Edgar Filing: ATRIX LABORATORIES INC

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-Q

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002

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 0-18231

ATRIX LABORATORIES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 84-1043826
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2579 MIDPOINT DRIVE FORT COLLINS, COLORADO 80525
(Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code: (970) 482-5868

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
--- ---

The number of shares outstanding of the registrant's common stock as of
April 26, 2002 was 20,214,945.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

ATRIX LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited)

MARCH 31, 2002 DECEMBER 31, 2001
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ASSETS

CURRENT ASSETS:
Cash and cash equivalents ........................................................ $ 32,406 $ 50,058
Marketable securities available-for-sale, at fair value .......................... 99,478 87,910
Accounts receivable, net of allowance for doubtful accounts of $4 and $5 ......... 4,155 3,522
Interest receivable .............................................................. 1,095 995
Inventories ...................................................................... 4,091 3,314
Prepaid expenses and deposits .................................................... 1,130 606
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Total current assets ........................................................ 142,355 146,405
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PROPERTY, PLANT AND EQUIPMENT, NET ..................................................... 8,250 7,557
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OTHER ASSETS:
Intangible assets, net of accumulated amortization of $3,625 and $3,421 .......... 3,324 3,446
Deferred finance costs, net of accumulated amortization of $71 and $121 .......... 43 85
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Other assets ................................................................ 3,367 3,531
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TOTAL ASSETS .............................................................. $ 153,972 $ 157,493
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LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable - trade ......................................................... $ 4,241 $ 3,108
Accrued expenses and other ....................................................... 610 611
Deferred revenue ................................................................. 7,036 7,467
Convertible subordinated notes payable ........................................... 2,875 --
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Total current liabilities ................................................... 14,762 11,186
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DEFERRED REVENUE ....................................................................... 27,151 28,373
CONVERTIBLE SUBORDINATED NOTES PAYABLE ................................................. -- 5,206

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value; 5,000,000 shares authorized
Series A preferred stock, $.001 par value, 200,000 shares authorized and
no shares issued or outstanding .......................................... -- --
Series A convertible exchangeable preferred stock, $.001 par value, 20,000
shares authorized; 12,871 and 12,871 shares issued and outstanding
Liquidation preference $13,509 and $13,281 ................................ -- --
Common stock, $.001 par value; 45,000,000 shares authorized; 20,148,337 and
19,859,807 shares issued and 20,037,337 and 19,782,307 shares outstanding ..... 20 20
Additional paid-in capital ....................................................... 251,584 246,471
Treasury stock, 111,000 and 77,500 shares, at cost ............................... (2,230) (1,558)
Accumulated other comprehensive loss ............................................. (339) (4)
Accumulated deficit .............................................................. (136,976) (132,201)
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Total shareholders' equity .................................................. 112,059 112,728
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................ $ 153,972 $ 157,493
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See notes to the consolidated financial statements.

ATRIX LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)

FOR THE THREE MONTHS ENDED MARCH 31,
2002 2001
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REVENUES:
Net sales and royalties ............................................... $ 1,159 $ 1,234
Contract research and development revenue ............................. 2,495 1,304
Licensing, marketing rights and milestone revenue ..................... 1,363 717
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Total revenues .............................................. 5,017 3,255
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OPERATING EXPENSES:
Cost of sales ......................................................... 530 436
Research and development .............................................. 6,561 6,224
Research and development - licensing fees ............................. -- 540
Administrative and marketing .......................................... 1,823 1,153
Administrative - stock option compensation ............................ 1,257 116
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Total operating expenses .................................... 10,171 8,469
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LOSS FROM OPERATIONS ................................................... (5,154) (5,214)
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OTHER INCOME (EXPENSES):
Equity in loss of joint venture ....................................... (410) (501)
Investment income ..................................................... 1,345 749
Interest expense ...................................................... (191) (315)
Debt conversion expense ............................................... (125) (2,039)
Other ................................................................. 2 --
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Net other income (expenses) ................................. 621 (2,106)
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LOSS BEFORE EXTRAORDINARY ITEM ......................................... (4,533) (7,320)
Extraordinary loss on extinguished debt ................................ (14) (282)
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NET LOSS ............................................................... (4,547) (7,602)
Accretion of dividends on preferred stock .............................. (228) (213)
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NET LOSS APPLICABLE TO COMMON STOCK .................................... $ (4,775) $ (7,815)
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Basic and diluted loss per common share:

Loss before extraordinary item .................................. $ (.23) $ (.52)
Extraordinary loss on extinguished debt ......................... -- (.02)
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Net loss ........................................................ (.23) (.54)
Accretion of dividends on preferred stock ....................... (.01) (.01)
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Net loss applicable to common stock ............................. $ (.24) $ (.55)
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Basic and diluted weighted average common shares outstanding .... 19,928,654 14,178,105
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See notes to the consolidated financial statements.

ATRIX LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)

FOR THE THREE MONTHS ENDED MARCH 31,
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................................... $ (4,547) $ (7,602)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization ............................................ 731 576
Amortization of deferred revenue ......................................... (1,798) (822)
Equity in loss of joint venture .......................................... 410 501
Loss on sale of marketable securities .................................... 71 --
Stock plan compensation .................................................. 1,257 116
Debt conversion expense .................................................. 125 2,039
Interest expense converted to equity ..................................... 24 --
Extraordinary loss on extinguished debt .................................. 14 282
Net changes in operating assets and liabilities:
Accounts receivable ...................................................... (662) (152)
Note receivable - licensing fee .......................................... -- 8,000
Interest receivable ...................................................... (100) 316
Inventories .............................................................. (787) (478)
Prepaid expenses and deposits ............................................ (524) (20)
Accounts payable ......................................................... 820 175
Accrued expenses and other ............................................... -- 150
Deferred revenue ......................................................... 145 1,906
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Net cash provided by (used in) operating activities ........... (4,821) 4,987
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment ............................. (1,092) (685)
Investment in intangible assets .......................................... (81) (100)
Proceeds from maturity and sale of marketable securities ................. 3,443 12,742
Investment in marketable securities ...................................... (15,531) (7,160)
Investment in joint venture .............................................. 7 --
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Net cash provided by (used in) investing activities ........... (13,254) 4,797
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of equity securities, net of issuance costs ...... 1,173 480
Payments to acquire treasury stock ...................................... (671) --
Note receivable - stock subscription .................................... -- 15,000
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Net cash provided by financing activities ..................... 502 15,480
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NET EFFECT OF EXCHANGE RATE ON CASH .............................................. (79) (147)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................. (17,652) 25,117
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................... 50,058 4,484
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CASH AND CASH EQUIVALENTS, END OF PERIOD ......................................... $ 32,406 $ 29,601
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Non-cash activities:

