SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C.  20549
                             _______________________

                                    FORM 10-K
        FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
                      OF THE SECURITIES EXCHANGE ACT OF 1934

(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, 1998
                                        OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

             For the Transition Period from __________ to __________

                          Commission file number 0-27854

                           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.)

             One Science Court              
            Madison, Wisconsin                              53711              
           ---------------------                       ---------------
     (Address of principal executive offices)                (Zip Code)

       Registrant's telephone number, including area code:  (608) 236-2500
        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.  [ ]

     As of September 23, 1998, there were issued and outstanding 10,135,956
shares of Common Stock.  The aggregate market value of the voting and
non-voting common equity held by nonaffiliates of the registrant was
$61,445,312 as of September 23, 1998, 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 1998
Shareholders Meeting to be held on November 13, 1998 (Part III).


                     BONE CARE INTERNATIONAL, Inc.   

                               INDEX TO
                      ANNUAL REPORT ON FORM 10-K
                     For Year Ended June 30, 1998

                                                                 Page
Part I                                                            ----
Item 1         Business  . . . . . . . . . . . . . . . . . . . . . .  1
Item 2         Properties. . . . . . . . . . . . . . . . . . . . . . 21
Item 3         Legal Proceedings . . . . . . . . . . . . . . . . . . 21
Item 4         Submission of Matters to a Vote of Security Holders . 21
Part II
Item 5         Market for Registrant's Common Equity and
               Related Stockholder Matters . . . . . . . . . . . . . 21
Item 6         Selected Financial Data . . . . . . . . . . . . . . . 22
Item 7         Management's Discussion and Analysis of Financial
               Condition and Results of Operations . . . . . . . . . 23
Item 7A        Quantitative and Qualitative Disclosures about
               Market Risk . . . . . . . . . . . . . . . . . . . . . 25
Item 8         Financial Statements and Supplementary Data . . . . . 26
Item 9         Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure . . . . . . . . . 38
Part III
Item 10        Directors and Executive Officers
               of the Registrant . . . . . . . . . . . . . . . . . . 38
Item 11        Executive Compensation. . . . . . . . . . . . . . . . 38
Item 12        Security Ownership of Certain
               Beneficial Owners and Management. . . . . . . . . . . 39
Item 13        Certain Relationships and Related Transactions. . . . 39
Part IV
Item 14        Exhibits, Financial Statement Schedules,
               and Reports on Form 8-K . . . . . . . . . . . . . . . 39

Index to Consolidated Financial Statements and
  Financial Statement Schedule . . . . . . . . . . . . . . . . . . . 40

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . 42

                                PART I

ITEM 1.  BUSINESS
         --------  
General
-------
  Bone Care International, Inc. (Bone Care or Company) is a leader in
the discovery and development of improved vitamin D-hormone (D-hormone)
therapies.  D-hormones have a key role in secondary hyperparathyroidism
leading to metabolic bone diseases in several patient populations,
including end stage renal disease (ESRD), pre-dialysis, and osteoporosis
patients.  D-hormones also have a role in certain hyperproliferative
diseases, including prostate, breast, and colon cancers, and psoriasis.
In March 1998, the Company filed a New Drug Application (NDA) with the
United States Food and Drug Administration (FDA) for an oral formulation
of its lead product candidate, one-alpha D2 (Hectorol(trademark)), a
synthetic D-hormone analog for the treatment of secondary
hyperparathyroidism associated with ESRD.  The Company filed the NDA
based primarily on the results of two pivotal Phase 3 trials which were
completed in August 1997 and involved 138 patients at 17 study centers
in the United States.  In these trials, an oral formulation of
Hectorol(trademark) effectively controlled moderate to severe secondary
hyperparathyroidism with no clinically important side effects in ESRD
patients undergoing hemodialysis.

  In February 1998, the Company completed two pivotal Phase 3 trials
with an intravenous formulation of Hectorol(trademark) for the treatment
of secondary hyperparathyroidism associated with ESRD.  Data from these
trials are consistent with the results obtained from the completed Phase
3 trials for an oral formulation of Hectorol(trademark).  The Company
intends to submit an NDA to the FDA for this intravenous formulation of
Hectorol(trademark)in October 1998.  The Company is currently recruiting
and enrolling patients for two pivotal Phase 3 trials of a second oral
formulation of Hectorol(trademark) for the treatment of secondary
hyperparathyroidism in pre-dialysis patients.  The Company is also
planning to conduct Phase 2 trials for the use of an oral formulation of
Hectorol(trademark) for the treatment of osteoporosis associated with
secondary hyperparathyroidism.

  Secondary hyperparathyroidism is a chronic disease where the
parathyroid glands secrete excessive quantities of parathyroid hormone
(PTH) in response to reduced kidney function or kidney failure.
Secondary hyperparathyroidism, if left untreated, leads to debilitating
metabolic bone diseases, including osteoporosis, osteomalacia, rickets
and renal osteodystrophy, as well as increased risk of fractures and
severe bone pain.  Moderate to severe secondary hyperparathyroidism is
associated with advanced renal insufficiency and ESRD found in pre-
dialysis and dialysis patients.  Mild secondary hyperparathyroidism is
associated with modest reductions in renal function often found in
osteoporosis patients.  According to the United States Health Care
Financing Administration (HCFA), in 1997, there were approximately
230,000 ESRD patients in the United States.  In addition, based on
published reports, the Company estimates that in the United States in
1997 there were at least 600,000 pre-dialysis patients and at least
2,000,000 patients with osteoporosis associated with secondary
hyperparathyroidism.

  Based on the role of D-hormones in controlling cellular growth and
differentiation, the Company is also developing D-hormone therapies to
treat certain hyperproliferative diseases.  The Company is currently
completing a Phase 1 trial of an oral formulation of Hectorol(trademark)
to treat terminal prostate cancer.  The Company is also investigating
the use of other D-hormones and analogs for the treatment of prostate,
breast and colon cancers, and psoriasis.

  Although currently marketed D-hormone therapies have demonstrated
efficacy in treating secondary hyperparathyroidism and certain
hyperproliferative diseases, the systemic (oral or intravenous)
administration of those products frequently produces toxic side effects
at doses required for therapeutic effect.  As a result, the widespread
and effective use of systemic D-hormone therapies has been limited.
Through the Company's collaborations with D-hormone research
institutions, as well as its internal research and development efforts,
the Company has developed substantial expertise in the area of D-hormone
chemistry and biochemistry.  The Company has leveraged that expertise to
develop a portfolio of D-hormones and analogs which the Company believes
possess improved safety and efficacy profiles compared to existing D-
hormone therapies.


Scientific Overview
-------------------
  D-hormones have important roles in parathyroid function, calcium and
phosphorus metabolism, and cellular growth and differentiation.  D-
hormones are produced in biological processes primarily involving
vitamin D3 or vitamin D2.  Vitamin D3 is produced in human skin during
exposure to sunlight.  Vitamin D2 is produced in plants during exposure
to sunlight and is available through dietary sources.  Vitamins D3 and
D2 (collectively - vitamin D) are metabolized into three different D-
hormones in two sequential steps involving the liver and then the
kidneys.  Vitamin D3 is metabolized into the D-hormone one-alpha,25-
dihydroxyvitamin D3 (calcitriol).  Vitamin D2 is metabolized into the two
D-hormones, one-alpha,25-dihydroxyvitamin D2 and one-alpha,24-
dihydroxyvitamin D2.  In diseased or aged kidneys, sufficient quantities
of D-hormones often cannot be produced.

  Production of D-hormones by the kidneys is stimulated by PTH, which
is secreted into the bloodstream by the parathyroid glands.  D-hormone
receptors located in the parathyroid glands monitor blood levels of D-
hormones.  The parathyroid glands increase PTH secretion markedly when
blood levels of D-hormones are low and decrease PTH secretion as blood
levels of D-hormones rise.  After secretion from the parathyroid glands,
PTH circulates in the blood to the kidneys where it activates an enzyme
which produces D-hormones.

  D-hormones increase blood levels of calcium and phosphorus, the key
components of bone, by stimulating the small intestine to absorb these
minerals from ingested food and by stimulating the kidneys to reabsorb
calcium from urine.  D-hormones also stimulate osteoblasts (bone-
building cells) to increase the deposition of calcium and phosphorous in
bone.  When blood levels of D-hormones are low, intestinal absorption of
calcium and phosphorus and kidney reabsorption of calcium are reduced,
leading to hypocalcemia (low blood calcium).  Bone formation is also
reduced.  PTH normalizes blood levels of calcium and phosphorus and bone
formation by stimulating the increase of D-hormone production.  However,
when D-hormone production is insufficient, as in renal disease, PTH
normalizes blood calcium and phosphorus by causing the release of
calcium and phosphorus from bone into the blood.

  In progressive renal disease, the kidneys become unable to produce
sufficient quantities of D-hormones, leading to secondary
hyperparathyroidism and associated bone disease.  Secondary
hyperparathyroidism is a chronic disease in which the parathyroid glands
secrete excessive quantities of PTH.  Elevated blood levels of PTH lead
to excessive release of calcium and phosphorus from bones, causing
debilitating metabolic bone diseases, such as osteoporosis,
osteomalacia, rickets and renal osteodystrophy.  A recent published
report concluded that, compared to the general population, the risk of
hip fracture is 3.5 times higher in the United States population of ESRD
patients.  Secondary hyperparathyroidism and associated bone disease can
be controlled, and possibly prevented or reversed, by D-hormone
replacement therapy.

  In addition to having a role in parathyroid function, D-hormones have
a role in controlling the normal growth and differentiation of skin,
prostate, breast, and colon cells, all of which contain D-hormone
receptors.  Psoriasis, a condition in which skin cells grow too rapidly
and remain immature (undifferentiated), can be effectively managed with
topical D-hormone therapy.  Likewise, clinical and preclinical research
suggests that the uncontrolled cell growth in prostate, breast and colon
cancers can be managed by D-hormone therapy.

  Calcitriol is approved for systemic treatment of secondary
hyperparathyroidism associated with ESRD and/or metabolic bone diseases
in the United States and Europe.  Paracalcitol is approved for systemic
treatment of secondary hyperparathyroidism associated with ESRD in the
United States.  Alfacalcidol, a synthetic analog of calcitriol, is
approved for oral treatment of secondary hyperparathyroidism associated
with ESRD and/or metabolic bone diseases in Europe.  Calcitriol and two
synthetic analogs, tacalcitol and calcipotriol, are approved in Europe
for the topical treatment of psoriasis.  In addition, calcipotriol has
been approved for topical treatment of psoriasis in the United States.

  Although currently marketed D-hormone therapies have demonstrated
efficacy, systemically administered D-hormone  therapies frequently
cause toxic side effects at doses required for therapeutic effects.  The
principal side effects observed are hypercalcemia (high blood calcium),
hyperphosphatemia (high blood phoshorus), and hypercalciuria (high urine
calcium), all of which are caused by excessive intestinal absorption of
calcium and phosphorus.  The most serious of these side effects is
hypercalcemia, which increases the risk of calcification of soft
tissues, including the heart, arteries, and kidneys, and can cause
cardiac arrest.  In addition, hypercalcemia can lead to other
complications including gastrointestinal problems and mental disorders
including depression.  Hyperphosphatemia directly stimulates secretion
of PTH, thereby exacerbating secondary hyperparathyroidism.
Hypercalciuria can increase the risk of calcification of the kidneys and
the formation of kidney stones, and can hasten kidney failure.  In order
to control these side effects, patients often must be temporarily or
permanently withdrawn from current D-hormone therapies.  As a result of
these side effects, the widespread and effective use of currently
marketed oral or intravenous D-hormone therapies has been limited.


Products Under Development
--------------------------
  The Company is developing D-hormone therapies which the Company
believes have improved safety and efficacy profiles.  The following
table summarizes the Company's product candidates by indication and
development status.  



INDICATION         PRODUCT CANDIDATE              DEVELOPMENT STATUS(1)       
----------         -----------------              ---------------------

Secondary Hyperparathyroidism
-----------------------------
  ESRD             Hectorol(trademark) (oral)         NDA filed March
                                                      1998

                   Hectorol(trademark) (intravenous)  Phase3. 
                                                      completed

  Pre-dialysis     Hectorol(trademark) (oral)         Phase 3

  Osteoporosis     Hectorol(trademark) (oral)         Phase 2

Hyperproliferative Diseases
---------------------------
  Advanced
    Prostate
    Cancer         Hectorol(trademark) (oral)         Phase 1
 
  Advanced
    Prostate,
    Breast and
    Colon Cancers  LR-103    (oral)                   Preclinical

  Psoriasis        Lead compound (oral)               Research
 ...............................  
(1) "Research" indicates discovery and initial synthetic chemistry.
    "Preclinical" indicates formulation, pharmacology and toxicity
testing in animals.
    "Phase 1" indicates initial clinical testing in humans to establish
    safety.
    "Phase 2" indicates further clinical testing in humans to establish
    efficacy.
    "Phase 3" indicates pivotal, well-controlled clinical testing to
    establish safety and efficacy.


Secondary Hyperparathyroidism
-----------------------------
    Overview

  Hyperparathyroidism refers to conditions in which the parathyroid
glands secrete excessive quantities of PTH into the bloodstream.  In
primary hyperparathyroidism, one or more of the four parathyroid glands
fails to properly regulate PTH secretion, usually due to one or more
tumors in the glands.  In secondary hyperparathyroidism, the parathyroid
glands secrete excessive quantities of PTH in response to reduced kidney
function or kidney failure.  Mild secondary hyperparathyroidism is
associated with modest reductions in renal function and contributes to
osteoporosis.  Moderate to severe secondary hyperparathyroidism is
associated with advanced renal insufficiency and ESRD which are found in
pre-dialysis and dialysis patients.

Hectorol(trademark) for Secondary Hyperparathyroidism Associated with ESRD
--------------------------------------------------------------------------
  The Company is developing oral and intravenous formulations of
Hectorol(trademark) as treatments for secondary hyperparathyroidism
associated with ESRD.  Hectorol(trademark) is a synthetic D-hormone
analog derived from vitamin D2.  After oral or intravenous
administration, Hectorol(trademark) is metabolized by the liver into the
two D-hormones naturally produced from vitamin D2, without being
metabolized by the kidneys.  Based on data obtained from its clinical
trials, the Company believes that Hectorol(trademark) is as active as
currently marketed D-hormone replacement therapies and has an improved
safety profile.  The Company believes that the improved safety profile
of Hectorol(trademark) enables it to be more consistently administered
to patients at higher doses than currently marketed D-hormone
replacement therapies, resulting in improved control of secondary
hyperparathyroidism.

  Secondary hyperparathyroidism is most severe in patients with ESRD.
According to HCFA, there were approximately 230,000 ESRD patients in the
United States at the end of 1997.  This patient population, sustained
primarily by renal dialysis, increased by approximately 7% in 1997.  In
ESRD there is extensive, irreversible loss of cells of the proximal
nephron, the site in the kidneys where D-hormones are produced.
Impaired production of D-hormones leads to low blood levels of D-
hormones.  Low blood levels of D-hormones cause the small intestine to
absorb less dietary calcium and the kidneys to reabsorb less calcium
from urine, often resulting in hypocalcemia.  Low blood levels of D-
hormones also decrease osteoblastic activity, causing reduced bone
formation.  The parathyroid glands respond to low blood levels of D-
hormones and calcium by secreting PTH into the bloodstream.  Ordinarily,
PTH stimulates production of D-hormones by the kidneys.  However, in
ESRD the kidneys cannot respond to PTH stimulation.  Without increased
D-hormone production, the parathyroid glands secrete escalating
quantities of PTH.  Chronically elevated and rising blood levels of PTH
stimulate a prolonged release of calcium and phosphorus from bone,
leading to debilitating metabolic bone diseases, including osteoporosis,
osteomalacia, rickets and renal osteodystrophy.  Advanced bone disease
is associated with an increased risk of fracture and is often
accompanied by severe bone pain, most commonly arising in the lower
back, hips, legs and joints.

  Moderate to severe secondary hyperparathyroidism is exacerbated by
hyperphosphatemia.  Phosphorus derived from dietary sources (principally
meat and dairy products) accumulates in the blood due to its
insufficient elimination by dysfunctional kidneys.  Excessive blood
phosphorus directly inhibits the production of D-hormones and stimulates
the parathyroid glands to secrete PTH.  To control or reduce blood
phosphorus, nephrologists routinely encourage their patients to adhere
to low phosphorus diets and to ingest calcium carbonate or calcium
acetate tablets with meals.  These calcium preparations bind dietary
phosphorus, reducing its absorption by the intestine and thereby helping
to lower blood phosphorus levels.  Calcium-based phosphate binders,
however, promote hypercalcemia in patients receiving D-hormone
replacement therapies.

