<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 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 JUNE 30, 2001
                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                         COMMISSION FILE NUMBER 0-27854

                          BONE CARE INTERNATIONAL, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

           Wisconsin                                             39-1527471
(State or other jurisdiction of                                (IRS Employer
incorporation or organization)                               Identification No.)

        1600 Aspen Commons                                         53711
        Middleton, Wisconsin                                     (Zip Code)
(Address of principal executive offices)

       Registrant's telephone number, including area code: (608) 662-7800

           Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, without par value
                         Preferred Stock Purchase Rights
                                (Title of class)

     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes  X   No
                                              ---     ---

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

     As of August 31, 2001, there were issued and outstanding 13,918,085 shares
of Common Stock. The aggregate market value of the voting and non-voting common
equity held by nonaffiliates of the registrant was $215,057,320 as of August 31,
2001, assuming solely for purposes of this calculation that all directors and
executive officers of the Registrant are "affiliates". This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of Bone Care International, Inc. Proxy Statement for its 2001
Shareholders Meeting to be held on November 15, 2001 (Part III).



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                          BONE CARE INTERNATIONAL, INC.

                                    INDEX TO
                           ANNUAL REPORT ON FORM 10-K
                        FOR THE YEAR ENDED JUNE 30, 2001


<TABLE>
<CAPTION>
                                                                                                              PAGE
                                                                                                              ----
PART I
<S>         <C>                                                                                               <C>

Item 1       Business...................................................................................        4

Item 2       Properties.................................................................................       20

Item 3       Legal Proceedings..........................................................................       20

Item 4       Submission of Matters to a Vote of Security Holders........................................       20

PART II

Item 5       Market for Registrant's Common Equity and Related Stockholder Matters......................       22

Item 6       Selected Financial Data....................................................................       23

Item 7       Management's Discussion and Analysis of Financial Condition and Results of Operations......       24

Item 7A      Quantitative and Qualitative Disclosures about Market Risk.................................       28

Item 8       Financial Statements and Supplementary Data................................................       29

Item 9       Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......       43

PART III

Item 10      Directors and Executive Officers of the Registrant.........................................       43

Item 11      Executive Compensation.....................................................................       43

Item 12      Security Ownership of Certain Beneficial Owners and Management.............................       43

Item 13      Certain Relationships and Related Transactions.............................................       44

PART IV

Item 14      Exhibits, Financial Statement Schedules, and Reports on Form 8-K...........................       44

Signatures. ............................................................................................       45

Index to Exhibits.......................................................................................       46
</TABLE>


     In this Annual Report on Form 10-K, "Bone Care," "we," "us" and "our" refer
to Bone Care International, Inc., unless the context suggests otherwise.

     Bone Care(R) and Hectorol(R) are registered trademarks of Bone Care
International, Inc. in the United States. A community trademark application for
Hectorol is pending in the European Community Trademark Office, Japan, and
selected other countries. Hectorol is the brand name for the active drug
substance of our first product, doxercalciferol. This filing also includes
trademarks of other companies.



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                           FORWARD-LOOKING STATEMENTS

     This Annual Report on Form 10-K includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. We have based these forward-looking statements
largely on our current expectations and projections about future events and
financial trends affecting the financial condition of our business. These
forward-looking statements are subject to a number of risks, uncertainties and
assumptions about Bone Care, including, among other things:

     - general economic and business conditions, both nationally and in our
       markets;

     - our expectations and estimates concerning future financial performance,
       financing plans and the impact of competition;

     - anticipated trends in our business;

     - existing and future regulations affecting our business;

     - our early stage of development;

     - the uncertainty of our future profitability;

     - our ability to satisfy the FDA's conditions for marketing approval for
       Hectorol;

     - our ability to commercialize Hectorol; and

     - other risk factors set forth under "Risk Factors" in this Annual Report.

     In addition, in this Annual Report, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to Bone Care, our business or our management, are
intended to identify forward-looking statements.

     Unless otherwise required by law, we undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise after the date of this filing. However,
we acknowledge our obligation to disclose material developments related to
previously disclosed information. In light of these risks and uncertainties, the
forward-looking events and circumstances discussed in the filing may not occur
and actual results could differ materially from those anticipated or implied in
the forward-looking statements.



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ITEM 1.   BUSINESS

OVERVIEW

     Bone Care is a pharmaceutical company engaged in discovering, developing
and commercializing improved vitamin D-hormone therapies to treat secondary
hyperparathyroidism in patients with kidney (or renal) disease, osteoporosis and
other diseases including psoriasis and cancers of the prostate, breast and
colon. We were founded in 1984 as a subsidiary of Lunar Corporation, located in
Madison, Wisconsin, and we were spun off from Lunar in 1996.

     We licensed our first product, doxercalciferol or Hectorol as it is known
commercially, in 1987 from the University of Wisconsin, a leading vitamin D
research center. Hectorol, also known as doxercalciferol, is a vitamin D
replacement therapy approved by the FDA in two formulations to treat secondary
hyperparathyroidism in patients with end-stage renal disease, or ESRD. Hectorol
is a safe and effective therapy for reducing elevated levels of parathyroid
hormone (PTH) in blood in the management of secondary hyperparathyroidism, a
disease characterized by excessive secretion of PTH. Hyperparathyroidism, if
left untreated, can eventually result in muscle weakness, bone loss and
fractures. Virtually all ESRD patients suffer from secondary
hyperparathyroidism. We obtained FDA approval for Hectorol Capsules in June
1999, and we began selling this orally administered product in the United States
in October 1999. We obtained FDA approval for Hectorol Injection in April 2000,
and we began selling this intravenous product in the United States in August
2000. We have completed two Phase III trials for Hectorol Capsules to treat
secondary hyperparathyroidism in pre-dialysis patients, and we plan to file with
the FDA a supplemental New Drug Application for this indication by December
2001. In addition, we also are developing doxercalciferol and other vitamin
D-hormones to treat several other diseases.


BACKGROUND

     D-hormones are produced in the body from vitamin D that is either ingested
or generated in the skin from sunlight exposure. D-hormones have essential roles
in human health; they regulate (1) parathyroid hormone (PTH) secretion by the
parathyroid glands, (2) the absorption of calcium by the small intestine, (3)
muscle function, and (4) the proliferation and maturation of several types of
normal and abnormal cells. D-hormone deficiency occurs when the kidneys are
unable to produce D-hormones. Without sufficient D-hormone levels, PTH secretion
is increased and calcium absorption in the small intestine is reduced, leading
to bone disease.

     Hyperparathyroidism is a disease characterized by excessive secretion of
PTH by the parathyroid glands. The medical community classifies
hyperparathyroidism as either "primary" or "secondary," depending on the
underlying cause. Primary hyperparathyroidism is less common and is caused by a
disorder in one or more of the parathyroid glands, usually a tumor. Surgical
removal of the affected parathyroid glands is the only effective treatment.
Secondary hyperparathyroidism is the more common type of hyperparathyroidism and
is caused by diseases unrelated to the parathyroid glands. It is seen in varying
severity in virtually all ESRD patients, in whom normal kidney function is lost
and dialysis is required for survival. Secondary hyperparathyroidism in renal
disease continues and worsens unless treated with D-hormone therapy.

     D-hormone replacement therapy is used in many countries as a treatment for
pre-dialysis and dialysis patients with secondary hyperparathyroidism. The goals
of D-hormone therapy are to decrease blood PTH levels and to normalize blood
calcium, thereby treating or preventing bone disease, and other adverse effects
of elevated PTH. Currently, there are three primary competitive D-hormone
products being marketed for secondary hyperparathyroidism: calcitriol,
paricalcitol and alfacalcidol. The challenge in administering therapies is to
deliver a sufficiently high dose to be effective without causing toxic side
effects, including:

     -  Excessive calcium in the blood, which increases the risk that
        calcium-rich deposits will develop in soft tissues, such as in the heart
        and arteries causing cardiac arrest, or in the kidneys accelerating
        kidney failure in pre-dialysis patients.

     -  Excessive phosphorus in the blood, which stimulates secretion of PTH by
        the parathyroid glands and exacerbates secondary hyperparathyroidism.

     -  Excessive calcium in the urine, which increases the risk that
        calcium-rich deposits will develop in the kidneys and accelerate kidney
        failure in pre-dialysis patients.


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Due to the risks of these side effects, competitive D-hormones are customarily
administered at low dosages which are at times ineffective. Starting dosages are
increased cautiously, if at all, to minimize the chance of these toxic side
effects, rather than to optimize therapeutic response.

     United States physicians and dialysis providers favor intravenous products
because of several factors: (1) a healthcare professional can assure drug
administration at the time of dialysis; (2) repeated oral delivery of active
D-hormones promotes their breakdown in the intestine, thereby reducing the
amount delivered to the parathyroid glands; and (3) Medicare reimbursement is
only available for intravenous products. However, intravenous delivery of
competitive D-hormones initially causes abnormally high levels of D-hormones in
the blood followed by abnormally low levels as these D-hormones are eliminated
from the body. Blood levels also rapidly drop to abnormally low levels after
oral delivery of competing D-hormone products. This is in contrast to the
relatively constant blood levels of D-hormones which are maintained in
individuals with normal kidney function without side effects, yielding
consistent efficient regulation of PTH secretion.


THE BONE CARE SOLUTION

     We have two FDA approved products to treat secondary hyperparathyroidism in
ESRD patients: Hectorol Injection and Hectorol Capsules. We are in the process
of developing Hectorol and other products for additional applications. Hectorol
offers:

     -  Safe and Effective Treatment. Data obtained from our clinical trials
        have demonstrated that Hectorol is a safe and effective therapy for
        treating secondary hyperparathyroidism in ESRD patients. In these
        trials, Hectorol reduced blood levels of PTH in more than 90% of the
        treated patients with minimal side effects. Based on these and other
        trials, we believe that Hectorol compares favorably to competitive
        D-hormone products, including calcitriol, paricalcitol and alfacalcidol;
        however, we have not performed comparative trials to demonstrate these
        conclusions.

     -  Oral Delivery that Expands Market Opportunities. Hectorol Capsules
        provide a safe, convenient and effective orally delivered therapy that
        we believe could be applied to address larger therapeutic markets than
        ESRD if the FDA approved these additional indications. Intravenous
        D-hormone products are used only in hemodialysis patients under medical
        supervision. Competitive intravenous D-hormones are not well suited for
        oral delivery because they are fully active on delivery, which can cause
        certain cells lining the small intestine to absorb too much calcium and
        phosphorus, leading to side effects. Hectorol, on the other hand, is an
        inactive pro-hormone that, after oral delivery, is not recognized by
        these intestinal cells. Therefore, Hectorol does not over-stimulate
        absorption of calcium and phosphorus during absorption by the intestine.

     -  A Pro-Hormone that Provides Consistent Levels of Natural D-Hormones.
        Hectorol is a pro-hormone, an inactive chemical substance that is slowly
        metabolized by the liver into two active and naturally occurring
        D-hormones. Activated Hectorol is released into the bloodstream at a
        rate which closely mimics the steady production and release of these
        same D-hormones by normal kidneys. Normal blood levels of D-hormones
        allow efficient regulation of PTH secretion by the parathyroid glands
        with few side effects.

     -  A Potentially Wider Therapeutic Window. We believe that there is
        indirect evidence that Hectorol has a wider range, or therapeutic
        window, between a minimum effective dose and a dose with significant
        side effects than competitive D-hormone therapies. There are currently
        no direct comparisons of Hectorol to competitive D-hormone therapies in
        ESRD patients, and we have not conducted these studies in any human
        subjects. Animal studies, however, have demonstrated that Hectorol has
        fewer side effects than calcitriol or alfacalcidol when delivered at
        doses of equivalent potency. A wider therapeutic window would facilitate
        improved individualized patient therapy and reduce episodes of temporary
        drug withdrawal, thereby improving long-term patient outcome and
        increasing the ease of patient management and monitoring.


OUR STRATEGY

     Our strategy is to develop new D-hormone products and commercialize our two
newly approved products, Hectorol Injection and Hectorol Capsules, by:

     -  Expanding Our Sales and Marketing Infrastructure. We will continue to
        develop our internal sales and marketing capabilities to address the
        over $500 million D-hormone market in the United States for ESRD
        patients and for related markets that could be effectively addressed
        with a small, highly targeted sales and marketing effort. We will seek
        to establish mutually beneficial alliances or marketing agreements with
        partners who can rapidly penetrate geographic markets and therapeutic
        areas where we have no current or planned sales presence.

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     -  Competitively Pricing Hectorol. Hectorol Injection is priced in the
        United States at a modest premium to the older D-hormone, calcitriol,
        but below the more recently launched D-hormone, paricalcitol. We believe
        Hectorol's competitive pricing will create interest by third-party
        payors and facilitate its acceptance in the United States market.
        Hectorol Capsules also represent an attractive cost-effective
        alternative to intravenous D-hormone therapies. While oral D-hormone
        therapies are not reimbursed by Medicare, they are favored outside of
        the United States. We are the only United States company with both oral
        and intravenous D-hormone products, and we believe we are well
        positioned to take advantage of changes in preference for the method of
        delivery.

     -  Expanding the Approved Indications for Hectorol. We plan to seek FDA
        approval to market Hectorol for secondary hyperparathyroidism in
        pre-dialysis and elderly osteoporosis patients, as well as for psoriasis
        and cancers of the prostate, breast and colon. We have completed two
        Phase III trials with pre-dialysis patients and are planning a Phase II
        trial in elderly osteoporosis patients suffering from secondary
        hyperparathyroidism. We currently are conducting Phase II trials in
        prostate cancer patients, and we are planning Phase II trials in
        psoriasis patients.

     -  Developing Additional Product Offerings. We will continue to use our
        significant research, clinical and regulatory expertise to identify and
        develop, internally or through licensing from third parties, new
        D-hormones with improved efficacy and safety for targeted diseases.


OUR PRODUCTS

     We are discovering, developing and commercializing improved vitamin
D-hormone therapies to treat a variety of diseases where current treatments are
either unavailable or inadequate. Our products have not been compared with
competitive D-hormone therapies in clinical studies, but comparative studies in
several animal species have demonstrated that our products have a wider range,
or therapeutic window, between a minimum effective dose and a dose with
significant side effects. These studies compared our products, Hectorol and/or
LR-103, to calcitriol and/or alfacalcidol and showed that our products are 3- to
30-times less toxic when administered at doses with equivalent potency. We
monitored for the same side effects as those affecting pre-dialysis or ESRD
patients receiving D-hormone therapy, including hypercalcemia, hyperphosphatemia
and hypercalciuria. Additional animal studies have shown that, unlike Hectorol
and LR-103, competitive D-hormone therapies cause significant calcium deposits
in the kidneys when delivered in doses equivalent to those used to treat
patients. We cannot, however, be certain that additional clinical studies will
support our conclusion that Hectorol has a wider therapeutic window than other
D-hormone therapies.


   HECTOROL INJECTION

     We developed Hectorol Injection for use in the approximately 250,000 ESRD
patients in the United States who undergo hemodialysis three times per week. Our
FDA submission included data from two Phase III trials which included a total of
70 patients and consisted of an eight-week monitoring period in which no
D-hormone therapies were given, followed by a 12-week period in which patients
received open-label treatment with Hectorol Injection at hemodialysis. The study
endpoint for effectiveness was the observed reduction in blood PTH levels, and
the endpoints for safety were the observed rates of hypercalcemia and
hyperphosphatemia. In both trials, after 12 weeks of open-label treatment, blood
PTH levels were reduced 40 to 50%. These reductions were statistically
significant (p<0.01). In both studies, blood PTH reached a predetermined optimal
range in more than 70% of treated patients. Hectorol Injection normalized blood
calcium but also caused infrequent episodes of hypercalcemia and
hyperphosphatemia. We obtained FDA approval for Hectorol Injection in April
2000, and we began selling the product in August 2000. The approval was
accompanied by a Phase IV commitment to complete a post-approval Phase IV trial
in pediatric patients with ESRD by August 2002. If we fail to satisfy this
commitment in a timely manner, the FDA could withdraw its existing approval.


   HECTOROL CAPSULES

     Hectorol Capsules are approved for use in the approximately 284,000 ESRD
patients in the United States. In addition, we have completed clinical trials of
Hectorol Capsules to gain FDA approval for use in pre-dialysis patients, which
is a larger disease population. The FDA approved Hectorol Capsules in June 1999
based on the results of two Phase III trials involving a total of 211 subjects.
Each trial consisted of an eight-week monitoring period in which no D-hormone
therapies were given, followed by a 16-week period in which patients received
open-label treatment with Hectorol Capsules at hemodialysis, and an eight-week
period in which patients received, in a double-blinded randomized fashion,
continuing treatment with either Hectorol Capsules or a matching placebo. The
study endpoint for effectiveness was the observed reduction in blood PTH levels,
and the endpoints for safety were the observed rates of hypercalcemia and
hyperphosphatemia. In both trials, after 16 weeks of open-label treatment, blood
PTH levels were reduced more than 50%. These reductions were statistically
significant (p<0.01). In addition, blood PTH reached a pre-determined optimal
range in 83% of the treated patients. At the end of the eight additional weeks
of blinded




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treatment, mean blood PTH levels in patients receiving Hectorol Capsules
remained approximately 50% below those receiving a matching placebo. Differences
in mean blood PTH levels between patients receiving Hectorol Capsules and those
receiving placebo treatments were clinically and statistically significant.
Hectorol Capsules normalized blood calcium levels but caused infrequent episodes
of hypercalcemia and hyperphosphatemia.

     Roche Pharmaceuticals announced in August 2001 that its competitive oral
product, Rocaltrol, was temporarily not available in the United States.
Rocaltrol has annual sales of approximately $34 million in the United States, of
which approximately $24 million is from a 0.25 microgram dosage and $10 million
is from a 0.5 microgram dosage. Roche Pharmaceuticals projected the 0.5
microgram dosage will be available by September, and that the 0.25 microgram
dosage will not be available until October or November. Since Rocaltrol is
approved in the United States for the treatment of elevated PTH in both ESRD and
predialysis patients, and Hectorol is not yet approved for the treatment of
predialysis patients, not all of this market is available to Bone Care. The
unavailability of Rocaltrol has led to increased sales of Hectorol Capsules.

