LXR BIOTECHNOLOGY INC, S-3, 1997-01-17

LXR BIOTECHNOLOGY INC
S-3, 1997-01-17
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 17, 1997

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LXR BIOTECHNOLOGY INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 68-0282856
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>

1401 MARINA WAY SOUTH
RICHMOND, CALIFORNIA 94804
(510) 412-9100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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L. DAVID TOMEI, PH.D.
CHIEF EXECUTIVE OFFICER
LXR BIOTECHNOLOGY INC.
1401 MARINA WAY SOUTH
RICHMOND, CALIFORNIA 94804
(510) 412-9100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------

COPIES TO:

BARRY J. KRAMER, ESQ.
JODY HUCKO, ESQ.
ROBERT A. FREEDMAN, ESQ.
FENWICK & WEST LLP
TWO PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94306
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.

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

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

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(1) PRICE(1) REGISTRATION FEE
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Common Stock $0.0001 par value per share.... 6,504,630 $2.60 $16,912,038 $5,125
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee, pursuant to Rule 457(c) promulgated under the Securities
Act of 1933, based on the average of the high and low prices of the Common
Stock on the American Stock Exchange on January 15, 1997.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2

PROSPECTUS

6,504,630 SHARES

LXR BIOTECHNOLOGY INC.
COMMON STOCK
------------------------

This prospectus ("Prospectus") covers certain shares (the "Shares") of
Common Stock, $0.0001 par value per share (the "Common Stock"), of LXR
Biotechnology Inc. ("LXR," the "Company" or the "Registrant") held or acquirable
by certain persons ("Selling Stockholders") named in this Prospectus. The
Company will not receive any of the proceeds from the sale of the Shares. The
Shares covered hereby include 5,810,735 shares of Common Stock held by Selling
Stockholders and up to an additional 693,895 shares of Common Stock issuable
upon exercise of warrants and other rights to purchase Common Stock (the
"Warrants") held by Selling Stockholders. See "Selling Stockholders" for
information with respect to Shares held by or acquirable by the Selling
Stockholders. This Prospectus does not cover the issuance or transfer of the
Warrants themselves. Rather, it covers dispositions of the shares of Common
Stock issuable upon exercise of the Warrants.

All of the shares of Common Stock offered hereby are being sold by the
Selling Stockholders named herein under "Selling Stockholders." Such shares are
being offered on a continuous basis pursuant to Rule 415 under the Securities
Act of 1933, as amended. No underwriting discounts, commissions or expenses are
payable or applicable in connection with the sale of such shares by the Selling
Stockholders. The Common Stock of LXR is quoted on the American Stock Exchange
under the symbol "LXR." The Shares offered hereby will be sold from time to time
at then prevailing market prices, at prices relating to prevailing market prices
or at negotiated prices. On January 15, 1997, the closing price of the Common
Stock on the American Stock Exchange was $2.625 per share.

An aggregate of 6,194,593 shares of Common Stock offered hereby have been
or will be (in the case of Warrants) issued by the Company to certain Selling
Stockholders or their transferors pursuant to Subscription Agreements dated as
of December 11, 12, and 31, 1996, a Sales Agency Agreement dated December 11,
1996 and certain Investment Representation Letters dated December 11, 12, and
31, 1996. An additional 310,037 shares of Common Stock offered hereby have been
or will be issued by the Company at various times to certain other Selling
Stockholders. The shares of Common Stock offered hereby represent approximately
29 percent of the Company's currently outstanding Common Stock (assuming the
Warrants are exercised).

This Prospectus may be used by the Selling Stockholders or by any
broker-dealer who may participate in sales of the Common Stock covered hereby.
------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 4, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON
STOCK OFFERED HEREBY.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<S> <C> <C> <C> <C>
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<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS PROCEEDS TO SELLING
PUBLIC AND COMMISSIONS COMPANY(1) STOCKHOLDERS(1)
<S> <C> <C> <C> <C>
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Per Share............... see text above none none see text above
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Total................... see text above none none see text above
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(1) The shares of Common Stock offered hereby will be sold from time to time at
the then prevailing market prices or at negotiated prices. The Company will
pay the expenses of registration estimated at $130,000.

The date of this Prospectus is , 1997.
<PAGE> 3

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission located at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at Seven World Trade Center, 13th Floor, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials can also be
obtained from the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. In addition, the Commission maintains a Web site on the Internet that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the Commission's Web site is: http://www.sec.gov. The Company's Common Stock
is quoted for trading on the American Stock Exchange and reports, proxy and
information statements and other information concerning the Company may be
inspected at the offices of the American Stock Exchange, 86 Trinity Place, New
York, New York 10006.

The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended, (the "Securities Act") with
respect to the shares of Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits filed therewith. Statements contained in
this Prospectus as to the contents of any contract or any 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, without
charge, at the offices of the Commission 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 at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon the payment of the fees prescribed by
the Commission.

No dealer, salesperson or other person has been authorized to give any
information or to make any representation not 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. This Prospectus does not constitute an
offer to sell or solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such
offer or solicitation in such jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information herein is correct as of any time subsequent
to the date hereof or that there has been no change in the affairs of the
Company since such date.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed with the Commission are incorporated herein
by reference:

(a) The Company's annual report on Form 10-KSB filed with the
Commission for the fiscal year ended December 31, 1995, as amended by the
Company's Form 10-KSB/A-1 filed with the Commission on April 24, 1996.

(b) The Company's current report on Form 8-K dated January 23, 1996,
filed with the Commission.

(d) The Company's quarterly report on Form 10-QSB filed with he
Commission for the fiscal quarter ended June 30, 1996.

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(e) The Company's quarterly report on Form 10-QSB filed with the
Commission for the fiscal quarter ended September 30, 1996.

(f) The Company's current report on Form 8-K dated December 16, 1996,
filed with the Commission.

(g) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed under the Exchange Act,
and any amendment or report filed for the purpose of updating such
description.

All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the initial
filing of the Registration Statement of which this Prospectus forms a part and
prior to the termination of this offering shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents.

The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom this Prospectus is delivered, upon
written or oral request of such person, a copy of any and all of the information
that has been incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Requests should be directed to Leah Wong,
Investor Relations, LXR Biotechnology Inc., 1401 Marina Way South, Richmond,
California 94804; telephone number (510) 412-9100; fax number (510) 412-9109.

Any statement contained in any document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this Prospectus.

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THE COMPANY

The principal executive offices of the Company are located at 1401 Marina
Way South, Richmond, California 94804, its telephone number is (510) 412-9100
and its fax number is (510) 412-9109. In this Prospectus, the term "LXR" or
"Company" refers to LXR Biotechnology Inc., a Delaware corporation, and
subsidiaries, unless the context otherwise requires.

RISK FACTORS

Investors should consider carefully the following factors, in addition to
the other information contained in this Prospectus, before purchasing the shares
of Common Stock offered hereby.

In addition to the historical information contained herein, the discussion
in this Prospectus contains certain forward-looking statements that involve
risks and uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed in this Prospectus. Factors that could
cause or contribute to such differences include those discussed below.

EARLY STAGE OF DEVELOPMENT; REGULATORY AND TECHNOLOGICAL UNCERTAINTIES

LXR is at an early stage of development. All of the Company's potential
pharmaceutical products are currently in research and development, and no
revenues from the sale of pharmaceutical products have been generated to date.
Substantially all of the Company's resources have been and for the foreseeable
future will continue to be dedicated to the Company's research programs and the
development of potential pharmaceutical products emanating therefrom. There can
be no assurance that the Company will be able to develop a commercial product
from these projects. The Company began Phase I clinical trials of its Lexirin
drug candidate in August 1996. All of the Company's other drug candidates are in
preclinical development. While the Company believes that the results attained to
date in such preclinical studies support further research and development of
these potential pharmaceutical products, results attained in preclinical studies
are not necessarily indicative of results that will be obtained in human
clinical testing. Potential investors should note that the Company has not
previously met its forecasted schedule for introducing products into clinical
trials.

The potential pharmaceutical products currently under development by the
Company will require significant additional research and development and
preclinical testing and will require extensive clinical testing prior to
submission of any regulatory application for commercial use. The Company's
potential pharmaceutical products are subject to the risks of failure inherent
in the development of pharmaceutical products based on new technologies. These
risks include the possibilities that the Company's novel approach to diagnosis
and therapy will not be successful; that any or all of the Company's potential
pharmaceutical products will be found to be unsafe, ineffective or toxic, or
otherwise fail to receive necessary regulatory clearances; that the products, if
safe and effective, will be difficult to manufacture on a large scale or
uneconomical to market; that proprietary rights of third parties will preclude
the Company from marketing such products; or that third parties will market
superior or equivalent products. As a result, there can be no assurance that the
Company's research and development activities will result in any commercially
viable pharmaceutical products.

The Company's pharmaceutical product development efforts are based on the
novel scientific approach of therapeutic apoptosis modulation, which has not
been widely studied. There is, therefore, substantial risk that this approach
will not prove to be successful. Moreover, the Company is applying this novel
approach to discover new treatments for a variety of diseases that are also the
subject of research and development efforts by other companies. Biotechnology is
a relatively new field in which there is a potential for extensive technological
innovation in relatively short periods of time. The Company's competitors may
succeed in developing technologies or products that are more effective than
those of the Company. Rapid technological

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change or developments by others may result in the Company's technology or
proposed products becoming obsolete or noncompetitive.