  D-hormone replacement is standard therapy for secondary
hyperparathyroidism associated with ESRD.  The goals of D-hormone
replacement therapy are (1) to normalize blood calcium levels, (2) to
control (normalize or reduce) blood PTH levels and (3) to treat or
prevent metabolic bone diseases.  Treating and preventing metabolic bone
diseases is increasingly important as improvements in kidney dialysis
increase the life expectancy of ESRD patients.  D-hormone replacement
therapies currently marketed in the United States and Europe for the
treatment of secondary hyperparathyroidism associated with ESRD are
Rocaltrol(trademark) (oral calcitriol), Calcijex(trademark) (intravenous
calcitriol) and Zemplar(trademark) (intravenous paracalcitol).  The
Company estimates that total sales of these products in the United
States in 1997 were approximately $155 million.  Alfacalcidol, an oral
synthetic analog of calcitriol, is marketed under numerous brand names
in Europe.

  Oral and intravenous calcitriol and oral alfacalcidol have limited
effectiveness for treating secondary hyperparathyroidism associated with
ESRD because they frequently cause toxic side effects (hypercalcemia and
hyperphosphatemia) at doses required for therapeutic effect.  Episodes
of hypercalcemia and/or hyperphosphatemia are unpredictable and force
temporary or permanent interruptions in therapy, resulting in less
effective control of PTH secretion.  Furthermore, in an effort to
control blood phosphorus and reduce episodes of hyperphosphatemia,
calcium-based phosphate binders are often administered at higher doses.
However, calcitriol and alfacalcidol greatly stimulate intestinal
absorption of calcium derived from those binders, increasing blood
calcium levels and the frequency of episodes of hypercalcemia.  In an
attempt to mitigate the negative effects of calcium-based binders,
nephrologists temporarily switch their patients from calcium-based
binders to aluminum-based binders.  However, aluminum from these
alternate binders is readily absorbed through the intestine and
accumulates in bone, potentially causing low turnover bone disease.
When calcitriol and alfacalcidol are administered in lower, less toxic
doses, their effectiveness in controlling secondary hyperparathyroidism
decreases.  Removal of the parathyroid glands is standard treatment for
patients with severe secondary hyperparathyroidism whose disease cannot
be managed with D-hormone replacement therapy.  However, removal of the
parathyroid glands does not cure existing metabolic bone disease or the
underlying deficiency of D-hormones.

  The Company is developing oral and intravenous formulations of
Hectorol(trademark) as treatments for secondary hyperparathyroidism
associated with ESRD.  The oral product is a soft gelatin capsule
designed to be administered by medical professionals to hemodialysis
patients in the clinic, or self-administered daily by peritoneal
dialysis patients at home.  The Company's intravenous product is a
sterile aqueous solution designed to be administered to patients only at
hemodialysis.  The Company is developing the oral formulation in advance
of the intravenous formulation based primarily on the Company's
expectation that the current fee-for-service reimbursement plan, which
favors the use of an intravenous formulation of Hectorol(trademark),
will be replaced with a capitated reimbursement plan which favors the
less costly oral formulation of Hectorol(trademark).  Further, the
Company is developing an oral formulation of Hectorol(trademark) to
treat secondary hyperparathyroidism in pre-dialysis and osteoporosis
patients where intravenous therapy is inappropriate.


Oral Hectorol(trademark)for Secondary Hyperparathyroidism Associated with ESRD.
------------------------------------------------------------------------------
  In November 1997, the Company announced results from its two pivotal
Phase 3 trials with an oral formulation of Hectorol(trademark) for the
treatment of secondary hyperparathyroidism associated with ESRD.  The
trials, which were completed in August 1997, involved 138 patients at 17
study centers in the United States.  Each trial consisted of an 8-week
washout period, followed sequentially by a 16-week period in which
patients received open-label treatment with oral Hectorol(trademark) at
hemodialysis, and an 8-week period in which the patients were assigned
in random, double-blinded fashion, to continued treatment with either
oral Hectorol(trademark) or placebo.  The study endpoint for efficacy
was the observed change in blood PTH levels from post-washout baseline
to the end of each treatment period.  Endpoints for safety were the
corresponding changes in blood levels of calcium and phosphorus.  A
total of 138 patients began treatment with oral Hectorol(trademark), of
whom 110 completed the full 24 weeks of treatment.  Dosages were
individually titrated with patients initially receiving 10 mcg per
hemodialysis and thereafter between 0 mcg and 20 mcg per dose three
times per week.  After 16 weeks of open-label treatment, observed blood
PTH reductions exceeded 50% in both trials and were clinically and
statistically significant (p<0.01).  In addition, blood PTH reached
target levels in 83% of treated patients during the 16-week open-label
treatment period.  At the end of the eight additional weeks of blinded
treatment, patients receiving oral Hectorol(trademark) had mean blood
PTH levels approximately 50% below those receiving placebo.  Differences
in mean blood PTH levels between oral Hectorol(trademark) and placebo
treatments were clinically and statistically significant (p<0.01).  In
both studies, oral Hectorol(trademark) normalized blood calcium and did
not cause clinically meaningful increases in blood phosphorus.  Side
effects attributable to oral Hectorol(trademark) administration, such as
hypercalcemia and hyperphosphatemia, were infrequent and clinically
insignificant.  The Company believes these trials demonstrated that oral
Hectorol(trademark) is a safe and effective therapy for secondary
hyperparathyroidism associated with ESRD and that the results compare
favorably with efficacy and safety data reported in published controlled
trials involving calcitriol and alfacalcidol.  The Company filed an NDA
with the FDA in March 1998 for oral Hectorol(trademark) as a treatment
for secondary hyperparathyroidism associated with ESRD.  There can be no
assurance that oral Hectorol(trademark) will ultimately be approved for
marketing by the FDA for such indication.


Intravenous Hectorol(trademark) for Secondary Hyperparathyroidism Associated 
----------------------------------------------------------------------------
with ESRD. 
---------
  In February 1998, the Company completed two pivotal Phase 3 trials with
intravenous  Hectorol(trademark) for the treatment of secondary
hyperparathyroidism associated with ESRD.  Each trial consisted of an 8-
week washout period, followed by a 12-week period in which patients
received open-label treatment with intravenous Hectorol(trademark) at
hemodialysis.  The study endpoint for efficacy was the observed change
in blood PTH levels from post-washout baseline to the end of the
treatment period.  Endpoints for safety were the corresponding changes
in blood levels of calcium and phosphorus.  These trials commenced with
70 patients who had completed the Phase 3 trials for oral
Hectorol(trademark)  and concluded with 67 patients completing the full
12-week treatment period.  Data from these trials are consistent with
the results obtained from the completed Phase 3 trials for oral
Hectorol(trademark).  The Company intends to submit a second NDA to the
FDA in October 1998 for intravenous Hectorol(trademark) as a treatment
for secondary hyperparathyroidism associated with ESRD.  There can be no
assurance that intravenous Hectorol(trademark) will ultimately be
approved for marketing by the FDA for such indication.


Hectorol(trademark) for Secondary Hyperparathyroidism in Pre-Dialysis Patients
------------------------------------------------------------------------------
  The Company is developing oral Hectorol(trademark) as a treatment for
secondary hyperparathyroidism in pre-dialysis patients.  Chronic renal
disease is characterized by progressive reductions in kidney function
leading eventually to kidney failure and the need for dialysis.
Secondary hyperparathyroidism begins to develop in patients with modest
reductions in kidney function and becomes more severe in proportion to
the degree of renal insufficiency.  Based on published reports, the
Company estimates that there were at least 600,000 pre-dialysis patients
in the United States in 1997.  These patients are at risk of developing
associated metabolic bone diseases and would benefit from D-hormone
therapy.  However, there are currently no FDA-approved D-hormone
therapies for secondary hyperparathyroidism in pre-dialysis patients in
the United States.  Off-label use of intravenous calcitriol is
inappropriate for use in pre-dialysis patients because its
administration requires painful, daily percutaneous injections at home
without medical supervision.  Off-label use of oral calcitriol, as well
as oral alfacalcidol, at doses required for therapeutic effect,
frequently causes hypercalcemia and hypercalciuria which can calcify the
soft tissue of the kidneys and hasten kidney failure.  As a result, pre-
dialysis patients are seldom treated for secondary hyperparathyroidism.

  There is evidence from published clinical research suggesting that
early intervention with D-hormone therapy can slow the progression of
secondary hyperparathyroidism in pre-dialysis patients.  In untreated
patients, the parathyroid glands become progressively enlarged, causing
further increases in PTH secretion and requiring higher doses of D-
hormone replacement therapies for effective control.  Sufficiently high
doses of currently marketed D-hormone replacement therapies often cannot
be administered due to dose-limiting side effects.

  Based on the Company's clinical experience with Hectorol(trademark),
the Company is currently recruiting and enrolling patients into pivotal
Phase 3 trials for oral Hectorol(trademark) for the treatment of
secondary hyperparathyroidism in pre-dialysis patients.  The trials will
involve up to 140 patients at 4 to 6 centers in the United States.
These trials will consist of a baseline (pre-treatment) period, followed
by a 24-week period in which the patients will be assigned in random,
double-blinded fashion, to treatment with either oral
Hectorol(trademark) or placebo.  The study endpoint for efficacy is the
change in blood PTH levels from baseline to the end of the treatment
period.  Endpoints for safety are the corresponding changes in blood
levels of calcium and phosphorus.  There can be no assurance that oral
Hectorol(trademark) will prove safe and effective in treating secondary
hyperparathyroidism in pre-dialysis patients.


Hectorol(trademark) for Osteoporosis Associated with Secondary
--------------------------------------------------------------
Hyperparathyroidism
-------------------
  The Company is investigating the use of oral Hectorol(trademark) for
the treatment of osteoporosis associated with secondary
hyperparathyroidism.  Osteoporosis is a metabolic bone disease generally
associated with aging and characterized by excessive loss of bone
mineral, resulting in decreased bone density over time.
Demineralization weakens bone so that minor physical stress can cause
debilitating fractures, usually in the wrists, hips and spine.  These
fractures often result in disfigurement, decreased mobility and, in some
cases, extensive hospitalization and chronic nursing home care.  The
Company believes that there are currently at least 2,000,000 patients in
the United States who have osteoporosis associated with secondary
hyperparathyroidism.  Reduced blood levels of D-hormones have been
documented in many elderly patients with osteoporosis, caused by
insufficient activity of the renal enzyme which produces D-hormones.  In
postmenopausal women, this enzyme is indirectly suppressed by estrogen
deficiency.  In elderly men and women, the enzyme is often impaired due
to age-related reductions in kidney function.  As in more severe renal
insufficiency, decreased production of D-hormones increases the risk
that an individual will develop metabolic bone disease.  Decreased blood
levels of D-hormones reduce intestinal calcium absorption and bone
formation, and stimulate the secretion of PTH, causing mild secondary
hyperparathyroidism.  Elevated blood levels of PTH increase the rate of
bone metabolism which, with reduction in bone formation, decrease bone
mass.  Prolonged loss of bone leads to osteoporosis.

  A likely role for D-hormones in osteoporosis has prompted many
clinical investigations of D-hormone therapies as potential osteoporosis
treatments.  Controlled clinical trials conducted by third parties have
demonstrated that oral calcitriol and oral alfacalcidol increase or
stabilize bone mass and reduce fracture rates.  Positive results from
these clinical trials have been the basis for approval of these
therapies in Europe, Japan and other geographic markets.  However, in
the United States there are currently no FDA-approved D-hormone
therapies for the treatment of osteoporosis.  Trials conducted in the
United States with oral calcitriol have produced mixed results, possibly
due to the substantial variation in doses of calcitriol between study
sites.  Higher doses of calcitriol produced increases in vertebral and
total body bone mass, whereas lower doses showed little effect.  Lower
doses were used in these trials due to the unacceptable frequency of
hypercalcemia and hypercalciuria at higher, potentially therapeutic
doses.  These results suggest that D-hormone replacement therapies with
improved safety profiles may enable more consistent administration of
higher doses for improved therapeutic effects in osteoporosis associated
with secondary hyperparathyroidism.

  In 1992, the Company completed a Phase 2 trial in the United States
to evaluate oral Hectorol(trademark) as a treatment for postmenopausal
osteoporosis.  The trial involved 60 patients who were assigned in
random, double-blinded fashion to treatment with either oral
Hectorol(trademark) or placebo for up to two years.  The study endpoints
for efficacy were the observed changes in bone mineral density in the
spine and femur from baseline to the end of one year or two years of
treatment.  Endpoints for safety were the corresponding changes in blood
and urine calcium.  Fifty-five patients completed one year of treatment
and 41 completed two years of treatment.  Vertebral bone density
increased with oral Hectorol(trademark) and decreased with placebo over
the two-year study, with the difference being statistically significant
(p<0.05).  Similar changes were observed in bone mineral density in the
femur with statistically significant differences observed after 18 and
24 months of treatment (p<0.05).  Overall, side effects with oral
Hectorol(trademark) were clinically insignificant and well managed by
appropriate adjustments in dose.  Although observed changes in bone
mineral density in the oral Hectorol(trademark) treatment group as
compared to placebo were statistically significant, the Company and its
corporate collaborators concluded that the data from the trial did not
provide a sufficient basis for initiating pivotal Phase 3 trials with
oral Hectorol(trademark) as a treatment of postmenopausal osteoporosis.
As a result of the data, the Company and its corporate collaborators did
not pursue further development of Hectorol(trademark) for postmenopausal
osteoporosis.  At a later date, however, a subgroup analysis of the
trial performed by the Company suggested that greater improvement in
bone mineral density occurred in patients with the higher baseline PTH
levels.  Based on that subgroup analysis and published reports that D-
hormones have greater efficacy in patients with secondary
hyperparathyroidism, the Company plans to initiate additional Phase 2
trials for oral Hectorol(trademark) for the treatment of osteoporosis
associated with secondary hyperparathyroidism.


Hyperproliferative Diseases
---------------------------
Overview
--------
     D-hormones have an important role in controlling cellular growth
and differentiation of prostate, breast, colon, and skin cells.
Although the mechanism of action is not fully understood, D-hormones
help regulate the growth of cells derived from tissues which contain D-
hormone receptors.  The Company's preliminary studies in vitro, as well
as research conducted by third parties, suggest that such cells show
substantially reduced growth rates when exposed to D-hormones and D-
hormone analogs.  The Company is investigating the use of improved D-
hormone therapies to treat certain hyperproliferative diseases involving
those cells, including prostate, breast, and colon cancers, and
psoriasis.


Hectorol(trademark) for Advanced Prostate Cancer
------------------------------------------------
     Prostate cancer is the most common solid tumor diagnosed in men in
the United States.  The American Cancer Society estimates that in the
United States in 1997 approximately 209,900 men were diagnosed with
prostate cancer, and 41,800 men died from prostate cancer.  Although
pharmacological or surgical castration temporarily controls this
disease, prostate cancer eventually develops into androgen-independent
disease, for which no therapy exists.  Calcitriol and certain D-hormone
analogs have been shown in vitro to both inhibit the growth of prostate
cancer cells as well as promote permanent changes in these cells which
eliminate their characteristic uncontrolled growth.

     In November 1996, the Company initiated a Phase 1 trial of oral
Hectorol(trademark) in patients with androgen-independent prostate
cancer.  The trial is designed to determine the maximum tolerable dose
of oral Hectorol(trademark) by evaluating safety endpoints such as
hypercalcemia.  As of August 31, 1998, a total of 25 patients have been
treated with Hectorol(trademark).  The drug has been generally well
tolerated at escalating doses to 12.5 or 15 mcg/day.  Preliminary
evidence of disease stabilization has been observed in some patients.
The trial is expected to conclude by the end of 1998, at which time the
Company intends to launch a Phase 2 trial in the same patient population
to evaluate efficacy in controlling growth of prostate cancer cells.


LR-103 for Advanced Prostate, Colon and Breast Cancers
------------------------------------------------------
    The Company is investigating the use of LR-103 for the treatment of
advanced prostate, colon and breast cancers.  LR-103 is a naturally
produced D-hormone derived from vitamin D2, the human uses for which were
discovered by the Company.  In preclinical studies, the Company has
determined that LR-103 is characterized by lower toxicity than
calcitriol.  The Company's research in vitro has demonstrated that LR-
103 has potent antiproliferative effects on cells which contain D-
hormone receptors, including prostate, breast and colon cancer cells.
The Company believes that LR-103 may be a promising oral therapy for
hyperproliferative diseases.


Psoriasis
---------
    The Company is investigating the use of oral D-hormones and D-
hormone analogs to treat psoriasis.  Psoriasis is a chronic disease
characterized by thickened, scaly, and reddened patches of skin.
According to the National Psoriasis Foundation, psoriasis affected at
least 1,500,000 people in the United States in 1996.  There is currently
no cure for psoriasis and current treatments are focused on clearing the
associated skin lesions for a period of time.