     In addition to treating dialysis patients, we are developing Hectorol
Capsules to treat pre-dialysis patients and elderly osteoporosis patients with
secondary hyperparathyroidism.

          SECONDARY HYPERPARATHYROIDISM IN PRE-DIALYSIS PATIENTS. Secondary
     hyperparathyroidism begins to develop in patients with modest reductions in
     kidney function and becomes more severe as ESRD progresses. We estimate
     that there are at least 600,000 pre-dialysis patients in the United States.

          Evidence from published clinical research suggests that early
     intervention with D-hormone replacement therapy can slow the progression of
     secondary hyperparathyroidism in pre-dialysis patients. Rocaltrol is
     approved in the United States, and we believe oral alfacalcidol is used in
     certain foreign markets to treat pre-dialysis patients. As with their use
     in dialysis patients, however, these competitive oral products can cause
     toxic side effects at the doses required for effective treatment and can
     hasten the onset of dialysis.

          We have completed two randomized, double-blind, placebo-controlled
     Phase III trials for Hectorol Capsules to treat secondary
     hyperparathyroidism in pre-dialysis patients. The trials consisted of an
     eight-week monitoring period in which no D-hormone therapies were given,
     followed by a 24-week period in which patients were treated with either
     Hectorol Capsules or a matching placebo. The study endpoint for
     effectiveness was the observed reduction in blood PTH levels, and the
     endpoints for safety were the observed rates of hypercalcemia,
     hyperphosphatemia and hypercalciuria, and significant decreases in kidney
     function. In both studies, Hectorol significantly reduced blood PTH levels
     relative to a matching placebo without significant side effects. We intend
     to use the results from these two trials as the basis for filing a
     supplemental New Drug Application with the FDA by December 2001, requesting
     approval to market Hectorol Capsules for secondary hyperparathyroidism in
     pre-dialysis patients.

          SECONDARY HYPERPARATHYROIDISM IN ELDERLY OSTEOPOROSIS PATIENTS. We
     plan to further investigate the use of Hectorol Capsules to treat secondary
     hyperparathyroidism in elderly osteoporosis patients. Of the 16 million
     people in the United States over the age of 75 years, we estimate that two
     to four million have secondary hyperparathyroidism associated with
     osteoporosis. In many elderly individuals, there is reduced responsiveness
     of the parathyroid glands, the small intestine and muscles to D-hormones.
     Higher D-hormone levels are needed in the blood of these individuals to
     control PTH secretion and to maintain both intestinal calcium absorption
     and muscle strength. Often these individuals develop secondary
     hyperparathyroidism. Left untreated, the elevated level of PTH in the blood
     causes bone loss which increases the risk of debilitating fractures. In
     addition, decreased muscle strength increases the risk of falling, which in
     turn, further increases the risk of fractures. Fractures often result in
     disfigurement, decreased mobility and, in some cases, extensive
     hospitalization and chronic nursing home care.

          There are currently no FDA-approved D-hormone therapies to treat
     patients in the United States with osteoporosis; however, D-hormone
     therapies are approved in Europe, Asia, Australia and other markets.
     Controlled clinical trials conducted in these markets using oral calcitriol
     or oral alfacalcidol demonstrated increased or stabilized bone mass and
     reduced rates of fractures. However, other trials conducted in the United
     States have produced mixed results, possibly due to the use of inconsistent
     doses. Higher doses of oral calcitriol produced increases in spinal and
     total body bone mass, whereas lower doses showed little effect. Lower doses
     were used in several trials due to the unacceptable frequency of
     hypercalcemia and hypercalciuria. These results suggest that D-hormone
     therapies with improved safety profiles may enable more consistent delivery
     of higher doses for improved therapeutic effects in elderly osteoporosis
     patients with secondary hyperparathyroidism.

          We completed a Phase II trial in 1992 in the United States to evaluate
     Hectorol Capsules to treat postmenopausal osteoporosis. We and our
     corporate collaborators concluded that the data from the trial did not
     provide a sufficient basis for initiating pivotal Phase III trials with
     Hectorol Capsules to treat postmenopausal osteoporosis. Based on published
     reports that D-hormones have efficacy in patients with secondary
     hyperparathyroidism, we plan to initiate an additional Phase II




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     trial of Hectorol Capsules in elderly osteoporosis patients to treat
     secondary hyperparathyroidism. We plan to conduct a six-month proof of
     principle study beginning in late 2001, and if successful, we will present
     the design of a potential Phase III trial to the FDA. We would initiate the
     Phase III trial in 2002 if a satisfactory design can be agreed upon with
     the FDA.

   HYPERPROLIFERATIVE DISEASES

     In addition to having a role in parathyroid function and calcium and
phosphorus metabolism, D-hormones have an important role in controlling the
development of skin, prostate, breast and colon cells. We are investigating the
use of Hectorol Capsules and other improved D-hormone therapies to treat cell
growth diseases, or hyperproliferative diseases, involving these cells,
including psoriasis and prostate, breast and colon cancers. Our preliminary
studies, as well as research conducted by others, suggest that these cells show
substantially reduced growth rates when exposed to D-hormones and D-hormone
analogs.

          PSORIASIS. We are developing Hectorol in a delayed, sustained-release
     formulation as an oral D-hormone therapy for psoriasis, a chronic disease
     that most often affects the skin. Psoriatic lesions are characterized by an
     abnormal thickening or growth of the skin, usually on the scalp, elbows,
     knees and shins. Microscopic examination of these lesions reveals an
     increased rate of skin cell division, together with a decrease in the time
     required for these cells to migrate to the skin surface, resulting in
     thickening or growth of the skin.

          According to the National Psoriasis Foundation, psoriasis affects more
     than seven million individuals in the United States of which approximately
     1.5 million are being treated by a physician. A similar prevalence rate is
     observed in Europe. Psoriasis affects people of all ages, with most
     exhibiting mild or moderate lesions. No cure for psoriasis exists. Dovonex
     (topical calcipotriol marketed by Bristol-Myers Squibb Company) is a
     synthetic D-hormone analog of calcitriol and is approved to treat psoriasis
     in the United States. Dovonex and tacalcitol, another D-hormone analog, are
     approved to topically treat psoriasis in many countries outside of the
     United States. Currently, no oral D-hormones are approved to treat
     psoriasis in the United States.

          Controlled clinical studies have demonstrated that orally administered
     D-hormones can cause significant improvement in psoriatic lesions reducing,
     in particular, skin redness, scaling and thickness. In many patients,
     complete clearing of psoriatic lesions is observed during the course of
     D-hormone treatment. We plan to initiate a Phase II trial in 2001 to
     determine the effectiveness of orally delivered Hectorol as a treatment for
     psoriasis.

          PROSTATE, BREAST AND COLON CANCERS. We intend to develop Hectorol
     Capsules or another compound to treat prostate, breast and colon cancers.
     These cancer cells are similar because they contain specific D-hormone
     receptors and have shown reductions in cell division rates when treated
     with D-hormones in vitro. Oncologists consider D-hormones to be promising
     new treatments for these three cancers, but the frequent side effects
     observed with D-hormones have inhibited clinical evaluations of this class
     of compounds. We believe that no D-hormone has received marketing approval
     for cancer anywhere in the world.

          Prostate cancer has become the most commonly diagnosed tumor in
     American men. The American Cancer Society (ACS) estimates that in the year
     2001, 198,100 men will be diagnosed with, and 31,500 men will die from,
     prostate cancer. Breast cancer is the second leading cause of death among
     women in the United States. According to ACS estimates, in the year 2001,
     192,200 women will be diagnosed with, and 40,600 women will die from,
     breast cancer. Colon cancer is the third most common cancer in American men
     and women. The ACS estimates that in the year 2001, 98,200 men and women
     will be diagnosed with, and 48,100 people will die from, colon cancer. The
     major known risk factors for prostate cancer, namely old age, race and
     residence at northern latitudes, are all associated with low blood levels
     of vitamin D, the natural precursor for D-hormones. Incidence rates for
     breast and colon cancers also correlate with residence in northern
     latitudes. Mortality rates for these three cancers increase as exposure to
     ultraviolet radiation, the principal source of vitamin D in the human body,
     decreases.

          We completed a Phase I trial in January 1999 in patients with terminal
     prostate cancer to determine the maximum tolerable dose of Hectorol
     Capsules without side effects. These patients had diseases which could be
     monitored by objective imaging techniques while simultaneously evaluating
     safety endpoints such as hypercalcemia and hyperphosphatemia. Results from
     this Phase I trial showed that 70% of patients treated for at least 12
     weeks were free of disease progression. We are currently conducting a Phase
     II trial in terminal prostate cancer patients. Preliminary results indicate
     that six of the 13 evaluated patients treated with Hectorol Capsules became
     free of disease progression for at least six months. We have enrolled an
     additional 13 patients in this trial. If the results of this trial remain
     significant at the end of 2001, we plan to initiate Phase III trials using
     Hectorol Capsules in patients with prostate cancer. We have not yet
     initiated Phase II trials in patients with breast or colon cancer.



                                       8
<PAGE>   9

LR-103 AND BCI-202

     We are investigating the use of LR-103, BCI-202 and other research
compounds in pre-clinical studies to evaluate them to treat psoriasis and
prostate, breast and colon cancers. LR-103 is a naturally occurring D-hormone
that is produced by the kidneys from vitamin D. LR-103 is one of the D-hormones
produced from Hectorol.

     Hectorol's chemical structure differs from calcitriol and alfacalcidol only
in a few areas. Results from animal studies indicate that Hectorol shows a 3-
to-15-fold lower incidence of toxic side effects compared to calcitriol and
alfacalcidol at doses having equivalent potency. Consequently, we synthesized
and examined a series of compounds related to Hectorol in which chemical
structural changes were systematically made to these areas. From this research,
we determined that Hectorol is activated, in part, to LR-103, whereas calcitriol
and alfacalcidol cannot be so activated.

     We have since synthesized LR-103 and closely related analogs and have
studied their pharmacological properties in biological models in collaboration
with the USDA. LR-103 is as potent as Hectorol, calcitriol and alfacalcidol, but
is 30 times less likely than calcitriol and alfacalcidol to cause toxic side
effects. In addition, we have observed that LR-103 inhibits growth of skin cells
as well as breast and colon cancer cells. Most importantly, LR-103 is readily
absorbed after oral delivery and circulates through the bloodstream to tissues
which respond to D-hormones. LR-103 currently is in the late stages of
pre-clinical research, and we plan to begin Phase I clinical studies with LR-103
in calendar 2002.

     BCI-202 is a novel pro-hormone that is metabolized to LR-103. This
promising pharmaceutical candidate is in an early stage of pre-clinical
development. We cannot be certain that future studies will yield safe and
effective results that warrant continued development.

SALES AND MARKETING

     We commercially introduced Hectorol Capsules in October 1999 and Hectorol
Injection in August 2000. Both products are currently marketed for ESRD patients
in the United States by our direct sales force. We believe that the ESRD market
in the United States is well defined and, therefore, is suitable for a highly
focused, direct sales and marketing effort. In addition, we believe that our
pricing strategy balances the physicians' focus on patient care with dialysis
clinics' desire for greater profit and third-party payors' desire to control
treatment costs.

     We are directing our marketing efforts to the following key decision
makers:

     -  Nephrologists. The nephrologist is the physician responsible for the
        care of patients diagnosed with early and end-stage renal disease. This
        care includes delivering D-hormone replacement therapy, which may be
        administered based on protocols developed in conjunction with the
        dialysis clinics. We estimate that in the United States there are
        approximately 5,100 nephrologists caring for 284,000 dialysis patients
        and over 600,000 pre-dialysis patients.

     -  Dialysis Clinics. The nephrologist is generally associated with a clinic
        that performs dialysis procedures. In the United States, a limited
        number of large corporations control the majority of these clinics with
        the largest eight corporations controlling more than 66% of in-center
        dialysis facilities and the largest three controlling over 50% of all
        in-center dialysis facilities. Generally these clinics bill for services
        provided to ESRD patients, including D-hormone therapy. These clinics
        work with the nephrologist to maximize both the quality of patient care
        and profits.

     -  Third-Party Payors. Dialysis clinics who administer intravenous
        D-hormones seek reimbursement from third-party payors who generally are
        either insurance companies or governmental agencies, including Medicare
        and Medicaid. These payors set reimbursement levels for products and
        services which the clinics provide to dialysis patients. Payors,
        including the United States government, have increasingly focused on
        containing costs, which has impacted the reimbursement of various
        products and, in turn, affected clinical use of certain products. We are
        positioning both Hectorol Capsules and Hectorol Injection as safe,
        effective and attractively priced products, and our strategy is to
        establish Hectorol products as preferred D-hormone therapies. Currently,
        oral D-hormone products are not reimbursed for use by hemodialysis
        patients. However, given payors' focus on cost containment, we believe
        that oral therapies represent an attractive, cost-effective alternative
        to more expensive intravenous therapies.

     During the last six months, we increased our headcount of direct sales and
clinical support specialists. As of September 2001, the sales and marketing
department consisted of 44 people, including a Vice President - Sales and
Marketing, a Marketing Director, 30 direct sales people and 6 clinical support
specialists. We intend to allocate significantly greater resources to our sales
and marketing organization to support the commercialization of Hectorol. We
intend to expand our direct sales force to 44 people by December 2001 and to
hire 6 additional clinical support specialists. Additionally, we will seek to
establish mutually beneficial alliances or marketing agreements with partners
who can access geographic markets and therapeutic areas where we have no current
or planned sales presence.



                                       9
<PAGE>   10

     Hectorol is distributed to patients and dialysis centers through both
direct and traditional wholesale and retail channels. We have contracted for
selected administrative and distribution services from a third-party company
having a proven record of providing services to wholesale and retail customers
in the continental United States, Hawaii and Puerto Rico.


COMPETITION

     We operate in a field in which new discoveries occur at a rapid pace.
Competitors may succeed in developing technologies or products that are more
effective than ours or in obtaining regulatory approvals for their drugs more
rapidly than us, which could render our products obsolete or noncompetitive.
Competition is intense and is expected to continue to increase. Many
competitors, including biotechnology and pharmaceutical companies, are actively
engaged in the research and development of products in similar areas, including
the fields of hyperparathyroidism, osteoporosis, and prostate, breast and colon
cancer.

     A number of pharmaceutical and biotechnology companies are developing new
products for the treatment of the same diseases we have targeted. Abbott
Laboratories, Inc., markets intravenous calcitriol (Calcijex) and intravenous
paricalcitol (Zemplar). These drugs are approved to manage secondary
hyperparathyroidism in ESRD patients in the United States and in European
countries. Roche Pharmaceuticals markets oral calcitriol (Rocalctrol) in the
United States to manage secondary hyperparathyroidism in ESRD and pre-dialysis
patients. A number of companies, including Leo Pharmaceutical Products A/S, TEVA
Pharmaceuticals and Chugai Pharmaceutical Company Co., Ltd., market oral or
intravenous alfacalcidol, a synthetic analog of calcitriol, in Europe and Asia
under various trade names for both secondary hyperparathyroidism and
osteoporosis. Other companies, including Amgen, Inc., and NPS Pharmaceuticals,
Inc., also are developing new therapies to manage secondary hyperparathyroidism
in ESRD patients in the United States and foreign markets. Several companies,
including Leo Pharmaceutical Products A/S, ILEX Oncology, Inc., and Chugai
Pharmaceutical Co. LTD, are developing D-hormone therapies to treat cancers. Leo
Pharmaceutical Products A/S, Bristol-Myers Squibb Company and other companies
are marketing a topical D-hormone (Dovonex) in major markets of the world to
treat psoriasis. Teijin Limited is marketing topical tacalcitol to treat
psoriasis outside the United States.


INTELLECTUAL PROPERTY

     Our success will depend in part on our ability to develop patentable
products and technologies and obtain patent protection for our products and
technologies both in the United States and other countries. We currently have
over 60 issued patents and over 100 pending applications worldwide. We have
several United States patents covering the use of Hectorol for the prevention
and treatment of secondary hyperparathyroidism and metabolic bone disease,
including renal osteodystrophy. Patents covering secondary hyperparathyroidism
begin to expire in 2010. Patents covering metabolic bone disease begin to expire
in 2009.

     A corresponding patent for the use of Hectorol to prevent and manage
secondary hyperparathyroidism in kidney dialysis patients has been allowed by
the European patent office and is pending in the Japanese patent office. If
issued, both patents would expire in 2016. A corresponding patent for the use of
Hectorol to prevent and treat metabolic bone disease has been issued by the
European Patent Office and expires in 2009. Patent applications for similar
coverage are pending in other countries.

     We also own United States patents for the use of Hectorol for treating
prostate cancer that expire in 2013. We have filed counterpart patent
applications in Europe and other geographic markets, including Japan, that
expire in 2017. We own United States patents for delayed sustained release
formulations of Hectorol as a treatment for psoriasis. Foreign counterpart
applications are also pending in Europe, Japan and other major markets. The
psoriasis-related patents expire in 2013.

     The issued composition-of-matter patent covering Hectorol has expired. Our
issued patents and pending patent applications relating to Hectorol are
method-of-use patents. A method-of-use patent encompasses the use of a compound
or composition to treat a specified condition but does not encompass the
compound itself, the active ingredient used in the composition or composition
itself, or the method of making the composition or the compound used in the
composition. Method-of-use patents provide less protection than
composition-of-matter patents because of the possibility of off-label or
authorized uses if other companies market or make the compound for other uses.

     We have a license from the Wisconsin Alumni Research Foundation to practice
several of their process patents for the synthesis of Hectorol. Under this
license, which extends at least through July 2, 2013 and terminates upon the
expiration of the last licensed patent, the Wisconsin Alumni Research Foundation
has agreed not to license to other parties the patents to manufacture Hectorol
for use or sale anywhere in the world as long as the license agreement is in
effect and we pay royalties based on Hectorol sales.



