OPHIDIAN PHARMACEUTICALS INC, S-1/A, 1998-02-20

OPHIDIAN PHARMACEUTICALS INC
S-1/A, 1998-02-20
COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 20, 1998

REGISTRATION NO. 333-33219
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 7

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

OPHIDIAN PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)

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

<TABLE>
<S> <C> <C>
WISCONSIN 8731 39-1661164
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>

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

5445 EAST CHERYL PARKWAY
MADISON, WISCONSIN 53711
608/271-0878
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

------------------------
DOUGLAS C. STAFFORD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
5445 EAST CHERYL PARKWAY
MADISON, WISCONSIN 53711
608/271-0878
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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

Copies to:

<TABLE>
<S> <C>
MICHAEL E. SKINDRUD, ESQ. LAWRENCE B. FISHER, ESQ.
LAFOLLETTE & SINYKIN ORRICK, HERRINGTON & SUTCLIFFE LLP
ONE EAST MAIN STREET 666 FIFTH AVENUE
MADISON, WISCONSIN 53703 NEW YORK, NEW YORK 10103
608/257-3911 212/506-5000
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------
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 EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

================================================================================
<PAGE> 2

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

SUBJECT TO COMPLETION, DATED FEBRUARY 20, 1998

PROSPECTUS
OPHIDIAN
PHARMACEUTICALS, INC.

2,500,000 UNITS

EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT

Ophidian Pharmaceuticals, Inc. ("Ophidian" or the "Company") hereby offers
(the "Offering") 2,500,000 Units (the "Units"), each Unit consisting of one
share of common stock, $.0025 par value (the "Shares" or "Common Stock") and one
redeemable common stock purchase warrant (the "Warrants"). The Units, Shares and
Warrants are sometimes hereinafter collectively referred to as the "Securities."
The Shares and Warrants comprising the Units are detachable and will trade
separately 90 days after issuance, subject to earlier separability in the
discretion of National Securities Corporation, the representative of the several
Underwriters (the "Representative"), and the Company, based upon factors that
include the stability and trading volume of the Units. Each Warrant entitles the
registered holder thereof to purchase one Share of Common Stock at an exercise
price of $ per Share [120% of the initial public offering price per
Unit], subject to adjustment, at any time during the period commencing on
, 1999 [twelve months from the date of the Prospectus] until
, 2003 [5 years after the date of this Prospectus]. Commencing
, 2000 [24 months from the date of the Prospectus], the Warrants are
subject to redemption by the Company, in whole but not in part, at $.10 per
Warrant on 30 days' prior written notice provided that the average closing bid
price of the Common Stock as reported on the American Stock Exchange ("AMEX")
equals or exceeds $ per share [240% of the initial public offering price
per Unit] for any 20 trading days within a period of 30 consecutive trading days
ending on the fifth trading day prior to the date of the notice of redemption.
See "Description of Securities -- Warrants."

Prior to the Offering, there has been no public market for the Units, the
Common Stock or the Warrants, and there can be no assurance that such a market
will develop after completion of the Offering, or if developed, that it will be
sustained. It is currently anticipated that the public offering price will be
$6.10 per Unit. For information regarding the factors considered in determining
the initial public offering price of the Units and the terms of the Warrants,
see "Risk Factors" and "Underwriting." It is anticipated that the Units, Shares
and Warrants will be included for quotation on the AMEX under the symbols OPD.U,
OPD and OPD.WS, respectively. The Company and the Representative may jointly
determine, based upon market conditions including trading volume of the Units,
to delist the Units upon expiration of a 30-day period commencing on the date of
this Prospectus and subsequent to the separation of the Units into Shares and
Warrants which will trade separately thereafter.

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 7 AND "DILUTION."

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

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO THE PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Per Unit.................................... $ $ $
- -----------------------------------------------------------------------------------------------------------------------
Total(3).................................... $ $ $
=======================================================================================================================
</TABLE>

(1) Does not include additional compensation to the Representative in the form
of a non-accountable expense allowance. In addition, see "Underwriting" for
information concerning indemnification and contribution arrangements with
the Underwriters and other compensation payable to the Representative.
(2) Before deducting estimated expenses of $350,000 payable by the Company,
excluding the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted to the Representative an option, exercisable within
45 days after the date of this Prospectus, to purchase up to an aggregate of
375,000 additional Units upon the same terms and conditions as set forth
above, solely to cover over-allotments, if any (the "Over-Allotment
Option"). If such Over-Allotment Option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to the Company will be
$ $ and $ respectively. See "Underwriting."

The Securities are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
approval of certain legal matters by their counsel and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
this Offering and to reject any order in whole or in part. It is expected that
delivery of the Securities offered hereby will be made against payment therefor
at the offices of National Securities Corporation, Seattle, Washington on or
about , 1998.

NATIONAL SECURITIES CORPORATION

The date of this Prospectus is , 1998
<PAGE> 3

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE UNITS, COMMON
STOCK OR THE WARRANTS, INCLUDING PURCHASES OF THE UNITS, COMMON STOCK AND/OR
WARRANTS TO STABILIZE THEIR RESPECTIVE MARKET PRICES, PURCHASES OF THE UNITS,
COMMON STOCK AND/OR WARRANTS TO COVER SOME OR ALL OF A SHORT POSITION MAINTAINED
BY THE UNDERWRITERS IN THE UNITS, COMMON STOCK AND/OR WARRANTS, RESPECTIVELY,
AND THE IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

THE COMPANY INTENDS TO FURNISH ITS SHAREHOLDERS ANNUAL REPORTS CONTAINING
FINANCIAL STATEMENTS AUDITED BY ITS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AND
QUARTERLY REPORTS CONTAINING UNAUDITED INTERIM FINANCIAL STATEMENTS FOR THE
FIRST THREE QUARTERS OF EACH FISCAL YEAR.
2
<PAGE> 4

PROSPECTUS SUMMARY

This Prospectus contains forward-looking statements. Such forward-looking
statements include, but are not limited to, the Company's expectations regarding
its future financial condition and operating results, product development,
business and growth strategy, market conditions and competitive environment. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus. The following
summary is qualified in its entirety by the more detailed information and the
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
Unless otherwise indicated, all information in this Prospectus (i) assumes the
Underwriter's Over-Allotment Option is not exercised, and (ii) assumes the
Warrants and the warrants to purchase 250,000 Units issued to the Representative
in connection with this Offering (the "Representative's Warrants") are not
exercised.

THE COMPANY

Ophidian Pharmaceuticals, Inc. ("Ophidian" or the "Company"), a development
stage company, is engaged in the research and development of pharmaceuticals
with an emphasis on products for infectious diseases. Under a collaboration with
Eli Lilly and Company ("Lilly"), the Company is developing a product for the
treatment of Clostridium difficile-associated disease ("CDAD"). CDAD is a
bacterial infection that has become a common side effect of antibiotic therapy.
The CDAD product is a result of the Company's strategy to design new drugs for
infectious diseases by targeting molecules involved in the host-pathogen
interaction.

Ophidian signed a collaborative development and license agreement and a
stock purchase agreement with Lilly in June 1996 ("Lilly Agreements"). Under the
Lilly Agreements, Ophidian has received $4.4 million in equity investments and
development milestone payments. Lilly will pay the Company an additional $8.0
million if certain CDAD product development objectives are met and Lilly chooses
to proceed with development. The Lilly Agreements provide for Lilly to fund and
conduct clinical testing, registration and marketing of the CDAD product
worldwide and Ophidian to manufacture bulk drug for clinical and commercial use.
The CDAD product is a passive antibody formulation that neutralizes
disease-causing toxins secreted by C. difficile during infection of the human
intestinal tract. These toxins are responsible for the development of diarrhea,
inflammation and symptoms of colitis caused by the C. difficile organism. CDAD
is a common side effect of treatment with certain broad spectrum antibiotics.
Based on surveys and research, the Company estimates that CDAD arises in
approximately one percent of all hospitalized patients. An Investigational New
Drug application ("IND") was filed with the United States Food and Drug
Administration ("FDA") for initial human clinical testing of the CDAD drug in
November of 1997. The Company anticipates that several years of clinical testing
will be required prior to FDA marketing approval.

The Company is also developing a drug to prevent disease caused by
enterohemorrhagic Escherichia coli, ("EHEC"), including E. coli O157:H7.
Ophidian has received research funding of $816,000 from the U.S. National
Institutes of Health ("NIH") for this program. The public health problem of EHEC
became widely recognized following outbreaks in the U.S. and Japan that
afflicted thousands of persons as a result of contaminated food products,
including ground beef. The Company has shown in animals that the injection of
its passive antibodies that neutralize EHEC toxins can block progression of
lethal disease symptoms. The Company is conducting pre-clinical development of
its EHEC passive antibodies as a potential human therapeutic.

Ophidian has devised a drug formulation and manufacturing technology for
the production of avian polyclonal antibodies for passive immune therapy. The
Company believes avian antibodies will be generally safe when administered
orally because they are derived from hen eggs that are common in the human diet.
Ophidian intends to manufacture and sell bulk drugs based on its avian antibody
technology to its commercial partners for final formulation and marketing of
drug products.

3
<PAGE> 5

and the emergence of new infectious agents have created a significant need for
new approaches for the treatment of infectious diseases. In addition,
broad-spectrum antibiotics can be detrimental to the patient because beneficial
microbes are often killed along with the disease-causing pathogen. The Company's
research strategy is to develop infectious disease drugs that target molecules
involved in specific host-pathogen interactions. In contrast to typical
antibiotics, the Company's products are designed to leave beneficial microbes
undisturbed, support the action of the host's immune system, and reduce the
potential for the development of microbial resistance. The Company has 57 United
States or foreign patents, issued or pending, from its research and development
programs and has acquired rights to several external patents to supplement its
technology.

The Company's business strategy is to create commercial opportunities from
its technologies by manufacturing proprietary antibody pharmaceuticals,
establishing royalty-bearing licenses for the sale of its proprietary products
with marketing partners, licensing technology to pharmaceutical firms, and
forming sponsored research agreements.

Ophidian was incorporated in the State of Wisconsin in November 1989 and
commenced business operations in August 1990. The Company's principal offices
and laboratories are located at 5445 East Cheryl Parkway, Madison, Wisconsin,
53711, and its telephone number is (608) 271-0878.

4
<PAGE> 6

THE OFFERING

Securities offered........... 2,500,000 Units, each unit consisting of one
share of Common Stock and one Warrant. The
Shares of Common Stock and Warrants will be
detachable 90 days after issuance, subject to
earlier separability in the discretion of the
Representative and the Company.

Terms of Warrants............ Each Warrant entitles the registered holder
thereof to purchase, at any time commencing
, 1999 [one year after the date of
this Prospectus], until , 2003
[five years after the date of this Prospectus],
one Share of Common Stock at a price of
$ per Share [120% of the initial
public offering price per Unit]. Commencing
, 2000 [24 months after the date of
this Prospectus], the Warrants are subject to
redemption by the Company, in whole, but not in
part, at $.10 per Warrant provided that the
average closing bid price of the Common Stock
as reported on the AMEX equals or exceeds
$ per share [240% of the initial
public offering price per Unit] for any 20
trading days within a period of 30 consecutive
trading days ending on the fifth trading day
prior to the date of the notice of redemption.
See "Description of Securities."

Common Stock Outstanding
Prior to the Offering(1)... 7,289,930 shares

Securities to be Outstanding
After
the Offering(1).......... 9,789,930 shares of Common Stock and 2,500,000
Warrants.

Use of Proceeds.............. For technology development/new product discovery,
product development expenses, capital
expenditures, working capital and general
corporate purposes. See "Use of Proceeds."

Risk Factors and Dilution.... An investment in the securities offered hereby
involves a high degree of risk and immediate
and substantial dilution to the purchasers in
this Offering. See "Risk Factors" and
"Dilution."

Proposed AMEX Symbols(2):
Units.................... OPD.U

Common Stock............ OPD

Warrants................ OPD.WS
- ---------------

(1) Excludes (i) 646,608 shares of Common Stock issuable upon the exercise of
outstanding stock options as of February 13, 1998, under the 1990 Incentive
Stock Option Plan and the 1992 Employee Stock Option Plan (collectively, the
"1990/1992 Stock Option Plans") at a weighted average exercise price of
$2.74 per share, leaving a balance of 5,296 shares of Common Stock reserved
for future grants of options under the 1990/1992 Stock Options Plans, (ii)
Fitchburg Research Park Associates' warrant to purchase up to 114,290 shares
at an exercise price of $.0025 per share, (iii) a consultant's option to
purchase 100,000 shares at an exercise price of $4.50 per share, and (iv)
options to purchase a maximum of 90,000 shares of Common Stock to be granted
to six employees and three outside directors.

(2) Application has been made for listing of the Units, Common Stock and the
Warrants on AMEX.

5
<PAGE> 7

SUMMARY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------------------------------------------- ----------------------
1993 1994 1995 1996 1997 1996 1997
---------- ---------- ----------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues......................... $1,746,596 $1,017,627 $ 386,979 $ 321,444 $ 671,881 $ 393,361 $ 115,185
Operating expenses:
Research and development........ 842,000 1,156,428 1,215,366 1,339,048 2,432,102 428,998 666,632
General and administrative...... 404,709 753,549 916,294 1,119,409 1,005,797 256,151 355,100
---------- ---------- ----------- ----------- ----------- --------- ----------
Total operating expenses........ 1,246,709 1,909,977 2,131,660 2,458,457 3,437,899 685,149 1,021,732
---------- ---------- ----------- ----------- ----------- --------- ----------
Income (loss) from operations... 499,887 (892,350) (1,744,681) (2,137,013) (2,766,018) (291,788) (906,547)
Investment income, net........... 106,576 191,040 144,750 50,761 281,483 75,864 46,102
Interest expense................. -- (4,082) (4,624) (3,320) (2,800) (718) (724)
Other............................ -- 97 668 -- -- -- --
---------- ---------- ----------- ----------- ----------- --------- ----------
Net earnings (loss)............. $ 606,463 $ (705,295) $(1,603,887) $(2,089,572) $(2,487,335) $(216,642) $ (861,169)
========== ========== =========== =========== =========== ========= ==========
Net earnings (loss) per
share(1)......................
Basic......................... $0.11 $(0.12) $(0.26) $(0.34) $(0.34) $(0.03) $(0.12)
Diluted....................... $0.11 $(0.12) $(0.26) $(0.34) $(0.34) $(0.03) $(0.12)
Shares used to compute net
earnings (loss) per
share(1)......................
Basic......................... 5,334,283 6,086,065 6,089,128 6,115,336 7,215,274 6,788,750 7,287,464
Diluted....................... 5,674,121 6,086,065 6,089,128 6,115,336 7,215,274 6,788,750 7,287,464

INCEPTION
(NOV. 11, 1989) TO
DECEMBER 31, 1997
-------------------
<S> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues......................... $ 4,388,327
Operating expenses:
Research and development........ 8,306,647
General and administrative...... 5,070,359
-----------
Total operating expenses........ 13,377,006
-----------
Income (loss) from operations... (8,988,679)
Investment income, net........... 865,822
Interest expense................. (38,710)
Other............................ 765
-----------
Net earnings (loss)............. $(8,160,802)
===========
Net earnings (loss) per
share(1)......................
Basic.........................
Diluted.......................
Shares used to compute net
earnings (loss) per
share(1)......................
Basic.........................
Diluted.......................
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
SEPTEMBER 30, -------------------------
----------------------------------------------------------------- AS
1993 1994 1995 1996 1997 ACTUAL ADJUSTED(2)
---------- ----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................. $5,100,728 $ 2,507,268 $ 1,319,826 $ 3,328,103 $3,812,539 $ 2,725,172 $16,023,172
Total assets..................... 5,856,184 4,917,996 3,408,129 5,247,761 5,975,606 5,116,176 18,414,176
Deficit accumulated during
development stage.............. (413,544) (1,118,839) (2,722,726) (4,812,298) (7,299,633) (8,160,802) (8,160,802)
Total shareholders' equity....... 5,500,501 4,680,233 3,156,544 4,743,260 5,397,956 4,544,458 17,842,458
</TABLE>

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

(1) See Note 1 of Notes to Financial Statements "Net Loss Per Share" for a
description of the shares used in calculating net earnings (loss) per share.

(2) As adjusted to give effect to the estimated net proceeds from the sale of
2,500,000 Units offered by the Company at an assumed initial public offering
price of $6.10 per Unit. See "Use of Proceeds."

6
<PAGE> 8

RISK FACTORS

An investment in the Securities offered hereby involves a high degree of
risk. In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing the Securities offered hereby. Prospective
investors should be in a position to risk the loss of their entire investment.
This Prospectus contains forward-looking statements. Such forward-looking
statements include, but are not limited to, the Company's expectations regarding
its future financial condition and operating results, product development,
business and growth strategy, market conditions and competitive environment. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
in the following risk factors and elsewhere in this Prospectus.

DEVELOPMENT STAGE COMPANY; LIMITED OPERATING HISTORY; NO PRODUCT REVENUES AND NO
ASSURANCE OF PROFITABILITY

The Company is in the development stage and is subject to all business
risks associated with a new enterprise, including uncertainties regarding
product development, constraints on the Company's financial and personnel
resources, and dependence on and need for third party relationships. At December
31, 1997, the Company had an accumulated deficit of $8,160,802. For the three
months ended December 31, 1997, the Company had a net loss of $861,169. The
Company anticipates that it will continue to incur substantial additional
operating losses for at least the next several years and expects cumulative
losses to increase as the Company's research and development efforts expand. The
Company has a limited history of operations consisting primarily of development
of its products and contract research. While the Company has generated revenues
primarily from contract fees and research grants of $4,388,327 since its
inception through December 31, 1997, it has not generated any revenue to date
from pharmaceutical product sales, and there can be no assurance as to when or
whether it will be able to develop such sources of revenue or that its
operations will become profitable, even if it is able to commercialize any
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

NEED FOR SUBSTANTIAL ADDITIONAL FUNDS

The Company's operations to date have consumed substantial and increasing
amounts of cash. The negative cash flow from operations is expected to continue
and to accelerate in the foreseeable future. The Company will require
substantial funds of its own, or from third parties, to conduct research and
development, pre-clinical and clinical testing and to manufacture (or have
manufactured) and market (or have marketed) its product candidates. The Company
estimates that its current cash resources and the net proceeds of the Offering
will be sufficient to meet its operating and capital requirements for at least
12 months following the closing of the Offering. However, the Company's cash
requirements may vary materially from those now planned because of results of
research and development, results of pre-clinical and clinical testing,
relationships with possible strategic partners, changes in the focus and
direction of the Company's research and development programs, competitive and
technological advances, the FDA regulatory process and other factors. The net
proceeds of this Offering are not expected to be sufficient to fund the
Company's operations through the commercialization of one or more products
yielding sufficient revenues to support the Company's operations. Therefore, the
Company will need to raise additional funds. The Company expects to secure long-
term debt financing of up to approximately $5 million to complete construction
of its manufacturing facility. The Company may seek to satisfy its future
funding requirements through public or private offerings of securities, with
collaborative or other arrangements with major pharmaceutical companies, debt
arrangements or from other sources. Additional financing may not be available
when needed or on terms acceptable to the Company. If adequate financing is not
available, the Company may not be able to continue as a going concern, or may be
required to delay, scale back or eliminate certain of its research and
development programs, to relinquish rights to certain of its technologies or
products or technologies that the Company would otherwise seek to develop
itself. To the extent the Company raises additional capital by issuing equity
securities, ownership dilution to the investors in this Offering will result.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

7
<PAGE> 9

DEPENDENCE ON ELI LILLY AND COMPANY

The Company and Lilly have entered into agreements setting forth a
collaboration for the development and marketing of Ophidian's CDAD therapeutic
antitoxin and Lilly's purchase of Ophidian's Common Stock. If the product is
developed successfully and approved for commercial sale, Ophidian would be
responsible for the manufacturing of bulk drug and Lilly would be responsible
for sales, marketing and distribution. There can be no assurance that Lilly will
pursue the development of the CDAD therapeutic antitoxin or that Lilly will
satisfy its obligations under the terms of the Lilly Agreements. Lilly may
terminate the Lilly Agreements if it concludes that further efforts under these
agreements are no longer commercially reasonable. No assurance can be given that
the collaboration with Lilly will result in the successful commercialization of
the Company's CDAD antitoxin or that any future milestone payments or fees will
be received by the Company. Lilly owns 9.6% of the Company's Common Stock
outstanding before the Offering and will own 7.1% after the Offering.

DEPENDENCE ON AND NEED FOR OTHER THIRD PARTY RELATIONSHIPS

The Company's business strategy is to utilize the expertise and resources
of third parties in a number of areas, including the conduct of pre-clinical and
clinical trials for the Company's development products, and for the regulatory
approvals, marketing and in certain cases the manufacture of such products. This
strategy of reliance on third party relationships creates risks to the Company
by placing critical aspects of the Company's business in the hands of third
parties who the Company may not be able to control as effectively as its own
operations. Moreover, in reliance on these relationships, the Company has not
developed its own resources to the extent these activities have been contracted
to third parties. If these third parties do not perform in a timely and
satisfactory manner, the Company may incur additional costs and lose time in the
conduct of its development and clinical programs as it seeks alternate sources
of such products and services, if available. The effect of such costs and delays
may have a material adverse effect on the Company. See "Business -- Business
Strategy."

The Company may seek additional third party relationships in certain areas,
particularly in situations in which the Company believes that the clinical
testing, marketing, manufacturing and other resources of a pharmaceutical
company collaborator will enable the Company to develop particular products or
geographic markets which are otherwise beyond the Company's resources and/or
capabilities. There is no assurance that the Company will be able to obtain any
such collaboration, or any other research and development, manufacturing, or
clinical trial agreement. The inability of the Company to obtain and maintain
satisfactory relationships with third parties may have a material adverse effect
on the Company.

NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT OR COMMERCIALIZATION

The Company's research and development programs are at various stages of
development. Substantial additional research and development will be necessary
in order for the Company to obtain regulatory approval for its product
candidates, and there can be no assurance that the Company's research and
development will lead to development of products that are shown to be safe and
effective in clinical trials, or that are commercially viable. In addition to
further research and development, the Company's product candidates will require
clinical testing, regulatory approval, and development of marketing and
distribution channels, all of which are expected to require substantial
additional investment prior to commercialization. There can be no assurance that
the Company's products will be successfully developed, prove to be safe and
efficacious in clinical trials, meet applicable regulatory standards, be capable
of being produced in commercial quantities at acceptable costs, be eligible for
third party reimbursement from governmental or private insurers, be successfully
marketed or achieve market acceptance. Further, the Company's products may prove
to have undesirable or unintended side effects that may prevent or limit their
commercial use. See "Business -- Government Regulation."

NO CURRENT MARKETING, SALES OR MANUFACTURING CAPABILITY

The Company currently has no marketing and sales resources or personnel. In
the event the Company successfully completes the regulatory process for the
introduction of any of its passive antibodies for the

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treatment of gastrointestinal infections or other products, the Company will
need to establish distribution, marketing and sales resources in order to
commercialize such products. For the CDAD product, however, the Lilly Agreements
provide that Lilly will carry out marketing and sales activities. Depending upon
the product, the Company may seek to develop its own distribution, marketing and
sales resources, or may seek to enter a collaborative agreement with a major
pharmaceutical company or biotechnology company for such purposes. There is no
assurance that the Company will be successful in either situation. The inability
of the Company to successfully distribute, market and sell products will
adversely affect the commercial value of such products and may adversely affect
the financial position of the Company.

The Company does not have a manufacturing facility, and thus currently
lacks the resources or capability to manufacture itself any of its product
candidates on a clinical or commercial scale. At the present time, the Company
believes that there are a number of facilities with FDA approval that have the
capability of manufacturing the Company's products. However, the process for
manufacturing and formulating the Company's products is complex and subject to
uncertainties. The Company intends to construct its own facility capable of
meeting requirements for development and commercial quantities of bulk
biological products. The Company is currently, and may continue to be, dependent
on third parties for manufacturing clinical and commercial scale quantities of
its products. There can be no assurance that the Company will be able to
maintain existing agreements for the manufacturing of clinical quantities of
products, that it will be able to enter into additional agreements with other
third parties for commercial scale manufacturing, or that contract manufacturers
will be able to adequately produce the Company's products in commercial
quantities in a cost-effective manner. Interruptions or difficulties in clinical
or commercial production of the Company's products may require the Company to
incur substantial costs to address the situation, which could have a material
adverse effect on the Company. See "Business."

The Company has undertaken steps to build its own manufacturing facility to
produce bulk biological products. The Company is engaged in the design of a
facility and is seeking to acquire land. The Company expects that completion of
this facility will enable it to meet its production obligations under the Lilly
Agreements and that the facility will serve in the production of other Company
products. Failure to provide suitable manufacturing facilities either Company
owned or belonging to suitable third party manufacturers could delay development
of the CDAD product.

The Company and each contract manufacturer must adhere to current Good
Manufacturing Practice ("GMP") regulations strictly enforced by the FDA on an
ongoing basis through its facilities inspection program. Such manufacturing
facilities must pass a pre-approval plant inspection before the FDA will approve
a Biologic License Application ("BLA") or a Product License Application ("PLA")
and Establishment License Application ("ELA"). Certain material manufacturing
changes that occur after approval are also subject to FDA review and clearance
or approval. There can be no assurance that the FDA or other regulatory agencies
will approve the process or the facilities by which any of the Company's
products may be manufactured. The Company's dependence on third parties for the
manufacture of products may adversely affect the Company's ability to develop
and deliver products on a timely and competitive basis. See "Risk Factors -- No
Assurance of FDA Approval; Government Regulation" and "Business -- Government
Regulation."

RISK OF RAW MATERIALS

The Company uses live animals, principally laying hens, for the research,
development and production of many of its products. While the health of animals
used for producing raw materials for the Company's products is monitored and
documented by the Company, there can be no assurance that some unforeseen animal
disease or environmental factor will not at some time in the future injure the
animals, jeopardizing the Company's research, development or production
operations.

UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS

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United States and selected foreign jurisdictions. The Company currently holds 10
issued United States or foreign patents and has 47 United States or foreign
patent applications. No assurance can be given that the Company's patent
applications will be approved or that any issued patents will provide
competitive advantages for the Company's technologies or will not be challenged
or circumvented by competitors. With respect to already issued patents and any
patents which may issue from the Company's applications, there can be no
assurance that claims allowed will be sufficient to protect the Company's
technologies. Patent applications in the United States are maintained in secrecy
until a patent issues, and the Company cannot be certain that others have not
filed patent applications for technology covered by the Company's pending
applications or that the Company was the first to file patent applications for
such technology. Competitors may have filed applications for, or may have
received patents and may obtain additional patents and proprietary rights
relating to, compounds or processes that may block the Company's patent rights
or compete without infringing the patent rights of the Company. In addition,
there can be no assurance that any patents issued to the Company will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide proprietary protection or commercial advantage to the Company.

The Company also relies on trade secrets and proprietary know-how which it
seeks to protect, in part, through confidentiality agreements with employees,
consultants, collaborative partners and others. There can be no assurance that
these agreements will not be breached, that the Company will have adequate
remedies for any such breach or that the Company's trade secrets will not
otherwise become known or be independently developed by competitors. Although
potential collaborative partners and the Company's research partners and
consultants are not given access to proprietary trade secrets and know-how of
the Company until they have executed confidentiality agreements, these
agreements may be breached by the other party or may otherwise be of limited
effectiveness or enforceability.

The ability to develop the Company's technologies and to commercialize
products using such technologies will depend on avoiding the infringement of the
patents of others. Although the Company is not aware of any claim of patent
infringement against it, claims concerning patents and proprietary technologies
determined adversely to the Company could have a material adverse effect on the
Company. In addition, litigation may also be necessary to enforce any patents
issued or licensed to the Company or to determine the scope and validity of
third-party proprietary rights. There can be no assurance that the Company's
issued or licensed patents would be held valid by a court of competent
jurisdiction. Whether or not the outcome of litigation is favorable to the
Company, the cost of such litigation and the diversion of the Company's
resources during such litigation could have a material adverse effect on the
Company.

