product containing
doxycycline ("Perio Product-Doxycycline") as one of the test items. After
reviewing the results of the clarifying study, management concluded that further
clinical evaluation of the Perio Product-Sanguinarine would not be able to
demonstrate the clinically and statistically significant results required by the
FDA for approval of the NDA. Therefore, the Company is no longer using its
resources for any future development of the Perio-Product Sanguinarine.

Based on the results from the clarifying study which showed that the Perio
Product-Doxycycline was effective in treating periodontal disease, the Company
commenced pivotal Phase III clinical studies on the Perio Product-Doxycycline in
January 1995. The pivotal trials will include two studies, each of which will be
conducted at ten sites and include approximately 400 patients. The Company
expects to file an NDA with the FDA in the first quarter of 1997. See
"-- Company's Products -- The Perio Product."

The Company began human clinical trials on the ATRISORB(TM) GTR Barrier
during fiscal year 1992. The results of these trials were favorable and the
Company is now conducting a final stage clinical study with the goal of filing a
510(k) notification with the FDA in late 1995 for evaluation of the ATRISORB(TM)
GTR Barrier as a medical device. The current human clinical trials on
ATRISORB(TM) GTR are not classified as being either Phase I, Phase II or Phase
III. The FDA clears medical devices (such as the ATRISORB(TM) GTR barrier
membrane) for marketing based on the results of a single "pivotal" study
comparing the experimental device with a similar device currently on the market
(referred to as the predicate device). The Company is currently conducting a
study comparing the ATRISORB(TM) GTR barrier membrane with the GORETEX(TM)
Periodontal Material. The Company will submit results from this study to the FDA
as part of a 510(k) marketing notification in late 1995.

If the FDA determines that the ATRISORB(TM) GTR barrier is safe and
comparable to the predicate device (i.e., GORETEX(TM) Periodontal Material) for
its intended use, it will grant a 510(k) clearance which will allow the Company
to market the ATRISORB(TM) GTR barrier in the United States. The Company also

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<PAGE> 37

expects to commercialize the product in one or more foreign countries. The
regulatory requirements for marketing medical devices in the European Community
(the "EC") are currently in transition as the EC's new Medical Device Directive
is being implemented. Some countries do not currently require pre-market
approval or notification for this type of product, while other countries do not
distinguish between medical devices and drug products. The EC's Medical Device
Directive transition period will end in June 1998, after which time all medical
devices will require a Certification Equivalent (a "CE Mark") before they can be
marketed in any EC member states. Obtaining the CE Mark requires information
that is similar to that which is submitted to the FDA in the 510(k)
notification, plus additional manufacturing and quality assurance documentation
(and inspections) mandated by the International Standards Organization 9000
standards.

The Company expects to commercialize the ATRISORB(TM) GTR barrier in the
fourth quarter of 1995 in those European countries (e.g., Spain, France and
Switzerland) which currently require only import notification from local
authorities and subsequent export permission for the FDA. The Company plans to
complete the additional work required to obtain the CE mark prior to expiration
of the Medical Device Directive transition period in June 1998.

There can be no assurance that regulatory agency approvals will be obtained
for any products developed or discovered by the Company, or that the Company
will be successful. Even if the Company obtains regulatory approvals to market
its products, there is no assurance such products will be commercially
successful.

COMPANY'S PRODUCTS

ATRIGEL(TM) DRUG DELIVERY SYSTEM. The ATRIGEL(TM) drug delivery system
offers a unique approach to drug delivery. This patented drug delivery system is
comprised of a biodegradable polymer that is administered as a liquid, which
then solidifies in situ upon contact with body fluids to form a biodegradable
implant. It is designed to provide extended localized drug delivery in a single
application, without the need for surgical implantation or removal. Depending on
the intended use or the specific drug to be delivered via the ATRIGEL(TM) drug
delivery system, the degradation rate of the system can be custom-tailored. The
Company believes that the unique properties of the drug delivery system create
the potential for a wide variety of medical and veterinary applications. There
can be no assurance, however, that the ATRIGEL(TM) drug delivery system will be
successfully developed for commercial use.

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

- Versatility. The ATRIGEL(TM) drug delivery system may be used with a
wide variety of pharmaceutical compounds.

- Ease of Application. The ATRIGEL(TM) drug delivery system can be
injected or inserted as a liquid by means of ordinary cannulas and
syringes.

- Biodegradability. ATRIGEL(TM) products will biodegrade and thus are not
expected to require removal when the drug is depleted.

- Site Specificity. The ATRIGEL(TM) drug delivery system can be delivered
directly to the target area, thus potentially achieving higher drug
concentrations at the desired site of action and minimizing systemic side
effects.

- Systemic Drug Delivery. The ATRIGEL(TM) drug delivery system can be used
to provide sustained drug relief into the systemic circulation in these
applications where the entire body requires treatment, and the drug is
not active when taken by mouth.

- Customized Continuous Release. The ATRIGEL(TM) drug delivery system can
be designed to provide continuous release of incorporated pharmaceuticals
over a targeted time period so as to reduce the frequency of drug
administration.

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- Custom Designed Degradation Rates. The ATRIGEL(TM) drug delivery system
has the ability to degrade over weeks, months, or even one year.

- Low Cost and Ease of Manufacture. The ATRIGEL(TM) drug delivery system
is manufactured using a simple and inexpensive process relative to
available sustained-release drug delivery systems.

- Increased Patient Compliance. Because the drug is implanted and released
over time, patient compliance is virtually assured.

- Safety. All current components of the ATRIGEL(TM) drug delivery system
are biocompatible and have independently established safety and toxicity
profiles. In addition, the polymers used in the system are members of a
class of polymers some of which have previously been approved by the FDA
for human use in other applications. The Company has also conducted
toxicological studies on the ATRIGEL(TM) drug delivery system to develop
a safety and toxicological profile.

The Company believes that the ATRIGEL(TM) delivery system without a drug
has potential uses as medical devices in which case the ATRIGEL(TM) delivery
system has all of the properties described above except those dependent on the
release of a drug.

THE PERIO PRODUCT. The Perio Product combines the ATRIGEL(TM) drug
delivery system and an antimicrobial or antibacterial agent to form a product
designed to control the bacteria that cause periodontal disease. The Perio
Product is intended to add a new chemotherapeutic maintenance procedure to
current periodontal treatment. The Perio Product, as being developed by the
Company, is administered by a periodontist or a general dentist by inserting the
Perio Product into the periodontal pocket through a cannula that is similar in
design to a periodontal probe. The Company has conducted studies which indicate
that administration will be rapid, require a minimal amount of patient chair
time, and involve less discomfort compared to conventional methods of therapy.
The preliminary results from these studies also suggested that the clinical
signs of periodontal disease such as pocket depth, bleeding on probing and
attachment level are statistically and clinically improved when compared to a
vehicle control.

The Company has been conducting human clinical studies of the Perio
Product-Sanguinarine under an Investigational New Drug ("IND") exemption since
December 1988. During fiscal year 1992, the Company conducted Phase III clinical
studies on the Perio Product-Sanguinarine. A statistical analysis of the results
from the Phase III clinical studies indicated that the differences between the
Perio Product-Sanguinarine and the Perio Product without an active agent were
not sufficiently different to justify the submission to the FDA of an approvable
NDA. Upon receiving the results, the Company elected to conduct a clarifying
study, which was completed during fiscal year 1994. The clarifying study
employed a different design from the above Phase III clinical studies and also
incorporated the Perio Product-Doxycycline as one of the test items. The results
from the clarifying study showed that the Perio Product-Doxycycline was
effective in treating periodontal disease. The Company commenced pivotal Phase
III studies in January 1995 on the Perio Product-Doxycycline and expects to file
an NDA with the FDA in the first quarter of 1997. Since the clarifying study
showed that sanguinarine was not as effective as doxycycline in treating
periodontal disease, no additional studies involving sanguinarine are planned.
There can be no assurance that regulatory agency approvals will be obtained for
any products or drugs developed or discovered by the Company, or that the
Company will be successful in developing any products or drugs. Even if the
Company obtains regulatory approvals to market its products, there is no
assurance such products will be commercially successful.

THE ATRISORB(TM) GTR BARRIER PRODUCT. The ATRISORB(TM) GTR Barrier is a
biodegradable, liquid polymer product that utilizes the ATRIGEL(TM) delivery
system to aid in the regeneration of the periodontal ligament following osseous
flap surgery or other periodontal procedures. Osseous flap surgery, a common
treatment for severe cases of periodontal disease, involves cutting back a flap
of the gum to expose and debride areas not reachable by conventional scaling and
root planing procedures. The Company estimates that there are currently over 3
million flap surgeries performed each year in the United States. Published
research has shown that to obtain optimal healing following flap surgery, it is
necessary to prevent the migration of epithelial cells from the gum tissue into
the periodontal pocket, which interferes with the upward migration of the
periodontal ligament cells. The placement of a barrier that isolates the
periodontal ligament cells from the

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gum tissue has been shown to selectively facilitate growth of the periodontal
ligament cells, leading to connective tissue and bone regeneration at the base
of the periodontal defects.

The ATRISORB(TM) GTR Barrier is designed to be formed outside of the mouth
using a sterile, single-use barrier forming kit. Once placed in the mouth to
cover the periodontal defect, the semi-solid ATRISORB(TM) GTR Barrier further
solidifies upon contact with oral fluids and forms a barrier to epithelial
tissue in order to promote guided tissue regeneration ("GTR"). When prepared in
this manner, the ATRISORB(TM) GTR Barrier allows for a shorter surgery time
relative to existing GTR barrier products and, therefore, has the potential for
treatment of multiple diseased sites in one surgical session. Since the
ATRISORB(TM) GTR Barrier is biodegradable, a second surgery to remove the
barrier is unnecessary.

The Company filed an Investigational Device Exemption ("IDE") and commenced
human clinical trials on the ATRISORB(TM) GTR Barrier during fiscal year 1992.
The Company is now conducting a final stage clinical study and anticipates
filing a 510(k) notification with the FDA during late 1995 for evaluation of the
ATRISORB(TM) GTR Barrier as a medical device. The Company also expects to
commercialize the product in one or more foreign countries. There can be no
assurance that regulatory agency approvals will be obtained for any products or
drugs developed or discovered by the Company, or that the Company will be
successful in developing any products or drugs.

OTHER ATRIGEL(TM) DELIVERY SYSTEM APPLICATIONS. The Company continues to
evaluate the ATRIGEL(TM) delivery system for health care applications other than
periodontal disease. These include uses as medical devices and drug delivery
matrices. Some of these applications are funded by joint development agreements
with other pharmaceutical and health care companies. The Company typically seeks
to retain rights to any inventions, discoveries, and technology that arise in
connection with such joint development projects.

In addition to joint development projects co-funded by other companies, the
Company conducts, at its own expense, programs to establish proof-of-concepts
for a number of medical products. The specific products under development were
selected from a list compiled by a marketing company hired by the Company to
determine the most appropriate product opportunities for the ATRIGEL(TM)
delivery system. The Company hopes to enter into joint development projects with
other companies relating to such products; however, no assurance can be given
that any such development agreements can be negotiated or that any of the
products developed by the Company alone or in joint development projects with
other companies will be successfully developed for commercial use.

The following is a discussion of research programs that were conducted
during 1994 by the Company itself or jointly with other companies.

SURGICAL ADHESIONS. During 1993, the Company initiated a project to
develop a biodegradable polymer product that could be applied to surgical sites
to prevent the formation of fibrous adhesions and scarring during the healing
process. The ATRIGEL(TM) delivery system was modified to provide a liquid
biodegradable polymer material that could be applied with an aerosol spray to
the tissues at the surgical site and form a thin polymer film to serve as a
barrier to adhesion formation. During 1994, the Company continued to develop the
aerosolized product to: (i) provide a more uniform application to the tissues at
the surgical site, (ii) better prevent adhesions, and (iii) deliver the
aerosolized product through a laproscopic procedure. The results from the
current surgical adhesion project showed that the procedure was effective in
reducing post-operative adhesions in accordance with this established protocol,
and the Company is pursuing potential partners for joint research and
development activities and licenses.

GROWTH FACTORS. Since 1990, the Company has been pursuing the use of its
ATRIGEL(TM) drug delivery system to deliver tissue growth factors for a variety
of product applications. These include the regeneration of tissue lost as a
result of periodontal disease, the healing of bone fractures and defects, and
the treatment of dermal ulcers and other soft tissue wounds. In 1994, a number
of pre-clinical studies were conducted which showed that a combination of tissue
growth factors could be incorporated into the ATRIGEL(TM) delivery system and
released at controlled rates for extended times. When this same ATRIGEL(TM)
formulation was applied to a bone defect in a pre-clinical study, the amount of
new bone formed was increased significantly

29
<PAGE> 40

over that obtained in a control group. The initial results from pre-clinical
studies with a similar ATRIGEL(TM) formulation as well as an ATRIGEL(TM) barrier
formulation, with the same growth factors, have shown that these products have
the potential to induce bone formation in advanced periodontal defects. The
Company intends to continue these studies to optimize the products for both
periodontal tissue regeneration as well as healing of bone fractures.

BONE HEMOSTASIS. In July 1994 the Company completed a contract with the
United States Army Medical Research and Development Command to develop a
biodegradable bone wax material for controlling bleeding in bone injuries or
surgeries. The results of a pre-clinical study showed that the biodegradable
bone wax material developed during this contract compared favorably with a
nonbiodegradable bone wax material currently used by the medical profession. A
patent application for these new biodegradable materials was filed in 1993 and
is currently being prosecuted. The Company will retain the rights for any
products developed for civilian applications including the use of the
biodegradable wax materials to deliver antibiotics to prevent or treat bone
infections or growth factors to accelerate bone healing.

Preliminary studies which were conducted with the bone wax material in
1994, to assess its potential to deliver antibiotics, showed the product to be
effective in providing hemostasis in bone defects. The Company has completed its
study on this product, and based on the Company's determination that the market
is not sufficiently large enough to justify further research, the Company does
not plan further research activity.

SOLID TUMORS. In 1994, the Company continued research on a project
initiated in 1993 to evaluate its ATRIGEL(TM) drug delivery system to deliver
chemotherapeutic agents locally at the sites of solid tumors. The sustained
release of these agents at the tumor site is expected to provide higher
concentrations of the agent at the site of action and fewer side effects than
systemic administration of the same drug. Pre-clinical studies have shown that a
number of antitumor agents can be delivered from the ATRIGEL(TM) delivery system
directly in a tumor site and cause a reduction in the rate of tumor growth with
a resultant increase in survival time. Preliminary studies were also conducted
to test the biocompatibility of the ATRIGEL(TM) delivery system to treat liver
tumors by direct injection and ovarian cancer by intraperitoneal injection. The
Company plans to pursue corporate partners for joint development of these
applications. In addition, in 1994, the Company initiated a pharmacokinetics
study and a clinical study in collaboration with Colorado State University
Veterinary School to evaluate the efficacy of several ATRIGEL(TM) delivery
system formulations containing an antitumor agent to treat osteosarcoma in dogs.
This study is ongoing with additional formulations in animals.

PAIN CONTROL. One of the first projects the Company initiated in 1993 with
its own funding was the development of a product for the treatment of
post-operative pain. This product involves the site-specific delivery of a local
anesthetic from the ATRIGEL(TM) drug delivery system to control pain following
surgery. Research on this project in 1994 showed that in pre-clinical studies
relief from pain could be achieved for about three days with the delivery of the
anesthetic from an ATRIGEL(TM) formulation opposed to three (3) hours when
injected in saline. Studies were also conducted to optimize the quantity of drug
incorporated in the product and to evaluate the safety and stability of such
formulations. A number of potential marketing partners were contacted during the
year, but no agreements were signed. Because of the large clinical trials
required for regulatory approval of this product, the Company plans to pursue
further development of this product application only in collaboration with a
marketing partner.

THE UPJOHN COMPANY. The Company has collaborated with The Upjohn Company
("Upjohn") since 1991 to evaluate its ATRIGEL(TM) delivery system for the
development of animal treatment products. During the past three years, a number
of different product applications have been studied, and in 1994, Upjohn
exercised its option for an exclusive license for the ATRIGEL(TM) delivery
system technology for the delivery of animal vaccines. This decision was based
upon the successful results of a number of studies with the ATRIGEL(TM) delivery
system containing animal vaccines. The Company intends to work with Upjohn as
needed to optimize these products and to obtain regulatory approval for their
use in animals. Upjohn has scheduled larger scale efficacy studies to be
conducted in late 1995.

ELI LILLY AND COMPANY. In late 1994, the Company announced that it had
signed a research and development agreement with Eli Lilly and Company ("Eli
Lilly") to evaluate the ATRIGEL(TM) drug delivery system for potential use with
a number of drugs under development by Lilly. Under this agreement, the

30
<PAGE> 41

Company will conduct a feasibility program to develop ATRIGEL(TM) formulations
to deliver drugs under development by Eli Lilly and to evaluate their release
rates in pre-clinical studies.

SYNTEX (U.S.A.), INC. In 1994, the Company also announced that it had
signed an option agreement with Syntex (U.S.A.), Inc. ("Syntex") for the use of
the ATRIGEL(TM) drug delivery system in combination with Syntex's proprietary
Luteinizing Hormone Releasing Hormone drug. The product would be used to deliver
the drug for about 30 days to treat prostate cancer and endometriosis. This
option to renew the license expired unexercised on December 31, 1994.

PARAVAX, INC. In April 1995, the Company signed a license agreement with
Paravax, Inc. for the use of the ATRIGEL(TM) drug delivery system to develop a
product to treat periodontal disease in companion animals.

GENSIA, INC. In May 1995, the Company signed a license agreement with
Gensia, Inc. ("Gensia") to develop a product for the treatment of solid tumor
cancers using the ATRIGEL(TM) drug delivery system.

For further information on the Company, see the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, which is incorporated by
reference in this Prospectus/Proxy Statement.

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<PAGE> 42

SELECTED FINANCIAL DATA OF THE COMPANY

The selected financial information as of December 31, 1994 and September
30, 1993 and for the year ended December 31, 1994, the three months ended
December 31, 1993 and each of the four years in the period ended September 30,
1993 presented below are derived from the financial statements of the Company,
which have been audited and reported upon by Deloitte & Touche LLP, independent
auditors. The selected historical financial information as of June 30, 1995 and
1994 and for the six months ended June 30, 1995 and 1994, are derived from
unaudited financial statements of the Company. The Company's management believes
such unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of such
financial statements. The selected financial information set forth in the table
below is not necessarily indicative of the results of future operations of the
Company and should be read in conjunction with "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY" and
the financial statements of the Company, related notes and report of independent
auditors, included herein.

<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE
YEAR MONTHS YEAR YEAR YEAR YEAR
JUNE 30, ENDED ENDED ENDED ENDED ENDED ENDED
----------------- DEC. 31, DEC. 31, SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1995 1994 1994 1993 1993 1992 1991 1990
------- ------- -------- -------- --------- --------- --------- ---------
(UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Total revenue......................... $ 789 $ 945 $ 1,815 $ 539 $ 3,092 $ 3,161 $ 2,429 $ 3,026
Total expenses........................ 4,868 3,728 7,355 1,546 6,791 10,061 4,411 2,778
Net income (loss)..................... (4,079) (2,783) (5,540 ) (1,007 ) (3,699) (6,900) (1,905) 244
Net income (loss) per common share.... (.52) (.36) (.72 ) (.13 ) (.48) (.94) (.35) .05
Weighted average shares outstanding... 7,844 7,739 7,741 7,721 7,695 7,340 5,370 4,774

BALANCE SHEET DATA:
Working capital....................... $ 9,086 $10,503 $12,616 $13,478 $ 9,372 $17,779 $ 4,347 $ 5,837
Total assets.......................... 18,701 24,729 22,006 27,912 29,074 36,515 6,440 8,286
Long-term obligations................. -- -- -- -- -- 4,000 4,000 4,000
Shareholders' equity.................. 17,723 23,941 21,191 26,978 28,118 31,529 1,422 2,182
</TABLE>

32
<PAGE> 43

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

OVERVIEW. Since its inception, the Company has devoted its efforts and
resources primarily to research and development of periodontal products. To
date, the Company has had no revenue from product sales. Substantially all of
the Company's revenue through September 30, 1991 was derived from a research
funding agreement with the Partnership. The Company was elected General Partner
of the Partnership in substitution of Vipont Pharmaceutical, Inc. ("VPI"), in
1990. Under that research funding agreement, the Partnership paid to the Company
an amount equal to research and development costs incurred by the Company
regarding the Perio Product plus an overhead charge of 18.3% of such costs to
cover administrative expenses. The Partnership's funds were exhausted in 1991
and since that date the Company has been funding the continuing research and
development activities related to the Perio Product.

The Company incurred a loss during the year ended December 31, 1994 and
expects to incur additional losses until such time, if ever, as the Company
receives United States regulatory approval or clearance for its products. During
the year ended December 31, 1994, the Company spent approximately $2,765,000 to
continue research and to conduct the clarifying study on the Perio Product. The
Company commenced pivotal Phase III clinical studies on Perio
Product-Doxycycline in January 1995. The Company anticipates that expenses for
the year ending December 31, 1995 will increase as a result of increasing costs
for product development, pre-clinical and clinical testing, regulatory affairs,
initial manufacturing activities, and general and administrative activities
associated with concurrently conducting clinical studies on the Perio Product-
Doxycycline and the ATRISORB(TM) GTR Barrier.

During 1993, the Company changed its year end from September 30 to a year
ending December 31; therefore, the following comparison of results of operations
includes a discussion of the three months ended December 31, 1993 compared to
the three months ended December 31, 1992 and the year ended December 31, 1994
compared to the fiscal year ended September 30, 1993.

THREE MONTHS ENDED JUNE 30, 1995 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1994

Contract revenue represented revenue the Company received from grants and
from unaffiliated third parties for performing contract research and development
activities for the ATRIGEL(TM) system, and was approximately $182,000 for the
three months ended June 30, 1995, compared to approximately $218,000 for the
three months ended June 30, 1994. The decrease in contract revenue was a result
of the Company completing a number of contracts that were in progress in the
prior period, while contracts initiated in the current period have generated
less revenue to date.

Contract revenue from related party represented revenue the Company earned
for the management of the Partnership, and was approximately $3,000 for the
three months ended June 30, 1995 compared to the same amount for the three
months ended June 30, 1994.

Interest income for the three months ended June 30, 1995, was approximately
$282,000 compared to approximately $335,000 for the three months ended June 30,
1994. Interest income decreased due to a reduction in principal investments as a
result of the funds being used in general operations. The majority of the funds
were invested in U.S. government bond funds, long-term U.S. government and
government agency investments. The remaining cash and cash equivalents were
invested in interest bearing cash accounts to meet the Company's short-term
operating needs.

A loss on sale of marketable securities of approximately $43,000 was
recognized in the three month period ended June 30, 1994. There was no loss
recognized in the current quarter because certain bonds matured and provided
adequate funds for current operations. The prior period loss resulted from the
sale of securities, available-for-sale at a time when the bond market had
substantially declined compared to the period when the securities were
purchased. The proceeds from the sale of marketable securities in the prior year
were used to fund normal operations.

33
<PAGE> 44

Research expenses-Perio Product for the three months ended June 30, 1995,
were approximately $1,439,000 compared to approximately $741,000 for the three
months ended June 30, 1994. The increase was due to the commencement of two
Phase III clinical studies in January 1995. Research expenses are anticipated to
increase in subsequent periods as additional expenses for the clinical studies
are incurred.

Research and development expenses included activities for the development
of the ATRISORB(TM) Barrier product and other research activities for the
Company's own benefit. Research and development expenses decreased to
approximately $886,000 during the three months ended June 30, 1995, from
approximately $966,000 for the three months ended June 30, 1994. The decrease
was primarily a result of a reduction of activity in the drug delivery research
area for other applications of the ATRIGEL(TM) system due to the Company's focus
on completing clinical studies related to the periodontal products during the
current year.

Administrative expenses increased to approximately $287,000 during the
three months ended June 30, 1995, from approximately $164,000 for the three
months ended June 30, 1994. The primary reasons for this increase were increased
legal, accounting, and corporate marketing expenses.

The Company recorded a net loss of approximately $2,145,000 for the three
months ended June 30, 1995, compared to a net loss of approximately $1,357,000
for the three months ended June 30, 1994. The current period loss was higher due
to decreased revenues and increased expenses associated with the commencement of
two Phase III clinical studies on the Perio Product, and additional research and
development on the ATRISORB(TM) Barrier product and the ATRIGEL(TM) drug
delivery system.

SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1994

Contract revenue represented revenue the Company received from grants and
from unaffiliated third parties for performing contract research and development
activities for the ATRIGEL(TM) system, and was approximately $239,000 for the
six months ended June 30, 1995, compared to approximately $312,000 for the six
months ended June 30, 1994. The decrease in contract revenue was a result of the
Company completing a number of contracts that were in progress in the prior
period, while contracts initiated in the current period have generated less
revenue to date.

Contract revenue from related party represented revenue the Company earned
for the management of the Partnership, and was approximately $6,000 for the six
months ended June 30, 1995 compared to the same amount for the six months ended
June 30, 1994.

Interest income for the six months ended June 30, 1995, was approximately
$545,000 compared to approximately $691,000 for the six months ended June 30,
1994. Interest income decreased due to a reduction in principal investments as a
result of the funds being used in general operations. The majority of the funds
were invested in U.S. government bond funds, long-term U.S. government and
government agency investments. The remaining cash and cash equivalents were
invested in interest bearing cash accounts to meet the Company's short-term
operating needs.

A loss on sale of marketable securities of approximately $64,000 was
recognized in the six month period ended June 30, 1994. There was no loss
recognized in the current quarter because certain bonds matured and provided
adequate funds for current operations. The prior period loss resulted from the
sale of securities, available-for-sale at a time when the bond market had
substantially declined compared to the period when the securities were
purchased. The proceeds from the sale of marketable securities in the prior year
were used to fund normal operations.

Research expenses-Perio Product for the six months ended June 30, 1995,
were approximately $2,556,000 compared to approximately $1,360,000 for the six
months ended June 30, 1994. The increase was due to the commencement of two
Phase III clinical studies in January 1995. Research expenses are anticipated to
increase in subsequent periods as additional expenses for the clinical studies
are incurred.

34
<PAGE> 45

Research and development expenses included activities for the development
of the ATRISORB(TM) Barrier product and other research activities for the
Company's own benefit. Research and development expenses decreased to
approximately $1,749,000 during the six months ended June 30, 1995, from
approximately $1,963,000 for the six months ended June 30, 1994. The decrease
was primarily a result of a reduction of activity in the drug delivery research
area for other applications of the ATRIGEL(TM) system due to the Company's focus
on completing clinical studies related to the periodontal products during the
current year.

Administrative expenses increased to approximately $563,000 during the six
months ended June 30, 1995, from approximately $404,000 for the six months ended
June 30 1994. The primary reasons for this increase were increased legal,
accounting, and corporate marketing expenses.

The Company recorded a net loss of approximately $4,079,000 for the six
months ended June 30, 1995, compared to a net loss of approximately $2,783,000
for the six months ended June 30, 1994. The current period loss was higher due
to decreased revenues and increased expenses associated with the commencement of
two Phase III clinical studies on the Perio Product, and additional research and
development on the ATRISORB(TM) Barrier product and the ATRIGEL(TM) drug
delivery system.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO
FISCAL YEAR ENDED SEPTEMBER 30, 1993

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

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

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

Research expenses-Perio Product for the year ended December 31, 1994, were
approximately $2,765,000 compared to approximately $2,789,000 for the year ended
September 30, 1993. The slight decrease was due to the change in activity in the
clinical area, specifically the cost associated with completing the clarifying
study in the prior year compared to preparation to begin the pivotal Phase III
clinical studies in the current year. Research expenses are anticipated to
increase in subsequent quarters as additional clinical study expenses are
incurred.

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

35
<PAGE> 46

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

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

THREE MONTHS ENDED DECEMBER 31, 1993
COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1992

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

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

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

Research expenses-Perio Product for the three months ended December 31,
1993, were approximately $541,000 compared to approximately $648,000 for the
three months ended December 31, 1992. The decrease reflects the completion of
the clarifying study during the current quarter.

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

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

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

36
<PAGE> 47

FISCAL YEAR ENDED SEPTEMBER 30, 1993
COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 1992

Contract revenue-other projects represented revenue the Company received
from grants from unaffiliated third parties for performing contract research and
development activities and was approximately $1,037,000 for the year ended
September 30, 1993, compared to approximately $802,000 for the prior period. The
increase in contract revenue for the year ended September 30, 1993 was a result
of the Company engaging in more projects funded by third parties, primarily
related to the ATRIGEL(TM) system.

Contract revenue from related parties represented the reimbursement for
joint development costs from Colgate for the ATRISORB(TM) Barrier product. The
revenue primarily represented 50 percent of the direct costs (plus a 35 percent
overhead charge paid by Colgate) and was approximately $342,000 for the year
ended September 30, 1993 compared to approximately $663,000 for the year ended
September 30, 1992.

Interest income for the year ended September 30, 1993, was approximately
$1,556,000 compared to approximately $1,696,000 for the year ended September 30,
1992. This decrease was primarily due to a reduction in principal investments
resulting from the prepayment of the Senior Note and funds used in general
operations during the past year. The majority of the funds were invested in
mutual funds, long-term U.S. government and government agency investments. The
remaining cash and cash equivalents were invested to meet the Company's short
term operating needs.

Research expenses-Perio Product for the year ended September 30, 1993, were
approximately $2,789,000 compared to approximately $2,431,000 for the prior
year. The increase resulted from the higher expenses incurred as a result of the
clarifying study and performing accelerated statistical analyses on data from
the majority of the subjects.

Research and development expenses were the result of contract research and
development activities for the joint development of the ATRISORB(TM) Barrier
product, unaffiliated third parties, and research and development activities for
the Company's own benefit. Research and development expenses increased to
approximately $3,065,000 during the year ended September 30, 1993, from
approximately $2,129,000 for the prior year. The primary reasons for the
increase were related to higher costs as a result of conducting clinical studies
on the ATRISORB(TM) Barrier product and increased research and development
activities related to the ATRIGEL(TM) system.

Administrative expenses decreased to approximately $937,000 during the year
ended September 30, 1993, from approximately $996,000 for the prior year. The
primary reason for this decrease was due to the Company's maintaining a reduced
accounting and administrative staff and reduced expenses related to shareholder
reporting from the prior year.

The Company recorded a net loss of approximately $3,698,000 for the year
ended September 30, 1993, compared to a net loss of approximately $6,900,000 for
the prior year. The primary reason for the reduction in the loss was that the
loss for the year ended September 30, 1992 reflected a one-time expense of
approximately $4,505,000 for the acquisition of the worldwide patent and
licensing rights to the biodegradable drug delivery technology which is the
basis for the ATRIGEL(TM) delivery system.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 1995, the Company had cash and cash equivalents of
approximately $1,105,000, marketable securities at cost of approximately
$4,664,000, marketable securities available-for-sale of approximately
$3,659,000, and other current assets of approximately $636,000, for total
current assets of approximately $10,064,000. Current liabilities totaled
approximately $978,000, which resulted in working capital of approximately
$9,086,000.

The Company had funds available of approximately $16,566,000 to fund
working capital requirements and capital expenditures. This included
approximately $1,105,000 in cash and cash equivalents, approximately $4,664,000
in marketable securities with a maturity date of less than twelve months from
the current period

37
<PAGE> 48

end, approximately $3,659,000 of marketable securities available-for-sale and
approximately $7,138,000 in marketable securities with a maturity date greater
than twelve months from the current period end.

During the six months ended June 30, 1995, the Company used net cash from
operating activities of approximately $3,895,000. This was primarily a result of
a net loss of approximately $4,079,000, which was increased by prepaid expenses
and inventory. This total cash used was partially offset by changes in other
operating assets, depreciation, amortization and accounts payable. Changes in
other operating assets and liabilities included a decrease in cash for prepaids
of approximately $315,000 due to payments for clinical studies, an increase in
cash for accounts receivable of approximately $74,000 and an increase in cash
for deferred revenue of approximately $88,000.

Net cash provided by investing activities was approximately $2,755,000
during the six months ended June 30, 1995, primarily as a result of the proceeds
from maturities of marketable securities. This was reduced by cash used for the
acquisition of capital equipment and leasehold improvements, investments in
intangible assets, and investments in marketable securities.

Net cash provided from financing activities was approximately $364,000. The
increase was a result of the exercise of stock options by certain directors and
employees.

The Company's long-term capital expenditure requirements will depend on
numerous factors, including the progress of the Company's research and
development programs, the time required to file and process regulatory approval
applications, the development of the Company's commercial manufacturing
facilities, the ability of the Company to obtain additional licensing
arrangements, and the demand for the Company's products, if and when approved.
The Company expended approximately $220,000 for property, equipment and
leasehold improvements, and approximately $55,000 for patent development in the
six month period ending June 30, 1995.

The Partnership has ongoing expenses related to its status as a public
partnership, including the cost of preparing and filing reports required by the
Securities Exchange Act of 1934 and the Internal Revenue Code, and providing
certain communications to the limited partners. It is estimated that the cost of
preparing, filing and mailing the various reports, including an annual audit
will be approximately $30,000. The Partnership has exhausted all cash funds. The
Company has agreed to advance additional funds to the Partnership to pay these
expenses for the Partnership's calendar year ending December 31, 1995. All such
advances will be due and payable, if ever, from the Partnership's share of
royalties and/or proceeds from the sale of the rights to the Perio Product.

As of June 30, 1995, the Partnership had approximately $148,000 in accounts
payable, consisting of management fees owed to the Company, as General Partner,
and trade payables. The Company expensed the amounts owed to the Partnership to
pay general and administrative expenses in accordance with generally accepted
accounting principles for advances to a research and development limited
partnership.

The Company expects to incur substantial expenditures over the next two
years for research and development, testing and regulatory compliance and for
hiring additional management, scientific, manufacturing and administrative
personnel. The Company will use significant funds to undertake any clinical
testing. The Company expects to incur substantial operating losses for the
foreseeable future. Depending on the results of the Company's research and
development activities, the Company may determine to accelerate or expand its
efforts in one or more of its proposed areas and may therefore require
additional funds earlier than presently anticipated. Further, the Company will
require significant additional funds or arrangements with third parties to
commercialize any of its products. The Company will also require substantial
additional funds if it proceeds to manufacture and market any products on a
commercial scale. Such funds will be needed to construct additional facilities
and to hire manufacturing and marketing personnel. There can be no assurance
that additional financing will be available when needed on terms favorable to
the Company.

Management believes that under the current operating plan its existing
capital resources will be sufficient to meet its operating expenses and capital
expenditure requirements through at least 1996. However, as the Company's goal
is to maintain a cash and investment balance sufficient to fund its operating
expenses for at least two years, the Company expects to seek additional capital
through debt and/or equity financings in the

38
<PAGE> 49

next twelve to eighteen months. There can be no assurance that such funds will
be available to the Company on favorable terms, if at all. In addition, the
availability of such funds may be adversely affected by increasing governmental
pressures on the pharmaceutical industry. Management currently has no
commitments or arrangements for raising additional capital. The Company cannot
predict the effect that health care reforms may have on the Company. The
Company's long-term success depends on sales of products that must undergo an
extensive regulatory approval process. There can be no assurance that regulatory
agency approvals will be obtained for any products or drugs developed or
discovered by the Company, or that the Company will be successful in developing
any products or drugs.

THE PARTNERSHIP

GENERAL

The Partnership was organized in August 1987 under the Colorado Partnership
Law. The Partnership was formed to undertake the research, development,
manufacturing and marketing of a treatment for gingivitis and periodontal
disease. Upon its formation, the Partnership entered into the various Agreements
with the Company which pertain to the research and development of, and rights
with respect to, certain therapeutic periodontal treatment products with
sanguinarine. These Agreements are described in more detail below under "-- The
Agreements Between the Partnership and the Company."

The Partnership raised $10,350,000 in gross proceeds from its initial
public offering of Units. After deducting organizational and offering expenses,
including sales commissions, the Partnership used the net offering proceeds of
$8,901,000 for funding for the development of timed-release periodontal pocket
treatment products containing sanguinarine or other benzophenanthridine
alkaloids. Additionally, the General Partner made a capital contribution of
$102,465 for its one (1) percent interest in the Partnership. The Partnership's
funds were exhausted in 1991 and since that date the General Partner has been
funding the continuing research and development activities related to the Perio
Product.

Each Unit originally cost $2,000 and included three factors: a) royalty
payments based on gross sales revenues of the Perio Product-Sanguinarine as
follows: (i) twelve percent of all gross sales revenues until the Partnership
receives $18,000,000; (ii) eight percent of all gross sales revenues thereafter
until the Partnership receives an additional $18,000,000; and (iii) four percent
of all gross sales revenues thereafter until (x) the exercise of the option
contained in the Purchase Option Agreement (as defined herein), (y) the
termination of the Marketing Agreement (as defined herein), or (z) the
termination of the Partnership; b) 125 warrants to purchase 125 shares of the
common stock of VPI, the original general partner of the Partnership, at $15.00
per share any time during the two year period commencing 90 days after the date
of the offering (the "VPI Warrants"); and c) 125 warrants to purchase 125 shares
of the Common Stock of the Company (the "Company Warrants"). The VPI Warrants
and the Company Warrants have expired pursuant to their respective terms.

AGREEMENTS BETWEEN THE PARTNERSHIP AND THE COMPANY

Simultaneously with the formation of the Partnership, the Company entered
into several agreements with the Partnership (collectively, the "Agreements")
dated as of August 5, 1987, which are summarized below:

TECHNOLOGY TRANSFER AGREEMENT. Pursuant to a Technology Transfer
Agreement, the Company granted to the Partnership an exclusive, irrevocable
sublicense to use all technology and related know-how owned by, or previously
licensed to, the Company for the sole purpose of developing the Perio
Product-Sanguinarine. VPI previously had granted to the Company an exclusive,
irrevocable license to use the sanguinaria-related technology previously
acquired or developed by VPI in exchange for the issuance of 3,200,000 shares of
Common Stock to VPI.

RESEARCH AND DEVELOPMENT AGREEMENT. Pursuant to a Research and Development
Agreement, the Company agreed to perform research and development activities for
the Partnership, with the objective of developing, clinically testing and
applying for regulatory approvals to market timed-release periodontal pocket

39
<PAGE> 50

treatment products containing sanguinarine or other benzophenanthridine
alkaloids as the active agent. The Partnership agreed to fund the Company's
research and development activities by reimbursing the Company for all of its
expenses relating to such research, plus a specified percentage of such expenses
for the Company's overhead charges. The Research and Development Agreement
expired on August 5, 1994.

MARKETING AGREEMENT. The Company and the Partnership also entered into a
Marketing Agreement, pursuant to which the Partnership granted to the Company
and any of its Affiliates (as defined therein) the exclusive right, subject to
the conditions discussed below, to manufacture and market the Perio Product-
Sanguinarine on behalf of the Partnership. In exchange for the manufacturing and
marketing rights granted to the Company, the Company was required to pay the
Partnership royalty payments until the earlier of (a) the exercise of the option
contained in the Purchase Option Agreement, described below; (b) the termination
of the Marketing Agreement; or (c) the termination of the Partnership.

If the Company does not begin commercialization of the Perio
Product-Sanguinarine in a country within nine (9) months after the Perio
Product-Sanguinarine has received regulatory approval in such country, then the
Company will have no rights under the Marketing Agreement with regard to such
country, and the Partnership may enter into exclusive agreements with third
parties for the manufacture and sale of the Perio Product-Sanguinarine in such
country. The Marketing Agreement expires on January 1, 2007. See "-- Amendment
to the Agreements."

PURCHASE OPTION AGREEMENT. The Company and the Partnership also entered
into a Purchase Option Agreement, pursuant to which the Partnership granted to
the Company and its Affiliates (as defined therein) an exclusive, irrevocable
option (the "Purchase Option") to purchase all of the Partnership's rights in
and to the Perio Product-Sanguinarine and all Resulting Technology. The option
is exercisable only after the Company had paid to the Partnership, pursuant to
the Marketing Agreement, royalties under the Marketing Agreement aggregating
four times the gross proceeds from the public offering of Units by the
Partnership in 1987 allocated to the development of the Perio
Product-Sanguinarine.

AMENDMENT TO THE AGREEMENTS. At a special meeting of the Limited Partners
of the Partnership held on October 14, 1992, the Limited Partners approved a
proposal to authorize the General Partner to amend the Agreements to permit the
Partnership and the General Partner to share in certain royalties and/or
proceeds from the sale of rights related to the Perio Product. The proposal as
approved, allows the General Partner to share in royalties and/or proceeds from
the sale of rights related to the Perio Product-Sanguinarine and the Partnership
to share in royalties and/or proceeds from the sale of rights related to the
Perio Product with or without an active agent, on a percentage basis
representing the ratio of the total costs, including but not limited to all
costs for testing, development and securing regulatory approval, if ever, of the
Perio Product with or without an active agent to the amount that each party has
contributed. In determining the Partnership's contribution, the General Partner
credited the Partnership with the gross amount raised in the initial public
offering of Units, $10,350,000.

LIMITED PARTNER RIGHTS REGARDING

ROYALTIES OR PROCEEDS FROM THE SALE OF RIGHTS

PERIO PRODUCT CONTAINING SANGUINARINE

Royalty share based upon percent of total funding.

Proceeds from sale of rights shared based upon percent of total funding.
PERIO PRODUCT CONTAINING DOXYCYCLINE OR OTHER ACTIVE AGENT

Royalty share based upon percent of total funding.

Proceeds from sale of rights shared based upon percent of total funding.
PERIO PRODUCT VEHICLE CONTROL CONTAINING NO ACTIVE AGENT

Royalty share based upon percent of total funding.

Proceeds from sale of rights shared based upon percent of total funding.

For further information on the Partnership, see the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1994 which is incorporated
by reference in this Prospectus/Proxy Statement.

40
<PAGE> 51

SELECTED FINANCIAL INFORMATION OF THE PARTNERSHIP

The selected financial information for the five years ended December 31,
1994 presented below are derived from the financial statements of the
Partnership which have been audited and reported upon by Deloitte & Touche LLP,
independent auditors. The selected historical financial information for the six
months ended June 30, 1995 and 1994, are derived from unaudited financial
statements of the Partnership. The Partnership's management believes such
unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments consisting only of
normal recurring adjustments, necessary for a fair presentation of such
financial statements. The selected financial information set forth in the table
below is not necessarily indicative of the results of future operations of the
Partnership and should be read in conjunction with "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE PARTNERSHIP"
and the financial statements of the Partnership, related notes and report of
independent auditors, included herein.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE , YEARS ENDED DECEMBER 31,
------------------- -----------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Research and Development Expenses....... $ 0 $ 0 $ 0 $ 0 $ 0 $ 1,142,328 $ 2,125,288
General and Administrative Expenses..... 16,524 18,147 28,626 35,245 155,640 22,865 22,595
-------- -------- -------- -------- ----------- ----------- -----------
Total Expenses................. 16,524 18,147 28,626 35,245 155,640 1,165,193 2,147,883
-------- -------- -------- -------- ----------- ----------- -----------
Interest Income......................... 0 0 0 0 1,997 8,400 112,241
-------- -------- -------- -------- ----------- ----------- -----------
Net loss................................ $(16,524) $(18,147) $(28,626) $(35,245) $(153,643) $(1,156,793) $(2,035,642)
======== ======== ======== ======== =========== =========== ===========
Net loss per Limited Partnership
Interest.............................. $ (3.16) $ (3.47) $ (5) $ (7) $ (29) $ (221) $ (389)
======== ======== ======== ======== =========== =========== ===========
Total Assets................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 101,404 $ 1,334,197
======== ======== ======== ======== =========== =========== ===========
</TABLE>

41
<PAGE> 52

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

OVERVIEW

The Partnership was formed to undertake the research, development,
manufacturing and marketing of a treatment for gingivitis and periodontal
disease. The Partnership raised $10,350,000 in gross proceeds from its initial
public offering of Units. After deducting organizational and offering expenses,
including sales commissions, the Partnership used the net offering proceeds of
$8,901,000 for funding for the development of timed-release periodontal pocket
treatment products containing sanguinarine or other benzophenanthridine
alkaloids. Additionally, the General Partner made a capital contribution of
$102,465 for its one percent interest in the Partnership. The Partnership's
funds were exhausted in 1991 and since that date the General Partner has been
funding the continuing research and development activities related to the Perio
Product. As a result of the Amendment, the Partnership is not required to pay
any of the future costs for the development of the Perio Product or for filing
for regulatory approval, including an NDA for the same. However, the Partnership
is required to repay the General Partner from royalties or proceeds from the
sale of rights related to the Perio Product for advances made by the General
Partner to the Partnership to pay ongoing general and administrative expenses.
The Partnership will be entitled to share in any royalties or proceeds from the
sale of rights related to a Perio Product with or without an active agent, if
the FDA approves the NDA for the Perio Product and if the Perio Product can be
successfully marketed.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1995 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1994

General and administrative expenses increased to $10,204 for the three
months ended June 30, 1995, from $6,606 during the three months ended June 30,
1994. These expenses included the General Partner's management fee of $1,000 per
month and out-of-pocket administrative expenses of the Partnership including
accounting and legal fees associated with being a public partnership.

Net loss for the three months ended June 30, 1995, was $10,204 compared
with $6,606 for the three months ended June 30, 1994. The net loss is the result
of the Partnership's normal administration expenses related to being a public
partnership. The increase is related to higher expenditures for accounting and
legal fees in the current period as more administrative activities were
completed.

SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1994

General and administrative expenses decreased to $16,524 for the six months
ended June 30, 1995, from $18,147 during the six months ended June 30, 1994.
These expenses included the General Partner's management fee of $1,000 per month
and out-of-pocket administrative expenses of the Partnership including
accounting and legal fees associated with being a public partnership. The
decrease is related to fewer expenditures for accounting and legal fees in the
current period as fewer administrative activities were necessary.

Net loss for the six months ended June 30, 1995, was $16,524 compared with
$18,147 for the six months ended June 30, 1994. The net loss is the result of
the Partnership's normal administration expenses related to being a public
partnership.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1995, the Partnership had no cash or short-term investments.
The funding provided to the General Partner by the Partnership to develop and
test the Perio Product-Sanguinarine was exhausted prior to September 30, 1991.
The Partnership Documents were amended at a Special Meeting held on October 14,
1992, to allow the Partnership and the General Partner to share in royalties or
proceeds from the sale of rights

42
<PAGE> 53

related to the Perio Product. The Partnership and the General Partner will share
the royalties or proceeds related to the Perio Product on a percentage basis,
representing the ratio of the total costs, including but not limited to all
costs for testing, development, and securing regulatory approval, if ever.
Therefore, the Partnership is not required to repay the General Partner funds
previously advanced.

However, the Partnership has ongoing general and administrative expenses
related to its status as a public Partnership; for example, annual reports on
Form 10-K and quarterly reports on Form 10-Q. Further, the Partnership is
required to prepare tax returns and provide certain communications to the
limited partners. It is estimated that the cost of preparing, filing, and
mailing the various reports, including an annual audit, will be approximately
$30,000 for the year ending December 31, 1995. The General Partner has agreed to
advance funds to the Partnership to pay these expenses for the year ending
December 31, 1995, pursuant to Article 4 of the Partnership's Amended and
Restated Agreement of Limited Partnership. Such advances will only be due and
payable, if ever, from the Partnership's share of royalties and/or proceeds from
the sale of rights to the Perio Product.

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

The following unaudited Pro Forma combined balance sheet as of June 30,
1995 gives effect to the Merger as if the Merger had been effective on June 30,
1995. The Pro Forma information is based upon the historical financial
statements for the Company and the Partnership after giving effect to the
adjustments set forth in the accompanying notes to the pro forma balance sheet
using the purchase method of accounting.

A Pro Forma Combined Statement of Operations has not been presented as the
Partnership has no revenues and general and administrative expenses are not
material. General and administrative expenses of the Partnership and resulting
net loss was $16,524 for the six month period ended June 30, 1995 and $28,626
for the year ended December 31, 1994. The expense associated with the allocation
of the value assigned to the net assets acquired from the Partnership and
associated costs of the Merger to research and development expense are one time
charges which will have no continuing impact on the operations of the Company.

