SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    Form 10-K

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 1998

                         Commission File Number 0-15313

                          BIO-TECHNOLOGY GENERAL CORP.
             (Exact name of Registrant as specified in its charter)

Delaware                                                              13-3033811
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                            Identification Number)


70 Wood Avenue South, Iselin, New Jersey                                   08830
(Address of principal executive offices)                              (Zip Code)

       Registrant's telephone number, including area code: (732) 632-8800

           Securities registered pursuant to Section 12(b) of the Act:
                          Common Stock, $.01 par value
                                (Title of class)

           Securities registered pursuant to Section 12(g) of the Act:
     Warrants to Purchase Shares of Common Stock, par value $.01 per share,
                     at a purchase price of $9.84 per Share
                              (Title of each class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 YES |X| NO | |

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Aggregate market value of the Registrant's Common Stock held by non-affiliates
at March 15, 1999 (based on the closing sale price for such shares as reported
by the National Association of Securities Dealers Automated Quotation System):
$335,328,000. Common Stock outstanding as of March 15, 1999: 51,971,174 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant's definitive proxy statement for its 1999 annual
meeting of stockholders are incorporated by reference into Part III of this
report.

<PAGE>



                                     PART I
ITEM 1. BUSINESS

GENERAL OVERVIEW

           The Company is engaged in the research, development, manufacture and
marketing of biopharmaceutical products. Through a combination of internal
research and development, acquisitions, collaborative relationships and
licensing arrangements, BTG has developed a portfolio of therapeutic products,
including six products that have received regulatory approval for sale, of which
five are currently being marketed. Additionally, the Company has five products
in registration or clinical trials and several products in pre-clinical
development. The Company distributes its products on a worldwide basis through a
direct sales force in the United States and primarily through third-party
license and distribution relationships elsewhere. The Company seeks both broad
markets for its products as well as specialized niche markets where it can seek
Orphan Drug status and potential marketing exclusivity.

           The Company's approved products include Oxandrin(R) (oxandrolone) for
the treatment of weight loss due to severe trauma, chronic infection, extensive
surgery or unknown pathophysiology, which is primarily marketed in the United
States and which, to date, has been primarily used to treat weight loss in AIDS
patients; Bio-Tropin(TM) (human growth hormone), which is currently being
marketed in Japan and in several countries in Europe, Latin America and the Far
East for the treatment of growth hormone deficiency in children; BioLon(TM)
(sodium hyaluronate), which is currently marketed in the United States and in
several other countries in North and Latin America, Europe, Asia, Africa and the
Far East for the protection of the corneal endothelium during ophthalmic implant
surgery; Delatestryl(R) (injectable testosterone), which is currently marketed
in the United States for hypogonadism and delayed puberty; MircetteTM, an oral
contraceptive dosing regimen that is currently being marketed in the United
States; and Silkis(R), a vitamin D derivative, which is currently approved in
two European countries for the topical treatment of recalcitrant psoriasis.

           The Company's principal products in registration, advanced stages of
clinical testing and development include Bio-Hep-B(TM), a third generation
recombinant vaccine against hepatitis B virus; recombinant insulin for diabetes;
Androtab-SL(TM) (sublingual testosterone) for the treatment of hypogonadism;
Fibrimage(TM), a thrombus imaging agent; and OxSODrol(TM) (human superoxide
dismutase) for the reduction of asthma and as a neuro protectant in premature
infants.

           The Company's research and development focus includes Factorex(TM), a
cardiovascular thrombolytic adjunct agent; PEGylated uricase for
allopurinol-resistant gout patients; Bio-Hy(TM) (sodium hyaluronate) for
osteoarthritis; and three potential anti-cancer drugs.

           The Company was founded in 1980 to develop, manufacture and market
novel therapeutic products. The Company's overall administration, business
development, human clinical studies, marketing activities, quality assurance and
regulatory affairs are primarily coordinated at the Company's headquarters in
Iselin, New Jersey. Pre-clinical studies, research and development activities
and manufacturing of the Company's biotechnology-derived products are primarily
carried out through Bio-Technology General (Israel) Ltd. ("BTG-Israel"), the
Company's wholly-owned subsidiary in Rehovot, Israel.


PRODUCTS AND APPLICATIONS

           The Company's products under commercialization are currently being
marketed by third parties, with the exception of Oxandrin and Delatestryl, which
the Company is marketing on its own in the United States. In addition, the
Company is marketing Bio-Tropin and BioLon on its own in Israel. The following
table presents information regarding the Company's principal products:



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<TABLE>

                         PRODUCT                                Indication/Application                           Status
                         -------                                ----------------------                           ------

PRODUCTS UNDER COMMERCIALIZATION
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                                   <C>  
 OXANDRIN                                               Involuntary weight loss               Commercial sales
(oxandrolone)                                                                                     (United States and various other
                                                                                                  countries)
------------------------------------------------------------------------------------------------------------------------------------
BIO-TROPIN                                              Growth hormone deficiency in          Commercial sales
(human growth hormone)                                  children                                  (Japan, Europe and various other
                                                                                                  countries)
------------------------------------------------------------------------------------------------------------------------------------
BIOLON                                                  Injectable viscous solution for       Commercial sales (United States and
(sodium hyaluronate)                                    ophthalmic procedures                 various other countries)
------------------------------------------------------------------------------------------------------------------------------------
DELATESTRYL                                             Hypogonadism                          Commercial sales (United States)
(injectable testosterone)
------------------------------------------------------------------------------------------------------------------------------------
MIRCETTE                                                Reduced pregnancy risk                Commercial sales (United States)
(oral contraceptive dosing regimen)
------------------------------------------------------------------------------------------------------------------------------------
SILKIS                                                  Anti-psoriasis/contact dermatitis     Approved for sale (Nine European
(vitamin D derivative)                                  agent/other skin disorders            countries)
====================================================================================================================================

PRODUCTS IN REGISTRATION AND CLINICAL TRIALS:
------------------------------------------------------------------------------------------------------------------------------------
BIO-HEP-B                                               Hepatitis-B vaccine                   NDA filed in Israel 1997
------------------------------------------------------------------------------------------------------------------------------------
INSULIN                                                 Diabetes                              Bio-equivalency study
------------------------------------------------------------------------------------------------------------------------------------
ANDROTAB-SL                                             Hypogonadism                          Phase III clinical trials
(sublingual testosterone supplement)
------------------------------------------------------------------------------------------------------------------------------------
FIBRIMAGE                                               Diagnostic for locating deep vein     Phase II clinical trials (Canada and
(thrombus-imaging agent)                                thrombus                              United States)
------------------------------------------------------------------------------------------------------------------------------------
OXSODROL                                                Reduction of asthma and neuro         Phase II clinical trials
(human superoxide dismutase)                            protectant in premature infants
====================================================================================================================================

PRODUCTS IN LABORATORY AND PRE-CLINICAL RESEARCH:
------------------------------------------------------------------------------------------------------------------------------------
FACTOREX                                                Anti-coagulant                        Pre-clinical development
------------------------------------------------------------------------------------------------------------------------------------
PEG-URICASE                                             Gout                                  Pre-clinical development
------------------------------------------------------------------------------------------------------------------------------------
BIO-HY                                                  Osteoarthritis                        Development
------------------------------------------------------------------------------------------------------------------------------------
CANCER THERAPIES                                        Cancer                                Development
====================================================================================================================================
</TABLE>


Oxandrin (oxandrolone)

           The Company's oxandrolone product, trademarked Oxandrin, is an oral
anabolic agent that is an analogue of testosterone and is used to promote weight
gain. There is growing recognition in the medical community that interventional
management of disease-related weight loss (cachexia) is an extremely important
facet of patient care. Involuntary weight loss is associated with a relatively
wide range of clinical conditions which, unless monitored and carefully managed,
can lead to a delay in recovery and a rapid escalation in the incidence of
infection, morbidity and ultimately death. Published studies indicate that the
loss of only 10% (the clinical definition of cachexia) of an individual's lean
body mass (i.e., muscle) is associated with a 20% increase in mortality. At 35%
weight loss there is a 100% death rate. Additionally, weight loss may lead to
increased intensive care and longer recovery and rehabilitation periods, thereby
increasing the cost of treating

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the underlying disease. The Company estimates the incidence of involuntary
weight loss in the United States exceeds several million persons each year.

           The causes of involuntary weight loss suffered by persons with a wide
variety of chronic and acute diseases are believed to be the result of a number
of factors, with inadequate nutrient intake and an altered metabolic state
playing central roles. Malnutrition, the pathophysiology of which is frequently
unknown, is the one condition common to all weight loss disorders, regardless of
etiology. It is generally accepted that anabolic agents promote protein
synthesis, which enhances the building of lean body mass and ultimately weight
gain. However, because natural androgens, such as testosterone, also possess
androgenic or virilizing properties that have undesirable side-effects when used
for treating weight loss, particularly in women, potent anabolic and weak
androgenic effects are preferable drug properties for the treatment of this
condition. Clinical trials have shown that Oxandrin is an effective adjunctive
therapy to promote weight gain in a variety of pathophysiologic conditions and
has a low potential for androgenic activity. Unlike many other anabolic
steroids, Oxandrin appears to undergo less overall metabolic transformation in
the liver, which the Company believes offers a safety advantage over other
androgenic/anabolic alternatives that are fully metabolized in the liver and
have the potential to cause liver toxicity. Unlike appetite enhancers currently
used for treating weight loss, studies indicate that Oxandrin promotes weight
gain primarily through the building of lean body mass rather than fat and water.
The Company also believes that Oxandrin is preferable to human growth hormone
for treatment of weight loss because of the ease of administration of Oxandrin
(oral versus injectable) and its lower cost. The Company believes that Oxandrin
is the only United States Food and Drug Administration ("FDA") approved oral
anabolic agent to promote weight gain without deleterious side effects.

           In 1964, the FDA approved Oxandrin for weight gain following weight
loss due to severe trauma, chronic infection or extensive surgery and for
patients who, without definite pathophysiologic reasons, fail to gain or to
maintain normal weight. This approval permits the use of Oxandrin to treat all
disease-related weight loss other than starvation. G.D. Searle & Company Limited
("Searle"), which originally developed and obtained FDA approval of Oxandrin and
now licenses Oxandrin to, and contract manufactures Oxandrin for the Company,
ceased offering Oxandrin in the 1980s. With the growing awareness of the
importance of combating disease-related involuntary weight loss, BTG decided to
re-launch the product on its own under the Oxandrin tradename. Sales of Oxandrin
commenced in December 1995 in the United States for all indications under the
FDA approval.

           Since the Company's launch of Oxandrin in December 1995, a
significant portion of its Oxandrin sales has been for treatment of patients
suffering from AIDS-related weight loss. In order to increase market awareness
and acceptance of Oxandrin for the treatment of other disease-related weight
loss conditions, BTG is conducting Phase III and post-approval Phase IV clinical
trials to provide further clinical support for the use of Oxandrin for such
conditions. Recently completed clinical trials at leading institutions studied:
(i) the effect of Oxandrin as an adjunct to promote weight gain and hasten the
rate of skin regrowth and healing in burn patients and as an adjunct to promote
weight gain and hasten healing of decubitus ulcers in malnourished patients; and
(ii) Oxandrin for the promotion of weight gain in patients suffering from weight
loss due to chronic obstructive pulmonary disease. A manuscript for the first
study has been submitted for publication and the second study has been
published. Clinical trials currently being conducted at leading institutions
include studies of: (i) Oxandrin for the promotion of weight gain in
malnourished patients with inoperable non-small cell lung cancer; and (ii)
Oxandrin for the promotion of weight gain and shortened recovery time in
patients who have undergone liver transplants.

           In January 1994 the Company obtained approval to market oxandrolone
for pediatric growth disorders in Australia. This is the first regulatory
approval for the marketing of oxandrolone for pediatric growth disorders
anywhere in the world. BTG has granted CSL Limited ("CSL") of Australia
exclusive marketing rights for oxandrolone in Australia, New Zealand and the
nearby South Pacific region. CSL commenced sales of oxandrolone in Australia in
February 1994 under the trade name Lonavar(R).

           The product has been approved in South Korea, Russia and Azerbaijan
and BTG is currently evaluating the opportunity to commercialize Oxandrin in
those countries.


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<PAGE>



           In February 1999, the Company was granted a U.S. patent directed to
the use of oxandrolone in the treatment of chronic obstructive pulmonary
disease. Patent applications directed to other uses of Oxandrin are pending in
the United States and other countries.


Bio-Tropin (human growth hormone)

           Human growth hormone ("hGH") is naturally secreted by the pituitary
gland and controls many physiological functions that are essential for normal
development and maturation. A deficiency of hGH results in diminished growth
and, in extreme cases, dwarfism. The Company estimates that current annual
worldwide sales of hGH for the treatment of growth hormone deficiency are
approximately $1.5 billion. Geographic distribution of worldwide sales of human
growth hormone is estimated by the Company to be approximately 25% in North
America and 30% in Europe, with the balance in Japan and other countries.

           The Company's scientists first produced hGH by recombinant DNA
methods in the early 1980s. As a result of a seven-year Orphan Drug status
exclusivity period granted to a competitor, followed by extensive and continuing
patent litigation with Genentech, Inc. ("Genentech"), the Company has to date
been precluded from marketing Bio-Tropin in the United States, despite the fact
that the FDA approved Bio-Tropin for marketing in the United States in May 1995.
Genentech's patent expires in 2003. The Company's human growth hormone is
currently being marketed by third parties in Japan and several European and
Latin American countries and by the Company in Israel. See "-Sales and
Distribution" and "Item 3. Legal Proceedings."

           In April 1993, JCR, BTG's marketing partner in Japan, received
regulatory approval for hGH for the treatment of short stature, and began
marketing hGH in June 1993. JCR has also completed a clinical trial to test the
efficacy of the Company's hGH for treating Turner syndrome, a condition in which
girls born with non-functioning ovaries do not develop secondary sexual
characteristics and are shorter than normal, and filed for regulatory approval
in January 1994. In January 1995, the Company granted JCR exclusive distribution
rights in The People's Republic of China for all hGH-related pharmaceutical
indications. In January 1998, JCR signed an agreement memorandum with Sumitomo
Pharmaceuticals Co., Ltd. ("Sumitomo"), to enter into a marketing alliance for
the marketing of hGH in Japan. Under the terms of the agreement memorandum, JCR
will supply Sumitomo with BTG's hGH and Sumitomo commenced distribution in Japan
in January 1999, following termination of its agreement to distribute Pharmacia
Upjohn Co., Ltd.'s recombinant human growth hormone, Genotropin(TM), at the end
of 1998. Upon termination of Pharmacia Upjohn's agreement with Sumitomo,
Pharmacia Upjohn began to market Genotropin in Japan on its own. In 1998
Sumitomo was the leading distributor of hGH in Japan.

           In November 1992, the Company entered into an exclusive distribution
agreement with the Ferring Group ("Ferring") for the marketing of the Company's
human growth hormone for enhancing growth and stature in growth hormone
deficient children in Europe and the countries comprising the former Soviet
Union. Sales began during the fourth quarter of 1994, and the Company's hGH is
now approved in 17 countries in Ferring's territory.

           The Company received approval for hGH from the Israel Ministry of
Health in April 1988 and began direct marketing in Israel under the Bio-Tropin
trademark in October 1988. In July 1992, Bio-Tropin was approved by the Israel
Ministry of Health for the treatment of a second indication, Turner syndrome. In
July 1997, Bio-Tropin was approved by the Israel Ministry of Health for the
treatment of children suffering from renal insufficiency.

           The Company's human growth hormone is also being sold by third-party
distributors in several countries in South America and the Far East. The product
was approved in Canada and Cyprus in 1997, and in Colombia in 1998. In addition,
regulatory approval to market BTG's human growth hormone is pending in several
Latin American countries, South Africa and several Pacific Rim countries.

           The Company's human growth hormone product is currently being
marketed by Ferring in Europe and JCR in Japan in conjunction with a needleless
delivery device. Most of the Company's other third-party

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distributors are expected to utilize this delivery device as well. BTG has
licensed exclusive rights to this delivery device in the United States for use
with the Company's hGH.


BioLon (sodium hyaluronate)

           Sodium hyaluronate is a high-viscosity, gel-like fluid. The Company
has developed a sodium hyaluronate-based product, trademarked BioLon, for use in
ophthalmic surgery procedures such as cataract removal and intraocular lens
implantation. BioLon is a syringe filled with a 1% sodium hyaluronate solution
that facilitates such surgery by acting as a highly viscous lubricant allowing
for surgical manipulation of the ocular tissues.

           Product sales of BioLon commenced in early 1993, and BioLon is
currently approved for sale in the United States and more than 30 other
countries. In June 1995, BioLon was approved as a medical device by mdc, a
notified body of the European Economic Community. As a result, a CE mark granted
to the product and appearing on the product box allows the Company's partners to
freely market BioLon throughout Europe. The Company licensed exclusive BioLon
distribution rights in the United States to Akorn, Inc. in March 1998. Akorn
launched BioLon in the United States in conjunction with Allergan, Inc. in
November 1998. See "--Sales and Distribution."

           The Company has completed the development of a second-generation
product, BioLon Prime(TM), that has a higher viscosity than BioLon and gives
better support inside the chamber of the eye during the surgical procedure. This
product was granted a CE mark in June 1997, and approval was received in Israel
in February 1998.


Delatestryl (testosterone enanthate)

           Delatestryl is the Company's injectable testosterone product
currently used to treat men with hypogonadism (testosterone deficiency), a
condition associated with reduced libido, insufficient muscle development and
bone loss. The Company believes that currently only 100,000 of the approximately
200,000 to 400,000 men in the United States suffering from this condition are
undergoing treatment. The product is also prescribed for delayed puberty, which
BTG believes is a treatable condition in approximately 30,000 boys in the United
States. The Company acquired the approved NDA and trademark from Bristol-Myers
Squibb Company ("Bristol"), which contract manufactures Delatestryl for BTG on a
purchase order basis, and BTG pays Bristol a fee based on its sales of
Delatestryl. The Company began the sale and distribution of Delatestryl in
mid-1992. See "--Risk Factors--Dependence on Third-Party Suppliers."


Mircette (oral contraceptive dosing regimen)

           The Company has acquired an exclusive license to a patented oral
contraceptive dosing regimen. This new approach to oral contraception is
expected to reduce both the risk of pregnancy, in the event a woman forgets to
take a pill, and the breakthrough bleeding and spotting experienced by many
women who use conventional low-dose oral contraceptives. The market for oral
contraceptives in the United States is estimated by BTG to exceed $1 billion
annually.

           Organon, Inc. ("Organon"), a subsidiary of AKZO Nobel N.V., has
licensed the Company's patented oral contraceptive dosing regimen and has
developed a product using this regimen with the progestogen desogestrel. Organon
filed an NDA with the FDA in April 1997, which approved the product in April
1998, and Organon began to commercialize the product under the name Mircette in
the third quarter of 1998. The license agreement with Organon provided for
milestone payments and provides for royalties on sales. Regulatory authorities
in Germany and the United Kingdom have declined to approve Organon's desogestrel
product using the oral contraceptive regimen as a result of reported higher
incidence of thromboembolic disease than competing levonorgestrel oral
contraceptive regimens.


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           In 1997, the Company licensed the oral contraceptive dosing regimen
to Gynetics Inc. for future use with any one or more progestins other than
desogestrel. The license agreement with Gynetics provides for an upfront license
fee, milestone payments in shares of Gynetics common stock, and royalties on
sales.


Silkis (vitamin D derivative)

           The Company has obtained an exclusive license to patents covering the
composition and use of certain vitamin D derivatives for topical treatment of
psoriasis, dermatitis and other skin disorders. Patents have issued in the
United States, Israel and in major countries in Europe, including Great Britain.
The British patent has also been extended to Singapore and Hong Kong. In March
1996, the Company sublicensed exclusive rights under the patents in the United
States to Galderma S.A. ("Galderma"). Galderma has agreed to pay license fees
upon the attainment of certain milestones and a royalty on sales in the United
States. The licensee of BTG's rights under the patents for the remainder of the
world sublicensed those rights to Galderma in 1996. The Company is to receive a
royalty on all commercial sales of products containing these vitamin D
derivatives in countries outside the United States in which the vitamin D
derivative patents have issued. Although the product was approved in The
Netherlands and Switzerland in 1995, Galderma determined to change the
formulation prior to commencing marketing. Notification of preliminary approval
in several European countries, including France and Germany, has been received,
and BTG believes that Galderma will begin marketing in nine European countries
by the end of 1999.


Bio-Hep-B (hepatitis-B vaccine)

           The Company has genetically engineered a third generation vaccine
against the hepatitis-B virus. The Company's Bio-Hep-B vaccine integrates the S,
pre-S1 and pre-S2 surface proteins of the virus. Clinical trials in Israel, the
Far East and Europe in adults, children and neonates have been completed and
showed the vaccine to be safe and highly immunogenic. The Company believes the
high immunogenicity, initial faster rate of response and low manufacturing cost
of its Bio-Hep-B vaccine will provide it with a competitive advantage,
particularly in the less developed countries where hepatitis-B is prevalent. The
first generation plasma-derived Hepatitis-B vaccine is generally used in less
developed countries. The Company believes, however, that these countries desire
an alternative to the plasma-derived vaccine because of fears of viral
transmission, but cannot currently replace the plasma-derived vaccine because
the second generation recombinant vaccine is too expensive. The Company believes
the cost of its Bio-Hep-B vaccine will be affordable by these less developed
countries. In addition, many of these countries are pursuing hepatitis-B
immunization programs for all newborns in an effort to substantially decrease
the incidence of hepatitis-B.

           The Company has completed clinical trials in healthy adults, children
and neonates, and filed an application for approval of its Bio-Hep-B vaccine
with the Israel Health Ministry in November 1996. BTG believes that Bio-Hep-B
will be approved in Israel by the end of 1999, although there can be no
assurance that approval will be received within this time frame or at all.

           The Company has licensed marketing rights to SciGen Pte Ltd, a
Singapore company ("SciGen"), for the commercialization of the Bio-Hep-B vaccine
in certain Pacific Rim territories (excluding Japan) and certain other
countries, including The Peoples Republic of China, Australia, New Zealand and
India. The Company and SciGen have completed clinical trials in several
countries. In December 1997, BTG granted SciGen a license to use the technical
information provided by BTG to establish a manufacturing facility to produce
Bio-Hep-B in India, China or Australia.

           In February 1998, the Company entered into development and licensing
agreements with Swiss Serum and Vaccine Institute Berne ("Swiss Serum") with
respect to its Bio-Hep-B in Western Europe, most of Latin America and various
other countries. Swiss Serum will purchase vaccine from the Company for
distribution, and the Company will receive milestone payments from Swiss Serum,
as well as royalties on sales of the vaccine.


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           The Company hopes to obtain an approval for its Bio-Hep-B vaccine
from the Israel Health Ministry during 1999, although there can be no assurance
that such approval will be obtained in this time frame or at all.

           The Company has licensed marketing rights for South Africa and
certain other African countries to BioVac S.A.

           The Company's ability to commercialize Bio-Hep-B in the near term
will depend on receiving Israeli regulatory approval and the Company's ability
to maintain the compulsory license to manufacture the Company's vaccine under
Biogen, Inc.'s Israeli patent, granted to BTG-Israel by the Israeli Registrar of
Patents in September 1995. Biogen is currently challenging this license grant.
See "--Risk Factors--Risk of Pending Patent Litigation,""--Uncertainty of
Protection of Patents and Proprietary Rights" and "Item 3. Legal Proceedings."


