THERATECH INC /DE/, DEF 14A, 1998-04-22

THERATECH INC /DE/
DEF 14A, 1998-04-22
PHARMACEUTICAL PREPARATIONS

Previous: FOCUS ENHANCEMENTS INC, 424B1, 1998-04-22

Next: BROADWAY & SEYMOUR INC, 10-K/A, 1998-04-22

<PAGE> 1
- --------------------------------------------------------------------------------
SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934

[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant

Check the appropriate box:

[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12

THERATECH, INC.
-------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

TheraTech, Inc.
417 Wakara Way
Salt Lake City, Utah 84108
-------------------------------------------------------------

(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.

CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
==============================================================================================
<S> <C>
(1) Title of each class of securities to which transaction applies: N/A
==============================================================================================
(2) Aggregate number of securities to which transaction applies: N/A
==============================================================================================
(3) Per unit price or other underlying value of transaction computed N/A
pursuant to Exchange Act Rule 0-11:
==============================================================================================
(4) Proposed maximum aggregate value of transaction: N/A
==============================================================================================
(5) Total fee paid: N/A
==============================================================================================
</TABLE>

[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: __________
(2) Form, Schedule or Registration Statement No.: ___________
(3) Filing Party: _____________
(4) Date Filed: _______________

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

<PAGE> 2

THERATECH, INC.
417 Wakara Way
Salt Lake City, Utah 84108

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 27, 1998

The Annual Meeting of Stockholders (the "Annual Meeting") of TheraTech,
Inc. (the "Company"), will be held at the Salt Lake City Marriott - University
Park Hotel, 480 Wakara Way, Salt Lake City, Utah 84108, on Wednesday, May 27,
1998, at 10:00 a.m. Mountain Daylight Time, for the following purposes:

1. To elect seven (7) directors to hold office until the next Annual
Meeting of Stockholders and until their respective successors have been
elected or appointed;

2. To ratify and approve an amendment to the TheraTech, Inc. 1992
Amended and Restated Employees' Stock Option Plan;

3. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for 1998; and

4. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.

The foregoing matters are described in more detail in the enclosed Proxy
Statement, which is attached and made a part hereof.

The Board has fixed the close of business on April 17, 1998 as the
record date for determining the stockholders entitled to notice of and to vote
at the Annual Meeting and any postponement or adjournment thereof.

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE
COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED PROXY CARD AT YOUR EARLIEST
CONVENIENCE TO ENSURE THE PRESENCE OF A QUORUM AT THE ANNUAL MEETING. IF YOU
SEND IN YOUR PROXY AND THEN DECIDE TO ATTEND THE ANNUAL MEETING AND VOTE YOUR
SHARES IN PERSON, YOU MAY STILL DO SO; HOWEVER, IF YOUR SHARES ARE HELD OF
RECORD BY A BROKER, BANK OR OTHER NOMINEE, YOU WILL NEED TO OBTAIN FROM THE
RECORD HOLDER A PROXY ISSUED IN YOUR NAME. YOUR PROXY IS REVOCABLE IN ACCORDANCE
WITH THE PROCEDURES SET FORTH IN THE PROXY STATEMENT.

By Order of the Board of Directors,

/s/DINESH C. PATEL
-----------------------------------------------
Dinesh C. Patel, Ph.D.
Chairman, President and Chief Executive Officer
Salt Lake City, Utah
April 22, 1998

<PAGE> 3

MAILED TO STOCKHOLDERS ON OR ABOUT APRIL 22, 1998

THERATECH, INC.
417 WAKARA WAY
SALT LAKE CITY, UTAH 84108

PROXY STATEMENT

GENERAL INFORMATION

This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of TheraTech, Inc., a Delaware corporation ("TheraTech"
or the "Company"), of proxies in the accompanying form for use in voting at the
Annual Meeting of Stockholders to be held on Wednesday, May 27, 1998, at 10:00
a.m. Mountain Daylight Time, at the Salt Lake City Marriott - University Park
Hotel, 480 Wakara Way, Salt Lake City, Utah 84108, and any adjournment or
postponement thereof (the "Annual Meeting"). The shares represented by the
proxies received, properly dated and executed, and not revoked will be voted at
the Annual Meeting.

REVOCABILITY OF PROXIES

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is exercised by delivering to the Company
a written notice of revocation or a duly executed proxy bearing a later date, or
by attending the Annual Meeting and voting in person. If a person desires to
revoke a proxy by attending the Annual Meeting and voting in person, and such
person's shares are held of record by a broker, bank or other nominee, it is
necessary to obtain from the record holder a proxy issued to such person.

SOLICITATION AND VOTING PROCEDURES

The solicitation of proxies will be conducted by mail and the Company
will bear all attendant costs. These costs will include the expense of preparing
and mailing proxy materials for the Annual Meeting and reimbursements paid to
brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Annual Meeting to beneficial owners of the
Company's Common Stock. The Company has retained Corporate Investor
Communications, Inc. to assist in the solicitation of proxies for the Annual
Meeting at an anticipated cost of approximately $5,500, plus reimbursement for
expenses. The Company may conduct further solicitation personally,
telephonically or by facsimile through its officers, directors and regular
employees, none of whom will receive additional compensation for assisting with
the solicitation.

The close of business on April 17, 1998 has been fixed as the record
date (the "Record Date") for determining the holders of shares of Common Stock
of the Company entitled to notice of and to vote at the Annual Meeting. As of
the close of business on the Record Date, the Company had approximately
21,161,703 shares of Common Stock outstanding and entitled to vote at the Annual
Meeting. The presence at the Annual Meeting of a majority, or approximately
10,580,852 of these shares of Common Stock of the Company, either in person or
by proxy, will constitute a quorum for the transaction of business at the Annual
Meeting. Each outstanding share of Common Stock on the Record Date is entitled
to one (1) vote on all matters. Directors shall be elected by a plurality of the
votes cast and each proposal shall be ratified by a majority of votes cast.

An automated system administered by the Company's transfer agent will
tabulate votes cast by proxy prior to the Annual Meeting, and an employee of the
Company will tabulate votes cast in person at the Annual Meeting. Abstentions
and broker non-votes are each included in the determination of the number of
shares present and voting, and each is tabulated separately. However,
abstentions and broker

<PAGE> 4

non-votes are not counted for purposes of determining the number of votes cast
with respect to a particular proposal. In determining whether a proposal has
been approved, neither abstentions nor broker non-votes are counted as votes for
or against the proposal.

ELECTION OF DIRECTORS

The Board of Directors of the Company (the "Board") has nominated the
seven (7) persons listed below to serve as directors of the Company until the
next Annual Meeting of Stockholders and until their respective successors are
elected or appointed. In the event any nominee is unable or unwilling to serve
as a nominee, the proxies may be voted for the balance of those nominees named
and for any substitute nominee designated by the present Board or the proxy
holders to fill such vacancy, or for the balance of those nominees named without
nomination of a substitute. The Board has no reason to believe that any of the
persons named will be unable or unwilling to serve as a nominee or as a director
if elected.

Unless marked otherwise, proxies received will be voted FOR the election
of each of the nominees named below.

Certain information about the director nominees is furnished below:

Dinesh C. Patel, Ph.D., age 47, a founder of the Company, has served as
President and Chief Executive Officer and as a director of the Company since its
inception in 1985, and has served as Chairman of the Board since May 1997. Prior
to founding the Company, from 1981 to 1985, Dr. Patel established and managed
the drug delivery group at Alcon Laboratories where he was responsible for
developing ocular and transdermal drug delivery systems. Dr. Patel received his
B.S. from Gujarat University, India, in 1973, his M.S. from Philadelphia College
of Pharmacy & Science in 1975 and his Ph.D. in Pharmaceutics from the University
of Michigan in 1978.

Gary L. Crocker, age 46, has served as a director of the Company since its
inception in 1985. In November 1997, Mr. Crocker joined Sorenson Development,
Inc., a private holding company that controls several wholly-owned
high-technology and medical devices companies, as Vice-Chairman. From 1983 to
November 1997, Mr. Crocker was President and Chief Executive Officer of Research
Medical, Inc., a publicly traded marketer and manufacturer of cardiovascular
hospital supplies and specialty pharmaceuticals, which in early 1997 was
acquired by Baxter International. Mr. Crocker served as Vice President of
Marketing and Business Development of Abbott Laboratories' Critical Care
Division from 1979 to 1983. Mr. Crocker earned his B.A. from Harvard College in
1976 and his M.B.A. from Harvard Business School in 1978.