43
<PAGE> 54

ATRIX LABORATORIES, INC.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

JUNE 30, 1995

<TABLE>
<CAPTION>
VIPONT
ATRIX ROYALTY
LABORATORIES, INCOME FUND, PRO FORMA PRO FORMA
INC. LTD. ADJUSTMENTS COMBINED
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents............... $ 1,104,707 $ 1,104,707
Marketable Securities, at Cost.......... 11,802,334 11,802,334
Marketable Securities, Available for
Sale.................................. 3,658,812 3,658,812
All Other Assets........................ 2,135,318 2,135,318
------------ --------- ----------- ------------
Total Assets.................. $ 18,701,171 0 0 $ 18,701,171
============ ========= =========== ============
Total Liabilities............. $ 978,121 $ 148,424 $ 300,000(2) $ 1,278,121
(148,424)(3)

Partners' Deficit....................... (148,424) 148,424(3) 0
Shareholders' Equity:
Common Stock.......................... 7,877 543(1) 8,420
Unrealized Holding Loss............... (149,666) -- (149,666)
Additional Paid in Capital............ 40,341,296 3,523,632(1) 43,864,928
Accumulated Deficit................... (22,476,457) (3,824,175)(1) (26,300,632)
------------ --------- ----------- ------------
Total Shareholders' Equity.... 17,723,050 0 (300,000) 17,423,050
------------ --------- ----------- ------------
Total Liabilities and
Shareholders' Equity........ $ 18,701,171 $ 0 $ 0 $ 18,701,171
============ ========= =========== ============
</TABLE>

---------------
(1) Common Stock in the unaudited Pro Forma Combined Balance Sheet has been
adjusted to reflect the par value of the Shares to be issued to the Limited
Partners, with a related adjustment to additional paid in capital. The
associated charge to operations, to expense the value assigned to the net
assets acquired from the Partnership and related expenses of the Merger, is
allocated to research and development expenses and is reflected in the
Company's accumulated deficit balance at June 30, 1995. The aggregate number
of Shares to be issued to the Limited Partners will equal the Assigned Value
of the Partnership as of July 10, 1995, as determined by the General
Partner, divided by the average closing price per share of the Common Stock
taken over the 15 trading days ending on the sixth trading day before the
closing date of the Merger. The price used in the Pro Forma Combined Balance
Sheet is $6.45 per share (the average closing price per share of the Common
Stock assuming the Closing Date was August 4, 1995).

(2) The Pro Forma Combined Balance Sheet reflects adjustments for anticipated
expenses related to the Merger and consist primarily of legal, accounting
and other associated costs. Such costs are the only amounts which would
impact cash flows resulting from the Merger.

(3) Elimination of the Partnership payable to the Company.

44
<PAGE> 55

MARKET INFORMATION

The Company's Common Stock is traded on The Nasdaq Stock Market under the
symbol "ATRX." The following table sets forth the high and low sales prices of
the Common Stock as reported on The Nasdaq Stock Market for the periods
indicated. The prices do not include retail markups, markdowns or commissions.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year ended December 31, 1995:
First Quarter................................................ 7 5 3/8
Second Quarter............................................... 8 1/8 6 1/2
Year ended December 31, 1994:
First Quarter................................................ 9 1/4 5 5/8
Second Quarter............................................... 7 1/4 5 7/8
Third Quarter................................................ 8 3/4 5
Fourth Quarter............................................... 6 1/2 5 1/4
Fiscal Quarter Ended
December 31, 1993............................................ 6 3/4 5 1/8
Year ended September 30, 1993:
First Quarter................................................ 10 1/2 6 1/4
Second Quarter............................................... 10 6 3/4
Third Quarter................................................ 9 3/8 6 1/2
Fourth Quarter............................................... 8 5 3/4
</TABLE>

As of August 10, 1995, there were approximately 3,427 holders of record of
Common Stock.

On August 17, 1995 the day before the proposed Merger was publicly
announced, the last reported sale price of the Common Stock on The Nasdaq Stock
Market was $7.00. On August 10, 1995 the last reported sale price of the Common
Stock was $7.00.

The Company knows of no person or group who owns more than 5% of the
outstanding Shares. Three directors of the Company currently own more than 1% of
the Company's outstanding Shares. The directors and executive officers of the
Company as a group may be deemed to beneficially own approximately 10.99% of the
outstanding Shares as of August 10, 1995. If the Merger is consummated, two
directors, Dr. G. Lee Southard and Mr. John Horan, will be deemed to
beneficially own more that 1% of the outstanding Shares and the ownership
interest of the Company's directors and executive officers as a group will be
approximately 11% of the outstanding Shares. If the Merger is consummated, Dr.
Southard and Mr. Horan will beneficially own approximately 3.34% and 1.55%,
respectively, of the Company's outstanding shares.

The Company has never paid cash dividends. The Company currently
anticipates that it will retain all available funds for use in the operation of
its business and does not anticipate paying any cash dividends in the
foreseeable future.

MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP UNITS

As of August 10, 1995, there were 1,294 holders of record of the
Partnership's Units. There is no public trading market for the Units and it is
not anticipated that a public market for the Units will develop, although the
Units were registered under the Securities Act and certain state securities laws
in a public offering in 1987. As a result, there are no quotations available for
trading of the Units. Transfers of the Units must be made in compliance with
applicable federal and state securities laws and are subject to the restrictions
on transfers set forth in the Partnership Agreement. The Partnership has never
made any distributions to the Limited Partners.

45
<PAGE> 56

THE MEETING

GENERAL

The Meeting of the Limited Partners of the Partnership will be held at the
Marriott Hotel, 350 East Horsetooth, Ft. Collins, Colorado 80525, at 10:00 a.m.
local time, on September 27, 1995. Only Limited Partners holding Units of record
at the close of business on the Record Date will be entitled to vote at the
Meeting on any adjournment thereof. As of the Record Date there were 5,175 Units
outstanding, each of which will be entitled to one vote on each matter properly
submitted to the Limited Partners at the Meeting. The presence, in person or by
proxy, of holders of a majority of the Units entitled to vote at the Meeting
shall constitute a quorum for the transaction of business at the Meeting.

Because many Limited Partners may be unable to attend the Meeting in
person, the General Partner is soliciting proxies by mail to give each Limited
Partner an opportunity to vote on the matters presented at the Meeting. Limited
Partners are urged (i) to read this Prospectus/Proxy Statement carefully, (ii)
to specify their choice of the proposal by marking the appropriate box on the
enclosed proxy card; and (iii) to sign, date and return the proxy card in the
postage paid, return-addressed envelope provided for that purpose.

All Units represented by properly executed Proxies received prior to the
Meeting will be voted at the Meeting in accordance with the instructions marked
thereon or otherwise as provided therein, unless such Proxies have been
previously revoked. Unless instructions to the contrary are marked, Units
represented by Proxies will be voted in favor of the Merger and the adoption of
the related Amendment.

PURPOSE OF THE MEETING

The purpose of the Meeting is to consider and vote upon the proposed Merger
and the adoption of the related Amendments which specifically permit the Merger
and expressly authorize all actions necessary to successfully accomplish the
Merger. See "THE MERGER."

VOTING PROCEDURES

Limited Partners who wish to vote in favor of the Merger and the adoption
of the related Amendments should complete, sign and return the accompanying
proxy card by mail in the postage-paid, return-addressed envelope provided for
that purpose. Each Limited Partner's attention is directed to the Letter of
Instructions accompanying this Prospectus/Proxy Statement.

Limited Partners who sign and return the proxy card without indicating a
vote will be deemed to have voted "FOR" the Merger and the adoption of the
Amendments. Limited Partners who wish to vote "AGAINST" the Merger should also
complete a Proxy card. The failure to return a proxy card or returning it marked
"ABSTAINED" has the effect of, and is equivalent to a "NO" vote.

Votes cast by proxy will be tabulated by the General Partner. Votes cast by
proxy or in person at the Meeting will be counted by the persons appointed by
the General Partner to act as election inspectors for the Meeting. All questions
as to the form of all documents and the validity (including time of receipt) of
all proxies and elections will be determined by the General Partner, which
determination shall be final and binding. The General Partner reserves the
absolute right to waive any defects or irregularities in any approval of the
Merger or preparation of the form of Proxy. The General Partner's interpretation
of the terms and conditions of the Merger will be final and binding. The General
Partner shall be under no duty to give notification of any defects or
irregularities in any approval of the Merger or preparation of the form of Proxy
and shall not incur any liability for failure to give such notification.

VOTE REQUIRED FOR APPROVAL OF THE MERGER AND THE AMENDMENTS

Approval of the Merger and the adoption of the related Amendments requires
the approval of Limited Partners whose aggregate Sharing Ratios exceed 50% which
is the equivalent of an affirmative vote of Limited Partners holding an
aggregate of at least 2,588 Units, which constitutes an majority of the
outstanding Units. The term "Sharing Ratios" is defined in the Partnership
Agreement as the ratio of a Limited Partner's Units

46
<PAGE> 57

to the aggregate number of Units of all Limited Partners and the aggregate
number of Units held by all Limited Partners as of the Record Date was 5,175.
Therefore, approval of the Merger and the adoption of the Amendments requires
the affirmative vote of at least 2,588 Units. Abstentions will have the effect
of a vote against the Merger.

THE AMENDMENTS

The Partnership Agreement does not specifically address the merger of the
Partnership with or into another entity or the conversion of Units to equity
securities. The General Partner therefore proposes to amend the Partnership
Agreement to include specific provisions regarding the Merger and the
transactions related thereto. The Amendments, the form of which are set forth as
Appendix B to this Prospectus/Proxy Statement, specifically permit the Merger
and expressly authorize all actions necessary to successfully accomplish the
Merger, including the merger of the Partnership with and into Atrix, L.P. and
the distribution of Shares of the in connection therewith. Limited Partners
voting in favor of the Partnership's participation in the Merger will also be
deemed to have voted in favor of the adoption of the proposed Amendments. See
"THE MERGER -- Amendments to the Partnership Agreement."

REVOCABILITY

Limited Partners may revoke their proxy at any time before it is exercised
by filing with the General Partner an instrument revoking it, by filing a duly
executed proxy bearing a later date or by attending the Meeting and electing to
vote in person. Any notice of revocation sent to the General Partner must
include the Limited Partner's name and must be received prior to the Meeting to
be effective. Holders of Units that are transferred after a Proxy has been
executed with respect to such Unit, and before the Meeting, may execute a new
Proxy on or before the date of Meeting, and such later Proxy will revoke only
earlier Proxy with respect to the Unit transferred.

NO RIGHT OF APPRAISAL

Limited Partners who vote against or abstain from voting for the Merger
will not be entitled to dissenters' or appraisal rights under the Partnership
Agreement or the Colorado Partnership law. Such rights, when they exist, give
the holders of securities the right to surrender such securities for an
appraised value in cash, if they oppose a merger or similar reorganization. No
such rights will be provided by the Partnership or the Company.

RIGHT TO INSPECT BOOKS AND RECORDS

Under Colorado Partnership law, each Limited Partner has the right, during
ordinary business hours, to inspect and copy at the General Partner's office a
list of the names and addresses of the Limited Partners. The General Partner's
office is located at 2579 Midpoint Drive, Fort Collins, Colorado 80525.

SOLICITATION OF PROXIES; SOLICITATION EXPENSES

The General Partner will bear the entire cost of preparing, assembling,
printing and mailing this Prospectus/Proxy Statement, the accompanying proxy and
any additional material which may be furnished to the Limited Partners in
connection with the Meeting. This solicitation is being made by mail, but may
also be made without additional remuneration by officers, directors or regular
employees of the General Partner by telephone, telegraph, facsimile transmission
or personal interview. The General Partner has retained Cameron Associates, Inc.
to assist in the solicitation of consent from the Limited Partners for a total
fee of approximately $2500. The General Partner will reimburse brokerage firms,
banks, custodians and fiduciaries who hold Units in their name or custody, or in
the name of nominees for others, for their reasonable out-of-pocket expenses
incurred in forwarding copies of the proxy materials to those persons for whom
they hold such Units. To obtain the necessary representation of Limited Partners
at the Meeting, supplementary solicitations may be made by mail, telephone,
telegraph or interview by officers of the Company or selected securities
dealers. It is anticipated that the cost of such supplementary solicitations, if
any, will not be material.

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COMPARISON OF OWNERSHIP OF THE
COMPANY'S SECURITIES AND PARTNERSHIP UNITS

GENERAL

Colorado Partnership Law and the Partnership Agreement govern the rights of
the Limited Partners. If the Merger is completed, Limited Partners will receive
Common Stock. As shareholders of the Company, a Delaware corporation, their
rights will be governed by the Delaware General Corporation Law ("Delaware
DGCL") and the Company's Certificate of Incorporation and Bylaws. The following
summary compares ownership of the Common Stock and Units. The effects are set
forth in italics below the caption headings.

OBJECTIVES AND BUSINESS STRATEGY

The Company. The Company's objectives are to build its business through
the discovery, development, production and marketing of a broad range of
medical, dental and veterinary products based on its proprietary biodegradable
controlled release drug delivery system. The Company intends to make substantial
expenditures to fund proprietary research and development of its products and to
support preclinical and clinical testing necessary for regulatory filings. The
Company's product base is more diversified than that of the Partnership. See
"THE COMPANY." Limited Partners who keep the Common Stock would participate in
any benefits attributable to the Company's more diversified product base. The
Company has no obligation to pay dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. Moreover, unlike the
Partnership, the Company will not be dissolved by any specific date.
Accordingly, holders of the Common Stock must depend on the liquidity of the
securities markets in order to liquidate their investments. Whether these
objectives would benefit Limited Partners as shareholders of the Company will
depend on, among other things, the Company's ability to develop and market
successfully its products and the market risks associated with owning the
Company's securities. See "RISK FACTORS."

The Partnership's current objectives are to receive payments, if any, from
the Company relating to sales of the Perio Product. Under the Partnership
Agreement the Partnership is required to distribute any remaining funds to the
Limited Partners and to liquidate by December 31, 2006, following the
distribution of its assets to the Limited Partners. Whether these objectives
would benefit Limited Partners depends primarily on whether the Company receives
revenues from sales and/or proceeds from sales of the Perio Product.

VOTING RIGHTS

The Company. The Company may issue up to 30,000,000 shares of stock,
including 25,000,000 shares of Common Stock and 5,000,000 shares of preferred
stock. Holders of the Common Stock have one vote per share. The Certificate of
Incorporation prohibits cumulative voting in the election of directors except in
a situation where the Company has become aware that any shareholder has become a
30% shareholder. In such a situation there shall be cumulative voting for
election of directors. These limitations on cumulative voting may make it more
difficult for holders of a relatively few shares of Common Stock to elect
directors.

The Board of Directors may issue preferred stock in one or more series and
specify its rights and restrictions. These rights and restrictions include
dividend rights, dividend rate, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares making up any series or the
designations of the series without any further vote or action by the
shareholders. Such rights and privileges could adversely affect the voting power
of holders of Common Stock. The authority of the Board of Directors to issue
preferred stock without further shareholder approval could hinder a change in
control of the Company.

Partnership. Limited Partners, as holders of Units, have no right to vote
as shareholders of the Company. Limited Partners may vote only on matters
related to the Partnership. Each Limited Partner may vote in proportion to his
interest in the Partnership relative to the interests of all Limited Partners.
Limited Partners whose aggregate Sharing Ratios exceed 50% generally may amend
the Partnership Agreement without the General Partner's consent. See
"-- Amendment of Governing Documents" below. Subject to certain limitations,
Limited Partners whose aggregate Sharing Ratios exceed 50% also may vote to
dissolve the

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Partnership. In addition, Limited Partners whose aggregate Sharing Ratios exceed
50% may vote to remove the General Partner, approve the transfer or assignment
by the General Partner of all or any portion of its interest as a General
Partner and elect one or more additional General Partners.

MANAGEMENT

The Company. Except as otherwise provided in the Delaware GCL and the
Company's Certificate of Incorporation, the Board of Directors manages and
directs the business and affairs of the Company. The Company's Certificate of
Incorporation provides for a board of directors made up of three classes. The
members of each class serve three-year staggered terms with one class to be
elected at each annual meeting. Holders of a majority of shares of stock
entitled to vote may remove any director with or without cause. Based on the
number of shares of the Common Stock the Limited Partners will likely receive if
the Merger is completed, they alone would not be able to cause the removal of
any director of the Company and, thus, their control of management through
management's removal would be substantially reduced. The remaining directors (or
the shareholders if there are no remaining directors) may fill any vacancy on
the Board. Any officer elected or appointed by the Board of Directors may be
removed any time by a majority vote of the Board whenever in its judgment the
best interests of the Company would be served.

Partnership. Limited Partners have no right to manage or supervise the
business of the Partnership. The General Partner alone manages and controls the
business of the Partnership. It receives a $12,000 management fee each year for
its services which is accrued because the Partnership does not have any Funds.
If the Merger is completed, that fee will no longer be payable in the future.
However, if the Merger is not approved, the accrued management fee and ongoing
management fees and expenses will continue to reduce the Partnership's
percentage interest in royalties and/or proceeds from the sale of rights to the
Perio Product.

Limited Partners may remove the General Partner by the vote of Limited
Partners whose aggregate Sharing Ratios exceed 50%. Within 90 days after removal
or withdrawal of the General Partner, the Limited Partners may, by unanimous
written consent, elect to carry on the business of the Partnership and appoint
one or more general partners. If the Limited Partners do not appoint a new
general partner within the 90-day period, the existing General Partner will wind
up the Partnership's affairs and distribute the Partnership's assets.

AMENDMENT OF GOVERNING DOCUMENTS

The Company. Under the Delaware GCL, following a resolution of the Board
of Directors, shareholders may amend the Certificate of Incorporation. Such
action must be taken at a meeting called for that purpose by the Board. In some
cases, such as amendments to increase or decrease the total number of authorized
shares of a class, the holders of that class must vote as a class even though
the class does not vote on other matters.

The holders of a majority of shares entitled to vote may amend or repeal
the Company's Bylaws.

Although there are significant differences in the procedures for amending
the governing documents of the Company and the Partnership, those differences
are primarily due to the form of the entity in question.

Limited Partners whose aggregate Sharing Ratios exceed 50% generally may
amend the Partnership Agreement without the General Partner's consent. Without
the consent of each partner to be adversely affected, no amendment may convert a
Limited Partner into a general partner, modify the limited liability of a
Limited Partner or limit the liability of the General Partner. Also, without the
consent of each partner no amendment may alter the interest of any partner in
profits or losses or in the cash distributions of the Partnership, change the
term of the Partnership, modify the procedure for removing the General Partner,
remove the General Partner or limit its rights and powers, increase the
obligations or responsibilities of any partner or alter the provisions related
to amendment.

SPECIAL MEETINGS OF SHAREHOLDERS AND MEETINGS OF LIMITED PARTNERS

The Company. Under the Delaware GCL and the Company's Bylaws, the chairman
of the Board of Directors, the president or the Board of Directors may call a
special meeting of shareholders. The president

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must call a special meeting at the request of the holders of at least two-thirds
of all the outstanding shares of the Company stock entitled to vote at such
meeting.

Partnership. The General Partner may call a meeting of the Limited
Partners. It also may submit proposed matters to the Limited Partners for action
by their written consent. After receiving a written request from Limited
Partners whose aggregate Sharing Ratios exceed 10%. The General Partner must
submit to a vote of the Limited Partners a particular proposed amendment to the
Partnership Agreement or call a meeting of the Limited Partners. Thus, the right
of Limited Partners to call a special meeting is greater than the corresponding
right of the Company shareholders.

BUSINESS COMBINATIONS, SALES OF ASSETS AND DISSOLUTION

The Company. Under the Delaware GCL, holders of a majority of the
outstanding shares of the Common Stock must approve a merger or consolidation or
a sale, lease or exchange of substantially all of the Company's assets, except
certain mergers in which the Company is the surviving corporation. Under the
Delaware GCL, following a resolution of the Board of Directors, holders of a
majority of shares entitled to vote must approve the Company's dissolution.
Absent Board of Director approval the shareholders can dissolve the Company only
by unanimous written consent. It is, therefore, relatively more difficult for
the Company's shareholders to cause the dissolution of the Company than for
Limited Partners to cause the dissolution of the Partnership.

Partnership. Limited Partners holding a majority of the Units may cause
the Partnership's dissolution if (a) procedures are established by the time of
the vote for the assumption of the Partnership's obligations under agreements in
force just before the vote, (b) an agent has been appointed with such powers as
are necessary for all other parties to those agreements to deal with the agent
as if he were the sole owner of the Partnership's interest and (c) the
procedures and agency relationships are agreed in writing by each other party to
such agreements.

DISSENTERS' OR APPRAISAL RIGHTS

The Company. Under the Delaware GCL, the Company's shareholders may
receive payment of the fair value of their shares if they so demand upon the
submission of a proposed merger or consolidation to shareholders and they follow
certain other procedures. They do not have this right for a sale, lease or
exchange of substantially all of the Company's assets. Shareholders of the
Company have relatively greater rights in connection with certain transactions
than do Limited Partners of the Partnership.

Partnership. Limited Partners have no dissenters' or appraisal rights
under the Colorado Partnership Law or the Partnership Agreement if they object
to the Merger or any other transaction involving the Partnership. If Limited
Partners whose aggregate Sharing Ratios exceed 50% approve the Merger, the
Partnership will merge with and into Atrix, L.P. and the Company Common Stock
will be distributed to all Limited Partners regardless of how they voted on the
Merger.

DISTRIBUTIONS AND DIVIDENDS

The Company. The Company is not required to pay dividends on its Common
Stock and it has never paid any cash dividends. The Company currently
anticipates that it will retain all available funds for use in the operation of
its business and does not anticipate paying any cash dividends in the
foreseeable future. Any dividends will depend on future earnings, the operating
and financial condition of the Company, its capital requirements and general
business conditions. Thus, the Company shareholders must use other means, such
as sales on securities markets, to realize cash from their investment.

Partnership. Generally, the Partnership Agreement allocates Profits and
Losses of the Partnership 1% to the General Partner and 99% to the Limited
Partners. The Limited Partners' share is allocated among them in proportion to
the amounts they contributed to the Partnership. "Profits" and "Losses" are
based on taxable income of the Partnership. The General Partner must distribute
to the Limited Partners 99% of the distributions from the Partnership.

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DUTIES OF THE COMPANY'S DIRECTORS AND THE GENERAL PARTNER

The Company. The Company's directors have fiduciary duties to the Company
and its shareholders. Accordingly, they must act in good faith and in the best
interests of the Company. Courts have permitted shareholders to sue on their own
behalf and on behalf of all other similarly situated shareholders (a class
action) to recover damages to such shareholders' rights caused by a breach of
duty owed to them. Shareholders also may sue for a corporation (a derivative
action) to recover damages from a breach of the directors' fiduciary obligations
to the corporation and its shareholders. Generally, courts will not examine
decisions of corporate directors unless the directors were self-interested,
failed to act with due care and prudence or acted in bad faith.

The Delaware GCL allows a corporation to indemnify persons who were or are
parties or are threatened to be made parties to any suit or proceeding because
these persons are or were directors, officers, employees or agents of the
corporation or were serving, at the request of the corporation, as directors,
officers, employees or agents of another corporation, against all costs
reasonably incurred by them in connection with such suit or proceeding if they
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation. These persons may receive
similar indemnity in connection with an action or suit by or in the right of the
corporation, if these persons acted in good faith and in a manner they believed
to be in or not opposed to the best interests of the corporation, and if further
(unless a court of competent jurisdiction otherwise provides) that these persons
have not been held liable to the corporation.

The Company's Certificate of Incorporation provides that a director shall
not be liable to the Company or its shareholders for monetary damages for a
breach of fiduciary duty as a director, except those arising from (a) a breach
of the director's duty of loyalty, (b) acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of law, (c) the unlawful
payment of dividends or the unlawful purchase or redemption of stock or (d) a
transaction where the director received an improper personal benefit.

Under its Bylaws, the Company must indemnify directors, officers, agents or
employees against expenses incurred in connection with any action, suit or
proceeding brought by a third party or on behalf of the Company if certain
standards are satisfied. The Company must determine that the indemnified parties
acted in good faith and in the best interest of the Company, and had no
reasonable cause to believe their conduct was unlawful and, for an action
brought by or on behalf of the Company, that the indemnified parties have not
been held liable for negligence or misconduct in the performance of their duties
to the Company. To the extent provisions of the Delaware GCL, the Company's
Certificate of Incorporation or its Bylaws purport to indemnify the Company's
directors, officers or other persons against liabilities under the Securities
Act, the Commission believes such indemnification is contrary to public policy
and therefore unenforceable.

The rights of the Company shareholders against management of the Company in
certain circumstances are more limited that the rights of Limited Partners
against the General Partner.

