<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, DC  20549

                                  FORM 10-K

(Mark One)

/X/  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934
     For the Fiscal Year Ended December 31, 1997
                                   or
/ /  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934
     For the Transition Period From _______________ to ________________.

                           Commission file number 0-27976

                                  GalaGen Inc.
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              (Exact name of registrant as specified in its charter)

                   Delaware                             41-1719104
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       (State or other jurisdiction of                (I.R.S. employer
        incorporation or organization)               identification no.)


         4001 Lexington Avenue North
           Arden Hills, Minnesota                           55126
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   (Address of principal executive offices)               (Zip code)

                                (612) 481-2105
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             (Registrant's telephone number, including area code)

          Securities registered pursuant to Section 12(b) of the Act:  None
          Securities registered pursuant to Section 12(g) of the Act:  Common
               Stock, par value $.01 per share

          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. / /

          The aggregate market value of the Common Stock held by
     non-affiliates of the registrant as of March 19, 1998 was $10,179,947
     based on the closing sale price for the Common Stock on that date as
     reported by The Nasdaq Stock Market.  For purposes of determining such
     aggregate market value, all officers, and directors of the registrant
     are considered to be affiliates of the registrant, as well as
     stockholders holding 10% or more of the outstanding Common Stock as
     reflected on Schedules 13D or 13G filed with the registrant.  This
     number is provided only for the purpose of this report on Form 10-K and
     does not represent an admission by either the registrant or any such
     person as to the status of such person.

          As of March 19, 1998 the registrant had 7,962,198 shares of Common
     Stock issued and outstanding.


<PAGE>

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant's definitive Proxy Statement dated March 30,
1998 for the annual meeting of stockholders to be held on May 13, 1998 and the
Annual Report to Stockholders for the year ended December 31, 1997 are
incorporated by reference in Parts II, III and IV.

                                    PART I

ITEM 1.   BUSINESS

FORWARD-LOOKING STATEMENTS

     The information presented in this Annual Report on Form 10-K under the
headings "Item 1. Business" and "Item 2. Properties" and incorporated by
reference under "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward-looking statements
within the meaning of the safe harbor provisions of Section 21E of the
Securities Exchange Act of 1934, as amended.  Such statements are subject to
risks and uncertainties, including those discussed under "Risk Factors" below
beginning on page 16 of this Annual Report on Form 10-K, that could cause
actual results to differ materially from those projected.  Because actual
results may differ, readers are cautioned not to place undue reliance on
these forward-looking statements.  Certain forward-looking statements are
indicated below by an asterisk.

INTRODUCTION

     GalaGen Inc. ("GalaGen" or the "Company"), which was incorporated in
1992 as a successor to a company incorporated in 1987, has expertise in
obtaining and processing polyclonal antibodies, as follows:

          ACCESS TO COLOSTRUM.  The Company has agreements with Land O'Lakes
     which provide the Company with access to the Land O'Lakes dairy system.
     This dairy system has approximately 400,000 cows, from which the Company
     receives its supply of colostrum, which is milk collected in the first
     few milkings of a dairy cow after its calf is born.  From this
     colostrum, the Company obtains its antibodies, which are food proteins.
     These cows are located primarily in the upper Midwest and both the East
     and West coasts.

          PROPRIETARY TECHNOLOGY.  Using its proprietary immunization
     technologies, including the use of immune system stimulating adjuvants,
     the Company can produce antibodies in the cow that target specific
     pathogens infecting the human gastrointestinal ("GI") tract, including
     bacteria and their toxins, parasites, fungi and viruses. This technology
     increases by many fold a dairy cow's natural production of
     pathogen-specific antibodies in its colostrum.

          PROPRIETARY MANUFACTURING.  The Company has patented, proprietary
     manufacturing processes that are used to concentrate antibodies from the
     colostrum.  Standard dairy processing techniques destroy the activity of
     most of the antibodies present in milk and colostrum, whereas the
     Company's processing retains the antibody activity.

     The Company is utilizing this expertise to develop a portfolio of
proprietary nutritional products, including dietary supplements, which will
incorporate its Proventra-TM- Brand Natural Immune Components ("Proventra").
These products will target needs of both consumers and healthcare
professionals.*  GalaGen is also developing oral pharmaceuticals that target
life threatening and emerging pathogens.

     In December 1997, the Company introduced Basics Plus-TM-, a dietary
supplement product, in conjunction with its marketing and manufacturing
partner, Lifeway Foods, Inc.  Basics Plus is the first product to emerge from
the collaboration with Lifeway Foods, Inc.  It contains active kefir
cultures, which are cultures that contain


                                       2
<PAGE>

beneficial bacteria strains, and GalaGen's Proventra. Basics Plus is the
first dairy-based dietary supplement sold in the United States in the
refrigerated section of health food stores and grocery stores, and is
currently in test markets in Chicago, New York City and Milwaukee.  The
product was featured in the February 1998 issue of DAIRY FOODS MAGAZINE.

     Diffistat-G, the Company's lead pharmaceutical product in development,
is being developed for the treatment and prevention of antibiotic-associated
diarrhea, a disease that annually affects more than 400,000 patients in the
United States.

     Because the Company's antibodies, including Proventra, are derived from
cows' milk, they do not represent new chemical compounds with uncertain
toxicity, but rather their components are commonly found in dairy foods that
are already widely consumed.  Antibodies for incorporation into multiple
nutritional and pharmaceutical products can be manufactured using a single,
proprietary manufacturing process and facility, and as a result, the Company
believes that additional products will not require significant separate
investments in manufacturing facilities or process techniques.*

BACKGROUND

GENERAL

     Passive immunity consists of using antibodies produced by one individual
or animal to treat, prevent or protect against infection in another.  Such
antibodies can be administered orally for GI infections. Breast feeding is
the most common example of passive immunity delivered to the GI tract, with
the mother providing natural protective antibodies to her infant through her
milk. Similarly, dairy cows provide antibodies to calves through the
colostrum, which is the milk produced during the first several days of
lactation.  The concentration of antibodies in colostrum is many times higher
than the normal concentration in milk.  Through their natural exposure to the
environment, cows have developed antibodies that recognize and bind to many
human pathogens.

NUTRITIONAL PRODUCTS

     According to Frost & Sullivan, a competitive-market analysis firm, the
market for nutraceutical or functional food beverages now exceeds $20
billion. The Company believes that this significant market size is due to a
number of factors, including (i) increased interest in healthier lifestyles,
(ii) the publication of research findings supporting the positive health
effects of certain nutritional supplements and (iii) the aging of the "Baby
Boom" generation combined with the tendency of consumers to purchase more
nutritional supplements as they age.*

     The Company believes that the inclusion of antibodies in nutritional
products, along with including other components such as active cultures and
dietary soluble fiber, provide important benefits and competitive advantages,
including (i) a unique immune-enhancing system, (ii) a fit with consumer
needs, and (iii) a safe, proven means to fight pathogens.*

PHARMACEUTICALS

     Antibiotics and vaccines (active immunizations) are currently the most
common therapies for the treatment and prevention of infections.
Unfortunately, both have significant limitations for the management of
infections.  Pathogens are increasingly resistant to antibiotics.  Overuse of
antibiotics may result in selection for additional resistant strains and,
occasionally, results in the onset of serious secondary infections.  Vaccines
are not immediately effective and usually require repeated vaccinations to
raise the concentration of antibodies in the body to levels high enough to
prevent or counteract disease. This delay may be unacceptable because it may
permit progression of the disease to severe or even fatal stages.  Active
immunization of the GI tract is also difficult. For these reasons, new
therapeutic approaches for treating and preventing GI infections are needed.
One


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alternative to antibiotics and vaccines is passive immunity. As a result of
these advantages, passive immunity can be used in pharmaceutical applications
for both acute treatment and long-term prevention of disease.

     Advantages of passive immunity for treating or preventing GI tract
infections are numerous. Orally-delivered antibodies provide immediate
treatment of existing infections and provide for rapid temporary protection
against developing infection.  They may be delivered in high concentrations
directly to the site of infection in the GI tract rather than through the
blood-stream. They are polyclonal, meaning that they bind to many different
surface features of a pathogen and are thus less likely to permit the
development of resistant pathogens.  They do not disrupt the GI tract's
natural bacterial flora, which is necessary for normal digestion and
intestinal function.

THE COMPANY'S CORE ANTIBODY TECHNOLOGY AND PRODUCT BENEFITS

     The Company's products contain polyclonal antibodies derived from bovine
colostrum, which is the first milk from a cow after her calf is born.  The
antibodies are orally administered to humans and provide passive immunity
within the GI tract.  The Company's goal is to provide passive immunity for
individuals either through regular use of nutritional products that have
lower concentrations of antibodies over a longer period of time or through
periodic use of pharmaceutical products that have higher concentrations of
antibodies over a shorter period of time.*

     The antibodies may block a pathogen's effect by immobilizing it, killing
it, promoting its ingestion and destruction by white blood cells, or
preventing it from attaching to and colonizing the GI tract.  In these ways,
the antibodies help to eliminate the pathogen from the infected individual.
The Company's proprietary immunization technologies, through the use of
immune system stimulating adjuvants, increase by many fold a dairy cow's
natural production of pathogen-specific antibodies in its colostrum.

     Standard dairy processing techniques destroy the activity of most
antibodies present in milk and colostrum.  The Company's proprietary
processes used to concentrate antibodies have been developed through many
years of research and development.  This work resulted in a process that uses
several well-tested and efficient dairy manufacturing techniques that have
been modified to preserve the biological activity of the antibodies. The
Company will manufacture its nutritional products in accordance with the
appropriate license issued by Minnesota Department of Agriculture ("MDA").
The Company will manufacture its pharmaceutical products in accordance with
pharmaceutical specifications for oral dosage formulations and will support
its proprietary processing system with a quality control system that
regulates, monitors and reviews the processing system in compliance with
current Good Manufacturing Practices ("GMP") for the manufacture of biologics.

PRODUCTS IN DEVELOPMENT

NUTRITIONAL PRODUCTS

     In addition to therapeutic products targeted at GI diseases, the Company
believes that its antibody technology lends itself to the creation of food
products or dietary supplements with health claims, often called "functional
foods" or "nutraceuticals".*  These have been defined as foods which provide
benefits beyond their nutritional value.  While there is not a regulatory
definition for the terms "functional food" or "nutraceutical", these terms
are widely used in the marketplace.  The Company believes that the enactment
by Congress of the Nutrition Labeling and Education Act ("NLEA") in 1990 and
the Dietary Supplement Health and Education Act ("DSHEA") in 1994 enabled the
regulatory process for marketing foods or dietary supplements.  DSHEA permits
such products to bear "structure-function" claims related to how the product
affects the structure or function of the body, and such claims do not require
FDA review or approval, but must be supported by scientific evidence.  NLEA
permits products to carry more specific health claims, but requires FDA
approval and general scientific consensus to support the claim in question.
The Company believes that the incorporation of Proventra in foods or dietary
supplements would add benefits to these products.*


                                       4
<PAGE>

     As previously described above, the Company currently has one product,
Basics Plus, being sold in test markets through its manufacturing and
marketing partner Lifeway Foods, Inc.  The Company is applying its resources
to two other products as described below.  The Company does not anticipate
spending significant resources to market the final products, but will seek to
find partners with the appropriate distribution and marketing credentials*:

<TABLE>
<CAPTION>
     Product                    Target Population         Stage of Development
     -------                    -----------------         --------------------
     <S>                        <C>                       <C>
     - Clinical Nutrition       Patients in               Market research
       Beverage                 hospitals, nursing        completed;
                                homes and elderly         clinical evaluation to
                                population                begin in the second
                                                          quarter of 1998