The Company could incur substantial costs in defending itself in suits that
may be brought against the Company claiming infringement of the patent rights of
others or in asserting the Company's patent rights in a suit against another
party. The Company may also be required to participate in interference
proceedings declared by the United States Patent and Trademark Office for the
purpose of determining the priority of inventions in connection with the patent
applications of the Company or other parties. Adverse determination in
litigation or interference proceedings could require the Company to seek
licenses (which may not be available on commercially reasonable terms) or
subject the Company to significant liabilities to third parties, and could
therefore have material adverse effect on the Company. See "Business -- Patents
and Proprietary Technology."

NO ASSURANCE OF FDA APPROVAL; GOVERNMENT REGULATION

The Company's products in development have not been proven in formal
clinical tests, and there can be no assurance that such products are, or will
be, safe or effective in human use. All new drugs and biologics, including the
Company's product candidates, are subject to extensive and rigorous regulation
by the federal government, principally the FDA under the Federal Food, Drug and
Cosmetic Act and other laws including, in the case of biologics, the Public
Health Services Act, and by state and local governments. Such regulations
govern, among other things, the development, testing, manufacture, labeling,
storage, premarket clearance or approval, advertising, promotion, sale and
distribution of such products. If drug products are marketed abroad, they also
are subject to extensive regulation by foreign governments. Failure to comply
with the FDA or other applicable regulatory requirements may subject the Company
to administrative or judicially imposed sanctions
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<PAGE> 12

such as civil penalties, criminal prosecution, injunctions, product seizure or
detention, product recalls, total or partial suspension of production, and FDA
refusal to approve pending products and other applications.

The Company has not received regulatory approval in the United States or
any foreign jurisdiction for the commercial sale of any of its products. The
process of obtaining FDA and other required regulatory approvals, including
foreign approvals, often takes many years and can vary substantially based upon
the type, complexity and novelty of the products involved and the indications
being studied. Furthermore, such approval process is extremely expensive and
uncertain. There can be no assurance that the Company's product candidates will
be cleared for marketing by the FDA. There can be no assurance that the Company
will have sufficient resources to complete the required regulatory review
process, or that the Company could overcome the inability to obtain, or delays
in obtaining, such approvals. The failure of the Company to receive FDA approval
for its product candidates would preclude the Company from marketing and selling
its products in the United States. Therefore, the failure to receive such FDA
approval would have a material adverse effect on the Company. Even if regulatory
approval of a product is granted, there can be no assurance that the Company
will be able to obtain the labeling claims necessary or desirable for the
promotion of those products. FDA regulations prohibit the marketing or promotion
of a drug for unapproved indications. Furthermore, regulatory marketing approval
may entail ongoing requirements for postmarketing studies.

If regulatory approval is obtained, the Company will be subject to ongoing
FDA obligations and continued regulatory review. In particular, the Company or
its third party manufacturers will be required to adhere to regulations setting
forth GMPs, which require that the Company or third party manufacturers
manufacture products and maintain records in a prescribed manner with respect to
manufacturing, testing and quality control activities. Further, the Company or
its third party manufacturer must pass a preapproval inspection of its
manufacturing facilities by the FDA before obtaining marketing approval. Failure
to comply with applicable regulatory requirements may result in penalties such
as restrictions on a product's marketing or withdrawal of the product from the
market. In addition, identification of certain side effects after a drug is on
the market or the occurrence of manufacturing problems could cause subsequent
withdrawal of approval, reformulation of the drug, additional pre-clinical
testing or clinical trials and changes in labeling of the product.

Prior to the submission to the FDA of a new drug application, drugs
developed by the Company must undergo rigorous pre-clinical and clinical testing
which may take several years and the expenditure of substantial resources.
Before commencing clinical trials in humans, the Company must submit to the FDA
and receive clearance of an Investigational New Drug application ("IND"). There
can be no assurance that submission of an IND for future clinical testing of any
product under development or other future products of the Company would result
in FDA permission to commence clinical trials or that the Company will be able
to obtain the necessary approvals for future clinical testing in any foreign
jurisdiction. Success in pre-clinical studies or early stage clinical trials
does not assure success in later stage clinical trials. Data obtained from pre-
clinical and clinical activities are susceptible to varying interpretations
which could delay, limit or prevent regulatory approval. Further, there can be
no assurance that if such testing of products under development is completed,
any such drug compounds will be accepted for formal review by the FDA or any
foreign regulatory body, or approved by the FDA for marketing in the United
States or by any such foreign regulatory bodies for marketing in foreign
jurisdictions. Future federal, state, local or foreign legislation or
administrative acts could also prevent or delay regulatory approval of the
Company's products. See "Business -- Government Regulation."

DEPENDENCE ON QUALIFIED PERSONNEL

Because of the specialized nature of the Company's business, the Company is
highly dependent upon its ability to attract and retain qualified scientific,
technical and managerial personnel and to maintain relationships with leading
research institutions and consultants. The loss of the Company's Chief Executive
Officer, Dr. Douglas C. Stafford, or other senior management, would be highly
detrimental to the Company. The Company has established employment agreements
with Dr. Stafford, Dr. Firca and Dr. Hoffmann setting forth a term of employment
for the next three years. See "Management." The Company maintains key person
insurance for $500,000 on the life of each of Dr. Stafford and Dr. Firca. The
proceeds of such insurance may
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not be sufficient to compensate the Company for the loss of the services of such
individuals and is not applicable in the case of resignation. There is intense
competition for qualified personnel in the biotechnology field, including
competition from companies with substantially greater resources than the
Company. There can be no assurance that the Company will be able to continue to
attract and retain qualified personnel necessary for the development of its
business, either as employees or as consultants. The loss of the services of
existing personnel as well as the failure to recruit additional key scientific
and technical personnel in a timely manner could have a material adverse effect
on the Company.

RELATIONSHIPS OF SCIENTIFIC ADVISORS WITH OTHER ENTITIES

The members of the Company's Scientific Advisory Board are often employed
on a full-time basis by academic or research institutions. Scientific Advisory
Board Members serve as consultants to the Company, and in some cases as
consultants to other companies. Accordingly, Scientific Advisory Board members
are able to devote only a portion of their time to the Company's business and
research activities. In addition, except for work performed specifically for and
at the direction of the Company, the inventions or processes discovered by the
Company's Scientific Advisory Board members and other consultants will not
become the intellectual property of the Company, but will be the intellectual
property of their institutions. If the Company desires access to inventions
which are not its property, it will be necessary for the Company to obtain
licenses to such inventions from the owners. In addition, invention assignment
agreements executed by Scientific Advisory Board members and consultants in
connection with their relationships with the Company may be subject to the
rights of their primary employers or other third parties with whom such
individuals have consulting relationships. See "Business -- Advisory Board."

COMPETITION

There are many companies, including the well-known pharmaceutical companies
such as SmithKline Beecham Corporation, Bristol-Meyers Squibb Company, Abbott
Laboratories and other smaller biotechnology firms, as well as academic and
other research institutions, that are engaged in the discovery, development,
marketing and sale of products for the treatment of infectious diseases. The
Company expects to encounter significant competition for its product candidates
from traditional and new treatment methods.

Most of the Company's competitors and potential competitors have
substantially greater capital, research and development capabilities and human
resources than the Company. Furthermore, many of these competitors have
significantly greater experience than the Company in undertaking pre-clinical
testing and clinical trials of new biotechnology products and obtaining FDA and
other regulatory approvals. If the Company is permitted to commence commercial
sales of any product, it will also be competing with companies that have greater
resources and experience in manufacturing, marketing and sales. The Company's
competitors may succeed in developing products that are more effective, less
costly, or have a better side effect profile than any that may be developed by
the Company, and such competitors may also prove to be more successful than the
Company in manufacturing, marketing and sales. If the Company is able to
successfully commercialize a product, subsequent competitive developments could
render such product noncompetitive or obsolete. See "Business -- Competition."

TECHNOLOGICAL CHANGES AND UNCERTAINTY

The Company's research and development strategy is based upon advances in
recent years in the scientific understanding of infectious diseases. The
Company's strategy focuses on techniques to exploit new infectious disease
targets for new drug development. This area is the subject of extensive research
efforts and rapid scientific progress. New developments are expected to continue
at a rapid pace in industry and academia in both the specific areas of interest
to the Company and in other areas directed at the prevention or treatment of
infectious diseases. There can be no assurance that research and discoveries by
others will not render some or all of the Company's proposed products
noncompetitive or obsolete. In addition, the Company's business strategy is
subject to the risks inherent in the development of new therapeutic products.
There can be no assurance that unforeseen problems will not develop, that the
Company will be able to address successfully

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technological challenges it encounters in its research and development programs
or that commercially feasible products will ultimately be developed by the
Company. See "Business -- Competition."

UNCERTAIN AVAILABILITY OF HEALTH CARE REIMBURSEMENT; HEALTH CARE REFORM

The Company's ability to commercialize its product candidates may depend in
part on the extent to which reimbursement for the costs of such product will be
available from government health administration authorities, private health
insurers and others. Significant uncertainty exists as to the reimbursement
status of newly approved health care products. There can be no assurance of the
availability of adequate third-party insurance reimbursement coverage that
enables the Company to establish and maintain price levels sufficient for
realization of an appropriate return on its investment in developing drug
products. Government and other third-party payors are increasingly attempting to
contain health care costs by limiting both coverage and the level of
reimbursement for new therapeutic products approved for marketing by the FDA and
by refusing, in some cases, to provide any coverage for uses of approved
products for disease indications for which the FDA has not granted marketing
approval. If adequate coverage and reimbursement levels are not provided by
government and third-party payors for uses of the Company's product candidates,
the market acceptance of these products would be adversely affected.

Health care reform proposals have been introduced in Congress and in
various state legislatures. It is currently uncertain whether any health care
reform legislation will be enacted at the federal level, or what actions
governmental and private payors may take in response to the suggested reforms.
The Company cannot predict when any proposed reforms will be implemented, if
ever, or the effect of any implemented reforms on the Company's business. There
can be no assurance that any implemented reforms will not have a material
adverse effect on the Company. Such reforms, if enacted, may affect the
availability of third-party reimbursement for products developed by the Company
as well as the price levels at which the Company is able to sell such products.
In addition, if the Company is able to commercialize products in overseas
markets, the Company's ability to achieve success in such markets may depend, in
part, on the health care financing and reimbursement policies of such countries.

RISK OF PRODUCT LIABILITY; UNCERTAINTY OF AVAILABILITY OF PRODUCT LIABILITY
INSURANCE

The Company's business exposes it to potential product liability risks
which are inherent in the manufacturing, clinical testing, marketing and use of
human therapeutic products. The Company currently carries no product liability
insurance. The Company plans to obtain product liability insurance covering the
clinical trials and the commercial sale of its products prior to their clinical
and commercial introduction respectively, however, there can be no assurance
that the Company will be able to obtain or maintain such insurance on acceptable
terms or that any insurance obtained will provide adequate coverage against
potential liabilities. Claims or losses in excess of any liability insurance
coverage obtained by the Company could have a material adverse effect on the
Company.

CONCENTRATION OF OWNERSHIP

Upon consummation of this Offering, the directors and officers of the
Company (and certain members of their families) will beneficially own 4,026,531
shares of the Company's Common Stock or approximately 41.1% of the outstanding
shares of the Company's Common Stock following the completion of this Offering.
Accordingly, the Company's officers and directors and their affiliates may be
able to influence the outcome of shareholder votes, including votes concerning
the election of directors, adoption of amendments to the Company's Articles of
Incorporation and Bylaws and approval of mergers and other significant
transactions. See "Principal Shareholders."

IMMEDIATE SUBSTANTIAL DILUTION; DISPARITY OF CONSIDERATION

Purchasers of Securities in this Offering will experience immediate and
substantial dilution in the net tangible book value of the Shares of Common
Stock and Warrants purchased by them in this Offering. The immediate dilution to
purchasers of the Securities offered hereby is $4.41 per Unit (or approximately
72%),

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<PAGE> 15

assuming an initial public offering price of $6.10 per Unit. Additional dilution
to future net tangible book value per Share may occur upon the exercise of the
Warrants, the Representative's Warrants, options that are outstanding or to be
issued under the Company's option plans, and options that are outstanding to a
consultant of the Company. The founding shareholders of the Company acquired
their shares of Common Stock for consideration other than cash or for
consideration substantially less than the public offering price of the Units
offered hereby. See "Capitalization," "Dilution" and "Certain Transactions."

POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE

Sales of Common Stock (including shares issued upon the exercise of
outstanding options) in the public market after this Offering could materially
and adversely affect the market price of the Securities. Such sales also might
make it more difficult for the Company to sell equity securities or
equity-related securities in the future at a time and price that the Company
deems appropriate. Upon the completion of this Offering, the Company will have
9,789,930 shares of Common Stock outstanding. Of these securities, 2,500,000
Shares of Common Stock and Warrants to purchase 2,500,000 Shares of Common Stock
contained in the Units will be freely tradable (unless held by affiliates of the
Company) without restriction under the Securities Act commencing 90 days after
issuance, subject to earlier separability of the Units in the discretion of the
Representative and the Company. The remaining 7,289,930 shares will be
restricted securities within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"). The Company's directors, executive officers and
certain shareholders, who in the aggregate hold more than 90% of the shares of
Common Stock of the Company outstanding immediately prior to the completion of
this Offering, have entered into lock-up agreements under which they have agreed
not to sell, directly or indirectly, any shares owned by them for a period of
nine months after the date of this Prospectus without the prior written consent
of the Representative. The Representative may, in its sole discretion and at any
time without notice, release all or any portion of the shares subject to such
lock-up agreements. Upon expiration of the nine month lock-up agreements, 90% of
the shares of Common Stock (not including approximately 535,176 shares subject
to outstanding vested options) held by existing shareholders will be eligible
for public resale, subject to volume limitations pursuant to Rule 144 (67% of
the shares of Common Stock -- not including approximately 535,176 shares subject
to outstanding vested options -- after giving effect to the issuance of
2,500,000 shares of Common Stock pursuant to this offering). In addition, 12
months after the completion of this Offering, 250,000 shares of Common Stock
issuable upon exercise of the Representative's Warrants and 250,000 shares of
Common Stock issuable upon exercise of the Warrants issuable upon exercise of
Representative's Warrants will be available for sale. The number of shares sold
in the public market could increase if Lilly's registration rights are exercised
and such sales may have an adverse effect on the market price of the Common
Stock. See "Description of Securities -- Registration Rights" and "Shares
Eligible for Future Sale."

NO ASSURANCE OF CONTINUED AMERICAN STOCK EXCHANGE LISTING; RISK OF LOW-PRICED
SECURITIES; RISK OF APPLICATION OF PENNY STOCK RULES

The AMEX has established certain standards for the continued listing of a
security on AMEX. The AMEX would consider delisting securities of a company if,
among other things, (i) stockholders' equity falls below $4,000,000 if such
company has losses in three of its four most recent fiscal years, (ii)
stockholder equity falls below $2,000,000 if such company has losses in two of
its three most recent fiscal years, (iii) the number of shares publicly held is
less than 200,000, or (iv) the aggregate market value of shares publicly held is
less than $1,000,000. There can be no assurance that the Company will continue
to satisfy the requirements for maintaining an AMEX listing. If the Company's
Securities were to be excluded from AMEX, it would adversely affect the prices
of such Securities and the ability of holders to sell them, and the Company
would be required to comply with the initial listing requirements in order to be
relisted on AMEX.

If the Company is unable to satisfy maintenance requirements and the price
per share were to drop below $5.00, then unless the Company satisfied certain
net asset tests, or the Company was able to have its Securities listed on
another exchange, the Company's Securities would become subject to certain penny
stock rules promulgated by the Securities and Exchange Commission (the
"Commission"). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document prepared by the Commission that provides
information about penny
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<PAGE> 16

stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules require that prior to a transaction in a penny stock not
otherwise exempt from such rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If the Securities become subject to the penny stock rules,
investors in the Offering may find it more difficult to sell their Securities.

ANTI-TAKEOVER EFFECT OF WISCONSIN LAW

Wisconsin statutory law contains provisions that could discourage potential
acquisition proposals and might delay or prevent a change in control of the
Company. Such provisions could result in the Company being less attractive to a
potential acquirer and could result in the shareholders receiving less for their
Common Stock than otherwise might be available in the event of a takeover
attempt. See "Description of Securities -- Certain Provisions of Wisconsin Law."

POTENTIAL LIABILITY OF SHAREHOLDERS

Wisconsin Statutes Section 180.0622(2)(b) provides that the shareholders of
a Wisconsin corporation are personally liable "to an amount equal to the par
value of shares owned by them respectively" for debts or other amounts owing to
employees for services performed for the corporation, but not exceeding six
months' service in any one case. A Wisconsin trial court interpreted this
statute to impose personal liability on shareholders extending up to the
consideration paid for their stock (rather than the stock's lower stated par
value). While the trial court's decision was affirmed by the Wisconsin Supreme
Court, such affirmation technically provides no precedential value due to an
equal division of the Court. However, under the principle of the trial court's
decision, investors in this Offering would have potential liability, in the
event of the Company's insolvency or inability to pay its debts, for unpaid
compensation to Company employees (not exceeding six months' service) in an
amount up to the purchase price paid for every Unit acquired hereby ($6.10 per
Unit).

ABSENCE OF DIVIDENDS

The Company has never declared or paid dividends on its Common Stock and
does not intend to pay any dividends in the foreseeable future. See "Dividend
Policy."

ARBITRARY DETERMINATION OF OFFERING PRICE; NO PUBLIC MARKET FOR THE SECURITIES

The initial public offering price of the Units and the exercise price and
terms of the Warrants have been determined arbitrarily by negotiations between
the Company and the Representative. Factors considered in such negotiations, in
addition to prevailing market conditions, included the history and prospects for
the industry in which the Company competes, an assessment of the Company's
management, the prospects of the Company, its capital structure, the current
market for initial public offerings, and certain other factors as were deemed
relevant. Therefore, the public offering price of the Units and the exercise
prices and terms of the Warrants do not necessarily bear any relationship to
established valuation criteria and therefore may not be indicative of prices
that may prevail at any time or from time to time in the public market for the
securities of the Company. Prior to this Offering, there has been no public
market for the Securities, and there can be no assurance that an active trading
market will develop in any of the Securities after the Offering, or, if
developed, be sustained. See "Underwriting."

PRICE VOLATILITY

The securities markets have from time to time experienced significant price
and volume fluctuations that may be unrelated to the operating performance of
particular companies. In addition, the market prices of the common stock of many
publicly traded pharmaceutical or biotechnology companies have in the past been,
and can in the future be expected to be, especially volatile. Announcements of
technological innovations or new products by the Company or its competitors,
developments or disputes concerning patents or proprietary rights, publicity
regarding actual or potential clinical trial results relating to products under
development by the Company or its competitors, regulatory developments in both
the United States and foreign countries,
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delays in the Company's testing and development schedules, public concern as to
the safety of drug products and economic and other external factors, as well as
period-to-period fluctuations in the Company's financial results, may have a
significant impact on the market prices of the Securities. The realization of
any of the risks described in these "Risk Factors" could have a significant and
adverse impact on such market prices.

POTENTIAL ADVERSE EFFECT OF REPRESENTATIVE'S WARRANTS

At the consummation of the Offering, the Company will sell to the
Representative for nominal consideration the Representative's Warrants to
purchase up to 250,000 Units. The Representative's Warrants will be exercisable
for a period of four years commencing one year after the effective date of this
Offering, at an exercise price of $ per Unit [130% of the public
offering price per Unit]. The Warrants obtained upon exercise of the
Representative's Warrants will be exercisable for a period of four years
commencing one year after the effective date of this Offering, at an exercise
price of $ per Share [165% of the exercise price of the Warrants]. For
the term of the Representative's Warrants, the holders thereof will have, at
nominal cost, the opportunity to profit from a rise in the market price of the
Securities without assuming the risk of ownership, with a resulting dilution in
the interest of other security holders. As long as the Representative's Warrants
remain unexercised, the Company's ability to obtain additional capital might be
adversely affected. Moreover, the Representative may be expected to exercise the
Representative's Warrants at a time when the Company would, in all likelihood,
be able to obtain any needed capital through a new offering of its securities on
terms more favorable than those provided by the Representative's Warrants. See
"Underwriting."

POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS

Commencing 24 months after the date of this Prospectus, the Warrants are
subject to redemption at $.10 per Warrant on 30 days prior written notice to the
Warrant holders if the average closing bid price of the Common Stock as reported
on the AMEX equals or exceeds $ per share [240% of the initial public
offering price per Unit] for any 20 trading days within a period 30 consecutive
trading days ending on the fifth trading day prior to the date of the notice of
redemption. If the Warrants are redeemed, holders of the Warrants will lose
their rights to exercise the Warrants upon expiration of the 30 day notice of
redemption period. Upon receipt of a notice of redemption, holders would be
required to (i) exercise the Warrants and pay the exercise price at a time when
it may be disadvantageous for them to do so, (ii) sell the Warrants at the
current market price, if any, when they might otherwise wish to hold the
Warrants or (iii) accept the redemption price which is likely to be
substantially less than the market value of the Warrants at the time of
redemption. See "Description of Securities -- Warrants."

POTENTIAL ADVERSE EFFECT OF SUBSTANTIAL SHARES OF COMMON STOCK RESERVED

The Company has reserved Shares of Common Stock for issuance as follows:
(i) 2,500,000 Shares for issuance upon exercise of the 2,500,000 Warrants; (ii)
250,000 Shares for issuance upon exercise of the Representative's Warrants;
(iii) 250,000 Shares for issuance upon exercise of the Warrants issuable upon
exercise of the Representative's Warrants; (iv) 646,608 shares for issuance upon
exercise of stock options granted under the Company's 1990/1992 Stock Option
Plans; (v) 5,296 shares of Common Stock reserved for future grants of options
under the 1990/1992 Stock Option Plans; (vi) 114,290 shares for issuance upon
exercise by Fitchburg Research Park Associates of its warrants; and (vii)
100,000 shares for issuance upon exercise of the stock option held by a
consultant to the Company. The existence of the Warrants, the Representative's
Warrants and any other options or warrants may adversely affect the Company's
ability to consummate future equity financings. Further, the holders of such
warrants and options may exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company.

REPRESENTATIVE'S INFLUENCE ON THE MARKET

A significant amount of the Securities offered hereby may be sold to
customers of the Representative. Such customers subsequently may engage in
transactions for the sale or purchase of such Securities through or with the
Representative. If it participates in the market, the Representative may exert a
dominating influence on the market, if one develops, for the Securities
described in this Prospectus. Such market-making activity may be discontinued at
any time. The price and liquidity of the Common Stock and the Warrants may be
significantly affected by the degree, if any, of the Representative's
participation in the market.

16
<PAGE> 18

CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS

The Warrants are not exercisable unless, at the time of exercise, the
Company has a current prospectus covering the Shares of Common Stock issuable
upon exercise of the Warrants and such Shares have been registered, qualified or
deemed to be exempt under the securities or "blue sky" laws of the state of
residence of the exercising holder of the Warrants. Although the Company has
undertaken to use its best efforts to have all of the shares of Common Stock
issuable upon exercise of the Warrants registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Warrants, there is no assurance that it will be able to do so.
The value of the Warrants may be greatly reduced if a current prospectus
covering the Common Stock issuable upon the exercise of the Warrants is not kept
effective or if such Common Stock is not qualified or exempt from qualification
in the states in which the holders of the Warrants reside. Until completion of
this Offering, the Common Stock and the Warrants may only be purchased together
on the basis of one Share of Common Stock and one Warrant, but the Warrants will
be separately tradable 90 days after issuance subject to earlier separability in
the discretion of the Representative and the Company. Although the Securities
will not knowingly be sold to purchasers in jurisdictions in which the
Securities are not registered or otherwise qualified for sale, investors may
purchase the Warrants in the secondary market or move to a jurisdiction in which
the Shares underlying the Warrants are not registered or qualified during the
period that the Warrants are exercisable. As a result, the Company will be
unable to issue Shares to those persons desiring to exercise their Warrants
unless and until the Shares are qualified for sale in jurisdictions in which
such purchasers reside, or an exemption from such qualification exists in such
jurisdictions, and holders of the Warrants would have no choice but to attempt
to sell the Warrants in a jurisdiction where such sale is permissible or allow
them to expire unexercised. See "Description of Securities -- Warrants."

MANAGEMENT'S BROAD DISCRETION IN USE OF PROCEEDS

Although the Company intends to apply the net proceeds of this Offering in
the manner described under "Use of Proceeds," it has broad discretion within
such proposed uses as to the precise allocation of the net proceeds, the timing
of expenditures and all other aspects of the use thereof. The Company reserves
the right to reallocate the net proceeds of this Offering among the various
categories set forth under "Use of Proceeds" as it, in its sole discretion,
deems necessary or advisable. Approximately $3,298,000 or 25% of the estimated
net proceeds of the Offering has been allocated to working capital and general
corporate purposes. Accordingly, the Company's Board of Directors will have
discretion with respect to the allocation of such net proceeds. See "Use of
Proceeds."

LIMITATION OF LIABILITY AND INDEMNIFICATION

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

17
<PAGE> 19

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,500,000 Units
offered hereby (after deducting underwriting discounts and other estimated
offering expenses) are estimated to be approximately $13,298,000 (or $15,345,000
if the Over-Allotment Option is exercised in full), based on an assumed initial
public offering price of $6.10 per Unit.

The Company currently intends to use the net proceeds from this Offering
approximately as follows:

<TABLE>
<CAPTION>
NET PROCEEDS PERCENT OF TOTAL
------------ ----------------
<S> <C> <C>
Technology development/new product discovery........... $ 5,000,000 38%
Product development expenses........................... 3,000,000 22%
Capital expenditures................................... 2,000,000 15%
Working capital and general corporate purposes......... 3,298,000 25%
----------- ---
Total........................................ $13,298,000 100%
=========== ===
</TABLE>

Technology Development/New Product Discovery. The Company intends to spend
a portion of the proceeds of this Offering in the development of certain
technologies related to the discovery of new drug targets and new drug products
in the area of infectious diseases and other disease areas where the Company
believes business opportunities exist. Such expenses would likely include the
hiring of additional scientific staff, enlargement of facilities and the
establishment of contractual relationships with academic or commercial entities.

Product Development Expenses. The Company intends to continue investing in
the further development of its passive antibody and other infectious disease
therapeutic products. Where appropriate, resources may be applied to laboratory
studies, manufacturing methods development, formal pre-clinical or clinical
studies to support product licensure. With respect to the Company's CDAD
therapeutic antitoxin product, these funds will supplement funds paid to the
Company pursuant to the Lilly Agreements for the pre-clinical and clinical
studies.

Capital Expenditures. The Company expects to spend a portion of the net
proceeds of this Offering to make capital investments in laboratories and
related facilities, including the establishment of manufacturing facilities and
purchase of equipment for the pilot production of its passive antibody products.
The initial phase of this capital investment includes acquisition of land and
the design of a pilot manufacturing facility. The Company expects to begin
construction of this facility within twelve months from the date of this
Offering. The Company also expects to secure long-term debt financing of up to
approximately $5 million to complete construction of its manufacturing facility.

Working Capital and General Corporate Purposes. The remaining available
funds will be added to the Company's working capital to be used for general
corporate purposes, including the hiring of research, management, regulatory,
manufacturing and business development personnel; rent and other overhead costs
for facilities; equipment and machinery needed for research, manufacturing and
administrative functions; and the costs for patenting, licensing or acquiring
technologies.

The Company intends to proceed with the expenditures to advance the
development of its infectious disease technologies and products. This
development is anticipated to include prototype optimization, pre-clinical
development, clinical prototype manufacturing, and human clinical evaluations.
The Company also anticipates investigating new therapeutic and diagnostic
technologies and exploring additional commercial opportunities.

The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including the progress of the Company's
research and development programs, the results of clinical studies, the timing
of regulatory approvals, technological advances, and determinations as to
commercial potential and the status of competitive products. The Company may
also, to the extent its product development activities proceed more quickly than
expected, expand its research and development facilities or allocate a portion
of the proceeds to the construction or acquisition and staffing of manufacturing
facilities for

18
<PAGE> 20

the production of any developed products. In addition, if the Company deems it
desirable to acquire assets or technologies to further its development
objectives, the Company may reapportion proceeds of this offering to such
acquisition or development. Expenditures will also be dependent upon the
establishment of collaborative arrangements with other companies, the
availability of financing, and other factors. See "Risk Factors -- Management's
Broad Discretion in Use of Proceeds."