Partnership. The General Partner has fiduciary duties to the Partnership.
Thus, it must exercise good faith and integrity in handling the affairs of the
Partnership. Courts have held that limited partners may bring legal actions on
their own behalf and on behalf of all other similarly situated limited partners
(a class action) to recover damages for a breach by a general partner of its
fiduciary duty to a partnership. Limited partners also may bring a legal action
for a partnership (a partnership derivative action) to recover damages from
third parties. This is a rapidly developing and changing area of the law.

The Partnership must indemnify the General Partner against any loss or
liability and related expenses for any actions performed by the General Partner
on behalf of the Partnership or in furtherance of its interests, provided that
the General Partner determined, in good faith, that (a) the course of conduct
that caused the loss or liability was in the best interests of the Partnership
and (b) such loss or liability was not the result of negligence or misconduct by
the General Partner. To the extent provisions of the Partnership Agreement
purport to indemnify the General Partner against liabilities arising under the
Securities Act, the Commission believes such indemnification is contrary to
public policy and therefore unenforceable.

Upon completion of the Merger, the fiduciary duties of the General Partner
to the Partnership will terminate.

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DURATION

The Company. The Company has perpetual duration and will exist until
affirmatively dissolved by a vote of the shareholders or otherwise. Under the
Delaware GCL, the Company would be continued for at least three years after
dissolution so that its affairs can be wound up, its debts and liabilities
discharged in the order of priority provided by law, and its remaining assets
distributed to its shareholders. Because the Company will not be dissolved by
any specific date, holders of its securities must depend on securities markets
to liquidate their investment.

Partnership. The Partnership will continue until December 31, 2006, unless
sooner dissolved. Upon dissolution of the Partnership, its affairs will be wound
up, its debts and liabilities will be discharged in the order of priority
provided by law, and its remaining assets will be distributed to its partners.

TRANSFERABILITY OF INTERESTS

The Company. The Common Stock to be distributed in the Merger will be
freely transferable. The Common Stock trades on the over-the-counter market in
The Nasdaq Stock Market. Thus, if the Merger is completed, Limited Partners as
security holders of the Company will have greater liquidity.

Partnership. The Partnership Agreement imposes strict limits on transfers
of Units. For example, the assignee must meet certain suitability standards, the
assignee's counsel must deliver an opinion regarding matters specified in the
Partnership Agreement, the assignor must pay reasonable expenses of the
assignment and the General Partner, in its sole discretion, must consent to the
assignment. Further restrictions apply before an assignee can become a Limited
Partner. Federal and state securities laws may impose additional restrictions on
transfers of the Units. There is no trading market for the Units.

INSPECTION OF BOOKS AND RECORDS

The Company. Under the Delaware GCL, a shareholder of record, on written
demand, may inspect and copy for any proper purpose a corporation's stock
ledger, its shareholder list and other books and records. A proper purpose means
a purpose reasonably related to such person's interest as a shareholder. For
example, courts have held that a bad faith purpose, such as mere harassing and
annoying corporate officials, precludes the right of inspection.

Partnership. Under Colorado Partnership Law, a limited partner may inspect
and copy any of certain partnership records. This would include a list of
partners, income tax returns and reports and financial statements for the three
most recent years, the partnership agreement and promissory notes to the
partnership related to contributions owed by limited partners. In addition, a
Limited Partner may get from the General Partner on reasonable demand
information regarding the state of the business and financial condition of the
Partnership and tax returns for each year. The Partnership is required to
furnish specified periodic reports. Thus, the right of Limited Partners to
inspect the books and records of the Partnership is somewhat greater than the
corresponding right of shareholders of the Company.

CONFLICTS OF INTEREST

The Company is the sole general partner of the Partnership. As such, it is
subject to various conflicts of interest in connection with the Merger. The
General Partner has initiated and participated in the structuring of the Merger.

The General Partner has fiduciary duties to the Partnership, in addition to
the specific duties and obligations imposed upon it under the Partnership
Agreement. Subject to the terms of the Partnership Agreement, the General
Partner, in managing the affairs of the Partnership, is expected to exercise
good faith, to use care and prudence and to act with an undivided duty of
loyalty to the Limited Partners. Under these fiduciary duties, the General
Partner is obligated to ensure that the Partnership is treated fairly and
equitably in transactions with third parties, especially where consummation of
such transactions may result in the interests of the General Partner being
opposed to, or not aligned with, the interests of the Limited Partners.

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Accordingly, the General Partner is required to assess whether the Merger is
fair and equitable. After consideration of the terms and conditions of the
Merger, the General Partner has determined that the terms of the Merger are fair
to the Limited Partners. However, due to its conflict of interest in the
transaction the General Partner is not making a recommendation to the Limited
Partners on whether to vote "For" or "Against" the Merger.

The General Partner has initiated and structured the Merger. Because the
General Partner has a financial interest in the consummation of the Merger,
there is an inherent conflict of interest in its structuring the terms and
conditions of the Merger. As a result the manner in which the Merger has been
structured might have been different if structured by persons having no
financial interest in whether or not the Merger proceeded. Certain of the
potential benefits to the General Partner from the Merger, and the inherent
conflicts related thereto, are reviewed below.

LACK OF INDEPENDENT REPRESENTATION. The General Partner has not retained
an independent representative to act on behalf of the Limited Partners or the
Partnership, in designing the overall structure of the Merger. If an independent
representative had been retained for the Partnership, the fees and expenses of
the Merger would have been higher. No group of Limited Partners was empowered to
negotiate the terms and conditions of the Merger or to determine what procedures
should be used to protect the rights and interests of the Limited Partners. In
addition, no investment banker, attorney, financial consultant or expert was
engaged to represent the interests of the Limited Partners. The General Partner
has been the party solely responsible for structuring all the terms and
conditions of the Merger. Legal counsel engaged to assist with the preparation
of the documentation for the Merger, including this Prospectus/Proxy Statement,
was engaged by the General Partner and did not serve, or purport to serve, as
legal counsel for the Partnership or Limited Partners. If an independent
representative had been retained for the Partnership, the terms of the Merger
may have been different and possibly more favorable to the Limited Partners.

RELIEF FROM FUTURE PAYMENTS. The General Partner is obligated to pay the
Partnership a percentage of all royalties and/or proceeds from the sale of
rights related to the Perio Product pursuant to the Agreements. Upon the
consummation of the Merger, the assets of Atrix, L.P. will be distributed to the
General Partner, as the sole limited partner of Atrix, L.P., in complete
liquidation of Atrix, L.P. Subsequently, the General Partner will terminate the
Agreements. As a result the General Partner will be relieved from any payments
which were required under the Agreement.

FEATURES DISCOURAGING POTENTIAL TAKEOVERS. Certain provisions in the
Bylaws, as well as statutory rights under the Delaware GCL, could be used by the
Company's management to delay, discourage or thwart efforts of third parties to
acquire control of, or a significant equity interest in, the Company. See
"COMPARISON OF OWNERSHIP OF THE COMPANY'S SECURITIES AND PARTNERSHIP UNITS."

DESCRIPTION OF COMMON STOCK

COMMON STOCK

The authorized common stock of the Company consists of 25,000,000, $.001
par value per share and as of August 10, 1995, there were 7,743,078 shares of
Common Stock outstanding and held of record by 3,427 shareholders. Holders of
shares of Common Stock are entitled to one vote per share on matters to be voted
upon by the shareholders of the Company. The Certificate provides for cumulative
voting for the election of directors on or after the date on which the Company
becomes aware that any shareholder has become the beneficial owner, directly or
indirectly, of 30% or more of the outstanding shares of capital stock of the
Company entitled to vote generally in the election of directors. No class of the
Company's stock carries with it any preemptive right to subscribe for any
securities of the Company.

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PREFERRED STOCK

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

PROVISIONS WHICH MAY DELAY A CHANGE IN CONTROL OF THE COMPANY

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

TRANSFER AGENT AND REGISTRAR

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

FEDERAL INCOME TAX CONSIDERATIONS

Kutak Rock, counsel for the Company ("Counsel"), has rendered an opinion
regarding the material federal income tax consequences associated with the
Merger and the transactions related thereto, which are summarized in this
section, which may affect Limited Partners who are individuals and citizens or
residents of the United States. The following discussion further briefly
summarizes such issues which may affect certain Limited Partners which are
tax-exempt persons. This summary was prepared by Counsel and is based upon the
Internal Revenue Code (the "Code"), Treasury regulations promulgated or proposed
thereunder and published rulings and court decisions, all of which are subject
to changes which could adversely affect the Limited Partners. Each Limited
Partner should consult his own tax advisor as to the specific consequences of
the proposed Merger, and the transactions related thereto, that may apply to
them. No ruling from the IRS, or from any other taxing authority, will be sought
or obtained as to any of the following tax issues, and, neither the IRS nor the
courts are bound by the discussion set forth below.

OPINIONS OF COUNSEL

Counsel has rendered its opinion to the Company and the Limited Partners
concerning the material federal income tax consequences relating to the Merger
and the related transactions. Subject to the limitations and qualifications
described below, Counsel has opined that the Merger Agreement will be treated as
a sale of assets by the Partnership to which the nonrecognition provisions of
Section 351 of the Code will not apply. In addition, Counsel has rendered its
opinion to the effect that this discussion represents the material federal
income tax consequences associated with the Merger, which may affect Limited
Partners who are individuals and citizens or residents of the United States, to
the extent such discussion describes provisions of the Code or interpretations
thereof. The opinion of Counsel is attached hereto as Appendix C.

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CERTAIN TAX DIFFERENCES BETWEEN THE OWNERSHIP OF UNITS AND SHARES

Limited Partners are treated as limited partners of the Partnership for
federal income tax purposes. The Partnership itself is not subject to taxation,
and instead each Limited Partner is required to take into account his share of
the income or loss of such Partnership, regardless of whether any cash is
distributed to him. Upon consummation of the Merger the Limited Partners will
receive Shares in liquidation of the Partnership.

The Company is generally subject to tax on its income without regard to the
dividends, if any, which it distributes. In addition, the ownership of Shares
pursuant to the Merger will affect the character and amount of income reportable
by the shareholders in the future. Currently, as the owners of Units in the
Partnership, Limited Partners must take into account their distributive shares
of all income, loss and separately stated Partnership items, regardless of the
amount of any distributions of cash to such Limited Partners. That information
is supplied to each Limited Partner annually on a Schedule K-1. The character of
the income recognized by partners is dependent upon the assets and activities of
the Partnership and may, in some circumstances, be treated as passive income.

In contrast to the treatment of partners, shareholders of the Company will
be taxed based on the amount of distributions received from the Company. Each
shareholder will receive a Form 1099-DIV reporting the amount, if any, of
taxable and nontaxable distributions paid to him or her during the preceding
year. The taxable portion of such distributions depends on the amount of the
Company's earnings and profits. In addition, the Company may be required to use
a different method of depreciation or amortization than that used by the
Partnerships with respect to properties transferred to the Company. Accordingly,
under certain circumstances, even if the Company were to make the same level of
distributions as the Partnership, a larger portion of such distributions by the
Company could constitute taxable income as compared to the distributions of such
Partnership. In addition, the character of this income to shareholders is not
dependent on its character to the Company, and is generally ordinary dividend
income to the shareholders and is classified as portfolio income under the
passive loss rules. Furthermore, should the Company incur a taxable loss, such
loss will not be passed through to the Stockholders. See "-- Taxation of Taxable
Domestic Stockholders."

TAX CONSEQUENCES OF THE MERGER

In connection with the Merger, the assets (and any liabilities) of the
Partnership will be transferred to the Company in return for Shares. The
Partnership will then immediately liquidate and distribute such property to the
Limited Partners. Each Limited Partner will be required to recognize a share of
the income or loss, subject to the limits described below, recognized by the
Partnership, including gain or loss recognized as a result of the transfer of
properties pursuant to the Merger. In the opinion of Kutak Rock, counsel to the
Company, the Merger will constitute a taxable exchange of the Shares for the
assets of the Partnership.

Under the Code, an individual or entity cannot transfer its assets on a
tax-free basis to a corporation unless immediately after the exchange the
transferors own at least 80% of the stock of the transferee corporation. The
number of Shares issued in connection with the Merger, even if aggregated with
other Shares owned by the Limited Partners, would not be sufficient to satisfy
such requirement. Accordingly, the transfer of assets (and any liabilities) in
connection with the Merger will result in recognition of gain or loss by the
Partnership, a share of which must be taken into account by each Limited
Partner.

The overall amount of gain or loss recognized by the Partnership will equal
the difference between (i) the sum of the fair market values of the Shares, plus
the amount of any liabilities of the Partnership, if any, assumed by the Company
and (ii) the adjusted basis of the assets exchanged therefor. The amount of gain
or loss recognized by the Partnership as a result of the Merger will be
allocated among its partners in accordance with the terms of the Partnership
Agreement. Each Limited Partner will take into account his share of such gain or
loss regardless of whether he voted in favor of the Merger.

The Partnership has furnished information to the Company regarding the
basis of the Partnership's assets. Assuming that such information is accurate,
the Partnership will recognize substantial losses as a result of the Merger.
Under Code Section 267(a), a loss may not be deducted in connection with a sale
or exchange between related parties even though the loss is realized for tax
purposes. The Partnership would be treated as a

55
<PAGE> 66

related party to the Company if the Limited Partners own directly or
constructively more than 50% of the Shares of the Company. The application of
the constructive ownership rules of Section 267 to the Limited Partners will
depend on facts peculiar to each Limited Partner. Therefore, Counsel is unable
to conclude with certainty that Section 267 would not apply to any particular
Limited Partner. Counsel does not believe, however, that the foregoing
provisions will have a material effect on the Limited Partners.

The Partnership has not made an election under Section 754 of the Code.
This election, if made, would permit the Partnership to adjust the basis of its
assets to reflect the price paid by purchase of Units. Accordingly, the amount
of gain or loss recognized by the Partnership as a result of the Merger will be
determined solely by reference to the basis of its assets and not by the
purchase price paid by any Limited Partner for his Units. Each Limited Partner's
gain or loss in connection with the Merger will be determined by reference to
the basis of the Partnership in its underlying assets rather than by reference
to the basis of his or her Units. However, as described in greater detail below,
the basis which each Limited Partner will take in Shares received as a result of
the Merger will equal the Limited Partner's basis in his Units, adjusted to
reflect any gain or loss allocated to him from the Partnership as a result of
the Merger.

Gains or losses realized with respect to transfers in the Merger will be
treated as realized from the sale of a capital asset within the meaning of
Section 1221 of the Code. Capital losses may be used first to offset capital
gains. Capital losses in excess of capital gains will be deductible in an amount
not to exceed $3,000 per year by taxpayers who are individuals. Amounts in
excess of the $3,000 limitation may be carried forward and deducted in
subsequent taxable years because the limits on the deductibility of losses
applies to all capital losses recognized or carried forward to a particular
taxable year, each Limited Partner should consult his own tax advisor concerning
the deductibility of losses to be recognized as a result of the Merger.

Under Section 469 of the Code, individuals may not deduct passive losses in
excess of their passive income. Any losses suspended as a result of this
limitation may be deducted in full if the taxpayer disposes of his or her entire
interest in the passive activity in a fully taxable transaction to an unrelated
person. The Merger will constitute a fully taxable transaction and as a result
Limited Partners will be entitled to deduct any suspended passive losses
attributable to the Partnership.

The Merger will not result in the recognition of material unrelated
business taxable income ("UBTI") by any tax-exempt Limited Partner which does
not hold Units in the Partnership either as a "dealer" or as debt-financed
property within the meaning of Section 514, and is not an organization described
in Code Section 501(c)(7) (social clubs), 501(c)(9) (voluntary employees'
beneficiary associations), 501(c)(17) (supplemental unemployment benefit trusts)
or 501(c)(20) (qualified group legal services plans). The four classes of exempt
organizations noted in the previous sentence may recognize gain or loss on the
Merger.

Upon consummation of the Merger, the Partnership will be deemed to have
liquidated and distributed Shares, to its Limited Partners. The taxable year of
the Partnership will end at such time and each Limited Partner in the
Partnership must report, in his taxable year that includes the Merger, his share
of all income, gain, loss, deduction and credit for such Partnership through the
date of the Merger (including gain or loss resulting from the Merger described
above). Each Limited Partner whose taxable year is not a calendar year could be
required to take into income in a single taxable year his share of income of the
Partnership attributable to more than one of its taxable years.

The Shares will be distributed among the Limited Partners in a manner which
will be on a pro rata basis based on their respective capital account balances
adjusted to reflect the transaction contemplated by the Merger Agreement. The
Limited Partners will not be required to recognize gain as a result of the
distribution of Shares in liquidation of the Partnership. A shareholder's basis
in the Shares received in the Merger will equal the basis in his or her Units
adjusted by his or her distributive share of income, gain, loss, deduction and
credit for the final taxable year of the Partnership as well as distributions
received in such final taxable year (other than the distribution of the Shares).
A shareholder's holding period for the Shares for purposes of determining
capital gain or loss will begin on the date of the Merger.

The Company will not recognize gain or loss as a result of the Merger. The
Company will have a holding period in the acquired assets which begins on the
Closing Date. The basis of the assets received by the

56
<PAGE> 67

Company from the Partnership will equal the fair market values of the Shares
issued in the Merger, plus the amount of any liabilities of the Partnership, if
any, assumed by the Company.

TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS

Distributions made by the Company to its taxable shareholders out of
current or accumulated earnings and profits will be taken into account by them
as ordinary income and will be treated as dividends. Shareholders who are
individuals will be required to include such dividends in income in full.
Distributions in excess of current and accumulated earnings and profits will not
be taxable to a shareholder to the extent that they do not exceed the adjusted
basis of the shareholder's Shares, but rather will reduce the adjusted basis of
such Shares. To the extent that such distributions exceed the adjusted basis of
a Shareholder's Shares they will be included in income as long-term capital gain
(or short-term capital gain if the Shares have been held for one year or less)
assuming the Shares are a capital asset in the hands of the Shareholder.

Shareholders which are corporations may exclude from income 70% (or in
certain limited cases 80%) of dividends. Such exclusion will not apply if a
corporate shareholder has not held the shares on which dividends are paid for at
least 45 days or if the corporate shareholder is under an obligation to make
related payments with respect to positions in substantially similar property.
The holding period of stock for purposes of this provision will be reduced by
periods during which the taxpayer has an option or obligation to sell such stock
or has otherwise reduced the risks of ownership of such stock.

BACKUP WITHHOLDING

The Company will report to its domestic shareholders and the IRS the amount
of dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless such holder
(a) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or (b) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding rules.
A shareholder that does not provide the Company with his correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the shareholder's
income tax liability.

TAXATION OF TAX-EXEMPT SHAREHOLDERS

Under Section 512 of the Code shareholders which are tax-exempt persons may
exclude dividends from the computation of UBTI, unless the Shares are subject to
acquisition indebtedness. Such shareholders may further exclude from the
calculation of UBTI any capital gain recognized on the sale of its property,
unless such property is subject to acquisition indebtedness. Acquisition
indebtedness includes debt incurred to purchase property, such as the Shares,
and certain debt incurred either before or after the acquisition of such
property.

STATE TAX CONSEQUENCES AND WITHHOLDING

The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. The Company does not believe, however, that Limited Partners
will be required to file state tax returns, other than in their respective
states of residence, as a result of the ownership of Shares. Consequently,
prospective shareholders should consult their own tax advisors regarding the
effect of state and local tax laws on the Merger and an investment in the
Company.

57
<PAGE> 68

LEGAL MATTERS

Certain legal matters relating to the Common Stock to be offered hereby
will be passed upon for the Company by Kutak Rock, 717 Seventeenth Street, Suite
2900, Denver, Colorado 80202.

EXPERTS

The financial statements of the Company as of December 31, 1994 and
September 30, 1993 and for the year ended December 31, 1994, the three months
ended December 31, 1993 and the years ended September 30, 1993 and September 30,
1992, and of the Partnership as of December 31, 1994 and 1993 and for the three
years ended December 31, 1994, included in this Prospectus/Proxy Statement, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.

58
<PAGE> 69

GLOSSARY OF TERMS

Certain capitalized terms used in this Prospectus/Proxy Statement shall
have the following meanings unless the context otherwise requires:

"Amendments" means the proposed amendments to the Partnership Agreement to
be adopted by the Limited Partners in connection with the Merger as set forth in
Appendix B.

"Assigned Value" means net asset value of the Partnership as of July 10,
1995 as determined by the Company.

"Atrix, L.P." means a Colorado limited partnership which will be formed
immediately prior to the Merger. The Company will be the sole limited partner of
Atrix, L.P.

"AtrixSub" means a Colorado corporation which will be a wholly owned
subsidiary of the Company and which will formed by the Company prior to the
Merger to serve as the sole general partner of Atrix, L.P.

"Bylaws" means the bylaws of the Company, as in effect from time to time.

"Certificate of Incorporation" means the certificate of incorporation of
the Company, as in effect from time to time.

"Closing Date" means the date on which the Merger is to be consummated.

"Code" means the Internal Revenue Code of 1986, as amended, including
successor statutes thereto.

"Colorado Partnership Law" means the Colorado Uniform Limited Partnership
Act of 1981, as amended.

"Common Stock" means the $.001 par value common stock of the Company.

"Company" or "General Partner" means Atrix Laboratories, Inc., a Delaware
corporation and the general partner of the Partnership.

"Counsel" means Kutak Rock, a partnership including professional
corporations, which has served as counsel to the Company in the preparation of
the Merger.

"Delaware GCL" means the Delaware General Corporation Law, as may be
amended from time to time.

"Effective Time" means the time at which the Partnership will be merged
with and into Atrix, L.P. in accordance with the Merger Agreement.

"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations promulgated thereunder.

"FDA" means the United States Food and Drug Administration, the U.S.
government agency responsible for the drug approval process.

"General Partner" means the Company.

"IRS" means the Internal Revenue Service.

"Letter of Instructions" means the letter of instructions to the Limited
Partners accompanying the Proxy Card and pertaining to the method of voting with
respect to the Merger and related issues.

"Limited Partner" means a limited partner of the Partnership.

"Meeting" means the Special Meeting of Limited Partners of the Partnership
to be held on September 27, 1995.

"Merger" means the merger of the Partnership with and into Atrix, L.P.
pursuant to the terms and conditions set forth in the Merger Agreement, as more
fully described in the Prospectus/Proxy Statement.

"Merger Agreement" means the Agreement and Plan of Merger among the
Company, the Partnership and Atrix, L.P., pursuant to which the Merger of the
Partnership and Atrix, L.P. is to be consummated.

59
<PAGE> 70

"Organizational Documents" means the Certificate of Incorporation and
Bylaws.

"Partnership Agreement" means the amended and restated certificates and
agreement of limited partnership of the Partnership.

"Partnership" means Vipont Royalty Income Fund, Ltd., a Colorado limited
partnership

"Person" means an individual, partnership, corporation, trust or other
entity.

"Prospectus/Proxy Statement" means this Prospectus/Proxy Statement,
together with the supplements and appendices thereto, filed with the SEC as it
may be further supplemented or amended from time to time.

"Record Date" means August 21, 1995.

"Registration Statement" means the Registration Statement on Form S-4,
Registration No. 33- , as filed with the SEC by the Company under the
Securities Act to register the offering and sale of Shares pursuant to the
Merger as the same may be amended or supplemented from time to time.

"SEC" means the United States Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

"Shares" means shares of the $.001 par value Common Stock proposed to be
exchanged for the Units in connection with the Merger.

"Shareholder" means a holder of Shares of the Company.

"Sharing Ratios" means the ratio of a Limited Partner's Units to the
aggregate number of Units of all Limited Partners.

"State" means any state of the United States of America, and the District
of Columbia.

"Unit" means a beneficial ownership of a limited partner interest in the
Partnership.

"VPI" means Vipont Pharmaceuticals, Inc.

60
<PAGE> 71

INDEX TO FINANCIAL STATEMENTS

ATRIX LABORATORIES, INC.