      - Consumer Nutritional    Health-oriented           Product formulation
        Beverage                consumers                 underway; market
                                                          research scheduled to
                                                          begin in the second
                                                          quarter of 1998
</TABLE>

CLINICAL NUTRITION PRODUCT

     The Company is developing a dairy-based nutritional beverage for
patients in hospitals and nursing homes.  Based upon market research results,
the Company believes that a need exists for a superior tasting refrigerated
beverage that will provide Proventra and other active components.*  The
Company believes that a superior tasting dairy-based beverage, which includes
a combination of these ingredients, will increase consumption compliance, in
turn leading to better nutrition, improved defense against infection and more
regular bowel function.* Clinical evaluation of this product is anticipated
to begin in the second quarter of 1998.*

CONSUMER NUTRITION PRODUCT

     GalaGen is developing an enhanced beverage product targeted at
health-oriented consumers.  Market trends indicate that consumers,
particularly baby boomers and mature adults, are taking a more proactive role
in managing their health.  The Company believes that a superior tasting
beverage containing its proprietary immune-enhancing ingredients, including
Proventra, will be the first product of its kind.*  Product development is
underway with market research to begin in the second quarter of 1998.*

PHARMACEUTICALS

     The Company believes that its colostrum-derived antibody products in
development may provide many attractive clinical benefits and offer a safe
and effective alternative to antibiotics and other therapeutics.*

          WELL-TOLERATED, DAIRY-DERIVED ANTIBODIES.  Orally-delivered,
     dairy-derived antibodies have been administered in several studies by
     the Company and others to over 1,000 individuals with no serious adverse
     effects.  Antibodies are among the many milk proteins commonly consumed
     in everyday dairy products such as milk, yogurt and cheese.  Lactose
     levels in the Company's product candidates have been reduced to
     approximately one-tenth that of milk.  The Company believes that the
     product should, therefore, be tolerable by all but the most
     lactose-intolerant individuals.*

          RAPID ONSET OF ACTION AND A SUPPLEMENT TO ACTIVE IMMUNITY. Antibody
     products deliver high concentrations of pathogen-specific antibodies to
     the site of infection and have a rapid onset of action, while active
     immunizations, such as polio or hepatitis B vaccines, may take weeks or
     months to provide adequate immune protection.  Passive immune protection
     may be especially important where there is not


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<PAGE>

     time for active immunizations to be effective (for example, when there
     is exposure to infection or when an infection has become established and
     immediate therapy is needed) or where the underlying immune suppression
     leaves an individual incapable of responding to the active immunization
     (for example, in cancer patients).

          AVOID PROBLEMS ASSOCIATED WITH ANTIBIOTIC USE.  Antibodies
     recognize multiple binding sites on a target pathogen and have multiple
     potential mechanisms of action, including the neutralization of toxins.
     With appropriate immunization regimens, antibodies can be produced that
     recognize different strains of the same pathogen and affect even those
     strains that may be resistant to antibiotics.  In contrast, other
     classes of antiinfectives work by interrupting a single mechanism or by
     binding to a single site and are, therefore, more likely to be overcome
     by bacterial adaptation.  Unlike broad-spectrum antibiotics,
     orally-delivered antibody products are selective for specific pathogens
     and do not disrupt the GI tract's normal bacterial flora. Broad-spectrum
     antibiotics may disrupt the natural and beneficial GI bacterial flora
     and foster the subsequent overgrowth of certain disease-causing
     pathogens.  The selectivity of antibodies should permit their use for
     prolonged periods to prevent infections, without promoting the
     development of resistant strains.

          STABILITY AND EASE OF USE.  The Company's product candidates are
     stable powder concentrates with a shelf life exceeding two years.  These
     products can be formulated into a variety of delivery formats, including
     tablets, capsules, chewing gum and sterile liquids.  The standard dosage
     form is a dry powder which, when reconstituted, has the consistency and
     flavor of milk.

     The Company currently has one product in development under the first
tier of products to which it is applying its resources.  The Company does not
anticipate applying significant resources toward the second tier products but
will seek to find partners who will fund the required development and
clinical trials*:

<TABLE>
<CAPTION>
     Product           Disease Target                     Stage of Development
     -------           --------------                     --------------------
     <S>               <C>                                <C>
     FIRST TIER:
     DIFFISTAT-G       Antibiotic associated diarrhea     Phase I bioavailability
                       due to CLOSTRIDIUM DIFFICILE       clinical trial completed.
                       ("C. DIFFICILE").                  Second Phase I
                                                          bioavailability study in
                                                          ileostomy patients
                                                          completed.  Phase II
                                                          clinical trial underway.
     SECOND TIER:
     CANDISTAT-G       Oral and esophageal                European Phase I/II
                       candidiasis from the fungus        clinical trial in bone
                       species CANDIDA ("CANDIDA") in     marrow transplant
                       cancer, organ/bone marrow          patients completed.
                       transplant and other
                       immunocompromised patients.

     PYLORIMUNE-G      Gastrointestinal ulcers and        Preclinical development.
                       gastritis due to
                       HELICOBACTER PYLORI
                       ("H. PYLORI").
</TABLE>

DIFFISTAT-G

     The Company is developing DIFFISTAT-G for the treatment and prevention
of antibiotic-associated diarrhea.  This complication of antibiotic therapy
results when the antibiotics eliminate the GI tract's normal bacterial flora
and foster the subsequent overgrowth of certain disease-causing bacteria,
most often C. DIFFICILE.


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<PAGE>

Each year, it is estimated that more than 400,000 patients in hospitals and
long-term health care institutions in the U.S. contract antibiotic-associated
diarrhea due to C. DIFFICILE.  The severity of diarrhea resulting from C.
DIFFICILE may vary from a mild diarrhea to a life-threatening condition.
Even the most mild cases in hospitals and long-term health care institutions
warrant treatment due to the contagious nature of the disease.

     Currently, the first stage of treatment for antibiotic-associated
diarrhea involves the discontinuation of the causal antibiotic therapy, if
possible, and often the initiation of different antibiotics to treat the C.
DIFFICILE infection.  Discontinuation of the causal antibiotic may result in
inadequate treatment of the underlying infection. Often, the serious nature
of the underlying infection makes it impossible to discontinue the causal
antibiotic. Therefore, prophylaxis for high risk patients would be desirable
if there were a product available that avoided the problems presented by
antibiotics.

     Metronidazole is the antibiotic of choice to treat antibiotic-associated
diarrhea, with oral vancomycin as a second choice that is generally reserved
for more severe or relapsing diarrhea.  The initial response to these
antibiotics usually is rapid and satisfactory.  However, relapse can be a
significant problem occurring in 20 to 40 percent of patients.  These
relapses can occur multiple times and result in significant disability for
the patient.  In addition, the use of oral vancomycin for this indication is
being discouraged to reduce the likelihood that other serious pathogens will
develop resistance to vancomycin.  The Company believes that DIFFISTAT-G may
prevent and treat C. DIFFICILE-associated diarrhea without the complications
associated with antibiotic treatment.*

     An animal model study of DIFFISTAT-G demonstrating positive prophylactic
results was completed in 1991.  When the product was administered to animals
before the introduction of C. DIFFICILE organisms, the animals receiving
DIFFISTAT-G survived longer and had markedly less diarrhea than animals
receiving a placebo. Additional laboratory studies conducted at Boston
University have shown that the product effectively blocks the binding and
action of toxins produced by C. DIFFICILE.  Results of these preclinical
efficacy studies for Diffistat-G were published in the February 1996 issue of
ANTIMICROBIAL AGENTS AND CHEMOTHERAPY.  A Phase I study was completed in
normal volunteers at Boston University to assess the bioavailability of the
product and to guide the choice of appropriate dosage for a Phase I/II
therapeutic trial. Results of the first Phase I bioavailability trial were
published in ANTIMICROBIAL AGENTS AND CHEMOTHERAPY in February 1997.  A
second Phase I bioavailability trial in ileostomy patients was completed in
February 1997 at Beth Israel-Deaconess Medical Center, Harvard Medical School
in Boston and demonstrated higher than anticipated recovery of functional
antibodies in the ileum of these patients.  Based on these positive results,
the Company initiated a multi-center Phase II clinical trial in August 1997
to assess safety, efficacy and formulation.  Principal investigators in the
study are from  Beth Israel-Deaconess Medical Center, Harvard Medical School
in Boston.  Additionally, an emergency use compassionate release program was
initiated at the request of the FDA, and the initial pediatric patient
treated under this program had clearing of symptoms and the infection.  If
positive results are shown from the Phase II clinical trial, the Company
anticipates that it will need to secure a partner to continue further
clinical development and to market Diffistat-G.*

CANDISTAT-G

     The Company is clinically developing an oral antibody product,
CANDISTAT-G, for the prevention/treatment of thrush, or infection of the
throat and oral cavity with the fungus species CANDIDA.  This infection
occurs in most immunocompromised patients (cancer, organ/bone marrow
transplant and HIV/AIDS) at some time during their illness.   Short-term
therapy with traditional antifungal agents improves symptoms of thrush in
immunocompromised patients but often fails to clear the pathogen, resulting
in a recurrence of symptoms within weeks.  Prolonged therapy with these
agents may produce clinical benefits but also has been associated with
increasing reports of drug-resistant fungal strains.  The Company believes
that an antibody-based product such as CANDISTAT-G may fulfill such a need,
particularly for the prevention of more severe thrush and blood-borne
infections originating from the GI tract.*


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<PAGE>

     CANDISTAT-G has been prepared by immunizing cows with several different
antigens thought to be important in the establishment of oral infections with
CANDIDA.  These preparations were shown to substantially inhibit the binding
of CANDIDA to human cheek cells in culture.  A pilot clinical evaluation for
CANDISTAT-G treated bone marrow transplant recipients and
historically-matched controls in a European Phase I/II dose-ranging clinical
trial at a major teaching hospital in Sweden was completed in the third
quarter of 1997.  The results from this clinical trial showed that
CANDISTAT-G provided a reduction in the number of CANDIDA organisms in the
oral cavity of eight out of eleven highly immunocompromised transplant
patients with pre-existing CANDIDA colonization. No product related adverse
events were noted.

PYLORIMUNE-G

     The Company is developing a polyclonal antibody product to treat
gastritis and ulcers caused by the bacterium H. PYLORI.   Since the discovery
of the relationship between H. PYLORI infection and ulcers, a major trend in
the treatment has been the increased use of antibacterial "triple therapy" (a
combination of several antibiotics, bismuth, and inhibitors of gastric acid
production) instead of or in addition to conventional ulcer therapies.  While
most of these antibiotic-based regimens are partially effective, compliance
is difficult and 10 to 20 percent of patients fail therapy in part because of
antibiotic resistance. The Company believes that the limited effectiveness of
currently available therapies and growing antibiotic resistance offer an
opportunity for its antibody product in development, PYLORIMUNE-G.*

     Initial laboratory studies with PYLORIMUNE-G have successfully
demonstrated neutralizing antibody activity against a key feature of H.
PYLORI.  The Company has access to five key antigens for producing antibodies
to inhibit or eradicate H. PYLORI.  The Company is developing cell culture
systems and animal models for screening the efficacy of these proprietary
antibody preparations.  In 1995 the Company entered into a strategic alliance
with Chiron Corporation ("Chiron") for the development of colostrum-based
antibody products to treat H. PYLORI. Chiron's participation in the research
and development program included testing of prototype antibody products in
its animal models.  See "Chiron Relationship" below.