2002

Issued common stock valued at $2,455,785 in exchange for $2,331,000 of the 7%
Convertible Subordinated Notes.

Vested incentive stock options valued at $1,256,602 for an executive in
conjunction with his termination agreement.

2001

Issued preferred stock valued at $423,981 to Elan for accreted dividends.

Issued common stock valued at $28,101,163 in exchange for $26,062,000 of the
7% Convertible Subordinated Notes.

See notes to the consolidated financial statements.

ATRIX LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Atrix
Laboratories, Inc. and subsidiaries (collectively referred to as "Atrix" or the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim consolidated financial statements and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of
management, all adjustments considered necessary, consisting of normal recurring
accruals, for a fair presentation have been included. These consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto, for the year ended December 31, 2001,
filed with the Securities and Exchange Commission in the Company's Annual Report
on Form 10-K.

NOTE 2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Atrix Laboratories, Inc. was formed in August 1986 as a Delaware
corporation. In November 1998, the Company acquired ViroTex Corporation. In June
1999, the Company organized its wholly owned subsidiary Atrix Laboratories
Limited, which is based in London, England. In February 2000, the Company
organized its wholly owned subsidiary Atrix Laboratories GmbH, which is based in
Frankfurt, Germany, to conduct its European operations. In June 2000, the
Company entered into a research joint venture, Transmucosal Technologies, Ltd.,
with Elan International Services, Ltd. ("Elan"), a wholly owned subsidiary of
Elan Corporation, plc.

Atrix is an emerging specialty pharmaceutical company focused on
advanced drug delivery. With five unique patented drug delivery technologies,
the Company is currently developing a diverse portfolio of products, including
proprietary oncology, pain management, growth hormone releasing peptide-1, oral
interferon and dermatology products. The Company also partners with large
pharmaceutical and biotechnology companies to apply its proprietary technologies
to new chemical entities or to extend the patent life of existing products. The
Company has strategic alliances with several pharmaceutical companies to use its
drug delivery technologies and expertise in the development of new products.

SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts
of Atrix Laboratories, Inc. and its wholly owned subsidiaries Atrix Laboratories
Limited and Atrix Laboratories, GmbH. All significant intercompany transactions
and balances have been eliminated. While the Company initially owns 80.1% of
Transmucosal Technologies' outstanding common stock, Elan and its subsidiaries
have retained significant minority investor rights that are considered
"participating rights" as defined in Emerging Issues Task Force Consensus 96-16,
"Investor's Accounting for an Investee When the Investor Has a Majority of the
Voting Interest, but the Minority Shareholder or Shareholders Have Certain
Approval or Veto Rights." Elan's significant rights in Transmucosal Technologies
that are considered participating rights include equal representation in the
management of the joint venture and development of its business plan and
approval rights on the board of directors as it relates to the business plan.
Accordingly, the Company accounts for its investment in Transmucosal
Technologies under the equity method of accounting. Additionally, the joint
venture contracts with Atrix to perform certain research and development
activities. During the quarters ended March 31, 2002 and 2001, the Company
earned contract research and development revenues of $0.5 million and $0.6
million, respectively, and had receivables from the joint venture of $1.4
million at March 31, 2002. Additionally, the Company had payables to the joint
venture at March 31, 2002 of $1.2 million. During the quarters ended March 31,
2002 and 2001, the Company recognized $0.4 million and $0.5 million,
respectively, for its 80.1% share of the losses of Transmucosal Technologies.

REVENUE RECOGNITION

The Company recognizes revenue on product sales and contract
manufacturing at the time of shipment when title to the product transfers and
the customer bears risk of loss. Product sales revenue is recorded net of
estimated returns and allowances. Royalty revenue is recorded when product is
shipped by licensees based on the invoiced amount by the licensee and royalty
rates as specified in the agreement with the licensee.

All contract research and development is performed on a best effort
basis under signed contracts. Revenue under contracts with a fixed price is
recognized over the term of the agreement on a straight-line basis, which is
consistent with the pattern of work performed. Billings are made in accordance
with schedules as specified in each agreement, which generally include an
up-front payment as well as periodic payments. Advance payments are recorded as
deferred revenue. Revenue under other contracts is recognized based on terms as
specified in the contracts, including billings for time incurred at rates as
specified in the contracts and as reimbursable expenses are incurred. Such
arrangements are regularly evaluated on an individual basis. Billings under the
contracts are made either monthly or quarterly, depending on the terms of the
contract.

Nonrefundable licensing fees, marketing rights and milestone payments
received under contractual arrangements are deferred and recognized over the
remaining contractual term using the straight-line method.

RESEARCH AND DEVELOPMENT

Costs incurred in connection with research and development activities
are expensed as incurred. These costs consist of direct and indirect costs
associated with specific projects, as well as fees paid to various entities that
perform certain research on the Company's behalf. Additionally, licensing fees
paid by the Company to acquire technology are expensed as incurred if no
alternative future use exists. A portion of overhead costs is allocated to
research and development costs on a weighted-average percentage basis among all
projects under development.