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS:
REPORT OF INDEPENDENT AUDITORS........................................................ F-2
BALANCE SHEETS -- December 31, 1994 and September 30, 1993.......................... F-3
STATEMENTS OF OPERATIONS -- Year Ended December 31, 1994, Three Months Ended
December 31, 1993, and Years Ended September 30, 1993, and 1992.................. F-4
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY -- Year Ended December 31, 1994, Three
Months Ended December 31, 1993, and Years Ended September 30, 1993 and 1992...... F-5
STATEMENTS OF CASH FLOWS -- Year Ended December 31, 1994, Three Months Ended
December 31, 1993, and Years Ended September 30, 1993, and 1992.................. F-6
NOTES TO THE FINANCIAL STATEMENTS -- For Year Ended December 31, 1994, Three Months
Ended December 31, 1993, and Years Ended September 30, 1993 and 1992............. F-7
UNAUDITED FINANCIAL STATEMENTS:
BALANCE SHEETS -- June 30, 1995 and December 31, 1994............................... F-14
STATEMENTS OF OPERATIONS -- For the Three Months Ended June 30, 1995 and 1994....... F-15
STATEMENTS OF OPERATIONS -- For the Six Months Ended June 30, 1995 and 1994......... F-16
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY -- For the Six Months Ended June 30,
1995............................................................................. F-17
STATEMENTS OF CASH FLOWS -- For the Six Months Ended June 30, 1995 and 1994......... F-18
NOTES TO FINANCIAL STATEMENTS -- For the Six Months Ended June 30, 1995 and 1994.... F-19
VIPONT ROYALTY INCOME FUND, LTD.
AUDITED FINANCIAL STATEMENTS:
REPORT OF INDEPENDENT AUDITORS........................................................ F-20
BALANCE SHEETS -- December 31, 1994 and 1993........................................ F-21
STATEMENTS OF OPERATIONS -- Years Ended December 31, 1994, 1993 and 1992............ F-22
STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT) -- Years Ended December 31,
1994, 1993 and 1992.............................................................. F-23
STATEMENTS OF CASH FLOWS -- Years Ended December 31, 1994, 1993 and 1992............ F-24
NOTES TO FINANCIAL STATEMENTS -- For the Years Ended December 31, 1994, 1993 and
1992............................................................................. F-25
UNAUDITED FINANCIAL STATEMENTS:
BALANCE SHEETS -- June 30, 1995 and December 31, 1994............................... F-27
STATEMENTS OF OPERATIONS -- For the Three Months Ended June 30, 1995 and 1994....... F-28
STATEMENTS OF OPERATIONS -- For the Six Months Ended June 30, 1995 and 1994......... F-29
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT -- For the Six Months Ended June 30,
1995............................................................................. F-30
STATEMENTS OF CASH FLOWS -- For the Six Months Ended June 30, 1995 and 1994......... F-31
NOTES TO FINANCIAL STATEMENTS -- For the Six Months Ended June 30, 1995 and 1994.... F-32
</TABLE>

F-1
<PAGE> 72

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
Atrix Laboratories, Inc.
Fort Collins, Colorado

We have audited the accompanying balance sheets of Atrix Laboratories, Inc.
(the "Company") as of December 31, 1994 and September 30, 1993, and the related
statements of operations, changes in shareholders' equity and cash flows for the
year ended December 31, 1994, the three months ended December 31, 1993, and the
years ended September 30, 1993 and 1992. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1994 and
September 30, 1993, and the results of its operations and its cash flows for the
year ended December 31, 1994, the three months ended December 31, 1993, and the
years ended September 30, 1993 and 1992, in conformity with generally accepted
accounting principles.

/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
January 25, 1995

F-2
<PAGE> 73

ATRIX LABORATORIES, INC.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1993
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................... $ 1,880,275 $ 1,520,917
Marketable securities, at cost (Note 2)..................... 7,896,827 --
Marketable securities available-for-sale (Note 2)........... 3,300,894 8,369,435
Accounts receivable......................................... 93,469 19,695
Interest receivable......................................... 140,848 308,879
Prepaid expenses and deposits............................... 119,102 108,599
----------- -----------
Total current assets................................ 13,431,415 10,327,525
----------- -----------
MARKETABLE SECURITIES, AT COST (Note 2)....................... 7,172,095 17,446,683
----------- -----------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures........................... 1,276,895 920,494
Leasehold improvements...................................... 368,851 339,866
----------- -----------
Total............................................... 1,645,746 1,260,360
Accumulated depreciation and amortization................... (771,274) (433,012)
----------- -----------
Property and equipment, net......................... 874,472 827,348
----------- -----------
OTHER ASSETS:
Intangible assets, net of accumulated amortization of
$37,065 and $21,541...................................... 527,640 472,823
----------- -----------
TOTAL......................................................... $ 22,005,622 $ 29,074,379
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable -- trade (Notes 3 and 6)................... $ 481,267 $ 389,480
Accrued salaries and payroll taxes.......................... 63,000 52,233
Other accrued liabilities (Note 9).......................... 195,815 234,256
Deferred revenue............................................ 75,000 280,000
----------- -----------
Total current liabilities........................... 815,082 955,969
----------- -----------
SHAREHOLDERS' EQUITY: (Note 4)
Preferred stock $.001 par value; authorized 5,000,000
shares,
none issued or outstanding
Common stock $.001 par value; authorized 25,000,000 shares;
7,743,078 and 7,721,023 shares issued and outstanding.... 7,743 7,721
Unrealized holding gain (loss) on securities
available-for-sale (Note 2).............................. (396,965) 59,634
Additional paid-in capital.................................. 39,977,455 39,902,248
Accumulated deficit......................................... (18,397,693) (11,851,193)
----------- -----------
Total shareholders' equity.......................... 21,190,540 28,118,410
----------- -----------
TOTAL......................................................... $ 22,005,622 $ 29,074,379
=========== ===========
</TABLE>

See notes to financial statements.

F-3
<PAGE> 74

ATRIX LABORATORIES, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1993 1992
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
REVENUE:
Contract revenue (Note 7)................. $ 701,112 $ 162,209 $ 1,036,514 $ 802,411
Contract revenue from related party (Notes
6 and 7)............................... 12,000 3,000 341,924 663,018
Interest income........................... 1,320,258 373,930 1,556,187 1,695,719
(Loss) gain on sale of securities......... (218,043) -- 157,681 --
----------- ----------- ----------- -----------
Total revenue..................... 1,815,327 539,139 3,092,306 3,161,148
----------- ----------- ----------- -----------

EXPENSES:
Research expenses-Perio Product........... 2,764,587 540,512 2,788,787 2,430,666
Research and development.................. 3,902,480 841,849 3,064,702 2,129,365
Acquisition of technology (Note 5)........ -- -- -- 4,505,399
Administrative expenses................... 688,122 163,416 937,035 995,954
----------- ----------- ----------- -----------
Total expenses.................... 7,355,189 1,545,777 6,790,524 10,061,384
----------- ----------- ----------- -----------

NET LOSS.................................... $ (5,539,862) $ (1,006,638) $ (3,698,218) $ (6,900,236)
=========== =========== =========== ===========

NET LOSS PER COMMON SHARE................... $ (.72) $ (.13) $ (.48) $ (.94)
=========== =========== =========== ===========

WEIGHTED AVERAGE SHARES OUTSTANDING......... 7,740,981 7,721,023 7,695,164 7,340,088
=========== =========== =========== ===========
</TABLE>

See notes to financial statements.

F-4
<PAGE> 75

ATRIX LABORATORIES, INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK ADDITIONAL HOLDING RETAINED TOTAL
------------------- PAID-IN GAIN EARNINGS SHAREHOLDERS'
SHARES AMOUNT CAPITAL (LOSS) DEFICIT EQUITY
---------- ------ ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1991.................... 5,478,356 $5,478 $ 2,669,601 $ -- $ (1,252,739) $ 1,422,340
---------- ------ ----------- --------- ----------- -----------
Exercise of employee stock options............. 23,011 23 16,683 -- -- 16,706
Issuance of common stock for warrants.......... 5,000 5 24,995 -- -- 25,000
Issuance of common stock for cash (net of
underwriting and offering costs)............. 2,000,000 2,000 34,665,841 -- -- 34,667,841
Acquisition of technology...................... 120,889 121 2,296,770 -- 2,296,891
Net loss for the year.......................... -- -- -- -- (6,900,236) (6,900,236)
---------- ------ ----------- --------- ----------- -----------

BALANCE, SEPTEMBER 30, 1992.................... 7,627,256 $7,627 $39,673,890 $ -- $ (8,152,975) $31,528,542
---------- ------ ----------- --------- ----------- -----------
Exercise of employee stock options............. 89,917 90 209,113 -- -- 209,203
Issuance of common stock for warrants.......... 3,850 4 19,245 -- -- 19,249
Unrealized holding gain........................ -- -- -- 59,634 -- 59,634
Net loss for the year.......................... -- -- -- -- (3,698,218) (3,698,218)
---------- ------ ----------- --------- ----------- -----------

BALANCE, SEPTEMBER 30, 1993.................... 7,721,023 $7,721 $39,902,248 $ 59,634 $(11,851,193) $28,118,410
---------- ------ ----------- --------- ----------- -----------
Unrealized holding loss........................ -- -- -- (133,637) -- (133,637)
Net Loss for the Period........................ -- -- -- -- (1,006,638) (1,006,638)
---------- ------ ----------- --------- ----------- -----------

BALANCE, DECEMBER 31, 1993..................... 7,721,023 $7,721 $39,902,248 $ (74,003) $(12,857,831) $26,978,135
---------- ------ ----------- --------- ----------- -----------
Exercise of employee stock options............. 14,080 14 35,340 -- -- 35,354
Issuance of common stock for warrants.......... 7,975 8 39,867 -- -- 39,875
Unrealized holding loss........................ -- -- -- (322,962) (322,962)
Net loss for the year.......................... -- -- -- -- (5,539,862) (5,539,862)
---------- ------ ----------- --------- ----------- -----------

BALANCE, DECEMBER 31, 1994..................... 7,743,078 $7,743 $39,977,455 $ (396,965) $(18,397,693) $21,190,540
========== ====== =========== ========= =========== ===========
</TABLE>

See notes to financial statements.

F-5
<PAGE> 76

ATRIX LABORATORIES, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1993 1992
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................... $(5,539,862 ) $(1,006,638 ) $(3,698,218) $(6,900,236)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation............................. 277,075 61,187 215,825 155,210
Amortization of patents.................. 13,632 1,890 6,896 4,006
Write-off of patent costs................ 134,380 -- 69,038 29,977
Amortization of bond premiums............ 360,763 157,798 367,544 197,444
Loss (Gain) on sale of marketable
securities............................. 218,043 -- (157,681) --
Acquisition of technology through
issuance of common stock............... -- -- -- 2,296,891
Net changes in current assets and
liabilities:
Accounts receivable...................... (62,176 ) (11,598 ) (74,433) (342,414)
Interest receivable...................... 17,035 150,996 244,661 (507,266)
Income tax refund receivable............. -- -- 112,492 --
Prepaid expenses and deposits............ 43,199 (53,702 ) 72,205 (106,866)
Advance from related party............... -- -- -- (5,150)
Accounts payable -- trade................ (18,134 ) 109,921 92,903 (600,048)
Accrued salaries and payroll taxes....... 10,412 355 8,116 2,296
Other accrued liabilities................ (32,106 ) (6,335 ) 20,576 158,701
Deferred revenue......................... (79,357 ) (125,643 ) (151,865) 412,365
----------- ----------- ----------- -----------
Net cash used in operating
activities........................ (4,657,096 ) (721,769 ) (2,871,941) (5,205,090)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment, furniture and
fixtures................................. (312,294 ) (43,053 ) (231,475) (238,683)
Acquisition of leasehold improvements...... (27,055 ) (2,983 ) -- (103,803)
Investments in intangible assets........... (157,829 ) (46,893 ) (184,291) (172,693)
Proceeds from maturities of marketable
securities............................... 5,000,000 -- 12,934,404 --
Proceeds from sale of marketable securities
available-for-sale....................... 4,848,194 -- 11,314,120 --
Investment in marketable securities........ (3,478,191 ) (116,902 ) (19,522,350) (30,889,965)
----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities.............. 5,872,825 (209,831 ) 4,310,408 (31,405,144)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Prepayment of long-term borrowing from
related party............................ -- -- (3,586,272) --
Proceeds from issuance of common stock and
exercise of employee stock options....... 75,229 -- 228,452 34,934,547
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities.............. 75,229 -- (3,357,820) 34,934,547
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ 1,290,958 (931,600 ) (1,919,353) (1,675,687)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD..................................... 589,317 1,520,917 3,440,270 5,115,957
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD..... $ 1,880,275 $ 589,317 $ 1,520,917 $ 3,440,270
=========== =========== =========== ===========
</TABLE>

See notes to financial statements.

F-6
<PAGE> 77

ATRIX LABORATORIES, INC.

NOTES TO THE FINANCIAL STATEMENTS

FOR YEAR ENDED DECEMBER 31, 1994, THREE MONTHS ENDED DECEMBER 31, 1993,
AND YEARS ENDED SEPTEMBER 30, 1993 AND 1992

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Atrix Laboratories, Inc. (the "Company") was incorporated in 1986 to
conduct research and development activities. All of its products are in either
the research, development, or clinical stage.

Cash and cash equivalents

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

Change in fiscal year end

The Company changed its year end from September 30 to a calendar year
ending December 31; therefore, statements of operations, changes in
shareholders' equity and cash flows are presented for the year ended December
31, 1994, the three month period ended December 31, 1993, and the years ended
September 30, 1993 and 1992. The balance sheets are presented as of December 31,
1994 and September 30, 1993.

Investments

Investments in marketable securities are stated at the amortized cost at
the balance sheet date. The Company has the ability and intent to hold such
securities to maturity. Premiums and discounts associated with bonds are
amortized using the effective interest rate method. At December 31, 1994 and
September 30, 1993, securities available-for-sale are carried at fair value with
the unrealized holding gain or loss included in shareholders' equity.

Property and Equipment

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

Betterments, renewals and extraordinary repairs that extend the life of an
asset are capitalized; other repairs and maintenance are expensed. Repairs and
maintenance expense was $72,865, $14,696, $66,375 and $54,107 for the year ended
December 31, 1994, the three months ended December 31, 1993, and the years ended
September 30, 1993 and 1992 respectively.

Intangible assets

Certain technology rights acquired from the Company's former parent, Vipont
Pharmaceutical, Inc. ("VPI"), a wholly owned subsidiary of Colgate-Palmolive
Company ("Colgate"), were transferred at cost less accumulated amortization and
are being amortized on a straight-line basis over their estimated useful lives.
Also included in intangible assets are the legal costs incurred to obtain
patents. Upon receiving a determination that the Company's claims have been
approved, these costs are amortized over the patent's estimated useful life
commencing with the approval of the patent. Costs associated with patents are
expensed upon the determination that such costs are not recoverable.

Revenue recognition

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

F-7
<PAGE> 78

ATRIX LABORATORIES, INC

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

Research and Development

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

Loss per common share

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

Income Taxes

Effective October 1, 1993, the Company has prospectively changed its method
of accounting for income taxes to comply with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (See Note 8).

2. MARKETABLE SECURITIES

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

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

The U.S. Government and Agency bonds mature in 1-3 years.

At September 30, 1993, marketable securities balances are as follows:

The Company has adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" as of
September 30, 1993.

F-8
<PAGE> 79

ATRIX LABORATORIES, INC

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

This statement requires that marketable securities that are
available-for-sale be stated at fair value with the difference between cost and
fair value included as a component of shareholders' equity.

At December 31, 1994, gross unrealized gains and losses pertaining to
marketable securities were as follows:

<TABLE>
<CAPTION>
GAINS LOSSES
------- --------
<S> <C> <C>
Held-to-maturity -- current............................. $12,958 $136,032
Held-to-maturity -- non-current......................... -- 224,262
Available-for-sale...................................... -- 396,965
------- --------
Total......................................... $12,958 $757,259
======= ========
</TABLE>

3. VIPONT ROYALTY INCOME FUND, LTD.

Vipont Royalty Income Fund, Ltd. (the "Partnership") was formed to
undertake the research and development of a new therapeutic periodontal product
(the "Perio Product") and the development of a secondary elicitation response
method of producing sanguinarine from selected plant cells in tissue culture.
The Company is the General Partner of the Partnership and owns 1% of the
Partnership.

In 1987, the Company entered into several agreements with the Partnership.
Pursuant to a Technology Transfer Agreement (the "Technology Transfer
Agreement"), the Company granted to the Partnership an exclusive irrevocable
sublicense to use all technology and related know-how owned by or previously
licensed to the Company for the sole purpose of developing the Perio Product
with sanguinarine.

Pursuant to a Research and Development Agreement, (the "Research and
Development Agreement"), the Company agreed to perform research and development
activities for the Partnership with the objective of developing, testing and
applying for regulatory approval to market the Perio Product with sanguinarine.
The Company was reimbursed by the Partnership for the cost of the research
effort plus an overhead charge of 18.3% of the research expense. During the year
ended September 30, 1991, the Company expended the remaining funds originally
raised by the Partnership. The Company elected to continue research and
development activities related to the Perio Product with sanguinarine in the
clarifying trials at its own expense.

The Company and the Partnership also entered into a Marketing Agreement,
pursuant to which the Partnership granted to the Company and any of its
affiliates the exclusive right, subject to certain conditions, to manufacture
and market the Perio Product with sanguinarine on behalf of the Partnership. In
exchange for the manufacturing and marketing rights granted to the Company, the
Company is required to pay the Partnership specified royalty payments.

In 1992, the Partnership approved amendments to the above agreements to
allow the General Partner to share in royalties or proceeds from the sale of
rights related to the Perio Product-Sanguinarine and the Partnership to share in
royalties or proceeds from the sale of rights related to the Perio Product with
or without an active agent, on a percentage basis representing the ratio of the
total costs, including but not limited to all costs for testing, developing and
securing regulatory approval, if ever, of the Perio Product with or without an
active agent to the amount that each party has contributed. In determining the
Partnership's contribution, the General Partner will credit the Partnership with
the gross amount raised in the initial public offering of units, $10,350,000.

The Partnership has ongoing expenses related to its status as a publicly
traded partnership, including the cost of preparing and filing reports required
by the Securities Exchange Act of 1934 and the Internal Revenue Service, and
providing certain communications to the limited partners. It is estimated that
the cost of preparing, filing and mailing the various reports, including an
annual audit, will be approximately $30,000. The Partnership has exhausted all
cash funds. The Company has agreed to advance funds to the Partnership to pay
these expenses for the Partnership's year ending December 31, 1995. Such
advances will only be due and

F-9
<PAGE> 80

ATRIX LABORATORIES, INC

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

payable, if ever, from the Partnership's share of royalties or proceeds from the
sale of the rights to the Perio Product.

As of December 31, 1994, the Partnership had approximately $132,000 in
accounts payable, consisting of management fees owed to the Company, as General
Partner, and trade payables. The Company expensed the amounts advanced to the
Partnership to pay general and administrative expenses in accordance with
generally accepted accounting principles for advances to a research and
development limited partnership.

4. SHAREHOLDERS' EQUITY

In 1987, the Company registered warrants to purchase shares of the
Company's common stock as part of a public offering of units by the Partnership.
At September 30, 1993 and 1992 warrants to purchase 65,450 and 69,300 shares at
$5.00 per share were outstanding. The remaining warrants expired in 1994.

The Company has reserved 1,500,000 of its authorized but unissued common
stock for non-qualified stock option plans. Under the terms of the plans,
options are not exercisable for a period of one to three years from the date of
grant. The exercise price of all options is the closing bid price of the stock
on the date of grant. There are 373,710 shares which remain available under the
plan for future employee stock option grants.

<TABLE>
<CAPTION>
NUMBER EXERCISE
OF SHARES PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Options outstanding September 30, 1991..................... 569,061 $ .50-15.50
Options granted............................................ 110,850 6.50-20.75
Options canceled or expired................................ (100,450) 5.25-20.75
Options exercised.......................................... (23,011) .50- 3.75
--------

Options outstanding September 30, 1992..................... 556,450 $ .50-20.75
Options granted............................................ 383,655 6.63- 9.88
Options canceled or expired................................ (73,741) .50-20.75
Options exercised.......................................... (89,917) .50- 7.87
--------

Options outstanding September 30, 1993..................... 776,447 $ .50-20.75
Options granted............................................ 69,345 5.88
--------

Options outstanding December 31, 1993...................... 845,792 $ .50-20.75
Options granted............................................ 19,000 6.13- 9.13
Options canceled or expired................................ (58,850) 5.88-14.00
Options exercised.......................................... (14,080) .50- 3.75
--------

Options outstanding December 31, 1994...................... 791,862 $ .50-20.75
========
</TABLE>

Options outstanding were available for exercise as follows:

<TABLE>
<S> <C> <C>
Options Exercisable
Currently Exercisable.................................... 504,540
1995..................................................... 163,331
1996..................................................... 117,824
1997..................................................... 6,167
-------
Total............................................ 791,862
=======
</TABLE>

During 1991, the Company reserved 50,000 of its authorized but unissued
common stock for stock options to be granted to outside consultants. The Company
granted 30,000 shares to a consultant at an exercise price equal to the market
price on the date of grant of which 50% were exercisable on September 30, 1993,
and 50% became exercisable on November 12, 1993. In April 1994, the Company
granted a non-

F-10
<PAGE> 81

ATRIX LABORATORIES, INC

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

qualified option to purchase 7,500 shares to a consultant at an exercise price
equal to the market price on the date of grant, to vest over a period of three
years upon each anniversary.

5. ACQUISITION OF TECHNOLOGY

In 1992, the Company purchased from Southern Research Institute ("SRI") all
of SRI's right, title and interest to the biodegradable controlled release drug
delivery technology. Such technology is the basis for the ATRIGEL(TM) drug
delivery system for which SRI previously had granted the Company a worldwide
license. In consideration for the purchase of assets, the Company paid SRI
$2,187,492 in cash and issued 120,889 shares of Common Stock which were valued
at $19.00 per share. The cost of the technology and related expenses,
$4,505,399, was charged to expense at the time of acquisition.

6. RELATED PARTY TRANSACTIONS

In 1992 and 1993, the Company received a total of $1,000,000 from Colgate
for funding of research and development of a biodegradable membrane for guided
tissue regeneration in periodontal flap surgery ("GTR Product").

The Research and Development Agreement provided that in the event Colgate
exercised its right to terminate, which it did after the $1,000,000 expenditure,
the Company could supply the GTR Product to any third party. However, in such
event the Company agreed to reimburse Colgate for all actual out-of-pocket costs
expended by Colgate, the manner and period for such reimbursement to be mutually
agreed upon by the parties but in no event shall the full reimbursement to
Colgate for its expenditures extend for a period of more than two years after
the effective date of an executed agreement by the Company to supply the GTR
Product to a third party.

The Company has a Master Technology Transfer Agreement (the "Technology
Agreement") related to the Perio Product with sanguinarine with VPI. In general,
the Technology Agreement allocates between VPI and the Company rights to
technology (the "Sanguinaria Technology") disclosed in certain specified patents
(all relating to sanguinaria, sanguinarine and other benzophenanthridine
alkaloids), subject matter disclosed in certain specified patent applications
and related know-how, other proprietary information, and certain contractual
rights arising out of the contracts between the Company and the Partnership.

The Technology Agreement provides that legal title with respect to the
Sanguinaria Technology will be held by VPI, with an exclusive, royalty free and
irrevocable license to make, use or sell the Sanguinaria Technology in all
fields of use other than human dental or oral care. The Technology Agreement
designates fields of use under the Sanguinaria Technology as between the Company
and VPI. The field of use designated for the Company includes any technological
fields, in any country, other than the technological field of human dental or
oral care. The field of use designated for VPI includes the technological field,
in any country, of human oral or dental care. The Company and VPI are each free
to investigate and to conduct research and development activities relating to
the Sanguinaria Technology, regardless of the field of use in which such
activities may lie. If either party develops any Improvement (defined in the
Technology Agreement generally to include modifications, changes, alterations,
or further development of existing Sanguinaria Technology) after the date of the
Technology Agreement, the party developing such Improvement will own all right,
title and interest to such Improvement.

However, for Improvements developed outside of its respective field of use,
each party has granted to the other the exclusive right to negotiate for an
exclusive license to use such Improvement. Each party is required to keep the
other informed as to the status of its research and development activities being
conducted in connection with the Sanguinaria Technology and, in the event either
party develops an Improvement in the other party's field of use, demonstrates
the technological feasibility and circulates the economic viability thereof
(along with providing an estimate of the costs associated with further
development, including costs for any necessary clinical tests and a projected
timetable for such development "Proof of Concept"), it must notify the other
party in writing, not more than six months after such Proof of Concept.

F-11
<PAGE> 82

ATRIX LABORATORIES, INC

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

The Company has also granted to VPI the right of first negotiation for all
human dental and oral products developed by it that do not utilize the
Sanguinaria Technology or any Improvements.