MANUFACTURING SYSTEM

     The Company's manufacturing system can be used for producing antibodies
to be used for both nutritional products and pharmaceuticals and utilizes the
existing milk production infrastructure.  The Company's system has been
designed to access very large numbers of cows in commercial milking herds,
organize them into discrete product-specific groups, immunize them with
specific antigens to heighten the natural production of pathogen-specific
antibodies in their colostrum, collect the colostrum and concentrate the
antibodies using a proprietary process.  This process preserves the essential
antibody activity while reducing unnecessary components, including microbial
contaminants.

     Modern dairy cows, having been bred for high volume milk production,
produce colostrum in quantities far greater than their calves can consume.
This surplus colostrum is not placed into the commercial milk supply and is
ordinarily a waste product.  The Company's technology turns the surplus
colostrum into a valuable raw material.  With the Company's manufacturing
system, the Company believes that antibodies can be produced from colostrum
at a fraction of the cost of either human serum-derived polyclonal antibodies
or cell culture-derived monoclonal antibodies.*  The high cost of producing
monoclonal antibodies, in particular, makes their administration by the oral
route prohibitively costly.

     The Company's processing system is the same for the manufacture of all
of the Company's pharmaceutical products.  The colostrum for each potential
product is processed to a bulk powder using the same procedures, according to
the same specifications, and on the same equipment.  This bulk powder may
undergo final finishing steps, depending on the dosage form that is desired.
The primary point of product differentiation is the antigen/adjuvant
combination (immunogen) used to produce the specific and desired antibody
response in the cow.  This antibody specificity is used to define a product
targeting a specific disease and indication.


                                       8
<PAGE>

     Standard dairy processing techniques destroy the activity of most of the
antibodies present in milk and colostrum and render them inactive.  The
proprietary process used by the Company to concentrate antibodies has been
developed by the Company through many years of research and development.
This work has resulted in a process that uses well-tested and efficient dairy
manufacturing techniques that have been modified to preserve the biological
activity of the antibodies.  The Company has two patents that have been
issued for this process.  The process reduces the bioburden to levels
significantly lower than those present in milk or milk products, and in
accordance with pharmaceutical specifications for oral dosage formulations.
The Company is supporting its proprietary antibody processing system with a
quality control system designed to regulate, monitor and review the
processing system in compliance with Good Manufacturing Practices for the
manufacture of biologics.

     The Company has developed additional processes for the manufacture of
Proventra Brand Natural Immune Components and final product formulations as
part of its nutritional product development efforts.  The Company has
obtained Kosher certification for these natural immune components.
Additionally, the Company has obtained the appropriate license from Minnesota
Department of Agriculture.

     Construction of the Company's pilot plant facility within the existing
Land O'Lakes pilot plant complex in Arden Hills, Minnesota was completed in
1996. The Company does not anticipate that it will need to fully validate the
facility for pharmaceutical purposes in 1998.*  Land O'Lakes has guaranteed
the equipment leases associated with the pilot plant facility.  The Company
believes that the capacity of this facility will be adequate for the
production of nutritional and pharmaceutical products, either for sale or
clinical requirements, in 1998 and believes that contract manufacturers would
be available to increase its production capacity quickly, if required.*

LICENSE AGREEMENTS AND RESEARCH COLLABORATIONS

     The Company's research and development strategy is to pursue its own
research programs internally and to complement such programs by establishing
relationships with key external medical, academic, governmental and major
research organizations.  Specifically, the Company intends to continue
complementing its extensive current technology base by acquiring access to
additional proprietary technology and patents in the areas of antibodies,
vaccine, molecular biology, and processing and manufacturing technology.*
The Company also may seek collaborative arrangements for commercialization of
its antibody products.*

     The Company's antibody technology may be applied to the development of
nutritional and pharmaceutical products in many areas.*  To exploit its core
technology as broadly as possible in human applications, the Company's
strategy is to enter into licensing and collaborative relationships with food
and pharmaceutical companies with complementary product lines.*  The Company
spent $3.9 million, $5.3 million and $3.7 million for research and
development in fiscal years 1997, 1996 and 1995, respectively.

LAND O'LAKES RELATIONSHIP

     The Company believes that the Company's existing relationship with Land
O'Lakes provides it with certain advantages over existing and potential
competitors.*  Land O'Lakes made significant advances in the development and
commercialization of antibody products for treating and preventing diseases
in animals.  This technology provides the Company with a solid foundation on
which to base its efforts to develop similar products for human use.

     Under a supply agreement with Land O'Lakes, the Company agreed to
purchase all of its commercial requirements for colostrum from Land O'Lakes
through May 7, 2002, subject to Land O'Lakes' option to renew the supply
agreement for an additional ten-year period.  The Company must provide
program specifications to Land O'Lakes prior to commencing each of its
commercial programs and Land O'Lakes must notify the Company within a
specified period whether it will supply according to the agreement.  If Land
O'Lakes does not


                                       9
<PAGE>

confirm during that period that it will supply colostrum according to the
specifications, then the Company has the right to obtain the colostrum from
alternative sources.  Commercial production could be delayed if Land O'Lakes
does not elect to supply according to the supply agreement and the Company is
required to locate an alternate supplier.

     When the Company was formed, it signed a letter of intent with Land
O'Lakes to develop strategic relationships focused on the development of
functional food products.  In March 1998, the Company and Land O'Lakes signed
an amended and restated license agreement (the "Restated License") in which
the Company has significantly broadened its rights to develop and market
functional foods. Under the Restated License, the Company can use, improve,
exploit, license or share existing Procor technology, Procor technology
improvements and new technologies, as defined, in all areas of functional
foods except under certain "reserved food product" and "first refusal food
product" categories, as defined.  If the Company intends to engage in
manufacturing or marketing any "first refusal food product", the Company must
give Land O'Lakes notice of its intent, in which case Land O'Lakes can
negotiate with the Company, in good faith and within a defined period of
time, to undertake any part of the manufacturing or marketing areas.  If the
Company intends to engage in manufacturing or marketing any "reserved food
product", the Company must give Land O'Lakes notice of its intent and must
only work with Land O'Lakes to undertake the manufacturing or marketing of
such products.  In the original license agreement with Land O'Lakes, the
Company retained rights to pursue the development of infant formula products
containing polyclonal antibody technology.

     In March 1997, Land O'Lakes granted the Company a license (the "Kefir
License") to use existing antibody technology and future improvements in the
development, formulation, manufacture, marketing, distribution and sale of
kefir-based products, as defined in the Kefir License.  In consideration of
granting the Kefir License, Land O'Lakes will receive a royalty based on food
components or ingredients sold by the Company to be included in any
kefir-based product and on net receipts from any kefir-based finished product
sold by the Company.  As mentioned below under "Chiron Relationship", Land
O'Lakes consented to the Company's use of antibody technology for food
applications of an H. PYLORI product.

CHIRON RELATIONSHIP

     In March 1995, the Company and Chiron entered into a License and
Collaboration Agreement involving the licensing of Chiron adjuvant technology
to the Company for the development of antibody products processed from bovine
colostrum and the cross-licensing of Chiron proprietary H. PYLORI-associated
technology and Company proprietary H. PYLORI antigens for a collaboration to
research and develop passive immune therapies, using bovine antibodies,
against H. PYLORI.

     Under the agreement, Chiron granted the Company an exclusive worldwide
license for the use of a proprietary Chiron adjuvant for the production of
PYLORIMUNE-G. See "Products in Development - Pharmaceuticals - PYLORIMUNE-G"
above.  Use of the adjuvant for providing additional polyclonal antibody
products processed from bovine colostrum can be designated under the terms of
the agreement.   Except as described below with regard to PYLORIMUNE-G, the
Company's license to the Chiron adjuvant technology expires on the later of
the expiration date of the last to expire of the licensed patents covering
the technology or, within a given country, 10 years after the first
commercial sale of a product making use of the licensed technology within
such country.

     In addition, under the agreement Chiron and the Company may collaborate
on the development of antibody products processed from bovine colostrum
targeting infections caused by H. PYLORI, the bacterium associated with
ulcers and gastritis.  The research program would, if and when commenced,
focus on producing specific, high potency antibodies directed against several
products of H. PYLORI that the bacterium uses to attach to the stomach
surfaces, and neutralize gastric acidity that would otherwise kill the
bacterium, and inflame the gastric and duodenal surfaces.  Chiron has an
option for exclusive worldwide marketing rights for any H. PYLORI product
resulting from the collaboration with profits being shared between Chiron and
the Company according to


                                       10


<PAGE>

a preset formula.  In connection with the agreement, Land O'Lakes consented
to the Company's use of polyclonal antibody technology for food applications
of an H. PYLORI product.  The Company's license to the Chiron adjuvant
technology for use in PYLORIMUNE-G is subject to early termination by Chiron
if (i) no PLA has been filed for PYLORIMUNE-G by March 1, 2001, (ii) certain
competitors of Chiron acquire control of the Company or, (iii) by the time of
the first demonstration of efficacy of PYLORIMUNE-G, Chiron has not received
an opinion of independent counsel selected by Chiron that the manufacture,
use or sale of PYLORIMUNE-G does not infringe third party patents.

PROPRIETARY RIGHTS AND PATENTS

     The Company's policy is to protect its proprietary technology as trade
secrets and by filing patent applications on technology for which the Company
believes patent protection is available and is in the best interest of the
Company.  The Company also relies upon know-how, continuing technological
innovations and licensing opportunities to develop and maintain its
competitive position.

     The Company believes that certain of its process improvements are more
valuable as trade secrets than as patented processes, where the process
improvements would have to be publicly disclosed.  The Company relies on
trade secrets and proprietary know-how it developed while manufacturing
antibody products for veterinary use.  The Company believes that substantial
barriers exist for competitors desiring to commercialize antibody products
derived from milk or colostrum*; however, there can be no assurance that
other companies will not develop production processes or initiate
relationships with other large dairy cooperatives to develop a similar
procurement system.  The Company seeks to protect trade secrets and know-how
through confidentiality agreements with employees, consultants and other
parties.  These agreements provide that all confidential information
developed or made known during the course of the relationship with the
Company is to be kept confidential and not disclosed to third parties, except
in specific circumstances.  No assurance can be given that such agreements
will provide meaningful protection for the Company's unpatented trade secrets
or provide adequate remedies in the event of unauthorized use of such
information.  Neither can assurance be given that others will not
independently develop substantially equivalent proprietary information and
technology or otherwise gain access to the Company's trade secrets or
disclose such technology.

     The Company has been issued two patents, #5,670,196 and #5,707,678 from
the United States Patent & Trademark Office.  The patents cover significant
processes in its core manufacturing technology for antibodies for
microfiltering milk and colostrum that reduces bioburden while improving
yield.  The Company also has two United States patent applications pending
and has acquired licenses to a number of patents or patent applications of
others.  The Company's two United States patent applications are in the area
of antibody products for humans.  The Company believes that useful, new and
unobvious antibody formulations may be patentable.*  Furthermore, in some
cases, patent coverage may be available for the vaccines or antigens used to
provoke the immunological response which produces the antibodies.  The
Company's strategy is to pursue patent protection for each of its products
where possible, including their components (e.g., antigens, vaccine
compositions), as well as for certain process and formulation improvements,
although the Company may not be successful in achieving broad patent
protection for its technology.