NEW ACCOUNTING PRONOUNCEMENTS

On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets"
was issued by the FASB. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Goodwill and certain
intangible assets will remain on the balance sheet and not be amortized. On an
annual basis, and when there is reason to suspect that their values have been
diminished or impaired, these assets must be tested for impairment, and
write-downs may be necessary. Amortization of goodwill, including goodwill
recorded in past business combinations, ceased upon adoption of this statement.
The Company adopted SFAS No. 142 on January 1, 2002. The adoption of this
statement did not have a material impact on the Company's consolidated financial
position or results of operations.

In August 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" was issued by the FASB. SFAS No. 144 provided new
guidance on the recognition of impairment losses on long-lived assets to be held
and used or to be disposed of and also broadens the definition of what
constitutes a discontinued operation and how the results of a discontinued
operation are to be measured and presented. The Company adopted SFAS No. 144 on
January 1, 2002. The adoption of this statement did not have a material impact
on the Company's consolidated financial position or results of operations.

NOTE 3. INVENTORIES

Inventories are stated at the lower of cost, determined by the
first-in, first-out (FIFO) method, or market. The inventory components at March
31, 2002 and December 31, 2001, are as follows (in thousands):

March 31, 2002 December 31, 2001
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Raw materials $ 3,098 $ 2,399
Work in process 563 201
Finished goods 430 714
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$ 4,091 $ 3,314
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NOTE 4. NET INCOME (LOSS) PER COMMON SHARE

Basic net income (loss) per common share excludes dilution and is
computed by dividing net income (loss) by the weighted-average number of common
shares outstanding during the periods presented. Diluted net income (loss) per
common share reflects the potential dilution of securities that could
participate in the earnings. Stock options, warrants outstanding and their
equivalents are included in diluted earnings per share computations through the
"treasury stock method" unless they are antidilutive. Convertible securities are
included in diluted earnings per share computations through the "if converted"
method unless they are antidilutive. The effect of assuming conversion of the
Series A Convertible Preferred Stock is excluded from the diluted earnings per
share computations since the conversion option commences July 18, 2002.
Additionally, since the Company has not drawn any proceeds under the convertible
promissory note agreement with Elan as of March 31, 2002, there was no effect on
earnings per share computations pertaining to this convertible promissory note
for the periods presented. Common share equivalents are excluded from the
computations in loss periods, as their effect would be antidilutive. For the
three months ended March 31, 2002 and 2001, approximately 1.4 million and 1.8
million equivalent dilutive securities (primarily convertible notes and common
stock options), respectively, have been excluded from the weighted-average
number of common shares outstanding for the diluted net loss per share
computations as they are antidilutive.

NOTE 5. CONVERTIBLE SUBORDINATED NOTES PAYABLE

During the three months ended March 31, 2002, the Company exchanged
128,601 shares of its common stock for $2,331,000 of its 7% Convertible
Subordinated Notes. Of the 128,601 shares issued, 122,684 shares were valued at
the conversion price of $19.00 per share and the remaining 5,917 shares were
valued at $21.09 per share, the closing market price of the Company's common
stock on the date of exchange. As a result, the Company recognized an
extraordinary loss of approximately $14,000, for the write-off of $38,000 of pro
rata unamortized deferred finance charges net of $24,000 interest expense
payable eliminated as a result of these exchanges. Additionally, of the 5,917
shares exchanged, a debt conversion expense of approximately $125,000 was
recognized for the three months ended March 31, 2002. As of March 31, 2002 and
December 31, 2001, the outstanding principal amount of the 7% Convertible
Subordinated Notes was $2,875,000 and $5,206,000, respectively. The estimated
fair value of the notes payable, based on quoted market prices or dealer quotes,
was $3,536,000 and $5,961,000 at March 31, 2002 and December 31, 2001,
respectively.

In March 2002, the Company announced that it will call for redemption
the remainder of the outstanding 7% Convertible Subordinated Notes. The
redemption date has been set for May 15, 2002 and the notes will be redeemed at
102.25% of the outstanding principal amount of the notes plus accrued interest
through the day prior to the redemption date. No interest will accrue after the
redemption date. As a result, these notes have been classified as a current
liability in the March 31, 2002 balance sheet.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

The following Management's Discussion and Analysis of Financial
Condition and Results of Operations, as well as information contained elsewhere
in this Report, contains statements that constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements include statements
regarding the intent, belief or current expectations of us, our directors or our
officers with respect to, among other things: (1) whether we will receive, and
the timing of, regulatory approvals or clearances to market potential products;
(2) the results of current and future clinical trials; (3) the time and expenses
associated with the regulatory approval process for products; (4) the safety and
effectiveness of our products and technologies; (5) the timing of new product
launches; and (6) expected future additional equity losses for Transmucosal
Technologies. The success of our business operations is dependent on factors
such as the receipt and timing of regulatory approvals or clearances for
potential products, the effectiveness of our marketing strategies to market our
current and any future products, our ability to manufacture products on a
commercial scale, the appeal of our mix of products, our success at entering
into and collaborating with others to conduct effective strategic alliances and
joint ventures, general competitive conditions within the biotechnology and drug
delivery industry and general economic conditions. Forward-looking statements
are not guarantees of future performance and involve risks and uncertainties.
Actual results may differ materially from those projected in the forward-looking
statements as a result of various factors, including those described below under
"Item 1.--Business--Factors Affecting Our Business and Prospects" in our Annual
Report on Form 10-K for the year ended December 31, 2001.

OVERVIEW

We are an emerging specialty pharmaceutical company focused on advanced
drug delivery. With five unique patented drug delivery technologies, we are
currently developing a diverse portfolio of products, including proprietary
oncology, pain management, growth hormone releasing peptide-1, oral interferon
and dermatology products. We also form strategic alliances with large
pharmaceutical and biotechnology companies utilizing our various drug delivery
systems. These strategic alliances include collaborations with Pfizer, Inc.,
Sanofi-Synthelabo, Inc., MediGene AG, Fujisawa Healthcare, Inc., Elan
International Services, Ltd., Geneva Pharmaceuticals, Inc. and CollaGenex
Pharmaceuticals, Inc.