Pursuant to the Technology Agreement, VPI granted the Company an
irrevocable and exclusive option (the "Manufacture and Purchase Option") to
reacquire the rights to manufacture the Perio Product pursuant to a marketing
agreement and to purchase the rights to the Perio Product and the related
technology pursuant to a purchase option agreement and to exercise such rights
for the Company's own benefit. The Company paid $50,000 to VPI as consideration
for the grant of the Manufacture and Purchase Option, which was to be credited
against the exercise price in the event of exercise of the option by the
Company.

Colgate notified the Company in June, 1993 that: (i) it would not
participate in the marketing of certain products related to the time release
Perio Pocket Treatment containing sanguinarine or doxycycline which were the
subject of the Technology Agreement; and (ii) it waived certain rights of first
negotiation under such contracts. In 1993, the Company expensed the $50,000
option payment upon Colgate's notice of termination.

If neither VPI nor the Company commercializes and markets the Perio Product
with sanguinarine within nine months after approval of the NDA or Product
License Application ("PLA"), as applicable, for the Perio Product with
sanguinarine by the appropriate regulatory authority in the country in which
such application has been approved, then such rights revert to the Partnership.

7. MAJOR CUSTOMERS

Contract revenue for three unrelated customers was $100,000, $210,000, and
$335,357 for 1994, and for two unrelated customers was $36,567 and $125,642 for
the three months ended December 31, 1993. Contract revenue for the years ended
September 30, 1993 and 1992 includes $341,924 and $663,018 from a related party
and $851,866 and $586,135 from an unrelated customer, respectively.

8. INCOME TAXES

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

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

<TABLE>
<S> <C>
Deferred tax assets (liabilities):
Net operating loss carryforwards.............................. $ 6,284,000
Amortization of intangibles................................... 1,575,000
Available-for-sale securities................................. 148,000
Depreciation.................................................. 22,600
Investment in Partnership..................................... 85,000
Other items................................................... (12,000)
-----------
Net deferred tax assets............................... 8,102,600
-----------
Less valuation allowance........................................ (8,102,600)
-----------
Total................................................. $ 0
===========
</TABLE>

F-12
<PAGE> 83

ATRIX LABORATORIES, INC

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1994, the Company has approximately $16,846,000 of federal
income tax net operating loss carryforwards which expire through 2008.

9. LEASE COMMITMENTS

As of December 31, 1994, minimum rental commitments under non-cancelable
operating leases of one year or more are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------------
<S> <C>
1995...................................................... $247,049
1996...................................................... 251,537
1997...................................................... 231,024
1998...................................................... 101,174
--------
Total........................................... $830,784
========
</TABLE>

Other accrued liabilities includes deferred rent of $195,815 as of December
31, 1994 and $234,256 as of September 30, 1993. Rent expense was $179,204 for
1994, $43,911 for the three months ended December 31, 1993, $197,798 and
$160,260 for the years ended September 30, 1993 and 1992, respectively.

F-13
<PAGE> 84

ATRIX LABORATORIES, INC.

BALANCE SHEETS

JUNE 30, 1995 AND DECEMBER 31, 1994

ASSETS

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 1,104,707 $ 1,880,275
Marketable securities, at cost................................ 4,664,078 7,896,827
Marketable securities, available-for-sale..................... 3,658,812 3,300,894
Accounts receivable........................................... 19,630 93,469
Interest receivable........................................... 119,105 140,848
Prepaid expenses and deposits................................. 433,917 119,102
Inventory -- Raw Materials.................................... 64,170 --
------------ ------------
Total current assets.................................. 10,064,419 13,431,415
------------ ------------
MARKETABLE SECURITIES, AT COST.................................. 7,138,256 7,172,095
------------ ------------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures............................. 1,467,371 1,276,895
Leasehold improvements........................................ 398,108 368,851
------------ ------------
Total................................................. 1,865,479 1,645,746
Accumulated depreciation and amortization..................... (937,593) (771,274)
------------ ------------
Property and equipment, net................................ 927,886 874,472
------------ ------------
OTHER ASSETS:
Intangible assets, net of accumulated amortization of $43,855
and $37,065................................................ 570,610 527,640
------------ ------------
TOTAL........................................................... $ 18,701,171 $ 22,005,622
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable -- trade..................................... $ 572,867 $ 481,267
Accrued salaries and payroll taxes............................ 66,375 63,000
Other accrued liabilities..................................... 176,378 195,815
Deferred revenue.............................................. 162,501 75,000
------------ ------------
Total current liabilities............................. 978,121 815,082
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock $.001 par value; authorized 5,000,000 shares,
none issued or outstanding.................................
Common Stock $.001 par value; authorized 25,000,000 shares;
7,876,578 and 7,743,078 shares issued and outstanding...... 7,877 7,743
Unrealized holding loss on securities available-for-sale...... (149,666) (396,965)
Additional paid-in capital.................................... 40,341,296 39,977,455
Accumulated deficit........................................... (22,476,457) (18,397,693)
------------ ------------
Total shareholders' equity............................ 17,723,050 21,190,540
------------ ------------
TOTAL........................................................... $ 18,701,171 $ 22,005,622
============ ============
</TABLE>

See notes to financial statements.

F-14
<PAGE> 85

ATRIX LABORATORIES, INC.

STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)

<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
REVENUE:
Contract revenue................................................ $ 182,416 $ 218,390
Contract revenue from related party............................. 3,000 3,000
Interest income................................................. 281,883 334,796
Loss on sale of marketable securities........................... -- (42,507)
----------- -----------
Total revenue........................................... 467,299 513,679
----------- -----------
EXPENSES:
Research expenses-Perio Product................................. 1,438,555 740,759
Research and development........................................ 886,304 966,192
Administrative.................................................. 287,260 163,773
----------- -----------
Total expenses.......................................... 2,612,119 1,870,724
----------- -----------
NET LOSS.......................................................... $(2,144,820) $(1,357,045)
=========== ===========
NET LOSS PER COMMON SHARE......................................... $ (.27) $ (.18)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING............................... 7,875,741 7,742,578
=========== ===========
</TABLE>

See notes to financial statements.

F-15
<PAGE> 86

ATRIX LABORATORIES, INC.

STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)

<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
REVENUE:
Contract revenue................................................ $ 238,666 $ 312,109
Contract revenue from related party............................. 6,000 6,000
Interest income................................................. 544,691 690,772
Loss on sale of marketable securities........................... -- (63,595)
----------- -----------
Total revenue........................................... 789,357 945,286
----------- -----------
EXPENSES:
Research expenses-Perio Product................................. 2,556,104 1,360,370
Research and development........................................ 1,749,220 1,963,282
Administrative.................................................. 562,797 404,473
----------- -----------
Total expenses.......................................... 4,868,121 3,728,125
----------- -----------
NET LOSS.......................................................... $(4,078,764) $(2,782,839)
=========== ===========
NET LOSS PER COMMON SHARE......................................... $ (.52) $ (.36)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING............................... 7,844,260 7,739,256
=========== ===========
</TABLE>

See notes to financial statements.

F-16
<PAGE> 87

ATRIX LABORATORIES, INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED TOTAL
------------------ PAID-IN HOLDING ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL GAIN (LOSS) DEFICIT EQUITY
--------- ------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1994..................... 7,743,078 $7,743 $39,977,455 $(396,965) $(18,397,693) $ 21,190,540
Exercise of stock
options.................. 133,500 134 363,841 -- -- 363,975
Unrealized holding gain.... -- -- -- 247,299 -- 247,299
Net loss for the period.... -- -- -- -- (4,078,764) (4,078,764)
--------- ------ ----------- --------- ------------ -----------
BALANCE, June 30, 1995..... 7,876,578 $7,877 $40,341,296 $(149,666) $(22,476,457) $ 17,723,050
========= ====== =========== ========= ============ ===========
</TABLE>

See notes to financial statements.

F-17
<PAGE> 88

ATRIX LABORATORIES, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)

<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................................... $(4,078,764) $(2,782,839)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation................................................... 166,319 128,413
Amortization of patents........................................ 6,790 5,525
Amortization of bond premiums.................................. 125,788 178,149
Loss on sale of marketable securities.......................... -- 63,595
Write-off of obsolete patents.................................. 5,507 64,779
Net changes in current assets and liabilities:
Accounts receivable............................................ 73,839 19,777
Prepaid expenses and deposits.................................. (314,815) (61,369)
Inventory...................................................... (64,170) --
Interest receivable............................................ 21,743 8,065
Accounts payable -- trade...................................... 91,600 (46,902)
Accrued salaries and payroll taxes............................. 3,375 10,644
Other accrued liabilities...................................... (19,437) (13,636)
Deferred revenue............................................... 87,501 (96,857)
---------- ----------
Net cash used in operating activities..................... (3,894,724) (2,522,656)
---------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment, furniture and fixtures.................. (190,476) (139,949)
Acquisition of leasehold improvements............................. (29,257) (19,609)
Investments in intangible assets.................................. (55,266) (96,403)
Proceeds from sale of marketable securities available-for-sale.... -- 2,405,687
Proceeds from maturities of marketable securities................. 3,140,800 --
Investment in marketable securities............................... (110,620) (201,947)
---------- ----------
Net cash provided by investing activities................. 2,755,181 1,947,779
---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and exercise of stock
options........................................................ 363,975 75,229
---------- ----------
Net cash provided by financing activities................. 363,975 75,229
---------- ----------

NET DECREASE IN CASH AND CASH EQUIVALENTS........................... (775,568) (499,648)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...................... 1,880,275 589,317
---------- ----------

CASH AND CASH EQUIVALENTS, END OF PERIOD............................ $ 1,104,707 $ 89,669
========== ==========
</TABLE>

See notes to financial statements.

F-18
<PAGE> 89

ATRIX LABORATORIES, INC.

NOTES TO FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 1995 AND 1994

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited financial statements of Atrix Laboratories, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial statements and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all
adjustments considered necessary (which consist only of normal recurring
accruals) for a fair presentation have been included.

NOTE 2. RELATED PARTY

The Company is the General Partner of Vipont Royalty Income Fund, Ltd. (the
"Partnership"). The Partnership has ongoing expenses related to its status as a
public partnership, including the cost of preparing and filing reports required
by the Securities Exchange Act of 1934 and the Internal Revenue Service, and
providing certain communications to the limited partners. It is estimated that
the cost of preparing, filing and mailing the various reports, including an
annual audit, is approximately $30,000 per year. The Partnership has exhausted
all cash funds. The Company has agreed to advance funds to the Partnership to
pay these expenses for the Partnership's calendar year ending December 31, 1995.
All such advances will be due and payable, if ever, from the Partnership's share
of royalties and/or proceeds from the sale of the rights to the Perio Product.

As of June 30, 1995, the Partnership had approximately $148,000 in accounts
payable, consisting of management fees owed to the Company, as General Partner,
and trade payables. The Company expensed the amounts advanced to the Partnership
to pay general and administrative expenses in accordance with generally accepted
accounting principles for advances to a research and development limited
partnership.

F-19
<PAGE> 90

REPORT OF INDEPENDENT AUDITORS

To the Partners of
Vipont Royalty Income Fund, Ltd.
Fort Collins, Colorado

We have audited the accompanying balance sheets of Vipont Royalty Income
Fund, Ltd., (the Partnership) as of December 31, 1994 and 1993, and the related
statements of operations, changes in partners' equity (deficit), and cash flows
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP

Denver, Colorado
January 26, 1995

F-20
<PAGE> 91

VIPONT ROYALTY INCOME FUND, LTD.

BALANCE SHEETS

DECEMBER 31, 1994 AND 1993

ASSETS

<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ -- $ --
----------- -----------

TOTAL............................................. $ -- $ --
=========== ===========

LIABILITIES AND PARTNERS' DEFICIT

CURRENT LIABILITIES:
Accounts payable -- general partner....................... $ 131,900 $ 103,274
----------- -----------
Total current liabilities......................... 131,900 103,274
----------- -----------

COMMITMENTS (Note 3)........................................ -- --

PARTNERS' DEFICIT
General partner........................................... 102,465 102,465
Limited partners (5,175 units authorized, issued and
outstanding)........................................... 8,901,000 8,901,000
Accumulated deficit....................................... (9,135,365) (9,106,739)
----------- -----------
Total partners' deficit........................... (131,900) (103,274)
----------- -----------
TOTAL....................................................... $ -- $ --
=========== ===========
</TABLE>

See notes to financial statements.

F-21
<PAGE> 92

VIPONT ROYALTY INCOME FUND, LTD.

STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- ---------
<S> <C> <C> <C>
EXPENSES:
General and administrative expenses..................... $ 28,626 $ 35,245 $ 155,640
-------- -------- ---------
Total expenses.......................................... 28,626 35,245 155,640
INTEREST INCOME........................................... -- -- 1,997
-------- -------- ---------
NET LOSS.................................................. $(28,626) $(35,245) $(153,643)
======== ======== =========
NET LOSS PER LIMITED PARTNERSHIP INTEREST................. $ (5.48) $ (6.74) $ (29.39)
======== ======== =========
</TABLE>

See notes to financial statements.

F-22
<PAGE> 93

VIPONT ROYALTY INCOME FUND, LTD.

STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992

<TABLE>
<CAPTION>
LIMITED
GENERAL PARTNERS
PARTNER 1% 99% TOTAL
---------- ----------- ---------
<S> <C> <C> <C>
BALANCE, December 31, 1991............................... $ 13,287 $ 72,327 $ 85,614
------- --------- ---------
Net Loss................................................. (1,536) (152,107) (153,643)
------- --------- ---------
BALANCE, December 31, 1992............................... $ 11,751 $ (79,780) $ (68,029)
------- --------- ---------
Net Loss................................................. (352) (34,893) (35,245)
------- --------- ---------
BALANCE, December 31, 1993............................... $ 11,399 $ (114,673) $(103,274)
------- --------- ---------
Net Loss................................................. (286) (28,340) (28,626)
------- --------- ---------
BALANCE, December 31, 1994............................... $ 11,113 $ (143,013) $(131,900)
======= ========= =========
</TABLE>

See notes to financial statements.

F-23
<PAGE> 94

VIPONT ROYALTY INCOME FUND, LTD.

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(28,626) $(35,245) $(153,643)
Adjustments to reconcile net loss to net cash used in
operating activities:
Changes in operating assets and liabilities:
Accounts payable -- Trade.............................. -- -- (1,000)
Accounts payable -- General partner.................... 28,626 35,245 53,239
-------- -------- -----------
Cash used in operating activities................... -- -- (101,404)
NET DECREASE IN CASH AND CASH EQUIVALENTS..................... -- -- (101,404)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.................. -- -- 101,404
-------- -------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR........................ $ -- $ -- $ --
======== ======== ===========
</TABLE>

See notes to financial statements.

F-24
<PAGE> 95

VIPONT ROYALTY INCOME FUND, LTD.

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Vipont Royalty Income Fund, Ltd. (the Partnership) is a Colorado Limited
Partnership which was formed on August 5, 1987. The Partnership's activities to
date have consisted of funding the research and development of new periodontal
products for therapeutic use. Pursuant to a vote of the limited partners on June
20, 1990, Atrix Laboratories, Inc. (Atrix) was substituted as the General
Partner of the Partnership and owns 1 percent of the Partnership.

Pursuant to the partnership agreement, profits, losses, and distributions
are allocated one percent to the General Partner and ninety-nine percent to the
limited partners based on their respective ownership interests.

Cash and Cash Equivalents

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

Research and Development Costs

Research and development was performed for the Partnership under a research
agreement with Atrix (Note 2). All costs associated with the research were
expensed as they were incurred. Atrix allocated costs to the Partnership for
those items which related directly to the research performed on behalf of the
Partnership.

General and Administrative Expenses

General and administrative expenses include bank service charges, legal
fees, management fees and office expenses.

Income Taxes

The Partnership is not considered a taxable entity for federal and state
income tax purposes. Any taxable income or losses are reported by the partners
on their own tax returns in accordance with the partnership agreement.

Loss Per Limited Partnership Interests

The loss per limited partnership interest is calculated based on the 5,175
limited partnership units outstanding.

2. RESEARCH AND DEVELOPMENT

Effective August 5, 1987, the Partnership entered into contracts with Atrix
to perform research and development for new therapeutic periodontal treatment
products and the development of a method of producing sanguinarine from plant
cells in tissue culture.

Under the terms of the contracts, the Partnership made annual advance
payments to Atrix for the estimated yearly cost of the research. The advance
payments were expensed monthly as the funds were used to perform research. Atrix
received 18.3 percent of all direct and indirect research costs as overhead
reimbursement. During the year ended December 31, 1991, the remaining funds
raised by the Partnership were expended. Atrix has elected to use its funds to
continue research and development activities related to the Perio Product.

F-25
<PAGE> 96

VIPONT ROYALTY INCOME FUND, LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. RELATED PARTY TRANSACTIONS AND COMMITMENTS

A Special Meeting of the limited partners of the Partnership was held on
October 14, 1992, to consider a proposal (the "Proposal") to authorize Atrix
Laboratories, Inc., the general partner of the Partnership (the "General
Partner"), to amend various documents between the Partnership and the General
Partner (the "Partnership Documents") to share in certain royalties and/or
proceeds from the sale of rights related to a Perio Product. The Proposal was
approved by the limited partners at the Special Meeting held on October 14,
1992.

Prior to the amendment of the Partnership Documents, the General Partner
was not entitled to participate in royalties from the sale of the Perio
Product-Sanguinarine, other than from its General Partner's Interest in the
Partnership. As a result of the approval of the Proposal, and in consideration
for its funding of clarifying studies, the Phase III clinical studies and a New
Drug Application ("NDA") filing, if any, Atrix Laboratories, Inc., as General
Partner of the Partnership, will be entitled to participate in royalties and/or
proceeds from the sale of rights related to a Perio Product containing
sanguinarine. Further, the Partnership will not be required to pay any of the
future costs for the development of a Perio Product containing sanguinarine, a
Perio Product containing doxycycline, or a Perio Product without an active
agent, or for filing for regulatory approval, including a NDA for the same.

The Proposal as approved, allows the General Partner to share in royalties
and/or proceeds from the sale of rights related to the Perio
Product-Sanguinarine and the Partnership to share in royalties and/or proceeds
from the sale of rights related to the Perio Product with or without an active
agent, on a percentage basis representing the ratio of the total costs,
including but not limited to all costs for testing, development and securing
regulatory approval, if ever, of the Perio Product with or without an active
agent to the amount that each party has contributed. In determining the
Partnership's contribution, the General Partner will credit the Partnership with
$10,350,000, the gross amount raised in the Partnership's initial public
offering of Units.

The Partnership has ongoing general and administrative expenses related to
its status as a public partnership; for example, annual reports on Form 10-K and
quarterly reports on Form 10-Q. Further, the Partnership is required to prepare
tax returns and provide certain communications to the limited partners. It is
estimated that the cost of preparing, filing, and mailing the various reports,
including an annual audit, will be approximately $30,000 for the year ending
December 31, 1995. The General Partner has agreed to advance funds to the
Partnership to pay these expenses for the year ending December 31, 1995,
pursuant to Article 4 of the Amended and Restated Agreement of Limited
Partnership. Such advances will only be due and payable, if ever, from the
Partnership's share of royalties and/or proceeds from the sale of rights to the
Perio Product.

The Partnership is required to pay the General Partner $12,000 annually for
management fees. The Partnership owed the General Partner $131,900 at December
31, 1994 for fees and expenses incurred on behalf of the Partnership.

F-26
<PAGE> 97

VIPONT ROYALTY INCOME FUND, LTD.

BALANCE SHEETS

JUNE 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
DECEMBER
JUNE 30, 31,
1995 1994
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................... $ -- $ --
----------- -----------
TOTAL............................................................... $ -- $ --
=========== ===========
</TABLE>

LIABILITIES AND PARTNERS' DEFICIT

<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable -- general partner............................... $ 148,424 $ 131,900
----------- -----------
Total current liabilities................................. 148,424 131,900
----------- -----------
PARTNERS' EQUITY (DEFICIT)
General partner................................................... 102,465 102,465
Limited partners (5,175 units authorized, issued and
outstanding)................................................... 8,901,000 8,901,000
Accumulated deficit............................................... (9,151,889) (9,135,365)
----------- -----------
Total partners' deficit................................... (148,424) (131,900)
----------- -----------
TOTAL............................................................... $ -- $ --
========== ==========
</TABLE>

See notes to financial statements.

F-27
<PAGE> 98

VIPONT ROYALTY INCOME FUND, LTD.

STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)

<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
EXPENSES
General and administrative expenses................................... $ 10,204 $ 6,606
-------- -------
NET LOSS................................................................ $(10,204) $(6,606)
======== =======
NET LOSS PER LIMITED PARTNERSHIP INTEREST............................... $ (1.95) $ (1.26)
======== =======
</TABLE>

F-28
<PAGE> 99

VIPONT ROYALTY INCOME FUND, LTD.

STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
EXPENSES
General and administrative expenses.................................. $ 16,524 $ 18,147
-------- --------
NET LOSS............................................................... $(16,524) $(18,147)
======== ========
NET LOSS PER LIMITED PARTNERSHIP INTEREST.............................. $ (3.16) $ (3.47)
======== ========
</TABLE>

See notes to financial statements.

F-29
<PAGE> 100

VIPONT ROYALTY INCOME FUND, LTD.

STATEMENTS OF CHANGES IN PARTNERS' DEFICIT

FOR THE SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)

<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER 1% PARTNERS 99% TOTAL
---------- ------------ ---------
<S> <C> <C> <C>
BALANCE, December 31, 1994...................... $ 11,113 $ (143,013) $(131,900)
Net Loss........................................ (165) (16,359) (16,524)
------- --------- ---------
BALANCE, June 30, 1995.......................... $ 10,948 $ (159,372) $(148,424)
======= ========= =========
</TABLE>

See notes to financial statements.

F-30
<PAGE> 101

VIPONT ROYALTY INCOME FUND, LTD.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................. $(16,524) $(18,147)
Adjustments to reconcile net loss to net cash used in operating
activities:
Changes in operating assets and liabilities:
Accounts payable -- general partner............................. 16,524 18,147
-------- --------
Cash used in operating activities............................ -- --
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS.............................. -- --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD......................... -- --
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................... $ -- $ --
======== ========
</TABLE>

See notes to financial statements.

F-31
<PAGE> 102

VIPONT ROYALTY INCOME FUND, LTD.

NOTES TO FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited financial statements of Vipont Royalty Income
Fund, Ltd. (the "Partnership") have been prepared in accordance with generally
accepted accounting principles for interim financial information and in
accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.

NOTE 2. RELATED PARTY TRANSACTIONS

A Special Meeting of the limited partners of the Partnership was held on
October 14, 1992, to consider a proposal (the "Proposal") to authorize Atrix
Laboratories, Inc., the general partner of the Partnership (the "General
Partner"), to amend various documents between the Partnership and the General
Partner to permit the General Partner to share in certain royalties and proceeds
from the sale of rights related to a Perio Product. The Proposal was approved by
the limited partners at the Special Meeting held on October 14, 1992.

Prior to the amendment of the Partnership Documents, the General Partner
was not entitled to participate in royalties from the sale of the Perio
Product-Sanguinarine, other than from its General Partner's Interest in the
Partnership. As a result of the approval of the Proposal, and in consideration
for its funding of clarifying studies, the Phase III clinical studies and a New
Drug Application ("NDA") filing, if any, Atrix Laboratories, Inc., as General
Partner of the Partnership, is entitled to participate in royalties and proceeds
from the sale of rights related to a Perio Product containing sanguinarine.
Further, the Partnership will not be required to pay any of the future costs for
the development of a Perio Product containing sanguinarine, a Perio Product
containing doxycycline, or a Perio Product without an active agent, or for
filing for regulatory approval, including an NDA for the same.

The Proposal as approved, allows the General Partner to share in royalties
or proceeds from the sale of rights related to the Perio Product-Sanguinarine
and the Partnership to share in royalties or proceeds from the sale of rights
related to the Perio Product with or without an active agent, on a percentage
basis representing the ratio of the total costs, including but not limited to
all costs for testing, development and securing regulatory approval, if ever, of
the Perio Product with or without an active agent to the amount that each party
has contributed. In determining the Partnership's contribution, the General
Partner will credit the Partnership with $10,350,000, the gross amount raised in
the Partnership's initial public offering of Units.