    Microscopic examination of psoriatic lesions reveals an increase in
the number of basal or dividing skin cells which possess D-hormone
receptors.  Published reports from controlled clinical studies conducted
by third parties have shown that topically administered D-hormones and
analogs which bind strongly to D-hormone receptors achieved significant
improvement in psoriatic lesions.  Calcitriol and two synthetic analogs
of calcitriol, tacalcitol and calcipotriol, are approved as topical
treatments for psoriasis in Europe.  Calcipotriol has been approved as
a topical treatment for psoriasis in the United States.  There currently
are no FDA-approved D-hormone therapies for the systemic treatment of
psoriasis.

    All of the Company's potential products, other than
Hectorol(trademark) for treatment of secondary hyperparathyroidism
associated with ESRD, are at an early stage of development.  There can
be no assurance that any of the Company's potential products will
demonstrate sufficient safety and efficacy to justify their further
development.  Even if the Company is able to demonstrate safety and
efficacy and complete product development, there can be no assurance
that regulatory approvals will be obtained or that any such products can
be successfully manufactured and commercialized.  Any products which may
be developed from such efforts are not expected to be commercially
available for the foreseeable future.



Manufacturing
-------------
     The Company currently has no manufacturing capabilities.  To date,
the Company has contracted and intends to contract with third parties
for the production of bulk drug substance and for the subsequent
manufacturing and packaging of finished drug products.  The Company
purchases bulk quantities of Hectorol(trademark) from an FDA-inspected
and approved supplier of bulk drug substance.  This supplier has scaled
up its production of Hectorol(trademark) to a level sufficient to
support commercialization of finished drug products in North America.
The Company uses several FDA-inspected manufacturers to produce,
formulate and package Hectorol(trademark) as finished drug products
including soft-gelatin capsules suitable for oral administration and
sterile aqueous solutions suitable for intravenous administration.  No
assurance can be provided that the Company will be able to obtain future
supplies of Hectorol(trademark) on favorable terms and in quantities
necessary for commercialization, if and when it receives marketing
approval from the FDA.  Further, no assurance can be provided that the
Company will be able to obtain other compounds or continue to obtain
production, formulation or packaging services on favorable terms.

     In addition, the Company's dependence on third parties for the
manufacture of Hectorol(trademark) or for any other products may
adversely affect the Company's profit margins and its ability to deliver
products on a timely basis.  The Company may encounter significant
delays in obtaining supplies from third party manufacturers or
experience interruptions in its supplies.  The effects of such delays or
interruptions would be more severe if the Company relies on a single
source of supply as is presently the case for bulk Hectorol(trademark).
If the Company is unable to obtain adequate supplies of any of its
products, its business, financial condition and results of operations
would be materially adversely affected.

     All contractors utilized by the Company have FDA-inspected
facilities that operate under current Good Manufacturing Practices (GMP)
set by the FDA.  In the event the Company were to establish its own
manufacturing facility, the Company may require additional funds and
would be required to hire and train additional personnel and comply with
the extensive GMP regulations applicable to such a facility.

Marketing and Distribution
--------------------------
     The initial market identified for Hectorol(trademark), for
treatment of secondary hyperparathyroidism associated with ESRD, is a
niche market in the United States involving a limited number of large
service providers who treat the majority of patients in readily
identifiable centers.  According to HCFA, there were approximately
230,000 ESRD patients in the United States in 1997.  Approximately 85%
of ESRD patients receive hemodialysis treatments three times a week at
a dialysis center with the remaining 15% receiving self-administered
peritoneal dialysis treatments at home.  Currently, the top five United
States hemodialysis service companies provide dialysis services to over
45% of the entire hemodialysis patient population and operate over 50%
of the dialysis centers in the United States.  Consequently, the Company
believes that the marketing and sale of Hectorol(trademark) for
treatment of secondary hyperparathyroidism associated with ESRD in the
United States could be accomplished with approximately 30 sales and
marketing personnel.

     The Company currently has limited internal marketing and sales
personnel.  In April 1998, the Company hired a Vice President - Sales
and Marketing.  The Company intends to market Hectorol(trademark) in the
United States by establishing its own sales force.  The Company
currently intends to seek one or more collaborative partners to develop,
marketand distribute Hectorol(trademark) for secondary hyperpara-
thyroidism associated with ESRD outside the United States.  The Company
or any such collaborative partners would be required to obtain
regulatory approval in any country where sales would occur.  No
assurance can be given that the Company will be able to market
Hectorol(trademark), if approved, on its own or find a suitable partner
to develop, market and distribute Hectorol(trademark) in the United
States or internationally.

     The Company intends to develop Hectorol(trademark), LR-103 and
selected second-generation D-hormone compounds for other indications.
The aggregate target population for these other indications greatly
exceeds the ESRD patient population.  The Company is evaluating
marketing alternatives for the commercialization of Hectorol(trademark),
LR-103 and selected second-generation D-hormone compounds in those
target populations.

     To the extent the Company enters into marketing, distribution or
co-promotion arrangements with third parties, any revenue the Company
receives will depend on the efforts of such third parties.  There can be
no assurance that any third party will devote significant resources to
the Company's products or market such products successfully or that any
such arrangement will be on terms favorable to the Company.  The
Company's failure to either establish its own marketing capabilities or
to enter into successful marketing arrangements with third parties would
have a material adverse effect on the Company's business, financial
condition and results of operations.

Research and Development
------------------------
     The Company's research and development efforts are focused on the
discovery and development of novel D-hormones and analogs which possess
improved safety and efficacy profiles.  The Company conducts the
majority of its research and development activities through its own
staff and facilities.  As of June 30, 1998, the Company had 20 employees
engaged in research and development, four of whom have Ph.D. degrees.
The Company's research and development program encompasses the early
stages of product discovery and development through the receipt of FDA
clearance or approval, and the expansion of new product uses and
applications.  The Company has assembled a team of scientists and
clinical, regulatory and quality assurance personnel with a variety of
complementary skills and experiences, and conducts a broad-based
research program in its facilities.  The Company has developed assay
procedures for measuring the levels of blood-borne metabolites of D-
hormones.  Such assays provide support to the Company's research and
development of Hectorol(trademark) and other product candidates.  The
Company also employs academic institutions and independent consultants
to aid in research and the product development process.

     The Company anticipates incurring significant research and
development expenses in the next few years as the Company initiates
commercial sales, continues its efforts to develop its present
technologies, begins to move other products to the clinical testing
stage and identifies future products for development.  The Company's
aggregate research and development expenses totaled approximately $1.2
million, $2.9 million, and $3.9 million for the fiscal years ended June
30, 1996, 1997, and 1998.


Patents and Proprietary Technology
----------------------------------
     The Company's success will depend in part on its ability to develop
patentable products and technologies and obtain patent protection for
its products and technologies both in the United States and other
countries.

     Composition of matter patents covering Hectorol(trademark) have
expired and cannot be renewed or extended.  The Company owns United
States patents covering the use of Hectorol(trademark) for the
prevention and treatment of secondary hyperparathyroidism and metabolic
bone disease, including renal osteodystrophy.  A corresponding patent
for the use of Hectorol(trademark) for the prevention and treatment of
secondary hyperparathyroidism associated with ESRD is pending before the
European Patent Office and a corresponding patent for the use of
Hectorol(trademark) for the prevention and treatment of metabolic bone
disease has been issued by the European Patent Office.  Patent
applications for similar coverage are pending in other countries,
including Japan.  The Company also has received a United States patent
for the use of Hectorol(trademark) and other proprietary D-hormone
compounds for treating prostate cancer.  The Company has filed
international counterpart patent applications through the Patent
Cooperation Treaty and has designated Europe and other geographic
markets including Japan for national filing.

     The Company's issued patents and pending patent applications
relating to Hectorol(trademark) are method-of-use patents.  A method-of-
use patent encompasses the use of a composition to treat a specified
condition but does not encompass the composition itself, the method of
making the composition or the compound used in the composition.  A
method-of-use patent provides less protection than a composition-of-
matter patent if other companies market or make the compound for other
uses because of the possibility of off-label use.

     The Company has a license from the Wisconsin Alumni Research
Foundation (WARF) to practice several of WARF's process patents for the
synthesis of Hectorol(trademark).  Under this license, which extends at
least through July 2, 2013, and expires upon the expiration of the last
to expire of the licensed patents, WARF has agreed not to license to
other parties the patents for the manufacture of Hectorol(trademark) for
use or sale anywhere in the world as long as the license agreement is in
effect and, if Hectorol(trademark).   is being sold in the United States,
the Company pays the annual license fee.  The Company also received a
notice of allowance for the United States patent, and has its own patent
applications pending before the European Patent Office and in other
geographic markets, including Japan, for methods of synthesizing
Hectorol(trademark).

     The Company has issued patents and has pending patent applications
in other countries relating to other D-hormones.  Patents and pending
applications include claims to compositions, compounds, methods of
synthesizing the compositions and compounds, methods of use and methods
of delivery of active D-hormones and D-hormone analogs.

     There can be no assurance that any of the Company's pending patent
applications will result in the issuance of patents or that competitors
will not successfully challenge the Company's patents, if issued, on the
basis of validity and/or enforceability or circumvent, attack or design
around the Company's patent position.  The failure of patents to issue
on pending applications and the finding of invalidity and/or
unenforceability of one of the Company's patents could result in
increased competition and could have a material adverse effect on the
Company's business, financial condition and results of operations.

     The patent positions of companies in the pharmaceutical industry
are highly uncertain, involve complex legal and factual questions.  The
patents of these companies have been and continue to be the subject of
litigation.  In addition, the breadth of claims allowed in such patents
is unpredictable.  Patent applications in the United States are
maintained in secrecy until a patent issues, and the Company cannot be
certain that others have not filed patent applications for compounds,
uses or processes covered by the Company's pending applications or that
the Company was the first to invent the compound, use or process that is
the subject of such patent 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 those of the Company.  For example, the
Company is aware of a significant number of patent applications filed by
and patents issued to third parties relating to D-hormones and D-hormone
analogs.  There can be no assurance that any such patents or patent
applications will not have a material adverse effect on the use,
research, development, marketing and future role of products.  Should
any of the Company's competitors file patent applications in the United
States that claim compounds, uses or processes also claimed by the
Company, the Company may have to participate in interference proceedings
declared by the United States Patent and Trademark Office (PTO) in order
to determine priority of invention and thus the right to a patent for
the compounds, uses or processes in the United States, which could
result in substantial cost to the Company even if the outcome is
favorable.  There can be no assurance that any patents issued to the
Company or to licensors from whom the Company has licensed rights will
not be challenged, invalidated, circumvented or found unenforceable, or
that the rights granted thereunder will provide proprietary protection
or commercial advantage to the Company.

     In addition, the Company's product candidates or technology may
give rise to claims that they infringe on the proprietary rights of
others.  Litigation may be necessary to defend against such third party
claims or assert claims of infringement, to enforce patents issued to
the Company, to protect trade secrets owned or licensed by the Company,
or to determine the scope and validity of proprietary rights of third
parties.  Although no third party has asserted that the Company is
infringing such third party's proprietary rights at this time, there can
be no assurance that litigation asserting such claims will not be
initiated, that the Company would prevail in such litigation or that any
license required under any such patents or rights would be made
available on terms acceptable to the Company, if at all.  Any such
claims against the Company, with or without merit, as well as claims
initiated by the Company against third parties, can be time consuming
and expensive to defend or prosecute.  Failure to favorably resolve such
claims, either through litigation or by obtaining necessary licenses,
could result in delays in product development or commercialization while
the Company attempts to design around such third party patents or
proprietary rights, or an inability to pursue the use, development,
manufacture or sale of products.

     The Company also relies on proprietary information and trade
secrets.  There can be no assurance that third parties will not
independently develop equivalent or substantially equivalent proprietary
information or techniques, will not gain access to the Company's trade
secrets or disclose such trade secrets to the public or that the Company
can maintain and protect unpatented proprietary information technology.
The Company requires its employees, consultants, and advisors to execute
confidentiality agreements upon the commencement of an employment or a
consulting relationship or with the Company.  There can be no assurance,
however, that these agreements will provide meaningful protection or
adequate remedies for the Company's proprietary information in the event
of unauthorized use or disclosure of such information, that the parties
to such agreements will not breach such agreements or that the Company's
trade secrets will not otherwise become known or be discovered
independently by its competitors.

     The United States Department of Agriculture (USDA) holds certain
rights to LR-103 under pending patent applications and has granted the
Company a worldwide exclusive license to make, use and sell products
covered under the rights held by the USDA.  The license expires on the
last to expire of the licensed patents.  The license may be terminated
by the USDA if these products are not brought by the Company to
practical application with the benefits being made available to the
public in the United States by April 7, 2002, or under certain other
limited circumstances.

     The Company has granted Draxis Health, Inc. (Draxis) a license to
use and sell in Canada, Hectorol(trademark) for secondary
hyperparathyroidism, osteoporosis and other metabolic bone diseases.
The Company has also granted Draxis a license in Canada to all know-how
developed by or on behalf of the Company relating to the use of
Hectorol(trademark) for those indications.

Trademarks
----------
     The Company's name and logo are a tradename and trademark of the
Company, respectively.  The Company's Intent To Use application for the
trademark Hectorol(trademark) has been allowed by the PTO.  The
trademark registration should be issued after the Company files and the
PTO accepts the Company's Statement of Use, which the Company would
expect to file following FDA regulatory approval for
Hectorol(trademark), if granted.


Government Regulation
---------------------
     Regulation by governmental entities in the United States and other
countries will be a significant factor in the development, production
and marketing of any new drug products developed by the Company.
Pharmaceutical products are subject to rigorous regulation under the
Federal Food, Drug and Cosmetic Act (FDCA) by the FDA in the United
States and similar health authorities in foreign countries under laws
and regulations that govern, among other things, testing for safety and
effectiveness, manufacturing, labeling, storage, record keeping, import,
export, advertising, promotion, marketing and distribution of such
products.  Product development and approval within this regulatory
framework is uncertain, can take a number of years and requires the
expenditure of substantial resources.  Any failure to obtain regulatory
approval, or any delay in obtaining such approvals, could adversely
affect the marketing of products under development by the Company, the
Company's ability to receive product or royalty revenues, and its
liquidity and capital resources.

     The premarket approval regulatory requirements that must be met
before a new drug product may be marketed in the United States include:
(i) preclinical laboratory tests and preclinical laboratory animal
studies; (ii) the submission to the FDA of an Investigational New Drug
application ("IND") to obtain the FDA's consent to conduct proposed
clinical trials; (iii) adequate and well-controlled clinical trials to
establish the safety and efficacy of the new drug product; (iv) the
submission to the FDA of an NDA and (v) FDA review and approval of the
NDA.

     Preclinical tests include laboratory evaluation of a new drug, as
well as laboratory animal studies to assess its potential safety and
efficacy in humans.  Preclinical tests must be conducted by laboratories
that comply with FDA regulations regarding Good Laboratory Practices.
The results of the preclinical tests, together with manufacturing and
chemistry information regarding the new drug, must be submitted to the
FDA as part of an IND, which must become effective before clinical
trials may commence.  The IND will automatically become effective 30
days after receipt by the FDA unless the FDA indicates prior to the end
of such 30-day period that the proposed protocol raises concerns that
must be resolved to the satisfaction of the FDA before the trials may
proceed as outlined in the IND.  In such case, there can be no assurance
that such resolution will be achieved in a timely fashion, if at all.
In addition, the FDA may impose a clinical hold on ongoing clinical
trials, if for example, safety concerns are presented, in which case the
study cannot recommence without FDA authorization under terms sanctioned
by the agency.

     Clinical trials involve the administration of an investigational
new drug product to healthy volunteers or to patients having the disease
or condition for which the drug is intended, under the supervision of
qualified principal investigators.  Clinical trials are conducted in
accordance with the FDA's Good Clinical Practice standards under
protocols that detail the objectives of the trial, inclusion and
exclusion criteria, the parameters and endpoints to be used to evaluate
safety and efficacy, the control to be used (usually a placebo control),
the method for random administration to test drug and control patient
groups, double-blinding procedures and methods for the biostatistical
analysis of the study results.

     Each protocol must be submitted to the FDA as part of the IND.
Further, each clinical trial must be reviewed and approved by an
independent Institutional Review Board (IRB) at the academic or medical
institution at which the trial will be conducted.  The IRB will
consider, among other things, ethical factors, the safety of human
subjects and the possible liability of the institution.  The IRB may
require changes in a protocol, and there can be no assurance that the
submission of an IND will permit a study to be initiated or completed.