                                       10
<PAGE>   11

     We have granted Draxis Health Inc. a license to use and sell Hectorol in
Canada for secondary hyperparathyroidism, osteoporosis and other metabolic bone
diseases. We also have granted Draxis a license in Canada to all know-how
developed by or on behalf of us relating to the use of Hectorol for those
indications. Draxis entered into the license agreement in 1990 and paid Bone
Care $100,000 for the rights to treat secondary hyperparathyroidism and
metabolic bone disease with Hectorol in Canada. The agreement does not include
royalty payments and expires upon the expiration date of the last to expire of
the Canadian patents. Draxis received marketing approval for Hectorol Capsules
in Canada in May 2001, and plans to launch the product in January 2002.

     We own issued patents and have pending patent applications in the United
States and other countries relating to other D-hormones. Our patents and pending
applications include claims to compounds, compositions, methods of synthesizing
the compounds and compositions, methods of use and methods of delivery of active
D-hormone and D-hormone analogs.

     We and the USDA jointly own rights to LR-103 under issued patents and
pending patent applications. The USDA has granted to us an exclusive worldwide
license to make, use and sell products covered under their rights. The original
agreement with the USDA called for us to commercialize LR-103 by April 7, 2002,
or the USDA may modify or terminate the license. We believe the USDA will extend
that date to allow for later commercialization. In any circumstance, however, we
would retain marketing rights under these patents. The USDA license terminates
upon the expiration of the last licensed patent.

     In addition to patent protection, we also rely on proprietary information
and trade secrets. We require our employees, consultants and advisors to execute
confidentiality agreements upon commencement of an employment or a consulting
relationship with us.


MANUFACTURING

     We have no internal manufacturing capabilities. We have contracted and
intend to contract with others to produce active pharmaceutical ingredients and
for the subsequent manufacturing and packaging of finished drug products. We
previously purchased the active pharmaceutical ingredient in Hectorol from a
single supplier that is no longer able to supply it to us. We are currently in
the process of obtaining regulatory approval for two alternative suppliers, the
first of which we expect to be approved for commercial production by October
2001. In addition, Bone Care utilizes one supplier to formulate ampules, one
supplier to formulate capsules and another supplier to package Hectorol.
However, management believes that other suppliers, formulators and vendors are
available and could provide these goods and services to Bone Care on comparable
terms. A change in suppliers, however, could cause a delay in manufacturing and
a possible loss of sales, which would affect operating results adversely.

     All of our suppliers have FDA-inspected facilities that operate under
current Good Manufacturing Practices regulations established by the FDA. These
regulations govern all stages of the drug manufacturing process and are intended
to assure that drugs produced will have the identity, strength, quality and
purity represented in their labeling for all intended uses. If we were to
establish our own manufacturing facility, we would need additional funds and
would have to hire and train additional personnel and comply with the extensive
regulations applicable to the facility. We believe our relationships with our
suppliers are good.

     The sole manufacturer of Hectorol Injection received, following a routine
inspection of its manufacturing facility, a warning letter from the FDA in
September 2000 identifying general deviations from the FDA's current Good
Manufacturing Practices regarding manufacturing procedures, records and
training. While most of the deviations were not specifically applicable to
Hectorol Injection, any general deviation can affect the capabilities of the
manufacturing site. The manufacturer has advised us that a response to the
warning letter has been submitted and that they are working directly with the
FDA to resolve the FDA's concerns, including those specifically related to
Hectorol Injection. We believe that our manufacturer is adequately addressing
the FDA's concerns relating to Hectorol Injection, although there can be no
assurance that the FDA will find that our manufacturer's responses and proposed
corrective actions are adequate or that the FDA will not take further action. If
the FDA is not satisfied with our manufacturer's responses and proposed
corrective action, the FDA could take regulatory actions against our
manufacturer, including seizure of products, injunction against further
manufacture, recall or other actions that could interrupt production of Hectorol
Injection. Any such action would have a material adverse effect on us.


GOVERNMENT REGULATION

     Pharmaceutical products are subject to extensive regulation under the
Federal Food, Drug and Cosmetic Act by the FDA in the United States and similar
health authorities in foreign countries. This rigorous regulation governs, among
other things, testing for safety and effectiveness, manufacturing, labeling,
storage, recordkeeping, import, export, advertising, marketing and distribution
of pharmaceutical products. Any new drug candidate must undergo lengthy,
rigorous and costly pre-clinical testing, clinical trials and other procedures
mandated by the FDA and foreign regulatory authorities prior to approval for
sale.




                                       11
<PAGE>   12
     Before testing agents with potential therapeutic value in healthy human
test subjects, stringent government requirements for pre-clinical data must be
satisfied. The data, obtained from studies in several animal species, as well as
from laboratory studies, are submitted in an investigational New Drug
Application to the FDA or its equivalent in countries outside the United States
where clinical studies are to be conducted. Pre-clinical data must provide an
adequate basis for evaluating both the safety and the scientific rationale for
the initiation of clinical trials.

     Clinical trials are typically conducted in three sequential phases,
although these phases may overlap. Phase I frequently begins with initial
introduction of the compound into healthy human subjects. Prior to patient
introduction, the product is tested for safety, adverse affects, dosage,
tolerance, absorption, metabolism, excretion and clinical pharmacology. Phase II
typically involves studies in a small sample of the intended patient population
to assess the efficacy of the compound for a specific indication to determine
dose tolerance and the optimal dose range as well as to gather additional
information relating to safety and potential adverse effects. Phase III trials
are undertaken to further evaluate clinical safety and efficacy in an expanded
patient population which suffers from the targeted illness at geographically
dispersed study sites to determine the overall risk-benefit ratio of the
compound and to provide an adequate basis for product labeling. Each trial is
conducted in accordance with certain standards under protocols that detail the
objectives of the study, the parameters to be used to monitor safety and the
efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as
part of the investigational New Drug Application.

     Data from pre-clinical and clinical trials are submitted to the FDA as a
New Drug Application for marketing approval and to other health authorities as a
marketing authorization application. The process of completing clinical trials
for a new drug is likely to take a number of years and requires the expenditure
of substantial resources. Preparing a New Drug Application or marketing
authorization application involves considerable data collection, verification,
analysis and expense. There can be no assurance that the FDA, or any other
health authority, will grant approval on a timely basis, if at all. The approval
process is affected by a number of factors, primarily the risks and benefits
demonstrated in clinical trials as well as the severity of the disease and the
availability of alternative treatments. The FDA or other health authorities may
deny a New Drug Application or marketing authorization application if the
authority's regulatory criteria are not satisfied or may require additional
testing or information.

     Even after initial FDA or other health authority approval has been
obtained, further studies, including Phase IV post-marketing studies, may be
required to provide additional data on safety. Additional studies will be
required to gain approval for the use of a product as a treatment for clinical
indications other than those for which the product was initially tested and may
be required for Hectorol Injection and Hectorol Capsules. Also, the FDA or other
regulatory authorities may require post-marketing reporting to monitor the side
effects of the drug. Results of post-marketing programs may limit or expand
marketing of the products. Further, if there are any modifications to the drug,
including changes in indication, manufacturing process or labeling or a change
in manufacturing facility, an application seeking approval of such changes will
be required to be submitted to the FDA or other regulatory authority.

     The manufacture and marketing of Hectorol is subject to ongoing regulation,
including compliance with the FDA's current Good Manufacturing Practices,
adverse event reporting requirements and the FDA's general prohibitions against
promoting products for "off-label" uses, or uses not listed on the FDA-approved
labeling. We also are subject to inspection and market surveillance by the FDA
for compliance with these and other requirements. Any enforcement action
resulting from failure to comply with these requirements could affect the
manufacture and marketing of Hectorol. In addition, the FDA could withdraw a
previously approved product from the market upon receipt of new information.

     Before our products can be marketed outside of the United States, they are
subject to regulatory approval similar to FDA requirements in the United States,
although the requirements governing the conduct of clinical trials and other
premarket approval requirements vary widely from country to country, and the
time spent in gaining approval varies from that required for FDA approval. FDA
approval does not assure approval by other regulatory authorities, and we cannot
predict whether foreign regulatory approvals will be granted. In some countries,
the sales price of a drug product must also be approved. The pricing review
period often begins after market approval is granted. Even if a foreign
regulatory authority approves any of our products, we cannot predict whether
satisfactory prices for our products will be approved.

     We must also comply with numerous federal, state and local laws,
regulations and recommendations relating to safe working conditions, current
Good Laboratory Practices, current Good Manufacturing Practices and the
experimental use of animals. We cannot predict the extent of governmental
regulation or the impact of new governmental regulations which might have an
adverse effect on the discovery, development, production and marketing of our
products and require us to incur significant costs to comply with the
regulations.

     Our research and development processes involve the controlled use of
hazardous materials, chemicals and radioactive materials and produce waste
products. We are subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of such materials
and waste products. Although we believe that our safety procedures for handling
and disposing of such materials comply with the standards prescribed by such
laws and regulations, the risk of accidental contamination or injury from these
materials cannot be eliminated completely. In the event of such an accident, we


                                       12
<PAGE>   13
could be held liable for any damages that result, and any such liability could
exceed our financial resources. We believe we comply in all material respects
with applicable environmental laws and regulations.

     Completing the multitude of steps necessary before marketing a new drug or
obtaining a new indication for Hectorol requires the expenditure of considerable
resources and a lengthy period of time. Delay or failure in obtaining the
required approvals, clearances or permits by us, our corporate partners or our
licensees would have a material adverse effect on our ability to generate sales
or royalty revenue. The impact of new or changed laws or regulations cannot be
predicted with any accuracy.


EMPLOYEES

     As of September 25, 2001, we had 86 full-time employees, including 19 in
research and development, 10 in compliance, quality and regulatory affairs, 44
in sales and marketing and 13 in administration. Six of our employees have Ph.D.
degrees. None of our employees are represented by a union, and we consider our
employee relations to be good.

RISK FACTORS

          Investors and prospective investors in Bone Care should consider
carefully the risks described below, in addition to other information in this
filing. Each of these risk factors could adversely affect Bone Care's business,
financial condition and results of operations as well as adversely affect the
value of an investment in our common stock.

          RISKS RELATED TO OUR BUSINESS

          OUR BUSINESS IS AT AN EARLY STAGE OF DEVELOPMENT AND WE DO NOT HAVE A
SIGNIFICANT HISTORY FOR YOU TO EVALUATE US ON.

          Our business is at an early stage of development and we currently do
not have significant revenues or positive cash flow. We face many obstacles
before we can generate enough revenue to achieve positive cash flow and finance
our operations. In June 1999, we received FDA approval to market Hectorol
Capsules in the United States to manage secondary hyperparathyroidism in kidney
dialysis patients and began selling Hectorol Capsules in October 1999. In April
2000, we received FDA approval to market Hectorol Injection to manage secondary
hyperparathyroidism in dialysis patients and began selling Hectorol Injection in
the United States in August 2000. We do not have FDA approval to market Hectorol
for other indications or to market any other products. All of our other product
candidates require extensive research and development and clinical testing
before we can submit a New Drug Application to the FDA.

          WE HAVE A HISTORY OF LOSSES AND EXPECT OUR LOSSES TO CONTINUE.

          We have incurred losses since we began operating. As of June 30, 2001,
our accumulated deficit was approximately $34.6 million. To date, we have spent
our funds primarily on product development, most recently on developing Hectorol
Injection, and in fiscal year 2002 and subsequent fiscal years, we plan to make
large expenditures to expand clinical indications for Hectorol Capsules and, to
a lesser extent, other new products, which may result in losses in future
periods. These expenditures include costs associated with performing clinical
trials for new products, continuing our research and development and seeking
foreign regulatory approvals for Hectorol. The amount of these expenditures is
difficult to forecast accurately and cost overruns may occur. We expect our
operating losses to continue and increase. It is possible, depending on the rate
at which our revenues increase and our marketing and research and development
activities expand, that our losses will continue at least through 2002. Our
ability to generate revenues in the near future will depend primarily on our
success in marketing and selling Hectorol Injection and Hectorol Capsules. We do
not know whether we will achieve profitability or, if we do, whether we will be
able to sustain profitability. We believe that we have sufficient cash and
investments to allow us to continue operating our business for at least the next
two years.

          WE MAY FAIL TO SATISFY THE FDA'S CONDITIONS FOR MARKETING APPROVAL FOR
HECTOROL INJECTION, AND FOR HECTOROL CAPSULES, SLOWING THE PROGRESS OF OUR
BUSINESS.

          The FDA allowed us to market Hectorol Injection to ESRD patients, but
required us to complete a post-approval Phase IV trial in pediatric patients
with ESRD by August 2002. If we fail to timely satisfy this requirement, the FDA
could withdraw its existing approval.

          The FDA also allowed us to market Hectorol Capsules to ESRD patients,
but required us to complete post-approval Phase IV research and development
pertaining to the analysis of this product and its active ingredients by July
2000. We have already completed and submitted the results of our Phase IV
commitments for Hectorol Capsules to the FDA, but we do not yet know if the FDA
will be fully satisfied or will require additional Phase IV commitments.


                                       13
<PAGE>   14

          Even after initial FDA or other health authority approval has been
obtained, further studies, including Phase IV post-marketing studies, may be
required to provide additional data on safety. Additional studies will be
required to gain approval for the use of a product as a treatment for clinical
indications other than those for which the product was initially tested and may
be required for Hectorol Injection and Hectorol Capsules. Also, the FDA or other
regulatory authorities may require post-marketing reporting to monitor the side
effects of the drug. Results of post-marketing programs may limit or expand
marketing of the products. Further, if there are any modifications to the drug,
including changes in indication, manufacturing process or labeling or a change
in manufacturing facility, an application seeking approval of such changes will
be required to be submitted to the FDA or other regulatory authority.

          If we experience delays or are unable to receive approval of our Phase
IV commitments for Hectorol Injection and Hectorol Capsules from the FDA, our
operating results and business will be substantially impaired.

          WE MAY NOT BE ABLE TO COMMERCIALIZE HECTOROL IN FOREIGN MARKETS OR FOR
OTHER INDICATIONS IF WE DO NOT ENTER INTO STRATEGIC ALLIANCES OR OTHER MARKETING
ARRANGEMENTS.

          If we do not find corporate partners for Hectorol in foreign markets
or for other indications, we may have to reduce our rate of product development
or increase our capital expenditures. Our strategy for the development, testing,
manufacturing and commercialization of our products is to enter into various
collaborations with partners, licensors, licensees and others. We have been in
discussions with several potential collaborators in foreign markets but have not
entered into any agreements. We may not be able to negotiate collaborative
arrangements on acceptable terms, if at all. If we are not able to establish
collaborative arrangements, we will have to either delay further development of
some of our programs or increase our capital expenditures and undertake the
development activities at our own expense. We may encounter significant delays
in commercializing our products or find that the development, manufacture or
sale of our products is hindered by the absence of collaborative agreements.

          WE DO NOT HAVE EXPERIENCE COMMERCIALIZING PRODUCTS AND MAY NOT BE ABLE
TO SUCCESSFULLY DO SO.

          We began selling Hectorol Capsules in the United States in October
1999, and we began selling Hectorol Injection in the United States in August
2000. As of September 25, 2001, we have hired 36 of the 50 full-time direct
sales people and clinical support specialists we intend to hire. We will need to
invest a significant amount of money to complete the development of our sales
and marketing resources.

          We cannot assure you that we will be able to sell and market Hectorol
successfully. We have a sales and marketing force that is limited in number,
experience and training, which we are seeking to expand. We may not be able to
establish and maintain an internal sales and marketing force with technical
expertise and supporting distribution capabilities. If we are unable to
successfully commercialize our Hectorol products, our growth prospects will be
diminished.

          ADDITIONAL CLINICAL TRIALS MAY NOT PROVE THAT HECTOROL IS SAFER OR
MORE EFFICACIOUS THAN COMPETING D-HORMONE THERAPIES WHICH MAY LIMIT ITS MARKET
ACCEPTANCE OR LIMIT OUR EFFORTS TO COMMERCIALIZE HECTOROL.

          We have not conducted head-to-head clinical trials comparing Hectorol
and competitive D-hormone therapies in ESRD patients. We, and others not
affiliated with us, have compared the toxicity and efficacy of Hectorol to
competitive D-hormone therapies in several animal species. In animal studies,
Hectorol shows a 3- to 15-times lower incidence of toxic side effects when
delivered at doses with equivalent potency. We cannot be sure, however, that the
results of additional clinical trials will prove that our assumptions, based on
animal studies, are correct. Hectorol may not compare favorably to existing or
new D-hormone therapies. If Hectorol, or our follow-on products, do not prove to
be superior to competing products, we may face severe difficulties and may incur
greater expenses in marketing Hectorol. If additional clinical trials prove that
Hectorol is inferior to competitive D-hormone therapies, we may be forced to
suspend our efforts to commercialize Hectorol and to delay or suspend our
planned efforts to develop Hectorol and follow-on compounds for additional
indications.

          IF HECTOROL IS NOT ACCEPTED BY THE MEDICAL COMMUNITY, OUR BUSINESS
WILL SUFFER.

          The success of Hectorol depends on its acceptance by the medical
community. Similarly, the success of any products we develop in the future will
depend on the adoption of these products by our targeted markets. Existing and
future products, therapies and technological approaches will compete directly
with our products. Competing products may provide greater therapeutic benefits
for a specific problem or may offer comparable performance at a lower cost. If
doctors and patients do not use our products, we may not become profitable. We
cannot predict how quickly, if at all, the medical community will accept
Hectorol or our future products or the extent to which these products will be
used. If we encounter difficulties introducing Hectorol or future products into
our targeted markets, our operating results and business may be substantially
impaired. To facilitate Hectorol's acceptance in the United States market, we
have priced Hectorol at a modest premium to the older D-hormone, calcitriol, but
below the more recently launched D-hormone, paricalcitol.