Insulin

           Insulin is a polypeptide hormone essential for the control of blood
glucose levels that is frequently administered to patients suffering from
diabetes mellitus, a metabolic disorder characterized by hyperglycemia resulting
from relative or absolute insulin deficiency. Biosynthetic recombinant human
insulin is currently manufactured by two processes: in E. coli (Eli Lilly and
Company and Hoechst AG) or in yeast (Novo-Nordisk A/S). BTG has developed a
proprietary expression system and a purification process to efficiently produce
recombinant human insulin in E. coli. Patent applications relating to this
process have been filed in many countries. BTG's insulin is identical to
naturally-occurring human insulin and does not differ from
commercially-available insulins in terms of purity or biological activity.

           In January 1999, the Company entered into a technology transfer and
license agreement with Akzo Nobel's wholly owned subsidiary, Diosynth b.v., for
the Company's recombinant human insulin. The license grants Diosynth rights to
the product in most countries of the world. Under the terms of the agreement,
BTG will transfer its recombinant human insulin technology to Diosynth and
Diosynth will manufacture the product in bulk form for the licensed territory.
Another Akzo Nobel subsidiary, Organon, may in certain instances finish the bulk
and market it in finished form. BTG will receive license fees linked to the
achievement of certain milestones and royalties on all commercial sales of the
product.

           In January 1998, BTG entered into a licensing agreement with IBATECH
Sp. zo.o., a Polish corporation ("Ibatech"), covering the development,
production and commercialization of BTG's recombinant human insulin. Under the
agreement, Ibatech and BTG will collaborate in the development of the know-how
for large scale manufacturing of BTG's recombinant human insulin for the insulin
markets in Poland and several other East European countries. The Company will
receive certain milestone payments and royalties on sales of the product in the
licensed territories.


Androtab-SL (sublingual testosterone)

           Androtab-SL is the Company's sublingual testosterone product for the
treatment of hypogonadism. Hypogonadism is associated with diminished libido and
sexual function, loss of muscle mass, bone loss and other conditions.

           Testosterone for the treatment of hypogonadism is currently
administered by deep intramuscular injection, transdermal patch or orally. It is
estimated that only 60,000 to 70,000 men, of a potential 200,000 to 400,000 who
suffer from hypogonadism, are currently being treated. The Company believes this
is primarily a result of patient and doctor dissatisfaction with existing
products. Injections are painful and may cause mood swings, and orally-active
synthetic androgens have been reported to be toxic to the liver. The currently
available transdermal patches, which are designed to be worn either on shaven
scrotal skin or alternating sites on the back, hip and abdomen, are reported to
cause skin irritation. The Company believes its sublingual

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formulation offers distinct advantages over the competition, because it is
painless, discreet, non-toxic to the liver and easy to use.

           In 1996, the Company completed a multicenter Phase III clinical trial
of the product for the treatment of hypogonadism. Results indicate that the
Androtab-SL product can effectively deliver native testosterone without reported
adverse effects. The men in the study reported restoration of libido and
potency. The Company's NDA was filed with the FDA in October 1996. In January
1998, the FDA completed its review and found the information submitted
inadequate for approval. The Company and the FDA are in discussions regarding
the development of additional clinical data that will be needed to more fully
establish safety and efficacy of a sublingual regimen.

           In 1986, the Company obtained a license from the National Technical
Information Service ("NTIS"), an operating unit of the United States Department
of Commerce, under a U.S. patent relating to a method of treating a human by sex
hormone addition using a formulation of a hormone, such as testosterone, and
another compound (the "NTIS License"). This license was later amended to include
such formulation as defined by a claim in a related patent which became involved
in a patent interference in the U.S. with a patent application belonging to
Janssen N.V. ("Janssen") (the "NTIS Interference"). The Company is currently
using such a formulation in its Androtab-SL sublingual testosterone product for
the treatment of hypogonadism. See "--Patents and Proprietary Rights."


Fibrimage (thrombus-imaging agent)

           Fibrimage (formerly called Imagex) is a novel agent for detection of
thrombi and blood clots in patients suffering from deep vein thrombosis or
pulmonary embolism. Deep vein thrombosis, which results from the development of
thrombi, causes a reduction in the venous blood flow. Pulmonary embolism is the
dislodgement of a piece of thrombus and its relocation via the circulatory
system to the lungs. Fibrimage consists of a genetically-engineered portion of
the fibrin binding domain of fibronectin attached to a radiopharmaceutical tag.
Once injected in the patient, it targets and binds to fibrin, a substance that
is essentially present only in blood clots. The Company, in collaboration with
the Frosst Radiopharmaceuticals Division (the "Division") of Merck Frosst Canada
Inc. ("Merck Frosst"), a subsidiary of Merck & Co., Inc., completed a pilot
study outside the United States to test the safety and efficacy of Fibrimage in
humans. In this trial, consisting of 62 patients suspected to be suffering from
deep vein thrombosis, the specificity and sensitivity of clot detection by the
product was confirmed. The Company has issued patents covering Fibrimage in the
United States, Australia, New Zealand and Russia. Additionally, the European
Patent Office (EPO) patent has been allowed and is due to enter the national
phase in 13 European countries during 1999. In August 1994, worldwide rights to
the polypeptide were licensed to Merck Frosst for the development and
commercialization of a diagnostic imaging agent for the detection of
thromboembolism. Merck Frosst filed an IND with the Canadian Bureau of Biologics
in April 1996. The Division and all rights to Fibrimage were acquired by DRAXIS
Health Inc. in September 1997. DRAXIS successfully completed a Phase I study of
Fibrimage in Canada in December 1997, and is currently concluding a Phase II
study.


OxSODrol (human superoxide dismutase)

           The Company has developed a process for manufacturing a fully active
analog of human copper/zinc superoxide dismutase ("SOD"), which neutralizes
oxygen free-radicals. Many premature babies are deficient in naturally occurring
SOD, and the high concentrations of oxygen that premature babies require are
believed to be involved in generating excess oxygen free-radicals in the lungs,
causing permanent lung injury at the cellular level. In February 1993 BTG
initiated a Phase I human clinical study, which was completed in December 1993,
related to the use of SOD to prevent bronchopulmonary dysplasia ("BPD"), a
chronic lung disease that develops following treatment with oxygen and
mechanical ventilation of premature infants who experience respiratory distress.
The Company completed a Phase I(b) study of the safety of repeated doses, and on
the basis of this study, a multicenter double blind Phase III clinical efficacy
and safety trial involving 360 patients commenced in January 1997. In November
1997, an independent Data Safety and Monitoring Committee (the "Committee"),
comprised of three renowned professors of pediatrics and a statistician,

                                        8



<PAGE>



announced that, based on its review of safety data on the first 100 patients in
the trial, it had found no evidence to suggest any significant safety concerns
and recommended continuation of the trial. In early 1998, the Committee, which
did not review efficacy data on the first 100 patients, conducted a second
interim analysis on the first 180 patients who completed treatment to review
both safety and efficacy data. In February 1998, the Committee informed BTG that
it wished to expand its analysis and include the data collected on all 298
neonates enrolled in the study through February 1, 1998, in order to determine
if the additional data impact the demonstration of safety and efficacy. In
addition, the Committee determined that neonates currently receiving treatment
should complete the study as specified in the trial protocol, but that further
enrollment of neonates into the trial be temporarily suspended. The expanded
evaluation was completed in the second quarter of 1998 and revealed no reduction
in the combined incidence of BPD and death at 28 days in neonates treated with
OxSODrol. However, based on preliminary data from the earlier Phase I
investigations, which suggested a delayed neuroprotective effect in neonates
treated with OxSODrol, and in consultation with the FDA, the current trial is
continuing as a Phase II study with preservation of blinded treatment
assignments. The incidence of pulmonary and neurologic complications in the
placebo and OxSODrol treated groups will be assessed at one year corrected
postnatal age. This data is expected to be available for analysis in June 1999.

           In January 1995, OxSODrol was licensed to JCR for the treatment of
BPD in Japan and, in August 1997, BTG licensed to Ares Trading S.A., a member of
The Ares-Serono Group ("Serono"), worldwide distribution rights (excluding the
United States, Canada, Israel and Japan) for OxSODrol for the treatment of
bronchopulmonary dysplasia and other respiratory indications.

           The Company holds a U.S. patent relating to intratracheal delivery of
copper/zinc SOD to protect human lungs from injury due to hyperoxia and
hyperventilation and is the exclusive licensee of a U.S. patent directed to the
DNA encoding copper/zinc SOD. A U.S. patent assigned to the Company, which is
directed to a method for producing enzymatically active human copper/zinc SOD in
bacteria, is the subject of an interference action with Chiron, which also holds
a U.S. patent for bacterially-produced human copper/zinc SOD. A U.S. patent
application directed to SOD and assigned to BTG has recently become involved in
a second interference with a Chiron patent. An Israeli patent application
assigned to Chiron, which relates to copper/zinc SOD, is being opposed by the
Company. See "--Risk Factors--Risk of Pending Patent Litigation" and
"--Uncertainty of Protection of Patents and Proprietary Rights" and "Item 3.
Legal Proceedings."


Factorex (anti-coagulant)

           A highly selective anti-coagulant, a recombinant protein Factor Xa
inhibitor, trademarked Factorex, is being developed by BTG for cardiovascular
applications. The blood coagulation process is a multi-step, complex cascade of
reactions which ultimately lead to the formation of fibrin as an integral
component of the clot. Factor Xa catalyzes the conversion of prothrombin to
thrombin, which, in turn, converts fibrinogen into fibrin. By inhibiting Factor
Xa, thus blocking the catalytic conversion of prothrombin, Factorex inhibits
formation and deposition of fibrin in clots and permits tighter control of
pathogenic thrombus generation than currently available products. The Company
believes that, like other leech-derived peptides, Factorex should have very low
immunogenicity in man, facilitating multiple administration. The product is
manufactured via recombinant DNA technology in E. coli and is biochemically
configured in a proprietary process to its active configuration. It has been
shown to possess Factor Xa inhibitory activity in vitro and in pre-clinical
analysis in animal models. Potential indications include prevention of deep vein
thrombosis and arterial reocclusion and restenosis, as well as an adjunct to
thrombolytic agents. Pre-clinical studies have been completed, and the Company
has initiated process development of clinical grade material for toxicology
studies. In 1998, the Company was awarded two U.S. patents relating to the DNA
encoding its Factorex, expression of the Factorex polypeptide and its use. In
January 1999 two more U.S. patents issued directed to the Factorex polypeptide.
Additionally, the Company holds an exclusive license to other issued U.S. and
European Patent Office patents relating to a Factor Xa inhibitor. Parallel
patent applications owned or licensed by the Company have been granted in
Australia, New Zealand and Israel and are pending in many other countries.



                                        9



<PAGE>



Uricase

           Gout occurs when uric acid accumulates in the joints. The disease
causes severe pain and creates risk of kidney failure, which may lead to
life-threatening complications. Current treatments for gout and related
conditions are sometimes ineffective because of side effects or lack of efficacy
of approved medication. PEG-uricase is a chemically modified enzyme of mammalian
origin that converts uric acid to a more soluble and readily excreted product.
The PEG-modified enzyme has a much longer circulating lifetime and is less
likely to induce immune reactions than the unmodified enzyme. Therefore, in
individuals who cannot excrete excess uric acid, the PEG uricase enzyme should
effectively and efficiently eliminate excess uric acid from the body.

           In August 1998 the Company licensed exclusive worldwide rights from
Duke University ("Duke") of North Carolina and Mountain View Pharmaceuticals,
Inc. ("MVP"), a California company, to technology relating to polyethylene
glycol ("PEG") conjugates of uricase (urate oxidase). The Company and MVP have
since received a grant to develop the product from the U.S.-Israeli Binational
Research and Development ("BIRD") Foundation.

           Duke has developed recombinant uricases and, together with MVP, has
developed PEG conjugates of uricases to make them safer and longer acting. MVP
has transferred its PEG technology to the Company, and the Company will produce
PEG conjugates of uricase, undertake clinical trials and commercialize the
product. The Company believes that it could receive Orphan Drug designation for
the use of this product in allopurinol-resistant gout patients and others for
whom current treatment is ineffective or contraindicated.


BioHy

           BioHy is a sodium hyaluronate composition developed by the Company
for intra-articular injection. Such treatments are likely to reduce arthritic
pain. The Company expects to conduct clinical evaluations in 1999 to examine the
product's efficacy in treating osteoarthritis.


Cancer Therapies

           The Company is evaluating early stage research options for
specifically attacking malignant growth. These options include (i) approaches to
destroying blood vessels that are needed for growth of solid tumors and (ii)
development of a cancer vaccine.


SALES AND DISTRIBUTION

           The Company markets its products on a direct basis in the United
States and Israel and grants exclusive marketing or distribution rights to third
parties for sales in most other countries. The Company's sales and marketing
team in the United States, which was established in the second half of 1995,
currently consists of 44 people. With respect to sales outside the United
States, BTG's current distribution arrangements include exclusive relationships
with JCR Pharmaceuticals Co., Ltd. for the sale of BTG's hGH in Japan and The
People's Republic of China, the Ferring Group for the sale of BTG's hGH in
Europe and the former Soviet Union, as well as with 9 other companies, covering
more than 30 countries, for the sale of BTG's hGH and 19 companies, covering
more than 70 countries, for the sale of BioLon.

           In substantially all of the Company's product distribution
agreements, the Company grants exclusive marketing and distribution rights in
one or more countries in exchange for upfront license payments and exclusive
supply arrangements. Pursuant to these agreements, the Company supplies product
at a price equal to a percentage of the distributor's net sales price, subject
to a minimum price. Regulatory approvals are obtained either by the Company or
by its distributors, depending on the product, the territory and the terms of
the commercial agreement. The Company is generally obligated to indemnify the
distributor for product liability claims resulting from the failure of supplied
product to meet agreed upon specifications and infringement of third-party
patents. See "--Risk Factors--Dependence on Third-Party Licensees."

                                       10



<PAGE>



           BTG has an agreement with Olsten Corporation, a provider of personnel
to business, industry and government, home health care services and products for
chronic and acute care, as BTG's exclusive wholesale and retail distributor of
BTG's Oxandrin and Delatestryl products, in the United States. Olsten also
offers patient reimbursement assistance for Oxandrin. Sales of Oxandrin in 1996,
1997 and 1998 were primarily to Olsten. See "--Risk Factors--Dependence on
Oxandrin."

           In 1988 and 1995, respectively, the Company granted exclusive
distribution rights in Japan and The Peoples Republic of China to JCR for all
hGH-related pharmaceutical indications. BTG sells bulk product to JCR at a fixed
price. BTG is obligated to indemnify JCR for all expenses incurred and damages
suffered by JCR as a result of any adjudgement of infringement of third-party
patents. A substantial portion of the Company's hGH sales have been to JCR. See
"Item 3. Legal Proceedings."

           In November 1992, the Company entered into an exclusive distribution
agreement with the Ferring Group for marketing of the Company's human growth
hormone for the enhancement of growth and stature in growth hormone deficient
children in Europe and the countries comprising the former Soviet Union. Bio-
Tropin is now available in 17 countries in Ferring's territory. BTG sells
finished product to Ferring and receives a percentage of Ferring's net sales.
Ferring has the right to purchase bulk product from BTG and formulate, vial and
package the product if Ferring can obtain all required regulatory approvals. BTG
is obligated to indemnify Ferring for all expenses incurred and damages suffered
by Ferring as a result of any adjudgement of infringement of third-party
patents.

           The Company has concluded agreements for the commercialization and
distribution of BioLon with several companies covering most countries in Europe
and Latin America and several countries in Africa, Asia and the Far East. These
agreements provide for license fees and/or royalties and most require minimum
guaranteed purchases in the first years after registration and commencement of
commercialization.

           In order to take advantage of the Company's distribution organization
in the United States, BTG and Serono Laboratories, Inc., a member of Serono, in
May 1998 entered into an agreement under which BTG will co-promote Serono's line
of pediatric growth products in the United States. Under this agreement, BTG is
promoting, through the Company's distribution channel, Serono's recombinant
human growth hormone, Saizen(R) (somatropin [r-DNA origin] for injection) for
the treatment of children with growth failure due to inadequate levels of growth
hormone; Geref(R) (sermorelin acetate for injection), the first approved growth
hormone releasing hormone for the treatment of idiopathic growth hormone
deficiency in children; and Geref(R). The Company earns royalties on its sales
of these Serono products.


RESEARCH AND DEVELOPMENT

           The Company conducts research on potential products for which it has
retained future rights for its own account and on behalf of its partners for
which it receives certain current revenues and, if successful, future revenues
in the form of royalties or manufacturing rights. At February 1, 1999, the
Company's research and development organization comprised 79 scientists,
associates and related personnel with expertise in molecular biology, cell
biology and protein chemistry. These individuals have received various
undergraduate and advanced degrees at prestigious universities throughout the
world. Twenty four hold Ph.D. or M.D. degrees, and several have completed
post-doctoral studies under the direction of internationally renowned scientists
in the area of biotechnology.

           The Company applies to the Chief Scientist of the State of Israel
(the "Chief Scientist") annually for research and development funding for its
various projects for the coming year. The projects and amount funded each year
are within the sole discretion of the Chief Scientist. There can be no assurance
that the Company will be able to continue to secure additional funds from the
Chief Scientist at the same levels or at all. The Company is obligated to pay
royalties to the Chief Scientist for products resulting from research and
development partially funded by the Chief Scientist. These royalties range from
3% to 5% on commercial sales, if any, of these products if produced in Israel,
up to the amount so funded, and 4% to 6% of commercial sales, if any, if these
products are produced outside Israel, up to 120% to 300% of the amount so
funded. During 1996, the Company completed payment of its entire obligation for
royalties to the Chief Scientist for

                                       11



<PAGE>



funding of its human growth hormone development. The State of Israel has
indicated its intention to reexamine certain of its policies relating to
research and development grants and that funding for research and development
grants may be reduced in the future.


MANUFACTURING AND SUPPLY AGREEMENTS

           The Company currently operates a GMP certified facility in Israel for
production of its bulk human growth hormone, BioLon, Bio-Hep-B, OxSODrol,
Factorex and insulin products, as well as the genetically-engineered portion of
the Fibrimage product. The Company also operates a modern filling suite for its
BioLon syringes which has undergone inspection by European and American
regulatory authorities. Based on these inspections, European Device Approval (CE
Mark) was granted.

           Although a substantial portion of the hGH supplied by BTG to its
distributors is in bulk form, BTG also provides distributors with fully packaged
product. For these distributors, the bulk human growth hormone is formulated,
filled and packed in vials by Dr. Madaus GmbH in Germany, which functions as the
Company's subcontractor for manufacturing the packaged product. In addition,
sterilization of the BioLon syringe is performed by Mediplast Israel Ltd., which
functions as the Company's subcontractor for these purposes. The Company
believes that it operates its facilities under, and is in compliance with, the
FDA's good laboratory and manufacturing practices.

           The Company's Oxandrin product is currently being manufactured for
BTG on an exclusive basis by Searle, which originally developed the product. The
agreement with Searle provides that Searle will produce and exclusively sell to
BTG all of BTG's Oxandrin requirements. The agreement requires that BTG purchase
all of its Oxandrin requirements exclusively from Searle through April 1999 and
80% of its requirements for the subsequent two-year period. The agreement
expires in April 2001, subject to earlier termination under certain
circumstances, and may be extended by mutual agreement of the parties. The
agreement provides that Searle will not produce Oxandrin for any other person
prior to April 2006. The Company and Searle are currently negotiating an
amendment to the supply agreement which would extend the agreement and maintain
the exclusivity subject to BTG purchasing a certain minimum annual amount.

           In addition to a long term exclusive supply agreement with Searle,
BTG has had an alternative exclusive agreement with Societa Prodotti Antibiotici
S.p.A. ("SPA") covering, if necessary, the supply of oxandrolone to BTG through
at least the year 2003, contingent on certain regulatory approvals. The Company
and SPA are negotiating the termination of this agreement. In February 1999, the
Company entered into a supply agreement with Gedeon-Richter Ltd. ("GRL")
pursuant to which GRL will supply oxandrolone to BTG on an exclusive basis
provided certain annual minimum purchase requirements are met. It is anticipated
that supply by GRL will begin prior to termination of the current Searle
agreement. Should Searle for any reason be unable to supply Oxandrin to BTG
prior to GRL obtaining the necessary approvals, BTG's business, results of
operations and financial condition could be materially adversely affected. See
"--Risk Factors--Dependence on Third-Party Suppliers."

           BTG has entered into a manufacturing agreement with ProCyte Corp.,
Kirkland, Washington and Applied Analytical Industries Inc., Wilmington, North
Carolina for the manufacture of Androtab-SL.

           Bristol has manufactured Delatestryl for the Company on a purchase
order basis following expiration of a supply agreement in December 1997. There
can be no assurance that Bristol will continue to honor the Company's purchase
orders or that the Company's supply requirements will be satisfied.
Additionally, Bristol has from time to time indicated to BTG that it intends to
close the facility at which it manufactures Delatestryl. The need to find a new
manufacturer could affect the availability of Delatestryl.

           In February 1995, BTG-Israel was awarded ISO 9002 certification by
the Standards Institution of Israel ("SII"). The certification was issued with
respect to the manufacture, packaging and dispatch of BTG's pharmaceutical
products for human use. ISO 9002 is one of a series of Quality Management System
Standards established by the International Organization for Standardization
("ISO") based in Geneva, Switzerland. It is equivalent to the European Community
Standard EN 29002. SII is a member of an international organization,

                                       12



<PAGE>



the International Quality Certification Network ("IQNet"), that encompasses
quality certification institutes worldwide in a mutual recognition agreement.
Receipt of the ISO 9002 certification was a significant milestone in the process
of obtaining the BioLon CE mark. In August 1997, SII awarded BTG-Israel ISO
14001 certification for its Environmental Management System. The ISO 14000
series of standards, dealing with the environment and its protection, are
becoming important from both a regulatory and commercial point of view.


GOVERNMENTAL REGULATION

           Regulation by governmental authorities in the United States and other
countries is a significant factor affecting the timing of the commercialization
of the Company's products and its ongoing research and development activities.
The Company's policy is to conduct its research and development activities in
compliance with current United States National Institutes of Health Guidelines
for Research Involving Recombinant DNA Molecules, and with comparable guidelines
in Israel and other countries where the Company may be conducting clinical
trials or other developmental activities. See "--Risk Factors--Effect of
Government Regulation."

           Clinical testing, manufacturing and marketing human pharmaceutical
products require prior approval from the FDA and comparable agencies in foreign
countries. The FDA has established mandatory procedures and safety and efficacy
standards that apply to the testing, manufacture and marketing of such products
in the United States. In the United States, these procedures include
pre-clinical studies, the filing of an IND, human clinical trials and approval
of an NDA. European countries generally follow the same procedures. The EEC has
established a unified filing system administered by the Committee for
Proprietary Medicinal Products ("CPMP") designed to reduce the administrative
burden of prosecuting applications for new pharmaceutical products. Following
CPMP review and approval, marketing applications are submitted to member
countries for final approval and pricing approval, as appropriate. These
processes are likely to take a number of years and often involve substantial
expenditures. There can be no assurance that any approval will be granted and,
even if granted, such approval may be withdrawn if compliance with regulatory
standards is not maintained. In addition, certain environmental and consumer
groups are generally opposed to genetically engineered products, primarily in
the agricultural field. There can be no assurance that opposition from such
groups will not adversely affect the FDA approval process with respect to the
Company's biotechnology products.