SHARES ELIGIBLE FOR FUTURE SALE

As of January 1, 1997, the Company had approximately 21,780,175 shares of
Common Stock outstanding and options, warrants and other rights outstanding to
purchase up to approximately 2,533,961 shares of the Company's Common Stock. Of
the outstanding shares, 5,201,350 were issued in the Company's December 1996
private placement at a price of $2.00 per share and an additional 534,385 shares
were issued for services rendered in connection with the private placement.
These 5,735,735 shares, together with 458,858 shares underlying warrants issued
in connection with the private placement and 310,037 additional shares
outstanding or to be issued, are being registered pursuant to this Registration
Statement. Upon effectiveness of this Registration Statement, the holders of
such shares will be able to publicly sell such shares at any time in their sole
discretion, subject to certain limited exceptions. As the aforementioned
6,504,630 shares to be newly registered are equal to approximately 29 percent of
the Company's currently outstanding Common Stock (assuming all shares underlying
warrants and other rights offered hereby are outstanding), and the Company's
stock has historically had a low trading volume, the sale of these shares on the
open market could have a material adverse effect on the market price of the
Company's Common Stock. In addition, pursuant to a registration statement which
became effective on May 8, 1996 (the "Prior Registration Statement"), 10,756,992
of the Company's outstanding shares and 1,079,847 shares issuable upon the
exercise of then outstanding warrants were registered for public resale. The
holders of such shares may sell such shares at any time in their sole
discretion, subject to certain exceptions, most notably that approximately
2,160,992 of such shares are subject to the standoff described below. The
Company believes that, as of January 1, 1997, a total of approximately 4,052,155
of such shares have been sold under the Prior Registration Statement. Certain
holders of the company's securities have entered into a market standoff
agreement (the "Standoff") currently applicable to approximately 3,568,065
shares of Common Stock and/or options therefore, whereby they have agreed not to
sell any such securities until February 1, 1998 without the prior written
consent of Sunrise Securities Corp. This restriction may be released at any time
in the sole discretion of Sunrise Securities Corp. Since the Company's stock has
historically had a low trading volume, the sale of additional shares on the open
market under the Prior Registration Statement, upon release of the Standoff, or
otherwise, could have a material adverse effect on the market price of the
Company's Common Stock. Additionally, future sales of the Company's Common Stock
by the Company's pre-financing stockholders under Rule 144 of the Securities Act
of 1933, as amended, or otherwise, could also have a material adverse effect on
the market price of the Company's Common Stock.

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

The Company will require substantial additional funds to continue the
research and development programs and preclinical and clinical testing of its
potential pharmaceutical products and conduct marketing of any pharmaceutical
products that may be developed. The Company's capital requirements depend on
numerous factors, including the progress of its research and development
programs, the progress of preclinical and clinical testing, the time and costs
involved in obtaining regulatory approvals, the cost of filing, prosecuting,
defending and enforcing any patent claims and other intellectual property
rights, the cost of obtaining technological rights, competing technological and
market developments, changes in the Company's existing research relationships,
the ability of the Company to establish collaborative arrangements, the
development of commercialization activities and arrangements, the purchase of
additional capital equipment and legal expenses incurred in connection with
defending certain lawsuits that have been brought against the Company (described
below). Based upon its current plans, the Company believes it has sufficient
funds to meet the Company's operating expenses and capital requirements through
the end of 1997. However, there can be no assurance that changes in the
Company's research and development plan or other events affecting the Company's
operating expenses will not result in the expenditure of funds before the
estimated time.

The Company will need to raise substantial additional capital to fund its
operations, including the development of its lead compounds. The Company intends
to seek such additional funding through public or

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private financings or collaborative or other arrangements with corporate
partners. There can be no assurance, however, that additional financing will be
available from any of these sources, or if available, will be available on
acceptable terms. If adequate funds are not available, the Company may be
required to delay, scale back or eliminate one or more of its research and
development programs, including but not limited to the development of its lead
compounds, or to obtain funds through entering into arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies or potential products that the Company
would not otherwise relinquish. Failure to obtain such needed funds could have a
material adverse effect on the Company's operations.

HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY

The Company has incurred significant operating losses since its inception
in 1992. At September 30, 1996, the Company had an accumulated deficit of
approximately $21.4 million. The Company will be required to conduct significant
research, development, testing and regulatory compliance activities that,
together with projected general and administrative expenses, are expected to
result in significant operating losses for at least the next several years.
Revenues, if any, that the Company may receive in the next few years will be
limited to payments from Perkin-Elmer under the License Agreement dated as of
August 29, 1996 between the Company, on behalf of itself and Optical Analytic,
Inc., a wholly-owned subsidiary of the Company, and Perkin-Elmer Corporation
(the "Perkin-Elmer Agreement"), payments under the Company's collaboration
agreement with Boehringer Mannheim GmbH ("Boehringer") (see "Material Changes"),
payments under research or product development relationships that the Company
may hereafter establish, payments under license agreements that the Company may
hereafter establish, sales of products that the Company may acquire in the
future and interest payments. There can be no assurance, however, that the
Company will (i) receive any additional funds under the Perkin-Elmer Agreement,
as Perkin-Elmer may terminate such agreement at any time in its discretion, (ii)
be successful in its collaboration with Boehringer or that such relationship
will be expanded beyond its current limited scope, (iii) be able to establish
any additional relationships, (iv) enter into any such license agreements, or
(v) acquire any products in the future. The Company's ability to achieve
profitability depends upon its ability to successfully complete either alone or
with others, development of its potential products, conduct clinical trials,
obtain required regulatory approvals, and manufacture and market its products or
to enter into license agreements on acceptable terms. In the event that the
Company does enter into any future license agreements, such license agreements
may adversely affect the Company's profit margins on its potential products. The
Company may never achieve significant revenue or profitable operations.

DEPENDENCE ON QUALIFIED PERSONNEL AND CONSULTANTS

The Company is highly dependent on the principal members of its management
and scientific staff, including L. David Tomei, Ph.D., its current Chief
Executive Officer and former President; Mark J. Tomei, its Chief Financial
Officer and Secretary and former Chief Operating Officer; and Samuil R. Umansky,
Ph.D., Vice President, Molecular Pharmacology. Dr. L. David Tomei and Mark J.
Tomei are brothers. Mr. Mark Tomei serves the Company as a consultant on an
exclusive basis. He is also employed by a major brokerage firm as a Senior Vice
President. The Company's loss of services of any of these persons or other
members of its staff could have a material adverse effect on the Company's
operations.

Additionally, the Company has only recently hired a new President and Chief
Operating Officer, Donald H. Picker, Ph.D. Dr. Picker has had no previous
relationship with the Company or its principals, and there can be no assurance
that this relationship will be successful.

The Company has entered into employment agreements with Drs. Tomei and
Picker, and a consulting agreement with Mark Tomei, however, any of them may
terminate his relationship with the Company at any time. The laws of the State
of California generally prohibit post-employment noncompetition covenants and,
therefore, none of the Company's employees is subject to any restriction on
competition in the future. Accordingly, there can be no assurance that any of
the Company's employees will remain with the Company or that, in the future,
these employees will not organize competitive businesses or accept employment
with companies competitive with the Company. In addition, the Company is
dependent on collaborators at research

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institutions and its advisors and consultants. Recruiting and retaining
qualified personnel, collaborators, advisors and consultants will be critical to
the Company's success. There is intense competition for such qualified personnel
in the area of the Company's activities, and there can be no assurance that the
Company will be able to continue to attract and retain such personnel necessary
for the development of the Company's business. The Company's planned activities
will require additional expertise in areas such as preclinical testing, clinical
trial management, regulatory affairs, manufacturing and marketing. Such
activities will require the addition of new personnel, including management, and
the development of additional expertise by existing management personnel. The
inability to acquire such services or to develop such expertise could have a
material adverse effect on the Company's operations.

DEPENDENCE ON OTHERS; COLLABORATIONS

The Company's strategy for the research, development and commercialization
of its potential pharmaceutical products may require the Company to enter into
various arrangements with corporate and academic collaborators, licensors,
licensees and others, in addition to those already established, and may
therefore be dependent upon the subsequent success of outside parties in
performing their responsibilities. For example, the Company has provided
Perkin-Elmer with significant exclusive rights to its SLDI product, and is
dependent on Perkin-Elmer to satisfactorily commercialize such product so that
the Company will receive remuneration for its efforts in this area. There can be
no assurance that Perkin-Elmer's efforts to commercialize this product will be
successful, or that the Company will receive any such remuneration. There can
also be no assurance that the Company will be able to establish additional
collaborative arrangements or license agreements that the Company deems
necessary or acceptable to develop and commercialize its potential products, or
that any of its collaborative arrangements or license agreements will be
successful. For example, the Company has recently entered into a collaboration
with Boehringer to jointly evaluate the development of Maspin. See "Material
Changes." There can be no assurance that such collaboration will be successful
or that the Company will enter into any further agreements with Boehringer.
Certain of the collaborative arrangements that the Company may enter into in the
future may place responsibility for preclinical testing and human clinical
trials and for preparing and submitting applications for regulatory approval for
potential products on the collaborative partner. Should a collaborative partner
fail to develop or commercialize successfully any potential product to which it
has rights, the Company's business may be adversely affected. In addition, there
can be no assurance that collaborators will not be pursuing alternative
technologies or developing products either on their own or in collaboration with
others, including the Company's competitors, as a means for developing
treatments for the diseases or disorders targeted by such partners'
collaborative programs with the Company.

LICENSES

The Company has licenses to technologies developed by various research
institutes and universities. Pursuant to the terms of those agreements, the
Company is obligated to make royalty payments on the sales, if any, of licensed
products and, in some instances, the Company is responsible for the costs of
filing and prosecuting patent applications. All of the Company's license
agreements require that the Company exercise diligence in bringing potential
products to market. Two of the Company's license agreements require that the
Company make payments that, in some instances, may be substantial, upon
completion of the following milestones occurring in the clinical trials and
regulatory approval of certain licensed products:

Under a license with Dana-Farber Cancer Institute, the Company is required
to pay milestone payments upon completion of a successful mid-point review of
Phase III clinical trials, and upon product approval in the first of the United
States, Japan, Australia, Sweden, the United Kingdom, France or Germany.

Pursuant to the terms of an exclusive (subject to certain exceptions)
worldwide license to certain technology from the UAB Research Foundation, the
Company is obligated for the payment of milestone payments upon the filing of an
Investigational New Drug application with the Food and Drug Administration, upon
successful completion of Phase II human clinical trials, upon the successful
completion of a mid-point review of Phase III human clinical trials and upon
successful approval of a licensed product in the United States.