Jay J. Pisik, age 65, has served as a director of the Company since 1993. Mr.
Pisik has been President of Pisik Consulting Group, which addresses the domestic
and international regulatory, quality assurance, and research and development
needs of smaller drug and medical device companies, since 1991. Mr. Pisik
retired from Abbott Laboratories in 1989 after 21 years serving in several
executive capacities, including Vice President of Quality Assurance & Regulatory
Affairs, and Vice President of Scientific Affairs & Quality Assurance
(International). Mr. Pisik earned his B.S. in Pharmacy from Fordham University
in 1954 and his M.S. in Pharmaceutical Administration from Long Island
University in 1966.

James T. O'Brien, age 59, has served as a director of the Company since 1994.
Mr. O'Brien has served as President and Chief Executive Officer of O'Brien
Marketing and Communications since September 1996, and as Chairman of Access
Corporation, an employment data base company, since October 1991. From 1989
through 1991, he served as President and Chief Operating Officer of Elan
Corporation, plc, a pharmaceutical drug delivery company, where he was
responsible for Elan's worldwide operations and subsidiaries. From 1986 to 1989,
Mr. O'Brien was President and Chief Executive Officer of O'Brien
Pharmaceuticals, Inc., a company of which he was the founder. Prior to forming
O'Brien Pharmaceuticals, Inc., Mr. O'Brien held several positions with the
Revlon Health Care Group, most recently as President of its ethical products
division, which included USV Laboratories and the Armour Pharmaceutical Company.
Mr. O'Brien is also a director of Carrington Laboratories, Inc. and Palatin
Technologies, Inc., both of which are publicly traded companies. Mr. O'Brien
received his B.S. in Business Administration from Benedictine College in 1960.

<PAGE> 5

Boyd J. Poulsen, Ph.D., age 64, has served as a director of the Company since
1994. Dr. Poulsen has been an independent pharmaceutical management consultant
since April 1994. Prior to retiring from Syntex (U.S.A.) Inc. ("Syntex") in
April 1994, he served for 29 years with the Research Division of Syntex. From
1989 to 1994, he held the position of Senior Vice President and was responsible
for all pharmaceutical development. He was also a member of the Syntex
Management Committee and operating management for Syntex. Dr. Poulsen received
his B.S. in Pharmacy from Idaho State College in 1956 and his Ph.D. from the
University of Wisconsin, Madison in 1963.

Robert K. deVeer, Jr., age 52, has served as a director of the Company since
February 1998. Mr. deVeer has been involved in private investment management
since January 1997. From May 1995 to December 1996, Mr. deVeer was Managing
Director and head of Lehman Brothers' Industrial Group. He held various
positions with CS First Boston from 1973 to 1995, including Vice President
(London office), Head of Project Finance (New York office) and Managing Director
of the Industrial Group. Mr. deVeer received his B.A. in Economics from Yale
University and an M.B.A. from Stanford University.

Charles D. Ebert, Ph.D., age 44, has served as Senior Vice President, Research
and Development of the Company since 1992, and as Vice President, Research and
Development from 1987 to 1992. Prior to joining TheraTech, he was Director of
Research and Development at Cygnus Therapeutic Systems from 1986 to 1987 where
he directed the development of transdermal products. During the period from 1984
to 1986, he was Senior Research Scientist and Manager in the Systems Development
Group of Ciba-Geigy Corporation, responsible for the development of new
transdermal, gastrointestinal and mucosal drug delivery systems. Dr. Ebert
received his B.S. in Biology from the University of Utah in 1977 and his Ph.D.
in Pharmaceutics from the University of Utah in 1981.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL
NOMINEES NAMED.

THE BOARD OF DIRECTORS AND COMMITTEES

All directors will hold office until the next Annual Meeting of
Stockholders and until their respective successors have been elected or
appointed or until their earlier resignation or removal. There are no family
relationships among any of the directors or executive officers of the Company.

The Company's Board met four times during 1997. None of the directors
attended fewer than 75 percent of all the meetings of the Board and those
committees of the Board on which he served. Each director who is not an employee
of the Company receives a $1,000 fee for each Board meeting attended and $250
for each Committee meeting attended, plus reimbursement of out-of-pocket
expenses. Additionally, non-employee directors of the Company are eligible to
receive grants of options under the TheraTech, Inc. 1992 Amended and Restated
Directors' Stock Option Plan (the "Directors' Plan"). Pursuant to the Directors'
Plan, each non-employee director is granted an option to purchase 11,250 shares
of Common Stock, or such other number of shares as the Board may determine, upon
the date each such director becomes a member of the Board. Thereafter, during
each year that a non-employee director continues to serve as a director, such
director is granted an option to purchase 8,000 shares of Common Stock or such
other number of shares as the Board may determine.

The Audit Committee currently consists of Mr. Crocker and Mr. Pisik. The
Audit Committee, which met two times in 1997, reviews management's plans for
engaging the Company's independent auditors and recommends to the Board the
engagement of the firm of certified public accountants to audit the financial
statements of the Company for the fiscal year for which they are appointed. The
Audit Committee also monitors the effectiveness of the audit effort and the
Company's financial and accounting organization.

<PAGE> 6

The Compensation and Stock Option Committee (the "Compensation
Committee"), which currently consists of Mr. O'Brien and Dr. Poulsen, met one
time in 1997. Its functions are to establish and review the compensation
policies applicable to the Company's executive officers and to administer the
TheraTech, Inc. 1992 Amended and Restated Employees' Stock Option Plan (the
"Employees' Plan") and the 1993 Employee Stock Purchase Plan, including
determining the individuals to receive options and the terms of such options.
The Directors' Plan is administered by the Board.

The Nominating Committee, which currently consists of Mr. O'Brien and
Dr. Poulsen, met one time in 1997. Its functions include: reviewing information
relating to the nomination of directors; interviewing, nominating and
recommending individuals for membership on the Company's Board and committees
thereof; and performing such other functions as the Board may delegate. The
Nominating Committee will consider nominees for directors nominated by
stockholders upon submission in writing to Alexander L. Searl, Secretary, at the
Company's address set forth above.

RATIFICATION AND APPROVAL OF AMENDMENT TO THE COMPANY'S
1992 AMENDED AND RESTATED EMPLOYEES' STOCK OPTION PLAN

The Company's stockholders are being asked to act upon a proposal to
approve the action of the Board amending the Employees' Plan. Ratification of
the proposal requires the affirmative vote of a majority of the shares of Common
Stock cast on the proposal in person or by proxy.

A general description of the principal terms of the Employees' Plan, the
amendments approved by the Board, and the purpose of such amendments are set
forth below. The text of the Employees' Plan, as proposed to be amended, is
attached to this Proxy Statement as Exhibit A. Unless marked otherwise, proxies
received will be voted FOR the approval and ratification of the proposed
amendments to the Employees' Plan.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION AND APPROVAL
OF THE PROPOSED AMENDMENTS TO THE EMPLOYEES' PLAN.

GENERAL DESCRIPTION

The Employees' Plan was adopted by the Board and approved by the
stockholders in February 1992. The purpose of the Employees' Plan is to attract
and retain qualified personnel and to provide additional incentives to the
Company's employees, officers, independent contractors and consultants. The
Employees' Plan was amended at the 1996 Annual Meeting of Stockholders to
increase the number of shares of Common Stock authorized for issuance thereunder
by 750,000 shares, and the Employees' Plan currently limits such number to
2,535,000 shares. All share amounts included herein have been adjusted to
reflect the Company's 3-for-2 stock split effected June 28, 1996. As of April
15, 1998, options were outstanding under the Employees' Plan to purchase
2,272,663 shares at a weighted average exercise price of $8.94 per share. As of
April 15, 1998, the last reported sale price of the Company's Common Stock, as
reported on the Nasdaq National Market, was $9.875 per share.

The Employees' Plan provides for the granting to employees (including
officers) of incentive stock options ("ISOs") within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), and for the
granting to employees (including officers) and consultants of non-qualified
stock options. The Company cannot grant an ISO if as a result of the grant the
optionee would have the right in any calendar year to exercise for the first
time one or more ISOs for shares having an aggregate fair market value (under
all plans of the Company and determined for each share as of the date that the
option to purchase the share was granted) in excess of $100,000.