                                       14
<PAGE>   15

          WE MAY NOT RECEIVE MEDICARE REIMBURSEMENT FOR HECTOROL INJECTION.

          The Health Care Financing Administration (HCFA) controls Medicare
reimbursement for D-hormone therapies administered intravenously during
hemodialysis. If HCFA does not grant Hectorol Injection reimbursement, Medicare
will not reimburse for use of Hectorol Injection, and there is no guarantee that
third-party payors will provide reimbursement, and even if they do, the amount
of reimbursement may be lower than expected. Furthermore, HCFA may elect to
eliminate "fee-for-service" coverage for intravenous D-hormone therapies and
instead make a fixed payment to dialysis clinics for the total care of each
patient, otherwise known as capitation, which would include oral or intravenous
D-hormone therapy. Capitation will encourage use of lower cost oral D-hormone
therapies and may have an adverse effect on sales of intravenous D-hormones,
including Hectorol Injection.

          FAILURE TO RAISE ADDITIONAL FUNDS IN THE FUTURE MAY DELAY OR ELIMINATE
SOME OR ALL OF OUR EFFORTS TO DEVELOP, MANUFACTURE AND SELL HECTOROL AND ANY OF
OUR FUTURE PRODUCTS.

          In recent years we have significantly increased our research and
development expenditures for Hectorol, and we expect this trend will continue in
the future. We also will need to make significant expenditures to manufacture
and market Hectorol and our other planned products in commercial quantities for
sale in the United States and in other countries, if and when we obtain
regulatory approval to do so. We cannot be sure that our estimates of capital
expenditures for Hectorol and the development of our other new products will be
accurate. We could have significant cost overruns which could reduce our ability
to commercialize our products.

          Based upon our current plans, we believe that we have sufficient funds
to meet our operating expenses and capital requirements for at least the next
two years. Thereafter, we may need to raise additional capital to fund our
operations. The scope and amount of our liquidity and capital requirements will
depend upon many factors, including the extent to which Hectorol Injection gains
market acceptance, the progress and success of our clinical trials, the timing
and cost involved in obtaining regulatory approvals, the timing and cost of
developing sales and marketing programs, our ability to enter into strategic
alliances, manufacturing and research and development activities and competitive
developments. Additional required financing may not be available on satisfactory
terms, if at all. If we are unable to obtain financing in the future, we may
have to seek alternative sources of capital or re-evaluate our operating plans,
or we may be required to delay, reduce or eliminate some or all of our research
and development activities or sales and marketing efforts, in which case our
operating results and business may be substantially impaired.

          WE LACK SUFFICIENT LONG-TERM DATA REGARDING THE SAFETY AND EFFICACY OF
OUR PRODUCTS AND WE COULD FIND THAT OUR LONG-TERM DATA DO NOT SUPPORT OUR
CURRENT CLINICAL RESULTS.

          Hectorol is supported by less than two years of patient follow-up, and
therefore, we could discover that our current clinical results cannot be
supported by actual clinical experience. If longer-term patient studies or
clinical experience indicate that treatments with our products do not provide
patients with sustained benefits, our sales could decline. If longer-term
patient studies or clinical experience indicate that our procedures cause tissue
or muscle damage, motor impairment or other negative effects, we could be
subject to significant liability. We are not certain how long it may take for
patients to show significant increases in side effects. Further, because some of
our data have been produced in studies that are not randomized and involved
small patient groups, our data may not be reproduced in wider patient
populations.

          WE HAVE NO EXPERIENCE MANUFACTURING PHARMACEUTICAL PRODUCTS SO WE MUST
RELY EXCLUSIVELY ON SUPPLIERS WHO ARE OUTSIDE OF OUR CONTROL TO MANUFACTURE OUR
PRODUCTS, INCLUDING HECTOROL.

          The manufacture of pharmaceutical products requires significant
expertise and capital investment. We do not have the internal capability to
manufacture pharmaceutical products, and we currently use others to manufacture
active pharmaceutical ingredients and to formulate and package Hectorol. Our
manufacturers are required to adhere to regulations enforced by the FDA. Our
dependence upon others to manufacture our products may adversely affect our
profit margins and our ability to develop and commercialize products on a timely
and competitive basis. Delays or difficulties with contract manufacturers in
producing, packaging or distributing our products, would adversely affect the
sales of Hectorol or introduction of other products. If we have to seek
alternative sources of supply, we may be unable to enter into alternative supply
arrangements on commercially acceptable terms, if at all. Although we employ a
small number of employees to coordinate and manage the actions of these parties,
we have relatively little experience in this regard. Any disruption of these
activities could impede our ability to sell Hectorol which would result in
reduced revenue. If our supply of Hectorol Injection is interrupted or delayed,
we may be required to slow down or interrupt our commercialization efforts. We
may be required to begin the process of seeking an alternative manufacturer and
qualifying such manufacturer for the production of Hectorol.



                                       15
<PAGE>   16


          The sole manufacturer of Hectorol Injection received, following a
routine inspection of its manufacturing facility, a warning letter from the FDA
in September 2000 identifying general deviations from the FDA's current Good
Manufacturing Practices regarding manufacturing procedures, records and
training. While most of the deviations were not specifically applicable to
Hectorol Injection, any general deviation can affect the capabilities of the
manufacturing site. The manufacturer has advised us that a response to the
warning letter has been submitted and that they are working directly with the
FDA to resolve the FDA's concerns, including those specifically related to
Hectorol Injection. We believe that our manufacturer is adequately addressing
the FDA's concerns relating to Hectorol Injection, although there can be no
assurance that the FDA will find that our manufacturer's responses and proposed
corrective actions are adequate or that the FDA will not take further action. If
the FDA is not satisfied with our manufacturer's responses and proposed
corrective action, the FDA could take regulatory actions against our
manufacturer, including seizure of products, injunction against further
manufacture, recall or other actions that could interrupt production of Hectorol
Injection. Any such action would have a material adverse effect on us.

          Bone Care had purchased the active pharmaceutical ingredient in
Hectorol from a single supplier that is no longer able to supply it to us.
Management is working toward qualifying two additional suppliers, the first of
which we expect to be approved for commercial production by October 2001. In
addition, Bone Care utilizes one supplier to formulate ampules, one supplier to
formulate capsules and another supplier to package Hectorol. However, management
believes that other suppliers, formulators and vendors are available and could
provide these goods and services to Bone Care on comparable terms. A change in
suppliers, however, could cause a delay in manufacturing and a possible loss of
sales, which would affect operating results adversely.

          While we currently do not intend to manufacture any products
ourselves, we may choose to do so in the future. If we were to manufacture
products ourselves, we would need substantial additional financing to build
manufacturing facilities. We also would be subject to additional regulatory
requirements and would be subject to risks associated with delays or
difficulties encountered in manufacturing a product. We may not be able to
manufacture any products successfully or in a cost-effective manner.

          WE CANNOT ASSURE YOU THAT WE WILL OBTAIN REGULATORY APPROVALS FOR ANY
OF OUR FUTURE PRODUCTS.

          Obtaining required regulatory approvals may take several years to
complete and consume substantial capital resources. There is no assurance that
the FDA or any other regulatory authority will act quickly or favorably on any
of our future requests for product approval, or that the FDA or any other
regulatory authority will not require us to provide additional data that we do
not currently anticipate to obtain product approvals. We cannot apply for FDA
approval to market our future products until each product successfully completes
its pre-clinical and clinical trials. We intend to seek FDA approval by December
2001 of Hectorol Capsules for use in pre-dialysis renal patients, but we do not
have plans to request FDA approvals for other new indications in the next two
years. Several factors could prevent successful completion or cause significant
delays of these trials, including an inability to enroll the required number of
patients or failure to demonstrate adequately that the product is safe and
effective for use in humans. If safety problems develop, the FDA could stop our
trials before completion. If we are not able to obtain regulatory approvals for
use of our future products, or if the patient populations for which they are
approved are not sufficiently broad, the commercial success of these products
could be limited.

          OUR FAILURE TO OBTAIN REGULATORY APPROVALS IN FOREIGN JURISDICTIONS
WOULD PREVENT US FROM MARKETING HECTOROL ABROAD.

          We also intend to market our products in international markets,
including the European Union and Japan. We must obtain separate regulatory
approvals in order to market our products in the European Union, Japan and many
other foreign jurisdictions. The regulatory approval processes differ among
these jurisdictions. Approval in any one jurisdiction does not ensure approval
in a different jurisdiction. We intend to collaborate with others to pursue
foreign regulatory approvals and to sell our products in these markets. Hectorol
Injection and Hectorol Capsules have not been approved for marketing by any
governmental entity outside of the United States. We will require substantial
additional funds to develop the product, conduct clinical trials and gain the
necessary regulatory approvals for Hectorol Injection or Hectorol Capsules in
foreign countries. As a result, revenues from sales of Hectorol outside the
United States will require us to invest additional resources or enter into
arrangements with partners.

          OUR SUCCESS DEPENDS ON OUR KEY PERSONNEL, THE LOSS OF WHOM COULD
IMPAIR OUR BUSINESS.

          Our success depends upon our ability to attract and retain qualified
scientific, technical and managerial personnel. Pharmaceutical companies,
academic and government organizations, research institutions and other entities
compete for the services of qualified scientists, technicians and managerial
personnel. We may not be able to attract and retain such personnel. Furthermore,
our anticipated growth and expansion into areas and activities requiring
additional expertise will require additional personnel.



                                       16
<PAGE>   17

          OUR FAILURE TO EXPAND OUR MANAGEMENT SYSTEMS AND CONTROLS TO SUPPORT
ANTICIPATED GROWTH COULD HARM OUR BUSINESS.

          Our operations continue to grow and we expect this expansion to
continue as we execute our business strategy. Sustaining our growth has placed
significant demands on management and our administrative, operational,
information technology, financial and personnel resources. Accordingly, our
future operating results will depend on the ability of our officers and other
key employees to continue to implement and improve our operational, regulatory
support and financial control systems, and effectively expand, train and manage
our employee base. We may not be able to manage our growth successfully which
could seriously harm our operating results and business.

          RISKS RELATED TO OUR INDUSTRY

          WE HAVE MANY COMPETITORS, SEVERAL OF WHICH HAVE SIGNIFICANTLY GREATER
FINANCIAL AND OTHER RESOURCES.

          We face competition from several companies that are focused on
developing D-hormone therapies, particularly to treat secondary
hyperparathyroidism and hyperproliferative diseases. We also compete with other
companies that produce D-hormones and D-hormone analogs for international
marketplaces where these treatments have already been approved for secondary
hyperparathyroidism and hyperproliferative diseases. We expect competition to
increase further as additional companies begin to enter our markets and/or
modify their existing products to compete directly with ours. Companies also
compete indirectly with us utilizing different therapeutic approaches. Many of
our competitors have substantially greater financial, research and development
and marketing resources than we do and are better equipped to develop,
manufacture and market products, for example:

             -   Abbott Laboratories, Inc., markets intravenous calcitriol
                 (Calcijex(R)), and paricalcitol (Zemplar(R)), and Roche
                 Pharmaceuticals markets oral calcitriol (Rocaltrol(R)). These
                 products are approved to manage secondary hyperparathyroidism
                 in kidney dialysis patients in the United States and in
                 European countries. Oral calcitriol is also approved in Japan.
             -   Roche Pharmaceuticals markets oral calcitriol (Rocaltrol) in
                 the United States to manage secondary hyperparathyroidism in
                 pre-dialysis and ESRD patients.
             -   A number of companies market oral and intravenous alfacalcidol,
                 a synthetic analog of calcitriol, in Europe and Japan under
                 various trade names.
             -   Other companies, including Amgen, Inc., Chugai Pharmaceutical
                 Co., Ltd., and NPS Pharmaceuticals, Inc., also are developing
                 new therapies to manage secondary hyperparathyroidism in kidney
                 dialysis patients in the United States, European or Asian
                 markets.
             -   Leo Pharmaceuticals Products A/S and TEVA Pharmaceuticals are
                 marketing alfacalcidol in Europe to manage secondary
                 hyperparathyroidism in kidney dialysis patients or to treat
                 osteoporosis in elderly patients associated with secondary
                 hyperparathyroidism.
             -   Leo Pharmaceuticals Products A/S and ILEX Oncology, Inc., are
                 developing D-hormone therapies to treat certain cancers.
             -   Leo Pharmaceuticals Products A/S and Bristol-Myers Squibb
                 Company are marketing topical Dovonex(R) in the United States
                 and Europe to treat psoriasis. Teijin Ltd. is marketing topical
                 tacalcitol to treat psoriasis outside the United States.

          Our competitors may have broad product lines which allow them to
negotiate exclusive, long-term supply contracts and offer comprehensive pricing
for their products. Broader product lines may also provide our competitors with
a significant advantage in marketing competing products to group purchasing
organizations and other managed care organizations that are increasingly seeking
to reduce costs through centralized purchasing. Greater financial resources and
product development capabilities may allow our competitors to respond more
quickly to new or emerging technologies and changes in customer requirements
that may render our products obsolete. These technological developments which
result in Hectorol becoming obsolete or non-competitive may occur before we are
able to achieve profitability. We also face competition for marketing,
distribution and collaborative development agreements, for establishing
relationships with academic and research institutions and for licenses to
intellectual property. Our competitors compete with us in attracting and
retaining qualified scientific and management personnel as well as in acquiring
technologies complementary to our programs.

          OUR PRODUCTS AND DEVELOPMENT ACTIVITIES ARE SUBJECT TO EXTENSIVE
GOVERNMENT REGULATION WHICH COULD MAKE IT MORE EXPENSIVE AND TIME-CONSUMING FOR
US TO CONDUCT OUR BUSINESS.

          Any new drug product must undergo lengthy and rigorous clinical
testing and other extensive, costly and time-consuming procedures mandated by
the FDA and foreign regulatory authorities. We may elect to delay or cancel our
anticipated regulatory submissions for new indications for Hectorol or proposed
new products for a number of reasons, including:


                                       17
<PAGE>   18


             -   unanticipated clinical testing results;
             -   lack of sufficient resources;
             -   changes in, or adoption of, new FDA regulations;
             -   unanticipated enforcement of existing regulations or
                 guidelines;
             -   unexpected technological developments; and
             -   developments by our competitors.

          The FDA continues to review products even after they receive FDA
approval. The manufacture and marketing of Hectorol is subject to ongoing
regulation, including compliance with the FDA's current Good Manufacturing
Practices, adverse event reporting requirements and the FDA's general
prohibitions against promoting products for "off-label" uses, or uses not listed
on the FDA-approved labeling. We also are subject to inspection and market
surveillance by the FDA for compliance with these and other requirements. Any
enforcement action resulting from failure to comply with these requirements
could adversely affect the manufacturing and marketing of Hectorol. In addition,
the FDA could withdraw a previously approved product from the market upon
receipt of new information.

          We must also comply with numerous federal, state and local laws,
regulations and recommendations relating to safe working conditions, current
Good Laboratory Practices, current Good Manufacturing Practices and the
experimental use of animals. We cannot predict the extent of government
regulation or the impact of new governmental regulations which might have an
adverse effect on the discovery, development, production and marketing of our
products, and require us to incur significant costs to comply with the
regulations.

          RISKS RELATED TO OUR STOCK

          CONCENTRATION OF OWNERSHIP IN OUR COMPANY BY CERTAIN SHAREHOLDERS MAY
MAKE IT MORE DIFFICULT TO REPLACE OR REMOVE OUR CURRENT MANAGEMENT.

          Based on the number of shares outstanding at September 25, 2001, our
executive officers and directors beneficially own approximately 25% of the
outstanding shares of our common stock and, as a result, have significant
control of us, which they could exert to make it more difficult to replace or
remove our current management.

          OUR FUTURE OPERATING RESULTS AND THE TRADING PRICE OF OUR COMMON STOCK
IS LIKELY TO FLUCTUATE SUBSTANTIALLY IN THE FUTURE.

          Our stock price has fluctuated substantially since we became a public
company in May 1996. Our stock price, like that of many other biotechnology and
pharmaceutical companies, is likely to remain volatile. The trading price of our
common stock may fluctuate widely as a result of a number of factors, some of
which are not in our control, including:

             -   market perception and customer acceptance of our products;
             -   our efforts to increase sales of our Hectorol products;
             -   quarter-to-quarter variations in our operating results;
             -   timely implementation of new and improved products;
             -   our level of investment in research and development;
             -   increased competition;
             -   our establishment of strategic alliances or acquisitions;
             -   changes in our relationships with suppliers;
             -   litigation concerning intellectual property rights in the
                 industry;
             -   announcements regarding clinical activities or new products by
                 us or our competitors;
             -   timing of regulatory actions, such as product approvals or
                 recalls;
             -   costs we incur in anticipation of future sales, such as
                 inventory purchases or expansion of manufacturing facilities;
             -   general and economic conditions in the biotechnology and
                 pharmaceutical industry and the state of healthcare cost
                 containment efforts, including reimbursement policies; and
             -   changes in earnings estimates by analysts.

          In addition, the market for our stock has experienced extreme price
and volume fluctuations, which have often been unrelated to our operating
performance. We believe that period-to-period comparisons of our historical and
future results will not necessarily be meaningful and that investors and
prospective investors in Bone Care should not rely on them as an indication of
future performance. To the extent we experience the factors described above, our
future operating results may not meet the expectations of securities analysts or
investors from time to time, which may cause the market price of our common
stock to decline or be volatile.


                                       18
<PAGE>   19

          SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY
DEPRESS OUR STOCK PRICE.

          Most of our outstanding shares of common stock are freely tradable.
The market price of our common stock could drop due to sales of a large number
of shares or the perception that such sales could occur. These factors also
could make it more difficult to raise funds through future offerings of common
stock.

          RISKS RELATED TO INTELLECTUAL PROPERTY

          IF WE ARE UNABLE TO PROTECT OUR PATENTS, OUR COMPETITIVENESS AND
BUSINESS PROSPECTS MAY BE MATERIALLY DAMAGED.