Subject to the variables set forth above, the Company anticipates that the
net proceeds of this Offering, together with its available cash, should be
sufficient to finance its operational and working capital requirements for at
least the next 12 months. However, there can be no assurance that the net
proceeds of this Offering will satisfy the Company's requirements for any
particular period of time. The Company anticipates that additional funding will
be required after the use of proceeds of the Offering. The Company may seek to
raise additional capital from future offerings of equity, corporate partnerships
or debt financings. No assurance can be given that such additional financing
will be available when needed on terms acceptable to the Company, if at all. See
"Risk Factors -- Need for Substantial Additional Funds."

Pending application of the net proceeds of the Offering, the Company
intends to invest such net proceeds in interest-bearing investment grade
financial securities.

DIVIDEND POLICY

The Company has never declared nor paid dividends on its Common Stock and
does not intend to pay any dividends for the foreseeable future.

19
<PAGE> 21

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1997 (i) on an actual basis, and (ii) as adjusted to give effect to
the estimated net proceeds from the sale of the Units offered hereby at an
assumed initial public offering price of $6.10 per Unit and the initial
application of the estimated net proceeds therefrom. This table should be read
in conjunction with the Company's financial statements and related notes thereto
and selected financial data appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------
ACTUAL AS ADJUSTED
----------- --------------
<S> <C> <C>
Capital lease obligations, less current portion............. $ 14,463 $ 14,463
Shareholders' equity
Common stock, $0.0025 par value per share, 22,400,000
shares authorized, 7,288,566 shares issued and
outstanding, actual; 9,788,566 shares issued and
outstanding, as adjusted(1)............................ 18,221 24,471
Additional paid-in capital.................................. 12,687,266 25,979,016
Deficit accumulated during the development stage............ (8,160,802) (8,160,802)
Net unrealized loss on available securities for sale........ (227) (227)
----------- --------------
Total shareholders' equity........................ 4,544,458 17,842,458
----------- --------------
Total capitalization.............................. $ 4,558,921 $ 17,856,921
=========== ==============
</TABLE>

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

(1) Excludes (i) 646,608 shares of Common Stock issuable upon the exercise of
outstanding stock options as of February 13, 1998, under the 1990 Incentive
Stock Option Plan and the 1992 Employee Stock Option Plan (collectively, the
"1990/1992 Stock Option Plans") at a weighted average exercise price of
$2.74 per share, leaving a balance of 5,296 shares of Common Stock reserved
for future grants of options under the 1990/1992 Stock Option Plans, (ii)
Fitchburg Research Park Associates' warrant to purchase up to 114,290 shares
at an exercise price of $.0025 per share, (iii) a consultant's option to
purchase 100,000 shares at an exercise price of $4.50 per share, (iv)
options to purchase a maximum of 90,000 shares of Common Stock to be granted
to six employees and three outside directors, and (v) 1,364 shares of Common
Stock which have been issued to consultants since December 31, 1997.

20
<PAGE> 22

DILUTION

At December 31, 1997, the net tangible book value of the Company was
$3,243,857 or approximately $0.45 per share of Common Stock. Net tangible book
value per share is determined by dividing the net tangible book value (tangible
assets less liabilities) of the Company by 7,288,566 shares of Common Stock
outstanding at such date. Net tangible book value dilution per share represents
the difference between the amount per Share paid by purchasers of Units of this
Offering and the net tangible book value per share of Common Stock immediately
after the completion of this Offering. After giving effect to the sale of Units
offered hereby at an assumed initial public offering price of $6.10 per Unit
(after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company), the pro forma net tangible book value of the
Company at December 31, 1997 would have been $16,541,857 or approximately $1.69
per share of Common Stock. This represents an immediate increase in the net
tangible book value of $1.24 per share of Common Stock to existing shareholders
and an immediate dilution in net tangible book value of $4.41 per share of
Common Stock (or approximately 72%) to new investors purchasing Shares of Common
Stock in this Offering.

The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per Unit.............. $6.10
Net tangible book value per share at December 31, 1997...... 0.45
Increase per share attributable to this Offering............ 1.24
----
Pro forma net tangible book value per share after this
Offering.................................................. 1.69
-----
Dilution per share to new investors......................... $4.41
=====
</TABLE>

The computations in the table set forth above assumes that the
Over-Allotment Option is not exercised. If the Over-Allotment Option is
exercised in full, the pro forma net tangible book value at December 31, 1997
would have been $18,588,857 or $1.83 per share of Common Stock, resulting in
dilution to new investors of $4.27 per share of Common Stock.

The following table summarizes at December 31, 1997, the total number of
shares of Common Stock purchased from the Company, the total consideration paid,
and the average price per share paid by (i) existing shareholders of Common
Stock at December 31, 1997, and (ii) new investors in the Offering, assuming the
sale of Units offered hereby at an assumed initial public offering price of
$6.10 per Unit. The calculations are based upon total consideration given by new
investors and existing shareholders before any deduction of underwriting
discounts and Offering expenses payable by the Company.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1).... 7,288,566 74% $12,813,341 46% $1.76
New investors(2)............ 2,500,000 26% 15,250,000 54% $6.10
--------- --- ----------- ---
Total............. 9,788,566 100% $28,063,341 100%
========= === =========== ===
</TABLE>

- ---------------
(1) Excludes (i) 646,608 shares of Common Stock issuable upon the exercise of
outstanding stock options as of February 13, 1998, under the 1990 Incentive
Stock Option Plan and the 1992 Employee Stock Option Plan (collectively, the
"1990/1992 Stock Option Plans") at a weighted average exercise price of
$2.74 per share, leaving a balance of 5,296 shares of Common Stock reserved
for future grants of options under the 1990/1992 Stock Option Plans, (ii)
Fitchburg Research Park Associates' warrant to purchase up to 114,290 shares
at an exercise price of $.0025 per share, (iii) a consultant's option to
purchase 100,000 shares at an exercise price of $4.50 per share, (iv)
options to purchase a maximum of 90,000 shares of Common Stock to be granted
to six employees and three outside directors, and (v) 1,364 shares of Common
Stock which have been issued to consultants since December 31, 1997.

(2) Reflects the initial public offering price of the Units.

21
<PAGE> 23

SELECTED FINANCIAL DATA

The following financial data as of September 30, 1996 and 1997 and for each
of the three years in the period ended September 30, 1997 are derived from the
financial statements of the Company included elsewhere in this prospectus which
have been audited by Ernst & Young LLP, independent auditors. The selected
financial data set forth below, as of September 30, 1993, 1994 and 1995 and the
years ended September 30, 1993 and 1994 are derived from financial statements
audited by Ernst & Young LLP, not included in this Prospectus. The data should
be read in conjunction with the consolidated financial statements, related
notes, and other financial information included herein. The selected financial
data for December 31, 1997 and for the three months ended December 31, 1996 and
1997 are derived from the Company's unaudited financial statements included
elsewhere in this Prospectus and include, in the opinion of the Company, all
adjustments (consisting of normal recurring adjustments) necessary for fair
presentation of the Company's financial position at that date and results of
operations for those periods. Operating results for the three months ended
December 31, 1997 are not necessarily indicative of the results for any future
period.

<TABLE>
<CAPTION>
INCEPTION
THREE MONTHS ENDED (NOVEMBER 11,
YEARS ENDED SEPTEMBER 30, DECEMBER 31, 1989) TO
----------------------------------------------------------------- ---------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1996 1997 1997
---------- ---------- ----------- ----------- ----------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS DATA:
Revenues............. $1,746,596 $1,017,627 $ 386,979 $ 321,444 $ 671,881 $ 393,361 $ 115,185 $ 4,388,327
Operating Expenses
Research and
development...... 842,000 1,156,428 1,215,366 1,339,048 2,432,102 428,998 666,632 8,306,647
General and
administrative... 404,709 753,549 916,294 1,119,409 1,005,797 256,151 355,100 5,070,359
---------- ---------- ----------- ----------- ----------- --------- ---------- -----------
Total operating
expenses......... 1,246,709 1,909,977 2,131,660 2,458,457 3,437,899 685,149 1,021,732 13,377,006
---------- ---------- ----------- ----------- ----------- --------- ---------- -----------
Income (loss) from
operations....... 499,887 (892,350) (1,744,681) (2,137,013) (2,766,018) (291,788) (906,547) (8,988,679)
Investment income,
net................ 106,576 191,040 144,750 50,761 281,483 75,864 46,102 865,822
Interest expense..... -- (4,082) (4,624) (3,320) (2,800) (718) (724) (38,710)
Other................ -- 97 668 -- -- -- -- 765
---------- ---------- ----------- ----------- ----------- --------- ---------- -----------
Net earnings
(loss)........... $ 606,463 $ (705,295) $(1,603,887) $(2,089,572) $(2,487,335) $(216,642) $ (861,169) $(8,160,802)
========== ========== =========== =========== =========== ========= ========== ===========
Net earnings (loss)
per share(1)
Basic.............. $ 0.11 $ (0.12) $ (0.26) $ (0.34) $ (0.34) $ (0.03) $ (0.12)
Diluted............ $ 0.11 $ (0.12) $ (0.26) $ (0.34) $ (0.34) $ (0.03) $ (0.12)
Shares used to
compute net
earnings (loss) per
share(1)
Basic.............. 5,334,283 6,086,065 6,089,128 6,115,336 7,215,274 6,788,750 7,287,464
Diluted............ 5,674,121 6,086,065 6,089,128 6,115,336 7,215,274 6,788,750 7,287,464
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, 1997
---------------------------------------------------------------- ----------------------------
1993 1994 1995 1996 1997 ACTUAL AS ADJUSTED(2)
---------- ---------- ----------- ----------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents.......... $5,443,235 $1,521,295 $ 887,577 $ 3,276,339 $3,547,036 $ 2,435,401 $15,733,401
Working capital............... 5,100,728 2,507,268 1,319,826 3,328,103 3,812,539 2,725,172 16,023,172
Total assets.................. 5,856,184 4,917,996 3,408,129 5,247,761 5,975,606 5,116,176 18,414,176
Long-term obligations......... -- 68,046 50,856 33,914 17,956
Deficit accumulated during
development stage........... (413,544) (1,118,839) (2,722,726) (4,812,298) (7,299,633) (8,160,802) (8,160,802)
Total shareholders' equity.... 5,500,501 4,680,233 3,156,544 4,743,260 5,397,956 4,544,458 17,842,458
</TABLE>

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

(1) See Note 1 of Notes to Financial Statements for a description of the shares
used in calculating net earnings (loss) per share.

22
<PAGE> 24

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

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the financial
statements and the related notes thereto included elsewhere in this Prospectus.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Risk Factors."

OVERVIEW

Ophidian is a development stage corporation focused on the research,
development and commercialization of therapeutic products for human and animal
use. The Company's business has been directed to numerous areas of disease but
has focused principally on products for infectious disease prevention and
treatment. The Company has not received any revenues from the sale of FDA
licensed products to date and does not expect to receive any such revenues
during the next two fiscal years. Except for the fiscal year ended September 30,
1993 ("Fiscal 1993"), the Company has been unprofitable every year since
inception. The Company expects to incur additional losses over the next several
years. At December 31, 1997, the Company had an accumulated deficit of
$8,160,802 and for the three months ended December 31, 1997 incurred a net loss
of $861,169.

The Company intends to continue investing in the further research and
development of its technologies and products in infectious disease and other
therapeutic areas. Depending on a variety of factors, including collaborative
arrangements, availability of personnel and financial resources, the Company
will engage in the development of its products and establish capabilities to
support regulatory submissions. The Company will need to make additional capital
investments in research and development laboratories and manufacturing
facilities, including the construction of facilities for the large-scale
production of avian antibodies and supporting testing laboratories. Investments
in manufacturing and associated capabilities would be required to be made before
any regulatory agency would grant approval to market products, however, there
can be no assurance that such approval will be granted. It is expected that the
Company will need to hire additional personnel to support increased research and
development, manufacturing, quality systems, and general business requirements.

RESULTS OF OPERATIONS

Three Months Ended December 31, 1997 Compared to Three Months Ended December
31, 1996

Revenues. Revenues decreased $278,176 to $115,185 for the three months
ended December 31, 1997 as compared to $393,361 for the three months ended
December 31, 1996. Revenues in the three months ended December 31, 1996 were
greater due primarily to the one-time receipt of payments from Lilly in
connection with the achievement of certain product development milestones.

Research and Development Expenses. Research and development expenses
increased $237,634 to $666,632 for the three months ended December 31, 1997 as
compared to $428,998 for the three months ended December 31, 1996. The increase
in expenses in the three months ended December 31, 1997 resulted primarily from
additional personnel expenses and costs associated with preclinical development
of the CDAD therapeutic antitoxin.

General and Administrative Expenses. General and administrative expenses
increased $98,949 to $355,100 for the three months ended December 31, 1997 as
compared to $256,151 for the three months ended December 31, 1996. The increase
in expenses in the three months ended December 31, 1997 resulted primarily from
increased salary expenses and personnel recruiting expenses to support business
development and financial functions.

Interest Income and Expenses. Interest income decreased $29,762 to $46,102
for the three months ended December 31, 1997 as compared to $75,864 for the
three months ended December 31, 1996. The decrease in interest in the three
months ended December 31, 1997 resulted from lower average cash deposits.
Interest

23
<PAGE> 25

expenses increased $6 to $724 for the three months ended December 31, 1997 as
compared to $718 for the three months ended December 31, 1996.

Net Loss. Net losses increased $644,527 to $861,169 for the three months
ended December 31, 1997 as compared to $216,642 for the three months ended
December 31, 1996. The increased loss in the three months ended December 31,
1997 resulted from lower revenues due to a one-time payment and increased
research and development and general and administrative expenses.

Fiscal Year Ended September 30, 1997 Compared with Fiscal Year Ended September
30, 1996

Revenues. Revenues increased $350,437 or 109% to $671,881 in Fiscal 1997
compared to $321,444 in the fiscal year ended September 30, 1996 ("Fiscal
1996"). Increased revenues resulted from payments received from Lilly under the
Lilly Agreements of $300,000 and payments of $354,266 received from the NIH
under a Phase II Small Business Innovation Research ("SBIR") grant for
Ophidian's EHEC program. Revenues in Fiscal 1996 included $100,000 in payments
from Lilly and $200,493 from the NIH.

Research and Development Expenses. Research and development expenses
increased $1,093,054 or 82% to $2,432,102 in Fiscal 1997 compared with
$1,339,048 in Fiscal 1996. The increase in expenses resulted from process
development and manufacture of bulk drug to support pre-clinical and clinical
development of Ophidian's CDAD therapeutic antitoxin and additional personnel,
consultants and related expenses in connection with the Company's Host Response
Program. See "Business -- Ophidian's Discovery Technologies."

General and Administrative Expenses. General and administrative expenses
decreased $113,612 or 10% to $1,005,797 in Fiscal 1997 compared with $1,119,409
in Fiscal 1996. The decrease resulted primarily from a decrease in consulting
expenses and legal expenses.

Investment Income and Expenses. Investment income increased $230,722 or
455% to $281,483 in Fiscal 1997 compared with $50,761 for Fiscal 1996. The
increase in interest income was due to the deposit of funds received by the
Company from its private placement stock offering which raised net proceeds of
$2,629,957 and sales of stock to Lilly in June and November, 1996, totaling
$3,999,997. Interest expenses for Fiscal 1997 were $2,800 compared with $3,320
in Fiscal 1996.

Net Loss. Net losses increased $397,763 or 19% to $2,487,335 for Fiscal
1997 compared with $2,089,572 for Fiscal 1996. The increased loss during Fiscal
1997 resulted from increased research and development, business development, and
general operating activities.

Fiscal Year Ended September 30, 1996 Compared with Fiscal Year Ended September
30, 1995.

Revenues. Revenues decreased $65,535 or 17% to $321,444 in Fiscal 1996
compared with $386,979 for the fiscal year ended September 30, 1995 ("Fiscal
1995"). Revenues in 1996 consisted of $220,492 from a Phase II SBIR grant from
the NIH to support the Company's EHEC program and $100,000 from Lilly under the
Lilly Agreements. Revenues in Fiscal 1995 consisted of $181,707 from contracts
from the Department of Defense for the Company's antitoxin and vaccine programs
and the NIH for the Company's EHEC and other passive antibody programs, $200,000
received from Wyeth-Ayerst Laboratories ("Wyeth") in connection with a
collaborative product development and license agreement related to Ophidian
antivenom technology and miscellaneous biologic reagent sales.

Research and Development Expenses. Research and development expenses
increased by $123,682 or 10% to $1,339,048 in Fiscal 1996 compared with
$1,215,366 in Fiscal 1995. Research and development expenses in both fiscal
years included personnel, supplies, and allocated overhead in support of the
Company's avian antibody programs and other infections disease laboratory
activities. The increased costs in Fiscal 1996 were associated primarily with
pilot manufacturing in support of pre-clinical and clinical development of the
Company's CDAD therapeutic antitoxin.

General and Administrative Expenses. General and administrative expenses
increased $203,115 or 22% to $1,119,409 in Fiscal 1996 compared with $916,294 in
Fiscal 1995, reflecting increased personnel and

24
<PAGE> 26

overhead costs to support expanded technology development programs, business
development activities and technology licensing.

Investment Income and Expenses. Investment income decreased $93,989 or 65%
to $50,761 in Fiscal 1996 compared with $144,750 in Fiscal 1995. Income was
earned on deposits in a cash management account. The decrease in investment
income in Fiscal 1996 was due to lower average monthly cash balances during the
year as compared with Fiscal 1995. Interest expenses decreased $1,304 or 28% to
$3,320 in Fiscal 1996 compared with $4,624 in Fiscal 1995, and are related to
capital leases of office equipment.

Net Loss. Net losses increased $485,685 or 30% to $2,089,572 in Fiscal 1996
compared with $1,603,887 in Fiscal 1995. The increase in net losses in Fiscal
1996 was due primarily to increased expenses and reduced investment income.

Fiscal Year Ended September 30, 1995 Compared with Fiscal Year Ended September
30, 1994.

Revenue. Revenues decreased $630,648 or 62% to $386,979 in Fiscal 1995
compared with $1,017,627 in the fiscal year ended September 30, 1994 ("Fiscal
1994"). Revenues in 1995 consisted of $186,283 from research grants and
contracts from the Department of Defense for the Company's antitoxin and vaccine
programs and the NIH for the Company's EHEC and other passive antibody programs,
$200,000 from Wyeth in connection with a collaborative product development and
license agreement, and miscellaneous biologic reagent sales. Revenues in Fiscal
1994 included $657,553 received from Wyeth, $357,024 from the Department of
Defense and the NIH for the Company's antitoxin, vaccine and passive antibody
programs, and $3,050 in miscellaneous revenues.

Research and Development Expenses. Research and development expenses
increased $58,938 or 5% to $1,215,366 in Fiscal 1995 compared with $1,156,428 in
Fiscal 1994. Research and development activities in both years included
collaborative research, federal research contracts, and the Company's infectious
disease research and development programs. Increased expenses in Fiscal 1995
reflected normal annual increases in personnel and overhead costs.

General and Administrative Expenses. General and administrative expenses
increased $162,745 or 22% to $916,294 in Fiscal 1995 compared with $753,549 in
Fiscal 1994. The increase in Fiscal 1995 resulted primarily from additional
personnel and consulting costs to support development of the Company's passive
antibodies programs.

Investment Income and Expense. Net investment income decreased $46,290 or
24% to $144,750 in Fiscal 1995 compared with $191,040 in Fiscal 1994. Interest
income in Fiscal 1994 was greater due to higher average balances in the
Company's cash management account. Interest expenses increased $542 or 13% to
$4,624 in Fiscal 1995 compared with $4,082 in Fiscal 1994.

Net Loss. Net losses increased $898,592 or 127% to $1,603,887 in Fiscal
1995 compared with $705,295 in Fiscal 1994. The increased loss in Fiscal 1995
was due primarily to increased operating expenses and reduced revenues resulting
from discontinuation of the agreement with Wyeth.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations since inception primarily through
the sale of equity and revenues consisting of payments received under
collaborative agreements and federal research grants. As of December 31, 1997,
the Company had received $12,813,341 in proceeds from the sale of equity. The
Company's principal sales of equity have occurred through private placement
stock offering activities and sales to Lilly.

In January 1990, the Company sold 800,000 shares of Common Stock to
Fitchburg Research Park Associates ("FRPA") at $.0625 per share, resulting in
net proceeds to the Company of $50,000.

In December 1992, the Company sold 933,120 shares of Common Stock and
warrants in a private placement offering at $2.00 per unit consisting of one
share of Common Stock and a warrant to purchase one-half additional share at an
exercise price of $2.25 per share, resulting in net proceeds to the Company of
$1,828,364. In March 1993, warrants to exercise 447,120 shares of common stock
sold pursuant to this offering were exercised at an exercise price of $2.25 per
share, resulting in net proceeds to the Company of $1,006,020.
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The Company sold 579,482 shares of Common Stock in a private placement
offering at $4.50 per share, which was completed in June, 1993 resulting in net
proceeds to the Company of $2,579,661.

In September 1993, Fitchburg Research Park Associates exercised its warrant
(issued October, 1990) to purchase 125,000 shares of Common Stock at $2.00 per
share, resulting in net proceeds to the Company of $250,000.

The Company sold 485,805 shares of Common Stock in a private placement
offering at $5.50 per share, which was completed in October 1996 resulting in
net proceeds to the Company of $2,629,957.

In June 1996, the Company and Lilly entered into the Lilly Agreements,
according to which the Company sold to Lilly 153,846 shares of Common Stock at
$6.50 per share and in October 1996 sold 545,454 shares of Common Stock at $5.50
per share, resulting in aggregate net proceeds of $3,999,997.

Net cash used in operating activities was $2,468,689 in Fiscal 1997 as
compared with net cash used in operating activities of $1,581,943 in Fiscal
1996. The increase in cash used in operations is primarily the result of
increased research and development funding activities and general and
administrative expenses. Net cash used in investing activities was $77,494 in
Fiscal 1997, as compared with net cash provided of $458,610 in Fiscal 1996. The
net decrease in cash used in investing activities was attributable to a net
decrease of $121,821 in the proceeds received from available-for-sale securities
combined with an increase in capital expenditures of $67,379 and patent costs of
$346,904. Net cash provided by financing activities was $2,816,880 in Fiscal
1997, as compared with net cash provided by financing activities in Fiscal 1996
of $3,512,095. The decrease in cash provided by financing activities is
primarily attributable to proceeds from the sale of equity. Fiscal 1996 included
a private placement offering which was completed in October 1996 resulting in
net proceeds of $2,629,957 and an equity sale to Lilly of $999,999. Fiscal 1997
proceeds included a second equity sale to Lilly of $2,999,997. At September 30,
1997 the Company had cash and cash equivalents of $3,547,036.

Net cash used in operating activities was $1,581,943 for Fiscal 1996, as
compared with net cash used in operating activities of $1,440,141 for Fiscal
1995. The increase in cash used in operating activities is primarily
attributable to increased research and development funding activities and
increased general and administrative expenses. Net cash provided by investing
activities was $458,610 for Fiscal 1996 as compared to $822,549 for Fiscal 1995.
The decrease is principally attributable to a decrease in net proceeds received
from available for sale investment activities. Net cash provided by financing
activities was $3,512,095 for Fiscal 1996 as compared with cash used in
financing activities of $16,126 for Fiscal 1995. The change is primarily
attributable to the receipt of $999,999 in proceeds from the sale of equity to
Lilly and $2,517,367 of net proceeds in a private placement offering received in
Fiscal 1996 while there were no equity sales in Fiscal 1995.

The Company has established and intends to renew annually a bank
line-of-credit in the principal amount of $500,000 secured against cash
investments. The Company has not borrowed against this line-of-credit and has no
current plans to do so.

Through December 31, 1997, the Company had invested approximately $767,903
(including capital lease obligations) in equipment and leasehold improvements.
The present value of obligations under capital leases at December 31, 1997 was
$29,663. Minimum annual principal payments due under capital leases total
$16,450 in Fiscal 1998 and decline each year thereafter until expiration in the
year 2003. The Company made principal payments under capital lease obligations
of $17,703, $15,783 and $16,126 in Fiscal 1997, 1996 and 1995, respectively. The
Company invested $145,216 in Fiscal 1996, $492,120 in Fiscal 1997 and $108,705
in the three months ended December 31, 1997 for patents based on the Company's
research and development activities.

The Company believes that the anticipated net proceeds from this Offering,
together with its existing capital resources, interest income and future
revenues, if any, due under collaborative agreements, will be sufficient to
satisfy its funding requirements for at least 12 months. The Company expects to
secure long-term debt financing of up to approximately $5 million to complete
construction of its manufacturing facility. These funding requirements include
continued expenditures for research and development programs, as well as
expenditures related to expanded laboratory and general corporate facilities and
the establishment of pilot manufacturing facilities.

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Furthermore, the Company anticipates that the following material changes
resulting from its collaboration with Lilly will occur in the next twelve
months: hiring of additional manufacturing personnel, purchase of capital
equipment and increased operating expenses in connection with bulk product
manufacturing.

NET OPERATING LOSSES

The Company has not generated taxable income to date. At September 30,
1997, the net operating losses available to offset future taxable income for
federal income tax purposes were approximately $7,604,000. These carryforwards
expire beginning in 2007 if not utilized. At September 30, 1997, the Company has
research and other federal tax credit carryforwards of approximately $423,000
and Wisconsin carryforwards of approximately $192,000. The Company has recorded
a full valuation allowance against any deferred tax assets established for the
carryforwards.

The Company anticipates that its expenses incurred in bulk manufacturing of
the CDAD product will increase and will contribute to future increases in net
operating losses. These future increases in operating losses will result from
the hiring of additional manufacturing and quality control personnel and the
operation of a facility.

NEW ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes the standards for
reporting and displaying comprehensive income and its components (revenues,
expenses, gains and losses) as part of a full set of financial statements. This
statement requires that all elements of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The statement is effective for fiscal years beginning
after December 15, 1997. Since this statement applies only to the presentation
of comprehensive income, it will not have any impact on the Company's results of
operations, financial position or cash flows.

In June 1997, the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes the standards for the manner in which public enterprises are
required to report financial and descriptive information about their operating
segments. The statement defines operating segments as components of an
enterprise for which separate financial information is available and evaluated
regularly as a means for assessing segment performance and allocating resources
to segments. A measure of profit or loss, total assets and other related
information are required to be disclosed for each operating segment. In
addition, this statement requires the annual disclosure of information
concerning revenues derived from the enterprise's products or services,
countries in which it earns revenue or holds assets, and major customers. The
statement is also effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS No. 131 will not affect the company's results of operations
or financial position, but may affect the disclosure of segment information in
the future.

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BUSINESS

SUMMARY

Ophidian, a development stage company, is engaged in the research and
development of pharmaceuticals with an emphasis on products for infectious
diseases. Under a collaboration with Lilly, the Company is developing a product
for the treatment of CDAD. CDAD is a bacterial infection that has become a
common side effect of antibiotic therapy. The CDAD product is a result of the
Company's strategy to design new drugs for infectious diseases by targeting
molecules involved in the host-pathogen interaction.

Ophidian signed a collaborative development and license agreement and a
stock purchase agreement with Lilly in June, 1996. Under the Lilly Agreements,
Ophidian has received $4.4 million in equity investments and development
milestone payments. Lilly will pay the Company an additional $8.0 million if
certain CDAD product development objectives are met and Lilly chooses to proceed
with development. The Lilly Agreements provide for Lilly to fund and conduct
clinical testing, registration and marketing of the CDAD product worldwide and
Ophidian to manufacture bulk drug for clinical and commercial use. The CDAD
product is a passive antibody formulation that neutralizes disease-causing
toxins secreted by C. difficile during infection of the human intestinal tract.
These toxins are responsible for the development of diarrhea, inflammation and
symptoms of colitis caused by the C. difficile organism. CDAD is a common side
effect of treatment with certain broad spectrum antibiotics. Based on surveys
and research, the Company estimates that CDAD arises in approximately one
percent of all hospitalized patients. An IND for initial human clinical testing
of the CDAD drug was filed in November 1997.

The Company is also developing a drug to prevent disease caused by EHEC,
including E. coli O157:H7. Ophidian has received research funding of $816,000
from the NIH for this program. The public health problem of EHEC became widely
recognized following outbreaks in the U.S. and Japan that afflicted thousands of
persons as a result of contaminated food products, including ground beef. The
Company has shown in animals that the injection of its passive antibodies that
neutralize EHEC toxins can block progression of lethal disease symptoms. The
Company is conducting pre-clinical development of its EHEC passive antibodies as
a potential human therapeutic.