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The license agreements generally expire upon the expiration of the
applicable patents, if any, or, in certain cases, on the earlier of 25 years
after the date of the agreement or the expiration of the applicable patents, if
any. Each agreement is terminable by either party, upon notice, if the other
party defaults in its obligations subject, in certain cases, to an applicable
cure period.

UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS

The Company's success depends on its ability to obtain patents and/or
appropriate licenses from third parties, to protect trade secrets, to operate
without infringing upon the proprietary rights of others and to prevent others
from infringing on the proprietary rights of the Company. As of December 31,
1996, the Company owned 62 United States and foreign patent applications and ten
additional allowed United States patent applications. The Company also had
exclusive rights to the technology covered in whole or in part by the claims in
eight issued United States patents and 11 pending United States and foreign
applications. The Company is in the process of re-evaluating its intellectual
property portfolio in light of its strategic direction. There can be no
assurance as to the breadth of protection that any such patents may afford the
Company. There can be no assurance that the Company will choose to prosecute to
allowance all of the pending patent applications or maintain all of the patents
now owned or licensed by the Company. Some of the Company's patent applications
do not cover compositions of matter, but rather relate only to the method of use
of specific compounds for certain disease indications, or to screening methods
for identifying compositions of matter. The scope of potential patent protection
for such methods is not as broad as it is for compositions of matter.

The patent position of biotechnology firms generally is highly uncertain,
involves complex legal and factual questions, and has recently been the subject
of much litigation. There is a substantial backlog of biotechnology patent
applications at the United States Patent and Trademark Office ("USPTO"), and no
consistent policy has emerged from the USPTO and the courts regarding the
breadth of claims allowed or the degree of protection afforded under
biotechnology patents. Additionally, the USPTO may request data demonstrating
efficacy of potential therapeutic agents. The need to provide such data, if
required, could delay or adversely affect the Company's ability to obtain patent
protection for any of its potential products.

There can be no assurance that any patent applications relating to the
Company's potential products or processes will result in patents being issued,
or that resulting patents, if any, will provide protection against competitors
who successfully challenge the Company's patents, obtain patents that may have
an adverse effect on the Company's ability to conduct business, or are able to
circumvent the Company's patent position. A substantial number of patents have
been applied for by and issued to other pharmaceutical, biotechnology and
biopharmaceutical companies. Although the Company has conducted database
searches to discover the existence of previous patents and to determine the
state of the art of its inventions, such searches are not conclusive. Based on
its analyses of the results of such searches, the Company has no knowledge of
any issued patents claiming the same subject matter as claimed in its pending
patent applications. However, it is possible such patents have issued and/or
that other parties have conducted research or made discoveries of compounds or
processes that preceded the Company's discoveries which could prevent the
Company from obtaining patent protection, or could narrow the scope of such
protection. The Company is aware of two cases where other parties have published
papers on subjects with respect to which the Company has claims in pending
patent applications. In April 1995, the Company and two other scientific groups
simultaneously published (in separate articles) the sequence of the BAK gene. In
July 1995, a third party published a paper regarding Fas(deltaTM) . Although
the Company believes that the priority dates of its patent applications relating
to BAK and Fas(deltaTM) are prior to the dates on which these other parties
made their discoveries, there can be no assurance of this. Thus, the impact of
the work done by these parties and possibly other parties cannot be assessed.
There can be no assurance that others will not independently develop
pharmaceutical products similar to or obsoleting those under development by the
Company, or duplicate any of the Company's products.

In view of the time delay in patent approval and secrecy afforded patent
applications, the Company does not know and is not able to determine if there
are patent applications belonging to others which have priority over
applications belonging to the Company. Moreover, portions or all of the
Company's patent applications could be rejected and there could be a material
adverse effect on the Company's business and future prospects

8
<PAGE> 10

if patents or prior art exist that were not uncovered through database searches
or if there are patent applications that have priority over any of the Company's
patent applications.

Other companies or institutions may have filed applications for, may have
been issued patents or may obtain additional patents and proprietary rights
relating to products or processes similar in function or effect to those of the
Company or products that treat conditions that may be treated by the Company's
potential products. At this time, the Company cannot predict whether or not
these patents, patent applications and/or proprietary rights will lead to the
development of products competitive with the Company's potential products. If
such competitive products are developed and successfully commercialized, they
could adversely affect the Company's ability to commercialize its potential
products. If the USPTO should determine that any issued or pending patents claim
the same subject matter as any of the Company's pending patent applications and
that the subject matter of such issued or pending patents was invented first,
the Company could be prevented from obtaining patent protection or the scope of
such protection could be narrowed.

The Company has filed patent applications that cover the Fas(deltaTM)
protein and the gene that encodes the protein. These applications have been
allowed by the USPTO. Researchers at the University of Alabama have also
identified the Fas(deltaTM)protein. LXR has obtained an exclusive license from
the UAB Research Foundation, an affiliate of the University of Alabama at
Birmingham ("UAB"), to UAB's rights to the protein and related developments. As
mentioned above, in July 1995, a third party published a paper regarding
Fas(deltaTM), and other parties may also have independently identified the
Fas(deltaTM) protein. The Company does not know whether any such other parties
have sought patent protection that could affect the Company's proprietary
position. By filing a patent application and obtaining an exclusive license to
the rights of UAB to Fas(deltaTM), the Company has sought to establish a
proprietary position with respect to Fas(deltaTM). However, in the event that
another party should obtain a patent covering Fas(deltaTM), the Company's patent
application may be denied and/or the scope of any patent that the Company may
receive in connection with Fas(deltaTM) may be limited by such other patent
protection. The Company will continue to assess its position in this field and
its patent position as information on work by others becomes available. The
Company's continued pursuit of this project depends upon obtaining and
maintaining a proprietary position and obtaining convincing evidence of the
therapeutic efficacy of Fas(deltaTM).

The Company's competitive position is also dependent upon unpatented trade
secrets. The Company is developing a substantial database of information
concerning its research and development. The Company has taken security measures
to protect its data and is in the process of exploring ways to enhance further
the security for its data. However, trade secrets are difficult to protect.
There can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets, that such trade secrets will not be
disclosed or that the Company can effectively protect its rights to unpatented
trade secrets. In an effort to protect its trade secrets, the Company has a
policy of requiring its employees, consultants, advisors and, when appropriate,
Scientific Advisory Board members to execute proprietary information and
invention assignment agreements upon commencement of employment or consulting
relationships with the Company. These agreements provide that all confidential
information developed or made known to the individual during the course of the
relationship must be kept confidential except in specified circumstances. There
can be no assurance, however, that these agreements will provide meaningful
protection for the Company's trade secrets or other proprietary information in
the event of unauthorized use or disclosure of confidential information.
Invention assignment agreements executed by Scientific Advisory Board members,
consultants and advisors may conflict with, or be subject to, the rights of
third parties with whom such individuals have employment or consulting
relationships.

The Company may be required to obtain licenses to patents or proprietary
rights of others. As the biotechnology industry expands and more patents are
issued, the risk increases that the Company's potential products may give rise
to claims that they infringe the patents of others. No assurance can be given
that any licenses required under any such patents or proprietary rights would be
made available on terms acceptable to the Company. If the Company does not
obtain such licenses, it could encounter delays in product market introductions
while it attempts to design around such patents, or could find that the
development, manufacture or sale of products requiring such licenses could be
foreclosed. Litigation may be necessary to defend against

9
<PAGE> 11

or assert claims of infringement, to enforce patents issued to the Company, to
protect trade secrets or know-how owned by the Company, or to determine the
scope and validity of the proprietary rights of others, and could result in
substantial costs to and diversion of effort by, and may have a material adverse
impact on, the Company. In addition, there can be no assurance that these
efforts by the Company will be successful.

NO MARKETING, SALES, CLINICAL TESTING OR REGULATORY COMPLIANCE ACTIVITIES

In view of the early stage of the Company and its research and development
programs, the Company has restricted hiring to scientists and a small
administrative staff and has made only a small investment in marketing, product
sales, clinical testing or regulatory compliance resources. If the Company
successfully develops any commercially marketable pharmaceutical products, it
may seek to enter joint venture, sublicense or other marketing arrangements with
parties that have an established marketing capability or it may choose to pursue
the commercialization of such products on its own. There can be no assurance,
however, that the Company will be able to enter into such marketing arrangements
on acceptable terms, if at all. Further, the Company will need to hire
additional personnel skilled in the clinical testing and regulatory compliance
process and in marketing or product sales if it develops pharmaceutical products
with commercial potential that it determines to commercialize itself. There can
be no assurance, however, that it will be able to acquire such resources or
personnel.

GOVERNMENT REGULATION AND PRODUCT APPROVAL

The United States Food and Drug Administration ("FDA") and comparable
agencies in state and local jurisdictions and in foreign countries impose
substantial requirements upon the testing, manufacturing, labeling,
distribution, and marketing of therapeutics and diagnostics through lengthy and
detailed laboratory and clinical human testing procedures, premarket approval or
clearance requirements, manufacturing standards, sampling activities and other
costly and time consuming procedures and requirements. Satisfaction of these
requirements typically takes several years or more (five to ten or more for a
drug or biological product) and varies substantially based upon the type,
complexity and technological novelty of the drug or diagnostic product.

The Company began Phase I clinical trials of its Lexirin drug candidate in
August 1996 at the East Bay AIDS Clinic of Alta Bates Medical Center in
Berkeley, California. There can be no assurance as to the results of such trial,
or whether or when the FDA will permit the Company to conduct additional trials
of Lexirin. There also can be no assurance as to whether or when the Company
will make filings with the FDA for the commencement of clinical trials of any
other potential product, or whether or when the Company will submit to the FDA
an application to market Lexirin or any other potential product.