           In addition to the foregoing, the Company's present and future
business may be subject to regulation under the United States Atomic Energy Act,
Drug Enforcement Agency, Clean Air Act, Clean Water Act, Occupational Safety and
Health Act, National Environmental Policy Act, Toxic Substances Control Act,
Resource Conservation and Recovery Act, Comprehensive Environmental Response,
Compensation and Liability Act and similar state and foreign statutes, as well
as national restrictions on technology transfer, and import, export and customs
regulations and similar laws and regulations in foreign countries.


PATENTS AND PROPRIETARY RIGHTS

           The Company's scientific staff and consultants are actively working
in various areas of biotechnology to develop techniques, microorganisms,
processes and products to achieve the Company's commercial aims. It is the
Company's policy to protect its intellectual property rights in this work by a
variety of means, including filing patent applications in the United States and
major industrialized countries. The Company also relies upon trade secrets and
improvements, unpatented proprietary know-how and continuing technological
innovation to develop and maintain its competitive position. See "--Risks
Factors--Uncertainty of Protection of Patents and Proprietary Rights."

           As of February 10, 1999, approximately 400 granted patents, owned or
exclusively licensed by the Company, are being maintained worldwide, including
56 patents granted in the United States, 14 patents granted by the European
Patent Office ("EPO") and 18 patents granted in Israel. Additionally,
approximately 170 patent applications owned or exclusively licensed by the
Company are pending in various countries. There can be no assurance that any of
the patent applications assigned or licensed to BTG will result in granted
patents, or that granted patents will not be circumvented or invalidated. The
Company believes that important

                                       13



<PAGE>



legal issues remain to be resolved as to the extent and scope of patent
protection, and the Company expects that in certain cases litigation may be
necessary to determine the validity and scope of its and others' proprietary
rights. Such litigation may consume substantial resources. See "--Risk
Factors--Uncertainty of Protection of Patents and Proprietary Rights" and "Item
3. Legal Proceedings."

           The Company is aware of patent applications filed by, or patents
issued to, other entities with respect to technology potentially useful to the
Company and, in some cases, related to products and processes being developed by
the Company. The Company cannot presently assess the effect, if any, that these
patents may have on its operations. The extent to which efforts by other
researchers have or will result in patents and the extent to which the issuance
of patents to others would have a materially adverse effect on the Company or
would force the Company to obtain licenses from others is currently unknown. See
"--Risk Factors--Uncertainty of Protection of Patents and Proprietary Rights."

           The NTIS Agreement requires the Company to expend reasonable efforts
and resources to develop and bring licensed products to the point of practical
application by January 1, 1997, unless this period is extended by mutual
agreement of the parties. The Company believes that its October 1996 filing of
an NDA and its ongoing activities for Androtab-SL satisfy this requirement. The
Company pays an annual maintenance fee to NTIS and will pay NTIS an
administration and royalty fee of five percent of the net sales of licensed
products during the exclusive period of the NTIS Agreement, except that no
administration and royalty fee will be payable for direct sales of licensed
products by the Company to the United States Government. NTIS has notified the
Company that BTG must pay a portion of the legal fees relating to the NTIS
Interference pursuant to the NTIS Agreement relating to the Company's sublingual
testosterone product, Androtab-SL. The Company, which believes it is not
obligated to pay these fees, is currently in discussions with the NTIS. There
can be no assurance as to the outcome of these discussions. The Company has a
know-how license in the U.S. and a patent license outside the U.S. from Janssen
relating to sublingual formulations of the compound and testosterone. The
Company believes Janssen and NTIS have reached an agreement concerning the
settlement of the NTIS Interference whereby each will respect the existing U.S.
licenses of the other. The NTIS Interference is continuing and the exact scope
of protection, if any, will be assessed based on the scope of any claims that
may be granted at the conclusion of the NTIS Interference. The Company does not
expect the patents licensed under the NTIS Agreement will prevent other
companies from introducing sublingual steroid replacement products using other
delivery systems in the United States or similar delivery systems outside the
United States. See "--Products and Applications--Androtab-SL."

           To date, the Company has been, or currently is, party to several
administrative and legal proceedings relating to its technologies, products and
patents and the patents of others. See "--Risk Factors--Risk of Pending Patent
Litigation" and "Item 3. Legal Proceedings."


INSTITUTIONAL AND GOVERNMENTAL RELATIONSHIPS

           The Company believes its relationships with research institutions in
the United States, Europe and Israel and with the Government of Israel to be
important in its research and product development efforts. The Company believes
that these relationships greatly enhance its research and product development
efforts, and the Company intends to develop and maintain relationships with
leading universities and research institutions even as it continues to expand
its capability to conduct research and product development at its own
facilities. See "--Risk Factors--Risk of Operations in Israel."

           The State of Israel supports and encourages research and development
in the field of high technology, as well as manufacturing for export through
programs that provide for research and development funding, export financing,
tax benefits and capital investment incentives. The Company's research and
development activities in Israel through BTG-Israel enable it to take advantage
of these programs. There can be no assurance, however, that such programs will
continue.



                                       14



<PAGE>



OPERATIONS IN ISRAEL

           The Company's primary research and development and production
activities are conducted in Israel and are affected by economic, military and
political conditions there. Israel has been involved in a number of armed
conflicts with its bordering countries. During the course of military
operations, Israel's military reserves, which include a number of the Company's
employees and executives, may be called up. To date, the Company has been able
to continue its research and development and production activities during
periods of military mobilization, although there can be no assurance that such
activities could be continued in the event of future hostilities.

           Because BTG-Israel is involved in a technological industry and is an
exporter of Israeli goods, the Company has enjoyed the benefits of certain
programs promulgated by the Government of Israel in order to encourage the
development of technology and export of Israeli products. However, there can be
no guarantee that these programs will continue.


COMPETITION

           Therapeutic drug development is conducted by numerous companies
throughout the world. Competition is intense in the product areas in which the
Company has focused its efforts. Significant competition comes from independent,
dedicated biotechnology companies as well as from large, established
pharmaceutical companies. In addition, the Company's products may compete
against products developed by non-recombinant techniques. The primary
competitive factors in this field are the ability to attract and retain highly
qualified scientists and technicians, to create and maintain scientifically
advanced technology during a period of rapid technological development and to
develop proprietary products or processes.

           The principal parameters influencing competition are the efficacy of
products and their production processes, the patent protection available for
such products, the timing of commercialization vis-a-vis competitors' products
and, to a limited extent, price. The Company's competitive position in the
industry varies on a product-by-product and country-by-country basis depending
upon the efficacy of the Company's products as compared to competing products,
the scope of patent protection in each country for the Company's products as
compared to competing products, whether the Company's product is the first such
product to be commercialized and, where there are a number of similar products,
the price of the Company's product as compared to its competitors' products, and
the relative strength of the Company's partner in said territory.

           Many of the Company's current competitors have significantly greater
financial and organizational resources than the Company. Since technological
developments are expected to continue at a rapid pace in the biotechnology
industry, the successful development of the Company's products will be dependent
upon its ability to maintain a competitive position with respect to its
technology. See "--Risk Factors--Competition."


EMPLOYEES

           As of February 1, 1999 the Company had 271 employees, most of whom
are engaged in research, development, manufacturing, quality assurance and
marketing activities, including 36 who hold Ph.D. or M.D. degrees. In addition,
the Company has consulting arrangements with scientists at various institutions
and universities in the United States and Israel.

           The Company's ability to develop marketable products and to establish
and maintain its competitive position in light of technological developments
will depend, in part, on its ability to attract and retain qualified scientific,
marketing and management personnel. Competition for such personnel is intense.

           None of the Company's employees is represented by a labor union and
the Company has experienced no work stoppages. The Company believes its
relations with its employees are good and has experienced a low turnover rate
among its employees.


                                       15



<PAGE>



RISK FACTORS

           This Annual Report on Form 10-K contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. All statements regarding the
Company's expected future financial position, results of operations, cash flows,
financing plans, business strategy, competitive position, plans and objectives
and words such as "anticipate," "believe," "estimate," "expect," "intend,"
"plan" and other similar expressions are forward-looking statements. Such
forward looking statements are inherently uncertain, and stockholders must
recognize that actual results could differ materially from those projected or
contemplated in the forward-looking statements as a result of a variety of
factors, including the factors set forth below.

           Dependence on Oxandrin. Approximately 64%, 96% and 87% of the
increase in the Company's product sales in 1996, 1997 and 1998 resulted from
increasing sales of Oxandrin, which the Company relaunched in the United States
in December 1995. Sales of Oxandrin in 1996, 1997 and 1998 amounted to
approximately $15.1 million, $27.9 million and $40.5 million, respectively,
representing 37%, 52% and 59%, respectively, of the Company's total product
sales in those periods. Oxandrin is facing increasing competition from other
products, including human growth hormone, and there can be no assurance that
such sales increases will continue. A substantial number of users of Oxandrin
are patients with AIDS and as more successful treatments for this disease, such
as protease inhibitors, are developed, the need to use Oxandrin by these
patients may be reduced. Although the Company is working to expand the use of
Oxandrin to treat other conditions covered by the product's current FDA
approval, such as the treatment of weight loss suffered by burn victims and
persons suffering from weight loss associated with non-healing wounds, chronic
obstructive pulmonary disease and cancer, there can be no assurance that the
Company will be successful in its efforts. Additionally, there are no patents
covering Oxandrin and there can be no assurance that others will not introduce
an oxandrolone product.

           Dependence on Third-Party Suppliers. The Company is dependent on
third parties for the manufacture of Oxandrin and Delatestryl and the filling
and vialing of its Bio-Tropin product. Although the Company is a party to an
exclusive supply arrangement with Searle, and an alternative exclusive supply
agreement with GRL, covering the supply of Oxandrin to BTG through at least the
year 2003, there can be no assurance that Searle will continue, or that GRL will
be able, to provide the Company with sufficient supplies of Oxandrin to satisfy
its future needs. Bristol has manufactured Delatestryl for the Company pursuant
to an agreement which expired in December 1997. There can be no assurance that
Bristol will continue to honor the Company's purchase orders or that the
Company's supply requirements will be satisfied. Additionally, Bristol has from
time to time indicated to BTG that it intends to close the facility at which it
manufactures Delatestryl. The need to find a new manufacturer could affect the
availability of Delatestryl. In addition, the Company is dependent on Dr. Madaus
GmbH ("Dr. Madaus") to fill and vial the Company's Bio-Tropin product. Any
failure of Searle and GRL, Bristol or Dr. Madaus to fulfill its obligations to
the Company could have a material adverse effect on the business, results of
operations and financial condition of the Company. There can be no assurance
that the Company would be able to find an alternative supplier for any of Searle
and GRL, Bristol or Dr. Madaus if they were unable or unwilling to fulfill their
obligations to the Company. See "--Manufacturing and Supply Agreements."

           Dependence on Third Party Licensees. The Company has derived, and
expects to continue to derive over the next several years, revenues from
existing and new licensing, research and development and marketing agreements.
These agreements typically provide the Company's licensees with certain rights,
subject to an obligation to pay royalties to the Company based on any future
product sales or to purchase product from the Company, to manufacture and market
specified products developed using the Company's proprietary technology. Certain
of these agreements provide for funding by licensees of research activities
performed on their behalf by the Company. Continued funding and participation by
these licensees will depend not only on the timely achievement of milestones,
which cannot be assured, but also on each licensee's own financial, competitive,
marketing and strategic considerations. Such considerations include the relative
advantages, including patent and proprietary positions, of alternate products
being marketed or developed by others. Furthermore, the amounts of any payments
to be received by the Company under its license agreements from sales of product
by licensees will be dependent on the extent to which its licensees devote
resources to the development and commercialization of the products. Although the
Company believes its licensees have an

                                       16



<PAGE>



economic motivation to commercialize their products, the Company will have no
effective control over the licensees' commercialization efforts.

           Risk of Pending Patent Litigation. To date, the Company has been, or
currently is, party to several administrative and legal proceedings relating to
its technologies, products and patents and the patents of others. Genentech,
Inc. ("Genentech") has alleged that the Company's human growth hormone ("hGH")
product infringes various Genentech patents and has obtained a preliminary
injunction prohibiting the commercial introduction of the Company's human growth
hormone in the United States. It is currently anticipated that this lawsuit will
be tried beginning in October 1999. There can be no assurance that Genentech
will not be successful in prosecuting similar infringement claims in one or more
other countries in which BTG's human growth hormone product is being sold. If
the Company's hGH is found to infringe certain Genentech patents in one or more
other countries, the Company and/or its distributor(s) may be obligated to pay
damages, and would need to obtain a license from Genentech in order to continue
sales of hGH. There can be no assurance that such a license will be granted by
Genentech, or that the Company's distributor(s) will not be required to stop
selling the Company's hGH.

           Additionally, BTG's patent covering a method for producing
enzymatically active human copper/zinc superoxide dismutase ("SOD") in bacteria
is currently the subject of an interference action with Chiron Corp. ("Chiron")
in the United States Patent Office Board of Patent Appeals and Interferences. An
additional interference action has been declared between an application owned by
BTG and a U.S. patent issued to Chiron for a bacterially produced form of
recombinant human copper/zinc SOD. Unless BTG is able to prevail in these
actions or obtain a license from Chiron, BTG may be unable to commercialize its
OxSODrol product in the United States. BTG is also engaged in litigation with
Biogen, Inc. ("Biogen") relating to the compulsory license granted to BTG which
allows BTG to produce its Bio-Hep-B vaccine in Israel and to export the vaccine
to countries in which neither Biogen nor others have been granted a blocking
patent. If Biogen is successful in overturning the compulsory license, BTG will
not be able to manufacture its Bio-Hep-B vaccine in Israel. See "Item 3. Legal
Proceedings."

           Uncertainty of Protection of Patents and Proprietary Technology. The
Company has developed patentable technology and proprietary know-how and has
acquired from various universities and institutions certain basic technologies,
as to which either patents have been issued or patent applications are pending.
There can be no assurance that patent applications will result in issued
patents, that the claims allowed in such issued patents will be sufficiently
broad to protect the Company's proprietary rights or that patents will not be
challenged, circumvented or invalidated or that rights granted pursuant to such
patents will provide competitive advantages to the Company. The Company's
success depends in part on its ability to continue to obtain patent protection
in the United States and other countries for its technologies and the products,
if any, resulting from such technologies. Patent applications in the United
States are maintained in secrecy until a patent issues, and the Company cannot
be certain that others have not filed patent applications for technology covered
by the Company's pending applications or that the Company was the first to file
patent applications for such technology. The Company also relies on trade
secrets, proprietary know-how and technological innovation which it seeks to
protect with confidentiality agreements with its employees, consultants and
licensees. There can be no assurance that these agreements will not be breached,
that the Company will have adequate remedies for any breach or that BTG's trade
secrets and proprietary know-how will not otherwise become known or be
independently discovered by competitors.

           BTG's commercial success will also depend in part on the Company not
infringing patents or proprietary rights of third parties. A number of companies
and research and academic institutions have developed technologies, filed patent
applications or received patents on various technologies that relate to the
Company's business, and such entities may file applications for or be issued
patents in the future with respect to technology potentially necessary or useful
to BTG. Some of these technologies, applications or patents may conflict with
the Company's technologies and existing or future patents, if any, or patent
applications. Such conflict could limit the scope of patents that BTG has
obtained or may obtain in the future or result in patent applications failing to
issue as patents. In addition, if third parties obtain patents which cover the
Company's activities, there can be no assurance that BTG would be able to
license such patents on reasonable terms, or at all, or be able to license or
develop alternative technology. As more patents are issued to third parties, the

                                       17



<PAGE>



risk that the Company's products and activities may give rise to claims that
they infringe the patents of others increases.

           The Company expects that administrative hearings, litigation or both
will be necessary to determine the validity and scope of its and others'
proprietary or biotechnology patents. Such administrative proceedings or
litigation have to date required, and may in the future require, a significant
commitment of the Company's resources. Any such commitment may divert resources
from other areas of the Company.

           Limited Manufacturing Capacity and Experience. The Company has
limited commercial scale manufacturing capacity and experience. While it is
expected that the Company's manufacturing facilities will allow the Company to
satisfy its current and anticipated near-term requirements, the Company will
need a larger facility to meet anticipated increases in demand for its products.
The Company is required to obtain regulatory approval for all of its commercial
manufacturing processes and facilities, and to date the Company has been able to
obtain such approvals. Any failure to receive, or substantial delay in
obtaining, regulatory approval for its manufacturing processes and facilities
could have a material adverse effect on the Company.

           The manufacture of the Company's products involves a number of
technical steps and requires meeting stringent quality control specifications
imposed by governmental regulatory bodies and by the Company itself. Further,
such products can only be manufactured in facilities approved by the applicable
regulatory authorities. As a result, the Company may not be able to quickly and
efficiently replace its manufacturing capacity in the event that it is unable to
manufacture its products at its facilities. In the event of a natural disaster,
equipment failure, strike, war or other difficulty, BTG may be unable to
manufacture its products in a manner necessary to fulfill demand. BTG's
inability to fulfill demand may permit its licensees and distributors to
terminate their agreements, seek alternate suppliers or manufacture the products
themselves. Additionally, if the Company does not receive regulatory approval
for any new facility, it would likely be unable to meet the anticipated
increased demand for its products, which would have a material adverse effect on
BTG's business, results of operations and financial condition.

           The Company is dependent on third parties to manufacture all or a
portion of certain of its products. See "-- Dependence on Third-Party
Suppliers."

           Limited Marketing Capability and Experience. The Company established
a sales and marketing force in the United States during the second half of 1995
to promote distribution of Oxandrin and other BTG products in the United States.
With respect to territories outside the United States, the Company does not yet
have an established sales force and relies on third parties to market its
products. There can be no assurance that the Company's marketing strategy will
be successful. The Company's ability to market its products successfully in the
future will be dependent on a number of factors, many of which are not within
its control.

           Limited Commercial Products. The Company's principal activities since
its formation in 1980 have been the research and development of products with
commercial potential. Commercialization of the Company's products is subject to
successful clinical testing and governmental approvals, the timing of which is
not within the control of the Company and has taken and may continue to take
longer than anticipated. Acceptance by the medical community of the Company's
products is also necessary for their successful commercialization.

           Variability of Operating Results. Revenue has in the past and may in
the immediate future continue to display significant variations due to the level
of sales of existing products, the introduction of new products and new research
and development contracts and licensing arrangements, the completion or
termination of those contracts and arrangements, the timing and amounts of
milestone payments and the timing of regulatory approvals of products. The
Company's continued profitability will be dependent on its success in
developing, obtaining regulatory approvals for and effectively marketing its
products. The annual cash flows of the Company have fluctuated significantly due
to the impact of net income and losses, capital spending, working capital
requirements and issuances of Common Stock and other financings. The Company
expects that cash flow in the near future will be primarily determined by the
levels of net income, working capital requirements and financings, if any,
undertaken by the Company. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."

                                       18



<PAGE>



           Capital Needs. The development and commercialization of products
requires a substantial amount of funds. The Company's cash requirements are
currently satisfied primarily through product sales. Historically, cash
requirements were satisfied primarily through (i) product sales, (ii) funding of
projects through collaborative research and development arrangements, (iii)
contract fees, (iv) government of Israel funding of a portion of certain
research and development projects and (v) equity and debt financings. There can
be no assurance that these financing alternatives will be available in the
future to satisfy the Company's cash requirements. The Company believes that its
current cash resources, together with anticipated product sales, scheduled
payments to be made to BTG under its current agreements with pharmaceutical
partners and third parties and continued funding from the Chief Scientist at
current levels, will be sufficient to fund the Company's ongoing operations for
the foreseeable future. There can, however, be no assurance that product sales
will occur as anticipated, that scheduled payments will be made by third
parties, that current agreements will not be canceled, that the Chief Scientist
will continue to provide funding at current levels, or that unanticipated events
requiring the expenditure of funds will not occur.

           The satisfaction of the Company's future cash requirements will
depend in large part on the status of commercialization of the Company's
products, the Company's ability to enter into additional research and
development and licensing arrangements, and the Company's ability to obtain
additional equity investments, if necessary. There can be no assurance that the
Company will be able to obtain additional funds or, if such funds are available,
that such funding will be on favorable terms. If additional funds are raised by
issuing equity securities of the Company, dilution to existing stockholders may
result. If adequate funds are not available, BTG may be required to
significantly curtail one or more of its commercialization efforts or research
and development programs or obtain funds through arrangements with collaborative
partners or others on less favorable terms than might otherwise be available.

           Effect of Governmental Regulation. The Company is subject to
regulation by numerous governmental authorities in the United States and other
countries. All of the Company's products, manufacturing processes and facilities
require governmental licensing or approval prior to commercial use. The approval
process applicable to products of the type being developed by the Company
usually takes five to seven years from the commencement of human clinical trials
and typically requires substantial expenditures. The Company and its licensees
may encounter significant delays or excessive costs in their respective efforts
to secure necessary approvals or licenses. Before obtaining regulatory approval
for the commercial sale of its products, the Company is required to conduct
preclinical and clinical trials to demonstrate that the product is safe and
efficacious for the treatment of the target disease. The results from
preclinical animal studies and early clinical trials may not be predictive of
results that will be obtained in large scale testing. A number of biotechnology
companies have recently suffered significant setbacks in advanced clinical
trials, even after experiencing promising results in preclinical and early human
testing. Additionally, the timing of completion of clinical trials is dependent
upon a number of factors, many of which are outside the Company's control,
including the rate of patient enrollment. Patient enrollment is a function of
several factors, including the size of the patient population and the proximity
of patients to clinical sites. Delays in patient enrollment could result in
increased costs and delays in completion of the clinical trials. In addition,
preclinical and clinical trials must meet regulatory and institutional
requirements. Data obtained from preclinical and clinical activities are
susceptible to varying interpretations which could delay, limit or prevent
regulatory approval. In addition, the Company and its partners may encounter
delays or rejections based upon changes in the policies of regulatory
authorities.

           Future United States or foreign legislative or administrative acts
could also prevent or delay regulatory approval of the Company's or its
licensees' products. Failure to obtain requisite governmental approvals, or
failure to obtain approvals of the scope requested, could delay or preclude the
Company or its licensees from marketing their products, could limit the
commercial use of the products and could also allow competitors time to
introduce competing products ahead of product introduction by the Company and
thereby have a material adverse effect on the Company's results of operations,
liquidity and financial condition. Even after regulatory approval is obtained,
use of the products could reveal side effects that, if serious, could result in
suspension of existing approvals and delays in obtaining approvals in other
jurisdictions.

           Regulation by governmental authorities in the United States and other
countries is a significant factor affecting the timing of the commercialization
of the Company's products and its ongoing research and development activities.
The timing of regulatory approvals is not within the Company's control. To date,
the

                                       19



<PAGE>



length of time required to obtain regulatory approval of genetically-engineered
products has been significantly longer than expected, both for the Company and
the biotechnology industry in general. These delays have had, and if they
continue could have, a material adverse effect on the results of operations and
financial condition of the Company. The Company believes that these delays have
in the past negatively impacted its ability to attract funding and that, as a
result, the terms of such financings have been less favorable to the Company
than they might otherwise have been had the Company's product revenues provided
sufficient funds to finance the large costs of taking a product from discovery
through commercialization. As a result, the Company has had to license the
commercialization of many of its products to third parties in exchange for
research funding and royalties on product sales; this will result in lower
revenues than if BTG had commercialized the products on its own.