          Our success will depend to a significant degree on our ability to
obtain and enforce patents and licenses to patent rights, both in the United
States and in other countries. The patent position, however, of pharmaceutical
companies is often uncertain and involves complex legal and factual questions,
not the least of which is that we cannot predict the breadth of patent claims in
pharmaceutical patents. In addition, a substantial backlog of pharmaceutical
patent applications exists at the United States Patent and Trademark Office. The
backlog may delay review and potential issuance of patents.

          To date, we have filed a number of patent applications in the United
States and other countries. Our issued patents and pending patent applications
relating to Hectorol are method-of-use patents which cover only the use of
certain compounds to treat specified conditions, rather than
composition-of-matter patents which would cover the chemical composition of the
active ingredient. Method-of-use patents provide less protection than
composition-of-matter patents because of the possibility of off-label uses if
other companies market or make the compound for other uses. We actively continue
to file applications as appropriate for patents covering our products, uses and
processes. We cannot guarantee that we will obtain patent protection for our
products or processes.

          We also cannot guarantee that competitors will not successfully
challenge our patents, if issued, on the basis of validity and/or
enforceability. Nor can we guarantee that they will not circumvent or design
around our patent position. We could face increased competition as a result of
the failure of patents to be issued on our pending applications or a finding of
invalidity and/or unenforceability of one of our patents.

          In the United States, patent applications are maintained in secrecy
until a patent issues. We cannot be certain that others have not filed patent
applications for compounds, uses or processes covered by our pending
applications. We also cannot be certain that we were the first to invent or
discover the compound, use or process that is the subject of our applications.
Competitors may have filed applications for, or may have received patents and
may obtain additional patents and proprietary rights relating to, compounds,
uses or processes that block or compete with our patents and rights. We are
aware of a significant number of patent applications relating to D-hormones
filed by, and patents issued to, third parties. If any of our competitors have
filed patent applications in the United States that claim compounds, uses or
processes also claimed by us, we may have to participate in an interference
proceeding declared by the United States Patent and Trademark Office to
determine priority of invention and the corresponding right to a patent for the
compounds, uses or processes in the United States. A proceeding could result in
substantial cost to us even if the outcome is favorable.

          We have not filed patent applications in every country. In certain
countries, obtaining patents for our products, processes and uses may be
difficult or impossible. Patents issued in countries and regions other than the
United States, Japan and Europe may be harder to enforce than, and may not
provide the same protection as, patents obtained in the United States, Europe
and Japan.

          IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS AND TRADE SECRETS,
OUR COMPETITIVENESS AND BUSINESS PROSPECTS MAY BE MATERIALLY DAMAGED.

          Operation of our business also relies on our ability to protect
proprietary information and trade secrets. We require our employees, consultants
and advisors to execute confidentiality agreements upon commencement of
employment or consulting relationships with us. We cannot guarantee, however,
that these agreements will provide meaningful protection or adequate remedies
for our proprietary information and trade secrets in the event of unauthorized
use or disclosure of such information nor can we guarantee that the parties to
the agreements will not breach their agreements. We also cannot guarantee that
third parties will not know, discover or develop independently equivalent
proprietary information or techniques, that they will not gain access to our
trade secrets or disclose our trade secrets to the public. Therefore, we cannot
guarantee that we can maintain and protect unpatented proprietary information
and trade secrets.



                                       19
<PAGE>   20
          WE MAY BE ACCUSED OF INFRINGING UPON THE PROPRIETARY RIGHTS OF OTHERS
AND ANY RELATED LITIGATION COULD DAMAGE OUR BUSINESS.

          Our commercial success depends significantly on our ability to operate
our business without infringing upon the patents and other proprietary rights of
third parties. We cannot guarantee that our compounds, uses or processes do not
and will not infringe upon the patents and proprietary rights of third parties.
In the event of an infringement determination, we may be enjoined from research,
development or commercialization of our products. We may also be required to
enter into royalty or license arrangements with third parties claiming
infringement or otherwise to design around their patents. Any required license,
if available at all, may not be obtained on commercially reasonable terms. If we
do not obtain the licenses or are unable to design around the patent, we may be
delayed or prevented from pursuing the development of some of our product
candidates.

ITEM 2.   PROPERTIES

     We currently lease approximately 34,000 square feet of office and
laboratory space in Middleton, Wisconsin. This lease expires in January 2006. We
believe our facilities are adequate to meet our needs for the foreseeable
future.


ITEM 3.   LEGAL PROCEEDINGS

     We may be a defendant from time to time in actions arising out of our
ordinary business operations. There are no material legal proceedings pending.


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

     None.


EXECUTIVE OFFICERS OF THE REGISTRANT

     As of September 25, 2001, the executive officers of the Registrant are as
follows:

     NAME                         AGE    POSITION
     ----                         ---    --------

     Richard B. Mazess, Ph.D.     62     Chairman of the Board and Acting
                                         President and Chief Executive Officer
     Charles W. Bishop, Ph.D.     49     Executive Vice President - Research and
                                         Development
     Robert A. Beckman            47     Vice President-Finance
     Paul V. Peterson             49     Vice President-Sales and Marketing
     Michael J. Gara              51     Vice President - Corporate Development

     Richard B. Mazess, Ph.D., our founder, has served as a director since 1984
and Acting President and CEO since July 2001. Dr. Mazess served as President
from our inception in 1984 through February 1996 and has served as our Chairman
of the Board since February 1996. Dr. Mazess had been President and a director
of Lunar Corporation prior to the sale of Lunar in August 2000. Lunar developed
and sold x-ray and ultrasound bone densitometers for the diagnosis and
monitoring of osteoporosis and other metabolic bone diseases. Dr. Mazess became
Professor Emeritus of Medical Physics at the University of Wisconsin--Madison in
1985, and was on the faculty of the Department of Medical Physics from 1968 to
1985.

     Charles W. Bishop, Ph.D., joined us in 1987 as Project Director and was
named Vice President in 1990, and President and Chief Executive Officer in
February 1996. Dr. Bishop stepped down from his roles as President and CEO in
July 2001 and has served as our Executive Vice President - Research and
Development since that time. Dr. Bishop has been a director since 1989. Dr.
Bishop received a Ph.D. degree in Nutritional Biochemistry from Virginia
Polytechnic Institute and completed a four-year National Institutes of Health
Postdoctoral Fellowship in Vitamin D Biochemistry at the University of Wisconsin
- Madison.

     Robert A. Beckman has been a director since 1989 and was Vice
President-Finance for the period May 1996 through November 1996 and has again
served as Vice President - Finance since July 2001. Mr. Beckman had been Vice
President -Finance for Lunar Corporation from 1987 until the sale of Lunar in
August 2000.


                                       20
<PAGE>   21

     Paul V. Peterson joined us in April 1998 as Vice President - Sales and
Marketing. From 1973 to March 1998, Mr. Peterson served in a variety of sales
and marketing positions of increasing responsibility with Pharmacia & Upjohn,
Inc., a pharmaceutical company, where he last served as Director of Sales, U.S.
Peptide Hormones.

     Michael J. Gara joined us in April 2001 as Vice President - Corporate
Development. From 1999 to 2001, Mr. Gara was Director of Corporate Development
at Schwarz Pharma, a German pharmaceutical company. From 1993 to 1998, Mr. Gara
was with Senmed Medical Ventures as a Venture Projects Manager, responsible for
the analysis and funding of private equity financing for early stage
biotechnology companies. Prior to that, Mr. Gara held a number of positions in
pharmaceutical and finance companies where he was responsible for the
identification and commercialization of new pharmaceutical products.

     Officers are elected to serve, subject to the discretion of the Board of
Directors, until their successors are appointed.



                                       21
<PAGE>   22
                                     PART II


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

     Our common stock is quoted on the NASDAQ National Market of The NASDAQ
Stock Market under the symbol "BCII" and has been publicly traded since May
1996. The following table sets forth high and low sales prices as reported on
The NASDAQ Stock Market for fiscal years 2000 and 2001 as indicated.

                                                    HIGH     LOW
                                                    ----     ---
            FISCAL YEAR ENDED JUNE 30, 2000
                 First Quarter...................  $11.50  $ 8.75
                 Second Quarter..................   12.62    8.00
                 Third Quarter...................   26.75    9.62
                 Fourth Quarter..................   27.00   15.34
            FISCAL YEAR ENDING JUNE 30, 2001
                 First Quarter...................  $23.94  $18.00
                 Second Quarter..................   30.25   13.00
                 Third Quarter...................   18.38   14.75
                 Fourth Quarter..................   27.80   14.92

     As of June 30, 2001, approximately 200 shareholders of record held our
common stock.

     We have never declared or paid any cash dividends on our common stock, and
we do not plan on paying any in the near future. Any future determination as to
the declaration and payment of dividends will be at the discretion of our board
of directors and will depend on then existing conditions, including our
financial condition, results of operations, contractual restrictions, capital
requirements, business prospects and other factors our board of directors deem
relevant.


                                       22
<PAGE>   23
ITEM 6.   SELECTED FINANCIAL DATA

     The following table sets forth selected statements of operations data for
the years ended June 30, 1997, 1998, 1999, 2000 and 2001. Also included in this
table are our balance sheet data as of June 30, 1997, 1998, 1999, 2000 and 2001.
The financial data with respect to our statements of operations for the years
ended June 30, 1999, 2000 and 2001 and with respect to our balance sheets as of
June 30, 2000 and 2001 are derived from our financial statements that appear
elsewhere in this filing and that have been audited by our independent auditors.
The following statements of operations data for fiscal years ended June 30, 1997
and 1998 and balance sheet data as of June 30, 1997, 1998 and 1999 are derived
from our audited financial statements not included in this filing. You should
read the financial statement data in conjunction with the discussion in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements and the related notes to those
audited financial statements included elsewhere in this filing.



<TABLE>
<CAPTION>
                                                                        YEAR ENDED JUNE 30,
                                                   --------------------------------------------------------
                                                      1997       1998        1999        2000        2001
                                                   --------------------------------------------------------
                                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                <C>         <C>         <C>        <C>         <C>
STATEMENTS OF OPERATIONS DATA:
Revenues .......................................   $     39    $   --      $   --      $    385    $  5,997
Operating expenses:
     Cost of sales .............................         38        --          --           103       1,645
     Inventory write-off .......................       --          --          --           400         260
     Research and development ..................      2,885       3,932       3,455       4,048       4,556
     Marketing and administrative ..............        439         898       2,855       6,282       9,859
                                                   --------------------------------------------------------
          Total operating expenses .............      3,362       4,830       6,310      10,833      16,320
                                                   --------------------------------------------------------

Loss from operations ...........................     (3,323)     (4,830)     (6,310)    (10,448)    (10,323)
Interest income, net ...........................        529         340         533         656       1,309
Loss before income tax .........................     (2,794)     (4,490)     (5,777)     (9,792)     (9,014)
Income tax expense .............................       --          --          --           (13)       --
                                                   --------------------------------------------------------
Net loss .......................................   $ (2,794)   $ (4,490)   $ (5,777)   $ (9,805)     (9,014)
                                                   ========================================================
Net loss per common share-basic and diluted ....   $  (0.32)   $  (0.51)   $  (0.57)   $  (0.89)   $  (0.70)
                                                   ========================================================

Weighted average common shares outstanding .....      8,713       8,747      10,055      11,071      12,884

</TABLE>



<TABLE>
<CAPTION>
                                                                             JUNE 30,
                                                       --------------------------------------------------
                                                                          (IN THOUSANDS)
BALANCE SHEET DATA:                                      1997      1998       1999      2000        2001
                                                       --------------------------------------------------
<S>                                                    <C>       <C>        <C>        <C>        <C>
Cash and cash equivalents.........................     $ 8,532   $ 3,484    $ 7,314    $4,736     $1,843
Marketable securities.............................         --        --         --      4,972     15,080
Long-term securities..............................         --        --         --        --      14,424
Working capital...................................       8,103     3,073      7,956     9,229     20,786
Total assets .....................................       9,900     5,813     10,303    12,460     40,477
Total long-term liabilities.......................         --        --         --        --         --
Accumulated deficit...............................      (5,530)  (10,020)   (15,797)  (25,602)   (34,616)
Total shareholders' equity........................       9,420     5,122      9,717    11,083     38,098
</TABLE>



                                       23
<PAGE>   24

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

     The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and our financial statements and the related notes
included elsewhere in this filing.


OVERVIEW OF OUR BUSINESS

     Bone Care is a pharmaceutical company engaged in discovering, developing
and commercializing improved vitamin D-hormone therapies to treat secondary
hyperparathyroidism in patients with kidney (or renal) disease, osteoporosis and
other diseases including psoriasis and cancers of the prostate, breast and
colon. We were founded in 1984 as a subsidiary of Lunar Corporation, located in
Madison, Wisconsin, and were spun-off from Lunar in 1996.

     We licensed our first product, Hectorol, in 1987 from the University of
Wisconsin, a leading vitamin D research center. Hectorol, also known as
doxercalciferol, is a vitamin D replacement therapy approved by the FDA in two
formulations to treat secondary hyperparathyroidism in patients with end-stage
renal disease or ESRD. Hectorol is a safe and effective therapy for reducing
elevated levels of parathyroid hormone (PTH) in blood in the management of
secondary hyperparathyroidism, a disease characterized by excessive secretion of
PTH. Long-term hyperparathyroidism if left untreated can result in muscle
weakness, bone loss and fractures. Virtually all ESRD patients suffer from
secondary hyperparathyroidism. In June 1999, we obtained FDA approval for
Hectorol Capsules, and in October 1999, we began selling this orally
administered product in the United States. In April 2000, we obtained FDA
approval for Hectorol Injection, and in August 2000, we began selling this
intravenous product in the United States. We recently completed two Phase III
trials for Hectorol Capsules to treat secondary hyperparathyroidism in
pre-dialysis patients, and we plan to file with the FDA a supplemental New Drug
Application for this indication by December 2001. In addition, we also are
developing Hectorol and new vitamin D therapies to treat these and several other
diseases.

     From our inception in 1984 to October 1999, we generated minimal revenue
from operations and substantially all of our resources were dedicated to:

     -  the development, patenting, pre-clinical testing, and clinical trials of
        Hectorol Capsules and Hectorol Injection;

     -  the development of manufacturing processes for Hectorol Capsules and
        Hectorol Injection;

     -  pursuing United States regulatory approvals of Hectorol Capsules and
        Hectorol Injection;

     -  the sales and marketing associated with the launch of Hectorol Capsules
        and Hectorol Injection; and

     -  research and development and pre-clinical testing of other potential
        product candidates.

     We have lost money since inception and, as of June 30, 2001 have an
accumulated deficit of approximately $34.6 million. Our only sources of revenue
have been:

     -  revenues from the launch of Hectorol Capsules and Hectorol Injection.

     -  licensing fees associated with our early stage research collaborations,
        which licenses have since expired; and

     -  fees from conducting incidental laboratory assay services.

     We estimate that commercialization, regulatory compliance and sales efforts
associated with Hectorol Capsules and Hectorol Injection could require in excess
of $10 million prior to achieving profitable operating levels. Further,
development of LR-103, BCI-202 and other product candidates, or expansion of
Hectorol into other therapeutic areas, will require significant, time-consuming
and costly research and development, pre-clinical testing and extensive clinical
trials prior to submission of any regulatory application for commercial use. We
plan to continue pre-clinical testing of LR-103 and BCI-202 in order to begin
Phase I clinical trials on both product candidates within three years. The
pre-clinical efforts could cost approximately $3 million. In addition, we plan
to conduct Phase II, and possibly begin Phase III, clinical trials to expand the
approved indications for Hectorol. The cost of these trials could exceed $10
million through June 2002. We expect to incur substantial losses at least
through June 30, 2002 until revenues from the sale of Hectorol products are
sufficient to offset those expenses. The amount and timing of our operating
expenses will depend on many factors, including:

     -  the extent to which Hectorol Capsules and Hectorol Injection obtain
        market acceptance;

                                       24
<PAGE>   25

     -  the costs of sales and marketing activities associated with Hectorol
        Capsules and Hectorol Injection;

     -  the status of our research and development activities;

     -  the costs involved in preparing, filing, prosecuting, maintaining,
        protecting and enforcing our patent claims and other proprietary rights;

     -  our ability to maintain our current manufacturing capabilities through
        relationships with third parties or establish those capabilities
        internally;

     -  technological and other changes in the competitive landscape; and

     -  evaluation of the commercial viability or potential of product
        candidates.

     As a result, we believe that period-to-period comparisons of our financial
results are not necessarily meaningful.

RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED JUNE 30, 2001 COMPARED TO JUNE 30,
2000

          Total revenues increased to $5,997,282 for the year ended June 30,
2001, from $384,737 for the year ended June 30, 2000. This increase is primarily
the result of our launch of Hectorol Injection in August 2000 which generated
revenues of $5,022,456 during fiscal 2001. Hectorol Capsule revenues were
$974,826 for the year ended June 30, 2001, compared to $234,741 in the year
ended June 30, 2000.

          Bone Care began selling Hectorol Capsules in October 1999. Because
Hectorol Capsules were Bone Care's first product, Bone Care did not initially
have historical data to estimate returns and exchanges in accordance with SFAS
No. 48, "Revenue Recognition When Right of Return Exists." Revenues from
shipments of Hectorol Capsules and the related costs were deferred at the time
of shipment to wholesalers and included in the Statement of Operations at the
time the product was sold by these wholesalers to retail users of the product.
Bone Care's June 30, 2000 balance sheet includes deferred income of $63,539.
Effective October 1, 2000, Bone Care had sufficient experience to estimate
future product returns and began recording sales and the related costs of
Hectorol Capsules and Hectorol Injection based on shipments to its customers
reduced by the estimated future returns. Bone Care's June 30, 2001 balance sheet
includes $205,000, representing the estimated amount of future returns related
to Hectorol Capsules and Hectorol Injection.