In August 1996, the Company submitted to the FDA a 510(k) for use of
Cardiosol as a heart preservation solution. In November 1996, the Company
received a notice from the FDA that the 510(k) application was denied due to the
fact that the Company's formulation was considered materially different from the
formulation used in the original clinical trials of the solution conducted prior
to the Company's acquisition of Cardiosol. The Company intends to submit a
revised application for an IDE to initiate clinical studies with the revised
formulation by the end of the first quarter of 1997. The Company is also
currently preparing an IND to conduct clinical studies of Cardiosol for use as a
cardioplegia solution. There can be no assurance as to whether or when the FDA
will approve the Company's application for Cardiosol.

The Company has relied on scientific, technical, clinical, commercial and
other data supplied or disclosed by others, including its academic
collaborators, in obtaining the FDA's approval to begin Phase I clinical trials
of Lexirin and the Company may rely on such data in support of investigational
new drug applications ("INDs") to enter human clinical trials for its other
potential products, including the IND to conduct clinical studies of Cardiosol
for use as a cardioplegia solution that the Company currently is preparing.
Although the Company has no reason to believe that this information contains
errors or omissions of fact, there can be no assurance that there are no errors
or omissions of fact that would change materially the Company's view of the
future likelihood of FDA approval of INDs or of the commercial viability of
these potential products. There can be no assurance that clinical data from
studies performed by others will be available to the Company or

10
<PAGE> 12

acceptable to the FDA or other regulatory agencies in support of the Company's
applications for marketing approval, and the FDA may, among other things,
require the Company to collect additional data and conduct controlled clinical
studies prior to acceptance of any such applications.

The effect of compliance with government regulation may be to delay for a
considerable period of time or prevent the marketing of any product that the
Company may develop and/or to impose costly requests for additional animal,
human or other data upon the Company, the result of which may be a delay in the
marketing of its products, thus furnishing an advantage to its competitors.
There can be no assurance that FDA or other regulatory approval to market or
clinically test any products developed by the Company will be granted on a
timely basis or at all. Any such delay in obtaining or failure to obtain such
approvals would adversely affect the marketing of the Company's potential
products and the ability to earn product revenues or royalties. As with all
investigational products, additional government regulations may be promulgated
requiring additional research and data to be submitted that could delay
marketing approval of the Company's potential products. The Company cannot
predict whether any adverse government regulation might arise from future
legislation or administrative action.

MANUFACTURING LIMITATIONS

Although the Company has received approval from local authorities to
undertake manufacturing, it currently does not have the capability to
manufacture products under the current Good Manufacturing Practices ("GMP")
requirements prescribed by the FDA. The Company intends either to independently
manufacture, package, label and distribute its potential pharmaceutical or other
products or to establish arrangements with contract manufacturers to supply
sufficient quantities of such products to conduct clinical trials as well as for
the manufacture, packaging, labeling and distribution of finished pharmaceutical
products if its potential products are approved for commercialization. If the
Company is unable to manufacture or contract for a sufficient supply of its
potential pharmaceutical products on acceptable terms, the Company's preclinical
and human clinical testing schedule may be delayed, resulting in the delay of
submission of products for regulatory approval and initiation of new development
programs, which may have a material adverse effect on the Company. If the
Company chooses to contract for manufacturing services and encounters delays or
difficulties in establishing relationships with manufacturers to produce,
package, label and distribute its finished pharmaceutical or other products,
market introduction and subsequent sales of such products would be adversely
affected. Moreover, contract manufacturers that the Company may use must adhere
to GMP required by the FDA. Manufacturing facilities must pass a pre-approval
plant inspection before the FDA will issue a pre-market approval or product and
establishment licenses, where applicable, for the products. The Company will
also be required to obtain a license from the State of California to manufacture
any investigational products, which license will be issued only if the Company
is in compliance with GMP regulations, as determined by an inspection conducted
by the State of California. If the Company is unable to manufacture its
potential products independently or obtain or retain third party manufacturing
on commercially acceptable terms, it may not be able to commercialize its
products as planned. The Company's potential dependence upon third parties for
the manufacture of its products may adversely affect the Company's profit
margins and its ability to develop and deliver such products on a timely and
competitive basis. The Company has no experience in the manufacture of
pharmaceutical products or medical devices in clinical quantities or for
commercial purposes. Should the Company determine to manufacture products
itself, the Company would be subject to the regulatory requirements described
above, would be subject to similar risks regarding delays or difficulties
encountered in manufacturing any such products and would require substantial
additional capital. In addition, there can be no assurance that the Company will
be able to manufacture any products successfully and in a cost effective manner.

COMPETITION AND TECHNOLOGICAL CHANGE

There are many companies, both public and private, including well-known
pharmaceutical companies, chemical companies and specialized biotechnology
companies, engaged in developing synthetic pharmaceuticals and biotechnological
products for certain of the applications being pursued by the Company.
Additionally, increasing numbers of companies are focusing on apoptosis
modulation as a promising area for research and

11
<PAGE> 13

development. Many of these companies have substantially greater capital,
research and development, manufacturing, marketing and human resources and
experience than the Company and represent substantial long-term competition for
the Company. Such companies may succeed in developing products that are more
effective, or less costly or more successful than any that may be developed by
the Company. The industry in which the Company proposes to compete is
characterized by extensive research efforts and rapid technological progress.
New developments are expected to continue and there can be no assurance that
discoveries by others will not render the Company's programs or potential
products noncompetitive. Competition may increase further as a result of
advances that may be made in the commercial applicability of technologies and
greater availability of capital for investment in these fields.

RISK OF PRODUCT LIABILITY

Clinical trials or marketing of any of the Company's potential
pharmaceutical and other products may expose the Company to liability claims
related to the use of such products. To date, the Company has entered into only
a limited Phase I clinical trial of its Lexirin drug candidate; none of the
Company's other potential products have entered clinical trials or been marketed
(other than marketing undertaken by the Company in connection with its SLDI
product). Accordingly, the Company currently does not carry product liability
insurance. The Company presently is seeking product liability insurance.
However, there can be no assurance that the Company will be able or will choose
to obtain such insurance or, if obtained, that sufficient coverage can be
acquired at a reasonable cost. An inability to obtain sufficient insurance
coverage at an acceptable cost or otherwise protect against potential product
liability claims could prevent or inhibit the commercialization of any products
developed by the Company. Furthermore, a product liability related claim or
recall could have a material adverse effect on the business or financial
condition of the Company.

HAZARDOUS AND RADIOACTIVE MATERIALS; ENVIRONMENTAL MATTERS

The Company's research and development processes involve the controlled use
of hazardous and radioactive materials. The Company is subject to federal, state
and local laws and regulations governing the use, manufacture, storage,
handling, use and disposal of such materials and certain waste products.
Although the Company believes that its safety procedures for storing, using,
handling and disposing of such materials comply with the standards prescribed by
such laws and regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company. Although the Company
believes that it is in compliance in all material respects with applicable
environmental laws and regulations and currently does not expect to make
material capital expenditures for environmental control facilities in the
near-term, there can be no assurance that the Company will not be required to
incur significant costs to comply with environmental laws and regulations in the
future, nor that the operations, business or assets of the Company will not be
materially adversely affected by current or future environmental laws or
regulations.

UNCERTAINTY OF PHARMACEUTICAL PRICING; HEALTHCARE REFORM AND RELATED MATTERS

The levels of revenues and profitability of pharmaceutical companies may be
affected by the continuing efforts of governmental and third party payors to
contain or reduce the costs of healthcare through various means. For example, in
certain foreign markets pricing or profitability of prescription pharmaceuticals
is subject to government control. In the United States, there have been, and
there may continue to be, federal and state proposals to implement similar
government control. It is uncertain what legislative proposals will be adopted
or what actions federal, state or private payors for healthcare goods and
services may take in response to any healthcare reform proposals or legislation.
The Company cannot predict the effect healthcare reforms may have on its
business, and no assurance can be given that any such reforms will not have a
material adverse effect on the Company. Further, to the extent that such
proposals or reforms have a material adverse effect on the business, financial
condition and profitability of other pharmaceutical companies that are
prospective collaborators for certain of the Company's potential products, the
Company's ability to commercialize its potential products may be adversely
affected. In addition, in both the United States and elsewhere, sales of

12
<PAGE> 14

prescription medical products are dependent in part on the availability of
reimbursement to the consumer from third party payors, such as government and
private insurance plans. Third party payors are increasingly challenging the
prices charged for medical products and services. If the Company succeeds in
bringing one or more products to the market, there can be no assurance that
these products will be considered cost effective and that reimbursement to the
consumer will be available or will be sufficient to allow the Company to sell
its products on a competitive basis.

POSSIBLE VOLATILITY OF STOCK PRICE

The price of the Company's Common Stock has fluctuated substantially since
its initial public offering ("IPO") and D. Blech & Company, the Company's IPO
underwriter, is no longer conducting significant operations. The market price of
the shares of the Company's Common Stock, like that of the common stock of many
other biotechnology companies, is likely to continue to be highly volatile.
Additionally, the Company's Common Stock has historically not been heavily
traded, which could increase the volatility of the price of such stock. Factors
such as the timing and results of preclinical studies and clinical trials by the
Company or its competitors, other evidence of the safety or efficacy of
pharmaceutical products of the Company or its competitors, announcements of
technological innovations or new therapeutic products by the Company or its
competitors, governmental regulation, healthcare legislation, developments in
patent or other proprietary rights of the Company or its competitors, including
litigation, fluctuations in the Company's operating results, and market
conditions for life science stocks in general could have a significant impact on
the future price of the Common Stock.

OUTSTANDING OPTIONS, WARRANTS AND OTHER RIGHTS

As of January 1, 1997, the Company had outstanding options, warrants and
other rights to purchase approximately 2,533,961 shares of Common Stock. To the
extent that the aforementioned options, warrants or rights are exercised, the
interests of the Company's stockholders would be diluted. Moreover, as long as
such options, warrants or rights are outstanding, the terms upon which the
Company will be able to obtain additional equity capital may be adversely
affected since the holders of the outstanding options, warrants or rights can be
expected to exercise them, to the extent they are able to, at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
more favorable to the Company than those provided in the options, warrants or
rights.