           Failure to comply with applicable regulatory requirements can, among
other things, result in fines, suspension of regulatory approvals, product
recalls, seizure of products, imposition of operating restrictions and criminal
prosecutions. Further, FDA policy or similar policies of regulatory agencies in
other countries may change and additional governmental requirements may be
established that could prevent or delay regulatory approval of the Company's
products.

           Uncertainty of Healthcare Reimbursement. The Company's ability to
successfully commercialize human therapeutic products may depend in part on the
extent to which reimbursement for the cost of such products and related
treatment will be available from government health administration authorities,
private health coverage insurers and other organizations. Significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products, and there can be no assurance that adequate third-party coverage will
be available for the Company to maintain price levels sufficient for the
realization of an appropriate return on its investment in product development.
Government and other third party payors are increasingly attempting to contain
healthcare costs by limiting both coverage and the level of reimbursement for
new therapeutic products approved for marketing by the FDA and by refusing, in
some cases, to provide any coverage for use of approved products for disease
indications for which the FDA has not granted marketing approval. If adequate
coverage and reimbursement levels are not provided by government and third-party
payors for use of the Company's healthcare products, the market acceptance of
these products would be adversely affected. In addition, in recent years a
number of federal and state healthcare reform proposals have been introduced to
contain healthcare costs. There can be no assurance as to the ultimate content,
timing or effect of any healthcare reform legislation, nor is it possible at
this time to estimate the impact of potential legislation on the Company.
Regulatory approval of prices is also required in most countries outside the
United States. In particular, certain European countries will condition their
approval of a product on the agreement of the seller not to sell the product for
more than a certain price in that country. There can be no assurance that the
establishment of a price in one European country will not have the practical
effect of requiring the Company's marketing partners to sell the product in
other European countries at no higher than such price. Because BTG generally
supplies product to its marketing partners for a specified percentage of net
sales, there can be no assurance that the resulting prices would be sufficient
to generate an acceptable return on the Company's investment in its products or
even cover the Company's manufacturing costs for such product.

           Risk of Technical Obsolescence; Highly Competitive Industry.
Biotechnology has undergone rapid and significant technological change. The
Company expects that this technology will continue to develop rapidly, and the
Company's future success will depend, in large part, on its ability to maintain
a competitive position. Rapid technological development may result in products
or processes becoming obsolete before marketing of these products or before the
Company recovers a significant portion of the research, development and
commercialization expenses incurred with respect to those products. Numerous
companies, including well-known pharmaceutical and biotechnology companies, are
engaged in the business of researching and developing products similar to those
of the Company. Many of these companies have substantially greater capital
resources and larger research and development staffs and facilities than the
Company. Such companies may succeed in their research, developing on a more
timely basis products that may be more effective than any which may be developed
by the Company. These companies may also be more successful than the Company in
the production and marketing of such products.

           Retention of Key Personnel. The Company is dependent upon the efforts
of its officers and scientists and other employees. The loss of certain of these
key employees could materially and adversely affect the

                                       20



<PAGE>



Company's business. There is a great deal of competition for the limited number
of scientists with expertise in the area of the Company's operations. The
business of the Company is dependent upon its ability to attract and retain
qualified research and managerial personnel. The Company does not maintain, and
has no current intention of obtaining, "key man" life insurance on any of its
employees.

           Risk of Operations in Israel. The Company's primary research,
development and production operations are at this time conducted in Israel by
its wholly-owned subsidiary BTG-Israel and can be affected by economic, military
and political conditions in that country and in the Middle East in general. The
Company manages its Israeli operations with the object of protecting against any
material net financial loss in U.S. dollars from the impact of Israeli inflation
and currency devaluations on its non-U.S. dollar assets and liabilities. The
cost of the Company's operations in Israel, as expressed in dollars, is
influenced by the extent to which any increase in the rate of inflation in
Israel is not offset (or is offset on a lagging basis) by a devaluation of the
Israeli Shekel in relation to the dollar. The rate of inflation (as measured by
the consumer price index) was approximately 11% in 1996, 7% in 1997 and 9% in
1998, while the Shekel was devalued by approximately 4%, 9% and 18%,
respectively. As a result, for those expenses linked to the Israeli Shekel, such
as salaries and rent, this resulted in corresponding increases in these costs in
U.S. dollars in 1996, but a decrease in 1997 and 1998. To the extent that
expenses in Shekels exceed BTG's revenues in Shekels (which to date have
consisted primarily of research funding from the Chief Scientist and product
sales in Israel), the devaluations of Israeli currency have been and will
continue to be a benefit to BTG's financial condition. However, should BTG's
revenues in Shekels exceed its expenses in Shekels in any material respect, the
devaluation of the Shekel will adversely affect BTG's financial condition.
Further, to the extent the devaluation of the Shekel with respect to the U.S.
dollar does not substantially offset the increase in the costs of local goods
and services in Israel, BTG's financial results will be adversely affected as
local expenses measured in U.S. dollars will increase.

           Risk of Product Liability. The testing and marketing of the Company's
products entail risk of product liability. Although the Company has so far been
able to obtain indemnification from pharmaceutical companies commercializing its
products, there can be no assurance that other such companies will agree in the
future to indemnify the Company for other of the Company's products or that such
companies will, if obligated to do so, have adequate resources to fulfill their
indemnity agreements. Further, to the extent the Company elects to test or
market products independently, it will bear the risk of product liability
directly. The Company presently has $15,000,000 of product liability insurance
coverage in place. Any successful product liability claim made against the
Company could substantially reduce or eliminate any stockholders' equity the
Company may have and could have a significant adverse impact on the future of
the Company.


           Volatility of Share Price. The market prices for securities of
biotechnology companies, including the Company, have been volatile, and it is
likely that the price of the Common Stock will fluctuate in the future. Factors
such as announcements of technological innovations or new commercial products by
the Company or its competitors, announcements by the Company or its competitors
of results in preclinical testing and clinical trials, governmental regulation,
patent or proprietary rights developments, public concern as to the safety or
other implications of biotechnology products, changes in earnings estimates and
recommendations by securities analysts, and market conditions in general may
have a significant impact on the market price of the Common Stock. In addition,
the market price of the Common Stock could be adversely affected by future
exercises of outstanding warrants and options. At December 31, 1998 options and
warrants to purchase an aggregate of approximately 6,332,000 shares and 406,000
shares, respectively, of Common Stock were outstanding. A substantial portion of
these options have exercise prices below the current market price of the Common
Stock. Additionally, all of the shares of Common Stock issuable upon exercise of
these outstanding options and warrants have been registered for resale under the
Securities Act of 1933, as amended, and, accordingly, when issued will be freely
tradable without restriction. In addition, the Company may issue additional
stock, warrants and/or options to raise capital in the future. The Company may
also issue additional securities in connection with its employee benefit plans.
During the terms of such options and warrants, the holders thereof are given the
opportunity to profit from a rise in the market price of the Common Stock. The
exercise of such options and warrants may have an adverse effect on the market
value of the Common Stock. The existence of such options and warrants may
adversely affect the terms on which the Company can obtain additional equity
financing. To the extent the exercise prices of such options and warrants are
less than the net tangible book value of the Common Stock at the time such
options and warrants are exercised, the Company's stockholders will experience
an immediate dilution in the net tangible book value of their investment.
Further,

                                       21



<PAGE>



the future sale of a substantial number of shares of Common Stock by existing
stockholders and option and warrant holders may have an adverse impact on the
market price of the Common Stock. See "Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters."

                                       22



<PAGE>



EXECUTIVE OFFICERS OF THE COMPANY

           The executive officers and key personnel of the Company are as
follows:

<TABLE>

Name                                                             Age              Positions
----------------------------------------------------          ----------          --------------------------------------------------
<S>                                                            <C>               <C>                                     
Sim Fass ...........................................              57              Chairman of the Board, President, Chief
                                                                                  Executive Officer and Treasurer; President of
                                                                                  BTG-Israel; Director

Norman Barton, M.D., Ph.D...........................              51              Senior Vice President--Chief Medical Officer

Zvi Ben-Hetz........................................              53              Vice President--Operations and Logistics,
                                                                                  BTG-Israel

Lawrence Brown......................................              40              Vice President--Business Development

Meir Fischer, Ph.D..................................              58              Vice President--Process Development, BTG-
                                                                                  Israel

Donald Fishbein.....................................              44              Vice President--Marketing

Marian Gorecki, Ph.D................................              58              Senior Vice President--Chief Technical
                                                                                  Officer; Managing Director, BTG-Israel

Abraham Havron, Ph.D................................              51              Vice President--Product Development and
                                                                                  Technology Transfer, BTG-Israel

Dov Kanner, Ph.D....................................              45              Vice President--Quality Assurance and
                                                                                  Regulatory Affairs, BTG-Israel

Ernest Kelly, Ph.D..................................              49              Senior Vice President--Quality Assurance,
                                                                                  Quality Control and Regulatory Affairs

Avigdor Levanon, Ph.D...............................              52              Vice President--Research, BTG-Israel

John Librie.........................................              41              Vice President--National Sales

Amos Panet, Ph.D....................................              57              Chief Scientist--BTG-Israel

Annmarie Petraglia..................................              60              Vice President--Regulatory Affairs

Robert Shaw.........................................              45              Vice President--General Counsel

Ronald Simko........................................              48              Vice President--Manufacturing

Yehuda Sternlicht...................................              44              Vice President--Finance, Chief Financial
                                                                                  Officer

Yehuda Zelig........................................              46              Vice President--Manufacturing, BTG-Israel
</TABLE>

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

           Sim Fass was elected a Director and Treasurer of the Company in
August 1983 and served as Chief Operating Officer of BTG-Israel from August 1983
to May 1987 and as President of BTG-Israel from May 1984. Dr. Fass became
President and Chief Executive Officer of the Company in May 1984 and Chairman of
the Board in March 1997. From April 1980 to August 1983, he was Vice President,
General Manager of Wampole Laboratories, a division of Carter-Wallace, Inc., a
company that manufactures health care-related products. Prior to that, he held
various positions at Pfizer Inc. from September 1969 until March 1980, including
Director, Marketing Research and Planning, Pfizer Pharmaceutical, and Vice
President, Marketing and Sales, Pfizer Diagnostics Division of Pfizer
Pharmaceutical and Group Marketing Manager of Pfizer Laboratories. Dr. Fass
received his Ph.D. in developmental biology/biochemistry from the Massachusetts
Institute of Technology.

                                       23



<PAGE>



           Norman Barton, M.D., Ph.D. joined the Company in April 1996 in the
newly created position of Vice President--Medical Affairs and was appointed
Senior Vice President--Chief Medical Officer in March 1998. Prior to joining the
Company, from 1985 to 1996 Dr. Barton served as Chief of the Clinical
Investigations and Therapeutics Section of the National Institute of
Neurological Disorders and Stroke in Bethesda, Maryland. During that time, he
was instrumental in the development and clinical investigation of
macrophage-targeted glucocerebrosidase (CEREDASE(TM)), the first enzyme
replacement product for Gaucher disease, a genetic disorder of lipid metabolism.
Between 1978 and 1985, Dr. Barton held positions as a staff neurologist at The
New York Hospital and the National Institute of Neurological Disorders and
Stroke. Dr. Barton is a board-certified neurologist and holds a Ph.D. in
Biological Chemistry.

           Zvi Ben-Hetz joined BTG-Israel in December 1980 as facility manager.
His work included the organization and construction of the manufacturing
facility and logistics system of the Company in Israel. Between 1986 and 1988,
he headed the unit involved in the construction of the present facility in
Israel. In 1988, he was appointed Operations and Logistics Manager of BTG-Israel
and in 1992 was appointed Vice President--Operations and Logistics of
BTG-Israel. From 1976 until he joined BTG-Israel, Mr. Ben-Hetz worked at the
Volcani Institute, the National Institute for Agriculture Research in Israel, as
a Junior Agricultural Engineer.

           Lawrence Brown joined the Company in October 1998 in the newly
created position of Vice President --Business Development. Prior to joining the
Company, Mr. Brown was employed by Centocor, Inc. from April 1987 to October
1998 in several capacities, most recently as Director, Business Development.

           Meir Fischer, Ph.D. was appointed to the newly-created position of
Vice President--Process Development of BTG-Israel in January 1998. Dr. Fischer
joined BTG-Israel in 1981 as group leader, served as Assistant Director of the
Molecular Biology Department from 1984 to 1988, and as Department Head from 1988
to 1994 in the Research Division, and Department Head of Process Development
from 1994 to 1997 in the Division of Manufacturing and Process Development. Dr.
Fischer obtained his Ph.D. in Biochemical Genetics and Microbiology from Indiana
University in 1974 and subsequently did post-doctoral research in the Department
of Biochemistry of Duke University and at Burroughs Wellcome Company.

           Donald Fishbein joined BTG as Director of Marketing in June 1995 and
was appointed Vice President--Marketing in July 1998. Prior to joining BTG, Mr.
Fishbein spent four years as Director of Marketing Planning for Wyeth-Ayerst
Laboratories. Prior to Wyeth-Ayerst Laboratories, Mr. Fishbein spent four years
with Genentech, three years with the McNeil Pharmaceuticals division of Johnson
& Johnson and four years with SmithKline Beecham Clinical Laboratories in
various marketing, strategic planning and market research positions.

           Marian Gorecki, Ph.D. has served as Senior Vice President--Chief
Technical Officer of the Company since June 1992 and as Managing Director of
BTG-Israel since May 1998. Prior thereto, he served as Vice President and Chief
Technical Officer of BTG-Israel from 1986 and as Vice President, Research and
Development of BTG-Israel since August 1981. Prior to that, he was on the staff
of the Weizmann Institute of Science for twelve years, during which time he was
an associate professor for two years. Dr. Gorecki received his Ph.D. in
biochemistry from the Weizmann Institute of Science in 1972. He has broad
experience in the fields of molecular biology and genetic engineering as well as
in peptide protein chemistry. Dr. Gorecki served as a director of the Company
from June 1992 through December 1994.

           Abraham Havron, Ph.D. joined BTG-Israel in September 1987 as
Director, Manufacturing and in 1992 was appointed Vice President--Manufacturing
of BTG-Israel. Dr. Havron obtained his Ph.D. degree in bio-organic chemistry
from the Weizmann Institute of Science in 1978 and subsequently did
post-doctoral research in the Department of Radiology at Harvard Medical School.
Before joining the Company, Dr. Havron served as Production and R&D Manager at
InterPharm Laboratories Ltd., a subsidiary of Ares Serono, S.A., a multinational
pharmaceutical company.

           Dov Kanner, Ph.D. was appointed to the newly created position of Vice
President--Quality Assurance and Regulatory Affairs of BTG-Israel in September
1994. Dr. Kanner joined BTG-Israel in 1981 as a staff scientist, served as Head
of Fermentation from 1984 to 1989 and as Deputy Director, Manufacturing and

                                       24



<PAGE>



Process Development, from 1989 to 1994. He obtained his Ph.D. in microbiology
from Rutgers University in 1980.

           Ernest Kelly, Ph.D. joined the Company in February 1996 in the newly
created position of Senior Vice President--Quality Assurance, Quality Control
and Regulatory Affairs. Prior to joining the Company, he was Vice President,
Worldwide Quality Assurance for Rhone-Poulenc Rorer Inc. ("RPR"). From 1979 to
1996, Dr. Kelly served in various positions at RPR in both research and
development and industrial operation quality assurance. Prior to joining RPR, he
served Merck Sharp and Dohme from 1974 to 1979 and McNeil Labs from 1972 to 1974
in quality assurance and analytical research positions. Dr. Kelly received his
Ph.D. in Physical Chemistry from Villanova University, served on several United
States Pharmacopeia Advisory Panels and also served as Adjunct Professor of
Pharmaceutics at Temple University.

           Avigdor Levanon, Ph.D. joined BTG-Israel in 1980 as group leader,
served as Head of the Molecular Biology Department from 1983 to 1995 and as
assistant to the Chief Scientist from 1995 to 1998. In October 1998 Dr. Levanon
was appointed to the newly-created position of Vice President--Research of
BTG-Israel. Dr. Levanon obtained his Ph.D. in Medical Virology and Microbiology
from The Tel-Aviv University Medical School in 1977 and subsequently did
post-doctoral research at the Institute of Molecular Biology of Zurich
University.

           John Librie joined BTG in October 1995 as the Executive Director of
Sales and was appointed Vice President--National Sales in July 1997. Prior to
joining BTG, Mr. Librie spent nine years with Genentech, holding positions in
sales, marketing and sales management. Prior to joining Genentech, Mr. Librie
spent five years with Marion Laboratories, a pharmaceutical company, in various
sales positions.

           Amos Panet, Ph.D. joined BTG-Israel in September 1986 as Assistant to
the Vice President, Research and Development. In March 1987, he was appointed
Chief Scientist. Dr. Panet obtained his Ph.D. in the field of biochemistry from
the Hebrew University of Jerusalem, and subsequently served as a post-doctoral
fellow with Drs. D. Khorana and D. Baltimore at the Massachusetts Institute of
Technology. Dr. Panet is a Professor of Virology at the Hadassah School of
Medicine of the Hebrew University.

           Annmarie Petraglia joined BTG in May 1994 as Senior Director,
Regulatory Affairs and was appointed Vice President--Regulatory Affairs in April
1995. Previously Ms. Petraglia was Director, Regulatory Affairs and Scientific
Documentation, Daiichi Pharm. Corp. from 1991 to 1994; Vice President Regulatory
Affairs, Zambon Corp. from 1988 to 1991; Senior Vice President, Regulatory
Affairs, Advanced Therapeutics Communications from 1986 to 1988; and Director,
Regulatory Affairs, American Home Products Corp. from 1984 to 1986. She served
in various regulatory affairs capacities at Schering-Plough Corporation from
1980 to 1984; as Director, Medical Analysis/Writing at Bristol-Myers
International from 1973 to 1978; and Product Manager at Hoffmann-La Roche, Inc.
from 1967 to 1973. Ms. Petraglia is a registered pharmacist.

           Robert Shaw joined the Company in April 1998 as Vice
President--General Counsel. Prior to joining BTG, Mr. Shaw was Vice President,
Intellectual Property and Assistant Secretary at BASF Corporation. From 1984 to
1989, he was Associate General Counsel at Hoechst-Celanese Corporation. Between
1979 and 1984 he held Associate positions at the Fish & Neave and Synnestvedt &
Lechner law firms. Mr. Shaw has a J.D. from Washington University School of Law.
He is admitted to the Bar in New York, Pennsylvania and Missouri.

           Ronald Simko joined the Company in August 1994 as Vice
President--Manufacturing. From 1977 to 1989, Mr. Simko worked in numerous
manufacturing capacities at Schering-Plough Corporation managing the process
validation organization as well as the sterile products and tablet production
operations. From 1989 to 1994, he was at Enzon, Inc., where he served as Senior
Director, Manufacturing and Materials Management.

           Yehuda Sternlicht joined BTG-Israel in July 1992 as financial manager
and in January 1993 was appointed Chief Financial Officer of the Company. In
June 1995, he was appointed Vice President--Finance and Chief Financial Officer
of the Company. From 1988 until he joined BTG-Israel, he was financial manager
of Bordeaux Textile Ltd., an Israeli company. From 1985 to 1988, he served as
controller of Laser Industries

                                       25



<PAGE>



Ltd., an Israeli company listed on the American Stock Exchange. Prior to that,
he held various positions at Haft & Haft, one of the largest CPA firms in
Israel. From 1983 to 1985, he worked at Haft & Haft's affiliate's New York
office. Mr. Sternlicht is qualified as a Certified Public Accountant in the
State of Israel.

           Yehuda Zelig joined BTG-Israel in March 1983 as research assistant.
In 1988 he was appointed as Manager-Protein Purification of BTG-Israel, and from
1989 to 1994 he served as Manager of BTG-Israel's Protein Purification
Department. In 1994 Mr. Zelig was appointed Head of the Manufacturing Department
of BTG-Israel and in September 1995 he was appointed Director of Manufacturing
of BTG-Israel. In January 1998, Mr. Zelig was appointed Vice
President--Manufacturing of BTG-Israel.

           William Pursley resigned as the Company's Senior Vice
President--Marketing, Sales and Commercial Development effective March 31, 1999.


ITEM 2.  PROPERTY

           The Company's administrative offices are located in Iselin, New
Jersey, where the Company has leased approximately 23,000 square feet of office
space. The lease has a base average annual rental expense of approximately
$415,000 and expires in October 2003. In addition, the Company leases
approximately 2,000 square feet in New York City for its business activities,
including its investor and public relations activities. This lease expires in
September 2003. The Company's research, development and manufacturing facility
is located in Rehovot, Israel, where BTG leases approximately 89,000 square feet
at an annual rental of approximately $1,009,000. The lease term expires in
December 2002. BTG also leases 5,000 square feet of warehouse space near its
research and manufacturing facility. Although the Company believes its space is
suitable and adequate for its current activities, the Company has determined
that it will require a new, larger manufacturing facility in Israel within the
next several years to meet anticipated increased demand for its products and
increased regulatory requirements. Accordingly, the Company is currently in
negotiations to purchase a manufacturing facility in Israel for approximately
$6.5 million. The Company will initially locate its production activities for
Bio-Hep-B and Fibrimage at this new facility, and will thereafter move the
remainder of its production activities to this facility. The Company expects the
initial production facility will be ready by the end of 2000.


ITEM 3.  LEGAL PROCEEDINGS

           On March 16, 1993, Genentech filed a complaint with the United States
International Trade Commission (the "ITC") alleging, among other things, that
BTG's importation of hGH into the United States violates Section 337 of the
Tariff Act of 1930 because of the existence of certain claims in U.S. patents of
Genentech. Genentech sought an immediate investigation and an order that BTG
cease and desist from importing hGH into the United States. The trial on the
Genentech complaint was held in April 1994. In January 1995, the ITC issued a
final decision dismissing the complaint with prejudice as a sanction for
Genentech's conduct which resulted in an incomplete record and violated the due
process rights of BTG and Novo-Nordisk A/S, another respondent in the
proceeding. The ITC also found no violation by BTG of Section 337 of the Tariff
Act of 1930. Genentech appealed the ITC decision to the United States Court of
Appeals for the Federal Circuit ("CAFC"). The appeal was heard in 1995, and in
August 1997 the CAFC reversed the ITC decision and remanded the investigation to
the ITC. However, Genentech then withdrew its complaint, the result of which is
that Genentech is barred from asserting the patents at issue, regarding hGH,
against BTG in the ITC. During 1993 and 1994, BTG incurred total legal fees of
approximately $4.2 million relating to the ITC proceeding.

           On December 1, 1994, Genentech filed a lawsuit against BTG in the
United States District Court for the District of Delaware alleging that BTG's
importation of hGH infringed two Genentech process patents. In January 1995, BTG
commenced an action against Genentech in the United States District Court for
the Southern District of New York (the "U.S. District Court") seeking, among
other things, declaratory judgments as to the non-infringement, invalidity and
unenforceability of such Genentech patents as well as damages resulting from
Genentech's actions in the ITC proceedings. The Delaware action was consolidated
with the

                                       26



<PAGE>



New York action, and in August 1995 the U.S. District Court granted a
preliminary injunction prohibiting the commercial introduction in the United
States of BTG's hGH. In April 1996, the CAFC rejected BTG's appeal of the grant
of the preliminary injunction. In May 1996, the CAFC rejected BTG's request for
a rehearing and a rehearing en banc. BTG filed a petition for a writ of
certiorari with the United States Supreme Court, which was denied in October
1996. BTG is now precluded from marketing and distributing its human growth
hormone in the United States pending the outcome of the patent infringement
action. Although BTG believes that it does not infringe any valid Genentech
patent, there can be no assurance that BTG will not be found to be infringing
Genentech's U.S. patents. If BTG is ultimately found by the district court to
infringe one or more claims in Genentech's U.S. patents, it likely will be
precluded from selling its hGH in the United States during the life of these
Genentech patents. It is anticipated that a trial in the U.S. District Court
will begin in October 1999. During 1995, the Company incurred total legal fees
relating to this litigation of approximately $824,000, which amount was
initially capitalized but subsequently written off in the first quarter of 1996
following the CAFC decision.