<PAGE> 7

The Employees' Plan is administered by the Compensation Committee, which
determines the terms of the options granted under the Employees' Plan, including
the exercise price, the number of shares subject to the option and vesting.
Generally, options previously granted under the Employees' Plan become
exercisable (i) at a rate of 20 percent of the shares subject to the option one
year after grant and subsequently 20 percent of the shares subject to the option
per year, (ii) three years after the date of grant, or (iii) immediately upon
grant.

The exercise price of all ISOs granted under the Employees' Plan must
equal at least the fair market value of the Common Stock of the Company on the
date of grant. The exercise price of any ISO granted to an optionee who owns
stock possessing more than 10 percent of the voting power of the Company's
outstanding capital stock must equal at least 110 percent of the fair market
value of the Common Stock on the date of grant. The exercise price of all
non-qualified stock options granted under the Employees' Plan may not be less
than 85 percent of the fair market value of the Common Stock on the date of
grant. Payment of the purchase price upon exercise of any option granted under
the Employees' Plan may be made in cash, by Common Stock held by the optionee,
by promissory note, or by such other consideration as the Board or Compensation
Committee may determine.

PROPOSED AMENDMENT

Increase in Available Shares. The Board believes that the attraction and
retention of highly qualified personnel are essential to the Company's continued
growth and success and that an incentive plan such as the Employees' Plan is
necessary for the Company to remain competitive in its compensation practices.
In the absence of an increase in the available shares, only a limited number of
shares are available for future option grants under the Employees' Plan. For
these reasons, the Board has approved an amendment to the Employees' Plan such
that the maximum number of shares of Common Stock which will be available for
the issuance of Common Stock under the Employees' Plan in any calendar year will
be one and one-half percent (1-1/2%) of the total issued and outstanding shares
of the Common Stock as of January 1 of such year. In addition, until the
Employees' Plan terminates pursuant to its terms, there will also be available
for the issuance of Common Stock a basket totaling five hundred thousand
(500,000) shares of Common Stock. Notwithstanding the foregoing annual and
one-time limitations, until the Employees' Plan terminates pursuant to its
terms, such plan is further limited such that no more than an aggregate of one
million seven hundred thousand (1,700,000) shares of Common Stock will be
available for issuance of Common Stock thereunder. The limitations set forth in
the amendments, as discussed above, are applicable effective January 1, 1998 and
will be in addition to any prior limitation imposed under the Employees' Plan
with respect to options granted prior to such date.

Transferability. Under the current Employees' Plan, options granted
thereunder may not be transferred other than by will or the laws of descent and
distribution and may only be exercised by the original optionee during his or
her lifetime. Pursuant to recently adopted and proposed changes in applicable
tax and securities laws, stock options may be transferable under certain
circumstances in order to achieve estate planning objectives. The Board believes
that the transferability of options under the Employees' Plan, consistent with
applicable laws for estate planning purposes, is beneficial for recipients of
such options. For this reason, the Company proposes an amendment to the
Employees' Plan whereby options granted under the Employees' Plan may be
transferred (i) by will or the laws of descent and distribution, (ii) by a
qualified domestic relations order (in the case of a non-qualified option), or
(iii) by approval of the Board or Compensation Committee under certain
circumstances. Such circumstances include the transfer of options to an
immediate family member either directly or indirectly through the use of a
trust, partnership or limited liability company. No consideration may be given
for any such transfer and the stock option agreement or amendment pursuant to
which any options may be transferred must be approved by the Board or the
Compensation Committee. Any transferee of an option will be subject to all terms
and conditions of the option as were applicable to the original optionee prior
to any permitted transfer.

<PAGE> 8

Other. The amendments to the Employees' Plan also include other
immaterial changes or technical corrections.

OPTION GRANTS

The following table sets forth, as of April 15, 1998, the number of
shares of Common Stock issuable pursuant to options granted under the Employees'
Plan as to (i) the Company's Chief Executive Officer and its four other most
highly compensated executive officers, (ii) all current executive officers as a
group, (iii) all non-executive officer employees as a group, and (iv) each other
person who holds 5 percent or more of all options outstanding under the
Employees' Plan. As of April 15, 1998, the executive officer options listed
below had a weighted average exercise price of $8.64 per share.

<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITION SUBJECT TO OPTIONS
------------------------------------------------------------------ -------------------
<S> <C>
Dinesh C. Patel, Ph.D.
Chairman, President and Chief Executive Officer .................. 175,002

Charles D. Ebert, Ph.D.
Senior Vice President, Research and Development ................ 136,000

Alexander L. Searl
Senior Vice President and Chief Financial Officer .............. 200,502

Norman A. Mazer, M.D., Ph.D.
Vice President, Clinical Research .............................. 89,751

William R. Good, Ph.D.
Vice President, Development .................................... 138,125

Ramesh N. Acharya, Ph.D.
Vice President, Oral Products Research ......................... 151,250

Donald E. Mantle
Vice President, Quality Control/Quality Assurance .............. 128,752

Raymond S. Varnackas
Vice President, Technical Operations ........................... 151,252

Executive Officer Group (11 Persons) ............................ 1,383,636

Non-Executive Officer Employee Group (164 Persons) .............. 889,027
</TABLE>

<PAGE> 9

CERTAIN FEDERAL TAX INFORMATION

The following summary of the federal income tax consequences to
participants and the Company of the acquisition and disposition of shares under
the Employees' Plan does not purport to be complete and participants in the
Employees' Plan should refer to the applicable provisions of the Code. The
summary does not address other taxes that may affect an individual such as state
and local income taxes, federal and state estate, inheritance and gift taxes and
foreign taxes. Furthermore, the tax consequences described below are complex and
subject to change, and a taxpayer's personal situation may be such that some
variation of the described rules applies. Participants should consult with their
own tax advisors before the acquisition or disposition of any shares under the
Employees' Plan.

The grant of either an ISO or a non-qualified stock option under the
Employees' Plan will not result in any federal income tax consequences to the
optionee or to the Company. Upon exercise of a non-qualified stock option, the
optionee is subject to income taxes at the rate applicable to ordinary
compensation income on the difference between the exercise price of the option
and the fair market value of the shares on the date of exercise. This income is
subject to withholding for federal income and employment tax purposes. The
Company is entitled to an income tax deduction in the amount of the income
recognized by the optionee. Any gain or loss on the optionee's subsequent
disposition of the shares will receive long- or short-term capital gain or loss
treatment depending on how long the shares are held following exercise. The
Company does not receive a tax deduction for any such gain. Special
considerations apply to optionees who are reporting persons for purposes of
Section 16(a) of the Securities Exchange Act of 1934, as amended, and such
optionees should consult their tax advisors with respect to the tax treatment of
such options.

An optionee recognizes no federal taxable income upon exercising an ISO
(subject to the alternative minimum tax rules discussed below), and the Company
receives no deduction at the time of exercise. In the event of disposition of
stock acquired upon exercise of an ISO, the tax consequences depend upon how
long the optionee has held the shares. If the optionee does not dispose of the
shares within two years after the ISO was granted, nor within one year after the
ISO was exercised and shares were purchased, the optionee will recognize a
long-term capital gain (or loss) equal to the difference between the sale price
of the shares and the exercise price. The Company is not entitled to any
deduction under these circumstances.

If the optionee fails to satisfy either of the foregoing holding
periods, he or she must recognize ordinary income in the year of the disposition
(referred to as a "disqualifying disposition"). The amount of such ordinary
income generally is the lesser of (i) the difference between the amount realized
on disposition and the exercise price, or (ii) the difference between the fair
market value of the stock on the exercise date and the exercise price. Any gain
in excess of the amount taxed as ordinary income will be treated as a long- or
short-term capital gain, depending on how long the stock was held. The Company,
in the year of the disqualifying disposition, is entitled to a deduction equal
to the amount of ordinary income recognized by the optionee.

The "spread" under an ISO, i.e., the difference between the fair market
value of the shares at exercise and the exercise price, is classified as an item
of tax preference in the year of exercise for purposes of the alternative
minimum tax.