     Clinical trials generally are conducted in three sequential phases,
but the phases may overlap.  In Phase 1, the initial introduction of the
new drug product into healthy human subjects or patients, the drug is
tested to assess safety (adverse effects), absorption, metabolism,
excretion, pharmacokinetics, pharmacodynamics and pharmacological
actions associated with increasing doses.  Phase 2 usually involves
studies in a limited patient population with the disease or condition
for which the drug is intended to (i) determine the efficacy of the
potential product for specific, targeted indications, (ii) determine
dosage tolerance and optimum dosage and (iii) further identify possible
adverse reactions and safety risks.  If a compound is found to be
effective and to have an acceptable safety profile in Phase 2
evaluations, Phase 3 trials are undertaken to evaluate further clinical
efficacy and safety within a broader patient population having the
disease or condition, generally at multiple, geographically dispersed
clinical sites.  There can be no assurance that Phase 1, Phase 2 or
Phase 3 testing will be completed successfully within any specific time
period, if at all, with respect to any of the Company's products subject
to such testing.  Phase 4 clinical trials are studies conducted after
FDA approval to document clinical benefit in the case of fast track
accelerated approval conditions (see below), or to gain additional
experience from the treatment of patients with the disease for which the
drug is used.

     The results of preclinical studies and clinical trials of a new
drug, if successful, must be submitted to the FDA in an NDA to seek FDA
approval to market and commercialize the drug product for a specified
use.  FDA approval of the NDA is required before marketing may begin in
the United States.  The NDA must also include data relating to the new
drug product's chemistry and pharmacology, and methods and quality
assurance and control procedures used in the manufacture of the new drug
product.  The FDA reviews all NDAs submitted to assess whether they are
complete for review, and may request additional information rather than
accepting an NDA for filing.  In such an event, the NDA must be
resubmitted with the additional information and, again, is subject to
review before filing.  Once the submission is accepted for filing, the
FDA begins an in-depth review of the NDA.  Under the FDCA, the FDA has
180 days in which to review the NDA and respond to the applicant.  The
review process is often significantly extended by FDA requests for
additional information or clarification regarding information already
provided in the submission.  Nonetheless, because of the Prescription
Drug User Fee Act (see below), the FDA has adhered more closely to the
180-day statutory review time frame.  The FDA may refer the application
to the appropriate advisory committee, typically a panel of clinicians,
for review, evaluation and a recommendation as to whether the
application should be approved.  However, the FDA is not bound by the
recommendation of an advisory committee.

     The FDA also requires a pre-approval inspection of the plant or
facility at which the new drug product will be manufactured, to
determine that the applicable manufacturing methods and controls used to
produce the drug product are in compliance with the agency's GMP
regulations.  Such regulations mandate, among other things, quality
control and quality assurance procedures and the maintenance of
corresponding records and other documentation.  If FDA evaluations of
the NDA and the manufacturing facilities are favorable, the FDA may
issue either an approval letter or an approvable letter, which usually
contains a number of conditions that must be met in order to secure
final approval of the NDA.  When and if those conditions (typically,
labeling requirements) have been met to the FDA's satisfaction, the FDA
will issue an approval letter, authorizing commercial marketing of the
product for certain indications.  As a condition of NDA approval, the
FDA may require postmarketing testing (Phase 4 studies) and surveillance
to monitor the drug's safety or efficacy.  If the FDA's evaluation of
the NDA submission or manufacturing facilities is not favorable, the FDA
may refuse to approve the NDA or issue a not approvable letter,
outlining the deficiencies in the submission and often requiring
additional testing or information.  Notwithstanding the submission of
any requested additional data or information in response to an
approvable or not approvable letter, the FDA ultimately may decide that
the application does not satisfy the regulatory criteria for approval.
Once granted, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or safety or other problems
associated with the drug occur following initial marketing.

     Before the Company's 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.  No action can be
taken to market any drug product in a country until an appropriate
application has been approved by the regulatory authorities in that
country.  FDA approval does not assure approval by other regulatory
authorities and there can be no assurance that foreign regulatory
approvals will be granted.  In some countries, the sale 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 the Company's products, no assurance can be
given that it will approve satisfactory prices for the products.

     The Prescription Drug User Fee Act program, reauthorized by the FDA
Modernization Act of 1997, requires the payment of a substantial
application fee for each NDA filed for a new prescription drug (at
present approximately $250,000), and annual establishment and product
fees for each marketed prescription drug for which an NDA is approved.
These fees are used by the FDA to hire additional personnel to review
NDAs, in order to expedite agency review of such applications with the
goal of meeting the 180-day statutory review deadline.  The FDA files
annual reports with Congress on its progress in attaining this goal for
applications reviewed during the previous government fiscal year.
Review times for NDAs have been reduced substantially as a result of
this program.  A small business (having fewer than 500 employees), such
as the Company, is granted a waiver of the application fee for the first
NDA it submits to the FDA, but must pay the full application fee for all
subsequent applications.

     The FDA Modernization Act of 1997 also codified the FDA's "fast
track" procedures, applicable to new drugs intended for the treatment of
a serious or life-threatening condition which demonstrate the potential
to address unmet medical needs for such conditions.  Such a new drug can
be designated as a "fast track product" and reviewed and approved in an
accelerated time frame, usually on the basis of Phase 1 and 2 clinical
trials, which can utilize surrogate endpoints.  However, there can be no
assurance that any given new drug will be designated as a fast track
product by the FDA.  The applicant may be requested by the FDA, as a
condition of fast track approval, to conduct and submit to FDA the
results of one or more larger post-approval Phase 4 studies that verify
the clinical benefit of the drug for its intended use in the relevant
patient population.  Failure to conduct a required Phase 4 study with
due diligence could result in withdrawal of approval of a new drug
approved under "fast track" conditions.

     Manufacturing facilities in the United States are subject to
periodic inspection by the FDA and state authorities, and must comply
with GMP regulations.  Failure to comply with GMP or other applicable
regulatory requirements (such as labeling and advertising rules and
standards) may result in, among other things, withdrawal of marketing
approval, warning letters, injunctions, recall or seizure of products,
total or partial suspension of production, FDA refusal to approve
pending new drug applications or supplements to approved applications,
refusal to permit products to be imported or exported, refusal to allow
the Company to enter into government supply contracts or criminal
prosecution.

     The Company's research and development processes involve the
controlled use of hazardous materials, chemicals and radioactive
materials, and produce waste products.  The Company is subject to
federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of such materials and waste
products.  Although the Company believes that its 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, the Company could be held
liable for any damages that result and any such liability could exceed
the resources of the Company.  Although the Company believes that it is
in compliance in all material respects with applicable environmental
laws and regulations, there can be no assurance that it will not be
required to incur significant costs to comply with environmental laws
and regulations in the future, or that any of the operations, business
or assets of the Company will not be materially adversely affected by
current or future environmental laws or regulations.

Pharmaceutical Pricing and Reimbursement
----------------------------------------
     In both domestic and foreign markets, sales of the Company's
products, if any, will depend in part on the availability of
reimbursement from third-party payors such as government health
administration authorities, private health insurers, health maintenance
organizations, pharmacy benefit management companies and other
organizations.  Both the federal and state governments in the United
States and foreign governments continue to propose and pass legislation
designed to contain or reduce the cost of health care, and regulations
affecting the pricing of pharmaceuticals and other medical products and
services may change or be adopted before any of the Company's product
candidates are approved for marketing.  In addition, third-party payors
are increasingly challenging the price and cost-effectiveness of medical
products and services.  Significant uncertainty exists as to the
reimbursement status of newly approved health care products including
pharmaceuticals.  There can be no assurance that the Company's products,
if any, will be considered cost-effective or that adequate third-party
reimbursement will be available to enable the Company to maintain price
levels sufficient to realize a return on its investment.

     The initial indication for Hectorol(trademark) is for secondary
hyperparathyroidism associated with ESRD.  The Company believes the
majority of ESRD patients in the United States are covered for
reimbursement of health care costs through Medicare and Medicaid, both
of which are administered by HCFA.  The current reimbursement policy of
HCFA is to provide reimbursement for intravenously administered drugs
but not orally administered drugs.  As a result, intravenous D-hormones
are currently favored by dialysis centers, because under a fee-for-
service reimbursement arrangement, they are reimbursed by Medicare and
Medicaid.  The Company believes, however, that as the current trend to
replace fee-for-service reimbursement plans with capitated reimbursement
plans continues, dialysis centers will increasingly favor orally
delivered D-hormones because of their lower cost.  The Company's
strategy to develop an oral formulation of Hectorol(trademark) for
treatment of secondary hyperparathyroidism associated with ESRD before
an intravenous formulation is based on this assumption regarding trends
in health care reimbursement.  There can be no assurance that the
Company's assumptions are correct regarding capitated reimbursement or
regarding the timing of any change to a capitated environment.  In the
event that fee-for-service reimbursement remains the predominant model
for dialysis centers, sales of oral Hectorol(trademark), assuming
regulatory approvals are received, could be materially adversely
affected.  The ability of the Company to obtain third-party
reimbursement for use of Hectorol(trademark) would be dependent on the
successful development of, receipt of regulatory approval for, and
commercialization of, an intravenous formulation.

Competition
-----------
     Competition in the pharmaceutical and biotechnology industries is
intense.  The Company faces competition from a variety of sources and
believes that several pharmaceutical or biotechnology companies are
focused on the development of D-hormone therapies, particularly as they
relate to treatment of secondary hyperparathyroidism and
hyperproliferative diseases.  The Company also competes with other large
pharmaceutical companies that produce D-hormones for marketing in
international marketplaces where alternative treatments have been
approved by their respective regulatory bodies.  Several companies also
compete indirectly with the Company for the same indications utilizing
different therapeutic approaches.  Many of the Company's existing or
potential competitors have substantially greater financial, research and
development, marketing and human resources than the Company and are
better equipped to develop, manufacture and market products.  Other
companies may also prove to be significant competitors, particularly
through collaborative arrangements with large pharmaceutical and
established biotechnology companies.  Several of these competitors have
products that have been approved or are in development and operate
large, well-funded research and development programs.  The Company also
faces intense competition from other companies for marketing,
distribution and collaborative development agreements, for establishing
relationships with academic and research institutions, and for licenses
to proprietary technology.  In addition, academic institutions,
government agencies and other public and private research organizations
may also conduct research, seek patent protection and establish
collaborative arrangements for discovery, research, clinical development
and marketing of products similar to those of the Company.  These
companies and institutions compete with the Company in recruiting and
retaining qualified scientific and management personnel as well as in
acquiring technologies complementary to the Company's programs.

     Companies that complete clinical trials, obtain required regulatory
approvals and commence commercial sales of their products before their
competitors may achieve a significant competitive advantage.
Accordingly, the relative speed with which the Company can develop
products, complete preclinical testing and clinical trials and
regulatory approval processes, and supply commercial quantities of
products to the market are expected to be important competitive factors.
A number of pharmaceutical and biotechnology companies are developing
new products for the treatment of the same diseases being targeted by
the Company.  Abbott Laboratories markets intravenous calcitriol
(Calcijex(trademark)) and Hoffmann-LaRoche, Inc. markets oral calcitriol
(Rocaltrol(trademark)).  Both drugs are approved for the treatment of
secondary hyperparathyroidism associated with ESRD in the United States
and certain European countries.  A number of companies market oral
alfacalcidol in Europe under various trade names.  Abbott Laboratories
received marketing approval from the FDA in April 1998 for paracalcitol
(Zemplar(trademark)), an intravenous formulation of an improved second
generation D-hormone analog for the treatment of secondary
hyperparathyroidism associated with ESRD.  This product is expected to
compete with Hectorol(trademark).  Other companies, including Amgen,
Inc., Chugai Pharma Europe Ltd. and NPS Pharmaceuticals, Inc. are also
developing new therapies or have filed NDAs for the treatment of
secondary hyperparathyroidism associated with ESRD for the United States
or European markets.  In addition, Leo Pharmaceuticals is developing and
marketing improved D-hormone therapies for the treatment of certain
hyperproliferative diseases and is marketing alfacalcidol in Europe for
the treatment of secondary hyperparathyroidism associated with ESRD and
osteoporosis associated with secondary hyperparathyroidism.

     The Company believes that its ability to compete successfully will
be based on its ability to create and maintain scientifically advanced
technology, develop proprietary products with improved safety and
efficacy profiles over existing therapies, attract and retain scientific
personnel, obtain patent or other protection for its products, obtain
required regulatory approvals and manufacture and successfully market
its products either alone or through third parties, and obtain adequate
third party reimbursement.  Many of the Company's competitors have
substantially greater financial, research and development, marketing and
human resources than the Company.  There can be no assurance that the
Company's competitors will not develop more effective and/or affordable
products, or achieve earlier patent protection or product
commercialization than the Company or that such competitive products
will not render the Company's products obsolete.

Product Liability
-----------------
     The Company's business exposes it to potential liabilities inherent
in testing, manufacturing and commercializing pharmaceuticals for human
use.  The Company does not have product liability insurance for clinical
use or commercial sale of any of its potential products, and the Company
does not intend to obtain such insurance until Hectorol(trademark) is
commercialized.  There can be no assurance that the Company will be able
to obtain insurance coverage at acceptable costs, or at all, or that the
Company will not experience losses due to product liability claims.  A
product liability claim, product recall or other claim or claims for
uninsured liabilities or for amounts exceeding the limits of the
Company's insurance could have a material adverse effect on the
Company's business, financial condition and results of operations.

Employees
---------
     As of September 23, 1998, the Company had 27 full-time employees,
including 20 in research and development, three in sales and marketing,
and four in administration.  Four of the Company's employees have Ph.D.
degrees.  None of the Company's employees is represented by a union.
The Company considers its employee relations to be good.


Factors Affecting Future Results
--------------------------------
Early Stage of Development
--------------------------
     The Company is at an early stage of development and currently has
no revenues from product sales.  The Company does not have regulatory
approval from the FDA or foreign regulatory authorities to market any
product.  All of the Company's product candidates, other than
Hectorol(trademark) for the treatment of secondary hyperparathyroidism
associated with ESRD, are at an early stage of development and will
require extensive research and development and preclinical and clinical
testing prior to commercialization.  In addition, each of the Company's
product candidates are and will be subject to an extensive, time
consuming and costly regulatory approval or clearance process prior to
commercialization.  There can be no assurance that any such product
candidates will prove safe and efficacious in clinical trials or that
any clinical trials will be completed on schedule, or at all.
Furthermore, there can be no assurance that the Company will obtain
required regulatory approvals or clearance for any of its product
candidates, that the Company's product candidates will be capable of
being produced in commercial quantities at reasonable cost or that any
of the Company's products, if introduced, will achieve market
acceptance.  Any failure of the Company to demonstrate safety, achieve
clinical efficacy, obtain regulatory approvals or successfully
manufacture or commercialize its products would have a material adverse
effect on the business, financial condition and results of operations of
the Company.


Dependence on Hectorol(trademark)
---------------------------------
     The Company is dependent on its ability to obtain regulatory
approval of Hectorol(trademark) for the treatment of secondary
hyperparathyroidism associated with ESRD in order to generate operating
revenue while it continues its research and development and regulatory
approval processes for the potential uses of Hectorol(trademark) for
other indications and other product candidates.  Although the Company
has completed its Phase 3 clinical trials for oral Hectorol(trademark)
for patients with secondary hyperparathyroidism associated with ESRD and
has filed an NDA with the FDA for oral Hectorol(trademark) as a
treatment for secondary hyperparathyroidism associated with ESRD, there
can be no assurance that the NDA will be approved, or that further
clinical trials will not be needed or that any such clinical trials will
lead to marketing approval by the FDA.  In addition, there can be no
assurance as to the outcome or timing of the FDA's review of the
Company's NDA submission.  In addition, there can be no assurance that
Hectorol(trademark) for the treatment of secondary hyperparathyroidism,
if approved by the FDA, will achieve market acceptance.

     Furthermore, there can be no assurance that the Company will be
successful in its efforts to develop Hectorol(trademark) for other
indications.  Any additional product candidates will require significant
research and development, preclinical and clinical testing, regulatory
approval and commitment of resources prior to commercialization.  If
Hectorol(trademark) is not successfully manufactured or marketed, the
Company may not have the financial resources to continue research and
development of other product candidates.  The failure to successfully
develop, manufacture or market Hectorol(trademark) would have a material
adverse effect on the Company's business, financial condition and
results of operations.  In addition, technological developments may
result in Hectorol(trademark) becoming obsolete or non-competitive
before the Company is able to recover any portion of the research and
development and other expenses it has incurred to clinically test and
commercialize Hectorol(trademark).  Any such development could have a
material adverse effect on the business, financial condition and results
of operations of the Company.


History of Operating Losses; Uncertainty of Future Profitability
----------------------------------------------------------------
     Since its inception, the Company has been engaged in research and
development activities, has generated minimal revenues from operations
and has incurred significant operating losses.  At June 30, 1998, the
Company had an accumulated deficit of approximately $10.0 million.  Such
losses have resulted principally from costs incurred in research and
development, preclinical and clinical activities and from general and
administrative costs associated with the Company's operations.  The
Company expects that operating losses will continue and increase for the
foreseeable future as its research and development, preclinical,
clinical and marketing activities expand.  The Company's ability to
achieve profitability will depend in part on its ability to obtain
regulatory approvals for its product candidates and successfully
manufacture and market any approved products either by itself or in
collaboration with third parties.  There can be no assurance as to when
the Company will achieve profitability, or that profitability, if
achieved, will be sustained. 