Our drug delivery systems deliver controlled amounts of drugs in time
frames ranging from minutes to months to address a range of therapeutic and
patient needs. Atrigel is our original proprietary sustained release
biodegradable polymer drug delivery system. The Atrigel system may provide
benefits over traditional methods of drug administration such as safety and
effectiveness, wide array and ease of applications, site-specific or systemic
delivery, customized release rates and biodegradability. With the acquisition of
ViroTex Corporation in November 1998, we added four additional drug delivery
systems: BEMA(TM), SMP(TM), MCA(TM) and BCP(TM).

In January 2002, we received approval from the United States Food and
Drug Administration, or FDA, for our Eligard(TM) 7.5-mg one-month product, a
once-a-month subcutaneous injection for the treatment of advanced prostate
cancer. We anticipate the marketing launch to commence in the third quarter of
2002.

In January 2002, Sanofi-Synthelabo exercised its right to develop a
unique dosage formulation of Eligard for the treatment of prostate cancer. Under
the terms of our agreement with Sanofi-Synthelabo, we will receive reimbursement
for research and development expenses relating to the unique dosage formulation
of Eligard and we expect to submit an Investigational New Drug Application, or
IND, to the FDA this year. Additionally, we will receive payments for certain
regulatory and sales milestones, a royalty based on sales of the product and a
manufacturing margin.

Additionally, in January 2002, we submitted an Abbreviated New Drug
Application, or ANDA, to the FDA for approval of a generic equivalent to an
undisclosed topical dermatology product.

In March 2002, we entered into an exclusive licensing agreement with
Luxembourg Pharmaceuticals Ltd. for the Israeli marketing rights of our four
Eligard products. Under the terms of the agreement, we will receive a royalty on
net sales and a manufacturing margin. Luxembourg Pharmaceuticals will be
responsible for regulatory submissions and any studies that may be necessary to
gain approval with the Israeli regulatory authorities.

In March 2002, we commenced Phase II clinical trials for a proprietary
formulation of a low-dose oral interferon-alpha product for the treatment of
oral warts caused by human papilloma virus in HIV-infected patients. We also
announced that we received positive clinical data from the first Phase III
clinical trial of Atrisone(TM) for the treatment of acne. We expect to commence
a second Phase III clinical trial in the second quarter of 2002.

Also in March 2002, we called for redemption the remainder of our 7%
Convertible Subordinated Notes due 2004. The redemption date has been set for
May 15, 2002. The redemption will clear $2.875 million in debt remaining from
our original public offering of $50.0 million in 7% Convertible Subordinated
Notes issued in November 1997. The notes called for redemption will be redeemed
at 102.25% of the outstanding principal amount of the notes plus accrued
interest through the day prior to the date of redemption. The notes called for
redemption may be converted into shares of our common stock prior to the date of
redemption at a $19.00 per share conversion price.

In April 2002, we announced our plans to expand our manufacturing and
laboratory facilities to support current and future projects. Our current 26,000
square foot facility will be expanded to a 58,000 square foot building. In the
expanded facility we intend to produce the full line of our Eligard prostate
cancer products, Atrisone topical dermatological product, generic dermatology
products, dental products, and clinical supplies for future products currently
in development. Approximately 40% of the building expansion will be devoted to
production with the remainder allotted for warehousing, quality assurance and
laboratory work. Construction is expected to begin in the second quarter of 2002
and end by late December 2002. Once the building is complete, an extensive FDA
certification of the plant and equipment is required, which could take up to
five months.

In April 2002, we also submitted a New Drug Application, or NDA, to the
FDA for our Eligard 30-mg four-month leuprolide acetate depot product for the
treatment of advanced prostate cancer. In addition, we announced that MediGene,
our European marketing partner, submitted a Marketing Authorization Application
for the Eligard 22.5-mg three-month product to the German regulatory authority,
Bundesinstitut fur Arzneimittel und Medizinprodukte, as the reference member
state under a mutual recognition process.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO
THREE MONTHS ENDED MARCH 31, 2001

Total revenues for the three months ended March 31, 2002 were $5.0
million compared to $3.3 million for the three months ended March 31, 2001,
representing a 52% increase.

Net sales and royalties were $1.2 million during the three months ended
March 31, 2002 compared to $1.2 million for the three months ended March 31,
2001. We expect sales and royalty revenues to increase in 2002 as a result of
the commencement of our anticipated third quarter 2002 marketing launch of our
Eligard 7.5-mg one-month product and possibly our Eligard 22.5-mg three-month
product, if the FDA approves the NDA for this product.

Contract research and development revenue represents revenue we earned
from unaffiliated third parties and from our joint venture with Elan for
performing contract research and development activities using our various
patented drug delivery technologies. Contract research and development revenue
was $2.5 million for the three months ended March 31, 2002 compared to $1.3
million for the three months ended March 31, 2001, representing a 92% increase.
This increase is primarily related to the recognition of $0.8 million in revenue
from Fujisawa for the three months ended March 31, 2002. Additionally, research
activities funded by other parties increased by $0.4 million. We expect contract
research and development revenue to increase in 2002 as a result of Fujisawa's
partial

funding of Atrisone costs over the full year in 2002 compared to six months in
2001 and also as a result of Sanofi-Synthelabo's funding of an Eligard unique
dosage formulation product beginning in January 2002.