          Gross margins on product revenues (excluding a $260,000 write-off in
fiscal 2001 and a $400,000 write-off in fiscal 2000) were $4,352,443, or 73% of
product revenues, for the fiscal year ended 2001 compared to $281,903 or 73% of
product revenues for the fiscal year ended June 30, 2000.

          We wrote off $260,000 of excess Hectorol Capsule inventory in fiscal
2001 and $400,000 in fiscal 2000 representing amounts which we estimated would
not be sold prior to the expiration date. In the fourth quarter of fiscal 2001,
the FDA agreed to lengthen the expiration period from three to four years. We
expect that the longer expiration period will have a positive effect on gross
margins for sales of Hectorol Capsules in fiscal 2002.

          Our research and development expenses were $4,556,061 in fiscal year
2001 and $4,048,608 in fiscal year 2000. The $507,453 increase was primarily due
to an increase in headcount and related salaries and benefits.

          Sales and marketing expenses increased $2,716,241 to $7,197,839 in
fiscal year 2001 from $4,481,598 in fiscal year 2000. $520,365 of the increase
related to the development of a marketing research database which analyzes
dialysis patient data associated with D-hormone treatments. The remainder of the
increase was a result of additional personnel and related expenses associated
with the launch of Hectorol Injection.

          General and administrative expenses increased $861,719 to $2,661,735
in fiscal year 2001 from $1,800,016 in fiscal year 2000. The increase was the
result of our overall growth and related expansion of infrastructure to support
Bone Care's increased commercial activities.

          Interest income increased $653,367 to $1,308,941 in fiscal year 2001
from $655,574 in fiscal year 2000. The increase was attributable to the receipt
of $35,772,800 net cash proceeds from the sales of common stock during December
2000 and January 2001.




                                       25
<PAGE>   26


RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED JUNE 30, 2000 COMPARED TO JUNE 30,
1999

     Revenues consisted of three elements in the fiscal year ended June 30,
2000.

     -  $234,741 of revenue for sales of Hectorol Capsules;

     -  $125,000 of revenue related to a letter of intent to license Hectorol to
        a foreign pharmaceutical company which was subsequently cancelled; and

     -  $24,996 of other revenue, including fees from incidental laboratory
        assay services.

     We had no revenue in the fiscal year ended June 30, 1999. We began selling
Hectorol Capsules in the United States in October 1999. Revenues from shipments
of Hectorol Capsules and the related costs are deferred at the time of shipment
to wholesalers and are recognized at the time the product is sold by these
wholesalers to retail users of the product. Revenues of $234,741 were recognized
in fiscal year 2000 and related cost of sales were $102,834. This resulted in
gross margin of $131,907. For the year ended June 30, 2000, the total sales
value of Hectorol Capsules shipped was $348,282 having a net cost of $152,836.
This resulted in deferred income of $63,539 representing the gross margin of our
product not yet sold to end users. We continue to evaluate data related to sales
exchanges, wholesaler inventories and retail sales. We believe we will have
enough data to reasonably estimate future returns when retail customers have
purchased from wholesalers a high percentage of our initial shipments or when
the product approaches its expiration date. We intend to recognize future
revenues and related costs upon shipment of Hectorol Capsules once a reasonable
estimate of future returns can be calculated.

     In the fourth quarter of fiscal year 2000, we wrote-off $400,000 of excess
inventory representing amounts which we estimate will not be sold prior to
expiration.

     In June 1999, we entered into a letter of intent with a pharmaceutical
company establishing terms under which exclusive rights to Hectorol would be
licensed to the potential foreign partner in one foreign country. In June 1999,
we received a payment of $125,000 upon signing a letter of intent. The payment
was recognized as revenue in December 1999 when negotiations terminated.

     Our research and development expenses were $4,048,608 in fiscal year 2000
and $3,455,401 in fiscal year 1999. These expenses increased in fiscal year 2000
due to increased early-stage research and increased regulatory and filing
compliance efforts associated with the manufacture and sale of Hectorol Capsules
and Hectorol Injection.

     Marketing and administrative expenses were $6,281,614 in fiscal year 2000
and $2,854,785 in fiscal year 1999 and increase of $3,426,829. Marketing
expenses increased $2,765,760, from $1,715,837 in fiscal year 1999 to $4,481,597
in fiscal year 2000. The increase resulted from the following:

     -  approximately $1.1 million due to increased sales and marketing
        personnel costs;

     -  approximately $800,000 due to increased promotional activities; and

     -  approximately $900,000 due to resources relating to sales and marketing
        activities. The department has grown from 3 to 42 employees.

     These expenses increased as we began marketing activities relating to the
launch of Hectorol Capsules and preparations to launch Hectorol Injection, which
we began selling in August 2000.

     Our growth has also resulted in the increase of administrative expenses.
Administrative expenses increased $661,069, from $1,138,948 in fiscal year 1999
to $1,800,017 in fiscal year 2000. The increase was the result of our overall
growth and our use of third-party consultants.

     Interest income increased to $655,574 in fiscal year 2000 from $533,571 in
fiscal year 1999. In October 1999, our cash balance increased approximately
$11.0 million as a result of receiving the net proceeds of a common stock
offering. The increase in interest income was due to the resulting higher level
of average cash balances.


                                       26
<PAGE>   27
LIQUIDITY AND CAPITAL RESOURCES

     In December 2000 and January 2001 we completed a public offering of
2,445,000 shares of common stock at a price of $16.00 per share. We received net
proceeds of approximately $35.8 million from the sale. In October 1999, we
completed a directed public offering of 1,229,058 shares of newly issued common
stock at a price of $9.02 per share. We received net proceeds of approximately
$11.0 million from the sale. In July 1998, we completed a directed public
offering of 1,326,000 shares of common stock at a price of $8.00 per share. We
received net proceeds of approximately $10.3 million from the sale.

     Net cash used in operating activities was $12,581,831 in fiscal year 2001,
$7,995,937 in fiscal year 2000 and $6,403,670 in fiscal year 1999. The cash used
by operating activities was used primarily to fund research and development as
well as marketing and commercialization efforts for Hectorol Capsules and
Hectorol Injection.

     We have experienced negative cash flows from operations since our inception
and do not anticipate generating sufficient positive cash flows to fund our
operations until we achieve, if ever, significant revenues from the sale of
Hectorol Capsules and Hectorol Injection. We have expended, and expect to
continue to expend in the future, substantial funds for our:

     -  research and development programs;

     -  pre-clinical and clinical testing;

     -  regulatory processes, including completion of FDA post-approval Phase IV
        commitments for Hectorol Capsules and Hectorol Injection;

     -  manufacturing expenses;

     -  sales and marketing programs; and

     -  other operating expenses.

     Cash, cash equivalents and short- and long-term marketable securities were
$31,346,903 at June 30, 2001 and $9,707,955 at June 30, 2000. Cash and cash
equivalents are currently invested primarily in short-term investment grade
United States government, municipal and corporate debt securities.

     Bone Care's capital requirements will depend on numerous factors, including
the progress of commercialization and marketing activities; the progress of its
research and development programs; the progress of preclinical and clinical
testing; the time and cost involved in obtaining regulatory approvals; the cost
of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights; competing technological and market developments;
changes and developments in Bone Care's existing licensing relationships and the
terms of any new collaborative, licensing, co-promotion or distribution
arrangements that Bone Care may establish; the cost of manufacturing preclinical
and clinical products; and other factors not within our control.

     Based upon our current plans, we believe that we will have sufficient funds
to meet our operating expenses and capital requirements for at least the next
two years. Thereafter, we may need to raise additional capital to fund our
operations; however, we do not have any specific plans to raise additional
capital. If we seek additional funds, equity offerings or other sources would be
considered. There is no assurance that such additional funds will be available
on acceptable terms, if at all. Should our plans not be consummated, we may have
to seek alternative sources of capital.

     At June 30, 2001, we had state tax net operating loss carryforwards of
approximately $33,972,000 and state research and development tax credit
carryforwards of approximately $262,000 which will begin expiring in 2009. We
also had federal net operating loss carryforwards of approximately $30,922,000
and research and development tax credit carryforwards of approximately
$1,245,000, which will begin expiring in 2012.


RECENT ACCOUNTING PRONOUNCEMENTS

     In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101,
Revenue Recognition (SAB No. 101), to provide guidance on the recognition,
presentation and disclosure of revenue in financial statements. SAB No. 101 does
not modify existing literature on revenue recognition. SAB No. 101 explains the
staff's general framework for revenue recognition. We believe we have conformed
to the guidance of SAB No. 101 in recognizing revenue related to the sales of
Hectorol.



                                       27
<PAGE>   28

     On June 30, 2001, the Financial Accounting Standards Board finalized
Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets." Under Statement No. 142 goodwill will no longer be
amortized. Instead, an assessment of fair value will be used to test for
impairment of goodwill on an annual basis or when circumstances indicate a
possible impairment. Bone Care will adopt Financial Accounting Standard No. 142
effective July 1, 2001.

IMPACT OF YEAR 2000

     We experienced no significant Year 2000 compliance issues, and Year 2000
issues did not have an effect on our business, results of operations or
financial condition.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our sales from inception to date have been made to United States customers,
and as a result, we have not had any exposure to factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
However, in future periods, we expect to sell in foreign markets, including
Europe and Asia. As our sales are made in United States dollars, a strengthening
of the United States dollar could make our products less competitive in foreign
markets.

     As of June 30, 2001, we held $15,079,575 of short-term marketable
securities and $14,424,490 of long-term marketable securities. The investments
have been made for investment (as opposed to trading) purposes. Interest rate
risk with respect to our investments is not significant as all such investments
are in U.S. dollar cash equivalents and are:

          -  short-term investments, which are by their nature less sensitive to
             interest rate movements, or

          -  have maturities in excess of one year and are expected to be held
             to maturity, thereby eliminating the risks associated with interest
             rate changes.




                                       28
<PAGE>   29


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          BONE CARE INTERNATIONAL, INC.

                          INDEX TO FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE



<TABLE>
<CAPTION>
                                                                                             PAGE
                                                                                             ----
<S>                                                                                          <C>
Report of Independent Public Accountants..................................................    30


Balance Sheets at June 30, 2000 and 2001..................................................    31


Statements of Operations for the Years Ended June 30, 1999, 2000 and 2001.................    32


Statements of Shareholders' Equity for the Years Ended June 30, 1999, 2000 and 2001.......    33


Statements of Cash Flows for the Years Ended June 30, 1999, 2000 and 2001.................    34


Notes to the Financial Statements.........................................................    35
</TABLE>





                                       29
<PAGE>   30
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To:  The Board of Directors and Shareholders of
     Bone Care International, Inc.:


     We have audited the accompanying balance sheets of Bone Care International,
Inc. (a Wisconsin corporation) as of June 30, 2001 and 2000, and the related
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended June 30, 2001. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bone Care International,
Inc. as of June 30, 2001 and 2000, and the results of its operations and its
cash flows for each of the three years in the period ended June 30, 2001 in
conformity with accounting principles generally accepted in the United States.

     Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index at item
14.1 is the responsibility of the Company's management and is presented for the
purposes of complying with the Securities and Exchange Commission's rules and is
not a required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.




ARTHUR ANDERSEN LLP

Milwaukee, Wisconsin
August 1, 2001


                                       30
<PAGE>   31
                          BONE CARE INTERNATIONAL, INC.

                                 BALANCE SHEETS

                             JUNE 30, 2000 AND 2001

<TABLE>
<CAPTION>
                                      ASSETS                                              2000           2001
                                                                                       -----------    -----------
<S>                                                                                    <C>            <C>
Current assets:
     Cash and cash equivalents....................................................     $ 4,735,780    $ 1,842,838
     Marketable securities........................................................       4,972,175     15,079,575
     Accounts receivable, net of allowance for doubtful accounts of $100,000                29,481      3,347,300
        in 2001
     Inventories  ................................................................         639,271      1,810,574
     Other current assets.........................................................         229,438      1,085,103
                                                                                       -----------    -----------
               Total current assets...............................................      10,606,145     23,165,390

Long-term securities .............................................................             --      14,424,490

Property, plant, and equipment--at cost:
     Leasehold improvements ......................................................         115,532        587,632
     Furniture and fixtures ......................................................         102,482        466,200
     Machinery and other equipment................................................         920,699      1,419,293
                                                                                       -----------    -----------
                                                                                         1,138,713      2,473,125
     Less--Accumulated depreciation and amortization...............................        692,525        970,120
                                                                                       -----------    -----------
                                                                                           446,188      1,503,005

Patent fees, net of accumulated amortization of $810,401 at June 30, 2000 and
   $988,466 at June 30, 2001......................................................         958,980      1,025,320
Excess of cost over fair value of net assets acquired, net of accumulated
   amortization of $911,304 at June 30, 2000 and $1,000,752 at June 30, 2001......         448,613        359,165
                                                                                       -----------    -----------
                                                                                       $12,459,926    $40,477,370
                                                                                       ===========    ===========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable.............................................................     $   400,949    $ 1,612,543
     Accrued liabilities--
          Accrued clinical study and research costs...............................         213,718        147,635
          Compensation payable....................................................         137,261        208,930
          Due to customers........................................................         409,655        135,102
          Other   ................................................................         151,617         70,055
     Allowance for sales returns .................................................             --         205,000
     Deferred income .............................................................          63,539            --
                                                                                       -----------    -----------
               Total current liabilities .........................................       1,376,739      2,379,265
Shareholders' equity:
     Preferred stock--authorized 2,000,000 shares of $.001 par value; none
        issued    ................................................................             --             --
     Common stock--authorized 28,000,000 shares of no par value; issued and
        outstanding 11,456,668 and 13,955,372 at June 30, 2000 and 2001,
        respectively..............................................................      11,393,883     11,393,883
     Additional paid-in capital ..................................................      25,299,954     61,240,197
     Accumulated deficit .........................................................     (25,602,090)   (34,616,341)
     Accumulated other comprehensive income (loss) ...............................          (8,560)        80,366
                                                                                       -----------    -----------
               Total shareholders' equity ........................................      11,083,187     38,098,105
                                                                                       -----------    -----------
                                                                                       $12,459,926    $40,477,370
                                                                                       ===========    ===========
</TABLE>


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



                                       31
<PAGE>   32



                          BONE CARE INTERNATIONAL, INC.

                            STATEMENTS OF OPERATIONS

                    YEARS ENDED JUNE 30, 1999, 2000 AND 2001


<TABLE>
<CAPTION>
                                                       1999            2000            2001
                                                   ------------    ------------    ------------
<S>                                                <C>             <C>             <C>
Revenues .......................................   $       --      $    384,737    $  5,997,282
Operating expenses:
     Cost of sales .............................           --           102,834       1,644,839
     Inventory write-off .......................           --           400,000         260,000
     Research and development ..................      3,455,401       4,048,608       4,556,061
     Marketing and administrative ..............      2,854,785       6,281,614       9,859,574
                                                   ------------    ------------    ------------
                                                      6,310,186      10,833,056      16,320,474
                                                   ------------    ------------    ------------
          Loss from operations .................     (6,310,186)    (10,448,319)    (10,323,192)
Interest income ................................        533,571         655,574       1,308,941
                                                   ------------    ------------    ------------
          Loss before income tax ...............     (5,776,615)     (9,792,745)     (9,014,251)
Income tax expense .............................          --             12,500            --
                                                   ------------    ------------    ------------
          Net loss .............................   $ (5,776,615)   $ (9,805,245)   $ (9,014,251)
                                                   ============    ============    ============

Net loss per common share--basic and diluted ...  $      (0.57)   $      (0.89)   $      (0.70)
                                                  ============    ============    ============
</TABLE>



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



                                       32
<PAGE>   33
                          BONE CARE INTERNATIONAL, INC.

                       STATEMENTS OF SHAREHOLDERS' EQUITY

                    YEARS ENDED JUNE 30, 1999, 2000 AND 2001


<TABLE>
<CAPTION>
                                                                                                      ACCUMULATED
                                                                          ADDITIONAL                     OTHER
                                           NUMBER OF       COMMON          PAID-IN     ACCUMULATED    COMPREHENSIVE
                                            SHARES         STOCK           CAPITAL       DEFICIT      INCOME (LOSS)       TOTAL
                                           ---------    ------------    ------------   ------------   --------------   ------------
<S>                                        <C>          <C>             <C>            <C>             <C>             <C>
Balance at June 30, 1998 ..............    8,808,956    $ 11,393,883    $  3,748,328   $(10,020,230)   $       --      $  5,121,981
     Issuance of shares under
       stock option plan ..............       38,440            --           101,499           --              --           101,499
     Issuance of common stock .........    1,326,000            --        10,269,934           --              --        10,269,934
     Net loss for the year ended
       June 30, 1999 ..................         --              --              --       (5,776,615)           --        (5,776,615)
                                          ----------    ------------    ------------   ------------    ------------    ------------
Balance at June 30, 1999 ..............   10,173,396      11,393,883      14,119,761    (15,796,845)           --         9,716,799
     Net loss for the year ended
       June 30, 2000 ..................         --              --              --       (9,805,245)           --        (9,805,245)
     Unrealized loss on marketable
       securities .....................         --              --              --             --            (8,560)         (8,560)
                                          ----------    ------------    ------------   ------------    ------------    ------------
     Comprehensive loss ...............         --              --              --             --              --        (9,813,805)
     Issuance of shares under
       stock option plan ..............       54,114            --           204,583           --              --           204,583
     Issuance of stock awards .........          100            --              --             --              --              --
     Issuance of common stock .........    1,229,058            --        10,975,610           --              --        10,975,610
                                          ----------    ------------    ------------   ------------    ------------    ------------
Balance at June 30, 2000 ..............   11,456,668      11,393,883      25,299,954    (25,602,090)         (8,560)     11,083,187
     Net loss for the year ended
       June 30, 2001 ..................         --              --              --       (9,014,251)           --        (9,014,251)
     Unrealized gain on marketable
       securities .....................         --              --              --             --            88,926          88,926
                                          ----------    ------------    ------------   ------------    ------------    ------------
     Comprehensive loss ...............         --              --              --             --              --        (8,925,325)
     Issuance of shares under
       stock option plan ..............       53,604            --           167,443           --              --           167,443
     Issuance of stock awards .........          100            --              --             --              --              --
     Issuance of common stock .........    2,445,000            --        35,772,800           --              --        35,772,800
                                          ----------    ------------    ------------   ------------    ------------    ------------
Balance at June 30, 2001 ..............   13,955,372    $ 11,393,883    $ 61,240,197   $(34,616,341)   $     80,366    $ 38,098,105
                                          ==========    ============    ============   ============    ============    ============
</TABLE>


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



                                       33
<PAGE>   34


                          BONE CARE INTERNATIONAL, INC.