     The Company has become aware of several patents that may relate to its
antibody technology.  In 1991, the Company became aware of one such issued
patent.  Land O'Lakes engaged outside patent counsel to review the patent and
such counsel rendered its written opinion to Land O'Lakes that the patent is
not infringed by the Company's technology.  The Company engaged its own
outside patent counsel to review the patent and such counsel rendered its
independent opinion that the patent is not infringed by the Company's
technology and that, in any event, the patent would be invalid if it were
interpreted broadly enough so as to cover the Company's technology.  While
the Company does not regard the patent as a threat to its business*, there
can be no assurance that the holder of the patent will not pursue litigation
which could be costly to the Company. In 1993, the Company became aware of
another issued patent relating to the application of colostrum-based passive
immunity technology to an H. PYLORI-specific product.  The Company engaged
outside patent counsel to review the patent,


                                       11
<PAGE>

and a related patent which was subsequently issued, and such counsel rendered
its independent opinion to the Company that neither patent is valid and, in
any event, it is not certain at this time if the Company's technology would
infringe either patent even if valid.  While the Company does not regard the
patents as a threat to its business*, there can be no assurance that the
holder of the patents will not pursue litigation which could be costly to the
Company.  The Company is aware of a published international patent
application entitled "Urease-Based Vaccine and Treatment of Helicobacter
Infection".  To date, no patent on this application has been granted and
therefore the Company cannot meaningfully assess the impact, if any, of this
patent application on its business.

GOVERNMENT REGULATION

NUTRITIONAL PRODUCTS

     GENERAL

     The formulation, manufacturing, processing, packaging, labeling,
advertising, distribution and sale of nutritional supplements such as those
being developed by the Company are subject to regulation by one or more
federal agencies, principally the FDA and the Federal Trade Commission (the
"FTC"), and to a lesser extent the Consumer Product Safety Commission and the
United States Department of Agriculture.  These activities are also regulated
by various governmental agencies for the states and localities in which the
Company's products are sold, as well as by governmental agencies in certain
foreign countries in which the Company's products are sold.  Among other
matters, regulation of the Company by the FDA and FTC is concerned with
claims made with respect to a product which refer to the value of the product
in treating or preventing disease or other adverse health conditions.

     Federal agencies, primarily the FDA and FTC, have a variety of remedies
and processes available to them, including initiating investigations, issuing
warning letters and cease and desist orders, requiring corrective labels or
advertising, requiring consumer redress (for example, requiring that a
company offer to repurchase products previously sold to consumers), seeking
injunctive relief or product seizure and imposing civil penalties or
commencing criminal prosecution.  In addition, certain state agencies have
similar authority, as well as the authority to prohibit or restrict the
manufacture or sale of products within their jurisdiction. These federal and
state agencies have in the past used these remedies in regulating
participants in the nutritional products industry, including the imposition
by federal agencies of civil penalties in the millions of dollars against a
few industry participants.  There can be no assurance that the regulatory
environment in which the Company operates will not change or that such
regulatory environment, or any specific action taken against the Company,
will not result in a material adverse effect on the Company's business,
financial condition or results of operations.*  In addition, increased sales
and publicity of nutritional supplements may result in increased regulatory
scrutiny of the nutritional supplements industry.

     DIETARY SUPPLEMENT HEALTH AND EDUCATION ACT

     DSHEA was enacted in October 1994, amending the Food, Drug and Cosmetic
Act.  The Company believes this law is generally favorable to the dietary
supplement industry.*  DSHEA establishes a new statutory class of "dietary
supplements," which includes vitamins, minerals, herbs, amino acids and other
nutritional supplements for human use to supplement the diet and includes in
such class all dietary ingredients on the market as of October 15, 1994.
Such class of nutritional supplements will not require the submission by the
manufacturer or distributor of evidence of a history of use or other evidence
of safety establishing that the supplement will reasonably be expected to be
safe, but a nutritional supplement which contains a dietary ingredient which
was not on the market as of October 15, 1994 does require such submission of
evidence of a history of use or other evidence of safety. Among other things,
this law prevents the further regulation of dietary ingredients as "food
additives" and allows the use of statements of nutritional support on product
labels.


                                       12
<PAGE>

PHARMACEUTICAL PRODUCTS

     GENERAL

     The Company's pharmaceutical products are classified as human biological
drugs and their research, development and marketing are subject to
substantial regulation by the FDA as well as state and local entities. The
Federal Food, Drug and Cosmetic Act, the Public Health Service Act and other
federal statutes govern the testing, manufacture, safety, effectiveness,
approval, storage, recordkeeping, labeling, advertising and promotion of the
Company's products. Noncompliance with applicable statutory and regulatory
requirements may result in fines, recall or seizure of products, refusal to
permit the Company to enter into government supply contracts, refusal to
approve Product Licensing Applications ("PLA"), suspension or revocation of
product licenses and establishment licenses previously granted, criminal
prosecution, and debarment.

     The process required by the FDA before the Company's products may be
marketed in the United States generally involves the following: (1)
preclinical laboratory and animal testing; (2) the submission to the FDA of
an application for Investigational New Drug application ("IND") approval to
conduct human clinical trials; (3) adequate and well-controlled human
clinical trials to establish the safety and efficacy of the biologic; (4) the
submission of a PLA for approval of a biologic; and (5) FDA approval of and
issuance of a license pertaining to a PLA prior to any commercial sale or
shipment of the drug or biologic.  In addition, drug manufacturing
establishments must be registered with and approved by the FDA.
Manufacturers of biologics must currently also submit and obtain approval of
an Establishment License Application ("ELA") prior to commercial distribution
of an approved biologic.  Manufacturing establishments are subject to regular
inspections by the FDA.  All manufacturing facilities, production, testing
and packaging operations and recordkeeping practices must substantially
conform to, among other requirements, FDA GMP regulations.

     PRECLINICAL STUDIES

     Preclinical studies are conducted in the laboratory and in animal models
to gain preliminary information on biochemical and pharmacological properties
of the investigational drug or biologic and to identify any significant
safety problems.  The results of these studies are submitted to the FDA as
part of the IND application.  Testing of previously unapproved new drugs and
biologics in humans may not commence until the IND becomes effective.

     IND APPLICATION

     The IND application notifies the FDA of the sponsor's investigational
plan for the drug or biologic and provides brief descriptions of the chemical
structure of the compound, the known pharmacological and toxicological
effects of the compound, and known information relating to the compound's
safety and effectiveness in humans, including possible risks and anticipated
side effects. The IND authorizes a sponsor to conduct human clinical studies
in order to demonstrate relative safety and efficacy of the product in
support of an ELA/PLA.  Any time prior to or following the commencement of
clinical trials under an IND, the FDA may determine that human subjects are
or would be exposed to an unreasonable and significant risk of injury by
participating in the trial and may delay initiation of or suspend an ongoing
trial.

     CLINICAL STUDIES

     Human clinical studies are typically conducted in three phases, which
may overlap, and are designed to collect additional data relating to the
safety, dosing and side effects of the proposed product and to the product's
efficacy in comparison with placebos or any currently accepted therapy.
Phase I clinical studies are generally performed in 10 to 30 healthy human
subjects or, more rarely, selected patients with a targeted disease or
disorder.  The goal is to establish an initial data base about tolerance,
safety and dosing of the product in humans.  Phase II clinical studies are
generally performed in small numbers of carefully selected patients, usually


                                       13
<PAGE>


50 to 200.  Phase II studies are used to obtain definitive statistical
evidence of the efficacy and safety of the product and dosing regimen.  Phase
III consists of expanded large-scale studies of patients (200 to 2,000
patients or more) with the target disease or disorder, to obtain statistical
evidence of the efficacy and safety of the proposed product and dosing
regimen in a broader patient population.  These studies may include
investigation of the effects in subpopulations of patients, such as the
elderly, women or certain racial groups.

     When patients are studied, Phase I and II studies may be combined. Phase
I/II clinical studies are designed to establish initial data regarding the
tolerance, safety and dosing of the investigational drug or biologic, and to
obtain preliminary efficacy data in patients with the specific disease.  The
combination of different phases encourages the use of larger sample sizes and
may result in more reliable statistical results in the earlier phases.
Subsequent to the Phase I and II studies, pivotal studies are carried out
with larger numbers of patients with the target disease or disorder.  These
pivotal studies may be either Phase II or Phase III.  Additional clinical
trials beyond the pivotal studies are sometimes required for licensing.

     PRODUCT LICENSING APPLICATION

     Upon successful completion of clinical testing, the Company will file a
PLA and ELA with the FDA.*  The regulatory environment is evolving rapidly
and is being closely monitored.  The Company will pursue aggressively the
possibility of a streamlined, single filing, if the current procedure is
modified by the FDA.*  These applications include, among other things,
details of the manufacturing and testing processes and results of preclinical
studies and clinical trials which, taken together, demonstrate that the drug
or biologic is safe, pure, potent and effective.  FDA approval of the
applications is required before the new product may be marketed.  There can
be no assurance that the FDA will act favorably or quickly in reviewing
submitted applications, and significant difficulties or costs may be
encountered by the Company in its efforts to obtain FDA approvals for its
novel biological products.  The FDA may grant marketing approval, require
additional testing or information or deny the applications.  The clinical
studies may take three to five years or more to complete and there are no
assurances that the clinical data obtained will demonstrate to the FDA that
the product is safe and effective.  The FDA may require the Company to
perform additional human testing.  There can be no assurance that the FDA
will ever accept the Company's data as being sufficient to demonstrate the
product's safety, purity, potency, or efficacy.

     FDA policies currently require that the Company's manufacturing facility
or the manufacturing facility of a contract manufacturer be operational and
in full compliance with GMP standards prior to completing pivotal or Phase
III clinical trials.  If the Company or its designated contract manufacturer
is unable to make its facility operational before completing pivotal or Phase
III clinical trials on a product, the Company may have to perform additional
clinical testing with the product produced at the new facility.

     The Company's clinical trials are at an early stage, and the Company has
not received approval from the FDA or any other government agency for the
manufacturing or marketing of any of its pharmaceutical products.
Consequently, the commencement of manufacturing and marketing of its
pharmaceutical products is, in all likelihood, at least two to three years
away.*  Moreover, even after FDA approval of a PLA has been obtained, further
studies will likely be required to provide additional data on safety or to
gain approval for the use of a product as a treatment in clinical indications
other than those for which the product was initially tested.  The FDA may
also require post-marketing testing and surveillance programs to monitor the
product's effects.  Significant side effects may prevent or limit the further
marketing of the product, or move the FDA to withdraw its approval to market
the product, either temporarily, for example, by ordering a product recall,
or permanently,


                                       14
<PAGE>

by withdrawing the New Drug Application ("NDA") or PLA approval.  Continued
compliance with all FDA requirements and the conditions in an approved
application, including product specification, manufacturing process, labeling
and promotional materials and record keeping and reporting requirements, is
necessary for all products.

     OTHER REGULATORY REQUIREMENTS

     The Company is also subject to regulation by the Occupational Safety and
Health Administration, the Environmental Protection Agency and the Minnesota
Environmental Quality Board and to regulation under the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, among others, and
other regulations, and may in the future be subject to other federal, state
and local statutes or regulations.  The Company is unable to predict whether
any agency will adopt any regulation which would have a material adverse
effect on the Company.

     Sales of biologics outside the United States are subject to foreign
regulatory requirements that may vary widely from country to country.
Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities of foreign countries must be obtained prior
to the commencement of marketing the products in those countries.  The time
required to obtain such approval may be longer or shorter than that required
for FDA approval.

COMPETITION

NUTRITIONAL PRODUCTS

     The nutritional products area is highly competitive with many large
nationally known manufacturers and many smaller manufacturers and marketers
of nutritional products.  The Company knows of no other company that is
developing or marketing a product that incorporates antibody technology
combined with active cultures and other ingredients.  Potential competitors,
however, could be larger than the Company, have greater access to capital and
may be better able to withstand volatile market conditions.  Moreover,
because the nutritional products industry generally has low barriers to
entry, additional competitors could enter the market at any time.  In that
regard, although the nutritional products industry to date has been
characterized by many relatively small participants, national or
international companies (which may include pharmaceutical companies or other
suppliers to mass merchandisers) may seek to enter or to increase their
presence in this industry, which would have a material adverse effect on the
Company's competitive position.