Licensing, marketing rights and milestone revenue for the three months
ended March 31, 2002 was $1.4 million compared to $0.7 million for the three
months ended March 31, 2001, representing a 100% increase. This increase is
primarily related to the recognition of $0.2 million in additional license fee
and milestone revenue for our Eligard products under the Sanofi-Synthelabo and
MediGene agreements and also to the recognition of $0.4 million additional
revenue for the net effects of our 2001 amended agreement with Block Drug
Corporation and the subsequent agreement with CollaGenex. The net effects of the
amended Block agreement and the subsequent agreement with CollaGenex to transfer
U.S. marketing rights of our dental products will be recognized as revenue over
the term of the respective agreements using the straight-line method. We expect
licensing, marketing and milestone revenue to increase in 2002 as a result of
the combined $10.0 million for 2001 licensing and milestone payments received
from Sanofi-Synthelabo, MediGene and Fujisawa being recognized over a full year
in 2002 compared to a partial year of recognition in 2001. Additionally,
licensing, marketing and milestone revenue is expected to increase in 2002 as a
result of a full year of accelerated revenue recognition of the net effects
related to the Block agreement in 2002 compared to four months of increased
revenue recognition in 2001. Potential 2002 marketing and milestone payments
from Sanofi-Synthelabo include FDA acceptance of Eligard 30-mg four-month, first
commercial sales of Eligard 7.5-mg one-month and first commercial sales of
Eligard 22.5-mg three-month upon FDA approval. These potential marketing and
milestone payments from Sanofi-Synthelabo will be recognized as revenue over the
remaining term of the agreement using the straight-line method should we achieve
these marketing and milestone events.

Cost of sales for the three months ended March 31, 2002 was $0.5
million compared to $0.4 million for the three months ended March 31, 2001,
representing a 25% increase. While overall sales levels were flat for the three
months ended March 31, 2002 compared to the three months ended March 31, 2001,
the increase in cost of sales was the result of an increase in lower-margin
product sales and a decrease in higher-margin product sales. We expect that cost
of sales will increase in the future proportionately to our increases in sales,
including the commencement of Eligard 7.5-mg one-month sales and possibly the
commencement of Eligard 22.5-mg three-month sales, if the FDA approves the NDA
for the Eligard 22.5-mg three-month product.

Research and development expenses excluding research and development
licensing fees for the three months ended March 31, 2002 were $6.6 million
compared to $6.2 million for the three months ended March 31, 2001, representing
a 6% increase. An increase of $0.6 million was related to the progress in the
development in our Atrisone acne product. An increase of $0.5 million was
related to research activities for the growth hormone releasing peptide-1, or
GHRP-1, product. Additionally, an increase of $0.4 million was related to our
research and development activities for various BEMA products. These increases
were offset by a decrease in research and development of $1.3 million on the
Eligard products as a result of clinical study completions. We expect that our
partner funded research and development expenses will increase for the
foreseeable future as we continue to develop the products that we currently have
under collaborative agreements, as new products are developed and as new
agreements are entered. Additionally, we expect our research and development
expenses for our internally funded activities will continue to increase for the
foreseeable future as we continue to develop our current products, as well as
continue to engage in new product discovery and development activities.

Research and development - licensing fees for the three months ended
March 31, 2001 was $0.5 million, which represents licensing fees paid to Tulane
University for GHRP-1. These fees were expensed as incurred, as the technology
licensed was for research and development purposes with no future alternative
uses. We did not incur any licensing fees during the three months ended March
31, 2002. We may, in the future, incur additional costs for the acquisition of
licenses; however, we cannot predict if or when that may happen or what the cost
may be.

Administrative and marketing expenses for the three months ended March
31, 2002 were $1.8 million compared to $1.2 million for the three months ended
March 31, 2001, representing a 50% increase. This increase was primarily related
to an increase in legal expenses associated with general business planning and
activities, including fees for patent and trademark searches. The increase is
also due to the addition of administrative personnel, expenses incurred to
recruit additional scientific personnel and increased sales and marketing
expenses for our international operations. We expect that our administrative and
marketing expenses will increase for the foreseeable future as we continue to
grow and additional support is required.

Administrative - stock option compensation for the three months ended
March 31, 2002 was $1.3 million, which was recognized in connection with the
retirement of an executive officer. Stock compensation expense for the three
months ended March 31, 2001 was $0.1 million for the issuance of non-qualified
stock options. We may, in the future, incur additional costs for stock
compensation activities; however, we cannot predict if or when that may happen
or what the cost may be.

We recognized a loss of $0.4 million for the three months ended March
31, 2002 for our 80.1% equity share in the loss of Transmucosal Technologies,
our joint venture with Elan, compared to a loss of $0.5 million for the three
months ended March 31, 2001. We expect to record additional equity losses for
Transmucosal Technologies in the foreseeable future.

Investment income for the three months ended March 31, 2002 was $1.3
million compared to $0.7 million for the three months ended March 31, 2001,
representing an 86% increase. The increase was primarily the result of an
increase in our average cash and cash equivalents and our marketable securities
for the three months ended March 31, 2002 compared to the average balances for
the three months ended March 31, 2001. We expect investment income to increase
in 2002 as a result of higher average cash and cash equivalents and marketable
securities balances for 2002 compared to 2001. The expected higher balances are
primarily due to two underwritten public common stock offerings in 2001
resulting in net proceeds of $87.7 million.

Interest expense for the three months ended March 31, 2002 was $0.2
million compared to $0.3 million for the three months ended March 31, 2001,
representing a 33% decrease. The reduction in interest expense was primarily the
result of exchanging 394,664 shares of our common stock for $7.3 million of our
7% Convertible Subordinated Notes since the period ended March 31, 2001.