Government Regulation; No Assurance of Regulatory Approval
----------------------------------------------------------
     The laboratory testing, preclinical testing and clinical trials of
all new drugs developed by the Company, and the manufacturing, labeling,
storage, sale, distribution, export or import, marketing, advertising
and promotion of any new products resulting therefrom, are subject to
extensive and rigorous regulation by federal, state and local
governmental authorities in the United States, the principal one of
which is the FDA, and by similar agencies in other countries.  Any new
drug product developed by the Company must receive all relevant
regulatory approvals before it may be marketed in a particular country.
In the United States, the FDA regulatory process, which includes
extensive preclinical studies and clinical trials of each product in
order to establish its safety and efficacy, is uncertain, can take many
years and requires the expenditure of substantial resources.  Data
obtained from preclinical studies and clinical trials are susceptible to
varying interpretations which could delay, limit or prevent regulatory
approval.  In addition, delays or data rejections may be encountered
based upon changes in regulatory policy during the period of product
development and/or the period of review of any application for
regulatory approval of a new drug.  Delays in obtaining regulatory
approvals would adversely affect the marketing of any products developed
by the Company, impose significant additional costs on the Company,
diminish any competitive advantages that the Company may attain and
adversely affect the Company's ability to generate revenues and profits.
There can be no assurance that, even after such time and expenditures,
any required regulatory approvals will be obtained for any new drug
developed by the Company, and failure to obtain such approvals could
have a material adverse effect on the Company's business, financial
condition and results of operations.

     FDA regulatory approval, if granted, may entail limitations on the
indicated uses for which a new drug may be marketed that could limit the
potential market for such a product, and new drug approval, once
granted, may be withdrawn from a product for failure to comply with
applicable post-approval regulatory requirements, or if safety or other
problems occur after initial marketing.  Manufacturers of approved new
drug products must comply with detailed regulations governing, among
other things, labeling, advertising and current GMP, requiring
establishment of quality control and quality assurance procedures and
maintenance of corresponding records.  Manufacturing facilities are
subject to inspection by the FDA, including unannounced inspection.
There can be no assurance that the Company or its suppliers will be able
to comply with applicable GMP regulations.  Failure to comply with
applicable regulatory requirements can result in, among other things,
withdrawal of marketing approval, warning letters, injunctions, recall
or seizure of products, total or partial suspension of production, FDA
refusal to approve pending NDAs or supplements to approved NDAs, refusal
to permit products to be imported or exported, refusal to allow the
Company to enter into government supply contracts or criminal
prosecution.

     The Company is also subject to numerous federal, state and local
laws, regulations and recommendations relating to safe working
conditions, laboratory and manufacturing practices, the experimental use
of animals, the environment and the use and disposal of hazardous
substances used in connection with the Company's discovery, research and
development work, including radioactive compounds and infectious disease
agents.  In addition, the Company cannot predict the extent of
government regulations or the impact of new governmental regulations
which might have an adverse effect on the discovery, development,
production and marketing of the Company's products, and there can be no
assurance that the Company will not be required to incur significant
costs to comply with current or future laws or regulations or that the
Company will not be adversely affected by the cost of such compliance.


Uncertainty of Patent Positions and Proprietary Rights
------------------------------------------------------
     The patent positions of pharmaceutical companies are often
uncertain and involve complex legal and factual questions, and the
breadth of claims allowed in pharmaceutical patents cannot be predicted.
In addition, there is a substantial backlog of pharmaceutical patent
applications at the PTO that may delay the review and the potential
issuance of patents.  The Company's success will depend to a significant
degree on its ability to obtain patents and licenses to patent rights,
to maintain trade secrets and to operate without infringing on the
proprietary rights of others, both in the United States and in other
countries.

     To date, the Company has filed a number of patent applications in
the United States and other countries.  The Company's issued patents and
pending patent applications relating to Hectorol(trademark) are methods-
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.  The
Company intends to continue to file applications as appropriate for
patents covering its products, uses and processes.  There can be no
assurance that patents will issue from any of these applications, or
that competitors will not successfully challenge the Company's patents,
if issued, on the basis of validity and/or enforceability or circumvent,
attack or design around the Company's patent position.  The failure of
patents to issue on pending applications or the finding of invalidity
and/or unenforceability of one of the Company's patents could result in
increased competition and could have a material adverse effect on the
Company's business, financial condition and results of operations.

     Patent applications in the United States are maintained in secrecy
until a patent issues, and the Company cannot be certain that others
have not filed patent applications for compounds, uses or processes
covered by the Company's pending applications or that the Company was
first to invent or discover the compound, use or process that is the
subject of such patent 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 those of the Company.  The Company is aware
of a significant number of patent applications filed by and patents
issued to third parties relating to D-hormones.  Should any of its
competitors have filed patent applications in the United States that
claim compounds, uses or processes also claimed by the Company, the
Company may have to participate in interference proceedings declared by
the PTO in order to determine priority of invention and, thus, the right
to a patent for the compounds, uses or processes in the United States,
all of which could result in substantial cost to the Company even if the
outcome is favorable.  In addition, litigation, which could result in
substantial cost to the Company, may be necessary to enforce any patents
issued to the Company or to determine the scope and validity of the
proprietary rights of third parties.  There can be no assurance that any
patents issued to the Company or to licensors from whom the Company has
licensed rights will not be challenged, invalidated, found unenforceable
or circumvented, or that the rights granted thereunder will provide
proprietary protection or commercial advantage to the Company.

     The commercial success of the Company depends significantly on its
ability to operate without infringing upon the patents and other
proprietary rights of third parties.  There can be no assurance that the
Company's compounds, uses or processes do not and will not infringe upon
the patents or other proprietary rights of third parties.  In the event
of such infringement, the Company may be enjoined from pursuing
research, development or commercialization of its products or may be
required to obtain licenses to these patents or other proprietary rights
or to design around such patents.  There can be no assurance that the
Company will be able to obtain any required license on commercially
reasonable terms, if at all.  If such licenses are not obtained and the
Company is unable to design around such patents, the Company may be
delayed or prevented from pursuing the development of certain of its
product candidates which could have a material adverse effect on the
business, financial condition and results of operations of the Company.

     The Company also relies on proprietary information and trade
secrets.  There can be no assurance that third parties will not
independently develop equivalent proprietary information or techniques,
will not gain access to the Company's trade secrets or disclose such
trade secrets to the public, or that the Company can maintain and
protect unpatented proprietary information.  The Company requires its
employees, consultants and advisors to execute confidentiality
agreements upon commencement of employment or consulting relationships
with the Company.  There can be no assurance, however, that these
agreements will provide meaningful protection or adequate remedies for
the Company's proprietary information in the event of unauthorized use
or disclosure of such information, that the parties to such agreements
will not breach such agreements or that the Company's trade secrets will
not otherwise become known or be discovered independently by its
competitors.


Uncertainty Related to Pricing and Reimbursement of Products
------------------------------------------------------------
     In both domestic and foreign markets, sales of the Company's
products, if any, will depend in part on the availability of
reimbursement from third-party payors such as government health
administration authorities, private health insurers, health maintenance
organizations, pharmacy benefit management companies and other
organizations.  Both the federal and state governments in the United
States and foreign governments continue to propose and pass legislation
designed to contain or reduce the cost of health care, and regulations
affecting the pricing of pharmaceuticals and other medical products and
services may change or be adopted before any of the Company's product
candidates are approved for marketing.  In addition, third-party payors
are increasingly challenging the price and cost-effectiveness of medical
products and services.  Significant uncertainty exists as to the
reimbursement status of newly approved health care products including
pharmaceuticals.  There can be no assurance that the Company's products,
if any, will be considered cost-effective or that adequate third-party
reimbursement will be available to enable the Company to maintain price
levels sufficient to realize a return on its investment.

     The initial indication for Hectorol(trademark) is for secondary
hyperparathyroidism associated with ESRD.  The Company believes the
majority of ESRD patients in the United States are covered for
reimbursement of health care costs through Medicare and Medicaid, both
of which are administered by HCFA.  The current reimbursement policy of
HCFA is to provide reimbursement for intravenously administered drugs
but not orally administered drugs.  As a result, intravenous D-hormones
are currently favored by dialysis centers, because under a fee-for-
service reimbursement arrangement, they are reimbursed by Medicare and
Medicaid.  The Company believes, however, that as the current trend to
replace fee-for-service reimbursement plans with capitated reimbursement
plans continues, dialysis centers will increasingly favor orally
delivered D-hormones because of their lower cost.  The Company's
strategy to develop an oral formulation of Hectorol(trademark) for
treatment of secondary hyperparathyroidism associated with ESRD before
an intravenous formulation is based on this assumption regarding trends
in health care reimbursement.  There can be no assurance that the
Company's assumptions are correct regarding capitated reimbursement or
regarding the timing of any change to a capitated environment.  In the
event that fee-for-service reimbursement remains the predominant model
for dialysis centers, sales of oral Hectorol(trademark), assuming
regulatory approvals are received, could be materially adversely
affected.  The ability of the Company to obtain third-party
reimbursement for use of Hectorol(trademark) would be dependent on the
successful development of, receipt of regulatory approval for, and
commercialization of, an intravenous formulation.

Significant Competition; Competition From New Technologies
----------------------------------------------------------
     Competition in the pharmaceutical and biotechnology industries is
intense.  The Company faces competition from a variety of sources and
believes that several pharmaceutical and biotechnology companies are
focused on the development of D-hormone therapies, particularly as they
relate to treatment of secondary hyperparathyroidism and
hyperproliferative diseases.  The Company also competes with other large
pharmaceutical companies that produce D-hormones and analogs for
marketing in international marketplaces where alternative treatments
have been approved.  Several companies also compete indirectly with the
Company for the same indications utilizing different therapeutic
approaches.  Many of the Company's existing or potential competitors
have substantially greater financial, research and development,
marketing and human resources than the Company and are better equipped
to develop, manufacture and market products.  Other companies may also
prove to be significant competitors, particularly through collaborative
arrangements with large pharmaceutical and established biotechnology
companies.  Several of these competitors have products that have been
approved or are in development and operate large, well-funded research
and development programs.  The Company also faces intense competition
from other companies for marketing, distribution and collaborative
development agreements, for establishing relationships with academic and
research institutions, and for licenses to proprietary technology.  In
addition, academic institutions, government agencies and other public
and private research organizations may also conduct research, seek
patent protection and establish collaborative arrangements for
discovery, research, clinical development and marketing of products
similar to those of the Company.  These companies and institutions
compete with the Company in recruiting and retaining qualified
scientific and management personnel as well as in acquiring technologies
complementary to the Company's programs.

     Companies that complete clinical trials, obtain required regulatory
approvals and commence commercial sales of their products before their
competitors may achieve a significant competitive advantage.
Accordingly, the relative speed with which the Company can develop
products, complete preclinical testing and clinical trials and
regulatory approval processes, and supply commercial quantities of
products to the market are expected to be important competitive factors.
A number of pharmaceutical and biotechnology companies are developing
new products for the treatment of the same diseases being targeted by
the Company.  Abbott Laboratories markets intravenous calcitriol
(Calcijex(trademark)) and Hoffmann-LaRoche, Inc. markets oral calcitriol
(Rocaltrol(trademark)).  Both drugs are approved for the treatment of
secondary hyperparathyroidism associated with ESRD in the United States
and certain European countries.  A number of companies market oral
alfacalcidol, a synthetic analog of calcitriol, in Europe under various
trade names.  Abbott Laboratories received marketing approval from the
FDA in April 1998 for paracalcitol (Zemplar(trademark)), an intravenous
formulation of an improved second generation D-hormone analog for the
treatment of secondary hyperparathyroidism associated with ESRD.  This
product is expected to compete with Hectorol(trademark).  Other
companies, including Amgen, Inc., Chugai Pharma Europe Ltd. and NPS
Pharmaceuticals, Inc. are also developing new therapies for the
treatment of secondary hyperparathyroidism associated with ESRD for the
United States or European markets.  In addition, Leo Pharmaceuticals is
developing and marketing improved D-hormone therapies for the treatment
of certain hyperproliferative diseases and is marketing alfacalcidol in
Europe for the treatment of secondary hyperparathyroidism associated
with ESRD and osteoporosis associated with secondary
hyperparathyroidism.

     There can be no assurance that the Company's competitors will not
develop more effective and/or affordable products, or achieve earlier
patent protection or product commercialization than the Company or that
such competitive products will not render the Company's products
obsolete. 


Dependence on Licensed Patents; Potential Need for Additional Partners
----------------------------------------------------------------------
or Collaborators
----------------
     The Company has licensed rights under several process patents for
the manufacture of Hectorol(trademark) from WARF.  WARF has agreed not
to license to other parties the patents for the manufacture of
Hectorol(trademark) for use or sale anywhere in the world as long as the
license agreement is in effect, and, if Hectorol(trademark) is being
sold in the United States, the Company pays the annual royalties.  The
USDA holds certain rights to LR-103 under pending patent applications
and has granted the Company a worldwide exclusive license to make, use
and sell products covered under the rights held by the USDA.  The
license expires on the last to expire of the licensed patents.  The
license may be terminated by the USDA if these products are not brought
by the Company to practical application with the benefits being made
available to the public in the United States by April 7, 2002 or under
certain other limited circumstances.  The Company's strategy for the
further research, development and commercialization of its product
candidates and technologies may require the Company to enter into
various arrangements with corporate and academic collaborators,
licensors, licensees and others, and the Company may therefore be
dependent upon the subsequent success of these third parties in
performing their responsibilities.  There can be no assurance that the
Company will be able to enter into collaborative, licensing or other
arrangements that the Company deems necessary or appropriate to develop
and commercialize its product candidates, or that any or all of the
contemplated benefits from such collaborative, licensing or other
arrangements will be realized.  Certain collaborative, licensing or
other arrangements that the Company may enter into in the future may
place responsibility on the Company's collaborative partners for
preclinical and clinical activities and for the preparation and
submission of applications for regulatory approval for potential
products.  Should any collaborative partner fail to develop or
commercialize successfully any product candidate to which it has rights,
the business, financial condition and results of operations of the
Company may be materially adversely affected.  There can be no assurance
that collaborators will not pursue alternative product candidates either
on their own or in collaboration with others, including the Company's
competitors, as a means for developing treatments for the diseases
sought to be addressed by the Company's programs.


Future Capital Needs and Uncertainty of Additional Financing
------------------------------------------------------------
     The Company will require substantial funds for its research and
development programs, preclinical and clinical testing, operating
expenses, regulatory processes and manufacturing and marketing programs.
The Company's capital requirements will depend on numerous factors,
including 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 the Company's existing licensing
relationships and the terms of any new collaborative, licensing, co-
promotion or distribution arrangements that the Company may establish;
the progress of commercialization and marketing activities; the cost of
manufacturing preclinical and clinical products; and other factors not
within the Company's control.  The Company believes that available cash
and cash equivalents should be sufficient to fund its operations through
at least the end of the current fiscal year.

     The Company will need to raise substantial additional capital to
fund its future operations.  The Company may seek such additional
funding through public or private financing or collaborative, licensing
and other arrangements with partners.  If additional funds are raised by
issuing equity securities, further dilution to existing shareholders may
result, and future investors may be granted rights superior to those of
existing shareholders.  There can be no assurance however, that
additional financing will be available when needed or on acceptable
terms.  Insufficient funds may prevent the Company from implementing its
business strategy or may require the Company to delay, scale back or
eliminate certain of its research and development programs or to license
to third parties rights to commercialize products that the Company would
otherwise seek to develop itself. 


No Manufacturing Capabilities; Dependence on Suppliers
------------------------------------------------------
     The Company presently does not have the internal capability to
manufacture pharmaceutical products, and the Company currently uses
third parties to manufacture bulk drug compounds and formulate and
package Hectorol(trademark).  The Company's dependence upon third
parties for the manufacture of its product candidates may adversely
affect the Company's profit margins and its ability to develop and
commercialize its product candidates on a timely and competitive basis.
If the Company should encounter delays or difficulties with contract
manufacturers in producing, packaging or distributing its products,
market introduction and subsequent sales of such products would be
adversely affected and the Company may have to seek alternative sources
of supply.  No assurance can be made that the Company will be able to
enter into alternative supply arrangements on commercially acceptable
terms, if at all.  No assurance can be made that any manufacturers
utilized by the Company will be able to provide the Company with
sufficient quantities of its products or that any products supplied to
the Company will meet the Company's specifications or delivery and other
requirements.  If for any reason the Company is unable to obtain
sufficient quantities of any materials required to produce its products
or the Company is unable to obtain or retain third-party manufacturers
on commercially acceptable terms, it may not be able to commercialize
its products as planned.