     The Company has assessed the factors that may make it competitive in
this environment and believes that its central strength is that its products
will be unique and distinct in the marketplace by offering direct immune
enhancing benefits that are currently not offered by a single product.*
Other nutritional or dietary supplement products, such as vitamins and herbs,
may help the immune system to function better, but they do not provide
specific immune protection against common pathogens.*  The Company believes
that its nutritional beverages will further be distinguished by the fact that
they are fresh, refrigerated products that contain active cultures and
antibodies while maintaining a superior taste to other nutritional beverages.*

PHARMACEUTICAL PRODUCTS

     The human pharmaceutical and biotechnology industries are subject to
intense competition as well as rapid and significant technological change.
The Company is aware of companies which are developing products that will
compete for the same disease markets. The Company expects that the
pharmaceutical and biotechnology industries will continue to experience rapid
technological development which may render the Company's processes and
products non-competitive or obsolete.


                                       15
<PAGE>

     The Company is aware of direct competition from companies with products
designed to use immune mechanisms to treat infections and also potential
competition from companies developing new antibiotics and other
anti-infective substances.  At least two companies, Biomune Systems, Inc. and
ImmuCell Corp., are developing colostrum-derived or milk-derived antibody
products for treating certain diseases; others are developing vaccines
designed to elicit active immune defenses against H. PYLORI or C. DIFFICILE.
Numerous pharmaceutical, biotechnology and chemical companies, academic
institutions, governmental agencies and other public and private research
organizations are conducting research and development in the area of
infectious diseases, including research and development of new antibiotic
products which will address the same diseases the Company has targeted.  Many
of these competitors, either alone or through collaborative arrangements with
large pharmaceutical companies or academic institutions, have significantly
greater financial, human and other resources and greater expertise in
research and development, testing, manufacturing, marketing and distribution
than the Company.  Consequently, these competitors may succeed in developing,
obtaining patent protection for, or commercializing technologies and products
that are more effective, easier to use or less expensive than those the
Company is developing.  In addition, early entry into the market may have
important advantages in gaining product acceptance and market share.  Many of
the Company's competitors, particularly large pharmaceutical companies, have
significantly greater experience than the Company in conducting clinical
trials and in obtaining FDA and other regulatory approvals of products.  As a
result, these competitors may succeed in obtaining regulatory approval
earlier than the Company for products with similar indications.  Moreover, if
the Company is successful in forming a strategic alliance to commercialize
its products, it may be required to compete with respect to manufacturing
efficiency, an area in which it has no experience.

     The Company has assessed the factors that may make it competitive in
this environment and believes that its central strengths are its proprietary
dairy procurement and production processes, as well as its relationship with
Land O'Lakes to provide the raw materials for manufacturing products on a
large commercial scale.  While there can be no assurance that other
biopharmaceutical companies will not initiate relationships with other large
dairy cooperatives to develop a similar procurement and production process,
the Company believes that the resources required to duplicate a system of
similar scale in time, dollars and expertise are substantial.

EMPLOYEES

     At December 31, 1997, the Company had 17 employees, three of whom have
Ph.D. degrees and two of whom have M.D. degrees (one of which also has a
Ph.D. degree).  Nine employees are currently working in research and
development and three employees are working in the clinical regulatory area.
The Company believes its employee relationships are good.

RISK FACTORS

     Certain statements made in this Annual Report on Form 10-K, including
those indicated by an asterisk above (some of which are summarized below),
are forward-looking statements that involve risks and uncertainties, and
actual results may differ.  Factors that could cause actual results to differ
include those identified below.

GENERAL

     The Company's ability to satisfy its anticipated cash requirements
through approximately the first quarter of 1999 for its working capital and
capital requirements will depend upon numerous factors, including the
progress of the Company's research and development programs, clinical trials,
the timing and cost of obtaining regulatory approvals, marketing activities
and its ability to secure strategic alliances.  The Company's capital
requirements also will depend on the levels of resources devoted to the
development of manufacturing capabilities, technological advances, the status
of competitive products and the ability of the Company to establish strategic
alliances to provide funding for research, development and marketing.  The


                                       16
<PAGE>

Company's ability to continue funding its planned operations beyond the first
quarter of 1999 is dependent upon its ability to obtain additional funds
through product revenues, equity or debt financing, strategic alliances,
license agreements or from other financing sources.  A lack of adequate
funding could eventually result in the insolvency or bankruptcy of the
Company.  At a minimum, if adequate funds are not available, the Company may
be required to delay or to eliminate expenditures for certain of its product
development efforts or to license to third parties the rights to
commercialize products or technologies that the Company would otherwise seek
to develop itself.  Because of the Company's significant long-term capital
requirements, it may seek to raise funds when conditions are favorable, even
if it does not have an immediate need for such additional capital at such
time.  If the Company has not raised funds prior to such time as the
Company's needs for funding become immediate, the Company may be forced to
raise funds when conditions are unfavorable which could result in significant
dilution of the Company's current stockholders.

     Although at its inception GalaGen entered into a letter of intent with
Land O'Lakes to enter into discussions regarding a strategic alliance for the
commercialization of functional food products, no such discussions are
currently underway.  The Company intends to form additional strategic
alliances that will leverage its technology to bring products to market,
including alliances for marketing, manufacturing and distribution for all of
its products.  There are no assurances, however, that the Company will be
able to form such strategic alliances.  Without such alliances, the Company
may not have the financial resources necessary to continue the development of
certain, if not all, nutritional and pharmaceutical products.

NUTRITIONAL PRODUCTS

     The Company, like any manufacturer of products that are designed to be
ingested, faces an inherent risk of exposure to product liability claims in
the event that the use of its products results in injury.  In the event that
the Company does not have adequate insurance or contractual indemnification,
product liability claims could have a material adverse effect on the Company.
The Company is not currently a named defendant in any product liability
lawsuit. The successful assertion or settlement of any uninsured claim, a
significant number of insured claims, or a claim exceeding the Company's
insurance coverage could have a material adverse effect on the Company.

     The Company will be highly dependent upon consumers' perception of the
safety and quality of its products as well as similar products distributed by
other companies.  Thus, the mere publication of reports asserting that such
products may be harmful could have a material adverse effect on the Company,
regardless of whether such reports are scientifically supported and
regardless of whether the harmful effects would be present at the dosages
recommended for such products.

     Although the ingredients in the Company's products have a long history
of human consumption, some of the Company's products may contain innovative
ingredients or combinations of ingredients.  Although the Company believes
all of its potential products will be safe when taken as directed by the
Company, there is little long-term experience with human consumption of
certain of these innovative product ingredients or combinations thereof in
concentrated form. Although the Company performs research and/or tests the
formulation and production of its products, it will sponsor only limited
clinical studies or rely on other outside published data.

     The nutritional products area is highly competitive with many large
nationally known manufacturers and many smaller manufacturers and marketers
of nutritional products.  The Company currently knows of no other company
that is developing or marketing a product that incorporates antibody
technology combined with active cultures and other ingredients.  Potential
competitors, however, could be larger than the Company, have greater access
to capital and may be better able to withstand volatile market conditions.
Moreover, because the nutritional products industry generally has low
barriers to entry, additional competitors could enter the market at any time.
In that regard, although the nutritional products industry to date has been
characterized by many relatively small participants, there can be no
assurance that national or international companies (which may include
pharmaceutical companies or other suppliers to mass merchandisers) will not
seek to enter or to increase


                                       17
<PAGE>

their presence in this industry.  Increased competition in the industry could
have a material adverse effect on the Company.

     Market and related data (including, without limitation, information as
to the dollar amount of retail sales for the nutritional beverage market)
were obtained from Frost & Sullivan, a competitive-market analysis firm.  The
Company has not independently verified the accuracy of such information, and,
in any event, the methodology typically used in compiling market and related
data means that such data is subject to inherent uncertainties and
estimations.  As a result, there can be no assurance as to the accuracy or
completeness of the market and other similar information (including
information as to sales) appearing in this Annual Report on Form 10-K.

     The Company believes that its pilot plant will meet the anticipated
requirements for the production of nutritional products and believes that
contract manufacturers would be available to increase its production capacity
quickly, if required.  However, given the limited manufacturing experience of
the Company in nutritional products, no assurance can be given that the
Company will be successful in producing acceptable product on a commercial
scale and at acceptable costs in its pilot plant facility.  The Company's
nutritional products will be regulated by MDA under the appropriate license.

PHARMACEUTICAL PRODUCTS

     Diffistat-G will require additional research and development and further
extensive clinical testing and regulatory approval prior to any commercial
sales. There can be no assurance that clinical testing of any of the
Company's products will be completed successfully within any specified time
period, if at all, or that a partner will be found with adequate resources to
fund further clinical testing or research and development if needed. Time
required for completion of trials may be affected by the rate at which
patients meeting trial criteria can be found and enrolled. Moreover, the
Company or the FDA may suspend clinical trials at any time if the subjects or
patients participating in such trials are thought to be exposed to
unacceptable health risks. Although the Company believes that its products
are safe, there can be no assurance that the Company will not encounter
problems in clinical trials which will cause the Company or the FDA to
suspend clinical trials or which will result in delays in the Company's
clinical trials. The Company's human clinical trials were preceded by
preclinical testing in animals, and the Company is continuing to conduct
additional animal studies as part of its development program. Such testing
may not be predictive of the results seen in humans.

     The Company believes that certain of its products in development may
face a shorter and less expensive path to regulatory approval than many other
biopharmaceutical products.  Factors that the Company believes may result in
a shorter and less expensive path include the favorable safety profile of the
Company's products and that multiple products can be manufactured by the
Company using a single, proprietary manufacturing process and facility, and
as a result will not require separate investments in manufacturing facilities
or process techniques. However, GalaGen is still at an early stage of product
development.  The Company does not have the approval of the FDA for the sale
of any products, nor is the Company aware of any other FDA-approved biologic
based on bovine colostrum-derived polyclonal antibody technology for the
human health care market. The Company's products will require significant
laboratory and clinical testing, additional development and investment prior
to commercialization. There can be no assurance that any of the Company's
product development efforts will be successful or that any candidate products
will prove to be safe and effective in clinical trials and receive necessary
regulatory approvals. Even if the Company is able to develop products that
receive required regulatory approvals, there can be no assurance that any
such products will achieve market acceptance and be commercially successful.

     The Company believes that its pilot plant will meet the anticipated
requirements for the production of pharmaceutical products, either for sale
or clinical requirements, in 1998 and believes that contract manufacturers
would be available to increase its production capacity quickly, if required.
The Company does not


                                       18
<PAGE>

anticipate that it will need to fully validate the facility for
pharmaceutical purposes in 1998. To successfully establish commercial
pharmaceutical manufacturing capacity, the Company will have to scale up its
manufacturing processes and demonstrate the ability to consistently
manufacture a clinically safe pharmaceutical product. Given the limited
manufacturing experience of the Company in  pharmaceutical products, no
assurance can be given that the Company will be successful in producing
acceptable product on a commercial scale and at acceptable costs in its pilot
plant facility.  The Company's pharmaceutical products will be regulated by
FDA as human biologics, respectively, and its manufacturing facility may have
to be operational prior to its potential partner completing required  pivotal
clinical trials.

     The human pharmaceutical and biotechnology industries are subject to
intense competition as well as rapid and significant technological change.
The Company expects that the human pharmaceutical and biotechnology
industries will continue to experience rapid technological development which
may render the Company's processes and products noncompetitive or obsolete.
GalaGen is also aware of companies which are developing products that will
compete for the same disease markets as several of the Company's products.
Many of these competitors, or potential competitors, either alone or through
collaborative arrangements with large pharmaceutical companies or academic
institutions, have significantly greater financial, human and other resources
and greater expertise in research and development, testing, manufacturing,
marketing and distribution than the Company.  Consequently, these competitors
may succeed in developing, obtaining patent protection for, or
commercializing technologies and products that are more effective, easier to
use or less expensive than those GalaGen is developing.