           In September 1993, JCR received a letter from attorneys representing
Genentech and its licensee, Kabi Pharmacia, claiming that JCR's sale of the
Company's hGH infringed certain Genentech patents and patent applications and
demanding that JCR cease the sale of the Company's hGH in Japan. JCR and BTG
have filed oppositions to five Genentech patent applications in Japan;
oppositions with respect to four of these patents were denied and the fifth is
pending. There can be no assurance that the pending opposition will be
successful. Although the Company does not believe that it is infringing or has
ever infringed any valid Genentech patent or patent application, there can be no
assurance that BTG's hGH will not be found to infringe certain Genentech patents
in Japan. If the Company's hGH is found to infringe certain Genentech patents in
Japan, JCR and/or the Company may be obligated to pay damages, and would need to
obtain a license from Genentech in order to continue sales of hGH in Japan.
There can be no assurance that such a license will be granted by Genentech, or
that JCR will not be required to stop selling the Company's hGH in Japan. Sales
of hGH to JCR in 1996, 1997 and 1998 were approximately $12.9 million, $10.1
million and $11.1 million, respectively, representing 32%, 19% and 16%,
respectively, of the Company's total product sales in those periods and 71%, 60%
and 64%, respectively, of the Company's total hGH product sales in those
periods. BTG expects sales of its hGH in Japan to increase significantly as a
result of Sumitomo beginning to market the Company's hGH in Japan in 1999.

           During 1991, BTG received notification from the United States Patent
Office Board of Patent Appeals and Interferences (the "Patent Office") of the
declaration of an interference between an issued patent assigned to BTG covering
a method for producing enzymatically active human copper/zinc SOD in bacteria
and a pending application of Chiron which claims an earlier filing date. While
BTG is vigorously defending its patent, it cannot predict the outcome of such
interference. However, should BTG's patent be disallowed and a corresponding
patent be issued to Chiron, BTG's present method of producing enzymatically
active human copper/zinc SOD in bacteria may need to be altered, which may or
may not be possible; alternatively, BTG could seek a license to market under
Chiron's patent, which may or may not be available. Subsequent to the
interference being declared, Chiron was issued a U.S. patent for the bacterially
produced form of recombinant human copper/zinc SOD. At BTG's request, the Patent
Office in 1998 declared a second interference to determine whether BTG rather
than Chiron should hold the patent for the bacterially produced form of
recombinant human copper/zinc SOD on the basis that BTG scientists, not Chiron
scientists, invented the method for producing recombinant human copper/zinc SOD
in bacteria. Unless BTG is able to prevail in these interference actions or to
obtain a license from Chiron, BTG may be unable to commercialize its OxSODrol
product in the United States. These matters are currently under consideration by
the Patent Office. BTG and Chiron are currently in discussions to settle these
interference actions. In addition, the Israeli Patent Office has accepted a
Chiron patent application covering a DNA construct having certain specified
functions for expression of active copper/zinc SOD and a method for production
of active copper/zinc SOD in a microorganism harboring this construct. BTG is
opposing the grant of this patent; however, there can be no assurance that this
opposition will be successful. If the opposition is unsuccessful, BTG may be
precluded from manufacturing OxSODrol in Israel. In March 1993, the United
States Patent Office issued a patent exclusively licensed to BTG containing
broad claims for the gene encoding human copper/zinc SOD, related recombinant
expression vectors and genetically engineered cells containing the gene. BTG
believes that Chiron could not commercialize its yeast-produced SOD product in
the United States without infringing this patent.

                                       27



<PAGE>



However, the issuance of this patent does not assure BTG's ability to
commercialize its OxSODrol product. See "Item 1. Business -- Products and
Applications -- OxSODrol (human superoxide dismutase)."

           In September 1991, the Company received a letter from Biogen stating
that it believed that the Company's recombinant surface antigen of the
hepatitis-B virus, which is an active ingredient of the Company's Bio-Hep-B
vaccine, or the Company's intermediates for the process of making such antigen,
falls within the claims of one or more of Biogen's patents and/or patent
applications. The Company has made inquiries of Biogen and SmithKline Beecham
(the exclusive licensee of all of Biogen's hepatitis-B patents except those in
Japan) requesting that the Company be granted a license to the Biogen patents;
however, such efforts were not successful.

           In January 1992, BTG-Israel filed an application in the Israeli
Patent Office for a compulsory license to manufacture BTG's Bio-Hep-B vaccine
under Biogen's Israeli patent. In September 1995, the Registrar ruled in an
interlocutory decision that BTG-Israel is entitled to a compulsory license to
the Biogen patent. Biogen's appeal of the interlocutory decision was rejected.
In November 1996, the Registrar set the terms of the license, including
royalties to be paid by BTG to Biogen. Biogen appealed the Registrar's decision
to the District Court of Tel Aviv, Israel, and moved for a stay of the license,
which was granted ex parte pending hearings with both parties. Following
hearings which took place in December 1996, Biogen's motion was denied in
January 1997; however, the ex parte stay was left in force pending Biogen's
appeal to the Supreme Court and maintained by the Supreme Court pending the
decision by the District Court on the merits of Biogen's appeal. The District
Court heard the appeal in early March 1997, and in June 1997 the District Court
denied Biogen's appeal and subsequent motion for a stay pending Biogen's appeal
of the District Court decision to the Supreme Court on the merits. In March 1998
the Supreme Court granted Biogen the right to appeal the District Court's
decision. The Court determined that the appeal proceedings would be in the form
of written submissions, and the Company and Biogen concluded their respective
submissions in early 1999. In the absence of any action by the Supreme Court,
the compulsory license is now effective and allows BTG-Israel to produce the
vaccine in Israel upon receipt of regulatory approval and to export the vaccine
to countries in which neither Biogen nor others have been granted a blocking
patent. There can be no assurance that the compulsory license will not be
subsequently revoked by the Israeli Patent Office or by the Supreme Court. If
the compulsory license is revoked, BTG may not be able to manufacture or sell
its Bio-Hep-B vaccine in Israel or to export such product from Israel unless the
Biogen patent expires or is revoked. Biogen's Israeli patent expires in December
1999.

           In August 1992, Biogen sued BTG-Israel for allegedly infringing its
Israeli patent (which is the subject of the compulsory license) by virtue of its
preparation of BTG's Bio-Hep-B vaccine for use in clinical trials, and applied
for an interlocutory injunction restraining BTG-Israel from continuing research
and development activities and clinical trials. In June 1993, the District Court
of Tel Aviv, Israel denied Biogen's application for an interlocutory injunction
in connection with research and development and clinical trials, but enjoined
BTG-Israel from commercial marketing of its Bio-Hep-B vaccine unless permitted
by Biogen or its exclusive licensee, until a compulsory license is obtained, or
until the patent expires or is revoked. With the grant of the compulsory
license, Biogen and BTG agreed to suspend the infringement suit until a decision
is rendered on Biogen's appeal to the Supreme Court of the grant of the
compulsory license. Biogen has notified the District Court that if the
compulsory license is upheld by the Supreme Court, it will withdraw the
infringement suit. If, however, the infringement proceedings continue, there can
be no assurance that the outcome of these proceedings will be favorable to BTG.
An outcome unfavorable to BTG may adversely affect the ability of BTG to
commercialize and market the Bio-Hep-B vaccine. See "Item 1. Business --
Products and Applications -- Hepatitis-B Vaccine."

           The Company has been advised by SciGen, its Bio-Hep-B licensee in
certain countries in the Far East, that in April 1993 Biogen initiated suit
against SciGen in Singapore asserting that SciGen's conduct of clinical trials
in Singapore with respect to the Company's hepatitis-B vaccine constitutes
infringement of Biogen's patent rights in Singapore and claiming rights in the
data obtained by SciGen through its clinical trials in Singapore and that an
interlocutory hearing was held in September 1993. SciGen notified the Company
that the application for the injunction was dismissed by the High Court in
September 1994, but Biogen has not withdrawn its case against SciGen in
Singapore. Biogen's Singapore patent rights are based on the registration of its
corresponding U.K. patents, and the validity of patents in Singapore depends on
the validity of the

                                       28



<PAGE>



corresponding U.K. patents. Biogen's broad U.K. patent (on which Singapore
registration is based) was invalidated by the U.K. Court of Appeals in October
1994, which decision was upheld by the House of Lords in October 1996. Biogen is
currently attempting to have amended claims allowed. Additionally, three claims
of a narrower U.K. patent were upheld. The Company believes that none of these
claims will affect commercialization of the Company's vaccine, although there
can be no assurance of this. The Company is aware that certain other patents
have been granted or are pending that may prevent the Company from selling its
vaccine in the United States, Europe and certain other countries. The Company's
failure to obtain any needed license, or a determination that its vaccine
infringes the patent rights of Biogen or others, would substantially limit, if
not prohibit, the commercialization of the Bio-Hep-B vaccine in those countries
in which Biogen or others have a patent until such patent is revoked or expires.
The ability of the Company to secure any necessary licenses or sublicenses to
these patents or applications cannot be predicted.

           Three patent applications of Genentech in Israel which cover general
methods relating to genetically engineered products and to human growth hormone
were accepted in 1983 (two) and 1985 (one). BTG is opposing the grant of these
patents. Two of these patent applications expired during 1998 without ever being
granted. The third of these three Israeli applications, which will expire in
June 2000, corresponds to the two U.S. patents which are the subject of the
complaint asserted by Genentech against BTG in the United States District Court
in Delaware (subsequently consolidated with related proceedings in New York).
Hearings before the Israel Registrar of Patents have now been set for June 1999.
There can be no assurance that BTG will be successful in its opposition to the
grant of this patent. If BTG is unsuccessful in its opposition in Israel, then
BTG may be unable to manufacture its products in Israel.

           Additionally, in 1984 an Israeli patent application of Biogen which
relates to expression vectors was accepted; BTG is opposing the grant of this
patent. There can be no assurance that BTG will be successful in its opposition
to the grant of this patent. If BTG is unsuccessful in its opposition in Israel,
then BTG may be unable to manufacture its products in Israel.

           The Company has also initiated proceedings in Israel, Europe and
Japan to oppose the grant to several of its competitors of patents relating to
vector systems, and may oppose corresponding patents in other jurisdictions.
Although the outcome of these proceedings cannot be predicted with certainty and
will likely not be determined for several years, the Company believes that the
outcome will be favorable, although there can be no assurance of this. The
Company is aware of patent applications filed by, or patents issued to, other
entities with respect to technology potentially useful to the Company and, in
some cases, related to products and processes being developed by the Company.
The Company cannot presently assess the effect, if any, that these patents may
have on its operations. The extent to which efforts by other researchers have
resulted or will result in patents and the extent to which the issuance of
patents to others would have a materially adverse effect on the Company or would
force the Company to obtain licenses from others is currently unknown. See "Item
1. Business--Risk Factors--Uncertainty of Protection of Patents and Proprietary
Rights."


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                     None



                                       29



<PAGE>



                                                                PART II

ITEM 5.              MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                     STOCKHOLDER MATTERS

     The Company's common stock is quoted on the National Association of
Securities Dealers Automated Quotation System ("Nasdaq") National Market under
the symbol BTGC. The following table sets forth, for the periods indicated, the
high and low sale prices per share of the Company's common stock from January 1,
1997 through December 31, 1998 as reported by the Nasdaq National Market.

                                                       
                                                       
           1997                                          High             Low 
           ----                                         -------         ------- 
           First Quarter............................... $ 17.75         $ 11.88
           Second Quarter..............................   16.50           11.88
           Third Quarter...............................   15.62            9.81
           Fourth Quarter..............................   15.37           10.62

           1998
           ----
           First Quarter............................... $ 13.75         $ 7.81
           Second Quarter..............................    9.19           7.00
           Third Quarter...............................    8.31           4.50
           Fourth Quarter..............................    7.50           5.62


           The number of stockholders of record of the Company's common stock on
March 15, 1999 was approximately 1,700.

           The Company has never declared or paid a cash dividend on its common
stock, and it is not expected that cash dividends will be paid to the holders of
common stock in the foreseeable future.



                                       30



<PAGE>



ITEM 6.              SELECTED CONSOLIDATED FINANCIAL DATA
                     (IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
                                                                          For the year ended December 31,
                                                     ----------------------------------------------------------------
                                                      1994(1)     1995(2)(3)       1996(4)       1997(5)          1998
                                                     ----------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
<S>                                                 <C>            <C>           <C>           <C>           <C>     
Total revenues...............................       $ 17,440       $ 27,960      $ 47,738      $ 65,335      $ 76,855
Total expenses...............................         26,359         24,544        36,798        44,152        52,106
Extraordinary gain...........................          1,500          1,363           --            --            --
Net income (loss)............................         (7,419)         4,779        22,915        14,478        17,739
Extraordinary gain per share.................           0.04           0.03           --            --            --
Net income (loss) per share:(5)
  Basic......................................         (0.19)           0.11          0.52          0.31          0.37
  Diluted....................................             --           0.11          0.47          0.28          0.36
Weighted average shares
  outstanding:(5)
Basic........................................         38,725         43,174        44,195        46,767        48,184
Diluted......................................             --         43,784        48,259        51,916        49,848


                                                                             As of December 31,
                                                    -----------------------------------------------------------------
                                                        1994           1995          1996         1997         1998
                                                    -----------------------------------------------------------------
BALANCE SHEET DATA:

Working capital..............................       $ 13,652       $ 15,309      $ 40,626     $  68,271      $110,359
Total assets.................................         32,340         33,679        73,575        95,413       142,595
Long-term liabilities........................          1,389          3,641         3,927         3,975         3,818
Stockholders' equity.........................         23,182         25,689        60,558        82,858       122,977
</TABLE>

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

(1)        Net loss and net loss per share include an extraordinary gain of
           $1,500,000 and $0.04, respectively, resulting from the early
           extinguishment of debt incurred in connection with BTG's
           reacquisition of human growth hormone marketing rights for Europe.

(2)        In 1995, BTG terminated its research and development financing
           arrangement with Bio-Cardia Corporation ("Bio-Cardia"), entered into
           in December 1993, pursuant to which BTG had licensed rights to
           certain products to Bio-Cardia and Bio-Cardia had engaged BTG to
           perform research and development services with respect to such
           products. In connection with the termination of the relationship, BTG
           reacquired all rights licensed to Bio-Cardia. The relationship with
           Bio-Cardia had a significant effect on the Company's financial
           results in 1995, as follows: (i) revenues include $3,004,000 of
           research and development revenues under collaborative agreements
           resulting from the receipt by the Company of warrants to purchase
           2,670,000 shares of the Company's Common Stock issued by BTG in
           connection with the financing with Bio-Cardia which were subsequently
           obtained by Bio-Cardia from its defaulted stockholders in partial
           satisfaction of amounts owed by Bio-Cardia to BTG for research and
           development; and (ii) expenses include research and development
           financing expenses of $806,000, representing the net funds provided
           to Bio-Cardia by BTG in respect of an exchange offer and the deferred
           revenues received from Bio-Cardia prior to such exchange offer.


                                       31



<PAGE>




(3)        Net income and net income per share include an extraordinary gain of
           $1,363,000 and $0.03, respectively, resulting from the early
           extinguishment of debt incurred in connection with BTG's
           reacquisition of human growth hormone marketing rights for the United
           States.

(4)        Expenses include a write-off of $1,383,000 of previously capitalized
           legal fees and market launch preparation costs relating to the
           Company's human growth hormone product in the United States. See
           "Item 3. Legal Proceedings." In 1996, the Company reduced the
           valuation allowance recorded against its deferred income tax assets
           by $18,587,000, which resulted in an $11,975,000, or $0.24 per share,
           increase in net income. See Note 11 of Notes to Consolidated
           Financial Statements.

(5)        The share and per share information for the years ended December 31,
           1994, 1995 and 1996 have been restated to reflect share and per share
           information in accordance with Statement of Financial Accounting
           Standards No. 128, "Earnings per Share," which was adopted by the
           Company effective with its financial statements for the year ended
           December 31, 1997. See Note 1 of Notes to Consolidated Financial
           Statements.


                                       32



<PAGE>



ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

           Statements in this Annual Report on Form 10-K concerning the
Company's business outlook or future economic performance; anticipated
profitability, revenues, expenses or other financial items; introductions and
advancements in development of products, and plans and objectives related
thereto; and statements concerning assumptions made or expectations as to any
future events, conditions, performance or other matters, are "forward-looking
statements" as that term is defined under the Federal Securities Laws.
Forward-looking statements are subject to risks, uncertainties and other factors
that could cause actual results to differ materially from those stated in such
statements. Such risks, uncertainties and factors include, but are not limited
to, changes and delays in product development plans and schedules, changes and
delays in product approval and introduction, customer acceptance of new
products, changes in pricing or other actions by competitors, patents owned by
the Company and its competitors, changes in healthcare reimbursement, risk of
operations in Israel, risk of product liability, governmental regulation,
dependence on third parties to manufacture products and commercialize products
and general economic conditions, as well as other risks detailed in the
Company's filings with the Securities and Exchange Commission, including this
Annual Report on Form 10-K. See "Item 1. Business--Risk Factors."

OVERVIEW

           The Company is engaged in the research, development, manufacture and
marketing of biopharmaceutical products. Through a combination of internal
research and development, acquisitions, collaborative relationships and
licensing arrangements, BTG has developed a portfolio of therapeutic products,
including six products that have received regulatory approval for sale, of which
five are currently being marketed, five products that are in registration or
clinical trials and several products that are in pre-clinical development. The
Company seeks both broad markets for its products as well as specialized markets
where it can seek Orphan Drug status and potential marketing exclusivity.

           The Company was founded in 1980 to develop, manufacture and market
novel therapeutic products. The Company's overall administration, licensing,
human clinical studies, marketing activities, quality assurance and regulatory
affairs are primarily coordinated at the Company's headquarters in Iselin, New
Jersey. Pre-clinical studies, research and development activities and
manufacturing of the Company's genetically engineered products are primarily
carried out through its wholly owned subsidiary in Rehovot, Israel.



                                       33



<PAGE>




RESULTS OF OPERATIONS

           The following table sets forth for the fiscal periods indicated the
percentage of revenues represented by certain items reflected on the Company's
statement of operations.


<TABLE>
<CAPTION>

                                                       1996        1997       1998
                                                       ----        ----       ----
Revenues:
<S>                                                    <C>         <C>        <C>  
  Product sales...................................     84.6%       82.2%      88.8%
  Contract fees...................................     10.2        12.8        3.5
  Royalties ......................................        -           -        2.8
  Other revenues..................................      2.9         2.3        1.0
  Interest and finance............................      2.3         2.7        3.9
                                                      -----        ----       ----
           Total revenues.........................      100%        100%       100%
                                                      =====        ====       ====
Expenses:
  Research and development........................     26.0%       24.4%      24.0%
  Cost of product sales...........................     15.2        13.0       14.0
  General and administrative......................     15.7        13.0       11.1
  Marketing and sales.............................     12.8        14.2       17.3
  Commissions and royalties.......................      4.2         2.5        1.2
  Interest and finance............................      0.3         0.4        0.2
  Write off in connection with litigation.........      2.9          --         --
                                                      -----        ----       ----
           Total expenses.........................     77.1        67.5       67.8
                                                      -----        ----       ----

Income before income taxes........................     22.9        32.5       32.2

Income tax (benefit) expense......................    (25.1)       10.3        9.1
                                                      -----        ----       ----

Net income .......................................     48.0%       22.2%      23.1%
                                                      =====        ====       ====
</TABLE>



           The Company has historically derived its revenues from product sales
as well as from collaborative arrangements with third parties, under which the
Company may earn up-front contract fees, may receive funding for additional
research (including funding from the Chief Scientist of the State of Israel
("Chief Scientist")), is reimbursed for producing certain experimental
materials, may be entitled to certain milestone payments, may sell product at
specified prices and may receive royalties on sales of product. The Company
anticipates that product sales will constitute the majority of its revenues in
the future. Revenues have in the past displayed and will in the immediate future
continue to display significant variations due to changes in demand for its
products, new product introductions by the Company and its competitors, the
obtaining of new research and development contracts and licensing arrangements,
the completion or termination of such contracts and arrangements, the timing and
amounts of milestone payments, and the timing of regulatory approvals of
products.



                                       34



<PAGE>



           The following table summarizes the Company's sales of its
commercialized products as a percentage of total product sales for the periods
indicated:

                                              Year ended December 31,
                                              -----------------------
                                              1996     1997     1998
                                              ----     ----     ----
           Oxandrin.................           37%      52%       59%
           Bio-Tropin...............            45       31       25
           BioLon...................            12       13       10
           Other....................             6        4        6
                                              ----     ----     ----
                 Total..............          100%     100%     100%
                                              ====     ====     ====

The Company believes that its product mix will change significantly as it
continues to focus on: (i) increasing market penetration of its existing
products; (ii) expanding into new markets; and (iii) commercializing additional
products.

           The following table summarizes the Company's United States and
international product sales as a percentage of total product sales for the
periods indicated:

                                             Year ended December 31,
                                             -----------------------
                                             1996     1997     1998
                                             ----     ----     ----
          Domestic..................          39%       54%      64%
          Foreign...................          61        46       36
                                             ---       ---      ---
               Total................         100%      100%     100%
                                             ===       ===      ===


The Company's product mix on a percentage basis has shifted significantly since
the Company became profitable in 1995 as Oxandrin sales have outpaced sales
growth of other products. Domestic sales have also increased as a percentage of
total product sales due to the introduction of Oxandrin in the United States in
December 1995.


Comparison of Years Ended December 31, 1998, 1997 and 1996

           Revenues. Revenues increased 18% in 1998 to $76,855,000 from
$65,335,000 in 1997, which itself represented a 37% increase over 1996 revenues
of $47,738,000. Product sales increased by 27% in 1998 to $68,246,000 from
$53,723,000 in 1997, following a 33% increase in 1997 from $40,356,000 in 1996.
The increase in product sales in each period was primarily driven by increased
sales of Oxandrin in the United States. Oxandrin accounted for approximately 87%
and 96% of the increase in product sales in 1998 and 1997, respectively. The
increase in Oxandrin sales resulted primarily from the Company's increased
marketing efforts and growing awareness of the product. Although sales of human
growth hormone ("hGH") accounted for approximately 32% and 4% of the increase in
product sales in 1996 and 1998, respectively, product sales of hGH decreased
approximately 8% in 1997, primarily due to the timing of orders of bulk hGH by
JCR Pharmaceuticals Co., Ltd. ("JCR"), the Company's licensee in Japan, in 1996
and 1997.