     Contract manufacturers that the Company may use must adhere to GMP
regulations enforced by the FDA through its facilities inspection
program.  FDA certification of manufacturing facilities for compliance
with GMP requirements is a prerequisite to approval of an NDA for the
drug.  These regulations require, among other things, that each
manufacturer establish a quality assurance program by which it monitors
the manufacturing process and maintains records evidencing compliance
with FDA regulations and the manufacturer's specifications and
procedures.  Failure to comply with these requirements can result in,
among other consequences, warning letters, withdrawal of marketing
approvals, injunctions, recalls or seizures of products, total or
partial suspension of production, FDA refusal to approve pending NDAs or
supplements to approved NDAs, refusal to permit products to be imported
or exported, refusal to allow the Company to enter into government
supply contracts or criminal prosecution.  The processes used by the
Company's suppliers of bulk drug substance and products have been
validated as being in compliance with GMP regulations.

     While the Company does not currently intend to manufacture any
pharmaceutical products itself, it may choose to do so in the future.
Should the Company decide to manufacture products itself, the Company
would require substantial additional resources to build and scale-up
manufacturing facilities.  In addition, the Company would be subject to
the regulatory requirements described above, would be subject to similar
risks regarding delays or difficulties encountered in manufacturing any
such pharmaceutical products and would require substantial additional
capital.  There can be no assurance that the Company will be able to
manufacture any such products successfully or in a cost-effective
manner. 


Limited Sales and Marketing Experience
--------------------------------------
     The Company currently has limited internal marketing and sales
personnel.  In order to market Hectorol(trademark) or any other products
that it may develop, the Company will have to substantially increase its
marketing staff and establish a sales force with technical expertise and
develop distribution capability.  Significant expenditures would be
required in order for the Company to establish sales, marketing and
distribution capabilities.  Alternatively, the Company may rely on the
marketing or co-marketing and sales capabilities of third party
collaborators.  To the extent the Company enters into marketing or
distribution arrangements with others, any revenues the Company receives
will depend on the efforts of third parties.  There can be no assurance
that any third party will devote sufficient resources to the Company's
products or market the Company's products successfully.  There can be no
assurance that the Company will be able to establish internal sales and
distribution capabilities or that it will be able to enter into
marketing arrangements with third parties on acceptable terms, or at
all, or that it will be successful in gaining market acceptance for any
products that may be developed by the Company.  The Company's failure to
establish successful marketing and sales capabilities or enter into
successful marketing arrangements with third parties would have a
material adverse effect on the Company's business, financial condition
and results of operations. 


No Assurance of Market Acceptance
---------------------------------
     There can be no assurance that Hectorol(trademark), or any other
product developed by the Company, will achieve market acceptance, when
and if approved by the FDA or any other regulatory agency.  The degree
of market  acceptance will depend upon a number of factors, including
the receipt and timing of regulatory approvals and  the establishment
and demonstration in the medical community of the clinical safety,
efficacy and cost-effectiveness of the Company's products and their
advantages over existing technologies and therapies.  There can be no
assurance that the Company will be able to manufacture and market
successfully its products even if they perform successfully in clinical
applications.  Furthermore, there can be no assurance that physicians or
the medical community in general will accept and utilize any products
that may be developed by the Company.


Product Liability
-----------------
     The Company's business exposes it to potential liabilities inherent
in testing, manufacturing and commercializing pharmaceuticals for human
use.  The Company does not have product liability insurance for clinical
use or commercial sale of any of its potential products, and the Company
does not intend to obtain such insurance until Hectorol(trademark) is
commercialized.  There can be no assurance that the Company will be able
to obtain insurance coverage at acceptable costs, or at all, or that the
Company will not experience losses due to product liability claims.  A
product liability claim, product recall or other claim or claims for
uninsured liabilities or for amounts exceeding the limits of the
Company's insurance could have a material adverse effect on the
Company's business, financial condition and results of operations. 


Dependence on and Attraction and Retention of Key Personnel
-----------------------------------------------------------
     The Company is highly dependent upon its ability to attract and
retain qualified scientific, technical and managerial personnel.  The
success of the Company will depend in large part on the continued
services of its current President and Chief Executive Officer, Dr.
Charles W. Bishop.  The loss or interruption of his services could have
a material adverse effect on the business, financial condition and
results of operations of the Company.  There is intense competition for
qualified scientists, technicians and managerial personnel from numerous
pharmaceutical companies, as well as from academic and government
organizations, research institutions and other entities.  There can be
no assurance that the Company will be able to attract and retain such
personnel on acceptable terms.  Loss of the services of, or the failure
to recruit, key scientific, technical and managerial personnel could
have a material adverse effect on the Company's research and development
programs.  Furthermore, the Company's anticipated growth and expansion
into areas and activities requiring additional expertise, such as
marketing, will require the addition of new personnel.  The failure to
attract and retain such personnel could have a material adverse effect
on the Company's business, financial condition and results of
operations. 


Shares Eligible for Future Sale
-------------------------------
     At June 30, 1998, the Company had a total of 10,134,956 shares of
common stock outstanding.  Of these shares, 10,119,956 shares of common
stock are freely tradeable without restriction or registration under the
Securities Act by persons other than "affiliates" of the Company, as
defined under the Securities Act. 

     As of June 30, 1998, options to purchase a total of 527,778 shares
of Common Stock pursuant to the Company's stock option plans were
outstanding at a weighted average exercise price of $3.84 per share, of
which options to purchase 130,266 shares of Common Stock were then
exercisable.  An additional 497,150 shares of Common Stock were reserved
for future option grants under the 1996 Plan.  The Company has an
effective registration statement on Form S-8 under the Securities Act
registering shares of Common Stock subject to stock options granted
under its stock option plans.  Sales of substantial amounts of Common
Stock in the public market, or the perception that such sales could
occur, could adversely affect the trading price of the Common Stock and
could impair the Company's future ability to raise capital through an
offering of Common Stock or other equity securities. 


Special Note Regarding Forward-Looking Statements
-------------------------------------------------
     This Annual Report on Form 10-K contains "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995.  Such forward-looking statements involve known and
unknown risks, uncertainties, and other factors which may cause the
actual results, performance, or achievements of the Company to be
materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements.
Such factors include, among others, the Company's early stage of
development, the Company dependence on its ability to obtain regulatory
approval of Hectorol(trademark), the uncertainty of the Company's future
profitability, the uncertainty of regulatory approvals of any drugs
developed by the Company, the uncertainty of the Company's patent
positions and proprietary rights, the uncertainty related to pricing and
reimbursement of the Company's products, the intense competition in the
pharmaceutical and biotechnology industries, the Company's potential
need to additional partners or collaborators, the Company's future
capital needs and uncertainty of additional financing, and the Company's
lack of manufacturing capabilities and limited sales and marketing
experience.  Certain of these factors are discussed in more detail under
"Factors Affecting Future Results".  Readers should also carefully
review the risk factors set forth in other reports or documents the
Company files from time to time with the Securities and Exchange
Commission.  Given these uncertainties, readers are cautioned not to
place undue reliance on such forward-looking statements.  The Company
disclaims any obligation to update any such factors or to publicly
announce any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.

ITEM 2.  PROPERTIES
         ----------
     The Company leases approximately 10,000 square feet of office and
laboratory space in Madison, Wisconsin.  The lease expires on November
30, 2000.

ITEM 3.  LEGAL PROCEEDINGS
         -----------------    

     The Company may be a defendant from time to time in actions arising
out of its ordinary business operations.  There are no legal proceedings
known to the Company involving the Company as defendant.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
         -----------------------------------------------------   

     None.


                               PART II

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

     The common stock has been quoted on The Nasdaq Stock Market since
May 9, 1996, under the symbol "BCII", and since December 27, 1997, the
common stock has been quoted on the Nasdaq National Market of the Nasdaq
Stock Market.  The following table sets forth high and low sales prices
as reported on The Nasdaq Stock Market for fiscal years 1997 and 1998 as
indicated.


                First           Second       Third           Fourth
1997            Quarter         Quarter      Quarter         Quarter
----            --------       ---------     --------        --------
    
High          $  3.75          $  4.00       $  6.63         $ 7.00
Low           $  3.00          $  3.00       $  3.63         $ 5.75

1998
----

High          $ 11.50          $12.62        $10.88           $11.12
Low           $  6.50          $ 9.75        $ 7.25           $ 8.75


     As of September 23, 1998, Bone Care's common stock was held by
approximately 2,500 stockholders of record or through nominee or street
name accounts with brokers.

     The Company has not paid any cash dividends on its shares of common
stock since its spin-off from Lunar Corporation (Lunar) on May 8, 1996,
and does not expect to pay any cash dividends in the foreseeable future.
Any payment of dividends would depend upon the Company's pattern of
growth, profitability, financial condition, and such other factors as
the Board of Directors may deem relevant.

     In connection with a directed public offering of 1,326,000 shares
of common stock (the "Offering") in 1998, the Company filed a
Registration Statement on Form S-1, SEC File No. 333-43923
("Registration Statement"), which was declared effective by the
Commission on July 22, 1998.  The Offering commenced on July 22, 1998,
and all securities were sold in the Offering.  The Company sold all
shares directly to investors and incurred no underwriting costs in the
transaction.

     Pursuant to the Registration Statement, the Company sold 1,326,000
shares of common stock in the Offering at a price of $8.00 per share for
an aggregate offering price of $10,608,000.  Certain directors of the
Company purchased 276,000 shares of the Offering.

     The Company incurred offering expenses of approximately $350,000.
All of such expenses were direct or indirect payments to others.  The
net proceeds from the Offering to the Company after total expenses was
approximately $10,258,000.

     The Company has not used any of the net proceeds from the Offering.
All net proceeds have been invested in short-term, investment grade,
interest-bearing financial instruments.  The use of proceeds from the
Offering does not represent a material change in the use of proceeds
described in the prospectus which is part of the Registration Statement.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA
        -------------------------------------

     The following selected consolidated financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto included elsewhere in this Annual Report.
The consolidated statements of operations data set forth below for each
of the years ended June 30, 1998, 1997, and 1996 and the consolidated
balance sheet data as of June 30, 1998 and 1997 are derived from, and
are qualified by reference to, the audited Consolidated Financial
Statements and Notes thereto included elsewhere in this Annual Report
and should be read in conjunction with those Consolidated Financial
Statements and Notes.  The consolidated statements of operations data
for the years ended June 30, 1995 and 1994 and the consolidated balance
sheet data as of June 30, 1996, 1995, and 1994 are derived from audited
Consolidated Financial Statements of the Company not included herein.

                                  Year Ended June 30,
                                  -------------------
                                  1998   1997  1996  1995    1994
                                  ----   ----  ----  ----    ----
                           (in thousands, except per share data)
Consolidated Statements
-----------------------
 of Operations Data:
 ------------------
Revenues..................... $    -  $   39   $   19  $  15  $  -
Operating expenses:
 Cost of sales ..............      -      38       12     -      -
 Research and development....   3,932  2,885    1,158    535    329
 General and administrative..     898    439      197    172    165
   Total operating expenses..   4,830  3,362    1,367    707    494
Income(loss)from operations..  (4,830) (3,323) (1,348) (692)   (494)
Other income (expense), net..     340    529       90    (7)      9
                               --------------------------------------- 
Net loss.....................$(4,490)$(2,794) $(1,258)$ (699) $ (485)
                               =======================================
Net loss per common share(1)  $(0.51) $(0.32) $(0.26) $ (0.41)$(0.29)
                               =======================================
Weighted average common   
shares outstanding(1)........  8,747   8,713   4,894    1,698  1,698
                               =======================================


                                                June 30,
                                                --------
                               1998     1997     1996    1995   1994
                               ----     ----     ----    ----   ----
                                           (in thousands)
Consolidated Balance Sheet Data:
--------------------------------
Cash and cash equivalents....   $3,484  $8,532 $11,061 $  23 $  200
Working capital..............    3,073   8,103  11,004  (427)   198
Total assets.................    5,813   9,900  12,261 1,029  1,280
Total long-term liabilities..       -       -      -      -      -
Accumulated deficit..........   (10,020)(5,530) (2,736)(1,478) (779)
Total shareholders' equity...     5,122  9,420  12,182    559  1,258

(1) See Note 1 to Notes to Consolidated Financial Statements for an
    explanation of the computation of net loss per common share.




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

Overview

     The Company is a leader in the discovery and development of
improved D-hormone therapies.  D-hormones have a key role in secondary
hyperparathyroidism leading to metabolic bone diseases in several
patient populations, including ESRD, pre-dialysis and osteoporosis
patients.  D-hormones also have a role in certain hyperproliferative
diseases, including prostate, breast and colon cancers, and psoriasis.
Through the Company's collaborations with leading D-hormone research
institutions, as well as the Company's internal research and development
efforts, the Company has developed substantial expertise in the area of
D-hormone chemistry.  The Company has leveraged that expertise to
develop a portfolio of D-hormones and analogs which the Company believes
possess improved safety and efficacy profiles compared to existing D-
hormone
therapies.

     The Company was formed in 1984 as a wholly-owned subsidiary of
Lunar.  In October 1995, Lunar exchanged all of its assets related to D-
hormone research and product candidates and its ownership in Continental
Assays Corporation (a subsidiary having expertise in analytical
chemistry related to D-hormones) for additional shares of common stock.
In April 1996, the Board of Directors of Lunar declared a dividend of
one share of common stock for every two shares of Lunar common stock,
thereby distributing all of the common stock of the Company then held by
Lunar to the shareholders of Lunar.  In May 1996, the Company became a
separate, publicly held corporation upon the distribution of the
dividend (the "Distribution").

     Since its inception, the Company has been engaged in research and
development activities, has generated minimal revenues from operations
and has incurred significant operating losses.  At June 30, 1998, the
Company had an accumulated deficit of approximately $10.0 million.  Such
losses have resulted principally from costs incurred in research and
development, preclinical and clinical activities and from general and
administrative costs associated with the Company's operations.  The
Company expects that operating losses will continue and increase for the
foreseeable future as its research and development, preclinical,
clinical and marketing activities expand.  The Company's results may
vary significantly from period to period depending on several factors,
such as the timing of certain expenses and the progress of the Company's
research and development efforts.

     The Company is at an early stage of development and currently has
no revenues from product sales.  The Company does not have regulatory
approval from the FDA or foreign regulatory authorities to market any
product.  All of the Company's product candidates, other than
Hectorol(trademark) for the treatment of secondary hyperparathyroidism
associated with ESRD, are at an early stage of development and will
require extensive research and development and preclinical and clinical
testing prior to commercialization.  The Company's ability to achieve
profitability will depend in part on its ability to obtain regulatory
approvals for its product candidates and successfully manufacture and
market any approved products either by itself or in collaboration with
third parties.  There can be no assurance as to when the Company will
achieve profitability, or that profitability, if achieved, will be
sustained.



Results of Operations
----------------------
   Fiscal Years Ended June 30, 1998 and June 30, 1997
   --------------------------------------------------
     Research and development expenses increased to $3,932,008 in fiscal
1998 from $2,885,127 in fiscal 1997.  The increase is primarily due to
higher expenditures related to the anticipated commercialization of
Hectorol(trademark) for treating secondary hyperparathyroidism
associated with ESRD.  General and administrative expenses increased by
$459,443 to $898,274 in fiscal 1998 from $438,831 in fiscal 1997.  Such
increase was incurred to support expanded research and development
activities and commercialization efforts associated with
Hectorol(trademark).  Interest income decreased to $340,349 in fiscal
1998 from $528,492 in fiscal 1997.  This decrease is due to lower
invested cash balances.

     The reported net loss for the years ended June 30, 1998 and 1997
was $4,489,933 and $2,794,345, respectively.  The increase in net losses
is primarily attributable to increased expenses associated with expanded
research and development activities.

   Fiscal Years Ended June 30, 1997 and June 30, 1996
   --------------------------------------------------
     The Company's research and development expenses totaled $2,885,127
in fiscal 1997 compared to $1,157,914 in fiscal  1996.  The increase is
due primarily to higher expenditures on Hectorol(trademark) clinical
trials for secondary hyperparathyroidism associated with ESRD.  This
increase is also due in part to the Company assuming research and
development expenses for D-hormone analogs contributed by Lunar in
October 1995.  General and administrative expenses increased $242,461 to
$438,831 in fiscal 1997 from $196,370 in fiscal 1996.  The increase was
incurred to support expanded research and development activities.
Interest income increased by $425,182 to $528,492 in fiscal 1997
compared to $103,310 in fiscal year 1996.  The increase is primarily the
result of interest earned on capital contributions made in fiscal 1996
by Lunar and Draxis Health Care, Inc., ("Draxis") the Company's
shareholders at the time of the contributions.  No interest expense was
incurred in fiscal 1997 compared to $13,495 in fiscal 1996 due to the
cancellation of loans from Lunar to the Company during fiscal 1996.  The
Company reported a net loss of $2,794,345 in fiscal 1997 compared to a
net loss of $1,257,767 in fiscal 1996.  The increase in the net loss is
attributable to increased expenses associated with expanded research and
development activities offset by increased interest income.