OTHER

In the event the amendment to the Employees' Plan is not approved by a
majority of the shares of Common Stock cast at the Annual Meeting in person or
by proxy, the Company will review and pursue the alternatives available to it
for providing incentive compensation to its employees, through stock options and
other means, subject to the listing requirements of the Nasdaq National Market
and applicable corporate, securities and tax laws.

<PAGE> 10

RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

Ernst & Young LLP has served as the Company's independent auditors since
1987 and has been recommended by the Board as the Company's independent auditors
for 1998. In the event that ratification of this selection of auditors is not
approved by a majority of the shares of Common Stock cast at the Annual Meeting
in person or by proxy, management will review its future selection of auditors.
Unless marked to the contrary, proxies received will be voted FOR ratification
of the appointment of Ernst & Young LLP as the independent auditors for the
current year.

Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement, if they desire to do
so, and they are expected to be available to respond to appropriate questions.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF
ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR 1998.

EXECUTIVE OFFICERS

The executive officers of the Company are as follows:

Alexander L. Searl, age 55, joined TheraTech in March 1995 as Senior Vice
President, Chief Financial Officer and Secretary. Prior to joining TheraTech,
Mr. Searl was Executive Vice President and Treasurer of Salt Lake City-based
American Stores Company from 1992 to February 1995. Previously, he served 21
years at Hercules Incorporated. In his more recent positions at Hercules, from
1991 to 1992, Mr. Searl served as Vice President, Finance and Control at
Hercules Chemical Specialties Co., and from 1974 to 1991, in the company's
corporate offices in various capacities, most recently as Vice President and
Treasurer. Mr. Searl earned his B.A. in Business and Sociology from Syracuse
University in 1966, as well as his M.B.A. from Syracuse University in 1972.

Ramesh N. Acharya, Ph.D., age 56, joined TheraTech in February 1994 as Vice
President, Oral Drug Products Research and Development. Prior to joining
TheraTech, in June 1991 Dr. Acharya founded Oramed, Inc. and served as President
through January 1994. In an earlier position he served as Vice President and
General Manager of Ipharm, Inc., a Division of Lyphomed, Inc. Dr. Acharya
received his M.S. in Pharmacy from the University of Pacific in 1967 and his
Ph.D. in Pharmacy from the University of Illinois at Chicago in 1971.

<PAGE> 11

Warren B. Dudley, age 43, joined TheraTech in November 1997 as Vice President,
Marketing and Sales. Prior to joining TheraTech, Mr. Dudley was employed by
Pharmacia & Upjohn from 1977 to 1997 in a number of sales, sales management,
marketing and marketing management positions. His most recent position was
Therapeutic Area Director of the Inflammation Pharma Business unit. Mr. Dudley
received his B.S. in Biology from the University of Northern Iowa.

Deborah A. Eppstein, Ph.D., age 49, joined TheraTech in March 1992 as Vice
President, Corporate Development. From 1978 until joining TheraTech, Dr.
Eppstein was employed by Syntex Corporation, most recently as Director of
Business Development for Biotechnology and Drug Delivery. Dr. Eppstein received
her B.A. from Grinnell College in 1970 and her Ph.D. in Biochemistry from the
University of Arkansas in 1975.

William R. Good, Ph.D., age 57, joined TheraTech in June 1993 as Vice President,
Product Development. From 1970 until joining the Company, Dr. Good was employed
at Ciba-Geigy Corporation, most recently as Executive Director of Pharmaceutical
Research, where he was responsible for the development of several products
including Transderm Nitro(TM) and Estraderm(TM). He has been Adjunct Professor
of Pharmaceutics at the University of Utah since 1983. Dr. Good received his
B.S. in Chemistry and his M.S. in Chemical Physics from the University of Akron
in 1967 and 1970, respectively, and his Ph.D. in Polymer Physical Chemistry from
the University of Freiburg (West Germany) in 1979.

Donald E. Mantle, age 58, has served as Vice President, Quality Control/Quality
Assurance since January 1994 and as Director of Quality Control/Quality
Assurance since September 1992. Prior to joining TheraTech, Mr. Mantle was
employed at Schering Laboratories (Key Pharmaceuticals, Inc.) from 1980 to 1992
and held several technical positions which included Manager of Quality
Assurance, Manager of Quality Control, and Senior Scientist of Technical
Services. He received his B.S. in Chemistry from Illinois College in 1961.

Norman A. Mazer, M.D., Ph.D., age 45, has served as Vice President, Clinical
Research, of the Company since January 1993. Dr. Mazer joined TheraTech in July
1987 as Principal Scientist, Research and Development, and was named Director of
Clinical Research in May 1990. Prior to joining TheraTech, Dr. Mazer spent more
than four years at Sandoz Pharmaceutical Co. (Basle, Switzerland). Dr. Mazer
received his S.B. in Physics from the Massachusetts Institute of Technology in
1973, his M.D. from Harvard Medical School in 1978 and his Ph.D. in Physics from
the Massachusetts Institute of Technology in 1978. In addition to his duties at
TheraTech, Dr. Mazer is an Adjunct Professor in the Department of Pharmaceutics,
University of Utah, where he teaches a graduate course entitled, "A Systems
Approach to Drug Delivery."

Ichiro Nakatomi, Ph.D., age 47, joined TheraTech in January 1991 as Vice
President of Pacific Rim and Far East and was named President of TheraTech
Japan, Inc. in 1993. Prior to joining TheraTech, Dr. Nakatomi served as
Licensing Coordinator, responsible for worldwide licensing, and as Manager of
Product Planning and Development of Hisamitsu Pharmaceutical Co., Tokyo, Japan.
Dr. Nakatomi received his B.S. in Pharmacy from Science University of Tokyo,
Japan in 1974, and his M.S. in Pharmacology and Medicinal Chemistry from
Northeastern University in 1978. He received his Ph.D. in Pharmacology from the
Gifu Pharmaceutical University in 1983.

Raymond S. Varnackas, age 55, has served as Vice President, Technical Operations
of the Company since September 1992. From 1972 until joining TheraTech, Mr.
Varnackas was employed by Ciba-Geigy Corporation in various management positions
relating to the manufacture of a variety of pharmaceutical dosage forms,
including transdermal drug delivery systems. In 1986, Mr. Varnackas was named
Associate Director of Technical Services. Mr. Varnackas received his B.S. in
Biology from the University of Dayton in 1964.

<PAGE> 12

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information that has been provided to the
Company with respect to beneficial ownership of the Company's Common Stock as of
March 31, 1998 for (i) each person known by the Company to own beneficially more
than five percent of the Company's Common Stock, (ii) each executive officer
named in the Summary Compensation Table below, (iii) each director and nominee
for director of the Company and (iv) all directors, nominees for director and
executive officers of the Company, as a group. Unless otherwise indicated, the
address of each person or entity listed is TheraTech, Inc., 417 Wakara Way, Salt
Lake City, Utah 84108.

<TABLE>
<CAPTION>
NUMBER PERCENTAGE
OF BENEFICIALLY
SHARES OWNED (1)
---------- ------------
<S> <C> <C>
Chancellor LGT Asset Management, Inc.
1166 Avenue of the Americas
New York, New York 10036 (2) .................. 4,186,700 19.8%
Dinesh C. Patel, Ph.D. (3) .................... 2,862,928 13.4
William I. Higuchi, Ph.D. (3)(4) .............. 2,333,034 11.0
Gary L. Crocker (3) ........................... 555,100 2.6
Charles D. Ebert, Ph.D. (3) ................... 178,500 *
Alexander L. Searl (3) ........................ 147,251 *
William R. Good, Ph.D. (3) .................... 120,125 *
Norman A. Mazer, M.D., Ph.D. (3) .............. 89,751 *
Jay J. Pisik (3) .............................. 46,750 *
James T. O'Brien (3) .......................... 42,750 *
Boyd J. Poulsen, Ph.D. (3) .................... 41,250 *
Robert K. deVeer .............................. 1,500 *
All directors and executive officers as a group
(17 persons) (3) .............................. 7,450,354 32.9%
</TABLE>

- ----------
*Less than one percent.

(1) Percentage beneficially owned is based on 21,154,953 total shares of
Common Stock outstanding as of March 31, 1998.