During the three months ended March 31, 2002 we exchanged 128,601
shares of our common stock for $2.3 million of our 7% Convertible Subordinated
Notes. Of the 128,601 shares issued, 122,684 shares were valued at the
conversion price of $19.00 per share and the remaining 5,917 shares were valued
at $21.09 per share, the closing market price of our common stock on the date of
exchange. As a result, we recognized an extraordinary loss of approximately
$14,000, for the write-off of $38,000 of pro rata unamortized deferred finance
charges net of $24,000 interest expense payable eliminated as a result of these
exchanges. Additionally, of the 5,917 shares exchanged, a debt conversion
expense of approximately $0.1 million was recognized for the three months ended
March 31, 2002. As of March 31, 2002 and December 31, 2001, the outstanding
principal amount of the 7% Convertible Subordinated Notes was $2.9 million and
$5.2 million, respectively. In comparison, during the three months ended March
31, 2001, we exchanged 1,459,672 shares of our common stock for $26.1 million of
the 7% Convertible Subordinated notes. As a result of this exchange, we
recognized a non-cash charge for debt conversion expense of $2.0 million and
$0.3 million for extraordinary loss on extinguished debt during the quarter
ended March 31, 2001. In March 2002, we announced that we will call for
redemption the remainder of the outstanding 7% Convertible Subordinated Notes.
The redemption date has been set for May 15, 2002 and the notes will be redeemed
at 102.25% of the outstanding principal amount of the notes plus accrued
interest through the day prior to the redemption date. No interest will accrue
after the redemption date.

We issued Series A convertible exchangeable preferred stock to Elan in
July 2000 in connection with the formation of our joint venture with Elan.
Related to this issuance, we recognized $0.2 million for accretion of dividends
on preferred stock for the three months ended March 31, 2002 compared to $0.2
million for the three months ended March 31, 2001.

For the reasons described above, we recorded a consolidated net loss
applicable to common stock of $4.8 million, or $0.24 per share, for the three
months ended March 31, 2002 compared to a consolidated net loss applicable to
common stock of $7.8 million, or $0.55 per share, for the three months ended
March 31, 2001.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2002, we had cash and cash equivalents of $32.4
million, marketable securities (at fair value) of $99.5 million, net accounts
receivable of $4.2 million, inventories of $4.1 million and other current assets
of $2.2 million for total current assets of $142.4 million. We had accounts
payable of $4.3 million, short-term

deferred revenue of $7.0 million, convertible subordinated notes payable of $2.9
million and other current liabilities of $0.6 million for total current
liabilities of $14.8 million, which resulted in working capital of $127.6
million.

During the three months ended March 31, 2002, net cash used in
operating activities was $4.8 million. This was primarily the result of the net
loss for the period of $4.5 million, adjusted for certain non-cash expenses, and
changes in operating assets and liabilities as set forth in the consolidated
statements of cash flows. We recognized a non-cash charge of $1.3 million for
the vesting of incentive stock options in conjunction with the retirement of an
executive officer. Additionally, we recognized non-cash charges for debt
conversion expense of $0.1 million and approximately $14,000 as an extraordinary
loss on extinguished debt during the three months ended March 31, 2002 for the
exchange of 128,601 shares of our common stock to extinguish $2.3 million of our
7% Convertible Subordinated Notes.

Net cash used in investing activities was $13.3 million during the
three months ended March 31, 2002, primarily as a result of investing $15.5
million in various marketable securities available-for-sale during the first
quarter of 2002.

Net cash provided by financing activities was $0.5 million during the
three months ended March 31, 2002. This increase is primarily the result of two
former executives exercising a combined total of 125,000 incentive stock
options. In September 2001, our Board of Directors approved a stock repurchase
program to acquire up to $5 million of our common stock. As of March 31, 2002,
we repurchased a total of 111,000 shares of our common stock in the open market
with an average share price of $20.09 for a total stock repurchase value of $2.2
million. This program expires in December 2002.

In November 1997, we issued $50.0 million in principal amount of our 7%
Convertible Subordinated Notes. Interest is payable semi-annually and the notes
mature on December 1, 2004. The notes are convertible, at the option of the
holder, into common stock at a conversion price of $19.00 a share, subject to
adjustment in certain events. The notes are redeemable, in whole or in part, at
our option at any time on or after December 5, 2000. During the three months
ended March 31, 2002 we exchanged 128,601 shares of our common stock for $2.3
million of our 7% Convertible Subordinated Notes. Of the 128,601 shares issued,
122,684 shares were valued at the conversion price of $19.00 per share and the
remaining 5,917 shares were valued at $21.09 per share, the closing market price
of our common stock on date of exchange. As a result, we recognized an
extraordinary loss of approximately $14,000, for the write-off of $38,000 of pro
rata unamortized deferred finance charges net of $24,000 interest expense
payable eliminated as a result of these exchanges. Additionally, of the 5,917
shares exchanged, a debt conversion expense of approximately $0.1 million was
recognized for the three months ended March 31, 2002. As of March 31, 2002 and
December 31, 2001, the outstanding principal amount of the 7% Convertible
Subordinated Notes was $2.9 million and $5.2 million, respectively. In March
2002, we announced that we will call for redemption the remainder of the
outstanding 7% Convertible Subordinated Notes. The redemption date has been set
for May 15, 2002 and the notes will be redeemed at 102.25% of the outstanding
principal amount of the notes plus accrued interest through the day prior to the
redemption date. No interest will accrue after the redemption date. As a result,
these notes have been classified as a current liability in the March 31, 2002
balance sheet.

In July 2000, we formed Transmucosal Technologies, a joint venture,
with Elan to develop and commercialize oncology and pain management products.
Subject to the satisfaction of certain conditions, Elan has agreed to loan us up
to $8.0 million under a convertible promissory note agreement in support of our
80.1% share of the joint venture's research and development costs. The note has
a six-year term, will accrue interest at 7% per annum, compounded semi-annually
and added to principal, and is convertible at Elan's option into our common
stock at a $14.60 conversion price. As of March 31, 2002, we had not drawn any
amounts under the note. We are required to fund our 80.1% share of the joint
venture's obligations, and this cash funding totaled approximately $7,000 for
the quarter ended March 31, 2002 and no cash funding for the quarter ended March
31, 2001. Our future funding obligations are expected to be consistent with the
funding in 2001.