                            STATEMENTS OF CASH FLOWS

                    YEARS ENDED JUNE 30, 1999, 2000 AND 2001



<TABLE>
<CAPTION>
                                                                                       1999            2000            2001
                                                                                   ------------    ------------    ------------
<S>                                                                                <C>             <C>             <C>
Cash flows from operating activities:
     Net loss ...............................................................      $ (5,776,615)   $ (9,805,245)   $ (9,014,251)
     Adjustments to reconcile net loss to net cash used in operating
        activities--
          Depreciation of fixed assets ......................................           155,376         224,646         431,154
          Amortization of patents ...........................................           157,439         323,715         246,128
          Amortization of goodwill ..........................................            89,448          89,448          89,448
          Inventory write-off ...............................................              --           400,000         260,000
          Loss on disposal of fixed assets ..................................              --              --             7,951
          Changes in assets and liabilities--
               Accounts receivable ..........................................              --           (29,481)     (3,317,819)
               Inventories ..................................................          (889,762)         79,991      (1,431,303)
               Other current assets .........................................           (59,855)       (119,421)       (855,665)
               Other noncurrent assets ......................................            25,132          50,133            --
               Accounts payable .............................................           143,101         198,263       1,211,594
               Accrued liabilities ..........................................          (372,934)        653,475        (350,529)
               Allowance for sales returns ..................................              --              --           205,000
               Deferred income ..............................................           125,000         (61,461)        (63,539)
                                                                                   ------------    ------------    ------------
                    Net cash used in operating activities ...................        (6,403,670)     (7,995,937)    (12,581,831)
                                                                                   ------------    ------------    ------------

Cash flows from investing activities:
     Purchase of marketable securities, net .................................              --        (4,980,735)    (10,018,474)
     Purchase of long-term securities, net ..................................              --              --       (14,424,490)
     Purchase of property, plant and equipment ..............................          (157,329)       (361,242)     (1,495,922)
     Patent fees ............................................................          (278,827)       (420,050)       (312,468)
                                                                                   ------------    ------------    ------------
                    Net cash used in investing activities ...................          (436,156)     (5,762,027)    (26,251,354)
                                                                                   ------------    ------------    ------------

Cash flows from financing activities:
     Proceeds from issuance of common stock, net ............................        10,567,504      10,975,610      35,772,800
     Proceeds from exercise of stock options ................................           101,499         204,583         167,443
                                                                                   ------------    ------------    ------------
                  Net cash provided by financing activities .................        10,669,003      11,180,193      35,940,243
                                                                                   ------------    ------------    ------------

                  Net increase (decrease) in cash and cash equivalents.......         3,829,177      (2,577,771)     (2,892,942)

Cash and cash equivalents at beginning of year ..............................         3,484,374       7,313,551       4,735,780
                                                                                   ------------    ------------    ------------

Cash and cash equivalents at end of year ....................................      $  7,313,551    $  4,735,780    $  1,842,838
                                                                                   ============    ============    ============
</TABLE>


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


                                       34
<PAGE>   35

                          BONE CARE INTERNATIONAL, INC.

                          NOTES TO FINANCIAL STATEMENTS

                          JUNE 30, 1999, 2000 AND 2001

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

     Bone Care International, Inc. (Bone Care) is engaged in discovering,
developing and commercializing improved D-hormone therapies. In June 1999, Bone
Care received approval from the U.S. Food and Drug Administration for an oral
formulation of Hectorol(R), and in May 2000, Bone Care received approval for the
intravenous formulation. Hectorol(R) is a synthetic D-hormone analog to manage
secondary hyperparathyroidism in kidney dialysis patients. Bone Care also
performs blood assays to determine the variety and level of D-hormone
metabolites in blood for both internal research and on behalf of third parties.

Revenue Recognition

     Bone Care began selling Hectorol Capsules in October 1999. Because Hectorol
Capsules were Bone Care's first product, Bone Care did not initially have
historical data to estimate returns and exchanges in accordance with SFAS No.
48, "Revenue Recognition When Right of Return Exists." Revenues from shipments
of Hectorol Capsules and the related costs were deferred at the time of shipment
to wholesalers and were recognized in the Statement of Operations at the time
the product was sold by these wholesalers to retail users of the product. Bone
Care's June 30, 2000 balance sheet includes deferred income of $63,539. Bone
Care now has sufficient experience to estimate future product returns. Effective
October 1, 2000, Bone Care began recording sales and the related costs of
Hectorol Capsules and Hectorol Injection based on shipments to its customers
reduced by the estimated future returns. Bone Care's June 30, 2001 balance sheet
includes a $205,000 accrual for the estimated amount of future returns related
to Hectorol Capsules and Hectorol Injection.

     License fees received by Bone Care are recognized as income when the
associated licensing obligations are satisfied.

Cash, Cash Equivalents and Marketable Securities

     Highly liquid investments with original maturities of ninety days or less
at the time of purchase are considered to be cash equivalents. Other highly
liquid marketable securities with remaining maturities of one year or less at
the balance sheet date are classified as marketable securities. Bone Care
classifies its investment securities as available for sale or held to maturity
based upon its intent and ability to hold certain securities to maturity. Those
investments classified as available-for-sale are carried in the balance sheet at
fair value, with unrealized gains and losses recorded within accumulated other
comprehensive income, net of tax. Those investments classified as held to
maturity are carried in the balance sheet at cost, net of unamortized discounts
or premiums. Dividends, interest income and amortization of discounts and
premiums are recorded in current earnings.

Inventory

     Inventory is stated at the lower of cost or market; cost is determined by
the first-in, first-out method. Inventory consists of:

                                              JUNE 30,
                                       -----------------------
                                         2000          2001
                                       --------    ----------
            Raw materials.......       $209,979    $  385,834
            Work-in-process.....         22,178       955,514
            Finished goods......        407,114       469,226
                                       --------    ----------
                                       $639,271    $1,810,574
                                       ========    ==========

     Bone Care periodically reviews its inventory carrying levels. During fiscal
2000 and 2001, Bone Care wrote-off $400,000 and $260,000, respectively, of
excess inventory representing amounts which Bone Care estimates will not be sold
prior to expiration.


                                       35

<PAGE>   36
                          BONE CARE INTERNATIONAL, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

                          JUNE 30, 1999, 2000 AND 2001


Depreciation and Amortization

     Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated service
lives. Straight-line and accelerated methods of depreciation are used for
financial statement and income tax reporting purposes, respectively. The cost of
property, plant and equipment are depreciated over the following estimated
useful lives:

                     ASSET CLASSIFICATION              ESTIMATED USEFUL LIFE
              -----------------------------------      ---------------------
              Machinery, furniture, and fixtures            5-7 years
              Leasehold improvements                   2.9-31.5 years

Intangible Assets

     The excess of cost over fair value of net assets acquired is being
amortized on a straight-line basis over a 15-year period. Legal costs incurred
to register patents are amortized over a period of up to 10 years. Bone Care
continuously evaluates whether events and circumstances have occurred that
indicate the remaining estimated useful life of goodwill or intangibles may
warrant revision or that the remaining balance of goodwill or intangibles may
not be recoverable. When factors indicate that goodwill or intangibles should be
evaluated for possible impairment, Bone Care assesses recoverability from
expected future operations using undiscounted cash flows. Impairment would be
recognized in operating results if a permanent diminution in value occurred.
Impairment would be measured using fair value.

     On June 30, 2001, the Financial Accounting Standards Board (FASB) finalized
Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets." Under Statement No. 142, existing goodwill at June 30, 2001,
will no longer be amortized. Instead, an assessment of fair value will be used
to test for impairment of goodwill on an annual basis or when circumstances
indicate a possible impairment.

     At June 30, 2001, the unamortized balance of goodwill was $359,165.
Effective July 1, 2001, Bone Care will discontinue amortization and begin using
the fair-value impairment test as indicated by Statement No. 142.

Research and Development Costs

     Materials, labor and overhead expenses related to research and development
projects are charged to operations as incurred.

Stock-based Compensation

     Stock-based compensation related to employees and non-employee directors is
recognized using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
thus there is no compensation expense for options granted with exercise prices
equal to the fair value of Bone Care's common stock on the date of the grant.

Net Loss Per Share

     Net loss per share is based on a weighted average number of shares of
common stock of 10,055,327, 11,070,667 and 12,883,632 for the years ended June
30, 1999, 2000 and 2001, respectively. Options to purchase common stock have
been excluded from the calculation of diluted earnings per share as the impact
of these options on diluted earnings per share would be antidilutive. The
excluded options totaled 548,638, 690,054 and 1,018,683 for the years ended June
30, 1999, 2000 and 2001, respectively.


                                       36
<PAGE>   37


                          BONE CARE INTERNATIONAL, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

                          JUNE 30, 1999, 2000 AND 2001

Income Taxes

     Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and credit carry forwards. Deferred tax assets and
liabilities are measured using enacted rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The amount of deferred tax assets is reduced to the amount of any tax benefits
that we expect to realize. Because Bone Care has not yet reached profitability
and future profitability cannot be assured, we have not recorded any value for
deferred tax assets.


Fair Value of Financial Instruments

The fair value of financial instruments, which consisted of cash and cash
equivalents, marketable securities, receivables, accounts payable and accrued
liabilities, approximated their carrying values at June 30, 2000 and 2001.

Concentration of Risk

     Bone Care had purchased the active pharmaceutical ingredient in Hectorol
from a single supplier that is no longer able to supply it to us. Management is
working toward qualifying two additional suppliers, the first of which we expect
to be approved for commercial production by October 2001. In addition, Bone Care
utilizes one supplier to formulate ampules, one supplier to formulate capsules
and another supplier to package Hectorol. However, management believes that
other suppliers, formulators, and vendors are available and could provide these
goods and services to Bone Care on comparable terms. A change in suppliers,
however, could cause a delay in manufacturing and a possible loss of sales,
which would affect operating results adversely.

     The sole manufacturer of Hectorol Injection received, following a routine
inspection of its manufacturing facility, a warning letter from the FDA in
September 2000 identifying general deviations from the FDA's current Good
Manufacturing Practices regarding manufacturing procedures, records and
training. The manufacturer has advised us that a response to the warning letter
has been submitted and that they are working directly with the FDA to resolve
the FDA's concerns, including those specifically related to Hectorol Injection.
We believe that our manufacturer is adequately addressing the FDA's concerns
relating to Hectorol Injection, although there can be no assurance that the FDA
will find that our manufacturer's responses and proposed corrective actions are
adequate or that the FDA will not take further action. If the FDA is not
satisfied with our manufacturer's responses and proposed corrective action, the
FDA could take regulatory actions against our manufacturer, including seizure of
products, injunction against further manufacture, recall or other actions that
could interrupt production of Hectorol Injection. Any such action would have a
material adverse effect on us.

     Three individual customers comprise $2,827,065, or 85% of the net
accounts receivable balance as of June 30, 2001. These same three customers
represented 66% of Bone Care's net revenues for the year ended June 30, 2001,
with the largest of the three companies representing 40% of net revenues.

Use of Estimates

     In preparing the financial statements, Bone Care's management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.


                                       37
<PAGE>   38


                          BONE CARE INTERNATIONAL, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

                          JUNE 30, 1999, 2000 AND 2001

Advertising Expenses

         Bone Care expenses advertising costs as incurred. Advertising expenses
were $849,947, $758,416 and $1,075,300 for years ended June 30, 1999, 2000 and
2001, respectively.

Marketable Securities

         Bone Care has adopted FASB Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Marketable securities are classified
as held-to-maturity when management has the positive intent and ability to hold
the securities to maturity. Held-to-maturity securities are classified as Long
Term Securities and stated at amortized cost. Marketable securities not
classified as held-to-maturity are classified as part of Current Assets and
carried at fair value.

(2)  FOREIGN LICENSE AGREEMENT

     In June 1999, Bone Care entered into a letter of intent with a
pharmaceutical company which established terms under which exclusive rights to
Hectorol(R) would be licensed to the potential foreign partner in one foreign
country. In fiscal 1999 Bone Care received a payment of $125,000 upon signing a
letter of intent. The payment was recognized as revenue in December 1999 when
negotiations terminated.

(3)  SHAREHOLDERS' EQUITY

     In December 2000, Bone Care completed a public offering of 2,300,000 shares
of common stock at a price of $16.00 per share. Bone Care received proceeds of
$33,657,000 from the sale, net of offering expenses. In January 2001, the
underwriters of the Company's December 2000 common stock offering exercised
their over-allotment option to acquire 145,000 additional shares of common stock
at a price of $16.00 per share. Bone Care received proceeds of $2,115,800 from
the sale, net of offering expenses.

     In October 1999, Bone Care completed a directed public offering of
1,229,058 shares of common stock at a price of $9.02 per share. The price per
share was approximately 7.5% below the average trading price of the previous
four weeks. Proceeds of $10,975,610, net of offering costs, were received from
the sale.

     In July 1998, Bone Care completed a directed public offering of 1,326,000
shares of common stock at a price of $8.00 per share. The price per share was
approximately 5% below the average trading price of the previous 30 days.
Proceeds of $10,269,934, net of offering costs, were received from the sale.
Certain directors of the Company purchased 276,000 of the shares sold.

(4)  STOCK OPTIONS

     Bone Care has granted options to key employees and directors under two
separate programs.

     The 1989 option plan is intended to qualify as an incentive stock option
plan within the meaning of Section 422 of the Internal Revenue Code of 1986.
Stock options to purchase shares of Bone Care's common stock granted under this
plan may be exercised, with certain exceptions in the case of the optionee's
death or retirement, only during employment. Stock options granted are
exercisable, during the optionee's lifetime, only by the optionee. The stock
options are all fully vested and expire 10 years from the granting date. In June
1990, the Board of Directors of Bone Care agreed not to issue any new options
under this plan, and except for a grant in March 1996 of replacement stock
options to purchase 78,970 shares in exchange for the forfeiture of an equal
amount of previously granted stock options, has not made any subsequent grants
under this plan.

     Under the second option program, titled the Bone Care International, Inc.
1996 Stock Option Plan, a total of 1,000,000 shares of common stock were made
available. This stock option plan was amended in November 2000 to increase the
number of available shares to 1,600,000, of which 390,117 remain available for
grant at June 30, 2001. Options granted under this program have an exercise
price equal to the Company's common stock trading price on the date of the grant
and vest over periods ranging from nine months to five years. The options will
expire 10 years from the granting date, or upon termination of employment.



                                       38
<PAGE>   39
                          BONE CARE INTERNATIONAL, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

                          JUNE 30, 1999, 2000 AND 2001


     A summary of stock option activity and related information is presented
below:





<TABLE>
<CAPTION>
                                                                                YEAR ENDED JUNE 30,
                                                   --------------------------------------------------------------------
                                                              1999                 2000                  2001
                                                   --------------------------------------------------------------------
                                                                WEIGHTED               WEIGHTED               WEIGHTED
                                                                AVERAGE                AVERAGE                AVERAGE
                                                                EXERCISE               EXERCISE               EXERCISE
                                                     OPTIONS     PRICE     OPTIONS      PRICE     OPTIONS      PRICE
                                                   ---------    --------  --------     ---------  -------    ----------
<S>                                                 <C>         <C>       <C>          <C>        <C>         <C>
     Outstanding--beginning of year............      527,778     $ 3.84    548,638      $ 4.71    690,054      $ 7.04
     Granted...................................       89,900       9.09    221,250       12.09    444,833       16.84
     Exercised.................................      (38,440)      2.64    (54,114)       3.78    (53,604)       3.12
     Terminated/canceled.......................      (30,600)      5.18    (25,720)       7.68    (62,600)      15.21
                                                    --------      -----    -------      ------  ---------     -------
     Outstanding--end of year..................      548,638     $ 4.71    690,054      $ 7.04  1,018,683     $ 11.03
                                                    ========     ======    =======      ======  =========     =======

     Exercisable at end of year................      202,550     $ 3.17    277,360      $ 3.80    384,550     $  4.89
                                                    ========     ======    =======      ======  =========     =======
     Weighted average fair value of options
        granted during year....................       $ 5.02                $ 6.99                 $ 9.76
                                                    ========               =======              =========
</TABLE>


     The options outstanding at June 30, 2001 have been segregated into five
ranges for additional disclosure as follows:

<Table>
<Caption>
                              OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
                      -------------------------------------         ------------------------
                         OPTIONS      WEIGHTED    WEIGHTED                         WEIGHTED
                       OUTSTANDING    AVERAGE      AVERAGE           EXERCISABLE   AVERAGE
       RANGE OF        AT JUNE 30,   REMAINING    EXERCISE           AT JUNE 30,   EXERCISE
    EXERCISE PRICES       2001      CONTRACTUAL     PRICE               2001        PRICE
    ---------------   -----------   -----------   --------           -----------   --------
<S>                   <C>           <C>           <C>                <C>           <C>
      $2.11-$3.00      220,400         4.6         $ 2.12             220,100      $ 2.12
      $5.75-$8.00      126,150         6.5           7.11              84,050        7.01
      $8.75-$13.00     258,300         8.3          10.07              73,100        9.38
     $15.20-$18.25     397,833         9.6          17.32               4,100       15.25
           $23.56       16,000         9.0          23.56               3,200       23.56

</Table>

     Bone Care has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its employee stock options, and as a result, no compensation
expense for stock options was recognized. For disclosure purposes only under the
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, the Black-Scholes option pricing model was used to
calculate the "fair value" of stock options using the following weighted-average
assumptions:

<Table>
<Caption>

                                                       1999        2000        2001
                                                    ---------   ---------   ---------
<S>                                                 <C>         <C>         <C>
       Risk-free interest rate...................         5.4%        6.1%        5.1%
       Expected market price volatility factor...        0.51        0.53        0.56
       Weighted average expected life............   6.0 years   6.0 years   6.0 years
</Table>

     No dividends are expected to be paid.