Liquidity and Capital Resources
-------------------------------
     The Company has historically financed its operations through a
combination of capital contributions and collaborative licensing and
research agreements.  In fiscal 1996 the Company received capital
contributions of $10,000,000 and $60,000 from Lunar and Draxis,
respectively.  Additionally, Lunar reimbursed an advance from the
Company in the amount of $634,683 related to general advances and
$725,000 for tax benefits prior to the Distribution.  Since inception
through 1993 the Company received $4,700,000 for various licensing and
research agreements relating to Hectorol(trademark).  All of those third
party collaborative research and licensing agreements, other than the
licensing agreement with Draxis, have ended.

     Net cash used in operating activities increased to $4,553,031 for
fiscal 1998 from $2,191,262 in fiscal 1997.  The increases were due
primarily to increased research and development activities, including
clinical trials of Hectorol(trademark), preclinical development of other
D-hormones and activities related to the anticipated commercialization
of Hectorol(trademark).  Cash and cash equivalents were $3,484,374 and
$8,531,714 at June 30, 1998 and 1997, respectively.  Cash and cash
equivalents are currently invested primarily in a government securities
money market fund and short-term municipal debt obligations.

     In July 1998, the Company completed a directed public offering of
1,326,000 shares of common stock at a price of $8.00 per share.  The
Company received proceeds of approximately $10.3 million from the sale,
net of offering expenses.

     The Company will require substantial funds for its research and
development programs, preclinical and clinical testing, operating
expenses, regulatory processes and manufacturing and marketing programs.
The Company's capital requirements will depend on numerous factors,
including 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 the Company's existing licensing
relationships and the terms of any new collaborative, licensing, co-
promotion or distribution arrangements that the Company may establish;
the progress of commercialization and marketing activities; the cost of
manufacturing preclinical and clinical products; and other factors not
within the Company's control.  The Company believes that the current
level of cash and cash equivalents inclusive of  the net proceeds of the
common stock offering completed in July 1998, should be sufficient to
fund its operations through at least the end of the current fiscal year.

     At June 30, 1998, the Company had state tax net operating loss
carryforwards of approximately $9,354,000 and state research and
development tax credit carryforwards of approximately $118,000, which
will begin expiring in 2009 and federal net operating loss carryforwards
of approximately $6,908,000 and research and development tax credit
carryforwards of approximately $452,000, which will begin expiring in
2012.  During the period from June 30, 1990 to May 8, 1996, Lunar
realized certain federal income tax savings that were attributable to
losses incurred by the Company.  As part of a tax disaffiliation
agreement, Lunar paid the Company $725,000 for the benefit of these tax
savings.


Year 2000 Compliance
--------------------
     Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field.  To
distinguish 21st century from 20th century dates, these date code fields
must be able to accept four-digit entries.

     The Company has reviewed its existing financial and other business
information systems and believes that its computer systems will be able
to manage and manipulate all material data involving the transition from
1999 to 2000 without functional or data abnormality and without
inaccurate results related to such data.

     It is possible that third parties such as suppliers or contract
research institutions, may have noncompliant computer systems or
programs which may not interface properly with the Company's computer
systems or which may otherwise result in a disruption of the Company's
operations. 

     The Company currently anticipates that the expenses and capital
expenditures associated with its year 2000 compliance program will not
have a material effect on its financial position or results of
operations.  Although the Company believes that it will be able to
achieve year 2000 compliance through its efforts, there can be no
assurance that these efforts will be successful.  The Company could be
adversely affected if it or third parties fail to successfully achieve
year 2000 compliance.  In particular, a disruption to the Company's
commercialization efforts for Hectorol(trademark) could have a material
effect on the Company's financial position or results of operations.

ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
          -----------------------------------------------------------

     In January 1997, the SEC released amended Rule 4-08 of Regulations
S-X (General Notes to the Financial Statements), as part of Release No.
33-7386, requiring additional disclosure with respect to accounting
policies followed in connection with the accounting for derivative
financial instruments and derivative commodity instruments.  This
disclosure is required for all periods ending after June 15, 1997,
unless a registrant's most recent Form 10-K is in compliance.  The
Release also added Item 305 to Regulation S-K to require quantitative
and qualitative disclosures outside the financial statements about
market risk inherent in derivative and other financial instruments.  The
requirements of Item 305 become effective for non-bank registrants with
market capitalization in excess of $2.5 billion at January 28, 1997, for
filings that include annual financial statements for periods ending
after June 15, 1997.  For registrants with market capitalization under
$2.5 billion, the requirements of Item 305 become effective for filings
that include annual financial statements for periods ending after June
15, 1998.  The Company believes that presently it does not have a
substantive disclosure with respect to quantitative and qualitative
disclosures about market risk.  As the Company's operations expand, the
Company will consider such disclosures.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
         --------------------------------------------

                     CONSOLIDATED  STATEMENTS  OF  OPERATIONS
                 BONE  CARE  INTERNATIONAL,  INC. AND  SUBSIDIARY


        Years ended June 30,              1998           1997            1996
                                          ----           ----           ----
REVENUES                        $           -        $ 39,425       $ 18,620
                                              
OPERATING EXPENSES
  Cost of sales                             -          38,304         11,918    

  Research and development             3,932,008    2,885,127      1,157,914
  General and administrative             898,274      438,831        196,370
-------------------------------------------------------------------------------
                                       4,830,282    3,362,262      1,366,202
                                                                               
-------------------------------------------------------------------------------

LOSS  FROM  OPERATIONS                (4,830,282)  (3,322,837)    (1,347,582)

OTHER  INCOME  (EXPENSE)
  Interest income                        340,349      528,492        103,310
  Interest expense                          -            -           (13,495)
-------------------------------------------------------------------------------
                                         340,349      528,492         89,815
-------------------------------------------------------------------------------

NET  LOSS                           $ (4,489,933) $(2,794,345)   $(1,257,767)
===============================================================================


NET  LOSS  PER  COMMON 
  SHARE - BASIC                     $    (0.51)   $     (0.32)   $     (0.26)   

===============================================================================
See accompanying notes to consolidated financial statements.



                          CONSOLIDATED  BALANCE  SHEETS
                BONE  CARE  INTERNATIONAL,  INC. AND  SUBSIDIARY
                                      ASSETS


June 30,                                               1998        1997
                                                       -----        ----

CURRENT ASSETS
  Cash and cash equivalents                      $  3,484,374  $ 8,531,714
  Inventory                                           229,500       52,565
  Prepaid expenses                                     50,162         -   
-------------------------------------------------------------------------------

TOTAL  CURRENT ASSETS                               3,764,036    8,584,279

PROPERTY,  PLANT AND  EQUIPMENT   AT  COST
  Leasehold improvements                               72,105       21,092
  Furniture and fixtures                               57,122       24,625
  Machinery and other equipment                       490,915      263,970
-------------------------------------------------------------------------------
                                                      620,142      309,687

  Less accumulated depreciation                       310,054      226,737
-------------------------------------------------------------------------------
                                                      310,088       82,950

  Patent fees, net of accumulated amortization
   of $491,462 at June 30, 1998 and $359,462 at
   June 30, 1997                                      738,808      516,270

  Excess of cost over fair value of net assets
   acquired,net of accumulated amortization of
   $732,408 at June 30, 1998 and $642,960 at
   June 30, 1997                                      627,509      716,957

  Other non-current assets                            372,835         -   
-------------------------------------------------------------------------------
                                                  $ 5,813,276  $ 9,900,456
===============================================================================
See accompanying notes to consolidated financial statements.  




                      CONSOLIDATED  BALANCE  SHEETS (cont.)
                BONE  CARE  INTERNATIONAL,  INC.  AND  SUBSIDIARY
                      LIABILITIES AND  SHAREHOLDERS'  EQUITY


June 30,                                              1998        1997
                                                      ----        -----
CURRENT  LIABILITIES
  Accounts payable                                 $ 59,585     $ 141,445
  Accrued liabilities:
    Accrued clinical study and research costs       481,005       291,165
    Compensation payable                            150,705        15,447
    Property, payroll and other taxes                  -            8,388
    Other                                              -           24,500
                                                                               
-------------------------------------------------------------------------------

TOTAL  CURRENT  LIABILITIES                         691,295      480,945  

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, 8,808,956
    and 8,722,382 shares at June 30, 1998
    and 1997                                     11,393,883   11,393,883
  Additional paid-in capital                      3,748,328    3,555,925
  Accumulated deficit                           (10,020,230)  (5,530,297) 
-------------------------------------------------------------------------------
                                                  5,121,981    9,419,511  
-------------------------------------------------------------------------------

                                               $  5,813,276  $ 9,900,456  
===============================================================================
See accompanying notes to consolidated financial statements.




               CONSOLIDATED  STATEMENTS  OF  SHAREHOLDERS'  EQUITY
                BONE  CARE  INTERNATIONAL,  INC.  AND  SUBSIDIARY


Years ended June 30, 1998,
1997, and 1996                 Number            Additional
                                of       Common    paid-in Accumulated
                              shares      stock    capital   deficit   Total
                             -------     ------   --------- ---------- -----
BALANCE AT JUNE 30, 1995
                           1,697,884 $583,333 $1,453,984 $(1,478,185) $559,132
Conversion of Lunar
  Corporation advances                 
  to common stock            214,802   634,683      -          -       634,683

Contribution of Lunar
  Corporation Vitamin D
  assets and all
  outstanding shares of
  Continental Assays
  Corporation for
  common stock             3,397,348   175,867       -         -       175,867

Capital contributions
  by Lunar
  Corporation              3,397,348 10,000,000  1,285,291     -    11,285,291

Capital contribution
  by Draxis Health Inc.         -          -        60,000     -        60,000

Payment from Lunar
  Corporation for tax
  benefit                       -          -       725,000     -       725,000

  Net loss for the year
    ended June 30, 1996         -          -          -  (1,257,767)(1,257,767)
                                                                               
-------------------------------------------------------------------------------

BALANCE  AT  JUNE 30, 1996
                           8,707,382 11,393,883 3,524,275 (2,735,952)12,182,206

Issuance of shares
  under stock option
  plan                        15,000      -        31,650       -        31,650

  Net loss for the year
    ended June 30, 1997         -         -          -   (2,794,345)(2,794,345)
                                                                               
-------------------------------------------------------------------------------
BALANCE AT  JUNE 30, 1997
                           8,722,382 11,393,883 3,555,925 (5,530,297) 9,419,511

Issuance of shares under stock
  option plan                86,424       -      192,403        -      192,403

Issuance of stock awards        150       -         -           -         -    
     

  Net loss for the year ended
    June 30, 1998              -          -         -    (4,489,933)(4,489,933)
-------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998
                       8,808,956 $11,393,883 $3,748,328 $(10,020,230)$5,121,981

-------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.




                    CONSOLIDATED  STATEMENTS  OF  CASH  FLOWS
                BONE  CARE  INTERNATIONAL,  INC.  AND  SUBSIDIARY

Years ended June 30,                    1998         1997        1996
                                        ----         ----        ----
CASH  FLOWS
  FROM  OPERATING ACTIVITIES

  Net loss                        $(4,489,933) $(2,794,345) $(1,257,767)

ADJUSTMENTS  TO  RECONCILE
  NET  LOSS  TO  NET  CASH
  USED  IN  OPERATING ACTIVITIES

  Depreciation and amortization        309,781      231,508      182,378
  Gain on disposal of fixed assets      16,703         -            - 
  Changes in assets and liabilities:
  Inventories                         (176,935)    (52,565)         -
  Other current assets                 (50,162)      22,314       30,473
  Account payable                      (81,860)      68,209      (70,909)
  Accrued liabilities                  292,210      333,617        4,289
  Other                               (372,835)        -            -          
 
                                                                               
-------------------------------------------------------------------------------
NET  CASH  USED
  IN  OPERATING ACTIVITIES          (4,553,031)   (2,191,262)  (1,111,536)
                                                                               
-------------------------------------------------------------------------------

CASH  FLOWS
  FROM  INVESTING ACTIVITIES

  Additions to property, plant
    and equipment                    (332,174)      ($52,226)     (30,081)
  Patent fees                        (354,538)      (317,291)     (87,597)
  Continental Assays
    cash contribution                    -              -           6,832
                                                                               
-------------------------------------------------------------------------------

NET  CASH  USED
  IN  INVESTING ACTIVITIES            (686,712)     (369,517)    (110,846)
                                                                               
-------------------------------------------------------------------------------

CASH  FLOWS
  FROM  FINANCING ACTIVITIES

  Proceeds from
    Lunar Corporation advances            -              -         190,339
  Proceeds from Lunar Corporation
    capital contributions                 -              -       12,010,291
  Proceeds from Draxis Health, Inc.
    capital contribution                  -              -           60,000
  Proceeds from exercise of
    stock options                      192,403        31,650           -
                                                                               
-------------------------------------------------------------------------------

NET  CASH
  PROVIDED  BY  FINANCING ACTIVITIES   192,403        31,650      12,260,630
                                                                                

  Net increase (decrease)
    in cash and cash equivalents   (5,047,340)    (2,529,129)     11,038,248
  Cash and cash equivalents
    at beginning of year            8,531,714     11,060,843          22,595
                                                                               
-------------------------------------------------------------------------------
CASH AND  CASH  EQUIVALENTS
  AT  END  OF  YEAR               $ 3,484,374    $ 8,531,714     $ 11,060,843
                                                                               
===============================================================================
See accompanying notes to consolidated financial statements.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BONE  CARE  INTERNATIONAL,  INC.  AND SUBSIDIARY

(1) SUMMARY OF ACCOUNTING POLICIES
  
    Principles of Consolidation
    ---------------------------

    The consolidated financial statements include the accounts of Bone Care
International, Inc. and its wholly owned subsidiary, Continental Assays
Corporation, through June 11, 1998, the date of its dissolution (the Company).
All significant intercompany accounts and transactions have been eliminated in
consolidation.

    Description of Business
    -----------------------  

    Bone Care International, Inc. is engaged in the discovery and development
of improved D-hormone therapies.  In March 1998, the Company filed a New Drug
Application with the U.S. Food and Drug Administration for an oral formulation
of Hectorol(trademark), its lead product candidate.  Hectorol(trademark) is a
synthetic D-hormone analog for the treatment of secondary hyperparathyroidism
associated with end stage renal disease.  The Company 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.

     The Company was a subsidiary of Lunar Corporation (Lunar) until May 8,
1996.  The Board of Directors of Lunar declared a dividend, payable to holders
of record of Lunar common stock of one share of the Company's common stock for
every two shares of Lunar common stock held of record on April 24, 1996.  The
distribution occurred on May 8, 1996, at which time Lunar and the Company
became separate, publicly traded companies.

     Revenue Recognition
     -------------------
     Revenues from assay services are recognized as services are performed.


     Cash and Cash Equivalents
     -------------------------
     For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with original maturities of three months or
less to be cash equivalents.

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

     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.  A combination of straight-line and accelerated methods of
depreciation are used for financial statement and income tax reporting
purposes.

      The cost of property 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.  The Company
continuously reviews intangibles to assess recoverability from 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.

       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 is recognized using the
intrinsic value method and thus there is no compensation expense for options
granted with exercise prices equal to the fair value of the Company's common
stock on the date of the grant.  Stock-based compensation related to
non-employees is not material.

       Net Loss Per Share
       ------------------
       Net loss per share is based on a weighted average number of shares of
common stock of 8,746,677; 8,713,344; and 4,894,028 for the years ended June
30, 1998, 1997, and 1996 respectively.  The Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128 "Earnings per
Share" (SFAS No. 128), in February 1997.  The Company adopted SFAS No. 128
effective with annual financial statements for periods ended June 30, 1998.
Although SFAS No. 128 requires restatement of prior period per share data, such
restatement resulted in no effect to the Company's previously reported per
share data.  Diluted per share data is not presented as the effect of
potentially issuable common shares would be antidilutive. 
       
       Income Taxes
       ------------
       Income taxes are accounted for under the assets 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 carryforwards.  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.

        For the period prior to the May 8, 1996 distribution, the Company was
included in the consolidated Federal income tax return of Lunar.  Through the
date of distribution, tax expense has been calculated as if the Company filed
separate income tax returns; however, as a result of net operating losses
incurred, no income taxes have been provided for in the years ended June 30,
1998, 1997, and 1996.  

        Fair Value of Financial Instruments
        -----------------------------------
        The fair value of financial instruments, which consisted  of cash and
cash equivalents, receivables, accounts payable, and accrued liabilities,
approximated their carrying values at June 30, 1998 and 1997.

        Use of Estimates
        ----------------
        In preparing the consolidated financial statements, the Company'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.  

(2)   STOCK OPTIONS

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

      The January 1, 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 the Company'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.  At June 30, 1998, a total of 126,352 options were issued and 59,228
options were outstanding under this plan.  In June 1990, the Board of Directors
of Bone Care agreed not to issue any new options under this plan.  The Company
has not made any subsequent grants under this plan, 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.  

     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, of which 497,150 remain available.  Options granted under this
program vest over a three- or five-year period.  The options will expire 10
years from the granting date, or upon termination of employment.