We have historically funded our operations through debt and equity
offerings, payments received for licenses, milestones and research and
development support under contractual arrangements and, to a lesser extent,
product sales and royalties. Additionally, we have historically incurred
operating losses and expect to continue to incur operating losses for the
foreseeable future. At March 31, 2002, we had $32.4 million of cash and cash
equivalent investments and $99.5 million of available-for-sale marketable
securities (at fair value) to fund future

operations and capital requirements. Our available-for-sale marketable
securities are primarily in investment grade corporate notes and U.S. government
bonds and bond funds. Our portfolio of corporate notes is diversified and, under
our policy, we only invest in investment grade corporate notes. We believe the
quality of the notes we hold and the diversity of our portfolio significantly
mitigates our market risk. We believe that we have adequate liquidity and
capital resources to fund our operations and capital requirements for the
foreseeable future. However, we may have to raise additional funds to complete
the development of our technologies as discussed below.

FUTURE CAPITAL REQUIREMENTS

Our long-term capital expenditure requirements will depend on numerous
factors, including:

o the progress of our research and development programs,

o the time required to file and process regulatory approval
applications,

o the development of our commercial manufacturing facilities,

o our ability to obtain additional licensing arrangements, and

o the demand for our products.

We expect to continue to incur substantial expenditures for research
and development, testing, regulatory compliance, market development in European
countries, possible repurchases of our common stock and to hire additional
management, scientific, manufacturing and administrative personnel. We will also
continue to expend a significant amount of funds for our ongoing clinical
studies. Depending on the results of our research and development activities, we
may determine to accelerate or expand our efforts in one or more proposed areas
and may, therefore, require additional funds earlier than previously
anticipated. We believe the existing cash and cash equivalent assets in addition
to marketable security resources will be sufficient to fund our operations for
the foreseeable future. However, we cannot assure you that underlying assumed
levels of revenue and expense will prove accurate.

In April 2002, we announced our plans to expand our manufacturing and
laboratory facilities to support current and future projects. The current 26,000
square foot facility will be expanded to a 58,000 square foot building. In the
expanded facility we intend to produce the full line of Eligard prostate cancer
products, Atrisone topical dermatological product, generic dermatology products,
dental products, and clinical supplies for future products currently in
development. Approximately 40% of the building expansion will be devoted to
production with the remainder allotted for warehousing, quality assurance and
laboratory work. Construction is expected to begin in the second quarter of 2002
and end by late December 2002. Construction costs are estimated to be
approximately $5.5 million with additional expenditures to be incurred as needed
for equipment.

RECENT ACCOUNTING PRONOUNCEMENTS

On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets"
was issued by the FASB. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Goodwill and certain
intangible assets will remain on the balance sheet and not be amortized. On an
annual basis, and when there is reason to suspect that their values have been
diminished or impaired, these assets must be tested for impairment, and
write-downs may be necessary. Amortization of goodwill, including goodwill
recorded in past business combinations, ceased upon adoption of this statement.
We adopted SFAS No. 142 on January 1, 2002. The adoption of this statement did
not have a material impact on our consolidated financial position or results of
operations.

In August 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" was issued by the FASB. SFAS No. 144 provided new
guidance on the recognition of impairment losses on long-lived assets to be held
and used or to be disposed of and also broadens the definition of what
constitutes a discontinued operation and how the results of a discontinued
operation are to be measured and presented. We adopted SFAS No. 144 on January
1, 2002. The adoption of this statement did not have a material impact on our
consolidated financial position or results of operations.

CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are described in Note 1 to the
Consolidated Financial Statements included in our Annual Report on Form 10-K for
the year ended December 31, 2001. The accounting policies used in preparing our
interim consolidated financial statements for the quarter ended March 31, 2002
are the same as those described in our Annual Report on Form 10-K.

Our critical accounting policies are those having the most impact to
the reporting of our financial condition and results and those requiring
significant judgments and estimates. Our critical accounting policies, which are
included in Note 2 in the notes to the accompanying financial statements,
include those related to (1) principles of consolidation, (2) revenue
recognition and (3) research and development. With respect to these critical
accounting policies, our management believes that the application of judgments
and assessments is consistently applied and produces financial information,
which fairly depicts the results of operations for all periods presented.

FACTORS AFFECTING OUR BUSINESS AND PROSPECTS

There are many factors that affect our business and the results of our
operations, some of which are beyond our control. These factors include:

o Our history of operating losses and the likelihood of future
losses.

o Delay, difficulty, or failure in obtaining regulatory approval or
clearance to market additional products, including delays or
difficulties in development because of insufficient proof of
safety or efficacy.

o Failure of corporate partners to develop or commercialize
successfully our products or to retain and expand markets served
by the commercial collaborations; conflicts of interest,
priorities, and commercial strategies that may arise between us
and such corporate partners.

o Our limited experience in the sale and marketing of our products.

o Competitive or market factors that may limit the use or broad
acceptance of our products.

o Cancellation or termination of material collaborative agreements
and the resulting loss of research or other funding, or
marketing, sales and distribution capabilities.

o Exchange rate fluctuations that may adversely impact net income
(loss).

o The ability to obtain, maintain and protect intellectual property
rights, and the cost of acquiring in-process technology and other
intellectual property rights, either by license, collaboration or
purchase of another entity.

o Limited experience in manufacturing products on a commercial
scale, failure to manufacture present and future products in
compliance with applicable regulations and at an acceptable cost.

o Product liability or other claims against us which may result in
substantial damages or reduce demand for our products.

o The ability to attract and retain highly qualified management,
administrative and scientific personnel.

For a discussion of these and other factors affecting our business and
prospects, see "Item 1.--Business--Factors Affecting our Business and Prospects"
in our Annual Report on Form 10-K for the year ended December 31, 2001.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES CONCERNING MARKET RISKS.