The Partnership has ongoing general and administrative expenses related to
its status as a public Partnership; for example, annual reports on Form 10-K and
quarterly reports on Form 10-Q. Further, the Partnership is required to prepare
tax returns and provide certain communications to the limited partners. It is
estimated that the cost of preparing, filing, and mailing the various reports,
including an annual audit, will be approximately $30,000 for the year ending
December 31, 1995. The General Partner has agreed to advance funds to the
Partnership to pay these expenses for the year ending December 31, 1995,
pursuant to Article 4 of the Partnership's Amended and Restated Agreement of
Limited Partnership. Such advances will only be due and payable, if ever, from
the Partnership's share of royalties and proceeds from the sale of rights to the
Perio Product.

The Partnership is required to pay the General Partner $12,000 annually for
management fees. The Partnership owed the General Partner $148,000 at June 30,
1995 for fees and expenses incurred on behalf of the Partnership.

F-32
<PAGE> 103

APPENDIX A

FORM OF
AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (this "Agreement") dated as of
, 1995, by and among Atrix Laboratories, Inc., a Delaware
corporation (the "Company"), Atrix, L.P., a Colorado limited partnership
("Atrix, L.P."), and Vipont Royalty Income Fund, Ltd., a Colorado limited
partnership (the "Partnership").

W I T N E S S E T H:

WHEREAS, the Company wishes to acquire all of the assets of the
Partnership; and

WHEREAS, the Company is the sole limited partner of Atrix, L.P., and
AtrixSub, a Colorado corporation and a wholly owned subsidiary of the Company
("AtrixSub"), is the sole general partner of Atrix, L.P.; and

WHEREAS, Atrix, L.P. has been formed solely for the purpose of facilitating
such acquisition; and

WHEREAS, the Company desires to merge the Partnership with and into Atrix,
L.P., pursuant to Colorado law, with Atrix, L.P. being the surviving entity (the
"Merger") as set forth in the registration statement of the Company on Form S-4,
Registration No. 33- , including all amendments thereto (the "Registration
Statement"), filed with the Securities and Exchange Commission (the "SEC")
pursuant to the Securities Act of 1933, as amended (the "Act"), of which the
Prospectus/Proxy Statement of the Company, dated , 1995 (the
"Prospectus/Proxy Statement"), is a part; and

WHEREAS, Section 62-210 of the Colorado Uniform Limited Partnership Act of
1981, as amended ("CULPA") authorizes the merger of two or more Colorado limited
partnerships; and

WHEREAS, Atrix, L.P.'s Certificate of Limited Partnership and Agreement of
Limited Partnership and resolutions adopted by AtrixSub authorize this Agreement
and the consummation of the Merger; and

WHEREAS, the Partnership's Certificate of Limited Partnership and Amended
and Restated Agreement of Limited Partnership and resolutions adopted by the
Company, as the sole general partner of the Partnership, authorize this
Agreement and the consummation of the Merger;

NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties to this Agreement covenant and agree as
follows:

ARTICLE I

THE MERGER

Section 1.01. THE MERGER; SURVIVING ENTITY. Subject to the terms and
conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.02 below), the Partnership shall be merged with and into Atrix, L.P.,
pursuant to Section 62-210 of CULPA, and the separate existence of the
Partnership shall cease. Atrix, L.P. shall be the surviving entity (the
"Surviving Partnership") and shall continue to be governed by CULPA.

Section 1.02. EFFECTIVE TIME. In accordance with Section 62-210(4) of
CULPA, the Merger shall become effective upon the filing of the Partnership's
Certificate of Cancellation with the Secretary of State of the State of Colorado
(the "Effective Time"). All other filings or recordings required by Colorado law
in connection with the Merger shall also be made.

Section 1.03. EFFECT OF THE MERGER. The Merger shall have the effects set
forth in Section 62-210 of CULPA.

A-1
<PAGE> 104

ARTICLE II

THE SURVIVING PARTNERSHIP

Section 2.01. NAME. The name of the Surviving Partnership shall be Atrix,
L.P.

Section 2.02. CERTIFICATE OF LIMITED PARTNERSHIP AND AGREEMENT OF LIMITED
PARTNERSHIP. The Certificate of Limited Partnership and Agreement of Limited
Partnership of Atrix, L.P. as in effect immediately prior to the Effective Time
shall be the Certificate of Limited Partnership and Agreement of Limited
Partnership of the Surviving Partnership unless and until amended in accordance
with its terms and applicable law.

Section 2.03. GENERAL PARTNER. The general partner of Atrix, L.P.
immediately prior to the Effective Time shall continue as the general partner of
the Surviving Partnership and remain the general partner until the general
partner withdraws or is removed in accordance with the provisions of the
Agreement of Limited Partnership of Atrix, L.P.

ARTICLE III

CONVERSION OF PARTNERSHIP INTERESTS

Section 3.01. CONVERSION OF LIMITED PARTNER INTERESTS.

(a) At the Effective Time, each Partnership Unit ("Unit") shall be
converted, into shares of the Company's common stock, $.001 par value per share
(the "Shares" or "Common Stock").

(b) The aggregate number of Shares to be issued to the Limited Partners
will equal $3,524,175 or $681 per Unit, the value of the Partnership as of July
10, 1995 as determined by the Company, divided by the average per share closing
price of the Common Stock taken over the 15 trading days ending on the sixth
trading day before the date of the Merger.

(c) The Shares will be allocated among the Limited Partners in proportion
to their ownership interest in the Partnership. No fractional Shares will be
issued. Each Limited Partner who would otherwise be entitled to a fractional
share of Common Stock will instead receive a cash payment equal to the fraction
multiplied by the average closing price per share of the Common Stock taken over
the 15 days ending on the sixth trading day before the date of the Merger.

(d) For federal income tax purposes, the conversion of the Units in the
Partnership pursuant to this Article III shall be deemed a distribution in
liquidation of the Partnership pursuant to the terms of the Amended and Restated
Agreement of Limited Partnership of the Partnership (the "Partnership
Agreement"), in accordance with the capital accounts of the Limited Partners.

Section 3.02. ISSUANCE OF SHARES.

(a) The Company shall designate an exchange agent (the "Exchange Agent"),
which may be an employee of the Company, to act as such in connection with the
issuance of certificates representing Common Stock pursuant to this Agreement.

(b) As soon as practicable after the Effective Time, the Company shall
cause the Exchange Agent to distribute to each Limited Partner certificates
representing the number of shares of Common Stock to which such Limited Partner
is entitled pursuant to Section 3.01(c) of this Agreement.

Section 3.03. GENERAL PARTNER INTERESTS. In connection with the Merger,
the Company will not receive Shares or any other consideration for its general
partner interests in the Partnership and its general partner interests in the
Partnership shall be deemed cancelled.

A-2
<PAGE> 105

ARTICLE IV

TRANSFER AND CONVEYANCE OF ASSETS
AND ASSUMPTION OF LIABILITIES

Section 4.01. TRANSFER, CONVEYANCE AND ASSUMPTION. At the Effective Time,
Atrix, L.P. shall continue in existence as the Surviving Partnership, and
without further transfer, succeed to and possess all the rights, privileges and
powers of the Partnership, and all the assets and property of whatever kind and
character of the Partnership shall vest in Atrix, L.P. without further act or
deed; thereafter, Atrix, L.P., as the Surviving Partnership, shall be liable for
all of the liabilities and obligations of the Partnership, and any claim or
judgment against the Partnership may be enforced against Atrix, L.P., as the
Surviving Partnership, in accordance with Section 62-210 of CULPA.

Section 4.02. FURTHER ASSURANCES. If at any time Atrix, L.P. shall
consider or be advised that any further assignment, conveyance or assurance is
necessary or advisable to vest, perfect or confirm of record in the Surviving
Partnership the title to any property or right of the Partnership, or otherwise
to carry out the provisions hereof, the Company, as the general partner of the
Partnership, as of the Effective Time shall execute and deliver any and all
proper deeds, assignments and assurances, and do all things necessary and proper
to vest, perfect or convey title to such property or right in the Surviving
Partnership and otherwise to carry out the provisions hereof.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP

The Partnership represents and warrants to Atrix, L.P. and the Company as
follows:

Section 5.01. VALIDITY OF ACTIONS. The Partnership (i) is a limited
partnership duly formed, validly existing and in good standing under the laws of
the State of Colorado, (ii) has the authority to conduct its business as
currently conducted and to own and operate the properties which it now owns and
operates, (iii) is qualified to do business in all jurisdictions in which such
qualification is necessary, and (iv) has full power and authority to enter into
this Agreement and to carry out all acts contemplated by it. This Agreement has
been duly executed and delivered on behalf of the Partnership, and has received
all necessary authorization and is a legal, valid and binding obligation of the
Partnership, enforceable against the Partnership in accordance with its terms.
The execution and delivery of this Agreement and consummation of the
transactions contemplated by it will not violate any provision of the
Certificate of Limited Partnership or the Amended and Restated Agreement of
Limited Partnership of the Partnership nor violate, conflict with or result in
any breach of any of the terms, provisions or conditions of, or constitute a
default or cause acceleration of, any indebtedness under any agreement or
instrument to which the Partnership is a party or by which it or its assets may
be bound, or cause a breach of any applicable federal or state law or
governmental regulation, or any applicable order, judgment, writ, award,
injunction or decree of any court or governmental instrumentality.

Section 5.02. PARTNERSHIP'S FINANCIAL STATEMENTS. The financial statements
and schedules of the Partnership, together with related notes (the "Financial
Statements"), set forth in the Registration Statement of the Company, fairly
present, on the basis stated in the Registration Statement, the financial
position of the Partnership at the date or for the periods specified in the
Registration Statement. The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis ("GAAP"), except to the extent stated therein.

Section 5.03. NO MISSTATEMENTS. The representations of the Partnership
contained in this Agreement and the information supplied by the Partnership for
inclusion in the Registration Statement and the Prospectus/Proxy Statement do
not contain any untrue statement of a material fact or omit to state any fact
necessary to make such representations or information not materially misleading.

Section 5.04. NO MATERIAL ADVERSE CHANGE. Since the respective dates as to
which information is given in the Registration Statement and the
Prospectus/Proxy Statement with respect to the Partnership, and except as
described in the Registration Statement or the Prospectus/Proxy Statement, there
have been no

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changes in the business, operations, properties, assets or the prospects or
condition, financial or otherwise, of the Partnership which would, in the
aggregate, have a material adverse effect on the business, properties,
prospects, profitability, assets or financial condition of the Partnership.

Section 5.05. TITLE TO ASSETS. The Partnership has good and marketable
title to the assets reflected in the most recent balance sheet (the "Balance
Sheet") included in the Financial Statements with respect to the Partnership,
and will hold good and marketable title to such assets, and any assets acquired
by the Partnership prior to the Effective Time, as of the Effective Time, except
for assets disposed of in the ordinary course of business. Such assets, together
with the related goodwill and rights of the Partnership as a going concern,
tangible and intangible, are collectively referred to as the "Assets." Except as
otherwise disclosed in the Balance Sheet or related notes accompanying it, all
of the Assets are owned free and clear of any and all adverse claims, security
interests, charges or other encumbrances or restrictions of every nature, except
liens for current taxes not yet due and payable or landlords' liens as provided
for in the relevant leases or by applicable law.

Section 5.06. LIABILITIES OF THE PARTNERSHIPS. The Partnership has no
material liabilities, contingent or otherwise, including, without limitation,
liabilities for state or federal income, withholding or other taxes, except to
the extent reflected, reserved against, or provided for in the Balance Sheet,
and except for any material liabilities disclosed in the Prospectus/Proxy
Statement or any other obligations incurred after June 30, 1995 in the ordinary
course of business which subsequently incurred obligations are of an amount and
nature as to be capable of being discharged from the operations of the
Partnership without requiring additional equity or borrowing.

Section 5.07. TAXES. The Partnership has filed timely all federal, state
and local tax returns which it is required to file, has provided to its Limited
Partners all required schedules, K-1's and such other tax forms as may be
required by federal, state or local authorities, and has no outstanding
liability for any federal, state or local taxes or interest or penalties
thereon, whether disputed or not, except taxes not yet payable which have been
provided for in accordance with GAAP and are disclosed in the Financial
Statements.

Section 5.08. ACTIONS PENDING. Except as disclosed in the Prospectus/Proxy
Statement: (i) there are no actions, suits, proceedings or claims pending or
threatened against the Partnership or the General Partner which, if determined
adversely to such Partnership, could (A) have a material adverse effect on the
Partnership, the Assets or the business of the Partnership when taken as a
whole, or (B) prevent or delay the consummation of any of the transactions
contemplated by this Agreement; (ii) the Partnership, to the best of its
knowledge, is not the subject of any pending or threatened investigation
relating to any aspect of the Partnership's operations by any federal, state or
local governmental agency or authority; and (iii) the Partnership, to the best
of its knowledge, is not and has not been the subject of any formal or informal
complaint, investigation or inspection under the Equal Employment Opportunity
Act or the Occupational Safety and Health Act (or their state or local
counterparts) or by any other federal, state or local authority.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF ATRIX, L.P.

Atrix, L.P. represents and warrants to the Partnership as follows:

Section 6.01. VALIDITY OF ACTIONS. Atrix, L.P. (i) is duly organized,
validly existing and in good standing under the laws of the State of Colorado,
(ii) has the authority to conduct its business as currently conducted, (iii) is
qualified to do business in all jurisdictions in which such qualification is
necessary, and (iv) has full power and authority to enter into this Agreement
and to carry out all acts contemplated by it. This Agreement has been duly
executed and delivered on behalf of Atrix, L.P., has received all necessary
authorization and is a legal, valid and binding obligation of Atrix, L.P.,
enforceable against Atrix, L.P. in accordance with its terms. The execution and
delivery of this Agreement and consummation of the transactions contemplated by
it will not violate any provision of the Certificate of Limited Partnership or
the Agreement of Limited Partnership of Atrix, L.P. nor violate, conflict with
or result in any breach of any of the terms, provisions or conditions of, or
constitute a default or cause acceleration of, any indebtedness under any
agreement or instrument to which

A-4
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Atrix, L.P. is a party or by which it or its assets may be bound, or cause a
breach of any applicable federal or state law or regulation, or any applicable
order, judgment, writ, award, injunction or decree of any court or governmental
instrumentality.

Section 6.02. MISSTATEMENTS. The representations of Atrix, L.P. contained
in this Agreement and the information regarding Atrix, L.P. contained in the
Registration Statement and the Prospectus/Proxy Statement do not contain any
untrue statement of a material fact or omit to state any fact necessary to make
such representations or information not materially misleading.

ARTICLE VII

COVENANTS OF THE PARTIES

Section 7.01. PROHIBITED ACTS. Pending consummation of the Merger or prior
to termination of this Agreement, the Partnership agrees that, without prior
written consent of Atrix, L.P., given in a letter which specifically refers to
this Section of the Agreement, the Partnership shall not:

(a) perform any act or omit to take any action that would make any of
its representations made above or any information pertaining to it in the
Registration Statement or the Prospectus/Proxy Statement inaccurate or
materially misleading as of the Effective Time;

(b) enter into any commitment, contract or other transaction in any
way affecting any of the Partnership's business, except to carry out its
business in the ordinary course, and as contemplated by this Agreement or
in the Prospectus/Proxy Statement;

(c) make any loans or advances to, or investments in, any other
corporation, partnership or other legal entity or to any other persons
except in the ordinary course of business;

(d) borrow money for any purpose or agree to become contingently
liable, by guaranty or otherwise, for the obligations or indebtedness of
any other person other than in the ordinary course of business; or

(e) mortgage, pledge, encumber, sell, lease or transfer any of the
Assets other than in the ordinary course of business.

Section 7.02. NOTICE. Pending the consummation of the Merger or prior to
termination of this Agreement, each party agrees that it will promptly advise
the other of the occurrence of any condition or event which would make any of
its representations contained in this Agreement or the Prospectus/Proxy
Statement inaccurate, incorrect, or materially misleading.

Section 7.03. ADDITIONAL DOCUMENTS. At the request of any party, each
party will execute and deliver any additional documents and perform in good
faith such acts as reasonably may be required in order to consummate the
transactions contemplated by this Agreement.

ARTICLE VIII

CONDITIONS TO THE MERGER

The obligations of the Company and Atrix, L.P., on the one hand, and the
Partnership on the other hand, to consummate the Merger shall be subject to
compliance with or satisfaction of the following conditions:

Section 8.01. COMPLIANCE. Atrix, L.P. and the Partnership shall have
complied with all of the covenants and agreements in this Agreement on its part
to be complied with as of or prior to the Effective Time.

Section 8.02. PARTNERSHIP APPROVALS. Limited Partners holding an aggregate
of at least 2,588 Units, which constitutes an majority of the outstanding Units,
shall have approved the Merger.

Section 8.03. CONSENTS OBTAINED. All necessary consents, waivers,
approvals, authorizations or orders required to be obtained, and the making of
all filings required to be made by any party to the Merger for the

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<PAGE> 108

authorization, execution and delivery of this Agreement and the consummation of
the transactions contemplated thereby on or before (and remain in effect at) the
Effective Time shall have been obtained or made.

Section 8.04. NO MATERIAL ADVERSE CHANGE. Since the respective dates as to
which information is given in the Registration Statement and the
Prospectus/Proxy Statement, there shall not have occurred or been threatened any
material adverse changes in the overall business or prospects of the Partnership
or in the tax or other regulatory provisions applicable to the Partnership or
Atrix, L.P., and Atrix, L.P. shall not have become aware of any facts that, in
its sole judgment, have or may have a material effect, whether adverse or
otherwise, on the Partnership, taken as a whole, or the value to Atrix, L.P. of
the properties of the Partnership, taken as a whole.

Section 8.05. NO DECLARATIONS. At the Effective Time, there shall be no
declaration of suspension of trading in, or limitation on prices for, securities
generally on The Nasdaq Stock Market, declaration of a banking moratorium by
federal or state authorities or any suspension of payments by banks in the
United States (whether mandatory or not) or of the extension of credit by
lending institutions in the United States, or commencement of war, armed
hostility, or other international or national calamity directly or indirectly
involving the United States, which war, hostility or calamity, in the sole
judgment of Atrix, L.P., would have a material adverse effect on the business
objectives of Atrix, L.P., or, in the case of any of the foregoing existing on
the date of the Prospectus/Proxy Statement, any material acceleration or
worsening thereof.

Section 8.06. EFFECTIVENESS OF REGISTRATION STATEMENT. At or prior to the
Effective Time, the Registration Statement shall have been declared effective,
no stop order suspending the effectiveness of the Registration Statement shall
have been issued, no proceedings for such purpose shall have been initiated, and
all necessary approvals under state securities or blue sky laws shall have been
received.

Section 8.07. PROSPECTUS/PROXY STATEMENT. All other conditions to the
Merger set forth in the Prospectus/Proxy Statement shall have been satisfied or
waived.

ARTICLE IX

OTHER AGREEMENTS

WAIVER BY GENERAL PARTNER. Immediately prior to the Effective Time, the
Company, as general partner of the Partnership shall waive all rights to (i) any
fees not accrued to the Effective Time, and (ii) any proceeds from the sale or
liquidation of any property of the Partnership to which the Company would have
been entitled pursuant to the Amended and Restated Agreement of Limited
Partnership of the Partnership.

ARTICLE X

TERMINATION; AMENDMENT; WAIVER

Section 10.01. TERMINATION. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to the filing of the
Certificate with the Secretary of State of the State of Colorado, (i) by mutual
consent of Atrix, L.P. and the Partnership, (ii) by action of the Partnership in
the event of a failure of a condition to the obligations of Atrix, L.P. set
forth in Article VIII of this Agreement, (iii) by action of Atrix, L.P. in the
event of a failure of a condition to the obligations of the Partnership set
forth in Article VIII of this Agreement, or (iv) by action of Atrix, L.P. or the
Partnership in the event that the Merger is not consummated prior to December
31, 1995 or such later date as the parties shall mutually agree in writing.

Section 10.02. EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 10.01, this Agreement shall become void and of no effect
with no liability on the part of any party hereto.

Section 10.03. AMENDMENT. The parties hereto may, by written agreement,
amend this Agreement at any time prior to the Effective Time, such amendment to
be approved by Atrix, L.P., the Company and the Partnership; provided that,
after the approval of the Merger by the Limited Partners holding a majority of
the Units of the Partnership, no amendment shall be made which alters or changes
(i) the amount or kind of

A-6
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consideration which the Limited Partners are entitled to receive upon conversion
of the Units of the Partnership or (ii) the terms and conditions of this
Agreement if such alteration or change would have an adverse effect on the
Limited Partners.

Section 10.04. WAIVER. At any time prior to the Effective Time, any party
to this Agreement may extend the time for the performance of any of the
obligations or other acts of any other party hereto, or waive compliance with
any of the agreements of any other party or with any condition to the
obligations hereunder, in each case only to the extent that such obligations,
agreements and conditions are intended for its benefit.

ARTICLE XI

MISCELLANEOUS

Section 11.01. EXPENSES. If the Merger becomes effective, all of the
expenses incurred in connection with the Merger shall be paid as specified in
the Prospectus/Proxy Statement.

Section 11.02. NOTICES. All notices or other communications required or
permitted under the terms of this Agreement by any party shall be made in
writing and shall be delivered by first class mail or by personal delivery,
postage or fees prepaid, to the other parties at 2579 Midpoint Drive, Fort
Collins, Colorado 80525, with a copy to Kutak Rock, Suite 2900, 717 Seventeenth
Street, Denver, Colorado 80202, Attention: Warren L. Troupe, or to such other
address as any of the parties hereto may designate by notice to the others.

Section 11.03. NON-ASSIGNABILITY. This Agreement shall not be assignable
by any of the parties to this Agreement.

Section 11.04. ENTIRE AGREEMENT. This Agreement contains the parties'
entire understanding and agreement with respect to its subject matter, and any
and all conflicting or inconsistent discussions, agreements, promises,
representations and statements, if any, between the parties or their
representatives that are not incorporated in this Agreement shall be null and
void and are merged into this Agreement.

Section 11.05. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original, but all of which
together shall constitute a single agreement.

Section 11.06. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado, without giving
effect to conflicts of law principles.

Section 11.07. HEADINGS. The various section headings are inserted for
purposes of reference only and shall not affect the meaning or interpretation of
this Agreement or any provision hereof.

Section 11.08. GENDER; NUMBER. All references to gender or number in this
Agreement shall be deemed interchangeably to have a masculine, feminine, neuter,
singular or plural meaning, as the sense of the context requires.

Section 11.09. SEVERABILITY. The provisions of this Agreement shall be
severable, and any invalidity, unenforceability or illegality of any provision
or provisions of this Agreement shall not affect any other provision or
provisions of this Agreement, and each term and provision of this Agreement
shall be construed to be valid and enforceable to the full extent permitted by
law.

Section 11.10. AUTHORIZATION. The Company and AtrixSub, as the sole
general partner of the Partnership and Atrix, L.P., respectively, (a) shall be
authorized, at such time in their full discretion as they deem appropriate, to
execute, acknowledge, verify, deliver, file and record, for and in the name of
the Partnership or Atrix, L.P., as the case may be, and, to the extent
necessary, the limited partners of the Partnership or Atrix, L.P., as the case
may be, any and all documents and instruments, and (b) shall do and perform any
and all acts required by applicable law or which the Company or AtrixSub, as the
case may be, deems necessary or advisable to effectuate the Merger.

A-7
<PAGE> 110

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by an officer duly authorized to do so, all as of the day and year
first above written.

ATRIX, L.P., a Colorado limited
partnership

By: AtrixSub, Inc., a Colorado
corporation, its sole general
partner

By
--------------------------------------

--------------------------------------,
President

ATRIX LABORATORIES, INC., a Delaware
corporation

By
--------------------------------------
John E Urheim, Vice Chairman and
Chief Executive Officer

VIPONT ROYALTY INCOME FUND, LTD., a
Colorado limited partnership

By: Atrix Laboratories, Inc., a
Delaware corporation, its sole
general partner

By
------------------------------------
John E. Urheim, Vice Chairman and
Chief Executive Officer

A-8
<PAGE> 111

APPENDIX B

CERTIFICATE OF AMENDMENT TO THE AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
VIPONT ROYALTY INCOME FUND, LTD.
(A COLORADO LIMITED PARTNERSHIP)

THIS CERTIFICATE OF AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP (this "Amendment") of Vipont Royalty Income Fund, Ltd., a
Colorado Limited Partnership, (the "Partnership") is made and entered into by
and among Atrix Laboratories, Inc., a Delaware corporation, as general partner
of the Partnership (the "General Partner"), and those persons and entities who
are limited partners of the Partnership (the "Limited Partners"). Capitalized
terms used within this Amendment shall have the meanings provided in the
Agreement (as defined below) unless otherwise provided herein.