           Sales of Oxandrin in 1998, 1997 and 1996 were approximately
$40,521,000, $27,904,000 and $15,098,000, respectively, representing 59%, 52%
and 37%, respectively, of the Company's total product sales in those periods.
Sales of hGH in 1998, 1997 and 1996 were approximately $17,316,000, $16,745,000
and $18,218,000, respectively, representing 25%, 31% and 45%, respectively, of
the Company's total product sales in those periods. Sales of hGH to JCR in 1998,
1997 and 1996 were approximately $11,056,000, $10,095,000 and $12,906,000,
respectively, representing 16%, 19% and 32%, respectively, of the Company's
total product sales in those periods and 64%, 60% and 71%, respectively, of the
Company's total hGH sales in those periods. The decrease in sales to JCR in 1997
was principally the result of timing of orders of bulk hGH by JCR. Sales of hGH
to the Ferring Group, were approximately $3,823,000, $4,520,000 and $3,162,000
in 1998, 1997 and

                                       35



<PAGE>



1996, respectively, representing 6%, 8% and 8%, respectively, of the Company's
total product sales in those periods and 22%, 27% and 17%, respectively, of the
Company's total hGH sales in those periods.

           For the years ended December 31, 1998, 1997 and 1996, contract fees,
which consist of licensing and option to license fees, amounting to $2,686,000,
$8,369,000 and $4,887,000, or 3%, 13% and 10%, respectively, of total revenues,
were earned from certain of the Company's collaborative partners. Of the
contract fees earned in 1998, $1,000,000, or 37% of total contract fees, was
earned in respect of the license of distribution rights of BioLon in the United
States, and $900,000 and $493,000, or 34% and 18% of total contract fees,
respectively, were earned in respect of the Company's hepatitis-B vaccine and
insulin products, respectively. Of the contract fees earned in 1997, $3,000,000
represents an initial licensing fee received in connection with the licensing of
worldwide distribution rights (other than the United States, Canada, Israel and
Japan) for the Company's superoxide dismutase ("SOD") product for
bronchopulmonary dysplasia and other respiratory indications to Ares Trading
S.A. ("Serono"), $1,500,000 represents fees from the grant to SciGen Pte Ltd of
a license to use BTG's technical information to establish a manufacturing
facility for Bio-Hep-B and $3,000,000 represents fees from the grant of an
exclusive right to a third party to evaluate one of the Company's products under
development. This third party subsequently determined not to pursue a license of
the product for reasons that the Company believes do not relate to the safety
and efficacy of the product. Of the contract fees earned in 1996, $2,500,000 was
earned in respect of Silkis, of which $2,000,000 was earned in respect of a fee
paid in lieu of royalties in connection with termination of a European
sublicense and $500,000 was earned in connection with the license of
distribution rights in the United States, $500,000 was earned in respect of the
license of marketing rights of BioLon in Japan, $400,000 was earned in respect
of the license of marketing rights of SOD in Japan, and $1,000,000 represents a
one-time payment by a third-party for the exclusive right to evaluate one of the
Company's products under development. This third-party subsequently determined
not to pursue a license of the product for reasons that the Company believes do
not relate to the safety and efficacy of the product.

           Royalties in 1998 consist of net royalties derived from a
co-promotion agreement relating to Serono's recombinant human growth hormone,
Saizen, in the amount of $1,560,000 and net royalties in respect of the Mircette
product in the amount of $600,000.

           Other revenues consist primarily of funding from the Chief Scientist,
which represented 100%, 99% and 98% of other revenues in the years ended
December 31, 1998, 1997 and 1996, respectively.

           Interest income was $2,965,000, $1,719,000 and $1,105,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. The increase in
interest income in 1998 and 1997 was derived primarily from an increase in cash
balances resulting from option and warrant exercises and cash flow from
operations in 1998 and 1997.

           Research and Development Expense. Expenditures for research and
development were $18,450,000, $15,946,000 and $12,431,000 for the years ended
December 31, 1998, 1997 and 1996, respectively. The increase in research and
development expenditures in 1998 was primarily due to certain research and
development activities as well as Phase III and post approval Phase IV clinical
studies relating to OxSODrol and Oxandrin, respectively, which studies began
mainly in 1997. The increase in research and development expenditures in 1997
was primarily attributable to expenses associated with the Company's Phase III
clinical trials, principally for OxSODrol and new dosage formulations for
Oxandrin, and post-approval Phase IV clinical studies to provide additional
clinical support for the use of Oxandrin to treat disease-related weight loss
conditions other than AIDS-related weight loss.

           Cost of Product Sales. Cost of product sales was $10,744,000,
$8,493,000 and $7,264,000 in the years ended December 31, 1998, 1997 and 1996,
respectively. The increase in each year was primarily attributable to increased
product sales. Cost of product sales as a percentage of product sales was 16%,
16% and 18% in 1998, 1997 and 1996, respectively. The decrease from 1996 was
primarily due to increased sales of Oxandrin as a percentage of total product
sales. Oxandrin has a relatively low cost of manufacture as a percentage of
product sales, while BioLon has the highest cost to manufacture as a percentage
of product sales. Cost of product sales as a percentage of product sales varies
from year to year and quarter to quarter depending on the quantity and mix of
products sold.

                                       36



<PAGE>



           General and Administrative Expense. General and administrative
expense was $8,504,000, $8,509,000 and $7,458,000 in the years ended December
31, 1998, 1997 and 1996, respectively. The increase in 1997 was primarily due to
an increase in salaries and an increase in expenses associated with public
relations.

           Marketing and Sales Expense. Marketing and sales expense was
$13,312,000, $9,290,000 and $6,107,000 in the years ended December 31, 1998,
1997 and 1996, respectively. These expenses primarily related to the sales and
marketing force in the United States that the Company established principally in
the second half of 1995 and during 1996 to promote distribution of Oxandrin in
the United States. The increase in each year was primarily due to additional
marketing and sales expenses, primarily resulting from increased personnel and
increased advertising, promotional and market research activities, arising from
the growth of the Company's product sales.

           Other Expense. In 1996, the Company wrote off $1,383,000 of
capitalized expenses relating to human growth hormone as a result of the
affirmation by the United States Court of Appeals for the Federal Circuit of a
preliminary injunction obtained by Genentech prohibiting the Company from
marketing its human growth hormone in the United States. The write-off consisted
of legal costs related to the litigation with Genentech and hGH launch
preparation costs in the United States. The remainder of other expense consisted
of interest and finance charges, commissions and royalties (which consist
primarily of royalties to entities from which the Company licensed certain of
its products and to the Chief Scientist).

           Income Taxes. Provision for income taxes for the years ended December
31, 1998 and 1997 was $7,010,000 and $6,705,000, representing approximately
28.3% and 31.7% of income before income taxes. The Company's consolidated tax
rate differs from the statutory rate because of Israeli tax benefits, research
and experimental tax credits, state and local taxes and similar items that
reduce the tax rate. In 1996, management determined that it had become more
likely than not that the Company would realize its net deferred tax assets
(other than approximately $4,096,000) and BTG therefore reduced the valuation
allowance by approximately $18,587,000. The determination that the net tax asset
was realizable was based on 1996 being BTG's first full year of profitability in
each quarter, and the performance and penetration of Oxandrin, which was first
introduced in December 1995. The Company's reversal of the valuation allowance
against its net deferred tax assets resulted in a realization of income tax
benefit of approximately $11,975,000, net of income tax expense, in 1996.


LIQUIDITY AND CAPITAL RESOURCES

           The Company's working capital at December 31, 1998, was $110,359,000
as compared to $68,271,000 at December 31, 1997.

           The cash flows of the Company have fluctuated significantly due to
the impact of net income and losses, capital spending, working capital
requirements, the issuance of common stock and other financing activities. The
Company expects that cash flow in the near future will be primarily determined
by the levels of net income, working capital requirements, and financings, if
any, undertaken by the Company. Net cash increased by $102,000, $2,324,000 and
$119,000 in the years ended December 31, 1998, 1997 and 1996, respectively.

           Net cash (used in) provided by operating activities was $(7,318,000),
$14,142,000 and $4,246,000 in the years ended December 31, 1998, 1997 and 1996,
respectively. Net income was $17,739,000, $14,478,000, and $22,915,000 in the
same periods, respectively. In 1998 the Company used cash in operating
activities primarily because of an increase in accounts receivable of
$40,856,000 partially offset by a non-cash provision for deferred income taxes
of $6,374,000, depreciation and amortization of $3,125,000 and an increase in
accounts payable of $7,295,000. In 1997, net income and net cash provided by
operating activities were approximately the same, as income taxes of $6,297,000,
depreciation and amortization of $2,636,000 and an increase in other current
liabilities of $1,494,000 were completely offset by a $9,267,000 increase in
receivables and a $1,713,000 decrease in accounts payable. In 1996, net cash
provided by operating activities was substantially less than net income,
primarily because of a non-cash deferred income tax benefit of

                                       37



<PAGE>



$12,435,000 and an increase in receivables and inventory of $11,926,000 and
$3,210,000, respectively, resulting from increased product sales, partially
offset by an increase in current liabilities of $4,676,000, depreciation and
amortization of $2,745,000 and a write-off of capitalized expenses of
$1,383,000.

           Net cash used in investing activities was $16,649,000, $17,672,000
and $12,759,000 in the years ended December 31, 1998, 1997 and 1996,
respectively. Net cash used in investing activities included capital
expenditures of $3,594,000, $3,134,000 and $2,945,000 in these periods,
respectively, primarily for laboratory and manufacturing equipment and
infrastructure. The remainder of the net cash used in investing activities was
primarily for purchases and sales of short-term investments.

           Net cash provided by financing activities was $24,069,000, $5,854,000
and $8,632,000 in the years ended December 31, 1998, 1997 and 1996,
respectively. Cash flows from financing activities were primarily affected by
net proceeds from issuances of common stock of $24,069,000 (of which $17,221,000
resulted from the exercise of warrants which expired on December 31, 1998),
$5,872,000 and $8,655,000 in these periods, respectively. Net proceeds from the
sale of common stock result mainly from option and warrant exercises.

           The Company is currently in negotiations to purchase a manufacturing
facility in Israel for approximately $6.5 million. The Company will initially
locate its production activities for Bio-Hep-B and Fibrimage at this new
facility, and will thereafter move the remainder of its production activities to
this facility. The Company expects the initial production facility will be ready
by the end of 2000. The Company expects it will cost approximately $30 million
to complete the production facility (excluding the cost of purchasing the
facility).

           The Company maintains its funds in money market funds, commercial
paper and other liquid debt instruments. See Notes 1c and 1e of Notes to
Consolidated Financial Statements.

           The Company manages its Israeli operations with the objective of
protecting against any material net financial loss in U.S. dollars from the
impact of Israeli inflation and currency devaluations on its non-U.S. dollar
assets and liabilities. The cost of the Company's operations in Israel, as
expressed in dollars, is influenced by the extent to which any increase in the
rate of inflation in Israel is not offset (or is offset on a lagging basis) by a
devaluation of the Israeli Shekel in relation to the dollar. The rate of
inflation (as measured by the consumer price index) was approximately 11% in
1996, 7% in 1997 and 9% in 1998, while the Shekel was devalued by approximately
4%, 9% and 18%, respectively. As a result, for those expenses linked to the
Israeli Shekel, such as salaries and rent, this resulted in corresponding
increases in these costs in U.S. dollars in 1996, but a decrease in 1997 and
1998. To the extent that expenses in Shekels exceed BTG's revenues in Shekels
(which to date have consisted primarily of research funding from the Chief
Scientist and product sales in Israel), the devaluations of Israeli currency
have been and will continue to be a benefit to BTG's financial condition.
However, should BTG's revenues in Shekels exceed its expenses in Shekels in any
material respect, the devaluation of the Shekel will adversely affect BTG's
financial condition. Further, to the extent the devaluation of the Shekel with
respect to the U.S. dollar does not substantially offset the increase in the
costs of local goods and services in Israel, BTG's financial results will be
adversely affected as local expenses measured in U.S. dollars will increase.

           At December 31, 1998, intangibles, net, consist of (i) $1,299,000
(net of amortization) relating to the purchase of all rights to hGH previously
licensed to The Du Pont Merck Pharmaceutical Company, together with all rights
to all data generated in pharmacological, toxicological and clinical studies and
encompassed in the IND and NDA files then pending with the FDA for the treatment
of human growth hormone-deficient children, and (ii) $429,000 (net of
amortization) relating to the reacquisition of all rights to human growth
hormone licensed to SmithKline Beecham Intercredit B.V.

           The Company believes that its remaining cash resources as of December
31, 1998, together with anticipated product sales, scheduled payments to be made
to BTG under its current agreements with pharmaceutical partners and third
parties and continued funding from the Chief Scientist at current levels, will
be sufficient to fund the Company's ongoing operations for the foreseeable
future. There can, however, be no assurance that product sales will occur as
anticipated, that scheduled payments will be made by third parties, that current
agreements will not be canceled, that the Chief Scientist will continue to
provide funding at current

                                       38



<PAGE>



levels, or that unanticipated events requiring the expenditure of funds will not
occur. The satisfaction of the Company's future cash requirements will depend in
large part on the status of commercialization of the Company's products, the
Company's ability to enter into additional research and development and
licensing arrangements, and the Company's ability to obtain additional equity
investments, if necessary. There can be no assurance that the Company will be
able to obtain additional funds or, if such funds are available, that such
funding will be on favorable terms. The Company continues to seek additional
collaborative research and development and licensing arrangements, in order to
provide revenue from sales of certain products and funding for a portion of the
research and development expenses relating to the products covered, although
there can be no assurance that the Company will be able to obtain such
agreements. See "Item 1. Business--Risk Factors --Capital Needs" and
"--Variability of Operating Results."

YEAR 2000

           The Company uses and relies on a variety of information technologies,
computer systems and scientific and manufacturing equipment containing
computer-related components (such as programmable logic controllers and other
embedded systems). Certain of the Company's computer systems and equipment use
two digit fields rather than four digit fields to define the applicable year. As
a result, such systems may not be able to distinguish between dates in the 20th
century and the 21st century. This could cause system or equipment shutdowns,
failures or miscalculations resulting in inaccuracies in computer output or
disruptions of operations, including inaccurate processing of financial
information and/or temporary inabilities to process transactions, manufacture
products or engage in normal business activities.

           The Company has conducted an evaluation of the actions necessary to
ensure that its business critical computer systems and equipment will be able to
function without disruption with respect to the application of dating systems in
the Year 2000. This evaluation was completed by the end of 1998, following which
the Company upgraded, replaced and tested its computer systems and equipment so
as to be able to operate without disruption due to Year 2000 issues. The Company
expects to complete all its remediation efforts before the end of 1999. However,
there can be no assurance that any required remedial actions will be able to be
completed on a timely basis. If the Company is unable to complete its remedial
actions in the necessary time frame, contingency plans will be developed to
address those business critical systems which may not be Year 2000 compliant.

           In addition to risks associated with the Company's own computer
systems and equipment, the Company has relationships with, and is to varying
degrees dependent upon, a number of third parties that provide goods, services
and information to the Company. These include contract manufacturers, suppliers,
licensees, vendors, research partners and financial institutions. If any of
these third parties experience failures in their computer systems or equipment
due to Year 2000 non-compliance, which systems and equipment are outside the
control of the Company, it could affect the Company's ability to manufacture
products or engage in normal business activities. The Company has made contact
with all of its significant customers, suppliers, vendors and partners to
determine the extent to which the Company is vulnerable to their failures and to
ascertain their Year 2000 compliance and risk. Based on these responses, the
Company believes that its significant customers, suppliers, vendors and partners
will be Year 2000 compliant.

           The total cost of the Year 2000 systems evaluation and remediation is
being funded through operating cash flows and the Company is expensing these
costs. While the total cost to obtain Year 2000 compliance is not known at this
time, the Company currently expects the cost to be less than $100,000, of which
approximately $25,000 has been expended through December 31, 1998. The actual
cost, however, could exceed this estimate. The Company believes that such cost
will not have a material effect on the Company's financial position, results of
operations or cash flows.


                                       39



<PAGE>



ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          Index to Consolidated Financial Statements


                                                                     Page


          Report of Independent Public Accountants................... 41

          Consolidated Financial Statements:

          Consolidated Balance Sheets as of
          December 31, 1997 and 1998................................. 42

          Consolidated Statements of Operations for the
          years ended December 31, 1996, 1997 and 1998............... 43

          Consolidated Statements of Changes in
          Stockholders' Equity for the years
          ended December 31, 1996, 1997 and 1998..................... 44

          Consolidated  Statements  of Cash Flows for
          the years ended December 31, 1996, 1997 and 1998........... 45

          Notes to Consolidated Financial Statements................. 46


                                       40



<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders of
Bio-Technology General Corp.:

We have audited the accompanying consolidated balance sheets of Bio-Technology
General Corp. (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1998, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bio-Technology General Corp.
and subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.



                                                         ARTHUR ANDERSEN LLP




New York, New York
February 2, 1999


                                       41



<PAGE>


                                   BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

<TABLE>
<CAPTION>

                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)
                                                                         December 31,
                                                                    ---------------------
                                                                      1997         1998
                                                                    --------     --------
<S>                                                                  <C>          <C>    
ASSETS
Current Assets:
  Cash and cash equivalents.......................................  $  9,329     $  9,431
  Short-term investments..........................................    26,178       37,602
  Accounts receivable  - trade....................................    27,070       52,429
                       - other                                           471       15,968
  Inventories.....................................................     5,401        4,978
  Deferred income taxes (Note 11).................................     8,000        5,407
  Prepaid expenses ...............................................       402          344
                                                                    --------     --------
      Total current assets........................................    76,851      126,159

Deferred income taxes (Note 11)  .................................     2,148          --
Severance pay funded (Note 2)  ...................................     2,435        2,233
Property and equipment, net (Note 3)..............................     7,545        9,442
Intangibles, net of accumulated amortization of $3,442
  in 1997 and $4,303 in 1998......................................     2,590        1,728
Patents, net of accumulated amortization of $426 in 1997
  and $487 in 1998................................................       551          404
Other assets......................................................     3,293        2,629
                                                                    --------     --------
      Total assets................................................  $ 95,413      142,595
                                                                    ========     ========


LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Short-term bank loans...........................................  $    362     $    288
  Accounts payable................................................     1,645        5,359
  Other current liabilities (Note 8)..............................     6,573       10,153
                                                                    --------     --------
      Total current liabilities...................................     8,580       15,800
                                                                    --------     --------

Long-term liabilities (Note 2)....................................     3,975        3,818
                                                                    --------     --------

Commitments and contingent liabilities (Note 7)

Stockholders' Equity (Notes 4 and 5):
  Preferred stock - $.01 par value; 4,000,000
      shares authorized; no shares issued ........................        --           --
  Common stock - $.01 par value; 150,000,000
      shares authorized; issued: 47,304,000 in 1997
      and 51,934,000 in 1998......................................       473          519
  Capital in excess of par value..................................   136,662      161,164
  Accumulated deficit.............................................  (54,135)     (36,396)
  Treasury stock at cost (83,000 shares)..........................     (340)        (340)
  Accumulated other comprehensive income (loss)...................       198      (1,970)
                                                                    --------     -------
    Total stockholders' equity....................................    82,858      122,977
                                                                    --------     --------

      Total liabilities and stockholders' equity..................  $ 95,413     $142,595
                                                                    ========     ========
</TABLE>

                  The accompanying notes are an integral part
                      of these consolidated balance sheets.

                                       42



<PAGE>


                                   BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                   -------------------------------------
                                                                      1996          1997          1998
                                                                   ---------      --------       -------
<S>                                                                  <C>           <C>           <C>
Revenues (Note 9):
      Product sales..............................................  $ 40,356        $53,723       $68,246
      Contract fees..............................................     4,887          8,369         2,686
      Royalties..................................................        -              -          2,160
      Other revenues.............................................     1,390          1,524           798
      Interest and finance.......................................     1,105          1,719         2,965
                                                                   --------        -------       -------
                                                                     47,738         65,335        76,855
                                                                   --------        -------       -------
                                                                   
Expenses:                                                          
      Research and development...................................    12,431         15,946        18,450
      Cost of product sales......................................     7,264          8,493        10,744
      General and administrative.................................     7,458          8,509         8,504
      Marketing and sales........................................     6,107          9,290        13,312
      Commissions and royalties..................................     1,994          1,650           929
      Interest and finance.......................................       161            264           167
      Write-off in connection with litigation                      
        (Note 10)................................................     1,383             --            --
                                                                   --------        -------       -------
                                                                     36,798         44,152        52,106
                                                                   --------        -------       -------
                                                                   
Income before income taxes.......................................    10,940         21,183        24,749
Income tax (benefit) expense, net (Note 11)......................  (11,975)          6,705         7,010
                                                                   --------        -------       -------
                                                                   
Net income.......................................................  $ 22,915        $14,478       $17,739
                                                                   ========        =======       =======
                                                                   
Earnings per common share:                                         
      Basic......................................................     $0.52          $0.31         $0.37
                                                                      =====          =====         =====
                                                                   
      Diluted....................................................     $0.47          $0.28         $0.36
                                                                       ====           ====          ====
                                                                   
Weighted average number of common and common equivalent shares:    
      Basic......................................................    44,195         46,767        48,184
                                                                     ======         ======        ======
      Diluted....................................................    48,259         51,916        49,848
                                                                     ======         ======        ======
</TABLE>                                                         

                  The accompanying notes are an integral part
                   of these consolidated financial statements.

                                       43



<PAGE>

<TABLE>
<CAPTION>

                  BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (in thousands)
                                                          Common Stock                                                              
                                                        ----------------              Capital in                                    
                                                                     Par               Excess of      Accumulated     Treasury      
                                                        Shares      Value              Par Value        Deficit         Stock       
------------------------------------------------------------------------------------------------------------------------------------
<S>               <C> <C>                                <C>          <C>             <C>                <C>            <C>        
BALANCE, DECEMBER 31, 1995                               43,275        433             117,390            (91,528)       (340)      
Net income for 1996                                                                                        22,915                   

Total comprehensive income                                                                                                          

Issuance of common stock                                      9                             74                                      
Issuance of common stock on series A and 
B note conversions (including capitalized interest) 
and on conversion of convertible debentures                  41                             91                                      
Tax benefit derived from exercise
of stock options                                                                         2,944                                      
Exercise of stock options                                 1,790         18               5,236                                      
Exercise of warrants                                        567          6               3,395                                      
Amortization of deferred compensation                                                                                            
                                                         ------       ----            --------           --------       -----       
BALANCE, DECEMBER 31, 1996                               45,682        457             129,130            (68,613)       (340)      

Comprehensive income:
       Net income for 1997                                                                                 14,478                   
       Unrealized gain on marketable securities, net                                                                                

Total comprehensive income                                                                                                          

Issuance of common stock                                      4                             59                                      
Issuance of common stock on series A and B 
note conversions (including capitalized interest) 
and on conversion of convertible debentures                 133          1                 550                                      
Tax benefit derived from exercise
of stock options                                                                         1,066                                      
Exercise of stock options                                 1,433         14               5,597                                      
Exercise of warrants                                         52          1                 260                                      
Amortization of deferred compensation                                                                                               
                                                         ------       ----            --------           --------       -----       
BALANCE, DECEMBER 31, 1997                               47,304        473             136,662            (54,135)       (340)      

Comprehensive income:
       Net income for 1998                                                                                 17,739                   
       Unrealized loss on marketable securities, net                                                                                
Total comprehensive income                                                                                                          
Issuance of common stock                                     60          1                 324                                      
Tax benefit derived from exercise
of stock options                                                                           420                                      
Exercise of stock options                                   660          6               2,718                                      
Exercise of warrants                                      3,910         39              21,040                                      
                                                         ------       ----            --------            -------       -----       
BALANCE, DECEMBER 31, 1998                               51,934       $519            $161,164           $(36,396)      $(340)      
                                                         ======       ====            ========           =========      ======      

<CAPTION>

                                                                                 
                                                                              Accumulated other           Total
                                                            Deferred            comprehensive         Stockholders'
                                                          Compensation          income (loss)             Equity
-------------------------------------------------------------------------------------------------------------------------------

<S>               <C> <C>                                      <C>                                      <C>    
BALANCE, DECEMBER 31, 1995                                     (266)                   --               $ 25,689
Net income for 1996                                                                                       22,915
                                                                                                        --------
Total comprehensive income                                                                                22,915
                                                                                                        --------
Issuance of common stock                                                                                      74
Issuance of common stock on series A and 
B note conversions (including capitalized interest) 
and on conversion of convertible debentures                                                                   91
Tax benefit derived from exercise
of stock options                                                                                           2,944
Exercise of stock options                                                                                  5,254
Exercise of warrants                                                                                       3,401
   Amortization of deferred compensation                        190                                          190
                                                              -----               -------               --------
BALANCE, DECEMBER 31, 1996                                     (76)                    --                 60,558
Comprehensive income:
       Net income for 1997                                                                                14,478
       Unrealized gain on marketable securities, net                                  198
                                                                                                         -------
Total comprehensive income                                                                                14,676
                                                                                                         -------
Issuance of common stock                                                                                      59
Issuance of common stock on series A and B 
note conversions (including capitalized interest) 
and on conversion of convertible debentures                                                                  551
Tax benefit derived from exercise
of stock options                                                                                           1,066
Exercise of stock options                                                                                  5,611
Exercise of warrants                                                                                         261
Amortization of deferred compensation                            76                                           76
                                                              -----               -------               --------
BALANCE, DECEMBER 31, 1997                                       --                   198                 82,858
Comprehensive income:
       Net income for 1998                                                                                17,739
       Unrealized loss on marketable securities, net                               (2,168)                (2,168)
                                                                                                          -------
Total comprehensive income                                                                                15,571
                                                                                                          ------
Issuance of common stock                                                                                     325
Tax benefit derived from exercise
of stock options                                                                                             420
Exercise of stock options                                                                                  2,724
Exercise of warrants                                                                                      21,079
                                                              -----               -------               --------
BALANCE, DECEMBER 31, 1998                                    $ --                $(1,970)              $122,977
                                                              =====               ========              ========

</TABLE>

                  The accompanying notes are an integral part
                   of these consolidated financial statements.