We own financial instruments that are sensitive to market risks as part
of our investment portfolio of cash equivalents and marketable securities. The
investment portfolio is used to preserve our capital until it is required to
fund operations, including our research and development activities. None of
these market-risk sensitive instruments are held for trading purposes and we do
not own derivative financial instruments. Our investment portfolio contains
instruments that are primarily subject to interest rate risk. Our 7% Convertible
Subordinated Notes are also subject to interest rate and equity price risks.

Interest Rate Risk. Our investment portfolio includes fixed rate debt
instruments that are primarily United States government and agency bonds and
corporate notes with maturity dates ranging from one to fifteen years. To
mitigate the impact of fluctuations in cash flow, we maintain substantially all
of our debt instruments as fixed rate. The market value of these bonds is
subject to interest rate risk and could decline in value if interest rates
increase. The portion maintained as fixed rate is dependent on many factors
including judgments as to future trends in interest rates.

Our investment portfolio also includes equity interests in United
States government and agency bond mutual funds. The value of these equity
interests is also subject to interest rate risk.

We regularly assess the above described market risks and have
established policies and business practices to protect against the adverse
effects of these and other potential exposures. Our investment policy restricts
investments to U.S. government or government-backed securities or to high rated
commercial paper and other high rated investments only. As a result, we do not
anticipate any material credit losses in these areas.

For disclosure purposes, we use sensitivity analysis to determine the
impacts that market risk exposures may have on the fair values of our debt and
financial instruments. The financial instruments included in the sensitivity
analysis consist of all of our cash and cash equivalents and short-term and
long-term debt instruments.

To perform a sensitivity analysis, we assess the risk of loss in fair
values from the impact of hypothetical changes in interest rates on market
sensitive instruments. The fair values are computed based on the present value
of future cash flows as impacted by the changes in the rates attributable to the
market risk being measured. The discount rates used for the present value
computations were selected based on market interest rates in effect at March 31,
2002. The fair values that result from these computations are compared with the
fair values of these financial instruments at March 31, 2002. The differences in
this comparison are the hypothetical gains or losses associated with each type
of risk. The results of the sensitivity analysis at March 31, 2002 are as
follows:

Interest Rate Sensitivity: A 10% decrease in the levels of interest
rates with all other variables held constant would result in an
increase in the fair value of our financial instruments by
approximately $0.5 million per year. A 10% increase in the levels of
interest rates with all other variables held constant would result in a
decrease in the fair value of our financial instruments by
approximately $0.5 million per year. We maintain a portion of our
financial instruments, including long-term debt instruments of
approximately $13.5 million at March 31, 2002, at variable interest
rates. If interest rates were to increase or decrease 10%, the impact
of such instruments on cash flows or earnings would not be material.

The use of a 10% estimate is strictly for estimation and evaluation
purposes only. The value of our assets may rise or fall by a greater amount
depending on actual general market performances and the value of individual
securities we own.

The market price of our 7% Convertible Subordinated Notes generally
changes in parallel with the market price of our common stock. When our stock
price increases, the price of these notes generally increases proportionally.
Fair market price of the notes can be determined from quoted market prices,
where available. The fair value of our long-term debt was estimated to be
approximately $3.5 million at March 31, 2002 and is higher than the carrying
value by approximately $0.7 million. Market risk was estimated as the potential
decrease in fair value resulting from a hypothetical 1% increase in our weighted
average long-term borrowing rate and a 1% decrease in quoted market prices, or
approximately $58,000.

Exchange Rate Risk. We face foreign exchange rate fluctuations,
primarily with respect to the British Pound and the Euro, as the financial
results of our foreign subsidiaries are translated into United States dollars
for consolidation. As exchange rates vary, these results when translated, may
vary from expectations and adversely impact net income (loss) and overall
profitability. The effect of foreign exchange rate fluctuation for the period
ended March 31, 2002 was not material. Based on our overall foreign currency
rate exposure at March 31, 2002, we do not believe that a hypothetical 10%
change in foreign currency rates would materially affect our financial position.

PART II - OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

During the three months ended March 31, 2002 we exchanged 128,601
shares of our common stock for $2.3 million of our 7% Convertible Subordinated
Notes. Of the 128,601 shares issued, 122,684 shares were valued at the
conversion price of $19.00 per share and the remaining 5,917 shares were valued
at $21.09 per share, the closing market price of our common stock on the date of
exchange. As a result, we recognized an extraordinary loss of approximately
$14,000, for the write-off of $38,000 of pro rata unamortized deferred finance
charges net of $24,000 interest expense payable eliminated as a result of these
exchanges. Additionally, of the 5,917 shares exchanged, a debt conversion
expense of approximately $0.1 million was recognized for the three months ended
March 31, 2002. As of March 31, 2002 the outstanding principal amount of the 7%
Convertible Subordinated Notes was $2.9 million. Because this transaction
constituted an exchange of securities by us exclusively with existing security
holders, where no commission or other remuneration was paid or given for
soliciting such exchange, the transactions were exempt from registration under
the Securities Act of 1933 under Section 3(a)(9) of the Securities Act.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.

None.

(b) Reports on Form 8-K: We filed the following Current Reports on Form
8-K during the quarter ended March 31, 2002:

o Current Report on Form 8-K dated January 24, 2002, filed with the
Securities and Exchange Commission on February 5, 2002, under
Item 5. Other Events, and Item 7. Exhibits.

o Current Report on Form 8-K dated March 6, 2002, filed with the
Securities and Exchange Commission on March 6, 2002, under Item
5. Other Events, and Item 7. Exhibits.

SIGNATURES

Pursuant to the requirements 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.

ATRIX LABORATORIES, INC.
(Registrant)

April 29, 2002 By: /s/ Brian G. Richmond
-------------------------------------
Brian G. Richmond
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Chief
Accounting Officer)