ABSENCE OF DIVIDENDS

The Company has never paid cash dividends on its Common Stock and does not
anticipate paying any cash dividends in the foreseeable future.

CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS

As of January 1, 1997, the Company's management and existing holders of 5%
or more of the Company's Common Stock beneficially owned, in the aggregate,
approximately 24% of the outstanding Common Stock of the Company. As a result,
such persons may have the ability to significantly influence the Company and
direct its affairs and business. The Company's charter provides for 45,000,000
authorized shares of Common Stock and 5,000,000 authorized shares of Preferred
Stock. As of January 1, 1997, there were 21,780,175 shares of Common Stock and
no shares of Preferred Stock outstanding. The rights, preferences,
qualifications, limitations and restrictions of the Preferred Stock may be fixed
by the Board of Directors without any further vote or action by the
stockholders. Issuance of these shares, or shares of the Company's authorized
but unissued Common Stock, could have the effect of delaying, deferring or
preventing a change of control of the Company, or diluting the Common Stock.

LITIGATION

The Company and/or certain of its past and present directors and officers
are named as defendants in three lawsuits, Katz vs. Blech, 95 Civ. 7215
(S.D.N.Y.) ("Katz"), In re Blech Securities Litigation, 94 Civ.

13
<PAGE> 15

7696 (S.D.N.Y.) ("Blech"), and Degulis vs. LXR Biotechnology Inc., et al., 95
Civ. 4204 (S.D.N.Y.) ("Degulis"), all pending in the Southern District of New
York. All three cases are brought on behalf of classes of persons purchasing
common shares of the Company prior to September 21, 1994, and assert claims
arising out of the Company's IPO and subsequent trading of those shares.

The suits allege violations of Sections 11 and 12 of the Securities Act of
1933 and Sections 10(b) and 20 of the Exchange Act of 1934, including
misrepresentations and omissions in connection with the IPO and manipulation of
share prices. The suits also allege common law claims for fraud and deceit and
seek punitive damages. The complaints allege that defendants, including the
Company and the defendant directors and officers, failed to disclose in
securities filings connected with the IPO the leveraged financial condition of
the Company's underwriter, D. Blech & Co., and its principal, David Blech. The
suits further allege that defendants failed to disclose that D. Blech & Co.
would act as principal market maker for the Company's shares following the IPO,
and that D. Blech & Co.'s extended financial commitments would effect its
ability to maintain a market for the Company's shares. The suits also allege
that defendants assisted or acquiesced in a post-offering scheme to manipulate
the market for the Company's shares and artificially inflate share prices.

Under the Company's bylaws, individual agreements, and state law, the
Company's current and former directors and officers may have certain rights to
indemnification and defense costs in the event they are named in litigation.
Four individual defendants in Katz and/or Degulis have submitted claims for
indemnity and advancement of defense costs, and the Company has agreed to
advance defense costs and indemnify those individuals to the extent permitted by
law. A demand for indemnification by Mark Germain, the former chairman of the
Company and a Managing Director of D. Blech & Co., remains under consideration
by the Company. A demand by the independent underwriter for contractual
indemnity has been denied; such denial is subject to contest by the underwriter.
The Company and the underwriter have entered into a tolling agreement whereby
the Company agreed that the running of any statute of limitations applicable to
claims of the underwriter against the Company would be tolled until the earlier
of June 30, 1997 and the termination of the tolling agreement.

The Company's primary level directors and officers liability insurance
carrier has tentatively agreed to provide coverage for reasonable attorneys fees
in the defense of the four current and former directors and/or officers
referenced above, but the carrier has refused to provide indemnity or defense
costs for the Company or for Mark Germain. The Company and the carrier have
entered into an allocation agreement whereby 83% of the defense costs related to
the Katz and Degulis actions will be borne by the carrier, with the remaining
17% to be borne by the Company. The carrier is not obligated to make any
payments until a $250,000 deductible (applicable to all covered claims, in the
aggregate) under the policy is exhausted. The extent to which costs of defending
the litigation will ultimately be covered by insurance is not yet known. The
extent to which insurance would cover any settlement or judgment has not been
determined and may not be determined until the litigation is completed.

On June 6, 1996, the court decided motions to dismiss previously filed by
the Company and other parties in all three cases. The motions to dismiss Degulis
and Katz were denied. The motion to dismiss In re Blech was granted as to the
Company. On July 26, 1996, plaintiffs filed an amended complaint in In re Blech,
which did not name the Company as a defendant. Of the remaining defendants in In
re Blech, only Mark Germain has made a demand for indemnity against the Company.

The Company denies any wrongdoing and is defending the above cases
vigorously. While it is possible that the litigation may have a material adverse
effect on the Company, the early stage of the litigation, uncertainty as to
whether any material judgment or settlement will result, and the possibility
that some portion of any settlement or judgment may be covered by insurance,
make it impossible to predict at this time whether the litigation will have a
material adverse financial impact on the Company. An adverse judgment or
settlement could have a material adverse effect on the Company.

14
<PAGE> 16

SELLING STOCKHOLDERS

Certain Selling Stockholders named in the table below, or their
transferors, acquired an aggregate of 5,735,735 shares of Common Stock and
458,858 shares of Common Stock subject to certain Warrants offered hereby
pursuant to Subscription Agreements dated as of December 11, 12 or 31, 1996 (the
"Subscription Agreements"), a Sales Agency Agreement dated December 11, 1996
("Sales Agency Agreement") and Investment Representation Letters dated December
11, 12, and 31, 1996 (the "Investment Representation Letters"). The warrants are
exercisable immediately for $2.20 per share and expire in December 2001.

Certain other Selling Stockholders offering an aggregate of 300,000 shares
of Common Stock hereby, have acquired or will acquire their Common Stock at
various times pursuant to a certain Patent and Technology Transfer and Stock
Purchase Agreement dated August 8, 1996 (the "Stock Purchase Agreement").
Certain shares have already been issued under the Stock Purchase Agreement and
the remainder shall be issued upon the attainment of certain timeline and
performance milestones. In addition, another Selling Stockholder holds a certain
Warrant to purchase up to 10,037 shares of the Company's Common Stock.

This Prospectus does not cover the issuance or transfer of the Warrants
being offered hereby. Rather it covers dispositions of the shares of Common
Stock issuable upon exercise of such Warrants.

Registration rights agreements entered into between the Company and certain
Selling Stockholders dated December 11 and 12, 1996, the Stock Purchase
Agreement and certain other agreements (collectively, the "Registration Rights
Agreements") require the Company to register with the Commission the resale of
all shares now outstanding or issuable pursuant to the Warrants set forth in the
table below under the column entitled "Number of Shares Being Offered". Due to
(i) the ability of the Selling Stockholders to determine individually when and
whether they will sell any shares of Common Stock under this Prospectus, (ii)
the uncertainty as to how many shares will be issued upon exercise of the
Warrants, and (iii) the uncertainty as to how many shares will be ultimately
issued under the Stock Purchase Agreement, the Company is unable to determine
the exact number of shares that will actually be sold pursuant to this
Prospectus.

The following table and accompanying footnotes identify each Selling
Stockholder based upon information provided to the Company, set forth as of
January 1, 1997, with respect to the Shares beneficially held by or acquirable
by, as the case may be, each Selling Stockholder and the shares of Common Stock
beneficially owned by the Selling Stockholders which are not covered by this
Prospectus. Except as described below, based on information supplied to the
Company, no Selling Stockholder has had any position, office or other material
relationship with the Company within the past three years.

SELLING STOCKHOLDERS

15
<PAGE> 17

<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING SHARES OWNED AFTER OFFERING
----------------------- BEING -------------------------
NAME NUMBER PERCENT(1) OFFERED NUMBER PERCENT(1)
- -------------------------------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Jerry Heymann................... 50,000 * 50,000 -- --
Barbara Holley Art. V Trust..... 12,500 * 12,500 -- --
Barbara Holley Art. VII Trust... 25,000 * 25,000 -- --
Barbara Wilson Holley Rev.
Trust......................... 12,500 * 12,500 -- --
John W. Holley Grantor Trust.... 50,000 * 50,000 -- --
Eli Jacobson.................... 55,000 * 15,000 40,000(24) *
Amram Kass P.C. Defined Benefit
Pension Plan.................. 37,500 * 37,500 -- --
Bert Loebmann................... 45,000 * 45,000 -- --
Howard P. Milstein.............. 200,000 * 200,000 -- --
Succession of Richard B.
Montgomery Jr................. 20,000 * 20,000 -- --
The Patriot Group............... 50,000 * 50,000 -- --
Pequot Scout Fund, LP........... 200,000 * 200,000 -- --
Edward M. Reardon............... 75,000 * 75,000 -- --
Anne S. Flower Redd............. 5,000 * 5,000 -- --
Jerome Schottenstein 1990 Sub-S
Trust #1...................... 15,000 * 15,000 -- --
Jerome Schottenstein 1990 Sub-S
Trust #2...................... 15,000 * 15,000 -- --
Jerome Schottenstein 1990 Sub-S
Trust #3...................... 15,000 * 15,000 -- --
Jay Schottenstein............... 80,000 * 80,000 -- --
South Ferry #2, LP.............. 375,000 1.7% 375,000 -- --
State Capital Partners.......... 50,000 * 50,000 -- --
The Alan W. Steinberg LP........ 100,000 * 100,000 -- --
Jeffrey Steingarten............. 20,000 * 20,000 -- --
Tactics II LLC.................. 65,000 * 50,000 15,000 *
Joseph Telushkin................ 27,000 * 10,000 17,000 *
Tinicum Investors............... 100,000 * 100,000 -- --
MFOA -- Trussal & Co............ 300,000 1.4 100,000 200,000 *
Aaron Wolfson................... 50,000 * 50,000 -- --
Abraham Wolfson................. 25,000 * 25,000 -- --
Miriam Al Sabah................. 100,000 * 100,000 -- --
Akram Shakhashir................ 50,000 * 50,000 -- --
Sami Phillippe Zacca............ 100,000 * 100,000 -- --
Abdullah S. Sadi................ 50,000 * 50,000 -- --
Aharon Nehmad and Victoria
Nehmad........................ 50,000 * 50,000 -- --
Al Mal Kuwaiti Company K.S.C.... 125,000 * 125,000 -- --
Baker Al Sadi................... 50,000 * 50,000 -- --
Adel N. Al-Nouri................ 50,000 * 50,000 -- --
Ahmed Sadaca Kaki............... 100,000 * 100,000 -- --
BVH Holdings.................... 25,000 * 25,000 -- --
John D. Benjamin................ 23,500 * 20,000 3,500 *
Central Yeshiva Beth Joseph..... 50,000 * 50,000 -- --
Chris N. Prince 1994 Trust...... 40,000 * 15,000 25,000 *
Davidowitz Foundation........... 25,000 * 25,000 -- --
F & N Associates................ 7,500 * 7,500 -- --
Fiducie Des Jardins A/C 906237
(1-42)........................ 5,000 * 5,000 -- --
</TABLE>