(2) These shares are owned as of December 31, 1997 collectively by (i)
Chancellor LGT Asset Management, Inc., a California corporation, whose
principal business is providing investment advisory services to
registered investment companies and institutional investors, (ii) its
wholly-owned subsidiary, Chancellor LGT Trust Company, a New York State
chartered trust company whose principal business is providing
institutional investment management services and (iii) LGT Asset
Management, Inc., the holding company for Chancellor LGT Asset
Management, Inc. Chancellor LGT Asset Management, Inc. is a wholly-owned
subsidiary of LGT Asset Management, Inc. LGT Asset Management, Inc. is
an indirect wholly-owned subsidiary of Liechtenstein Global Trust, AG.
Liechtenstein Global Trust, AG which has numerous worldwide affiliates,
is controlled by The Prince of Liechtenstein Foundation, a parent
organization for the various business enterprises of the Princely Family
of Liechtenstein.

(3) Includes options, both vested and which will become vested during the
60-day period following March 31, 1998, in the following amounts: Dr.
Patel, 175,002 shares; Dr. Higuchi, 34,000 shares; Mr. Crocker, 37,000
shares; Dr. Ebert, 173,500 shares; Mr. Searl, 140,501 shares; Dr. Good,
115,625 shares; Dr. Mazer, 89,751 shares; Mr. Pisik, 45,250 shares; Mr.
O'Brien, 39,250 shares; Dr. Poulsen, 39,250 shares; and all directors
and executive officers as a group, 1,516,636 shares.

(4) Dr. Higuchi, an existing director of the Company, will continue to serve
in such capacity until the Annual Meeting.

<PAGE> 13

EXECUTIVE COMPENSATION

COMPENSATION TABLES

The following tables set forth certain information concerning
compensation of and stock options held by the Company's Chief Executive Officer
and its four other most highly compensated executive officers (hereinafter
referred to as the "named executive officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
YEAR SALARY BONUS OPTIONS COMPENSATION
---- -------- -------- -----------------------------
<S> <C> <C> <C> <C> <C>
Dinesh C. Patel, Ph.D ............. 1997 $262,664(1) $ 60,754 37,500 $ 37,348(2)(3)(4)
Chairman, President and Chief ... 1996 220,132 30,000 37,000 29,817
Executive Officer ............... 1995 199,894 48,000 37,500 29,296

Charles D. Ebert, Ph.D ............ 1997 179,158 35,000 18,500 15,548(2)(4)
Senior Vice President, .......... 1996 155,398 30,000 18,500 17,896
Research and Development ........ 1995 142,870 25,000 18,750 17,166

Alexander L. Searl ................ 1997 172,379(1) 34,500 18,500 24,943(2)(3)(4)
Senior Vice President and ........ 1996 149,612 30,000 18,500 21,376
Chief Financial Officer .......... 1995 101,231(5) 20,000 163,502 17,229

Norman A. Mazer, M.D., Ph.D ....... 1997 150,473 21,500 10,000 11,204(2)(4)
Vice President, Clinical Research 1996 131,702 20,000 10,000 13,574
1995 120,955 15,000 10,500 13,017

William R. Good, Ph.D ............. 1997 144,579(1) 21,500 10,000 16,539(2)(3)(4)
Vice President, Development ..... 1996 126,542 20,000 10,000 13,030
1995 116,425 15,000 10,500 12,571
</TABLE>

- ----------
(1) Includes amounts deferred, at the option of the named executive officer,
into the Company's deferred compensation plan in the following amounts:
Dr. Patel, $12,826; Mr. Searl, $7,750; and Dr. Good, $5,375.

(2) Includes matching contributions paid by the Company in 1997 on behalf of
the named executive officers under the Company's 401(k) retirement plan
in the following amounts: Dr. Patel, $7,528; Dr. Ebert, $7,528; Mr.
Searl, $5,030; Dr. Mazer, $7,124; and Dr. Good, $3,328.

(3) Includes matching contributions paid by the Company in 1997 on behalf of
the named executive officers under the Company's deferred compensation
plan in the following amounts: Dr. Patel, $9,620; Mr. Searl, $5,813; and
Dr. Good, $4,031.

(4) Includes premiums paid by the Company in 1997 for life insurance
policies covering the named executive officers in the following amounts:
Dr. Patel, $20,200; Dr. Ebert, $8,020; Mr. Searl, $14,100; Dr. Mazer,
$4,080; and Dr. Good, $9,180.

(5) Mr. Searl commenced employment at the Company in March 1995.

<PAGE> 14

OPTION GRANTS IN LAST FISCAL YEAR

The following table provides certain information with respect to stock
options granted to the named executive officers in 1997. In addition, as
required by Securities and Exchange Commission (the "SEC") rules, the table sets
forth the hypothetical gains that would exist for the respective options based
on assumed rates of annual compound price appreciation during the option term.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED ANNUAL
NUMBER OF OPTIONS RATE OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM (1)
OPTIONS IN FISCAL PRICE PER EXPIRATION -----------------------
NAME GRANTED YEAR SHARE DATE 5% 10%
- ----------------------------- ------------ ---------- --------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Dinesh C. Patel, Ph.D .... 10,243 2.3% $ 9.763 12/15/02 $ 27,629 $ 61,052
27,257 6.0 8.875 12/15/02 66,834 147,686
----------- ----------- ----------- -----------
37,500 8.3 94,463 208,738

Charles D. Ebert, Ph.D ... 18,500 4.1 8.875 12/15/07 103,257 261,673
Alexander L. Searl ....... 18,500 4.1 8.875 12/15/07 103,257 261,673
Norman A. Mazer, M.D.,Ph.D 10,000 2.2 8.875 12/15/07 55,814 141,445
William R. Good, Ph.D .... 10,000 2.2 8.875 12/15/07 55,814 141,445
</TABLE>

- ----------
(1) Potential realizable value is determined by applying an amount equal to
the fair market value on the date of grant to the stated annual
appreciation rate compounded annually for the remaining term of the
option, subtracting the exercise price at the end of the period and
multiplying the remaining number by the number of shares subject to the
option. Actual gains, if any, on stock option exercise and Common Stock
holdings are dependent upon a number of factors, including the future
performance of the Common Stock, overall stock market conditions, and
the timing of option exercises, if any. There can be no assurance that
the amounts reflected in this table will be achieved.

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

The following table sets forth certain information with respect to stock
options exercised by the named executive officers during 1997, including the
aggregate value of gains on the date of exercise. In addition, the table sets
forth the number of shares covered by stock options as of December 31, 1997 and
the value of "in-the-money" stock options, which represents the positive spread
between the exercise price of a stock option and the year-end market price of
the shares subject to such option on December 31, 1997.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES OPTIONS AT FY-END MONEY OPTIONS AT FY-END (1)
ACQUIRED VALUE ----------- ------------- ----------- -------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dinesh C. Patel, Ph.D .... 150,000 $1,312,500 175,002 -- $ 65,911 $ --
Charles D. Ebert, Ph.D ... 30,000 230,625 173,500 471,754 --
Alexander L. Searl ....... -- -- 110,500 90,002 59,999 90,002
Norman A. Mazer, M.D.,Ph.D 18,000 174,813 89,751 -- 21,002 --
William R. Good, Ph.D .... -- -- 115,625 22,500 -- --
</TABLE>

- ----------
(1) Calculated on the basis of the last reported sale price per share of
$8.00 for the Company's Common Stock on the Nasdaq National Market on
December 31, 1997.

<PAGE> 15

REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE

Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
report and the Performance Graph shall not be deemed to be incorporated by
reference into any such filings.

The Company's executive compensation policies and programs developed by
the Board seek to achieve two fundamental goals: (i) to increase continually the
Company's performance and stockholder value by linking a portion of executive
officer compensation to Company financial performance, and (ii) to reward
superior executive officers with pay incentives adequate to retain them in the
future in the face of considerable competition for executive talent within the
drug delivery and biotechnology industries.

Compensation for each of the Company's executive officers generally
consists of a base salary, an annual bonus and long-term incentive compensation
in the form of stock option grants. Information obtained from available surveys
of executive compensation in the biotechnology industry is used to determine
total compensation levels. Contingent upon the fulfillment of performance
factors discussed below, the Compensation Committee then awards a bonus in the
form of cash and/or stock options at the end of the fiscal year to bring a given
executive officer's compensation to what the Board believes is an appropriate
level.