(a) The Partnership was formed on August 5, 1987 under the provisions
of the Colorado Uniform Limited Partnership Act of 1981, as amended
("CULPA"), pursuant to the terms of a Certificate of Limited Partnership
filed with the office of the Secretary of State of the State of Colorado
and the terms of the Partnership's Agreement of Limited Partnership (the
"Original Agreement").

(b) The Original Agreement was subsequently amended and restated. The
Original Agreement as amended and restated is referred to herein as the
"Agreement."

(d) On or before , 1995, pursuant to the terms of the
Prospectus/Proxy Statement dated , 1995 (the "Prospectus/Proxy
Statement"), Limited Partners holding at least a majority of the
outstanding Units of the Partnership voted to approve the merger of the
Partnership with and into Atrix, L.P., a Colorado limited partnership
("Atrix L.P.") (such transaction with Atrix L.P. being referred to herein
as the "Merger"). Pursuant to the terms of the Merger, the Limited Partners
will receive common stock of the General Partner (the "Shares").

(e) Accordingly, the parties hereto desire to amend the Agreement to
authorize the Merger and to provide for the distribution of the Shares
among the Limited Partners.

NOW, THEREFORE, in accordance with the terms of the Agreement, the parties
hereto agree to amend the Agreement as follows:

1. DEFINITIONS. The Agreement shall be amended to include the
following defined terms:

"Assigned Value" means, for purposes of the Merger, the value
attributable to the Partnership.

"Atrix L.P." means Atrix L.P., a Colorado limited partnership.

"Merger" means the merger of the Partnership with and into Atrix L.P.,
as described in the Prospectus/Proxy Statement.

"Prospectus/Proxy Statement" means the Prospectus/Proxy Statement
dated , 1995, delivered to the Limited Partners in connection with the
Merger.

"Shares" means the common stock of the General Partner to be issued in
the Merger.

2. SPECIAL DISTRIBUTION OF SHARES. In order to specially distribute Shares
to the appropriate Limited Partners in the Merger, Section 14.04 of the
Agreement is renumbered as new Section 14.05 and the following information is
added to the Agreement to read as follows:

Section 14.04. Special Distribution of Shares. For purposes of this
Agreement, the Merger shall be treated as if the Partnership has (a)
disposed of all of its assets and liabilities to Atrix L.P. in exchange for
the Shares and (b) liquidated in the manner provided in Section 14.02.
Accordingly, pursuant to the

B-1
<PAGE> 112

Merger, the following shall occur: (a) the General Partner will issue
Shares to the Partnership; and (b) the General Partner will cause the
distribution of the Shares from the Partnership to the Limited Partners on
a pro rata basis based upon each Limited Partner's Capital Account in
complete liquidation of their interests in the Partnership. In the event a
Limited Partner is entitled to a fractional Share, such Limited Partner
will receive a cash payment equal to the fraction multiplied by the average
closing price per share of the Common Stock taken over the 15 trading days
ending on the sixth trading day before the Closing Date. For purposes of
Colorado law, the Merger shall be a merger subject to the provisions of
Section 210 of CULPA.

3. MERGER. Notwithstanding anything in the Agreement to the contrary, upon
the vote in favor of the Merger by Limited Partners holding a majority of the
outstanding Units, the Partnership shall be authorized (a) to merge or
consolidate with any other domestic or foreign limited partnership (as those
terms are defined in CULPA), and (b) to consummate the transactions contemplated
by the Merger.

4. GENERAL PARTNER AUTHORIZATION. The General Partner shall be authorized,
at such time in its full discretion as it deems appropriate, to execute,
acknowledge, verify, deliver, file and record, for and in the name of the
Partnership, the General Partner and the Limited Partners, any and all documents
and instruments and shall do and perform any and all acts required by applicable
law or which the General Partner deems necessary or advisable in order to give
effect to this Amendment, to the consummation of any merger or consolidation of
the Partnership with any other domestic or foreign limited partnership (as those
terms are defined in CULPA), and to the consummation of the Merger.

5. FULL FORCE AND EFFECT OF AGREEMENT. Except as provided in this
Amendment, all other terms of the Agreement remain in full force and effect.

6. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon, and shall
enure to the benefit of, the parties hereto and their respective successors and
assigns.

7. COUNTERPARTS. This Amendment may be executed in counterparts, all of
which together shall constitute one agreement binding on all parties hereto,
notwithstanding that all such parties are not signatories to the original or
same counterpart.

8. GOVERNING LAW. This Amendment shall be interpreted in accordance with
the laws of the State of Colorado, all rights and remedies being governed by
such laws.

B-2
<PAGE> 113

IN WITNESS WHEREOF, the undersigned hereby execute this Amendment as of the
day of , 1995.

GENERAL PARTNER:

ATRIX LABORATORIES, INC., a Delaware
corporation

------------------------------------
John E. Urheim, Chief Executive
Officer

LIMITED PARTNERS:

By: ATRIX LABORATORIES, INC. a
Delaware corporation as
Attorney-in-Fact for all Limited
Partners

----------------------------------
John E. Urheim, Vice Chairman
and Chief Executive Officer

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<PAGE> 114

APPENDIX C

August 18, 1995

Atrix Laboratories, Inc.
2579 Midpoint Drive
Ft. Collins, CO 80525

Re: Certain Federal Income Tax Issues

Ladies and Gentlemen:

We have acted as your tax counsel in connection with the consummation of
that certain Agreement and Plan of Merger (the "Merger Agreement") among Vipont
Royalty Income Fund, Ltd. (the "Partnership"), Atrix L.P. (the "Company") and
you. The general partner and limited partner, respectively, of the Company will
be AtrixSub, Inc. and you.

Pursuant to the terms of the Merger Agreement, the Partnership will be
merged into the Company, the survivor of which will be the Company. Immediately
thereafter, shares of your common stock, $.001 par value (the "Stock") will be
distributed to the former limited partners of the Partnership in accordance with
their respective capital account balances. Thereafter, the Company will be
dissolved and its remaining assets distributed to you in liquidation thereof.
Such remaining assets will be the assets formerly owned by the Partnership.

You have requested our opinion concerning the material federal income tax
consequences of the transactions contemplated by the Merger Agreement by the
Partnership. This opinion is based in part on various representations and
assumptions and the description of your operations as set forth in that certain
Prospectus/Proxy Statement filed with the Securities and Exchange Commission
(the "Proxy Statement").

This opinion is further based in part on relevant provisions of the Code,
the Treasury Regulations promulgated thereunder and interpretations thereof by
the Internal Revenue Service and the courts, each as of the date hereof, all of
which are subject to change. Also, any variation or difference in the facts from
those set forth in the Proxy Statement or the representations furnished to us by
you may affect the conclusions stated herein.

In rendering this opinion we have assumed the validity of the signatures,
the accuracy of copies, and that you have been organized and operated as set
forth in your Articles of Incorporation and the Proxy Statement. We further have
assumed compliance with the respective terms and conditions of all the following
documents and the accuracy of the matters set forth in your representations.
Please note that we have not independently verified any of the information
described herein.

Further, in rendering this opinion we have reviewed the following
documents:

i) Your Articles of Incorporation;

ii) The Proxy Statement;

iii) The Agreement of Limited Partnership of the Company; and

iv) The Amended and Restated Agreement of Limited Partnership of the
Partnership.

Further, in rendering the opinion expressed herein, we relied upon the
following representations which you have made to us:

i) the Company was organized solely for the purpose of facilitating
the acquisition of the assets of the Partnership by you; and

ii) immediately after the consummation of the transactions
contemplated under the Merger Agreement, the Company will be liquidated and
its assets distributed to you.

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<PAGE> 115

Based upon the foregoing, and subject to the qualifications and limitations
described herein we are of the opinion that the transactions contemplated under
the Merger Agreement will be treated as a sale of assets by the Partnership to
which the nonrecognition provisions of Section 351 of the Code will not apply.
In addition, in our opinion, the discussion in the Proxy Statement represents
the material federal income tax consequences associated with the Merger (as
defined in the Proxy Statement), which may affect Limited Partners who are
individuals and citizens or residents of the United States, to the extent such
discussion describes provisions of the Code or interpretations thereof.

This opinion is rendered only to you and is solely for your benefit in
connection with the transactions covered hereby. This opinion may not be relied
upon by you for any other purpose or furnished to, quoted to, or relied upon by
any other person, firm or corporation for any purpose, without our prior written
consent. Please be advised that we have rendered no opinion regarding any tax
issues, other than as set forth herein.

We hereby consent to the filing of this opinion letter with the Securities
and Exchange Commission as an exhibit to the Company's registration statement on
Form S-4 and the use of our name in the registration statement.

Very truly yours,

/s/ KUTAK ROCK

C-2
<PAGE> 116

[KUTAK ROCK LETTERHEAD]

August 18, 1995

Atrix Laboratories, Inc.
2579 Midpoint Drive
Ft. Collins, CO 80525

Re: Vipont Royalty Income Fund, Ltd.

Ladies and Gentlemen:

We have acted as tax counsel to Atrix Laboratories, Inc. in its separate
corporate capacity in connection with the merger of Vipont Royalty Income Fund,
Ltd. (the "Partnership") into Atrix, L.P. (the "Company"), pursuant to the terms
of that certain merger agreement dated as of the date hereof (the "Merger
Agreement"). Please be advised that the partners of the Partnership are hereby
entitled to rely upon our opinion of counsel regarding certain federal income
tax issues associated with the transactions contemplated under the Merger
Agreement to the same extent as if it were addressed to them.

Best regards,

Thane R. Hodson

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<PAGE> 117

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS/PROXY STATEMENT

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The General Corporation Law of the State of Delaware permits a Delaware
corporation to indemnify its officers or directors under certain circumstances.
Such statute provides that, in actions in which the corporation is not a party,
a corporation may indemnify its officers or directors for losses incurred by
them if the officer or director acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation. In actions in which the corporation is a party, the statute
provides the same standard but prohibits indemnification if the director or
officer is adjudged liable to the corporation.

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

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
----------- ------------------------------------------------------------------------------
<C> <S>
2.01* Form of Agreement and Plan of Merger to be entered into by and among the
Company, Atrix, L.P. and the Partnership, is incorporated by reference to
Appendix A to the Prospectus/Proxy Statement.
3.01(1) Amended and Restated Certificate of Incorporation of the Company.
3.02(2) Amended and Restated Bylaws of the Company.
4.01(2) Form of Common Stock Certificate.
5.01* Opinion of Kutak Rock as to the legality of the Shares.
8.01* Opinion of Kutak Rock as to certain tax matters is incorporated by reference
to Appendix C to the Prospectus/Proxy Statement.
10.01(3) Research and Development Agreement between the Company and the Partnership
dated August 5, 1987.
10.02(3) Technology Transfer Agreement between the Company and the Partnership dated
August 5, 1987.
10.03(3) Marketing Agreement between the Company and the Partnership dated August 5,
1987.
10.04(5) First Amendment to Marketing Agreement between the Company and the Partnership
dated as of October 14, 1992.
10.05(3) Purchase Option Agreement between the Company and the Partnership dated August
5, 1987.
10.06(5) First Amendment to the Purchase Option Agreement between the Company and the
Partnership dated as of October 14, 1992.
10.07(4) Employment Agreement between the Company and John E. Urheim dated June 4,
1993.
10.08(2) Amendment No. 3 and Restatement of Master Technology Transfer Agreement
between the Company and VPI dated February 22, 1990.
10.09(2) Incentive Stock Option Agreement.
10.10(2) Amended and Restated Agreement of Limited Partnership of the Partnership dated
June 20, 1990.
</TABLE>

II-1
<PAGE> 118

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
----------- ------------------------------------------------------------------------------
<C> <S>
10.11(3) Certificate of Limited Partnership of the Partnership.
10.12(5) Amendment No. 1 to Amended and Restated Agreement of Limited Partnership of
the Partnership.
10.13* Form of Amendment to Amended and Restated Agreement of Limited Partnership of
the Partnership is incorporated by reference to Appendix B to the
Prospectus/Proxy Statement.
23.01* Consent of Kutak Rock included as part of its opinion filed as Exhibit 5.01 is
incorporated herein by reference.
23.02* Consent of Kutak Rock included as part of its opinion filed as Exhibit 8.01 is
incorporated herein by reference.
23.03* Consent of Deloitte & Touche LLP.
24.01* The Power of Attorney, included at page II-5 of the Registration Statement is
incorporated herein by reference.
99.1* Form of Proxy Card.
</TABLE>

---------------
* Filed herewith

(1) Incorporated herein by reference to the Company's Current Report on Form 8-K
dated December 1, 1989, as filed with the Securities and Exchange Commission
on December 15, 1989.

(2) Incorporated herein by reference to the Registration Statement of Form S-1
of the Company, File No. 33-34882 as filed with the Securities and Exchange
Commission.

(3) Incorporated herein by reference to the Registration Statement on Form S-1
of the Company, the Partnership and VPI, File No. 33-11483 as filed with the
Securities and Exchange Commission on January 23, 1987.

(4) Incorporated herein by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.

(5) Incorporated herein by reference to the Partnership's Annual Report on Form
10-K for the year December 31, 1994, as amended by its Form 10-K/A-1 filed
August 18, 1995.

ITEM 22. UNDERTAKINGS

A. The Company hereby undertakes the following:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:

(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(b) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and

(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.

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

II-2
<PAGE> 119

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

B. (1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.

(2) The undersigned Registrant undertakes that every prospectus (i)
that is filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Securities Act
of 1933 and is used in connection with an offering of securities subject to
Rule 415, will be filed as part of an amendment to the registration
statement and will not be used until such amendment is effective, and that,
for purposes of determining any liability under the Securities Act of 1933,
each such posteffective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.

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

D. The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus/Proxy
Statement pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business
day of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of this registration statement
through the date of responding to the request.

E. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-3
<PAGE> 120

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Ft. Collins, State of
Colorado on August 17, 1995

ATRIX LABORATORIES, INC.
(Registrant)

By: /s/ John E. Urheim

------------------------------------
John E. Urheim, Vice Chairman of the
Board and Chief Executive Officer

II-4
<PAGE> 121

POWER OF ATTORNEY

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

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

<TABLE>
<CAPTION>
NAME TITLE DATE
---------------------------------------- ----------------------------------- ----------------
<C> <S> <C>
/s/ William C. O'Neil, Chairman of the Board of Directors August 17, 1995
Jr.
----------------------------------------
William C. O'Neil, Jr.
/s/ John E. Vice Chairman of the Board of August 17, 1995
Urheim Directors and Chief Executive
---------------------------------------- Officer
John E. Urheim
/s/ G. Lee President, Chief Scientific Officer August 17, 1995
Southard and Director
----------------------------------------
Dr. G. Lee Southard
Director
----------------------------------------
Dr. R. Bruce Merrifield
/s/ Jere E. Director August 17, 1995
Goyan
----------------------------------------
Dr. Jere E. Goyan
/s/ Rodney Director August 17, 1995
O'Connor
----------------------------------------
Rodney O'Connor
/s/ Dr. D. Walter Director August 17, 1995
Cohen
----------------------------------------
Dr. D. Walter Cohen
/s/ David R. Director August 17, 1995
Bethune
----------------------------------------
David R. Bethune
/s/ Kimberly A. Corporate Controller Assistant August 17, 1995
Marks Secretary, and Assistant Treasurer
----------------------------------------
Kimberly A. Marks
</TABLE>

II-5
<PAGE> 122

ATRIX LABORATORIES, INC.

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED PAGE
-------------------------------------------------------------------- -------------
<C> <S> <C>
2.01* Form of Agreement and Plan of Merger to be entered into by and among
the Company, Atrix, L.P. and the Partnership, is incorporated by
reference to Appendix A to the Prospectus/Proxy Statement.
3.01(1) Amended and Restated Certificate of Incorporation of the Company.
3.02(2) Amended and Restated Bylaws of the Company.
4.01(2) Form of Common Stock Certificate.
5.01* Opinion of Kutak Rock as to the legality of the Shares.
8.01* Opinion of Kutak Rock as to certain tax matters is incorporated by
reference to Appendix C to the Prospectus/Proxy Statement.
10.01(3) Research and Development Agreement between the Company and the
Partnership dated August 5, 1987.
10.02(3) Technology Transfer Agreement between the Company and the
Partnership dated August 5, 1987.
10.03(3) Marketing Agreement between the Company and the Partnership dated
August 5, 1987.
10.04(5) First Amendment to Marketing Agreement between the Company and the
Partnership dated as of October 14, 1992.
10.05(3) Purchase Option Agreement between the Company and the Partnership
dated August 5, 1987.
10.06(5) First Amendment to the Purchase Option Agreement between the Company
and the Partnership dated as of October 14, 1992.
10.07(4) Employment Agreement between the Company and John E. Urheim dated
June 4, 1993.
10.08(2) Amendment No. 3 and Restatement of Master Technology Transfer
Agreement between the Company and VPI dated February 22, 1990.
10.09(2) Incentive Stock Option Agreement.
10.10(2) Amended and Restated Agreement of Limited Partnership of the
Partnership dated June 20, 1990.
10.11(3) Certificate of Limited Partnership of the Partnership.
10.12(5) Amendment No. 1 to Amended and Restated Agreement of Limited
Partnership of the Partnership.
10.13* Form of Amendment to Amended and Restated Agreement of Limited
Partnership of the Partnership is incorporated by reference to
Appendix B to the Prospectus/Proxy Statement.
23.01* Consent of Kutak Rock included as part of its opinion filed as
Exhibit 5.01 is incorporated herein by reference.
23.02* Consent of Kutak Rock included as part of its opinion filed as
Exhibit 8.01 is incorporated herein by reference.
23.03* Consent of Deloitte & Touche LLP.
</TABLE>
<PAGE> 123

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED PAGE
-------------------------------------------------------------------- -------------
<C> <S> <C>
24.01* The Power of Attorney, included at page II-5 of the Registration
Statement is incorporated herein by reference.
99.1* Form of Proxy Card.
</TABLE>

---------------
* Filed herewith

(1) Incorporated herein by reference to the Company's Current Report on Form 8-K
dated December 1, 1989, as filed with the Securities and Exchange Commission
on December 15, 1989.

(2) Incorporated herein by reference to the Registration Statement of Form S-1
of the Company, File No. 33-34882 as filed with the Securities and Exchange
Commission.

(4) Incorporated herein by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.

(5) Incorporated herein by reference to the Partnership's Annual Report on Form
10-K for the year December 31, 1994, as amended by its Form 10-K/A-1 filed
August 18, 1995.

<PAGE> 1

EXHIBIT 5.01

August 18, 1995
Atrix Laboratories, Inc.
2579 Midpoint Drive
Fort Collins, Colorado 80525

Re: Vipont Royalty Income Fund, Ltd.

Gentlemen:

We have acted as counsel to Atrix Laboratories, Inc. (the "Company") in
connection with the filing of a registration statement on Form S-4, including a
related Prospectus/Proxy Statement, under the Securities Act of 1933, as amended
(the "Act"). The registration statement covers a proposed offering by the
Company of up to 704,835 shares of common stock, $.001 par value per share (the
"Common Stock"). Such registration statement and Prospectus/Proxy Statement on
file with the Securities and Exchange Commission (the "Commission") at the time
such registration statement becomes effective (including financial statements
and schedules, exhibits and all other documents filed as a part thereof or
incorporated therein) are herein called, respectively, the "Registration
Statement" and the "Prospectus/Proxy Statement."

In connection with this opinion, we have made such investigations and
examined such records, including the Company's Certificate of Incorporation,
Bylaws and corporate minutes as we deemed necessary to the performance of our
services and to give this opinion. We have also examined and are familiar with
the originals or copies, certified or otherwise identified to our satisfaction,
of such other documents, corporate records and other instruments as we have
deemed necessary for the preparation of this opinion. In expressing this
opinion, we have relied, as to any questions of fact upon which our opinion is
predicated, upon representations and certificates of the officers of the
Company.

In giving this opinion we assumed:

(a) the genuineness of all signatures and the authenticity and
completeness of all documents submitted to us as originals;

(b) the conformity to originals and the authenticity of all documents
supplied to us as certified, photocopied, conformed or facsimile copies and
the authenticity and completeness of the originals of any such documents;
and

(c) the proper, genuine and due execution and delivery of all
documents by all parties to them and that there has been no breach of the
terms thereof.

Based upon the foregoing and subject to the qualifications set forth above,
we are of the opinion that assuming that the Registration Statement has become
effective under the Act and that all required actions are taken and conditions
satisfied with respect to the issuance of the Company's Common Stock as
specified in the Prospectus/Proxy Statement at the time the Common Stock is
issued, the Common Stock will be legally issued, fully paid and nonassessable.

We consent to the filing of this opinion as an exhibit to the Registration
Statement and the use of our name in the Registration Statement. In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Act or the Rules and
Regulations of the Commission promulgated pursuant thereto.
Very truly yours,

/s/ KUTAK ROCK
Kutak Rock

<PAGE> 1

EXHIBIT 23.03

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of Atrix Laboratories,
Inc. on Form S-4 of our reports dated January 25, 1995 and January 26, 1995,
included in the Annual Reports on Form 10-K of Atrix Laboratories, Inc. and
Vipont Royalty Income Fund, Ltd. for the year ended December 31, 1994, and to
the use of our reports dated January 25, 1995 and January 26, 1995 relating to
the financial statements of Atrix Laboratories, Inc. and Vipont Royalty Income
Fund, Ltd., respectively, appearing in the Prospectus/Proxy Statement, which is
part of this Registration Statement. We also consent to the references to us
under the headings "Selected Historical Financial Data, Selected Financial Data
of the Company, Selected Financial Information of the Partnership" and "Experts"
in such Prospectus/Proxy Statement.

DELOITTE & TOUCHE LLP

/s/ Deloitte & Touche LLP

Denver, Colorado
August 17, 1995

<PAGE> 1
-------------------------------------------------------------------------------
PROXY VIPONT ROYALTY INCOME FUND, LTD.
THIS PROXY IS SOLICITED ON BEHALF OF
VIPONT ROYALTY INCOME FUND, LTD.
BY ATRIX LABORATORIES, INC., AS GENERAL PARTNER

The undersigned hereby appoints Kimberly A. Marks and Brian G. Richmond and
each of them, as proxies for the undersigned, each with the full power of
appointment and substitution, and hereby authorizes them to represent and to
vote, as designated below, all Limited Partnership units ("Units") of Vipont
Royalty Income Fund, Ltd. (the "Partnership") which the undersigned is entitled
to vote at the Special Meeting of Limited Partners of the Partnership to be held
on September 27, 1995 at 10:00 a.m. local time, at The Marriott Hotel, 350 East
Horsetooth, Fort Collins, Colorado 80525 (the "Meeting"), or at any and all
postponements, continuations or adjournments thereof.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED LIMITED PARTNER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR EACH OF THE PROPOSALS SET FORTH ON THE PROXY.

Please mark boxes /X/ in ink. Sign, date and return this Proxy Card
promptly using the enclosed envelope.

1. Proposal to approve the merger of the Partnership with and into Atrix, L.P.,
a Colorado limited partnership (the "Merger") pursuant to which each Partnership
Unit would be converted into Shares of common stock of Atrix Laboratories, Inc.
and the adoption of an amendment to the Amended and Restated Agreement of
Limited Partnership of the Partnership to specifically provide for the Merger.

/ / FOR / / AGAINST / / ABSTAIN
-------------------------------------------------------------------------------

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

2. In the discretion of such proxy holders, upon such other business as may
properly come before the Meeting or any and all postponements, continuations
or adjournments thereof.

The undersigned hereby acknowledges receipt of the Notice of Special Meeting of
Limited Partners, dated , 1995 and the Prospectus/Proxy Statement
furnished therewith.

Please sign exactly as your name appears hereon. When Units are held by joint
tenants, both should sign. Executors, administrators, trustees and other
fiduciaries, and persons signing on behalf of corporations or partnerships,
should so indicate when signing.

Dated , 1995

-------------------------------
Authorized Signature

-------------------------------
Title

-------------------------------
Authorized Signature

-------------------------------
Title

To save the Partnership additional vote solicitation expense, please sign, date
and return this Proxy promptly, using the enclosed envelope.

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