16
<PAGE> 18

<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING SHARES OWNED AFTER OFFERING
----------------------- BEING -------------------------
NAME NUMBER PERCENT(1) OFFERED NUMBER PERCENT(1)
- -------------------------------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fiducie Des Jardins A/C 900595
(3-42)........................ 5,000 * 5,000 -- --
Fiducie Des Jardins A/C 744766
(0-59)........................ 25,000 * 25,000 -- --
Fiducie Des Jardins A/C 900726
(7-59)........................ 30,000 * 30,000 -- --
Carmen L. & Jack D. Hanlon...... 12,500 * 12,500 -- --
Catherine J. Hanlon............. 10,000 * 10,000 -- --
JIBS Equities................... 50,000 * 50,000 -- --
Lewis B. Kaden.................. 25,000 * 25,000 -- --
Catherine J. Hanlon Kennedy and
Kevin C. Kennedy.............. 5,000 * 5,000 -- --
Richard A. Lipsey............... 27,500 * 25,000 2,500 *
David Rosenberg................. 7,000 * 7,000 -- --
David Rozen..................... 100,000 * 60,000 40,000 *
Alan S. Rubin................... 50,000 * 50,000 -- --
Savings and Investment Trust.... 10,000 * 10,000 -- --
Michael Schmerin................ 17,500 * 12,500 5,000 *
Norman Seiden................... 70,000 * 50,000 20,000 *
Stephen M. Simes................ 26,000 * 15,000 11,000 *
Nachum Stein.................... 7,500 * 7,500 -- --
Gershon Stern................... 100,000 * 100,000 -- --
David L. Stone.................. 115,000 * 55,000 60,000 *
Harvey M. Stone................. 5,000 * 5,000 -- --
Richard Stone(2)................ 389,822 1.8% 130,615 259,207(21) 1.2%
S. Leslie Misrock IRA........... 13,000 * 13,000 -- --
Biotechnology Investment
Group(3)(4)................... 1,726,900 7.9 375,000(20) 1,351,900(21) 6.2
The Edward Blech Trust,
Mordechai Jofen,
Trustee(3)(4)(5).............. 1,726,900 7.9 375,000(20) 1,351,900(21) 6.2
Collinson Howe Venture
Partners(3)(4)................ 1,726,900 7.9 375,000(20) 1,351,900(21) 6.2
Jeffrey J. Collinson(3)(4)...... 1,726,900 7.9 375,000(20) 1,351,900(21) 6.2
Citicorp; Citibank,
N.A.(3)(6).................... 1,726,900 7.9 375,000(20) 1,351,900(21) 6.2
Judy W. Soley................... 12,500 * 12,500 -- --
David Rosenberg................. 18,000 * 18,000 -- --
Hasenfeld Stein, Inc. Pension
Trust......................... 7,500 * 7,500 -- --
Jonah Jay Lobell................ 20,850 * 20,850 -- --
Alfons Melohn................... 50,000 * 50,000 -- --
Joseph & Eva Hurwitz Charitable
Trust U/A Dated 9/3/92........ 25,000 * 25,000 -- --
Marc L. Hurwitz Trust U/A Dated
9/3/92........................ 50,000 * 50,000 -- --
Ratcliffe Investment(7)......... 59,695 * 59,695 -- --
Flor Kent(8).................... 20,000 * 20,000 -- --
David Kent(9)................... 47,595 * 37,695 9,900 *
Nathan Low(10).................. 1,158,073 5.3 479,695 678,378(21) 3.1
Alan Swerdloff(11).............. 11,197 * 11,197 -- --
Preston Tsao(12)................ 415,550 1.9 158,282 257,268(21) 1.2
</TABLE>

17
<PAGE> 19

- ---------------
* Less than 1%

(1) Percentage figures are based upon 21,780,175 shares of Common Stock
outstanding as of January 1, 1997.

(2) Represents 209,904 shares of Common Stock and warrants for 179,918 shares
of Common Stock that are immediately exercisable transferred from Sunrise.

(3) Includes warrant for 20,000 shares of Common Stock that is immediately
exercisable. Biotechnology Investment Group, L.L.C. ("BIO") is a limited
liability company which invests in and otherwise deals with securities of
biotechnology and other companies. The members of BIO are (a) Collinson
Howe Venture Partners, Inc. ("CHVP"), a venture capital investment
management firm of which Jeffrey J. Collinson ("Collinson") is President,
sole director and majority stockholder; (b) The Edward Blech Trust ("EBT"),
a trust for the benefit of the minor child of David A. Blech; and (c)
Wilmington Trust Company ("WTC"), as voting trustee under a voting trust
agreement (the "Voting Trust Agreement") among WTC, BIO and BIO Holdings
L.L.C. ("Holdings"). The managing member of BIO is CHVP. Each of Citibank,
N.A. ("Citibank") and Holdings has the right, pursuant to the Voting Trust
Agreement, to direct the actions of WTC as a member of BIO. WTC, as the
member holding a majority interest in Holdings, has the right to direct the
actions of Holdings under the Voting Trust Agreement. Citibank, pursuant to
a separate voting trust agreement among WTC, David A. Blech and Holdings,
has the right to direct the actions of WTC as a member of Holdings with
respect to the rights of Holdings under the Voting Trust Agreement. The
address of WTC is 1100 N. Market Street, Rodney Square North, Wilmington,
DE 19890, Attention: Corporate Trust Administration.

(4) By virtue of their status as members of BIO, each of CHVP and EBT may be
deemed the beneficial owner of all shares held of record by BIO, over which
they have shared voting and investment power; (a) by virtue of his status
as the majority owner and controlling person of CHVP. Collinson may also be
deemed the beneficial owner of all shares held of record by BIO, over which
he has shared voting and investment power; and (b) BIO, CHVP, EBT and
Collinson each disclaims beneficial ownership of these shares except to the
extent, if any, of their actual pecuniary interest therein.

(5) According to the Schedule 13D filed with the SEC on February 6, 1995 by
BIO, EBT, Collinson and another party, (a) EBT is a trust created under the
laws of New York, the lifetime beneficiary of which is Edward D. Blech, a
minor, and (b) the sole trustee of EBT is Mordechai Jofen, whose address is
the same as EBT's. According to Amendment No. 6 to Schedule 13D dated
February 3, 1995 filed with the SEC by David A. Blech, EBT is an
irrevocable trust for the benefit of Mr. Blech's minor son, and Mr. Blech
disclaims beneficial ownership of the shares held by EBT. Does not include
shares held by the following trusts for the benefit of Mr. Blech or members
of his family; 293,333 shares of Common Stock owned by Frontier Charitable
Remainder Unitrust (Nicholas Madonia, trustee), 62,222 shares of Common
Stock owned by Celestial Charitable Remainder Unitrust (Nicholas Madonia,
trustee), 176,556 shares of Common Stock owned by Century Charitable
Remainder Unitrust (Nicholas Madonia, trustee), 4,444 shares of Common
Stock owned by Ocean Charitable Remainder Unitrust (Nicholas Madonia,
trustee), 23,333 shares of Common Stock owned by Island Charitable
Remainder

18
<PAGE> 20

Unitrust (Nicholas Madonia, trustee), 44,444 shares of Common Stock owned by The
Blech Family Trust (Nicholas Madonia, trustee), or a warrant to purchase 20,000
shares of Common Stock held by The Blech Family Trust (Nicholas Madonia,
trustee). Mr. Blech disclaims beneficial ownership of the foregoing shares.
Also does not include a warrant for approximately [295,847] shares of
Common Stock (subject to adjustment) originally issued in the name of D.
Blech & Company, Inc. that is immediately exercisable. D. Blech & Company,
Inc. was the underwriter for the Company's initial public offering and is
wholly-owned and controlled by Mr. Blech. Mr. Blech previously held more
than 5% of the stock of the Company.

(6) Based on the Schedule 13G filed with the SEC on April 18, 1995 by Citibank,
Citicorp N.A., Citibank is a pledgee of these shares with limited voting
and dispositive power pursuant to certain voting trust agreements. See
footnote (3) above. Citibank disclaims beneficial ownership of these
securities. Also includes a warrant for 20,000 shares of Common Stock held
by BIO that is immediately exercisable.

(7) Represents 30,348 shares of Common Stock and a warrant for 29,347 shares of
Common Stock that is immediately exercisable.

(8) Represents 10,000 shares of Common Stock and a warrant for 10,000 shares of
Common Stock that is immediately exercisable.

(9) Represents 28,247 shares of Common Stock and a warrant for 19,348 shares of
Common Stock that is immediately exercisable.

(10) Represents 946,510 shares of Common Stock and a warrant for 211,563 shares
of Common Stock that is immediately exercisable transferred from Sunrise.

(11) Represents warrant that is immediately exercisable transferred from
Sunrise.

(12) Represents 225,019 shares of Common Stock and warrants for 190,531 shares
of Common Stock that are immediately exercisable transferred from Sunrise.