                                       19
<PAGE>

ITEM 2.   PROPERTIES

     The Company leases approximately 4,500 square feet of administrative and
laboratory space at the Land O'Lakes corporate office located in Arden Hills,
Minnesota.  In addition, the Company leases a portion of the existing Land
O'Lakes pilot plant facility in Arden Hills for its current manufacturing
needs to process antibody products for development, early stage clinical use
and potential commercial use.  At the end of 1996, the Company completed its
pilot plant.   Management believes that the Company's facilities are suitable
and adequate for current office, research and manufacturing requirements.

ITEM 3.   LEGAL PROCEEDINGS

     The Company is not a party to any material legal proceeding.

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

     None.

ITEM X.   EXECUTIVE OFFICERS OF REGISTRANT

     The executive officers of the Company are:

<TABLE>
<CAPTION>
  Name                            Age                  Position
  ----                            ---                  --------
  <S>                             <C>      <C>
  Robert A. Hoerr, M.D., Ph.D.     48      President and Chief Executive Officer
  John G. Watson                   53      Chief Operating Officer
  Eileen F. Bostwick, Ph.D.        47      Vice President, Research and
                                           Development
  Michael E. Cady                  45      Vice President, Manufacturing and
                                           Engineering
  Francois Lebel, M.D., FRCPC      46      Vice President, Scientific and
                                           Regulatory Affairs
  Gregg A. Waldon                  37      Vice President, Chief Financial
                                           Officer, Secretary and Treasurer
</TABLE>

     ROBERT A. HOERR, M.D., PH.D., was named President and Chief Operating
Officer of the Company in February 1994 and became President and Chief
Executive Officer in September 1994. He served as Vice President, Medical and
Regulatory Affairs of the Company from January 1993 to December 1993 and
Senior Vice President from December 1993 to February 1994. Dr. Hoerr was
Director of Medical Affairs for Sandoz Nutrition Corporation, a
research-based nutrition company, from March 1990 to January 1993. From 1986
to 1990, Dr. Hoerr was Research Scientist and Assistant Program Director at
the Clinical Research Center, Massachusetts Institute of Technology ("MIT").
Dr. Hoerr received his A.B. in Biology from Indiana University, his M.D. from
Indiana University School of Medicine and his Ph.D. in Nutritional
Biochemistry and Metabolism from MIT.

     JOHN G. WATSON has served as Chief Operating Officer of the Company
since September 1996.  From February 1992 to August 1996, Mr. Watson was
President of Bioconsult, a consulting company servicing the biotechnology and
pharmaceutical industry.  Mr. Watson was Chief Operating Officer at Vestar,
Inc., a pharmaceutical company (now NeXstar Pharmaceuticals, Inc., a
biopharmaceutical company), from October 1988 to January 1992.  From January
1982 to September 1988, Mr. Watson held various positions with American
Cyanamid Company Corporation, a pharmaceutical, medical device and
agricultural products company (now American Home Products, a pharmaceutical
and consumer products company), including Director of Pharmaceutical and
Medical Device Operation, Far East and Australia, and Chief Executive Officer
of Northern Europe Operations.  From 1980 to December 1982,  Mr. Watson was a
Pharmaceutical Product Director at Johnson & Johnson, a manufacturer of
pharmaceuticals and health, baby and other products. Prior to that time he
held various positions with The Dow Chemical Company, a manufacturer of
chemicals, plastics and household pharmaceutical products, in London,
England, Zurich, Switzerland and Midland, Michigan. A


                                       20
<PAGE>

graduate of Cambridge University, England, Mr. Watson earned his MBA as a
Fulbright Scholar at Indiana University, Bloomington in 1973.

     EILEEN F. BOSTWICK, PH.D., has served as Manager of Research and
Development since July 1992, Director of Research and Development since
September 1993 and Vice President of Research & Development since March 1997.
Dr. Bostwick joined the Company's predecessor, Procor Technologies, Inc.
("Procor") in 1988 as Immunology Group Leader. Prior thereto, Dr. Bostwick
was a Senior Immunologist in the Biotechnology Section at Minnesota Mining &
Manufacturing. Dr. Bostwick received her B.S. and M.S. degrees from Michigan
State University in Dairy Science, and her Ph.D. in immunology and physiology
from the University of Minnesota.

     MICHAEL E. CADY has served as Vice President, Manufacturing and
Engineering of the Company since July 1992.  From January 1988 to July 1992,
Mr. Cady served as Director of Operations for Procor.  From 1979 to 1988, Mr.
Cady held engineering and planning positions within several operating groups
at Land O'Lakes.  Mr. Cady was a member of the Land O'Lakes group that
evaluated and implemented the polyclonal antibody technology used as a basis
for the Company's manufacturing process.  Prior to joining Land O'Lakes Mr.
Cady was an engineer at Swift & Company, a food processing company.  Mr. Cady
received his B.S. in Engineering from the University of Iowa and earned his
M.B.A. from the University of St. Thomas in 1985.

     FRANCOIS LEBEL, M.D., FRCPC has served as Vice President, Scientific and
Regulatory Affairs of the Company since December 1996.  From April 1991 to
October 1992, Dr. Lebel was Medical Director of Burroughs Wellcome Inc., a
research-based pharmaceutial company.  In October 1992, he was promoted to
Vice President, Scientific Affairs for its Canadian operations and became a
core member of the Research Committee of Burroughs Wellcome Co. (U.S.A.), a
post he held until May 1995.  From July 1985 to November 1996, Dr. Lebel
served as an Assistant Professor of Medicine at McGill University and as an
Associate Physician in the Division of Infectious Disease at Montreal General
Hospital, in Canada.  Dr. Lebel earned his B.Sc. in Biology and his M.D. at
the University of Ottawa, Canada.  He completed his post-graduate and
research training at McGill University and Harvard Medical School.

     GREGG A. WALDON served as Controller of the Company from July 1992 to
September 1992, and was elected Treasurer in September 1992, Secretary in
March 1993, Vice President in December 1993 and Chief Financial Officer in
November 1994. From April 1989 to April 1992, Mr. Waldon served as an Audit
Manager with Price Waterhouse LLP, a public accounting firm, in its Middle
Market and Emerging Growth Practice in Minneapolis, Minnesota and from 1986
to 1989 was Senior/Staff accountant with Price Waterhouse.

     Officers of the Company are chosen by and serve at the discretion of the
Board of Directors.  There are no family relationships among any of the
directors, officers or key employees of the Company.


                                       21

<PAGE>

                                   PART II

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

     Incorporated herein by reference is the information appearing under the
heading "Market For Registrant's Common Equity and Related Stockholder
Matters" in the Company's Annual Report to Stockholders for the year ended
December 31, 1997 (the "1997 Annual Report").

ITEM 6.   SELECTED FINANCIAL DATA

     Incorporated herein by reference is the information appearing under the
heading "Selected Financial Data" in the 1997 Annual Report.

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

     Incorporated herein by reference is the information appearing under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the 1997 Annual Report.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Incorporated herein by reference is the information appearing under the
headings "Balance Sheets", "Statements of Operations", "Statement of Changes
in Stockholders' Equity", "Statements of Cash Flows", "Notes to Financial
Statements" and "Report of Independent Auditors" in the 1997 Annual Report.

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

     Incorporated herein by reference is the information appearing under the
headings "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's Proxy Statement dated March 30, 1998
(the "Proxy Statement").  See also Part I hereof under the heading "Item X.
Executive Officers of Registrant".

ITEM 11.  EXECUTIVE COMPENSATION

     Incorporated herein by reference is the information appearing under the
headings "Report of the Compensation Committee", "Executive Compensation" and
"Comparative Stock Performance" in the Company's Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Incorporated herein by reference is the information appearing under the
heading "Security Ownership of Principal Stockholders and Management" in the
Company's Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Incorporated herein by reference is the information appearing under the
heading "Certain Relationships and Related Transactions" in the Company's
Proxy Statement.


                                       22
<PAGE>

                                   PART IV

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

(a)  Documents filed as part of this report:

     1.   Financial Statements:

                The consolidated financial statements of the Company are
          incorporated herein by reference from the information appearing
          under the headings "Balance Sheets", "Statements of Operations",
          "Statement of Changes in Stockholders' Equity", "Statements of Cash
          Flows", "Notes to Financial Statements" and "Report of Independent
          Auditors" in the 1997 Annual Report.

     2.   Financial Statement Schedules:

               Financial statement schedules for which provision is made in
          the applicable accounting regulations of the Securities and
          Exchange Commission are not required under the related instructions
          or are inapplicable and therefore have been omitted.

(b)  Reports on Form 8-K

     No reports on Form 8-K were filed by the Company during the fourth
quarter of the year ended December 31, 1997.

(c)  Exhibits:

     The following exhibits are filed as part of this Annual Report on Form
10-K for the year ended December 31, 1997.

<TABLE>
<CAPTION>
     Exhibit No.      Description                                                          Method of Filing
     -----------      -----------                                                          ----------------
     <S>              <C>                                                                  <C>
        3.2           Restated Certificate of Incorporation of the Company.(3)             Incorporated By
                                                                                           Reference

        3.4           Restated Bylaws of the Company.(1)                                   Incorporated By
                                                                                           Reference

        4.1           Specimen Common Stock Certificate.(1)                                Incorporated By
                                                                                           Reference

        4.2           Warrant to purchase 13,541 shares of Common Stock of the Company     Incorporated By
                      issued to Piper Jaffray Inc., dated January 26, 1993.(1)             Reference

        4.3           Warrant to purchase 20,312 shares of Common Stock of the Company     Incorporated By
                      issued to Gus A. Chafoulias, dated October 12, 1993.(1)              Reference

        4.4           Warrant to purchase 20,312 shares of Common Stock of the Company     Incorporated By
                      issued to John Pappajohn, dated October 12, 1993.(1)                 Reference

        4.5           Warrant to purchase 9,479 shares of Common Stock of the Company      Incorporated By
                      issued to Cato Holding Company, dated June 21, 1994.(1)              Reference

        4.6           Form of Common Stock Warrant to purchase shares of Common Stock      Incorporated By
                      of the Company, issued in connection with the sale of                Reference


                                       23
<PAGE>

     Exhibit No.      Description                                                          Method of Filing
     -----------      -----------                                                          ----------------
                      Convertible Promissory Notes.(1)

        4.7           Warrant to purchase 17,144 shares of Series F-1 Convertible          Incorporated By
                      Preferred Stock of the Company issued to Chiron Corporation,         Reference
                      dated March 29, 1995.(1)

        4.8           Warrant to purchase 42,856 shares of Series F-2 Convertible          Incorporated By
                      Preferred Stock of the Company issued to Chiron Corporation,         Reference
                      dated March 29, 1995.(1)

        4.9           Warrant to purchase 60,000 shares of Series F-3 Convertible          Incorporated By
                      Preferred Stock of the Company issued to Chiron Corporation,         Reference
                      dated March 29, 1995.(1)

        4.10          Warrant to purchase 80,000 shares of Series F-3 Convertible          Incorporated By
                      Preferred Stock of the Company issued to Chiron Corporation,         Reference
                      dated March 29, 1995.(1)

        4.11          Warrant to purchase 18,250 shares of Common Stock of the Company     Incorporated By
                      issued to IAI Investment Funds VI, Inc. (IAI Emerging Growth         Reference
                      Fund), dated January 30, 1996.(1)