     A summary of the Company's stock option activity, and related information
are summarized as follows:

                                          Year Ending June 30,
                                                                           
                                1998             1997             1996
                         ----------------  -----------------   --------------
                                 Weighted           Weighted         Weighted
                                  average            average          average
                                 exercise           exercise         exercise
                         Options  price    Options   price   Options  price
                         ------------------------------------------------------
Outstanding -
   Beginning of year     491,652  $ 2.49    453,652   $ 2.12  126,352  $ 2.11
Granted                  130,850    7.81     53,000     5.51  406,270    2.12
Exercised                (86,424)   2.19    (15,000)    2.11     -         -
Terminated/canceled       (8,300)   3.57       -          -   (78,970)   2.11
                         ------------------------------------------------------
Outstanding -
   end of year           527,778  $ 3.84    491,652   $ 2.49  453,652  $ 2.12
                         ======================================================
Exercisable at
   end of year           130,266  $ 2.35    119,236   $ 2.12   47,382  $ 2.11
                         ======================================================
Weighted average fair
   value of options
   granted during year    $ 4.00             $ 2.88            $ 1.19
                          =======            =======           =======

The options outstanding at June 30, 1998, have been segregated into three
ranges for additional disclosure as follows:




                     Options Outstanding            Options Exercisable  
                 ---------------------------       --------------------        
                                   Weighted              Options
                        Options     average   Weighted   currently  Weighted
Range of              Outstanding  remaining  average  exercisable   average
exercise                  at      contractual exercise     at        exercise
prices              June 30, 1998    life      price  June 30, 1998   price 
-------------------------------------------------------------------------------
   $ 2.11                345,928       7.1 $   2.11      120,266    $ 2.11
$2.935-$3.125              5,600       8.1     2.99        2,000      3.01
   $ 5.75                 46,400       9.0     5.75        8,000      5.75
   $ 7.50                 97,850       9.4     7.50         ---       ---
   $ 8.75                 32,000      10.0     8.75         ---       ---      
      

          The Company has elected to follow accounting Principles Board Option
No. 25, Accounting for Stock Issued to Employees (APB 25), and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123, accounting for Stock-Based Compensation, requires use of option
valuation models that were not developed for use in valuing employee stock
options.  Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.

          Pro forma information regarding net loss and net loss per share is
required by SFAS No. 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to June 30, 1995, under the fair market value method of that
statement.  The fair value for these options was estimated at the date of grant
using a Black-Scholes option  pricing model with the following weighted-average
assumptions for 1998 and 1997, risk free interest rate of 5.9% for 1998 and
6.0% for 1997, volatility factors of the expected market price of the Company's
common stock of 0.55 for 1998 and 0.60 for 1997, no expected dividends, and a
weighted-average expected life of the option from the date of grant of 4.6
years for 1998 and 4.0 years for 1997.

          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 market value of its employee
stock options.

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

                                  1998            1997          1996
                                  -----           -----         -----
Net loss                            
   as reported               $ (4,489,933)  $ (2,794,345)  $ (1,257,767)
   pro forma                 $ (4,672,909)  $ (2,889,508)  $ (1,291,830)
Net loss per share - basic
   as reported                      (0.51)       (0.32)         (0.26)
   pro forma                        (0.53)       (0.33)         (0.26)


  Since SFAS No. 123 is applicable only to options granted subsequent to June
30, 1995, their pro forma effect will not be fully reflective until 2000.


(3)  INCOME TAXES

  The Company has federal and state net operating loss and R & D tax credit
carryforwards expiring as follows:  


                                  Federal                      State           
                         ----------------------        ----------------------
                         NOL       R & D Credit        NOL         R&D Credit
                         ---       ------------        ---         ----------

          2009     $     -       $       -          $   388,000     $   24,000
          2010           -               -              596,000         24,000
          2011           -               -            1,146,000         16,000
          2012         322,000           -            2,775,000         24,000
          2013       2,460,000        198,000         4,449,000         30,000
          2014       4,126,000        254,000             -               -
          -------------------------------------------------------------------- 
          Total    $ 6,908,000    $   452,000        $ 9,354,000    $  118,000
          --------------------------------------------------------------------


   Deferred tax assets at June 30, 1998 and 1997 were as follows:

                                                  1998                  1997   
                                              -------------------------------

     Federal net operating loss carryforward  $2,349,000           $1,016,000
     Federal R&D tax credit carryforward         452,000              169,000
     State net operating loss carryforward       739,000              377,000
     State R&D tax credit carryforward           118,000               82,000
     Valuation allowance                      (3,658,000)          (1,644,000)
                                              -------------------------------
                                              $     -               $    - 
                                              ===============================


Realization of deferred tax assets is dependent upon generating sufficient
taxable income prior to the expiration of the related carryforward period.
Management believes there is a risk that such carryforwards may expire unused,
and accordingly, has established a valuation allowance against them.


(4)   SHAREHOLDERS' EQUITY

      On October 10, 1997, the company declared a 2-for-1 stock split in the
form of a stock dividend to shareholders of record on October 27, 1997.  The
dividend was paid November 14, 1997.  Accordingly, all common share and per
share data in the accompanying financial statements have been adjusted to give
effect to the stock split.

       On April 15, 1996, the Board of Directors of the Company adopted Amended
and Restated Articles of Incorporation of the Company which, among other
things, increased the authorized capital of the Company to 30,000,000 shares
consisting of 28,000,000 shares of common stock and 2,000,000 shares of
preferred stock issuable in series.  The Board of Directors of the Company also
declared a 789.7 for 1 stock split payable in the form of a stock dividend.
The accompanying financial statements give retroactive effect to these changes. 



(5)  NON-CASH TRANSACTIONS

     In October 1995, Lunar contributed its ownership of Continental Assays
Corporation and certain assets with a book value of $175,867 for 3,397,348
shares of the Company's common stock.  In October 1995, Lunar also exchanged
$634,683 of loans receivable from the Company for 214,802 shares of common
stock of the Company.  


(6) LEASE COMMITTMENTS

    The Company has an operating lease for its office and laboratory facility.
The lease commenced in January 1998 and expires in November 2000.  Lease
payments include utilities, operating costs and property taxes and aggregate
$8,333 per month.  Minimum future payments under this lease as of June 30,
1998, are as follows:

                       1999      $100,000
                       2000       100,000
                       2001        41,666
                                 ---------
                       Total     $241,666
                                 =========

(7)   RELATED-PARTY TRANSACTIONS

          The Company entered into a Transition Agreement with Lunar pursuant
to which certain employees of Lunar will perform administrative services for
the Company. Such services include legal, treasury, accounting, insurance, and
employee benefit administration.  As compensation, the Company pays Lunar a
monthly fee of $7,000 plus certain costs.  The monthly fee was reduced to
$3,500 per month effective April 1998.  Prior to March 1998 Lunar leased 3,000
square feet of office space to the Company for $2,000 per month under the
Transition Agreement.  The term of the Transition agreement is three years;
however, the Company may terminate the agreement by giving Lunar 90 days'
advance written notice.  Prior to the distribution, the Company paid $5,000 per
month to Lunar for rent and the aforementioned administrative services.  The
total payments for those expenses were $74,200, $135,000, and $66,968 during
the years ended June 30, 1998, 1997, and 1996, respectively.


(8)  PROFIT-SHARING PLAN

     The Company 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.  The Company's policy is to fund profit-
sharing plan contributions as they accrue.  Profit-sharing expense amounted to
$9,031, $6,215, and $6,699 for the years ended June 30, 1998, 1997, and 1996,
respectively.


(9)  SHAREHOLDERS' RIGHTS PLAN AND PREFERRED STOCK

     In 1996, the Company 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 the holders thereof to purchase from the Company 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 the per-share
earnings of the Company.  The Rights are not presently exercisable and are
transferable only with the related shares of common stock.  The Company's Board
of Directors has designated 140,000 shares of the Preferred Stock as Series A
Junior Participating Preferred Stock in connection with the Rights.


(10)  QUARTERLY FINANCIAL DATA (UNAUDITED)

Summary quarterly financial data for the years ended June 30, 1998 and 1997 are
summarized as follows:

                           First        Second        Third        Fourth
                          Quarter       Quarter       Quarter      Quarter
                          -------       -------       -------      -------
                              (In thousands except for per share data)
1998
----
  Revenue                $  -          $   -           $  -          $  -
  Loss from operations    (1,120)        (1,207)        (1,323)       (1,169)
  Net loss                (1,008)        (1,109)        (1,247)       (1,114)
  Net loss per share -
    basic                  (0.12)         (0.13)         (0.14)        (0.13)

1997     
----
  Revenue                $  -          $     35         $    4       $  -
  Loss from operations      (441)          (914)          (950)       (1,018)
  Net loss                  (296)          (776)          (825)         (897)
  Net loss per share -
    basic                  (0.03)         (0.09)         (0.09)        (0.10)


(11)   SUBSEQUENT EVENT

       In July 1998, the Company completed a directed public offering of
1,326,000 shares of common stock at a price of $8.00 per share.  The Company
received proceeds of approximately $10.3 million from the sale, net of offering
expenses.  Certain directors of the Company purchased 276,000 of the shares
sold.
INDEPENDENT AUDITORS'  REPORT

THE  BOARD  OF  DIRECTORS
BONE  CARE  INTERNATIONAL,  INC:


We have audited the accompanying consolidated balance sheets of Bone Care
International, Inc. and subsidiary as of June 30, 1998 and 1997, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended June 30, 1998.
These consolidated financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bone Care
International, Inc. and subsidiary as of June 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1998 in conformity with generally accepted
accounting principles.  



KPMG Peat Marwick LLP
Chicago, Illinois
July 31, 1998  




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

             None

                                     PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
          ---------------------------------------------------

          The Company incorporates by reference the information included in the
Company's definitive Proxy Statement for its 1998 Shareholders Meeting to be
held on November 13, 1998, ("Proxy Statement") under the captions "Purposes of
the Meeting - Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance"  which will be filed with the Securities and Exchange
Commission separately pursuant to Rule 14a-6 under the Securities Exchange Act
of 1934 and in accordance with General Instruction G(3) to Form 10-K, not later
than 120 days after the end of the Company's fiscal year.

          As of September 23, 1998, the executive officers of the Registrant
are as follows:

Name                            Age        Title
----                            ---        -----
Richard B. Mazess, Ph.D.         59        Chairman 

Charles W. Bishop, Ph.D.         46        President and Chief Executive
Officer

Dale W. Gutman                   45        Vice President - Finance

Paul V. Peterson                 47        Vice President - Sales and Marketing 

          Richard B. Mazess, Ph.D., the Company's founder, has served as a
director of Bone Care since 1984.  Dr. Mazess served as President of Bone Care
from its inception in 1984 through February 1996, and has served as its
Chairman of the Board since February 1996.  Dr. Mazess has been President and a
director of Lunar since its inception in 1980.  Lunar develops and sells x-ray
and ultrasound bone densitometers for the diagnosis and monitoring of
osteoporosis and other metabolic bone diseases.  Lunar also develops and sells
medical imaging equipment used by orthopedists and radiologists for imaging
extremities.  Dr. Mazess became Professor Emeritus of Medical Physics at the
University of Wisconsin-Madison in 1985, and has been on the faculty of the
Department of Medical Physics since 1968.

          Charles W. Bishop, Ph.D., joined Bone Care in 1987 as Project
Director and was named Vice President in 1990, and President and Chief
Executive Officer in February 1996.  Dr. Bishop has been a director of Bone
Care since 1989.  Dr. Bishop received a Ph.D. degree in Nutritional
Biochemistry from Virginia Polytechnical Institute and completed a four-year
National Institute of Health post doctoral Fellowship in Vitamin D Biochemistry
at the University of Wisconsin-Madison.

          Dale W. Gutman joined Bone Care in December 1996 as Vice President -
Finance. From 1986 to December 1996, Mr. Gutman served as Vice President and
Corporate Controller of The Chas. Levy Company, a distributor of magazines and
books to independent and mass market retailers throughout the United States.
Mr. Gutman is a Certified Public Accountant.

          Paul V. Peterson joined Bone Care 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.

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

ITEM 11.  EXECUTIVE COMPENSATION
          -----------------------

          The Company incorporates by reference the information included in the
Proxy Statement under the caption "Executive Compensation", other than the
information included in the Proxy Statement under the sub-captions "Board of
Directors Report on Executive Compensation" and "Performance Graph".

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
          ---------------------------------------------------------------

          The Company incorporates by reference the information included in the
Proxy Statement under the caption "Securities Beneficially Owned by Principal
Shareholders, Directors and Executive Officers."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          -----------------------------------------------

          The Company incorporates by reference the information included in the
Proxy Statement under the caption "Certain Transactions."

                                     PART IV

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

          1 and 2.  Financial statements and financial statement schedule
                    ------------------------------------------------------   
          Reference is made to the separate index to the Company's consolidated
          financial statements and schedule contained on page 40 hereof.

          3.  Exhibits
              --------
          Reference is made to the separate exhibit index contained on page 42
          hereof.

(b)  Reports on Form 8-K
     -------------------

     No reports on Form 8-K were filed by the Company during the fourth quarter
     ended June 30, 1998.


                         BONE CARE INTERNATIONAL, INC.  

                    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                       AND
                           FINANCIAL STATEMENT SCHEDULE


The following documents are filed                                   Page(s) in
as part of this report:                                             Form 10-K
                                                                    ----------
(1)     Financial Statements:

           Independent Auditors' Report. . . . . . . . . . . . . .. . . 37

           Consolidated Balance Sheets at June 30, 1998 and 1997 .. .27-28

           Consolidated Statements of Operations for the years ended
             June 30, 1998, 1997, and 1996 . . . . . . . . . . . .. . . 26

           Consolidated Statements of Shareholders' Equity for the
             years ended June 30, 1998, 1997, and 1996 . . . . . .. . . 29

           Consolidated Statements of Cash Flows for the years
             ended June 30, 1998, 1997, and 1996 . . . . . . . . .. . . 30

           Notes to Consolidated Financial Statements. . . . . . .. .31-36

(2)     Financial Statement Schedule:

           All schedules are omitted because they are not applicable or the
             required information is shown in the financial statements or notes
             thereto.

          

                                    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.

Date:  September 23, 1998          By:   /s/ Charles W.  Bishop, Ph.D.         
                                        ---------------------------------------
                                        Charles W.  Bishop, Ph.D.
                                        President and Chief Executive Officer

          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.

Name
----

/s/ Charles W.  Bishop, Ph.D.      President and           September 23, 1998
------------------------------     Director (Principal
Charles W.  Bishop, Ph.D.          Executive Officer)


/s/ Richard B.  Mazess, Ph.D.      Chairman and Director   September 23, 1998
------------------------------
Richard B.  Mazess, Ph.D.


/s/ Robert A.  Beckman             Director                 September 23, 1998
------------------------------
Robert A.  Beckman


/s/ Martin Barkin, M.D.            Director                 September 23, 1998
------------------------------
Martin Barkin, M.D.


/s/ John Kapoor, Ph.D.             Director                 September 23, 1998
------------------------------
John Kapoor, Ph.D.


/s/ Dale W.  Gutman           Vice President -              September 23, 1998
-------------------------     Finance (Principal
Dale W.  Gutman               Financial and Accounting
                              Officer)



                          BONE CARE INTERNATIONAL, INC.
                                INDEX TO EXHIBITS

Exhibit
Number    Document Description
-------   --------------------

 3.1(a)   Restated Articles of Incorporation of Registrant(superscript1)
               (Exhibit 3.1, Amendment No. 3 to Form 10/a)

 3.1(b)   Articles of Amendment of Registrant(superscript2) (Exhibit 3.1(b))

 3.2      By-Laws of Registrant(superscript3) (Exhibit 3.2)

 4.1      Shareholders Rights Agreement between Bone Care and Norwest Bank
          Minnesota, N.A.(superscript1) (Exhibit 4.1, Amendment No. 3 to Form
          10/a)

10.1      Distribution Agreement Between Bone Care and Lunar Corporation       
          (superscript 1)(Exhibit 10.1, Amendment No. 3 to Form 10/a)

10.2      Tax Disaffiliation Agreement Between Bone Care and Lunar Corporation 
          (superscript 1)(Exhibit 10.2, Amendment No. 3 to Form 10/a)

10.3      Transition Agreement Between Bone Care and Lunar Corporation         
          (superscript 1)(Exhibit 10.3, Amendment No. 3 to Form 10/a)

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

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

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

10.7      Form of Stock Option Agreement(superscript 2) (Exhibit 10.7)

10.8      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).(superscript 2) (Exhibit 10.8)

23        Consent of KPMG Peat Marwick LLP

27        Financial Data Schedule

------------------------------------------------------------------------------
(Superscript 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.

(Superscript 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 reference to exhibit
numbers are to exhibit numbers in the Form S-1.

(Superscript 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.

(Superscript 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 reference 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.