Broad-spectrum antibiotics are the most commonly used drugs to treat
infectious diseases, with worldwide sales of approximately $20 billion annually.
However, increased microbial resistance to antibiotics and the emergence of new
infectious agents have created a significant need for new approaches for the
treatment of infectious diseases. In addition, broadspectrum antibiotics can be
detrimental to the patient because beneficial microbes are often killed along
with the disease-causing pathogen. The Company's research strategy is to develop
infectious disease drugs that target molecules involved in specific
host-pathogen interactions. In contrast to typical antibiotics, the Company's
products are designed to leave beneficial microbes undisturbed, support the
action of the host's immune system, and reduce the potential for the development
of microbial resistance. The Company has 57 patents, issued or pending, from its
research and development programs and has acquired rights to several external
patents to supplement its technology.

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INFECTIOUS DISEASES

Infectious diseases remain the world's leading cause of premature death.
Between 1980 and 1992, the death rate due to infectious diseases rose 58% in the
United States, making infectious diseases the third leading cause of death in
this country behind heart disease and cancer. In 1995, it was reported that in
the United States, approximately 25% of physician visits were attributable to
infectious diseases and their indirect costs were estimated at more than $120
billion. Despite the use of antibiotics and other drugs, infectious disease
prevention and treatment remains a major medical challenge throughout the world.
It has been estimated that 4 billion cases of infectious diarrhea occurred in
1995. Tuberculosis continues to be epidemic worldwide, with 1995 estimates of
over 1.9 billion carriers and 8.9 million new cases per year. Other familiar
bacterial (whooping cough, respiratory infections, meningococcal meningitis) and
viral (hepatitis, measles) diseases continue to be among the ten most common
infections worldwide. In addition, hospital acquired (nosocomial) infections,
such as CDAD, add significant costs to the treatment of patients hospitalized
for many other diseases. The Company estimates that CDAD alone is responsible
for over $1 billion in hospital charges annually in the U.S.

The emergence of infectious agents as health care problems, such as EHEC,
provides new challenges and opportunities for antimicrobial drugs.
Cryptosporidiosis, toxic shock syndrome, Legionnaires' disease, Ebola
hemorrhagic fever, hemolytic uremic syndrome, AIDS, gastric ulcers, and Lyme
disease are among the diseases that have emerged in the past two decades. The
emergence of new pathogens has resulted from: the capacity of microbes to change
and adapt in ways that make them more virulent or resistant to drugs and
vaccines; an increased population of persons, such as children in daycare
centers, the elderly or institutionalized patients, that may be more susceptible
to infection; and increased international travel and trade that allow infections
to spread rapidly and widely. These factors are promoting new or previously
unrecognized infectious agents to emerge as human pathogens and known pathogens
to reemerge in regions where they were once thought to be under control.

In addition to these infectious agents, other microbes are causing disease
based on their ability to resist conventional antibiotic therapy. Among these,
vancomycin-resistant enterococci, penicillin-resistant pneumococci,
multi-resistant S. aureus, and multi-resistant tuberculosis have become
significant clinical problems. While new antibiotics that attack a broad
spectrum of pathogens may help to overcome the present crisis of pathogen
resistance, microbes will likely evolve new mechanisms of resistance. With the
rise in antibiotic resistance, emergence of new pathogens, and harmful side
effects associated with the widespread use of broad spectrum antibiotics, new
medical strategies are needed to control infectious diseases.

Antibiotics are the mainstay of infectious disease medicine. Traditional
antibiotics are chemicals that interfere with essential metabolic processes or
structural components of the microbe, resulting in microbial killing or
inhibition of microbial multiplication. These chemicals are nonspecific in that
both the undesirable pathogen and desirable members of the microbial flora
normally living in the host are destroyed. The beneficial microbes compete with,
and are an important barrier to, infectious pathogens. Loss of this barrier,
especially in patients that are immunocompromised, can lead to further disease
complications and can predispose the patient to infections by other pathogens.
Ophidian is pursuing an alternative medical approach-to develop drugs that are
active against only a single pathogen or limited spectrum of organisms.

In certain clinical scenarios broad-spectrum antibiotics may be incapable
of preventing host injury once infection is diagnosed. In diseases such as CDAD,
hemolytic uremic syndrome caused by EHEC, and sepsis, antibiotics are unable to
prevent the widespread organ damage caused by toxins released from the offending
bacterium. In other scenarios, the host's efforts to wall off, kill or
neutralize pathogens, may proceed rapidly, causing fibrosis (scarring) and other
complications. These aspects of infectious disease require drug strategies
(i.e., disease specific) that involve the interaction of the host and pathogen.

Ophidian focuses on the discovery and development of new antimicrobial
drugs that avoid resistance and damage to the normal flora or that treat
infection-related host injury. This is accomplished by targeting molecules
involved in the interaction of the host and pathogen. Ophidian has selected
certain virulence factors, such as bacterial toxins, as drug targets because
they are specific to a pathogen and likely to remain essential to pathogenesis.
The Company uses this specificity to design drugs that do not disrupt the normal
microbial
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ecology of the host and are less susceptible to resistance development. The
Company's lead products are also designed to prevent host injury from
inflammatory or other undesirable defense reactions brought on by infection.

THE COMPANY'S PRODUCTS

Therapeutic Antitoxin for Clostridium difficile-Associated Disease (CDAD).
Since June 1996, Ophidian and Lilly have collaborated on the development of the
Company's passive antibodies to treat or prevent CDAD. Ophidian and Lilly have
completed pre-clinical studies and filed an IND in November of 1997.

CDAD afflicts, in the Company's estimation, one percent of all hospital
admissions in the U.S. and as many as one million patients annually worldwide.
The management of diarrheal disease characteristic of CDAD is a growing burden
to hospitals and is especially problematic on medical and surgical wards. Most
patients develop a self-limiting diarrhea, but some progress to pseudomembranous
colitis, toxic megacolon, peritonitis, and/or death.

An epidemic of CDAD is attributed to the widespread use of broad-spectrum
antibiotics that alter the intestinal flora and predispose a patient to C.
difficile infection, either by allowing resident organisms to proliferate or by
exposing the host to nosocomial infection. The costs of CDAD can easily amount
to thousands of dollars per patient due to nursing care, barrier precautions,
diagnostic tests, and medical treatment. In an intensive care unit, the costs
are compounded by the battery of diagnostics and empirical antibiotic therapies
that are ordered when a patient becomes febrile.

Vancomycin has been a drug of choice for treating CDAD, but its use is
being restricted due to selection for vancomycin-resistant enterococci. In 1995,
the Centers for Disease Control and Prevention ("CDC") reported a twenty-fold
increase in the incidence of vancomycin-resistant enterococci ("VRE").
Epidemiologists suspect the widespread use of vancomycin is selecting for VRE.
Certain strains of VRE are now resistant to all proven antibiotic therapies.
Vancomycin resistance can be transferred genetically from enterococci to
Staphylococcus aureus. Methicillin-resistant Staphylococcus aureus is an
organism that is currently susceptible only to vancomycin. Enterococcus and S.
aureus are two of the most prevalent pathogens causing sepsis and other serious
nosocomial infections. As a result, it has been recommended that hospitals
restrict vancomycin use as a primary therapy for CDAD treatment. As an
alternative antibiotic, metronidazole is used for CDAD control. Metronidazole is
as effective as vancomycin in terms of relapse rates and response time for mild
and moderate CDAD; however, metronidazole's toxicity and efficacy in severe
cases of colitis are a concern. The American College of Gastroenterology issued
guidelines recommending that physicians switch from metronidazole to vancomycin
therapy if symptoms do not abate.

Ophidian is proposing to treat or prevent CDAD by using specific passive
antibodies. The medical advantages of the Company's CDAD product could include
more rapid recovery, fewer relapses, and reduction of resistance development in
intestinal bacteria. Ophidian has shown in animals that its orally delivered
antibodies neutralize C. difficile toxins without disrupting the intestinal
function. C. difficile causes disease by producing two potent toxins, known as
toxins A and B, that are released by the bacteria and cause severe damage to the
gut lining and underlying tissue. By attacking the toxins specifically, the
pathogenic mechanism of the organism is blocked; its ability to thrive in the
gut is diminished; and, the normal microbial ecology is allowed to recover.
Because the toxin neutralizing passive antibodies are polyclonal and react to
multiple toxin epitopes, the Company believes that the emergence of resistant C.
difficile strains is unlikely.

The Company has demonstrated the effectiveness of its passive antibodies in
the hamster model of CDAD. This animal model offers clear end-points, is
reproducible, and has been highly predictive of antibiotic performance in human
disease. Prophylactic or therapeutic administration of Ophidian's antibodies
prevents tissue destruction, diarrhea, and death in the animal model.
Importantly, relapse does not occur after termination of Ophidian's antibody
therapy, whereas the animals relapse and die within five to seven days after
metronidazole or vancomycin treatment is ended.

The Company believes efficacy trials for its CDAD passive antibodies can
proceed more rapidly than for many other drugs since CDAD is prevalent and
easily and accurately diagnosed. In addition, the normally

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acute course of CDAD allows the effectiveness of drugs to be evaluated in days
to weeks. Ophidian's antibodies are isolated from hen eggs that are a normal
dietary component. Therefore, the Company believes they will be safe when used
as an orally delivered therapeutic. Ophidian has produced avian antibodies
through the use of various contract manufacturers and intends to apply a portion
of the proceeds for this offering to establish its own manufacturing capability.
The Company can provide no assurance that the FDA will determine that Ophidian's
antibodies are safe or effective or that their manufacture will meet FDA
requirements.

The Company has more than 15 United States or foreign patents, issued or
pending, relating to the compositions, methods and uses of its avian antibodies
for CDAD.

Antitoxin for Enterohemorrhagic Escherichia coli (EHEC). Ophidian is
developing an EHEC passive antibody formulation funded by an $816,000 grant from
the NIH. The Company is currently conducting pre-clinical studies in animal
disease models.

EHEC, such as serotype O157:H7, have emerged as serious food-borne
pathogens. EHEC gained wide-spread notoriety in the U.S. after a major outbreak
in the Pacific Northwest in which over 700 people fell ill due to undercooked
ground beef, which contained E. coli 0157:H7. Worldwide, E. coli O157:H7 and
other EHEC are becoming increasingly evident as a human health problem.
Estimates from the CDC indicate that over 20,000 E. coli O157:H7 infections
occur annually in the U.S., resulting in 400-500 deaths. Although O157:H7 is the
predominant E. coli serotype causing illness in North America, several other
serotypes produce toxins and have been associated with major outbreaks in
Europe, Mexico, China, Argentina, and Thailand.

EHEC cause a spectrum of illness ranging from mild, uncomplicated diarrhea
to severe bloody diarrhea and about 10% of patients progress to renal disease
known as hemolytic uremic syndrome (HUS). Disease symptoms are caused by toxins
(known as vero- or Shiga-like toxins) released by ingested bacteria that destroy
the intestinal lining, causing bloody diarrhea and allowing the further
dissemination of toxin into the bloodstream. It is believed that, within two to
four days after the onset of bloody diarrhea, systemic toxin may incite
microthrombi which can progress to kidney (or other organ) failure and death.

The Company believes the injection of its EHEC toxin-neutralizing
antibodies will halt systemic disease when delivered within two to four days
following onset of bloody diarrhea. Typically, patients do not seek medical
attention until the onset of bloody diarrhea, when toxins have likely begun
entering the bloodstream. Conventional antibiotic treatment may increase the
patient risk due to increased toxin release from the bacterium. Ophidian's
passive antibodies are designed to neutralize toxins that enter circulation
following EHEC infection. These polyclonal antibodies are directed to
recombinant verotoxins developed by Ophidian. The antibody formulation
neutralizes both major verotoxin types produced by organisms of the O157:H7
serotype as well as structural variants produced by other serotypes such as
O91:H21.

Ophidian's antibodies can be protective against lethality in a rodent model
of EHEC infection when administered up to 36 hours following EHEC inoculation.
These results demonstrate a window for therapeutic intervention in animal EHEC
disease. Without treatment, animals inoculated orally with viable EHEC bacteria
will develop disease symptoms within 48 hours and will die due to kidney and
other complications after four to five days.

The Company's funding from the NIH will support research and development of
the EHEC project at Ophidian until March 1998. Ophidian will seek to establish a
partnership with a biotechnology firm or regional public health agencies to
participate in the clinical development and, if approved, marketing of the
product. The Company has filed two patent applications relating to compositions
of and methods for producing EHEC antibodies and their therapeutic use.

Vaccines and Antitoxins for Biological Agents. From 1991 to 1996, Ophidian
received over $600,000 in contracts from the U.S. Department of Defense for the
research and development of antitoxins and vaccines to a number of biologic
agents. These programs applied the Company's technology in recombinant microbial
antigens (particular bacterial toxins), capabilities in the cloning and
expression of Clostridium genes, and avian passive antibody formulation. The
Company has shown in various animal models, including primates,
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that its vaccines and passive antibodies are safe and effective against specific
toxins. Furthermore, the Company believes that the clinical development
requirements for these products could be abbreviated because appropriate animal
models exist as surrogates to human testing and it is impractical to conduct
efficacy trials by exposing humans to biological toxins. The Company currently
has four United States or foreign patents, issued or pending, relating to
antitoxins and vaccines to biologic agents.

Diagnostic Products. Ophidian has developed reagents (polyclonal
antibodies, recombinant microbial proteins, and peptides) in the course of its
drug development that have application in clinical diagnostic testing. The
Company's technology facilitates the manufacture of these reagents on a
commercial scale using methods developed in its therapeutic programs, such as
CDAD. The Company believes that these reagents could be sold to clinical
diagnostic firms as components in their instrumented assay systems or test kits.
The Company believes that it could receive bulk reagent supply revenues and/or
royalties from final product sales. In addition, the development of rapid and
accurate infectious disease diagnostics based on Ophidian's reagents could
assist in the clinical development of Ophidian's therapeutic candidates by
providing improved diagnosis and therapy decisions. The Company has United
States or foreign patents, issued or pending, relating to diagnostic
applications of its CDAD and EHEC programs.

Additional Therapeutic Products for Infectious Disease. Ophidian intends to
pursue the development of additional products resulting from its programs in
target discovery and drug design for passive antibody products. The Company is
applying its technologies for products to treat or prevent acute
gastrointestinal infections or microbial toxin-mediated diseases. In addition,
the Company is developing drug candidates for chronic diseases, such as chronic
inflammatory bowel disorders, where responses to infectious agents are
implicated in the disease process. The Company is also identifying small
molecule compounds that react with microbial virulence factors for diseases
where passive immunization or vaccination is unsuited. The Company has 10 United
States or foreign patents, issued or pending, relating to its small molecule
drug discovery programs.

OPHIDIAN'S DISCOVERY TECHNOLOGIES

The Company's technology focuses on the interaction of the infectious agent
with the host to discover new targets for therapeutic intervention. The Company
identifies and evaluates drug targets by using molecular genetics, protein
biochemistry and animal disease models and designs drug candidates to react with
these targets that interfere with the disease process. Ophidian's study of human
cellular regulation pathways is directed to the discovery of new infectious
disease drugs and is also relevant to non-infectious diseases.

Ophidian uses antibodies to bind and neutralize virulence factors of
pathogenic bacteria, such as C. difficile and E. coli toxins. For targets in the
intestinal tract, Ophidian has shown that avian antibodies can be formulated in
a solid oral dosage form. Oral delivery of pathogen-specific antibodies is
intended to block the infection process while leaving the normal, beneficial
bacterial flora undisturbed.

Microbial Virulence Factors Program. The Company's strategy to target
microbial virulence factors in drug design is exemplified by its CDAD and EHEC
programs where both diseases are caused by toxin-producing bacteria. Ophidian
has established expertise in the laboratory analysis of toxin molecules and
animal models of disease. Microbial toxins provide ready targets for
intervention with vaccines and passive antibodies. For example, existing
vaccines for tetanus and diphtheria stimulate antibodies that neutralize
microbial toxins responsible for virulence. Many other common pathogens,
including Clostridium, E. coli, Staphylococcus, Streptococcus, Shigella and
Vibrio, produce toxins or enzymes that are either the direct cause of disease or
are important in the disease process.

Molecules related to other disease-causing microbes can be identified by
understanding the mechanism of interaction between disease-causing microbes and
the susceptible host. The Company has analyzed therapeutic targets from
organisms including C. difficile, enterohemorrhagic E. coli, enteroadherent E.
coli, C. botulinum, gram negative endotoxin from various gram negative
organisms, and staphylococcal enterotoxins. The Company has over 20 United
States or foreign patents, issued or pending, relating to compositions or
therapeutic use of microbial targets from these organisms.

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Ophidian's study of microbial virulence factors includes the following
steps.

1. Selection of Virulence Factor Target. Potential drug targets are
evaluated in laboratory studies whereby antibodies or small molecules are
designed to interfere with virulence factors. Targets are selected if the
disease process can be impeded and an appropriate drug form can be designed
(i.e., a suitable drug for intestinal use).

2. Production of Target for Drug Development. Certain virulence factors,
such as toxins, can be extracted only in small quantities from laboratory
cultures of the pathogenic organism. Even if available, naturally-occurring
toxins can be hazardous to manipulate and unsuitable for pharmaceutical
research. Ophidian develops recombinant forms of virulence factors that can be
expressed with appropriate chemical conformation, purified and handled safely
using proprietary techniques of molecular cloning and expression.

3. Drug Design. The Company's principal approach to drug design is the
application of immunochemical techniques. Ophidian maps the regions of the
protein that are optimally susceptible to drug targeting using antibodies as
probes. From this analysis, passive antibodies or vaccines can be developed.
Alternatively, the target can be used to screen chemical libraries to identify
small molecule drug candidates.

4. Develop Process Reagents. When the optimal drug form is passive
antibodies or vaccines, the recombinant production system is scaled to yield
larger quantities of the target molecule.

5. Animal Models of Disease. Ophidian tests the effectiveness of antibody
or other drug formulations using animal (usually rodent) models of disease.
Treatment regimens and dosing are evaluated to arrive at a drug composition
yielding the desired therapeutic effect.

Host Response Program. The Company has initiated a program to identify host
functions that are involved in infectious disease pathogenesis. The Company is
targeting the "transforming growth factor beta" (TGF-SS) pathway for new drug
discovery because this pathway is used by several infectious agents to suppress
the immune response of the host. Pathogens, including viruses, bacteria, fungi
and multicellular parasites, can exploit many host cell functions, including
signal transduction pathways, cytoskeletal rearrangements and vacuolar
trafficking. In turn, the host cell environment can induce specific patterns of
gene expression in a pathogen. The TGF-SS cytokine is known to regulate cell
growth, fibrogenesis and the immune response in numerous diseases.

The Company's strategy is to study molecules involved in the TGF-SS signal
transduction pathway to increase the number of targets for drug intervention.
Cells respond through cell surface receptors for TGF-SS that activate signal
transduction proteins inside the cells called SMADS. Upon activation, SMADS
enter the cell nucleus and participate in the regulation of TGF-SS-responsive
genes. The Company believes that targeting molecules involved in TGF-SS signal
transduction, such as SMADS, may provide a means to modulate specific TGF-SS
responses during infectious and other disease processes.

The Company is developing specific assays for high throughput screens for
new small molecule activators and inhibitors of the pathway. The Company has
acquired intellectual property for various uses of SMADS and established an
academic collaboration to evaluate the biological actions of such novel
compounds affecting SMADS. The Company intends to test such leads in animal
models of infectious disease-induced immunosuppression and fibrosis as well as
for other indications. As other targets and pathways are validated through
genetic manipulation in animal models of disease, the Company and its
collaborators intend to develop appropriate biological assays for future small
molecule drug discovery efforts.

Drugs and drug targets discovered in this program may have other medical
applications. The range of disease applications that could result from the study
of TGF-SS targets expands well beyond Ophidian's interest in infectious
diseases. The Company expects to outlicense those applications that are outside
its business interest or establish sponsored research agreements with firms
wanting access to Ophidian's signal transduction targets for drug discovery or
diagnosis. Possible disease applications of Ophidian's technology are summarized
below.

Cancer. Drugs that affect SMADS may compensate for disease-causing
mutations in SMAD genes or in the genes of receptors and other proteins that
exert their effects through SMADS. Mutations in the TGF-SS
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receptor and SMAD genes on the TGF-SS pathway have been detected in colon and
other cancers. Mutations in the type II TGF-SS receptor are detected in
approximately 20% of sporadic colorectal cancers. Mutations in the TGF-SS
pathway SMAD4 protein are found in human pancreatic cancer and 90% of human
pancreatic cancers exhibit chromosome loss for the chromosomal region that
includes SMAD4. In addition, defects detected in prostate cancer include loss of
TGF-SS receptors.

Fibrotic diseases. Fibrotic diseases occur when the body's response to
tissue injury results in an overproduction of extracellular matrix deposition.
New drugs that target TGF-SS could be used to temper the body's response to
tissue injury so that tissue regeneration can occur in a more orderly fashion,
without the potentially life threatening complications engendered by extensive
fibrosis. Overproduction of TGF-SS is a major cause of fibrotic diseases
affecting the kidney, lung, liver, bone marrow, and heart. Fibrosis of the
kidney contributes to end stage renal disease, which in 1993 affected over
250,000 people and led to over $11 billion in healthcare expenses in 1994.
Interference with TGF-SS by binding proteins has had positive therapeutic
effects in animal models for glomerulonephritis. Chronic liver disease, which is
often caused by viral infections, is also associated with fibrosis that
progresses to cirrhosis. Interfering with TGF-SS allows wounds to heal without
scarring.

Other diseases. The pathogenicity of over-exuberant repair reactions may
also pertain to the reported actions of TGF-SS in osteoarthritis in which low
level expression can heal cartilage damage but high level expression mimics the
changes found in the diseased joints. In addition, there are implications
involving the TGF-SS pathway which the Company may explore in conditions ranging
from immunosuppression, myelodysplastic syndromes, bone loss, neural
degeneration, and Alzheimer's disease.

OPHIDIAN'S MANUFACTURING TECHNOLOGY

Ophidian has developed a manufacturing technology which harvests polyclonal
antibodies from the egg yolks of hyperimmunized laying hens. In contrast to
large mammals, laying hens provide a practical animal production source for the
development and optimization of new antibody products. Similar experimentation
in large mammals is burdened by expense, time, material, and potential animal
losses. The production capacity of hens and the efficiency of extracting
antibodies from eggs provides an efficient source of antibodies that the Company
considers advantageous for large-scale production.

Ophidian believes the use of avian antibodies as a drug form is attractive
because of the following features:

- Hens generate large quantities of antibody relative to their body mass.

- Hens can typically be immunized safely with higher doses of immunogen on
a body weight basis than large mammals, resulting in high specific
antibody output.

- The costs of purchasing, housing, and maintaining production hens can be
less than for horses or other large mammals.

- Egg yolks containing IgY can be separated using high-throughput food
industry automation.

- Antibodies can be recovered using bulk fractionation without the use of
volatile solvents.

- Antibody preparations can be filter-sterilized, lyophilized, tableted and
reconstituted without appreciable loss of structural integrity and can be
enterically coated for oral delivery.

The Company has developed process protocols to facilitate work flow,
maximize egg production, and maximize IgY output. The Company has developed
process and logistical controls that it believes will meet Good Manufacturing
Practices requirements of the FDA. Ophidian has carried out various stages of
the IgY manufacturing process under contracts with manufacturing firms. Ophidian
is developing its own manufacturing capability to produce pharmaceutical grade
IgY in larger scale and intends to apply a portion of the proceeds of this
Offering to acquire a manufacturing facility and pay expenses associated with
its validation and operation.

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OPHIDIAN'S BUSINESS STRATEGY

The Company's strategy is to commercialize technologies and products from
its research and development programs. The Company intends to manufacture and
sell its bulk pharmaceuticals, receive royalties from the sale of its product
through marketing partners, receive license fees from the use of its
technologies and establish sponsored research agreements encompassing Ophidian
technologies. The Company intends to achieve its objectives as follows.

- Develop portfolio of infectious disease drugs. The Company has applied
its resources to a portfolio of products to diversify the risks inherent
in pharmaceutical product development. The establishment of a product
portfolio is also intended to leverage the Company's proprietary
discovery and manufacturing technologies and know-how in the field of
infectious disease.

- Develop new technologies for drug discovery and formulation. Ophidian's
research strategy is to discover new drug targets through examination of
and research involving molecules involved in the host-pathogen
interaction. The Company's initial programs on bacterial toxins as drug
targets has expanded to the study of host factors involved in the
infectious disease process.

- Develop business and enhance research through collaborations. The
Company's business strategy is to leverage the resources gained from each
collaboration to expand its technology and operations base. The Company
also intends to rely on commercial partners for the marketing, sales and
distribution of its products. In addition, collaborations with academic
centers can supplement the scientific resources available within Ophidian
and broaden access to rapidly emerging drug discovery technologies.

- Establish manufacturing capability to facilitate new product development
and retain a greater portion of product value. The Company intends to
establish a manufacturing business to maximize the commercial opportunity
of its core technologies. The Company intends to develop multiple
products based on its avian antibody manufacturing technology to leverage
its know-how and facilities investment. The Company also believes that
controlling its own manufacturing facility will accelerate the
development and licensure of future products.

COLLABORATIVE AGREEMENTS

In June, 1996, the Company and Lilly entered into a collaborative agreement
for the research, development, manufacture and sale of Ophidian's product for
the treatment of CDAD ("Development Agreement"). In connection with the
Development Agreement the parties also entered into a Stock Purchase Agreement
that set forth terms for the purchase of Ophidian common stock by Lilly. To
date, the Company has received $400,000 in development payments, $1.0 million
from the sale of stock to Lilly at signing of the Lilly Agreements, and $3.0
million from the sale of stock to Lilly upon achievement of the first
development milestone under the Lilly Agreements. Lilly has agreed to provide
the Company an additional $8.0 million through a cash payment and stock purchase
upon the completion of certain project milestones and Lilly's decision to
proceed with clinical development. Under the Development Agreement, Lilly also
agreed to fully fund pre-clinical and clinical development, formulation
development, and the submission of regulatory documents required for marketing
approval. Ophidian agreed to manufacture bulk drug substance for pre-clinical
and clinical development. The Company granted Lilly an exclusive worldwide right
to market, sell and distribute the CDAD product and exclusive worldwide license
to Ophidian's intellectual property as it applies to the CDAD product. Under the
Development Agreement, the Company is responsible for the production of bulk
drug substance and Lilly for drug product. The parties have agreed to a revenue
sharing plan as compensation for their respective manufacturing and marketing
activities. The Company is required to establish a manufacturing capability
sufficient to produce clinical and commercial quantities of bulk drug substance
for the CDAD product. Should Ophidian fail to meet its manufacturing
obligations, Lilly may assume bulk drug substance manufacturing rights subject
to certain payments to Ophidian. Under the terms of the Development Agreement,
Lilly may, at any time, terminate the agreement. Upon such termination, all
licenses to Ophidian technology would expire and Ophidian would retain ownership
of all information generated during the collaboration.

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In June, 1997, the Company entered into an agreement with Dr. Allen
Laughon, and other researchers, (the "Laughon Agreement") wherein the Company
was granted an exclusive license to compositions and methods for the binding of
certain molecules (i.e., SMADs) involved in the regulation of the TGF-b pathway
as set forth in a U.S. patent application. The Laughon Agreement also grants to
the Company an exclusive license to any products or other subject matter whose
discovery emanates from the licensed invention. The Company may maintain the
license upon the yearly payment of $10,000. The Laughon Agreement also requires
the Company to make cash payments upon the achievement of certain development
milestones for product candidates. In connection with the Laughon Agreement, the
Company has other agreements with Dr. Laughon and the University of
Wisconsin-Madison whereby the Company is funding ongoing SMAD research by Dr.
Laughon in his University laboratory. The Company will have certain patent
rights to inventions resulting from such research.

In September, 1991, the Company entered an agreement with Promega
Corporation ("Promega"), Madison, Wisconsin, ("Promega Agreement") to provide
marketing of the Company's technologies outside its core markets ("Core Markets"
are defined as therapeutic and diagnostic products and their accessory or
component parts, for human or animal use). Under the Promega Agreement, the
Company granted Promega an exclusive and confidential first right, for a period
of 10 years, to review any technology developed by the Company incidental to its
Core Markets. The Promega Agreement will terminate upon its tenth anniversary or
on the date when Promega owns less than one percent of the Company's common
stock. In connection with the Promega Agreement, Promega acquired shares of the
Company for an aggregate purchase price of $546,920. To date, no licenses have
been negotiated under the Promega Agreement.