        4.12          Warrant to purchase 6,250 shares of Common Stock of the Company      Incorporated By
                      issued to IAI Investment Funds IV, Inc. (IAI Regional Fund),         Reference
                      dated January 30, 1996.(1)

        4.13          Warrant to purchase 25,000 shares of Common Stock of the Company     Incorporated By
                      issued to John Pappajohn, dated February 2, 1996.(1)                 Reference

        4.14          Warrant to purchase 25,000 shares of Common Stock of the Company     Incorporated By
                      issued to Edgewater Private Equity Fund, L.P., dated February 2,     Reference
                      1996.(1)

        4.15          Warrant to purchase 10,000 shares of Common Stock of the Company     Incorporated By
                      issued to Joseph Giamenco, dated February 2, 1996.(1)                Reference

        4.16          Warrant to purchase 25,000 shares of Common Stock of the Company     Incorporated By
                      issued to Gus A. Chafoulias, dated February 2, 1996.(1)              Reference

        4.17          Warrant to purchase 25,000 shares of Common Stock of the Company     Incorporated By
                      issued to JIBS Equities, dated February 2, 1996.(1)                  Reference

        4.18          Warrant to purchase 25,000 shares of Common Stock of the Company     Incorporated By
                      issued to Land O Lakes, Inc., dated February 2, 1996.(1)             Reference

        4.19          6% Convertible Debenture Purchase Agreement dated November 18,       Incorporated By
                      1997 among the Company and the Purchasers named therein.(8)          Reference

        4.20          Registration Rights Agreement dated November 18, 1997 among the      Incorporated By
                      Company and the Holders named therein.(9)                            Reference

        4.21          6% Convertible Debenture due May 18, 1999 issued to CPR (USA)        Incorporated By
                      Inc. dated November 18, 1997.(10)                                    Reference


                                       24
<PAGE>

     Exhibit No.      Description                                                          Method of Filing
     -----------      -----------                                                          ----------------

         4.22         6% Convertible Debenture due May 18, 1999 issued to Libertyview      Incorporated By
                      Plus Fund dated November 18, 1997.(11)                               Reference

         4.23         6% Convertible Debenture due May 18, 1999 issued to Libertyview      Incorporated By
                      Fund, LLC dated November 18, 1997.(12)                               Reference

         4.24         Stock Purchase Warrant issued to CPR (USA) Inc. dated                Incorporated By
                      November 18, 1997.(13)                                               Reference

         4.25         Stock Purchase Warrant issued to Libertyview Plus Fund dated         Incorporated By
                      November 18, 1997.(14)                                               Reference

         4.26         Stock Purchase Warrant issued to Libertyview Fund, LLC dated         Incorporated By
                      November 18, 1997.(15)                                               Reference

         4.27         Warrant issued to CLARCO Holdings dated as of                        Incorporated By
                      December 1,1997.(16)                                                 Reference

         4.28         Warrant issued to CLARCO Holdings dated as of                        Incorporated By
                      December 1,1997.(17)                                                 Reference

         4.29         Warrant issued to CLARCO Holdings dated as of                        Incorporated By
                      December 1,1997.(18)                                                 Reference

        #10.1         License Agreement between the Company and Land O'Lakes dated         Incorporated By
                      May 7, 1992.(1)                                                      Reference

        #10.2         Royalty Agreement between the Company and Land O'Lakes dated         Incorporated By
                      May 7, 1992.(1)                                                      Reference

        #10.3         Supply Agreement between the Company and Land O'Lakes dated          Incorporated By
                      May 7, 1992.(1)                                                      Reference

         10.4         Master Services Agreement between the Company and Land O'Lakes       Incorporated By
                      dated May 7, 1992.(1)                                                Reference

        *10.5         GalaGen Inc. 1992 Stock Plan, as amended.(5)                         Incorporated By
                                                                                           Reference

         10.7         Stock and Warrant Purchase Agreement between the Company and         Incorporated By
                      Chiron Corporation dated March 20, 1995.(1)                          Reference

        #10.8         License and Collaboration Agreement between the Company and          Incorporated By
                      Chiron Corporation dated March 20, 1995.(1)                          Reference

        *10.9         GalaGen Inc. Employee Stock Purchase Plan, as amended.(2)            Incorporated By
                                                                                           Reference

        10.10         Credit Agreement between the Company and Norwest Bank Minnesota,     Incorporated By
                      N.A., dated as of January 24, 1996.(1)                               Reference

        10.11         Commitment Letter between the Company and Cargill Leasing            Incorporated By
                      Corporation, dated June 5, 1996.(2)                                  Reference

        10.12         Master Equipment Lease between the Company and Cargill Leasing       Incorporated By
                      Corporation, dated June 6, 1996.(2)                                  Reference


                                       25
<PAGE>

     Exhibit No.      Description                                                          Method of Filing
     -----------      -----------                                                          ----------------

        10.13         Agreement for Progress Payments between the Company and Cargill      Incorporated By
                      Leasing Corporation, dated June 6, 1996.(2)                          Reference

        10.14         Agreement for Lease between the Company and Land O'Lakes, dated      Incorporated By
                      June 3, 1996.(2)                                                     Reference

       *10.15         Letter agreement with John G. Watson dated September 14, 1996.(3)    Incorporated By
                                                                                           Reference

       #10.16         Agreement with Colorado Animal Research Enterprises, Inc. dated      Incorporated By
                      November 1, 1996.(4)                                                 Reference

       *10.17         Letter agreement with Francois Lebel, M.D., dated December 27,       Incorporated By
                      1996.(4)                                                             Reference

       *10.18         Consulting agreement with Stanley Falkow, Ph.D., dated               Incorporated By
                      January 15, 1997.(4)                                                 Reference

       *10.19         GalaGen Inc. Annual Short Term Incentive Cash Compensation           Incorporated By
                      Plan.(4)                                                             Reference

       *10.20         GalaGen Inc. Annual Long Term Incentive Stock Option                 Incorporated By
                      Compensation Plan.(4)                                                Reference

       *10.21         GalaGen Inc. 1997 Incentive Plan.(6)                                 Incorporated By
                                                                                           Reference

        10.22         Master Loan and Security Agreement with TransAmerica Business        Incorporated By
                      Credit Corporation dated June 8, 1997.(7)                            Reference

        10.23         Amended  and  Restated License Agreement between the Company and     Electronic
                      Land O'Lakes dated March 11, 1998.                                   Transmission

         11.1         Statement re: computation of per share earnings (loss).              Electronic
                                                                                           Transmission

         13.1         1997 Annual Report to Stockholders                                   Electronic
                                                                                           Transmission

         23.1         Consent of Ernst & Young LLP.                                        Electronic
                                                                                           Transmission

         27.1         Financial Data Schedule for Year Ended December 31, 1997.            Electronic
                                                                                           Transmission

         27.2         Restated  Financial  Data  Schedule  for Quarter ended March 31,     Electronic
                      1996.                                                                Transmission
</TABLE>

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

      (1) Incorporated herein by reference to the same numbered Exhibit to the
          Company's Registration Statement on Form S-1 (Registration
          No. 333-1032).

      (2) Incorporated herein by reference to the same numbered Exhibit to the
          Company's Quarterly Report on Form 10-Q for the quarterly period
          ended June 30, 1996 (File No. 0-27976).


                                       26
<PAGE>

      (3) Incorporated herein by reference to the same numbered Exhibit to the
          Company's Quarterly Report on Form 10-Q for the quarterly period
          ended September 30, 1996 (File No. 0-27976).

      (4) Incorporated herein by reference to the same numbered Exhibit to the
          Company's Annual Report on Form 10-K for the period ended
          December 31, 1996 (File No. 0-27976).

      (5) Incorporated herein by reference to the same numbered Exhibit to
          the Company's Quarterly Report on Form 10-Q for the quarterly
          period ended March 31, 1997 (File No. 0-27976).

      (6) Incorporated herein by reference to Appendix A to the Company's
          1997 Definitive Proxy Statement on Schedule 14A (File No. 0-27976).

      (7) Incorporated herein by reference to the same numbered Exhibit to
          the Company's Quarterly Report on Form 10-Q for the quarterly
          period ended June 30, 1997 (File No. 0-27976).

      (8) Incorporated herein by reference to Exhibit No. 4.4 to the
          Company's Registration Statement on Form S-3 (Registration No.
          333-41151).

      (9) Incorporated herein by reference to Exhibit No. 4.5 to the
          Company's Registration Statement on Form S-3 (Registration No.
          333-41151).

     (10) Incorporated herein by reference to Exhibit No. 4.6 to the
          Company's Registration Statement on Form S-3 (Registration No.
          333-41151).

     (11) Incorporated herein by reference to Exhibit No. 4.7 to the
          Company's Registration Statement on Form S-3 (Registration No.
          333-41151).

     (12) Incorporated herein by reference to Exhibit No. 4.8 to the
          Company's Registration Statement on Form S-3 (Registration No.
          333-41151).

     (13) Incorporated herein by reference to Exhibit No. 4.9 to the
          Company's Registration Statement on Form S-3 (Registration No.
          333-41151).

     (14) Incorporated herein by reference to Exhibit No. 4.10 to the
          Company's Registration Statement on Form S-3 (Registration No.
          333-41151).

     (15) Incorporated herein by reference to Exhibit No. 4.11 to the
          Company's Registration Statement on Form S-3 (Registration No.
          333-41151).

     (16) Incorporated herein by reference to Exhibit No. 4.12 to Amendment
          No. 1 to the Company's Registration Statement on Form S-3
          (Registration No. 333-41151).

     (17) Incorporated herein by reference to Exhibit No. 4.13 to Amendment
          No. 1 to the Company's Registration Statement on Form S-3
          (Registration No. 333-41151).

     (18) Incorporated herein by reference to Exhibit No. 4.14 to Amendment
          No. 1 to the Company's Registration Statement on Form S-3
          (Registration No. 333-41151).

     *    Management contract or compensatory plan or arrangement required to
          be filed as an exhibit to this Form 10-K.

     #    Contains portions for which confidential treatment has been granted
          to the Company.


                                       27

<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized, on March 30, 1998.

                                   GALAGEN INC.


                                   By   /s/ Robert A. Hoerr
                                      --------------------------------------
                                        Robert A. Hoerr, M.D., Ph.D.
                                        Chief Executive Officer and President

     Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 30, 1998.