(13) Represents 5,326 shares of Common Stock and a warrant for 4,986 shares of
Common Stock that is immediately exercisable transferred from Sunrise.

(14) Represents 25,543 shares of Common Stock and a warrant for 23,911 shares of
Common Stock that is immediately exercisable transferred from Sunrise.

(15) Represents 15,217 shares of Common Stock and a warrant for 14,245 shares of
Common Stock that is immediately exercisable transferred from Sunrise.

(16) Represents 19,211 shares of Common Stock and a warrant for 67,231 shares of
Common Stock that is immediately exercisable transferred from Sunrise.

(17) Represents a warrant that is fully exercisable. Such warrant has been
pledged. Includes 295,847 shares subject to warrants previously registered
under the Prior Registration Statement.

(18) Represents 37,500 shares of Common Stock and an option to purchase 112,500
shares of Common Stock pursuant to the Stock Purchase Agreement with the
Company.

(19) Represents 37,500 shares of Common Stock and an option to purchase 112,500
shares of Common Stock pursuant to the Stock Purchase Agreement with the
Company.

(20) All of the shares offered for sale are subject to the Sunrise Lock-Up.

(21) All of these shares were previously registered under the Prior Registration
Statement.

(22) Includes 30,000 shares previously registered under the Prior Registration
Statement.

(23) Includes 150,000 shares previously registered under the Prior Registration
Statement.

(24) Includes 30,000 shares previously registered under the Prior Registration
Statement.

19
<PAGE> 21

PLAN OF DISTRIBUTION

The Registration Statement of which this Prospectus forms a part has been
filed pursuant to the Registration Rights Agreements. To the Company's
knowledge, as of the date hereof, no Selling Stockholder has entered into any
agreement, arrangement or understanding with any particular broker or market
maker with respect to the shares offered hereby, nor does the Company know the
identity of the brokers or market makers which will participate in the offering.

The Selling Stockholders' Shares covered hereby may be offered and sold
from time to time by the Selling Stockholders. The Selling Stockholders will act
independently of the Company in making decisions with respect to the timing,
manner and size of each sale. Such sales may be made on the American Stock
Exchange or otherwise, at prices and on terms then prevailing or at prices
related to the then market price, or in negotiated transactions. The Shares may
be sold by one or more of the following methods: (a) a block trade in which the
broker-dealer engaged by the Selling Stockholder will attempt to sell the shares
as agent but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by the broker-dealer as principal and
resale by such broker or dealer for its account pursuant to this Prospectus; and
(c) ordinary brokerage transactions and transactions in which the broker
solicits purchasers. The Company has been advised by the Selling Stockholders
that they have not, as of the date hereof, entered into any arrangement with a
broker-dealer for the sale of shares through a block trade, special offering, or
secondary distribution of a purchase by a broker-dealer. In effecting sales,
broker-dealers engaged by the Selling Stockholders may arrange for other
broker-dealers to participate. Broker-dealers will receive commissions or
discounts from the Selling Stockholders in amounts to be negotiated.

In offering the Shares, the Selling Stockholders and any broker-dealers who
execute sales for the Selling Stockholders may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with such sales, and any
profits realized by the Selling Stockholders and the compensation of such
broker-dealers may be deemed to be underwriting discounts and commissions.

The Selling Stockholders have advised the Company that, during such time as
they may be engaged in a distribution of the Shares included herein, they will
comply with Rules 10b-6 and 10b-7 under the Exchange Act and, in connection
therewith, the Selling Stockholders have agreed to furnish copies of this
Prospectus to each broker-dealer through which the shares of Common Stock
included herein may be offered, not to engage in any stabilization activity in
connection with any securities of the Company, and not to bid for or purchase
any securities of the Company or attempt to induce any person to purchase any
securities of the Company except as permitted under the Exchange Act. The
Selling Stockholders have also agreed to inform the Company and broker-dealers
through which sales may be made hereunder when the distribution of the shares is
completed.

Rule 10b-6 under the Exchange Act prohibits participants in a distribution
from bidding for or purchasing for an account in which the participant has a
beneficial interest, any of the securities that are the subject of the
distribution. Rule 10b-7 under the Exchange Act governs bids and purchases made
to stabilize the price of a security in connection with a distribution of the
security.

This offering will terminate as to each Selling Stockholder on the earlier
of (a) the date on which such Selling Stockholder's shares may be resold
pursuant to Rule 144 under the Securities Act; or (b) the date on which all
shares offered hereby have been sold by the Selling Stockholders. There can be
no assurance that any of the Selling Stockholders will sell any or all of the
shares of Common Stock offered hereby.

MATERIAL CHANGES

Since the quarter ended September 30, 1996, the Company has experienced the
following material changes in its affairs:

In December 1996, the Company completed a private placement for 5,201,350
shares of Common Stock aggregating $10,402,700 in total gross proceeds. The
price was $2.00 per share of Common Stock. In connection with the private
placement, the Company issued 534,385 additional shares for services rendered by

20
<PAGE> 22

the private placement agents and issued warrants for an additional 458,858
shares, exercisable for $2.20 per share. The securities sold in the private
placement are among those being registered for resale pursuant to the Form S-3
registration statement of which this Prospectus forms a part. See "Risk
Factors -- Shares Eligible for Future Sale."

The Company has recently entered into a collaboration with Boehringer
Mannheim ("Boehringer") to jointly evaluate the development of Maspin, a
naturally occurring protein, for the treatment of breast and prostate cancer.
The agreement provides for Boehringer to purchase 37,500 shares of the Company's
common stock at a price of $4.00 per share (for a total of $150,000), and to
fund up to $250,000 of animal toxicity and efficacy studies related to Maspin.
The shares to be issued to Boehringer are not included in the Company's
outstanding capitalization amounts. If the results of such studies are
successful, it is contemplated that Boehringer would purchase additional shares
of the Company's Common Stock and provide research and development funding to
the Company. Boehringer would be provided the right to acquire an exclusive
worldwide license to Maspin for therapeutic and perhaps other uses in exchange
for milestone and royalty payments to the Company. There can be no assurance
that the results of the testing undertaken pursuant to the agreement will be
successful or that the parties will enter into any additional agreements. For
risks related to third party collaborations see "Risk Factors -- Early Stage of
Development; Regulatory and Technology Uncertainties" and "-- Dependence on
Others; Collaborations."

In November 1996, the Company received a notice from the FDA that its
510(k) application for use of Cardiosol as a heart preservation solution was
denied due to the fact that the Company's formulation was considered materially
different from the formulation used in the original clinical trials of the
solution conducted prior to the Company's acquisition of Cardiosol. The Company
intends to submit a revised application for an IDE to initiate clinical studies
with the revised formulation by the end of the first quarter of 1997. The
Company is also currently preparing an IND to conduct clinical studies of
Cardiosol for use as a cardioplegia solution. There can be no assurance as to
whether or when the FDA will approve the Company's application for Cardiosol.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Fenwick & West LLP, Two Palo Alto Square,
Palo Alto, California 94306.

EXPERTS

The consolidated financial statements of LXR Biotechnology Inc. as of
December 31, 1995 and for each of years in the three year period ended December
31, 1995 and for the period from April 20, 1992 (date of incorporation) through
December 31, 1995 appearing in LXR Biotechnology Inc.'s Annual Report on Form
10-KSB for the year ended December 31, 1995 have been incorporated herein by
reference and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified accountants, and given upon the
authority of such firm as experts in accounting and auditing.

SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES

The Company's Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director to
the maximum extent permitted by the Delaware Law. The Delaware Law does not
permit liability to be eliminated (i) for any breach of a director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions, as provided in Section 174 of the Delaware Law or (iv) for any
transaction from which the director derived an improper personal benefit. In
addition, the Bylaws of the Company provide that the Company shall indemnify its
directors and executive officers to the fullest extent permitted by the Delaware
Law, including those circumstances in which indemnification would otherwise be
discretionary, subject to certain exceptions. The Bylaws also provide that

21
<PAGE> 23

the Company will advance expenses to directors and executive officers incurred
in connection with an action or proceeding as to which they may be entitled to
indemnification, subject to certain exceptions.

The Company has entered into indemnification agreements with each of its
directors and executive officers that provide the maximum indemnity allowed to
directors and executive officers by the Delaware Law and the Company's Bylaws,
subject to certain exceptions, as well as certain additional procedural
protections. In addition, the indemnification agreements provide generally that
the Company will advance expenses incurred by directors and executive officers
in any action or proceeding as to which they may be entitled to indemnification,
subject to certain exceptions.

The indemnification provisions in the Company's Bylaws, and the indemnity
agreements entered into between the Company and its directors and executive
officers, may permit indemnification for liabilities arising under the
Securities Act. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.

22
<PAGE> 24

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

LXR BIOTECHNOLOGY INC.

6,504,630 SHARES OF
COMMON STOCK

----------------------------------------------------------------
PROSPECTUS

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

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

------------------------------------
<PAGE> 25

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses to be paid in
connection with the sale of the shares of Common Stock being registered hereby,
all of which will be paid by the Registrant. All amounts are estimates except
for the Securities and Exchange Commission registration fee and the American
Stock Exchange filing fee.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $ 5,125
American Stock Exchange filing fee........................................ 17,500
Accounting fees and expenses.............................................. 50,000
Legal fees and expenses................................................... 50,000
Miscellaneous............................................................. 7,375
--------
Total........................................................... $130,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Registrant's Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director to
the maximum extent permitted by the Delaware Law. The Delaware Law does not
permit liability to be eliminated (i) for any breach of a director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions, as provided in Section 174 of the Delaware Law or (iv) for any
transaction from which the director derived an improper personal benefit. In
addition, the Bylaws of the Registrant provide that the Registrant shall
indemnify its directors and executive officers to the fullest extent permitted
by the Delaware Law, including those circumstances in which indemnification
would otherwise be discretionary, subject to certain exceptions. The Bylaws also
provide that the Registrant will advance to directors and executive officers
expenses incurred in connection with an action or proceeding as to which they
may be entitled to indemnification, subject to certain exceptions.