The Company has formed collaborations with various academic or commercial
institutions for the evaluation of technology of either party. These agreements
may provide that ownership of the Company's inventions is retained by the
Company and ownership of the outside party's technology is retained by the
outside party. Should inventions arise during the course of a collaboration
which are invented by both the Company and the outside party, the parties agree
to negotiate in good faith the commercial use by the Company of such joint
inventions.

The Company has entered into license agreements with academic and
government agencies for the use of technologies involved in recombinant DNA
research. Maintenance of these licenses generally require annual payments and
certain royalties are payable upon the commercialization of products that employ
the technology. In aggregate, the Company pays approximately $22,000 annually to
these licensors.

PATENTS AND PROPRIETARY TECHNOLOGY

The Company's success will depend in part on its ability to obtain and
maintain patent protection for its technologies and to preserve its trade
secrets. It is the policy of the Company to file patent applications in the
United States and/or foreign jurisdictions. The Company currently holds 10
issued United States or foreign patents and has 47 United States or foreign
patent applications pending. No assurance can be given that the Company's patent
applications will be approved or that any issued patents will provide
competitive advantages for the Company's technologies or development of products
or will not be challenged or circumvented by competitors. With respect to
already issued patents and any patents which may be issued from the Company's
applications, there can be no assurance that claims allowed will be sufficient
to protect the Company's technologies. Patent applications in the United States
are maintained in secrecy until a patent issues, and the Company cannot be
certain that others have not filed patent applications for technology covered by
the Company's pending applications for, or may have received patents and may
obtain additional patents and proprietary rights relating to, compounds or
processes that may block the Company's patent rights or compete without
infringing the patent rights of the Company. In addition, there can be no
assurance that any patents issued to the Company will not be challenged,
invalidated or circumvented, that the rights granted thereunder will provide
proprietary protection or commercial advantage to the Company.

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for any such breach or that the Company's trade secrets will not otherwise
become known or be independently developed by competitors. Although potential
collaborative partners and the Company's research partners and consultants are
not given access to proprietary trade secrets and know-how of the Company until
they have executed confidentiality agreements, these agreements may be breached
by the other party thereto or may otherwise be of limited effectiveness or
enforceability.

The ability to develop the Company's technologies and to commercialize
products using such technologies will depend on not infringing the patents of
others. Although the Company is not aware of any claim of patent infringement
against it, claims concerning patents and proprietary technologies determined
adversely to the Company could have a material adverse effect on the Company. In
addition, litigation may also be necessary to enforce any patents issued or
licensed to the Company or to determine the scope and validity of third-party
proprietary rights. There can be no assurance that the Company's issued or
licensed patents would be held valid by a court of competent jurisdiction.
Whether or not the outcome of litigation is favorable to the Company, the cost
of such litigation and the diversion of the Company's resources during such
litigation could have a material adverse effect on the Company.

Under the Lilly Agreements, Ophidian granted to Lilly an exclusive
worldwide license with certain rights to sublicense under Ophidian's patents for
the manufacture, sale, and use of drug product employing avian antibodies useful
in the treatment of CDAD. Under the Agreements, Lilly has granted to Ophidian a
non-exclusive license to certain process technology. Should Lilly terminate the
Agreement out of a desire to end the collaboration, all licenses granted to
Lilly would be canceled and the non-exclusive license granted to Ophidian would
remain in force.

All pending patent applications referred to herein are derived from work of
the Company's employees, collaborators and consultants. The Company holds
exclusive worldwide rights to all inventions and patent applications made by its
employees pursuant to written employment agreements.

In addition to the patent applications described herein, the Company
intends to aggressively pursue patent protection for any new technologies that
it may develop or consider essential for its future business development and
intends to safeguard its remaining proprietary technology as trade secrets
through non-disclosure agreements with its employees and third parties.

The pharmaceutical industry has experienced extensive litigation regarding
patent and other intellectual property rights. Accordingly, the Company could
incur substantial costs in defending itself in suits that may be brought against
the Company claiming infringement of the patent rights of others or in asserting
the Company's patent rights in a suit against another party. The Company may
also be required to participate in interference proceedings declared by the
United States Patent and Trademark Office for the purpose of determining the
priority of inventions in connection with the patent applications of the Company
or other parties. Adverse determinations in litigation or interference
proceedings could require the Company to seek licenses (which may not be
available on commercially reasonable terms) or subject the Company to
significant liabilities to third parties, and could therefore have a material
adverse effect on the Company.

COMPETITION

The biotechnology and pharmaceutical industries are intensely competitive
and subject to rapid and significant technological change. Several other
companies have developed or are developing novel technologies for the prevention
and treatment of infectious diseases, and those competing technologies may prove
superior, either generally or in particular market segments, in terms of factors
such as cost, consumer satisfaction or drug safety or efficacy profiles. The
Company's principal competitors in the area of infectious disease drug research
and development include companies, such as SmithKline Beecham Corporation,
Bristol-Myers Squibb Company, Abbott Laboratories as well as numerous
biotechnology firms, all of which have substantially greater financial,
technological, marketing, personnel, and research and development resources than
the Company. In addition, the Company may face competition from pharmaceutical
and biotechnology companies that may develop or acquire infectious disease
technologies. Companies that complete clinical trials, obtain regulatory
approvals and commence commercial sales before their competitors may achieve a
significant competitive advantage. A number of companies are developing new
products for the treatment of
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the same disease being targeted by the Company. In some instances, the Company's
competitors already have products in clinical trials. In addition, certain
pharmaceutical companies are currently marketing drugs for the treatment of the
same diseases targeted by the Company.

The Company believes that its competitive success will be based partly on
its ability to attract and retain scientific personnel, establish specialized
research and development capabilities, gain access to manufacturing, marketing
and distribution resources, secure licenses to external technologies, and obtain
sufficient development capital. The Company intends to obtain many of these
capabilities from pharmaceutical or biotechnology companies through
collaborative or license arrangements. However, there is intense competition
among early stage biotechnology firms to establish such arrangements. The
Company's development products may not be of suitable potential market size or
provide a compelling return on investment to attract other firms to commit
resources to a collaboration. Even if collaborations can be established, there
can be no assurance that the Company will secure financial terms that meet the
Company's commercial objectives.

MANUFACTURING

To be successful, the Company's products must be manufactured in commercial
quantities under appropriate controls as required by the FDA, and at an
acceptable cost. The Company has not yet manufactured any of its passive
antibodies for treatment of gastrointestinal infections in commercial quantities
and currently does not have the facilities to manufacture these products at
commercial scale. To proceed with product development, the Company will rely on
contract manufacturers to perform certain manufacturing processes. There can be
no assurance that the Company will be able to enter into any such manufacturing
arrangements on acceptable terms, if at all. If the Company is not able to enter
into commercial manufacturing agreements, it could encounter delays in
introducing its products.

Manufacturers of products utilizing Ophidian's avian technology will be
subject to applicable GMP requirements prescribed by the FDA or other rules and
regulations prescribed by foreign regulatory authorities. There can be no
assurance that the Company will be able to enter into manufacturing agreements
either domestically or abroad with companies whose facilities and procedures
comply with GMP or applicable foreign standards. Should such agreements be
entered into, the Company will be dependent on such manufacturers for continued
compliance with GMP and applicable foreign standards. Failure by a manufacturer
to maintain GMP or applicable foreign standards could result in significant time
delays or the inability of the Company to commercialize products and could have
a material adverse effect on the Company. There also can be no assurance that
any products utilizing the avian antibodies can be manufactured at a cost or in
quantities required to make them commercially viable. The Company's inability to
contract on acceptable terms and with qualified suppliers for the manufacture of
any products or delays or difficulties in its relationships with manufacturers,
would have a material adverse effect on the Company.

Contract manufacturers must adhere to GMP regulations strictly enforced by
the FDA on an ongoing basis through its facilities inspection program. Contract
manufacturing facilities must pass a pre-approval plan inspection before FDA
approval of any product. Certain material manufacturing changes that occur after
other regulatory agencies will approve the process or facilities by which any of
the Company's products may be manufactured. The Company's dependence on third
parties for the manufacture of products utilizing may adversely affect the
Company's ability to develop and deliver such products on a timely and
competitive basis.

The Company anticipates that it will construct pilot and commercial
facilities for the processing of bulk avian antibodies in the near future.
Facility construction will require the commitment of substantial funds
(including long-term debt financing of up to approximately $5 million), the
hiring and retention of significant additional personnel and compliance with
extensive regulations applicable to such a facility. While current Company
management has experience in the design, construction and operation of
bioprocessing facilities, there can be no assurance that the Company will be
able to manufacture products in commercial quantities and meet regulatory
requirements. See "Use of Proceeds -- Capital Expenditures."

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GOVERNMENT REGULATION

The Company is subject to regulation under various federal laws regarding
pharmaceutical products and also various federal and state laws regarding, among
other things, occupational safety, environmental protection, hazardous substance
control and product advertising and promotion. In connection with its research
and development activities, the Company is subject to federal, state and local
laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of
certain materials and wastes. The Company believes that it has complied with
these laws and regulations in all material respects and it has not been required
to take any action to correct any material noncompliance.

FDA Approval Process. In the United States, pharmaceutical products are
subject to rigorous regulation by the FDA. If a company fails to comply with
applicable requirements, it may be subject to administrative or judicially
imposed sanctions such as civil penalties, criminal prosecution of the company
or its officers and employees, injunctions, product seizure or detention,
product recalls, total or partial suspension of production and FDA refusal to
approve pending new drug applications, premarket approval applications, or
supplements to approved applications.

Prior to commencement of clinical studies involving human beings,
pre-clinical testing of new pharmaceutical products is generally conducted on
animals in the laboratory to evaluate the potential efficacy and the safety of
the product. The results of these studies are submitted to the FDA as a part of
an IND application, which must become effective before clinical testing in
humans can begin. Typically, clinical evaluation involves a time consuming and
costly three-phase process. In Phase I, clinical trials are conducted with a
small number of subjects to determine the early safety profile, the pattern of
drug distribution and metabolism. In Phase II, clinical trials are conducted
with groups of patients afflicted with a specific disease in order to determine
preliminary efficacy, optimal dosages and expanded evidence of safety. In Phase
III, large-scale, multi-center, comparative trials are conducted with patients
afflicted with a target disease in order to provide enough data to demonstrate
the efficacy and safety required by the FDA. The FDA closely monitors the
progress of each of the three phases of clinical testing and may, at its
discretion, re-evaluate, alter, suspend or terminate the testing based upon the
data which have been accumulated to that point and its assessment of the
risk/benefit ratio to the patient.

The results of the pre-clinical and clinical testing on a nonbiologic drug
and certain diagnostic drugs are submitted to the FDA in the form of an NDA for
approval prior to commencement of commercial sales. In responding to an NDA, the
FDA may grant marketing approval, request additional information or deny the
application if the FDA determines that the application does not satisfy its
regulatory approval criteria. There can be no assurance that approvals will be
granted on a timely basis, if at all. An IND application for the CDAD product
was filed in November 1997. The Company anticipates that several years of
clinical testing will be required prior to FDA marketing approval. Failure to
receive approval for any of its products could have a material adverse effect on
the Company.

Other Regulations. Even if required FDA approval has been obtained with
respect to a product, foreign regulatory approval of a product must also be
obtained prior to marketing the product internationally. Foreign approval
procedures vary from country to country and the time required for approval may
delay or prevent marketing. In certain instances the Company or its
collaborative partners may seek approval to market and sell certain of its
products outside of the U.S. before submitting an application for U.S. approval
to the FDA. The regulatory procedures for approval of new pharmaceutical
products vary significantly among foreign countries. The clinical testing
requirements and the time required to obtain foreign regulatory approvals may
differ from that required for FDA approval. Although there is now a centralized
European Union ("EU") approval mechanism in place, each EU country may
nonetheless impose its own procedures and requirements, many of which are time
consuming and expensive, and some EU countries require price approval as part of
the regulatory process. Thus, there can be substantial delays in obtaining
required approval from both the FDA and foreign regulatory authorities after the
relevant applications are filed, and approval in any single country may not be a
meaningful indication that the product will thereafter be approved in another
country.

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To date, no product candidate being developed by the Company has been
submitted for approval or has been approved by the FDA or any other regulatory
authority for marketing, and there can be no assurance that any such product
will ever be approved for marketing, or that the Company will be able to obtain
the labeling claims desired for its products. The Company is and will continue
to be dependent on collaborators, third party laboratories, contract
manufacturers and medical institutions for the conduct of pre-clinical and
clinical testing of its products. If any of these parties should fail to meet
their obligations or comply with applicable regulations, the development
progress of the Company's products could be delayed.

Finally, the Company is also subject to regulation by the Environmental
Protection Agency, the Occupational Safety and Health Administration, the
Wisconsin Department of Natural Resources, and the Wisconsin Department of
Health and Social Services, regarding, among other things, employee safety,
toxic substances, and hazardous waste handling and disposal. The Company may
also be subject to regulation by other state and federal agencies.

PRODUCT LIABILITY

The Company's business involves exposure to potential product liability
risks that are inherent in the production and manufacture of pharmaceutical
products. Any such claims could have a material adverse effect on the Company.
The Company does not currently have any product liability insurance. Although
the Company intends to acquire product liability insurance, there can be no
assurance that it will be able to obtain or maintain such insurance on
acceptable terms, that the Company will be able to secure increased coverage as
the commercialization of products proceeds or that any insurance will provide
adequate protection against potential liabilities.

ADVISORY BOARD

The Company has assembled an Advisory Board composed of leaders in various
disciplines relating to Ophidian's scientific or business interests. These
individuals are appointed by the Board of Directors and provide critical review
and advice pertaining to the Company's research, development, and business
development activities and strategies at the request of management or the Board
of Directors. The Company intends to increase the number of members on the
Advisory Board in recognition of the increasing need for expert consultation as
Ophidian's business is developing. Members of the Advisory Board are compensated
on a case-by-case basis based on their commitment of time and other factors.
Compensation through stock options or stock purchases may be provided.

The current members of the Advisory Board are:

Dr. Dennis G. Maki. Dr. Maki is a Professor of Medicine and head of the
section of infectious diseases at the University of Wisconsin-Madison Medical
School. He has also served as Director of, and is currently an Attending
Physician for, the Center for Trauma and Life Support at the University of
Wisconsin Hospitals and Clinics. Dr. Maki earned his M.D. from the University of
Wisconsin Medical School. Following his Internship and Assistant Residency with
Harvard Medical Unit, Boston City Hospital, he served as Epidemic Intelligence
Service Officer, Hospital Infectious Section, U.S. Center for Disease Control in
Atlanta, Georgia. He holds Professional Certifications with the American Board
of Medical Examiners, the American Board of Internal Medicine (Infectious
Diseases and Critical Care Medicine), and the Advanced Trauma Life
Support-American College of Surgeons. Dr. Maki is recognized worldwide as a
leading authority on the prevention and control of hospital-acquired infections.

Dr. Robin D.G. Cooper. Dr. Cooper worked for over 30 years at Eli Lilly and
Company engaged in the development of infectious disease drugs. His
responsibilities included participation in numerous management groups focused on
new drug development and strategic planning. His laboratory research has lead to
over 40 patents and numerous scientific publications. Dr. Cooper received a
B.Sc. degree from the Imperial College, a Ph.D. from the Imperial College and
Queen Mary College, and a D.Sc. from London University.

Dr. Joan Massague. Dr. Massague is an Investigator with the HHMI. He is
also Chairman of the Cell Biology Program at Memorial Sloan-Kettering Cancer
Center, and Professor of Cell Biology at Cornell University Graduate School of
Medical Sciences. Before assuming his present positions, he was Professor of
Biochemistry at the University of Massachusetts Medical School. Dr. Massague has
served on numerous

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advisory boards for the National Institutes of Health, National Institute of
Diabetes, Digestive and Kidney Diseases, Damon Runyon-Walter Winchell Cancer
Fund and the National Cancer Institute. Dr. Massague has published numerous
scientific articles on the signal transduction mechanisms of TGF-b.

EMPLOYEES

The Company has 33 full-time employees. Of these, eleven hold Ph.D. degrees
with substantial post-graduate experience in biological science disciplines. In
addition, the Company's officers, directors and consultants possess substantial
expertise in biologic product development, manufacturing, and marketing. The
Company expects to add significantly to its present personnel. These additional
employees will be involved in research and development, administration, and
product manufacturing.

FACILITIES

On January 1, 1993, the Company entered into a lease with Promega
Corporation for a facility located at 5445 East Cheryl Parkway, Madison,
Wisconsin. Mr. Linton is Ophidian's Chairman of the Board of Directors and a
shareholder as well as the Chairman, President, and a shareholder of Promega
Corporation. This facility provides the Company with approximately 10,000 square
feet of laboratory and office space, and has the potential to house additional
staff and research operations. Currently, a majority of the Company's activities
are carried out at this facility, which has been leased through December 31,
1998, with an option to extend the lease through December 31, 2003. For the
twelve month period beginning January 1, 1997, the lease provides for monthly
rental payments of $19,612, which are adjusted annually by a preset amount to
reflect inflationary trends.

The Company has made significant leasehold improvements and capital
purchases, to date costing approximately $767,903. The Company's facilities
contain a fully-functioning immunochemistry and infectious research laboratory,
four bio-containment suites, a networked computer system, and furnished office
space. These improvements, however, do not allow for finished pharmaceutical
manufacturing under GMP guidelines pursuant to applicable federal regulations.
The Company will continue to invest in the necessary plant and equipment for
in-house manufacturing for certain products and to use qualified pharmaceutical
contract manufacturers based upon the demand for bulk drug products and the most
efficient use of its capital.

The current facility is capable of supporting continued product research,
development, and prototype product testing, along with all aspects of
administrative support. To accommodate expected expansion of the Company's
manufacturing operations, it is anticipated that additional facilities will be
secured, either purchased or subject to appropriate lease arrangements or debt
financing.

The Company also leases approximately 20,000 square feet of animal care
facilities located in Waterloo, Wisconsin. This facility is currently capable of
housing laying hens used for avian antibody research and production. Ophidian
pays a fixed monthly fee for the care and housing of these animals, and Ophidian
may terminate the animal care agreement at any time without financial penalty.
Ophidian also maintains research animals at the University of Wisconsin-Madison
under a fee-for-services arrangement.

RAW MATERIALS

The Company's raw materials (such as laying hens and laboratory chemicals)
and other supply items to be used in its research and manufacturing processes
are available from many different suppliers and are generally immediately
available in sufficient quantities. The Company does not anticipate any
significant problems in the availability of, or significant price increases for,
required raw materials or other production items in the foreseeable future.

LEGAL PROCEEDINGS

There are no material legal proceedings pending to which the Company or any
of its property is currently subject.

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<PAGE> 43

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company, and their ages as of
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dr. Douglas C. Stafford(1)................ 42 President, Chief Executive Officer,
Director, Treasurer
Mr. William A. Linton(1)(2)............... 50 Chairman of the Board, Director
Dr. Joseph R. Firca....................... 53 Vice President, Research and Development
Dr. F. Michael Hoffmann................... 46 Vice President, Genetic Technology Programs
Donald L. Nevins.......................... 59 Vice President, Finance, Chief Financial
Officer
Dr. Margaret B. van Boldrik(1)(2)......... 42 Director, Vice President, Secretary
Mr. Rex J. Bates(3)....................... 74 Director
Dr. W. Leigh Thompson(3).................. 59 Director
Dr. Peter Model(3)........................ 64 Director
</TABLE>

- ---------------
(1) Member of Executive Search and Review Committee

(2) Member of Stock Option Committee

(3) Member of Audit Committee

Dr. Douglas C. Stafford, has served as President and Chief Executive
Officer of the Company since January, 1995. Dr. Stafford served as the Company's
President and Chief Operating Officer from August, 1990 to January, 1995. In
May, 1997, Dr. Stafford joined the Company's Board of Directors. Prior to
joining the Company, Dr. Stafford was employed by Baxter Healthcare Corporation,
a publicly held healthcare products company, from 1985 to 1990. He held various
senior management positions, including Director of Immunodiagnostics Development
and Manufacturing at the Pandex Division of Baxter Healthcare Corporation, a
company developing products for the diagnosis of infectious diseases. His
experience also includes senior management positions in biologic product
development, quality assurance, project management, process development, and
manufacturing operations at Pandex and in other assignments within the Baxter
organization where he was involved in corporate and divisional technology and
manufacturing, strategic planning and business development. Prior to Baxter, Dr.
Stafford was employed at Sensor Diagnostics, Inc., a privately held medical
diagnostics company, from 1984 to 1985 and held a faculty position at the
University of Detroit from 1983 to 1984. Dr. Stafford holds B.S. and M.S.
degrees in Biology from the University of Detroit, a Ph.D. in Immunology from
Tufts University, and a M.S. in Management from Lesley College.

Mr. William Linton, has served as Chairman of the Board of Directors and a
member of the Board of Directors of the Company since its inception in November,
1989. Mr. Linton founded Promega Corporation, a privately held developer and
manufacturer of biomedical research products, in 1978, continuously serving as
President and Chief Executive Officer and Chairman of the Board of Directors. He
is also a Director of Promega's two joint ventures in the People's Republic of
China: Sino-American Biotechnology Company and Shanghai-Promega Biochemicals
Company LTD. Mr. Linton has extensive experience in biotechnology product
development and in structuring both U.S. and international marketing and
strategic business partnerships. Since 1996, Mr. Linton has served as the
President of the Fitchburg Center Corporation, a privately held real estate
development company, and on the Board of Directors of Wisconsin Manufacturers
and Commerce, a trade association since January, 1996. Mr. Linton holds a B.S.
degree in Biology from the University of California-Berkeley and conducted
graduate studies at the University of Wisconsin-Madison.

Dr. Joseph Firca, has served as the Company's Vice President, Research and
Development since July, 1992. Prior to joining the Company, Dr. Firca was Vice
President, Advanced Technologies, at the Pandex Division of Baxter Healthcare
Corporation, a publicly held healthcare products company, responsible for
infectious disease, blood screening systems technology, immunoassay product
development, and advanced technology development from May, 1985 to January,
1992. Previously he held several scientific management positions at Abbott
Laboratories from 1976 to 1985. Dr. Firca received a B.S. degree in biology from
Xavier University, a M.S. from Duquesne University, and a Ph.D. in Microbiology
from the University of Cincinnati.

42
<PAGE> 44

In addition, Dr. Firca conducted post-doctoral research at the Argonne National
Laboratory and was a Visiting Associate at the California Institute of
Technology.

Dr. F. Michael Hoffmann, has served the Company as Vice President of
Genetic Technology Programs since August, 1997. He was employed by the Company
from November, 1996 to July, 1997 as Principal Scientist in Business
Development. From July, 1994, Dr. Hoffmann has been a Professor of Oncology and
Medical Genetics at the McArdle Laboratory for Cancer Research at the University
of Wisconsin-Madison and has been granted a leave of absence from the
University. He held the positions of Associate and Assistant Professor at the
University of Wisconsin-Madison from July, 1984 to July, 1994. He conducted
post-doctoral research at Harvard University and the Massachusetts Institute of
Technology from January, 1979 to June, 1984. He holds a Ph.D. degree in
biochemistry from Cornell University and a B.S. degree in chemistry from
Rensselaer Polytechnic Institute.

Mr. Donald L. Nevins joined the Company as Vice President, Finance, Chief
Financial Officer in November 1997. From 1993 to 1997, Mr. Nevins operated his
own consulting firm, CPR Electronics, Inc. which provided financial and
strategic services to development-stage companies. He has been President, CEO,
and a director of CPR Electronics Inc., a company he formed for investment and
consulting purposes in 1993 which became inactive in September 1997. He was
president, CEO, and a director of LouveRail Enterprises, Inc. in 1996 and Vice
President-Finance and CFO of Personnel Data Systems from 1995 to 1996. From 1988
to 1992, he was chief financial officer of C & D Technologies, Inc., a
publicly-held battery and electronic company. From 1986 to 1988, he was senior
vice president of finance and a director of Protein Sciences Corp., a private
biopharmaceutical company. From 1976 to 1986, he held a series of positions with
Uniroyal Inc. including chief financial officer of two major groups (Chemical
and Engineered Products). From 1974 to 1976, Mr. Nevins was assistant controller
of Combustion Engineering, Inc. and chief financial officer of its Brazilian
subsidiary. From 1967 to 1972, he held a series of financial staff positions
with Commercial Union Companies, Inc.; from 1972 to 1974 with Northwest
Industries, Inc.; from 1964 to 1967 with Carborundum Company. From 1960 to 1964,
Mr. Nevins was a certified public accountant at Price Waterhouse & Co. Mr.
Nevins received his B.B.A. from the University of Pittsburgh and a M.B.A. from
the State University of New York.

Dr. Margaret B. van Boldrik, has served as a Director of the Company since
its inception in November, 1989. Dr. van Boldrik has also served as Vice
President of the Company since January, 1990 and as Secretary of the Company
since November, 1989. Prior to joining the Company, Dr. van Boldrik was Director
of the University of Wisconsin Biotechnology Center's Technology Transfer Office
where she managed broad-based programs for the commercial development of
University-affiliated technologies from 1987 to 1990. Dr. van Boldrik holds a
B.S. in Biochemistry from the University of California at Davis, and a Ph.D. in
Biochemistry from Tufts University.

Mr. Rex J. Bates, has served as a Director of the Company since March,
1992. He has also served as a Director of Ventana Medical Systems, Inc., a
publicly held medical diagnostic instrument company, since April, 1996. From
August, 1991 to May, 1995, Mr. Bates served on the Board of Directors of
Twentieth Century Industries, a publicly held insurance holding company, and was
a member of its compensation committee. Mr. Bates worked at State Farm Mutual
Automobile Insurance Company from May, 1972 to March, 1991 serving as
Vice-Chairman of the Board of Directors and as Chief Investment Officer. In
March of 1991, Mr. Bates retired from State Farm. Mr. Bates was a member of the
investment advisory firm of Stein, Roe & Farnham in Chicago from August, 1949 to
May, 1972. Mr. Bates received an S.B. and an M.B.A. from the University of
Chicago.

Dr. W. Leigh Thompson, has served as a Director of the Company since
December, 1995. Dr. Thompson founded Profound Quality Resources, Inc., a private
healthcare consulting firm, in 1995 to provide consulting services to health
institutions and manufacturers worldwide. Dr. Thompson served as an Assistant
Professor of Medicine and of Pharmacology and Experimental Therapeutics at Johns
Hopkins University from 1970 to 1974 where he founded and led the Medical
Critical Care Unit, and as a Professor of Medicine at Case Western Reserve from
1974 to 1982, where he founded programs in clinical pharmacology and critical
care medicine. He worked at Eli Lilly and Company, holding several executive
positions including Executive Vice

43
<PAGE> 45

President of Lilly Research Laboratories and Chief Scientific Officer from 1982
to 1985. He holds a Ph.D. from the Medical University of South Carolina and an
M.D. from Johns Hopkins University.

Dr. Peter Model, has served as a Director of the Company since December,
1996. Dr. Model is a senior faculty member conducting research in the areas of
biochemistry and genetics at the Rockefeller University, where he has been
employed since 1967. He serves on the editorial boards of the Journal of
Virology and Virology and is a member of various scientific advisory committees.
Dr. Model received his B.S. from Stanford University and his Ph.D. in
Biochemistry from Columbia University.

BOARD OF DIRECTORS COMMITTEES AND OTHER INFORMATION

The Company's directors are elected annually and hold office until the next
annual meeting of shareholders of the Company and until their respective
successors have been qualified and elected. Officers are elected by, and serve
at the discretion of, the Board of Directors.

In July, 1997, the Board of Directors appointed an Audit Committee that
reviews the scope and results of the Company's financial statements conducted by
the Company's independent accountants, the scope of other services provided by
the Company's independent accountants, proposed changes in the Company's
financial and accounting standards and principles, and the Company's policies
and procedures with respect to its internal accounting, auditing and financial
controls, and makes recommendations to the Board of Directors on the engagement
of the independent accountants, as well as other matters which may come before
it or as directed by the Board of Directors.