The Compensation Committee of the Board has been constituted to ensure a
clear and centralized focus on all aspects of executive compensation. In
addition to administering the Employees' Plan, the Compensation Committee is
authorized by the Board, among other things, to establish and review annually
the general compensation policies applicable to the Company's executive
officers, including the relationship of Company financial performance to
executive compensation and the basis for the Chief Executive Officer's
compensation during each fiscal year. The Compensation Committee is also
authorized to review and approve the level of compensation paid to the Chief
Executive Officer and the Company's other executive officers during each fiscal
year. The focus on bonus and stock option compensation reflects the Compensation
Committee's commitment to reward the accomplishments of specific goals and
contributions.

The Compensation Committee met in December 1997 to evaluate the
performance and set the incentive compensation payable to the Chief Executive
Officer and the Company's other executive officers and employees for the 1998
fiscal year. In general, the performance factors utilized by the Compensation
Committee to evaluate bonuses for the 1997 fiscal year and 1998 salary levels
for the Company executive officers are quantifiable and include, but were not
limited to, the following: (1) attainment of Company earnings objectives; (2)
new product introductions during 1997; (3) progress of research and development
programs; (4) signing new research and development agreements; (5) the officer's
overall individual performance in his or her position and relative contribution
during the year; and (6) the Board's desire to retain the executive officer in
the face of considerable competition for executive talent within the industry.
The Board, and the Compensation Committee on a prospective basis, may modify the
foregoing criteria or select other performance factors with respect to other
executive bonus awards for a given fiscal year.

Based on its evaluation of these factors, the Compensation Committee
believes that the Company's executive officers are committed to achieving
positive long-term financial performance and enhanced stockholder value, and
that the compensation policies and programs discussed in this report have
motivated the Company's executive officers to work toward these long-term goals
oriented to increasing stockholder value.

<PAGE> 16

In evaluating the performance and setting the bonus compensation of the
Chief Executive Officer, the Compensation Committee considered specifically the
following factors: Dr. Patel's leading role in 1997 in managing the Company's
relationships with key strategic partners including Procter & Gamble
Pharmaceuticals, Inc., SmithKline Beecham, Eli Lilly, Astra and University
Medical, and the Company's significant progress in product development in
cooperation with those partners; Dr. Patel's continued management
responsibilities as Chairman, President and Chief Executive Officer of a public
company with over 230 employees; the attainment of specific personal goals on
select corporate objectives as defined by the Compensation Committee; and Dr.
Patel's overall performance as Chairman, President and Chief Executive Officer
during 1997.

No member of the Compensation Committee is a former or current officer
or employee of the Company.

Compensation Policy Regarding Deductibility. The Company is required to
disclose its policy regarding qualifying executive compensation for
deductibility under Section 162(m) of the Internal Revenue Code of 1986, as
amended, which provides that, for purposes of the regular income tax and the
alternative minimum tax, the otherwise allowable deduction for compensation paid
or accrued with respect to a covered employee of a publicly-held corporation is
limited to no more than $1 million per year. For the fiscal year ended December
31, 1997, no executive officer of the Company received $1 million in total
compensation, nor does the Company anticipate that compensation payable to any
executive officer will exceed $1 million for fiscal 1998.

Compensation and Stock Option Committee

James T. O'Brien
Boyd J. Poulsen, Ph.D.

April 22, 1998

14
<PAGE> 17

PERFORMANCE GRAPH

The following chart compares the change in the cumulative total
stockholder return on the Company's Common Stock since January 1, 1993 through
the fiscal year ended December 31, 1997, with the cumulative total return on the
CRSP Total Return Index for The Nasdaq Stock Market (U.S. Companies) and the
Nasdaq Total Return Industry Index for Pharmaceutical Stocks. The comparison
assumes $100 was invested on January 1, 1993 in the Company's Common Stock and
in each of the foregoing indices and assumes reinvestment of dividends. The
stock price performance shown on the graph below is not necessarily indicative
of future price performance.

[PERFORMANCE GRAPH APPEARS HERE]

<TABLE>
<CAPTION>
Nasdaq
The Nasdaq Stock Pharmaceutical
TheraTech, Inc. Market (U.S.) Stocks
<S> <C> <C> <C>
01/01/93 100 100 100
03/31/93 84 102 72
06/30/93 89 104 76
09/30/93 91 113 82
12/31/93 100 115 89
03/31/94 91 110 73
06/30/94 85 105 63
09/30/94 87 114 71
12/31/94 63 112 67
03/31/95 72 122 72
06/30/95 85 140 84
09/30/95 102 157 105
12/31/95 114 159 123
03/31/96 154 166 128
06/30/96 141 180 124
09/30/96 108 186 127
12/31/96 120 195 123
03/31/97 112 185 117
06/30/97 114 218 126
09/30/97 102 255 142
12/31/97 87 240 127
</TABLE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS

During 1997, the Compensation Committee established levels of
compensation for the Company's executive officers. Mr. O'Brien and Dr. Poulsen
currently serve as members of the Compensation Committee of the Company's Board.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company during 1997 was not a party to any transaction, nor did it
have any relationship, requiring disclosure hereunder pursuant to applicable
regulations under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), except the following:

<PAGE> 18

During 1997, the Company loaned $73,227 to Charles D. Ebert, Ph.D., the
Company's Senior Vice President, Research and Development, pursuant to a
promissory note bearing interest at the rate of 8.0 percent. The principle and
interest on such note were repaid in full in February 1998.

During 1997, the Company loaned $72,676 to Ichiro Nakatomi, Ph.D., Vice
President of Pacific Rim and Far East and President of TheraTech Japan, Inc.,
pursuant to a promissory note bearing interest at the rate of 8.0 percent. The
note is due in November 1998.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's officers and
directors and persons who own more than ten percent of the Company's Common
Stock (collectively, "Reporting Persons") to file reports of ownership and
changes in ownership with the SEC. Reporting Persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.

Based solely on its review of the copies of such forms received or
written representations from certain Reporting Persons that no Forms 5 were
required, the Company believes that all the Reporting Persons complied with all
applicable filing requirements.

STOCKHOLDER PROPOSALS

To be considered for presentation at the Annual Meeting of Stockholders
to be held in 1999, a stockholder proposal must be received by Alexander L.
Searl, Secretary, TheraTech, Inc., 417 Wakara Way, Salt Lake City, Utah 84108,
no later than December 24, 1998.

OTHER MATTERS

The Board knows of no other business which will be presented at the
Annual Meeting. If any other business is properly brought before the Annual
Meeting, it is intended that proxies in the enclosed form will be voted in
respect thereof in accordance with the judgments of the persons voting the
proxies.

It is important that the proxies be returned promptly and that your
shares be represented.

Stockholders are urged to fill in, sign and promptly return the
accompanying form of proxy in the enclosed envelope.

By Order of the Board of Directors

/s/DINESH C. PATEL
----------------------------------
Dinesh C. Patel, Ph.D.
Chairman, President and Chief
Executive Officer

Salt Lake City, Utah
April 22, 1998

<PAGE> 19

Exhibit A

THERATECH, INC.
1992 AMENDED AND RESTATED
EMPLOYEES' STOCK OPTION PLAN

1. Establishment, Purpose, and Definitions.

(a)The 1992 Employees' Stock Option Plan (the "Original Plan") of
TheraTech, Inc., a Delaware corporation (the "Company"), was adopted by the
Board of the Company (the "Board") and approved by the stockholders in February
1992. The Original Plan, as subsequently amended by the Board, is referred to as
the 1992 Amended and Restated Employees' Stock Option Plan (the "Plan"), as set
forth herein. Unless otherwise provided by the Board or Committee (as defined in
paragraph 2(a) below), all amendments included within the Plan, including the
most recent amendments which were adopted effective January 1, 1998, shall
become operative with respect to the Plan from and after the effective date of
such amendments.

(b)The purpose of the Plan is to provide a means whereby eligible
individuals (as defined in paragraph 4 below) ("Participants") can acquire
common stock of the Company (the "Stock"). The Plan provides employees
(including officers who are employees) of the Company and of its Affiliates an
opportunity to purchase shares of Stock pursuant to options which may qualify as
incentive stock options (referred to as "incentive stock options") under Section
422 of the Internal Revenue Code, as amended (the "Code"), and employees,
officers, directors, independent contractors, and consultants of the Company and
of its Affiliates an opportunity to purchase shares of Stock pursuant to options
which are not described in Section 422 or 423 of the Code (referred to as
"non-qualified stock options"). The Plan also provides for the transfer or sale
of Stock to eligible individuals in connection with the performance of services
for the Company or its Affiliates.