The Registrant has entered into indemnification agreements with each of its
directors and executive officers that provide the maximum indemnity allowed to
directors and executive officers by the Delaware Law and the Company's Bylaws,
subject to certain exceptions, as well as certain additional procedural
protections. In addition, the indemnification agreements provide generally that
the Registrant will advance expenses incurred by directors and executive
officers in any action or proceeding as to which they may be entitled to
indemnification, subject to certain exceptions.

The indemnification provisions in the Registrant's Bylaws, and the
indemnity agreements entered into between the Registrant and its directors and
executive officers, may permit indemnification for liabilities arising under the
Securities Act. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.

Section 8 of the Underwriting Agreement filed as Exhibit 1.01 of the
Registrant's Form S-1 declared effective May 6, 1994 (Registration No. 33-72814
(the "Form S-1"), sets forth certain provisions with respect to the
indemnification of certain controlling persons, directors and officers against
certain losses and liabilities under the Securities Act.

II-1
<PAGE> 26

Reference also is made to the following documents incorporated by reference
herewith regarding relevant indemnification provisions: Registrant's Restated
Certificate of Incorporation (incorporated herein by reference to Exhibit 3.01,
as amended by Exhibit 3.03 to Registrant's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1996), Registrant's Bylaws, as amended to date
(incorporated herein by reference to Exhibit 3.02 to the Form S-1, the
Registrant's Form of Indemnification Agreement (incorporated herein by reference
to Exhibit 10.05 to the Form S-1), the Investors Rights Agreement between the
Registrant and various investors dated February 19, 1993 (incorporated herein by
reference to Exhibit 10.10 to the Form S-1), the Warrant Agreement between the
Registrant and D. Blech & Company, Incorporated (incorporated herein by
reference to Exhibit 10.22 to the Form S-1), the Sales Agency Agreement dated
December 31, 1995 between the Registrant and Sunrise Securities Corp.
(incorporated herein by reference to Exhibit 1.02 to the Company's Current
Report on Form 8-K dated January 9, 1996 (the "Form 8-K")), the Registration
Rights Agreement between the Registrant and various investors dated January 9,
1996 (incorporated herein by reference to Exhibit 4.03 to the Form 8-K), the
Registration Rights Agreement between the Registrant and Biotechnology
Investment Group L.L.C. (incorporated herein by reference to Exhibit 10.28 to
the Company's Form 10-KSB for the year ended December 31, 1995), the
Registration Rights Agreements between the Registrant and various investors
dated December 11 and 12, 1996 and the Sales Agency Agreement between the
Registrant and Sunrise Securities Corp. dated December 11, 1996.

ITEM 16. EXHIBITS.

The following exhibits are filed herewith or incorporated by reference
herein:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ -----------------------------------------------------------------------------------
<C> <S> <C>
4.01 -- Specimen Certificate for shares of Common Stock of the Registrant (incorporated
herein by reference to Exhibit 4.01 to the Form S-1).
4.02 -- The Registrant's Restated Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.01 to the Registrant's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1996 (the "June 1996 Form 10-QSB")).
4.03 -- The Registrant's Amendment to Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.03 to the June 1996 Form 10-QSB).
4.04 -- The Registrant's Bylaws, as amended to date (incorporated herein by reference to
Exhibit 3.02 to the Form S-1).
5.01 -- Opinion of Fenwick & West regarding the legality of the securities being issued.
23.01 -- Consent of Fenwick & West (included in Exhibit 5.01).
23.02 -- Consent of KPMG Peat Marwick LLP, Independent Auditors.
24.01 -- Power of Attorney (see page II-4).
</TABLE>

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

II-2
<PAGE> 27

The undersigned Registrant hereby undertakes:

(1) 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 which, individually
or together, represent a fundamental change in the information in the
Registration Statement; and (iii) to include any additional or changed
material information with respect to the plan of distribution; provided,
however, that (i) and (ii) do not apply if the information required to be
included in a post-effective amendment thereby is contained in periodic
reports filed by the Registrant pursuant to Section 13 or Section 15(d) of
the Exchange Act that are incorporated by reference in the Registration
Statement.

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

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

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

II-3
<PAGE> 28

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Richmond, State of California, on January 17, 1997.

LXR BIOTECHNOLOGY INC.

By: /s/ L. DAVID TOMEI
L. David Tomei
Chief Executive Officer

KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints L. David Tomei and Mark J. Tomei, and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done or by
virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

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

<C> <S> <C>
PRINCIPAL EXECUTIVE OFFICERS:

/s/ L. DAVID TOMEI Chief Executive Officer and January 17, 1997
- ---------------------------------------- Director
L. David Tomei

/s/ DONALD H. PICKER President, Chief Operating Officer January 17, 1997
- ---------------------------------------- and Director
Donald H. Picker

PRINCIPAL FINANCIAL OFFICER
AND PRINCIPAL ACCOUNTING OFFICER:

/s/ MARK J. TOMEI Chief Financial Officer, Secretary January 17, 1997
- ---------------------------------------- and Director
Mark J. Tomei

ADDITIONAL DIRECTORS:

Director January , 1997
- ----------------------------------------
Jack H. Watson, Jr.

/s/ EUGENE EIDENBERG Director January 17, 1997
- ----------------------------------------
Eugene Eidenberg
</TABLE>

II-4
<PAGE> 29

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE PAGE NO.
- ------ --------------------------------------------------------------------------- --------
<C> <S> <C> <C>
4.01 -- Specimen Certificate for shares of Common Stock of the Registrant
(incorporated herein by reference to Exhibit 4.01 to the Form S-1).
4.02 -- The Registrant's Restated Certificate of Incorporation (incorporated herein
by reference to Exhibit 3.01 to the Registrant's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1996 (the "June 1996 Form 10-QSB")).
4.03 -- The Registrant's Amendment to Certificate of Incorporation (incorporated
herein by reference to Exhibit 3.03 to the June 1996 Form 10-QSB).
4.04 -- The Registrant's Bylaws, as amended to date (incorporated herein by
reference to Exhibit 3.02 to the Form S-1).
5.01 -- Opinion of Fenwick & West regarding the legality of the securities being
issued.
23.01 -- Consent of Fenwick & West (included in Exhibit 5.01).
23.02 -- Consent of KPMG Peat Marwick LLP, Independent Auditors.
24.01 -- Power of Attorney (see page II-4).
</TABLE>

<PAGE> 1

EXHIBIT 5.01

January 16, 1997

LXR Biotechnology Inc.
1401 Marina Way South
Richmond, CA 94804

Gentlemen/Ladies:

At your request, we have examined the Registration Statement on Form S-3
(the "Registration Statement") to be filed by you with the Securities and
Exchange Commission on or about January 17, 1997 in connection with the
registration under the Securities Act of 1933, as amended, of an aggregate of
6,504,630 shares of your Common Stock, 5,810,735 of which (the "Stock") are
issued, outstanding and held by certain stockholders named in the Registration
Statement (the "Selling Stockholders") and 693,895 of which are subject to
issuance by you pursuant to certain warrants and other rights held by certain
Selling Stockholders (the "Warrant Stock").

In rendering this opinion, we have examined the following:

(1) the Registration Statement, together with the Exhibits filed as a part
thereof;

(2) The Subscription Agreements between LXR Biotechnology Inc. ("LXR") and
various investors dated December 11, 12 and 31, 1996 pursuant to which
such investors purchased an aggregate of 5,201,350 shares of Common
Stock of the Company;

(3) the Investment Representation Letters between LXR and various investors
pursuant to which such investors purchased an aggregate of 534,385
shares of Common Stock of the Company and/or were granted warrants to
purchase the aggregate of 458,858 shares of Common Stock of the
Company;

(4) the Option to Purchase Common Stock between the Company and D. Blech &
Company, Incorporated;

(5) the minutes of meetings and actions by written consent of the Board of
Directors in our possession, relating to the approval of the Stock and
the warrants and other rights related to the Warrant Stock;

(6) the Patent and Technology Transfer and Stock Purchase Agreement dated
August 8, 1996 among the Company, Geoffrey M. Collins and Winston N.
Wicomb;

(7) A Management Certificate addressed to us and dated of even date
herewith, executed by the Company;

(8) LXR's Restated Certificate of Incorporation filed with the Delaware
Secretary of State on December 10, 1993 as amended by a Certificate of
Amendment filed on June 17, 1996; and

(9) LXR's Bylaws, as amended through December 8, 1993.

In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to the genuineness of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies, the lack of any undisclosed terminations, modifications, waivers or
amendments to any documents reviewed by us and the due execution and delivery of
all documents where due execution and delivery are prerequisites to the
effectiveness thereof.

As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information and records included in the
documents referred to above. We have made no independent investigations or other
attempts to verify the accuracy of any of such information or to determine the
existence or non-existence of
<PAGE> 2

LXR Biotechnology Inc.
January 16, 1997
Page 2

any other factual matters; however, we are not aware of any facts that would
lead us to believe that the opinion expressed herein is not accurate.

Based upon the foregoing, it is our opinion that (i) the 5,810,735 shares
of Stock to be sold by the Selling Stockholders pursuant to the Registration
Statement are legally issued, fully paid and non-assessable and (ii) the 693,895
shares of Warrant Stock to be sold by the Selling Stockholders pursuant to the
Registration Statement when issued and sold by you in the manner referred to in
the relevant warrant or other right, as described in the Registration Statement
will be legally issued, fully paid and nonassessable.

We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.

This opinion speaks only as of its date and is intended solely for your use
as an exhibit to the Registration Statement for the purpose of the above sale by
the Selling Stockholders of the Stock and the Warrant Stock and is not to be
relied upon for any other purpose.

Very truly yours,

FENWICK & WEST LLP

By: /s/ FENWICK & WEST LLP
------------------------------------

<PAGE> 1

EXHIBIT 23.02

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
LXR Biotechnology Inc. and Subsidiary

We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.

KPMG Peat Marwick LLP

San Francisco, California
January 17, 1997