A subcommittee of the Board of Directors administers the Company's stock
option plans. The Board of Directors has also established an Executive Search
and Review Committee charged with identifying executive staff requirements,
recruiting, and evaluating performance and compensation of the Company's
executive officers. Although no other committees currently exist, management
expects the Board will in the future set up such finance, compensation, and
other standing and ad hoc committees, made up of Board members, officers,
consultants and others, as it deems necessary and appropriate for the efficient
operation of the Company.

DIRECTOR COMPENSATION

Non-employee Directors of the Company are paid $1,000 per meeting of the
Board of Directors which is payable in cash or in shares of the Company. Drs.
van Boldrik and Thompson do not receive compensation as Directors of the Company
but receive compensation as consultants. See "Management -- Consultant
Compensation."

EMPLOYMENT AND CONSULTING AGREEMENTS

The Company has entered into agreements with all its employees, including
Drs. Stafford, Firca and Hoffmann, who are corporate officers, concerning
ownership of intellectual property. These agreements prohibit competition with
the Company during, and for a term of one year after termination of, employment
with the Company. They obligate each employee to keep confidential the trade
secrets and other proprietary information of the Company, and employees are
required to disclose and assign to the Company all of their discoveries and
inventions and any and all patent rights therein.

Effective June 1, 1997, the Company entered into an employment agreement
with Dr. Douglas Stafford, President and Chief Executive Officer of the Company,
for a three-year term. Pursuant to such agreement, Dr. Stafford receives an
annual base salary of $180,000 subject to annual review and increase by mutual
agreement.

Effective June 1, 1997, the Company entered into an employment agreement
with Dr. Joseph Firca, Vice President, Research and Development of the Company,
for a three-year term. Pursuant to such agreement, Dr. Firca receives an annual
base salary of $140,000 subject to annual review and increase by mutual
agreement.

Effective August 1, 1997, the Company entered into an employment agreement
with Dr. F. Michael Hoffmann, Vice President, Genetic Technology Programs of the
Company, for a three-year term. Pursuant to

44
<PAGE> 46

such agreement, Dr. Hoffmann receives an annual base salary of $125,000 subject
to annual review and increase by mutual agreement.

Effective November 6, 1997, the Company entered into an employment
agreement with Donald A. Nevins, Vice President, Finance, Chief Financial
Officer. Mr. Nevins assumed his duties with the Company December 1, 1997. Mr.
Nevins receives an annual base salary of $110,000, subject to annual review and
increases by mutual agreement.

Scientists and consultants retained by the Company will generally be
contractually obligated to disclose and assign to the Company certain ideas and
inventions developed in the performance of duties for the Company and will be
prohibited from disclosing any confidential Company information to anyone
outside the Company at any time. The terms of their agreements may depend upon
the outcome of negotiations and the level of protection provided by other
circumstances.

EXECUTIVE COMPENSATION

The following table sets forth all compensation awarded to, earned by, or
paid for services rendered to the Company in all capacities during Fiscal 1997,
1996 and 1995 by the Company's President and Chief Executive Officer and all
other corporate officers earning in excess of $100,000 annually.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------------
--------------------------- COMMON STOCK
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS
--------------------------- ---- -------- ------- ------------------
<S> <C> <C> <C> <C>
Dr. Douglas C. Stafford....................... 1997 $154,162 $10,000 30,000
President, CEO 1996 $146,028 $30,000 --
1995 $130,460 $ -- --
Dr. Joseph R. Firca(1)........................ 1997 $132,909 $15,000 20,000
Vice President, Research and Development 1996 $125,668 $15,000 --
1995 $114,960 $ -- --
Dr. F. Michael Hoffmann(2).................... 1997 $ 86,250 -- 100,000
1996 $ -- $ -- --
1995 $ -- $ -- --
</TABLE>

- ---------------
(1) Does not include certain relocation expenses to be paid by the Company in
the future to Dr. Firca.

(2) Dr. Hoffmann became a Vice President of the Company as of August 1, 1997.

OPTION GRANTS IN LAST FISCAL YEAR

The following table provides information concerning grants of options to
purchase the Company's Common Stock made to each of the Named Executive Officers
during the fiscal year ended September 30, 1997.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------- ANNUAL RATES OF STOCK
NUMBER OF PERCENT OF TOTAL PRICE APPRECIATION FOR
SECURITIES OPTIONS GRANTED EXERCISE OPTION TERM(3)
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR(1) $/SH.(2) DATE 5% 10%
---- ------------------ ---------------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dr. Douglas C. Stafford.... 30,000(4) 15.6% $5.50 7/30/07 $128,100 $ 301,800
Dr. Joseph R. Firca........ 20,000(5) 10.4% $5.50 7/30/07 $ 85,400 $ 201,200
Dr. F. Michael Hoffmann.... 100,000(6) 52.0% $5.50 7/30/07 $427,000 $1,006,000
</TABLE>

- ---------------
(1) Based on an aggregate of 192,325 options granted to employees of the Company
in Fiscal 1997.

(2) The exercise price per share of options granted represented the fair value
of the underlying shares of Common Stock on the dates the options were
granted as determined by the Board of Directors. The Company's Common Stock
was not traded publicly at the time of the option grants to the Named
Executive Officers.

45
<PAGE> 47

(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% rates of stock price appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.

(4) The options vest at a rate of 20% per year over five years from July 30,
1997.

(5) The options vest at a rate of 20% per year over five years from July 13,
1997.

(6) The options vest at a rate of 20% per year over five years from November 1,
1996.

None of the named Executive Officers exercised options to purchase Common
Stock during the fiscal year ended September 30, 1997. The following table sets
forth certain information regarding the value of exercised and unexercised stock
options held by each of the named Executive Officers as of September 30, 1997.

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

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SEPTEMBER 30, 1997 AT SEPTEMBER 30, 1997(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Dr. Douglas C. Stafford...................... 187,200 30,000 $1,033,345 $18,000
Dr. Joseph R. Firca.......................... 100,000 20,000 $ 410,000 $12,000
Dr. F. Michael Hoffmann...................... -- 100,000 -- $60,000
</TABLE>

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

(1) The value of the options is based upon the difference between the exercise
price and the assumed value of $6.10 per share based on the estimated
initial public offering price of the Unit set forth on the cover of this
Prospectus.

CONSULTANT COMPENSATION

In June, 1996, the Company granted a consultant, G. Steven Burrill, the
option to purchase 100,000 shares of the Company at a price of $4.50 per share
exercisable until May, 2004.

Dr. van Boldrik receives consulting fees for services which do not include
her services as a Director. Dr. van Boldrik receives a consulting fee of $5,000
per quarter plus health insurance benefits, subject to annual review. For Fiscal
1997, Dr. van Boldrik received $20,000.

The Company paid Dr. Sean Carroll a monthly consulting fee of $3,333, which
ended January, 1998 for consulting services which did not include his services
as a director. Dr. Carroll's consulting agreement expired in January, 1998 and
is not subject to renewal. For Fiscal 1997, Dr. Carroll received $40,000.

Dr. Thompson receives $2,400 per day for his services as a consultant and
Director payable in cash or shares, in any event not to exceed 10,000 shares in
aggregate. For Fiscal 1997, Dr. Thompson received $9,600. Each of the
consultants provides services regarding business development, technology
assessment or research strategies.

STOCK OPTION PLANS

The Company currently has a 1990 Incentive Stock Option Plan and a 1992
Employee Stock Option Plan ("1990/1992 Stock Option Plans") in force for its
employees, advisors and directors. The 1990/1992 Stock Option Plans provide for
the grant of options to purchase shares, in the case of the 1990 Incentive Stock
Option Plan, at not less than fair market value as of the date options are
granted, and in the case of the 1992 Employee Stock Option Plan at a value
determined by the Stock Option Committee. The 1990/1992 Stock Option Plans are
administered by a committee ("Stock Option Committee") made up of at least three
members of the Company's Board of Directors, and is currently made up of Dr.
Carroll, Dr. van Boldrik and Mr. Linton. To facilitate the operation of the
1990/1992 Stock Option Plans, the Company initially reserved 457,160 authorized
but unissued shares for the 1990/1992 Stock Option Plans. On December 1, 1992,
by a

46
<PAGE> 48

vote of shareholders, the number of shares available for employee stock options
was increased by 200,000 shares, for a total of 657,160.

The Company's Board of Directors has approved and will seek shareholder
approval for a new incentive stock option plan (the "1997 Incentive Stock Option
Plan") which will provide for the issuance of options to purchase 975,000 shares
of the Company reduced by the number of shares subject to options granted under
the 1990/1992 Stock Option Plans which may be granted to eligible employees,
advisors and Directors.

As of September 30, 1997, the Company has entered into stock option
agreements granting Dr. Stafford options to purchase up to 137,200 shares at an
exercise price of $.0625 per share which options vested in stages ending August
1, 1994, and may only be exercised prior to July 31, 2000, and to purchase
50,000 shares at an exercise price of $2.00 per share, which options vested in
stages ending October 25, 1995, and may only be exercised prior to October 24,
2001, and to purchase 30,000 shares at an exercise price of $5.50 per share,
which options vest in stages ending July 30, 2002 and may only be exercised
prior to July 30, 2007. The Company has entered into an agreement granting Dr.
Firca the option to purchase 100,000 shares at an exercise price of $2.00 per
share, which option vested in stages ending July 13, 1997, and may only be
exercised prior to July 13, 2002, and to purchase 20,000 shares at an exercise
price of $5.50 per share, which options vest in stages ending July 30, 2002 and
may only be exercised prior to July 30, 2007. The Company has entered into an
agreement granting Dr. Hoffmann the option to purchase 100,000 shares at an
exercise price of $5.50 per share, which options vest in stages ending November
1, 2001 and may only be exercised prior to November 1, 2006. After the effective
date of the Prospectus, the Company intends to grant Mr. Nevins an option to
purchase 50,000 shares at the initial public offering price per Unit, which
option will vest in stages over a five year period. The Company has entered into
an agreement granting Mr. Bates the option to purchase 25,000 shares at an
exercise price of $2.00 per share, which options were immediately vested, and
may only be exercised prior to July 31, 2006. He was also granted the option to
purchase 5,000 shares at an exercise price of $4.50 per share which options were
immediately vested, and may only be exercised prior to January 12, 2006 in
recognition of his past services to the Company. A third Stock Option Agreement
was entered into between the Company and Mr. Bates according to which he was
granted the option to purchase 5,000 shares at an exercise price of $5.50 which
option vests upon one year of service following January 10, 1997, and may only
be exercised prior to January 10, 2007. The Company has entered into an
agreement granting Dr. Model the option to purchase 5,350 shares at an exercise
price of $5.50 per share which option vests upon one year of service following
June 10, 1997 and may be exercised only prior to January 10, 2007. The Company
has entered into an agreement granting Dr. Thompson the option to purchase 5,323
shares at an exercise price of $4.50 per share which option vests upon one year
of service following January 12, 1996 and may be exercised by January 12, 2006,
and a second agreement with Dr. Thompson granting him the option to purchase
5,000 shares at an exercise price of $5.50 per share which vests upon one year
of service from January 10, 1997 and may be exercised by January 10, 2007. The
Company has entered into similar agreements with 23 Company employees who are
not executive officers pursuant to the 1990/1992 Stock Option Plans granting
options to purchase an aggregate of 112,975 shares of common stock at a weighted
average exercise price of $3.65 per share. The options granted pursuant to the
1990/1992 Stock Option Plans are nontransferable, but may be exercised by the
personal representative of a holder thereof in the event of death.

401(K) RETIREMENT PLAN

Effective October 1, 1993, the Company established a profit sharing plan
and trust to provide retirement benefits for eligible employees. The Ophidian
Pharmaceuticals, Inc. 401(k) Plan (the "401(k) Plan") is intended to be
tax-qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended. Participants may direct a portion of their compensation, the lesser of
15% or $9,500 (the maximum limit set by law for 1997), to be contributed to
their accounts under the 401(k) Plan. The Company has arranged for the firm of
Robert W. Baird and Company to provide investment services to employees for
their funds contributed to the 401(k) Plan. The Company may, but is not required
to, match a participant's pre-tax contributions to the 401(k) Plan. In addition,
the Company may make discretionary contributions to the 401(k) Plan on an annual
basis. To date, the Company has not made any contributions under the 401(k) Plan
in addition to participants' own contributions. Participants are always vested
fully in their pre-tax contributions to the 401(k) Plan.

47
<PAGE> 49

Generally, amounts contributed to the 401(k) Plan (and any earnings or
interest) may not be distributed until the participant's death, disability,
retirement or termination of employment. There may be certain tax penalties
levied for lump-sum withdrawals made prior to age 59 1/2, unless the sum is
rolled over into another qualified plan or individual retirement account. In
addition, funds may be made available in the form of a loan or hardship
distribution to a participant in the event of an immediate and heavy financial
necessity.

48
<PAGE> 50

PRINCIPAL SHAREHOLDERS

The following table sets forth the beneficial ownership of the Company's
Common Stock as of December 31, 1997 by (a) each person known by the Company to
be the beneficial owner of more than 5% of the Company's Common Stock, (b) the
directors of the Company, (c) the executive officers of the Company, and (d) all
directors and executive officers as a group.

<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE PERCENTAGE
BENEFICIALLY OWNED BEFORE OWNED AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) THE OFFERING THE OFFERING
- ------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Dr. Margaret B. van Boldrik(2)............................. 2,920,000 40.1% 29.8%
Dr. Sean B. Carroll(2)..................................... 2,920,000 40.1 29.8
Eli Lilly and Company...................................... 699,300 9.6 7.1
Lilly Corporate Center, Indianapolis, IN 46285
Mr. William A. Linton(3)................................... 513,020 7.0 5.2
Dr. Douglas C. Stafford(4)................................. 187,200 2.6 1.9
Dr. Peter Model(5)......................................... 190,532 2.6 1.9
Dr. Joseph R. Firca(6)..................................... 100,000 1.4 1.0
Mr. Donald L. Nevins....................................... -- -- --
Mr. Rex J. Bates(7)........................................ 84,728 1.2 *
Dr. F. Michael Hoffmann(8)................................. 20,000 * *
Dr. W. Leigh Thompson(9)................................... 11,051 * *
All Directors and Officers as a Group(10)(11).............. 4,026,531 55.2 41.1
</TABLE>

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

* Less than 1%.

(1) Includes ownership of shares of Common Stock plus options exercisable
within 60 days of December 31, 1997. Shares of Common Stock subject to
outstanding options are deemed outstanding for purposes of computing the
percentage of ownership of the person holding such options but are not
deemed outstanding for computing the percentage ownership for any other
persons.

(2) Includes 1,390,000 shares owned by Dr. van Boldrik, 1,350,000 owned by Dr.
Carroll and 90,000 shares in the Jan Patrick Carroll Trust and 90,000
shares in the Willem Erin van Boldrik Trust controlled by Dr. van Boldrik
and Dr. Carroll as Trustees for the benefit of their children.

(3) Includes 262,520 shares owned by Promega Corporation of which Mr. Linton is
Chairman, President and Chief Executive Officer and may be deemed to have
voting and investment power over the shares.

(4) Includes options to purchase 137,200 shares currently vested in the 1990
Stock Option Plan at an exercise price of $0.0625 which expire in July,
2000 and options to purchase 50,000 shares currently vested the 1990 Stock
Option Plan at an exercise price of $2.00 which expire in October, 2001.

(5) Includes 185,000 shares in the Model Charitable Lead Trust and Peter Model
Trust II both of which are controlled by Dr. Model as sole trustee and
options to purchase 5,350 shares currently vested in the 1992 Stock Option
Plan at an exercise price of $5.50 per share which expire January 2007.

(6) Includes options to purchase 100,000 shares currently vested in the 1990
Stock Option Plan at an exercise price of $2.00 which expire in July, 2002.

(7) Includes options to purchase 25,000 shares currently vested in the 1992
Stock Option Plan at an exercise price of $2.00 which expire in July, 2006,
options to purchase 5,000 shares currently vested in the 1992 Stock Option
Plan at an exercise price of $4.50 which expire in January, 2006 and
options to purchase 5,000 shares currently vested in the 1992 Stock Option
Plan at an exercise price of $5.50 per share which expire January 2007.

(8) Includes options to purchase 20,000 shares which will vest within 60 days
of December 31, 1997 in the 1992 Stock Option Plan at an exercise price of
$5.50 per share which expire July, 2007.

(9) Includes options to purchase 5,323 shares currently vested in the 1992
Stock Option Plan at an exercise price of $4.50 per share which expire in
January, 2006 and options to purchase 5,000 shares currently vested in the
1992 Stock Option Plan at an exercise price of $5.50 per share which expire
January 2007.

(10) Address is 5445 East Cheryl Parkway, Madison, Wisconsin 53711.

(11) Includes 357,873 shares of Common Stock issuable upon exercise of
outstanding options which will vest within 60 days of December 31, 1997 of
which 137,200 have an exercise price of $0.0625, 175,000 have an exercise
price of $2.00, 10,323 have an exercise price of $4.50 and 15,350 currently
vested in the 1992 Stock Option Plan at an exercise price of $5.50 per
share which expire January 2007.

49
<PAGE> 51

CERTAIN TRANSACTIONS

Dr. Sean B. Carroll, a founder of the Company currently owns 1,350,000
shares. In exchange for those shares, Dr. Carroll contributed in 1990 all of his
rights to his invention entitled "Antivenoms and Methods for Making Antivenoms"
which is the basis for the Company's avian technology, as well as a subsequent
assignment in the same year of his rights to any patent applications filed in
connection with the Company's passive antibody technology. The Company
determined that the transfer of Dr. Carroll's technology rights was adequate
consideration for the issuance of these shares of Company Stock.

Dr. van Boldrik, Vice President, Secretary, a Director and Founder of the
Company, currently owns 1,390,000 shares. In exchange for those shares, Dr. van
Boldrik contributed in 1990 all of her rights in the invention entitled
"Antivenoms and Methods for Making Antivenoms," as well as a subsequent
assignment in the same year of her rights to any patent application filed in
connection with the Company's passive antibody technology. The Company
determined that the transfer of Dr. van Boldrik's technology rights was adequate
consideration for the issuance of these shares of Company Stock.

Fitchburg Research Park Associates Limited Partnership ("FRPA"), a
Wisconsin limited partnership of which William A. Linton, Chairman of the Board
and a Director, is the sole general partner and holds a 50% ownership interest,
received 800,000 shares when the Company first issued shares January 17, 1990.
In exchange for those shares, FRPA contributed $50,000 for an effective price of
$0.0625 per share. FRPA has distributed its shares from the partnership.

Under the terms of a Stock Warrant granted to FRPA (the "FRPA Warrant") by
the Company on January 17, 1990, designed to protect FRPA against dilution of
its holdings in the Company due to the issuance of shares to employees of the
Company pursuant to the Company's Stock Option Plans, FRPA is entitled to
purchase one share for every four shares issued to employees pursuant to the
Plans. FRPA may purchase a maximum of 114,290 shares under the FRPA Warrant; the
exercise price thereunder is $.0025 per share.

On October 1, 1990, the Company obtained a line of credit from FRPA in the
original principal amount of $250,000 (the "FRPA Line of Credit"). The FRPA Line
of Credit was repaid in full on October 21, 1991, and the line of credit is no
longer in effect. As additional consideration for the line of credit, the
Company granted to FRPA an option to purchase 125,000 shares at a price of $2.00
per share. The option was exercised fully on October 1, 1993 through the payment
of $250,000 for 125,000 shares.

In September, 1991, Promega agreed to purchase shares of the Company
conditioned upon its receipt of an exclusive and confidential first right, for a
period of 10 years, to review any technology developed by the Company that is
incidental to the human and animal therapeutic and diagnostic markets.
"Incidental" refers to those markets that are not human or animal therapeutics
or diagnostics. Promega serves various incidental markets, such as, research
products or food testing. The arrangement was established so that the Company's
core business interests would not be encumbered by the agreement with Promega
and a market could be established in incidental markets. Promega has 60 days
after disclosure of a technology to review the technology and notify the Company
in writing of its interest in developing the technology. The parties will then
negotiate in good faith for up to 60 days thereafter regarding terms on which
Promega might obtain the right to use the technology. If Promega and the Company
fail to enter into an agreement within 60 days after notice of Promega's
interest in the technology, the Company may attempt to license or assign the
rights to the product to a third party, subject to Promega's right to first
refuse the price and terms offered by a third party, exercisable within 15 days
after notice thereof to Promega. The agreement with Promega will terminate at
any time that Promega's ownership of the Company falls below one percent of the
outstanding shares. Promega currently owns 262,520 shares of Ophidian, or 3.6%
before the Offering and 2.7% after the Offering.

Promega and FRPA are affiliated by virtue of common control and partial
common ownership. As sole general partner of FRPA; a shareholder, President, and
Chairman of the Board of Promega; and a Director and Chairman of the Board of
the Company, William A. Linton may be subject to various conflicts of interest
in determining whether Promega will pursue, for use in incidental markets, the
development of any technology initially developed by the Company, and would be
subject to a significant conflict of interest in connection

50
<PAGE> 52

with any dispute that might arise under the disclosure agreement between the
Company and Promega described above.

On January 1, 1994, the Company entered into a Lease with Promega for a
10,000 square foot office/research laboratory and production facility at 5445
East Cheryl Parkway, Madison, Wisconsin. Mr. Linton is a shareholder, the
President and Chairman of the Board of Promega. The lease provides for a five
year lease term with an option to renew the lease for an additional five year
term.

The facility lease described above gives Promega the right to terminate in
case of a broad range of events of default by the Company, in which event the
Company would lose the value of improvements and may be liable for the remaining
rent even if its rights to use the premises are terminated. As Chairman of the
Board and a director of the Company, Mr. Linton would be subject to a
significant conflict of interest in connection with taking any adverse action on
the lease on behalf of Promega. See "Business -- Facilities"

Dr. Peter Carroll, who is Dr. Sean Carroll's brother, is an attorney with
Medlen & Carroll, LLP, San Francisco, California, and serves as patent counsel
to the Company. Dr. Peter Carroll and his wife, Maureen Collins-Carroll, were
given 40,000 shares as a gift from Dr. Sean Carroll in April, 1990. As Dr. Sean
Carroll's brother, Dr. Peter Carroll would have a conflict of interest in any
dispute between Dr. Sean Carroll and the Company, especially with respect to
ownership of intellectual property.

Pursuant to the Lilly Agreements, Lilly can require, subject to certain
qualifications, that the Company register the shares Lilly purchased either in a
separate public offering or in conjunction with a public offering sponsored by
the Company. Lilly has waived its rights to require the Company to register its
shares in conjunction with this Offering, but in every other respect, retains
those rights. See "Description of Securities -- Registration Rights" and "Shares
Eligible for Future Sale."

The Company believes that each of the transactions set forth above were
entered into on terms as fair as those that could be obtained from independent
third parties. All transactions with the Company in which a director of the
Company has a direct or indirect interest must be approved by a majority of
directors who have no direct or indirect interest in the transaction.

LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

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

Under Section 180.0828 of the Wisconsin Business Corporation Law, directors
of a corporation are not subject to personal liability to the corporation, its
shareholders, or any person asserting rights on behalf thereof for certain
breaches or failures to perform any duty resulting solely from their status as a
director, unless the person asserting liability proves that the breach or
failure constituted: (i) a willful failure to deal fairly with the corporation
or its shareholders in connection with a matter in which the director had a
material conflict of interest, (ii) a violation of criminal law, unless the
director had reasonable cause to believe his or her conduct was lawful or had no
reasonable cause to believe his or her conduct was unlawful, (iii) a transaction
from which the director derived an improper personal profit, or (iv) willful
misconduct. These provisions pertain
51
<PAGE> 53

only to breaches of duty by directors as directors and not in any other
corporate capacity, such as officers. As a result of such provisions,
shareholders may be unable to recover monetary damages against directors for
actions taken by them which constitute negligence or gross negligence or which
are in violation of their fiduciary duties, although it may be possible to
obtain injunctive or other equitable relief with respect to such actions. If
equitable remedies are found not to be available to shareholders in any
particular case, shareholders may not have any effective remedy against the
challenged conduct.

DESCRIPTION OF SECURITIES

The following description of the securities of the Company and certain
provisions of the Company's Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws is qualified in its entirety by the provisions of
the Amended and Restated Articles of Incorporation and Amended and Restated
Bylaws, which have been filed as exhibits to the Company's Registration
Statement, of which this prospectus is a part.

Upon the closing of the Offering, the authorized capital stock of the
Company will consist of 22,400,000 shares of Common Stock, $.0025 par value.

THE UNITS

Each Unit consists of one share of Common Stock and one Warrant, which
entitles the registered holder thereof to purchase one share of Common Stock at
an initial exercise price of $ per share [120% of the initial public
offering price per Unit]. The shares of Common Stock and Warrants are detachable
and will trade separately 90 days after the issuance, subject to earlier
separability in the discretion of the Representative and the Company.

COMMON STOCK

Upon completion of this Offering, there will be 9,789,930 shares of Common
Stock issued and outstanding. Holders of Common Stock are entitled to one vote
per share on all matters to be voted upon by the shareholders of the Company.
The holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared by the Board of Directors out of funds legally available
therefor. In the event of liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities. The holders of Common Stock have no
preemptive, redemption, conversion, sinking fund or other subscription rights.
The outstanding shares of Common Stock are, and the Shares of Common Stock
included in the Units (including shares issuable upon exercise of the Warrants)
offered by the Company in the Offering will be, when issued and paid for, fully
paid and nonassessable.

WARRANTS

The following is a brief summary of certain provisions of the Warrants, but
such summary does not purport to be complete and is qualified in all respects by
reference to the actual text of the Warrant Agreement between the Company, and
Continental Stock Transfer & Trust Company, New York, New York (the "Warrant
Agent"), a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.

Exercise Price and Terms. Each Warrant entitles the registered holder
thereof to purchase, at any time commencing , 1999 [12 months after
the date of this Prospectus], until , 2003 [five years after the
date of this Prospectus], one Share of Common Stock at a price of $ per
Share [120% of the initial public offering price per Unit], subject to
adjustment in accordance with the anti-dilution provisions referred to below.
The holder of any Warrant may exercise such Warrant by surrendering the
certificate representing the Warrant to the Warrant Agent, with the subscription
form thereon properly completed and executed, together with payment of the
exercise price. No fractional shares will be issued upon the exercise of
Warrants. The exercise price of the Warrants bears no relationship to any
objective criteria and should in no event be regarded as an indication of any
future market price of the securities offered hereby.

Adjustments. The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the Common Stock or the sale by the Company
of
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<PAGE> 54

shares of its Common Stock or other securities convertible into Common Stock at
a price below the initial public offering price, excluding shares of Common
Stock issued in connection with incentive or benefit plans of the Company and
strategic alliances. Additionally, an adjustment will be made in the case of a
reclassification or exchange of Common Stock, consolidation or merger of the
Company with or into another corporation (other than a consolidation or merger
in which the Company is the surviving corporation) or sale of all or
substantially all of the assets of the Company, in order to enable warrant
holders to acquire the kind and number of shares of stock or other securities or
property receivable in such event by a holder of the number of shares of Common
Stock that might have been purchased upon the exercise of the Warrant.

Redemption Provisions. Commencing 24 months after the date of this
Prospectus, the Warrants are subject to redemption at $.10 per Warrant on 30
days prior written notice provided that the average closing bid price of the
Common Stock as reported on the AMEX equals or exceeds $ per share
[240% of the initial public offering price of the Unit] (subject to adjustment
for stock dividends, stock splits, combinations or reclassifications of the
Common Stock), for any 20 trading days within a period of 30 consecutive trading
days ending on the fifth trading day prior to the date of the notice of
redemption. In the event the Company exercises the right to redeem the Warrants,
such Warrants will be exercisable until the close of business on the business
day immediately preceding the date for redemption fixed in such notice. If any
Warrant called for redemption is not exercised by such time, it will cease to be
exercisable and the holder will be entitled only to the redemption price.

Transfer, Exchange and Exercise. The Warrants are in registered form. The
Warrants may be presented to the Warrant Agent for transfer or exchange
commencing 90 days after issuance, subject to earlier separability in the
discretion of the Representative and the Company but no later than their
expiration date. The Warrants may be presented to the Warrant Agent for exercise
commencing 12 months after the date of this Prospectus but no later than their
expiration date. The expiration date of the Warrants is five years from the date
of this Prospectus, after which date the Warrants become wholly void and of no
value. If a market for the Warrants develops, the holder may sell the Warrants
instead of exercising them. There can be no assurance, however, that a market
for the Warrants will develop, or if it develops, that it will continue.