                                       39
<PAGE>   40
                          BONE CARE INTERNATIONAL, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

                          JUNE 30, 1999, 2000 AND 2001


     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Bone Care's
pro forma information follows:


<TABLE>
<CAPTION>
                                                    1999           2000            2001
                                              ------------    ------------    -------------
<S>                                           <C>             <C>             <C>
Net loss:
     As reported ..........................   $ (5,776,615)   $ (9,805,245)   $  (9,014,251)
     Pro forma ............................     (6,062,349)    (10,276,600)      (9,897,569)
Net loss per share--basic and diluted:
     As reported ..........................   $      (0.57)   $      (0.89)   $       (0.70)
     Pro forma ............................          (0.60)          (0.93)           (0.77)
</TABLE>


     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair market value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.


(5)  SHAREHOLDERS' RIGHTS PLAN AND PREFERRED STOCK

     In 1996, Bone Care adopted a Shareholders' Rights Plan. Under this plan,
each share of common stock has associated with it one preferred share purchase
right (a Right). Under certain circumstances, each Right would entitle holders
to purchase from Bone Care 1/200th of one share of Series A Junior Participating
Preferred Stock for the price of $12.50 per 1/200th of a share. The Rights do
not have voting or dividend rights and, until they become exercisable, have no
dilutive effect on per-share earnings. The Rights are not presently exercisable
and are transferable only with the related shares of common stock. The Board of
Directors has designated 140,000 shares of the Preferred Stock as Series A
Junior Participating Preferred Stock in connection with the Rights.


(6)  INCOME TAXES

     As of June 30, 2001, Bone Care has federal and state net operating loss and
R & D tax credit carryforwards expiring as follows:


<TABLE>
<CAPTION>
                                           FEDERAL                         STATE
                                   ------------------------       -------------------------
                                                      R&D                            R&D
                                        NOL         CREDIT             NOL         CREDIT
                                   -----------   ----------       -----------     ---------
<S>                                <C>           <C>              <C>             <C>
            2009...............    $      --     $     --         $   388,000     $ 24,000
            2010...............           --           --             596,000       24,000
            2011...............           --           --           1,146,000       18,000
            2012...............        322,000         --           3,061,000       24,000
            2013...............      2,726,000      219,000         4,682,000       34,000
            2014...............      4,376,000      275,000         5,667,000       42,000
            2015...............           --           --           9,202,000       56,000
            2016...............           --           --           9,230,000       40,000
            2019...............      5,518,000      190,000              --           --
            2020...............      8,998,000      273,000              --           --
            2021...............      8,982,000      288,000                           --
                                   -----------   ----------       -----------     --------
                      Total....    $30,922,000   $1,245,000       $33,972,000     $262,000
                                   ===========   ==========       ===========     ========
</TABLE>



                                       40
<PAGE>   41


                          BONE CARE INTERNATIONAL, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

                          JUNE 30, 1998, 1999 AND 2000


     Significant components of Bone Care's deferred tax assets at June 30, 2000
and 2001 are as follows:


<TABLE>
<CAPTION>
                                                                   2000          2001
                                                              -------------   ----------
<S>                                                           <C>              <C>
            Deferred tax assets:
                 Inventory reserves.........................  $     225,000    $ 362,000
                 Deferred income............................         58,000           --
                 Accrued liabilities........................         41,000       18,000
                 Allowance for doubtful accounts............            --        39,000
                 Other......................................         33,000       45,000
                 Federal net operating loss carryforward....      7,459,000   10,456,000
                 Federal R&D tax credit carryforward........        957,000    1,245,000
                 State net operating loss carryforward......      1,955,000    2,671,000
                 State R&D tax credit carryforward..........        222,000      262,000
                 Valuation allowance........................    (10,634,000) (14,727,000)
                                                             --------------  -----------
            Net deferred tax assets.........................        316,000      371,000
            Deferred tax liabilities:
                 Patents....................................       (316,000)    (371,000)
                                                             --------------  -----------
            Total deferred taxes............................ $        --     $     --
                                                             ==============  ===========
</TABLE>



     The net change in the valuation allowance for the years ended June 30, 2000
and 2001 was an increase of $4,299,000 and $4,093,000, respectively. Realization
of deferred tax assets is dependent upon generating sufficient taxable income
prior to the expiration of the related carryforward period. Management believes
it is more likely than not that such deferred tax assets may expire unused and,
accordingly, has established a valuation against them.

     Income tax expense of $12,500 for the year ended June 30, 2000 consists of
foreign taxes.


(7)  LEASE COMMITMENTS

     Bone Care has an operating lease for its office and laboratory facilities.
The previous lease expired in January 2001. Total lease expense was $110,000 for
each of the years ended June 30, 1999 and 2000. Bone Care has entered into a new
operating lease for office and laboratory facilities which commenced in January
2001 and terminates in January 2006. Lease payments under these leases include
utilities, operating costs, and property taxes. The new lease agreement provides
for lease payments which average $55,664 per month. Lease expense was $412,212
for the year ended June 30, 2001. Minimum future payments under these leases as
of June 30, 2001, are as follows:

                              2002..............      $ 640,923
                              2003..............        658,548
                              2004..............        676,659
                              2005..............        695,267
                              2006..............        352,349
                              thereafter........           --
                                                     ----------
                                        Total...     $3,023,746
                                                     ==========

(8)  PROFIT-SHARING PLAN

     Bone Care has established a 401(k) profit sharing plan covering
substantially all employees. Employer contributions to the plan are at the
discretion of the Board of Directors. Bone Care's policy is to fund profit
sharing plan contributions as they accrue. Profit sharing expense amounted to
$19,648, $22,710 and $61,205 for the years ended June 30, 1999, 2000 and 2001,
respectively.



                                       41
<PAGE>   42
                          BONE CARE INTERNATIONAL, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

                          JUNE 30, 1999, 2000 AND 2001


(9)  MARKETABLE SECURITIES

     Securities classified as Held-to-Maturity at June 30, 2001 include the
following:


                                      AMORTIZED COST    FAIR VALUE
                                      --------------    -----------
          Corporate bonds                $11,821,685    $11,945,264
          Government securities            2,402,805      2,405,125
          Certificates of deposit            200,000        200,000
                                         -----------    -----------
          Total                          $14,424,490    $14,550,389
                                         ===========    ===========


     Securities classified as Available-for-Sale at June 30, 2001 include the
following:

                                                                      UNREALIZED
                                      AMORTIZED COST    FAIR VALUE   GAIN (LOSS)
                                      --------------    -----------  -----------
          Corporate bonds                $11,708,120    $11,786,673     $76,557
          Government securities            3,093,094      3,096,902       3,809
          Certificates of deposit            196,000        196,000           0
                                         -----------    -----------     -------
          Total                          $14,997,214    $15,079,575     $80,366
                                         ===========    ===========     =======


     Scheduled maturities of marketable securities:

                                            AMORTIZED COST    FAIR VALUE
                                            --------------    ----------
          Due in year ended June 30th
                   2002                        $14,997,214    $15,079,575
                   2003 - 2006                  14,144,376     14,267,662
                   2007 - 2011                     280,114        282,727
                                               -----------    -----------
          Total                                $29,421,704    $29,629,964
                                               ===========    ===========

(10) QUARTERLY FINANCIAL DATA (UNAUDITED)

     Summary quarterly financial data for the years ended June 30, 2001 and 2000
are summarized as follows:


<TABLE>
<CAPTION>
                                                              FIRST     SECOND    THIRD      FOURTH
                                                            QUARTER    QUARTER   QUARTER    QUARTER
                                                            -------    -------   -------    -------
<S>                                                         <C>        <C>       <C>        <C>
                                                           (IN THOUSANDS EXCEPT FOR PER SHARE  DATA)
            2001:
                 Revenue................................    $ 1,363    $   567   $ 2,009    $ 2,058
                 Loss from operations...................     (1,866)    (2,869)   (2,752)    (2,836)
                 Net loss...............................     (1,728)    (2,690)   (2,221)    (2,375)
                 Net loss per share--basic and diluted..      (0.15)     (0.22)    (0.16)     (0.17)
            2000:
                 Revenue.................................   $  --      $   206   $    59    $   120
                 Loss from operations....................    (2,072)    (2,681)   (2,575)    (3,120)
                 Net loss................................    (1,983)    (2,491)   (2,375)    (2,956)
                 Net loss per share--basic and diluted...     (0.19)     (0.22)    (0.21)     (0.26)
</TABLE>




                                       42
<PAGE>   43

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

     On January 27, 2000, we dismissed KPMG LLP ("KPMG") as our independent
accountant. The decision to dismiss KPMG was approved by our board of directors
and was not separately voted on by the audit committee of our board of
directors. KPMG's reports on our financial statements for the years ended June
30, 1999 and 1998 did not contain an adverse opinion or a disclaimer of opinion,
and were not qualified or modified as to audit scope or accounting principles;
provided, however, that KPMG's report on our financial statements for the year
ended June 30, 1999 contained an explanatory paragraph relating to our ability
to continue as a going concern. In connection with the audits of our financial
statements for the years ended June 30, 1999 and 1998, we had no disagreements
with KPMG on matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of KPMG, would have caused them to make reference to such
disagreements in their report on our financial statements for such years. During
the period from July 1, 1999 through January 27, 2000, we had discussions with
KPMG related to the appropriate reserve for sales of Hectorol. At the time of
dismissal of KPMG, we had not resolved with KPMG the appropriate reserve amount
for our financial statements. We have authorized KPMG to respond fully to the
inquiries of the independent accountant we engaged to succeed KPMG. During the
years ended June 30, 1999 and 1998 and the period from July 1, 1999 through
January 27, 2000, there have been no reportable events (as defined in Regulation
S-K item 304(a)(i)(v)). KPMG furnished us with a letter addressed to the SEC
which was filed as an exhibit to our Form 8-K/A filed with the SEC on February
11, 2000 in which KPMG stated that during the period July 1, 1999 to January 26,
2000, in connection with KPMG's review of our second quarter financial
statements, KPMG had a disagreement with our management regarding the company's
method of recognizing revenue and the amount of revenue recorded. KPMG also
stated that they read the statements included in our Form 8-K filed with the SEC
with respect to this matter and that KPMG agreed with those statements, except
that (i) KPMG did not agree with the statement that on January 27, 2000 we
dismissed KPMG as our independent public accountant and that KPMG was notified
of its dismissal on January 26, 2000 and (ii) KPMG was not in a position to
agree or disagree with our statement that the decision to dismiss KPMG was
approved by our board of directors and was not separately voted on by the audit
committee of our board of directors.

     On February 14, 2000, we engaged Arthur Andersen LLP ("Arthur Andersen") as
our independent accountants. The decision to engage Arthur Andersen LLP was made
on the recommendation of the audit committee of our board of directors. During
the two most recent fiscal years and interim periods subsequent to June 30, 1999
and prior to engaging Arthur Andersen, neither we nor anyone on our behalf
consulted Arthur Andersen regarding the application of accounting principles to
a specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on our financial statements or, except as
described below, any matter that was either the subject of a disagreement (as
defined in Regulation S-K item 304(a)(i)(iv)) or a reportable event (as defined
in Regulation S-K item 304(a)(i)(v)). Prior to January 27, 2000 when we
dismissed KPMG as our independent accountants, we did not consult Arthur
Andersen regarding any matter which was the subject of a disagreement between us
and KPMG. On February 11, 2000, we began to consult Arthur Andersen concerning
the appropriate reserve amount for returns of Hectorol, and Arthur Andersen
assisted us in drafting a response filed February 15, 2000 with the SEC
concerning our reserve policy. We did not consult KPMG concerning these matters
following the dismissal of KPMG. We subsequently revised our revenue recognition
policy to defer revenues and the related costs at the time of Hectorol shipments
to wholesale distributors until the time the product is sold by these
wholesalers to retail users of the product. We filed amendments and restated our
Form 10-Q for the period ended December 31, 1999 on March 21, 2000 and April 5,
2000 to reflect this revision in our revenue recognition policy. In addition,
Arthur Andersen has subsequently re-audited the year ended June 30, 1999 and has
included their unqualified opinion thereon within this Form 10-K for the fiscal
year ended June 30, 2001.


                                    PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Bone Care incorporates by reference the information required by this Item
from Bone Care's definitive Proxy Statement for its 2001 Shareholders Meeting to
be held on November 15, 2001, ("Proxy Statement") which will be filed with the
Securities and Exchange Commission not later than 120 days after the end of our
fiscal year.


ITEM 11.   EXECUTIVE COMPENSATION

     Bone Care incorporates by reference the information required by this Item
from the Proxy Statement.


ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Bone Care incorporates by reference the information required by this Item
from the Proxy Statement.


                                       43
<PAGE>   44

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Bone Care incorporates by reference the information required by this Item
from the Proxy Statement.


                                     PART IV

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

(a) 1 and 2.   Financial statements and financial statement schedule

     Reference is made to the separate index to Bone Care's financial statements
and schedule contained on page 29 hereof.

     3.   Exhibits

     Reference is made to the separate exhibit index contained on page 46
hereof.

(b) Reports on Form 8-K

     No reports on Form 8-K were filed by Bone Care during the fourth quarter
ended June 30, 2001.



                                       44
<PAGE>   45

                                   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.


                                              BONE CARE INTERNATIONAL, INC.

                                              /s/  RICHARD B. MAZESS, PH.D.
                                              ----------------------------------
                                              By  Richard B. Mazess, Ph.D.
                                                  Acting President and
                                                  Chief Executive Officer


Date: September 25, 2001

     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 and on the dates indicated.


<TABLE>
<S><C>
/s/  RICHARD B. MAZESS, PH.D.         Acting President, Chief Executive Officer,         September 26, 2001
---------------------------------     Chairman and Director
Richard B. Mazess, Ph.D.              (Principal Executive Officer)


/s/  ROBERT A. BECKMAN                Vice President - Finance and Director              September 26, 2001
--------------------------------      (Principal Financial and Accounting Officer)
Robert A. Beckman


/s/  MARTIN BARKIN, M.D.              Director                                           September 26, 2001
---------------------------------
Martin Barkin, M.D.


/s/  CHARLES R. KLIMKOWSKI, CFA       Director                                           September 26, 2001
---------------------------------
Charles R. Klimkowski, CFA


/s/  GARY E. NEI                      Director                                           September 26, 2001
---------------------------------
Gary E. Nei


/s/  CHARLES W. BISHOP, PH.D.         Director                                           September 26, 2001
------------------------------------
Charles W. Bishop, Ph.D.
</Table>

                                       45
<PAGE>   46



                          BONE CARE INTERNATIONAL, INC.
                                INDEX TO EXHIBITS

EXHIBIT
NUMBER                                 DOCUMENT DESCRIPTION
-------                                --------------------

  3.1(a)    Restated Articles of Incorporation of Registrant(1) (Exhibit 3.1,
            Amendment No. 3 to Form 10/A)

  3.1(b)    Articles of Amendment of Registrant(2) (Exhibit 3.1(b))

  3.2       By-Laws of Registrant(3) (Exhibit 3.2)

  4.1       Shareholders Rights Agreement between Bone Care and Norwest Bank
            Minnesota, N.A.(1) (Exhibit 4.1, Amendment No. 3 to Form 10/A)

  4.2       First Amendment to Shareholder Rights Agreement between Bone Care
            and Norwest Bank Minnesota, N.A.(1) (Exhibit 4.2, Amendment No. 4 to
            Form 10/A)

  10.1*     Incentive Stock Option Plan(1) (Exhibit 10.4)

  10.2*     1996 Stock Option Plan(2) (Exhibit 10.5)

  10.3      Amended and Restated License Agreement effective as of June 8, 1998,
            by and between Bone Care and Draxis Health, Inc.(4) (Exhibit 10.6)

  10.4*     Form of Stock Option Agreement(2) (Exhibit 10.7)

  10.5      Agreement, effective as of May 1, 1987, by and between the Wisconsin
            Alumni Research Foundation and Bone Care (confidential material
            appearing in this document has been omitted and filed separately
            with the Securities and Exchange Commission in accordance with the
            Securities Act of 1933, as amended, and 17 C.F.R. 230.406 and 200.80
            promulgated thereunder. Omitted information has been replaced with
            asterisks).(2) (Exhibit 10.8)

  14.1      Schedule II - Valuation and Qualifying Accounts and Reserves

  23        Consent of Arthur Andersen LLP

  27        Financial Data Schedule

(1)  Incorporated by reference to exhibits filed with Registrant's Form 10
     Registration Statement (Registration Number 02-27854) filed under the
     Securities Exchange Act of 1934. Parenthetical references to exhibit
     numbers are to the exhibit numbers in the Form 10 or, if applicable, the
     amendment to the Form 10.

(2)  Incorporated by reference to exhibits filed with the Registrant's Form S-1
     Registration Statement (Registration Number 333-43923) filed under the
     Securities Act of 1933. Parenthetical references to exhibit numbers are to
     exhibit numbers in the Form S-1.

(3)  Incorporated by reference to the exhibits filed with the Registrant's
     Quarterly Report on Form 10-Q for the quarter ended December 31, 1996 (File
     No. 0-27854). Parenthetical references to exhibit numbers are to the
     exhibit numbers in the Form 10-Q.

(4)  Incorporated by reference to exhibits filed with the Registrant's Form
     S-1/A Registration Statement (Registration Number 333-43923) filed under
     the Securities Act of 1933. Parenthetical references to exhibit numbers are
     to exhibit numbers in the Form S-1/A.

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



                                       46