                                       44



<PAGE>


                  BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

<TABLE>
<CAPTION>

                                                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                              (in thousands)
                                                                                                   Year Ended December 31,
                                                                                ------------------------------------------------

                                                                                       1996            1997            1998
-------------------------------------------------------------------------------------------------------------------------------

<S>                                                                                  <C>              <C>            <C>    
Cash flows from operating activities:
  Net income....................................................................      $ 22,915         $ 14,478       $ 17,739
  Adjustments to reconcile net income to net
   cash (used in) provided by operating activities:
     Deferred income tax (benefit) expense......................................       (12,435)           6,297          5,160
     Depreciation and amortization..............................................         2,745            2,636          3,125
     Write-off in connection with litigation....................................         1,383               --             --
     Provision for severance pay................................................           665              326           (157)
     Loss (gain) on disposal of fixed assets ...................................           (18)              (4)             3
     Gain on sales of short-term investments, net...............................           (33)             (38)           (92)
     Common stock as payment for services.......................................            74               59             59
     Changes in:
        accounts receivable ....................................................       (11,926)          (9,267)       (40,856)
        inventories.............................................................        (3,210)             (73)           423
        prepaid expenses and other current assets...............................          (590)             (53)            58
        accounts payable........................................................         2,235           (1,713)         3,714
        other current liabilities...............................................         2,441            1,494          3,506
                                                                                      --------         --------       --------
  Net cash provided by (used in) operating activities...........................         4,246           14,142         (7,318)
                                                                                      --------         --------       --------

Cash flows from investing activities:
  Purchases of short-term investments...........................................       (18,258)         (22,107)       (27,742)
  Capital expenditures..........................................................        (2,945)          (3,134)        (3,594)
  Intangibles...................................................................           (61)              --             --
  Severance pay funded..........................................................          (376)            (117)           202
  Other assets..................................................................          (531)          (1,159)           348
  Change in patents.............................................................          (191)            (121)          (144)
  Proceeds from sales of short-term investments.................................         9,520            8,924         14,243
  Proceeds from sales of fixed assets...........................................            83               42             38
                                                                                      --------         --------       --------
  Net cash investing activities.................................................       (12,759)         (17,672)       (16,649)
                                                                                      --------         --------       --------

Cash flows from financing activities:
  Proceeds from issuances of common stock.......................................         8,655            5,872         24,069
  Other.........................................................................           (23)             (18)           -- 
                                                                                      --------         --------       --------
  Net cash provided by financing activities.....................................         8,632            5,854         24,069
                                                                                      --------         --------       --------

  Net increase in cash and cash equivalents.....................................           119            2,324            102
  Cash and cash equivalents at beginning of year................................         6,886            7,005          9,329
                                                                                      --------         --------       --------
  Cash and cash equivalents at end of year......................................        $7,005           $9,329         $9,431
                                                                                      ========         ========       ========

Supplementary Information
Non-cash investing and financing activities:
  Series A and B note conversions (including capitalized
    interest) and conversion of convertible debentures..........................          $ 91             $551           $ --

Other information:
  Interest paid.................................................................          $ 55             $ 35           $  2
  Income taxes paid.............................................................          $260             $356           $515

</TABLE>


                  The accompanying notes are an integral part
                   of these consolidated financial statements.


                                       45



<PAGE>


                                   BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

           Bio-Technology General Corp. ("BTG") and its wholly owned subsidiary,
Bio-Technology General (Israel) Ltd. ("BTG-Israel"), were formed in 1980 to
research, develop, manufacture and market products through the application of
genetic engineering and related biotechnologies. A substantial amount of
research and development activities has been conducted on behalf of the parent
by BTG-Israel.

           a. Basis of consolidation:

           The consolidated financial statements include the accounts of BTG,
BTG-Israel and BTG Pharmaceuticals Corp. (through March 15, 1996, the date it
was merged into BTG), hereinafter collectively referred to as the "Company". All
material intercompany transactions and balances have been eliminated. Certain
prior year amounts have been reclassified to conform with current year
presentation.

           b. Translation of foreign currency:

           The functional currency of BTG-Israel is the U.S. dollar.
Accordingly, its accounts are remeasured in dollars, and translation gains and
losses (which are immaterial) are included in the statements of operations.

           c. Cash and cash equivalents:

           At December 31, 1997 and 1998, cash and cash equivalents included
cash of $2,386,000 and $2,959,000, respectively, and money market funds,
commercial paper and other liquid short-term debt instruments (with maturities
as at acquisition of ninety days or less) of $6,943,000 and $6,472,000,
respectively.

           d. Accounts receivable - other:

           As of December 31, 1998, accounts receivable - other, consist
primarily of proceeds due from the exercise of warrants, which proceeds were
subsequently received by the Company in January 1999.

           e. Short-term investments:

           The Company applies Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Under SFAS No. 115, marketable debt and equity securities are
reported at fair value, with unrealized gains and losses from those securities,
which are classified as "trading securities", included in net income and
unrealized gains and losses from those securities, which are classified as
"available-for-sale securities", reported as a separate component of
stockholders' equity. Debt securities classified as "held to maturity" are
reported at amortized cost.

           Short-term investments consist primarily of investments in mutual
funds and U.S. Treasury and corporate bonds that have been classified as
"available-for-sale securities". At December 31, 1997 and 1998, the aggregate
fair value of the securities was $26,178,000 and $37,602,000, with a cost of
$25,980,000 and $39,572,000, respectively.


                                       46



<PAGE>


                                   BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

           f. Inventories:

           Inventories are stated at the lower of average cost or market on the
weighted average method. At December 31, 1997 and 1998, inventories include raw
materials of $717,000 and $1,063,000, work-in-process of $932,000 and $736,000,
and finished goods of $3,752,000 and $3,179,000, respectively.

           g. Property and equipment, accumulated depreciation and amortization:

           Depreciation has been calculated using the straight-line method over
the estimated useful lives of the assets, ranging from 5 to 17 years. Leasehold
improvements are amortized over the lives of the respective leases, which are
shorter than the useful life. The cost of maintenance and repairs is expensed as
incurred.

           h. Intangibles:

           Intangibles consist of capitalized marketing rights and are
amortized, using the straight-line method over the shorter of the life of the
related revenue stream or seven years, commencing with the initial sale of the
related product.

           i. Patents:

           Patent costs related to products approved by any regulatory agency
worldwide or being sold have been capitalized. Amortization has been calculated
using the straight-line method over 17 years commencing the date of grant with
respect to each project.

           j. Long-lived assets:

           The Company's policy is to record long-lived assets at cost,
amortizing these costs over the expected useful lives of related assets. In
accordance with SFAS No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed Of", these assets are reviewed
on a quarterly and annual basis for impairment whenever events or changes in
circumstances indicate that the carrying amounts of the assets may not be
recoverable. Furthermore, the assets are evaluated for continuing value and
proper useful lives by comparison with expected future cash flows.

           k. Revenue recognition:

           Product sales are recognized when the product is shipped. Contract
fees for grants of licenses and other rights are recognized when the relevant
terms of each contract have been performed by the Company. Other revenues
represent funds received by the Company for research and development projects
that are partially funded by collaborative partners and the Chief Scientist of
the State of Israel, respectively. The Company recognizes revenue upon
performance of such funded research. In general, these contracts are cancelable
by the Company's collaborative partners at any time.

           l. Stock-based compensation:

           The Company grants stock options for a fixed number of shares to
employees. The Company accounts for stock option grants in accordance with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees".

           The Company has not adopted the measurement requirements of SFAS No.
123, "Accounting for Stock-Based Compensation", for stock option grants to
employees and, accordingly, has made all of the required pro forma disclosures
for the years ended December 31, 1996, 1997 and 1998 in Note 5.

                                       47



<PAGE>


                                   BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

           m. Income taxes:

           Deferred income taxes are recognized for the tax consequences of
temporary differences by applying the enacted statutory tax rates to differences
between the financial statement carrying amounts and the tax bases of existing
assets and liabilities.

           BTG-Israel files separate income tax returns and provides for taxes
under Israeli regulations.

           n. Comprehensive income (loss):

           In 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive
Income". This statement establishes rules for the reporting of comprehensive
income and its components. Other comprehensive income (loss) consists of
unrealized gains (losses) on marketable securities. In 1997 Other comprehensive
income was reported net of tax. In 1998 any tax benefit recorded in connection
with Other comprehensive loss was offset by a valuation allowance due to the
uncertainty of future utilization.

           o. Earnings per common share:

           Effective December 31, 1997, the Company adopted SFAS No. 128,
"Earnings Per Share." In accordance with SFAS No. 128, net earnings per common
share amounts ("basic EPS") were computed by dividing net earnings by the
weighted average number of common shares outstanding and excluded any potential
dilution. Net earnings per common share amounts assuming dilution ("diluted
EPS") were computed by reflecting potential dilution from the exercise of stock
options and warrants. SFAS No. 128 requires the presentation of both basic EPS
and diluted EPS on the face of the consolidated statements of operations.
Earnings per share amounts for the same prior-year periods have been restated to
conform with the provisions of SFAS No. 128.

           A reconciliation between the numerators and denominators of the basic
and diluted EPS computations for net earnings is as follows:



                                       48



<PAGE>

<TABLE>
<CAPTION>

                                   BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES


                                                           Year Ended December 31, 1996         
                                                  ----------------------------------------------
                                                    Income             Shares          Per Share
                                                  (Numerator)      (Denominator)        Amounts 
                                                   ---------        -----------        ---------
(In thousands, except per share data)
<S>                                                 <C>                <C>              <C>     
NET EARNINGS..................................      $22,915                                     

BASIC EPS
Net earnings attributable to common                                                             
stock.........................................       22,915            44,195            $0.52  

EFFECT OF DILUTIVE SECURITIES
Stock options.................................                          2,659                   
Stock warrants................................                          1,405                   
                                                                       ------                   

DILUTED EPS

Net earnings attributable to common                                                             
stock and assumed option and warrant                                                            
exercises.....................................      $22,915            48,259            $0.47  
                                                    =======            ======            =====  

<CAPTION>

                                                           Year Ended December 31, 1997         
                                                  ----------------------------------------------
                                                    Income             Shares          Per Share
                                                  (Numerator)      (Denominator)        Amounts 
                                                   ---------        -----------        ---------
(In thousands, except per share data)
<S>                                                 <C>                <C>              <C>     
NET EARNINGS..................................      $14,478                                        

BASIC EPS
Net earnings attributable to common                                                                 
stock.........................................       14,478            46,767            $0.31   

EFFECT OF DILUTIVE SECURITIES
Stock options.................................                          2,421                      
Stock warrants................................                          2,728                      
                                                                       ------                      

DILUTED EPS

Net earnings attributable to common                                                                
stock and assumed option and warrant                                                               
exercises.....................................      $14,478            51,916            $0.28   
                                                    =======            ======            =====  

<CAPTION>

                                                           Year Ended December 31, 1998         
                                                  ----------------------------------------------
                                                    Income             Shares          Per Share
                                                  (Numerator)      (Denominator)        Amounts 
                                                   ---------        -----------        ---------
(In thousands, except per share data)
<S>                                                 <C>                <C>              <C>     
NET EARNINGS..................................      $17,739                                        

BASIC EPS
Net earnings attributable to common                                                                     
stock.........................................       17,739            48,184            $0.37

EFFECT OF DILUTIVE SECURITIES
Stock options.................................                          1,090
Stock warrants................................                            574
                                                                       ------

DILUTED EPS

Net earnings attributable to common                                                            
stock and assumed option and warrant                                                           
exercises.....................................       17,739            49,848            $0.36
                                                    =======           ======            =====  

</TABLE>

                                       49



<PAGE>


                                   BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

           Options to purchase 1,970,000 shares of common stock out of the total
number of options outstanding as of December 31, 1998, were not included in the
computation of diluted EPS because of their anti-dilutive effect.

           p. Use of estimates in preparation of financial statements:

           The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. These assets and liabilities include BTG's marketing rights,
patents, prepaid and deferred expenses, fixed assets and severance accruals, as
management has made estimates as to their useful lives and realizability and
future obligations. Actual results could differ from those estimates.


NOTE 2 - LONG-TERM LIABILITIES

           Long-term liabilities consist of provision for severance pay.

           BTG-Israel participates in a defined contribution pension plan and
makes regular deposits with a pension fund to secure pension rights on behalf of
some of its employees. The custody and management of the amounts so deposited
are independent of the Company and accordingly such amounts funded (included in
expenses on an accrual basis) and related liabilities are not reflected in the
balance sheets. The Company's obligation for severance pay, in addition to the
amount funded, is included within long-term liabilities in the accompanying
balance sheets.

           In respect of its other employees, BTG-Israel purchases individual
insurance policies intended to cover its severance obligations. The amount
funded in the insurance policy and its obligation for severance pay to those
employees are reflected in the balance sheets as severance pay funded and
included in the provision for severance pay, respectively.

           The liability of the Company for severance pay is calculated on the
basis of the latest salary paid to its employees and the length of time they
have worked for the Company. The liability is covered by the amounts deposited,
including accumulated income thereon, as well as by the unfunded provision.

           The expense related to severance and pension pay for the years ended
December 31, 1996, 1997 and 1998, was $844,000, $936,000, and $715,000,
respectively.


                                       50



<PAGE>


                                   BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

NOTE 3 - PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
                                                                   December 31,
                                                            -----------------------
                                                               1997          1998
                                                            --------       --------
                                                                 (in thousands)
<S>                                                         <C>             <C>    
    Cost:
    Laboratory and manufacturing equipment................. $11,766         $14,446
    Office equipment.......................................   2,968           3,536
    Air conditioning and other.............................   2,067           2,156
    Leasehold improvements.................................   7,580           7,613
                                                              -----           -----
                                                             24,381          27,751

    Accumulated depreciation and amortization.............. (16,836)        (18,309)
                                                            -------         -------
          Total............................................ $ 7,545         $ 9,442
                                                            =======         =======
</TABLE>

    Depreciation and amortization expense was approximately $1,637,000,
$1,590,000 and $1,617,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.


NOTE 4 - STOCKHOLDERS' EQUITY

           In the years ended December 31, 1996, 1997 and 1998, the Company
issued 567,000 shares, 52,000 shares and 3,910,000 shares, respectively, of the
Company's common stock upon the exercise of outstanding warrants having an
aggregate purchase price of $3,401,000, $260,000 and $21,079,000, respectively.

           In the years ended December 31, 1996, 1997 and 1998, the Company
issued 1,790,000 shares, 1,433,000 shares and 660,000 shares, respectively, of
the Company's common stock upon the exercise of outstanding stock options having
an aggregate purchase price of $5,254,000, $5,611,000 and $2,724,000,
respectively.

           As of December 31, 1998, 406,000 Class B warrants to purchase the
Company's common stock at an exercise price of $9.84 per common share were
outstanding and will expire in March 1999.

           In April 1998, the Company adopted the 1998 Employee Stock Purchase
Plan (the "1998 ESPP"). The 1998 ESPP is qualified as an employee stock purchase
plan under Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code"). The total number of shares reserved for issuance under the 1998 ESPP is
3,000,000 shares.

           All full-time employees of the Company are eligible to participate in
the 1998 ESPP. From time to time, the Board of Directors may fix a date or a
series of dates on which the Company will grant rights to purchase shares of
Common Stock under the 1998 ESPP ("Rights") at prices not less than 85% of the
lesser of (i) the fair market value of the shares on the date of grant of such
Right or (ii) the fair market value of the shares on the date such Right is
exercised. Rights granted under the 1998 ESPP will run for a maximum of 27
months. No employee may be granted a Right which permits such employee to
purchase shares under the 1998 ESPP having a fair market value which exceeds
$25,000 (determined at the time such Right is granted) for each calendar year in
which such Right is outstanding, and no Right granted to any participating
employee may cover more than 12,000 shares.


                                       51



<PAGE>


                                   BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

NOTE 5 - STOCK OPTIONS

           The Company's Stock Option Plan (the "Plan") permits the granting of
options to purchase up to an aggregate of 3,900,000 shares of the Company's
common stock to employees, consultants and directors of the Company. Under the
Plan, the Company may grant either incentive stock options, at an exercise price
of not less than 100% of the fair market value of the underlying shares ("market
value") on the date of grant, or restricted stock options, at an exercise price
of not less than the lower of (i) 50% of the book value per share of the
Company's common stock, or (ii) 50% of the market value on the date of grant.
Options generally become exercisable ratably over a four-year period, with
unexercised options expiring shortly after employment termination. Terminated
options are available for reissuance. No additional options can be granted under
the Plan.

           In 1992, the Company adopted the Bio-Technology General Corp. 1992
Stock Option Plan (the "1992 Stock Option Plan"). The 1992 Stock Option Plan
currently permits the granting of options to purchase up to an aggregate of
12,000,000 shares of the Company's common stock to key employees (including
employees who are directors) and consultants of the Company. Under the plan, the
Company may grant either incentive stock options, at an exercise price of not
less than 100% of the fair market value of the underlying shares on the date of
grant, or non-qualified stock options, at an exercise price not less than the
par value of the common stock on the date of grant. Options generally become
exercisable ratably over a four-year period, with unexercised options expiring
shortly after employment termination. Terminated options are available for
reissuance.

           The Company also established a Stock Option Plan for New Directors
(the "New Director Plan") that, upon an individual's initial election or
appointment to the Board of Directors, provides for the grant of an option to
purchase 20,000 shares of common stock at an exercise price equal to the market
value of the common stock on the date of grant. Options become exercisable over
a three-year period.

           In June 1997 the Company adopted the Bio-Technology General Corp.
1997 Stock Option Plan for Non-Employee Directors (the "Directors Plan"). The
Directors Plan provides that each non-employee director will automatically
receive an option to purchase 7,500 shares of the Company's common stock on each
date such person is re-elected a director of the Company. In addition, the
Directors Plan provided that each person who was re-elected as a non-employee
director at the time the Directors Plan was adopted by the stockholders
automatically received an option to purchase 7,500 shares of the Company's
common stock on the date the Directors Plan was adopted. The exercise price of
each option is equal to the market value of the common stock on the date of
grant. Options become exercisable over a three-year period. An aggregate of
500,000 shares of common stock has been reserved for issuance under the
Directors Plan.

           The Company accounts for all plans under APB Opinion No. 25, under
which no compensation cost has been recognized as all options granted during
1996, 1997 and 1998 have been granted at the fair market value of the Company's
common stock. Had compensation cost for these plans and the Company's 1998 ESPP

                                       52



<PAGE>


                                   BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

been determined in accordance with SFAS No. 123, the Company's net income and
EPS would have been reduced as follows:

                                                   Year Ended December 31,
                                                   -----------------------
                                                1996       1997          1998
                                                ----       ----          ----
                                                  (in thousands except
                                                      per share data)

 Net income:      As reported  ............... $22,915    $14,478      $17,739
                  Pro forma    ...............  21,575     10,361        9,810
                                               
 Basic EPS:       As reported  ............... $  0.52    $  0.31      $  0.37
                  Pro forma    ...............    0.49       0.22         0.20
                                               
 Diluted EPS:     As reported  ............... $  0.47    $  0.28      $  0.36
                  Pro forma    ...............    0.45       0.20         0.20
                                               
                                              
           Under SFAS No. 123, the fair value of each option is estimated on the
date of grant using the Black Scholes option-pricing model with the following
weighted average assumptions used for grants in 1996, 1997 and 1998: (1)
expected life of option of seven years; (2) dividend yield of 0%; (3) expected
volatility of 72%, 64% and 56%; and (4) risk-free interest rate of 6.66%, 6.43%
and 5.46%, respectively.

           Because SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.

           Transactions under the Plan, the New Director Plan, the 1992 Stock
Option Plan, the Directors Plan and other plans during 1996, 1997 and 1998 were
as follows:


<TABLE>
<CAPTION>

                                                                                  Year ended December 31,
                                                                   ------------------------------------------------
                                                                             1996                     1997            
                                                                   -----------------------     -------------------- 
                                                                                  Weighted                 Weighted    
                                                                                  Average                  Average    
                                                                     Shares       Exercise     Shares      Exercise    
                                                                     ('000s)       Price       ('000s)       Price     
                                                                   --------      --------      -------         ----- 
<S>                                                                <C>           <C>           <C>             <C>     
Options outstanding at beginning of year.............                6,004         $3.83         4,933         $4.79 
Granted..............................................                  751          8.04         1,975         14.08 
Exercised............................................              (1,790)          2.93       (1,433)          3.92 
Terminated...........................................                 (32)          5.40          (75)          6.13 
                                                                   -------                     -------               
Options outstanding at end of year...................                4,933          4.79         5,400          8.40 
                                                                                            
                                                                   =======                     =======               
Exercisable at end of year ..........................                2,808                       2,333               
                                                                   =======                     =======               
Weighted average fair value of options granted.......                               5.90                        9.65 
                                                                                   =====                       ===== 
Weighted average fair value of options repriced......                                                                          
                                                                                                                               

<CAPTION>

                                                                  Year ended December 31,
                                                                           1998
                                                                 ------------------------
                                                                                 Weighted
                                                                                 Average
                                                                  Shares         Exercise
                                                                  ('000s)          Price
                                                                  ------         --------
<S>                                                               <C>             <C>  
Options outstanding at beginning of year.............             5,400           $8.40
Granted..............................................             1,874            7.49
Exercised............................................             (660)            4.13
Terminated...........................................             (282)            9.10
                                                                  -----
Options outstanding at end of year...................             6,332            7.33
                                                                  
                                                                  =====
Exercisable at end of year ..........................             2,714
                                                                  =====
Weighted average fair value of options granted.......                              4.71
                                                                                  =====
Weighted average fair value of options repriced......                              3.96(1)
                                                                                  =====

</TABLE>

(1)        On June 15, 1998 1,398,000 previously-granted options were repriced.
           The additional compensation cost in respect thereof is reflected in
           the pro forma disclosures for the year ended December 31, 1998.