Warrantholders Not a Shareholder. The Warrants do not confer upon holders
any voting, dividend or other rights as shareholders of the Company.

Modification of Warrants. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do not
adversely affect the interests of the warrantholders. The Company may, in its
sole discretion, lower the exercise price of the Warrants for a period of not
less than 30 days on not less than 30 days prior written notice to the
warrantholders and the Representative. Modification of the number of securities
purchasable upon the exercise of any Warrant, the exercise price and the
expiration date with respect to any Warrant requires the consent of two-thirds
of the warrantholders.

The Warrants are not exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered, qualified
or deemed to be exempt under the securities laws of the state of residence of
the exercising holder of the Warrants. Although the Company will use its best
efforts to have all of the shares of Common Stock issuable upon exercise of the
Warrants registered or qualified on or before the exercise date and to maintain
a current prospectus relating thereto until the expiration of the Warrants,
there can be no assurance that it will be able to do so.

The Warrants are separately transferable commencing 90 days after issuance
subject to earlier separability in the discretion of the Representative and the
Company. Although the Securities will not knowingly be sold to purchasers in
jurisdictions in which the Securities are not registered or otherwise qualified
for sale, purchasers may buy Warrants in the aftermarket or may move to
jurisdictions in which the Shares underlying the Warrants are not so registered
or qualified during the period that the Warrants are exercisable. In this event,
the Company would be unable to issue shares to those persons desiring to
exercise their Warrants and holders of Warrants would have no choice but to
attempt to sell the Warrants in a jurisdiction where such sale is permissible or
allow them to expire unexercised.

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<PAGE> 55

REGISTRATION RIGHTS

Lilly, the holder of 699,300 shares of Common Stock and its permitted
transferees (the "Holders") are entitled to certain rights with respect to the
registration of such shares under the Securities Act. These rights will also
extend to any additional shares purchased by Lilly under the Lilly Agreements.
Under the terms of the Lilly Agreements, if the Company proposes to register any
of its securities under the Securities Act, either for its own account or the
account of controlling shareholders of the Company participating in a secondary
distribution, the Holders are entitled to notice of such registration and are
entitled to include their registrable securities therein; provided, among other
conditions, that the underwriters have the right to limit the number of such
shares included in any such registration. Lilly, the sole Holder on the date of
this Offering, has waived this right in connection with the registration of the
Shares hereby offered. Lilly also has the right, after December 31, 1998, to
request on three occasions that the Company file a registration statement under
the Securities Act at the Company's expense with respect to its shares of Common
Stock and with respect to the shares of other Holders who request to be included
in such registration. See "Risk Factors -- Potential Adverse Effect of Shares
Eligible for Future Sale."

CERTAIN PROVISIONS OF WISCONSIN LAW

The provisions of the Wisconsin Business Corporation Law ("WBCL") described
in this section may delay or make more difficult acquisitions or changes of
control of the Company not approved by the Company's Board of Directors. Such
provisions enable the Company, particularly (but not exclusively) in the initial
years of its existence as a publicly-traded company, to develop its business in
a manner which will foster its long-term growth without disruption caused by the
threat of a takeover deemed by its Board of Directors not to be in the best
interests of the Company and its shareholders. Such provisions could have the
effect of discouraging third parties from making proposals involving an
acquisition or change of control of the Company, although such proposals, if
made, might be considered desirable by a majority of the Company's shareholders.

Constituency or Stakeholder Provision. Under Section 180.0827 of the WBCL
(the "Wisconsin Stakeholder Provision"), in discharging his or her duties to the
Company and in determining what he or she believes to be in the best interests
of the Company, a director or officer may, in addition to considering the
effects of any action on shareholders, consider the effects of the action on
employees, suppliers, customers, the communities in which the Company operates
and any other factors that the director or officer considers pertinent.

Restrictions on Business Combinations. Section 180.1141 of the WBCL
provides that a "resident domestic corporation," such as the Company, may not
engage in a "business combination" with an "interested stockholder" (a person
beneficially owning at least 10% of the voting power of the outstanding voting
stock), for three years after the date (the "stock acquisition date") the
interested stockholder acquired its 10% or greater interest, unless the business
combination (or acquisition of 10% or greater interest) was approved before the
stock acquisition date by the corporation's board of directors. After the
three-year period, a business combination that was not so approved can be
consummated only if it is approved by the majority of the outstanding voting
shares not held by the interested stockholder, or is made at a specified formula
price intended to provide a fair price for the shares held by noninterested
stockholders.

Wisconsin Fair Price Statute. Sections 180.1130 to 180.1133 of the WBCL
provides that certain business combinations involving a "significant
shareholder" and an "issuing public corporation" (each as defined below) are
subject to a supermajority vote of shareholders in addition to any approval
otherwise required. The required supermajority vote is 80% of the votes entitled
to be cast by all the outstanding voting shares of the issuing public
corporation and two-thirds of the votes entitled to be cast by holders of the
voting shares of the issuing public corporation other than the voting shares
held by the significant shareholder who is a party to that business combination.
A "significant shareholder," with respect to an issuing public corporation, is
defined as a person who beneficially owns, directly or indirectly, 10% or more
of the voting stock of the corporation, or an affiliate of the corporation which
beneficially owned, directly or indirectly, 10% or more of the voting stock of
the corporation within the last two years. An "issuing public corporation" is
defined as a Wisconsin corporation that has (i) total assets exceeding $1
million and a class of equity securities held of record by 500 or more persons
and (ii) at least 100 shareholders of record who have unlimited voting rights
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<PAGE> 56

and who are residents of Wisconsin. The supermajority vote is not required if
the aggregate amount of cash and market value of noncash consideration to be
received per share by each shareholder of the issuing public corporation in the
business combination meets certain tests of fairness.

Wisconsin Control Share Statute. Section 180.1150 of the WBCL provides that
the voting power of shares, including shares issuable upon the exercise of
options, of an issuing public corporation held by any person or persons acting
as a group, in excess of 20% of the voting power in the election of directors,
is limited in voting on any matter to 10% of the full voting power of those
excess shares. This restriction does not apply to shares acquired directly from
the issuing public corporation, in certain specified transactions, or in a
transaction with respect to which the corporation's shareholders have voted to
approve restoration of the full voting power of otherwise restricted shares.

Wisconsin Defensive Action Restrictions. Section 180.1134 of the WBCL
provides that, in addition to the vote otherwise required by the law or the
articles of incorporation of an issuing public corporation, the approval of the
holders of a majority of the shares entitled to vote is required before such
corporation can take certain action while a takeover offer is being made or
after a takeover offer has been publicly announced and before it is concluded.
Under the Wisconsin Defensive Action Restrictions, shareholder approval is
required for the corporation to (i) acquire more than five percent of the
outstanding voting shares at a price above the market price from any individual
who or organization which owns more than three percent of the outstanding voting
shares and has held such shares for less than two years, unless a similar offer
is made to acquire all voting shares, or (ii) sell or option assets of the
corporation which amount to at least 10% of the market value of the corporation,
unless the corporation has at least three independent directors (directors who
are not officers or employees) and a majority of the independent directors vote
not to have this provision apply to the corporation. The restrictions described
in clause (i) above may have the effect of deterring a shareholder from
acquiring shares of the Company's Common Stock with the goal of seeking to have
the Company repurchase such shares at a premium over the market price.

Impact of Statutory Provisions. The explicit grant in the Wisconsin
Stakeholder Provisions of discretion to directors to consider nonshareholder
constituencies could, in the context of an active "auction" of the Company, have
antitakeover effects in situations where the interests of stakeholders of the
Company, including employees, suppliers, customers and communities in which the
Company does business, conflict with the short term maximization of shareholder
value.

The Restrictions on Business Combinations in the WBCL encourage negotiation
by an acquiring shareholder with the Company board of directors prior to its
purchase of the Company's shares in order to have flexibility later to enter
into business combinations with the Company. The Wisconsin Control Share Statute
may deter any shareholder from acquiring in excess of 20% of the outstanding
voting stock of the Company and the Wisconsin Fair Price Statute may discourage
any attempt by a shareholder to squeeze out other shareholders without offering
an appropriate premium purchase price. In addition, the Wisconsin Defensive
Actions Restrictions may have the effect of deterring a shareholder from
acquiring the Company's Common Stock with the goal of seeking to have the
Company repurchase the Common Stock at a premium. The WBCL statutory provisions
referenced above are intended to encourage persons seeking to acquire control of
the Company to initiate such an acquisition through arms-length negotiations
with the Company's board of directors, and to ensure that sufficient time for
consideration of such a proposal, and any alternatives, is available. Such
measures are also designed to discourage investors from attempting to accumulate
a significant minority position in the Company and then use the threat of a
proxy contest as a means to pressure the Company to repurchase shares of Common
Stock at a premium over the market value. To the extent that such measures make
it more difficult for, or discourage, a proxy contest or the assumption of
control by a holder of a substantial block of the Company's Common Stock, they
may have the effect of discouraging a tender offer or other attempt to obtain
control of the Company, even though such attempt might be beneficial to the
Company and its shareholders.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Units and Common Stock
and the Warrant Agent for the Warrants is Continental Stock Transfer & Trust
Company, New York, New York.
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<PAGE> 57

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have 9,789,930 shares of
Common Stock outstanding, of which the 2,500,000 Shares of Common Stock included
in the Units offered hereby will be transferable without restriction under the
Securities Act commencing 90 days after issuance, subject to earlier
separability in the discretion of the Representative and the Company. The other
outstanding shares of Common Stock are "restricted securities" (as that term is
defined in Rule 144 promulgated under the Securities Act) which may be publicly
sold only if registered under the Securities Act or if sold in accordance with
an applicable exemption from registration, such as Rule 144. In general, under
the revised holding period requirements of Rule 144, subject to the satisfaction
of certain other conditions, a person, including an affiliate of the Company,
who has beneficially owned restricted securities for at least one year, is
entitled to sell (together with any person with whom such individual is required
to aggregate sales) within any three-month period, a number of shares that does
not exceed the greater of one percent of the total number of outstanding shares
of the same class, or, if the Common Stock is quoted on AMEX or another national
securities exchange, the average weekly trading volume during the four calendar
weeks preceding the sale. Sales under Rule 144 are also subject to certain
manner of sale provisions, notice requirements, and the availability of current
public information regarding the Company. A person who has not been an affiliate
of the Company for at least three months, and who has beneficially owned
restricted securities for at least two years, is entitled to sell such
restricted shares under Rule 144(k) without regard to any of the limitations
described above.

Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 generally may be relied upon with
respect to the sale of shares purchased from the Company by its employees,
directors, officers or consultants prior to the date of this Prospectus pursuant
to written compensatory benefit plans such as the Stock Plan and written
contracts such as option agreements. Rule 701 is also available for sales of
shares acquired by persons pursuant to the exercise of options granted prior to
the effective date of this Prospectus, regardless of whether the option exercise
occurs before or after the effective date of this Prospectus. Securities issued
in reliance on Rule 701 are "restricted securities" within the meaning of Rule
144 and, beginning 90 days after the date of this Prospectus, may be sold by
persons other than affiliates of the Company subject only to the manner of sale
provisions of Rule 144 and by affiliates under Rule 144 without compliance with
its one-year minimum holding period requirement.

As of September 30, 1997, 646,608 options granted under the 1990/1992 Stock
Option Plans and 100,000 options granted pursuant to an agreement with a
consultant for shares of Common Stock are outstanding, and 5,296 options to
purchase additional shares are reserved for future issuance under the 1990/1992
Stock Option Plans. Of the options granted under the 1990/1992 Stock Option
Plans, and the agreement with a consultant, 533,862 were currently exercisable
as of September 30, 1997, with the remaining outstanding options to become
exercisable at the rate of 26,063 options between October 1, 1997 and December
31, 1997, 60,284 in calendar 1998, 39,289 in calendar 1999 and 87,110 options in
calendar 2000 and thereafter. Shares of Common Stock issued upon the exercise of
outstanding options or the above-described Warrant will be "restricted
securities" and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available. Potential
exemptions include those available under Rule 144 and Rule 701.

No prediction can be made as to the effect that future sales of Common
Stock, or the availability of shares of Common Stock for future sale, will have
on the market prices of the Common Stock and Warrants prevailing from time to
time. Pursuant to the Lock-Up Agreements, the Company, all officers and
directors of the Company and certain shareholders who hold more than 90% of the
Common Stock of the Company have agreed not to, directly or indirectly, issue,
agree or offer to sell, transfer, assign, distribute, grant an option for
purchase or sale of, pledge, hypothecate or otherwise encumber or dispose of any
beneficial interest in such securities for a period of nine months following the
date of this Prospectus without the prior written consent of the Representative.
Assuming that the Representative does not release the shareholders from the
Lock-Up Agreements, after the Lock-Up Period all of the shares will be eligible
for sale in the public market. Of such shares, 4,402,350 shares of Common Stock
will be eligible for sale under Rule 144 (subject to volume limitations imposed
by such rule), 2,887,580 shares of Common Stock will be eligible for sale under
Rule 144(k), and 596,608 shares will be eligible for sale under Rule 701. The
sale or issuance, or the potential for sale or issuance, of Common Stock after
such nine-month period could have an adverse impact on the market prices of the
Common Stock and/or the Warrants. Sales of substantial amounts of Common Stock
or the perception that such sales could occur could adversely affect prevailing
market prices for the Common Stock and/or the Warrants. See "Underwriting."

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<PAGE> 58

UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation is acting as representative (in such capacity, the
"Representative"), have severally agreed, subject to the terms and conditions of
the Underwriting Agreement (the "Underwriting Agreement"), to purchase from the
Company and the Company has agreed to sell to the Underwriters on a firm
commitment basis, the respective number of Units set forth opposite their names:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS UNITS
------------ ---------
<S> <C> <C>
National Securities Corporation.............................

Total............................................. 2,500,000
=========
</TABLE>

The Underwriters are committed to purchase all the Units offered hereby, if
any of such Units are purchased. The Underwriting Agreement provides that the
obligations of the several Underwriters are subject to conditions precedent
specified therein.

The Company has been advised by the Representative that the Underwriters
propose initially to offer the Units to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less concessions not in excess of $ per Unit.
Such dealers may reallow a concession not in excess of $ per Unit to
certain other dealers. After the commencement of the Offering, the public
offering price, concession and reallowance may be changed by the Representative.

The Representative has informed the Company that it does not expect sales
to discretionary accounts by the Underwriters to exceed five percent of the
Securities offered hereby.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that Underwriters may be required to make. The Company has also agreed
to pay to the Representative a non-accountable expense allowance equal to 2 1/2%
of the gross proceeds derived from the sale of the Units underwritten, of which
$50,000 has been paid to date.

The Company has granted to the Underwriters the Over-Allotment Option,
exercisable during the 45-day period from the date of this Prospectus, to
purchase from the Company up to an additional 375,000 Units at the initial
public offering price per Unit offered hereby, less underwriting discounts. Such
option may be exercised only for the purpose of covering over-allotments, if
any, incurred in the sale of the Securities offered hereby. To the extent such
option is exercised in whole or in part, each Underwriter will have a firm
commitment, subject to certain conditions, to purchase the number of the
additional Securities proportionate to its initial commitment.

In connection with this Offering, the Company has agreed to sell to the
Representative, for $.0001 per Warrant, Warrants to purchase from the Company up
to 250,000 Units (the "Representative's Warrants"). The Representative's
Warrants are initially exercisable at a price of $ per Unit [130% of
the initial public offering price per Unit] for a period of four years,
commencing one year after the date of this Prospectus and are restricted from
sale, transfer, assignment or hypothecation for a period of 12 months from the
date of this Prospectus, except to officers of the Representative. The Warrants
contained in the Units issuable upon exercise of the Representative's Warrants
are initially exercisable at $ per share [165% of the exercise price of the
Warrants] for a period of four years commencing one year from the date of this
Prospectus. The Representative's Warrants provide for adjustment in the number
of securities issuable upon the exercise thereof as a result of certain
subdivisions and combinations of the Common Stock. The

57
<PAGE> 59

Representative's Warrants grant to the holders thereof certain rights of
registration for the securities issuable upon exercise thereof.

The Company's directors, executive officers and certain shareholders, in
the aggregate 90% of the holders of Common Stock, options, warrants or other
securities convertible, exercisable or exchangeable for Common Stock have agreed
not to offer, sell, or otherwise dispose of any shares of Common Stock for a
period of nine months following the date of this Prospectus without the prior
written consent of the Representative. An appropriate legend shall be placed on
the certificates representing such securities.

In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market prices of the Securities.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase the Units, Common Stock and/or Warrants for the purpose of stabilizing
their respective market prices. The Underwriters also may create a short
position for the account of the Underwriters by selling more Securities in
connection with the Offering than they are committed to purchase from the
Company, and in such case may purchase Securities in the open market following
completion of the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
375,000 Units, by exercising the Over-Allotment Option referred to above. In
addition, the Representative may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or dealer participating in the Offering) for the account of other Underwriters,
the selling concession with respect to the Securities that are distributed in
the Offering but subsequently purchased for the account of the Underwriters in
the open market. Any of the transactions described in this paragraph may result
in the maintenance of the prices of the Securities at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required, and, if they are undertaken, they may be
discontinued at any time.

Prior to this Offering, there has been no public market for the Units,
Common Stock or Warrants. Consequently, the initial public offering price of the
Units has been determined by negotiation between the Company and the
Representative and does not necessarily bear any relationship to the Company's
asset value, net worth or other established criteria of value. The factors
considered in such negotiations, in addition to prevailing market conditions,
included the history of and prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure, the market for initial public offerings and
certain other factors as were deemed relevant.

The foregoing is a summary of the principal terms of the agreement
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration Statement
of which this Prospectus is a part. For a more complete description thereof, see
"Additional Information."

LEGAL MATTERS

The legality of the Securities offered hereby will be passed upon for the
Company by LaFollette & Sinykin, Madison, Wisconsin. Medlen & Carroll, LLP, San
Francisco, California has acted as counsel to the Company in connection with
certain intellectual property and regulatory matters. Dr. Peter Carroll, a
partner in the firm of Medlen & Carroll, LLP owns 40,000 shares of the Company
and is a brother of Dr. Sean Carroll, a founder of the Company. Orrick,
Herrington & Sutcliffe LLP, New York, New York has acted as counsel to the
Underwriters in connection with the Offering. See "Certain Transactions."

EXPERTS

The financial statements of Ophidian Pharmaceuticals, Inc. at September 30,
1996, 1997 and for each of the three years in the period ended September 30,
1997 appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon

58
<PAGE> 60

appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 under the Securities Act
(the "Registration Statement") with respect to the Securities offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Securities offered hereby,
reference is made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any contracts or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement may be inspected by anyone without charge at the
Commission's principal office in Washington, D.C., and copies of all or any part
of the Registration Statement may be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W. Washington, D.C. 20549, upon payment
of certain fees prescribed by the Commission. The Commission maintains an
Internet World Wide Web site that contains reports, proxy and information
reports and other materials that are filed through the Commission's Electronic
Data Gathering, Analysis and Retrieval System. The site can be accessed at
http://www.sec.gov.

59
<PAGE> 61

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statement of Shareholders' Equity........................... F-5
Statements of Cash Flows.................................... F-7
Notes to Financial Statements............................... F-8
</TABLE>

F-1
<PAGE> 62

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors
Ophidian Pharmaceuticals, Inc.

We have audited the accompanying balance sheets of Ophidian
Pharmaceuticals, Inc. (the Company), a development stage corporation, as of
September 30, 1996 and 1997, and the related statements of operations,
shareholders' equity and cash flows for each of three years in the period ended
September 30, 1997 and the cumulative period from inception to September 30,
1997 (not separately presented herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at September 30,
1996 and 1997 and the results of its operations and its cash flows for each of
the three years in the period ended September 30, 1997 and the cumulative period
from inception to September 30, 1997 (not separately presented herein), in
conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Milwaukee, Wisconsin
October 9, 1997

F-2
<PAGE> 63

OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------- DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 3,276,339 $ 3,547,036 $ 2,435,401
Short-term investments (Note 2)................... 481,463 359,588 359,588
Accounts receivable............................... 28,554 214,988 140,807
Prepaid expenses and other........................ 12,334 58,975 58,252
----------- ----------- ------------
Total current assets...................... 3,798,690 4,180,587 2,994,048
Long-term investments (Note 2)...................... 456,806 -- --
Other assets........................................ -- 278,005 493,141
Equipment and leasehold improvements (Note 4)
Furniture and fixtures............................ 96,692 96,692 96,692
Manufacturing equipment........................... 82,381 123,452 128,469
Laboratory equipment.............................. 325,914 429,758 464,113
Office equipment.................................. 53,760 54,537 54,537
Leasehold improvements............................ 11,758 24,092 24,092
----------- ----------- ------------
570,505 728,531 767,903
Accumulated depreciation.......................... 290,438 406,167 439,517
----------- ----------- ------------
Net equipment and leasehold improvements............ 280,067 322,364 328,386
Patent costs, net of accumulated amortization of
$11,097, $20,765 and $24,935 at September 30, 1996
and 1997 and December 31, 1997, respectively...... 712,198 1,194,650 1,300,601
----------- ----------- ------------
Total assets.............................. $ 5,247,761 $ 5,975,606 $ 5,116,176
=========== =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 92,244 $ 246,096 $ 147,707
Accrued expenses and other liabilities............ 60,148 105,502 105,969
Deferred revenue (Note 7)......................... 300,000 -- --
Current portion of capital lease obligations (Note
4)............................................. 18,195 16,450 15,200
----------- ----------- ------------
Total current liabilities................. 470,587 368,048 268,876
Capital lease obligations, less current portion
(Note 4).......................................... 33,914 17,956 14,463
Deferred revenue -- noncurrent (Note 7)............. -- 191,646 288,379
Commitments and contingencies
Shareholders' equity (Notes 5 and 6):
Common stock, $.0025 par value, 22,400,000 shares
authorized, 6,716,766, 7,287,315 and 7,288,566
shares issued and outstanding at September 30,
1996, and 1997 and December 31, 1997,
respectively................................... 16,791 18,218 18,221
Additional paid-in capital........................ 9,546,730 12,680,394 12,687,266
Deficit accumulated during the development
stage.......................................... (4,812,298) (7,299,633) (8,160,802)
Net unrealized loss on available-for-sale
securities..................................... (7,963) (1,023) (227)
----------- ----------- ------------
Total shareholders' equity.......................... 4,743,260 5,397,956 4,544,458
----------- ----------- ------------
Total liabilities and shareholders' equity.......... $ 5,247,761 $ 5,975,606 $ 5,116,176
=========== =========== ============
</TABLE>

See accompanying notes.
F-3
<PAGE> 64

OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

STATEMENTS OF OPERATIONS

See accompanying notes.
F-4
<PAGE> 65

OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
NET DEFICIT
UNREALIZED ACCUMULATED
COMMON STOCK LOSS ON DURING THE
--------------------- AVAILABLE-FOR- ADDITIONAL DEVELOPMENT
SHARES PAR VALUE SALE SECURITIES PAID-IN STAGE TOTAL
--------- --------- --------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued for:
Cash at .0625 per share on
January 17, 1990........... 800,000 $ 2,000 $ -- $ 48,000 $ -- $ 50,000
Assignment of intellectual
property................... 3,200,000 8,000 192,000 -- 200,000
Net loss for 1990............ -- -- -- -- (247,248) (247,248)
--------- ------- --------- ----------- ----------- ----------
Balance at September 30,
1990......................... 4,000,000 10,000 -- 240,000 (247,248) 2,752
Net loss for 1991............ -- -- -- -- (298,863) (298,863)
--------- ------- --------- ----------- ----------- ----------
Balance at September 30,
1991......................... 4,000,000 10,000 -- 240,000 (546,111) (296,111)
Common stock issued for cash
at $2.00 per share on
January 10, 1992........... 933,120 2,333 -- 1,826,031 -- 1,828,364
Net loss for 1992............ -- -- -- -- (473,896) (473,896)
--------- ------- --------- ----------- ----------- ----------
Balance at September 30,
1992......................... 4,933,120 12,333 -- 2,066,031 (1,020,007) 1,058,357
Exercise of stock warrants at
$2.25 per share on March 4,
1993 through March 22, 1993
and $2.00 per share on
September 30, 1993......... 572,120 1,430 -- 1,254,590 -- 1,256,020
Common stock issued for cash
at $4.50 per share on June
22, 1993................... 579,482 1,449 -- 2,578,212 -- 2,579,661
Net income for 1993.......... -- -- -- -- 606,463 606,463
--------- ------- --------- ----------- ----------- ----------
Balance at September 30,
1993......................... 6,084,722 15,212 -- 5,898,833 (413,544) 5,500,501
Common stock issued for
consulting services at
$4.50 per share on November
30, 1993, February 11, 1994
and July 22, 1994.......... 2,801 7 -- 12,597 -- 12,604
Net unrealized loss on
available for-sale
securities................. -- -- (127,577) -- -- (127,577)
Net loss for 1994............ -- -- -- -- (705,295) (705,295)
--------- ------- --------- ----------- ----------- ----------
Balance at September 30,
1994......................... 6,087,523 15,219 (127,577) 5,911,430 (1,118,839) 4,680,233
Common stock issued for
consulting services at
$4.50 per share on October
20, 1994, January 4, 1995,
April 4, 1995 and July 6,
1995....................... 2,668 6 -- 11,989 -- 11,995
Net unrealized gain on
available for-sale
securities................. -- -- 68,203 -- -- 68,203
Net loss for 1995............ -- -- -- -- (1,603,887) (1,603,887)
--------- ------- --------- ----------- ----------- ----------
Balance at September 30,
1995......................... 6,090,191 15,225 (59,374) 5,923,419 (2,722,726) 3,156,544
</TABLE>

See accompanying notes.

F-5
<PAGE> 66
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

SHAREHOLDERS' EQUITY -- CONTINUED

<TABLE>
<CAPTION>
NET DEFICIT
UNREALIZED ACCUMULATED
COMMON STOCK LOSS ON DURING THE
--------------------- AVAILABLE-FOR- ADDITIONAL DEVELOPMENT
SHARES PAR VALUE SALE SECURITIES PAID-IN STAGE TOTAL
--------- --------- --------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued for
consulting services at
$4.50 per share on October
19, 1995 and May 10, 1996
and $5.50 per share on
August 6, 1996............. 2,668 6 -- 11,993 -- 11,999
Common stock issued for cash
at $6.50 on August 6, 1996
and $5.50 per share issued
on October 25, 1996........ 618,651 1,547 -- 3,515,819 -- 3,517,366
Exercise of stock options at
$2.00 per share on August
6, 1996.................... 5,256 13 -- 10,499 -- 10,512
Provision for Compensation --
consultant stock options... -- -- -- 85,000 -- 85,000
Net unrealized gain on
available for-sale
securities................. -- -- 51,411 -- -- 51,411
Net loss for 1996............ -- -- -- -- (2,089,572) (2,089,572)
--------- ------- --------- ----------- ----------- ----------
Balance at September 30,
1996......................... 6,716,766 16,791 (7,963) 9,546,730 (4,812,298) 4,743,260
Common stock issued for
consulting services at
$5.50 per share on October
3, 1996, January 27, 1997,
April 11, 1997, May 15,
1997, July 15, 1997 and
August 15, 1997............ 4,095 10 -- 22,493 -- 22,503
Common stock issued for cash
at $5.50 per share issued
on October 25, 1996........ 566,454 1,417 -- 3,111,171 -- 3,112,588
Net unrealized gain on
available for-sale
securities................. -- -- 6,940 -- -- 6,940
Net loss for 1997............ -- -- -- -- (2,487,335) (2,487,335)
--------- ------- --------- ----------- ----------- ----------
Balance at September 30,
1997......................... 7,287,315 18,218 (1,023) 12,680,394 (7,299,633) 5,397,956
--------- ------- --------- ----------- ----------- ----------
Common stock issued for
consulting services at
$5.50 per share on October
31 and December 5, 1997
(unaudited)................ 1,251 3 -- 6,872 -- 6,875
Net unrealized gain on
available for sale
securities (unaudited)..... -- -- 796 -- -- 796
Net loss for December 31,
1997 (unaudited)........... -- -- -- -- (861,169) (861,169)
--------- ------- --------- ----------- ----------- ----------
Balance at December 31, 1997
(unaudited).................. 7,288,566 $18,221 $ (227) $12,687,266 $(8,160,802) $4,544,458
========= ======= ========= =========== =========== ==========
</TABLE>

See accompanying notes.