(c)The term "Affiliates" as used in the Plan means parent or subsidiary
corporations, as defined in Sections 424(e) and (f) of the Code (but
substituting "the Company" for "employer corporation"), including parents or
subsidiaries which become such after adoption of the Plan.

2. Administration of the Plan.

(a)The Plan shall be administered by the Board. The Board may delegate
the responsibility for administering the Plan to a committee of the Board, under
such terms and conditions as the Board shall determine (the "Committee"). If
established, the Committee shall be constituted in accordance with any
applicable requirements of Rule 16b-3 or otherwise under Section 16 of the
Securities Exchange Act of 1934, as amended, to allow for the maximum exemption
provided thereunder. Subject to the foregoing, the Board may increase the size
of the Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, or fill
vacancies however caused.

(b)The Board or Committee shall determine which eligible individuals (as
defined in paragraph 4 below) shall be granted options under the Plan, the
timing of such grants, the terms thereof (including any restrictions on the
Stock), and the number of shares for which an option or options shall be granted
to a Participant.

(c)The Board or Committee may amend the terms of any outstanding option
granted under the Plan, but any amendment which would adversely affect a
Participant's rights under an outstanding option shall not be made without the
Participant's written consent. The Board or Committee may, with the
Participant's written consent, cancel any outstanding stock option or accept any
outstanding stock option in exchange for a new option.

<PAGE> 20

(d)The Board or Committee shall also determine which eligible
individuals (as defined in paragraph 4 below) shall be issued Stock under the
Plan, the timing of such grants, the terms thereof (including any restrictions),
and the number of shares to be granted. The Stock shall be issued for such
consideration (if any) as the Board or Committee deems appropriate. Stock issued
subject to restrictions shall be evidenced by a written agreement (the
"Restricted Stock Purchase Agreement"). The Board or Committee may amend any
Restricted Stock Purchase Agreement, but any amendment which would adversely
affect a Participant's rights to the Stock shall not be made without his or her
written consent.

(e)The Board or Committee shall have the sole authority, in its absolute
discretion to adopt, amend, and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan, to construe and
interpret the Plan, the rules and the regulations, and the instruments
evidencing options or Stock granted under the Plan and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
All decisions, determinations, and interpretations of the Board or Committee
shall be binding on all Participants.

3. Stock Subject to the Plan.

(a)The maximum number of shares of Stock which shall be available for
the grant of options or the issuance of Stock under the Plan to eligible
individuals for any calendar year during any part of which the Plan is in effect
shall be one and one-half percent (1-1/2%) of the total issued and outstanding
shares of the Stock as of January 1 of such year. In addition to the foregoing,
until the Plan terminates pursuant to paragraph 8, there shall also be available
for the grant of options or the issuance of Stock under the Plan to eligible
individuals a total of five hundred thousand (500,000) shares of Stock.
Notwithstanding the foregoing, until the Plan terminates pursuant to paragraph
8, no more than one million seven hundred thousand (1,700,000) shares of Stock
shall be available for the grant of options or the issuance of Stock under the
Plan. The limitations set forth in this subparagraph (a) shall apply effective
January 1, 1998 and shall be in addition to any prior limitation imposed under
the Plan with respect to options granted prior to such date. If an option is
surrendered (except surrender for shares of Stock) or for any other reason
ceases to be exercisable in whole or in part, the shares which were subject to
such option but as to which the option had not been exercised shall continue to
be available under the Plan.

(b)If there is any change in the Stock subject to the Plan, the Stock
subject to a Restricted Stock Purchase Agreement or the Stock subject to any
option granted under the Plan, through merger, consolidation, reorganization,
recapitalization, reincorporation, stock split, stock dividend (in excess of two
percent (2%) of the outstanding capital stock of the Company), or other change
in the corporate structure of the Company, appropriate adjustments may be made
by the Board or Committee in order to preserve but not to increase the benefits
to the individual, including adjustments to the aggregate number and kind of
shares subject to the Plan or to a Restricted Stock Purchase Agreement and the
number and kind of shares and the price per share subject to outstanding options
on a basis consistent with adjustments made to the shares issued and outstanding
outside of the Plan.

4. Eligible Individuals.

Individuals who shall be eligible to have granted to them the options or
Stock provided for by the Plan shall be such employees, officers, independent
contractors, and consultants of the Company or an Affiliate as the Board or
Committee, in its discretion, shall designate from time to time. Notwithstanding
the foregoing, only employees of the Company or an Affiliate (including officers
who are bona fide employees) shall be eligible to receive incentive stock
options. Directors who are employees of the Company shall be eligible to receive
options under the Plan.

5. The Option Price.

The exercise price of the Stock covered by each incentive stock option
shall be not less than the per share fair market value of such Stock as
determined in good faith by the Board or Committee as of

<PAGE> 21

the date the option is granted ("Fair Market Value"). The exercise price of the
Stock covered by each non-qualified stock option shall be not less than 85% of
the per share Fair Market Value. Notwithstanding the foregoing, in the case of
an incentive stock option granted to a person possessing more than ten percent
(10%) of the combined voting power of the Company or an Affiliate, the exercise
price shall be not less than 110 percent (110%) of the per share Fair Market
Value on the date the option is granted. The exercise price of an option shall
be subject to adjustment to the extent provided in paragraph 3(b) above.

6. Terms and Conditions of Options.

(a)Each option granted pursuant to the Plan will be evidenced by a
written Stock Option Agreement executed by the Company and the person to whom
such option is granted.

(b)The Board or Committee shall determine the term of each option
granted under the Plan; provided, however, that the term of any option shall not
be for more than ten (10) years and that, in the case of an incentive stock
option granted to a person possessing more than ten percent (10%) of the
combined voting power of the Company or an Affiliate, the term of each incentive
stock option shall be for no more than five (5) years.

(c)To the extent the aggregate Fair Market Value (determined as of the
time such option is granted) of the Stock with respect to which incentive stock
options are exercisable for the first time by an eligible employee in any
calendar year (under the Plan and any other plans of the Company or its
Affiliates) exceeds $100,000, such incentive stock options shall be treated as
non-qualified stock options.

(d)The Stock Option Agreement may contain such other terms, provisions,
and conditions as may be determined by the Board or Committee (not inconsistent
with the Plan). If an option, or any part thereof, is intended to qualify as an
incentive stock option, the Stock Option Agreement shall contain those terms and
conditions which are necessary to so qualify it as an incentive stock option.

7. Terms and Conditions of Stock Purchase and Bonus.

(a)Each sale or grant of Stock pursuant to the Plan will be evidenced by
either a written Restricted Stock Purchase Agreement executed by the Company and
the person to whom such Stock is sold or granted or a written Restricted Stock
Bonus Agreement executed by the Company and the person to whom such Stock is
granted.

(b)The Restricted Stock Purchase Agreement or Restricted Stock Bonus
Agreement may contain such other terms, provisions, and conditions as may be
determined by the Board or Committee (not inconsistent with this Plan),
including not by way of limitation, restrictions on transfer, forfeiture
provisions, repurchase provisions, and vesting provisions.

(c)At the time of each sale or grant of Stock or options pursuant to the
Plan, a copy of the Plan shall be delivered by the Company to the Participant to
whom such Stock is sold or option granted.

8. Amendment, Suspension, or Termination of the Plan.

(a) The Board, without further approval of the stockholders, may at any
time amend, suspend or terminate the Plan as it deems advisable; provided,
however, except as provided in paragraph 3(b) above, the Board shall not amend
the Plan with respect to incentive stock options in the following respects
without the consent of the stockholders then sufficient to approve the Plan with
respect to incentive stock options in the first instance:

(i) To increase the maximum number of shares of Stock subject to
incentive stock options issued under the Plan; or

<PAGE> 22

(ii) To change the designation or class of persons eligible to receive
incentive stock options under the Plan.

(b) No option may be granted nor any Stock issued under the Plan during
any suspension or after the termination of the Plan, and no amendment,
suspension, or termination of the Plan shall, without the affected Participant's
consent, alter or impair any rights or obligations under any option previously
granted under the Plan. The Plan shall terminate on February 26, 2002, unless
previously terminated by the Board pursuant to this paragraph 8.