                                    /s/ Robert A. Hoerr
                                   --------------------------------------------
                                   Robert A. Hoerr, Chief Executive Officer and
                                   President (Principal Executive Officer)
                                   and  Director


                                    /s/ Gregg A. Waldon
                                   --------------------------------------------
                                   Gregg A. Waldon, Vice President, Chief
                                   Financial Officer, Treasurer and Secretary
                                   (Principal Financial Officer and Principal
                                   Accounting Officer)


                                    /s/ Arthur D. Collins, Jr.
                                   --------------------------------------------
                                   Arthur D. Collins, Jr., Director


                                    /s/ Stanley Falkow
                                   --------------------------------------------
                                   Stanley Falkow, Director



                                    /s/ Ronald O. Ostby
                                   --------------------------------------------
                                   Ronald O. Ostby, Director



                                    /s/ R. David Spreng
                                   --------------------------------------------
                                   R. David Spreng, Director


                                    /s/ Winston R. Wallin
                                   --------------------------------------------
                                   Winston R. Wallin, Director


                                       28
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>

Exhibit    Description                                             Method of Filing
-------    -----------                                             ----------------
<S>        <C>                                                     <C>

 3.2       Restated Certificate of Incorporation of the            Incorporated By
           Company.(3)                                             Reference

 3.4       Restated Bylaws of the Company.(1)                      Incorporated By
                                                                   Reference

 4.1       Specimen common stock Certificate.(1)                   Incorporated By
                                                                   Reference

 4.2       Warrant to purchase 13,541 shares of common stock       Incorporated By
           of the Company issued to Piper Jaffray Inc., dated      Reference
           January 26, 1993.(1)

 4.3       Warrant to purchase 20,312 shares of common stock       Incorporated By
           of the Company issued to Gus A. Chafoulias, dated       Reference
           October 12, 1993.(1)

 4.4       Warrant to purchase 20,312 shares of common stock       Incorporated By
           of the Company issued to John Pappajohn, dated          Reference
           October 12, 1993.(1)

 4.5       Warrant to purchase 9,479 shares of common stock        Incorporated By
           of the Company issued to Cato Holding Company,          Reference
           dated June 21, 1994.(1)

 4.6       Form of common stock Warrant to purchase shares of      Incorporated By
           common stock of the Company, issued in connection       Reference
           with the sale of Convertible Promissory Notes.(1)

 4.7       Warrant to purchase 17,144 shares of Series F-1         Incorporated By
           Convertible Preferred Stock of the Company issued       Reference
           to Chiron Corporation, dated March 29, 1995.(1)

 4.8       Warrant to purchase 42,856 shares of Series F-2         Incorporated By
           Convertible Preferred Stock of the Company issued       Reference
           to Chiron Corporation, dated March 29, 1995.(1)

 4.9       Warrant to purchase 60,000 shares of Series F-3         Incorporated By
           Convertible Preferred Stock of the Company issued       Reference
           to Chiron Corporation, dated March 29, 1995.(1)

4.10       Warrant to purchase 80,000 shares of Series F-3         Incorporated By
           Convertible Preferred Stock of the Company issued       Reference
           to Chiron Corporation, dated March 29, 1995.(1)

4.11       Warrant to purchase 18,250 shares of common stock       Incorporated By
           of the Company issued to IAI Investment Funds VI,       Reference
           Inc. (IAI Emerging Growth Fund), dated January 30,
           1996.(1)

4.12       Warrant to purchase 6,250 shares of common stock        Incorporated By
           of the Company issued to IAI Investment Funds IV,       Reference
           Inc. (IAI Regional Fund), dated January 30,
           1996.(1)

4.13       Warrant to purchase 25,000 shares of common stock       Incorporated By
           of the Company issued to John Pappajohn, dated          Reference
           February 2, 1996.(1)


<PAGE>

Exhibit    Description                                             Method of Filing
-------    -----------                                             ----------------

 4.14      Warrant to purchase 25,000 shares of common stock       Incorporated By
           of the Company issued to Edgewater Private Equity       Reference
           Fund, L.P., dated February 2, 1996.(1)

 4.15      Warrant to purchase 10,000 shares of common stock       Incorporated By
           of the Company issued to Joseph Giamenco, dated         Reference
           February 2, 1996.(1)

 4.16      Warrant to purchase 25,000 shares of common stock       Incorporated By
           of the Company issued to Gus A. Chafoulias, dated       Reference
           February 2, 1996.(1)

 4.17      Warrant to purchase 25,000 shares of common stock       Incorporated By
           of the Company issued to JIBS Equities, dated           Reference
           February 2, 1996.(1)

 4.18      Warrant to purchase 25,000 shares of common stock       Incorporated By
           of the Company issued to Land O'Lakes, Inc., dated      Reference
           February 2, 1996.(1)

 4.19      6% Convertible Debenture Purchase Agreement dated       Incorporated By
           November 18, 1997 among the Company and the             Reference
           Purchasers named therein.(8)

 4.20      Registration  Rights  Agreement dated November 18,      Incorporated By
           1997 among the Company and the Holders named            Reference
           therein.(9)

 4.21      6% Convertible Debenture due May 18, 1999 issued        Incorporated By
           to CPR (USA) Inc. dated November 18, 1997.(10)          Reference

 4.22      6% Convertible Debenture due May 18, 1999 issued        Incorporated By
           to Libertyview Plus Fund dated November 18,             Reference
           1997.(11)

 4.23      6% Convertible Debenture due May 18, 1999 issued        Incorporated By
           to Libertyview Fund, LLC dated November 18,             Reference
           1997.(12)

 4.24      Stock Purchase Warrant issued to CPR (USA) Inc.         Incorporated By
           dated November 18, 1997.(13)                            Reference

 4.25      Stock Purchase Warrant issued to Libertyview Plus       Incorporated By
           Fund dated November 18, 1997.(14)                       Reference

 4.26      Stock Purchase Warrant issued to Libertyview Fund,      Incorporated By
           LLC dated November 18, 1997.(15)                        Reference

 4.27      Warrant issued to CLARCO Holdings dated as of           Incorporated By
           December 1,1997.(16)                                    Reference

 4.28      Warrant issued to CLARCO Holdings dated as of           Incorporated By
           December 1,1997.(17)                                    Reference

 4.29      Warrant issued to CLARCO Holdings dated as of           Incorporated By
           December 1,1997.(18)                                    Reference

#10.1      License Agreement between the Company and Land          Incorporated By
           O'Lakes dated May 7, 1992.(1)                           Reference


<PAGE>

Exhibit    Description                                             Method of Filing
-------    -----------                                             ----------------

 #10.2     Royalty Agreement between the Company and Land          Incorporated By
           O'Lakes dated May 7, 1992.(1)                           Reference

 #10.3     Supply Agreement between the Company and Land           Incorporated By
           O'Lakes dated May 7, 1992.(1)                           Reference

  10.4     Master Services Agreement between the Company and       Incorporated By
           Land O'Lakes dated May 7, 1992.(1)                      Reference

 *10.5     GalaGen Inc. 1992 Stock Plan, as amended.(5)            Incorporated By
                                                                   Reference

  10.7     Stock and Warrant Purchase Agreement between the        Incorporated By
           Company and Chiron Corporation dated March 20,          Reference
           1995.(1)

 #10.8     License and Collaboration Agreement between the         Incorporated By
           Company and Chiron Corporation dated March 20,          Reference
           1995.(1)

 *10.9     GalaGen Inc. Employee Stock Purchase Plan, as           Incorporated By
           amended.(2)                                             Reference

 10.10     Credit Agreement between the Company and Norwest        Incorporated By
           Bank Minnesota, N.A., dated as of January 24,           Reference
           1996.(1)

 10.11     Commitment Letter between the Company and Cargill       Incorporated By
           Leasing Corporation, dated June 5, 1996.(2)             Reference

 10.12     Master Equipment Lease between the Company and          Incorporated By
           Cargill Leasing Corporation, dated June 6, 1996.(2)     Reference


 10.13     Agreement for Progress Payments between the             Incorporated By
           Company and Cargill Leasing Corporation, dated          Reference
           June 6, 1996.(2)

 10.14     Agreement for Lease between the Company and Land        Incorporated By
           O'Lakes, dated June 3, 1996.(2)                         Reference

*10.15     Letter agreement with John G. Watson dated              Incorporated By
           September 14, 1996.(3)                                  Reference

#10.16     Agreement with Colorado Animal Research                 Incorporated By
           Enterprises, Inc. dated November 1, 1996.(4)            Reference

*10.17     Letter agreement with Francois Lebel, M.D., dated       Incorporated By
           December 27, 1996.(4)                                   Reference

*10.18     Consulting agreement with Stanley Falkow, Ph.D.,        Incorporated By
           dated January 15, 1997.(4)                              Reference

*10.19     GalaGen Inc. Annual Short Term Incentive Cash           Incorporated By
           Compensation Plan.(4)                                   Reference

*10.20     GalaGen Inc. Annual Long Term Incentive Stock           Incorporated By
           Option Compensation Plan.(4)                            Reference


<PAGE>

Exhibit    Description                                             Method of Filing
-------    -----------                                             ----------------

*10.21     GalaGen Inc. 1997 Incentive Plan.(6)                    Incorporated By
                                                                   Reference

 10.22     Master Loan and Security Agreement with                 Incorporated By
           TransAmerica Business Credit Corporation dated          Reference
           June 8, 1997.(7)

 10.23     Amended and Restated License Agreement between the      Electronic
           Company and Land O'Lakes dated March 11, 1998.          Transmission

  11.1     Statement re: computation of per share earnings         Electronic
           (loss).                                                 Transmission

  13.1     1997 Annual Report to Stockholders                      Electronic
                                                                   Transmission

  23.1     Consent of Ernst & Young LLP.                           Electronic
                                                                   Transmission

  27.1     Financial  Data  Schedule  for Year ended December      Electronic
           31, 1997.                                               Transmission

  27.2     Restated Financial Data Schedule for Quarter ended      Electronic
           March 31, 1996.                                         Transmission
</TABLE>

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

  (1)  Incorporated herein by reference to the same numbered Exhibit to the
       Company's Registration Statement on Form S-1 (Registration No.
       333-1032).

  (2)  Incorporated herein by reference to the same numbered Exhibit to the
       Company's Quarterly Report on Form 10-Q for the quarterly period ended
       June 30, 1996 (File No. 0-27976).

  (3)  Incorporated herein by reference to the same numbered Exhibit to the
       Company's Quarterly Report on Form 10-Q for the quarterly period ended
       September 30, 1996 (File No. 0-27976).

  (4)  Incorporated herein by reference to the same numbered Exhibit to the
       Company's Annual Report on Form 10-K for the period ended December 31,
       1996 (File No. 0-27976).

  (5)  Incorporated herein by reference to the same numbered Exhibit to the
       Company's Quarterly Report on Form 10-Q for the quarterly period ended
       March 31, 1997 (File No. 0-27976).

  (6)  Incorporated herein by reference to Appendix A to the Company's 1997
       Definitive Proxy Statement on Schedule 14A (File No. 0-27976).

  (7)  Incorporated herein by reference to the same numbered Exhibit to the
       Company's Quarterly Report on Form 10-Q for the quarterly period ended
       June 30, 1997 (File No. 0-27976).

  (8)  Incorporated herein by reference to Exhibit No. 4.4 to the Company's
       Registration Statement on Form S-3 (Registration No. 333-41151).

  (9)  Incorporated herein by reference to Exhibit No. 4.5 to the Company's
       Registration Statement on Form S-3 (Registration No. 333-41151).

 (10)  Incorporated herein by reference to Exhibit No. 4.6 to the Company's
       Registration Statement on Form S-3 (Registration No. 333-41151).


<PAGE>

 (11)  Incorporated herein by reference to Exhibit No. 4.7 to the Company's
       Registration Statement on Form S-3 (Registration No. 333-41151).

 (12)  Incorporated herein by reference to Exhibit No. 4.8 to the Company's
       Registration Statement on Form S-3 (Registration No. 333-41151).

 (13)  Incorporated herein by reference to Exhibit No. 4.9 to the Company's
       Registration Statement on Form S-3 (Registration No. 333-41151).

 (14)  Incorporated herein by reference to Exhibit No. 4.10 to the Company's
       Registration Statement on Form S-3 (Registration No. 333-41151).

 (15)  Incorporated herein by reference to Exhibit No. 4.11 to the Company's
       Registration Statement on Form S-3 (Registration No. 333-41151).

 (16)  Incorporated herein by reference to Exhibit No. 4.12 to Amendment No.
       1 to the Company's Registration Statement on Form S-3 (Registration
       No. 333-41151).

 (17)  Incorporated herein by reference to Exhibit No. 4.13 to Amendment No.
       1 to the Company's Registration Statement on Form S-3 (Registration
       No. 333-41151).

 (18)  Incorporated herein by reference to Exhibit No. 4.14 to Amendment No.
       1 to the Company's Registration Statement on Form S-3 (Registration
       No. 333-41151).

*      Management contact or compensatory plan or arrangement required to be
       filed as an exhibit to this Form 10-K.

#      Contains portions for which confidential treatment has been granted to
       the Company.