F-6
<PAGE> 67

OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
THREE MONTHS ENDED (NOVEMBER 11,
YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1989) TO
--------------------------------------- ----------------------- DECEMBER 31,
1995 1996 1997 1996 1997 1997
----------- ----------- ----------- ---------- ---------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................... $(1,603,887) $(2,089,572) $(2,487,335) $ (216,642) $ (861,169) $(8,160,802)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............. 90,530 108,854 132,744 27,385 36,104 514,290
Loss on sale of investments............... 36,720 44,464 5,622 -- -- 86,806
Common stock issued for consulting
services................................ 11,995 11,999 22,503 3,000 6,875 65,976
Provision for Compensation -- consulting
stock options........................... -- 85,000 -- -- -- 85,000
Assignment of intellectual property used
in research and development............. -- -- -- -- -- 200,000
Changes in operating assets and
liabilities:
Accounts receivable..................... (3,804) (14,103) (186,434) 3,289 74,181 (140,807)
Prepaid expenses and other.............. (1,643) 2,690 (46,641) (18,344) 723 (58,252)
Accounts payable........................ 41,200 (42,269) 153,852 2,748 (98,389) 147,707
Accrued expenses and other
liabilities........................... (3,162) 10,994 45,354 25,561 467 105,969
Deferred revenue........................ (8,090) 300,000 (108,354) (300,000) 96,733 288,379
----------- ----------- ----------- ---------- ---------- -----------
Net cash used in operating activities....... (1,440,141) (1,581,943) (2,468,689) (473,003) (744,475) (6,865,734)
INVESTING ACTIVITIES
Purchase of available-for-sale
securities.............................. (235,672) -- -- -- -- (4,517,181)
Proceeds from sale of available-for-sale
securities.............................. 1,338,030 701,821 580,000 222,146 -- 4,056,260
Purchases of equipment and leasehold
improvements, net....................... (71,073) (97,995) (165,374) (46,479) (38,576) (697,044)
Expenditures for patents and other
assets.................................. (208,736) (145,216) (492,120) (50,426) (108,705) (1,335,241)
----------- ----------- ----------- ---------- ---------- -----------
Net cash provided by (used in) investing
activities................................ 822,549 458,610 (77,494) 125,241 (147,281) (2,493,206)
FINANCING ACTIVITIES
Proceeds from issuance of common stock.... -- 3,566,939 3,115,497 3,115,497 -- 12,462,365
Private placement financing costs......... -- (39,061) (2,909) (2,260) -- (107,854)
Principal payments of capital lease
obligation.............................. (16,126) (15,783) (17,703) (5,242) (4,743) (67,029)
Advances from shareholder................. -- -- -- -- -- 330,000
Payments to shareholder................... -- -- -- -- -- (330,000)
Offering costs............................ -- -- (278,005) -- (215,136) (493,141)
----------- ----------- ----------- ---------- ---------- -----------
Net cash provided by (used in) financing
activities................................ (16,126) 3,512,095 2,816,880 3,107,995 (219,879) 11,794,341
----------- ----------- ----------- ---------- ---------- -----------
Net increase (decrease) in cash and cash
equivalents............................... (633,718) 2,388,762 270,697 2,760,233 (1,111,635) 2,435,401
Cash and cash equivalents at beginning of
period.................................... 1,521,295 887,577 3,276,339 3,276,339 3,547,036 --
----------- ----------- ----------- ---------- ---------- -----------
Cash and cash equivalents at end of
period.................................... $ 887,577 $ 3,276,339 $ 3,547,036 $6,036,572 $2,435,401 $ 2,435,401
=========== =========== =========== ========== ========== ===========
Supplemental disclosure of cash flows
information --
Cash paid for interest.................... $ 4,655 $ 3,320 $ 2,800 $ 718 $ 724
Supplemental disclosure of non-cash
transactions --
Common stock issued for consulting
services................................ $ 11,995 $ 11,999 $ 22,503 $ 3,000 $ 6,875
</TABLE>

See accompanying notes.

F-7
<PAGE> 68

OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Ophidian Pharmaceuticals, Inc. (the Company) was incorporated on November
10, 1989, and began operations on January 17, 1990. Ophidian is a development
stage corporation dedicated to the research, development and commercialization
of therapeutic and diagnostic products for human and animal use. The Company's
business has been directed to numerous areas of disease but has focused
principally on products for infectious disease prevention and treatment. The
Company has not received any revenues from the sale of FDA licensed products to
date and it does not expect to receive any such revenues during the next two
years.

INTERIM FINANCIAL INFORMATION

The financial information at December 31, 1997, and for the three-month
periods ended December 31, 1996 and 1997 is unaudited but includes all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position at such
date and the operating results and cash flows for those periods. Results for the
three months ended December 31, 1997 are not necessarily indicative of the
results for the entire year.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

AUTHORIZATION OF INITIAL PUBLIC OFFERING

In February 1997, the Board of Directors authorized management of the
Company to enter a letter of intent with an underwriter to file a registration
statement with the Securities and Exchange Commission ("SEC") allowing the
Company to sell up to 2,875,000 shares of its common stock and issue warrants to
purchase 2,875,000 shares of its common stock. The Company has incurred costs
aggregating $232,000 related to the planned initial public offering which are
included in other assets as of September 30, 1997.

NET LOSS PER SHARE

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No.
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Earnings per share amounts for all periods have been
presented and, where appropriate, restated to conform to SFAS No. 128
requirements.

The following table sets forth the computation of basic weighted-average
shares used in the per share calculations. Dilutive earnings per share is not
shown as the impact is antidilutive.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------------- ---------------------
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted average shares outstanding..... 6,089,128 6,115,336 7,215,274 6,788,750 7,287,464
Options and warrants that could
potentially dilute basic earnings per
share in the future that are not
included in the computation of diluted
earnings per share as their impact is
antidilutive (treasury stock
method)............................... 357,942 358,963 392,752 381,838 398,293
</TABLE>

F-8
<PAGE> 69
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
IS UNAUDITED)

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with maturities of
three months or less at the date of acquisition to be cash equivalents. Cash
equivalents, consisting of commercial paper, treasury and commercial notes,
repurchase agreements and money market funds, totaled $3,081,019 and $3,451,707
at September 30, 1996 and 1997. The cost of these securities, which are
considered "available for sale" for financial reporting purposes, approximates
fair value at both September 30, 1996 and 1997.

INVESTMENTS

The Company's investments are considered available-for-sale securities and,
as such, are carried at fair value, with unrealized gains and losses, net of
tax, reported as a separate component of shareholders' equity. The cost of
securities sold is based on the specific identification method.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements are stated at cost. Depreciation and
amortization of assets under capital leases are provided over the estimated
useful lives of the assets, generally five years, and lease terms, respectively,
by the straight-line method.

OTHER ASSETS

Patent costs, principally legal fees, are capitalized and, upon issuance,
are amortized on a straight-line basis over the estimated useful life of the
patents.

REVENUE RECOGNITION

Revenues on cost-reimbursement contracts are recorded under awarded
research grants and recognized as revenue as the associated costs are incurred
by the Company. Milestone payments for collaborative product development are
recorded as earned based on the performance requirements of the contract.
Payments received which are related to future performance are deferred and taken
into revenue as earned. Contract payments designated to purchase specific assets
to be used in the performance of a contract are recognized as revenue over the
shorter of the useful life of the asset acquired or the contract.

RESEARCH AND DEVELOPMENT

All costs for research and development activities are expensed in the year
incurred.

INCOME TAXES

Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities (see Note 9). No current or
deferred income taxes have been provided because of the net operating losses
incurred by the Company.

RECLASSIFICATIONS

Certain reclassifications have been made to the 1996 financial statements
to conform to the 1997 presentation.

F-9
<PAGE> 70
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
IS UNAUDITED)

2. INVESTMENTS

The following is a summary of available-for-sale investments at September
30:

<TABLE>
<CAPTION>
1996
-----------------------------------
GROSS ESTIMATED
UNREALIZED FAIR
COST LOSSES VALUE
-------- ---------- ---------
<S> <C> <C> <C>
U.S. Government and agency obligations............. $846,275 $7,849 $838,426
Corporate obligation............................... 99,957 114 99,843
-------- ------ --------
$946,232 $7,963 $938,269
======== ====== ========
</TABLE>

<TABLE>
<CAPTION>
1997
-----------------------------------
GROSS ESTIMATED
UNREALIZED FAIR
COST LOSSES VALUE
-------- ---------- ---------
<S> <C> <C> <C>
U.S. Government and agency obligations............. $360,466 $ 878 $359,588
-------- ------ --------
</TABLE>

Available-for-sale investments have been classified based upon their
contractual maturity dates. The amortized cost and estimated fair value of
investments at September 30, by contractual maturity, are as follows:

<TABLE>
<CAPTION>
1996 1997
------------------------ ----------------------
ESTIMATED ESTIMATED
FAIR FAIR
COST VALUE COST VALUE
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Due in one year or less.............. $ 484,029 $ 481,463 $360,466 $359,588
Due after one year through three
years.............................. 462,203 456,806 -- --
---------- ---------- -------- --------
$ 946,232 $ 938,269 $360,466 $359,588
========== ========== ======== ========
</TABLE>

3. LINE OF CREDIT

The Company has available a $500,000 bank line of credit which is annually
renewable in February. Any borrowings bear interest at prime plus 1% and are
collateralized by the Company's investments. There were no borrowings on the
line during fiscal 1996, and 1997.

4. CAPITAL LEASE OBLIGATIONS

The Company has incurred obligations under capital leases for equipment and
furniture and fixtures, including the following amounts for leases that have
been capitalized at September 30:

<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Furniture and fixtures...................................... $84,934 $84,934
Office equipment............................................ 11,758 11,758
------- -------
96,692 96,692
Less accumulated depreciation............................... 53,181 72,519
------- -------
$43,511 $24,173
======= =======
</TABLE>

F-10
<PAGE> 71
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
IS UNAUDITED)

Future minimum payments under capital lease obligations consist of the
following at September 30, 1997:

<TABLE>
<CAPTION>
RELATED CAPITAL
PARTY OTHER LEASES
------- ------ -------
(NOTE
7)
-------
<S> <C> <C> <C>
1998................................................... 16,800 956 17,756
1999................................................... 6,513 -- 6,513
2000................................................... 3,084 -- 3,084
2001................................................... 3,084 -- 3,084
2002................................................... 3,084 -- 3,084
Thereafter............................................. 3,855 -- 3,855
------- ------ -------
Total minimum lease payments........................... $36,420 956 37,376
======= ======
Amount representing interest........................... 2,970
-------
Present value of net minimum lease payments (including
current portion of $16,450).......................... $34,406
=======
</TABLE>

5. STOCK OPTION PLANS AND WARRANTS

The Company has an incentive stock option plan and an employee stock option
plan (collectively, the Plans) under which options for a maximum of 657,160
shares of common stock may be granted. The option price per share will be no
less than fair market value at the date the options are granted. The options
expire within ten years from such date. Options for 5,256 shares have been
exercised at September 30, 1997.

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at September 30, 1994......................... 445,105 $1.55
Granted at $4.50........................................ 2,667 4.50
Exercised............................................... -- --
Canceled at $2.00 - $4.50............................... 14,871 3.03
------- -----
Outstanding at September 30, 1995......................... 432,901 1.51
Granted at $2.00 - $5.50................................ 41,142 3.12
Exercised at $2.00...................................... 5,256 2.00
Canceled at $4.50....................................... 6,059 3.05
------- -----
Outstanding at September 30, 1996......................... 462,728 1.63
Granted at $5.50........................................ 192,325 5.50
Exercised............................................... -- --
Canceled at $4.50....................................... 8,445 4.50
------- -----
Outstanding at September 30, 1997......................... 646,608 $2.74
------- -----
</TABLE>

F-11
<PAGE> 72
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
IS UNAUDITED)

The following table summarizes weighted-average information by range of
exercise prices for stock options outstanding and exercisable.

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTION
-------------------------------------------------------- --------------------------------------
RANGE OF SHARES AT OUTSTANDING WEIGHTED AVERAGE SHARES AT WEIGHTED AVERAGE
EXERCISE PRICE SEPTEMBER 30, 1997 EXERCISE PRICE EXERCISE LIFE SEPTEMBER 30, 1997 EXERCISE PRICE
-------------- ------------------ -------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
$0.06................ 160,080 $0.06 2.8 years 160,080 $0.06
$2.00-2.25........... 250,645 $2.01 5.0 years 244,756 $2.01
$4.50-5.50........... 235,883 $5.34 8.5 years 29,026 $4.54
------- -------
646,608 $2.74 433,862 $1.46
</TABLE>

In fiscal 1990, the Company granted a warrant to a shareholder to purchase
up to 114,290 shares of common stock at a price of $.0025 per share. The warrant
becomes exercisable in a defined manner upon the issuance of shares of common
stock under the Plans. The warrant terminates thirty days after exercise of the
total number of options covered by the plans discussed above. At September 30,
1997, 1,314 shares are exercisable under the warrant.

In May 1996, the Company granted a consultant an option to purchase 100,000
shares of the Company's common stock at a price of $4.50 per share exercisable
until May, 2004. The Company recorded $85,000 as compensation expenses based
upon the estimated fair value of the option using the minimum value option
pricing method with an assumption of a risk free interest rate of 6%, an
expected life of three and one-half years, and no expected dividend yield.

The Company has reserved 866,194 shares of common stock at September 30,
1997 to provide for the exercise of stock options and outstanding warrants.

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," ("FAS No. 123") became effective for the Company
beginning October 1, 1996. As allowed by FAS No. 123, the Company has elected to
continue to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," (APB No. 25) in accounting for its stock option
plan. Under APB No. 25, the Company does not recognize compensation expense on
the issuance of its stock options because the option terms are fixed and the
exercise price equals the market price of the underlying stock on the grant
date.

The weighted average fair value of options granted in 1996 and 1997 was
$2.06 and $0.98 per above, respectively. Had compensation expense for the
Company's stock option plan been determined based upon the fair value at the
grant date for these options consistent with the methodology described under FAS
No. 123, the Company's net earnings would have been reduced by approximately
$8,000 and $76,400 in 1996 and 1997, respectively. The pro forma impact on a per
share basis is not material to the financial presentation. The fair value of the
options granted during both years is estimated using the minimum value option
pricing model using a risk-free interest rate of 6% and assuming no dividends.
The model assumes that all options will be exercised in two years after an
initial public offering of stock projected for November 1997. All options
vesting after that date are expected to be exercised immediately.

Pro forma net earnings reflect only options granted in fiscal years 1997
and 1996. Therefore, the full impact of calculating compensation cost for stock
options under FASB Statement No. 123 is not reflected in the pro forma net
earnings amounts presented because compensation cost is reflected over the
option-vesting period and compensation expense for options granted prior to
October 1, 1995 is not considered.

F-12
<PAGE> 73
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
IS UNAUDITED)

6. RELATED-PARTY TRANSACTIONS

The Company leases its facilities under a five-year operating lease,
expiring in 1999, from a corporation whose principal shareholder is a director
of the Company. Rent expense of $208,586 and $233,688 was recorded for the years
ended September 30, 1996 and 1997, respectively. The lease includes an option to
extend the lease for an additional five years. At September 30, 1996, future
minimum rental commitments are as follows:

<TABLE>
<CAPTION>
FISCAL
------
<S> <C>
1998........................................................ $240,456
1999........................................................ 60,540
--------
Total............................................. $300,996
========
</TABLE>

In addition, the Company leases certain furniture and fixtures, from this
same related-party corporation, under a capital lease arrangement as described
in Note 4.

The Company has consulting agreements with shareholders that expire at
various dates. Consulting expenses were $64,000, $84,000 and $84,000 for the
years ended September 30, 1995, 1996 and 1997, respectively.

7. ELI LILLY & COMPANY COLLABORATIVE AGREEMENT (THE AGREEMENT)

On June 3, 1996, Eli Lilly & Company (Lilly) and the Company entered into a
20-year collaborative agreement (Agreement) and stock purchase agreement with
respect to the further research, development, manufacture and sale of products
for the treatment of Clostridium difficile-associated diseases.

In accordance with the Agreement, Lilly may provide the Company with up to
$12.4 million over the term of the Agreement. As of September 30, 1997, Lilly
has: (1) made equity investments totaling $4.0 million; $1.0 million in fiscal
1996 for 153,846 shares and $2,999,997 in November 1996, for 545,454 shares of
the Company's stock; (2) made cash payments of $400,000 in fiscal 1996, of which
$300,000 was recognized as revenues in fiscal 1997 upon meeting certain
contractual requirements; and (3) agreed to reimburse the Company for certain
patent application costs totaling $191,646.

Upon achievement of specific milestone events by the Company, as defined in
the Agreement, Lilly will make future equity investments or fee payments. Lilly
has agreed to pay a price per share equal to the average of the closing prices
of the Company's stock as quoted on a national exchange for the first ten of the
most recent fifteen trading days prior to attainment of the respective milestone
event, or if the Company's stock is not listed on an exchange, the fair market
value for equity investments, determined by mutual agreement of Lilly and the
Company. Pursuant to other provisions in the Agreement, Ophidian must provide
manufacturing facilities and meet certain bulk product delivery requirements and
timetables. The Agreement also defines a pricing structure for future delivery
of product.

8. 401(K) PLAN

The Ophidian Pharmaceuticals, Inc. 401(k) Plan (the Plan) covers all
employees. Employees become eligible to participate in the Plan on the first day
of their employment and may contribute up to 15% of their compensation. The
Company may make matching contributions at a discretionary percentage. No
matching contributions were made for the years ended September 30, 1995, 1996
and 1997.

F-13
<PAGE> 74
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
IS UNAUDITED)

9. INCOME TAXES

At September 30, 1997, the Company has net operating loss carryforwards for
federal and Wisconsin tax purposes remaining of approximately $7,604,000 and
$7,842,000, respectively. These carryforwards expire beginning in 2007. The
Company has research and other tax credit carryforwards of approximately
$423,000 and $192,000 for federal and Wisconsin tax purposes, respectively.

The types of temporary differences between tax bases of assets and
liabilities and their financial reporting amounts that give rise to the deferred
tax asset (liability) and their approximate tax effects are as follows at
September 30:

<TABLE>
<CAPTION>
1996 1997
------------------------- --------------------------
TEMPORARY TAX TEMPORARY TAX
DIFFERENCE EFFECT DIFFERENCE EFFECT
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Depreciation, patents, prepaid
insurance and other.......... $ (660,000) $ (257,000) $(1,164,000) $ (456,000)
Net operating loss
carryforwards................ 4,899,000 1,911,000 7,604,000 2,981,000
Research and AMT credit
carryforwards................ - 273,000 - 423,000
----------- -----------
Deferred tax assets, net....... 1,927,000 2,948,000
Valuation allowance............ (1,927,000) (2,948,000)
----------- -----------
$ - $ -
=========== ===========
</TABLE>

Utilization of the net operating losses and credits may be subject to an
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code and similar state provisions. The annual limitation may
result in the expiration of net operating losses and credits before utilization.

F-14
<PAGE> 75

======================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 18
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 21
Selected Financial Data............... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 28
Management............................ 42
Principal Shareholders................ 49
Certain Transactions.................. 50
Liability and Indemnification of
Directors and Officers.............. 51
Description of Securities............. 52
Shares Eligible for Future Sale....... 56
Underwriting.......................... 57
Legal Matters......................... 58
Experts............................... 58
Additional Information................ 59
Index to Financial Statements......... F-1
</TABLE>

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

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================

======================================================
OPHIDIAN
PHARMACEUTICALS, INC.

2,500,000 UNITS

EACH UNIT CONSISTING OF

ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE COMMON
STOCK PURCHASE WARRANT
------------------------

PROSPECTUS
------------------------
NATIONAL SECURITIES

CORPORATION
, 1998
======================================================
<PAGE> 76

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the Common Stock being registered. All amounts are estimated
except the Commission Registration Fee, the NASD Filing Fee and the American
Stock Exchange Application Fee.

<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 12,801
NASD Filing Fee............................................. 4,687
American Stock Exchange Application Fee..................... 50,000
Blue Sky Qualification Fees and Expenses.................... 20,000
Accounting Fees and Expenses................................ 75,000
Legal Fees and Expenses..................................... 112,386
Transfer Agent and Registrar Fees........................... 5,000
Printing and Engraving...................................... 70,000
Miscellaneous............................................... 126
Total............................................. $350,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

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

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

During the past three years, the registrant has issued the securities set
forth below which were not registered under the Securities Act of 1933, as
amended (the "Securities Act").

In November 1996, the Company completed a private placement offering under
which it sold 485,805 shares of Common Stock at $5.50 per share and raised net
proceeds of $2,629,959 to certain accredited and unaccredited investors. The
shares were issued under Rule 506 of the Securities Act and Section 4(2) of the
Securities Act.

In June 1996, the Company and Eli Lilly and Company ("Lilly") entered into
collaborative agreements, according to which the Company sold to Lilly 153,846
shares of Common Stock at $6.50 per share and in November, 1996 sold 545,454
shares of Common Stock at $5.50 per share.

During the past three fiscal years, the Company has issued an aggregate of
10,408 shares of its Common Stock to consultants for services rendered in the
ordinary course of business and 8,137 to certain Directors for payment in lieu
of cash for an aggregate value of $6,006. The Company has issued 5,256 of its
Common Stock to an employee pursuant to an exercise of her stock options granted
pursuant to the 1990/1992 Stock Option

II-1
<PAGE> 77

Plans. The shares issued to consultants, Directors, and pursuant to the exercise
of options under the 1990/1992 Stock Option Plans, were issued under Rule 701 of
the Securities Act pursuant to written agreements between the Company and the
respective parties. See "Management -- Consultant Compensation and Director
Compensation."

ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement**
3.1 Amended and Restated Articles of Incorporation**
3.2 Amended and Restated Bylaws**
4.1 Specimen Common Stock Certificate**
4.2 Specimen Warrant Certificate (included in Exhibit 4.4)**
4.3 Form of Representative's Warrant Agreement including form of
Representative's Warrant**
4.4 Form of Warrant Agreement**
4.5 Specimen Unit Certificate**
5.1 Opinion of LaFollette & Sinykin**
10.1 Lease dated February 12, 1994 between the Company and
Promega Corporation**
10.2 1997 Incentive Stock Option Plan**
10.3 1990 Incentive Stock Option Plan**
10.4 1992 Employee Stock Option Plan**
+10.5 Agreement dated June 3, 1996 between the Company and Eli
Lilly and Company**
10.6 Employment Agreement dated June 1, 1997 between the Company
and Douglas C. Stafford**
10.7 Employment Agreement dated June 1, 1997 between the Company
and Joseph Firca**
10.8 Employment Agreement dated August 1, 1997 between the
Company and F. Michael Hoffmann**
10.9 Employment Agreement dated November 6, 1997 between the
Company and Donald L. Nevins**
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of LaFollette & Sinykin (included in Exhibit 5.1)**
24.1 Power of Attorney (included on page II-4)
27.1 Financial Data Schedule**
</TABLE>

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

+ Portions of the Agreement between the Company and Eli Lilly have been omitted
and filed separately with the SEC pursuant to a request for confidentiality.

** Filed previously.

ITEM 17. UNDERTAKINGS.

The Company hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.

The Company hereby undertakes that:

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

II-2
<PAGE> 78

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

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

(ii) 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 this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar volume of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in value and
price represent no more than a 20% change in the aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement;

(iii) 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.

(1B) That, for the purpose of determining any liability under the
Securities Act, 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.

(1C) 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.

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

(3) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Company pursuant to the provisions set forth in Item 14 above, or otherwise,
the Company has been advised in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred, or paid by a director, officer or controlling person of the Company 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 Company 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 will be governed by the final
adjudication of such issue.

II-3
<PAGE> 79

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this amendment to the
Registration Statement on Form S-1 to be signed on its behalf by the
undersigned, thereunto duly authorized on February 20, 1998 in the City of
Madison, Wisconsin.

OPHIDIAN PHARMACEUTICALS, INC.

By: /s/ DOUGLAS C. STAFFORD
------------------------------------
Douglas C. Stafford, Ph.D.
President, Chief Executive Officer
and Director

By: /s/ MARGARET B. VAN BOLDRIK
------------------------------------
Margaret B. van Boldrik, Ph.D.
Vice President, Secretary and
Director

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Douglas
C. Stafford and Margaret B. van Boldrik, and each of them as his or her true and
lawful attorney-in-fact and agent with full power of substitution to sign on his
or her behalf, individually and in the capacity stated below and to perform any
acts necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement, and any and all instruments or
documents filed as part of or in connection with this Registration Statement of
the amendments thereto. Each of the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or his or her substitute, does or
causes to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

WILLIAM A. LINTON* Chairman of the Board of Directors February 20, 1998
- ------------------------------------------------
William A. Linton

/s/ DOUGLAS C. STAFFORD President, Chief Executive Officer and February 20, 1998
- ------------------------------------------------ Director (Principal Executive
Douglas C. Stafford, Ph.D. Officer)

/s/ DONALD L. NEVINS Vice President, Finance, Chief February 20, 1998
- ------------------------------------------------ Financial Officer (Principal
Donald L. Nevins Financial Officer)

/s/ MARGARET B. VAN BOLDRIK Vice President, Secretary and Director February 20, 1998
- ------------------------------------------------
Margaret B. van Boldrik, Ph.D.

REX J. BATES* Director February 20, 1998
- ------------------------------------------------
Rex J. Bates

PETER MODEL* Director February 20, 1998
- ------------------------------------------------
Peter Model

W. LEIGH THOMPSON* Director February 20, 1998
- ------------------------------------------------
W. Leigh Thompson, Ph.D, M.D.

*/s/ DOUGLAS C. STAFFORD February 20, 1998
- ------------------------------------------------
Douglas C. Stafford as true and lawful
attorney-in-fact for William A. Linton, Rex J.
Bates, Peter Model and W. Leigh Thompson

*/s/ MARGARET B. VAN BOLDRIK February 20, 1998
- ------------------------------------------------
Margaret B. van Boldrik as true and lawful
attorney-in-fact for William A. Linton, Rex J.
Bates, Peter Model and W. Leigh
Thompson
</TABLE>

II-4
<PAGE> 80

INDEX TO EXHIBITS

<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement**
3.1 Amended and Restated Articles of Incorporation**
3.2 Amended and Restated Bylaws**
4.1 Specimen Common Stock Certificate**
4.2 Specimen Warrant Certificate (included in Exhibit 4.4)**
4.3 Form of Representative's Warrant Agreement including form of
Representative's Warrant**
4.4 Form of Warrant Agreement**
4.5 Specimen Unit Certificate**
5.1 Opinion of LaFollette & Sinykin**
10.1 Lease dated February 12, 1994 between the Company and
Promega Corporation**
10.2 1997 Incentive Stock Option Plan**
10.3 1990 Incentive Stock Option Plan**
10.4 1992 Employee Stock Option Plan**
+10.5 Agreement dated June 3, 1996 between the Company and Eli
Lilly and Company**
10.6 Employment Agreement dated June 1, 1997 between the Company
and Douglas C. Stafford**
10.7 Employment Agreement dated June 1, 1997 between the Company
and Joseph Firca**
10.8 Employment Agreement dated August 1, 1997 between the
Company and F. Michael Hoffmann**
10.9 Employment Agreement dated November 6, 1997 between the
Company and Donald L. Nevins**
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of LaFollette & Sinykin (included in Exhibit 5.1)**
24.1 Power of Attorney (included on page II-4)
27.1 Financial Data Schedule**
</TABLE>

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

+ Portions of the Agreement between the Company and Eli Lilly have been omitted
and filed separately with the SEC pursuant to a request for confidentiality.

** Filed previously.

II-5

<PAGE> 1

EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated October 9, 1997 in
Amendment No. 7 to the Registration Statement (Form S-1 No. 333-33219) and
related Prospectus of Ophidian Pharmaceuticals, Inc. for the registration of
2,500,000 Units.

/s/ ERNST & YOUNG LLP

ERNST & YOUNG LLP

Milwaukee, Wisconsin

February 18, 1998