                                       53



<PAGE>


                                   BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

           Of the 6,332,000 options outstanding as of December 31, 1998:

                     - 2,130,000 have exercise prices between $1.06 and $7.00
           with a weighted average exercise price of $4.46 and a weighted
           average remaining contractual life of 5.67 years. Of these 2,130,000
           options, 1,635,000 are exercisable; their weighted average exercise
           price is $4.44.

                     - 2,262,000 options have exercise prices between $7.19 and
           $8.44 with a weighted average exercise price of $7.71 and a weighted
           average remaining contractual life of 8.41 years. Of these 2,262,000
           options, 538,000 are exercisable; their weighted average exercise
           price is $7.79.

                     - 1,940,000 options have exercise prices between $8.45 and
           $14.12 with a weighted average exercise price of $10.03 and a
           weighted average remaining contractual life of 8.49 years. Of these
           1,940,000 options, 541,000 are exercisable; their weighted average
           exercise price is $10.22.

           Subsequent to December 31, 1998, options to purchase an aggregate of
57,000 shares of common stock have been exercised, having an aggregate purchase
price of $241,000.


NOTE 6 - FOREIGN OPERATIONS

           The Company adopted SFAS No. 131, "Disclosure about Segments of an
           Enterprise and Related Information", at December 31, 1998. SFAS 131
           establishes annual and interim reporting standards for an
           enterprise's operating segments and related disclosures about its
           products, services, geographic areas and major customers. Under SFAS
           131, the Company's operations are treated as one operating segment as
           it only reports profit and loss information on an aggregate basis to
           chief operating decision makers of the Company. Information about the
           Company's operations in the United States and Israel is presented
           below:

                                       54



<PAGE>


                                   BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

<TABLE>
<CAPTION>

                                                                                                                           
                                                                     U.S.          Israel       Eliminations     Consolidated
                                                                  ---------       --------      ------------     ------------
                                                                                 (in thousands of U.S. dollars)
                                                                                 ------------------------------
Year ended December 31, 1996:
<S>                                                               <C>             <C>             <C>             <C>   
    Revenues..................................................    ss.43,833         3,905                           47,738
    Intercompany transactions.................................        1,213         7,329         (8,542)
    Reimbursement of subsidiary's expenses                                          8,994         (8,994)
    Depreciation and amortization.............................        1,316         1,429                            2,745
    Interest income...........................................        1,072            33                            1,105
    Income tax benefit........................................      (11,975)                                       (11,975)
    Net income................................................       21,908         1,231           (224)           22,915
    Identifiable assets(o)....................................       73,706         9,775         (9,906)           73,575
    Foreign liabilities(o)....................................                    ++4,643                            4,643
    Investment in subsidiaries (cost basis)(o)................        5,797                       (5,797)

Year ended December 31, 1997:
    Revenues..................................................    ss.61,834         3,501                           65,335
    Intercompany transactions.................................        1,143         7,730         (8,873)
    Reimbursement of subsidiary's expenses...................                       9,946         (9,946)
    Depreciation and amortization.............................        1,438         1,198                            2,636
    Interest income...........................................        1,611           108                            1,719
    Income tax expense........................................        6,705                                          6,705
    Net income................................................       13,448         1,538           (508)           14,478
    Identifiable assets(o)....................................       94,513         9,074         (8,174)           95,413
    Foreign liabilities(o)....................................                    ++4,334                            4,334
    Investment in subsidiaries (cost basis)(o)................        5,797                       (5,797)

Year ended December 31, 1998:
    Revenues..................................................    ss.66,810        10,045                           76,855
    Intercompany transactions.................................        4,363         1,599         (5,962)
    Reimbursement of subsidiary's expenses                                         10,770        (10,770)
    Depreciation and amortization.............................        1,989         1,136                            3,125
    Interest income...........................................        2,870            95                            2,965
    Income tax expense........................................        7,010                                          7,010
    Net income................................................       17,223         3,404         (2,888)           17,739
    Identifiable assets(o)....................................      140,290        20,330        (17,944)          142,676
    Foreign liabilities(o)....................................                    ++5,939                            5,939
    Investment in subsidiaries (cost basis)(o)................        5,797                       (5,797)
</TABLE>

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

ss.   Includes export sales of $22,334,000, $24,713,000 and $27,723,000 in
      1996, 1997 and 1998, respectively.

(o)   At year end.

++    Excludes liability to parent.



                                       55



<PAGE>


                                   BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES

           a. The Company has leased approximately 23,000 square feet of office
space in New Jersey for its executive office, having an average annual rental
expense of approximately $415,000. The lease expires in October 2003. In
addition, the Company is obligated to pay its proportional share of any annual
increase in taxes and operating expenses. The Company also leases approximately
2,000 square feet in New York City, primarily for its investor and public
relations activities having an average annual rental expense of $98,000.
BTG-Israel currently leases approximately 89,000 square feet of space for its
research, development and production facilities in Israel. This lease will
expire in December 2002. BTG-Israel also leases 5,000 square feet of warehouse
space near its research and manufacturing facility pursuant to a lease that
expires in September 1999. Rent expense was approximately $1,450,000, $1,609,000
and $1,684,000 for the years ended December 31, 1996, 1997 and 1998,
respectively. The future consolidated annual minimum rentals (exclusive of
amounts for real estate taxes, maintenance, etc.) for each of the next five
years are as follows: 1999--$1,544,000; 2000--$1,520,000; 2001--$1,522,000;
2002--$1,524,000; and 2003--$417,000. There is also a bank guarantee outstanding
in favor of the lessor for $694,000 secured by the assets of BTG-Israel.

           b. The Company is obligated, for products resulting from research and
development projects partially funded by the Chief Scientist, to pay royalties
to the Israeli government of 3%-5% on commercial sales, if any, of these
products if produced in Israel up to the amount so funded, or royalties of 4%-6%
if produced outside Israel up to 120%-300% of the amount so funded. As of
December 31, 1998, the Company is obligated to repay to the Chief Scientist, out
of revenue from future product sales, a minimum of $3,653,000 of research and
development funding for products that are currently being sold and a minimum of
$9,088,000 of research and development funding for products currently under
development if these products will be sold. During the years ended December 31,
1996, 1997 and 1998, the Company accrued approximately $907,000, $413,000 and
$385,000, respectively, as royalties to the Chief Scientist.

           The Company is also committed to pay royalties on future sales, if
any, of certain of its products to licensees from which the Company licensed
these products.

           c. The Company currently has employment agreements with five senior
officers. Under these agreements, the Company has committed to total aggregate
base compensation per year of approximately $1,193,000 plus other normal
customary fringe benefits and bonuses as well as a minimum annual increase in
compensation. These employment agreements generally have a term of two years and
are automatically renewed for successive two-year periods unless either party
gives the other notice of non-renewal.

           d. The Company has received notification of claims filed against
certain of its patents. Management believes that these claims have no merit, and
the Company intends to defend them vigorously.



                                       56



<PAGE>


                  BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

NOTE 8 - OTHER CURRENT LIABILITIES
                                                  December 31,     
                                        -----------------------------     
                                         1997                  1998
                                        ------                -------
                                                (in thousands)

Salaries and related expenses           $1,894                $ 2,295
Accrued subcontracting payable           2,725                  4,558
Governmental and state agencies            240                  1,001
Legal and professional fees                698                    265
Royalties and commissions                  419                  1,645
 Other                                     597                    389
                                        ------                -------
                                        $6,573                $10,153
                                        ======                =======


NOTE 9 - CONCENTRATIONS

           In 1996, 1997 and 1998, one customer for human growth hormone,
located solely in Japan, represented $12,906,000, $10,095,000 and $11,056,000,
or 28%, 16% and 15% of revenues (exclusive of interest income), respectively. In
1996, 1997 and 1998, one customer for Oxandrin and Delatestryl, located solely
in the United States, represented $15,540,000, $29,013,000 and $43,171,000, or
33%, 46% and 58% of revenues (exclusive of interest income), respectively. In
1998, the Company's product sales consisted primarily of sales of Oxandrin,
human growth hormone and BioLon in the amount of approximately $40,521,000,
$17,316,000 and $6,799,000, or 59%, 25% and 10% of total product sales,
respectively. One customer accounted for 69% and 74% of total accounts
receivable-trade as of December 31, 1997 and 1998, respectively. As of December
31, 1997 and 1998, another customer accounted for 10% and 12% of total accounts
receivable-trade, respectively. BTG has one supplier for its Oxandrin product.


NOTE 10 - WRITE-OFF IN CONNECTION WITH LITIGATION

           In 1996, the Company wrote off $1,383,000 of capitalized expenses
relating to human growth hormone, as a result of the affirmation by the U.S.
Court of Appeals for the Federal Circuit of a preliminary injunction obtained by
Genentech, Inc. prohibiting the Company from marketing its human growth hormone
in the United States. The write-off consists of legal costs related to the
litigation with Genentech and hGH launch preparation costs in the United States.


NOTE 11 - INCOME TAXES

           Taxable income for the years ended December 31, 1996, 1997 and 1998
was substantially offset by the utilization of net operating loss carryforwards
("NOLs") and research and experimental ("R&E") credits. At December 31, 1998,
BTG has a capital loss carryover of approximately $6,800,000 available to offset
future capital gains, which expires in 2000, and an R&E credit carryover of
approximately $3,278,000 available to reduce future income taxes, which expires
at various times with respect to various amounts through 2018.

           In 1996, management determined that it had become more likely than
not that it would realize its net deferred tax assets (other than approximately
$4,096,000) and it therefore reduced the valuation allowance by

                                       57



<PAGE>


                                   BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

approximately $18,587,000. The determination that the net tax asset was
realizable was based on 1996 being BTG's first full year of profitability in
each quarter, and the performance and penetration of Oxandrin, which was first
introduced in December 1995. The Company's reversal of the valuation allowance
against its net deferred tax assets resulted in a realization of income tax
benefit of approximately $12,435,000 in 1996 and increased capital in excess of
par value by approximately $2,944,000, representing, for tax purposes, the
deductible compensation resulting from the exercise of stock options.

           The components of current and deferred income tax (benefit) expense
are as follows:

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                              -------------------------------------------
                                                1996               1997            1998
                                              --------            ------           ------
                                                              (in thousands)
<S>                                           <C>                 <C>             <C> 
Current:
        State.............................    $  1,155            $   --             $336
        Federal...........................       3,156               408            1,514
        Benefit of NOLs...................      (3,851)               --               --
                                              --------            ------           ------
                                                   460               408            1,850
                                              --------            ------           ------

Deferred:
        State.............................      (1,840)            2,035              464
        Federal...........................     (10,595)            4,262            4,696
                                              --------            ------           ------
                                               (12,435)            6,297            5,160
                                              --------            ------           ------

Total income tax (benefit) expense........    $(11,975)           $6,705           $7,010
                                              ========            ======           ======
</TABLE>


           The domestic and foreign components of income before income taxes are
as follows:

<TABLE>
<CAPTION>

                                                        Year Ended December 31,
                                              ------------------------------------------
                                                1996             1997             1998
                                              -------          -------          --------
                                                               (in thousands)

<S>                                            <C>             <C>               <C>    
        Domestic..........................     $9,654          $19,663           $21,435
        Foreign...........................      1,286            1,520             3,314
                                              -------          -------           -------
                                              $10,940          $21,183           $24,749
                                              =======          =======           =======
</TABLE>


                                       58



<PAGE>


                                   BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES



        The components of deferred income tax (benefit) expense are:

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                          ----------------------------------
                                                            1996            1997        1998
                                                          ---------       -------      ------
                                                                           (in thousands)
<S>                                                       <C>            <C>           <C>    
        R&E credit....................................    $     --       $(1,419)      $ (393)
        Net operating loss ...........................       4,989         7,738        7,290
        Change in valuation allowance exclusive           
           of stock options...........................     (16,286)           --           --
           Alternate minimum tax credit...............        (218)         (381)         (28)
           Accrued amounts............................        (739)           793      (1,429)
           Depreciation and amortization..............        (181)         (434)        (280)
                                                          ---------       -------      ------
                                                          $(12,435)       $ 6,297      $5,160
                                                          =========       =======      ======
</TABLE>                                              


           A reconciliation of income taxes between the statutory and effective
tax rates on income before income taxes is as follows:

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                    ----------------------------------
                                                                       1996         1997         1998 
                                                                    ---------      ------       -------
                                                                                        (in thousands)

<S>                                                                 <C>            <C>          <C>   
     Income tax at U.S. statutory rate...........................     $3,720       $7,414       $8,662
     Current year benefit of NOLs ...............................     (3,851)          --           --
     State and local income taxes (net of federal benefit)               850        1,222          520
     Change in valuation allowance exclusive                        
        of stock options.........................................    (12,435)          --           --
     R&E credit..................................................         --       (1,419)      (1,189)
     Foreign income not subject to tax...........................       (340)        (350)      (1,371)
     Other.......................................................         81         (162)         388
                                                                     -------       ------       -------
     Income tax (benefit) expense................................   $(11,975)      $6,705       $7,010
                                                                    ========       ======       ======
                                                                  
</TABLE>

                                       59



<PAGE>


                  BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

The components of deferred income tax assets (liabilities) are as follows:


                                                   December 31,
                                           ---------------------------
                                              1997             1998
                                            -------            -------
                                                  (in thousands)

NOLs       .............................    $ 7,391        $       --
Capital loss carryforward...............      4,096             2,632
R&E credit..............................      2,365             3,278
Accrued amounts.........................        965             2,422
                                            -------            -------
                                             14,817             8,332
Depreciation and amortization...........       (573)             (293)
                                            -------            -------
                                             14,244             8,039
Valuation allowance.....................     (4,096)           (2,632)
                                            -------            -------
                                            $10,148            $5,407
                                            =======            ======



                                       60



<PAGE>


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
               AND FINANCIAL DISCLOSURE

                             None




                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors

           The section entitled "Proposal No. 1 - Election of Directors" in the
Company's Proxy Statement for the Annual Meeting of Stockholders is incorporated
herein by reference.

Executive Officers

           See "Part I - Item 1. Business - Executive Officers of the Company".


ITEM 11.  EXECUTIVE COMPENSATION

           The section entitled "Executive Compensation" in the Company's Proxy
Statement for the Annual Meeting of Stockholders is incorporated herein by
reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

           The section entitled "Beneficial Ownership of Common Stock" in the
Company's Proxy Statement for the Annual Meeting of Stockholders is incorporated
herein by reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

           The sections entitled "Executive Compensation - Compensation
Committee Interlocks and Insider Participation" and "Certain Transactions" in
the Company's Proxy Statement for the Annual Meeting of Stockholders is
incorporated herein by reference.



                                       61



<PAGE>


                  BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)        Financial Statements

           (1) and (2) See "Index to Consolidated Financial Statements" at Item
8 of this Annual Report on Form 10-K.

           (3) Exhibits

           Certain exhibits presented below contain information that has been
granted or is subject to a request for confidential treatment. Such information
has been omitted from the exhibit. Exhibit Nos. 10(a), (j), (k), (l), (n), (q),
(v), (w), (x) and (y) are management contracts, compensatory plans or
arrangements.


Exhibit No.       Description
-----------       -----------

3(a)           Certificate of Incorporation of the Registrant, as amended. *(1)

 (b)           By-laws of the Registrant, as amended.*(2)

4.1            Rights Agreement, dated as of October 7, 1998, by and between
               Bio-Technology General Corp. and American Stock Transfer & Trust
               Company, as Rights Agent, which includes the form of Certificate
               of Designations setting forth the terms of the Series A Junior
               Participating Cumulative Preferred Stock, par value $0.01 per
               share, as Exhibit A, the form of Right Certificate as Exhibit B
               and the Summary of Rights to Purchase Preferred Shares as Exhibit
               C.*(2)

4.2            Certificate of Designations of the Series A Junior Participating
               Cumulative Preferred Stock.*(2)

10(a)          Bio-Technology General Corp. Stock Option Plan, as amended
               through May 29, 1991.*(3)

  (b)          Agreement, dated January 25, 1981, between Bio-Technology General
               (Israel) Ltd. and Yeda Research and Development Co., Ltd.
               ("Yeda"). *(4)

  (c)          Letter from the Chief Scientist to Bio-Technology General
               (Israel) Ltd. *(4)

  (d)          Letter from the Company to Yeda relating to bGH and hSOD. *(5)

  (e)          Agreement, dated January 20, 1984, between Bio-Technology General
               (Israel) Ltd., and the Chief Scientist with regard to certain
               projects. *(6)

  (f)          Agreement, dated July 9, 1984, between the Company and Yeda. *(6)

  (g)          Agreement, dated as of January 1, 1984, between the Company and
               Yissum. *(7)

  (h)          Form of Indemnity Agreement between the Company and its directors
               and officers. *(8)

                                       62



<PAGE>



EXHIBIT NO.       DESCRIPTION
-----------       -----------



(i)            Agreement, dated November 18, 1988, between the Company and Yeda.
               *(9)

(j)            Employment Agreement, dated as of January 1, 1990, between the
               Company and Dr. Sim Fass.*(10)

(k)            Bio-Technology General Corp. Stock Compensation Plan for Outside
               Directors, as amended through March 1991. *(3)

(l)            Bio-Technology General Corp. Stock Option Plan for New Directors,
               as amended through March 1991. *(3)

(m)            Reacquisition of Rights Agreement, effective June 12, 1991
               between the Company and The Du Pont Merck Pharmaceutical Company.
               *(11)

(n)            Employment Agreement, dated as of September 5, 1990, between
               Bio-Technology General (Israel) Ltd. and Marian Gorecki. *(12)

(o)            Agreement, dated as of November 9, 1992, between the Company and
               SmithKline Beecham Intercredit B.V. *(12)

(p)            Exclusive Distribution Agreement, dated as of November 9, 1992,
               between the Company and Ferring B.V. *(12)

(q)            Bio-Technology General Corp. 1992 Stock Option Plan, as
               amended.*(13)

(r)            Purchase and Supply Agreement, dated as of December 1, 1995,
               between Bio-Technology General Corp. and Quantum Health
               Resources. *+(14)

(s)            Support Services Agreement, dated as of December 1, 1995, between
               Bio-Technology General Corp. and Quantum Health Resources. *+(14)

(t)            Research and Development Services Agreement, dated as of January
               1, 1996 by and between Bio-Technology General Corp. and
               Bio-Technology General (Israel) Ltd.

(u)            Manufacturing Services Agreement, dated as of January 1, 1996, by
               and between Bio- Technology General Corp. and Bio-Technology
               General (Israel) Ltd.

(v)            Employment Agreement, dated as of January 29, 1996, between
               Bio-Technology General Corp. and Ernest L. Kelly. *(14)

(w)            Employment Agreement, dated as of April 24, 1995, between
               Bio-Technology General Corp. and William Pursley. *(15)


                                       63



<PAGE>



EXHIBIT NO.       DESCRIPTION
-----------       -----------


(x)            Bio-Technology General Corp. 1997 Stock Option Plan for
               Non-Employee Directors.*(13)

(y)            Bio-Technology General Corp. 1998 Employee Stock Purchase
               Plan.*(16)

21             Subsidiaries of Bio-Technology General Corp.+(17)

23             Consent of Arthur Andersen LLP.

27             Financial Data Schedule.



               Exhibits have been included in copies of this Report filed with
the Securities and Exchange Commission. Stockholders of the Company will be
provided with copies of these exhibits upon written request to the Company.

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

+    Confidential treatment has been granted for portions of such document.

* Previously filed with the Commission as Exhibits to, and incorporated herein
by reference from, the following documents:

 (1) Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 
      1994.
 (2) Company's Current Report on Form 8-K, dated October 7, 1998.
 (3) Company's Annual Report on Form 10-K for the year ended December 31, 1991.
 (4) Registration Statement on Form S-1 (File No. 2-84690).
 (5) Company's Annual Report on Form 10-K for the year ended December 31, 1983.
 (6) Registration Statement on Form S-1 (File No. 33-2597).
 (7) Registration Statement on Form S-2 (File No. 33-12238).
 (8) Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
      1987.
 (9) Company's Annual Report on Form 10-K for the year ended December 31, 1988.
(10) Company's Annual Report on Form 10-K for the year ended December 31, 1989.
(11) Registration Statement on Form S-3 (File No. 33-39018).
(12) Company's Annual Report on Form 10-K for the year ended December 31, 1992.
(13) Company's Annual Report on Form 10-K for the year ended December 31, 1997.
(14) Company's Annual Report on Form 10-K for the year ended December 31, 1995.
(15) Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
      1995.
(16) Company's Registration Statement on Form S-8 (File No. 333-64541).
(17) Company's Annual Report on Form 10-K for the year ended December 31, 1996.


                                       64



<PAGE>



   (b)   Reports on Form 8-K

         Current Report on Form 8-K dated October 7, 1998, reporting the
         Company's adoption of a Shareholder Rights Plan and By-law amendments.

   (c)   Exhibits

         See (a) (3) above.

   (d)   Financial Statement Schedule

         See "Index to Consolidated Financial Statements and Supplemental
         Schedule" at Item 8 of this Annual Report on Form 10-K. Schedules not
         included herein are omitted because they are not applicable or the
         required information appears in the Consolidated Financial Statements
         or notes thereto.

                                       65



<PAGE>



                                   SIGNATURES

           Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                                    Bio-Technology General Corp.
                                                     (Registrant)

                                                      By:  /s/ Sim Fass
                                                           --------------------
                                                          (Sim Fass)
                                                          Chairman of the Board,
                                                          President and CEO


March 19, 1999


     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.


Signature                      Title                                  Date
---------                      -----                                  ----
/s/ Sim Fass                   Chairman of the Board,            March 19, 1999
---------------------          President, CEO and Director  
(Sim Fass)                     (Principal Executive Officer)

/s/ Herbert Conrad             Director                          March 19, 1999
---------------------
(Herbert Conrad)


/s/ Carl Kaplan                Director                          March 19, 1999
---------------------
(Carl Kaplan)


/s/ Allan Rosenfield           Director                          March 19, 1999
---------------------
(Allan Rosenfield)


/s/ David Tendler              Director                          March 19, 1999
---------------------
(David Tendler)




                                       66



<PAGE>



Signature                       Title                                 Date
---------                       -----                                 ----

/s/ Virgil Thompson             Director                         March 19, 1999
---------------------
(Virgil Thompson)


/s/ Dan Tolkowsky               Director                         March 19, 1999
---------------------
(Dan Tolkowsky)


/s/ Faye Wattleton              Director                         March 19, 1999
---------------------
(Faye Wattleton)


/s/ Herbert Weissbach           Director                         March 19, 1999
---------------------
(Herbert Weissbach)


/s/ Yehuda Sternlicht           Vice President-Finance and       March 19, 1999
---------------------           Chief Financial Officer
(Yehuda Sternlicht)             (Principal Financial and
                                Accounting Officer)
                                


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