9. Transferability.

No option granted under the Plan shall be transferable by the
Participant other than (i) by will or by the laws of descent and distribution;
(ii) in the case of a non-qualified stock option, pursuant to a qualified
domestic relations order (as defined in the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder); or
(iii) pursuant to approval by the Board or Committee on the terms set forth
below. The Board or Committee may, in its discretion, authorize all or a portion
of the options granted or to be granted to a Participant to be transferred by
such Participant to (i) the spouse, children or grandchildren of the Participant
("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit
of such Immediate Family Members, or (iii) a partnership or limited liability
company in which such Immediate Family Members are the only partners or members,
provided that (x) there may be no consideration for any such transfer, (y) the
stock option agreement pursuant to which such options are granted or an
amendment thereto must be approved by the Board or Committee and must expressly
provide for transferability in a manner consistent with this paragraph 9, and
(z) subsequent transfers of transferred options shall be prohibited except those
in accordance with this paragraph 9. Following an authorized transfer, any such
options shall continue to be subject to the same terms and conditions as were
applicable immediately prior to such transfer, provided that for purposes of the
Plan the term "Participant" shall be deemed to include a permitted transferee,
as applicable. If a Participant who is an employee of the Company, ceases to be
employed by the Company, any options transferred in accordance with this
paragraph 9 shall be exercisable by the permitted transferee only to the extent
such options were exercisable by the original Participant at the time
immediately prior to the Participant ceasing to be an employee, and all other
terms and conditions of such options shall be effective with respect to any
permitted transferee to the same extent such terms and conditions were
applicable to the original Participant. All options shall, subject to the terms
of the Plan, during the Participant's lifetime, be exercisable only by the
Participant or by a permitted transferee. If an option or options are
transferred by a Participant in the manner provided herein, the Participant
shall remain subject to any withholding taxes for the amount of the income
realized upon exercise of the options, and the Company shall have no obligation
to provide notice to the permitted transferee of the termination of the option
due to termination of the original Participant's employment or the death,
disability or retirement of such original Participant. Further, the Company
shall be under no obligation to file a registration statement under the
Securities Act of 1933, as amended, with respect to the shares issuable upon
exercise of any options that have been transferred in the manner provided
herein. Stock subject to a Restricted Stock Purchase Agreement shall be
transferable only as provided in such Agreement. The Plan and all options to
purchase Stock and all shares of Stock issued hereunder shall be binding upon,
and shall inure to the benefit of, any successor corporation to the Company.

10. Payment Upon Exercise.

Payment of the purchase price upon exercise of any option granted under
this Plan shall be made in cash; provided, however, that the Board or Committee,
in its sole discretion, may permit a Participant to pay the option price in
whole or in part (i) with shares of Stock owned by the Participant; (ii) by
delivery on a form prescribed by the Board or Committee of an irrevocable
direction to a securities broker approved by the Board or Committee to sell
shares and deliver all or a portion of the proceeds to the Company in payment
for the Stock; (iii) by delivery of the Participant's promissory note with such

<PAGE> 23

recourse, interest, security, and redemption provisions as the Board or
Committee in its discretion determines appropriate; or (iv) in any combination
of the foregoing or in any other manner deemed acceptable by the Board or
Committee in its sole discretion. Any Stock used to exercise options shall be
valued at its Fair Market Value on the date of the exercise of the option.

11. Withholding.

No Stock shall be granted or sold under the Plan to any Participant
until the Participant has made arrangements acceptable to the Board or Committee
for the satisfaction of federal, state, and local income and social security tax
withholding obligations incident to either the receipt of Stock under the Plan,
the lapsing of restrictions applicable to such Stock, or the failure to satisfy
the conditions for treatment as incentive stock options under applicable tax
law. The Board or Committee, in accordance with procedures established by the
Board or Committee, may require Participants to utilize Stock (whether acquired
through exercise of a stock option or otherwise) to satisfy federal, state, and
local income and social security tax withholding obligations.

12. Restrictions on Transfer of Shares.

The Stock acquired pursuant to the Plan shall be subject to such
restrictions and agreements regarding sale, assignment, encumbrances, or other
transfer as are in effect among the stockholders of the Company at the time such
Stock is acquired, as well as to such other restrictions as the Board or
Committee shall deem advisable.

13. Merger or Consolidation; Corporate Transactions.

If there should be any change in a class of stock subject to the Plan,
through merger, consolidation, reorganization, recapitalization,
reincorporation, stock split, stock dividend (in excess of two percent (2%) of
the Company's outstanding capital stock) or other change in the corporate
structure of the Company, the Company shall make appropriate adjustments in the
number of shares and in the price per share of outstanding option grants.

In the event of any of the following transactions (a "Corporate
Transaction"):

(a)a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the
state of the Company's incorporation, or

(b)any reverse merger in which the Company is the surviving entity but
in which fifty percent (50%) or more of the Company's outstanding voting stock
is transferred to holders different from those who held the stock immediately
prior to such merger, outstanding options shall be assumed or equivalent options
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation, unless such successor corporation does not agree to
assume the options or to substitute equivalent options, in which case in lieu of
such assumption or substitution, Participants shall have the right to exercise
their options as to all of the optioned stock, including shares as to which
their options would not otherwise be exercisable. If the option becomes fully
exercisable in lieu of assumption or substitution in the event of a Corporate
Transaction, the Board shall notify Participants that such options shall be
fully exercisable for a period of fifteen (15) days from the date of such notice
and will terminate upon the expiration of such period.

14. Information.

During the period that any option is outstanding, the Company shall
provide Participants access, on an annual or other periodic basis, to such
financial information regarding the Company as the Company prepares for
distribution to its stockholders.

<PAGE> 24

PROXY

THERATECH, INC.

417 WAKARA WAY
SALT LAKE CITY, UTAH 84108
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING ON MAY 27, 1998

The undersigned hereby authorizes and appoints DINESH C. PATEL, Ph.D. and
ALEXANDER L. SEARL, or either of them, each with full power of substitution, as
Proxies to represent and vote all the shares of the Common Stock of TheraTech,
Inc. (the "Company") which the undersigned holds and is entitled to vote,
together with all other powers which the undersigned would posses if personally
present, at the Annual Meeting of Stockholders of the Company to be held at the
Salt Lake City Marriott-University Park Hotel, 480 Wakara Way, Salt Lake City,
Utah 84108 on Wednesday, May 27, 1998, and any adjournments or postponements
thereof.

SEE REVERSE SIDE: IF YOU WISH TO VOTE FOR APPROVAL OF THE THREE PROPOSALS
LISTED ON THE REVERSE SIDE, SIGN AND DATE ON THE REVERSE SIDE. YOU NEED NOT MARK
ANY BOXES.

SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE

[ X ] Please
mark
votes
as in
this
example.

1. To elect the seven (7) directors listed below. The directors elected will
serve until the next Annual Meeting of Stockholders and until their
respective successors have been elected or appointed or until their earlier
resignation or removal.

NOMINEES: Dinesh C. Patel, Ph.D., Gary L. Crocker, Jay J. Pisik,
James T. O'Brien, Boyd J. Poulsen, Ph.D., Robert K. deVeer, Jr., and
Charles D. Ebert, Ph.D.

[ ] FOR [ ] WITHHELD
ALL FROM ALL
NOMINEES NOMINEES

[ ] ______________________________________
For all nominees except as noted above

2. To ratify and approve an amendment to the TheraTech, Inc. 1992 Amended and
Restated Employees' Stock Option Plan.
For [ ] Against [ ] Abstain [ ]

3. To ratify the appointment of Ernst & Young LLP as the Company's independent
auditors for 1998.

For [ ] Against [ ] Abstain [ ]

Shares represented by this proxy will be voted as directed by the
stockholder. If no such directions are indicated, the Proxies will have
authority to vote FOR the election of all director nominees as set forth herein
and FOR proposals 2 and 3. In their discretion, the Proxies are authorized to
vote upon such other business as may properly come before the Annual Meeting.
The Board of Directors recommends a vote FOR the election of all director
nominees and FOR proposals 2 and 3.

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
REPLY ENVELOPE.

Please sign exactly as your name appears herein. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.

Signature:________________________________ Date:__________________________
Signature:________________________________ Date:__________________________